2022 ANNUAL REPORT CORPORATE INFORMATION ABN 67 064 089 318 SHARE REGISTRY DIRECTORS David Cronin, Chairman and Non-Executive Director Mark Stevens, Non-Executive Director Mike McGeever, Non-Executive Director Boardroom Pty Ltd Grosvenor Place, Level 12, 225 George Street, Sydney, NSW 2000, Australia Telephone (within Australia): 1300 737 760 Telephone (outside Australia): +61 2 9290 9600 Facsimile: +61 2 9279 0664 Robert Broomfield, Group Chief Executive Officer and Executive Director STOCK EXCHANGE COMPANY SECRETARIES Neville Joyce, Kim Clark REGISTERED OFFICE & PRINCIPAL PLACE OF BUSINESS Ava Risk Group Limited shares are quoted on the Australian Securities Exchange (ASX). ASX Code: AVA BANKERS Westpac Banking Corporation 275 Kent Street, Sydney, NSW 2000, Australia 10 Hartnett Close, Mulgrave, Victoria 3170, Australia AUDITORS Telephone: +61 3 9590 3100 Facsimile: +61 3 9560 8000 Email: investor@theavagroup.com Ernst & Young Level 23, 8 Exhibition Street, Melbourne, Victoria 3000, Australia WEBSITE www.theavagroup.com Information correct as at 29 August 2022. 2022 ANNUAL REPORT AVA GROUP | 3 04 06 08 10 14 16 18 CHAIRMAN’S REPORT FINANCIAL HIGHLIGHTS ABOUT AVA GROUP FUTURE FIBRE TECHNOLOGIES BQT SOLUTIONS GJD MANUFACTURING FINANCIAL STATEMENTS CHAIRMAN’S REPORT DEAR FELLOW SHAREHOLDERS FY2022 represented a year of significant progress in the transformation of Ava Risk Group Limited (Ava Group). Following the divestment of the Services Division in October 2021, Ava Group has been focused on the development of its world leading fibre sensing and access control technologies. In this respect, I am pleased to report to shareholders that the Company is well placed to pursue growth in FY2023 and beyond. FY2022 | HIGHLIGHTS The Ava Group produced a strong operational and financial performance in FY2022, notwithstanding the lingering business interruptions related to COVID-19, particularly with respect to critical supply chains and project related delays. Key highlights for the financial year include: › Successful divestment of the Services Division in October 2021 resulting in net proceeds to the Ava Group of $41.9 million, representing a circa 587% net cash investment return. › Cash distribution of $38.8 million to Ava Group shareholders by way of special dividend and capital return. › Growth of 13% in sales order intake for our market leading fibre sensing and access control technologies. Total order intake for FY2022 of $18.0 million compared to $15.9 million in the previous year (excluding orders against the Indian Ministry of Defence contract). › Significant progress on the Aura-IQ development road map, completing successful proof of value trials on a number of operating mine sites. This culminated in the receipt of the first commercial order for Aura-IQ in July 2022 from a leading global manufacturer of conveyor systems. › Execution of a global framework agreement for the supply of BQT products to dormakaba International Holding GmbH, a global leader in security access control systems. The first order under the agreement was fulfilled during FY2022 with significant growth expected from FY2023. › Investment in senior management and business development capability focused on the key North American market, the world’s largest security market. This investment has realised increased sales orders in North America, particularly in the energy sector. › Continued focus on growing recurring revenue via long term support contracts to the FFT installation base – at the end of FY2022, 52 systems were covered under signed agreements. This is an increase of 48 systems compared to the prior year. During the year we have further invested in our Machine Learning capability to improve system performance, which will deliver a significant feature for our customers that sign up for a long term support contract. › Expanded our licencing strategy with a new agreement signed with a partner in Latin America. First revenue from the licensing agreement is expected in FY2023. STRONG FINANCIAL POSITION Profit after tax in FY2022 was $33.1 million, underpinned by the gain on disposal of the Services Division ($31.9 million). The financial result demonstrates the value that Ava Group was able to unlock in the Services Division while under its stewardship. Pleasingly, it enabled Ava Group to distribute $38.8 million to its shareholders by way of special dividend and capital return. Earnings before Interest, Tax, Depreciation and Amortisation (“EBITDA”) from continuing operations in FY2022 was $0.8 million compared to $9.2 million in the previous year. The reduction is due primarily to non-recurring licence revenue from the Indian Ministry of Defence contract of $7.8m which was recognised during FY2021 as well as government grant income of $0.6m associated with COVID-19 support. Ava Group’s cash position remains strong. The balance at 30 June 2022 was $15.2 million, having distributed $38.8 million to shareholders via special dividend and capital return. The Company has no borrowings and is well placed to support its next phase of growth. 2022 ANNUAL REPORT AVA GROUP | 5 Neville Joyce commenced in November 2021 as Group Chief Financial Officer and Company Secretary. Bringing both a commercial and finance background with him, Neville has quickly become the CEO’s right-hand man and has recently taken on additional operational responsibilities. Neville replaced Leigh Davis who left Ava Group in November 2021. I take this opportunity to thank Leigh for his contribution over six years of service to Ava Group. The Board is committed to conducting business in accordance with high governance standards. We continually review policies and procedures to ensure that they fulfill Ava Group’s regulatory and compliance obligations. We also ensure that the Group’s technology development roadmap is consistent with our strategic direction and meets market expectations. FINALLY I would like to thank you, our shareholders and associates, for your continued support and engagement with the Ava Group as we build a world class security business. On behalf of my fellow Directors, I also thank the management team for their hard work, dedication and achievements throughout FY2022. I am sure you share my optimism that Ava Group’s strategy, people, performance and technology roadmap will drive future growth. I welcome the customers and staff from GJD to the Ava Group and look forward to their contribution to the ongoing success of the Company. David L Cronin Chairman STRATEGIC OPPORTUNITIES Ava Group’s strategic direction remains consistent with that identified following the divestment of the Services Division – to grow the revenue of its market leading fibre sensing and access control technologies by increasing market share and developing new and adjacent markets. Ava Group continues to deliver new sensing solutions for adjacent markets. During FY2022, the conveyor condition monitoring solution was successfully integrated with fire detection fibre optic cable. This important milestone provides the Company with an opportunity to efficiently deploy its condition monitoring solution with fire detection applications, which is particularly attractive to end users in the mining industry. Revenue from condition monitoring has already commenced in FY2023. The strategy of accelerating Ava Group’s revenue model with recurring revenue and other predictable revenue streams remains on track. During FY2022, the Company grew the number of systems on long term support contracts, while continuing to invest in its Machine Learning capability, an essential feature of future long term support contracts. The global supply agreement signed with dormakaba provides BQT an opportunity to increase the volume of its smart locking solutions sold via a major global distributor. These initiatives have built a platform to enable Ava Group to compliment its core project based revenue with more predictable long term revenue streams. On 1 August 2022, Ava Group announced the acquisition of a leading UK security technology supplier, GJD Manufacturing. GJD is an award-winning security equipment developer and manufacturer, specialising in optical based intrusion detection systems. The transaction unlocks significant strategic value for both FFT and BQT, by providing a complimentary product and technology portfolio while also providing access to an established go-to-market capability in the UK and Western Europe. BOARD, MANAGEMENT AND GOVERNANCE Having the right people, skills and expertise in place to support the growth ambition of Ava Group is a key priority for Management and the Board. Jim Viscardi, joined Ava Group in July 2021 and has recently been promoted to Group Executive Vice President Global Security Sales, Marketing and Support. In his role, Jim has responsibility for sales, marketing and business development across the global security and access controls markets. His proven ability to lead sales teams is reflected in the improved sales order intake for the Company in FY2022. FINANCIAL HIGHLIGHTS REVENUE AND OTHER INCOME NPAT 2022 $18,961 2021 $65,040 2020 $46,131 2019 $19,817 (AUD,000) $33,132* $13,749 $4,942 2022 2021 2020 2019 $(3,179) (AUD,000) EBITDA CASH AS AT 30 JUNE 2022 2022* 2021 2020 2019 $1,364 2022* $15,226** $16,037 $7,429 2021 $17,293 2020 $7,703 $(2,861) 2019 $3,082 (AUD,000) (AUD,000) +100 COUNTRIES +2,500 SYSTEMS DEPLOYED +3,500 SITES PROTECTED Includes $31.9M gain from divestment of Services Division (Ava Global). * ** After distribution of $38.8M to shareholders during Q4 FY22 via special dividend and capital return. KEY 2022 FIGURES $ REVENUE $19.0M $ $ NPAT $33.1M CASH BALANCE $15.2M US SALES UP >50% YOY 2022 ANNUAL REPORT AVA GROUP | 7 $ EBITDA $1.4M SERVICES DIVISION DIVESTMENT 587% NET CASH INVESTMENT RETURN REVENUE BY REGION REST OF WORLD APAC / AU US INDIA EUROPE FY2022 REPRESENTED A YEAR OF SIGNIFICANT PROGRESS IN THE TRANSFORMATION OF AVA RISK GROUP LIMITED (AVA GROUP). FOLLOWING THE DIVESTMENT OF THE SERVICES DIVISION IN OCTOBER 2021, AVA GROUP HAS BEEN FOCUSED ON THE DEVELOPMENT OF ITS WORLD LEADING FIBRE SENSING AND ACCESS CONTROL TECHNOLOGIES. ABOUT AVA GROUP AVA RISK GROUP | PROTECTING HIGH VALUE ASSETS AND CRITICAL INFRASTRUCTURE Ava Risk Group Limited (Ava Group) is a market leader of risk management technologies trusted by some of the most security conscious commercial, industrial, military and government customers in the world. Ava Group brings together three highly compatible security related entities (Future Fibre Technologies, BQT Solutions and GJD Manufacturing), each with world leading technology, services and exceptional people. FUTURE FIBRE TECHNOLOGIES | FIBRE OPTIC INTRUSION DETECTION AND SENSING SYSTEMS Future Fibre Technologies (FFT) manufactures a complete portfolio of fibre optic sensing solutions for the protection and monitoring of high value assets and critical infrastructure. › Perimeter Intrusions › Pipeline Interference › Condition Monitoring › Data Network Protection › 2,500+ systems installed in 70+ countries › US$1-2 billion addressable market* › Products and services model BQT SOLUTIONS | HIGH SECURITY ACCESS CONTROL TECHNOLOGY BQT Solutions (BQT) is a specialist in the development, manufacture and supply of high quality, high security card and biometric readers, electromechanical locks and related electronic security products. › Access Control Readers › High Security Locking › Custom Encryption › Biometric Solutions › 3,500+ sites in 50+ countries › US$0.6-1.5 billion addressable market* › Custom and off the shelf products GJD MANUFACTURING | OPTICAL SECURITY AND INTRUDER DETECTION EQUIPMENT GJD Manufacturing (GJD) is an industry leader in the design, manufacturing and supply of professional external security and infra-red, microwave and laser intruder detector equipment including ANPR cameras and infrared and white-light LED Illuminators. › Perimeter Optical Detectors › Illuminators for video cameras › ANPR cameras › Surveillance solutions › 60+ countries › Custom and off the shelf products * AVA Risk Group Limited Estimate. 2022 ANNUAL REPORT AVA GROUP | 9 1 AUGUST 2022 | AVA GROUP ACQUIRES GJD MANUFACTURING GJD is an industry leader in the design, manufacturing and supply of professional external infra-red, microwave and laser intruder detector equipment including ANPR cameras and infrared and white-light LED Illuminators. Supplying intruder detection and surveillance solutions to some of the most security conscious customers in the UK and Europe, GJD has established a growing OEM sales channel across multiple sectors which includes recognised multinational engineering and technology companies. “Our strategic fit with Ava has been obvious from the start and we are very pleased to have found a world class home for our employees, customers and products. We will continue to capitalise on the growing global demand for our award-winning security solutions. I am very excited to be a shareholder in Ava and really look forward to the value and success we will all create as a combined business.” “GJD’s product development, manufacturing and sales capabilities provide an exciting opportunity to expand our collective reach and access new customers and markets. GJD, FFT and BQT each contribute significant domain expertise in their own right, along with two decades or more of innovation and success. Together, our expanded product portfolio is highly relevant to the respective customers of each company - which include many of world’s most security conscious blue-chip organisations.” Mark Tibbenham GJD Chairman Rob Broomfield Ava Group CEO FY2021 HIGHLIGHTS (Unaudited) REVENUE £4.6M (circa A$7.95M) EBITDA £0.9M (circa A$1.6M) GROSS PROFIT MARGIN 46% OEM SALES UP 50% FROM FY2020 TO £1.9M OR 41% OF TOTAL SALES Dete ct. Illumi nate. Deter REVENUE OTHER EUROPE UK FUTURE FIBRE TECHNOLOGIES GLOBAL SECURITY | FOCUS ON ENERGY Ongoing investment in business development capabilities in targeted sectors and regions has resulted in numerous energy sector contract wins. New projects secured in the last 18 months include hydro, SECURITY SOLUTION OF CHOICE solar and nuclear power plants and crucial energy distribution FOR SOLAR FARMS networks in Europe, North America and Latin America. This builds on earlier successes in solar installations and offshore FFT’s intrusion detection technology is being used to protect wind farms – including the first European submarine power the perimeters of solar farms across the United States, Canada, cable for an offshore wind farm. Europe and Latin America, and has now been selected to secure the perimeter of two major solar farms in Brazil. SECOND LARGEST HYDROPOWER PLANT IN THE WORLD Located on the border of Brazil and Paraguay, this hydropower plant is installing Aura Ai-2 to monitor its 12km perimeter. Since 1984, the plant has produced more than 2.8 million Gigawatts per hour – which is enough to supply the world for 45 days. So why did this world leader in the production of clean and renewable energy select FFT’s intrusion detection technology above other solutions? Because Aura Ai-2 provides customers the highest levels of confidence and security through a combination of market-leading detection performance, unsurpassed reliability and low total cost of ownership. With a combined perimeter length of approximately 100km, Aura Ai-2 will monitor the sites for unauthorised access, vandalism and theft, which could result in service interruption. FFT’s market leading perimeter intrusion detection solution was selected due to its low total cost of ownership and Mean Time Between Failure (MTBF) – which is 200% to 300% better than the industry average. The stealthy covert buried solution was preferred over video analytics and radar security solutions due to the minimal infrastructure required for installation, low maintenance costs and longer lifespan. Future planned expansions will make the Brazil plant one of the largest in the world. DELIVERING CYBER ASSURED SOLUTIONS Cybersecurity Framework and combined FOR CRITICAL INFRASTRUCTURE with the 2900 Cybersecurity Standards of To meet the highest standard of the globally recognised independent testing cybersecurity, all FFT products are organisation Underwriter Laboratories subjected to rigorous and continuous (UL), the Company’s internal cyber testing testing to ensure there are no weaknesses has recently undergone independent “Cyber that could compromise an organisation’s Penetration” testing to meet the security security credentials. Based on the National expectations of the global energy sector. Institute of Standards & Technology (NIST) 2022 ANNUAL REPORT AVA GROUP | 11 EXPANSION INTO US ENERGY SECTOR In June 2022, FFT secured a contract for the supply and installation of its fibre optic intrusion detection system at a major North American energy facility. As the largest energy sector sale to date, the project represents a significant strategic milestone in expanding its advanced sensing solutions to the US energy industry. Detection performance, reliability and flexible integration were all important considerations in the customer selecting FFT’s solution. “FFT’s continued success in the energy sector validates the quality of our advanced sensing solutions in safeguarding critical assets. We are aggressively pursuing opportunities in the energy sector and expanding our presence in North America, our largest target market, where we continue to build out our sales infrastructure and capability.” Jim Viscardi Executive Vice President Global Security FUTURE FIBRE TECHNOLOGIESCONDITION MONITORING | FIRST AURA IQ CONTRACT SIGNED In July 2022, Ava Group announced it had secured a contract for the supply and installation of Aura IQ with a leading global manufacturer of conveyor systems. A significant strategic milestone in the development roadmap of FFT’s condition monitoring solution for conveyor applications, it was the first commercial order for the FFT Aura IQ solution following the successful completion of a number of proof of value trials on operating mine sites. “We are excited to receive the first commercial order for Aura IQ, our world leading fibre optic technology, which is the culmination of extensive product development efforts over a number of years. In addition, securing the contract with a global conveyor manufacturer really validates the effectiveness of the solution and we continue to develop Aura IQ to expand its deployment into other applications. Additional contracts, based on successful proof of value trials within the mining industry, are progressing through procurement processes and are expected over the remainder of calendar year 2022.” Rob Broomfield Ava Group CEO Built on Ava Group’s Aura fibre optic sensing platform, the solution was initially developed with world leading mining research organisation, Mining3, and uses advanced analytics and acoustic detection via fibre optic cable to improve conveyor efficiency and safety. Aura IQ provides instant, real-time information on the state of wear on conveyor roller bearings, helping to reduce downtime and the risk of major damage from failed roller bearings. The solution offers an important alternative to existing conveyor belt fault detection methods, which are often manual and prone to error. AURA IQ | DEVELOPMENT ROADMAP TODAY New Applications in Condition Monitoring COMMERCIALISATION ACCELERATION Extensions Research Development Validation Mining 3 Algorithm Development IP Patents Go to Market Partnering FFT Aura Sensing Platform and Global Technical support capability Aura IQ v1 Integration testing and ‘Proof of Value Trials’ (multiple successful trials completed) Integration into fire detection platform – Completed Commercialisation Acceleration First commercial contract received. Create a Condition Monitoring Solutions focused Business Unit Aura IQ v1.5 Conveyor feature enhancements. Variable Speed Aura IQ Gen 2 Advanced Ultra High Fidelity Condition Monitoring Platform Situational Awareness Underground, Dams, Rotating Equipment and Smart Cities 1. Mean Time Between Failures 2022 ANNUAL REPORT AVA GROUP | 13 SMART CITY SOLUTIONS | ADJACENT MARKETS FFT continues to extend the Aura Platform beyond Aura Ai-2 for intrusion detection and Aura IQ conveyor belt condition monitoring - offering proven new sensing capabilities to adjacent markets. Ava Group’s dedicated Condition Monitoring Team will continue to work with network and telecommunications operators to transform existing fibre networks into a high value source of real-time data on objects and events across cities and oceans. Protecting transport infrastructure, vehicles and passengers from safety hazards such as intruders and threats to rail operations and safety. Classifying events of interest using buried fibre along roads, pipelines and power cables to protect infrastructure and manage planned maintenance activities. Detecting seismic activity including low magnitude aftershocks. Securing and monitoring buried terrestrial and critical sub-sea power cable assets. Boat activity & anchor drops near sub-sea power cables High security access control readers and locking Data fibre protection, seismic activity, manhole cover removal and road monitoring Perimeter intrusion Rail threat detection Earthquake monitoring Conveyor monitoring Buried pipeline intrusion NEW FLAGSHIP SERIES LOCK The next generation Cobalt locking series is set to hit the market in 2023, with reduced production build timeframes and new product enhancements delivering wider market access – specifically in the U.S. Developed to address two of the biggest issues in door locking, namely the ability to align a misaligned door and release when requested, the Cobalt Double lock is designed to secure 180° double-acting swing doors, while the Cobalt Single secures 90° single-acting doors. Cobalt locks are typically installed in commercial doors and integrated into physical access control systems. This allows the user to determine access in and around a facility and provide traffic reports when needed. In addition, Cobalt series locks can be used in a simpler system where just controlling access to a single door can be implemented with a stand-alone access system. BQT SOLUTIONS GROWING GLOBAL PARTNERSHIPS In late 2021, Ava Group entered into a Global Framework Agreement for Supply and Product Services with dormakaba International Holding GmbH – effective from 1 January 2022. The agreement enables BQT to sell its products in a jurisdiction in which dormakaba operates, including new markets in the United States and Europe. With representatives in 130 countries, dormakaba is a global leader in providing security access control systems, locks, master key systems and digital locking mechanisms. The agreement with Ava Group is a testament to the high-quality products which BQT manufactures with particular emphasis being placed on the patented Cobalt range of locks which resolve sideload and misaligned door issues. The first order under the agreement was fulfilled during FY22 with significant growth expected in FY23. “Signing the Global Framework Agreement with an international leader such as dormakaba is a significant milestone and supports our strategy of expanding into new markets with our leading risk management technologies. Planning is well advanced to ‘launch’ BQT products in new markets in which dormakaba operates, as well as to support joint initiatives.” Rob Broomfield Ava Group CEO U.S. MARKET EXPANSION With recent U.S. Government contracts received for BQT’s High Security Access Readers and heightened access to the country’s significant market through dormakaba, BQT is exploring campus lockdown solutions with a number of North American based security companies to identify a step forward in the protection of students and staff. BQT’s unique capability to offer distributors and major end users of its High Security Access Readers the ability to issue and self-manage access keys – instead of via the manufacturer – delivers significant improvements in security key control and is attracting significant interest. 2022 ANNUAL REPORT AVA GROUP | 15 SECURING NATURES GENTLE GIANTS When an iconic Australian zoo was designing a new elephant enclosure, they needed a reliable lock - rain, hail or shine. BQT’s YG80 was the obvious choice. Able to work in all environments, the YG80 is dependable inside and out. From 40°C summer days to the most severe winter storms. Add in dust and dirt from the enclosure and the IP67 rated lock is reliable in all situations. The strength of the YG80 also needed to match the size of the gates, and although the YG80 is a ‘small’ lock in comparison to an elephant enclosure, it packs a punch when it comes to the holding force - ensuring a safe environment for elephants, keepers and zoo visitors. Seamless integration with the zoo’s access control system provides keepers with real-time information about gate and bolt pin positions – if in place or not and whether secured or not - providing peace of mind that both elephants and zoo visitors safe. The YG80 is the most advanced BQT all-weather lock developed to date. Suited for indoor and outdoor installations, the YG80 can be used for roller door locking applications, large doors and gates, and even elephant enclosures. GJD MANUFACTURING ABOUT GJD | OUR APPROACH GJD is an industry leader in the design, manufacturing and supply of professional external optical detector solutions. The company’s strong and continuous growth comes from its commitment to producing leading intrusion detection technology, with exceptional performance and after- sales support. PROJECT SNAPSHOT GJD’s complimentary product and technology portfolio unlocks significant strategic value, while providing access to an established go-to-market capability in the UK and Western Europe. CUTTING NUISANCE ACTIVATIONS To protect multiple garden centre sites in Kent covering a large land area, GJD’s D-TECT X wireless sensor combined with CCTV camera equipment provides a highly efficient and cost effective solution to problem nuisance activations that had plagued the owners for some considerable time. ENHANCING CCTV IMAGES With 28 cameras and four CCTV servers, a large solar farm based in South Wales required a security system upgrade to address issues with functionality, image quality and nuisance alarms. The solution included the installation of GJD’s Clarius external Infra-Red illuminator, which resulted in a highly effective CCTV system that provides full site protection. DELIVERING COST EFFECTIVE SECURITY DETECTORS GJD’s Elite detector was successfully deployed as the main movement detector and downstream transmitter of information at over 72 sites for a company active in the aggregate industry – demonstrating the cost effectiveness of the solution, its robust nature and inherent reliability. REDUCING FALSE ALARMS, ENHANCING ALARM CAPTURE With a large number of false alarm triggers, a school in South Manchester required a quick and reliable solution. The installation of GJD’s external D-TECT 3 PIR detectors dramatically reduced nuisance alarm triggers, delivering impressive results. False alarms Environmental alarms Wildlife alarms 2022 ANNUAL REPORT AVA GROUP | 17 PRODUCT PORTFOLIO KEY SECTORS D E T E C T O R S External detectors designed for perimeter protection. Technology includes PIR, microwave, dual-tech, quad PIR and laser suitable for a wide range of sectors. Industrial Government Education I L L U M I N A T O R S Transport Residential Commercial External Infra-Red, White-Light, Hybrid and IP LED illuminators used for detection, deterrence, and safety-critical applications. TV production companies also utilise illuminators to enhance dark footage. Hazardous Heritage Media A N P R PARTNER NETWORK Automatic number plate recognition cameras with advanced Infra-Red technology. Utilising GORETM Valve solutions, GJD’s ANPR cameras are suitable in all environmental conditions. GJD partners with distributors throughout the UK, Europe, and the rest of the world to provide state-of-the-art perimeter protection solutions to systems integrators, professional security installers and organisations in all industries. S E C U R I T Y L I G H T I N G C O N T R O L L E R S Energy efficient security lighting and enunciator systems, enabling the user to monitor, control and switch outdoor lighting for separate zones. AWARD WINNING SOLUTIONS In addition to multiple security industry awards, GJD has been recognised with the prestigious Queen’s Award for Enterprise in International Trade – the UK’s highest accolade for international business success. O E M Design and manufacture of bespoke products for other manufacturers on an OEM basis. FINANCIAL STATEMENTS TABLE OF CONTENTS DIRECTORS’ REPORT AUDITOR’S INDEPENDENCE DECLARATION CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME CONSOLIDATED STATEMENT OF FINANCIAL POSITION CONSOLIDATED STATEMENT OF CHANGES IN EQUITY CONSOLIDATED STATEMENT OF CASH FLOWS NOTES TO THE FINANCIAL STATEMENTS DIRECTORS’ DECLARATION INDEPENDENT AUDITOR’S REPORT SHAREHOLDER INFORMATION 20 42 44 46 48 49 50 99 100 106 DIRECTORS’ REPORT The directors present their report together with the financial report of the Consolidated Entity (referred to hereafter as the “Group” or “Consolidated Entity”) consisting of Ava Risk Group Limited (referred to hereafter as the “Company” or “Ava Risk Group”) and the entities it controlled for the financial year ended 30 June 2022 and auditor’s report thereon. Directors The names of directors in office at any time during or since the end of the year are detailed in the table below. The directors have been in office since the start of the year to the date of this report unless otherwise stated. Information on Company Directors and Company Secretary The qualifications, experience and special responsibilities of each person who has been a director of Ava Risk Group at any time since 1 July 2021 to the date of this report is provided below with details of the company secretaries as at the year end. Name, qualifications, and independence status Experience, special responsibilities and other directorships David Cronin Chairman of the Board (Appointed 31 August 2018) Non-Executive Director (Appointed 10 April 2018) Mike McGeever Non-Executive Director (Appointed 8 August 2018) Mark Stevens Non-Executive Director (Appointed 11 March 2015) Robert Broomfield Group Chief Executive Officer (Appointed 10 July 2020) Chief Operating Officer (COO) – Technology (12 February 2018 – 09 July 2020) Executive Director (Appointed 27 February 2008 David has over 25 years professional experience and more than 15 years of international experience at the director/chairman board level. David is presently the Managing Director of the investment & consulting group Pierce Group Asia where he is responsible for its technology focussed corporate development and investment activities. Previous to his role at Pierce Group Asia, David was an investment manager for the London listed Guinness Peat Group PLC and Director of M&A for its technology focussed division. Working for several large financial and non-financial institutions, David has been involved in various advisory, executive level and board positions with several early to mid-stage technology companies. David has extensive knowledge of Ava Risk Group and the security markets that it services. He has more than 10 years of board level experience within Ava Risk Group, having previously served as a Director and Chairman of Ava Risk Group prior to its IPO. Mr McGeever has over 35 years’ experience in the military, facilities and securities sectors. Prior to his retirement in 2015, Mr McGeever was the Managing Director and founder of Transguard Group LLC, a UAE based security and facilities management company and one of the largest security companies in the world, employing 55,000 staff. Prior to that he held senior positions in a range of security and facilities focussed companies. Mr McGeever has a Master of Business Administration from the University of Portsmouth (England). With more than 30 years of experience in senior management roles with multi- national corporations, Mark is a seasoned executive with broad experience in sales and general management in the telecommunications and Information technology sector. Mark has held senior positions with Nortel Networks Inc., Aircom International Limited, ECI Telecom Ltd, Transmode Systems AB, and more recently Infinera Corporation. He has lived and worked in Europe, the United States, Singapore and Australia. Mark holds a Master of Business Administration from the University of Melbourne, a Bachelor of Engineering degree from Monash University and is a Graduate Member of the Australian Institute of Company Directors. Robert is an experienced business executive with more than 30 years of management experience including more than 25 years in senior positions within companies operating in the security industry. Prior to joining Ava Risk Group, he was with Vision Systems Limited, where he served as the General Manager of Asia Pacific for their Fire and Security systems. In addition to his international sales and marketing success, Robert has extensive experience in operations management, including product engineering, procurement, manufacturing and operations. Robert has previously had 10 years’ experience with IBM in Australia and the United States. 2022 ANNUAL REPORT AVA GROUP | 21 Joint Company Secretaries Neville Joyce Appointed 3 November 2021 Neville is a highly experienced financial and commercial executive with proven expertise across multiple sectors including energy, mining, technology and manufacturing. With extensive experience in leadership, management and strategic financial analysis, Neville has held senior finance positions at Origin and Energy Australia including roles as Chief Financial Officer and Divisional Head of Finance. Prior to joining Ava Group, Neville was Group Chief Financial Officer at Redflex Holdings Ltd from 2017 to 2021. Neville is a CPA and holds a Bachelor of Business. Kim Clark Appointed 20 January 2017 Kim is an experienced business professional with 24 years’ experience in the banking and finance industries and 7 years as a Company Secretary (in-house) of an ASX300 company. Her experience includes debt and capital raising, risk management, mergers and acquisitions, compliance and governance. Kim currently acts as Company Secretary to various ASX listed and unlisted companies in Australia and is the Head of Corporate Services for Boardroom Pty Limited’s Queensland office. Leigh Davis FCPA, B. Bus, MBA, GAICD Appointed 20 February 2015, resigned 3 November 2021 Leigh is a Fellow of CPA Australia with more than 25 years’ finance and accounting experience across a range of industries including energy, technology and telecommunications. Leigh has served as Chief Financial Officer and Company Secretary of both ASX listed and private companies and has previously held Commercial Finance and Corporate Reporting roles in Australia, the United Kingdom and Europe for NYSE, NASDAQ and FTSE listed companies. Leigh holds a Bachelor of Business (Accounting) degree, and an MBA from London Business School. He is also a graduate of the Australian Institute of Company Directors. DIRECTORS’ REPORT Directors’ Meetings The number of meetings of the board of directors and of each board committee held during the financial year and the number of meetings attended by each director are: Board of Directors’ Meetings Meetings of Audit & Risk Committee (ARC) Meetings of Remuneration & Nomination Committee (REM) Eligible to Attend Attended Eligible to Attend Attended Eligible to Attend Attended D Cronin M Stevens M McGeever R Broomfield 12 12 12 12 12 12 12 12 3 3 3 - 3 3 3 - 1 1 1 - 1 1 1 - Committee Membership As at the date of this report, the company had an Audit & Risk Committee, and a Remuneration & Nomination Committee of the Board of Directors. Members acting on the committees of the Board during the year were: Audit Committee M Stevens (Chairman) D Cronin M McGeever Gender Diversity Policy Remuneration & Nomination Committee M McGeever (Chairman) D Cronin M Stevens The Remuneration & Nomination Committee is responsible for setting the diversity policy of the Company. The Committee has established a diversity policy for the Company, which is disclosed on the Company website. Measurable objectives for achieving gender diversity have been set with the Company assessing annually both the objectives and the entity’s progress in achieving them. The Company has set an objective to increase the representation of women across the business to 25%, women in key executive level positions to 25%, and women on the Board to 20%. There has been a 1% increase in the percentage of positions held by women across the business year on year, with the level of representation of women across the business now at 30%. Whilst Ava Risk Group particularly focuses on narrowing the gap in gender representation across all levels, it strives for equal development opportunities for all employees, irrespective of gender, cultural, physical capabilities, or other differences. Directors’ Interests in shares or options As at the date of this report, the interests of the directors in the shares and options of Ava Risk Group are as detailed below: Number of ordinary shares Number of performance rights Number of options over ordinary shares D Cronin M Stevens M McGeever R Broomfield 33,519,937 1,218,396 6,005,000 3,270,266 200,000 200,000 200,000 178,221 - - - - 2022 ANNUAL REPORT AVA GROUP | 23 Principal Activities The principal activities of the Consolidated Entity during the financial year were: › the provision of security technology products for perimeter intrusion detection solutions; › the provision of security access control products; and › the international valuable logistics services division which was operated under Ava Global DMCC. This activity was however disposed. Refer to Note 24 Discontinued Operations. Operating and Financial Review OPERATING REVIEW Following the divestment of the Services Division in October 2021, the focus within Ava Group has been to build on our market leading fibre-optic sensing and access control technologies. We have invested in expanding our business development and sales capability, particularly in North America, the world’s largest security market. Additional capabilities were added to our global sales team and it is pleasing to note that sales order intake for FFT grew by 16% on the previous year (excluding Indian Ministry of Defence contract). We continue to win competitive contracts to deploy our fibre-optic perimeter detection technology to critical infrastructure assets, again noting the award of contracts for our solutions at a large North American power plant and European offshore windfarm during FY2022. During FY2022 we accelerated development of our Machine Learning capability to improve system performance for detection rates, and reduce nuisance alarms to levels not previously seen. This will become a compelling feature of future long term support contracts to both our existing and new customers. At 30 June 2022 there were 52 systems signed to support agreements and we expect to grow this opportunity as we further develop and add compelling value to our support offering. The investment and development in FFT’s Machine Learning infrastructure will also underpin our expansion into new condition monitoring applications in the years ahead. Further progress was made on the development roadmap for Aura IQ, our condition monitoring solution for mining conveyors. At the request of a leading global mining company, Ava Group completed integration and validation of our condition monitoring solution with fire detection fibre optic cable, which improves ease of deployment. A number of proof of value trials for our condition monitoring solution were completed at operating mine sites, culminating in the first commercial order for Aura-IQ being received in July 2022. Revenue in BQT was unfavourably impacted in Q1 FY2022 by COVID-19 related lockdowns, particularly in the Australian market. As these restrictions eased, performance of BQT improved substantially and it exits FY2022 with significant momentum. Importantly, we continued to develop our smart locking solutions and signed a global framework agreement with dormakaba International GmbH, a global leader in security access control systems. The Company successfully navigated the challenges posed by the lingering business interruption associated with COVID-19. The beginning of FY2022 was impacted by COVID-19 related lockdowns in Australia which negatively affected the timing of some orders and also impacted the completion of a number of proof of value trials for Aura-IQ. As lockdown restrictions eased, supply chain constraints and pricing pressure became prevalent during the second half of the year. To date the Company has been successful in securing critical components and managing supplier costs. This will remain a key issue in FY2023. FINANCIAL RESULTS FOR THE YEAR Revenue – continuing operations EBITDA* - continuing operations 2022 A$ m 19.0 0.8 Profit / (loss) after tax – continuing operations (0.7) Profit / (loss) after tax – discontinued operations 33.8 Profit / (loss) after tax - Group 33.1 * EBITDA excluding unrealised foreign exchange variances 2021 A$ m 25.3 9.2 6.6 7.1 13.7 Change % (6.3) (8.4) (7.3) 26.7 19.4 DIRECTORS’ REPORT FINANCIAL REVIEW The consolidated profit after income tax attributable to the shareholders of Ava Risk Group for the year ended 30 June 2022 was $33.1 million up from $13.7 million in the previous financial year. The consolidated result includes a contribution from Discontinued Operations relating to the disposal of its Services Division, which was sold in October 2021. Profit in FY2022 from Discontinued Operations net of tax was $33.8 million which consisted of $1.9 million from operations prior to its disposal and a gain on disposal of $31.9 million. In the previous financial year operating profit net of tax was $7.1 million for the Services Division. The result from Continuing Operations for the year ended 30 June 2022 was a loss of $0.7 million compared to a profit of $6.6 million in the previous financial year. All subsequent commentary relates to the Continuing Operations of Ava Risk Group. Revenue and other income in FY2022 of $19.0 million was $6.3 million lower than the previous year (FY2021: $25.3 million). The reduction to revenue is driven by licence revenue recognised in FY2021 attributable to the Indian Ministry of Defence (“IMOD”) contract which did not recur in FY2022 as well as government grant income of $0.6m associated with COVID-19 support. When adjusted for these items, revenue in FY2022 grew by 12% driven by increased order intake in FFT. Gross margin increased slightly to 65%. This pleasing outcome has been achieved against a backdrop of significant supply chain constraints, particularly during the second half of the year. Operating costs increased by $1.6 million. The increased expenditure is driven by additional investment in business development and sales resources, particularly in North America. This investment has been integral to growing our order intake and revenues for FFT and leaves the Company well placed to grow in the future. Operating costs associated with travel and market related activity have also increased in FY2022 as much of this activity was suspended due to COVID-19 during FY2021. The cash position of the Company remains strong with a cash balance of $15.2 million at 30 June 2022 (FY2021: $17.3 million). Cash flow from operations of $2.5m were supplemented by the proceeds from the disposal of the International Valuable Logistics business of $36.5 million. Ava Risk Group distributed $38.8 million to shareholders via a capital return and special dividend. OUTLOOK Ava Risk Group is very confident about the future prospects of the Company. We have market leading technology in both our fibre sensing and access control markets, a balance sheet that supports our growth ambition and the organisational capability to execute our plans. FFT will aggressively pursue opportunities in the perimeter security segment, leveraging our increased business development capability in North America. We will continue to pursue long term support contracts with our existing customer base to grow recurring revenue and believe that the system improvements we have made using Machine Learning will provide a compelling product proposition. We are well placed to progress the deployment of Aura-IQ, particularly within the mining industry where we have successfully completed numerous proof of value trials and integration work. We will also look to expand the application of Aura-IQ to “situational awareness”, pursuing opportunities in adjacent markets such as telecommunications. An immediate key focus for BQT is to grow its relationship with key channel partners such as dormakaba. Our smart locking solutions are unique in the market and we will look to exploit this technology via our channel partners in order to significantly grow sales volume. In August 2022, Ava Risk Group announced its acquisition of GJD Manufacturing, a leading UK security technology supplier specialising in optical based intrusion detection systems. The addition of GJD is an important accelerator of growth for the Ava Group. Its product offering is complimentary to FFT’s fibre based intrusion detection systems. Its channel management and proven go to market capability in the UK and Western Europe is complimentary to BQT’s presence in North America and Asia-Pacific. We believe that we can use Ava Group’s existing capability to grow GJD sales in North America and Asia-Pacific while leveraging GJD’s capability to grow the sale of AVA Group products in the UK and Western Europe. 2022 ANNUAL REPORT AVA GROUP | 25 Significant changes in the state of affairs During the financial year the following events took place. Divestment of the Services Division On 16 August 2021, the Group entered into a binding agreement with TTG Bidco Ltd, to sell its Service Division business operations via a share purchase agreement for all the share capital of the subsidiary Ava Global DMCC. The sale consideration was USD $46.4 million (A$62.2 million) in cash. After closing adjustments and payment of management incentives and accrued bonuses payable under the performance plan agreement in place with the Services Division Management team, the Group received net cash proceeds of USD $31.1m (A$41.9 million). Further details are found in Note 24 - Discontinued Operations. After balance date events Acquisition of GJD On 1 August 2022, the Group entered into a Sale and Purchase Agreement to acquire 100% of the shareholding of MTD Holdings Limited, the parent company of GJD Manufacturing Limited (“GJD”). GJD is a UK-based security equipment designer and manufacturer, specialising in intruder detection systems. Its products include professional grade external detector equipment as well as infrared and white-light LED illuminators and Automatic Number Plate Recognition cameras. GJD counts some of the UK and Europe’s most security conscious end users as customers and has a growing OEM sales channel across multiple sectors, including well-known multinational engineering and technology companies. The acquisition price of approximately $7.8 million was funded 60% in cash and 40% in AVA shares. The cash consideration has been paid and share consideration is based on the last share price on trading day before 1 August 2022. Given the close proximity of the acquisition to the approval date of these financial statements, the Purchase Price Allocation is yet to commence and as a result, the required AASB 3 Business Combination disclosures cannot be made. Likely developments Likely development of the operations of the Group are encompassed in the Operating and Financial Review section of this report. Environmental regulation and performance The Consolidated Entity’s operations are not subject to any significant environmental Commonwealth or State regulations or laws. The Group has complied with all environmental regulations to which it is subject. Dividends recommended or declared During the financial year ended 30 June 2022 and 30 June 2021; the following dividends were declared: Special dividend at the rate of 1 cent per share, paid on 23 October 2020 Special dividend at the rate of 2 cents per share, paid on 11 March 2021 Special dividend at the rate of 13 cents per share, paid on 10 March 2022 Share options granted to directors and executives 2022 $000 - - 31,586 2021 $000 2,392 4,832 - There were no options over unissued ordinary shares granted by Ava Risk Group during or since the financial year end to directors and executives in office. Shares under option There are no unissued ordinary shares of Ava Risk Group under option at the date of this report. Capital Return During the financial year ended 30 June 2022, the Group announced a return of capital of 3.114 cents per share totalling $7.6m. The return was paid in on 5 May 2022 following an Extraordinary General Meeting held on 22 April 2022. DIRECTORS’ REPORT Shares issued on exercise of options During the year ended 30 June 2021, the group granted 500,000 options to the former CEO and Executive Director Scott Basham with an exercise price of $0.15. The fair value of the options was determined using a Black Scholes option pricing model. The options were split into two equal tranches, one vesting on 31 December 2020 and the second vesting on 30 June 2021. Both tranches had an expiry date of 31 December 2021 and ordinary shares were issued to Mr. Basham in January 2021 and June 2021 respectively. No other shares in the Company have been issued during or since the end of the financial year as a result of the exercise of an option. There are no amounts unpaid on shares issued on exercise of options. Performance rights During the year ended 30 June 2022, the following performance rights were issued to Executive KMP: Grant date Number of PSRs issued Fair value Robert Broomfield Neville Joyce Matthew Nye-Hingston 28-Oct-21 31-Jan-22 1-Sep-21 $ 167,939 67,854 116,259 $ 0.45 0.52 0.55 The performance rights were granted as part of remuneration in two equal tranches, vesting on 31 August 2023 and 31 August 2024 with vesting conditions relating to continuity of employment and achievement of agreed performance KPIs in FY 2022. During the year ended 30 June 2022, the following performance rights were issued to Non-Executive KMP: David Cronin Mark Stevens Mike McGeever Grant date Number of PSRs issued Fair value 28-Oct-21 28-Oct-21 28-Oct-21 $ 200,000 200,000 200,000 $ 0.29 0.29 0.29 2022 ANNUAL REPORT AVA GROUP | 27 Unissued ordinary shares of Ava Risk Group under performance rights at the date of this report are as follows: Date the Performance rights were granted Number of unissued ordinary shares under rights Expiry date of the performance rights 23/09/2019 28/10/2019 31/10/2019 29/10/2020 29/10/2020 30/10/2020 30/10/2020 1/09/2021 1/09/2021 28/10/2021 28/10/2021 28/10/2021 31/01/2022 31/01/2022 110,232 389,769 49,935 35,342 35,342 58,276 58,277 261,891 261,895 28,801 28,801 600,000 14,114 14,114 31/08/2022 31/08/2022 31/08/2022 31/08/2022 31/08/2023 31/08/2022 31/08/2023 31/08/2023 31/08/2024 31/08/2023 31/08/2024 5/10/2022 31/08/2023 31/08/2024 No performance rights holder has any right under the performance rights to participate in any other share issue of the Company. Proceedings on behalf of the Consolidated Entity No person has been granted leave of Court to bring proceedings against the Consolidated Entity. Indemnification and Insurance of Directors and Officers Ava Risk Group maintains a Directors and Officers insurance policy that, subject to some exceptions provides insurance cover to past, present and future directors and officers of the Consolidated Entity and its subsidiaries. The Company has paid a premium for the policy. In addition, under the Constitution of the Company, and to the extent permitted by law, each director of the Company is indemnified by the Company against liability incurred to another person (other than the Company or related body corporate) except where the liability arises out of conduct involving a lack of good faith. Accordingly, each director is indemnified against any liability for costs and expenses incurred by the director in defending proceedings, whether civil or criminal, in which judgement is given in favour of the director or in which the director is acquitted, or in connection with an application in relation to such proceedings in which a court grants relief to the officer under the Corporations Act 2001. Indemnification of auditors To the extent permitted by law, the Company has agreed to indemnify its auditors Ernst & Young Australia, as part of the terms of its annual engagement agreement against claims by third parties arising from the audit (for an unspecified amount). No payments have been made to indemnify Ernst & Young during or since the financial year. The Company has not otherwise during or since the financial year, indemnified or agreed to indemnify a director or auditor of the Company or any related body corporate against a liability incurred as a director or auditor. Rounding of amounts In accordance with ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191, the amounts in the directors’ report and in the financial report have been rounded to the nearest one thousand dollars, or in certain cases, to the nearest dollar (where indicated). DIRECTORS’ REPORT REMUNERATION REPORT (AUDITED) The Directors present the Remuneration Report (the Report) for the Company and its controlled entities for the year ended 30 June 2022. This Report forms part of the Directors’ Report and has been audited in accordance with section 300A of the Corporations Act 2001. The table below lists the Executives of the Company whose remuneration details are outlined in this Remuneration Report. These Executives, together with the Non-Executive Directors, are defined as Key Management Personnel (KMP) under Australian Accounting Standards. In this report Executive KMP (Executives) refers to the KMP other than the Non Executive Directors. Non Executive Directors have oversight of the strategic direction of the Company but have no direct involvement in the day to day management of the business. 1. Details of key management personnel (KMP) The table below lists the KMP of the Company whose remuneration details are outlined in this Remuneration Report. (i) Non-Executive Directors David Cronin Chairman (Non-Executive) – appointed 31 August 2018. (Appointed as Non - Executive Director on 10 April 2018). Mark Stevens Non-Executive Director – appointed 11 March 2015. Mike McGeever Non-Executive Director – appointed 8 August 2018. (ii) Executive Director Robert Broomfield (iii) Other KMPs Group Chief Executive Officer (CEO) – appointed on 10 July 2020 and Executive Director – appointed 27 February 2008. Neville Joyce Group Chief Financial Officer (CFO) and Company Secretary – appointed on 3 November 2021. Mathew Nye-Hingston Chief Operating Officer BQT appointed on 1 March 2021. Previously, held the position of Head of BQT Technology & Director BQT Operations. Leigh Davis Group Chief Financial Officer (CFO) and Company Secretary – appointed on 9 February 2015 (resigned 3 November 2021). Christopher Fergus Chief Executive Officer (CEO) – Services Division (Business divested on 16 August 2021). James Alston Chief Operating Officer & Chief Financial Officer – Services Division (Business divested on 16 August 2021). SALE OF AVA GLOBAL (SERVICES DIVISION) On 16 August 2021, the Group entered into a binding agreement with TTG BidCo Ltd to sell its Service Division business operations via a share purchase agreement for all the share capital of the subsidiary Ava Global DMCC. Christopher Fergus and James Alston are no longer employed by the Group and ceased to be a KMP of the Group. There were no other changes to KMP after reporting date and before the date the financial report was authorised for issue. 2022 ANNUAL REPORT AVA GROUP | 29 2. Remuneration policies The board policy for determining the nature and amount of remuneration of key management personnel is agreed by the Board of Directors as a whole, after receiving recommendations from the Remuneration and Nomination Committee. The Remuneration and Nomination Committee currently comprises three members of the Board of Directors. All members are Non-Executive Directors. The Board or the Remuneration and Nomination Committee may engage external consultants to provide independent advice where it considers it appropriate to ensure that the Company attracts and retains talented and motivated directors and employees who can enhance Company performance through their contributions and leadership. During the year ended 30 June 2022 neither the Board nor the Remuneration and Nomination Committee engaged any external consultants. 2.1 Non- Executive Director remuneration arrangements The remuneration of Non-Executive Directors (NEDs) consists of directors’ fees, which includes attendance at Committee meetings. NEDs do not receive retirement benefits other than compulsory superannuation scheme contributions. The remuneration for each NED is set out below in Section 3 of this report. As part of their remuneration NEDs may receive share options or performance rights in the Company and are encouraged to hold shares in the Company. This is in line with the Company’s overall remuneration philosophy and aligns NEDs with shareholder interests. The remuneration of NEDs for the year ended 30 June 2022 and 30 June 2021 is detailed in this report. The Company’s constitution and the ASX listing rules specify that the NED fee pool shall be determined from time to time by a general meeting. The Company’s current aggregate fee pool is $250,000 per year. 2.2 Executive remuneration arrangements For executives the Company provides a remuneration package that incorporates both cash-based remuneration and share- based remuneration. The contracts for service between the Company and executives are on a continuing basis the terms of which are not expected to change in the immediate future. Share-based remuneration is conditional upon continuing employment and achievement of certain KPIs, thereby aligning executive and shareholder interests. FIXED REMUNERATION The level of fixed remuneration is set so as to provide a base level of remuneration, which is both appropriate to the position and is competitive in the market. Salary packages are subject to local regulatory labour laws and the Remuneration Committee reviews annually. i. SHORT-TERM INCENTIVE (STI) The objective of the STI program is to link the achievement of the Group’s annual operational targets with the remuneration received by the executives charged with meeting those targets. The total potential STI available is set at a level that provides sufficient reward to the Executive KMP for exceeding the operational targets and at such a level that the cost to the Group is reasonable in the circumstances. Actual STI payments granted to each Executive KMP depend on the extent to which specific annual operational targets set at the beginning of the financial year are met or exceeded. The CEO’s targets are set by the Remuneration and Nomination Committee. The targets for all other executives are set by the CEO. STI rewards are assessed annually by the Remuneration and Nomination Committee and are usually paid in cash and performance rights, (refer to note 2.2 ii). Achievement against individual targets are assessed on an individual basis. Vesting conditions are decided upon on a case-by- case basis. A summary of the measures and weightings are set out in the table below: Executive Group CEO Group CFO COO (BQT) FY 2022 - Financial performance conditions Technology Division revenue and EBITDA Targets Technology Division revenue and EBITDA Targets BQT Business Segment Revenue and EBITDA Targets Weighting Non-financial performance conditions Weighting 70% 80% 80% Increased market share and new market initiatives Systems and policies improvements and increase in investor exposure Increased market share and new market initiatives 30% 20% 20% DIRECTORS’ REPORT Performance targets are set for an annual period. If performance targets (financial and non-financial) are met for the annual period and the Executive KMP remains employed on 31 August 2022, the Executive KMP will receive the cash component (typically 50% of total STI). Subject to continued employment typically 50% of the performance rights (or 25% of the total STI) will vest on 31 August 2023 and 31 August 2024 respectively. ii. LONG-TERM INCENTIVE (LTI) Long-term incentives are provided to certain employees through the issuance of options or performance rights. The options or performance rights are designed to provide long-term incentives for employees to deliver long-term shareholder returns. The options or performance rights are usually issued for nil or nominal consideration and are granted in accordance with the Company’s Employee Equity Incentive Plan (EIP). Options and performance rights are issued for a specified period and are convertible into ordinary shares. The exercise price of the options or performance rights are determined by the Directors having regards to the market price of a share on invitation date, grant date, or another specified date after grant close and desirable performance hurdles that are aligned with shareholder interests. All options and performance rights expire on the earlier of their expiry date or three months after termination of the employee’s employment subject to Board’s discretion. Options and performance rights do not vest until any vesting or performance criteria set at granting have been met in accordance with the terms and conditions of the EIP. There are no voting or dividend rights attached to the options and performance rights. Voting rights will attach to the ordinary shares when the options or performance rights have been exercised. Unvested options or performance rights cannot be transferred and will not be quoted on the ASX. 3. Executive contractual arrangements The Company has entered into service agreements with the following key management personnel: Robert Broomfield Contract of Employment Group Chief Executive Officer & Executive Director Appointed 10 July 2020 Robert Broomfield is employed by Ava Risk Group as a permanent, full-time employee. Mr Broomfield commenced his position with Ava Risk Group in July 2006. His current base salary is AUD $330,000 inclusive of superannuation. He has a notice period of 3 months. Performance Conditions The contract provides for a bonus of up to 40% of base salary inclusive of superannuation, which is payable half in cash and half in performance rights and is conditional upon meeting pre-defined KPI’s (as disclosed in Section 4) by the executive. Neville Joyce Contract of Employment Group Chief Financial Officer & Company Secretary Appointed 3 November 2021 Neville Joyce is employed by Ava Risk Group as a permanent, full-time employee. Mr Joyce commenced his position with Ava Risk Group in November 2021 and is employed on a current base salary of AUD $330,000, inclusive of superannuation. On the completion of the six- month probation period, Mr Joyce received a cash bonus of $30,000. Performance Conditions The contract provided for a bonus up to 24% of base salary, inclusive of superannuation, which is payable in half in cash and half in performance rights upon meeting pre-defined KPI’s (as disclosed in Section 4) by the executive. 2022 ANNUAL REPORT AVA GROUP | 31 Matthew Nye- Hingston Contract of Employment Chief Operating Officer – BQT Matthew Nye-Hingston is employed by BQT Solutions (NZ) Ltd as a permanent, full-time employee. Appointed 1 March 2021 Mr Nye-Hingston commenced his position with BQT Solutions (NZ) Ltd in July 2019 and is employed on a current base salary of NZD $222,074 (AUD $200,743) inclusive of superannuation. He has a notice period of 8 weeks. Performance Conditions The contract provides for a bonus up to 40% of base salary, inclusive of superannuation, which is payable half in cash and half in performance rights upon meeting pre-defined KPI’s (as disclosed in Section 4) by the executive. Leigh Davis Contract of Employment Group Chief Financial Officer & Company Secretary Appointed 9 February 2015 Leigh Davis was employed by Ava Risk Group as a permanent, full-time employee. Mr Davis commenced his position with Ava Risk Group in February 2015 and was employed on a base salary of AUD $251,850, inclusive of superannuation. Resigned 3 November 2021 In FY22, Leigh Davis did not participate in the FY22 plan. Christopher Fergus Contract of Employment Chief Executive Officer – Services Division Appointed 1 February 2016 Business divested on 16 August 2021 on the disposal of AVA Global Christopher Fergus was employed by Ava Global DMCC as a permanent, full-time employee. Mr. Fergus commenced employment with Ava Global DMCC in February 2016. His base salary was USD$378,167 (approx. AUD $550,073) per annum inclusive of superannuation and allowances. He has a notice period of 8 weeks, following his appointment as Group Chief Executive Officer on 10 July 2020. Performance Conditions Ava Global DMCC had a performance plan which allowed for senior employees of the Company to share in a pooled allocation of up to 32.7% of the exit value of Ava Global DMCC in excess of USD $5.3 million. In addition, the plan provided for a shared annual bonus pool of 32.7% of the net profits that the Ava Global business unit generates, after allowing for all costs and expenses, including the amount of this shared annual bonus pool. The incentives were payable in cash conditional upon achievement of divisional net profits by the executives. Up to 52.6% of the pooled allocation has been allocated to Mr Fergus. The performance plan expired if the executive resigns from their employment or is terminated by the Company. As a result of the sale of AVA Global, Mr. Fergus received a bonus of USD $7.8m (approx AUD $10.9m). In addition Mr Fergus has accrued a performance cash bonus for financial year 2022 of USD$183,615 (approx. AUD $255,580) based on the net profits. James Alston Contract of Employment Chief Financial Officer - Services Division Appointed 1 February on 2016 Business divested on 16 August 2021 on the disposal of AVA Global James Alston was employed by Ava Global DMCC as a permanent, full-time employee. Mr. Alston commenced employment with Ava Global DMCC in February 2016.His base salary is USD$276,217 (approx. AUD $401,779) per annum inclusive of superannuation and allowances. He has a notice period of 3 months. Performance Conditions Ava Global DMCC had a performance plan which allows for senior employees of the Company to share in a pooled allocation of up to 32.7% of the exit value of Ava Global DMCC in excess of USD $5.3 million. In addition, the plan provided for a shared annual bonus pool of 32.7% of the net profits that the Ava Global business unit generates, after allowing for all costs and expenses, including the amount of this shared annual bonus pool. The incentives were payable in cash conditional upon achievement of divisional net profits by the executives. 11.47% of the pooled allocation has been allocated to Mr Alston. The performance plan expired if the executive resigns from their employment or is terminated by the Company. As a result of the sale of AVA Global, Mr. Alston received a bonus of $1.5m (approx AUD$ 2.1m). In addition, Mr Alston has accrued a cash bonus for financial year 2022 of USD$14,682 (approx. AUD $20,437) based on the net profits. DIRECTORS’ REPORT Remuneration of Key Management Personnel for the year ended 30 June 2022 Note Salary and Fees Short-term Cash Bonus Bonus on Sale of business Other benefits(5) Post employment benefit Long Service Leave Payment expense Total Performance Related Non-Executive Directors David Cronin Mark Stevens Mike McGeever Sub-total Non-Executive Directors Executives Robert Broomfield Leigh Davis Neville Joyce Chris Fergus James Alston Matthew Nye-Hingston Sub-total executive KMP Totals 1 2 3 4 4 1 Appointed as Group Chief Executive Officer on 10 July 2020. 2 Resigned on 3 November 2021. $ 65,000 65,000 63,000 193,000 289,551 89,285 200,000 60,331 47,370 196,863 883,400 1,076,400 $ - - - - 17,820 - 40,800 255,580 20,437 16,336 350,973 350,973 $ - - - - - - - 10,857,282 2,120,563 - 12,977,845 12,977,845 $ - - - - - - - 63,925 49,149 - 113,074 113,074 3 Appointed as Group Chief Financial Officer on 3 November 2021. As part of the Employment contract, Neville Joyce received $30,000 at the end of the Probation period. 4 Business divested on 16 August 2021. In addition to Performance bonuses accrued up until the sale, Mr Fergus and Mr Alston received approximately $10.9m and $2.1m relating to the sale of AVA Global. 5 Other benefits include allowances for housing, car and school fees applicable to salary packages in the UAE. $ - 6,500 6,500 13,000 23,568 9,946 22,500 15,117 2,367 - 73,498 86,498 Share-based $ $ 45,676 45,676 45,676 137,028 27,795 46,998 5,220 - - 41,347 121,360 258,388 117,176 117,176 108,676 343,028 377,899 146,229 268,520 11,252,235 2,239,886 254,546 14,539,315 14,882,343 $ - - - - - - - - - 19,165 19,165 19,165 $ 39% 39% 42% - 12% 32% 17% 99% 96% 23% - - 2022 ANNUAL REPORT AVA GROUP | 33 Remuneration of Key Management Personnel for the year ended 30 June 2022 Sub-total Non-Executive Directors Non-Executive Directors David Cronin Mark Stevens Mike McGeever Executives Robert Broomfield Leigh Davis Neville Joyce Chris Fergus James Alston 1 2 3 4 4 Matthew Nye-Hingston Sub-total executive KMP Totals 1 Appointed as Group Chief Executive Officer on 10 July 2020. 2 Resigned on 3 November 2021. $ 65,000 65,000 63,000 193,000 289,551 89,285 200,000 60,331 47,370 196,863 883,400 1,076,400 $ - - - - - 17,820 40,800 255,580 20,437 16,336 350,973 350,973 $ - - - - - - - - 10,857,282 2,120,563 12,977,845 12,977,845 $ - - - - - - - - 63,925 49,149 113,074 113,074 3 Appointed as Group Chief Financial Officer on 3 November 2021. As part of the Employment contract, Neville Joyce received $30,000 at the end of the Probation period. 4 Business divested on 16 August 2021. In addition to Performance bonuses accrued up until the sale, Mr Fergus and Mr Alston received approximately $10.9m and $2.1m relating to the sale of AVA Global. 5 Other benefits include allowances for housing, car and school fees applicable to salary packages in the UAE. Note Salary and Fees Other benefits(5) Post employment benefit Long Service Leave Short-term Cash Bonus Bonus on Sale of business Share-based Payment expense Total Performance Related $ 6,500 6,500 - 13,000 23,568 9,946 22,500 15,117 2,367 - 73,498 86,498 $ - - - - 19,165 - - - - - 19,165 19,165 $ $ 45,676 45,676 45,676 137,028 27,795 46,998 5,220 - - 41,347 121,360 258,388 117,176 117,176 108,676 343,028 377,899 146,229 268,520 11,252,235 2,239,886 254,546 14,539,315 14,882,343 $ 39% 39% 42% - 12% 32% 17% 99% 96% 23% - - DIRECTORS’ REPORT Remuneration of Key Management Personnel for the year ended 30 June 2021 Note Salary and Fees Short-term Cash Bonus Other benefits(5) Post-employment benefits Termination benefits Share-based Long Service Leave Payment expense Total Performance Related Non-Executive Directors David Cronin Mark Stevens Mike McGeever Sub-total Non-Executive Directors Executives Scott Basham Robert Broomfield Leigh Davis Chris Fergus James Alston Matthey Nye-Hingston Sub-total executive KMP Totals 1 2,4 3,4 4 4 $ 65,000 65,000 63,000 193,000 49,171 259,005 221,573 230,842 178,823 180,544 1,119,958 1,312,958 $ - - - - 2,750 11,309 20,148 1,241,381 270,650 18,648 1,564,886 1,564,886 $ - - - - - - - 219,956 141,674 1,698 363,328 363,328 $ - 6,175 - 6,175 11,089 21,694 22,870 52,547 11,205 - 119,405 125,580 1 Appointed as Group Chief Executive Officer on 12 March 2019. Resigned on 9 July 2020, effective 09 September 2020. 2 Appointed as Group Chief Executive Officer on 10 July 2020. 3 Resigned on 06 August 2021, effective from 03 November 2021. 4 During the year, these individuals received a one-time AUD $800 payment (NZD $800 for M. Nye-Hingston), which was made to all Technology Division employees, to cover additional costs to work from home during the pandemic. 5 Other benefits include allowances for housing, car and school fees applicable to salary packages in the UAE. $ - - - - - - - - - 153,619 153,619 153,619 $ - - - - - - - - 5,073 8,525 13,598 13,598 $ - - - - - - (13,026) 16,147 29,817 31,549 64,487 64,487 $ 65,000 71,175 63,000 199,175 203,603 313,228 302,933 1,744,726 602,352 232,439 3,399,281 3,598,456 $ - - - - 1% 9% 16% 71% 45% 22% - - 2022 ANNUAL REPORT AVA GROUP | 35 Remuneration of Key Management Personnel for the year ended 30 June 2021 Sub-total Non-Executive Directors Non-Executive Directors David Cronin Mark Stevens Mike McGeever Executives Scott Basham Robert Broomfield Leigh Davis Chris Fergus James Alston Matthey Nye-Hingston Sub-total executive KMP Totals 1 2,4 3,4 4 4 $ 65,000 65,000 63,000 193,000 49,171 259,005 221,573 230,842 178,823 180,544 1,119,958 1,312,958 $ - - - - 2,750 11,309 20,148 1,241,381 270,650 18,648 1,564,886 1,564,886 $ - - - - - - - 219,956 141,674 1,698 363,328 363,328 $ - - 6,175 6,175 11,089 21,694 22,870 52,547 11,205 - 119,405 125,580 1 Appointed as Group Chief Executive Officer on 12 March 2019. Resigned on 9 July 2020, effective 09 September 2020. 2 Appointed as Group Chief Executive Officer on 10 July 2020. 3 Resigned on 06 August 2021, effective from 03 November 2021. from home during the pandemic. 5 Other benefits include allowances for housing, car and school fees applicable to salary packages in the UAE. 4 During the year, these individuals received a one-time AUD $800 payment (NZD $800 for M. Nye-Hingston), which was made to all Technology Division employees, to cover additional costs to work Note Salary and Fees Other benefits(5) benefits Short-term Cash Bonus Post-employment Termination benefits Long Service Leave Share-based Payment expense Total Performance Related $ - - - - 153,619 - - - - - 153,619 153,619 $ - - - - - 5,073 8,525 - - - 13,598 13,598 $ - - - - (13,026) 16,147 29,817 - - 31,549 64,487 64,487 $ 65,000 71,175 63,000 199,175 203,603 313,228 302,933 1,744,726 602,352 232,439 3,399,281 3,598,456 $ - - - - 1% 9% 16% 71% 45% 22% - - DIRECTORS’ REPORT 4. Relationship between remuneration and Company performance 4.1 Remuneration not dependent on satisfaction The board seeks to align remuneration policies to the long-term creation of wealth by the Company for shareholders. 4.2 Remuneration dependent on satisfaction of performance condition A portion of the Executive Remuneration is based on attainment of performance conditions. Performance-based remuneration includes short-term cash bonuses (STIs) and Performance Share Rights (PSRs). Short-term Performance- based remuneration granted to key management personnel has regard to Company performance over a 12-month period. The following table sets out the performance conditions used for performance-linked incentive payments. Technology Division Financial Group CEO and Group CFO COO (BQT) Non-Financial Group CEO Group CFO COO (BQT) Service Division Revenue Target - Technology Division EBITDA Target - Technology Division Revenue Target - Access Control solutions EBITDA Target - Access Control Solutions Increase market share and new market Systems and policies improvements and Increased market share and new market CEO - Services Division / COO & CFO - Services Division Performance based on Enterprise value at the sale of AVA Global FY 22 partly met not met not met partly met Partially met partly met not met FY 21 outcome Met These performance conditions are selected to align the goals and incentives of the KMP with the creation of shareholder wealth during the relevant period. Quantitative financial performance conditions are assessed against the Consolidated Entity’s financial report for the year. Other performance conditions are assessed by the CEO, or in the case of the CEO’s performance conditions, the Board giving consideration to outcomes achieved, external influences and a range of other qualitative factors. These assessments ensure clearly defined and objective assessment of financial and quantitative targets and promote fair and reasonable judgements in respect of qualitative performance conditions. 2022 ANNUAL REPORT AVA GROUP | 37 4.3 Impact of Company's performance on shareholder wealth The following table summarises Company performance and key performance indicators Financial performance 2022 2021 2020 2019 2018 Earnings Revenues excluding interest income ($’000) % increase/(decrease) in revenue Profit/(Loss) for the year ($’000) % increase/(decrease) in profit before tax Shareholder value Share price $ Change in share price (%) Dividends to shareholders ($’000) Return of capital ($'000) KMP remuneration 18,961 65,714 46,640 31,673 20,275 -71% 33,132 141% 0.18 -53% 31,586 7,566 41% 13,749 178% 0.38 145% 7,224 - 47% 4,947 205% 0.16 3% - - 56% (4,729) (12%) 0.15 30% - - 52% (4,241) 46% 0.12 -18% - - Total remuneration of KMP $14,882,343 $3,598,456 $3,052,714 $1,808,625 $1,485,805 Total performance-based remuneration $13,587,206 $1,629,373 $1,185,289 $91,676 $10,000 5. Performance based rewards 5.1 Cash bonus The following table sets out the terms and conditions of each grant of the performance-linked bonuses affecting compensation in current and future years. 2022 Maximum cash bonus Amount awarded % Achieved % Forfeited Robert Broomfield Neville Joyce Matthew Nye-Hingston 66,000 40,000 32,672 17,820 10,800 16,336 27% 27% 50% 73% 73% 50% The cash bonuses associated with the achievement of these awards relating to the financial year ending 30 June 2022 will be paid during the financial year ending 30 June 2023. 5.2 Performance rights awarded The following table summarises the results of the performance rights awarded and allocated to Executive KMPs during the year ended 30 June 2022. Number of performance rights awarded Grant date Fair value at Grant date $ Number of performance rights allocated based on FY22 KPIs achieved Robert Broomfield Neville Joyce Matthew Nye-Hingston 167,939 67,854 116,259 28-Oct-21 31-Jan-22 1-Sep-22 75,607 35,109 63,361 57,6021 28,2281 58,129 1 Included 16,794 and 13,571 of performance rights have been awarded to Robert Broomfield and Neville Joyce respectively. These vest subject to the Company’s market traded share price being at least 55c across 30 consecutive days, and subject to continuing of service. DIRECTORS’ REPORT 5.3 Vesting dates The expiry dates are 31 August 2023 and 31 August 2024 respectively and the conditions are the continuity of employment. The following table summarises the results of the performance rights awarded and allocated to Non-Executive Directors during the year ended 30 June 2022. David Cronin Mark Stevens Mike McGeever Number of performance rights awarded Grant date Fair value at Grant date $ 200,000 200,000 200,000 28-Oct-21 28-Oct-21 28-Oct-21 57,220 57,220 57,220 Non-Executive Directors were issued a total of 600,000 performance rights on 28 October 2021. The performance rights have a nil exercise price and vest on 5 October 2022. The fair value of each performance rights was $0.29. The performance rights issued to the Non-Executive directors vest on 5 October 2022 subject to the Company’s market traded share price being at least 49 cents or above across 30 consecutive days in September 2022 and subject to continuity of service with the Company. 6. Key management personnel’s equity holdings 6.1 Number of options held by key management personnel: Note Balance at beginning of Period Granted Net Change Other# Balance at End of Period 2021 Executives Scott Basham 1 Chris Fergus Total 1 July 2020 - 200,000 200,000 1 Resigned on 9 July 2020, effective 9 September 2020. 500,000 - 500,000 (250,000) (200,000) (450,000) 30 June 2021 250,000 - 250,000 2022 ANNUAL REPORT AVA GROUP | 39 6.2 Number of shares held in Ava Risk Group by key management personnel (direct and indirect) Note Balance at beginning of Period On exercise of options and rights Net change, other Balance at End of Period 2022 Non-Executive Directors David Cronin Mark Stevens Mike McGeever Sub-total Executives Robert Broomfield Leigh Davis Chris Fergus Matthew Nye- Hingston Sub-total Total 2, 4 3, 4 1 July 2021 32,663,070 1,218,396 6,005,000 39,886,466 3,107,359 284,176 3,285,204 795,145 7,471,884 47,358,350 30 June 2022 33,519,937 1,218,396 6,005,000 856,867 - - 856,867 40,743,333 - (139,677) 1,012,287 - 872,610 1,729,477 3,270,266 400,000 4,297,491 829,250 8,797,007 49,540,340 - - - - 162,907 255,501 - 34,105 452,513 452,513 1 Resigned on 9 July 2020, effective 9 September 2020. 2 Resigned on 3 November 2021. 3 Business divested on 16 August 2021. 4 Held the same share balances disclosed at the date of resignation and at 30 June 2022. 6.2 Number of shares held in Ava Risk Group by key management personnel (direct and indirect) (continued) Note Balance at beginning of Period On exercise of options and rights Net change, other Balance at End of Period 2021 Non-Executive Directors David Cronin Mark Stevens Mike McGeever Sub-total Executives Scott Basham Robert Broomfield Leigh Davis Chris Fergus Matthew Nye- Hingston Sub-total Total 1 2 1 Resigned on 9 July 2020, effective 9 September 2020. 2 Resigned on 3 November 2021. 1 July 2020 32,463,070 1,018,396 5,805,000 39,286,466 100,000 2,994,387 200,000 3,285,204 795,145 7,374,736 46,661,202 200,000 200,000 200,000 600,000 250,000 112,972 84,176 - - 447,148 1,047,148 30 June 2021 32,663,070 1,218,396 6,005,000 39,886,466 350,000 3,107,359 284,176 3,285,204 795,145 7,821,884 47,708,350 - - - - - - - - - - - DIRECTORS’ REPORT 6.3 Number of performance rights held by key management personnel Balance at beginning of Period Granted as remuneration Exercised Forfeited / lapsed 2022 Note 1 July 2021 Balance at end of year 30 June 2022 (unvested) Fair value of rights granted during the year 30 June 2022 $ Non-Executive Directors D Cronin M Stevens M McGeever Sub-total Non-Executive Directors - - - - 200,000 200,000 200,000 600,000 - - - - - - - - 200,000 200,000 200,000 57,220 57,220 57,220 600,000 171,660 Executives Robert Broomfield Leigh Davis Neville Joyce 1, 2 1 283,526 300,901 - Matthew Nye-Hingston 1, 3 184,763 Sub-total executive KMP Totals 167,939 (162,907) (110,337) 178,221 75,607 - (300,901) - 67,854 116,259 - (39,626) (34,105) (58,130) - 28,228 208,787 415,236 - 35,109 63,361 174,077 769,190 352,052 (497,913) (208,093) 769,190 952,052 (497,913) (208,093) 1,015,236 345,737 1 The performance rights were granted in two tranches, vesting on 31 August 2023 and 31 August 2024 with vesting conditions relating to continuity of employment. Despite his resignation, the performance rights of Leigh Davis vested at the board’s discretion. 2 As at the date of the report, 85,277 Performance Shares are expected to vest on 31 August 2022. 3 As at the date of the report, 92,381 Performance Shares are expected to vest on 31 August 2022. 2022 ANNUAL REPORT AVA GROUP | 41 Balance at beginning of Period Granted as remuneration Exercised Forfeited / lapsed Balance at end of year 30 June 2022 Fair value of rights granted during the year 2021 Note 1 July 2020 30 June 2021 Non-Executive Directors D Cronin M Stevens M McGeever Sub-total Non-Executive Directors Executives Scott Basham Robert Broomfield Leigh Davis Matthew Nye-Hingston Sub-total executive KMP Totals 1 1 1 200,000 200,000 200,000 600,000 334,957 570,323 448,597 204,054 - - - - - (200,000) (200,000) (200,000) 600,000 - - - - (16,748) (318,209) - - - - - $ - - - - - 353,419 314,812 233,106 (112,972) (527,244) 283,5262 (84,176) (378,332) 300,9013 - (252,397) 184,763 231,490 192,035 142,195 1,557,931 901,337 (213,896) (1,476,182) 769,190 565,720 2,157,931 901,337 (813,896) (1,476,182) 769,190 565,720 1 The performance rights were granted in two equal tranches, vesting on 31 August 2022 and 31 August 2023 with vesting conditions relating to continuity of employment. 2 Of which,112,972 Performance shares were vested and delivered in FY 22 3 Of which, 84,176 Performance shares were vested and delivered in FY 22 7. Other transactions with key management personnel During the current and previous financial year, the Group transacted with related entities of directors, other than in their capacity as director as follows: The Consolidated Entity purchased consulting services from Pierce Group Asia Pte Limited and Pierce Asia Pty Ltd, related entities through Chairman and Non-Executive Director, David Cronin, for an amount of $219,000 (2021: $253,230). Accounts Payable balance at 30 June 2022 totals $44,812 (FY2021: $nil). These arrangements were in the normal course of business and included amounts related to the provision of consultancy and administration services, and general office expenses provided by the related entities for the benefit of the Consolidated Entity. During the year, there were no other transactions with directors or management personnel. AUDITOR’S INDEPENDENCE DECLARATION 2022 ANNUAL REPORT AVA GROUP | 43 Consolidated Statement of Comprehensive Income Note 4 (a) 4 (b) For the year ended 30 June 2022 Revenue and other income from continuing operations Revenue from contracts with customers Other income Total Revenue and other income Cost of raw materials and consumables used Employee benefit expenses Research and development Advertising and marketing Travel and entertainment Facilities and office Compliance, legal, and administration (Provision for) reversal of impairment of receivables Depreciation and amortisation expenses 11,12 Finance expense Foreign exchange gains (losses) Other expenses Total expenses (Loss) Profit before income tax Income tax expense (Loss) Profit for the year from continuing operations Discontinued operations Profit from discontinued operations, net of tax Profit for the year Consolidated 2022 $'000 18,621 340 18,961 (6,629) (6,357) (1,759) (386) (346) (454) (1,262) (64) (1,689) (27) 585 (931) 2021 $'000 Restated1 24,700 607 25,307 (6,161) (6,311) (1,170) (163) (97) (375) (1,115) 20 (1,798) (80) (631) (733) (19,319) (18,614) (358) (304) (662) 33,794 33,132 6,693 (21) 6,672 7,077 13,749 5 24 2022 ANNUAL REPORT AVA GROUP | 45 For the year ended 30 June 2022 (Continued) Exchange differences on translation of foreign operations, net of tax Exchange differences reclassified to profit or loss on disposal of discontinued operation Total other comprehensive income/(loss) for the year Total comprehensive income for the year Profit for the year attributable to: Equity holders of the parent company Total comprehensive income for the year attributable to: Note Consolidated 2022 $'000 (296) 575 279 33,411 2021 $'000 Restated1 (834) - (834) 12,915 33,132 13,749 Equity holders of the parent company 33,411 12,915 Earnings per share attributable to ordinary shareholders of AVA Risk Group from continuing operations Basic earnings (loss) per share Diluted earnings (loss) per share Earnings per share attributable to ordinary shareholders of AVA Risk Group 6 6 Basic earnings per share Diluted earnings per share (0.27) (0.27) 13.63 13.46 2.77 2.69 5.72 5.55 1 Restated to disclose International Valuables Logistics (IVL) as a discontinued operation. The above Consolidated statement of Comprehensive Income should be read in conjunction with the accompanying notes. Consolidated Statement of Financial Position As at 30 June 2022 ASSETS Current Assets Cash and cash equivalents Receivables Contract assets Inventories Other current assets Total Current Assets Non-Current Assets Plant and equipment Intangible assets Right of use assets Deferred tax asset Other non-current assets Total Non-Current Assets TOTAL ASSETS LIABILITIES Current Liabilities Payables Contract liabilities Lease liabilities Provisions Total Current Liabilities Note 7 8 8 9 10 11 12 14 5 15 16 14 17 Consolidated 2022 $'000 15,226 4,739 - 3,256 400 23,621 491 5,954 249 96 - 6,790 30,411 2,254 225 131 1,381 3,991 2021 $'000 17,293 9,270 1,573 3,126 339 31,601 420 10,845 385 - 2 11,652 43,253 8,671 218 210 1,515 10,614 2022 ANNUAL REPORT AVA GROUP | 47 Note 17 14 16 18(a) Consolidated 2022 $'000 47 153 272 472 4,463 25,948 50,793 (22,564) (2,281) 25,948 2021 $'000 69 220 310 599 11,213 32,040 59,062 (24,110) (2,912) 32,040 As at 30 June 2022 (Continued) Non-Current Liabilities Provisions Lease liabilities Contract liabilities Total Non-Current Liabilities TOTAL LIABILITIES NET ASSETS EQUITY Contributed equity Accumulated losses Reserves TOTAL EQUITY The above Consolidated statement of Financial Position should be read in conjunction with the accompanying notes. Consolidated Statement of Changes in Equity Share Capital Share based payment Reserve Foreign Exchange Translation Reserve Other Equity Reserves Accumulated Losses Total Equity $’000 $’000 $’000 $’000 $’000 $’000 59,062 1,397 (1,262) (3,047) (24,110) At 1 July 2021 Profit for the year Other comprehensive income/(loss) Total comprehensive income for the year Transactions with owners in their capacity as owners Dividends/distributions Shares issued Share issue costs Share based payments Capital return Share buy-back Total transactions with owners in their capacity as owners Balance at 30 June 2022 At 1 July 2020 Profit for the year Other comprehensive (loss) Total comprehensive income for the year Transactions with owners in their capacity as owners Dividends/distributions Shares issued Share issue costs Share based payments Total transactions with owners in their capacity as owners - - - - 638 (12) - (7,566) (1,329) (8,269) 50,793 58,349 - - - - 732 (19) - 713 - - - - - - 352 - - 352 1,749 1,176 - - - - - 221 221 - 279 279 - - - - - - - - - - - - - - - - - - (834) (834) - - - - - - - - - - - 33,132 - 33,132 32,040 33,132 279 33,411 (31,586) (31,586) - - - - - 638 (12) 352 (7,566) (1,329) (31,586) (39,503) 13,749 - 13,749 25,415 13,749 (834) 12,915 (7,224) (7,224) - - - 732 (19) 221 (7,224) (6,290) (983) (3,047) (22,564) 25,948 (428) (3,047) (30,635) Balance at 30 June 2021 59,062 1,397 (1,262) (3,047) (24,110) 32,040 The above statement of changes in equity should be read in conjunction with the accompanying notes. Consolidated Statement of Cash Flows For the year ended 30 June 2022 Cash flow from operating activities Receipts from customers Receipts from government grants Payments to suppliers and employees Interest received Tax paid Finance costs Lease interest paid Net cash flows from operating activities 7 Cash flow from investing activities Payment for intangible assets Payment for plant and equipment Disposal of subsidiaries, net of cash and transaction costs 24(b) Net cash flows from (used in) investing activities Cash flow from financing activities Proceeds from share issue Share issue expense Share buy back Capital return Dividends paid Payment of lease liabilities Net cash flows (used in) financing activities Net (decrease) increase in cash and cash equivalents Net foreign exchange differences on cash Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year 18(b) 18(g) 7 Note Consolidated 2022 $'000 30,800 - 2021 $'000 62,651 684 (28,154) (45,679) 1 (135) (5) (22) 2,485 (1,126) (270) 36,469 35,073 638 (12) (1,329) (7,566) (31,232) (226) (39,727) (2,169) 102 17,293 15,226 - (34) (6) (35) 17,581 (914) (171) - (1,085) 732 (19) - - (7,138) (276) (6,701) 9,795 (205) 7,703 17,293 The above Consolidated statement of cash flows includes Discontinued Operations (Refer to Note 24) and should be read in conjunction with the accompanying notes. Notes to the Financial Statements 1. Statement of significant accounting policies The following is a summary of significant accounting policies adopted by the Consolidated Entity in the preparation and presentation of the financial report. The accounting policies have been consistently applied, unless otherwise stated. 1.1 Basis of preparation of the financial report The general purpose financial report covers Ava Risk Group and controlled entities as a Consolidated Entity. Ava Risk Group is a Company limited by shares, incorporated and domiciled in Australia whose shares are publicly traded on the Australian Securities Exchange. Ava Risk Group is a for-profit entity for the purpose of preparing the financial statements. The financial report is presented in Australian dollars and all values are rounded to the nearest thousand dollars ($’000) unless otherwise stated under the option available to the Company under ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191. The Company is an entity to which this legislative instrument applies. The consolidated financial statements of Ava Risk Group for the year ended 30 June 2022 were authorised for issue in accordance with a resolution of the directors on 29 August 2022. Compliance with IFRS The consolidated financial statements of Ava Risk Group also comply with the International Financial Reporting Standards (IFRS), issued by the International Accounting Standards Board (IASB). Historical Cost Convention The financial report has been prepared under the historical cost convention. Significant Accounting Estimates The preparation of financial report requires the use of certain estimates and judgements in applying the Group’s accounting policies. Those estimates and judgements significant to the financial report are disclosed in Note 2. 1.2 Going Concern The financial report has been prepared on a going concern basis which assumes the Group will have sufficient cash to pay its debts as and when they become payable for a period of at least 12 months from the date the financial report was authorised for issue. The Group reported an after-tax profit of $33,132 million for the year (2021: after-tax profit of $13.749 million) and its total assets exceed total liabilities by $25,948 million (2021: $32.040 million) with cash of $15,226 million (2021: $17.293 million). 1.3 Principles of consolidation The consolidated financial statements are those of the Consolidated Entity, comprising the financial statements of the parent entity and of all entities which the parent entity controls. The group controls an entity when it is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Business Combination The Group accounts for business combinations using the acquisition method when control is transferred to the Group. The consideration transferred in the acquisition is measured at fair value, as are the identifiable net assets acquired. Acquisition costs are expensed as incurred, except if related to the issue of debt or equity securities. The Group recognises identifiable assets acquired and liabilities assumed in a business combination regardless of whether they have previously been recognised in the acquiree’s financial statements prior to the acquisition. Assets acquired and liabilities assumed are measured at their acquisition-date fair values. 2022 ANNUAL REPORT AVA GROUP | 51 Goodwill is stated after separate recognition of identifiable intangible assets. It is calculated as the excess of the sum of: (a) fair value of consideration transferred, (b) the recognised amount of any non-controlling interest in the acquiree, and (c) the acquisition-date fair value of any existing equity interest in the acquiree, over the acquisition-date fair values of identifiable net assets. If the fair values of identifiable net assets exceed the sum calculated above, the excess amount (i.e. gain on a bargain purchase) is recognised in profit or loss immediately. Goodwill is tested annually for impairment. Subsidiaries The financial statements of subsidiaries are prepared for the same reporting period as the parent entity, using consistent accounting policies. Adjustments are made to bring into line any dissimilar accounting policies, which may exist. Transactions eliminated on consolidation All inter-company balances and transactions, including any unrealised profits or losses have been eliminated on consolidation. Subsidiaries are consolidated from the date on which control is established and are de-recognised from the date that control ceases. Equity interests in a subsidiary not attributable directly or indirectly to the Group are presented as non-controlling interests. Non-Controlling Interests Non-controlling interests in the results of subsidiaries are shown separately in the consolidated statement of comprehensive income and consolidated statement of financial position respectively. 1.4 New and amended standards New and amended standards adopted The Group reviewed new or revised accounting standards which became effective for the annual reporting period commencing on or after 1 July 2021. The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective. FORTHCOMING STANDARDS AND AMENDMENTS NOT YET ADOPTED There are no forthcoming standards and amendments that are expected to have a material impact on the entity in the current or future reporting periods, or on foreseeable future transactions. 1.5 Summary of significant accounting policies a) Revenue The Group has two divisions - Technology and Services, with the following main revenue streams: Design and manufacture of fibre optic intrusion detection systems (FFT-Perimeter Security Products). Design and manufacture of electro-mechanical locks, biometrics and access control cards, card readers and biometric terminals (BQT – Access Control Products). Secure international logistics and storage for high value assets, and risk consultancy services (Logistics or Ava Global). Technology Services (Discontinued Operations) Sale of Goods Access Control Product The Group’s contracts with customers for the sale of equipment is one performance obligation. Revenue from sale of equipment is recognised at the point in time when control of the equipment is transferred to the customer, which is on dispatch or on delivery, dependent on the delivery terms. Notes to the Financial Statements Perimeter Security Product Some contracts have multiple elements, such as hardware, software and rendered services. When there is more than one performance obligation in the contract, revenue is allocated to each performance obligation on the basis of relative standalone selling prices. Revenue from the sale of the equipment is recognised at a point in time, on dispatch or upon delivery. Revenue from rendered services including installation services and extended warranties are recognised over time, as described below. i. Variable consideration Certain distribution agreements include volume rebates which give rise to variable consideration. Rebates are offset against amounts payable by the customer on subsequent purchases. To estimate the variable consideration to which it will be entitled, the Group applied the ‘most likely amount method’ for contracts with a single volume threshold and the ‘expected value method’ for contracts with more than one volume threshold. The selected method that best predicts the amount of variable consideration was primarily driven by the number of volume thresholds contained in the contract. ii. Warranty provisions The Group generally provides warranties for general repairs of defects that existed at the time of sale, as required by law. As such, most warranties are assurance-type warranties, which the Group accounts for under AASB 137 Provisions, Contingent Liabilities and Contingent Assets. However, in some contracts, the Group provides extended warranties. These warranties are service-type warranties and, therefore, are accounted for as a separate performance obligation to which the Group allocates a portion of the revenue based on the relative standalone selling price. Revenue is subsequently recognised over time based on the time elapsed. iii. Licencing fees The Group generates income from licencing fees. Revenue is recognised at a point in time when licence activation is available to the customer. This corresponds with the point that the customer can direct the use of, and obtain substantially, all of the remaining benefits from the licence at the point in time at which the licence transfers. Rendering of services Perimeter Security Product The Group’s Perimeter Security product division provides installation services. These services are sold either separately or bundled together with the sale of equipment to a customer. The installation services can be obtained from other providers and do not significantly customise or modify the Perimeter security product. There are two performance obligations in a contract for bundled sales of equipment and installation services, because the Group promises to transfer equipment and provide installation services are capable of being distinct and separately identifiable. Revenue from installation services is recognised over time, using an input method to measure progress towards complete satisfaction of the service, because the customer simultaneously receives and consumes the benefits provided by the Group. Secure Logistics The international logistics business enters contracts with its customers to transport or store high-risk valuables, precious metals and currency, and selects sub-contractors to transport the goods. In these contracts, the Group is primarily responsible for fulfilling the promise to provide the logistics and storage services, each of these services are separate performance obligations. Management considered the application of principal versus agent on adoption to AASB 15 Revenue from Contracts with Customers and determined that the Group is the principal as it controls the service. As such revenue is recorded gross in the statement of comprehensive income. International logistics services are recognised as revenue over time, using an input method to measure the progress towards complete satisfaction of the service, because the customer simultaneously receives and consumes the benefit as the entity performs the service (i.e. another entity would not need to re-perform the service, for example distance already travelled). 2022 ANNUAL REPORT AVA GROUP | 53 Contract balances The timing of revenue recognition may differ from the contract payment schedule, resulting in revenue that has been earned but not billed. These amounts are included in contract assets. Amounts billed in accordance with contracts with customers, but not yet earned, are recorded as contract liabilities. Contract liabilities are recognised as revenue when the Group performs under the contract. Government Grants Grants from the government are recognised at their fair value where there is a reasonable assurance that the grant will be received, and the group will comply with all attached conditions. Government grants are recognised as income over the period to match the costs the grant intends to compensate. Government grants relating to intangible assets are credited to the asset carrying value and recognised in the profit or loss over the period and proportions in which amortisation expense on those assets is recognised. Interest Income Interest income is recognised when it becomes receivable on a proportionate basis taking into account the interest rates applicable to the financial assets. Dividends Dividends are recognised as revenue when the right to receive payment is established. Other revenues Other operating revenues are recognised as they are earned, and goods or services provided. (b) Foreign currency translations and balances Functional and presentation currency The Group’s consolidated financial statements are presented in Australian Dollars (“AUD”), which is also the parent company’s functional currency. For each entity, the Group determines the functional currency and items included in the financial statements of each entity are measured using the functional currency. The Group uses the direct method of consolidation and on disposal of a foreign operation, the gain or loss that is reclassified to profit or loss reflects the amount that arises from using this method. Transactions and Balances Transactions in foreign currencies are initially recorded by the Group’s entities at their respective functional currency spot rates at the date the transaction first qualifies for recognition. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency spot rates of exchange at the reporting date. Differences arising on settlement of translation of monetary items are recognised in profit or loss with the exception of monetary items that are designated as part of the hedge of the Group’s net investment in a foreign operation. These are recognised in Other Comprehensive Income until the net investment is disposed of, at which time, the cumulative amount is reclassified to profit or loss. Tax charges and credits attributable to exchange differences on those monetary items are also recognised in Other Comprehensive Income. Foreign Subsidiaries Entities that have a functional currency different to the presentation currency are translated as follows: › Assets and liabilities are translated at the closing rate on reporting date; › Income and expenses are translated at actual exchange rates or average exchange rates for the period, where appropriate; and › All resulting exchange differences are recognised in other comprehensive income. c) Income tax and other taxes The income tax expense or benefit is the tax payable on the current period’s taxable income based on the applicable income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses. Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities based on the current period’s taxable income. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the reporting date. Deferred tax is provided on all temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Notes to the Financial Statements Deferred tax liabilities are recognised for all taxable temporary differences except: › when the deferred income tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or › in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred tax assets are recognised for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carry forward of unused tax credits and unused tax losses can be utilised, except: › When the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or › In respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised. The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised, or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date. Deferred tax assets and deferred tax liabilities are offset only if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the same taxable entity and the same taxation authority. Tax benefits acquired as part of a business combination, but not satisfying the criteria for separate recognition at that date, would be recognised subsequently if new information about facts and circumstances changed. The adjustment would either be treated as a reduction to goodwill (as long as it does not exceed goodwill) if it was incurred during the measurement period or in profit or loss. d) Tax consolidation legislation Ava Risk Group has implemented the tax consolidation legislation and has formed a tax consolidated group with FFT Mena Pty Ltd, MaxSec Group Pty Ltd, BQT Solutions (Australia) Pty Ltd, 4C Satellites Ltd and BQT Intelligent Security Systems Pty Ltd, with Ava Risk Group Limited as the head entity. Goods and services tax (including other indirect taxes such as Value Added Tax in foreign jurisdictions) (GST): Revenues, expenses and purchased assets are recognised net of the amount of GST except: › When the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and › Receivables and payables, which are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position. Cash flows are presented in the statement of cash flows on a gross basis, except for the GST component of investing and financing activities, which are disclosed as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority. 2022 ANNUAL REPORT AVA GROUP | 55 e) Impairment of non-financial assets The Group assesses, at each reporting date, whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset’s recoverable amount. Recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. If this is the case, recoverable amount is determined for the cash- generating unit to which the asset belongs. An asset’s recoverable amount is the higher of an asset’s or the cash generating unit’s (CGU) fair value less costs of disposal and its value in use. The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs of disposal, recent market transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded companies or other available fair value indicators. The Group bases its impairment calculation on detailed budgets and forecast calculations, which are prepared separately for each of the Group’s CGUs to which the individual assets are allocated. These budgets and forecast calculations generally cover a period of five years. A long-term growth rate is calculated and applied to project future cash flows after the fifth year. Impairment losses of continuing operations are recognised in the profit or loss in expense categories consistent with the function of the impaired asset. For assets excluding goodwill, an assessment is made at each reporting date to determine whether there is an indication that previously recognised impairment losses no longer exist or have decreased. If such indication exists, the Group estimates the asset’s or CGU’s recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognised. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in the profit or loss. Goodwill is tested for impairment annually as at 30 June and when circumstances indicate that the carrying value may be impaired. Impairment is determined for goodwill by assessing the recoverable amount of each CGU (or group of CGUs) to which the goodwill relates. When the recoverable amount of the CGU is less than its carrying amount, an impairment loss is recognised. Impairment losses relating to goodwill cannot be reversed in future periods. Intangible assets with indefinite useful lives are tested for impairment annually as at 30 June at the CGU level, as appropriate, and when circumstances indicate that the carrying value may be impaired. f) Cash and cash equivalents Cash and cash equivalents comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. For the purposes of the Statement of Cash Flows, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts. Bank overdrafts are included within interest-bearing loans and borrowings in current liabilities on the balance sheet. g) Inventories Inventories are valued at the lower of average cost and net realisable value. The cost of manufactured products includes direct material, direct labour and a proportion of manufacturing overheads based on normal operating capacities. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make the sale. Notes to the Financial Statements h) Plant and equipment Plant and equipment is stated at historical cost less accumulated depreciation and any accumulated impairment losses. Depreciation is calculated on a straight line or diminishing balance basis over the estimated useful life of the specific assets as follows: Plant and Equipment Office furniture and equipment Motor vehicles Computer equipment Production plant and equipment Demonstration equipment i) Leases Years 2-5 5 2 2-10 2-5 The Group assesses at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Group as a lessee The Group applies a single recognition and measurement approach for all leases, except for short-term leases and leases of low- value assets. The Group recognises lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets. Right-of-use-assets The Group recognises right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Right-of-use assets are depreciated on a straight-line basis over the shorter of the lease term and the estimated useful lives of the assets, as follows: Right-of-use-assets Office space and IT equipment Motor vehicles Years 3-5 3-5 If ownership of the leased asset transfers to the Group at the end of the lease term or the cost reflects the exercise of a purchase option, depreciation is calculated using the estimated useful life of the asset. The right-of-use assets are also subject to impairment. Refer to the accounting policies in section (e) Impairment of non- financial assets. Lease Liabilities At the commencement date of the lease, the Group recognises lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in- substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Group and payments of penalties for terminating the lease, if the lease term reflects the Group exercising the option to terminate. Variable lease payments that do not depend on an index or a rate are recognised as expenses (unless they are incurred to produce inventories) in the period in which the event or condition that triggers the payment occurs. 2022 ANNUAL REPORT AVA GROUP | 57 In calculating the present value of lease payments, the Group uses the lessee’s incremental borrowing rate at the lease commencement date because the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the lease payments (e.g., changes to future payments resulting from a change in an index or rate used to determine such lease payments) or a change in the assessment of an option to purchase the underlying asset. The Group’s lease liabilities are included in Lease liabilities in the Statement of financial position (see Note 14). Short-term leases and leases of low-value assets The Group applies the short-term lease recognition exemption to its short-term leases (i.e., those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value assets recognition exemption to leases that are considered to be low value. Lease payments on short-term leases and leases of low- value assets are recognised as expense on a straight-line basis over the lease term. j) Intangibles Trademarks and Licences Trademarks and Licences are recognised at cost of acquisition. Trademarks and Licences have a finite life and are amortised on a systematic basis, matched to the future economic benefits over the life of the asset, less any impairment losses. Research and Development › Expenditure on research activities is recognised as an expense when incurred; › Development expenditures on an individual project are recognised as an intangible asset when the Group can demonstrate: › The technical feasibility of completing the intangible asset so that the asset will be available for use or sale › Its intention to complete and its ability and intention to use or sell the asset › How the asset will generate future economic benefits › The availability of resources to complete the asset › The ability to measure reliably the expenditure during development Capitalised development expenditure is stated at cost less accumulated amortisation and accumulated impairment losses. Amortisation is calculated using a straight-line method to allocate the cost of the intangible assets over their estimated useful lives. Amortisation commences when the intangible asset is available for use between 5 and 10 years depending on the product type. During the period of development, the asset is tested for impairment annually. Customer base and customer contracts acquired through a business combination are recorded at their fair value at the date of acquisition. Customer lists are amortised on a straight-line basis over the period of expected benefit (5 years). Contracts are amortised on a straight-line basis over the period of expected benefit (3 years). Patents Patents are initially recognised at the cost on acquisition. Patents have a finite life and are amortised on a systematic basis matched to the future economic benefits over the life of the asset, less any impairment losses. Amortisation of the patents commences on approval of the patent and is matched to the timing of economic benefits flowing to the Company from the application of the technology. Patents are reviewed for impairment at the end of the financial year and more frequently when an indication of impairment exists. Any impairment charge is recorded separately. Patents are amortised over a period of 3- 10 years. Gains or losses arising from de-recognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the statement of comprehensive income when the asset is derecognised. k) Trade and other payables Trade and other payables are carried at amortised cost and due to their short-term nature they are not discounted. They represent liabilities for goods and services provided to the Group prior to the end of the financial year that are unpaid and arise when the Group becomes obliged to make future payments in respect of the purchase of these goods and services. The amounts are unsecured and are usually paid within terms negotiated with suppliers. l) Financial instruments A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. Notes to the Financial Statements FINANCIAL ASSETS Initial Recognition and Measurement Financial assets are classified, at initial recognition, as subsequently measured at amortised cost, fair value through other comprehensive income (OCI), and fair value through profit or loss. The classification of financial assets at initial recognition depends on the financial asset’s contractual cash flow characteristics and the Group’s business model for managing them. With the exception of trade receivables that do not contain a significant financing component or for which the Group has applied the practical expedient, the Group initially measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs. Trade receivables that do not contain a significant financing component or for which the Group has applied the practical expedient are measured at the transaction price determined under AASB 15. Refer to significant accounting policies in section 1.5 (a) Revenue. In order for a financial asset to be classified and measured at amortised cost or fair value through OCI, it needs to give rise to cash flows that are ‘solely payments of principal and interest (SPPI)’ on the principal amount outstanding. This assessment is referred to as the SPPI test and is performed at an instrument level. The Group’s business model for managing financial assets refers to how it manages its financial assets in order to generate cash flows. The business model determines whether cash flows will result from collecting contractual cash flows, selling the financial assets, or both. Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the market place (regular way trades) are recognised on the trade date, i.e., the date that the Group commits to purchase or sell the asset. Subsequent Measurement For purposes of subsequent measurement, financial assets are classified in four categories: › Financial assets at amortised cost (debt instruments) › Financial assets at fair value through OCI with recycling of cumulative gains and losses (debt instruments) › Financial assets designated at fair value through OCI with no recycling of cumulative gains and losses upon derecognition (equity instruments) › Financial assets at fair value through profit or loss. The Group only holds financial assets at amortised cost. Financial Assets at Amortised Cost (Debt Instruments) This category is the most relevant to the Group. The Group measures financial assets at amortised cost if both of the following conditions are met: The financial asset is held within a business model with the objective to hold financial assets in order to collect contractual cash flows; and the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. Financial assets at amortised cost are subsequently measured using the effective interest rate (EIR) method and are subject to impairment. Gains and losses are recognised in profit or loss when the asset is derecognised, modified or impaired. The Group’s financial assets at amortised cost includes cash and cash equivalents, and trade receivables. 2022 ANNUAL REPORT AVA GROUP | 59 Derecognition A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily derecognised (i.e. removed from the Group’s consolidated statement of financial position) when: › The rights to receive cash flows from the asset have expired; or › The Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement and either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if, and to what extent, it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the Group continues to recognise the transferred asset to the extent of its continuing involvement. In that case, the Group also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained. Impairment of financial assets The Group recognises an allowance for expected credit losses (ECLs) for all debt instruments not held at fair value through profit or loss. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Group expects to receive, discounted at an approximation of the original effective interest rate. The expected cash flows will include cash flows from the sale of collateral held or other credit enhancements that are integral to the contractual terms. For trade receivables and contract assets, the Group applies a simplified approach in calculating ECLs. Therefore, the Group does not track changes in credit risk, but instead recognises a loss allowance based on lifetime ECLs at each reporting date. The Group has established a provision matrix that is based on its historical credit loss experience, adjusted for forward- looking factors specific to the debtors and the economic environment. COVID19 macro-economic conditions have been considered but are not forecast to have any material impacts. The Group considers a financial asset in default when contractual payments are 90 days past due. However, in certain cases, the Group may also consider a financial asset to be in default when internal or external information indicates that the Group is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Group. A financial asset is written off when there is no reasonable expectation of recovering the contractual cash flows. FINANCIAL LIABILITIES Initial Recognition and Measurement Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings or payables. All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs. The Group’s financial liabilities include trade and other payables, lease liabilities, and loans and borrowings. Derecognition A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in the profit or loss. Offsetting of Financial Instruments Financial assets and financial liabilities are offset and the net amount is reported in the consolidated statement of financial position if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, to realise the assets and settle the liabilities simultaneously. m) Borrowing costs Borrowing costs can include interest expense calculated using the effective interest method, finance charges in respect of lease liabilities, and exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs. Borrowing costs are expensed as incurred, except for borrowing costs incurred as part of the cost of the construction of a qualifying asset which are capitalised until the asset is ready for its intended use or sale. Notes to the Financial Statements n) Provisions and employee benefits Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. When the Group expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the statement of comprehensive income net of any reimbursement. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects the risks specific to the liability. Warranty Provisions Provision is made for the estimated liability on all products and services still under warranty at balance date. This provision is estimated having regard to prior service warranty experience. In calculating the liability at balance date, amounts were not discounted to their present value as the effect of discounting was not material. In determining the level of provision required for warranties, the Group has made judgments in respect of the expected performance and the costs of fulfilling the warranty. Historical experience and current knowledge have been used in determining this provision. The initial estimate of warranty-related costs is revised annually. Employee Entitlements i. Wages, salaries, annual leave, long service leave and personal leave expected to be settled within 12 months Liabilities for wages and salaries, including non-monetary benefits, annual leave and any other employee benefits expected to be settled within 12 months of the reporting date are recognised in respect of employees’ services up to the reporting date. They are measured at the amounts expected to be paid when the liabilities are settled. Expenses for non-accumulating personal leave are recognised when the leave is taken and are measured at the rates paid or payable. ii. Long service leave and annual leave expected to be settled after 12 months The liability for long service leave and annual leave expected to be settled after 12 months is recognised and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures, and periods of service. Expected future payments are discounted using market yields at the reporting date on high quality corporate bonds with terms to maturity and currencies that match, as closely as possible, the estimated future cash outflows. iii. Short-term Incentive payments (STI’s) The Consolidated Entity recognises a provision when an STI is payable, to the extent that it is probable, in accordance with the employee’s contract of employment, and the amount can be reliably measured. iv. Long-term Incentive payments (LTI’s) The Consolidated Entity recognises a provision when an LTI is payable, to the extent that it is probable, in accordance with the employee’s contract of employment, and the amount can be reliably measured. v. Pensions and other post-employment benefits The Company contributes to defined contribution superannuation/pension funds on behalf of employees in respect of employee services rendered during the year. These superannuation/pension contributions are recognised as an expense in the same period when the employee services are received. Generally, contributions are made at applicable local jurisdiction statutory rates where relevant. vi. Termination benefits Termination benefits are payable when employment of an employee or group of employees is terminated before the normal retirement date, or when the entity provides termination benefits as a result of an offer made and accepted in order to encourage voluntary redundancy. 2022 ANNUAL REPORT AVA GROUP | 61 The Consolidated Entity recognises a provision for termination benefits when the entity can no longer withdraw the offer of those benefits, or if earlier, when the termination benefits are included in a formal restructuring plan that has been announced to those affected by it. o) Share-based payment transactions Equity settled transactions The Group provides benefits to its employees (including senior executives) in the form of share-based payments, whereby employees render services in exchange for share options or performance rights (equity-settled transactions). The cost of these equity-settled transactions with employees is measured by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined by using a Black-Scholes or Binomial valuation model. In valuing equity-settled transactions, no account is taken of any vesting conditions, other than conditions linked to the price of the shares of Ava Risk Group (market conditions) if applicable. The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled (the vesting period), ending on the date on which the relevant employees become fully entitled to the award (the vesting date). At each subsequent reporting date until vesting, the cumulative charge to the statement of comprehensive income is the product of: (i) the grant date fair value of the award; (i) the current best estimate of the number of awards that will vest, taking into account such factors as the likelihood of employee turnover during the vesting period and the likelihood of non-market performance conditions being met; and (i) the expired portion of the vesting period. The charge to the statement of comprehensive income for the period is the cumulative amount as calculated above less the amounts already charged in previous periods. There is a corresponding entry to equity. Until an award has vested, any amounts recorded are contingent and will be adjusted if more or fewer awards vest than were originally anticipated to do so. Any award subject to a market condition is considered to vest irrespective of whether or not that market condition is fulfilled, provided that all other conditions are satisfied. No expense is recognised for awards that do not ultimately vest, except for awards where vesting is only conditional upon a market condition. If the terms of an equity-settled award are modified, as a minimum an expense is recognised as if the terms had not been modified. An additional expense is recognised for any modification that increases the total fair value of the share-based payment arrangement, or is otherwise beneficial to the employee, as measured at the date of modification. If an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled award and designated as a replacement award on the date that it is granted, the cancelled and new award are treated as if they were a modification of the original award, as described in the previous paragraph. p) 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. q) Earnings per share Basic earnings per share is calculated by dividing: › the profit / loss attributable to owners of the Company, excluding any costs of servicing equity other than ordinary shares, › by the weighted average number of ordinary shares outstanding during the financial year. The dilutive effect, if any, of outstanding options is reflected as additional share dilution in the computation of diluted earnings per share. r) Parent entity financial information The financial information for the parent entity, Ava Risk Group Limited, has been prepared on the same basis as the consolidated financial statements, except Investments in subsidiaries. They are accounted for at cost less impairment charge in the financial statements of Ava Risk Group Limited. Dividends received are recognised in the parent entity’s profit or loss. s) Comparatives Where necessary, comparative information has been reclassified and repositioned for consistency with current year disclosures. Notes to the Financial Statements t) Rounding of amounts The parent entity and the Consolidated Entity have applied the relief available under ASIC Corporations (Rounding in Financial/ Directors’ Reports) Instrument 2016/191 and accordingly, the amounts in the consolidated financial statements and in the directors’ report have been rounded to the nearest thousand dollars, or in certain cases, to the nearest dollar (where indicated). 2. Significant accounting judgements, estimates and assumptions Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that may have a material impact on the entity and that are believed to be reasonable under the circumstances. a) Critical accounting estimates and assumptions The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. i) Impairment of tangible and intangible assets The Group determines whether tangible and intangible assets are impaired at least on an annual basis by evaluating whether indicators of impairment exist in relation to the continued use of the asset by the Consolidated Entity. Goodwill is tested for impairment on at least an annual basis. Impairment triggers include declining product or manufacturing performance, technology changes, adverse changes in the economic or political environment or future product expectations. If an indicator of impairment exists, the Group estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s fair value less costs of disposal and its value in use (“VIU”). The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. When the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. Refer to note 13 for further details. ii) Measuring Trade receivables The Group considers customers’ ability to pay including timing and the amount of payment. In considering ability to pay consideration is given to macro-economic, and industry specific conditions, as well as any information known about specific customer risks and judgement is exercised. COVID-19 global economic impacts, have not had a material impact on the Group’s measurement of trade receivables. iii) Share-based payment transactions The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined using a Black-Scholes or binomial valuation model, with the assumptions detailed in Note 22. iv) Capitalisation of Development Costs Judgement is required using the criteria outlined in note 1(i), where expenditure meets the definition of development. The Group capitalises costs for development projects. Initial capitalisation of costs is based on management’s judgement that technological and economic feasibility is confirmed when the development project has reached a defined milestone according to an established project management model. In determining the amounts to be capitalised, management makes assumptions regarding the expected future cash generation of the project and the expected period of benefits. 2022 ANNUAL REPORT AVA GROUP | 63 Capitalised development costs have a finite life and are amortised on a systematic basis over the expected life of the asset and cease at the earlier of the date that the asset is classified as held for sale and the date that the asset is derecognised. Costs capitalised include direct payroll and payroll related costs of employees’ time spent on the development projects. v) Leased assets and liabilities The Group determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised. The Group has some lease contracts that include extension and termination options. The Group applies judgement in evaluating whether it is reasonably certain whether or not to exercise the option to renew or terminate the lease. That is, it considers all relevant factors that create an economic incentive for it to exercise either the renewal or termination. After the commencement date, the Group reassesses the lease term if there is a significant event or change in circumstances that is within its control and affects its ability to exercise or not to exercise the option to renew or to terminate (e.g. construction of significant leasehold improvements or significant customisation to the leased asset). The Group included the renewal period as part of the lease term for some office leases with shorter non-cancellable period (i.e., three to five years). Furthermore, the periods covered by termination options are included as part of the lease term only when they are reasonably certain not to be exercised. Refer to Note 14 for information on potential future rental payments relating to periods following the exercise date of extension and termination options that are not included in the lease term. vi) Leases - Estimating the incremental borrowing rate The Group cannot readily determine the interest rate implicit in the lease, therefore, it uses its incremental borrowing rate (IBR) to measure lease liabilities. The IBR is the rate of interest that the lessee would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment. The IBR therefore reflects what the lessee ‘would have to pay’, which requires estimation when no observable rates are available (such as for subsidiaries that do not enter into financing transactions) or when they need to be adjusted to reflect the terms and conditions of the lease. The Group estimates the IBR using observable inputs (such as market interest rates) when available and is required to make certain entity-specific estimates (such as the subsidiary’s stand-alone credit rating). 3. Segment information (a) Description of segments Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments has been identified as the Board of Directors of Ava Risk Group Limited. The Group’s segments were based on three separately identifiable products. The Group operates in perimeter security, access control solutions, and international valuable logistics, which are its reportable segments. These divisions offer different products and services and are managed separately because they require different technology and marketing strategies. The following summary describes the operations of each reportable segment: Product type Reportable segment Operations Technology Perimeter Security Global leader in fibre optic intrusion detection systems; perimeter intrusions, oil and gas pipeline third party interference and data network tapping and tampering. Access Control Systems Providing secure, reliable smart card reader and card systems, biometric solutions, electric locking and access control products. Services International Valuable Logistics, reported as a Discontinued Operations Global provider of secure international logistics of high-risk valuables, precious metals and currency. Notes to the Financial Statements b) Reportable Segments 30 June 2022 Revenue and other income External customers Intersegment revenue Other income Interest income Segment revenue and other income EBITDA Depreciation and amortisation Finance costs Interest income Income tax Segment operating profit/(loss) 1 Perimeter Security Access Control Solutions Eliminations Total Continuing Operations Discontinued operations (IVL) Eliminations Consolidated $’000 $’000 $’000 $’000 $’000 $’000 $’000 14,105 215 14,320 323 1 324 4,516 150 4,666 16 - 16 - 18,621 (365) (365) - - - - 18,621 339 1 340 11,075 75 11,150 - - - - (75) (75) - - - 29,696 - 29,696 339 1 340 14,644 4,682 (365) 18,961 11,150 (75) 30,036 360 (961) (31) 1 (90) (721) 1,004 (728) (3) - (214) 59 - - - - - - 1,364 (1,689) (34) 1 (304) (662) 1,940 (29) 7 - (38) 1,880 - - - - - - 3,304 (1,718) (27) 1 (342) 1,218 1 Segment operating profit (loss) excludes the gain on sale of discontinued operation amounting to $31,914,000 (2021 - nil). Refer to Note 24. 2022 ANNUAL REPORT AVA GROUP | 65 Perimeter Security Access Control Solutions Eliminations Total Continuing Operations Discontinued operations (IVL) Eliminations Consolidated $’000 $’000 $’000 $’000 $’000 $’000 $’000 18,455 265 18,720 549 - 549 6,245 204 6,449 58 249 307 - 24,700 40,340 - 65,040 (469) (469) (249) (249) - 290 24,700 40,630 607 - 607 67 - 67 (290) (290) - - - 65,040 674 - 674 19,269 6,756 (718) 25,307 40,697 (290) 65,714 5,861 (1,122) (20) - (21) 2,171 (676) (19) 249 - 4,698 1,725 498 - - (249) - 249 2022 8,530 (1,798) (39) - (21) 7,756 (428) (249) - (251) 249 - - - - - 6,672 7,077 Continuing Discontinued Total Continuing Discontinued $’000 $’000 $’000 $’000 $’000 16,037 (2,226) (41) - (21) 13,749 2021 Total $’000 30 June 2021 Revenue and other income External customers Intersegment revenue Other income Interest income Segment revenue and other income EBITDA Depreciation and amortisation Finance costs Interest income Income tax Segment operating profit c) Geographic information Revenue Australia APAC (excluding Australia) Europe India MENA United States of America Rest of world 3,615 2,013 3,986 2,671 778 3,277 2,281 19 - 8,696 - 237 961 1,162 11,075 3,634 2,013 12,682 2,671 1,015 4,238 3,443 4,688 2,251 4,235 8,974 357 1,117 3,078 657 80 5,345 2,331 29,531 33,766 - 1,492 3,646 4,934 8,974 1,849 4,763 8,012 29,696 24,700 40,340 65,040 Total external revenue by region 18,621 Notes to the Financial Statements d) Non-current operating assets Australia United Arab Emirates Rest of world Total non-current assets by region 2022 $’000 6,106 - 588 6,694 Non-current assets for this purpose consist of property, plant and equipment, right-of-use assets, and intangible assets. e) Reconciliation of non-current assets Non-current operating assets by region Other non-current assets Total non-current assets 4. Revenue from continuing operations and other income a) Revenue from contracts with customers Revenue from sales of goods Revenue from licence fees Revenue from provision of services Total revenue from contracts with customers – continuing operations Revenue from provision of services - discontinued operations (note 24) Total revenue from contracts with customers 2022 $’000 6,694 96 6,790 Consolidated 2022 $’000 17,502 - 1,119 18,621 11,075 29,696 2021 $’000 9,333 1,435 882 11,650 2021 $’000 11,650 2 11,652 202 $’000 15,739 7,754 1,207 24,700 40,340 65,040 (b) Other income Government Grants Other income Total other income - continuing operations Other income - discontinued operations Total other income Total Revenues and other income (c) Disaggregation of revenue Timing of revenue recognition Goods transferred at a point in time Services transferred over time Total revenue form contracts with customers-continuing operations Services transferred over time - Discontinued operations Total revenue from contracts with customers (d) Performance obligations 2022 ANNUAL REPORT AVA GROUP | 67 Consolidated 2022 $’000 - 340 340 - 340 2021 $’000 585 22 607 67 674 30,036 65,714 17,502 1,119 18,621 11,075 29,696 23,493 1,207 24,700 40,340 65,040 The Group hold contract liabilities in relation to services including extended warranty, support, commissioning and training which have been invoiced in advance with the services yet to be provided. Refer to note 15 for further details. The transaction price allocated to the remaining performance obligations (unsatisfied or partially unsatisfied) as at 30 June are as follows: Contract liabilities Expected to be recognised as revenue within 1 year Expected to be recognised as revenue after more than 1 year Total Contract liabilities Consolidated 2022 $’000 225 272 497 2021 $’000 218 310 528 Notes to the Financial Statements 5. Income tax (a) Components of tax expense/(benefit): Current tax Deferred tax Under provision in prior year (b) Prima facie tax payable The prima facie tax payable on profit/(loss) before income tax is reconciled to the income tax expense/ (benefit) as follows: Accounting (loss) profit before tax arising from Continuing Operations Profit before tax from Discontinued Operation At the Group’s statutory income tax rate of 30.0% Difference in tax rates in foreign subsidiaries Tax effect of amounts which are not deductible in calculating taxable income Non-assessable income Recognition of previously unbooked temporary differences Unbooked tax losses Adjustments in respect of current income tax of previous years Utilisation of carried forward tax losses / unbooked tax losses Other Income tax expense Income tax expense in the profit or loss Income tax attributable to a discontinued operation Consolidated 2022 $’000 284 (96) 154 342 (358) 33,832 33,474 10,042 (681) 106 (9,574) (96) 521 154 (157) 27 342 304 38 342 2021 $’000 - - 21 21 6,693 7,077 13,770 4,131 (2,215) 67 - - - - (1,962) - 21 21 - 21 Management assessed deferred tax assets and liabilities for the reporting period 30 June 2022 and their recoverability based on the forecasted taxable profits. Tax losses in Australia can be carried forward indefinitely subject to the satisfaction of either the continuity of ownership test or the alternative business continuity test. Management deemed it appropriate not to recognise any additional deferred tax assets due to uncertainty on whether those assets would be utilised against future profits generated in Australia and in foreign jurisdictions. Management will continue to assess this position each reporting period. The Group has unutilised tax losses that arose in Australia of $17.470million (2021: $16.624million). In addition, the Group has tax losses totalling $9.455million (2021: $9.276million) in respect of foreign subsidiaries. The Group is currently assessing the status of carried forward losses with respect of its foreign subsidiaries. 6. Earnings per share The following reflects the income used in the basic and diluted loss per share computations (a) Profit used in calculating earnings per share For basic and diluted loss per share: Net (loss) profit after tax from continuing operations Profit after tax from discontinued operations Total (b) Weighted average number of shares 2022 ANNUAL REPORT AVA GROUP | 69 Consolidated 2022 $’000 (662) 33,794 33,132 2022 Number 2021 $’000 6,672 7,077 13,749 2021 Number Weighted average number of ordinary shares used as the denominator in calculating basic earnings per share 243,062,589 240,445,855 Adjustments for calculation of diluted earnings per share Dilutive share options / performance rights 3,031,866 7,328,247 Weighted average number of ordinary shares adjusted for the effect of dilution used as the denominator in calculating diluted earnings per share 246,094,455 247,774,102 (c) i. Earnings per share from continuing operations Basic (loss) earnings per share Diluted (loss) earnings per share ii. Earnings per share attributable to the shareholders of AVA Risk Group Limited Basic profit per share Diluted profit per share 2022 Cents (0.27) (0.27) 13.63 13.46 2021 Cents 2.77 2.69 5.72 5.55 Basic profit per share amounts are calculated by dividing net profit for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year. Diluted profit per share amounts are calculated by dividing the net profit attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on conversion of all the dilutive potential ordinary shares into ordinary shares. Since reporting date there have been transactions involving ordinary shares or potential ordinary shares that would significantly change the number of ordinary shares or potential ordinary shares outstanding between the reporting date and the date of completion of these financial statements. Please refer to note 28. Notes to the Financial Statements 7. Cash and cash equivalents Cash at bank and on hand (a) Reconciliation to Net Cash Flow from Operations Profit for the year after tax Adjustment for non-cash income and expense items: Depreciation and amortisation Lease amortisation Share-Based payments (equity settled) Unrealised foreign exchange Bad debts written off and provision for (reversal of) impairment of receivable Impairment on inventory Gain on Discontinued operations recognised in the income statement Income tax accrued Other Changes in assets and liabilities (Increase)/decrease in assets: Trade and other receivables Other assets Inventories Increase/(decrease) in liabilities: Trade and other payables Provisions Net cash from operating activities Consolidated 2022 $’000 15,226 2021 $’000 17,293 33,132 13,749 1,507 211 352 (132) 82 111 (32,846) 135 175 1,021 94 (130) (1,222) (5) 2,485 1,964 262 221 69 (20) 460 - - (193) (2,633) (57) 421 3,356 (18) 17,581 (b) Non-cash financing and investing activities Share-based payments 352 221 The cash balance at 30 June 2022 includes an amount of $354,000 (2021 - $87) which is held in trust by the corporate secretary for outstanding dividend payments (refer to note 18 (g)). The Group’s exposure to interest rate risk is discussed in Note 20. The maximum exposure to credit risk at the end of the reporting period is the carrying amount of each class of cash and cash equivalents and receivables mentioned above. 8. Receivables Trade receivables - current (gross) Contract assets (d) Provision for expected credit loss (a) Trade receivables (net) Security deposits and bonds Other receivables (c) 2022 ANNUAL REPORT AVA GROUP | 71 Consolidated 2022 $’000 4,762 - (185) 4,577 68 94 2021 $’000 9,301 1,573 (187) 10,687 55 101 Carrying amount of trade and other receivables 4,739 10,843 Movements in the expected credit loss provision were as follows: At 1 July Discontinued operations Charge for the year Amounts written off At 30 June (a) Provision for impairment 187 (44) 64 (22) 185 244 - (20) (37) 187 In line with AASB 9 Financial Instruments, an expected credit loss assessment was performed as at at 30 June 2022. (b) Past due but not considered impaired As at 30 June 2022, trade receivables past due but not considered impaired are: $0.503 million (2021: $1.473 million). Contract assets are unbilled receivables for services that have been delivered and are not past due. Not past due Past due 1 – 30 days Past due 31-60 days Past due 61-90 days Past due more than 91 days (c) Other receivables Gross 2022 $’000 4,086 392 73 11 200 4,762 Impairment 2022 $’000 - - - - (185) (185) Gross 2021 $’000 9,214 1,035 157 94 374 10,874 Impairment 2021 $’000 - - - - (187) (187) These amounts related primarily to other indirect tax refunds due from various international tax jurisdictions and other sundry debtors. (d) Contract assets Contract assets relate to goods and services which had been provided by the Company to the customer (and satisfied the performance obligations in line with AASB 15) but had not been billed due to the terms agreed with the customer. Hence, contract assets arise because of the timing difference between revenue recognition and the contractual payment schedule. Notes to the Financial Statements 9. Inventories Raw materials and stores (at cost) Work in progress (at cost) Finished goods held for sale (at lower of cost and net realisable value) Spares (at cost) Total Inventories Consolidated 2022 $’000 1,597 737 877 45 3,256 2021 $’000 1,159 773 1,148 46 3,126 During financial year ended 30 June 2022 $86,000 (2021: $460,000) was recognised as an impairment for inventories carried at net realisable value. This is recognised in cost of raw materials and consumables used. 10. Other assets Current Prepayments Non-current Non-current prepayments Total Other assets Prepayments are not interest bearing. Consolidated 2022 $’000 2021 $’000 400 339 - 400 2 341 11. Plant and equipment Year Ended 30 June 2022 Carrying amount at beginning of year Additions Disposals Depreciation charge for the year1 Discontinued operations Exchange adjustment Carrying amount at end of year At 30 June 2022 Cost Accumulated depreciation and impairment Net carrying amount 2022 ANNUAL REPORT AVA GROUP | 73 Computer equipment Motor vehicles Plant and equipment Office furniture and equipment Demon- stration equipment Total $’000 $’000 $’000 $’000 $’000 $’000 98 235 (6) (68) (5) 6 260 1,087 (827) 260 - - - - - - - 120 30 - (48) - 2 104 42 (42) - 1,210 (1,106) 104 46 11 - 156 - - 420 276 (6) (20) (63) (199) (1) 6 42 571 (529) 42 - (8) 85 2,056 (1,971) 85 (6) 6 491 4,966 (4,475) 491 Total 1 Depreciation expense for the year includes expense classified as Discontinued operation in the income statement. Computer equipment Motor vehicles Plant and equipment Office furniture and equipment Demon- stration equipment Year Ended 30 June 2021 Carrying amount at beginning of year Additions Disposals Depreciation expense for the year Reclassifications Exchange adjustment Carrying amount at end of year At 30 June 2021 Cost Accumulated depreciation and impairment Net carrying amount $’000 $’000 $’000 $’000 $’000 $’000 87 82 (1) (20) (47) (3) 98 863 (765) 98 12 - (2) (10) - - - 42 (42) - 109 41 - (81) 47 4 120 1,180 (1,060) 120 61 26 (8) 375 8 (2) 644 157 (13) (30) (225) (366) - (3) 46 561 (515) 46 - - 156 - (2) 420 2,056 4,702 (1,900) (4,282) 156 420 Notes to the Financial Statements 12. Intangible Assets (a) Reconciliation of carrying amounts Goodwill Trademarks Develop- ment costs Patents Total Acquired customer lists / contracts $’000 $’000 $’000 $’000 $’000 $’000 Year ended 30 June 2022 Carrying amount at beginning of year 5,018 Additions Amortisation1 Discontinued operations Exchange adjustment Carrying amount at end of year At 30 June 2022 Cost (gross carrying amount) Accumulated amortisation Accumulated impairment charges Net carrying amount - - (4,278) (38) 702 702 - - 702 821 - (70) (409) (10) 332 878 (546) - 332 1 Amortisation for the year includes expense classified as Discontinued operations in the income statement Year ended 30 June 2021 Carrying amount at beginning of year 5,428 Additions Amortisation Exchange adjustment Carrying amount at end of year At 30 June 2021 Cost (gross carrying amount) Accumulated amortisation Accumulated impairment charges Net carrying amount - - (410) 5,018 5,018 - - 5,018 1,016 - (128) (67) 821 1,287 (466) - 821 4,359 1,107 (934) - 25 317 19 (73) - 3 4,557 266 330 - 10,845 1,126 (231) (1,308) - (2) 97 (4,687) (22) 5,954 8,685 (4,128) - 4,557 4,406 856 (864) (39) 4,359 7,578 (3,219) - 4,359 2,494 2,585 15,344 (2,081) (2,488) (9,243) (147) 266 388 58 (127) (2) 317 2,475 (2,011) (147) 317 - 97 805 - (147) 5,954 12,043 914 (477) (1,596) 2 330 (516) 10,845 2,585 (2,255) - 330 18,943 (7,951) (147) 10,845 2022 ANNUAL REPORT AVA GROUP | 75 13. Carrying value of non-financial assets For assets excluding goodwill, an assessment is made each reporting period to determine whether there is an indicator of impairment. Goodwill Allocation At 1 July 2021 Discontinued operations Impact of foreign currency At 30 June 2022 Key assumptions and estimates International Secure Logistics Access Control Solutions (including locks and readers) 4,278 (4,278) - - 740 - (38) 702 Total 5,018 (4,278) (38) 702 The recoverable amount of the cash-generating unit is determined based on value-in-use calculations, unless there is evidence to support a higher fair value less cost of disposal. The Group has two identifiable CGUs: › Perimeter security › Access control solutions Each CGU was tested for impairment in accordance with the Group’s accounting policies, using a value in use methodology. The impacts of COVID19 on future cash flows was considered when determining inputs for the value-in-use calculations. Key Assumptions Description Future cash flows VIU calculations, inclusive of working capital movements and forecast capital expenditure based on financial projections approved by the Board for the three years, with detailed management forecasts used in years 4 – 5, then reverting to a terminal value of 2%. Discount rate: A discount rate was applied to cash flow projection assessed to reflect the time value of money and the perceived risk profile of the stage of the business. Pre-tax discount rates: • Perimeter security – 17.93% (2021 - 18.57%) • Access controls – 17.93% (2021 - 17.74%) Post-tax discount rates: • Perimeter security – 16.07% (2021 - 14.58%) • Access controls – 16.07% (2021 - 14.58%) Revenue growth Forecast growth in year 1 to 3 is based on Board approved projections, and detailed assessed conversion of known revenue opportunities for the business. Years 4 – 5 assume growth is achieved within existing business markets and geographies, along with expansion of the business into new markets and geographies. Gross margins Forecasting consistent gross margins over the life of the model relative to historic gross margins No impairment was recognised. The recoverable amount is not sensitive to any reasonably possible changes in assumptions. Notes to the Financial Statements 14. Leases Group as a lessee The Group has lease contracts for office space, IT equipment and vehicles used in its operations. Leases of office space and IT equipment generally have lease terms between 3 and 5 years, while motor vehicles generally have lease terms between 3 and 4 years. The Group’s obligations under its leases are secured by the lessor’s title to the leased assets. Generally, the Group is restricted from assigning and subleasing the leased assets. There are several lease contracts that include extension and termination options and variable lease payments, which are further discussed below. The Group also has certain leases of office space and IT equipment with lease terms of 12 months or less and leases with low value. The Group applies the ‘short-term lease’ and ‘lease of low-value assets’ recognition exemptions for these leases. Amounts recognised in the statement of financial position and profit or loss Right-of-use assets Office Space & IT Equipment $’000 Motor Vehicles $’000 As at 1 July 2021 Additions Depreciation expense1 Discontinued operations Exchange adjustments Interest expense Payments As at 30 June 2022 As at 1 July 2020 Additions Disposal Depreciation expense Interest expense Payments As at 30 June 2021 374 120 (207) (60) 22 - - 249 623 57 (64) (242) - - 374 11 - (4) (7) - - - - 31 - - (20) - - 11 Total $’000 385 120 (211) (67) 22 - - 249 654 57 (64) (262) - - Lease liabilities $’000 (430) (120) - 52 (12) (27) 253 (284) (713) (57) 64 - (35) 311 385 (430) The classification of lease liabilities is set out below: Current Non-Current As at 30 June 1 Depreciation expense for the year includes expense classified as Discontinued operation in the income statement. The following are the amounts recognised in profit or loss: Depreciation expense of right-of-use assets Interest expense on lease liabilities Expense relating to short term leases Total amount recognised in profit and loss 2022 ANNUAL REPORT AVA GROUP | 77 2022 $’000 131 153 284 2022 $’000 211 27 91 329 2021 $’000 210 220 430 2021 $’000 262 35 105 402 The Group has several lease contracts that include extension and termination options. These options are negotiated by management to provide flexibility in managing the leased-asset portfolio and align with the Group’s business needs. Management exercises significant judgement in determining whether these extension and termination options are reasonably certain to be exercised (Refer Note 2). Set out below are the undiscounted potential future rental payments relating to periods following the exercise date of extension and termination options that are not included in the lease term: 2022 Extension options not reasonably certain to be exercised 2021 Extension options not reasonably certain to be exercised Within five years More than five years $’000 $’000 - 225 - 24 Total $’000 - 249 Notes to the Financial Statements 15. Trade and other payables Trade payables, accruals and other payables Current Trade payables Accruals and other payables Total Trade and Other Payables Trade, accruals and other payables are non-interest bearing and normally settled on 14 – 60 day terms. 16. Contract liabilities Contract liabilities Balance at 1 July Deferred during year Recognised as revenue in the year Balance at 30 June Due within 1 year Due after more than 1 year Balance at 30 June Consolidated 2021 $’000 3,403 5,268 8,671 2021 $’000 732 447 (651) 528 218 310 528 2022 $’000 786 1,468 2,254 2022 $’000 528 187 (218) 497 225 272 497 Contract liabilities relate to deferred revenue for customers that have been billed in advance but the service has yet to be provided. The contract liability balance represents performance obligations which have yet to be met and therefore have not been recognised as revenue during the year. 2022 ANNUAL REPORT AVA GROUP | 79 2022 $’000 741 393 247 1,381 47 47 2022 $’000 242 49 (43) (1) 247 247 - 247 2021 $’000 815 458 242 1,515 69 69 2021 $’000 260 3 (21) - 242 242 - 242 17. Provisions Current Employee entitlements – annual leave Employee entitlements – long service leave Provision for warranty claims Total Current Provisions Non-current Employee entitlements – long service leave Total Non-Current Provisions (a) Movements in Warranty provisions At 1 July Arising during the year Provision used during the year Exchange adjustments At 30 June Current Non-current At 30 June (b) Nature and timing of provisions i. Warranty provision Warranties include predominantly provision booked for probable claims by customers for product faults as well as provision for claimable warranty for other goods and services sold by the Group. ii. Employee Entitlements Refer to Note 1(o) for the relevant accounting policy and a discussion of the significant estimations and assumptions applied in the measurement of long-service leave, which is part of this provision. This provision also includes provision booked for employees who earn but are yet to use their vacation entitlements. This amount includes on-costs for pension and superannuation, worker’s compensation insurance and payroll tax. Notes to the Financial Statements 18. Contributed equity (a) Ordinary shares Ordinary share capital, issued and fully paid (b) Movement in ordinary shares on issue At 1 July 2021 Share buyback and cancellation Share issue On exercise of Share Options On exercise of Performance Share Rights Capital return to shareholders Share issue costs At 30 June 2022 (b) Movement in ordinary shares on issue At 1 July 2020 Share issue On exercise of Share Options On exercise of Performance Share Rights Share issue costs At 30 June 2021 2022 $’000 50,793 50,793 Consolidated 2021 $’000 59,062 59,062 Number of shares $’000 241,629,402 (2,950,000) 3,250,000 1,033,783 - - 242,963,185 59,062 (1,329) 638 - (7,566) (12) 50,793 235,365,568 58,349 5,449,938 813,896 - 732 - (19) 241,629,402 59,062 (c) Terms and conditions of contributed equity Ordinary shares have the right to receive dividends as declared and, in the event of winding up the Company, to participate in the proceeds from the sale of all surplus assets in proportion to the number of and amounts paid up on shares held. Ordinary shares entitle their holder to one vote, either in person or by proxy, at a meeting of the Company. 2022 ANNUAL REPORT AVA GROUP | 81 Employee Share Scheme The Group continued to offer employee participation in share-based incentive schemes as part of the remuneration packages for the employees of the Consolidated Entity. Refer to Note 22 Share Based Payments for detailed disclosures. No options have been issued between balance date and the date of this report. (d) Options over ordinary shares The following option to purchase fully paid ordinary shares in the Company were outstanding at 30 June 2022: Date granted Expiry date Exercise price ($) Balance at start of the year Granted during the year Exercised during the year Balance at end of the year Forfeited, lapsed and other move- ments during the year 14/03/2018 31/12/2021 $0.20 3,000,000 8/09/2020 31/12/2021 $0.15 250,000 Total Weighted average exercise price 3,250,000 $0.16 - - - - (3,000,000) (250,000) (3,250,000) $0.20 - - - - - - - $0.00 The following option to purchase fully paid ordinary shares in the Company were outstanding at 30 June 2021: Date granted Expiry date Exercise price ($) Balance at start of the year Granted during the year Exercised during the year Balance at end of the year Forfeited, lapsed and other move- ments during the year (199,938) (62) 10/11/2017 10/11/2020 29/11/2017 31/12/2020 14/03/2018 31/12/2021 14/03/2018 31/12/2021 $0.21 $0.12 $0.13 $0.15 200,000 2,000,000 1,500,000 1,500,000 14/03/2018 31/12/2021 $0.20 3,000,000 - - - - - (2,000,000) (1,500,000) (1,500,000) - 8/09/2020 31/12/2021 $0.15 - 500,000 (250,000) Total 8,200,000 500,000 (5,449,938) Weighted average exercise price $0.16 $0.15 $0.14 - - - - 3,000,000 250,000 3,250,000 $0.16 - - - - - (62) $0.21 Notes to the Financial Statements (e) Performance rights During the financial year 2022, 1,837,129 performance rights (2021: 1,205,537) were awarded. Outstanding Performance Rights - Year ended 30 June 2022 Date granted Expiry date Exercise Price ($) Balance at start of the year Granted during the year $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 112,972 84,176 161,414 161,415 389,768 389,769 49,935 49,935 35,342 35,342 147,551 147,554 - - - - - - - - - - - - - - - - - - - 500,666 500,670 83,969 83,970 600,000 33,927 33,927 Forfeited lapsed, and other move- ments during the year Balance at end of the year (unvested 1) (112,972) (84,176) (161,414) (51,183) (389,768) - - - 110,232 - - 389,769 (49,935) - - - (89,275) (89,277) (238,775) (238,775) (55,168) (55,169) - 49,935 35,342 35,342 58,276 58,277 261,891 261,895 28,801 28,801 - 600,000 (19,813) (19,813) 14,114 14,114 1/07/2018 1/07/2018 30/06/2021 30/06/2020 23/09/2019 30/06/2020 23/09/2019 31/08/2022 28/10/2019 28/10/2019 31/10/2019 31/10/2019 31/08/2021 31/08/2022 31/08/2021 31/08/2022 29/10/2020 31/08/2022 29/10/2020 31/08/2023 30/10/2020 31/08/2022 30/10/2020 31/08/2023 1/09/2021 1/09/2021 28/10/2021 28/10/2021 28/10/2021 31/01/2022 31/01/2022 Total 31/08/2023 31/08/2024 31/08/2023 31/08/2024 5/10/2022 31/08/2023 31/08/2024 1 As at the date of this report Performance Shares with expiry date 31/08/2022 are expected to vest. 1,765,173 1,837,129 (1,655,513) 1,946,789 2022 ANNUAL REPORT AVA GROUP | 83 FY 22 Grants During the year ended 30 June 2022, the Company granted performance rights as part of remuneration to senior executives and key employees. The vesting conditions of the performance rights are based on key performance metrics and objectives being met. The fair value of the performance rights was based on a Black Scholes option pricing model. Subsequent to the grant, the above performance grant rights were forfeited due to FY performance metrics and objectives not met. As a result, Executive Director, Robert Broomfield, forfeited 110,337 performance rights. Other key management personnel forfeited 97,756 performance rights. i. Senior executives and key employees Senior management and key employees were issued a total of 1,237,129 performance rights. The performance rights have a nil exercise price and are split into two equal tranches, one vesting on 31 August 2023, with the second vesting on 31 August 2024 (only time vesting). ii. Non-Executive Directors Non-Executive Directors were issued a total of 600,000 performance rights on 28 October 2021. The performance rights have a nil exercise price and vest on 5 October 2022. The fair value of each performance rights was $0.29. Outstanding Performance Rights - Year ended 30 June 2021 Date granted Expiry date Exercise Price ($) Balance at start of the year Granted during the year 1/07/2018 1/07/2018 1/07/2018 1/07/2018 30/06/2021 30/06/2021 30/06/2020 30/06/2021 23/09/2019 30/06/2020 23/09/2019 31/08/2022 28/10/2019 28/10/2019 31/10/2019 31/10/2019 31/10/2019 31/08/2021 31/08/2022 31/08/2021 31/08/2022 30/06/2021 29/10/2020 31/08/2022 29/10/2020 31/08/2023 30/10/2020 31/08/2022 30/10/2020 31/08/2023 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 112,972 112,972 84,176 84,176 528,559 528,560 468,939 468,942 339,668 339,668 600,000 - - - - - - - - - - - - - - - 176,709 176,710 426,059 426,059 Forfeited lapsed, and other move- ments during the year Balance at end of the year (112,972) - - 112,972 (84,176) - (367,144) (367,146) (79,171) (79,173) (289,732) (289,734) (600,000) (141,367) (141,368) (278,508) (278,505) - 84,176 161,415 161,414 389,768 389,769 49,936 49,934 - 35,342 35,342 147,551 147,554 Total 3,668,632 1,205,537 (3,108,996) 1,765,173 Notes to the Financial Statements FY 21 Grants Senior executives and key employees During the year ended 30 June 2021 the Company granted performance rights as part of remuneration to key management personnel. The vesting conditions of the performance rights are based on key performance metrics and objectives being met. The fair value of the performance rights was based on a Black Scholes option pricing model. Executive Director, Robert Broomfield, was issued 353,419 performance rights following approval of the shareholders at the AGM on 29 October 2020. The performance rights have a nil exercise price and are split into two equal tranches, one vesting on 31 August 2022, with the second vesting on 31 August 2023. Other key management personnel were issued a total of 852,118 performance rights. The performance rights have a nil exercise price and are split into two equal tranches, one vesting on 31 August 2022, with the second vesting on 31 August 2023. Subsequent to the grant, the above performance grant rights were forfeited due to key performance metrics and objectives not met. As a result, Executive Director, Robert Broomfield, forfeited 336,153 performance rights. Other key management personnel forfeited 544,086 performance rights. (f) Capital management When managing capital, management’s objective is to ensure the Consolidated Entity continues to maintain optimal returns to shareholders and benefits for other stakeholders. Management also aims to maintain a capital structure that ensures the lowest cost of capital available to the entity. The Group’s debt and capital includes ordinary share capital and financial liabilities, supported by financial assets. Management adjusts the capital structure to take advantage of favourable costs of capital or high returns on assets. As the market is constantly changing, management may change the amount of dividends to be paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. Management monitor capital through the gearing ratio (net debt / total capital). Net debt is calculated as total borrowings (including trade and other payables) as shown in the balance sheet less cash and cash equivalents. The gearing ratios based on continuing operations at 30 June 2022 and 2021 were as follows: Total borrowings * Less cash and cash equivalents Net borrowings / (cash) Total equity Total capital Gearing ratio * Includes trade and other payables as well as leases 2022 $’000 2,539 15,226 (12,687) 25,948 13,261 Consolidated 2021 $’000 9,102 17,293 (8,191) 32,040 23,849 0% 0% (g) Dividends Special dividend at the rate of 1 cent per share, paid on 23 October 2020 Special dividend at the rate of 2 cents per share, paid on 11 March 2021 Special dividend at the rate of 13 cents per share, paid on 10 March 2022 Total dividends declared Dividends paid in cash Amount owed to shareholders 2022 ANNUAL REPORT AVA GROUP | 85 2022 $’000 - - 31,586 31,586 (31,232) 354 Consolidated 2021 $’000 2,392 4,832 - 7,224 (7,138) 86 In the prior year, Special dividends were declared on 23 October 2020 and 11 March 2021 which represented 1c and 2c per share respectively. On 22 February 2022 a Special Dividend of 13c per share was declared in conjunction with a capital return (see note 18). 19. Reserves Share based payment reserve The share based payment reserve is used to record the value of share-based payments provided to employees and directors as part of their remuneration and options or performance rights granted as part of other agreements. Foreign exchange translation reserve This reserve is used to record the unrealised exchange differences arising on translation of a foreign entity and is not distributable. Other equity reserve Other equity represents the difference between the fair value of ordinary shares issued to acquire non-controlling interest and the initial value of non-controlling interests. 20. Financial Risk Management The Group’s principal financial instruments comprise receivables, payables, lease liabilities, cash and short-term deposits. Risk exposures and responses The Group manages its exposure to key financial risks, including interest rate risk in accordance with the Group’s financial risk management policy. The objective of the policy is to support the delivery of the Group’s financial targets whilst protecting future financial security. The main risks arising from the Group’s financial instruments are interest rate risk, currency risk, credit risk, and liquidity risk. The Group uses different methods to measure and manage different types of risks to which it is exposed. These include monitoring levels of exposure to interest rate risk and assessments of market forecasts for interest rate. Monitoring levels of exposure to various foreign currencies and assessments of market forecasts for foreign currency exchange rates. Ageing analyses and monitoring of specific credit allowances are undertaken to manage credit risk; liquidity risk is monitored through the development of future rolling cash flow forecasts. The Board reviews and agrees policies for managing each of the risks as summarised below. Primary responsibility for identification and control of financial risks rests with the Audit & Risk Committee under the authority of the Board. The board reviews and agrees policies for managing each of the risks identified below, including hedging of foreign currency and interest rate risk, credit allowances, and future cash flow forecast projections. Notes to the Financial Statements (a) Interest rate risk The Group’s main interest rate risk relates primarily to the Group’s cash and cash equivalents held in interest bearing accounts. At reporting date, the Group had the following mix of financial assets and liabilities exposed to Australian variable interest rate risk. Financial instruments 30 June 2022 Cash Lease liabilities Total financial assets Interest bearing Total carrying amount Weighted average effective interest rate Fixed / variable rate $'000 $'000 % 15,226 (284) 14,942 15,226 (284) 14,942 0.01% 6.84% 0.12% 30 June 2021 $'000 $'000 % Cash Lease liabilities Total financial assets 17,293 (430) 16,863 17,293 (430) 16,863 0.01% 6.84% 0.16% The Group’s policy is to manage its finance costs using a mix of fixed and variable rate debt where possible. At 30 June 2022, the Group had no borrowings (2021: nil) and lease liabilities of $284,000 (2021: $430,000). Sensitivity analysis The Group constantly analyses its interest rate exposure. Within this analysis consideration is given to potential renewals of existing positions, alternative financing, and the mix of fixed and variable interest rates. The following sensitivity analysis is based on the interest rate risk exposures in existence at the reporting date. At 30 June 2022, and at 30 June 2021, if interest rates had moved, as illustrated in the table below, with all other variables held constant, post tax profit / (losses) and equity would have been affected as follows: Judgments of reasonably possible movements*: Consolidated + 1% (100 basis points) -0.5% (50 basis points) Post Tax Profit Higher/(Lower) Equity Higher/(Lower) 2022 $’000 107 (53) 2021 $’000 121 (61) 2022 $’000 107 (53) 2021 $’000 121 (61) * A 1% increase and a 0.5% decrease is used and represents management’s assessment of the reasonably possible change in interest rates. Variable Fixed Variable Fixed 2022 ANNUAL REPORT AVA GROUP | 87 (b) Foreign currency risk Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Group’s exposure to the risk of changes in foreign exchange rates relates primarily to the Group’s operating activities, and cash balances. The Group’s exposure to foreign currency risk at the end of the reporting period, expressed in Australian dollars was as follows: USD 30 June 2022 Cash and cash equivalents Trade and other receivables Trade and other payables Total exposure 30 June 2021 Cash and cash equivalents Trade and other receivables Trade and other payables Total exposure Foreign currency sensitivity $’000 6,790 3,114 (306) 9,598 7,026 5,026 (428) 11,624 The following tables demonstrate the sensitivity to a reasonably possible change in the USD exchange rate with all other variables held constant. The impact on the Group’s profit before tax is due to changes in the fair value of monetary assets and liabilities. The Group’s exposure to foreign currency changes for all other currencies is not material. USD 30 June 2022 30 June 2021 (c) Credit risk % Change in rate Effect on profit/(loss) before tax Effect on equity 10% -10% 10% -10% $’000 672 (672) 814 (814) $’000 672 (672) 814 (814) Credit risk arises from the financial assets of the Group, which comprise cash and cash equivalents, trade and other receivables (including contract assets). The Group’s exposure to credit risk arises from potential default of the counter party, with a maximum exposure equal to the carrying amount of these instruments, net of any provisions for expected credit losses of those assets. Exposure at balance date is addressed in each applicable note. The Group does not hold any credit derivatives to offset its credit exposure. The Group trades only with recognised, creditworthy third parties, and as such collateral is not requested nor is it the Group’s policy to securitise its trade and other receivables. It is the Group’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures including an assessment of their financial position, past experience and industry reputation. In addition, receivable balances are monitored on an ongoing basis. Notes to the Financial Statements (d) Liquidity risk Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities. The Group monitors its risk of a shortage of funds using cash flow forecasting and liquidity planning. The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of variety of equity and debt instruments. The table below analyses the Group’s financial liabilities into relevant maturity groupings based on their contractual maturities for all non-derivatives financial liabilities. The amounts disclosed in the table are the contractual undiscounted cash flows. The remaining contractual maturities of the Group’s financial liabilities are: Financial liabilities 12 months or less1 1-5 years2 Over 5 years Total contractual cash flows 1 Includes trade and other payables and lease liabilities. 2 Relates to lease liabilities Consolidated 2021 $’000 8,882 220 - 9,102 2022 $’000 2,395 155 - 2,550 FAIR VALUE The fair value of financial assets and financial liabilities approximate their carrying amounts as disclosed in the consolidated statement of financial position and notes to the consolidated financial statements. 2022 ANNUAL REPORT AVA GROUP | 89 Country of Incorporation Principal Activity 2022 2021 % Equity Interest Australia Manufacture and sale of security systems Country of Incorporation Principal Activity 2022 2021 % Equity Interest 21. Related party disclosure (a) Subsidiaries Name Parent Entity Ava Risk Group Ltd Subsidiaries of Ava Risk Group Ltd FFT MENA Pty Ltd Australia Holding company Future Fibre Technologies (US) Inc. USA Sales Support and other services Name Subsidiaries of FFT MENA Pty Ltd Future Fibre Technologies MENA FZ-LLC (in Liquidation) U.A.E Sales Support and other services Future Fibre Technologies Europe Ltd United Kingdom Sales Support and other services FFT India Pvt Ltd India Sales Support and other Subsidiaries of MaxSec Group Pty Ltd BQT Intelligent Security Systems Pty Ltd 4C Satellites Ltd BQT Solutions (Australia) Pty Ltd BQT Solutions (SEA) Pte Ltd Australia Australia Australia Singapore BQT Solutions (UK) Ltd United Kingdom Subsidiaries of BQT Solutions (SEA) Pte Ltd services Access Control Access Control Access Control Access Control Access Control 100 100 100 100 100 100 100 100 100 100 100 60 60 100 100 100 100 100 100 60 60 100 100 100 BQT Solutions (NZ) Ltd New Zealand Access Control 100 100 Subsidiaries of BQT Solutions (UK) Ltd Ava Global DMCC U.A.E Secure international logistics BQT Solutions America Inc USA Access Control Subsidiaries of Ava Global DMCC Ava Germany GmbH Germany Secure international logistics Ava USA Inc USA Secure international logistics - 100 - - 100 100 100 100 Notes to the Financial Statements Transactions between the Company and its subsidiaries principally arise from the granting of loans and the provision of sales support and other services. All transactions undertaken during the financial year with subsidiaries are eliminated in the consolidated financial statements. (b) Ultimate parent Ava Risk Group Ltd is the ultimate Australian parent entity and the ultimate parent of the Group. (c) Terms and conditions of transactions with related parties Sales to and purchases from related parties are made in arm’s length transactions both at normal market prices and on normal commercial terms unless otherwise stated. 22. Key management personnel a) Compensation for Key Management Personnel Short-term employee benefits Bonus on Sale of business Post-employment and other long-term benefits Termination benefits Share-based payments Total compensation (b) Loans to/from Key Management Personnel Consolidated 2021 $ 2022 $ 1,540,447 3,241,172 12,977,845 105,663 - 258,388 - 139,178 153,619 64,487 14,882,343 3,598,456 There were no loans to directors or key management personnel during the year ending 30 June 2022 (2021: nil). (c) Other transactions and balances with Key Management Personnel and their related parties DIRECTORS During the current and previous financial year, the Group transacted with related entities of directors, other than in their capacity as director as follows: The Consolidated Entity purchased consulting services from Pierce Group Asia Pte Limited and Pierce Asia Pty Ltd, related entities through Chairman and Non-Executive Director, David Cronin, for an amount of $219,000 (2021: $253,230). Accounts Payable balance at 30 June 2022 totals $44,812 (FY2021: $nil). These arrangements were in the normal course of business and included amounts related to the provision of consultancy and administration services, and general office expenses provided by the related entities for the benefit of the Consolidated Entity. There were no other transactions with other KMP during the year ended 30 June 2022 (FY2021 none). 2022 ANNUAL REPORT AVA GROUP | 91 (a) Recognised share-based payment expense The expense recognised for employee and corporate services received during the year is shown in the table below: Expenses arising from equity-settled share-based payment transactions: Share options Performance rights (b) Types of share-based payments FY 22 GRANTS Senior Executive Grants Consolidated 2021 $’000 89 132 221 2022 $’000 - 352 352 During the financial year ended 30 June 2022, the Company granted performance rights as part of remuneration to three senior executives, Robert Broomfield, Neville Joyce and Matthew Nye-Hingston as well as another employee. The fair value of each performance right was calculated using an option pricing model as discussed below. Non-Executive Directors Grants During the financial year ended 30 June 2022, the Company granted performance rights as part of remuneration to three Non- Executive directors David Cronin, Mark Stevens, and Michael McGeever. The performance rights issued to the Non-Executive directors vest on 5 October 2022 subject to the Company’s market traded share price being at least 49 cents or above across 30 consecutive days in September 2022. FY 21 GRANTS During the financial year ended 30 June 2021, the Company granted performance rights as part of remuneration to three senior executives, Robert Broomfield, Leigh Davis and Matthew Nye-Hingston as well as another employee. The fair value of each performance right was calculated using an option pricing model as discussed below. The performance share rights were split into two equal tranches one of which will vest at 31 August 2022 with the second tranche vesting on 31 August 2023. The vesting conditions are based on achievement of pre-defined performance KPIs and continuity of employment. Refer to point (d) for the model inputs relating to the fair value of the performance rights. During the year ended 30 June 2021, the group granted 500,000 options to the former CEO and Executive Director Scott Basham. The exercise price is $0.15. The fair value of the options was based on a Black Scholes option pricing model. The options are split into two equal tranches, one vested on 31 December 2020 and the second vested on 30 June 2021. Both tranches have an expiry date of 31 December 2022, and were exercised in January 2022. (c) Summaries of performance rights and share options granted i. Share Options Outstanding at the beginning of the year Granted during the year Exercised during the year Forfeited lapsed, and other movements during the year Outstanding Share Options 2022 Number 2021 Number 3,250,000 8,200,000 - 500,000 (3,250,000) (5,449,938) - - (62) 3,250,000 Notes to the Financial Statements ii. Performance Share Rights Outstanding at the beginning of the year Granted during the year Exercised during the year Forfeited lapsed, and other movements during the year Total share-based payments (d) Option and performance rights pricing models 2022 Number 1,765,173 1,837,129 (1,033,783) 2021 Number 3,668,632 1,205,537 (813,896) (621,730) (2,295,100) 1,946,789 1,765,173 The fair value of the equity-settled share options or performance rights granted is estimated as at the date of grant using a Black- Scholes model taking into account the terms and conditions upon which the options or performance rights were granted. The fair value is derived from the Black-Scholes model using the closing share price of Ava Risk Group ordinary shares on grant date, Australian Government long-term bond interest rates as published by the Reserve Bank of Australia as a proxy for the risk-free interest rate, having regard for the bond maturity that is most closely aligned to the period of time remaining until the options/performance rights expiry date, and the option/performance rights exercise prices and quantities as noted above. Historical price volatility was used to estimate expected price volatility, over the expected life of the options and performance rights. The model inputs for performance rights granted during in respect of remuneration included: FY 2022 PERFORMANCE SHARE RIGHTS GRANTED Number of performance rights granted Fair value of performance rights granted (prior to forfeitures) Exercise price: Grant date: Expiry date (Tranche 1): Expiry date (Tranche 2): Share price at grant date: Expected price volatility of the Company’s shares: Expected dividend yield: Risk-free interest rate: 1,001,336 $545,728 $- 167,939 $75,607 $- 600,000 $171,660 $- 67,854 $35,308 $- 1/09/2021 28/10/2021 28/10/2021 31/01/2022 31/08/2023 31/08/2023 5/10/2022 31/08/2023 31/08/2024 31/08/2024 0.55 0.84% 0% 0.16% 0.46 0.66% 0% 0.10% N/a 0.46 0.85% 0% 1.47% 31/08/2024 0.46 0.66% 0% 0.10% FY 2021 PERFORMANCE SHARE RIGHTS GRANTED Number of performance rights granted Fair value of performance rights granted (prior to forfeitures) Exercise price: Grant date: Expiry date (Tranche 1): Expiry date (Tranche 2): Share price at grant date: Expected price volatility of the Company’s shares: Expected dividend yield: Risk-free interest rate: There were no share options issued in financial year ended 30 June 2022. FY 2021 SHARE OPTIONS GRANTED Number of share options granted Fair value of share options granted (prior to forfeitures) Exercise price: Grant date: Expiry date Share price at grant date: Expected price volatility of the Company’s shares: Expected dividend yield: Risk-free interest rate: 23. Commitments 2022 ANNUAL REPORT AVA GROUP | 93 353,419 $115,745 $- 852,118 $519,792 $- 29/10/2020 30/10/2020 31/08/2022 31/08/2022 31/08/2023 31/08/2023 $0.65 98.95% 0.00% 0.13% $0.61 99.08% 0.00% 0.13% 250,000 $43,691 $0.15 250,000 $45,126 $0.15 9/09/2020 9/09/2020 31/12/2021 31/12/2021 $0.30 93.22% 0.00% 0.13% $0.30 103.04% 0.00% 0.13% At 30 June 2022, the Group had commitments of $352,000 relating to the purchase of Fibre Optic cable with its main supplier. Notes to the Financial Statements 24. Discontinued Operations Sale of International Valuables Logistics (IVL) In October 2021, the Group sold its International Valuables Logistics (IVL). The IVL Segment was not previously classified as held-for- sale or as a discontinued operation. The comparative consolidated statement of comprehensive Income has been re- presented to show the discontinued operation separately from continuing operations. (a) Financial performance and cash flow information Revenue from contracts with customers Other income Revenue and other income Total Expenses Profit before income tax for the period Income tax expense Profit from discontinued operations Gain on sale of discontinued operations (see note (b)) Profit after tax for the period from discontinued operations The net cash flows generated by IVL, are as follows Operating Financing Investing Net cash inflow (outflow) Earnings per share – discontinued Basic earnings per share Diluted earnings per share Consolidated 7-Oct-21 30-Jun-21 $’000 11,075 - 11,075 (9,157) 1,918 (38) 1,880 31,914 33,794 $’000 40,340 67 40,407 (33,330) 7,077 - 7,077 - 7,077 Consolidated 7-Oct-21 30-Jun-21 $’000 947 (32) (6) 909 cents 13.90 13.73 $’000 5,093 (56) (7) 5,030 Consolidated cents 2.94 2.86 (b) Details of the sale of the subsidiaries Consideration Performance plan paid to management and employees of AVA Global Consideration received, paid in cash Carrying amount of net assets sold Transaction costs incurred Gain on sale before reclassification of foreign currency reserve Reclassification of foreign currency translation reserve Gain on sale of discontinued operation (c) Carrying amounts of assets and liabilities sold ASSETS Current Assets Cash and cash equivalents Receivables Inventories Total Current Assets Non-Current Assets Plant and equipment Intangible assets Right of use assets Total Non-Current Assets TOTAL ASSETS LIABILITIES Current Liabilities Payables Tax liabilities Other liabilities TOTAL LIABILITIES NET ASSETS 2022 ANNUAL REPORT AVA GROUP | 95 7-Oct-21 $’000 62,187 (20,308) 41,879 (9,033) (357) 32,489 (575) 31,914 7-Oct-21 $’000 5,053 4,909 39 10,001 6 4,687 67 4,760 14,761 5,639 36 53 5,728 9,033 (d) Subsidiaries disposed The IVL Segment comprised of the following entities: Name AVA Global DMCC AVA Germany GmbH AVA USA Inc Country of incorporation % Equity interest U.A.E Germany USA 100 100 100 Notes to the Financial Statements 25. Parent Entity Information (a) Summary financial information The individual financial statements for the parent entity show the following aggregate amounts: Ava Risk Group Limited: Summarised statement of financial position Assets Current Assets Non-Current Assets Total assets Liabilities Current liabilities Payables Contract liabilities Borrowings Lease liabilities Provisions Current Liabilities Non-Current Liabilities Provisions Lease liabilities Contract liabilities Non-Current Liabilities Total Liabilities Net (Liabilities) Assets Equity Contributed equity Accumulated losses Reserves Total Equity 2022 $’000 13,421 14,573 27,994 1,549 212 2,904 68 1,022 5,755 47 125 272 444 6,199 21,795 2021 $’000 14,944 16,116 31,060 1,295 214 - 132 933 2,574 69 193 310 572 3,146 27,914 50,793 (30,742) 1,744 21,795 59,062 (32,540) 1,392 27,914 Ava Risk Group Limited: Summarised statement of comprehensive income Profit for the year Other comprehensive income for the year Total comprehensive income of the parent entity (b) Guarantees entered into by the parent entity 2022 ANNUAL REPORT AVA GROUP | 97 2022 $’000 33,384 - 33,384 2021 $’000 4,185 - 4,185 The parent entity has not provided any financial guarantees in respect of subsidiaries entities. (c) Contingent liabilities of the parent entity The parent entity did not have any contingent liabilities as at 30 June 2022 or 30 June 2021. (d) Contractual commitments for the acquisition of property, plant or equipment As at 30 June 2022, the parent entity had commitments of $352,000 relating to the purchase of Fibre Optic cable with its main supplier (30 June 2021: None). 26. Auditor’s remuneration The auditor of Ava Risk Group is for the year ended 30 June 2021 was Ernst & Young. Auditor’s renumeration Amounts received or due and receivable by the company’s auditor for: Consolidated 2022 $ 2021 $ - Fees for auditing the statutory financial report of the parent covering the group and auditing the 255,000 238,000 statutory financial reports of any controlled entities - Fees for assurance services that are required by legislation to be provided by the auditor - Fees for other assurance and agreed-upon-procedures services under other legislation or contractual arrangements where there is discretion as to whether the service is provided by the auditor or another firm Fees or other services - Tax compliance and tax advice services Total fees to Ernst & Young Auditor’s renumeration Amounts received or due and receivable by foreign entities of Ernst & Young for: - Audit and review of the financial statements - - - - - - 71,600 326,600 64,000 302,000 Consolidated 2022 $ 10,500 10,500 2021 $ 25,250 25,250 Notes to the Financial Statements 27. Events after the Balance Sheet Date On 1 August 2022, the Group announced into a Sale and Purchase Agreement to acquire 100% of the shareholding of MTD Holdings Limited, the parent company of GJD Manufacturing Limited (“GJD”). GJD is a UK-based security equipment designer and manufacturer, specialising in intruder detection systems. Its products include professional grade external detector equipment as well as infrared and white-light LED illuminators and Automatic Number Plate Recognition cameras. GJD counts some of the UK and Europe’s most security conscious end users as customers and has a growing OEM sales channel across multiple sectors, including well-known multinational engineering and technology companies. The acquisition price of approximately $7.8 million was funded 60% in cash and 40% in AVA shares. The cash consideration has been paid and share consideration is based on the last share price on trading day before 1 August 2022. Given the close proximity of the acquisition to the approval date of these financial statements, the Purchase Price Allocation is yet to commence and as a result, the required AASB 3 Business Combination disclosures cannot be made. Directors’ Declaration In accordance with a resolution of the directors of Ava Risk Group Limited, I state that: 1. In the opinion of the directors: (a) the financial statements, notes and the additional disclosures included in the directors’ report designated as audited, of the Company and of the Consolidated Entity are in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Company’s and Consolidated Entity’s financial position as at 30 June 2022 and of their performance for the year ended on that date; and (ii) complying with Accounting Standards and Corporations Regulations 2001, and other mandatory professional reporting requirements; (iii) also comply with International Financial Reporting Standards as stated in Note 1.1 of the consolidated financial statements; and (b) 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. This declaration has been made after receiving the declarations required to be made by the chief executive officer and chief financial officer to the directors in accordance with section 295A of the Corporations Act 2001 for the financial year ended 30 June 2022. On behalf of the Board David Cronin Chairman Melbourne, 29 August 2022 2022 ANNUAL REPORT AVA GROUP | 101 2022 ANNUAL REPORT AVA GROUP | 103 2022 ANNUAL REPORT AVA GROUP | 105 Shareholder Information Distribution of equity securities (as at 18 August 2022) ORDINARY SHARE CAPITAL 242,963,185 fully paid ordinary shares are held by 3,763 individual shareholders. All issued ordinary shares carry one vote per share and carry the rights to dividends. The numbers of shareholders, by size of holding, in each class are: Size of shareholding Number of holders Ordinary shares held % of issued capital 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over Total 375 1,318 660 1,187 223 3,763 199,944 3,703,769 5,302,231 37,980,520 195,776,721 242,963,185 0.08% 1.52% 2.18% 15.63% 80.58% 100.00% The number of shareholders holding less than a marketable parcel of 1,851 shares (based on the share price of $0.27 on 18 August 2022 is 181) and they hold 32,893 shares. Substantial shareholders (as at 18 August 2022) The names of substantial shareholders who have notified the Company in accordance with section 671B of the Corporations Act 2001 are: Name of Shareholder Pandon Holdings Pte Limited Valwren Pty Ltd Barnaby Investments Pty Ltd Fully paid ordinary shares Number of shares % of issued capital 32,463,070 14,133,800 11,853,886 13.36% 5.82% 4.88% 58,450,756 24.06% Twenty largest shareholders (as at 18 August 2022) Name of Shareholder Number of shares % of issued capital 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 BELL POTTER NOMINEES LTD BNP PARIBAS NOMS PTY LTD HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED MR STEPHEN ROSS CAREW BANNABY INVESTMENTS PTY LIMITED DIXSON TRUST PTY LIMITED VALWREN PTY LIMITED VALWREN PTY LIMITED CITICORP NOMINEES PTY LIMITED CHAG PTY LTD MR DAVID MALCOLM SOUTH BFA SUPER PTY LTD MR ROBERT ANDREW BROOMFIELD CHERYL LEE TAPANES GOLDRUSH FUND PTY LTD HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED 20 AVALON AMBER PTY LTD Voting Rights All ordinary shares (whether fully paid or not) carry one vote per share without restriction. 31,950,717 17,313,575 11,086,753 10,000,000 9,948,859 7,339,998 6,750,000 6,000,000 5,967,711 4,400,000 4,250,000 2,978,384 2,713,379 2,600,000 2,000,000 1,467,963 1,406,000 1,377,777 1,347,705 1,344,330 13.15% 7.13% 4.56% 4.12% 4.10% 3.02% 2.78% 2.47% 2.46% 1.81% 1.75% 1.23% 1.12% 1.07% 0.82% 0.60% 0.58% 0.57% 0.56% 0.55% 132,243,151 54.43% www.theavagroup.com