Enero Group Limited Annual Report 2022

Plain-text annual report

Annual Report 2022 Enero Annual Report 2022Contents Further, Faster 03 Financial Report 25 A letter from our Chair A letter from our CEO Financial Highlights Geographical Results Client Analysis Brand Transformation Creative Technology and Data Environmental, Social and Governance Board of Directors 04 05 06 07 08 10 16 21 22 Directors’ Report (including the Remuneration Report) 26 Consolidated income statement 44 Consolidated statement of comprehensive income Consolidated statement of changes in equity Consolidated statement of financial position Consolidated statement of cash flows Notes to the consolidated financial statements Directors’ Declaration Independent Auditor’s Report Lead Auditor’s Independence Declaration ASX additional information Corporate Directory 45 46 47 48 49 91 92 99 100 101 1 Enero Annual Report 2022Further, Faster Enero is a specialist collective of companies. We accelerate brands and businesses using deep expertise and knowledge in technology, healthcare and high growth consumer verticals, to create transformational customer experiences. We operate in 11 countries and 15 cities, with over 750 employees. As we set the benchmark for change, with informed optimism, we provide deep functional expertise and support through our global centres of excellence in People and Culture, Finance, Technology, M&A and Legal. This enables our agency leaders to build deep and enduring client relationships, driving repeatable revenue, with almost 50% of our clients having a relationship within the Enero group for six years or longer. Our differentiated offering aims to set the benchmark for the industry, and will continue to separate us from our competitors; but most importantly deliver groundbreaking and effective results for our clients. 3 And we are just getting started, as we go further, faster. Each of the businesses within Enero support each other to push the boundaries of Brand Transformation and Creative Technology and Data. Our clarity of strategy and ability to relentlessly execute are demonstrated by consistent results delivered through our operating framework and business portfolio. Ongoing refinement of our business capabilities ensures we continually deliver world-class expertise to our clients. We consistently attract some of the finest minds in the industry, whose creative ideas transform customer and stakeholder experiences, connections, and engagements with our clients’ brands. Our NPS scores continue to increase, despite the challenge of a highly competitive hiring environment, reflecting our commitment to our team and our high performance and flexible culture. A letter from our Chair Dear Shareholders, I am pleased to present the Company’s 2022 Annual Report. The 12 months ended 30 June 2022 (FY22) was another outstanding year for the Enero Group. Our strong portfolio of global businesses have again delivered strong operational results with significant growth across all key financial metrics: • Net Revenue increasing 20% to $193.4 million • Operating EBITDA increasing 36% to $62.2 million • Net profit increasing 19% to $27.1 million • Earnings per share increasing 17% to 30.9 cents. These results contribute to the Company’s sustainable growth trajectory over the past five years, which is an impressive result. Over recent years, businesses have needed to rapidly evolve, become smarter and embrace the role of digital transformation in order to futureproof and thrive. Enero has benefited from its unique client facing proposition, progressive capability and deep vertical expertise, to accelerate clients’ digital transformation needs, underpinning our strong growth across the Group’s portfolio of companies. During FY22, Enero’s leadership team continued to relentlessly focus on the execution of a clear strategic framework, in place for the second year. We remain focused on two strategic segments with high growth potential – Brand Transformation and Creative Technology and Data. We have delivered solid net revenue growth from all agencies, with BMF delivering a record year and celebrating a 25th birthday anniversary. The strong results delivered from our Creative Technology and Data segment were underpinned by organic growth in OBMedia and Orchard, with OBMedia’s strong performance reflecting our strong search engine partnerships. On 1 July 2022, Enero strengthened our global network with the acquisition of ROI DNA and GetIT. With the acquisition of ROI DNA and the acquisition in 2021 of McDonald Butler, Hotwire is building scale and strengthening capabilities in NA, Europe and Asia. In FY22 we launched our ‘Reputation, Relationship, Revenue’ service framework, as we continue to position Hotwire as the pre-eminent global tech communications consultancy. With a strong balance sheet, Enero Group retains flexibility to pursue its growth strategy as we look to continue to capture market share in high growth verticals. Reflecting on the Company’s growth in FY22, strong balance sheet, and attractive growth opportunities, the Board declared a total FY22 dividend of 12.5 cents per share, fully franked, reflecting our commitment to ensuring shareholders share in Enero’s success. I would like to thank my fellow Board members for their continued commitment to Enero throughout FY22. Their expertise and independent judgement have been vital in progressing the Company’s growth strategy. On behalf of the Board, I would also like to thank our talented team for their diligence and dedication to our clients and to each other. I would also like to acknowledge the efforts of Brent Scrimshaw and the executive team, who are executing on our strategy and building a diversified portfolio of marketing and communications agencies with substantial scope to grow our businesses globally in FY23 and beyond. Finally, I would like to thank you, our shareholders, for your continued support of Enero. Yours sincerely, Ann Sherry AO Chair Enero Annual Report 2022A letter from our CEO Dear Shareholders, Progressing our strategic priorities On behalf of the entire team I am proud to report that Enero continued to thrive in FY22, delivering exceptional results for our clients and our shareholders. Our financial performance is a direct result of the focused execution of our operating strategy. Pleasingly, our growth was supported by our diversified revenue base around the world and across our portfolio, with all businesses in the Group contributing profit. It was also rewarding to see the team’s efforts during the year translate into strong financial results, continuing our track record of sustainable growth. Strong growth across portfolio businesses With the deep expertise of our portfolio of specialist agency brands, we continue to focus on accelerating clients’ digital transformation in the high-growth global verticals of technology, healthcare and consumer through our two operating segments – Brand Transformation, and Creative Technology and Data. Revenue within Brand Transformation was up 11% to $106.7 million. Hotwire benefited from its ‘Reputation to Revenue’ service offering resonating across all geographies and in its 25th year, BMF delivered a number of high profile government COVID vaccine campaigns in H1 FY22, as operating EBITDA margins grew despite some wage pressure and the return of travel in order to re-connect with our teams. Creative Technology and Data revenue was up 34% to $86.7 million. OBMedia experienced strong growth from the continued enhancement of its media buying capabilities, machine learning and additional sophistication in its data science capabilities. Orchard was also the most awarded agency at the 2021 PRIME Healthcare Marketing Awards reflecting its innovative thought leadership in the healthcare marketing space. In FY22 the team made significant progress on the four key priorities that continue to guide our global growth ambition. We continued to expand our capabilities and transformed Hotwire’s unique offering through the recent acquisitions of ROI DNA, a strategic B2B sales and marketing agency, and GetIT, a specialist B2B technology marketing agency – which provides a truly global network for the Hotwire group from 1 July 2022. As we continue to serve the needs of forward-thinking brands, we also unlock the digital transformation and analytics marketplace, which, when combined with the traditional Marketing Services market, provides a total addressable market of $1.2 trillion. 5 During FY22, we also continued to improve productivity and profitability through the implementation of technology and processes. This has been reflected in our strong underlying operating EBITDA growth. We also retain strategic flexibility with a net cash balance of $52.4 million, to support our long-term growth and innovation plans. Thank you On behalf of Enero’s Executive Leadership team, I would like to thank all of our 750 talented team members around the world for their dedication throughout the year. I would also like to express my gratitude to the Enero Executive team and my appreciation to the Enero Board, led by Ann Sherry AO, for its continued counsel and guidance as we take the next step in accelerating our business on a global scale. Finally, I would like to thank you, our shareholders, for your ongoing support and confidence in our strategic ambitions. Having delivered another strong result in FY22 Enero is well placed to continue its growth trajectory into FY23 and beyond. Yours sincerely, Brent Scrimshaw Chief Executive Officer Financial Highlights Net Revenue up 20% $193.4m Operating EBITDA up 36% $62.2m Operating EBITDA margin up 380bpt 32% Net Profit After Tax before significant items up 19% $27.1m Earnings per Share before significant items up 17% 30.9CPS FY22 Dividends 12.5CPS Enero Annual Report 2022Geographical Results Enero has offices around the world; with affiliates in key markets where we have client relationships. London Madrid Paris Milan Munich Frankfurt Amsterdam Seoul Taipei Jakarta Singapore Tokyo Hong Kong Beijing Shanghai 7 San Francisco New York Chicago Houston Minneapolis Sao Paulo Dubai Includes 51% economic interest in OBMedia: USA UK and Europe Australia 36% Net Revenue FY22 22% Net Revenue FY22 42% Net Revenue FY22 30% Net Revenue FY21 25% Net Revenue FY21 45% Net Revenue FY21 58% Operating EBITDA FY22 16% Operating EBITDA FY22 26% Operating EBITDA FY22 Sydney Melbourne 48% Operating EBITDA FY21 19% Operating EBITDA FY21 33% Operating EBITDA FY21 Client Analysis Revenue Diversification Enero revenue is diversified across both industry and geography. Our largest share of revenue came from the Information Technology sector, at 37% penetration predominately B2B; Technology in sustainable growth segments including cloud computing, security and digital transformation. Other key areas of strategic focus include: Digital Media (19%), Healthcare (12%) and Retail (12%). In FY22 we invested in additional systems and capability to support our global growth, which is reflected in a balanced contribution from Brand Transformation, up 11%; and Creative Technology & Data, up 34% in net revenue year on year, representing 20% growth as a Group. We have minimised our exposure to a changing marketplace, with a 50:50 project and retainer split in FY22 across agencies. This is also reflective of our deep and lasting relationships with clients, 66% of whom have been with the Enero Group for four years or longer. 37% Information Technology 19% Digital Media 12% Health Care 12% Retail 10% Service 4% Transportation, Airlines and Auto 3% Finance 2% Consumer Goods 1% Other Enero Annual Report 20229 Brand Transformation FY21 $95.9m FY22 Net Revenue up 11% $106.7m FY21 $21.3m FY22 Operating EBITDA up 14% $24.2m FY21 22% FY22 Operating EBITDA margin up 100bpt 23% Enero Annual Report 2022Human generated ideas that transform the way customers and stakeholders connect and engage with brands. Brand Transformation drives business success by creating thoughtful, distinctive ideation which supports long-term and tactical business communication needs for our clients. Our Brand Transformation specialist teams are Hotwire, BMF and CPR. Each leads rapid revolution of our clients through world-class talent. Human-led creative ideas Hotwire creates Brand Transformation for the worlds’ best tech clients, using the unique Revenue, Relationship and Reputation services framework. The team solves increasingly complex client problems – transforming data into integrated communications driven by distinctive narratives. Brand Identity, Account Based Marketing, Data & Analytics, PR & Communications and Digital Marketing programs ignite innovative business outcomes for its global client base. BMF delivers Brand Transformation by creating lasting relationships between brands and consumers. Their ‘long ideas’ drive long-term commercial effectiveness, social change, and enduring client relationships. CPR drives transformation for Government relations and strategic communications. Its unique expertise informs every story, from media advisory from former journalists, to political advice from former Ministerial advisers. 11 Meaningful connections and engagement Awarded Brand Transformations Hotwire has been recognised with campaign and agency awards, including ITSMA Gold Award for Marketing Excellence, and Finalist for PRovoke North American Technology Agency of the Year. BMF is consistently recognised as one of the world’s top performing creative agencies, with awards including 2022 Spikes Asia Creative Effectiveness Grand Prix, 2021 WARC #1 Most Effective Creative Agency in Australia, (#3 Globally), 2021 B&T NSW Agency of the Year, 2021 Mumbrella Culture Award, and the 2021 Platinum Tangrams Effectiveness Award. CPR attracts hundreds of millions of dollars in investment for clients at a Federal and State level, ranging from funding to revive the tourism economy, through to investment in local rapid antigen test production, and air purifier procurement to support a safe return to school and work. Hotwire delivers meaningful connections in tech centres globally. On the ground relationships with media, influencers, analysts and target accounts help clients drive engagement through tech expertise including the Metaverse, NFTs, and cyber threats; and corporate reputational topics like diversity, equity and inclusion, ESG, and the future of work. Hotwire connects clients to new revenue opportunities by helping them take the lead on new technology narratives before they become mainstream, through ongoing relationships with tech C-Suite, influencers, media, analysts, emerging VC-backed companies, and product developers in fast growth businesses. Hotwire create engagement through informed opinions on emerging innovations; knowing which ones will break through – and how. BMF specialists use neuroscience, behavioural economics, communications strategy, creativity, CxRM, customer experience and high quality production, to deliver engaging advertising across broadcast, digital and social screens. They drive long- term connections with iconic brand advertising for clients including Tourism Tasmania, REST Super, ALDI Australia, The Australian Government, Tip Top, and the Department of Social Services. CPR intersects knowledge, networks and experience across three core disciplines – Issues Management, Government Relations, and Public Relations – to create meaningful engagement with complex regulatory conversations, which attract political and public scrutiny. It supports global and Australian brands in dynamic sectors including health and medical research, technology, energy, education and financial services. Enero Annual Report 2022Case Study Cloudera: Driving Credibility for a Vital Diversity and CSR Program Challenge Cloudera’s CEO Rob Bearden stated publicly that his company’s commitment to take deliberate and decisive action to address inequality in its workplaces and communities is very important to him – both personally and as the leader of a global organisation. Strategy As part of this commitment from the top, Cloudera’s executive team looked within the organisation and elevated the then Head of Diversity, Inclusion and Learning, Sarah Shin, to the newly created position of Chief Diversity Officer. Before the announcement of Sarah’s promotion, Hotwire worked closely with her to develop her thought leadership platform, personal narrative, and internal and external communication strategy, which enabled her to share her vision during All Hands and Sales Kick Off meetings; and grow her organisation. Sarah and the Global Communications Team recognised the impact of the pandemic on young students and their learning. This led Cloudera to want to make AI more accessible for young students. Execution Hotwire spent time with the CSR team to help evolve and align their vision and activities globally, which led to a successful ‘Global Day of Service’ for employees. Hotwire introduced Cloudera to a well established children’s STEAM author and publisher, Ready AI. The two companies co-authored a book for 8-10-year-olds, Fresh Squeeze on Data. Hotwire also introduced Cloudera to the Boys & Girls Club to sponsor a summer camp STEAM program and share the book with camp attendees. The Hotwire driven Cloudera CSR program has been a connected thread through communications, programs and activities, with a consistent narrative in messaging, content and executive communications, both internally and externally. The work also guided brand communications and messaging within the global organisation and continues to serve as a foundation of the CSR program today. The Cloudera DE&I Program July 2021: 75% complete Pay Equity Study Running a pay equity study to understand where Cloudera relates to the trends present in the industry, and addressing any gaps. 100% complete Chief Diversity Office Added a Chief Diversity Officer to the executive leadership team. Centre of Excellence Partnership Partnered with the Boys & Girls Club to sponsor an educational workspace for under-represented high school minorities. Diversity and Inclusion External publishing of Cloudera’s Diversity and Inclusion metrics. 13 The book has now been translated into various languages and is available in: 48 different countries 586 school systems across the globe Case Study Department of Social Services: Stop It At The Start Challenge Execution Phase 1 Recognise the link between disrespect and end-stage violence. Phase 2 Reconcile it to everyday behaviours that permit and enable disrespect. ‘You’re teaching disrespect’ Phase 3 Respond in a moment of disrespect. ‘Unmute Yourself’ Phase 4 Reinforce respect – About how conversations around dis/respect set up an enduring culture of respect. ‘Bring up Respect’ Violence against women is at epidemic proportions in Australia. • One-third of women have been a victim of physical or sexual violence since the age of 15, by someone known to them. • One-quarter of young people are prepared to excuse violence from a partner. Research showed violence in men grows from attitudes learned from a young age. To break this cycle in future generations, we need to address the underlying cause – the disrespect towards girls and women that can grow into violence; and to target people who influence 10 to 17-year-old Australians – parents, teachers, sports coaches and peers – to recognise the link between gender inequality, disrespect and violence. This task is made difficult by multiple barriers. Firstly, influencers value ‘respect’ meaning they are blind to how their ‘innocent’, everyday behaviours permit disrespect that could result in violence later on. Next, intervening in a moment of disrespect carries social risk. The need is to increase self confidence to intervene in a moment of disrespect by making it feel normal. And, more recently, ongoing conversations promoting respect can feel burdensome. BMF must find a role for conversations around dis/respect that feel everyday and natural. In some ways, it is the mother of all the talks we all have in our formative years. Strategy A long-term, primary prevention, behaviour change campaign targeting influencers and our children. First, about stopping problem behaviours that lead to disrespect and now evolving into starting positive behaviours that build a culture of respect. It is considered one of the Australian Federal Government’s most successful campaigns, centred around bridging The Value-Action Gap – a behaviour change theory. The Long Idea is: Stop It At The Start. This is a rallying call to address violence against women at the seed of the problem: disrespect. In order to get influencers to understand the connection and act, BMF steps out the change, over seven years. Enero Annual Report 2022Case Study Tourism, Medical and Health Industries: Engaging Government on policy, regulation and funding Challenge During the pandemic, when public health-led decisions on border closures and lockdowns radically disrupted business and social outcomes, the ability to engage with government became transformational; and business critical. Federal, State and local governments changed and accelerated traditional policy and grant-making processes to provide urgent support to individuals and businesses in financial distress, and to capture emerging opportunities to underpin a disrupted economy. The Federal Government’s economic response to COVID was $291 billion in the 2021/22 Budget; while multi- billion dollar allocations to support economic recovery and revitalisation were made by State governments, creating a lifeline for local businesses. The Victorian tourism sector was one of the hardest hit by COVID. Total tourism expenditure in Victoria was $16.5 billion in March 2022, 45% below pre-COVID levels. Strategy Headquartered in Melbourne, which endured some of the longest COVID lockdowns in the world, CPR helped clients to connect to government decision makers and influence policy development. CPR worked closely with the Victoria Tourism Industry Council to highlight challenges facing the sector, and develop and publicise a range of recovery initiatives. This helped inform a series of funding announcements, including a Regional Tourism Support Package, and a $200 million stimulus package to entice Victorians back to food and hospitality venues. CPR also worked with major health services including Cancer Council Victoria and St John Ambulance to engage with government about the knock-on effects of COVID, such as delayed testing and diagnoses of disease, major workforce shortages, hospital bed shortages and health transport challenges. 15 Execution As lockdowns lifted, CPR arranged face-to-face meetings and site visits for clients with Ministers, Shadow Ministers and Members of Parliament – including the now Prime Minister, Anthony Albanese. These bring industry and government closer together to identify and unlock economic opportunities that drive innovation and job creation. CPR worked with Regional Cities Victoria, a peak group representing the 10 largest Councils outside Melbourne, in support of a successful bid for the 2026 Commonwealth Games. In a world first, the Games will be dispersed across regional locations rather than centralised. This will deliver a boost to the Victorian economy of $3 billion and outside metropolitan Melbourne, a legacy of affordable housing + new infrastructure Creative Technology and Data FY21 $64.7m FY22 Net Revenue up 34% $86.7m FY21 $31.8m FY22 Operating EBITDA up 53% $48.6m FY21 49% FY22 Operating EBITDA margin up 700bpt 56% Enero Annual Report 2022Pioneering innovative technologies Orchard continues to invest in critical business growth areas across data analytics with deep specialisation in key platforms including Salesforce, Adobe, Kentico and Optimizely. Orchard delivers a unique business transformation approach for brands who want a consultancy mindset with the delivery efficiencies of technology savvy and data-led outcome. Winning Creative Technologies Orchard continued its momentum in FY22 with 14 new client wins and extensive industry recognition including B&T and Mumbrella finalist nominations, Webby Awards Honours, and winning the most awards of any healthcare agency group at the most recent PRIME Awards; while OBMedia won the Excellence in Quality award from Microsoft for the second year in row. 17 High quality customer experiences connected through technology and enabled by data. Our Creative Technology specialists at Orchard and OBMedia use technology to connect; and data to enable cohesive narratives and consumer experiences. World- class creative ideas deliver results from lead generation to loyalty; through online and in-person experiences that connect every moment on the customer journey. Reimagining creative connections Orchard’s channel agnostic teams pioneer innovative ways to experience everything – from buying a car, to connecting pharmaceutical companies with clinicians and helping patients discover new treatments. OBMedia’s media buyers are empowered by innovative proprietary technology to effectively price and adjust bids, in near real time on expertly selected ad placements from sources including Facebook, TikTok, Google Display Network and Taboola. This allows them to deliver ROI for advertisers in a safe environment for partner brands and end users to operate. Case Study Powering digital advertising growth through ADTech Challenge Execution Search-based advertisers continue to look for new sources of growth. They seek cost-effective, high intent audiences that deliver on business needs, and to reduce the impact of fraudulent bot traffic. OBMedia has unique and proprietary technology, machine learning, automation and partnerships that enable it to deliver outstanding value to advertisers and publishers. Its key areas of differentiation are: Strategy OBMedia is a digital advertising technology platform that drives high-quality and high-intent traffic to search- based advertisers. OBMedia leverages its proprietary technology, exclusive search partnerships and deep data analytics expertise to fuel demand for advertisers. OBMedia’s business is focused on: • targeting high-value consumers from digital publishers, ad networks and social channels with dynamic, creative and relevant content • qualifying the intent of those consumers through proprietary data science techniques • providing the most relevant search-based advertising results that match consumers’ needs OBMedia derives its revenue from quality audiences delivered to advertiser websites. Leading optimisation technology Providing the most relevant ads for target audiences Unmatched fraud monitoring Filtering bot traffic to protect value for partners Powerful technology stack Real-time data, system resiliency and rapid new product development Deep data science Powering responsive campaign analytics, privacy compliance and end-to-end conversion tracking OBMedia continues to invest in capabilities that fuel growth for partners and in turn OBMedia. In FY22 OBMedia enhanced campaign optimisation capabilities and platform development to drive more informed traffic acquisition. At the same time, OBMedia continued to refine its fraud monitoring capabilities – critical to maintaining OBMedia’s class-leading bot detection rates and trusted status with key partners. Results OBMedia delivered outstanding results for advertising partners in FY22, with a 30% increase in traffic conversion and 120% increase in consumers delivered to advertisers: 285m consumers delivered to advertisers’ websites 120% increase, compared to FY21 Enero Annual Report 2022Case Study Collaborative Care for COPD: COPD Connect Challenge Chronic obstructive pulmonary disease (COPD) is a major health burden in Australia and is the second most common cause of potentially preventable hospitalisations. It causes at least moderate symptoms in 29% of Australians aged ≥75 years. Boehringer Ingelheim wanted a fresh approach to CPD-accredited COPD medical education with a highly interactive series of 60 educational meetings for GPs to bring new interest to a saturated education sphere. Strategy Rather than focusing solely on the role of the GP in diagnosing and managing COPD, we focused instead on how GPs were the hub of a much wider COPD care team that included nurses, pharmacists, physiotherapists, nutritionists, etc. By considering how each member of the multidisciplinary team connected and interacted with the GPs, we covered the necessary COPD-X guidelines while also imparting new and unique information. A modular approach using guest speakers allowed the GPs to hear directly from the wider COPD care team in their own words. Execution We developed the content in collaboration with a steering committee made up of a respiratory specialist, GP, specialist nurse and pharmacist, to reflect the collaborative nature of the content while also meeting RACGP requirements. The meetings were highly interactive, with multiple group discussions and online live polling; and also highly practical, with information about accessing relevant Medicare Items included throughout and in post-meeting resources. We used instructional design techniques to develop content that was effective, appealing and inspiring for the audience. A unique, refreshing design helped combat ‘slide fatigue’ and brought a positive and uplifting feel to the meetings. A range of technological measures simplified meeting registration and allowed remote administration of all 60 meetings. Results The activity was CPD accredited by the RACGP and by ACRRM to serve GPs in both urban and rural/remote areas. The meeting series has had outstanding feedback from everyone involved, including the GPs, the RACGP, the Steering Committee members and Boehringer Ingelheim. Based on submitted RACGP evaluations: 19 99% of GPs felt their needs were met across all five learning objectives. 87% reporting they were entirely met. 95% stated they were likely or very likely to recommend the meeting to a peer. GP confidence in coordinating COPD patient care with other healthcare professionals rose from 47% to 89% Confidence in implementing COPD-X guidelines on early diagnosis rose from 40% to 86% Enero Annual Report 2022Environmental, Social and Governance Reconciliation Australia HIPP In November 2021, the Group received formal endorsement of our Reconciliation Action Plan from Reconciliation Australia. This was an important milestone in Enero’s commitment to continue to learn about and celebrate the rich culture and history of Aboriginal and Torres Strait Islander peoples. In forming our RAP committee with representation from all Enero Group AU businesses, Enero held the first meeting in December 2021 operating under our Terms of Reference. Through our Supply Nation membership, we connected with Indigenous owned and operated businesses to secure a partner organisation to act in a RAP Advisory capacity, and provide the Group with cross-cultural training. In the coming year, we will continue to work with our RAP Advisory partner on further educational opportunities, strategies and policies to meet our RAP commitments including recruitment opportunities to increase employment of Aboriginal and Torres Strait Islander Peoples. We have also placed Supply Nation at the heart of our procurement decisions as it relates to training, catering and RAP consultancy. Teams across Enero also attended the Supply Nation Connect 22 Tradeshow to expand our procurement networks and to create valuable connections. Enero celebrated its fourth year of working with CareerTrackers and welcomed another outstanding student this year. CareerTrackers is a not-for-profit organisation which connects partner organisations and Indigenous university students with internship opportunities with the idea of converting those opportunities into full-time employment at the completion of their studies. Globally the Group remain committed to in-country DEI initiatives, for example Hotwire launched its HIPP program in February 2021 and committed US $1 million globally in pro-bono Brand Marketing and Public Relations services to tech or tech enabled organisations which are led by or support people of colour and other relevant groups. Since the launch, Hotwire has successfully partnered with nine organisations globally and continues to look for new partners for the program. Environmental The Group remain deeply committed to reducing the impact we have on the environment, and in addition to the many programs we have in place to minimise waste, in June 2021 we joined the Work Waste Challenge with ZeroCo (contributing to stopping the production of new single-use plastic bags) and banned paper plates use for our in-office events to reduce our reliance on single- use plastics. 21 Ethical Conduct Training and Policies At Enero we want our people to feel safe, empowered, supported and able to bring their whole selves to work in a truly inclusive environment. We are committed to a workplace free from discrimination, a place where our people can grow, develop and thrive regardless of race, religion, sexual preference, gender, marital status or disability. We ensure we have clear policies in place, which we support with a variety of training opportunities throughout the year. These policies and training ensure we create a respectful workplace with an emphasis on: • Discrimination, harassment and bullying • Modern Slavery • Anti-Bribery and Corruption • Environmental impacts • Whistleblowing Board of Directors Ann Sherry AO Independent Non-Executive Director Brent Scrimshaw Chief Executive Officer Anouk Darling Independent Non-Executive Director Ann was appointed as Chair and Non-Executive Director on 1 January 2020 and is a member of the Remuneration and Nomination Committee. Ann is a Director of National Australia Bank (ASX: NAB), Chair of its Customer Committee and a member of its Remuneration Committee. Ann is Chancellor of Queensland University of Technology, Chair of UNICEF Australia, Chair of Port of Townsville, and a Director of Infrastructure Victoria and the Museum of Contemporary Art. Ann is an Advisor, the former Chair and was CEO of Carnival Australia for a decade. Ann was at Westpac for 12 years, CEO of Bank of Melbourne and the CEO of Westpac New Zealand and Pacific Banking. Ann was named the overall winner of the AFR 100 Women of Influence in 2015. Brent was appointed Chief Executive Officer and Executive Director on 1 July 2020. Brent is a creative and brand led business leader with specific expertise in global consumer brands, media and publishing, technology, retail and sports. Brent built his career at Nike Inc around the world holding leadership positions such as Vice President and Chief Executive Western Europe, Vice President and Chief Marketing Officer EMEA based in Amsterdam, The Netherlands, GM Regional USA based in New York City and Marketing Director Nike Pacific in Australia. Brent is currently a Non-Executive Director of KMD Brands Ltd (ASX: KMD) and Rhinomed Ltd (ASX: RNO) and was previously a Non-Executive Director of Catapult Group Ltd (ASX: CAT) and Fox Head Inc in California USA. Anouk was appointed as a Non- Executive Director on 6 February 2017 and is a member of the Audit and Risk Committee and the Remuneration and Nomination Committee. Anouk is a Director of Macquarie Telecom Limited (ASX: MAQ) as well as a member of its Audit and Risk Committee and Chair of the Remuneration and Nomination Committee. Anouk is a Board member of Discovery Holiday Parks and Chair of its People and Remuneration Committee. Anouk is currently the Chief Executive Officer for the Scape Group. Previously Anouk held an Executive role as Chair of Moon Communications Group, a business which she worked in for 12 years, where she held the role of Strategy Director and then served as Chief Executive Officer. Enero Annual Report 2022Ian Rowden Independent Non-Executive Director David Brain Independent Non-Executive Director Louise Higgins Independent Non-Executive Director Ian was appointed as a Non- Executive Director on 21 November 2018 and is the Chair of the Remuneration and Nomination Committee. Ian is an experienced CEO and senior executive with extensive experience in Australian, regional and global roles in commercial, strategy, M&A, marketing and operational leadership with companies including The Coca-Cola Company, The Callaway Golf Company, Wendy’s International, Saatchi & Saatchi and The Virgin Group. Ian is currently a non-executive director of Reliance Worldwide Corporation (ASX: RWC), DuluxGroup International (UK), and was a director of QMS Media Limited and Virgin Galactic. Ian chairs the Murdoch Children’s Research Institute Marketing Council, is a partner and investment advisory board member for Innovate Partners (US based private equity/venture capital) and a senior advisor to Bowery Capital. He is based in the USA. David was appointed as a Non- Executive Director on 10 May 2018 and is a member of the Audit and Risk Committee. Louise was appointed as a Non- Executive Director on 10 September 2021 and is the Chair of the Audit and Risk Committee. David has over 25 years’ experience in public relations and integrated communications. At Edelman (world’s largest PR firm), David was a Director of the Group Supervisory Board and member of its global management board. During 13 years at Edelman, he was CEO of the EMEA region and latterly, CEO of 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 Chair of parking technology company Parkable; Chair of child poverty charity Share My Super; Advisory Board member of The Spinoff, and Co-Founder of research start-up Stickybeak. Louise is the CFO for Australia at ANZ Bank (ASX: ANZ), covering Retail, Commercial and Digital Transformation. 23 Louise began her Executive career in London with law firm Freshfields Brushaus Deringer followed by seven years at the BBC. Louise has worked at Australia’s Macquarie Bank as an Associate Director, COO for Nova Entertainment with responsibility for performance of the Nova and Smooth radio networks and as Chief Financial and Strategy Officer for the Australian Broadcasting Corporation (ABC) to oversee significant technology transformation. Her diverse non- executive career includes service with Commercial Radio Australia, Visit Victoria, Qudos Bank and Canteen Australia. 2 2 0 2 e n u J 0 3 d e d n e r a e y r o f t r o p e r l a i c n a n F i Directors’ Report Financial Report year ended 30 June 2022 25 Directors’ Report The Directors present their report, together with the consolidated 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 2022; and the independent auditor’s report thereon. Directors The Directors in office as at the date of this report are: Name Role Independent Appointed Ann Sherry Anouk Darling Ian Rowden David Brain Louise Higgins Brent Scrimshaw Executive Director Non-Executive Chair Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Yes Yes Yes Yes Yes No 1 January 2020 6 February 2017 21 November 2018 10 May 2018 10 September 2021 1 July 2020 Length of service (at 30 June 2022) 2 years and 6 months 5 years and 4 months 3 years and 7 months 4 years and 1 month 9 months 2 years The biographical details of the current Directors included on pages 22 and 23 set out information about the Directors’ qualifications, experience, responsibilities and other directorships. The following person was also a Director during the current financial year: Name Susan McIntosh Role Non-Executive Director Independent No Appointed Appointed 2 June 2000 and retired 21 October 2021 Length of service 21 years and 4 months Company Secretary Cathy Hoyle is the Group General Counsel and was appointed Company Secretary on 8 March 2021. Cathy is a practising Solicitor in New South Wales Australia, a Graduate of the Australian Institute of Company Directors, and holds several degrees including a Master of Laws from the Australian National University. Committee Membership At the date of this report, the Company has an Audit and Risk Committee and a Remuneration and Nomination Committee. Members of these Committees were: Audit and Risk Committee Louise Higgins (Chair) Anouk Darling David Brain Remuneration and Nomination Committee Ian Rowden (Chair) Ann Sherry Anouk Darling 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, public relations, communications planning, design, events management, direct marketing 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 2022 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 fourth edition of the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations (ASX Principles), are available on the corporate governance section of the Company’s website at http://www.enero.com/investor- centre/governance. 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 Brent Scrimshaw Anouk Darling Ian Rowden David Brain Louise Higgins Total Ordinary Appreciation shares 18,750 216,877 19,607 75,000 75,000 Nil Share Rights 2,133,334 Nil Nil Nil Nil Nil 405,234 2,133,334 Events subsequent to balance date Transactions or events subsequent to the balance date Operating and Financial Review Information relating to the operating and financial review of the Company and its strategy is outlined on pages 30 to 35 and forms part of this Directors’ Report. were: • 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 Remuneration Risk Committee meetings and Nomination Committee meetings A 6 6 6 6 6 5 2 B 6 6 6 6 6 5 2 A – – 4 – 4 3 1 B – – 4 – 4 3 1 A 2 – 3 3 – – – B 3 – 3 3 – – – Ann Sherry Brent Scrimshaw Anouk Darling Ian Rowden David Brain Louise Higgins Susan McIntosh 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. on 1 July 2022, the Group acquired 100% of the issued capital of ROI DNA Inc, a USA based strategic B2B sales and marketing agency. The purchase consideration was an upfront payment of US$26,400,000 ($38,306,000) in cash and US$6,600,000 ($9,577,000) of Enero Group Limited shares with additional contingent consideration linked to the achievement of EBITDA targets over the next 3 years through to 30 June 2025. Refer to Note 22 Acquisitions for details. • on 1 July 2022, the Group acquired 100% of the issued capital of GetIT Pte Ltd, a Singapore based specialist B2B technology marketing agency with presence in India, Malaysia and Japan. The purchase consideration was an upfront payment of S$2,700,000 ($2,816,000) in cash and S$1,800,000 ($1,877,000) of Enero Group Limited shares with additional contingent consideration linked to the achievement of EBIT target over the next 3 years through to 30 June 2025. Refer to Note 22 Acquisitions for details. • the Directors have declared a final dividend, with respect to ordinary shares, of 6.5 cents per share, fully franked. The final dividend will have a record date of 20 September 2022 and a payment date of 4 October 2022. Except for these events 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. 26 Enero Group Limited Annual Report 2022 Enero Group Limited Annual Report 2022 27 Directors’ ReportFinancial report for year ended 30 June 2022 Directors’ Report The Directors present their report, together with the consolidated 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 2022; and the Name Role Independent Appointed independent auditor’s report thereon. Directors The Directors in office as at the date of this report are: Ann Sherry Anouk Darling Ian Rowden David Brain Louise Higgins Non-Executive Chair Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Brent Scrimshaw Executive Director Yes Yes Yes Yes Yes No 1 January 2020 6 February 2017 21 November 2018 10 May 2018 Length of service (at 30 June 2022) 2 years and 6 months 5 years and 4 months 3 years and 7 months 4 years and 1 month 10 September 2021 9 months 1 July 2020 2 years The biographical details of the current Directors included on pages 22 and 23 set out information about the Directors’ qualifications, experience, responsibilities and other directorships. The following person was also a Director during the current financial year: Name Role Independent Appointed Length of service Susan McIntosh Non-Executive Director No Appointed 2 June 2000 21 years and and retired 21 October 2021 4 months Company Secretary Cathy Hoyle is the Group General Counsel and was appointed Company Secretary on 8 March 2021. Cathy is a practising Solicitor in New South Wales Australia, a Graduate of the Australian Institute of Company Directors, and holds several degrees including a Master of Laws from the Australian National University. Committee Membership At the date of this report, the Company has an Audit and Risk Committee and a Remuneration and Nomination Committee. Members of these Committees were: Audit and Risk Committee Louise Higgins (Chair) Anouk Darling David Brain Remuneration and Nomination Committee Ian Rowden (Chair) Ann Sherry Anouk Darling 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, public relations, communications planning, design, events management, direct marketing 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 2022 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 fourth edition of the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations (ASX Principles), are available on the corporate governance section of the Company’s website at http://www.enero.com/investor- centre/governance. Operating and Financial Review Information relating to the operating and financial review of the Company and its strategy is outlined on pages 30 to 35 and forms part of this Directors’ Report. 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 6 6 6 6 6 5 2 B 6 6 6 6 6 5 2 A – – 4 – 4 3 1 B – – 4 – 4 3 1 Remuneration and Nomination Committee meetings B A 2 3 – – 3 3 3 3 – – – – – – Ann Sherry Brent Scrimshaw Anouk Darling Ian Rowden David Brain Louise Higgins Susan McIntosh 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 Brent Scrimshaw Anouk Darling Ian Rowden David Brain Louise Higgins Total Ordinary shares 18,750 216,877 19,607 75,000 75,000 Nil 405,234 Share Appreciation Rights Nil 2,133,334 Nil Nil Nil Nil 2,133,334 Events subsequent to balance date Transactions or events subsequent to the balance date were: • on 1 July 2022, the Group acquired 100% of the issued capital of ROI DNA Inc, a USA based strategic B2B sales and marketing agency. The purchase consideration was an upfront payment of US$26,400,000 ($38,306,000) in cash and US$6,600,000 ($9,577,000) of Enero Group Limited shares with additional contingent consideration linked to the achievement of EBITDA targets over the next 3 years through to 30 June 2025. Refer to Note 22 Acquisitions for details. on 1 July 2022, the Group acquired 100% of the issued capital of GetIT Pte Ltd, a Singapore based specialist B2B technology marketing agency with presence in India, Malaysia and Japan. The purchase consideration was an upfront payment of S$2,700,000 ($2,816,000) in cash and S$1,800,000 ($1,877,000) of Enero Group Limited shares with additional contingent consideration linked to the achievement of EBIT target over the next 3 years through to 30 June 2025. Refer to Note 22 Acquisitions for details. the Directors have declared a final dividend, with respect to ordinary shares, of 6.5 cents per share, fully franked. The final dividend will have a record date of 20 September 2022 and a payment date of 4 October 2022. • • 27 26 Enero Group Limited Annual Report 2022 Enero Group Limited Annual Report 2022 27 Except for these events 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. Directors’ Report 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. Indemnification and insurance of officers and auditors Indemnification The Company has agreed to indemnify the following current Directors of the Company: Ann Sherry, Brent Scrimshaw, Anouk Darling, Ian Rowden, David Brain, Louise Higgins and Company Secretary Cathy Hoyle 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 15 September 2021, the Company issued 1,389,589 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). The issue price of these shares was $3.17 and these shares rank equally with existing shareholders. Share Appreciation Rights Share Appreciation Rights issued During the year ended 30 June 2022, a total of 4,525,000 Share Appreciation Rights (30 June 2021: 3,900,000) 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 2022 30 September 2022 30 September 2022 30 September 2023 30 September 2023 30 September 2024 Total Number of SARs 416,670 1,033,330 1,508,330 1,033,340 1,508,332 1,508,338 7,008,340 Strike price VWAP (for the 20 business days prior to the grant) $2.13 $1.52 $3.02 $1.52 $3.02 $3.02 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: 2021 Final dividend 2022 Interim dividend Cents per share Total amount AUD ’000 Date of payment 4.4 6.0 3,874 6 October 2021 5,283 16 March 2022 Subsequent to the balance sheet date, the Directors have declared a final dividend, with respect to ordinary shares, of 6.5 cents per share – fully franked with a payment date of 4 October 2022. The financial effect of this dividend has not been brought to account in the consolidated financial statements for the year ended 30 June 2022 but will be recognised in the subsequent financial period. For further details refer to Note 17 Capital and reserves in this annual report. Environmental regulation and performance Auditor independence The Board believes that the Group has adequate systems The Lead Auditor’s independence declaration as required in place for the management of its environmental under section 307C of the Corporations Act 2001 is set out requirements and is not aware of any significant breach of on page 99, and forms part of the Directors’ Report for the those requirements as they apply to the Group. year ended 30 June 2022. Non-audit services Rounding off During the year KPMG, the Group’s auditor, has performed The Company is of a kind referred to in ASIC Corporations certain other services in addition to the audit and review of (Rounding in Financial/Directors’ Reports) Instrument the consolidated 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 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. Committee, is satisfied that the provision of those non-audit Remuneration Report services during the year by the auditor is compatible with, The Remuneration Report on pages 36 to 43 forms part of and did not compromise, the auditor independence this Directors’ Report. requirements of the Corporations Act 2001 for the following Signed on behalf of the Directors in accordance with a resolution of the Directors: Ann Sherry AO Chair Sydney, 8 September 2022 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 31 Auditor’s remuneration of the notes to the consolidated financial statements. Services other than statutory audit Auditors of the Company Taxation compliance services: KPMG Australia Overseas KPMG firms Total services other than statutory audit 2022 $ 2021 $ – 295,000 26,000 286,000 295,000 312,000 28 Enero Group Limited Annual Report 2022 Enero Group Limited Annual Report 2022 29 Directors’ ReportFinancial report for year ended 30 June 2022 Directors’ Report 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. Indemnification and insurance of officers and auditors Indemnification The Company has agreed to indemnify the following current Directors of the Company: Ann Sherry, Brent Scrimshaw, Anouk Darling, Ian Rowden, David Brain, Louise Higgins and Company Secretary Cathy Hoyle 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 15 September 2021, the Company issued 1,389,589 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). The issue price of these shares was $3.17 and these shares rank equally with existing shareholders. Share Appreciation Rights Share Appreciation Rights issued During the year ended 30 June 2022, a total of 4,525,000 Share Appreciation Rights (30 June 2021: 3,900,000) 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 2022 30 September 2022 30 September 2022 30 September 2023 30 September 2023 30 September 2024 Total SARs 416,670 1,033,330 1,508,330 1,033,340 1,508,332 1,508,338 7,008,340 grant) $2.13 $1.52 $3.02 $1.52 $3.02 $3.02 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: 2021 Final dividend 2022 Interim dividend Cents Total per amount share AUD ’000 Date of payment 4.4 6.0 3,874 6 October 2021 5,283 16 March 2022 Subsequent to the balance sheet date, the Directors have declared a final dividend, with respect to ordinary shares, of 6.5 cents per share – fully franked with a payment date of 4 October 2022. The financial effect of this dividend has not been brought to account in the consolidated financial statements for the year ended 30 June 2022 but will be recognised in the subsequent financial period. For further details refer to Note 17 Capital and reserves in this annual 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 99, and forms part of the Directors’ Report for the year ended 30 June 2022. 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 pages 36 to 43 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, 8 September 2022 29 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 consolidated 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 31 Auditor’s remuneration of the notes to the consolidated financial statements. Services other than statutory audit Auditors of the Company Taxation compliance services: KPMG Australia Overseas KPMG firms Total services other than statutory audit 2022 $ 2021 $ – 295,000 26,000 286,000 295,000 312,000 28 Enero Group Limited Annual Report 2022 Enero Group Limited Annual Report 2022 29 Directors’ Report Operating and financial review The operating and financial review forms part of the Directors’ Report. Strategy and operations of the Group Enero Group is a global and diversified creative technology company, focused on delivering modern marketing services to businesses around the world. The Group achieves this through an international network of marketing, communications and advertising technology companies with over 750 employees (at the date of this report) in 11 countries. Enero’s vision is to be a leading group of specialist marketing services businesses, famous for our progressive capabilities. We achieve this through deep knowledge and experience in key industries, which delivers growth for our clients, transforming their brands with creative, technology and data solutions. Our industries of focus are Technology, Healthcare and Growth Consumer, all of which are supported by long-term positive macroeconomic growth trends. We differentiate against our competitors through our integrated offering combined with our deep industry specialism, and our agility to capitalise on new developments in our dynamic sector. Our growth strategy is focused on both the continued evolution of the Group’s existing portfolio businesses supported by Enero’s Centres of Excellence. We continue to invest to add transformational capabilities and geographies such as the acquisitions of ROI DNA and GetIT Communications on 1 July 2022. We also continue to reshape the portfolio through selective divestments, including the sale of The Leading Edge and The Digital Edge in FY22. The Group is well positioned to continue to invest in growth opportunities in the current economic environment, and to remain resilient to risks that face our business. • COVID-19 has changed the nature of work, and despite wage inflation pressure and talent shortages across our industry, Enero continues to benefit from our progressive workplace practices. For example, prior to the pandemic, Hotwire built a reputation for ‘thoughtful working’, which allowed for flexible working arrangements. This enabled Hotwire to proactively recruit high-performing staff during the pandemic, without the need to be located in major metropolitan areas. We continue to evolve our employee value proposition to ensure we can attract and retain the best talent across the Group. • Economic uncertainty is impacting all industries, however Enero’s unique positioning and market offering makes us well placed to outperform competitors:  In Technology, we primarily work with the world’s leading B2B Technology clients who are less volatile in their allocation of marketing spend versus B2C Technology clients.  Healthcare is typically more resilient to macroeconomic volatility.  OB Media benefits from the correlation in the movement of advertising rates and the subsequent impact on costs of traffic acquisition. Search advertising rates have also proven more resilient than other advertising channels. Enero Group remains optimistic about the growth opportunity of our business across all regions. We continue to look for opportunities to invest to modernise our services in order to better serve our clients’ needs, whilst also maintaining the delivery of strong margins across our diversified portfolio. We remain responsive to changing macroeconomic conditions, and our long-term perspective will ensure that we capitalise on opportunities to evolve and transform the Group. Enero Group considers the following to be the most relevant risks to the business achieving its strategic, operational and financial targets: Potential risk COVID-19 pandemic Risk description Potential further lockdowns and related restrictions in response to the COVID-19 pandemic, resulting in one or all of the following: • Business continuity risk from changed working environments for employees; • Supply chain risk from impacted suppliers; and/or Financial risk from reduced advertising spend. • Group’s mitigating actions Business continuity: Over the course of the pandemic, Enero has built robust processes to deal with risks associated with lockdowns, including fully virtual team collaboration tools, strengthened cyber security, WHSE practices and investment in work-from-home people and culture initiatives. Supply chain risk: Our businesses maintain a diverse list of suppliers (e.g. content production houses, media companies), to ensure we are not significantly impacted by over-reliance on a single supplier. Financial risk: As we saw in FY020 and FY21, our diversified business benefited from increased consumer online activity driven by extended lockdowns. Any decrease in advertising dollars spent on traditional advertising is likely to be mitigated by increased demand for digital transformation, performance marketing and increased search advertising traffic. Potential risk Risk description Group’s mitigating actions Uncertain economic conditions Global macroeconomic conditions Enero Group is a diversified portfolio of businesses, both may impact demand for marketing geographically and in terms of the types of marketing services and therefore reduce the services offered. This helps us to remain resilient to Group’s revenue performance. economic volatility. The Group also owns businesses that Evolving needs Changing requirements of clients’ Enero Group continues to invest in the evolution of our of clients marketing needs may render our capabilities, both through internal investment as well as services redundant or unsuitable. strategic acquisitions. The Enero Board and management Supply chain Suppliers no longer provide critical Enero has a diversified portfolio of supplier relationships services/products to the Group, for with different contract maturity dates to mitigate the impact commercial, financial (bankruptcy of losing individual suppliers. Most of our suppliers are etc.) or geopolitical reasons. service providers with commoditised offerings, which Employee attraction and retention The Group finds it difficult to As a talent-based business, Enero believes employee attract and/or retain key talent. As attraction and retention is a key source of competitive a talent-based business, a differentiation. As such, we actively invest in talent and significant loss of key talent over a culture, both through Enero’s global People and Culture short period could impact the Group’s financial performance. have relatively low fixed costs, allowing us to manage the cost base of the business in accordance with our revenue performance. We are constantly monitoring and managing our business to key internal cost ratios to ensure we can deliver strong shareholder returns even in the face of volatile market conditions. We also continue to develop capabilities that differentiate us versus our competitors, ensuring we are preferred suppliers, and enabling us to augment and enhance client teams that may have been impacted by cost reduction initiatives. Certain businesses in the Group, such as OBMedia, may also have countercyclical elements, where decreasing revenues may be mitigated by decreasing costs of sales. team monitor the evolution of the markets in which we operate, dynamically adjusting the Group’s strategy as required. We also work to limit customer concentration, such that the loss of any single customer would not significantly impact the Group’s financial performance. ensures we are minimally exposed to market price fluctuations and can find new suppliers with relative ease. We can source suppliers globally (particularly in the pandemic era of virtual working), limiting our geopolitical risk. Our global scale makes us a valuable customer for our suppliers, which also mitigates commercial risk to these relationships. We regularly review our supplier relationships to identify risks and ensure they remain commercially attractive relationships. Centre of Excellence, as well as within the individual businesses of the Group. We empower each business in the Group to develop a unique culture that suits the talent market they operate in, ensuring each business is best situated to achieve its People and Culture strategy and goals. Enero invests heavily in in-house and external recruitment capabilities, a global Learning and Development platform, progressive and dynamic workplace practices and a strong focus on Diversity, Equity and Inclusion initiatives that are tailored to each market we operate in. We conduct short-term and long-term succession and organisational planning for key roles. We also regularly measure the satisfaction of the Group’s employees and seek feedback on areas of improvement. The Nomination and Remuneration Committee of the Board works closely with the CEO and Chief People and Culture Officer on the development and execution of the Group’s People and Culture strategy. 30 Enero Group Limited Annual Report 2022 Enero Group Limited Annual Report 2022 31 Directors’ ReportFinancial report for year ended 30 June 2022 Directors’ Report Operating and financial review The operating and financial review forms part of the Directors’ Report. Strategy and operations of the Group Enero Group is a global and diversified creative technology company, focused on delivering modern marketing services to businesses around the world. The Group achieves this through an international network of marketing, communications and advertising technology companies with over 750 employees (at the date of this report) in 11 countries. Enero’s vision is to be a leading group of specialist marketing services businesses, famous for our progressive capabilities. We achieve this through deep knowledge and experience in key industries, which delivers growth for our clients, transforming their brands with creative, technology and data solutions. Our industries of focus are Technology, Healthcare and Growth Consumer, all of which are supported by long-term positive macroeconomic growth trends. We differentiate against our competitors through our integrated offering combined with our deep industry specialism, and our agility to capitalise on new developments in our dynamic sector. Our growth strategy is focused on both the continued evolution of the Group’s existing portfolio businesses supported by Enero’s Centres of Excellence. We continue to invest to add transformational capabilities and geographies such as the acquisitions of ROI DNA and GetIT Communications on 1 July 2022. We also continue to reshape the portfolio through selective divestments, including the sale of The Leading Edge and The Digital Edge in FY22. The Group is well positioned to continue to invest in growth opportunities in the current economic environment, and to remain resilient to risks that face our business. • COVID-19 has changed the nature of work, and despite wage inflation pressure and talent shortages across our industry, Enero continues to benefit from our progressive workplace practices. For example, prior to the pandemic, Hotwire built a reputation for ‘thoughtful working’, which allowed for flexible working arrangements. This enabled Hotwire to proactively recruit high-performing staff during the pandemic, without the need to be located in major metropolitan areas. We continue to evolve our employee value proposition to ensure we can attract and retain the • Economic uncertainty is impacting all industries, however Enero’s unique positioning and market offering makes us best talent across the Group. well placed to outperform competitors:  In Technology, we primarily work with the world’s leading B2B Technology clients who are less volatile in their allocation of marketing spend versus B2C Technology clients.  Healthcare is typically more resilient to macroeconomic volatility.  OB Media benefits from the correlation in the movement of advertising rates and the subsequent impact on costs of traffic acquisition. Search advertising rates have also proven more resilient than other advertising channels. Enero Group remains optimistic about the growth opportunity of our business across all regions. We continue to look for opportunities to invest to modernise our services in order to better serve our clients’ needs, whilst also maintaining the delivery of strong margins across our diversified portfolio. We remain responsive to changing macroeconomic conditions, and our long-term perspective will ensure that we capitalise on opportunities to evolve and transform the Group. Enero Group considers the following to be the most relevant risks to the business achieving its strategic, operational and financial targets: COVID-19 pandemic Potential risk Risk description Group’s mitigating actions Potential further lockdowns and Business continuity: Over the course of the pandemic, related restrictions in response to Enero has built robust processes to deal with risks the COVID-19 pandemic, resulting associated with lockdowns, including fully virtual team in one or all of the following: collaboration tools, strengthened cyber security, WHSE • Business continuity risk from changed working environments for employees; • Supply chain risk from impacted suppliers; • Financial risk from reduced advertising and/or spend. practices and investment in work-from-home people and culture initiatives. Supply chain risk: Our businesses maintain a diverse list of suppliers (e.g. content production houses, media companies), to ensure we are not significantly impacted by over-reliance on a single supplier. Financial risk: As we saw in FY020 and FY21, our diversified business benefited from increased consumer online activity driven by extended lockdowns. Any decrease in advertising dollars spent on traditional advertising is likely to be mitigated by increased demand for digital transformation, performance marketing and increased search advertising traffic. Potential risk Uncertain economic conditions Risk description Global macroeconomic conditions may impact demand for marketing services and therefore reduce the Group’s revenue performance. Evolving needs of clients Changing requirements of clients’ marketing needs may render our services redundant or unsuitable. Supply chain Suppliers no longer provide critical services/products to the Group, for commercial, financial (bankruptcy etc.) or geopolitical reasons. Employee attraction and retention The Group finds it difficult to attract and/or retain key talent. As a talent-based business, a significant loss of key talent over a short period could impact the Group’s financial performance. 31 Group’s mitigating actions Enero Group is a diversified portfolio of businesses, both geographically and in terms of the types of marketing services offered. This helps us to remain resilient to economic volatility. The Group also owns businesses that have relatively low fixed costs, allowing us to manage the cost base of the business in accordance with our revenue performance. We are constantly monitoring and managing our business to key internal cost ratios to ensure we can deliver strong shareholder returns even in the face of volatile market conditions. We also continue to develop capabilities that differentiate us versus our competitors, ensuring we are preferred suppliers, and enabling us to augment and enhance client teams that may have been impacted by cost reduction initiatives. Certain businesses in the Group, such as OBMedia, may also have countercyclical elements, where decreasing revenues may be mitigated by decreasing costs of sales. Enero Group continues to invest in the evolution of our capabilities, both through internal investment as well as strategic acquisitions. The Enero Board and management team monitor the evolution of the markets in which we operate, dynamically adjusting the Group’s strategy as required. We also work to limit customer concentration, such that the loss of any single customer would not significantly impact the Group’s financial performance. Enero has a diversified portfolio of supplier relationships with different contract maturity dates to mitigate the impact of losing individual suppliers. Most of our suppliers are service providers with commoditised offerings, which ensures we are minimally exposed to market price fluctuations and can find new suppliers with relative ease. We can source suppliers globally (particularly in the pandemic era of virtual working), limiting our geopolitical risk. Our global scale makes us a valuable customer for our suppliers, which also mitigates commercial risk to these relationships. We regularly review our supplier relationships to identify risks and ensure they remain commercially attractive relationships. As a talent-based business, Enero believes employee attraction and retention is a key source of competitive differentiation. As such, we actively invest in talent and culture, both through Enero’s global People and Culture Centre of Excellence, as well as within the individual businesses of the Group. We empower each business in the Group to develop a unique culture that suits the talent market they operate in, ensuring each business is best situated to achieve its People and Culture strategy and goals. Enero invests heavily in in-house and external recruitment capabilities, a global Learning and Development platform, progressive and dynamic workplace practices and a strong focus on Diversity, Equity and Inclusion initiatives that are tailored to each market we operate in. We conduct short-term and long-term succession and organisational planning for key roles. We also regularly measure the satisfaction of the Group’s employees and seek feedback on areas of improvement. The Nomination and Remuneration Committee of the Board works closely with the CEO and Chief People and Culture Officer on the development and execution of the Group’s People and Culture strategy. 30 Enero Group Limited Annual Report 2022 Enero Group Limited Annual Report 2022 31 Directors’ Report Potential risk Business continuity Risk description The Group may be exposed to a range of different risks that may adversely affect the day-to-day operations of the business. Acquisition success Acquisitions may not deliver expected value to shareholders, either through commercial underperformance, integration difficulty or operational issues. Regulatory risk The Group may be exposed to certain regulatory risks where policy or legal developments impact our success. Governance processes Legal risk Insufficient governance and oversight of the Group’s systems and processes could create an environment where we act or perform in a way that does not meet shareholder expectations. The Group may be subjected to a lawsuit that impacts business operations or financial performance. IT and Cybersecurity risk The Group may be subject to cybersecurity breaches, or may not operate in the way required by certain IT regulations or business practices, leading to financial, data or business continuity impacts. Group’s mitigating actions Enero regularly reviews potential business continuity risks such as Work, Health and Safety risks (WHS), IT and Cybersecurity risks, and Regulatory and Governance risks. We have developed plans to mitigate and minimise the impact of all of these risks, as well as others. The Audit and Risk Committee of the Board periodically reviews the Group’s Business Continuity, Disaster Recovery and Crisis Management plans. As a portfolio business, Enero has extensive experience acquiring and integrating new businesses into the Group. We conduct extensive due diligence to minimise commercial and operational risk, as well as developing integration plans prior to closing M&A transactions, to ensure we capitalise on the benefits of our acquisitions. Where appropriate, we may appoint dedicated project managers to assist with integration efforts. Enero reports on the performance of acquired businesses and integration progress to the Board. Enero Group operates in a relatively low regulation industry (marketing services), noting that we do not own or sell media assets (at the time of this report). We regularly monitor for regulatory changes in our operating markets, and we engage with relevant regulators and industry bodies as necessary. As a publicly listed company, Enero Group has dedicated resources that regularly review our systems and processes to ensure we operate at the standard expected by shareholders. We regularly conduct compliance training for employees to ensure adherence to Group policies. Enero Group has experienced and dedicated internal Legal resources to ensure that all our businesses are operating within the correct legal framework for their respective jurisdictions. The Group’s Legal Centre of Excellence provides both leadership and support in legal issues, including dispute management, contracting, employment matters and M&A. Enero regularly reviews data and privacy regulations to ensure our systems and processes are up to date with best practice. We invest in modern cloud infrastructure and backup systems to deliver consistently high levels of service. Enero’s IT Centre of Excellence operates as a central resource for the Group to provide thought leadership, support and ensure best-practice operations. The Group regularly conducts cybersecurity risk assessments and training, and tracks progress against outstanding issues until they are mitigated. Financial performance for the year The Group achieved Net Revenue of $193.4 million, an increase of 20.4% (2021: $160.6 million) compared to the prior reporting period. Net revenue growth was achieved in all key geographic markets. The Group continues to have a high proportion of client revenue exposure to its priority verticals of Technology, Healthcare and Consumer sectors which have increased or maintained business activity levels. Net revenue on a constant currency basis was up $31.2 million compared with the prior year. Net revenue from continuing businesses after the impact of disposals was up 25.6% at $191.6 million compared to $152.6 million for the prior year. A summary of the Group’s results is below: In thousands of AUD Net revenue EBITDA Depreciation of right-of-use assets Operating EBITDA¹ Depreciation and amortisation EBIT Net finance (costs)/income Present value interest charge Profit before tax Income tax expense Profit after tax 2022 2021 193,426 160,634 66,196 (3,996) 62,200 (2,944) 59,256 (9) (961) 58,286 (14,340) 43,946 49,904 (4,291) 45,613 (2,796) 42,817 20 (1,378) 41,459 (8,514) 32,945 The Group achieved Operating EBITDA¹ of $62.2 million, an increase of 36.4% (2021: $45.6 million) compared to the prior reporting period. The Operating EBITDA¹ margin increased from 28.4% in 2021 to 32.2% in 2022. This Non-controlling interests (16,834) (10,110) Net profit after tax before significant items Significant items² 27,112 (1,725) 22,835 (23,237) increase in the Operating EBITDA¹ margin was driven by: Net profit/(loss) after tax attributable to equity owners 25,387 (402) • an increase in revenue and Operating EBITDA¹ in the Group’s programmatic media platform business, OBMedia, which connects publishers with the world’s largest search engines. The business functions as a platform and therefore has achieved a higher margin than other businesses in the Group; Cents per share Earnings per share (basic) – pre significant items Earnings per share (basic) 30.9 28.9 26.4 (0.5) 1. Operating EBITDA, as defined in the basis of preparation section • while staff costs rose 13.6% in the current year, a on page 34. reduction in the staff cost ratio from 61.2% in 2021 to 57.8% in 2022 was achieved given the increase in global headcount was relatively low as compared to the revenue growth; and tax 2. Significant items are explained on page 34. Reconciliation of Operating EBITDA¹ to statutory profit after • operating costs, particularly travel expenses, In thousands of AUD have increased as COVID-19 related restrictions have eased. However, the increase in operating costs has not resulted in a return to pre- Net revenue EBITDA COVID-19 levels. Depreciation of right-of-use assets Operating EBITDA¹ The net profit after tax before significant items was $27.1 Depreciation of plant and equipment million, compared to $22.8 million in the prior year, primarily driven by growth in Operating EBITDA¹. The statutory net profit after tax to equity owners was Amortisation of intangibles Net finance (costs)/income Present value interest charge $25.4 million, compared to a loss of $0.4 million in the prior Gain/(loss) on sale of controlled year. In the current year, the Group incurred incidental entities² acquisition costs of $1.3 million and recognised a fair value Loss on disposal of dormant foreign loss of $1.0 million relating to revaluation of future contingent consideration, which were partially offset by a gain of $0.6 million recognised on sale of TLE (2021: non- subsidiaries² Incidental acquisition costs² Contingent consideration fair value cash accounting loss of $23.0 million relating to disposal of loss² Frank PR and Foreign Currency Translation Reserve (FCTR) transferred to the consolidated income statement on disposal of dormant foreign subsidiaries and the Group incurred incidental acquisition costs of $0.2 million). Statutory profit before tax Income tax expense Statutory profit after tax 2022 2021 193,426 160,634 66,196 (3,996) 62,200 (1,722) (1,222) (9) (961) 49,904 (4,291) 45,613 (1,922) (874) 20 (1,378) 600 (9,878) – (13,157) (1,324) (202) (1,001) 56,561 (14,340) 42,221 – 18,222 (8,514) 9,708 In the current year, the operating businesses generated approximately 64% of their net revenue and 82% of their Operating EBITDA1 from international markets. 1. Operating EBITDA, as defined in the basis of preparation section on page 34. 2. Significant items are explained on page 34. 32 Enero Group Limited Annual Report 2022 Enero Group Limited Annual Report 2022 33 Directors’ ReportFinancial report for year ended 30 June 2022 Directors’ Report Potential risk Risk description Group’s mitigating actions The Group may be exposed to a Enero regularly reviews potential business continuity risks Business continuity range of different risks that may adversely affect the day-to-day operations of the business. Acquisition success Acquisitions may not deliver As a portfolio business, Enero has extensive experience expected value to shareholders, acquiring and integrating new businesses into the Group. such as Work, Health and Safety risks (WHS), IT and Cybersecurity risks, and Regulatory and Governance risks. We have developed plans to mitigate and minimise the impact of all of these risks, as well as others. The Audit and Risk Committee of the Board periodically reviews the Group’s Business Continuity, Disaster Recovery and Crisis Management plans. We conduct extensive due diligence to minimise commercial and operational risk, as well as developing integration plans prior to closing M&A transactions, to ensure we capitalise on the benefits of our acquisitions. Where appropriate, we may appoint dedicated project managers to assist with integration efforts. Enero reports on the performance of acquired businesses and integration progress to the Board. (marketing services), noting that we do not own or sell media assets (at the time of this report). We regularly monitor for regulatory changes in our operating markets, and we engage with relevant regulators and industry bodies as necessary. either through commercial underperformance, integration difficulty or operational issues. certain regulatory risks where policy or legal developments impact our success. Regulatory risk The Group may be exposed to Enero Group operates in a relatively low regulation industry Governance processes Insufficient governance and As a publicly listed company, Enero Group has dedicated oversight of the Group’s systems resources that regularly review our systems and processes and processes could create an environment where we act or perform in a way that does not meet shareholder expectations. to ensure we operate at the standard expected by shareholders. We regularly conduct compliance training for employees to ensure adherence to Group policies. Legal risk The Group may be subjected to a Enero Group has experienced and dedicated internal Legal lawsuit that impacts business resources to ensure that all our businesses are operating operations or financial performance. within the correct legal framework for their respective jurisdictions. The Group’s Legal Centre of Excellence provides both leadership and support in legal issues, including dispute management, contracting, employment matters and M&A. Cybersecurity cybersecurity breaches, or may ensure our systems and processes are up to date with best The Group may be subject to Enero regularly reviews data and privacy regulations to IT and risk not operate in the way required by practice. We invest in modern cloud infrastructure and certain IT regulations or business backup systems to deliver consistently high levels of practices, leading to financial, data service. Enero’s IT Centre of Excellence operates as a or business continuity impacts. central resource for the Group to provide thought leadership, support and ensure best-practice operations. The Group regularly conducts cybersecurity risk assessments and training, and tracks progress against outstanding issues until they are mitigated. Financial performance for the year The Group achieved Net Revenue of $193.4 million, an increase of 20.4% (2021: $160.6 million) compared to the prior reporting period. Net revenue growth was achieved in all key geographic markets. The Group continues to have a high proportion of client revenue exposure to its priority verticals of Technology, Healthcare and Consumer sectors which have increased or maintained business activity levels. Net revenue on a constant currency basis was up $31.2 million compared with the prior year. Net revenue from continuing businesses after the impact of disposals was up 25.6% at $191.6 million compared to $152.6 million for the prior year. The Group achieved Operating EBITDA¹ of $62.2 million, an increase of 36.4% (2021: $45.6 million) compared to the prior reporting period. The Operating EBITDA¹ margin increased from 28.4% in 2021 to 32.2% in 2022. This increase in the Operating EBITDA¹ margin was driven by: • an increase in revenue and Operating EBITDA¹ in the Group’s programmatic media platform business, OBMedia, which connects publishers with the world’s largest search engines. The business functions as a platform and therefore has achieved a higher margin than other businesses in the Group; • while staff costs rose 13.6% in the current year, a reduction in the staff cost ratio from 61.2% in 2021 to 57.8% in 2022 was achieved given the increase in global headcount was relatively low as compared to the revenue growth; and • operating costs, particularly travel expenses, have increased as COVID-19 related restrictions have eased. However, the increase in operating costs has not resulted in a return to pre- COVID-19 levels. The net profit after tax before significant items was $27.1 million, compared to $22.8 million in the prior year, primarily driven by growth in Operating EBITDA¹. The statutory net profit after tax to equity owners was $25.4 million, compared to a loss of $0.4 million in the prior year. In the current year, the Group incurred incidental acquisition costs of $1.3 million and recognised a fair value loss of $1.0 million relating to revaluation of future contingent consideration, which were partially offset by a gain of $0.6 million recognised on sale of TLE (2021: non- cash accounting loss of $23.0 million relating to disposal of Frank PR and Foreign Currency Translation Reserve (FCTR) transferred to the consolidated income statement on disposal of dormant foreign subsidiaries and the Group incurred incidental acquisition costs of $0.2 million). In the current year, the operating businesses generated approximately 64% of their net revenue and 82% of their Operating EBITDA1 from international markets. A summary of the Group’s results is below: In thousands of AUD 2022 Net revenue EBITDA Depreciation of right-of-use assets Operating EBITDA¹ Depreciation and amortisation EBIT Net finance (costs)/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 items² Net profit/(loss) after tax attributable to equity owners Cents per share Earnings per share (basic) – pre significant items Earnings per share (basic) 193,426 66,196 (3,996) 62,200 (2,944) 59,256 (9) (961) 58,286 (14,340) 43,946 (16,834) 2021 160,634 49,904 (4,291) 45,613 (2,796) 42,817 20 (1,378) 41,459 (8,514) 32,945 (10,110) 27,112 (1,725) 22,835 (23,237) 25,387 (402) 30.9 28.9 26.4 (0.5) 1. Operating EBITDA, as defined in the basis of preparation section 33 on page 34. 2. Significant items are explained on page 34. Reconciliation of Operating EBITDA¹ to statutory profit after tax In thousands of AUD 2022 2021 Net revenue EBITDA Depreciation of right-of-use assets Operating EBITDA¹ Depreciation of plant and equipment Amortisation of intangibles Net finance (costs)/income Present value interest charge Gain/(loss) on sale of controlled entities² Loss on disposal of dormant foreign subsidiaries² Incidental acquisition costs² Contingent consideration fair value loss² Statutory profit before tax Income tax expense Statutory profit after tax 193,426 66,196 (3,996) 62,200 (1,722) (1,222) (9) (961) 160,634 49,904 (4,291) 45,613 (1,922) (874) 20 (1,378) 600 (9,878) – (1,324) (13,157) (202) (1,001) 56,561 (14,340) 42,221 – 18,222 (8,514) 9,708 1. Operating EBITDA, as defined in the basis of preparation section on page 34. 2. Significant items are explained on page 34. 32 Enero Group Limited Annual Report 2022 Enero Group Limited Annual Report 2022 33 Directors’ Report Significant items 2022 • On 6 May 2022, the Group entered into a sale agreement to sell the business assets of its strategic data consultancy businesses, The Leading Edge (TLE) and The Digital Edge (TDE), for consideration of $1,350,000. The Group recognised an accounting gain on sale of $600,000 in the consolidated income statement for the year ended 30 June 2022. • The Group recognised a contingent consideration fair value loss of $1,001,000 relating to a change in the best estimate of future contingent consideration payable to the vendors of McDonald Butler Associates. • The Group incurred incidental costs of $1,324,000 relating to acquisition of ROI DNA Inc. and GetIT Pte Ltd. 2021 • On 2 March 2021, the Group entered into a sale agreement to sell its entire shareholding in Frank PR (75% issued capital) for consideration of £915,000 ($1,647,000). The Group recognised an accounting loss on sale of $9,878,000 in the consolidated income statement for the year ended 30 June 2021. • The Group disposed of 12 dormant foreign subsidiaries and recognised an accounting loss of $13,157,000 as it transferred the Foreign Currency Translation Reserve (FCTR) relating to these subsidiaries to the consolidated income statement for the year ended 30 June 2021. • The Group incurred incidental costs of $202,000 relating to acquisition of McDonald Butler Associates. Geographical performance In thousands of AUD Net revenue Australia UK and Europe USA Total Operating units Operating EBITDA Australia UK and Europe USA Total Operating units Support office Share-based payments charge Total Group Operating EBITDA margin Australia UK and Europe USA Total Operating units Total Group 2022 2021 68,776 36,622 88,028 193,426 65,043 35,504 60,087 160,634 13,325 8,009 51,497 72,831 (8,729) (1,902) 62,200 13,129 7,597 32,345 53,071 (6,466) (992) 45,613 19.4% 21.9% 58.5% 37.7% 32.2% 20.2% 21.4% 53.8% 33.0% 28.4% Acquisitions 2022 No acquisitions were completed in the current year, however the Group completed the acquisition of ROI DNA Inc. and GetIT Pte Ltd on 1 July 2022. Refer to Note 22 Acquisitions for details. 2021 On 26 April 2021, the Group acquired 100% of the issued capital of McDonald Butler Associates, a UK based technology public relations agency. The purchase consideration was an upfront payment of £3,500,000 ($6,272,000) in addition to contingent consideration of £5,450,000 ($9,766,000) tied to the net revenue target through to the period 30 June 2024. Refer to Note 22 Acquisitions for details. Disposals 2022 On 6 May 2022, the Group entered into a sale agreement to sell the business assets of its strategic data consultancy businesses, The Leading Edge (TLE) and The Digital Edge (TDE), for consideration of $1,350,000. The Group recognised an accounting gain on sale of $600,000 in the consolidated income statement for the year ended 30 June 2022. Refer to Note 23 Disposals for details. 2021 On 2 March 2021, the Group entered into a sale agreement to sell its entire shareholding in Frank PR (75% issued capital) for consideration of £915,000 ($1,647,000). The Group recognised a loss on sale of $9,878,000 in the consolidated income statement for the year ended 30 June 2021. Refer to Note 23 Disposals for details. The Group disposed of 12 dormant foreign subsidiaries and recognised an accounting loss of $13,157,000 as it transferred the Foreign Currency Translation Reserve (FCTR) relating to these subsidiaries to the consolidated income statement for the year ended 30 June 2021. Refer to Note 23 Disposals for details. 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 (excluding depreciation of right-of-use assets), amortisation of intangibles, impairment of intangibles, gain/(loss) on disposal of controlled entities and contingent consideration fair value gain/(loss). Operating EBITDA, reconciled in the table on page 33, 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. Cash and Debt In thousands of AUD Cash and cash equivalents Interest bearing liabilities Contingent consideration liabilities Net cash¹ 2022 98,742 (36,275) (10,113) 2021 50,718 – (20,126) 52,354 30,592 1. Net cash excludes lease liabilities recognised as a result of the adoption of AASB16 Leases as they are considered operational liabilities. The Group had $52.4 million in net cash as at 30 June 2022. Interest bearing liabilities drawn were held in cash and cash equivalents as at 30 June 2022, which were subsequently disbursed on 1 July 2022 to fund the acquisitions completed on that date. 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 geographical or expansion of services perspective. Cash flow – Operating activities Cash inflows from operating activities was $48.8 million (2021: $53.2 million). The decrease in inflows is primarily attributable to higher income tax payments of $14.9 million as compared to $7.1 million in the prior year. The Group converted 96% of EBITDA to cash for the year ended 30 June 2022 (2021: 121%). Cash flow – Investing activities Cash outflows from investing activities was $11.1 million (2021: $21.2 million). The decrease in outflows was due to lower contingent consideration payments and no acquisitions were completed during the current year. Cash flow – Financing activities Net cash inflows from financing activities was $8.4 million, primarily due to $36.3 million in loans drawn and held in cash and cash equivalents as at 30 June 2022, which were subsequently disbursed on 1 July 2022 to fund the acquisitions completed on that date. Excluding the proceeds received from bank loans, cash outflow increased from $26.7 million in the prior year to $27.8 million in the current year. During the current year, $9.1 million (2021: $12.1 million) in dividends were paid to Enero Group Limited shareholders in addition to $13.0 million (2021: $8.4 million) in dividends paid to minority shareholders of controlled entities. Contingent consideration liabilities The Company entered into contingent consideration arrangements in relation to its acquisition of McDonald Butler Associates on 26 April 2021. As at 30 June 2022, the Company’s estimated contingent consideration liability is $10.1 million. consideration payable: In thousands of AUD 30 June 2021 Payments made Fair value loss recognised in relation to McDonald Butler Associates Present value interest unwind and foreign exchange movements 30 June 2022 Maturity profile (at present value): FY2023 FY2024 FY2025 Total 20,126 (11,000) 1,001 (14) 10,113 2,711 2,461 4,941 10,113 Refer to Note 22 Acquisitions for further information regarding management's best estimate of contingent consideration relating to acquisitions completed after balance date. opportunities that are aligned with Group strategy from a Reconciliation of carrying amounts of contingent 34 Enero Group Limited Annual Report 2022 Enero Group Limited Annual Report 2022 35 Directors’ ReportFinancial report for year ended 30 June 2022 Directors’ Report Significant items 2022 Acquisitions 2022 • On 6 May 2022, the Group entered into a sale agreement to sell the business assets of its strategic data consultancy businesses, The Leading Edge (TLE) and The Digital Edge (TDE), for consideration of $1,350,000. The Group recognised an accounting gain on sale of $600,000 in the consolidated income statement for the year ended 30 June 2022. • The Group recognised a contingent consideration fair value loss of $1,001,000 relating to a change in the best estimate of future contingent consideration payable to the vendors of McDonald Butler Associates. No acquisitions were completed in the current year, however the Group completed the acquisition of ROI DNA Inc. and GetIT Pte Ltd on 1 July 2022. Refer to Note 22 Acquisitions for details. 2021 On 26 April 2021, the Group acquired 100% of the issued capital of McDonald Butler Associates, a UK based technology public relations agency. The purchase consideration was an upfront payment of £3,500,000 ($6,272,000) in addition to contingent consideration of £5,450,000 ($9,766,000) tied to the net revenue target through to the period 30 June 2024. Refer to Note 22 • The Group incurred incidental costs of $1,324,000 relating to acquisition of ROI DNA Inc. and GetIT Pte Acquisitions for details. Ltd. 2021 Disposals 2022 • On 2 March 2021, the Group entered into a sale agreement to sell its entire shareholding in Frank PR (75% issued capital) for consideration of £915,000 ($1,647,000). The Group recognised an accounting loss on sale of $9,878,000 in the consolidated income statement for the year ended 30 June 2021. • The Group disposed of 12 dormant foreign subsidiaries and recognised an accounting loss of $13,157,000 as it transferred the Foreign Currency Translation Reserve (FCTR) relating to these subsidiaries to the consolidated income statement for the year ended 30 June 2021. • The Group incurred incidental costs of $202,000 relating to acquisition of McDonald Butler Associates. On 6 May 2022, the Group entered into a sale agreement to sell the business assets of its strategic data consultancy businesses, The Leading Edge (TLE) and The Digital Edge (TDE), for consideration of $1,350,000. The Group recognised an accounting gain on sale of $600,000 in the consolidated income statement for the year ended 30 June 2022. Refer to Note 23 Disposals for details. 2021 On 2 March 2021, the Group entered into a sale agreement to sell its entire shareholding in Frank PR (75% issued capital) for consideration of £915,000 ($1,647,000). The Group recognised a loss on sale of $9,878,000 in the consolidated income statement for the year ended 30 June 2021. Refer to Note 23 Disposals for details. Geographical performance In thousands of AUD Net revenue Australia UK and Europe USA 2022 2021 68,776 36,622 88,028 65,043 35,504 60,087 The Group disposed of 12 dormant foreign subsidiaries and recognised an accounting loss of $13,157,000 as it transferred the Foreign Currency Translation Reserve (FCTR) relating to these subsidiaries to the consolidated income statement for the year ended 30 June 2021. Refer to Note 23 Disposals for details. Basis of preparation Total Operating units 193,426 160,634 The Directors’ Report includes Operating EBITDA, a Operating EBITDA Australia UK and Europe USA Total Operating units Support office Share-based payments charge Total Group Operating EBITDA margin Australia UK and Europe USA Total Operating units Total Group 13,325 8,009 51,497 72,831 (8,729) (1,902) 62,200 13,129 7,597 32,345 53,071 (6,466) (992) 45,613 19.4% 21.9% 58.5% 37.7% 32.2% 20.2% 21.4% 53.8% 33.0% 28.4% 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 (excluding depreciation of right-of-use assets), amortisation of intangibles, impairment of intangibles, gain/(loss) on disposal of controlled entities and contingent consideration fair value gain/(loss). Operating EBITDA, reconciled in the table on page 33, 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. Cash and Debt In thousands of AUD Cash and cash equivalents Interest bearing liabilities Contingent consideration liabilities Net cash¹ 2022 98,742 (36,275) (10,113) 52,354 2021 50,718 – (20,126) 30,592 1. Net cash excludes lease liabilities recognised as a result of the adoption of AASB16 Leases as they are considered operational liabilities. The Group had $52.4 million in net cash as at 30 June 2022. Interest bearing liabilities drawn were held in cash and cash equivalents as at 30 June 2022, which were subsequently disbursed on 1 July 2022 to fund the acquisitions completed on that date. 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 $48.8 million (2021: $53.2 million). The decrease in inflows is primarily attributable to higher income tax payments of $14.9 million as compared to $7.1 million in the prior year. The Group converted 96% of EBITDA to cash for the year ended 30 June 2022 (2021: 121%). Cash flow – Investing activities Cash outflows from investing activities was $11.1 million (2021: $21.2 million). The decrease in outflows was due to lower contingent consideration payments and no acquisitions were completed during the current year. Cash flow – Financing activities Net cash inflows from financing activities was $8.4 million, primarily due to $36.3 million in loans drawn and held in cash and cash equivalents as at 30 June 2022, which were subsequently disbursed on 1 July 2022 to fund the acquisitions completed on that date. Excluding the proceeds received from bank loans, cash outflow increased from $26.7 million in the prior year to $27.8 million in the current year. During the current year, $9.1 million (2021: $12.1 million) in dividends were paid to Enero Group Limited shareholders in addition to $13.0 million (2021: $8.4 million) in dividends paid to minority shareholders of controlled entities. Contingent consideration liabilities The Company entered into contingent consideration arrangements in relation to its acquisition of McDonald Butler Associates on 26 April 2021. As at 30 June 2022, the Company’s estimated contingent consideration liability is $10.1 million. Reconciliation of carrying amounts of contingent consideration payable: In thousands of AUD 30 June 2021 Payments made Fair value loss recognised in relation to McDonald Butler Associates Present value interest unwind and foreign exchange movements 30 June 2022 Maturity profile (at present value): FY2023 FY2024 FY2025 Total 20,126 (11,000) 35 1,001 (14) 10,113 2,711 2,461 4,941 10,113 Refer to Note 22 Acquisitions for further information regarding management's best estimate of contingent consideration relating to acquisitions completed after balance date. 34 Enero Group Limited Annual Report 2022 Enero Group Limited Annual Report 2022 35 Directors’ Report 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 2022. 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 Anouk Darling Ian Rowden David Brain Louise Higgins(i) Susan McIntosh(ii) Role Non-Executive Director (Chair) Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Executives Brent Scrimshaw Carla Webb-Sear Fiona Chilcott (i) Louise Higgins was appointed as a Non-Executive Director Chief Executive Officer Chief Financial Officer Chief People and Culture Officer effective 10 September 2021. (ii) Susan McIntosh retired as a Non-Executive Director effective 21 October 2021. 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; – 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. During the year ended 30 June 2022, the Remuneration and Nomination Committee engaged Ernst & Young as a remuneration consultant to provide recommendations with regards to the Company’s long-term incentives scheme and a benchmarking analysis of the Company’s Executive remuneration. A fee of $28,325 was paid to Ernst & Young for this advice. During this engagement, Ernst & Young reported directly to the Remuneration and Nomination Committee, including prohibiting Ernst & Young providing recommendations to the Company’s Executives before the recommendations were given to the Remuneration and Nomination Committee. The Board is satisfied that the recommendations made by Ernst & Young were free from undue influence by the Company’s Executives. 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. For Company Executives, the remuneration framework Remuneration and Nomination Committee through a currently has the following components: – fixed remuneration: comprising base pay, benefits and – short-term incentive: comprising an annual cash bonus; 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 There are no guaranteed fixed remuneration increases superannuation; and Rights Plan. 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), as well as employer contributions to superannuation and targets. pension funds. included in any Executive contracts. 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 and key leadership for meeting or exceeding financial, strategic and personal 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. Remuneration levels are reviewed annually by the Short-term incentives (STI): as assessed against financial and non-financial measures. Participant Performance measures and rationale The purpose of STI is to motivate and reward Executives for contributing to the delivery of annual business performance CEO and Company The STI is an annual cash-based maximum short-term incentive payment of 70% of the Executive fixed remuneration determined by the achievement of Operating EBITDA hurdles and Earnings Per Share pre significant items (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 KPIs for the individual. The STIs are paid in cash following the end of the financial year and approval from the Remuneration and Nomination Committee. The Company 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. – – 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. – – 36 Enero Group Limited Annual Report 2022 Enero Group Limited Annual Report 2022 37 Directors’ ReportFinancial report for year ended 30 June 2022 Directors’ Report Remuneration Report – Audited 3 Remuneration Governance Contents 1 Introduction report 2 Key Management Personnel (KMP) disclosed in this Board on: 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 2022. 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. report 2 Key Management Personnel (KMP) disclosed in this 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. Role Name Non-Executive Directors Ann Sherry Anouk Darling Ian Rowden David Brain Louise Higgins(i) Susan McIntosh(ii) Executives Brent Scrimshaw Carla Webb-Sear Fiona Chilcott Non-Executive Director (Chair) Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Chief Executive Officer Chief Financial Officer Chief People and Culture Officer (i) Louise Higgins was appointed as a Non-Executive Director effective 10 September 2021. (ii) Susan McIntosh retired as a Non-Executive Director effective 21 October 2021. The Board has established the Remuneration and Nominations Committee (‘Committee’). It is responsible for making recommendations on remuneration matters to the – 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; – 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. During the year ended 30 June 2022, the Remuneration and Nomination Committee engaged Ernst & Young as a remuneration consultant to provide recommendations with regards to the Company’s long-term incentives scheme and a benchmarking analysis of the Company’s Executive remuneration. A fee of $28,325 was paid to Ernst & Young During this engagement, Ernst & Young reported directly to the Remuneration and Nomination Committee, including prohibiting Ernst & Young providing recommendations to the Company’s Executives before the recommendations were given to the Remuneration and Nomination Committee. The Board is satisfied that the recommendations made by Ernst & Young were free from undue influence by the Company’s Executives. 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 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. KMP comprise the Directors of the Company and Executives. The KMP covered in this Remuneration Report for this advice. 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 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. 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), as well as employer contributions to superannuation and pension funds. Remuneration levels are reviewed annually by the 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 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 and Company Executive Performance measures and rationale The STI is an annual cash-based maximum short-term incentive payment of 70% of the fixed remuneration determined by the achievement of Operating EBITDA hurdles and Earnings Per Share pre significant items (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 KPIs for the individual. 37 The STIs are paid in cash following the end of the financial year and approval from the Remuneration and Nomination Committee. The Company 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. 36 Enero Group Limited Annual Report 2022 Enero Group Limited Annual Report 2022 37 Directors’ Report 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). 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, with SAR vesting in equal tranches of 1/3 each year over the performance period. 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. The number of shares to be granted will equal the number of SARs awarded multiplied by the above conversion formula. 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 (1/3) Tranche 2 (1/3) Tranche 3 (1/3) Last expiry date Outstanding SARs as at 30 June 2022 24 October 2019 2,450,000 Senior Executives 21 October 2020 3,900,000 Senior Executives 21 October 2021 4,525,000 Senior Executives $2.13 $1.52 $3.02 30 June 2020 30 June 2021 30 June 2022 30 September 2022 416,670 30 June 2021 30 June 2022 30 June 2023 30 September 2023 2,066,670 30 June 2022 30 June 2023 30 June 2024 30 September 2024 4,525,000 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: Key Management Personnel Duration of contract Chief Executive 30 June 2023 Notice period on termination by Group 6 months Notice period on resignation by Key Management Personnel Termination payment Termination payment on on termination by resignation by Key Group Management Personnel (i) (ii) (iii) (iv) (i) (ii) (iv) 6 months 6 months base salary 6 months base salary Rolling 6 months 6 months 6 months base salary 6 months base salary Rolling 3 months 3 months 3 months base salary 3 months base salary Officer Officer Chief Financial Chief People and Culture Officer (i) In addition to termination payments, Key Management Personnel are also entitled to receive, on termination of their employment, their statutory entitlements of accrued annual and long service leave, together with any superannuation benefits. (ii) Includes any payment in lieu of notice. (iii) No termination payment is due if termination is for serious misconduct. (iv) Executives are entitled to a pro-rata STI payment on termination, except for termination for serious misconduct. Remuneration details of Executives are set out in Section 7 Directors’ and Executive Officers’ remuneration. 6 Non-Executive Directors The Company’s Constitution provides that the Non-Executive Directors are each entitled to be paid such remuneration from the Company as the Directors decide for their services as Director, but the total amount provided to all Non-Executive Directors for their services must not exceed in aggregate in any financial year the amount fixed by the Company in a general meeting. This amount has been fixed by the Company at $750,000 for the financial year ended 30 June 2022. Total remuneration paid to Non-Executive Directors for the year ending 30 June 2022 amounted to $450,577 (30 June 2021: $440,000), which is 60.1% of the annual aggregate cap. 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 2022 and 30 June 2021: Base fees – annual Chair Other Non-Executive Directors Committee fees – annual Audit and Risk Committee – Chair Remuneration and Nomination Committee – Chair 2022 $ 120,000 75,000 2021 S 120,000 75,000 10,000 10,000 10,000 10,000 Remuneration details of Non-Executive Directors are set out in Section 7 Directors’ and Executive Officers’ remuneration. 38 Enero Group Limited Annual Report 2022 Enero Group Limited Annual Report 2022 39 Directors’ ReportFinancial report for year ended 30 June 2022 Directors’ Report Long-term incentives (LTI): Plan (SARP). Description 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 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. may grant rights accordingly. 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, with SAR vesting in equal tranches of 1/3 each year over the performance period. 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 The number of shares to be granted will equal the number of SARs awarded multiplied by the above conversion formula. 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 (1/3) Tranche 2 (1/3) Tranche 3 (1/3) Last expiry date 24 October 2019 21 October 2020 21 October 2021 2,450,000 3,900,000 4,525,000 Senior Executives Senior Executives Senior Executives $2.13 $1.52 $3.02 30 June 2020 30 June 2021 30 June 2022 30 June 2021 30 June 2022 30 June 2023 30 June 2022 30 June 2023 30 June 2024 30 September 2022 30 September 2023 30 September 2024 Outstanding SARs as at 30 June 2022 416,670 2,066,670 4,525,000 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 6 months 6 months base salary 6 months base salary Rolling 3 months 3 months 3 months base salary 3 months base salary Key Management Personnel Chief Executive Officer Chief Financial Officer Chief People and Culture Officer (i) In addition to termination payments, Key Management Personnel are also entitled to receive, on termination of their employment, their statutory entitlements of accrued annual and long service leave, together with any superannuation benefits. (ii) Includes any payment in lieu of notice. (iii) No termination payment is due if termination is for serious misconduct. (iv) Executives are entitled to a pro-rata STI payment on termination, except for termination for serious misconduct. Remuneration details of Executives are set out in Section 7 Directors’ and Executive Officers’ remuneration. 39 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 2022. Total remuneration paid to Non-Executive Directors for the year ending 30 June 2022 amounted to $450,577 (30 June 2021: $440,000), which is 60.1% of the annual aggregate cap. 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 2022 and 30 June 2021: Base fees – annual Chair Other Non-Executive Directors Committee fees – annual Audit and Risk Committee – Chair Remuneration and Nomination Committee – Chair 2022 $ 120,000 75,000 2021 S 120,000 75,000 10,000 10,000 10,000 10,000 Remuneration details of Non-Executive Directors are set out in Section 7 Directors’ and Executive Officers’ remuneration. 38 Enero Group Limited Annual Report 2022 Enero Group Limited Annual Report 2022 39 Directors’ Report 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 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 (viii) Anouk Darling (ix) Ian Rowden (viii) David Brain Louise Higgins(v) (ix) Susan McIntosh(vi) Executive Director Brent Scrimshaw Director and CEO Executives Carla Webb-Sear(vii) Chief Financial Officer Executives Fiona Chilcott Chief People and Culture Officer Salary and fees $ 120,833 130,000 78,523 77,626 84,167 75,000 75,000 75,000 66,410 – 22,727 68,493 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 – – – – – – – – – – – – – – – – – – – – – – – – 2022 2021 800,432 576,800 778,306 560,000 42,667 39,822 2022 396,432 294,000 12,325 2021 127,151 94,067 11,123 2022 2021 374,500 278,648 18,804 350,000 260,186 9,219 Proportion of total remuneration performance related(iv) % – – – – – – – – – – – – 56.68 48.67 53.53 39.25 54.18 49.23 Total $ 120,833 130,000 79,167 85,000 84,167 75,000 75,000 75,000 66,410 – 25,000 75,000 – – – – – – – – – – – – 560,419 2,006,399 236,982 1,637,422 205,028 932,300 – 239,674 219,438 919,308 111,013 753,960 – – 644 7,374 – – – – – – 2,273 6,507 23,568 21,694 23,568 7,231 23,568 21,694 – – – – – – – – – – – – 2,513 618 947 102 4,350 1,848 – – – – – – – – – – – – – – – – – – (i) The short-term incentive bonus is for performance during the 30 June 2022 financial year using the criteria set out on page 37. The table above includes the expense incurred during the financial year for the bonuses awarded. Refer to the table on page 41 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 the vesting date. (iv) Percentages are based on total remuneration, including equity, cash, post-employment benefits and other compensation. (v) Louise Higgins was appointed as a Non-Executive Director on 10 September 2021. (vi) Susan McIntosh retired as a Non-Executive Director effective 21 October 2021. (vii) Carla Webb-Sear was appointed as CFO on 8 March 2021. (viii) During the current year, Ann Sherry and Ian Rowden were chair of the Remuneration and Nomination Committee from 1 July 2021 to 31 July 2021 and from 1 August 2021 to 30 June 2022 respectively. Ann Sherry was chair of the Remuneration and Nomination Committee during the prior reporting period. (ix) During the current year, Anouk Darling and Louise Higgins were chair of the Audit and Risk Committee from 1 July 2021 to 30 November 2021 and from 1 December 2021 to 30 June 2022 respectively. Anouk Darling was chair of the Audit and Risk Committee during the prior reporting period. (x) 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 37. 40 Enero Group Limited Annual Report 2022 Enero Group Limited Annual Report 2022 41 7(c) STI included in remuneration Details of the vesting profile of the short-term incentive bonuses awarded as remuneration to each Executive of the Company and the Group, who are classified Key Management Personnel, are discussed below. Short-term incentive bonus(i) Maximum Actual STI included in Actual STI as % STI forfeited Actual STI as a % STI $ remuneration of maximum as % of $(iii) STI maximum STI of fixed remuneration(ii) Company Executives Brent Scrimshaw Carla Webb-Sear Fiona Chilcott 576,800 294,000 278,648 576,800 294,000 278,648 100% 100% 100% – – – 70% 70% 70% (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. Annual performance for Company Executives is assessed against the following measures in determining the percentage of fixed remuneration payable as STI: Weighting Target Outcome Outcome as % of Measure Financial Operating EBITDA EPS Growth Non-financial Strategy and Culture as follows: Company Executives Brent Scrimshaw Carla Webb-Sear Fiona Chilcott 30 September each year. 48% 32% $47.0 million $62.2 million 10% 20% Delivery of measure 17% Met 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 Type of rights Number of granted rights granted during 2022 during 2022 VWAP (for the 20 Fair value per business days prior right at grant date to the grant) Grant date $ $ Expiry date (i) SAR SAR SAR 1,300,000 650,000 550,000 21 Oct 2021 21 Oct 2021 21 Oct 2021 0.64 – 0.85 0.64 – 0.85 0.64 – 0.85 3.02 3.02 3.02 30 Sept 2024 30 Sept 2024 30 Sept 2024 (i) The expiry 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, % vested in year 100% 100% 100% target 132% 170% – Directors’ ReportFinancial report for year ended 30 June 2022 Directors’ Report 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 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) % Non-Executive Directors Ann Sherry (viii) Anouk Darling (ix) Ian Rowden (viii) David Brain Louise Higgins(v) (ix) Susan McIntosh(vi) Executive Director Brent Scrimshaw Director and CEO Executives Carla Webb-Sear(vii) Chief Financial Officer Executives Fiona Chilcott Chief People and Culture Officer Salary and fees $ 120,833 130,000 78,523 77,626 84,167 75,000 75,000 75,000 66,410 – 22,727 68,493 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 $ – – – – – – – – – – – – $ – – – – – – – – – – – – 2022 2021 800,432 576,800 778,306 560,000 42,667 39,822 2022 396,432 294,000 12,325 2021 127,151 94,067 11,123 2022 2021 374,500 278,648 18,804 350,000 260,186 9,219 644 7,374 $ – – – – – – – – 2,273 6,507 23,568 21,694 23,568 7,231 23,568 21,694 $ – – – – – – – – – – – – 2,513 618 947 102 4,350 1,848 Total $ 120,833 130,000 79,167 85,000 84,167 75,000 75,000 75,000 66,410 – 25,000 75,000 $ – – – – – – – – – – – – 560,419 2,006,399 236,982 1,637,422 205,028 932,300 – 239,674 219,438 919,308 111,013 753,960 $ – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 56.68 48.67 53.53 39.25 54.18 49.23 (i) The short-term incentive bonus is for performance during the 30 June 2022 financial year using the criteria set out on page 37. The table above includes the expense incurred during the financial year for the bonuses awarded. Refer to the table on page 41 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 the vesting date. (iv) Percentages are based on total remuneration, including equity, cash, post-employment benefits and other compensation. (v) Louise Higgins was appointed as a Non-Executive Director on 10 September 2021. (vi) Susan McIntosh retired as a Non-Executive Director effective 21 October 2021. (vii) Carla Webb-Sear was appointed as CFO on 8 March 2021. (viii) During the current year, Ann Sherry and Ian Rowden were chair of the Remuneration and Nomination Committee from 1 July 2021 to 31 July 2021 and from 1 August 2021 to 30 June 2022 respectively. Ann Sherry was chair of the Remuneration and Nomination Committee during the prior reporting period. (ix) During the current year, Anouk Darling and Louise Higgins were chair of the Audit and Risk Committee from 1 July 2021 to 30 November 2021 and from 1 December 2021 to 30 June 2022 respectively. Anouk Darling was chair of the Audit and Risk Committee during the prior reporting period. (x) Executives receive salary continuance insurance cover. There are no other benefits offered by the Company. 7(b) Performance-related remuneration on page 37. Details of the Company’s policy in relation to the proportion of remuneration that is performance-based are discussed 7(c) STI included in remuneration Details of the vesting profile of the short-term incentive bonuses awarded as remuneration to each Executive of the Company and the Group, who are classified Key Management Personnel, are discussed below. Short-term incentive bonus(i) Company Executives Brent Scrimshaw Carla Webb-Sear Fiona Chilcott 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 576,800 294,000 278,648 576,800 294,000 278,648 100% 100% 100% – – – 70% 70% 70% 100% 100% 100% (i) Amounts included in remuneration for the financial year represent the amount that vested in the financial year based on the achievement of specified performance criteria as discussed in Section 4(b) Performance-linked remuneration and are approved following the completion of the reporting period audit. (ii) Fixed remuneration is salary plus superannuation. (iii) Actual STI included in remuneration includes any superannuation contribution amounts. Annual performance for Company Executives is assessed against the following measures in determining the percentage of fixed remuneration payable as STI: Measure Weighting Target Outcome Outcome as % of target Financial Operating EBITDA EPS Growth Non-financial Strategy and Culture 48% 32% $47.0 million $62.2 million 10% 20% Delivery of measure 17% Met 132% 170% – 41 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 2022 Number of rights granted during 2022 Fair value per right at grant date $ Grant date VWAP (for the 20 business days prior to the grant) $ Expiry date (i) SAR SAR SAR 1,300,000 650,000 550,000 21 Oct 2021 21 Oct 2021 21 Oct 2021 0.64 – 0.85 0.64 – 0.85 0.64 – 0.85 3.02 3.02 3.02 30 Sept 2024 30 Sept 2024 30 Sept 2024 Company Executives Brent Scrimshaw Carla Webb-Sear Fiona Chilcott (i) The expiry 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. 40 Enero Group Limited Annual Report 2022 Enero Group Limited Annual Report 2022 41 Directors’ Report 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 % forfeited in year % exercised in year % remaining to vest Vesting date(i) Company Executives Brent Scrimshaw 1,250,000 SAR 21 Oct 2020 33 1,300,000 SAR 21 Oct 2021 Carla Webb-Sear 650,000 SAR 21 Oct 2021 Fiona Chilcott 900,000 SAR 18 Oct 2018 350,000 SAR 24 Oct 2019 100,000 SAR 21 Oct 2020 550,000 SAR 21 Oct 2021 – – 33 33 33 – – – – – – – – 33 – – 33 33 33 – 66 30 Sep 2021, 30 Sep 2022 and 30 Sep 2023 100 30 Sep 2022, 30 Sep 2023 and 30 Sep 2024 100 30 Sep 2022, 30 Sep 2023 and 30 Sep 2024 30 Sep 2021 – 33 30 Sep 2021 and 30 Sep 2022 66 30 Sep 2021, 30 Sep 2022 and 30 Sep 2023 100 30 Sep 2022, 30 Sep 2023 and 30 Sep 2024 (i) The expiry 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. 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 2021 Granted as remuneration in year 1,250,000 1,300,000 – 633,333 650,000 550,000 Director Brent Scrimshaw Executives Carla Webb-Sear Fiona Chilcott Expired Cancelled Exercised Granted held at 30 Jun 2022 Vested during the year Vested and exercisable at 30 Jun 2022 Value of rights granted during the year $ Value of rights exercised during the year $ – – – – (416,666) 2,133,334 416,666 – 979,463 145,000 – – – (450,000) 650,000 – 733,333 450,000 – 489,732 – 414,388 – 148,350 No share-based payments held by KMP are vested but not exercisable at 30 June 2022. 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 Brent Scrimshaw Anouk Darling Ian Rowden David Brain Susan McIntosh(i) Executives Fiona Chilcott Held at 1 July 2021 Purchases Issued as remuneration Received on exercise of rights Sales Held at 30 June 2022 18,750 – 19,607 75,000 75,000 122,223 41,536 – – – – – – – – – – – – – – – 216,877 – – – – – – – – – – 18,750 216,877 19,607 75,000 75,000 122,223 239,222 (72,252) 208,506 (i) Closing balance represents shares held at the date of retirement as Non-Executive Director. 42 Enero Group Limited Annual Report 2022 No loans to Key Management Personnel and their related parties were made during the year or were outstanding at the 10 Loans to Key Management Personnel reporting date. 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 ($’000) Operating EBITDA1 ($’000) Operating EBITDA1 margin (%) Net profit/(loss) to equity holders ($’000) Net profit to equity holders pre significant items ($’000) Earnings Per Share pre significant items Earnings Per Share pre significant items (cps) growth (%) Earnings Per Share basic (cps) Total Dividends Per Share (cps) Opening share price (1 July) ($) Closing share price (30 June) ($) 30 June 30 June 30 June 30 June 30 June 2022 2021 2020 2019 2018 193,426 62,200 32.2% 25,387 160,634 45,613 28.4% (402) 135,825 24,381 18.0% 10,707 129,535 20,722 16.0% 5,661 103,685 13,513 13.0% 8,473 27,112 22,835 12,881 12,051 7,846 30.9 17% 28.9 12.5 2.56 2.90 26.4 76% (0.5) 14.9 1.36 2.51 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 1. Operating EBITDA, as defined in the basis of preparation section on page 34. 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 17% 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 Businesses through increased sharing are aligned with the achievement of future shareholder wealth and therefore confirm the Executive Remuneration policy • • • of clients, and framework. End of Remuneration Report. Enero Group Limited Annual Report 2022 43 Directors’ ReportFinancial report for year ended 30 June 2022 Directors’ Report 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: Company Executives Number of Type of rights rights granted granted % % % % vested forfeited exercised remaining Grant date in year in year in year to vest Vesting date(i) Brent Scrimshaw 1,250,000 SAR 21 Oct 2020 33 33 66 30 Sep 2021, 30 Sep 2022 and 1,300,000 SAR 21 Oct 2021 100 30 Sep 2022, 30 Sep 2023 and Carla Webb-Sear 650,000 SAR 21 Oct 2021 100 30 Sep 2022, 30 Sep 2023 and Fiona Chilcott 900,000 SAR 18 Oct 2018 350,000 SAR 24 Oct 2019 – 33 100,000 SAR 21 Oct 2020 66 30 Sep 2021, 30 Sep 2022 and 550,000 SAR 21 Oct 2021 100 30 Sep 2022, 30 Sep 2023 and – – – – – – – – – 33 33 33 – – – 33 33 33 – (i) The expiry 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. 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: 30 Sep 2023 30 Sep 2024 30 Sep 2024 30 Sep 2021 30 Sep 2021 and 30 Sep 2022 30 Sep 2023 30 Sep 2024 Value of Value of rights rights granted exercised Granted Granted as held at remuneration 1 Jul 2021 in year Expired Cancelled Exercised 30 Jun 2022 the year 30 Jun 2022 $ Granted held at Vested Vested and during during the during exercisable at the year year $ Brent Scrimshaw 1,250,000 1,300,000 – (416,666) 2,133,334 416,666 – 979,463 145,000 Director Executives Carla Webb-Sear – Fiona Chilcott 633,333 650,000 550,000 – – – 650,000 – (450,000) 733,333 450,000 – 489,732 – – 414,388 148,350 No share-based payments held by KMP are vested but not exercisable at 30 June 2022. 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 Brent Scrimshaw Anouk Darling Ian Rowden David Brain Susan McIntosh(i) Executives Fiona Chilcott 1 July 2021 Purchases remuneration rights Sales 30 June 2022 Issued as Received on exercise of – – – – – – – – – – – – – – 216,877 – – – – – – – – – – – 239,222 (72,252) 208,506 Held at 18,750 216,877 19,607 75,000 75,000 122,223 Held at 18,750 – 19,607 75,000 75,000 122,223 41,536 (i) Closing balance represents shares held at the date of retirement as Non-Executive Director. 42 Enero Group Limited Annual Report 2022 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. 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 ($’000) Operating EBITDA1 ($’000) Operating EBITDA1 margin (%) Net profit/(loss) to equity holders ($’000) Net profit to equity holders pre significant items ($’000) Earnings Per Share pre significant items (cps) Earnings Per Share pre significant items growth (%) Earnings Per Share basic (cps) Total Dividends Per Share (cps) Opening share price (1 July) ($) Closing share price (30 June) ($) 30 June 2022 30 June 2021 30 June 2020 30 June 2019 30 June 2018 193,426 62,200 32.2% 25,387 160,634 45,613 28.4% (402) 135,825 24,381 18.0% 10,707 129,535 20,722 16.0% 5,661 103,685 13,513 13.0% 8,473 27,112 22,835 12,881 12,051 7,846 30.9 17% 28.9 12.5 2.56 2.90 26.4 76% (0.5) 14.9 1.36 2.51 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 43 1. Operating EBITDA, as defined in the basis of preparation section on page 34. 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 17% 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 Businesses 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. Enero Group Limited Annual Report 2022 43 Consolidated income statement Consolidated income statement for the year ended 30 June 2022 for the year ended 30 June 2022 Consolidated statement of comprehensive income for the year ended 30 June 2022 In thousands of AUD Gross revenue Directly attributable costs of sales Gross profit Other income Employee expenses Occupancy costs Travel expenses Communication expenses Compliance expenses Depreciation and amortisation expenses Administration expenses Gain/(loss) on disposal of controlled entities Incidental acquisition costs Contingent consideration fair value loss Finance income Finance costs Profit before income tax Income tax expense Profit for the year Attributable to: Equity holders of the parent Non-controlling interests Basic earnings per share (AUD cents) Diluted earnings per share (AUD cents) Note 3 23 22 13 4 5 18 18 2022 522,124 (328,698) 193,426 259 (111,716) (1,424) (1,565) (1,732) (2,032) (6,940) (9,020) 600 (1,324) (1,001) 20 (990) 56,561 (14,340) 42,221 25,387 16,834 42,221 28.9 28.2 2021 402,478 (241,844) 160,634 1,631 (98,360) (1,658) (201) (1,965) (2,588) (7,087) (7,589) (23,035) (202) – 46 (1,404) 18,222 (8,514) 9,708 (402) 10,110 9,708 (0.5) (0.5) The notes on pages 49 to 90 are an integral part of these consolidated financial statements. In thousands of AUD Profit for the year Other comprehensive income Items that will not be reclassified subsequently to profit or loss: Foreign currency translation differences for disposed foreign operations Reserve change in ownership interest – partially owned subsidiary disposed during the year Total items that will not be reclassified subsequently to profit or loss 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 Note 23 23 Other comprehensive income for the year, net of tax Total comprehensive income for the year Attributable to: Equity holders of the parent Non-controlling interests The notes on pages 49 to 90 are an integral part of these consolidated financial statements. 2022 42,221 – – – 1,231 1,231 1,231 43,452 26,077 17,375 43,452 2021 9,708 16,331 1,417 17,748 (585) (585) 17,163 26,871 16,840 10,031 26,871 44 Enero Group Limited Annual Report 2022 Enero Group Limited Annual Report 2022 45 Financial report for year ended 30 June 2022 Consolidated income statement for the year ended 30 June 2022 In thousands of AUD Gross revenue Directly attributable costs of sales Gross profit Other income Employee expenses Occupancy costs Travel expenses Communication expenses Compliance expenses Depreciation and amortisation expenses Administration expenses Gain/(loss) on disposal of controlled entities Incidental acquisition costs 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 notes on pages 49 to 90 are an integral part of these consolidated financial statements. Note 3 23 22 13 4 5 18 18 2022 522,124 (328,698) 193,426 259 (111,716) (1,424) (1,565) (1,732) (2,032) (6,940) (9,020) 600 (1,324) (1,001) 20 (990) 56,561 (14,340) 42,221 25,387 16,834 42,221 28.9 28.2 2021 402,478 (241,844) 160,634 1,631 (98,360) (1,658) (201) (1,965) (2,588) (7,087) (7,589) (23,035) (202) – 46 (1,404) 18,222 (8,514) 9,708 (402) 10,110 9,708 (0.5) (0.5) Consolidated statement of comprehensive income for the year ended 30 June 2022 Consolidated statement of comprehensive income for the year ended 30 June 2022 In thousands of AUD Profit for the year Other comprehensive income Items that will not be reclassified subsequently to profit or loss: Foreign currency translation differences for disposed foreign operations Reserve change in ownership interest – partially owned subsidiary disposed during the year Total items that will not be reclassified subsequently to profit or loss 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 Note 23 23 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 2022 42,221 – – – 1,231 1,231 1,231 43,452 26,077 17,375 43,452 2021 9,708 16,331 1,417 17,748 (585) (585) 17,163 26,871 16,840 10,031 26,871 The notes on pages 49 to 90 are an integral part of these consolidated financial statements. 45 44 Enero Group Limited Annual Report 2022 Enero Group Limited Annual Report 2022 45 Consolidated statement of changes in equity for the year ended 30 June 2022 Consolidated statement of changes in equity for the year ended 30 June 2022 Consolidated statement of financial position as at 30 June 2022 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 (383) (402) – (402) 33,209 10,541 (1,417) (18,843) 122,622 2,355 124,977 – – – – – – – – (402) 10,110 9,708 1,417 15,825 17,242 (79) 17,163 1,417 15,825 16,840 10,031 26,871 Share capital 99,515 – – – In thousands of AUD Note Opening balance at 1 July 2020 (Loss)/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 Disposal of controlling interest in partially owned subsidiaries Share-based payment expense 17 941 – – (941) 17 23 – – – – (15,770) – 15,770 (12,132) – – – – – – – 992 Closing balance at 30 June 2021 100,456 (16,555) 36,847 10,592 Opening balance at 1 July 2021 100,456 (16,555) 36,847 10,592 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 – – – 25,387 – 25,387 – – – – – – 17 17 4,405 – – – – – – (9,157) – (4,405) – 1,902 Closing balance at 30 June 2022 104,861 8,832 27,690 8,089 The notes on pages 49 to 90 are an integral part of these consolidated financial statements. 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 Total current liabilities Contingent consideration payable Lease liabilities Employee benefits Interest bearing liabilities Total non-current liabilities Total liabilities Net assets Equity Share capital Other reserves 6 7 8 5 5 9 10 8 11 12 13 14 15 5 13 14 15 16 17 Note 2022 2021 169,071 102,584 98,742 63,995 6,112 222 2,020 3,200 5,950 162 114,664 125,996 295,067 76,496 2,711 5,841 5,679 1,798 92,525 7,402 2,756 783 36,275 47,216 139,741 155,326 104,861 5,761 27,690 8,832 147,144 8,182 155,326 50,718 46,941 4,925 – 2,038 3,796 7,979 164 118,156 132,133 234,717 63,161 10,886 5,589 4,586 2,155 86,377 9,240 6,262 755 – 16,257 102,634 132,083 100,456 7,574 36,847 (16,555) 128,322 3,761 132,083 – – – – – – – – – – – – – – – – – – – – – (12,132) – – (8,359) (20,491) – – – 992 (266) – (266) 992 (3,018) 128,322 3,761 132,083 (3,018) 128,322 3,761 132,083 – 25,387 16,834 42,221 690 690 541 1,231 690 26,077 17,375 43,452 – – – – (9,157) 1,902 – – (12,954) (22,111) 1,902 – (2,328) 147,144 8,182 155,326 Profit appropriation reserve Retained earnings/(Accumulated losses) Total equity attributable to equity holders of the parent Non-controlling interests Total equity The notes on pages 49 to 90 are an integral part of these consolidated financial statements. 46 Enero Group Limited Annual Report 2022 Enero Group Limited Annual Report 2022 47 Financial report for year ended 30 June 2022 Consolidated statement of changes in equity for the year ended 30 June 2022 Consolidated statement of financial position as at 30 June 2022 Consolidated statement of financial position as at 30 June 2022 Retained profits/ Profit Attributable to owners of the Company Share- based Reserve change in ownership Foreign currency Share (Accumulated appropriation payment interest in translation In thousands of AUD Note capital losses) reserve reserve subsidiary reserve Total Opening balance at 1 July 2020 99,515 33,209 10,541 (1,417) (18,843) 122,622 2,355 124,977 Non- controlling interests Total equity – – (402) 10,110 9,708 1,417 15,825 17,242 (79) 17,163 1,417 15,825 16,840 10,031 26,871 17 941 – (941) (15,770) 15,770 (12,132) (Loss)/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 Transfer to profit appropriation Rights reserve Dividends paid to equity holders Disposal of controlling interest in partially owned subsidiaries Share-based payment expense 17 23 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 (383) (402) – (402) – – – – – – – – 25,387 25,387 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 992 – – – – – – – – – – – – – – Closing balance at 30 June 2022 104,861 8,832 27,690 (2,328) 147,144 8,182 155,326 4,405 17 17 (9,157) – – (4,405) – 1,902 8,089 – – – – 1,902 (9,157) (12,954) (22,111) – – – 1,902 The notes on pages 49 to 90 are an integral part of these consolidated financial statements. – – – – – – – (12,132) (8,359) (20,491) – 992 (266) – (266) 992 – – – – – 25,387 16,834 42,221 690 690 541 1,231 690 26,077 17,375 43,452 Closing balance at 30 June 2021 100,456 (16,555) 36,847 10,592 (3,018) 128,322 3,761 132,083 Opening balance at 1 July 2021 100,456 (16,555) 36,847 10,592 (3,018) 128,322 3,761 132,083 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 Total current liabilities Contingent consideration payable Lease liabilities Employee benefits Interest bearing liabilities Total non-current liabilities Total liabilities Net assets Equity Share capital Other reserves Profit appropriation reserve Retained earnings/(Accumulated losses) Total equity attributable to equity holders of the parent Non-controlling interests Total equity The notes on pages 49 to 90 are an integral part of these consolidated financial statements. Note 2022 2021 6 7 8 5 5 9 10 8 11 12 13 14 15 5 13 14 15 16 17 98,742 63,995 6,112 222 50,718 46,941 4,925 – 169,071 102,584 2,020 3,200 5,950 162 114,664 125,996 295,067 76,496 2,711 5,841 5,679 1,798 92,525 7,402 2,756 783 36,275 47,216 139,741 155,326 104,861 5,761 27,690 8,832 147,144 8,182 155,326 47 2,038 3,796 7,979 164 118,156 132,133 234,717 63,161 10,886 5,589 4,586 2,155 86,377 9,240 6,262 755 – 16,257 102,634 132,083 100,456 7,574 36,847 (16,555) 128,322 3,761 132,083 46 Enero Group Limited Annual Report 2022 Enero Group Limited Annual Report 2022 47 Consolidated statement of cash flows for the year ended 30 June 2022 Consolidated statement of cash flows for the year ended 30 June 2022 Notes to the consolidated financial statements for the year ended 30 June 2022 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 Acquisition of a business, net of cash acquired Sale of controlled entities, net of cash disposed Contingent consideration paid Net cash used in investing activities Cash flows from financing activities Payment of lease liabilities Proceeds received from bank loans Dividends paid to equity holders of the parent Dividends paid to non-controlling interests in controlled entities Net cash from/(used in) financing activities Net increase in cash and cash equivalents Effect of exchange rate fluctuations on cash held Cash and cash equivalents at 1 July Cash and cash equivalents at 30 June The notes on pages 49 to 90 are an integral part of these consolidated financial statements. Note 2022 2021 524,510 (460,748) 63,762 20 (14,933) (29) 48,820 6 (1,148) – 1,018 (11,000) (11,124) (5,732) 36,275 (9,157) (12,954) 8,432 46,128 1,896 50,718 98,742 408,956 (348,666) 60,290 46 (7,108) (26) 53,202 – (995) (4,556) (740) (14,885) (21,176) (6,162) – (12,132) (8,359) (26,653) 5,373 (2,236) 47,581 50,718 6 9 22 23 13 14 16 17 6 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 Capital 16. Interest bearing liabilities 17. Capital and reserves 18. Earnings per share Risk Group structure 21. Controlled entities 22. Acquisitions 23. Disposals 24. Parent entity disclosures 25. Deed of Cross Guarantee Unrecognised items 26. Commitments 27. Contingencies Other items 28. Subsequent events 30. Share-based payments 31. Auditor’s remuneration 19. Financial risk management/financial instruments 20. Impairment of non-financial assets 29. Key Management Personnel and other related party disclosures Page 50 52 55 57 58 60 61 61 62 63 64 66 66 67 68 69 70 71 72 77 79 81 83 85 86 87 87 87 87 88 90 48 Enero Group Limited Annual Report 2022 Enero Group Limited Annual Report 2022 49 Financial report for year ended 30 June 2022 Consolidated statement of cash flows for the year ended 30 June 2022 Notes to the consolidated financial statements for the year ended 30 June 2022 Notes to the consolidated financial statements for the year ended 30 June 2022 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 Acquisition of a business, net of cash acquired Sale of controlled entities, net of cash disposed Contingent consideration paid Net cash used in investing activities Cash flows from financing activities Payment of lease liabilities Proceeds received from bank loans Dividends paid to equity holders of the parent Dividends paid to non-controlling interests in controlled entities Net cash from/(used in) financing activities Net increase in cash and cash equivalents Effect of exchange rate fluctuations on cash held Cash and cash equivalents at 1 July Cash and cash equivalents at 30 June The notes on pages 49 to 90 are an integral part of these consolidated financial statements. Note 2022 2021 524,510 (460,748) 63,762 20 (14,933) (29) 48,820 (1,148) 6 – 1,018 (11,000) (11,124) (5,732) 36,275 (9,157) (12,954) 8,432 46,128 1,896 50,718 98,742 408,956 (348,666) 60,290 46 (7,108) (26) 53,202 – (995) (4,556) (740) (14,885) (21,176) (6,162) – (12,132) (8,359) (26,653) 5,373 (2,236) 47,581 50,718 6 9 22 23 13 14 16 17 6 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 Capital 16. Interest bearing liabilities 17. Capital and reserves 18. Earnings per share Risk 19. Financial risk management/financial instruments 20. Impairment of non-financial assets Group structure 21. Controlled entities 22. Acquisitions 23. Disposals 24. Parent entity disclosures 25. Deed of Cross Guarantee Unrecognised items 26. Commitments 27. Contingencies Other items 28. Subsequent events 29. Key Management Personnel and other related party disclosures 30. Share-based payments 31. Auditor’s remuneration 49 Page 50 52 55 57 58 60 61 61 62 63 64 66 66 67 68 69 70 71 72 77 79 81 83 85 86 87 87 87 87 88 90 48 Enero Group Limited Annual Report 2022 Enero Group Limited Annual Report 2022 49 Notes to the consolidated financial statements for the year ended 30 June 2022 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: • 5. Income tax expense and deferred tax • 13. Contingent consideration payable • 20. Impairment of non-financial assets (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: • 19. Financial instruments (Contingent consideration payable) • 30. 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. 1. Basis of preparation In preparing these consolidated 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 2022 comprise the Company and its subsidiaries (together referred to as the ‘Group’). The consolidated financial statements for the year ended 30 June 2022 were authorised for issue in accordance with a resolution of the Directors on 8 September 2022. (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 2022. (iii) Use of estimates and judgements The preparation of consolidated 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. 50 Enero Group Limited Annual Report 2022 (ii) Foreign currency transactions (f) Changes in accounting policies 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 consolidated 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 consolidated 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 consolidated 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. The accounting policies provided throughout Notes 1 to 31 of this report have been applied consistently to all periods presented in the consolidated financial statements. (g) 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 2022 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 consolidated financial statements The notes include information which is required to understand the consolidated 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; 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. The notes are organised into the following sections: Key numbers: provides a breakdown of individual line items in the consolidated 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 consolidated 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. • • • • • • • • • Enero Group Limited Annual Report 2022 51 Notes to the consolidated financial statements for the year ended 30 June 2022Financial report for year ended 30 June 2022 Notes to the consolidated financial statements for the year ended 30 June 2022 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: • 5. Income tax expense and deferred tax • 13. Contingent consideration payable • 20. Impairment of non-financial assets (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: • 19. Financial instruments (Contingent consideration payable) • 30. 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. 1. Basis of preparation In preparing these consolidated 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 2022 comprise the Company and its subsidiaries (together referred to as the ‘Group’). The consolidated financial statements for the year ended 30 June 2022 were authorised for issue in accordance with a resolution of the Directors on 8 September 2022. (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 2022. (iii) Use of estimates and judgements The preparation of consolidated 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. 50 Enero Group Limited Annual Report 2022 (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 consolidated 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 consolidated 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 consolidated 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 The accounting policies provided throughout Notes 1 to 31 of this report have been applied consistently to all periods presented in the consolidated financial statements. (g) 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 2022 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 consolidated financial statements The notes include information which is required to understand the consolidated 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 consolidated 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 consolidated 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. 51 Enero Group Limited Annual Report 2022 51 Notes to the consolidated financial statements for the year ended 30 June 2022 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). Revenues are all derived from services which are similar in the nature and outputs, operate in similar economic environments and have a comparable customer mix. The Group’s service offering includes integrated marketing and communication services, including strategy, market research and insights, advertising, public relations, communications planning, design, events management, direct marketing, and programmatic media. The Group includes Hotwire, BMF, CPR, Orchard and OBMedia. Following management’s review of the business portfolio at the beginning of the current reporting period, a new global operating model was implemented by the Group. The portfolio was separated into the following two segments to better assess its performance, make decisions on resource allocation and report both to the CODM and to the Board: • Brand Transformation: human generated creative ideas to transform the way customers and stakeholders connect and engage with brands. This includes public relations and communications consultancy Hotwire and CPR and creative agency BMF. • Creative Technology and Data: high quality customer experience connected by technology and enabled by data. This includes digital agency Orchard and advertising technology platform OBMedia. The measure of reporting to the Enero Executive team is on an Operating EBITDA basis (defined below), which excludes significant 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 (excluding depreciation of right-of-use assets), amortisation of intangibles, impairment of intangibles, gain/(loss) on disposal of controlled entities and contingent consideration fair value gain/(loss). 2022 In thousands of AUD Gross revenue Directly attributable costs of sales Gross profit 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 Gain on disposal of business Incidental acquisition costs 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 Brand Transformation 142,476 Creative Technology and Data 380,046 Total segments Unallocated Eliminations Consolidated 522,124 522,522 (398) – 398 (328,698) (35,756) 106,720 186 (293,340) (329,096) 86,706 193,426 73 259 – – – (79,139) (37,256) (116,395) (11,094) 27,767 49,523 77,290 (11,094) – – – – – – – – 193,426 259 (127,489) 66,196 (3,996) 62,200 (2,944) (1,001) 600 (1,324) (970) 56,561 (14,340) 42,221 112,236 2,428 180,403 295,067 139,741 139,741 1,222 5,718 1,148 (1,001) – – 600 (1,001) 600 96,315 2,428 54,100 152,843 51,895 51,895 857 4,373 825 15,921 112,236 – 64,734 80,655 40,320 40,320 365 1,077 220 2,428 118,834 233,498 92,215 92,215 1,222 5,450 1,045 – – – – 76,366 76,366 62,323 62,323 – 268 103 (14,797) (14,797) (14,797) (14,797) – – – (778) 402,478 778 (241,844) – – – – – – – – – – – (8,862) (8,862) (8,862) (8,862) 160,634 1,631 (112,361) 49,904 (4,291) 45,613 (2,796) (23,035) (202) (1,358) 18,222 (8,514) 9,708 114,506 3,650 116,561 234,717 102,634 102,634 874 6,213 995 Transformation and Data segments Unallocated Eliminations Consolidated 2021 (restated) In thousands of AUD Gross revenue Directly attributable costs of sales Gross profit Other income Operating expenses EBITDA Depreciation of right-of-use assets Operating EBITDA Depreciation of plant and equipment and amortisation of intangibles Loss on disposal of controlled entities Creative Brand Technology Total 133,289 (37,396) 95,893 269,967 403,256 (205,226) (242,622) 64,741 160,634 557 1,074 1,631 (71,362) (33,135) (104,497) 25,088 32,680 57,768 – – – – (7,864) (7,864) (9,878) (202) (9,878) (13,157) (202) – Incidental acquisition costs 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 Geographical segments Geographical information 2022 Gross profit(iii) Operating EBITDA Operating EBITDA margin 97,729 3,285 42,926 143,940 62,163 62,163 248 4,783 755 16,777 114,506 365 38,243 55,385 36,887 36,887 626 1,020 110 3,650 81,169 199,325 99,050 99,050 874 5,803 865 – – 44,254 44,254 12,446 12,446 – 410 130 The operating segments are managed on a world-wide basis. However, there are three geographic areas of operation. In thousands of AUD Australia UK and Europe 36,622 8,009 21.9% UK and Europe 35,504 7,597 21.4% USA 88,028 51,497 58.5% USA 60,087 32,345 53.8% 68,776 13,325 19.4% 65,043 13,129 20.2% Support Office(i) Unallocated intangibles(ii) (10,631) Support Office(i) Unallocated intangibles(ii) – – – – – – (7,458) Total 193,426 62,200 32.2% Total 160,634 45,613 28.4% – – – – – – In thousands of AUD Australia 2021 Gross profit(iii) Operating EBITDA Operating EBITDA margin Non-current assets 6,519 3,028 1,785 114,664 125,996 Non-current assets 9,106 3,184 1,687 118,156 132,133 (i) Support office includes the share-based payment charge in the consolidated income statement. (ii) Goodwill and other intangibles are allocated to the reportable segments. However, as the reportable segments are managed at a global level they cannot be allocated across geographical segments. (iii) Gross profit represents net revenue, which is gross revenue less directly attributable costs of sales. 52 Enero Group Limited Annual Report 2022 Enero Group Limited Annual Report 2022 53 Notes to the consolidated financial statements for the year ended 30 June 2022Financial report for year ended 30 June 2022 Notes to the consolidated financial statements for the year ended 30 June 2022 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). This includes public relations and communications consultancy Hotwire and CPR and creative agency BMF. • Creative Technology and Data: high quality customer experience connected by technology and enabled by data. This includes digital agency Orchard and advertising technology platform Revenues are all derived from services which are similar in the nature and outputs, operate in similar economic OBMedia. environments and have a comparable customer mix. The The measure of reporting to the Enero Executive team is Group’s service offering includes integrated marketing and on an Operating EBITDA basis (defined below), which communication services, including strategy, market research and insights, advertising, public relations, excludes significant items which are separately presented because of their nature, size and expected infrequent communications planning, design, events management, occurrence and does not reflect the underlying trading of direct marketing, and programmatic media. The Group the operations. includes Hotwire, BMF, CPR, Orchard and OBMedia. Following management’s review of the business portfolio at apply to operating segments: In relation to segment reporting, the following definitions the beginning of the current reporting period, a new global operating model was implemented by the Group. The portfolio was separated into the following two segments to better assess its performance, make decisions on resource allocation and report both to the CODM and to the Board: • Brand Transformation: human generated creative ideas to transform the way customers and stakeholders connect and engage with brands. Operating EBITDA: is calculated as profit before interest, taxes, depreciation of plant and equipment (excluding depreciation of right-of-use assets), amortisation of intangibles, impairment of intangibles, gain/(loss) on disposal of controlled entities and contingent consideration fair value gain/(loss). Transformation and Data segments Unallocated Eliminations Consolidated 2022 In thousands of AUD Gross revenue Directly attributable costs of sales Gross profit 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 Gain on disposal of business Incidental acquisition costs 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 Creative Brand Technology Total 142,476 (35,756) 106,720 186 380,046 522,522 (293,340) (329,096) 86,706 193,426 73 259 (79,139) (37,256) (116,395) (11,094) 27,767 49,523 77,290 (11,094) (1,001) – – 600 (1,001) 600 96,315 2,428 54,100 152,843 51,895 51,895 857 4,373 825 15,921 112,236 – 64,734 80,655 40,320 40,320 365 1,077 220 2,428 118,834 233,498 92,215 92,215 1,222 5,450 1,045 (14,797) (14,797) (14,797) (14,797) 76,366 76,366 62,323 62,323 – 268 103 – – – – – – – – (398) 522,124 398 (328,698) – – – – – – – – – – – 193,426 259 (127,489) 66,196 (3,996) 62,200 (2,944) (1,001) 600 (1,324) (970) 56,561 (14,340) 42,221 112,236 2,428 180,403 295,067 139,741 139,741 1,222 5,718 1,148 2021 (restated) In thousands of AUD Gross revenue Brand Transformation 133,289 Creative Technology and Data 269,967 Total segments Unallocated Eliminations Consolidated 402,478 403,256 (778) – Directly attributable costs of sales (37,396) (205,226) (242,622) Gross profit Other income Operating expenses EBITDA Depreciation of right-of-use assets Operating EBITDA Depreciation of plant and equipment and amortisation of intangibles Loss on disposal of controlled entities Incidental acquisition costs 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 95,893 557 64,741 160,634 1,074 1,631 (71,362) (33,135) (104,497) 25,088 32,680 57,768 – – – (7,864) (7,864) (9,878) (202) (9,878) (13,157) (202) – 97,729 3,285 42,926 143,940 62,163 62,163 248 4,783 755 16,777 114,506 365 38,243 55,385 36,887 36,887 626 1,020 110 3,650 81,169 199,325 99,050 99,050 874 5,803 865 – – 44,254 44,254 12,446 12,446 – 410 130 778 (241,844) – – – – – – – – (8,862) (8,862) (8,862) (8,862) – – – 160,634 1,631 (112,361) 49,904 (4,291) 45,613 (2,796) (23,035) (202) (1,358) 18,222 (8,514) 9,708 114,506 3,650 116,561 234,717 102,634 102,634 874 6,213 995 53 Geographical segments The operating segments are managed on a world-wide basis. However, there are three geographic areas of operation. Geographical information In thousands of AUD 2022 Gross profit(iii) Operating EBITDA Operating EBITDA margin Australia 68,776 13,325 19.4% UK and Europe 36,622 8,009 21.9% USA 88,028 51,497 58.5% Support Office(i) Unallocated intangibles(ii) – (10,631) – – – – Total 193,426 62,200 32.2% Non-current assets 6,519 3,028 1,785 – 114,664 125,996 In thousands of AUD 2021 Gross profit(iii) Operating EBITDA Operating EBITDA margin Australia 65,043 13,129 20.2% UK and Europe 35,504 7,597 21.4% USA 60,087 32,345 53.8% Support Office(i) Unallocated intangibles(ii) – (7,458) – – – – Total 160,634 45,613 28.4% Non-current assets 9,106 3,184 1,687 – 118,156 132,133 (i) Support office includes the share-based payment charge in the consolidated income statement. (ii) Goodwill and other intangibles are allocated to the reportable segments. However, as the reportable segments are managed at a global level they cannot be allocated across geographical segments. (iii) Gross profit represents net revenue, which is gross revenue less directly attributable costs of sales. 52 Enero Group Limited Annual Report 2022 Enero Group Limited Annual Report 2022 53 Notes to the consolidated financial statements for the year ended 30 June 2022 2. Operating segments (continued) 19.9 21.7 2022 – 2021 10.1 Major Customer Revenue from a customer (2020: 2 customers) represents more than 10% of Group’s total revenue, with a breakdown by segment provided below: Percentage of Group’s total revenue Brand Transformation Creative Technology and Data 3. Revenue Nature of our services The Group provides marketing and communication services to a broad range of customers across three key geographic locations – Australia, UK & Europe, 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 provides a comprehensive range of services across its continuing businesses, with its advertising technology platform and digital advertising and marketing services capabilities delivered through the Creative Data and Technology segment and technology communications consultancy, brand transformation consultancy, and public affairs and communications consultancy delivered through the Brand Transformation segment. With the divestment of the TLE and TDE businesses disclosed in Note 23, the Group no longer provides strategic data consultancy and online research and data delivery The duration of the Group’s time or project-based customer contracts is typically from one up to five months, with stand- ready (“retainer”) contracts typically lasting up to one year and which may be cancelled with notice periods in accordance with respective contracts. In substantially all cases, the Group is the principal in the arrangements with its customers. In one customer arrangement, we act as an agent and arrange, at the customer’s direction, for third parties to perform certain services. services. 2022 522,124 (328,698) 193,426 2021 402,478 (241,844) 160,634 In thousands of AUD Gross revenue from the rendering of services Directly attributable costs of sales Gross profit Disaggregation of revenue Revenue is disaggregated by: • • contracts. the type of contract (fixed fees for specific projects or time recovered on a rate per hour basis plus reimbursable costs), with 50% (2021: 46%) of the Group’s consulting revenue (excluding revenue from advertising technology platform) generated from fixed fee projects and 50% (2021: 54%) from time and cost recovery and retainer the timing of performance obligation satisfaction (point in time or over time), with 66% (2021: 58%) of the Group’s revenue recognised at a point in time and 34% (2021: 42%) revenue recognised over time. Revenue is disaggregated by service type across reportable segments in Note 2. Revenue is further disaggregated by primary geographical markets in the following table, which reconciles to the revenue of the Group’s segments (see Note 2). In thousands of AUD Australia UK and Europe USA Total reportable segments Contract balances customers. The following table provides information about receivables, contract assets and contract liabilities from contracts with In thousands of AUD Trade receivables Contract assets – Work in progress Contract liabilities – Unearned revenue Note 7 8 12 2022 94,405 46,235 381,484 522,124 2022 64,196 3,293 (17,440) 50,049 2021 95,270 45,330 261,878 402,478 2021 47,154 2,758 (16,507) 33,405 21.7 30.0 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. 54 Enero Group Limited Annual Report 2022 Enero Group Limited Annual Report 2022 55 Notes to the consolidated financial statements for the year ended 30 June 2022Financial report for year ended 30 June 2022 Notes to the consolidated financial statements for the year ended 30 June 2022 Revenue from a customer (2020: 2 customers) represents more than 10% of Group’s total revenue, with a breakdown by 2. Operating segments (continued) Major Customer segment provided below: Percentage of Group’s total revenue Brand Transformation Creative Technology and Data 2022 – 21.7 21.7 2021 10.1 19.9 30.0 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. 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. 3. Revenue Nature of our services The Group provides marketing and communication services to a broad range of customers across three key geographic locations – Australia, UK & Europe, 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 provides a comprehensive range of services across its continuing businesses, with its advertising technology platform and digital advertising and marketing services capabilities delivered through the Creative Data and Technology segment and technology communications consultancy, brand transformation consultancy, and public affairs and communications consultancy delivered through the Brand Transformation segment. With the divestment of the TLE and TDE businesses disclosed in Note 23, the Group no longer provides strategic data consultancy and online research and data delivery services. The duration of the Group’s time or project-based customer contracts is typically from one up to five months, with stand- ready (“retainer”) contracts typically lasting up to one year and which may be cancelled with notice periods in accordance with respective contracts. In substantially all cases, the Group is the principal in the arrangements with its customers. In one customer arrangement, we act as an agent and arrange, at the customer’s direction, for third parties to perform certain services. In thousands of AUD Gross revenue from the rendering of services Directly attributable costs of sales Gross profit Disaggregation of revenue Revenue is disaggregated by: 2022 522,124 (328,698) 193,426 2021 402,478 (241,844) 160,634 • • the type of contract (fixed fees for specific projects or time recovered on a rate per hour basis plus reimbursable costs), with 50% (2021: 46%) of the Group’s consulting revenue (excluding revenue from advertising technology platform) generated from fixed fee projects and 50% (2021: 54%) from time and cost recovery and retainer contracts. 55 the timing of performance obligation satisfaction (point in time or over time), with 66% (2021: 58%) of the Group’s revenue recognised at a point in time and 34% (2021: 42%) revenue recognised over time. Revenue is disaggregated by service type across reportable segments in Note 2. Revenue is further disaggregated by primary geographical markets in the following table, which reconciles to the revenue of the Group’s segments (see Note 2). In thousands of AUD Australia UK and Europe USA Total reportable segments 2022 94,405 46,235 381,484 522,124 2021 95,270 45,330 261,878 402,478 Contract balances The following table provides information about receivables, contract assets and contract liabilities from contracts with customers. In thousands of AUD Trade receivables Contract assets – Work in progress Contract liabilities – Unearned revenue Note 7 8 12 2022 64,196 3,293 (17,440) 50,049 2021 47,154 2,758 (16,507) 33,405 54 Enero Group Limited Annual Report 2022 Enero Group Limited Annual Report 2022 55 Notes to the consolidated financial statements for the year ended 30 June 2022 3. Revenue (continued) Contract assets: The contract assets relate to the Group’s work in progress for accrued fees 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. There were no significant impairment losses to contract assets recorded in either the current or prior year. Contract liabilities: The contract liabilities relate to the Group’s unearned revenue for consideration received from advance billings to customers prior to the satisfaction of performance obligations in accordance with the terms of the customer contracts. Given the short-term nature of customer contracts in the Group, it is expected that both contract assets will be recovered and contract liabilities will be settled within 12 months from reporting date. Revenue recognised in the current year that was included in the contract liability balance as at 30 June 2021 amounted to $16,507,000. Revenue recognised in the current year from performance obligations satisfied (or partially satisfied) as at prior year end was not material. Accounting policy Revenue is recognised when a customer obtains control of promised goods or services (the performance obligation) in an amount that reflects the consideration we expect to receive in exchange for those goods or services (the transaction price). We measure revenue by estimating the transaction price based on the consideration specified in the customer arrangement. Revenue is recognised as the performance obligations are satisfied. Our customer contracts are primarily fees for service on either a project or a rate per hour basis. Revenue is recorded net of sales, use and value added taxes. Performance obligations In substantially all our service categories, the performance obligation is to provide advisory and consulting services at an agreed-upon level of effort to accomplish the specified engagement. Our customer contracts are comprised of diverse arrangements involving fees based on an agreed fee or rate per hour for the level of effort expended by our employees and reimbursement for third-party costs that we are required to include in revenue when we control the vendor services related to these costs and we act as principal. The transaction price of a contract is allocated to each distinct performance obligation based on its relative stand-alone selling price and is recognised as revenue when, or as, the customer receives the benefit of the performance obligation. Customers typically receive and consume the benefit of our services as they are performed. Substantially all our customer contracts provide that we are compensated for services performed to date and allow for cancellation by either party on short notice, typically 1 to 3 months, without penalty. Generally, our short-term contracts, which normally take 1 to 3 months to complete, are performed by a single agency and consist of a single performance obligation. As a result, we do not consider the underlying services as separate or distinct performance obligations because our services are highly interrelated, occur in close proximity, and the integration of the various components of a marketing message is essential to overall service. In certain of our long-term customer contracts, which have a term of up to one year, the performance obligation is a stand-ready obligation, because we provide a constant level of similar services over the term of the contract. Revenue recognition methods A substantial portion of our revenue is recognised over time, as the services are performed, because the customer receives and consumes the benefit of our performance throughout the contract period, or we create an asset with no alternative use and are contractually entitled to payment for our performance to date in the event the customer terminates the contract for convenience. For these customer contracts, other than when we have a stand-ready obligation to perform services, revenue is recognised over time using input measures that correspond to the level of staff effort expended to satisfy the performance obligation on a rate per hour or equivalent basis or output measures that correspond to the stage of completion of the deliverables. For customer contracts when we have a stand-ready obligation to perform services on an ongoing basis over the life of the contract, typically for periods up to one year, where the scope of these arrangements is broad and there are no significant gaps in performing the services, we recognise revenue using a time-based measure resulting in a straight-line revenue recognition. From time to time, there may be changes in the customer service requirements during the term of a contract and the changes could be significant. These changes are typically negotiated as new contracts covering the additional requirements and the associated costs, as well as additional fees for the incremental work to be performed. As a result, the Group’s customer arrangements do not typically include variable consideration provisions and therefore, variable consideration amounts do not need to be estimated when determining the transaction price for its contracts. Principal vs agent The Group incurs a number of third party out-of-pocket costs on behalf of customers, including direct costs and incidental, or out-of-pocket costs. Third-party direct costs incurred in connection with the creation and delivery of advertising or marketing communication services include, among others: purchased media, studio production services, specialised talent, including artists and other freelance labour, event marketing supplies, materials and services, promotional items, market research and third-party data and other related expenditures. Out-of-pocket costs include, among others: transportation, hotel, meals and telecommunication charges incurred by us in the course of providing our services. Billings related to out-of-pocket costs are included in revenue since we control the goods or services prior to delivery to the customer. However, the inclusion of billings related to third-party direct costs in revenue depends on whether we act as a principal or as an agent in the customer contract. In substantially all of our customer arrangements, we act as principal when contracting for third-party services on behalf of our customers because we control the specified goods or services before they are transferred to the customer and we are responsible for providing the specified goods or services, or we are responsible for directing and integrating third-party vendors to fulfill our performance obligation at the agreed upon contractual price. In such arrangements, we also take pricing risk under the terms of the customer contract. When we act as principal, we include billable amounts related to third-party costs in the transaction price and record revenue over time at the gross amount billed, including out-of-pocket costs, consistent with the manner that we recognise revenue for the underlying services contract. When we act as an agent and arrange, at the customer’s direction, for third parties to perform certain services, we do not control the goods or services prior to the transfer to the customer. As a result, revenue is recorded net of these costs, equal to the amount retained for our fee or commission. 4. Finance costs In thousands of AUD Interest and finance costs Lease present value interest Finance costs Contingent consideration present value interest 2022 29 441 520 990 2021 26 642 736 1,404 Foreign exchange gain of $376,000 (2021: loss of $418,000) has been recognised in the consolidated income statement and has been included in administration expenses. Accounting policy (i) Interest income (ii) Interest and finance costs Interest income is recognised as it accrues to the related financial asset using the effective interest method. Finance costs are recognised in the consolidated 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 consolidated 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 consolidated income statement using the effective interest method and includes the effective interest cost relating to lease liabilities recognised for contracts that contain leases. 56 Enero Group Limited Annual Report 2022 Enero Group Limited Annual Report 2022 57 Notes to the consolidated financial statements for the year ended 30 June 2022Financial report for year ended 30 June 2022 Notes to the consolidated financial statements for the year ended 30 June 2022 3. Revenue (continued) Contract assets: either the current or prior year. Contract liabilities: The contract assets relate to the Group’s work in progress for accrued fees 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. There were no significant impairment losses to contract assets recorded in The contract liabilities relate to the Group’s unearned revenue for consideration received from advance billings to customers prior to the satisfaction of performance obligations in accordance with the terms of the customer contracts. Given the short-term nature of customer contracts in the Group, it is expected that both contract assets will be recovered and contract liabilities will be settled within 12 months from reporting date. Revenue recognised in the current year that was included in the contract liability balance as at 30 June 2021 amounted to $16,507,000. Revenue recognised in the current year from performance obligations satisfied (or partially satisfied) as at prior year end was not material. Accounting policy Revenue is recognised when a customer obtains control of promised goods or services (the performance obligation) in an amount that reflects the consideration we expect to receive in exchange for those goods or services (the transaction price). We measure revenue by estimating the transaction price based on the consideration specified in the customer arrangement. Revenue is recognised as the performance obligations are satisfied. Our customer contracts are primarily fees for service on either a project or a rate per hour basis. Revenue is recorded net of sales, use and value added taxes. Performance obligations In substantially all our service categories, the performance obligation is to provide advisory and consulting services at an agreed-upon level of effort to accomplish the specified engagement. Our customer contracts are comprised of diverse arrangements involving fees based on an agreed fee or rate per hour for the level of effort expended by our employees and reimbursement for third-party costs that we are required to include in revenue when we control the vendor services related to these costs and we act as principal. The transaction price of a contract is allocated to each distinct performance obligation based on its relative stand-alone selling price and is recognised as revenue when, or as, the customer receives the benefit of the performance obligation. Customers typically receive and consume the benefit of our services as they are performed. Substantially all our customer contracts provide that we are compensated for services performed to date and allow for cancellation by either party on short notice, typically 1 to 3 months, without penalty. Generally, our short-term contracts, which normally take 1 to 3 months to complete, are performed by a single agency and consist of a single performance obligation. As a result, we do not consider the underlying services as separate or distinct performance obligations because our services are highly interrelated, occur in close proximity, and the integration of the various components of a marketing message is essential to overall service. In certain of our long-term customer contracts, which have a term of up to one year, the performance obligation is a stand-ready obligation, because we provide a constant level of similar services over the term of the contract. Revenue recognition methods A substantial portion of our revenue is recognised over time, as the services are performed, because the customer receives and consumes the benefit of our performance throughout the contract period, or we create an asset with no alternative use and are contractually entitled to payment for our performance to date in the event the customer terminates the contract for convenience. For these customer contracts, other than when we have a stand-ready obligation to perform services, revenue is recognised over time using input measures that correspond to the level of staff effort expended to satisfy the performance obligation on a rate per hour or equivalent basis or output measures that correspond to the stage of completion of the deliverables. For customer contracts when we have a stand-ready obligation to perform services on an ongoing basis over the life of the contract, typically for periods up to one year, where the scope of these arrangements is broad and there are no significant gaps in performing the services, we recognise revenue using a time-based measure resulting in a straight-line revenue recognition. From time to time, there may be changes in the customer service requirements during the term of a contract and the changes could be significant. These changes are typically negotiated as new contracts covering the additional requirements and the associated costs, as well as additional fees for the incremental work to be performed. As a result, the Group’s customer arrangements do not typically include variable consideration provisions and therefore, variable consideration amounts do not need to be estimated when determining the transaction price for its contracts. Principal vs agent The Group incurs a number of third party out-of-pocket costs on behalf of customers, including direct costs and incidental, or out-of-pocket costs. Third-party direct costs incurred in connection with the creation and delivery of advertising or marketing communication services include, among others: purchased media, studio production services, specialised talent, including artists and other freelance labour, event marketing supplies, materials and services, promotional items, market research and third-party data and other related expenditures. Out-of-pocket costs include, among others: transportation, hotel, meals and telecommunication charges incurred by us in the course of providing our services. Billings related to out-of-pocket costs are included in revenue since we control the goods or services prior to delivery to the customer. However, the inclusion of billings related to third-party direct costs in revenue depends on whether we act as a principal or as an agent in the customer contract. In substantially all of our customer arrangements, we act as principal when contracting for third-party services on behalf of our customers because we control the specified goods or services before they are transferred to the customer and we are responsible for providing the specified goods or services, or we are responsible for directing and integrating third-party vendors to fulfill our performance obligation at the agreed upon contractual price. In such arrangements, we also take pricing risk under the terms of the customer contract. When we act as principal, we include billable amounts related to third-party costs in the transaction price and record revenue over time at the gross amount billed, including out-of-pocket costs, consistent with the manner that we recognise revenue for the underlying services contract. When we act as an agent and arrange, at the customer’s direction, for third parties to perform certain services, we do not control the goods or services prior to the transfer to the customer. As a result, revenue is recorded net of these costs, equal to the amount retained for our fee or commission. 4. Finance costs In thousands of AUD Interest and finance costs Contingent consideration present value interest Lease present value interest Finance costs 2022 29 441 520 990 57 2021 26 642 736 1,404 Foreign exchange gain of $376,000 (2021: loss of $418,000) has been recognised in the consolidated income statement and has been included in administration expenses. Accounting policy (i) Interest income Interest income is recognised as it accrues to the related financial asset using the effective interest method. (ii) Interest and finance costs Finance costs are recognised in the consolidated 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 consolidated 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 consolidated income statement using the effective interest method and includes the effective interest cost relating to lease liabilities recognised for contracts that contain leases. 56 Enero Group Limited Annual Report 2022 Enero Group Limited Annual Report 2022 57 Notes to the consolidated financial statements for the year ended 30 June 2022 5. Income tax expense and deferred tax Income tax expense Recognised in the consolidated 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 the consolidated income statement Numerical reconciliation between tax expense and pre-tax accounting profit Profit for the year Income tax expense Profit before income tax Income tax expense using the Company’s domestic tax rate of 30% (2021: 30%) Increase/(decrease) in income tax expense due to: Share-based payment expense Unwind of present value interest Contingent consideration fair value loss Incidental acquisition costs (Gain)/loss on disposal of controlled entities Effect of losses not previously recognised Effect of lower tax rate on overseas incomes (Over)/under provision for tax in previous years Other (non-assessable)/non-deductible items Income tax expense on pre-tax net profit 2022 14,370 (66) 14,304 36 36 14,340 42,221 14,340 56,561 16,968 571 132 300 397 (180) – (3,607) (66) (175) 14,340 Current taxes The Group has a net current tax payable of $1,576,000 (tax payable $1,798,000 and tax receivable $222,000) at 30 June 2022 (2021: current tax payable $2,155,000). 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 Others Gross deferred tax liabilities Net deferred tax asset 2022 3,653 1,613 1,076 695 10 66 7,113 3,653 729 171 469 71 5,093 2,020 Movement in deferred tax balances The movement in deferred tax balances during the year was all recognised in the consolidated income statement. 2021 8,738 237 8,975 (461) (461) 8,514 9,708 8,514 18,222 5,467 298 193 – 61 6,910 (1,863) (2,423) 237 (366) 8,514 2021 3,653 1,303 1,000 1,032 21 62 7,071 3,653 1,095 214 71 – 5,033 2,038 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 These tax losses do not have an expiry date. Accounting policy 2022 3,152 235,324 238,476 2021 2,996 207,486 210,482 Income tax on the profit or loss for the year comprises current and deferred tax. Current and deferred tax is recognised in the consolidated 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 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 judgements The Group operates in multiple overseas jurisdictions and from time to time is subject to tax reviews, audits and investigations. The Group currently is not subject to any significant reviews, audits or investigations by a tax authority and there are no significant uncertain tax positions in any of the jurisdictions in which the Group operates. 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. 58 Enero Group Limited Annual Report 2022 Enero Group Limited Annual Report 2022 59 Notes to the consolidated financial statements for the year ended 30 June 2022Financial report for year ended 30 June 2022 Notes to the consolidated financial statements for the year ended 30 June 2022 5. Income tax expense and deferred tax Income tax expense Recognised in the consolidated 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 the consolidated income statement Numerical reconciliation between tax expense and pre-tax accounting profit Profit for the year Income tax expense Profit before income tax Income tax expense using the Company’s domestic tax rate of 30% (2021: 30%) Increase/(decrease) in income tax expense due to: Share-based payment expense Unwind of present value interest Contingent consideration fair value loss Incidental acquisition costs (Gain)/loss on disposal of controlled entities Effect of losses not previously recognised Effect of lower tax rate on overseas incomes (Over)/under provision for tax in previous years Other (non-assessable)/non-deductible items Income tax expense on pre-tax net profit Current taxes Deferred taxes In thousands of AUD Deferred tax assets Tax losses carried forward Employee benefits Accruals and income in advance Leases Others Plant and equipment Gross deferred tax assets Deferred tax liabilities Fair value gain Identifiable intangibles Plant and equipment Work in progress Others Gross deferred tax liabilities Net deferred tax asset 2022 14,370 (66) 14,304 36 36 14,340 42,221 14,340 56,561 16,968 571 132 300 397 (180) – (3,607) (66) (175) 14,340 2022 3,653 1,613 1,076 695 10 66 7,113 3,653 729 171 469 71 5,093 2,020 2021 8,738 237 8,975 (461) (461) 8,514 9,708 8,514 18,222 5,467 298 193 – 61 6,910 (1,863) (2,423) 237 (366) 8,514 2021 3,653 1,303 1,000 1,032 21 62 7,071 3,653 1,095 214 71 – 5,033 2,038 The Group has a net current tax payable of $1,576,000 (tax payable $1,798,000 and tax receivable $222,000) at 30 June 2022 (2021: current tax payable $2,155,000). Recognised deferred tax assets and liabilities are attributable to the following: Movement in deferred tax balances The movement in deferred tax balances during the year was all recognised in the consolidated income statement. Deferred tax assets not recognised Deferred tax assets have not been recognised in respect of the following items because it is not probable that future taxable profit will be available against which the Group can utilise the benefits: In thousands of AUD Revenue losses Capital losses Gross tax losses carried forward These tax losses do not have an expiry date. 2022 3,152 235,324 238,476 2021 2,996 207,486 210,482 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 consolidated 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. 59 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 judgements The Group operates in multiple overseas jurisdictions and from time to time is subject to tax reviews, audits and investigations. The Group currently is not subject to any significant reviews, audits or investigations by a tax authority and there are no significant uncertain tax positions in any of the jurisdictions in which the Group operates. 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. 58 Enero Group Limited Annual Report 2022 Enero Group Limited Annual Report 2022 59 Notes to the consolidated financial statements for the year ended 30 June 2022 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 consolidated statement of financial position and the consolidated statement of cash flows 2022 96,618 2,124 98,742 2021 33,630 17,088 50,718 For 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 $624,000 for indemnity guarantee facilities (see Note 16 Interest bearing liabilities). 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 consolidated statement 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 Consolidated statement of cash flows is reconciled to the related items in the consolidated 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 2022 98,742 2021 50,718 42,221 9,708 Add/(less) non-cash items: (Gain)/loss on disposal of controlled entities Loss 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)/increase 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 Increase in work in progress Increase in prepayments Decrease in other assets Increase in payables and accruals Increase in unearned income Increase in employee benefits Net cash from operating activities (600) 8 1,902 1,722 3,996 1,222 1,001 441 520 (579) 18 51,872 (17,275) (535) (692) 24 13,040 1,030 1,356 48,820 23,035 52 992 1,922 4,291 874 – 642 736 2,033 (440) 43,845 (13,533) (1,276) (177) 199 18,366 4,915 863 53,202 Less: provision for impairment loss 19 Note 2022 2021 No interest is charged on trade receivables. 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 64,196 (225) 63,971 24 63,995 2022 3,293 2,812 7 6,112 162 162 47,154 (232) 46,922 19 46,941 2021 2,758 2,138 29 4,925 164 164 60 Enero Group Limited Annual Report 2022 Enero Group Limited Annual Report 2022 61 Notes to the consolidated financial statements for the year ended 30 June 2022Financial report for year ended 30 June 2022 Notes to the consolidated financial statements for the year ended 30 June 2022 6. Cash and cash equivalents In thousands of AUD Cash at bank and on hand Bank short-term deposits 2022 96,618 2,124 98,742 2021 33,630 17,088 50,718 Cash and cash equivalents in the consolidated statement of financial position and the consolidated statement of cash flows For 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 $624,000 for indemnity guarantee facilities (see Note 16 Interest bearing liabilities). 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 consolidated statement 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 Consolidated statement of cash flows is reconciled to the related items in the consolidated statement of financial position as follows: (ii) Reconciliation of profit after income tax to net cash provided by In thousands of AUD Cash assets operating activities Profit after income tax Add/(less) non-cash items: (Gain)/loss on disposal of controlled entities Loss 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)/increase 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 Increase in work in progress Increase in prepayments Decrease in other assets Increase in payables and accruals Increase in unearned income Increase in employee benefits Net cash from operating activities 2022 98,742 2021 50,718 42,221 9,708 (600) 8 1,902 1,722 3,996 1,222 1,001 441 520 (579) 18 51,872 (17,275) (535) (692) 24 13,040 1,030 1,356 48,820 23,035 52 992 1,922 4,291 874 – 642 736 2,033 (440) 43,845 (13,533) (1,276) (177) 199 18,366 4,915 863 53,202 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 2022 2021 19 64,196 (225) 63,971 24 63,995 47,154 (232) 46,922 19 46,941 No interest is charged on trade receivables. 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 2022 3,293 2,812 7 6,112 162 162 2021 2,758 2,138 29 4,925 164 164 61 60 Enero Group Limited Annual Report 2022 Enero Group Limited Annual Report 2022 61 Notes to the consolidated financial statements for the year ended 30 June 2022 9. Plant and equipment In thousands of AUD 2022 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 Transfers Disposal of controlled businesses Depreciation Effect of movements in exchange rates Disposals Carrying amount at the end of the year 2021 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 Acquired through business combination Disposal of controlled entities 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 4,528 (2,953) 1,575 2,055 (1,789) 266 228 (221) 7 6,302 (4,950) 1,352 1,254 1,041 33 (17) (736) 8 (8) 1,575 445 52 (33) – (201) 3 – 266 9 – – – (3) 1 – 7 2,088 55 – – (782) (4) (5) 1,352 4,001 (2,747) 1,254 2,009 (1,564) 445 229 (220) 9 6,308 (4,220) 2,088 1,476 734 31 (139) (828) (20) – 1,254 605 123 – (3) (266) (12) (2) 445 16 – – – (7) – – 9 2,854 138 – (13) (821) (20) (50) 2,088 13,113 (9,913) 3,200 3,796 1,148 – (17) (1,722) 8 (13) 3,200 12,547 (8,751) 3,796 4,951 995 31 (155) (1,922) (52) (52) 3,796 Accounting policy (i) Recognition and measurement Plant and equipment are stated at cost less accumulated depreciation (see below) and impairment losses (see Note 20 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 consolidated 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 consolidated income statement. (iii) Depreciation Depreciation is charged to the consolidated 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. Reconciliations of the carrying amounts of right-of-use assets: Carrying amount at the beginning of the year 7,979 11,759 10. Right-of-use assets In thousands of AUD Property leases Cost Accumulated depreciation Net carrying amount Additions Disposal of controlled entities Re-measurement of lease liabilities Disposals Depreciation Effect of movements in exchange rates Carrying amount at the end of the year 2022 2021 17,300 (11,350) 5,950 – – – 1,945 (3,996) 22 5,950 15,279 (7,300) 7,979 839 (108) – (55) (4,291) (165) 7,979 During the current year, the Group recognised $91,000 (2021: $222,000) occupancy costs in the consolidated income statement in relation short-term leases that have a lease term of 12 months or less. Accounting policy 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 20 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 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 a 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 consolidated 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. 62 Enero Group Limited Annual Report 2022 Enero Group Limited Annual Report 2022 63 Notes to the consolidated financial statements for the year ended 30 June 2022Financial report for year ended 30 June 2022 Notes to the consolidated financial statements for the year ended 30 June 2022 9. Plant and equipment In thousands of AUD 2022 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 Transfers Depreciation Disposals Disposal of controlled businesses Effect of movements in exchange rates Carrying amount at the end of the year 2021 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 Acquired through business combination Disposal of controlled entities Effect of movements in exchange rates Depreciation Disposals Carrying amount at the end of the year Accounting policy (i) Recognition and measurement Computer equipment Office Plant and Leasehold Total furniture equipment improvements and equipment 4,528 (2,953) 1,575 2,055 (1,789) 266 228 (221) 6,302 (4,950) 1,352 13,113 (9,913) 3,200 (201) (3) (782) (1,722) 1,254 1,041 33 (17) (736) 8 (8) 1,575 1,476 734 31 (139) (828) (20) – 1,254 445 52 (33) – 3 – 266 605 123 – (3) (266) (12) (2) 445 7 9 – – – 1 – 7 16 (7) – – – – – 9 4,001 (2,747) 1,254 2,009 (1,564) 445 229 (220) 9 6,308 (4,220) 2,088 2,088 55 – – (4) (5) 1,352 2,854 138 – (13) (821) (20) (50) 2,088 3,796 1,148 – (17) 8 (13) 3,200 12,547 (8,751) 3,796 4,951 995 31 (155) (1,922) (52) (52) 3,796 Plant and equipment are stated at cost less accumulated depreciation (see below) and impairment losses (see Note 20 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 consolidated 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 consolidated income statement. Depreciation is charged to the consolidated 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 (iii) Depreciation 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 Additions Disposal of controlled entities Re-measurement of lease liabilities Disposals Depreciation Effect of movements in exchange rates Carrying amount at the end of the year 2022 2021 17,300 (11,350) 5,950 7,979 – – 1,945 – (3,996) 22 5,950 15,279 (7,300) 7,979 11,759 839 (108) – (55) (4,291) (165) 7,979 During the current year, the Group recognised $91,000 (2021: $222,000) occupancy costs in the consolidated income statement in relation short-term leases that have a lease term of 12 months or less. Accounting policy 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: 63 • • • 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 20 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 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 a 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 consolidated 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. 62 Enero Group Limited Annual Report 2022 Enero Group Limited Annual Report 2022 63 Notes to the consolidated financial statements for the year ended 30 June 2022 11. Intangible assets In thousands of AUD 2022 Cost Accumulated amortisation Net carrying amount Reconciliations of the carrying amounts of intangibles: Carrying amount at the beginning of the year Disposal of controlled businesses Amortisation Effect of movements in exchange rates Carrying amount at the end of the year 2021 Cost Accumulated amortisation Net carrying amount Reconciliations of the carrying amounts of intangibles: Carrying amount at the beginning of the year Acquired through business combination Disposal of controlled entities Amortisation Effect of movements in exchange rates Carrying amount at the end of the year Goodwill Contracts and customer relationships 112,236 – 112,236 114,506 (856) – (1,414) 112,236 114,506 – 114,506 107,997 12,316 (6,136) – 329 114,506 7,759 (5,331) 2,428 3,650 – (1,222) – 2,428 7,609 (3,959) 3,650 1,105 3,428 – (874) (9) 3,650 Total 119,995 (5,331) 114,664 118,156 (856) (1,222) (1,414) 114,664 122,115 (3,959) 118,156 109,102 15,744 (6,136) (874) 320 118,156 Amortisation charge The amortisation charge of $1,222,000 (2021: $874,000) is recognised in the depreciation and amortisation expense in the consolidated income statement. Goodwill CGU group allocation In thousands of AUD Cash Generating Unit (CGU): Brand Transformation Creative Technology and Data Search Marketing Net carrying amount 2022 96,315 15,921 – 112,236 2021 (restated) 97,729 16,777 – 114,506 The Group implemented a new global operating model resulting in change in composition of its CGU group. Accordingly, carrying value of goodwill (previously fully allocated to Operating Brands CGU) was reallocated across Brand Transformation CGU and Creative Technology and Data CGU using a relative value approach. Under this approach, relative value of goodwill is determined by reference to value-in-use of CGUs as at the date of the re-organisation. The Group completed an assessment for impairment before the reallocation of goodwill using the same assumptions as those applied by the Group in its consolidated annual financial report as at and for the year ended 30 June 2021 and concluded that the recoverable amount of CGUs exceeded the carrying value. The re-organisation had no impact on the Search Marketing CGU, which does not obtain synergies with businesses within the Creative Technology and Data segment and has no carrying value. 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) 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 (iii) 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. (iv) Impairment Refer to Note 20 Impairment of non-financial assets for further details on impairment. 64 Enero Group Limited Annual Report 2022 Enero Group Limited Annual Report 2022 65 Notes to the consolidated financial statements for the year ended 30 June 2022Financial report for year ended 30 June 2022 Notes to the consolidated financial statements for the year ended 30 June 2022 11. Intangible assets In thousands of AUD 2022 Cost Accumulated amortisation Net carrying amount Reconciliations of the carrying amounts of intangibles: Carrying amount at the beginning of the year Disposal of controlled businesses Amortisation Effect of movements in exchange rates Carrying amount at the end of the year 2021 Cost Accumulated amortisation Net carrying amount Reconciliations of the carrying amounts of intangibles: Carrying amount at the beginning of the year Acquired through business combination Disposal of controlled entities Amortisation Effect of movements in exchange rates Carrying amount at the end of the year Amortisation charge consolidated income statement. Goodwill CGU group allocation In thousands of AUD Cash Generating Unit (CGU): Brand Transformation Creative Technology and Data Search Marketing Net carrying amount Goodwill Contracts and Total customer relationships 112,236 – 112,236 114,506 (856) – (1,414) 112,236 114,506 – 114,506 107,997 12,316 (6,136) – 329 114,506 7,759 (5,331) 2,428 3,650 (1,222) – – 2,428 7,609 (3,959) 3,650 1,105 3,428 – (874) (9) 3,650 119,995 (5,331) 114,664 118,156 (856) (1,222) (1,414) 114,664 122,115 (3,959) 118,156 109,102 15,744 (6,136) (874) 320 118,156 2022 96,315 15,921 – 112,236 2021 (restated) 97,729 16,777 – 114,506 The amortisation charge of $1,222,000 (2021: $874,000) is recognised in the depreciation and amortisation expense in the The Group implemented a new global operating model resulting in change in composition of its CGU group. Accordingly, carrying value of goodwill (previously fully allocated to Operating Brands CGU) was reallocated across Brand Transformation CGU and Creative Technology and Data CGU using a relative value approach. Under this approach, relative value of goodwill is determined by reference to value-in-use of CGUs as at the date of the re-organisation. The Group completed an assessment for impairment before the reallocation of goodwill using the same assumptions as those applied by the Group in its consolidated annual financial report as at and for the year ended 30 June 2021 and concluded that the recoverable amount of CGUs exceeded the carrying value. The re-organisation had no impact on the Search Marketing CGU, which does not obtain synergies with businesses within the Creative Technology and Data segment and has no carrying value. 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) 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. (iii) 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. (iv) Impairment Refer to Note 20 Impairment of non-financial assets for further details on impairment. 65 64 Enero Group Limited Annual Report 2022 Enero Group Limited Annual Report 2022 65 Notes to the consolidated financial statements for the year ended 30 June 2022 12. Trade and other payables In thousands of AUD Current Trade payables Other payables and accrued expenses Unearned revenue 2022 41,026 18,030 17,440 76,496 2021 29,543 17,111 16,507 63,161 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 Recognised in business combination Re-assessment of contingent consideration Unwind of present value interest Effect of movements in exchange rates Contingent consideration paid Carrying amount at the end of the year 2022 2,711 7,402 20,126 – 1,001 441 (455) (11,000) 10,113 2021 10,886 9,240 25,553 8,931 – 642 (115) (14,885) 20,126 During the current year, the Group recognised a contingent consideration fair value loss of $1,001,000 relating to a change in the best estimate of future contingent consideration payable to the vendors of McDonald Butler Associates. 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 consolidated income statement as the discount unwinds. Any change in estimate of contingent consideration payable is recognised in the consolidated income statement as a fair value gain or loss during the period when the estimate is revised. Key estimates There is uncertainty around the actual payments that will be made as the payments are subject to the performance of McDonald Butler Associates subsequent to the reporting date. Factors which could vary the amount of contingent consideration payable due include a net revenue threshold for future payments, the basis of the average net revenue over the contingent consideration period and purchase price floor/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. 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 14. Lease liabilities instruments. In thousands of AUD Current Lease liabilities Non-current Lease liabilities Total Reconciliations of the carrying amounts of lease Carrying amount at the beginning of the year liabilities: Additions Disposal of controlled entities Other disposals 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 period Accounting policy Refer to Note 10. 2022 5,841 2,756 8,597 11,851 – – – 1,945 (5,732) 520 13 8,597 2021 5,589 6,262 11,851 16,907 839 (225) (61) – (6,162) 736 (183) 11,851 66 Enero Group Limited Annual Report 2022 Enero Group Limited Annual Report 2022 67 Notes to the consolidated financial statements for the year ended 30 June 2022Financial report for year ended 30 June 2022 The Group’s exposure to currency and liquidity risk related to trade and other payables is disclosed in Note 19 Financial Notes to the consolidated financial statements for the year ended 30 June 2022 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 Recognised in business combination Re-assessment of contingent consideration Unwind of present value interest Effect of movements in exchange rates Contingent consideration paid Carrying amount at the end of the year 2022 41,026 18,030 17,440 76,496 2021 29,543 17,111 16,507 63,161 2022 2,711 7,402 20,126 – 1,001 441 (455) (11,000) 10,113 2021 10,886 9,240 25,553 8,931 – 642 (115) (14,885) 20,126 During the current year, the Group recognised a contingent consideration fair value loss of $1,001,000 relating to a change in the best estimate of future contingent consideration payable to the vendors of McDonald Butler Associates. 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 consolidated income statement as the discount unwinds. Any change in estimate of contingent consideration payable is recognised in the consolidated income statement as a fair value gain or loss during the period when the estimate is Accounting policy revised. Key estimates There is uncertainty around the actual payments that will be made as the payments are subject to the performance of McDonald Butler Associates subsequent to the reporting date. Factors which could vary the amount of contingent consideration payable due include a net revenue threshold for future payments, the basis of the average net revenue over the contingent consideration period and purchase price floor/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. 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. In thousands of AUD Current Lease liabilities Non-current Lease liabilities Total Reconciliations of the carrying amounts of lease liabilities: Carrying amount at the beginning of the year Additions Disposal of controlled entities Other disposals 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 period Accounting policy Refer to Note 10. 2022 5,841 2,756 8,597 11,851 – – – 1,945 (5,732) 520 13 8,597 2021 5,589 6,262 11,851 16,907 839 (225) (61) – (6,162) 736 (183) 11,851 67 66 Enero Group Limited Annual Report 2022 Enero Group Limited Annual Report 2022 67 Notes to the consolidated financial statements for the year ended 30 June 2022 15. Employee benefits In thousands of AUD Aggregate liability for employee benefits, including on-costs Current Annual leave Long service leave Non-current Long service leave 2022 2021 4,442 1,237 5,679 783 3,414 1,172 4,586 755 The Group has recognised $2,315,000 (2021: $2,140,000) as an expense in the consolidated income statement for defined contribution plans during the reporting period. Accounting policy Provision is made for employee benefits including annual leave and long service leave for employees. (i) Long-term employee benefits The Group’s net obligation in respect of long-term service benefits, other than superannuation and pension plans, is the amount of future benefit that employees have earned in return for their service provided up to the reporting date. The obligation is calculated using expected future increases in wage and salary rates, including related on-costs and expected settlement dates, and is discounted using the rates attached to the Corporate bonds which have maturity dates approximating to the terms of the Group’s obligations. (ii) Wages, salaries, annual leave and non-monetary benefits Liabilities for employee benefits for wages, salaries and annual leave, that are due to be settled within 12 months of the reporting date, represent present obligations resulting from employees’ services provided to reporting date and are calculated at undiscounted amounts based on remuneration wage and salary rates that the Group expects to pay as at reporting date, including related on-costs. A provision is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Group has a present legal or constructive obligation to pay this amount as a result of past services provided by the employee and the obligation can be reliably estimated. (iii) Termination benefits Termination benefits are charged to the consolidated 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 consolidated 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. Interest bearing liabilities In thousands of AUD Non-current Unsecured bank loan Financing arrangements The Group has access to the following lines of credit: 2022 2021 36,275 – In thousands of AUD Bank loan (cash advance) Indemnity guarantee Credit card 2022 Available 50,000 3,618 1,575 55,193 2022 Utilised 36,275 2,103 321 38,699 2021 Available 2021 Utilised – 3,582 1,565 5,147 – 2,067 216 2,283 The proceeds from the bank loan drawn on 29 June 2022 were held in cash and cash equivalents as at 30 June 2022, which were subsequently disbursed on 1 July 2022 in order to fund the acquisitions completed on that date. The Group was in compliance with all covenants as at 30 June 2022. All finance facilities are negotiated by the Company on behalf of the Group. The carrying amount of amounts drawn on facilities as at the reporting date equates to face value. The cash advance facility is an unsecured revolving multi-currency general-purpose facility with Westpac Banking Corporation (Westpac), maturing in June 2025 at a commercial interest rate (Bank Bill Swap Bid Rate plus margin). Cash advance facility Indemnity guarantee facility The indemnity guarantee facility is in place to support financial guarantees for property rental and other obligations. The indemnity guarantees issued by banks other than Westpac are secured by cash deposits held by the issuing bank. The Group has pledged short-term deposits amounting to $624,000 for indemnity guarantee facilities at 30 June 2022. Credit card facility company’s standard terms and conditions. The credit card facility is subject to annual review and is subject to application approval and the bank or financial services 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. Accounting policy Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in profit or loss over the period of the borrowings using the effective interest method. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date. 68 Enero Group Limited Annual Report 2022 Enero Group Limited Annual Report 2022 69 Notes to the consolidated financial statements for the year ended 30 June 2022Financial report for year ended 30 June 2022 Notes to the consolidated financial statements for the year ended 30 June 2022 Aggregate liability for employee benefits, including on-costs 15. Employee benefits In thousands of AUD Current Annual leave Long service leave Non-current Long service leave 2022 2021 4,442 1,237 5,679 783 3,414 1,172 4,586 755 The Group has recognised $2,315,000 (2021: $2,140,000) as an expense in the consolidated income statement for defined contribution plans during the reporting period. Provision is made for employee benefits including annual leave and long service leave for employees. Accounting policy (i) Long-term employee benefits The Group’s net obligation in respect of long-term service benefits, other than superannuation and pension plans, is the amount of future benefit that employees have earned in return for their service provided up to the reporting date. The obligation is calculated using expected future increases in wage and salary rates, including related on-costs and expected settlement dates, and is discounted using the rates attached to the Corporate bonds which have maturity dates approximating to the terms of the Group’s obligations. (ii) Wages, salaries, annual leave and non-monetary benefits Liabilities for employee benefits for wages, salaries and annual leave, that are due to be settled within 12 months of the reporting date, represent present obligations resulting from employees’ services provided to reporting date and are calculated at undiscounted amounts based on remuneration wage and salary rates that the Group expects to pay as at reporting date, including related on-costs. A provision is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Group has a present legal or constructive obligation to pay this amount as a result of past services provided by the employee and the obligation can be reliably estimated. (iii) Termination benefits Termination benefits are charged to the consolidated 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 consolidated 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. Interest bearing liabilities In thousands of AUD Non-current Unsecured bank loan Financing arrangements The Group has access to the following lines of credit: 2022 2021 36,275 – In thousands of AUD Bank loan (cash advance) Indemnity guarantee Credit card 2022 Available 50,000 3,618 1,575 55,193 2022 Utilised 36,275 2,103 321 38,699 2021 Available – 3,582 1,565 5,147 2021 Utilised – 2,067 216 2,283 The proceeds from the bank loan drawn on 29 June 2022 were held in cash and cash equivalents as at 30 June 2022, which were subsequently disbursed on 1 July 2022 in order to fund the acquisitions completed on that date. The Group was in compliance with all covenants as at 30 June 2022. All finance facilities are negotiated by the Company on behalf of the Group. The carrying amount of amounts drawn on facilities as at the reporting date equates to face value. Cash advance facility The cash advance facility is an unsecured revolving multi-currency general-purpose facility with Westpac Banking Corporation (Westpac), maturing in June 2025 at a commercial interest rate (Bank Bill Swap Bid Rate plus margin). 69 Indemnity guarantee facility The indemnity guarantee facility is in place to support financial guarantees for property rental and other obligations. The indemnity guarantees issued by banks other than Westpac are secured by cash deposits held by the issuing bank. The Group has pledged short-term deposits amounting to $624,000 for indemnity guarantee facilities at 30 June 2022. 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. 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. Accounting policy Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in profit or loss over the period of the borrowings using the effective interest method. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date. 68 Enero Group Limited Annual Report 2022 Enero Group Limited Annual Report 2022 69 Notes to the consolidated financial statements for the year ended 30 June 2022 17. Capital and reserves In thousands of AUD Share capital Ordinary shares, fully paid 2022 2021 104,861 100,456 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. The Company does not have authorised capital or par value in respect of its shares. Dividends are recognised as a liability in the period in which they are declared. Movement in ordinary shares Balance at beginning of year Shares issued to the employees of the Group on exercise of Share Appreciation Rights(i) Balance at end of year 2022 Shares 86,655,518 2022 In thousands of AUD 100,456 2021 Shares 86,074,859 2021 In thousands of AUD 99,515 1,389,589 88,045,107 4,405 104,861 580,659 86,655,518 941 100,456 (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 the vesting date of the rights of $3.17 (2021: $1.62). Profit/(loss) for the year attributable to equity holders of the parent Transaction costs of an equity transaction are accounted for as a deduction from equity, net of any related income tax 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. Foreign currency 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 share capital on exercise of options, rights and equity plans. Dividends Dividend declared and/(or) paid by the Company to its members: During the year ended 30 June 2022 Fully franked final dividend – 2021 Fully franked interim dividend – 2022 Subsequent to the balance sheet date, at the date of this report Fully franked final dividend – 2022 During the year ended 30 June 2021 Fully franked final dividend – 2020 Fully franked interim dividend – 2021 Cents per share 4.4 6.0 6.5 3.5 10.5 Total amount in thousands of AUD Date of payment 3,874 5,283 6 October 2021 16 March 2022 5,974 4 October 2022 3,033 9,099 2 October 2020 16 March 2021 Dividend franking account In thousands of AUD Franking credits available for future years at 30% to shareholders of Enero Group Limited 2022 9,934 2021 11,732 The above amounts represent the balance of the franking account at the 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. 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 (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 2022 42,221 (16,834) 25,387 2022 87,756 2,257 90,013 2022 28.9 28.2 2021 9,708 (10,110) (402) 2021 86,541 1,738 88,279 2021 (0.5) (0.5) 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. 70 Enero Group Limited Annual Report 2022 Enero Group Limited Annual Report 2022 71 Notes to the consolidated financial statements for the year ended 30 June 2022Financial report for year ended 30 June 2022 Notes to the consolidated financial statements for the year ended 30 June 2022 17. Capital and reserves In thousands of AUD Share capital Ordinary shares, fully paid Movement in ordinary shares 2022 2021 104,861 100,456 The Company does not have authorised capital or par value in respect of its shares. 2022 2022 2021 2021 Shares In thousands Shares In thousands of AUD of AUD 99,515 Balance at beginning of year 86,655,518 100,456 86,074,859 Shares issued to the employees of the Group on exercise of Share Appreciation Rights(i) Balance at end of year 1,389,589 88,045,107 4,405 580,659 941 104,861 86,655,518 100,456 (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 the vesting date of the rights of $3.17 (2021: $1.62). 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 Foreign currency translation reserve foreign operations. Share-based payment reserve The profit appropriation reserve comprises profits appropriated by the parent entity. The translation reserve comprises all foreign currency differences arising from the translation of the financial statements of 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 share capital on exercise of options, rights and equity plans. Dividends Dividend declared and/(or) paid by the Company to its members: Subsequent to the balance sheet date, at the date of this report During the year ended 30 June 2022 Fully franked final dividend – 2021 Fully franked interim dividend – 2022 Fully franked final dividend – 2022 During the year ended 30 June 2021 Fully franked final dividend – 2020 Fully franked interim dividend – 2021 Dividend franking account In thousands of AUD Cents per in thousands of Total amount share AUD Date of payment 4.4 6.0 6.5 3.5 10.5 3,874 5,283 6 October 2021 16 March 2022 5,974 4 October 2022 3,033 9,099 2 October 2020 16 March 2021 2022 9,934 2021 11,732 Franking credits available for future years at 30% to shareholders of Enero Group Limited The above amounts represent the balance of the franking account at the 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. 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/(loss) 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 2022 42,221 (16,834) 25,387 2022 87,756 2,257 90,013 2022 28.9 28.2 2021 9,708 (10,110) (402) 2021 86,541 1,738 88,279 2021 (0.5) (0.5) 71 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. 70 Enero Group Limited Annual Report 2022 Enero Group Limited Annual Report 2022 71 Notes to the consolidated financial statements for the year ended 30 June 2022 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 2022, the Group entered into transactions with approximately 400 unique customers. The 10 largest customers accounted for 55% of net revenue for the year ended 30 June 2022, with no one customer accounting for more than 22% 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 consolidated statement of financial position. The carrying amount of financial assets and contract 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 Carrying amount 2021 2022 6 98,742 50,718 7 8 8 63,995 3,293 162 46,941 2,758 164 166,192 100,581 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 2021 46,922 2022 63,971 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 the consolidated income statement Provision used during year Balance at 30 June 2022 232 2021 261 19 (26) 225 11 (40) 232 Average credit loss for year(i) Credit loss provision at balance date(ii) – – 0.4% 0.5% (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. The average credit loss was assessed at 30 June 2022 and the Group continues to provide for 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 2022 61,318 2,430 223 225 64,196 (225) 63,971 2021 44,311 2,588 23 232 47,154 (232) 46,922 (i) Impairment includes trade receivables specifically impaired of $35,000 (2021: $42,000) plus expected credit losses of $190,000 (2021: $190,000). Currency risk Currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The source and nature of this risk arises from operations and translation risks. The operating businesses generated approximately 64% of the Group’s gross profit and 82% of its Operating EBITDA during the year ended 30 June 2022 from outside Australia. The Group’s reporting currency is Australian dollars. However, the international operations give rise to an exposure to changes in foreign exchange rates, as the majority of its revenues from outside Australia are denominated in currencies other than Australian dollars, most significantly Great British pound (GBP) and US dollar (USD). The Group’s currency risk exposure is predominantly to consolidated Australian dollar translation risk as the majority of transactions denominated in foreign currencies are transacted by entities within the Group with the same functional currency as the relevant transaction. Additionally, as at 30 June 2022, the Group held USD denominated banks loans of $36,275,000 (USD 25,000,000) which were drawn in order to fund the acquisition of ROI DNA Inc., a USA based agency. In future financial reporting periods, the Group intends to hedge its exposure to changes in the value of its net investment in its US foreign operations through these borrowings as they are denominated in the same currency as the foreign operation’s functional currency. Market risk Market risk is the risk relating to changes in market prices, such as foreign exchange rates, interest rates and equity prices, which will affect the Group’s income or the value of its holding of financial instruments. The objective of market risk management is to manage and control market risk exposure within acceptable parameters, while optimising the return. Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they become due. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its Liquidity risk liabilities when due. The Group manages liquidity risk by monitoring forecast operating cash flows and committed unutilised facilities (refer to Note 16); and re-estimating the value of contingent consideration liabilities semi-annually. The following are the contractual maturities of financial liabilities, including estimated interest payments. Carrying amount Contractual cash flows Less than 1 year 1 to 5 years Over 5 years 2022 In thousands of AUD Non-derivative financial liabilities Lease liabilities Trade and other payables (excluding unearned revenue) Contingent consideration payable Interest bearing liabilities1 2021 In thousands of AUD Non-derivative financial liabilities Lease liabilities Trade and other payables (excluding unearned revenue) Contingent consideration payable 8,597 9,045 5,899 2,985 59,056 10,113 36,275 114,041 59,056 10,575 40,060 118,736 59,056 2,732 1,262 68,949 – 7,843 38,798 49,626 Carrying amount Contractual cash flows Less than 1 year 1 to 5 years Over 5 years 11,851 46,654 20,126 78,631 12,654 46,654 21,045 80,353 5,600 7,054 46,654 11,000 63,254 – 10,045 17,099 161 – – 161 – – – – It is not expected that the cash flows included in the maturity analysis could occur significantly earlier or at significantly different amounts. 1. Interest in respect of interest-bearing liabilities was not significant as at 30 June 2022 given the close proximity of entering into the financing arrangement relative to balance date. 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 payable for further details. There are no other significant uncertainties in the timing or amounts of contractual liabilities. 72 Enero Group Limited Annual Report 2022 Enero Group Limited Annual Report 2022 73 Notes to the consolidated financial statements for the year ended 30 June 2022Financial report for year ended 30 June 2022 Notes to the consolidated financial statements for the year ended 30 June 2022 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 The Group’s maximum exposure to trade receivables credit risk at the reporting date was: In thousands of AUD Trade receivables Carrying amount Note 7 2022 63,971 2021 46,922 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 the consolidated income statement Provision used during year Balance at 30 June 2022 232 2021 261 19 (26) 225 11 (40) 232 Average credit loss for year(i) Credit loss provision at balance date(ii) – – 0.4% 0.5% (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. The average credit loss was assessed at 30 June 2022 and the Group continues to provide for expected credit losses higher than the average credit loss for each financial The ageing of the Group’s trade receivables at the year. Impairment losses 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 2022 61,318 2,430 223 225 64,196 (225) 63,971 2021 44,311 2,588 23 232 47,154 (232) 46,922 (i) Impairment includes trade receivables specifically impaired of $35,000 (2021: $42,000) plus expected credit losses of $190,000 (2021: $190,000). risks: • • • credit risk; liquidity risk; and market 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 2022, the Group entered into transactions with approximately 400 unique customers. The 10 largest customers accounted for 55% of net revenue for the year ended 30 June 2022, with no one customer accounting for more than 22% 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 consolidated statement of financial position. The carrying amount of financial assets and contract assets represents the maximum credit exposure. The maximum credit exposure to credit risk at the reporting In thousands of AUD Note 2022 2021 Carrying amount date was: Cash and cash equivalents Trade and other receivables Work in progress Deposits 6 98,742 50,718 7 8 8 63,995 3,293 162 46,941 2,758 164 166,192 100,581 Currency risk Currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The source and nature of this risk arises from operations and translation risks. The operating businesses generated approximately 64% of the Group’s gross profit and 82% of its Operating EBITDA during the year ended 30 June 2022 from outside Australia. The Group’s reporting currency is Australian dollars. However, the international operations give rise to an exposure to changes in foreign exchange rates, as the majority of its revenues from outside Australia are denominated in currencies other than Australian dollars, most significantly Great British pound (GBP) and US dollar (USD). The Group’s currency risk exposure is predominantly to consolidated Australian dollar translation risk as the majority of transactions denominated in foreign currencies are transacted by entities within the Group with the same functional currency as the relevant transaction. Additionally, as at 30 June 2022, the Group held USD denominated banks loans of $36,275,000 (USD 25,000,000) which were drawn in order to fund the acquisition of ROI DNA Inc., a USA based agency. In future financial reporting periods, the Group intends to hedge its exposure to changes in the value of its net investment in its US foreign operations through these borrowings as they are denominated in the same currency as the foreign operation’s functional currency. Market risk Market risk is the risk relating to changes in market prices, such as foreign exchange rates, interest rates and equity prices, which will affect the Group’s income or the value of its holding of financial instruments. The objective of market risk management is to manage and control market risk exposure within acceptable parameters, while optimising the return. Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they become due. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due. The Group manages liquidity risk by monitoring forecast operating cash flows and committed unutilised facilities (refer to Note 16); and re-estimating the value of contingent consideration liabilities semi-annually. 73 The following are the contractual maturities of financial liabilities, including estimated interest payments. 2022 In thousands of AUD Non-derivative financial liabilities Lease liabilities Trade and other payables (excluding unearned revenue) Contingent consideration payable Interest bearing liabilities1 2021 In thousands of AUD Non-derivative financial liabilities Lease 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 8,597 9,045 5,899 2,985 59,056 10,113 36,275 114,041 59,056 10,575 40,060 118,736 59,056 2,732 1,262 68,949 – 7,843 38,798 49,626 161 – – 161 Carrying amount Contractual cash flows Less than 1 year 1 to 5 years Over 5 years 11,851 46,654 20,126 78,631 12,654 46,654 21,045 80,353 5,600 7,054 46,654 11,000 63,254 – 10,045 17,099 – – – – It is not expected that the cash flows included in the maturity analysis could occur significantly earlier or at significantly different amounts. 1. Interest in respect of interest-bearing liabilities was not significant as at 30 June 2022 given the close proximity of entering into the financing arrangement relative to balance date. 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 payable for further details. There are no other significant uncertainties in the timing or amounts of contractual liabilities. 72 Enero Group Limited Annual Report 2022 Enero Group Limited Annual Report 2022 73 Notes to the consolidated financial statements for the year ended 30 June 2022 19. Financial risk management/financial instruments (continued) 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’s borrowings which have a variable interest rate attached give rise to cash flow interest rate risk, as do the Group’s lease liabilities. Whilst there is no formal policy in place mandating hedging levels, the Group may hedge the interest rate risk by taking out floating to fixed rate swaps on drawn debt. Such interest rate swaps have the economic effect of converting borrowings from variable rates to fixed rates. The following considerations are made to material interest rate transactions to ensure that the Group: • is afforded some protection from significant increases in interest rates, thereby adding some degree of certainty to the financial budgeting process; and • maintains sufficient interest rate flexibility to participate in normal yield curve environments without unduly paying up for term interest rate hedges; repay debt without significant swap (fixed rate) break costs; and undertake interest rate maturity extension trades as appropriate. As at 30 June 2022, the Group has not entered into any interest rate swaps to convert the borrowings from variable rate to fixed rates. Accordingly, the Group’s interest-bearing liabilities of $36,275,000 at 30 June 2022 are variable rate financial instruments. As the cash advance debt facility was first drawn on 29 June 2022, a reasonably possible change in interest rates would not have a material impact on the finance costs incurred by the Group. Capital management The Group’s key sources of capital are available committed facilities and share capital. The Board seeks to maintain a balance between higher returns that might be possible with higher levels of gearing and the advantages afforded by a prudent capital position. The Group also has contingent consideration payable as described in Note 13 Contingent consideration payable. Fair values Fair values versus carrying amounts The fair values of financial assets and liabilities, together with the carrying amounts shown in the consolidated statement of financial position, are as follows: Consolidated In thousands of AUD Cash at bank and on hand Bank short-term deposits Trade receivables Trade and other payables Contingent consideration payable Lease liabilities Interest bearing liabilities Fair value measurement: Carrying amount 96,618 2,124 63,971 (59,056) (10,113) (8,597) (36,275) 2022 Fair value 96,618 2,124 63,971 (59,056) (10,113) (8,597) (36,275) Carrying amount 33,630 17,088 46,922 (46,654) (20,126) (11,851) – 2021 Fair value 33,630 17,088 46,922 (46,654) (20,126) (11,851) – 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 consolidated statement of financial position, as well as the significant unobservable inputs used. for receivables. (ii) Cash and cash equivalents Type Contingent consideration payable Valuation technique Discounted cash flows: The valuation model considers the present value of expected floor/capped payment (payable over three years), discounted using a risk-adjusted discount rate. The expected payment is determined by considering the possible scenarios of forecast average net revenue, the amount to be paid under each scenario and the probability of each scenario. Significant unobservable inputs – Forecast average net revenue. – Risk-adjusted discount rate: 3.12%. Inter-relationship between significant unobservable inputs and fair value measurement The estimated fair value would increase (decrease) if: – the forecast average net revenue is higher (lower); or – the risk-adjusted discount rate were lower (higher). 74 Enero Group Limited Annual Report 2022 Enero Group Limited Annual Report 2022 75 Refer to Note 13 Contingent consideration payable for a reconciliation of the opening and closing carrying amounts of Reasonably possible changes after 30 June 2022 to one of the significant unobservable inputs, holding other inputs constant, would have the following effects on the fair values of contingent consideration: Reconciliation of Level 3 fair values contingent consideration payable. Sensitivity analysis In thousands of AUD Movement of 5% in forecast average net revenue Movement of 7.5% in forecast average net revenue Movement of 0.5% in risk-adjusted discount rate Other items Increase Decrease – 988 (69) (1,647) (1,647) 70 The carrying amounts of cash and cash equivalents, trade and other receivables, trade and other payables, interest bearing liabilities and lease liabilities approximates their fair value. The fair value which is determined for disclosure 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 the Group’s incremental borrowing rate on the same term as the underlying lease. purposes only is calculated as: • • reporting date. 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 consolidated 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 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 consolidated 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. Notes to the consolidated financial statements for the year ended 30 June 2022Financial report for year ended 30 June 2022 Notes to the consolidated financial statements for the year ended 30 June 2022 19. Financial risk management/financial instruments (continued) 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’s borrowings which have a variable interest rate attached give rise to cash flow interest rate risk, as do the Group’s lease liabilities. Whilst there is no formal policy in place mandating hedging levels, the Group may hedge the interest rate risk by taking out floating to fixed rate swaps on drawn debt. Such interest rate swaps have the economic effect of converting borrowings from variable rates to fixed rates. The following considerations are made to material interest rate transactions to ensure that the Group: • is afforded some protection from significant increases in interest rates, thereby adding some degree of certainty to the financial budgeting process; and • maintains sufficient interest rate flexibility to participate in normal yield curve environments without unduly paying up for term interest rate hedges; repay debt without significant swap (fixed rate) break costs; and undertake interest rate maturity extension trades as appropriate. As at 30 June 2022, the Group has not entered into any interest rate swaps to convert the borrowings from variable rate to fixed rates. Accordingly, the Group’s interest-bearing liabilities of $36,275,000 at 30 June 2022 are variable rate As the cash advance debt facility was first drawn on 29 June 2022, a reasonably possible change in interest rates would not have a material impact on the finance costs incurred by the Group. 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 payable as described in Note 13 Contingent The fair values of financial assets and liabilities, together with the carrying amounts shown in the consolidated statement Carrying amount 96,618 2,124 63,971 (59,056) (10,113) (8,597) (36,275) 2022 Fair value 96,618 2,124 63,971 (59,056) (10,113) (8,597) (36,275) Carrying amount 33,630 17,088 46,922 (46,654) (20,126) (11,851) – 2021 Fair value 33,630 17,088 46,922 (46,654) (20,126) (11,851) – financial instruments. Capital management consideration payable. Fair values Fair values versus carrying amounts of financial position, are as follows: Consolidated In thousands of AUD Cash at bank and on hand Bank short-term deposits Trade receivables Trade and other payables Lease liabilities Interest bearing liabilities Fair value measurement: Level 3 fair values Contingent consideration payable used. The following tables show the valuation techniques used in measuring Level 3 fair values for financial instruments measured at fair value in the consolidated statement of financial position, as well as the significant unobservable inputs Type Valuation technique Contingent Discounted cash flows: The valuation model – Forecast average net The estimated fair value consideration considers the present value of expected payable floor/capped payment (payable over three revenue. – Risk-adjusted discount rate: 3.12%. Inter-relationship between significant unobservable Significant unobservable inputs and fair value inputs measurement would increase (decrease) if: – the forecast average net revenue is higher (lower); or – the risk-adjusted discount rate were lower (higher). years), discounted using a risk-adjusted discount rate. The expected payment is determined by considering the possible scenarios of forecast average net revenue, the amount to be paid under each scenario and the probability of each scenario. Reconciliation of Level 3 fair values Refer to Note 13 Contingent consideration payable for a reconciliation of the opening and closing carrying amounts of contingent consideration payable. Sensitivity analysis Reasonably possible changes after 30 June 2022 to one of the significant unobservable inputs, holding other inputs constant, would have the following effects on the fair values of contingent consideration: In thousands of AUD Movement of 5% in forecast average net revenue Movement of 7.5% in forecast average net revenue Movement of 0.5% in risk-adjusted discount rate Increase – 988 (69) Decrease (1,647) (1,647) 70 Other items The carrying amounts of cash and cash equivalents, trade and other receivables, trade and other payables, interest bearing liabilities 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 the Group’s incremental borrowing rate on 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. 75 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 consolidated 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) 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 consolidated 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. 74 Enero Group Limited Annual Report 2022 Enero Group Limited Annual Report 2022 75 Notes to the consolidated financial statements for the year ended 30 June 2022 19. Financial risk management/financial instruments (continued) The Group has the following non-derivative financial liabilities: lease liabilities, 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 consolidated income statement as the discount unwinds. Any change in estimate of contingent consideration payable is recognised in the consolidated income statement as a fair value gain or loss during the period when the estimate is revised. 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 consolidated 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 consolidated 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. 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 consolidated income statement whenever the carrying amount of those assets exceeds the recoverable amount. Impairment tests for cash-generating units (CGUs) goodwill For 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. During the current year, the Group implemented a new global operating model resulting in change in composition of its CGU group. Accordingly, carrying value of goodwill (previously fully allocated to the Operating Brands CGU) was reallocated across the Brand Transformation CGU and the Creative Technology and Data CGU using a relative value approach. The aggregation of assets in the CGU continues to be based upon the interdependency of the cash inflows generated from the service offering and synergies obtained by the business unit. The Search Marketing businesses do not form part of the Creative Technology and Data CGU as they does not obtain synergies with businesses within the Creative Technology and Data segment and has no carrying value. The recoverable amount of the CGUs 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 CGUs have remained materially consistent with those Key assumptions used in the value in use approach to test for impairment relate to projected cash flows, the discount rates and the medium-term and long-term growth rates applied to projected cash flows. The projected first year of cash flows is derived from next financial year’s Board approved budgets. This reflects the best estimate of the CGU’s future cash flows at the reporting date. Projected cash flows can differ from future actual cash flows applied in prior years. Key assumptions Projected cash flows and results of operations. 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 Projected cash flows for the first forecast year reflect the growth each CGU is expected to achieve over the current year’s actual EBITDA results. Projected cash flows for year two onwards have then been determined using a constant growth rate which is considered modest compared to the growth each CGU achieved in both the current year and that which is Long-term growth rate is used into perpetuity, based on the expected long-range growth rate for the industry. expected to be achieved next year. Long-term growth rate into perpetuity Impairment testing key assumptions: Post-tax discount rate % Pre-tax discount rate % Growth rate (CAGR) % Long-term perpetuity growth rate % Brand Transformation Creative Technology and Data Operating Brands 2022 9.1 – 10.5 12.0 – 15.2 4.9 2.5 2022 10.5 14.3 8.0 2.5 2021 8.7 – 9.6 10.5 – 13.1 2.4 2.5 76 Enero Group Limited Annual Report 2022 Enero Group Limited Annual Report 2022 77 Notes to the consolidated financial statements for the year ended 30 June 2022Financial report for year ended 30 June 2022 Notes to the consolidated financial statements for the year ended 30 June 2022 19. Financial risk management/financial instruments (continued) The Group has the following non-derivative financial liabilities: lease liabilities, 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 consolidated income statement as the discount unwinds. Any change in estimate of contingent consideration payable is recognised in the consolidated income statement as a fair value gain or loss during the period when the estimate is revised. 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 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 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 consolidated 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. Trade receivables are carried at amortised cost less impairment. The impairment of these receivables is an estimate evidence suggesting that an event has occurred leading to a negative effect on the estimated future cash inflow; 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 consolidated 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. reliably. will enter bankruptcy. Key estimates based on: and • • 20. 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 consolidated income statement whenever the carrying amount of those assets exceeds the recoverable amount. Impairment tests for cash-generating units (CGUs) goodwill For 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. During the current year, the Group implemented a new global operating model resulting in change in composition of its CGU group. Accordingly, carrying value of goodwill (previously fully allocated to the Operating Brands CGU) was reallocated across the Brand Transformation CGU and the Creative Technology and Data CGU using a relative value approach. The aggregation of assets in the CGU continues to be based upon the interdependency of the cash inflows generated from the service offering and synergies obtained by the business unit. The Search Marketing businesses do not form part of the Creative Technology and Data CGU as they does not obtain synergies with businesses within the Creative Technology and Data segment and has no carrying value. The recoverable amount of the CGUs 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 CGUs 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 projected cash flows, the discount rates 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 next financial year’s Board approved budgets. This reflects the best estimate of the CGU’s future cash flows at the reporting date. Projected cash flows can differ from future actual cash flows and results of operations. 77 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 Projected cash flows for the first forecast year reflect the growth each CGU is expected to achieve over the current year’s actual EBITDA results. Projected cash flows for year two onwards have then been determined using a constant growth rate which is considered modest compared to the growth each CGU achieved in both the current year and that which is expected to be achieved next year. Long-term growth rate into perpetuity Long-term growth rate is used into perpetuity, based on the expected long-range growth rate for the industry. Impairment testing key assumptions: Post-tax discount rate % Pre-tax discount rate % Growth rate (CAGR) % Long-term perpetuity growth rate % Brand Transformation 2022 9.1 – 10.5 Creative Technology and Data 2022 10.5 Operating Brands 2021 8.7 – 9.6 12.0 – 15.2 4.9 2.5 14.3 8.0 2.5 10.5 – 13.1 2.4 2.5 76 Enero Group Limited Annual Report 2022 Enero Group Limited Annual Report 2022 77 Notes to the consolidated financial statements for the year ended 30 June 2022 20. Impairment of non-financial assets (continued) Sensitivity range for impairment testing assumptions As long as the COVID-19 pandemic, including any existing or new variants, remains a public health threat, global economic conditions will continue to be volatile and such uncertainty cuts across all clients, industries and geographies. Notwithstanding this, given the significant recoveries achieved by the CGUs in the current year as a result of the Group’s high sector exposure to technology, healthcare and consumer staples customers, management has not assumed a decline in projected cash flows as a direct result of the COVID-19 pandemic. Whilst it is management’s view that the assumptions used for growth rates over the forecast period and the long-term and discount rates are reasonable, a sensitivity analysis was performed for each CGU taking into consideration the possible impacts of adverse economic conditions over the forecast period. Specifically, the impact that severe and sustained inflation in key geographies, supply chain issues affecting the distribution of customers’ products, or a disruption in the credit markets may have on the key assumptions used in determining each CGU’s recoverable amount, being: • • • lower projected cash inflows as result of reductions, deferrals or cancellations by customers in terms of their spending on advertising, marketing and corporate communications projects; increased operating costs, including those to attract and retain the talent needed to grow revenues at forecast levels; or higher discount rates. The results of this sensitivity analysis were such that any reasonably possible change in these key assumptions upon which each CGU’s recoverable amounts were based would not cause either CGU’s carrying amount to exceed its recoverable 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’). 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. 21. 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 (Trustee of The BMF Unit Trust) The BMF Unit Trust Hotwire Integrated Communications Pty Limited Naked Communications Australia Pty Limited CPR Communications and Public Relations Pty Limited Hotwire Australia Pty Limited Orchard Marketing Pty Ltd Alfie Agency Pty Ltd Enero Group Finance Pty Limited Domain Active Holdco Pty Limited – Domain Active Pty Limited The Leading Edge Market Research Consultants Pty 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 – McDonald Butler Associates Limited OBMedia LLC Domain Active LLC IdealAds LLC¹ SiteMath LLC – Clicksciences.com LLC Orchard Creative Technology Inc. Hotwire Public Relations Group LLC 1. Incorporated during the year ended 30 June 2022. Group interest 2022 % 2021 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 51 51 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 51 51 – 51 51 100 100 Australia UK Australia USA Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Singapore Australia Australia UK Germany France Spain Italy UK UK USA USA USA USA USA USA USA 78 Enero Group Limited Annual Report 2022 Enero Group Limited Annual Report 2022 79 Notes to the consolidated financial statements for the year ended 30 June 2022Financial report for year ended 30 June 2022 Notes to the consolidated financial statements for the year ended 30 June 2022 20. Impairment of non-financial assets (continued) Sensitivity range for impairment testing assumptions As long as the COVID-19 pandemic, including any existing or new variants, remains a public health threat, global economic conditions will continue to be volatile and such uncertainty cuts across all clients, industries and geographies. Notwithstanding this, given the significant recoveries achieved by the CGUs in the current year as a result of the Group’s high sector exposure to technology, healthcare and consumer staples customers, management has not assumed a decline in projected cash flows as a direct result of the COVID-19 pandemic. Whilst it is management’s view that the assumptions used for growth rates over the forecast period and the long-term and discount rates are reasonable, a sensitivity analysis was performed for each CGU taking into consideration the possible impacts of adverse economic conditions over the forecast period. Specifically, the impact that severe and sustained inflation in key geographies, supply chain issues affecting the distribution of customers’ products, or a disruption in the credit markets may have on the key assumptions used in determining each CGU’s recoverable amount, being: lower projected cash inflows as result of reductions, deferrals or cancellations by customers in terms of their spending on advertising, marketing and corporate communications projects; increased operating costs, including those to attract and retain the talent needed to grow revenues at forecast • • • levels; or higher discount rates. The results of this sensitivity analysis were such that any reasonably possible change in these key assumptions upon which each CGU’s recoverable amounts were based would not cause either CGU’s carrying amount to exceed its recoverable amount. Accounting policy impaired. 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’). 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. 21. Controlled entities Particulars in relation to controlled entities: Name Parent entity Enero Group Limited Group interest 2021 % 2022 % Country of incorporation 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 (Trustee of The BMF Unit Trust) The BMF Unit Trust 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 Enero Group Finance Pty Limited Domain Active Holdco Pty Limited – Domain Active Pty Limited The Leading Edge Market Research Consultants Pty 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 – McDonald Butler Associates Limited OBMedia LLC Domain Active LLC IdealAds LLC¹ SiteMath LLC – Clicksciences.com LLC Orchard Creative Technology Inc. Hotwire Public Relations Group LLC 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 51 51 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 51 51 – 51 51 100 100 Australia UK Australia USA Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Singapore Australia Australia UK Germany France Spain Italy UK UK USA USA USA USA USA USA USA 79 1. Incorporated during the year ended 30 June 2022. 78 Enero Group Limited Annual Report 2022 Enero Group Limited Annual Report 2022 79 Notes to the consolidated financial statements for the year ended 30 June 2022 21. Controlled entities (continued) 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 statements. Incidental acquisition costs of $1,324,000 relating to the acquisition of ROI DNA Inc. and GetIT Pte Ltd were recognised in the consolidated income statement for the year ended 30 June 2022. These acquisitions were completed on 1 July 2022, 22. Acquisitions 2022 as discussed further below. Acquisitions completed subsequent to balance date: • • on 1 July 2022, the Group acquired 100% of the issued capital of ROI DNA Inc, a USA based strategic B2B sales and marketing agency. The purchase consideration was an upfront payment of US$26,400,000 ($38,306,000) in cash and US$6,600,000 ($9,577,000) of Enero Group Limited shares with additional contingent consideration linked to the achievement of EBITDA targets over the next 3 years through to 30 June 2025. on 1 July 2022, the Group acquired 100% of the issued capital of GetIT Pte Ltd, a Singapore based specialist B2B technology marketing agency with presence in India, Malaysia and Japan. The purchase consideration was an upfront payment of S$2,700,000 ($2,816,000) in cash and S$1,800,000 ($1,877,000) of Enero Group Limited shares with additional contingent consideration linked to the achievement of EBIT target over the next 3 years through to 30 June 2025. Provisional value of the net identifiable assets and liabilities acquired at the date of acquisition were: Provisional value In thousands of AUD Cash and cash equivalents Trade and other receivables Other assets Property, plant and equipment Trade and other payables Unearned revenue Employee benefits Bank loans Net identifiable assets Provisionally determined value of intangibles (including goodwill) In thousands of AUD Initial consideration Total consideration Estimate of contingent consideration payable Less: Provisional value of net identifiable assets Provisionally determined value of intangibles (including goodwill) 12,975 6,154 799 279 (2,903) (7,905) (945) (315) 8,139 52,576 53,467 106,043 (8,139) 97,904 As at the date of issuing this report, these acquisitions are still subject to further review by management as the Group has 12 months from the date of acquisition to finalise its purchase price accounting. The initial accounting for these business combinations will be recognised in the Group’s next financial reporting period, including the allocation of the purchase price to goodwill and any other qualifying intangible assets. Further information about these business combinations has not been disclosed on the basis that it is impracticable given the close proximity between the completion dates of the acquisitions and the approval of these consolidated financial statements. 80 Enero Group Limited Annual Report 2022 Enero Group Limited Annual Report 2022 81 Notes to the consolidated financial statements for the year ended 30 June 2022Financial report for year ended 30 June 2022 Notes to the consolidated financial statements for the year ended 30 June 2022 21. Controlled entities (continued) 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 (ii) Subsidiaries 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 statements. 22. Acquisitions 2022 Incidental acquisition costs of $1,324,000 relating to the acquisition of ROI DNA Inc. and GetIT Pte Ltd were recognised in the consolidated income statement for the year ended 30 June 2022. These acquisitions were completed on 1 July 2022, as discussed further below. Acquisitions completed subsequent to balance date: • • on 1 July 2022, the Group acquired 100% of the issued capital of ROI DNA Inc, a USA based strategic B2B sales and marketing agency. The purchase consideration was an upfront payment of US$26,400,000 ($38,306,000) in cash and US$6,600,000 ($9,577,000) of Enero Group Limited shares with additional contingent consideration linked to the achievement of EBITDA targets over the next 3 years through to 30 June 2025. on 1 July 2022, the Group acquired 100% of the issued capital of GetIT Pte Ltd, a Singapore based specialist B2B technology marketing agency with presence in India, Malaysia and Japan. The purchase consideration was an upfront payment of S$2,700,000 ($2,816,000) in cash and S$1,800,000 ($1,877,000) of Enero Group Limited shares with additional contingent consideration linked to the achievement of EBIT target over the next 3 years through to 30 June 2025. Provisional value of the net identifiable assets and liabilities acquired at the date of acquisition were: In thousands of AUD Provisional value Cash and cash equivalents Trade and other receivables Other assets Property, plant and equipment Trade and other payables Unearned revenue Employee benefits Bank loans Net identifiable assets Provisionally determined value of intangibles (including goodwill) In thousands of AUD Initial consideration Estimate of contingent consideration payable Total consideration Less: Provisional value of net identifiable assets Provisionally determined value of intangibles (including goodwill) 81 12,975 6,154 799 279 (2,903) (7,905) (945) (315) 8,139 52,576 53,467 106,043 (8,139) 97,904 As at the date of issuing this report, these acquisitions are still subject to further review by management as the Group has 12 months from the date of acquisition to finalise its purchase price accounting. The initial accounting for these business combinations will be recognised in the Group’s next financial reporting period, including the allocation of the purchase price to goodwill and any other qualifying intangible assets. Further information about these business combinations has not been disclosed on the basis that it is impracticable given the close proximity between the completion dates of the acquisitions and the approval of these consolidated financial statements. 80 Enero Group Limited Annual Report 2022 Enero Group Limited Annual Report 2022 81 Notes to the consolidated financial statements for the year ended 30 June 2022 22. Acquisitions (continued) 2021 On 26 April 2021 the Group, via its subsidiary Hotwire Public Relations Limited, acquired 100% of the issued capital of McDonald Butler Associates, a UK based technology public relations agency. The purchase consideration was an upfront payment of £3,500,000 ($6,272,000) in addition to contingent consideration tied to the net revenue target through to the period ended 30 June 2024. Future payments are subject to a minimum net revenue threshold and are capped based on the average net revenue. The fair value of the future contingent consideration liability is estimated based on the achievement of net revenue targets. Following completion, the business operations of McDonald Butler Associates and Hotwire Public Relations Limited merged together to operate under the Hotwire Public Relations brand, strengthening the offering and capabilities of Hotwire Public Relations in the UK market. This acquisition contributed $1,060,000 to net revenue and $214,000 to net profit after tax of the Group for the year ended 30 June 2021. The net revenue and net profit after tax of the Group for the year ended 30 June 2021 would have been $166,119,000 and $10,698,000 respectively, had the Group acquired McDonald Butler Associates at the beginning of the financial year. Effect of acquisition for the year ended 30 June 2021 on the Group’s assets and liabilities. The fair values of the net identifiable assets and liabilities acquired at the date of acquisition were: In thousands of AUD Cash and cash equivalents Trade and other receivables Other assets Property, plant and equipment Intangible assets Trade and other payables Unearned revenue Employee benefits Deferred tax liability Other liabilities Net identifiable assets Goodwill on acquisition In thousands of AUD Total consideration Less: Fair value of net identifiable assets Goodwill Fair value 3,308 1,497 818 30 3,428 (778) (2,623) (163) (1,028) (10) 4,479 16,795 (4,479) 12,316 Goodwill has arisen on the acquisition of entities during the year as some intangibles, such as key management and technical employee relationships and certain customer relationships, did not meet the criteria for recognition as an intangible asset at the date of acquisition. Considering the characteristics of marketing and communication services companies, acquisitions do not usually have significant amounts of tangible assets as the principal asset typically acquired is creative talent and know-how of people. As a result, a substantial proportion of the purchase price is allocated to goodwill. Total acquisition cash outflow for year ended 30 June 2021 In thousands of AUD Total consideration Less: Contingent consideration Less: Cash acquired Net cash paid 16,795 (8,931) (3,308) 4,556 Incidental acquisition costs of $202,000 relating to acquisition of McDonald Butler Associates were recognised in the consolidated income statement for the year ended 30 June 2021. On 6 May 2022, the Group entered into a sale agreement to sell the business assets of its strategic data consultancy businesses, The Leading Edge (TLE) and The Digital Edge (TDE), for consideration of $1,350,000. The Group recognised an accounting gain on sale of $600,000 in the consolidated income statement for the year ended 30 June 2022. Assets and liabilities and cash flow of disposed entities The major classes of assets and liabilities of the disposed businesses are as follows: Carrying amounts 23. Disposals 2022 In thousands of AUD Assets Trade and other receivables Other assets Plant and equipment Total assets disposed Liabilities Trade and other payables Employee benefits Total liabilities disposed Net liabilities disposed Gain on sale In thousands of AUD Consideration received, net of working capital adjustment Less: relative value of goodwill Add: net liabilities disposed Less: incidental cost Gain on sale in the consolidated income statement Net cash received In thousands of AUD Total consideration Less: working capital adjustment Less: incidental cost Reflected in the consolidated statement of cash flows 220 18 17 255 (458) (235) (693) (438) 1,144 (856) 438 (126) 600 1,350 (206) (126) 1,018 82 Enero Group Limited Annual Report 2022 Enero Group Limited Annual Report 2022 83 Notes to the consolidated financial statements for the year ended 30 June 2022Financial report for year ended 30 June 2022 Notes to the consolidated financial statements for the year ended 30 June 2022 22. Acquisitions (continued) 2021 On 26 April 2021 the Group, via its subsidiary Hotwire Public Relations Limited, acquired 100% of the issued capital of McDonald Butler Associates, a UK based technology public relations agency. The purchase consideration was an upfront payment of £3,500,000 ($6,272,000) in addition to contingent consideration tied to the net revenue target through to the period ended 30 June 2024. Future payments are subject to a minimum net revenue threshold and are capped based on the average net revenue. The fair value of the future contingent consideration liability is estimated based on the achievement of net revenue targets. Following completion, the business operations of McDonald Butler Associates and Hotwire Public Relations Limited merged together to operate under the Hotwire Public Relations brand, strengthening the offering and capabilities of Hotwire Public Relations in the UK market. This acquisition contributed $1,060,000 to net revenue and $214,000 to net profit after tax of the Group for the year ended 30 June 2021. The net revenue and net profit after tax of the Group for the year ended 30 June 2021 would have been $166,119,000 and $10,698,000 respectively, had the Group acquired McDonald Butler Associates at the beginning of the financial year. Effect of acquisition for the year ended 30 June 2021 on the Group’s assets and liabilities. The fair values of the net identifiable assets and liabilities acquired at the date of acquisition were: In thousands of AUD Cash and cash equivalents Trade and other receivables Other assets Property, plant and equipment Intangible assets Trade and other payables Unearned revenue Employee benefits Deferred tax liability Other liabilities Net identifiable assets Goodwill on acquisition In thousands of AUD Total consideration Less: Fair value of net identifiable assets Goodwill Goodwill has arisen on the acquisition of entities during the year as some intangibles, such as key management and technical employee relationships and certain customer relationships, did not meet the criteria for recognition as an intangible asset at the date of acquisition. Considering the characteristics of marketing and communication services companies, acquisitions do not usually have significant amounts of tangible assets as the principal asset typically acquired is creative talent and know-how of people. As a result, a substantial proportion of the purchase price is allocated to Total acquisition cash outflow for year ended 30 June 2021 goodwill. In thousands of AUD Total consideration Less: Contingent consideration Less: Cash acquired Net cash paid Incidental acquisition costs of $202,000 relating to acquisition of McDonald Butler Associates were recognised in the consolidated income statement for the year ended 30 June 2021. Fair value 3,308 1,497 818 30 3,428 (778) (2,623) (163) (1,028) (10) 4,479 16,795 (4,479) 12,316 16,795 (8,931) (3,308) 4,556 23. Disposals 2022 On 6 May 2022, the Group entered into a sale agreement to sell the business assets of its strategic data consultancy businesses, The Leading Edge (TLE) and The Digital Edge (TDE), for consideration of $1,350,000. The Group recognised an accounting gain on sale of $600,000 in the consolidated income statement for the year ended 30 June 2022. Assets and liabilities and cash flow of disposed entities The major classes of assets and liabilities of the disposed businesses are as follows: In thousands of AUD Assets Trade and other receivables Other assets Plant and equipment Total assets disposed Liabilities Trade and other payables Employee benefits Total liabilities disposed Net liabilities disposed Gain on sale In thousands of AUD Consideration received, net of working capital adjustment Less: relative value of goodwill Add: net liabilities disposed Less: incidental cost Gain on sale in the consolidated income statement Net cash received In thousands of AUD Total consideration Less: working capital adjustment Less: incidental cost Reflected in the consolidated statement of cash flows Carrying amounts 83 220 18 17 255 (458) (235) (693) (438) 1,144 (856) 438 (126) 600 1,350 (206) (126) 1,018 82 Enero Group Limited Annual Report 2022 Enero Group Limited Annual Report 2022 83 Notes to the consolidated financial statements for the year ended 30 June 2022 23. Disposals (continued) 2021 On 2 March 2021, the Group entered into a sale agreement to sell its entire shareholding in Frank PR (75% issued capital) for a consideration of £915,000 ($1,647,000). On 2 March 2021, the Group’s control over these businesses passed to the acquirer. The proceeds from the disposal were received in March 2021. The Group recognised an accounting loss on sale of $9,878,000 in the consolidated income statement for the year ended 30 June 2021. Assets and liabilities and cash flow of disposed entities The major classes of assets and liabilities of the disposed group are as follows: In thousands of AUD Assets Cash and cash equivalents Trade and other receivables Other assets Plant and equipment Right-of-use asset Deferred tax assets Total assets disposed Liabilities Trade and other payables Lease liability Employee benefits Income tax payable Total liabilities disposed Net assets disposed Less: net assets attributable to non-controlling interest Net assets attributable to equity holder of parent Net cash disposed In thousands of AUD Total consideration Less: cash and cash equivalents balance disposed Reflected in the consolidated statement of cash flows Loss on sale of Frank PR In thousands of AUD Consideration received Less: relative value of goodwill Less: net assets disposed Less: reserve change in ownership interest transferred to the consolidated income Less: foreign currency translation reserve transferred to the consolidated income Loss on sale of Frank PR in the consolidated income statement Carrying amounts 2,387 1,203 112 155 108 10 3,975 (2,377) (225) (73) (236) (2,911) 1,064 (266) 798 1,647 (2,387) (740) 1,647 (6,136) (798) (1,417) (3,174) (9,878) Disposal of dormant foreign subsidiaries The Group disposed of 12 dormant foreign subsidiaries and recognised an accounting loss of $13,157,000 as it transferred the Foreign Currency Translation Reserve (FCTR) relating to these subsidiaries to the consolidated income statement for the year ended 30 June 2021. Loss on disposal In thousands of AUD Loss on sale of Frank PR Loss on disposal of dormant foreign subsidiaries Total loss on disposal in the consolidated income statement (9,878) (13,157) (23,035) 24. Parent entity disclosures As at, and throughout, the financial year ended 30 June 2022, the parent company of the Group was Enero Group Limited. The Company 2022 2021 (15,624) – (15,624) 15,553 129,144 23,539 28,663 100,481 104,861 8,089 27,690 (40,159) 100,481 15,770 – 15,770 25,349 156,486 25,298 33,126 123,360 100,456 10,592 36,847 (24,535) 123,360 In thousands of AUD Result of the parent entity (Loss)/profit for the year Other comprehensive income Total comprehensive (loss)/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 reserves. respect of its subsidiaries. Note 25 Deed of Cross Guarantee. Contingent liabilities Indemnities For dividends declared and paid by the Company to members since the end of the previous financial year, refer to Note 17 Capital and 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 Further details of the Deed of Cross Guarantee, and the subsidiaries subject to the deed, are disclosed in Indemnities have been provided to Directors and certain Executive Officers of the Company in respect of 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 2022. 84 Enero Group Limited Annual Report 2022 Enero Group Limited Annual Report 2022 85 Notes to the consolidated financial statements for the year ended 30 June 2022Financial report for year ended 30 June 2022 On 2 March 2021, the Group entered into a sale agreement to sell its entire shareholding in Frank PR (75% issued capital) for a consideration of £915,000 ($1,647,000). On 2 March 2021, the Group’s control over these businesses passed to the acquirer. The proceeds from the disposal were received in March 2021. The Group recognised an accounting loss on sale of $9,878,000 in the consolidated income statement for the year ended 30 June 2021. Assets and liabilities and cash flow of disposed entities The major classes of assets and liabilities of the disposed group are as follows: Carrying amounts Notes to the consolidated financial statements for the year ended 30 June 2022 23. Disposals (continued) 2021 In thousands of AUD Assets Cash and cash equivalents Trade and other receivables Other assets Plant and equipment Right-of-use asset Deferred tax assets Total assets disposed Liabilities Trade and other payables Lease liability Employee benefits Income tax payable Total liabilities disposed Net assets disposed Less: net assets attributable to non-controlling interest Net assets attributable to equity holder of parent Net cash disposed In thousands of AUD Total consideration Less: cash and cash equivalents balance disposed Reflected in the consolidated statement of cash flows Loss on sale of Frank PR In thousands of AUD Consideration received Less: relative value of goodwill Less: net assets disposed Less: reserve change in ownership interest transferred to the consolidated income Less: foreign currency translation reserve transferred to the consolidated income Loss on sale of Frank PR in the consolidated income statement Disposal of dormant foreign subsidiaries The Group disposed of 12 dormant foreign subsidiaries and recognised an accounting loss of $13,157,000 as it transferred the Foreign Currency Translation Reserve (FCTR) relating to these subsidiaries to the consolidated income statement for the year ended 30 June 2021. Loss on disposal In thousands of AUD Loss on sale of Frank PR Loss on disposal of dormant foreign subsidiaries Total loss on disposal in the consolidated income statement 2,387 1,203 112 155 108 10 3,975 (2,377) (225) (73) (236) (2,911) 1,064 (266) 798 1,647 (2,387) (740) 1,647 (6,136) (798) (1,417) (3,174) (9,878) (9,878) (13,157) (23,035) 24. Parent entity disclosures As at, and throughout, the financial year ended 30 June 2022, the parent company of the Group was Enero Group Limited. In thousands of AUD Result of the parent entity (Loss)/profit for the year Other comprehensive income Total comprehensive (loss)/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 The Company 2021 2022 (15,624) – (15,624) 15,553 129,144 23,539 28,663 100,481 104,861 8,089 27,690 (40,159) 100,481 15,770 – 15,770 25,349 156,486 25,298 33,126 123,360 100,456 10,592 36,847 (24,535) 123,360 85 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 25 Deed of Cross Guarantee. Contingent liabilities Indemnities Indemnities have been provided to Directors and certain Executive Officers of the Company in respect of 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 2022. 84 Enero Group Limited Annual Report 2022 Enero Group Limited Annual Report 2022 85 Notes to the consolidated financial statements for the year ended 30 June 2022 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 Total current liabilities Lease liabilities Employee benefits Total non-current liabilities Total liabilities Net assets Equity Issued capital Share-based payment reserve Profit appropriation reserve Accumulated losses Total equity 2022 2021 14,930 7,354 1,131 23,415 53,752 30,493 1,945 1,626 2,800 15,531 26,200 8,923 858 35,981 60,763 30,558 2,078 2,300 4,780 16,387 106,147 116,866 129,562 152,847 17,230 – 3,375 2,484 23,089 1,347 389 1,736 24,825 17,093 10,886 3,240 2,154 33,373 4,392 371 4,763 38,136 104,737 114,711 8,089 27,690 104,861 100,456 10,592 36,847 (35,903) (33,184) 104,737 114,711 25. Deed of Cross Guarantee Pursuant to ASIC Corporations (Wholly owned Companies) Instrument 2016/785, the wholly owned subsidiaries listed below are relieved from the Corporations Act 2001 requirements for the preparation, audit and lodgment of financial statements and a Directors’ Report. It is a condition of the Instrument 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 2022, is set out as follows: Income statement In thousands of AUD Gross revenue Directly attributable costs of sales Gross profit Other income Employee expenses Occupancy costs Travel expenses Communication expenses Compliance expenses Depreciation and amortisation Administration expenses Gain on disposal of business Incidental acquisition costs Finance income Finance costs Management fees received from subsidiaries Loan receivable impairment Dividends received from subsidiaries (Loss)/profit before income tax Income tax (expense)/benefit (Loss)/profit for the year Attributable to: Equity holders of the Company 2022 55,995 2021 55,901 (22,283) 33,712 – (31,733) (205) (505) (388) (799) (2,055) (2,608) 535 (89) 18 (466) 4,402 (4,144) 2,088 (2,237) (482) (2,719) (26,215) 29,686 135 (27,580) (221) (67) (419) (506) (2,182) (2,125) – – 43 (982) 3,904 – 15,112 14,798 1,537 16,335 (2,719) 16,335 26. Commitments Leases Leases as lessee Commitments for minimum lease payments (undiscounted) in relation to non-cancellable low value leases are payable as follows: In thousands of AUD Less than one year Between one and five years Over five years 2022 2021 96 11 – 107 42 9 – 51 The Group leases many assets, including properties and office equipment, under non-cancellable low value leases generally expiring in two to 10 years. Amounts disclosed in the above table relate only to leases exempt from AASB 16 recognition. 27. Contingencies Contingent liabilities Indemnities Indemnities have been provided to Directors and certain Executive Officers of the Company in respect of 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 2022. 28. Subsequent events were: • on 1 July 2022, the Group acquired 100% of the issued capital of ROI DNA Inc, a USA based strategic B2B sales and marketing agency. The purchase consideration was an upfront payment of US$26,400,000 ($38,306,000) in cash and US$6,600,000 ($9,577,000) of Enero Group Limited shares with additional contingent consideration linked to the achievement of EBITDA targets over the next 3 years through to 30 June 2025. Refer to Note 22 Acquisitions for details. • on 1 July 2022, the Group acquired 100% of the issued capital of GetIT Pte Ltd, a Singapore based specialist B2B technology marketing agency with presence in India, Malaysia and Japan. The purchase consideration was an upfront payment of S$2,700,000 ($2,816,000) in cash and S$1,800,000 ($1,877,000) of Enero Group Limited shares with additional contingent consideration linked to the achievement of EBIT target over the next 3 years through to 30 June 2025. Refer to Note 22 Acquisitions for details. • the Directors have declared a final dividend, with respect to ordinary shares, of 6.5 cents per share, fully franked. The final dividend will have a record date of 20 September 2022 and a payment date of 4 October 2022. Except for these events 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. 29. 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 Carla Webb-Sear 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 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 related party transactions with any Director during the current or prior reporting period. Key Management Personnel compensation (including all Short-term employee benefits 3,242,268 3,119,950 Directors) is as follows: In AUD Other long-term benefits Post-employment benefits Termination benefits 2022 2021 7,810 73,621 (4,945) 80,771 – 255,769 Share-based payments – Share Appreciation Rights Total Key Management Personnel compensation 984,885 437,572 4,308,584 3,889,117 Transactions or events subsequent to the balance date, financial or operating policies of those entities. 86 Enero Group Limited Annual Report 2022 Enero Group Limited Annual Report 2022 87 Notes to the consolidated financial statements for the year ended 30 June 2022Financial report for year ended 30 June 2022 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 Total current liabilities Lease liabilities Employee benefits Total non-current liabilities Total liabilities Net assets Equity Issued capital Share-based payment reserve Profit appropriation reserve Accumulated losses Total equity 2022 2021 14,930 26,200 7,354 1,131 8,923 858 23,415 35,981 53,752 30,493 60,763 30,558 1,945 1,626 2,800 2,078 2,300 4,780 15,531 16,387 106,147 116,866 129,562 152,847 17,230 – 3,375 2,484 17,093 10,886 3,240 2,154 23,089 33,373 1,347 389 1,736 4,392 371 4,763 24,825 38,136 104,737 114,711 104,861 100,456 8,089 27,690 10,592 36,847 (35,903) (33,184) 104,737 114,711 Notes to the consolidated financial statements for the year ended 30 June 2022 25. Deed of Cross Guarantee Pursuant to ASIC Corporations (Wholly owned Companies) Instrument 2016/785, the wholly owned subsidiaries listed below are relieved from the Corporations Act 2001 requirements for the preparation, audit and lodgment of financial statements and a Directors’ Report. It is a condition of the Instrument 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 2022, is set out as Directly attributable costs of follows: Income statement In thousands of AUD Gross revenue sales Gross profit Other income Employee expenses Occupancy costs Travel expenses Communication expenses Compliance expenses Depreciation and amortisation Administration expenses Gain on disposal of business Incidental acquisition costs Finance income Finance costs Management fees received from subsidiaries Loan receivable impairment Dividends received from subsidiaries (Loss)/profit before income tax Income tax (expense)/benefit (Loss)/profit for the year Attributable to: 2022 55,995 2021 55,901 (22,283) 33,712 – (26,215) 29,686 135 (31,733) (27,580) (205) (505) (388) (799) (2,055) (2,608) 535 (89) 18 (466) 4,402 (4,144) 2,088 (2,237) (482) (2,719) (221) (67) (419) (506) (2,182) (2,125) – – 43 (982) 3,904 – 15,112 14,798 1,537 16,335 Equity holders of the Company (2,719) 16,335 26. Commitments Leases Leases as lessee Commitments for minimum lease payments (undiscounted) in relation to non-cancellable low value leases are payable as follows: In thousands of AUD Less than one year Between one and five years Over five years 2022 96 11 – 107 2021 42 9 – 51 The Group leases many assets, including properties and office equipment, under non-cancellable low value leases generally expiring in two to 10 years. Amounts disclosed in the above table relate only to leases exempt from AASB 16 recognition. 27. Contingencies Contingent liabilities Indemnities Indemnities have been provided to Directors and certain Executive Officers of the Company in respect of 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 2022. 28. Subsequent events Transactions or events subsequent to the balance date, were: • on 1 July 2022, the Group acquired 100% of the issued capital of ROI DNA Inc, a USA based strategic B2B sales and marketing agency. The purchase consideration was an upfront payment of US$26,400,000 ($38,306,000) in cash and US$6,600,000 ($9,577,000) of Enero Group Limited shares with additional contingent consideration linked to the achievement of EBITDA targets over the next 3 years through to 30 June 2025. Refer to Note 22 Acquisitions for details. • on 1 July 2022, the Group acquired 100% of the issued capital of GetIT Pte Ltd, a Singapore based specialist B2B technology marketing agency with presence in India, Malaysia and Japan. The purchase consideration was an upfront payment of S$2,700,000 ($2,816,000) in cash and S$1,800,000 ($1,877,000) of Enero Group Limited shares with additional contingent consideration linked to the achievement of EBIT target over the next 3 years through to 30 June 2025. Refer to Note 22 Acquisitions for details. • the Directors have declared a final dividend, with respect to ordinary shares, of 6.5 cents per share, fully franked. The final dividend will have a record date of 20 September 2022 and a payment date of 4 October 2022. Except for these events 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. 29. 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: Position Name Carla Webb-Sear Chief Financial Officer Fiona Chilcott Chief People and Culture Officer 87 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 related party transactions with any Director during the current or prior reporting period. 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 2021 3,242,268 3,119,950 (4,945) 80,771 255,769 7,810 73,621 – 2022 Share-based payments – Share Appreciation Rights Total Key Management Personnel compensation 984,885 437,572 4,308,584 3,889,117 86 Enero Group Limited Annual Report 2022 Enero Group Limited Annual Report 2022 87 Notes to the consolidated financial statements for the year ended 30 June 2022 30. 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 (SARP) in the current and prior financial years. 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. Summary of Share Appreciation Rights on issue: 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. The number of shares to be granted will equal the number of SARs awarded multiplied by the above conversion formula. One share right shall never convert into more than one share in the capital of the Company. Rights expire at 15 business days after the relevant vesting date or the termination of the individual’s employment. The Board may exercise discretion on early vesting of rights in the event of a change of control of the Group. Refer to the table below for a summary of SARs on issue. Issue date SARs issued Participants VWAP for the 20 business days prior to the grant (B) Vesting dates: 20 business days after the release of the Group financial report for the year ended: Tranche 1 (1/3) Tranche 2 (1/3) Tranche 3 (1/3) Last expiry date Outstanding SARs as at 30 June 2022 24 October 2019 2,450,000 Senior Executives 21 October 2020 3,900,000 Senior Executives 21 October 2021 4,525,000 Senior Executives $2.13 $1.52 $3.02 30 June 2020 30 June 2021 30 June 2022 30 September 2022 416,670 30 June 2021 30 June 2022 30 June 2023 30 September 2023 2,066,670 30 June 2022 30 June 2023 30 June 2024 30 September 2024 4,525,000 – – – – – – – – – – – – – – – – – – – – – – – – – Share Appreciation Rights (SARs) Summary of rights over unissued ordinary shares VWAP (for the Weighted Expiry date 20 business days prior to the grant) average outstanding exercise at beginning price of year Rights granted during Number of Rights Rights exercised Rights expired Rights forfeited Rights at year end end Proceeds Date year during year during year during year outstanding vested received issued Number of Expected shares issued life (years) Number of of Rights Number at year Grant date 2022 18 Oct 2018 24 Oct 2019 21 Oct 2020 21 Oct 2021 30 Sep 2021 30 Sep 2022 30 Sept 2023 30 Sept 2024 $1.23 $2.13 $1.52 $3.02 – 900,000 – 1,083,336 – – 900,000 599,998 – – 66,668 416,670 – 3,633,333 – 1,233,329 333,334 2,066,670 – – – 550,788 0.9–2.9 196,848 0.9–2.9 641,953 0.9–2.9 – – 4,525,000 – – 4,525,000 0.9–2.9 5,616,669 4,525,000 2,733,327 400,002 7,008,340 1,389,589 VWAP (for the Weighted Expiry date 20 business days prior to the grant) average outstanding exercise at beginning price of year Rights granted during Number of Rights Rights exercised Rights expired Rights forfeited Rights at year end end Proceeds Date year during year during year during year outstanding vested received issued Number of Expected shares issued life (years) Number of of Rights Number at year $1.04 $1.23 $2.13 $1.52 – 1,016,670 – 1,016,670 – 1,800,000 900,000 – – – 900,000 – 2,100,000 699,998 316,666 1,083,336 – – 3,900,000 – 266,667 3,633,333 – – – – – – – – 363,993 0.9–2.9 216,666 0.9–2.9 – – 0.9–2.9 0.9–2.9 4,916,670 3,900,000 1,916,670 699,998 583,333 5,616,669 580,659 Grant date 2021 19 Oct 2017 18 Oct 2018 24 Oct 2019 21 Oct 2020 30 Sep 2020 30 Sep 2021 30 Sep 2022 30 Sept 2023 The number and weighted average exercise price of share rights is as follows: VWAP (for the 20 business days prior to the grant) 2022 Weighted average exercise $ price 2022 VWAP (for the 20 business days prior to rights the grant) 2021 Weighted average exercise price 2021 Number of 2022 5,616,669 (400,002) – (2,733,327) 4,525,000 7,008,340 – – – – – – – – $ 1.58 1.85 2.13 1.13 1.52 1.59 – Number of rights 2021 4,916,670 (583,333) (699,998) (1,916,670) 3,900,000 5,616,669 – – – – – – – – Outstanding at 1 July Forfeited during the Expired during the Exercised during the Granted during the period period period period Outstanding at 30 June Exercisable at 30 June 1.59 1.62 – 1.56 3.02 2.52 – The SARs outstanding at 30 June 2022 have a VWAP (for the 20 business days prior to the grant) range of $1.23 to $3.02 (30 June 2021: $1.23 to $2.13). The SARs outstanding at 30 June 2022 have a weighted average contractual life of 1.05 years (30 June 2021: 0.98 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. were $1,902,000 (2021: $992,000). The total net expenses recognised by the Group for the year ended 30 June 2022 for share-based payment transactions The VWAP for the 20 business days prior the date of exercise of SARs on 15 September 2021 was $3.17. 88 Enero Group Limited Annual Report 2022 Enero Group Limited Annual Report 2022 89 Notes to the consolidated financial statements for the year ended 30 June 2022Financial report for year ended 30 June 2022 Notes to the consolidated financial statements for the year ended 30 June 2022 30. 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 (SARP) in the current and prior financial years. 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. Summary of Share Appreciation Rights on issue: 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. The number of shares to be granted will equal the number of SARs awarded multiplied by the above conversion formula. 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. 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 (1/3) Tranche 2 (1/3) Tranche 3 (1/3) Last expiry date 24 October 2019 21 October 2020 21 October 2021 2,450,000 3,900,000 4,525,000 Senior Executives Senior Executives Senior Executives $2.13 $1.52 $3.02 30 June 2020 30 June 2021 30 June 2022 30 June 2021 30 June 2022 30 June 2023 30 June 2022 30 June 2023 30 June 2024 30 September 2022 30 September 2023 30 September 2024 Outstanding SARs as at 30 June 2022 416,670 2,066,670 4,525,000 Share Appreciation Rights (SARs) Summary of rights over unissued ordinary shares Grant date 2022 18 Oct 2018 24 Oct 2019 21 Oct 2020 21 Oct 2021 Grant date 2021 19 Oct 2017 18 Oct 2018 24 Oct 2019 21 Oct 2020 VWAP (for the 20 business days prior to the grant) Weighted average exercise price Expiry date 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 2021 30 Sep 2022 30 Sept 2023 30 Sept 2024 $1.23 $2.13 $1.52 $3.02 – 900,000 – 1,083,336 – – 900,000 599,998 – 3,633,333 – 1,233,329 – – 4,525,000 – 5,616,669 4,525,000 2,733,327 – – – – – – – 66,668 416,670 333,334 2,066,670 – 4,525,000 400,002 7,008,340 – – – – – – – – – – – 550,788 0.9–2.9 196,848 0.9–2.9 641,953 0.9–2.9 0.9–2.9 1,389,589 VWAP (for the 20 business days prior to the grant) Weighted average exercise price Expiry date 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 Sept 2023 $1.04 $1.23 $2.13 $1.52 – 1,016,670 – 1,016,670 – 1,800,000 – 2,100,000 – – – – 3,900,000 900,000 – – – – – – – 900,000 699,998 316,666 1,083,336 – 266,667 3,633,333 4,916,670 3,900,000 1,916,670 699,998 583,333 5,616,669 – – – – – – – – – – – – – – 363,993 0.9–2.9 216,666 0.9–2.9 – – 0.9–2.9 0.9–2.9 580,659 89 The number and weighted average exercise price of share rights is as follows: VWAP (for the 20 business days prior to the grant) 2022 $ 1.59 Weighted average exercise price 2022 – 1.62 – 1.56 3.02 2.52 – – – – – – – Number of rights 2022 5,616,669 (400,002) – (2,733,327) 4,525,000 7,008,340 – 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 VWAP (for the 20 business days prior to the grant) 2021 $ 1.58 Weighted average exercise price 2021 – 1.85 2.13 1.13 1.52 1.59 – – – – – – – Number of rights 2021 4,916,670 (583,333) (699,998) (1,916,670) 3,900,000 5,616,669 – The SARs outstanding at 30 June 2022 have a VWAP (for the 20 business days prior to the grant) range of $1.23 to $3.02 (30 June 2021: $1.23 to $2.13). The SARs outstanding at 30 June 2022 have a weighted average contractual life of 1.05 years (30 June 2021: 0.98 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 2022 for share-based payment transactions were $1,902,000 (2021: $992,000). The VWAP for the 20 business days prior the date of exercise of SARs on 15 September 2021 was $3.17. 88 Enero Group Limited Annual Report 2022 Enero Group Limited Annual Report 2022 89 Notes to the consolidated financial statements for the year ended 30 June 2022 Directors’ Declaration 30. Share-based payments (continued) 1. In the opinion of the Directors of Enero Group Limited (the Company): Inputs for measurement of grant date fair value The following factors and key assumptions were used in determining the fair value of the SARs on the grant date: Expiry date Value per SAR $ 30 Sept 2022 0.26 – 0.46 30 Sept 2023 0.35 – 0.40 30 Sept 2024 0.64 – 0.85 VWAP (for the 20 business days prior to the grant) $ 2.13 1.52 3.02 Price of shares on grant date $ 2.04 1.70 3.38 Risk-free Expected interest rate volatility % % 40 0.73-0.76 35-55 0.07-0.25 40-50 0.01-0.36 Dividend yield % Expected life (years) 2.0 0.9–2.9 4.7 0.9–2.9 5.0 0.9–2.9 Grant date 24 Oct 2019(i) 21 Oct 2020(ii) 21 Oct 2021(iii) (i) 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. (ii) Grant is in relation to SARs provided to senior employees of the Group which were issued on 21 October 2020. 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 2023, which is estimated to be around 30 September 2023. (iii) Grant is in relation to SARs provided to senior employees of the Group which were issued on 21 October 2021. 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 2024, which is estimated to be around 30 September 2024. 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’s 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 methodology used by the expert and make enquiries with management to satisfy themselves that the factual information used by the expert is correct prior to relying on the expert’s opinion. 31. Auditor’s remuneration In AUD Audit services – auditors of the Company KPMG Australia Overseas KPMG firm Other services – auditors of the Company Taxation compliance services: KPMG Australia Overseas KPMG firm 2022 2021 357,000 136,000 493,000 – 295,000 295,000 356,000 119,000 475,000 26,000 286,000 312,000 (a) the consolidated financial statements and notes that are set out on pages 44 to 90 and the Remuneration Report set out on pages 36 to 43 in the Directors’ Report, 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 2022 and of its performance for the financial year ended on that date; and Corporations Regulations 2001; and (ii) complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the (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 25 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 Corporations (Wholly owned Companies) Instrument 2016/785. 3. The Directors have been given the declarations by the Chief Executive Officer and Chief Financial Officer for the financial year ended 30 June 2022 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 8th day of September 2022. Signed in accordance with a resolution of the Directors: Ann Sherry AO Chair 90 Enero Group Limited Annual Report 2022 Enero Group Limited Annual Report 2022 91 Notes to the consolidated financial statements for the year ended 30 June 2022Financial report for year ended 30 June 2022 Notes to the consolidated financial statements for the year ended 30 June 2022 Directors’ Declaration Directors’ Declaration 30. Share-based payments (continued) Inputs for measurement of grant date fair value The following factors and key assumptions were used in determining the fair value of the SARs on the grant date: VWAP (for the Price of 20 business shares SAR $ Expiry date 30 Sept 2022 0.26 – 0.46 30 Sept 2023 0.35 – 0.40 30 Sept 2024 0.64 – 0.85 Value per days prior to on grant Expected Risk-free Dividend Expected the grant) date volatility interest rate yield life $ 2.13 1.52 3.02 $ 2.04 1.70 3.38 % % 40 0.73-0.76 35-55 0.07-0.25 40-50 0.01-0.36 % (years) 2.0 0.9–2.9 4.7 0.9–2.9 5.0 0.9–2.9 (i) 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 (ii) Grant is in relation to SARs provided to senior employees of the Group which were issued on 21 October 2020. 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 2023, which is estimated to be around (iii) Grant is in relation to SARs provided to senior employees of the Group which were issued on 21 October 2021. 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 2024, which is estimated to be around Grant date 24 Oct 2019(i) 21 Oct 2020(ii) 21 Oct 2021(iii) 30 September 2022. 30 September 2023. 30 September 2024. 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’s 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 methodology used by the expert and make enquiries with management to satisfy themselves that the factual information used by the expert is correct prior to relying on the expert’s opinion. 31. Auditor’s remuneration In AUD Audit services – auditors of the Company KPMG Australia Overseas KPMG firm Other services – auditors of the Company Taxation compliance services: KPMG Australia Overseas KPMG firm 2022 2021 357,000 136,000 493,000 – 295,000 295,000 356,000 119,000 475,000 26,000 286,000 312,000 1. In the opinion of the Directors of Enero Group Limited (the Company): (a) the consolidated financial statements and notes that are set out on pages 44 to 90 and the Remuneration Report set out on pages 36 to 43 in the Directors’ Report, 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 2022 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 25 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 Corporations (Wholly owned Companies) Instrument 2016/785. 3. The Directors have been given the declarations by the Chief Executive Officer and Chief Financial Officer for the financial year ended 30 June 2022 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 8th day of September 2022. Signed in accordance with a resolution of the Directors: 91 Ann Sherry AO Chair 90 Enero Group Limited Annual Report 2022 Enero Group Limited Annual Report 2022 91 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 2022 and of its financial performance for the year ended on that date; and complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for opinion The Financial Report comprises: • Consolidated statement of financial position as at 30 June 2022 • 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. 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 (including Independence Standards) (the Code) that are relevant to our audit of the Financial Report in Australia. We have fulfilled our other ethical responsibilities in accordance with these requirements. Key Audit Matters The Key Audit Matters we identified are: • Revenue recognition • Annual impairment testing of goodwill and intangible assets 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. KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation. Liability limited by a scheme approved under Professional Standards Legislation. Independent Auditor’s ReportFinancial report for year ended 30 June 202293 Revenue recognition ($522.1 million) Refer to Note 3 to the Financial Report The key audit matter How the matter was addressed in our audit The Group derives the majority of its revenue from marketing and communication service fees from customers, which requires analysis of recognition over the related contractual term. The Group’s policy is for consideration received from advance billings to customers prior to the satisfaction of performance obligations are recognised as a contract liability and classified as unearned revenue ($17.4 million). Revenue from contracts with customers was a key audit matter due to: • • • The quantum of service revenue earned during the year and contract liabilities recognised at the end of the year; The different revenue recognition policies for rendering of search marketing services (point in time) and all other businesses (over time); and The advanced billing arrangements for the rendering of services that require an adjustment for contract liabilities at year end to comply with the Group’s revenue recognition policy. The contract liabilities adjustment is prepared manually and is prone to greater risk for bias, error and inconsistent application. Additional audit effort was required to evaluate the revenue recognised. Our procedures included: • We obtained an understanding of the nature of the various revenue streams and the related revenue recording processes, systems and key controls. • We evaluated the appropriateness of the Group’s accounting policies for revenue recognition for each significant revenue stream against the requirements of AASB 15 and our understanding of the business. • We read a sample of signed customer contracts for search marketing and consulting services to understand the key terms of the arrangements and the performance obligations. • We tested completeness and accuracy of the underlying data within the Group’s revenue and billing systems by tracing a sample of contract information in the systems to signed customer contracts and invoices. • We tested point in time revenue transactions recognised throughout the year by: • • • assessing existence of an underlying arrangement with the customer; comparing the timing of revenue recognition and amounts invoiced to customers to external user traffic reports provided by search engines to the Group; and checking customer receipts to the Group’s bank statements. • We tested, on a sample basis, over time revenue transactions with performance obligations completely satisfied during the year. This included: • assessing the relevant features of the underlying contracts, including what the Group identified as performance obligations; • • testing the amounts billed to customers to underlying documentation such as signed customer contracts, signed customer statements of work, and/or signed customer purchase orders; and assessing the timing of revenue recognition for each revenue contract based on completed performance obligations (evidence of completed marketing or communication deliverables such as a podcast, billboard materials, press release) and the Group’s stated revenue recognition policy. • We assessed the manual contract liabilities adjustment prepared by the Group for compliance with Australian Accounting Standards. On a sample basis, we tested the accuracy of key inputs to the contract liabilities adjustment by: • • • checking an underlying arrangement with the customer existed; checking the customer’s billing cycle and pricing to customer agreed contractual terms; and obtaining evidence of the estimated measure of progress of the contract (such as timesheet reports or third-party invoices for reimbursable purchases) to assess the allocation between revenue and unearned revenue liability. • We assessed the disclosures in the financial report against the requirements of the accounting standard and using our understanding obtained from our testing. Annual impairment testing of goodwill ($112.2 million) Refer to Notes 11 and 20 to the Financial Report The key audit matter How the matter was addressed in our audit The Group’s annual testing of goodwill for impairment is a key audit matter, given the size of the balance (being 38% of total assets) and the degree of judgement involved in the significant forward-looking assumptions the Group applied in their value in use models, 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 Independent Auditor’s ReportFinancial report for year ended 30 June 202295 including: accounting standards. • • Forecast 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 due to volatile economic conditions caused by the COVID-19 pandemic, supply chain issues, rising interest rates, and increasing employee benefits costs. These conditions increase the risk of inaccurate forecasts or a significantly wider range of possible outcomes for us to consider. Forecast growth rates, including long-term growth rates into perpetuity – in addition to the uncertainties described above, the Group’s models are highly 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. • Discount rates – these are complex in nature and vary according to the conditions and environment the specific Cash Generating Unit (CGU) is subject to from time to time. We involve our valuations specialists with the assessment. The Group uses complex models to perform their annual testing of goodwill for impairment. The models are largely manually developed, use adjusted historical performance, and a range of internal and external sources as inputs to the assumptions. Complex modelling, particularly those containing judgemental allocations of corporate assets and costs to CGUs, 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. The Group implemented a new global operating model resulting in a change in composition of its CGUs during the year necessitating our consideration of the Group’s determination of CGUs, based on the smallest group of assets to generate largely independent cash inflows. The Group reorganised its segments and divested two businesses during the year, necessitating • We assessed the integrity of the value in use models used, including the accuracy of underlying calculation formulas. • We compared the forecast cash flows contained in the value in use models to Board- approved forecasts. • We assessed the accuracy of previous Group forecasts to inform our evaluation of forecasts incorporated in the models. We noted previous trends where volatile conditions existed and how they impacted the disposed businesses for use in further testing. • We assessed the Group’s underlying methodology and documentation for the allocation of corporate costs to the forecast cash flows contained in the value in use model, for consistency with our understanding of the business and the criteria in the accounting standards. • We assessed the Group’s allocation of corporate assets to CGUs for reasonableness and consistency based on the requirements of the accounting standards. • We considered the Group’s determination of their CGUs based on our understanding of the operations of the Group’s business and how independent cash inflows were generated against the requirements of the accounting standards. • We analysed the divestment of The Leading Edge and The Digital Edge, the reorganisation of the Group’s segments, and the Group’s internal reporting to assess the Group’s monitoring and management of activities, and the consistency of the allocation of goodwill to CGUs. • We checked the consistency of the growth rates to the Group’s latest Board-approved forecasts, past performance of the Group, and our experience regarding the feasibility of these in the industry and economic environments in which the CGUs operate. • Working with our valuation specialists, we challenged the Group’s significant forecast cash flow and growth assumptions in light of our consideration of the Group’s allocation of goodwill to the CGUs to which they belong based on the management and monitoring of the business. the expected continuation of volatile economic conditions in key geographies, supply chain issues affecting the Group’s customers, rising interest rates, and increasing employee benefits costs. We assessed how the Group had considered the impacts of these possible events in the Board-approved plan and strategy. We compared forecast growth rates and long-term growth rates into perpetuity to published studies of industry trends and expectations, and considered differences for the Group’s operations. We used our knowledge of the Group, their past performance, business and customers, and our industry experience. • Working with our valuation specialists, we independently developed a discount rate range considered comparable using publicly available market data for comparable entities, adjusted by risk factors specific to the Group and the industry it operates in. • We considered the sensitivity of the models by varying key assumptions, such as forecast growth rates, long-term growth rates into perpetuity, and discount rates, within a reasonably possible range. We did this to identify those CGUs at higher risk of impairment and those assumptions at a higher risk of bias or inconsistency in application and to focus our further procedures. • We assessed the Group’s reconciliation of differences between the year-end market capitalisation and the carrying amount of the net assets by comparing the implicit earnings multiples from the models to market multiples of comparable entities. • We assessed the disclosures in the financial report 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. Independent Auditor’s ReportFinancial report for year ended 30 June 2022In connection with our audit of the Financial Report, our responsibility is to read the Other Information. In doing so, we consider whether the Other Information is materially inconsistent with the Financial Report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. We are required to report if we conclude that there is a material misstatement of this Other Information, and based on the work we have performed on the Other Information that we obtained prior to the date of this Auditor’s Report we have nothing to report. Responsibilities of the Directors for the Financial Report The Directors are responsible for: • preparing the Financial Report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 • • implementing necessary internal control to enable the preparation of a Financial Report that gives a true and fair view and is free from material misstatement, whether due to fraud or error assessing the Group and Company’s ability to continue as a going concern and whether the use of the going concern basis of accounting is appropriate. This includes disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless they either intend to liquidate the Group and Company or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the Financial Report Our objective is: • • to obtain reasonable assurance about whether the Financial Report as a whole is free from material misstatement, whether due to fraud or error; and to issue an Auditor’s Report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error. They are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the Financial Report. A further description of our responsibilities for the audit of the Financial Report is located at the Auditing and Assurance Standards Board website at: https://www.auasb.gov.au/admin/file/content102/c3/ar1_2020.pdf This description forms part of our Auditor’s Report. 97 Report on the Remuneration Report Opinion Directors’ responsibilities In our opinion, the Remuneration Report of Enero Group Limited for the year ended 30 June 2022, 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 36 to 43 of the Directors’ Report for the year ended 30 June 2022. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. KPMG Kristen Peterson Partner Sydney 8 September 2022 Independent Auditor’s ReportFinancial report for year ended 30 June 2022Lead Auditor’s Independence Declaration 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 2022 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. 99 KPMG Kristen Peterson Partner Sydney 8 September 2022 KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation. Liability limited by a scheme approved under Professional Standards Legislation. 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 12 July 2022. Substantial shareholders The number of ordinary shares held by substantial shareholders and their associates is set out below: Shareholder Regal Funds Management Pty Limited Perpetual Limited RG Capital Multimedia Limited Wilson Asset Management Perennial Value Management Merrill Lynch International UBS Group Unquoted equity securities Number 12,893,947 11,659,657 11,223,268 9,473,181 9,443,821 5,614,463 4,938,249 As at 12 July 2022 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 Ordinary shares 186,994 1,035,262 1,233,173 5,113,354 80,476,324 88,045,107 405 400 160 177 42 1,184 % of issued capital 0.21 1.18 1.40 5.81 91.40 100.00 The number of shareholders holding less than a marketable parcel of ordinary shares is 96. Twenty largest shareholders Rank Name 1 CITICORP NOMINEES PTY LIMITED 2 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED 3 NATIONAL NOMINEES LIMITED 4 UBS NOMINEES PTY LTD 5 IRISH GLOBAL EQUITY LIMITED 6 RG CAPITAL MULTIMEDIA LIMITED 7 BRISPOT NOMINEES PTY LTD 8 J P MORGAN NOMINEES AUSTRALIA PTY LIMITED 9 CH GLOBAL PTY LTD 10 WARBONT NOMINEES PTY LTD 11 IRISH GLOBAL EQUITY LIMITED 12 MR FELICE TESTINI 13 MERRILL LYNCH (AUSTRALIA) NOMINEES PTY LIMITED 14 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED – A/C 2 15 RG CAPITAL MULTIMEDIA LIMITED 16 BNP PARIBAS NOMS PTY LTD 17 BETA GAMMA PTY LTD 18 MRS ANTONIA CAROLINE COLLOPY 19 NEWECONOMY COM AU NOMINEES PTY LIMITED 20 RG CAPITAL MULTIMEDIA LIMITED Total 100 Enero Group Limited Annual Report 2022 Units 20,683,612 14,249,644 7,404,986 4,826,950 4,335,901 3,269,079 3,108,083 2,898,965 2,548,301 1,830,166 1,667,025 1,630,102 1,409,963 1,162,149 1,159,020 1,064,474 830,000 788,637 611,920 511,945 75,990,922 % of issued capital 23.49 16.18 8.41 5.48 4.92 3.71 3.53 3.29 2.89 2.08 1.89 1.85 1.60 1.32 1.32 1.21 0.94 0.90 0.70 0.58 86.31 Corporate Directory Company Secretary Catherine Hoyle 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 home exchange is Sydney. Other Information 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 The Company is listed on the Australian Securities Exchange (ASX Code: EGG). Enero Group Limited, incorporated and domiciled in Australia, is a publicly listed company limited by shares. Enero Group Limited Annual Report 2022 101 Financial report for year ended 30 June 2022 Corporate Directory Corporate Directory Company Secretary Catherine Hoyle 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 101 ASX additional information Substantial shareholders Shareholder Regal Funds Management Pty Limited Perpetual Limited RG Capital Multimedia Limited Wilson Asset Management Perennial Value Management Merrill Lynch International UBS Group Unquoted equity securities 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 12 July 2022. The number of ordinary shares held by substantial shareholders and their associates is set out below: Number 12,893,947 11,659,657 11,223,268 9,473,181 9,443,821 5,614,463 4,938,249 As at 12 July 2022 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 Ordinary shares % of issued capital 405 400 160 177 42 1,184 186,994 1,035,262 1,233,173 5,113,354 80,476,324 88,045,107 0.21 1.18 1.40 5.81 91.40 100.00 The number of shareholders holding less than a marketable parcel of ordinary shares is 96. Twenty largest shareholders Rank Name 1 CITICORP NOMINEES PTY LIMITED 2 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED 3 NATIONAL NOMINEES LIMITED 4 UBS NOMINEES PTY LTD 5 IRISH GLOBAL EQUITY LIMITED 6 RG CAPITAL MULTIMEDIA LIMITED 7 BRISPOT NOMINEES PTY LTD 9 CH GLOBAL PTY LTD 10 WARBONT NOMINEES PTY LTD 11 IRISH GLOBAL EQUITY LIMITED 12 MR FELICE TESTINI 8 J P MORGAN NOMINEES AUSTRALIA PTY LIMITED 13 MERRILL LYNCH (AUSTRALIA) NOMINEES PTY LIMITED 14 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED – A/C 2 15 RG CAPITAL MULTIMEDIA LIMITED 16 BNP PARIBAS NOMS PTY LTD 17 BETA GAMMA PTY LTD 18 MRS ANTONIA CAROLINE COLLOPY 19 NEWECONOMY COM AU NOMINEES PTY LIMITED 20 RG CAPITAL MULTIMEDIA LIMITED Units 20,683,612 14,249,644 % of issued capital 23.49 16.18 7,404,986 4,826,950 4,335,901 3,269,079 3,108,083 2,898,965 2,548,301 1,830,166 1,667,025 1,630,102 1,409,963 1,162,149 1,159,020 1,064,474 830,000 788,637 611,920 511,945 8.41 5.48 4.92 3.71 3.53 3.29 2.89 2.08 1.89 1.85 1.60 1.32 1.32 1.21 0.94 0.90 0.70 0.58 Total 75,990,922 86.31 100 Enero Group Limited Annual Report 2022 Enero Group Limited Annual Report 2022 101

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