Enero Group Limited Annual Report 2020

Plain-text annual report

CONNECTED TO TOMORROW Enero Group Limited – Annual Report 2020 THE Boutique FORCE IN MODERN MARKETING Enero Group is an international network of marketing and communications businesses located in seven countries and 14 cities with over 600 employees. Spanning the marketing services landscape, the Group is connected through three key service competencies: • Creative and Content; • PR and Integrated Communications; and • Digital, Data, Analytics and Technology. Together this is a powerful mix of capabilities centred around areas that clients want from their marketing services partners. 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 name means ‘January’ in Spanish, which is why we always look forward with optimism, energy and a zest for life. We prize diversity in thought and seek to unlock the unique talent that lies within each one of us, allowing our people the support, skills and training and culture that help them make their most effective contributions each and every day. The Group provides support across management, recruitment, learning and development, finance, legal, property and IT – allowing our client facing team members to focus on what they do best: serving our clients by delivering world class, highly effective outcomes, day-in, day-out. 2 FINANCIAL HIGHLIGHTS 3 GEOGRAPHICAL RESULTS 4 LETTER FROM THE CHAIR 6 FY20 YEAR IN REVIEW 8 CLIENT ANALYSIS 14 THOUGHTFUL WORKING 16 FINANCIAL REPORT 17 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 35 CONSOLIDATED STATEMENT OF CASH FLOWS 36 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 70 DIRECTORS’ DECLARATION 71 INDEPENDENT AUDITOR’S REPORT 78 LEAD AUDITOR’S INDEPENDENCE DECLARATION 79 ASX ADDITIONAL INFORMATION 80 CORPORATE DIRECTORY Enero Group Limited – Annual Report 2020CREATIVE AND CONTENT Long ideas in a world of short-term thinking Sydney based creative agency with capabilities in brand strategy, integrated campaign development, research, creative ideation and production, digital and interactive marketing, short and long form content, retail catalogues, design, CRM/direct marketing, proprietary photographic studios and the BMF Plus innovation suite. PR AND INTEGRATED COMMUNICATIONS The global tech communications consultancy Creating Talkability® A global technology communications consultancy operating from Sydney to San Francisco with a borderless mindset across 34 locations including the UK, US, 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. London, Manchester and Sydney based creative communications agency helping brands lead, drive and own conversations. Insight-led, channel neutral, integrated campaigns that create ideas worth talking about – they call it Talkability®. Informed. Strategic. Connected. Melbourne based public affairs and communications consultancy engaging governments, managing critical issues, and communicating with strategy to build reputation and influence. DIGITAL, DATA, ANALYTICS AND TECHNOLOGY Creating customer experiences for a modern world Unleashing hidden potential Sydney and New York based agency with capabilities in 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. Sydney based insight and analytics agency translating multiple data sources into ‘human analytics’. Capabilities in data synthesis and trends analysis, full service research, brand innovation, retail consulting and creative delivery. Experts in online research and data delivery Sydney based online research agency specialising in digital research, online surveys and communities, access panel services, data integration and visualisation. Helping businesses access online advertising markets Online programmatic media and advertising network with advertiser and publisher monetisation solutions to maximise the value of publisher advertising space. 1 Enero Group Limited – Annual Report 2020FINANCIAL HIGHLIGHTS NET REVENUE Operating ebitda OPERATING EBITDA MARGIN $135.8m $24.4m 18% UP 5% UP 18% UP 2BPS Net profit after tax before significant items Earnings Per Share before significant items FY20 Dividends $12.9m 15.0CPS 6.0CPS UP 7% UP 6% UP 9% 2 Enero Group Limited – Annual Report 2020GEOGRAPHICAL RESULTS GEOGRAPHICAL CONTRIBUTIONS FROM OPERATING COMPANIES USA NET REVENUE 29% FY20 UK & Europe Australia NET REVENUE 28% FY20 NET REVENUE 43% FY20 OPERATING EBITDA OPERATING EBITDA OPERATING EBITDA 43% FY20 19% FY20 38% FY20 3 28%45%40%19%41%FY19FY19FY19FY19FY1927%FY19Enero Group Limited – Annual Report 2020FROM OURLetter CHAIR 4 Enero Group Limited – Annual Report 2020FY20 WAS A YEAR WHERE THE RESILIENCE OF THE GROUP WAS TRULY TESTED AND YET THE GROUP MOVES INTO FY21 IN A STRONGER POSITION, WITH MORE OPPORTUNITIES THAN EVER BEFORE. Dear Shareholders, In what has been an unprecedented year in so many ways, I am very pleased to present my first report as Chair of Enero. FY20 was a year where the resilience of the Group was truly tested and yet the Group moves into FY21 in a stronger position, with more opportunities than ever before. COVID-19 brought with it both internal and external challenges. Our initial priority and response to the pandemic was the wellbeing of our teams, their families and our clients. We immediately redeployed all 600 employees to work remotely from early March and the Group moved seamlessly into new ways of working with our clients. While managing a remote workforce in a ‘people’ business has had its challenges, it has been wonderful to see the flexibility and commitment shown by our team. Despite the impact of COVID-19 across the second half of the year, all of our businesses increased their efforts in retaining and even growing their clients and achieved 5% organic revenue growth, which is an excellent result. The Group’s strong exposure to sectors such as technology, healthcare and consumer staples, coupled with the incredible efforts from our teams in continuing to deliver world-class work, contributed to this strong outcome. Diversity in the revenue base continues to be a key differentiator for the Group, with no single client making up more than 12% of Group net revenue. The simplification of the business portfolio has also helped to streamline our services and build businesses with more scale. We remain cautiously optimistic that organic revenue growth is achievable in FY21 despite the economic and health uncertainties that are ahead of us. FY20 delivered strong financial metrics in all aspects in a year where health and safety took greater priority than profits. The highlights were: • Operating EBITDA up 17.7% to $24.4 million; • Net profit to equity holders pre significant items of $12.9 million was 6.9% up on the prior year; • Earnings per share pre significant items of 15.0 cps was 5.6% up on the prior year; and • Cash conversion at 116% of EBITDA. In August 2020, the Board declared an FY20 final dividend of 3.5 cents per share fully franked. This brings total dividends paid for FY20 to 6.0 cents per share, fully franked – a 40% dividend payout ratio – and we are committed to returning funds to shareholders in line with our performance. Our conservative level of debt commitments in a business with a high degree of intangible assets was even more important in such economic uncertainty. As at 30 June 2020, the Group had a net cash position of $22.1 million. The maintenance of balance sheet flexibility at this time while we actively seek out new opportunities to grow will put us in a stronger position than our competitors. The Group’s size continues to be an advantage in a time where the ability to integrate capability is central to client needs. Our larger businesses are better equipped to attract and retain top talent in the market and win bigger clients. We will continue to focus capital deployment on the larger businesses to either increase geographic coverage in markets or expand capabilities. International markets have been the area of focus in line with our intention to unlock greater revenue opportunities. However, we are realistic that with limited travel for the foreseeable future, and cultural alignment being a critical factor in any acquisition, we will need to think laterally about how to achieve this. I’d like to extend my thanks to Matthew Melhuish, our former CEO, who resigned during the year after eight years in the role. Matthew left the Group with a legacy of positive momentum and a strong culture. Thank you to Brendan York and Fiona Chilcott for stepping in as joint acting CEOs for the period through to the end of the financial year, navigating the COVID-19 crisis and providing unwavering leadership. We are commencing the start of a new era for the Group with the appointment of new CEO Brent Scrimshaw effective 1 July 2020. Brent is a creative and brand-led business leader in media, publishing, technology, consumer, retail and sports. His 18 years at Nike Inc. and experience across both agency and client sides in many of the geographies where the Group operates will ensure the Group is well placed for the future. The foundations of a nimble and flexible operating model combined with our strong financial position provide a great opportunity for Brent and the team to create the next phase of growth momentum. Thank you to my fellow Board members for your warm welcome and support across the second half of the year. On behalf of the Board, I would like to sincerely thank all of our people for their incredible contribution over the past year. The energy, commitment and care shown for each other is a testament to our strong culture and values. Finally, thank you to our shareholders for your ongoing support of the Group and I look forward to reporting back again next year. ANN SHERRY Independent Non-Executive Chair 5 Enero Group Limited – Annual Report 20200 2 Y F YEAR IN Review THE GROUP’S EXPOSURE TO STRONG INDUSTRY SECTORS SUCH AS TECHNOLOGY, HEALTHCARE AND CONSUMER STAPLES AND THE RESILIENCE OF OUR PEOPLE WHO CAME TOGETHER TO SUPPORT EACH OTHER RESULTED IN AN EXCEPTIONAL YEAR EVEN IN THE MOST DIFFICULT OF STORMS. Dear Shareholders, FY20 has been an unexpected year in so many ways. The impact of the global pandemic has demonstrated the Group’s resilience to turbulent market conditions, largely due to our exposure to strong industry sectors such as technology, healthcare and consumer staples. However, of equal importance has been the resilience of our people – who have come together, supported each other and proven that our strong culture of kindness is one that can weather even the most difficult of storms. We could not be more proud and grateful for the strength, resilience and empathy we have seen demonstrated by the remarkable group of people we work with. Financial Results The Group’s strategy to focus on industry sectors such as technology, healthcare and consumer staples has meant that despite COVID-19, the Group has had an exceptional year from a financial perspective. While COVID-19 resulted in more uncertainty in revenue pipeline and forecasting, an increased focus on organic revenue opportunities within the existing client base delivered net revenue in the second half of the year broadly consistent with the first half of the year. The higher revenue mix to sectors less impacted by COVID-19 gave the Group a stronger platform to manage the cost base. Careful cost base management and a reduction in operating costs – predominantly related to travel restrictions and office related costs – resulted in protection of margin. The Group has delivered substantial increases across key metrics including: • Revenue up 5% to $135.8 million; • Operating EBITDA up 18% to $24.4 million; • Operating EBITDA margin up 2bps to 18%; • EBIT up 20% to $19.2 million; and • Net profit after tax pre significants to equity owners up 7% to $12.9 million. International markets represent 57% of the Group’s Net Revenue and 62% of the Group’s Operating EBITDA. The Group maintained its focus on capital efficiency and cash conversion and delivered EBITDA to cash conversion at 116%. Net cash (allowing for contingent consideration liabilities) was $22.1 million at 30 June 2020. Business Review Australia The Australian market performed well in FY20 despite the difficult economic conditions. While the overall net revenue result was a 2.3% contraction year-on-year, Operating EBITDA contribution increased 7.5% with a simplified business portfolio. The consolidation of Precinct, our stakeholder communications business, into Hotwire, has given Hotwire a broader offering in the Australian market. The successful merger of Naked, our strategic and creative agency, into BMF, has provided more scale to BMF and a stronger pool of creative talent. BMF was named ‘Australia’s most effective agency’ for the second time in three years. New business wins included Rest Super, Coca-Cola, Blundstone and Voyages. BMF continues to be a trusted partner to longstanding clients including ALDI, the Australian Federal Government and BPAY. Orchard continued its impressive growth this year. Wins during the year included Royal Australian College of General Practitioners, Biogen, BPAY and Hoyts. Orchard has a large contribution of revenue from the healthcare sector – including relationships with some of the world’s largest pharmaceutical companies as well as smaller, emerging health service clients. Orchard’s enterprise level digital capability is opening up many Group related opportunities, particularly between BMF and Orchard. 6 Enero Group Limited – Annual Report 2020BRENDAN YORK Chief Financial Officer FIONA CHILCOTT Chief People Officer The smaller agencies in Australia – Hotwire, Frank, The Leading Edge and CPR – all traded in line with the prior year and are actively collaborating on more client opportunities, which is providing simpler client entry points for the Group. OBMedia, the Group’s programmatic marketing specialist whose platform connects publishers with search engines, grew revenue and margin in the current period following increased demand for search during COVID-19. UK and Europe The UK and European market had a tougher year as the impacts of COVID-19 were more pronounced than in our other markets. Additionally, the Group made important investments in senior hires across the UK and Europe in the first half of the year, ahead of the revenue curve, which ultimately impacted the margin contribution. These investments were necessary to ensure both Hotwire and Frank continue to be progressive and dynamic businesses in a changing integrated communications market; and will ultimately lead to stronger returns in coming years. The investment in new senior hires and Hotwire’s focus on technology clients in the UK led to current year wins of NTT, Zoom, Wrike, OKCupid and Ubisoft; while across the European offices, key wins included Group SEB, FM Global, Atlassian and Amazon Kindle. Frank was more impacted by COVID-19 given its greater exposure to consumer brand clients, but it continues to provide effective communications campaigns and has refreshed its strategic offer during the year. USA The USA market continued its growth acceleration with strong performances from both Hotwire and OBMedia. New Hotwire clients include Avaya, Intermedia, eBay and Pinterest along with strong organic growth from the existing technology client base of Adobe, Facebook, NetApp and Commvault. The Hotwire USA market continues to provide material global multi-office opportunities across the entire Hotwire international network. The business has also invested in strategy, design and insights capability. The outstanding work we deliver to our clients is not possible without the exceptional group of people who work for our businesses. While we needed to make some changes to the way we work in response to COVID-19, our existing culture of flexibility across the Group meant we moved into a fully remote working environment seamlessly. Our strategic people focus continues to be the growth, training, development and support of our people. We remain committed as a Group that is both passionate and active in the area of diversity and inclusion, with a strong focus on the wellbeing and the mental health of our people. The complicated and difficult external environment this year has meant our existing wellbeing programs have been more important than ever as we have had to adapt our ways of working and in particular provide additional support to our working parents and caregivers. We will continue to look for opportunities to invest in new talent and capabilities across the Group, while ensuring we retain the strong culture that currently exists. On behalf of the Enero Executive Team, we would like to say a heartfelt ‘thank you’ to each and every one of our people for your commitment, passion, dedication and resilience. Brendan York and Fiona Chilcott Chief Financial Officer and Chief People Officer (Co-Acting CEOs) 7 Enero Group Limited – Annual Report 2020CLIENT ANALYSIS A ROBUST CLIENT MIX Strong client diversification with mix of clients across market industries and sectors and the largest client represents 12% of Group Net Revenue. STREAMLINED PERFORMANCE Top 10 clients represent 41% of total revenue across > 500 client relationships. Efforts across the Group to maximise larger clients with more touchpoints have resulted in a smaller number of overall client relationships. SECTOR MIX Higher sector exposure to areas which were more insulated from COVID-19 impacts. 29% 18% 14% 10% 7% 7% 5% 4% 4% 1% 1% Information Technology Media Consumer Staples/Retail Healthcare Manufacturing Services Transportation, Airlines and Automotive Banking, Finance and Insurance Telecommunications Utilities and Energy Property and Construction 8 Enero Group Limited – Annual Report 2020INFORMATION TECHNOLOGY HOTWIRE The global tech communications consultancy. With over 20 years’ tech experience, Hotwire is the pre-eminent global tech communications consultancy for innovative tech brands. Igniting positive actions for clients and an understanding in all aspects of communications, branding and digital marketing allows Hotwire to spark audience curiosity and hero the possibilities of technology. Technology has been a primary driver of global economic growth as technology and digital transformation forces organisations to adapt business models and shift consumers to an online world. The fundamental shift in behaviour has protected the tech sector from the worst of recent economic uncertainty, as businesses continue to embrace everything from remote working to home schooling. Hotwire expects this need to continue and the tech sector to maintain at a consistent velocity for the foreseeable future. Hotwire has pivoted its work in the past four months to adapt to the changing environment. In all of its offices, Hotwire’s digital-led strategy helped its clients maintain connection with their customers through online events, increasing social campaigns and advising clients on content creation sensitive to the conditions that the country was facing. Hotwire also provided guidance to the industry on how to best communicate and manage in a work from home environment. As the business expands and commences a new three-year plan, Hotwire aims to retain its position as one of the world’s leading technology communications consultancies. Deep expertise in technology, coupled with global scale, places Hotwire at the heart of the most dynamic market sector in the world’s economy. The broad definition of innovation and technology, combined with the promise to ignite the unrealised possibilities of tech through data-driven communications solutions, will drive continued growth. CUTTING THROUGH THE NOISE Client: Kiva Kiva, a mission driven technology non-profit, wanted to cut through the noise around International Women’s Day (IWD), which is a busy media moment—including celebrity and big brand campaigns— and demonstrate Kiva’s investment in women in the lead up to IWD,generating awareness and ultimately driving Americans to loan to women on Kiva.org. Armed with a small budget, big expectations and less than 4 weeks to deliver a campaign, Hotwire leveraged online communities and influencers to help appeal to a mass audience and drive online loans to women across the world. The team developed an idea around the statement ‘A powerful woman is...’–helping to redefine what a powerful woman represents in 2020 and highlight the diverse and empowering women across the Kiva platform. The aim: celebrate the amazing stories and qualities of powerful women on the platform and beyond. DELIVERING THOUGHT LEADERSHIP AND BRAND RESURGENCE WITH PURPOSE Client: Commvault In 2019, Hotwire partnered with Commvault, a leader in the data management, backup, archive and disaster recovery market, to revamp a 30-year old brand through heroing the organisation’s new CEO and their first ever acquisition. Campaign objectives included driving thought leadership, increasing brand differentiation and delivering personified brand awareness through engagement with media, influencers, customers and prospects. The campaign, included media outreach, social content, paid follower campaigns, industry rapid response programs and executive thought leadership. Before and during the CEO announcement, Hotwire was a true partner to Commvault – and the results are proof of that. The campaign resulted in 45 pieces of US coverage and three pieces of analyst coverage. Social media results included 16 million impressions, 1,700 posts and 871 individuals engaged, measured through BrandWatch. Around the CEO announcement alone, the Americas had a 21% SOV among priority media and 30% SOV worldwide. Hotwire and Commvault continue their international partnership around new announcements and ongoing project work. 9 Enero Group Limited – Annual Report 2020EXPERT ADVICE MATTERS Client: RACGP General Practitioners (GPs) are responsible for safeguarding the nation’s health. They administer life-saving vaccines and prevent, diagnose and treat numerous chronic health conditions. They are also at the front line managing mental health concerns and domestic violence. The COVID-19 pandemic was accompanied by a steep decline in GP visits. Many worried that visiting their doctor would overload the health system or expose them to the virus. The Royal Australian College of General Practitioners (RACGP) was concerned that these reductions in GP consultations could lead to increased health problems. The RACGP turned to Orchard to reinforce the vital role played by GPs. We developed the Expert Advice Matters campaign to spread public awareness that seeing your GP during the pandemic was simple and safe, both in-person or via telehealth. The campaign used a simple but arresting creative device of visually editing the text spoken by vulnerable people in need of help. This showed how GPs can quickly cut through misconceptions and misinformation to offer reliable expert advice, treatment and support. The campaign was successful, creating a positive shift in awareness and attitude towards telehealth and increased awareness for safe in-person consultations. HEALTHCARE ORCHARD Creating customer experiences for a modern world. Founded in 2006 and joining Enero in 2018, Orchard’s core belief has always been to ‘invent better’. Orchard’s investment into healthcare started some 13 years ago, when the need for an agency to have qualified medical and scientific talent was emerging and the sector began to embrace digital. Today’s agency offering has to be sector focused and more niche. Clients want expert category advice, not just core competence in discipline; and from pioneering with pharmaceutical companies, the agency is now recognised as one of the leading health-focused agencies in the country. Orchard’s capability extends to consumer sectors with a heavy reliance on digital including automotive and finance. This client mix along with a strategy underpinned by a digital DNA delivers a modern agency service proposition. With the team now in excess of 105 employees from its Sydney base and a thriving New York office – and a nominated finalist for digital agency of the year – the needs of clients are served today while ensuring that Orchard is also part of the conversation for the future. Orchard’s work in the healthcare sector partnering with pharmaceutical brands has continued unabated during COVID-19 as there is a more pressing need to ensure that healthcare professionals are well informed about the latest news and medications. During a once in a lifetime pandemic it was also rewarding for the team to do purposeful work such as for the Royal Australian College of General Practitioners communicating to the public about why they needed to speak to a GP and the new options for telemedicine that were available. THE AGENCY IS NOW RECOGNISED AS ONE OF THE LEADING HEALTH-FOCUSED AGENCIES IN THE COUNTRY 10 Enero Group Limited – Annual Report 2020CPR: Public affairs and strategic communications delivering impact. Over a 25-year history, CPR has established a strong reputation in public affairs, issues management, government relations and communications. More recently these services have focused on medical research, specialising in understanding how medical institutions and governments can work together to create the jobs and medicines for the future. In the past six months, CPR has been instrumental in assisting medical research institutes and alliances communicate with State and Federal governments around policy settings and funding to help the sector thrive. By successful media positioning of local researchers and leveraging government engagement, CPR is assisting medical researchers to work towards reviving the health economy and mitigate disruption to global supply chains. In the current climate, where governments are racing for a COVID-19 vaccine, the local development and manufacturing of drugs and devices has never been more important. CPR continues to work with a range of leading institutes including the Victorian Chapter of the Australian Association of Medical Research Institutes, the Walter and Eliza Hall Institute, the Hudson Institute, the National Aging Research Institute and Melbourne Genomics. CPR has also expanded into the fields of digital health and medical devices. ACCELERATING NEW MEDICINES FOR THE WALTER AND ELIZA HALL INSTITUTE Client: Walter and Eliza Hall Institute In FY19/20 one of CPR’s most successful projects was working with the Walter and Eliza Hall Institute to assist with securing funding from the Victorian and Australian governments for the National Drug Discovery Centre in Parkville. The centre is a state-of-the-art facility which will use the latest advanced robotic, high-throughput screening technologies to fast-track medicines to Australian patients. The $117 million centre was assisted through an $18 million funding commitment from the Victorian Government and a $25 million funding commitment from the Australian Government. The centre was launched in May 2019 at an event attended by both the Victorian and Australian Ministers for Health. The first two recipients of government-subsidised screens will be projects to find new medicines for cancer immunotherapy and type 2 diabetes. CLEAN UP YOUR MOUTH Client: Oral-B P&G partnered with Orchard to tackle electric toothbrush adoption. With only 20% of Aussies using an electric brush, they had to encourage manual brushing switch. The problem was, most Aussies don’t believe anything’s wrong with regular brushing. As Oral-B’s manual toothbrush market share wasn’t a concern, an opportunity emerged to tackle the problem at a category level. With proof that electric toothbrushes remove 100% more plaque vs. manual brushing, this led to the approach: Given a choice, why would you only do half the job? The campaign portrayed a number of famously foul-mouthed architypes like builders, footie fans and truckies in compromising situations where profanity is expected. At these moments, the expectation was subverted with surprisingly polite, cordial responses taking profanity’s place. Brushing with Oral-B electric, they’d cleaned up their mouths. Delivering a long-term comms platform, the #CleanUpYourMouth campaign was led by two hero VOD and pre-roll 30 second executions, alongside search, display and accompanying PR activity seeking the Australian town most in need of cleaning up its mouth. Breaking ground as the first local Oral-B creative in recent years, the campaign achieved significant results, with over 7 million views since launch.cupissunt rehenditas et lam endaesc iliquam laborem. 11 Enero Group Limited – Annual Report 2020CONSUMER STAPLES / RETAIL BMF Long ideas in a world of short-term thinking. BMF knows retail inside out. The retail game is a high performance sport – competitive, reactive and ever-changing – keeping BMF fit in the world of marketing and communications. BMF has banked 19 years of that experience so far; that’s how long it has been ALDI’s marketing and communications partner. From when it started in one store in Marrickville to over 500 stores now. From when it was an unfamiliar, foreign grocery store to being Australia’s most trusted brand in 2018 and 2019 and realising its brand platform of ‘Good Different’, a philosophy that defines and guides ALDI. BMF has supported businesses and brands to stand up and stand out during this time of uncertainty. Simple, strong, on-point communications that needed to read the nation’s mood and be sensitive to that. BMF offered advice, solutions, best practice case studies and principles to build confidence on how to navigate a new norm. From fast paced retail, which as an essential service had to stand up in a time of need, BMF is the trusted partner to deliver government behaviour change campaigns that speak to every Australian at both Federal and State levels. For the Department of Social Services, BMF needed to work at pace and with incredible sensitivity to promote the support services for domestic violence during an increased time of stress. BMF did this through the ‘Help is here’ campaign which let victims know that support was there, even when they were in lockdown. This work supports BMF’s ‘Stop it at the Start’ inter-generational campaign to reduce violence against women, now running over four years. In difficult economic times, BMF continues to build long-term communications platforms that are highly effective at driving positive business and behaviour change outcomes. The agency has been recognised as being one of the most effective in Australia, with two Most Effective agency wins in the last three years. The strong blend of strategic rigor, creative excellence and operational high performance is what makes BMF unique and able to pivot in these times and find a new normal working rhythm. 12 EVERY BIT BETTER Client: George Weston Foods – Abbott’s Village Bakery By positioning Abbott’s as the loaf for all occasions, BMF created George Weston Foods’ most successful premium launch to date. Not only staving off deletion but leaving the retailers asking for more. BMF took a me-too bread brand at risk of being delisted, identified an untapped need and reinvented Abbott’s Village Bakery (AVB) in a stale category. At its core, the campaign launched a comms idea born out of collaboration, that lived on pack and in every bite. A sensory feast in its own right, right down to the very last crumb. AVB managed to beat unit sales target twice over, preventing what would’ve otherwise been a 25% decline, making Abbott’s Village Bakery a breadwinner. PRECEDENTED PRICES Client: ALDI Unprecedented Good Different Everything was going to plan. Until it wasn’t. Everyone was under incredible pressure to deliver reassurance to the worried masses. And as much as BMF didn’t want to trivialise, the agency equally didn’t want ALDI to fall into ‘brand COVID’ conventions. Whether it was communicating ALDI’s new safety measures or thanking the hard-working staff, BMF used its Good Different platform to make sure it remained authentically ALDI. Reassuring the nation ALDI’s low prices aren’t going anywhere Economic uncertainty. Shrinking family budgets. And an unprecedented spike in the use of the word ‘unprecedented’. People could do with grocery prices that stayed low, predictable and undramatic. So, BMF launched a new campaign for ALDI to remind Australians that unprecedented times call for precedented prices. And ALDI kept its humour during COVID, when everyone else lost theirs. Enero Group Limited – Annual Report 2020FRANK Creating Talkability at the heart of everything they do. Frank by name and Frank by nature – a straight- talking strategic communications consultancy, driving actionable change through insight-led and corporate PR, social and influencer marketing campaigns. Frank is channel neutral, leading with great ideas at the core of its business delivered through paid, earned, shared and owned media channels. Most prominently recognised for consumer campaigns, Frank’s reach also spans FMCG, finance and the communications industries. The past year has accelerated consumer demand for brand transparency, authenticity and genuine action. Frank has been able to successfully collaborate with clients to craft ideas that will drive change and transform brands and businesses globally. COVID-19 has directly impacted consumers and in turn their behaviour, rituals and spending habits. At a time where people found comfort with their familiar favourites and food was being stockpiled across the UK, Frank activated the Weetabix ‘Fuelling the Nation’ campaign. Frank remotely filmed a team during their ‘new normal’ morning meeting – displaying the role that Weetabix plays for consumers. The idea resonated with those experiencing the same feeling – resulting in 8% engagement and hundreds of thousands of views online. In the coming year, Frank will continue to navigate a diverse range of sectors and constantly evolve to push the boundaries when it comes to its service offering. From digital content to community management and purpose-led corporate reputation campaigns, Frank will embrace the honest and transparent role of social and win brand fans in the process. WEETABIX FUELLING THE NATION Client: Weetabix While the world went into lockdown, Weetabix saw a happy spike in sales as people found comfort in their ‘familiar favourites’ and stockpiled breakfast cereal. It really was no lie that we were fulling the nation. With the strapline ‘Have You Had Yours’ feeling a little opportunistic at such an unsettling time, Weetabix wanted to convey the reliability two Weetabix and milk provides every day, even in lockdown. Frank filmed remotely a now normal morning team meeting which subtly showed the role Weetabix consistently plays f or consumers. The content was shared and boosted, striking a chord with those experiencing the same thing, resulting 8% engagement rate and hundreds of thousands of views. BMF HAS SUPPORTED BUSINESSES AND BRANDS TO STAND UP AND STAND OUT DURING THIS TIME OF UNCERTAINTY 13 Enero Group Limited – Annual Report 2020Thoughtful working At Enero, we employ great people. An international workforce brimming with talent, potential and creativity. Teams of outstanding individuals who can be relied upon to go above and beyond in delivering exceptional results for our clients. We are firm believers in the power of kindness. Treating people with fairness and respect is an important part of our culture. We want our people to feel like they are doing their best work with colleagues who connect on an emotional level and take the trouble to understand the context of our lives and the things that matter to us. At Enero, our agencies believe that work is a thing you produce, not a place you go each day. Our largest agency Hotwire practice ‘Thoughtful Working’ – which is so much more than a flexible working or work from home policy – it is a philosophy the organisation lives by and employees are encouraged to work where they will be most effective for their clients, their colleagues and themselves. It has provided Hotwire access to a broader, more diverse talent pool in the highly competitive markets in which it operates. These existing work practices meant that our agencies were well placed to quickly move to a completely remote workforce during country lockdowns as a result of COVID-19. All about experience “People will forget what you said, people will forget what you did, but people will never forget how you made them feel.” – Maya Angelou. This sentiment is carried over to each business at Enero. Experience is the foundation that influences emotion and encourages new ideas and successes. 14 Enero Group Limited – Annual Report 2020Regardless of working location, with the latest technology solutions we’re able to facilitate collaboration between locations and global teams – making the experience as seamless as possible. Collaboration tools like Slack, Teams and Zoom have bridged the location gap between employees, allowing them to work and ‘meet’ face-to-face just as they would if they were sitting in the same room. Diversity and inclusion Beyond our global Diversity and Inclusion (D&I) strategies, each business focuses on continually doing better – driving equality to the people who are experiencing any form of marginalisation and discrimination; ensuring we’re treated equally and that our differences are respected. 15 Enero Group Limited – Annual Report 2020FINANCIAL REPORT for year ended 30 June 2020 16 Directors’ Report The Directors present their report, together with the financial statements of Enero Group Limited (the David Brain – Independent Non-Executive Director David was appointed as a Non-Executive Director of the Company) and of the Group, being the Company and its Company on 10 May 2018. David has over 25 years’ controlled entities, for the year ended 30 June 2020; and experience in public relations and integrated the auditor’s report thereon. Directors The Directors of the Company at any time during or since the end of the financial year are: Ann Sherry AO – Independent Non-Executive Chairman Ann was appointed as Chair and Non-Executive Director on 1 January 2020. Ann is a recognised business leader in Australia who is currently a Director of ASX listed National Australia Bank, Chair of its Customer Committee and a member of its Remuneration Committee. Ann is also a Director of ASX listed Sydney Airport, Chair of its Remuneration and Nomination Committee, as well as a member of its Safety, Security and Sustainability Committee. Ann is Chair of UNICEF Australia and also a Director of international advisory firm The Palladium Group, Infrastructure Victoria, Cape York Partnerships, and the Museum of Contemporary Art. Ann is the former Chair and Chief Executive Officer of Carnival Australia and continues as an adviser to Carnival. She was previously at Westpac for 12 years and was the CEO of Bank of Melbourne and the CEO of Westpac New Zealand and Pacific Banking. In 2015, Ann was named the overall winner of the AFR 100 Women of Influence for her corporate leadership and achievements in promoting diversity and female representation across a variety of sectors during her 30- year career. Ann is Chair of the Remuneration and Nomination Committee. 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 ASX-Listed 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 is Chair of the People and Remuneration Committee. Anouk also holds an executive role, as CEO of Scape and Urbanest (Australia’s largest owner and operator of purpose-built student accommodation assets). Anouk is Chair of the Audit and Risk Committee. 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. Ian is a Director of ASX listed Reliance Worldwide Corporation Limited (effective July 2020); 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 Miami Ad School (US), a non-profit entity. Ian is a member of the Remuneration and Nomination Committee. Brent Scrimshaw – CEO and Executive Director Brent was appointed Chief Executive Officer and Executive Director of the Company on 1 July 2020. Brent is a creative and brand led business leader in media, publishing, technology, consumer, retail and sports. Brent spent 18 years at Nike Inc. including three years as Vice President/Chief Executive Western Europe based in Amsterdam, and Vice President and Chief Marketing Officer EMEA, along with other leadership roles in general marketing and management in Europe, the USA and Australia. Brent was also part of Nike’s global commercial operations team contributing to the development of the Nike Inc. business and brand strategy in its priority geographies worldwide. Brent was the founder and CEO of Unscriptd, a technology led sports media company, which was acquired by New York publisher The Players Tribune Enero Group Limited Annual Report 2020 17 Enero Group Limited – Annual Report 2020 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 2020; 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: Ann Sherry AO – Independent Non-Executive Chairman Ann was appointed as Chair and Non-Executive Director on 1 January 2020. Ann is a recognised business leader in Australia who is currently a Director of ASX listed National Australia Bank, Chair of its Customer Committee and a member of its Remuneration Committee. Ann is also a Director of ASX listed Sydney Airport, Chair of its Remuneration and Nomination Committee, as well as a member of its Safety, Security and Sustainability Committee. Ann is Chair of UNICEF Australia and also a Director of international advisory firm The Palladium Group, Infrastructure Victoria, Cape York Partnerships, and the Museum of Contemporary Art. Ann is the former Chair and Chief Executive Officer of Carnival Australia and continues as an adviser to Carnival. She was previously at Westpac for 12 years and was the CEO of Bank of Melbourne and the CEO of Westpac New Zealand and Pacific Banking. In 2015, Ann was named the overall winner of the AFR 100 Women of Influence for her corporate leadership and achievements in promoting diversity and female representation across a variety of sectors during her 30- year career. Ann is Chair of the Remuneration and Nomination Committee. 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 ASX-Listed 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 is Chair of the People and Remuneration Committee. Anouk also holds an executive role, as CEO of Scape and Urbanest (Australia’s largest owner and operator of purpose-built student accommodation assets). 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. Ian is a Director of ASX listed Reliance Worldwide Corporation Limited (effective July 2020); 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 Miami Ad School (US), a non-profit entity. Ian is a member of the Remuneration and Nomination Committee. Brent Scrimshaw – CEO and Executive Director Brent was appointed Chief Executive Officer and Executive Director of the Company on 1 July 2020. Brent is a creative and brand led business leader in media, publishing, technology, consumer, retail and sports. Brent spent 18 years at Nike Inc. including three years as Vice President/Chief Executive Western Europe based in Amsterdam, and Vice President and Chief Marketing Officer EMEA, along with other leadership roles in general marketing and management in Europe, the USA and Australia. Brent was also part of Nike’s global commercial operations team contributing to the development of the Nike Inc. business and brand strategy in its priority geographies worldwide. Brent was the founder and CEO of Unscriptd, a technology led sports media company, which was acquired by New York publisher The Players Tribune Enero Group Limited Annual Report 2020 17 17 Enero Group Limited – Annual Report 2020 Directors’ Report DIRECTORS’ REPORT in 2018. Brent is a Non-Executive Director of ASX listed Kathmandu Holdings Limited, a Non-Executive Director of ASX listed Catapult Group International Limited and a Non- Executive Director of ASX listed Rhinomed Limited. Operating and Financial Review Information relating to the operating and financial review of the Company and its strategy are outlined on pages 21 to 22 and form part of this Directors report. John Porter – Independent Non-Executive Chairman John was appointed as Chairman and Non-Executive Director of the Company on 24 April 2012. John resigned as a Chairman and Director on 31 December 2019. Matthew Melhuish – CEO and Executive Director Matthew was appointed Chief Executive Officer and Executive Director of the Company on 16 January 2012. Matthew resigned as a Director effective 23 December 2019 and as CEO effective 31 March 2020. 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 Non-Executive Director of ASX listed Big River Industries Limited and Chair of its Audit and Risk Committee. Brendan is a Chartered Accountant and has a Bachelor of Business Administration and a Bachelor of Commerce from Macquarie University. Committee Membership At the date of this report, the Company had an Audit and Risk Committee and a Remuneration and Nomination Committee. Members of these Committees were: Audit and Risk Committee Anouk Darling (Chair) David Brain Susan McIntosh Remuneration and Nomination Committee Ann Sherry (Chair) Ian Rowden Susan McIntosh 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, corporate communications and programmatic media. Corporate Governance The Directors recognise the requirement for and have adhered to the principles of corporate governance. A copy of the Company’s full 2020 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/investor-centre/corporate- governance. Compliance with the fourth edition of the ASX Principles will be effective from 1 July 2020. 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 Ann Sherry Susan McIntosh Anouk Darling David Brain Ian Rowden Matthew Melhuish John Porter 5 8 8 8 8 3 2 5 8 8 8 8 3 3 – 4 4 3 – – – – 4 4 4 – – – 1 3 – – 3 – – 2 3 – – 3 – 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 Ann Sherry Susan McIntosh Anouk Darling David Brain Ian Rowden Brent Scrimshaw(i) Total Ordinary shares 18,750 122,223 19,607 75,000 60,000 Nil 295,580 Share Appreciation Rights Nil Nil Nil Nil Nil 1,250,000 1,250,000 (i) Grant is in relation to SARs provided to the CEO, which were issued on 1 July 2020, subject to shareholder approval. Events subsequent to balance date Subsequent to the balance date, the Directors have declared a final dividend, with respect to ordinary shares, of 3.5 cents per share, fully franked. The final dividend will have a record date of 18 September 2020 and a payment date of 2 October 2020. 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 During the year ended 30 June 2020, the Company The Group will continue to focus on its strategy outlined in transferred 642,726 ordinary shares (30 June 2019: the operating and financial review. The Group will 651,575) from a trust account held by the Company to the specifically focus on new business conversion and organic employees of the Group on exercise of share appreciation revenue growth to increase net revenue. Additionally, rights under the SARP. The trust account holds no further building scale and presence in the UK and USA markets to ordinary shares and was vested during the financial year. seek a more evenly weighted geographic contribution from net revenue and Operating EBITDA is a core element of the Group’s strategic framework. The Group will also continue to assess acquisition and capital deployment opportunities as they arise to complement the key operating business brands – Hotwire, Orchard and BMF. Indemnification and insurance of officers and auditors Indemnification The Company has agreed to indemnify the following current Directors of the Company: Ann Sherry, Susan McIntosh, Anouk Darling, David Brain, Ian Rowden, Brent Scrimshaw 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. 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 Total 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. 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. Issue of shares and Share Appreciation Rights (SARs) Shares issued on exercise of SARs On 13 September 2019, the Company issued 469,905 ordinary shares to employees exercising share appreciation rights under the Company’s Share Appreciation Rights Plan (SARP), which was approved by shareholders at the Company’s Annual General Meeting (AGM) in 2017. The issue price of these shares was $1.89 and these shares rank equally with existing shareholders. Share Appreciation Rights Share Appreciation Rights issued During the year ended 30 June 2020, a total of 2,450,000 Share Appreciation Rights (30 June 2019: 6,500,000) 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: Strike price VWAP (for the 20 business Number of days prior to the Expiry date 30 September 2020 30 September 2020 30 September 2020 30 September 2021 30 September 2021 30 September 2021(i) 30 September 2022 30 September 2022(i) 30 September 2023(i) SARs 1,016,670 900,000 699,999 900,000 699,998 416,666 700,003 416,666 416,668 6,166,670 grant) $1.04 $1.23 $2.13 $1.23 $2.13 n/a $2.13 n/a n/a (i) Grant is in relation to SARs provided to the CEO, which were issued on 1 July 2020, subject to shareholder approval. These SARs in the table above do not entitle the holder to participate in any share issue of the Company. Dividends Dividends declared and paid by the Company to members since the end of the previous financial year were: Fully franked: 2019 Final dividend 2020 Interim dividend Cents Total per amount share AUD ’000 Date of payment 3.0 2.5 2,582 8 October 2019 2,152 19 March 2020 Subsequent to the balance sheet date, the Directors have declared a final dividend, with respect to ordinary shares, of 3.5 cents per share – fully franked with a payment date of 2 October 2020. The financial effect of this dividend has not been brought to account in the financial statements for the year ended 30 June 2020 but will be recognised in the subsequent financial period. For further details refer to Note 17 Capital and reserves in this annual report. 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. 18 18 Enero Group Limited Annual Report 2020 Enero Group Limited Annual Report 2020 19 Enero Group Limited – Annual Report 2020 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 and organic revenue growth to increase net revenue. Additionally, building scale and presence in the UK and USA markets to seek a more evenly weighted geographic contribution from net revenue and Operating EBITDA is a core element of the Group’s strategic framework. The Group will also continue to assess acquisition and capital deployment opportunities as they arise to complement the key operating business brands – Hotwire, Orchard and BMF. Indemnification and insurance of officers and auditors Indemnification The Company has agreed to indemnify the following current Directors of the Company: Ann Sherry, Susan McIntosh, Anouk Darling, David Brain, Ian Rowden, Brent Scrimshaw 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. 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. 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. Issue of shares and Share Appreciation Rights (SARs) Shares issued on exercise of SARs On 13 September 2019, the Company issued 469,905 ordinary shares to employees exercising share appreciation rights under the Company’s Share Appreciation Rights Plan (SARP), which was approved by shareholders at the Company’s Annual General Meeting (AGM) in 2017. The issue price of these shares was $1.89 and these shares rank equally with existing shareholders. During the year ended 30 June 2020, the Company transferred 642,726 ordinary shares (30 June 2019: 651,575) from a trust account held by the Company to the employees of the Group on exercise of share appreciation rights under the SARP. The trust account holds no further ordinary shares and was vested during the financial year. Share Appreciation Rights Share Appreciation Rights issued During the year ended 30 June 2020, a total of 2,450,000 Share Appreciation Rights (30 June 2019: 6,500,000) 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 2020 30 September 2020 30 September 2020 30 September 2021 30 September 2021 30 September 2021(i) 30 September 2022 30 September 2022(i) 30 September 2023(i) Total Strike price VWAP (for the 20 business days prior to the grant) $1.04 $1.23 $2.13 $1.23 $2.13 n/a $2.13 n/a n/a Number of SARs 1,016,670 900,000 699,999 900,000 699,998 416,666 700,003 416,666 416,668 6,166,670 (i) Grant is in relation to SARs provided to the CEO, which were issued on 1 July 2020, subject to shareholder approval. These SARs in the table above do not entitle the holder to participate in any share issue of the Company. Dividends Dividends declared and paid by the Company to members since the end of the previous financial year were: Fully franked: 2019 Final dividend 2020 Interim dividend Cents per share Total amount AUD ’000 Date of payment 3.0 2.5 2,582 8 October 2019 2,152 19 March 2020 Subsequent to the balance sheet date, the Directors have declared a final dividend, with respect to ordinary shares, of 3.5 cents per share – fully franked with a payment date of 2 October 2020. The financial effect of this dividend has not been brought to account in the financial statements for the year ended 30 June 2020 but will be recognised in the subsequent financial period. For further details refer to Note 17 Capital and reserves in this annual report. 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. Enero Group Limited Annual Report 2020 19 19 Enero Group Limited – Annual Report 2020 Directors’ Report DIRECTORS’ REPORT Environmental regulation and performance The Board believes that the Group has adequate systems in place for the management of its environmental requirements and is not aware of any significant breach of those requirements as they apply to the Group. Auditor independence The Lead Auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 78, and forms part of the Directors’ Report for the year ended 30 June 2020. Rounding off The Company is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191, dated 24 March 2016, 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. Signed on behalf of the Directors in accordance with a resolution of the Directors: Ann Sherry AO Chair Sydney, 26 August 2020 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 – 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. 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: Overseas KPMG firms Total services other than statutory audit 2020 $ 2019 $ 188,000 186,000 188,000 186,000 Operating and financial review In the current year, the Operating Brands segment The operating and financial review forms part of the generated approximately 57% of its net revenue and 62% Directors’ report. of its Operating EBITDA from international markets. Strategy and operations of the Group A summary of the Group’s results is below: The boutique force in modern marketing, Enero Group is In thousands of AUD an international network of eight marketing and communications businesses located in 7 countries and 14 cities, with over 600 employees. Spanning the marketing services landscape, the Group is connected through three key service competencies: • Creative and Content – BMF; • PR and Integrated Communications – Hotwire, Frank and CPR; and • Digital, Data, Analytics and Technology – Orchard, The Leading Edge, The Digital Edge 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, corporate communications and programmatic media. 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. Being a nimble team with a global perspective, the Group is well positioned to take advantage of the new developments taking place in this highly dynamic sector. Financial performance for the year The Group achieved Net Revenue of $135.8 million, an increase of 4.9% (2019: $129.5 million) compared to the prior reporting period. The increased revenue was driven by organic revenue growth in Hotwire, Orchard and OBMedia predominantly in the USA market. Increased revenue pipeline conversion uncertainty due to COVID-19 led to a greater weighting to existing client and organic revenue opportunities over new business opportunities. The Group has a high sector exposure to technology, healthcare and consumer staples clients, which were less impacted by COVID-19, and a low sector exposure to retail, travel and tourism clients, which were more heavily impacted in the second half of the year. The Group achieved Operating EBITDA of $24.4 million, an increase of 17.7% (2019: $20.7 million) compared to the prior reporting period as a result of the increased net revenue, careful cost management and reduction of operating costs during COVID-19. The Operating EBITDA margin increased from 16.0% in 2019 to 18.0% in 2020. The increased net revenue coupled with stronger operating costs leverage resulted in the margin protection and expansion. Government-related support during COVID-19 including the JobKeeper subsidy was limited to $0.4 million in contributions to Operating EBITDA in the current year. Net revenue EBITDA Depreciation of right-of-use assets Operating EBITDA¹ Depreciation and amortisation EBIT Net finance income Present value interest charge Profit before tax Income tax expense Profit after tax Non-controlling interests Net profit after tax before significant items Significant items Net profit after tax attributable to equity owners Earnings per share (basic) – pre significant items Earnings per share (basic) 2020 2019 135,825 129,535 29,230 (4,849) 24,381 (3,432) 20,949 217 (1,937) 19,229 (3,397) 15,832 (2,951) 20,722 – 20,722 (3,275) 17,447 467 (1,153) 16,761 (2,297) 14,464 (2,413) 12,881 (2,174) 12,051 (6,390) 10,707 5,661 Cents Cents per share per share 15.0 12.5 14.2 6.7 Reconciliation of statutory profit after tax to Operating EBITDA In thousands of AUD Net revenue EBITDA Depreciation of right-of-use assets Operating EBITDA¹ Depreciation of plant and equipment Amortisation of intangibles Net finance income Present value interest charge Contingent consideration fair value loss Statutory profit before tax Income tax expense Statutory profit after tax 2020 2019 135,825 129,535 29,230 (4,849) 24,381 (2,337) (1,095) 217 20,722 – 20,722 (2,209) (1,066) 467 (1,937) (1,153) (2,174) 17,055 (3,397) 13,658 (6,390) 10,371 (2,297) 8,074 1. Operating EBTIDA, as defined in the basis of preparation section on page 22, is used for comparability purposes between the periods in this transition year as operating lease rental expense is primarily replaced with depreciation of right-of-use assets. This is the first set of the Group’s annual financial statements in which AASB 16 Leases is applied. Under the transition method chosen, comparative information is not restated. The 30 June 2020 results are therefore not directly comparable to prior years. Changes to significant accounting policies and the impact of applying the new standards are described in Note 1(g). The net profit pre-significant items was $12.9 million, Significant items compared to $12.1 million in the prior reporting period. The The Group incurred Contingent consideration fair value net profit after tax to equity owners was $10.7 million, compared to $5.7 million in the prior reporting period. loss of $2,174,000 (2019: $6,390,000) relating to revaluation of future contingent consideration payable to the vendors of Eastwick Communications. 20 20 Enero Group Limited Annual Report 2020 Enero Group Limited Annual Report 2020 21 Enero Group Limited – Annual Report 2020 Operating and financial review The operating and financial review forms part of the Directors’ report. In the current year, the Operating Brands segment generated approximately 57% of its net revenue and 62% of its Operating EBITDA from international markets. Strategy and operations of the Group The boutique force in modern marketing, Enero Group is an international network of eight marketing and communications businesses located in 7 countries and 14 cities, with over 600 employees. Spanning the marketing services landscape, the Group is connected through three key service competencies: • Creative and Content – BMF; • PR and Integrated Communications – Hotwire, Frank and CPR; and • Digital, Data, Analytics and Technology – Orchard, The Leading Edge, The Digital Edge 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, corporate communications and programmatic media. 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. Being a nimble team with a global perspective, the Group is well positioned to take advantage of the new developments taking place in this highly dynamic sector. Financial performance for the year The Group achieved Net Revenue of $135.8 million, an increase of 4.9% (2019: $129.5 million) compared to the prior reporting period. The increased revenue was driven by organic revenue growth in Hotwire, Orchard and OBMedia predominantly in the USA market. Increased revenue pipeline conversion uncertainty due to COVID-19 led to a greater weighting to existing client and organic revenue opportunities over new business opportunities. The Group has a high sector exposure to technology, healthcare and consumer staples clients, which were less impacted by COVID-19, and a low sector exposure to retail, travel and tourism clients, which were more heavily impacted in the second half of the year. The Group achieved Operating EBITDA of $24.4 million, an increase of 17.7% (2019: $20.7 million) compared to the prior reporting period as a result of the increased net revenue, careful cost management and reduction of operating costs during COVID-19. The Operating EBITDA margin increased from 16.0% in 2019 to 18.0% in 2020. The increased net revenue coupled with stronger operating costs leverage resulted in the margin protection and expansion. Government-related support during COVID-19 including the JobKeeper subsidy was limited to $0.4 million in contributions to Operating EBITDA in the current year. The net profit pre-significant items was $12.9 million, compared to $12.1 million in the prior reporting period. The net profit after tax to equity owners was $10.7 million, compared to $5.7 million in the prior reporting period. A summary of the Group’s results is below: In thousands of AUD 2020 Net revenue EBITDA Depreciation of right-of-use assets Operating EBITDA¹ Depreciation and amortisation EBIT Net finance income Present value interest charge Profit before tax Income tax expense Profit after tax Non-controlling interests Net profit after tax before significant items Significant items Net profit after tax attributable to equity owners Earnings per share (basic) – pre significant items Earnings per share (basic) 135,825 29,230 (4,849) 24,381 (3,432) 20,949 217 (1,937) 19,229 (3,397) 15,832 (2,951) 2019 129,535 20,722 – 20,722 (3,275) 17,447 467 (1,153) 16,761 (2,297) 14,464 (2,413) 12,881 (2,174) 12,051 (6,390) 10,707 5,661 Cents per share Cents per share 15.0 12.5 14.2 6.7 Reconciliation of statutory profit after tax to Operating EBITDA In thousands of AUD 2020 2019 Net revenue EBITDA Depreciation of right-of-use assets Operating EBITDA¹ Depreciation of plant and equipment Amortisation of intangibles Net finance income Present value interest charge Contingent consideration fair value loss Statutory profit before tax Income tax expense Statutory profit after tax 135,825 29,230 (4,849) 24,381 (2,337) (1,095) 217 (1,937) (2,174) 17,055 (3,397) 13,658 129,535 20,722 – 20,722 (2,209) (1,066) 467 (1,153) (6,390) 10,371 (2,297) 8,074 1. Operating EBTIDA, as defined in the basis of preparation section on page 22, is used for comparability purposes between the periods in this transition year as operating lease rental expense is primarily replaced with depreciation of right-of-use assets. This is the first set of the Group’s annual financial statements in which AASB 16 Leases is applied. Under the transition method chosen, comparative information is not restated. The 30 June 2020 results are therefore not directly comparable to prior years. Changes to significant accounting policies and the impact of applying the new standards are described in Note 1(g). Significant items The Group incurred Contingent consideration fair value loss of $2,174,000 (2019: $6,390,000) relating to revaluation of future contingent consideration payable to the vendors of Eastwick Communications. Enero Group Limited Annual Report 2020 21 21 Enero Group Limited – Annual Report 2020 Directors’ Report DIRECTORS’ REPORT Geographical performance In thousands of AUD Net Revenue Australia UK and Europe USA Total Operating Brand Segment Operating EBITDA Australia UK and Europe USA Total Operating Brand Segment Support office Share-based payments charge Total Operating EBITDA margin Australia UK and Europe USA Total Operating Brand Segment Total Group 2020 2019 58,645 37,701 39,479 135,825 59,975 38,611 30,949 129,535 11,536 5,703 13,149 30,388 (5,443) (564) 24,381 19.7% 15.1% 33.3% 22.4% 18.0% 10,695 6,512 10,067 27,274 (5,822) (730) 20,722 17.8% 16.9% 32.5% 21.1% 16.0% 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. Cash flow – Operating activities Cash inflows from operating activities was $31.0 million (2019: $18.1 million). The increase in inflows was partially due to the exclusion of operating lease payments in the current financial year. The Group converted 116% of EBITDA to cash for the year ended 30 June 2020 (2019: 103%). The Group targets a cash conversion of 85% each financial year. Cash flow – Investing activities Cash outflows from investing activities was $13.3 million (2019: $1.7 million). The increase in outflows was due to the contingent consideration payments made during the current financial year with no payments made in the prior financial year. Cash flow – Financing activities Cash outflows from financing activities was $14.0 million (2019: $7.3 million). The increase in outflows was due to $6.5 million in lease liabilities recognised in financing activities in the current financial year. During the year, $4.7 million in dividends were paid to Enero Group Limited shareholders in addition to $2.3 million in dividends paid to minority shareholders of controlled subsidiaries. 22 22 Enero Group Limited Annual Report 2020 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. As at 30 June 2020, the Company’s estimated contingent consideration liability is $25.5 million. Reconciliation of carrying amounts of contingent consideration payable: In thousands of AUD 30 June 2019 Payments made Net revisions to estimates Present value interest/foreign exchange 30 June 2020 33,801 (11,923) 2,174 1,501 25,553 15,119 10,434 25,553 2020 47,581 – (25,553) 22,028 2019 43,831 (493) (33,801) 9,537 Maturity profile (at present value): FY2021 FY2022 Total Cash and Debt In thousands of AUD Cash and cash equivalents Hire purchase liabilities Contingent consideration liabilities Net cash¹ 1. Net cash excludes lease liabilities recognised as a result of the adoption of AASB16 Leases as they are considered operational liabilities. The Group has $22.0 million in net cash as at 30 June 2020. Apart from contingent consideration liabilities, the Group has no loans or borrowings. 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 of plant and equipment, amortisation of intangibles, impairment of intangibles, and contingent consideration fair value loss. Operating EBITDA, reconciled in the table on page 21, 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. 9 Directors’ and Executive Officers’ holdings of shares Subsidiary Executives; Company’s financial performance has driven remuneration directly with remuneration advisers. Remuneration Report – Audited Contents 1 Introduction report 2 Key Management Personnel (KMP) disclosed in this 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 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 2020. 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 outcomes. report 2 Key Management Personnel (KMP) disclosed in this 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 Ann Sherry(i) Susan McIntosh Anouk Darling David Brain Ian Rowden John Porter (ii) Executives Brendan York Fiona Chilcott Role Non-Executive Director (Chair) Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Chief Financial Officer Chief People and Culture Officer Former Executives Matthew Melhuish(iii) Chief Executive Officer and Executive Director (ii) John Porter resigned as Chairman and Director on 1 January 2020. 31 December 2019. (iii) Matthew Melhuish resigned as Director effective 23 December 2019 and as CEO effective 31 March 2020. 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 – 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 There were no services used from remuneration consultants during the year ended 30 June 2020. 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 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 – fixed remuneration: comprising base pay, benefits and – short-term incentive: comprising an annual cash bonus; superannuation; and – – – Enero Group Limited Annual Report 2020 23 (i) Ann Sherry was appointed as Chair and Director on currently has the following components: Non-Executive Director (Chairman) relevant Company’s performance; and Enero Group Limited – Annual Report 2020 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 2020. 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 Ann Sherry(i) Susan McIntosh Anouk Darling David Brain Ian Rowden John Porter (ii) Executives Brendan York Fiona Chilcott Role Non-Executive Director (Chair) Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director (Chairman) Chief Financial Officer Chief People and Culture Officer Former Executives Matthew Melhuish(iii) Chief Executive Officer and Executive Director (i) Ann Sherry was appointed as Chair and Director on 1 January 2020. (ii) John Porter resigned as Chairman and Director on 31 December 2019. (iii) Matthew Melhuish resigned as Director effective 23 December 2019 and as CEO effective 31 March 2020. 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: – – operation of the incentive plans which apply to the over-arching executive remuneration framework; 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 advisers. There were no services used from remuneration consultants during the year ended 30 June 2020. 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 2020 23 23 Enero Group Limited – Annual Report 2020 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 and/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(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), 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. 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 Operating EBITDA hurdles and Earning Per Share (EPS) growth hurdles set by the Remuneration and Nomination Committee. The hurdles are set each financial year determined by reference to business priorities. A component of the STI is also subject to the achievement of pre-determined KPI’s for the individual. 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 Operating EBITDA hurdles and Earnings Per Share (EPS) growth hurdles set by the Remuneration and Nomination Committee. The hurdles are set each financial year determined by reference to business priorities. A component of the STI is also subject to the achievement of pre-determined strategic objectives for the individual. 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 or a combination of the following structures: – an Operating EBITDA sharing arrangement such that the CEO and key senior leadership of that subsidiary are entitled to a share of Operating EBITDA agreed by the Remuneration and Nomination Committee each year. A component of the share of Operating 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 – an annual cash-based maximum short-term incentive payment of 70% of the Executive’s fixed remuneration determined by the achievement of net revenue hurdles. The 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, generally on a quarterly basis. 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. Long-term incentives (LTI): Plan (SARP) (see Note 29). 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 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. 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. Eligibility The plan allows for the Board to determine who is entitled to participate in the SARP and it Performance period The performance period for the LTI is generally three years. may grant rights accordingly. Rights 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. on the applicable vesting date. If A – B is less than or equal to zero, the share right will not vest and will immediately lapse Other conditions Cessation of employment will result in the lapsing of any unvested SARs. Rights expire at 15 business days after the relevant vesting date or the termination of the individual’s employment. 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: VWAP for the 20 business days prior to the 20 business days after the release of the Group financial report for the year ended: Issue date SARs issued Participants grant (B) Vesting dates: Tranche 1 (1/3rd) Tranche 2 (1/3rd) Tranche 3 (1/3rd) Last expiry date 30 June 2020. 19 October 2017 18 October 2018 24 October 2019 5,000,000 4,500,000 2,450,000 Senior Executives Senior Executives Senior Executives $1.04 $1.23 $2.13 30 June 2018 30 June 2019 30 June 2020 30 June 2019 30 June 2020 30 June 2021 30 June 2020 30 June 2021 30 June 2022 30 September 2020 30 September 2021 30 September 2022 Outstanding SARs as at 30 June 2020 1,016,670 1,800,000 2,100,000 Note: 2,000,000 SARs issued to the former CEO on 28 June 2019 were forfeited during the year, and are not on issue at 24 24 Enero Group Limited Annual Report 2020 Enero Group Limited Annual Report 2020 25 Enero Group Limited – Annual Report 2020 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. 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 (SARP) (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 SARP 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 (1/3rd) Tranche 2 (1/3rd) Tranche 3 (1/3rd) Last expiry date Outstanding SARs as at 30 June 2020 19 October 2017 5,000,000 Senior Executives 18 October 2018 4,500,000 Senior Executives 24 October 2019 2,450,000 Senior Executives $1.04 $1.23 $2.13 30 June 2018 30 June 2019 30 June 2020 30 September 2020 1,016,670 30 June 2019 30 June 2020 30 June 2021 30 September 2021 1,800,000 30 June 2020 30 June 2021 30 June 2022 30 September 2022 2,100,000 Note: 2,000,000 SARs issued to the former CEO on 28 June 2019 were forfeited during the year, and are not on issue at 30 June 2020. Enero Group Limited Annual Report 2020 25 25 Enero Group Limited – Annual Report 2020 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 2023 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 Officer (v) 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. (v) Brent Scrimshaw was appointed as CEO on 1 July 2020. 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 2020. 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 2020 and 30 June 2019: Base fees – annual Chairman Other Non-Executive Directors Committee fees – annual Audit and Risk Committee – Chair Remuneration and Nomination Committee – Chair 2020 $ 120,000 75,000 2019 S 120,000 75,000 10,000 10,000 10,000 10,000 Total remuneration paid to Non-Executive Directors for the year ending 30 June 2020 amounted to $435,000 (30 June 2019: $426,936), which is 58.0% of the annual aggregate cap. Remuneration details of Non-Executive Directors are set out in Section 7 Directors’ and Executive Officers’ remuneration. 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 employment benefits Post- Long-term Salary and fees Cash STI(i) Annual Long service Termination leave(ii) Superannuation leave(ii) benefit Share-based payments Value of Share Appreciation Rights (LTI)(iii) Proportion of total remuneration performance related(iv) % $ – – – – – – – – – – – – – – – – – – – Total $ 65,000 – 75,000 75,000 85,000 82,013 75,000 75,000 75,000 46,058 60,000 120,000 – 28,865 $ – – – – – – – – – – – – – – – – – – – – – – – – – – – – 14.52 48.32 45.76 49.00 40.17 43.96 $ – 65,000 68,493 68,493 77,626 74,898 75,000 75,000 75,000 46,058 60,000 120,000 – 26,361 $ – – – – – – – – – – – – – – $ – – – – – – – – – – – – – – 6,507 6,507 7,374 7,115 $ – – – – – – – – – 2,504 $ – – – – – – – – – – – – – – Non-Executive Directors Ann Sherry(v) Susan McIntosh Anouk Darling David Brain Ian Rowden(vi) John Porter(vii) Roger Amos(viii) Executive Director Matthew Melhuish(ix) Director and CEO Executives Brendan York(xi) Chief Financial Officer Fiona Chilcott(x) (xi) Chief People and Culture Officer 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 618,750 95,635 (19,048) 800,000 492,319 (30,744) 21,003 20,531 (9,191) 14,971 188,269 40,272 935,690 260,149 1,557,226 375,000 181,791 350,000 222,319 1,682 1,609 2020 488,372 181,791 (2,981) 2019 437,601 222,319 (1,101) 21,003 20,531 21,003 20,531 6,829 6,795 1,759 821 159,437 745,742 141,690 742,944 159,437 849,381 136,902 817,073 (i) The short-term incentive bonus is for performance during the 30 June 2020 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) 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. (iii) 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. (iv) Percentages are based on total remuneration, including equity, cash, post-employment benefits and other compensation. (v) Ann Sherry was appointed as Chair and Director on 1 January 2020. (vi) Ian Rowden was appointed as Director on 21 November 2018. (vii) John Porter resigned as Chairman and Director on 31 December 2019. (viii) Roger Amos resigned as Director on 18 October 2018. (ix) Mathew Melhuish resigned as Director on 23 December 2019 and as CEO on 31 March 2020. (x) Fiona Chilcott was seconded to the USA from 6 August 2018 to 14 January 2020; the remuneration disclosures for this period represent the USD compensation components converted to AUD at average exchange rates for the relevant year. (xi) Brendan York and Fiona Chilcott were appointed Acting Co-CEOs for the period 1 April 2020 to 30 June 2020 and were paid an allowance of $25,000 each for the acting period. (xii) Executives receive salary continuance insurance cover. There are no other benefits offered by the Company. 7(b) Performance-related remuneration on page 24. Details of the Company’s policy in relation to the proportion of remuneration that is performance-based are discussed 26 26 Enero Group Limited Annual Report 2020 Enero Group Limited Annual Report 2020 27 Enero Group Limited – Annual Report 2020 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 STI(i) $ Annual leave(ii) Superannuation $ $ Long service leave(ii) $ Termination benefit $ Value of Share Appreciation Rights (LTI)(iii) $ Non-Executive Directors Ann Sherry(v) Susan McIntosh Anouk Darling David Brain Ian Rowden(vi) John Porter(vii) Roger Amos(viii) Executive Director Matthew Melhuish(ix) Director and CEO Executives Brendan York(xi) Chief Financial Officer Fiona Chilcott(x) (xi) Chief People and Culture Officer 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 65,000 – 68,493 68,493 77,626 74,898 75,000 75,000 75,000 46,058 60,000 120,000 – 26,361 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 6,507 6,507 7,374 7,115 – – – – – – – 2,504 – – – – – – – – – – – – – – 618,750 95,635 (19,048) 800,000 492,319 (30,744) 21,003 20,531 (9,191) 14,971 375,000 181,791 350,000 222,319 1,682 1,609 2020 488,372 181,791 (2,981) 2019 437,601 222,319 (1,101) 21,003 20,531 21,003 20,531 6,829 6,795 1,759 821 Proportion of total remuneration performance related(iv) % – – – – – – – – – – – – – – Total $ 65,000 – 75,000 75,000 85,000 82,013 75,000 75,000 75,000 46,058 60,000 120,000 – 28,865 – – – – – – – – – – – – – – – – – – – – – – – – – – – – 188,269 40,272 935,690 – – – – – 260,149 1,557,226 159,437 745,742 141,690 742,944 159,437 849,381 136,902 817,073 14.52 48.32 45.76 49.00 40.17 43.96 (i) The short-term incentive bonus is for performance during the 30 June 2020 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) 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. (iii) 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. (iv) Percentages are based on total remuneration, including equity, cash, post-employment benefits and other compensation. (v) Ann Sherry was appointed as Chair and Director on 1 January 2020. (vi) Ian Rowden was appointed as Director on 21 November 2018. (vii) John Porter resigned as Chairman and Director on 31 December 2019. (viii) Roger Amos resigned as Director on 18 October 2018. (ix) Mathew Melhuish resigned as Director on 23 December 2019 and as CEO on 31 March 2020. (x) Fiona Chilcott was seconded to the USA from 6 August 2018 to 14 January 2020; the remuneration disclosures for this period represent the USD compensation components converted to AUD at average exchange rates for the relevant year. (xi) Brendan York and Fiona Chilcott were appointed Acting Co-CEOs for the period 1 April 2020 to 30 June 2020 and were paid an allowance of $25,000 each for the acting period. (xii) 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 2020 27 27 Enero Group Limited – Annual Report 2020 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. In the reporting period, the Operating EBITDA hurdles and EPS growth hurdles performance measures are equally weighted in determining the percentage of fixed remuneration payable as a cash STI. The agreed strategic objectives are assessed using the average percentage of fixed remuneration of the Operating EBITDA hurdles and EPS growth hurdles and then applied against individual categories. Short-term incentive bonus(i) Metric Maximum STI $ Actual STI included in remuneration $(iii) Actual STI as % of maximum STI STI forfeited as % of maximum STI Actual STI as a % of fixed remuneration(ii) % vested in year Company Executives Matthew Melhuish(iv) Brendan York Fiona Chilcott Operating EBITDA hurdles and EPS growth hurdles. Operating EBITDA hurdles and EPS growth hurdles. Operating EBITDA hurdles and EPS growth hurdles. 412,426 100,886 241,152 181,791 241,152 181,791 24% 75% 75% 76% 25% 25% 16% 100 49% 100 49% 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. (iii) Actual STI included in remuneration includes any superannuation contribution amounts. (iv) Represents pro rata STI for period through to 31 March 2020. 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 2020 Number of rights granted during 2020 Fair value per right at grant date $ Grant date VWAP (for the 20 business days prior to the grant) $ Expiry date (ii) Company Executives Brendan York Fiona Chilcott SAR SAR 350,000 350,000 24 Oct 2019 24 Oct 2019 0.26 – 0.46 0.26 – 0.46 2.13 2.13 30 Sept 2022 30 Sept 2022 (i) 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 profiles 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 Company Executives Brendan York 600,000 SAR 19 Oct 2017 900,000 SAR 18 Oct 2018 350,000 SAR 24 Oct 2019 Fiona Chilcott 600,000 SAR 19 Oct 2017 900,000 SAR 18 Oct 2018 350,000 SAR 24 Oct 2019 33 33 – 33 33 – 33 33 – 33 33 – 33 67 100 33 67 100 Vesting date(i) 30 Sep 2020 30 Sep 2020 and 30 Sep 2021 30 Sep 2020, 30 Sep 2021 and 30 Sep 2022 30 Sep 2020 30 Sep 2020 and 30 Sep 2021 30 Sep 2020, 30 Sep 2021 and 30 Sep 2022 (i) The dates reflected in the table above represent all of the vesting dates for each remaining 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. Director Executives Brendan York Fiona Chilcott 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 Granted as held at remuneration Granted held at Vested during 1 Jul 2019 in year Cancelled Exercised 30 Jun 2020 the year 30 Jun 2020 $ Value of Value of rights rights Vested and granted exercised exercisable during during the at the year year $ Matthew Melhuish 4,466,667 – (3,533,334) (933,333) – 933,333 – – 183,467 1,300,000 1,300,000 350,000 350,000 – – (500,000) (500,000) 1,150,000 500,000 1,150,000 500,000 – 126,817 – 126,817 97,900 97,900 No share-based payments held by KMP are vested but not exercisable at 30 June 2020. 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: 1 July 2019 Purchases remuneration rights Sales 30 June 2020 Issued as Received on exercise of Directors Ann Sherry(i) Susan McIntosh Anouk Darling David Brain Ian Rowden John Porter(ii) Matthew Melhuish(ii) Executives Brendan York Fiona Chilcott Held at 18,750 122,223 19,607 75,000 – 270,833 1,712,747 287,892 – 60,000 – – – – – – – – – – – – – – 359,436 – – – – – – – – – Held at 18,750 122,223 19,607 75,000 60,000 270,833 2,072,183 – – – – – – – 194,709 194,709 (118,953) (97,000) 363,648 97,709 (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 reporting date. No loans to Key Management Personnel and their related parties were made during the year or were outstanding at the 28 28 Enero Group Limited Annual Report 2020 Enero Group Limited Annual Report 2020 29 Enero Group Limited – Annual Report 2020 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 2019 Granted as remuneration in year Cancelled Exercised Granted held at 30 Jun 2020 Vested during the year Vested and exercisable at 30 Jun 2020 Value of rights granted during the year $ Value of rights exercised during the year $ Director Matthew Melhuish 4,466,667 – (3,533,334) (933,333) – 933,333 – – 183,467 Executives Brendan York Fiona Chilcott 1,300,000 1,300,000 350,000 350,000 – – (500,000) (500,000) 1,150,000 500,000 1,150,000 500,000 – 126,817 – 126,817 97,900 97,900 No share-based payments held by KMP are vested but not exercisable at 30 June 2020. 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 Ann Sherry(i) Susan McIntosh Anouk Darling David Brain Ian Rowden John Porter(ii) Matthew Melhuish(ii) Executives Brendan York Fiona Chilcott Held at 1 July 2019 Purchases Issued as remuneration Received on exercise of rights Sales Held at 30 June 2020 18,750 122,223 19,607 75,000 – 270,833 1,712,747 287,892 – – – – – 60,000 – – – – – – – – – – – – – – – – – – – 359,436 – – – – – – – 18,750 122,223 19,607 75,000 60,000 270,833 2,072,183 194,709 194,709 (118,953) (97,000) 363,648 97,709 (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 2020 29 29 Enero Group Limited – Annual Report 2020 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 ($’000) 30 June 2020 30 June 2019 30 June 2018 30 June 2017 30 June 2016 135,825 24,381 17.95% 129,535 20,722 16.00% 103,685 13,513 13.03% 100,172 10,364 10.35% 113,488 13,220 11.65% 12,881 12,051 7,846 4,893 6,584 Earnings Per Share pre significant items (cps) Earnings Per Share pre significant items growth (%) Earnings Per Share basic (cps) Total Dividends Per Share (cps)(i) Opening share price (1 July) ($) Closing share price (30 June) ($) 15.0 6% 12.5 6.0 1.49 1.40 14.2 53% 6.7 5.5 1.06 1.42 9.3 58% 10.1 4.0 1.03 1.06 5.9 (26%) 2.2 5.0 1.25 1.04 8.0 321% 8.0 – 0.71 1.25 (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 correlate remuneration of KMPs with future shareholder wealth. The Remuneration and Nomination Committee considers the achievement of financial targets (Operating EBITDA hurdles and EPS growth hurdles) as well as non-financial measures (strategic objectives) in setting the short-term incentives. Short-term incentives have been set by the Remuneration and Nomination Committee based on achievement of certain Operating EBITDA and EPS targets, which align remuneration with increases in profitability. The non-financial measures of the short-term incentives require achievement of financial targets before being assessed for payment. 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. The SAR plan aligns remuneration with share price performance because it only rewards KMPs for increases in the share price over the vesting period in addition to completing a service period. 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 6% increase in EPS (pre significant items) year on year; increase in USA market presence, which was identified as a key strategic objective; 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 30 Enero Group Limited Annual Report 2020 In thousands of AUD Note 2020 2019 Consolidated income statement for the year ended 30 June 2020 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 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) * The Group has initially applied AASB 16 at 1 July 2019, using the modified retrospective approach. Under this approach, comparative information is not restated and the cumulative effect of initially applying AASB 16 is recognised in retained earnings at the date of initial application. The notes on pages 36 to 69 are an integral part of these consolidated financial statements. 3 3 3 13 4 5 18 18 268,741 (132,916) 135,825 1,157 (93,622) (2,001) (1,480) (2,083) (1,618) (8,281) (6,948) (2,174) 269 (1,989) 17,055 (3,397) 13,658 10,707 2,951 13,658 12.5 12.3 230,032 (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 Enero Group Limited Annual Report 2020 31 Enero Group Limited – Annual Report 2020 Consolidated income statement for the year ended 30 June 2020 CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 30 JUNE 2020 In thousands of AUD Note 2020 2019 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 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) 3 3 3 13 4 5 18 18 268,741 (132,916) 135,825 1,157 (93,622) (2,001) (1,480) (2,083) (1,618) (8,281) (6,948) (2,174) 269 (1,989) 17,055 (3,397) 13,658 10,707 2,951 13,658 12.5 12.3 230,032 (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 * The Group has initially applied AASB 16 at 1 July 2019, using the modified retrospective approach. Under this approach, comparative information is not restated and the cumulative effect of initially applying AASB 16 is recognised in retained earnings at the date of initial application. The notes on pages 36 to 69 are an integral part of these consolidated financial statements. Enero Group Limited Annual Report 2020 31 31 Enero Group Limited – Annual Report 2020 Consolidated statement of comprehensive income for the year ended 30 June 2020 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2020 Consolidated statement of changes in equity for the year ended 30 June 2020 In thousands of AUD Note capital reserve reserve subsidiary reserve Total interests Share (Accumulated appropriation payment interest in translation Opening balance at 1 July 2018 96,656 25,235 12,106 (1,417) (19,767) 114,240 832 115,072 Non- controlling Total equity Attributable to owners of the Company Share- based Reserve change in ownership Foreign currency Profit 17 17 756 – – (4,280) (756) – 730 – – – – 730 (4,280) (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 Opening balance at 1 July 2019 97,412 6,955 20,955 12,080 (1,417) (18,354) 117,631 1,731 119,362 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 Adjustment on initial application of AASB 16 (net of tax) 1(g) 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 reserve Transfer to profit appropriation Dividends paid to equity holders 17 Share-based payment expense Retained profits/ losses) 1,427 (133) 5,661 – 5,661 (1,057) 10,707 10,707 – – – – – – – – – – – – – – – – – – – – (133) 5,661 – 2,413 (133) 8,074 1,413 1,413 48 1,461 1,413 7,074 2,461 9,535 – – (1,057) 10,707 (28) 2,951 (1,085) 13,658 (489) (489) 13 (476) (489) 10,218 2,964 13,182 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 17 2,103 – (2,103) (16,988) 16,988 (4,734) – 564 – – – – – – 564 – – – – – 564 (4,734) (2,312) (7,046) Closing balance at 30 June 2020 99,515 (383) 33,209 10,541 (1,417) (18,843) 122,622 2,355 124,977 * The Group has initially applied AASB 16 at 1 July 2019, using the modified retrospective approach. Under this approach, comparative information is not restated and the cumulative effect of initially applying AASB 16 is recognised in retained earnings at the date of initial application. The notes on pages 36 to 69 are an integral part of these consolidated financial statements. 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 2020 13,658 (476) (476) (476) 13,182 10,218 2,964 13,182 2019 8,074 1,461 1,461 1,461 9,535 7,074 2,461 9,535 * The Group has initially applied AASB 16 at 1 July 2019, using the modified retrospective approach. Under this approach, comparative information is not restated and the cumulative effect of initially applying AASB 16 is recognised in retained earnings at the date of initial application. The notes on pages 36 to 69 are an integral part of these consolidated financial statements. 32 Enero Group Limited Annual Report 2020 32 Enero Group Limited Annual Report 2020 33 Enero Group Limited – Annual Report 2020 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Consolidated statement of changes in equity for the year ended 30 June 2020 FOR THE YEAR ENDED 30 JUNE 2020 Attributable to owners of the Company Retained profits/ (Accumulated losses) Profit appropriation reserve Share- based payment reserve Reserve change in ownership interest in subsidiary Foreign currency translation reserve Non- controlling interests Total Total equity 1,427 25,235 12,106 (1,417) (19,767) 114,240 832 115,072 Share capital 96,656 – – – – In thousands of AUD Note Opening balance at 1 July 2018 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 – – – – – – – – 17 17 756 – – – – – – (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 Opening balance at 1 July 2019 97,412 6,955 20,955 12,080 (1,417) (18,354) 117,631 1,731 119,362 Adjustment on initial application of AASB 16 (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 Transfer to profit appropriation reserve Dividends paid to equity holders Share-based payment expense 1(g) – – – – (1,057) 10,707 – 10,707 – – – – – – – – 17 2,103 – – (2,103) 17 – – – (16,988) – – 16,988 (4,734) – – – 564 – – – – – – – – – – (1,057) 10,707 (28) 2,951 (1,085) 13,658 (489) (489) 13 (476) (489) 10,218 2,964 13,182 – – – – – – – – (4,734) 564 – (2,312) – – (7,046) 564 Closing balance at 30 June 2020 99,515 (383) 33,209 10,541 (1,417) (18,843) 122,622 2,355 124,977 * The Group has initially applied AASB 16 at 1 July 2019, using the modified retrospective approach. Under this approach, comparative information is not restated and the cumulative effect of initially applying AASB 16 is recognised in retained earnings at the date of initial application. The notes on pages 36 to 69 are an integral part of these consolidated financial statements. Enero Group Limited Annual Report 2020 33 33 Enero Group Limited – Annual Report 2020 Consolidated statement of financial position as at 30 June 2020 CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2020 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 Right-of-use assets Other assets Intangible assets Total non-current assets Total assets Liabilities Trade and other payables Contingent consideration payable Lease liabilities Employee benefits Income tax payable Provisions Total current liabilities Contingent consideration payable Lease liabilities Employee benefits Provisions Total non-current liabilities Total liabilities Net assets Equity Issued capital Other reserves Profit appropriation reserve Retained profits/(Accumulated losses) Total equity attributable to equity holders of the parent Non-controlling interests Total equity Consolidated statement of cash flows for the year ended 30 June 2020 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 sale of plant and equipment Acquisition of plant and equipment Contingent consideration paid Net cash used in investing activities Cash flows from financing activities Payment of lease liabilities Payment of hire purchase liabilities 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 285,864 (251,828) 241,791 (220,458) 34,036 269 (3,258) (52) 30,995 10 (1,406) (11,923) (13,319) (6,486) (493) (4,734) (2,312) (14,025) 3,651 99 43,831 47,581 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 6 13 14 14 17 6 * The Group has initially applied AASB 16 at 1 July 2019, using the modified retrospective approach. Under this approach, comparative information is not restated and the cumulative effect of initially applying AASB 16 is recognised in retained earnings at the date of initial application. ** The application of AASB 16 has led to operating lease payments previously included in cash from operating activities being now included as payments of lease liabilities within financing activities. The net cash from operating activities and net cash used in financing activities for the current period have each increased by $6,486,000. The notes on pages 36 to 69 are an integral part of these consolidated financial statements. Note 2020 2019 Note 2020 2019 6 7 8 5 5 9 10 8 11 2 12 13 14 15 5 16 13 14 15 16 2 17 47,581 34,611 3,761 – 85,953 2,636 4,951 11,759 188 109,102 128,636 214,589 42,242 15,119 6,384 3,732 358 – 67,835 10,434 10,523 820 – 21,777 89,612 124,977 99,515 (9,719) 33,209 (383) 122,622 2,355 124,977 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 * The Group has initially applied AASB 16 at 1 July 2019, using the modified retrospective approach. Under this approach, comparative information is not restated and the cumulative effect of initially applying AASB 16 is recognised in retained earnings at the date of initial application. The notes on pages 36 to 69 are an integral part of these consolidated financial statements. 34 Enero Group Limited Annual Report 2020 34 Enero Group Limited Annual Report 2020 35 Enero Group Limited – Annual Report 2020 Consolidated statement of cash flows for the year ended 30 June 2020 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2020 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 sale of plant and equipment Acquisition of plant and equipment Contingent consideration paid Net cash used in investing activities Cash flows from financing activities Payment of lease liabilities Payment of hire purchase liabilities 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 Note 2020 2019 285,864 (251,828) 241,791 (220,458) 34,036 269 (3,258) (52) 30,995 10 (1,406) (11,923) (13,319) (6,486) (493) (4,734) (2,312) (14,025) 3,651 99 43,831 47,581 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 6 13 14 14 17 6 * The Group has initially applied AASB 16 at 1 July 2019, using the modified retrospective approach. Under this approach, comparative information is not restated and the cumulative effect of initially applying AASB 16 is recognised in retained earnings at the date of initial application. ** The application of AASB 16 has led to operating lease payments previously included in cash from operating activities being now included as payments of lease liabilities within financing activities. The net cash from operating activities and net cash used in financing activities for the current period have each increased by $6,486,000. The notes on pages 36 to 69 are an integral part of these consolidated financial statements. Enero Group Limited Annual Report 2020 35 35 Enero Group Limited – Annual Report 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements for the year ended 30 June 2020 FOR THE YEAR ENDED 30 JUNE 2020 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. Right-of-use assets 11. Intangible assets 12. Trade and other payables 13. Contingent consideration payable 14. Lease liabilities 15. Employee benefits 16. Provisions Capital 17. Capital and reserves 18. Earnings per share Risk 19. Financial risk management/financial instruments 20. Financing arrangements 21. Impairment of non-financial assets Group structure 22. Controlled entities 23. Parent entity disclosures 24. Deed of Cross Guarantee Unrecognised items 25. Commitments 26. Contingencies Other items 27. Subsequent events 28. Key Management Personnel and other related party disclosures 29. Share-based payments 30. Auditor’s remuneration Page 1. Basis of preparation 37 39 42 43 44 46 47 47 48 49 50 51 51 52 52 53 54 55 56 60 61 62 64 65 66 66 66 66 67 69 together with any key judgements and estimates used. Further information about critical accounting estimates and judgements made is included in the following notes: In preparing these financial statements, the notes have been grouped into sections under certain key headings. Each section sets out the accounting policies applied (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 2020 comprise the Company and its subsidiaries (together referred to as the ‘Group’). The financial statements for the year ended 30 June 2020 were authorised for issue in accordance with a resolution of the Directors on 26 August 2020. (b) Statement of compliance The consolidated financial statements are a general purpose financial report which has been prepared in accordance with Australian Accounting Standards the Australian Accounting Standards Board (‘AASB’) and the Corporations Act 2001. The consolidated financial statements comply with International Financial Reporting Standards (IFRS) and interpretations (IFRICs) adopted by the International Accounting Standards Board (IASB). 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. 3. Revenue • • 5. Income tax expense and deferred tax • 10. Right-of-use assets • 13. Contingent consideration payables • 14. Lease liabilities • 19. Financial risk management/financial instruments (Trade receivables) • 21. Impairment of non-financial assets • 29. Share-based payments (iv) Measurement of fair values A number of the Group’s accounting policies and 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 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 (‘AASBs’) (including Australian Interpretations) adopted by disclosures require the measurement of fair values, for (c) Basis of preparation (i) Basis of measurement Note 1(c)(iv). The consolidated financial statements are prepared on the identical assets or liabilities; historical cost basis except for the items as described in 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 the entire measurement. continue its operations and be able to meet its obligations The Group recognises transfers between levels of the fair as and when they become due and payable. This value hierarchy at the end of the reporting period during assumption is based on an analysis of the Group’s ability to which the change has occurred. meet its future cash flow requirements using its projected cash flows from operations and existing cash reserves held Further information about the assumptions made in measuring fair values is included in the following notes: as at 30 June 2020. (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, • 13. Contingent consideration payables • 19. Financial instruments (cash flow hedges) • 29. Share-based payments (d) Foreign currency (i) Functional and presentation currency income and expenses. Actual results may differ from these estimates. The estimates and associated assumptions are The consolidated financial statements are presented in Australian dollars, which is the Company’s functional 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. currency. 36 36 Enero Group Limited Annual Report 2020 Enero Group Limited Annual Report 2020 37 Enero Group Limited – Annual Report 2020 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 2020 comprise the Company and its subsidiaries (together referred to as the ‘Group’). The financial statements for the year ended 30 June 2020 were authorised for issue in accordance with a resolution of the Directors on 26 August 2020. (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 (IFRICs) 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 30 June 2020. (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 • • • 10. Right-of-use assets • 13. Contingent consideration payables • 14. Lease liabilities • 19. Financial risk management/financial instruments (Trade receivables) • 21. Impairment of non-financial assets • 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: • 13. Contingent consideration payables • 19. Financial instruments (cash flow hedges) • 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 2020 37 37 Enero Group Limited – Annual Report 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements for the year ended 30 June 2020 FOR THE YEAR ENDED 30 JUNE 2020 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 AASB 16 Leases (‘AASB 16’) introduced a single, on- balance sheet accounting model for lessees. As a result, the Group, as a lessee, has recognised right-of-use assets representing its right to use the underlying assets and lease liabilities representing its obligation to make lease payments. AASB 16 requires the Group to recognise substantially all of its operating leases on the statement of financial position. The Group has applied AASB 16 using the modified retrospective approach, under which the cumulative effect of initial application is recognised in retained earnings at 1 July 2019. Accordingly, the comparative information presented for the period 1 July 2018 to 30 June 2019 has not been restated – it is presented, as previously reported, under AASB 117 and related interpretations. The following table summarises the impact, net of tax, on transition to AASB 16 on the opening balance of retained earnings at 1 July 2019: In thousands of AUD Retained earnings Lease liabilities recognised Right-of-use assets recognised Reduction in provisions relating to property leases Deferred tax asset recognised Impact, net of tax Equity holders of the parent Non-controlling interests Impact, net of tax (22,498) 16,481 4,512 420 (1,085) (1,057) (28) (1,085) At transition, the lease liabilities were measured at the present value of remaining lease payments using the Group’s incremental borrowing rates of 3.8% to 5.1% as at 1 July 2019. The right-of-use assets were measured at their carrying amount as if AASB 16 has been applied since the lease commencement date and discounted using Group’s incremental borrowing rate as at 1 July 2019. The Group used following practical expedients on transition to AASB 16: • the Group elected to grandfather the assessment of which transactions are leases. It applied AASB 16 only to transactions that were previously defined as leases. Contracts that were not identified as leases under AASB 117 and Interpretation 4 were not reassessed. Therefore, the definition of a lease under AASB 16 has been applied only to contracts entered into or changed from 1 July 2019; and • the Group applied the exemption not to recognise right-of-use assets and lease liabilities for leases of low value or with lease terms with less than 12 months remaining at 1 July 2019. (ii) New Standards and interpretations not yet adopted 2. Operating segments A number of new standards, amendments to standards and interpretations are effective for annual periods beginning after 1 July 2020, 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 The Group defines its operating segments based on the manner in which services are provided in the operational geographies and on internal reporting regularly reviewed by the Enero Executive team on a monthly basis, who are the Group’s chief operating decision makers (CODM). the amount in question is significant because of its Frank and CPR; and financial statements. (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: size or nature; Group; it is important for understanding the results of the 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. resources. The notes are organised into the following sections: Revenues are all derived from marketing and communication services centered on three key service competencies, which are similar in the nature of services and outputs, operate in similar economic environments and have a comparable customer mix: • Creative and Content – BMF; • PR and Integrated Communications – Hotwire, • Digital, Data, Analytics and Technology – Orchard, The Leading Edge, The Digital Edge and OBMedia. The CODM have determined that the service competencies are one operating segment (Operating Brands segment) based on internal reporting used by the CODM for performance assessment and determining the allocation of The measure of reporting to the Enero Executive team 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 of plant and equipment, amortisation of intangibles, impairment of intangibles, and contingent consideration fair value loss. 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. • • • • • • • • • 38 38 Enero Group Limited Annual Report 2020 Enero Group Limited Annual Report 2020 39 Enero Group Limited – Annual Report 2020 (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 2020, 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. (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. 2. Operating segments The Group defines its operating segments based on the manner in which services are provided in the operational geographies and on internal reporting regularly reviewed by the Enero Executive team on a monthly basis, who are the Group’s chief operating decision makers (CODM). all are derived Revenues and communication services centered on three key service competencies, which are similar in the nature of services and outputs, operate in similar economic environments and have a comparable customer mix: from marketing • Creative and Content – BMF; • PR and Integrated Communications – Hotwire, Frank and CPR; and • Digital, Data, Analytics and Technology – Orchard, The Leading Edge, The Digital Edge and OBMedia. The CODM have determined that the service competencies are one operating segment (Operating Brands segment) internal reporting used by the CODM for based on performance assessment and determining the allocation of resources. The measure of reporting to the Enero Executive team 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 of plant and equipment, amortisation of intangibles, and contingent impairment of intangibles, consideration fair value loss. Enero Group Limited Annual Report 2020 39 39 Enero Group Limited – Annual Report 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements for the year ended 30 June 2020 FOR THE YEAR ENDED 30 JUNE 2020 2. Operating segments (continued) 2020 In thousands of AUD Gross revenue Directly attributable cost of sales Net revenue Other income Operating expenses EBITDA Depreciation of right-of-use assets Operating EBITDA Depreciation of plant and equipment and amortisation of intangibles 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 2019 In thousands of AUD Gross revenue Directly attributable cost of sales Net revenue Other income Operating expenses Operating EBITDA Depreciation of plant and equipment and amortisation of intangibles 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 * All segments are continuing operations. Operating Brands 268,741 (132,916) 135,825 1,157 (101,274) 35,708 Total segment 268,741 (132,916) 135,825 1,157 (101,274) 35,708 Unallocated – – – – (6,478) (6,478) Eliminations Consolidated 268,741 (132,916) 135,825 1,157 (107,752) 29,230 (4,849) 24,381 – – – – – – – (2,174) (2,174) – – (3,432) (2,174) (1,720) 17,055 (3,397) 13,658 107,997 1,105 105,487 214,589 89,612 89,612 1,095 7,186 1,406 – – 49,444 49,444 12,660 12,660 – 394 229 – – (4,381) (4,381) (4,381) (4,381) – – – 107,997 1,105 60,424 169,526 81,333 81,333 1,095 6,792 1,177 Operating Brands 230,032 (100,497) 129,535 107 (102,368) 27,274 107,997 1,105 60,424 169,526 81,333 81,333 1,095 6,792 1,177 Total segment 230,032 (100,497) 129,535 107 (102,368) 27,274 Unallocated – – – 17 (6,569) (6,552) Eliminations Consolidated 230,032 (100,497) 129,535 124 (108,937) 20,722 – – – – – – (6,390) (6,390) – – 108,208 2,176 56,368 166,752 74,500 74,500 1,066 1,379 1,380 108,208 2,176 56,368 166,752 74,500 74,500 1,066 1,379 1,380 – – 42,699 42,699 15,589 15,589 – 830 320 – – (7,561) (7,561) (7,561) (7,561) – – – (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 The operating segments are managed on a worldwide basis. However, there are three geographic areas of operation. Geographical segments Geographical information In thousands of AUD Australia 2020 Net Revenue Operating EBITDA Operating EBITDA margin 58,645 11,536 19.7% In thousands of AUD Australia 2019 Net Revenue Operating EBITDA Operating EBITDA margin 59,975 10,695 17.8% UK and Europe 37,701 5,703 15.1% UK and Europe 38,611 6,512 16.8% USA 39,479 13,149 33.3% USA 30,949 10,067 32.5% Support Office(ii) Unallocated intangibles(i) Support Office(ii) Unallocated intangibles(i) (6,007) (6,552) – – – – – – Total 135,825 24,381 17.9% Total 129,535 20,722 16.0% – – – – – – Non-current assets 11,934 4,927 2,673 109,102 128,636 Non-current assets 6,220 1,169 1,144 110,384 118,917 (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 allocated across geographical segments. (ii) Support office includes the share-based payment charge in the income statement. Major Customer Accounting policy 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 2020 (2019: 11.6%). The Group determines and presents operating segments based on the information that is provided internally to the Enero Executive team, who are the Group’s chief operating decision makers (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’ results are regularly reviewed by the Group’s CODM to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available. be allocated on a reasonable basis. Segment results that are reported to the CODM include items directly attributable to a segment, as well as those that can Unallocated items comprise corporate overheads: costs associated with the centralised management and governance of Enero Group Limited, such as share-based payments charge, 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. 40 40 Enero Group Limited Annual Report 2020 Enero Group Limited Annual Report 2020 41 Enero Group Limited – Annual Report 2020 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 2020 Net Revenue Operating EBITDA Operating EBITDA margin Australia 58,645 11,536 19.7% UK and Europe 37,701 5,703 15.1% USA 39,479 13,149 33.3% Support Office(ii) Unallocated intangibles(i) – (6,007) – – – – Total 135,825 24,381 17.9% Non-current assets 11,934 4,927 2,673 – 109,102 128,636 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(ii) Unallocated intangibles(i) – (6,552) – – – – Total 129,535 20,722 16.0% Non-current assets 6,220 1,169 1,144 – 110,384 118,917 (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 allocated across geographical segments. (ii) Support office includes the share-based payment charge in the income statement. 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 2020 (2019: 11.6%). Accounting policy The Group determines and presents operating segments based on the information that is provided internally to the Enero Executive team, who are the Group’s chief operating decision makers (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’ results are regularly reviewed by the Group’s CODM 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 CODM 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 share-based payments charge, 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. Enero Group Limited Annual Report 2020 41 41 Enero Group Limited – Annual Report 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements for the year ended 30 June 2020 FOR THE YEAR ENDED 30 JUNE 2020 3. Revenue In thousands of AUD Gross revenue from the rendering of services Directly attributable cost of sales Net revenue 2020 268,741 (132,916) 135,825 2019 230,032 (100,497) 129,535 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. 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 fees for services. In thousands of AUD Australia UK and Europe USA Total Operating Brands segment 2020 58,645 37,701 39,479 135,825 2019 59,975 38,611 30,949 129,535 Contract balances The following table provides information about receivables, contract assets and contract liabilities from contracts with customers. Accounting policy (i) Interest income In thousands of AUD Trade receivables Contract assets – Work in progress Contract liabilities – Unearned revenue Note 7 8 12 2020 34,834 1,513 (13,496) 22,851 2019 34,081 2,475 (12,767) 23,789 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 are 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. 4. Finance costs In thousands of AUD Interest and finance costs Hire purchase interest Lease present value interest Finance costs Contingent consideration present value interest 2020 47 5 1,181 756 1,989 2019 36 71 1,153 – 1,260 Foreign exchange gain of $187,000 (2019: gain of $141,000) has been recognised in the consolidated income statement and has been included in administration expenses. Interest income is recognised as it accrues to the related financial asset using the effective interest method. (ii) Interest and finance costs/Hire purchase 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) Contingent consideration 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. (iv) Lease 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 lease liabilities recognised for contracts that contain leases. 42 42 Enero Group Limited Annual Report 2020 Enero Group Limited Annual Report 2020 43 Enero Group Limited – Annual Report 2020 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 Hire purchase interest Contingent consideration present value interest Lease present value interest Finance costs 2020 47 5 1,181 756 1,989 2019 36 71 1,153 – 1,260 Foreign exchange gain of $187,000 (2019: gain of $141,000) 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/Hire purchase 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) Contingent consideration 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. (iv) Lease 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 lease liabilities recognised for contracts that contain leases. Enero Group Limited Annual Report 2020 43 43 Enero Group Limited – Annual Report 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements for the year ended 30 June 2020 FOR THE YEAR ENDED 30 JUNE 2020 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% (2019: 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 2020 3,292 (136) 3,156 241 241 3,397 13,658 3,397 17,055 5,117 169 _ 354 652 (1,751) (914) (136) (94) 3,397 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 Current taxes The Group has a net current tax payable of $358,000 (2019: $453,000). The net current tax payable is comprised of current tax payables of $358,000 (2019: $507,000) and current tax receivables of $Nil (2019: $54,000). 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 Leases 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 2020 3,653 1,143 497 1,325 13 80 6,711 3,653 297 116 9 4,075 2,636 2019 3,653 1,169 601 1,155 47 104 6,729 3,653 485 88 44 4,270 2,459 Movement in deferred tax balances Except for the AASB16 opening transition adjustment of $420,000 recognised as a deferred tax asset, the movement in deferred tax balances during the year was 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: 2020 9,443 207,514 216,957 2019 15,184 207,513 222,697 In thousands of AUD Revenue losses Capital losses Gross tax losses carried forward Accounting policy in other comprehensive income. 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 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 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 simultaneously. 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. 44 44 Enero Group Limited Annual Report 2020 Enero Group Limited Annual Report 2020 45 Enero Group Limited – Annual Report 2020 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 2020 9,443 207,514 216,957 2019 15,184 207,513 222,697 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 2020 45 45 Enero Group Limited – Annual Report 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements for the year ended 30 June 2020 FOR THE YEAR ENDED 30 JUNE 2020 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 2020 34,447 13,134 47,581 2019 24,610 19,221 43,831 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 $2,128,000 for indemnity guarantee facilities (see Note 20 Financing arrangements). 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 19 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 plant and equipment Share-based payments expense Depreciation of plant and equipment Depreciation of right-of-use assets Amortisation of identifiable intangibles Contingent consideration fair value loss Contingent consideration present value interest Lease present value interest Decrease in income taxes payable (net) Decrease/(increase) in deferred tax (net) Net cash provided by operating activities before changes in assets and liabilities Changes in assets and liabilities: Increase in trade and other receivables Decrease/(increase) in work in progress Decrease/(increase) in prepayments Increase in other assets Increase in payables and accruals Increase in unearned income Increase in provisions (Decrease)/increase in employee benefits Net cash from operating activities 2020 47,581 2019 43,831 13,658 8,074 2 564 2,337 4,849 1,095 2,174 1,181 756 (95) 243 (19) 730 2,209 – 1,066 6,390 1,153 – (685) (724) 26,764 18,194 (820) 962 857 (273) 3,055 730 _ (280) 30,995 (6,593) (930) (205) (51) 6,283 321 557 559 18,135 Less: provision for impairment loss 19 Note 2020 2019 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 19 Financial risk management/financial instruments. 7. Trade and other receivables In thousands of AUD Current Trade receivables Other receivables Total trade and other receivables 8. Other assets In thousands of AUD Current Work in progress Prepayments Other current assets Non-current Deposits 34,834 (261) 34,573 38 34,611 2020 1,513 1,961 287 3,761 188 188 34,081 (329) 33,752 39 33,791 2019 2,475 2,818 4 5,297 197 197 46 46 Enero Group Limited Annual Report 2020 Enero Group Limited Annual Report 2020 47 Enero Group Limited – Annual Report 2020 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 2020 2019 19 34,834 (261) 34,573 38 34,611 34,081 (329) 33,752 39 33,791 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 19 Financial risk management/financial instruments. 8. Other assets In thousands of AUD Current Work in progress Prepayments Other current assets Non-current Deposits 2020 1,513 1,961 287 3,761 188 188 2019 2,475 2,818 4 5,297 197 197 Enero Group Limited Annual Report 2020 47 47 Enero Group Limited – Annual Report 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements for the year ended 30 June 2020 FOR THE YEAR ENDED 30 JUNE 2020 9. Plant and equipment In thousands of AUD 2020 Cost Accumulated depreciation Net carrying amount Reconciliations of the carrying amounts of each class of plant and equipment: 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 2019 Cost Accumulated depreciation Net carrying amount Reconciliations of the carrying amounts of each class of plant and equipment: 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 Computer equipment Office furniture and equipment Plant and equipment Leasehold improvements Total 4,512 (3,036) 1,476 2,028 (1,423) 605 325 (309) 16 1,589 845 (949) 3 (12) 1,476 850 105 (357) 7 – 605 4,722 (3,133) 1,589 2,296 (1,446) 850 1,444 1,035 (915) 25 – 1,589 854 314 (328) 13 (3) 850 25 – (9) – – 16 338 (313) 25 45 – (19) – (1) 25 7,150 (4,296) 2,854 3,413 456 (1,022) 7 – 2,854 7,068 (3,655) 3,413 3,980 351 (947) 29 – 3,413 14,015 (9,064) 4,951 5,877 1,406 (2,337) 17 (12) 4,951 14,424 (8,547) 5,877 6,323 1,700 (2,209) 67 (4) 5,877 Accounting policy (i) Recognition and measurement Plant and equipment are stated at cost less accumulated depreciation (see below) and impairment losses (see Note 21 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) Depreciation Depreciation is charged to the income statement on a straight-line basis over the assets’ estimated useful lives. 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% 10% 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. Right-of-use assets In thousands of AUD Property leases Cost Accumulated depreciation Net carrying amount Reconciliations of the carrying amounts of right-of-use assets: Carrying amount at the beginning of the year Recognised on transition to AASB 16 Re-measurement of lease liabilities Depreciation Effect of movements in exchange rates Carrying amount at the end of the year Transition to AASB 16 2020 2019 16,344 (4,585) 11,759 – 16,481 (10) (4,849) 137 11,759 – – – – – – – – The Group has applied AASB 16 Leases using the modified retrospective approach, under which the cumulative effect of initial application is recognised in retained earnings at 1 July 2019. Refer to Note 1(g). Accounting policy (applicable from 1 July 2019) The Group leases many assets, including properties and office equipment. At the inception of a contract, the Group assesses whether a contract is, or contains, a lease based on whether the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The Group assesses if a contract conveys the right to control the use of an identified asset if: the contract involves the use of an identified asset; period of use; and the Group has the right to direct the use of the asset. • • • the Group has the right to obtain substantially all of the economic benefits from use of the asset throughout the The Group recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of cost to dismantle and remove the underlying asset less any lease incentive received. The right-of-use asset is subsequently measured at cost less any accumulated depreciation and impairment losses (see Note 21 Impairment of non-financial assets), and adjusted for certain re-measurements of lease liability. The assets are depreciated over the term of the lease on a straight-line basis. The Group has applied judgement to determine the lease term for some lease contracts in which it is a lessee that include renewal options. The assessment of whether the Group is reasonably certain to exercise such options impacts the lease term, which significantly affects the amount of lease liability and right-of-use asset recognised. The lease liability is initially measured at the present value of the lease payments (fixed payments less any lease incentives receivable and variable lease payments) that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group’s incremental borrowing rate for the same term as the underlying lease. Generally, the Group uses its incremental borrowing rate as the discount rate. Lease liability is re-measured when there is a change in future lease payments arising from change in an index rate, changes in the assessment of whether a purchase or extension option is reasonably certain to be exercised or a termination option is reasonably certain not to be exercised. When the lease liability is re-measured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in the income statement if the carrying amount of the right-of-use asset has been reduced to zero. The Group has elected to use the exemption not to recognise right-of-use assets and lease liabilities for short-term leases that have a lease term of 12 months or less and leases of low-value assets. The payments associated with these leases are recognised as occupancy costs on a straight-line basis over the lease term. 48 48 Enero Group Limited Annual Report 2020 Enero Group Limited Annual Report 2020 49 Enero Group Limited – Annual Report 2020 10. Right-of-use assets In thousands of AUD Property leases Cost Accumulated depreciation Net carrying amount Reconciliations of the carrying amounts of right-of-use assets: Carrying amount at the beginning of the year Recognised on transition to AASB 16 Re-measurement of lease liabilities Depreciation Effect of movements in exchange rates Carrying amount at the end of the year 2020 2019 16,344 (4,585) 11,759 – 16,481 (10) (4,849) 137 11,759 – – – – – – – – Transition to AASB 16 The Group has applied AASB 16 Leases using the modified retrospective approach, under which the cumulative effect of initial application is recognised in retained earnings at 1 July 2019. Refer to Note 1(g). Accounting policy (applicable from 1 July 2019) The Group leases many assets, including properties and office equipment. At the inception of a contract, the Group assesses whether a contract is, or contains, a lease based on whether the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The Group assesses if a contract conveys the right to control the use of an identified asset if: • • • the contract involves the use of an identified asset; the Group has the right to obtain substantially all of the economic benefits from use of the asset throughout the period of use; and the Group has the right to direct the use of the asset. The Group recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of cost to dismantle and remove the underlying asset less any lease incentive received. The right-of-use asset is subsequently measured at cost less any accumulated depreciation and impairment losses (see Note 21 Impairment of non-financial assets), and adjusted for certain re-measurements of lease liability. The assets are depreciated over the term of the lease on a straight-line basis. The Group has applied judgement to determine the lease term for some lease contracts in which it is a lessee that include renewal options. The assessment of whether the Group is reasonably certain to exercise such options impacts the lease term, which significantly affects the amount of lease liability and right-of-use asset recognised. The lease liability is initially measured at the present value of the lease payments (fixed payments less any lease incentives receivable and variable lease payments) that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group’s incremental borrowing rate for the same term as the underlying lease. Generally, the Group uses its incremental borrowing rate as the discount rate. Lease liability is re-measured when there is a change in future lease payments arising from change in an index rate, changes in the assessment of whether a purchase or extension option is reasonably certain to be exercised or a termination option is reasonably certain not to be exercised. When the lease liability is re-measured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in the income statement if the carrying amount of the right-of-use asset has been reduced to zero. The Group has elected to use the exemption not to recognise right-of-use assets and lease liabilities for short-term leases that have a lease term of 12 months or less and leases of low-value assets. The payments associated with these leases are recognised as occupancy costs on a straight-line basis over the lease term. Enero Group Limited Annual Report 2020 49 49 Enero Group Limited – Annual Report 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements for the year ended 30 June 2020 FOR THE YEAR ENDED 30 JUNE 2020 11. Intangible assets In thousands of AUD 2020 Cost Accumulated amortisation Impairment Net carrying amount Reconciliations of the carrying amounts of intangibles: Carrying amount at the beginning of the year Amortisation Effect of movements in exchange rates Carrying amount at the end of the year 2019 Cost Accumulated amortisation Impairment Net carrying amount Reconciliations of the carrying amounts of intangibles: Carrying amount at the beginning of the year Amortisation Effect of movements in exchange rates Carrying amount at the end of the year Goodwill Contracts and customer relationships 295,297 – (187,300) 107,997 108,208 – (211) 107,997 296,110 – (187,902) 108,208 106,858 – 1,350 108,208 4,334 (3,229) – 1,105 2,176 (1,095) 24 1,105 4,296 (2,120) – 2,176 3,198 (1,066) 44 2,176 Total 299,631 (3,229) (187,300) 109,102 110,384 (1,095) (187) 109,102 300,406 (2,120) (187,902) 110,384 110,056 (1,066) 1,394 110,384 Amortisation charge The amortisation charge of $1,095,000 (2019: $1,066,000) 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 $107,997,000 (2019: $108,208,000) relates to the Operating Brands CGU group. The decrease in the goodwill carrying value as compared to the prior reporting period is due to decrease in Australian dollar translation of foreign currency denominated goodwill. 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 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. Subsequent expenditure (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 21 Impairment of non-financial assets for further details on impairment. The Group’s exposure to currency and liquidity risk related to trade and other payables is disclosed in Note 19 Financial 12. Trade and other payables In thousands of AUD Current Trade payables Other payables and accrued expenses Unearned revenue risk management/financial instruments. 13. Contingent consideration payable In thousands of AUD Current Contingent consideration payable Non-current Contingent consideration payable Reconciliations of the carrying amounts of contingent consideration payable: Carrying amount at the beginning of the year 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 2020 16,820 11,926 13,496 42,242 2019 14,267 11,346 12,767 38,380 2020 2019 15,119 11,519 10,434 22,282 33,801 2,174 1,181 320 (11,923) 25,553 25,802 6,390 1,153 456 – 33,801 During the current year, the Group recognised a fair value loss of $2,174,000 (2019: $6,390,000) 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 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 total purchase price cap. Actual future payments may differ from the estimated liability. A sensitivity analysis for Contingent consideration payable is disclosed in Note 19 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. 50 50 Enero Group Limited Annual Report 2020 Enero Group Limited Annual Report 2020 51 Enero Group Limited – Annual Report 2020 (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 21 Impairment of non-financial assets for further details on impairment. 12. Trade and other payables In thousands of AUD Current Trade payables Other payables and accrued expenses Unearned revenue 2020 16,820 11,926 13,496 42,242 2019 14,267 11,346 12,767 38,380 The Group’s exposure to currency and liquidity risk related to trade and other payables is disclosed in Note 19 Financial risk management/financial instruments. 13. Contingent consideration payable In thousands of AUD Current Contingent consideration payable Non-current Contingent consideration payable Reconciliations of the carrying amounts of contingent consideration payable: Carrying amount at the beginning of the year 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 2020 2019 15,119 11,519 10,434 22,282 33,801 2,174 1,181 320 (11,923) 25,553 25,802 6,390 1,153 456 – 33,801 During the current year, the Group recognised a fair value loss of $2,174,000 (2019: $6,390,000) 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 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 total purchase price cap. Actual future payments may differ from the estimated liability. A sensitivity analysis for Contingent consideration payable is disclosed in Note 19 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. Enero Group Limited Annual Report 2020 51 51 Enero Group Limited – Annual Report 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements for the year ended 30 June 2020 FOR THE YEAR ENDED 30 JUNE 2020 14. Lease liabilities This note provides information about the contractual terms of the Group’s leases. For more information about the Group’s exposure to interest rate risk, liquidity risk and foreign currency risk, see Note 19 Financial risk management/financial instruments. employee and the obligation can be reliably estimated. (iii) Termination benefits 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 In thousands of AUD Current Lease liabilities Hire purchase liabilities Non-current Lease liabilities Total Reconciliations of the carrying amounts of lease and hire purchase liabilities: Carrying amount at the beginning of the year Recognised on transition to AASB 16 Re-measurement of lease liabilities Repayments Present value interest relating to lease liabilities Effect of movements in exchange rates Carrying amount at the end of the year Lease liabilities and hire purchase payable commitments (at carrying amounts) Within one year One year or later and no later than five years Accounting policy Refer Note 10. 15. Employee benefits In thousands of AUD Aggregate liability for employee benefits, including on-costs Current Employee benefits provision Non-current Employee benefits provision 2020 6,384 – 6,384 10,523 10,523 16,907 493 22,498 (10) (6,979) 756 149 16,907 6,384 10,523 16,907 2019 – 493 493 – – 493 1,916 – – (1,423) – – 493 493 – 493 2020 2019 3,732 820 4,173 659 The Group has recognised $2,228,000 (2019: $2,405,000) 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. 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. 16. Provisions In thousands of AUD 2020 Current Non-current Total provisions current and non-current Reconciliations of the carrying amounts of each class of provision, except for employee benefits: Carrying amount at the beginning of the year De-recognised on transition to AASB 16 Released/used during the year Carrying amount at the end of the year 2019 Current Non-current Total provisions current and non-current Reconciliations of the carrying amounts of each class of provision, except for employee benefits: 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 Transition to AASB 16 Lease Lease Rent Total make good incentive straight-line 464 (464) 3,788 (3,788) – – – – – 10 454 464 438 39 7 (20) 464 – – – – – 633 3,155 3,788 3,250 617 2 (81) 3,788 – – – 263 (260) (3) – 3 260 263 270 9 13 (29) 263 – – – 4,515 (4,512) (3) – 646 3,869 4,515 3,958 665 22 (130) 4,515 Accounting policy obligation. (i) Make good provision obligation. period. The Group has applied AASB 16 Leases using the modified retrospective approach, under which the cumulative effect of initial application is recognised in retained earnings at 1 July 2019. At transition date, substantially all the provisions were de-recognised as the provisions are now embedded in the lease liability recognised. Refer to Note 1(g). 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 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 Future make good costs are reviewed annually and any changes are reflected in the provision at the end of the reporting (ii) Lease incentive provision (applicable prior to 1 July 2019) 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 (applicable prior to 1 July 2019) 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 52 Enero Group Limited Annual Report 2020 Enero Group Limited Annual Report 2020 53 Enero Group Limited – Annual Report 2020 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. (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. 16. Provisions In thousands of AUD 2020 Current Non-current Total provisions current and non-current Reconciliations of the carrying amounts of each class of provision, except for employee benefits: Carrying amount at the beginning of the year De-recognised on transition to AASB 16 Released/used during the year Carrying amount at the end of the year 2019 Current Non-current Total provisions current and non-current Reconciliations of the carrying amounts of each class of provision, except for employee benefits: 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 Lease make good Lease incentive Rent straight-line Total – – – 464 (464) – – 10 454 464 438 39 7 (20) 464 – – – 3,788 (3,788) – – 633 3,155 3,788 3,250 617 2 (81) 3,788 – – – 263 (260) (3) – 3 260 263 270 9 13 (29) 263 – – – 4,515 (4,512) (3) – 646 3,869 4,515 3,958 665 22 (130) 4,515 Transition to AASB 16 The Group has applied AASB 16 Leases using the modified retrospective approach, under which the cumulative effect of initial application is recognised in retained earnings at 1 July 2019. At transition date, substantially all the provisions were de-recognised as the provisions are now embedded in the lease liability recognised. Refer to Note 1(g). Accounting policy 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 (applicable prior to 1 July 2019) 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 (applicable prior to 1 July 2019) 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. Enero Group Limited Annual Report 2020 53 53 Enero Group Limited – Annual Report 2020 888 – – – 1,215 99,515 85,604,954 756 – 97,412 Shares issued to the employees of the Group on exercise of Share Appreciation Rights(i) Balance at end of year 469,905 86,074,859 2020 Shares 85,604,954 2020 In thousands of AUD 97,412 2019 Shares 85,604,954 2019 In thousands of AUD 96,656 Balance at beginning of year 642,726 shares (2019: 651,575 shares) transferred from a trust account held by the Company to the employees of the Group on exercise of Share Appreciation Rights(i) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements for the year ended 30 June 2020 FOR THE YEAR ENDED 30 JUNE 2020 17. Capital and reserves In thousands of AUD Share capital Ordinary shares, fully paid The Company does not have authorised capital or par value in respect of its shares. Movement in ordinary shares 2020 2019 99,515 97,412 any restrictions to paying dividends. Accounting policy (i) Ordinary shares The ability to utilise the franking credits is dependent upon there being sufficient available profits to declare dividends and 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. Dividends are recognised as a liability in the period in which they are declared. Transaction costs of an equity transaction are accounted for as a deduction from equity, net of any related income tax (ii) Dividends (iii) Transaction costs benefit. 18. Earnings per share In thousands of AUD Profit for the year Non-controlling interests Earnings per share In AUD cents Basic Diluted Accounting policy Profit 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 2020 13,658 (2,951) 10,707 2020 85,850 1,469 87,319 2020 12.5 12.3 2019 8,074 (2,413) 5,661 2019 84,819 710 85,529 2019 6.7 6.6 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. (i) 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 Profit for the year attributable to equity holders of the parent the vesting date of the rights of $1.89 (2019: $1.16). 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 2020 Fully franked final dividend – 2019 Fully franked interim dividend – 2020 Subsequent to the balance sheet date, at the date of this report Fully franked final dividend – 2020 During the year ended 30 June 2019 Fully franked final dividend – 2018 Fully franked interim dividend – 2019 Cents per share in thousands of AUD Date of payment Total amount 3.0 2.5 3.5 2.5 2.5 2,582 2,152 8 October 2019 19 March 2020 3,013 2 October 2020 2,140 2,140 8 October 2018 18 March 2019 Dividend franking account In thousands of AUD Franking credits available for future years at 30% to shareholders of Enero Group Limited 2020 16,257 2019 18,286 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. 54 54 Enero Group Limited Annual Report 2020 Enero Group Limited Annual Report 2020 55 Enero Group Limited – Annual Report 2020 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. 18. 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 2020 13,658 (2,951) 10,707 2020 85,850 1,469 87,319 2020 12.5 12.3 2019 8,074 (2,413) 5,661 2019 84,819 710 85,529 2019 6.7 6.6 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. Enero Group Limited Annual Report 2020 55 55 Enero Group Limited – Annual Report 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements for the year ended 30 June 2020 FOR THE YEAR ENDED 30 JUNE 2020 19. 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 2020, the Group entered into transactions with more than 500 unique customers. The 10 largest customers accounted for 41% of net revenue for the year ended 30 June 2020, 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 2019 43,831 2020 47,581 34,611 1,513 188 83,893 33,791 2,475 197 80,294 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 2019 33,752 2020 34,573 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 Provision used during year Balance at 30 June Average credit loss for year(i) Credit loss provision at balance date(ii) 2020 329 191 – (259) 261 0.5% 0.7% 2019 100 259 190 (220) 329 0.8% 1.0% (i) Average credit loss for year is calculated by dividing impairment loss recognised for the year by the gross trade receivables balance. (ii) Credit loss provision at balance date is calculated by dividing the provision by the gross trade receivable balance. Impairment recognised to opening retained earnings at 1 July 2018 was determined with reference to the average credit loss over the preceding 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 adoption on forward- looking ‘expected loss’ impairment model required under AASB 9 Financial Instruments. The average credit loss was assessed at 30 June 2020 and despite uncertainty in trade receivables collections during COVID-19, the average credit loss reduced from 0.8% to 0.5%. The Group continues to provision expected credit losses higher than the average credit loss for each financial year. 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 2020 30,425 4,061 87 261 34,834 (261) 34,573 2019 27,920 5,202 820 139 34,081 (329) 33,752 (i) Impairment includes trade receivables specifically impaired of $71,000 (2019: $139,000) plus expected credit losses of $190,000 (2019: $190,000). Currency risk Market risk Currency risk is the risk that the fair value of future cash Market risk is the risk relating to changes in market prices, flows of a financial instrument will fluctuate because of such as foreign exchange rates, interest rates and equity changes in foreign exchange rates. The source and nature prices, which will affect the Group’s income or the value of of this risk arises from operations and translation risks. 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 Operating Brands segment generated approximately 57% of its net revenue and 62% of its Operating EBITDA during the year ended 30 June 2020 from outside Australia. The Group’s reporting currency is Australian dollars. However, the international operations give rise to an the return. Liquidity risk exposure to changes in foreign exchange rates, as the meet its financial obligations as they become due. The majority of its revenues from outside Australia are Group’s approach to managing liquidity is to ensure, as far denominated in currencies other than Australian dollars, as possible, that it will always have sufficient liquidity to most significantly Great British pound (GBP) and US dollar meet its liabilities when due. Liquidity risk is the risk that the Group will not be able to (USD). The Group’s currency risk exposure is limited The Group manages liquidity risk by monitoring forecast operating cash flows, and committed unutilised facilities; predominantly to consolidated Australian dollar translation and re-estimating the value of contingent consideration risk as the majority of transactions denominated in foreign liabilities semi-annually. currencies are transacted by entities within the Group with the same functional currency of the relevant transaction. The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding the impact of netting agreements. 2020 In thousands of AUD Non-derivative financial liabilities Lease liabilities Trade and other payables (excluding unearned revenue) Contingent consideration payable 2019 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 16,907 28,746 25,553 71,206 493 25,613 33,801 59,907 18,431 28,746 26,263 73,440 498 25,613 35,620 61,731 6,421 28,746 15,263 50,430 498 25,613 11,696 37,807 12,010 – 11,000 23,010 – – 23,924 23,924 Carrying amount Contractual cash flows Less than 1 year 1 to 5 years Over 5 years – – – – – – – – 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 13 Contingent consideration payables for further details. There are no other significant uncertainties in the timing or amounts of contractual liabilities. 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 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 also has contingent consideration payables as described in Note 13 Contingent Interest rate risk 30 June 2020. Capital management consideration payables. 56 56 Enero Group Limited Annual Report 2020 Enero Group Limited Annual Report 2020 57 Enero Group Limited – Annual Report 2020 Currency risk Currency risk Currency risk is the risk that the fair value of future cash Currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The source and nature changes in foreign exchange rates. The source and nature of this risk arises from operations and translation risks. of this risk arises from operations and translation risks. The Operating Brands segment generated approximately The Operating Brands segment generated approximately 57% of its net revenue and 62% of its Operating EBITDA 57% of its net revenue and 62% of its Operating EBITDA during the year ended 30 June 2020 from outside Australia. during the year ended 30 June 2020 from outside Australia. The Group’s reporting currency is Australian dollars. The Group’s reporting currency is Australian dollars. However, the international operations give rise to an However, the international operations give rise to an exposure to changes in foreign exchange rates, as the exposure to changes in foreign exchange rates, as the majority of its revenues from outside Australia are majority of its revenues from outside Australia are denominated in currencies other than Australian dollars, denominated in currencies other than Australian dollars, most significantly Great British pound (GBP) and US dollar most significantly Great British pound (GBP) and US dollar (USD). (USD). The Group’s currency risk exposure is limited The Group’s currency risk exposure is limited predominantly to consolidated Australian dollar translation predominantly to consolidated Australian dollar translation risk as the majority of transactions denominated in foreign risk as the majority of transactions denominated in foreign currencies are transacted by entities within the Group with currencies are transacted by entities within the Group with the same functional currency of the relevant transaction. the same functional currency of the relevant transaction. Market risk Market risk Market risk is the risk relating to changes in market prices, Market risk is the risk relating to changes in market prices, such as foreign exchange rates, interest rates and equity such as foreign exchange rates, interest rates and equity prices, which will affect the Group’s income or the value of prices, which will affect the Group’s income or the value of its holding of financial instruments. The objective of market its holding of financial instruments. The objective of market risk management is to manage and control market risk risk management is to manage and control market risk exposure within acceptable parameters, while optimising exposure within acceptable parameters, while optimising the return. the return. Liquidity risk Liquidity risk Liquidity risk is the risk that the Group will not be able to Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they become due. The meet its financial obligations as they become due. The Group’s approach to managing liquidity is to ensure, as far Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to as possible, that it will always have sufficient liquidity to meet its liabilities when due. meet its liabilities when due. The Group manages liquidity risk by monitoring forecast The Group manages liquidity risk by monitoring forecast operating cash flows, and committed unutilised facilities; operating cash flows, and committed unutilised facilities; and re-estimating the value of contingent consideration and re-estimating the value of contingent consideration liabilities semi-annually. liabilities semi-annually. The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding the impact of netting agreements. The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding the impact of netting agreements. 2020 2020 In thousands of AUD In thousands of AUD Non-derivative financial liabilities Non-derivative financial liabilities Lease liabilities Lease liabilities Trade and other payables Trade and other payables (excluding unearned revenue) (excluding unearned revenue) Contingent consideration payable Contingent consideration payable 2019 2019 In thousands of AUD In thousands of AUD Non-derivative financial liabilities Non-derivative financial liabilities Hire purchase liabilities Hire purchase liabilities Trade and other payables Trade and other payables (excluding unearned revenue) (excluding unearned revenue) Contingent consideration payable Contingent consideration payable Carrying Carrying amount amount Contractual cash flows Contractual cash flows Less than Less than 1 year 1 year 1 to 5 years Over 5 years 1 to 5 years Over 5 years 16,907 16,907 18,431 18,431 6,421 6,421 12,010 12,010 28,746 25,553 28,746 25,553 71,206 71,206 28,746 26,263 28,746 26,263 73,440 73,440 28,746 15,263 28,746 15,263 50,430 50,430 – – 11,000 11,000 23,010 23,010 – – – – – – – – Carrying Carrying amount amount Contractual cash flows Contractual cash flows Less than Less than 1 year 1 year 1 to 5 years Over 5 years 1 to 5 years Over 5 years 493 493 498 498 498 498 – – 25,613 33,801 59,907 25,613 33,801 59,907 25,613 35,620 61,731 25,613 35,620 61,731 25,613 11,696 37,807 25,613 11,696 37,807 – – 23,924 23,924 23,924 23,924 – – – – – – – – It is not expected that the cash flows included in the maturity analysis could occur significantly earlier or at significantly different amounts. 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 13 Contingent consideration payables for further details. Liquidity risk in relation to contingent consideration liabilities There are critical accounting estimates and judgements in relation to contingent consideration liabilities. Refer to Note 13 Contingent consideration payables for further details. There are no other significant uncertainties in the timing or amounts of contractual liabilities. 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 2020. 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 2020. Capital management Capital management The Group’s key sources of capital are available committed facilities and share capital. The Board seeks to maintain a 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 balance between higher returns that might be possible with higher levels of gearing and the advantages afforded by a prudent capital position. The Group also has contingent consideration payables as described in Note 13 Contingent prudent capital position. The Group also has contingent consideration payables as described in Note 13 Contingent consideration payables. consideration payables. Enero Group Limited Annual Report 2020 57 Enero Group Limited Annual Report 2020 57 57 Enero Group Limited – Annual Report 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements for the year ended 30 June 2020 FOR THE YEAR ENDED 30 JUNE 2020 19. 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 Lease liabilities Hire purchase lease liabilities Fair value measurement: Carrying amount 34,447 13,134 34,573 1,513 (28,746) (25,553) (16,907) – 2020 Fair value 34,447 13,134 34,573 1,513 (28,746) (25,553) (16,907) – Carrying amount 24,610 19,221 33,752 2,475 (25,613) (33,801) – (493) 2019 Fair value 24,610 19,221 33,752 2,475 (25,613) (33,801) – (493) 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 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 2020 33,801 2,174 1,181 320 (11,923) 25,553 2019 25,802 6,390 1,153 456 – 33,801 Sensitivity analysis Reasonably possible changes at 30 June 2020 to one of the significant unobservable inputs, holding other inputs constant, would have the following effects on the fair values of contingent consideration: Average EBIT • Eastwick: the contingent consideration period ended on 30 June 2020 and the amount payable is not subject to the future performance of Eastwick. • Orchard Marketing: consideration payable to vendors of Orchard Marketing is recognised at a total purchase price cap. It would require greater than a 19.7% decrease in the average EBIT estimate over the contingent consideration period to reduce the contingent consideration payable from its recognised amount. Risk-adjusted discount rate In thousands of AUD Movement of 0.5% Increase (195) Decrease 195 Other items • • reporting date. 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 Trade and other payables and 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 leases, the market rate of interest is determined by reference to Group’s incremental borrowing rate of the same term as the underlying lease. Accounting policy Non-derivative financial assets Non-derivative financial liabilities Non-derivative financial assets are recognised on the Non-derivative financial liabilities are recognised on the date that they are originated. All other financial assets date they are originated. All other financial liabilities (including assets designated as fair value through the (including liabilities designated at fair value through profit profit and loss) are recognised initially on the trade date or loss) are recognised initially on the trade date at which at which the Group becomes a party to the contractual the Group becomes a party to the contractual provisions of provisions of the instrument. 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. 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. Derivative financial instruments including hedging accounting The Group may use derivative financial instruments to hedge its exposure to interest rate risks and foreign (ii) Work in progress Work in progress represents accrued revenue recognised upon satisfaction of performance obligations and currency risks. rechargeable disbursements at the period end which are Derivatives are initially recognised at fair value on the date not invoiced, and is stated at the lower of cost and net a derivative contract is entered into and are subsequently realisable value. (iii) Cash and cash equivalents Cash and cash equivalents comprise cash balances and call deposits with original maturities of three months or 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. less. Bank overdrafts that are repayable on demand and The Group designates certain derivatives as either hedges form an integral part of the Group’s cash management are of the fair value of recognised assets or liabilities or a firm included as a component of cash and cash equivalents for commitment (fair value hedges), or hedges of probable the purpose of the statement of cash flows. forecast transactions (cash flow hedges). 58 58 Enero Group Limited Annual Report 2020 Enero Group Limited Annual Report 2020 59 Enero Group Limited – Annual Report 2020 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 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 leases, the market rate of interest is determined by reference to Group’s incremental borrowing rate of the same term as the underlying lease. 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. 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. 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). Enero Group Limited Annual Report 2020 59 59 Enero Group Limited – Annual Report 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements for the year ended 30 June 2020 FOR THE YEAR ENDED 30 JUNE 2020 19. Financial risk management/financial instruments (continued) 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. 20. Financing arrangements The Group has access to the following lines of credit: In thousands of AUD 2020 Total facilities available Facilities utilised at reporting date Facilities not utilised at reporting date 2019 Total facilities available Facilities utilised at reporting date Facilities not utilised at reporting date Hire purchase facility Indemnity guarantee facility Credit card facility Total – – – 3,628 1,670 5,298 2,105 149 2,254 1,523 1,521 3,044 493 3,489 1,972 5,954 493 2,057 317 2,867 – 1,432 1,655 3,087 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. Hire purchase facility The hire purchase facility is subject to annual review and is in place to assist with capital expenditure requirements. The Group leases plant, equipment and leasehold improvements under hire purchase expiring from one to five years (2019: one to five years). At the end of the hire purchase term, the Group has the option to purchase the equipment at a substantial discount to market value. The terms of the hire purchase require that additional debts are not undertaken without prior approval of the lender. Indemnity guarantee facility The indemnity guarantee facility is in place to support financial guarantees outstanding at any one time. Specific guarantee amounts are $1,976,000 (2019: $2,057,000) 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. 21. 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 the current financial year cash flows adjusted in some cases for next financial year’s Board and management approved budgets. This reflects the best estimate of the CGU group’s cash flows at the time of this report. Projected cash flows can differ from future actual cash flows and results of operations. Consideration was given to the impact of COVID-19 on the projected cash flows. Projected cash flow assumption methodologies were unchanged from the prior period based impaired. on: • • • the actual cash flows achieved for the year ended 30 June 2020 including the period impacted by COVID-19; the Groups high sector exposure to technology, healthcare and consumer staples clients and low sector exposure to travel and tourism clients; and further operating cost reduction strategies available if cash flows reduce. Discount rates 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 2019: 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 2019: 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 % 2020 2019 8.33 – 10.16 8.75 – 10.59 9.99 – 13.67 10.63 – 13.98 2.50 2.50 Sensitivity range for impairment testing assumptions As at 30 June 2020, management has identified that for the carrying amount to exceed the recoverable amount the discount rate would need to increase by 1.7% to 3.5% 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 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’). 60 60 Enero Group Limited Annual Report 2020 Enero Group Limited Annual Report 2020 61 Enero Group Limited – Annual Report 2020 21. 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 the current financial year cash flows adjusted in some cases for next financial year’s Board and management approved budgets. This reflects the best estimate of the CGU group’s cash flows at the time of this report. Projected cash flows can differ from future actual cash flows and results of operations. Consideration was given to the impact of COVID-19 on the projected cash flows. Projected cash flow assumption methodologies were unchanged from the prior period based on: • • • the actual cash flows achieved for the year ended 30 June 2020 including the period impacted by COVID-19; the Groups high sector exposure to technology, healthcare and consumer staples clients and low sector exposure to travel and tourism clients; and further operating cost reduction strategies available if cash flows reduce. Discount rates 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 2019: 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 2019: 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 2020 8.33 – 10.16 8.75 – 10.59 9.99 – 13.67 10.63 – 13.98 2.50 2.50 Sensitivity range for impairment testing assumptions As at 30 June 2020, management has identified that for the carrying amount to exceed the recoverable amount the discount rate would need to increase by 1.7% to 3.5% 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’). Enero Group Limited Annual Report 2020 61 61 Enero Group Limited – Annual Report 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements for the year ended 30 June 2020 FOR THE YEAR ENDED 30 JUNE 2020 21. Impairment of non-financial assets (continued) 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. 22. 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 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 Group interest 2019 % 2020 % 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 51 100 100 100 100 100 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 New Zealand New Zealand 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. 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 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. (ii) Subsidiaries activities of the entity. . 62 62 Enero Group Limited Annual Report 2020 Enero Group Limited Annual Report 2020 63 Enero Group Limited – Annual Report 2020 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 2020 63 63 Enero Group Limited – Annual Report 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements for the year ended 30 June 2020 FOR THE YEAR ENDED 30 JUNE 2020 23. Parent entity disclosures As at, and throughout, the financial year ended 30 June 2020, the parent Company of the Group was Enero Group Limited. In thousands of AUD Result of the parent entity Profit/(loss) 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 2020 16,988 – 16,988 21,929 155,885 16,309 37,155 118,730 99,515 10,541 33,209 (24,535) 118,730 The Company 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 (i) For dividends declared and paid by the Company to members since the end of the previous financial year, refer to Note 17 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 2020. The subsidiaries subject to the Deed are: Trade and other payables 10,251 11,036 – The Leading Edge Market Research Consultants Pty Contingent consideration payable 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 Right-of-use assets Intangible assets Total non-current assets Total assets Liabilities Lease liabilities Employee benefits Provisions Total current liabilities Contingent consideration payable Lease liabilities 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 2020 2019 19,331 24,565 5,779 1,072 26,182 62,693 30,558 1,967 2,909 6,178 6,154 1,004 31,723 53,620 30,558 2,124 3,619 – 16,387 16,387 120,692 106,308 146,874 138,031 4,946 3,113 1,545 – 19,855 10,434 6,646 423 – 17,503 37,358 109,516 5,934 493 1,874 640 19,977 14,718 – 352 3,040 18,110 38,087 99,944 99,515 10,541 33,209 97,412 12,080 20,955 (33,749) (30,503) 109,516 99,944 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. 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 2020, is set out as Summarised income statement and retained profits follows: In thousands of AUD Net revenue Dividends received from subsidiaries Employee expenses Operating and other expenses Profit/(loss) before income tax 2020 26,252 13,571 2019 25,746 – (23,076) (22,704) (4,290) (4,563) 12,457 (1,521) 1,792 14,249 3,071 1,550 Equity holders of the Company 14,249 1,550 Accumulated losses at beginning of year (30,503) (32,053) Income tax benefit Profit for the year Attributable to: Accumulated losses Adjustment on initial application of AASB 16 Profit for the year Transfer to profit appropriation reserve (16,988) Accumulated losses at end of year (33,749) (30,503) Profit appropriation reserve Profit appropriation reserve at beginning of year Dividend paid during the year Profit for the year Profit appropriation reserve at end of year (507) 14,249 1,550 – – 20,955 25,235 (4,734) (4,280) 16,988 – 33,209 20,955 64 64 Enero Group Limited Annual Report 2020 Enero Group Limited Annual Report 2020 65 Enero Group Limited – Annual Report 2020 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 2020, is set out as follows: Summarised income statement and retained profits In thousands of AUD Net revenue Dividends received from subsidiaries Employee expenses Operating and other expenses Profit/(loss) before income tax Income tax benefit Profit for the year Attributable to: Equity holders of the Company Accumulated losses Accumulated losses at beginning of year 2020 26,252 13,571 (23,076) (4,290) 12,457 1,792 14,249 (30,503) 14,249 2019 25,746 – (22,704) (4,563) (1,521) 3,071 1,550 1,550 (32,053) 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 Right-of-use assets Intangible assets Total non-current assets Total assets Liabilities Trade and other payables Contingent consideration payable Lease liabilities Employee benefits Provisions Total current liabilities Contingent consideration payable Lease liabilities 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 2020 2019 19,331 5,779 1,072 26,182 62,693 30,558 1,967 2,909 6,178 16,387 24,565 6,154 1,004 31,723 53,620 30,558 2,124 3,619 – 16,387 120,692 106,308 146,874 138,031 10,251 4,946 3,113 1,545 – 19,855 10,434 6,646 423 – 17,503 37,358 109,516 11,036 5,934 493 1,874 640 19,977 14,718 – 352 3,040 18,110 38,087 99,944 99,515 10,541 33,209 (33,749) 109,516 97,412 12,080 20,955 (30,503) 99,944 Adjustment on initial application of AASB 16 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 Dividend paid during the year Profit for the year Profit appropriation reserve at end of year (507) 14,249 (16,988) (33,749) – 1,550 – (30,503) 20,955 25,235 (4,734) 16,988 (4,280) – 33,209 20,955 Enero Group Limited Annual Report 2020 65 65 Enero Group Limited – Annual Report 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements for the year ended 30 June 2020 FOR THE YEAR ENDED 30 JUNE 2020 25. Commitments 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 2020 183 2019 6,440 29 17,461 – – 212 23,901 The Group leases many assets, including properties and office equipment, under non-cancellable operating leases generally expiring in two to 10 years. Amounts disclosed for 2020 include only leases exempt from AASB 16 recognition. Transition to AASB 16 The Group has applied AASB 16 Leases using the modified retrospective approach, under which the cumulative effect of initial application is recognised in retained earnings at 1 July 2019. Refer to Note 1(g). At transition, the lease liabilities relating to substantially all property leases were recognised on the balance sheet. The Group has elected to use the exemption not to recognise right-of-use assets and lease liabilities for short-term leases that have a lease term of 12 months or less and leases of low-value assets. Under the modified retrospective transition approach, comparative information is not restated. A reconciliation of lease commitments at 30 June 2019 to lease liability recognised at transition to AASB 16 is included in the table below: In thousands of AUD Lease commitment at 30 June 2019 Present value interest discount Exempt short-term leases Provisions embedded in lease liabilities Re-assessment of lease term Lease liability at 1 July 2019 23,901 (2,194) (92) 478 405 22,498 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 2020. 27. Subsequent events Subsequent to the balance date, the Directors have declared a final dividend, with respect to ordinary shares, of 3.5 cents per share, fully franked. The final dividend will have a record date of 18 September 2020 and a payment date of 2 October 2020. The financial effect of this dividend has not been brought to account in the financial statements for the year ended 30 June 2020 but will be recognised in the 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 significantly affect 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 Termination benefits 2019 2,342,111 2,905,132 22,587 77,719 – (603) 76,890 188,269 2020 Share-based payments – Share Appreciation Rights 359,146 538,741 Total share-based payments 359,146 538,741 Total Key Management Personnel compensation 2,965,813 3,544,179 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 2020. 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 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. Summary of Share Appreciation Rights on issue: VWAP for the 20 business days prior to the 20 business days after the release of the Group financial report for the year ended: Issue date SARs issued Participants grant (B) Vesting dates: Tranche 1 (1/3rd) Tranche 2 (1/3rd) Tranche 3 (1/3rd) Last expiry date 30 June 2020. 19 October 2017 18 October 2018 24 October 2019 5,000,000 4,500,000 2,450,000 Senior Executives Senior Executives Senior Executives $1.04 $1.23 $2.13 30 June 2018 30 June 2019 30 June 2020 30 June 2019 30 June 2020 30 June 2021 30 June 2020 30 June 2021 30 June 2022 30 September 2020 30 September 2021 30 September 2022 Outstanding SARs as at 30 June 2020 1,016,670 1,800,000 2,100,000 Note: 2,000,000 SARs issued to the former CEO on 28 June 2019 were forfeited during the year, and are not on issue at 66 66 Enero Group Limited Annual Report 2020 Enero Group Limited Annual Report 2020 67 Enero Group Limited – Annual Report 2020 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 2020. 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 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. 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 (1/3rd) Tranche 2 (1/3rd) Tranche 3 (1/3rd) Last expiry date Outstanding SARs as at 30 June 2020 19 October 2017 5,000,000 Senior Executives 18 October 2018 4,500,000 Senior Executives 24 October 2019 2,450,000 Senior Executives $1.04 $1.23 $2.13 30 June 2018 30 June 2019 30 June 2020 30 September 2020 1,016,670 30 June 2019 30 June 2020 30 June 2021 30 September 2021 1,800,000 30 June 2020 30 June 2021 30 June 2022 30 September 2022 2,100,000 Note: 2,000,000 SARs issued to the former CEO on 28 June 2019 were forfeited during the year, and are not on issue at 30 June 2020. Enero Group Limited Annual Report 2020 67 67 Enero Group Limited – Annual Report 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements for the year ended 30 June 2020 FOR THE YEAR ENDED 30 JUNE 2020 29. Share-based payments (continued) Share Appreciation Rights (SARs) Summary of rights over unissued ordinary shares Grant date 2020 19 Oct 2017 18 Oct 2018 28 Jun 2019 24 Oct 2019 VWAP (for the 20 business days prior to the grant) Expiry date Weighte d 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) 30 Sep 2020 30 Sep 2021 30 Sep 2022 30 Sep 2022 $1.04 $1.23 $2.13 $2.13 – – – – 2,700,002 – 1,349,998 – 333,334 1,016,670 4,500,000 – 1,500,000 – 1,200,000 1,800,000 2,000,000 – – 2,450,000 – – – 2,000,000 – – 350,000 2,100,000 9,200,002 2,450,000 2,849,998 – 3,883,334 4,916,670 – – – – – – – – – – – – – – 588,821 0.9–2.9 523,810 0.9–2.9 – – 1.3–3.3 0.9–2.9 1,112,631 Grant date Expiry date 2019 16 June 2015 20 Oct 2015 19 Oct 2017 18 Oct 2018 28 Jun 2019(i) 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 $2.13 – – – – – 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 The number and weighted average exercise price of share rights is as follows: VWAP (for the 20 business days prior to the grant) 2020 $ 1.37 Weighted average exercise price 2020 – Number of options/rights 2020 9,200,002 VWAP (for the 20 business days prior to the grant) 2019 $ 0.97 Weighted average exercise price 2019 – 1.76 – 1.14 2.13 1.58 – – – – – – – (3,883,334) – (2,849,998) 2,450,000 4,916,670 – 1.00 – 0.89 1.23 1.37 – – – – – – – Number of options/rights 2019 6,399,998 (716,668) – (2,983,328) 6,500,000 9,200,002 – 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 The SARs outstanding at 30 June 2020 have a VWAP (for the 20 business days prior to the grant) range of $1.04 to $2.13 (30 June 2019: $1.04 to $2.13). The SARs outstanding at 30 June 2020 have a weighted average contractual life of 0.86 years (30 June 2019: 1.32 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 2020 for share-based payment transactions were $564,000 (2019: $730,000). The VWAP for the 20 business days prior the date of exercise of SARs on 12 September 2019 was $1.89. 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: Value per SAR prior to the grant) VWAP (for the 20 business days Price of shares on grant date Expected volatility Grant date 19 Oct 2017(i) 18 Oct 2018(ii) 24 Oct 2019(iii) Expiry date $ 30 Sept 2020 0.12 – 0.23 30 Sept 2021 0.20 – 0.31 30 Sept 2022 0.26 – 0.46 $ 1.04 1.23 2.13 $ 0.98 1.23 2.04 Risk-free Dividend Expected interest rate % 1.78–2.08 1.99–2.07 0.73-0.76 % 40 40 40 yield % 0.0 2.0 2.0 life (years) 0.9–2.9 0.9–2.9 0.9–2.9 (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 (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 (iii) Grant is in relation to SARs provided to senior employees of the Group which were issued on 24 October 2019. 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 2020. 30 September 2021. 30 September 2022. 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: Overseas KPMG firm 2020 2019 321,000 113,000 434,000 315,000 141,000 456,000 188,000 188,000 186,000 186,000 68 68 Enero Group Limited Annual Report 2020 Enero Group Limited Annual Report 2020 69 Enero Group Limited – Annual Report 2020 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) 24 Oct 2019(iii) Expiry date Value per SAR $ 30 Sept 2020 0.12 – 0.23 30 Sept 2021 0.20 – 0.31 30 Sept 2022 0.26 – 0.46 VWAP (for the 20 business days prior to the grant) $ 1.04 1.23 2.13 Price of shares on grant date $ 0.98 1.23 2.04 Expected volatility % 40 40 40 Risk-free interest rate % 1.78–2.08 1.99–2.07 0.73-0.76 Dividend yield % 0.0 2.0 2.0 Expected life (years) 0.9–2.9 0.9–2.9 0.9–2.9 (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 senior employees of the Group which were issued on 24 October 2019. 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. 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: Overseas KPMG firm 2020 2019 321,000 113,000 434,000 315,000 141,000 456,000 188,000 188,000 186,000 186,000 Enero Group Limited Annual Report 2020 69 69 Enero Group Limited – Annual Report 2020 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 69 and the Remuneration Report in the Directors’ Report, set out on pages 17 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 2020 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 2020 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 26th day of August 2020. Signed in accordance with a resolution of the Directors: Ann Sherry AO Chair 70 70 Enero Group Limited Annual Report 2020 Enero Group Limited – Annual Report 2020 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 Opinion We have audited the Financial Report of Enero Group Limited (the Company). In our opinion, the accompanying Financial Report of the Company is in accordance with the Corporations Act 2001, including:   giving a true and fair view of the Group's financial position as at 30 June 2020 and of its financial performance for the year ended on that date; and complying with Australian Accounting Standards and the Corporations Regulations 2001. The Financial Report comprises:  Consolidated statement of financial position as at 30 June 2020  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 policies;  Directors' Declaration. The Group consists of the Company and the entities it controlled at the year-end or from time to time during the financial year. Basis for opinion 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. 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. 71 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. 71 Enero Group Limited – Annual Report 2020INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF ENERO GROUP LIMITED 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 ($268.7 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: Our procedures included:  We selected a sample of significant  Significance of revenue to the financial statements.  Group’s policy to recognise revenue over time based on a measure of progress estimation 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, which involves judgement, increasing the risk of error and therefore requiring substantial audit effort. contracts entered into during the year and considered the relevant features of the underlying contracts, including what the group identified as performance obligations, in assessing the revenue recognition against the accounting standard and the Group’s policy.  We selected a statistical sample from total revenue recognised and performed the following procedures: - - For services completed, we compared details to customer invoices issued, customer estimate approvals, evidence of service completion and subsequent cash receipt. For services in progress we compared the total revenue from the expected contracted value of the service to signed customer contracts, and applied the estimated measure of progress to the expected contract value to recalculate revenue recognised. We obtained supporting evidence such as job cost report to test the occurrence and measurement of the stage of delivery. 72 72 Enero Group Limited – Annual Report 2020For contracts that are open at period end, we 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 assessed the disclosures in the financial report in accordance with the requirements of AASB 15 and evidence obtained from our procedures above. Annual impairment testing of goodwill and intangible assets ($109.1 million) Refer to Note 11 to the financial report The key audit matter How the matter was addressed in our audit The Group’s annual testing of goodwill and intangible assets for impairment is a key audit matter, given the size of the balance and the degree of judgement involved in the significant forward- looking assumptions the Group applied in their value in use model, including:   Forecast operating cash flows – there is uncertainty around future cash flows due to the short term, non-recurring nature of customer contracts. There is also a heightened uncertainty caused by disruptive effects of COVID-19 pandemic increasing the risk of inaccurate forecasts or a significantly wider range of possible outcomes for us to consider. Forecast growth rates and terminal growth rates – in addition to the uncertainties described above, the Group’s model is sensitive to small changes in these assumptions, reducing available headroom. This drives additional audit effort specific to their feasibility and consistency of application to the Group’s strategy. Our procedures included:  We considered the appropriateness of the value in use method applied by the Group to perform the annual test of goodwill for impairment against the requirements of the accounting standards.  We assessed the integrity of the value in use model used, including the accuracy of underlying calculation formulas.  We assessed the basis of preparing cash flow forecasts, considering the accuracy of previous forecast and budgets and current trading performance in a COVID-19 economic environment.  We compared the base forecast cash flows to current year actual results including the period impacted by COVID-19 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. 73 73 Enero Group Limited – Annual Report 2020INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF ENERO GROUP LIMITED  Discount rates – these are complicated in  Working with our valuation specialists, we  nature and vary according to the conditions and environment the specific Cash 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. 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. Fair value of contingent consideration ($25.5 million) Refer to Note 13 to the financial report The key audit matter How the matter was addressed in our audit Contingent consideration payable by the Group in connection with a business combination is initially recognised at fair value, and subsequently assessed at each period end. The Group has two contingent consideration amounts payable relating to the acquisition of Eastwick Communications (Eastwick) and Orchard Marketing (Orchard). 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 subsequent to the reporting date and due to the short term, non-recurring nature of customer contracts in the contingent period. The contingent consideration period ended on 30 June 2020 for Eastwick and the amount payable is not subject to the future performance of Eastwick.. 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 Orchard EBIT forecast to current year actual results or Board approved budget, as appropriate. 74 74 Enero Group Limited – Annual Report 2020 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. We focused on EBIT forecasts of Orchard as the key assumption the Group applied in their fair value estimate of contingent consideration.  We inquired with management of Orchard about expected future performance of the business.  We compared the Orchard EBIT forecasts for consistency to those used, and tested by us, in the impairment testing of goodwill and intangible assets key audit matter.  We compared the Eastwick EBIT inputs in the model to actual EBIT achieved for consistency and compared the liability to correspondence with the vendors of Eastwick Communications for consistency. 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. 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. 75 75 Enero Group Limited – Annual Report 2020 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF ENERO GROUP LIMITED 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. 76 76 Enero Group Limited – Annual Report 2020 Report on the Remuneration Report Opinion Directors’ responsibilities In our opinion, the Remuneration Report of Enero Group Limited for the year ended 30 June 2020, 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 2020. 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 26 August 2020 77 77 Enero Group Limited – Annual Report 2020 LEAD AUDITOR’S INDEPENDENCE DECLARATION UNDER SECTION 307 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 2020 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 26 August 2020 ASX additional information Substantial shareholders Shareholder RG Capital Multimedia Limited NAOS Asset Management Limited Perpetual Limited Regal Funds Management Pty Limited Wilson Asset Management Forager Funds Management Limited Bank of America Corporation Unquoted equity securities Range 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over 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 2020. The number of ordinary shares held by substantial shareholders and their associates is set out below: Number 15,223,268 13,274,636 12,684,755 7,800,760 7,553,907 5,450,474 4,549,401 124,456 712,828 770,088 3,593,525 80,873,962 86,074,859 % of issued capital 26.76 15.22 8.16 5.77 5.24 5.16 4.30 3.80 2.96 2.12 1.94 1.89 1.37 1.35 1.32 0.92 0.81 0.73 0.49 0.42 250 277 101 117 34 779 Units 23,036,347 13,097,877 7,025,156 4,964,893 4,511,945 4,439,060 3,703,272 3,269,079 2,548,301 1,826,255 1,667,025 1,630,102 1,178,742 1,159,020 1,133,176 788,637 698,166 632,629 420,000 363,648 As at 31 July 2020 there were no options granted over unissued ordinary shares in the Company. Voting rights Ordinary shares – refer to Note 17 Capital and reserves. Distribution of equity security holders: Number of equity security holders Ordinary shares The number of shareholders holding less than a marketable parcel of ordinary shares is 77. Twenty largest shareholders Rank Name 1 HSBC Custody Nominees (Australia) Limited 2 National Nominees Limited 3 JP Morgan Nominees Australia Pty Limited 4 UBS Nominees Pty Ltd 5 RG Capital Multimedia Limited 6 Citicorp Nominees Pty Limited 7 Irish Global Equity Limited 8 RG Capital Multimedia Limited 9 CH Global Pty Ltd 10 Brispot Nominees Pty Ltd 11 Irish Global Equity Limited 12 Mr Felice Testini 13 Merrill Lynch (Australia) Nominees Pty Limited 14 RG Capital Multimedia Limited 15 CS Third Nominees Pty Limited 16 Mrs Antonia Caroline Collopy 17 CS Fourth Nominees Pty Limited 18 Irish Global Equity Limited 19 Hawkdun Pty Ltd 20 Mr Brendan York Total 78,093,330 90.73 78 78 Enero Group Limited Annual Report 2020 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. Enero Group Limited – Annual Report 2020 ASX ADDITIONAL INFORMATION ASX additional 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 2020. 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 Perpetual Limited Regal Funds Management Pty Limited Wilson Asset Management Forager Funds Management Limited Bank of America Corporation Unquoted equity securities Number 15,223,268 13,274,636 12,684,755 7,800,760 7,553,907 5,450,474 4,549,401 As at 31 July 2020 there were no options granted over unissued ordinary shares in the Company. Voting rights Ordinary shares – refer to Note 17 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 250 277 101 117 34 779 Ordinary shares 124,456 712,828 770,088 3,593,525 80,873,962 86,074,859 The number of shareholders holding less than a marketable parcel of ordinary shares is 77. Twenty largest shareholders Rank Name 1 HSBC Custody Nominees (Australia) Limited 2 National Nominees Limited 3 JP Morgan Nominees Australia Pty Limited 4 UBS Nominees Pty Ltd 5 RG Capital Multimedia Limited 6 Citicorp Nominees Pty Limited 7 Irish Global Equity Limited 8 RG Capital Multimedia Limited 9 CH Global Pty Ltd 10 Brispot Nominees Pty Ltd 11 Irish Global Equity Limited 12 Mr Felice Testini 13 Merrill Lynch (Australia) Nominees Pty Limited 14 RG Capital Multimedia Limited 15 CS Third Nominees Pty Limited 16 Mrs Antonia Caroline Collopy 17 CS Fourth Nominees Pty Limited 18 Irish Global Equity Limited 19 Hawkdun Pty Ltd 20 Mr Brendan York Total Units 23,036,347 13,097,877 7,025,156 4,964,893 4,511,945 4,439,060 3,703,272 3,269,079 2,548,301 1,826,255 1,667,025 1,630,102 1,178,742 1,159,020 1,133,176 788,637 698,166 632,629 420,000 363,648 78,093,330 % of issued capital 26.76 15.22 8.16 5.77 5.24 5.16 4.30 3.80 2.96 2.12 1.94 1.89 1.37 1.35 1.32 0.92 0.81 0.73 0.49 0.42 90.73 Enero Group Limited Annual Report 2020 79 79 Enero Group Limited – Annual Report 2020 CORPORATE DIRECTORY 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 Email: companysecretary@enero.com 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 2 200 Barangaroo Avenue Sydney NSW 2000 Australia Auditors KPMG International Towers Sydney 3 300 Barangaroo Avenue Sydney NSW 2000 Australia 80 80 Enero Group Limited Annual Report 2020 Enero Group Limited – Annual Report 2020

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