TasFoods : Business Activity Report & Appendix 4C

[phone]	PO Box 425
[e-mail]..au	54 Tamar St,
	Launceston,
tasfoods.com.au	TAS, 7250, Australia
ABN 53 084 800 902	ACN 084 800 902

For personal use only

ASX Announcement: 22 July 2022

Business Activity Report and Appendix 4C Quarterly Cash Flow

TasFoods Limited (ASX:TFL) today released its Business Activity Report and Appendix 4C Quarterly Cash Flow for the quarter ended 30 June 2022 (Q2 2022).

Highlights:

• Completion of successful capital raising in June 2022 with receipt of the final Tranche 2 funds ($2.1m) and SPP of $0.46m. The Company was extremely pleased with the level of support received by existing and new investors who are aligned with management's vision for the future of TasFoods.
• The leadership team is well progressed on the implementation of its revised strategy announced to ASX in February that is focussed on setting a strong foundation to profitably grow quickly in the Tasmanian market and on the mainland over time.
• The Company was proud to accept numerous gold and silver awards at the recent Australian Grand Dairy Awards. Pyengana Traditional Cheese, Pyengana Milk, Betta Milk Lactose Free and Meander Valley Dairy Sour Cream all won gold awards. Numerous other Meander Valley Dairy, Betta Milk and Pyengana Cheese products received silver awards. These awards are a great testament to the high quality of our authentic products.
• Revenue for Q2 2022 was up 2.1% over the pcp with the Poultry division recording a 1.6% increase and Dairy an increase of 2.2%. The company has begun the implementation of our pack, price and architecture review and this has driven the improved revenue metrics.
• As part of our ongoing efficiency program we have successfully rationalised our SKU count across both our Dairy and Poultry divisions, reduced logistics providers and increased cross-sell initiatives with our distributors and direct sales staff. The company has also started to implement initiatives to reduce per unit conversion costs in our facilities through efficiency and effectiveness measures.
• Like many of our competitors in the food and beverage sector we have experienced significant input cost pressure through the quarter particularly key inputs of poultry feed, milk, cream, fuel, and energy. The company remains dynamic and nimble to stay ahead of the forever changing nature of these costs and to quickly implement mitigation strategies.
• As announced at the AGM, the wind down of Organic Poultry operations commenced in June, with a full exit completed in H2 2022. There remains a future for Nichols to continue participation in the premium sector of the poultry market through expansion of our Ethical Free Range offering and plans are underway for that expansion.
• All key hires to increase capability have been on-boarded and are now working towards implementation of the renewed strategy.

Financial update

• Group revenue for the quarter increased by 2.1% over the pcp to $17.3m.
• Direct cost of goods sold expenditure increased by $0.6m, an increase of 4.4% versus pcp. Feed costs increases associated with the Poultry division have been somewhat mitigated during Q2 2022 by early wheat purchasing strategies adopted, nonetheless the cost per tonne increased by 14% on pcp. The significant impact of the cost of wheat continues to be monitored closely. Feed costs are approximately 45% of the Poultry Division input costs.

For personal use only

[phone]	PO Box 425
[e-mail]..au	54 Tamar St,
	Launceston,
tasfoods.com.au	TAS, 7250, Australia
ABN 53 084 800 902	ACN 084 800 902

• The Company experienced a gross profit margin reduction of 2.0% percentage points on the pcp. The Company continues to actively review its supply chain contracts to ensure best available market pricing, quality and availability of supply through these challenging market conditions.
• The Company will pass on many of the increased input costs experienced in the H1 2022 through increased selling prices to our customers from Q3 2022. The delay in the Company's ability to increase selling prices has negatively impacted the Q2 2022 results. However, the increased selling prices will see a continuation of the improvement in key revenue metrics in H2 2022. The Company continues to review selling prices given the continuing increases in input costs.
• Raw milk input costs have increased by 4% in Q2 compared to pcp (13% increase compared to Q1 2022) driven by variances in milk composition and increased farm gate prices in May and June despite lower volume of milk purchased.
• Indirect expenditure in the quarter has focused on managing business as usual activities with a focus on re-setting the strategic and operational agenda and increasing essential core capabilities that will enhance future earnings performance. Distribution & Warehouse expenditure rose by 14.5% versus pcp, a direct result of increasing fuel and transport costs. Repairs & Maintenance costs rose 32%, spread across all divisions. There was no expenditure on material changes or other material developments.

FY2022 Strategic reset and operational priorities

As announced to the ASX in February, the Company determined the 10 priority initiatives that will deliver upon our strategy and drive operational improvement. TasFoods senior leadership team is well progressed in developing detailed operational plans and implementation of these initiatives. An update on the progress of these initiatives is below:

Initiative		Status update
Fix the foundations		Complete - with the exception of ERP
		implementation noted below.
Reset strategic direction		Complete. Operational plans for implementation
		now being developed and commenced.
Implement capital management		Complete.	Principles	embedded into	decision
framework		making.
Develop marketing & brand investment		Work in progress. GM of Marketing commenced with
plans		brand planning now underway.
Implement ERP		Work in progress. Meander Valley Dairy business unit
		successfully implemented 1 July. Other business
		units scheduled for implementation in future months.
Distribution & warehousing		Work in progress. Supply Chain and Logistics
		management roles now filled. Certain initiatives /
		Quick wins implemented with development of a one
		TasFoods solution underway.
Commercial accountability and		Complete. Key metrics, plans and capability now
capability		imbedded into the organisation. Will be a continued
		focus.
Implement value chain findings		Work in	progress.	Nichols Poultry	findings
		communicated and implemented. Results of analysis
		led to a significant reduction of SKU's and other
		associated changes. Betta Milk and Meander Valley
		Dairy analysis complete with outcomes to be
		implemented in August/September.
Build centre of excellence		Primarily complete with finalisation dependent on
		ERP implementation.

For personal use only

	[phone]	PO Box 425
	[e-mail]..au	54 Tamar St,
			Launceston,
	tasfoods.com.au	TAS, 7250, Australia
	ABN 53 084 800 902	ACN 084 800 902
Target mainland and e-commerce		Work in progress. New sales hires on mainland now
growth		in place to target café/deli route trade. New Shima
		Wasabi e-commerce platform and social media sites
		updated to reflect premium positioning of product.
		Initial results pleasing and learnings to be used as we
		update remaining TasFoods e-commerce platforms.

The TasFoods business has undergone significant change in the preceding 9 months and there is an expectation of continued evolution as we build capability in process, systems and people. These changes are expected to improve efficiencies, leading to improved financial performance for shareholders and a platform for future organic and inorganic growth.

Dairy Division

Volumes in our Betta business unit reduced by 5.0% compared to pcp primarily as a result of the re-set of our Betta cream business implemented in March and reduced sales of Betta branded milk.

In March the profitability of the Betta milk and cream business was assessed, and price increases were implemented across all product lines. As expected, this strategy resulted in reduced volumes in Q2 2022 (Betta cream 23% lower than pcp, and Betta milk reduced by 5.4% on pcp), however revenue reduction was only 4.7% and 0.7% respectively, resulting in profitability being achieved in the Betta cream category and margin stabilisation in Betta milk.

We are seeing a shift towards value in the milk category with our own Tassie Taste brand experiencing a 2.2% increase in volume over the pcp and 3.9% increase in revenue. We believe the Betta Milk brand strongly resonates with consumers and plans have been developed and will be executed in Q3 to reinvigorate this proudly Tasmanian brand.

The Meander Valley Dairy brand had a solid quarter driven by volume increases on the pcp in butter (27%) and cream (8%). There has been a delay in timing of input cost increases and our ability to pass through these increases to our customers and this has negatively impacted gross margins, however management have reviewed our value chain findings and these will be implemented in August to alleviate some of these supply challenges and improve profitability.

Poultry Division

The Poultry division reported Q2 revenue growth of 1.6% on the pcp which was a solid result. The business has made a concerted effort to ensure a more appropriate balance between supply and demand and as a result we sold 5.8% less kg's in Q2 2022 compared to pcp. However, this has resulted in an increased revenue per kg of 6.1% compared to pcp which establishes a more solid foundation from which to grow profitably. Gross margin was negatively impacted by input costs, particularly feed (14% per tonne increase on pcp) and labour (9.8% increase on pcp).

The business has made the decision to close its organic poultry operations and will discontinue sales in July. The organic poultry operation placed significant financial and operational stress on the broader Nichols business unit. Organic poultry has not been profitable for Nichols since inception and using the TasFoods Capital Management framework we have decided to deploy the resources to other areas of the business. We believe there is a future for Nichols to participate in the premium sector of the market through expansion of our Ethical Free Range offering and plans are underway to deliver that in a profitable manner.

In order to improve the financial position of the Nichols business unit, management have implemented numerous operational changes such as SKU rationalisation, revenue enhancement initiatives and logistics

For personal use only

[phone]	PO Box 425
[e-mail]..au	54 Tamar St,
	Launceston,
tasfoods.com.au	TAS, 7250, Australia
ABN 53 084 800 902	ACN 084 800 902

consolidation which are expected to result in financial improvements going forward.

Quarterly Cash Flow

TasFoods' Appendix 4C for the quarter ended 30 June 2022 (Q2 2022) has been lodged with the ASX today. Key points include:

• The quarter ended with a closing cash on hand balance of $3.12 million and unused finance facilities of $2.56 million.
• During the quarter, capital raise funds (net of costs) of $5.7 million were received.
• Cash receipts from customers were $17.2 million, consistent with the pcp.
• Net operating cash outflows were negative $1.3 million, reflecting the quarterly trading performance, a net increase in trade creditors from Q1 2022 of $0.9 million and a net decrease in trade debtors balance from Q1 2022 of $0.1 million.
• Investment in property plant and equipment of $0.1 million comprised of various plant and equipment purchases across all business units.
• Cash flow from financing activities primarily related to net capital raise proceeds received of $5.7 million as noted previously and loan and insurance premium funding repayments of $0.4 million.

Authorised for ASX release by the Board of Directors of TasFoods Ltd.

TasFoods contact

Scott Hadley

Chief Executive Officer [phone]

Forward-looking statements

The Appendix 4C contains certain forward-looking statements that are based upon information and assumptions known to date and are subject to various risks and uncertainties. Actual results, performance or achievements could be significantly different from those expressed in, or implied by, these forward- looking statements. Such forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors, many of which are beyond the control of TasFoods. These factors may cause actual results to differ materially from those expressed in the Appendix 4C contained in this announcement.

Rule 4.7B

Appendix 4C

Quarterly cash flow report for entities subject to Listing Rule 4.7B

only	Name of entity
	TasFoods Limited
	ABN
	53 084 800 902
use	Consolidated statement of cash flows
1.	Cash flows from operating activities
1.1	Receipts from customers
1.2	Payments for
personal		(a)	research and development
	(b) product manufacturing and operating
			costs
		(c)	advertising and marketing
		(d)	leased assets
		(e)	staff costs
		(f) administration and corporate costs
	1.3	Dividends received (see note 3)
	1.4	Interest received
	1.5	Interest and other costs of finance paid
	1.6	Income taxes paid
	1.7	Government grants and tax incentives
	1.8	Other (provide details if material)
For	1.9	Net cash from / (used in) operating
	activities
2.	Cash flows from investing activities
	2.1	Payments to acquire or for:
		(a)	entities
		(b)	businesses
		(c) property, plant and equipment
		(d)	investments
		(e)	intellectual property
		(f) other non-current assets

ASX Listing Rules Appendix 4C (17/07/20)

+ See chapter 19 of the ASX Listing Rules for defined terms.

Quarter ended ("current quarter")

30 June 2022

Current quarter	Year to date
$A'000	(6 months)
	$A'000
17,242	34,963
-	-
(12,714)	(25,469)
(77)	(151)
(2)	(3)
(5,055)	(10,430)
(520)	(1,394)
-	-
-	-
(70)	(170)
-	-
-	-
(134)	(93)
(1,330)	(2,747)

-	-
-	-
(110)	(320)
-	-
-	-
(1)	(60)
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