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comScoreFY23 ANNUAL REPORT 2 E G A P 3 2 0 2 Y F T R O P E R L A U N N A O R E N E +61 2 8213 3031 General - info@enero.com Investor Relations - IR@enero.com Level 2, 100 Harris Street Pyrmont NSW 2009 Australia CONTENTS Smarter, Stronger ................................................................ 4 Financial Report ................................................................ 47 A letter from our Chair ........................................................ 6 A letter from our CEO .......................................................... 8 Board of Directors ............................................................ 10 Financial Highlights ......................................................... 12 Geographical Results ...................................................... 13 Client Analysis ................................................................... 14 Brand Transformation ..................................................... 16 Creative Technology and Data ........................................ 30 Environmental, Social and Governance ....................... 38 Directors’ Report (including the Remuneration Report) ............................ 48 Consolidated income statement .................................... 67 Consolidated statement of comprehensive income .. 68 Consolidated statement of changes in equity ............ 69 Consolidated statement of financial position ............. 70 Consolidated statement of cash flows ......................... 71 Notes to the consolidated financial statements ......... 72 Directors’ Declaration ..................................................... 114 Independent Auditor’s Report ....................................... 115 Lead Auditor’s Independence Declaration .................. 123 ASX additional information ........................................... 124 Corporate Directory ......................................................... 125 E N E R O A N N U A L R E P O R T F Y 2 0 2 3 P A G E 3 4 E G A P 3 2 0 2 Y F T R O P E R L A U N N A O R E N E SMARTER, STRONGER Enero is a global creative and Each business within the Enero In addition, we support our leadership technology company delivering portfolio creates transformational teams through our functional Centres industry-leading brand marketing customer experiences. Our results are of Excellence in People and Culture, capabilities for a roster of blue-chip driven by a continued focus on our Finance and Technology, M&A and clients worldwide. We accelerate operating strategy, a relentless pursuit Legal services. the growth of our client’s business of excellence across our portfolio, and through integrated and modern- our world-class talent. This enables our businesses to build deep, effective, and enduring client relationships, with almost 50% of our marketing solutions, with specialist expertise across technology, healthcare, and consumer brands. Despite recent macroeconomic headwinds, and a challenging talent clients working with an Enero Group marketplace, we consistently attract brand for six years or more. Operating in 16 cities world-wide, and retain the right talent to deliver with over 700 employees, we have innovative solutions. Our high- the ability to deliver both integrated performance culture remains a core solutions at scale globally and deep strength and reflects our ongoing market expertise locally. commitment to delivering a diverse, As the market rapidly evolves, we’ll continue to diversify our portfolio and differentiated service offering to deliver on changing client needs. progressive, and creative workplace. We make clients smarter, stronger. E N E R O A N N U A L R E P O R T F Y 2 0 2 3 P A G E 5 A LETTER FROM OUR CHAIR 6 E G A P 3 2 0 2 Y F T R O P E R L A U N N A O R E N E Dear Shareholders, I am pleased to present Enero’s Annual Report for the financial year ending 30 June 2023 (FY23). Enero is a leading diversified portfolio of global marketing and communication businesses with deep expertise and world class capabilities. Our Group sits at the convergence of a rapidly-evolving global market that offers large-scale opportunities for future growth. Ongoing transformation underpinned growth in FY23 Our portfolio strategy has continued to transform Enero into a truly global business for the first time in the Group’s history, with over 70% of revenue now derived outside of Australia. In FY23, Enero continued to evolve its portfolio, global network, and capabilities with the acquisitions of ROI DNA and GetIT by the Hotwire Group. These acquisitions added scale in the United States, and expanded our presence into Asia. They also accelerated the transformation of Hotwire’s reputation, relationship, and revenue service offering into a truly global strategic proposition for clients as the pre- eminent global tech communications consultancy. We continued to deliver strong and sustainable EBITDA growth, albeit dampened by the challenging operating environment for the entire industry over the last 12 months. Net profit after tax declined, reflecting the reduction in earnings contribution of the agency businesses, offset by the growth of 51% owned OB Media along with higher amortisation and interest expense associated with acquisitions. • • • • Net Revenue increasing 25% with 3yr CAGR of 21% to $241.6 million EBITDA increasing 19% with 3yr CAGR of 39% to $78.8 million Net profit after tax before significant items decreasing 10% with 3yr CAGR of 24% to $24.4 million Earnings per share before significant items decreasing 15% with 3yr CAGR of 21% to 26.4 cents. Given a disappointing second half decline in Enero’s share price, the Board continues to believe that Enero remains undervalued relative to it’s financial performance and potential, and has instituted a number of key initiatives which will deliver ongoing value to shareholders in both the short and long term. Capital management strategy activated The Company’s strong balance sheet, combined with the Board’s focus on capital management, enabled Enero to activate an on-market share buyback during FY23. Enero’s clear capital management strategy reflects the Board’s ongoing commitment to delivering increasing shareholder returns, and confidence in the Group’s value and growth opportunities. Strong net cash position On top of the Group’s capital management strategy, Enero also retains financial flexibility through adequate cash reserves with net cash of $13.0 million at 30 June 2023. This enables us to pursue Enero’s long-term growth ambitions building on our momentum in Brand Transformation and Creative Technology and Data. FY23 dividend of 4.5 cents per share fully franked Reflecting Enero’s financial performance in FY23, strong balance sheet, and attractive growth opportunities, the Board declared total dividends for FY23 of 4.5 cents per share, fully franked. This equated to a 44% dividend payout ratio. Reinforcing management strength to deliver on growth opportunities Enero’s Executive Leadership team have continued to relentlessly focus on the execution of a clear strategic framework over FY23. This has put the Company in a strong position to continue its growth trajectory in FY24. The Board was delighted to extend our CEO Brent Scrimshaw’s employment contract for another three-year term, enabling him to continue leading the transformation strategy that has been successfully executed to date. Attractive growth potential Enero operates in attractive global marketplaces, and given the successful transformation program being executed on, the Board believes that Enero has more robust and diverse capabilities than ever before. Our portfolio of businesses remain strong, with enormous growth potential in the markets that matter. Enero is a distinctively positioned creative technology company driving reputational and commercial growth for global businesses, including many well-known brands. This market position underpins the growth we expect to see going forward. In conclusion, I would like to thank my fellow Board members for their ongoing effort and expertise. On behalf of the Board, I would also like to thank the talented and tireless Executive Leadership team for their continued dedication and commitment to our business, as well as our talented employees for their resilience and commitment to our clients throughout FY23. Lastly, to our loyal shareholders, thank you for your continued support and belief in our long-term vision and strategy for the Group. E N E R O A N N U A L R E P O R T F Y 2 0 2 3 P A G E 7 Yours sincerely, Ann Sherry AO Chair A LETTER FROM OUR CEO 8 E G A P 3 2 0 2 Y F T R O P E R L A U N N A O R E N E Dear Shareholders, On behalf of the entire team, I am pleased to report Enero’s continued growth in FY23. Despite the challenging global macroeconomic environment, FY23 continued the group’s track record of growth, profitability, and portfolio transformation over the past three years. Enero’s FY23 financial results reflected the continued focus and refinement of our operating strategy, as well as the dedication and commitment of our global team. I want to thank all our 700+ exceptional staff in our 16 offices around the world for their ongoing commitment, resilience, and determination throughout a challenging FY23. Our people and capability investments in OBMedia delivered significant returns, and we continued to progress the integration and identification of revenue synergy opportunities for the ROI DNA and GetIT acquisitions as a part of our global Hotwire Group. In addition, CPR and Orchard delivered a solid full-year performance in Australia, while BMF posted another strong year and further extended its capabilities and skill sets to receive global recognition for creativity, and effectiveness. Enero’s deep and enduring client relationships, world-class talent, and strategic relevance of our market-leading capabilities underpin our business success. We will continue to capitalise on our brand transformation agendas for forward-thinking clients worldwide. Delivering continued growth despite challenging market conditions In FY23, macroeconomic headwinds impacted marketing spend globally. Like other marketing and communications businesses, Enero was not immune to these factors. These headwinds combined with client restructuring led to a more conservative approach to decision making which resulted in some delayed project timelines or scope reduction. To address this, Enero accelerated towards a leaner, differentiated offering across each of our brands, managing near-team margins through significant cost- savings and head count reduction. We also continued to focus on growth and the integration, acceleration, and experimentation with new technology - such as AI - to position us for future success. Our two operating segments – Creative Technology and Data and Brand Transformation - serve the high- growth global verticals of technology, healthcare, and consumer. The Creative Technology and Data segment grew net revenue by 31% to $113.5 million. OBMedia continued to deliver growth through traffic diversification and ongoing technology investments, despite proactively reducing its traffic purchases in Q4 from select publishers to maintain quality metrics. Orchard experienced softening in the U.S. health segment and delivered a solid overall performance in Australia. The Brand Transformation segment grew net revenue by 20% to $128.2 million. Despite a challenging technology sector globally, the Hotwire Group benefited from the acquisitions of ROI DNA and GetIT from 1 July 2022 as we continued to transform Hotwire’s business through its reputation, relationship, and revenue service offering. BMF further diversified, invested, and grew E N E R O A N N U A L R E P O R T F Y 2 0 2 3 P A G E 9 its customer experience, innovation, and technology capabilities, and received three Australian Agency of the Year accolades and two coveted Cannes Lions awards. Highlighting the value that our deep expertise delivers; we have continued to win across our portfolio. Throughout FY23 we extended our relationship with one of our longest-standing clients, ALDI Australia, and added new and progressive clients across our global portfolio including Tennis Australia, Honeywell, Afterpay, Turo, Cloudera, QBE, BeiGene, and Janssen. The market’s rapid evolution creates growth opportunities for Enero As the market rapidly evolves, Enero is well placed to further grow by anticipating changing clients’ needs and delivering a differentiated, innovative, and market- leading services offering. Our unique culture continued to enable us to attract the right talent to deliver Enero’s competitive advantage. In FY23, we made significant progress towards achieving a number of key milestones along our transformational journey, such as: • • 31% of our revenue now comes from clients who have relationships with more than one Enero Group brand, providing us with more opportunities to engage with our clients and drive stickier reoccurring revenue. While spend slowed in the current year due to the economic outlook, our two acquisitions contributed to the largest share of revenue for Enero, which is now the Technology sector at 42%, predominately in the B2B segment. We believe this to be a significant further growth opportunity. Developing the right ESG framework to underpin sustainable long term growth During FY23, we began to create our first ESG framework covering the critical areas most material to our business – diversity, equity, inclusion and belonging (DEIB); learning and development; employee health and wellbeing; community and industry impact; and environmental stewardship. Our first ESG audit has established a critical baseline to inform development of measurable goals and enabled us to build a plan to achieve them. Thank you. In closing, I would like to express my appreciation to the executive team, and my gratitude to Enero’s Board, led by Ann Sherry AO, for its ongoing counsel and guidance as we continue to pursue our global growth ambitions. Finally, and most importantly, I would like to thank you, our shareholders, for your continued support and confidence in Enero’s strategy and our talented people worldwide. Our robust portfolio of businesses, long-term operating strategy, and implementation of ESG initiatives, puts Enero in a strong position to continue our sustained success and growth trajectory as macroeconomic pressures ease. Yours sincerely, Brent Scrimshaw Chief Executive Officer BOARD OF DIRECTORS 0 1 E G A P 3 2 0 2 Y F T R O P E R L A U N N A O R E N E ANN SHERRY AO 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 the Chancellor of Queensland University of Technology, Chair of UNICEF Australia, Chair of Port of Townsville and Chair of Queensland Airports Limited. Ann is the former Chair and was CEO of Carnival Australia for a decade. Prior to that, Ann was at Westpac for 12 years, as 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 SCRIMSHAW CHIEF EXECUTIVE OFFICER 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 DARLING INDEPENDENT NON-EXECUTIVE DIRECTOR 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 recognised as one of Australia’s leading brand builders, with strategic digital, technology and marketing capability. Anouk is also a reputable business leader with private equity and M&A experience having worked with Allegro Funds as an operating partner over a four year period. Anouk is currently serving as Non-Executive Director of South Australian based Discovery Holiday Parks, owned by the Australian Retirement Trust. Previous board roles held include ASX-listed Macquarie Telecom (ASX: MAQ). Anouk is currently CEO of Scape, Australia’s largest developer, owner and operator of Purpose- Built Student Accommodation. Anouk’s commitment to better living experiences is further supported by her work as board member of the Property Council of Australia and Chair of the Student Accommodation Council. E N E R O A N N U A L R E P O R T F Y 2 0 2 3 P A G E 1 1 IAN 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), Dulux Group 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 Managing Director, Suncorp Integration at ANZ. 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. Louise has a diverse, non-executive career from Commercial Radio Australia, Visit Victoria, Qudos Bank, Canteen Australia and Enero Group Limited. 2 1 E G A P 3 2 0 2 Y F T R O P E R L A U N N A O R E N E FINANCIAL HIGHLIGHTS Net Revenue up 25% EBITDA up 19% $241.6m $78.8m GEOGRAPHICAL RESULTS Enero has offices around the world, with affiliates in key markets where we have client relationships. London Madrid Paris Milan Munich Frankfurt Amsterdam Shanghai Seoul Taipei Jakarta Singapore Kuala Lumpur Bangalore Tokyo Hong Kong Beijing EBITDA margin down 2ppts 33% Earnings per share before significant items down 15% 26.4cps Net profit after tax before significant items down 10% $24.4m San Francisco New York Chicago Houston Minneapolis Sao Paulo Dubai Sydney Melbourne FY23 dividends Reflects 51% economic interest in OBMedia 4.5cps USA UK and Europe Australia and Asia 52% Net Revenue FY23 16% Net Revenue FY23 32% Net Revenue FY23 36% Net Revenue FY22 22% Net Revenue FY22 42% Net Revenue FY22 73% EBITDA FY23 7% EBITDA FY23 20% EBITDA FY23 55% EBITDA FY22 16% EBITDA FY22 29% EBITDA FY22 E N E R O A N N U A L R E P O R T F Y 2 0 2 3 P A G E 1 3 4 1 E G A P 3 2 0 2 Y F T R O P E R L A U N N A O R E N E CLIENT ANALYSIS Revenue Diversification Technology and Telco Digital Media Enero revenue is diversified across both industry and geography. Our largest share of revenue came from the Technology and Telco sector at 42%, predominately in the B2B segment, and has grown significantly due to the ROI DNA and GetIT acquisitions. Other key areas of strategic focus include Digital Media (24%), Retail (11%) and Healthcare (8%). Over 70% of our revenue is now delivered outside of Australia. In FY23 our revenue growth was delivered across both of our segments with Brand Transformation, up 20%; and Creative Technology and Data, up 19% in net revenue (economic interest) year on year. Our agency revenue model is diversified with a 42:58 project and retainer split in FY23 across agencies. Our focus on delivering relevant services across our agency brands and cross-selling services has led to 31% of our revenues now derived from clients with relationships across more than one Enero brand. 42% Retail 11% Services 7% Finance 3% Other 1% 24% Health Care 8% Transportation, Airlines and Auto 3% Consumer Goods 1% Reflects 51% economic interest in OBMedia E N E R O A N N U A L R E P O R T F Y 2 0 2 3 P A G E 1 5 BRAND TRANSFORMATION 6 1 E G A P 3 2 0 2 Y F T R O P E R L A U N N A O R E N E E N E R O A N N U A L R E P O R T F Y 2 0 2 3 P A G E 1 7 FY22 $106.7m FY23 Net Revenue up 20% $128.2m FY22 $27.8m FY23 EBITDA down 21% $22.1m FY22 26% FY23 EBITDA margin down 9ppts 17% AWARD-WINNING IDEAS THAT TRANSFORM CREATIVITY, CAPABILITY AND RELATIONSHIPS 8 1 E G A P 3 2 0 2 Y F T R O P E R L A U N N A O R E N E Brand Transformation drives business success by creating thoughtful, distinctive ideas that deliver long-term business outcomes for our clients. Our Brand Transformation businesses include BMF, the Hotwire Group (which owns ROI DNA and GetIT), and CPR. Each team specialises in brand transformation that delivers effective, market-leading business solutions. These solutions drive enhanced reputation, customer and consumer relationships, and ultimately create revenue for our clients and meet their rapidly changing needs. Transformation through creativity BMF drives Brand Transformation by creating culturally-resonate, effective and enduring creative ideas for some of the world’s most recognised brands. Through its philosophy of ‘The Long Idea’, BMF curates world-class advertising across broadcast, social, out-of-home, radio, and digital channels, and delivers commercial success and effective creativity at scale. Hotwire delivers Brand Transformation for some of the world’s most prominent technology clients through its Reputation, Relationship and Revenue services framework. Hotwire positions brands at the forefront of innovation by creatively transforming business analytics and customer data into integrated, narrative- driven communications. From captivating, creative media campaigns to influential thought leadership and performance marketing capabilities, Hotwire ignites transformational business outcomes for its global client base. In addition, ROI DNA, as part of the Hotwire Group, offers transformative, online B2B, demand- generating campaigns. CPR has a creative approach to driving transformation, building reputation, growing brand recognition, and raising awareness about issues that matter. Its unique expertise and talent pool spanning media advisory, former journalists, and political and ministerial advisers, has seen the business work with high- profile clients to promote, protect, and position their organisations, people and services. E N E R O A N N U A L R E P O R T F Y 2 0 2 3 P A G E 1 9 Transformation through market-leading capabilities and relationships BMF and its team of 155+ thinkers, doers and makers, use a combination of behavioural economics, neuroscience, communications strategy, design, high-quality production and customer experience capabilities to create deep and trusted relationships between brands and their customers. BMF delivers transformational and iconic long-term brand advertising for clients including ALDI Australia, Tourism Tasmania, The Australian Government, Tennis Australia, TAL, Afterpay, the Department of Social Services, Abbott’s, Tip Top and many more. Hotwire specialists create meaningful relationships for blue-chip tech clients and their customers globally. With an extensive network of relationships with media, influencers, analysts and target accounts, Hotwire drives engagement through performance marketing and strategic and culturally resonant reputational topics like diversity, equity and inclusion, ESG, AI, technology, and the future of work. In addition, GetIT was successfully integrated into the Hotwire brand, bolstering its Asia-Pacific capabilities and presence, while ROI DNA offers a revenue-accelerating suite of services to some of the world’s most significant technology companies, helping further extend and transform Hotwire’s capabilities in North America. Hotwire works with global brands such as Google Cloud, Adobe, Amazon, Gumtree, Honeywell, Telekom Malaysia and more. BMF’s award-winning behaviour change campaign for the Department of Social Services Transformation that is globally acclaimed BMF is consistently recognised for being one of the world’s most effective creative agencies, having won over 65 awards from across the globe in FY23 alone, including B&T’s Branding, Design and CX Agency of the Year; AdNews Overall Agency of the Year; AdNews Creative Agency of the Year; two coveted Cannes Lions Awards; Effie Australia’s Most Effective Retail and FMCG Campaign of the Year; as well as awards from D&AD, LIA Awards, Spikes Asia and more. Hotwire has been recognised with both campaign and agency awards, including Ragan Communications and PR Daily’s Midsize Agency of the Year and Campaign of the Year, together with PRovoke Media’s Award for Diversity, Equity & Inclusion initiative. CPR drives transformation through three core disciplines and capabilities: Issues Management, Government Relations and Public Relations. CPR leverages these key capabilities to create meaningful relationships and engagement in complex regulatory conversations that attract political and public scrutiny. 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, investment in local rapid antigen test production, through to air purifier procurement to support a safe return to school and work. CASE STUDY TOURISM TASMANIA’S OFF SEASON: HOW ANTI-ORDINARY THINKING DROVE ANTI-ORDINARY RESULTS 0 2 E G A P 3 2 0 2 Y F T R O P E R L A U N N A O R E N E Challenge In 2019, we were tasked with broadening the appeal of Tasmania without diluting its character. And by 2020, we had launched the highly successful ‘Come Down for Air’ brand platform which positioned Tasmania as a response to a deeply ingrained cultural need: respite from the constraints of modern life. The next step in our journey was to tackle Tourism Tasmania’s biggest challenge – enticing people to come down for air in winter. But, just as people were feeling safe enough to travel in Australia in a post-COVID era, a sharp drop in consumer confidence driven by rapidly rising interest rates and increases in the cost of living, meant financial uncertainty became the number one barrier cited for not travelling*. *SOURCE: Tourism Australia Domestic Travel Sentiment Tracker – June 2022. So, BMF needed to inspire Australians to believe that Tasmania is the best place to refuel their soul in winter. We had to drive an increase in visitor numbers, along with the duration of stay and visitor spend. Strategy Australia is ‘the summer country’. We are culturally hardwired to chase the sun, so winter holidays typically mean a migration north to warmer climates or, for a minority, to the snow fields. The challenge was how to shift cultural attitudes to winter. BMF needed to disrupt the consumer journey to break people out of their default winter holiday preferences. In line with the spirit of Come Down for Air, we wanted people to view a winter holiday in Tasmania as a unique opportunity to refresh one’s soul. that Tasmanians do it properly. Log cabin cosiness, hot alcoholic beverages by fires and frosted snowy wonderlands. We weren’t trying to sell a winter holiday; we’re trying to sell a wintery holiday. BMF positioned the ‘Air’ we’d like you to come down for as stimulation, rather than vegetation. Tassie as the defibrillator from the winter coma, the electric shock therapy for ‘winter brain’. Feeling exalted, confused, content, challenged, but always feeling something. A winter spent wide-eyed, not half asleep. Execution Winter is when Tasmania lets its hair down and its idiosyncrasies truly shine. A bit weird, wild, and woolly, it’s especially different, a bit ‘off’. It was time to invite mainlanders to join us and wake up their winter with the perfect antidote. Or, as we like to put it, The Off Season. A long-term platform for Tasmania’s winter tourism experience and annual winter campaign. To reflect the distinctiveness of our destination, the integrated campaign flips expectations with relish - embracing the cold instead of escaping it, and going wild when everyone else is hibernating, illustrating our anti-ordinary spirit on all levels: Out of Home, Digital Out of Home, Video on Demand, Social, Cinema, Content Partnerships, Display, and Audio. Channel choice, executions, and experiences were specifically targeted to our audience. Rather than spread ourselves too thin over a broad channel mix, we took- over our target’s lives by owning a channel and the experiences we built within it. We were able to explore more innovative uses of channels as the campaign was brought to life in unexpected places and ways. We know winter is when Tasmania is most different to the mainland. It’s predictably colder but because of The Off Season seeded the communication in culture in ways that were impossible to overlook. E N E R O A N N U A L R E P O R T F Y 2 0 2 3 P A G E 2 1 T H E O FF FF T H E O S E A S O N S E A S O N Results that occurred during the months of May – August 2022 (cannot be directly attributed to the campaign) Visitor numbers increased by 7% compared with the same period in 2019 (pre covid). Visitor nights increased by 24% compared with the same period in 2019 (pre covid). Visitor spend increased by 102% compared with the same period in 2019 (pre covid). 2 2 E G A P 3 2 0 2 Y F T R O P E R L A U N N A O R E N E CASE STUDY HONEYWELL: REPUTATION, RELATIONSHIP AND REVENUE DELIVER GROWTH AMBITIONS Challenge Relationship Results There were many milestone results throughout the campaign, including increased awareness of Honeywell with target prospects and engagement with the Honeywell content produced. There were meetings booked and presentations delivered to c-level executives within the accounts, as well as a revenue pipeline of new opportunities. Honeywell came to Hotwire with a growth challenge. Their marketing teams needed to build relationships with an important list of prospective leads from brands and businesses in the retail sector. While Honeywell was facing aggressive competition, they knew they had the right solutions to meet the needs and address the challenges these retail companies were facing. To strategically grow Honeywell’s position and opportunity pipeline, an account-based marketing approach was developed to reach key buyer personas in a credible, impactful way, that would ultimately build reputation and relationships for the long term. Reputation With a list of strategic target accounts including Walmart, Hotwire developed a two-part approach that would build Honeywell’s reputation and leadership position: 1. Building Honeywell’s reputation within the retail sector to target accounts and audience. 2. Supporting commercial leads by building their individual reputation within the sector and within their target accounts and audience. To do this, we created a multi-channel strategy using thought leadership content including a partnership with retail influencer Steve Dennis. Content that took advantage of Steve’s deep retail experience and included shared videos and conversations was developed. The two-part approach ultimately led to elevating Honeywell and their commercial leads’ reputation across multiple platforms. In the relationship wave, Hotwire extended content that directly spoke to the pains and challenges of the target accounts and delivered paid media programs across LinkedIn and content syndication. In addition, Hotwire worked with the Honeywell sales teams to update their LinkedIn profiles and thought leadership platforms and aligned them to the campaign content. Regular content updates with new insights continues to spot emerging opportunities for commercial leads and target strategically important accounts. Revenue From increasing reputation, developing relationships within the target accounts, to reaching the target audience, Hotwire supported Honeywell’s commercial leads by converting them into opportunities. Hotwire used personalised content and assets to generate revenue growth whilst also increasing growth across different lines of business. EMPOWER YOUR RETAIL FUTURE 5 ways Honeywell can support you in shaping your own future. START THE JOURNEY We always came back to the first challenge – growth – and by activating a full reputation, relationship and revenue campaign, the team achieved 281% over the revenue target for the program, which was a record result. The campaign also went on to win the ITSMA Marketing Excellence Gold Award and The Drum B2B Award. E N E R O A N N U A L R E P O R T F Y 2 0 2 3 P A G E 2 3 CASE STUDY TELEKOM MALAYSIA: CLOUD ALPHA ASIA 4 2 E G A P 3 2 0 2 Y F T R O P E R L A U N N A O R E N E Challenge Telekom Malaysia One (TM One) is the business-to- business (B2B) arm of Telekom Malaysia Berhad, the largest telecommunications provider in Malaysia. TM One engaged Hotwire Asia to design and deliver a revenue pipeline generation campaign for its new cloud platform, Cloud Alpha. Due to its legacy as a traditional telco, TM One needed to change its perception among enterprises, and position ‘Cloud Alpha’ as a viable alternative cloud platform with solutions and services on par with global cloud technology providers such as Amazon Web Services (AWS), Google Cloud and Microsoft Azure. To accomplish this, TM One had to generate a healthy sales pipeline through content marketing, lead generation and nurturing relationships with customers. While most B2B organisations rely on traditional marketing channels such as print, radio, out-of-home and events for brand building and lead generation, TM One’s channel strategy had to shift from omni- channel to omni-digital due to the pandemic and the rise of hybrid working culture. Strategy To develop a data-driven B2B marketing strategy, Hotwire Asia worked with IDC (International Data Corporation) and data and research company Kantar, to produce a cloud market research report. The report helped identify the opportunities and challenges that each of TM One’s target industries faced and their differing needs, including the target audience’s journey to the cloud. The primary target audience was IT decision-makers within large enterprises and the public sector, who were looking to overcome the barriers to cloud adoption and accelerate their digital transformation initiatives. The key challenges faced when appealing to this target audience were: 1. Standing out as a new player in a crowded market. 2. Competing with the brand power of global companies such as AWS, Google Cloud and Microsoft. 3. Convincing IT decision-makers (ITDMs) of the benefits of a cloud solution from a telco provider. Execution To stand out in a competitive and crowded enterprise cloud market, Hotwire Asia developed a content-driven lead generation and nurturing plan, personalised for IT and business decision-makers in the target verticals. The content plan profiled real decision-makers from each vertical and plotted relevant content topics into a touchpoint map that could be automated in the marketing automation tool. This ensured every lead was nurtured throughout their buyer journey. Suitable digital channels such as Search Engine Marketing, LinkedIn, and IT publications, were identified to ensure that the content reached the right decision-makers in the right companies. Hotwire Asia implemented a data lake to aggregate data from the campaign web analytics, CRM (customer relationship management) tools, and marketing automation, to give an unprecedented real- time view of prospect profiles, lead progression, media performance, cost per conversion and the contract values from the generated opportunities and reporting to a custom dashboard. Results Within a year, the Cloud Alpha campaign generated: 195% growth in campaign website traffic 22,000 marketing qualified leads 27% increase in the sales funnel 173% increase in YoY marketing- attributed revenue E N E R O A N N U A L R E P O R T F Y 2 0 2 3 P A G E 2 5 6 2 E G A P 3 2 0 2 Y F T R O P E R L A U N N A O R E N E CASE STUDY A 400% PIPELINE INCREASE FOR A NATIONAL DATA CENTRE PLATFORM Challenge Strategy Flexential, a national data centre provider offering hybrid IT services, approached ROI DNA after experiencing months of underperformance with their previous partner. They sought a strategic agency to develop a go-to-market (GTM) strategy that could achieve their business and pipeline goals. Flexential looked to ROI DNA also as a collaborative partner that could support emerging opportunities within the hybrid IT landscape. The request was to develop a paid media GTM strategy to differentiate and market their solutions which included: • colocation • interconnection • cloud • data protection ROI DNA began collaboration with Flexential to understand its offering and service distinctions. From there, the strategy was to enhance brand messaging, expand tactics to new channels, increase awareness through brand campaigns, and implement a full-funnel approach weighted towards lead generation. They also conducted a comprehensive overhaul of the search engine marketing (SEM) architecture to generate predictable qualified leads. Execution To kickstart predictable growth into hyperdrive, ROI DNA crafted a scalable GTM and paid media strategy that included: • paid media channel, SEO and MarTech audits • competitive analyses • brand positioning • content and messaging reviews • paid media recommendations They used paid media platforms like Google, Bing, The TradeDesk, Linkedln and Demandbase and yielded impressive pipeline growth. Results ROI DNA’s work with Flexential provided record results for the national data centre platform: 200%+ increase in MQL1 250%+ increase in SQL2 400%+ increase in the pipeline The success of the GTM strategy and paid media execution grew ROI DNA’s partnership with Flexential and today includes SEO, creative and copywriting retainers; Drift strategy; email nurture strategy; and a web redesign. By developing a strategic go-to-market strategy, enhancing brand messaging, and implementing a full-funnel approach, ROI DNA’s collaborative work set Flexential back on track to hit business goals and resulted in an expanded partnership. E N E R O A N N U A L R E P O R T F Y 2 0 2 3 P A G E 2 7 1 Marketing Qualified Lead 2 Sales Qualified Lead CASE STUDY SUPPORTING AUSTRALIAN COMPANIES TO BUILD TRUST WITH NEW GOVERNMENTS AND ATTRACT INVESTMENT 8 2 E G A P 3 2 0 2 Y F T R O P E R L A U N N A O R E N E Challenge The last 12 months have seen significant shifts across Australian politics, with a change of government federally and elections at a state level in Victoria and NSW. New governments in Canberra and in NSW, as well as a significantly reshaped Victorian ministry, have created challenges and opportunities to form new relationships with key decision-makers who influence government investment decisions and policy outcomes. These changes have been compounded by a contracted posture to government spending caused by the COVID-19 pandemic and international financial instability. CPR’s non-partisan approach to government relations has supported our clients to work productively with the Albanese Government, as well as in Victoria and NSW, to build profile, develop trust and ultimately to capitalise on these challenges and deliver outcomes. Strategy CPR worked with clients in the lead up to the federal and state elections to develop relationships and align investment requests to the priorities of potential government parties. Understanding that both health and investment attraction would be major election issues across jurisdictions, CPR supported clients to strategically present their proposals in an election context. This work included advising Australia’s only cross-border health service to obtain a joint $558m investment from the Victorian and NSW governments to develop a single site hospital. The announcement, attended by both the Victorian and NSW Premiers, occurred one month prior to the Victorian Election. CPR also advised one of Australia’s largest medical research institutes to ensure their inclusion in the $6b redevelopment of the Royal Melbourne Hospital. Ahead of the NSW Election, CPR worked with long- term client, the UFC, to present a $16m proposal to host three major UFC events in Sydney over four years. The deal was announced by the then NSW Opposition Leader as an election commitment and has subsequently been funded by the Minns Government within their first 100 days in office. Execution Changes in Australia’s federal government are relatively rare, with only 14 changes of government since federation. The election of the Albanese Government in 2022 meant that CPR’s large, federally-focused government relations clients had to establish themselves, their reputations and capability with a new group of decision-makers at the highest level of Australian government. CPR worked with some of Australia’s most respected organisations to support their strategy and approach. This occurred within a competitive environment and at a time when many stakeholders were vying to capture the attention of the new government and influence their early commitments. CPR has supported Dementia Australia for more than a decade. Since the change of federal government, CPR has worked with Dementia Australia to facilitate major events online and at Parliament House to raise awareness of the organisation and its priorities with the new government and parliamentarians. In 2022 CPR assisted headspace, Australia’s National Youth Mental Health Foundation, to build awareness of their service on headspace Day by ensuring the participation of 109 members of federal parliament (approximately 50 percent) to post their support for youth mental health on social media. This included posts from key Ministers, Opposition MPs and Crossbenchers. Results CPR supported government relations clients to engage with new governments and ministers at a time of significant change in Australian politics leading to strong and trusted relationships and more than $1.5billion in funding across key sectors including health and investment attraction. E N E R O A N N U A L R E P O R T F Y 2 0 2 3 P A G E 2 9 CREATIVE TECHNOLOGY AND DATA 0 3 E G A P 3 2 0 2 Y F T R O P E R L A U N N A O R E N E E N E R O A N N U A L R E P O R T F Y 2 0 2 3 P A G E 3 1 FY22 $86.7m FY23 Net Revenue up 31% $113.5m FY22 $49.5m FY23 EBITDA up 38% $68.4m FY22 57% FY23 EBITDA margin up 3ppts 60% DELIVERING EXPERIENCES THROUGH TECHNOLOGY AND DATA 2 3 E G A P 3 2 0 2 Y F T R O P E R L A U N N A O R E N E Creative Technology and Data uses technology-enabled solutions, informed by data science, to creatively connect brands to their customers and deliver high-quality experiences and lead generation for businesses. This melding of world-class creative ideas, proprietary data, and technology, enables Orchard and OBMedia to deliver effective business results. Connecting experiences Orchard’s expert team of strategists, medical writers, behavioural scientists, tech architects, learning experts and creatives, pioneer innovative ways to experience everything, finding ways to invent better, whether it’s by creating new ideas or making old ones better. As Australia’s leading healthcare agency, Orchard curates experiences designed for every stage in the healthcare journey, from connecting pharmaceutical companies with clinicians, or building new technology that helps to break down the barriers between a patient and their clinician. Orchard’s consumer division also delivers end-to-end digital customer experiences, whether that is buying a IONIC5 from Hyundai, or helping tourists discover the best that Tasmania has to offer. E N E R O A N N U A L R E P O R T F Y 2 0 2 3 P A G E 3 3 Connecting innovative technologies and data Connecting business outcomes and recognition OBMedia’s media buyer network harnesses data science in partnership with the world’s largest search engines to acquire, qualify and monetise high-intent customers on behalf of advertisers. Their increasingly scaled audience procurement and their ongoing focus on traffic optimisation and conversion, allows them to deliver significant ROI for advertisers. Orchard’s channel-agnostic team continues to invest in critical business growth areas in data analytics, with their deep specialisation encompassing key platforms such as Salesforce, Adobe, Kentico and Optimizely. Orchard delivers a unique business transformation approach for brands who want a consultancy mindset but also the delivery efficiencies that technology and data can provide. Orchard continued to see industry recognition throughout FY23, taking home Optimizely’s Asia Pacific Rising Star Solution Partner of the Year, while winning new pharmaceutical clients BeiGene and Janssen. OBMedia continues to be recognised by our search engine partners as a high-quality traffic acquisition and conversion partner. OBMedia continues to invest in optimisation technology, experiment with artificial intelligence and enhance its data science credentials with a focus on delivering traffic quality. CASE STUDY CHANGE TO SANOFI: CATCH THE CULPRIT 4 3 E G A P 3 2 0 2 Y F T R O P E R L A U N N A O R E N E Challenge Execution Results Recognising rare diseases early is critical, as often there are treatments that can manage them and their symptoms. However, because of their rarity, healthcare professionals often have little to no understanding of which symptoms to look out for in patients. Strategy Behavioural science tells us that the most powerful way for people to learn something is through doing (active learning), rather than just reading or watching a video. We took an active learning approach to rare diseases, with an aim to “Make the rare, un-rare” by providing a lived, first-hand experience of making a rare disease diagnosis to a wider clinician audience. “Catch the Culprit” was an emotive, first-person set of interactive case studies that gave clinicians the end-to- end experience of managing and diagnosing a patient living with a rare disease. It tapped into a specialist’s natural intellectual curiosity and the satisfaction derived from diagnosing complex cases. Immersing the specialist in a first-person consultation room helped to establish a personal connection with their virtual patient, meaning the specialist would be more likely to recall this experience in the future and, therefore, more likely to diagnose a patient presenting with relevant symptoms. The specialist could decide how they interacted with each patient, what tests they would order, and what they would suggest in terms of diagnosis and management. If the specialist incorrectly diagnosed the patient, the patient returned for a follow-up appointment. The patient had aged slightly and their symptoms had progressed, allowing the specialist to experience first-hand how their patient was dealing with a difficult, painful, gradual decline in health. As the years ticked over, the aging patients became increasingly desperate for an answer, a powerful indicator of the need for early diagnosis. Initial results indicate that “Catch the Culprit” has achieved uninterrupted engagement with our clinician audience using this innovative, unique, and creative method. In the first two weeks of the campaign alone: >100 specialists had already attempted to “Catch the Culprit”. 100% of those that completed a case chose to continue watching medical education about the rare diseases provided by an expert in the field. Involved Feedback On average, each specialist viewed nine video clips and performed 25 interactions, demonstrating heavily involvement in the diagnosis process. from the specialists was outstanding, with one saying: “This is an exciting approach to education, I hope many of my colleagues take the opportunity to try it out”. E N E R O A N N U A L R E P O R T F Y 2 0 2 3 P A G E 3 5 Catch the Culprit CASE STUDY POWERING DIGITAL ADVERTISING GROWTH THROUGH ADTECH 6 3 E G A P 3 2 0 2 Y F T R O P E R L A U N N A O R E N E 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. 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. 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: Leading optimisation technology Providing the most relevant ads for target audiences Unmatched fraud monitoring Filtering 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 detection rates and trusted status with key partners. Results OBMedia delivered outstanding results for advertising partners in FY23, with a 160% increase in consumers delivered to advertisers: 160% delivery increase, compared to FY22 E N E R O A N N U A L R E P O R T F Y 2 0 2 3 P A G E 3 7 ENVIRONMENTAL, SOCIAL, GOVERNANCE 8 3 E G A P 3 2 0 2 Y F T R O P E R L A U N N A O R E N E E N E R O A N N U A L R E P O R T F Y 2 0 2 3 P A G E 3 9 In FY23, we continued to see an increase in our clients’ prioritisation of Environmental, Social and Governance (ESG) initiatives into their business strategy. This acceleration was largely driven by new government mandates and regulations around climate reporting and growing demand from investors, employees and customers for greater transparency around ESG initiatives. At Enero, we too doubled down on our commitment and focus on ESG in our business operations and through our network’s client services. Within our operations, we began to set a framework focused on the areas that deliver the most material on our business and people, namely Diversity, Equity, Inclusion and Belonging (DEIB); learning and development; employee health and wellbeing, community and industry impact and environmental stewardship. As part of the strategic planning process, in FY23, we initiated our first ESG audit to establish a baseline for developing measurable goals and an action plan to achieve them. We expect to complete the audit process and planning integration in mid-FY24 and look forward to sharing our plan and progress over time. In FY23, we continued to progress ESG in different ways across each of our businesses. For example, Hotwire launched a new set of ESG Communications Consulting Services as part of their core advisory offering, to help more Hotwire clients effectively communicate their ESG initiatives to key stakeholders. On the following pages you’ll find a summary of other ESG highlights for this past fiscal year. ENVIRONMENTAL, SOCIAL, GOVERNANCE (CONTINUED) 0 4 E G A P 3 2 0 2 Y F T R O P E R L A U N N A O R E N E Environmental In January 2020, Enero set an Environmental Policy which outlined our commitment to being an environmentally responsible company in support of programs and business practices that minimise negative impacts on the environment. The policy also established an overall set of objectives for improved environmental performance. Three years later, we saw an opportunity to elevate our commitments. To this end, in late FY23, we engaged a sustainability consultant to work with us to collect data around our Scope 1, 2 and 3 emissions and measure our global footprint across carbon emissions, energy use, waste and water across the Group. With this information we will be able to set measurable goals to reduce our environmental impacts and align those with the ESG strategy in FY24. In addition to our environmental audit, we continued to identify ways to increase our environmental responsibility as a business. One example is the decision by Hotwire to remove all servers from every office in the US and 80% of the servers in Europe, moving to SaaS-based services and data centres. In addition to cost savings reasons, Hotwire’s decision to centralise server infrastructure in data centres allows them to take advantage of economies of scale, which will greatly reduce the energy consumption and carbon emissions associated with in-house servers. E N E R O A N N U A L R E P O R T F Y 2 0 2 3 P A G E 4 1 Diversity, Equity, Inclusion and Belonging Through our network, we prioritise DEIB in our recruiting and talent development, employee programs, training, benefits, partnerships and pro-bono work. Among the DEIB highlights for FY23, Enero proudly received official accreditation from Reconciliation Australia (RA) for our Reflect Reconciliation Action Plan (RAP). As an organisation deeply committed to reconciliation with Australia’s Aboriginal and Torres Strait Islander people, Enero’s RAP aims to nurture, develop, and encourage the inclusion of Aboriginal and Torres Strait Islander creative talent, partners, and advisors in our own agencies, but more importantly to improve inclusion across our whole industry. Led by the Enero Chief People & Culture Officer, and an internal RAP committee, the RAP takes existing strategies, such as our CareerTrackers partnership and other important initiatives such as NAIDOC Week and National Reconciliation Week and furthers our commitment to understanding and recognising Aboriginal and Torres Strait Islander cultures. As part of the Enero partnership with CareerTrackers, in the past year we took on four interns that rotated across BMF and Orchard, leading to one being hired full time. Additionally, in FY23 members of the BMF team led a thought leadership session on “Brandsplaining, Bias & Blindspots” at Mumbrella360, Australia and New Zealand’s largest media and marketing conference, as part of the agency’s ongoing commitment to reducing and acting on harmful bias and sexism in the workplace. BMF was also recognised globally this past year for its pro-bono refugee awareness campaign, “The Reluctant Shanty”, for Australians for UNHCR. In FY23, BMF won a coveted Silver and Bronze Cannes Lions for the campaign which gave the 400-year-old genre of traditional folk songs – sea shanties – a new, powerful, modern relevance, by creating the first sea shanty based on real refugee survivor stories. The campaign was launched on TikTok by the fresh, global face of sea shanty music, UK #1 artist and TikTok megastar, Nathan Evans, on World Refugee Day. As well as raising much-needed funds and awareness for refugees, the campaign also received numerous awards in addition to the two Cannes Lions, including two Gold SMARTIE Awards for Social Impact Marketing and Social Activism. Hotwire issued their second annual DEIB Progress Report in late FY23, highlighting the work being done to create a more diverse workforce, advance a culture of inclusion and drive positive, lasting change in the industry. Among the highlights of this year’s report was the launch of Hotwire’s Empowered Societies. These eight employee-driven communities aim to reinforce their DEIB mission and goals internally by engaging U.S. team members to steer the agenda and ensure progress is made against the individual goals of each Society. Another FY23 highlight was the award-winning Hotwire Ignite Possibility Program (HIPP). Hotwire’s commitment to provide $1 million USD globally in pro-bono brand marketing and public relations services to tech and tech-enabled organisations led by or supporting underserved communities. The goal of HIPP is to help ensure organisations who are advancing diversity, equity, and inclusion through leadership and technology innovation, have the support they need to scale and succeed in today’s competitive tech sector. In FY23, HIPP ran campaigns throughout the US, UK, Spain, France, Australia and Germany. In the US HIPP was the winner of the PRovoke Innovation SABRE North America “Diversity, Equity & Inclusion Initiative” Award. Social The social pillar of our ESG initiatives is core to our business success. As a service business, our success is delivered by the people that make up our diverse and global workforce, working in partnership with our clients, communities and industries. We have a long-standing and deep commitment to supporting the development and wellbeing of our employees by creating a culture of belonging and inclusivity which celebrates diversity and empowers every individual to thrive. Our hiring managers undertake interview training to ensure that candidates are being assessed fairly and that our hiring practices are free from discrimination. This also includes the importance of diverse and inclusive hiring and how unconscious bias can impact hiring decisions. For this section, we’ve divided our social efforts into four categories to showcase some FY23 highlights: Diversity, Equity, Inclusion, and Belonging (DEIB); learning and development; health and wellbeing; community and industry impact. ENVIRONMENTAL, SOCIAL, GOVERNANCE (CONTINUED) 2 4 E G A P 3 2 0 2 Y F T R O P E R L A U N N A O R E N E Learning and Development (L&D) Health and Wellbeing In FY23, we remained committed to developing our leaders and their teams through continued investment in capability and skills. This past year, Enero saw a remarkable 61% increase in training touchpoints, totaling 2,969 and amounting to over 3,201 hours of learning, with 1,200 hours dedicated to compliance training. Our ADVANCE Leadership Program played a pivotal role in enhancing inclusive leadership capabilities, equipping 66 leaders from across the Group globally with human-centred skills and the confidence to lead their teams effectively and in line with best practice. We also prioritised supporting leaders to build self-confidence, extending our investment across the Group through the Leadership Circle executive coaching program. These efforts underscore our commitment to cultivating strong and capable leaders who are dedicated to empowering their teams to be high performing. Other L&D updates from our network include the new e-learning module at Hotwire called “Beat the Bias” which is now a required learning track for employees at every level. “Beat the Bias” explains how bias works in the brain and addresses how employees can recognise and overcome our biases by making the unconscious conscious. Read more about FY23 L&D highlights related to health and wellbeing in the following section. At Enero, and through our network, we also use our core business expertise to raise visibility for the importance of health and wellness in all facets of society. Internally, our in-house L&D team implemented several programs focused on resilience, thriving at work and fostering a growth mindset. Notably, this year, we took a significant step by implementing mandatory Mental Health Training across the Group. The training comprehensively covered essential aspects of Mental Wellbeing, including understanding, and preventing psychosocial hazards, creating psychologically safe environments, building confidence in initiating conversations about mental health and providing guidance on how to respond when you observe someone is not coping. In addition, during FY23, Enero’s Global Head of L&D/ Head of People and Culture Australia successfully obtained her Mental Health First Aider accreditation. Within our Respect at Work change to framework policy, Enero is committed to fostering a safe working environment for all employees. To ensure clarity and confidence in dealing with issues related to bullying, discrimination, and harassment, we mandate that all employees undergo Respect at Work training annually. This training equips them with a comprehensive understanding of relevant legislation and empowers them to create a workplace free from any form of bullying, discrimination or harassment. One example of leveraging the Group’s marketing and communications expertise to grow visibility for mental health globally was the BMF pro-bono campaign for Australians for Mental Health. In FY23, BMF launched the campaign, “Holding out for Help”, to raise awareness of the long wait times individuals with mental ill health experience when seeking treatment. E N E R O A N N U A L R E P O R T F Y 2 0 2 3 P A G E 4 3 Members of the Orchard team As part of the campaign, BMF partnered with ARIA Award-winning musician Reuben Styles of Peking Duk, to create a bespoke, first-of-its-kind library of free hold music, with tracks embedded with messages from Styles highlighting the fact that while customers wait on hold, millions suffering from mental ill health are waiting, too. The campaign went on to win media, innovation and not-for-profit awards across the globe. Community and Industry Impact At Enero and across our network of businesses, we aim to be an engaged community member in the locations where we work and operate and seek ways to advance social and environmental justice and responsibility in our industry. In FY23, Enero partnered with the Australian Red Cross and actively championed their lifeblood campaign to promote blood donations across Enero. Additionally, we hosted Australia’s Biggest Morning Tea, an event where people generously donated their time and cooking skills to drive donations, raising awareness and funds for the Cancer Council. We also take pride in championing and investing in a family-inclusive workplace through our Kid’s Club program which continued in FY23. During school holidays, parents can bring their children to work, providing a day of care, whilst the kids are cared for and immersed in organised activities. At Orchard, the company hosted a ‘no guts no glory’ event where team members came together to support various causes using their digital creativity as a pro-bono service. In FY23, teams created content prototypes for endometriosis. At Hotwire, different offices led volunteer initiatives in their local communities through FY23. In the US, the team did a park clean up in Minneapolis, quarterly volunteer days at the Alameda County Food Bank and Meals on Wheels volunteering in New York. In Spain the team cooked meals and raised money for families in need through Manos Ayuda Social, and in the UK, six employees flew to Khayelitsha, South Africa and helped to build two schools with Mellon Educate. ENVIRONMENTAL, SOCIAL, GOVERNANCE (CONTINUED) 4 4 E G A P 3 2 0 2 Y F T R O P E R L A U N N A O R E N E Governance The Enero Group is committed to responsible and ethical corporate governance that extends to all areas of ESG. You can read our policies related to Environmental Responsibility, Diversity, Modern Slavery, Workplace Gender Equality and other areas of ESG here: https://www.enero.com/investor-centre/governance This past year, we made strides in our oversight of data security and privacy in a few ways, starting with a Security & Data Privacy Summit held with all Enero Board Members in FY23. In addition, Enero along with Hotwire completed annual training and testing of new security and data protection policies and all Enero holdings completed penetration tests, which included controlled simulations of a cyber attack on our systems, to uncover weaknesses needing to be addressed and protect ourselves against potential cyber threats. Hotwire also obtained an ISO-27001 certification in FY23. This certification is known as the standard for information security management systems that recognises Hotwire has a system in place to manage risks related to the security of data owned or handled by the company and respects best practices and principles. Additionally, Hotwire implemented a change management and review board that now meets quarterly to evaluate the company’s security management policies. Also, in FY23, Enero launched the Enero AI Council to develop innovative strategies and processes in artificial intelligence (AI). The Council will serve as a hub for exploring the latest advancements in AI technology to leverage its potential for our clients and to enhance internal processes to increase efficiency, streamline workflows, and optimise decision-making, contributing to a more agile and effective Group. This Council is an important part of our commitment to upholding strong governance practices by ensuring ethical considerations, data privacy and responsible AI usage are embedded into our operations and decision-making processes. Looking ahead This past year was a time of significant progress in our ESG journey; however it is just the beginning of our commitment to scale the impact we can make together throughout our business. E N E R O A N N U A L R E P O R T F Y 2 0 2 3 P A G E 4 5 BMF’s award-winning Reluctant Shanty campaign 6 4 E G A P 3 2 0 2 Y F T R O P E R L A U N N A O R E N E FINANCIAL REPORT YEAR ENDED 30 JUNE 2023 E N E R O A N N U A L R E P O R T F Y 2 0 2 3 P A G E 4 7 Directors’ Report Directors’ Report Directors’ Report 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 2023; and the independent auditor’s report thereon. 8 4 E G A P 3 2 0 2 Y F T R O P E R L A U N N A O R E N E Directors The Directors in office as at the date of this report are: The Directors present their report, together with the consolidated financial statements of Enero Group Limited (the 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 2023; and the Company) and of the Group, being the Company and its controlled entities, for the year ended 30 June 2023; and the Role independent auditor’s report thereon. independent auditor’s report thereon. Directors Directors The Directors in office as at the date of this report are: The Directors in office as at the date of this report are: Independent Name Appointed Ann Sherry Anouk Darling Ian Rowden David Brain Louise Higgins Brent Scrimshaw Independent Independent Non-Executive Chair Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Executive Director Name Name Role Role Ann Sherry Ann Sherry Anouk Darling Anouk Darling Ian Rowden Ian Rowden David Brain David Brain Louise Higgins Louise Higgins Brent Scrimshaw Brent Scrimshaw Non-Executive Chair Non-Executive Chair Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Executive Director Executive Director Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes No No Appointed Appointed Yes Yes Yes Yes Yes 1 January 2020 1 January 2020 No 6 February 2017 6 February 2017 21 November 2018 21 November 2018 10 May 2018 10 May 2018 10 September 2021 10 September 2021 1 July 2020 1 July 2020 1 January 2020 6 February 2017 21 November 2018 Length of service Length of service 10 May 2018 (at 30 June 2023) (at 30 June 2023) 10 September 2021 3 years and 6 months 3 years and 6 months 1 July 2020 6 years and 4 months 6 years and 4 months 4 years and 7 months 4 years and 7 months 4 5 years and 1 month 4 5 years and 1 month 1 year and 9 months 1 year and 9 months 2 3 years 2 3 years The biographical details of the current Directors included on pages 10 and 11 set out information about the Directors’ qualifications, experience, responsibilities and other directorships. Length of service (at 30 June 2023) 3 years and 6 months 6 years and 4 months 4 years and 7 months 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. 4 5 years and 1 month 1 year and 9 months 2 3 years Corporate Governance The Directors recognise the requirement for, and have adhered to the principles of corporate governance. The biographical details of the current Directors included on pages 10 and 11 set out information about the Directors’ The biographical details of the current Directors included on pages 10 and 11 set out information about the Directors’ qualifications, experience, responsibilities and other directorships. qualifications, experience, responsibilities and other directorships. 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. Company Secretary Company Secretary Cathy Hoyle is the Group General Counsel and was appointed Company Secretary on 8 March 2021. Cathy is a practising 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 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. degrees including a Master of Laws from the Australian National University. Committee Membership Committee Membership At the date of this report, the Company has an Audit and Risk Committee and a Remuneration and Nomination Committee. 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 [DESIGNERS PLEASE DROP IN THIS COPY AND THE BOARD MATRIX GRAPHIC Remuneration and Nomination Committee Ian Rowden (Chair) Ann Sherry Anouk Darling Members of these Committees were: Members of these Committees were: Audit and Risk Committee Audit and Risk Committee Louise Higgins (Chair) Louise Higgins (Chair) Anouk Darling Anouk Darling David Brain David Brain Remuneration and Nomination Committee Board Matrix Remuneration and Nomination Committee Ian Rowden (Chair) Ian Rowden (Chair) In determining the composition of the Board, the Remuneration and Nomination Committee ensures that the Board has Ann Sherry Ann Sherry an optimal size and mix of skills to facilitate efficient and appropriate decision-making. The Board reviewed its board skills Anouk Darling Anouk Darling matrix during FY2023. The objective of the review was to clearly outline the skillset required at Board level to determine the Company’s ongoing strategy. [DESIGNERS PLEASE DROP IN THIS COPY AND THE BOARD MATRIX GRAPHIC [DESIGNERS PLEASE DROP IN THIS COPY AND THE BOARD MATRIX GRAPHIC Skills & Experience Board Matrix Board Matrix In determining the composition of the Board, the Remuneration and Nomination Committee ensures that the Board has an In determining the composition of the Board, the Remuneration and Nomination Committee ensures that the Board has an Governance optimal size and mix of skills to facilitate efficient and appropriate decision-making. The Board reviewed its board skills optimal size and mix of skills to facilitate efficient and appropriate decision-making. The Board reviewed its board skills matrix during FY2023. The objective of the review was to clearly outline the skillset required at Board level to determine matrix during FY2023. The objective of the review was to clearly outline the skillset required at Board level to determine Risk Management the Company’s ongoing strategy. the Company’s ongoing strategy. ] ] Expertise in identifying, managing, and overseeing material risks, along with the capability to monitor risk and ensure compliance. Knowledge and experience in establishing and overseeing governance frameworks, policies, and processes. Board Matrix In determining the composition of the Board, the Remuneration and Nomination Committee ensures that the Board has an optimal size and mix of skills to facilitate efficient and appropriate decision-making. The Board reviewed its board skills matrix during FY2023. The objective of the review was to clearly outline the skillset required at Board level to determine the Company’s ongoing strategy. ] Moderate Experienced Expert Collective Experience Ann Sherry Brent Scrimshaw Anouk Darling Ian Rowden David Brain Louise Higgins A copy of the Company’s full 2023 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 52 to 57 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 5 6 6 6 B 6 6 6 6 6 6 A – – 3 – 4 4 B – – 4 – 4 4 Remuneration and Nomination Committee meetings B A 2 2 – – 2 2 2 2 – – – – 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. Financial and Capital Management Experience Expertise in financial accounting and reporting, capital allocation, and debt and equity capital management, including investor relations. Industry Experience Understanding of the market sectors relevant to the Group. Leadership Executive and business leadership experience at a senior level. Strategic Vision and Direction Expertise in the development, establishment, and execution of strategic vision and direction. People and Remuneration Experience in managing people, including incentive arrangements, corporate culture, leadership assessment and workforce and succession planning. 48 Enero Group Limited Annual Report 2023 Technology and Innovation 48 Enero Group Limited Annual Report 2023 48 Enero Group Limited Annual Report 2023 Expertise in technological strategies, innovation, and prioritising digital technology, data, and analytics. E N E R O A N N U A L R E P O R T F Y 2 0 2 3 P A G E 4 9 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 50,000 474,804 34,991 80,000 120,500 12,699 772,994 Share Appreciation Rights Nil 2,558,335 Nil Nil Nil Nil 2,558,335 Events subsequent to balance date Transactions or events subsequent to the balance date, were: • the Directors have declared a final dividend, with respect to ordinary shares, of 4.5 cents per share, fully franked. The final dividend will have a record date of 19 September 2023 and a payment date of 3 October 2023. 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. Enero Group Limited Annual Report 2023 49 0 5 E G A P 3 2 0 2 Y F T R O P E R L A U N N A O R E N E Directors’ Report 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. The Group will also continue to assess acquisition, divestment 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 16 September 2022, the Company issued 820,120 (2022: 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 $2.85 and these shares rank equally with existing shareholders. Share Appreciation Rights Share Appreciation Rights issued During the year ended 30 June 2023, a total of 4,425,000 Share Appreciation Rights (30 June 2022: 4,525,000) 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 2023 30 September 2023 30 September 2023 30 September 2024 30 September 2024 30 September 2025 Total Number of SARs 908,340 1,508,332 1,475,000 1,508,338 1,475,000 1,475,000 8,350,010 Strike price VWAP (for the 20 business days prior to the grant) $1.52 $3.02 $2.85 $3.02 $2,85 $2.85 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: 2023 Interim dividend 2022 Final dividend Cents per share Total amount AUD ’000 Date of payment 6.5 6.5 6,027 15 March 2023 6,027 4 October 2022 Subsequent to the balance sheet date, the Directors have declared a final dividend, with respect to ordinary shares, of 4.5 cents per share – fully franked with a payment date of 3 October 2023. The financial effect of this dividend has not been brought to account in the consolidated financial statements for the year ended 30 June 2023 but will be recognised in the subsequent financial period. For further details refer to Note 17 Capital and reserves in this annual report. E N E R O A N N U A L R E P O R T F Y 2 0 2 3 P A G E 5 1 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 123, and forms part of the Directors’ Report for the year ended 30 June 2023. 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 58 to 66 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, 18 August 2023 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 2023 $ 2022 $ – 144,000 - 295,000 144,000 295,000 50 Enero Group Limited Annual Report 2023 Enero Group Limited Annual Report 2023 51 Directors’ Report DIRECTORS’ REPORT 2 5 E G A P 3 2 0 2 Y F T R O P E R L A U N N A O R E N E 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 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, and although Enero is not immune to industry-wide pressures, our diversified portfolio provides resiliency and allows us to continue to outperform competitors: § OBMedia benefits from the correlation in the movement of advertising rates and the subsequent impact on costs of traffic acquisition – we can benefit from depressed advertising spend. Search advertising rates have also proven more resilient than other advertising channels, allowing us to continue to receive strong rates from our search engine partners. 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. § In Growth Consumer, we have exposure to Discount Retail (which is taking share in the current environment) and Government which also remains resilient and driven by major events (e.g., referendum advertising) Enero Group remains optimistic about the growth potential of our business across all regions. We are also responding rapidly to changes in our business, reducing cost to match revenues and maintain margins. 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 as conditions improve. Enero Group considers the following to be the most relevant risks to the business achieving its strategic, operational and financial targets: Potential risk Evolving needs of clients Risk description Changing requirements of clients’ marketing needs may render our services redundant or unsuitable. Group’s mitigating actions 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. E N E R O A N N U A L R E P O R T F Y 2 0 2 3 P A G E 5 3 Potential risk Uncertain economic conditions Risk description Global macroeconomic conditions may impact demand for marketing services and therefore reduce the Group’s revenue performance. 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. 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 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. OBMedia’s supply chain includes a diversified group of publishers, agencies, social media platforms, ad networks, media buyers and other traffic sources. We use processes and technology to assess traffic quality from these sources. We proactively manage our publisher traffic and relationships to ensure quality traffic is sourced. 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. 52 Enero Group Limited Annual Report 2023 Enero Group Limited Annual Report 2023 53 Directors’ Report DIRECTORS’ REPORT 4 5 E G A P 3 2 0 2 Y F T R O P E R L A U N N A O R E N E 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. We support our acquired businesses on an ongoing basis through the Enero Centres of Excellence, enabling them to continually enhance their business and deliver results for clients. 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. A summary of the Group’s results is below: A summary of the Group’s results is below: In thousands of AUD In thousands of AUD Net Revenue1 Net Revenue1 EBITDA2 EBITDA2 Depreciation and amortisation Depreciation and amortisation EBIT EBIT Net finance costs Net finance costs Present value interest charge Present value interest charge Profit before tax Profit before tax Income tax expense Income tax expense Profit after tax Profit after tax Non-controlling interests Non-controlling interests Net profit after tax before Net profit after tax before significant items significant items Significant items (net of tax)3 Significant items (net of tax)3 Net profit after tax attributable to Net profit after tax attributable to equity owners equity owners 2023 2023 241,643 241,643 78,841 78,841 (10,069) (10,069) 68,772 68,772 (1,582) (1,582) (2,543) (2,543) 64,647 64,647 (15,243) (15,243) 49,404 49,404 (25,002) (25,002) 24,402 24,402 32,072 32,072 56,474 56,474 2022 2022 193,426 193,426 66,196 66,196 (6,940) (6,940) 59,256 59,256 (9) (9) (961) (961) 58,286 58,286 (14,340) (14,340) 43,946 43,946 (16,834) (16,834) 27,112 27,112 (1,725) (1,725) 25,387 25,387 E N E R O A N N U A L R E P O R T F Y 2 0 2 3 P A G E 5 5 30.9 30.9 28.9 28.9 26.4 26.4 61.1 61.1 2023 2023 241,643 241,643 78,841 78,841 (4,253) (4,253) (2,077) (2,077) directly attributable cost of sales. directly attributable cost of sales. 56. 56. Cents per share Cents per share Earnings per share (basic) – pre Earnings per share (basic) – pre significant items significant items Earnings per share (basic) Earnings per share (basic) 1. Gross revenue recognised in accordance with AASB 15 less 1. Gross revenue recognised in accordance with AASB 15 less 2. EBITDA, as defined in the basis of preparation section on page 2. EBITDA, as defined in the basis of preparation section on page 3. Significant items are explained on page 56. 3. Significant items are explained on page 56. Reconciliation of EBITDA2 to statutory profit after tax Reconciliation of EBITDA2 to statutory profit after tax In thousands of AUD In thousands of AUD Net Revenue1 Net Revenue1 EBITDA2 EBITDA2 Depreciation of right-of-use assets Depreciation of right-of-use assets Depreciation of plant and Depreciation of plant and equipment equipment Amortisation of intangibles Amortisation of intangibles Net finance costs Net finance costs Present value interest charge Present value interest charge Gain on sale of controlled entities3 Gain on sale of controlled entities3 Incidental acquisition costs3 Incidental acquisition costs3 Restructuring costs3 Restructuring costs3 Contingent consideration fair Contingent consideration fair value gain/(loss) 3 value gain/(loss) 3 Statutory profit before tax Statutory profit before tax Income tax expense Income tax expense Statutory profit after tax Statutory profit after tax 1. Gross revenue recognised in accordance with AASB 15 less 1. Gross revenue recognised in accordance with AASB 15 less 2. EBITDA, as defined in the basis of preparation section on page 2. EBITDA, as defined in the basis of preparation section on page 3. Significant items are explained on page 56. 3. Significant items are explained on page 56. directly attributable cost of sales. directly attributable cost of sales. 56. 56. (3,739) (3,739) (1,582) (1,582) (2,543) (2,543) – – (216) (216) (3,135) (3,135) 34,648 34,648 95,944 95,944 (14,468) (14,468) 81,476 81,476 2022 2022 193,426 193,426 66,196 66,196 (3,996) (3,996) (1,722) (1,722) (1,222) (1,222) (9) (9) (961) (961) 600 600 (1,324) (1,324) - - (1,001) (1,001) 56,561 56,561 (14,340) (14,340) 42,221 42,221 Financial performance for the year Financial performance for the year The Group achieved Net Revenue of $241.6 million, an The Group achieved Net Revenue of $241.6 million, an increase of 24.9% (2022: $193.4 million) compared to the increase of 24.9% (2022: $193.4 million) compared to the prior reporting period. Net Revenue growth benefited from prior reporting period. Net Revenue growth benefited from a full year contribution of acquired businesses ROI DNA a full year contribution of acquired businesses ROI DNA and GetIT and strong growth in OBMedia. The Group and GetIT and strong growth in OBMedia. The Group continues to have a high proportion of client revenue continues to have a high proportion of client revenue exposure to its priority verticals of Technology, Healthcare exposure to its priority verticals of Technology, Healthcare and Growth Consumer sectors with an increased exposure and Growth Consumer sectors with an increased exposure to Technology due to the acquisitions. Net Revenue on a to Technology due to the acquisitions. Net Revenue on a constant currency basis was up 20.7% compared with the constant currency basis was up 20.7% compared with the prior year. prior year. The Group achieved EBITDA2 of $78.8 million, an increase The Group achieved EBITDA2 of $78.8 million, an increase of 19.1% (2022: $66.2 million) compared to the prior of 19.1% (2022: $66.2 million) compared to the prior reporting period. The EBITDA2 margin decreased from reporting period. The EBITDA2 margin decreased from 34.2% in 2022 to 32.6% in 2023. This decrease in the 34.2% in 2022 to 32.6% in 2023. This decrease in the EBITDA2 margin was driven by: EBITDA2 margin was driven by: • • lower EBITDA margins in the Group’s agency lower EBITDA margins in the Group’s agency businesses (Hotwire Group, BMF, Orchard and businesses (Hotwire Group, BMF, Orchard and CPR) due to weak macroeconomic conditions CPR) due to weak macroeconomic conditions with cost savings implemented during the year with cost savings implemented during the year improving margins in Q4; improving margins in Q4; • partly offset by an increase in revenue and • partly offset by an increase in revenue and EBITDA2 in the Group’s programmatic media EBITDA2 in the Group’s programmatic media platform business, OBMedia, which connects platform business, OBMedia, which connects publishers with the world’s largest search publishers with the world’s largest search engines. The business functions as a platform engines. The business functions as a platform and therefore has achieved a higher margin than and therefore has achieved a higher margin than other businesses in the Group; other businesses in the Group; • while staff costs rose 26.8% in the current year, • while staff costs rose 26.8% in the current year, the staff cost ratio increased marginally from the staff cost ratio increased marginally from 57.8% in 2022 to 58.6% in 2023 with increase in 57.8% in 2022 to 58.6% in 2023 with increase in headcount due to acquisitions offset by headcount due to acquisitions offset by reductions due to restructures; and reductions due to restructures; and • operating costs have increased due to the ROI • operating costs have increased due to the ROI DNA and GetIT acquisitions and growth in DNA and GetIT acquisitions and growth in OBMedia. OBMedia. The net profit after tax before significant items was $24.4 The net profit after tax before significant items was $24.4 million, compared to $27.1 million in the prior year, million, compared to $27.1 million in the prior year, impacted by growth in non-controlling interest and higher impacted by growth in non-controlling interest and higher amortisation and interest expense associated with amortisation and interest expense associated with acquisitions. acquisitions. The statutory net profit after tax to equity owners was $56.5 The statutory net profit after tax to equity owners was $56.5 million, compared to a net profit of $25.4 million in the prior million, compared to a net profit of $25.4 million in the prior year. In the current year, the Group incurred a fair value year. In the current year, the Group incurred a fair value gain of $34.6 million relating to revaluation of future gain of $34.6 million relating to revaluation of future contingent consideration partially offset by restructuring contingent consideration partially offset by restructuring costs of $3.1 million and incidental acquisition costs of $0.2 costs of $3.1 million and incidental acquisition costs of $0.2 million (2022: the Group incurred incidental acquisition million (2022: the Group incurred incidental acquisition costs of $1.3 million and recognised a fair value loss of costs of $1.3 million and recognised a fair value loss of $1.0 million relating to revaluation of future contingent $1.0 million relating to revaluation of future contingent consideration, which were partially offset by a gain of $0.6 consideration, which were partially offset by a gain of $0.6 million recognised on sale of TLE). million recognised on sale of TLE). In the current year, the operating businesses generated In the current year, the operating businesses generated approximately 74% of their Net Revenue and 87% of their approximately 74% of their Net Revenue and 87% of their EBITDA2 from international markets. EBITDA2 from international markets. 54 Enero Group Limited Annual Report 2023 Enero Group Limited Annual Report 2023 55 Enero Group Limited Annual Report 2023 55 6 5 E G A P 3 2 0 2 Y F T R O P E R L A U N N A O R E N E Directors’ Report DIRECTORS’ REPORT Significant items 2023 • The Group recognised a contingent consideration fair value gain of $34,648,000 relating to a change in the best estimate of future contingent consideration payable to the vendors of McDonald Butler Associates, ROI DNA and GetIT. • The Group incurred $3,135,000 of restructuring costs relating to a restructuring process to mitigate costs across the Group. The majority of the costs related to redundancy costs in the agencies across the group, which continued to further integrate its communication and marketing services businesses into a single account management team. • The Group incurred incidental costs of $216,000 relating to acquisition of ROI DNA Inc. and GetIT Pte Ltd. 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. Geographical performance In thousands of AUD 2023 2022 Net Revenue1 Australia and Asia UK and Europe USA Total Operating units EBITDA2 Australia and Asia UK and Europe USA Total Operating units Support office Share-based payments charge Total Group EBITDA2 margin Australia and Asia UK and Europe USA Total Operating units Total Group 64,462 31,265 145,916 241,643 68,776 36,622 88,028 193,426 11,856 4,145 74,505 90,506 (9,164) (2,501) 78,841 18.4% 13.3% 51.1% 37.5% 32.6% 15,893 9,108 52,287 77,288 (9,190) (1,902) 66,196 23.1% 24.9% 59.4% 40.0% 34.2% 1. Gross revenue recognised in accordance with AASB 15 less directly attributable cost of sales. 2. EBITDA, as defined in the basis of preparation section on page 56. Acquisitions 2023 The Group completed the acquisition of ROI DNA Inc. and GetIT Pte Ltd on 1 July 2022. Refer to Note 22 Acquisitions for details. 2022 No acquisitions were completed in the prior year. Disposals 2023 There were no disposals by the Group for the year ended 30 June 2023. 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. Basis of preparation The Directors’ Report includes Net Revenue and EBITDA, which are measures used by the Directors and management in assessing the ongoing performance of the Group. Net Revenue is a non-IFRS measure and is equal to statutory Gross Profit. EBITDA is a non-IFRS measure and has not been audited or reviewed. Following management review, the Group has moved to EBITDA for internal management purposes from Operating EBITDA (EBITDA including right-of-use assets depreciation) as the preferred measure of Group and segment performance and to simplify reporting to the market. EBITDA is calculated as profit before interest, taxes, depreciation, amortisation, and any significant items. EBITDA is reconciled in the table on page 55. E N E R O A N N U A L R E P O R T F Y 2 0 2 3 P A G E 5 7 Cash and Debt In thousands of AUD Cash and cash equivalents Interest bearing liabilities Contingent consideration liabilities Net cash¹ 2023 52,432 (8,735) 2022 98,742 (36,275) (30,740) (10,113) 12,957 52,354 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 $13.0 million in net cash as at 30 June 2023. 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 $61.5 million (2022: $48.8 million). The increase in inflows is primarily attributable to EBITDA growth. The Group converted 102% of EBITDA to cash for the year ended 30 June 2023 (2022: 96%). Cash flow – Investing activities Cash outflows from investing activities was $35.7 million (2022: $11.1 million). The increase in outflows was primarily due to acquisitions completed during the current year. Cash flow – Financing activities Net cash outflows from financing activities was $73.9 million, primarily due to $28.9 million in loans repayments and dividend paid. During the current year, $12.1 million (2022: $9.2 million) in dividends were paid to Enero Group Limited shareholders in addition to $26.3 million (2022: $13.0 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, ROI DNA and GetIT. As at 30 June 2023, the Company’s estimated contingent consideration liability is $30.7 million (2022: $10.1 million). Reconciliation of carrying amounts of contingent consideration payable: In thousands of AUD 30 June 2022 Contingency recognised on business combinations Payments made Fair value gain recognised in relation to McDonald Butler Associates, ROI DNA and GetIT Present value interest unwind and foreign exchange movements 30 June 2023 Maturity profile (at present value): FY2024 FY2025 FY2026 Total 10,113 53,467 (2,671) (34,648) 4,479 30,740 4,315 9,992 16,433 30,740 Refer to Note 22 Acquisitions for further information. 56 Enero Group Limited Annual Report 2023 Enero Group Limited Annual Report 2023 57 Directors’ Report DIRECTORS’ REPORT 8 5 E G A P 3 2 0 2 Y F T R O P E R L A U N N A O R E N E 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 2023. 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. 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 2023, the Committee engaged Ernst & Young as a remuneration consultant for the provision of a CEO remuneration benchmarking report of global advertising organisations. A fee of $16,480 was paid to Ernst & Young for this advice. 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. Name Non-Executive Directors Ann Sherry Anouk Darling Ian Rowden David Brain Louise Higgins Executives Brent Scrimshaw Carla Webb-Sear Fiona Chilcott Role Non-Executive Director (Chair) Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Chief Executive Officer Chief Financial Officer Chief People and Culture Officer – – – – 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. 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 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. Short-term incentives (STI): There are no guaranteed fixed remuneration increases 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 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 EBITDA margin improvements. E N E R O A N N U A L R E P O R T F Y 2 0 2 3 P A G E 5 9 The purpose of STI is to motivate and reward Executives for contributing to the delivery of annual business performance as assessed against financial and non-financial measures. Participant CEO Company Executive Performance measures and rationale The STI is an annual maximum short-term incentive payment of 125% of the fixed remuneration determined by the achievement of 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. Where the STI opportunity exceeds 80%, a portion of the STI award may be deferred up to 25% in the form of restricted ordinary shares. Any restricted shares will be held in trust for a period determined by the Board at the time of issue. The STI is an annual cash-based maximum short-term incentive payment of 70% of the fixed remuneration determined by the achievement of 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. 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 – long-term incentive: equity-based Share Appreciation Rights Plan. 58 Enero Group Limited Annual Report 2023 Enero Group Limited Annual Report 2023 59 0 6 E G A P 3 2 0 2 Y F T R O P E R L A U N N A O R E N E Directors’ Report 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 2023 21 October 2020 3,900,000 Senior Executives 21 October 2021 4,525,000 Senior Executives 21 October 2022 4,425,000 Senior Executives $1.52 $3.02 $2.85 30 June 2021 30 June 2022 30 June 2023 30 September 2023 908,340 30 June 2022 30 June 2023 30 June 2024 30 September 2024 3,016,670 30 June 2023 30 June 2024 30 June 2025 30 September 2025 4,425,000 E N E R O A N N U A L R E P O R T F Y 2 0 2 3 P A G E 6 1 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 2026 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. 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 2023. Total remuneration paid to Non-Executive Directors for the year ending 30 June 2023 amounted to $552,500 (30 June 2022: $450,577), which is 73.7% (30 June 2022: 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 2023 and 30 June 2022: Base fees – annual Chair Other Non-Executive Directors Committee fees – annual Audit and Risk Committee – Chair Remuneration and Nomination Committee – Chair 2023 $ 150,000 100,000 2022 $ 120,000 75,000 20,000 20,000 10,000 10,000 Remuneration details of Non-Executive Directors are set out in Section 7 Directors’ and Executive Officers’ remuneration. 60 Enero Group Limited Annual Report 2023 Enero Group Limited Annual Report 2023 61 2 6 E G A P 3 2 0 2 Y F T R O P E R L A U N N A O R E N E Directors’ Report 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 Salary and fees $ Cash STI(i) $ Annual leave(ii) Superannuation $ $ Long service leave(ii) $ Termination benefit $ Value of Share Appreciation Rights (LTI)(iii) $ Non-Executive Directors Ann Sherry Anouk Darling Ian Rowden David Brain Louise Higgins Susan McIntosh(vi) Executive Director Brent Scrimshaw Director and CEO Executives Carla Webb-Sear Chief Financial Officer Executives Fiona Chilcott Chief People and Culture Officer 2023 2022 2023 2022 2023 2022 2023 2022 2023 2022 2022 2023 2022 2023 2022 2023 2022 142,500 120,833 93,750 78,523 111,250 84,167 93,750 75,000 111,250 66,410 22,727 – – – – – – – – – – – – – – – – – – – – – – 823,408 424,350 5,931 800,432 576,800 42,667 424,209 189,000 (11,464) 396,432 294,000 12,325 386,494 172,950 2,120 374,500 278,648 18,804 – – - 644 – – – – – – 2,273 25,292 23,568 25,292 23,568 25,292 23,568 – – – – – – – – – – – 4,648 2,513 2,133 947 7,319 4,350 – – – – – – – – – – – – – – – – – Proportion of total remuneration performance related(iv) % – – – – – – – – – – – 57.10 56.68 53.79 53.53 52.00 54.18 Total $ 142,500 120,833 93,750 79,167 111,250 84,167 93,750 75,000 111,250 66,410 25,000 – – – – – – – – – – – 719,365 2,002,994 560,419 2,006,399 323,377 952,547 205,028 932,300 283,355 877,530 219,438 919,308 (i) The short-term incentive bonus is for performance during the 30 June 2023 and 30 June 2022 financial year using the criteria set out on page 59. The table above includes the expense incurred during the financial year for the bonuses awarded. Refer to the table on page 63 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) Executives receive salary continuance insurance cover. There are no other benefits offered by the Company. (vi) Susan McIntosh retired as a Non-Executive Director effective 21 October 2021. 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 59. 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 594,090 315,000 288,250 424,350 189,000 172,950 70% 60% 60% – – – 50% 42% 42% 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: E N E R O A N N U A L R E P O R T F Y 2 0 2 3 P A G E 6 3 Measure Financial EBITDA EPS Growth Non-financial Weighting Target Outcome Outcome as % of target 48% 32% $77.0 million $78.8 million 10% (15%) 102% (150%) Strategy and Culture 20% Delivery of measure 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 as follows: Type of rights granted during 2023 Number of rights granted during 2023 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 1,275,000 624,999 525,000 21 Oct 2022 21 Oct 2022 21 Oct 2022 0.41 – 0.68 0.41 – 0.68 0.41 – 0.68 2.85 2.85 2.85 30 Sept 2025 30 Sept 2025 30 Sept 2025 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. 62 Enero Group Limited Annual Report 2023 Enero Group Limited Annual Report 2023 63 Directors’ Report 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: 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: 4 6 E G A P 3 2 0 2 Y F T R O P E R L A U N N A O R E N E Number of rights granted Type of rights granted Grant date % vested in year % forfeited in year % exercised in year Company Executives Brent Scrimshaw 1,250,000 SAR 21 Oct 2020 33 1,300,000 SAR 21 Oct 2021 33 Carla Webb- Sear Fiona Chilcott 1,275,000 SAR 21 Oct 2022 – 650,000 SAR 21 Oct 2021 33 624,999 SAR 21 Oct 2022 – 350,000 100,000 550,000 SAR 24 Oct 2019 SAR 21 Oct 2020 SAR 21 Oct 2021 33 33 33 525,000 SAR 21 Oct 2022 – – – – – – – – – – 33 33 – 33 – 33 33 33 – % remaining to vest Vesting date(i) 33 30 Sep 2022 and 30 Sep 2023 100 100 66 66 30 Sep 2022, 30 Sep 2023 and 30 Sep 2024 30 Sep 2023, 30 Sep 2024 and 30 Sep 2025 30 Sep 2022, 30 Sep 2023 and 30 Sep 2024 30 Sep 2023, 30 Sep 2024 and 30 Sep 2025 30 Sep 2022 33 30 Sep 2022 and 30 Sep 2023 30 Sep 2022, 30 Sep 2023 and 30 Sep 2024 30 Sep 2023, 30 Sep 2024 and 30 Sep 2025 66 – 100 (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: Expired Cancelled Exercised Granted held at 30 Jun 2023 Vested during the year Vested and exercisable at 30 Jun 2023 Value of rights granted during the year $ Value of rights exercised during the year $ – (849,999) 2,558,335 849,999 – 706,138 440,110 Granted held at 1 Jul 2022 Granted as remuneration in year 2,133,334 1,275,000 650,000 733,333 624,999 525,000 Director Brent Scrimshaw Executives Carla Webb-Sear Fiona Chilcott – – – E N E R O A N N U A L R E P O R T F Y 2 0 2 3 P A G E 6 5 Held at 1 July 2022 Purchases Issued as remuneration Directors Ann Sherry Brent Scrimshaw Anouk Darling Ian Rowden David Brain Louise Higgins Executives Carla Webb- Sear Fiona Chilcott 18,750 216,877 19,607 75,000 75,000 – – 208,506 31,250 – 15,384 5,000 45,500 12,699 – – – – – – – – – – Received on exercise of rights – 257,927 – – – – 17,175 73,322 Sales Held at 30 June 2023 – – – – – – – (281,828) 50,000 474,804 34,991 80,000 120,500 12,699 17,175 – 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 ($’000) EBITDA1 ($’000) 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 2023 30 June 2022 30 June 2021 30 June 2020 30 June 2019 241,643 78,841 32.6% 56,474 193,426 66,196 34.2% 25,387 160,634 49,904 31.1% (402) 135,825 29,230 21.5% 10,707 129,535 20,722 16.0% 5,661 24,402 27,112 22,835 12,881 12,051 20.3 (15%) 61.1 11.0 2.90 1.46 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 – – (216,666) (333,332) 1,058,333 216,666 925,001 333,332 – 346,145 – 290,763 139,013 183,909 1. EBITDA, as defined in the basis of preparation section on page 56. No share-based payments held by KMP are vested but not exercisable at 30 June 2023. 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. 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 (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 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. 64 Enero Group Limited Annual Report 2023 Enero Group Limited Annual Report 2023 65 Directors’ Report DIRECTORS’ REPORT Consolidated income statement for the year ended 30 June 2023 CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 30 JUNE 2023 6 6 E G A P 3 2 0 2 Y F T R O P E R L A U N N A O R E N E 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 financial year. The Remuneration and Nomination Committee believes the current year achievement of: • Net Revenue and EBITDA increases; • • • • strategic repositioning of Hotwire through additional capabilities of revenue generating services; expanded Enero footprint into Asia Pacific; synergies between agencies; and strategic investments in programmatic media capabilities to fuel growth, are aligned with the achievement of future shareholder wealth and therefore confirm the Executive Remuneration policy and framework. End of Remuneration Report. 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 on disposal of controlled entities Incidental acquisition costs Contingent consideration fair value gain/(loss) Finance income Finance costs Restructuring 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 72 to 113 are an integral part of these consolidated financial statements. 66 Enero Group Limited Annual Report 2023 67 Enero Group Limited Annual Report 2023 E N E R O A N N U A L R E P O R T F Y 2 0 2 3 P A G E 6 7 Note 3 2023 740,207 (498,564) 241,643 106 2022 522,124 (328,698) 193,426 259 (141,647) (111,716) (1,568) (2,013) (2,364) (3,348) (10,069) (11,968) - (216) 34,648 307 (4,432) (3,135) 95,944 (14,468) 81,476 56,474 25,002 81,476 61.1 60.7 (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 23 22 13 4 5 18 18 8 6 E G A P 3 2 0 2 Y F T R O P E R L A U N N A O R E N E Consolidated statement of comprehensive income for the year ended 30 June 2023 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2023 Consolidated statement of changes in equity CONSOLIDATED STATEMENT OF CHANGES IN for the year ended 30 June 2023 EQUITY FOR THE YEAR ENDED 30 JUNE 2023 In thousands of AUD Profit for the year Other comprehensive income Note 2023 81,476 2022 42,221 Total items that will not be reclassified subsequently to profit or loss – – In thousands of AUD Note Attributable to owners of the Company Retained profits/ (Accumulated losses) Share capital Profit appropriation reserve Share- based payment reserve Reserve change in ownership interest in subsidiary Foreign currency translation reserve Non- controlling interests Total Total equity Items that may be reclassified subsequently to profit or loss: Foreign currency translation differences for foreign operations Total items that may be reclassified subsequently to profit or loss Other comprehensive income for the year, net of tax Total comprehensive income for the year Attributable to: Equity holders of the parent Non-controlling interests The notes on pages 72 to 113 are an integral part of these consolidated financial statements. 7,610 7,610 7,610 89,086 63,792 25,294 89,086 1,231 1,231 1,231 43,452 26,077 17,375 43,452 Opening balance at 1 July 2021 100,456 (16,555) 36,847 10,592 – – – 25,387 – 25,387 – – – – – – 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 Closing balance at 30 June 2022 104,861 8,832 17 17 4,405 – – – – – – (4,405) (9,157) – 27,690 – 1,902 8,089 Opening balance at 1 July 2022 104,861 8,832 27,690 8,089 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 vendors of ROI DNA and GetIT Shares issued to employees on exercise of Share Appreciation Rights Share buy-back Dividends paid to equity holders Share-based payment expense – – – 56,474 – 56,474 17 10,857 17 17 17 2,690 (593) – – – – – – – – – – – – – (12,054) – Closing balance at 30 June 2023 117,815 65,306 15,636 – – – – (2,690) – – 2,501 7,900 The notes on pages 72 to 113 are an integral part of these consolidated financial statements. – – – – – – – – – – – – – – – – – – (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 (2,328) 147,144 8,182 155,326 – 56,474 25,002 81,476 7,318 7,318 292 7,610 7,318 63,792 25,294 89,086 – – 10,857 – – (593) – (12,054) 2,501 – – – 10,857 – – (593) (26,303) (38,357) 2,501 – 4,990 211,647 7,173 218,820 E N E R O A N N U A L R E P O R T F Y 2 0 2 3 P A G E 6 9 Enero Group Limited Annual Report 2023 68 69 Enero Group Limited Annual Report 2023 Consolidated statement of financial position CONSOLIDATED STATEMENT OF FINANCIAL as at 30 June 2023 POSITION AS AT 30 JUNE 2023 Consolidated statement of cash flows for the year ended 30 June 2023 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2023 Note 2023 2022 Note 2023 2022 0 7 E G A P 3 2 0 2 Y F T R O P E R L A U N N A O R E N E 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 Deferred tax liabilities Interest bearing liabilities Total non-current liabilities Total liabilities Net assets Equity Share capital Other reserves Profit appropriation reserve Retained earnings Total equity attributable to equity holders of the parent Non-controlling interests Total equity The notes on pages 72 to 113 are an integral part of these consolidated financial statements. 6 7 8 5 5 9 10 8 11 12 13 14 15 5 13 14 15 5 16 17 52,432 74,801 7,744 3,298 138,275 1,582 2,567 12,980 169 227,683 244,981 383,256 98,316 4,316 4,264 5,857 161 112,914 26,424 9,878 1,027 5,458 8,735 51,522 164,436 218,820 117,815 12,890 15,636 65,306 211,647 7,173 218,820 98,742 63,995 6,112 222 169,071 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 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 Bank loan repayment Dividends paid to equity holders of the parent Dividends paid to non-controlling interests in controlled entities Payments for share buy-back Net cash (used in)/from financing activities Net (decrease)/ 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 72 to 113 are an integral part of these consolidated financial statements. E N E R O A N N U A L R E P O R T F Y 2 0 2 3 P A G E 7 1 744,505 (663,778) 80,727 307 (17,704) (1,850) 61,480 11 (1,087) (32,000) – (2,671) (35,747) (6,053) – (28,915) (12,054) (26,303) (593) (73,918) (48,185) 1,875 98,742 52,432 524,510 (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 6 9 22 23 13 14 17 17 6 Enero Group Limited Annual Report 2023 70 71 Enero Group Limited Annual Report 2023 Notes to the consolidated financial statements for the year ended 30 June 2023 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 Notes to the consolidated financial statements for the year ended 30 June 2023 2 7 E G A P 3 2 0 2 Y F T R O P E R L A U N N A O R E N E 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 72 Enero Group Limited Annual Report 2023 Page 73 75 78 80 81 83 84 84 85 86 87 89 89 90 91 92 93 94 95 101 103 105 107 108 109 110 110 110 110 111 113 E N E R O A N N U A L R E P O R T F Y 2 0 2 3 P A G E 7 3 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 2023 comprise the Company and its subsidiaries (together referred to as the ‘Group’). The consolidated financial statements for the year ended 30 June 2023 were authorised for issue in accordance with a resolution of the Directors on 18 August 2023. (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 2023. (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. 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 • 22. Acquisitions (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) • 22. Acquisitions • 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. Enero Group Limited Annual Report 2023 73 4 7 E G A P 3 2 0 2 Y F T R O P E R L A U N N A O R E N E Notes to the consolidated financial statements NOTES TO THE CONSOLIDATED for the year ended 30 June 2023 FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 1. Basis of preparation (continued) (f) Changes in accounting policies (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. 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 2023 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. Notes to the consolidated financial statements for the year ended 30 June 2023 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 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’s portfolio is separated into the following two segments to 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 CPR and Hotwire (including recently acquired strategic B2B sales and marketing agencies ROI DNA and GetIT) 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 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: EBITDA is calculated as profit before interest, taxes, depreciation, amortisation and any significant items. E N E R O A N N U A L R E P O R T F Y 2 0 2 3 P A G E 7 5 2023 In thousands of AUD Gross revenue Directly attributable costs of sales Gross profit Other income Operating expenses EBITDA Depreciation of right-of-use assets Depreciation of plant and equipment and amortisation of intangibles Contingent consideration fair value gain Restructuring costs 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 176,795 Creative Technology and Data 563,412 Total segments Unallocated Eliminations – 740,207 – (48,606) 128,189 106 (449,958) (498,564) 113,454 241,643 – 106 – – – (106,226) (45,017) (151,243) (11,665) 22,069 68,437 90,506 (11,665) 34,648 – 34,648 – 189,371 22,391 71,743 283,505 63,014 63,014 3,739 4,934 786 15,921 205,292 – 22,391 71,909 87,830 60,154 60,154 – 1,013 211 143,652 371,335 123,168 123,168 3,739 5,947 997 – – 30,860 30,860 60,207 60,207 – 383 90 – – – – – – – – (18,939) (18,939) (18,939) (18,939) – – – Consolidated 740,207 (498,564) 241,643 106 (162,908) 78,841 (4,253) (5,816) 34,648 (3,135) (216) (4,125) 95,944 (14,468) 81,476 205,292 22,391 155,573 383,256 164,436 164,436 3,739 6,330 1,087 74 Enero Group Limited Annual Report 2023 Enero Group Limited Annual Report 2023 75 E N E R O A N N U A L R E P O R T F Y 2 0 2 3 P A G E 7 7 6 7 E G A P 3 2 0 2 Y F T R O P E R L A U N N A O R E N E Notes to the consolidated financial statements NOTES TO THE CONSOLIDATED for the year ended 30 June 2023 FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 Notes to the consolidated financial statements for the year ended 30 June 2023 2. Operating segments (continued) 2. Operating segments (continued) 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 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 (79,141) 27,765 (293,340) (329,096) 86,706 193,426 73 259 – – – (37,256) (116,397) (11,092) 49,523 77,288 (11,092) – – – – – – – – 193,426 259 (127,489) 66,196 (3,996) (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 – – – – 76,366 76,366 62,323 62,323 – 268 103 (14,797) (14,797) (14,797) (14,797) – – – (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 Major Customer Revenue from 2 customers (2022: 1 customer) 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 2023 – 37.2 2022 - 21.7 37.2 21.7 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. 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 2023 Gross profit(iii) EBITDA EBITDA margin Australia and Asia 64,462 11,856 18.4% UK and Europe 31,265 4,145 13.3% USA 145,916 74,505 51.1% Support Office(i) Unallocated intangibles(ii) – (11,665) – – – – Total 241,643 78,841 32.6% Non-current assets 10,127 6,366 805 – 227,683 244,981 In thousands of AUD 2022 Gross profit(iii) EBITDA EBITDA margin Australia and Asia 68,776 15,893 23.1% UK and Europe 36,622 9,108 24.9% USA 88,028 52,287 59.4% Support Office(i) Unallocated intangibles(ii) – (11,092) – – – – Total 193,426 66,196 34.2% Non-current assets 6,519 3,028 1,785 – 114,664 125,996 (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. 76 Enero Group Limited Annual Report 2023 Enero Group Limited Annual Report 2023 77 8 7 E G A P 3 2 0 2 Y F T R O P E R L A U N N A O R E N E Notes to the consolidated financial statements NOTES TO THE CONSOLIDATED for the year ended 30 June 2023 FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 Notes to the consolidated financial statements for the year ended 30 June 2023 3. Revenue 3. Revenue (continued) 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 some customer arrangements, 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 Consulting revenue (excluding revenue from advertising technology platform) by type of contract Fixed Fee retainers Variable retainers (% of total digital advertising spend) Project based retainers (can be fixed fee or time and cost recovery) Total Revenue by timing of performance obligations Point in time Recognised over time Total 2023 740,207 (498,564) 241,643 2022 522,124 (328,698) 193,426 2023 47% 11% 42% 100% 2023 72% 28% 100% 2022 50% 0% 50% 100% 2022 66% 44% 100% 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 and Asia UK and Europe USA Total reportable segments 2023 102,941 43,867 593,399 740,207 2022 94,405 46,235 381,484 522,124 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 2023 72,423 3,506 (20,222) 55,707 2022 64,196 3,293 (17,440) 50,049 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 2022 amounted to $17,440,000. 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. E N E R O A N N U A L R E P O R T F Y 2 0 2 3 P A G E 7 9 78 Enero Group Limited Annual Report 2023 Enero Group Limited Annual Report 2023 79 Notes to the consolidated financial statements NOTES TO THE CONSOLIDATED for the year ended 30 June 2023 FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 0 8 E G A P 3 2 0 2 Y F T R O P E R L A U N N A O R E N E 3. Revenue (continued) 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 2023 1,889 2,311 232 4,432 2022 29 441 520 990 Foreign exchange loss of $199,000 (2022: gain of $376,000) 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. Notes to the consolidated financial statements for the year ended 30 June 2023 E N E R O A N N U A L R E P O R T F Y 2 0 2 3 P A G E 8 1 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% (2022: 30%) Increase/(decrease) in income tax expense due to: Share-based payment expense Unwind of present value interest Contingent consideration fair value (gain)/loss Incidental acquisition costs Gain on disposal of controlled entities Effect of lower tax rate on overseas incomes Over provision for tax in previous years Other non-assessable items Income tax expense on pre-tax net profit 2023 14,821 (194) 14,627 (159) (159) 14,468 81,476 14,468 95,944 28,783 – 682 (10,399) 65 – (4,161) (194) (308) 14,468 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 receivable of $3,137,000 (tax receivable $3,298,000 and tax payable $161,000) at 30 June 2023 (2022: net current tax payable $1,576,000). 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 before set-off Set-off Net deferred tax assets 2023 3,653 1,643 279 154 42 519 6,290 (4,708) 1,582 2022 3,653 1,613 1,076 695 10 66 7,113 (5,093) 2,020 80 Enero Group Limited Annual Report 2023 Enero Group Limited Annual Report 2023 81 2 8 E G A P 3 2 0 2 Y F T R O P E R L A U N N A O R E N E Notes to the consolidated financial statements NOTES TO THE CONSOLIDATED for the year ended 30 June 2023 FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 Notes to the consolidated financial statements for the year ended 30 June 2023 5. Income tax expense and deferred tax (continued) 6. Cash and cash equivalents In thousands of AUD Deferred tax liabilities Fair value gain Identifiable intangibles Plant and equipment Work in progress Others Gross deferred tax liabilities before set-off Set-off Net deferred tax liability 2023 (3,653) (5,767) (41) (705) – (10,166) 4,708 (5,458) 2022 (3,653) (729) (171) (469) (71) (5,093) 5,093 – 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. 2023 2,745 235,324 238,069 2022 3,152 235,324 238,476 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. 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. 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 2023 51,667 765 52,432 2022 96,618 2,124 98,742 Included within cash and cash equivalents are funds held by ROI DNA in relation to the media advertising spend paid in advance by customers according to the contractual terms which amounted to $6,500,000. As such, this balance is restrictive in use. 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 $683,000 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 2023 52,432 2022 98,742 81,476 42,221 Add/(less) non-cash items: Gain 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 (gain)/loss Contingent consideration present value interest Lease present value interest Accrued interest and fees on bank loan Decrease in income taxes payable (net) (Increase)/decrease 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 (Decrease)/Increase in unearned income (Decrease)/Increase in employee benefits Net cash from operating activities – 16 2,501 2,077 4,253 3,739 (34,648) 2,311 232 37 (3,285) (172) (600) 8 1,902 1,722 3,996 1,222 1,001 441 520 – (579) 18 58,537 51,872 (4,661) (213) (948) 233 14,177 (5,122) (523) 61,480 (17,275) (535) (692) 24 13,040 1,030 1,356 48,820 E N E R O A N N U A L R E P O R T F Y 2 0 2 3 P A G E 8 3 82 Enero Group Limited Annual Report 2023 Enero Group Limited Annual Report 2023 83 4 8 E G A P 3 2 0 2 Y F T R O P E R L A U N N A O R E N E Notes to the consolidated financial statements NOTES TO THE CONSOLIDATED for the year ended 30 June 2023 FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 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 2023 2022 19 72,423 (617) 71,806 2,995 74,801 64,196 (225) 63,971 24 63,995 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 2023 3,506 3,760 478 7,744 169 169 2022 3,293 2,812 7 6,112 162 162 Notes to the consolidated financial statements for the year ended 30 June 2023 E N E R O A N N U A L R E P O R T F Y 2 0 2 3 P A G E 8 5 Office furniture and equipment Plant and equipment Leasehold improvements Total 9. Plant and equipment Computer equipment 5,243 (3,691) 1,552 In thousands of AUD 2023 2,136 Cost (1,713) Accumulated depreciation 423 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 combinations (Note 22) Depreciation Effect of movements in exchange rates Disposals Carrying amount at the end of the year (1,038) 66 – 1,552 (163) 17 (2) 423 1,575 690 301 259 266 4 4,528 (2,953) 1,575 2022 2,055 Cost (1,789) Accumulated depreciation 266 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 (Note 23) Depreciation Effect of movements in exchange rates Disposals Carrying amount at the end of the year (736) 8 (8) 1,575 (201) 3 – 266 1,041 33 52 (33) 1,254 (17) 445 – 174 (174) – 7 – – (1) – (6) – 4,672 (4,080) 592 1,352 96 17 (875) 21 (19) 592 228 (221) 7 6,302 (4,950) 1,352 9 – – – (3) 1 – 7 2,088 55 – – (782) (4) (5) 1,352 12,225 (9,658) 2,567 3,200 1,087 280 (2,077) 104 (27) 2,567 13,113 (9,913) 3,200 3,796 1,148 – (17) (1,722) 8 (13) 3,200 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. 84 Enero Group Limited Annual Report 2023 Enero Group Limited Annual Report 2023 85 Notes to the consolidated financial statements NOTES TO THE CONSOLIDATED for the year ended 30 June 2023 FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 6 8 E G A P 3 2 0 2 Y F T R O P E R L A U N N A O R E N E 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 Acquisition through business combinations (Note 22) Re-measurement of lease liabilities Depreciation Effect of movements in exchange rates Carrying amount at the end of the year 2023 2022 24,196 (11,216) 12,980 5,950 5,129 239 5,536 (4,253) 379 12,980 17,300 (11,350) 5,950 7,979 – – 1,945 (3,996) 22 5,950 During the current year, the Group recognised $61,000 (2022: $91,000) 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; 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. Notes to the consolidated financial statements for the year ended 30 June 2023 11. Intangible assets In thousands of AUD 2023 Cost Accumulated amortisation Net carrying amount Reconciliations of the carrying amounts of intangibles: Carrying amount at the beginning of the year Acquired through business combinations Amortisation Effect of movements in exchange rates Carrying amount at the end of the year 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 entities Amortisation Effect of movements in exchange rates Carrying amount at the end of the year E N E R O A N N U A L R E P O R T F Y 2 0 2 3 P A G E 8 7 Goodwill Contracts and customer relationships Website Total 206,246 (954) 205,292 112,236 88,297 – 4,759 205,292 112,236 – 112,236 114,506 (856) – (1,414) 112,236 30,011 (9,094) 20,917 2,428 22,183 (3,694) – 20,917 7,759 (5,331) 2,428 3,650 – (1,222) – 2,428 1,519 (45) 1,474 – 1,519 (45) – 1,474 – – – – – – – – 237,776 (10,093) 227,683 114,664 111,999 (3,739) 4,759 227,683 119,995 (5,331) 114,664 118,156 (856) (1,222) (1,414) 114,664 Amortisation charge The amortisation charge of $3,739,000 (2022: $1,222,000) 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 ROI DNA GetIT Net carrying amount . 2023 2022 101,074 15,921 80,603 7,694 96,315 15,921 – – 205,292 112,236 86 Enero Group Limited Annual Report 2023 Enero Group Limited Annual Report 2023 87 Notes to the consolidated financial statements NOTES TO THE CONSOLIDATED for the year ended 30 June 2023 FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 8 8 E G A P 3 2 0 2 Y F T R O P E R L A U N N A O R E N E 11. Intangible assets (continued) Accounting policy (i) Goodwill Goodwill acquired in a business combination is initially measured at cost. Cost is measured as the cost of the business combination minus the net fair value of the acquired and identifiable assets, liabilities and contingent liabilities. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is allocated to cash-generating units expected to benefit from synergies created by the business combination. Goodwill is not amortised, but instead is reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. (ii) 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 to six-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. Notes to the consolidated financial statements for the year ended 30 June 2023 E N E R O A N N U A L R E P O R T F Y 2 0 2 3 P A G E 8 9 12. Trade and other payables In thousands of AUD Current Trade payables Other payables and accrued expenses Unearned revenue 2023 53,633 24,461 20,222 98,316 2022 41,026 18,030 17,440 76,496 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 Total Reconciliations of the carrying amounts of contingent consideration payable: Carrying amount at the beginning of the year Recognised in business combinations (Note 22) 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 2023 4,316 26,424 30,740 10,113 53,467 (34,648) 2,311 2,168 (2,671) 30,740 2022 2,711 7,402 10,113 20,126 – 1,001 441 (455) (11,000) 10,113 During the current year, the Group recognised a contingent consideration fair value gain of $34,648,000 (2022: 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, ROI DNA and GetIT. 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 (MBA), ROI DNA and GetIT subsequent to the reporting date. Factors which could vary the amount of contingent consideration payable due include a net revenue, EBITDA and EBIT threshold for future payments, the basis of the average net revenue over the contingent consideration period and purchase price cap . Actual future payments may differ from the estimated liability. A sensitivity analysis for Contingent consideration payable is disclosed in Note 19 Financial risk management/financial instruments. Level 3 fair values Refer to Note 19. 88 Enero Group Limited Annual Report 2023 Enero Group Limited Annual Report 2023 89 0 9 E G A P 3 2 0 2 Y F T R O P E R L A U N N A O R E N E Notes to the consolidated financial statements NOTES TO THE CONSOLIDATED for the year ended 30 June 2023 FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 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 Acquired controlled entities 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. 2023 4,264 9,878 14,142 8,597 5,139 239 5,535 (6,053) 232 453 14,142 2022 5,841 2,756 8,597 11,851 – – 1,945 (5,732) 520 13 8,597 Notes to the consolidated financial statements for the year ended 30 June 2023 E N E R O A N N U A L R E P O R T F Y 2 0 2 3 P A G E 9 1 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 2023 2022 4,677 1,180 5,857 1,027 4,442 1,237 5,679 783 The Group has recognised $2,532,000 (2022: $2,315,000) 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. 90 Enero Group Limited Annual Report 2023 Enero Group Limited Annual Report 2023 91 Notes to the consolidated financial statements NOTES TO THE CONSOLIDATED for the year ended 30 June 2023 FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 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: Notes to the consolidated financial statements for the year ended 30 June 2023 2023 8,735 2022 36,275 17. Capital and reserves In thousands of AUD Share capital Ordinary shares, fully paid 2023 2022 117,815 104,861 2 9 E G A P 3 2 0 2 Y F T R O P E R L A U N N A O R E N E In thousands of AUD Bank loan (cash advance) Indemnity guarantee Credit card 2023 Available 50,000 3,351 1,345 54,696 2023 Utilised 8,735 2,031 306 11,072 2022 Available 50,000 3,618 1,575 55,193 2022 Utilised 36,275 2,103 321 38,699 The Group was in compliance with all covenants as at 30 June 2023. 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). The bank loan matures in June 2025 at a commercial interest rate. In the case of funds drawn in AUD, the interest rate is Bank Bill Swap rate (BBSY) plus margin. In the case of funds drawn in USD, the interest rate is Secured Overnight Funding Rate (SOFR) plus a credit adjustment spread. 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 $683,000 for indemnity guarantee facilities at 30 June 2023. 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. E N E R O A N N U A L R E P O R T F Y 2 0 2 3 P A G E 9 3 The Company does not have authorised capital or par value in respect of its shares. Movement in ordinary shares Balance at beginning of year Shares issued to the employees of the Group on exercise of Share Appreciation Rights(i) Shares issued to vendors of ROI DNA and GetIT(ii) Share buy-back Balance at end of year 2023 Shares 88,045,107 820,120 3,855,147 (386,059) 92,334,315 2023 In thousands of AUD 104,861 2022 Shares 86,655,518 2022 In thousands of AUD 100,456 2,690 10,857 1,389,589 - (593) 117,815 - 88,045,107 4,405 - - 104,861 (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 $3.28 (2022: $3.17). (ii) Share capital recognised on shares issued to vendors of ROI DNA and GetIT. 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. Share buy-back When the Company re-acquires its own ordinary shares as the result of a share buy-back, those shares are deducted from equity and the associated shares are cancelled. No gain or loss is recognised in the consolidated income statement and the consideration paid including any directly attributable incremental costs is recognised directly in equity. On 4 April 2023, the Company announced an on-market buy-back of shares with a maximum number of ordinary Enero shares to be acquired of 8,804,510 which commenced on 1 May 2023. From 1 May 2023 to 30 June 2023 the Company purchased and cancelled 386,059 ordinary shares at a total cost of $592,931 including brokerage costs at an average of $1.54 excluding brokering costs. 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 2023 Fully franked final dividend – 2022 Fully franked interim dividend – 2023 Subsequent to the balance sheet date, at the date of this report Fully franked final dividend – 2023 During the year ended 30 June 2022 Fully franked final dividend – 2021 Fully franked interim dividend – 2022 Cents per share 6.5 6.5 4.5 4.4 6.0 Total amount in thousands of AUD Date of payment 6,027 6,027 4 October 2022 15 March 2023 4,149 3 October 2023 3,874 5,283 6 October 2021 16 March 2022 Dividend franking account In thousands of AUD Franking credits available for future years at 30% to shareholders of Enero Group Limited 2023 5,273 2022 9,934 92 Enero Group Limited Annual Report 2023 Enero Group Limited Annual Report 2023 93 Notes to the consolidated financial statements NOTES TO THE CONSOLIDATED for the year ended 30 June 2023 FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 Notes to the consolidated financial statements for the year ended 30 June 2023 4 9 E G A P 3 2 0 2 Y F T R O P E R L A U N N A O R E N E 17. Capital and reserves (continued) 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 2023 81,476 (25,002) 56,474 2023 92,485 619 93,104 2023 61.1 60.7 2022 42,221 (16,834) 25,387 2022 87,756 2,257 90,013 2022 28.9 28.2 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. E N E R O A N N U A L R E P O R T F Y 2 0 2 3 P A G E 9 5 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 2022 2023 63,971 71,806 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 raised during year Provision used during year Balance at 30 June 2023 225 2022 232 255 137 – 617 19 – (26) 225 Average credit loss for year(i) Credit loss provision at balance date(ii) – – 0.9% 0.4% (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 2023 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 2023 63,872 7,042 892 617 72,423 (617) 71,806 2022 61,318 2,430 223 225 64,196 (225) 63,971 (i) Impairment includes trade receivables specifically impaired of $427,000 (2022: $35,000) plus expected credit losses of $190,000 (2022: $190,000). 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 2023, the Group entered into transactions with approximately 470 unique customers. The 10 largest customers accounted for 56% of Net Revenue for the year ended 30 June 2023, with no one customer accounting for more than 20% 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 2022 2023 6 52,432 98,742 7 8 8 74,801 3,506 169 130,908 63,995 3,293 162 166,192 94 Enero Group Limited Annual Report 2023 95 Enero Group Limited Annual Report 2022 E N E R O A N N U A L R E P O R T F Y 2 0 2 3 P A G E 9 7 6 9 E G A P 3 2 0 2 Y F T R O P E R L A U N N A O R E N E Notes to the consolidated financial statements NOTES TO THE CONSOLIDATED for the year ended 30 June 2023 FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 Notes to the consolidated financial statements for the year ended 30 June 2023 19. Financial risk management/financial instruments (continued) 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 2023, 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 $8,735,000 at 30 June 2023 (30 June 2022: $36,275,000) are variable rate financial instruments. Cash flow sensitivity analysis for variable-rate instruments A reasonably possible change of 100 basis points in interest rates at the reporting dates would have increased (decreased) equity and profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular foreign currency exchange rate, remain constant. 2023 In thousands of AUD Interest-bearing liabilities Profit or Loss 100 bp increase 313 100 bp decrease (313) Equity 100 bp increase 100 bp decrease 313 (313) 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 74% of their Net Revenue and 87% of their EBITDA from international markets. 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 2023, the Group held USD denominated banks loans of 8,735,000 (USD 5,800,000 (2022: 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. The following are the contractual maturities of financial liabilities, including estimated interest payments. 2023 In thousands of AUD Non-derivative financial liabilities Lease liabilities Trade and other payables (excluding unearned revenue) Contingent consideration payable Interest bearing liabilities 2022 In thousands of AUD Non-derivative financial liabilities Lease liabilities Trade and other payables (excluding unearned revenue) Contingent consideration payable Interest bearing liabilities1 Carrying amount Contractual cash flows Less than 1 year 1 to 5 years Over 5 years 14,142 15,385 4,827 10,528 78,094 30,740 8,735 131,711 78,094 30,349 9,149 132,977 78,094 4,516 547 87,984 – 25,833 8,602 44,963 30 – – 30 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 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. It is not expected that the cash flows included in the maturity analysis could occur significantly earlier or at significantly different amounts. Liquidity risk in relation to contingent consideration liabilities There are critical accounting estimates and judgements in relation to contingent consideration liabilities. Refer to Note 13 Contingent consideration payable for further details. There are no other significant uncertainties in the timing or amounts of contractual liabilities. Enero Group Limited Annual Report 2023 96 Enero Group Limited Annual Report 2023 97 8 9 E G A P 3 2 0 2 Y F T R O P E R L A U N N A O R E N E Notes to the consolidated financial statements NOTES TO THE CONSOLIDATED for the year ended 30 June 2023 FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 Notes to the consolidated financial statements for the year ended 30 June 2023 19. Financial risk management/financial instruments (continued) 19. Financial risk management/financial instruments (continued) 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: 2023 2022 Consolidated In thousands of AUD Cash at bank and on hand Bank short-term deposits Trade receivables Trade and other payables (excluding unearned revenue) Contingent consideration payable Lease liabilities Interest bearing liabilities Fair value measurement: Level 3 fair values Note Carrying amount 51,667 765 71,806 6 6 7 Fair value Carrying amount Fair value 96,618 2,124 63,971 96,618 2,124 63,971 51,667 765 71,806 12 13 14 16 (78,094) (78,094) (59,056) (59,056) (30,740) (14,142) (8,735) (30,740) (14,142) (8,735) (10,113) (8,597) (36,275) (10,113) (8,597) (36,275) 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. There is uncertainty around the actual payments that will be made as the payments are subject to the performance of McDonald Butler Associates (MBA), ROI DNA and GetIT subsequent to the reporting date. Factors which could vary the amount of contingent consideration payable due include a net revenue, EBITDA and EBIT threshold for future payments, the basis of the average net revenue over the contingent consideration period and purchase price cap. Actual future payments may differ from the estimated liability. Type Contingent consideration payable Valuation technique Discounted cash flows: The valuation model considers the present value of expected capped payments (payable over 3 years), discounted using a risk-adjusted discount rate. The expected payment is determined by considering forecast performance indicators, the amount to be paid under each scenario and the probability of each scenario. Significant unobservable inputs – Forecast performance indicator. – Risk-adjusted discount rate: 4.28% - 5.52% Inter-relationship between significant unobservable inputs and fair value measurement The estimated fair value would increase (decrease) if: – the forecast performance indicators are higher (lower); or – the risk-adjusted discount rates were lower (higher). 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 2023 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 performance indicator Movement of 7.5% in forecast performance indicator Movement of 0.5% in risk-adjusted discount rate Increase 1,957 2,935 (513) Decrease (1,863) (2,730) 522 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. 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. E N E R O A N N U A L R E P O R T F Y 2 0 2 3 P A G E 9 9 98 Enero Group Limited Annual Report 2023 Enero Group Limited Annual Report 2023 99 Notes to the consolidated financial statements for the year ended 30 June 2023 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 0 0 1 E G A P 3 2 0 2 Y F T R O P E R L A U N N A O R E N E 19. Financial risk management/financial instruments (continued) Non-derivative financial liabilities (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. Notes to the consolidated financial statements for the year ended 30 June 2023 E N E R O A N N U A L R E P O R T F Y 2 0 2 3 P A G E 1 0 1 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. 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. ROI DNA and GetIT were acquired on 1 July 2022. Goodwill arising from the acquisition of these new businesses is required to be tested independently of other goodwill amounts as this represents the lowest level at which the performance of the respective businesses is monitored due to the terms of the earn-out agreements. 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. 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 Net Revenue and EBITDA results. Projected cash flows for year two onwards have then been built off Net Revenue and EBITDA growth for each CGU. 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: CGU Groups 2023 Brand Transformation Creative Technology and Data ROI DNA GetIT Post-tax discount rate % 10.5 – 11.8 Growth rate (CAGR) % Long-term perpetuity growth rate % 12.0 2.5 11.0 14.9 2.5 10.5 34.4 2.5 10.2 46.2 2.5 CGU Groups 2022 Post-tax discount rate % Growth rate (CAGR) % Long-term perpetuity growth rate % Brand Transformation Creative Technology and Data 9.1 – 10.5 4.9 2.5 10.5 8.0 2.5 100 Enero Group Limited Annual Report 2023 Enero Group Limited Annual Report 2023 101 Notes to the consolidated financial statements NOTES TO THE CONSOLIDATED for the year ended 30 June 2023 FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 2 0 1 E G A P 3 2 0 2 Y F T R O P E R L A U N N A O R E N E 20. Impairment of non-financial assets (continued) Sensitivity range for impairment testing assumptions 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 any of the CGU’s carrying amount to exceed its recoverable amount with the exception of the GetIT CGU. The estimated recoverable amount of the GetIT CGU exceeded its carrying amount by approximately $63,000. Management has identified that a reasonably possible change in two key assumptions could cause the carrying amount to exceed the recoverable amount as shown below: GetIT CGU Discount rate Budgeted EBITDA growth rate Change required for carrying amount to equal recoverable amount 0.5% (0.4%) 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. Notes to the consolidated financial statements for the year ended 30 June 2023 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 (Dormant) Naked Communications Australia Pty Limited (Dormant) 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 (Dormant) – Hotwire Global Communications Pte Ltd - GetIT Pte Ltd (Acquired July 2022) - GetIT Japan G.K. (Acquired July 2022) - GetIT Comms Sdn Bhd (Acquired July 2022) - GetIT Communications Private Limited (Acquired July 2022) The Digital Edge Online Consultants Pty Limited (Dormant) Brigade Pty Limited (Dormant) 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 – OBMedia Network 1 L.T.D Domain Active LLC IdealAds LLC SiteMath LLC – Clicksciences.com LLC Orchard Creative Technology Inc. Hotwire Public Relations Group LLC ROI DNA, Inc (Acquired July 2022) E N E R O A N N U A L R E P O R T F Y 2 0 2 3 P A G E 1 0 3 2023 % 2022 % Country of incorporation 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 51 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 - - - - 100 100 100 100 100 100 100 100 100 51 - 51 51 51 51 100 100 - Australia UK Australia USA Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Singapore Singapore Japan Malaysia India Australia Australia UK Germany France Spain Italy UK UK USA Israel USA USA USA USA USA USA USA 102 Enero Group Limited Annual Report 2023 Enero Group Limited Annual Report 2023 103 4 0 1 E G A P 3 2 0 2 Y F T R O P E R L A U N N A O R E N E Notes to the consolidated financial statements NOTES TO THE CONSOLIDATED for the year ended 30 June 2023 FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 Notes to the consolidated financial statements for the year ended 30 June 2023 21. Controlled entities (continued) 22. Acquisitions 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. 2023 On 1 July 2022, the Group acquired 100% of the issued capital of ROI DNA Inc. (“ROI DNA”), a USA based strategic B2B sales and marketing agency. The purchase consideration was an upfront payment of $38,306,000 (US$26,400,000) in cash and $9,014,000 (US$6,600,000) of Enero Group Limited shares. The Group agreed to pay the selling shareholders over three years additional consideration up to $82,707,000 based on the acquiree’s EBITDA each year. The Group has included $47,887,000 as contingent consideration related to the estimated additional earn-out payments, which represents its fair value at the date of acquisition. At 30 June 2023, the contingent consideration had decreased to $21,556,000 due to lower earnings expectations. On 1 July 2022, the Group acquired 100% of the issued capital of GetIT Pte Ltd (“GetIT”), a Singapore based specialist B2B technology marketing agency with presence in India, Malaysia and Japan. The purchase consideration was an upfront payment of $2,816,000 (S$2,700,000) in cash and $1,843,000 (S$1,800,000) of Enero Group Limited shares. The Group agreed to pay the selling shareholders over three years additional consideration up to $10,952,000 based on the acquiree’s EBIT each year. The Group included $5,580,000 as contingent consideration related to the estimated additional earn-out payments, which represents its fair value at the date of acquisition. At 30 June 2023, the contingent consideration had decreased to $2,969,000 due to lower earnings expectations. The acquisition of both ROI DNA and GetIT and introduction of revenue services to complement the reputation and relationship services will enable the Group to strategically reposition the Hotwire agency and provide a unique marketplace offering. The acquisitions will also expand its footprint into Asia Pacific and provide further opportunities to support global technology clients. For the 12 months ended 30 June 2023, ROI DNA contributed net revenue of $27,700,000 and EBITDA of $2,900,000 to the Group’s results. GetIT Pte Ltd contributed net revenue of $2,200,000 and EBITDA of $200,000 to the Group’s results. In the prior year’s subsequent event disclosure, these acquisitions were still subject to further review by management as the Group had 12 months from the date of acquisition to finalise its purchase price accounting. The accounting for these business combinations have now been finalised in the current year, including the allocation of the purchase price to goodwill and any other qualifying intangible assets. Fair value of the net identifiable assets and liabilities acquired at the date of acquisition for ROI DNA were: E N E R O A N N U A L R E P O R T F Y 2 0 2 3 P A G E 1 0 5 In thousands of AUD Cash and cash equivalents Trade and other receivables Current tax asset Other assets Property, plant and equipment Other intangible assets Trade and other payables Unearned revenue Deferred tax liability Employee benefits Net assets acquired Value of goodwill In thousands of AUD Initial consideration Estimate of contingent consideration payable Total consideration Less: Working capital adjustment Less: fair value of net assets acquired Effect of movement in exchange rate Value of goodwill Fair value recognition on acquisition 12,108 5,396 1,415 423 196 19,223 (2,274) (7,510) (5,618) (810) 22,549 47,320 47,887 95,207 (17) (22,549) 7,962 80,603 104 Enero Group Limited Annual Report 2023 Enero Group Limited Annual Report 2023 105 6 0 1 E G A P 3 2 0 2 Y F T R O P E R L A U N N A O R E N E Notes to the consolidated financial statements NOTES TO THE CONSOLIDATED for the year ended 30 June 2023 FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 22. Acquisitions (continued) Fair value of the net identifiable assets and liabilities acquired at the date of acquisition for GetIT were: In thousands of AUD Cash and cash equivalents Trade and other receivables Other assets Property, plant and equipment Other intangible assets Trade and other payables Unearned revenue Deferred tax liability Bank loans Net assets acquired Value of goodwill In thousands of AUD Initial consideration Estimate of contingent consideration payable Total consideration Less: Working capital adjustment Less: fair value of net assets acquired Effect of movement in exchange rate Value of goodwill Fair value recognition on acquisition 866 934 86 83 2,960 (833) (341) (468) (315) 2,972 4,659 5,580 10,239 (352) (2,972) 779 7,694 E N E R O A N N U A L R E P O R T F Y 2 0 2 3 P A G E 1 0 7 Notes to the consolidated financial statements for the year ended 30 June 2023 23. Disposals 2023 There were no disposals in the year ended 30 June 2023. 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 220 18 17 255 (458) (235) (693) (438) 1,144 (856) 438 (126) 600 1,350 (206) (126) 1,018 106 Enero Group Limited Annual Report 2023 Enero Group Limited Annual Report 2023 107 8 0 1 E G A P 3 2 0 2 Y F T R O P E R L A U N N A O R E N E Notes to the consolidated financial statements NOTES TO THE CONSOLIDATED for the year ended 30 June 2023 FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 24. Parent entity disclosures As at, and throughout, the financial year ended 30 June 2023, the parent company of the Group was Enero Group Limited. In thousands of AUD Result of the parent entity Loss for the year Other comprehensive income Total comprehensive loss 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 2023 (5,572) – (5,572) 17,164 132,849 28,183 37,229 95,620 117,815 7,900 15,636 (45,731) 95,620 The Company 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 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 2023. Notes to the consolidated financial statements for the year ended 30 June 2023 E N E R O A N N U A L R E P O R T F Y 2 0 2 3 P A G E 1 0 9 Statement of financial position In thousands of AUD Assets Cash and cash equivalents Trade and other receivables Income tax receivable 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 Lease liabilities Employee benefits Total current liabilities Lease liabilities Deferred tax 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 2023 2022 9,162 12,209 2,950 1,295 25,616 45,330 35,013 5,378 921 7,296 16,333 110,271 135,887 17,066 2,640 2,447 22,153 5,557 3.966 550 10,073 32,226 103,661 117,815 7,900 15,637 (37,691) 103,661 14,930 7,354 – 1,131 23,415 53,752 30,493 1,945 1,626 2,800 15,531 106,147 129,562 17,230 3,375 2,484 23,089 1,347 – 389 1,736 24,825 104,737 104,861 8,089 27,690 (35,903) 104,737 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 2023, 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 expenses Administration expenses Gain on disposal of business Incidental acquisition costs Restructuring costs Finance income Finance costs Management fees received from subsidiaries Loan receivable impairment Dividends received from subsidiaries Loss before income tax Income tax benefit/(expense) Loss for the year Attributable to: Equity holders of the Company 2023 64,213 (32,721) 31,492 2 (30,743) (244) (572) (398) (1,419) (2,084) (1,983) – (50) (374) 275 (389) 3,879 – – (2,608) 820 (1,788) 2022 55,995 (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) (1,788) (2,719) 108 Enero Group Limited Annual Report 2023 Enero Group Limited Annual Report 2023 109 Notes to the consolidated financial statements NOTES TO THE CONSOLIDATED for the year ended 30 June 2023 FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 Notes to the consolidated financial statements for the year ended 30 June 2023 0 1 1 E G A P 3 2 0 2 Y F T R O P E R L A U N N A O R E N E 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 2023 68 9 – 2022 96 11 – 77 107 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 2023. 28. Subsequent events Transactions or events subsequent to the balance date, were: • the Directors have declared a final dividend, with respect to ordinary shares, of 4.5 cents per share, fully franked. The final dividend will have a record date of 19 September 2023 and a payment date of 3 October 2023. 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 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. During the year ended 30 June 2023, the CEO of ROI DNA, Matt Quirie entered into a transaction for US $247,000 for ROI DNA to build a website for Matt Quirie’s company. 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. 2023 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 Share-based payments – Share Appreciation Rights Total Key Management Personnel compensation 2022 2,969,498 3,242,268 7,810 73,621 – 14,100 75,876 – 4,385,571 4,308,584 1,326,097 984,885 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: E N E R O A N N U A L R E P O R T F Y 2 0 2 3 P A G E 1 1 1 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 2023 21 October 2020 3,900,000 Senior Executives 21 October 2021 4,525,000 Senior Executives 21 October 2022 4,425,000 Senior Executives $1.52 $3.02 $2.85 30 June 2021 30 June 2022 30 June 2023 30 September 2023 908,340 30 June 2022 30 June 2023 30 June 2024 30 September 2024 3,016,670 30 June 2023 30 June 2024 30 June 2025 30 September 2025 4,425,000 110 Enero Group Limited Annual Report 2023 Enero Group Limited Annual Report 2023 111 2 1 1 E G A P 3 2 0 2 Y F T R O P E R L A U N N A O R E N E Notes to the consolidated financial statements NOTES TO THE CONSOLIDATED for the year ended 30 June 2023 FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 30. Share-based payments (continued) Share Appreciation Rights (SARs) Summary of rights over unissued ordinary shares Grant date 2023 24 Oct 2019 21 Oct 2020 21 Oct 2021 21 Oct 2022 Grant date 2022 18 Oct 2018 24 Oct 2019 21 Oct 2020 21 Oct 2021 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 2022 30 Sept 2023 30 Sept 2024 30 Sep 2025 $2.13 $1.52 $3.02 $2.85 – 416,670 – 416,670 – 2,066,670 – 1,033,330 – 4,525,000 - 1,508,330 – – 4,425,000 - 7,008,340 4,425,000 2,958,330 – – – - – - - 125,000 908,340 – - 3,016,670 4,425,000 125,000 8,350,010 – – – – – – – – – – – – – – 146,087 0.9–2.9 554,472 0.9–2.9 119,561 0.9–2.9 – 0.9–2.9 820,120 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 The number and weighted average exercise price of share rights is as follows: VWAP (for the 20 business days prior to the grant) 2023 $ 2.52 Weighted average exercise price 2023 – VWAP (for the 20 business days prior to the grant) 2022 $ 1.59 Number of rights 2023 7,008,340 Weighted average exercise price 2022 – 1.52 2.37 2.85 – – – – – – – (125,000) (2,958,330) 4,425,000 8,350,010 – 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 Exercised during the period Granted during the period Outstanding at 30 June Exercisable at 30 June The SARs outstanding at 30 June 2023 have a VWAP (for the 20 business days prior to the grant) range of $1.52 to $3.02 (30 June 2022: $1.23 to $3.02). The SARs outstanding at 30 June 2023 have a weighted average contractual life of 0.96 years (30 June 2022: 1.05 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 2023 for share-based payment transactions were $2,501,000 (2022: $1,902,000). The VWAP for the 20 business days prior the date of exercise of SARs on 15 September 2022 was $3.28. Notes to the consolidated financial statements for the year ended 30 June 2023 E N E R O A N N U A L R E P O R T F Y 2 0 2 3 P A G E 1 1 3 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: Expiry date Value per SAR $ 30 Sept 2023 0.35 – 0.40 30 Sept 2024 0.64 – 0.85 30 Sept 2025 0.41 – 0.68 VWAP (for the 20 business days prior to the grant) $ 1.52 3.02 2.85 Price of shares on grant date $ 1.70 3.38 2.80 Expected volatility % Risk-free interest rate % 35-55 0.07-0.25 40-50 0.01-0.36 40-45 0.03-0.04 Dividend yield % Expected life (years) 4.7 0.9–2.9 5.0 0.9–2.9 4.0 0.9–2.9 Grant date 21 Oct 2020(i) 21 Oct 2021(ii) 21 Oct 2022(iii) (i) 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. (ii) 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. (iii) Grant is in relation to SARs provided to senior employees of the Group which were issued on 21 October 2022. 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 2025, which is estimated to be around 30 September 2025. 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 2023 2022 565,000 335,632 900,632 – 144,000 144,000 357,000 136,000 493,000 – 295,000 295,000 112 Enero Group Limited Annual Report 2023 Enero Group Limited Annual Report 2023 113 Directors’ Declaration DIRECTORS’ DECLARATION INDEPENDENT AUDITOR’S REPORT 4 1 1 E G A P 3 2 0 2 Y F T R O P E R L A U N N A O R E N E 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 72 to 113 and the Remuneration Report set out on pages 58 to 66 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 2023 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 2023 pursuant to section 295A of the Corporations Act 2001. Independent Auditor’s Report To the shareholders of Enero Group Limited 4. The Directors draw attention to Note 1(b) to the consolidated financial statements, which includes a statement of Report on the audit of the Financial Report compliance with International Financial Reporting Standards. E N E R O A N N U A L R E P O R T F Y 2 0 2 3 P A G E 1 1 5 Dated at Sydney this 18 day of August 2023. Signed in accordance with a resolution of the Directors: Ann Sherry AO Chair 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 2023 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 2023 • 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. 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. Enero Group Limited Annual Report 2023 114 6 1 1 E G A P 3 2 0 2 Y F T R O P E R L A U N N A O R E N E INDEPENDENT AUDITOR’S REPORT Key Audit Matters The Key Audit Matters we identified are: • Revenue recognition • Annual impairment testing of goodwill • Acquisition accounting Revenue recognition ($740.2 million) Refer to Note 3 to the Financial Report 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. 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 $20.2 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 services (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 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 Australian Accounting Standards (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 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: E N E R O A N N U A L R E P O R T F Y 2 0 2 3 P A G E 1 1 7 and inconsistent application. Additional audit effort was required to evaluate the revenue recognised. • • • 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 Australian Accounting Standards and using our understanding obtained from our testing. Annual impairment testing of goodwill ($205.3 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 54% of total assets) and the degree of judgement involved in the significant forward-looking assumptions the Group Our procedures included: • We considered the appropriateness of the value in use method applied by the Group to perform the annual test of goodwill for impairment against the requirements of the accounting standards. 8 1 1 E G A P 3 2 0 2 Y F T R O P E R L A U N N A O R E N E INDEPENDENT AUDITOR’S REPORT applied in their value in use models, including: • • 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, 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 • 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 which impacted businesses which were recently disposed of, 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, impact of the ROI DNA Inc. acquisition, and how independent cash inflows were generated against the requirements of the accounting standards. • We analysed the significant acquisition of ROI DNA Inc. during the year 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 the ROI DNA CGU. • 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 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- E N E R O A N N U A L R E P O R T F Y 2 0 2 3 P A G E 1 1 9 assumptions, and their consistent application. The Group made a significant acquisition of ROI DNA Inc. during the year, necessitating our consideration of the Group’s allocation of goodwill to the CGU to which it belongs based on the management and monitoring of the business. 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 Group’s valuation model 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 Australian Accounting Standards. Acquisition accounting Refer to Note 22 to the Financial Report The key audit matter How the matter was addressed in our audit On 1 July 2022, the Group acquired 100% of ROI DNA Inc. for consideration of $95.2 million, resulting in the recognition of customer relationships and other intangible assets, and goodwill. These transactions are considered to be a key audit matter due to: Our procedures included: • We evaluated the acquisition accounting by the Group against the requirements of Australian Accounting Standards. • We read the underlying transaction agreements to understand the terms of the acquisition and nature of INDEPENDENT AUDITOR’S REPORT 0 2 1 E G A P 3 2 0 2 Y F T R O P E R L A U N N A O R E N E • • • • The size of the acquisition having a significant impact on the Group’s financial statements. The Group’s judgement relating to the estimate of fair value of the contingent consideration. We focused on the forecast cash flows assumptions, which are forward- looking and tend to be prone to greater risk for potential bias. The Group’s judgement and complexity relating to the determination of the fair values of assets and liabilities acquired in the transaction requiring significant audit effort. The Group engaged an external valuation expert to assess the fair value of customer relationships and other intangible assets. The Group’s valuation model used to determine the fair value of acquired intangible assets is complex and sensitive to changes in a number of key assumptions. This drives additional audit effort specifically on the feasibility of these key assumptions and consistency of applicable to the Group’s strategy. The key assumptions we focused on in the valuation of intangible assets included forecast earnings, attrition rates, discount rates and useful lives. the assets and liabilities acquired. • We assessed the accuracy of the calculation and measurement of consideration paid to acquire ROI DNA Inc. based on the underlying transaction agreements, the Group’s bank statements, and issued share certificates. • We challenged the forecast cash flows assumptions for the entity acquired, as it forms the basis of contingent consideration fair value. We assessed the feasibility of these assumptions and consistency of application to industry trends and expectations, and considered differences for the Group’s operations. We used our knowledge of the Group, past performance, business and customers, and our industry experience. • Working with our valuation specialists, we assessed the Group’s external expert reports and: • • • Considered the objectivity, competence and scope of the Group’s external valuation experts. Evaluated the valuation methodology used to determine the fair value of assets and liabilities acquired, considering accounting standard requirements and observed industry practices. Assessed the key assumptions in the Group’s external expert valuation report prepared in relation to the identification and valuation of customer relationships and other intangible assets, including checking forecast earnings assumptions for consistency with the Group’s valuation model used as part of the pre-acquisition due diligence process. • 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 recalculated the goodwill balance recognised as a result of the transaction and compared it to the goodwill amount recorded by the Group. • We assessed the adequacy of disclosures in the Financial Report using our understanding obtained from our testing and against the requirements of Australian Accounting Standards. E N E R O A N N U A L R E P O R T F Y 2 0 2 3 P A G E 1 2 1 Other Information Other Information is financial and non-financial information in Enero Group Limited’s annual reporting which is provided in addition to the Financial Report and the Auditor’s Report. The Directors are responsible for the Other Information. Our opinion on the Financial Report does not cover the Other Information and, accordingly, we do not express an audit opinion or any form of assurance conclusion thereon, with the exception of the Remuneration Report and our related assurance opinion. In connection with our audit of the Financial Report, our responsibility is to read the Other Information. In doing so, we consider whether the Other Information is materially inconsistent with the Financial Report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. We are required to report if we conclude that there is a material misstatement of this Other Information, and based on the work we have performed on the Other Information that we obtained prior to the date of this Auditor’s Report we have nothing to report. Responsibilities of the Directors for the Financial Report The Directors are responsible for: • preparing the Financial Report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 • • implementing necessary internal control to enable the preparation of a Financial Report that gives a true and fair view and is free from material misstatement, whether due to fraud or error assessing the Group and Company's ability to continue as a going concern and whether the use of the going concern basis of accounting is appropriate. This includes disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless they either intend to liquidate the Group and Company or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the Financial Report Our objective is: • • to obtain reasonable assurance about whether the Financial Report as a whole is free from material misstatement, whether due to fraud or error; and to issue an Auditor’s Report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error. They are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the Financial Report. A further description of our responsibilities for the audit of the Financial Report is located at the Auditing and Assurance Standards Board website at: https://www.auasb.gov.au/admin/file/content102/c3/ar1_2020.pdf. This description forms part of our Auditor’s Report. INDEPENDENT AUDITOR’S REPORT LEAD AUDITOR’S INDEPENDENCE DECLARATION 2 2 1 E G A P 3 2 0 2 Y F T R O P E R L A U N N A O R E N E Report on the Remuneration Report Opinion Directors’ responsibilities In our opinion, the Remuneration Report of Enero Group Limited for the year ended 30 June 2023, 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 58 to 66 of the Directors’ Report for the year ended 30 June 2023. 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 18 August 2023 E N E R O A N N U A L R E P O R T F Y 2 0 2 3 P A G E 1 2 3 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 2023 there have been: i. ii. no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and no contraventions of any applicable code of professional conduct in relation to the audit. KPMG Kristen Peterson Partner Sydney 18 August 2023 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. E N E R O A N N U A L R E P O R T F Y 2 0 2 3 P A G E 1 2 5 ASX additional information ASX ADDITIONAL INFORMATION Corporate Directory CORPORATE DIRECTORY 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 4 July 2023. Company Secretary Catherine Hoyle 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 Perennial Value Management Irish Global Equity UBS Group RG Capital Multimedia Limited Merrill Lynch International Unquoted equity securities Number 16,556,578 12,892,915 12,377,983 6,002,926 5,547,706 5,220,342 4,847,328 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 Automic Group Deutsche Bank, Tower Level 5 126 Phillip St Sydney NSW 2000 Email: hello@automicgroup.com.au Telephone: 1300 288 664 Outside Australia: +61 2 9698 5414 4 2 1 E G A P 3 2 0 2 Y F T R O P E R L A U N N A O R E N E As at 4 July 2023 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 294,469 1,508,410 1,799,210 7,620,168 81,112,058 92,334,315 595 578 238 253 47 1,711 % of issued capital 0.32 1.63 1.95 8.25 87.85 100.00 The number of shareholders holding less than a marketable parcel of ordinary shares is 33. Twenty largest shareholders CITICORP NOMINEES PTY LIMITED HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED NATIONAL NOMINEES LIMITED IRISH GLOBAL EQUITY LIMITED J P MORGAN NOMINEES AUSTRALIA PTY LTD ESCROWED HOLDERS RG CAPITAL MULTIMEDIA LIMITED CH GLOBAL PTY LTD UBS NOMINEES PTY LTD IRISH GLOBAL EQUITY LIMITED Rank Name 1 2 3 4 5 6 7 8 9 10 11 MR FELICE TESTINI 12 NEWECONOMY COM AU NOMINEES PTY LIMITED 13 BETA GAMMA PTY LTD 14 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED – A/C 2 15 RG CAPITAL MULTIMEDIA LIMITED 16 BNP PARIBAS NOMS PTY LTD 17 MRS ANTONIA CAROLINE COLLOPY 18 19 20 MUTUAL TRUST PTY LTD RG CAPITAL MULTIMEDIA LIMITED BNP PARIBAS NOMINEES PTY LTD Total 124 Enero Group Limited Annual Report 2023 Units 19,735,538 16,404,597 8,465,536 4,335,901 3,947,412 3,855,147 3,269,079 2,548,301 2,148,769 1,667,025 1,630,102 1,604,964 1,500,000 1,200,578 1,159,020 1,154,915 788,637 511,945 501,057 474,804 76,903,327 % of issued capital 21.37 17.77 9.17 4.70 4.28 4.18 3.54 2.76 2.33 1.81 1.77 1.74 1.62 1.30 1.26 1.25 0.85 0.85 0.54 0.51 83.29 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 ABN 97 091 524 515 Enero Group Limited Annual Report 2023 125 +61 2 8213 3031 General - info@enero.com Investor Relations - IR@enero.com Level 2, 100 Harris Street Pyrmont NSW 2009 Australia
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