The Uncommon Element
Enero Group Limited – Annual Report 2019
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2 CHAIRMAN’S REPORT
17 FINANCIAL REPORT
35 CONSOLIDATED STATEMENT
4 CEO’S REPORT
6 HIGHLIGHTS
7 CAPABILITIES
8
GEOGRAPHIC CONTRIBUTION
9 REVENUE CONTRIBUTION
10 STRATEGIST’S REPORT
12 YOUNG TALENT
14 CASE STUDIES
18 DIRECTORS’ REPORT
(INCLUDING THE
REMUNERATION REPORT)
31 CONSOLIDATED
INCOME STATEMENT
32 CONSOLIDATED
STATEMENT OF
COMPREHENSIVE INCOME
33 CONSOLIDATED STATEMENT
OF CHANGES IN EQUITY
34 CONSOLIDATED STATEMENT
OF FINANCIAL POSITION
OF CASH FLOWS
36 NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
71 DIRECTORS’ DECLARATION
72 INDEPENDENT
AUDITOR’S REPORT
79 LEAD AUDITOR’S
INDEPENDENCE DECLARATION
80 ASX ADDITIONAL
INFORMATION
THE
BOUTIQUE
FORCE IN
MODERN
MARKETING
Enero Group is a curated collection of marketing
and communications businesses combining creative
dynamism with objective analysis to deliver clients
the perfect chemical reaction of intellect and
imagination, as represented by the work of over
600 employees in 15 cities around the world.
Today, over 300 of our team members are specialists
in digital or tech roles. The other 300 staff members
have diverse skills ranging across strategy, data
analytics, research insight, creative ideation, design,
staff and stakeholder communications, government
relations, content production and social media;
along with new business, finance and administration.
Together this is a powerful mix of capabilities
centred around the key service areas that clients
want from their marketing services partners.
The Group provides support across management,
recruitment, learning and development, finance,
legal, property and IT; allowing our front-line team
members to focus on what they do best – serving
our clients by delivering world class, highly effective
outcomes, day-in, day-out.
As ‘marketing services’ has evolved and changed,
so have we, and our Group will continue to grow
and develop in new and exciting ways. We are
a nimble team with a global perspective and our
Group is very well positioned to take advantage
of the exciting new developments taking place
in our highly dynamic sector.
Our Group offering covers four key areas
of excellence spanning the marketing
services landscape:
• Insight, Strategy, Data and Analytics;
• Creative and Content;
• PR and Integrated Communications; and
• Digital and Technology.
OUR NAME MEANS ‘JANUARY’
IN SPANISH, WHICH IS WHY
WE ALWAYS LOOK FORWARD
WITH OPTIMISM, ENERGY
AND A ZEST FOR LIFE.
We exist to solve challenges for our
clients and deliver results beyond
their wildest dreams.
To do this we seek to unlock the unique
talent that lies within each one of us,
allowing our people the support, skills,
training and culture that help them
become the best versions of themselves
and in turn make their most effective
contributions each and every day.
We are passionate about what
we do and seek to inspire, and
encourage, all who we encounter.
We prize diversity of thought and
human diversity in all its forms.
We care about the world we live in
as well as the results and outcomes
that we achieve. And we also like
to enjoy some fun along the way.
We always support each other to grow
... knowing that we are big enough
to deliver, yet small enough to care.
1
Enero Group Limited – Annual Report 2019 2
John Porter
Independent Non-Executive Chairman
Enero Group Limited – Annual Report 2019 CHAIRMAN’S
REPORT
FY19 was a breakout year for the Group
with significant financial momentum and
material improvements in all financial metrics.
Dear Shareholders
I am very pleased to report on the progress
of the Group this year.
FY19 was a breakout year for the Group with
significant financial momentum and material
improvements in all financial metrics. Net profit
to equity holders pre-significant items of $12.1m
was 54% up on the prior year. Earnings per share
pre-significant items of 14.2 cps was 53% up on
the prior year. The Group achieved a 16% Operating
EBITDA margin, which is in line with industry
benchmarks, and in fact above when taking into
account support office costs included in our results.
We are cautiously optimistic we can continue to
achieve organic revenue growth, which had a very
impressive 14% year-on-year increase in 2019.
While the industry continues to change with
pace, we remain agile in determining our set-up
and shape. The Group’s size continues to be an
advantage in a time where the ability to integrate
capability is more important than ever before.
There has been a very measured change
implemented in FY19 to reduce the number
of operating brands, which allows for more
concentration and investment deployed on larger
businesses with greater opportunities and therefore
increasing the chances of better returns. Our larger
businesses are better equipped to attract and retain
the top talent in the market and win bigger clients.
The Group has a strong level of diversification of
clients and services, with no single client making
up more than 12% of total Group net revenue.
The Board declared an FY19 final dividend of
3.0 cents per share, fully franked, in August
2019. This brings total dividends paid for FY19
to 5.5 cents per share, fully franked – a 39%
dividend payout ratio and a 37.5% increase in
dividends from the prior year. While the dividend
payout ratio is marginally lower than last year,
we are committed to maintaining balance sheet
flexibility at this time when we may need to react
quickly to investment opportunities as they arise
and always being cognisant of our ongoing
commitments to contingent consideration.
Structuring contingent consideration does result
in some leverage, however the incentives for sellers
to drive future performance and linking the total
purchase price to agreed financial outcomes are
aligned with creating and protecting long-term
shareholder value. As at 30 June 2019, the Group
had a net cash position of $9.5m meaning there
is room to conservatively deploy more capital.
We will continue to pursue further acquisition
opportunities aligned with filling out our
geographical or service areas which need greater
capability and more scale. International markets will
likely be the area of focus in line with our intention
to unlock greater revenue opportunities. While it has
been slow progress, patience in finding the right
cultural fit is a vital factor in the ultimate success
of any future integrated offering and we are
confident likeminded agencies who share similar
strategic ambitions are out there.
In the meantime, we are open to investments
in our existing businesses if the right opportunities
present themselves and we have been open
to alternative ways to expand our footprint,
such as Hotwire’s affiliation agreement with
The Hoffman Agency. This affiliation is providing
Hotwire with a true global reach for its clients
through The Hoffman Agency’s presence in Asia
and vice versa for its clients in the UK and Europe.
The Group continues to generate strong cash flows
converting Operating EBITDA to cash at 103%
in FY19 and generally has low future capital
requirements thanks to the co-location strategy.
I would like to welcome Ian Rowden as a new
Independent Non-Executive Director who joined
the Board last November. Ian has a vast depth
of experience both on the client and agency sides
particularly in the creative agency space, which
gives our Board a new level of insight into the
client buying perspective. Additionally, his proximity
to the USA market, now a key geographic driver
for our growth, is also very valuable.
Thank you to my fellow Board members for your
ongoing support during the year.
On behalf of the Board, I would like to sincerely
thank all of the 600 talented staff we have working
in the Group for their contributions over the past
year. Their hard work and relentless drive has given
the Group a great platform for further growth.
As I continue to be based in Europe, I have had
a chance to spend time with some of the UK and
European teams in particular – and they all exhibit
the same positive approach to clients and their
fellow staff as we see in our Sydney hub office.
Finally, thank you to shareholders for your ongoing
support of the Group and I look forward to reporting
back next year with more progress.
3
Enero Group Limited – Annual Report 2019 CEO’S
REPORT
FY19 has proven to be an excellent
year with very good results demonstrating
that our businesses are performing in
a stronger and more consistent manner.
Dear Shareholders
FY19 has proven to be an excellent year with very
good results demonstrating that our businesses
are performing in a stronger and more consistent
manner. Financially the Group has delivered
substantial increases across key metrics including:
• Revenue up 25% to $129.5m;
• EBITDA up 53% to $20.7m;
• Operating EBITDA margin up to 16%;
• EBIT up 69% to $17.4m; and
• Net profit after tax pre significants to equity
owners up 54% to $12.1m.
The Australian market performed well in FY19,
on the back of a full year contribution from Orchard
Marketing. Orchard has brought increased digital
capabilities into the Group and has also provided
a large portfolio of healthcare clients, which
operate in a high growth sector.
BMF maintained its position as ‘Australia’s most
effective agency’ and continued to trade well with
notable client wins including Tourism Tasmania and
Agoda. BMF continued its exemplary relationship
with ALDI stores, now spanning 19 years, and also
conducted numerous important campaign projects
for the Australian Federal Government.
In Australia, FY19 included two moves in our
journey to simplify and streamline our Group:
• Merging Precinct, our stakeholder
communications business, into Hotwire; and
• Merging Naked, our smaller strategic and
creative agency, into BMF.
In both cases, there are significant benefits
to clients, staff and all stakeholders by
combining capabilities.
In the USA, we have seen a rapid growth
acceleration in the current year from both Hotwire
and OBMedia. Substantial new Hotwire clients
including Adobe, Facebook, NetApp and Cummins
Electric have led to more multi-office opportunities
across the entire Hotwire international network.
In the UK, Hotwire and Frank continue to hold their
long-standing records as the most profitable public
relations businesses in their region. Across both the
UK and Europe, FY19 included senior hires ahead
of the revenue curve, which while slightly
dampening the achieved margins were necessary
steps to underpin future growth.
While FY19 has been a very good year, we take
nothing for granted and cannot afford to lose
momentum in our fast paced and rapidly changing
sector. The Group strategy of the past few years
of ‘Remedial, Reliable and Reimagined’ has served
us well and ultimately delivered shareholder growth.
However, changes in our sector have required
fresh thinking so we revisited the Group strategy
planning process and have now implemented
a new strategic plan for the period FY20 to FY23.
Enero is in a growth phase and the new strategy
embraces themes of ‘Simplify, Evolve and Grow’.
To that end we will be successful if we can:
• Better integrate our brands and businesses,
so that we reduce complexity and make our
Group simpler and easier to navigate for our
clients and for our colleagues;
• Strengthen and focus our Group around
our key areas of excellence, namely:
– Strategy, Insight, Data and Analytics;
– Creative and Content;
– PR and Integrated Communications; and
– Digital and Technology;
• Back the stronger, larger businesses and growth
opportunities to ‘build upon the peaks’;
• Have a simpler, more scalable offer, better
replicated across key markets, with co-located
teams working alongside each other as they
do in our Sydney hub;
• Build out our skills, capabilities and talent base
across our international office network of 15 cities
and growing;
• Maintain the great momentum and positive
culture that we already have achieved;
• Enhance our platforms, processes and cultural
alignment so that cross-company collaboration
becomes as frictionless as possible and the
standard operating method;
• Evolve our lead businesses so they are
uniquely equipped and ready to compete
as the most exciting ‘future facing’ models
within their categories;
4
Enero Group Limited – Annual Report 2019 Matthew Melhuish
Chief Executive Officer and Executive Director
passion for their work and their care for their
clients and for their teammates. I am very proud
that every year I have written to shareholders
we have been able to report a marked step-on
from the year before.
We are living through a time of great change through
the impact of technology disrupting many sectors
plus substantial uncertainty around the geopolitical
and macroeconomic forces at play, which are largely
outside our control.
While accepting that reality, the re-shaping and
disruption in the marketing services sector also
offers wonderful opportunities for a small and
nimble Group like ours. We believe Enero is at
a fantastic inflection point and is perfectly placed
to capitalise on the tide of opportunity that is
flowing in our favour.
We are building a high performing Group and all
of our team are very excited about the year ahead
– simplifying, evolving and growing a better future-
facing business for our clients, our staff and our
shareholders; and we remain very grateful for your
continued engagement and ongoing support.
• Embrace new technologies so that we are as
future-fit as we can be on an ongoing basis; and
• Identify, secure and integrate new
acquisitions with excellence – strengthening
our skillsets, adding new teams and opening
up new geographies.
If we achieve the above, we will become a stronger
Group, an even better partner for our clients and
able to offer more exciting career development
opportunities for our people.
These tasks will require us to look at our Group,
our brands and our capabilities in new ways and to
assist Enero through this process we have appointed
a new role, Enero Group Chief Strategy Officer to
help navigate the journey. Gavin Coombes has taken
this role working alongside the excellent Enero
Executive team of Brendan York, Chief Financial
Officer, Fiona Chilcott, Chief People and Culture
Officer and Cathy Hoyle, Group General Counsel.
Gavin has had direct hands-on experience across
a multitude of marketing services agencies including
PR, Public Affairs, Digital, Direct, Brand Consulting
and Advertising as well as client side, and his
unique skillset will be of great value to Enero.
Gavin will also have the time, focus and
accountability to deep dive and explore how
best to shape and commit resources where they
will yield the strongest returns for us all. Gavin will
be based in Sydney but will have a global remit.
I would like to sincerely thank all our talented
employees who give so much every day in their
5
Enero Group Limited – Annual Report 2019 OVERVIEW
FINANCIAL HIGHLIGHTS
NET
REVENUE
OPERATING EBITDA
OPERATING
EBITDA
$129.5m
$20.7m
MARGIN 16%
$12.1m
14.2CPS
5.5CPS
NET PROFIT AFTER TAX
BEFORE SIGNIFICANT ITEMS
FY19
DIVIDENDS
EARNINGS PER SHARE
BEFORE SIGNIFICANT ITEMS
UP
25%
UP
53%
UP
53%
UP
53%
UP
37.5%
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Enero Group Limited – Annual Report 2019 BUSINESS AND
CAPABILITIES
INSIGHT, STRATEGY, DATA AND ANALYTICS
To help clients find their edge and
unleash their hidden potential
Strategy, insight and research in
innovation, branding and communications
and channel marketing.
Experts in online research
and data delivery
Digital research, 100,000+ member
online community and insights through
multi-media sources.
CREATIVE AND CONTENT
Home of the long idea
Brand strategy, integrated campaign
development, research, creative advertising
– creation and production, digital and
interactive marketing, short and long form
content, retail catalogues, all forms of
production, design, CRM/direct marketing,
proprietary photographic studios and
BMF Plus innovation suite.
PR AND INTEGRATED COMMUNICATIONS
We help brands better engage
and connect with customers
Informed. Strategic.
Connected.
Engaging governments, managing critical
issues, and communicating with strategy
to build reputation and influence.
Global integrated communications agency
operating from Sydney to San Francisco
with a borderless mind-set across 34
locations including the UK, US, Mexico,
France, Germany, Spain, Italy and Australia,
together with exclusive partners Yellow
Communications in the Netherlands and
Belgium, Active DMC in the Middle East,
The Hoffman Agency in Asia and VIANEWS
in Brazil, as well as other affiliate partners.
DIGITAL AND TECHNOLOGY
Invent better
Digital strategy, integrated campaign
development, digital marketing,
websites, content development, social,
data, content management systems,
technology integration, marketing
automation and applications, all delivered
with a customer experience focus.
Monetising the world’s
digital audience
Online programmatic media and advertising
network with advertiser and publisher
monetisation solutions.
Ideas worth talking about
Frank, a creative agency, helping brands
become part of conversations, or to kick-
start conversations of their own. Insight-led,
channel neutral, integrated campaigns. Ideas
worth talking about. We call it Talkability®.
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Enero Group Limited – Annual Report 2019 GEOGRAPHICAL
RESULTS
GEOGRAPHICAL CONTRIBUTIONS
FROM OPERATING COMPANIES
INTERNATIONAL MARKET
CONTRIBUTION
54% of Net Revenue and 61%
of Operating EBITDA in FY19 with
access to larger overseas markets
driving higher organic revenue
growth and increased margins.
SYDNEY HUB
Sydney hub office with 300 staff
across all key businesses representing
an integrated approach to clients.
USA ON THE UP
Exceptional growth in USA market
in FY19, delivering a 52% increase
in Net Revenue and 189% increase
in Operating EBITDA year on year.
USA
UK AND EUROPE
AUSTRALIA
NET REVENUE
FY19
24%
37%
OPERATING EBITDA
FY19
8
NET REVENUE
FY19
30%
24%
OPERATING EBITDA
FY19
NET REVENUE
FY19
46%
39%
OPERATING EBITDA
FY19
Enero Group Limited – Annual Report 2019 CLIENT
ANALYSIS
REVENUE BY
INDUSTRY
CLIENTS REPRESENTED
ACROSS MULTIPLE
INDUSTRIES
Exposure to high growth sectors
of Technology (26% of Revenue)
and Healthcare (10% of Revenue).
GLOBAL COLLABORATION
Increases in multi-office and
multi-brand client assignments
created more global projects
and opportunities for staff.
CLIENT DIVERSITY
Diverse client base with over 600
individual relationships; the largest
of which is only 12% of Group Revenue.
Telecommunications
Utilities
and Energy
Property
and Construction
Transportation, Airlines
and Automotive
4%
1%1%
4%
Banking, Finance
and Insurance
5%
26%
Information
Technology
Healthcare
10%
Manufacturing
12%
13%
Retailing
12%
12%
Services
Media
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Enero Group Limited – Annual Report 2019 ENERO AND
THE THIRD
AGE OF
INTEGRATION
Gavin Coombes, Group Chief Strategy Officer, Enero,
investigates what it means to offer an ‘integrated’
advertising and marketing services solution.
It means being able to deliver a promise clients
have been waiting on, for three decades.
It was the early 1990s when the advertising industry
first added the word ‘integration’ to its lexicon.
This was the same time the agency model began
its first evolution away from a commission-based
structure on its way to what is today an almost
wholly fee-based approach.
The two events were related.
In the commission age, one agency (Leo Burnett)
made over $1 billion from a single campaign
idea (the Marlboro man). That type of return
on creative investment was never going to be
replicated in a fee-paying age.
So, agencies began to spread their bets, producing
all sorts of marketing and promotional collateral
under the banner of ‘integration’. With the Internet
still largely confined to science labs, there was
in reality precious little integrating going on.
It was the late 90’s when ‘integration’ achieved
full lift-off in theory if not in practice. This was the
dawn of the commercial Internet age, when clients
suddenly had a real, live, direct connection to their
customers. Or so it was hoped. True integration,
however, remained elusive.
The defining thought experiment of the second
age was called the ‘purchase decision-making
cycle’. The idea was that advertising would build
awareness and drive customers online, where they
would learn all about the products and services
and either purchase direct via the web channel
or – far more common in the pre-broadband
era – pop into their nearest retailer.
As widely used and as popular as it was, there
was always something a little artificial about this
approach. It assumed consumers would follow
a linear pathway, dropping down the sales funnel
like a ball through a hoop, barely touching the net.
The results didn’t bear this out. If it was a robust
approach, pets.com and many similar pure plays
would still be in business.
Moreover, if the purchase decision-making cycle
and related industry promises had truly borne fruit,
we would have seen an accompanying decline in
pitch review processes where the priority stated
outcome was ‘greater integration’. Yet demand for
integration has in fact increased, with CMOs and
CCOs registering greater and greater frustration over
time at the inability of their agencies to deliver.
This despite the fact that more and more operating
brands have come under the control of major holding
companies. The more talk of ‘knocking down silos’ –
with some brands even claiming a ‘refounding’ – the
more elusive true integration becomes.
But this time is different. Really.
Data is the new oil. Literally. In the past 12 months,
the aggregate global value of all data surpassed the
value of all known oil reserves. A consumer with
a social media presence of average engagement
level will have left a trail of up to 70,000 data
points. If backed by the right combination of
hardware, software and algorithms, a marketer can
now design and deploy a mix of messaging, creative
and placement targeting micro-segmented consumer
groups with laser-guided precision. Genuine ‘1-to-1’
marketing, a promise first made back in the early
90’s, can now be delivered upon.
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Enero Group Limited – Annual Report 2019 Finally, we will be taking a long, careful look
at the role to be played by data-driven technology
in each of the brands and the Group as a whole.
If there is a critical lesson to be learned from the
first two ages of integration – both of which fell
short of actual integration – it is that new technology
is never a panacea despite almost always being
treated as such by agencies and clients eager
for the promised land they’ve been seeking for
nearly three decades. Some will never find it.
Too much legacy, too much scar tissue.
Enero suffers from none of the above. It is perfectly
positioned to make the third age a reality; not just
another promise.
However, to do so requires learning the hard lessons
of the recent past. One: resist the temptation to
over-promise and force clients down theoretical
models unreflective of consumer lives. Two: retain
– and even prioritise – the human touch. A machine
can tell you where to meet the target, not how to
trigger an emotional response. Three: find and hold
a clear flight path. This is where a boutique size and
a streamlined offer has an advantage.
Over the next 12 months, Enero will begin to
refashion its strategic offer so it meets the
promise of the third age while stepping around
the landmines of the previous two. We will add to
our bench of planning talent and we will fine-tune
both the positioning of our operating brands and
the role of individual strategic planning teams
in living up to this refreshed promise. This is so
each brand has (a) a clear space in the market;
(b) a defined position for the portfolio; and
(c) the right balance of complementary and
supplementary skillsets relative to sister companies.
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Enero Group Limited – Annual Report 2019 POTENTIAL
UNLEASHED
“Our people are our most important element
and I am grateful so many innovative, passionate
and talented people are choosing to join our
agencies. We take the growth and development
of our people seriously – it’s the best investment
we make. This group of remarkable individuals
decided to launch their careers with us; in return
our focus is ensuring their experience is exceptional.”
Fiona Chilcott
Chief People
and Culture
Officer, Enero
CHARLENE GAGE
Senior Associate, Hotwire
What drew you to your craft? I always loved reading and telling stories.
At the same time, I grew up around and had an interest in technology.
I learned that those who designed technology needed help telling their
stories which turned out to be the perfect fit for me.
What do you see as the most exciting opportunity on the horizon
for your craft/industry? From a day-to-day level, I am most excited for the
technology we work with to change how we approach PR, specifically AI.
We do our best work when we have the brain space to think and be creative;
automating necessary but repetitive tasks gives us a change to do our best work.
What do you want to be great at? I want to be great at boiling down content
given to me to determine the single thread that will have the biggest impact
and deliver on that impact. For telling interesting and engaging stories.
ANTHONY TODOROVITCH
Finished Artist/Designer/Art Director, BMF
What drew you to your craft? I was always really interested in music
and art growing up ... turns out I wasn’t so good at music in the end.
What do you want to be great at? Making great work. Work that’s
entertaining, engaging, effective and intriguing. Creating practical art.
What do you see as the most exciting opportunity on the horizon
for your craft/industry? I think the most exciting thing to me is seeing
boundaries always being pushed. New and ground-breaking ways
of communicating a message are always refreshing.
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Enero Group Limited – Annual Report 2019 KATRINA LEO
Project Manager, Orchard
What drew you to your craft? Being a project manager has instilled in me
the belief that there’s always a solution. It’s very rewarding to work with
motivated clients and teams, and contribute to projects with new approaches,
such as mixing the traditional methods with new digital possibilities from
beginning to end.
What do you see as the most exciting opportunity on the horizon
for your craft/industry? As the advertising landscape continues to change,
we are increasingly called to work across borders, no longer limited to the
current place or country we are in. It’s exciting, yet challenging; requiring
improved communications, transparency in ways of working, and going
above and beyond to ensure our clients’ success.
What do you want to be great at? While my main role is project management,
I get a lot of opportunities to contribute strategically for my clients; a skillset
I’m passionate about developing. Recently, I had the opportunity to contribute
to one of our global clients’ strategy planning in our NYC office, and that was
an amazing learning experience.
KELLIE BOX
Strategic Planner, BMF
What drew you to your craft? The ability to use creativity to solve big business
problems. Being able to get under the skin of the human problems that could
be hindering brand or business success, and then using these insights to help
shape both effective and creative work.
What do you see as the most exciting opportunity on the horizon
for your craft/industry? Planning itself is a relatively young discipline.
As an industry we’re still learning and debating the best way to grow brands;
how to use channels, and understand our customers. There is never one answer,
and I love that. I can’t wait to see what another 50 years will teach us.
What do you want to be great at? Planning skills aside, authentic leadership is
something I’ve come to admire. I have experienced first-hand the kind of trust
it fosters and the agency culture it builds, making workplaces more than just
cubicles and desks, and colleagues more than just managers.
ZAC NAIRN
Junior Designer, Hotwire
What drew you to your craft? A culmination of interests, distractions and
missteps allowed me to dabble in film, creative advertising and design.
This led me to find my passion for conceptual communication.
What do you see as the most exciting opportunity on the horizon
for your craft/industry? The avenues for creative campaigns to be executed
using emerging technologies like augmented reality and artificial intelligence
fill my mind with possibilities. Aside from that, having recently plunged into
my first full-time creative role, everything is exciting.
What do you want to be great at? I want to create impactful campaigns
across design and advertising.
ALEXANDRA KOVACS
Junior Account Executive, Frank Australia
What drew you to your craft? I have always been a strong writer and I thrive on
developing relationships with new people. Consumer public relations ties these
two interests together perfectly within the context of liaising with the media on
news from brands.
What do you see as the most exciting opportunity on the horizon
for your craft/industry? Cuts to newsrooms have resulted in a shrinking
pool of journalists to liaise with and public relations professionals are being
pushed to expand our expertise to more creatively engage media and connect
with consumers.
What do you want to be great at? Storytelling. Crafting information
into messages that impact people’s lives – whether that be their impression
of a person, or the way they interact with a brand on an everyday basis.
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Enero Group Limited – Annual Report 2019 CLIENT
SHOWCASE
FROM LIFE INSURANCE TO
INSURANCE FOR LIFE
Scars integrated campaign
Client: TAL Agency: BMF
Life insurance should be something people feel
good about owning. It’s the ultimate friend when
you are in need: someone who will help you when
you need help the most. But unfortunately, the life
insurance category today is both misunderstood
and mistrusted. BMF’s ambition was to show the
strength and resilience of people who have been
through a serious illness, injury or bereavement
and demonstrate how Australia’s leading life insurer,
TAL, will be there to support them back to their
very best selves.
The integrated campaign shifted TAL’s frame of
reference from ‘life insurance’ to ‘insurance for life’
and broke the category formula of ‘fearmongering’.
It impacted the audience by showcasing the
humanity of Australians’ scars and the part
TAL plays in helping people move forward in life.
A simple, confronting truth that has already
exceeded brand perceptions and commercial results.
EXPOSING THE LOYALTY PROGRAM MYTH
Pointless Points campaign
Client: ALDI Agency: BMF
BMF launched ALDI’s Good Different brand positioning to address
ALDI’s ‘discount’ supermarket perceptions – an inhibiter to its sales
growth. But the Australian duopoly of Coles and Woolworths, ‘Colesworths’,
were cleverly using their competitive advantage of data and 1-2-1 digital
channels to neutralise ALDI’s everyday low-price promise. Shoppers were
ignoring the bigger savings at ALDI, lured and blinded by the lesser but
more tangible rewards offered through loyalty programs.
ALDI needed to prove to shoppers that, no matter how many millions of points
they collected at other supermarkets, savings have – and always will be –
ALDI’s loyalty scheme. So, in a country addicted to loyalty points, BMF
highlighted just how ‘pointless’ the big supermarkets’ schemes were. With
an integrated campaign led by a digital experience dubbed the ‘ALDI Loyalty
Calculator’, shoppers could plug in a reward they were saving for and calculate
how long and how much money they would need to spend in order to earn it.
The campaign made big headlines but most importantly de-positioned the
value of points in a very tangible way, significantly increasing ALDI’s total
sales and lifting ALDI’s low price perceptions.
14
Enero Group Limited – Annual Report 2019 WHEN PARLIAMENT
BECAME A LIBRARY.
Libraries Change Lives campaign
Client: Public Libraries Victoria Agency: CPR
Victoria’s public libraries welcome 30.5
million visitors a year, provide 5 million free
Wi-Fi sessions, and generate $4.30 of benefit
for every dollar invested. But with demand growing
faster than library budgets, how do you encourage
busy politicians to advocate increased government
support? CPR decided that rather than taking the
politicians to the library, why not bring the library
to them?
This meant creating a contemporary library
experience for every MP at Parliament House,
complete with a tri-lingual story time for pre-
schoolers, a knitting group, and even four
robots delivering STEM education. Plus 2,000
handwritten postcards from community members
explaining why library funding matters. The event
was part of a broader Libraries Change Lives
campaign, which gives libraries tools to increase
their profiles. This resulted in record State
Government funding of $44.7 million announced
in June, with the campaign continuing in FY20.
BRINGING THE SPIRIT
OF JAPAN TO AUSTRALIA
New RTD innovation
Client: Beam Suntory Agency: The Leading Edge
The Leading Edge undertook multi-stage
consumer-first innovation exploration and
testing, from innovation platforms through
to concept, packaging, and sensory with
Beam Suntory, identifying growth
opportunities within its RTD portfolio.
This culminated recently in the launch of
Koyomi Highball, a premium Soda RTD blended
with Shochu and seasonal Japanese flavours.
This contemporary and sophisticated drink is
the first RTD of its kind in the Australian market.
BUILDING IKEA’S REACH WITHOUT BRICKS
On-going tech and digital initiatives
Client: IKEA Agency: Orchard
IKEA is one of the world’s leading brands; changing forever how people
shop for homewares. Orchard partners with IKEA to bring the same level
of innovation and disruptive thinking to IKEA’s tech and digital space.
Working with the Chief Digital Officer over the last 24 months Orchard
launched digital initiatives which have helped IKEA disrupt the industry and
push the brand into new areas of growth. These include an eCommerce Gift
Card site; a Virtual Reality shopping experience to launch IKEA in Queensland;
an Augmented Reality solution to support staff training; and a digital shopping
experience to launch the smallest IKEA shop in the world.
These initiatives have all shown great promise, with the eCommerce
site delivering a return on investment in less than 24 hours.
The smallest IKEA shop in the world is now being upgraded with motion
sensors to detect movement, data smarts and a more streamlined eCommerce
experience – paving the way for IKEA to explore supported digital shopping
experiences across the country.
15
Enero Group Limited – Annual Report 2019 DOMINATING THE DISCUSSION
5G at the Mobile World Congress
Client: Qualcomm Agency: Hotwire
Qualcomm – the global chipmaker and telecoms
equipment maker – tasked Hotwire with using the
world’s biggest mobile event, Mobile World Congress
(MWC), to stake its claim as the leader in 5G.
To stand out from competitors, rather than indulging
in navel gazing about the future, Hotwire decided
to focus on the real-world practical impact of 5G.
The campaign involved briefing over 150 journalists
across seven roundtables and numerous press
conferences ensuring that no-one was left in any
doubt as to the real-world applications of the
technology; creating a hero platform for Qualcomm
EMEA president Enrico Salvatori, comprising
thought leadership, a keynote talk, and a partner
event; and helping attendees navigate the show
by creating a bespoke 5G Event Journey Map.
Qualcomm dominated the 5G discussion, with
the campaign impact going far beyond the show –
delivering over 10,000 pieces of coverage across
Europe and a 299% increase in traffic to
Qualcomm’s site.
BLENDING THE PHYSICAL AND DIGITAL WORLDS
Digital transformation journey
Client: Hyundai Agency: Orchard
When the number three brand in market, Hyundai, engaged Orchard
to help build a new website, the project quickly evolved into leading
its digital transformation journey.
Orchard now works across a number of evolving initiatives, from the Digital
Customer Journey to Ownership Experience Strategy; from Purchasing Strategy
to Content Strategy. Supporting all of these is the adoption of the Adobe Stack
(AEM, Analytics, Target) to deliver the technology. This two to three-year
project will deliver a solution to prospects, owners and dealers and will support
initiatives across CRM, media and various other partner businesses. The results
will be seen across many facets of the business for many years to come.
In the interim, Orchard has been optimising the existing site to deliver
incremental improvements without over-investing. These Conversion Optimisation
strategies on the website alone have seen some impressive results, including a
45% increase in time on page; a near 30% decrease in bounce rate; and over
100% increase in test drives booked.
16
LIGHTS, CAMERA, TRACTION.
Northern and Southern Lights campaign
Client: Huawei’s P30 Pro handset Agency: Frank
In April 2019, Frank executed one of Huawei’s most
ambitious projects to date by bringing the Northern
Lights to London. Why? To celebrate the launch of
the Huawei P30 Pro, the phone with unparalleled
low-light photography capabilities. And what better
way to show off the handset’s low-light capabilities
than to photograph a phenomenon which only appears
in the dark and is notoriously difficult to capture?
Not only did the stunning event, which took place over
three nights at the Tower of London, give consumers
the opportunity to try the Huawei handsets, it perfectly
conveyed the brand message of ‘humanly possible’
and was so successful it saw Google searches for the
P30 Pro handset increase by a whopping 421%.
More than 4,000 people came to see the spectacle
and, following Frank’s media outreach, global media
coverage was secured, spanning all the way to
Australia where Frank replicated the spectacle ...
but this time as The Southern Lights, in Sydney’s
Royal Botanical Gardens, two weeks later.
Enero Group Limited – Annual Report 2019 FINANCIAL
REPORT
for the year ended
30 June 2019
DIRECTORS’ REPORT
Directors’ Report
The Directors present their report, together with the
financial statements of Enero Group Limited (the
Company) and of the Group, being the Company and its
controlled entities, for the year ended 30 June 2019; and
the auditor’s report thereon.
Directors
The Directors of the Company at any time during or since
the end of the financial year are:
John Porter – Independent Non-Executive Chairman
John was appointed as Chairman and Non-Executive
Director of the Company on 24 April 2012. Prior to joining
Enero Group, John Porter was Executive Director and
Chief Executive Officer of Austar United Communications
Limited from June 1999 to April 2012. John was Managing
Director of Austar Entertainment Pty Limited from July
1997 to December 1999. From January 1997 to August
1999, he also served as the Chief Operating Officer of
United Asia Pacific, Inc. (UAP). He led the establishment of
Austar Entertainment Pty Limited in 1995, and by doing so
played an integral role in the development of Australia's
subscription television industry. Prior to joining Austar,
John spent 10 years in various senior management
capacities for Time Warner Cable, a subsidiary of Time
Warner, Inc. He has more than 30 years of management
experience in the US and Australian subscription television
industries. John is also currently CEO of Telenet Group
Holding NV (effective April 2013). John is the Chairman of
the Remuneration and Nomination Committee.
Matthew Melhuish – CEO and Executive Director
Matthew was appointed Chief Executive Officer and
Executive Director of the Company on 16 January 2012.
Matthew has over 30 years’ experience in the advertising
and marketing industry across a range of roles in Australia
and the UK. Prior to being appointed CEO, Matthew had
been the key executive overseeing the Company’s
Australian Agencies business. Matthew is a founding
partner of leading creative agency BMF, and was CEO of
that business for 15 years from its inception through to
BMF being named as Agency of the Decade. Matthew is a
respected leadership figure within the Australian
advertising industry. He was Chairman of the EFFIEs
Advertising Effectiveness Awards for 10 years and he has
played key roles for over 15 years as a National Board
member of the peak industry body The Communications
Council, and as a National Board member and National
Chairman of its predecessor organisation the Advertising
Federation of Australia (AFA). Matthew was a Board
member of the Sydney Festival for 9 years and of the
international aid organisation Médecins Sans
Frontières/Doctors without Borders (MSF) for 10 years.
Susan McIntosh – Non-Executive Director
Susan was appointed as a Non-Executive Director of the
Company on 2 June 2000. Susan has more than 25 years’
business experience in media (international television
production and distribution and radio) and asset
management, and is the Managing Director of RG Capital
Holdings (Australia) Pty Ltd. Prior to joining RG Capital,
Susan was Chief Financial Officer of Grundy Worldwide Ltd
and played an integral role in the establishment of its
international television operations and in the eventual sale
of the company in 1995. Susan was previously a Director
of RG Capital Radio Ltd and E*TRADE Aust Ltd. Susan is
a member of the Institute of Chartered Accountants. Susan
is a member of the Audit and Risk Committee, and the
Remuneration and Nomination Committee.
Anouk Darling – Independent Non-Executive Director
Anouk was appointed as a Non-Executive Director of the
Company on 6 February 2017. Anouk has over 20 years’
experience in marketing and brand strategy. Anouk is a
Director of Macquarie Telecom Limited (effective March
2012) as well as a member of its Audit and Risk
Committee, and Remuneration and Nomination Committee.
Anouk is also a Board member of Discovery Holiday Parks
and a member of its People and Remuneration Committee
as well as a Non-Executive Director of Endevour Colleges,
Ngahuia Group Ltd and Food Service Group Australia.
Anouk also consults as an operating partner to Allegro
Funds across its portfolio companies. Her most recent
Executive role was Chair of Moon Communications Group,
a business which she worked in for 12 years, where she
firstly held the role of Strategy Director and then served as
Chief Executive Officer. Anouk is Chair of the Audit and
Risk Committee.
David Brain – Independent Non-Executive Director
David was appointed as a Non-Executive Director of the
Company on 10 May 2018. David has over 25 years’
experience in public relations and integrated
communications. David’s most recent Executive role was
as a Director of the Group supervisory board of Edelman,
the world’s largest Public Relations firm, and a member of
its global management board. During 13 years at Edelman,
he was CEO of the Europe Middle East and Africa (EMEA)
region and, latterly, CEO of Asia Pacific Middle East and
Africa (APACMEA). Prior to Edelman, David was Co-CEO
of Weber-Shandwick UK and Managing Director at Burson-
Marsteller UK. He has also worked in Corporate Affairs at
Visa International and as a planner in advertising. David is
currently an Advisory Board member of The Spinoff, New
Zealand’s most successful online news magazine; and an
investor and Advisory Board member of Parkable, a New
Zealand based new economy business. David is a member
of the Audit and Risk Committee.
Ian Rowden – Independent Non-Executive Director
Ian was appointed as a Non-Executive Director on
21 November 2018. Ian is a recognised global business
leader whose career has spanned marketing, operational
and commercial leadership roles across four continents
with some of the world’s most admired brands and in the
world’s most diverse marketplaces. Ian began his career
with The Coca-Cola Company in Sydney, Australia in 1980
and for over 20 years he held numerous senior executive
roles with that company worldwide. These included Region
President for the China Division based in Hong Kong and
Global Head of Consumer Communications based in
Atlanta, Georgia. From 2000 to 2004 he served as Chief
Marketing Officer for The Callaway Golf Company. In 2004
he joined Wendy’s International as Chief Marketing Officer,
a position he held until 2007 when he was appointed
Chairman and CEO, Asia Pacific for Saatchi & Saatchi.
From 2011 to 2015 he served as Partner at The Virgin
Group and concurrently as a Board Member of Virgin
Galactic and Virgin Produced.
18 Enero Group Limited Annual Report 2019
18
Enero Group Limited – Annual Report 2019
Operating and financial review
Operations of the Group
The Group consists of eight marketing and
communications services businesses across seven
countries with more than 600 employees. The Group is
connected through four key service competencies:
• Insight, Strategy, Data and Analytics – The Leading
Edge and The Digital Edge;
• Creative and Content – BMF;
• PR and Integrated Communications – Hotwire,
Frank and CPR; and
• Digital and Technology – Orchard and OBMedia.
The Group’s service offering includes integrated marketing
and communication services, including strategy, market
research and insights, advertising, digital, public relations,
communications planning, design, events management,
direct marketing and corporate communications.
The Group has three key geographic locations – Australia,
UK and USA – which house the majority of the Group’s
businesses and employees. The Group also has a number
of non-owned affiliates in other geographic areas which
connect the Group into a global network.
Financial performance for the year
The Group achieved Net Revenue of $129.5 million, an
increase of 25% compared to the prior reporting period.
Operating EBITDA of $20.7 million was 53% above the
prior reporting period. The Operating EBITDA margin
increased from 13.0% in 2018 to 16.0% in 2019. In the
current year, the Operating Brands segment generated
approximately 54% of its net revenue and 61% of its
Operating EBITDA from international markets.
The increase in Revenue and Operating EBITDA in the
current year was attributable to:
− a full year contribution from Orchard Marketing in the
current year (2018: a five-month period from February
2018);
− significant growth in the USA market; and
− growth in Integrated Communications and Digital
service competencies.
During the year, two operating brands, Precinct and Naked
Communications, were merged into Hotwire and BMF
respectively – effective for FY20. The basis for these
mergers is to simplify the Group’s brand portfolio and to
increase capabilities in the Group’s larger businesses.
Ian is a Director of QMS Media Limited (effective February
2019); is currently a member of the Investment Advisory
Board of Innovate Partners LLC, a Los Angeles area based
venture capital firm; and is a Board member of private
Companies Brightguard and Premier League Basketball
(UK) as well as Miami Ad School (US), a non-profit entity.
Ian is a member of the Remuneration and Nomination
Committee.
Roger Amos – Independent Non-Executive Director
Roger was appointed as a Non-Executive Director of the
Company on 23 November 2010. Roger resigned as a
Director on 18 October 2018.
Company Secretary
Brendan York was appointed Company Secretary on
1 July 2012. He is also the Chief Financial Officer of the
Group. Brendan is a Chartered Accountant and has a
Bachelor of Business Administration and a Bachelor of
Commerce from Macquarie University.
Principal activities
The principal activities of the Group during the course of
the financial year were integrated marketing and
communication services, including strategy, market
research and insights, advertising, digital, public relations,
communications planning, design, events management,
direct marketing and corporate communications.
Corporate Governance
The Directors support and have adhered to the principles
of corporate governance.
A copy of the Company’s full 2019 Corporate Governance
Statement, which provides detailed information about
governance, and a copy of the Company’s Appendix 4G
which sets out the Company’s compliance with the
recommendations in the third edition of the ASX Corporate
Governance Council’s Corporate Governance Principles
and Recommendations (ASX Principles), is available on
the corporate governance section of the Company’s
website at http://www.enero.com/shareholder-
centre/corporate-governance.
Events subsequent to balance date
Subsequent to the balance date, the Directors have
declared a final dividend, with respect to ordinary shares,
of 3.0 cents per share, fully franked. The final dividend will
have a record date of 23 September 2019 and a payment
date of 8 October 2019. Except for this event there has not
arisen, in the interval between the end of the financial year
and the date of this report, any item, transaction or event of
a material and unusual nature likely, in the opinion of the
Directors of the Company, to significantly affect the
operations of the Group, the results of those operations, or
the state of affairs of the Group in future financial years.
Likely developments
The Group will continue to focus on its strategy outlined in
the operating and financial review. The Group will
specifically focus on new business conversion to increase
net revenues and building scale and presence in the UK
and USA markets to ensure revenue and Operating
EBITDA contributions across the three geographic regions
are evenly weighted. The Group will also continue to
assess acquisition opportunities as they arise.
Enero Group Limited Annual Report 2019 19
19
Enero Group Limited – Annual Report 2019
DIRECTORS’ REPORT
Directors’ Report
Reconciliation of statutory profit after tax to Operating
EBITDA
In thousands of AUD
2019
2018
Net revenue
Operating EBITDA
Depreciation expenses
Amortisation of intangibles
Net finance income
Present value interest
Gain on sale of business asset
Contingent consideration fair value
loss
Profit before tax
Income tax expense
Statutory profit after tax
129,535
20,722
(2,209)
(1,066)
467
(1,153)
–
(6,390)
10,371
(2,297)
8,074
103,685
13,513
(2,548)
(667)
43
(628)
627
–
10,340
(1,253)
9,087
Significant items
The Company incurred the following significant one-off
items:
2019
Contingent consideration fair value loss of $6,390,000
relating to revaluation of future contingent consideration
payable to the vendors of Eastwick Communications.
2018
On 31 October 2017, the Group sold Dark Blue Sea’s (a
subsidiary) domain registrar asset for consideration of
$627,000. As this asset was previously impaired, a gain on
sale was recognised in the income statement for the year
ended 30 June 2018.
Capital management
The Group’s capital management strategy aims to balance
returns to shareholders through dividends, funding
acquisition and investment opportunities as well as
maintaining adequate cash reserves for existing
businesses. The Group continues to seek acquisition
opportunities that are aligned with Group strategy from a
geographical or expansion of services perspective.
Acquisitions
2019
There were no acquisitions in 2019.
2018
On 2 February 2018, the Group acquired 100% of the
issued capital of Orchard Marketing Pty Limited, a creative
and technology agency with offices in Sydney and New
York. The purchase price was an upfront cash payment of
$5 million in addition to contingent consideration payments
tied to EBIT targets through to the period 30 June 2021.
Refer to Note 21 Acquisition for details.
Contingent Consideration Liabilities
The Company entered into contingent consideration
arrangements in relation to its acquisitions of Orchard
Marketing on 2 February 2018 and Eastwick
Communications on 29 September 2016.
The Company structures its acquisitions using contingent
consideration as it incentivises the sellers to drive future
performance of the acquired business by linking the total
purchase price to agreed future financial targets of that
business.
20 Enero Group Limited Annual Report 2019
As at 30 June 2019, the Company’s estimated contingent
consideration liability is $33.8 million.
Cash and Debt
In thousands of AUD
Cash and cash equivalents
Hire purchase liabilities
Contingent consideration liabilities
Net cash
2019
43,831
(493)
(33,801)
9,537
2018
34,379
(1,916)
(25,802)
6,661
The Group has $43.8 million in cash as at 30 June 2019.
Apart from contingent consideration liabilities, the Group’s
debt balance is limited to finance leases over leasehold
improvements.
Cash flow
The Group implemented strict working capital management
to ensure efficient conversion of EBITDA to cash and has
delivered positive operating cash flows of $18.1 million
from an Operating EBITDA of $20.7 million for the year
ended 30 June 2019 (103% cash conversion). The Group
targets a cash conversion of 85% each financial year.
Strategy and prospects
The Group’s primary objective is to become a boutique
force in modern marketing and communications focused on
four key service competencies –
• Insight, Strategy, Data and Analytics;
• Creative and Content;
• PR and Integrated Communications; and
• Digital and Technology
– serviced from three key geographic locations – Australia,
UK and Europe, and USA – solving clients’ marketing
needs through innovative solutions.
Basis of preparation
The Directors’ Report includes Operating EBITDA, a
measure used by the Directors and management in
assessing the ongoing performance of the Group.
Operating EBITDA is a non-IFRS measure and has not
been audited or reviewed.
Operating EBITDA is calculated as profit before interest,
taxes, depreciation, amortisation, impairment of
intangibles, gain on sale of business assets and contingent
consideration fair value loss. Operating EBITDA, reconciled
in the table above, is the primary measure used by
management and the Directors in assessing the
performance of the Group. It provides information on the
Group’s cash flow generation excluding significant
transactions and non-cash items which are not
representative of the Group’s ongoing operations.
Dividends
Dividends declared and paid by the Company to members
since the end of the previous financial year were:
Fully franked:
2018 Final dividend
2019 Interim dividend
Cents
per
share
Total
amount
AUD ’000
Date of
payment
2.5
2.5
2,140 8 October 2018
2,140 18 March 2019
20
Enero Group Limited – Annual Report 2019
Subsequent to the balance sheet date, the Directors have
declared a final dividend, with respect to ordinary shares,
of 3.0 cents per share – fully franked with a payment date
of 8 October 2019. The financial effect of this dividend has
not been brought to account in the financial statements for
the year ended 30 June 2019 but will be recognised in the
subsequent financial period.
For further details refer to Note 15 Capital and reserves in
this annual report.
Issue of shares and share rights
Shares issued on exercise of SAR
During the year ended 30 June 2019, a total of 651,575
shares (2018: 297,184 shares) were transferred from a
trust account held by the Company to the employees of the
Group on exercise of Share Appreciation Rights.
As at 30 June 2019, the Company has 642,726 shares
(30 June 2018: 1,294,301 shares) in a trust account held
by the Company for future use against long-term incentive
equity schemes as and when required.
Share Appreciation Rights
Share Appreciation Rights issued
During the year ended 30 June 2019, a total of 6,500,000
Share Appreciation Rights (30 June 2018: 5,000,000) were
issued to senior employees of the Group under the existing
Share Appreciation Rights plan.
Unissued shares under Share Appreciation Rights plan
At the date of this report, unissued shares of the Company
under the Share Appreciation Rights plan are:
Expiry date
30 September 2019
30 September 2019
30 September 2020
30 September 2020
30 September 2020(i)
30 September 2021
30 September 2021(i)
30 September 2022(i)
Total
VWAP (for the 20
business days prior
to the grant)
$1.04
$1.23
$1.04
$1.23
n/a
$1.23
n/a
n/a
Number of
SARs
1,349,997
1,500,000
1,350,005
1,500,000
666,666
1,500,000
666,667
666,667
9,200,002
(i) Grant is in relation to SARs provided to the CEO, which were
issued on 28 June 2019, subject to shareholder approval.
These SARs in the table above do not entitle the holder
to participate in any share issue of the Company.
Directors’ meetings
The number of Directors’ meetings (including meetings of
committees of Directors) and the number of meetings
attended by each of the Directors of the Company during
the financial year were:
Board
meetings
Audit and
Risk
Committee
meetings
A
B
A
B
Remuneration
and
Nomination
Committee
meetings
B
A
John Porter
Matthew Melhuish
Susan McIntosh
Anouk Darling
David Brain
Ian Rowden
Roger Amos
4
6
6
6
6
3
1
6
6
6
6
6
3
1
–
–
4
4
3
–
1
–
–
4
4
3
–
1
2
–
3
–
–
1
1
3
–
3
–
–
2
1
A = Number of meetings attended.
B = Number of meetings held during the time the Director held office or
was a member of the Committee during the year.
Directors’ interests
The relevant interests of each Director in the shares or
SARs issued by the Group, as notified by the Directors to
the Australian Securities Exchange in accordance with
section 205G(1) of the Corporations Act 2001, at the date
of this report, are as follows:
Director
John Porter
Matthew Melhuish
Susan McIntosh
Anouk Darling
David Brain
Ian Rowden
Total
Ordinary
shares
270,833
1,712,747
122,223
19,607
75,000
Nil
2,200,410
Share
Appreciation
Rights
Nil
4,466,667
Nil
Nil
Nil
Nil
4,466,667
Indemnification and insurance of officers and auditors
Indemnification
The Company has agreed to indemnify the following
current Directors of the Company: John Porter, Matthew
Melhuish, Susan McIntosh, Anouk Darling, David Brain, Ian
Rowden and Company Secretary, Brendan York, against
liabilities to another person (other than the Company or a
related body corporate) that may arise from their positions
as Directors, Secretaries or Executives of the Company
and its controlled entities, subject to the Corporations Act
2001, except where the liability arises out of conduct
involving a lack of good faith. The agreement stipulates
that the Company will meet the full amount of any liabilities,
including costs and expenses.
Enero Group Limited Annual Report 2019 21
21
Enero Group Limited – Annual Report 2019
DIRECTORS’ REPORT
Directors’ Report
The Company has also agreed to indemnify the current
Directors and Secretaries of its controlled entities for all
liabilities to another person (other than the Company or
a related body corporate) that may arise from their position,
except where the liability arises out of conduct involving
a lack of good faith. The agreements stipulate that the
Company will meet the full amount of any such liabilities,
including costs and expenses.
– non-audit services provided do not undermine the
general principles relating to auditor independence as
set out in APES 110 Code of Ethics for Professional
Accountants, as they did not involve reviewing or
auditing the auditor’s own work, acting in a
management or decision-making capacity for the
Group, acting as an advocate for the Group, or jointly
sharing risks and rewards.
Insurance premiums
During the financial year, the Company has paid insurance
premiums in respect of Directors’ and Officers’ liabilities, for
current Directors and Officers, covering the following:
– costs and expenses incurred by the relevant officers in
defending proceedings, whether civil or criminal; and
– other liabilities that may arise from their position, with
the exception of conduct involving a willful breach of
duty or improper use of information or position to gain
a personal advantage.
The Directors have not included details of the amount of
the premium paid in respect of the Directors’ and Officers’
liability and legal expenses insurance contracts, as such
disclosure is prohibited under the terms of the contracts.
Risk management
The Board has established a risk management policy for
the management and oversight of risk and has delegated
responsibility of compliance and internal control to the
Audit and Risk Committee.
Environmental regulation and performance
The Board believes that the Group has adequate systems
in place for the management of its environmental
requirements.
Non-audit services
During the year KPMG, the Group’s auditor, has performed
certain other services in addition to the audit and review of
the financial statements.
The Board has considered the non-audit services provided
during the year by the auditor and, in accordance with
advice provided by resolution of the Audit and Risk
Committee, is satisfied that the provision of those non-audit
services during the year by the auditor is compatible with,
and did not compromise, the auditor independence
requirements of the Corporations Act 2001 for the following
reasons:
– all non-audit services were subject to the corporate
governance procedures adopted by the Company and
have been reviewed by the Audit and Risk Committee
to ensure they do not impact the integrity and
objectivity of the auditor; and
Details of the amounts paid to the auditor of the Company,
KPMG, and its related practices, for non-audit services
provided during the year, are set out below. In addition,
amounts paid to other auditors for the statutory audit have
been disclosed in Note 30 Auditor’s remuneration of the
notes to the financial statements.
Services other than statutory audit
Auditors of the Company
Taxation compliance services:
KPMG Australia
Overseas KPMG firms
Total services other than
statutory audit
2019
$
2018
$
–
186,000
8,000
181,000
186,000
189,000
Auditor independence
The Lead Auditor’s independence declaration as required
under section 307C of the Corporations Act 2001 is set out
on page 79, and forms part of the Directors’ Report for the
year ended 30 June 2019.
Rounding off
The Company is of a kind referred to in ASIC Corporations
(Rounding in Financial/Directors’ Reports) Instrument
2016/191 and, in accordance with that Class Order,
amounts in the consolidated financial statements and
Directors’ Report have been rounded off to the nearest
thousand dollars, unless otherwise stated.
Remuneration Report
The Remuneration Report on page 23 forms part of this
Directors’ Report.
This report is made in accordance with a resolution of the
Directors.
Dated at Sydney this 28th day of August 2019.
John Porter
Chairman
22 Enero Group Limited Annual Report 2019
22
Enero Group Limited – Annual Report 2019
Remuneration Report – Audited
Contents
1 Introduction
2 Key Management Personnel (KMP) disclosed in this
report
3 Remuneration Governance
4 Executive Remuneration policy and framework
5 Executive service agreements
6 Non-Executive Directors
7 Directors’ and Executive Officers’ remuneration
8 Share-based payments
9 Directors’ and Executive Officers’ holdings of shares
10 Loans to Key Management Personnel
11 Remuneration and Group performance
1 Introduction
The Directors of Enero Group Limited present this
Remuneration Report for the Group for the year ended
30 June 2019. The information provided in the
Remuneration Report has been audited as required by
section 308(3C) of the Corporations Act 2001 and forms
part of the Directors’ Report.
The Remuneration Report outlines practices and specific
remuneration arrangements that apply to Key Management
Personnel (KMP) in accordance with the requirements of
the Corporations Act 2001 and explains how the
Company’s financial performance has driven remuneration
outcomes.
2 Key Management Personnel (KMP) disclosed in this
report
KMP comprise the Directors of the Company and
Executives. The KMP covered in this Remuneration Report
are those people having authority and responsibility for
planning, directing and controlling the activities of the
Group, directly or indirectly. The table below outlines the
KMP at any time during the financial year; and unless
otherwise indicated, they were KMP for the entire year.
Name
Non-Executive
Directors
John Porter
Susan McIntosh
Anouk Darling
David Brain
Ian Rowden(i)
Roger Amos(ii)
Role
Non-Executive Director (Chairman)
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director (Deputy
Chairman)
Executives
Matthew Melhuish Chief Executive Officer
Chief Financial Officer
Brendan York
Chief People and Culture Officer
Fiona Chilcott
(i) Ian Rowden was appointed as a Director on 21 November 2018.
(ii) Roger Amos resigned as a Director on 18 October 2018.
3 Remuneration Governance
The Board has established the Remuneration and
Nominations Committee (‘Committee’). It is responsible for
making recommendations on remuneration matters to the
Board on:
–
the over-arching executive remuneration framework;
– operation of the incentive plans which apply to
Executives including key performance indicators and
performance hurdles;
–
remuneration levels of Company Executives and
Subsidiary Executives;
– appointment of the Chief Executive Officer, senior
Executives and Directors themselves; and
– Non-Executive Director fees.
The Committee’s objective is to ensure that remuneration
policies and structures are fair, competitive to attract
suitably qualified candidates, reward the achievement of
strategic short-term and long-term objectives and achieve
long-term value creation for shareholders.
The Corporate Governance Statement (available in the
Corporate Governance section of the Company’s website)
provides further information on the role of the Committee.
The Remuneration and Nomination Committee operates
independently of the Enero Executive team and engages
directly with remuneration advisors.
Ernst & Young was engaged in the year ended
30 June 2019 in relation to the review of the Group’s Long
Term Incentive (LTI) framework and to provide alternative
LTI plans for the Committee to consider. The remuneration
adviser did not make any recommendations to the
Committee. The total fees paid to the remuneration adviser
were $8,500.
There were no services used from remuneration
consultants during the year ended 30 June 2018.
4 Executive Remuneration policy and framework
The objective of the Group’s executive reward framework is
to attract, motivate and retain employees with the required
capabilities and experience to ensure the delivery of
business strategy aligning with the interests of
shareholders.
The Executive Remuneration framework includes the
Company Executives and the subsidiary Executives to
ensure alignment across all levels of the Group.
The framework aligns executive reward with the
achievement of strategic objectives resulting in
remuneration structures taking into account:
–
the responsibility, performance and experience of key
management personnel;
–
–
the key management personnel’s ability to control the
relevant Company’s performance; and
the Group’s performance, including:
–
the Group’s earnings with profit a core component
of remuneration design;
–
–
the growth in share price and delivering constant
returns on shareholder wealth; and
the Group’s achievement of strategic objectives.
For Company Executives, the remuneration framework
currently has the following components:
–
fixed remuneration: comprising base pay, benefits and
superannuation;
– short-term incentive: comprising an annual cash bonus;
and
Enero Group Limited Annual Report 2019 23
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Enero Group Limited – Annual Report 2019
DIRECTORS’ REPORT
Directors’ Report
–
long-term incentive: equity-based Share Appreciation
Rights Plan.
as well as employer contributions to superannuation and
pension funds.
For Subsidiary Executives, the remuneration framework
currently has the following components:
–
fixed remuneration: comprising base pay, benefits and
superannuation;
– short-term incentive: comprising either an annual cash
bonus through an EBITDA sharing arrangement or a
retained equity interest in the subsidiary entitling a
dividend stream linked to profitability; and
Remuneration levels are reviewed annually by the
Remuneration and Nomination Committee through a
process that considers the responsibility, performance and
experience of the individual and the overall performance of
the Group and ensures competitive market salaries are
provided. An Executive’s remuneration may also be
reviewed on promotion.
–
long-term incentive: equity-based Share Appreciation
Rights Plan.
There are no guaranteed fixed remuneration increases
included in any Executive contracts.
The remuneration framework for Subsidiary Executives has
been disclosed in this report despite such Executives not
meeting the definition of KMP.
In structuring the remuneration mix for each role, the Board
aims to balance fixed and variable remuneration to best
achieve short-term and long-term performance outcomes.
4(b) Performance-linked remuneration
Performance-linked remuneration includes both short-term
incentives (STI) and long-term incentives (LTI) and is
designed to reward KMPs, Executives, Subsidiary
Executives and key leadership for meeting or exceeding
financial, strategic and personal targets.
4(a) Fixed remuneration
Fixed remuneration consists of base remuneration (which
is calculated on a total cost-to-Company basis and includes
fringe benefits tax charges related to employee benefits),
The STI for the CEO and Company Executives align
Executives with the creation of shareholder value through
driving top-line revenue growth along with Operating
EBITDA margin improvements.
Short-term incentives (STI):
The purpose of STI is to motivate and reward Executives for contributing to the delivery of annual business performance
as assessed against financial and non-financial measures.
Participant
CEO
Company Executives
Subsidiary Executives
Performance measures and rationale
The STI for the CEO is an annual cash-based maximum short-term incentive payment of
70% of the CEO’s fixed remuneration determined by the achievement of revenue and
Operating EBITDA hurdles set by the Remuneration and Nomination Committee. The
hurdles are set each financial year determined by reference to business priorities.
The STI for Company Executives is an annual cash-based maximum short-term incentive
payment of 70% of the Executive’s fixed remuneration determined by the achievement of
revenue and Operating EBITDA hurdles set by the Remuneration and Nomination
Committee.
The hurdles are set each financial year determined by reference to business priorities.
The STI for Subsidiary Executives is linked to the financial performance and direct
profitability of their relevant subsidiary.
For each subsidiary of the Company (or group of subsidiaries known as an Operating
Business Unit) the STI has either one of the following structures:
– an EBITDA sharing arrangement such that the CEO and key senior leadership of that
subsidiary are entitled to a share of EBITDA agreed by the Remuneration and
Nomination Committee each year. A component of the share of EBITDA is also subject
to the achievement of pre-determined KPIs for both the individual and Operating
Brand. The share of EBITDA is set each financial year by the Remuneration and
Nomination Committee. This incentive is paid annually in cash after the end of the
financial year; or
– a direct equity interest in the subsidiary, entitling the holder to a dividend stream linked
to financial performance of that subsidiary. Dividend payments are made to
shareholders in accordance with that Subsidiary’s constitution.
The STIs (excluding dividends from direct equity interests in subsidiaries) are paid in cash following the end of the financial
year and approval from the Remuneration and Nomination Committee. The Company Executives and Subsidiary
Executives are not contractually entitled to the STI in their respective employment agreements and the Remuneration and
Nomination Committee retains discretion to withdraw or amend the STI at any time.
The Remuneration and Nomination Committee has the discretion to take into account any significant items in determining
whether the financial KPIs have been achieved, where it is considered appropriate for linking remuneration reward to
Company performance.
24 Enero Group Limited Annual Report 2019
24
Enero Group Limited – Annual Report 2019
Long-term incentives (LTI):
The purpose of the LTI is to align Executive remuneration with long-term shareholder value and the performance of the
Group. The LTI is provided as an equity-based incentive in the Company under the terms of the Share Appreciation Rights
Plan (SAR) (see Note 29).
Description
The SAR Plan grants rights to shares in the Company on the achievement of appreciation
in the Company’s share price over the vesting period.
Eligibility
Performance period
Rights
Enero’s Board may determine whether or not the grant of rights is conditional on the
achievement of performance hurdles (including service conditions), and if so the nature of
those hurdles.
No dividends or voting rights are attached to the SARs.
The plan allows for the Board to determine who is entitled to participate in the SAR and it
may grant rights accordingly.
The performance period for the LTI is generally three years.
The exercise of each right will entitle the rights holder to receive a fraction of an ordinary
share based on a conversion formula of E = (A – B) / A, where:
– E is the share right entitlement;
– A is the volume weighted average price (VWAP) for the Company’s shares for the 20
business days prior to the vesting date of the rights; and
– B is the VWAP for the Company’s shares for the 20 business days before the rights
were granted.
If A – B is less than or equal to zero, the share right will not vest and will immediately lapse
on the applicable vesting date.
Other conditions
Rights expire at 15 business days after the relevant vesting date or the termination of the
individual’s employment.
Cessation of employment will result in the lapsing of any unvested SARs.
One share right shall never convert into more than one share in the capital of the Company.
The Board may exercise discretion on early vesting of rights in the event of a change of
control of the Group.
Refer to the table below for a summary of SARs on issue.
Refer to Section 8 (Share-based payments) of the Remuneration Report for further information regarding the SARs.
Summary of Share Appreciation Rights on issue:
Issue Date
SARs issued
Participants
VWAP for the 20 business days prior to the
grant (B)
Vesting dates:
20 business days after the release of the
Group financial report for the year ended:
Tranche 1
Tranche 2
Tranche 3
19 October 2017
18 October 2018
28 June 2019 (i)
5,000,000
CEO and Senior
Executives
4,500,000
CEO and Senior
Executives
$1.04
$1.23
2,000,000
CEO
n/a
30 June 2018 – 1/3rd
30 June 2019 – 1/3rd
30 June 2020 – 1/3rd
30 June 2019 – 1/3rd
30 June 2020 – 1/3rd
30 June 2021 – 1/3rd
30 June 2020 – 1/3rd
30 June 2021 – 1/3rd
30 June 2022 – 1/3rd
Last expiry date
30 September 2020
30 September 2021
30 September 2022
Outstanding SARs as at 30 June 2019
2,700,002
4,500,000
2,000,000
(i) Grant is in relation to SARs provided to the CEO, which were issued on 28 June 2019, subject to shareholder approval. Upon
shareholder approval, the VWAP for the 20 business days prior to the grant date will be confirmed.
Enero Group Limited Annual Report 2019 25
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DIRECTORS’ REPORT
Directors’ Report
5 Executive service agreements
It is the Group’s policy that service contracts for Key Management Personnel are in force either for a fixed period, with an
extension period negotiable after completion of the initial term, or on a rolling basis. The agreements are capable of
termination, acknowledging appropriate notice periods, and the Group retains the right to terminate the contract
immediately for contractual breach by the Executive or by making payment in lieu of notice.
The service agreements outline the components of remuneration paid to the Key Management Personnel. Remuneration
levels are reviewed annually by the Remuneration and Nomination Committee or in accordance with the terms of the
service agreements.
Summary terms for current service agreements for Key Management Personnel:
Duration of contract
30 June 2022
Notice period on
termination by
Group
6 months
Notice period
on resignation by
Key Management
Personnel
Termination payment on
Termination payment
resignation by Key
on termination by
Management Personnel
Group
(i) (ii) (iv)
(i) (ii) (iii) (iv)
6 months 6 months base salary 6 months base salary
Rolling
6 months
3 months 6 months base salary 3 months base salary
Rolling
3 months
3 months 3 months base salary 3 months base salary
Key Management Personnel
Chief Executive
Office
Chief Financial
Officer
Chief People and
Culture Officer
(i)
In addition to termination payments, Key Management Personnel are also entitled to receive, on termination of their employment, their statutory
entitlements of accrued annual and long service leave, together with any superannuation benefits.
(ii) Includes any payment in lieu of notice.
(iii) No termination payment is due if termination is for serious misconduct.
(iv) Executives are entitled to a pro-rata STI payment on termination, except for termination for serious misconduct.
Remuneration details of Executives are set out in Section 7 Directors’ and Executive Officers’ remuneration.
6 Non-Executive Directors
The Company’s Constitution provides that the Non-Executive Directors are each entitled to be paid such remuneration
from the Company as the Directors decide for their services as Director, but the total amount provided to all Non-Executive
Directors for their services must not exceed in aggregate in any financial year the amount fixed by the Company in a
general meeting. This amount has been fixed by the Company at $750,000 for the financial year ended 30 June 2019.
The remuneration of Non-Executive Directors does not include any performance-based pay and they do not participate in
any equity-based incentive plans. Directors may be reimbursed for travelling and other expenses incurred in attending to
the Company’s affairs. Directors may be paid such additional or special remuneration as the Directors decide is
appropriate where a Director performs extra services or makes special exertions for the benefit of the Company.
The following Non-Executive Director fees (inclusive of superannuation) have been applied in the years ended
30 June 2019 and 30 June 2018:
Base fees – annual
Chairman
Other Non-Executive Directors
Committee fees – annual
Audit and Risk Committee – Chair
Remuneration and Nomination Committee – Chair
2019
$
120,000
75,000
2018
S
120,000
75,000
10,000
10,000
10,000
10,000
Additionally, the Deputy Chairman is paid a $10,000 annual fee for duties conducted under this role.
Total remuneration paid to Non-Executive Directors for the year ending 30 June 2019 amounted to $426,936
(30 June 2018: $375,865), which is 56.9% of the annual aggregate.
Remuneration details of Non-Executive Directors are set out in Section 7 Directors’ and Executive Officers’ remuneration.
26 Enero Group Limited Annual Report 2019
26
Enero Group Limited – Annual Report 2019
7 Directors’ and Executive Officers’ remuneration
7(a) Directors’ and Executive Officers’ short-term cash benefits, post-employment benefits, other long-term remuneration
and equity-based remuneration
Details of the nature and amount of each element of the remuneration of each Director of the Company, and each of the
Executives of the Company who are KMPs, are shown in the table below:
Short-term benefits
Post-
employment
Long-term
benefits
Share-based
payments
Salary
and fees
$
Cash
bonus(i)
$
Annual
leave(iii) Superannuation
$
$
Long service
leave(iii)
$
Value of
Share
Appreciation
Rights(ii)
$
Proportion of
total
remuneration
performance
related(iv)
%
Total
$
Non-Executive
Directors
John Porter
Susan McIntosh
Anouk Darling
David Brain(v)
Ian Rowden(v)
Roger Amos(vi)
Executive Director
Matthew Melhuish,
Director and CEO
Executives
Brendan York,
Chief Financial Officer
Fiona Chilcott(vii),
Chief People and
Culture Officer
2019 120,000
2018 120,000
68,493
2019
68,493
2018
74,898
2019
68,493
2018
75,000
2019
10,865
2018
46,058
2019
–
2018
26,361
2019
86,758
2018
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
6,507
6,507
7,115
6,507
–
–
–
–
2,504
8,242
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
120,000
120,000
75,000
75,000
82,013
75,000
75,000
10,865
46,058
–
28,865
95,000
2019 800,000
2018 800,000
492,319 (30,744)
6,891
164,010
20,531
20,049
14,971
14,940
260,149 1,557,226
105,038 1,110,928
2019 350,000
2018 350,000
222,319
74,010
1,609
3,139
2019 437,601
2018 301,090
222,319
(1,101)
63,958
12,665
20,531
20,049
20,531
18,703
6,795
6,768
141,690
66,634
742,944
520,600
821
237
136,902
817,073
41,686
438,339
–
–
–
–
–
–
–
–
–
–
–
–
48.32
24.22
49.00
27.02
43.96
24.10
(i) The short-term incentive bonus is for performance during the 30 June 2019 financial year using the criteria set out on page 24. The table above
includes the expense incurred during the financial year for the bonuses awarded. Refer to the table on page 28 for the bonuses awarded.
(ii) Share Appreciation Rights are calculated at the date of grant using the Monte Carlo simulation model. The fair value is allocated to each
reporting period on a straight-line basis over the period from the grant date (or service commencement date) to vesting date.
(iii) Amounts represent movements in employee leave entitlements, with a negative balance representing an overall reduction in the employee leave
provision compared with the prior year.
(iv) Percentages are based on total remuneration, including equity, cash, post-employment benefits and other compensation.
(v) David Brain and Ian Rowden were appointed as Directors on 10 May 2018 and 21 November 2018 respectively.
(vi) Roger Amos resigned as Director on 18 October 2018.
(vii) Fiona Chilcott was appointed 23 August 2017 and became KMP on that date. Fiona was seconded to the USA from 6 August 2018 and the
remuneration disclosures for 2019 represent the USD compensation components converted to AUD at average exchange rates for the year.
(viii) Executives receive salary continuance insurance cover. There are no other benefits offered by the Company.
7(b) Performance-related remuneration
Details of the Company’s policy in relation to the proportion of remuneration that is performance-based are discussed
on page 24.
Enero Group Limited Annual Report 2019 27
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DIRECTORS’ REPORT
Directors’ Report
7(c) STI included in remuneration
Details of the vesting profile of the short-term incentive bonuses awarded as remuneration to each Executive of the
Company and the Group, who are classified Key Management Personnel, are discussed below.
Short-term incentive bonus(i)
Company Executives
Matthew Melhuish
Brendan York
Fiona Chilcott
Metric
% of fixed
remuneration
payable(ii)
Actual STI as a
% of maximum
STI
% of maximum
STI forfeited
Included in
remuneration
$
%
vested
in year
Revenue and Operating EBITDA target
Revenue and Operating EBITDA target
Revenue and Operating EBITDA target
60%
60%
60%
86%
86%
86%
14%
14%
14%
492,319
222,319
222,319
100
100
100
(i) Amounts included in remuneration for the financial year represent the amount that vested in the financial year based on the achievement of
specified performance criteria as discussed in Section 4(b) Performance-linked remuneration and are approved following the completion of the
reporting period audit.
(ii) Fixed remuneration is salary plus superannuation.
8 Share-based payments
8(a) Share-based payment arrangements granted as remuneration
Details of SARs that were granted as compensation to each Key Management Personnel during the reporting period are
as follows:
Type of rights
granted during
2019
Number of rights
granted during
2019
Fair value per right at
grant date
$
Grant date
VWAP (for the 20
business days prior to
the grant)
$
Expiry date (ii)
SAR
SAR
SAR
SAR
1,800,000
2,000,000
900,000
900,000
18 Oct 2018
28 Jun 2019
18 Oct 2018
18 Oct 2018
0.20 – 0.31
n/a
0.20 – 0.31
0.20 – 0.31
1.23
n/a
1.23
1.23
30 Sept 2021
30 Sept 2022
30 Sept 2021
30 Sept 2021
Company Executives
Matthew Melhuish
Matthew Melhuish(i)
Brendan York
Fiona Chilcott
(i) Grant is in relation to SARs provided to the CEO which were issued on 28 June 2019, subject to shareholder approval. Upon shareholder
approval, the VWAP for the 20 business days prior to the grant date and fair value per right at grant date will be confirmed.
(ii) The dates reflected in the table above represent the last vesting date for the SAR grant. The vesting date of the SARs is 20 business days after
the release of the Group’s preliminary financial report for the relevant financial year. This is estimated to be around, but no later than,
30 September each year.
8(b) Analysis of share-based payments granted as remuneration
Details of the vesting profile of the rights granted as remuneration to a Director of the Company, and each of the KMPs,
are shown below:
Number of
rights granted
Type of
rights
granted
Grant date
% vested
in year
% exercised
in year
% remaining
to vest
Vesting date(i)
Executive Director
Matthew Melhuish
Company Executives
Brendan York
1,000,000
SAR
19 Oct. 2017
1,800,000
SAR
18 Oct. 2018
2,000,000
SAR
28 Jun. 2018
600,000
SAR
19 Oct. 2017
900,000
SAR
18 Oct. 2018
Fiona Chilcott
600,000
SAR
19 Oct. 2017
900,000
SAR
18 Oct. 2018
33
–
–
33
–
33
–
33
–
–
33
–
33
–
67
100
100
67
100
67
100
30 Sep 2018, 30 Sep 2019
and 30 Sep 2020
30 Sep 2019, 30 Sep 2020
and 30 Sep 2021
30 Sep 2020, 30 Sep 2021
and 30 Sep 2022
30 Sep 2018, 30 Sep 2019
and 30 Sep 2020
30 Sep 2019, 30 Sep 2020
and 30 Sep 2021
30 Sep 2018, 30 Sep 2019
and 30 Sep 2020
30 Sep 2019, 30 Sep 2020
and 30 Sep 2021
(i) The dates reflected in the table above represent all of the vesting dates for each tranche of rights. The vesting date of the SARs is 20 business
days after the release of the Group’s preliminary financial report for the relevant financial year. This is estimated to be around 30 September
each year.
28 Enero Group Limited Annual Report 2019
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Enero Group Limited – Annual Report 2019
8(c) Analysis of movements in rights and value of rights exercised
The movement during the reporting period in the number of rights over ordinary shares in Enero Group Limited held,
directly, indirectly or beneficially, by each KMP, including their related entities, and value of rights exercised during the
year, is as follows:
Granted
held at
1 Jul 2018
Granted as
remuneration
in year Cancelled Exercised
Granted
held at
30 Jun 2019
Vested
during
the year
Vested and
exercisable
at
30 Jun 2019
Value of
rights
granted
during
the year
$
Value of
rights
exercised
during the
year
$
1,333,334
3,800,000
–
(666,667)
4,466,667 666,667
– 471,000
133,334
800,000
600,000
900,000
900,000
–
–
(400,000)
(200,000)
1,300,000 400,000
1,300,000 200,000
– 235,500
– 235,500
80,000
24,000
Director
Matthew Melhuish(i)
Executives
Brendan York
Fiona Chilcott
(i) SARs granted during the year include 2,000,000 SARs provided to the CEO which were issued on 28 June 2019, however are subject to
shareholder approval. Upon shareholder approval, fair value of SARs at grant date will be confirmed. Accordingly, values of these SARs are not
included in the disclosure relating to value of rights granted during the year.
No share-based payments held by KMP are vested but not exercisable at 30 June 2019.
No share-based payments were held by KMP related parties.
No terms of equity-settled share-based payment transactions (including rights granted as compensation to Key
Management Personnel) have been altered or modified by the issuing entity during the reporting period or the prior period.
9 Directors’ and Executive Officers’ holdings of shares
The movement during the reporting period in the number of ordinary shares in Enero Group Limited, held directly, indirectly
or beneficially, by each KMP, including their related parties, is as follows:
Directors
John Porter
Matthew Melhuish
Susan McIntosh
Anouk Darling
David Brain
Ian Rowden(i)
Roger Amos(ii)
Executives
Brendan York
Fiona Chilcott
Held at
1 July 2018
Purchases
Issued as
remuneration
Received on
exercise of
rights
Sales
Held at
30 June 2019
270,833
1,546,080
122,223
19,607
–
–
31,390
206,392
–
–
–
–
–
75,000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
166,667
–
–
–
–
–
–
–
–
–
–
–
–
270,833
1,712,747
122,223
19,607
75,000
–
31,390
100,000
20,690
(18,500)
(20,690)
287,892
–
(i) Opening balance represents shares held at the date of appointment.
(ii) Closing balance represents shares held at the date of resignation.
10 Loans to Key Management Personnel
No loans to Key Management Personnel and their related parties were made during the year or were outstanding at the
reporting date.
Enero Group Limited Annual Report 2019 29
29
Enero Group Limited – Annual Report 2019
DIRECTORS’ REPORT
Directors’ Report
11 Remuneration and Group performance
The Remuneration and Nomination Committee has given consideration to the Group’s performance and consequences on
shareholder wealth in the current financial year and the four previous financial years. Financial performance from
operations of the current and last four financial years is indicated in the following table:
Metric
Net Revenue ($’000)
Operating EBITDA ($’000)
Operating EBITDA margin (%)
Net Profit to equity holders pre significant
items ($’000)
30 June
2019
30 June
2018
30 June
2017
30 June
2016
30 June
2015
129,535
20,722
16.00%
103,685
13,513
13.03%
100,172
10,364
10.35%
113,488
13,220
11.65%
110,347
9,202
8.34%
12,051
7,846
4,893
6,584
1,525
Earnings Per Share pre significant items (cps)
Earnings Per Share basic (cps)
Total Dividends Per Share (cps)(i)
Opening share price (1 July) ($)
Closing share price (30 June) ($)
14.2
6.7
5.5
1.06
1.42
9.3
10.1
4.0
1.03
1.06
5.9
2.2
5.0
1.25
1.04
8.0
8.0
–
0.71
1.25
1.9
(3.4)
–
1.08
0.78
(i) In relation to 30 June 2017, Total Dividends Per Share related to a special dividend of 5 cps on the release of Group capital restrictions that had
been in place from 2010.
The Remuneration and Nomination Committee has determined appropriate remuneration structures which align
remuneration of KMPs with future shareholder wealth.
The Remuneration and Nomination Committee considers the achievement of financial targets as well as non-financial
measures in setting the short-term incentives. Short-term incentives have been set by the Remuneration and Nomination
Committee based on achievement of certain Net Revenue and Operating EBITDA targets, which align remuneration with
increases in profitability.
Longer-term profitability, changes in share price and return of capital are factors the Remuneration and Nomination
Committee takes into account in assessing the LTI as demonstrated by the implementation of the SAR which aligns
remuneration with future share price performance and reward for increases in the share price.
The Remuneration and Nomination Committee has reviewed both the financial performance in the current financial year as
well as the achievement of strategic activities which took place during the current financial year. The Remuneration and
Nomination Committee believes the current year achievements of:
• Net Revenue, Operating EBITDA and Operating EBITDA margin increases;
•
•
•
•
a 53% increase in EPS (pre significant items) year on year;
increase in USA market presence;
simplification of the Operating Brands portfolio; and
the improvements to the integration of the network across the Operating Brands through increased sharing of
clients,
are aligned with the achievement of future shareholder wealth and therefore confirm the Executive Remuneration policy
and framework.
End of Remuneration Report.
30 Enero Group Limited Annual Report 2019
30
Enero Group Limited – Annual Report 2019
CONSOLIDATED INCOME STATEMENT
Consolidated income statement
FOR THE YEAR ENDED 30 JUNE 2019
for the year ended 30 June 2019
In thousands of AUD
Gross revenue
Directly attributable costs of sales
Net revenue
Other income
Employee expenses
Occupancy costs
Travel expenses
Communication expenses
Compliance expenses
Depreciation and amortisation expenses
Administration expenses
Gain on sale of business asset
Contingent consideration fair value loss
Finance income
Finance costs
Profit before income tax
Income tax expense
Profit for the year
Attributable to:
Equity holders of the parent
Non-controlling interests
Basic earnings per share (AUD cents)
Diluted earnings per share (AUD cents)
Note
2019
2018
Restated
3
3
3
22
12
4
5
16
16
230,032
(100,497)
129,535
124
(88,173)
(7,202)
(2,060)
(2,413)
(2,057)
(3,275)
(7,032)
–
(6,390)
574
(1,260)
10,371
(2,297)
8,074
5,661
2,413
8,074
6.7
6.6
163,288
(59,603)
103,685
239
(72,310)
(6,838)
(1,536)
(2,121)
(1,261)
(3,215)
(6,345)
627
–
252
(837)
10,340
(1,253)
9,087
8,473
614
9,087
10.1
10.0
* The Group has initially applied AASB 15 Revenue from Contracts with Customers and AASB 9 Financial Instruments as at 1 July 2018. Under the
respective transition methods chosen, comparative information is restated for AASB 15 but not for AASB 9. Refer to Note 1.
The notes on pages 36 to 70 are an integral part of these consolidated financial statements.
Enero Group Limited Annual Report 2019 31
31
Enero Group Limited – Annual Report 2019
CONSOLIDATED STATEMENT
Consolidated statement of comprehensive income
OF COMPREHENSIVE INCOME
for the year ended 30 June 2019
FOR THE YEAR ENDED 30 JUNE 2019
Note
In thousands of AUD
Profit for the year
Other comprehensive income
Items that may be reclassified subsequently to profit or loss:
Foreign currency translation differences for foreign operations
Total items that may be reclassified subsequently to profit or loss
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
Attributable to:
Equity holders of the parent
Non-controlling interests
The notes on pages 36 to 70 are an integral part of these consolidated financial statements.
2019
8,074
1,461
1,461
1,461
9,535
7,074
2,461
9,535
2018
9,087
4,312
4,312
4,312
13,399
12,755
644
13,399
32 Enero Group Limited Annual Report 2019
32
Enero Group Limited – Annual Report 2019
CONSOLIDATED STATEMENT
Consolidated statement of changes in equity
OF CHANGES IN EQUITY
for the year ended 30 June 2019
FOR THE YEAR ENDED 30 JUNE 2019
Attributable to owners of the Company
Retained
profits
Profit
appropriation
reserve
Share-
based
payment
reserve
Reserve
change in
ownership
interest in
subsidiary
Foreign
currency
translation
reserve
Non-
controlling
interests
Total
Total
equity
12,443
11,857
(1,417)
(24,049) 102,253
704 102,957
In thousands of AUD
Note
Opening balance at 1 July 2017
Profit for the year
Other comprehensive income
for the year, net of tax
Total comprehensive income for
the year
Transactions with owners
recorded directly in equity:
Shares issued to employees on
exercise of Share Appreciation
Rights
Transfer to profit appropriation
reserve
Dividends paid to equity holders
Share-based payment expense
Share
capital
96,389
–
–
–
7,030
8,473
–
8,473
–
–
–
–
–
–
15
267
–
–
(267)
–
–
–
(14,076)
–
–
14,076
(1,284)
–
–
–
516
–
–
–
–
–
–
–
–
8,473
614
9,087
4,282
4,282
30
4,312
4,282
12,755
644
13,399
–
–
–
–
–
–
–
–
(1,284)
516
–
(516)
–
–
(1,800)
516
Closing balance at 30 June 2018
96,656
1,427
25,235
12,106
(1,417)
(19,767) 114,240
832 115,072
Opening balance at 1 July 2018
96,656
1,427
25,235
12,106
(1,417)
(19,767) 114,240
832 115,072
Adjustment on initial application
of AASB 9 (net of tax)
Profit for the year
Other comprehensive income for
the year, net of tax
Total comprehensive income for
the year
Transactions with owners
recorded directly in equity:
Shares issued to employees on
exercise of Share Appreciation
Rights
Dividends paid to equity holders
Share-based payment expense
–
–
–
–
(133)
5,661
–
5,661
–
–
–
–
–
–
–
–
15
756
–
–
–
–
–
–
(4,280)
–
(756)
–
730
–
–
–
–
–
–
–
–
–
(133)
5,661
–
2,413
(133)
8,074
1,413
1,413
48
1,461
1,413
7,074
2,461
9,535
–
–
–
–
(4,280)
730
–
(1,562)
–
–
(5,842)
730
Closing balance at 30 June 2019
97,412
6,955
20,955
12,080
(1,417)
(18,354) 117,631
1,731 119,362
The notes on pages 36 to 70 are an integral part of these consolidated financial statements.
Enero Group Limited Annual Report 2019 33
33
Enero Group Limited – Annual Report 2019
CONSOLIDATED STATEMENT
Consolidated statement of financial position
OF FINANCIAL POSITION
as at 30 June 2019
FOR THE YEAR ENDED 30 JUNE 2019
Note
2019
2018
6
7
8
5
5
9
8
10
2
11
12
17
13
5
14
12
17
13
14
2
15
43,831
33,791
5,297
54
82,973
2,459
5,877
197
110,384
118,917
201,890
38,380
11,519
493
4,173
507
646
55,718
22,282
–
659
3,869
26,810
82,528
119,362
97,412
(7,691)
20,955
6,955
117,631
1,731
119,362
34,379
27,197
4,173
–
65,749
1,735
6,323
136
110,056
118,250
183,999
31,840
–
1,423
3,545
1,138
267
38,213
25,802
493
728
3,691
30,714
68,927
115,072
96,656
(9,078)
25,235
1,427
114,240
832
115,072
In thousands of AUD
Assets
Cash and cash equivalents
Trade and other receivables
Other assets
Income tax receivable
Total current assets
Deferred tax assets
Plant and equipment
Other assets
Intangible assets
Total non-current assets
Total assets
Liabilities
Trade and other payables
Contingent consideration payable
Interest-bearing loans and borrowings
Employee benefits
Income tax payable
Provisions
Total current liabilities
Contingent consideration payable
Interest-bearing loans and borrowings
Employee benefits
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Other reserves
Profit appropriation reserve
Retained profits
Total equity attributable to equity holders of the parent
Non-controlling interests
Total equity
The notes on pages 36 to 70 are an integral part of these consolidated financial statements.
34 Enero Group Limited Annual Report 2019
34
Enero Group Limited – Annual Report 2019
CONSOLIDATED STATEMENT
Consolidated statement of cash flows
OF CASH FLOWS
for the year ended 30 June 2019
FOR THE YEAR ENDED 30 JUNE 2019
In thousands of AUD
Cash flows from operating activities
Cash receipts from customers
Cash paid to suppliers and employees
Cash generated from operations
Interest received
Income taxes paid
Interest paid
Net cash from operating activities
Cash flows from investing activities
Proceeds from disposal of non-current assets
Consideration from sale of business asset
Acquisition of plant and equipment
Acquisition of a business, net of cash acquired
Contingent consideration paid
Net cash used in investing activities
Cash flows from financing activities
Finance lease payments
Dividends paid to equity holders of the parent
Dividends paid to non-controlling interests in controlled entities
Net cash used in financing activities
Net increase in cash and cash equivalents
Effect of exchange rate fluctuations on cash held
Cash and cash equivalents at 1 July
Cash and cash equivalents at 30 June
The notes on pages 36 to 70 are an integral part of these consolidated financial statements.
Note
2019
2018
241,791
(220,458)
209,778
(194,047)
21,333
574
(3,665)
(107)
18,135
22
–
(1,700)
–
–
(1,678)
(1,423)
(4,280)
(1,562)
(7,265)
9,192
260
34,379
43,831
15,731
252
(1,554)
(209)
14,220
9
627
(1,641)
(4,397)
(4,492)
(9,894)
(1,351)
(1,284)
(516)
(3,151)
1,175
692
32,512
34,379
6
22
21
12
17
15
6
Enero Group Limited Annual Report 2019 35
35
Enero Group Limited – Annual Report 2019
NOTES TO THE CONSOLIDATED
Notes to the consolidated financial statements
FINANCIAL STATEMENTS
for the year ended 30 June 2019
FOR THE YEAR ENDED 30 JUNE 2019
Basis of preparation
1. Basis of preparation
Key numbers
2. Operating segments
3. Revenue
4. Finance costs
5. Income tax expense and deferred tax
6. Cash and cash equivalents
7. Trade and other receivables
8. Other assets
9. Plant and equipment
10. Intangible assets
11. Trade and other payables
12. Contingent consideration payables
13. Employee benefits
14. Provisions
Capital
15. Capital and reserves
16. Earnings per share
17. Loans and borrowings
Risk
18. Financial risk management/financial instruments
19. Impairment of non-financial assets
Group structure
20. Controlled entities
21. Acquisition
22. Disposal
23. Parent entity disclosures
24. Deed of Cross Guarantee
Unrecognised items
25. Commitments
26. Contingencies
27. Subsequent events
Other items
28. Key Management Personnel and other related party disclosures
29. Share-based payments
30. Auditor’s remuneration
36 Enero Group Limited Annual Report 2019
36
Page
37
40
43
44
44
46
47
47
48
49
50
51
51
52
53
54
54
56
61
62
64
65
65
66
67
67
67
67
68
70
Enero Group Limited – Annual Report 2019
1. Basis of preparation
In preparing these financial statements, the notes have
been grouped into sections under certain key headings.
Each section sets out the accounting policies applied
together with any key judgements and estimates used.
(a) Reporting entity
Enero Group Limited (the Company) is a for-profit
Company domiciled in Australia. The consolidated financial
statements of the Company as at and for the year ended
30 June 2019 comprise the Company and its subsidiaries
(together referred to as the ‘Group’).
The financial statements for the year ended 30 June 2019
were authorised for issue in accordance with a resolution
of the Directors on 28 August 2019.
(b) Statement of compliance
The consolidated financial statements are a general
purpose financial report which has been prepared in
accordance with Australian Accounting Standards
(‘AASBs’) (including Australian Interpretations) adopted by
the Australian Accounting Standards Board (‘AASB’) and
the Corporations Act 2001. The consolidated financial
statements comply with International Financial Reporting
Standards (IFRS) and interpretations adopted by the
International Accounting Standards Board (IASB).
(c) Basis of preparation
(i) Basis of measurement
The consolidated financial statements are prepared on the
historical cost basis except for the items as described in
Note 1(c)(iv).
The Company is of a kind referred to in ASIC Corporations
(Rounding in Financial/Directors’ Reports) Instrument
2016/191 and, in accordance with that Class Order,
amounts in the consolidated financial statements and
Directors’ Report have been rounded off to the nearest
thousand dollars, unless otherwise stated.
(ii) Going concern
The consolidated financial statements have been prepared
on a going concern basis which assumes the Group will
continue its operations and be able to meet its obligations
as and when they become due and payable. This
assumption is based on an analysis of the Group’s ability to
meet its future cash flow requirements using its projected
cash flows from operations and existing cash reserves held
as at the balance sheet date.
(iii) Use of estimates and judgements
The preparation of financial statements in conformity
with AASBs requires management to make judgements,
estimates and assumptions that affect the application of
policies and reported amounts of assets and liabilities,
income and expenses. Actual results may differ from these
estimates. The estimates and associated assumptions are
based on historical experience and various other
factors that are believed to be reasonable under the
circumstances, the results of which form the basis of
making the judgements about carrying values of assets
and liabilities that are not readily apparent from other
sources.
The estimates and underlying assumptions are reviewed
on an ongoing basis. Revisions to accounting estimates
are recognised in the period in which the estimate is
revised and in any future periods if affected.
Further information about critical accounting estimates and
judgements made is included in the following notes:
3. Revenue
5. Income tax expense and deferred tax
•
•
• 12. Contingent consideration payables
• 18. Financial risk management/financial
instruments (Trade receivables)
• 19. Impairment of non-financial assets
• 21. Acquisition
• 29. Share-based payments
(iv) Measurement of fair values
A number of the Group’s accounting policies and
disclosures require the measurement of fair values, for
both financial and non-financial assets and liabilities.
When measuring the fair value of an asset or liability, the
Group uses market observable data as far as possible. Fair
values are categorised into different levels in a fair value
hierarchy based on the inputs used in the valuation
techniques as follows:
Level 1: quoted prices (unadjusted) in active markets for
identical assets or liabilities;
Level 2: inputs other than quoted prices included in Level 1
that are observable for the asset or liability, either directly
(i.e. as prices) or indirectly (i.e. derived from prices); and
Level 3: inputs for the asset or liability that are not based
on observable market data (unobservable inputs).
If the inputs used to measure the fair value of an asset or a
liability might be categorised in different levels of the fair
value hierarchy, then the fair value measurement is
categorised in its entirety in the same level of the fair value
hierarchy as the lowest level of input that is significant to
the entire measurement.
The Group recognises transfers between levels of the fair
value hierarchy at the end of the reporting period during
which the change has occurred.
Further information about the assumptions made in
measuring fair values is included in the following notes:
• 10. Intangible assets
• 12. Contingent consideration payables
• 29. Share-based payments
(d) Foreign currency
(i) Functional and presentation currency
The consolidated financial statements are presented in
Australian dollars, which is the Company’s functional
currency.
Enero Group Limited Annual Report 2019 37
37
Enero Group Limited – Annual Report 2019
NOTES TO THE CONSOLIDATED
Notes to the consolidated financial statements
FINANCIAL STATEMENTS
for the year ended 30 June 2019
FOR THE YEAR ENDED 30 JUNE 2019
1. Basis of preparation (continued)
(ii) Foreign currency transactions
Transactions in foreign currencies are translated to the
respective functional currencies of Group at the foreign
exchange rates ruling at the dates of the transactions.
Monetary assets and liabilities denominated in foreign
currencies at the reporting date are translated to the
respective functional currencies of the Group at the foreign
exchange rate ruling at that date. Foreign exchange
differences arising on retranslation are recognised in the
income statement. Non-monetary assets and liabilities that
are measured in terms of historical cost in a foreign
currency are translated using the exchange rate at the date
of the transaction. Non-monetary assets and liabilities
denominated in foreign currencies that are stated at fair
value are translated to the functional currency at foreign
exchange rates ruling at the dates the fair value was
determined.
(iii) Foreign operations
The assets and liabilities of foreign operations, including
goodwill and fair value adjustments arising on
consolidation, are translated to Australian dollars at foreign
exchange rates prevailing at the reporting date. The
income and expenses of foreign operations are translated
to Australian dollars at rates approximating the foreign
exchange rates ruling at the dates of the transactions.
Foreign currency differences are recognised in other
comprehensive income, and presented in the foreign
currency translation reserve (FCTR) in equity. When a
foreign operation is disposed of, in part or in full, the
relevant amount in the FCTR is transferred to the income
statement as part of the profit or loss on disposal.
Foreign exchange gains and losses arising from a
monetary item receivable from or payable to a foreign
operation, the settlement of which is neither planned nor
likely in the foreseeable future, are considered to form
part of a net investment in a foreign operation and are
recognised in other comprehensive income, and are
presented within equity in the FCTR.
(e) Goods and services tax (GST)
Revenue, expenses and assets are recognised net of the
amount of GST, unless GST incurred is not recoverable
from the taxation authority. In this case it is recognised as
part of the cost of acquisition of the asset or as part of the
expense.
Receivables and payables are stated with the amount of
GST included. The net amount of GST recoverable from,
or payable to, the taxation authority, is included as a
current asset or liability in the statement of financial
position.
Cash flows are presented on a gross basis. The GST
components of cash flows arising from investing or
financing activities, which are recoverable from or payable
to the taxation authority, are presented as operating cash
flows.
(f) Changes in accounting policies
Except for the impact of new accounting standards adopted
this year as described below, the accounting policies
provided throughout Notes 1 to 30 of this report have been
applied consistently to all periods presented in the
consolidated financial statements.
(g) New standards and interpretations
(i) New Standards Adopted
The Group has initially adopted AASB 9 Financial
Instruments and AASB 15 Revenue from Contracts with
Customers as at 1 July 2018. The effect of applying these
standards is mainly attributed to the following:
•
•
AASB 9 Financial Instruments: an increase in
impairment losses recognised on financial assets;
and
AASB 15 Revenue from Contracts with
Customers: adjustments to the recognition of
Gross Revenue and Directly attributable cost of
sales due to the re-assessment of the Principal
versus Agency relationship.
AASB 9 Financial Instruments: introduces new
requirements for the classification and measurement of
financial assets and liabilities and includes a forward-
looking ‘expected loss’ impairment model and a
substantially changed approach to hedge accounting.
Effective 1 July 2018, the Group adopted AASB 9, where
the cumulative effect of the initial application is recognised
as an adjustment to opening retained earnings at
1 July 2018.
The only substantial impact on the Group of adopting
AASB 9 is relating to provisioning for doubtful debts on
trade receivables. The doubtful debt provision will now be
determined with reference to a percentage of the expected
credit loss of the gross value of the trade receivables.
The following table summarises the impact, net of tax, on
transition to AASB 9 on the opening balance of retained
earnings at 1 July 2018:
In thousands of AUD
Retained earnings
Recognition of expected credit losses under AASB 9
Related tax
Impact, net of tax
(190)
57
(133)
The additional impairment recognised at 1 July 2018 was
determined with reference to the average credit loss over
the last three financial years. The average credit loss was
0.7% of trade receivables. Applying this percentage against
the trade receivable balance at 1 July 2018 of $27,083,000,
an additional $190,000 impairment was required on
transition.
AASB 15 Revenue from Contracts with Customers:
establishes a comprehensive framework for determining
revenue recognition. It requires identification of discrete
performance obligations within a transaction and an
associated transaction price allocation to these obligations.
Revenue is recognised upon satisfaction of these
performance obligations, which occur when control of the
services is transferred to the customer.
The core principle is to recognise revenue depicting the
transfer of promised services to customers in an amount
that reflects consideration to which the Group expects to be
entitled in exchange for those services.
38 Enero Group Limited Annual Report 2019
38
Enero Group Limited – Annual Report 2019
Effective 1 July 2018, the Group adopted AASB 15, using
the retrospective method where comparative prior periods
have been adjusted and restated under AASB 15. The
initial adoption of this standard did not have an impact on
the timing of the Group’s revenue recognition nor on the
Group’s net assets. However, the adoption of AASB 15
resulted in certain customer contractual arrangements,
previously being accounted for as a principal, now being
accounted for as agent following an assessment of the
characteristics of the relationship between the Group, its
customers and certain suppliers. The determination was
made reviewing whether the Group obtained control over
the good or service before it was transferred to the
customer.
As a result of the adoption of AASB 15, certain third party
costs are no longer included in gross revenue and directly
attributable cost of sales. The change had no impact on net
revenue, profit or earnings per share. In accordance with
the transition provisions of AASB 15, the Group has re-
stated comparatives for the prior year.
The following table summarises the impact on the
consolidated income statement for the year ended
30 June 2019:
In thousands of
AUD
Gross revenue
Directly attributable
cost of sales
Net revenue
Profit before income
tax
Income tax expense
Profit for the year
As
reported Adjustment
Amount
without
adoption of
AASB 15
230,032
38,642
268,674
(100,497)
(38,642)
(139,139)
129,535
10,371
(2,297)
8,074
–
–
–
–
129,535
10,371
(2,297)
8,074
The following table summarises the impact on the
consolidated income statement for the year ended
30 June 2018:
In thousands of
AUD
Gross revenue
Directly attributable
cost of sales
Net revenue
Profit before income
tax
Income tax expense
Profit for the year
As
reported Adjustment
36,751
163,288
Amount
without
adoption of
AASB 15
200,039
(59,603)
103,685
(36,751)
–
(96,354)
103,685
10,340
(1,253)
9,087
–
–
–
10,340
(1,253)
9,087
(ii) New Standards and interpretations not yet adopted
A number of new standards, amendments to standards and
interpretations are effective for annual periods beginning
after 1 July 2019, and have not been applied in preparing
these consolidated financial statements. None of these are
expected to have a significant effect on the Group’s
financial statements, except for AASB 16 Leases, which
becomes mandatory for the Group’s 2020 consolidated
financial statements.
AASB 16 Leases (‘AASB 16’) sets out a model for
identifying lease arrangements and will result in the
recognition of almost all leases in the statement of financial
position. The new standard requires the recognition of a
‘right of use’ asset and a related lease liability, being the
present value of future lease payments. This will result in
an increase in the recognised assets and liabilities in the
statement of financial position as well as a change in
expense recognition, with interest and depreciation
replacing operating lease expense.
The Group will apply the standard retrospectively, using the
modified retrospective method, recognising the cumulative
effect of initially applying the standard in retained earnings
and reserves as at 1 July 2019.
Based on the Group’s assessment, the standard’s likely
impact on first-time adoption is (using exchange rates
prevailing at 30 June 2019):
•
there will be a material increase in lease assets
and financial liabilities recognised in the
statement of financial position; amounts are
approximated at:
o
o
o
recognition of Finance Lease Liabilities
of $21,370,000 to $23,620,000;
recognition of Right of Use (ROU)
Assets of $15,660,000 to $17,300,000;
and
de-recognition of lease provisions of
$4,512,000.
•
•
The difference will be adjusted against opening
retained earnings resulting in a reduction in equity
of $1,200,000 to $1,810,000.
operating EBITDA and EBIT in the consolidated
income statement will be higher as the implicit
interest in lease payments will be presented as
part of finance costs and the depreciation of the
right of use asset will be presented as
depreciation rather than being included as rental
costs in operating expenses; and
operating cash outflows will be lower and
financing cash outflows will be higher in the
statement of cash flows as principal repayments
on all lease liabilities will be included in financing
activities rather than operating activities.
As at the date of this report, the Group has not early
adopted the above-named standard.
Enero Group Limited Annual Report 2019 39
39
Enero Group Limited – Annual Report 2019
NOTES TO THE CONSOLIDATED
NOTES TO THE CONSOLIDATED
Notes to the consolidated financial statements
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
for the year ended 30 June 2019
FOR THE YEAR ENDED 30 JUNE 2019
FOR THE YEAR ENDED 30 JUNE 2019
2. Operating Segments
The Group had one operating segment (Operating Brands)
based on internal reporting regularly reviewed by the Chief
Executive Officer (CEO), who is the Group’s chief
operating decision maker (CODM).
The operating segment is defined based on the manner in
which service is provided in the geographies operated in,
and it correlates to the way in which results are reported to
the CEO on a monthly basis. Revenues are derived from
marketing services.
The Operating Brands segment includes marketing and
communication services centered on four key service
pillars, including strategy, market research, advertising,
digital, public relations, communications planning, graphic
design, events management, direct marketing and
corporate communications.
The measure of reporting to the CEO is on an Operating
EBITDA basis (defined below), which excludes significant
and non-operating items which are separately presented
because of their nature, size and expected infrequent
occurrence and does not reflect the underlying trading of
the operations.
In relation to segment reporting, the following definitions
apply to operating segments:
Operating EBITDA: is calculated as profit before interest,
taxes, depreciation, amortisation, impairment of
intangibles, gain on sale of business assets and contingent
consideration fair value loss.
1. Basis of preparation (continued)
(h) The notes to the financial statements
The notes include information which is required to
understand the financial statements and is material and
relevant to the operations, financial position and
performance of the Group. Information is considered
material and relevant if, for example:
•
•
•
•
the amount in question is significant because of its
size or nature;
it is important for understanding the results of the
Group;
it helps to explain the impact of significant changes
in the Group’s business – for example, acquisitions
and impairment write-downs; or
it relates to an aspect of the Group’s operations that
is important to its future performance.
The notes are organised into the following sections:
•
•
•
•
•
•
Key numbers: provides a breakdown of individual
line items in the financial statements that the
Directors consider most relevant and summarises
the accounting policies, judgements and estimates
relevant to understanding these line items;
Capital: provides information about the capital
management practices of the Group and
shareholder returns for the year;
Risk: discusses the Group’s exposure to various
financial risks, explains how these affect the
Group’s financial position and performance and
outlines what the Group does to manage these
risks;
Group structure: explains aspects of the Group
structure and changes during the year;
Unrecognised items: provides information about
items that are not recognised in the financial
statements but could potentially have a significant
impact on the Group’s financial position and
performance; and
Other items: provides information on items which
require disclosure to comply with Australian
Accounting Standards and other regulatory
pronouncements, however are not considered
critical in understanding the financial performance
or position of the Group.
40 Enero Group Limited Annual Report 2019
40
Enero Group Limited – Annual Report 2019
Unallocated
–
–
Eliminations Consolidated
230,032
(100,497)
–
–
2019
In thousands of AUD
Gross revenue
Directly attributable cost of sales
Net revenue
Other income
Operating expenses
Operating EBITDA
Depreciation and amortisation expenses
Contingent consideration fair value loss
Net finance costs
Profit before income tax
Income tax expense
Profit for the year
Goodwill
Other intangibles
Assets excluding intangibles
Total assets
Liabilities
Total liabilities
Amortisation of intangibles
Depreciation
Capital expenditure
2018
In thousands of AUD
Gross revenue
Directly attributable cost of sales
Net revenue
Other income
Operating expenses
Operating EBITDA
Depreciation and amortisation expenses
Gain on sale of business asset
Net finance costs
Profit before income tax
Income tax expense
Profit for the year
Goodwill
Other intangibles
Assets excluding intangibles
Total assets
Liabilities
Total liabilities
Amortisation of intangibles
Depreciation
Capital expenditure
* All segments are continuing operations.
(6,390)
(6,390)
–
Operating
Brands
230,032
(100,497)
Total
segment
230,032
(100,497)
129,535
129,535
107
107
(102,368)
(102,368)
27,274
27,274
108,208
2,176
56,368
166,752
74,500
74,500
1,066
1,379
1,380
Operating
Brands
163,288
(59,603)
103,685
239
(84,568)
19,356
108,208
2,176
56,368
166,752
74,500
74,500
1,066
1,379
1,380
Total
segment
163,288
(59,603)
103,685
239
(84,568)
19,356
–
17
(6,569)
(6,552)
–
–
42,699
42,699
15,589
15,589
–
830
320
–
–
(5,843)
(5,843)
627
627
–
106,858
3,198
42,503
152,559
66,922
66,922
667
1,325
1,231
106,858
3,198
42,503
152,559
66,922
66,922
667
1,325
1,231
–
–
38,011
38,011
8,576
8,576
–
1,223
410
–
–
–
–
–
–
–
(7,561)
(7,561)
(7,561)
(7,561)
–
–
–
129,535
124
(108,937)
20,722
(3,275)
(6,390)
(686)
10,371
(2,297)
8,074
108,208
2,176
91,506
201,890
82,528
82,528
1,066
2,209
1,700
–
–
–
–
–
–
–
(6,571)
(6,571)
(6,571)
(6,571)
–
–
–
103,685
239
(90,411)
13,513
(3,215)
627
(585)
10,340
(1,253)
9,087
106,858
3,198
73,943
183,999
68,927
68,927
667
2,548
1,641
Unallocated
–
–
Eliminations Consolidated
163,288
(59,603)
–
–
Enero Group Limited Annual Report 2019 41
41
Enero Group Limited – Annual Report 2019
NOTES TO THE CONSOLIDATED
Notes to the consolidated financial statements
FINANCIAL STATEMENTS
for the year ended 30 June 2019
FOR THE YEAR ENDED 30 JUNE 2019
2. Operating segments (continued)
Geographical segments
The operating segments are managed on a worldwide basis. However, there are three geographic areas of operation.
Geographical information
In thousands of AUD
2019
Net Revenue
Operating EBITDA
Operating EBITDA margin
Australia
59,975
10,695
17.8%
UK and
Europe
38,611
6,512
16.8%
USA
30,949
10,067
32.5%
Support
Office
Unallocated
intangibles(i)
–
(6,552)
–
–
–
–
Total
129,535
20,722
16.0%
Non-current assets
(i) Goodwill and other intangibles are allocated to the Operating Brands segment. However, as the Operating Brands are managed at a global level they cannot be
1,144
6,220
1,169
110,384
–
118,917
allocated across geographical segments.
In thousands of AUD
2018
Net Revenue
Operating EBITDA
Operating EBITDA margin
Australia
48,154
8,916
18.5%
UK and
Europe
35,134
6,898
19.7%
USA
20,397
3,542
17.2%
Support
Office
Unallocated
intangibles(i)
–
(5,843)
–
–
–
–
Total
129,535
20,722
13.0%
Non-current assets
(i) Goodwill and other intangibles are allocated to the Operating Brands segment. However, as the Operating Brands are managed at a global level they cannot be
5,943
1,286
110,056
956
–
118,250
allocated across geographical segments.
Major Customer
Net revenue from a customer of the Operating Brands segment represented approximately 11.6% of the Group’s total net
revenue for the year ended 30 June 2019 (2018: 13%).
Accounting policy
The Group determines and presents segments based on the information that is provided internally to the Chief Executive
Officer (CEO), who is the Group’s chief operating decision maker (CODM).
An operating segment is a component of the Group that engages in business activities from which it may earn revenues
and incur expenses, including revenues and expenses that relate to transactions with any of the Group’s other
components. All operating segments’ operating results are regularly reviewed by the Group’s CEO to make decisions
about resources to be allocated to the segment and assess its performance, and for which discrete financial information is
available.
Segment results that are reported to the CEO include items directly attributable to a segment, as well as those that can be
allocated on a reasonable basis.
Unallocated items comprise corporate overheads: costs associated with the centralised management and governance of
Enero Group Limited, such as interest-bearing loans, costs of borrowings and related expenses, and corporate head office
assets and expenses.
Segment capital expenditure is the total cost incurred during the period to acquire assets that are expected to be used for
more than one period.
42 Enero Group Limited Annual Report 2019
42
Enero Group Limited – Annual Report 2019
3. Revenue
In thousands of AUD
Gross revenue from the rendering of services
Directly attributable cost of sales
Net revenue
2019
230,032
(100,497)
129,535
2018
163,288
(59,603)
103,685
Disaggregation of revenue
In the following table, net revenue is disaggregated by primary geographical markets, which reconciles to the net revenue
of the Group’s Operating Brands segment (see Note 2). No further disaggregation is required as substantially all revenue
is recognised over time and all revenue is generated from fee for services.
In thousands of AUD
Australia
UK and Europe
USA
Total Operating Brands segment
2019
59,975
38,611
30,949
129,535
2018
48,154
35,134
20,397
103,685
Contract balances
The following table provides information about receivables, contract assets and contract liabilities from contracts with
customers.
In thousands of AUD
Trade receivables
Contract assets – Work in progress
Contract liabilities – Unearned revenue
Note
7
8
11
2019
34,081
2,475
(12,767)
23,789
2018
27,183
1,545
(12,446)
16,282
Contract Assets:
The contract assets relate to the Group’s work in progress for accrued revenue recognised upon satisfaction of
performance obligations and rechargeable disbursements at the period end which are not invoiced. The contract assets
are transferred to receivables upon invoicing to the customer.
Contract Liabilities:
The contract liabilities relate to the Group’s unearned revenue for consideration received from customers prior to
satisfaction of performance obligations of the contract.
Given the short-term nature of customer contracts in the Group, it is expected that both contract assets will be recovered
and contract liabilities utilised within the next 12 months from the reporting date. This applies for both the current year and
the prior year.
Accounting policy
The Group provides marketing and communication services to a broad range of customers across three key geographic
locations – Australia, UK and USA. The Group is a fee for service business where each operating business generates
revenue from time spent on a particular project or delivering to agreed outcomes. The Group’s customer contracts are
generally short-term and may be cancelled with notice periods in accordance with respective contracts.
AASB 15 Revenue from Contracts with Customers requires identification of discrete performance obligations within a
transaction and an associated transaction price allocation to these obligations. Revenue is recognised upon satisfaction of
these performance obligations, which occur when control of the services is transferred to the customer. Principally,
revenue is recognised depicting the transfer of promised services to customers with amounts reflecting consideration to
which the Group expects to be entitled in exchange for those services at any point in time.
The Group’s customers typically receive the benefit of services as they are performed and substantially all customer
contracts provide that the Group will be compensated for services performed to date. Accordingly, substantially all revenue
is recognised over time as the services are performed. For fixed fee projects, key estimates and judgements for when
revenue is recognised is using inputs or outputs (time and deliverables) measuring progress on the project. For retainer
contracts, where a fixed fee is paid to provide a series of distinct performance obligations that are substantially the same,
key estimates and judgements for when revenue is recognised use a time-based measure resulting in a straight-line
revenue recognition. For customer contracts that include any variable consideration, such as performance incentives,
revenue is estimated at the beginning of the contract based on the most likely outcome and recognised accordingly.
The Group incurs a number of third party out-of-pocket costs in connection with services provided to customers.
Enero Group Limited Annual Report 2019 43
43
Enero Group Limited – Annual Report 2019
NOTES TO THE CONSOLIDATED
Notes to the consolidated financial statements
FINANCIAL STATEMENTS
for the year ended 30 June 2019
FOR THE YEAR ENDED 30 JUNE 2019
3. Revenue (continued)
The disclosure of such revenue as either gross revenue or net revenue is dependent on whether the Group is primarily
responsible for and controls the specific goods or services before they are ultimately transferred to the customer under the
contract. In cases where the Group is primarily responsible for and controls those goods or services before they are
passed on to the customer, the Group is determined to be a in a principal relationship and revenue is recognised on a
gross basis (to gross revenue) with a corresponding amount in directly attributable cost of sales representing the third
party out-of-pocket costs. Alternatively, under the revenue agency relationship, revenue is recognised on a net basis.
4. Finance costs
In thousands of AUD
Interest and finance costs
Finance lease interest
Present value interest
Finance costs
2019
36
71
1,153
1,260
2018
57
152
628
837
Foreign exchange gain of $141,000 (2018: loss of $82,000) has been recognised in the consolidated income statement
and has been included in administration expenses.
Accounting policy
(i) Interest income
Interest income is recognised as it accrues to the related financial asset using the effective interest method.
(ii) Interest and finance costs/Finance lease interest
Finance costs are recognised in the income statement using the effective interest method. They include interest on
financial guarantees, amortisation of ancillary costs incurred in connection with financing arrangements and finance lease
interest.
(iii) Present value interest
Present value interest is recognised in the income statement using the effective interest method and includes the effective
interest cost relating to contingent consideration liabilities recognised in business combinations.
5. Income tax expense and deferred tax
Income tax expense
Recognised in the income statement
In thousands of AUD
Current tax expense
Current year
Adjustments for prior years
Deferred tax expense
Origination and reversal of temporary differences
Income tax expense in income statement
Numerical reconciliation between tax expense and pre-tax accounting profit
Profit for the year
Income tax expense
Profit excluding income tax
Income tax expense using the Company’s domestic tax rate of 30% (2018: 30%)
Increase in income tax expense due to:
Share-based payment expense
Tax losses not brought to account
Unwind of present value interest
Contingent consideration fair value loss
Decrease in income tax expense due to:
Effect of losses not previously recognised
Effect of lower tax rate on overseas incomes
Over-provision for tax in previous years
Other (subtraction)/non-deductible items
Income tax expense on pre-tax net profit
44 Enero Group Limited Annual Report 2019
44
2019
3,194
(237)
2,957
(660)
(660)
2,297
8,074
2,297
10,371
3,111
219
4
346
1,917
(2,264)
(781)
(237)
(18)
2,297
2018
1,842
(4)
1,838
(585)
(585)
1,253
9,087
1,253
10,340
3,102
155
7
188
–
(2,322)
(98)
(4)
225
1,253
Enero Group Limited – Annual Report 2019
Current taxes
The Group has a net current tax payable of $453,000 (2018: $1,138,000). The net current tax payable is comprised of
current tax payables of $507,000 (2018: $1,138,000) and current tax receivables of $54,000 (2018: $nil).
Deferred taxes
Recognised deferred tax assets and liabilities are attributable to the following:
In thousands of AUD
Deferred tax assets
Tax losses carried forward
Employee benefits
Accruals and income in advance
Lease incentive
Plant and equipment
Others
Gross deferred tax assets
Deferred tax liabilities
Fair value gain
Identifiable intangibles
Plant and equipment
Work in progress
Gross deferred tax liabilities
Net deferred tax asset
2019
3,653
1,169
601
1,155
47
104
6,729
3,653
485
88
44
4,270
2,459
2018
3,837
1,065
407
976
70
64
6,419
3,837
751
34
62
4,684
1,735
Movement in deferred tax balances
The movement in deferred tax balances during the year was all recognised in the income statement.
Deferred tax assets not recognised
Deferred tax assets have not been recognised in respect of the following items because it is not probable that future taxable profit
will be available against which the Group can utilise the benefits:
In thousands of AUD
Revenue losses
Capital losses
Gross tax losses carried forward
2019
15,184
207,513
222,697
2018
22,409
249,434
271,843
Accounting policy
Income tax on the profit or loss for the year comprises current and deferred tax. Current and deferred tax is recognised in
the income statement except to the extent that it relates to a business combination, or items recognised directly in equity or
in other comprehensive income.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively
enacted at the reporting date, and any adjustment to tax payable in respect of previous years.
Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not
provided for: goodwill, the initial recognition of assets or liabilities that affect neither the accounting nor the taxable profit,
and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable
future.
The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount
of assets and liabilities, using tax rates enacted or substantively enacted at the reporting date.
Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets,
and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different taxable entities,
but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised
simultaneously.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available, against
which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related
tax benefit will be realised.
Key assumption
The Group has recognised a deferred tax liability of $3,653,000 arising from the recognition of contingent consideration fair
value gains in 2011 resulting in a potential future taxable capital gain. A deferred tax asset of $3,653,000 has been
recognised on tax capital losses in the same jurisdiction arising from disposed subsidiaries.
Enero Group Limited Annual Report 2019 45
45
Enero Group Limited – Annual Report 2019
NOTES TO THE CONSOLIDATED
Notes to the consolidated financial statements
FINANCIAL STATEMENTS
for the year ended 30 June 2019
FOR THE YEAR ENDED 30 JUNE 2019
6. Cash and cash equivalents
In thousands of AUD
Cash at bank and on hand
Bank short-term deposits
Cash and cash equivalents in the statement of financial position
and the statement of cash flows
2019
24,610
19,221
43,831
2018
16,660
17,719
34,379
For statement of cash flow presentation purposes, cash and cash equivalents include cash on hand, and short-term
deposits with original maturities of three months or less that are readily convertible to known amounts of cash and which
are subject to an insignificant risk of change in value. The Group has pledged short-term deposits amounting to
$2,057,000 for indemnity guarantee facilities (see Note 17 Loans and borrowings). The remaining bank short-term deposits
are unrestricted.
The Group’s exposure to interest rate risk and a sensitivity analysis for financial assets and liabilities are disclosed in
Note 18 Financial risk management/financial instruments.
Reconciliation of cash flows from operating activities
(i) Reconciliation of cash
For the purpose of the statements of cash flows, cash includes cash on hand and at bank and short-term deposits at call, net of
outstanding bank overdrafts. Cash at the end of the financial year as shown in the statement of cash flows is reconciled to the
related items in the statement of financial position as follows:
In thousands of AUD
Cash assets
(ii) Reconciliation of profit after income tax to net cash provided by
operating activities
Profit after income tax
Add/(less) non-cash items:
Profit on sale of non-current assets
Share-based payments expense
Depreciation
Amortisation of identifiable intangibles
Gain on sale of business asset
Contingent consideration fair value loss
Contingent consideration present value interest
(Decrease)/increase in income taxes payable (net)
Increase in deferred tax (net)
Net cash provided by operating activities before changes in
assets and liabilities
Changes in assets and liabilities adjusted for the effects of purchase and
disposal of controlled entities during the financial year:
Increase in trade and other receivables
Increase in work in progress
(Increase)/decrease in prepayments
Increase in other assets
Increase in payables and accruals
Increase in unearned income
Increase in provisions
Increase in employee benefits
Net cash from operating activities
2019
43,831
2018
34,379
8,074
9,087
(19)
730
2,209
1,066
–
6,390
1,153
(685)
(724)
(6)
516
2,548
667
(627)
–
628
320
(590)
18,194
12,543
(6,593)
(930)
(205)
(51)
6,283
321
557
559
18,135
(3,931)
(51)
416
(3)
53
2,585
2,111
497
14,220
46 Enero Group Limited Annual Report 2019
46
Enero Group Limited – Annual Report 2019
7. Trade and other receivables
In thousands of AUD
Current
Trade receivables
Less: provision for impairment loss
Other receivables
Total trade and other receivables
Note
18
2019
34,081
(329)
33,752
39
33,791
2018
27,183
(100)
27,083
114
27,197
No interest is charged on trade debtors. The Group’s exposure to credit and currency risk and impairment losses related to
trade and other receivables is disclosed in Note 18 Financial risk management/financial instruments.
8. Other assets
In thousands of AUD
Current
Work in progress
Prepayments
Other current assets
Non-current
Deposits
2019
2,475
2,818
4
5,297
197
197
2018
1,545
2,613
15
4,173
136
136
Enero Group Limited Annual Report 2019 47
47
Enero Group Limited – Annual Report 2019
NOTES TO THE CONSOLIDATED
Notes to the consolidated financial statements
FINANCIAL STATEMENTS
for the year ended 30 June 2019
FOR THE YEAR ENDED 30 JUNE 2019
9. Plant and equipment
In thousands of AUD
2019
Cost
Accumulated depreciation
Net carrying amount
Reconciliations of the carrying amounts of
each class of property, plant and equipment
are set out below:
Carrying amount at the beginning of the year
Additions
Depreciation
Effect of movements in exchange rates
Disposals
Carrying amount at the end of the year
2018
Cost
Accumulated depreciation
Net carrying amount
Reconciliations of the carrying amounts of each
class of property, plant and equipment are set
out below:
Carrying amount at the beginning of the year
Additions
Acquired through business combination
Depreciation
Effect of movements in exchange rates
Disposals
Carrying amount at the end of the year
Computer
equipment
Office
furniture
and
equipment
Plant and
equipment
Leasehold
improvements
(i)
Total
4,722
(3,133)
1,589
2,296
(1,446)
850
338
(313)
25
7,068
(3,655)
3,413
14,424
(8,547)
5,877
1,444
1,035
(915)
25
–
1,589
854
314
(328)
13
(3)
850
5,106
(3,662)
1,444
2,301
(1,447)
854
1,219
934
74
(820)
42
(5)
1,444
821
245
40
(269)
17
–
854
45
–
(19)
–
(1)
25
393
(348)
45
56
–
19
(30)
–
–
45
3,980
351
(947)
29
–
3,413
6,323
1,700
(2,209)
67
(4)
5,877
7,726
(3,746)
3,980
15,526
(9,203)
6,323
4,803
462
108
(1,429)
36
–
3,980
6,899
1,641
241
(2,548)
95
(5)
6,323
(i) The Group has pledged Leasehold improvements (see Note 17 Loans and borrowings).
Accounting policy
(i) Recognition and measurement
Plant and equipment are stated at cost less accumulated depreciation (see below) and impairment losses (see Note 19
Impairment of non-financial assets). The cost of the asset also includes the cost of replacing parts on an item of plant and
equipment when it is probable that the future economic benefits embodied within the item will flow to the Group and the
cost of the item can be measured reliably. All other costs are charged to the income statement as incurred.
Cost includes expenditure that is directly attributable to the acquisition of the asset. Purchased software that is integral to
the functionality of the related equipment is capitalised as part of that equipment.
Where parts of an item of plant and equipment have different useful lives, they are accounted for as separate items of
plant and equipment.
(ii) Derecognition
An item of property, plant and equipment is derecognised when it is sold or otherwise disposed of, or when its use is
expected to bring no future economic benefits.
Gains and losses on derecognition are determined by comparing the proceeds with the carrying amount and recognised
within ‘Administration expenses’ in the income statement.
(iii) Leased assets
Leases in terms of which the Group assumes substantially all the risks and rewards of ownership are classified as finance
leases. Upon initial recognition the leased asset is measured at an amount equal to the lower of its fair value and the
present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance
with the accounting policy applicable to that asset. Other leases are operating leases; the leased assets are not
recognised on the Group’s statement of financial position.
48 Enero Group Limited Annual Report 2019
48
Enero Group Limited – Annual Report 2019
(iv) Depreciation
Depreciation is charged to the income statement on a straight-line basis over the assets’ estimated useful lives. Leased
assets are depreciated over the shorter of the lease term and their useful lives, unless it is reasonably certain that the
Group will obtain ownership of the asset by the end of the lease term. The major categories of plant and equipment were
depreciated in the current and, where applicable, comparative period as follows:
Computer equipment
Office furniture and equipment
Plant and equipment
Leasehold improvements
25% to 40%
5% to 25%
10% to 25%
Life of lease
Depreciation methods, useful lives and residual values are reviewed at each financial year end and adjusted if appropriate.
10. Intangible assets
In thousands of AUD
2019
Cost
Accumulated amortisation
Impairment
Net carrying amount
Reconciliations of the carrying amounts of intangibles
are set out below:
Carrying amount at the beginning of the year
Amortisation
Effect of movements in exchange rates
Carrying amount at the end of the year
2018
Cost
Accumulated amortisation
Impairment
Net carrying amount
Reconciliations of the carrying amounts of intangibles
are set out below:
Carrying amount at the beginning of the year
Acquired through business combination
Amortisation
Effect of movements in exchange rates
Carrying amount at the end of the year
Goodwill Contracts and
customer
relationships
Internally
generated
intangible
assets
296,110
–
(187,902)
108,208
106,858
–
1,350
108,208
292,234
–
(185,376)
106,858
81,802
21,403
–
3,653
106,858
4,296
(2,120)
–
2,176
3,198
(1,066)
44
2,176
4,203
(1,005)
–
3,198
1,332
2,502
(667)
31
3,198
–
–
–
–
–
–
–
–
257
(257)
–
–
–
–
–
–
–
Total
300,406
(2,120)
(187,902)
110,384
110,056
(1,066)
1,394
110,384
296,694
(1,262)
(185,376)
110,056
83,134
23,905
(667)
3,684
110,056
Amortisation charge
The amortisation charge of $1,066,000 (2018: $667,000) is recognised in the depreciation and amortisation expense in the
income statement.
Goodwill CGU group allocation
The Group has two CGU groups – the Operating Brands CGU group and the Search Marketing CGU group. The entire
goodwill balance of $108,208,000 (2018: $106,858,000) relates to the Operating Brands CGU group.
The increase in the goodwill carrying value as compared to the prior reporting period is due to increase in Australian dollar
translation of foreign currency denominated goodwill (2018: acquisition of Orchard Marketing. Refer to Note 21 Acquisition
for details).
Enero Group Limited Annual Report 2019 49
49
Enero Group Limited – Annual Report 2019
NOTES TO THE CONSOLIDATED
Notes to the consolidated financial statements
FINANCIAL STATEMENTS
for the year ended 30 June 2019
FOR THE YEAR ENDED 30 JUNE 2019
10. Intangible assets (continued)
Accounting policy
(i) Goodwill
Goodwill acquired in a business combination is initially measured at cost. Cost is measured as the cost of the business
combination minus the net fair value of the acquired and identifiable assets, liabilities and contingent liabilities.
Following initial recognition, goodwill is measured at cost less any accumulated impairment losses.
Goodwill is allocated to cash generating units expected to benefit from synergies created by the business combination.
Goodwill is not amortised, but instead is reviewed for impairment annually or more frequently if events or changes in
circumstances indicate that the carrying value may be impaired.
(ii) Research and development
Expenditure on research activities is charged to the income statement as incurred.
Expenditure on development activities (including internally developed software) is capitalised only if development costs
can be reliably measured, the product or process is technically and commercially feasible, future economic benefits are
probable, and the Group intends to, and has sufficient resources to, complete development and to use or sell the asset.
The capitalised development expenditure includes the cost of materials, direct labour and an appropriate proportion of
overhead costs that are directly attributable to preparing the asset for its intended use. Capitalised development
expenditure is measured at cost, less accumulated amortisation and impairment losses.
(iii) Other intangible assets
Other intangible assets acquired separately are measured on initial recognition at cost. The other intangible assets
acquired in business combinations are mainly customer relationships and customer contracts. The cost of these assets is
their fair value at date of acquisition based on valuation techniques generally using the excess earnings method. Following
initial recognition, intangible assets are carried at cost less amortisation and any impairment losses.
Subsequent expenditure
Subsequent expenditure on capitalised intangible assets is capitalised only when it increases the future economic benefits
embodied in the specific asset to which it relates. All other expenditure is expensed as incurred.
(iv) Amortisation
Intangible assets other than goodwill are amortised on a straight-line basis over their estimated useful lives from the date
they are available for use.
Customer contracts and relationships are amortised over a four-year period.
Amortisation methods, useful lives and residual values are reviewed at each financial year end and adjusted if appropriate.
(v) Impairment
Refer to Note 19 Impairment of non-financial assets for further details on impairment.
11. Trade and other payables
In thousands of AUD
Current liabilities
Trade payables
Other payables and accrued expenses
Unearned revenue
2019
14,267
11,346
12,767
38,380
2018
10,931
8,463
12,446
31,840
The Group’s exposure to currency and liquidity risk related to trade and other payables is disclosed in Note 18 Financial
risk management/financial instruments.
50 Enero Group Limited Annual Report 2019
50
Enero Group Limited – Annual Report 2019
12. Contingent consideration payables
In thousands of AUD
Current
Contingent consideration payable
Non-current
Contingent consideration payable
Reconciliations of the carrying amounts of
contingent consideration are set out below:
Carrying amount at the beginning of the year
Recognised in business combination
Re-assessment of contingent consideration
Unwind of present value interest
Effect of movements in exchange rates
Contingent consideration paid
Carrying amount at the end of the year
2019
2018
11,519
–
22,282
25,802
25,802
–
6,390
1,153
456
–
33,801
10,143
19,362
–
628
161
(4,492)
25,802
During the current year, the Group recognised a fair value loss of $6,390,000 (2018: $Nil) relating to revaluation of future
contingent consideration payable to the vendors of Eastwick Communications.
There is uncertainty around the actual payments that will be made as the payments are subject to the performance of
Orchard Marketing and Eastwick Communications subsequent to the reporting date. Factors which could vary the amount
of contingent consideration payable due include a minimum EBIT threshold for future payments, the basis of the average
EBIT over the contingent consideration period and whether the final payment is capped or uncapped. Actual future
payments may differ from the estimated liability. A sensitivity analysis for Contingent consideration payables is disclosed in
Note 18 Financial risk management/financial instruments.
Accounting policy
Contingent consideration payable is initially recognised at fair value in connection with a business combination. The liability
is discounted using a market interest rate for the liability and a present value interest charge is recognised in the income
statement as the discount unwinds. Any change in estimate of contingent consideration payable is recognised in the
income statement as a fair value gain or loss during the period when the estimate is revised. Refer to Note 21 Acquisition
for further details of acquisitions in the prior financial year.
13. Employee benefits
In thousands of AUD
Aggregate liability for employee benefits, including on-costs
Current
Employee benefits provision
Non-current
Employee benefits provision
2019
2018
4,173
3,545
659
728
The Group has recognised $2,405,000 (2018: $2,476,000) as an expense in the income statement for defined contribution
plans during the reporting period.
Accounting policy
Provision is made for employee benefits including annual leave and long service leave for employees.
(i) Long-term employee benefits
The Group’s net obligation in respect of long-term service benefits, other than superannuation and pension plans, is the
amount of future benefit that employees have earned in return for their service provided up to the reporting date. The
obligation is calculated using expected future increases in wage and salary rates, including related on-costs and expected
settlement dates, and is discounted using the rates attached to the Corporate bonds which have maturity dates
approximating to the terms of the Group’s obligations.
(ii) Wages, salaries, annual leave and non-monetary benefits
Liabilities for employee benefits for wages, salaries and annual leave, that are due to be settled within 12 months of the
reporting date, represent present obligations resulting from employees’ services provided to reporting date and are
calculated at undiscounted amounts based on remuneration wage and salary rates that the Group expects to pay as at
reporting date, including related on-costs.
A provision is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the
Group has a present legal or constructive obligation to pay this amount as a result of past services provided by the
employee and the obligation can be reliably estimated.
Enero Group Limited Annual Report 2019 51
51
Enero Group Limited – Annual Report 2019
NOTES TO THE CONSOLIDATED
Notes to the consolidated financial statements
FINANCIAL STATEMENTS
for the year ended 30 June 2019
FOR THE YEAR ENDED 30 JUNE 2019
13. Employee benefits (continued)
(iii) Termination benefits
Termination benefits are charged to the income statement when the Group is demonstrably committed, without realistic
possibility of withdrawal, to a formal detailed plan to either terminate employment before the normal retirement date, or to
provide termination benefits as a result of an offer made to encourage voluntary redundancy. Termination benefits for
voluntary redundancies are charged to the income statement if the Group has made an offer encouraging voluntary
redundancy, it is probable that the offer will be accepted, and the number of acceptances can be estimated reliably.
14. Provisions
In thousands of AUD
2019
Current
Non-current
Total provisions current and non-current
Reconciliations of the carrying amounts of each class of
provision, except for employee benefits, are set out
below:
Carrying amount at the beginning of the year
Increase due to new provision
Effect of movement in exchange rates
Released/used during the year
Carrying amount at the end of the year
2018
Current
Non-current
Total provisions current and non-current
Reconciliations of the carrying amounts of each class of
provision, except for employee benefits, are set out
below:
Carrying amount at the beginning of the year
Acquired through business combination
Increase due to new provision
Effect of movement in exchange rates
Released/used during the year
Carrying amount at the end of the year
Accounting policy
Lease
make good
Lease
incentive
Rent
straight-line
10
454
464
438
39
7
(20)
464
238
200
438
459
63
13
21
(118)
438
633
3,155
3,788
3,250
617
2
(81)
3,788
19
3,231
3,250
1,273
–
2,034
11
(68)
3,250
3
260
263
270
9
13
(29)
263
10
260
270
139
–
127
11
(7)
270
Total
646
3,869
4,515
3,958
665
22
(130)
4,515
267
3,691
3,958
1,871
63
2,174
43
(193)
3,958
A provision is recognised in the statement of financial position when the Group has a present legal or constructive
obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the
obligation.
(i) Make good provision
The Group recognises provision for make good on all operating leases for premises which require make good expenditure
at completion of the lease. The provision is the best estimate of the expenditure required to settle the make good
obligation.
Future make good costs are reviewed annually and any changes are reflected in the provision at the end of the reporting
period.
(ii) Lease incentive provision
The Group has made provision for lease incentives received. Lease incentives received are recognised in the income
statement as an integral part of the total lease expense spread over the lease term.
(iii) Rent
The Group has made provision for increase in rent for operating leases for premises. Rent is recognised in the income
statement on a straight-line basis over the lease term.
52 Enero Group Limited Annual Report 2019
52
Enero Group Limited – Annual Report 2019
15. Capital and reserves
In thousands of AUD
Share capital
Ordinary shares, fully paid
2019
2018
97,412
96,656
The Company does not have authorised capital or par value in respect of its shares.
Movement in ordinary shares
Balance at beginning of year
651,575 shares (2018: 297,184 shares) transferred from a
trust account held by the Company to the employees of the
Group on exercise of Share Appreciation Rights(i)
Balance at end of year
2019
Shares
85,604,954
2019
In thousands
of AUD
96,656
2018
Shares
85,604,954
2018
In thousands
of AUD
96,389
–
756
–
85,604,954
97,412
85,604,954
267
96,656
(i) As at 30 June 2019, a total of 642,726 shares (30 June 2018: 1,294,301 shares) were held in trust by the Company. Share capital recognised during the year on the
exercise of Share Appreciation Rights is based on the VWAP of the Company’s shares for the 20 business days prior to the vesting date of the rights of $1.16
(2018: $0.90).
Ordinary shares
Holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per
share at shareholder meetings.
Profit appropriation reserve
The profit appropriation reserve comprises profits appropriated by the parent entity.
Translation reserve
The translation reserve comprises all foreign currency differences arising from the translation of the financial statements of
foreign operations.
Share-based payment reserve
The share-based payment reserve comprises the cumulative expense relating to the fair value of options, rights and equity
plans on issue to Key Management Personnel, senior Executives and employees of the Group less amounts transferred to
other reserves or to share capital on exercise of options, rights and equity plans.
Reserve change in ownership interest in subsidiary
The reserve change in ownership interest in subsidiary relates to a subsidiary equity plan.
Dividends
Dividend declared and/(or) paid by the Company to its members:
During the year ended 30 June 2019
Fully franked final dividend – 2018
Fully franked interim dividend – 2019
Subsequent to the balance sheet date, at the date of this report
Fully franked final dividend – 2019
During the year ended 30 June 2018
Fully franked interim dividend – 2018
Cents per share
in thousands of AUD Date of payment
Total amount
2.5
2.5
3.0
1.5
2,140
2,140
8 October 2018
18 March 2019
2,568
8 October 2019
1,284
15 March 2018
Dividend franking account
In thousands of AUD
Franking credits available for future years at 30% to shareholders of Enero Group Limited
2019
18,286
2018
20,129
The above amounts represent the balance of the franking account at end of the financial year adjusted for:
•
•
•
•
franking credits that will arise from the payment of the current tax liability;
franking debits that will arise from the payment of dividends recognised as a liability at year end;
franking credits that will arise from the receipt of dividends recognised as receivables at year end; and
franking credits that may be prevented from being distributed in subsequent years.
Enero Group Limited Annual Report 2019 53
53
Enero Group Limited – Annual Report 2019
NOTES TO THE CONSOLIDATED
Notes to the consolidated financial statements
FINANCIAL STATEMENTS
for the year ended 30 June 2019
FOR THE YEAR ENDED 30 JUNE 2019
15. Capital and reserves (continued)
The ability to utilise the franking credits is dependent upon there being sufficient available profits to declare dividends and
any restrictions to paying dividends.
Accounting policy
(i) Ordinary shares
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares and share
options are recognised as a deduction from equity, net of tax effects.
(ii) Dividends
Dividends are recognised as a liability in the period in which they are declared.
(iii) Transaction costs
Transaction costs of an equity transaction are accounted for as a deduction from equity, net of any related income tax
benefit.
16. Earnings per share
Profit attributable to equity holders of the parent
In thousands of AUD
Profit for the year
Non-controlling interests
Profit for the year attributable to equity holders of the parent
Weighted average number of ordinary shares
In thousands of shares
Weighted average number of ordinary shares – basic
Shares issuable under equity-based compensation plans
Weighted average number of ordinary shares – diluted
Earnings per share
In AUD cents
Basic
Diluted
2019
8,074
(2,413)
5,661
2019
84,819
710
85,529
2019
6.7
6.6
2018
9,087
(614)
8,473
2018
84,243
519
84,762
2018
10.1
10.0
Accounting policy
The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by
dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary
shares outstanding during the period. Diluted EPS is determined by adjusting the profit and loss attributable to ordinary
shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential
ordinary shares, which comprise share rights granted to employees.
17. Loans and borrowings
This note provides information about the contractual terms of the Group’s interest-bearing loans and borrowings. For more
information about the Group’s exposure to interest rate risk, liquidity risk and foreign currency risk, see Note 18 Financial
risk management/financial instruments.
In thousands of AUD
Current liabilities
Hire purchase lease liabilities
Non-current liabilities
Hire purchase lease liabilities
Reconciliations of the carrying amounts of hire
purchase liabilities are set out below:
Carrying amount at the beginning of the year
Repayments
Carrying amount at the end of the year
54 Enero Group Limited Annual Report 2019
54
2019
493
–
2018
1,423
493
1,916
(1,423)
493
3,267
(1,351)
1,916
Enero Group Limited – Annual Report 2019
Financing facilities
The Group has access to the following lines of credit:
In thousands of AUD
2019
Total facilities available
Facilities utilised at reporting date
Facilities not utilised at reporting date
2018
Total facilities available
Facilities utilised at reporting date
Facilities not utilised at reporting date
Lease finance
facility
Indemnity
guarantee
facility
Credit card
facility
493
493
–
1,916
1,916
–
3,489
2,057
1,432
3,463
1,569
1,894
1,972
317
1,655
1,951
391
1,560
Total
5,954
2,867
3,087
7,330
3,876
3,454
Financing arrangements
All finance facilities are negotiated by the Company on behalf of the Group. The carrying amount of amounts drawn down
on facilities as at the reporting date equates to face value. The indemnity guarantee facility is secured by cash deposits
held with the bank.
Lease finance facility
The lease finance facility is subject to annual review and is in place to assist with capital expenditure requirements.
In thousands of AUD
Finance lease and hire purchase payable commitments
Finance lease commitments are payable:
Within one year
One year or later and no later than five years
Less: Future lease finance charges
Finance lease and hire purchase liabilities provided for in the financial statements
Current
Non-current
2019
2018
498
–
498
(5)
493
493
–
493
1,494
498
1,992
(76)
1,916
1,423
493
1,916
The Group leases plant, equipment and leasehold improvements under finance leases expiring from one to five years
(2018: one to five years). At the end of the lease term, the Group has the option to purchase the equipment at a substantial
discount to market value. The terms of the leases require that additional debt and further leases are not undertaken
without prior approval of the lessor.
Indemnity guarantee facility
The indemnity guarantee facility is in place to support financial guarantees outstanding at any one time. Specific guarantee
amounts are $2,057,000 (2018: $1,569,000) supporting property rental and other obligations.
Credit card facility
The credit card facility is subject to annual review and is subject to application approval and the bank or financial services
company’s standard terms and conditions.
Accounting policy
Finance lease
Leases where the Group has substantially all the risks and rewards of ownership are classified as finance leases.
Finance leases are capitalised at the inception at the lower of the fair value of the leased asset and the present value of
the minimum lease payments. The corresponding rental obligations, net of finance charges, are included in loans and
borrowings.
Lease payments are apportioned between the finance charge and the reduction of the outstanding liability. The finance
charge is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the
remaining balance of the liability. The finance charge component of finance lease payments is recognised in the income
statement using the effective interest method.
Enero Group Limited Annual Report 2019 55
55
Enero Group Limited – Annual Report 2019
NOTES TO THE CONSOLIDATED
Notes to the consolidated financial statements
FINANCIAL STATEMENTS
for the year ended 30 June 2019
FOR THE YEAR ENDED 30 JUNE 2019
18. Financial risk management/financial instruments
The Group’s exposure to financial risks, objectives, policies
and processes for managing the risks including methods
used to measure the risks, and the management of capital,
are presented below.
The Group’s activities expose it to the following financial
risks:
•
•
•
liquidity risk; and
market risk.
credit risk;
The Group’s principal financial instruments comprise cash,
receivables, payables, interest-bearing liabilities,
contingent consideration payable and other financial
liabilities.
The Board has overall responsibility for the oversight of the
risk management framework. Risk management policies
are established to identify and analyse the risks faced by
the Group, to set appropriate risk limits and controls, and to
monitor risks and adherence to limits. Risk management
policies and systems are reviewed regularly and modified
as appropriate to reflect changes in market conditions and
the Group’s activities.
The Group considers that there are no changes to the
objectives, policies and processes to managing risk and
the exposure to risks from the prior reporting period.
Credit risk
Exposure to credit risk
Credit risk is the risk of financial loss to the Group if a
customer or counterparty to a financial instrument fails to
meet its contractual obligation, and arises principally from
the Group’s receivables from customers.
Each subsidiary performs credit analysis of a new
customer and standard payment terms are offered only to
creditworthy customers.
During the year ended 30 June 2019, the Group entered
into transactions with more than 600 unique customers.
The 10 largest customers accounted for 35% of net
revenue for the year ended 30 June 2019, with no one
customer accounting for more than 12% of net revenue.
There are no material credit exposures relating to a single
receivable or groups of receivables.
The maximum exposure to credit risk is net of any
provisions for impairment of those assets, as disclosed in
the statement of financial position.
The carrying amount of financial assets represents the
maximum credit exposure. The maximum credit exposure
to credit risk at the reporting date was:
In thousands of AUD
Cash and cash equivalents
Trade and other
receivables
Work in progress
Deposits
Note
6
7
8
8
Carrying amount
2018
34,379
2019
43,831
33,791
2,475
197
80,294
27,197
1,545
136
63,257
56 Enero Group Limited Annual Report 2019
56
The Group’s maximum exposure to trade receivables credit
risk at the reporting date was:
In thousands of AUD
Trade receivables
Note
7
Carrying amount
2018
27,083
2019
33,752
The Group’s credit risk exposure is consistent across the
geographic and business segments in which the Group
operates.
The movement in the allowance for impairment in respect
of trade receivables during the year was as follows:
In thousands of AUD
Balance at 1 July
Impairment loss recognised in:
– income statement
– opening retained earnings
(refer Note 1(g) for details)
Provision used during year
Balance at 30 June
2019
100
259
190
(220)
329
2018
135
52
–
(87)
100
Impairment recognised to opening retained earnings at
1 July 2018 was determined with reference to the average
credit loss over the last three financial years. The average
credit loss was 0.7% of trade receivables. Applying this
percentage against the trade receivable balance at 1 July
2018 of $27,083,000, an additional $190,000 impairment
was required on transition.
The average credit loss was re-calculated at 30 June 2019
and determined to be consistent with 1 July 2018 and
therefore no adjustment to expected credit losses was
required.
Impairment losses
The ageing of the Group’s trade receivables at the
reporting date was:
In thousands of AUD
Not past due
Past due and less than 90 days
Past due and more than 90 days
Past due, more than 90 days and
impaired
Gross trade receivables
Less: Impairment(i)
Net trade receivables
2019
27,920
5,202
820
139
34,081
(329)
33,752
2018
23,347
3,424
312
100
27,183
(100)
27,083
(i) Impairment includes trade receivables specifically impaired of $139,000 plus
expected credit losses of $190,000.
Market risk
Market risk is the risk relating to changes in market prices,
such as foreign exchange rates, interest rates and equity
prices, which will affect the Group’s income or the value of
its holding of financial instruments. The objective of market
risk management is to manage and control market risk
exposure within acceptable parameters, while optimising
the return.
Enero Group Limited – Annual Report 2019
Currency risk
Currency risk is the risk that the fair value of future cash
flows of a financial instrument will fluctuate because of
changes in foreign exchange rates. The source and nature
of this risk arises from operations and translation risks.
The Group’s currency risk exposure is limited
predominantly to consolidated Australian dollar translation
risk as the majority of transactions denominated in foreign
currencies are transacted by entities within the Group with
the same functional currency of the relevant transaction.
The Operating Brands segment generated approximately
54% of its net revenue and 61% of its Operating EBITDA
during the year ended 30 June 2019 from outside Australia.
The Group’s reporting currency is Australian dollars.
However, the international operations give rise to an
exposure to changes in foreign exchange rates, as the
majority of its revenues from outside Australia are
denominated in currencies other than Australian dollars,
most significantly Great British pound (GBP) and US dollar
(USD).
Liquidity risk
Liquidity risk is the risk that the Group will not be able to
meet its financial obligations as they become due. The
Group’s approach to managing liquidity is to ensure, as far
as possible, that it will always have sufficient liquidity to
meet its liabilities when due.
The Group manages liquidity risk by monitoring forecast
operating cash flows, and committed unutilised facilities;
and re-estimating the value of contingent consideration
liabilities semi-annually.
The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding the
impact of netting agreements.
2019
In thousands of AUD
Non-derivative financial liabilities
Hire purchase liabilities
Trade and other payables
(excluding unearned revenue)
Contingent consideration payable
2018
In thousands of AUD
Non-derivative financial liabilities
Hire purchase liabilities
Trade and other payables
(excluding unearned revenue)
Contingent consideration payable
Carrying
amount
Contractual
cash flows
Less than
1 year
1 to 5 years Over 5 years
493
25,613
33,801
59,907
498
25,613
35,620
61,731
498
25,613
11,696
37,807
–
–
23,924
23,924
–
–
–
–
Carrying
amount
Contractual
cash flows
Less than
1 year
1 to 5 years Over 5 years
1,916
19,394
25,802
47,112
1,992
19,394
28,449
49,835
1,494
19,394
–
20,888
498
–
28,449
28,947
–
–
–
–
It is not expected that the cash flows included in the maturity analysis could occur significantly earlier or at significantly
different amounts.
Liquidity risk in relation to contingent consideration liabilities
There are critical accounting estimates and judgements in relation to contingent consideration liabilities. Refer to Note 12
Contingent consideration payables for further details.
There are no other significant uncertainties in the timing or amounts of contractual liabilities.
Interest rate risk
Interest rate risk refers to the risk that the fair value of the future cash flows of financial instruments will fluctuate because
of changes in market interest rates. The Group has no significant variable interest-bearing assets or liabilities at
30 June 2019.
Capital management
The Group’s key sources of capital are available committed facilities and share capital. The Board seeks to maintain a
balance between higher returns that might be possible with higher levels of gearing and the advantages afforded by a
prudent capital position. The Group’s only bank debt is in relation to a hire purchase facility for the fit-out of 100 Harris
Street, Pyrmont. The Group also has contingent consideration payables as described in Note 12 Contingent consideration
payables.
Enero Group Limited Annual Report 2019 57
57
Enero Group Limited – Annual Report 2019
NOTES TO THE CONSOLIDATED
Notes to the consolidated financial statements
FINANCIAL STATEMENTS
for the year ended 30 June 2019
FOR THE YEAR ENDED 30 JUNE 2019
18. Financial risk management/financial instruments (continued)
Fair values
Fair values versus carrying amounts
The fair values of financial assets and liabilities, together with the carrying amounts shown in the statement of financial
position, are as follows:
Consolidated
In thousands of AUD
Cash at bank and on hand
Bank short-term deposits
Trade receivables
Work in progress
Trade and other payables
Contingent consideration payable
Hire purchase lease liabilities
Fair value measurement:
Carrying
amount
24,610
19,221
33,752
2,475
(25,613)
(33,801)
(493)
20,151
2019
Fair value
24,610
19,221
33,752
2,475
(25,613)
(33,801)
(493)
20,151
Carrying
amount
16,660
17,719
27,083
1,545
(19,394)
(25,802)
(1,916)
15,895
2018
Fair value
16,660
17,719
27,083
1,545
(19,394)
(25,802)
(1,916)
15,895
Level 3 fair values
The following tables show the valuation techniques used in measuring Level 3 fair values for financial instruments
measured at fair value in the statement of financial position, as well as the significant unobservable inputs used.
Type
Contingent
consideration
payable
Valuation technique
Discounted cash flows: The valuation model
considers the present value of expected
payment, discounted using a risk-adjusted
discount rate. The expected payment is
determined by considering the possible
scenarios of forecast average EBIT, the
amount to be paid under each scenario and
the probability of each scenario.
Significant unobservable
inputs
– Forecast average
EBIT.
– Risk-adjusted
discount rate: 3.75%
to 4.55%.
Inter-relationship between
significant unobservable
inputs and fair value
measurement
The estimated fair value
would increase (decrease) if:
–
the EBIT is higher
(lower); or
–
the risk-adjusted discount
rate were lower (higher).
Reconciliation of Level 3 fair values
In thousands of AUD
Carrying amount at the beginning of the year
Recognised in business combination
Re-assessment of contingent consideration
Unwind of present value interest
Effect of movements in exchange rates
Contingent consideration paid
Carrying amount at the end of the year
2019
25,802
–
6,390
1,153
456
–
33,801
2018
10,143
19,362
–
628
161
(4,492)
25,802
Sensitivity analysis
Reasonably possible changes at 30 June 2019 to one of the significant unobservable inputs, holding other inputs
constant, would have the following effects on the fair values of contingent consideration:
In thousands of AUD
Average EBIT (5% movement)
Average EBIT (10% movement)
Risk-adjusted discount rate (0.5% movement)
Increase
1,228
2,456
(362)
Decrease
(1,228)
(5,797)
362
There is an unequal impact in the increase or decrease in Average EBIT under the sensitivity analysis due to the
application of a total purchase price cap for the acquisition of Orchard Marketing and step changes in EBIT multiples
based on Average EBIT achieved over the whole contingent consideration period (usually three or four years).
58 Enero Group Limited Annual Report 2019
58
Enero Group Limited – Annual Report 2019
Other items
The carrying amount of cash and cash equivalents, trade and other receivables, trade and other payables and lease
liabilities approximates their fair value. The fair value which is determined for disclosure purposes only is calculated as:
•
Trade receivables: is the present value of future cash flows, discounted at the market rate of interest at the
reporting date.
•
Trade and other payables and hire purchase lease liabilities: is the present value of future principal and interest
cash flows, discounted at the market rate of interest at the reporting date. For finance leases, the market rate of
interest is determined by reference to similar lease arrangements.
Non-derivative financial liabilities
Non-derivative financial liabilities are recognised on the
date they are originated. All other financial liabilities
(including liabilities designated at fair value through profit
or loss) are recognised initially on the trade date at which
the Group becomes a party to the contractual provisions of
the instrument.
Non-derivative financial liabilities are derecognised when
the Group’s contractual obligations are discharged or
cancelled, or expire.
The Group has the following non-derivative financial
liabilities: loans and borrowings, trade, other payables and
contingent consideration payable.
Non-derivative financial liabilities, other than contingent
consideration payable, are recognised initially at fair value,
plus any directly attributable transaction costs. Subsequent
to initial recognition, these financial liabilities are measured
at amortised cost using the effective interest rate method.
Contingent consideration payable is classified as a
financial liability and is measured at fair value through
profit or loss. Contingent consideration relating to
acquisition of subsidiaries is recognised based on
management’s best estimate of the liability (up to any
relevant cap) at the reporting date. The liability is
discounted using a market interest rate for the liability and
a present value interest charge is recognised in the income
statement as the discount unwinds. Any change in
estimate of contingent consideration payable is recognised
in the income statement as a fair value gain or loss during
the period when the estimate is revised.
Accounting policy
Non-derivative financial assets
Non-derivative financial assets are recognised on the
date that they are originated. All other financial assets
(including assets designated as fair value through the
profit and loss) are recognised initially on the trade date
at which the Group becomes a party to the contractual
provisions of the instrument.
Non-derivative financial assets are derecognised when the
rights to receive cash flows from the financial assets have
expired or have been transferred and the Group has
transferred substantially all the risks and rewards of
ownership.
Financial assets and liabilities are offset and the net
amount presented in the statement of financial position
when, and only when, the Group has a legal right to offset
the amounts and intends either to settle on a net basis or
to realise the asset and settle the liability simultaneously.
The Group has the following non-derivative financial
assets:
(i) Trade and other receivables
Trade and other receivables are financial assets with fixed
or determinable payments that are not quoted in an active
market. They arise when the Group provides money or
services directly to a debtor with no intention of selling the
receivable.
Trade and other receivables are recognised initially at fair
value, plus any directly attributable transaction costs.
Subsequent to initial recognition, trade and other
receivables are measured at amortised cost using the
effective interest method, less a loss allowance equal to
the expected credit loss determined under the expected
credit loss assessment for receivables.
(ii) Work in progress
Work in progress represents accrued revenue recognised
upon satisfaction of performance obligations and
rechargeable disbursements at the period end which are
not invoiced, and is stated at the lower of cost and net
realisable value.
(iii) Cash and cash equivalents
Cash and cash equivalents comprise cash balances and
call deposits with original maturities of three months or
less. Bank overdrafts that are repayable on demand and
form an integral part of the Group’s cash management are
included as a component of cash and cash equivalents for
the purpose of the statement of cash flows.
Enero Group Limited Annual Report 2019 59
59
Enero Group Limited – Annual Report 2019
NOTES TO THE CONSOLIDATED
Notes to the consolidated financial statements
FINANCIAL STATEMENTS
for the year ended 30 June 2019
FOR THE YEAR ENDED 30 JUNE 2019
18. Financial risk management/financial instruments (continued)
Derivative financial instruments including hedging
accounting
The Group may use derivative financial instruments to
hedge its exposure to interest rate risks and foreign
currency risks.
Derivatives are initially recognised at fair value on the date
a derivative contract is entered into and are subsequently
remeasured to their fair value. The method of recognising
the resulting gain or loss depends on whether the
derivative is designated as a hedging instrument, and if so,
the nature of the item being hedged.
The Group designates certain derivatives as either hedges
of the fair value of recognised assets or liabilities or a firm
commitment (fair value hedges), or hedges of probable
forecast transactions (cash flow hedges).
The Group documents at the inception of the transaction
the relationship between hedging instruments and hedged
items, as well as its risk management objective and
strategy for undertaking various hedge transactions. The
Group also documents its assessment, both at hedge
inception and on an on-going basis, of whether the
derivatives that are used in hedging transactions have
been and will continue to be effective in offsetting changes
in fair values or cash flows of hedged items.
Cash flow hedges
The effective portion of changes in the fair value of
derivatives that are designated and qualify as cash flow
hedges is recognised in other comprehensive income. The
gain or loss relating to the ineffective portion is recognised
immediately in the income statement.
When a hedging instrument expires or is sold or
terminated, or when a hedge no longer meets the criteria
for hedge accounting, any cumulative gain or loss existing
in equity at that time remains in equity and is recognised
when the forecast transaction is ultimately recognised in
the income statement.
When the hedged item is a non-financial asset, the amount
recognised in other comprehensive income is transferred
to the carrying amount of the asset when it is recognised.
When a forecast transaction is no longer expected to
occur, the cumulative gain or loss that was reported in
equity is immediately transferred to the income statement.
Impairment of Financial assets (including receivables)
A financial asset not carried at fair value through profit or
loss is assessed on a monthly basis to determine whether
there is any objective evidence that it is impaired. A
financial asset is considered to be impaired if objective
evidence indicates that one or more events have had a
negative effect on the estimated future cash flows of that
asset that can be estimated reliably.
Objective evidence that financial assets are impaired can
include default or delinquency by a debtor, restructuring of
an amount due to the Group on terms that the Group would
not consider otherwise, and/or indications that a debtor or
issuer will enter bankruptcy.
Expected credit loss assessment for receivables and
contract assets
In addition to identifying impairment for specific financial
assets, at each reporting date the Group also predicts the
expected credit loss based on actual credit loss experience
of the past three years. Expected credit losses are
recognised in the income statement and reflected in an
allowance account against receivables. An impairment loss
in respect of a financial asset measured at amortised cost
is calculated as the difference between its carrying amount
and the present value of the estimated future cash flows
discounted at the original effective interest rate.
Key estimates
Trade receivables are carried at amortised cost less
impairment. The impairment of these receivables is an
estimate based on:
•
•
evidence suggesting that an event has occurred
leading to a negative effect on the estimated
future cash inflow; and
prediction of expected credit loss based on actual
credit loss experience of the past three years.
Events subsequent to the reporting date but prior to the
signing of the financial statements which indicate a
negative effect are taken into account in the calculation of
impairment. Future events may occur which change these
estimates of the future cash inflows related to impaired
trade receivables.
60 Enero Group Limited Annual Report 2019
60
Enero Group Limited – Annual Report 2019
19. Impairment of non-financial assets
The process of impairment testing is to estimate the
recoverable amount of the assets concerned, and
recognise an impairment loss in the Income Statement
whenever the carrying amount of those assets exceeds
the recoverable amount.
Impairment tests for cash-generating unit (CGU) groups
containing goodwill
All the operating businesses are managed as one
collective group which forms the Operating Brands
segment.
For the purpose of impairment testing, goodwill is
allocated to the Group’s operating business units that
represent the lowest level within the Group at which
goodwill is monitored for internal management purposes
and synergies obtained by the business unit.
The aggregation of assets in the CGU group continues
to be determined using a service offering. The Search
Marketing businesses do not form part of the Operating
Brands CGU group as they do not obtain synergies with
the businesses in that CGU group, however they are
included in the Operating Brands segment. They have
no carrying value.
The recoverable amount of the CGU group was based
on value in use in both the current and prior year. The
methodologies and assumptions used for calculating
value in use for all of the CGU groups have remained
materially consistent with those applied in prior years.
Key assumptions
Key assumptions used in the value in use approach to
test for impairment relate to the discount rate and the
medium-term and long-term growth rates applied to
projected cash flows.
Projected cash flows
The projected first year of cash flows is derived from
results for the current financial year adjusted in some
cases for expectations of future trading performance to
reflect the best estimate of the CGU group’s cash flows
at the time of this report. Projected cash flows can differ
from future actual results of operations and cash flows.
Discount rate
Discount rates are based on the Group’s pre-tax
weighted average cost of capital (WACC) adjusted if
necessary to reflect the specific characteristics of each
CGU group and to obtain a post-tax discount rate.
Discount rates used are appropriate for the currency in
which cash flows are generated and are adjusted to
reflect the current view on the appropriate debt equity
ratio and risks inherent in assessing future cash flows.
Growth rate
A compound average growth rate (CAGR) of 2.4%
(30 June 2018: 2.4%) has been applied to the cash
flows of the first five years of cash flows. The five years
of cash flows are discounted to present value. The
growth rate is based on analysis of organic growth
expectations, historical growth rates and industry growth
rates. The growth rate also takes into account weighting
of international operations of the Group.
Long-term growth rate into perpetuity
Long-term growth rate of 2.5% (30 June 2018: 2.5%) is
used into perpetuity, based on the expected long-range
growth rate for the industry.
Impairment testing key assumptions for Operating
Brands CGU group
In thousands of AUD
Post-tax discount rate %
Pre-tax discount rate %
Long-term perpetuity
growth rate %
2019
2018
8.75 – 10.59 10.41 – 11.50
10.63 – 13.98 12.96 – 16.09
2.50
2.50
Sensitivity range for impairment testing assumptions
As at 30 June 2019, management has identified that for
the carrying amount to exceed the recoverable amount
the discount rate would need to increase by 1.1% to
2.9% depending on the currency. A nil growth rate in the
cash flows of the first five years would continue to
generate an estimated recoverable amount above the
carrying amount.
Accounting policy
The carrying amounts of the Group’s non-financial
assets, other than deferred tax assets, are reviewed at
each reporting date to determine whether there is any
indication of impairment. If any such indication exists,
then the asset’s recoverable amount is estimated.
Goodwill and intangible assets that have an indefinite
useful life are not subject to amortisation and are tested
annually for impairment or more frequently if events or
changes in circumstances indicate that they might be
impaired.
An impairment loss is recognised if the carrying amount
of an asset exceeds its recoverable amount. The
recoverable amount is the higher of an asset’s value in
use and fair value less costs to sell. In assessing value
in use, the estimated future post-tax cash flows are
discounted to their present value using a post-tax
discount rate that reflects current market assessments
of the time value of money and the risks specific to the
asset.
For the purpose of assessing impairment, assets are
grouped together into the smallest group of assets that
generates cash inflows from continuing use that are
largely independent of the cash inflows of other assets
or groups of assets (the ‘cash-generating unit’).
For the purposes of goodwill impairment testing, cash-
generating units (CGUs) to which goodwill has been
allocated are aggregated so that the level at which
impairment is tested reflects the lowest level at which
goodwill is monitored for internal reporting purposes.
Impairment losses recognised in respect of CGUs are
allocated first to reduce the carrying amount of goodwill
and then to reduce the carrying amount of the other
assets on a pro-rata basis.
At each reporting date, the Group reviews non-financial
assets other than goodwill that have been previously
impaired for indications that the conditions that resulted
in the impairment have reversed.
Enero Group Limited Annual Report 2019 61
61
Enero Group Limited – Annual Report 2019
NOTES TO THE CONSOLIDATED
Notes to the consolidated financial statements
FINANCIAL STATEMENTS
for the year ended 30 June 2019
FOR THE YEAR ENDED 30 JUNE 2019
20. Controlled entities
Particulars in relation to controlled entities:
Name
Parent entity
Enero Group Limited
Controlled entities
Enero Group UK Holdings Pty Limited
– Enero Group UK Limited
Enero Group (US) Pty Limited
– Enero Group (US) Inc.
BMF Holdco Pty Limited
BMF Advertising Pty Limited
Hotwire Integrated Communications Pty Limited
Naked Communications Australia Pty Limited
Hotwire Australia Pty Limited
Orchard Marketing Pty Ltd
Alfie Agency Pty Ltd
CPR Communications and Public Relations Pty Limited
Love Pty Limited
Domain Active Holdco Pty Limited
– Domain Active Pty Limited
The Leading Edge Market Research Consultants Pty Limited
– The Leading Edge Market Research Consultants Limited
– Enero Group Singapore Pte Limited
The Digital Edge Online Consultants Pty Limited
Brigade Pty Limited
The Hotwire Public Relations Group Limited
– Hotwire Public Relations GMBH
– Hotwire Public Relations SARL
– Hotwire Public Relations SL
– Hotwire Public Relations SRL
– Hotwire Public Relations Limited
– Skywrite Communications Limited
– 33 Digital Limited
Naked Communications Limited
– Naked Numbers Limited
– Naked Communications Holdings Inc.
– Naked New York LLC
Lorica Group Limited
– Corporate Edge Group Limited
Frank Public Relations Limited
– Frank Public Relations Pty Limited
– Frank Public Reactions Inc.
OB Media LLC
– Bluestarads.com LLC(i)
SiteMath LLC
– Clicksciences.com LLC
The Leading Edge Research & Strategy Consultants LLC
Orchard Creative Technology Inc.
Hotwire Public Relations Group LLC
Hotwire New Zealand Limited
Enero Group NZ Ltd
(i)
Deregistered in 2019
62 Enero Group Limited Annual Report 2019
62
Group interest
2018
%
2019
%
Country of
incorporation
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
75
75
75
51
–
51
51
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
75
75
75
51
51
51
51
100
100
100
100
100
Australia
UK
Australia
USA
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
UK
Singapore
Australia
Australia
UK
Germany
France
Spain
Italy
UK
UK
UK
UK
UK
USA
USA
UK
UK
UK
Australia
USA
USA
USA
USA
USA
USA
USA
USA
New Zealand
New Zealand
Enero Group Limited – Annual Report 2019
Accounting policy
Basis of consolidation
(i) Business combinations
Business combinations are accounted for using the acquisition method. For every business combination, the Group
identifies the acquirer, which is the combining entity that obtains control of other combining entities or businesses. The
acquisition date is the date on which control is transferred to the acquirer. Judgement is applied in determining the
acquisition date and determining whether control is transferred from one party to another.
Goodwill arising from the business combination is measured at fair value of the consideration transferred including the
recognised amount of any non-controlling interests in the acquiree, less the net recognised amount (generally fair value) of
the identifiable assets acquired and liabilities assumed, all measured as of the acquisition date. Non-controlling interest is
measured at its proportionate interest in the identifiable net assets of the acquiree.
Consideration transferred includes the fair values of the assets transferred, liabilities incurred by the Group to the previous
owners of the acquiree, and equity interests issued by the Group. Consideration transferred also includes the fair value of
any contingent consideration and share-based payment awards of the acquiree that are replaced mandatorily in the
business combination.
A contingent liability of the acquiree assumed in a business combination is recognised only if such a liability represents a
present obligation and arises from a past event, and its fair value can be measured reliably.
Transaction costs incurred in connection with a business combination are expensed as incurred.
(ii) Subsidiaries
Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to,
variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the
activities of the entity.
The financial statements of subsidiaries are included in the consolidated financial statements from the date on which
control commences until the date on which control ceases.
Intra-group balances, and any unrealised gains and losses or income and expenses arising from intra-group transactions,
are eliminated in preparing the consolidated financial statement.
.
Enero Group Limited Annual Report 2019 63
63
Enero Group Limited – Annual Report 2019
NOTES TO THE CONSOLIDATED
Notes to the consolidated financial statements
FINANCIAL STATEMENTS
for the year ended 30 June 2019
FOR THE YEAR ENDED 30 JUNE 2019
21. Acquisition
2019
There were no acquisitions in 2019.
2018
On 2 February 2018, the Group acquired 100% of the issued capital of Orchard Marketing Pty Limited, a creative and
technology agency with offices in Sydney and New York, with over 70 employees. The purchase price was an upfront cash
payment of $5 million in addition to contingent consideration payments tied to EBIT targets through to the period 30 June
2021. Future payments are subject to the achievement of EBIT thresholds with a total purchase price cap of $27 million
based on the average EBIT of the preceding four years. The fair value of the future contingent consideration liability is
estimated based on the achievement of EBIT targets.
This acquisition contributed $6,108,000 to net revenue and $934,000 to net profit after tax of the Group for the year ended
30 June 2018.
The net revenue and net profit after tax of the Group for the year ended 30 June 2018 would have been $111,946,000 and
$10,682,000 respectively, had the Group acquired the business of Orchard Marketing at the beginning of the financial
year.
Effect of acquisition for the year ended 30 June 2018 on the Group’s assets and liabilities.
The fair values of the net identifiable assets and liabilities acquired at the date of acquisition were:
In thousands of AUD
Cash and cash equivalents
Trade and other receivables
Other assets
Property, plant and equipment
Intangible assets
Deferred tax liability (net)
Trade and other payables
Employee benefits
Provisions
Income tax payable
Recognised values Fair value adjustment Carrying amount
1,636
3,273
368
241
2,502
(591)
(2,656)
(343)
(63)
(375)
1,636
3,273
368
241
–
160
(2,656)
(343)
(63)
(375)
–
–
–
–
2,502
(751)
–
–
–
–
Net identifiable assets and liabilities
2,241
1,751
3,992
The fair value adjustment recognised customer contracts and relationships acquired as an intangible asset in the business
combination.
Goodwill on acquisition
In thousands of AUD
Total consideration
Less: Fair value of identifiable assets
Goodwill
Total acquisition cash outflow for year ended 30 June 2018
In thousands of AUD
Total consideration
Less: Contingent consideration
Less: Cash acquired
Net cash paid
25,395
(3,992)
21,403
25,395
(19,362)
(1,636)
4,397
64 Enero Group Limited Annual Report 2019
64
Enero Group Limited – Annual Report 2019
22. Disposal
2019
There were no disposals in 2019.
2018
Sale of business asset
On 31 October 2017, the Group sold Dark Blue Sea’s (a subsidiary) domain registrar asset for consideration of $627,000.
As the asset was previously impaired, a gain on sale was recognised in the income statement in the current reporting
period.
23. Parent entity disclosures
As at, and throughout, the financial year ended 30 June 2019, the parent Company of the Group was Enero Group
Limited.
In thousands of AUD
Result of the parent entity
(Loss)/profit for the year
Other comprehensive income
Total comprehensive income for the year
Financial position of the parent entity at year end
Current assets
Total assets
Current liabilities
Total liabilities
Net assets
Total equity of the parent entity comprising:
Share capital
Share-based payment reserve
Profit appropriation reserve
Accumulated losses
Total equity
2019
(2,100)
–
(2,100)
27,061
152,513
24,629
46,108
106,405
97,412
12,080
20,955
(24,042)
106,405
The Company
2018
14,076
–
14,076
23,981
149,913
10,867
37,858
112,055
96,656
12,106
25,235
(21,942)
112,055
(i) For dividends declared and paid by the Company to members since the end of the previous financial year, refer to Note 15 Capital and reserves.
Parent entity guarantees in respect of debts of its subsidiaries
The parent entity has entered into a Deed of Cross Guarantee with the effect that the Company guarantees debts in
respect of its subsidiaries.
Further details of the Deed of Cross Guarantee, and the subsidiaries subject to the deed, are disclosed in
Note 24 Deed of Cross Guarantee.
Contingent liabilities
Indemnities
Indemnities have been provided to Directors and certain Executive Officers of the Company in respect to third parties
arising from their positions, except where the liability arises out of conduct involving lack of good faith. No monetary limit
applied to these agreements and there are no known obligations outstanding at 30 June 2019.
Enero Group Limited Annual Report 2019 65
65
Enero Group Limited – Annual Report 2019
NOTES TO THE CONSOLIDATED
Notes to the consolidated financial statements
FINANCIAL STATEMENTS
for the year ended 30 June 2019
FOR THE YEAR ENDED 30 JUNE 2019
Statement of financial position
In thousands of AUD
Assets
Cash and cash equivalents
Trade and other receivables
Other assets
Total current assets
Receivables
Other financial assets
Deferred tax assets
Plant and equipment
Intangible assets
Total non-current assets
Total assets
Liabilities
Trade and other payables
Contingent consideration payable
Interest-bearing loans and
borrowings
Employee benefits
Provisions
Total current liabilities
Contingent consideration payable
Interest-bearing loans and
borrowings
Employee benefits
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Share-based payment reserve
Profit appropriation reserve
Accumulated losses
Total equity
2019
2018
24,565
6,154
1,004
31,723
53,620
30,558
2,124
3,619
16,387
22,526
6,624
960
30,110
56,048
30,557
1,865
3,887
16,387
106,308 108,744
138,031 138,854
11,036
5,934
10,008
–
493
1,874
640
19,977
1,422
1,793
–
13,223
14,718
19,735
493
–
415
352
3,044
3,040
23,687
18,110
36,910
38,087
99,944 101,944
97,412
12,080
20,955
(30,503)
96,656
12,106
25,235
(32,053)
99,944 101,944
24. Deed of Cross Guarantee
Pursuant to ASIC Class Order 98/1418 (as amended)
dated 13 August 1998, the wholly owned subsidiaries
listed below are relieved from the Corporations Act 2001
requirements for the preparation, audit and lodgement of
financial statements and a Directors’ Report.
It is a condition of the Class Order that the Company
and each of the subsidiaries enter into a Deed of Cross
Guarantee. The effect of the Deed is that the Company
guarantees to each creditor payment in full of any debt
in the event of winding up of any of the subsidiaries
under certain provisions of the Corporations Act 2001. If
a winding up occurs under other provisions of the Act,
the Company will only be liable in the event that after six
months any creditor has not been paid in full. The
subsidiaries have also given similar guarantees in
the event that the Company is wound up.
The subsidiaries subject to the Deed are:
– The Leading Edge Market Research Consultants Pty
Limited; and
– BMF Holdco Pty Limited.
A consolidated income statement and consolidated
statement of financial position, comprising the Company
and controlled entities which are party to the Deed, after
eliminating all transactions between parties to the Deed
of Cross Guarantee, at 30 June 2019, is set out as
follows:
2019
25,746
–
(22,704)
(4,563)
(1,521)
3,071
1,550
Summarised income statement and retained profits
In thousands of AUD
Net revenue
Dividends received from subsidiaries
Employee expenses
Operating and other expenses
(Loss)/Profit before tax
Income tax benefit
Profit after tax
Attributable to:
Equity holders of the Company
Accumulated losses
Accumulated losses at beginning of year
Profit for the year
Transfer to profit appropriation reserve
Accumulated losses at end of year
Profit appropriation reserve
Profit appropriation reserve at beginning
of year
(32,053)
1,550
–
(30,503)
25,235
1,550
2018
26,435
13,071
(22,885)
(4,176)
12,445
1,622
14,067
14,067
(32,044)
14,067
(14,076)
(32,053)
12,443
Dividend paid during the year
(4,280)
(1,284)
Profit for the year
–
14,076
Profit appropriation reserve at end of
year
20,955
25,235
66 Enero Group Limited Annual Report 2019
66
Enero Group Limited – Annual Report 2019
25. Commitments
Operating leases
Leases as lessee
Commitments for minimum lease payments
(undiscounted) in relation to non-cancellable operating
leases are payable as follows:
In thousands of AUD
Less than one year
Between one and five years
Over five years
2019
6,440
2018
5,353
17,461 21,244
1,586
–
23,901 28,183
The Group leases property under non-cancellable
operating leases generally expiring in two to 10 years.
Generally operating leases are subject to standard two
to five year renewal terms, with no purchase option or
escalation clauses included.
During the year ended 30 June 2019, $5,575,000
(2018: $5,514,000) was recognised as an expense in
the income statement in respect of operating leases.
Accounting policy
Leases in which a significant portion of the risks and
rewards of ownership are retained by the lessor are
classified as operating leases. Payments made under
operating leases (net of any incentives received from
the lessor) are charged to the income statement on a
straight-line basis over the period of the lease.
26. Contingencies
Contingent liabilities
Indemnities
Indemnities have been provided to Directors and certain
Executive Officers of the Company in respect to third
parties arising from their positions, except where the
liability arises out of conduct involving lack of good faith.
No monetary limit has been applied to these
agreements and there are no known obligations
outstanding at 30 June 2019.
27. Subsequent events
Subsequent to the balance date, the Directors have
declared a final dividend, with respect to ordinary
shares, of 3.0 cents per share, fully franked. The final
dividend will have a record date of 23 September 2019
and a payment date of 8 October 2019. The financial
effect of this dividend has not been brought to account
in the financial statements for the year ended
30 June 2019 but will be recognised in subsequent
financial period.
Except for the events listed above there has not arisen,
in the interval between the end of the financial year and
the date of this report, any item, transaction or event of
a material and unusual nature likely, in the opinion of the
Directors of the Company, to affect significantly the
operations of the Group, the results of those operations,
or the state of affairs of the Group in future financial
years.
28. Key Management Personnel and other related
party disclosures
In addition to Executive and Non-Executive Directors,
the following were Key Management Personnel of the
Group at any time during the reporting period.
Name
Position
Brendan York
Chief Financial Officer
Fiona Chilcott
Chief People and Culture Officer
Other transactions with the Company or its controlled
entities
A number of the Key Management Personnel, or their
related entities, hold positions in other entities that result
in them having control or significant influence over the
financial or operating policies of those entities.
There were no transactions with the Company or its
subsidiaries and Key Management Personnel in the
current or prior reporting period.
Director related party transactions
There were no transactions with the Director related
party during the current or prior reporting period.
The Key Management Personnel compensation
(including all Directors) is as follows:
In AUD
Short-term employee benefits
Other long-term benefits
Post-employment benefits
2018
2,905,132 2,552,846
27,069
100,106
22,587
77,719
2019
Share-based payments – Share
Appreciation Rights
538,741
279,992
Total share-based payments
538,741
279,992
Total Key Management Personnel
compensation
3,544,179 2,960,013
Enero Group Limited Annual Report 2019 67
67
Enero Group Limited – Annual Report 2019
NOTES TO THE CONSOLIDATED
Notes to the consolidated financial statements
FINANCIAL STATEMENTS
for the year ended 30 June 2019
FOR THE YEAR ENDED 30 JUNE 2019
29. Share-based payments
Equity-based plans
Long-term incentives (LTI) were provided as equity-
based incentives in the Company under the Share
Appreciation Rights plan (SAR) in the current and prior
financial years; which remain outstanding at 30 June
2019.
Share Appreciation Rights (SARs)
The Share Appreciation Rights Plan is designed to
incentivise the Company’s Senior Executives and other
senior management of the Group.
The fair value of the SARs is measured using the Monte
Carlo simulation model. Measurement inputs include
share price on measurement date, exercise price of the
instruments, expected volatility (based on weighted
average historical volatility), weighted average expected
life of the instruments (based on historical experience
and general rights holder behaviour), expected
dividends, and the risk-free interest rate (based on
government bonds). Service conditions attached to the
transactions are not taken into account in determining
fair value.
The plan allows for the Board to determine who is
entitled to participate in the SAR Plan, and it may grant
Summary of Share Appreciation Rights on issue:
rights accordingly. Enero’s Board may determine
whether or not the grant of rights is conditional on the
achievement of performance hurdles; and if so, the
nature of those hurdles.
The exercise of each right will entitle the rights holder to
receive a fraction of an ordinary share based on a
conversion formula of E = (A – B) / A, where:
– E is the share right entitlement;
– A is the volume weighted average price (VWAP) for
the Company’s shares for the 20 business days prior
to the vesting date of the rights; and
– B is the VWAP for the Company’s shares for the 20
business days before the rights were granted.
If A – B is less than or equal to zero, the share right will
not vest and will immediately lapse on the applicable
vesting date.
One share right shall never convert into more than one
share in the capital of the Company. Rights expire at
15 business days after the relevant vesting date or the
termination of the individual’s employment. The Board
may exercise discretion on early vesting of rights in the
event of a change of control of the Group. Refer to the
table below for a summary of SARs on issue.
Issue Date
SARs issued
Participants
VWAP for the 20 business days prior to the
grant (B)
Vesting dates:
20 business days after the release of the Group
financial report for the year ended:
Tranche 1
Tranche 2
Tranche 3
19 October 2017
18 October 2018
5,000,000
CEO and Senior
Executives
4,500,000
CEO and Senior
Executives
$1.04
$1.23
28 June 2019(i)
2,000,000
CEO
n/a
30 June 2018 – 1/3rd
30 June 2019 – 1/3rd
30 June 2020 – 1/3rd
30 June 2019 – 1/3rd
30 June 2020 – 1/3rd
30 June 2021 – 1/3rd
30 June 2020 – 1/3rd
30 June 2021 – 1/3rd
30 June 2022 – 1/3rd
Last expiry date
30 September 2020
30 September 2021
30 September 2022
Outstanding SARs as at 30 June 2019
2,700,002
4,500,000
2,000,000
(i) Grant is in relation to SARs provided to the CEO which were issued on 28 June 2019, subject to shareholder approval. Upon
shareholder approval, the VWAP for the 20 business days prior to the grant date will be confirmed.
68 Enero Group Limited Annual Report 2019
68
Enero Group Limited – Annual Report 2019
Share Appreciation Rights (SARs)
Summary of rights over unissued ordinary shares
Grant date
2019
16 June 2015
20 Oct 2015
19 Oct 2017
18 Oct 2018
28 Jun 2019(i)
Expiry
date
30 Sep
2018
30 Sep
2018
30 Sep
2020
30 Sep
2021
30 Sep
2022
VWAP (for the
20 business
days prior to
the grant)
Weighted
average
exercise
price
Number of
Rights
outstanding
at beginning
of year
Rights
granted
during
year
Rights
exercised
during year
Rights
expired
during year
Rights
forfeited
during year
Number of
Rights at
year end
outstanding
Number
of Rights
at year
end
vested
Proceeds
received
Date
issued
Number
of shares
issued
Expected
life
(years)
$0.70
$0.70
$1.04
$1.23
n/a
–
–
–
–
–
333,334
1,066,664
–
–
333,334
983,330
5,000,000
– 1,666,664
– 4,500,000
– 2,000,000
–
–
6,399,998 6,500,000 2,983,328
–
–
–
–
–
–
–
83,334
–
–
633,334
2,700,002
–
–
4,500,000
2,000,000
716,668
9,200,002
–
–
–
–
–
–
–
–
–
–
–
–
– 132,184
1.3–3.3
– 519,391
0.9–2.9
–
–
–
–
–
–
0.9–2.9
0.9–2.9
1.3–3.3
651,575
(i) Grant is in relation to SARs provided to the CEO, which were issued on 28 June 2019, subject to shareholder approval.
Grant date
2018
16 June 2015
20 Oct 2015
19 Oct 2017
Expiry
date
30 Sep
2018
30 Sep
2018
30 Sep
2020
VWAP (for the
20 business
days prior to
the grant)
Weighted
average
exercise
price
Number of
Rights
outstanding
at beginning
of year
Rights
granted
during
year
Rights
exercised
during year
Rights
expired
during year
Rights
forfeited
during year
Number of
Rights at
year end
outstanding
Number
of Rights
at year
end
vested
Proceeds
received
Date
issued
Number
of shares
issued
Expected
life
(years)
$0.70
$0.70
$1.04
–
–
–
666,667
–
333,333
2,133,332
– 1,066,668
– 5,000,000
–
2,799,999 5,000,000 1,400,001
–
–
–
–
–
–
–
–
333,334
1,066,664
5,000,000
6,399,998
–
–
–
–
–
–
–
–
–
74,074
1.3–3.3
– 223,110
0.9–2.9
–
–
0.9–2.9
297,184
The number and weighted average exercise price of share rights is as follows:
VWAP (for the
20 business
days prior to
the grant) 2019
$
0.97
Weighted
average
exercise price
2019
–
Number of
options/rights
2019
6,399,998
VWAP (for the
20 business
days prior to
the grant) 2018
$
0.70
Weighted
average
exercise price
2018
–
Number of
options/rights
2018
2,799,999
1.00
–
0.89
1.23
1.16
–
–
–
–
–
–
–
(716,668)
–
(2,983,328)
6,500,000
9,200,002
–
–
–
0.70
1.04
0.97
–
–
–
–
–
–
–
–
–
(1,400,001)
5,000,000
6,399,998
–
Outstanding at 1 July
Forfeited during the
period
Expired during the period
Exercised during the
period
Granted during the
period
Outstanding at 30 June
Exercisable at 30 June
Excluding the SARs provided to the CEO issued on 28 June 2019, which are subject to shareholder approval, the SARs
outstanding at 30 June 2019 have a VWAP (for the 20 business days prior to the grant) range of $1.04 to $1.23
(30 June 2018: $0.70 to $1.04).
The SARs outstanding at 30 June 2019 have a weighted average contractual life of 1.32 years (30 June 2018: 1.03 years).
The fair value of services received in return for SARs granted is based on the fair value of SARs, measured using the
Monte Carlo simulation model.
The total net expenses recognised by the Group for the year ended 30 June 2019 for share-based payment transactions
were $730,000 (2018: $516,000).
The VWAP for the 20 business days prior the date of exercise of SARs on 13 September 2018 was $1.16.
Enero Group Limited Annual Report 2019 69
69
Enero Group Limited – Annual Report 2019
NOTES TO THE CONSOLIDATED
Notes to the consolidated financial statements
FINANCIAL STATEMENTS
for the year ended 30 June 2019
FOR THE YEAR ENDED 30 JUNE 2019
29. Share-based payments (continued)
Inputs for measurement of grant date fair value
The following factors and assumptions were used in determining the fair value of the SARs on the grant date:
Grant date
19 Oct 2017(i)
18 Oct 2018(ii)
28 Jun 2019(iii)
Expiry date
Value per SAR
$
30 Sept 2020 0.12 – 0.23
30 Sept 2021 0.20 – 0.31
n/a
30 Sept 2022
VWAP (for the 20
business days
prior to the grant)
$
1.04
1.23
n/a
Price of
shares on
grant date
$
0.98
1.23
n/a
Expected
volatility
%
40
40
n/a
Risk-free
interest rate
%
1.78–2.08
1.99–2.07
n/a
Dividend
yield
%
0.0
2.0
n/a
Expected
life
(years)
0.9–2.9
0.9–2.9
1.3–3.3
(i) Grant is in relation to SARs provided to senior employees of the Group which were issued on 19 October 2017. The last expiry date of the rights
is 20 business days after the release of the Group’s financial report for the year ended 30 June 2020, which is estimated to be around
30 September 2020.
(ii) Grant is in relation to SARs provided to senior employees of the Group which were issued on 18 October 2018. The last expiry date of the rights
is 20 business days after the release of the Group’s financial report for the year ended 30 June 2021, which is estimated to be around
30 September 2021.
(iii) Grant is in relation to SARs provided to the CEO which were issued on 28 June 2019, subject to shareholder approval. The last expiry date of
the rights is 20 business days after the release of the Group’s financial report for the year ended 30 June 2022, which is estimated to be around
30 September 2022. Upon shareholder approval, the VWAP for the 20 business days prior to the grant date and fair value per right at grant date
will be confirmed.
Accounting policy
The grant date fair value of share-based payment awards granted to employees is recognised as an employee expense,
with a corresponding increase in equity, over the period that the employees unconditionally become entitled to the awards.
The amount recognised as an expense is adjusted to reflect the number of awards for which the related service and non-
market vesting conditions are expected to be met, such that the amount ultimately recognised as an expense is based on
the number of awards that meet the related services and non-market performance conditions at the vesting date. For
share-based payment awards with non-vesting conditions, the grant date fair value of the share-based payment is
measured to reflect such conditions and there is no true-up for differences between expected and actual outcomes.
Fair value measurement and key estimates
The grant date fair value of employee share rights is measured using the Monte Carlo simulation model. This value is
determined by an appropriately qualified independent expert commissioned by the Directors. Inputs to the determination of
fair value are subjective and include the market value of the Company share price on the grant date, expected volatility
(based on weighted average historic volatility adjusted for changes expected due to publicly available information) of the
Company’s share price, the risk-free interest rate, the dividend yield, the expected life of the share rights, the probability of
occurrence of certain events and the exercise price. Service and non-market performance conditions attached to the
transactions are not taken into account in determining fair value. Certain of these inputs are estimates.
The Directors review the methodologies used by the expert and make enquiries with management to assure themselves
that the factual information used by the expert is correct prior to relying on the expert’s opinion.
30. Auditor’s remuneration
In AUD
Audit services – auditors of the Company
KPMG Australia
Overseas KPMG firm
Other services – auditors of the Company
Taxation compliance services:
KPMG Australia
Overseas KPMG firm
70 Enero Group Limited Annual Report 2019
70
2019
315,000
141,000
456,000
–
186,000
186,000
2018
304,000
132,000
436,000
8,000
181,000
189,000
Enero Group Limited – Annual Report 2019
DIRECTORS’ DECLARATION
Directors’ Declaration
1. In the opinion of the Directors of Enero Group Limited (the Company):
(a) the consolidated financial statements and notes, set out on pages 31 to 70 and the Remuneration Report in the
Directors’ Report, set out on pages 18 to 30 are 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 2019 and of its performance for the
financial year ended on that date; and
(ii) complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the
Corporations Regulations 2001; and
(b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become
due and payable.
2. There are reasonable grounds to believe the Company and entities identified in Note 24 will be able to meet any
obligations or liabilities to which they are or may become subject by virtue of the Deed of Cross Guarantee between
the Company and those entities pursuant to ASIC Class Order 98/1418.
3. The Directors have been given the declarations by the Chief Executive Officer and Chief Financial Officer for the
financial year ended 30 June 2019 pursuant to section 295A of the Corporations Act 2001.
4. The Directors draw attention to Note 1(b) to the consolidated financial statements, which includes a statement of
compliance with International Financial Reporting Standards.
Dated at Sydney this 28th day of August 2019.
Signed in accordance with a resolution of the Directors:
John Porter
Chairman
Enero Group Limited Annual Report 2019 71
71
Enero Group Limited – Annual Report 2019
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF ENERO GROUP LIMITED
Independent Auditor’s Report
To the shareholders of Enero Group Limited
Report on the audit of the Financial Report
Independent Auditor’s Report
Opinion
To the shareholders of Enero Group Limited
We have audited the Financial Report of
Enero Group Limited (the Company).
The Financial Report comprises:
Report on the audit of the Financial Report
• Consolidated statement of financial position as at
In our opinion, the accompanying Financial
Report of the Company is in accordance
with the Corporations Act 2001, including:
30 June 2019;
• Consolidated income statement, consolidated
statement of comprehensive income, consolidated
statement of changes in equity, and consolidated
statement of cash flows for the year then ended;
The Financial Report comprises:
•
•
Opinion
giving a true and fair view of the
Group’s financial position as at
30 June 2019 and of its financial
performance for the year ended on
that date; and
complying with Australian Accounting
Standards and the Corporations
Regulations 2001.
•
We have audited the Financial Report of
Enero Group Limited (the Company).
policies;
In our opinion, the accompanying Financial
Report of the Company is in accordance
• Directors’ Declaration.
with the Corporations Act 2001, including:
• Notes including a summary of significant accounting
• Consolidated statement of financial position as at
The Group consists of the Company and the entities it
giving a true and fair view of the
controlled at the year-end or from time to time during
Group’s financial position as at
the financial year.
30 June 2019 and of its financial
performance for the year ended on
that date; and
policies;
30 June 2019;
• Consolidated income statement, consolidated
statement of comprehensive income, consolidated
statement of changes in equity, and consolidated
statement of cash flows for the year then ended;
• Notes including a summary of significant accounting
Basis for opinion
complying with Australian Accounting
We conducted our audit in accordance with Australian Auditing Standards. We believe that the audit
Standards and the Corporations
evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Regulations 2001.
•
• Directors’ Declaration.
Our responsibilities under those standards are further described in the Auditor’s responsibilities for
the audit of the Financial Report section of our report.
The Group consists of the Company and the entities it
controlled at the year-end or from time to time during
the financial year.
We are independent of the Group in accordance with the Corporations Act 2001 and the ethical
requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics
for Professional Accountants (the Code) that are relevant to our audit of the Financial Report in
Australia. We have fulfilled our other ethical responsibilities in accordance with the Code.
We conducted our audit in accordance with Australian Auditing Standards. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Basis for opinion
Our responsibilities under those standards are further described in the Auditor’s responsibilities for
the audit of the Financial Report section of our report.
We are independent of the Group in accordance with the Corporations Act 2001 and the ethical
requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics
for Professional Accountants (the Code) that are relevant to our audit of the Financial Report in
Australia. We have fulfilled our other ethical responsibilities in accordance with the Code.
72
KPMG, an Australian partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG
International Cooperative (“KPMG International”), a Swiss entity.
Liability limited by a scheme approved under
Professional Standards Legislation.
72
KPMG, an Australian partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG
International Cooperative (“KPMG International”), a Swiss entity.
Liability limited by a scheme approved under
Professional Standards Legislation.
72
Enero Group Limited – Annual Report 2019
Key Audit Matters
The Key Audit Matters we identified are:
• Revenue recognition;
• Annual impairment testing of goodwill
and intangible assets; and
• Fair value of contingent consideration.
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.
Revenue recognition ($230.0 million)
Refer to Note 3 to the financial report
The key audit matter
How the matter was addressed in our audit
The recognition of revenue is a key audit matter
due to the:
•
Significance of revenue to the financial
statements.
• Group’s policy to recognise revenue over
time based on a measure of progress
estimations for each specific contract.
These estimations are based on the relative
value of services completed (work in
progress) to the total expected contracted
value of the service for each specific
contract. This is a manual process,
increasing the risk of error and additional
audit effort.
On 1 January 2018, AASB 15 Revenue from
Contracts with Customers (‘AASB 15’) became
effective. Assessing revenue recognition,
measurement and disclosures due to the
adoption of AASB 15 required significant audit
effort across each contract type.
Our procedures included:
• We analysed the year on year revenue across
the different business units to identify the
higher risk areas.
• We selected a sample of contracts across
each contract type and significant contracts
entered into during the year. We considered
the relevant features of the underlying
contracts in assessing the Group’s application
of AASB 15 revenue recognition, including
what the Group identified as performance
obligations, against the criteria in the
accounting standard and those in the Group’s
policy.
•
For the significant contract sample selected
above, open at period end, we then assessed
the amount of revenue recognised and work in
progress by:
-
-
Checking the work in progress to signed
customer approvals for the services
performed and internal time costs
incurred.
Recalculating the measure of progress,
considering the contract terms and work
in progress.
• We selected a statistical sample of over-time
revenue recognised and performed the
following procedures:
-
For services completed, we compared
details to customer invoices issued,
73
73
Enero Group Limited – Annual Report 2019
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF ENERO GROUP LIMITED
- We checked revenue recognised by
- We checked revenue recognised by
customer estimate approvals, and
subsequent cash receipt.
customer estimate approvals, and
subsequent cash receipt.
comparing the total revenue of the
expected contracted value of the service
comparing the total revenue of the
to signed customer contracts, and
expected contracted value of the service
applying the estimated measure of
to signed customer contracts, and
progress to the expected contract value.
applying the estimated measure of
- We challenged the Group’s estimate of
progress to the expected contract value.
measure of progress through interviews
- We challenged the Group’s estimate of
with the business unit project managers.
measure of progress through interviews
with the business unit project managers.
• We assessed the additional disclosures
• We assessed the additional disclosures
relating to the adoption of AASB 15 against
the requirements of the accounting standard
relating to the adoption of AASB 15 against
and evidence obtained from our procedures
the requirements of the accounting standard
above.
and evidence obtained from our procedures
above.
Annual impairment testing of goodwill and intangible assets ($110.4 million)
Annual impairment testing of goodwill and intangible assets ($110.4 million)
Refer to Note 10 to the financial report
Refer to Note 10 to the financial report
The key audit matter
•
The key audit matter
The Group’s annual testing of goodwill and
intangible assets for impairment is a key audit
The Group’s annual testing of goodwill and
matter, given the size of the balance (being
intangible assets for impairment is a key audit
55% of total assets). We focused on the
matter, given the size of the balance (being
significant forward-looking assumptions the
55% of total assets). We focused on the
Group applied in their value in use model,
significant forward-looking assumptions the
including:
Group applied in their value in use model,
•
including:
Forecast operating cash flows – there is
uncertainty around future cash flows due to
Forecast operating cash flows – there is
the short term, non-recurring nature of
uncertainty around future cash flows due to
customer contracts. This increases the risk
the short term, non-recurring nature of
of inaccurate forecasts or a wider range of
customer contracts. This increases the risk
possible outcomes for us to consider.
of inaccurate forecasts or a wider range of
Forecast growth rates and terminal growth
possible outcomes for us to consider.
rates – in addition to the uncertainties
Forecast growth rates and terminal growth
described above, the Group’s model is
rates – in addition to the uncertainties
sensitive to small changes in these
described above, the Group’s model is
assumptions, reducing available headroom.
sensitive to small changes in these
This drives additional audit effort specific to
assumptions, reducing available headroom.
their feasibility and consistency of
This drives additional audit effort specific to
application to the Group’s strategy.
their feasibility and consistency of
• Discount rates – these are complicated in
application to the Group’s strategy.
nature and vary according to the conditions
and environment the specific Cash
nature and vary according to the conditions
and environment the specific Cash
• Discount rates – these are complicated in
•
•
How the matter was addressed in our audit
How the matter was addressed in our audit
Our procedures included:
• We considered the appropriateness of the
Our procedures included:
• We assessed the integrity of the value in use
value in use method applied by the Group to
• We considered the appropriateness of the
perform the annual test of goodwill for
value in use method applied by the Group to
impairment against the requirements of the
perform the annual test of goodwill for
accounting standards.
impairment against the requirements of the
• We assessed the integrity of the value in use
accounting standards.
model used, including the accuracy of
underlying calculation formulas.
model used, including the accuracy of
• We assessed the accuracy of previous Group
underlying calculation formulas.
cash flow forecasts to inform our evaluation of
• We assessed the accuracy of previous Group
forecasts incorporated in the value in use
cash flow forecasts to inform our evaluation of
model.
forecasts incorporated in the value in use
• We challenged the Group’s significant forecast
model.
operating cash flow and growth assumptions.
• We challenged the Group’s significant forecast
We compared key events to the Board
operating cash flow and growth assumptions.
approved plan and strategy. We used our
We compared key events to the Board
knowledge of the Group, their past
approved plan and strategy. We used our
performance, business and customers, and
knowledge of the Group, their past
our industry experience. We compared
performance, business and customers, and
forecast growth rates and terminal growth
our industry experience. We compared
rates to published studies of industry trends
forecast growth rates and terminal growth
and expectations within each relevant
rates to published studies of industry trends
and expectations within each relevant
74
74
74
Enero Group Limited – Annual Report 2019
Generating Unit (CGU) is subject to from
time to time. The Group’s modelling is
sensitive to small changes in the discount
rate. We involve our valuations specialists
and senior team members with the
assessment.
The Group uses a complex model to perform
their annual testing of goodwill for impairment.
The model is largely manually developed, and
uses adjusted historical performance and a
range of internal and external sources as inputs
to the assumptions. Complex modelling using
forward-looking assumptions tend to be prone
to greater risk for potential bias, error and
inconsistent application. These conditions
necessitate additional scrutiny by us, in
particular to address the objectivity of sources
used for assumptions, and their consistent
application.
geographical region.
• We inquired with management of operations
across the Group about expected future
performance of the business.
• We compared the base forecast cash flows to
current year actual results or Board approved
budget, as appropriate.
• We checked the consistency of the growth
rates to the Group’s latest forecasts approved
by the Board, past performance of the Group,
and growth rates achieved in the industry in
which they operate.
• Working with our valuation specialists, we
independently developed a discount rate range
considered comparable using publicly available
market data for comparable entities, adjusted
by risk factors specific to the Group and the
industry it operates in.
• We performed sensitivity analysis by varying
key assumptions, such as forecast growth
rates, terminal growth rates and discount
rates, within a reasonably possible range, to
identify those assumptions at a higher risk of
bias or inconsistency in application.
• We assessed the disclosures in the financial
report using our understanding of the matter
obtained from our testing and against the
requirements of the accounting standards.
75
75
Enero Group Limited – Annual Report 2019
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF ENERO GROUP LIMITED
Fair value of contingent consideration ($33.8 million)
Refer to Note 12 to the financial report
The key audit matter
How the matter was addressed in our audit
Contingent consideration payable by the Group
is initially recognised at fair value in connection
with a business combination, and subsequently
assessed at each period end. The Group has
two contingent consideration amounts payable
relating to the acquisition of Eastwick
Communications and Orchard Marketing. There
is uncertainty around the actual contingent
consideration payments that will be made by
the Group, as it is subject to the performance of
Orchard Marketing and Eastwick
Communications subsequent to the reporting
date and due to the short term, non-recurring
nature of customer contracts in the contingent
period.
The fair value of contingent consideration is a
key audit matter due to the judgement required
by us in assessing the feasibility of forward
looking assumptions in relation to the expected
performance of Orchard Marketing and
Eastwick Communications.
We focused on EBIT forecasts of Orchard
Marketing and Eastwick Communications as
the key assumption the Group applied in their
fair value estimate of contingent consideration.
Our procedures included:
• We assessed the Group’s determination of the
contingent consideration against the
contractual terms of the underlying sale and
purchase agreement and the criteria in the
accounting standards.
• We checked the integrity of the Group’s fair
value of contingent consideration model
including accuracy of the underlying calculation
formula.
• We assessed the accuracy of previous EBIT
forecasts to inform our evaluation of forecasts
incorporated in the model.
• We compared the EBIT forecast to current
year actual results or Board approved budget,
as appropriate.
• We inquired with management of Orchard
Marketing and Eastwick Communications
about expected future performance of the
business.
• We compared the EBIT forecasts for
consistency to those used, and tested by us,
in the impairment testing of goodwill and
intangible assets key audit matter.
• We tested the Group’s reconciliation of
carrying amounts of contingent consideration
to the financial statements, including
comparing payments made to bank
statements.
• We assessed the disclosures in the financial
report, including sensitivity analysis, using our
understanding obtained from our testing and
against the requirements of the accounting
standards.
76
76
Enero Group Limited – Annual Report 2019
Other Information
Other Information is financial and non-financial information in Enero Group Limited’s annual reporting
which is provided in addition to the Financial Report and the Auditor’s Report. The Directors are
responsible for the Other Information.
Our opinion on the Financial Report does not cover the Other Information and, accordingly, we do not
express an audit opinion or any form of assurance conclusion thereon, with the exception of the
Remuneration Report and our related assurance opinion.
In connection with our audit of the Financial Report, our responsibility is to read the Other
Information. In doing so, we 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.
We are required to report if we conclude that there is a material misstatement of this Other
Information, and based on the work we have performed on the Other Information that we obtained
prior to the date of this Auditor’s Report we have nothing to report.
Responsibilities of the Directors for the Financial Report
The Directors are responsible for:
• preparing the Financial Report that gives a true and fair view in accordance with Australian
Accounting Standards and the Corporations Act 2001
•
•
implementing necessary internal control to enable the preparation of a Financial Report that
gives a true and fair view and is free from material misstatement, whether due to fraud or
error
assessing the Group and Company’s ability to continue as a going concern and whether the
use of the going concern basis of accounting is appropriate. This includes disclosing, as
applicable, matters related to going concern and using the going concern basis of accounting
unless they either intend to liquidate the Group and Company or to cease operations, or have
no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the Financial Report
Our objective is:
•
•
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 Australian Auditing Standards will always detect a material misstatement when it
exists.
Misstatements can arise from fraud or error. They 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 the 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/ar1.pdf. This description forms part of our Auditor’s
Report.
77
77
Enero Group Limited – Annual Report 2019
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF ENERO GROUP LIMITED
Report on the Remuneration Report
Opinion
Directors’ responsibilities
In our opinion, the Remuneration Report
of Enero Group Limited for the year ended
30 June 2019, complies with Section
300A of the Corporations Act 2001.
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 responsibilities
We have audited the Remuneration Report included in
pages 23 to 30 of the Directors’ report for the year
ended 30 June 2019.
Our responsibility is to express an opinion on the
Remuneration Report, based on our audit conducted in
accordance with Australian Auditing Standards.
KPMG
Caoimhe Toouli
Partner
Sydney
28 August 2019
78
78
Enero Group Limited – Annual Report 2019
LEAD AUDITOR’S INDEPENDENCE
DECLARATION
UNDER SECTION 3O7C OF THE CORPORATIONS ACT 2001
Lead Auditor’s Independence Declaration under
Section 307C of the Corporations Act 2001
To the Directors of Enero Group Limited
I declare that, to the best of my knowledge and belief, in relation to the audit of Enero Group Limited
for the financial year ended 30 June 2019 there have been:
i.
ii.
no contraventions of the auditor independence requirements as set out in the
Corporations Act 2001 in relation to the audit; and
no contraventions of any applicable code of professional conduct in relation to the audit.
KPMG
Caoimhe Toouli
Partner
Sydney
28 August 2019
79
KPMG, an Australian partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG
International Cooperative (“KPMG International”), a Swiss entity.
Liability limited by a scheme approved under
Professional Standards Legislation.
79
Enero Group Limited – Annual Report 2019 ASX ADDITIONAL
ASX additional information
INFORMATION
Additional information required by the Australian Securities Exchange Limited Listing Rules and not disclosed elsewhere in
this report is set out below. The shareholder information set out below was applicable at 31 July 2019.
Substantial shareholders
The number of ordinary shares held by substantial shareholders and their associates is set out below:
Shareholder
RG Capital Multimedia Limited
NAOS Asset Management Limited
Forager Funds Management
Perpetual Limited
Unquoted equity securities
Number
20,823,268
14,898,502
12,151,108
11,930,554
As at 31 July 2019 there were no options granted over unissued ordinary shares in the Company.
Voting rights
Ordinary shares – refer to Note 15 Capital and reserves.
Distribution of equity security holders:
Range
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and over
Number of equity
security holders
217
257
102
120
35
731
Ordinary shares
111,640
652,180
748,196
3,883,109
80,209,829
85,604,954
The number of shareholders holding less than a marketable parcel of ordinary shares is 59.
Twenty largest shareholders
Rank Name
1 HSBC Custody Nominees (Australia) Limited
2 National Nominees Limited
3 J P Morgan Nominees (Australia) Limited
4 RG Capital Multimedia Limited
5 RG Capital Multimedia Limited
6 Irish Global Equity Limited
7 RG Capital Multimedia Limited
8 CH Global Pty Ltd
9 Irish Global Equity Limited
10 Mr Felice Testini
11 Citicorp Nominees Pty Limited
12 CS Third Nominees Pty Limited
13 Brispot Nominees Pty Ltd
14 Henawall Pty Limited
15 Mrs Antonia Caroline Collopy
16 Love Pty Limited
17 Irish Global Equity Limited
18 UBS Nominees Pty Ltd
19 Mr George Walter Mooratoff
20 Mr Hedley Sandler & Mrs Beverley Sandler
Total
Units
16,337,193
14,174,604
12,925,556
6,759,020
4,511,945
3,703,272
3,269,079
2,548,301
1,667,025
1,630,102
1,628,777
1,534,199
1,291,183
1,230,838
788,637
642,726
632,629
476,317
475,117
440,000
76,666,520
% of issued
capital
19.08
16.56
15.10
7.90
5.27
4.33
3.82
2.98
1.95
1.90
1.90
1.79
1.51
1.44
0.92
0.75
0.74
0.56
0.56
0.51
89.57
80 Enero Group Limited Annual Report 2019
80
Enero Group Limited – Annual Report 2019
CORPORATE
DIRECTORY
COMPANY SECRETARY
Brendan York
PRINCIPAL REGISTERED OFFICE
Enero Group Limited
Level 2, 100 Harris Street
Pyrmont NSW
2009 Australia
Telephone: +61 2 8213 3031
Facsimile: +61 2 8213 3030
SHARE REGISTRY
Link Market Services Limited
Locked Bag A14
Sydney South NSW
1235 Australia
Telephone: 1300 554 474
Outside Australia: +61 2 8280 7111
Facsimile: +61 2 9287 0303
SECURITIES EXCHANGE
The Company is listed on the
Australian Securities Exchange
(ASX Code: EGG).
The home exchange is Sydney.
OTHER INFORMATION
Enero Group Limited,
incorporated and domiciled in Australia,
is a publicly listed company limited by shares
SOLICITORS
Gilbert + Tobin
International Towers Sydney
2200 Barangaroo Avenue
Sydney NSW 2000 Australia
AUDITORS
KPMG
International Towers Sydney
3300 Barangaroo Avenue
Sydney NSW 2000 Australia
M
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ABN 97 091 524 515