TO: COMPANY ANNOUNCEMENTS OFFICE ASX LIMITED ...2015/09/30 · TO: COMPANY ANNOUNCEMENTS OFFICE ASX LIMITED DATE: 30 September 2015 2015 Annual Report Attached is the 2015 Annual

TO: COMPANY ANNOUNCEMENTS OFFICEASX LIMITED

DATE: 30 September 2015

2015 Annual Report

Attached is the 2015 Annual Report of SECOS Group Ltd and its Controlled Entities.

In finalizing the 30 June 2015 financial report and related audit, it was determined that a number of adjustmentswere required to the information and results that were previously reported in the Appendix 4E lodged on 31August 2015: These adjustments are summarised below:

1. Investment in joint venture entity-Akronn Industries Sdn Bhd that was accounted for using the equity methodhas been valued at NIL based on revised financial information received from the joint venture entity. Thisresulted in a decrease in reported consolidated net assets of $85,380 and a corresponding decrease inequity by the same amount.

2. Impairment of loans of $345,710 advanced by Stellar Films Group Pty Ltd to Akrronn Industries Sdn Bhd.This has resulted in an increase in reported losses of $345,710 and a corresponding decrease in reportednet assets of the same amount.

3. Adjustment to the acquisition-date fair value of the consideration transferred in relation to reverse acquisitionwith Stellar Film Group Companies. Following the principles of Accounting Standard-AASB 3-“BusinessCombination”, the consideration amount was reduced to $6,378,456; which had the effect of decreasingreported Goodwill (and net assets) by $1,379,375 and a corresponding decrease in equity of the sameamount.

REKHA BHAMBHANICompany Secretary

For

per

sona

l use

onl

y

ACN 064 755 237

SECOS GROUP LIMITED AND ITS CONTROLLED ENTITIES

(ASX: SES)

ANNUAL REPORT 2015

For

per

sona

l use

onl

y

CONTENTS

SECOS GROUP LIMITED AND ITS CONTROLLED ENTITIES - 1 -

PAGE

CORPORATE DIRECTORY 2

CHAIRMAN’S REPORT 3

DIRECTORS’ REPORT 4

AUDITOR'S INDEPENDENCE DECLARATION 23

FINANCIAL STATEMENTS

STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME 24 STATEMENT OF FINANCIAL POSITION 26 STATEMENT OF CHANGES IN EQUITY 27 STATEMENT OF CASH FLOWS 28 NOTES TO THE FINANCIAL STATEMENTS 29

DIRECTORS’ DECLARATION 66

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS 68

SHAREHOLDERS’ INFORMATION 71

For

per

sona

l use

onl

y

CORPORATE DIRECTORY


Directors: Richard Tegoni (Chairman) Stephen Walters (Managing Director) Frank Glatz (Chief Operating Officer) Trevor Haines (Chief Financial Officer)

Company Secretary: Rekha Bhambhani

Registered Office: Suite 6, Level 2 205-211 Forster Road Mount Waverley VICTORIA 3149 Telephone (03) 85666800 Facsimile (03) 95620422 Email: [email protected]

Share Registry: Advanced Share Registry Limited 110 Stirling Highway, NEDLANDS W.A.-6009 Telephone: +61 8 9389 8033

Facsimile +61 8 92623723 Bankers: Bank of Melbourne Level 8, 530 Collins Street, MELBOURNE VIC 3000 Auditors: William Buck Level 20, 181 William Street, MELBOURNE, VIC 3000

Lawyers: CBW Partners Level 1, 159 Dorcas Street, South Melbourne, VIC 3205

Stock Exchange: Australian Securities Exchange Exchange Centre 20 Bridge Street, Sydney NSW 2000

Corporate Website: www.cardiabiplastics.com Ecommerce Website: www.cardiabioproducts.com

Corporate Governance Statement: The Corporate Governance Statement was approved by the Board of Directors on 30 September 2015 and can be found on the Invest page at www.cardiabioplastics.com

For

per

sona

l use

onl

y

CHAIRMAN’S REPORT


Dear Shareholders,

On behalf of the Board of SECOS Group Ltd (“SECOS” or the Company”) I am very pleased to present the Audited Annual Report for the year ending 30 June 2015.

2015 represented a year of significant transformation for the Company. SECOS was formed through the merger of Cardia Bioplastics (“Cardia”) and Stellar Films Group (“Stellar”) in April 2015 to become a leader in sustainable packaging with our core market segments being Films & Packaging and Waste Management Solutions.

SECOS has the technology and capability to produce the highest quality sustainable cast films made from renewable resources and tailored to the global personal care and hygiene market. The Company’s manufacturing operations are located in Melbourne, Australia, Kuala Lumpur, Malaysia and Nanjing, China. SECOS annual production capacity is 7,200 tonnes of bioplastics resins and 15,000 tonnes of cast film and 2,000 tonnes of blown film and finished products with cost effective capacity expansion options. The group supplies some of the world’s largest brand owners, retailers and packaging companies with high quality films and is now well positioned to meet the growing demand for sustainable plastic products within this segment.

The merger and business transformation was supported by an oversubscribed $3.2million capital raising completed in June 2015. Funds were immediately utilised to expand working capital, and to finance merger integration costs and The increased working capital position has resulted in a rapid expansion of sales across all business units and is expected to expand further throughout the year from the uptake of the group’s trademark Biohybrid™ films.

SECOS’ sustainable packaging strategy sits at the centre of the group’s business plan with Cardia Bioplastics providing the technology and expertise in the rapidly growing plastics made from renewable resources market. The manufacture of compostable and Biohybrid™ resins at the group’s China plant provides an important supply chain component for the production of high quality sustainable films produced at the group’s cast film plants. This vertical integration enables SECOS to produce consistently high quality, low cost sustainable hygiene films for supply to tier one global hygiene product companies around the world. Sustainable packaging must compete with traditional plastics using more than just its environmental credentials and SECOS has the technology and business model to do just that. SECOS can provide consistently high quality sustainable resin and film which can compete with traditional plastics on price, softness, strength and performance while meeting customer demands to be more environmentally friendly.

SECOS’ business unit, Cardia Bioplastics, has been successful in securing sales of compostable waste diversion bags to over ten Victorian councils and now supplies up to 5% of all households in Victoria with its compostable kitchen tidy bags. SECOS will continue to work closely with Councils and waste management companies to expand the rollout of waste diversion programmes. Waste diversion programmes are expected to significantly reduce the amount of organic waste being dumped into landfills which has hazardous consequences on the environment and our community.

The merger and restructure of the group’s key assets and capital raising initiatives throughout the year has been a monumental task. However with many of these major milestones behind us SECOS management can now continue to focus on expanding its position as a world leader in sustainable packaging. I would like to thank the SECOS Board, staff and shareholders for their continued support and commitment to the group.

Richard Tegoni Chairman F

or p

erso

nal u

se o

nly

DIRECTORS’ REPORT


The Directors present their report on the consolidated entity consisting of SECOS Group Limited (“SECOS” or the “Company”) and the entities it controlled (“the Group”) at the end of, or during, the year ended 30 June 2015.

DIRECTORS

The following persons were Directors of SECOS during the financial year and up to the date of this report:

Richard Tegoni (Chairman) Stephen Walters (Managing Director, Appointed 21 April 2015) Frank Glatz (Chief Executive Officer) Trevor Haines (Chief Financial Officer, Appointed 21 April 2015) Steve Bendel (Resigned 21 April 2015) Gideon Meltzer (Appointed 7 November 2013, Resigned 24 August 2015)

COMPANY SECRETARY

The Company Secretary is Rekha Bhambhani, B.Com, ACIS, ASA, ACA (ICAI), DISA (ICAI) who was appointed to the position on 10 August 2010. Miss Bhambhani had been Chief Financial Officer of Cardia for the last 9 years and has also worked as an assistant with the previous Company Secretary- Mr John Wilson on company secretarial matters. Prior to that, she has worked in accounting and finance positions in India for more than 8 years.

PRINCIPAL ACTIVITIES

During the year, activities were directed towards the development of the Bioplastics business and after the acquisition of Stellar Group Companies (“Stellar Films Group Pty Ltd and Stellar Films (Malaysia) Sdn Bhd”), the Company has worked towards the full integration of its businesses to exploit expected synergies of the merger with Stellar.

SIGNIFICANT CHANGES IN STATE OF AFFAIRS

Change of name Following approval at the general meeting of shareholders on 7 April 2015, Cardia Bioplastics Limited changed its name to SECOS Group Limited effective 8 April 2015. ASX code change from “CNN” to “SES” has occurred on 22 April 2015

Consolidation of Capital Following receipt of shareholder approval at the Company’s General Meeting held on 7 April 2015, SECOS Group Limited completed the consolidation of capital. The basis for the consolidation of capital was as follows:

• every 100 shares to be consolidated into 1 share • every 100 options to be consolidated into 1 option and the exercise price of such options will be amended in inverse proportion to

this ratio in accordance with Listing Rule 7.22.1

Acquisition of Stellar Films Group Companies- reverse acquisition On 21 April 2015, the Company completed its legal acquisition of 100% of shares in Stellar Group Companies. Under the acquisition, the Company (formerly known as Cardia Bioplastics Limited) has issued 129.93 new Cardia shares for each Stellar Films Group Pty Ltd’s (“Stellar”) share held. The Company has issued 51,972,604 ordinary shares to Stellar vendors. On Completion of merger with Stellar Films Group, Mr Stephen Walters and Mr Trevor Haines were appointed as Managing Director and Chief Financial Officer, respectively of SECOS Group Limited and Mr Steven Bendel, who has been a non-executive director of the Company since 7 October 2013, retired from the Board.

The acquisition has been treated as a “reverse acquisition” in accordance with AASB 3 ”Business Combinations” whereby Stellar is deemed to be the accounting acquirer of the consolidated Group. Within the financial statements, the comparatives for the year ended 30 June 2014 represent those of Stellar Group companies. For the year ended 30 June 2015, the financial statements present the activities of Stellar Group companies up to the acquisition date, 21 April 2015 and that of the merged group thereafter. SECOS’ integration of the businesses was substantially completed at the reporting date.

For

per

sona

l use

onl

y

DIRECTORS’ REPORT


Capital Raising • On 8 May 2015, the Company has raised $1.1m by issue of 7,827,144 shares at an issue price of $0.14 per share. Ordinary shares were

issued to professional and sophisticated investors under the approval given by shareholders at the general meeting held on 7 April 2015. • On 23 June 2015, the Company has raised $2.4million by issue of 17,072,355 new shares pursuant to the Company’s oversubscribed non-

renounceable rights issue. The shares were issued at an issue price of $0.14 per share. • Oversubscription from the non-renounceable rights issue of $0.66million were subsequently placed with professional and sophisticated

investors and 4,713,016 fully paid ordinary shares were issued. The placement shares will be issued under the Company’s 15% capacity pursuant to Listing Rule 7.1.

There were no other significant changes in the state of affairs of the Group during the financial year.

OPERATING RESULTS

The consolidated loss for the year attributable to the members of the Group was:

2015 2014 $ $

Loss for the year after income tax (4,279,803) (2,227,481) Loss/(Profit) attributable to non-controlling interests - - Net Loss attributable to members of the Company (4,279,803) (2,227,481)

To assist the interpretation of the underlying performance of the group, a pro forma statement is presented below:

2015 2014 $ $

Revenues 17,957,801 21,850,657 Operating expenses (19,467,603) (22,329,970) EBITDA * before acquisition and merger transaction costs (1,509,802) (479,313) Depreciation and amortisation (327,766) (256,750) Depreciation and amortisation (included in cost of sales) (367,328) (410,884) Impairment of receivables and inventories (1,066,350) - Borrowing costs (321,186) (276,641) Merger transaction costs (309,446) - Share in loss of joint venture (877,925) (803,893) Gain on Acquisition 500,000 - Income tax expense/ (benefit) - - Profit/(loss) after income tax (4,279,803) (2,227,481)

* EBITDA is a non- IFRS measure and represents earnings from continuing operations before interest, tax, depreciation and amortisation, impairment of assets and significant items most notably, share of joint venture, gain on acquisition and other transaction costs associated with the merger.

DIVIDENDS

The Directors do not recommend the payment of a dividend for this financial year and dividends of $901,000 have been declared and paid during the last financial year.

REVIEW OF OPERATIONS: Cardia Bioplastics and Stellar Films Group announced their proposed merger to create a leader in sustainable packaging in November 2014. During the financial year FY2014/15, the businesses conducted due diligence, negotiated merger agreements, reviewed its joint business strategy and manufacturing operations, and merged to form SECOS Group in April 2015. The key synergies of the merged SECOS Group are the following:

For

per

sona

l use

onl

y

DIRECTORS’ REPORT


• Market access and reach in absorbent hygiene products market, a US$72 billion industry growing 5.5% per annum.1

• Emerging, high growth bioplastics industry with SECOS focusing on films & packaging and waste management markets. ‘Markets and Markets’ Research Group predicts the global biodegradable and compostable plastics market to be worth more than US$3.4 billion by 2020.2

• Unique global product offering at competitive pricing to absorbent hygiene products market – soft touch and warm feel, matt finish, quietness in handling, environmentally preferred, made from renewable resources, lower carbon foot print, heavy metal free hygiene products.

• Enhanced competitiveness through integrated production from resins to films to coated products.

• Geographic footprint of combined operations; focus on high growth Asian market. Strategic decision to discontinue funding of Cardia’s Brazilian film and bag making business.

• Stellar’s underutilised production assets – Stellar’s Australian cast film plant can produce as much hygiene film in three weeks as Cardia’s hygiene film extrusion lines can produce in one year.

• Production and supply chain efficiency of combined operation.

• Operational savings and cost-effective expansion options.

• Complementary intellectual property positions and customer reach.

• Highly focused management teams with internationally recognised industry experts in sustainable packaging.

• Scale and resources to deliver successful implementation of growth strategy in personal care and hygiene films, and bioplastics products.

SALES REVIEW BY STRATEGIC BUSINESS UNIT Cardia Bioplastics posted revenues of $1,007,398 for the financial year FY2014/15 compared to revenues of $5,023,491 for the financial year FY2013/14. In accordance with guidelines and principles of AASB 3 – Business Combination, the merger has been treated as a reverse acquisition. Therefore Cardia sales revenues for FY2014/15 are reported only for the trading period from the merger date, 21 April 2015, through to 30 June 2015. Cardia Bioplastics is categorised under “Distribution Division” operating segment of the Group. The stand-alone Cardia Bioplastics business delivered a $6,552,605 sales revenue and 30% business growth during the financial year FY2014/15 compared to FY2013/14. Cardia continued its traction in global commercialisation during FY2014/15 converting a number of its product developments into global sales. The Company executed several long-term supply agreements with strategic customers including Sealed Air and Transpacific Industries; City Councils including the cities of Albury and Wodonga; market-leading brand owners including Breville and Henkel; and sales to large European and USA retailers. These agreements are the culmination of a lengthy and rigorous sales development process. This process validates the environmental offering of Cardia products, their cost-competitiveness and that they meet the specific requirements of customers’ product applications. With a growing list of long-term customers, the Company is making significant headway towards establishing itself as a global manufacturer and supplier of renewable resins and finished products to the plastics and packaging industries. In addition to growing sales with new customers, the Company maintained material business contracts with established key customers such as China City Councils including Shanghai-Pudong and Nanjing, and Australian Councils including City of Brisbane. Stellar Films Australia posted revenues of $3,293,405 for the financial year FY2014/15 compared to revenues of $6,067,130 for the financial year FY2013/14 which represents a 45.7% decline in revenues. The decline reflects the original Stellar Films business strategy to close the Australian manufacturing facilities and relocate production to the Stellar Films plant in Kuala Lumpur, Malaysia. This decision was made on the back of the high Australian Dollar to United States Dollar exchange rate and high Australian domestic polymer costs relative to the business’ export markets. However, as a result of the successful development of a range of high quality sustainable and cost competitive cast films using the Cardia Biohybrid™ resin technology, the decision was made to keep the Australian plant in operation. The SECOS strategy is to capitalise on the opportunity to sell these unique cast films that are environmentally preferred and differentiated in their property profile to the global personal care and hygiene industry. Since the merger there has been considerable activity and success in winning back business that was once enjoyed on a regular basis by the Australian plant. Monthly sales of approximately $400,000 to the absorbent pet care products business in Japan have been secured. New

1 Edana Outlook Asia 2014 Conference, P&G presentation 2 Markets and Markets Research, Biodegradable Plastics Market by Type, by Application - Global Trends & Forecasts to 2020

For

per

sona

l use

onl

y

DIRECTORS’ REPORT


sales development projects are underway to grow the Stellar Films Australia business by capitalising on the increasing global demand for its high quality films. The weakening of the Australian Dollar further has further strengthened Stellar’s competiveness in its targeted export markets. Stellar Films Australia is categorised under “Manufacturing Division” operating segment of the Group. Stellar Films Malaysia posted revenues of $12,983,591 for the financial year FY2014/15 compared to revenues of $15,466,000 for the financial year FY2013/14 which represents a 16% decline in revenue. The decline in revenue reflects the tough trading conditions throughout the middle part of the financial year as polymer resin prices continually increased and as a result less profitable parcels of business were let go in favour of more profitable and strategic opportunities. Stellar Films Malaysia has successfully secured business in 17 export markets (accounting for 80% of all sales) servicing the hygiene and pet care markets throughout Asia. Sales to Japan represented 36.5% of all sales with Thailand following at 31% of all sales. The recent drop in the cost of polymer resins coupled with the depreciation of the Malaysian Ringgit has seen the business gain significant sales momentum across all categories. Taking all of these aspects into consideration, the business now has a solid platform to further strengthen and grow its sales portfolio. Stellar Films Malaysia is categorised under “Manufacturing Division” operating segment of the Group.

MARKET SEGMENT REVIEW SECOS Group is focused on leveraging its expertise and positioning in its target markets of Films & Packaging and Waste Management Solutions. Below is a review of the key sales activities and achievements of FY2014/15.

FILMS & PACKAGING

The global plastics packaging market is estimated to be a $200 billion market.3 Sustainable and renewable Bioplastics packaging is < 1% of the plastics packaging market with exponential growth potential.4 SECOS’ key target segments of the packaging market are personal care and hygiene, protective and food packaging.

SECOS Group is well positioned to benefit from the trend towards sustainable packaging, offering customers a broad range of high quality Stellar cast films and the choice of sustainable Cardia Biohybrid™ or compostable resin technology for their packaging or plastic product solutions.

Stellar Films is an international manufacturer of high quality cast films tailored to their customer requirements, including films for the disposable nappy, feminine hygiene, incontinence and medical disposable markets.

Cardia Biohybrid™ proprietary technology combines renewable thermoplastics with polyolefin material to reduce dependence on finite oil resources and lower carbon footprint. Biohybrid™ films produced on Stellar Films proprietary cast film process are differentiated through their unique soft touch, warm feel and quietness in handling that is ideal for personal care product applications. Environmentally preferred and body friendly, containing GMO free renewable plant based material, Biohybrid™ films contain less oil, have a lower carbon footprint and are heavy metal free, ideal attributes for the growing personal care and hygiene product applications.

The absorbent hygiene products market is a $72 billion industry growing 5.5% a year, with growth being driven by demographics and economic development across both developed and developing markets.5 Factors such as, births increasing across Asia, ageing populations, female population growth and increasing middle classes with higher disposable income are driving demand for quality disposable personal hygiene products including baby nappies, feminine hygiene products and adult incontinence products.

Brand owners and consumers are demanding more environmentally friendly, sustainable and non-toxic solutions for disposable personal hygiene products. Cardia Biohybrid™ hygiene films deliver on all requirements - environmentally friendly, sustainable, heavy metal free and body friendly with soft touch and warm feel. The new Biohybrid™ hygiene films are both a more sustainable and a healthier choice.

3 Packagingtoday.com, Packaging industry overview (2011) 4 European Bioplastics Industry Report 2010, www.european-bioplastics.org/market/ 5 Edana Outlook Asia 2014 Conference, P&G presentation

For

per

sona

l use

onl

y

DIRECTORS’ REPORT


During FY2014/15 SECOS Group successfully scaled up production at Stellar Films Australian operations of its Cardia Biohybrid™ films tailored for the global personal care and hygiene product markets. SECOS has received product requests and specifications for its Biohybrid™ hygiene films from ten potential customers for in-house validation and product performance testing. Stellar Films Australian manufacturing plant has the capacity to produce up to 6,000 tonnes of high quality hygiene films per annum.

The following sales contracts and commercial launches in the business segment of Films & Packaging have been delivered and communicated to the market in FY2014/15 and up to the date of this report.

Kenyan manufacturer places initial orders with Stellar Films for expanding personal care and hygiene market Stellar Films Group receives initial container orders for its high grade hygiene films for expanding Kenyan personal care and hygiene market. Hygiene films manufactured by Stellar Films Malaysia business which is achieving high sales growth. Stellar Films Malaysian manufacturing plant has the capacity to produce up to 9,000 tonnes of high quality hygiene films per annum.

SECOS Group successfully scales up production of Biohybrid™ films for global hygiene market SECOS successfully scales up production of environmentally friendly, high quality and cost competitive Biohybrid™ films tailored for the global personal care and hygiene product markets. SECOS has received product requests and specifications for its Biohybrid™ hygiene films from ten potential customers for in-house validation and product performance testing. Stellar Films Australian manufacturing plant has the capacity to produce up to 6,000 tonnes of high quality hygiene films per annum.

Stellar Films launches sustainable personal care films made from Cardia Biohybrid™ technology Stellar Films and Cardia Bioplastics partnered to produce sustainable films using Cardia Biohybrid™ patented technology for the personal care and medical products industry. Environmentally friendly Biohybrid™ films offer high product performance and are cost competitive. Films are strong and tough while delivering a unique soft touch and warm feel ideal for the personal care industry. Market launch of these novel films at Outlook Asia 2014, the world’s premier non-woven personal care products conference in Singapore commencing 26 November 2014.

Sealed Air uses Cardia Compostable films for new PakNatural® Biodegradable Cushion Bags Leading global protective packaging manufacturer Sealed Air selects Cardia Compostable films for new PakNatural® Biodegradable Cushion Bags. Validation of Cardia Compostable films in Sealed Air’s high performance protective packaging application.

For

per

sona

l use

onl

y

DIRECTORS’ REPORT


Cardia Bioplastics in talks to appoint BioShoppe as distributor Cardia Bioplastics in talks with BiotechCorp to appoint BioShoppe as distributor for Cardia Compostable and Biohybrid™ products to the Malaysian Government and market. BioShoppe to market Cardia Compostable and Biohybrid™ bag and waste management products. Cardia Compostable and Biohybrid™ bags qualify for MyHijau Green Directory Listing. Cardia sustainable bags featured as leading BioNexus products at BioMalaysia & Bioeconomy Asia Pacific 2014 conference and exhibition.

Leading German Consumer Goods Company chooses Cardia Biohybrid™ technology Leading German Consumer Goods Company chooses Cardia Biohybrid™ technology for their product packaging. Cardia Biohybrid™ technology validated in high performance rigid packaging application, enhancing shelf life of packaged product. Cardia Biohybrid™ products meet stringent four years quality testing regime. Initial container orders received for European market launch in early 2015. Biohybrid™ resin sales are expected to benefit as the company continues to secure global brand owners.

WASTE MANAGEMENT SOLUTIONS

Organic waste is a component of the waste stream from plant or animal sources that is readily biodegradable. It forms a significant proportion of waste generated, and an even more significant portion of waste sent to landfill. Degradation of organics in landfill generates the potent greenhouse gas methane, and also produces potentially polluting leachate. In 2011, around 14 million tonnes of organic waste was generated in Australia alone.6 Separating organic waste at household level and diverting it from landfill is being implemented by many councils around the world. Biohybrid™ and compostable waste management products can significantly contribute to efficient organic waste management through organics recycling. It is expected that Cardia’s sustainable waste management products will benefit from the regulatory changes that are being implemented by many governments around the world.7

SECOS Group is developing the sustainable waste management products market with a particular emphasis on organic waste recycling through its Cardia Bioplastics business. Cardia’s key sales regions for its environmentally preferred waste management products were China, USA, Europe and Australia during FY2014/15 with the expectation of increasing sales going forward.

Cardia has established itself as a reliable supplier of quality environmentally preferred waste management products to the China Government market, securing orders and supply contracts to Shanghai and Nanjing City Councils during FY2014/15.

Cardia conducted a strategic review of the global waste management products market and decided to focus on the organic waste management market with a particular focus on organics recycling bags and pet care products. Cardia set up film and bag making equipment at its new purpose built factory in Nanjing, China to service this particular growth market with a Biohybrid™ and Compostable bag making capacity of over 250 million bags per year. Cardia launched its new Compostable and Biohybrid™ product ranges in response to growing market demand for bioplastics packaging during FY2014/15. The new Cardia Bioproducts Compostable and Biohybrid™ bag range offers businesses and households the opportunity to make a quality sustainable choice. Cardia Compostable bags are now available to retailers, councils, businesses and households thus enabling greater diversion of organic waste from landfills. In order to further extend its market reach Cardia launched its Cardia Bioproducts website where consumers, businesses and councils can now buy bags directly from Cardia. The Cardia Bioproducts website sells compostable bags ranging from produce bags, kitchen tidy bags, various sizes of household waste bags, shopping bags, garden bags, nappy bags to dog waste bags. Over the last five years, Cardia Bioplastics has closely cooperated with Australian Councils, waste management companies and industrial composters to validate and optimise the product offering of its compostable kitchen tidy bags and kitchen tidy bins, from household use to waste collection and composting. With several councils implementing organic waste diversion programmes during FY2014/15 Cardia has benefited from this work through the expanding uptake of its waste management products by Australian Councils for their organic waste diversion programmes. Cardia signed a two-year contract with Cleanaway in December 2014 and received first year order for 7.8 million compostable kitchen tidy bags and 50,000 kitchen tidy bins for the rollout of an organics kerbside collection program in Albury, Wodonga and the major towns of Corowa

6 http://www.environment.gov.au/system/files/resources/0a517ed7-74cb-418b-9319-7624491e4921/files/overview-organics_0.pdf 7 European Commission, DG Environment, http://ec.europa.eu/environment/waste/compost/index.htm

For

per

sona

l use

onl

y

DIRECTORS’ REPORT


and Indigo. Since successfully delivering the organics diversion programme with Cleanaway, Cardia has secured orders from four additional councils in the State of Victoria for large scale organics diversion programmes. Kitchen organic waste collection using Cardia Compostable bags will expand and cover approximately 100,000 households representing 5% of households in the State of Victoria with further growth expected in Victoria, Australia and internationally. Cardia launched its new range of Compostable and Biohybrid™ dog waste bags at Interzoo 2014 in Germany and has been successful in securing initial orders at the trade fair. The business has developed well since then and the Company set up six new film extrusion and bag making lines to meet further increased orders including orders from US and European retailers. The following sales contracts and commercial launches in the business segment of Waste Management Solutions have been delivered and communicated to the market in FY2014/15 and up to the date of this report.

Cardia Bioplastics expands sales channels with launch of Cardia Bioproducts e-commerce website Cardia Bioplastics launches on-line distribution sales channel through Cardia Bioproducts website. New Cardia Bioproducts website retailing & wholesaling Cardia Bioproducts range. Website makes Cardia Bioproducts Compostable and Biohybrid™ bag range available to households, businesses and councils.

Expanding uptake of Cardia Compostable waste management products by Australian Councils for their organic waste diversion programmes Cardia Bioplastics organic waste management products being used by Albury City, City of Wodonga, and Corowa and Indigo Shires for kitchen scraps and garden waste diversion programmes. Cardia has secured orders from four additional councils in the State of Victoria for large scale organics diversion programmes. Cardia’s waste diversion programme now covers approximately 100,000 households representing 5% of households in the State of Victoria. Further validates Cardia Compostable waste management products for organics diversion programmes.

Cardia Bioplastics Launches New Cardia Bioproducts Bag Range Cardia launches new Cardia Bioproducts bag range in response to growing market demand for bioplastics packaging. New Cardia Bioproducts Compostable and Biohybrid™ bag range offers businesses and households the opportunity to make a quality sustainable choice. Cardia Compostable bags now available for retailers, councils, businesses and households enable greater diversion of organic waste from landfills.

Cardia Bioplastics signs two year supply contract with Cleanaway Cleanaway selects Cardia Bioplastics organic waste management products for first large-scale organics diversion program. Cleanaway signs two-year supply contract and places first year order for 7.8 million Cardia Compostable kitchen tidy bags and 50,000 Kitchen Tidy Bins for commercial roll out. Cardia Bioplastics organic waste management products to be used by Albury City Council, City of Wodonga, and Corowa and Indigo Shires kitchen scraps and garden waste diversion program. Kitchen organics collection program to cover 50,000 households and to commence in April 2015. Further validates Cardia Compostable waste management products for organics diversion programs

For

per

sona

l use

onl

y

DIRECTORS’ REPORT


$150,000 orders of Cardia Bioplastics dog bags received from US and European Retailers Cardia Bioplastics implements expansion of its film and bag production at its new purpose built factory in Nanjing, China. Set up of six new film extrusion and bag making lines to meet further increased orders including orders from USA and European retailers for organic waste management bags. Doubles both Biohybrid™ and Compostable bag making capacity to over 250 million bags per year. First $150,000 orders of dog bags received from US and European Retailers. Expanded film extrusion and bag making capacity fully utilised due to growing global demand for Cardia Bioplastics products.

Cardia Bioplastics wins $350,000 waste management products supply contract in Nanjing, China Nanjing Jianye District awards Cardia Bioplastics orders of A$350,000 and extends its supply contract for waste management products. Annual supply requirement forecast for A$1 million. Contract represents 7% of Nanjing City households with potential to expand rollout. Significant opportunity to secure additional City Councils in China. Continues momentum of growth for Cardia’s China business with focus on organic waste management products.

Cardia Bioplastics launches new Dog waste bags at INTERZOO 2014 the World-Leading Exhibition for the Pet Supplies Industry Cardia Bioplastics launches fresh new Compostable and Biohybrid™ dog waste bags. Cardia Bioplastics exhibiting at Interzoo 2014 in Nuremberg, Germany to present its Dog Waste bag range. Cardia Bioplastics dog waste bags poised for growth in pet retail sector.

TECHNOLOGY REVIEW

During the financial year 2014/15, SECOS Group through its Cardia Bioplastics business made further developments in its bioplastics technology, strengthening its Intellectual Property position. Cardia now owns an intellectual property portfolio of eleven patent families, with twenty-eight patents so far granted in Europe, USA, Australia, China, Japan, New Zealand and South Africa, and thirty-nine more patents pending registration. The patents protect the composition formulations, manufacturing processes and application technology invented by Cardia’s Research & Development team.

Intellectual Property underpins the technical differentiation of Cardia’s Compostable and Biohybrid™ product range. Cardia capitalises on growth of bioplastics with leading brand owners and government bodies where strong intellectual property position is a key requirements for commercial success.

The following advances in Cardia Bioplastics technology and product certifications were communicated during the FY2014/15 and up to the date of this report.

Cardia secures European patent protection for its bioplastics technology European Patent Office grants cornerstone patent for Cardia Compostable resin and process technology. Cardia Bioplastics expands patent portfolio to twenty-eight registered patents protecting its bioplastics technologies with thirty-nine more patents pending registration. Cardia’s proprietary innovation in compostable, Biohybrid™ and PPC-starch technologies validated through international patents. Cardia capitalises on growth of bioplastics with leading brand owners and government bodies where strong intellectual property position is a key requirements for commercial success.

For

per

sona

l use

onl

y

DIRECTORS’ REPORT


Cardia secures expanded patent protection for its bioplastics technology Cardia expands patent portfolio to nineteen patents granted with forty two more pending registration. Seven new Cardia Compostable, Biohybrid™ and PPC-starch technology patents granted in Japan, Australia, New Zealand and China in 2014. Intellectual Property underpins commercially successful Cardia Compostable and Biohybrid™ product ranges. Cardia Bioplastics’ technical differentiation endorsed with patents. Cardia capitalises on growth of bioplastics with leading brand owners where strong intellectual property position is a key requirement.

MANUFACTURING REVIEW BY STRATEGIC BUSINESS UNIT SECOS Group has developed proprietary manufacturing processes for its bioplastic resin, high quality cast films and finished products derived from renewable resources. SECOS Group manufacturing plants are located in Melbourne, Australia, Kuala Lumpur, Malaysia and Nanjing, China. SECOS annual production capacity is 7,200 tonnes of bioplastics resins and c. 15,000 tonnes of cast film and 2,000 tonnes of blown film and finished products with cost effective capacity expansion options. The Company has set up fully integrated product supply chain from bioplastic resin to certified compostable and Biohybrid™ films and bags that ensures product quality and cost competiveness. All operations are quality systems ISO9001 certified.

Cardia Bioplastics manufactures its bioplastic resins, films and finished products derived from renewable resources at its Nanjing, China manufacturing plant.

During FY2014/15 Cardia successfully completed the relocation of its resin production to a new purpose built factory in Nanjing, China. The factory has the capacity to produce 7,200 tonnes of bioplastic resin per annum. The plant operates under strict production and quality processes which have been recognised with ISO9001 Quality Certification and the China Environmental Label. The plant has low operating costs and is highly scalable.

In line with its business strategy to establish a finished products division with own dedicated resources and manufacturing capability, Cardia’s China film and bag production was relocated to the new factory and expanded in capacity to 250 million bags per annum. This project was completed in December 2014.

The Cardia China production team has particularly focused on establishing efficient production in the new facility, on the new equipment with a largely new workforce. Over the last half year they have delivered significant efficiency gains, increasing their production capacity in line with ramping up sales orders. As production has stabilised and progresses towards high utilisation, the business will lower its relative production cost with a positive effect on product margins and profitability of the business.

Stellar Films Australia produces co-extruded high quality cast films for the hygiene, pet care and medical markets at its Melbourne, Australia manufacturing plant. This plant has the capacity to produce up to 6,000 tonnes of high quality hygiene cast film per annum and is regarded as one of the most efficient plants of its type in the world achieving enviable product quality and efficiency rates. The production plant is differentiated through its co-extrusion capability and embossing technology and is ideal for applications such as nappy back sheets and sanitary napkins, Stellar’s cast films are in high demand by its global customers.

During the FY2014/15 the Stellar Films Australia and Cardia Bioplastics technical teams have successfully scale-up production of its environmentally friendly, high quality and cost competitive Biohybrid™ films tailored for the global personal care and hygiene product markets. The company now manufactures a broad range of Biohybrid™ hygiene films at its Stellar Films Australian cast film manufacturing plant to meet customer demand. The Biohybrid™ films produced on Stellar Films proprietary cast film process exhibits a high performance property profile and delivers product innovation for a rapidly changing market.

Since the reopening of Stellar’s plant in April 2015, the business has secured sales worth approx. $400,000 per month representing annualised sales revenue of $4,800,000 per annum. With the plant now running at approximately 30% capacity the potential growth opportunity is significant. Sales projects are underway to grow the business by capitalising on the increasing demand for Stellar’s high quality films.

Stellar Films Malaysia produces its high quality cast films for the hygiene, pet care and medical markets at its Kuala Lumpur, Malaysia manufacturing plant. This plant has the capacity to produce up to 9,000 tonnes of high quality hygiene cast film per annum. The production plant is differentiated through its multiple cast film lines, embossing, printing and lamination capability. It can efficiently produce a broad range

For

per

sona

l use

onl

y

DIRECTORS’ REPORT


of hygiene cast films tailored to its specific customer processes. The business is located in a government approved manufacturing zone with the facility being within close proximity of Malaysia’s major shipping port. Malaysia is centrally located in the high growth Asian market.

The Stellar Films Malaysia Production team runs a very efficient operation with a strong focus on quality management. The combination of product quality, cost structure, efficiency of supply, central geographic location differentiates Stellar Films Malaysia plant as a preferred supplier to their ‘Just in Time’ supply driven customers located in the high growth Asian region.

During the FY2014/15 the Stellar Films Malaysia production team focused on further enhancing their quality operation to meet and exceed their customers’ orders requirements and increasing orders. Several new product developments have been delivered and new customers won, including new hygiene film sales to Kenyan manufacturer for their expanding personal care and hygiene market, and several pet care customers including growing supply to Japan.

To further enhance its market position and more closely align with its Japanese customers ‘Just in Time’ manufacturing and supply chain requirements, Stellar Films Malaysia has commenced a Kaizen 5S workplace organization programme.

The following manufacturing related activities were communicated to the market in FY2014/15 and up to the date of this report:

Stellar Films Australia - Investor Update Since the reopening of Stellar’s plant in April 2015, the business has secured sales worth approx. $400,000 per month representing annualised sales revenue of $4,800,000 per annum. With the plant now running at approximately 30% capacity the potential growth opportunity is significant. Sales projects are underway to grow the business by capitalising on the increasing demand for Stellar’s high quality films. With increased global demand, the weakening of the Australian Dollar further strengthens Stellar’s competiveness in targeted export markets.

Cardia Bioplastics successfully completes relocation to new purpose built factory and installation of three new production lines Cardia Bioplastics successfully completes relocation of production to new purpose built factory in China. Three new film extrusion and bag making lines installed and now operating at full capacity. Cardia Board approved purchase of six additional film extrusion and bag making lines to meet Cardia’s current order pipeline. In-house production of Cardia’s finished product range significantly improves production efficiency, quality and turnaround times of customer orders while also lowering manufacturing costs.

Employees:

SECOS Group has a total of 150 employees of which 82 are located in China, 51 in Malaysia, 16 in Australia, 1 in USA.

INVESTMENTS As at 30 June 2015, the Company held the 18,780,000 ordinary shares in unlisted entity Bioglobal limited, representing 2.97% of the issued capital of that Company. The Company held other investments which were immaterial in value and/or were inactive during the year.

PATENTS AND TRADE MARKS: The Company continued to invest funds into securing and expanding its IP position and now owns a portfolio of 11 patent families with 28 patents granted and an additional 39 applications at various stages of the granting process. The patents cover Bioplastics formulations, processes and applications for global packaging products.

SECOS patent families (11) are held in the name of Tristano Pty Ltd. The CO2 Starch patents are held in the name of CO2 Starch Pty Ltd. Both are wholly owned subsidiary company of SECOS Group Ltd.

SECOS also holds 4 trademarks.

For

per

sona

l use

onl

y

DIRECTORS’ REPORT


FINANCIAL POSITION

The net assets of the consolidated entity were $7.9 million, as at 30 June 2015 compared to $1.6 million as at 30 June 2014, an increase of $6.3million. This increase has resulted primarily due to the following reasons:

$ m

Capital Raising (net of costs) post-merger 3.80

Net assets acquired through reverse acquisition of Cardia Bioplastics 6.40 Loss from Operating Activities for the year (4.30) Foreign currency translation differences for foreign operations 0.40 Total Increase 6.30 The Directors consider the group to be in a stable financial position.

EARNINGS (LOSS) PER SHARE

2015 2014 $ $ Basic Loss Per Share (0.07) (0.04)

Weighted average number of ordinary shares used in the calculation of basic loss per share 61,336,204 51,972,604 The weighted average number of ordinary shares are calculated based on the ordinary shares that would have been in existence had the reverse acquisition occurred as at 1 July 2013.

EVENTS AFTER THE REPORTING DATE Other than the matters discussed below, there has not arisen in the interval between the end of the financial year and the date of this report, any item, transaction or event of a material and unusual nature likely, in the opinion of the Directors of the Company to affect the operations of the consolidated entity, the results of these operations or the state of affairs of the consolidated entity in subsequent years

• On 24 August 2015, Mr Gideon Meltzer resigned as a Non-Executive Director of the Company.

FUTURE DEVELOPMENTS SECOS will continue to focus on its principal business activities with its sustainable packaging strategy and waste management solutions.

ENVIRONMENTAL REGULATIONS The Group’s operations are not subject to any significant environmental regulations under the law of the Commonwealth or the States.

INFORMATION ON DIRECTORS Richard Tegoni MBA (AGSM), Diploma in Mortgage Broking, Diploma in in Financial Markets (SIA)

Experience Appointed Non-Executive Director 21 December 2012 Non-Executive Chairman effective 18 October 2013 Executive Chairman effective 16 September 2014 Background in Finance & Banking and Sales & Marketing

Age 47 Special Responsibilities Executive Chairman

Corporate Strategy and Capital Raisings Member of Audit and Compliance committee

Interest in Shares & Options: 5,607,541 Ordinary Shares Directorships held in Other Listed

Entities: Has not held a directorship in any other listed entity over the last 3 years

Stephen Walters Experience : Appointed Managing Director -21 April 2015

For

per

sona

l use

onl

y

DIRECTORS’ REPORT


B.Busi (Marketing) More than 20 years in the plastics and packaging industries in general management, commercial and sales roles with Borden Chemical, ICI Australia and Orica.

Age : 58 Special Responsibilities As Managing Director is responsible for the general

management of the Company. Interest in Shares & Options: 28,584,937 Ordinary Shares Directorships held in Other Listed


Dr Frank Peter Glatz Ph. D, M.Sc,MBA

Experience: Appointed 1 May 2009 Background in the Fast Moving Consumer Goods (FMCG) companies, plastic industry with particular emphasis on development of new technologies and packaging applications.

Age: 51

Special Responsibilities: As Chief Executive Officer is responsible for the development and international marketing of Bioplastics business.

Interest in Shares & Options: 219,530 Ordinary Shares

Directorships held in other Listed Entities

Has not held a directorship in any other listed entity over the last 3 years.

Trevor Haines Experience : Appointed Chief Financial Officer -21 April 2015 B.Com, FCPA More than 20 years in senior accounting and financial

management roles in various divisions of ICI Australia, AVC and Orica.

Age : 55 Special Responsibilities As Chief Financial Officer is responsible for the financial

management of the Company. Interest in Shares & Options: 28,584,937 Ordinary Shares Directorships held in Other Listed


Gideon Meltzer B.Eco ,LLB, Graduate Diploma in Taxation Law

Experience Appointed 7 November 2013 Resigned 24 August 2015 Experienced Corporate Executive

Age: 47

Special Responsibilities: Non-Executive Director Corporate Governance

Interest in Shares & Options: 196,193 Ordinary Shares Directorships held in Other Listed

Entities Has not held a directorship in any other listed entity over the last 3 years

Steven Bendel B.Ed., Graduate Diploma in Business (Accounting), CPA

Experience: Appointed 7 October 2013 Resigned 21 April 2015 Background in Accounting practice , banking and finance

Age: 46 Special Responsibilities: Non-Executive Director Interest in Shares & Options: 500,000 Ordinary Shares Directorships held in other Listed

Entities: Has not held a directorship in any other listed entity over the last 3 years.

For

per

sona

l use

onl

y

DIRECTORS’ REPORT


DIRECTORS’ MEETINGS

The number of meetings of the Company’s Board of Directors and the Audit and Compliance Committee held during the year ended 30 June 2015 and the number of meetings attended by each Director.

Director Board Meetings Audit & Compliance Committee

Number eligible to attend

Number attended Number eligible to attend

Number attended

R Tegoni 16 16 2 2 S Walters 4 4 - - F P Glatz 16 15 - - T Haines 4 4 - - G Meltzer 16 16 - - S Bendel 12 9 - - Rekha Bhambhani (Company Secretary) 16 16 2 2

REMUNERATION REPORT (AUDITED) Remuneration Policy

The Group's policy for determining the nature and amount of remuneration of board members and senior executives of the Group is as follows: � The remuneration structure for executive officers, including executive directors, is based on a number of factors, including length of service and particular experience of the individual concerned.

� All key management personnel receive a base salary and superannuation and/or equivalent. Fringe Benefits and performance incentives are negotiated with the employees depending upon their duties and responsibilities and their area of expertise.

� Performance Incentives are generally paid once predetermined key performance indicators have been met. Predetermined key performance indicators include achievement of quarterly revenue targets set by the Board coupled with achievement of gross margin targets.

� Incentives are paid in the form of a bonus as a percentage of base salary. Key management personnel receive a superannuation guarantee contribution/social security payments when required by the government of the respective region and do not receive any other retirement benefits. Upon retirement, key management personnel are paid employee benefit entitlements accrued to the date of retirement. Termination payments are generally not payable on resignation or dismissal for serious misconduct. Termination payments cannot exceed more than 1 year’s base salary as required by Corporations Act 2001. All remuneration paid to key management personnel is valued at the cost to the Company and expensed. The Company has not used services of remuneration consultants during the year. The Board’s policy is to remunerate non-executive directors at market rates for time, commitment and responsibilities. The Board collectively determines payments to the non-executive directors and reviews their remuneration annually, based on market practice, and duties and accountability. Independent external advice is sought when required. No such advice was sought during the year. ASX listing rules require the aggregate non-executive directors remuneration be determined periodically by a general meeting. The most recent determination was at the General Meeting held on 7 July 2009, where the shareholders approved an aggregate remuneration of $220,000. Although no executive options are currently on issue, any options issued in the future and not exercised before or on the date of termination will automatically lapse. Performance-based Remuneration The Group seeks to emphasise reward incentives for results and continued commitment to the Group through the provision of incentive payments based on the achievement of revenue targets return linked with profitability targets. The performance-related proportions of remuneration based on these targets are included in the following table. The objective of the reward schemes is to both reinforce the short and long-term goals of the Group and provide a common interest between management and shareholders.

For

per

sona

l use

onl

y

DIRECTORS’ REPORT


REMUNERATION REPORT (CONTINUED) Company Performance, Shareholder Wealth and Directors' and Executives' Remuneration The remuneration policy has been tailored to increase goal congruence between shareholders, directors and executives. To achieve this aim, performance based bonus incentives based on key performance indicators have been introduced. For FY2015, remuneration of few key management personnel was linked with performance, details are provided in the table below. As noted previously in the Directors’ report, the completion of the merger transaction during the financial year has meant that it is not possible to assess shareholder wealth against key management remuneration in the current period. With the focus of the company’s business activities being to expand the new merged business, the Company believes that this policy is effective. Performance in relation to the KPIs is assessed annually, with bonus incentives being awarded depending on the number and deemed difficulty of the KPIs achieved. Following the assessment, the KPIs are reviewed by the Board in light of desired and actual outcomes, and their efficiency is assessed in relation to the Group’s goals and shareholder wealth, before the KPIs are set for the following year. The key management personnel of the Group consisted of the following persons:

Group Key Management Personnel Position held as at 30 June 2015 and any change during the year

Contract Details (Duration & Termination)

Proportions of remuneration

package related to

performance

Proportions of remuneration

package not related to performance

Executive Directors Richard Tegoni Executive Chairman effective 16

September 2014 Non-Executive Chairman effective 18 October 2013 Appointed Non-Executive Director-21 December 2012

No Fixed Term Appointed 21 December 2012

- 100% Stephen Walters Appointed Managing Director

effective 21 April 2015 2 years from 21 April 2015

- 100% Frank Glatz Managing Director until 20 April

2015, assumed role as Chief Executive Officer effective 21 April 2015.

No Fixed Term

20% 80% Trevor Haines

Appointed Chief Financial Officer effective 21 April 2015

2 years from 21 April 2015 - 100%

Non-Executive Directors Steven Bendel Non-Executive Director

Resigned as Non Executive Director effective 21 April 2015.

No Fixed Term Appointed 7 October 2013 Resigned 21 April 2015 - 100%

Gideon Meltzer

Non-Executive Director Resigned as Non Executive Director effective 24 August 2015.

No Fixed Term Appointed 7 November 2013 Resigned 24 August 2015 - 100%

Other Key Management Personnel

Rekha Bhambhani Company Secretary

No Fixed Term Appointed 10 August 2010 - 100%

Robert Morgan Appointed as Group Manufacturing Director effective 21 April 2015 2 years from 21 April 2015 - 100%

Ong Kean Hwa

Executive Director of Stellar Films (Malaysia) Sdn Bhd.

No Fixed Term Appointed 1 July 2003 - 100%

Peter Symons Appointed as Manufacturing Manager effective 21 April 2015

No Fixed Term Ceased to be KMP effective 21 April 2015 - 100%

Chen Yi

Managing Director of Biograde (Nanjing) Pty Ltd

No Fixed Term Appointed 1 May 2009 20% 80%

Chen Chan Ping Technical Director, China Operations

No Fixed Term Appointed 1 May 2009 - 100%

Terms of employment require that the relevant group entity provide the contracted person with a minimum period of notice (one to three months) prior to termination of contract. Similarly a contracted person has to provide minimum period notice (one to three months) prior to the termination of their contract. In the instance of serious misconduct the Company can terminate employment at any time.

For

per

sona

l use

onl

y

DIRECTORS’ REPORT


REMUNERATION REPORT (AUDITED) Changes in Directors and Executives subsequent to year-end On 24 August 2015, Mr Gideon Meltzer resigned as Non-Executive Director. Other than the above, there were no changes in Directors and Executives subsequent to year-end. Remuneration Details The remuneration disclosures for the Key management personnel contained in the following tables are as follows:

- The 2015 disclosures represent 2 months remuneration (the period from 22 April 2015 to 30 June 2015) of the Group’s Key management personnel and 10 months remuneration (the period from 1 July 2014 to 21 April 2015) of the key management personnel of Stellar Films Group Pty Ltd.

- The 2014 disclosures represent 12 months remuneration of the key management personnel of Stellar Films Group Pty Ltd.

2015

Name

Short term Benefits Post-Employment

Long –term benefits

Equity-settled share-based payments

Total

Salary and Fees

Non-monetary benefits

Superannuation or Equivalent

Employee Leave

Shares

$ $ $ $ $ $

R.Tegoni 16,667 - - - - 16,667

S. Walters 116,980 53,385 3,096 1,902 - 175,363

F. Glatz 33,090 - 3,144 - - 36,234

T.Haines 95,467 58,148 2,759 1,541 - 157,915

G.Meltzer 6,667 - - - - 6,667

R.Bhambhani 16,667 - 1,583 - - 18,250

R.Morgan 101,130 65,678 2,766 1,685 - 171,259

P.Symons 72,158 33,300 - 1,174 - 106,632

O. Kean Hwa 142,681 - 17,124 - - 159,805

Yi.Chen 11,527 - 4,957 - - 16,484

C.Chen 7,531 - 3,238 - - 10,769

Total 620,565 210,511 38,667 6,302 - 876,045

2014

Name

Short term Benefits Post Employment

Long –term benefits


Total

Salary and Fees

Non-monetary benefits

Superannuation or Equivalent

Employee Leave

Shares

$ $ $ $ $ $

S. Walters 123,122 61,292 - 2,213 - 186,627

T.Haines 94,843 64,405 - 1,705 - 160,953

R.Morgan 104,890 71,725 - 1,961 - 178,576

P.Symons 99,527 43,678 - - - 143,205

O. Kean Hwa 137,808 - 16,538 - - 154,346

Total 560,190 241,100 16,538 5,879 - 823,707

For

per

sona

l use

onl

y

DIRECTORS’ REPORT


REMUNERATION REPORT (CONTINUED) In addition to the above two tables, the Corporation Act 2001 requires the remuneration of the directors and other key management personnel of the Company, prior to the merger with Stellar Films Group Pty Ltd to be disclosed. Cardia Bioplastics paid remuneration for the period 1 July 2014 to 21 April 2015 (2014: 12 months to 30 June 2014) which is as follows:

2015

Name Short term Benefits Post-

Employment

Equity-settled share-based payments*

Total

Salary and

Fees Non-monetary

benefits Superannuation or Equivalent

Shares

$ $ $ $ $

R. Tegoni 32,083 - - 30,000 62,083

F. Glatz 156,317 - 14,850 - 171,167

S .Bendel 17,125 - - 8,000 25,125

G .Meltzer 18,458 - - 8,000 26,458

Yi.Chen 52,920 - 22,756 - 75,676

C.Chen 34,574 - 14,867 - 49,440

R.Bhambhani 81,667 - 7,758 - 89,425

Total 393,144 - 60,231 46,000 499,374

*Share based payment are shares issued in lieu of cash remuneration. Details of the share issues are provided below: • On 6 January 2015,11,500,000 fully paid ordinary shares under Loan Share Plan to three of its directors in lieu of the part payment of their

respective remuneration for the quarter ending 31 December 2014. The shares are issued at an issue price of $0.002/share. The share issue price has been determined based on volume weighted average sale price of Cardia shares for 2014 December Quarter.

• On 23 April 2015,115,000 fully paid ordinary shares under Loan Share Plan to three of its directors in lieu of the part payment of their respective remuneration for the quarter ending 31 March 2015. The shares are issued at an issue price of $0.20/share, on post consolidation basis. The share issue price has been determined based on volume weighted average sale price of SECOS (Cardia) shares for 2015 March Quarter ($0.002/Share, pre-consolidation).

The issue of these shares to Directors was approved by shareholders at the Annual General Meeting held on 28 November 2014 (Resolutions 7, 8 &9).

2014

Name Short term Benefits Post

Employment


Total

Salary and

Fees Non-monetary

benefits Superannuation or Equivalent

Shares

$ $ $ $ $

R. Tegoni 20,000 - - - 20,000

F. Glatz 163,044 - 15,082 - 178,126

S .Bendel 9,155 - - - 9,155

G. Meltzer 8,090 - - - 8,090

P. Volpe 43,208 - - - 43,208

Yi.Chen 75,695 - 32,549 - 108,244

R .Bhambhani 80,000 - 7,400 - 87,400

C. Chen 55,051 - - - 55,051

Total 454,243 - 55,031 - 509,274

For

per

sona

l use

onl

y

DIRECTORS’ REPORT


REMUNERATION REPORT (CONTINUED)

Cash Bonuses, Performance-related Bonuses

There was no performance related remuneration paid during the year.

Options Issued as part of remuneration for the year ended 30 June 2015.

No options were issued during the year as part of remuneration. For Shares and Options held by Key Management Personnel, please refer to tables below:

a. Option Holdings

Number of Options Held by Key Management Personnel (Direct and Indirect Interest)

2015 (Adjusted for capital consolidation effect on 100:1 Basis)

Balance 1.7.2014

Granted as Compensation

Options Exercised

Net Change Other (I)

Balance 30.6.2015

Options Expiring 30 June 2015

(Adjusted for capital consolidation effect on 100:1 Basis)

F Glatz 14,906 - - (14,906) - Options Expiring 15 July 2014 S Bendel 10,000,000 - - (10,000,000) - Options Expiring 31 December 2014 R Tegoni 11,776,888 - - (11,776,888) - S Bendel 2,000,000 - - (2,000,000) - G Meltzer 1,111,111 - - (1,111,111) -

(I)Net Change Other in Options refers to unexercised options lapsed upon their expiry.

2014 Balance

1.7.2013 Granted as

Compensation Options Exercised

Net Change Other (II)

Balance 30.6.2014

Options Expiring 30 June 2015

P Volpe 30,083,315 - - - 30,083,315 F Glatz 1,490,583 - - - 1,490,583 Options Expiring 15 July 2014 S Bendel - - - 10,000,000 10,000,000 Options Expiring 31 December 2014 R Tegoni - - - 11,776,888 11,776,888 S Bendel - - - 2,000,000 2,000,000 G Meltzer - - - 1,111,111 1,111,111

(II)Net Change Other in Options refers to options purchased and /or sold during the financial year. These options were purchased on market or subscribed to the entitlement issue offers of the Company during the year. No options were issued as part of any employee option scheme.

For

per

sona

l use

onl

y

DIRECTORS’ REPORT


REMUNERATION REPORT (CONTINUED)

b. Share Holdings (Direct and Indirect) 2015 (Adjusted for capital consolidation effect on 100:1 Basis) Balance

1.7.2014

Received as Compensation

Options Exercised

Issued as consideration for merger *

Net Change Other (III)

Balance 30.6.2015

R.Tegoni 2,635,442 150,000 - - 2,822,099 5,607,541

S Walters - - - 28,584,937 - 28,584,937 F Glatz 219,530 - - - 219,530

T.Haines - - - 28,584,937 - 28,584,937

R.Morgan - - - 28,584,937 - 28,584,937

S Bendel 460,000 40,000 - - - 500,000

G Meltzer 113,334 40,000 - - 42,859 196,193

R Bhambhani 15,000 - - - - 15,000

Yi.Chen 185,000 - - - - 185,000 *Includes indirect interest held by S.Walters,T.Haines and R. Morgan via shareholdings of Stellar Developments Pty Ltd in SECOS Group Limited. 2014 Balance

1.7.2013 Received as

Compensation Options Exercised

Net Change Other (II)

Balance 30.6.2014

R.Tegoni 228,231,445 - - 35,330,666 263,544,111 F. Glatz 21,952,917 - - 21,952,917 S .Bendel 20,000,000 - - 26,000,000 46,000,000 G .Meltzer - - - 11,333,333 11,333,333 P. Volpe 150,416,649 - - - 150,416,649 R .Bhambhani 1,500,000 - - - 1,500,000 Yi.Chen 18,500,000 - - - 18,500,000 G.Ward 7,581,250 - - - 7,581,250

(III) Net Change Other in Shares refers to shares purchased and /or sold during the financial year. These shares were purchased on market or subscribed to the entitlement issue offers of the Company during the year. No options were issued as part of any employee option scheme Other Transactions with Key Management Personnel

For other transactions with key management personnel, please refer to Note 30.

There have been no other transactions involving equity instruments other than those described in the tables above.

Ownership Interests in Related Parties Interests held in the following classes of related parties are set out in the following notes:

Controlled Entities Note 23

This concludes the remuneration report, which has been audited.

OPTIONS At the date of this report there were no unissued ordinary shares of the Company under option.

INDEMNIFICATION AND INSURANCE OF DIRECTORS & OFFICERS The Company has agreed to indemnify all the current Directors and Officers of the Company and of its controlled entities against all liabilities to another person (other than the Company or a related body corporate) that may arise from their position as Directors and Officers of the

For

per

sona

l use

onl

y

DIRECTORS’ REPORT


Company and its controlled entities, except where the liability arises out of conduct involving a lack of good faith. The Company agrees to meet the full amount of any such liabilities, including costs and expenses.

The Company has paid an annual premium to insure the Directors’ and Officers against liabilities incurred in their respective capacities. Under the policy, details of the premium are confidential.

INDEMNITY AND INSURANCE OF AUDITOR The Company has not, during or since the end of 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.

PROCEEDINGS ON BEHALF OF THE COMPANY No person has applied for leave of court to bring proceedings on behalf of the Company, or to 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 part of those proceedings.

NON-AUDIT SERVICES

During the year the Company did not employ its auditor on assignments additional to their statutory audit duties.

AUDITOR’S INDEPENDENCE DECLARATION

The lead Auditor's Independence Declaration for the year ended 30 June 2015 has been received and can be found on page 23.

This report of the Directors incorporating the Remuneration Report is signed in accordance with a Resolution of the Board of Directors.

Richard Tegoni Director 30 September 2015 Mount Waverley, Victoria

For

per

sona

l use

onl

y

For

per

sona

l use

onl

y

FINANCIAL REPORT


STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2015 Economic Entity Notes 2015 2014 $ $ Sales from main operations 3 17,284,394 21,441,764

Cost of sales (main operations) (17,410,969) (21,127,622)

Trading income 445,345 405,105

Gross profit 318,770 719,247 Other income 3 228,062 3,788 Administrative expenses (875,386) (901,805)

Employment benefits (978,745) (764,528) Marketing & Distribution expenses (87,355) - Research & Development expenses & Patent costs (201,347) - Depreciation & amortisation (327,766) (256,750) Borrowing costs (321,186) (276,641) Net foreign exchange (losses)/gains (233,571) 53,101

Other expenses (47,558) - Impairment-Trade & other receivables 10 (989,786) - Impairment-inventories (76,564) - Merger transaction costs (309,446) - Loss from operating activities (3,901,878) (1,423,588) Share in loss of joint venture (877,925) (803,893)

Gain on acquisition 500,000 -

Loss before income tax 4 (4,279,803) (2,227,481) Income tax expense 5 - -

Loss for the year after tax (4,279,803) (2,227,481) Other comprehensive income, net of income tax

Items that may be reclassified subsequently to profit or

loss

Foreign currency translation differences for foreign operations 395,062 (173,327)

Share of other comprehensive income of joint venture 23,021 (101,449)

418,083 (274,776)

Total comprehensive income for the year (3,861,720) (2,502,257)

(Loss)/Profit attributable to : Members of the Company (4,279,803) (2,227,481)

Non controlling Interest - - Loss for the year after tax (4,279,803) (2,227,481)

Total comprehensive income attributable to : Members of the company (3,861,720) (2,502,257) Non-controlling interest - -

Total comprehensive income for the year (3,861,720) (2,502,257)

For

per

sona

l use

onl

y

FINANCIAL REPORT


STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2015 (CONTINUED)

Earnings per share $ $ -Basic loss per share (0.07) (0.04) As set out in Note 1, basis of preparation, to these financial statements, as a result of the reverse acquisition of Cardia Bioplastics Limited and its controlled entities (“Cardia”) by Stellar Films Group Pty Ltd, the comparative information for 30 June 2014 represents results for Stellar Films Group Companies only for the period from 1 July 2013 to 30 June 2014. The statement of profit or loss and other comprehensive income for the year ended 30 June 2015 represents the results of Stellar Group Companies for the period from 1 July 2014 to 30 June 2015 and the results of Cardia for the period 22 April 2015 to 30 June 2015. The accompanying notes form part of these financial Statements.

For

per

sona

l use

onl

y

FINANCIAL REPORT


STATEMENT OF FINANCIAL POSITION AT 30 JUNE 2015

ECONOMIC ENTITY Notes 2015 2014 $ $ Current Assets Cash and cash equivalents 9 2,627,392 86,350 Trade and other receivables 10 3,508,535 3,645,951 Inventories 11 2,940,902 2,576,946 Total Current Assets 9,076,829 6,309,247

Non-Current Assets Trade and other receivables 10 - 217,658 Investments accounted for using the equity method 12 - 488,011 Financial Assets 13 563,400 - Deferred Tax Assets 5 251,861 252,801 Property, Plant and Equipment 14 3,632,208 3,295,650 Intangible Assets 15 3,532,345 - Total Non-Current Assets 7,979,814 4,254,120 Total Assets 17,056,643 10,563,367

Current Liabilities Trade and other payables 16 4,942,205 4,865,220 Borrowings 17 2,934,430 3,484,318 Short term provisions 18 717,861 307,928 Total Current Liabilities 8,594,496 8,657,466 Non-Current Liabilities Borrowings 17 483,898 298,041 Long term provisions 19 44,330 - Total Non-Current Liabilities 528,228 298,041 Total Liabilities 9,122,724 8,955,507 Net Assets 7,933,919 1,607,860

Equity Issued Capital 20 10,549,724 400,004 Reserves 21 39,202 (378,881) Accumulated Losses (2,693,066) 1,586,737 Parent Entity Interest 7,895,860 1,607,860 Non Controlling Interest 38,059 - Total Equity 7,933,919 1,607,860

As set out in Note 1, basis of preparation, to these financial statements, as a result of the reverse acquisition of Cardia Bioplastics Limited and its controlled entities (“Cardia”) by Stellar Films Group Pty Ltd, the comparative information for 30 June 2014 represents financial position of Stellar Group Companies only as at 30 June 2014. The statement of financial position as at 30 June 2015 represents that of the consolidated entity-SECOS Group which consolidates Stellar and Cardia as at that date. The accompanying notes form part of these financial Statements.

For

per

sona

l use

onl

y

FINANCIAL REPORT


STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2015 Economic Entity

Issued Share Capital

Accumulated Losses

Foreign Currency Translation Reserve

Parent Entity Interest

Non Controlling Interests

Total Equity

$ $ $ $ $ $

Balance at 1.7.2013 400,004 4,715,218 (104,105) 5,011,117 - 5,011,117

(Loss)/Profit for the Year - (2,227,481) - (2,227,481) - (2,227,481)

Other Comprehensive income/(deficit) for the year - - (274,776) (274,776) - (274,776)

Total comprehensive income/(deficit) for the year - (2,227,481) (274,776) (2,502,257) - (2,502,257)

Transactions with owners in their capacity as owners

Shares/Options issued during the year - - - - - -

Cost of Capital - - - - - -

Balance at 30.06.2014 400,004 2,487,737 (378,881) (2,508,860) - (2,508,860)

Dividends Paid - (901,000) - (901,000) - (901,000)

Balance at 30.6.2014 400,004 1,586,737 (378,881) 1,607,860 - 1,607,860

Balance at 1.7.2014 400,004 1,586,737 (378,881) 1,607,860 - 1,607,860

(Loss)/Profit for the Year - (4,279,803) - (4,279,803) - (4,279,803)

Other Comprehensive income/(deficit) for the year - - 418,083 418,083 - 418,083

Total comprehensive income/(deficit) for the year - (4,279,803) 418,083 (3,861,720) - (3,861,720)

Recognition of non-controlling interest of Natural

Pharmacy Ltd on merger 38,059 38,059

Transactions with owners in their capacity as owners

Shares issued pursuant to merger 6,378,456 - - 6,378,456 - 6,378,456

Shares/Options issued since completion of merger 4,145,767 - - 4,145,767 - 4,145,767

Cost of Capital (374,503) - - (374,503) - (374,503)

Balance at 30.06.2015 10,549,724 (2,693,066)) 39,202 7,895,860 38,059 7,933,919

The accompanying notes form part of these financial Statements.

For

per

sona

l use

onl

y

FINANCIAL REPORT


STATEMENT OF CASH FLOWS For the year ended 30 June 2015 ECONOMIC ENTITY Notes 2015 2014 $ $

Cash Flows from Operating Activities Receipts from customers 18,426,015 23,247,824 Payments to suppliers and employees (19,665,803) (22,553,049) Interest received 1,563 3,788 Borrowing Costs (321,186) (276,641) Research & Development Tax Credits received 218,458 - Net Cash Outflow from Operating Activities 27 (1,340,953) 421,922 Cash Flows from Investing Activities

Purchase of fixed assets (11,230) (17,192)

Proceeds from sale of fixed assets 6,962 - Loans to related parties (274,633) (433,066) Cash Balance on business acquisition 834,807 - Net Cash Outflow from Investing Activities 555,906 (450,258) Cash Flows from Financing Activities Proceeds from Borrowings 262,771 1,355,759 Repayment of Borrowings (660,197) (291,127) Repayment of Finance lease liability (11,644) (8,047) Proceeds from issues of ordinary shares and options 4,145,767 - Payment of share and options issue costs (374,503) - Dividend Paid - (901,000) Net Cash Inflow from Financing Activities 3,362,194 155,585 Net Decrease in Cash and Cash Equivalents Held 2,577,147 127,249 Cash and Cash Equivalents at the Beginning of the Financial Year (418,960) (542,341) Effect of exchange rates on cash holding in foreign currencies 18,856 (3,868)

Cash and Cash Equivalents at the End of the Financial Year 9 2,177,043 (418,960)

As set out in Note 1, basis of preparation, to these financial statements, as a result of the reverse acquisition of Cardia Bioplastics Limited and its controlled entities (“Cardia”) by Stellar Films Group Pty Ltd, the comparative information for 30 June 2014 represents Cash flows for Stellar Films Group Companies only for the period from 1 July 2013 to 30 June 2014. The statement of cash flows for the year ended 30 June 2015 represents the results of Stellar Group Companies for the period from 1 July 2014 to 30 June 2015 and the results of Cardia for the period 22 April 2015 to 30 June 2015

The accompanying notes form part of these financial Statements.

For

per

sona

l use

onl

y

FINANCIAL REPORT


NOTES TO THE FINANCIAL STATEMENTS NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PREPARATION

These general purpose financial statements have been prepared in accordance with Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board ('AASB') and the Corporations Act 2001, as appropriate for for-profit oriented entities. These financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board ('IASB').

The financial statements cover the economic entity of SECOS Group Limited and its controlled entities.

SECOS Group Limited is a listed public company, incorporated and domiciled in Australia. The Company is for-profit entity for accounting purposes.

The Financial statements were authorised for issue on 30 September 2015 by the Board of Directors. Reverse acquisition On 21 April 2015, SECOS Group Limited (formerly Cardia Bioplastics Limited), acquired 100% of the issued securities of Stellar Group Companies (“Stellar”). For accounting purposes, the business combination was treated as a reverse acquisition, representing the continuation of the existing group previously controlled by Stellar. Refer to the “Business Combinations” accounting policy in Note 1(o) for further details.

The following is a summary of the material accounting policies adopted by the economic entity in the preparation of the financial statements. The accounting policies have been consistently applied, unless otherwise stated.

New, revised or amending Accounting Standards and Interpretations adopted The economic entity has adopted all of the new, revised or amending Accounting Standards and Interpretations issued by the Australian Accounting Standards Board ('AASB') that are mandatory for the current reporting period. Any new, revised or amending Accounting Standards or Interpretations that are not yet mandatory have not been early adopted. Any significant impact on the accounting policies of the consolidated entity from the adoption of these Accounting Standards and Interpretations are disclosed below. The adoption of these Accounting Standards and Interpretations did not have any significant impact on the financial performance or position of the consolidated entity. The following Accounting Standards and Interpretations are most relevant to the consolidated entity:

AASB 2012-3 Amendments to Australian Accounting Standards - Offsetting Financial Assets and Financial Liabilities

The consolidated entity has applied AASB 2012-3 from 1 July 2014. The amendments add application guidance to address inconsistencies in the application of the offsetting criteria in AASB 132 'Financial Instruments: Presentation', by clarifying the meaning of 'currently has a legally enforceable right of set-off'; and clarifies that some gross settlement systems may be considered to be equivalent to net settlement.

AASB 2013-3 Amendments to AASB 136 - Recoverable Amount Disclosures for Non-Financial Assets

The consolidated entity has applied AASB 2013-3 from 1 July 2014. The disclosure requirements of AASB 136 'Impairment of Assets' have been enhanced to require additional information about the fair value measurement when the recoverable amount of impaired assets is based on fair value less costs of disposals. Additionally, if measured using a present value technique, the discount rate is required to be disclosed.

AASB 2014-1 Amendments to Australian Accounting Standards (Parts A to C)

The consolidated entity has applied Parts A to C of AASB 2014-1 from 1 July 2014. These amendments affect the following standards: AASB 2 'Share-based Payment': clarifies the definition of 'vesting condition' by separately defining a 'performance condition' and a 'service condition' and amends the definition of 'market condition'; AASB 3 'Business Combinations': clarifies that contingent consideration in a business combination is subsequently measured at fair value with changes in fair value recognised in profit or loss irrespective of whether the contingent consideration is within the scope of AASB 9; AASB 8 'Operating Segments': amended to require disclosures of judgements made in applying the aggregation criteria and clarifies that a reconciliation of the total reportable segment assets to the entity's assets is required only if segment assets are reported regularly to the chief operating decision maker; AASB 13 'Fair Value Measurement': clarifies that the portfolio exemption applies to the valuation of contracts within the scope of AASB 9 and AASB 139; AASB 116 'Property, Plant and Equipment' and AASB 138 'Intangible Assets': clarifies that on revaluation, restatement of accumulated depreciation will not necessarily be in the same proportion to the change in the gross carrying value of the asset; AASB 124 'Related Party Disclosures': extends the definition of 'related party' to include a

For

per

sona

l use

onl

y

FINANCIAL REPORT


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) management entity that provides KMP services to the entity or its parent and requires disclosure of the fees paid to the management entity; AASB 140 'Investment Property': clarifies that the acquisition of an investment property may constitute a business combination.

AASB 2013-7 – Amendments to AASB 1038 arising from AASB 10 in relation to Consolidations and interests of policyholders

This Standard removes the specific requirements in relation to consolidation from AASB 1038, leaving AASB 10 as the sole source for consolidation requirements applicable to life insurer entities. AASB 10 is not expected to have a material impact on the Company.

AASB 2013-9 Amendments to Australian Accounting Standards – Conceptual Framework, Materiality and Financial Instruments

This standard amends certain Australian Accounting Standards to remove references to AASB 1031 as part of the AASB’s decision to withdraw the Australian specific guidance.

Reporting Basis and Conventions

The financial statements have been prepared on an accruals basis and are based on historical costs modified by the revaluation of selected non-current assets, financial assets and financial liabilities for which the fair value basis of accounting has been applied.

Going Concern Assumption The Consolidated Group’s revenue from sales has been insufficient to cover operational costs of the business and hence the company has incurred net loss of ($4,279,803) during the year ended 30 June 2015 (2014: Loss $2,227,481) and also experienced net cash outflows from operating activities of ($1,340,953) during the year ended 30 June 2015. (2014: $421,922).The Company’s continuing viability, its ability to continue as a going concern and to meet its debts and commitments as they fall due, are subject to the company being successful in:

° Accessing additional capital/debt - The Company has a track record of raising capital; during 12 months to June 2015, the Company has successfully raised approx. $4.1 million through rights issue and share placements after the completion of the merger.

° Continuing to develop profitable cash flows from current activities- The Group has been working on a number of development projects with global brand owners and international packaging companies. Some of these projects are in commercial negotiations and others have advanced to “in-market trials” stages. Whist no assurances can be given, it is expected that on successful outcomes, these development projects can significantly contribute positively to the group’s cash flows. The Group has already been successful in converting some of these development projects to commercial orders, the details of which have been communicated via the Company’s ASX announcements.

Moreover, SECOS’ New Board is continuously seeking and have put in measures in place to redirect resources to activities that are cash- flow positive in the short-term.

° Controlling costs-The Group will continue to look for avenues to reduce costs as it develops its operations.

° Ability to divest non-core assets to increase cash position- The Group may consider divesting some of its non-core assets, the proceeds of which would yield a net inflow to future cash flows. The Group managed to sell its equity interest in P-Fuel Limited last year.

The Directors are seeking to raise funds via capital raising and/or debt and in line with the above matters have prepared the financial report on a going concern basis. At this time the Directors are of the opinion that no asset is likely to be realised for an amount less than the amount at which it is recorded in the Report.

These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or to the amounts and classification of liabilities that may be necessary should the Group be unable to continue as a going concern. a. Principles of Consolidation The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of SECOS Group Limited ('company' or 'parent entity') as at 30 June 2015 and the results of all subsidiaries for the year then ended. SECOS Group Limited and its subsidiaries together are referred to in these financial statements as the 'economic entity'.

For

per

sona

l use

onl

y

FINANCIAL REPORT


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Subsidiaries are all those entities over which the consolidated entity has control. The consolidated entity controls an entity when the economic entity is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the consolidated entity. They are de-consolidated from the date that control ceases. Intercompany transactions, balances and unrealised gains on transactions between entities in the consolidated entity are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the consolidated entity. The acquisition of subsidiaries is accounted for using the acquisition method of accounting. A change in ownership interest, without the loss of control, is accounted for as an equity transaction, where the difference between the consideration transferred and the book value of the share of the non-controlling interest acquired is recognised directly in equity attributable to the parent. Non-controlling interest in the results and equity of subsidiaries are shown separately in the statement of profit or loss and other comprehensive income, statement of financial position and statement of changes in equity of the consolidated entity. Losses incurred by the consolidated entity are attributed to the non-controlling interest in full, even if that results in a deficit balance. Where the economic entity loses control over a subsidiary, it derecognises the assets including goodwill, liabilities and non-controlling interest in the subsidiary together with any cumulative translation differences recognised in equity. The consolidated entity recognises the fair value of the consideration received and the fair value of any investment retained together with any gain or loss in profit or loss. A list of controlled entities is contained in Note 20 to the financial statements.

Goodwill

Goodwill arises on the acquisition of a business. Goodwill is not amortised. Instead, goodwill is tested annually for impairment, or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. Impairment losses on goodwill are taken to profit or loss and are not subsequently reversed.

Goodwill

is allocated to the Group's cash-generating units or groups of cash-generating units, representing the lowest level at which goodwill is monitored not larger than an operating segment. Gains and losses on the disposal of an entity include the carrying amount of goodwill related to the entity disposed of.

Changes in the ownership interests in a subsidiary that do not result in a change in control are accounted for as equity transactions and do not affect the carrying values of goodwill.

b. Income Tax The charge for current income tax expense is based on the profit for the year adjusted for any non-assessable or disallowed items. It is calculated using tax rates that have been enacted or are substantially enacted at the end of the reporting period.

Deferred tax is accounted for using the liability method in respect of temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. No deferred income tax will be recognised from the initial recognition of an asset or liability, excluding a business combination, where there is no effect on accounting or taxable profit or loss.

Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or liability is settled. Deferred tax is credited in the statement of comprehensive income except where it relates to items that may be credited directly to equity, in which case the deferred tax is adjusted directly against equity.

Deferred income tax assets are recognised to the extent that it is probable that future tax profits will be available against which deductible temporary differences can be utilised.

The amount of benefits brought to account or which may be realised in the future is based on the assumption that no adverse change will occur in income taxation legislation and the anticipation that the economic entity will derive sufficient future assessable income to enable the benefit to be realised and comply with the conditions of deductibility imposed by the law.

c. Inventories Inventories are measured at the lower of cost and net realisable value. The cost of manufactured products includes direct materials, direct labour and an appropriate portion of variable and fixed overheads. Overheads are applied on the basis of normal operating capacity. Costs are assigned on the basis of weighted average costs.

For

per

sona

l use

onl

y

FINANCIAL REPORT


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

d. Property, Plant and Equipment Land and buildings are shown at cost, less subsequent depreciation and impairment for buildings. Any accumulated depreciation at the date of revaluation is eliminated against the gross carrying amount of the asset and the net amount is restated to the revalued amount of the asset. Increases in the carrying amounts arising on revaluation of land and buildings are credited in other comprehensive income through to the revaluation surplus reserve in equity. Any revaluation decrements are initially taken in other comprehensive income through to the revaluation surplus reserve to the extent of any previous revaluation surplus of the same asset. Thereafter the decrements are taken to profit or loss.

Plant and equipment are measured on the cost basis less accumulated depreciation and accumulated impairment losses.

Capital work-in-progress comprises outstanding advances paid to acquire fixed assets and the cost of fixed assets that are not yet ready for their intended use at the reporting date.

The cost of fixed assets constructed within the economic entity includes the cost of materials, direct labour, borrowing costs and an appropriate proportion of fixed and variable overheads.

Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the statement of profit or loss during the financial period in which they are incurred.

Depreciation The depreciable amount of all fixed assets is depreciated on a straight line basis over their useful lives to the economic entity commencing from the time the asset is held ready for use.

The depreciation rates used for each class of depreciable assets are:

Class of Fixed Asset Depreciation Rate Building 2.00% Plant and Machinery 10% to 33% Office Equipment 10% to 40% Motor Vehicle 10% to 20% Furniture & Fixtures 7.5% to 10% Leasehold Improvements 2.50% Computer Software 20.00%

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.

Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These gains and losses are included in the statement of comprehensive income.

e. Leases The determination of whether an arrangement is or contains a lease is based on the substance of the arrangement and requires an assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset.

A distinction is made between finance leases, which effectively transfer from the lessor to the lessee substantially all the risks and benefits incidental to the ownership of leased assets, and operating leases, under which the lessor effectively retains substantially all such risks and benefits.

Finance leases are capitalised. A lease asset and liability are established at the fair value of the leased assets, or if lower, the present value of minimum lease payments. Lease payments are allocated between the principal component of the lease liability and the finance costs, so as to achieve a constant rate of interest on the remaining balance of the liability. Leased assets acquired under a finance lease are depreciated over the asset's useful life or over the shorter of the asset's useful life and the lease term if there is no reasonable certainty that the consolidated entity will obtain ownership at the end of the lease term.

For

per

sona

l use

onl

y

FINANCIAL REPORT


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Operating lease payments, net of any incentives received from the lessor, are charged to profit or loss on a straight-line basis over the term of the lease.

f. Financial Instruments Initial recognition and measurement Financial assets and financial liabilities are recognised when the entity becomes a party to the contractual provisions to the instrument. For financial assets, this is equivalent to the date that the group commits itself to either the purchase or sale of the asset. (i.e. trade date accounting is adopted).

Financial instruments are initially measured at fair value plus transaction costs.

Classification and subsequent measurement Financial instruments are subsequently measured at either of fair value, amortised cost using the effective interest rate method, or cost. Fair value represents the amount for which an asset could be exchanged or a liability settled, between knowledgeable, willing parties. Where available, quoted prices in an active market are used to determine fair value. In other circumstances, valuation techniques are adopted.

Amortised cost is calculated as:

a. the amount at which the financial asset or financial liability is measured at initial recognition; b. less principal repayments; c. plus or minus the cumulative amortisation of the difference, if any, between the amount initially recognised and the maturity amount

calculated using the effective interest method; d. less any reduction for impairment.

The effective interest method is used to allocate interest income or interest expense over the relevant period and is equivalent to the rate that exactly discounts estimated future cash payments or receipts (including fees, transaction contractual term) of the financial instrument to the net carrying amount of the financial asset or financial liability. Revisions to expected future net cash flows will necessitate an adjustment to the carrying value with a consequential recognition of an income or expense in profit or loss.

The Group does not designate any interests in subsidiaries, associates or joint venture entities as being subject to the requirements of accounting standards specifically applicable to financial instruments.

i) Loans and receivables Loans and receivable are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are stated at amortised cost using the effective interest rate method.

ii) Available-for-sale financial assets Available for sale financial assets include any financial assets not included in the above categories. Available-for-sale financial assets are reflected at fair value. Unrealised gains and losses arising from changes in fair value are taken directly to equity.

iii) Financial Liabilities Non-derivative financial liabilities compromising trade and other payables are recognised at amortised cost, comprising original debt less principal payments and amortisation.

Fair value When an asset or liability, financial or non-financial, is measured at fair value for recognition or disclosure purposes, the fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date; and assumes that the transaction will take place either: in the principal market; or in the absence of a principal market, in the most advantageous market.

Fair value is measured using the assumptions that market participants would use when pricing the asset or liability, assuming they act in their economic best interests. For non-financial assets, the fair value measurement is based on its highest and best use. Valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, are used, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.

For

per

sona

l use

onl

y

FINANCIAL REPORT


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Assets and liabilities measured at fair value are classified, into three levels, using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. Classifications are reviewed at each reporting date and transfers between levels are determined based on a reassessment of the lowest level of input that is significant to the fair value measurement. For recurring and non-recurring fair value measurements, external valuers may be used when internal expertise is either not available or when the valuation is deemed to be significant. External valuers are selected based on market knowledge and reputation. Where there is a significant change in fair value of an asset or liability from one period to another, an analysis is undertaken, which includes a verification of the major inputs applied in the latest valuation and a comparison, where applicable, with external sources of data. Impairment At the end of each reporting period, the group assess whether there is objective evidence that a financial instrument has been impaired. In the case of available-for-sale financial instruments, a significant or prolonged decline in the value of the instrument is considered to determine whether impairment has arisen. Impairment losses are recognised in the statement of profit or loss. Receivables are impaired after taking into account the recent sales experience, the ageing of receivables, historical collection rates and specific knowledge of the individual debtors financial position. Derecognition Financial assets are derecognised where the contractual rights to receipt of cash flows expires or the asset is transferred to another party whereby the entity no longer has any significant continuing involvement in the risks and benefits associated with the asset. Financial liabilities are derecognised where the related obligations are discharged, cancelled or expired. The difference between the carrying value of the financial liability extinguished or transferred to another party and the fair value of consideration paid, including the transfer of non-cash assets or liabilities assumed, is recognised in profit or loss.

g. Impairments of Assets At the end of each reporting period, the group reviews the carrying values of its tangible and intangible assets to determine whether there is any indication that those assets have been impaired. If such an indication exists, the recoverable amount of the asset being the higher of the asset's fair value less costs to sell and value in use, is compared to the assets carrying value. Any excess of the assets carrying value over its recoverable amount is expensed to the statement of profit or loss.

Impairment testing is performed annually for goodwill and intangible assets with indefinite lives.

Where it is not possible to estimate the recoverable amount of an individual asset, the group estimates the recoverable amount of the cash-generating unit to which the asset belongs.

h. Intangibles Patents and trademarks Costs incurred in relation to development, registration and maintenance of patents and trademarks are expensed as and when incurred.

Research and development Expenditure during the research phase of a project is recognised as an expense when incurred. Development costs are capitalised only when technical feasibility studies identify that the project will deliver future economic benefits and these benefits can be measured reliably.

Development costs have a finite life and are amortised on a systematic basis matched to the future economic benefits over the useful life of the project.

i. Foreign Currency Transactions and Balances

Functional and presentation currency The functional currency of each of the group’s entities is measured using the currency of the primary economic environment in which that entity operates. The consolidated financial statements are presented in Australian dollars which is the parent entity’s functional and presentation currency.

Transaction and balances Foreign currency transactions are translated into functional currency using the exchange rates prevailing at the date of the transaction. Foreign currency monetary items are translated at the year-end exchange rate. Non-monetary items measured at historical cost continue to be carried at the exchange rate at the date of the transaction. Non-monetary items measured at fair value are reported at the exchange rate at the date when fair values were determined.

For

per

sona

l use

onl

y

FINANCIAL REPORT



Exchange differences arising on the translation of monetary items are recognised in the statement of profit or loss, except where deferred in other comprehensive income as a qualifying cash flow or net investment hedge.

Exchange differences arising on the translation of non-monetary items are recognised directly in other comprehensive income to the extent that the gain or loss is directly recognised in other comprehensive income; otherwise the exchange difference is recognised in the statement of profit or loss.

Group companies The financial results and position of foreign operations whose functional currency is different from the group’s presentation currency are translated as follows:

- Assets and liabilities are translated at year-end exchange rates prevailing at the end of reporting period. - Income and expenses are translated at average exchange rates for the period. The average rate is only used where the rate

approximates the rate at the date of transaction. - Retained profits are translated at the exchange rates prevailing at the date of the transaction.

Exchange differences arising on translation of foreign operations are transferred directly to the group’s foreign currency translation reserve in the statement of financial position. These differences are recognised in the statement of profit or loss in the period in which the operation is disposed.

j. Employee Benefits

Short-term employee benefits Liabilities for wages and salaries, including non-monetary benefits, annual leave and long service leave expected to be settled within 12 months of the reporting date are recognised in current liabilities in respect of employees' services up to the reporting date and are measured at the amounts expected to be paid when the liabilities are settled. Other long-term employee benefits The liability for annual leave and long service leave not expected to be settled within 12 months of the reporting date are recognised in non-current liabilities, provided there is an unconditional right to defer settlement of the liability. The liability is measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the reporting date on high quality corporate bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. Defined contribution superannuation expense Contributions to defined contribution superannuation plans are expensed in the period in which they are incurred. k. Provisions Provisions are recognised when the consolidated entity has a present (legal or constructive) obligation as a result of a past event, it is probable the consolidated entity will be required to settle the obligation, and a reliable estimate can be made of the amount 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 account the risks and uncertainties surrounding the obligation. If the time value of money is material, provisions are discounted using a current pre-tax rate specific to the liability. The increase in the provision resulting from the passage of time is recognised as a finance cost. l. Cash and Cash Equivalents Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. For the statement of cash flows presentation purposes, cash and cash equivalents also includes bank overdrafts, which are shown within borrowings in current liabilities on the statement of financial position. m. Revenue Revenue from the sale of goods is recognised upon transfer of significant risks and rewards of ownership of goods to customers which normally occurs on the delivery of goods to customers.

Interest revenue is recognised on a proportional basis taking into account the interest rates applicable to the financial assets.

For

per

sona

l use

onl

y

FINANCIAL REPORT



R&D Tax Credits in respect of qualified research and development expenditure are recognised as revenue in the year of receipt.

n. Goods and Services Tax (GST) and other similar taxes Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the tax authority. In this case it is recognised as part of the cost of the acquisition of the asset or as part of the expense.

Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the tax authority is included in other receivables or other payables in the statement of financial position.

Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to the tax authority, are presented as operating cash flows.

Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the tax authority.

o. Business combinations The acquisition method of accounting is used to account for business combinations regardless of whether equity instruments or other assets are acquired.

The consideration transferred is the sum of the acquisition-date fair values of the assets transferred, equity instruments issued or liabilities incurred by the acquirer to former owners of the acquiree and the amount of any non-controlling interest in the acquiree. For each business combination, the non-controlling interest in the acquiree is measured at either fair value or at the proportionate share of the acquiree's identifiable net assets. All acquisition costs are expensed as incurred to profit or loss.

On the acquisition of a business, the consolidated entity assesses the financial assets acquired and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic conditions, the consolidated entity's operating or accounting policies and other pertinent conditions in existence at the acquisition-date.

Where the business combination is achieved in stages, the consolidated entity remeasures its previously held equity interest in the acquiree at the acquisition-date fair value and the difference between the fair value and the previous carrying amount is recognised in profit or loss.

Contingent consideration to be transferred by the acquirer is recognised at the acquisition-date fair value. Subsequent changes in the fair value of the contingent consideration classified as an asset or liability is recognised in profit or loss. Contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity

The difference between the acquisition-date fair value of assets acquired, liabilities assumed and any non-controlling interest in the acquiree and the fair value of the consideration transferred and the fair value of any pre-existing investment in the acquiree is recognised as goodwill. If the consideration transferred and the pre-existing fair value is less than the fair value of the identifiable net assets acquired, being a bargain purchase to the acquirer, the difference is recognised as a gain directly in profit or loss by the acquirer on the acquisition-date, but only after a reassessment of the identification and measurement of the net assets acquired, the non-controlling interest in the acquiree, if any, the consideration transferred and the acquirer's previously held equity interest in

Business combinations are initially accounted for on a provisional basis. The acquirer retrospectively adjusts the provisional amounts recognised and also recognises additional assets or liabilities during the measurement period, based on new information obtained about the facts and circumstances that existed at the acquisition-date. The measurement period ends on either the earlier of (i) 12 months from the date of the acquisition or (ii) when the acquirer receives all the information possible to determine fair value.

Reverse acquisition-SECOS Group Limited and Stellar Films Group On 21 April 2015, SECOS Group Limited (formerly Cardia Bioplastics Limited) acquired 100% of the issued securities of Stellar Group Companies (“Stellar”). Under the principles of AASB 3-“Business Combinations” Stellar is the accounting acquirer in the business combination and therefore, the transaction has been accounted for as a reverse acquisition. Accordingly, the financial statements are a continuation of Stellar and as such:

- The assets and liabilities recognised and measured in the consolidated financial statements are at the carrying amounts of Stellar rather than their fair values,

- The retained earnings and other equity balances recognised in the consolidated financial statements represent the retained earnings and other equity balances of Stellar;

- The amount recognised for issued capital includes the value of shares issued to vendors of Stellar. Such shares were measured at the fair value of the share capital SECOS Group Limited on issue immediately prior to the reverse acquisition and

For

per

sona

l use

onl

y

FINANCIAL REPORT



- The comparatives presented are that of Stellar.

Refer to Note 29 for further details of the business combination with Stellar effected during the year.

p. Earnings per share Basic earnings per share Basic earnings per share is calculated by dividing the profit attributable to the owners of SECOS Group Limited, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the financial year

Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares

q. Comparative Figures When required by Accounting Standards, comparative figures have been adjusted to conform to changes in presentation for the current financial year. The statement of profit or loss and other comprehensive income for 30 June 2014 represents results for Stellar Films Group Companies only for the period from 1 July 2013 to 30 June 2014. Financial position for 30 June 2014 represents financial position of Stellar Group Companies only as at 30 June 2014.

r. Critical Accounting Estimates ,Judgements and Assumptions The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts in the financial statements. Management continually evaluates its judgements and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgements, estimates and assumptions on historical experience and on other various factors, including expectations of future events, management believes to be reasonable under the circumstances. The resulting accounting judgements and estimates will seldom equal the related actual results. The judgements, estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities (refer to the respective notes) within the next financial year are discussed below.

Provision for impairment of receivables The provision for impairment of receivables assessment requires a degree of estimation and judgement. The level of provision is assessed by taking into account the recent sales experience, the ageing of receivables, historical collection rates and specific knowledge of the individual debtors financial position. Provision for impairment of inventories The provision for impairment of inventories assessment requires a degree of estimation and judgement. The level of the provision is assessed by taking into account the recent sales experience, the ageing of inventories and other factors that affect inventory obsolescence.

Fair value measurement hierarchy The economic entity is required to classify all assets and liabilities, measured at fair value, using a three level hierarchy, based on the lowest level of input that is significant to the entire fair value measurement, being: Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date; Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and Level 3: Unobservable inputs for the asset or liability. Considerable judgement is required to determine what is significant to fair value and therefore which category the asset or liability is placed in can be subjective. The fair value of assets and liabilities classified as level 3 is determined by the use of valuation models. These include discounted cash flow analysis or the use of observable inputs that require significant adjustments based on unobservable inputs.

Estimation of useful lives of assets The economic entity determines the estimated useful lives and related depreciation and amortisation charges for its property, plant and equipment and finite life intangible assets. The useful lives could change significantly as a result of technical innovations or some other event. The depreciation and amortisation charge will increase where the useful lives are less than previously estimated lives, or technically obsolete or non-strategic assets that have been abandoned or sold will be written off or written down.

For

per

sona

l use

onl

y

FINANCIAL REPORT


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Goodwill and other indefinite life intangible assets The economic entity tests annually, or more frequently if events or changes in circumstances indicate impairment, whether goodwill and other indefinite life intangible assets have suffered any impairment, in accordance with the accounting policy stated in note 1. The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations require the use of assumptions, including estimated discount rates based on the current cost of capital and growth rates of the estimated future cash flows. Impairment of non-financial assets other than goodwill and other indefinite life intangible assets The economic entity assesses impairment of non-financial assets other than goodwill and other indefinite life intangible assets at each reporting date by evaluating conditions specific to the consolidated entity and to the particular asset that may lead to impairment. If an impairment trigger exists, the recoverable amount of the asset is determined. This involves fair value less costs of disposal or value-in-use calculations, which incorporate a number of key estimates and assumptions. Income tax The economic entity is subject to income taxes in the jurisdictions in which it operates. Significant judgement is required in determining the provision for income tax. There are many transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain. The economic entity recognises liabilities for anticipated tax audit issues based on the economic entity's current understanding of the tax law. Where the final tax outcome of these matters is different from the carrying amounts, such differences will impact the current and deferred tax provisions in the period in which such determination is made.

Recovery of deferred tax assets Deferred tax assets are recognised for deductible temporary differences only if the economic entity considers it is probable that future taxable amounts will be available to utilise those temporary differences and losses.

Employee benefits provision The liability for employee benefits expected to be settled more than 12 months from the reporting date are recognised and measured at the present value of the estimated future cash flows to be made in respect of all employees at the reporting date. In determining the present value of the liability, estimates of attrition rates and pay increases through promotion and inflation have been taken into account.

Lease make good provision A provision has been made for the present value of anticipated costs for future restoration of leased premises. The provision includes future cost estimates associated with closure of the premises. The calculation of this provision requires assumptions such as application of closure dates and cost estimates. The provision recognised for each site is periodically reviewed and updated based on the facts and circumstances available at the time. Changes to the estimated future costs for sites are recognised in the statement of financial position by adjusting the asset and the provision. Reductions in the provision that exceed the carrying amount of the asset will be recognised in profit or loss.

s. New Accounting Standards for Application in Future Periods New Accounting Standards and Interpretations not yet mandatory or early adopted Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet effective and have not been adopted by the economic entity for the annual reporting period ending 30 June 2015 are outlined in the tables below.

Standard Mandatory date for annual reporting periods

beginning on or after)

Reporting period standard to be adopted by Economic Entity

AASB 9 Financial Instruments and related standards 1 January 2018 1 July 2018

AASB 2014-4 Clarification of Acceptable Methods of Depreciation and Amortisation

1 January 2016 1 July 2016

AASB 15 Revenue from Contracts with Customers and AASB 2014-5 1 January 2017* 1 July 2017

AASB 2014-9 Equity method in separate financial statements 1 January 2016 1 July 2016

For

per

sona

l use

onl

y

FINANCIAL REPORT


Standard Mandatory date for annual reporting periods

beginning on or after)

Reporting period standard to be adopted by Economic Entity

AASB 2015-1 Annual improvements 2012 – 2014 cycle 1 January 2016 1 July 2016

2015-2 Amendments to Australian Accounting Standards – Disclosure Initiative: Amendments to AASB 101

1 January 2016 1 July 2016

2015-3 Amendments to Australian Accounting Standards arising from the Withdrawal of AASB 1031 Materiality

1 July 2015 1 July 2015

* On 11 September 2015, the International Accounting Standards Board (IASB) issued an amendment to defer the effective date of IFRS 15 (the international equivalent of AASB 15) from 1 January 2017 to 1 January 2018. It is expected that the AASB will make a corresponding amendment to AASB 15, which will mean that the application date of this standard for economic entity will move from 1 July 2017 to 1 July 2018.

Management are currently assessing the impact of these new and revised standards, however, they are not expected to have a material impact on the company.

NOTE 2 PARENT ENTITY 2015

$ 2014 $

The following information has been extracted from the books and records of the parent and has been prepared in accordance with Australian Accounting Standards. In accordance with requirements of AASB 3, Cardia’s balances have been used for the purpose of the parent entity disclosure. STATEMENT OF FINANCIAL POSITION ASSETS Current assets 2,428,572 1,748,189 Non-current assets 23,589,906 13,099,371

TOTAL ASSETS 26,018,478 14,847,560

LIABILITIES Current liabilities 259,495 64,822 Non-current liabilities 31,623 33,239

TOTAL LIABILITIES 291,118 98,061

EQUITY Issued capital 59,565,013 46,959,841 Accumulated losses (34,156,913) (32,529,602) Financial Asset Reserve 319,260 319,260

TOTAL EQUITY 25,727,360 14,749,499

STATEMENT OF COMPREHENSIVE INCOME Loss for the year after tax (1,063,898) (521,932) Total comprehensive income (1,063,898) (334,132)

Guarantees

SECOS Group Limited has not entered into any guarantees, in the current or previous financial year, in relation to the debts of its subsidiaries.

Contingent liabilities SECOS Group Limited had no contingent liabilities as at 30 June 2015. (2014: NIL).

For

per

sona

l use

onl

y

FINANCIAL REPORT


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) NOTE 2 PARENT ENTITY (CONTINUED)

Contractual commitments

At 30 June 2015, SECOS Group Limited had not entered into any contractual commitments for the acquisition of property, plant and equipment (2014: NIL).

Significant accounting policies

The accounting policies of the parent entity are consistent with those of the consolidated entity, as disclosed in note 1, except for the following:

● Investments in subsidiaries are accounted for at cost, less any impairment, in the parent entity.

● Investments in associates are accounted for at cost, less any impairment, in the parent entity.

NOTE 3 REVENUE Economic Entity 2015 2014 $ $ Revenue Sales Sales from main operations 17,284,394 21,441,764 Trading Income 445,345 405,105

Total 17,729,739 21,846,869

Other Income Interest 1,563 35 Research & Development Tax Credits 219,677 - Other Income 6,822 3,753

Total 228,062 3,788

Total Revenue 17,957,801 21,850,657

NOTE 4 LOSS FOR THE YEAR Economic Entity 2015 2014 $ $ The Loss before income tax has been arrived at after the following items of expenses

Expenses Depreciation & amortisation 327,766 256,750 Rental expenses relating to operating leases 166,801 147,971 Research, development, and patent costs 193,880 - Amounts written off as bad debts 6,342 3,573

For

per

sona

l use

onl

y

FINANCIAL REPORT


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) NOTE 5 INCOME TAX EXPENSE Economic Entity 2015 2014

$ $

a) The prima facie tax credit on loss before income tax is reconciled to the income tax credit as follows :

Prima facie tax credit provided on loss before income tax at 30% (2014: 30%)

- Economic Entity (1,283,941) (668,244)

(1,283,941) (668,244) - Adjustment for foreign tax rates 80,533 55,999 - Non assessable-Research & Development Tax Offset (65,537) - - Other Non assessable income items (19,154) (15,429) - Non –deductible expenses 513,601 199,701 - Other deductible expenses (4,915) (73,983) - Share of loss in Joint Venture Entity 263,378 200,973 - Acquisition Gain recognized on business acquisition (150,000) - - Losses on merger with SECOS Group Limited (5,774,725) -

(6,440,760) (300,983) Deferred income tax assets not recognised 6,440,760 300,983

Income tax expense - - b) The Directors estimate that the potential deferred income tax

assets at 30 June 2015 in respect of tax losses not brought to account is : 7,200,043 758,343

Deferred tax assets after discounting carried forward balance of $ 251,861 (2014: $ 252,801) have not been brought to account as it is not currently considered probable that future taxable profits will be available against which such assets could be utilised.

NOTE 6 KEY MANAGEMENT PERSONNEL COMPENSATION Names and positions held of economic and parent entity key management personnel in office at any time during the financial year are included in the “REMUNERATION REPORT”. Key management personnel remuneration details have been included in the Remuneration Report section of the Directors Report. 2015 2014 $ $ Short-term employee benefits 547,212 663,482 Post-employment benefits 11,765 - Long-term benefits 5,128 5,879 Termination payments - - Share based payment - - 564,105 669,361

NOTE 7 REMUNERATION OF AUDITORS Economic Entity 2015 2014 $ $ Remuneration of the auditor of the parent entity for

- auditing or reviewing the financial statements 45,000 - Remuneration of other auditors of subsidiaries for :

- auditing or reviewing the financial statements of subsidiaries 7,697 7,032 52,697 7,032

For

per

sona

l use

onl

y

FINANCIAL REPORT


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) NOTE 8 EARNINGS PER SHARE Economic Entity 2015 2014 $ $

a) Reconciliation of losses used to calculate earnings per share Loss for the year (4,279,803) (2,227,481) Loss/(Profit) attributable to non-controlling interest - - Loss used to calculate basic EPS (4,279,803) (2,227,481)

Number Number b) Weighted average number of ordinary shares used in the calculation of basic loss

per share 61,336,204 51,972,604 The weighted average number of ordinary shares are calculated based on the ordinary shares that would have been in existence had the reverse acquisition occurred as at 1 July 2013. NOTE 9 CASH AND CASH EQUIVALENTS Economic Entity

2015 2014 $ $ Cash at bank and on hand 2,627,392 86,350 2,627,392 86,350

Reconciliation of cash

Cash at the end of the financial year as shown in the statement of cash flows is reconciled to items in the statement of financial position as follows:

Note 2015 2014

$ $

Cash and cash equivalents 2,627,392 86,350

Bank Overdrafts 17(a) (450,349) (505,310)

2,177,043 (418,960)

NOTE 10 TRADE AND OTHER RECEIVABLES Economic Entity 2015 2014

$ $ Current Trade Receivables 2,941,974 3,483,456 Less : provision for impairment (146,753) - 2,795,221 3,483,456 Prepayments 213,253 70,169 Other receivables 500,061 92,326 3,508,535 3,645,951

Non -Current Amount receivable from related parties 969,786 217,658 Less : Provision for impairment (969,786) - - 217,658

For

per

sona

l use

onl

y

FINANCIAL REPORT


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) NOTE 10 TRADE AND OTHER RECEIVABLES (CONTINUED)

Provision for Impairment of Receivables (Non- current)

Impaired non-current trade and other receivables balances include loans advanced by Stellar Group Pty Ltd to Akronn Industries of $345,710 ( 2014: $217,658) and amounts owed by Stellar Developments Pty Ltd to Stellar Group Pty Ltd- $624,076.

Provision for Impairment of Receivables (Current) Current trade receivables are non-interest bearing and are generally on 30 to 90 day terms. A provision for impairment is recognised when there is objective evidence that an individual trade receivable is impaired. These amounts have been disclosed as a separate line item in Statement of comprehensive income. Receivables that are impaired aged more than 365 days.

On the above basis, the Directors have made key judgement in impairing current trade receivables by $20,000 (2014- NIL) at the reporting date. Break up of impaired receivable, on geographical basis, is provided below:

2015 2014 $ $ Australia - - Americas - - Asia 20,000 - Others - -

20,000 -

Movement in the provision for impairment of receivables is as follows:

2015 Opening Balance 1.7.2014

Balance acquired on Business acquisition

Charge for the Year

Amounts Written Off

Closing Balance

30.06.2015

$ $ $ $ $ Economic Entity Balance acquired on Business acquisition - 126,753 - - 126,753 Current Trade & Other Receivables - 26,342 (6,342) 20,000 - 126,753 26,342 (6,342) 146,753

2014 Opening Balance 1.7.2013

Charge for the Year

Amounts Written Off

Closing Balance

30.06.2014

$ $ $ $ Economic Entity Current Trade & Other Receivables - - - - - - - -

Credit Risk- Trade and Other Receivables

The Group has no significant concentration of credit risk with respect to any single counter party or group of counter parties other than receivables specifically provided for and mentioned within this Note. The class of assets described as Trade and Other Receivables is considered to be the main source of credit risk related to the Group.

On a geographical basis, the Group has significant credit risk exposures in Australia, Americas and Asia given the substantial operations in those regions. The Group’s exposure to credit risk for receivables at the end of reporting period in those regions is as follows:

For

per

sona

l use

onl

y

FINANCIAL REPORT


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) NOTE 10 TRADE AND OTHER RECEIVABLES (CONTINUED)

Economic Entity 2015 2014 $ $ Australia 338,039 680,175 Americas 180,226 238,341 Asia 2,777,017 2,570,422 Others - 86,844 3,295,282 3,575,782

The following table details the Group’s trade and other receivables exposed to credit risk with ageing analysis and impairment provided for thereon. Amounts are considered as ‘past due’ when the debt has not been settled, with the terms and conditions agreed between the Group and the customer or counter party to the transaction. Receivables that are past due are assessed for impairment by ascertaining solvency of the debtors and provided for where there are specific circumstances indicating that the debt may not be fully repaid to the Group.

The balances of receivables that remain within initial terms (as detailed in the table) are considered to be of high credit quality.

The carrying amount of receivables is considered a reasonable approximation to fair values.

Economic Entity

Neither the Group nor parent entity holds any financial assets with terms that have been renegotiated, but which would otherwise be past due or impaired.

NOTE 11 INVENTORIES

Gross Amount

Past due and

Impaired

Past due but not impaired (days overdue)

Within initial trade

terms <30 31-60 61-90 >90 2015 Trade Receivables 2,941,974 146,753 749,176 288,402 167,620 130,251 1,459,772 Other Receivables 500,061 - 18,428 138,259 12,494 52,688 278,192 Total 3,442,035 146,753 767,604 426,661 180,114 182,939 1,737,964 2014

Trade Receivables 3,483,456 - 1,150,008 449,810 171,571 51,341 1,660,726 Other Receivables 92,326 - 92,236 - - - - Total 3,575,782 - 1,242,244 449,810 171,571 51,341 1,606,726

Economic Entity 2015 2014 $ $

Current Raw materials and stores 1,058,760 894,769 Work in progress 195,249 158,422 Finished goods 1,686,893 1,523,755 2,940,902 2,576,946

For

per

sona

l use

onl

y

FINANCIAL REPORT


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) NOTE 12 INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD

A controlled entity, Stellar Films (Malaysia) Sdn Bhd has a 50.8% (2014: 50.8%) equity interest Joint venture entity- Akronn Industries. Akkronn Industries is incorporated in Malaysia and its principal activity is manufacture and distribution of silicone coated paper and film products. The interest in joint venture entity is accounted for in the consolidated statements using the equity method of accounting. 2015 2014 $ $

a. Movements During the year in Equity Accounted Investment in Joint Venture Entity

Balance at beginning of the financial year 488,011 909,349 Add Increase in Investments during the year 366,893 484,004 Share of joint venture entity’s loss after income tax (877,925) (803,893) Share of joint venture entity’s other comprehensive

income/ (deficit)

23,021 (101,449) Balance at end of the financial year - 488,011

b. Equity accounted losses of joint venture entity are broken down as follows:

Share of joint venture’s loss before income tax expense (877,925) (803,893) Less Share of joint venture’s income tax expense - - Share of joint venture’s loss after income tax (877,925) (803,893)

c. Summarised presentation of aggregate assets, liabilities and performance of joint venture entity

Current assets 863,004 575,412 Non-current assets 2,917,822 3,104,622 Total assets 3,780,826 3,680,034 Current liabilities 3,378,663 1,791,190 Non-current liabilities 1,705,211 1,490,906 Total liabilities 5,083,874 3,282,096 Net assets (1,303,048) 397,938

Revenues 1,671,880 121,530

Loss after income tax of joint venture entity (1,728,200) (1,582,467)

Loan advanced by Stellar Films Malaysia to Akronn Industries have been accounted for as net investment in Joint Venture Entity. The loan amounts outstanding as at 30 June 2015 were $ 866,931 (2014: $ 589,432).

Economic Entity Carrying amount of Investments

2015 2014 $ $ Interest in Joint Venture Entity - 488,011 - 488,011

For

per

sona

l use

onl

y

FINANCIAL REPORT


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

NOTE 13 FINANCIAL ASSETS

Economic Entity

2015 2014

Non-Current Available –for-sale financial assets Unlisted Investments, at fair value (a) 563,400 - 563,400 -

(a) Non-current- Available for sale financial assets consist of 18,780,000 ordinary shares in Bioglobal Limited (“Bioglobal”). As at 30

June 2015, these assets have been valued at 3 cents per share based on the offer price for the last capital raising by Bioglobal that occurred in August 2015.

(b) Refer to Note 32 for further information on fair value measurement. NOTE 14 PLANT AND EQUIPMENT Economic Entity 2015 2014 $ $ Land and Buildings Leasehold Land (99 years) At cost 264,412 255,815 Total Land 264,412 255,815 Building At cost 2,218,441 2,117,880 Accumulated depreciation (713,936) (638,911) Total Buildings 1,504,505 1,478,969 Total Land and Buildings 1,768,917 1,734,784 Plant & Machinery At cost 10,787,989 10,188,763 Accumulated depreciation (9,251,522) (8,808,415) 1,536,467 1,380,348 Office Equipments At cost 554,098 502,623 Accumulated depreciation (482,316) (444,157) 71,782 58,466 Motor Vehicles At cost 176,525 182,861 Accumulated depreciation (117,955) (125,404) 58,570 57,457 Furniture & Fixtures At cost 65,190 53,042 Accumulated depreciation (52,386) (47,667) 12,804 5,375 Leasehold Improvements At cost 153,800 - Accumulated depreciation (6,281) - 147,519 - Computer Software At cost 93,702 93,702 Accumulated depreciation (57,559) (34,482) 36,143 59,220 Total 3,632,208 3,295,650

For

per

sona

l use

onl

y

FINANCIAL REPORT


Movement in Carrying Amounts

Reconciliations of the carrying amounts of plant and equipment at the beginning and end of the current and previous financial year are set out below.

Economic Entity

2014 Leasehold Land

Building Plant & Machinery

Office Equipment

Motor Vehicles

Furniture & Fixtures

Leasehold Improvements

Computer Software

Total

$ $ $ $ $ $ $ $ $

Balance at 1 July 2013 271,888 1,596,099 1,998,437 88,299 83,105 7,775 - - 4,045,603

Additions during the year - - 15,162 2,030 - - - 76,922 94,114

Disposals during the year - - (1,800) - - - (1,800)

Foreign Exchange Rate Variations (16,073) (73,759) (83,874) (300) (298) (329) - - (174,633)

Depreciation Expenses - (43,371) (138,493) (31,563) (23,550) (2,071) - (17,702) (256,750)

Depreciation included in Cost of goods sold - - (410,884) - - - - - (410,884)

Balance at 30 June 2014 255,815 1,478,969 1,380,348 58,466 57,457 5,375 - 59,220 3,295,650

2015 Leasehold Land

Building Plant & Machinery

Office Equipment

Motor Vehicles

Furniture & Fixtures

Leasehold Improvements

Computer

Software

Total

$ $ $ $ $ $ $ $ $

Balance at 1 July 2014 255,815 1,478,969 1,380,348 58,466 57,457 5,375 - 59,220 3,295,650

Additions during the year - - 8,763 2,467 - - - - 11,230

Additions through acquisition/merger - - 640,523 42,693 52,174 9,630 149,622 - 894,642

Disposals during the year - - (8,772) (1,295) (45,519) - - - (55,586)

Foreign Exchange Rate Variations 8,597 70,442 94,328 1,709 2,277 267 3,746 - 181,366

Depreciation Expenses - (44,905) (211,392) (32,258) (7,819) (2,467) (5,848) (23,077) (327,766)

Depreciation included in Cost of goods sold - - (367,328) - - - - - (367,328)

Balance at 30 June 2015 264,412 1,504,506 1,536,470 71,782 58,570 12,805 147,520 36,143 3,632,208

For

per

sona

l use

onl

y

FINANCIAL REPORT


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) NOTE 15 INTANGIBLE ASSETS Economic Entity Note 2015 2014 $ $ Goodwill Cost 29 3,532,345 - Accumulated impaired losses - - Net carrying value 3,532,345 -

Impairment Disclosures All Goodwill is allocated to the Group’s distribution division, being a cash generating unit. The recoverable amount of the cash-generating unit is determined based on value-in-use calculations. Value-in-use is calculated based on the present value of base cash flow projections. The cash flows are discounted using an estimated discount rate based on Capital Asset Pricing Model adjusted to incorporate risks associated with a particular segment. Management has based the value-in-use calculations on three year budget forecasts of Bioplastics business. Revenue has been projected on the below mentioned assumptions. Costs are calculated taking into account historical gross margins as well as estimated weighted inflation rates over the period which is consistent with inflation rates applicable to the locations in which the unit operates. Discount rates are pre-tax and reflect risks associated with the distribution division. The following assumptions were used in the value-in-use-calculations: a. Revenue is premised on a “zero based budget” approach whereby each customer, or potential customer, has been specifically assessed

having regard to current indications of demand, customer contacts or as assessed by the relevant sales manager. Long term contracts typically include expenditure “rise and fall” clauses. Accordingly, Revenue is forecast to alter in line with relevant changes to the Group’s direct manufacturing costs.

b. Projected cash flows have been discounted using discount rate of 14%. (2014: NIL) c. Gross profit margins are forecast to be in a range of 20%-45% dependent upon each geographic region. (2014: NIL) d. Manufacturing capacity constraints both in China and Stellar Australia plants have been taken into the accounts in forecasting revenues. e. The annual growth rate of 2% has been estimated in the calculation of terminal value.

Based on the above assumptions, the recoverable amount of the cash generating unit has been determined to exceed its carrying amount as at 30 June 2015 and accordingly; no impairment loss has been recognised.

Sensitivity to changes in assumptions Gross Profit Margin Assumption: Management has considered the possibility of lower gross margins of up to 80% of those budgeted, on the assumption that should raw material prices increases beyond the budgeted raw material price inflation and the Group be not able to pass on additional costs to the customers or absorb through efficiency improvements or other cost cutting measures, then in that case, recoverable amount of the cash-generating unit will exceed its carrying amount by $1.7Million. Discount Rate Assumption: If the estimated cost of capital used in determining the pre-tax discount for the CGU had been 1% higher than management’s estimates (15% instead of 14%), then in that case , recoverable amount of the cash-generating unit will exceed its carrying amount. Revenue Forecasts Assumption: Management has considered the possibility of not achieving revenue forecasts than those budgeted and have instead assumed 80% of forecasted revenue growth per year for the budgeted period of 3 years, then in that case, recoverable amount of the cash-generating unit will exceed its carrying amount.

For

per

sona

l use

onl

y

FINANCIAL REPORT


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) NOTE 16 TRADE AND OTHER PAYABLES Economic Entity

2015 2014

$ $

Current

Unsecured Liabilities

Trade Payables 4,046,285 3,697,525

Deposits from customers 187,431 -

Sundry payables and accrued expenses 708,489 1,167,695 4,942,205 4,865,220

NOTE 17 BORROWINGS

Economic Entity

2015 2014

$ $

Current

Secured Liabilities

Bank Overdrafts 17 (a) 450,349 505,310

Bank Loans 17(a) 2,196,652 1,415,488

Foreign Currency Trade Finance 17(a) 174,645 1,552,888

Software License Finance 25 12,784 10,632

2,834,430 3,484,318


Unsecured Loan (Shareholder) 100,000 -

100,000 -

2,934,430 3,484,318

Non Current

Secured Liabilities

Loan (Shareholder) 17(b) 55,000 -

Software License Finance 25 33,526 47,322

88,526 47,322


Unsecured Loans (Related Parties) 30 395,372 250,719

395,372 250,719

483,898 298,041

3,418,328 3,782,359

For

per

sona

l use

onl

y

FINANCIAL REPORT


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) BORROWINGS (CONTINUED) (a) Details of financing arrangements are set out as below: 2015 2014

$ $

Total Facilities

Bank Overdrafts 497,119 529,158

Bank Loans 2,209,254 1,874,176

Multi-Option Line that includes

Bank Guarantee Facility 134,648 98,880

Letter of Credit Facility 49,398 -

Foreign Currency Trade Finance 174,645 1,552,888

3,065,064 4,055,102

Used at the reporting date


Bank Loans 2,196,652 1,415,488

Multi-Option Line that includes

Bank Guarantee Facility 24 134,648 98,880

Letter of Credit Facility 24 49,398 -

Foreign Currency Trade Finance 174,645 1,552,888

3,005,692 3,572,566

Unused at the reporting date


Bank Loans 12,602 458,688

Multi-Option Line that includes - -

Bank Guarantee Facility - -

Letter of Credit Facility - -

Foreign Currency Trade Finance - -

59,372 482,536 Bank Overdrafts The overdraft facilities comprise separate facilities for both Stellar Films Group Pty Ltd and Stellar Films (Malaysia) Sdn Bhd of $324,494 (2014 : $ 364,358) and $125,855 (2014: $140,952) respectively, both facilities being utilised for working capital purposes.

Bank Loans Bank loans comprise:

• Term loans totaling $1,750,154 (2014 :$628,992) for Stellar Films (Malaysia) Sdn Bhd which have utilised in funding the acquisition of plant and equipment as well as funding ongoing working capital requirements. Year on year changes in the structure of the facilities comprised the refinancing of Stellar Films (Malaysia) Sdn Bhd’s foreign currency trade loans of $1,590,222 as a term loan in March 2015 and is included in the above disclosed amount.

• A market rate facility of $446,498 (2014: $786,496) for Stellar Films Group Pty Ltd that has been utilised for working capital purposes.

For

per

sona

l use

onl

y

FINANCIAL REPORT


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) BORROWINGS (CONTINUED)

Stellar Films Group Pty Ltd’s outstanding overdraft facility and market rate facilities as at 30 June 2015 have subsequently been combined into a new market rate facility with a term of 4 years. Whilst the combining of those 2 facilities has been approved by Stellar Films Group Pty Ltd’s incumbent banker, formal documentation is still in the process of being prepared.

Multi Option Facility The multi option facility is available to Stellar Films (Malaysia) and includes bank guarantee, letter of credit, foreign currency trade finance and various other trade related facilities. The Facility is a revolving facility subject to an annual review.

Collateral Provided Security provided in support of banking facilities in respect of the consolidated entities are as follows:

Stellar Films (Malaysia) Sdn Bhd:

• General debenture creating fixed and floating charges over the assets and undertakings of the company to the combined value of MYR 9,200,000 (AUD$3,176,300).

• Negative pledges dated 2 June 2005 and 31 May 2012. • Letters of comfort/awareness to the combined value of MYR 7,300,000 (AUD$2,520,325) provided by Stellar Films Group Pty Ltd.

Stellar Films Group Pty Ltd:

• General security agreements over the assets and undertakings of Stellar Films Group Pty Ltd. • Guarantees and indemnities provided by the directors of Stellar Films Group Pty Ltd. • Guarantee and indemnity provided by Stellar Developments Pty Ltd as trustee for the Stellar Unit Trust supported by a general

security agreement over the assets and undertakings of that entity. (b) Secured Loan- $50,000 advanced by a shareholder has a registered general security agreements over the assets and undertakings of

Stellar Films Group Pty Ltd and maturity term of 3 years.

NOTE 18 SHORT TERM PROVISIONS Economic Entity 2015 2014 $ $ Employee benefits 647,861 237,928 Lease make good provision 70,000 70,000

717,861 307,928

Lease make good The provision represents the present value of the estimated costs to make good the premises leased by the consolidated entity at the end of the respective lease terms. NOTE 19 LONG TERM PROVISIONS Economic Entity 2015 2014 $ $ Employee benefits 44,330 - 44,330 -

For

per

sona

l use

onl

y

FINANCIAL REPORT


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) NOTE 20 ISSUED CAPITAL (A) Share Capital Economic Entity 2015 2014 $ $ Ordinary - fully paid shares 10,549,724 400,004

(B) Movements in Ordinary Share Capital Date Number of

Shares Issue Price

Amount

$

1 July 2013 Balance * 51,972,604 400,004

30 June 2014 Balance 51,972,604 400,004

21 April 2015 Recognition of shares in SECOS ( formerly Cardia) prior to merger in accordance with requirements of reverse acquisition accounting

42,523,040 6,378,456

23 April 2015 Issue of shares to Directors in lieu of accrued remuneration of the March’15 Quarter 115,000 -

15 May 2015 Placement of Shares 7,827,144 0.14 1,095,800 26 June 2015 Rights Issue 17,072,355 0.14 2,390,145 30 June 2015 Placement of Shares 4,713,016 0.14 659,822 Cost of Capital (374,503) 30 June 2015 Balance 124,223,159 10,549,724

* As a result of the reverse acquisition, the number of shares are based on Stellar Films Group Pty Ltd on issue, converted at the exchange ratio of 129.93 Shares to 1. (C) Ordinary Shares Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the Company in proportion to the number of and amounts paid on the shares held. On a show of hands every 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. Ordinary Shares have no par value, and the company does not have a limited amount of authorised share capital. (D) Capital Management Management controls the capital of the group in order to maintain sufficient liquidity to cover the group’s working capital requirements, to meet any new investment opportunities as they arise and to safeguard the company’s ability to continue as a going concern.

The group’s debt and capital includes ordinary share capital and financial liabilities supported by financial assets. There are no externally imposed capital requirements. Management effectively manages the group’s capital by regularly monitoring its current and expected liquidity requirements and by assessing the group’s financial risks, rather than using debt/equity ratio analyses. The group’s capital structure is adjusted in response to the changes in liquidity requirements and financial risks. These responses include the management of debt levels and share issues. There have been no changes in the strategy adopted by management to control the capital of the group since the prior year.

For

per

sona

l use

onl

y

FINANCIAL REPORT


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

NOTE 21 RESERVES

Nature and Purpose of Reserves

Foreign Currency Translation Reserve The foreign currency translation reserve records exchange differences arising on translation of a foreign controlled subsidiary as described in Note 1(j) NOTE 22 FRANKING CREDITS Accounting Parent (Stellar) 2015 2014

$ $

The amount of the franking credits available for subsequent reporting periods are:

Opening Balance (460,155) (899,947) Income Tax Liability offset for the 2013 financial year - 53,649 Declared Dividends - 386,143

Closing Balance (460,155) (460,155) The above amounts represent the balance of the franking account as at the end of the financial year available to Stellar Films Group Pty Ltd.

NOTE 23 CONTROLLED ENTITIES Controlled Entities Consolidated

Name

Country of Incorporation

Equity Holding (%) (1)

2015 2014

Stellar Films Group Pty Ltd (2) Australia 100% -

Stellar Films (Malaysia) Sdn Bhd (2) Malaysia 100% - Cardia Bioplastics (Australia) Pty Ltd (100% owned by SECOS Group Limited) Australia 100% 100% Tristano Pty Ltd (100% owned by Cardia Bioplastics (Australia) Pty Ltd) Australia 100% 100% Biograde (Nanjing) Pty Ltd (100% owned by Biograde (Hong Kong) Pty Ltd) China 100% 100% Biograde (Hong Kong) Pty Ltd (100% owned by Cardia Bioplastics (Australia) Pty Ltd) Hong Kong 100% 100% Cardia Bioplastics Malaysia Sdn Bhd Malaysia 100% 100% Cardia Bioplasticos (Brasil) Ltda Brazil 100% 100% CO2Starch Pty Ltd Australia 100% 100% Cardia Bioplastics LLC USA 100% 100% Mine Remediation Services Pty Ltd Australia 69.36% 69.36% Natural Pharmacy Pty Ltd Australia 66.00% 66.00% Herbworx International Pty Ltd (60% owned by Natural Pharmacy Pty Ltd)

Australia 39.60% 39.60%

1. Percentage of voting power is in proportion to ownership. 2. Interest in sudsidiaries that were acquired as part of merger with SECOS Group Limited.

For

per

sona

l use

onl

y

FINANCIAL REPORT


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) NOTE 24 CONTINGENT LIABILITIES AND CONTINGENT ASSETS The Group has given Bank Guarantees and issued Letter of Credits as at 30 June 2015. Economic Entity 2015 2014 $ $ Bank Guarantees 134,648 98,880 Letter of Credits 49,399 - 184,047 98,880

There were no contingent assets as at 30 June 2015 (2014: NIL).

NOTE 25 LEASING COMMITMENTS

Commitments in relation to leases contracted for at the end of the reporting period but not recognised as liabilities, payable: Economic Entity 2015 2014 $ $ a Finance Lease Commitments Not later than 12 months 16,584 16,584 between 12 months and 5 years 37,316 53,900 53,900 70,484 Less : future finance charges 7,590 12,530 Present value of minimum lease payments 46,310 57,954

b Operating Lease Commitments Not later than 12 months 335,414 165,000 between 12 months and 5 years 501,937 41,250 837,351 206,250

The consolidated entity leases property under operating leases expiring from one to five years. Leases generally provide the economic entity with a right of renewal from nil years to five years. NOTE 26 OPERATING SEGMENTS Segment Information

Operating segments are premised on the internal reports that are reviewed and used by the Board of Directors in assessing performance and determining the allocation of resources. The Group is managed primarily on the basis of product category and service offerings as the diversification of the Group’s operations inherently have different risk profiles and performance assessment criteria. Operating segments are therefore determined on the same basis. Reportable segments disclosed are based on aggregating operating segments where the segments are considered to have similar economic

characteristics and are also similar with respect to the following: -the products sold and/or services provided by the segment; -the manufacturing process; -the distribution method; and -any external regulatory requirements.

The following operating segments have been identified

(i) Manufacturing Division (ii) Distribution Division

For

per

sona

l use

onl

y

FINANCIAL REPORT


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) NOTE 26 OPERATING SEGMENTS (CONTINUED)

Types of products and services by segment

(i) Manufacturing Division The manufacturing segment develops and manufactures sustainable resins derived from renewable resources for the global packaging and plastic products industries and also manufactures high quality cast films for the personal care, hygiene, pet care and medical product industries.

The Manufacturing segment, which includes the manufacturing units in China, Malaysia and Australia is responsible for distribution and sales of products locally and overseas.

The manufacturing segment also sells products to the distribution segment.

(ii) Distribution Division Distribution segment includes the Group’s cash generating unit that is designated to develop and distribute the Group’s strategic products both locally and overseas.

Basis of accounting for purposes of reporting by operating segments

Accounting policies adopted

Unless stated otherwise, all amounts reported to the Board of Directors, are determined in accordance with accounting policies that are consistent to those adopted in the annual financial statements of the Group.

Inter-segment transactions

An internally determined transfer price is set for all inter-segment sales. This price is based on what would be realised in the event the sale was made to an external party at arm’s length. All such transactions are eliminated on consolidation of the group’s financial statements.

Inter-segment loans payable and receivable are initially recognised at the consideration received/to be received net of transaction costs. If inter-segment loans receivable and payable are not on commercial terms, these are not adjusted to fair value based on market interest rates.

Corporate charges are allocated to reporting segments based on the segments’ overall performance of revenue generation within the Group. The Board of Directors believes this is representative of likely consumption of head office expenditure that should be used in assessing segment performance and cost recoveries.

Segment assets

Where an asset is used across multiple segments, the asset is allocated to that segment that receives majority economic value from that asset. In the majority of instances, segment assets are clearly identifiable on the basis of their nature and physical location.

Segment liabilities

Liabilities are allocated to segments where there is a direct nexus between the incurrence of the liability and the operations of the segment. Segment liabilities include trade and other payables.

F

or p

erso

nal u

se o

nly

FINANCIAL REPORT


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) NOTE 26 OPERATING SEGMENTS (CONTINUED) Manufacturing

Division Distribution Division

Intersegment eliminations/ unallocated

Total

Consolidated-2015 $ $ $ Revenue

External Sales 16,717,648 566,746 - 17,284,394

Inter-segment sales 575,059 - (575,059) -

Trading Income 445,345 - - 445,345 R&D Tax Rebate Refund - 219,677 - 219,677 Interest Revenue 76 1,487 - 1,563 Other Income 6,822 - - 6,822 Total Segment Revenue 17,744,950 787,910 (575,059) 17,957,801 EBITDA (1,375,556) (134,246) - (1,509,802) Depreciation and amortisations - - (327,766) (327,766) Depreciation and amortisations (included in cost of goods sold) - - (367,328) (367,328)

Borrowing costs - - (321,186) (321,186)

Impairments- Trade & Other Receivables (989,786) - - (989,786)

Impairment- Inventories (76,564) - - (76,564)

Merger Transaction Costs - - (309,446) (309,446)

Share in loss of Joint Venture - - (877,925) (877,925)

Gain on Acquisition - - 500,000 500,000

Profit/(loss) before income tax expense (4,279,803)

Income tax expense -

Profit/(loss) after income tax expense (4,279,803)

Assets

Segment assets 11,882,332 2,139,533 - 14,021,865

Inter segment assets 8,888,847 (8,888,847) -

Total Segment assets 11,882,332 11,028,380 (8,888,847) 14,021,865

Unallocated assets:

Cash & cash equivalents 2,340,132

Trade & other receivables 131,246 Financial Assets 563,400

Total Assets 17,056,643 Included in segment assets are Goodwill - 3,532,345 - 3,532,345 Investment in joint venture - - - - Acquisition of non-current assets 11,230 - - 11,230 Liabilities Segment Liabilities 8,183,649 812,523 - 8,996,172 Inter segment liabilities 6,487,231 - (6,487,231) - Total Segment liabilities 14,670,880 812,523 (6,487,231) 8,996,172 Unallocated liabilities: Trade & Other Payables - - - 126,552

Total Liabilities 9,122,724

For

per

sona

l use

onl

y

FINANCIAL REPORT


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) NOTE 26 OPERATING SEGMENTS (CONTINUED)

Manufacturing Division

Distribution Division

Intersegment eliminations/ unallocated

Total

Consolidated-2014 $ $ $ Revenue

External Sales 21,441,764 - - 21,441,764

Inter-segment sales - - - -

Interest revenue 35 - - 35

Other Income 3,753 - - 3,753 Total Segment Revenue 21,850,657 - - 21,850,657 EBITDA (479,313) - - (479,313) Depreciation and amortisations - - (256,750) (256,750) Depreciation and amortisations (included in cost of goods sold) - - (410,884) (410,884)

Borrowing costs - - (276,641) (276,641)

Share in loss of Joint Venture - - (803,893) (803,893)

Profit/(loss) before income tax expense (2,227,481)

Income tax expense -

Profit/(loss) after income tax expense (2,227,481)

Assets

Segment assets 10,563,367 - - 10,563,367

Unallocated assets: - - - -

Total Assets 10,563,367 Included in segment assets are Investment in joint venture 488,011 - - 488,011 Acquisition of non-current assets 94,114 - - 94,114 Liabilities Segment liabilities 8,955,507 - - 8,955,507 Unallocated liabilities: - - -

Total Liabilities 8,955,507

Revenue by geographical region 2015 2014 $ $ Revenue attributable to external customers is disclosed below, based on the location of the external customer

Australia 1,855,776 2,688,405 Asia 14,275,827 15,544,504 Americas 393,624 1,254,550 Others (*) 759,167 1,954,305 Total Revenue 17,284,394 21,441,764

*Others include countries falling within Europe and Africa Continents.

For

per

sona

l use

onl

y

FINANCIAL REPORT


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) NOTE 26 OPERATING SEGMENTS (CONTINUED) Assets by geographical region 2015 2014

$ $ The location of segment assets (non current) by geographical location of assets is disclosed below:

Australia 3,970,448 640,002 Asia 3,445,966 3,614,118 Total Assets 7,416,414 4,254,120

Major customers The Group has a number of customers to whom it provides products. The Group has supplied a single external customer in the manufacturing segment who accounted for 24.83% (2014: 18.20%) of external revenue. The next two significant customers accounted for 13.98% (2014: 8.34%) and 7.38% (2014: 7.38%) of external revenue respectively.

NOTE 27 CASH FLOW INFORMATION Economic Entity 2015 2014 $ $ Reconciliation of Cash Flow from Operations with Profit after Income Tax

Operating Loss after income tax (4,279,803) (2,227,481)

Depreciation & Amortisation 327,766 256,750

Depreciation included in Costs of goods sold 367,328 410,884

Foreign Currency translation differences (73,079) (58,986)

Profit on Sale of Fixed Assets (6,962) -

Impairments 1,066,350 -

Share in loss of joint venture entity 877,925 803,893

Gain on Acquisition (500,000) -

Changes in operating assets and liabilities, net of business combination effects:

Decrease in receivables 688,235 1,400,955

Decrease in other operating assets 1040,853 812,779

Decrease in creditors (913,434) (255,524)

Increase/(decrease) in provisions and payables 63,868 (721,348)

Net cash outflow from operating activities (1,340,953) 421,922 NOTE 28 EVENTS AFTER THE REPORTING DATE Other than the matters discussed below, there has not arisen in the interval between the end of the financial year and the date of this report, any item, transaction or event of a material and unusual nature likely, in the opinion of the Directors of the Company to affect the operations of the consolidated entity, the results of these operations or the state of affairs of the consolidated entity in subsequent years

• On 24 August 2015, Mr Gideon Meltzer resigned as a Non-Executive Director of the Company.

For

per

sona

l use

onl

y

FINANCIAL REPORT


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) NOTE 29 BUSINESS COMBINATION Stellar Films Group Companies On 21 April 2015, the Company acquired 100% of the issued capital of the Stellar Film Group companies. The acquisition of Stellar Film Group Companies is considered a reverse acquisition in accordance with AASB 3-“Business Combination”, with Stellar Film Group deemed the parent for reporting purposes and the accounting subsidiary being Cardia Bioplastics Limited. Details of the acquisition of SECOS Group Limited (formerly Cardia Bioplastics Limited) are as follows: $ Fair Value of Assets and Liabilities at acquisition date Cash and cash equivalents 834,807 Inventories 836,864 Plant and Equipment 894,643 Trade & Other Receivables 1,329,425 Prepayments 32,596 Financial Assets 563,400 Trade & Other Payable (1,262,193) Provisions (245,372) Unsecured Loan (100,000) Net assets at acquisition date 2,884,170 Less : Net assets attributed to non-controlling interest (38,059) Net assets acquired 2,846,111 Goodwill 3,532,345 Acquisition-date fair value of the total consideration transferred 6,378,456 Consideration Representing Fully paid ordinary shares of SECOS Group Limited issued to Vendors 6,378,456 Acquisition and merger integration costs expensed to profit or loss 309,446 From the date of acquisition, SECOS Group Limited (formerly Cardia Bioplastics Limited) and its controlled entities have contributed approximately $1,228,495 of revenue and a loss before tax of ($516,267) (including acquisition and merger transaction costs of ($71,157) and depreciation and amortisation of ($44,031) to the loss from the continuing operations of the Group. If the combination had taken place at the beginning of the financial year (1 July 2014), revenue from continuing operations would have been approximately $5million higher and loss from continuing operations for the year would have been approximately $2.25million higher. The goodwill is attributed to the technology and global distribution network of the acquired business and the expected synergies and other benefits combining the activities of Cardia Bioplastics Limited to the Group. The calculation of goodwill amount arising on business combination is provisional as at 30 June 2015.The management has twelve months from the date of transaction to finalise the amount. NOTE 30 RELATED PARTIES Parent Entity SECOS Group Limited is the legal parent entity. Subsidiaries Interests in subsidiaries are set out in Note 23 Associates Interest in associates are set out in Note 12 Key management personnel Disclosures relating to key management personnel are set out in Note 6 and the remuneration report in the directors’ report.

For

per

sona

l use

onl

y

FINANCIAL REPORT


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) NOTE 30 RELATED PARTIES (CONTINUED) Transactions with related parties The following transactions occurred with related parties: a) During the year, an amount of $42,850 (Ex GST) (2014: $5,850) was paid to GM Legal and Corporate Advisory, a company controlled by Mr.

Gideon Meltzer for providing legal services to the Company. The amount was paid by SECOS Group Limited during the pre-merger period from 1 July 2014 to 21 April 2015.

b) Stellar Directors related entities have advanced amounts to that Company for working capital purposes. As part of merger negotiations, on 31 March 2015, these entities have entered into respective loan agreements with Stellar for the amounts advanced. Pursuant to the loan agreements, loan amount advanced are on an unsecured basis and will be repayable after 2 years after the merger completion date i.e 21 April 2015, with SECOS having further discretion to extend the loan term for a further 12 months period. Loans will attract interest at bank market rates for the term.

The following balances are outstanding at the reporting date in relation to above loans from the related parties: 2015 2014 $ $ Unsecured Loans from related parties 395,372 250,719

Loans to related parties The following balances are outstanding at the reporting date in relation to the loans to related parties 2015 2014 $ $ Loan from Stellar Films Group to Akronn Industries 345,710 217,658 Loan from Stellar Films Group to Stellar Development Pty Ltd 624,076 - Less : Impairment (969,786) - Balance Outstanding - 217,658

Terms and Conditions All transactions were made on normal commercial terms and conditions and at market rates.

For

per

sona

l use

onl

y

FINANCIAL REPORT


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) NOTE 31 FINANCIAL INSTRUMENTS a) Financial Risk Management The group’s financial instruments consist mainly of deposits with banks and short term investments, trade receivable and payable and available for sale financial assets.

The totals for each category of financial instruments, measured in accordance with AASB 139- “Financial Instruments-Recognition and Measurement” as detailed in the accounting policies to these financial statements, are as follows:

Note Economic Entity 2015 2014 $ $ Financial Assets Cash and cash equivalents 9 2,627,392 86,350 Loans and receivables 10 3,442,035 3,575,782 Available –for- Sale Financial Assets 13 563,400 - Total Financial Assets 6,632,827 3,662,132

Financial Liabilities Trade and other payables 16 4,942,205 4,865,220 Borrowings 17 3,418,328 3,782,359

Total Financial Liabilities 8,360,533 8,647,579

Financial risk management objectives The consolidated entity's activities expose it to a variety of financial risks: market risk (including foreign currency risk, price risk and interest rate risk), credit risk and liquidity risk. The consolidated entity's overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the consolidated entity. The consolidated entity uses natural hedges and derivative financial instruments such as forward foreign exchange contracts to hedge certain risk exposures. Derivatives are exclusively used for hedging purposes, i.e. not as trading or other speculative instruments. The consolidated entity uses different methods to measure different types of risk to which it is exposed. These methods include sensitivity analysis in the case of interest rate, foreign exchange and other price risks, ageing analysis for credit risk. Specific Financial Risk Exposures and Management The main risks the group is exposed to through its financial instruments are credit risk, liquidity risk and market risk consisting of interest rate risk and foreign currency risk.

Credit risk Exposure to credit risk relating to financial assets arises from the potential non-performance by counterparties of contract obligations that could lead to a financial loss to the Group.

Credit risk is managed through the negotiation of payment terms with customers such as advance payment on order or payments through letter of credits, title retention clauses over goods, ensuring to the extent possible, that customers and counterparties to transactions are of sound credit worthiness and monitoring the financial stability of significant customers and counterparties. Such monitoring is used in assessing receivables for impairment.

The maximum exposure to credit risk by class of recognised financial assets at the end of the reporting period is equivalent to the carrying amount of those financial assets (net of any provisions) as presented in the statement of financial position.

The Group has no significant concentration of credit risk with any single counterparty or group of counterparties. However, on a geographical basis, the Group has significant credit risk exposures to Americas and Asia, given the substantial transactions from those regions. Details with respect to credit risk of Trade and Other Receivables are provided in Note 10

Trade and other receivables that are neither past due or impaired are considered to be of high credit quality. Aggregate of such amounts are as detailed in Note 10.

Credit risk arising on cash balances is not material.

For

per

sona

l use

onl

y

FINANCIAL REPORT


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) NOTE 31 FINANCIAL INSTRUMENTS (CONTINUED) Liquidity risk Liquidity risk arises from the possibility that the Group might encounter difficulty in settling its debts or meeting its obligations related to financial liabilities. The group manages liquidity risk by maintaining a reputable credit profile, managing credit risk related to financial assets, monitoring forecasted cash flows and ensuring that new funding facilities are in place either in the form of the issuing of new securities or establishing borrowing facilities.

Unused borrowing facilities at the reporting date are disclosed under Note 17

The bank overdraft facilities may be drawn at any time and are provided on an on-demand basis.

The bank loan facilities in respect Stellar Films (Malaysia) are repayable on demand but until such demand, have a maturity term of 16 months and is subject to monthly repayments amorstising to nil at maturity.

The bank loan facility for Stellar Group Pty Ltd matures on 31 December 2015. Subsequent to 30 June 2015, this facility has been approved to a new market facility with a term of 4 years but formal documentation is awaited from the Banker.

The multi option facility that includes bank guarantee, letter of credit and foreign currency trade finance is a revolving facility subject to an annual review.

Remaining contractual maturities The following tables detail the consolidated entity's remaining contractual maturity for its financial instrument liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the financial liabilities are required to be paid. The tables include both interest and principal cash flows disclosed as remaining contractual maturities and therefore these totals may differ from their carrying amount in the statement of financial position.

Economic Entity-2015

Weighted average interest rate

1 year or Less

Between 1 and 2 years

Between 2 and 5 years Over 5 years

Remaining contractual maturities

% $ $ $ $ $ Non-derivatives Non-interest bearing Trade Payables - 4,046,285 - - - 4,046,285 Other Payables - 895,920 - - - 895,920 Interest bearing- variable Bank Loans 7.43% 972,454 1,340,490 - - 2,312,944 Foreign Currency Trade Finance 1.83% 176,243 - - - 176,243 Interest bearing- Fixed Secured Loan (shareholder) 15.00% - - 55,000 - 55,000 Unsecured Loan (shareholder) 15.00% 111,250 - - - 111,250 Unsecured Loans (related parties) 8.35% - 461,399 461,399 Software Licence Finance 9.37% 16,584 16,584 20,732 - 53,900 Total Non-derivatives 6,218,736 1,818,473 75,732 - 8,112,941

Derivatives Forward foreign exchange contracts net settled -

1,804,527 - - - 1,804,527

Total Derivatives - 1,804,527 - - - 1,804,527

For

per

sona

l use

onl

y

FINANCIAL REPORT


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) NOTE 31 FINANCIAL INSTRUMENTS (CONTINUED)

Economic Entity-2014

Weighted average

interest rate 1 year or Less

Between 1 and 2 years

Between 2 and 5 years Over 5 years

Remaining contractual maturities

% $ $ $ $ $ Non-derivatives Non-interest bearing Trade Payables - 3,697,525 - - - 3,697,525 Other Payables - 1,167,695 1,167,695 Interest bearing- variable Bank Loans 7.40% 800,310 719,215 - - 1,519,525 Foreign Currency Trade Finance 1.95% 1,568,029 - - - 1,568,029 Interest bearing- Fixed Unsecured Loans (related parties) 10.00% - 300,863 - - 300,863 Software Licence Finance 9.37% 16,584 16,584 37,316 - 70,484 Total Non-derivatives 7,250,143 1,036,662 37,316 - 8,324,121

Derivatives Forward foreign exchange contracts net settled - 1,040,335 - - - 1,040,335 Total Derivatives - 1,040,335 - - - 1,040,335

The cash flows in the maturity analysis above are not expected to occur significantly earlier than contractually disclosed above.

Fair Value of financial instruments Unless otherwise stated, the carrying amount of financial instruments reflect their fair value. Market risks Interest rate risk Exposure to interest rate risk arises on financial assets and financial liabilities recognised at the end of the reporting period whereby a future change in interest rates will affect future cash flows or the fair value of fixed rate financial instruments. The Group is also exposed to earnings volatility on floating rate instruments. The variable interest rate borrowings expose the Group to interest rate risk which will impact future cash flows and interest charges are indicated by the following floating interest rate financial liabilities Note Economic Entity 2015 2014 $ $ Variable rate instruments Bank Overdrafts 450,349 505,310 Bank Loans 2,196,652 1,415,488 Foreign Currency Trade Finance 174,645 1,552,888 2,821,646 3,473,686

For

per

sona

l use

onl

y

FINANCIAL REPORT


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) NOTE 31 FINANCIAL INSTRUMENTS (CONTINUED) Interest rate risk sensitivity analysis An official increase/decrease in interest rates of 100 (2014: 100) basis points would have an adverse/favourable effect on profit before tax of $28,216 (2014: $34,737) per annum. The percentage change is based on the expected volatility of interest rates using market data and analysts forecasts. In addition, minimum principal repayments of $888,119 (2014: $746,064) are due during the year ending 30 June 2016. Foreign currency risk The consolidated entity undertakes certain transactions denominated in foreign currency and is exposed to foreign currency risk through foreign exchange rate fluctuations. As the Group’s significant purchase and sales transactions are in US Dollars, any fluctuations in US Dollars may impact on the Group’s financial results unless this exposure is appropriately hedged. The risk is measured using sensitivity analysis and cash flow forecasting. In order to protect against exchange rate movements in US Dollar, the consolidated entity manages the risk through natural hedge to the extent possible and has also entered into forward foreign exchange contracts. These contracts are hedging highly probable forecasted cash flows for the ensuing financial year. Management has a risk management policy to hedge between 30% and 60% of anticipated foreign currency transactions for the subsequent 3-4 months.

For payments in all other foreign currencies, the Group has established that its exposure to foreign currency risk is not material at this stage. The maturity, settlement amounts and the average contractual exchange rates of the consolidated entity’s outstanding forward foreign exchange contracts Sell US Dollars Average exchange rates 2015 2014 2015 2014 $ $ $ $ Buy Australian Dollars Maturity 0-3 months 1,227,743 401,010 0.8932 0.9608 3-6 months - - Buy Malaysian Ringgits Maturity 0-3 months 388,511 478,447 1.2451 1.0874 3-6 months 188,273 160,878 1.2552 1.0725 The carrying amount of the Group’s foreign currency (US Dollars) denominated financial assets and financial liabilities at the reporting date were as follows: Financial Assets Financial Liabilities 2015 2014 2015 2014 $ $ $ $ US Dollars 1,903,015 2,179,952 2,332,957 2,917,399

The Group has performed a sensitivity analysis relating to its net exposure to foreign currency risk at the end of reporting period. This sensitivity analysis demonstrates the effect on the current year results and equity which could result from a change in these risks.

For

per

sona

l use

onl

y

FINANCIAL REPORT


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) NOTE 31 FINANCIAL INSTRUMENTS (CONTINUED)

Foreign currency risk sensitivity analysis

At 30 June 2015, the effect on profit and equity as a result of changes in the value of the Australian Dollar to the US Dollar with all other variables remaining constant is as follows:

Economic Entity 2015 2014 $ $ Change in Profit and Equity - Improvement in AUD to USD by 5% 21,497 36,872 - Decline in AUD to USD by 5% (21,497) (36,872) The Directors assess that 5% variance in AUD to USD can have material impact on the Group’s operations in the event the Company’s receipts in USD are not sufficient to manage its USD payments through a natural hedge. NOTE 32 FAIR VALUE MEASUREMENT Fair value hierarchy The following tables detail the economic entity's assets measured or disclosed at fair value, using a three level hierarchy, based on the lowest level of input that is significant to the entire fair value measurement, being: Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly Level 3: Unobservable inputs for the asset or liability

Level 3 Total Economic Entity - 2015 $ $ Assets Available for sale financial assets

Unlisted Investments , at fair value 563,400 563,400 Total Assets 563,400 563,400

Assets and liabilities held for sale are measured at fair value on a non-recurring basis. There were no transfers between levels during the financial year. The carrying amounts of trade and other receivables and trade and other payables are assumed to approximate their fair values due to their short-term nature. Valuation techniques for fair value measurements categorised within level 3 Available for sale financial assets consist of 18,780,000 ordinary shares in Bioglobal Limited (“Bioglobal”). As at 30 June 2015, these assets have been valued at 3 cents per share based on the offer price for the last capital raising by Bioglobal that occurred in August 2015. Level 3 assets There were no movements in level 3 assets during the current and previous financial year. Any reasonable change to unobservable inputs would not be material to these financial statements.

For

per

sona

l use

onl

y

FINANCIAL REPORT


NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) NOTE 33 COMPANY DETAILS The principal place of business and registered office is Suite 6, Level 2, 205-211 Forster Road, Mount Waverley, Victoria, Australia 3149.

For

per

sona

l use

onl

y

DIRECTORS’ DECLARATION


1. The Directors declare that the financial statements and notes, as set out on pages 24 to 66 and remuneration disclosures that are detailed within the Remuneration Report in the Directors’ Report, are in accordance with the Corporations Act 2001 and:

a. comply with Australian Accounting Standards, the Corporations Regulations 2001; and

b. give a true and fair view of the financial position as at 30 June 2015 and of the performance for the year ended on that date of the company and economic entity.

c. the financial report also complies with International Financial Reporting Standards as disclosed in Note 1.

2. The Managing Director and Chief Financial Officer have each declared that:

a. the financial records of the company for the financial year have been properly maintained in accordance with section 286 of the Corporations Act 2001;

b. the financial statements and notes for the financial year comply with the Australian Accounting Standards; and

c. the financial statements and notes for the financial year give a true and fair view.

3. In the directors' opinion there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable.

This declaration is made in accordance with a resolution of the Directors.

Richard Tegoni Director

Mount Waverley 30 September 2015

For

per

sona

l use

onl

y

For

per

sona

l use

onl

y

For

per

sona

l use

onl

y

For

per

sona

l use

onl

y

SHAREHOLDERS’ INFORMATION


The shareholder information set out below was applicable as at 16 September 2015.

(A) DISTRIBUTION OF EQUITY SECURITIES Analysis of numbers of equity security holders by size of holding:

Ordinary Shares

1 - 1,000 311

1,001 - 5,000 425

5,001 - 10,000 188

10,001 - 100,000 345

100,001 and over 140

1,409

There were 608 holders of less than a marketable parcel of ordinary shares.

(B) EQUITY SECURITY HOLDERS The names of the twenty largest holders of quoted equity securities are listed below:

Fully Paid Ordinary Shares Number Held Percentage of Issued Shares

% STELLAR DEVELOPMENTS PTY LTD <THE STELLAR UNIT A/C> 20,789,040 16.74 GANSPRUSE PTY LTD <THE HAINES FAMILY A/C> 7,795,891 6.28 GOBBLE PTY LTD <THE MORGAN FAMILY A/C> 7,795,891 6.28 HELPLESS PTY LTD <THE INFINITY DISCRETIONARY> 7,795,891 6.28 FEMALE PTY LTD <THE SYMONS FAMILY A/C> 7,795,891 6.28 G & N LORD SUPERANNUATION PTY LTD <GNR SUPERANNUATION FUND A/C> 3,000,000 2.42 MR RICHARD ROGER TEGONI + MRS DEBRA MARISA TEGONI <TEGONI SUPER FUND A/C> 2,466,071 1.99 MRS DEBRA MARISA TEGONI 2,147,858 1.73 MRS JACLYN STOJANOVSKI + MR CHRIS RETZOS + MRS SUSIE RETZOS <RETZOS EXECUTIVE S/F A/C> 2,108,573 1.70 INSYNC INVESTMENTS PTY LTD <WEEKLEY SUPER FUND NO 1 A/C> 2,000,000 1.61 ADVANCE PUBLICITY PTY LTD <THE IZMAR FAMILY A/C> 1,750,000 1.41 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED 1,545,566 1.24 DENTOST PTY LTD 1,400,211 1.13 KIRZY PTY LTD <SPRINGDALE NO 2 A/C> 1,300,000 1.05 VANFULL INVESTMENTS LIMITED 1,237,723 1.00 SOMNUS PTY LTD <SOMNUS SUPERANNUATION A/C> 1,200,000 0.97 MRS JANET LOUISE COLMAN <JL COLMAN SUPER FUND A/C> 1,080,000 0.87 COLONEL WEST PTY LTD <COLONEL WEST FAMILY A/C> 1,027,181 0.83 REDCLIFF PTY LTD <MCGHEE SUPER FUND A/C> 1,000,000 0.81 CHIMAERA CAPITAL LIMITED 959,326 0.77

TOTAL 76,195,113 61.39

For

per

sona

l use

onl

y

SHAREHOLDERS’ INFORMATION


(C) SUBSTANTIAL SHAREHOLDERS The names of the substantial shareholders listed in the holding company’s register as at 16 September 2015 are:

Number of Ordinary Shares Held

Percentage of Issued Shares

STELLAR DEVELOPMENTS PTY LTD <THE STELLAR UNIT A/C> 20,789,040 16.74 GANSPRUSE PTY LTD <THE HAINES FAMILY A/C> 7,795,891 6.28 GOBBLE PTY LTD <THE MORGAN FAMILY A/C> 7,795,891 6.28 HELPLESS PTY LTD <THE INFINITY DISCRETIONARY> 7,795,891 6.28 FEMALE PTY LTD <THE SYMONS FAMILY A/C> 7,795,891 6.28

(D) VOTING RIGHTS

The voting rights attaching to each class of equity security are set out below:

Ordinary Shares: 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.

Options: No voting rights.

For

per

sona

l use

onl

y

Documents

TO: COMPANY ANNOUNCEMENTS OFFICE ASX LIMITED ...2015/09/30 · TO: COMPANY ANNOUNCEMENTS OFFICE ASX LIMITED DATE: 30 September 2015 2015 Annual Report Attached is the 2015 Annual