China Rapid Finance Limited
Annual Report 2020

Plain-text annual report

XRF SCIENTIFIC LIMITED ABN 80 107 908 314 ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2020             CONTENTS CHAIRMAN’S LETTER DIRECTORS’ REPORT AUDITOR’S INDEPENDENCE DECLARATION CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME CONSOLIDATED STATEMENT OF FINANCIAL POSITION CONSOLIDATED STATEMENT OF CHANGES IN EQUITY CONSOLIDATED STATEMENT OF CASH FLOWS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DIRECTORS’ DECLARATION AUDITOR’S REPORT SHAREHOLDER INFORMATION CORPORATE DIRECTORY 3 4 17 18 19 20 21 22 53 54 58 60 XRF SCIENTIFIC LIMITED | 2020 ANNUAL REPORT 1              FINANCIAL RESULTS SUMMARY  29,021 29,081 3,121 Net Profit After Tax up 46% 24,248 21,508 2,138 1,024 794 FY17 FY18 FY19 FY20 Sales Revenue ($'000) FY17 FY18 FY19 FY20 Net Profit After Tax ($'000) Operating Cash Flow up 8% Earnings Per Share up 46% 4,202 3,876 2.3 1.6 0.8 0.6 808 156 FY17 FY18 FY19 FY20 Operating Cash Flow ($'000) FY17 FY18 FY19 FY20 Earnings Per Share (Cents) 2 XRF SCIENTIFIC LIMITED | 2020 ANNUAL REPORT     CHAIRMAN’S LETTER Dear Fellow XRF Shareholder, Despite the recent global challenges from the Our Capital Equipment business delivered a slightly COVID-19 virus, XRF has once again delivered a weaker result due solely to the impact of COVID-19 significant improvement in financial performance on product orders and sales although these have with all businesses performing well. While total since recovered. XRF’s updated and expanded revenue was similar to the prior year, net profit after product range continues to increase its market tax grew strongly due to increased internal penetration due to our quality, reliability and service efficiencies and improved cost management, support. This year XRF will introduce an exciting new assisted by good customer demand and increased product which utilises our specific manufacturing market penetration. Further benefits were also expertise to serve a large adjacent market sector generated from our ongoing strong focus on where our international sales force can leverage customer service, product quality, innovation and their relationships and experience. substantial capital investment over recent years. XRF’s continung strong financial performance has Our Consumables business built on last year’s once again allowed us to increase dividends paid to strong performance with good volume growth, shareholders. Furthermore, while the immediate especially in the developing micro bead flux market. outlook remains uncertain for the global economy We continue to build market share and win new due to COVID-19, the Board believes that XRF is well business around the world due to our high product insulated and is strategically placed to continue to quality and excellent customer service. This deliver ongoing growth and improved shareholder business is well placed to retain its position as a returns. global market leader through continued innovation and product development. In closing I would like to thank all of XRF’s staff, ably led by our Managing Director, Vance Stazzonelli, and Orders at our Precious Metals fabrication business my fellow directors for their significant contribution were affected in the short term by COVID-19, but this and effort in successfully navigating the company division was still able to deliver strong performance through a very difficult and challenging year. with increased profits. Further good progress continues to be made at our plant in Melbourne with respect to product quality, automation, and custom manufacturing for our growing international client base. Our German operation continued to build a strong pipeline of orders including new business in the aerospace and glass industries and has made further good progress towards generating consistent positive results. Fred S Grimwade Chairman XRF SCIENTIFIC LIMITED | 2020 ANNUAL REPORT 3        FINANCIAL RESULTS SUMMARY  DIRECTORS’ REPORT Your directors present their report on the company XRF Scientific Limited and its controlled entities for the financial year ended 30 June 2020. DIRECTORS The names of the directors in office at any time during or since the end of the financial year are: Fred Grimwade Vance Stazzonelli David Brown David Kiggins Directors have been in office since the start of the financial year to the date of this report unless otherwise stated. PRINCIPAL ACTIVITY The principal activity of the economic entity during the financial year was the business of manufacturing and marketing precious metal products, specialised chemicals and instruments for the scientific, analytical and mining industries. No significant change in the nature of these activities occurred during the year. DIVIDENDS – XRF SCIENTIFIC LIMITED AND CONTROLLED ENTITIES Dividends paid to members during the financial year were as follows: Final dividend for the year 2020 $ 2019 $ 1,338,258 401,476 In addition to the above dividends, since the end of the financial year the directors have declared the payment of a fully franked final dividend of 1.4 cents per share to be paid on 16 October 2020 out of retained earnings at 30 June 2020. 4 XRF SCIENTIFIC LIMITED | 2020 ANNUAL REPORT     DIRECTORS’ REPORT REVIEW OF OPERATIONS A review of operations during the financial year and the results of those operations found that, during the year, the economic entity continued to engage in its principal activity and the results and financial position are disclosed in the attached financial statements. The consolidated entity has produced a Net Profit After Tax (NPAT) of $3,121,380 for the year ended 30 June 2020, compared with $2,137,590 for the previous year. Details of the results for the financial year ended 30 June 2020 are as follows: Increase / (decrease) June 2020 June 2019 over prior year $ $ 29,382,299 29,054,085 3,121,380 2,137,590 2.3 2.3 1.6 1.6 % 1 46 46 46 Total revenue and other income NPAT Basic earnings per share – (cents per share) Diluted earnings per share – (cents per share) OPERATING RESULTS XRF Scientific Ltd (“XRF” or “Company”) is pleased to report its June 2020 full-year results to shareholders. The Company has generated revenue of $29.1m and a 46% increase in Net Profit After Tax to $3.1m. The increase in profit is a result of positive market conditions through the majority of the year and continual optimisation of business operations and costs. There was growth in sample preparation products in newer geographical markets, as well as the platinum markets being developed in Europe. The mining industry remained strong throughout the whole year, with sales driven by both exploration and production. Capex sales came from new laboratories being established, as well as replacement and expansion capex from existing customers. Our adjusted profit before tax was up 34% on the prior year when considering the below items: Profit before tax COVID-19 wages subsidies COVID-19 other grants/subsidies COVID-19 payroll tax refunds Interest on early loan repayment Redundancy and other employee payments June 2020 June 2019 $ 3,151,229 $ 4,454,254 (212,729) (74,776) (82,837) 22,496 97,328 Underlying profit before tax 4,203,736 3,151,229 All adjustable items listed in the above table occurred in the June 2020 quarter. Adjusting for these the profit before tax was $945k in the June 2020 quarter compared to $986k in the March 2020 quarter, and $828k in the June 2019 quarter. This strong performance in the June quarter represents the resilience of XRF’s business, and the fortunate position we remained in during the first wave of COVID-19. Our team of employees showed incredible commitment to overcome the difficulties presented. $213k of government wages subsidies were received after certain divisions experienced a brief decline in sales during the first wave. Wages subsidies are expected to reduce significantly after Q1 of FY21 as a result of increased performance. XRF SCIENTIFIC LIMITED | 2020 ANNUAL REPORT 5                  DIRECTORS’ REPORT OPERATING RESULTS continued During this period, our factories in Australia remained open, as did all international sales offices, albeit with some adjustments to working arrangements to keep our employees safe. The majority of our customers have remained in operation and we continue to see strength from the mining industry, particularly in Australia. We experienced a slowdown in some markets during the June quarter, in countries where strict lock down measures were imposed, in the regions of South Africa, Latin America, Europe and parts of Asia. The Board has declared a final fully franked dividend of 1.4 cents per share which is up by 40% on last year. This represents a payout ratio of 60% of statutory profit. The dividend reinvestment plan is available for the first time should shareholders elect to participate. Given the global uncertainty due to COVID-19, the Board decided to take a conservative position on dividend payouts. This also provides cash reserves for growth and potential investment opportunities, whether they be organic or acquisitions. XRF retains a strong balance sheet which has been further enhanced through the year. Our cash at bank position was $3.6m at 30 June 2020 compared to $3.2m at 30 June 2019. Debt was reduced in the last quarter of the year and was $0.9m at 30 June 2020 compared to $2.3m at 30 June 2019. The majority of this retired debt related to equipment loans. Operating cash flow generated was $4.2m compared to $3.9m in the prior year. Our on-balance sheet platinum loans increased during the second half by $1.9m. As XRF holds title to the platinum metal under this particular master loan contract, we are required to recognise the amounts on-balance sheet as per previous loans drawn from this facility. The new on-balance sheet platinum loans represent the refinancing of old platinum leases that were previously off-balance sheet as disclosed in Note 25 Commitments. As a result of the refinancing our inventory asset has increased by $1.9m, along with a corresponding increase to our provisional liabilities for $1.9m. During July 2020 we acquired $0.5m of platinum metal to add to our owned position of precious metals inventory. We typically own a proportion of platinum to reduce our overall reliance on third party platinum lessors. In addition, we own other precious metals such as gold, iridium and rhodium, which are not able to be leased easily and are required for our manufacturing pool of metal. At 30 June 2020 our Precious Metals division owned at cost $1.3m of precious metal for manufacturing purposes, which increased to $1.8m with the July $0.5m purchase. AASB16 Leases has been adopted since 1 July 2019 which has impacted our Consolidated Statement of Financial Position. A new right-of-use asset for leased property has been created as part of Property, Plant and Equipment, which had a balance of $981k at 30 June. Lease liabilities correspondingly increased, with $437k added as Current Liabilities and $565k as Non-Current Liabilities. The impact on EBIT was an increase of $56k, as a portion of the Company’s payments for property leases has been reclassified from “Occupancy Expenses” to “Finance Costs”. Refer to note 18 for further details. The Consumables division had an excellent year with revenue increasing by 11% to $8.9m and profits before tax increasing by 18% to $2.54m. Additional revenue was generated on a full-year basis from new customers that were acquired in FY19, as well as new accounts added in FY20. Conditions were particularly buoyant in the mining sector across both exploration and production activities. The vast majority of customers from the division continued to operate throughout the COVID-19 pandemic. The Capital Equipment division delivered a positive result with a profit before tax of $583k compared to $625k in the prior year. Despite revenue dropping from $9.2m to $8.0m, we were able to improve margins due to a reduction in operational costs, a higher proportion of direct sales to end-users and the product mix of sales. Sales conditions were positive in the first nine months of the year and slowed in the last quarter, as customers reduced their capex due to economic uncertainty. In July we saw a significant pick up of orders, and the order book is now back at above average levels. We are continuing with our new product development program and plan to release two new machines in FY21. One of these machines will expand the business into a new complementary field. 6 XRF SCIENTIFIC LIMITED | 2020 ANNUAL REPORT             DIRECTORS’ REPORT OPERATING RESULTS continued The Precious Metals division increased profits by 50% to $1.4m from revenue of $13.2m. The result was driven by positive market conditions and new sales being developed by the office in Germany. $3.04m in revenue was recorded by the Germany office compared to $2.82m in the prior period. Conditions were slower in Europe during the June quarter for platinum products, however the start of FY21 has seen an improvement. We are a seeing a steady rate of new customer acquisitions in Europe, as customers seek out the benefits our business is able to offer. Accompanying the machines customers are ordering at the start of FY21, we are also seeing an increase in the level of new platinum labware orders from the mining industry. We continued to develop numerous projects for industrial platinum products through the period. Some technical break throughs were made in the Melbourne factory, primarily in the semi-finished and industrial product lines. These manufacturing developments allow us to expand the product portfolio and bring certain capabilities in house. Despite the difficulties experienced globally by current world events, we remain optimistic about the potential for growth in FY21. Our usual first quarter update to shareholders will be made at the AGM. MATTERS SUBSEQUENT TO THE END OF THE FINANCIAL YEAR The COVID-19 pandemic is ongoing and while it had limited financial impact for the consolidated entity up to 30 June 2020, it is not practicable to estimate the potential impact, positive or negative, after the reporting date. The situation is rapidly developing and is dependent on measures imposed by the Australian Government and other countries, such as (but not limited to) social distancing requirements, quarantine, travel restrictions, lockdowns and any economic stimulus that may be provided. A final dividend of 1.4 cents per share fully franked (FY19: 1.0 cent per share fully franked) was declared on 24 August 2020, with a record date of 2 October 2020 and payment date of 16 October 2020. There were no other events subsequent to the reporting date which have significantly affected or may significantly affect the XRF Scientific Limited operations, results or state of affairs in future years. LIKELY DEVELOPMENTS AND EXPECTED RESULTS OF OPERATIONS Likely results in the operations of the economic entity and the expected results of those operations in the future financial year have not been included in this report, as the disclosure of such information may lead to commercial prejudice to the economic entity. SIGNIFICANT CHANGES IN STATE OF AFFAIRS There have been no significant changes in the affairs of the Group. ENVIRONMENTAL REGULATION All companies within the Group continued to comply with all environmental requirements. Wherever possible, carbon emissions have been limited, and new production techniques adopted to reduce energy use. The Directors have considered compliance with the National Greenhouse and Energy Reporting Act 2007 which requires entities to report greenhouse gas emissions and energy use. For the measurement period 1 July 2019 to 30 June 2020 the directors have assessed that there are no current reporting requirements, but the Company may be required to do so in the future. The economic entity is also subject to the environmental regulations under the laws of the Commonwealth or of a State or Territory in which it operates. The Directors are not aware of any breaches of these regulations. CORPORATE GOVERNANCE DISCLOSURE The Group’s Corporate Governance Statement for the year ended 30 June 2020 can be found at www.xrfscientific.com/corporate-governance. The statement also summarises the extent to which the Group has complied with the Corporate Governance Council’s recommendations. XRF SCIENTIFIC LIMITED | 2020 ANNUAL REPORT 7                  DIRECTORS’ REPORT INFORMATION ON DIRECTORS Fred Grimwade Date of appointment: Qualifications: Chairman (Non-Executive) 1 May 2012 (8 years); Chairman since 29 October 2018 (2 years) Bachelor of Commerce and Law, Master of Business Administration, Fellow of the Governance Institute of Australia, Fellow of the Australian Institute of Company Directors, and Life Member of the Financial Services Institute of Australasia Experience: Has held general management positions at Colonial Agricultural Company, the Colonial Group, Western Mining Corporation and Goldman, Sachs & Co. Currently a Principal and Director of Fawkner Capital. Other current directorships: Chairman of CPT Global Ltd; Non-Executive Director of Select Harvests Ltd, Australian Former directorships in last 3 years: Private companies only United Investment Company Ltd and other private companies Special responsibilities: Chairman of the Remuneration Committee, member of the Audit & Governance Committee No. of shares: David Brown 500,000 fully paid ordinary shares Director (Non-Executive) Date of appointment: 7 June 2004 (16 years) Qualifications: Experience: Bachelor of Science, Bachelor of Economics Has over 45 years of experience in research and development and manufacturing of X-Ray Flux chemicals; formerly Chief Chemist for Swan Brewery Co. Ltd and Chairman of Scientific Industries Council of WA Other current directorships: Private companies only Former directorships in last 3 years: Private companies only Special responsibilities: Technical consultant to XRF Chemicals Pty Ltd No. of shares: David Kiggins 9,000,000 fully paid ordinary shares Director (Non-Executive) Date of appointment: 1 May 2012 (8 years) Qualifications: Bachelor of Science (Hons), Fellow of the Institute of Chartered Accountants of England Experience: Ten years at Arthur Andersen, working in audit and business consulting in the UK, and Wales, Fellow of the Institute of Chartered Secretaries and Administrators, and member of Australian Institute of Company Directors Australia, Africa and the Middle East. Formerly GM Business Development and Company Secretary at Automotive Holdings Group Ltd; Finance Director and Company Secretary at Global Construction Services Ltd; Chief Financial Officer at Heliwest; Chief Financial Officer at Stealth Global Holdings Ltd. Other current directorships: Private companies only Former directorships in last 3 years: Private companies only Special responsibilities: Chairman of the Audit & Governance Committee, member of the Remuneration Committee No. of shares: 212,900 fully paid ordinary shares Vance Stazzonelli Date of appointment: Qualifications: Experience: Managing Director (Executive) 22 February 2018 (2 years) Bachelor of Commerce (Professional Accounting) Vance joined XRF Scientific as Chief Financial Officer in October 2009. He was subsequently appointed to Chief Operating Officer in January 2011 and then Chief Executive Officer in August 2012. On 22 February 2018, he was appointed as Managing Director. Other current directorships: Private companies only Former directorships in last 3 years: Private companies only Special responsibilities: N/A No. of shares: 520,000 fully paid ordinary shares 8 XRF SCIENTIFIC LIMITED | 2020 ANNUAL REPORT             DIRECTORS’ REPORT COMPANY SECRETARIES Vance Stazzonelli, B.Comm, CPA – Vance has held the role of Company Secretary since June 2008. Andrew Watson, B.Comm, CA – Andrew was appointed Joint Company Secretary in August 2013. OTHER KEY MANAGEMENT Andrew Watson (Chief Financial Officer – XRF Scientific Limited) Andrew joined XRF Scientific as Group Accountant in August 2012 and was promoted to Chief Financial Officer in July 2014. He is a member of the Chartered Accountants Australia and New Zealand and holds a Graduate Diploma of Applied Corporate Governance. MEETINGS OF DIRECTORS The number of meetings held by the Board of Directors including meetings of the committees of the Board and the number of meetings attended by each of the Directors during the financial year ended 30 June 2020 were as follows: Fred Grimwade David Brown David Kiggins Vance Stazzonelli Full meetings of Directors Meetings of committees - Audit & Governance, Remuneration A 11 11 11 11 B 11 11 11 11 A 3 * 3 * B 3 * 3 * A = Meetings held during the time the director held office or was a member of the Committee during the year. B = Meetings attended. * = Not a member of the relevant Committee. XRF SCIENTIFIC LIMITED | 2020 ANNUAL REPORT 9                  DIRECTORS’ REPORT REMUNERATION REPORT (Audited) (a) Principles used to determine the nature and amount of remuneration. Remuneration governance The Remuneration Committee is a committee of the Board. Its objective is to ensure that remuneration policies and structures are fair and competitive and aligned with the long-term interests of the company. It is primarily responsible for making recommendations to the Board on:     the over-arching executive remuneration framework operation of the incentive plans which apply to the executive team, including key performance indicators and performance hurdles remuneration levels of executive directors and other key management personnel, and non-executive director fees Non-executive directors Fees and payments to non-executive directors reflect the demands which are made on, and the responsibilities of, the directors. Non-executive directors’ fees and payments are reviewed periodically by the Board. The Chairman’s fees are determined independently to the fees of non-executive directors based on comparative roles in the external market. The Chairman is not present at any discussions relating to determination of his own remuneration. The Chairman’s remuneration is inclusive of committee fees. Non-executive directors may receive share options. Managing director No additional remuneration is paid to Mr Stazzonelli as part of his appointment as Managing Director and his contracted terms of employment remain unchanged. Directors’ fees Directors’ remuneration was last reviewed in July 2020 and it was decided that fees would not be increased. The current fees are as follows: Chairman Non-Executive Directors Committee Chairman $89,610 $56,650 $8,240 The maximum amount payable is capped at $400,000 per annum and was approved by shareholders at the Annual General Meeting in November 2012. Executive pay The executive pay and reward framework has three components: 1. Base pay and benefits, including superannuation 2. Short-term performance incentives, and 3. Long-term incentives. It is Board policy to review key management annually, and adjust such compensation taking into account the manager’s performance, the performance of the entity which they manage, and the performance of the Group of companies. Where appropriate, there is a direct link between financial performance (profit or growth) to key managers’ compensation by way of bonus, which is assessed under a weighted balanced scorecard method, as set out by the Remuneration Committee at the start of each year. This method is accepted by the Board as being an appropriate incentive for encouraging key management personnel to reach targets that are in excess of budgeted growth. (i) Base Pay Executives are offered a competitive base pay that forms the fixed component of pay. Base pay for executives is reviewed annually to ensure the executive’s pay is competitive with the market. An executive’s pay is reviewed on promotion. 10 XRF SCIENTIFIC LIMITED | 2020 ANNUAL REPORT             DIRECTORS’ REPORT REMUNERATION REPORT (Audited) continued (ii) Benefits Executives may receive benefits including car/mileage allowance. (iii) Superannuation Retirement benefits of 9.5% of the base pay are delivered to the individual super fund of the executive’s choice. (iv) Short-term performance incentives Bonuses may be paid on the performance of the individual entity based on full year performance for the financial year. In most instances bonus payments are based on the achievement of a percentage of that year’s budget and targets/objectives being met. A short-term incentive (STI) pool is available for executives during the annual review, which is subject to caps that are in place. Using a profit target ensures variable reward is only available when value has been created for shareholders and when profit is consistent with the business plan. Specific details of key management personnel bonuses can be found under the service contracts section of this report. (v) Long-term incentives There are no specific long-term incentives in place, however the matter is currently being considered by the Remuneration Committee. (vi) Assessing performance and claw-back of remuneration The Company’s current Executive Performance Reward Policy does not currently include any clawback provisions. (b) Details of remuneration (i) Non-Executive Fred Grimwade Chairman David Brown David Kiggins Director Director Fixed Remuneration (ii) Executive Vance Stazzonelli Managing Director Andrew Watson Chief Financial Officer The level of fixed remuneration is set as to provide base level of remuneration which is both appropriate to the position and its competitive market. Fixed remuneration is reviewed annually by the Remuneration Committee based on market rates, as well as having regard to the Company and individual performance. The fixed remuneration of other key management personnel is contained in information that follows. Variable Remuneration (Short-Term Incentive) To assist in achieving the objective of retaining a high-quality executive team, the Remuneration Committee links the nature and amount of the executive emoluments to the Company’s financial and operating performance. For the Managing Director, variable remuneration is calculated based on an assessment of key performance indicators using a weighted balanced scorecard method, as set out by the Remuneration Committee at the start of each year. The maximum amount payable to the Managing Director for 2020 is $70,000. There were five categories of STI performance measure (plus a discretionary component) for the year ended 30 June 2020. Those measures were chosen to provide a balance between corporate, individual, operational, strategic, financial and behavioural aspects of performance. The weighting assigned to each of the performance measures was as follows:  Group financial performance (30%)  Leadership (10%)  Stakeholder & associated business relations (5%)  Execution of business growth strategy (30%)  Compliance and risk management (5%)  Discretionary (20%) XRF SCIENTIFIC LIMITED | 2020 ANNUAL REPORT 11                  DIRECTORS’ REPORT REMUNERATION REPORT (Audited) continued (b) Details of remuneration continued The Remuneration Committee considered the performance of the Managing Director against the performance measures outlined above. A range of financial, strategic and operational targets were met and internal expansion plans are on schedule. All compliance obligations were met throughout the year with no reported issues and relationships with internal and external stakeholders were well managed. It was decided that $31,963 (plus superannuation of 9.5%) would be paid, which is 50% of the maximum amount payable. Bonus payments to other key management personnel were 100% discretionary, based on a range of financial, strategic and operational factors. These amounts were accrued at 30 June 2020 and paid in August 2020. Amounts of remuneration Details of the remuneration of directors and the key management personnel (as defined in AASB 124 Related Party Disclosures) of XRF Scientific Limited are set out in the following: 2020 * Non-executive directors Fred Grimwade David Brown David Kiggins Sub-total non-executive directors Executive directors Vance Stazzonelli Sub-total executive directors Other key management personnel Andrew Watson Sub-total key management personnel 2019 Non-executive directors Fred Grimwade David Brown David Kiggins Kenneth Baxter*** Sub-total non-executive directors Executive directors Vance Stazzonelli Sub-total executive directors Other key management personnel Andrew Watson Sub-total key management personnel Short-term employment Long-term Post- Cash Salary $ Cash Bonuses $ Other Super- annuation $ Long Service Leave $ Termination benefits $ Total $ 78,531 49,745 56,867 185,143 - - - - - ** 170,993 - 170,993 270,613 270,613 31,963 31,963 170,386 170,386 626,142 9,132 9,132 41,095 170,993 - - - - 7,460 4,726 5,402 17,588 28,745 28,745 17,054 17,054 63,387 Post- - - - - 5,955 5,955 3,508 3,508 9,463 - - - - - - - - - 85,991 225,464 62,269 373,724 337,276 337,276 200,080 200,080 911,080 Short-term employment Long-term Cash Salary $ Cash Bonuses $ Other Super- annuation $ Long Service Leave $ Termination benefits $ Total $ 71,865 50,228 57,534 57,534 207,130 - - - - - - ** 171,000 - - 6,827 4,772 5,466 2,613 171,000 19,678 270,000 270,000 31,963 31,963 - - 170,000 170,000 647,130 9,132 9,132 ****7,846 7,846 41,095 178,846 28,687 28,687 17,763 17,763 66,128 - - - - - 5,663 5,663 3,844 3,844 9,507 - - - - - - - - - - 78,692 226,000 63,000 30,116 397,808 336,313 336,313 208,585 208,585 942,706 * ** As a COVID-19 cost-saving measure, voluntary pay cuts were in place for period of 7 weeks (Non-Executive Directors: 30%; Other KMPs: 20%). Technical services provided by consultancy (such as technical sales and support, analytical method development). *** Resigned on 29 October 2018. **** Cash payment of annual leave accrued by the employee. 12 XRF SCIENTIFIC LIMITED | 2020 ANNUAL REPORT             DIRECTORS’ REPORT REMUNERATION REPORT (Audited) continued (b) Details of remuneration continued Percentage of performance related compensation of total remuneration Certain executive personnel are paid performance bonuses in addition to set remuneration amounts. The Board of Directors have set these bonuses to encourage growth and profitability. Bonuses are paid as per the conditions set out on pages 11 and 12. The relative proportions of remuneration that are linked to performance and those that are fixed are as follows: Executive personnel Vance Stazzonelli Andrew Watson Fixed Remuneration At risk - STI At risk - LTI 2020 2019 2020 2019 2020 2019 90% 95% 90% 95% 10% 5% 10% 5% – – – – Options issued as part of total remuneration No options have been issued in 2019 or 2020 as part of total remuneration. Voting and comments made at the company’s 2019 Annual General Meeting The company received validly appointed proxies of 98% of “yes” votes on its remuneration report for the 2019 financial year. The remuneration resolution was carried on a show of hands. The company did not receive any specific feedback at the AGM or throughout the year on its remuneration practices. (c) Shareholder Wealth The following is a summary of key shareholder wealth statistics for the Company over the past 5 years (listed since 2006). Dividends Declared Per Share Price Market Capitalisation EBIT $ Earnings Per Share Cents 2015/16 2,318,737 2016/17 982,440 2017/18 1,598,268 2018/19 3,249,762 2019/20 4,602,319 1.2 0.6 0.8 1.6 2.3 Share Cents 0.5 0.24 0.3 1.0 1.4 Cents $ 18 17 16 20 24 24,088,645 22,750,387 22,081,257 26,765,160 32,118,193 (d) Bonuses Each individual Key Management Personnel performance bonus was discussed and reviewed against the requirements set out on page 11. It was agreed that the proposed performance bonuses met these conditions, specifically individual performance against agreed Key Performance Indicators. XRF SCIENTIFIC LIMITED | 2020 ANNUAL REPORT 13                  DIRECTORS’ REPORT REMUNERATION REPORT (Audited) continued (e) Shares held by key management personnel Details of equity instruments (other than options and rights) held directly, indirectly or beneficially by key management personnel and their related parties are as follows: Name Directors of XRF Scientific Limited Fred Grimwade David Brown David Kiggins Vance Stazzonelli Andrew Watson Securities Trading Policy Balance at 1 On-market Balance at 30 July 2019 trades June 2020 500,000 8,800,000 212,900 520,000 - 200,000 - - - 45,000 500,000 9,000,000 212,900 520,000 45,000 The Company has adopted a policy that imposes certain restrictions on Directors and employees trading in the securities of the Company. The restrictions have been imposed to prevent trading in contravention of the insider trading provisions of the Corporations Act. Option holdings There were no options over ordinary shares in the company held during the financial year by directors of XRF Scientific Limited or other key management personnel of the Group. Dividends received by key management personnel Details of dividends received directly, indirectly or beneficially by key management personnel and their related parties are as follows: Name Directors of XRF Scientific Limited Fred Grimwade David Brown David Kiggins Vance Stazzonelli (f) Service Agreements 2020 2019 5,000 88,000 2,129 5,200 1,200 26,013 639 1,350 Remuneration for the Managing Director and Chief Financial Officer is set out in service agreements, which are detailed below: Vance Stazzonelli, Managing Director of XRF Scientific Limited Terms of agreement – Ongoing employment contract effective 1 July 2012. Base salary is $278,100 per annum (effective 1 July 2019 and ongoing), plus superannuation benefits of 9.5%. Payment of a termination benefit on early termination by the Company, other than for gross misconduct, equal to six months full pay. Notice period by the employee of six months. Payment of bonuses is based on a range of strategic, financial, operational, personnel, and Board-related key performance indicators. Andrew Watson, Chief Financial Officer of XRF Scientific Limited Terms of agreement – Ongoing employment contract effective 24 July 2014. Base salary is $175,100 per annum (effective 1 July 2019 and ongoing), plus superannuation benefits of 9.5%. Payment of a termination benefit on early termination by the Company, other than for gross misconduct, equal to three months full pay. Notice period by the employee of three months. Payment of bonuses is based on a range of strategic, financial, operational, personnel, and Board-related key performance indicators. No other key management personnel are currently employed under service contracts. 14 XRF SCIENTIFIC LIMITED | 2020 ANNUAL REPORT             DIRECTORS’ REPORT REMUNERATION REPORT (Audited) continued (g) Share-based compensation There was no share-based compensation to any Director or Key Management Personnel for the years ended 30 June 2020 and 2019. The Company has not adopted an employee share option scheme. (h) Remuneration consultants No remuneration consultants were used in the years ended 30 June 2020 and 30 June 2019. (i) Other transactions with key management personnel Premises were rented from a related entity of Director David Brown during the financial year. These properties were rented on normal commercial terms and conditions, totalling $107,997 (2019: $117,251). No amounts were outstanding at the end of the year. (j) Loans to directors and executives No loans were made to directors and executives during the financial years ended 30 June 2020 and 30 June 2019. End of remuneration report (Audited). NON-AUDIT SERVICES Details of the non-audit services provided by the Company’s external auditor BDO Audit (WA) Pty Ltd and its related practices during the year ended 30 June 2020 are outlined in the following table. The Directors are satisfied that the provision of non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The nature and the scope of each type of non-audit service provided means that auditor independence was not compromised. During the year the following fees were paid or payable for services provided by the auditor of the parent entity, its related practices and non-related audit firms: BDO - Australia Audit and review of financial reports Taxation services Other services BDO - Belgium Audit and review of financial reports Taxation services BDO - Canada Taxation services BDO - UK Consolidated 2020 $ 2019 $ 123,245 44,621 529 41,147 7,488 113,731 49,054 770 7,821 7,240 11,578 12,696 Audit and review of financial reports Total remuneration for audit and other services 7,414 236,022 9,434 200,746 The Board is satisfied that the auditors of the Company, BDO Audit (WA) Pty Ltd remain independent. XRF SCIENTIFIC LIMITED | 2020 ANNUAL REPORT 15                  DIRECTORS’ REPORT OPTIONS No unissued ordinary shares of XRF Scientific Limited remain under option at the date of this report. INSURANCE OF DIRECTORS AND OFFICERS During the financial year, the company paid insurance premiums to insure the directors and officers of the company and its Australian–based controlled entities. The liabilities insured are legal costs that may be incurred in defending civil or some criminal proceedings that may be brought against the officers in their capacity as officers of entities in the Group, and any other payments arising from liabilities incurred by the officers in connection with such proceedings. This does not include such liabilities that arise from conduct involving a wilful breach of duty by the officers or the improper use by the officers of their position or of information to gain advantage for themselves or someone else or to cause detriment to the company. It is not possible to apportion the premium between amounts relating to the insurance against legal costs and those relating to other liabilities. PROCEEDINGS ON BEHALF OF OR INVOLVING THE ECONOMIC ENTITY No person has applied for leave of Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the company or intervene in any proceedings to which the company is a party for the purpose of taking responsibility on behalf of the company for all or any part of those proceedings. No proceedings have been brought or intervened in on behalf of the company with leave of the Court under section 237 of the Corporations Act 2001. AUDITOR’S INDEPENDENCE DECLARATION A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 17. AUDITOR BDO Audit (WA) Pty Ltd continues in office in accordance with section 327 of the Corporations Act 2001. This report is made in accordance with a resolution of directors and signed for and on behalf of the Board by: Fred S Grimwade Chairman Perth 24 August 2020 16 XRF SCIENTIFIC LIMITED | 2020 ANNUAL REPORT             Tel: +61 8 6382 4600 Fax: +61 8 6382 4601 www.bdo.com.au 38 Station Street Subiaco, WA 6008 PO Box 700 West Perth WA 6872 Australia DECLARATION OF INDEPENDENCE BY JARRAD PRUE TO THE DIRECTORS OF XRF SCIENTIFIC LIMITED As lead auditor of XRF Scientific Limited for the year ended 30 June 2020, I declare that, to the best of my knowledge and belief, there have been: 1. No contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and 2. No contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of XRF Scientific Limited and the entities it controlled during the period. Jarrad Prue Director BDO Audit (WA) Pty Ltd Perth, 24 August 2020 BDO Audit (WA) Pty Ltd ABN 79 112 284 787 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit (WA) Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation. CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2020  Revenue from continuing operations Cost of sales Gross profit Other income Administration expenses Occupancy expenses Other expenses Finance costs Profit before income tax Income tax expense Note Consolidated 2020 $ 2019 $ 5 29,091,508 29,028,642 (16,837,089) (17,673,013) 12,254,419 11,355,629 290,791 25,443 (6,727,036) (6,675,829) (679,410) (526,368) (158,142) (674,026) (774,144) (105,844) 4,454,254 3,151,229 7 (1,332,874) (1,013,639) Profit after income tax from continuing operations attributable to equity holders of XRF Scientific Limited 3,121,380 2,137,590 Other comprehensive income Items that will be classified to profit or loss Foreign currency translation differences Total comprehensive income for the year 22(a) 40,982 350,763 3,162,362 2,488,353 Total comprehensive income attributable to equity holders of XRF Scientific Limited 3,162,362 2,488,353 Earnings per share for the year attributable to equity holders of XRF Scientific Limited Basic earnings per share (cents per share) Diluted earnings per share (cents per share) 31 31 2.3 2.3 1.6 1.6 The above Consolidated Statement of Profit or Loss and Other Comprehensive Income should be read in conjunction with the accompanying notes. 18 XRF SCIENTIFIC LIMITED | 2020 ANNUAL REPORT                 CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2020 CURRENT ASSETS Cash and cash equivalents Trade and other receivables Inventories Other assets Total Current Assets NON-CURRENT ASSETS Property, plant and equipment Intangible assets Deferred tax asset Total Non-Current Assets Total Assets CURRENT LIABILITIES Trade and other payables Provisions Short-term borrowings Current lease liabilities Other current liabilities Current income tax liability Total Current Liabilities NON-CURRENT LIABILITIES Long-term borrowings Non-current lease liabilities Deferred tax liability Provisions Total Non-Current Liabilities Total Liabilities Net Assets EQUITY Issued capital Reserves Retained profits Total Equity Note Consolidated 2020 $ 2019 $ 8 9 10 11 12 13 14 15 16 17 18 17 18 19 20 3,634,171 3,238,297 3,769,954 4,067,214 11,295,835 8,699,219 409,613 418,738 19,109,573 16,423,468 9,275,484 8,397,919 15,890,844 15,973,269 891,689 924,535 26,058,017 25,295,273 45,167,590 41,719,191 1,709,918 2,090,278 4,847,496 2,629,542 111,192 436,520 236,223 455,538 697,854 - 195,685 419,248 7,796,887 6,032,607 824,754 564,520 295,411 50,547 1,561,072 - 230,423 83,722 1,735,232 1,875,217 9,532,119 7,907,824 35,635,471 33,811,367 21 22(a) 22(b) 18,584,489 18,584,489 1,329,103 1,288,121 15,721,879 13,938,757 35,635,471 33,811,367 The above Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes. XRF SCIENTIFIC LIMITED | 2020 ANNUAL REPORT 19                CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2020 30 JUNE 2020 – CONSOLIDATED Issued Share Capital Share Option Reserve $ $ Foreign Currency Translation Reserve $ Retained Profits Total $ $ Balance at 1 July 2019 18,584,489 759,243 528,878 13,938,757 33,811,367 Profit for the year Other comprehensive income Total comprehensive income for the year Transactions with Equity Holders in their capacity as Equity Holders Ordinary shares issued, net of transaction costs Dividends paid / payable - - - - - - - - - - - - - 40,982 40,982 3,121,380 - 3,121,380 3,121,380 40,982 3,162,362 - - - - (1,338,258) (1,338,258) - (1,338,258) (1,338,258) Balance at 30 June 2020 18,584,489 759,243 569,860 15,721,879 35,635,471 30 JUNE 2019 – CONSOLIDATED Issued Share Capital Share Option Reserve $ $ Foreign Currency Translation Reserve $ Retained Profits Total $ $ Balance at 1 July 2018 18,584,489 759,243 178,115 12,202,643 31,724,490 Profit for the year Other comprehensive income Total comprehensive income for the year Transactions with Equity Holders in their capacity as Equity Holders Ordinary shares issued, net of transaction costs Dividends paid / payable - - - - - - - - - - - - - 350,763 350,763 2,137,590 - 2,137,590 2,137,590 350,763 2,488,353 - - - - (401,476) (401,476) - (401,476) (401,476) Balance at 30 June 2019 18,584,489 759,243 528,878 13,938,757 33,811,367 The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes. 20 XRF SCIENTIFIC LIMITED | 2020 ANNUAL REPORT               CONSOLIDATED STATEMENT OF CASH FLOWS AS AT 30 JUNE 2020 Cash flows from operating activities Receipts from customers (inclusive of GST) Payments to suppliers and employees (inclusive of GST) Payments from government subsidies Finance costs Income taxes paid Interest received Note Consolidated 2020 $ 2019 $ 29,459,112 29,176,925 (24,198,108) (24,185,794) 287,505 - (158,142) (105,844) (1,198,751) (1,016,292) 10,077 7,311 Net cash inflow (outflow) from operating activities 29 4,201,693 3,876,306 Cash flows from investing activities Payments for property, plant and equipment Payments for research and development Net cash inflow (outflow) from investing activities Cash flows from financing activities Proceeds from borrowings Repayment of borrowings Payment of lease liabilities Dividends paid Net cash inflow (outflow) from financing activities 17 17 Cash and cash equivalents at the beginning of the financial period Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at the end of the financial period 8 (539,004) (214,402) (753,406) (521,110) (110,722) (641,502) 819,215 (2,142,195) (391,175) (1,338,258) (3,052,413) 738,074 (748,479) - (401,476) (411,881) 3,238,297 395,874 3,634,171 415,374 2,822,923 3,238,297 The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes. XRF SCIENTIFIC LIMITED | 2020 ANNUAL REPORT 21                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  FOR THE YEAR ENDED 30 JUNE 2020 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies adopted in the preparation of the financial statements are set out below. These policies have been consistently applied to all the years presented. (a) Basis of preparation The financial report of XRF Scientific Limited for the year ended 30 June 2020 was authorised for issue in accordance with a resolution of the directors on 24 August 2020 and covers XRF Scientific Limited as an individual entity as well as the consolidated entity consisting of XRF Scientific Limited and its subsidiaries. These financial statements are presented in the Australian currency. XRF Scientific Limited is a company limited by shares incorporated in Australia and is a for-profit entity whose shares are publicly traded on the Australian Stock Exchange. These general purpose financial statements have been prepared in accordance with Australian Standards, other authoritative pronouncements of the Australian Accounting Standards Board, Australian Accounting Interpretations and the Corporations Act 2001. Compliance with IFRS The financial statements of XRF Scientific Limited also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board. Historical cost convention These financial statements have been prepared under the historical cost convention. Critical accounting estimates The preparation of financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in note 3. Financial statement presentation The following significant accounting policies have been adopted in the preparation and presentation of the financial report. (b) Principles of consolidation (i) Subsidiaries The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of XRF Scientific Limited (“company” or “parent company”) as at 30 June 2020 and the results of all subsidiaries for the year then ended. XRF Scientific Limited and its subsidiaries together are referred to in this report as the Group or the consolidated entity. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its investment with the entity and has the ability to affect those returns through its power to direct the activities of the entity. All controlled entities have a 30 June financial year end. The consolidated financial statements are prepared by combining the financial statements of all entities that comprise the consolidated entity, being the company (the parent company) and its subsidiaries. Consistent accounting policies are employed in the preparation and presentation of the consolidated financial statements. On acquisition, the assets, liabilities and contingent liabilities of a subsidiary are measured at their fair values at the date of acquisition. Any excess of the cost of acquisition over the fair values of the identifiable net assets acquired is recognised as goodwill. If, after reassessment, the fair values of the identifiable net assets acquired exceed the cost of acquisition, the benefit is credited to profit or loss in the period of acquisition. The consolidated financial statements include the information and results of each subsidiary from the date on which the company obtains control and until such time as the company ceases to control such entities. All intercompany balances and transactions between entities in the economic entity, including any unrealised profits or losses, have been eliminated on consolidation. Accounting policies of subsidiaries are consistent with the policies adopted by the Group. 22 XRF SCIENTIFIC LIMITED | 2020 ANNUAL REPORT               NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  FOR THE YEAR ENDED 30 JUNE 2020 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued (ii) Investments in associates and joint-ventures Investment in associates is accounted for using the equity method of accounting in the consolidated financial statements. Under the equity method, the investment in the associates is carried in the consolidated statement of financial position at cost plus post-acquisition changes in the Group’s share of net assets of the associate. After application of the equity method, the Group determines whether it is necessary to recognise any additional impairment loss with respect to the Group’s net investment in the associate. The Group's share of the associate post-acquisition profits or losses is recognised in the statement of profit or loss and other comprehensive income. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the Group's share of losses in the associate equals or exceeds its interest in the associate, including any unsecured long-term receivables and loans, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate. The reporting dates of the associate and the Group are identical and the associate’s accounting policies conform to those used by the Group for like transactions and events in similar circumstances. (iii) Changes in ownership interests When the Group ceases to have control, joint control or significant influence, any retained interest in the entity is re- measured to its fair value with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, jointly controlled entity or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss. If the ownership interest in a jointly-controlled entity or an associate is reduced but joint control or significant influence is retained, only a proportionate share of the amounts previously recognised in other comprehensive income are reclassified to profit or loss where appropriate. (c) Segment reporting 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 Managing Director. (d) Foreign currency translation Functional and presentation currency The functional currency of each Group entity is measured using the currency of the primary economic environment in which that entity operates. The consolidated financial statements are presented in Australian dollars which is the parent entity’s functional and presentation currency. Transaction and balances Foreign currency transactions are translated into functional currency using the exchange rates prevailing at the date of the transaction. Foreign currency monetary items are translated at the year-end exchange rate. Exchange differences arising on the translation of monetary items are recognised in the Statement of Profit or Loss and Other Comprehensive Income, except where deferred in equity as a qualifying cash flow or net investment hedge. The differences taken to equity are recognised in profit or loss on disposal of the net investment. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the initial transaction and are recognised in the profit or loss. Group Companies The results and financial position of all the Group entities (none of which has the currency of a hyperinflationary currency economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows. Assets and liabilities for each statement of financial position presented are translated at the closing rate at the date of that statement of financial position. Income and expenses for each profit or loss item are translated at average exchange rates. All resulting exchange differences are recognised in other comprehensive income. XRF SCIENTIFIC LIMITED | 2020 ANNUAL REPORT 23                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  FOR THE YEAR ENDED 30 JUNE 2020 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued (e) Revenue recognition Revenue is measured at the fair value of the consideration received or receivable. Amounts disclosed as revenue are net of returns, trade allowances and amounts collected on behalf of third parties. Revenue is recognised as follows: (i) Revenue from contracts with customers Group revenue is derived from the manufacture and sale of chemicals, equipment and accessories to production mines, construction material companies and commercial analytical laboratories, in Australia and overseas. These finished goods are primarily used in the preparation of samples for analysis. The Group also derives service revenue from the installation, maintenance and repair of goods sold to customers. The group considers whether there are other promises in the contract that are separate performance obligations to which a portion of the transaction price should be allocated (e.g. warranties). In determining the transaction price to be used in the recognition of revenue for the sale of goods, the group considers the effects of variable consideration, the existence of significant financing components, non-cash consideration and consideration payable to the customer (if any) Sale of finished goods - Revenue is recognised at a point in time when control of the product has transferred to the customer, being when products are delivered. Delivery occurs when the products have been shipped to the specific location, the risks of obsolescence and loss have been transferred to the customer and the customer has accepted the product in accordance with the agreed terms. Sales of goods are standalone transactions and do not involve ongoing contracts, nor the supply of additional goods and services. Service revenue - When finished goods are bundled with installation services, they are listed separately on the sales invoice and there is a clear valuation assigned to each individual component. Installation is an optional service and could be performed by the customer or a third party, so it is considered to be a separate performance obligation. The performance of the service usually coincides with the delivery and installation of the goods, so both components can be recognised on the same date. Where there is a delay between the delivery of goods and the performance of services, the service components are allocated to the balance sheet as liabilities. This revenue will be recognised on the date that the service has been performed. Maintenance and repair services fall into two main categories:   Single services to be performed on a specified date in the future – If invoiced in advance, the revenue for these transactions remains on the balance sheet as a liability until the service is performed. Contracts to provide multiple services over a period of time – The revenue for these transactions is initially allocated to the balance sheet and then recognised on a monthly basis over the term of the contract (either 1 or 2 years), as the customer receives the benefit of the service on a simultaneous basis. (ii) Contract balances Contract assets - A contract asset is the right to consideration in exchange for goods or services transferred to the customer. If the group performs by transferring goods or services to a customer before the customer pays consideration or before payment is due, a contract asset is recognised for the earned consideration that is conditional. Trade receivables - Trade receivables represent the group’s right to an amount of consideration that is unconditional (i.e. only the passage of time is required before payment of the consideration is due). Contract liabilities - A contract liability is the obligation to transfer goods or services to a customer for which the group has received consideration (or an amount of consideration is due) from the customer. If a customer pays consideration before the group transfers goods or services to the customer, a contract liability is recognised when payment is made or is due (whichever is earlier). Contract liabilities are recognised as revenue when the group performs under the contract. (iii) Interest income Interest revenue is recognised on a proportional basis, considering the interest rates applicable to the financial assets. (f) Income tax The income tax expense or revenue for the period is the tax payable on the current years taxable income based on the national income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements. 24 XRF SCIENTIFIC LIMITED | 2020 ANNUAL REPORT               NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  FOR THE YEAR ENDED 30 JUNE 2020 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when the assets are recovered or liabilities are settled, based on those tax rates which are enacted or substantially enacted for each jurisdiction. The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary differences to measure the deferred tax asset or liability. An exception is made for certain temporary differences arising from the initial recognition of an asset or a liability. No deferred tax asset or liability is recognised in relation to these temporary differences if they arose in a transaction, other than a business combination, that at the time of the transaction did not affect either accounting profit or taxable profit or loss. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of investments in controlled entities where the parent is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future. Current and deferred tax balances attributable to amounts recognised directly in equity are also recognised directly in equity. XRF Scientific Limited and its wholly-owned Australian controlled entities have implemented the tax consolidation legislation. The head entity, XRF Scientific Limited, and the controlled entities in the tax consolidated group account for their own deferred tax amounts. Current tax is accounted for by each subsidiary entity, which is then consolidated up into the tax consolidated group, as per the tax sharing agreement. In addition to its own share of current and deferred tax amounts, XRF Scientific Limited also recognises the current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled entities in the tax consolidated group. Assets or liabilities arising under tax funding agreements with the tax consolidated entities are recognised as amounts receivable from or payable to other entities in the Group. Income tax is allocated under the separate taxpayer within group approach. Details about the tax funding agreement are disclosed in note 7. (g) Leases The group leases various offices, warehouses and factories. Rental contracts are typically made for fixed periods of 1 to 5 years but may have extension options as described below. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. The lease agreements do not impose any covenants, but leased assets may not be used as security for borrowing purposes. Until the 2019 financial year, leases of property, plant and equipment were classified as either finance or operating leases. Payments made under operating leases (net of any incentives received from the lessor) were charged to profit or loss on a straight-line basis over the period of the lease. From 1 July 2019, leases are recognised as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use by the group. Each lease payment is allocated between the liability and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The right-of-use asset is depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis. Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments:      fixed payments (including in-substance fixed payments), less any lease incentives receivable; variable lease payments that are based on an index or a rate; amounts expected to be payable by the lessee under residual value guarantees; the exercise price of a purchase option if the lessee is reasonably certain to exercise that option; and payments of penalties for terminating the lease, if the lease term reflects the lessee exercising that option. XRF SCIENTIFIC LIMITED | 2020 ANNUAL REPORT 25                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  FOR THE YEAR ENDED 30 JUNE 2020 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be determined, the lessee’s incremental borrowing rate is used, being the rate that the lessee would have to pay to borrow the funds necessary to obtain an asset of similar value in a similar economic environment with similar terms and conditions. Right-of-use assets are measured at cost comprising the following:     the amount of the initial measurement of lease liability; any lease payments made at or before the commencement date less any lease incentives received; any initial direct costs; and restoration costs. Payments associated with short-term leases and leases of low-value assets are recognised on a straight-line basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less. Low-value assets comprise IT equipment and small items of office furniture. (h) Business combinations The acquisition method of accounting is used to account for all business combinations, including business combinations involving entities or businesses under common control, regardless of whether equity instruments or other assets are acquired. The consideration transferred for the acquisition of a subsidiary comprises the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred also includes the fair value of any contingent consideration arrangement and the fair value of any pre-existing equity interest in the subsidiary. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition date. On an acquisition-by-acquisition basis, the Group recognises any non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net identifiable assets. The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the Group’s share of the net identifiable assets acquired is recorded as goodwill. If those amounts are less than the fair value of the net identifiable assets of the subsidiary acquired and the measurement of all amounts has been reviewed, the difference is recognised directly in profit or loss as a bargain purchase. Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions. Contingent consideration is classified either as equity or a financial liability. Amounts classified as a financial liability are subsequently re-measured to fair value with changes in fair value recognised in profit or loss. All purchase consideration is recorded at fair value at the acquisition date. Contingent payments classified as debt are subsequently re-measured through profit or loss. Acquisition-related costs are expensed as incurred. Non-controlling interests in an acquiree are recognised either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net identifiable assets. This decision is made on an acquisition-by-acquisition basis. If the Group recognises previous acquired deferred tax assets after the initial acquisition accounting is completed there will no longer be any adjustment to goodwill. As a consequence, the recognition of the deferred tax asset will increase the Group’s net profit after tax. 26 XRF SCIENTIFIC LIMITED | 2020 ANNUAL REPORT               NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  FOR THE YEAR ENDED 30 JUNE 2020 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued (i) Impairment of assets Goodwill and intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment or more frequently if events or changes in circumstances indicate that they might be impaired. Other assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash flows from other assets or groups of assets (cash- generating units). Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at each reporting date. (j) Cash and cash equivalents For cash flow statement presentation purposes, cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid instruments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the Statement of Financial Position. (k) Trade receivables Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest rate method, less provision for expected credit losses Trade receivables are due for settlement no more than 90 days from the date of recognition. Collectability of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectable are written off to the Statement of Profit or Loss and Other Comprehensive Income. From 1 July 2018, a provision for impairment of receivables is established based on the expected credit loss approach. For trade receivables the Group applies the simplified approach permitted by AASB 9, which requires expected lifetime losses to be recognised from initial recognition of the receivables. Another indicator that determines the trade receivable is impaired is if the party is deemed to be bankrupt. The amount of the provision is the difference between the present value of cash flows due under the contract and the present value of the future cash flows an entity expects to receive, discounted at the original effective interest rate. Cash flows relating to short-term receivables are not discounted if the effect of discounting is immaterial. The movement in the provision is recognised in the Statement of Profit or Loss and Other Comprehensive Income. (l) Inventories Raw materials and stores, work in progress and finished goods Raw materials and stores, work in progress and finished goods are stated at the lower of cost and net realisable value. Cost comprises of direct materials, direct labour and an appropriate proportion of variable and fixed overhead expenditure, the latter being allocated on the basis of normal operating capacity. Costs are assigned to individual items of inventory on the basis of weighted average costs. Costs of purchased inventory are determined after deducting rebates and discounts. 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. (m) Investments and other financial assets (i) Classification The Group classifies its financial assets in the following measurement categories:   Those to be measured subsequently at fair value (either through other comprehensive income, or through profit or loss); and Those to be measured at amortised cost. The classification depends on the Group's business model for managing financial assets and the contractual terms of the cash flows. For assets measured at fair value, gains and losses will either be recorded in profit or loss or other comprehensive income. For investments in trade and other financial assets, this will depend on the business model in which the investment is held. For investments in equity instruments that are not held for trading, this will depend on whether the Group has made an irrevocable election at the time of initial recognition to account for the equity investment at fair value through other comprehensive income. XRF SCIENTIFIC LIMITED | 2020 ANNUAL REPORT 27                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  FOR THE YEAR ENDED 30 JUNE 2020 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued (ii) Initial Measurement At initial recognition, the Group 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 that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at fair value through profit or loss are expensed in profit or loss. Measurement of cash and cash equivalents and trade and other receivables remains at amortised cost consistent with the comparative period. (iii) Subsequent Measurement Subsequent measurement of financial assets depends on the Group's business model for managing the asset and the cash flow characteristics of the asset. There are three measurement categories into which the Group classifies its financial assets:  Amortised cost: Assets that are held for collection of contractual cash flows where those cash flows represent solely payments of principal and interest are measured at amortised cost. A gain or loss on trade and other financial assets that is subsequently measured at amortised cost is recognised in profit or loss when the asset is derecognised or impaired. Interest income from these financial assets is included in finance income using the effective interest rate method.  Fair value through other comprehensive income (FVOCI): Assets that are held for collecting contractual cash flows and through sale on specified dates. A gain or loss on a financial asset that is subsequently measured at FVOCI is recognised in other comprehensive income.  Fair value through profit or loss (FVPL): Assets that do not meet the criteria for amortised cost or FVOCI are measured at FVPL. All equity investments are measured at FVPL unless the Group makes an irrevocable election to classify as FVOCI. (iv) Impairment The Group assesses, on a forward-looking basis, the expected credit losses associated with its trade and other financial assets carried at amortised cost and FVOCI. The impairment methodology applied depends on whether there has been a significant increase in credit risk. (n) Fair value estimation The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure purposes. The carrying amount less impairment provision of trade receivables and payables are assumed to approximate their fair values. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Company for similar financial instruments. (o) Property, plant and equipment Property, plant and equipment is stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. All other repairs and maintenance are charged to profit or loss during the financial period in which they are incurred. Depreciation is calculated using a mixture of the straight line and diminishing value methods to allocate their cost, net of their residual values, over their estimated useful lives, as follows: Plant and Equipment Property Improvements Motor Vehicles Office Equipment 2%-40% 4%-25% 15%-25% 5%-66.67% 28 XRF SCIENTIFIC LIMITED | 2020 ANNUAL REPORT               NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  FOR THE YEAR ENDED 30 JUNE 2020 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting date. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (note 1(i)). Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in the profit or loss. (p) Intangible assets (i) Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Company’s share of the net identifiable assets of the acquired subsidiary/associate/business at the date of acquisition. Goodwill on acquisitions of subsidiaries and businesses is included in intangible assets. Goodwill on acquisitions of associates is included in investments in associates. Goodwill is not amortised. Instead, goodwill is tested for impairment annually or more frequently if events or changes in circumstances indicate that it might be impaired and carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. For the purpose of impairment testing, goodwill is allocated to the consolidated entity’s cash generating units identified according to business and geographical segments (note 13(a)). (ii) Patents, trademarks and licences Patents, trademarks and licences have a finite useful life and are carried at cost less accumulated amortisation and impairment losses. Amortisation is calculated using the straight-line method to allocate the cost of patents, trademarks and licences over their estimated useful lives, which vary from 3 to 20 years. (iii) Research and development Research expenditure is recognised as an expense as incurred. Costs incurred on development projects (relating to the design and testing of new or improved products) are recognised as intangible assets when it is probable that the project will be a success considering its commercial and technical feasibility and its costs can be measured reliably. The expenditure capitalised comprises all directly attributable costs, including costs of materials, services, direct labour and an appropriate proportion of overheads. Other development expenditures that do not meet these criteria are recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. Capitalised development costs are recorded as intangible assets and amortised from the point at which the asset is ready for use on a straight-line basis over its useful life, which varies from 1 to 8 years. (iv) Customer lists The customer lists were acquired as part of a business combination. They are recognised at their fair value at the date of acquisition and subsequently amortised on a straight-line basis over the estimated useful lives, between 3 to 8 years. (q) Trade and other payables These amounts represent liabilities for goods and services provided to the Company prior to the end of the financial year which are unpaid. Due to their short-term nature they are measured at amortised cost and are not discounted. The amounts are unsecured and are usually paid within 60 days of recognition. (r) Borrowings Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in profit or loss over the period of the borrowings using the effective interest method. Fees paid on the establishment of loan facilities, which are not incremental costs relating to the actual draw-down of the facility, are recognised as prepayments and amortised on a straight-line basis over the term of the facility. Borrowings are removed from the Statement of Financial Position when the obligation specified in the contract is discharged, cancelled or expired. The difference between the carrying amount of a financial liability that has been extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognised in other income or other expenses. Borrowings are classified as current liabilities unless the Company has an unconditional right to defer settlement of the liability for at least 12 months after the reporting date. XRF SCIENTIFIC LIMITED | 2020 ANNUAL REPORT 29                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  FOR THE YEAR ENDED 30 JUNE 2020 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued (s) Borrowing costs Borrowing costs incurred for the construction of any qualifying asset are capitalised during the period of time that is required to complete and prepare the asset for its intended use or sale. All other borrowing costs are recognised as an expense in profit or loss in the period in which they are incurred. (t) Provisions Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at the reporting date. The discount rate used to determine the present value reflects current market assessments of the time value of money and the risks specific to the liability. The increase in the provision due to the passage of time is recognised as an interest expense. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small. Provisions for legal claims, service warranties and make good obligations are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and the amount has been reliably estimated. (u) Employee benefits (i) Short-term obligations Liabilities for wages and salaries, including non-monetary benefits and annual leave expected to be settled wholly within 12 months of the reporting date are recognised in other payables in respect of employees’ services up to the reporting date and are measured at the amounts expected to be paid when the liabilities are settled. (ii) Other long-term employee benefit obligations The liability for long service leave is recognised in the provision for employee benefits 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, experiences of employee departures and periods of service. There amounts are not expected to be settled wholly within 12 months of the reporting date. Expected future payments are discounted using market yields at the reporting date on corporate bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. (iii) Retirement benefit obligations The amount charged to profit or loss in respect of superannuation represents the contributions made by the Group to superannuation funds as nominated by the individual employee. Contributions made by the Company to employee superannuation funds are charged as expenses when incurred. (iv) Termination benefits Termination benefits are payable when employment is terminated before the normal retirement date, or when an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits when it is demonstrably committed to either terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal or providing termination benefits as a result of an offer made to encourage voluntary redundancy. Benefits falling due more than 12 months after reporting date are discounted to present value. (v) 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 from the proceeds. Incremental costs directly attributable to the issue of new shares or options for the acquisition of a business are not included in the cost of acquisition as part of the purchase consideration If the entity reacquires its own equity instruments, e.g. as the result of a share buy-back, those instruments are deducted from equity and the associated shares are cancelled. No gain or loss is recognised in the profit or loss and the consideration paid including any directly attributable incremental costs (net of income taxes) is recognised directly in equity. 30 XRF SCIENTIFIC LIMITED | 2020 ANNUAL REPORT               NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  FOR THE YEAR ENDED 30 JUNE 2020 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued (w) Dividends Provision is made for the amount of any dividend declared, being appropriately authorised and no longer at the discretion of the entity, on or before the end of the financial year but not distributed at reporting date. (x) Goods and services tax Revenues, expenses and assets are recognised net of the amount of associated goods and services tax (GST), unless the GST incurred is not recoverable from the taxation authority. In this case it is recognised as part of the cost of acquisition of the asset or as part of the expense. Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the taxation authority is included with other receivables or payables in the statement of financial position. Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to, the taxation authority, are presented as operating cash flows. (y) Earnings per share (i) Basic earnings per share Basic earnings per share is calculated by dividing the profit attributable to equity holders 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, adjusted for bonus elements in ordinary shares issued during the year. (ii) Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. (z) New accounting standards and interpretations The following standard became applicable for the current reporting period: (i) AASB 16 Leases (effective from 1 July 2019) Lessee accounting - Lessees are required to recognise assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of a low value. A lessee measures right-of-use assets similarly to other non- financial assets and lease liabilities similarly to other financial liabilities. Assets and liabilities arising from a lease are initially measured on a present value basis. The measurement includes non-cancellable lease payments, and also includes payments to be made in optional periods if the lessee is reasonably certain to exercise an option to extend the lease, or not to exercise an option to terminate the lease. AASB 16 contains disclosure requirements for leases. To the extent that the entity, as lessee, has significant operating leases outstanding at the date of initial application, 1 July 2019, right-of-use assets will be recognised for the amount of the unamortised portion of the useful life, and lease liabilities will be recognised at the present value of the outstanding lease payments. Thereafter, earnings before interest, depreciation, amortisation and tax (EBITDA) will increase because operating lease expenses currently included in EBITDA will be recognised instead as amortisation of the right-of-use asset, and interest expense on the lease liability. However, there will be an overall reduction in net profit before tax in the early years of a lease because the amortisation and interest charges will exceed the current straight-line expense incurred under AASB 117 Leases. This trend will reverse in the later years. There will be no change to the accounting treatment for short-term leases less than 12 months and leases of low value items, which will continue to be expensed on a straight-line basis. The Group has applied AASB 16 Leases from 1 July 2019. Refer to note 18 for further details. XRF SCIENTIFIC LIMITED | 2020 ANNUAL REPORT 31                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  FOR THE YEAR ENDED 30 JUNE 2020 NOTE 2: FINANCIAL RISK MANAGEMENT The Group’s activities expose it to a variety of financial risks; market risk (including foreign exchange risk, price risk, cash flow risk, fair value risk and interest rate risk); credit risk; and liquidity risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. Risk management is carried out by management under policies approved by the Board of Directors. Management identifies, evaluates and hedges financial risks in close co-operation with the Company’s operating units. The Board provides guidance for overall risk management and other specific areas, such as mitigating foreign exchange, interest rate and credit risks, use of financial instruments and investing excess liquidity. (a) Market risk (i) Foreign exchange risk The Group is exposed to foreign currency risk on sales, purchases and borrowings that are denominated in a currency other than the Australian Dollar. The currencies giving rise to this risk are predominantly Euros, the US Dollar, and the Canadian Dollar. Foreign currency risk arises where settlement of a trade receivable, payable or borrowings is denominated in a currency that is not the entity’s functional currency, which may result in a foreign currency gain or loss. The Group seeks to mitigate this risk by engaging in a majority of commercial transactions that are generally in AUD. The Group’s exposure to foreign currency risk at the reporting date was as follows: Trade receivables Trade payables Group sensitivity 30 June 2020 30 June 2019 CAD EUR USD CAD EUR USD 87,765 615,921 394,101 109,588 624,179 397,291 3,732 95,586 26,035 5,412 104,791 112,047 Based on the financial instruments held at 30 June 2020, had the Australian dollar strengthened / weakened by 10% (based on historical reasonableness movements) against the exchange rates in the above tables, with all other variables held constant, the Group’s post-tax profit for the year would have been $134,000 lower / $163,778 higher (2019: $122,087 lower / $149,218 higher), mainly as a result of foreign currency exchange gains/losses on translation of foreign currency denominated financial instruments as detailed in the table above. (ii) Price risk As the Group does not have any investments in equities or commodities, its exposure to equities price risk and commodity price risk is minimal. The majority of precious metals held in stock (Note 10) are hedged against customer orders, therefore no price risk exists. While the Group uses commodities in its operations, customer commitments to market rates purchased result in the Group’s exposure to commodities price risk being immaterial. 32 XRF SCIENTIFIC LIMITED | 2020 ANNUAL REPORT               NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  FOR THE YEAR ENDED 30 JUNE 2020 NOTE 2: FINANCIAL RISK MANAGEMENT continued (iii) Cash flow, fair value and interest rate risk As at 30 June 2020 the Group had no variable interest rate debt, therefore consider fair value interest rate risk minimal. Group sensitivity At 30 June 2020, if interest rates had changed by -/+ 100 basis points (based upon forward treasury rates) from the year- end rates with all other variables held constant, post-tax profit for the year would have been $10,735 higher / lower (2019: $7,144 higher / lower), mainly as a result of higher/lower interest income from cash and cash equivalents. Cash and cash equivalent balances at 30 June 2020 would have been higher/lower by the same amount. (b) Credit risk Management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. Credit risk arises from cash and cash equivalents, trade receivables and other receivables. For banks and financial institutions, only independently rated parties with a minimum rating of ‘A’ are accepted. The Group trades only with recognised, creditworthy third parties. In addition, receivable balances are monitored on an ongoing basis with the result that the Group’s exposure to bad debts is not significant. Counterparties without external credit ratings are in majority existing customers (<6months) with no history of defaults (Group 2). With respect to credit risk arising from the other financial assets of the Group, which comprise of cash and cash equivalents, and trade and other receivables, the Group’s exposure to credit risk arises from the default of the counter party, with a maximum exposure equal to the carrying amount of these financial assets. There are no significant concentrations of credit risk within the Group at the reporting date. The following table represents the Group’s exposure to credit risk: Cash and cash equivalents (A+ rated) Trade receivables, net of impairment provision (note 9) (Group 2) Other receivables (external parties) Consolidated 2020 $ 2019 $ 3,634,171 3,743,516 26,439 3,238,297 3,978,683 88,531 7,404,126 7,305,511 Credit risk exposure is not significantly different for any of the segments of the Group. Details of impaired trade receivables, and trade receivables overdue but not impaired can be found at note 9. An analysis of the Group’s consolidated trade receivables is as follows: Current Over 30 Over 60 Over 90 days days Days Total 2020 2,875,797 535,778 141,789 190,152 3,743,516 2019 3,078,822 554,819 141,081 203,961. 3,978,683. XRF SCIENTIFIC LIMITED | 2020 ANNUAL REPORT 33                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  FOR THE YEAR ENDED 30 JUNE 2020 NOTE 2: FINANCIAL RISK MANAGEMENT continued (c) Liquidity risk The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank overdrafts, bank loans, debentures, finance leases and hire purchase contracts. The below analyses the Group’s financial liabilities into relevant maturity groupings based on the remaining period at the reporting date. The amounts disclosed in the table are the contractual undiscounted cash flows. There have been no breaches or defaults on the repayment of debt. Contractual maturities of financial liabilities Less than 6 months 6 – 12 months Between 1 and 2 years Between 2 and 5 years Over 5 years Total contractual cash flows As at 30 June 2020 $ $ $ $ $ $ Carrying Amount (assets)/ liabilities $ Non-derivatives Trade and other payables Property loan Plant & equipment loans Import Loans Total non-derivatives As at 30 June 2019 Non-derivatives Trade and other payables Property loan Plant & equipment loans Import Loans Total non-derivatives 1,169,807 61,650 - - 1,231,457 - 61,277 - - 61,277 - 829,204 - - 829,204 - - - - - 1,531,610 71,375 163,791 333,400 2,100,176 - 70,510 133,500 - 204,010 - 138,427 267,000 - 405,427 - 835,081 400,500 - 1,235,581 - - - - - - - - - - 1,169,807 952,131 - - 1,169,807 935,946 - - 2,121,938 2,105,753 1,531,610 1,115,393 964,791 333,400 1,531,610 1,047,138 883,409 328,380 3,945,194 3,790,537 The Group had access to the following undrawn borrowing facilities at the end of the reporting period: Bank overdraft facility Bank guarantee facility (AUD denominated) Bank guarantee facility (USD denominated) Import facility Consolidated 2020 $ 2019 $ 500,000 66,544 - 1,500,000 2,066,544 500,000 17,824 874,985 1,171,620 2,564,429 (d) Fair value estimation The fair value bases of financial assets and financial liabilities are outlined in note 1(n). All financial assets and liabilities have carrying values that are reasonable approximates of their fair values, for the Consolidated Entity. The fair values of current and non-current borrowings are based on discounted cash flows using a current borrowing rate. They are classified as level 3 fair values in the fair value hierarchy due to the use of unobservable inputs, including own credit risk. Carrying value Fair value $935,946 $927,979 34 XRF SCIENTIFIC LIMITED | 2020 ANNUAL REPORT               NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  FOR THE YEAR ENDED 30 JUNE 2020 NOTE 3: CRITICAL ACCOUNTING ESTIMATES AND SIGNIFICANT JUDGEMENTS Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that may have a financial impact on the entity and that are believed to be reasonable under the circumstances. The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related 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. (a) Estimated recoverable amount of goodwill – The Group tests whether goodwill has suffered any impairment, by comparing the carrying value to the recoverable amount, in accordance with the accounting policy stated in note 1(p). Please refer to note 13 for the details on impairment tests performed on goodwill. (b) Capitalisation of development expenditures – The Group capitalises development costs where management considers it probable that the related projects will be commercially and technically feasible and successful, in accordance with the accounting policy stated in note 1(p)(iii). (c) Tax – The determination of the Group's provision for income tax as well as deferred tax assets and liabilities involves significant judgements and estimates on certain matters and transactions, for which the ultimate outcome may be uncertain. If the final outcome differs from the Group's estimates, such differences will impact the current and deferred income tax assets and liabilities in the period in which such determination is made. The Group has recognised a deferred tax asset relating to the start-up losses incurred during FY17 and FY18 by the new German division. The Group has concluded that the tax losses will be recovered against the estimated future taxable income based on the approved business plans and budgets of the German division. (d) Allowance for expected credit losses – The allowance for expected credit losses assessment requires a degree of estimation and judgement. It is based on the lifetime expected credit loss, grouped based on days overdue, and makes assumptions to allocate an overall expected credit loss rate for each group. These assumptions include recent sales experience and historical collection rates. (d) Determining lease terms – Management considers all facts and circumstances that create an economic incentive to exercise an extension option, or not exercise a termination option. Extension options (or periods after termination options) are only included in the lease term if the lease is reasonably certain to be extended (or not terminated). The assessment is reviewed if a significant event or a significant change in circumstances occurs which affects this assessment and that is within the control of the lessee. NOTE 4: SEGMENT INFORMATION Operating Segments – AASB 8 requires a management approach under which segment information is presented on the same basis as that used for internal reporting purposes. This is consistent to the approach used in previous periods. Operating segments are reported in a uniform manner to which is internally provided to the chief operating decision maker. The chief operating decision maker has been identified as the Managing Director. An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including those that relate to transactions with any of the Group’s other components. Each operating segment’s results are reviewed regularly by the Managing Director to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available. The Managing Director monitors segment performance based on profit before income tax expense. Segment results that are reported to the Managing Director include results directly attributable to a segment as well as those allocated on a reasonable basis. Segment capital expenditure is the total cost incurred during the period to acquire property, plant and equipment and intangible assets other than goodwill. The consolidated entity has determined that strategic decision making is facilitated by evaluation of operations on the customer segments of Capital Equipment, Precious Metals and Consumables. For each of the strategic operating segments, the Managing Director reviews internal management reports on a monthly basis. (a) Description of segments The following summary describes the operations in each of the Group’s reportable segments: Capital Equipment - Design, manufacture and service organisation, specialising in automated fusion equipment, high temperature test and production furnaces, as well as general laboratory equipment. Precious Metals - Manufactures products for the laboratory, industrial and platinum alloy markets. Consumables - Produces and distributes consumables, chemicals and other supplies for analytical laboratories. XRF SCIENTIFIC LIMITED | 2020 ANNUAL REPORT 35                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  FOR THE YEAR ENDED 30 JUNE 2020 NOTE 4: SEGMENT INFORMATION continued (b) Primary reporting format – business segments Segment information provided to the Managing Director for the full-year ended 30 June 2020 is as follows: Full-year ended 30 June 2020 Total segment revenue Inter segment sales Revenue from external customers Capital Equipment $ 8,030,572 (581,481) 7,449,091 Precious Metals Consumables $ 13,216,969 (477,974) 12,738,995 $ 8,893,345 - 8,893,345 Total $ 30,140,886 (1,059,455) 29,081,431 Profit before income tax expense 582,868 1,387,126 2,546,355 4,516,349 Full-year ended 30 June 2019 Total segment revenue Inter segment sales Revenue from external customers 9,195,212 (667,446) 8,527,766 13,110,835 (613,285) 12,497,550 7,996,027 - 7,996,027 30,302,074 (1,280,731) 29,021,343 Profit before income tax expense 625,166 925,188 2,157,984 3,708,338 Segment assets At 30 June 2020 At 30 June 2019 Segment liabilities At 30 June 2020 At 30 June 2019 Depreciation & amortisation expense For the year ended 30 June 2020 For the year ended 30 June 2019 Capital expenditure For the year ended 30 June 2020 For the year ended 30 June 2019 7,828,509 7,306,267 1,170,355 937,531 463,055 260,590 104,937 31,946 Revenue from external customers – segments Unallocated revenue Revenue from external customers – total Profit before income tax expense – segments Loss incurred by parent entity Profit before income tax expense from continuing operations Total segment assets Cash and cash equivalents Deferred tax asset Other corporate assets & eliminations Total assets Total segment liabilities Deferred tax liability Income tax provision Trade & other payables Other corporate liabilities Total liabilities 18,634,724 15,841,265 15,829,116 15,793,056 42,292,349 38,940,588 6,183,081 4,899,742 406,387 336,713 404,927 332,711 456,494 617,137 205,311 165,731 20,860 152,524 7,809,930 6,454,410 1,074,753 763,034 530,724 517,181 2020 $ 2019 $ 29,081,431 29,021,343 10,077 7,299 29,091,508 29,028,642 4,516,349 (62,095) 4,454,254 42,292,349 1,810,085 891,689 173,467 45,167,590 7,809,930 295,411 376,187 688,021 362,570 9,532,119 3,708,338 (557,109) 3,151,229 38,940,588 1,888,852 924,534 (34,783) 41,719,191 6,454,410 230,423 505,760 519,102 198,129 7,907,824 36 XRF SCIENTIFIC LIMITED | 2020 ANNUAL REPORT               NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  FOR THE YEAR ENDED 30 JUNE 2020 NOTE 5: REVENUE Revenue from continuing operations Revenue from external customers Sale of goods Service revenue (recognised at a point in time) Service revenue (recognised over time) Total revenue from external customers Interest income Total revenue from continuing operations Consolidated 2020 $ 2019 $ 28,471,709 28,357,871 395,697 214,025 474,406 189,066 29,081,431 29,021,343 10,077 7,299 29,091,508 29,028,642 The Group derives revenue from external customers from the transfer of goods and services at a point in time and over time in the following major product lines and geographical regions (based on the location of the Group entity preparing the invoice): Capital Equipment Precious Metals Consumables Full-year ended 30 June 2020 Australia Canada Europe Revenue from external customers (note 4) Full-year ended 30 June 2019 Australia Canada Europe Revenue from external customers (note 4) $ 5,134,874 328,438 1,986,029 7,449,341 7,138,559 209,522 1,179,685 8,527,766 $ 4,546,599 3,888,794 4,303,602 $ Total $ 7,428,525 17,109,998 709,671 755,149 4,926,903 7,044,780 12,738,995 8,893,345 29,081,681 4,877,782 3,776,446 3,843,322 6,733,538 18,749,879 608,350 654,139 4,594,318 5,677,146 12,497,550 7,996,027 29,021,343 * There are no significant contract assets or contract liabilities on the balance sheet relating to the fulfilment of service contracts with external customers. NOTE 6: EXPENSES Profit/(loss) before income tax includes the following specific expenses Depreciation Depreciation (included in administration expenses) Depreciation (included in cost of goods sold) Amortisation of right to use assets (included in occupancy expenses) Total depreciation Amortisation Patents, trademarks and acquired customer lists (included in administration expenses) Research and development (included in administration expenses) Total amortisation Consolidated 2020 $ 2019 $ 238,589 344,334 411,158 994,081 71,602 179,389 250,991 246,711 345,042 - 591,753 82,290 180,016 262,306 XRF SCIENTIFIC LIMITED | 2020 ANNUAL REPORT 37                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  FOR THE YEAR ENDED 30 JUNE 2020 NOTE 6: EXPENSES continued Other specific expenses Employee benefits expenses (included in administration expenses) Rental expense relating to operating leases (included in occupancy expenses) Bank refinancing costs (included in administration expenses) NOTE 7: INCOME TAX EXPENSE (a) Income tax expense Current tax Deferred tax Adjustments for current tax of prior periods Income tax expense is attributed to: Profit from continuing operations Deferred income tax expense included in income tax expense comprises: Decrease (increase) in deferred tax assets (note 14) (Decrease) increase in deferred tax liabilities (note 19) (b) Numerical reconciliation of income tax expense to prima facie tax payable Profit/(loss) from continuing operations before income tax expense Consolidated 2020 $ 2019 $ 4,908,099 4,753,763 150,425 - 584,656 102,997 Consolidated 2020 $ 2019 $ 1,253,700 1,062,682 97,834 (18,660) (55,744) 6,701 1,332,874 1,013,639 1,332,874 1,013,639 32,846 64,988 97,834 (7,991) (47,753) (55,744) 4,454,254 4,454,254 3,151,229 3,151,229 Tax at the Australian rate of 27.5% (2019: 27.5%) 1,224,920 866,588 Tax effect of amounts which are not deductible (taxable) in calculating taxable income: Research and development expenditure Foreign tax losses not claimed in current year Sundry items Adjustments for current tax of prior periods Income tax expense (c) Tax consolidation legislation (19,442) 63,225 82,831 (25,362) 111,246 54,466 1,351,534 1,006,938 (18,660) 6,701 1,332,874 1,013,639 XRF Scientific Limited and its wholly owned Australian controlled entities elected to enter into the tax consolidation regime from 1 July 2005. The accounting policy in relation to this legislation is set out in note 1(f). The entities have entered into a tax funding agreement under which the wholly-owned entities fully compensate XRF Scientific Limited for any current tax payable assumed and are compensated by XRF Scientific Limited for any current tax receivable and deferred tax assets relating to unused tax losses or unused tax credits that are transferred to XRF Scientific Limited under the tax consolidation legislation. The funding amounts are determined by reference to the amounts recognised in the wholly owned entities’ financial statements. The amounts receivable/payable under the tax funding agreement are due upon receipt of the funding advice from the head entity, which is issued as soon as practicable after the end of each financial year. The head entity may also require payment of interim funding amounts to assist with its obligations to pay tax instalments. The funding amounts are recognised as current intercompany receivables or payables. 38 XRF SCIENTIFIC LIMITED | 2020 ANNUAL REPORT               NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  FOR THE YEAR ENDED 30 JUNE 2020 NOTE 8: CURRENT ASSETS – CASH AND CASH EQUIVALENTS Cash at bank and on hand Deposits at call Reconciliation to cash at the end of the year Balances as above Balance per statements of cash flows (a) Cash at bank and on hand Consolidated 2020 $ 3,601,013 33,158 3,634,171 2019 $ 1,805,139 1,433,158 3,238,297 3,634,171 3,634,171 3,238,297 3,238,297 Cash at bank earns interest at floating rates based on daily bank deposit rates of between 0.01% to 0.05% pa (2019: 0.01% to 0.30% pa). Cash available for use is as reported above, with no restrictions applicable. (b) Deposits at call Short-term deposits are made for varying periods of between no set term and 4 months, depending on the immediate cash requirements of the company, and earn interest at the respective short-term deposit rates. Deposits at call are subject to an interest rate of 0.44% pa (2019: 1.25% pa). (c) Risk exposure The Group’s exposure to interest rate risk is discussed in note 2. The maximum exposure to credit risk at the reporting date is the carrying amount of each class of cash and cash equivalents mentioned above. NOTE 9: CURRENT ASSETS – TRADE AND OTHER RECEIVABLES Trade receivables Allowance for impairment of receivables Other receivables – From external parties Total trade and other receivables Past due but not impaired Up to 3 months Up to 6 months Allowance for impairment of receivables Balance at 1 July (Increase)/Decrease in allowance during the year Balance at 30 June (a) Impaired trade receivables Consolidated 2020 $ 2019 $ 3,743,516 3,978,683 - - 26,438 88,531 3,769,954 4,067,214 677,567 190,152 867,719 - - - 695,900 203,961 899,861 (23,323) 23,323 - During the 2020 financial year, the allowance for impaired receivables remained unchanged (2019: allowance was reduced by $23,323 to nil). (b) Past due but not impaired As at 30 June 2020, trade receivables of the Group of $867,719 (2019: $899,861) were past due but not impaired. These relate to a number of independent customers for whom there is no recent history of default. The ageing analysis of these trade receivables is in note 2. The other classes within trade and other receivables do not contain impaired assets and are not past due. Based on the credit history of these classes, it is expected that these amounts will be received when due. The Group does not hold any collateral in relation to these receivables. XRF SCIENTIFIC LIMITED | 2020 ANNUAL REPORT 39                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  FOR THE YEAR ENDED 30 JUNE 2020 NOTE 9: CURRENT ASSETS – TRADE AND OTHER RECEIVABLES continued (c) Other receivables These amounts generally arise from transactions outside the usual operating activities of the Group. All other receivables are subject to the same terms as trade receivables. Those terms have been described in note 1(k). (d) Effective interest rates and credit risk Information concerning the effective interest rate and credit risk of both current and non-current receivables is set out in note 2. (e) Non-current receivables There are no non-current receivables in the current year (2019: Nil). NOTE 10: CURRENT ASSETS – INVENTORIES Raw materials and spare parts Finished goods Precious metals (general) Platinum on loan (refer to note 16) Consolidated 2020 $ 2019 $ 3,528,024 3,337,510 2,089,351 2,314,041 1,433,709 1,069,713 4,244,751 1,977,955 11.295.835 8,699,219 Raw materials and spare parts have increased over the last 12 months to support production of a number of additions to the Capital Equipment division’s product range. Stock was valued at lower of cost and net realisable value on 30 June 2020 and 30 June 2019. Inventory expense Inventories recognised as expense during the year ended 30 June 2020 amounted to $10,976,353 (2019: 11,429,230). The cost of writing down inventories to net realisable value during the year ended 30 June 2020 was $137,942 (2019: $52,190). NOTE 11: OTHER CURRENT ASSETS Prepayments (insurance policies, rates and other fees) Other assets Consolidated 2020 $ 372,203 37,410 409,613 2019 $ 397,508 21,230 418,738 40 XRF SCIENTIFIC LIMITED | 2020 ANNUAL REPORT               - - - - - - - - - - - - - 1,137,502 254,712 - - 11,481,575 (2,994,350) 8,487,225 8,487,225 521,110 3,362 22,025 (591,753) 8,397,919 11,106,499 (2,708,580) 8,397,919 8,397,919 1,137,502 740,748 1,786 (8,390) (411,158) (994,081) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  FOR THE YEAR ENDED 30 JUNE 2020 NOTE 12: NON-CURRENT ASSETS – PROPERTY, PLANT AND EQUIPMENT Consolidated Equipment Vehicles ments Equipment Buildings Plant & Motor Property Improve- Office Land & Right of Use Assets: Leased Properties Total $ $ $ $ $ $ $ At 30 June 2018 Cost or fair value Accumulated depreciation Net book amount Year ended 30 June 2019 Opening net book amount Additions Foreign currency adjustment Disposals Depreciation charge Closing net book amount At 30 June 2019 Cost or fair value 7,372,355 (2,216,682) 5,155,673 216,034 (78,774) 137,260 1,533,395 536,574 1,823,217 (384,577) (314,317) - 1,148,818 222,257 1,823,217 5,155,673 421,810 (5) (21,751) (378,791) 5,176,936 137,260 1,148,818 222,257 1,823,217 - - - 74,459 1,781 - (31,255) 106,005 (96,421) 1,128,637 24,841 1,586 (274) (85,286) 163,124 - - - - 1,823,217 7,047,584 216,034 1,522,114 497,550 1,823,217 Accumulated depreciation (1,870,648) (110,029) (393,477) (334,426) - Net book amount 5,176,936 106,005 1,128,637 163,124 1,823,217 Year ended 30 June 2020 Opening net book amount Initial recognition (note 18) Additions Foreign currency adjustment Disposals Depreciation charge Closing net book amount At 30 June 2020 Cost or fair value 5,176,936 106,005 1,128,637 163,124 1,823,217 - 377,831 1,219 (8,390) (374,871) 5,172,725 - - - 27,298 15,885 65,022 - - 34 - (30,483) 102,820 (106,978) 1,037,578 533 - (70,591) 158,088 - - - - - 1,823,217 981,056 9,275,484 7,369,281 221,417 1,438,194 478,584 1,823,217 1,392,214 12,722,907 Accumulated depreciation (2,196,556) (118,597) (400,616) (320,496) - (411,158) (3,447,423) Net book amount 5,172,725 102,820 1,037,578 158,088 1,823,217 981,056 9,275,484 All items of property, plant and equipment were recorded at cost as at 30 June 2020 and 30 June 2019. XRF SCIENTIFIC LIMITED | 2020 ANNUAL REPORT 41                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  FOR THE YEAR ENDED 30 JUNE 2020 NOTE 13: NON-CURRENT ASSETS – INTANGIBLE ASSETS Consolidated At 30 June 2018 Cost or fair value Research & Development Goodwill $ $ Patents, Trademarks & Other Rights $ Total $ 1,316,160 14,531,092 908,657 16,755,909 Accumulated amortisation and impairment (497,701) - (293,770) (791,471) 818,459 14,531,092 614,887 15,964,438 Net book amount Year ended 30 June 2019 Opening net book amount Additions Disposals Foreign currency adjustment Amortisation charge Closing net book amount At 30 June 2019 Cost or fair value Year ended 30 June 2020 Opening net book amount Additions Foreign currency adjustment Amortisation charge Closing net book amount At 30 June 2020 Cost or fair value Accumulated amortisation and impairment (677,718) - (327,626) (1,005,344) Net book amount 749,164 14,662,554 561,551 15,973,269 1,426,882 14,662,554 889,177 16,978,613 14,531,092 614,887 15,964,438 818,459 110,721 - - 131,462 (180,016) - 749,164 14,662,554 9,670 (9,242) 28,526 (82,290) 561,551 120,391 (9,242) 159,988 (262,306) 15,973,269 14,662,554 561,551 15,973,269 749,164 214,402 - (38,367) (179,389) - 784,177 14,624,187 - (7,469) (71,602) 482,480 214,402 (45,836) (250,991) 15,890,844 - - - 1,570,861 14,624,187 878,149 17,073,197 Accumulated amortisation and impairment (786,684) - (395,669) (1,182,353) Net book amount 784,177 14,624,187 482,480 15,890,844 All intangible assets were recorded at cost as at 30 June 2020 and 30 June 2019. (a) Impairment tests for goodwill Goodwill is allocated to the consolidated entity’s cash generating units (CGUs) identified according to business and geographical segments. Consumables CGU Precious Metals CGU Capital Equipment CGU European Sales Office CGU Consolidated 2020 $ 8,633,701 3,929,968 1,650,171 410,347 2019 $ 8,640,425 3,965,226 1,650,171 406,732 14,624,187 14,662,554 42 XRF SCIENTIFIC LIMITED | 2020 ANNUAL REPORT               NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  FOR THE YEAR ENDED 30 JUNE 2020 NOTE 13: NON-CURRENT ASSETS – INTANGIBLE ASSETS continued (b) Significant estimate: key assumptions used for value-in-use calculations The recoverable amount of a CGU is determined based on value-in-use calculations which require the use of assumptions. The forecast cash flows for 2021 are based on the Board-approved budget. The cash flows for 2022 to 2025 have been based on extrapolating the 2021 forecast by using average growth rates of 3.2%. Terminal values of 4x to 5x were used in calculating the value-in-use for each CGU, which equates to a long-term growth rate of the company. The pre-tax discount rate of 10.85% reflects specific risks relating to each CGU. The potential impacts of COVID-19 have been factored into all of the company’s assumptions. This has not resulted in any significant variations to short-term or long-term forecasts. (c) Sensitivity to change in assumptions The recoverable amount of the CGUs exceeds the carrying amount based on impairment testing performed at 30 June 2020. A decrease of 30% in the projected annual cash flows or an increase of 1% in the pre-tax discount rate of 10.85% does not result in an impairment of the goodwill. These changes would be considered reasonably possible changes to the key assumptions. (d) Impairment charge No impairment charges have been deemed necessary for the current period. NOTE 14: NON-CURRENT ASSETS – DEFERRED TAX ASSETS Amounts recognised directly in equity: Share issue expenses Amounts recognised in profit or loss: Employee benefits DTA recognised on FY17 and FY18 losses by German subsidiary Business acquisition expenses Depreciation of tangible assets Accruals Provisions Net deferred tax assets Movements: Opening balance at 1 July (Charged)/credited to profit or loss (note 7) Closing balance at 30 June Deferred tax assets expected to be recovered within 12 months Deferred tax assets expected to be recovered after more than 12 months Consolidated 2020 $ 2019 $ - 368 345,040 444,682 29,610 15,787 51,307 5,263 891,689 891,689 924,535 (32,846) 891,689 232,674 659,015 891,689 320,016 444,682 46,609 22,402 83,216 7,242 924,167 924,535 916,544 7,991 924,535 257,431 667,104 924,535 XRF SCIENTIFIC LIMITED | 2020 ANNUAL REPORT 43                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  FOR THE YEAR ENDED 30 JUNE 2020 NOTE 15: CURRENT LIABILITIES – TRADE AND OTHER PAYABLES Trade payables Sundry creditors and accruals Employee benefits – annual leave (a) Consolidated 2020 $ 631,711 538,096 540,111 2019 $ 976,387 555,223 558,668 1,709,918 2,090,278 Terms and conditions of trade payables vary between suppliers; however, terms of trade are generally 30 days. (a) Amounts not expected to be settled within the next 12 months The entire obligation is presented as current, since the Group does not have an unconditional right to defer settlement. However, based on past experience, the Group does not expect all employees to take the full amount of accrued leave within the next 12 months. The following amounts reflect leave that is not expected to be taken within the next 12 months: Annual leave obligations expected to be settled after 12 months (b) Foreign exchange risk exposure Information about the Group’s exposure to foreign exchange risk is provided in note 2. NOTE 16: CURRENT LIABILITIES – PROVISIONS Provision for platinum loan (a) Long service leave (b) Dividends payable to ordinary shareholders Making good of leases Other provisions Consolidated 2020 $ 2019 $ 356,473 368,721 Consolidated 2020 $ 2019 $ 4,244,751 1,977,955 515,305 486,829 68,302 15,000 4,138 68,422 15,000 81,336 4,847,496 2,629,542 (a) Provision for platinum loan XRF has borrowed (and has title to under a master contract) $4,244,751 of platinum metal, which is inventoried to facilitate manufacturing processes and reduce lead times. This is funded by five loan facilities, with terms of up to 12 months. Interest is calculated at market rates and payable annually. At maturity, these facilities will be renewed for additional terms or the platinum will be returned. These liabilities are offset by an inventory asset of $4,244,751. (b) Amounts not expected to be settled within the next 12 months The current provision for long service leave includes all unconditional entitlements where employees have completed the required period of service and also those where employees are entitled to pro-rata payments in certain circumstances. The entire amount is presented as current, since the Group does not have an unconditional right to defer settlement. Based on past experience, the Group does not expect all employees to take the full amount of accrued long service leave or require payment within the next 12 months. The following amounts reflect leave that is not expected to be paid within the next 12 months: Long service leave obligations expected to be settled after 12 months 386,479 205,429 Consolidated 2020 $ 2019 $ 44 XRF SCIENTIFIC LIMITED | 2020 ANNUAL REPORT               NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  FOR THE YEAR ENDED 30 JUNE 2020 NOTE 17: CURRENT & NON-CURRENT LIABILITIES – LONG-TERM BORROWINGS Property loan 1 Plant & equipment loans 2 Import loans 3 Consolidated 2020 2019 Current $ 111,192 Non-Current $ 824,754 Current $ 111,192 Non-Current $ 935,946 - - - - 111,192 824,754 258,282 328,380 697,854 625,126 - 1,561,072 1 Consists of a three-year, interest-bearing loan for $1,112,000, used to fund the purchase of a property in Melbourne. Instalments are paid monthly (including principal and interest), at a rate of 2.24% per annum. As security for the loan facility, the lender holds a registered first mortgage over the acquired property, plus unlimited cross guarantees and indemnities by all subsidiaries within the XRF group (excluding subsidiaries in Canada and Germany). The fair value of the loan is estimated to be $927,979, calculated using current market interest rates. The carrying value of the loan is $935,946. Covenants applicable to the loan include: the loan to property value ratio must not exceed 65%; the interest cover ratio must not be less than 3.5x; the debt to tangible net worth ratio must not exceed 55%. The Group has met all covenant requirements to date. 2 Consisted of three separate loans for a motor vehicle and various items of property plant and equipment. These loans were fully repaid during the period. 5 Consisted of short-term loans (less than 180 days) used to finance the importation of certain raw materials used to produce finished goods. Interest is payable on maturity, at rates between 2 and 3% per annum. These loans were fully repaid during the period. Net debt reconciliation Total borrowings at 1 July Proceeds from borrowings Repayment of borrowings Total borrowings at 30 June 2020 $ 2019 $ 2,258,926 2,269,331 819,215 (2,142,195) 738,074 (748,479) 935,946 2,258,926 NOTE 18: LEASES - RIGHT OF USE ASSETS AND LIABILITIES This note explains the impact of the adoption of AASB 16 Leases on the group’s financial statements and discloses the new accounting policies that have been applied from 1 July 2019 below. The group has adopted AASB 16 retrospectively from 1 July 2019 but has not restated comparatives for the 2019 reporting period, as permitted under the specific transitional provisions in the standard. The reclassifications and the adjustments arising from the new leasing rules are therefore recognised in the opening balance sheet on 1 July 2019. The change in accounting policy affected the following items in the balance sheet on 1 July 2019:    Right-of-use assets – increase by $1,137,502 Current lease liabilities – increase by $377,355 Non-current lease liabilities – increase by $760,147 (a) Adjustments recognised on adoption of AASB 16 On adoption of AASB 16, the group recognised lease liabilities in relation to leases which had previously been classified as ‘operating leases’ under the principles of AASB117 Leases. These liabilities were measured at the present value of the remaining lease payments, discounted using the lessee’s incremental borrowing rate as of 1 July 2019. The weighted average lessee’s incremental borrowing rate applied to the lease liabilities was 4%. Operating lease commitments disclosed as at 30 June 2019 Discounted using the lessee’s incremental borrowing rate of at the date of initial application Add/(less): adjustments as a result of a different treatment of extension and termination options Lease liability recognised as at 1 July 2019 1-Jul-19 $ 705,261 652,837 484,665 1,137,502 XRF SCIENTIFIC LIMITED | 2020 ANNUAL REPORT 45                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  FOR THE YEAR ENDED 30 JUNE 2020 NOTE 18: LEASES - RIGHT OF USE ASSETS AND LIABILITIES continued The following liabilities have been recognised on the balance sheet at 30 June 2020: Current lease liabilities Non-current lease liabilities Total lease liabilities 30-Jun-20 1-Jul-19 $ 436,520 564,520 $ 377,355 760,147 1,001,040 1,137,502 The associated right-of-use assets for property leases were measured at the amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments relating to that lease recognised in the balance sheet as at 1 July 2019. There were no onerous lease contracts that would have required an adjustment to the right-of-use assets at the date of initial application. The following right-of-use assets have been recognised on the balance sheet at 30 June 2020: Leased properties (refer to note 12) Total right-of-use assets 30-Jun-20 $ 981,056 981,056 1-Jul-19 $ 1,137,502 1,137,502 (i) Impact on segment disclosures and earnings per share Segment assets and liabilities for 30 June 2020 increased as a result of the change in accounting policy. Lease liabilities are now included in segment liabilities, whereas finance lease liabilities were previously excluded from segment liabilities. The following segments were affected by the change in policy: Capital Equipment Precious Metals Consumables Segment Assets $ 461,648 Segment Liabilities $ 470,549 83,082 205,185 749,915 84,527 210,487 765,563 Earnings per share decreased by 0.01c per share for the six months to 30 June 2020 as a result of the adoption of AASB 16. (ii) Practical expedients applied In applying AASB 16 for the first time, the group has used the following practical expedients permitted by the standard:     reliance on previous assessments on whether leases are onerous; the accounting for operating leases with a remaining lease term of less than 12 months as at 1 July 2019 as short-term leases; the exclusion of initial direct costs for the measurement of the right-of-use asset at the date of initial application; and the use of hindsight in determining the lease term where the contract contains options to extend or terminate the lease. (b) Extension and termination options Extension and termination options are included in a number of property leases across the group. These terms are used to maximise operational flexibility in terms of managing contracts. The majority of extension and termination options held are exercisable only by the group and not by the respective lessor. Approximately 61% of the total lease payments made during the year relate to optional lease extension periods. (c) Critical judgements in determining the lease term Potential future cash outflows of $466,400 have not been included in the lease liability because it is not reasonably certain that the leases will be extended (or not terminated). 46 XRF SCIENTIFIC LIMITED | 2020 ANNUAL REPORT               NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  FOR THE YEAR ENDED 30 JUNE 2020 NOTE 19: NON-CURRENT LIABILITIES – DEFERRED TAX LIABILITIES Amounts recognised in profit or loss Research and development Depreciation Other Net deferred tax liabilities Movements: Opening balance at 1 July Charged/(credited) to profit or loss (note 7) Closing balance 30 June NOTE 20: NON-CURRENT LIABILITIES – PROVISIONS Consolidated 2020 $ 2019 $ 215,649 69,771 9,991 295,411 230,423 64,988 295,411 206,020 13,261 11,142 230,423 278,176 (47,753) 230,423 Consolidated 2020 $ 2019 $ 50,547 83,722 Employee benefit – long service leave NOTE 21: ISSUED CAPITAL Issued capital Ordinary shares fully paid Total issued capital Consolidated Consolidated 2020 Shares 2019 Shares 2020 $ 2019 $ 133,825,803 133,825,803 18,584,489 18,584,489 133,825,803 133,825,803 18,584,489 18,584,489 Movements in ordinary share capital: Date Details 1 July 2018 Opening balance 30 June 2019 Closing balance 1 July 2019 Opening balance 30 June 2020 Closing balance Issue Price Number of shares 133,825,803 133,825,803 133,825,803 133,825,803 $ 18,584,489 18,584,489 18,584,489 18,584,489 XRF SCIENTIFIC LIMITED | 2020 ANNUAL REPORT 47                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  FOR THE YEAR ENDED 30 JUNE 2020 NOTE 21: ISSUED CAPITAL continued (a) Ordinary shares Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the Company in proportion to the number of and amount paid on the shares held. On a show of hands every holder of ordinary shares present at a meeting in person or by proxy, is entitled to one vote, and upon a poll each share is entitled to one vote. (b) Dividend reinvestment plan The parent entity set up a dividend reinvestment plan during the period and shareholders were notified during March 2020. (c) Capital risk management The Group’s objectives when managing capital are to safeguard its ability to continue as a going concern, so that it can continue to provide returns to shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. The gearing ratios at 30 June 2020 and 30 June 2019 were as follows: Total borrowings Less: cash and cash equivalents Net debt / (positive cash position) Total equity Total equity plus net debt Gearing ratio NOTE 22: RESERVES AND RETAINED PROFITS (a) Reserves Foreign currency translation reserve Share-based payments reserve Balance 30 June (b) Retained Profits Movements in retained profits were as follows: Balance 1 July Net profit for the year Dividends paid or provided for Balance 30 June (c) Nature and purpose of reserves Foreign currency translation reserve Consolidated 2020 $ 2019 $ 935,946 2,258,926 (3,634,171) (3,238,297) (2,698,225) (979,371) 35,635,471 33,811,367 32,937,246 32,831,996 Net debt -8.19% Net debt -2.98% Consolidated 2020 $ 2019 $ 569,860 759,243 528,878 759,243 1,329,103 1,288,121 13,938,757 12,202,643 3,121,380 (1,338,258) 2,137,590 (401,476) 15,721,879 13,938,757 The foreign currency translation reserve is used to recognise the unrealised gains and losses arising from the consolidation of subsidiaries denominated in currencies other than Australian dollars. Share-based payment reserve The share-based payments reserve is used to recognise the value of equity-settled share-based payments. 48 XRF SCIENTIFIC LIMITED | 2020 ANNUAL REPORT               NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  FOR THE YEAR ENDED 30 JUNE 2020 NOTE 23: DIVIDENDS Final dividend for the prior financial year, paid in the current financial year Total dividends provided for or paid Consolidated 2020 $ 1,338,258 1,338,258 2019 $ 401,476 401,476 A fully franked dividend of 1.4 cents per share has been declared on ordinary shares post 30 June 2020. Franked Dividends Consolidated 2020 $ 2019 $ Franking credits available for subsequent financial years based on a tax rate of 27.5% (2019:27.5%) 6,255,168 5,727,724 The above amounts represent the balance of the franking account as at the end of the financial year, adjusted for: (a) (b) (c) franking credits that will arise from the payment of the amount of the provision for income tax; franking debits that will arise from the payment of dividends recognised as a liability at the reporting date; and franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date. The consolidated amounts include franking credits that would be available to the parent entity if distributable profits of subsidiaries were paid as dividends. The franked portions of the final dividends recommended after 30 June 2020 will be franked out of existing franking credits or out of franking credits arising from the payment of income tax in the year ended 30 June 2020. The impact on the franking account of the dividend recommended by the directors since year end, but not recognised as a liability at year end, will be a reduction in the franking account of $710,661 (2019: $507,615). NOTE 24: CONTINGENCIES At 30 June 2020, the consolidated entity had no material contingent liabilities in respect of claims, contingent considerations, associates and joint ventures or any other matters. NOTE 25: COMMITMENTS (a) Lease commitments XRF Labware Pty Ltd has lease agreements with external suppliers for the provision of 143 kg of platinum, which is used for working capital purposes. These lease agreements are renewed either quarterly or annually and fees are paid on the current market price of platinum. The current agreements will expire on various dates between August 2020 and March 2021 and will be renewed accordingly. (b) Financing arrangements The Group’s undrawn borrowing facilities were as follows as at 30 June 2020: Bank overdraft facility Bank guarantee facility (AUD denominated) Bank guarantee facility (USD denominated) Import loan facilities Consolidated 2020 $ 500,000 66,544 - 1,500,000 2,066,544 2019 $ 500,000 17,824 874,985 1,171,620 2,564,429 XRF SCIENTIFIC LIMITED | 2020 ANNUAL REPORT 49                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  FOR THE YEAR ENDED 30 JUNE 2020 NOTE 26: REMUNERATION OF AUDITORS During the year the following fees were paid or payable for services provided by the auditor of the Company, its related practices and non-related audit firms: BDO - Australia Audit and review of financial reports Taxation services Other services BDO - Belgium Audit and review of financial reports Taxation services BDO - Canada Taxation services BDO - UK Audit and review of financial reports Consolidated 2020 $ 2019 $ 123,245 44,621 529 113,731 49,054 770 41,147 7,488 7,821 7,240 11,578 12,696 7,414 236,022 9,434 200,746 NOTE 27: RELATED PARTY TRANSACTIONS (a) Parent entity The ultimate parent and controlling entity is XRF Scientific Limited which at 30 June 2020 owns 100% of all subsidiaries listed in note 28. (b) Interests in subsidiaries Interests in subsidiaries are set out in note 28. (c) Directors and key management compensation Short-term employee benefits Post-employment benefits Long-term benefits Consolidated 2020 $ 838,230 63,387 9,463 911,080 2019 $ 867,071 66,128 9,507 942,706 No other post-employment or termination benefits have been provided. Detailed remuneration disclosures are available in the remuneration report from pages 10-15. (d) Loans to key management personnel There were no loans to any key management personnel during either of the years ended 30 June 2020 or 30 June 2019. (e) Other transactions with key management personnel Premises were rented from a related entity of Director David Brown during the financial year. These properties were rented on normal commercial terms and conditions, totaling $107,997 (2019: $117,251). No amounts were outstanding at the end of the year. 50 XRF SCIENTIFIC LIMITED | 2020 ANNUAL REPORT               NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  FOR THE YEAR ENDED 30 JUNE 2020 NOTE 28: SUBSIDIARIES The consolidated financial statements incorporate the assets, liabilities, and results of the following subsidiaries in accordance with the accounting policy described in note 1(b): Name of entity XRF Chemicals Pty Ltd XRF Labware Pty Ltd XRF Technology (WA) Pty Ltd XRF Technology (VIC) Pty Ltd XRF Scientific Americas Inc XRF Scientific Europe SPRL XRF Scientific Europe GmbH XRF Scientific UK Ltd Precious Metals Engineering (WA) Pty Ltd XFlux Pty Ltd Gestion Scancia Inc Country of Incorporation Australia Australia Australia Australia Canada Belgium Germany United Kingdom Australia Australia Canada Class of shares Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary The proportion of ownership interest is equal to the proportion of voting power held. Entity holding 2020 % 2019 % 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 NOTE 29: RECONCILIATION OF PROFIT AFTER INCOME TAX TO NET CASH FLOW PROVIDED BY OPERATING ACTIVITIES Profit for the year Depreciation and amortisation Net exchange differences Net (gain) loss on sale of non-current assets (Increase) decrease in trade and other debtors (Increase) decrease in inventories (Increase) decrease in other current assets (Increase) decrease in deferred tax asset (Decrease) increase in trade and other creditors (Decrease) increase in provision for income taxes (Decrease) increase in provision for deferred income tax (Decrease) increase in other liabilities (Decrease) increase in other provisions Net cash inflow from operating activities NOTE 30: SHARE-BASED PAYMENTS There were no share-based payments during the year ended 30 June 2020 (2019: Nil). Consolidated 2020 $ 3,121,380 1,245,072 138,002 8,390 297,260 2019 $ 2,137,590 854,060 187,365 31,314 51,259 (2,596,615) (1,086,020) 9,123 32,845 (380,359) 36,290 64,988 40,539 2,184,778 4,201,693 (3,936) (7,991) 585,439 53,091 (47,753) 28,893 1,092,995 3,876,306 XRF SCIENTIFIC LIMITED | 2020 ANNUAL REPORT 51                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  FOR THE YEAR ENDED 30 JUNE 2020 NOTE 31: EARNINGS PER SHARE (a) Basic earnings per share Profit attributable to the ordinary equity holders of the company (b) Diluted earnings per share Profit attributable to the ordinary equity holders of the Company Consolidated 2020 Cents 2019 Cents 2.3 2.3 $ 1.6 1.6 $ (c) Reconciliations of earnings used in calculation earnings per share Profit attributable to the ordinary equity holders of the company 3,121,380 2,137,590 (d) Weighted average number of shares used as the denominator Weighted average number of ordinary shares used as the denominator in calculating basic earnings per share 133,825,803 133,825,803 Number Number NOTE 32: PARENT ENTITY FINANCIAL INFORMATION (a) Summary financial information The individual financial statements for the parent entity show the following aggregate amounts: Statement of Financial Position Current assets Total assets Current liabilities Total liabilities Shareholder’s equity Issued capital Reserves Retained earnings Total comprehensive income / (loss) for the year before tax Tax benefit / (expense) Total comprehensive income / (loss) for the year after tax (b) Contingent liabilities of the parent entity The parent entity did not have any contingent liabilities as at 30 June 2020 or 30 June 2019. 2020 $ 2019 $ 13,589,032 11,583,571 26,886,930 24,935,739 20,179,735 16,899,634 20,481,075 17,162,804 18,584,489 18,584,489 1,492,817 1,387,442 (13,671,451) (12,198,995) 6,405,855 7,772,936 (195,111) 60,913 (134,198) (627,108) 117,820 (509,288) NOTE 33: EVENTS OCCURRING AFTER THE REPORTING DATE The COVID-19 pandemic is ongoing and while it had limited financial impact for the consolidated entity up to 30 June 2020, it is not practicable to estimate the potential impact, positive or negative, after the reporting date. The situation is rapidly developing and is dependent on measures imposed by the Australian Government and other countries, such as (but not limited to) social distancing requirements, quarantine, travel restrictions, lockdowns and any economic stimulus that may be provided. A final dividend of 1.4 cents per share fully franked (FY19: 1 cent per share fully franked) was declared on 24 August 2020, with a record date of 2 October 2020 and payment date of 16 October 2020. There were no other events subsequent to the reporting date which have significantly affected or may significantly affect the XRF Scientific Limited operations, results or state of affairs in future years. 52 XRF SCIENTIFIC LIMITED | 2020 ANNUAL REPORT               DIRECTORS’ DECLARATION  FOR THE YEAR ENDED 30 JUNE 2020 XRF Scientific Limited and its controlled entities ACN 107 908 314 The directors of the company declare that: 1. The financial statements, comprising the consolidated statement of profit or loss and other comprehensive income, consolidated statement of financial position, consolidated statement of cash flow, consolidated statement of changes in equity and accompanying notes, are in accordance with the Corporations Act 2001 and: (a) (b) Comply with Accounting Standards and the Corporations Regulations 2001 and other mandatory professional reporting requirements after 2001; and Give a true and fair view of the consolidated entity’s financial position as at 30 June 2020 and of its performance for the year ended on that date. 2. In the directors’ opinion there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable. 3. The directors have been given the declarations by the Chief Executive Officer and Chief Financial Officer as required by section 295A. 4. The company has included in the notes to the financial statements an explicit and unreserved statement of compliance with International Financial Reporting Standards. This declaration is made in accordance with a resolution of the Board of Directors and is signed for and on behalf of the directors by. Fred S Grimwade Chairman Dated this 24th day of August 2020 XRF SCIENTIFIC LIMITED | 2020 ANNUAL REPORT 53                Tel: +61 8 6382 4600 Fax: +61 8 6382 4601 www.bdo.com.au 38 Station Street Subiaco, WA 6008 PO Box 700 West Perth WA 6872 Australia INDEPENDENT AUDITOR'S REPORT To the members of XRF Scientific Limited Report on the Audit of the Financial Report Opinion We have audited the financial report of XRF Scientific Limited (the Company) and its subsidiaries (the Group), which comprises the consolidated statement of financial position as at 30 June 2020, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial report, including a summary of significant accounting policies and the directors’ declaration. In our opinion the accompanying financial report of the Group, is in accordance with the Corporations Act 2001, including: (i) Giving a true and fair view of the Group’s financial position as at 30 June 2020 and of its financial performance for the year ended on that date; and (ii) Complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the Financial Report section of our report. We are independent of the Group in accordance with the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Company, would be in the same terms if given to the directors as at the time of this auditor’s report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. BDO Audit (WA) Pty Ltd ABN 79 112 284 787 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit (WA) Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation. Impairment Assessment of Goodwill Key audit matter How the matter was addressed in our audit As disclosed in Note 13 of the financial report, goodwill represents a significant asset which the Group has recorded in the statement of financial position. Under the Australian Accounting Standards goodwill is required to be tested annually for impairment. This was determined to be a key audit matter due to the significance of goodwill to the Group’s financial position. As set out in Notes 13, the directors’ assessment of the recoverability of goodwill requires significant judgement, in particular in estimating future growth rates, discount rates and the expected cash flows of cash generating units (“CGUs”) to which the goodwill has been allocated. Our procedures included, but were not limited to the following: · Evaluating the Group’s determination of CGUs and the allocation of assets to the carrying value of CGU’s; · Obtaining the group’s value in use models and agreeing the first years forecast to board approved budgets; · · · · · · Evaluating management’s ability to achieve cash flows by comparing prior period forecasts against actual results; Assessing the key inputs in the value in used models for the forecast revenue, discount rates, terminal value determination and growth rates; Using our internal valuation specialist to assess the reasonableness of the discount rate; Performing a sensitivity analysis on the key financial assumptions in the models. These included revenue forecasts, multipliers used in the terminal year of cash flows, and the discount rates applied; Assessing management’s consideration of the impact of COVID-19 on the forecast financial performance of CGU’s; and Evaluating the adequacy of the related disclosures in the financial report. Other information The directors are responsible for the other information. The other information comprises the information in the Group’s annual report for the year ended 30 June 2020, but does not include the financial report and the auditor’s report thereon. Our opinion on the financial report does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the directors for the Financial Report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the ability of the group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Auditor’s responsibilities for the audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance Standards Board website (http://www.auasb.gov.au/Home.aspx) at: https://www.auasb.gov.au/admin/file/content102/c3/ar1_2020.pdf This description forms part of our auditor’s report. Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 10 to 15 of the directors’ report for the year ended 30 June 2020. In our opinion, the Remuneration Report of XRF Scientific Limited, for the year ended 30 June 2020, complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. BDO Audit (WA) Pty Ltd Jarrad Prue Director Perth, 24 August 2020 SHAREHOLDER INFORMATION Additional information (as at 31 July 2020) required by the ASX Listing Rules and not disclosed elsewhere in this Annual Report is set out below: SUBSTANTIAL SHAREHOLDINGS The number of shares held by substantial shareholders and their associates is as follows: Shareholder Number of Ordinary Shares 2 Private Portfolio Managers Michael Karl Korber D & GD Brown Nominees Pty Ltd 1 13,385,999 11,319,503 9,000,000 1 D & GD Brown Nominees Pty Ltd is a company owned by David Brown and his wife. David Brown is a director of XRF Scientific Limited. 2 Based on information available to the Company, including substantial holding announcements released to the market. NUMBER OF OPTION HOLDERS Class of Security Nil VOTING RIGHTS Number of Holders - In accordance with the Constitution of the Company and the Corporations Act 2001 (Cth), every member present in person or by proxy at a general meeting of the members of the Company has: • On a vote taken by a show of hands, one vote; and • On a vote taken by a poll, one vote for every fully paid ordinary share held in the Company A poll may be demanded at a general meeting of the members of the Company in the manner permitted by the Corporations Act 2001 (Cth). DISTRIBUTION OF SHARE AND OPTION HOLDERS Distribution of Shares & Options 1-1,000 1,000-5,000 5,001-10,000 10,001-100,000 100,001 and above Number of Holders of Ordinary Shares Number of Holders of Options 55 266 203 604 168 1,296 – – – – – – 58 XRF SCIENTIFIC LIMITED | 2020 ANNUAL REPORT             SHAREHOLDER INFORMATION TOP 20 SHAREHOLDERS No. Holder Name Number of Ordinary Shares Percentage of Ordinary Shares 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 NATIONAL NOMINEES LIMITED MICHAEL KARL KORBER D & GD BROWN NOMINEES PTY LTD 1 EVELIN INVESTMENTS PTY LIMITED J P MORGAN NOMINEES AUSTRALIA PTY LIMITED BNP PARIBAS NOMINEES PTY LTD STEPHEN WILLIAM PROSSOR & FIONA CHRISTIAN PROSSOR GREAT WESTERN CAPITAL PTY LTD TZELEPIS NOMINEES PTY LTD BETA GAMMA PTY LTD DAVID BROWN & GLENYS DAWN BROWN JGH METZ PTY LTD FREDERIC DAVIDTS JEFFREY DAVID BROWN & PENNY NARELLE BROWN MUTUAL TRUST PTY LTD G & E PROPERTIES PTY LTD DMX CAPITAL PARTNERS LIMITED THREE HUNDRED CAPITAL PTY LTD MILFORD PARK SUPERANNUATION PTY LTD PEBADORE PTY LTD 14,348,879 11,319,503 7,060,000 6,300,000 3,777,349 2,947,773 2,669,767 2,649,578 2,400,000 2,000,000 1,940,000 1,817,117 1,668,706 1,438,431 1,426,847 1,420,000 1,402,181 1,300,000 1,300,000 1,200,000 10.72% 8.46% 5.28% 4.71% 2.82% 2.20% 2.00% 1.98% 1.79% 1.49% 1.45% 1.36% 1.25% 1.07% 1.07% 1.06% 1.05% 0.97% 0.97% 0.90% 1 D & GD Brown Nom PL is a company owned by David Brown and his wife. David Brown is a director of XRF Scientific Limited. 70,386,131 52.60% RESTRICTED SECURITIES There are currently no restricted securities. NON-MARKETABLE PARCELS Class of Security Ordinary shares Number of Securities Number of Holders 15,086 59 UNQUOTED SECURITIES The Company does not have any unquoted securities. ON-MARKET BUY BACK The Company does not have a current on-market buy-back scheme. XRF SCIENTIFIC LIMITED | 2020 ANNUAL REPORT 59              CORPORATE DIRECTORY DIRECTORS Fred Grimwade (Non-Executive Chairman) David Brown (Non-Executive Director) David Kiggins (Non-Executive Director) Vance Stazzonelli (Managing Director) COMPANY SECRETARIES Vance Stazzonelli Andrew Watson KEY MANAGEMENT PERSONNEL Andrew Watson (Chief Financial Officer) REGISTERED OFFICE 86 Guthrie Street Osborne Park WA 6017 Tel: +61 8 9244 0600 Fax: +61 8 9244 9611 COMPANY AUDITOR BDO 38 Station Street Subiaco WA 6008 BANKERS HSBC Bank Australia Level 1, 190 St Georges Terrace Perth, WA 6000 SOLICITORS HWL Ebsworth Level 11, Westralia Plaza 167 St Georges Terrace Perth WA 6000 SHARE REGISTRY Automic Level 2, 267 St Georges Terrace Perth WA 6000 Phone: 1300 288 664 WEBSITE www.xrfscientific.com ASX Company Code: XRF 60 XRF SCIENTIFIC LIMITED | 2020 ANNUAL REPORT             

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