2016 ANNUAL REPORT Contents About Energy Action 2 Chairman’s Report 3 CEO’s Report 4 Board of Directors 5 Sales Overview 8 Energy Procurement 10 Contract Management & Environmental Reporting 12 Project & Advisory Services 14 Strategic Initiatives 17 Market & Regulatory Environment 18 Our People 20 Our Customers 22 Financial Report 25 Corporate Information 109 Share and Shareholder Information 110 Glossary of Terms 112 22% About Energy Action Energy Action (ASX:EAX) is a leading energy management, technology and services firm, offering comprehensive energy procurement and management services. The Company’s aims are to reduce electricity and gas usage and improve energy efficiency to deliver positive environmental and financial benefits for our clients. Energy Action offers its business clients a complete energy management solution, regardless of their size, industry or energy consumption. Over 5,000 business customers with almost 24,000 sites under management across Australia and New Zealand are achieving greater efficiency gains and managing their risk with Energy Action. Financial Results Energy Action booked revenue of $33.98 million for FY2016, representing an increase of 6% on the previous year ($32.05 million), primarily driven by the strong performance of the Company’s Projects & Advisory Services (PAS) division, along with growth in Contract Management & Environmental Reporting (CMER) revenues. Operating Net Profit after Tax (NPAT) for FY2016 was $3.5 million, representing an increase of 47% on the previous year’s result of $2.4 million (on a like for like basis). This result was achieved through growth in revenue contributions from the PAS and CMER divisions, as noted above, combined with an ongoing focus on cost control and management. The Company has available liquidity of $5.7million comprised of cash and undrawn bank facilities, up from $3 million as at June 30, 2015. In 2016 Energy Action completed the integration of previous acquisitions, namely Exergy and Energy Advice. Energy Action has declared a fully franked final dividend of 3.52 cents per share for FY2016. The Company enters FY2017 with a range of strategic initiatives in place designed to drive further growth and deliver value to shareholders. 2 24% 54% Energy Procurement Projects & Advisory Services Contract Management & Environmental Reporting (Energy Metrics) Over 5,000 business customers with almost 24,000 sites under management ENERGY ACTION Chairman’s Report This is my inaugural report as Chairman, and I was honoured to be appointed to this role following the decision of Dr Ronald Watts to step down in November 2015, and in accordance with the Company’s Board renewal process previously communicated in June 2015. Financial year 2016 has been one of positive change, progress and achievement for Energy Action, despite challenging market conditions, increased competition and some degree of ongoing regulatory uncertainty. The Company has maintained its position as a leader and innovator in the field of energy procurement and management through a range of initiatives, and will continue to invest to maintain this position. The positive result that has been recorded for financial year 2016 is encouraging, and reflects this progress, as well as a keen focus on controlling costs. The increase in revenue delivered by Energy Action’s Contract Management and Environmental Reporting division has underpinned this result, while also assisting margins and profitability, all of which is outlined in detail below. The Company’s Projects & Advisory Services division also performed well, with a number of major projects delivered during the year. While the Energy Procurement division reported a slight downturn, this was in line with expectations due to increasing competition in the Energy Tenders segment, and that has been partially mitigated by growth in Structured Products. I take this opportunity to thank Dr Ronald Watts for his outstanding leadership in the role of Chairman since Energy Action’s listing as a public company in October 2011. We are pleased to have his ongoing guidance as a Non-Executive Director of the Company. I also acknowledge and thank Valerie Duncan, who stepped down from the Board in August 2015 following her retirement, for her significant contribution to the foundation and growth of the Company. As noted above, in accordance with our Board renewal process, in August 2015 Energy Action appointed two new Directors, both of whom have the requisite qualifications and experience to help us guide the Company through the next phases of growth and development. While Energy Action no doubt faces some headwinds in financial year 2017, I am confident that the strategic initiatives we now have in place, along with ongoing product and service development and our strong team leaves the Company well placed to meet these challenges. Energy Action remains focused on leveraging three significant market trends that have evolved in the energy sector, namely, the development of Microgrids, the advent of Big Data and the opportunity represented by NABERS (National Australian Built Environment Rating System) to improve building energy efficiency. It remains for me to thank our CEO, Scott Wooldridge, and his entire team for their hard work and dedication over the year. I also thank my fellow Directors for their support. The Board and senior management of Energy Action are committed to further building on the progress we have made in financial year 2016 and to driving shareholder value. Murray Bleach 3 ANNUAL REPORT 2016 CEO’s Report We are pleased to have delivered a 47% increase in Operating Net Profit After Tax (NPAT) of $3.519 million. This was underpinned by a 6% revenue growth in FY2016 with strong growth in Projects and Advisory Services and solid growth in Contract Management and Environmental Reporting Services. The core business focus for FY2016 was to finalise the integration of prior acquisitions and improve the operational performance from a systems, service delivery and a cost control perspective. Strong cost management resulted in operational costs decreasing by 1% versus the prior period. In conjunction with cost synergies, we have delivered significant enhancements to our operational systems. We simplified and streamlined the organisation, launched a unified Energy Action brand and a single, integrated IT landscape. The combination of the successful deployment of cost management initiatives and broader operational initiatives resulted in revenue growth translating into a substantially improved Operating NPAT. The solutions offered by the Contract Management & Environmental Reporting business were rebranded and restructured into a logical suite of three products, Energy Manager, Energy Bureau and Energy Metrics. An enhanced “Platinum” version was launched in June, extending the capabilities of the products with near real-time data. Energy Action’s service and software offers are now the most comprehensive in the market. Projects & Advisory Services (PAS) growth came primarily in the engineering projects sector. Key projects undertaken included a major building services upgrade, 500KW of commercial solar installations and forty (40) power factor correction projects. Staff utilisation within PAS is meeting expected levels of performance, delivering improved profitability. 4 Procurement revenue declined overall with growth in Structured Products being more than offset by declines in the very competitive Electricity Tender sector. Whilst customer numbers who renewed their services have been in line with expectations, the number of newly acquired customers has been lower than forecasted in a very competitive market. A focus for FY2017 will be to accelerate new client acquisition in the mid-tier market segment to improve auction volumes. We were excited to launch a new strategic plan in June 2016. The plan was developed in response to changing market dynamics, emerging technologies and maturing client expectations towards the management of energy. Key to these trends are changes within client buying behaviour. For many clients, energy is transitioning from a cost management exercise to a risk management commodity, or is being identified as an opportunity to generate incremental revenue streams. Energy Action is accelerating its investment in sales, marketing and solution development to capitalise on three key emerging energy market macro trends. These are the development of Microgrids, the advent of Big Data and the opportunity represented by NABERS (National Australian Built Environment Rating System) to improve building energy efficiency. The solutions targeted to address these trends have been successfully piloted over the last 12 months with key clients. We have continued to strengthen the Executive team and recently appointed Mathews George to the position of CIO. In 2017 we are accelerating investment in Energy Action’s technologies (Australian Energy Exchange and Energy Metrics solutions) to ensure we retain our competitive advantage. We are pleased with the improvements in operational performance achieved and believe the business is now well positioned to accelerate its growth. In FY2017 we are investing to capitalise on new opportunities in energy markets, in conjunction with targeted strategies to generate growth from our traditional service offers as part of a three year growth strategy. ENERGY ACTION Board of Directors Murray Bleach – Chairman Murray Bleach was appointed Chairman on 12 November 2015. He was previously a Non-Executive Director. Murray has over 35 years’ experience in the accounting and Dr Ronald Watts – Non-Executive Director Dr Ronald Watts is a co- founder of Energy Action and served as Chairman until 12 November 2015, when he relinquished the role to become a Non-Executive Director. finance industry. He originally worked as a Chartered Accountant for KPMG Peat Marwick in Sydney and Dallas, Texas. His move into financial services came in 1987, when he joined Bankers Trust Australia. Murray joined Macquarie Group as part of Macquarie’s acquisition of Bankers Trust Australia. During this time he was CEO of Macquarie’s US business and led the building of its US infrastructure business. He was previously CEO of listed toll road group, Intoll Group and was a Non-Executive Director of Eraring Energy and Zanbato Inc, and Chairman of SocietyOne Pty Ltd. Murray is currently Chairman of Suicide Prevention Australia and the Board Investment Committee of IFM Investors. He is a partner in Alfred Street Investment Partners and a Non-Executive Director of Carlton Investments Limited and Together Let’s and is also a member of the Advisory Board for Derwent Executive. Murray holds a Bachelor of Arts (Financial Studies) and a Masters in Applied Finance from Macquarie University. He is also a Graduate of the Australian Institute of Company Directors and a Chartered Accountant. Dr Watts has worked at chief executive and board level across a range of technology based enterprises and at senior levels in government. He is currently a Non-Executive Director of UK cancer therapy biotech company Biosceptre International Limited. His management experience spans the software and telecommunications industries, and as a consultant he has worked with companies on strategy and fund- raising in biotechnology, utilities, food processing and energy. Dr Watts has held academic posts of Associate Professor and Adjunct Research Fellow, and now works on voluntary projects training young people in Pacific Island nations. He has a Bachelor of Science (Hons) from the University of New South Wales and a PhD from Cambridge University. He has also completed a Graduate Diploma in Business, majoring in Finance. 5 ANNUAL REPORT 2016 Paul Meehan – Non-Executive Director Paul Meehan was appointed a Non- Executive Director on 11 October 2011 following the company’s ASX listing after previously being a Non-Executive Director of the private company from inception. Paul is a practising lawyer with over 25 years’ experience and expertise advising in all facets of the law with a range of clients from Top 50 ASX listed companies to individuals buying their first home. He has his own legal practice in the suburban area of Sydney with approximately 25 employees. Paul is also a Non-Executive Director of First Commercial Realty Pty Ltd (trading as LJ Hooker Commercial Macarthur),one of the largest commercial real estate offices in the South West of Sydney. Paul completed his legal studies through the Law Extension Committee, Sydney University (SAB) and holds a Diploma in Law (SAB). Nitin Singhi – Non-Executive Independent Director Nitin Singhi was appointed a Non-Executive Director on 12 August 2015. Nitin has over 20 years’ experience in corporate transactions and mergers and acquisitions. He originally worked as a corporate lawyer in Sydney and London at Allens and Lovells respectively, focussing on IPO’s, takeovers and private equity. After a stint as a Director of Finance/Legal in an online retail venture in 1999, he returned to Australia to join the Colonial FirstState Private Equity division in 2001. As an Investment Director, he was involved in numerous transactions and Board roles with Colonial until 2008 including Mincom, Ambertech, Goodlife Healthclubs, Technisyst and the infrastructure vehicle Colonial First State Private Capital, which was listed on the ASX. Since 2008 Nitin has been Managing Director of Horizon Private Capital Partners, a corporate advisory firm that specialises on servicing non-bank financial institutions and IT related companies. Its client base includes ASX listed and large firms that provide funding to finance assets including IT equipment and energy related infrastructure. He is also a Board Member of TiE Sydney, a not for profit association dedicated to fostering entrepreneurship. Nitin holds a Bachelor of Economics and a Master of Laws from the University of Sydney. He is also member of the Australian Institute of Company Directors. 6 ENERGY ACTION Mark de Kock – Non-Executive Director Mark de Kock was appointed a Non- Executive Director on 17 August 2015. Mark is a Nominee Director with the appointment recommended by Microequities Asset Management. Mark has over 20 years’ experience in driving superior commercial outcomes through strategy and technology in companies such as Vocus Communications, Optus, Vodafone, Trident Subsea Cable and HP (Tandem/Compaq). Mark started his career designing and developing money market and stock exchange trading systems such as the Helsinki Money Market System, full automation of the Dhaka Stock Exchange, and the design of the 3rd generation of the Hong Kong Stock Exchange. From there Mark focussed on eCommerce systems, managing the development of the qantas.com.au platform as GM eCommerce IT for Qantas in 2000. After several subsequent roles in IT with BT Financial group, Optus and Vodafone, Mark joined Vocus Communications in its infancy as Head of Strategy. Mark was responsible for setting strategy, the IPO of Vocus and the required acquisitions to execute against the stated strategy. During Mark’s tenure on the Board of Vocus Communications, the Company grew from having a $25m market capitalisation to becoming an ASX500 Company. Five years from listing, Vocus is now an ASX200 Company. Mark holds a Bachelor of Science (First class honours) in Electronic Engineering from University College London, an Executive MBA from the Australian Graduate School of Management, and is a Member of the Institute of Engineering and Technology. 7 ANNUAL REPORT 2016 Energy market conditions continued to be challenging throughout the year, with steep increases in energy prices nationally, and higher than normal volatility levels (South Australia, Tasmania and Queensland). These factors have affected client buying behaviour, most noticeably with a growing trend towards shorter contract terms. Gas markets were challenging with less retailer participation to drive competitive tension. Energy Action witnessed continued growth in the number of competitors in the sector during FY2016, most notably in the Energy Procurement and Contract Management spaces, both of which created greater ongoing competitive tension in Broker Markets. Entering FY2017, the Group had forward revenue of $66.7 million as at 30 June 2016, a reduction on that of FY2015 ($75.8 million as at 30 June 2015). This reduction is largely in CMER due to higher levels of cancellations of future start contracts with start dates beyond 2020, and with a number of clients wishing to align the length of their Energy Metrics contracts to their retail electricity contracts. The CMER offering has recently been enhanced by the launch of the Energy Metrics Platinum service, offering near real time data monitoring, and providing the business with a significant point of difference to its competitors. Energy Action remains committed to the continuous improvement of its comprehensive suite of products and services – this will continue to be a key focus throughout FY2017. Sales Overview Energy Action has three clearly defined business divisions: Energy Procurement, Contract Management & Environmental Reporting and Projects & Advisory Services. The performance and outlook for these divisions is outlined in further detail below. The Company once again booked record revenue in FY2016, with full year revenue of $33.98 million representing an increase of 6% on FY2015 ($32.05 million), and reflecting Energy Action’s ongoing strategy of directing resources to the areas in which they are best utilised to drive sales and growth. The Contract Management & Environmental Reporting (CMER) division was again the main contributor to Group revenue in FY2016, delivering an 8% year-on- year increase (up by $1.4 million to $18.1 million). This was primarily due to an increase of 407 in the number of sites under management, along with a number of product and service enhancements. The Projects & Advisory Services (PAS) division also achieved significant revenue growth in FY2016, with revenue of $7.9 million being an increase of 18.4% on the previous year’s result ($6.2 million in FY2015). The majority of growth came from the Projects, Project Management and Engineering businesses. As anticipated, the Energy Procurement division experienced a downturn in FY2016, with revenue of $7.6 million an 8% decrease on that of the previous year ($8.3 million in FY2015). This decline, due to an increasingly competitive Energy Tender sector and a number of prevailing market conditions that are detailed further below, was partially offset by growth in Structured Products. Throughout FY2016, Energy Action has made a sustained effort to better serve its existing client base, with a focus on enhancing Customer Relationship Management (CRM) systems, improving data integrity and continuous service improvement. This has resulted in noticeably higher customer engagement and retention levels. During the year the Company also implemented a new aligned sales and marketing structure designed to drive efficiencies across the Group, focusing on sectors in which Energy Action may leverage its comprehensive suite of product and service offerings. 8 ENERGY ACTION Perth Adelaide Melbourne Brisbane Sydney Canberra Revenue $m 17.4 14.0 10.3 7.8 33.98 32.1 25.8 22.2 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 The Future Energy Action offers energy pricing and contracting solutions across four distinct market sectors: Structured Products (strategic procurement), Requests for Proposal (RFPs or tenders), Tariff (mass market commercial) and EMarkets (AEX). None of our competitors operate in all these markets across the whole of Australia to provide the range of services that meet the diverse requirements of energy users. The Company intends to maintain its position as market leader by positioning itself as the preferred marketplace where energy buyers and sellers transact. Implicit in this strategy is the ongoing improvement and implementation of robust processes and systems to ensure unwavering trust in our operations. As noted above, Structured Products remain a key focus in FY2017, particularly with ongoing price volatility and uncertainty, and the need for businesses large and small to mitigate this risk through a bespoke product offering. Energy Action is confident that through its ongoing commitment to customer engagement, education and service improvement it will retain its position as Australia’s leader in the energy procurement sector. Energy Procurement Energy Action is the leading electricity, natural gas, LPG, fuel and environmental certificate procurement services provider in Australia. We undertake tailored energy pricing and contracting services for large commercial and industrial sites as well as reverse auction and tariff market services to small to medium businesses (SMEs). Performance Energy Action conducted 1,550 successful auctions in FY2016 via its proprietary Australian Energy Exchange (AEX) reverse auction platform, which was down on the 1,882 conducted in FY2015. The majority of this decline was in the second half and largely due to a significant amount of market contracts expiring in December 2015 which meant volumes of clients in the second half available to contract were lower. Despite an average price increase of almost $10/MWh (from $44.56/MWh to $54.16/MWh) this was not enough to offset lower auction volumes. Total auction bid value (electricity component of contract only) for the year was 17% down at $192 million versus $231 million for FY2015. Similarly, electricity tenders were down on the previous year with a reduction in both the number of tenders performed and the average price realised per tender. This continues to be a highly competitive area of the energy market. The Procurement division saw solid growth in Structured Products during the year, with an increase in the number of service offerings and growing uptake by the number clients using them to mitigate against pricing uncertainty. Structured Products continue to be a key focus for the division in FY2017. Retail gas prices increased substantially in the second half, driven by higher gas demand from power generation and a number of LNG projects that have now come on line or scaled up. The Procurement division maintains a client base across a diverse range of industry sectors that is largely unchanged from the previous year, with the majority of these being retail, commercial property, manufacturing, accommodation and food services. 10 ENERGY ACTION 1,550 successful auctions in FY2016 average price increases from $44.56/MWh to $54.16/MWh total auction bid value $192 million TWhs sold via Auction 1.89 volume of electricity 2.37 tenders TWh volume of gas 11,891 tenders TJ no. of tariff electricity 6,762 contracted sites Contract Management & Environmental Reporting Energy Action already has a number of clients signed up to and currently on-boarding the Platinum service. Another exciting development during the year was the signing of Energy Action’s first micro-grid customer, securing a multi-year contract with the Charter Hall property group to manage its Shopping Centre Portfolio of 17 centres. Service delivery for this contract commenced on 1 July 2016. The Future The integration of the services provided by the CMER division’s teams in Parramatta, New South Wales and Glen Waverley, Victoria continues to allow for larger Group accounts to be allocated to key personnel, increasing the business’s team delivery focus on more complex portfolios. The reallocation of clients between the two teams based on client service requirements highlights Energy Action’s new found versatility and ability to tailor solutions based on needs. This will continue to be a key area of focus for the CMER division in FY2017. As noted above, the division anticipates increasing uptake of the Energy Metrics Platinum package in the current financial year, driven by ongoing energy price volatility and larger clients seeking ways in which to mitigate this risk. The micro-grids sector will also be another key area of focus for the CMER division in FY2017. Energy Action’s Contract Management & Environmental Reporting division provides advanced electricity monitoring and contract management services for Australian businesses under three bundled software and service offers: Energy Manager, Energy Bureau and Energy Metrics. These services are built around automated business intelligence reports based on energy consumption and cost trend analysis, empowering businesses to take control of their energy bills through bill validations, tariff reviews and demand alerts. Performance The Contract Management & Environmental Reporting (CMER) division saw pleasing growth in FY2016, with an increase in the number of sites under management by 407, and with the division now having over 15,688 sites under contract. A key focus during the year was on improved service delivery and brand integration, with the former Activ8 product now rebranded as Energy Metrics. This reflected the CMER division’s newly enhanced tiered service packages that are now offered under a single brand. Energy Action has renamed this business division as Contract Management & Environmental Reporting (previously Contract Management & Energy Reporting) to reflect its enhanced reporting capabilities in response to client needs in terms of sustainability data and reporting. Similarly, the Energy Bureau Service has been renamed Energy Bureau & Environmental Reporting. This service, provided in conjunction with Energy Action’s specialist platform partners, provides a range of multi-site, multi-utility reporting services. A notable development during the year was the introduction of a new premium service package named Energy Metrics Platinum, which was launched in June 2016. Among many other features and benefits, the Platinum package delivers near real time (5 minutes) online data on energy usage, and instant alerts via SMS if set thresholds are reached. 12 ENERGY ACTION 15,688 sites under contract Project & Advisory Services The Future Entering FY2017, the PAS division is well placed to further build on the achievements of FY2016, with a solid pipeline of project work and modified internal structure, now including a dedicated proposals and pre-sales support team to drive business development. The division has also modified roles and enhanced skills in delivery intended to facilitate the expected growth it anticipates in its commercial buildings upgrade strategy. The PAS division is also taking the lead in regards to assessing and securing suitable partnerships to facilitate likely growth in the Solar PV sector, which also ties into the above strategy. The division also sees the increasing demand for automated energy reporting as an addressable market opportunity in FY2017, and this will be an ongoing focus. The Projects and Advisory Services business will benefit from one of Energy Action’s key differentiators: NABERS expertise, the capability to carry out detailed energy analysis of a commercial building, define energy efficiency measures, project manage and deliver those measures (turnkey), and then tune and measure/verify the identified savings. Energy Action offers a range of tailored services that can help any business assess, improve and manage on-site levels of energy efficiency, through the use of innovative energy efficiency and energy management methodologies. As a result, businesses can generate up to a 40% reduction in total energy usage – a major step towards sustainability. Performance The Projects & Advisory Services (PAS) division achieved growth across most of its operations in FY2016, with revenues increasing by 18% compared to the previous year. The majority of this growth came from the Projects business, with a major client’s commercial building services upgrade delivered during the year. The Project Management and Engineering business also saw solid growth. The PAS division’s Analysis business had a slight increase in revenue to that of the previous year, while Energy Reporting had a minor decrease. The PAS division delivered a number of major Solar PV and Power Factor Correction (PFC) projects during the year, including one for a major theme park. The division continues to see growing interest in Solar PV and PFCs from a number of industry sectors, particularly shopping centres and commercial building owners/tenants. Another notable development in FY2016 was the introduction of the Embedded Engineer offer. This offer utilises a remote engineer that analyses the clients energy usage, in the context of their production, and pro-actively advises on energy efficiency initiatives to implement. The PAS division was pleased that a number of multi-site clients for which it delivered a major building services upgrade in FY2016 has also retained Energy Action for a further three years to provide National Greenhouse and Energy Reporting Scheme (NGERs), bill validation and procurement services. This highlights the Group’s advantage in having a comprehensive suite of energy procurement and management products and services. 14 ENERGY ACTION revenues increasing by 18% compared to the previous year Strategic Initiatives Microgrids Big Data The Australian Electricity market provides next day access to energy consumption data to 3rd party organisations for approximately 110,000 commercial and industrial sites. With the role out of smart meters and regulatory changes, next day data will be made available from over nine million residential sites and 800,000 commercial and industrial sites over the next 5 to 10 years. Access to next day data provides Energy Action the opportunity to extend core auction and energy metrics services to a significantly larger group of business clients. The access to data on this scale also offers a unique opportunity to develop and deliver alternate service offers that provide significant insights into energy consumption and energy spend patterns and generate tangible savings. Energy Action is well positioned to take advantage of this change in industry technology. A microgrid is a small-scale power grid that can operate independently or in conjunction with the area’s main electrical grid. Any small-scale localised station with its own power resources, generation and loads and definable boundaries qualifies as a microgrid. With projections in Australia that between 25% and 45% of generation will be contained within a microgrid by 2050, this is a growing and significant part of the Australian energy landscape. Energy Action’s unique lifecycle energy management capabilities allows for the provision of all key aspects of both the establishment and the ongoing management of a microgrid. This includes solar generation, metering design, turnkey project implementation, grid procurement and ongoing tenant metering, billing, reconciliations and regulatory compliance. Commercial Building Agreements Energy Action has unique domain knowledge in providing audits, ratings and environmentally sustainable design (ESD) solutions for clients looking to improve the energy efficiency and overall NABERS rating of their commercial property. Typically a higher NABERS star rating translates to an improved overall commercial return for properties rated 4.5 stars and above. In conjunction to this incentive to improve a buildings NABERS rating, Environmental Upgrade Agreements (EUAs) were recently legislated in New South Wales and Victoria. EUA’s provide significant funding and payment incentives for property owners to invest in energy efficiency upgrades of commercial properties. Energy Action has extended its solutions to provide turnkey energy efficiency building upgrades and a continuous monitoring and benchmarking service called Expert Monitoring and Diagnostic Service (EMDS) to provide a guaranteed NABERS outcome and capitalise on these trends. There are over 700 commercial properties in Australia rated below 4.5 stars. 17 ANNUAL REPORT 2016 Market & Regulatory Environment Retail electricity prices – net of network, certificate and other costs – rebounded strongly during FY2016. As measured by the Energy Action Price Index, over the year retail prices in NSW and Victoria rose by 25% and 35% respectively, and in Queensland by 17%. These increases come after two years of excessively low prices and signal that the generation sector has finally come to terms with conditions of over-capacity and sluggish demand. By far the strongest increase in prices was seen in South Australia where a number of initiatives and issues drove prices to a remarkable 66% increase over the year. One consequence of these higher prices in the generation market has been to squeeze margins amongst retailers, with the small independent retailer GoEnergy entering voluntary administration in April 2016. In a similar vein, prices for Large-scale Renewable Energy Certificates increased from around $40/ certificate to more than $80/certificate over the year. With the percentage of their load that retailers must cover with certificates also increasing year-on-year, this had the effect of pushing up the price to the end customer from around 0.4c/kWh to over 1.0c/kWh. As the current deficit in renewable generation versus government targets is likely to persist for several years, prices may remain at this level for some time. Prices for the competitive components of electricity supply are increasing both in absolute terms and in their volatility. Accordingly, we expect to see more interest from procurement customers for innovative contract forms such as fixed/variable electricity contract pricing and self-management of environmental certificate liabilities. In contrast, distribution network prices saw reduced pricing at the start of the financial year with the Australian Energy Regulator imposing cuts of up to 30% on NSW distribution businesses, and signalling cuts of around 6% for Victorian and Queensland distributors to be enacted in 2016 to 2017. With the network component typically accounting for around 50% of a business customer’s bill this provided some relief from the upward movement in electricity and certificate prices. In the gas market the forward curve for retail gas prices has sloped upwards for some time. Higher than expected demand during the 2016 winter 18 period resulted in prices for calendar 2016 contracts increasing by around 15% from their previous level. Looking further ahead the forward curve continues to slope upwards, as it has now done for several years, with calendar 2017 contracts commanding a premium of up to 20% and calendar 2018 contracts being more expensive again – reflecting the potential for higher gas costs linked to international prices. Nevertheless, the absolute price level of these later years reduced slightly during FY2016, with this possibly indicating that the market may have priced in most if not all of the likely increase over the next three years. In the regulatory sphere a number of reviews with the potential to affect Energy Action and its customers progressed during the year. Both the Australian Competition and Consumer Commission (ACCC) and the Australian Energy Market Commission (AEMC) published their reports into the east coast wholesale gas market and reached similar conclusions in calling for improved price transparency. In its report the ACCC also questioned the effectiveness of the current gas transmission pipeline regulatory regime given the sharp price increases of recent years. Pricing will continue to be a key concern for Energy Action’s gas customers going forward. In the electricity sector the drive towards increasing competition for electricity supply through embedded networks continued, with the new role of the Embedded Network Manager now set to commence in December 2017. We expect demand from micro- grid owners for network operation/consultation services to continue to increase throughout FY2017. The pace of reform in the Western Australian electricity market continues to gather pace. Subject to government approval (expected in the second half of 2016) regulatory oversight of the state wide gas network and the electricity network in the south west region will be transitioned to the Australian Energy Regulator. The market for supply to residential and small business electricity customers will be deregulated with both reforms taking effect from mid- 2018. These changes are expected to drive down network costs and increase competition for supply in the electricity sector. ENERGY ACTION We expect demand from embedded network owners for network operation/ consultation services to continue to increase throughout FY2017. $80/cert. $40/cert. Large-scale Renewable Energy Certificates growth of retail prices 66% 17% 25% 35% Our People Energy Action recognises that our people are the Company’s greatest asset, and as such we maintain an ongoing focus on employee engagement, satisfaction and retention. One of the key strategies towards achieving these goals is the annual Employee Engagement & Satisfaction survey, which was further refined and conducted online in November 2015. A total of 142 employees were invited to complete the survey, with 132 responding – a pleasing participation rate of 93%, and with an overall employee satisfaction rate of 67%. In April 2016 the Employee Pulse Survey was conducted, with employee engagement increasing to 63% compared to 60% in April 2015. Following these surveys, and based on the feedback received, Energy Action implemented a number of measures designed to further improve and enhance employment, including: Re-evaluating and optimising employee rewards and awards to maximise engagement Identifying high performers and subject matter experts to lead our FY2017 growth strategy initiatives Increasing focus on learning & development Having completed the integration of Exergy and EnergyAdvice into the group, Energy Action conducted a number of employee focus groups in order to determine our Company Values to define workplace culture, and to ensure that all are aligned with these. The outcome of this initiative has been very positive – a number of suggestions have either been implemented or taken on board for further consideration. After an organisational restructure in FY2016, Energy Action saw a reduction in Senior/Executive employees, but an increase in the sales and support team numbers, reflecting the Company’s ongoing focus into FY2017 on its clearly defined growth strategies. Energy Action now employs 150 full time equivalent (FTE) employees compared to 160 in FY2015. Energy Action has a Diversity & Inclusion policy that was reviewed by the Board Nomination Committee in July 2016. We value a diverse workforce and are committed to promoting a culture that is inclusive and embraces gender equality at all stages of the employment lifecycle, particularly during our recruit, assessment and selection processes. 20 ENERGY ACTION Appointment of Chief Information Officer Reflecting Energy Action’s renewed focus on leadership through innovation, in June 2016 the Company was pleased to announce the appointment of Mathews George as its inaugural Chief Information Officer (CIO). Having deep knowledge and experience in the IT field, Mathews will be responsible for the strategy and delivery of all IT related matters. He will lead a team of innovative technology professionals and be responsible for setting the future architecture of the Company’s IT landscape, while delivering regular product releases and IT upgrades. Energy Action’s focus on diversity and inclusion is based on the following: Gender ensuring equal access to employment and opportunities for promotion regardless of gender Disability ensuring equal access to employment and opportunities for promotion Age recruitment of qualified persons irrespective of age – engaging, developing and retaining these employees Culture/Ethnicity culturally diverse workforce across all areas of the business Flexibility providing employees with access to flexible working arrangements More than 10% of our workforce are employed under a flexible workplace arrangement. These arrangements include permanent part-time employment, school friendly hours, formal working from home arrangements and the flexibility to work from different offices in Sydney and Melbourne. During FY16 we also reviewed our gender diversity metrics which include gender, age, gender pay and gender management data. Overall satisfaction rate 67% 21 ANNUAL REPORT 2016 Our Customers Energy Action conducted its fifth Client Satisfaction Survey from 27 April to 9 May, 2016. The survey was conducted online, and facilitated an independent market research company. It addressed client attitudes and opinions on their experience dealing with Energy Action’s employees, satisfaction with services and perceived value and utility of services. Improved sample size resulting in even better quality insights A total of 397 completed surveys were conducted with Energy Action clients, approximately 30% larger than last year’s sample of 300. Greatest strengths are Energy Market Expertise and Client Account Management Two key areas of particular strength for Energy Action related to Energy Market Expertise, and Account Management – both with scores above 80%: 84% of clients agree or strongly agree that Energy Action are highly knowledgeable about the Australian energy market 83% of clients agree or strongly agree that their Account Manager’s standard of communication meets their needs 81% of clients agree or strongly agree that their Account Manager: i) is accessible and responds to issues quickly and efficiently; ii) delivers what they have promised; and iii) understands their requirements. Two-year trend analysis shows growth in Advocacy and Expertise, while Satisfaction is stable This year’s analysis also sought to understand how client sentiment had evolved over the past two years in particular, as this is the period in which Energy Action has seen its greatest growth as a business: 7 out of 10 clients (70%) would recommend Energy Action to others, up from 67% in April 2014 Perceptions of Energy Action as experts on the Australian energy market continues to be an area of strength – 84% of respondents agree or strongly agree – up from 79% in 2014 Approximately two thirds (66%) of respondents said that they were satisfied or very satisfied with Energy Action, compared with 68% in April 2014. Opportunity to improve satisfaction by proactively anticipating client’s needs The survey revealed that the biggest opportunity for Energy Action to improve on overall satisfaction scores is to enhance our ability to add value to client’s businesses ‘by offering suggestions outside the scope of the client’s immediate need or issue’. This will continue to be a core focus for the Company over FY2017 22 ENERGY ACTION 5th 397 Client Satisfaction Survey Completed surveys 30% larger than last year’s sample of 300 80% strength for Energy Action related to Energy Market Expertise, and Account Management – both with scores above 80% 70% would recommend Energy Action to others, up from 67% in April 2014 84% agree Perceptions of Energy Action as experts on the Australian energy market continues to be an area of strength FINANCIALRESULTS Financial Report 1 Directors’ Report 26 2 3 Auditor’s Independence Declaration 37 Remuneration Report (Audited) 39 4 Corporate Governance Statement 49 5 Financial Statements 64 Consolidated Statement of Comprehensive Income 64 Consolidated Statement of Financial Position 65 Consolidated Statement of Changes in Equity 66 Consolidated Statement of Cash Flow 67 Notes to the Financial Statements for year ended 30 June 2016 68 Note 1: Corporate Information 68 Note 2: Summary of Significant Accounting Policies 68 Note 3: Significant Accounting Judgements, Estimates and Assumptions 78 Note 4: Business Combinations 79 Note 5: Segment information 81 Note 6: Revenue, Other Income and Expenses 82 Note 7: Income Tax Expense 84 Note 8: Earnings per Share 85 Note 9: Dividends 86 Note 10: Cash and Cash Equivalents 87 Note 11: Trade and Other Receivables 87 Note 12: Property, Plant and Equipment 88 Note 13: Intangible Assets 89 Note 14: Other Assets 91 Note 15: Trade and Other Payables 91 Note 16: Tax 92 Note 17: Provisions and other liabilities 93 Note 18: Loans and Borrowings 93 Note 19: Issued Capital and Reserves 94 Note 20: Capital and Leasing Commitments 97 Note 21: Cash Flow Information 98 Note 22: Related Party Disclosures 99 Note 23: Financial Risk Management 100 Note 24: Auditors’ Remuneration 104 Note 25: Information relating to Energy Action Limited (“the parent entity”) 104 Note 26: Events After the reporting period 105 6 Director’s Declaration 106 7 Independent Audit Report to Members of Energy Action Limited 107 25 ANNUAL REPORT 2016 Directors’ Report Your Directors present their report, together with the financial statements for Energy Action Limited (the “Company”) and its consolidated entities (the “Group”), for the financial year ended 30 June 2016. Directors The names and details of the Company’s Directors in office during the financial year and until the date of this report are as follows. Directors were in office for this entire period unless otherwise stated. . . . . . . . . . . . . Murray Bleach (Non-Executive Independent Chairman) Qualifications – Bachelor of Arts (Financial Studies) and Master of Applied Finance - Macquarie University, Institute of Chartered Accountants, Graduate Australian Institute of Company Directors Experience – Board Member since 2012, Chairman since 2015 Special Responsibilities – Member of Audit & Risk Management Committee, Nomination and Remuneration Committees Directorships held in other listed entities currently and during the three prior years to the current year: Carlton Investments Ltd – Independent Non-Executive Director (appointed 2 December 2014) Other Directorships and interests - Chairman of Suicide Prevention Australia, Partner in Alfred Street Investment Partners, Non-Executive Director of Together Let’s, Member of Advisory Board for Derwent Executive, Non- Executive Director of IFM Investors. . . . . . . . . . . . . Dr. Ronald Watts (Non-Executive Director) Qualifications – Bachelor Science (Hons I), University of New South Wales, Dip Management (Applied Finance), PhD (Molecular physics) – Cambridge Experience – Board member since 2003, Chairman 2003 – 2015 Special Responsibilities – Member of Nomination Committee Directorships held in other listed entities currently and during the three prior years to the current year: nil Other Directorships and interests - Non-executive Director of Biosceptre International, a cancer research company. Trustee, The Wenkart Foundation, a medical research fund. . . . . . . . . . . . . Paul Meehan (Non-Executive Director) Qualifications – Diploma of Law (SAB), University of Sydney Experience – Board member since 2003 Special Responsibilities – Member of Audit and Risk Management Committee, Nomination and Remuneration Committees Directorships held in other listed entities currently and during the three prior years to the current year: nil Other Directorships and interests - Director of Meehans Solicitors Pty Ltd, Non-executive Director of Commercial First Realty Pty Ltd T/as LJ Hooker Commercial Macarthur. . . . . . . . . . . . . 26 ENERGY ACTION Nitin Singhi (Non-Executive Independent Director – appointed 12 August 2015) Qualifications – Bachelor of Economic and Master of Laws – University of Sydney, Member Australian Institute of Company Directors Experience – Board Member since 2015 Special Responsibilities – Chairman of Audit and Risk Management Committee, Nomination and Remuneration Committees Directorships held in other listed entities currently and during the three prior years to the current year: nil Other Directorships and interests - Managing Director of Horizon Private Capital Partners, Director of TiE Sydney . . . . . . . . . . . . Mark de Kock (Non-Executive Director – appointed 17 August 2015) Qualifications – Bachelor of Science (First Class Honours) in Electronic Engineering from University College London, Executive MBA from the Australian Graduate School of Management, Member of the Institution of Engineering and Technology Experience – Nominee Director since 2015, appointment recommended by Microequities Asset Management Special Responsibilities – Member of Remuneration Committee Directorships held in other listed entities currently and during the three prior years to the current year: Vocus Communications Limited (resigned 19 June 2013). . . . . . . . . . . . . Valerie Duncan (Non-Executive Director – resignation effective 31 August 2015) Qualifications – Master of Business, General Management Charles Sturt University, Fellow Company Secretarial FCSA, Fellow Australian Institute of Energy, FSCPA, Company Director FAICD Experience – Board member since 2003 Special Responsibilities – Member of Audit and Risk Management Committee, Nomination and Remuneration Committees Directorships held in other listed entities currently and during the three prior years to the current year: nil . . . . . . . . . . . . Philip Randall (Non-Executive Director – passed away 4 July 2015) Qualifications – Bachelor of Economics, Monash University Experience – Board member since 2014 Special Responsibilities – Member of Nomination Committee Directorships held in other listed entities currently and during the three prior years to the current year: nil . . . . . . . . . . . . 27 ANNUAL REPORT 2016 Interests in the shares and options of the Company and related bodies corporate As at the date of this report, the interests of the directors in the shares and options of Energy Action Limited were: Number of ordinary shares Number of options over ordinary shares Murray Bleach Dr Ronald Watts Paul Meehan Nitin Singhi Mark de Kock Company Secretary 273,155 1,730,371 4,798,993 3,000 - - - - - - The following person held the position of Company secretary at the end of the financial year: Carolyn West – Bachelor of Economics, Monash University, Certified Practising Accountant, Governance Institute of Australia (Cert) Dividends Dividends recommended: Ordinary shares Final 2016 dividend recommended to be paid 21 September 2016 Interim 2016 dividend paid 21 March 2016 Final 2015 dividend paid 21 October 2015 Operating and financial review Cents per share $ 3 52 2 80 1 06 913,585 726,715 275,114 The Board presents the 2016 Operating and Financial Review, which has been designed to provide shareholders with a clear and concise overview of Energy Action’s operations, financial position, business strategies and prospects. The review also provides contextual information, including the impact of key events that have occurred during the financial year 2016 and material business risks faced by the business so that shareholders can make an informed assessment of the results and prospects of the Group. The review complements the financial report and has been prepared in accordance with the recently released guidance set out in ASIC’s Regulatory Guide 247: Effective Disclosure in an operating and financial review. Our business model Energy Action’s core business strategy is to reduce the impact of energy prices for Australian businesses and to advise businesses on using energy more efficiently. Energy Action’s principal activities are providing integrated energy management services to a diverse base of commercial, industrial and small and medium sized business customers. Its core services are: Energy procurement: specialised buying and negotiation strategies, utilising reverse auctions, bespoke tender models and advising on structured products within AFSL parameters; Energy Contract Management and Environmental Reporting (CMER) services; and, Energy efficiency and sustainability Projects and Advisory Services (PAS). Initially founded in 2000 Energy Action has grown significantly and since 2009 the Company has procured more than $7 billion worth of electricity on behalf of its clients. The Company listed on the Australian Securities Exchange on 13 October 2011. 28 ENERGY ACTION 2016 financial performance The Group generated a statutory net loss after tax of $0.45 million for the year ended 30 June 2016 compared to a statutory net loss of $2.15 million for the year ended 30 June 2015. Statutory net loss after tax of $449,399 is after deferred consideration related to the Exergy and Energy Advice acquisitions of $3.8 million (FY15 $3.7 million) and restructuring costs of $0.1 million (FY15 $0.9 million). Operating profit after tax for the year ended 30 June 2016 was $3,519,507, representing a 47% increase over the prior year like for like result of $2,395,883. The main reasons for the increase in Operating Profit is an increased contribution from the PAS business, and higher contract management revenues combined with good cost control. A reconciliation of the Group’s Statutory to Operating Net Profit and EBITDA is shown in the table below: NPAT EBITDA $ 30 June 2016 30 June 2015 Variance 30 June 2016 30 June 2015 Variance Statutory results (449,399) (2,147,578) 79 1% 2,524,681 99,821 2429 2% Add back Significant Items after tax: Deferred consideration* 3,850,327 3,749,245 Restructuring costs** Acquisition costs*** 118,579 - 433,548 360,668 -2 7% 72 6% 0% 3,850,327 3,749,245 169,399 - 572,759 360,668 -2 7% 70 4% - Operating profit after tax 3,519,507 2,395,883 46 9% 6,544,407 4,782,493 36 9% * Deferred consideration relating to the acquisitions of Exergy & Energy Advice required to be expensed for accounting purposes ** Costs associated with restructuring including redundancies *** Costs relating to the acquisition of Exergy & Energy Advice Non cash share based accounting expense relating to the Performance Rights & Options Plan (PROP) has been included in Operating net profit/(loss) after tax with FY15 comparables amended accordingly Key Financial Metrics Revenue Operating EBITDA Operating EBITDA margin Operating NPAT1 Operating Cashflow2 Statutory NPAT Earnings per share (Operating)1 Earnings per share (Statutory) Dividend per share full year FY16 $33 98m $6 54m 19 3% $3 52m $6 6m $(0 45M) 13 56c -1 73c 6 32cps FY15 $32 05m $4 78m 14 9% $2 4m $5 9m $(2 15)m 9 23c -8 28c 3 65cps Variance 6 0% 36 9% 4 3% 46 9% 12% 79 1% 46 9% 79 1% 73% 1 Non cash share based accounting expense relating to the Performance Rights & Options Plan (PROP) has been included in Operating net profit/(loss) after tax with FY15 results comparables amended accordingly 2 Operating Cash Flow is defined as Operating Cash Flow before Interest, Tax and Significant Items Energy Action has delivered growth in the abovementioned Key Financial Metrics. Revenue growth was driven predominantly by a stronger performance in the Projects and Advisory (PAS) division and a recovery in Contract Management and Environmental Reporting (CMER) revenues. Good cost management and a non-repeat of a prior period bad debt write-offs resulted in EBITDA growth of 36.9%. 29 ANNUAL REPORT 2016 Operating Cash Flow was particularly strong at $6.6 million up 14% over the prior period. This result was achieved through a continued focus on working capital management and underpins the strength of the operating result. Further details of the operating results are set out below. Revenue $ Procurement Monitoring PAS Other revenue Total Revenue FY16 FY15 7,586,787 18,059,913 7,930,792 401,216 8,263,626 16,691,706 6,698,594 395,289 33,978,708 32,049,215 vs FY15 $ -676,839 1,368,207 1,232,198 5,927 1,929,493 vs FY15 % -8 2% 8 2% 18 4% 1 5% 6.0% Note: FY15 allocation by product has been restated to be comparable with FY16 Revenues Revenue and other income for the year increased by $1.9 million (or 6%) from $32.05 million to $33.98 million mainly as a result of the following: Procurement revenue declined by 8% with growth in Structured Products being more than offset by declines in the very competitive Electricity Tender sector. A decline in auction revenues was experienced as fewer auctions were performed in the H2 FY16 than the prior corresponding period following the large number of contracts expiring in December 2015, coupled with shorter contract duration. An increase in average prices per MWh from $45.56 to $54.16 partly mitigated the drop in auction volume. Whilst customers numbers due to renew their services have been in line with expectations, the number of newly acquired customers has been lower in a very competitive market. Increased CMER revenue of 8% or $1.4 million to $18.1 million as the number of sites under active management grew by 407. Increased PAS revenue of $1.2 million, mainly driven by growth in the number of energy efficiency projects undertaken in FY16. Operating expenditure Strong cost management actions resulted in a reduction of operating overheads by $0.4 million to $22.6 million for the year. $16.2 million (or 72% of total overhead costs) related to employee costs which were slightly up from $16 million in FY15. The reduction in overheads was driven by the following key items: Higher staff expenses due to annual salary increases and higher incentive pay as a result of the improved operating result. This was partly offset by lower share based payments expense as grants made in previous periods did not vest due to non-market vesting conditions not being satisfied. Lower travel, office rental and advertising costs. These were partly offset by higher computer maintenance costs. Bad debt expenses of $0.1 million is $0.4 million lower than the previous year. This included write-offs associated with the resolution of some historic accounts receivable issues. 30 ENERGY ACTION Financial position Net assets decreased from $13.5 million at 30 June 2015 to $12 million at 30 June 2016 mainly as a result of the statutory loss incurred of $0.45 million and the payment of dividends of $1.0 million. The Group has a five year, $12 million multi-option facility agreement that expires in October 2019. Funds can be provided under the facility as loans, bank guarantees or as letters of credit. As at 30 June 2016, the Company had utilised $7.5 million of the facility comprising a loan of $4.25 million and bank guarantees of $3.27 million. The bank guarantees are principally in relation to the final deferred consideration payable on the Energy Advice acquisition on 18th August 2016. The Group had $1.2 million of cash at bank at 30 June 2016, resulting in net available funding of $5.68 million, up from $3 million in FY15. Operating Cash Flow Operating cash flows before interest, tax and significant items of $6.6 million were generated during the year, an increase of 12% compared to the previous period. Operating cash flow before interest, tax and significant items was 102% of Operating EBITDA, a significant increase from the previous period and reflects management’s focus on managing and improving cash flows. Reconciliation of Operating Cash Flow before interest, tax and significant items Statutory operating cash flow Add back: Taxes paid Interest paid Cash flows related to significant items Other Operating cash flow before interest, tax and significant items Operating EBITDA Operating cash flow as % of Operating EBITDA 30 June 2016 946,283 30 June 2015 2,564,520 1,093,603 299,062 4,311,399 (6,173) 6,644,174 6,544,407 102% 1,760,364 128,989 1,472,973 - 5,926,846 4,782,493 124% A second half fully franked dividend of 3.52 cents per share was declared on 18 August 2016, bringing total fully franked dividends for the year to 6.32 cents per share, an increase of 73% compared to FY15. The FY16 dividend reflects a payout ratio of 47% of the statutory net loss after tax adjusted for certain non-cash expenses as follows: Statutory loss Add back deferred consideration on acquisitions expensed for accounting purposes Less cash restructuring costs 31 ANNUAL REPORT 2016 Operating review and highlights FY16 has been a year of consolidation and focus for Energy Action. The Group has largely delivered on the key objectives and priorities for the year. A number of system and process improvements have been implemented and several new growth initiatives are under way which are expected to drive revenue in FY17. Progress against the key objectives can be summarised as follows: Key Objective Result Launch Energy Metrics Platinum (near real time data) Launched June 2016 Increase PAS pipeline and utilization Pipeline increased by $1 million, utilization improved Tight cost control to realise cost synergies Opex cost reduction vs FY15 Finance and CRM systems upgrades System upgrades completed on time Complete brand migration to a single brand All legacy brands migrated to Energy Action Finalise product & service pilots ahead of FY17 launch Embedded network business operational July 2016, Building efficiency upgrade products underway, Structured Products offerings in the market Launch building efficiency benchmarking service “Expert Monitoring and Diagnostics Services (EMDS”) Launched June 2016 Implement strategic partnership with SunEdison Not implemented due to financial collapse of SunEdison The financial collapse of SunEdison meant that the partnership focused on solar Power Purchase Agreements did not proceed and Energy Action is currently considering several alternative options for the commercial solar market. Procurement The market for procurement services has become more competitive with increased broker concentration. Whilst the number of customers renewing services has been in line with expectations, the more competitive market has resulted in fewer new customers being acquired than was planned, especially in the second half. Procurement revenues declined 8% versus the prior period. The number of successful auctions declined by 332 or 18% compared to FY15, with almost all of the decline experienced in the second half of FY16. As previously cited, a large number of contracts were due for renegotiation by December 2015 and this impacted the available market for both renewal and new contracts in the second half of FY16. Although average prices increased by almost $10/MWh, this was not enough to compensate for the lower auction volumes. Electricity tenders were down significantly from the prior period with a reduction in both the number of tenders performed and the average price realised per tender. Tenders continue to be a highly competitive area of the market. Solid growth was achieved in Structured Products, with an increase in both service offerings and number of clients in FY16. Contract Management & Environmental Reporting (CMER) Overall CMER revenue was up 8% versus the prior period with growth in the number of active core Energy Metrics sites up 391 sites to 6,962. CMER has historically been sold with a five year term, which is longer than the retail electricity contracts. Energy Action has experienced a reduction in the length of new contracts, with clients preferring to align the CMER contract with the retail contract length. The Energy Metrics Platinum service was launched in June 2016 with several customers already signed up and in the process of on-boarding this service. Energy Action’s first embedded network customer was signed during the year and will commence service delivery effective 1 July 2016 for 17 shopping centres. 32 ENERGY ACTION Project & Advisory Services (PAS) PAS revenues increased 18% versus the prior period, with the majority of the growth coming from the Projects & Project Management and Engineering businesses, with a smaller increase in Analysis work. A significant client building services upgrade has been substantially delivered, which is the main revenue driver versus FY15. Improvements have been realised in staff utilization during the year as targeted. Energy Action secured an additional similar sized building services upgrade project late in FY16 which commenced delivery in June 2016. Forward revenue Forward revenue has reduced from $75.8 million as at June 30 2015 to $66.7 million at the end of FY16. The reduction is largely in CMER due to higher levels of cancellations of future start contracts than anticipated and clients are also looking to align the contract length of Energy Metrics contracts with their retail electricity contract. As noted above, his has resulted in an overall shortening of contract lengths however overall revenue generating contracts under active management have increased. Of the $9.1 million reduction in future revenue, $5.2 million relates to future start contracts post 2021. In FY14, Energy Action changed sales processes to cap forward revenue contracts at a maximum of five years. The Company continues to focus on improving customer service and enhance the CMER offering, including the roll-out of the recently launched of Energy Metrics Platinum service. Operational Key Performance Indicators Future contracted revenue Procurement No of successful AEX auctions Average AEX contract duration (months) TWhs sold via Auction (annualised equivalent) Average $/MWh Total Auction bid value1 No of electricity tender events Volume of electricity tenders (TWh) No of gas tender events Volume of gas tenders (TJ) Contract Management & Energy Reporting (CMER) Sites under current contract2 Activ 8 / Energy Metrics Bureau services Data only contracts (MP / MDA) Total sites under contract Average contract duration (months) Projects & Advisory Services Contracted future orders 1 Electricity component of contract only, i e excluding network and other charges 2 Does not include contracts which are signed, but yet to commence service delivery FY16 $66 7m 1,550 22 6 1 89 $54 16 $192m 29 2 31 70 11,891 6,962 6,179 2,547 15,688 50 1 FY15 $75 8m 1,882 24 4 2 55 $44 56 $231m 42 1 91 83 6,573 6,571 6,006 2,704 15,281 53 % change -12% -18% -1 8 mths -26% +22% -17% -31% +21% -16% +81% No +391 +173 -157 +407 -2 9 months $6 1m $5 1m 20% 33 ANNUAL REPORT 2016 Business strategy and prospects for future financial years Energy Action’s purpose is to “Develop and deliver innovative solutions for the energy challenges of our time for our clients and the planet.” Energy Action continues to refine its strategy in response to changes in the dynamic energy markets, technologies and client expectations. During the year, Energy Action announced a new strategic plan with the following elements: Extending the core solution reach via: Improved customer segmentation, targeting and the provision of tailored offerings Improved contract management offers, including the roll out of Energy Manager, Energy Bureau and Energy Metrics products including the launch of Energy Metrics Platinum real time cost and consumption data Enhanced product management and channel partner programs Implementing a commercial building upgrade program to determine a building’s energy reduction opportunity, deliver this via an upgrade project and then verify through measuring the savings achieved. Capitalising on macro industry trends including: Establishing a microgrid operation business. A microgrid is a small scale power grid that can operate independently or in conjunction with the area’s main grid operation incorporating integrated tenant metering and billing capabilities. Expert Monitoring and Diagnostic Solutions (EMDS) for commercial building. EMDS provides continues NABERS benchmarking and fault diagnostics and has been developed in conjunction with an external software developer. This solution neatly fits with Energy Action’s capability to design and deliver building efficiency upgrades. Leveraging improved meter data to offer innovative solutions to the SME segments Leveraging capability and wholesale markets data to offer Structured Products to sophisticated energy users. Energy Action has a highly scalable technology platform whereby it can grow Procurement and Contract Management customer numbers without significant increase in operational resources, both in terms of headcount and IT infrastructure. The Group remains focussed on organic growth, with the main priority being acquiring and retaining customers aligned to core Procurement and Contract Management activities. However, should suitable M&A opportunities aligned to the core strategy become apparent, these will be considered subject to meeting Energy Action’s financial hurdle rates. 34 ENERGY ACTION Risks to achieving financial outcomes in relation to future prospects Energy Action identifies major risks using an enterprise wide risk program. Energy Action faces a wide variety of risks due to the nature of the industry it which it operates. In relation to each risk, Energy Action has in place actions to reduce the likelihood of the risk eventuation and / or to reduce, as far as practicable, the adverse consequences of the risk should it occur. Many of the risks are influenced by factors external to, and beyond the control of Energy Action. Details of Energy Action’s main risks and the related mitigations are set out below: Risk Regulatory risk Risk Description The risk of unforeseen changes in government policy or regulation impacting ongoing operations Failure to deliver against customer obligations The risk that Energy Action is unable to meet its contractual obligations to customers for the delivery of services Increasing competition The risk that Energy Action is unable to differentiate from competitors Energy pricing Earnings and Cash Flow Occupational Health & Safety (OH&S) The risk of lower energy pricing leading to less focus on Energy Procurement The risk of failing to maintain adequate earnings and funding to finance growth objectives and to generate adequate returns for shareholders The risk of not operating safely and in accordance with relevant legislation leading to an employee injury Employee engagement and performance The risk of failing to attract and retain the best talent available Potential consequences and mitigation strategies Potential earnings impacts of unpredicted policy or regulatory changes to be mitigated by ongoing monitoring of the political/ regulatory environment Potential earnings and reputational impact from failure to deliver contracted services mitigated by review of service delivery capabilities, development of risk management plans and implementation of continuous improvement programmes Potential earnings impact from lost sales countered by expanded product offerings from procurement through to energy monitoring and energy efficiency projects Potential earnings impact from lower energy prices to be mitigated by alternate service offers in the PAS and compliance space Potential earnings impact mitigated by improved operational performance, timely and transparent market disclosures and maintenance of strong relationships with banks and shareholders Potential for employee injury and Company reputation addressed by OH&S systems and practices giving particular prominence to site works undertaken by the Project and Advisory Services group To be mitigated by ongoing training and updates to OH&S policies Impacts on performance due to unavailability of talent mitigated by formal succession plans, staff development plans and remuneration strategies Environmental issues The Group’s operations are not regulated by any significant environmental regulation under a law of the Commonwealth or of a state or territory. 35 ANNUAL REPORT 2016 Meetings of Directors The number of meetings of Directors (including meetings of committees of Directors) held during the year and the number of meetings attended by each Director was as follows: Board Meeting Audit & Risk Committee Remuneration Committee Nomination Committee No Eligible to attend No Attended No Eligible to attend No Attended No Eligible to attend No Attended No Eligible to attend No Attended Murray Bleach Ronald Watts Paul Meehan Nitin Singhi Mark de Kock Valerie Duncan Philip Randall 12 12 12 11 11 2 0 12 12 12 11 11 2 0 3 0 3 3 0 1 0 Indemnifying Officers or Auditor 3 0 3 3 0 1 0 3 0 3 3 3 0 0 3 0 3 3 3 0 0 1 1 1 1 0 0 0 1 0 1 1 0 0 0 During or since the end of the financial year, the Company has given an indemnity or entered into an agreement to indemnify, or paid or agreed to pay insurance premiums as follows: The Company has paid premiums to insure each of the Directors against liabilities for costs and expenses incurred by them in defending legal proceedings arising from their conduct while acting in the capacity of Director of the Company, other than conduct involving a wilful breach of duty in relation to the Company. To the extent permitted by law, the Company has agreed to indemnify its auditors, Ernst & Young, as part of the terms of its audit engagement agreement against claims by third parties arising from the audit (for an unspecified amount). No payment has been made to indemnify Ernst & Young during or since the financial year. Proceedings on Behalf of Company No person has applied for leave of Court 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. The Company was not a party to any such proceeding during the year. Non-audit Services The Board of Directors, in accordance with advice from the audit and risk management committee, is satisfied that the provision of non-audit services during the year is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The Directors are satisfied that the services disclosed below did not compromise the external auditor’s independence for the following reasons: all non-audit services are reviewed and approved by the audit committee prior to commencement to ensure they do not adversely affect the integrity and objectivity of the auditor; and, the nature of the services provided does not compromise the general principles relating to auditor independence in accordance with APES 110: Code of Ethics for Professional Accountants set by the Accounting Professional and Ethical Standards Board. The following fees were paid or payable to Ernst & Young for non-audit services provided during the year ended 30 June 2016: Tax compliance Other services Total $ 18,425 10,500 28,925 36 ENERGY ACTION Auditor’s Independence Declaration The auditor’s independence declaration for the year ended 30 June 2016 has been received and can be found on the following page of the financial report. 37 ANNUAL REPORT 2016 Ernst & Young 200 George Street Sydney NSW 2000 Australia GPO Box 2646 Sydney NSW 2001 Tel: +61 2 9248 5555 Fax: +61 2 9248 5959 ey.com/au Auditor’s Independence Declaration to the Directors of Energy Action Limited As lead auditor for the audit of Energy Action Limited for the financial year ended 30 June 2016, I declare to the best of my knowledge and belief, there have been: a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and b) no contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of Energy Action Limited and the entities it controlled during the financial year. Ernst & Young P S Barnard Partner Sydney 18 August 2016 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 38 ENERGY ACTION Remuneration Report (Audited) The directors present the Remuneration Report for Energy Action Limited (“Company”) and its consolidated entities (“Group”) for the year ended 30 June 2016. 1. Remuneration Framework 1.1. Role of the Remuneration Committee The Remuneration Committee ensures that the remuneration of directors and senior executives is consistent with market practice and sufficient to ensure that the Group can attract, develop and retain the best individuals. The committee review directors’ fees, and remuneration of the CEO and senior executives against the market, Group and individual performance. The committee consisted of four non-executive directors, namely Nitin Singhi (Chairman), Murray Bleach, Mark de Kock and Paul Meehan. Nitin Singhi and Mark De Kock joined the Committee in August 2015. Nitin Singhi was appointed Chairman in November 2015 when Murray Bleach stood down as Chairman of the Committee following his appointment as Chairman of the Board. Valerie Duncan resigned from the Committee effective 31 August 2015. The committee charter is available on the Group’s website. The committee oversees governance procedures and policy on remuneration including: General remuneration practices, Performance management, Sales commission schemes, and Recruitment and termination. Through the committee, the board ensures the company’s remuneration philosophy and strategy continues to be designed to: Attract, develop and retain Board and executive talent, Create a high performance culture by driving and rewarding executives for achievement of the Group’s strategy and business objectives, and Link incentives to the creation of shareholder value. In undertaking its work, the committee seeks advice as required. 1.2. Key Management Personnel Key Management Personnel (“KMP”) are those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including any director of the Company or subsidiaries. The following persons were KMPs during the financial year. Unless otherwise indicated, they were KMPs for the entire year. 1.2.1. Non-Executive directors Murray Bleach Dr Ronald Watts Paul Meehan Nitin Singhi Mark De Kock Valerie Duncan Philip Randall Non-Executive Chairman Non-Executive Director Non-Executive Director Non-Executive Director (appointed effective 12 August 2015) Non-Executive Director (appointed effective 17 August 2015) Non-Executive Director (resigned effective 31 August 2015) Non-Executive Director (passed away 4 July 2015) 39 ANNUAL REPORT 2016 1.2.2. Senior executives (not directors of the board) Scott Wooldridge Michael Fahey Chief Executive Officer Chief Financial Officer 1.3. Remuneration Consultants Where necessary, the Board seeks advice from independent experts and advisors including remuneration consultants. Remuneration consultants are used to ensure that remuneration packages are appropriately structured and are consistent with comparable roles in the market. Remuneration consultants are approved by, and recommendations provided directly to, non-executive directors (the remuneration committee). When remuneration consultants are engaged, the remuneration committee ensures that the appropriate level of independence exists from the Group’s management. 1.4. Long term incentive scheme Purpose and type of equity awarded The Group operates a long term incentive scheme (LTI) for its senior executives. The LTI is governed by the Performance Rights and Options Plan (PROP), under which performance rights (not options) are granted to participants. Each performance right entitles the participant to one share in Energy Action for nil consideration at the time of vesting subject to meeting the conditions outlined below. The LTI aligns key employee awards with sustainable growth in shareholder value over time. It also plays an important role in employee recruitment and retention. Number of instruments awarded As at 30 June 2016, the PROP accounted for 3.6% (FY15 2.7%) of issued securities of the Group, made up of 928,302 (FY15 710,273) performance rights. Valuation The fair value of any LTI grant is a determined by an external valuation at the time of the grant. Performance hurdles For the 2016 LTI allocation, the two performance hurdles that apply to the Performance Rights for vesting over either a two or three year period commencing 1 July 2015 were: an Earnings Per Share (EPS) component (75% weighting) achieved by comparing the Company’s Actual Operating EPS for the year ending on the relevant test date to the Company’s Budget Operating EPS ending on the relevant test date. For vesting to occur the actual EPS must meet or exceed the board approved budgeted EPS. a Total Shareholder Return (TSR) component (25% weighting) achieved by comparing the Company’s total compounded return to the total compounded return of the S&P/ASX300 (Index) for the year ending on the relevant test date. Fifty percent of the performance right that is subject to the relative performance hurdle vests if the EAX total compounded return is equal to the total compounded return of the Index over the vesting period. One hundred percent will vest if EAX achieves a total compounded return of 1.10 times the total compounded return of the Index over the vesting period. If EAX’s total return is in between the total compounded return of the Index and 1.10 times the total compounded return of the Index, the percentage that will vest will be determined on a linear basis. LTI Outcomes The EPS hurdle was not met during 2016. The Energy Action TSR for the period 1 July 2015 to 30 June 2016 was 28.3% compared to the benchmark ASX300 index which returned negative 4.8%. Accordingly, one hundred percent of the TSR component will vest upon completion of service obligations. 40 ENERGY ACTION 2. Remuneration 2.1. Fees payable to non-executive directors Fees paid to non-executive directors reflect the demands which are made on, and the responsibilities of, directors. Directors’ fees are reviewed annually by the board. Directors who chair or are members of a committee do not receive fees for these services. The board considers the advice of independent remuneration consultants to ensure directors’ fees are appropriate and in line with the market. The chairman’s fees are determined independently to the fees of directors and are based on comparative roles in the market. The chairman is not present at any discussion relating to the determination of his remuneration. Directors’ fees are determined within an aggregate fee pool limit approved by shareholders. This is currently set at $400,000 per annum. The annual fee structure for non-executive directors for the year ended 30 June 2016, including superannuation, was as follows: Base fee Non-Executive Chairman Non-Executive Directors $ 90,000 75,000 The above fees include committee membership. The tables at the end of this remuneration report provide details of fees paid during the financial year to each non-executive director. 2.2. Senior executives The framework for the remuneration senior executives consists of a mix of fixed and variable remuneration. The components are: Base remuneration package and benefits, inclusive of superannuation (Total Fixed Remuneration) Short-term Incentive – based on the Group’s, team and individual performance and results delivered against pre-determined Key Performance Indicators (KPIs) Long Term Incentive – governed by the Performance Rights and Options Plan (PROP) The combination of the above components comprises the executive’s total remuneration. The Group undertakes a market benchmarking analysis and provide recommendations. The market analysis considers the target total remuneration opportunity as well as its core components and the mix of those components. In addition, the information also contains a view on market and emerging trends in executive remuneration structures and the mix of fixed and performance based remuneration arrangements. The agreed remuneration mix for the CEO and CFO for the year ended 30 June 2016 was: Chief Executive Officer Chief Financial Officer Short-Term Incentive (STI) Fixed Component Bonus Component LTI Component 67% 74% 19% 14% 14% 12% The STI is based upon performance against the Group balanced scorecard and results from the Group’s performance review process. Mid-year and final year performance reviews measure performance against established KPI’s and criteria which are compiled in a matrix comprising Group and individual components. The specific company measures include profitability, revenue growth and customer satisfaction. Individual measures are developed having regard to functional plans and targets, aligned to the company balanced scorecard. The outcome of the performance review process is a rating, applied to each of these three components for an individual, culminating in a percentage (capped at 125%). The final percentage allocated to each person is then applied to the STI potential to determine the actual STI payment to be made to an individual. 41 ANNUAL REPORT 2016 The performance matrix used to determine actual STI earnings against the STI potential for the CEO and CFO is: Chief Executive Officer Chief Financial Officer Company 85% 70% Individual 15% 30% The Board is responsible for assessing the performance of the CEO. The CEO is responsible for assessing the performance of other executives. Bonus payments are made annually, where applicable, in September in relation to the preceding year. The actual percentage of STI potential and LTI potential earned by the CEO and CFO for the year ended 30 June 2016 was: Scott Wooldridge Michael Fahey % of Bonus Potential % LTI Potential 38% 71% 25% 25% The STI potential for each individual is set at the beginning of the year, having regard to service agreement terms and conditions, and relates to the appropriate extent of the at-risk component of the executive’s remuneration. The broader company performance criteria ensure that an overall management focus is maintained by the executives, however the inclusion of individual criteria is also necessary to ensure that each person is recognised and rewarded for their individual contribution and efforts. 3. Service agreements On appointment, all non-executive directors enter into an agreement which outlines obligations and minimum terms and conditions. Remuneration and other terms of employment for the CEO and other key management personnel are formalised in employment agreements. Each of these agreements specify the components of remuneration to which they are entitled and outline base salary, eligibility for incentives and other benefits including superannuation. Key terms for the CEO and CFO are as follows: Name Term of agreement Termination* Scott Wooldridge On-going (no fixed term) Michael Fahey On-going (no fixed term) 3 months base salary termination by company or 3 months termination by executive 12 weeks base salary termination by company or 12 weeks termination by executive * Termination benefits are payable at the option of the company in lieu of notice, other than termination for cause 42 ENERGY ACTION 4. Remuneration tables 4.1. Remuneration table for the year ended 30 June 2016 Details of remuneration of directors and KMP of the Group for the 2016 financial year are set out in the following table. The KMP are considered to be the CEO and CFO only. $ Short term benefits Post employment benefits Long term benefits Share based payments Total Cash salary and fees Additional fees Cash bonus Non- monetary benefits Super Termination benefits Long service leave Performance rights Total Non-executive directors Murray Bleach Paul Meehan Ronald Watts Nitin Singhi3 Valerie Duncan1 Mark de Kock2 Sub-total Executives Scott Wooldridge Michael Fahey Sub-total Total 78,153 68,493 75,730 60,721 11,416 59,931 354,445 342,052 270,867 612,909 967,354 Notes 1 Valerie Duncan resigned effective 31 August 2015 2 Mark de Kock appointed 17 August 2015 3 Nitin Singhi was appointed 12 August 2015 - - - - - - - - - - - - - 39,225 - 38,000 - 77,225 - 77,225 - - - - - - - - - - 7,424 6,507 7,194 5,769 5,694 1,084 33,672 19,308 19,308 38,616 72,288 - - - - - - - - - - - - - - - - - - - - - - - - - - 85,577 75,000 82,924 66,490 12,500 65,628 388,116 54,522 455,107 26,549 354,724 81,071 809,831 81,071 1,197,948 43 ANNUAL REPORT 2016 4.2 Remuneration table for the year ended 30 June 2015 Details of remuneration of directors and KMP of the Group for the 2015 financial year are set out in the following table. $ Short term benefits Post employment benefits Long term benefits Long term benefits Share based payments Total Cash salary and fees Additional fees Cash bonus Non- monetary benefits Super Termination benefits Long service leave Performance rights Total - - - - - - - - 4,810 - - - - - - 80,000 60,000 60,000 60,000 84,620 344,620 57,622 418,975 - - 125,452 57,788 50,481 - (11,456) 4,810 4,810 46,166 652,696 46,166 997,316 Non-executive directors Ronald Watts Paul Meehan Stephen Twaddell3 Valerie Duncan Murray Bleach Sub-total Executives Scott Wooldridge Michael Fahey1 Philip Randall2 Nathan Francis1 Sub-total Total 73,060 54,795 54,795 54,795 77,279 314,724 342,570 116,060 47,580 53,800 560,010 874,734 - - - - - - - - - - 3,000 3,000 - - - - - - - - - - - - - - - - - - - - - - - - 6,940 5,205 5,205 5,205 7,341 29,896 18,783 9,392 4,520 5,137 37,832 67,728 - - - - - - - - 878 - 878 878 Notes 1 Michael Fahey commenced employment as CFO effective 19 January 2015 Nathan Francis resigned as CFO on 31 October 2014 2 Does not include deferred consideration associated with the Energy Advice acquisition 3 Resigned 30 June 2015 44 ENERGY ACTION Relative Proportion of Remuneration The relative proportion of remuneration of KMP that was linked to performance and those that were fixed are as follows: Name Fixed Remuneration At Risk – Cash Bonus / Other At Risk – Securities 2016 % 2015 % 2016 % 2015 % 2016 % 2015 % Non-executive directors Murray Bleach Dr Ronald Watts Paul Meehan Nitin Singhi^ Mark de Kock^^ Executives Scott Wooldridge Michael Fahey 100 100 100 100 100 63 73 100 100 100 100 100 75 N/A - - - - - 18 13 - - - - - - - N/A N/A N/A N/A N/A 19 13 N/A N/A N/A N/A N/A 25 n/a ^ Commenced as a non-executive Director effective 12 August 2015 ^^ Commenced as a non-executive Director effective 17 August 2015 Performance holdings of key management personnel On 16 October 2015, 112,000 rights were granted to Michael Fahey under the PROP plan. Vesting only occurs when and if service and performance conditions are met. The following table lists any Performance Rights which are still to vest, or have yet to expire: Series Grant date Number Series A Series A Series A Series A Series A Series F Series F Series F 2 December 2013* 2 December 2013* 2 December 2013* 2 December 2013* 2 December 2013* 16 October 2015* 16 October 2015* 16 October 2015* 42,188 9,747 14,063 14,063 14,063 42,000 14,000 14,000 Date vested and exercisable 31 August 20171 31 August 20171 31 August 20171 31 August 20171 31 August 20171 31 August 20172 31 August 20172 31 August 20172 * Denotes Performance Rights for which no consideration is payable on exercise 1 Performance Rights Series A which were granted to Scott Wooldridge 2 Performance Rights Series F which were granted to Michael Fahey Expiry date Exercise price Value per Performance Right at grant date N/A N/A N/A N/A N/A N/A N/A N/A $0 00 $0 00 $0 00 $0 00 $0 00 $0 00 $0 00 $0 00 $2 06 $3 01 $2 08 $2 08 $2 08 $1 13 $0 99 $0 66 45 ANNUAL REPORT 2016 Fair value of Performance Rights The fair value of each Performance Right is estimated on the date the Performance Rights are granted using a Monte Carlo Simulation valuation model. The following assumptions were considered in the valuation of Performance Rights issued during the year ended June 30, 2016: Grant date share price ($) Exercise price ($) Dividend yield Expected volatility Risk-free interest rate Life of Option1 $1 22 $0 00 3 65c per share, growing at 20% per year 45% 1 84% 2 years 1 Performance Rights will be exercised immediately upon vesting as there is no exercise price All Performance Rights granted for the benefit of the Chief Executive Officer have a four-year vesting period. All Performance Rights granted for the benefit of other employees vest in equal proportions on an annual basis over either two or three years. The Performance Rights are exercisable immediately at vesting date, subject to achievement of the relevant performance hurdles. The following tables outline the movements in Performance Rights balances of Directors and the KMP during the 2016 financial year, and those Performance Rights which have vested at the year-end. Total value of performance rights issued: 30 June 2016 Balance at 1 July 2015 Granted Grant Date Options exercised Options cancelled/ forfeited/ other Options expired without exercise Net change Balance at end of period Amount vested at June 30, 2016 $ S Wooldridge 261,080 $ - - M Fahey Total - 120,043 16/10/2015 261,080 120,043 $ - - - $ (86,539) (49,560) (136,099) $ - - - $ $ (86,539) 174,541 70,483 70,483 (16,056) 245,024 $ - - - Total number of performance rights issued: 30 June 2016 Balance at 1 July 2015 Granted Grant Date Options exercised Options cancelled/ forfeited/ other Options expired without exercise Net change Balance at end of period Amount vested at June 30, 2016 S Wooldridge 122,248 No - - M Fahey Total - 112,000 16/10/2015 122,248 112,000 No No No No No No - - - (42,188) (42,000) (84,188) - - - (42,188) 80,060 70,000 70,000 27,812 150,060 - - - 46 ENERGY ACTION Shareholdings of key management personnel 30 June 2016 Balance 1 July 2015 Net change Balance 30 June 2016 Directors Murray Bleach Dr Ronald Watts Paul Meehan Nitin Singhi Mark De Kock Executives Scott Wooldridge Michael Fahey Total 74,380 1,696,739 4,749,134 - - - - 198,775 33,632 49,859 3,000 - - - 273,155 1,730,371 4,798,993 3,000 - - - 6,520,253 285,266 6,805,519 Shareholdings of key management personnel 30 June 2015 Balance 1 July 2014 Net change Balance 30 June 2015 Directors Murray Bleach Dr Ronald Watts Paul Meehan Stephen Twaddell Valerie Duncan Philip Randall Executives Scott Wooldridge Michael Fahey Total - 1,659,898 4,727,091 1,796,209 750,000 - - - 74,380 36,841 22,043 33,231 10,000 123,356 - - 74,380 1,696,739 4,749,134 1,829,440 760,000 123,356 - - 8,933,198 299,851 9,233,049 47 ANNUAL REPORT 2016 Transactions with related parties Transactions between related parties are on normal commercial terms and conditions no more favourable than those available to other parties unless otherwise stated. Outstanding balances at year end are unsecured and interest free. No guarantees have been provided or received. The following transactions occurred with related parties: Consolidated Group 2016 $ 2015 $ Key Management Personnel Meehan’s Solicitors Pty Ltd – Legal services rendered 1,668 6,484 4.4 Company Performance The Group reported positive results for the financial year ended 30 June 2016 with Operating net profit after tax of $3.5 million compared to $2.4 million in the prior year. Revenue & other income ($000’s) Net profit / (loss) after tax ($000’s) Operating profit after tax ($000’s) FY16 33,978 (449) 3,520 FY15 32,049 (2,148) 2,395 FY14 25,655 3,512 4,504 FY13 22,166 4,376 4,867 FY12 17,372 3,611 3,975 Earnings per share – Operating 13 56 cents 9 22 cents 17 29 cents 19 48 cents 15 13 cents Market capitalisation Closing share price $30 6m $1 18 $23 9m $0 92 $81 3m $3 15 $76m $3 00 $44m $1 77 This director’s report is signed in accordance with a resolution of the Board of Directors. Murray Bleach Director Dated: 18 August 2016 48 ENERGY ACTION Corporate Governance Statement Energy Action Limited (“Energy Action”) is committed to the achievement of superior financial performance and long-term prosperity, while meeting stakeholders’ expectations of sound corporate governance practices. The Energy Action Board determines the corporate governance arrangements. As with all its business activities, Energy Action is proactive in respect of corporate governance and puts in place those arrangements which it considers are in the best interests of shareholders, and consistent with its responsibilities to other stakeholders. This statement, as a listed entity, must comply with the Corporations Act 2001 (Cth), the ASX Listing Rules and other Australian and international laws. ASX Listing rules require the company to report on the extent to which it has followed the Corporate Governance Recommendations contained in the ASX Corporate Governance Council’s third edition of its Corporate Governance Principles and Recommendations (ASXCGC Recommendations). The Principles can be viewed at www.asx.com.au. The Principles are not prescriptive; however, listed entities (including Energy Action) are required to disclose the extent of their compliance with the Principles, and to explain why they have not adopted a Principle (the ‘if not, why not’ approach). The Principles have operated throughout the year unless otherwise indicated. The table at the end of this statement provides cross references between the disclosures and statements in this Corporate Governance statement and the relevant ASX Principles. 1. The Board of Directors The Board operates in accordance with the general principles set out in its Charter which can be viewed in the Corporate Governance section of the Company’s website. 1.1 Role of the Board The role of the Board is to create sustainable shareholder wealth in a manner consistent with the Company’s constitution and principles of good corporate governance. The Board achieves this by representing the interests of shareholders in setting and overseeing the company’s values, direction, strategies, financial objectives and performance within a framework of prudent and effective controls for the assessment and management of risk. The Board has adopted a formal charter of Directors’ functions and matters that are delegated to management, having regard to the recommendations in the Principles. An outline of the Board’s responsibilities under the charter is set out below: Strategic Direction Oversight of the strategic direction for Energy Action and endorsing Energy Action’s strategy developed by the Chief Executive Officer (CEO); Decision making in relation to matters of a sensitive or extraordinary nature; Providing advice and counsel to management on a periodic and ad hoc basis; and, Ensuring management implement the policies and decisions of the Board. Governance Undertaking all reasonable measures to ensure best practice corporate governance; Monitoring the performance of the CEO and approving senior management remuneration policies and practices; Reporting to shareholders. Compliance Undertaking all reasonable measures to ensure that appropriate compliance frameworks and controls are in place and are operating effectively; Approving and monitoring the effectiveness of and compliance with policies governing the operations of Energy Action. 49 ANNUAL REPORT 2016 Risk Management Monitoring the integrity of internal control and reporting systems; and, Monitoring strategic risk management systems, including the review of processes for identifying areas of significant business risk, monitoring risk management policies and procedures, monitoring insurance coverage and oversight of internal controls and review of major assumptions used in the calculation of significant risk exposure. Operating Performance Approving decisions concerning the capital of Energy Action, including capital restructures; Reviewing and approving the annual operating budget, the annual and half-yearly statutory financial statements and monitoring the financial results on an on-going basis; and, Determining dividend policy and approving dividends. Operational Development The appointment of the CEO and the approval of the succession plan; and, Endorsing the appointment of the CEO’s direct reports. The Energy Action Constitution The Energy Action Constitution is Energy Action’s key governance document. The Board ensures that it and Energy Action complies with the provisions of the Constitution. Compliance with Laws Energy Action recognises that it must comply with the Corporations Act, as well as all other applicable laws. The ASX Listing Rules are also applicable. Examples of applicable areas of regulation include: AFSL Compliance; Occupational health and safety legislation; Employment related laws; Environmental protection legislation; Anti-discrimination legislation; Taxation legislation; and, Competition and Consumer Act 2010 As a company which is planning to operate in other jurisdictions, Energy Action recognises that it must ensure that it is aware of and complies with all applicable laws in those jurisdictions. At least once each year, the Directors will review this Charter and approve any required amendments including those required to comply with the ASX Principles. 1.2 Composition of the Board It is intended that the Board should comprise a majority of non-executive Directors with a broad range of skills, expertise and experience, consistent with the Energy Action Diversity & Inclusion Policy. The appointment and removal of Directors is governed by Energy Action’s Constitution. Under Energy Action’s Constitution the Board must comprise of a minimum of three (3) Directors. The Board is responsible for selecting and approving its own candidates to fill any casual vacancies that may arise on the Board with the assistance of the Nomination Committee. Directors who have been appointed to fill casual vacancies must offer themselves for re-election at the next annual general meeting of Energy Action. In addition, at each annual general meeting, at least one Director must be a candidate for re-election and no Director shall serve more than three years without being a candidate for re-election. 50 ENERGY ACTION In July 2015, Philip Randall, a non-executive Director passed away suddenly. In August 2015 Mrs Valerie Duncan, a non-executive Director retired from the Board. On the 12th August 2015, Mr Nitin Singhi, was appointed as an independent non-executive Director and on the 17th August 2015, Mr Mark de Kock, joined the Board as a non-executive Director. Profiles of these Directors, including details of their skills, experience and expertise can be found in the Directors’ report. The composition post the above Director changes is a five member Board comprising of 5 non-executive Directors of which 2 are independent (Murray Bleach and Nitin Singhi). This is in line with the Board seeking to sustain and improve shareholder value by adding independent Directors progressively. At the 2015 AGM, Dr. Ronald Watts stood down as Chairman of the Board and Murray Bleach was elected Chairman. The Company Secretary is accountable directly to the Board, through the Chairman, on all matters to do with the proper functioning of the Board. 1.3 Independence The independence of Directors is determined by objective criteria acknowledged as being desirable to protect investor interests and optimise the financial performance and returns to investors. The Board regularly assesses the independence of its Directors. In determining the status of a Director, Energy Action considers that a Director is independent when he or she is independent of management and free of any business or other relationship that could materially interfere with, or could reasonably be perceived to interfere with the exercise of unfettered and independent judgement. Energy Action’s criteria for assessing independence is in line with standards set by the Principles. The Board requires each Director to disclose any new information, matter or relationship which could, or could reasonably be perceived to, impair the Director’s independence, as soon as these come to light. All material personal interests are verified at each Board meeting under a standing agenda item. The Board also has procedures in place to ensure it operates independently of management. Non-executive Directors meet together periodically in the absence of executives of the company to discuss the operation of the Board and a range of other matters. The Board believes the separation of the roles of Chairman and Chief Executive Officer, the Chairman being an independent Director and the balance of the Board comprising 1 independent and 3 non-independent Directors is appropriate. Directors’ shareholdings are set out in the Remuneration Report. 1.4 Term of office and re-election of Directors At appointment, each non-executive Director of Energy Action has received a letter of appointment which details the key terms of their appointment, including their powers, rights and obligations. Energy Action’s senior executives, including the CEO, have formalised job descriptions and, as with all Energy Action employees, letters of appointment. The Board has established a Nomination Committee which as at 30 June 2016 consisted of an independent Chairman, Nitin Singhi, Murray Bleach, Dr Ronald Watts and Paul Meehan. A copy of the Nomination Committee Charter which sets out the roles and responsibilities of the Committee is available on the company’s website. In making recommendations to the Board regarding the appointment of Directors, the Nomination Committee assesses the appropriate mix of skills, experience and expertise required by the Board and assesses the extent to which the required skills and experience are represented on the Board. When a vacancy exists, the Nomination Committee determines the selection criteria based on the skills deemed necessary. The Committee identifies potential candidates, and if appropriate, will utilise an external consultant to assist in identifying potential candidates. The Board then appoints the most suitable candidate. 51 ANNUAL REPORT 2016 The company will undertake appropriate background checks and screening checks prior to nominating a Director for election by shareholders and provides to shareholders all material information in its possession concerning the Director standing for election or re-election in the explanatory notes to accompany the notice of meeting. New Directors will participate in an induction program to assist them to understand Energy Action’s business and the particular issues it faces. All Directors are elected by shareholders at the Annual General Meeting following their appointment and thereafter subject to re-election at least once every three years. 1.5 Access to information and independent advice The Board collectively has the right to seek independent professional advice as it sees fit. Each Director individually has the right to seek independent professional advice, subject to the approval of the Chairman. All Directors have direct access to the Company Secretary. Directors also have complete access to the senior management team. In addition to regular reports by senior management to the Board meetings, Directors may seek briefings from senior management on specific matters and are entitled to request additional information at any time when they consider it appropriate. 2. Board Committees The Board generally operates as a whole across the range of its responsibilities but, to increase its effectiveness, uses committees where closer attention to particular matters is required. The role of the Board Committees is to make recommendations to the Board on matters set out in each Committee’s Charter. The Charters for the Audit & Risk Management, Remuneration and Nomination Committees are available on the corporate governance section of the Company’s website. The Audit & Risk Management Committee (ARMC) and the Remuneration & Nomination Committees composition as at 30 June 2016 are set out below. Details regarding the number of Board meetings and Committee meetings held during the year and the attendance of each member will be set out in the 2016 Annual Report. 2.1 Audit & Risk Management Committee Members The Audit & Risk Management Committee as at 30 June 2016 comprises Nitin Singhi, independent non- executive Director, Murray Bleach, independent non-executive Director and Paul Meehan, non-executive Director. Murray Bleach stood down as Chairman of the Committee in November 2015 and Nitin Singhi was appointed Chairman of the Committee. The Committee comprises a majority of independent Directors. Role The ARMC’s role is to assist the Board in fulfilling its responsibility for overseeing the quality and integrity of the accounting, audit, financial and risk management practices of Energy Action. Responsibilities The ARMC’s responsibilities include: Review the internal control and compliance systems of Energy Action; Monitor the integrity of the financial statements of Energy Action; Consider significant financial reporting issues and judgements made in connection with Energy Action’s nancial statements; Monitor and review the performance of the external audit function and make recommendations to the Board; Monitor compliance by the Company with legal and regulatory requirements; and, Where appropriate, and at least twice a year, meet privately with the external auditor to discuss any matters that the Committee or the External Auditor believe should be discussed privately. 52 ENERGY ACTION A copy of the ARMC Charter and Risk Management and Audit Policy is available on the Company’s website. Composition The Committee is chaired by an independent non-executive Director and currently comprises three non- executive Directors, two of whom are independent Directors and financially literate. The Chairman of the Board is not permitted to chair the committee. Mr Nitin Singhi was appointed to the committee effective 12 August 2015. The Committee met on three (3) occasions during the year to 30 June 2016. Please refer to the Directors’ Report for more information on members, including attendance at committee meetings. Consultation The CEO and Chief Financial Officer (CFO) are invited to attend all committee meetings. Other members of management may also attend by invitation. The committee has access to financial and legal advisers as it considers appropriate. The committee also meets with the external auditor to ensure the committee can be satisfied that the auditors have had the full cooperation of management in conducting the audit functions and to give the auditor the opportunity to raise any matters of concern. The external auditor must monitor its independence and report to the committee every six months that it has remained independent. External Auditor The external auditor is appointed by the Board and approved by shareholders in accordance with the requirements of the Corporations Act. The ARMC is responsible for reviewing the terms of appointment of the external auditor and for making recommendations to the Board regarding the appointment of the external auditor. It is the Company’s policy to require that the external audit partner be rotated within 5 years from the date of appointment. Significant permissible non-audit assignments awarded to the external auditor must be approved in advance by the ARMC (or its chairman between meetings). All non-audit assignments are to be reported to the ARMC every six months. The Board and the ARMC are of the view that, at the present time, Ernst & Young is best placed to provide the Company’s audit services. Ernst & Young is a top tier professional services firm. It has provided audit services to the Group since its listing and is familiar with its structure and assets. The external auditor is required to be independent from the Company and Energy Action. Ernst & Young meets this requirement. The external auditor will attend Energy Action’s annual meeting and will be available to answer shareholder questions on the conduct of the audit, and the preparation and content of the auditor’s report. 2.2 Remuneration Committee Members The Remuneration Committee, as at 30 June 2016 comprises four non-executive Directors being Nitin Singhi, independent non-executive Chairman, Murray Bleach, independent non-executive Director, Paul Meehan, non-executive Director and Mark de Kock, non-executive Director. Nitin Singhi and Mark de Kock joined the Committee in August 2015 following their appointment as Directors. Murray Bleach stood down as Chairman of the Committee in November 2015 and Nitin Singhi was appointed Chairman of the Committee. Valerie Duncan retired from the Committee effective 31 August 2015. The Board aims to progressively appoint independent Directors onto the Committee. Role The role of the Committee is to oversee remuneration matters to ensure they are in line with strategic goals and enable the Company to attract and retain high calibre executives and Directors who will create value for shareholders. 53 ANNUAL REPORT 2016 Responsibilities The responsibilities of the Committee in respect of remuneration include: Ensure Directors and executives are fairly and responsibly remunerated having regard to the performance of the Company, the performance of the executives and the general remuneration environment; Assisting the Board in determining an appropriate remuneration framework for senior management and remuneration, recruitment, retention and termination policies; Making recommendations to the Board on the Chief Executive Officer’s remuneration, (including short and long term incentive plans and performance targets); Liaising with external advisors on remuneration-related matters, if and when external remuneration advice is needed. For further information in regards to the Company’s remuneration framework, please refer to the Remuneration Report, including a detailed description of the structure of non-executive Directors’ remuneration and senior executives’ remuneration. Composition The Committee is chaired by an independent non-executive Director and currently comprises four non-executive Directors, two of whom are independent Directors and financially literate. The Chairman of the Board is not permitted to chair the committee. Mr Nitin Singhi was appointed to the committee effective 12 August 2015. Mr Mark de Kock was appointed to the committee effective 17 August 2015. The Committee met on three occasions during the year to 30 June 2016. Please refer to the Directors’ Report for more information on members, including attendance at committee meetings. Consultation The committee may obtain information from, and consult with, management and external advisers, as it considers appropriate. Charter The Remuneration Committee’s charter which sets out further details on the role and duties of the committee is available in the corporate governance section of the Company’s website. 2.3 Nomination Committee Members The Nomination Committee, as at 30 June 2016 comprised four non-executive Directors, two of whom are independent Directors. In July 2015, Philip Randall passed away suddenly and in August 2015 Valerie Duncan retired from the Committee. In June 2016, Nitin Singhi, independent non-executive Director was appointed to the Committee and appointed as Chairman to replace Dr. Ronald Watts, non-executive Director. The other members of the Committee are Murray Bleach, independent non-executive Director and Paul Meehan, non- executive Director. The Board aims to bring on additional independent Directors onto the committee. Role The role of the committee is to oversee matters and policies to ensure succession planning, recruitment, appointment and remuneration of non-executive Directors. The Committee met once during the financial year. 54 ENERGY ACTION Responsibilities The responsibilities of the committee in respect of Nomination include: Review and recommend to the Board the size and composition of the Board; including review of Board succession plans and the succession of the Chairman and CEO; Review and recommend to the Board the criteria for Board membership, including assessment of necessary and desirable competencies of Board members; Review Board membership and make recommendations to the Board regarding its membership; and, Assist the Board as required in relation to the performance evaluation of the Board, its committees and individual Directors, and in developing and implementing plans for identifying, assessing and enhancing Director competencies. Composition The committee is chaired by an independent non-executive Director. In June 2016, Dr Ronald Watts stepped down as Chairman and Nitin Singhi, independent non-executive Director was appointed to the committee and appointed Chairman. Please refer to the Directors’ Report for more information on members, including attendance at committee meetings. Consultation The committee may obtain information from, and consult with, management and external advisers, as it considers appropriate. Charter The Nomination Committee’s charter which sets out further details on the role and duties of the committee is available in the corporate governance section of the Group’s website. 3. Performance evaluation and remuneration 3.1 Performance Evaluation The Nominations Committee is responsible for determining the process for evaluating Board Performance. Evaluations are normally undertaken annually and the process led by the Chairman. The results of the current review are being reviewed at the date of this report. The annual performance review involves all Directors completing a questionnaire including allowance for additional comments or raising any issues relating to the Board’s or a committee’s operation. The results of the review will be compiled by the Chairman and discussed with Board members as a whole at an appropriate Board meeting. The purpose of the review is to assess the strengths and weakness of the Board and Committees, and identify areas that might be improved. The findings of the performance review are considered by the Board and continue to be taken into account in identifying and nominating new candidates for appointment as Director, and in planning and conducting Board and committee matters. Directors are able to raise concerns regarding an individual Director’s performance with the Chairman at any time during the year. The performance of the Chief Executive Officer (CEO) is reviewed by the Board on a periodic basis. The Chairman co-ordinates the comments of all directors to provide a written assessment to the CEO. This is supported by half year verbal reviews by the Chairman. The performance of the Company’s senior executives is reviewed by the Chief Executive Officer as part of the annual remuneration review process and reported to the Remuneration Committee. The reviews usually take place in July/August of each year. Further details regarding the remuneration review process are set out in the Remuneration Report. 55 ANNUAL REPORT 2016 3.2 Director and Executive Remuneration Remuneration levels are competitively set to attract and retain appropriately qualified and experienced personnel. Performance, duties and responsibilities, market comparison and independent advice are all considered as part of the remuneration process. The total remuneration paid to Directors and key management personnel for the year ended 30 June 2016 is set out in the Remuneration Report. Directors’ fees are reviewed annually and are benchmarked against fees paid to Directors of similar organisations. Non-executive Directors are not provided with retirement benefits other than statutory superannuation and do not participate in employee incentive schemes or bonus payments. Executive Directors’, as well as senior executives’ remuneration packages comprise salary and short-term incentives (i.e. bonus). To ensure that Energy Action’s senior executives properly perform their duties, the following procedures are in place: Performance is formally assessed twice each year as part of Energy Action’s formal employee performance review process; the full year achievement review takes place in July at the end of the financial year; All employees were assessed in terms of their achievement of agreed KPI’s (both financial and non-financial) for the period; There is a strong link between the outcomes of this performance review process and the subsequent remuneration review as outlined in the Remuneration Report; and, Executives are provided with access to continuing education to update and enhance their skills and knowledge. 4. Risk Management and internal controls 4.1 Risk Management Framework Energy Action has a formalised risk management framework. The identification and effective management of risk, including calculated risk taking is viewed as an essential part of the Company’s approach to creating long term shareholder value. Compliance with risk management policies is monitored by the ARMC. The Risk Management and Audit Policy is included on the Groups website. As part of its risk monitoring duties, the ARMC is required to: Oversee and approve risk management, internal compliance and control policies and procedures of the Company; Oversee the design and implementation of the risk management and internal control systems; Regularly monitor risk management reports provided by management; and, Assess at regular intervals whether Energy Action’s internal financial control systems, risk management policies and risk management systems are adequate. 4.2 Internal controls framework Energy Action has a robust risk management framework in place for identifying, assessing, monitoring and managing its risks. A key component of the framework is a periodical Operational Risk Self-Assessment (ORSA) whereby management workshop key risks and controls in place and their effectiveness. Findings resulting from this assessment are reported to the ARMC, which in turn reports on this to the Board. During the year, management has reported to the ARMC as to the manner in which it manages its material risks, the effectiveness of the framework and the results of the annual ORSA. Considerable importance is placed on maintaining a strong control environment through an organisation structure with clearly drawn lines of accountability and authority. At this point in time, the Board is of the opinion that the structure of the Company does not warrant an internal audit function. This policy is subject to ongoing review. 56 ENERGY ACTION The Board of Energy Action has received assurance from the CEO and CFO that their confirmation given to the Board in respect of the integrity of financial statements is founded on a sound system of risk management and internal control which implements the policies adopted by the Board and that the system is operating in all material respects in relation to financial reporting risks. 5. Energy Action governance policies 5.1 Integrity, ethical standards and compliance Energy Action is committed to being a good corporate citizen and has a robust framework of policies to achieve this. These include: The practices necessary to maintain confidence in the company’s integrity; The practices necessary to take into account their legal obligations and the reasonable expectations of their stakeholders; and, The responsibility and accountability of individuals for reporting and investigating reports of unethical practices. Energy Action has established a Code of Conduct for its Directors and employees which forms the basis for ethical behaviour and is the framework that provides the foundation for maintaining and enhancing the Company’s reputation. The objective of the Code is to ensure that all stakeholders and the broader community can be confident that the Company conducts its affairs honestly in accordance with ethical values and practices. The Code sets the standards for dealing ethically with employees, investors, customers, regulatory bodies and the financial and wider community, and the responsibility and accountability of individuals for reporting and investigating reports of unethical behaviour. A full copy of the Code of Conduct is posted on the Corporate Governance section of the Group’s website. Directors are provided with Board reports in advance of Board meetings which contain sufficient information to enable informed discussion of all agenda items. The Board has the responsibility for the integrity of Energy Action’s financial reporting. To assist the Board in fulfilling its responsibility, the processes discussed below have been adopted with a view to ensuring that the Company’s financial reporting is a truthful and factual presentation of Energy Action’s financial performance and position. 5.2 Dealing in Securities The Company has in place a formal Security Trading Policy which regulates the manner in which Directors and staff involved in the management of the Company can deal in Company securities. It requires that they conduct their personal investment activities in a manner that is lawful and avoids conflicts between their own interests and those of the Company and contains all contents suggested in the ASX Corporate Governance Principles and Recommendations. The policy specifies trading blackouts as the periods during which trading securities cannot occur. Trading is always prohibited if the relevant person is in possession of non-public price sensitive information regarding the Company. A copy of the current Security Trading Policy is available on the Company’s website. 57 ANNUAL REPORT 2016 5.3 Diversity & Inclusion The September 2011 Diversity Policy was updated and renamed the Diversity & Inclusion Policy in July 2016. The Policy includes requirements for the Board to establish measurable objectives for achieving gender diversity and for the Board to assess annually both the objectives and progress in achieving them. The objectives set by the Board, which are included in the Policy, are as follows: Selecting and appointing Directors from a diverse pool of talent by developing an appointment process for future Directors that takes diversity of background into account, in addition to previous Board and leadership experience and experience in a specified field. Considering the Diversity & Inclusion Policy when assessing, selecting and making recommendations to the Board on senior executive appointments. In considering these recommendations the Board is also required to take into account the objectives of this policy. Implementing policies and training which address impediments to diversity in the workplace. Implementing initiatives designed to identify, support and develop talented individuals with leadership potential to prepare them for senior management and Board positions. For example, in the case of gender diversity, such initiatives include: – mentoring programs; and, – supporting the promotion of talented women into management positions. Networking opportunities. Identifying ways to entrench diversity as a cultural priority across the group. Setting targets for women’s participation in the Board, senior management and across all employees and report such in the Annual Report. Energy Action strives for diversity and respects the unique contributions that may be made by employees with diverse backgrounds, experiences and perspectives. Energy Action strongly believes diversity allows the provision of exceptional customer service to an equally diverse community. In order to attract and retain a diverse workforce and, in turn, a broad and varied customer base, Energy Action is committed to providing an environment in which all employees are treated with fairness and respect, and have equal access to opportunities available in the workplace. Energy Action’s approach is about being flexible in the way we think, act and work. It is part of our on-going commitment to develop an inclusive workforce by recognising and accommodating individual circumstances and our work commitments. Diversity in general: Energy Action currently has specific flexible working arrangements with 16 employees representing 11% of total staff (male & female employees). Energy Action has in its employment staff from 19 different cultural backgrounds. The Board set the following measurable objectives for achieving diversity for the reporting year: Ensuring the Remuneration Committee actively monitors all aspects of diversity at each meeting and where elements of diversity need improvement that improvement targets are met. Ensure that our merit-based system remains the only mechanism adopted when employees, managers, senior managers, national managers, senior executives and Directors are appointed. Ensure that applicants continue to be selected from diverse candidate pools and continue to be interviewed by a diverse selection interview panel. All of the above items were successfully in operation during the year ended 30 June 2016. As at 30 June 2016, there were no women on the Board, 27% of management positions were filled by women and 41% of employees are female. A copy of the Code of Conduct, Trading Policy and Diversity & Inclusion Policy is available on the Company’s Website. 58 ENERGY ACTION 5.4 Health, safety and environment The Company has continued its emphasis on health and safety in the workplace with the aim of ensuring that people achieve outcomes in a safe manner, thereby contributing to operational effectiveness and business sustainability. The Company has an occupational health and safety policy and a new management system in place. MANGO, a web based safety management tool for housing safety information, record keeping and incident reporting was introduced across the PAS division. The Company’s safety performance is reported regularly to the Board to assist the Board in monitoring compliance with the Company’s policy and the relevant regulatory requirements. During FY2016 there were no reported environmental incidents and one day incurred on a Lost Time Injury. 5.5 Continuous disclosure and communications with shareholders The Company is committed to providing relevant and timely information to its shareholders and to the broader market, in accordance with its obligations under the ASX continuous disclosure regime. The Board has a Disclosure Policy, details of which are accessible in the Corporate Governance section on the Company’s website. The policy includes procedures for dealing with potentially price-sensitive information which includes referral to the CEO, CFO and Company Secretary and sometimes the Board for a determination as to disclosure required. The ASX liaison person is the Company Secretary of Energy Action. Energy Action has adopted a Communication Policy. The cornerstone of this policy is the delivery of timely and relevant information as described below: Investors receive an annual report and updates which keep them informed of Energy Action’s performance and operations. Shareholders are able to provide their email address to Energy Action’s share registry, Link Market Services Limited to enable all communications from the company to be received electronically. Contact details for Link Market Services Limited are on the company’s website. After lodging market-sensitive information with ASX, Energy Action’s policy is to place the information on its website, including annual and half year results announcements and investor presentations as soon as practically possible. Energy Action’s website (energyaction.com.au) contains recent announcements, presentations and past and current reports to shareholders. Domestic investor roadshows are held periodically throughout Australia. Where they contain new information, investor and roadshow presentations are released to the ASX and included on the Group’s website. For formal meetings, an explanatory memorandum on the resolutions is included with the notice of meeting. Presentations by the chairman and CEO are webcast. Full copies of notices of meetings are placed on the Energy Action website. Unless specifically stated in the notice of meeting, all holders of fully paid securities are eligible to vote on all resolutions. In the event that shareholders cannot attend formal meetings, they are able to lodge a proxy on line in accordance with the Corporations Act. 59 ANNUAL REPORT 2016 ASX Corporate Governance Council’s Principles and Recommendations ASX Principle Reference^ Compliance PRINCIPLE 1 – LAY SOLID FOUNDATIONS FOR MANAGEMENT AND OVERSIGHT 1 1 1 2 1 3 1 4 1 5 A listed entity should disclose: (a) (b) the respective roles and responsibilities of its Board and management; and, those matters expressly reserved to the Board and those delegated to management A listed entity should: (a) undertake appropriate checks before appointing a person, or putting forward to security holders a candidate for election, as a Director; and, (b) provide security holders with all material information in its possession relevant to a decision on whether or not to elect or re-elect a Director A listed entity should have a written agreement with each Director and senior executive setting out the terms of their appointment The Company Secretary of a listed entity should be accountable directly to the Board, through the Chair, on all matters to do with the proper functioning of the Board A listed entity should: (a) have a diversity policy which includes requirements for the Board or a relevant committee of the Board to set measurable objectives for achieving gender diversity and to assess annually both the objectives and the entity’s progress in achieving them; 1 1 1 4 1 4 and 2016 Remuneration Report 1 2 5 3 Comply Comply Comply Comply Comply (b) disclose that policy or a summary of it; and, (c) disclose as at the end of each reporting period the measurable objectives for achieving gender diversity set by the Board or a relevant Committee of the Board in accordance with the entity’s diversity policy and its progress towards achieving them, and either: (1) the respective proportions of men and women on the Board, in senior executive positions and across the whole organisation (including how the entity has defined “senior executive” for these purposes); or if the entity is a “relevant employer” under the Workplace Gender Equality Act, the entity’s most recent “Gender Equality Indicators”, as defined in and published under that Act (2) 1 6 A listed entity should: (a) have and disclose a process for periodically evaluating the performance of the 3 1 Board, its committees and individual Directors; and (b) disclose, in relation to each reporting period, whether a performance evaluation was undertaken in the reporting period in accordance with that process As at 30 June 2016, do not comply for 1 6(b) however a Board and Committee performance evaluation was undertaken in August 2016 1 7 A listed entity should: (a) have and disclose a process for periodically evaluating the performance of its 3 2 Comply senior executives; and, (b) disclose, in relation to each reporting period, whether a performance evaluation was undertaken in the reporting period in accordance with that process 60 ENERGY ACTION ASX Principle Reference^ Compliance PRINCIPLE 2 – STRUCTURE THE BOARD TO ADD VALUE 2 1 The Board of a listed entity should: (a) have a nomination committee which: (1) has at least three members, a majority of whom are independent Directors; and is chaired by an independent Director, and disclose: the charter of the committee the members of the committee; and (2) (3) (4) (5) as at the end of each reporting period, the number of times the committee met throughout the period and the individual attendances of the members at those meetings A listed entity should have and disclose a Board skills matrix setting out the mix of skills and diversity that the Board currently has or is looking to achieve in its membership A listed entity should disclose: (a) the names of the Directors considered by the Board to be independent Directors; if a Director has an interest, position, association or relationship of the type described in Box 2 3 but the Board is of the opinion that it does not compromise the independence of the Director, the nature of the interest, position, association or relationship in question and an explanation of why the Board is of that opinion; and the length of service of each Director (b) (c) 2 2 2 3 2 4 A majority of the Board of a listed entity should be independent Directors 2 5 2 6 The chair of the Board of a listed entity should be an independent Director and, in particular, should not be the same person as the CEO of the entity A listed entity should have a program for inducting new Directors and provide appropriate professional development opportunities for Directors to develop and maintain the skills and knowledge needed to perform their role as Directors effectively 2 3 1 2 1 2 1 3 1 2 1 4 As at 30 June 2016, the Committee has four Directors, two are independent Directors Comply Details disclosed in the 2016 ‘Directors Report’ As at 30 June 2016, the Board has five Directors, two are independent Directors Comply Comply PRINCIPLE 3 – ACT ETHICALLY AND RESPONSIBLY 3 1 A listed entity should: (a) have a code of conduct for its Directors, senior executives and employees; 5 1 Comply and (b) disclose that code or a summary of it 61 ANNUAL REPORT 2016 ASX Principle Reference^ Compliance PRINCIPLE 4 – SAFEGUARD INTEGRITY IN CORPORATE REPORTING 4 1 The Board of a listed entity should: (a) have an Audit Committee which: 2 1 Comply (1) has at least three members, all of whom are non-executive Directors and (2) (3) (4) (5) a majority of whom are independent Directors; and is chaired by an independent Director, who is not the chair of the Board, and disclose: the charter of the committee; the relevant qualifications and experience of the members of the committee; and in relation to each reporting period, the number of times the committee met throughout the period and the individual attendances of the members at those meetings 4 2 The Board of a listed entity should, before it approves the entity’s financial statements for a financial period, receive from its CEO and CFO a declaration that, in their opinion, the financial records of the entity have been properly maintained and that the financial statements comply with the appropriate accounting standards and give a true and fair view of the financial position and performance of the entity and that the opinion has been formed on the basis of a sound system of risk management and internal control which is operating effectively 4 3 A listed entity that has an AGM should ensure that its external auditor attends its AGM and is available to answer questions from security holders relevant to the audit 4 2 Comply 2 1 Comply PRINCIPLE 5 – MAKE TIMELY AND BALANCED DISCLOSURE 5 1 A listed entity should: (a) have a written policy for complying with its continuous disclosure obligations 5 5 Comply under the Listing Rules; and, (b) disclose that policy or a summary of it PRINCIPLE 6 – RESPECT THE RIGHTS OF SECURITY HOLDERS A listed entity should provide information about itself and its governance to investors via its website A listed entity should design and implement an investor relations program to facilitate effective two-way communication with investors A listed entity should disclose the policies and processes it has in place to facilitate and encourage participation at meetings of security holders A listed entity should give security holders the option to receive communications from, and send communications to, the entity and its security registry electronically 5 5 5 5 5 5 5 5 Comply Comply Comply Comply 6 1 6 2 6 3 6 4 62 ENERGY ACTION ASX Principle Reference^ Compliance PRINCIPLE 7 – RECOGNISE AND MANAGE RISK 7 1 The Board of a listed entity should: (a) have a committee or committees to oversee risk, each of which: 4 1, 4 2 Comply (1) has at least three members, a majority of whom are independent Directors; and is chaired by an independent Director, and disclose: the charter of the committee; the members of the committee; and (2) (3) (4) (5) as at the end of each reporting period, the number of times the committee met throughout the period and the individual attendances of the members at those meetings; The Board or a committee of the Board should: (a) review the entity’s risk management framework at least annually to satisfy itself that it continues to be sound; and (b) disclose, in relation to each reporting period, whether such a review has taken place A listed entity should disclose: (a) (b) if it has an internal audit function, how the function is structured and what role it performs; or if it does not have an internal audit function, that fact and the processes it employs for evaluating and continually improving the effectiveness of its risk management and internal control processes 7 2 7 3 4 2 Comply 4 2 Comply – The Company’s internal audit function is carried out by the Company’s Audit and Risk Management Committee 7 4 A listed entity should disclose whether it has any material exposure to economic, environmental and social sustainability risks and, if it does, how it manages or intends to manage those risks 4 1, 4 2 Comply PRINCIPLE 8 – REMUNERATE FAIRLY AND RESPONSIBLY 8 1 The Board of a listed entity should: (a) have a remuneration committee which: (1) has at least three members, a majority of whom are independent Directors; and is chaired by an independent Director, and disclose: the charter of the committee; the members of the committee; and (2) (3) (4) (5) as at the end of each reporting period, the number of times the committee met throughout the period and the individual attendances of the members at those meetings 2 2 As at 30 June 2016, do not comply for 8 1(a) (1) as the Remuneration Committee comprised two independent and two non-independent Directors 8 2 8 3 A listed entity should separately disclose its policies and practices regarding the remuneration of non-executive Directors and the remuneration of executive Directors and other senior executives 2 2 Comply A listed entity which has an equity-based remuneration scheme should: (a) have a policy on whether participants are permitted to enter into transactions (whether through the use of derivatives or otherwise) which limit the economic risk of participating in the scheme; and (b) disclose that policy or a summary of it 5 2 and 2016 Remuneration Report Comply All references are to sections of this Corporate Governance Statement unless otherwise stated. 63 ANNUAL REPORT 2016 Financial Statements Consolidated Statement of Comprehensive Income For the year ended 30 June 2016 Note Consolidated Group Revenue Other income Total Revenue Cost of goods and services sold Employee benefits expense Deferred consideration on acquisitions Acquisition, transaction and restructuring related costs Rental expense Travel costs Administration expenses EBITDA* Depreciation and amortisation expense EBIT** Financing costs Profit / (loss) before income tax Income tax expense Loss for the period attributable to owners of the parent entity Other comprehensive loss net of income tax that may be reclassified subsequently to profit and loss Exchange differences on translation of foreign operations Total comprehensive loss for the period attributable to owners of the parent entity Loss per share: Basic loss per share for the year attributable to ordinary equity holders of the parent Diluted loss per share for the year attributable to ordinary equity holders of the parent * EBITDA = Earnings before Interest, Tax, Depreciation & Amortisation ** EBIT = Earnings before Interest & Tax 2016 $ 2015 $ 33,577,492 31,653,926 401,216 395,289 33,978,708 32,049,215 (6,172,886) (5,413,726) (16,193,083) (15,963,591) (3,850,327) (3,749,245) (169,399) (920,126) (1,141,438) (1,227,606) (567,281) (669,742) (3,359,613) (4,005,358) 2,524,681 99,821 (1,319,921) (1,158,077) 1,204,760 (1,058,256) (462,725) (302,341) 742,035 (1,360,597) (1,191,434) (786,981) (449,399) (2,147,578) (18,889) (14,897) (468,288) (2,162,475) Cents (1 73) (1 73) Cents (8 28) (8 28) 6 6 6 4 6 6 6 6 6 6 7 8 8 64 ENERGY ACTION Consolidated Statement of Financial Position As at 30 June 2016 Assets CURRENT ASSETS Cash and cash equivalents Cash held in escrow Trade and other receivables Other assets TOTAL CURRENT ASSETS NON-CURRENT ASSETS Trade and other receivables Property, plant and equipment Other assets Other Intangible assets Goodwill Customer relationships TOTAL NON-CURRENT ASSETS TOTAL ASSETS CURRENT LIABILITIES Trade and other payables Current tax liabilities Short-term provisions TOTAL CURRENT LIABILITIES NON-CURRENT LIABILITIES Other long-term provisions Loans and Borrowings Deferred tax liability TOTAL NON-CURRENT LIABILITIES TOTAL LIABILITIES NET ASSETS EQUITY Issued capital Share based payments reserve Retained earnings Foreign currency translation reserve TOTAL EQUITY The accompanying notes form part of these financial statements. Note Consolidated Group 2016 $ 2015 $ 10 10 11 14 11 12 14 13 13 13 15 16 17 17 18 16 19b 1,207,046 - 4,969,770 1,468,736 7,645,552 85,509 801,237 868,944 2,805,478 9,944,796 1,645,257 16,151,221 23,796,773 1,740,288 1,000,000 5,868,825 1,168,986 9,778,099 93,098 896,782 898,941 2,175,485 9,942,429 1,884,351 15,891,086 25,669,185 5,567,651 6,202,921 47,052 1,312,597 6,927,300 - 1,277,525 7,480,446 357,270 3,973,358 532,566 4,863,194 11,790,494 12,006,279 6,537,906 530,998 4,971,505 (34,130) 372,667 3,759,538 557,981 4,690,186 12,170,632 13,498,553 6,537,906 553,154 6,422,739 (15,246) 12,006,279 13,498,553 65 ANNUAL REPORT 2016 Consolidated Statement of Changes in Equity For the year ended 30 June 2016 Consolidated Group Note Ordinary Issued Share Capital Share Based Payments Reserve Retained Earnings Total Foreign currency translation reserve $ $ $ $ $ Balance at 30 June 2014 6,160,906 258,947 10,181,587 (349) 16,601,091 Loss attributable to owners of parent entity Foreign currency translation reserve Total comprehensive income Transaction with owners Net share capital issued in the year Share based payments Dividends paid or provided for Balance at 30 June 2015 Loss attributable to owners of parent entity Foreign currency translation reserve Total comprehensive income Transaction with owners Share based payments Dividends paid or provided for Balance at 30 June 2016 19 19 19 - - - 377,000 - - - - - - 294,207 (2,147,583) - (2,147,583) - (14,892) (14,892) (2,147,583) (14,892) (2,162,475) - - - - - 377,000 294,207 (1,611,270) - (1,611,270) 6,537,906 553,154 6,422,734 (15,241) 13,498,553 - - - - - - - - (449,399) - (449,399) - (18,889) (18,889) (449,399) (18,889) (468,288) (22,156) - - (1,001,830) - - (22,156) (1,001,830) 6,537,906 530,998 4,971,505 (34,130) 12,006,279 The accompanying notes form part of these financial statements. 66 ENERGY ACTION Consolidated Statement of Cash Flow For the year ended 30 June 2016 CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers (inclusive of GST) Payments to suppliers and employees (inclusive of GST) Payments for deferred consideration Acquisition and transaction related costs Restructuring costs Interest received Interest paid Income tax paid Net cash provided by operating activities CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property, plant and equipment Acquisition of Energy Advice Pty Limited Acquisition of Exergy Holdings Pty Limited Software development costs Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid by parent entity Bank loan Debt establishment fees Bank guarantee fees Net cash provided by/ (used in) financing activities Net (decrease)/increase in cash held Cash (including restricted cash) at beginning of financial year Cash (including restricted cash) at end of financial year The accompanying notes form part of these financial statements. Note Consolidated Group 2016 $ 2015 $ 36,388,976 34,560,207 (29,738,629) (28,633,361) (4,142,000) (1,000,000) - (169,399) (360,668) (112,305) 39,053 98,009 (338,115) (226,998) (1,093,603) (1,760,364) 946,283 2,564,520 (296,453) (398,203) - - (5,803,045) (138,623) (1,331,243) (1,053,699) (1,627,696) (7,393,570) (1,001,829) (1,611,270) 150,000 4,100,000 - - (438,248) (37,702) (851,829) 2,012,780 (1,533,242) (2,816,270) 2,740,288 1,207,046 5,556,558 2,740,288 4 4 21 12 4 4 13 9 18 10 10 67 ANNUAL REPORT 2016 Notes to the Financial Statements for year ended 30 June 2016 Note 1: Corporate Information The consolidated financial statements and notes represent those of Energy Action Limited and it’s Controlled Entities (the “consolidated group” or “group” or ‘’EAX’’) for the year ended 30 June 2016. The financial statements were authorised for issue in accordance with a resolution of the directors on 18 August 2016. Energy Action Limited (“the Parent”) is a company limited by shares incorporated in Australia whose shares are publicly traded on the Australian Securities Exchange. The Group is a for profit entity. The nature of the operation and principal activities of the Group are described in the directors’ report. Note 2: Summary of Significant Accounting Policies 2.1 Basis of Preparation The financial statements are general purpose financial statements that have been prepared in accordance with Australian Accounting Standards, Australian Accounting Interpretations, other authoritative pronouncements of the Australian Accounting Standards Board (AASB) and the Corporations Act 2001. Material accounting policies adopted in the preparation of these financial statements are presented below and have been consistently applied unless otherwise stated. The financial statements have been prepared on an accruals basis and are based on historical costs, modified, where applicable, by the measurement at fair value of selected non-current assets, financial assets and financial liabilities. The financial report is presented in Australian dollars and all values. The functional currency is also Australian dollars. The financial report also complies with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. Where necessary, comparatives have been reclassified for consistency with disclosures at 30 June 2016. 2.2 New Accounting Standards and interpretations (i) Changes in accounting policies The accounting policies adopted are consistent with those of the previous financial year except as follows: The group has adopted the following new and amended Australian Accounting Standards and AASB Interpretations as of 1 July 2015; none of which had a material impact on the financial statements: AASB 2015-3 Amendments to Australian Accounting Standards arising from the Withdrawl of AASB 1031 Materiality AASB 2013-9 Amendments to Australian Accounting Standards – Conceptual Framework, Materiality and Financial Instruments (ii) Accounting Standards and Interpretations issued but not yet effective Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet effective and have not been adopted by the Group for the annual reporting period ending 30 June 2016 are outlined in the table below: 68 ENERGY ACTION Note 2: Summary of Significant Accounting Policies (Continued) Standard/Interpretation Effective for the annual reporting period beginning on Expected to be initially applied in the financial year ending AASB 2014- 4 Clarification of Acceptable Methods of Depreciation and Amortisation (Amendments to AASB 116 and AASB 138) AASB 1057 Application of Australia Accounting Standards Annual Improvements 2012-2015 Cycle AASB 2015-1 Amendments to Australian Accounting Standards – Annual Improvements to Australian Accounting Standards 2012-2014 Cycle AASB 2015-2 Amendments to Australian Accounting Standards – Disclosure Initiative: Amendments to AASB 101 AASB 2015-9 Amendments to Australian Accounting Standards – Equity Method in Separate Financial Statements AASB 2016-2 Amendments to Australian Accounting Standards – Disclosure Initiative: Amendments to AASB 107 AASB 2016-1 Amendments to Australian Accounting Standards – Recognition of Deferred Tax Assets for Unrealised Losses [AASB 112] AASB 9 Financial Instruments AASB 15 Revenue from Contracts with Customers AASB 16 Leases January 1, 2016 June 30, 2017 January 1, 2016 January 1, 2016 June 30, 2017 June 30, 2017 January 1, 2016 June 30, 2017 January 1, 2016 June 30, 2017 January 1, 2016 June 30, 2017 January 1, 2017 June 30, 2018 January 1, 2018 June 30, 2019 January 1, 2018 January 1, 2018 January 1, 2019 June 30, 2019 June 30, 2019 June 30, 2020 The Directors have not yet assessed whether the above amendments and interpretations will have a material impact on the financial report of the Group in the year or period of initial application. Impact of AASB15 on future reporting periods: Adoption of AASB15, to apply in FY2019, will require revenue from certain procurement activities to be recognised in the period in which the procurement activity is undertaken. Procurement revenue currently recognised over the term of the underlying energy contract will be brought forward and recognised on inception of the energy procurement contract. This will result in a one-off acceleration of revenue togther with the associated commission expense. Management is in the process of calculating this impact. Impact of AASB16 on future reporting periods: Adoption of AASB16, to apply in FY2020, will require leases currently treated as operating leases, such as rental of office premises, to be recognised on the balance sheet. This change will impact the classification of certain expenses such as rental expense, deprecation and financing costs. Consequently, non IFRS measures such as EBITDA and EBIT will also be impacted. Management is considering the financial impact of this change. 2.3 Key Accounting Policies a. Principles of Consolidation The consolidated financial statements comprise of the financial statements of the Group and its subsidiaries as at 30 June 2016. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if and only if the Group has: Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee) Exposure, or rights, to variable returns from its involvement with the investee, and The ability to use its power over the investee to affect its returns 69 ANNUAL REPORT 2016 Note 2: Summary of Significant Accounting Policies (Continued) When the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including: The contractual arrangement with the other vote holders of the investee Rights arising from other contractual arrangements The Group’s voting rights and potential voting rights The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the statement of comprehensive income from the date the Group gains control until the date the Group ceases to control the subsidiary. Profit or loss and each component of other comprehensive income (OCI) are attributed to the equity holders of the parent of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group’s accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation. A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Group loses control over a subsidiary, it: De-recognises the assets (including goodwill) and liabilities of the subsidiary De-recognises the carrying amount of any non-controlling interests De-recognises the cumulative translation differences recorded in equity Recognises the fair value of the consideration received Recognises the fair value of any investment retained Recognises any surplus or deficit in profit or loss Reclassifies the parent’s share of components previously recognised in OCI to profit or loss or retained earnings, as appropriate, as would be required if the Group had directly disposed of the related assets or liabilities Subsidiaries are recorded as a component of other revenues in the separate income statement of the parent entity, and do not impact the recorded cost of the investment. Upon receipt of dividend payments from subsidiaries, the parent will assess whether any indicators of impairment of the carrying value of the investment in the subsidiary exist. Where such indicators exist, to the extent that the carrying value of the investment exceeds its recoverable amount, an impairment loss is recognised. b. Business combinations Business combinations occur where an acquirer obtains control over one or more businesses. A business combination is accounted for by applying the acquisition method, unless it is a combination involving entities or businesses under common control. The business combination will be accounted for from the date that control is attained, whereby the fair value of the identifiable assets acquired and liabilities (including contingent liabilities) assumed is recognised (subject to certain limited exemptions). When measuring the consideration transferred in the business combination, any asset or liability resulting from a contingent consideration arrangement is also included. Subsequent to initial recognition, contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity. Contingent consideration classified as an asset or liability is remeasured each reporting period to fair value, recognising any change to fair value in profit or loss, unless the change in value can be identified as existing at acquisition date. All transaction costs incurred in relation to the business combination are expensed to the statement of comprehensive income. 70 ENERGY ACTION Note 2: Summary of Significant Accounting Policies (Continued) The acquisition of a business may result in the recognition of goodwill or a gain from a bargain purchase. c. Goodwill Goodwill is carried at cost less accumulated impairment losses. Goodwill is calculated as the excess of the sum of: (i) (ii) (iii) the consideration transferred; any non-controlling interest; and the acquisition date fair value of any previously held equity interest; over the acquisition date fair value of net identifiable assets acquired. The acquisition date fair value of the consideration transferred for a business combination plus the acquisition date fair value of any previously held equity interest shall form the cost of the investment in the separate financial statements. Fair value uplifts in the value of pre-existing equity holdings are taken to the statement of comprehensive income. Where changes in the value of such equity holdings had previously been recognised in other comprehensive income, such amounts are recycled to profit or loss. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill is tested for impairment annually and is allocated to the Group’s cash-generating units or groups of cash-generating units, representing the lowest level at which goodwill is monitored not larger than an operating segment. Gains and losses on the disposal of an entity include the carrying amount of goodwill related to the entity disposed of. d. Income Tax and other taxes The income tax expense (revenue) for the year comprises current income tax expense (income) and deferred tax expense (income). Current income tax expense charged to profit or loss is the tax payable on taxable income. Current tax liabilities (assets) are measured at the amounts expected to be paid to (recovered from) the relevant taxation authority. Deferred income tax expense reflects movements in deferred tax asset and deferred tax liability balances during the year as well unused tax losses. Except for business combinations, no deferred income tax is recognised from the initial recognition of an asset or liability, where there is no effect on accounting or taxable profit or loss. Deferred tax assets and liabilities are calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled and their measurement also reflects the manner in which management expects to recover or settle the carrying amount of the related asset or liability. Deferred tax assets relating to temporary differences and unused tax losses are recognised only to the extent that it is probable that future taxable profit will be available against which the benefits of the deferred tax asset can be utilised. Where temporary differences exist in relation to investments in subsidiaries, branches, associates, and joint ventures, deferred tax assets and liabilities are not recognised where the timing of the reversal of the temporary difference can be controlled and it is not probable that the reversal will occur in the foreseeable future. Current tax assets and liabilities are offset where a legally enforceable right of set-off exists and it is intended that net settlement or simultaneous realisation and settlement of the respective asset and liability will occur. Deferred tax assets and liabilities are offset where: (a) a legally enforceable right of set-off exists; and (b) the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where it is intended that net settlement or simultaneous realisation and settlement of the respective asset and liability will occur in future periods in which significant amounts of deferred tax assets or liabilities are expected to be recovered or settled. 71 ANNUAL REPORT 2016 Note 2: Summary of Significant Accounting Policies (Continued) Other taxes Revenues, expenses and assets are recognised net of the amount of GST except: When the GST incurred on a purchase of goods and services in not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable Receivables and payables, which are stated with the amount of GST included The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position. Cash flows are included in the statement of cash flows on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority is classified as part of operating cash flows. Commitments and contingences are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority. e. Plant and Equipment Each class of plant and equipment is carried at cost or fair value as indicated less, where applicable, any accumulated depreciation and impairment losses. Plant and equipment are measured on the cost basis and therefore carried at cost less accumulated depreciation and any accumulated impairment. In the event the carrying amount of plant and equipment is greater than the estimated recoverable amount, the carrying amount is written down immediately to the estimated recoverable amount and impairment losses are recognised either in profit or loss or as a revaluation decrease if the impairment losses relate to a re-valued asset. The carrying amount of plant and equipment is reviewed annually by directors to ensure it is not in excess of the recoverable amount from these assets. The recoverable amount is assessed on the basis of the expected net cash flows that will be received from the asset’s employment and subsequent disposal. The expected net cash flows have been discounted to their present values in determining recoverable amounts. 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 Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the statement of comprehensive income during the financial period in which they are incurred. Depreciation The depreciable amount of all fixed assets including buildings and capitalised lease assets, but excluding freehold land, is depreciated on a straight-line basis over the asset’s useful life to the consolidated group commencing from the time the asset is held ready for use. Leasehold improvements are depreciated over the shorter of either the unexpired period of the lease or the estimated useful lives of the improvements. The depreciation rates used for each class of depreciable assets are: Class of Fixed Asset Depreciation Rate Computer equipment 25%-33.3% Furniture and fittings 10%– 33.3% The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These gains and losses are included in the statement of comprehensive income. When re-valued assets are sold, amounts included in the revaluation surplus relating to that asset are transferred to retained earnings. 72 ENERGY ACTION Note 2: Summary of Significant Accounting Policies (Continued) f. Leases Leases of fixed assets where substantially all the risks and benefits incidental to the ownership of the asset, but not the legal ownership that is transferred to entities in the consolidated group, are classified as finance leases. Finance leases are capitalised by recognising an asset and a liability at the lower of the amounts equal to the fair value of the leased property or the present value of the minimum lease payments, including any guaranteed residual values. Lease payments are allocated between the reduction of the lease liability and the lease interest expense for the period. Leased assets are depreciated on a straight-line basis over the shorter of their estimated useful lives or the lease term. Lease payments for operating leases, where substantially all the risks and benefits remain with the lessor, are recognised as expenses in the periods in which they are incurred. Lease incentives under operating leases are recognised as a liability and amortised on a straight-line basis over the lease term. Estimated remediation costs at the conclusion of a lease are accrued on a straight-line basis over the lease term. g. Financial Instruments Initial recognition and measurement Financial assets within the scope of AASB 139 are classified as financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, available-for-sale financial assets, or as derivatives designated as hedging instruments in an effective hedge as appropriate. The Group determines the classification of its financial assets at initial recognition. The financial assets held by the Group during the past two years only included loans and receivables and available-for-sale financial assets. Amortised cost is the amount at which the financial asset or financial liability is measured at initial recognition less principal repayments and any reduction for impairment, and adjusted for any cumulative amortisation of the difference between that initial amount and the maturity amount calculated using the effective interest method. Fair value is determined based on current bid prices for all quoted investments. Valuation techniques are applied to determine the fair value for all unlisted securities, including recent arm’s length transactions, reference to similar instruments and option pricing models. The effective interest method is used to allocate interest income or interest expense over the relevant period and is equivalent to the rate that discounts estimated future cash payments or receipts (including fees, transaction costs and other premiums or discounts) through the expected life (or when this cannot be reliably predicted, the contractual term) of the financial instrument to the net carrying amount of the financial asset or financial liability. Revisions to expected future net cash flows will necessitate an adjustment to the carrying value with a consequential recognition of an income or expense item in profit or loss. (i) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are subsequently measured at amortised cost. Loans and receivables are included in current assets, where they are expected to mature within 12 months after the end of the reporting period. (ii) Available-for-sale financial assets Available-for-sale financial assets are non-derivative financial assets that are either not suitable to be classified into other categories of financial assets due to their nature, or they are designated as such by management. They comprise investments in the equity of other entities where there is neither a fixed maturity nor fixed or determinable payments. The only investments held by the Parent are in investments in its subsidiaries. As the investments are subsidiaries they are measured at cost. When the financial asset is derecognised, the cumulative gain or loss pertaining to that is recognised in the profit or loss. Available-for-sale financial assets are included in non-current assets where they are expected to be sold within 12 months after the end of the reporting period. All other financial assets are classified as current assets. 73 ANNUAL REPORT 2016 Note 2: Summary of Significant Accounting Policies (Continued) (iii) Financial liabilities Non-derivative financial liabilities (excluding financial guarantees) are subsequently measured at amortised cost. Financial assets are derecognised where the contractual rights to receipt of cash flows expire or the asset is transferred to another party whereby the entity no longer has any significant continuing involvement in the risks and benefits associated with the asset. Financial liabilities are derecognised where the related obligations are discharged, cancelled or expired. The difference between the carrying value of the financial liability extinguished or transferred to another party and the fair value of consideration paid, including the transfer of non-cash assets or liabilities assumed, is recognised in profit or loss. h. Impairment of Non-financial Assets The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s (CGU) fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre- tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, recent market transactions are taken into account, if available. If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded subsidiaries or other available fair value indicators. The Group bases its impairment calculation on detailed budgets and forecast calculations. These budgets and forecast calculations generally cover a period of five years. For longer periods, a long-term growth rate is calculated and applied to project future cash flows after the fifth year. Impairment losses of continuing operations, are recognised in the income statement in expense categories consistent with the function of the impaired asset. For assets excluding goodwill, an assessment is made at each reporting date whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the Group estimates the assets or CGUs recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognised. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in the income statement unless the asset is carried at a revalued amount, in which case, the reversal is treated as a revaluation increase. The following assets have specific characteristics for impairment testing: Goodwill Goodwill is tested for impairment annually (as at 30 June) and when circumstances indicate that the carrying value may be impaired. Impairment is determined for goodwill by assessing the recoverable amount of each CGU (or group of CGUs) to which the goodwill relates. When the recoverable amount of the CGU is less than its carrying amount, an impairment loss is recognised. Impairment losses relating to goodwill cannot be reversed in future periods. Intangible assets Intangible assets with indefinite useful lives are tested for impairment annually as at 30 June either individually or at the CGU level, as appropriate, and when circumstances indicate that the carrying value may be impaired. 74 ENERGY ACTION Note 2: Summary of Significant Accounting Policies (Continued) Intangible assets with finite lives are amortised over the useful life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for any intangible asset with a finite useful life is reviewed at least at each financial year end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortisation period or method, as appropriate, which is a change in accounting estimate. The amortisation expense on intangible assets with finite lives is recognised in the Statement of Comprehensive Income in the expense category consistent with the function of the intangible asset. i. Intangible assets other than Goodwill Software, research and development costs Research costs are expensed as incurred. Development expenditures including website development costs on an individual project are recognised as an intangible asset when the Group can demonstrate: The technical feasibility of completing the intangible asset so that it will be available for use or sale Its intention to complete and its ability to use or sell the asset How the asset will generate future economic benefits The availability of resources to complete the asset The ability to measure reliably the expenditure during development Following initial recognition of the development expenditure as an asset, the asset is carried at cost less any accumulated impairment losses. Amortisation of the asset begins when development is complete and the asset is available for use. It is amortised over the period of expected future benefit. Amortisation is expensed through the profit and loss. During the period of development, the asset is tested for impairment annually. The useful life of development costs is finite. It is amortised on a straight line basis over its expected useful life. The development costs are internally developed. The amortisation rates are as follows: Software development costs 20% Customer relationships The useful life of customer relationships is finite. It is amortised on a straight line basis over its expected useful life, which is between six and twelve years. j. Employee Benefits Provision is made for the Group’s liability for employee benefits arising from services rendered by employees to the end of the reporting period. Employee benefits that are expected to be settled within one year have been measured at the amounts expected to be paid when the liability is settled. Employee benefits payable later than one year have been measured at the present value of the estimated future cash outflows to be made for those benefits. In determining the liability, consideration is given to employee wages increases and the probability that the employee may satisfy vesting requirements. Those cash flows are discounted using market yields on high quality corporate bonds with terms to maturity that match the expected timing of cash flows. k. Provisions Provisions are recognised when the Group has a legal or constructive obligation, as a result of past events, for which it is probable that an outflow of economic benefits will result and that outflow can be reliably measured. When the Group expects some or all of a provision to be reimbursed, for example, under an insurance contract, the reimbursement is recognised as a separate asset, but only when the reimbursement is virtually certain. The expense relating to any provision is present in the income statement net of any reimbursement. Provisions are measured using the best estimate of the amounts required to settle the obligation at the end of the reporting period. 75 ANNUAL REPORT 2016 Note 2: Summary of Significant Accounting Policies (Continued) Onerous contracts An onerous contract is considered to exist where the company has a contract under which the unavoidable cost of meeting the contractual obligations exceed the economic benefits estimated to be received. Present obligations arising under onerous contracts are recognised as a provision to the extent that the present obligation exceeds the economic benefits estimated to be received. Restructuring A restructuring provision is recognised when Energy Action has developed a detailed formal plan for the restructuring and has raised a valid expectation in those affected that it will carry out the restructuring by starting to implement the plan or announcing its main features to those affected by it. Future operating losses are not provided for. l. Cash and Cash Equivalents Cash and cash equivalents include cash on hand, deposits available on demand with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are reported within short-term borrowings in current liabilities in the statement of financial position. m. Revenue and Other Income Revenue is measured at the fair value of the consideration received or receivable after taking into account any trade discounts and volume rebates allowed. Revenue recognition relating to the provision of services is recognised in accordance with the contract terms, which matches the commission terms. Procurement and Monitoring revenue is recognised progressively over the term of the contract (typically over 2-3 years for Procurement and 4-5 years for Monitoring). A portion of the Procurement commission is recognised upfront with the balance recognised over the contract term. Project and Advisory Services (PAS) revenue is recognised in the accounting period in which services are rendered, in accordance with the percentage of completion of the project. Revenue from cancellation fees are recognised upon receipt. Interest revenue is recognised using the effective interest rate method. Dividend revenue is recognised when the right to receive a dividend has been established. All revenue is stated net of the amount of goods and services tax (GST). n. Government Grants Government grants are recognised at fair value where there is reasonable assurance that the grant will be received and all grant conditions will be met. Grants relating to expense items are recognised as income over the periods necessary to match the grant to the costs they are compensating. Grants relating to assets are credited to deferred income at fair value and are credited to income over the expected useful life of the asset on a straight-line basis. o. Contract Acquisition Costs The sales commission paid to sales employees is an incremental cost directly related to obtaining or acquiring energy supply, monitoring or PAS agreements. Sales employees are paid a base salary and an additional commission for successfully executed agreements. The commission paid to sales employees is calculated as a percentage of the commission or fee paid to EAX. This commission is capitalised and is being amortised over the term of the customer contract. p. Foreign Currency Transaction The Group’s consolidated financial statements are presented in Australian dollars, which is also the Parent’s functional currency. For each entity the Group determines the functional currency and items included in the financial statements of each entity are measured using that functional currency. The Group uses the direct method of consolidation and has elected to recycle the gain or loss that arises from using this method. 76 ENERGY ACTION Note 2: Summary of Significant Accounting Policies (Continued) i) Transactions and balances Transactions in foreign currencies are initially recorded by the Group’s entities at their respective functional currency spot rates at the date the transaction first qualifies for recognition. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency spot rates of exchange at the reporting date. Differences arising on settlement or translation of monetary items are recognised in profit or loss with the exception of monetary items that are designated as part of the hedge of the Group’s net investment of a foreign operation. These are recognised in other comprehensive income until the net investment is disposed of, at which time, the cumulative amount is reclassified to profit or loss. Tax charges and credits attributable to exchange differences on those monetary items are also recorded in other comprehensive income. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined. The gain or loss arising on translation of non-monetary items measured at fair value is treated in line with the recognition of gain or loss on change in fair value of the item (i.e., translation differences on items whose fair value gain or loss is recognised in other comprehensive income or profit or loss are also recognised in other comprehensive income or profit or loss, respectively). Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition are treated as assets and liabilities of the foreign operation and translated at the spot rate of exchange at the reporting date. ii) Group companies On consolidation, the assets and liabilities of foreign operations are translated into dollars at the rate of exchange prevailing at the reporting date and their statements of profit or loss are translated at exchange rates prevailing at the dates of the transactions. The exchange differences arising on translation for consolidation are recognised in other comprehensive income. On disposal of a foreign operation, the component of other comprehensive income relating to that particular foreign operation is recognised in profit or loss. q. Work-in-progress When the outcome of a contract can be estimated reliably, contract revenue and contract costs are recognised as revenue and expenses respectively by reference to the stage of completion of the contract activity at the balance sheet date. When the outcome of a contract cannot be estimated reliably, contract revenue is recognised to the extent of contract costs incurred that are likely to be recoverable. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately. At the end of each accounting period the long term contracts percentage completion is assessed individually and any unbilled percentage completion is recognised as work in progress income for the period. In the next period, the amount recognised as income will be reversed and the position of work in progress will be recalculated. r. Share based payments The Group provides benefits to employees in the form of equity settled share based payments, whereby employees render services in exchange for shares or rights over shares. The fair value of rights granted to eligible employees under the Energy Action Performance Rights & Options Plan (PROP) is recognised as an employee benefits expense, with a corresponding increase in the employee equity benefits reserve. The fair value is measured at grant date and recognised over the period in which the employee becomes entitled to the PROP grant. The fair value at grant date is determined by an independent valuer. Details of the fair value of share based payment plans are set out in Note 19. At the end of each reporting period, the Group revises its estimate of the numbers of rights expected to vest. The amount recognised as an expense is only adjusted when the rights do no vest due to non-market related conditions. 77 ANNUAL REPORT 2016 Note 3: Significant Accounting Judgements, Estimates and Assumptions In the application of Energy Action’s accounting policies, management is required to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities, at the end of the reporting period. The estimates and assumptions are based on historical experience and other factors that are considered relevant. Actual results may differ from these estimates. The estimates and assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. Impairment of goodwill and other intangible assets The Group assesses impairment at the end of each reporting period by evaluating conditions and events specific to the Group that may be indicative of impairment triggers. Recoverable amounts of relevant assets are reassessed using value-in-use calculations which incorporate various key assumptions. Share-based payment transactions The Group measures the cost of equity-settled transactions with suppliers with reference to the fair value of the equity instruments at the date at which they are granted. Estimating fair value for share-based payment transactions requires determining the most appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimate also requires determining the most appropriate inputs to the valuation model including the expected life of the share option, volatility and dividend yield and making assumptions about them. The assumptions and models used for estimating fair value for share-based payment transactions are disclosed in Note 19. Development costs Development costs are capitalised in accordance with the accounting policy in Note 2(i). Initial capitalisation of costs is based on management’s judgement that technological and economic feasibility is confirmed, usually when a product development project has reached a defined milestone according to an established project management model. In determining the amounts to be capitalised, management makes assumptions regarding the expected future cash generation of the project, discount rates to be applied and the expected period of benefits. This includes significant investments in the development of software. The software is being enhanced and /or developed for use within the business, improving operational efficiency. Provision for impairment of receivables Collectability of trade receivables is assessed on an ongoing basis. An allowance for doubtful debts is established when there is objective evidence the Energy Action will not be able to collect all amounts due. Management uses its judgement in determining the level of doubtful debt provisioning, considering historical analysis of bade debts trends and prevailing economic circumstances. Business Combinations Acquisitions of businesses are accounted for using the acquisition method. This method requires the application of fair values for both the consideration and the assets and liabilities acquired. The calculation of fair value is often based on estimates and judgements including future cash flows, revenue streams and value in use calculations. Onerous Contracts Energy Action’s policy for onerous contracts is stated in Note 2(k). The application of this policy requires management to make certain estimates and assumptions as to future events and circumstances in relation to costs to meet contractual obligations. 78 ENERGY ACTION Note 3: Significant Accounting Judgements, Estimates and Assumptions (Continued) Employee benefits Employee benefits are predominantly annual leave and long service leave. In determining these provisions, management makes assumptions in regards to future wage increases, and the probability that employees may satisfy vesting requirements for long service leave. Work in progress Energy Action performs services under contracts that last longer than one reporting period. For these contracts, revenue and costs are recognised on a percentage of completion basis. Percentage of completion by project is estimated by the project relevant project manager based on their assessment of completion versus milestones. Note 4: Business Combinations 4.1 Information on prior year acquisition Acquisition of Energy Advice On 18 August 2014, Energy Action Limited (“EAX’) acquired 100% of the voting shares of Energy Advice Pty Ltd (“Energy Advice”). Trading as Energy Advice, and established in 1997 by the late Mr Phil Randall, Energy Advice is a highly regarded energy consultancy business with a core competency energy procurement, contract management services and specialty consultancy services. Its operations complement EAX’s energy procurement and contract management offering, and significantly strengthen the EAX’s access to large energy load customers. Energy Advice provides comprehensive energy management, procurement, reporting, auditing, energy efficiency, advisory and project management services across a broad range of energy commodities including electricity, gas, LPG, fuels and renewables. The company employs over 30 staff and has offices in Melbourne, Sydney and Brisbane. Consideration is comprised of the following: Initial Consideration (paid) - $6,536,235 paid as cash and shares $2,765,000 cash payment on 18 August 2015 $377,000 in EAX shares issued on 18 August 2015 (123,356 shares @$3.0562) $3,142,000 cash payment on 1 October 2015; and $252,235 as a working capital adjustment on 22 October 2015 Deferred Consideration (payable) - $6,284,000 cash payable to the vendors as follows: $3,142,000 on 18 August 2015; and, $3,142,000 on 18 August 2016 The deferred payments are subject to the continued employment of the vendors. Due to the direct link to continued employment of the vendors the deferred consideration of $6,284,000 is required to be expensed to the Profit and Loss Statement evenly over the 2 year period ended 18 August 2016. The expense recognised in the 12 month period to 30 June 2016 was $2,749,247 and this has been emphasised as a Significant Item in the Directors Report. The deferred payments are covered by bank guarantees. 79 ANNUAL REPORT 2016 Note 4: Business Combinations (Continued) The acquisition was provisionally accounted at 31 December 2014 with the final acquisition accounting completed in June 2015.The provisional and final fair value of the identifiable assets and liabilities of Energy Advice as at the date of acquisition were: Note Fair value recognised on acquisition- provisional Adjustments to provisional fair value Fair value recognised on acquisition – final Assets Cash Trade receivables Prepayments Property, plant and equipment Customer relationship Total Assets Liabilities Provisions Tax payable Deferred tax liabilities Total Liabilities Total identifiable net assets at fair value Goodwill arising on acquisition Purchase consideration Issue of shares Analysis of cash flows on acquisition: 13 19 Net cash acquired Cash paid Net cash outflow (18,567) (1,069,000) (1,087,567) 26,590 (281,262) (254,672) (832,895) 832,895 356,190 597,968 555,738 271,177 1,500,000 3,281,073 970,252 215,623 450,000 1,635,875 1,645,198 4,891,039 6,536,235 377,000 356,190 (6,159,235) (5,803,045) 356,190 597,968 537,171 271,177 431,000 2,193,506 970,252 242,213 168,738 1,381,203 812,303 5,723,934 6,536,235 377,000 356,190 (6,159,235) (5,803,045) The transaction costs of $320,892 have been expensed in the income statement and emphasised as a Significant Item in the Directors Report and are part of operating cash flows in the statement of cash flows. The goodwill is attributed to the expected synergies and other benefits from combining the activities of Energy Advice to the Group. An allocation of intangibles has been undertaken with $431,000 allocated to Customer relationships with the remainder allocated to goodwill. 80 ENERGY ACTION Note 4: Business Combinations (Continued) 4.2 Total amounts of deferred consideration expense and acquisition expense Deferred consideration Exergy Energy Advice Total deferred consideration expense Acquisition costs Exergy Energy Advice Total acquisition costs expensed Note 5: Segment information Identification of reportable segments Consolidated Group 2016 $ 2015 $ 708,333 2,141,994 3,850,327 - - - 1,000,000 2,749,245 3,749,245 39,776 320,892 360,668 The Group has identified one reportable operating segment, which provides electricity and gas procurement services, energy monitoring services, and sustainability services in Australia. The types of services provided are detailed below. Types of Services Energy Action’s principal activities are providing integrated energy management services to a diverse base of commercial and industrial customers. Its core services are: Energy procurement: specialised buying and negotiation strategies, utilising reverse auctions, bespoke tender models and advising on structured products. Energy monitoring, assessment and contract management (Energy Metrics); and, Energy efficiency and sustainability; Projects and Advisory Services (PAS). The Australian Energy Exchange (AEX) electricity and gas procurement service is an online, real time and reverse auction platform for business customers which provides the opportunity to competitively obtain energy supply contracts from various energy providers. Energy Metrics is an independent energy monitoring contract management platform which transforms energy data into usable business intelligence that is easy to understand and essential for improving overall business efficiency. The types of energy monitoring services include energy consumption monitoring and costing, energy emissions monitoring, contract administration, detailed technical reporting, desktop energy efficiency review and additional reporting and monitoring. Projects & Advisory Services (PAS) is the energy efficiency and sustainability partnering service, which aims to improve and manage on site level of energy efficiency, through the use of innovative energy efficiency and energy management methodologies. The various services include metering intelligence, sub metering, carbon footprint measurement and reduction advice, Australian Standard Level 2 compliance energy audits, project feasibility studies and supporting onsite power generation projects such as co-generation and tri-generation units from prefeasibility through to commissioning. 81 ANNUAL REPORT 2016 Note 5: Segment Information (Continued) In the table below revenue is analysed by service line, however overall the performance of the business is monitored as one. Accounting Policies and inter-segment transaction The accounting policies used by the Group in the reporting segment internally are the same as those contained in note 2 to the accounts. Revenue by customer There is no revenue with a single external customer that contributes more than 10%. Year-ended 30 June 2016 Sales to external customers Year-ended 30 June 2015 Sales to external customers Procurement Monitoring $ 7,586,787 7,586,787 $ 18,059,913 18,059,913 Procurement Monitoring $ 8,263,626 8,263,626 $ 16,691,706 16,691,706 Project Advisory Services $ 7,930,792 7,930,792 Project Advisory Services $ 6,698,594 6,698,594 Total $ 33,577,492 33,577,492 Total $ 31,653,926 31,653,926 Note 6: Revenue, Other Income and Expenses Consolidated Group 2016 $ 2015 $ 33,577,492 401,216 33,978,708 31,653,926 395,289 32,049,215 Revenue Sales revenue Other income Total Revenue 82 ENERGY ACTION Note 6: Revenue, Other Income and Expenses (Continued) Employee benefits Salaries Commissions Superannuation Share based payment expense Other Total Employment benefits Administrative costs Accounting, audit and tax fees Advertising Legal and professional fees Telephone and internet Computer maintenance costs Bad debt expense Recruitment Costs Travel costs Rental expense Other expenses Total Administrative costs Depreciation and amortisation Depreciation Amortisation – Software Amortisation – Customer relationships Total Depreciation & Amortisation Significant Item Costs Deferred payments for acquisitions Acquisition costs Onerous lease Restructure costs Total Significant Items Financing costs / (income) Interest income Interest expenses Borrowing costs Total Financing costs / (income) Note Consolidated Group 2016 $ 2015 $ 12,441,628 12,063,684 1,076,991 1,466,826 (22,156) 1,229,794 1,188,026 1,454,458 294,207 963,216 16,193,083 15,963,591 207,414 213,337 181,695 472,125 761,687 134,946 157,602 567,281 1,141,438 1,230,806 5,068,332 379,577 701,250 239,094 1,319,921 3,850,327 - - 169,399 4,019,726 (39,053) 378,728 123,050 462,725 204,683 411,260 89,640 490,056 536,944 550,201 151,403 669,742 1,227,606 1,571,171 5,902,706 305,757 619,230 233,091 1,158,077 3,749,245 360,668 153,059 419,700 4,682,672 (70,442) 274,998 97,785 302,341 83 ANNUAL REPORT 2016 Note 7: Income Tax Expense Note Consolidated Group a The components of tax expense comprise: Current tax Current tax – under/(over) prior year Deferred tax 16 b The prima facie tax on profit from ordinary activities before income tax is reconciled to the income tax as follows: Prima facie tax (benefit) / payable on profit / (loss) from ordinary activities before income tax at 30% (2015: 30%) Add Tax effect of: Permanent Differences – Deferred consideration – Acquisition costs – Share based payments/trust – Other permanent differences – Accounting R&D – Prior year adjustments Less Tax effect of: Deductible Expense – R&D Income tax attributable to entity The applicable weighted average effective tax rates are as follows: 2016 $ 1,238,705 (11,290) (35,981) 1,191,434 2015 $ 1,192,817 7,928 (413,764) 786,981 222,611 (408,179) 1,155,098 1,124,774 - (43,969) (18,215) 208,804 (54,490) 108,200 88,262 (37,722) 126,013 (46,350) (278,405) 1,191,434 (168,017) 786,981 160 56% -57 84% Energy Action Limited and its 100% owned subsidiaries formed a tax consolidated group with effect from 3 March 2009. Energy Action Limited is the head entity of the tax consolidated group. 84 ENERGY ACTION Note 8: Earnings per Share Basic earnings per share amounts are calculated by dividing net profit for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year. Diluted earnings per share amounts are calculated by dividing the net profit attributable to ordinary equity holders of the parent (after adjusting for interest on the convertible preference shares) by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on conversion of all dilutive potential ordinary shares into ordinary shares. The following reflects the income and share data used in the basic diluted earnings per share computations: Net profit / (loss) attributable to ordinary equity holders of the parent from continuing operations Net profit / (loss) attributable to ordinary equity holders of the parent for basic earnings Net profit attributable to ordinary equity holders of the parent adjusted for the effect of dilutions 2016 $ (449,399) (449,399) (449,399) 2016 No 2015 $ (2,147,581) (2,147,581) (2,147,581) 2015 No Weighted average number of ordinary shares for basic earnings per share 25,954,117 25,934,821 Effect of dilution: Share options and performance rights Weighted average number of ordinary shares adjusted for the effect of dilution - 30,678 25,954,117 25,965,499 There have been no other transactions involving ordinary shares or potential ordinary shares between the reporting date and the date of completion of these financial statements. Under the accounting standards, losses are not diluted. This is correct for Statutory EPS calculations. The dilution calculation has been performed to enable users of these financial statements to determine the impact of the dilution on Operating NPAT per share. Refer also to the Directors Report for further information on the calculation of Operating NPAT. 85 ANNUAL REPORT 2016 Note 9: Dividends Dividends paid: Final 2014 franked dividend of 3 62 cents per share Interim 2015 franked dividend of 2 59 cents per share Final 2015 franked dividend of 1 06 cents per share Interim 2016 franked dividend of 2 80 cents per share Note Consolidated Group 2016 $ 2015 $ 939,059 672,211 275,114 726,715 1,001,829 1,611,270 a Proposed final 2016 franked dividend of 3 52 cents per share 26 913,585 275,114 b Final 2015 franked dividend of 1 06 cents per share) Balance of franking account at year end adjusted for franking credits arising from: – Opening balance – Opening balance adjustment – Energy Advice franking account balance – Payment of provision for income tax Subsequent to year end, the franking account would be reduced by the proposed dividend reflected per (a) as follows: 5,427,430 4,320,749 - - 1,093,603 (429,355) 6,091,677 (57,004) 93,865 1,760,364 (690,544) 5,427,430 (391,536) (117,906) 5,700,141 5,309,524 Tax rates The tax rate at which paid dividends have been franked is 30% (2015: 30%). Dividends proposed will be franked at the rate of 30% (2015: 30%). 86 ENERGY ACTION Note 10: Cash and Cash Equivalents Cash at floating rates Restricted cash* * Refers to Exergy acquisition (2015), Employee Share Trust (2016) Consolidated Group 2016 $ 1,142,046 65,000 2015 $ 1,740,288 1,000,000 Cash at bank earns interest at floating rates based on daily bank deposit rates. Short-term deposits are made for varying periods of between one day and three months, depending on the immediate cash requirements of the Group, and earn interest at the respective short-term deposit rates. Note 11: Trade and Other Receivables CURRENT Trade receivables Provision for impairment Total current trade receivables NON-CURRENT Bonds and security deposits Consolidated Group 2016 $ 2015 $ 5,184,333 (214,563) 4,969,770 6,171,937 (303,112) 5,868,825 85,509 93,098 a. Provision for Impairment of Receivables Current trade and term receivables are non-interest bearing and generally on 30 to 90-day terms. Credit risk The Group has no significant concentration of credit risk with respect to any single counterparty or group of counterparties other than those receivables specifically provided for and mentioned within Note 11. The class of assets described as “trade and other receivables” is considered to be the main source of credit risk related to the Group. The following table details the Group’s trade and other receivables exposed to credit risk (prior to collateral and other credit enhancements) with ageing analysis and impairment provided for thereon. Amounts are considered as “past due” when the debt has not been settled, with the terms and conditions agreed between the Group and the customer or counterparty to the transaction. Receivables that are past due are assessed for impairment by ascertaining solvency of the debtors and are provided for where there are specific circumstances indicating that the debt may not be fully repaid to the Group. The balances of receivables including overdue are considered to be fully recoverable. Customers have trading terms varying between 30 - 90 days. 87 ANNUAL REPORT 2016 Note 11: Trade and Other Receivables (Continued) Past due but not impaired (days overdue) Net Amount Past due and Impaired < 30 31–60 61–90 $ $ $ $ $ 91+ $ Within Initial Trade Terms $ 2016 Trade and term receivables 2015 Trade and term receivables 4,969,770 214,563 1,281,746 375,723 317,177 173,288 3,036,399 5,868,825 303,112 1,824,508 394,748 832,930 999,598 2,120,153 Neither the Group nor parent entity holds any financial assets with terms that have been renegotiated, which would otherwise be past due or impaired. b. Collateral Held as Security Current trade and term receivables are non-interest bearing and generally on 30 to 90-day terms. No collateral or security is held by the company for loans or receivables. Note 12: Property, Plant and Equipment Note Consolidated Group 2016 $ 2015 $ 1,716,633 (1,484,463) 232,171 1,415,552 (846,485) 569,067 801,237 1,632,207 (1,337,232) 294,975 1,241,540 (639,734) 601,806 896,782 Computer equipment: At cost Accumulated depreciation Furniture and fittings: At cost Accumulated depreciation Total Plant and Equipment 88 ENERGY ACTION Note 12: Property Plant and Equipment (Continued) a. Movements in Carrying Amounts Movement in the carrying amounts for each class of property, plant and equipment between the beginning and the end of the current financial year. Note Computer Equipment Furniture and Fittings $ $ Total $ 563,920 398,203 271,178 (30,765) (305,755) 896,782 296,453 (12,420) (379,577) 801,237 291,240 187,473 35,225 (30,765) (188,198) 294,975 110,920 (12,420) (161,304) 232,171 272,680 210,730 235,953 - (117,558) 601,806 185,534 - (218,273) 569,066 Consolidated Group Consolidated Group: Balance at 1 July 2014 Additions Assets acquired from acquisition 4 Assets disposed Depreciation expense Balance at 30 June 2015 Additions Assets disposed Depreciation expense Balance at 30 June 2016 Note 13: Intangible Assets Goodwill Customer relationships Accumulated amortisation Net carrying value – customer relationships Software development costs Adjustment Accumulated amortisation Net carrying value –software development costs Total intangibles 2016 $ 9,944,796 2,438,000 (792,743) 1,645,257 6,268,543 3,429 (3,466,494) 2,805,478 14,395,531 2015 $ 9,942,429 2,438,000 (553,649) 1,884,351 4,940,729 - (2,765,244) 2,175,485 14,002,265 89 ANNUAL REPORT 2016 Note 13: Intangible Assets (Continued) Goodwill Customer Relationships Software Development Costs $ $ $ Consolidated Group: Year ended 30 June 2015 Balance at the beginning of year Acquisition of a subsidiary Internal development Amortisation charge Year ended 30 June 2016 Balance at the beginning of year Acquisition of a subsidiary Internal development Adjustment Amortisation charge 4,140,313 5,802,116 - - 9,942,429 9,942,429 2,367 - - - Closing value at 30 June 2016 9,944,796 Total Intangibles $ 7,567,771 6,233,116 1,053,699 (852,321) 14,002,265 1,686,442 431,000 - (233,091) 1,884,351 1,741,016 - 1,053,699 (619,230) 2,175,485 1,884,351 2,175,485 14,002,265 - - - (239,094) 1,645,257 - 1,327,815 3,429 (701,251) 2,805,478 2,367 1,327,814 3,429 (940,345) 14,395,531 Intangible assets, excluding goodwill, have finite useful lives. The current amortisation charges for intangible assets are included under depreciation and amortisation expense in the statement of comprehensive income. Refer to Note 2 for capitalisation policy. 13 (a) Impairment testing of goodwill For the year ended 30 June 2016, Goodwill acquired through business combinations with indefinite lives has been allocated to one Cash Generating Unit (CGU). Energy Action has one reportable operating segment, being ‘the provision of electricity procurement services, energy monitoring services, and project advisory services in Australia’. Therefore goodwill will be allocated across Energy Action’s sole operating segment. The recoverable amount of Goodwill has been determined on a value in use calculation using cash flow projections based on the Board approved budget for the year ended 30 June 2017 extrapolated for 4 years. The discount rate applied to cash flow projections is a pre-tax rate of 23.9% (post tax 16.7%) and the cash flows beyond the approved budgets are extrapolated using 2% growth rate and terminal growth rate of 1%. 90 ENERGY ACTION Note 14: Other Assets CURRENT Prepayments Work in progress Tax receivable Contract acquisition costs NON CURRENT Contract acquisition costs Consolidated Group 2016 $ 400,983 765,216 - 302,537 1,468,736 868,944 868,944 2015 $ 569,879 163,684 76,193 359,230 1,168,986 898,941 898,941 Contract acquisition costs represent sales commissions paid to sales employees. Sales commissions are calculated and paid on a monthly basis to sales employees. These costs are recognised progressively in line with revenue from procurement and contract management services, typically over two to five years. Note 15: Trade and Other Payables Note Consolidated Group 2016 $ 2015 $ CURRENT Unsecured liabilities: Trade payables Deferred consideration payable – Energy Advice Deferred consideration payable – Exergy Other payables and accrued expenses a. Financial liabilities at amortised cost classified as trade and other payables Trade and other payables: – total current – total non-current Financial liabilities as trade and other payables 23 695,463 2,749,189 - 2,122,999 5,567,651 801,978 2,749,195 291,667 2,360,081 6,202,921 5,567,651 6,202,921 - 5,567,651 5,567,651 - 6,202,921 6,202,921 Terms and conditions of the above financial liabilities: Trade payables are non-interest bearing and are normally settled on 60 day terms Other payables are non-interest bearing and have an average term of six months 91 ANNUAL REPORT 2016 Consolidated Group 2016 $ 47,052 Acquired Charged directly to Equity 2015 $ - Closing Balance $ 574,398 270,219 (322,755) - (493,577) (351,444) (229,565) 20,159 - $ - - - - - - - - - - (532,565) - - - - - - - - 599,032 205,879 (418,511) 45,428 (565,305) (376,741) (49,105) 1,342 Opening Balance $ Charged to Income $ 599,032 205,879 (418,511) (24,634) 64,339 95,756 45,428 (45,428) (565,305) (376,741) 71,728 25,297 (49,105) (180,460) - 1,342 (557,981) 20,159 (1,342) 25,416 344,227 46,498 254,806 159,381 (302,022) (116,489) 97,088 (505,933) (435,360) (49,046) 1,541 (51,660) 109,365 58,619 (59) (199) $ - - - - - - - - - - - - - - (168,738) - - - (803,007) 413,764 (168,738) - (557,981) Note 16: Tax Current Income tax payable Non-Current Consolidated Group Deferred Tax 2016 Provisions Accruals Fixed assets Equity raising costs Customer relationships Prepaid commissions Work in progress Share Based Payments Other Deferred Tax 2015 Provisions Accruals Fixed assets Equity raising costs Customer relationships Prepaid commissions Work in progress Other 92 ENERGY ACTION Note 17: Provisions and other liabilities Analysis of total provisions Current Annual leave Long service leave Deferred grant income Non-current Long service leave Deferred grant income Consolidated Group 2016 $ 929,782 378,887 3,929 2015 $ 874,526 359,014 43,985 1,312,597 1,277,525 357,270 - 357,270 358,722 13,945 372,667 Provision for Long-term Employee Benefits A provision has been recognised for employee entitlements relating to long service leave. In calculating the present value of future cash flows in respect of long service leave, the probability of long service leave being taken is based on historical data. The measurement and recognition criteria relating to employee benefits have been included in Note 2. Note 18: Loans and Borrowings Multi-Option Facility Agreement Less capitalised debt establishment fees Consolidated Group 2016 $ 4,250,000 (276,642) 3,973,358 2015 $ 4,100,000 (340,462) 3,759,538 During the year ending 30 June 2015, Energy Action entered into $12 million multi-option secured debt facility. The facility has a five year term and is available to fund future purchase price instalments of the Energy Advice acquisition and for general corporate purposes. Funds can be utilised in the form of loans, bank guarantees and letters of credit. Funds advanced under the facility are secured by a charge over the assets of the Group, and includes Interest Cover and Gearing ratios. Debt establishment fees are capitalised and amortised over the life of the loan facility. 93 ANNUAL REPORT 2016 Note 18: Loans & Borrowings (Continued) Utilisation of the facility is summarised in the following table: Financing facilities Loan facilities Amounts used Borrowings Bank guarantees Total amounts used Amounts unused Note 19: Issued Capital and Reserves Fully paid ordinary shares a. Ordinary Shares (number) At the beginning of the reporting period: Movement in the year: – Shares issued under long term incentive plans – Share issue – Energy Advice acquisition At the end of the reporting period b. Ordinary Shares ($) At the beginning of the reporting period: Movement in the year – Share issue – Energy Advice acquisition At the end of the reporting period Consolidated Group 2016 $ 2015 $ 12,000,000 12,000,000 4,250,000 3,270,620 7,520,620 4,479,380 4,100,000 6,381,297 10,481,297 1,518,703 Consolidated Group 2016 $ 6,537,906 6,537,906 2015 $ 6,537,906 6,537,906 Consolidated Group 2016 No 2015 No 25,954,117 25,817,498 - - 13,263 123,356 25,954,117 25,954,117 6,537,906 6,160,906 - 6,537,906 377,000 6,537,906 Ordinary shares participate in dividends and the proceeds on winding-up of the parent entity in proportion to the number of shares held. At the shareholders’ meetings each ordinary share is entitled to one vote when a poll is called, otherwise each shareholder has one vote on a show of hands. 94 ENERGY ACTION Note 19: Issued Capital and Reserves (Continued) c. Share based payments reserve Share-based payment transactions: The share-based payment reserve is used to recognise the value of equity-settled share-based payment provided to employees. On 16 October 2015, 446,956 performance rights were granted to senior executives and certain other employees under the Performance Rights & Options Plan (PROP). Vesting only occurs when and if service and performance conditions are met. The service condition is such that the employee must be employed by Energy Action at the time any performance rights vest. The Performance Conditions comprise two tests, the Earnings per Share (EPS) and Total Shareholder Return (TSR) tests, which are described below. The number of Performance Rights allocated to an individual which may vest will be determined by reference to: an Earnings Per Share (EPS) component achieved by comparing the Company’s Actual Operating EPS for the year ending on the relevant test date to the Company’s Budget Operating EPS for the year ending on the relevant test date (Target 1); and a Total Shareholder Return (TSR) component achieved by comparing the Company’s total compounded return to the total compounded return of the S&P/ASX300 (Index) for the year ending on the relevant test date (Target 2). 75% of Performance Rights Earnings Per Share Target (EPS) (“Target 1 Entitlement”) 25% of Performance Rights Total Shareholder Return (TSR) (“Target 2 Entitlement”) Target 1 Available Performance Rights Target 2 Available Performance Rights Actual Operating EPS LESS THAN Budget Operating EPS Actual Operating EPS EQUALS (OR GREATER THAN) Budget Operating EPS Nil Nil Company Total Compounded TSR LESS THAN Total Compounded TSR of the Index Company Total Compounded TSR EQUALS Total Compounded TSR of the Index 0% 50% Company Total Compounded TSR BETWEEN EQUAL TO AND 1 10 TIMES Total Compounded TSR of the Index Vesting will occur on a linear basis between 50% and 100% Company Total Compounded TSR 1 10 TIMES Total Compounded TSR of the Index 100% Awards have been granted with either a 2 or 3 year vesting period ending 30 June 2016 or 30 June 2017. The details and fair values of each of the performance rights granted during the year was as follows: Retesting EPS $ TSR $ Description 2 year 3 Year 3 year service only No No N/A 1 13 – 1 18 0 66 – 0 99 No retesting feature 1 07 – 1 18 0 64 – 0 99 No retesting feature N/A N/A Fair value per right is $1 07 95 ANNUAL REPORT 2016 Note 19: Issued Capital and Reserves (Continued) A Monte Carlo simulation valuation technique has been adopted to value the performance rights at grant date. The fair value of performance rights granted during the year ended 30 June 2016 was estimated on the date of grant using the following assumptions: Dividends FY15 3.65 cents, 20% pa growth thereafter Expected volatility (%) 45 Risk-free interest rate (%) 1.84% (2 year), 1.86% (3 year) Share price ($) 1.22 For the year ended 30 June 2016, the Group has recognised ($22,156) of share-based payment expense in the statement of comprehensive income (30 June 2015: $294,207). Share based payments expense is net of reversals due to non-achievement of targets (EPS targets) and forfeitures in the case of terminated employees. d. Foreign currency translation reserve Exchange differences arising on translation of the foreign controlled entity are taken to the foreign currency translation reserve, as described in note 2. The reserve is recognised in profit or loss when the net investment is disposed of. e. Capital Management The Group’s capital includes ordinary share capital. Management controls the capital of the Group in order to maintain a prudent debt to equity ratio, provide the shareholders with adequate returns and ensure that the Group can fund its operations and continue as a going concern. This includes adjusting dividend payments to shareholders and equity attributable to the entity holders of the parent. There is an externally imposed capital requirement of $50,000 to be held in cash, as a requirement of holding an Australian Financial Services Licence. The way management controls Group’s capital is by assessing the Group’s financial risks and adjusting its capital structure in response to changes in those risks and in the market. The responses include the management of debt levels, distributions to shareholders and share issues. There have been no changes in the strategy adopted by management to control the capital of the Group since the prior year. The Group includes within net debt, trade and other payables including provision for income tax, less cash and cash equivalents. Bank guarantees are excluded from this calculation. The gearing ratios for the year ended 30 June 2016 and 30 June 2015 are as follows: Bank loans Less cash and cash equivalents Net debt / (cash) Total Equity Gearing percentage (%) Note 18 10 Consolidated Group 2016 $ 3,973,358 (1,207,046) 2,766,313 12,006,279 23% 2015 $ 3,759,538 (1,740,288) 2,019,250 13,498,553 15% Gearing as measured by total net debt divided by total equity was 23% as at 30 June 2016 and 15% at 30 June 2015. 96 ENERGY ACTION Note 20: Capital and Leasing Commitments a. Operating Lease Commitments Non-cancellable property operating leases contracted for but not recognised in the financial statements Payable – minimum lease payments: – not later than 12 months – between 12 months and 5 years Note Consolidated Group 2016 $ 2015 $ 822,452 1,782,224 2,604,677 737,059 2,158,660 2,895,719 The property leases are non-cancellable leases with a maximum 5 year term with rent payable monthly in advance. Contingent rental provisions within the lease agreement require the minimum lease payments shall be increased by the lower of CPI or between 4-5% per annum. An option exists to renew a number of leases at the end of the term for a maximum of five years. b. Bank Guarantees The Group has provided a bank guarantee to the Energy Advice vendors for deferred consideration totalling $3,142,000. This is payable on 18 August 2016. The Group has provided the following bank guarantees at 30 June 2016 for regional offices: – Parramatta office – Sydney office – Brisbane office – Melbourne office Note Consolidated Group 2016 $ 97,297 126,210 31,323 33,232 288,062 2015 $ 97,297 126,210 18,354 45,562 287,423 97 ANNUAL REPORT 2016 Note 21: Cash Flow Information a. Reconciliation of Cash Flow from Operations with Profit after Income Tax Profit after income tax – Depreciation and amortisation – Share based payments expense – Other non-cash items Changes in assets and liabilities, net of the effects of purchase and disposal of subsidiaries: – (increase)/decrease in trade and term receivables – (increase)/decrease in prepayments and other assets – increase/(decrease) in trade payables and accruals – increase/(decrease) in deferred taxes – increase/(decrease) in provisions Cash flow from operations Consolidated Group 2016 $ 2015 $ (449,399) 1,319,921 (22,156) 54,984 906,644 (269,753) (588,218) (25,415) 19,675 946,283 (2,147,578) 1,158,077 294,207 - 771,656 (158,622) 3,095,583 (219,105) (229,699) 2,564,519 98 ENERGY ACTION Note 22: Related Party Disclosures The financial statements include the financial statements of the Group and the subsidiaries listed in the following table: a. Controlled Entities Consolidated Country of Incorporation Percentage Owned (%)* Subsidiaries of Energy Action Limited: Eactive Consulting Pty Limited Energy Action (Australia) Pty Limited EAIP Pty Limited ACN 087 790 770 Pty Limited Exergy Holdings Pty Limited** Exergy Australia Pty Limited** Exergy New Zealand Limited** Energy Advice Pty Ltd*** Australia Australia Australia Australia Australia Australia New Zealand Australia * Percentage of voting power is in proportion to ownership ** Acquired on 13 March 2014 *** Acquired on 18 August 2014 b. i. The Group’s main related parties are as follows: Key management personnel: 2016 100% 100% 100% 100% 100% 100% 100% 100% 2015 100% 100% 100% 100% 100% 100% 100% 100% Any person(s) having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including any director (whether executive or otherwise) of that entity, are considered key management personnel. For details of disclosures relating to key management personnel, refer to the Remuneration Report contained in the Director’s Report. ii. Other related parties: Other related parties include entities controlled by the ultimate parent entity and entities over which key management personnel exercise significant influence. The Group procures legal services on an arms-length basis from Meehan’s solicitors. Total fees paid in FY16 were $1,668. c. Compensation of Key Management Personnel (KMP) Refer to the Remuneration Report contained in the Director’s Report for details of the remuneration paid or payable to each member of the Group’s key management personnel for the year ended 30 June 2016. 99 ANNUAL REPORT 2016 Note 22: Related Party Disclosures (Continued) The totals of remuneration paid to KMP of the Group during the year are as follows: Short-term employee benefits Long-term employee benefits Share based payments Post-employment benefits – superannuation Total Compensation Note Consolidated Group 2016 $ 1,044,589 - 81,071 72,288 1,197,948 2015 $ 877,734 5,688 46,166 67,728 997,316 The amounts disclosed in the table are the amounts recognised as an expense during the reporting period relating to KMP. d. The ultimate parent Energy Action Limited is the ultimate parent based and listed in Australia. Note 23: Financial Risk Management The Group’s principal financial liabilities comprise borrowings, trade and other payables. The main purpose of these financial liabilities is to finance the Group’s operations. The Group has trade and other receivables, and cash and short-term deposits that arrive directly from its operations. The totals for each category of financial instruments, measured in accordance with AASB 139 as detailed in the accounting policies to these financial statements, are as follows: Note Consolidated Group Financial assets Cash and cash equivalents, including restricted cash Receivables Bond and security deposits Tax Receivable Total financial assets Financial liabilities Loans and Borrowings Trade & Other payables Deferred cash consideration payable Tax Payable Total financial liabilities 10 11 11 18 15 15 2016 $ 1,207,046 4,969,770 85,509 - 2015 $ 2,740,288 5,868,825 93,098 76,194 6,262,326 8,778,405 3,973,358 2,818,462 2,749,189 47,052 9,588,061 3,759,538 3,162,059 3,040,862 - 9,962,459 100 ENERGY ACTION Note 23: Financial Risk Management (Continued) Financial Risk Management Policies The Audit and Risk Management Committee (ARMC) has been delegated responsibility by the Board of Directors for, amongst other matters, monitoring and managing financial risk exposures of the Group. The ARMC monitors the Group’s financial risk management policies and exposures and approves financial transactions within the scope of its authority. It also reviews the effectiveness of internal controls relating to financing risk and interest rate risk. The ARMC meets at least three times a year and minutes of the ARMC are reviewed by the Board. The ARMC’s overall risk management strategy seeks to assist the consolidated group in meeting its financial targets, while minimising potential adverse effects on financial performance. Its functions include the review of the credit risk policies and future cash flow requirements. Specific Financial Risk Exposures and Management The main risks the Group is exposed to through its financial instruments are credit risk, liquidity risk and market risk consisting of interest rate risk. a. Credit risk Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Group is exposed to credit risk from its operating activities (primarily for trade receivables) and from its financing activities, including deposits with banks and financial institutions, and other financial instruments. Credit risk is managed through the maintenance of procedures (such procedures include the utilisation of systems for the approval, granting and renewal of credit limits, regular monitoring of exposures against such limits and monitoring of the financial stability of significant customers and counterparties), ensuring to the extent possible, that customers and counterparties to transactions are of sound credit worthiness. Such monitoring is used in assessing receivables for impairment. Credit terms are generally 30 to 90 days from the invoice date. Risk is also minimised through investing surplus funds in financial institutions that maintain a high credit rating. The institutions selected are determined by the Board. The maximum exposure to credit risk by class of recognised financial assets at the end of the reporting period excluding the value of any collateral or other security held, is equivalent to the carrying value and classification of those financial assets (net of any provisions) as presented in the statement of financial position. The Group has no significant concentrations of credit risk with any single counterparty or group of counterparties. Details with respect to credit risk of trade and other receivables are provided in Note 11. Trade and other receivables that are neither past due nor impaired are considered to be of high credit quality. Aggregates of such amounts are as detailed in Note 11. b. Liquidity risk Liquidity risk arises from the possibility that the Group might encounter difficulty in settling its debts or otherwise meeting its obligations related to financial liabilities. The Group manages this risk through the following mechanisms: preparing forward looking cash flow analysis in relation to its operational, investing and financing activities; obtaining funding from a variety of sources; maintaining a reputable credit profile; managing credit risk related to financial assets; only investing surplus cash with major financial institutions; and comparing the maturity profile of financial liabilities with the realisation profile of financial assets 101 ANNUAL REPORT 2016 Note 23: Financial Risk Management (Continued) Within 1 Year 1 to 5 Years Over 5 Years Total Consolidated Group 2016 $ 2015 $ 2016 $ 2015 $ Financial liabilities due for payment Bank loans - - 3,973,358 3,759,538 Deferred consideration 2,749,189 3,040,862 2016 2015 2016 $ 2015 $ 3,973,358 3,759,538 2,749,189 3,040,862 $ - - - 2,818,462 3,162,059 - 47,052 - $ - - - - - - - - - - Trade and other payables (excluding est annual leave) Tax Total expected outflows 2,818,462 3,162,059 47,052 - 5,614,703 6,202,921 3,973,358 3,759,538 - - 9,588,061 9,962,459 Financial assets — cash flows realisable Cash and cash equivalents Restricted cash Trade, term and loans receivables Bonds and security deposits Tax Total anticipated inflows Net (outflow)/inflow on financial instruments c. Interest rate risk 1,142,046 1,740,288 65,000 1,000,000 4,969,770 5,868,825 - - - - - - - - - 85,509 93,098 76,194 - - 6,176,816 8,685,306 85,509 93,098 562,114 2,482,385 (3,887,849) (3,666,440) - - - - - - - - - 1,142,046 1,740,288 65,000 1,000,000 - 4,969,770 5,868,825 - - 85,509 93,098 - 76,194 - 6,262,326 8,778,405 - (3,325,736) (1,184,054) Interest rate risk arises as a result of changes in market interest rates and will affect the future cash flows. The Group manages its interest rate risk by having a variety of borrowing terms from 30 days to 180 days. Cash and cash equivalents are all on short term deposits. As at 30 June 2016, the Group had bank loans of $4.25 million all of which was at 30 day terms at 3.1%. As at 30 June 2015, the Group had bank loans of $4.1 million comprising of $2.9 million on 30 day terms at 3.29%, and $1.2 million on 180 day terms at 3.51%. d. Market Risk Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market prices for Energy Action Limited comprise interest rate risk. Financial instruments affected by interest risk include cash at bank. i) Interest rate risk Exposure to interest rate risk arises on financial assets recognised at reporting date whereby a future change in interest rates will affect future cash flows or the fair value of fixed rate financial instruments. The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s borrowings balances with floating interest rates. Interest rate risk is managed using a mix of terms on the bank borrowings. The company has insignificant other balances that have interest payment terms. 102 ENERGY ACTION Note 23: Financial Risk Management (Continued) ii) Sensitivity Analysis The following table illustrates sensitivities to the Group’s exposures to changes in interest rates. The table indicates the impact on how profit and equity values reported at balance date would have been affected by changes in the relevant risk variable that management considers to be reasonably possible. These sensitivities assume that the movement in a particular variable is independent of other variables, and the other assumptions remain consistent with prior years. Year ended 30 June 2016 Year ended 30 June 2015 Consolidated Group Increase/decrease in basis points $ +/- 100 +/- 100 Profit before tax $ +/- 73,310 +/- 10,220 The assumed movement in basis points for the interest rate sensitivity analysis is based on currently observable market environment, showing a significantly lower volatility than in prior years. Fair Values Fair value estimation The carrying value of financial assets and financial liabilities is materially the same as the fair value. The fair values of the following financial assets and liabilities have been determined based on the following methodologies and assumptions: (i) Cash and cash equivalents, trade and other receivables and trade and other payables are short-term instruments whose carrying value are deemed to be equivalent to fair value. Trade and other payables exclude amounts provided for relating to annual leave which is not considered a financial instrument. (ii) Term receivables generally reprice to a market interest rate every 6 months, and fair value therefore approximates carrying value. Financial liabilities are classified into Levels: Level 1 those items traded with quoted prices in active markets for identical liabilities Level 2 those items with significantly observable inputs other than quoted process in active markets Level 3 those with unobservable inputs Fair Values Financial Liabilities Level 1 FY16 Level 2 Level 3 Level 1 FY15 Level 2 Level 3 Bank loans - 3,973,358 - - 3,759,538 - 103 ANNUAL REPORT 2016 Note 24: Auditors’ Remuneration The auditor for Energy Action Limited is Ernst & Young Amounts received or due and receivable by Ernst & Young (Australia) for: – An audit or review of the financial report of the entity and any other entity in the consolidated group – Other services in relation to the entity and any other entity in the consolidated group – Due diligence services – Tax services Consolidated Group 2016 $ 2015 $ 146,965 10,500 - 18,425 175,890 159,465 14,500 104,831 24,625 303,421 Note 25: Information relating to Energy Action Limited (“the parent entity”) The following information has been extracted from the books and records of the parent and has been prepared in accordance with Accounting Standards. Note Parent 2016 $ 2015 $ STATEMENT OF FINANCIAL POSITION ASSETS Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities Issued capital Reserves Retained earnings Total Equity Profit of the parent entity Total comprehensive income of the parent entity 104 5,647,604 15,038,703 20,686,307 (6,858,775) (8,087,501) (14,946,276) (8,161,626) - 2,421,594 5,740,032 (1,957,779) (1,957,779) 858,655 15,190,835 16,049,491 (3,149,701) (8,093,413) (11,243,114) (8,161,626) - 3,355,249 4,806,377 (2,918,884) (2,918,884) ENERGY ACTION Note 26: Events After the reporting period A fully franked dividend in respect of the 6 months period to 30 June 2016 of 3.52 cents per share was declared on 18 August 2016. Except for the above issues, no other matters or circumstances have arisen since the end of the financial year which significantly affected or could significantly affect the operations of the consolidated group, the results of those operations, or the state of affairs of the consolidated group in future financial years. 105 ANNUAL REPORT 2016 Director’s Declaration In accordance with a resolution of the Directors of Energy Action Limited, I state that: 1. In the opinion of the Directors: a. The financial statements and notes of Energy Action Limited for the financial year ended 30 June 2016 are in accordance with the Corporations Act 2001, including: i. giving a true and fair view of its financial position as at 30 June 2016 and performance ii. complying with Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001 b. The financial statements and notes also comply with International Financial Reporting Standards as disclosed in Note 2.1 c. There are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable 2. This declaration has been made after receiving the declarations required to be made to the Directors in accordance with section 295A of the Corporations Act 2001 for the financial year ended 30 June 2016 On behalf of the board Murray Bleach Director 18 August 2016 106 ENERGY ACTION Independent Audit Report to Members of Energy Action Limited Ernst & Young 200 George Street Sydney NSW 2000 Australia GPO Box 2646 Sydney NSW 2001 Tel: +61 2 9248 5555 Fax: +61 2 9248 5959 ey.com/au Independent auditor's report to the members of Energy Action Limited Report on the financial report 1.1(cid:3) We have audited the accompanying financial report of Energy Action Limited, which comprises the consolidated statement of financial position as at 30 June 2016, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, notes comprising a summary of significant accounting policies and other explanatory information, and the directors' declaration of the consolidated entity comprising the company and the entities it controlled at the year's end or from time to time during the financial year. Directors' responsibility for the financial report 1.2(cid:3) 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 controls as the directors determine are necessary to enable the preparation of the financial report that is free from material misstatement, whether due to fraud or error. In Note 2, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements comply with International Financial Reporting Standards. Auditor's responsibility 1.3(cid:3) Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance about whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal controls relevant to the entity's preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal controls. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Independence 1.4(cid:3) In conducting our audit we have complied with the independence requirements of the Corporations Act 2001. We have given to the directors of the company a written Auditor’s Independence Declaration, a copy of which is included in the directors’ report. Opinion 1.4.1(cid:3) In our opinion: a.(cid:3) the financial report of Energy Action Limited is in accordance with the Corporations Act 2001, including: A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 107 ANNUAL REPORT 2016 Audit Opinion Energy Action Limited Page 2 i.(cid:3) ii.(cid:3) giving a true and fair view of the consolidated entity's financial position as at 30 June 2016 and of its performance for the year ended on that date; and complying with Australian Accounting Standards and the Corporations Regulations 2001; and b.(cid:3) the financial report also complies with International Financial Reporting Standards as disclosed in Note 2. Report on the remuneration report 1.5(cid:3) We have audited the Remuneration Report included in the directors' report for the year ended 30 June 2016. 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. Opinion 1.5.1(cid:3) In our opinion, the Remuneration Report of Energy Action Limited for the year ended 30 June 2016, complies with section 300A of the Corporations Act 2001. Ernst & Young P S Barnard Partner Sydney 18 August 2016 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 108 ENERGY ACTION Corporate Information ACN: 137 363 636 Directors Murray Bleach - Independent Non-Executive Chairman Dr. Ronald Watts – Non-Executive Director Paul Meehan – Non Executive Director Nitin Singhi – Independent Non-Executive Director (appointed 12 August 2015) Mark de Kock – Non-Executive Director (appointed 17 August 2015) Valerie Duncan – Non-Executive Director (resigned 31 August 2015) Philip Randall – Non-Executive Director (passed away 4 July 2015) Company Secretary Carolyn West Registered Office and principal place of Business Level 5, 56 Station Street Parramatta NSW 2150 Share register Link Market Services Limited Level 12 680 George Street Sydney NSW 2000 Energy Action Limited shares (EAX) are listed on the Australian Securities Exchange (ASX) Solicitors DLA Piper No 1 Martin Place Sydney NSW 2000 Bankers Commonwealth Bank of Australia Level 3, 101 George Street Parramatta NSW 2150 Auditors Ernst & Young 200 George Street Sydney NSW 2000 109 ANNUAL REPORT 2016 Share and Shareholder Information Twenty largest shareholders The following table sets out the 20 largest holders of listed shares and the percentage of capital each held as at 9 September 2016. Shareholder MEEHANTEAM PTY LTD J P MORGAN NOMINEES AUSTRALIA LIMITED MICROEQUITIES ASSET MANAGEMENT PTY LTD HOLYOAKE INVESTMENTS PTY LTD TOVEELEN PTY LTD MR MURRAY EDWARD BLEACH & MRS NORMA LEIGH EDWARDS ANACACIA PTY LIMITED AMARINA SYSTEMS PTY LTD J & C ALLEN SUPERANNUATION FUND PTY LTD MR ERIC MAXWELL HART MR EDWARD HANNA JASPER SUPERANNUATION FUND PTY LTD HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED MR BARRY DENTON AMARINA SYSTEMS PTY LIMITED DR GEOFFREY PHILLIP BENT & MRS GABRIELLE MARY BENT BLIND WELFARE PTY LTD BLEACH FAMILY CO NO 2 PTY LTD UBS NOMINEES PTY LTD MR BARRY DENTON 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Total As at 9 September 2016 there were 25,954,117 shares on issue. No Shares % 2,900,698 2,896,242 2,698,538 1,774,127 1,696,209 1,444,174 1,286,197 1,234,485 875,833 827,274 784,023 552,553 469,211 330,165 313,300 246,299 200,000 198,775 179,344 175,140 11 18 11 16 10 40 6 84 6 54 5 56 4 96 4 76 3 37 3 19 3 02 2 13 1 81 1 27 1 21 0 95 0 77 0 77 0 69 0 67 21,082,587 81.23 110 ENERGY ACTION Distribution of shares The following table summarises the distribution of shares as at 9 September. Category / Range 1 to 1,000 1,001 to 5,000 5,001 to 10,000 10,001 to 100,000 100,001 and Over Total No of Holders 132 231 66 92 26 547 % 24 13 42 23 12 07 16 82 4 75 100.00 The number of individual shareholders holding less than a marketable parcel of shares was 46 holdings with 6,377 shares. Substantial Shareholders The following table shows holdings of five percent or more of voting rightrs in Energy Action Limited’s shares (as at 9 September 2016). Person or Group Microequities Asset Management Pty Ltd Mr Paul Meehan and related entities Mr Stephen Twaddell and related entities Dr Ronald Watts and related entities Mr Murray Bleach and related entities Voting rights Relevant Interest in no of shares Percentage of total voting rights 5,185,244 4,798,993 1,829,440 1,730,371 1,717,329 19 98% 18 49% 7 05% 6 67% 6 62% At a meeting of members, each member who is entitled to attend and vote may attend and vote in person or by proxy, attorney or representative. On a show of hands, every person present who is a member, proxy, attorney or representative shall have one vote and on a poll, every member who is present in person or by proxy, attorney or representative shall have one vote for each fully paid share held. Securities exchange listing Energy Action Limited’s shares are traded on the Australian Securities exchange under the ticker code “EAX”. 111 ANNUAL REPORT 2016 Glossary of Terms Activ8 Energy Action’s advanced electricity and gas monitoring service technology platform, now re-branded as Energy Metrics. Australian Energy Exchange (AEX) Energy Action’s online, real-time reverse auction platform for the procurement of electricity and gas contracts. Bill Validation Review of energy bill for validity and correctness. Gigajoule A measure of energy which equals one thousand megajoules. Kilowatt (kW) A measure of one thousand watts of electrical power. Megawatt (MW) A measure of one million watts of electrical power. Megawatt hour (MWh) A megawatt hour is a unit of energy equivalent to one megawatt (1 kW) of power sustained for one hour. Meter A device used to measure energy consumption at a site. NABERS National Australian Built Environment Rating System that measures the environmental performance of Australian buildings, tenancies and homes. National Greenhouse Energy Reporting System Provides methods and criteria for calculating greenhouse gas emissions and energy data under the National Greenhouse and Energy Reporting Act 2007 (NGER Act). Network tariff The continuous charge for supplying electricity and maintaining the network of poles, wires and other equipment that distribute power to customers. Petajoule (PJ) A measure of energy equivalent which equals one thousand terajoules. Site An individual metered location with a unique supply point identifier (SPID). 112 ENERGY ACTION Small-Medium Enterprise (SME) A SME is a business which consumes less than 160 MWh p.a. in NSW, VIC, SA, ACT & TAS and less than 100 MWh in QLD. Structured Product Retail supply contracts with a fixed term, variable commodity prices and variable volumes. The term structured product refers to retail electricity contracts with these features. Tariff The pricing a retailer charges a customer for energy consumption. Terajoule (TJ) A measure of energy equivalent which equals one thousand gigajoules. Terawatt (TW) A measure of one trillion watts of electrical power. Terawatt hour (TWh) A terawatt hour is a unit of energy equivalent to one terawatt (1 TW) of power sustained for one hour. 113 ANNUAL REPORT 2016 114 ENERGY ACTION 115 ANNUAL REPORT 2016 energyaction.com.au