Acme United Annual Report 2020

Plain-text annual report

ANNUAL REPORT 2020 Acumentis Group Limited (ASX: ACU) (Formerly LandMark White Limited) ABN 50 102 320 329 Acumentis 2020 Annual Review. Reporting on our financial and operational performance for the financial year, 1 July 2019 – 30 June 2020. Acumentis is one of Australia’s largest and most highly skilled independent property valuation and advisory firms and is publicly listed on the Australian Securities Exchange. For Acumentis, our Annual Report is a journey toward more meaningful corporate reporting and is a process of continuous improvement, one that we believe will provide great benefit to both our business and our stakeholders. 1. Introduction 01 ... Annual Report 01 ... About Acumentis 04 ... Chairman’s Report 06 ... CEO’s Report 2. Financial Statements 12 ... Directors’ Report 26 ... Statement of Profit or Loss and other Comprehensive income 27 ... Statement of Financial Position 28 ... Statement of changes in Equity 29 ... Statement of Cash Flows 3. Notes to Consolidated Financial Statements 31 ... How the Numbers are Calculated 31 ... Revenue 32 ... Material Profit or Loss Items 33 ... Other Income and Expense Items 34 ... Income Tax Expense 35 ... Financial Assets and Liabilities 37 ... Secured Liability 38 ... Non Financial Assets and Liabilities 51 ... Equity 53 ... Cash Flow Information 4. Risk 7. Other Information 54 ... Significant Estimates & Judgments 68 ... Related Party Transactions 54 ... Financial Risk Management 68 ... Share-based Payments 58 ... Capital Management 70 ... Remuneration of Auditors 70 ... Earning Per Share 71 ... Parent Entity Financial Information 72 ... Summary of Significant Accounting Policies 85 ... Changes to Accounting Policies 5. Group Structure 60 ... Business Combinations 61 ... Interests in Other Entities 8. Director’s Declaration 89 ... Independent Auditors’ Report 94 ... ASX Additional Information 6. Unrecognised Items 65 ... Contingent Liabilities 65 ... Commitments 65 ... Guarantees 66 ... Events Occurring After the Reporting Period 66 ... Growing Concerns ACUMENTIS 2020 ANNUAL REVIEW Acumentis is the new face of LMW, Taylor Byrne and MVS National, combining the long and proud heritage and combined experience of over 100 years in the provision of property valuations, research and advice to financial institutions, other companies, all levels of government and individuals across Australia. With a broad national footprint across more than 40 metropolitan and regional locations, Acumentis offers the expertise of over 300 property professionals. “Acumentis has emerged from recent unprecedented and challenging times as a stronger business with a committed national team. Our business is transforming - growing in capability, diversifying services, expanding our geographical reach and enhancing our systems.” OUR SERVICES AND CLIENTS At Acumentis we offer specialist services across all property sectors including a range of property valuation, insurance valuation, advisory and buyers advocacy services. We strive to deliver service excellence and risk management outcomes to our clients including financial institutions, corporates, Governments and individuals. We understand the importance of the role we play in our client’s lives. That’s why we don’t just supply raw data reports – we provide unique intelligence. Our team are committed to adding enormous value by enhancing our data and expertise with accurate and insightful analysis, delivered via easy-to-use, secure platforms. Our clients trust our people and have confidence in the quality of our information, analysis and attitude to service. As a result, they know they can confidently make informed decisions without hesitation. Pg 1 Acumentis Annual Report 2020OUR PURPOSE At Acumentis our purpose is to provide; • Decision certainty for our clients • Career certainty for our people • Investment certainty for our shareholders 40 LOCATIONS Australia wide 100+ years of combined experience network of over Australia’s only independent property valuation and advisory services firm listed on the ASX 300 TRAINED PROPERTY PROFESSIONALS LUED A V $500 million Y T R E P O R P T S E HIGH OPERATION we proudly help THOUSANDS of clients every year Our Guiding Principles Our values system acts like our compass, guiding us in the right direction and navigating us in times of uncertainty. Our team use our Guiding Principles in their daily interactions and decision making. Pg 2 Acumentis Annual Report 2020 Never Quit: As individuals and a team, we continue to grow, improve and innovate. We consider all available options before committing to a decision, then go the extra mile to ensure we have decision certainty. We are resilient, and dependable, no matter how tough the problem. Walk the Talk: We do what we say we are going to do. We act with integrity and are accountable for our actions and decisions. We behave professionally whenever and wherever we conduct business. Embrace Equality: We strive to make available opportunities accessible equally by all. Support our People: Our decisions are always made with our people and clients at front-of-mind, to create a positive and lasting impact. We all benefit and succeed. Our Guiding Principle Launched August 2020 Pg 3 Acumentis Annual Report 2020CHAIRMAN’S REPORT Dear Shareholders, It is with pleasure that I present my Chairman’s Report for the year ended 30 June 2020. Growth from a Position of Renewed Strength This has been a very significant year for the company with the continued recovery from the cyber-attacks in 2019, a very successful rebrand to Acumentis and now the impacts of COVID-19. Despite the immense challenges the company has faced over the last 18 months, with the support of our shareholders, clients, banking partners and our very loyal, talented and hardworking workforce, our business is now in a position of renewed strength. We have laid a very solid base that the company can now grow from. This has allowed us to focus on our growth and diversification strategies. I believe these strategies will finally place Acumentis in the position to become Australia’s pre-eminent, valuation based property business. Importantly, while the business grows, we are also working towards being in a position to provide appropriate returns to our shareholders who stood by the company and invested in its future via the capital raise in August 2019. New Brand Part of setting that very solid foundation for the company is driving a new culture through the business. A culture that encourages innovation, respect and care, and above all a culture that recognises we are one company focussed on the future. We are very proud of the new brand “Acumentis” and with it our renewed focus on delivering incredible value to our clients, providing great careers for our employees and supporting the communities within which we operate. Along with the new brand, we have also recently launched and fully embraced the Acumentis Guiding Principles of: • Never Quit; • • • Walk the Talk Embrace Equality; Support our People; and These provide a fresh alternative to the regular corporate vision and values and give everyone within our business a clear set of principles to guide us to even greater success into the future. Board Renewal The board of Acumentis was expanded during the year with the appointment of Andrea Staines OAM on 26 September 2019 and endorsed by shareholders at the 2019 AGM. Andrea brings a wealth of experience to the board and has taken up the role of Chair of the Nominations and Remuneration Committee. Pg 4 Acumentis Annual Report 2020I would like to thank the Acumentis Board members who have showed great diligence and acumen to guide the company through challenging and also better times to the position of strength we are now in. I also want to thank and praise all our staff. Whilst I would like to name each and every one it is not practical in this report, but our valuers, our support staff right through to the leaders of our Government, Residential, Commercial, Regional and Rural sections have done an amazing job and remained incredibly loyal to Acumentis. Our IT section has also had remarkable achievements over this past year. John Wise has provided exceptional guidance and forecasting as our CFO and company secretary. Tim Rabbit has also provided exceptional leadership to the business since taking on the CEO position, firstly as acting and then as our permanent CEO. To Tim and all your staff I thank you very much for your tremendous effort over the past year. To my Board, all staff, and loyal shareholders I can assure you it has been a great priviledge to be your Chairman and I look forward to sharing with you the many successes that will come in the future for Acumentis. Keith Perrett Chairman Pg 5 Acumentis Annual Report 2020CEO’S REPORT Dear Shareholders Last year I presented my first CEO’s Report as Acting CEO and, following confirmation of my ongoing role as CEO, I am pleased to present my 2020 CEO’s Report to shareholders at a time of continued challenges in the economy but, I believe, at a time that presents some great opportunities for Acumentis. New Brand In December 2019 we launched our new brand “Acumentis” bringing together the LMW, Taylor Byrne and MVS businesses under a single, new and fresh brand. Our tagline of “decision certainty” articulates the key benefit our advice provides to our clients and emphasises the quality of services provided by Acumentis. The brand has already provided the business and its employees with renewed energy and focus and has been very well accepted by our existing and prospective clients, our staff and the wider business community. We are very proud of the new brand and continued focus on delivering great value for our clients, returns for our shareholders, career paths for our staff and support for the communities in which we play an integral part. Continued Investment in IT Throughout FY20, we continued our very strong investment in the best and most secure IT systems used by property professional services firms in Australia. Our systems are certified to ISO27001 (international standard relating to Information Security) and have provisional certification under IRAP (the Information Security Registered Assessors Program). Innovation is at the core of our business and our continued investment in IT enables Acumentis to deliver greater value to our clients in an efficient and effective way whilst ensuring that our staff have the best tools available to assist them in their existing and future roles with Acumentis. Our People Acumentis has arguably the best and certainly some of the most resilient employees in the industry. They have certainly demonstrated our “Never Quit” guiding principle over the last 18 months and this same determination to succeed is one of the reasons our clients continue to engage Acumentis to provide the advice they require to make decisions with certainty in an ongoing uncertain economic climate. Diversification Acumentis has refocussed on its core strategies of diversification of both services within the property sector and its client base. We have recently launched depreciation schedule services and a new and innovative approach to providing valuations and advice to self-managed superannuation funds. Pg 6 Acumentis Annual Report 2020Expansion of Coverage We continue to look at opportunities to build on our existing geographical coverage strength with the recent opening of an office in Gippsland, VIC and plans for the Southern NSW and Tasmania in the near term. FY20 Performance When reviewing the FY20 performance and comparing it to FY19, the results are heavily influenced by one off factors: FY19 v FY20 Actual PBT (2,000) (4,000) (6,000) (8,000) (10,000) (12,000) (14,000) (16,000) (18,000) (15.617) FY 1 9 P B T C O VID-1 9 govern m ent subsidies Prior year im pair m ent expense R eduction in revenues due to cyber0attacks R eduction in e m ployee expenses A d ditional cyber-response costs R eduction in franchise fees Increase in other expenses R edundancies due to cyber-attacks I m pair m ent of right of use assets Prior year one off acquisition costs FY 2 0 P B T Pg 7 Acumentis Annual Report 2020It is particularly pleasing to see an operating profit recorded for the second half of FY20 on the back of significantly improved revenues (126% of those recorded in the first half of FY20): Revenue 23,844 19,151 42,995 16,832 1st Half $’000 2nd Half $’000 FY2019 $’000 1st Half $’000 2nd Half $’000 - 23,844 522 - - - - - 19,151 (2,574) (528) - 42,995 (2,052) (528) (753) (753) (12,284) (12,284) - - 522 (16,139) (15,617) 469 (15,148) Government grant income Operating profit / (loss) Acquisition costs expensed Impairment charges - Investment in Associates - Intangible assets - Right of use assets Profit before tax Tax benefit Net profit after tax Market Outlook - 16,832 (4,247) - - - 21,138 1,315 22,453 1,715 - - - (182) (4,429) (315) 1,401 FY2020 $’000 37,970 1,315 39,285 (2,532) - - - (497) (3,029) 474 (2,555) The ongoing impacts and recovery from COVID-19 will be major drivers in the market outlook for FY21 and beyond. We have already seen an increase in refinancing of loans and anticipate that the stimulus provided by State and Federal Governments to deliver a construction led recovery will drive increased demand for our services in the future. The availability of bank credit and how securities are managed by the banks will also influence future demand for our services. Overall, whilst we need to remain alert to the challenges of operating in an environment that continues to be impacted by the global pandemic, we are optimistic about the ability of Acumentis to deliver growth and improved profits in the medium term. FY21 Forecast We anticipate continued improvement in our revenues and profitability throughout the coming year. Timothy Rabbitt CEO Pg 8 Acumentis Annual Report 2020 Pg 9 Acumentis Annual Report 2020FINANCIAL STATEMENTS Pg 10 Acumentis Annual Report 2020TABLE OF CONTENTS Directors’ report ....................................................................................................................................12 Remuneration Report – audited ............................................................................................................17 Auditors independence declaration ......................................................................................................25 Consolidated statement of profit or loss and other comprehensive income .......................................26 Consolidated statement of financial position .......................................................................................27 Consolidated statement of changes in equity ......................................................................................28 Consolidated statement of cash flows ..................................................................................................29 Notes to the consolidated financial statements ...................................................................................30 How numbers are calculated ................................................................................................................31 Risk.........................................................................................................................................................54 Group structure .....................................................................................................................................60 Unrecognised items ...............................................................................................................................65 Other information ..................................................................................................................................68 Directors declaration .............................................................................................................................88 Independent auditors report to the members .....................................................................................89 ASX additional information ...................................................................................................................94 Pg 11 Acumentis Annual Report 2020DIRECTORS’ REPORT The Directors present their report together with the financial report of the Consolidated Entity, being Acumentis Group Limited (“the Company”) and its controlled entities, for the year ended 30 June 2020 and the auditor’s report thereon. Directors The Directors of the Company in office at any time during or since the end of the financial year are: Keith Perrett brings to the board strong experience in strategy development, government relations, stakeholder engagement and business development. He also has a strong business and government network, particularly within New South Wales & Queensland. He is currently Non-Executive Chairman of Silver Mines Ltd (ASX:SVL) and has previously held positions as the Chairman of the Grains Research and Development Corporation (GRDC), the National Rural Advisory Council (NRAC), the Wheat Research Foundation (WRF), and President of the Grains Council of Australia. Stephen Maitland OAM RFD has over 45 years’ experience in the banking and finance industries, and as a non-executive director of several listed and unlisted companies. He is the principal of Delphin Associates, a business consultancy firm specialising in strategic planning, risk management, corporate governance and business transition. Stephen has a degree in Economics and Masters’ degrees in Business and Law. He is a Fellow of the Australian Institute of Company Directors, CPA Australia; the Governance Institute of Australia; and a Senior Fellow of the Financial Services Institute of Australia. Keith Perrett Independent Director Chair of the Board 25/05/18 – current Non-Executive director 01/02/18 - current Audit & Risk Committee 22/02/18 – 21/11/19 Nominations & Remuneration Committee 22/02/18 – 21/11/19 Chair of Nominations & Remuneration Committee 25/05/18 – 21/11/19 Stephen Maitland Independent Director Non-Executive director 01/02/18 - current Audit & Risk Committee 22/02/18 – current Chair of Audit & Risk Committee 25/05/18 - current Nominations & Remuneration Committee 22/02/18 - current Pg 12 Acumentis Annual Report 2020Andrea Staines Independent Director Non-Executive director 26/09/19 - current Chair of Nominations & Remuneration Committee 21/11/19 – current Audit & Risk Committee 21/11/19 – current Bradley Piltz Executive Director 26/09/02 – 30/04/14 Non-Executive Director 01/05/14 – current Nominations & Remuneration Committee 26/09/02 – current Audit & Risk Committee 26/09/02 - 25/5/18 12/03/19 - current Andrea Staines OAM has been a professional Non-Executive Director for over a decade, and is currently on the boards of ASX-listed SeaLink Travel, NZX- listed Freightways, UnitingCare and Australia Post. Her former Board roles include NDIA (the NDIS Agency), Tourism Australia, QIC, ASX-listed Aurizon, Australian Rail Track Corporation (ARTC), Gladstone Ports, North Queensland Airports, Goodstart Early Learning and ASX-listed Early Learning Services. Andrea is a former CEO of Australian Airlines (mark II), a Qantas subsidiary flying between Asia and Australia, which she co-launched. During this time, she was also a member of the Qantas Executive Leadership Team. Prior to this, Andrea ran Qantas Revenue Management, leading a 150-strong team employing operations research algorithms and human intervention to optimize passenger revenue. Before joining Qantas, Andrea worked in various financial and strategy roles with American Airlines at their Dallas headquarters. Andrea has an MBA focused on finance from the University of Michigan, a Bachelor of Economics from the University of Queensland, and completed high school on full scholarship at the United World College in Singapore. Andrea is a Fellow of the Australian Institute of Company Directors (AICD) and a Member of Chief Executive Women (CEW). Brad has been involved in financial and property markets since 1975 and was a co-founder of Acumentis Group. In addition to extensive experience with the Commonwealth Bank, Brad has acted for major corporations and government instrumentalities providing advice from portfolio analysis to property acquisition, disposal and tenancy requirements. Brad has acted in court as an expert witness; is highly experienced in rental determinations; prepared educational valuation materials; in valuation; and appeared on Sydney radio and television providing property market commentary. lectured He is a fellow of the Australian Property Institute and a member of the Australian Institute of Company Directors. During the past 3 years, he has not acted as a director of any other Australian listed public company. Pg 13 Acumentis Annual Report 2020Directors Meetings The number of directors’ meetings held, and the number of meetings attended by each of the directors (when a director) of the Company during the financial year were as follows: Director Keith Perrett Stephen Maitland Brad Piltz Andrea Staines Board Audit & Risk Committee Nominations & Remuneration Committee Held Attended Held Attended Held Attended 30 30 30 16 30 27 30 13 1 2 2 1 1 2 2 1 1 2 2 1 1 2 2 1 Company particulars Acumentis Group Limited is incorporated in Australia. The address of the registered office is Level 7, 283 Clarence Street, Sydney, NSW 2000. The company changed its name from LandMark White Limited to Acumentis Group Limited on 31 January 2020. Corporate Governance Statement Acumentis Group Limited and the board are committed to achieving and demonstrating the highest standards of corporate governance. Acumentis Group Limited has reviewed its corporate governance practices against the Corporate Governance Principles and Recommendations (4th edition) published by the ASX Corporate Governance Council. The 2020 Corporate Governance Statement is dated as at 30 June 2020 and reflects the corporate governance practices in place at the end of the 2020 financial year. The 2020 Corporate Governance Statement was approved by the board on 27 August 2020 and can be viewed at https://www.acumentis. com.au/media/2013/acumentis-corporate-governance-statement.pdf Principal activities The principal activity of the Consolidated Entity during the course of the financial year was property valuation. There were no significant changes in the nature of the activities of the Consolidated Entity during the year. Review of operations The results for the year ended 30 June 2020 reflect the impacts of the 2019 criminal cyber-attacks which continued to impact revenues in the second half of calendar 2019 and then the impact of COVID-19 in the second quarter of calendar 2020 which also resulted in a downturn in revenue in May 2020. The Company qualified for and secured the Federal JobKeeper subsidy from 1 May 2020. Pg 14 Acumentis Annual Report 2020Through the financial year, the business continued to invest heavily in its IT security achieving ISO27001 certification and provisional IRAP certification. This provided the necessary confidence for the majority of clients to recommence utilising Acumentis’ services. In August 2019, the Company undertook a 4 for 5 non-renounceable entitlement offer at $0.08 per share which was fully subscribed resulting in the issue of 68,045,819 shares on 23 August 2020 and raising $5,184,016 of capital (net of offer and placement costs). The result for the year ended 30 June 2020 includes the following significant items: Income Government grants (JobKeeper & Cashflow Boost) Insurance receipts Licence termination fee Expenses Redundancy costs Cyber-attack one off response costs Impairment of right of use assets 1,315,128 1,095,000 150,000 270,876 791,004 497,149 Business Overview Despite the adverse impacts of the criminal cyber-attacks and COVID-19, the business has recovered to a relatively strong financial position and is now returning to its medium-term strategies of diversifying its property services offerings and client base. Following the termination of commercial valuation franchises in July 2019, the business has quickly established a wholly owned commercial valuation division in Sydney and has also grown its Melbourne division. The Company sees strong opportunities to continue to grow the commercial valuation business in the coming years. The strong regional business acquired in October 2018 has been fully integrated and the Company is now embarking on strengthening the network of offices with a focus on Southern NSW and Victoria. This will enable the business to cement itself as the pre-eminent property professional service provider to regional and rural clients. The business has invested significantly in its IT systems, particularly its valuation management system. This has enabled the business to enhance its ability to service its major banking, Government and private clients and provide industry leading service throughout the Eastern States and the ACT and, via its associate in WA, throughout WA, SA and NT. Outlook The Company expects to continue its geographic expansion in Southern NSW and regional Victoria and to expand its valuation and property professional service offerings to existing and new clients. As the economy recovers from COVID-19, the Company is in a strong position to benefit from the expected increased requirement for property professional services. The Company expects to maintain positive cashflows going forward. Pg 15 Acumentis Annual Report 2020 Dividends The Board has not declared any dividends with respect to FY20 (FY19: none) No dividends were paid by the Company since the end of the previous financial year. The Board of the Company will consider resumption of dividends following the expected delivery of profits during the year ended 30 June 2021. Events subsequent to the end of the reporting period There were no significant events subsequent to the end of the reporting period. State of affairs Other than the impacts of the criminal cyber-attacks in 2019 and COVID-19 in 2020, there have been no significant changes in the state of affairs of the Consolidated Entity that occurred during the year under review. Likely Developments Refer to the Outlook included in this Directors Report above. Environmental regulation The operations of the Consolidated Entity are not subject to any significant environmental regulation under a law of the Commonwealth or of a State or Territory. Pg 16 Acumentis Annual Report 2020REMUNERATION REPORT – AUDITED Nominations & Remuneration Committee A major role of the Nominations & Remuneration Committee is to ensure that the remuneration policies and outcomes achieve an appropriate balance between the interests of Acumentis Group shareholders and rewarding and motivating executives and employees in order to achieve their long-term commitment to the Consolidated Entity. The committee meets as required but generally at least twice per year. The members of the Nominations & Remuneration Committee during the year were: Name Past members Keith Perrett (Member & Chair until 21 November 2019) Current members Andrea Staines (Member & Chair from 21 November 2019 Stephen Maitland Brad Piltz Independent Non-executive Y Y Y N Y Y Y Y Remuneration policies Remuneration levels are competitively set to attract and retain appropriately qualified and experienced directors and senior executives. The remuneration of the Consolidated Entity’s senior executives includes a mix of fixed and performance- based incentives. The fixed component consists of base remuneration, allowances and superannuation. The performance-based component is a cash bonus based on the performance of the Consolidated Entity and the individual performance of the executives. The board considers that the performance- linked incentive is appropriate as it directly aligns the individuals reward with the Consolidated Entity’s performance. In considering the Consolidated Entity’s performance, the board has regard to the following indices in respect of the current financial year and previous years. Services revenue 39,285 42,995 43,157 25,068 22,849 2020 $000 2019 2018 2017 2016 Net (loss) / profit to equity holders of the Company The factors that are considered to affect total shareholders return are summarised below: (2,555) (15,148) 4,140 1,626 1,659 Dividends declared (per share) - - $0.046 $0.045 $0.045 Share price at the end of the period $0.080 $0.180 $0.555 $0.625 $0.52 Pg 17 Acumentis Annual Report 2020 Non-executive directors are paid an annual fee for their service on the board and committees which is determined by the Nominations & Remuneration Committee. Aggregate remuneration for all non-executive directors is not to exceed $400,000 per annum as approved by the shareholders. Non-executive directors’ aggregate salary & fees for the year were $296,750. These fees include statutory superannuation. Non- executive directors do not receive bonuses nor are they entitled to be issued with options or performance rights on securities in the Consolidated Entity. Non-executive directors do not receive any retirement benefits other than statutory superannuation payments. Non-executive directors do not receive separate fees for committee memberships. The Consolidated Entity has a policy that prohibits those that are granted share-based payments as part of their remuneration from being compensated for changes in value of the underlying securities. Directors’ and senior executive officers’ remuneration Details of the nature and amount of each major element of the remuneration of each member of key management personnel are: Short term Post-employment Long term Total $ Name Year Salary & Fees $ Bonus (b) $ Super- annuation benefits $ Termi- nation benefits $ Movement in long term benefits $ Share based payment settled $ Perfor- mance related % Share based % Non-executive directors K Perrett 2020 120,000 2019 120,000 S Maitland 2020 65,000 2019 65,000 B Piltz 2020 58,219 2019 59,361 A Staines1 2020 43,836 G White2 2019 2020 - - 2019 41,552 F Hardiman2 2020 - 2019 35,230 Executive directors C Coonan3 2020 - 2019 189,701 - - - - - - - - - - - - - - Other key management personnel T Rabbitt4 2020 360,139 55,773 21,003 2019 92,308 - J Wise 2020 241,103 45,662 2019 205,602 - 5,333 23,820 18,761 - - - - 5,531 5,639 4,164 - - 3,948 - 3,347 - - - - - - - - - - - - 10,501 196,794 - - - - - - - - - - - - - 15,431 - - - - - 16,019 22,381 1,552 1,313 1,331 - - - - - - - - - - - - - - - - - - 120,000 120,000 65,000 65,000 63,750 65,000 48,000 - - 45,500 - 38,577 207,295 221,151 - - - - - - - - - - - - - - 459,296 12% 99,193 - 311,898 15% 225,694 - - - - - - - - - - - - - - - - - - - 1. Appointed 26 September 2019 2. Resigned 12 March 2019 3. Resigned 12 March 2019 however termination benefits paid 18 October 2019 4. Appointed CEO 12 March 2019 Pg 18 Acumentis Annual Report 2020 Notes in relation to the table of directors’ and executive officers’ remuneration (a) Analysis of options & performance rights included in remuneration Option & Performance Rights – Share Based Payments The directors at their discretion allocate share options or performance rights that entitle key management personnel and senior employees to be issued shares in the entity. The terms of the options including vesting conditions and performance criteria vary depending upon the incentive arrangements appropriate for key management personnel and senior employees and are a part of an approved Employee Share Acquisition Scheme, which was approved by shareholders at the 2018 Annual General Meeting. Options There were no options outstanding at the dated of this report (2019: nil). Performance Rights Performance rights may be granted under the Acumentis Group Performance Rights and Option Plan which was approved by shareholders at the 2018 Annual General Meeting. The Plan allows the Company to grant options or rights to selected key employees to acquire ordinary shares in the Company. Participants are required to satisfy performance and service conditions at the time of the offer. The exercise price for performance rights is nil. Rights cannot be transferred and are not quoted on the ASX. No performance rights were granted during the year and no performance rights exist as at 30 June 2020 (2019: nil). Vesting and exercise of performance rights issued during prior years There were no performance rights held as at 30 June 2019 and accordingly none vesting or exercised during the year ended 30 June 2020. (b) Analysis of bonuses included in remuneration Short-term incentive cash bonuses were awarded to the CEO Timothy Rabbitt and CFO John Wise. The performance-based component for the CEO is a cash bonus based on both financial and non-financial KPI’s and qualitative assessment of performance. The performance-based component for the CFO is a cash bonus based on non-financial KPI’s and qualitative assessment of performance. Director / Key Management Personnel Timothy Rabbitt John Wise Vesting date 30 June 2020 30 June 2020 Cash Bonus Paid / Payable Cash Bonus Forfeited Financial Year the cash bonus was paid / is payable 90% 90% 10% 10% 2021 2021 Pg 19 Acumentis Annual Report 2020Contracted Commitment Timothy Rabbitt (CEO) and John Wise (CFO) are employed by the Company under ongoing employment contracts. The notice periods and termination payments provided for under these contracts are as follows: Director / Key Management Personnel Notice Period Months Termination Payment Timothy Rabbitt John Wise 6 3 200,000 68,750 The termination payments are not provided for in the financial statements. Pg 20 Acumentis Annual Report 2020BENEFICIAL INTEREST OF DIRECTORS IN SHARES & OPTIONS Movement in shareholdings The movement during the reporting period in the number of ordinary shares in the Company held directly, indirectly, or beneficially by each key management personnel including their personally related entities is as follows: 2020 Directors Brad Piltz Stephen Maitland Keith Perrett Andrea Staines Key Management Personnel Timothy Rabbitt John Wise 2019 Directors Brad Piltz Stephen Maitland Keith Perrett Glen White Frank Hardiman Chris Coonan Key Management Personnel Timothy Rabbitt John Wise Held at 1 July 2019 Purchases Sales Retirement from Board Held at 30 June 2020 4,501,284 1,528,489 91,298 73,039 - - - - 735,883 - 768,707 125,000 Held at 1 July 2018 Promotion to Key Management Position - - - - - - - - - - - - 6,029,773 164,337 - - 1,504,590 125,000 Sales Retirement from Board Held at 30 June 2019 4,501,284 91,298 - 10,870,134 374,949 325,000 - - - - - - - - - - - (160,731) - - - (10,870,134) (374,949) (164,269) 4,501,284 91,298 - - - - - - 735,883 - - - - - 735,883 - The executive officers named are those who are directly accountable and responsible for the strategic direction and operational management of the Consolidated Entity. The Directors are of the opinion that only the executive officers detailed above meet the definition of key management personnel as set out in AASB 124 Related Party Disclosures. Director Related Entity The Consolidated Entity did not enter into any transactions with a director-related entities except for payment of some non-executive directors’ fees in either of the years ended 30 June 2019 or 30 June 2020. END OF REMUNERATION REPORT Pg 21 Acumentis Annual Report 2020 PROCEEDINGS ON BEHALF OF THE CONSOLIDATED ENTITY During the financial year and in the interval between the end of the financial year and the date of this report the Consolidated Entity has made no application for leave under Section 237 of the Corporations Act 2001. No person has applied for leave of court to bring proceedings on behalf of the Consolidated Entity or intervene in any proceeding to which the Consolidated Entity is a party for the purpose of taking responsibility on behalf of the Consolidated Entity for all or any part of these proceedings. The Consolidated Entity was not a party to any such proceedings during the year. Directors’ Interests The relevant interest of each director in the shares issued by the Company as notified by the Directors to the Australian Securities Exchange in accordance with S205G(1) of the Corporations Act 2001, at the date of this report is as follows: Brad Piltz Stephen Maitland Keith Perrett Andrea Staines Share Options Shares under option Ordinary Shares 6,029,773 164,337 - - There were 2,500,000 unissued ordinary shares of Acumentis Group Limited under option at the date of the report (2019: Nil). Refer to note 7 for further details. Shares issued on exercise of options There were no options exercised during the year (2019: Nil). Indemnification and Insurance of officers and auditors Officers The Consolidated Entity has agreed to indemnify all current Directors of Acumentis Group Limited to the maximum extent permitted by law against any liability incurred by them by virtue of their holding office as an officer of the Consolidated Entity other than: a liability owed to the Consolidated Entity or a related body corporate of the Company; a liability for a pecuniary penalty order under section 1317G of the Law or a compensation order under section 1317H of the Law; or a liability owed to a person other than the Consolidated Entity that did not arise out of conduct in good faith. • • • Pg 22 Acumentis Annual Report 2020 Since the end of the previous financial year, the Consolidated Entity has paid premiums in respect of Directors and Officers liability insurance, for all past, present, or future directors, secretaries, officers or employees of the Consolidated Entity. Conditions of the Insurance policy restrict disclosure of the premium amount. The insurance premiums relate to: • • costs and expenses incurred by the relevant officers in defending proceedings, whether civil or criminal and whatever their outcome other liabilities that may arise from their position, with the exception of conduct involving a wilful breach of duty or improper use of information or position to gain a personal advantage. Further details of insurance policies have not been disclosed as the policies prohibit such disclosure. Auditors 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 third-party liability incurred by the auditor. During the year, the Company has not paid a premium in respect of a contract to insure the auditor of the Company or any related entity. Rounding of Amounts The Consolidated Entity has applied the relief available under ASIC Instrument 2016/191 and accordingly, amounts in the financial statements and directors’ report have been rounded to the nearest thousand dollars, or in certain cases, to the nearest dollar. Auditors Independence Declaration under Section 307C of the Corporations Act 2001 The auditor’s independence declaration is set out on page 25 and forms part of the Directors’ Report for the financial year ended 30 June 2020. Non-audit services During the year, William Buck, the Company’s auditor, has performed certain other services in addition to their statutory duties. The board has considered the non-audit services provided during the year by the auditor and in accordance with written advice provided by resolution of the Audit & Risk Committee, is satisfied that the provision of those non-audit services during the year by the auditor is compatible with, and did not compromise, the auditor independence requirements of the Corporations Act 2001 for the following reasons: • • all non-audit services were subject to the corporate governance procedures adopted by the Consolidated Entity and have been reviewed by the Audit & Risk Committee to ensure that they do not impact the integrity and objectivity of the auditors; and the non-audit services provided do not undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants (including Independence Standards), as they did not involve reviewing or auditing the auditor’s own work, acting in a management or decision-making capacity for the Consolidated Entity, acting as an advocate for the Consolidated Entity or jointly sharing risks and rewards. Pg 23 Acumentis Annual Report 2020Details of the amounts paid to the auditors of the Consolidated Entity, William Buck, and its related practices for audit and non-audit services provided during the year are set out below: Statutory and other audit services Full year audit Half year review Service other than statutory audit Restructuring advice Preparation & lodgement of taxation returns Tax advice: • Employee share plan • Continuity of ownership for tax losses • JobKeeper eligibility 2020 2019 155,000 41,000 196,000 97,609 4,000 - 6,000 4,000 143,500 46,500 190,000 300,000 11,100 13,000 - - 111,609 324,100 This report is made in accordance with a resolution of the directors. Keith Perrett Director Dated at Sydney this 27th day of August 2020 Pg 24 Acumentis Annual Report 2020 AUDITORS INDEPENDENCE DECLARATION Acumentis Group Limited Acumentis Group Limited Acumentis Group Limited Auditor’s independence declaration under section 307c of Auditor’s independence declaration under section 307c of Auditor’s independence declaration under section 307c of the Corporations Act 2001 the Corporations Act 2001 the Corporations Act 2001 I declare that, to the best of my knowledge and belief, during the year ended 30 June 2020 I declare that, to the best of my knowledge and belief, during the year ended 30 June 2020 I declare that, to the best of my knowledge and belief, during the year ended 30 June 2020 there have been: there have been: there have been: — No contraventions of the auditor independence requirements as set out in the — No contraventions of the auditor independence requirements as set out in the — No contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and Corporations Act 2001 in relation to the audit; and Corporations Act 2001 in relation to the audit; and — No contraventions of any applicable code of professional conduct in relation to the — No contraventions of any applicable code of professional conduct in relation to the — No contraventions of any applicable code of professional conduct in relation to the audit. audit. audit. William Buck William Buck William Buck Accountants & Advisors Accountants & Advisors Accountants & Advisors ABN: 16 021 300 521 ABN: 16 021 300 521 ABN: 16 021 300 521 L E. Tutt L E. Tutt L E. Tutt Partner Partner Partner Sydney, 27 August 2020 Sydney, 27 August 2020 Sydney, 27 August 2020 ACCOUNTANTS & ADVISORS ACCOUNTANTS & ADVISORS ACCOUNTANTS & ADVISORS Sydney Office Sydney Office Sydney Office Level 29, 66 Goulburn Street Level 29, 66 Goulburn Street Level 29, 66 Goulburn Street Sydney NSW 2000 Sydney NSW 2000 Sydney NSW 2000 Parramatta Office Parramatta Office Parramatta Office Level 7, 3 Horwood Place Level 7, 3 Horwood Place Level 7, 3 Horwood Place Parramatta NSW 2150 Parramatta NSW 2150 Parramatta NSW 2150 Telephone: +61 2 8263 4000 Telephone: +61 2 8263 4000 Telephone: +61 2 8263 4000 williambuck.com williambuck.com williambuck.com William Buck is an association of firms, each trading under the name of William Buck across Australia William Buck is an association of firms, each trading under the name of William Buck across Australia William Buck is an association of firms, each trading under the name of William Buck across Australia and New Zealand with affiliated offices worldwide. and New Zealand with affiliated offices worldwide. and New Zealand with affiliated offices worldwide. Liability limited by a scheme approved under Professional Standards Legislation. Liability limited by a scheme approved under Professional Standards Legislation. Liability limited by a scheme approved under Professional Standards Legislation. (WB013_2007) (WB013_2007) (WB013_2007) 13 13 13 Pg 25 Acumentis Annual Report 2020CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME Revenue from rendering of services Other income Expenses from operating activities: Employee expenses Software, printing & stationary expenses Marketing expenses Communications expenses Insurance expenses Administration expenses Occupancy expenses Depreciation and amortisation expenses Impairment of right of use assets Impairment of investment in associated entity Impairment of intangible assets Other expenses from operating activities Results from operating activities Finance income Finance expense Share of net loss of associates accounted for using the equity method Loss before tax Income tax benefit Loss for the year attributable to owners of the parent Notes 1 3(a) 13(b) 6(d) 3(b) 3(b) 2020 $000 36,666 2,619 39,285 2019 $000 41,493 1,502 42,995 29,122 2,694 33,376 2,576 374 710 2,271 1,418 771 2,078 497 - - 1,817 41,752 514 663 1,716 1,533 2,053 808 - 753 12,284 2,147 58,423 (2,467) (15,428) 18 (494) (476) (86) 44 (204) (160) (29) (3,029) (15,617) 4 474 469 (2,555) (15,148) Total other comprehensive income (net of tax) Total comprehensive loss for the year attributable to owners of the parent - - (2,555) (15,148) Basic earnings per share Diluted earnings per share 22(a) 22(b) (1.76 cents) (1.73 cents) ($18.36) ($18.36) The above statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes. Pg 26 Acumentis Annual Report 2020 CONSOLIDATED STATEMENT OF FINANCIAL POSITION Assets Cash and cash equivalents Term deposits Trade and other receivables Income tax receivable Other current assets Total current assets Deferred tax assets Term deposits Plant and equipment Right of use assets Intangible assets Investments accounted for using the equity method Total non-current assets Total assets Liabilities Trade and other payables Borrowings Lease liabilities Current tax liabilities Employee benefits Total current liabilities Borrowings Lease liabilities Deferred tax liabilities Employee benefits Provisions Total non-current liabilities Total liabilities Net assets Equity Issued capital (Accumulated deficit) / Retained earnings Total equity Notes 5(a) 5(b) 5(c) 6(a) 6(g) 6(f) 5(b) 6(b) 6(c) 6(d) 13(b) 5(d) 5(e) 5(f) 6(e) 6(h) 5(e) 5(f) 6(f) 6(h) 6(i) 2020 $000 1,830 25 4,673 - 895 7,423 2,818 795 800 2,580 25,562 1,114 33,668 2019 $000 1,816 72 3,832 480 1,019 7,219 2,172 846 880 - 25,173 571 29,642 41,091 36,861 2,196 1,300 1,158 - 4,255 8,909 2,600 2,364 - 471 182 5,617 2,568 1,999 56 46 3,939 8,608 3,250 - 7 517 192 3,966 14,526 26,565 12,574 24,287 7 44,477 39,293 (17,912) (15,006) 26,565 24,287 The above consolidated statement of financial position should be read in conjunction with the accompanying notes. Pg 27 Acumentis Annual Report 2020 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Balance at 1 July 2018 Change in accounting policy Total comprehensive loss attributable to members of the parent entity Shares issued Dividends to shareholders Balance at 30 June 2019 Balance at 1 July 2019 Change in accounting policy (note) Total comprehensive loss attributable to members of the parent entity Shares issued Balance at 30 June 2020 25 7 Retained Earnings / (Accumulat- ed Deficit) $000 1,732 (68) Total Equity $000 35,625 (68) (15,148) (15,148) Notes Share Capital $000 33,893 - - 5,400 - - (1,522) 39,293 (15,006) 39,293 (15,006) (351) - - 5,400 (1,522) 24,287 24,287 (351) (2,555) (2,555) 5,184 - 44,477 (17,912) 5,184 26,565 The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes. Pg 28 Acumentis Annual Report 2020CONSOLIDATED STATEMENT OF CASH FLOWS Cash flows from operating activities Cash receipts in the course of operations Government grants received Cash payments in the course of operations Interest received Interest paid Dividends received Decrease in security deposits Income tax refunded / (paid) Net cash (used in) / provided by operating activities Cash flows from investing activities Payments for plant and equipment Payments for intangible assets Purchase of investments - Acquisition of controlled entity - Acquisition of unincorporated businesses - Acquisition of associated entity Net cash used in investing activities Cash flows from financing activities Shares issued net of costs Borrowings received Repayment of borrowings Repayment of lease liabilities Dividends paid Notes 2020 $000 41,483 629 2019 $000 51,166 - (42,826) (50,309) 18 (495) - 98 498 (595) (324) (870) - - (628) (1,822) 5,010 2,120 (3,469) (1,230) - 44 (204) 64 64 (769) 56 (260) (679) (3,695) (42) - - 7,152 (1,903) (63) (1,522) 8(a) 6(b) 6(d) 12(a) 7(a) Net cash provided from financing activities Net increase / (decrease) in cash and cash equivalents held Cash and cash equivalents at beginning of the year 2,431 3,664 14 (956) 1,816 2,772 Cash and cash equivalents at the end of the year 5(a) 1,830 1,816 The above consolidated statement of cash flows should be read in conjunction with the accompanying notes. Pg 29 Acumentis Annual Report 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS How numbers are calculate .................................................................................................. 31 1 2 3 4 5 6 7 8 Revenue ............................................................................................................................31 Material profit or loss items..............................................................................................32 Other income and expense items ....................................................................................33 Income tax expense .........................................................................................................34 Financial assets and financial liabilities ...........................................................................35 Non-financial assets and liabilities ..................................................................................38 Equity ................................................................................................................................52 Cash flow information .......................................................................................................53 Risk ..................................................................................................................................... 54 9 10 11 Significant estimates & judgements ................................................................................54 Financial risk management ..............................................................................................54 Capital management ........................................................................................................58 Group structure ................................................................................................................... 60 12 13 Business combinations.....................................................................................................60 Interests in other entities .................................................................................................61 Unrecognised items .............................................................................................................. 65 14 15 16 17 18 Contingent liabilities .........................................................................................................65 Commitments ...................................................................................................................65 Guarantees .......................................................................................................................65 Events occurring after the reporting period .....................................................................66 Going Concern ..................................................................................................................66 Other information ................................................................................................................ 68 19 20 21 22 23 24 25 Related party transactions ...............................................................................................68 Share-based payments ....................................................................................................68 Remuneration of auditors .................................................................................................70 Earnings per share ............................................................................................................70 Parent entity financial information ...................................................................................71 Summary of significant accounting policies ....................................................................72 Changes to accounting policies ........................................................................................84 Pg 30 Acumentis Annual Report 2020 HOW NUMBERS ARE CALCULATED This section provides additional information about those individual line items in the financial statements that the directors consider most relevant in the context of the operations of the entity, including: a) Accounting policies that are relevant for an understanding of the items recognised in the financial statements. These cover situations where the accounting standards either allow a choice or do not deal with a particular type of transaction; b) c) Analysis and sub-totals, including segment information; and Information about estimates and judgements made in relation to particular items. 1 Revenue Revenue from rendering of services Recovery of disbursements Recharge of shared services to licensees 2020 $000 36,539 57 70 36,666 2019 $000 40,899 100 494 41,493 (a) Revenue from rendering of services Revenue from the rendering of services to clients is recognised when the individual performance obligation under the applicable contract is satisfied and at the price agreed in the contract. For the large majority of contracts, there is a single performance obligation at the completion of the service and revenue is recognised at this point. (b) Recovery of disbursements Where the contract with the client allows the recovery of disbursements incurred in delivering the services, these are billed to the client at the time the performance obligation in the contract is satisfied or in accordance with an agreed billing schedule as appropriate. (c) Recharge of shared services to licensees Revenue relating to the provision of shared services to licensees is billed and recognised on a monthly basis over the term of the agreement relating to the provision of such services. Further information on the measurement and timing of recognition of revenues may be found in note 24(e). Pg 31 Acumentis Annual Report 2020 2 Material profit or loss items The Consolidated Entity has identified a number of items which are material due to the significance of their nature and/or amount. These are listed separately here to provide a better understanding of the financial performance of the Consolidated Entity. Income Insurance proceeds Government grants received Licence termination fee Expenses Impairment of intangible assets Impairment of investment in associated entity Impairment of right of use assets Consultant costs associated with criminal cyber-attack Redundancy and termination costs (a) Impairment of intangible assets 2019 Notes 3(a) 3(a) 3(a) 2(a) 2(b) 2(c) 2020 $000 1,095 1,315 150 - - 497 791 271 2019 $000 995 - - 12,284 753 - 402 245 As a result of the reduction in revenues, profits and cashflows from the business units that rely upon bank lender valuation instructions following the criminal cyber-attacks in February and May 2019, as well as reduced revenues received by the Statutory Services business units, the carrying value of goodwill in the residential, commercial and regional business units was tested at 30 June 2019. Based upon the estimated recoverable amounts of the cash generating units detailed above, an impairment charge of $12,284,000 was recognised through the Statement of Profit or Loss and Other Comprehensive Income. (b) Impairment of investment in associated entity 2019 As a result of the reduction in revenues, profits and cashflows following the criminal cyber-attacks in February and May 2019, the carrying value of Acumentis’ investment in its associate, was tested at 30 June 2019. Based upon the estimated recoverable amounts of the associate an impairment charge of $753,000 was recognised through the Statement of Profit or Loss and Other Comprehensive Income. (c) Impairment of right of use assets 2020 The impairment charge relates to the right of use assets comprising office leases that are no longer used by the business. There are two such leases, one of which has already been sub-let and other is expected to be assigned within the next 6 months. For the sub-lease, the impairment charge represents the difference between the net book value of the assets and the net present value of future expected sub-lease income. Pg 32 Acumentis Annual Report 2020 For the assignment, the impairment charge represents the difference between the net book value of the right of use asset and the net present value of incentives expected to be provided to the assignee in order to exit the lease, less future liabilities that will be avoided via the assignment. 3 Other income and expense items This note provides a breakdown of the items included in ‘other income’ and ‘finance income and expenses’. Information about specific profit and loss items (such as gains and losses in relation to the sale of plant & equipment) is disclosed in the related statement of financial position notes. (a) Other income Government grants received Insurance proceeds Licence fee income Licence termination fee Sundry income 2020 $000 1,315 1,095 9 150 50 2,619 2019 $000 - 995 466 - 41 1,502 Government grant income represents Cashflow Boost and JobKeeper support provided by the Federal Government in response to the COVID-19 pandemic. Government grants are recognised when the Consolidated Entity has reasonable assurance that the eligibility conditions have been complied with and that the grant will be received. Insurance proceeds represents the net benefit received as a result of insurance claims made following the criminal cyber-attacks in February and May 2019. Insurance proceeds are recognised when the applicable insurer has confirmed cover and the benefit payable under that cover. Licence fee income represented fees charged to non-controlled entities which had been licenced to use the LMW brand and systems. Licence fees were charged as a percentage of revenue earned by the licensee. Licence fee income was recognised when the right to receive the income has been established. The Company ceased licencing arrangements on 31 July 2019. (b) Finance income and expenses Finance income Finance expenses 2020 $000 18 (494) (476) 2019 $000 44 (204) (160) Pg 33 Acumentis Annual Report 2020 Finance income comprises interest income on funds invested. Interest income is recognised using the effective interest rate method, which, for floating rate financial assets, is the rate inherent in the instrument. Interest income is recognised as it accrues in the Statement of Profit & Loss and Other Comprehensive Income, using the effective interest method. Finance expenses comprise interest expense on borrowings and unwinding of the discount on financial assets. All borrowing costs are recognised in the Statement of Profit & Loss and Other Comprehensive Income using the effective interest method. 4 Income tax expense This note provides an analysis of the Consolidated Entity’s income tax expense, shows what amounts are recognised directly in equity and how the tax expense is affected by non-assessable and non-deductible items. It also explains significant estimates made in relation to the Consolidated Entity’s tax position. (a) Income tax benefit Current tax Current year tax loss carried forward Adjustments for prior years Total current tax benefit Deferred income tax Decrease in deferred tax assets (note 6(f)) (Decrease) / increase in deferred tax liabilities (note 6(f)) Total deferred tax expense Income tax benefit 2020 $000 (764) 179 (585) 118 (7) 111 2019 $000 (705) 87 (618) 142 7 149 (474) (469) Pg 34 Acumentis Annual Report 2020 (b) Reconciliation of income tax benefit to prima facie tax payable Loss from continuing operations before tax 2020 $000 2019 $000 (3,029) (15,617) Prima facie income tax benefit calculated at 27.5% on profit (2019: 30%) (833) (4,685) Increase/(decrease) in income tax expense due to: Non-assessable income (Federal Government Cashflow Boost) (14) - Non-deductible expenses - Intangible asset impairment - Investment impairment - Acquisition costs - Entertainment - Other expenses Non-assessable share of loss of associate Adjustments for prior years Restatement of future tax benefit from 27.5% to 26.0%1 Income tax benefit - - - 6 1 24 (816) 179 163 (474) 3,685 226 158 22 30 8 (556) 87 - (469) 1. The Consolidated Entity is subject to the lower company tax rate for entities with an aggregated turnover of less than $50M. This tax rate reduces from 27.5% to 26% effective 1 July 2020 and accordingly the balance on the future income tax benefit account has been restated from 27.5% to 26.0%. 5 Financial assets and financial liabilities This note provides information about the Consolidated Entity’s financial instruments, including: • An overview of all financial instruments held by the Consolidated Entity; • Specific information about each type of financial instrument; • Accounting policies; and • Information about determining the fair value of the instruments, including judgements and estimation uncertainty involved. The Consolidated Entity holds the following financial instruments: Financial assets at amortised cost Cash and cash equivalents Term deposits Trade and other receivables Financial liabilities at amortised cost Trade and other payables Borrowings Lease liabilities Note 5(a) 5(b) 5(c) 5(d) 5(e) 5(f) 2020 $000 1,830 820 4,673 7,232 2,197 3,900 3,522 9,619 2019 $000 1,816 918 3,832 6,566 2,568 5,249 56 7,873 Pg 35 Acumentis Annual Report 2020 (a) Cash and cash equivalents Financial assets at amortised cost Cash at bank and on hand Cash and cash equivalents in the Statement of Cash Flows Access was available at the reporting date to the following lines of credit: Available Bank bill facility Bank overdraft Unused at reporting date Bank bill facility Bank overdraft 2020 $000 1,830 1,830 2019 $000 1,816 1,816 2020 $000 3,900 1,200 5,100 - 1,200 1,200 2019 $000 5,000 1,200 6,200 - 1,200 1,200 The bank overdraft facility may be drawn at any time and may be terminated by the bank without notice. The bank bill and overdraft facilities are secured via fixed and floating charges over the assets and business of the Consolidated Entity. As at 30 June 2020, the Consolidated Entity has satisfied all covenants in relation to the bill facility. The facilities are subject to annual review with the next review in October 2020. (b) Term deposits Term deposits that have a maturity of three months or less from the date of acquisition, which do not provide security for long term commitments (for example property lease guarantees) and are repayable with 24 hours’ notice with no loss of interest are included in cash and cash equivalents. Term deposits that do not satisfy these requirements are recorded as separate financial assets. (c) Trade and other receivables Current Trade receivables Less: provision for expected credit losses Other receivables Pg 36 2020 $000 4,568 (82) 187 4,673 2019 $000 3,919 (250) 163 3,832 Acumentis Annual Report 2020 (i) Classification as trade and other receivables Trade receivables are amounts due from customers for services performed in the ordinary course of business. Other receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. If collection of the amounts is expected in one year or less they are classified as current assets. If not, they are presented as non-current assets. Trade receivables are generally due for settlement within 30 days and therefore are all classified as current. The Consolidated Entity’s impairment and other accounting policies for trade and other receivables are outlined in notes 10(a) and 24(k) respectively. (ii) Fair values of trade and other receivables Due to the short-term nature of the current receivables, their carrying amount is considered to be the same as their fair value. (iii) Impairment and risk exposure Information about the impairment of trade and other receivables, their credit quality and the Consolidated Entity’s exposure to credit risk, foreign currency risk and interest rate risk can be found in note 10. (d) Trade and other payables Current Trade payables Other payables and accrued expenses 2020 $000 994 1,202 2,196 2019 $000 1,407 1,161 2,568 Trade payables are unsecured and are usually paid within 30 days of recognition. The carrying amounts of trade and other payables are considered to be the same as their fair values, due to their short-term nature. (e) Borrowings Current Short term loan Commercial bank bills Non-Current Commercial bank bills Total 2020 $000 - 1,300 1,300 2019 $000 249 1,750 1,999 2,600 3,250 3,900 5,249 Pg 37 Acumentis Annual Report 2020 Secured liabilities The commercial bank bills are secured via fixed and floating charges over the assets and business of the Consolidated Entity. (f) Lease liabilities Current Lease liabilities – right of use assets Lease liabilities – finance leases Non-Current Lease liabilities – right of use assets Total Payable as follows Within one year One year or later and no later than five years Later than five years Future finance charges Recognised as a liabilit Secured liabilities 2020 $000 1,158 - 1,158 2,364 3,522 1,386 2,505 - 3,891 (369) 3,522 2019 $000 - 56 56 - 56 62 - - 62 (6) 56 Lease liabilities are effectively secured as the interests in the right of use assets recognised in the financial statements revert to the lessor in the event of default. 6 Non-financial assets and liabilities This note provides information about the Consolidated Entity’s non-financial assets and liabilities, including: • Specific information about each type of non-financial asset and non-financial liability: - Income tax receivable (note 6(a)) - Deferred tax balances (note 6(f)) - Plant and equipment (note 6(b)) - Other current assets (note 6(g)) - Right of use assets (note 6(c)) - Employee benefit obligations (note 6(h)) - Intangible assets (note 6(d)) - Provisions (note 6(i)) - Current tax liabilities (note 6(e)) • Accounting policies; and • Information about determining the fair value of the assets and liabilities, including judgements and estimation uncertainty involved. Pg 38 Acumentis Annual Report 2020 (a) Income tax receivable Current Income tax receivable 2020 $000 - 2019 $000 480 As a large taxpayer, Acumentis ordinarily remits monthly income tax instalments to the Australian Taxation Office based on the revenues recorded each month. The 2019 balance represented overpayment of income tax instalment amounts which was refunded in July 2019. (b) Plant & equipment Cost Balance at 1 July 2018 Acquisition of controlled entities Additions – cash Disposals Balance at 30 June 2019 Balance at 1 July 2019 Additions – cash Additions – non cash Disposals Balance at 30 June 2020 Accumulated Depreciation Balance at 1 July 2018 Acquisition of controlled entities Depreciation charge for the year Disposals Balance at 30 June 2019 Balance at 1 July 2019 Depreciation charge for the year Disposals Balance at 30 June 2020 Carrying Amounts 1 July 2018 30 June 2019 1 July 2019 30 June 2020 Office Equipment $000 Furniture and Fittings $000 Leasehold Improvements $000 868 1,359 203 (447) 1,983 1,983 156 - - 2,139 483 1,225 278 (447) 1,539 1,539 267 - 1,806 385 444 444 333 58 523 44 (10) 615 615 9 - (3) 621 24 308 65 (10) 387 387 83 (3) 467 34 228 228 154 550 218 13 (348) 433 433 159 54 (84) 562 276 154 84 (289) 225 225 108 (84) 249 274 208 208 313 Total $000 1,476 2,100 260 (805) 3,031 3,031 324 54 (87) 3,322 783 1,687 427 (746) 2,151 2,151 458 (87) 2,522 693 880 880 800 Pg 39 Acumentis Annual Report 2020 (i) Recognition and measurement Items of plant and equipment are stated at cost less accumulated depreciation (see below) and impairment losses (see accounting policy Note 24(m)). When parts of an item of plant and equipment have different useful lives, they are accounted for as separate items (major components) of plant and equipment. Gains and losses on disposal of an item of plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of plant and equipment and are recognised net within “other income” in the Statement of Profit & Loss and Other Comprehensive Income. (ii) Depreciation Depreciation is charged to the Statement of Profit & Loss and Other Comprehensive Income on a straight-line basis over the estimated useful lives of each part of an item of plant and equipment. Leased assets are depreciated over the shorter of the lease term and their useful lives, unless it is reasonably certain that the Consolidated Entity will obtain ownership by the end of the lease term. The estimated useful lives in the current and comparative periods are as follows: • • • • Office equipment Furniture and fittings 2-5 years 4-5 years Leasehold improvements lesser of life of the lease or 10 years Right of use assets life of the underling lease The residual value, the useful life and the depreciation method applied to an asset are reassessed at least annually. (iii) Leased assets As at 30 June 2019, office equipment and furniture and fittings included the following amounts where the Consolidated Entity was a lessee under finance leases: Leased equipment Cost Accumulated depreciation Net book value 2020 $000 - - - 2019 $000 274 (223) 51 From 1 July 2019, leased assets are separately disclosed as “right of use assets” within property, plant & equipment in the balance sheet. Refer note 25 for details about the changes in accounting policy. Pg 40 Acumentis Annual Report 2020 (c) Right of use assets (i) Amounts recognised in the balance sheet. Cost Balance at 1 July 2018 Additions Disposals Balance at 30 June 2019 Balance at 1 July 2019 Change of accounting policy (note 25) Additions Disposals Balance at 30 June 2020 Accumulated Depreciation Balance at 1 July 2018 Depreciation charge for the year Disposals Balance at 30 June 2019 Balance at 1 July 2019 Change of accounting policy (note 25) Depreciation charge for the year Impairment charge Disposals Balance at 30 June 2020 Carrying Amounts 1 July 2018 30 June 2019 1 July 2019 30 June 2020 Lease liabilities Current Non-current Buildings $000 Office Equipment $000 - - - - - 6,794 62 (402) 6,454 - - - - - 2,719 1,091 497 (400) 3,907 - - - 2,547 - - - - - 142 - - 142 - - - - - 61 48 - - 109 - - - 33 2020 $000 1,158 2,364 3,522 Total $000 - - - - - 6,936 62 (402) 6,596 - - - - - 2,780 1,139 497 (400) 4,016 - - - 2,580 1 July 2019 * $000 1,345 3,289 4,634 • In the previous year, the Consolidated Entity recognised leased assets and lease liabilities in relation to leases that were classified as “finance leases” under AASAB 117 Leases. For adjustments recognised on adoption of AASB 16 on 1 July 2019 refer to note 25 Pg 41 Acumentis Annual Report 2020 (ii) Amounts recognised in the statement of profit or loss The statement of profit or loss shows the following amounts relating to leases: Depreciation and impairment charge of right of use assets Buildings Office equipment Interest expenses (included in finance cost) Expenses relating to short term leases (included in software, printing & stationery expenses and occupancy expenses) Expenses relating to low value assets that are not shown above as short term leases (included in Software, printing & stationery expenses) The total cash outflow for leases in 2020 was $2,518,000. 2020 $000 1,588 48 1,636 219 379 911 2019 $000 - - - - - - (iii) The Consolidated Entities leasing activities and how these are accounted for The Consolidated Entity leases offices, equipment and software. Contracts are typically for fixed periods of up to 7 years but may include extension options. Contracts may contain both lease and non-lease components. The Consolidated Entity allocates the consideration in the contract to the lease and non-lease components based on their relative stand alone prices, however for leases of real estate for which the Consolidated Entity is the lessee, it has elected not to separate lease and non-lease components and instead accounts for these as a single lease component Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. These agreements do not impose covenants other than the security interests in the leased assets that are held by the lessor. Leased assets may not be used as security for borrowing purposes. Until the 2019 financial year, leases of property, plant and equipment were classified as either finance or operating leases. From 1 July 2019, leases are recognised as a right of use asset and a corresponding liability at the date at which the leased asset is available for use by the Consolidated Entity. Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments: • fixed payments, less incentives receivable; • variable payments that are based on an index or rate, initially measured using the index or rate as at the commencement date; and • amounts expected to be payable under residual value guarantees Lease payments to be made under reasonably certain extension options are also included in the measurement of liability. The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be determined, the lessee’s incremental borrowing rate is used. Pg 42 Acumentis Annual Report 2020Lease payments are allocated between principal and finance cost with the finance cost charged to the profit and loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. Right of use assets are measured at cost comprising the following: • the amount of the initial measurement of the lease liability; • any lease payments made at or before the commencement date less any lease incentives received; • any initial direct costs; and • restoration costs. Right of use assets are generally depreciated over the shorter of the assets useful life and the lease term on a straight line basis. Payments associated with short term leases (with a term of 12 months or less) or low value assets are recognised on a straight line basis as an expense in the profit or loss. (iv) Impairment charge The impairment charge relates to the right of use assets comprising office leases that are no longer used by the business. There are two such leases, one of which has already been sub-let and other is expected to be assigned within the next 6 months. For the sub-lease, the impairment charge represents the difference between the net book value of the assets and the net present value of future expected sub-lease income. For the assignment, the impairment charge represents the difference between the net book value of the right of use asset and the net present value of incentives expected to be provided to the assignee in order to exit the lease less future liabilities that will be avoided via the assignment. (d) Intangible assets Goodwill Customer relationships Computer software Trademarks Notes (i) – (iv) (i) – (iv) (v) (vi) 2020 $000 13,884 10,000 1,436 242 25,562 2019 $000 13,884 10,000 1,247 42 25,173 Customer relationships relate to an assessment of the value of contractual and other relationships within acquired businesses. These assets have an indefinite useful life as it is not possible to forecast if, or when, these relationships will end. Accordingly, the value of customer relationships is not amortised, however it is tested for impairment annually. Pg 43 Acumentis Annual Report 2020(i) Goodwill & customer relationships The acquisition method of accounting is used to account for all business combinations, regardless of whether equity instruments or other assets are acquired. The consideration transferred for the acquisition of a subsidiary comprises the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the Consolidated Entity. Where the acquired subsidiary has significant long-term contracts or other customer relationships the future value of these relationships is assessed and is included as an asset in the fair value above of assets transferred. Goodwill on the acquisition of subsidiaries is included in intangible assets. Goodwill is not amortised but it is tested for impairment annually or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is allocated to cash generating units for the purpose of impairment testing. The allocation is made to those cash generating units or groups of cash generating units that are expected to benefit from the business combination in which the goodwill arose. (ii) Subsequent expenditure Subsequent expenditure on capitalised intangible assets is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is expensed as incurred. (iii) Impairment tests for goodwill & customer relationships Goodwill & customer relationships have indefinite useful lives and are not amortised. The goodwill & customer relationships amounts are tested for impairment annually by estimating the recoverable amount of the cash generating units based on value in use. The following cash generating units have significant carrying amounts for goodwill & customer relationships: Pg 44 Acumentis Annual Report 2020Goodwill Residential valuations Regional valuations Government Services Customer relationships Government Services Movement in Goodwill Balance at 1 July Acquisition of controlled entity Impairment charge Balance at 30 June Movement in customer relationships Balance at 1 July Balance at 30 June 2020 $000 3,016 8,963 1,905 13,884 10,000 10,000 13,884 - - 13,884 10,000 10,000 2019 $000 3,016 8,963 1,905 13,884 10,000 10,000 17,205 8,963 (12,284) 13,884 10,000 10,000 (iv) Impairment review and charge 2020 The carrying value of goodwill and customer relationships was tested as at 30 June 2020 and no impairment was required. The key assumptions and the approach to determining the value in use when estimating the recoverable amount of a cash generating unit were: Assumption How determined Cash flows The forecast 5-year cash flows were based on forecast results for the year ended 30 June 2021. The 2021 forecast forms the basis of cash flows in subsequent financial years adjusted based on the following assumptions determined on management’s past experience: • Reduction in revenues in the first year and a 3%-5% increase in the years after reflecting the rebuilding of the Acumentis business following the criminal cyber- attacks and impacts of COVID-19; • Overheads maintained a current levels and a 3% increase in the years after; • Increase in employment expenses calculated as 50%-60% of the increase in revenue in the years after; and • Terminal value at the end of year 5 based on year 5 cash flows. Discount rate The discount rate adopted was a pre-tax rate of 13% and was based on the current risk- free interest rate, industry and business specific risk factors, market borrowing rates and investor expected returns. Pg 45 Acumentis Annual Report 2020On forecast 5-year cash flows, further impairments would have been necessary in: • Residential if the discount rate was increased to 17%, • Regional if the discount rate was increased to 22%, • Statutory Services if the discount rate was increased to 22% and all other variables remained unchanged. Government services contract The goodwill and customer relationships relating to the government services cash generating unit are predominantly supported by a large contract that expires in December 2020 and is currently subject to a re-tender process within which the Consolidated Entity has submitted a tender. The directors of the Consolidated Entity are confident that the Consolidated Entity will retain the contract and accordingly the cashflows supporting the recoverable amounts have been extended beyond December 2020. If the Consolidated Entity is unsuccessful in retaining this contract, then the goodwill and customer relationship intangible assets will become impaired and will likely be written down to nil value. 2019 As a result of the reduction in revenues, profits and cashflows from the business units that rely upon bank lender valuation instructions following the data disclosure arising from the criminal cyber-attacks in February and May 2019 as well as reduced revenues received by the Statutory Services business units, the carrying value of goodwill in the Residential, Commercial and Statutory Services business units was tested at 30 June 2019. Based upon the estimated recoverable amounts of the cash generating units detailed above an impairment charge of $12,284,000 was recognised through the Statement of Profit or Loss and Other Comprehensive Income. This comprises $4,057,000 for Residential, $1,833,000 for Commercial and $6,394,000 for Statutory Services cash generating units respectively. The key assumptions and the approach to determining the value in use when estimating the recoverable amount of a cash generating unit were: Assumption How determined Cash flows The forecast 5-year cash flows were based on forecast results for the year ended 30 June 2019. The 2020 forecast forms the basis of cash flows in subsequent financial years adjusted based on the following assumptions determined on management’s past experience: • Reduction in revenues in the first year and a 3%-10% increase in the years after reflecting the rebuilding of the Acumentis business following the criminal cyber- attacks; • Reduction in overheads expenses in the first year and 3% increase in the years after; • Reduction in employment expenses in the first year and an increase in employee expense calculated as 50%-60% of the increase in revenue in the years after; and • Terminal value at the end of year 5 based on year 5 cash flows. Discount rate The discount rate adopted was a pre-tax rate of 13% and was based on the current risk- free interest rate, industry and business specific risk factors, market borrowing rates and Pg 46 Acumentis Annual Report 2020investor expected returns. On forecast 5-year cash flows, further impairments would have been necessary in Residential and Statutory Services if the discount rate was increased beyond 13% and all other variables remained unchanged. There would not be any impairment for Regional until the discount rate reached 17% with all other variables are unchanged. (v) Computer software Movement in computer software Balance at 1 July Additions Amortisation Balance at 30 June 2020 $000 1,247 617 (428) 1,436 2019 $000 973 679 (405) 1,247 Costs incurred in developing products or systems and costs incurred in acquiring software and licences that will contribute to future period financial benefits through revenue generation and/or cost reduction are capitalised to software and systems. Costs capitalised include external direct costs of materials and service and direct payroll and payroll related costs of employees’ time spent on the project. Amortisation is calculated on a straight-line basis over periods generally ranging from 3 to 5 years. IT development costs include only those costs directly attributable to the development phase and are only recognised following completion of technical feasibility and where the entity has an intention and ability to use the asset. (vi) Trademarks Movement in trademarks Balance at 1 July Additions Disposals Balance at 30 June 2020 $000 42 242 (42) 242 2019 $000 42 - - 42 Pg 47 Acumentis Annual Report 2020 (e) Current tax liabilities Current Tax liability 2020 $000 - 2019 $000 46 The current tax liability for the Consolidated Entity of $Nil (2019: $46,000) represents the amount of income taxes payable in respect of current and prior financial periods. In accordance with the tax consolidation legislation, Acumentis Group Limited as the head entity of the Australian tax-consolidated group has assumed responsibility for the current tax asset/liability initially recognised by the members in the tax-consolidated group. Income tax on the Statement of Profit & Loss and Other Comprehensive Income for the year comprises current and deferred tax. Income tax is recognised in the Statement of Profit & Loss and Other Comprehensive Income except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the end of the reporting period, and any adjustment to tax payable in respect of previous years. The Company and its wholly-owned Australian resident entities have formed a tax-consolidated group with effect from 1 July 2003 and are therefore taxed as a single entity from that date. Newly acquired wholly-owned entities are immediately added to the tax-consolidation group. The head entity within the tax-consolidated group is Acumentis Group Limited. (i) Tax consolidation Current tax expense/income, deferred tax liabilities and deferred tax assets arising from temporary differences of the members of the tax-consolidated group are recognised in the separate financial statements of the members of the tax-consolidated group using the group allocation approach by reference to the carrying amounts of assets and liabilities in the separate financial statements of each entity and the tax values applying under tax consolidation. Any current tax liabilities (or assets) and deferred tax assets arising from unused tax losses of the subsidiaries are assumed by the head entity in the tax-consolidated group and are recognised as amounts payable (receivable) to (from) other entities in the tax-consolidated group in conjunction with any tax funding arrangement amounts (refer below). Any difference between these amounts is recognised by the Company as an equity contribution or distribution. The Company recognises deferred tax assets arising from unused tax losses of the tax-consolidated group to the extent that it is probable that future taxable profits of the tax-consolidated group will be available against which the tax losses can be utilised. Any subsequent period adjustments to deferred tax assets arising from unused tax losses as a result of revised assessments of the probability of recoverability are recognised by the head entity only. Pg 48 Acumentis Annual Report 2020(ii) Nature of tax funding arrangements and tax sharing arrangements The head entity, in conjunction with other members of the tax-consolidated group, has entered into a tax funding arrangement which sets out the funding obligations of members of the tax-consolidated group in respect of tax amounts. The tax funding arrangements require payments to/from the head entity equal to the current tax liability (asset) assumed by the head entity and any tax-loss deferred tax asset assumed by the head entity, resulting in the head entity recognising an inter- entity receivable (payable) equal in amount to the tax liability (asset) assumed. Any such inter-entity receivables (payables) are at call. Contributions to fund the current tax liabilities are payable as per the tax funding arrangement and reflect the timing of the head entity’s obligation to make payments for tax liabilities to the relevant tax authorities. The head entity in conjunction with other members of the tax-consolidated group has also entered into a tax sharing agreement. The tax sharing agreement provides for the determination of the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations. No amounts have been recognised in the financial statements in respect of this agreement as payment of any such amounts under the tax sharing agreement is considered remote. (f) Deferred tax balances Deferred tax assets and liabilities are attributable to the following: Recognised deferred tax assets Right of use assets Employee provisions Provision for expected credit losses Accruals Operating lease provisions Make good provisions s40-880 ITAA 1936 “black hole” expenditure Income tax losses carried forward Other Recognised deferred tax liabilities Right of use assets 2020 $000 245 1,000 22 35 - 47 131 1,337 1 2,818 - - 2019 $000 - 1,063 75 97 19 38 172 705 3 2,172 (7) (7) Pg 49 Acumentis Annual Report 2020 Movement in temporary differences during the year Balance 1 July 19 $000 - 1,063 75 97 19 38 172 705 3 Change in Accounting Policy $000 Recognised in Profit & Loss $000 Recognised in Retained Earnings $000 Change in Tax Rate $000 Balance 30 June 20 $000 88 - - - (19) - - - - 171 (6) (52) (60) - 12 (207) 709 (1) 566 - - - - - - 174 - - 174 (14) (57) (1) (2) - (3) (8) (77) (1) (163) 245 1,000 22 35 - 47 131 1,337 1 2,818 2,172 69 (7) - 7 - - - Balance 1 July 18 $000 Change in Accounting Policy $000 Recognised in Profit & Loss $000 Recognised in Retained Earnings $000 Acquisitions $000 606 34 30 25 26 259 - 4 984 - (29) (29) - - - - - - - - - - - - (115) (5) 44 (6) 12 (87) 705 4 552 (7) - (7) - - - - - - - - - - 29 29 572 46 23 - - - - (5) 636 - - - Balance 30 June 19 $000 1,063 75 97 19 38 172 705 3 2,172 (7) - (7) 2020 $000 895 2019 $000 1,019 Deferred tax assets Right of use assets Employee provisions Doubtful debts Accruals Operating lease provisions Make good provisions S40-880 “black hole” expenditure Income tax losses carried forward Other Deferred tax liabilities Right of use assets Deferred tax assets Employee provisions Doubtful debts Accruals Operating lease provisions Make good provisions S40-880 “black hole” expenditure Provision for restructuring Other Deferred tax liabilities Right of use assets Work in progress (g) Other current assets Prepaid expenses Pg 50 Acumentis Annual Report 2020 (h) Employee benefit obligations Current Annual leave Long service leave Performance pay Non-Current Long service leave (i) Provisions Non-Current Operating lease Make Good Movement in provisions Balance at 1 July 2018 Reversal during year Increase during year Balance at 30 June 2019 Balance at 1 July 2019 Change in accounting policy Utilised during year Increase during year Balance at 30 June 2020 2020 $000 1,747 1,628 880 4,255 471 2020 $000 - 182 182 Operating Lease $000 Notes 84 (20) - 64 64 (64) - - - 25 Make Good $000 88 - 40 128 128 - (8) 62 182 2019 $000 1,351 1,676 912 3,939 517 2019 $000 64 128 192 Total $000 172 (20) 40 192 192 (64) (8) 62 182 (i) Operating lease Prior to adoption of new accounting standard AASB16 – Leases on 1 July 2019, provisions were made in order to straight line the minimum lease payments for the rental of office space over the total lease periods. (ii) Make good The provision has not been discounted to its present value as the effect is not material. It is expected that the expense will be incurred in a 5-year period. Pg 51 Acumentis Annual Report 2020 7 (a) Equity Ordinary shares The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share on a poll at meetings of the Company. On a show of hands, every shareholder present at a meeting or by proxy is entitled to one vote. There are currently 155,679,930 ordinary fully paid shares on issue (2019: 85,134,111). Shares have no par value, and the Company does not have a limited amount of capital. Share capital Balance as 30 June 2018 Net proceeds from issue of shares in relation to acquisition Balance at 30 June 2019 Balance at 1 July 2019 Net proceeds from issue of shares via partially underwritten entitlements offer (proceeds of $5,644,000 less costs of $634,000) Future income tax benefit related to issue costs Balance at 30 June 2020 Number 76,109,944 9,024,167 85,134,111 85,134,111 70,545,819 - 155,679,930 $000 33,893 5,400 39,293 39,293 5,010 174 44,477 On 23 August 2019, the company undertook a partially underwritten, 4 for 5 entitlements issue at 8 cents a share which was fully subscribed and resulted in the issue of 68,045,819 ordinary shares and proceeds (net of offer and placement costs) of $5,184,016. A further 2,500,000 ordinary shares were issued to the underwriter and lead manager of the share offer in part consideration of the services provided. (b) Options to acquire ordinary shares The holders of options are not entitled to receive dividends nor are they entitled to vote at meetings of the Company. Options Balance as 30 June 2018 Balance at 30 June 2019 Balance at 1 July 2019 Issued to underwriter of partially underwritten entitlements offer Balance at 30 June 2020 Number - - - 2,500,000 2,500,000 On 23 August 2019, 2,500,000 options were issued to the underwriter and lead manager of the share offer in part consideration of the services provided. These options have an exercise price of $0.12 and an expiry date of 23 August 2023. Pg 52 Acumentis Annual Report 2020 8 (a) Cash flow information Reconciliation of (loss) / profit after income tax to net cash inflow from operating activities Loss for the period after tax Adjustments for the period Depreciation & amortisation Write off of trademarks Impairment of intangible assets Impairment of investment in associated entity Impairment of right of use assets Share of losses of associates not received as dividends Expected credit losses Credit posted directly to retained earnings Loss on disposal of fixed assets Changes in assets & liabilities during the period net of amounts relating to acquisition of controlled entities (Increase)/decrease in security deposits (Increase)/decrease in receivables (Increase)/decrease in work in progress (Increase)/decrease in deferred tax assets (Increase)/decrease in other assets Increase/(decrease) in payables Increase/(decrease) in provision for income tax Increase/(decrease) in deferred tax liabilities Increase/(decrease) in employee provisions Increase/(decrease) in other provisions Net cash from operating activities Notes 2020 $000 2019 $000 (2,555) (15,148) 2,036 42 - - 497 86 21 - 2 129 98 (862) - (403) 124 (372) 434 (7) 270 (6) 595 832 - 12,284 753 - 93 28 (68) 99 (1,127) 64 3,894 97 (552) (304) (769) (693) (22) (512) (20) 56 Pg 53 Acumentis Annual Report 2020RISK This section of the notes discusses the Consolidated Entity’s exposure to various risks and shows how these could affect the Consolidated Entity’s financial position and performance. 9 Significant estimates & judgements The preparation of financial statements requires the use of accounting estimates which, by definition, will seldom equal the actual results. Management also needs to exercise judgement in applying the Consolidated Entity’s accounting policies. This note provides an overview of the areas that involved a higher degree of judgement or complexity, and of items which are more likely to be materially adjusted due to estimates and assumptions turning out to be wrong. Detailed information about each of these estimates and judgements is included in notes 1 to 7 together with information about the basis of calculation for each affected line item in the financial statements. The areas involving significant estimates or judgements are: • Impairment of goodwill (note 6(d)) • Provisions (note 6(i)) • Recognition of revenue (note 1) 10 Financial risk management This note explains the Consolidated Entity’s exposure to financial risks and how these risks could affect the Consolidated Entity’s future financial performance. Current year profit and loss information has been included where relevant to add further context. Risk Exposure arising from Measurement Management Credit risk Cash and cash equivalents, trade receivables and debt investments and contract assets Ageing analysis Credit ratings Diversification of bank deposits Credit limits Liquidity risk Borrowings and other liabilities Rolling cash flow forecasts Availability of borrowing facilities Interest rate risk Long-term borrowings at variable rates Sensitivity analysis Interest rate swaps The Board of Directors has overall responsibility for the establishment and oversight of the risk management framework. The Chief Executive Officer and Chief Financial Officer are responsible for developing and monitoring risk management policies. Risk management policies are established to identify and analyse the risks faced by the Consolidated Entity, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Consolidated Entity’s activities. The Consolidated Entity, through their training and management standards and procedures, aim to develop a disciplined and constructive control environment in which all Pg 54 Acumentis Annual Report 2020employees understand their roles and obligations. The Consolidated Entity’s Audit Committee oversees how management monitors compliance with the Consolidated Entity’s risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the Consolidated Entity. (a) Credit Risk Credit risk is the risk of financial loss to the Consolidated Entity if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from the Consolidated Entity’s receivables from wholesale and retail clients. Trade and other receivables The Consolidated Entity’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. The demographics of the Consolidated Entity’s customer base, including the default risk of the industry and country, in which clients operate, has less of an influence on credit risk. However, geographically there is no concentration of credit risk within Australia. The Consolidated Entity has established a credit policy under which each new customer is analysed individually for creditworthiness before the Consolidated Entity’s standard payment and delivery terms and conditions are offered. Credit limits are established for each customer, these limits are reviewed regularly. Clients which fail to meet the Consolidated Entity’s benchmark creditworthiness are placed on a restricted customer list and may transact with the Consolidated Entity only on a prepayment basis. In monitoring customer credit risk, clients are grouped according to their credit characteristics, including whether they are an individual or legal entity, whether they are a wholesale, retail or end-user customer, geographic location, industry, ageing profile, maturity and existence of previous financial difficulties. The Consolidated Entity’s trade and other receivables relate mainly to the Consolidated Entity’s retail clients. The Consolidated Entity does not require collateral in respect of trade and other receivables. The Consolidated Entity has established an allowance for credit losses that represents their estimate of expected credit losses in respect of trade and other receivables and investments. Exposure to credit risk The carrying amount of the Consolidated Entity’s financial assets represents the maximum credit risk exposure. The Consolidated Entity’s maximum exposure to credit risk at the end of the reporting period was: Pg 55 Acumentis Annual Report 2020Trade and other receivables Cash and cash equivalents Term deposits & other The Consolidated Entity’s maximum exposure to credit risk for trade and other receivables before impairment losses at the end of the reporting period by type of customer was: Financial clients Non-financial clients Government non-financial clients The Consolidated Entity’s most significant clients included the following amounts within trade and other receivables carrying amounts: An Australian financial client An Australian Government non-financial client 2020 $000 4,673 1,830 820 7,323 2,114 833 1,808 4,755 82 1,506 2019 $000 3,832 1,816 918 6,566 1,283 1,183 1,453 3,919 205 1,036 Impairment Losses The aging of the Consolidated Entity’s trade and other receivables at the end of the reporting period was: Not past due Past due 0-30 days Past due 31-120 days Past due 121 days or more Gross 2020 $000 4,092 442 113 108 4,755 Impairment 2020 $000 2 3 2 75 82 Gross 2019 $000 3,194 326 225 337 4,082 Impairment 2019 $000 - - - 250 250 The movement in the allowance for impairment in respect of trade receivables during the year was as follows: Balance at 1 July Acquisition of controlled entities Decrease in provision Balance at 30 June Pg 56 2020 $000 250 - (168) 82 2019 $000 113 154 (17) 250 Acumentis Annual Report 2020 The Consolidated entity applies the AASB 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowances for all trade receivables. To measure the expected credit losses, trade receivables have been grouped based on shared credit risk characteristics and the days past due. The expected loss rates are based on payment profiles of sales over a 3 year period ended 30 June 2019 and the corresponding historical credit losses experienced over this period and to 30 June 2020 (for invoices raised prior to 30 June 2019). The historical loss rates are adjusted to reflect current and forward- looking macro-economic factors that might impact the ability of customers to settle the receivables. Trade receivables are written off when there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of recovery include, amongst others, the failure of the debtors to engage in a repayment plan and the failure to make contractual payments for a period of greater than 120 days past due. Impairment losses on trade receivables are presented as net impairment losses within operating profit. Subsequent recoveries of amounts written off are credited against the same line item. (b) Liquidity risk Liquidity risk is the risk that the Consolidated Entity will not be able to meet its financial obligations as they fall due. The Consolidated Entity’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Consolidated Entity’s reputation. Typically, the Consolidated Entity ensures that it has sufficient cash on demand to meet expected operational expenses for a period of 45 to 60 days, including the servicing of financial obligations; this excludes the potential impact of extreme circumstances that cannot reasonably be predicted, such as natural disasters. The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding the impact of netting arrangements: Non-derivative financial liabilities Note Carrying Amount $000 Contractual cash flows $000 Payable 6 months or less $000 Payable between 6 and 12 months $000 Payable after 12 months $000 30 June 2020 Trade and other payables Short and long term loans Lease liabilities 30 June 2019 Trade and other payables Short and long term loans Lease liabilities 5(d) 5(e) 5(f) 5(d) 5(e) 5(f) 2,197 3,900 3,522 9,619 2,568 5,249 56 7,873 2,197 3,900 3,522 9,619 2,568 5,249 56 7,873 2,197 650 555 3,402 2,568 249 29 2,846 - 650 603 1,253 - 1,750 27 1,777 - 2,600 2,364 4,964 - 3,250 - 3,250 Pg 57 Acumentis Annual Report 2020 (c) Interest risk Interest rate risk is the risk that changes in interest rates will affect the Consolidated Entity’s income and expenses or the value of its holdings of financial instruments and financial liabilities. The objective of interest rate risk management is to manage and control interest rate risk exposures within acceptable parameters, while optimising the return. Interest rate risk is managed by seeking to maximise the yield achieved on cash held at bank and minimise the interest rates incurred on borrowings. At the end of the reporting period the interest rate profile of the Consolidated Entity’s interest-bearing financial instruments and borrowings was: Variable rate instruments Cash and cash equivalents Current borrowings Non-current borrowings Fixed rate instruments Current lease liabilities Non-current lease liabilities 2020 $000 1,830 1,300 2,600 1,158 2,364 2019 $000 1,816 1,750 3,250 56 - (d) Cash flow sensitivity analysis for rate instruments The impact of interest rate changes on the profitability of the Consolidated Entity is likely to be immaterial. (e) Fair values The Directors consider that the fair value of financial assets and financial liabilities of the Consolidated Entity approximate their carrying amount. 11 Capital management The board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The Board of Directors monitors the return on capital, which the Consolidated Entity defines as net operating income divided by total shareholders’ equity. The board compares this to general relevant returns that would be available to alternate use of funds such as property and general stock market returns available at the time but does not specifically benchmark them. The Board of Directors also monitors the dividend yield to ordinary shareholders and compares them to general ASX listed returns at the time but does not specifically benchmark them. There were no changes in the Consolidated Entity’s approach to capital management during the year. The Consolidated Entity is not subject to externally imposed capital requirements given the absence of borrowings. Pg 58 Acumentis Annual Report 2020 (a) Dividends (i) Ordinary shares Dividends recognised in the current and prior years by the Company are: 2020 No dividends declared 2019 No dividends declared Cents per share Total amount $000 Franked/ unfranked Date of Payment - - - - - - - - (ii) Franked dividends Dividends declared or paid during the year were fully franked at the tax rate of 27.5%. (2019: 27.5%) After the end of the reporting period, the directors have not declared a final dividend. Dividend franking account 27.5% franking credits available to shareholders of Acumentis Group Limited for subsequent financial years Company 2020 $000 Company 2019 $000 1,453 1,402 The above available amounts are based on the balance of the dividend franking account at the end of the reporting period adjusted for: a. b. Franking credits that will arise from the payment of the current tax liabilities; Franking debits that will arise from the payment of dividends recognised as a liability at the year-end; and c. Franking credits that will arise from the receipt of dividends recognised as receivables by the tax consolidated group at the year-end. The ability to utilise the franking credits is dependent upon there being sufficient available profits to declare dividends. As there is no dividend declared for 2020, there is no impact on the dividend franking account for dividends proposed after the end of the reporting period but not recognised as a liability (2019: nil). Pg 59 Acumentis Annual Report 2020GROUP STRUCTURE This section provides information which will help users understand how the group structure affects the financial position and performance of the Consolidated Entity as a whole. In particular, there is information about: • Changes to the structure that occurred during the year as a result of business combinations and the disposal of a discontinued operation; Transactions with non-controlling interests; and Interests in joint operations. • • A list of significant subsidiaries is provided in note 13(a). This note also discloses details about the Consolidated Entity’s equity accounted investments. 12 Business combinations (a) Summary of acquisition On 15 October 2018 the parent entity acquired 100% of the issued share capital of Taylor Byrne (Holdings) Pty Ltd (“Taylor Byrne”). The terms of the sale and purchase agreement provided for the effective date of transfer of economic benefit to be 1 October 2018 and accordingly the completion balance sheet was prepared at 30 September 2018 and results consolidated from 1 October 2018. Details of the purchase consideration, the net assets acquired, and goodwill were as follows: Purchase consideration: Cash paid – initial consideration Ordinary shares issued Additional amount paid in respect of working capital position on completion The assets and liabilities recognised as a result of the acquisition were as follows: Cash and cash equivalents Term deposits Trade and other receivables Other current assets Deferred tax assets Plant and equipment Trade and other payables Employee benefits Tax liability Net identifiable assets acquired Goodwill Net cash outflow from acquisition Cash paid – initial consideration Additional amount paid in respect of working capital position on completion Cash and cash equivalents acquired Pg 60 2019 $000 5,150 5,150 10,300 2,235 12,535 3,690 266 2,448 159 636 413 (1,641) (2,208) (149) 3,614 8,921 12,535 (5,150) (2,235) 3,690 (3,695) Acumentis Annual Report 2020The goodwill is attributable to the workforce and the high profitability of the acquired business. It will not be deductible for tax purposes. 13 Interests in other entities (a) Subsidiaries The Consolidated Entity’s subsidiaries at 30 June 2020 are set out below. Unless otherwise stated, they have share capital consisting solely of ordinary shares that are held directly by the Consolidated Entity, and the proportion of ownership interests held equals the voting rights held by the Consolidated Entity. All entities are incorporated and operate in Australia only. Ownership interest held by the Consolidated Entity Ownership interest held by non- controlling interests 2020 % 2019 % 2020 % 2019 % 100 100 100 100 100 100 100 100 50 100 50 100 100 100 100 100 100 100 100 100 100 100 100 100 100 50 100 50 100 100 100 100 100 100 - - - - - - - - 50 - 50 - - - - - - Principal activities Valuations Commercial valuations Commercial valuations Commercial valuations Government valuations Non-trading Regional valuations Property advisory services National valuation contracting entity Franchisor - - - - - - - - 50 - 50 Holder of intellectual property - - - - - - Group employer Non-trading Non-trading Non-trading Non-trading Non-trading Name of entity Acumentis Pty Ltd (formerly LMW (Residential) Pty Ltd) Acumentis Brisbane Pty Ltd (formerly LMW (Brisbane) Pty Ltd) Acumentis Gold Coast Pty Ltd (formerly LMW (Gold Coast) Pty Ltd) Acumentis Melbourne Pty Ltd (formerly LMW (Melbourne) Pty Ltd) Acumentis Statutory Services Pty Ltd (formerly LMW (Statutory Services) Pty Ltd) Taylor Byrne Holdings Pty Ltd Acumentis Regional Pty Ltd (formerly Taylor Byrne Pty Ltd) Lane Infrastructure Pty Ltd Acumentis Australia Pty Ltd (formerly LMW Australia Pty Ltd LMW Group Pty Ltd Acumentis Joint Venture Pty Ltd (formerly LMW Hegney Pty Ltd) Acumentis Management Pty Ltd (formerly LMW (Management) Pty Ltd) Acumentis Pty Ltd (formerly LMW (Employee Benefits) Pty Ltd Acumentis Advisory Pty Ltd (formerly LMW Advisory Pty Ltd) MVS National Pty Ltd Cosgrave & Eastoe Pty Ltd Hoolihan Valuations Pty Ltd (b) Interests in associates The Consolidated Entity’s interests in associates at 30 June 2020 are set out below. Unless otherwise stated, they have share capital consisting solely of ordinary shares that are held directly by the Consolidated Entity, and the proportion of ownership interests held equals the voting rights held by the Consolidated Entity. All entities are incorporated and operate in Australia only. Pg 61 Acumentis Annual Report 2020 Name of entity Acumentis (WA) Holdings Pty Ltd (formerly LMW (WA) Holdings Pty Ltd) 2020 % 2019 % 2020 $000 2019 $000 Principal activities 42.2 25.0 1,114 571 WA valuations On 23 August 2019 Acumentis Group Limited acquired a further 8.4% investment via the acquisition of existing shares for cash consideration of $221,058. On 13 September 2019 Acumentis Group Limited increased its investment from 33.4% to 42.2% via Acumentis (WA) Pty Ltd issuing new shares for cash consideration of $407,254. (i) Summarised financial information for associates The tables below provide summarised consolidated financial information for Acumentis (WA) Holdings Pty Ltd and its wholly owned group. The information disclosed reflects the amounts presented in its financial statements and not Acumentis Group Limited’s share of these amounts. They have been amended to reflect adjustments made by the entity when using the equity method including fair value adjustments and modifications for differences in accounting policy. 30 Jun 2020 $000 30 Jun 2019 $000 878 548 1,426 4,597 107 760 867 123 120 243 445 1,022 1,467 4,566 74 874 948 148 159 307 4,913 4,778 Summarised balance sheet Current assets Cash and cash equivalents Other current assets Total current assets Non-current assets Current liabilities Financial liabilities (excluding trade payables) Other current liabilities Total current liabilities Non-current liabilities Financial liabilities (excluding trade payables) Other non-current liabilities Total non-current liabilities Net assets Pg 62 Acumentis Annual Report 2020 Reconciliation to carrying amounts Opening net assets 1 July Issue of new equity to Acumentis Group Limited Loss for the period Other comprehensive income Dividends paid Closing net assets 30 June Consolidated Entity’s share of closing net assets in % Consolidated Entity’s share of closing net assets in $ Unrecognised (discount) / goodwill included in the carrying amount Impairment of investment Carrying amount of interest in associate Carrying amount of interest in associate As at 1 July Additional investment Share of comprehensive loss Dividends received Impairment of investment As at 30 June Summarised statement of comprehensive income Revenue Interest income Depreciation and amortisation Interest expense Other expenses Loss from continuing operations before tax Income tax benefit / (expense) Loss from continuing operations after tax Other comprehensive loss Total comprehensive loss Dividends received from associates (ii) Impairment charge 2020 30 Jun 2020 $000 30 Jun 2019 $000 4,778 407 (272) - - 4,913 42.2% 2,073 (206) (753) 1,114 571 628 (85) - - 1,114 5,149 - (114) - (257) 4,778 25.0% 1,194 130 (753) 571 1,417 - (29) (64) (753) 571 30 Jun 2020 $000 30 Jun 2019 $000 4,622 - (78) (17) - (347) 75 (272) - (272) - 7,086 3 (99) (10) (7,089) (109) (5) (114) - (114) 64 The carrying value of Acumentis Group Limited’s interest in Acumentis (WA) Holdings Pty Ltd (formerly LMW (WA) Holdings Pty Ltd) was tested as at 30 June 2020 and no impairment was required. The key assumptions and the approach to determining the value in use when estimating the recoverable amount of a cash generating unit are: Pg 63 Acumentis Annual Report 2020Assumption How determined Cash flows The forecast 5-year cash flows are based on forecast results for the year ended 30 June 2021. The 2021 forecast forms the basis of cash flows in subsequent financial years adjusted based on the following assumptions determined on management’s past experience: • • • • 3% annual increase in revenues reflecting the rebuilding of the business following the criminal cyber-attacks; 3% annual increase overheads; Employment expenses increasing at 60% of the increase in revenue in the years after; and Terminal value at the end of year 5 based on year 5 cash flows. Discount rate The discount rate adopted was a pre-tax rate of 13% and was based on the current risk-free interest rate, industry and business specific risk factors, market borrowing rates and investor expected returns. On forecast 5-year cash flows, further impairments would be necessary if the discount rate was increased to 65% and all other variables remained unchanged. 2019 As a result of the reduction in revenues, profits and cashflows within Acumentis (WA) Holdings Pty Ltd (formerly LMW (WA) Holdings Pty Ltd) following the criminal cyber-attacks in February and May 2019, the carrying value of Acumentis Group Limited’s interest in Acumentis (WA) Holdings Pty Ltd was tested at 30 June 2019. Based upon the estimated recoverable amounts an impairment charge of $753,000 was recognised through the Statement of Profit or Loss and Other Comprehensive Income. The key assumptions and the approach to determining the value in use when estimating the recoverable amount of a cash generating unit were: Assumption How determined Cash flows The forecast 5-year cash flows were based on forecast results for the year ended 30 June 2020. The 2020 forecast formed the basis of cash flows in subsequent financial years adjusted based on the following assumptions determined on management’s past experience: • Reduction in revenues in the first year and a 3% increase in the years after reflecting the rebuilding of the business following the data disclosure incidents; • Reduction in overheads expenses in the first year and 3% increase in the years after; • Reduction in employment expenses in the first year and an increase in employee expense calculated as 60% of the increase in revenue in the years after; and Terminal value at the end of year 5 based on year 5 cash flows. • Discount rate The discount rate adopted was a pre-tax rate of 13% and was based on the current risk-free interest rate, industry and business specific risk factors, market borrowing rates and investor expected returns. On forecast 5-year cash flows, further impairments would be necessary if the discount rate was increased to 65% and all other variables remained unchanged. Pg 64 Acumentis Annual Report 2020 UNRECOGNISED ITEMS This section of the notes provides information about items that are not recognised in the financial statements as they do not (yet) satisfy the recognition criteria. 14 Contingent liabilities The Consolidated Entity, from time to time, is involved in matters of litigation in the normal course of business in undertaking valuation services. At 30 June 2020 there are no open litigated claims that are expected to have a material impact on the results of the Consolidated Entity. The Consolidated Entity has professional indemnity insurance, and under the terms of the insurance policy, each claim has an excess which is required to be paid by the Consolidated Entity. It was not practical to estimate the maximum contingent liability arising from litigation; however, in a worst-case situation there could be a material adverse effect on the Consolidated Entity’s financial position. In the directors’ opinion, disclosures of any further information in relation to litigation would be prejudicial to the interests of the Consolidated Entity. 15 Commitments Capital expenditure The Consolidated Entity does not have any capital expenditure commitments at the end of the reporting period. Operating lease commitments Within one year One year or later and no later than five years Later than five years 2020 $000 1,664 3 - 1,667 2019 $000 3,022 5,804 593 9,419 Under accounting standard AASB16 – Leases which was adopted by the Consolidated Entity with effect 1 July 2019 (refer note 25), except for leases with terms of 12 months or less or where the value of the leased asset does not exceed $5,000, commitments under leases are now recorded on the statement of financial position. Where the Consolidated Entity leases property and equipment under non-cancellable operating leases with lease terms less than or equal to 12 months or with asset values less than or equal to $5,000 the leases continue to be accounted for off balance sheet with operating lease commitments disclosed in the above table. 16 Guarantees Acumentis Group Limited has not entered into any guarantees, in the current or previous financial year, in relation to the debts of its subsidiaries. Pg 65 Acumentis Annual Report 2020 17 Events occurring after the reporting period There were no significant events occurring after the end of the reporting period. 18 Going Concern The Company has been the subject of two cyber-attacks in the first half of calendar 2019 which resulted in a number of clients suspending utilisation of Acumentis’ services with a resulting reduction in revenues and cashflows which prima facie may impact the ability of the Company to pay its debts as and when they fall due. Despite the COVID-19 pandemic impacting the Australian economy from late February 2020, the Company saw its March and April revenues remain steady, however in May 2020, the Company saw a drop in revenues attributed to the impact of COVID-19 and qualified for JobKeeper government grants which it will continue to receive until September 2020. As a result of the reduction in revenues, the Company incurred a net loss of $2.55M for the year ended 30 June 2020. The directors have prepared the financial information contained within this report on a going concern basis for the following reasons: • • • The Company was trading profitability prior to the cyber-attacks and impacts of COVID-19. The cyber-attacks were the result of criminal activity and are not ongoing. NSW Cyber Police successfully investigated the attacks resulting in an arrest in October 2019. The Company has substantially enhanced its cyber security measures to minimise the chance of recurrence. • Whilst many mortgage lending clients temporarily suspended trading with the Company, the majority have since recommenced trading with the Company. • • • • • • • The Company secured additional short-term overdraft facilities from its corporate banker which allowed it to trade through the period whilst its cashflows returned. In August 2019, the Company has concluded a successful capital raising of $5.64M that allowed it to restructure its business and continue profitable and cashflow positive trading into the future. The Company traded profitably since March 2020. The Company expects its revenues, profitability and operating cashflows to continue to improve and reach levels that will allow it to provide appropriate returns to shareholders in the year ended 30 June 2021 and beyond. The Company does not expect to be severely impacted by ongoing disruption or reduced revenues due to COVID-19 as a result of State and Federal Government stimulus packages targeting a construction led recovery together with the likely requirement for lenders to review their loan security and investors their property carrying values. The Company’s forecasts indicate that it will be in a position to maintain its existing workforce and operate profitability after JobKeeper entitlements terminate in September 2020. The Company has prepared detailed cashflow forecasts through to June 2024 which confirm its ability to continue to pay its debts as and when they fall due. Pg 66 Acumentis Annual Report 2020The directors are satisfied that the going concern basis of preparation is appropriate and therefore the financial information does not include any adjustments relating to the recoverability or classification of recorded asset amounts or to the amounts or classification of liabilities that might be necessary should the company not be able to continue as a going concern. Pg 67 Acumentis Annual Report 2020OTHER INFORMATION This section of the notes includes other information that must be disclosed to comply with the accounting standards and other pronouncements, but that is not immediately related to individual line items in the financial statements. 19 Related party transactions (a) Subsidiaries Interests in subsidiaries are set out in note 13(a). (b) Key management personnel compensation Executive directors and other key management personnel Short term employee benefits Post-employment benefits Long-term benefits 2020 $ 702,677 252,118 23,694 978,489 2019 $ 487,611 39,525 18,902 546,038 Detailed remuneration disclosures are provided in the remuneration report on pages 18 to 21. (c) Transactions with other related parties The following transactions occurred with related parties: Dividends received from associate Group management fee income from associates & franchisees 20 Share-based payments 2020 $000 - 70 2019 $000 131 494 (a) Employee option & performance rights plans The directors at their discretion allocate share options or performance rights that entitle key management personnel and senior employees to purchase shares in the entity. The terms of the options including vesting conditions and performance criteria vary depending upon the incentive arrangements appropriate for key management personnel and senior employees and are a part of an approved Employee Share Acquisition Scheme, which was approved by shareholders at the 2018 Annual General Meeting. Pg 68 Acumentis Annual Report 2020Movements in options during the period were as follows: As at 1 July Exercised during the year As at 30 June 2020 Average Exercise Price 2020 Number of Options 2019 Average Exercise Price 2019 Number of Options - - - - - - - - - - - - Performance rights were granted under the Acumentis Group Performance Rights and Option Plan which was approved by shareholders at the 2018 Annual General Meeting. The Plan allows the Company to grant options or rights to selected key employees to acquire ordinary shares in the Company. Participants are required to satisfy performance and service conditions at the time of the offer. The exercise price for performance rights is nil. Rights cannot be transferred and are not quoted on the ASX. Movements in performance rights during the period were as follows: As at 1 July Vested and exercised during the year As at 30 June Number of rights 2020 Number of rights 2019 - - - - - - (b) Issue of shares to underwriter of the capital raise 2,500,000 shares with a market value of $200,000 were issued to the underwriter of the capital raise (note 7(a)). This was debited directly to equity. (c) Expenses arising from share-based payment transactions Total expenses arising from share-based payment transactions recognised during the period as part of employee benefit expense were as follows: Options Performance rights 2020 $000 - - - 2019 $000 - - - Pg 69 Acumentis Annual Report 2020 21 Remuneration of auditors Audit services Auditor of the Consolidated Entity – William Buck Audit and review of the financial reports Other services Other William Buck related entities Restructuring advice Taxation and other services Total services 22 Earnings per share (a) Basic earnings per share 2020 $000 2019 $000 196 190 98 14 308 300 24 514 The calculation of basic earnings per share at 30 June 2020 was based on the loss attributable to ordinary shareholders of $2,555,000 (2019: loss $15,148,000) and the weighted average number of ordinary shares outstanding during the financial year ended 30 June 2020 of 144,884,867 (2019: 82,513,394) calculated as follows: (Loss) / profit attributable to ordinary shareholders 2020 $000 (2,555) 2019 $000 (15,148) Weighted average number of shares used as the denominator Number Number Issued Ordinary Shares at 1 July Shares issued during year Issued Ordinary Shares at 30 June 85,134,111 75,930,855 70,545,819 9,203,256 155,679,930 85,134,111 Weighted average number of ordinary shares at 30 June 145,271,530 82,513,394 (b) Diluted earnings per share The calculation of diluted earnings per share at 30 June 2020 was based on the loss attributable to ordinary shareholders of $2,555,000 (2019: loss $15,148,000) and the weighted average number of ordinary shares outstanding during the financial year ended 30 June 2020 of 147,384,867 (2019: 82,513,394) calculated as follows: Pg 70 Acumentis Annual Report 2020 (Loss) / profit attributable to ordinary shareholders 2020 $000 (2,555) 2019 $000 (15,148) Weighted average number of ordinary shares and potential ordinary shares used as the denominator Number Number Issued Ordinary Shares at 1 July Shares issued during year Issued Ordinary Shares at 30 June Weighted average number of ordinary shares at 30 June Options on issue at 30 June (note 7(b)) 85,134,111 75,930,855 70,545,819 9,203,256 155,679,930 85,134,111 145,271,530 82,513,394 2,500,000 - Weighted average number of ordinary shares and potential ordinary shares at 30 June 147,771,530 82,513,394 As at the date of this report there are 2,500,000 options over ordinary shares in the Company. 23 Parent entity financial information The following information has been extracted from the books and records of the parent and has been prepared in accordance with the accounting standards. (a) Statement of financial position Assets Current assets Non-current assets Total assets Liabilities Current liabilities Non-current liabilities Total liabilities Net assets Equity Issued capital Retained earnings Total equity 2020 $000 41,949 47,503 89,452 44,925 2,728 47,652 2019 $000 20,314 45,250 65,564 26,104 3,320 29,424 41,800 36,140 44,478 (2,678) 41,800 39,293 (3,153) 36,140 Pg 71 Acumentis Annual Report 2020 (b) Statement of profit & loss and other comprehensive income Total profit / (loss) Total comprehensive income / (loss) 2020 $000 551 551 2019 $000 (2,964) (2,964) 24 Summary of significant accounting policies This note provides a list of the significant accounting policies adopted in the preparation of these consolidated financial statements to the extent they have not already been disclosed in the other notes above. These policies have been consistently applied to all the years presented, unless otherwise stated. The financial statements are for the Consolidated Entity consisting of Acumentis Group Limited and its subsidiaries. (a) 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 and the Corporations Act 2001. Acumentis Group Limited is a for-profit entity for the purpose of preparing the financial statements. (i) Compliance with IFRS The consolidated financial statements also comply with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). (ii) Historical cost convention The financial statements have been prepared on a historical cost basis. (iii) New and amended standards adopted by the Consolidated Entity During the current year, the Consolidated Entity adopted all of the new and revised Australian Accounting Standards and Interpretations applicable to its operations which became mandatory. AASB 16 Leases (applicable for annual reporting periods commencing on or after 1 January 2019) AASB 16 introduced a single lessee accounting model that requires all leases to be accounted for on balance sheet. A lessee is required to recognise an asset representing the right to use the underlying asset during the lease term (i.e. right-of-use asset) and a liability to make lease payments (i.e. lease liability). Two exemptions are available for leases with a term less than 12 months or if the underlying asset is of low value. The lessor accounting requirements are substantially the same as in AASB 117. Lessors will therefore continue to classify leases as either operating or finance leases. AASB 16 replaced AASB 117 Leases, Interpretation 4 Determining Whether an Arrangement Pg 72 Acumentis Annual Report 2020contains a Lease, Interpretation 115 Operating Leases – Incentives and Interpretation 127 Evaluating the substance of Transactions Involving the Legal Form of a Lease. Details of the impact of adopting AASB 16 are included in note 25. (iv) New standards and interpretations not yet adopted The AASB has issued new and amended accounting standards and interpretations that have mandatory application dates for future reporting periods and which the Consolidated Entity has decided not to early adopt. These standards are not expected to have a material impact on the Consolidated Entity in the current or future reporting periods and on foreseeable future transactions. (b) Principles of consolidation and equity accounting (i) Subsidiaries Subsidiaries are all entities (including structured entities) over which the Consolidated Entity has control. The Consolidated Entity controls an entity when the Consolidated 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 deconsolidated from the date that control ceases. The acquisition method of accounting is used to account for business combinations by the Consolidated Entity (refer to note 24(h)). Intercompany transactions, balances and unrealised gains on transactions between companies within the Consolidated Entity are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the transferred asset. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Consolidated Entity. Non-controlling interests in the results and equity of subsidiaries are shown separately in the consolidated statement of profit or loss, statement of comprehensive income, statement of changes in equity and balance sheet respectively. (ii) Associates Associates are all entities over which the Consolidated Entity has significant influence but not control or joint control. This is generally the case where the Consolidated Entity holds between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting (see (iii) below), after initially being recognised at cost. (iii) Equity method Under the equity method of accounting, the investments are initially recognised at cost and adjusted thereafter to recognise the Consolidated Entity’s share of the post-acquisition profits or losses of the investee in profit or loss, and the Consolidated Entity’s share of movements in other comprehensive income of the investee in other comprehensive income. Dividends received or receivable from associates and joint ventures are recognised as a reduction in the carrying amount of the investment. When the Consolidated Entity’s share of losses in an equity-accounted investment equals or exceeds Pg 73 Acumentis Annual Report 2020its interest in the entity, including any other unsecured long-term receivables, the Consolidated Entity does not recognise further losses, unless it has incurred obligations or made payments on behalf of the other entity. Unrealised gains on transactions between the Consolidated Entity and its associates and joint ventures are eliminated to the extent of the Consolidated Entity’s interest in these entities. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of equity accounted investees have been changed where necessary to ensure consistency with the policies adopted by the Consolidated Entity. The carrying amount of equity-accounted investments is tested for impairment in accordance with the policy described in note 24(l). (iv) Changes in ownership interests The Consolidated Entity treats transactions with non-controlling interests that do not result in a loss of control as transactions with equity owners of the Consolidated Entity. A change in ownership interest results in an adjustment between the carrying amounts of the controlling and non- controlling interests to reflect their relative interests in the subsidiary. Any difference between the amount of the adjustment to non-controlling interests and any consideration paid or received is recognised in a separate reserve within equity attributable to owners of Acumentis Group Limited. When the Consolidated Entity ceases to consolidate or equity account for an investment because of a loss of control, joint control or significant influence, any retained interest in the entity is remeasured to its fair value with the change in carrying amount recognised in profit or loss. This fair value becomes the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the Consolidated Entity had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss. If the ownership interest in an associate is reduced but joint control or significant influence is retained, only a proportionate share of the amounts previously recognised in other comprehensive income are reclassified to profit or loss where appropriate. (c) Functional and presentation currency These consolidated financial statements are presented in Australian dollars which is the Company’s functional currency and the functional currency of all entities within the Consolidated Entity. (d) Segment reporting The Consolidated Entity’s operations and clients are located entirely in Australia. The Consolidated Entity’s operating segments have been identified based on the segments analysed within management reports. Based on these criteria, it has been determined that the Consolidated Entity only operates in the Valuation segment, which provides valuation, research and advice services in relation to property and businesses. Accordingly, no separate segment reporting is required. Pg 74 Acumentis Annual Report 2020(e) Revenue recognition Revenue is recognised at an amount that reflects the consideration to which the Consolidated Entity is expected to be entitled to receive for the provision of services to clients. For each contract with a client, the Consolidated Entity identifies the contract, the performance obligations in the contract and the total price for the services. The total price is then allocated to the separate performance obligations under the contract and each part of the total price is recognised as revenue when the associated performance obligation is satisfied. For the large majority of contracts with clients, the Consolidated Entity has a single performance obligation being the delivery of the service and so the revenue is recognised at this point in time. The specific accounting policies for the Consolidated Entity’s main types of revenue are explained in note 1. (f) Income tax The income tax expense or credit for the period is the tax payable on the current period’s taxable income based on the applicable income tax rate adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses. The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill. Deferred income tax is also not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the end of the reporting period and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred tax assets are recognised only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. Current and deferred tax is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively. (g) Leases Accounting standard AASB16 – Leases is applicable for reporting periods commencing on or after 1 January 2019 and accordingly was adopted by the Consolidated Entity with effect 1 July 2019. AASB 16 introduces a single lessee accounting model that requires all leases to be accounted for on balance sheet. A lessee is required to recognise an asset representing the right to use the underlying asset during the lease term (i.e. right-of-use asset) and a liability to make lease payments (i.e. lease liability). Pg 75 Acumentis Annual Report 2020Two exemptions are available for leases with a term less than 12 months or if the underlying asset is of low value. The lessor accounting requirements are substantially the same as in AASB 117. Lessors continue to classify leases as either operating or finance leases. AASB 16 replaces AASB 117 Leases, Interpretation 4 Determining Whether an Arrangement contains a Lease, Interpretation 115 Operating Leases – Incentives and Interpretation 127 Evaluating the substance of Transactions Involving the Legal Form of a Lease. When a new lease is entered into, the net present value of the contracted rental payments is calculated using the interest rate implicit in the lease, or if this is not able to be reliably estimated, the Consolidated Entity’s incremental borrowing rate. This amount is capitalised as a right of use asset and depreciated on a straight line basis over the term of the lease. An offsetting lease liability is recorded. Over the term of the lease, interest costs are expensed and added to the lease liability and lease payments are deducted from the liability. Refer to note 25 for details of the impacts of the change in accounting policy. (h) Business combinations The acquisition method of accounting is used to account for all business combinations, regardless of whether equity instruments or other assets are acquired. The consideration transferred for the acquisition of a subsidiary comprises the: • • • • • Fair values of the assets transferred; Liabilities incurred to the former owners of the acquired business; Equity interests issued by the Consolidated Entity; Fair value of any asset or liability resulting from a contingent consideration arrangement; and Fair value of any pre-existing equity interest in the subsidiary. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition date. The Consolidated Entity recognises any non-controlling interest in the acquired entity on an acquisition-by-acquisition basis either at fair value or at the non-controlling interest’s proportionate share of the acquired entity’s net identifiable assets. Acquisition-related costs are expensed as incurred. The excess of the consideration transferred plus the amount of any non-controlling interest in the acquired entity and the acquisition-date fair value of any previous equity interest in the acquired entity over the fair value of the net identifiable assets acquired is recorded as goodwill. If those amounts are less than the fair value of the net identifiable assets of the business acquired, the difference is recognised directly in profit or loss as a bargain purchase. Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions. Contingent consideration is classified either as equity or a financial liability. Amounts classified as a financial liability are subsequently remeasured to fair value with changes in fair value recognised in profit or loss. Pg 76 Acumentis Annual Report 2020If the business combination is achieved in stages, the acquisition date carrying value of the acquirer’s previously held equity interest in the acquiree is remeasured to fair value at the acquisition date. Any gains or losses arising from such re-measurement are recognised in profit or loss. (i) Impairment of assets Goodwill and intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Other assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs of disposal and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash- generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at the end of each reporting period. (j) Cash and cash equivalents For the purpose of presentation in the statement of cash flows, 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, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities in the balance sheet. (k) Trade receivables Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. See note 5(c) for further information about the Consolidated Entity’s accounting for trade receivables and note 10(a) for a description of the Consolidated Entity’s impairment policies. (l) (i) Investments and other financial assets Classification The Consolidated Entity classifies its financial assets in the following categories: • Those to be measured subsequently at fair value; and • Those to be measured at amortised cost. The classification depends on the business model for managing the financial assets and the contractual terms of the cash flows. See note 5 for details about each type of financial asset. (ii) Recognition and derecognition Investments and other financial assets are initially measured at fair value. Transaction costs are included as part of the initial measurement, except for financial assets at fair value through profit or loss. Such assets are subsequently measured at either amortised cost or fair value depending on their classification. Classification is determined based on both the business model within which Pg 77 Acumentis Annual Report 2020such assets are held and the contractual cash flow characteristics of the financial asset unless, an accounting mismatch is being avoided. Financial assets are derecognised when the rights to receive cash flows have expired or have been transferred and the consolidated entity has transferred substantially all the risks and rewards of ownership. When there is no reasonable expectation of recovering part or all of a financial asset, it’s carrying value is written off. (iii) Financial assets at fair value through profit and loss Financial assets not measured at amortised cost or at fair value through other comprehensive income are classified as financial assets at fair value through profit or loss. Typically, such financial assets will be either: (i) held for trading, where they are acquired for the purpose of selling in the short-term with an intention of making a profit; or (ii) designated as such upon initial recognition where permitted. Fair value movements are recognised in profit or loss. (iv) Financial assets at fair value through other comprehensive income Financial assets at fair value through other comprehensive income include equity investments which the consolidated entity intends to hold for the foreseeable future and has irrevocably elected to classify them as such upon initial recognition. Details on how the fair value of financial instruments is determined are disclosed in note 5(ii). (v) Impairment The Consolidated entity applies the AASB 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowances for all trade receivables. To measure the expected credit losses, trade receivables have been grouped based on shared credit risk characteristics and the days past due. The expected loss rates are based on payment profiles of sales over a 3 year period ended 30 June 2019 and the corresponding historical credit losses experienced over this period and to 30 June 2020 (for invoices raised prior to 30 June 2019). The historical loss rates are adjusted to reflect current and forward-looking macro-economic factors that might impact the ability of customers to settle the receivables. Trade receivables are written off when there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of recovery include, amongst others, the failure of the debtors to engage in a repayment plan and the failure to make contractual payments for a period of greater than 120 days past due. Impairment losses on trade receivables are presented as net impairment losses within operating profit. Subsequent recoveries of amounts written off are credited against the same line item. Pg 78 Acumentis Annual Report 2020 (vi) Income recognition Interest income Interest income is recognised using the effective interest method. When a receivable is impaired, the Consolidated Entity reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at the original effective interest rate of the instrument, and continues unwinding the discount as interest income. Interest income on impaired loans is recognised using the original effective interest rate. Dividends Dividends are recognised as revenue when the right to receive payment is established. This applies even if they are paid out of pre-acquisition profits. However, the investment may need to be tested for impairment as a consequence, refer note 24(l)(v). (m) Plant and equipment Plant and equipment is stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Cost may also include transfers from equity of any gains or losses on qualifying cash flow hedges of foreign currency purchases of plant and equipment. 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 Consolidated Entity and the cost of the item can be measured reliably. The carrying amount of any component accounted for as a separate asset is derecognised when replaced. All other repairs and maintenance are charged to profit or loss during the reporting period in which they are incurred. The depreciation methods and periods used by the Consolidated Entity are disclosed in note 6(ii). 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 carrying amount. These are included in profit or loss. When revalued assets are sold, it is Consolidated Entity policy to transfer any amounts included in other reserves in respect of those assets to retained earnings. (n) Intangible assets (i) Goodwill Goodwill is measured as described in note 6(d). Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill is not amortised but it is tested for impairment annually, or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose. The units or groups of units are identified at the lowest level at which goodwill is monitored for internal management purposes. Pg 79 Acumentis Annual Report 2020(ii) Trademarks, licences and customer contracts Separately acquired trademarks and licences are shown at historical cost. Trademarks, licenses and customer contracts acquired in a business combination are recognised at fair value at the acquisition date. Where they are assessed as having a finite useful life they are subsequently carried at cost less accumulated amortisation and impairment losses. (iii) Software Costs associated with maintaining software programmes are recognised as an expense as incurred. Development costs that are directly attributable to the design and testing of identifiable and unique software products controlled by the Consolidated Entity are recognised as intangible assets when the following criteria are met: • It is technically feasible to complete the software so that it will be available for use; • Management intends to complete the software and use or sell it; • There is an ability to use or sell the software; • It can be demonstrated how the software will generate probable future economic benefits; • Adequate technical, financial and other resources to complete the development and to use or sell the software are available; and • The expenditure attributable to the software during its development can be reliably measured. Directly attributable costs that are capitalised as part of the software include employee costs and an appropriate portion of relevant overheads. Capitalised development costs are recorded as intangible assets and amortised from the point at which the asset is ready for use. (iv) Amortisation methods and periods Refer to note 6(d) for details about amortisation methods and periods used by the Consolidated Entity for intangible assets. (o) Trade and other payables These amounts represent liabilities for goods and services provided to the Consolidated Entity prior to the end of financial year which are unpaid. The amounts are unsecured and are usually paid within 30 days of recognition. Trade and other payables are presented as current liabilities unless payment is not due within 12 months after the reporting period. They are recognised initially at their fair value and subsequently measured at amortised cost using the effective interest method. (p) Borrowings Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in profit or loss over the period of the borrowings using the effective interest method. Fees paid on the establishment of loan facilities are recognised as transaction Pg 80 Acumentis Annual Report 2020costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a prepayment for liquidity services and amortised over the period of the facility to which it relates. Borrowings are removed from the balance sheet when the obligation specified in the contract is discharged, cancelled or expired. The difference between the carrying amount of a financial liability that has been extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognised in profit or loss as other income or finance costs. Borrowings are classified as current liabilities unless the Consolidated Entity has an unconditional right to defer settlement of the liability for at least 12 months after the reporting period. (q) Borrowing costs Borrowing costs are expensed in the period in which they are incurred. (r) Provisions Provisions for legal claims and make good obligations are recognised when the Consolidated Entity has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and the amount can be reliably estimated. Provisions are not recognised for future operating losses. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small. Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at the end of the reporting period. The discount rate used to determine the present value is a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The increase in the provision due to the passage of time is recognised as interest expense. (s) Employee benefits (i) Short-term obligations Liabilities for wages and salaries, including non-monetary benefits, that are expected to be settled wholly within 12 months after the end of the period in which the employees render the related service are recognised in respect of employees’ services up to the end of the reporting period and are measured at the amounts expected to be paid when the liabilities are settled. The liabilities are presented as current employee benefit obligations in the balance sheet. (ii) Other long-term employee benefit obligations The liabilities for long service leave and annual leave are not expected to be settled wholly within Pg 81 Acumentis Annual Report 202012 months after the end of the period in which the employees render the related service. They are therefore measured as the present value of expected future payments to be made in respect of services provided by employees up to the end of the reporting period 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 end of the reporting period of high-quality corporate bonds with terms and currencies that match, as closely as possible, the estimated future cash outflows. Re-measurements as a result of experience adjustments and changes in actuarial assumptions are recognised in profit or loss. The obligations are presented as current liabilities in the balance sheet if the entity does not have an unconditional right to defer settlement for at least twelve months after the reporting period, regardless of when the actual settlement is expected to occur. (iii) Post-employment obligations The Consolidated Entity operates various defined contribution pension plans. Pension obligations For defined contribution plans, the Consolidated Entity pays contributions to publicly or privately administered pension insurance plans on a mandatory, contractual or voluntary basis. The Consolidated Entity has no further payment obligations once the contributions have been paid. The contributions are recognised as employee benefit expense when they are due. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available. (iv) Share-based payments Share-based compensation benefits are provided to employees via the Acumentis Group Employee Option & Performance Rights Plan and an employee share scheme. Information relating to these schemes is set out in note 20. Employee options and performance rights The fair value of options and performance rights granted under the Acumentis Group Limited Employee Option and Performance Rights Plan is recognised as an employee benefits expense with a corresponding increase in equity. The total amount to be expensed is determined by reference to the fair value of the options and performance rights granted: • Including any market performance conditions (eg the entity’s share price); • Excluding the impact of any service and non-market performance vesting conditions (eg profitability, sales growth targets and remaining an employee of the entity over a specified time period); and • Excluding the impact of any non-vesting conditions (eg the requirement for employees to save or holdings shares for a specific period of time). The total expense is recognised over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied. At the end of each period, the entity revises its estimates of the number of options and performance rights that are expected to vest based on the non-market vesting and service conditions. It recognises the impact of the revision to original estimates, if any, in profit or loss, with a corresponding adjustment to equity. Pg 82 Acumentis Annual Report 2020Social security contributions payable in connection with an option or performance rights grant are considered an integral part of the grant itself and the charges are treated as cash-settled transactions. The Employee Option and Performance Rights Plan is administered by the Acumentis Employee Share Trust, which is not consolidated. When the options or performance rights are exercised, the trust transfers the appropriate number of shares to the employee. The proceeds received net of any directly attributable transaction costs are credited directly to equity. (v) Profit-sharing and bonus plans The Consolidated Entity recognises a liability and an expense for bonuses and profit-sharing based on a formula that takes into consideration the profit attributable to the company’s shareholders after certain adjustments. The Consolidated Entity recognises a provision where contractually obliged or where there is a past practice that has created a constructive obligation. (vi) Termination benefits Termination benefits are payable when employment is terminated by the Consolidated Entity before the normal retirement date, or when an employee accepts voluntary redundancy in exchange for these benefits. The Consolidated Entity recognises termination benefits at the earlier of the following dates: (a) when the Consolidated Entity can no longer withdraw the offer of those benefits; and (b) when the entity recognises costs for a restructuring that is within the scope of AASB 137 and involves the payment of terminations benefits. In the case of an offer made to encourage voluntary redundancy, the termination benefits are measured based on the number of employees expected to accept the offer. Benefits falling due more than 12 months after the end of the reporting period are discounted to present value. (t) Contributed equity Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. (u) Dividends Provision is made for the amount of any dividend declared, being appropriately authorised and no longer at the discretion of the entity, on or before the end of the reporting period but not distributed at the end of the reporting period. (v) Earnings per share (i) Basic earnings per share Basic earnings per share is calculated by dividing: • The profit attributable to owners of the Company, excluding any costs of servicing equity other than ordinary shares; and Pg 83 Acumentis Annual Report 2020• By the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the year. (ii) 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 additional ordinary shares that would have been outstanding assuming the conversion of all dilutive potential ordinary shares. (w) Rounding of amounts The company is of a kind referred to in ASIC Legislative Instrument 2016/191, relating to the ‘rounding off’ of amounts in the financial statements. Amounts in the financial statements have been rounded off in accordance with the instrument to the nearest thousand dollars, or in certain cases, the nearest dollar. (x) Goods and Services Tax (GST) Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the taxation authority. In this case it is recognised as part of the cost of 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 taxation authority is included with other receivables or payables in the balance sheet. 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 taxation authority, are presented as operating cash flows. 25 Changes to accounting policies Effective 1 July 2019, the Consolidated Entity adopted the new accounting standard AASB16 – Leases. Impact of adoption AASB 16 was adopted using the modified retrospective approach and as such comparatives have not been restated. The impact of adoption of AASB 16 on opening retained profits as at 1 July 2019 was as follows: Pg 84 Acumentis Annual Report 2020Deferred tax assets Property, plant & equipment (right of use assets) – cost Property, plant & equipment (right of use assets) – accumulated depreciation Lease liabilities – current Lease liabilities – non-current De-recognise operating lease provision Reduction in retained earnings 1 Jul 19 $000 69 6,936 (2,780) (1,345) (3,289) 58 (351) When measuring lease liabilities for leases that were classified as operating leases, the Consolidated Entity discounted lease payments using its incremental borrowing rate at 1 July 2019. The weighted average rate was 6.3%. The impact on lease commitments disclosed in the 30 June 2019 financial statements was as follows Operating lease commitments at 30 June 2019 as disclosed under AASB 117 in the Consolidated Entity’s financial statements Discounted using the incremental borrowing rate as at 1 July 2019 Finance leases liabilities recognised at 30 June 2019 Recognition exemption for: - Low value assets - Leases with less than 12 months of term at transition Lease liabilities recognised at 1 July 2019 Finance leases liabilities recognised at 30 June 2019 Lease liabilities recognised on adoption of AASB 16 1 Jul 19 $000 9,419 8,034 56 (1,804) (1,596) 4,690 56 4,634 4,690 Pg 85 Acumentis Annual Report 2020 AASB 16 results in expenses associated with leasing office space and equipment being recorded as depreciation and amortisation expenses and finance expenses rather than occupancy and administration expenses as in previous years. Additionally, the 2020 impairment charge recorded would have been disclosed as an expense relating to onerous operating leases under the previous accounting policy. To assist the reader in comparing the 2020 expenses with those reported in 2019, the following table shows the 2020 expenses including and excluding the AASB 16 impacts: Administration expenses Occupancy expenses Depreciation and amortisation expenses Impairment of right of use assets Provision for onerous lease Finance expense 30 June 20 Under AASB 16 $000 Reverse AASB 16 Impact $’000 30 June 20 Prior to AASB 16 $’000 30 June 19 $’000 1,418 771 2,079 4,268 497 - 494 5,259 44 1,164 (1,140) 88 (497) 497 (220) (132) 1,482 1,935 939 4,356 - 497 274 5,127 1,533 2,053 808 4,394 - - 204 4,598 Pg 86 Acumentis Annual Report 2020 THIS PAGE IS AN INTENTIONALLY BLANK PAGE Pg 87 Acumentis Annual Report 2020DIRECTORS DECLARATION 1 In the opinion of the directors of Acumentis Group Limited (‘the Company’): (a) the financial statements and notes set out on pages 26 to 86 and the remuneration disclosures of the Remuneration report in the Directors’ report, set out on pages 17 to 21, are in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the financial position of the Company and the Consolidated Entity as at 30 June 2020 and of its performance, for the financial year ended on that date; and (ii) complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001; (b) the financial report also complies with International Financial Reporting Standards as discussed in Note 24(a); (c) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable 2 The directors have been given the declarations required by Section 295A of the Corporations Act 2001 from the Chief Executive Officer and Chief Financial Officer for the financial year ended 30 June 2020. Dated at Sydney this 27th day of August 2020 Signed in accordance with a resolution of the directors: Keith Perrett Director Pg 88 Acumentis Annual Report 2020 INDEPENDENT AUDITORS REPORT TO THE MEMBERS Acumentis Group Limited Independent auditor’s report to members Acumentis Group Limited Report on the Audit of the Financial Report Independent auditor’s report to members Acumentis Group Limited Independent auditor’s report to members Report on the Audit of the Financial Report Acumentis Group Limited Independent auditor’s report to members Report on the Audit of the Financial Report Report on the Audit of the Financial Report Opinion We have audited the financial report of Acumentis Group Limited (the Company) and its subsidiaries (the Consolidated Entity), which comprises the consolidated statement of financial position as at 30 June 2020, the consolidated statement of profit and loss and Opinion other comprehensive income, the consolidated statement of changes in equity and the We have audited the financial report of Acumentis Group Limited (the Company) and its consolidated statement of cash flows for the year then ended, and notes to the financial subsidiaries (the Consolidated Entity), which comprises the consolidated statement of statements, including a summary of significant accounting policies and other explanatory financial position as at 30 June 2020, the consolidated statement of profit and loss and information, and the directors’ declaration. other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies and other explanatory In our opinion, the accompanying financial report of the Consolidated Entity, is in information, and the directors’ declaration. accordance with the Corporations Act 2001, including: Opinion We have audited the financial report of Acumentis Group Limited (the Company) and its subsidiaries (the Consolidated Entity), which comprises the consolidated statement of financial position as at 30 June 2020, the consolidated statement of profit and loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies and other explanatory information, and the directors’ declaration. Opinion We have audited the financial report of Acumentis Group Limited (the Company) and its subsidiaries (the Consolidated Entity), which comprises the consolidated statement of financial position as at 30 June 2020, the consolidated statement of profit and loss and Giving a true and fair view of the Consolidated Entity’s financial position as at 30 other comprehensive income, the consolidated statement of changes in equity and the June 2020 and of its financial performance for the year ended on that date; and consolidated statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies and other explanatory Complying with Australian Accounting Standards and the Corporations Regulations information, and the directors’ declaration. 2001. In our opinion, the accompanying financial report of the Consolidated Entity, is in accordance with the Corporations Act 2001, including: In our opinion, the accompanying financial report of the Consolidated Entity, is in accordance with the Corporations Act 2001, including: Giving a true and fair view of the Consolidated Entity’s financial position as at 30 June 2020 and of its financial performance for the year ended on that date; and Giving a true and fair view of the Consolidated Entity’s financial position as at 30 June 2020 and of its financial performance for the year ended on that date; and Complying with Australian Accounting Standards and the Corporations Regulations 2001. (ii) (ii) (i) (i) (i) (i) (ii) (ii) In our opinion, the accompanying financial report of the Consolidated Entity, is in accordance with the Corporations Act 2001, including: Complying with Australian Accounting Standards and the Corporations Regulations 2001. Giving a true and fair view of the Consolidated Entity’s financial position as at 30 June 2020 and of its financial performance for the year ended on that date; and Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Consolidated Entity in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are Basis for Opinion independent of the Consolidated Entity in accordance with the auditor independence We conducted our audit in accordance with Australian Auditing Standards. Our requirements of the Corporations Act 2001 and the ethical requirements of the Accounting responsibilities under those standards are further described in the Auditor’s Complying with Australian Accounting Standards and the Corporations Regulations Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Responsibilities for the Audit of the Financial Report section of our report. We are 2001. Accountants (including Independence Standards) (the Code) that are relevant to our audit independent of the Consolidated Entity in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting of the financial report in Australia. We have also fulfilled our other ethical responsibilities in Basis for Opinion Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional accordance with the Code. We conducted our audit in accordance with Australian Auditing Standards. Our Accountants (including Independence Standards) (the Code) that are relevant to our audit responsibilities under those standards are further described in the Auditor’s of the financial report in Australia. We have also fulfilled our other ethical responsibilities in We confirm that the independence declaration required by the Corporations Act 2001, We confirm that the independence declaration required by the Corporations Act 2001, Responsibilities for the Audit of the Financial Report section of our report. We are accordance with the Code. which has been given to the directors of the Consolidated Entity, would be in the same which has been given to the directors of the Consolidated Entity, would be in the same independent of the Consolidated Entity in accordance with the auditor independence terms if given to the directors as at the time of this auditor’s report. terms if given to the directors as at the time of this auditor’s report. requirements of the Corporations Act 2001 and the ethical requirements of the Accounting We confirm that the independence declaration required by the Corporations Act 2001, Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional which has been given to the directors of the Consolidated Entity, would be in the same Accountants (including Independence Standards) (the Code) that are relevant to our audit terms if given to the directors as at the time of this auditor’s report. of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. We believe that the audit evidence we have obtained is sufficient and appropriate to Key Audit Matters Key Audit Matters provide a basis for our opinion. Key audit matters are those matters that, in our professional judgement, were of most Key audit matters are those matters that, in our professional judgement, were of most We confirm that the independence declaration required by the Corporations Act 2001, significance in our audit of the financial report of the current period. These matters were significance in our audit of the financial report of the current period. These matters were which has been given to the directors of the Consolidated Entity, would be in the same Key Audit Matters addressed in the context of our audit of the financial report as a whole, and in forming our addressed in the context of our audit of the financial report as a whole, and in forming our Key audit matters are those matters that, in our professional judgement, were of most terms if given to the directors as at the time of this auditor’s report. opinion thereon, and we do not provide a separate opinion on these matters. opinion thereon, and we do not provide a separate opinion on these matters. significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. ACCOUNTANTS & ADVISORS ACCOUNTANTS & ADVISORS Sydney Office Level 29, 66 Goulburn Street Sydney NSW 2000 Sydney Office Level 29, 66 Goulburn Street Sydney NSW 2000 ACCOUNTANTS & ADVISORS Sydney Office Parramatta Office Level 29, 66 Goulburn Street Level 7, 3 Horwood Place Sydney NSW 2000 Parramatta NSW 2150 Parramatta Office Level 7, 3 Horwood Place Parramatta NSW 2150 Telephone: +61 2 8263 4000 williambuck.com williambuck.com Parramatta Office Telephone: +61 2 8263 4000 Level 7, 3 Horwood Place Parramatta NSW 2150 ACCOUNTANTS & ADVISORS Telephone: +61 2 8263 4000 Sydney Office williambuck.com Level 29, 66 Goulburn Street Sydney NSW 2000 Parramatta Office Level 7, 3 Horwood Place Parramatta NSW 2150 Telephone: +61 2 8263 4000 Key Audit Matters William Buck is an association of firms, each trading under the name of William Buck across Australia William Buck is an association of firms, each trading under the name of William Buck across Australia and New Zealand with affiliated offices worldwide. and New Zealand with affiliated offices worldwide. Key audit matters are those matters that, in our professional judgement, were of most Liability limited by a scheme approved under Professional Standards Legislation. Liability limited by a scheme approved under Professional Standards Legislation. significance in our audit of the financial report of the current period. These matters were William Buck is an association of firms, each trading under the name of William Buck across Australia (WB013_2007) (WB013_2007) addressed in the context of our audit of the financial report as a whole, and in forming our and New Zealand with affiliated offices worldwide. Liability limited by a scheme approved under Professional Standards Legislation. opinion thereon, and we do not provide a separate opinion on these matters. (WB013_2007) William Buck is an association of firms, each trading under the name of William Buck across Australia and New Zealand with affiliated offices worldwide. Liability limited by a scheme approved under Professional Standards Legislation. (WB013_2007) williambuck.com 69 69 69 69 Pg 89 Acumentis Annual Report 2020Valuation of the carrying value of goodwill and customer relationship intangible asset Area of focus Refer also to notes 2 (a), 6 (d) and 24 (o) How our audit addressed it The Consolidated Entity’s net assets include a significant amount of Goodwill and Customer Relationship intangible assets. 2020: $23.9 million (2019: $23.9 million). We have performed procedures to respond to the risk of misstatement of Goodwill and Customer Relationship, specifically the valuation of the Intangible Assets. These procedures included: In accordance with accounting standards, goodwill and customer relationships are subject to annual impairment testing, and for these purposes they are allocated to the appropriate cash generating units (‘CGU’). There is a risk that if the CGUs do not trade in line with expectations and forecasts, their carrying value could exceed their recoverable amount and therefore require impairment. The recoverable amount attributable to the CGUs which existed at 30 June 2020, has been calculated based on value-in-use. — Obtaining a detailed understanding of the budgeting procedures put in place to prepare the FY2021 budget; — Evaluation of the director’s assertion that the customer relationship intangible had an indefinite useful life at 30 June 2020; — Testing the accuracy of the calculation derived from the budget and Discounted Cash Flow (DCF) as well as assessing the key inputs in the calculations such as revenue growth, director approved forecasts and our own views; These recoverable amounts use discounted cash flow forecasts in which the directors make judgements over certain key inputs, for example but not limited to, revenue growth, discount rates applied, long term growth rates and inflation rates. — Engaging our own valuation specialists when considering the appropriateness of the discount rates and the long-term growth rates; — Reviewing the historical accuracy of forecasts by comparing actual results with the original forecasts; — Testing the sensitivity of the DCF model to variations in the underlying assumptions; and — Assessing whether disclosure in the financial report is appropriate. Carrying value of the shares in Associated Company – ACU WA Area of focus Refer also to notes 2 (b) and 13 (b) How our audit addressed it The Consolidated Entity’s net assets include an investment in an associated company valued at 2020: $1.1mil (2019: $571k). In accordance with accounting standards, interests in associates are subject to annual impairment testing, and for these purposes they are allocated to the appropriate cash generating units (‘CGU’). There is a risk that if the CGUs do not trade in line with expectations and forecasts, their carrying value could exceed their recoverable amount and therefore require impairment. We have performed procedures to respond to the risk of overstatement of the shares in the Associate Company – ACU WA. These procedures included: — Obtaining a detailed understanding of the budgeting procedures put in place to prepare the FY2021 budget of ACU WA; — Testing the accuracy of the calculation derived from the ACU WA budget and Discounted Cash Flow (DCF) as well as assessing the key inputs in the calculations such as revenue growth, director approved forecasts and our own views; — Engaging our own valuation specialists when considering the appropriateness of the discount rates and the long-term growth rates; Pg 90 70 Acumentis Annual Report 2020The recoverable amount attributable to the CGUs which existed at 30 June 2020, has been calculated based on value-in-use. These recoverable amounts use discounted cash flow forecasts in which the directors make judgements over certain key inputs, for example but not limited to, revenue growth, discount rates applied, long term growth rates and inflation rates. Compliance with loan facility covenants Area of focus Refer also to notes 5 (a), 5(e) and 10 The Consolidated Entity has certain requirements to comply with under its loan facility agreement, including (amongst others): • Consolidated EBITDA, • Consolidated Revenue, and • Equity ratio. Non-compliance with loan facility covenants may result in the facility being ended and additional charges incurred, which may be detrimental to the going concern ability of the Consolidated Entity. As at 30 June 2020, ACU satisfied its requirements under the facility agreement. — Reviewing the historical accuracy of ACU WA forecasts by comparing actual results with the original forecasts; — Testing the sensitivity of the DCF model to variations in the underlying assumptions; and — Assessing whether disclosure in the financial report is appropriate. How our audit addressed it We have performed procedures to assess compliance the loan facility covenants and the consequences if the covenants were breached and called upon. These procedures included: — Assessing whether ACU can satisfy the requirements and terms under the facility agreement; — Assessing whether debt has been correctly included, properly classified, described and disclosed in the financial statements; — Assessing whether debt representing the amount due to the lenders under an enforceable facility agreement has been recorded in the financial statements; and — Assessing whether debt has been recorded at accurate amounts and reflects all events and circumstances that affect its underlying valuation. — Assessing whether disclosure in the financial report is appropriate. Other Information The directors are responsible for the other information. The other information comprises the information in the Consolidated Entity’s annual report for the year ended 30 June 2020 but does not include the financial report and the auditor’s report thereon. Our opinion on the financial report does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Pg 91 71 Acumentis Annual Report 2020Material Uncertainty Relating to Going Concern We draw attention to note 18 in the financial report, which indicates that the Consolidated Entity incurred a net loss of $2,555,000 during the year ended 30 June 2020 (2019: loss $15,148,000 as of that date, the Consolidated Entity’s net asset of $26,565,000 (2019: $24,287,000). As stated in Note 18, these events or conditions, indicate that a material uncertainty exists that may cast significant doubt on the Company’s ability to continue as a going concern. Our opinion is not modified in respect of this matter and therefore, the consolidated entity may be unable to realise its assets and extinguish its liabilities in the normal course of business and at the amounts stated in the financial report. Responsibilities of the Directors for the Financial Report The directors of the Consolidated Entity are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the ability of the Consolidated Entity to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. A further description of our responsibilities for the audit of these financial statements is located at the Auditing and Assurance Standards Board website at: http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf. This description forms part of our independent auditor’s report. Pg 92 72 Acumentis Annual Report 2020Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 17 to 21 of the directors’ report for the year ended 30 June 2020. In our opinion, the Remuneration Report of Acumentis Group Limited, for the year ended 30 June 2020, complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Consolidated Entity are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Your faithfully, William Buck Accountants & Advisors ABN: 16 021 300 521 L E. Tutt Partner Sydney, 27 August 2020 Pg 93 73 Acumentis Annual Report 2020ASX ADDITIONAL INFORMATION Additional information required by the Australian Stock Exchange Limited Listing Rules and not disclosed elsewhere in this report is set out below. The Company was admitted to the Australian Stock Exchange under rule 1.3.2(b). Shareholdings Shareholding details are as at 6th August 2020. Substantial shareholders The number of shares held by substantial shareholders and their associates are set out below: Shareholder Redbrook Nominees Pty Ltd Newport Shipping Company Pty Limited White Valuations Pty Ltd Number of Ordinary Shares Percentage 29,017,713 13,840,755 9,990,134 18.6% 8.9% 6.4% Voting rights Ordinary shares Holders of ordinary shares are entitled to one vote per share at shareholder meetings. Options There are no voting rights attached to options Distribution of equity security holders Category 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 50,000 50,001 – 100,000 100,001 and over Total Number of Shareholders Number of shares 59 246 164 320 93 151 1,033 21,970 865,868 1,274,829 7,911,865 6,694,100 138,911,298 155,679,930 On-market buy back There is no current on-market buy back. Unmarketable Parcels The number of shareholders holding less than a marketable parcel of 4,762 shares (based on closing price of $0.105 on 6 August 2020) is 279 and they hold 758,267 securities. Pg 94 Acumentis Annual Report 2020 Twenty largest shareholders Name Newport Shipping Company Pty Limited Redbrook Nominees Pty Ltd White Valuations Pty Ltd Acres Holdings Pty Ltd Bnp Paribas Nominees Pty Ltd Kiut Investments Pty Ltd Mr Noel Edward Kagi & Mrs Michelle Leonie Kagi Enable Investment Manager Pty Ltd Ms Lynette Jane Ellis & Mr Jeffrey George Keane Gogorm Super Pty Ltd Mr Tony Gandel & Mrs Helen Gandel Continuum Property Consultancy Pty Ltd Arkmist Pty Ltd Ventura Resources Pty Ltd Ian D Bolewski Pty Ltd Raptis Property Consultants Pty Ltd Kevin King Pty Ltd Kamala Holdings Pty Ltd Nickson Pty Ltd Mr Hamid Roboubi & Mrs Jillian Anne Roboubi Number of Ordinary Shares Percentage 13,840,755 13,794,651 9,990,134 7,736,625 5,493,888 4,206,071 4,596,437 3,721,000 3,558,334 3,182,494 3,174,105 3,033,212 2,845,712 2,832,548 2,433,212 2,433,212 1,707,498 1,650,000 1,600,000 1,382,246 8.9% 8.9% 6.4% 5.0% 3.5% 2.7% 3.0% 2.4% 2.3% 2.0% 2.0% 1.9% 1.8% 1.8% 1.6% 1.6% 1.1% 1.1% 1.0% 0.9% 93,212,134 59.9% Pg 95 Acumentis Annual Report 2020ANNUAL REPORT CONTACT INFORMATION Company secretary John Wise Principal registered office Level 7, 283 Clarence Street Telephone Facsimile Website Sydney NSW 2000 02 8823 6300 02 8823 6399 www.acumentis.com.au Location of share registry Automic Registry Services PO Box 2226 Strawberry Hills NSW 2012 Telephone 1300 288 664 (toll free within Australia) +61 2 9698 5414 (outside Australia) Email hello@automic.com.au Stock exchange The company is listed on the Australian Stock Exchange (“ACU”) Other information Acumentis Group Limited, incorporated and domiciled in Australia, is a publicly listed company limited by shares. Pg 96 Acumentis Annual Report 2020 Pg 97 Acumentis Annual Report 2020www.acumentis.com.au Liability limited by a scheme approved under Professional Standards Legislation.

Continue reading text version or see original annual report in PDF format above