Energy Action
Annual Report 2022

Plain-text annual report

Energy Action Limited ABN: 90 137 363 636 2022 Annual Report Table of Contents Corporate information .................................................................................. 3 Financial Report ........................................................................................... 4 Share and Shareholder Information ............................................................ 71 Corporate information ACN: 137 363 636 Directors Murray Bleach - Non-Executive Chairman Nitin Singhi – Independent Non-Executive Director (resigned 23 September 2021) Paul Meehan – Non-Executive Director Bruce Macfarlane – Executive Director and Interim CEO Company Secretary Kim Bradley-Ware 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 RSM Australia Partners Level 13, 60 Castlereagh Street Sydney, NSW 2000 Energy Action Financial Report for the Full Year Ended 30 June 2022 3 Financial Report for the year ended 30 June 2022 Table of Contents Directors’ Report ............................................................................................................................................ 5 Auditor’s Independence Declaration ............................................................................................................. 16 Remuneration Report (Audited) .................................................................................................................... 17 Financial Statements.................................................................................................................................... 25 Consolidated Statement of Comprehensive Income ..................................................................................... 25 Consolidated Statement of Financial Position ............................................................................................... 26 Consolidated Statement of Changes in Equity .............................................................................................. 27 Consolidated Statement of Cash Flow .......................................................................................................... 28 Notes to the Financial Statements for year ended 30 June 2022 .................................................................. 29 Note 1: Corporate Information ................................................................................................................................. 29 Note 2: Summary of Significant Accounting Policies................................................................................................ 29 Note 3: Significant Accounting Judgements, Estimates and Assumptions............................................................... 39 Note 4: Segment information ................................................................................................................................... 39 Note 5: Revenue, Other Income and Expenses ....................................................................................................... 40 Note 6: Income Tax Expense ................................................................................................................................... 42 Note 7: Earnings per Share ..................................................................................................................................... 43 Note 8: Dividends..................................................................................................................................................... 44 Note 9: Cash and Cash Equivalents ........................................................................................................................ 45 Note 10: Trade and Other Receivables.................................................................................................................... 45 Note 11: Property Plant and Equipment................................................................................................................... 47 Note 12: Intangible Assets ....................................................................................................................................... 48 Note 13: Other Assets.............................................................................................................................................. 49 Note 13(a): Right-of-use Assets ............................................................................................................................... 50 Note 14: Trade and Other Payables ........................................................................................................................ 51 Note 14(a): Lease Liability ....................................................................................................................................... 51 Note 15: Tax ............................................................................................................................................................ 52 Note 16: Provisions and other liabilities ................................................................................................................... 53 Note 17: Loans and Borrowings ............................................................................................................................... 53 Note 18: Issued Capital and Reserves..................................................................................................................... 55 Note 19: Capital and Leasing Commitments............................................................................................................ 58 Note 20: Cash Flow Information............................................................................................................................... 59 Note 21: Related Party Disclosures ......................................................................................................................... 60 Note 22: Financial Risk Management ...................................................................................................................... 61 Note 23: Auditors’ Remuneration ............................................................................................................................. 64 Note 24: Information relating to Energy Action Limited (“the parent entity”)............................................................. 65 Note 25: Events after the reporting period ............................................................................................................... 66 Director’s Declaration ................................................................................................................................... 67 Independent audit report to members of Energy Action Limited .................................................................... 68 Energy Action Financial Report for the Full Year Ended 30 June 2022 4 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 2022. 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 Chairman) Qualifications – Bachelor of Arts (Financial Studies) and Master of Applied Finance - Macquarie University, Institute of Chartered Accountants, Graduate Member of the Australian Institute of Company Directors. Experience – Board Member since 2012, Chairman since 2015 Special Responsibilities – Member of each of the Audit & Risk Management and Nomination & 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 - Partner in Alfred Street Investment Partners, Chairman of AddVenture Fund and Tidal Ventures and Consultant to Australian Super. Paul Meehan (Non-Executive Director) Qualifications – Diploma of Law (SAB), University of Sydney Experience – Board member since 2003 Special Responsibilities – Member of each of the Audit & Risk Management and Nomination & 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. Nitin Singhi (Independent Non-Executive Director) – resigned 23 September 2021 Qualifications – Bachelor of Economic and Master of Laws – University of Sydney, Member of the Australian Institute of Company Directors Experience – Board Member since 2015 Special Responsibilities – Chairman of each of the Audit & Risk Management and Nomination & 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, Director of Sport and Leisure Education Group Pty Limited. Energy Action Financial Report for the Full Year Ended 30 June 2022 5 Bruce Macfarlane (Executive Director and Interim CEO) Qualifications – Bachelor of Engineering (Mining), University of Auckland. Masters of Commerce (Economics), University of Canterbury Experience – Board Member since 2021 Special Responsibilities – Member of each of the Audit & Risk Management and Nomination & Remuneration Committees, project management of business improvement projects Directorships held in other listed entities currently and during the three prior years to the current year: nil 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: Murray Bleach Paul Meehan Bruce Macfarlane Company Secretary Number of ordinary shares Number of options over ordinary shares 5,100,700 4,792,846 2,947,786 - - - The following person held the position of Company Secretary at the end of the financial year: Kim Bradley-Ware – Bachelor of Commerce (Lincoln University), LLB (UTS), CPA Australia An experienced corporate governance professional with more than 20 years financial, commercial and company secretarial experience gained from in-house roles. Dividends recommended: Cents per share Ordinary shares Final 2022 dividend Interim 2022 dividend Final 2021 dividend Operating and Financial Review NIL NIL NIL $ NIL NIL NIL The Board presents the 2022 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 FY22 financial year and material business risks faced by the business so that shareholders can make an informed assessment of the results and prospects of the Group. Energy Action Financial Report for the Full Year Ended 30 June 2022 6 Our Business Model At Energy Action we believe the status quo is no longer acceptable. • Our mission is to make energy simpler, cleaner, and lower cost. • Our goals are to invest in technology that simplifies the sector. And to provide clear and low-cost paths to Net Zero for clients looking to build sustainable businesses in a changing world. • Our vision is to drive down energy costs. To simplify its complexity. And to protect the world our children will inherit. What We Offer We identify the money businesses could be saving and the emissions they could be preventing. We help our clients with: • Energy Buying: We offer a range of energy procurement techniques to drive competition for our clients energy spend. Energy Management: We manage client energy contracts. Identifying the energy being wasted. The emissions that can be prevented. And the money that could be saved. How we’re different We’re the trusted, independent energy partner for over 7,000 clients across 20,000 sites. We started in Sydney, Australia, and we’re now a national team. We combine 20+ years of experience with our smart technology and data-led insights to make our clients’ energy cheaper, easier, and cleaner. At its core Energy Action is a technology business. We’re rebuilding the software that made our business. Building smart technology that uses our in-depth energy-market knowledge and customer insights. Through it, we source and transform utility data and deliver high-quality services at scale that drive down energy prices, and help businesses reach affordable Net Zero targets. We are Net Zero. From our CEO to our analysts, and from our sales staff to our developers, we’re all committed to delivering positive financial and environmental outcomes. Our Strategy Energy Action's focus going forward is sustainable, profitable growth. Our priorities are: • Customer growth. We have 20-year customer relationships and our customers use ~10% of the total commercial national electricity market. Organic sales growth is our top priority. • Technology investment. Give our customers easy to use energy management software. To retain and win customers. • Net Zero. We are Net Zero. We will help our customers lower their emissions with our energy buying and energy management services. Initially founded in 2000, Energy Action listed on the Australian Securities Exchange on 13 October 2011. Operational Performance During the business delivered a ($2.8) million loss primarily as a result of a slowdown in sales momentum, contracted revenue declines, and legacy technology contracts. Reduced revenues were offset in part by improved expense management , in particular a reduction in FTE during FY22. The company has made significant progress in building the technology platform, with stabilisation of legacy systems, enhanced technology infrastructure and commencing the next generation energy management platform. These improvements are evident in client feedback and net promoter scores, however the burden of legacy systems has delayed the opportunity to achieve further cost reductions and remains a priority in the business. Energy Action Financial Report for the Full Year Ended 30 June 2022 7 Financial Performance The Group made a statutory net profit/(loss) after tax (NPAT) of ($2.8) million for the year ended 30 June 2022. Operating net profit after tax has increased to a loss of ($2.79) million compared to FY21 ($0.42) million. A reconciliation of the Group’s Statutory NPAT to Operating NPAT and EBITDA is shown in the table below: $ 30-Jun-22 30-Jun-21 Variance 30-Jun-22 30-Jun-21 Variance Statutory results (2,841,941) (1,000,258) -184% (1,487,144) (506,502) -194% NPAT EBITDA Add back Significant Items after tax: Restructuring cost Asset write down Impairment of Software Impairment of Intangibles 1 Other items 78,777 333,022 105,036 450,029 76% -100% - 0% 1,087,238 - - - - 374,524 14,236 118% -231% - 62,794 506,113 19,239 733 - 815,428 47,095 Government Assistances 2 (808,354) (599,664) 35% (808,354) (810,357) Onerous contracts & leases 3 (81,437) 458,580 -118% (108,584) Operating profit after tax (2,789,699) (419,560) 565% (1,149,014) 619,703 278,225 1 Impairment of Right of Use Asset (FY22), customer and contract management platform in CRM (FY21) 2 Jobkeeper, Cashboost & payroll tax relief 3 Onerous Contracts relating to technology infrastructure and rental premises Key Financial Metrics Revenue Operating EBITDA Operating NPAT Operating Cash flow1 Statutory NPAT FY22 $10.38m ($1.15m) ($2.79m) $0.80m ($2.84m) FY21 $14.36m $0.28m ($0.42m) ($0.06m) ($1.00m) 77% 0% -100% 100% -226% 0% -118% -513% Variance -28% -511% 564% 1433% -184% 1Operating Cash Flow is defined as Operating Cash Flow before Interest, Tax and Significant Items Revenues Total revenues declined by 28% versus the previous period. Energy Buying revenue declined 35%, Energy Management declined 22%, and Embedded Networks declined 28.2%. Revenue $ Energy Buying Energy Management Embedded Networks 1 Other Total Revenue Repositioned Advisory Products Total Revenue less Repositioned Advisory Products FY22 3,549,648 5,870,480 958,439 (538) FY21 5,490,400 7,511,386 1,334,067 23,258 10,378,029 14,359,111 - 21,743 10,378,029 14,337,368 vs FY21 $ (1,940,752) (1,640,906) (375,628) (23,796) (3,981,082) (21,743) (3,959,339) vs FY21 % -35% -22% -28% -102% -28% 100% -28% 1 On 5 April 2022, the Company announced it had sold its embedded networks business. The transaction is expected to complete in October 2022 Energy Action Financial Report for the Full Year Ended 30 June 2022 8 Revenue for the full year decreased from $14.4 million to $10.4 million mainly as a result of the following: ▪ Energy Buying revenues were down 35% overall with: − Decline in Auctions Electricity of 41%, − Total auction bid value decreased 44% to $64 million. ▪ Energy Management revenue declined by 22% with a decline of -113 in sites under management to 5,491. Operating Expenditure and Cost of Goods Sold (COGS) Operating overheads (net of significant items) and COGS totalled $11.5 million, compared to $14.1 million in FY21, a reduction of $2.60 million (18%), with reduced operating costs predominantly related to employment costs. In particular: ▪ Employment costs were $2.13 million lower than pcp primarily as a result of: − A reduction of FTE with improved integration and efficiency. ▪ COVID-19 related cost savings with reduced travel, conference and entertainment ▪ Ongoing strict cost control across all discretionary spend Energy Action Financial Report for the Full Year Ended 30 June 2022 9 Reconciliation of Operating Cash Flow before interest, tax and significant items Statutory operating cash flow Add back: Taxes received Interest paid Cash flows related to significant items Significant items working capital – government relief, government assistance & others Operating cash flow before interest, tax and significant items Operating EBITDA Operating cash flow as % of Operating EBITDA 30 June 2022 30 June 2021 439,807 (569,344) (152,707) 242,827 (242,135) 498,140 785,932 (1,149,014) -68% (18,777) 207,259 (155,472) 476,282 (60,052) 278,225 -22% As at 30 June 22, the Company had utilised $6.15 million of the CBA loan facility comprising a loan of $6.0 million and bank guarantees of $0.15m principally in relation to the Parramatta office. In January 2022, $1 million was repaid off the CBA loan facility via the provision of a $1.5 million unsecured loan from the Directors. Other A Nil dividend was declared in FY22 with a priority of managing net debt, investing in value added technology, service and delivery, expand customer value and continue to see growth in customer sales and revenue. Operational Key Performance Indicators Energy Buying No. of successful AEX auctions Average AEX contract duration (months) TWhs sold via Auction (annualised equivalent) Average annualised MWhs per successful AEX Average $/MWh Total Auction bid value 1 No. of electricity tender events No. of gas tender events Managed & Embedded Networks Sites under current contract 2 Total Energy Management sites under contract Average Metrics contract duration (months) Retailer and Embedded Network tenancies Total sites Ongoing Services future contracted revenue Current Revenue not Invoiced Non-Current Revenue not Invoiced Total Revenue not Invoiced 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 Energy Action Financial Report for the Full Year Ended 30 June 2022 FY22 FY21 % change 426 26.6 0.4 850 $79.4 $64m 10 38 727 30.7 0.80 1,102 $54.6 $115m 23 21 -41.4% -4.1 mths -50% -22.9% +45.4% -44.3% -56.5% +81% 30 June 2022 30 June 2021 Variance 5,491 37 1,447 6,938 $11.9m $2.2m $2.2m $4.4m 5,604 38 3,629 9,233 $15.4m $3.4m $2.8m $6.2m -2% -1 mths -60.1% -24.9% -22.7% -35.2% -21.4% -29.0% 10 Forward contracted revenue The forward contract revenue has continued to decrease during FY22 The Company continues to focus on improving acquisitions, retentions, customer service and enhancing the Energy Management offering with a key strategy to see growth in future contract revenue for annuity based revenue streams. Revenue Not Invoiced Revenue from Auction, Commission based tenders and Tariff revenues are recognised upfront once the Auction is complete and the contract signed between the retailer and customer. The payments are received over the life of the contract. A contract asset called “Revenue not Invoiced” holds the balance of $4.4 million to be received as cash in the future for revenue recognised in current and previous fiscal periods. Energy Action Financial Report for the Full Year Ended 30 June 2022 11 Business Priorities Energy Action's focus going forward is sustainable, profitable growth. Key priorities are: 1. Customer growth. We have 20-year customer relationships, and our customers use ~10% of the total commercial national electricity market. Organic sales growth is our top priority. 2. Technology investment. Give our customers easy to use energy management software. To retain and win customers. 3. Net Zero. We are Net Zero. We will help our customers lower their emissions with our energy buying and energy management services. COVID-19 The Energy Action team has continued to demonstrate incredible resilience in a period of significant uncertainty and change for all organisations during the COVID-19 pandemic. During FY22 the organisation is operated effectively despite prolonged lockdowns across the company sites in Sydney, Melbourne and Clark in the Philippines. Jobsaver payments of $808,354 were received during FY22. Outlook Energy Action's focus going forward is sustainable, profitable growth. With a focus on organic sales growth, technology investment, and providing our clients with Net Zero services. However, the Group will not be providing Guidance at this time. 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 t o the nature of the industry in 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 Risk Description Potential consequences and mitigation strategies Customer Retention/Ac quisition Failure to attract and retain sufficient customers to sustain the business Increasing competition The risk that Energy Action is unable to differentiate from competitors. 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. Continued focus on acquisitions and retention rates. Ongoing review of retention continues to examine all aspects of sales activity, identifying actions that are required from operations and administration to improve customer retention. Strong pipeline management and Sales Plan to drive acquisitions growth and market share. Leadership in transition to Net Zero. Review of service offerings undertaken during FY22 led to the repositioning of product lines. Continuing innovation in core Energy Buying and Energy Management products in particular focused on innovation for “Green Energy” and focus to make energy simpler, cleaner and lower cost. The competitor scan indicated EAX performed well against other competitor offerings with price and products remaining competitive and new product Green Auction first to market offering. Potential earnings and reputational impact from failure to deliver contracted services has been mitigated by repositioning from unprofitable markets, improved business processes for delivery of ongoing services, including the replacement of Energy Action’s core Customer and Contract Management platforms, and increased risk management planning for customer outcomes. Energy Action initiates and collects analysis of core product NPS scores and brand on an ongoing basis. Energy Action Financial Report for the Full Year Ended 30 June 2022 12 Risk Risk Description Potential consequences and mitigation strategies Earnings and Cash Flow Occupational Health & Safety (OH&S) Employee engagement and performance Loss of key staff Legal risk – Competition and consumer law or terms of the company’s AFS licence. Cyber Security Risk The risk of failing to maintain adequate earnings and funding to finance growth objectives and to generate adequate returns for shareholders. Mitigated by implementation of a focused back to basics strategy and to establish the core foundations for growth. This includes a leaner management structure, improve sales growth, company capability, service delivery and employee engagement through building a high performance culture. In addition, mitigated by improved visibility of key performance indicators and drivers of performance, timely and transparent market disclosures, and maintenance of strong relationships with banking partners and shareholders. The risk of not operating safely and in accordance with relevant legislation leading to an employee injury. Potential for employee injury and Company reputation addressed by OH&S systems and practices. Whole of company reporting includes safety, increase risk of wellbeing and health risk. COVID-19 was mitigated and managed by and Emergency Response Team which provided ongoing training and updates to OH&S policies and office locations and processed. The risk of failing to attract and retain the best talent available. The risk of company performance declining due to key staff either leaving or being unavailable unexpectedly or due to high turnover of non-key staff hampering performance due to training lead times. The risk of legal action following a breach of the Competition and Consumer Act or the terms of Energy Action’s Australian Financial Services Licence. Cyber-attack or similar event involving unauthorised access to EAX’s IT systems leading to denial of systems and/or corruption of data. Impacts on performance due to unavailability of talent or alternatively the departure or disengagement of talent. This is mitigated by staff development plans, succession plans and remuneration strategies. It is monitored by regular staff engagement surveys and exit interviews to monitor and gather insights for action. Mitigated by organisational talent review, staff reviews, identification of points of vulnerability, cross training, succession planning and appropriate remuneration strategies. It is monitored by regular staff engagement surveys and staff exit interviews to monitor and gather insights for action. Likelihood of breaches reduced by training of all outward facing staff in Consumer and Competition Law requirements. AFSL compliance system in place. Procedures in place for monitoring and reporting of breaches and potential breaches. Procedures for systems recovery are in place including off site storage of data. Systems restoration has been completed within 24 hours where a cyber breach has occurred. Business Continuity Plan (BCP) in place, in-house development & support team, control over infrastructure through cross training, migration of platforms & offsite hosting of IT. Environmental - Our Commitment to Net Zero Energy Action remains committed to contributing to the achievement of the UN Sustainability Development Goals and leading our clients to Net Zero, recognising its obligations both locally and globally, to the present and succeeding generations. Energy Action is leading in defining best practice for renewable energy sourcing and will set its own demanding standards of its operations where none exist. Energy Action has invested significantly this year in raising the environmental awareness of the public, governments, industry, and the general community by promoting the concept of Net Zero and by openly recognising the need to drive change in the energy markets to support ongoing renewable energy investment. Energy Action Financial Report for the Full Year Ended 30 June 2022 13 During the year the Company has launched a capability for commercial and industrial energy users to conduct a frictionless reverse Solar Auction for behind the meter solar projects, and brought to market a new contract standard for commercial and industrial energy buyers to procure a renewable energy supply agreement through our Green Auction process. During FY22 the Company secured Climate Active status as a Carbon Neutral organisation. The Group’s operations are not regulated by any significant environmental regulation under a law of the Commonwealth or of a state or territory. However, Energy Action is committed to implementing the requirements of all applicable Commonwealth, State and local environmental legislation and regulations and, where possible, exceeding any relevant minimum requirements. 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 Nomination and Remuneration Committee No. Eligible to attend No. Attended No. Eligible to attend No. Attended No. Eligible to attend No. Attended Murray Bleach Paul Meehan Nitin Singhi (resigned on 23/9/21) Bruce Macfarlane 16 16 8 16 15 15 8 16 4 4 1 4 4 4 1 4 1 1 1 1 1 1 1 1 Indemnifying Officers or Auditor 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, RSM Australia Partners, 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 RSM Australia Partners 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. As detailed in Contingent Liabilities a proceeding in the Federal Court of Australia has been filed against the Company. Energy Action Financial Report for the Full Year Ended 30 June 2022 14 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; ▪ 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; and ▪ no fees were paid or payable to RSM Australia for non-audit services provided during the year ended 30 June 2022. Corporate Governance Policy 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: ▪ reports against the 4th edition of the ASX Corporate Governance Council’s Principles and Recommendations (ASX Principles) and the practices detailed in this Statement are current as at 30 September 2022; and ▪ has been approved by the Board and is available of Energy Action’s website at http://www.energyaction.com.au/about/corporate-governance Events after the Reporting Period On 29 July 2022, the Company announced that it had received a waiver from the CBA for a covenant breach related to quarterly profitability tests for the 30 June 2022 quarter. No other matters or circumstances have arisen since the end of the half-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. Energy Action Financial Report for the Full Year Ended 30 June 2022 15 RSM Australia Partners Level 13, 60 Castlereagh Street Sydney NSW 2000 GPO Box 5138 Sydney NSW 2001 T +61 (0) 2 8226 4500 F +61 (0) 2 8226 4501 www.rsm.com.au AUDITOR’S INDEPENDENCE DECLARATION As lead auditor for the audit of the financial report of Energy Action Limited for the year ended 30 June 2022, I declare that, to the best of my knowledge and belief, there have been no contraventions of: (i) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (ii) any applicable code of professional conduct in relation to the audit. RSM AUSTRALIA PARTNERS C J Hume Partner Sydney, NSW Dated: 30 September 2022 THE POWER OF BEING UNDERSTOOD AUDIT | TAX | CONSULTING RSM Australia Partners is a member of the RSM network and trades as RSM. RSM is the trading name used by the members of the RSM network. Each member of the RSM network is an independent accounting and consulting firm which practices in its own right. The RSM network is not itself a separate legal entity in any jurisdiction. RSM Australia Partners ABN 36 965 185 036 Liability limited by a scheme approved under Professional Standards Legislation 16 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 2022. 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 three directors, namely Paul Meehan (Chairman), Murray Bleach, and Bruce Macfarlane. Nitin Singhi resigned on 23 September 2021. 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, ▪ Bonus and incentive 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 f ollowing persons were KMPs during the financial year. Unless otherwise indicated, they were KMPs for the entire year. 1.2.1. Directors Murray Bleach Paul Meehan Nitin Singhi Bruce Macfarlane Non-Executive Chairman Non-Executive Director Non-Executive Director (resigned 23 September 2021) Executive Director and interim CEO 1.2.2. Senior executives Chief Executive Officer (resigned 23 September 2021) John Huggart Tracy Bucciarelli Chief Financial Officer (resigned 8 February 2022) Simon Smith Chief Financial Officer (appointed 28 April 2022) Energy Action Financial Report for the Full Year Ended 30 June 2022 17 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. No remuneration consultants were used this year. 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 options are granted to participants. Each performance right entitles the participant to one share in Energy Action at the time of vesting subject to meeting the conditions and financial consideration as 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 During FY22, there were no new rights or options granted to employees Valuation Not applicable Performance hurdles Not applicable LTI Outcomes In respect of the performance rights granted to senior executives and certain other employees on 12 March 2018 under the Performance Rights & Options Plan (PROP), vesting only occurs when and if service and performance conditions are met. Neither the TSR nor EPS hurdles were met for the year ending 30 June 2022 for such performance rights. Therefore, no rights vested in 2022. In respect of the performance options granted to senior executives on 30 June 2020, Performance Rights & Options Plan (PROP), vesting occurs based on TSR performance conditions. During the year ended 30 June 2022 the performance conditions were not met and therefore, no rights vested in 2022. Number of instruments awarded As at 30 June 2022, the PROP accounted for nil% (FY21 Nil) of issued securities of the Group, made up of nil (FY21 Nil) performance rights. This was due to no performance hurdle has been met in respect of the rights issued. Remuneration 1.5 Fees payable to 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. When required, 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 Energy Action Financial Report for the Full Year Ended 30 June 2022 18 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 directors for the year ended 30 June 2022, including superannuation, was as follows: Base fee Non-Executive Chairman Non-Executive Director 1 Non-Executive Director 2 Executive Director* $ FY22 01/7/21-30/6/22 45,000 36,000 36,000 36,000 25/02/21-30/6/21 - - - 36,000 $ FY21 1/10/20-30/6/21 45,000 36,000 36,000 - 1/7/20-30/9/20 32,000 36,000 25,600 - * Bruce Macfarlane was appointed as an executive director on 25th Feb 2021 and Interim CEO on 23 September 2021 The above fees include committee membership. The tables at the end of this remuneration report provide details of fees and wages paid during the financial year to each executive and non-executive director. 1.6 Senior executives The framework for the remuneration of 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 2022 was: Fixed Component STI Bonus Component LTI Component Chief Executive Officer Chief Financial Officer 81% 84% 18% 15% 1% 1% Both the CEO and CFO for which this remuneration mix was agreed resigned during FY22. As of the date of this report no remuneration mix has been agreed with the new CFO or Interim CEO for FY23. Long Term Incentive (LTI) The LTI component percentage set out above as part of the annual remuneration is based on the fair value of the options granted for the previous CEO and CFO (see detailed explanation below). The Performance Options granted for the benefit of the previous CEO and CFO were to vest in equal proportions over a five-year vesting period on the basis of share price appreciation. Short-Term Incentive (STI) The STI is based upon performance against the Group financial performance 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 strategy. Energy Action Financial Report for the Full Year Ended 30 June 2022 19 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 100%). 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. The performance matrix used to determine actual STI earnings against the STI potential for the previous CEO and CFO were: Chief Executive Officer Chief Financial Officer Company 70% 70% Individual 30% 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 previous CEO and CFO for the year ended 30 June 2022 was: Chief Executive Officer Chief Financial Officer 0% 0% 0% 0% % of Bonus Potential % LTI Potential 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. Payment of any individual KPI achievement is conditional on the Group meeting a minimum threshold Operating Profit. Service agreements On appointment, all 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* John Huggart 1 On-going (no fixed term) Tracy Bucciarelli 2 On-going (no fixed term) Bruce Macfarlane – interim CEO On-going (no fixed term) Simon Smith On-going (no fixed term) 3 months base salary termination by company or 3 months termination by executive 3 months base salary termination by company or 3 months termination by executive 1 months base salary termination by company or 1 months termination by executive 3 months base salary termination by company or 3 months termination by executive * Termination benefits are payable at the option of the company in lieu of notice, other than termination for cause. 1 resigned on 23 September 2021 2 resigned on 8 February 2022 Energy Action Financial Report for the Full Year Ended 30 June 2022 20 1.7 Remuneration table for the year ended 30 June 2022 Details of remuneration of directors and executive KMP of the Group for the 2022 financial year are set out in the following table. The executive KMP are considered to be the Interim CEO and CFO only. Short term benefits Post employment benefits Non- executive directors Cash salary and fees Additional fees Cash bonus Non monetary benefits Murray Bleach 41,096 Paul Meehan 32,877 Nitin Singhi 8,219 Sub-total 82,192 Executives Bruce Macfarlane1 John Huggart Tracy Bucciarelli 55,628 170,441 214,363 Simon Smith 52,380 Sub-total 492,812 Total 575,004 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Super 4,110 3,288 822 8,220 5,563 11,784 20,093 5,238 42,678 50,898 Long term benefits Share based payments Total Termination benefits Long service leave Performance rights Total - - - - 32,090 6,327 - 38,417 38,417 - - - - - - - - - - - - - - - - - - - - 45,206 36,165 9,041 90,412 61,191 214,315 240,783 57,618 573,907 664,319 1 Bruce Macfarlane appointed as director effective 25 February 2021. The above cash salary & fees for Bruce Macfarlane includes Directors fees of $32,876.76 director fees and salary of $22,751.01. 2 John Huggart resigned on 23 September 2021 3 Tracy Bucciarelli resigned on 8 February 2022 4 Simon Smith appointed as CFO on 28 April 2022 1.8 Remuneration table for the year ended 30 June 2021 Details of remuneration of directors and executive KMP of the Group for the 2021 financial year are set out in the following table. The executive KMP are considered to be the CEO, CFO and Executive Director only. Short term benefits Post employment benefits Directors Cash salary and fees Additional fees Cash bonu s Non monetary benefits Murray Bleach 40,572 Paul Meehan 30,502 Nitin Singhi 32,877 Bruce Macfarlane1 70,668 Sub-total 174,619 Executives John Huggart 322,958 Tracy Bucciarelli 218,319 Sub-total 541,277 Total 715,896 - - - - - - - - - - - - - - - - - - - - - - - - Super 3,622 2,898 3,123 6,713 16,356 21,694 20,740 42,434 58,790 Long term benefits Termination benefits Long service leave Share based payments Performanc e rights - - - 3,207 3,207 - - - 3,207 - - - - - - - - - - - - - - - - Total Total 44,194 33,400 36,000 80,588 194,182 344,652 239,059 583,711 777,893 1 Bruce Macfarlane appointed as director effective 25 February 2021. The above cash salary & fees for Bruce Macfarlane includes Directors fees of $11,252.46 director fees and salary of $62,622. Energy Action Financial Report for the Full Year Ended 30 June 2022 21 Relative Proportion of Remuneration The relative proportion of remuneration of KMP that was linked to performance and those that were fixed are as follows: Fixed Remuneration At Risk – Cash Bonus/Other At Risk - Securities Directors 2022 2021 Murray Bleach Paul Meehan Nitin Singhi Bruce Macfarlane Executives John Huggart Tracy Bucciarelli % 100 100 100 100 100 100 % 100 100 100 100 100 100 2022 % 2021 % - - - - - - - - - - - - 2022 2021 % N/A N/A N/A N/A - - % N/A N/A N/A N/A - - Performance rights of key management personnel No Performance Options were granted to key management personnel as at 30 June 2022 (FY21 Nil). Fair value of Performance Options The fair value of each Performance Option is determined on the date the Performance Options are granted using a Monte Carlo Simulation valuation model. For details on the valuation of the Performance Options, including models and assumptions used, please refer to Note 18. All Performance Options granted for the benefit of the CEO and CFO vest in equal proportions over a five-year vesting period. The Performance Options are exercisable immediately at vesting date, subject to achievement of the relevant performance hurdles. The tables below disclose the number of Performance Options available to KMP. No performance options were issued in 2022 (2021; Nil). Performance Options do not carry any voting or dividend rights and can only be exercised once the vesting conditions have been met, until their expiry date. Total value of Performance Options issued: 30-Jun-22 Granted Balance at 1-Jul-21 $ John Huggart 12,113 Tracy Bucciarelli 6,057 Total 18,170 Grant Date Options vested & transferred Options cancelled/ forfeited/ other Options expired without exercise Net change Balance at end of period $ - - - - - - $ - - - $ (12,113) (6,057) (18,170) $ - - - $ - - - $ - - - Energy Action Financial Report for the Full Year Ended 30 June 2022 22 Total number of Performance Options issued: 30-Jun-22 Granted Grant Date Balance at 1-Jul-21 Options vested & transferred Options cancelled/ forfeited/ other Options expired without exercise Net change Balance at end of period No. No. No. No. No. No. No. John Huggart 388,500 Tracy Bucciarelli 194,250 Total 582,750 - - - - - - - - - (388,500) (194,250) (582,750) - - - - - - - - - There were no alterations to the terms and conditions of Performance Options awarded as remuneration since their grant date. Shareholdings of Directors and Key Management Personnel Net change Transfer from Eplan KMP resigned 2 Balance 30 June 2022 2 30-Jun-22 Directors Murray Bleach Paul Meehan Nitin Singhi Bruce Macfarlane Executives John Huggart Tracy Bucciarelli Simon Smith Total 30-Jun-21 Directors Murray Bleach Paul Meehan Nitin Singhi Bruce Macfarlane1 Executives John Huggart Tracy Bucciarelli Total 1 Balance 1 July 2021 5,100,700 4,792,846 3,000 - - - 2,937,786 10,000 50,000 1,245 - - - - 12,885,577 10,000 - - - - - - - - - - - - 5,100,700 4,792,846 3,000 2,947,786 (50,000) (1,245) - - - - (51,245) 12,844,332 Balance 1 July 2020 Net change Transfer from Eplan KMP resigned Balance 30 June 2021 5,100,700 4,792,846 3,000 - - - 1,903,303 1,034,483 50,000 - - - 11,849,849 1,034,483 - - - - - 1,245 1,245 - - - - - - - 5,100,700 4,792,846 3,000 2,937,786 50,000 1,245 12,885,577 1 Bruce Macfarlane appointed as director 25 February 2021 Energy Action Financial Report for the Full Year Ended 30 June 2022 23 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: Key Management Personnel Horizon Services Trust – business consulting Total Key Management Personnel Consolidated Group 2022 $ 2,970 2,970 2021 $ 11,137 11,137 The Group procures management services from Horizon Private Capital Partners. Nitin Singhi is director of Horizon Private Capital Partners. $2,970 was paid in FY22 (FY21 $11,137). Horizon provided consulting advice in relation to the introduction of new partners. 1.9 Company Performance The Group results for the financial year ended 30 June 2022 was a Statutory loss after tax of $2.8 million compared to a loss of $1 million in the prior year. FY22 FY21 FY20 FY19 FY18 (Restated) Revenue & other income ($000’s) 10,378 14,359 19,782 24,801 31,767 Net profit / (loss) after tax ($000’s) (2,841) (1,000) (2,487) (12,093) 3,261 Operating profit after tax ($000’s) (2,790) (420) 24 1,005 3,261 Earnings per share – Operating (10.34 cents) (1.55 cents) 0.09 cents 3.87 cents 12.56 cents Market capitalisation $4.3m $7.2m $4.2m $10.4m $18.2m Closing share price $0.16 $0.265 $0.16 $0.40 $0.70 This director’s report is signed in accordance with a resolution of the Board of Directors. Murray Bleach Director Dated: 30 September 2022 Energy Action Financial Report for the Full Year Ended 30 June 2022 24 Financial Statements Consolidated Statement of Comprehensive Income For the year ended 30 June 2022 Revenue Total Revenue Cost of goods and services sold Employee benefits expense Rental expense Travel costs Administration expenses Impairment of software Impairment of right-of-use assets Restructuring cost Onerous contracts & leases Depreciation and amortisation expense Financing costs Profit/(Loss) before income tax Income tax (expense)/benefit Note Consolidated Group 2022 $ 2021 $ 10,378,029 10,378,029 14,359,111 14,359,111 (793,119) (600,936) (7,188,182) (9,318,086) (240,913) (385,067) (28,128) (42,884) (2,531,141) (2,942,795) (1,087,238) - (105,036) 108,583 (681,492) - (506,113) (450,029) (619,703) (556,645) (391,831) (282,617) (2,560,468) (1,345,764) (281,473) 345,506 5.1 5.2 5.3 12 13(a) 5.4 5.5 6 Loss for the period attributable to owners of the parent entity (2,841,941) (1,000,258) Other comprehensive loss net of income tax that may be reclassified subsequently to profit and loss Exchange differences on translation of foreign operations (2,048) (1,654) Total comprehensive loss for the period attributable to owners of the parent entity (2,843,989) (1,001,912) 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 Cents (10.53) Cents (3.71) (10.53) (3.71) 7 7 The accompanying notes form part of these financial statements Energy Action Financial Report for the Full Year Ended 30 June 2022 25 Consolidated Statement of Financial Position For the year ended 30 June 2022 Note Consolidated Group ASSETS CURRENT ASSETS Cash and cash equivalents Trade and other receivables Current Tax Asset Other assets TOTAL CURRENT ASSETS NON-CURRENT ASSETS Trade and other receivables Property, plant and equipment Other assets Other Intangible assets Deferred tax asset Right of Use Asset TOTAL NON-CURRENT ASSETS TOTAL ASSETS CURRENT LIABILITIES Trade and other payables Current Tax Liability Short-term provisions Loans & Borrowings Lease liability TOTAL CURRENT LIABILITIES NON-CURRENT LIABILITIES Trade and other payables Other long-term provisions Loans and Borrowings Lease liability TOTAL NON-CURRENT LIABILITIES TOTAL LIABILITIES NET ASSETS EQUITY Issued capital Share based payments reserve Retained earnings Dividend profit reserve Foreign currency translation reserve TOTAL EQUITY 2022 $ 1,859,646 1,121,013 - 2,733,383 2021 $ 2,423,004 1,431,227 152,695 4,458,581 5,714,042 8,465,507 54,737 70,460 2,217,237 487,681 - 52,421 2,882,536 8,596,578 967,547 13 223,835 5,962,723 123,324 7,277,442 - 97,894 1,576,332 10,646 1,684,872 8,962,314 (365,736) 69,141 101,609 3,003,618 1,028,219 281,473 264,766 4,748,826 13,214,333 2,308,409 - 630,228 230,226 447,806 3,616,669 65,692 185,042 6,731,783 133,970 7,116,487 10,733,156 2,481,177 6,837,906 - (13,930,408) 6,723,064 6,837,906 175,072 (11,256,519) 6,723,064 3,702 1,654 (365,736) 2,481,177 9 10 15 13 10 11 13 12 15 13a 14 15 16 17 14a 14 16 17 14a 18b 18c 18g 18d The accompanying notes form part of these financial statements Energy Action Financial Report for the Full Year Ended 30 June 2022 26 Consolidated Statement of Changes in Equity For the year ended 30 June 2022 Consolidated Group Note Balance at 30 June 2020 Profit/(Loss) attributable to owners of parent entity Foreign currency translation reserve Total comprehensive income Issue of share capital Share based payments 18d 18b 18c Ordinary Issued Share Capital Share Based Payments Reserve Retained Earnings Dividend Profit Reserve $ $ $ Foreign currency translation reserve $ Total $ 6,537,906 167,832 (10,256,261) 6,723,064 1,152 3,173,693 - - - 300,000 - (1,000,258) - - - - (1,000,258) - - - - - - - - (1,000,258) 502 502 502 (999,756) - - 300,000 7,240 - 7,240 Balance at 30 June 2021 6,837,906 175,072 (11,256,519) 6,723,064 1,654 2,481,177 Balance at 30 June 2021 Profit/(Loss) attributable to owners of parent entity Foreign currency translation reserve 18d Total comprehensive income Share based payments 18c 6,837,906 175,072 (11,256,519) 6,723,064 1,654 2,481,177 - - - - - (2,841,941) - - - (2,841,941) (175,072) 168,052 - - - - - (2,841,941) 2,048 2,048 2,048 (2,839,893) - (7,020) Balance at 30 June 2022 6,837,906 - (13,930,408) 6,723,064 3,702 (365,736) The accompanying notes form part of these financial statements Energy Action Financial Report for the Full Year Ended 30 June 2022 27 Consolidated Statement of Cash Flow For the year ended 30 June 2022 Note Consolidated Group CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers (inclusive of GST) Payments to suppliers and employees (inclusive of GST) Restructuring costs Government assistance Onerous Contracts Other Significant items Interest received Interest paid Income tax (paid)/refunded Net cash (used in) / provided by operating activities CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property, plant and equipment Software development costs Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from / (repayment of) Bank Loan Proceeds from loans from Directors Capital raised Repayment of Lease Liability Debt establishment fees 20a 11 12 17a 17b 18b Net cash (used in) / provided by 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 9 The accompanying notes form part of these financial statement 2022 $ 2021 $ 13,487,365 16,811,386 (13,199,573) (17,662,305) (329,092) (225,973) 808,354 1,103,500 (120,421) (116,706) 123 (407,470) - 1,065 (242,950) (208,324) 152,707 439,807 18,777 (569,344) (36,860) (69,299) (947,838) (757,130) (984,698) (826,429) (1,000,000) 800,000 1,500,000 - - 300,000 (470,542) (477,121) (47,925) (18,467) - 622,879 (563,358) (772,894) 2,423,004 3,195,898 1,859,646 2,423,004 Energy Action Financial Report for the Full Year Ended 30 June 2022 28 Notes to the Financial Statements for year ended 30 June 2022 Note 1: Corporate Information The consolidated financial statements and notes represent those of Energy Action Limited and its Controlled Entities (the “consolidated group” or “group” or ‘’EAX’’) for the year ended 30 June 2022. The financial statements were authorised for issue in accordance with a resolution of the directors on 30 September 2022. Energy Action Limited (“the Parent”) is a company limited by shares incorporated in Australia whose shares are publicly trade d 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, modi fied, 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. 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. 2.2 Parent entity information In accordance with the Corporations Act 2001, these financial statements present the results of the consolidated entity only. Supplementary information about the parent entity is disclosed in note 24. 2.3 New Accounting Standards and interpretations New or amended accounting standards and interpretations adopted The accounting policies adopted are consistent with those of the previous financial year except as follows: On 1 July 2022, the Company changed its commission structure so that all commissions paid in a given period are calculated based upon the revenue generated during that same period. Accordingly, all capitalised commissions as at 30 June 2022 have been expensed to the income statement in FY22. The consolidated entity has adopted all of the new or amended Accounting Standards and Interpretations issued by Australian Accounting Standards Board (AASB) that are mandatory for the current reporting period. Any new or amended Accounting Standards or Interpretations that are not yet mandatory have not been early adopted. Energy Action Financial Report for the Full Year Ended 30 June 2022 29 Note 2: Summary of Significant Accounting Policies (Continued) Going concern assessments and solvency The Group expects to comply with going concern and solvency assessments given the outlook for operating EBITDA and operating cash. There is no other material impact in relation to accounting standards and ASIC focus for Energy Action in FY22. The financial statements have been prepared on the going concern basis, which contemplates continuity of normal business activities and the realisation of assets and discharge of liabilities in the normal course of business. As disclosed in the financial statements, the Group incurred a loss of $2,841,941 for the year ended 30 June 2022. As at that date the Group had net current liabilities of $1,563,400 and net asset deficiency of $365,736. The net current liability position was a result of the breach of one of the covenants in relation to the bank debt, as disclosed in note 17. These factors indicate a material uncertainty which may cast significant doubt as to whether the Group will continue as a going concern and therefore whether it will realise its assets and extinguish its liabilities in the normal course of business and at the amounts stated in the financial report. The Directors believe that there are reasonable grounds to believe that the Group will be able to continue as a going concern, after consideration of the following factors: • • The Group has plans to raise new debt or equity capital during 2023 Financial year. The Group has cash of $1,859,646 as at year end and had net cash inflows from operating activities of $439,807 for the FY22 year then ended. Accordingly, the Directors believe that the Group will be able to continue as a going concern and that it is appropriate to adopt the going concern basis in the preparation of the financial report. The financial report does not include any adjustments relating to the amounts or classification of recorded assets or liabilities that might be necessary if the Group does not continue as a going concern. 2.4 Key Accounting Policies a. Principles of Consolidation The consolidated financial statements are comprised of the financial statements of the Group and its subsidiaries as at 30 June 2022. 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 i nvestee) ▪ 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 Generally, there is a presumption that a majority of voting rights results in control. To support this presumption and 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(s) 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 consolidated statement of comprehensive income from the date the Group gains control until the date the Group ceases to control the subsidiary. Energy Action Financial Report for the Full Year Ended 30 June 2022 30 Note 2: Summary of Significant Accounting Policies (Continued) 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 derecognises the related assets (including goodwill), liabilities, non-controlling interest and other components of equity, while any resultant gain or loss is recognised in profit or loss. Any investment retained is recognised at fair value. b. Income Tax and other taxes Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the reporting date in the countries where the Group operates and generates taxable income. Current income tax relating to items recognised directly in equity is recognised in equity and not in the statement of profit or loss. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate. Deferred tax is provided using the liability method on temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes at the reporting date. Deferred tax liabilities are recognised for all taxable temporary differences, except: ▪ When the deferred tax liability arises from the initial recognition of goodwill or an asset or liability in a transaction tha t is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable p rofit or loss ▪ In respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint arrangements, when the timing of the reversal of the temporary differences can be controlled and it is probable that th e temporary differences will not reverse in the foreseeable future Deferred tax assets are recognised for all deductible temporary differences, the carry forward of unused tax credits and any unused tax losses. Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilised, except: ▪ When the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss ▪ In respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint arrangements, deferred tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are re-assessed at each reporting date and are recognised to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date. Deferred tax relating to items recognised outside profit or loss is recognised outside profit or loss. Deferred tax items are recognised in correlation to the underlying transaction either in OCI or directly in equity. Energy Action Financial Report for the Full Year Ended 30 June 2022 31 Note 2: Summary of Significant Accounting Policies (Continued) Tax benefits acquired as part of a business combination, but not satisfying the criteria for separate recognition at that dat e, are recognised subsequently if new information about facts and circumstances change. The adjustment is either treated as a reduction in goodwill (as long as it does not exceed goodwill) if it reflects new information obtained about facts and circumstances that exist at the acquisition date that, if known, would have affected the amount recognised at that date where recognised during the measurement period or recognised in profit or loss. The Group offsets deferred tax assets and deferred tax liabilities if and only if it has a legally enforceable right to set o ff current tax assets and current tax liabilities and the deferred tax assets and deferred tax liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities which intend either to settle current tax liabilities and assets on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered. Other taxes Revenues, expenses and assets are recognised net of the amount of GST except: ▪ When the GST incurred on a sale or purchase of assets or services in not payable to or recoverable from the taxation authority, in which case the GST is recognised as part of the revenue or the expense item or as part of the cost of acquisition of the asset, as applicable ▪ When receivables and payables 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. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority. Cash flows are included in the statement of cash flows on a gross basis and the GST component of cas h 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. c. 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. Energy Action Financial Report for the Full Year Ended 30 June 2022 32 Note 2: Summary of Significant Accounting Policies (Continued) 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 20% 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. d. Right-of-use assets The right-of-use asset is recognised at the commencement date of a lease. The right-of-use asset is measured at cost, which comprises the initial amount of the lease liability, adjusted for, as appropriate, any lease payments made at or before the commencement date net of any lease incentives received, any initial direct costs incurred and except where included in the cost of inventories, an estimate of costs expected to be incurred for dismantling and removing the underlying asset and restoring the site or asset. Right-of-use assets are depreciated on a straight-line basis over the unexpired period of the lease or the estimated useful life of the asset, whichever is shorter. Where the consolidated entity expects to obtain ownership of the leased asset at the end of the lease term, the depreciation is over its estimated useful life. Right-of-use assets are subject to impairment or adjusted for any remeasurement of leased liabilities. The consolidated entity has elected not to recognise a right-of-use asset and corresponding lease liability for the short-term leases with terms of 12 months or less and leases of low-value assets. Lease payments on these assets are expensed to profit or loss as incurred. e. Lease liabilities A lease liability is recognised at the commencement date of a lease. The lease liability is initially recognised at the present value of the lease payments to be made over the term of the lease, discounted using the interest rate implicit in the lease o r, if that rate cannot be readily determined, the consolidated entity’s incremental borrowing rate. Lease payments comprise of fixed payments less any lease incentives receivable, variable lease payments that depend on an index or a rate, amounts expected to be paid under residual value guarantees, exercise price of a purchase option when the exercise of the option is reasonably certain to occur, and any anticipated termination penalties. The variable lease payments that do not depend on an index or a rate are expensed in the period in which they are incurred. Lease liabilities are measured at amortised cost using the effective interest method. The carrying amounts are remeasured if there is a change in the following: future lease payments arising from a change in an index or a rate used; residual guarante e; lease term; certainty of a purchase option and termination penalties. When a lease liability is remeasured, an adjustment is made to the corresponding right-of-use asset, or to profit or loss if the carrying amount of the right-of-use asset is fully written down. Energy Action Financial Report for the Full Year Ended 30 June 2022 33 Note 2: Summary of Significant Accounting Policies (Continued) f. Current and non-current classification Assets and liabilities are presented in the statement of financial position based on current and non-current classification. An asset is classified as current when: it is either expected to be realised or intended to be sold or consumed in the consolidated entity’s normal operating cycle; it is held primarily for the purpose of trading. It is expected to be realised within 12 months after the reporting period or the asset is cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least 12 months after the reporting period. All other assets are classified as non-current. A liability is classified as current when: it is either expected to be settled in the consolidated entity’s normal operating cycle; it is held primarily for the purpose of trading; it is due to be settled within 12 months after the reporting period; or there i s no unconditional right to defer the settlement of the liability for at least 12 months after the reporting period. All other liabilities are classified as non-current. Deferred tax assets and liabilities are always classified as non-current. g. Financial Instruments Financial assets – initial recognition and subsequent measurement Financial assets are classified, at initial recognition, as subsequently measured at amortised cost, fair value through other comprehensive income (OCI), and fair value through profit or loss. The Group recognises an allowance for expected credit losses (ECLs) for all receivables and contract assets. ECLs are recognised in two stages. For credit exposures for which there has not been a significant increase in credit risk since initial recognition, ECLs are provided for credit losses that result from default events that are possible within the next 12-months (a 12-month ECL). For those credit exposures for which there has been a significant increase in credit risk since initial recognition, a loss allowance is required for credit losses expected over the remaining life of the exposure, irrespective of the timing of the default (a lifetime ECL). For trade receivables and contract assets, the Group applies a simplified approach in calculating ECLs. Therefore, the Group does not track changes in credit risk, but instead recognises a loss allowance based on lifetime ECLs at each reporting date. The Group has established a provision matrix that is based on its historical credit loss experience, the impact of the Coronavirus (COVID-19) pandemic and adjusted for forward-looking factors specific to the debtors and the economic environment. The Group adopted AASB 9 effectively moves from an “incurred losses” model to an “expected losses” model, which requires a forward-looking assessment of potential default events and losses over the life of these assets. The Group’s trade receivables do not contain a significant financing component, lifetime expected credit losses can be recognised right on init ial recognition. The Group elected to use the simplification method hence a provision matrix can be used. The Group’s trade and other receivables are exposed to credit risk 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. Financial Liabilities – Loans and borrowings This is the category most relevant to the Group. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the Effective Interest Rate method. Gains and losses are recognised in profit or loss when the liabilities are derecognised as well as through the EIR amortisation process. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included as finance costs in the statement of profit or loss. Energy Action Financial Report for the Full Year Ended 30 June 2022 34 Note 2: Summary of Significant Accounting Policies (Continued) 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 of disposal and its value in use. The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs of disposal, recent market transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded subsidiaries or other available fair value indicators. The Group bases its impairment calculation on detailed budgets and forecast calculations, which are prepared separately for each of the Group’s CGUs to which the individual assets are allocated. These budgets and forecast calculations generally cover a period of five years. 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 statement of profit or loss in expense categories consistent with the function of the impaired asset, except for properties previously revalued with the revaluation taken to Other Comprehensive Income (OCI). For such properties, the impairment is recognised in OCI up to the amount of any previous revaluation. For assets excluding goodwill and intangibles with indefinite useful life, an assessment is made at each reporting date to determine whether there is an 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 statement of profit or loss 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: Intangible assets Intangible assets with indefinite useful lives are tested for impairment annually as at 30 June at the CGU level, as appropriate, and when circumstances indicate that the carrying value may be impaired. 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 Energy Action Financial Report for the Full Year Ended 30 June 2022 35 Note 2: Summary of Significant Accounting Policies (Continued) ▪ 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% 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. 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 the Group 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. For the statement of cash flows presentation purposes, cash and cash equivalents also includes bank overdrafts, which are shown within borrowings in current liabilities o n the statement of financial position. Energy Action Financial Report for the Full Year Ended 30 June 2022 36 Note 2: Summary of Significant Accounting Policies (Continued) m. Revenue and Other Income The Group is in the business of providing Energy Buying services, Energy Management, Embedded Networks and other services (Major Product Lines) predominately in Australia. Revenue from contracts with customers is recognised when controls of the services are transferred to the customer at an amount that reflects the consideration to which the Group expects to be entitled in exchange for those services. Revenue from Auction and Commission based tenders are recognised upfront once the Auction is complete and contracts signed between the retailer and the customer. The commercial and payment terms of the contrac t term remain unchanged with payments being received over the life of the contract. Accordingly, a contract asset called “Revenue not invoiced” has been created to recognise the difference between revenue recognised and the amount invoiced. Auction contracts provide a customer with a right to cancel during the contract period. The Group estimates cancellation of Auction revenue during the contract period of approximately 10.9% based on the last 2 years of history in addition to specific provision of some aged items. Accordingly it was assessed that 10.9% of the total values of contracts entered into should be provided for on the balance sheet as a provision for cancellations on an ongoing basis. This has the effect of reducing reven ue and providing for the risk of cancellation, for the period between recognising revenue and invoicing the retailer. Other Energy Buying and Energy Management revenue, Embedded Networks revenue are recognised in the accounting period in which services are rendered and/or in accordance with the percentage of completion of the project. (Revenue is transferred over time) n. 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. (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). In determining the spot exchange rate to use on initial recognition of the related asset, expense or income (or part of it) on the derecognition of a non-monetary asset or non-monetary liability relating to advance consideration, the date of the transaction is the date on which the Group initially recognises the non-monetary asset or non-monetary liability arising from the advance consideration. If there are multiple payments or receipts in advance, the Group determines the transaction date for each payment or receipt of advance consideration. Energy Action Financial Report for the Full Year Ended 30 June 2022 37 Note 2: Summary of Significant Accounting Policies (Continued) 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. o. Trade & other payables These amounts represent liabilities for goods and services provided to the consolidated entity prior to the end of the financial year and which are unpaid. Due to their short-term nature they are measured at amortised cost and are not discounted. The amounts are unsecured and are usually paid within the due date. p. 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 it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately as an onerous contract. At the end of each accounting period the long-term contracts percentage or milestone completion is assessed individually, and any unbilled completion is recognised as work in progress income for the period. q. 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 Energ y 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 18 (c). 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. During FY22, all rights and options relating to share based payments were cancelled due to the resignations of key employees. Accordingly there are no outstanding options or rights as at 30 June 22 and the share payments reserve has been re-allocated to retained earnings on the Balance Sheet. r. Interest Rate Hedging The Group uses derivative financial instruments, such as interest rate swaps to hedge its interest rate risks. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and a re subsequently remeasured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative. At the inception of the hedge relationship, the Group formally designates and documents the hedge relationship to which it wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedge item, the nature of the risk being hedged and how the entity will assess the effectiveness of changes in the hedging instrument’s fair value in offsetting the exposure to changes in the hedged item’s fair value or cash flows attributable to the hedged risk. At the end of each reporting period, the Group assesses the hedge effectiveness between hedged item and hedging instrument to determine whether the risk management objective for the hedging relationship has changed. Energy Action Financial Report for the Full Year Ended 30 June 2022 38 Note 2: Summary of Significant Accounting Policies (Continued) 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. s. Issued Capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. t. Dividends Dividends are recognised when declared during the financial year and no longer at the discretion of the company. Note 3: Significant Accounting Judgements, Estimates and Assumptions Impairment of 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. Revenue not invoiced and Provision for Cancellation The Group adopted the full retrospective approach to implement AASB 15 Revenue from Contracts with Customers from 1 July 2018. The revenue is recognised upfront once the auction is complete and contracts signed between the retailer and the customer. An asset “Revenue not invoice” has been created to recognise the difference between revenue recognised and the amount invoiced. The total value of contracts entered into historically experienced cancellation of auction revenue during th e contract period. The assessment of historical cancellations is reviewed at each reporting period and revised accordingly. As at 30 June 2022, a provision of 10.9% of the total value of revenue not invoiced has been calculated based on historical cancellation over the past 24 months in addition to specific provision for some aged items. This provision is consistent with prior years estimates. Note 4: Segment information Identification of reportable segments The Group has identified one reportable operating segment, which provides electricity and gas procurement services, energy management, and retail billing 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, Industrial and small and medium sized business customers. The business has previously reported business units comprising Energy Buying, Contract Mgt and Environmental Reporting and PAS (or Advisory). Due to the repositioning of Advisory and the growth of Embedded Networks the business line reporting has been aligned to the following services: ▪ Energy Buying – Broking or Consulting using a range of procurement methodologies including auctions (via the Australian Energy Exchange), tenders (small and large market), progressive and structured purchasing, corporate power purchase agreements, and broking of Solar and Energy projects. ▪ Energy Management – Managed client energy contracts and environmental reporting, including account management, liaison with their retailer, validating their bill, ensuring the right tariff and helping them to understand how they are using energy. Energy Action Financial Report for the Full Year Ended 30 June 2022 39 Note 4: Segment information (Continued) ▪ Embedded Networks – Support for retailers and embedded network operators with retail billing, management and reporting. A heads of agreement for the sale of the embedded networks was signed in April 2022, with an expected completion date in October 2022. ▪ Other – in the past 2 years, Energy Action has repositioned away from building monitoring, audits and energy efficiency initiatives, building ratings and energy generation or efficiency projects including solar. 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 Management Services 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 management services include energy consumption monitoring and costing, energy emissions monitoring, contract administration, detailed technical reporting, desktop energy efficiency review and additional reporting and monitori ng. Embedded Networks included both embedded networks and retailer onboarding, meter reading, billing, standing data management, receivables management and performance reporting. In addition, Energy Action provides consultancy and onboarding services for Embedded Network operators. In Note 5 revenue is analysed by service line, however over all 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% of total revenue. Note 5: Revenue, Other Income and Expenses Year ended 30 Jun 22 Energy Buying Energy Management Embedded Networks $ $ $ Others $ Total $ Revenue from Contract with Customer 3,549,648 5,870,480 3,549,648 5,870,480 958,439 958,439 (538) 10,378,029 (538) 10,378,029 Year ended 30 Jun 21 Energy Buying Energy Management Embedded Networks $ $ $ Others $ Total $ Revenue from Contract with Customer 5,490,400 7,511,386 1,334,067 23,258 14,359,111 5,490,400 7,511,386 1,334,067 23,258 14,359,111 5.1 Timing of Revenue Recognition Services transferred at a point in time Services transferred over time Total Revenue from contracts with customers All material revenues are generated in Australia. Note Consolidated Group 2022 $ 2021 $ 2,640,172 4,405,322 7,737,857 9,953,789 10,378,029 14,359,111 Energy Action Financial Report for the Full Year Ended 30 June 2022 40 Note 5: Revenue, Other Income and Expenses (continued) Note Consolidated Group 2022 $ 2021 $ 5.2 Employee benefits Salaries Commissions Superannuation Share based payment expense Other Government assistance Total Employment benefits 5.3 Administrative costs Accounting, audit and tax fees Advertising and marketing Legal and professional fees Telephone and internet Computer maintenance costs Bad debt expense Recruitment Costs Insurance Costs Subscription Entertainment & sustenance costs FBT expense Consulting Other expenses Total Administrative costs 5.4 Depreciation and amortisation Depreciation Lease depreciation Amortisation - Software Total Depreciation & Amortisation 5.5 Financing costs / (income) Interest income Interest expense - Bank Loan Interest expense – Directors Loan Borrowing costs Lease interest Total Financing costs / (income) 6,648,655 8,424,651 593,992 621,887 (7,020) 139,022 235,471 848,532 16,131 603,658 (808,354) (810,357) 7,188,182 9,318,086 187,006 380,275 40,322 39,289 185,339 303,426 71,242 24,809 776,111 1,189,396 80,659 148,837 213,734 141,089 14,963 36,181 132,250 340,425 20,332 54,377 227,522 111,609 60,271 57,767 190,006 446,699 2,531,141 2,942,795 68,009 212,345 401,138 681,492 104,726 208,313 243,606 556,645 (123) 243,246 76,332 49,640 22,736 391,831 (1,065) 210,731 - 25,746 47,205 282,617 Energy Action Financial Report for the Full Year Ended 30 June 2022 41 Note 6: Income Tax Expense a. The components of tax expense comprise: Current tax Current tax – under/(over) prior year Tax rate change Deferred Tax – Current Year Deferred Tax – Prior Year Note Consolidated Group 2022 $ 2021 $ - - - (557,506) 16,516 (11,259) 281,473 222,264 - (15,521) 281,473 (345,506) 15 15 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 25.0% (2021: 26%) (640,117) (349,899) Add Tax effect of: Permanent Differences — — — — — — Tax rate change Current Year tax movement not recognised NSW COVID Support Payment / Cashflow boost Other permanent differences (Entertainment) Prior year adjustments Prior year DTA derecognised Income tax attributable to entity - 11,259 847,063 - (202,089) (26,000) 3,648 (8,505) 281,473 14,677 (888) 5,345 281,473 (345,506) The applicable weighted average effective tax rates are as follows: -10.99% 25.67% 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. Energy Action Financial Report for the Full Year Ended 30 June 2022 42 Note 7: 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 p arent 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: 2022 $ 2021 $ Net loss attributable to ordinary equity holders of the parent from continuing operations (2,841,941) (1,000,258) Net loss attributable to ordinary equity holders of the parent for basic earnings (2,841,941) (1,000,258) Net loss attributable to ordinary equity holders of the parent adjusted for the effect of dilutions (2,841,941) (1,000,258) 2022 No. 2021 No. Weighted average number of ordinary shares for basic earnings per share 26,988,600 26,988,600 Effect of dilution: Performance rights - - Weighted average number of ordinary shares adjusted for the effect of dilution 26,988,600 26,988,600 Basic earnings / (loss) per share (Statutory) Diluted Earnings / (loss) per share (Statutory) (10.53) (10.53) (3.71) (3.71) 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. Energy Action Financial Report for the Full Year Ended 30 June 2022 43 Note 8: Dividends Dividends paid: Interim franked dividend of NIL cents per share Final franked dividend of NIL cents per share a. b. Proposed final 2022 franked dividend of NIL cents per share (Final 2021 franked dividend of NIL cents per share) Balance of franking account at year end adjusted for franking credits arising from: — Opening balance — Opening balance adjustment — Payment/(Refund) of provision for income tax Tax rates The tax rates at which paid dividends have been franked is: • • • • 30% - Prior to 1 July 2018 27.5% - from 1 July 2018 – 30 June 2020 26% - from 1 July 2020 – 30 June 2021 25% - from 1 July 2021 – 30 June 2022 Consolidated Group Note 2022 2021 $ - - - - $ - - - - 7,516,634 7,535,418 91,200 (152,707) (18,784) 7,455,127 7,516,634 The above amounts represent the balance of the franking account as at the end of the financial year, adjusted for: - franking credits that will arise from the payment of the amount of the provision for income tax at the reporting date - franking debits that will arise from the payment of dividends recognised as a liability at the reporting date - franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date Energy Action Financial Report for the Full Year Ended 30 June 2022 44 Note 9: Cash and Cash Equivalents Cash at bank* Restricted cash** Total Cash Note Consolidated Group 2022 $ 2021 $ 1,852,428 2,415,726 7,218 7,278 22 1,859,646 2,423,004 *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. **Refers to cash held in the Energy Action Employee Share Trust; an entity used to manage employee equity plans as well as cash bank guarantee held by the bank. Note 10: Trade and Other Receivables CURRENT Trade receivables Provision for expected credit loss Total current trade receivables NON-CURRENT Bonds and security deposits Note 22 22 Consolidated Group 2022 $ 2021 $ 1,404,067 1,662,216 (283,054) (230,989) 1,121,013 1,431,227 54,737 69,141 a. Provision for Impairment of Receivables Current trade 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 10. 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. The Group policy stipulates that the receivable accounts with an administrator appointed or in liquidation or with 90 days+ outstanding – fully (100%) provided for except where a reasonable estimate can be made of the recoverable amount. Accounts assigned to a debt collector – 50% provided. Direct customers – expected credit loss (ECL) model based on risk associated with different ageing bucket. Retailers and Metering companies – no provision required; historical evidence shows immaterial write-off of debt. Partially due to the pre-approval process for many of the retailers which results in the amounts validated prior to invoicing. Disputed amounts owing which are in the process of litigation will be provided for on a case by case basis depending on the probability of recovery. Energy Action Financial Report for the Full Year Ended 30 June 2022 45 Note 10: Trade and Other Receivables (Continued) ECL rates are applied to gross receivable balances after adjusting for any specific bad debts. Past due but not impaired (days overdue) Within Trade Terms $ Total $ < 30 $ 31–60 61–90 $ $ 91+ $ 2022 Trade and term receivables 1,404,067 940,047 358,325 (19,233) (74,893) 199,821 Expected credit loss allowance 283,054 177,480 705 683 Expected credit loss rate 20.16% 1,121,013 18.88% 762,567 0.20% 357,620 -3.55% (19,916) (886) 1.18% (74,007) 105,072 52.58% 94,749 2021 Trade and term receivables 1,662,216 1,384,699 19,685 116,907 (54,129) Expected credit loss allowance 230,989 37,030 Expected credit loss rate 13.9% 2.7% 1,170 5.9% 10,858 9.3% 1,873 -3.5% 1,431,227 1,347,669 18,515 106,049 (56,002) 195,054 180,058 92.3% 14,996 Neither the Group nor parent entity holds any financial assets with terms that have been renegotiated, which would otherwise be past due or impaired. Revenue not invoiced is shown as net of provision for cancellation in Note 13. Movements in the allowance for expected credit loss allowance Consolidated Group 2022 $ 230,989 80,825 (28,760) - 2021 $ 299,298 20,332 (44,641) (44,000) 283,054 230,989 Opening Balance Additional provision recognised Receivables written off during the year as uncollectable Unused amounts reversed Closing balance b. Collateral Held as Security Current trade 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. Energy Action Financial Report for the Full Year Ended 30 June 2022 46 Note 11: Property Plant and Equipment Computer equipment: At cost Accumulated depreciation Furniture and fittings: At cost Accumulated depreciation Total Plant and Equipment Consolidated Group 2022 $ 2021 $ 2,127,662 2,092,221 (2,058,621) (2,008,905) 69,041 83,316 1,294,859 1,293,439 (1,293,440) (1,275,146) 1,419 70,460 18,293 101,609 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 Consolidated Group: Balance at 1 July 2020 Additions Assets disposed Depreciation expense Balance at 30 June 2021 Additions Depreciation expense Balance at 30 June 2022 Note Computer Equipment Furniture and Fittings $ $ 84,473 69,299 - (70,456) 83,316 35,441 (49,716) 69,041 52,584 - (21) (34,270) 18,293 1,419 (18,293) 1,419 5.4 5.4 Total $ 137,057 69,299 (21) (104,726) 101,609 36,860 (68,009) 70,460 Energy Action Financial Report for the Full Year Ended 30 June 2022 47 Note 12: Intangible Assets Software development costs Software Impairment Accumulated amortisation Net carrying value Total intangibles Consolidated Group: Year ended 30 June 2020 Balance at the beginning of year Additions (Internal development & purchases) Amortisation charge Closing value at 30 June 2021 Year ended 30 June 2021 Balance at the beginning of year Additions (Internal development & purchases) Impairment Amortisation charge Closing value at 30 June 2022 Consolidated Group 2022 $ 2021 $ 13,141,581 12,193,743 (5,948,776) (4,861,538) (6,705,124) (6,303,986) 487,681 1,028,219 487,681 1,028,219 Note Software Development costs Total Intangibles $ $ 514,695 757,130 514,695 757,130 5.4 (243,606) (243,606) 1,028,219 1,028,219 1,028,219 1,028,219 947,838 947,838 (1,087,238) (1,087,238) 5.4 (401,138) (401,138) 487,681 487,681 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. Energy Action Financial Report for the Full Year Ended 30 June 2022 48 Note 12: Intangible Assets (continued) 12 (a) Impairment testing of goodwill and other intangible assets AASB 136 (9) “Impairment of Assets” requires an entity to assess at the end of each reporting period whether there is any indication that impairment exists, and if there are indicators of impairment to reassess the assets recoverable amount. The recoverable amount is defined in AASB 136 as the higher of fair value less cost to sell, and value in use. 12 (b) Accelerate amortisation For the year ended 30 June 2022, the Company performed a review of the software assets and reassessed the useful life of the software asset pool. As a result, it was deemed no additional amortisation was required 12 (c) Impairment of software The Company has made a large investment in business software to create a new proprietary data and emission portal. As at 30 June 2022, this new data and emissions portal has yet to go live and therefore the Company has assessed that the asset has nil value as at 30 June 2022 and the Company has impaired this asset by the value of $1,087,238. Note 13: Other Assets CURRENT Prepayments Other assets Work in progress Revenue not invoiced* NON CURRENT Other non current assets Revenue not invoiced* * These represents conditional contract asset Consolidated Group 2022 $ 2021 $ 163,408 201,339 132,934 465,100 240,165 333,835 2,235,702 3,419,481 2,733,383 4,458,581 - 246,598 2,217,237 2,757,020 2,217,237 3,003,618 Consolidated Group 2022 $ 2021 $ CONTRACT ASSETS (CURRENT + NON CURRENT) 4,452,939 6,176,501 Reconciliation: Reconciliation of the written down values at the beginning and end of the current and previous financial year are set our below: Opening Balance: Additions Transfer to Trade Receivables Energy Action Financial Report for the Full Year Ended 30 June 2022 6,176,501 6,168,677 2,492,261 4,490,880 (4,215,823) (4,483,056) 4,452,939 6,176,501 49 Note 13(a): Right-of-use Assets NON CURRENT Right of use asset: At cost Impairment Accumulated depreciation Consolidated Group: Year ended 30 June 2020 Balance at the beginning of year Additions Depreciation Impairment Closing value at 30 June 2021 Year ended 30 June 2021 Balance at the beginning of year Additions Depreciation Impairment Closing value at 30 June 2022 Consolidated Group 2022 $ 2021 $ 338,674 1,331,038 - (506,113) (286,253) (560,159) 52,421 264,766 Total Right of Use Assets $ 640,519 338,673 (208,313) (506,113) 264,766 264,766 - (212,345) - 52,421 Energy Action Financial Report for the Full Year Ended 30 June 2022 50 Note 14: Trade and Other Payables CURRENT Unsecured liabilities: Trade payables Goods & Services tax Commissions payable Rebates to partners Makegood Liability for Office Rental Onerous contracts Other payables and accrued expenses NON CURRENT Unsecured liabilities: Onerous contracts a. Financial liabilities at amortised cost classified as trade and other payables Trade and other payables: - Total current - Total non current Consolidated Group 2022 $ 2021 $ 63,985 (27,201) 129,454 191,999 53,303 - 556,007 967,547 617,593 158,457 164,037 237,609 90,989 174,169 865,555 2,308,409 - - 65,692 65,692 967,547 2,308,409 - 65,692 Financial liabilities as trade and other payables 22 967,547 2,374,101 Terms and conditions of the above financial liabilities: – Trade payables are non-interest bearing and are normally settled on 30 or 60 days terms Other payables are non-interest bearing and have an average term of six months Note 14(a): Lease Liability CURRENT Closing Lease Liability Current NON CURRENT Closing Lease Liability Non - Current Consolidated Group 2022 $ 2021 $ 123,324 447,806 10,646 133,970 Energy Action Financial Report for the Full Year Ended 30 June 2022 51 Note 15: Tax CURRENT Current tax (liabilities) / assets Consolidated Group Deferred Tax 2022 Provisions Accruals Fixed assets Prepaid commissions Sundry Tax Losses Revenue not invoiced Right of Use Asset Deferred Tax 2021 Provisions Accruals Fixed assets Prepaid commissions Work in progress Sundry Tax Losses Revenue not invoiced Right of Use Asset Opening Balance $ Tax rate change $ Adj Prior year $ Charged to Income $ Consolidated Group 2022 $ 2021 $ (13) 152,695 Closing Balance $ - - - - - - - - - - - - - - - - - - - - (10,854) (87,765) - 107,124 - - (320,123) (336,458) (877,312) 132,127 (16,281) (567,936) 1,629,814 66,191 8,505 (289,978) Tax rate change $ Adj Prior year $ Charged to Income $ Closing Balance $ - (124,152) (12,805) (13,458) (35,527) 1,775 - - - - - (2,279) (323,330) (32,793) 96,838 25,484 460,812 23,988 97,696 222,264 320,123 336,458 888,166 (44,362) - 16,281 460,812 (1,629,814) (66,191) 281,473 25,403 (19,085) (15,521) - (1,718,995) (166,535) - 65,193 2,648 - - - 85,989 (11,259) (15,521) 320,123 336,458 888,166 (44,362) 16,281 460,812 (1,629,814) (66,191) 281,473 Opening Balance $ 457,080 352,195 1,247,023 (13,344) (96,838) The tax asset as at 30 June 2021 has been de-recognised as at 30 June 2022 as there is a significant uncertainty that the tax losses representing the tax asset will be used in the foreseeable future. Energy Action Financial Report for the Full Year Ended 30 June 2022 52 Note 16: Provisions and other liabilities Analysis of total provisions CURRENT Restructuring Provision Annual leave Long service leave NON CURRENT Long service leave Consolidated Group 2022 $ - 176,117 47,718 223,835 2021 $ 202,696 268,017 159,515 630,228 97,894 97,894 185,042 185,042 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 17: Loans and Borrowings CURRENT Market Rate Loan Facility - CBA Less capitalised debt establishment fees NON CURRENT Loan from Directors Market Rate Loan Facility reclassified to current Less capitalised debt establishment fees Note 22 Consolidated Group 2022 $ 6,000,000 (37,277) 5,962,723 2021 $ 250,000 (19,774) 230,226 1,576,332 - - - 6,750,000 (18,217) 22 1,576,332 6,731,783 The Board of Directors draws the reader’s attention to the reclassification of the CBA debt from non-current to current liabilities. As at 30 June 2022 the Group was in breach of one of their market rate loan financial reporting obligations. The specific financial reporting obligation required the Group’s actual EBIDTA for the 30 June 2022 quarter period to be within an agreed percentage of forecasted EBITDA. The total amount due under the market rate loan facility of $6,000,000 has therefore technically become due and payable, and consequently, has been classified as a current liability.’ On 29 July 2022, the lender provided the Group with a waiver in respect of the above-mentioned breach. Consequently, final repayment of the market rate loan facility reverts to 31 October 2023. Energy Action Financial Report for the Full Year Ended 30 June 2022 53 Note 17: Loans and Borrowings (Continued) Utilisation of the facility is summarised in the following table: Financing facilities CURRENT CBA Loan Facility At the beginning of the reporting period: Movement in the year: Consolidated Group 2022 $ 2021 $ 230,226 - Reclassified from Non Current to Current 6,731,783 230,226 Reclassified from Non Current to Current: (6,731,783) (230,226) Repayment of Loan: Capitalised debt fees: At the end of the reporting period NON CURRENT CBA Loan Facility At the beginning of the reporting period: Movement in the year - - - - - - Drawdown of Loan: Capitalised debt fees: At the end of the reporting period Directors Loan Facility At the beginning of the reporting period: Loan facility at establishment Interest accrued during period (capitalised) Repayment of Loan: At the end of the reporting period (1,000,000) 714 - - 5,962,723 230,226 6,731,783 6,176,175 - - - - 1,500,000 76,332 - 1,576,332 800,000 (14,166) 6,731,783 - - - - - Utilisation of the facility is summarised in the following table: Financing facilities CBA Loan Facility Loan facilities (excluding corporate card facility) 6,300,000 7,300,000 Amounts utilised Borrowings Bank guarantees – non-cash Total amounts utilised Total amounts unutilised 6,000,000 7,000,000 145,347 145,347 6,145,347 7,145,347 154,653 154,653 As at 30 June 2022, Energy Action had utilised $6.0 million of market rate loan and $0.15 million bank guarantees. The carrying value of the loans and borrowings materially approximate fair value. Funds advanced under the facility are secured by a charge over the assets of the Group. Energy Action Financial Report for the Full Year Ended 30 June 2022 54 Note 18: Issued Capital and Reserves Issued Capital -fully paid ordinary shares a. Ordinary Shares (number) At the beginning of the reporting period: Movement in the year: - Shares issued At the end of the reporting period Consolidated Group 2022 $ 2021 $ 6,837,906 6,837,906 6,837,906 6,837,906 Consolidated Group 2022 No. 2021 No. 26,988,600 25,954,117 - 1,034,483 26,988,600 26,988,600 Consolidated Group 2022 $ 2021 $ b. Ordinary Shares ($) At the beginning of the reporting period: 6,837,906 6,537,906 Movement in the year - Shares issued At the end of the reporting period - 300,000 6,837,906 6,837,906 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. Energy Action Financial Report for the Full Year Ended 30 June 2022 55 Note 18: 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 30 June 2020, 777,000 performance options were granted to senior executives under the 2020 LTI Performance rights and option plan. During 2022, the performance options were cancelled as the executives resigned their employment. As at 30 June 2022, there are no outstanding performance options or any other equity rights. The total number of options granted is divided into five equal tranches, which will be tested against a performance hurdle at staggered intervals. All tranches have a strike price of 41 cents. However during the year ending 30 June 2021, 194,250 performance options were forfeited due to service criteria not met, and 582,750 remaining performance options as at 30 June 2021. The number of options that ultimately vest (if any) is subject to satisfaction of a performance hurdle. Testing of options agai nst the performance hurdles will occur annually, with the possibility of re-testing if hurdles are not satisfied in the first instance. The performance hurdle is written around Total Shareholder Return (TSR). In Order for some options to vest, the minimum target is 20% p.a. If the stretch target of 40% p.a. is reached, all options will vest. In between minimum and stretch targets, the proportion of options that vests increases linearly between 50% and 100% of the options granted. Performance Criteria Proportion of Options Vesting If TSR is less than 20% pa No options vest If TSR is equal to 20% pa 50% of the options vest If TSR lies between 20% and 40% pa The proportion of options that vests increase linearly from 50% to 100% If TSR equals or exceeds 40% pa 100% of the options vest Note: In calculating the TSR over the respective vesting periods, a starting base price of 37 cents will be used. Vesting of the options is also subject to a service condition which requires the recipient to remain continuously employed wi th Energy Action through to the vesting date. This report assumes that the service condition will be fully satisfied. A Monte Carlo simulation valuation technique has been adopted to value the performance rights at grant date. The grant date share price was based on the EAX closing share price of 16 cents as at 30 June 2020 and the option exercise price for all tranches of options is 41 cents. The 12 March 2018 performance rights 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. As at 30 June 2020 all of these performance rights have been cancelled or forfeited. Energy Action Financial Report for the Full Year Ended 30 June 2022 56 Note 18: Issued Capital and Reserves (Continued) c. Share based payments reserve (continued) For the year ended 30 June 2022, the Group has recognised ($175,072) of share-based payment expense in the statement of comprehensive income (30 June 2021: $7,240). Share based payments expense is net of reversals due to non-achievement of performance vesting targets and forfeitures in the case of terminated employees. As at 30 June 2022, there are no outstanding performance rights or other equity options and as a result the historical share based payments reserve of ($168,052), has been transferred to retained earnings in the Consolidated Statement of Equity. Share Based Payment Reserve At the beginning of the reporting period Share based payment expenses Prior year adjustments Transfer of reserve to retained earnings Movement in the year At the end of the reporting period Consolidated Group 2022 $ 2021 $ 175,072 167,832 (7,020) - (168,052) (175,072) 16,131 (8,891) - 7,240 - 175,072 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. Foreign Currency Translation Reserve At the beginning of the reporting period Foreign currency translation entry (current period) Movement in the year At the end of the reporting period e. Capital Management Consolidated Group 2022 $ 1,654 2,048 2,048 3,702 2021 $ 1,152 502 502 1,654 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 operation s 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. Energy Action Financial Report for the Full Year Ended 30 June 2022 57 Note 18: Issued Capital and Reserves (Continued) f. Gearing Ratio 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 2022 and 30 June 2021 are as follows: Bank and Directors loans Less cash and cash equivalents Net debt / (cash) Total Equity Gearing percentage (%) Note 17 9 Consolidated Group 2022 $ 2021 $ 7,539,055 6,962,009 (1,859,646) (2,423,004) 5,679,409 4,539,005 (365,736) 2,481,177 -1,553% 183% Gearing as measured by total net debt divided by total equity was -1,553% as at 30 June 2022 and 183% at 30 June 2021. g. Dividend Profit Reserve During the year ended 30 June 2021, some subsidiaries of the Group resolved to reserve current and prior year profits as a dividend profit reserve. These reserves held in the subsidiaries of Energy Action Australia Pty Limited and Exergy Australia Limited for the potential future dividend distribution to the Parent Company, Energy Action Limited. There has been no change to this treatment during FY22. Note 19: Capital and Leasing Commitments The Company holds a lease commitment as at 30 June 22 for the following location : - Melbourne - ending July 2023 – held as Lease Liability (AASB16) The Group has provided the following bank or cash guarantees at 30 June 2022 for regional offices: – Parramatta office – Melbourne office Consolidated Group 2022 $ - 26,312 26,312 2021 $ 145,347 26,312 171,659 Energy Action Financial Report for the Full Year Ended 30 June 2022 58 Note 20: Cash Flow Information a. Reconciliation of Cash Flow from Operations with Profit after Income Tax Loss after income tax – Depreciation and amortisation – Loss/(Gain) on disposal of fixed assets – Unrealised FX Revaluation – Share based payments expense – Amortisation of borrowing costs – Impairment – Restructuring costs – – Onerous Contracts Other Significant 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 loans increase/(decrease) in provisions Cash flow (used in)/from operations Consolidated Group 2022 $ 2021 $ (2,841,941) (1,000,258) 681,492 556,645 - 2,048 (7,020) 149,004 1,087,238 (224,056) (229,004) (53,912) 21 502 7,240 115,272 506,113 224,056 212,233 (2,203) 2,188,086 976,148 895,669 (239,384) (1,575,189) (1,232,764) (66,789) (326,730) - (39,913) 434,181 439,807 (326,322) (569,344) b. Reconciliation of liabilities arising from financing activities Total liability from financing activities Opening Balance Cash flow Acquisition FY22 Long term borrowings $ $ 7,000,000 500,000 $ - Lease Liability 581,776 (470,542) 22,736 FY21* Long term borrowings 6,200,000 800,000 - Lease Liability 673,022 (477,123) 385,877 Non-cash changes Foreign exchange movement Fair value changes Closing Balance $ - - - - $ - - - - $ 7,500,000 133,970 7,000,000 581,776 * Reclassification of Lease payment relating to Right of use assets from Operating Activities to Financing Activities Energy Action Financial Report for the Full Year Ended 30 June 2022 59 Note 21: 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: 2022 2021 Eactive Consulting Pty Limited (1) Australia 100% 100% Energy Action (Australia) Pty Limited Australia 100% 100% EAIP Pty Limited Australia 100% 100% ACN 087 790 770 Pty Limited (1) Australia 100% 100% Exergy Holdings Pty Limited Australia 100% 100% Exergy Australia Pty Limited Australia 100% 100% Exergy New Zealand Limited (1) New Zealand 100% 100% Energy Advice Pty Ltd (1) Australia 100% 100% Ward Consulting Services (NSW) Pty Ltd (1) Australia 100% 100% Employee Share Trust Australia 100% 100% * Percentage of voting power is in proportion to ownership (1) b. i. These entities are dormant and will be deregistered during FY23 The Group’s main related parties are as follows: Key management personnel: Any person(s) having authority and responsibility for planning, directing and controlling the activities of the entity, direc tly 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 management services from Horizon Private Capital Partners. Nitin Singhi (resigned as a Director on 23 September 2021) is a director of Horizon Services Trust, which was paid $2,970 in FY22 (FY21 $11,137). Horizon provided consulting advice in relation to the introduction of new partners. Energy Action Financial Report for the Full Year Ended 30 June 2022 60 Note 21: Related Party Disclosures (Continued) a. 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 2022. The totals of remuneration paid to KMP of the Group during the year are as follows: Short-term employee benefits Long-term employee benefits Post-employment benefits – superannuation Total Compensation Consolidated Group 2022 $ 2021 $ 575,004 715,896 38,417 50,898 3,207 58,791 664,319 777,894 The amounts disclosed in the table are the amounts recognised as an expense during the reporting period relating to KMP. b. The ultimate parent Energy Action Limited is the ultimate parent based and listed in Australia. Note 22: Financial Risk Management The Group’s principal financial liabilities comprise borrowings, trade and other payables. The main purpose of these financia l 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 9 as detailed in the accounting policies to these financial statements, are as follows: Financial assets Cash and cash equivalents, including restricted cash Receivables Bond and security deposits Revenue not invoiced Work in Progress Total financial assets Financial liabilities Loans and Borrowings Trade & Other payables Total financial liabilities Note 9 10 10 13 13 17 14 Consolidated Group 2022 $ 2021 $ 1,859,646 2,423,004 1,121,013 1,431,227 54,737 69,141 4,452,939 6,176,501 132,934 333,835 7,621,269 10,433,708 7,539,055 6,962,009 967,547 2,374,101 8,506,602 9,336,110 Energy Action Financial Report for the Full Year Ended 30 June 2022 61 Note 22: 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 met four times during the financial 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 monitori ng of the financial stability of significant customers and counterparties), ensuring to the extent pos –––––sible, 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 10. 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 10. 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 Energy Action Financial Report for the Full Year Ended 30 June 2022 62 Note 22: Financial Risk Management (continued) Consolidated Group Weighted Average Interest rate % Within 1 Year 1 to 5 years 2022 $ 2021 $ 2022 $ 2021 $ Total 2022 $ 2021 $ Financial liabilities due for payment Bank loans 0.5829% 5,962,723 230,226 - 6,731,783 5,962,723 6,962,009 Directors loans 0.1032% - - 1,576,332 - 1,576,332 - Lease Liability 123,324 477,806 10,646 133,970 133,970 611,776 Trade and other payables (excluding est. annual leave) Total expected outflows 967,547 2,308,409 - 65,692 967,547 2,374,101 7,053,594 3,016,441 1,586,978 6,931,445 8,640,572 9,947,886 Financial assets — cash flows realisable Cash and cash equivalents Restricted cash Trade, term and loans receivables Work in progress Bonds and security deposits Revenue not invoiced Total anticipated inflows Net (outflow)/inflow on financial instruments c. Interest rate risk 1,852,428 2,415,726 - - 1,852,428 2,415,726 7,218 7,278 - - 7,218 7,278 981,104 1,431,227 - - 981,104 1,431,227 132,934 333,835 - - 132,934 333,835 - - 54,736 69,141 54,736 69,141 2,235,702 3,419,481 2,217,237 2,757,020 4,452,939 6,176,501 5,209,386 7,607,547 2,271,973 2,826,161 7,481,359 10,433,708 (1,844,208) 4,591,106 684,995 (4,105,284) (1,159,213) 485,822 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 loan rollover terms from 30 days to 180 days. Cash and cash equivalents are all on short term deposits. As at 30 June 2022, the Group had bank loans of $6 million at (line fee of 2.0%, usage fee of 1.40% and .086% interest rate). 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 interes t risk include cash at bank. 1) Interest Rate Risk Exposure to interest rate risk arises on financial assets recognised at reporting date whereby a future change in interest ra tes 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 net of cash. The company has insignificant other balances that have interest payment terms. Energy Action Financial Report for the Full Year Ended 30 June 2022 63 Note 22: Financial Risk Management (Continued) 2) 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 2022 Year ended 30 June 2021 Consolidated Group Increase/decrease in basis points $ Profit before tax $ +/- 100 +/- 100 -/+ 66,548 -/+ 65,068 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. Note 23: Auditors’ Remuneration The auditor for Energy Action Limited is RSM Australia Partners Amounts received or due and receivable by RSM Australia Partners for: — An audit of the financial report of the entity and any other entity in the consolidated group Consolidated Group 2022 $ 2021 $ 128,370 132,200 128,370 132,200 Energy Action Financial Report for the Full Year Ended 30 June 2022 64 Note 24: 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. STATEMENT OF FINANCIAL POSITION ASSETS Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities Issued capital Reserves Prior year adjustment* Retained earnings Total Equity Profit/(loss) of the parent entity Total comprehensive income/(loss) of the parent entity Parent 2022 $ 2021 $ 15,557,611 19,004,658 15,065,506 15,113,895 30,623,117 34,118,553 (10,745,376) (10,833,569) (7,327,659) (6,829,544) (18,073,035) (17,663,113) 6,837,906 6,837,906 - - 175,071 4,167,998 5,712,176 5,274,465 12,550,082 16,455,440 (3,898,339) (272,298) (3,898,339) (272,298) * Prior year adjustment relates to Intercompany transactions withing the group being rectified relating to prior year transactions The parent entity had no guarantees in relation to the debts of its subsidiaries as at 30 June 2022 and 30 June 2021. Contingent Liabilities A demand made in the FY20 period in respect of alleged unpaid amounts for previous work provided to the Company and the case remains ongoing as at 30 June 2022. The Claimant has filed proceedings in the Federal Court of Australia. The Company has disclaimed liability and is defending the action. The Company is of the view that it unlikely that any significant liability arises. The directors are of the view that no material losses will arise in respect of the legal claim at the date of these financial statements. The parent entity had no contingent liabilities as at 30 June 2022. Capital Commitments – Property, Plant and Equipment The parent entity had no capital commitments for property, plant and equipment as at 30 June 2022 and 30 June 2021. Significant accounting policies The accounting policies of the parent entity are consistent with those of the consolidated entity, as disclosed in note 1, except for the following: ▪ Investments in subsidiaries are accounted for at cost, less any impairment, in the parent entity. ▪ Dividends received from subsidiaries are recognised as other income by the parent entity and its receipt may be an indicator of an impairment of the investment. Energy Action Financial Report for the Full Year Ended 30 June 2022 65 Note 25: Events after the reporting period On 29 July 2022, the Company announced that it had received a waiver from the CBA from a covenant breach related to quarterly profitability tests for the 30 June 2022 quarter. 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. Non-adjusting events after the reporting period The company has agreed to enter into a new lease for the Parramatta office however the final rent expense has not yet been finalised with the landlord. Accordingly, the conditions did not exist at year end and no such estimate can be made. Discussions with the landlord are ongoing and will be reflected in future financial statement disclosures. On 5 April 2022, the Company announced that it had entered into a heads of agreement to sell is embedded networks business. The company is in the process of novating the underlying business contracts and expects the transaction to be completed around October 2022, whereas the value cannot be reasonably determined therefore considered a non -adjusting event. Energy Action Financial Report for the Full Year Ended 30 June 2022 66 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 2022 are in accordance with the Corporations Act 2001, including: i. ii. giving a true and fair view of its financial position as at 30 June 2022 and performance complying with Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001 b. c. The financial statements and notes also comply with International Financial Reporting Standards as disclosed in Note 2.1 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 2022. On behalf of the board Murray Bleach Director 30 September 2022 Energy Action Financial Report for the Full Year Ended 30 June 2022 67 RSM Australia Partners Level 13, 60 Castlereagh Street Sydney NSW 2000 GPO Box 5138 Sydney NSW 2001 T +61 (0) 2 8226 4500 F +61 (0) 2 8226 4501 www.rsm.com.au INDEPENDENT AUDITOR’S REPORT To the Members of Energy Action Limited Opinion We have audited the financial report of Energy Action Limited. (the Company) and its subsidiaries (the Group), which comprises the consolidated statement of financial position as at 30 June 2022, 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, and notes to the financial statements, including a summary of significant accounting policies, and the directors' declaration. In our opinion the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Group's financial position as at 30 June 2022 and of its financial performance for the year then ended; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board's APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Company, would be in the same terms if given to the directors as at the time of this auditor's report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Material Uncertainty Related to Going Concern We draw attention to Note 2 in the financial report, which indicates that the company incurred a loss of $2,841,941 for the year ended 30 June 2022. As at that date the Gorup had net current liabilities of $1,563,401 and net asset deficiency of $365,714. As stated in Note 2, these events or conditions, along with other matters as set forth in Note 1, indicate that a material uncertainty exists that may cast significant doubt on the Groups’s ability to continue as a going concern. Our opinion is not modified in respect of this matter. 68 THE POWER OF BEING UNDERSTOOD AUDIT | TAX | CONSULTING RSM Australia Partners is a member of the RSM network and trades as RSM. RSM is the trading name used by the members of the RSM network. Each member of the RSM network is an independent accounting and consulting firm which practices in its own right. The RSM network is not itself a separate legal entity in any jurisdiction. RSM Australia Partners ABN 36 965 185 036 Liability limited by a scheme approved under Professional Standards Legislation Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. In addition to the matter described in the Material Uncertainty Related to Going Concern section, we have determined the matters described below to be the key audit matters to be communicated in our report. Key Audit Matter How our audit addressed this matter Revenue Recognition Refer to Note 1 (m) in the financial statements The Group generates its revenue from a variety of services such as procurement, managed services, retail services and other service lines. Our audit team focused on revenue recognition across these services due to its importance and significance to shareholders. The Group has experienced a drop in revenue over a number of financial years, including the current financial year. Therefore, revenue is seen as a key performance indicator and consequently, it necessitated greater involvement of the audit team and a high portion of audit effort was applied to gather sufficient audit evidence. Refer to Note 1 (m) of the financial report for the related disclosures. Other Information We have: • Assessed whether the Group’s revenue recognition in compliance with Australian policies were Accounting Standards. • Tested a samples of revenue transactions during the year, from each revenue stream, by checking them records and ensuring consistency to the Group’s timing and measurement of revenue recognition. to underlying The directors are responsible for the other information. The other information comprises the information included in the Group's annual report for the year ended 30 June 2022, but does not include the financial report and the auditor's report thereon. Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Directors for the Financial Report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. 69 In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor's Responsibilities for the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance Standards Board website at: http://www.auasb.gov.au/auditors_responsibilities/ar2.pdf. This description forms part of our auditor's report. Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 17 to 24 of the directors' report for the year ended 30 June 2022. In our opinion, the Remuneration Report of Energy Action Limited., for the year ended 30 June 2022, complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. RSM AUSTRALIA PARTNERS C J Hume Partner Sydney, NSW Dated: 30 September 2022 70 Shareholder information as at 19 September 2022 Shareholder information required by the Australian Securities exchange Limited (ASX) Listing Rules and not disclosed elsewhere in the Report is set out below: Substantial Shareholders The number of securities held by Substantial Shareholders and their associates as lodged with ASX are set out below: Name Number of Shares Current Interest1 Latest Notice Date Mr Noel Kagi 2,945,331 10.91% 26/03/2021 Mr Bruce Duncan MacFarlane and Ms Linda Ann Millar 2,937,786 10.48% 26/02/2021 Mr Murray Bleach & related entities 5,100,700 19.65% 09/06/2020 Mr Paul Meehan & related entities 4,727,091 18.21% 18/11/2013 Mr Stephen Twadell & related entities 1,946,209 7.50% 13/11/2012 Number of securities on issue The Company has 26,988,600 fully paid ordinary shares on issue which is held by 287 shareholders. Voting rights At a meeting of member, each member who is entitled to attend and vote may attend and vote in person, 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 on a poll, every member who is present or by proxy, attorney or representative shall have one vote for each fully paid share held. Distribution of security holders The following table summarises the distribution of quoted securities as at 19 September 2022: Energy Action Financial Report for the Full Year Ended 30 June 2022 71 Securities%No. of holders%24,606,83591.17289.761,631,8976.055017.42317,6541.184314.98419,8911.5613446.6912,3230.053211.1526,988,600100.00287100.00220,3630.8211841.1110,001 to 100,0005,001 to 10,0001,001 to 5,0001 to 1,000Unmarketable ParcelsTotalRange100,001 and Over Unmarketable parcels The number of shareholding less than a marketable parcels of ordinary shares is 118. An unmarketable parcel comprises of 3,846 fully paid ordinary shares based on EAX’s closing share price of $0.13 on 19 September 2022. The twenty largest shareholders of quoted equity securities as at 19 September 2022 Distribution of performance right holders and holdings – performance share rights (unlisted) There are no unlisted performance share rights on issue under the Company’s employee share plan as at 19 September 2022. On market buy back There is no current on market buy back. Securities exchange listing Energy Action Limited’s shares are traded on the Australian Securities Exchange under the ticker code EAX. Energy Action Financial Report for the Full Year Ended 30 June 2022 72  

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