ANNUAL REPORT 2017 - Tassal

1 ANNUAL REPORT 20172017 ANNUAL REPORT | Tassal Group Limited and Controlled EntitiesDirectorsAllan McCallum, Science, FAICD (Chairman)Trevor Gerber, CA (SA)Christopher Leon, BScEng, MEngSci, FAICDMark Ryan, , CA, MAICD, FAIM (Managing Director)Michael Carroll, BAgSc, MBA, FAICDR aelene Murphy, BBus CA GAICDC hief Executive OfficerMark Ryan, , CA, MAICD, FAIMC ompany SecretaryMonika Maedler, BEc, LLB, FCISR egistered Office*Level 9 1 Franklin Wharf Hobart Tasmania 7000 Telephone (03) 6244 9099 Facsimile (03) 6244 9002 E-mail Website ABN 15 106 067 270(*Also principal administration office)AuditorsDeloitte Touche Tohmatsu Level 8 22 Elizabeth Street Hobart Tasmania 7000 BankersWestpac Banking Corporation Level 7 150 Collins Street Melbourne Victoria 3000 BankWest Level 6 600 Bourke Street Melbourne Victoria 3000Co peratieve Rabobank Level 9 1 Collins Street Melbourne Victoria 3000 Stock Exchange ListingTassal Group Limited is listed on the Australian Securities Exchange.

2 The Home Exchange is Melbourne, Code: TGRS hare RegistryRegister of Securities is held at the following address:Computershare Investor Services Pty Limited Yarra Falls 452 Johnston Street Abbotsford Victoria 3067 Enquiries (within Australia) 1300 850 505 Enquiries (outside Australia) 61 3 9415 4000 Investor Enquiries Facsimile 61 3 9473 2555 Website Executive DirectoryMark Ryan Managing Director and Chief Executive OfficerMark Asman Head of AquacultureAndrew Creswell Chief Financial OfficerBen Daley Head of Supply Chain and Commercial ServicesDale Williams Head of Sales and MarketingCompany Directory Tassal Group Limited and Controlled Entities | 2017 ANNUAL REPORT 1 Chairman s and Chief Executive Officer s REPORT 2 Directors REPORT 8 Auditor s Independence Declaration 26 Table of Contents 27 Income Statement 28 Statement of Comprehensive Income 29 Statement of Financial Position 30 Statement of Changes in Equity 31

3 Statement of Cashflows 32 Notes to the Financial Statements 33 Directors Declaration 76 Independent Auditor s REPORT 77 Additional Securities Exchange Information 80 Contents2 2017 ANNUAL REPORT | Tassal Group Limited and Controlled EntitiesChairman s and Chief Executive Officer s Report1. REVIEW OF OPERATIONSThe Directors of Tassal Group Limited ( Tassal ) are pleased to present the Company s Appendix 4E: Full Year REPORT to 30 June 2017 (F Y2017). Tassal continues to execute on its strategy to be a world leading seafood company by leveraging: industry leading scientific know how; sustainable and efficient production; respect for the earth s resources and the communities in which it operates; and prudent commercial management.

4 As Tassal and the Tasmanian Salmon industry seek to grow salmon farming output, stakeholder interest will increase. Growth will also bring an element of risk to optimal growth and forecast plans, particularly as Tassal grows into newer regions or increases the level of farming in existing regions. Ensuring social license/community value and operational planning are co-dependent through strategic planning processes will be critical. Operational overview Favourable salmon pricing in wholesale and export markets: Local and global salmon stocks were adversely affected by environmental factors in calendar year 2016 that lead to lower harvests, smaller sized fish and increased costs of growing, more than countered by significantly higher salmon prices.

5 Prices are at historically high levels for the domestic wholesale market, and are anticipated to continue in FY2018. Export pricing, which is volatile, was also on average higher than previous periods. Favourable growing conditions allowed a focus on optimising biomass and size: Salmon was kept in the water longer to optimise growth and deliver optimised margins in FY2017. Tassal has achieved a step change in its underlying biomass and fish size with fish size harvested by the end of FY2017 being circa Head on Gutted (HOG). Underlying biomass and fish size is expected to continue to improve in FY2018 and beyond. Ultimately, fish size matched to sales market demand both domestically and internationally to support sales mix flexing will optimise the contribution margin Tassal achieves.

6 Sales mix managed to optimise returns and deliver growing earnings: During FY2017, Tassal successfully lowered retail sales to around of total sales (FY2016: ). The combination of high wholesale/export pricing and favourable sales mix allowed Tassal to optimise margins despite the increased cost of growing. Operational EBITDA was up to $ million (FY2016: $ million) even though Salmon volume sold was down De Costi Seafoods driving seafood sales and category growth: Focus on highly innovative product and packaging formats, together with higher margin products is delivering results. EBITDA for De Costi Seafoods as a standalone operation was up to $ million (FY2016: $ million).

7 Given De Costi Seafoods FY2017 result, Tassal will issue 2 million shares under the provisions of the Contingent Consideration. The issue of the shares under the earn-out equates to 60% of the maximum possible earn-out for FY2017, year two of a three year earn-out (FY2016: million shares issued equating to of the maximum possible earn-out for FY2016). Increased review and scrutiny of salmon farming in Tasmania: Tassal welcomes the increased scrutiny into its industry, which by and large has been positive and constructive with respect to the communities in which Tassal operates, the scientific community, Government, the Company s employees, customers, suppliers and shareholders. As a business and industry we have a lot to be proud of in terms of the sustainability and health benefits of salmon as a global protein, world standard accreditations, high level of innovation, continued investment in farming and processing in Australia, and the economic contribution brought to Tasmania.

8 Maintained Aquaculture Stewardship Council (ASC) certification across all Tassal s operations for harvest fish: ASC is the standard with the most independent processes, the best international recognition and the greatest community and consumer acceptance. Maintaining this level of standard is challenging. Tassal also renewed and strengthened its partnership with World Wildlife Fund-Australia (WWF). Macquarie Harbour is recovering: In late calendar year 2016, conditions at Macquarie Harbour required careful response and adaption. The challenges at Macquarie Harbour are complex and Tassal takes its responsibilities seriously as clearly seen by the Company s acknowledgement of unforeseen environmental non-compliances over the summer of 2016-17 at one of its marine leases in Macquarie Harbour.

9 As predicted all leases in Macquarie Harbour have now returned to compliance from an out of compliance perspective and in-fauna abundance is returning. Tassal continues to evolve practices: Tassal is determined to ensure the health of Macquarie Harbour remains a priority. Lessons have been learnt from this experience that will improve future performance, not just in Macquarie Harbour, but across Tassal s operations. What happened in Macquarie Harbour was unexpected and at odds with Tassal s record of sustainable production, science-based processes and careful stewardship that saw Tassal achieve consistently high compliance ratings that were of global leadership standard. Successful implementation of the waste capture system at Macquarie Harbour is allowing Tassal to ensure it can both maintain its operational capacity and importantly, ensure that the system supports improved environmental and biological outcomes.

10 Maintained commitment to sustainability reporting: Tassal has been reporting to the Global Reporting Initiative (GRI) framework since 2012 and in the 2017 Sustainability REPORT will further enhance its climate related disclosure. Successful capital raising: $ million (net of fees) was raised in March 2017 . These funds will support a range of working capital and capital investment initiatives that are expected to deliver an additional 2,500 3,000 HOG tonnes of harvested salmon each year to FY2021. Around $270 million of forecast capital expenditure to FY2021 is expected to deliver returns exceeding current levels. Tassal Group Limited and Controlled Entities | 2017 ANNUAL REPORT 3 Full Year ended 30 June 2017 Statutory Profit $'000 Non Recurring Items $'000 Underlying Profit $'000A ASB 141 Impact $'000 Operational Profit $'000 Revenue (from all sources) $450,453 $0 $450,453 $0 $450,453 EBITDA $114,553 $6,727 $121,28 0 ($ 32,312) $88,968 EBIT $93,618 $6,727 $100,345 ($ 32,312) $68,033 Profit before income tax expense $85,556 $6,727 $92,283 ($ 32,312) $59,971 Income tax expense ( $ 2 7, 47 3 ) $0 ( $ 2 7, 47 3 ) $9,694 ( $ 17,7 7 9 )NPAT $58,083 $6,727 $64,810 ($22,618) $42,192 This compares to the following FY2016 results.