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Annual Report 2021

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ANNUAL REPORT 2021 EMPIRED LIMITED ABN 81 090 503 843 CORPORATE DIRECTORY Principal Places of Business Perth Level 7, The Quadrant 1 William Street Perth WA 6000 Melbourne Level 14 360 Elizabeth Street Melbourne VIC 3000 Auckland Level 1 152 Fanshawe St Auckland 1010 Wellington Level 4 80 Willis Street Wellington 6011 Dunedin 64 Willowbank Dunedin 9016 Adelaide Level 2 8 Leigh Street Adelaide SA 5000 Brisbane Level 11 79 Adelaide Street Brisbane QLD 4000 Sydney Level 12 9 Hunter Street Sydney NSW 2000 Christchurch Level 2 165 Gloucester Street Christchurch 8011 Seattle 2018 156th Ave NE Suite 108 Bellevue, WA, 98007 USA Directors Thomas Stianos (Non-Executive Chairman) John Bardwell (Non-Executive Director) Richard Bevan (Non-Executive Director) Cristiano Nicolli (Non-Executive Director) Russell Baskerville (Managing Director & CEO) Company Secretary David Hinton Registered Office Level 7 The Quadrant 1 William Street Perth WA 6000 Telephone No: +618 6333 2200 Fax No: +618 6333 2323 Company Number A.C.N: 090 503 843 Country of Incorporation Australia Company Domicile and Legal Form Empired Limited is the parent entity and an Australian Company limited by shares Auditors Grant Thornton Audit Pty Ltd Level 43, 152 -158 St Georges Terrace Perth WA 6000 Share Register Computershare Investor Services Pty Ltd Level 11, 172 St Georges Terrace Perth WA 6000 ASX Code EPD Website www.empired.com CONTENTS Corporate Directory Inside front cover Chairman & CEO Review 2 Directors’ Report 4 Remuneration Report 12 Corporate Governance Statement 20 Consolidated Statement of Profit or Loss and Other Comprehensive Income 21 Consolidated Statement of Financial Position 22 Consolidated Statement of Cash Flows 23 Consolidated Statement of Changes in Equity 24 Notes to the Financial Statements 25 Directors’ Declaration 66 Auditor’s Independence Declaration 67 Independent Audit Report 68 Shareholding Analysis 72 Other Information for Shareholders 74 EMPIRED LIMITED | ANNUAL REPORT 2021 1 Dear Fellow Shareholders On behalf of your board of directors, we are very proud to present the Empired Limited 2021 Annual Report. During FY21 your board and management focused on carefully guiding the company out of what had been a heavily disrupted and uncertain period as a result of the COVID-19 pandemic. Pleasingly, in the backdrop of continuing community lockdowns and social restrictions, the IT sector benefited from corporate and government organisations prioritising digital initiatives. The heightened demand that proceeded has provided Empired with favourable economic conditions and confidence to continue to execute on its stated strategy with a renewed focus on growth. Our disciplined approach and clear strategy have delivered outstanding financial performance. For the 2021 financial year Empired Limited delivered revenue of $186m up 12% and normalised Earnings Before Interest Tax Depreciation and Amortisation (EBITDA) of $22.6m up 52% on a like for like basis. Net profit after tax was $10.5m up 72% resulting in earnings per share of 6.57 cents. Operating cash flow of $25.5m was excellent, delivering a balance sheet position with Net Cash of $7.3m on 30 June 2021 which was after the payment of a 1.5 cent per share dividend during the period. A highlight throughout the year has been our ability to attract and retain exceptional people in a highly talent constrained environment resulting from heightened demand combined with limited access to international labour markets and little to no permitted domestic or international travel. During the year we increased our headcount from 905 to 1,089 employees, whilst improving our employee Net Promoter Score (NPS) to +26 and managing our employee retention to above 80%. These measures are industry leading and position the company well as it sets out to continue to expand its talent base and grow revenue. We invested in developing industry solutions, software, IP, and human talent. These were aligned to high growth segments of the IT market including digital transformation, cloud and security. These investments have provided Empired with a highly sought after services and solutions portfolio during a period of robust market demand. This has underpinned strong sales with New Zealand sales up 27%, Australian West Coast sales up 1% and importantly Australian East Coast sales up 44%. Large multi-year contracts, improving predictability and the recurring nature of Empired’s revenue, have always been a central pillar of our strategy. Following the award of a $65m contract with Western Power late in FY20 Empired announced in early FY21 that it had in addition secured a position as one of three service providers to Western Power for Systems Integration services. Empired is the first and only Australian owned company to be selected to provide these strategic services to Western Power and management are confident that this will prove to be the most strategic contract win in the company’s history to date. Following this the company went on to announce key strategic contract awards with the Environmental Protection Authority (EPA) in Victoria for $52m and the Department of Innovation and Skills (DIS) in South Australia for $9m. CHAIRMAN & CEO REVIEW Thomas Stianos NON-EXECUTIVE CHAIRMAN Russell Baskerville MANAGING DIRECTOR & CEO EMPIRED LIMITED | ANNUAL REPORT 2021 CHAIRMAN & CEO REVIEW 2 The EPA of Victoria will rely on Empired to provide management of their core business systems and infrastructure whilst DIS will work with Empired over the coming years on a digital transformation program to modernise the services they provide to the business community through enhanced technology platforms. For a number of years Empired has invested in growing its operations across the Australian East Coast and FY21 demonstrated substantial progress toward this aspiration. Revenue across the Australian East Coast was up 10%, a solid result, however when combined with sales results up 44% and two large multi-year strategic contract wins (EPA and DIS above) the Australian East Coast had an exceptional year. The annual forecast revenue run-rate of the EPA and DIS contracts alone represent an annualised revenue growth of 29% on FY21 East Coast revenue. This provides a sound framework for delivering revenue growth into the Australian East Coast for a number of years ahead. Strategically we have had a strong focus on developing capability around Microsoft platforms and we are pleased to report that this strategy continues to deliver above market performance. During the FY21 year our Microsoft Business Applications group once again delivered the strongest performance of any of our core lines of business. Revenue grew by 30% to $66m and now represents 35% of total revenue. It also generated the highest business contribution margin at 38%. Continually improving financial controls, project risk management systems and ongoing enhancements to Empired’s operational management systems has provided a sound platform for predictable results and margin expansion. During the year Empired’s gross margin (1) improved by 200 basis points to 34% with New Zealand operations delivering EBITDA margin of 19% and Western Australia delivering EBITDA (1) margin of 14%. These measures are again industry leading and as revenue expands across the Australian East Coast, we see no reason why over time it will not achieve a similar margin contribution. From humble beginnings we set an aspirational objective to be recognised as the most respected digital services company across Australia and New Zealand. We believe that we are well advanced toward this aspirational goal. Today Empired boasts excellent organic growth, strong and expanding operating margins, one of the largest employers of IT talent across ANZ with industry leading employee NPS and some of the largest and most strategic clients in the region again with industry leading client NPS. Empired is also in the unique position of having developed a stable of long term, multi-year contracts and a modern digital solutions portfolio. We believe that it is these attributes that have underpinned Empired’s long term success over many years and that have attracted Capgemini, the second largest digital services company in the world, to make a highly compelling offer to acquire Empired. On 19 July 2021, Empired announced that it had entered into a recommended scheme of arrangement for Capgemini to acquire all of the shares in Empired Limited. The offer price of $1.35 per share represents a 65% premium to Empired’s last closing price and values Empired on a fully diluted basis at $234m representing one of the highest EV/EBIT(1) multiples paid in the sector of 16.7x. Should the scheme be implemented we believe that it will crystallise significant value and certainty for our shareholders and we are confident that it will provide outstanding career prospects for our people and significant new opportunities for our clients and partners. On behalf of your board, we would like to sincerely thank our staff for their loyalty, talent and energy that is the centerpiece to Empired’s success and incredible results for our clients. We thank our clients and partners for your ongoing support and extend our gratitude to our shareholders for providing us the opportunity, over many years, to guide your company. We are very proud that with the support of all of our stakeholders and a clear, consistent strategy the company has been able to achieve many of its aspirations and deliver material shareholder value for every shareholder throughout Empired’s journey. Yours faithfully Thomas Stianos NON-EXECUTIVE CHAIRMAN Russell Baskerville MANAGING DIRECTOR & CEO (1)normalised as per page 9 CHAIRMAN & CEO REVIEW EMPIRED LIMITED | ANNUAL REPORT 2021 3 DIRECTORS’ REPORT The Directors present their report on the consolidated entity comprising Empired Limited (“Empired” or “the Company”) and its controlled entities (“the Group”) for the year ended 30 June 2021. 4 EMPIRED LIMITED | ANNUAL REPORT 2021 The names of the Company’s directors in office during the year and until the date of this report are detailed below. Directors were in office for this entire period unless stated otherwise. DIRECTORS Thomas Stianos Non-Executive Chairman - Age 67 Mr Stianos joined the board as a Non-Executive on 29 November 2016 and was appointed Chairman on 1 July 2018. Mr Stianos is widely recognised as one of the most successful and experienced leaders in the IT industry. He is also a member of the Remuneration and Nomination Committee. Mr Stianos was previously the Managing Director of SMS Management & Technology Limited. He is currently Executive Chairman of Escient Pty Ltd. He has also previously held senior positions with the Department of Premier and Cabinet, Department of Justice, and Department of Treasury & Finance. Mr Stianos holds a Bachelor of Applied Science from the University of Melbourne and is a Fellow of the Australian Institute of Company Directors. Other current directorships of listed entities: • Gale Pacific Limited Previous directorships (last 3 years): • Inabox Group Limited Russell Baskerville Managing Director & CEO - Age 43 Mr Baskerville is an experienced business professional and has worked in the IT industry for in excess of 15 years. He has extensive knowledge in both the strategic growth and development of technology businesses balanced by strong commercial and corporate skills including strategy development and execution, IPOs, capital raisings, divestments, mergers and acquisitions. Mr Baskerville has been the Managing Director of Empired for fifteen years and has successfully listed the company on ASX and made a number of successful acquisitions. Mr Baskerville was previously a Non Executive Director of BigRedSky Limited, successfully developed and commercialised a SaaS delivered eRecruitment tool prior to the company being acquired by Thomson Reuters. Other current directorships of listed entities: • None Previous directorships (last 3 years): • None Richard Bevan Non-Executive Director - Age 55 Mr Bevan joined the board as a Non-Executive director on 31 January 2008 with corporate and senior management experience including various directorship’s and CEO/MD roles in ASX listed and private companies, and was appointed Chairman on 29 November 2016 to 30 June 2018. Mr Bevan is also a member of the Audit and Risk Committee and the Remuneration and Nomination Committee. Mr Bevan brings experience in the execution and integration of mergers, acquisitions and other major corporate transactions. Mr Bevan has been involved in a number of businesses in areas as diverse as healthcare, construction and engineering, resources and information services. Mr Bevan’s roles within these businesses have included strategic operational management, implementing organic growth strategies, business integration and raising capital in both public and private markets. He was previously the Managing Director & CEO of Cassini Resources Limited. Other current directorships of listed entities: • None Previous directorships (last 3 years): • Cassini Resources Limited EMPIRED LIMITED | ANNUAL REPORT 2021 5 DIRECTORS’ REPORT John Bardwell Non-Executive Director - Age 61 Mr Bardwell has had a long career in the financial services and IT sectors through a variety of senior leadership positions. Mr Bardwell’s previous executive experience includes Head of IT Services at Bankwest, Managed Services Director at Unisys West and as the General Manager of Delivery Services at Empired Ltd prior to his appointment to the Board as a non-executive Director on 26 November 2011. Mr Bardwell is Chairman of the Audit and Risk Committee. Mr Bardwell holds a Bachelor of Business and a Graduate Diploma in Applied Finance and Investment. He is a Graduate Member of the Australian Institute of Company Directors and a Fellow of the Financial Services Institute of Australasia. Mr Bardwell is a Board Member of Swancare Group, a specialist provider of retirement living and aged-care services, where he is also Chair of the Business Development Committee. Other current directorships of listed entities: • None Previous directorships (last 3 years): • None Cristiano Nicolli Non-Executive Director - Age 67 Mr Nicolli joined the Board on 22 October 2018. He is highly regarded as an influential leader and successful businessman across the technology sector. He has corporate and ASX listed company experience and is a sought after Non-Executive Director. Mr Nicolli is the Chairman of the Remuneration and Nomination Committee and a member of the Audit and Risk Committee. He was the Group Managing Director and CEO of UXC Limited from 2003 to 2016 when UXC Limited was sold to global IT firm CSC. During that time Mr Nicolli was instrumental in leading the growth and development of UXC to delivering revenue of $750m, employing 3,000 staff and is widely recognised as the largest and one of the most respected ASX listed IT companies in Australia. Mr Nicolli is also a Non-Executive Director of ASX/ NZX listed Vista Group International Limited (VGL) a global market leader that provides software solutions across the global film industry. He is also Chairman of newly listed PlaySide Studios (ASX: PLY), Australia’s largest publicly listed video game developer and Chairman of ReadCloud (ASX: RCL), the leading provider of eLearning software solutions, including eBooks, to Schools and the Vocational Education and Training (VET) sector in Australia. Mr Nicolli is also Treasurer of NFP Charity Kadasig Aid and Development. Mr Nicolli is a Fellow of the Australian Institute of Company Directors (FAICD), a past member of the New Zealand Society of Accountants and holds a Bachelor of Management & Business Studies. Other current directorships of listed entities: • Vista Group International Limited • PlaySide Studios Limited • ReadCloud Limited Previous directorships (last 3 years): • Otherlevels Holdings Limited COMPANY SECRETARY David Hinton CFO & Company Secretary - Age 58 Mr Hinton joined Empired in May 2016. He has extensive experience in the technology sector having previously held the position of CFO and Company Secretary of ASX listed Amcom Telecommunications. Prior to Amcom he held a senior executive role in a large diversified listed company and was also a Manager at Ernst & Young. Mr Hinton holds a Bachelor of Business degree, is a Fellow of the Institute of Chartered Accountants, a Fellow of the Governance Institute of Australia and is a graduate of the Australian Institute of Company Directors and is a member of the Governance Institute of Australia. He is also a Non-Executive Director of HeraMED Limited, an ASX listed medical data and technology company, Non-Executive Director of Valo Therapeutics Oy, a developer of adaptable immunotherapy platforms for cancer and infectious diseases, Finance Director of not for profit Auspire - Australia Day Council WA and General Committee member of Royal Perth Yacht Club Inc. EMPIRED LIMITED | ANNUAL REPORT 2021 6 DIRECTORS’ REPORT DIRECTORS’ MEETINGS The number of Directors meetings and the number of meetings attended by each Director during the year are: Name of Director No. of Directors Meetings held while a Director No. of Meetings Directors attended as a Director during the year ended 30 June 2021 No. of Audit and Risk Committee meetings held during the year ended 30 June 2021 No. of Audit and Risk Committee meetings attended during the year ended 30 June 2021 Russell Baskerville 11 11 - - Thomas Stianos 11 11 - - Richard Bevan 11 11 3 3 John Bardwell 11 11 3 3 Cristiano Nicolli 11 11 3 3 Name of Director No. of Remuneration and Nomination committee meetings held during the year ended 30 June 2021 No. of Remuneration and Nomination Committee meetings attended during the year ended 30 June 2021 Russell Baskerville - - Thomas Stianos 4 4 Richard Bevan 4 4 John Bardwell - - Cristiano Nicolli 4 4 EMPIRED LIMITED | ANNUAL REPORT 2021 7 DIRECTORS’ REPORT OPERATING AND FINANCIAL REVIEW Review of operations Empired Limited is an international IT Services Provider with a broad range of capabilities and a reputation for delivering enterprise class IT services and solutions. Established in 1999, Empired is a publicly listed company (ASX: EPD) formed in Western Australia. With a team of approximately 1,000 people located across Australia, New Zealand and USA, Empired has built a reputation for service quality. Our flexible service delivery approach has enabled Empired to secure clients that range from medium size entities through to large enterprise and public sector agencies. The business operates as two segments: • Australia • New Zealand - which includes USA Underlying drivers of performance Empired generates its revenue from the provision of IT services. The IT consulting services which are billed on a fixed price or time and materials basis. These IT consulting services are deployed to deliver IT projects and for the provision of support services. Empired also generates revenue from the selling of third-party software licenses and Software as a Service revenue from its own proprietary ECM platform, Cohesion. In April 2020 & November 2020, Empired announced that it had won multiple multi-year contracts with Western Power which had a $11m impact on the revenue in FY21. These wins contributed to the growth in Australian revenue. $m AUD 1H 21 2H 21 2021 2020 % Revenue Australia 55.7 57.7 113.4 98.0 14% New Zealand 34.6 38.2 72.7 67.5 7% 90.3 95.9 186.2 165.5 11% On 23 June 2021, Empired announced the securing of a digital service contract with the Department of Innovation and Skills South Australia and a further multi-year contract with the Environmental Protection Authority of Victoria was announced on 21 July 2021 which will both commence in FY22. COVID-19 impacts The Company continues to take steps to protect the health and safety of its people and customers. The Board continues to monitor working capital requirements in light of COVID-19 and the economic circumstances that may prevail. The company currently has adequate liquiduty with Net cash at balance date of $7.3m and undrawn bank facilties of $15m. The Company availed itself of JobKeeper Payments and has included as income $4.9m in FY21. Some rent deferrals were received where lockdown prevented employees entering the offices. Results The profit after tax for the financial year ended was $10.5m compared to $6.1m in the previous year. Other income in FY21 includes $4.9m of JobKeeper Payments from the Federal Government’s COVID-19 stimulus assistance. EMPIRED LIMITED | ANNUAL REPORT 2021 8 DIRECTORS’ REPORT $m AUD FY21 FY20 % Change Revenue 186.1 165.5 12% Other income (JobKeeper) 4.9 4.2 Earnings before interest, tax, depreciation and amortisation (EBITDA) 25.6 19.0 35% Depreciation & amortisation (4.2) (3.1) Right of use asset amortisation (4.9) (5.4) Earnings before interest and tax (EBIT) 16.6 10.5 58% Interest (0.5) (0.7) Interest on leased liabilities (0.7) (0.8) Profit before tax 15.4 9.0 71% Tax (4.8) (2.9) Profit after tax 10.5 6.1 71% EPS (c ) 6.57 c 3.84 c FY21 EBITDA 25.6 less JobKeeper (4.9) Capgemini Scheme costs 0.1 Credit losses on contract assets (refer note 4) 1.8 Normalised EBITDA 22.6 Depreciation & amortisation (9.1) Normalised EBIT 13.5 The Company is in a dispute with a third party. The disputed amount has not been brought to account and a discounted amount that is in dispute (being $1.8m) has been disclosed at Note 28 as a Contingent Asset which in the Directors’ opinion is the amount of the probable recovery. Accordingly, a normalisation adjustment of $1.8m has been made as shown above. Cash flow The following table summarises the cash flow for the financial year ended 30 June 2021: $m AUD H1 FY21 H2 FY21 FY21 Reported FY20 EBITDA 16.2 9.5 25.6 19.0 Tax refunded/(paid) (0.3) (0.2) (0.6) 0.4 Non cash items 0.4 0.3 0.7 - Working capital 1.3 (1.5) (0.3) 4.4 Operating cash flow 17.5 8.1 25.5 23.8 Purchases of P&E and intangibles (2.9) (2.5) (5.4) (6.5) Finance costs (net) (0.3) (0.3) (0.5) (0.7) Interest leases (0.4) (0.3) (0.7) (0.8) Repayment of leases (2.6) (2.2) (4.9) (6.3) Repayment of bank debt (4.9) (0.9) (5.9) (9.0) Dividends paid 0.0 (2.4) (2.4) - Share buy-back - - - (0.1) Net movement in cash 6.3 (0.6) 5.7 0.5 Operating cash flow increased to $25.5m from $23.8m compared to the prior year. The increase in Operating cash flow is due to an improved EBITDA. EMPIRED LIMITED | ANNUAL REPORT 2021 9 DIRECTORS’ REPORT Financial position The financial position or balance sheet is shown below in summary form. $m AUD Jun-21 Dec-20 Jun-20 Cash 11.9 12.5 6.3 Receivables and contract assets 33.2 27.3 30.1 Other 2.2 2.7 2.5 Current assets 47.3 42.5 38.9 Trade and other payables 19.2 14.7 15.2 Borrowings 4.6 1.9 1.9 Lease liabilities (including hire purchase) 5.8 5.4 5.4 Provisions and other 9.8 9.1 9.0 Current liabilities 39.4 31.0 31.4 Current asset surplus 7.9 11.5 7.5 Plant & equipment 5.3 5.6 5.2 Intangibles 58.1 57.3 56.1 Intangible - Right of use assets 13.7 16.6 17.9 Deferred tax assets 3.7 3.6 5.7 Non-current assets 80.8 83.1 84.8 Borrowings 0.0 3.7 8.6 Lease liabilities 10.7 13.6 14.6 Other 0.9 0.9 0.8 Non-current liabilities 11.6 18.3 24.0 Net assets/equity 77.0 76.3 68.3 Net tangible assets (NTA)* 5.3 2.4 (5.6) Net debt (Nd) 9.2 12.1 24.1 (Net cash)/Net debt ex. lease liabilities (7.3) 10.1 4.2 Gearing (Nd/(Nd+Equity)) 11% 14% 26% Gearing (Nd/(Nd+Equity)) ex. lease liabilities n/m 12% 6% * Treating all right of use assets as intangible Due to the strong operating cash flow Net debt has decreased to $9.2m and Gearing to 11%. If the lease liabilities are not included the Company is in a Net cash position of $7.3m at year end. Receivables and contract assets have increased by $3.1m during the financial year. Bank borrowings comprise a term loan of $4.6m that is repayable by March 2022 and a Borrowing Base undrawn as at 30 June 2021 on a facility of $15m. Business strategies and prospects for future financial years Please refer to the Chairman and CEO report. EMPIRED LIMITED | ANNUAL REPORT 2021 10 DIRECTORS’ REPORT Material Business Risks Empired has identified and continues to assess its material business risks. The material business risks faced by the company that are likely to have a material effect on the financial prospects of the company, and how the company manages these risks include: Reduction in demand – the ability to sustain and grow revenue is dependent upon continuing demand for the IT professional services that the company provides, we do not foresee any material decline in demand. However, this is dependent upon stable macro-economic conditions, the actions of competitors and any extended negative impacts of COVID-19 all of which are outside the control of the company. Ability to deliver services profitably – there are many inputs to the delivery of profitable services to customers. This risk is addressed through the critical assessment, pricing and monitoring of projects. Ability to attract and retain people with the requisite skills - the ability to grow revenue longer term and deliver repeatable profitable projects is dependent upon attracting and retaining appropriately skilled people. The working from home requirements of COVID-19 has not had a material impact on the productivity of our people. There is the risk that inability of people to travel due to COVID-19 restrictions may impact on productivity and the ability to attract and retain people with the requisite skills. Dividends On 15 March 2021, an interim dividend of 1.5 cents per share (unfranked) was paid (2020: nil). Likely developments The Company is not aware of any likely developments as at the date of this report other than subsequent events. Performance Rights granted to Directors and Officers Executive Officers were granted 3,475,000 Performance Rights under the Long Term Incentive Plan. Information relating to the grants is detailed in the notes to the financial statements. Unissued shares under option There are no unissued shares under option at the date of this report. Shares issued during or since the end of the year as a result of exercise No ordinary shares were issued during or since the end of the financial year as a result of the vesting and subsequent exercising of Performance Rights. Auditor The lead auditor’s Independence Declaration as required under s307c of the Corporations Act 2001 for the year ended 30 June 2021 has been received and can be found on page 67 of the financial report. Non-audit services During the year, Grant Thornton, the Company’s auditors, performed certain other services in addition to their statutory audit duties. The Board has considered the non-audit services provided during the year by the auditor and, in accordance with written advice provided by resolution of the Audit and Risk Committee, is satisfied that the provision of those non-audit services during the year 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 upon the impartiality and objectivity of the auditor • the non-audit services 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 Company, acting as an advocate for the Company or jointly sharing risks and rewards. Details of the amounts paid to the auditors of the Company, Grant Thornton, and its related practices for audit and non-audit services provided during the year are set out in Note 30 to the financial statements. Indemnification and insurance of directors and officers During the year, Empired Limited paid a premium to insure directors and officers of the Group. The liabilities insured are legal costs that may be incurred in defending civil or criminal proceedings that may be brought against the officers in their capacity as officers of the Group, and any other EMPIRED LIMITED | ANNUAL REPORT 2021 11 DIRECTORS’ REPORT payments arising from liabilities incurred by the officers in connection with such proceedings, other than where such liabilities arise out of conduct involving a wilful breach of duty by the officers or the improper use by the officers of their position or of information to gain advantage for themselves or someone else to cause detriment to the Group. Details of the amount of the premium paid in respect of the insurance policies is not disclosed as such disclosure is prohibited under the terms of the contract. The Company has agreed, to the extent permitted by law, to indemnify each Director and Company Secretary of the Company against any and all reasonable liabilities incurred in respect of or arising out of any act in the course of their role as an officer of the Company. The Company has not agreed to indemnify the auditor of the Company, however a controlled entity has provided an indemnity to the auditor of that controlled entity for losses arising from false or misleading information provided or third party claims except to the extent such amounts are determined to have been caused by the auditor’s fraud. Proceedings on behalf of the Company No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the Company, or to intervene in any proceedings to which the Company is a party, for the purpose of taking responsibility on behalf of the Company for all or part of those proceedings. Significant events after the reporting date On 19 July 2021, the Company entered into a Scheme Implementation Agreement with Capgemini Australia Pty Ltd, under which Capgemini Australia Pty Ltd agreed to acquire 100% of the issued share capital of Empired for a cash price of $1.35 per share. The acquisition remains subject to shareholder and regulator approval and other customary conditions. Environmental Regulations The Company’s operations are not subject to any significant environmental Commonwealth or State regulations or laws. REMUNERATION REPORT (AUDITED) The Directors of Empired Limited present the Remuneration Report (“the Report”) for the Company and its controlled entities for the year ended 30 June 2021 (“FY21”). This Report forms part of the Directors’ Report and has been audited in accordance with section 300A of the Corporations Act 2001 . Remuneration philosophy The performance of the Company depends upon the quality of its directors and executives. To prosper, the Company must attract, motivate and retain highly skilled directors and executives. To this end, the Company embodies the following principles in its remuneration framework: • Provide competitive rewards to attract and retain high calibre executives; • Link executive rewards to shareholder value; • Have a material portion of certain executive’s remuneration ‘at risk’, dependent upon meeting pre-determined performance benchmarks; and • Establish appropriate, demanding performance hurdles for variable executive remuneration. Linking remuneration ‘at risk’ to Company performance The Group recorded a net profit after tax of $10.6m for the year ended 30 June 2021 compared to $6.1m in the previous financial year. Earnings per share increased to 6.57 cents per share from 3.84 cents . Remuneration Structure In accordance with the best practice corporate governance, the structure of non-executive director and executive remuneration is separate and distinct. A. Non-executive director remuneration Objective The Board seeks to set aggregate remuneration at a level that provides the Company with the ability to attract and retain directors of the highest calibre, whilst incurring a cost that is acceptable to shareholders. EMPIRED LIMITED | ANNUAL REPORT 2021 12 DIRECTORS’ REPORT Structure The constitution and the ASX Listing Rules specify that the aggregate remuneration of Non-Executive Directors shall be determined from time to time by a general meeting. An amount not exceeding the amount determined is then divided between the directors as agreed. The latest determination was at the Annual General Meeting held on 27 November 2014 when shareholders approved an aggregate remuneration of $500,000 per year. The amount of aggregated remuneration sought to be approved by shareholders and the manner in which it is apportioned amongst Directors is reviewed from time to time. The Board considers advice from external consultants as well as the fees paid to Non-Executive Directors of comparable companies when undertaking the annual review process. The remuneration of Non-Executive Directors, the Executive Director and other Key Management Personnel for the period ended 30 June 2021 is detailed in the table in Section E. B. Executive remuneration Objective The Company aims to reward executives with a level and mix of remuneration commensurate with their position and responsibilities within the company so as to: • Reward executives for company, business unit and individual performances against targets set by reference to appropriate benchmarks; • Align the interests of executives with those of shareholders; • Link rewards with the strategic goals and performance of the Company; and • Ensure total remuneration is competitive by market standards. Structure In determining the level of remuneration paid to senior executives of the Company, the Board took into account available benchmarks and prior performance. Remuneration consists of the following key elements: • Fixed Remuneration • Variable Remuneration » Short Term Incentive (STI); and » Long Term Incentive (LTI). The proportion of fixed remuneration and variable remuneration (potential short term and long term incentives) is established for each senior executive by the Remuneration and Nomination Committee and the Board. The table in Section E below details the fixed and variable components of the executives of the company. Fixed remuneration Objective Fixed remuneration is reviewed annually by the Board. The process consists of a review of companywide, business unit and individual performance, relevant comparative remuneration in the market and internally, and where appropriate, external advice on policies and practices. As noted above, the Board has access to external advice independent of management. Structure Senior executives are given the opportunity to receive their fixed remuneration in a variety of forms including cash and fringe benefits such as motor vehicles. It is intended that the manner of payment chosen will be optimal for the recipient without creating undue cost for the group. The fixed remuneration component of the company executives is detailed in the table in Section E. Variable remuneration - Short Term Incentive (STI) Objective The objective of the STI program is to link the achievement of the Group’s performance and operational targets with the remuneration received by the executives charged with meeting those targets. Structure Actual STI paid to the Company executives depend on the extent to which specific operating targets set at the beginning of the financial year are met. The targets consist of a number of Key Performance Indicators (KPIs) covering both financial and non-financial measures of performance. Typically included are measures such as revenue, profitability, cash collection, customer service, risk management, staff turnover and leadership/team contribution. Any STI payments are subject to the approval of the Board. Payments made are delivered as a cash bonus in the following financial year. EMPIRED LIMITED | ANNUAL REPORT 2021 13 DIRECTORS’ REPORT Variable pay - Long Term Incentive (LTI) Objective The objective of the LTI plan is to reward senior executives in a manner that aligns this element of remuneration with the objective of creating shareholder wealth. As such, LTI grants are only made to executives who are able to influence the generation of shareholder wealth and thus have a direct impact on the Group’s performance. Structure LTI grants to executives are delivered in the form of performance rights. The table in Sections F and G provide details of performance rights granted and the value of equity instruments granted and lapsed during the year. The performance rights were issued for nil consideration. Each performance right entitles the holder to subscribe for one fully paid ordinary share in the entity based on achieving vesting conditions at a nil exercise price, and up to 1.5 ordinary shares should Stretch Performance Measures be achieved. During the financial year, 3,475,000 Performance Rights were issued under the Long Term Incentive Plan on terms and conditions determined and approved by the Board of Directors. This is summarised in the table below. The number of Performance Rights offered is based upon the agreed LTI value divided by the share price of the Company at the end of the previous financial year. The vesting conditions selected are designed to align remuneration with the objective of creating shareholder value over the long-term. The performance measures that have been chosen are: • Basic Earnings per Share (EPS) for the financial year ended 30 June 2023 EPS targets are sensitive and will be disclosed retrospectively should the Performance Rights vest. • Return on Equity (ROE), a measure of the net profit after tax for the financial year ended 30 June 2023 divided by total equity as at 30 June 2023. Due to its sensitive nature, ROE targets are disclosed retrospectively should the Performance Rights vest. • Absolute Total Shareholder Return is measured over the period from 1 July 2020 to a period of 1 April to 30 September 2023. Number Performance Measures % Vesting (1) Vesting Dates 1,390,000 FY 2023 Basic EPS Below Threshold Threshold achieved Target achieved Stretch achieved 0% 50% 100% 150% 30/09/2023 695,000 FY 2023 Return on Equity Below Threshold Threshold achieved Target achieved Stretch achieved 0% 50% 100% 150% 30/09/2023 1,390,000 Absolute TSR (1 July 2020 - 30 September 2023) Below - Threshold Threshold achieved Target achieved Stretch achieved 0% 50% 100% 150% 30/09/2023 (1) Vesting to occur on a pro-rata basis EMPIRED LIMITED | ANNUAL REPORT 2021 14 DIRECTORS’ REPORT Should an employee leave Empired then Performance Rights are forfeited unless decided otherwise by the Board. Where Performance Rights vest the holder of the Performance Right has until 1 September 2025 to exercise the Performance Right. Should the Directors consider that a Change of Control in the Company has occurred or is likely to occur then Performance Rights will automatically vest on the basis one fully paid ordinary share for each Performance Right held with Board discretion to provide up to 1.5 fully paid ordinary shares for each Performance Right held. Consequence of performance on shareholder wealth In considering the Group’s performance and benefits for shareholder wealth, the Board have regard to the following metrics in respect of the current financial year and the previous three financial years: Item 2021 2020 2019 2018 2017 EPS (cents) 6.57 3.84 (9.56) 3.06 2.42 Dividends (cents per share) 1.5 - - - - Net profit/(loss) ($000) 10,534 6,146 (15,312) 4,882 3,161 Share price ($) 0.89 0.33 0.27 0.51 0.54 C. Key Management Personnel (i) Directors The following persons were directors of Empired Limited during the financial year to date of report: T Stianos Non-Executive Chairman R Bevan Non-Executive Director J Bardwell Non-Executive Director C Nicolli Non-Executive Director R Baskerville Managing Director (ii) Other key management personnel The following persons also had authority and responsibility for planning, directing and controlling the activities of the Group during the financial year: S Bright Chief Operating Officer D Hinton Chief Financial Officer and Company Secretary (iii) Remuneration of Key Management Personnel Information regarding key management personnel compensation for the year ended 30 June 2021 is provided in table in Section E of this remuneration report. D. Service Agreements Russell Baskerville – Managing Director Terms of Agreement – commenced 1 July 2019, until terminated by either party, with six months notice. Fees – fixed remuneration $600,000 per annum with an STI and LTI bonus allocation to be determined by the Board. Thomas Stianos – Non-Executive Chairman Terms of Agreement – appointed 29 November 2016. Fee – fixed $120,000 per annum. Richard Bevan – Non-Executive Director Terms of Agreement - appointed 31 January 2008. Fee – fixed $90,000 per annum. John Bardwell – Non-Executive Director Terms of Agreement – appointed 26 September 2011. Fee – fixed $85,000 per annum. Cristiano Nicolli - Non-Executive Director Terms of Agreement – appointed 22 October 2018. Fee – fixed $85,000 per annum. David Hinton – Chief Financial Officer and Company Secretary Terms of Agreement – commenced 12 April 2016, until terminated by either party, with three months notice. Salary – fixed remuneration $433,500 per annum with an additional STI cash bonus target of 25% of base fees and LTI bonus target of 40%# of base fees. EMPIRED LIMITED | ANNUAL REPORT 2021 15 DIRECTORS’ REPORT Simon Bright – Chief Operating Officer Terms of Agreement – commenced 1 July 2016, until terminated by either party, with three months notice. Salary – fixed remuneration NZ$469,200 per annum with an STI cash bonus target of 30% of base fees and LTI bonus target of 40% # of base fees. # As provided by the Empired Long Term Incentive Plan Rules, should stretch targets be achieved then the LTI benefit could be 50% higher. E. Details of remuneration Details of the nature and amount of each element of the remuneration of each Key Management Personnel (`KMP’) of Empired Limited are shown in the table below: Short term benefits Post Employment Year Salary & Fees Non-cash benefits Cash STI Super- annuation Sharebased payments (1) Total % Performance related % of STI achieved Non-Executive Directors T. Stianos 2021 109,589 - - 10,411 - 120,000 - - 2020 107,763 - - 10,237 - 118,000 - - R. Bevan 2021 82,192 - - 7,808 - 90,000 - - 2020 80,822 - - 3,904 - 84,726 - - C. Nicolli 2021 77,626 - - 7,374 - 85,000 - - 2020 71,766 - - 6,818 - 78,584 - - J. Bardwell 2021 77,626 - - 7,374 - 85,000 - - 2020 71,766 - - 6,818 - 78,584 - - Executive Directors R. Baskerville 2021 578,997 12,130 288,806 21,694 264,465 1,166,092 47.4% 96% 2020 570,238 11,976 - 21,003 144,566 747,783 19.3% - Key Management D. Hinton 2021 395,890 12,709 101,842 37,610 99,368 647,419 31.1% 97.0% 2020 389,292 12,771 - 36,983 67,836 506,882 13.4% - S. Bright 2021 424,950 16,107 123,545 14,671 100,519 679,792 33.0% 95.0% 2020 424,507 17,165 - 12,735 67,483 521,890 12.9% - (1) Comprises the share payment expense recognised in the reporting period for performance rights on issue. EMPIRED LIMITED | ANNUAL REPORT 2021 16 DIRECTORS’ REPORT Short Term Incentives paid/payable for the year Mananging Director Chief Financial Officer Chief Operating Officer Total Available Bonus 300,000 105,000 NZD 140,000 Financial metrics weighting 80% 80% 80% FY21 NPAT 60% 50% 60% Net Debt 10% 15% 10% Operating cash flow to EBITDA 10% 15% 10% Non-financial metrics weighting 20% 20% 20% Positive investor relations 5% 5% 0% Bank Covenant and ASX compliance 0% 15% 0% Staff turnover 5% 0% 10% Sales Target 10% 0% 10% Total STI paid/payable for the year 288,806 101,842 NZD 132,844 F. Directors’ and Key Management Personnel Equity Holdings Shares held in Empired Limited All equity transactions with directors and executives, other than those arising from the vesting of performance rights and as part of remuneration, have been entered into under terms and conditions no more favourable than those the entity would have adopted if dealing at arm’s length. Balance 01-Jul-20 Vesting of Performance Rights Net Change Other Balance 30-June-21 Directors R. Baskerville 9,125,283 170,400 - 9,295,683 T. Stianos 243,200 - - 243,200 R. Bevan 79,800 - - 79,800 C. Nicolli 373,500 - - 373,500 J. Bardwell 4,300,000 - - 4,300,000 Total 14,121,783 170,400 - 14,292,183 Key Management D. Hinton 52,093 62,000 - 114,093 S. Bright 1,359 66,000 (46,000) 21,359 Total 53,452 128,000 (46,000) 135,452 EMPIRED LIMITED | ANNUAL REPORT 2021 17 DIRECTORS’ REPORT Performance Rights held in Empired Limited Performance Rights are issued for nil consideration and do not have an exercise price. The movements and balances of performance rights for the financial year are summarised in the below table. Balance 01-Jul-20 Granted as remuneration Lapsed Vested Balance 30-June-21 Directors R. Baskerville 2,561,600 1,285,000 (511,200) (170,400) 3,165,000 Key Management D. Hinton 986,778 490,000 (194,000) (62,000) 1,220,778 S. Bright 1,005,889 500,000 (198,000) (66,000) 1,241,889 Total 4,554,267 2,275,000 (903,200) (298,400) 5,627,667 Performance Rights vested during the financial year During the financial year ended 30 June 2021, 377,517 Performance Rights were vested for the sustainability measure based upon the Board’s assessment of management’s performance. For the measures of basic EPS for FY20 and for Relative TSR these measures were not acheived resulting in 1,697,483 Performance Rights lapsing. Performance Rights granted to the Executive Team are under the Company’s Long Term Incentive Plan. Refer to the notes to the financial statements for more detail regarding the plan. Performance Rights granted as part of remuneration: 2021 Grant date Number granted as remuneration Average Value per right at grant date Value of rights granted during the year Non-Executive Directors T. Stianos - - - - R. Bevan - - - - C. Nicolli - - - - J. Bardwell - - - - Executive Directors R. Baskerville 22/12/2020 1,285,000 $0.38 $489,251 Key Management D. Hinton 27/07/2020 490,000 $0.17 $84,015 S. Bright 27/07/2020 500,000 $0.17 $85,730 EMPIRED LIMITED | ANNUAL REPORT 2021 18 DIRECTORS’ REPORT 2020 Grant date Number granted as remuneration Average Value per right at grant date Value of rights granted during the year Non-Executive Directors T. Stianos - - - - R. Bevan - - - - C. Nicolli - - - - J. Bardwell - - - - Executive Directors R. Baskerville 6/12/2019 1,000,000 $0.15 $153,200 Key Management D. Hinton 16/07/2018 377,778 $0.13 $50,169 S. Bright 16/07/2018 388,889 $0.13 $51,644 G. Performance Hurdles for Performance Rights vested during the financial year The Company from time to time grants Performance Rights to executives under the Empired Executive Long Term Incentive Plan. In the case of grants to the Managing Director, shareholder approval is sought at the Annual General Meeting prior to Performance Rights being granted. As stated in the applicable Notice of Meeting, to convene the members meeting to approve the grant of Performance Rights, the details of the performance hurdles are subject to members’ approval. Should the performance hurdle be satisfied then the Company will disclose the details in the subsequent Remuneration Report. During the financial year no Performance Rights vested as performance hurdles were not achieved. H. Voting and comments made at the company’s 2020 Annual General Meeting The Company did not receive any specific feedback at the AGM on its remuneration report. End of Remuneration Report Signed in accordance with a resolution of directors. Russell Baskerville Managing Director 17 August 2021 EMPIRED LIMITED | ANNUAL REPORT 2021 19 DIRECTORS’ REPORT CORPORATE GOVERNANCE STATEMENT The Board is committed to achieving and demonstrating the highest standards of corporate governance. As such, Empired Limited and its Controlled Entities (‘‘the Group’’) have adopted the fourth edition of the Corporate Governance Principles and Recommendations which was released by the ASX Corporate Governance Council on 27 February 2019 and became effective for financial years beginning on or after 1 July 2020. The Group’s Corporate Governance Statement for the financial year ended 30 June 2021 was approved by the Board on 17 August 2021. The Corporate Governance Statement is available on Empired’s website at www.empired.com/Investor-Centre/. 20 EMPIRED LIMITED | ANNUAL REPORT 2021 CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME For the year ended 30 June 2021 Notes 2021 $ 2020 $ Revenue from contracts with customers 4 186,133,318 165,549,359 Other income 5 4,885,047 4,184,500 Cost of licenses (14,394,615) (14,290,247) Employee benefits 6A (136,950,931) (125,121,578) Depreciation and amortisation expense 6B (9,041,392) (8,502,600) Occupancy expenses (670,643) (541,000) Other expenses 6C (13,364,082) (10,769,724) Operating profit 16,596,702 10,508,710 Finance costs 7 (1,218,617) (1,524,197) Finance income 3,324 13,997 Profit before income tax 15,381,409 8,998,510 Income tax expense 8 (4,847,482) (2,852,524) Profit for the year 10,533,927 6,145,986 Other comprehensive income, net of income tax Items that may be reclassified subsequently to profit or loss: Exchange differences on translating foreign operations (62,292) (135,999) Total comprehensive income for the year 10,471,635 6,009,987 Earnings per share (cents per share): Basic earnings per share 9 6.57 3.84 Diluted earnings per share 9 6.25 3.69 This Statement of Profit or Loss should be read in conjunction with the accompanying notes EMPIRED LIMITED | ANNUAL REPORT 2021 21 CONSOLIDATED STATEMENT CONSOLIDATED STATEMENT OF FINANCIAL POSITION As at 30 June 2021 Notes 2021 $ 2020 $ ASSETS Current assets Cash and cash equivalents 10 11,900,665 6,316,968 Trade and other receivables 11 21,718,159 21,599,744 Contract assets 4 11,492,503 8,525,275 Other current assets 12 2,180,725 2,496,622 Total current assets 47,292,052 38,938,609 Non-current Assets Plant and equipment 13 5,259,981 5,177,190 Intangible assets 14 58,074,594 56,100,583 Deferred tax asset 8 3,742,335 5,651,301 Right of use assets 15 13,684,521 17,871,839 Total non-current assets 80,761,431 84,800,913 TOTAL ASSETS 128,053,483 123,739,522 LIABILITIES Current liabilities Trade and other payables 17 16,589,357 14,883,604 Income tax payable 8 2,640,414 309,555 Borrowings 18 4,623,547 1,854,671 Lease liabilities 19 5,789,915 5,371,495 Provisions 20 8,333,952 7,315,073 Contract liabilities 4, 21 1,451,148 1,689,674 Total current liabilities 39,428,333 31,424,072 Non-current Liabilities Borrowings 18 - 8,636,677 Lease liabilities 19 10,665,399 14,568,739 Provisions 20 942,565 829,947 Total non-current liabilities 11,607,964 24,035,363 TOTAL LIABILITIES 51,036,297 55,459,435 NET ASSETS 77,017,186 68,280,087 EQUITY Issued capital 23 54,146,878 54,146,878 Reserves 22 4,303,829 3,696,135 Retained profits 18,566,479 10,437,074 TOTAL EQUITY 77,017,186 68,280,087 This Statement of Financial Position should be read in conjunction with the accompanying notes EMPIRED LIMITED | ANNUAL REPORT 2021 22 CONSOLIDATED STATEMENT CONSOLIDATED STATEMENT OF CASH FLOWS For the year ended 30 June 2021 Notes 2021 $ 2020 $ Cash flows from operating activities Receipts from customers 200,692,349 190,569,019 Payments to suppliers and employees (180,840,650) (169,859,814) Government subsidy received 6,217,500 2,731,500 Income tax (paid)/received (564,461) 370,568 Net cash flows from operating activities 10 25,504,738 23,811,273 Cash flows from investing activities Purchase of intangibles (4,512,654) (5,906,608) Purchase of plant and equipment (1,496,426) (569,723) Lease incentive received for fit-out 565,188 - Net cash flows used in investing activities (5,443,892) (6,476,331) Cash flows from financing activities Buyback of shares - (57,868) Dividends paid (2,404,525) - Interest on bank borrowings (525,790) (768,511) Interest on leases (692,827) (755,686) Interest received 3,324 13,997 Repayment of borrowings (17,277,895) (24,541,607) Repayment of lease liabilities (4,859,162) (6,273,740) Proceeds from borrowings 11,410,190 15,560,843 Net cash flows used in financing activities (14,346,685) (16,822,572) Net increase in cash and cash equivalents 5,714,161 512,370 Effect of exchange rate fluctuations on cash held (130,464) 252,627 Cash and cash equivalents at beginning of period 6,316,968 5,551,971 Cash and cash equivalents at end of period 10 11,900,665 6,316,968 This Statement of Cash Flows should be read in conjunction with the accompanying notes EMPIRED LIMITED | ANNUAL REPORT 2021 23 CONSOLIDATED STATEMENT CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year ended 30 June 2021 Issued Capital $ Retained Profits $ Foreign Currency Translation Reserve $ Shared Based Payment Reserve $ Total Equity $ Balance at 1 July 2019 54,204,746 4,291,088 389,481 3,036,176 61,921,491 Profit for the year - 6,145,986 - - 6,145,986 Other comprehensive loss - - (135,999) - (135,999) Share buy back (57,868) - - - (57,868) Share-based payments - - - 406,477 406,477 Balance at 30 June 2020 54,146,878 10,437,074 253,482 3,442,653 68,280,087 Profit for the year - 10,533,927 - - 10,533,927 Other comprehensive loss - - (62,292) - (62,292) Dividend paid - (2,404,522) - - (2,404,522) Share-based payments - - - 669,986 669,986 Balance at 30 June 2021 54,146,878 18,566,479 191,190 4,112,639 77,017,186 This Statement of Changes in Equity should be read in conjunction with the accompanying notes EMPIRED LIMITED | ANNUAL REPORT 2021 24 CONSOLIDATED STATEMENT NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2021 25 EMPIRED LIMITED | ANNUAL REPORT 2021 1. CORPORATE INFORMATION The consolidated financial report of Empired Limited and its subsidiaries (collectively, the Group) for the year ended 30 June 2021 was authorised for issue in accordance with a resolution of the directors on 17 August 2021. Empired Limited, is a for profit entity, whose shares are publicly traded on the Australian Securities Exchange, is a company incorporated in Australia. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Nature of operations The principal activities of the Group include the provision of IT solutions and product and licensing. (b) General information and statement of compliance The consolidated general purpose financial statements of the Group have been prepared in accordance with the requirements of the Corporations Act 2001, Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board. Compliance with Australian Accounting Standards results in compliance with the International Financial Reporting Standards (‘IFRS’) as issued by the International Accounting Standards Board (IASB). Empired Limited is a for-profit entity for the purpose of preparing the financial statements. The financial report has been prepared on an accruals basis, and is based on historical costs modified where applicable, by measurement at fair value of selected non-current assets, financial assets and financial liabilities. The financial report is presented in Australian dollars. The Board continues to monitor working capital requires in light of COVID-19 and the economic circumstances that may prevail. Given that the company has Net cash and an undrawn Borrowing Base of $15m they feel that there are adequate arangements. (c) New and revised standards that are effective for these financial statements Certain new accounting standards and interpretations have been published that are mandatory for 30 June 2021 reporting periods and have not been adopted by the Group. The Group’s assessment of the impact of these new standards do not have a material impact on the entity in the current reporting periods. (d) Impact of standards issued but not yet applied The following new accounting standards and interpretations have been published that are not mandatory for 30 June 2021 reporting periods, have not been early adopted by the Group, and are as follows: (i) AASB 138 Intangible Assets - Agenda Decision The Agenda Decision requires that management capitalise those elements of expenditure that meet the definition of an “Intangible Asset” as defined by AASB 138 Intangible Assets and recognise any additional amounts as an expense as the entity benefits from the expenditure – either by applying AASB 138 or applying another accounting standard. The Agenda Decision then clarified: • The nature of expenditure that met the definition of an Intangible Asset; • Methods of differentiating between Intangible Assets and expenses; and • The pattern in which the entity benefits from expenditure that does not qualify as an Intangible Asset. When this policy is first adopted for the reporting period ending 31 December 2021, there will be no material impact on the transactions and balances recognised in the financial statements. (ii) Amendments to AASB 101: Classification of Liabilities as Current or Non-current The amendment specify the requirements for classifying liabilities as current or non-current. The amendments clarify: • What is meant by a right to defer settlement • That a right to defer must exist at the end of the reporting period • That classification is unaffected by the likelihood that an entity will exercise its deferral right • That only if an embedded derivative in a convertible liability is itself an equity instrument would the terms of a liability not impact its classification The amendments are effective for annual reporting periods beginning on or after 1 January 2023 and must be applied retrospectively. The Group’s assessment of the impact of the new standardd is not expected to have a metarial impact on the entity in future reporting periods. EMPIRED LIMITED | ANNUAL REPORT 2021 26 NOTES TO THE FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2021 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (d) Impact of standards issued but not yet applied (continued) (iii) Amendments to AASB 3 Business Combinations - Reference to the Conceptual Framework The amendments are intended to replace a reference to the Framework for the Preparation and Presentation of Financial Statements, issued in 1989, with a reference to the Conceptual Framework for Financial Reporting issued in March 2018 without significantly changing its requirements. The Board also added an exception to the recognition principle of IFRS 3 to avoid the issue of potential ‘day 2’ gains or losses arising for liabilities and contingent liabilities that would be within the scope of AASB 137 or AASB Interpretation 21 Levies , if incurred separately. At the same time, the Board decided to clarify existing guidance in AASB 3 for contingent assets that would not be affected by replacing the reference to the Framework for the Preparation and Presentation of Financial Statements. The amendments are effective for annual reporting periods beginning on or after 1 January 2022 and apply prospectively. (iv) Onerous Contracts - Costs of Fulfilling a Contract - Amendements to AASB 137 The amendments to AASB 137 specif which costs an entity needs to include when assessing whether a contract is onerous or loss-making. The amendments apply a “directly related cost approach”. The costs that relate directly to a contract to provide goods or services include both incremental costs and an allocation of costs directly related to contract activities. General and administrative costs do not relate directly to a contract and are excluded unless they are explicitly chargeable to the counterparty under the contract. The amendments are effective for annual reporting periods beginning on or after 1 January 2022. The Group will apply these amendments to contracts for which it has not yet fulfilled all its obligations at the beginning of the annual reporting period in which it first applies the amendments. (v) AASB 9 Financial Instruments – Fees in the ’10 per cent’ test for derecognition of financial liabilities The amendment clarifies the fees that an entity includes when assessing whether the terms of a new or modified financial liability are substantially different from the terms of the original financial liability. These fees include only those paid or received between the borrower and the lender, including fees paid or received by either the borrower or lender on the other’s behalf. An entity applies the amendment to financial liabilities that are modified or exchanged on or after the beginning of the annual reporting period in which the entity first applies the amendment. The amendment is effective for annual reporting periods beginning on or after 1 January 2022 with earlier adoption permitted. The Group will apply the amendments to financial liabilities that are modified or exchanged on or after the beginning of the annual reporting period in which the entity first applies the amendment. The amendments are not expected to have a material impact on the Group. (e) Basis of consolidation The Group financial statements consolidate those of the Parent Company and all of its subsidiaries as of 30 June 2021. The Parent controls a subsidiary if it is exposed, or has rights, to variable returns from its involvement with the subsidiary and has the ability to affect those returns through its power over the subsidiary. All subsidiaries have a reporting date of 30 June 2021. All transactions and balances between Group companies are eliminated on consolidation, including unrealised gains and losses on transactions between Group companies. Where unrealised losses on intra-group asset sales are reversed on consolidation, the underlying asset is also tested for impairment from a group perspective. Amounts reported in the financial statements of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Group. Profit or loss and other comprehensive income of subsidiaries acquired or disposed of during the year are recognised from the effective date of acquisition, or up to the effective date of disposal, as applicable. Non-controlling interests, presented as part of equity, represent the portion of a subsidiary’s profit or loss and net assets that is not held by the Group. EMPIRED LIMITED | ANNUAL REPORT 2021 27 NOTES TO THE FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2021 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (e) Basis of consolidation (continued) The Group attributes total comprehensive income or loss of subsidiaries between the owners of the parent and the non-controlling interests based on their respective ownership interests. (f) Property, plant and equipment Plant and equipment is stated at cost less accumulated depreciation and impairment losses in value. Depreciation is calculated on a straight line basis over the estimated useful life of the asset as follows: Leasehold Improvements 5 – 20 yrs Furniture & Fittings 1 – 15 yrs Computer Hardware 1 – 8 yrs (g) Borrowing costs Borrowing costs are expensed in the period in which they are incurred and reported in finance costs. (h) Goodwill Goodwill on acquisition is initially measured at cost being the excess of the cost of the business combination over the acquirer’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is reviewed for impairment, annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. Goodwill is not amortised. As at the acquisition date, any goodwill acquired is allocated to each of the cash-generating units expected to benefit from the combination’s synergies. Impairment is determined by assessing the recoverable amount of the cash-generating unit to which the goodwill relates. Where the recoverable amount of the cash-generating unit is less than the carrying amount, an impairment loss is recognised. Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured on the basis of the relative values of the operation disposed of and the portion of the cash- generating unit retained. (i) Intangible assets other than goodwill Initial recognition of other intangible assets Acquired both separately and from a business combination Intangible assets acquired separately are capitalised at cost. Intangible assets, excluding development costs, created within the business are not capitalised and expenditure is charged against profits in the period in which the expenditure is incurred. Intangible assets are tested for impairment where an indicator of impairment exists and in the case of indefinite lived intangibles annually, either individually or at the cash generating unit level. Useful lives are also examined on an annual basis and adjustments, where applicable, are made on a prospective basis. Research and development costs are expensed as incurred. Development expenditure incurred on an individual project is carried forward when its future recoverability can be reasonably assured. Internally developed software Costs incurred in developing software are capitalised where future financial benefits can be reasonably assured. It is probable that the expected future economic benefits that are attributable to the asset will flow to the entity, and the cost of the asset can be measured reliably. These costs include employee costs incurred on development along with appropriate portion of relevant overheads. Subsequent measurement All finite-lived intangible assets, including internally developed software, are accounted for using the cost model whereby capitalised costs are amortised on a straight-line basis over their estimated useful lives. Residual values and useful lives are reviewed at each reporting date. In addition, they are subject to impairment testing as described in 2(i). The following useful lives are applied: Software 1 - 3 years Customer relationships 3 - 7 years Any capitalised internally developed software that is not yet complete is not amortised but is subject to impairment testing. EMPIRED LIMITED | ANNUAL REPORT 2021 28 NOTES TO THE FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2021 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (i) Intangible assets other than goodwill (continued) The Group assesses, at each reporting date, whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or Cash Generating Unit’s (CGU) fair value less costs of disposal and its value in use. The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs of disposal, recent market transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded companies or other available fair value indicators. The Group bases its impairment calculation on most recent budgets and forecast calculations, which are prepared separately for each of the Group’s CGUs to which the individual assets are allocated. These budgets and forecast calculations generally cover a period of five years. A long-term growth rate is calculated and applied to project future cash flows after the fifth year. Impairment losses of continuing operations are recognised in the statement of profit or loss in expense categories consistent with the function of the impaired asset. For assets excluding goodwill, an assessment is made at each reporting date to determine whether there is an indication that previously recognised impairment losses no longer exist or have decreased. If such indication exists, the Group estimates the asset’s or CGU’s recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognised. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in the statement of profit or loss unless the asset is carried at a revalued amount, in which case, the reversal is treated as a revaluation increase. Goodwill is tested for impairment annually at reporting date and when circumstances indicate that the carrying value may be impaired. Impairment is determined for goodwill by assessing the recoverable amount of each CGU (or group of CGUs) to which the goodwill relates. When the recoverable amount of the CGU is less than its carrying amount, an impairment loss is recognised. Impairment losses relating to goodwill cannot be reversed in future periods. Intangible assets with indefinite useful lives are tested for impairment annually at reporting date at the CGU level, as appropriate, and when circumstances indicate that the carrying value may be impaired. (k) Operating segments The Group has two operating segments: Australia and New Zealand. In identifying these operating segments, management follows the geographical presence representing the main products and services. Each of these operating segments is managed separately as each requires different technologies, marketing approaches and other resources. All inter-segment transfers are carried out at arm’s length prices based on prices charged to unrelated customers in stand-alone sales of identical goods or services. For management, purposes the Group uses the same measurement policies as those used in its financial statements. EMPIRED LIMITED | ANNUAL REPORT 2021 29 NOTES TO THE FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2021 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (l) Financial instruments Recognition and derecognition Financial assets and financial liabilities are recognised when the Group becomes a party to the contractual provisions of the financial instrument. Financial assets are derecognised when the contractual rights to the cash flows from the financial asset expire, or when the financial asset and all substantial risks and rewards are transferred. A financial liability is derecognised when it is extinguished, discharged, cancelled or expires. Classification and initial measurement of financial assets Except for those trade receivables that do not contain a significant financing component and are measured at the transaction price in accordance with AASB 15, all financial assets are initially measured at fair value adjusted for transaction costs (where applicable). Financial assets, other than those designated and effective as hedging instruments, are classified into the following categories: • amortised cost • fair value through profit or loss (FVTPL) • fair value through other comprehensive income (FVOCI). In the periods presented the corporation does not have any financial assets categorised as FVOCI. The classification is determined by both: • the entity’s business model for managing the financial asset • the contractual cash flow characteristics of the financial asset. All income and expenses relating to financial assets that are recognised in profit or loss are presented within finance costs, finance income or other financial items, except for impairment of trade receivables which is presented within other expenses. Subsequent measurement of financial assets (i) Financial assets at amortised cost Financial assets are measured at amortised cost if the assets meet the following conditions (and are not designated as FVTPL): • they are held within a business model whose objective is to hold the financial assets and collect its contractual cash flows • the contractual terms of the financial assets give rise to cash flows that are solely payments of principal and interest on the principal amount outstanding. Impairment AASB 9’s impairment requirements use more forward-looking information to recognise expected credit losses – the ‘expected credit loss (ECL) model’. This replaced AASB 139’s ‘incurred loss model’. Instruments within the scope of the new requirements included loans and other debt- type financial assets measured at amortised cost and FVOCI, trade receivables, contract assets recognised and measured under AASB 15 and loan commitments and some financial guarantee contracts (for the issuer) that are not measured at fair value through profit or loss. Recognition of credit losses is no longer dependant on the Group first identifying a credit loss event. Instead the Group considers a broader range of information when assessing credit risk and measuring expected credit losses, including past events, current conditions, reasonable and supportable forecasts that affect the expected collectability of the future cash flows of the instrument. In applying this forward-looking approach, a distinction is made between: • financial instruments that have not deteriorated significantly in credit quality since initial recognition or that have low credit risk (‘Stage 1’) and • financial instruments that have deteriorated significantly in credit quality since initial recognition and whose credit risk is not low (‘Stage 2’) • financial instruments that have objective evidence of impairment at the reporting date (‘Stage 3’). ‘12-month expected credit losses’ are recognised for the first category while ‘lifetime expected credit losses’ are recognised for the second category. Measurement of the expected credit losses is determined by a probability-weighted estimate of credit losses over the expected life of the financial instrument. EMPIRED LIMITED | ANNUAL REPORT 2021 30 NOTES TO THE FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2021 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (m) Trade and other receivables The Group makes use of a simplified approach in accounting for trade and other receivables and records the loss allowance as lifetime expected credit losses. These are expected shortfalls in contractual cash flows, considering the potential for default at any point during the lifetime of the financial instrument. In calculating, the Group uses its historical experience, external indicators and forward-looking information to calculate expected credit losses using a provision matrix. The Group asses impairment of trade receivables on a collective basis as they possess shared credit risk characteristics they have been grouped based on the days past due. The Group assess impairment of trade receivables on a collective basis as they possess shared credit risk characteristics they have been grouped based on the days past due. Refer to Note 2(l) for a detailed analysis of how the impairment requirements of AASB 9 are applied. (n) Classification and measurement of financial liabilities The Group’s financial liabilities include borrowings, trade payables and other payables. Financial liabilities are initially measured at fair value, and, where applicable, adjusted for transaction costs unless the Group designated a financial liability at fair value through profit or loss. Subsequently, financial liabilities are measured at amortised cost using the effective interest method except for financial liabilities designated at FVTPL, which are carried subsequently at fair value with gains or losses recognised in profit or loss. All interest-related charges and, if applicable, changes in an instrument’s fair value that are reported in profit or loss are included within finance costs or finance income. (o) Cash and cash equivalents Cash and short-term deposits in the statement of financial position comprise cash at bank, in hand and short-term deposits with an original maturity of three months or less net of bank overdrafts. (p) Provisions, contingent assets and liabilities Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the Group expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the profit or loss net of any reimbursement. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost. No liability is recognised if an outflow of economic resources as a result of present obligations is not probable. Such situation are disclosed as contingent liabilities unless the outflow of resources is remote. (q) Employee benefits (i) Short-term employee benefits Liabilities for wages and salaries, including non-monetary benefits, and accumulating sick leave expected to be settled within 12 months of the reporting date are recognised in respect of employees’ services up to the reporting date. They are measured at the amounts expected to be paid when the liabilities are settled. Expenses for non-accumulating sick leave are recognised when the leave is taken and are measured at the rates paid or payable. EMPIRED LIMITED | ANNUAL REPORT 2021 31 NOTES TO THE FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2021 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (q) Employee benefits (continued) (ii) Other long-term employee benefits The Group’s liabilities for annual leave and long service leave are included in other long term benefits as they are not expected to be settled wholly within twelve (12) months after the end of the period in which the employees render the related service. They are measured at the present value of the expected future payments to be made to employees. The expected future payments incorporate anticipated future wage and salary levels, experience of employee departures and periods of service, and are discounted at rates determined by reference to the market yields on high quality corporate bonds with terms and currencies that match as closely as possible. Any re-measurements arising from experience adjustments and changes in assumptions are recognised in profit or loss in the periods in which the changes occur. The Group presents employee benefit obligations as current liabilities in the Statement of Financial Position if the Group does not have an unconditional right to defer settlement for at least twelve (12) months after the reporting period, irrespective of when the actual settlement is expected to take place. (r) Share-based payment transactions The Group provides remuneration to certain employees, including Directors, of the Group in the form of share-based payment transactions, whereby employees render services in exchange for shares or rights over shares (‘equity-settled transactions’). The cost of these equity-settled transactions with employees is measured by reference to the fair value at the date at which they are granted. The fair value is measured using a variation of the binomial option pricing model that takes into account the terms and conditions on which the instruments were granted and the current likelihood of achieving the specified target. Further, the cost of equity- settled transactions is recognised, together with a corresponding increase in the Employee Equity Benefits Reserve, over the period in which the performance conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (‘vesting date’). Service and non-market performance conditions are not taken into account when determining the grant date fair value of awards, but the likelihood of the conditions being met is assessed as part of the Group’s best estimate of the number of equity instruments that will ultimately vest. Market performance conditions are reflected within the grant date fair value. Any other conditions attached to an award, but without an associated service requirement, are considered to be non-vesting conditions. Non-vesting conditions are reflected in the fair value of an award and lead to an immediate expensing of an award unless there are also service and/or performance conditions. No expense is recognised for awards that do not ultimately vest because non-market performance and/or service conditions have not been met. Where awards include a market or non-vesting condition, the transactions are treated as vested irrespective of whether the market or non- vesting condition is satisfied, provided that all other performance and/or service conditions are satisfied. Where the terms of an equity-settled award are modified, as a minimum an expense is recognised as if the terms had not been modified. In addition, an expense is recognised for any increase in the value of the transaction as a result of the modification, as measured at the date of modification. Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it is granted, the cancelled and new award are treated as if they were a modification of the original award, as described in the previous paragraph. EMPIRED LIMITED | ANNUAL REPORT 2021 32 NOTES TO THE FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2021 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (s) Leases For any new contracts entered into the Group considers whether a contract is, or contains a lease. A lease is defined as ‘a contract, or part of a contract, that conveys the right to use an asset (the underlying asset) for a period of time in exchange for consideration’. To apply this definition the Group assesses whether the contract meets three key evaluations which are whether: • the contract contains an identified asset, which is either explicitly identified in the contract or implicitly specified by being identified at the time the asset is made available to the Group; • the Group has the right to obtain substantially all of the economic benefits from use of the identified asset throughout the period of use, considering its rights within the defined scope of the contract; • the Group has the right to direct the use of the identified asset throughout the period of use. The Group assess whether it has the right to direct ‘how and for what purpose’ the asset is used throughout the period of use. At lease commencement date, the Group recognises a right of use asset and a lease liability on the balance sheet. The right of use asset is measured at cost, which is made up of the initial measurement of the lease liability, any initial direct costs incurred by the Group, an estimate of any costs to dismantle and remove the asset at the end of the lease, and any lease payments made in advance of the lease commencement date (net of any incentives received). The Group depreciates the right of use assets on a straight-line basis from the lease commencement date to the earlier of the end of the useful life of the right of use asset or the end of the lease term. The Group also assesses the right of use asset for impairment when such indicators exist. At the commencement date, the Group measures the lease liability at the present value of the lease payments unpaid at that date, discounted using the interest rate implicit in the lease if that rate is readily available or the Group’s incremental borrowing rate. Lease payments included in the measurement of the lease liability are made up of fixed payments (including in substance fixed), variable payments based on an index or rate, amounts expected to be payable under a residual value guarantee and payments arising from options reasonably certain to be exercised. Subsequent to initial measurement, the liability will be reduced for payments made and increased for interest. It is remeasured to reflect any reassessment or modification, or if there are changes in in-substance fixed payments. When the lease liability is remeasured, the corresponding adjustment is reflected in the right of use asset, or profit and loss if the right of use asset is already reduced to zero. The Group has elected to account for short-term leases and leases of low-value assets using the practical expedients. Instead of recognising a right of use asset and lease liability, the payments in relation to these are recognised as an expense in profit or loss on a straight-line basis over the lease term. On the statement of financial position, right of use assets have been included in property, plant and equipment and lease liabilities have been included in trade and other payables. Short-term leases and leases of low value Short-term leases (lease term of 12 months or less) and leases of low value assets (under 5,000 USD) are recognised as incurred as an expense in the consolidated income statement. Low value assets comprise office equipment hire. (t) Revenue from contracts with customers Revenue arises mainly from IT consulting services and product and license revenue. To determine whether to recognise revenue, the Group follows a 5-step process: 1 Identifying the contract with a customer 2 Identifying the performance obligations 3 Determining the transaction price 4 Allocating the transaction price to the performance obligations 5 Recognising revenue when/as performance obligation(s) are satisfied. EMPIRED LIMITED | ANNUAL REPORT 2021 33 NOTES TO THE FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2021 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (t) Revenue from contracts with customers (continued) The Group often enters into transactions involving a range of the Group’s products and services. Revenue which represent income arising in the course of the Groups ordinary activities is recognised by reference to each distinct performance obligation promised in the contract with customer when or as the Group transfers the control of the goods or services promised in a contract and the customer obtains control of the goods or services. Depending on the substance of the respective contract with customer, the control of the promised goods or services may transfer over time or at a point in time. A contract with customer exists when the contract has commercial substance, the Group and its customer has approved the contract and intend to perform their respective obligations, the Groups and the customers rights regarding the goods or services to be transferred and the payment terms can be identified, and it is probable that the Group will collect the consideration to which it will be entitled to in exchange of those goods or services. Recognition and measurement At the inception of each contract with customer, the Group assesses the contract to identify distinct performance obligations, being the units of account that determine when and how revenue from the contract with customer is recognised. A performance obligation is a promise to transfer a distinct good or service (or a series of distinct goods or services that are substantially the same and that have the same pattern of transfer) to the customer that is explicitly stated in the contract and/ or implied in the Group’s customary business practises. A good or service is distinct if: (i) The customer can either benefit from the good or service on its own or together with other readily available resources; and (ii) The good or service is separately identifiable from other promises in the contract (e.g. the good or service is not integrated with, or significantly modify, or highly interrelate with, other goods or services promised in the contract). If a good or service is not distinct, the Group combines it with other promised goods or services until the Group identifies a distinct performance obligation consisting a distinct bundle of goods or services. Revenue is measured at the amount of consideration to which the Group expects to be entitled in exchange for transferring the promised goods or services to the customers, excluding amounts collected on behalf of third parties such as sales and service taxes or goods and services taxes. If the amount of consideration varies due to discounts, rebates, credits, incentives, performance bonuses, penalties or other similar items, the Group estimates the amount of consideration that it expects to be entitled based on the expected value or the most likely outcome but the estimation is constrained up to the amount that is highly probable of no significant reversal in the future. If the contract with customer contains more than one distinct performance obligation based on the relative stand-alone selling prices of the goods or services promised in the contract. If a standalone selling price is not directly observable, the Group will need to estimate it using adjusted market assessment approach, expected cost plus a margin approach and residual approach. The consideration allocated to each performance obligation is recognised as revenue when or as the customer obtains control of the goods or services. At the inception of each contract with customer, the Group determines whether control of the goods or services for each performance obligation is transferred over time or at a point. Control over the goods or services are transferred over time and revenue is recognised over time if: (i) The customer simultaneously receives and consumes the benefits provided by the Group’s performance as the Group performs; (ii) The Group’s performance creates or enhances a customer-controlled asset; or (iii) The Group’s performance does not create an asset with alternative use and the Group has a right to payment for performance completed to date. Revenue for a performance obligation that is not satisfied over time is recognised at the point in time at which the customer obtains control of the promised goods or services. EMPIRED LIMITED | ANNUAL REPORT 2021 34 NOTES TO THE FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2021 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (t) Revenue from contracts with customers (continued) Software as a Service (SaaS) Revenue is derived from providing customers access to group platforms and is recognised in accordance with the terms of contracts provided in the subscription agreement. The SaaS and related support revenue (if any) is recognised over time, being the subscription period, as the customer simultaneously receives and consumes the benefit of accessing the platform. Access to the platforms is not considered distinct from other performance obligations, such as set-up and support, as access to any platform alone does not allow the customer to obtain substantially all the benefits of the access, and is therefore accounted for as a single performance obligation. Consideration received can be variable in nature, based upon customer usage in excess of contractually agreed units. The variable consideration is included in the transaction price at the company’s best estimate, using either an expected value or most likely outcome, whichever provides the best estimate and is included in revenue to the extent that it is highly probable that there will be no significant reversal of the cumulative amount of revenue when any price uncertainty is resolved. Product and License Revenue Revenue from the sale of product and software licenses is recognised when or as the Group transfers control of the assets to the customer. Professional Services Revenue from professional services for a fixed fee or time and material is recognised when or as the Group transfers control of the assets to the customer. Invoices for goods or services transferred are due upon receipt by the customer. Revenue is recognised over time as the work is performed. As costs are generally incurred uniformly as the work progresses and are considered to be proportionate to the entity’s performance. Contract assets comprise of time and materials where revenue is recognised however it remains unbilled as at the end of the reporting period. Contract liabilities comprise of cash received for work that cannot be recognised for revenue as at the end of the reporting period. (u) Government grants and subsidies Government grants and subsidies are recognised where there is reasonable assurance that the they will be received and all attached conditions will be complied with. When the grant or subsidy relates to an expense item, it is recognised as income on a systematic basis over the periods that the related costs, for which it is intended to compensate, are expensed. When the grant or subsidy relates to an asset, it is recognised as income in equal amounts over the expected useful life of the related asset. When the Group receives grants or subsidies of non-monetary assets, the asset and the grant/subsidy are recorded at nominal amounts and released to profit or loss over the expected useful life of the asset, based on the pattern of consumption of the benefits of the underlying asset by equal annual instalments. (v) Foreign currency transactions The consolidated financial statements are presented in Australian Dollars (‘AUD’), which is also the functional currency of the Parent Company. Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the date of the transaction. Foreign exchange gains and losses resulting from the settlement of such transactions and from the re-measurement of monetary items at year end exchange rates are recognised in profit or loss. Non-monetary items are not retranslated at year-end and are measured at historical cost (translated using the exchange rates at the date of the transaction), except for non-monetary items measured at fair value which are translated using the exchange rates at the date when fair value was determined. In the Group’s financial statements, all assets, liabilities and transactions of Group entities with a functional currency other than the AUD are translated into AUD upon consolidation. The functional currency of the entities in the Group has remained unchanged during the reporting period. EMPIRED LIMITED | ANNUAL REPORT 2021 35 NOTES TO THE FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2021 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (v) Foreign currency transactions (continued) On consolidation, assets and liabilities have been translated into AUD at the closing rate at the reporting date. Goodwill and fair value adjustments arising on the acquisition of a foreign entity have been treated as assets and liabilities of the foreign entity and translated into AUD at the closing rate. Income and expenses have been translated into AUD at the average rate over the reporting period. Exchange differences are charged or credited to other comprehensive income and recognised in the currency translation reserve in equity. On disposal of a foreign operation the cumulative translation differences recognised in equity are reclassified to profit or loss and recognised as part of the gain or loss on disposal. (w) Income tax Deferred income tax is provided on all temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for the financial reporting purposes. Deferred income tax liabilities are recognised for all taxable temporary differences: • Except where the deferred income tax liability arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and • In respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, except where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. • Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-forward of unused tax assets and unused tax losses can be utilised: » Except where the deferred income tax asset relating to the deductible temporary differences arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and » In respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised. The carrying amount of deferred income tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. The tax expense recognised in profit or loss compromises the sum of deferred tax and current tax not recognised in other comprehensive income. The calculation of current tax is based on tax rates and tax laws that have been enacted or substantially enacted by the end of the reporting period. Deferred taxes are calculated using the balance sheet liability method. Management has applied a risk weighted measurement to the tax treatments used in the Group and has determined that there is no change required under IFRIC 23 Uncertainty over Income Tax Treatments. (x) Other taxes Revenues, expenses and assets are recognised net of the amount of GST except: • Where the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and • Receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position. Cash flows are included in the statement of cash flows on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority are classified as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority. EMPIRED LIMITED | ANNUAL REPORT 2021 36 NOTES TO THE FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2021 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (y) Equity and reserves Issued capital represents the amounts contributed for shares less issuance costs and consideration paid for share buy-backs. Other components of equity include the following: • Foreign currency translation reserve - compromises foreign currency translation differences arising from the translation of financial statements of the Group’s foreign entities into AUD. • Employee equity benefits reserve - compromises share-based employee remuneration. Retained profits includes all current and prior period retained profits. (z) Significant accounting judgements, estimates and assumptions Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that may have a financial impact on the entity and that are believed to be reasonable under the circumstances. Critical accounting estimates and assumptions The Group makes estimates and assumptions concerning the future. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. The Group tests annually whether goodwill has suffered any impairment, in accordance with the accounting policies. (i) Impairment of goodwill and intangibles with indefinite useful lives The Group determines whether goodwill and intangibles with indefinite useful lives are impaired at least on an annual basis. This requires an estimation of the recoverable amount of the cash-generating unit to which the goodwill and intangibles with indefinite useful lives are allocated. The assumptions used in this estimation of recoverable amount and carrying amount of goodwill and intangibles with indefinite useful lives are in Note 14. (ii) Share based payments The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is measured by using a variation of the binomial option pricing model that takes into account the terms and conditions on which the instruments were granted and the current likelihood of achieving the specified target. The accounting estimates and assumptions relating to equity-settled share-based payments would have no impact on the carrying amounts of assets and liabilities within the next annual reporting period but may impact profit or loss and equity. (iii) Long service leave provision The liability for long service leave is recognised and measured at the present value of the estimated future cash flows to be made in respect of all employees at the reporting date. In determining the present value of the liability, estimates of attrition rates and pay increases through promotion and inflation have been taken into account. The Group uses the high quality corporate bond rate as the discount rate when measuring its Australian dollar dominated long term employee benefits. (iv) Estimation of useful lives of assets The Group determines the estimated useful lives and related depreciation and amortisation charges for its property, plant and equipment and finite life intangible assets. The useful lives could change significantly as a result of technical innovations or some other event. The depreciation and amortisation charge will increase where the useful lives are less than previously estimated lives, or technically obsolete or non-strategic assets that have been abandoned or sold will be written off or written down. (v) Recognition of deferred tax assets The extent to which deferred tax assets can be recognised is based on an assessment of the probability that future taxable income will be available against which the deductible temporary differences and tax loss carry-forwards can be utilised. In addition, significant judgement is required in assessing the impact of any legal or economic limits or uncertainties in various tax jurisdictions. EMPIRED LIMITED | ANNUAL REPORT 2021 37 NOTES TO THE FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2021 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (vi) Leases - Estimating the incremental borrowing rate The Group cannot readily determine the interest rate implicit in the lease, therefore, it uses its incremental borrowing rate (IBR) to measure lease liabilities. The IBR is the rate of interest that the Group would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right of use asset in a similar economic environment. The IBR therefore reflects what the Group ‘would have to pay’, which requires estimation when no observable rates are available (such as for subsidiaries that do not enter into financing transactions) or when they need to be adjusted to reflect the terms and conditions of the lease (for example, when leases are not in the subsidiary’s functional currency). The Group estimates the IBR using observable inputs (such as market interest rates) when available and is required to make certain entity-specific estimates (such as the subsidiary’s stand-alone credit rating). (vii) Recognition of service contract revenues As revenue from after-sales maintenance agreements and construction contracts is recognised over time, the amount of revenue recognised in a reporting period depends on the extent to which the performance obligation has been satisfied. For after-sales maintenance agreements this requires an estimate of the quantity of the services to be provided, based on historical experience with similar contracts. In a similar way, recognising revenue for construction contracts also requires significant judgment in determining the estimated number of hours required to complete the promised work when applying the hours-to-hours method described in Note 2(t). (viii) Capitalisation of internally developed software Distinguishing the research and development phases of a new customised software project and determining whether the recognition requirements for the capitalisation of development costs are met requires judgement. After capitalisation, management monitors whether the recognition requirements continue to be met and whether there are any indicators that capitalised costs may be impaired (see Note 2(i)). 3. SEGMENT REPORTING Management identifies its operating segments based on the Group’s geographical presence, which represent the main products and services provided by the Group. The Group’s two operating segments are: • Australia • New Zealand No operating segments have been aggregated to form the above reportable operating segments. There is no single customer on which the Group’s revenue depended during the financial year. The Chief Executive Officer is the Chief Operating Decision Maker (CODM) and monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on profit or loss and is measured consistently with profit or loss in the consolidated financial statements. The Group’s financing (including finance costs, finance income and other income) and income taxes are managed on a Group basis and are not allocated to operating segments. Transfer prices between operating segments are on an arm’s length basis in a manner similar to transactions with third parties. Inter-segment revenues are eliminated upon consolidation and reflected in the elimination column. All other adjustments and eliminations are part of detailed reconciliations presented further below. The revenues and profit generated by each of the Group’s operating segments and segment assets are summarised as follows: EMPIRED LIMITED | ANNUAL REPORT 2021 38 NOTES TO THE FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2021 3. SEGMENT REPORTING (continued) Australia $ New Zealand $ Total $ 2021 Revenue From external customers 113,392,827 72,740,491 186,133,318 Inter-segment - - - Total 113,392,827 72,740,491 186,133,318 Segment profit (EBITDA) 11,591,924 14,046,170 25,638,094 Segment assets 78,956,759 49,096,724 128,053,483 Segment non-current assets 46,613,315 34,148,116 80,761,431 Segment liabilities 32,846,573 18,189,724 51,036,297 2020 Revenue From external customers 98,020,883 67,528,476 165,549,359 Inter-segment - - - Total 98,020,883 67,528,476 165,549,359 Segment profit (EBITDA) 10,664,034 8,347,276 19,011,310 Segment assets 73,896,301 49,843,221 123,739,522 Segment non-current assets 48,563,549 36,237,364 84,800,913 Segment liabilities 38,488,404 16,971,031 55,459,435 Finance costs and finance income are not allocated to individual segments as the underlying instruments are managed on a group basis. Current taxes, deferred taxes are not allocated to those segments as they are also managed on a group basis. The Group’s segment operating EBITDA reconciles to the Group’s profit before tax as presented in the financial statements as follows: 2021 $ 2020 $ Total reporting segment profit (EBITDA) 25,638,094 19,011,310 Less: Finance costs (net) (1,215,293) (1,510,200) Depreciation and amortisation expenses (9,041,392) (8,502,600) Group profit before tax 15,381,409 8,998,510 EMPIRED LIMITED | ANNUAL REPORT 2021 39 NOTES TO THE FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2021 4. REVENUE FROM CONTRACTS WITH CUSTOMERS 2021 $ 2020 $ Revenue Services 117,240,400 104,445,210 Operations 68,892,918 61,104,149 Total revenue from contracts with customers 186,133,318 165,549,359 Geographical markets Australia Services 72,081,840 64,048,229 Operations 41,310,987 33,972,654 New Zealand Services 45,158,560 40,396,981 Operations 27,581,931 27,131,495 Total revenue from contracts with customers 186,133,318 165,549,359 Services revenue comprise professional project services fees for customers contracted on a fixed price or time and materials basis. Operations revenue comprise professional fees from customers for managing of IT systems, applications or infrastructure plus the sale of products and licenses. 2021 $ 2020 $ Timing of revenue recognition Transferred at a point in time 114,345,156 108,601,249 Transferred over time 71,788,162 56,948,110 Total revenue from contracts with customers 186,133,318 165,549,359 Market type Government 48,839,320 50,418,729 Non-government 137,293,998 115,130,630 Total revenue from contracts with customers 186,133,318 165,549,359 Customers generally pay for amounts billed on a 30 day basis. Contract balances Contract assets 11,492,503 8,525,275 Contract liabilities (Note 21) 1,451,148 1,689,674 During the financial year contract assets increased by $2,967,228 due to new contracts beginning during the financial year and the general increase in revenue. During the financial year $1,850,000 was recognised as an expected credit loss on contract assets however recovery actions are on-going and as such the Directors believe that recovery of this amount is probable as disclosed at Note 28. All of the prior year’s closing balance of contract liabilities are now in revenue and we estimate that all of the current year closing balance will be brought to account as revenue in the financial year ended 30 June 2022. EMPIRED LIMITED | ANNUAL REPORT 2021 40 NOTES TO THE FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2021 5. OTHER INCOME 2021 $ 2020 $ Government subsidy - JobKeeper 4,885,047 4,084,500 Other income - 100,000 4,885,047 4,184,500 6. EXPENSES 2021 $ 2020 $ 6A Employee benefits Salary & wages 113,811,870 100,818,883 Contractor costs 13,554,228 12,846,232 Superannuation 7,668,153 6,736,783 Other employee related costs 1,246,694 4,313,203 Share based payments 669,986 406,477 136,950,931 125,121,578 6B Depreciation and amortisation Depreciation of plant and equipment 1,397,479 1,581,337 Amortisation of intangible assets 2,525,654 1,257,961 Amortisation of right of use assets 5,118,259 5,663,302 9,041,392 8,502,600 6C Other expenses IT expenses 10,848,673 6,605,424 Administrative expenses 1,365,269 1,881,295 Travel expenses 229,749 1,422,920 Insurance expenses 412,463 436,748 Other expenses 507,928 423,337 13,364,082 10,769,724 7. FINANCE EXPENSES 2021 $ 2020 $ Interest expenses - bank borrowings 518,895 699,166 Interest expenses - leases 699,722 825,031 1,218,617 1,524,197 EMPIRED LIMITED | ANNUAL REPORT 2021 41 NOTES TO THE FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2021 8. INCOME TAX (a) Income tax expense The major components of tax expense and the reconciliation of the expected tax expense based on the domestic effective tax rate of Empired Ltd at 30% (2020: 30%) and the reported tax expense in profit or loss are as follows: 2021 $ 2020 $ Current income tax payable 2,780,221 343,625 Current income tax payable - prior period adjustment 164,220 - Deferred income tax relating to origination and reversal of temporary differences - Origination and reversal of temporary differences 1,887,675 2,507,569 - Under provision in respect of prior years 15,369 1,330 Income tax expense 4,847,485 2,852,524 (b) Numerical reconciliation between aggregate tax expense recognised in the comprehensive income statement and tax expense calculated per the statutory income tax rate 2021 $ 2020 $ Accounting profit before income tax 15,381,409 8,998,510 Income tax expense to accounting profit Domestic tax rate for Empired Ltd (30%) 4,614,423 2,699,553 Tax rate differential (266,723) (75,506) Employee option expense 200,996 121,943 Amortisation of intangibles - 927 Other expenditure not allowed for income tax purposes 119,201 104,332 Foreign exchange differences - (55) Under provision in respect of prior years 179,585 1,330 Income tax expense 4,847,482 2,852,524 EMPIRED LIMITED | ANNUAL REPORT 2021 42 NOTES TO THE FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2021 8. INCOME TAX (continued) (c) Recognised deferred tax assets and liabilities Deferred income tax balances relate to the following: Opening Balance $ Recognised in Profit and Loss $ Exchange Differences $ Closing Balance $ 30 June 2021 Deferred tax liabilities Contract assets 2,387,100 496,077 - 2,883,177 Right of use assets 2,520,018 (655,322) - 1,864,696 Trade and other receivables 361,845 (362,488) 643 - Other 5,698 - (434) 5,264 Gross deferred tax liabilities 5,274,661 (521,733) 209 4,753,137 Deferred tax assets Provisions 165,987 181,240 - 347,227 Equity raising costs 52,006 (52,006) - - Borrowing costs 230 (230) - - R&D Tax Offsets carried forward 2,965,856 (2,006,432) - 959,424 Fixed assets 1,435,821 (805,700) 1,958 632,079 Employee obligations 2,531,531 592,530 (4,599) 3,119,462 Lease liabilities 3,310,980 (419,114) (763) 2,891,103 Trade and other receivables - 141,902 - 141,902 Other 27,645 (25,336) (2,309) - Tax losses 435,906 (31,631) - 404,275 Gross deferred tax assets 10,925,962 (2,424,777) (5,713) 8,495,472 Net deferred tax assets 5,651,301 (1,903,044) (5,922) 3,742,335 30 June 2020 Deferred tax liabilities Contract assets 3,140,944 (753,844) - 2,387,100 Right of use assets - 2,520,018 - 2,520,018 Trade and other receivables - 367,908 (6,063) 361,845 Other 36,417 (31,994) 1,275 5,698 Gross deferred tax liabilities 3,177,361 2,102,088 (4,788) 5,274,661 Deferred tax assets Provisions 1,038,257 (872,270) - 165,987 Equity raising costs 106,227 (54,221) - 52,006 Borrowing costs 1,595 (1,365) - 230 R&D Tax Offsets carried forward 3,745,620 (779,764) - 2,965,856 Fixed assets 2,778,802 (1,337,760) (5,221) 1,435,821 Trade and other receivables 63,882 (63,881) - - Employee obligations 2,159,093 353,442 18,996 2,531,531 Lease liabilities - 3,310,980 - 3,310,980 Other 29,543 (2,525) 627 27,645 Tax losses 1,414,485 (959,444) (19,135) 435,906 Gross deferred tax assets 11,337,504 (406,808) (4,733) 10,925,962 Net deferred tax assets 8,160,143 (2,508,896) 55 5,651,301 EMPIRED LIMITED | ANNUAL REPORT 2021 43 NOTES TO THE FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2021 8. INCOME TAX (continued) (d) Tax payable 2021 $ 2020 $ Income tax payable 2,640,414 309,555 (e) Tax consolidation Effective 1 July 2002, for the purposes of income taxation, Empired Limited and its 100% Australian owned subsidiaries formed a tax consolidated group. The head entity of the consolidated group is Empired Limited. The head entity is responsible for tax liabilities of the group. Intra group transactions are ignored for tax purposes and there is a single return lodged on behalf of the group. Empired Limited formally notified the Australian Taxation Office of its adoption of the tax consolidation regime upon lodgement of its 30 June 2003 consolidated tax return. 9. EARNINGS PER SHARE Basic earnings per share amounts are calculated by dividing net profit for the year attributable to ordinary equity holders of the parent company by the weighted average number of ordinary shares on issue during the year. The following represents the income and share data used in the basic and diluted earnings per share computations: 2021 $ 2020 $ Net profit attributable to ordinary equity holders of the parent 10,533,927 6,145,986 2021 ‘000s 2020 ‘000s Weighted average number of ordinary shares for basic earnings per share 160,262 159,950 Effect of Dilution: Performance rights 8,384 6,427 Weighted average number of ordinary shares adjusted for the effect of dilution 168,646 166,377 There have been no other transactions involving ordinary shares or potential ordinary shares between the reporting date and the date of these financial statements. EMPIRED LIMITED | ANNUAL REPORT 2021 44 NOTES TO THE FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2021 10. CASH AND CASH EQUIVALENTS (a) Reconciliation of cash 2021 $ 2020 $ Cash at bank and in hand: -AUD 8,194,083 3,005,416 -NZD 3,280,019 2,476,453 -USD 426,563 835,099 11,900,665 6,316,968 (b) Reconciliation of net cash flows from operating activities to profit after income tax 2021 $ 2020 $ Profit after income tax 10,533,927 6,145,986 Finance expenses (net) 1,215,293 1,510,200 Depreciation and amortisation 9,041,392 8,502,600 Share payment expense 669,986 406,477 Changes in assets and liabilities net of effects of purchases and disposals of (Increase)/decrease in receivables (118,415) 1,385,995 (Increase)/decrease in contract assets (2,967,228) 3,611,658 Decrease in prepayments 315,897 39,779 Increase in trade creditors and other payables 1,705,753 1,119,965 Decrease in contract liabilities (238,526) (468,531) Decrease in deferred tax asset 1,908,966 - Increase in tax payable 2,330,859 273,850 Increase in provisions 1,106,834 1,283,294 Net cash from operating activities 25,504,738 23,811,273 11. TRADE AND OTHER RECEIVABLES 2021 $ 2020 $ Current Gross trade receivables 22,146,731 20,690,281 Allowance for credit losses (refer Note 26) (444,439) (492,856) Other receivables 15,867 1,402,319 21,718,159 21,599,744 Trade receivables are non-interest bearing and are generally on 30-day terms. There is no significant impairment of the trade receivables as at 30 June 2021 (2020: nil). EMPIRED LIMITED | ANNUAL REPORT 2021 45 NOTES TO THE FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2021 12. OTHER CURRENT ASSETS 2021 $ 2020 $ Prepayments 2,180,725 2,496,622 13. PLANT AND EQUIPMENT Leasehold improvements $ Computer hardware $ Furniture, equipment & fittings $ Total $ 2021 Gross carrying amount Balance 1 July 2020 6,447,505 8,668,531 1,533,451 16,649,487 Additions 578,075 890,307 22,856 1,491,238 Exchange differences (5,305) (12,303) (6,848) (24,456) Balance 30 June 2021 7,020,275 9,546,535 1,549,459 18,116,269 Depreciation and impairment Balance 1 July 2020 (3,139,938) (7,710,196) (622,164) (11,472,298) Depreciation (644,955) (595,310) (157,214) (1,397,479) Exchange differences 777 10,750 1,962 13,489 Balance 30 June 2021 (3,784,116) (8,294,756) (777,416) (12,856,288) Carrying amount 30 June 2021 3,236,159 1,251,779 772,043 5,259,981 Leasehold improvements $ Computer hardware $ Furniture, equipment & fittings $ Total $ 2020 Gross carrying amount Balance 1 July 2019 6,448,009 8,033,429 1,514,152 15,995,591 Additions 16,562 542,973 10,188 569,723 Exchange differences (17,066) 92,129 9,111 84,174 Balance 30 June 2020 6,447,505 8,668,531 1,533,451 16,649,488 Depreciation and impairment Balance 1 July 2019 (2,532,072) (6,760,388) (466,867) (9,759,327) Depreciation (607,866) (949,808) (155,297) (1,712,971) Balance 30 June 2020 (3,139,938) (7,710,196) (622,164) (11,472,298) Carrying amount 30 June 2020 3,307,567 958,335 911,287 5,177,190 EMPIRED LIMITED | ANNUAL REPORT 2021 46 NOTES TO THE FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2021 14. INTANGIBLE ASSETS Goodwill $ Software $ Other $ Total $ 2021 Gross carrying amount Balance 1 July 2020 46,446,049 32,695,416 162,550 79,304,015 Additions - 4,512,654 - 4,512,654 Exchange differences - 55,695 - 55,695 Balance 30 June 2021 46,446,049 37,263,765 162,550 83,872,364 Depreciation and impairment Balance 1 July 2020 - (23,040,882) (162,550) (23,203,432) Amortisation - (2,525,654) - (2,525,654) Exchange differences - (68,684) - (68,684) Balance 30 June 2021 - (25,635,220) (162,550) (25,797,770) Carrying amount 30 June 2021 46,446,049 11,628,545 - 58,074,594 Intangible assets, other than goodwill, have finite lives and are required to be amortised over their expected lives. Goodwill has an infinite life. Goodwill assumptions have been detailed below. No impairment was recorded. Goodwill $ Software $ Other $ Total $ 2020 Gross carrying amount Balance 1 July 2019 46,446,049 26,883,054 162,550 73,491,653 Additions - 5,924,122 - 5,924,122 Exchange differences - (111,760) - (111,760) Balance 30 June 2020 46,446,049 32,695,416 162,550 79,304,015 Depreciation and impairment Balance 1 July 2019 - (21,792,633) (159,459) (21,952,092) Amortisation - (1,248,249) (3,091) (1,251,340) Balance 30 June 2020 - (23,040,882) (162,550) (23,203,432) Carrying amount 30 June 2020 46,446,049 9,654,534 - 56,100,583 EMPIRED LIMITED | ANNUAL REPORT 2021 47 NOTES TO THE FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2021 14. INTANGIBLE ASSETS (continued) Goodwill Goodwill acquired through business combinations with indefinite lives are allocated to the Australian and New Zealand cash generating units (CGUs), which are also the operating and reportable segments for impairment testing. The carrying amount of goodwill allocated to each CGU is as follows: 2021 $ 2020 $ Australia 27,105,898 27,105,898 New Zealand 19,340,151 19,340,151 Total carrying amount of goodwill 46,446,049 46,446,049 The Group performed the annual impairment test in June 2021. The Group considers the relationship between its equity market capitalisation and the net assets as shown on the balance sheet, among other factors, when reviewing for indicators of impairment. No indicators of impairment are noted. In considering the carrying value of goodwill, the Directors have adopted a value in use methodology to determine the recoverable amounts of each CGU which confirms that no impairment charge is necessary. The recoverable amount of each CGU has been determined based on a value in use calculation that uses the cash flow budgets over a one year period, followed by an extrapolation of expected cash flows for the CGUs over a three year period using the growth rates determined by management and the assumptions outlined below. The present value of the expected cash flows and a terminal value for each segment is determined by applying a suitable discount rate. Key assumptions used in value in use calculations and sensitivity to changes in assumptions Managements key assumption is that stable economic conditions prevail for the foreseeable future. Cash flow projections reflect stable profit margins previously achieved and that no material deterioration in the cash margin is anticipated. In making this assessment the possible impacts of COVID-19 have been taken into account. The sensitivity analysis undertaken considers each key assumption in isolation and does not take into account any remedial action that may be taken if, for example, margins were to deteriorate. The calculation of value in use for each CGU is most sensitive to the following assumptions: Gross profit margins - are based upon FY22 budgets and margins achieved in the current year. Gross profit margins are the most sensitive variable to the value in use calculation. However, a reasonable possible change is not likely to cause a material impairment. If gross profit margins were to reduce by more than 400 basis points in Australia or by more than 500 basis points in New Zealand without any compensating adjustment to cash flows then it is likely that a goodwill impairment charge would occur. Cost price inflation – has been based upon publicly available inflationary data. Growth rate estimates – It is acknowledged that technological change, macro-economic factors and action of competitors can have an impact on growth rate assumptions. Growth rates for revenue and costs have been assumed post year 4 at 3%. If terminal growth was to reduce to zero, in real terms, then it is estimated that a goodwill impairment charge is unlikely. Discount rates – represent the current market risks, taking into consideration the time value of money and specific risks not incorporated in the cash flow forecasts. The discount rate is based upon the weighted average cost of capital (WACC). WACC is assessed taking into account the expected return on investment by investors, the cost of debt servicing plus beta factors for industry risk. The Directors have adopted a WACC of 14% which is applied to the forecast pre-tax cash flows after capital expenditure of each CGU. EMPIRED LIMITED | ANNUAL REPORT 2021 48 NOTES TO THE FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2021 15. RIGHT OF USE ASSETS 2021 $ 2020 $ Gross carrying amount Balance 1 July 23,502,245 18,361,110 Additions 978,588 5,174,031 Exchange differences (122,974) (32,896) Balance 24,357,859 23,502,245 Depreciation Balance 1 July (5,630,405) - Amortisation (5,118,259) (5,663,302) Exchange differences 75,326 32,897 Balance (10,673,338) (5,630,405) Carrying amount 13,684,521 17,871,839 The following describes the nature of the Group’s leasing activities by type of right of use asset recognised on the balance sheet: Right of use asset Office building Number of right of use assets leased 9 Range of remaining term 0.3 - 6.7 years Average remaining lease term 2.7 years Number of leases with extension options 8 Number of leases with options to purchase - Number of leases with variable payments linked to an index 2 Number of leases with termination options - EMPIRED LIMITED | ANNUAL REPORT 2021 49 NOTES TO THE FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2021 16. EMPLOYEE BENEFITS The total expense relating to equity-settled share-based payment transactions in 2021 was $669,986 (2020: $406,477). During 2021 certain employees were eligible to participate in the Company’s Performance Rights Plan. Each performance right granted under this plan is subject to both a performance criteria and a vesting period. Each performance right is issued for nil consideration, with each performance right converting to one fully paid ordinary share upon vesting except when performance above the target is achieved and then up to 1.5 ordinary shares per performance right is provided. The performance rights are unquoted. There are no voting or dividend rights attaching to the performance rights. Performance rights vest upon a change of control in the Company. The following summarises the number and movement in performance rights for the reporting periods: 2021 No. 2020 No. Outstanding at the beginning of the year 6,426,901 6,481,636 Granted during the year 3,475,000 2,786,667 Forfeited during the year (1,140,550) (2,841,402) Vested during the year (377,517) - Outstanding at the end of the year 8,383,834 6,426,901 During the financial year ended 30 June 2021, 377,517 Performance Rights were vested for the sustainability measure based upon the Board’s assessment of management’s performance. For the measures of basic EPS for FY20 and for Relative TSR these measures were not acheived resulting in 1,697,483 Performance Rights lapsing. A summary of the performance criteria and vesting dates is as follows: Number of Performance Rights Number of ordinary shares (i) Vesting date Hurdle description 872,867* 1,309,301 1 September 2021 FY21 Basic EPS 436,433* 654,650 1 September 2021 FY21 Return on Equity 872,867* 1,309,301 1 September 2021 Absolute TSR 1,090,667* 1,636,001 1 September 2022 FY22 Basic EPS 545,333* 818,000 1 September 2022 FY22 Return on Equity 1,090,667* 1,636,001 1 September 2022 Absolute TSR 1,390,000* 2,085,000 30 September 2023 FY23 Basic EPS 695,000* 1,042,500 30 September 2023 FY23 Return on Equity 1,390,000* 2,085,000 30 September 2023 Absolute TSR 8,383,834 12,575,751 (i) Maximum number of ordinary shares to be provided should stretch performance measures be achieved * For these Tranches should a change of control of the Company occur in accordance with the Long Term Incentive Plan Rules the Directors have the discretion to issue up to 1.5 ordinary shares per Performance Right. EMPIRED LIMITED | ANNUAL REPORT 2021 50 NOTES TO THE FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2021 16. EMPLOYEE BENEFITS (continued) The fair values of the performance rights is measured using a variation of the binomial option pricing model that takes into account the terms and conditions on which the instruments were granted and the current likelihood of achieving the specified target. The following principal assumptions were used in the valuation of performance rights issued in the financial year: Grant date 27 July 2020 22 December 2020 Vesting period ends 30 September 2023 30 September 2023 Share price at date of grant $0.37 $0.68 Term 3 yrs 3 yrs Fair value at grant date $375,496 $489,251 Performance rights granted 2,190,000 1,285,000 The underlying expected volatility was determined by reference to historical data of the Company’s shares over a period of time. No special features inherent to the grant were incorporated into measurement of fair value. 17. TRADE AND OTHER PAYABLES 2021 $ 2020 $ Trade payables 5,251,072 5,923,794 Other payables 11,338,285 8,959,810 16,589,357 14,883,604 Trade payables are non-interest bearing and are normally settled on 30-day terms. EMPIRED LIMITED | ANNUAL REPORT 2021 51 NOTES TO THE FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2021 18. BORROWINGS 2021 $ 2020 $ Current Obligations under bank loan 3,000,000 1,200,000 Obligations under NZ-Dollar bank loan 1,623,547 654,671 4,623,547 1,854,671 Non-current Obligations under bank loan - 7,000,000 Obligations under NZ-Dollar bank loan - 1,636,677 - 8,636,677 Summary of facilities At reporting date, the following financing facilities were available: 2021 $ 2020 $ Bank loans 19,623,547 22,491,348 Facility used at reporting date (4,623,547) (10,491,348) Facility unused at reporting date 15,000,000 12,000,000 Bank guarantees 4,200,000 4,200,000 Facility used at reporting date (3,221,598) (3,338,357) Facility unused at reporting date 978,402 861,643 Summary of covenants The bank debt facilities comprise: • non-revolving term debt of $4,623,547 maturing in March 2022 with quarterly principal repayments; • borrowing base facility of $15,000,000, undrawn as at 30 June 2021. This facility matures in March 2022; and • bank guarantee facility of $4,200,000 maturing in March 2022. The borrowing base and bank guarantee facilities can be drawn in Australian or New Zealand dollars. The bank facilities are subject to the customary borrowing terms and conditions of a bank facility of this kind. The financial covenants that apply include debt service coverage ratio, leverage ratio and maximum borrowing base utilisation as a percentage of certain trade debtors. Security arrangements Security for the above bank facilities has been provided as follows: • Registered General Security Interest provided by Empired Limited and Intergen Limited; • Specific Security deed over the shares in the subsidiaries of Empired Limited; and • Cross guarantee and indemnity provided by each group entity. EMPIRED LIMITED | ANNUAL REPORT 2021 52 NOTES TO THE FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2021 19. LEASE LIABILITIES Lease liabilities are presented in the statement of the financial position as follows: 2021 $ 2020 $ Current Lease liabilities 5,789,915 5,371,495 5,789,915 5,371,495 Non-current Lease liabilities 10,665,399 14,568,739 16,455,314 19,940,234 The Group has leases for its office premises and some IT equipment. With the exception of short-term leases and leases of low-value underlying assets, each lease is reflected on the balance sheet as a right of use asset and a lease liability. Variable lease payments which do not depend on an index or a rate (such as lease payments based on a percentage of Group sales) are excluded from the initial measurement of the lease liability and asset. The Group classifies its right of use assets in a consistent manner to its property, plant and equipment. Each lease generally imposes a restriction that, unless there is a contractual right for the Group to sublet the asset to another party, the right of use asset can only be used by the Group. Leases are either non-cancellable or may only be cancelled by incurring a substantive termination fee. Some leases contain an option to extend the lease for a further term. The Group is prohibited from selling or pledging the underlying leased assets as security. For leases over office buildings and factory premises the Group must keep those properties in a good state of repair and return the properties in their original condition at the end of the lease. Further, the Group must insure items of property, plant and equipment and incur maintenance fees on such items in accordance with the lease contracts. Future minimum lease payments at 30 June 2021 were as follows: Minimum lease payments due Within one year 1 - 5 years After 5 years Total Lease payments 6,316,307 11,157,129 202,890 17,676,326 Finance charges (526,392) (692,247) (2,373) (1,221,012) Net present values 5,789,915 10,464,882 200,517 16,455,314 Lease payments not recognised as a liability The Group has elected not to recognise a lease liability for short term leases (leases with an expected term of 12 months or less) or for leases of low value assets. Payments made under such leases are expensed on a straight- line basis. In addition, certain variable lease payments are not permitted to be recognised as lease liabilities and are expensed as incurred. The expense relating to payments not included in the measurement of the short-term lease assets is $43,467. EMPIRED LIMITED | ANNUAL REPORT 2021 53 NOTES TO THE FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2021 20. PROVISIONS Restoration $ Annual leave $ Long service leave $ Total $ Balance at the beginning of the year 874,609 4,738,308 2,532,103 8,145,020 Amortisation of provision (260,980) - - (260,980) Additional provisions 100,000 7,212,447 488,431 7,800,879 Amounts used - (6,308,826) (99,575) (6,408,402) Closing value at 30 June 2021 713,629 5,641,929 2,920,959 9,276,517 The provision for restoration has been recognised to provide for make good costs for office premises at the end of the lease term. 2021 $ 2020 $ Analysis of total provisions: Current Provision for annual leave 5,641,929 4,738,308 Provision for long service leave 2,692,023 2,316,765 Provision for restoration - 260,000 8,333,952 7,315,073 Non-current Provision for long service leave 228,936 215,338 Provision for restoration 713,629 614,609 942,565 829,947 21. CONTRACT LIABILITIES 2021 $ 2020 $ Current Deposits for future work 1,451,148 1,689,674 Total contract liabilities (Note 4) 1,451,148 1,689,674 EMPIRED LIMITED | ANNUAL REPORT 2021 54 NOTES TO THE FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2021 22. RESERVES Foreign Currency Translation Reserve $ Employee Equity Benefits Reserve $ Total Reserves $ Opening balance as at 1 July 2019 389,481 3,036,176 3,425,657 Exchange differences arising on translation of foreign operations (135,999) (135,999) Share-based payments 406,477 406,477 Closing balance as at 30 June 2020 253,482 3,442,653 3,696,135 Exchange differences arising on translation of foreign operations (62,292) - (62,292) Share-based payments - 669,986 669,986 Closing balance as at 30 June 2021 191,190 4,112,639 4,303,829 23. ISSUED CAPITAL 2021 $ 2020 $ Ordinary shares fully paid 54,146,878 54,146,878 Movement in ordinary shares on issue No. Value ($) At 1 July 2019 160,127,197 54,204,746 Share buy back (net of costs) (203,119) (57,868) At 30 June 2020 159,924,078 54,146,878 Issue of ordinary shares (net of issue costs) 377,517 - At 30 June 2021 160,301,595 54,146,878 Ordinary shares entitle the holder to participate in dividends, and carry one vote per share. These shares have no par value. EMPIRED LIMITED | ANNUAL REPORT 2021 55 NOTES TO THE FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2021 24. CAPITAL MANAGEMENT For the purpose of the Group’s capital management, capital includes ordinary share capital and convertible performance rights, supported by financial assets. The primary objective of the Group’s capital management is so that the Group can fund its operations, continue as a going concern and enhance shareholder value. The Group manages its capital structure and makes adjustments in light of changes in economic conditions and the requirements of the financial covenants. The Group monitors capital using a gearing ratio, which is ‘net debt’ divided by total capital plus net debt. The Group’s policy is to maintain a sustainable gearing ratio. The Group includes within net debt, interest bearing loans and borrowings, trade and other payables, less cash and short-term deposits. In order to achieve this overall objective, the Group’s capital management, among other things, aims to ensure that it meets financial covenants attached to the interest-bearing loans and borrowings that define capital structure requirements. Breaches in meeting the financial covenants would permit the bank to immediately call loans and borrowings. There have been no breaches of the financial covenants of any interest-bearing loans and borrowing in the current period. There have been no material changes in the strategy adopted by management to control the capital of the Group since the prior year. The gearing ratios for the years ended 30 June 2021 and 30 June 2020 are as follows: Note 2021 $ 2020 $ Total borrowings 18, 19 21,078,861 30,431,582 Less cash and cash equivalents 10 (11,900,665) (6,316,968) Net debt including leases 9,178,196 24,114,614 Issued capital 54,146,878 54,146,878 Total capital 63,325,074 78,261,492 Gearing ratio 11% 26% 25. DIVIDENDS 2021 $ 2020 $ Balance of franking account at year end at 30% available to the shareholders of Empired Limited 24,841 24,841 On 15 March 2021, an interim dividend of 1.5 cents per share (unfranked) was paid (2020: nil). EMPIRED LIMITED | ANNUAL REPORT 2021 56 NOTES TO THE FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2021 26. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES The Group’s principal financial instruments consist of bank loans, cash, trade receivables and trade payables. The main purpose of the financial liabilities is to raise finance for the Group’s operations. Financial instruments such as trade debtors and trade creditors, which arise directly from its operations. The Group has a policy that no trading in financial instruments shall be undertaken. The main risks arising from the Group’s financial instruments are interest rate risk, liquidity risk, foreign currency risk and credit risk. The Board reviews and agrees policies for managing each of these risks and they are summarised below. Interest rate risk Exposure to market interest rates is limited to the Group’s cash balances and bank borrowings at variable interest rates. Finance leases and hire purchase agreements entered into are purchased at fixed interest rates. Cash balances are disclosed at Note 10. Refer to Note 27 for detail of the Group’s exposure to interest rate risks on financial assets and liabilities. The following table illustrates the sensitivity of profit and equity to a reasonably possible change in interest rates of +/- 1% (2020: +/- 1%). These changes are considered to be reasonably possible based on observation of current market conditions. The calculations are based on a change in the average market interest rate for each period, and the financial instruments held at each reporting date that are sensitive to changes in interest rates. All other variables are held constant. Profit for the year Equity $ +1% $ -1% $ +1% $ -1% 30 June 2021 (50,940) 50,940 (50,940) 50,940 30 June 2020 99,895 (99,895) 99,895 (99,895) Foreign currency risk The Group has exposure to foreign currency risk as a result of its New Zealand, USA and Singapore based subsidiaries having trade debtors and trade creditors denominated in a currency other than the functional currency. Trade creditor transactions for Australian subsidiaries may be entered into in foreign currency and fluctuations in these currencies may have a minor impact on the Company’s financial results. The exchange rates are closely monitored within the Group. Foreign currency denominated financial assets and liabilities which expose the Group to currency risk are disclosed below. The amounts shown are those reported to key management translated into AUD at the closing rate: NZD USD 2021 $ 2020 $ 2021 $ 2020 $ Financial assets 11,841,939 11,718,221 1,150,317 769,615 Financial liabilities (12,056,367) (14,161,508) (52,758) (187,010) Net exposure (214,428) (2,443,287) 1,097,559 582,605 EMPIRED LIMITED | ANNUAL REPORT 2021 57 NOTES TO THE FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2021 26. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued) The following table illustrates the sensitivity of profit in regards to the Group’s financial assets and financial liabilities and the NZD/AUD exchange rate, USD/AUD exchange rate and SGD/AUD exchange rate ‘all other things being equal’. It assumes a +/- 10% change of the AUD/NZD exchange rate, a +/- 10% change of the AUD/USD exchange rate, and a +/- 10% change of the AUD/SGD exchange rate (2020: 10%). These percentages have been determined based on the average market volatility in exchange rates in the previous twelve (12) months. The sensitivity analysis is based on the Group’s foreign currency financial instruments held at each reporting date. There is no effect on equity. If the AUD had strengthened against the respective currencies by 10% (2020: 10%) then this would have had the following impact: NZD $ USD $ 30 June 2021 (21,443) 109,756 30 June 2020 (244,329) 58,261 If the AUD had weakened against the respective currencies by 10% (2020: 10%) then this would have had the following impact: NZD $ USD $ 30 June 2021 21,443 (109,756) 30 June 2020 244,329 (58,261) Exposures to foreign exchange rates vary during the year depending on the volume of overseas transactions. Nonetheless, the analysis above is considered to be representative of the Group’s exposure to currency risk. Commodity price risk The Group’s exposure to commodity price risk is minimal. Credit risk The Group trades only with recognised, creditworthy third parties. It is the Group policy that customers who wish to trade on credit terms are subject to credit verification procedures. Customers that fail to meet the Group’s creditworthiness may transact with the Group only on a prepayment basis. In addition, receivable balances are monitored on an ongoing basis with the result that the Group’s exposure to bad debts is not significant. There are no material transactions that are not denominated in the measurement currency of the relevant operating unit. The Group does not offer credit terms without the specific approval of the Chief Financial Officer. With respect to credit risk arising from the other financial assets of the Group, which comprise cash and cash equivalents and available-for-sale financial assets, the Group’s exposure to credit risk arises from default of the counter party, with a maximum exposure equal to the carrying amount of these instruments. EMPIRED LIMITED | ANNUAL REPORT 2021 58 NOTES TO THE FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2021 26. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued) Exposure to credit risk The Group’s maximum exposure to credit risk at the report date was: 2021 $ 2020 $ Cash and cash equivalents (Note 10) 11,900,665 6,316,968 Trade and other receivables (Note 11) 21,718,159 21,599,744 33,618,824 27,916,712 The Group applies the AASB 9 simplified model of recognising lifetime expected credit losses for all trade receivables as these items do not have a significant financing component. In measuring the expected credit losses, the trade receivables have been assessed on a collective basis as they possess shared credit risk characteristics. They have been grouped based on the days past due and also according to the geographical location of customers. The expected loss rates are based on the payment profile for sales over the past 48 months before 30 June 2021 and 30 June 2020 respectively as well as the corresponding historical credit losses during that period. The historical rates are adjusted to reflect current and forwarding looking macroeconomic factors affecting the customer’s ability to settle the amount outstanding. The Group has identified gross domestic product (GDP) and unemployment rates of the countries in which the customers are domiciled to be the most relevant factors and according adjusts historical loss rates for expected changes in these factors. However given the short period exposed to credit risk, the impact of these macroeconomic factors has not been considered significant within the reporting period. Trade receivables are written off (i.e. derecognised) when there is no reasonable expectation of recovery. Failure to make payments within 180 days from the invoice date and failure to engage with the Group on alternative payment arrangement amongst other is considered indicators of no reasonable expectation of recovery. The aging of the Group’s non-impaired trade receivables at reporting date was: 30 June 2021 Trade receivables past due Current More than 30 days More than 60 days More than 90 days Total Expected credit loss rate 0.05% 1.6% 10.6% 145.7% - Gross carrying amount 19,505,798 2,009,022 379,939 251,972 22,146,731 Lifetime expected credit loss 7,477 32,153 40,490 364,319 444,439 30 June 2020 Trade receivables past due Current More than 30 days More than 60 days More than 90 days Total Expected credit loss rate 0.05% 1.0% 50.0% 100.0% - Gross carrying amount 17,676,820 1,780,622 639,679 593,160 20,690,281 Lifetime expected credit loss 6,451 36,264 71,257 378,884 492,856 EMPIRED LIMITED | ANNUAL REPORT 2021 59 NOTES TO THE FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2021 26. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued) The closing balance of the trade receivables less allowances at 30 June 2021 reconciles with trade receivables: $ Opening balance of provision for doubtful debts as at 1 July 2019 997,876 Provision written off during the year (745,098) Estimated credit losses provided in year 240,078 Opening estimated credit losses 1 July 2020 492,856 Provision written off during the year (23,247) Bad debts written off during the year (25,170) Expected credit loss at 30 June 2021 444,439 Liquidity risk The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of short and long term debt. The Group manages liquidity risk by forecasting and monitoring cash flows on a continuing basis. As at 30 June 2021, the Group’s financial liabilities have contractual maturities (including interest payments where applicable) as summarised 0-12 Months $ 1 - 5 years $ 5+ years $ 30 June 2021 Bank borrowings 4,728,212 - - Leases 6,316,307 11,157,129 202,890 Trade and other payables 16,589,357 - - Income tax payable 2,640,414 - - Total 30,274,290 11,157,129 202,890 This compares to the maturity of the Group’s financial liabilities in the previous reporting periods as follows: 0-12 Months $ 1 - 5 years $ 5+ years $ 30 June 2020 Bank borrowings 2,056,115 8,884,483 - Leases and hire purchase 6,064,821 15,232,584 496,705 Trade and other payables 14,883,604 - - Income tax payable 309,555 - - Total 23,314,095 24,117,067 496,705 The above amounts reflect the contractual undiscounted cash flows, which may differ to the carrying values of the liabilities at the reporting date. EMPIRED LIMITED | ANNUAL REPORT 2021 60 NOTES TO THE FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2021 27. FINANCIAL INSTRUMENTS The fair value of financial assets and liabilities is considered to approximate their carrying values. The tables below reflect the undiscounted contractual settlement terms for financial instruments of a fixed period of maturity, as well as management’s expectations of the settlement period for all other financial instruments. As such, the amounts may not reconcile to the statement of financial position. Interest rate risk Exposure to interest rate risks on financial assets and liabilities are summarised as follows: Floating interest rate $ Fixed interest rate $ Non-interest bearing $ Carrying amount as per balance sheet $ Weighted average effective interest rate 2021 Financial assets Cash and cash equivalents 11,900,665 - - 11,900,665 1.25% Trade and other receivables - - 21,718,159 21,718,159 Total financial assets 11,900,665 - 21,718,159 33,618,824 Financial liabilities Trade and other payables - - 16,589,357 16,589,357 Leases - 16,455,314 - 16,455,314 4.10% Bank loans 4,728,212 - - 4,728,212 3.19% Income tax payable - - 2,640,414 2,640,414 Total financial liabilities 4,728,212 16,455,314 19,229,771 40,413,297 Floating interest rate $ Fixed interest rate $ Non-interest bearing $ Carrying amount as per balance sheet $ Weighted average effective interest rate 2020 Financial assets Cash and cash equivalents 6,316,968 - - 6,316,968 1.25% Trade and other receivables - - 21,599,744 21,599,744 Total financial assets 6,316,968 - 21,599,744 27,916,712 Financial liabilities Trade and other payables - - 14,883,604 14,883,604 Leases and hire purchase obligations - 19,940,234 - 19,940,234 4.84% Bank loans 10,940,598 - 10,940,598 3.56% Income tax payable - - 309,555 309,555 4.27% Total financial liabilities 10,940,598 19,940,234 15,193,159 46,073,991 EMPIRED LIMITED | ANNUAL REPORT 2021 61 NOTES TO THE FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2021 28. COMMITMENTS AND CONTINGENCIES Commitments for expenditure 2021 $ 2020 $ Capital commitments for office fit-out - 500,000 Operating leases Office equipment is leased under short term operating leases. Their commitment can be seen below: 2021 $ 2020 $ Minimum lease payments under according to the time expected to elapse to the date of payment: Not later than one year 33,786 47,127 Later than one year but not later than five years - - Later than five years - - Total 33,786 47,127 Contingent liabilities 2021 $ 2020 $ Bank guarantees Bank guarantees outstanding at year end 3,221,598 3,338,357 Customer claims Dispute notices have been received from customers who allege that services provided were defective. The Company intends to defend its positions. At this stage it is not possible to estimate the quantum or the timing of any settlement, if any. Accordingly, no provision for any liability has been made in these financial statements. Contingent assets The Company is in dispute with a third party with respect to contract assets alleged to be owed to the Company. The disputed amount has not been brought to account and a discounted amount of $1,850,000 has been estimated by the Directors as the probable recovery. EMPIRED LIMITED | ANNUAL REPORT 2021 62 NOTES TO THE FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2021 29. INVESTMENT IN CONTROLLED ENTITY % Equity Interest Country of Incorporation 2021 % 2020 % Tusk Technologies Pty Ltd Australia 100 100 Conducive Pty Ltd Australia 100 100 OBS Pty Ltd Australia 100 100 eSavvy Pty Ltd Australia 100 100 Intergen Business Solutions Pty Ltd Australia 100 100 Intergen Limited New Zealand 100 100 Intergen ESS Limited (a) New Zealand 100 100 Intergen North America Limited USA 100 100 (a) Acts as trustee for the Intergen Limited Employee Share Scheme Trust 30. AUDITORS’ REMUNERATION 2021 $ 2020 $ Amounts received or due and receivable by auditors of the parent entity: Audit and review of financial statements Grant Thornton Australia 319,575 256,561 Overseas Grant Thornton network firms 25,078 10,698 Remuneration for audit and review of financial statements 344,653 267,259 Other services Grant Thornton Australia: Taxation compliance 41,865 38,000 Overseas Grant Thornton network firms: Taxation compliance 19,463 10,654 Total other services remuneration 61,328 48,654 Total auditor’s remuneration 405,981 315,913 EMPIRED LIMITED | ANNUAL REPORT 2021 63 NOTES TO THE FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2021 31. PARENT ENTITY INFORMATION As at, and throughout, the financial year ended 30 June 2021 the parent entity of the Group was Empired Limited. 2021 $ 2020 $ Statement of financial position Current assets 32,329,645 24,832,448 Total assets 70,338,963 74,217,431 Current liabilities 27,551,467 23,306,102 Total liabilities 35,802,025 41,680,577 Issued capital 54,634,106 54,146,877 Employee equity benefits reserve 3,625,409 3,442,652 Accumulated losses (23,722,577) (25,052,675) Total equity 34,536,938 32,536,854 Statement of profit or loss and other comprehensive income Profit/(loss) after tax 3,697,059 4,735,451 Total comprehensive income/(loss) 3,697,059 4,735,451 The Parent Entity has issued the following guarantees in relation to the debts of its subsidiaries: 1. Pursuant to Class Order 98/1418, Empired Limited and OBS Pty Ltd have entered into a deed of cross guarantee on or about 14 November 2013. The effect of the deed is that Empired Limited has guaranteed to pay any deficiency in the event of winding up of OBS Pty Ltd. OBS Pty Ltd has also given a similar guarantee in the event that Empired Limited is wound up. The Closed Group financial information is not disclosed as it is not materially different to the above information for Empired Limited, the Parent Entity. 2. Empired Limited, eSavvy Pty Ltd, Conducive Pty Ltd, OBS Pty Ltd, Tusk Technologies Pty Ltd, Intergen Business Solutions Pty Ltd and Intergen Limited have entered into a cross guarantee and indemnity in favour of the senior lender to the Group in respect to bank facilities provided to the Group by the senior lender. 3. Empired Limited has provided a guarantee to a customer of a wholly owned entity to support the operations of the subsidiary. EMPIRED LIMITED | ANNUAL REPORT 2021 64 NOTES TO THE FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2021 32. RELATED PARTY TRANSACTIONS The Group’s related parties includes its subsidiaries and key management. Unless otherwise stated, none of the transactions incorporate special terms and conditions and no guarantees were given or received. Outstanding balances are usually settled in cash. Transactions with key management personnel Key management of the Group are the executive members of Empired’s Board of Directors and members of the Executive Team. Key management personnel remuneration includes the following expenses: 2021 $ 2020 $ Short-term employee benefits 2,302,009 1,758,066 Post-employment benefits 106,942 98,498 Share-based payment 464,352 279,885 Total compensation paid to key management personnel 2,873,303 2,136,449 33. EVENTS AFTER THE REPORTING DATE On 19 July 2021, the Company entered into a Scheme Implementation Agreement with Capgemini Australia Pty Ltd, under which Capgemini Australia agreed to acquire 100% of the issued share capital of Empired for a cash price of $1.35 per share. The acquisition remains subject to shareholder and regulator approval and other customary conditions. For further details about the implementation of the scheme refer to the ASX announcement. EMPIRED LIMITED | ANNUAL REPORT 2021 65 NOTES TO THE FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2021 DIRECTORS’ DECLARATION In accordance with a resolution of the directors of Empired Limited, I state that: 1. In the opinion of the directors, (a) the financial statements and notes of Empired Limited for the financial year ended 30 June 2021 are in accordance with the Corporations Act 2001 , including: (i) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2021 and of its performance for the year ended on that date; and (ii) complying with Accounting Standards and the Corporations Regulations 2001 ; (b) the financial statements and notes also comply with International Financial Reporting Standards as disclosed in Note 2(a); and (c) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. 2. This declaration has been made after receiving the declarations required to be made to the directors by the Chief Executive Officer and Chief Financial Officer in accordance with section 295A of the Corporations Act 2001 for the financial year ended 30 June 2021. On behalf of the Board Russell Baskerville Managing Director 17 August 2021 EMPIRED LIMITED | ANNUAL REPORT 2021 66 DIRECTORS’ DECLARATION AUDITOR’S INDEPENDENCE DECLARATION Central Park, Level 43 152-158 St Georges Terrace Perth WA 6000 Correspondence to: PO Box 757 Cloisters Square Perth WA 6850 T +61 8 9480 2000 F +61 8 9322 7787 E info.wa@au.gt.com W www.grantthornton.com.au Auditor’s Independence Declaration To the Directors of Empired Limited In accordance with the requirements of section 307C of the Corporations Act 2001, as lead auditor for the audit of Empired Limited for the year ended 30 June 2021, I declare that, to the best of my knowledge and belief, there have been: a no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and b no contraventions of any applicable code of professional conduct in relation to the audit. GRANT THORNTON AUDIT PTY LTD Chartered Accountants L A Stella Partner - Audit & Assurance Perth, 17 August 2021 Grant Thornton Audit Pty Ltd ACN 130 913 594 a subsidiary or related entity of Grant Thornton Australia Ltd ABN 41 127 556 389 ‘Grant Thornton’ refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to their clients and/or refers to one or more member firms, as the context requires. Grant Thornton Australia Ltd is a member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide partnership. GTIL and each member firm is a separate legal entity. Services are delivered by the member firms. GTIL does not provide services to clients. GTIL and its member firms are not agents of, and do not obligate one another and are not liable for one another’s acts or omissions. In the Australian context only, the use of the term ‘Grant Thornton’ may refer to Grant Thornton Australia Limited ABN 41 127 556 389 and its Australian subsidiaries and related entities. GTIL is not an Australian related entity to Grant Thornton Australia Limited. Liability limited by a scheme approved under Professional Standards Legislation. www.grantthornton.com.au EMPIRED LIMITED | ANNUAL REPORT 2021 67 AUDITOR’S INDEPENDENCE DECLARATION INDEPENDENT AUDIT REPORT Central Park, Level 43 152-158 St Georges Terrace Perth WA 6000 Correspondence to: PO Box 7757 Cloisters Square Perth WA 6000 T +61 8 9480 2000 F +61 8 9322 7787 E info.wa@au.gt.com W www.grantthornton.com.au Independent Auditor’s Report To the Members of Empired Limited Report on the audit of the financial report Opinion We have audited the financial report of Empired Limited (the Company) and its subsidiaries (the Group), which comprises the consolidated statement of financial position as at 30 June 2021, the consolidated statement of profit or loss and other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies, and the Directors’ declaration. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: a giving a true and fair view of the Group’s financial position as at 30 June 2021 and of its performance for the year ended on that date; and b complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Grant Thornton Audit Pty Ltd ACN 130 913 594 a subsidiary or related entity of Grant Thornton Australia Ltd ABN 41 127 556 389 ‘Grant Thornton’ refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to their clients and/or refers to one or more member firms, as the context requires. Grant Thornton Australia Ltd is a member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide partnership. GTIL and each member firm is a separate legal entity. Services are delivered by the member firms. GTIL does not provide services to clients. GTIL and its member firms are not agents of, and do not obligate one another and are not liable for one another’s acts or omissions. In the Australian context only, the use of the term ‘Grant Thornton’ may refer to Grant Thornton Australia Limited ABN 41 127 556 389 and its Australian subsidiaries and related entities. GTIL is not an Australian related entity to Grant Thornton Australia Limited. Liability limited by a scheme approved under Professional Standards Legislation. www.grantthornton.com.au EMPIRED LIMITED | ANNUAL REPORT 2021 68 INDEPENDENT AUDIT REPORT Independent Audit Report (continued) Key audit matter How our audit addressed the key audit matter Revenue recognition – Note 2(t) and Note 4 For the year ended 30 June 2021, the Group recorded $186,133,318 in revenue from a combination of fixed price and variable contracts including product sales. Revenue is recognised in accordance with AASB 15 Revenue from Contracts with Customers. Revenue derived from the delivery of services may be complex and involves significant management judgement due to revenue to being recognised when performance obligations are satisfied. The audit team is required to obtain sufficient audit evidence as to whether the assumptions used by management to recognise revenue are reasonable and accurate in accordance with ASA 540 Auditing Accounting Estimates. This area is a key audit matter due to the complexity associated with service revenue as well as the presumed risk of fraud in revenue. Our procedures included, amongst others: x Understanding and documenting the design of internal controls and performing tests of key controls for their operational effectiveness over revenue recognition for material fixed and variable revenue streams; x Testing, on a sample basis, both fixed and variable revenue to supporting documentation to ensure revenue recognition was accurate, recorded in the correct period and compliant with AASB 15; x Reviewing the progress of fixed price contracts to supporting documentation and recalculating the stage of completion based on hours to date proportionate to forecasted hours or milestones, including testing a sample of progress billings comparing invoices and actual hours to ensure the allocation to contract assets and liabilities was appropriate and consistent to the requirements of AASB 15; x Assessing the forecasted hours through discussions with project managers and challenged the key assumptions connected to the stage of completion method; and x Assessing the adequacy of Group’s presentation and disclosures in the financial statements. Carrying value of goodwill – Note 2(h) and Note 14 The Group has recorded goodwill totalling $46,446,049 (2020: $46,446,049) at 30 June 2021 across two Cash Generating Units (CGU). Goodwill is required to be assessed for impairment annually by management as prescribed in AASB 136 Impairment of Assets. Management test each CGU for impairment by comparing their carrying amounts against their recoverable amounts determined by either, the greater of its fair value less costs to sell and its value in use. This area is a key audit matter due to the significant balance carried by the Group that management have assess using estimates and judgement. The Group uses the discounted cash flow model (value in use) to determine the recoverable value, in doing so, consider the following key inputs; x forecasted budgeted financial performance; x estimated growth rates; x working capital adjustments; x estimated capital expenditure; x discount rate; and x terminal value. This area is a key audit matter due to the level of estimation and judgements involved. Our procedures included, amongst others: x Understanding and documenting management’s process and controls related to the assessment of impairment, including management’s identification of CGUs and the calculation of the recoverable amount for each CGU; x Evaluating the value in use models against the requirements of AASB 136, including consultation with our auditor’s valuation expert; x Challenging the appropriateness of management’s revenue and cost forecasts by comparing the forecasted cash flows to actual growth rates achieved historically; x Reviewing management’s value in use calculations to: – Test the mathematical accuracy of the calculations; – Evaluate the forecast cash inflows and outflows to be derived by the CGUs assets for reasonableness; – Comparing estimates and judgements for growth rates to available market and industry data; – Assess the discount rates applied to forecast future cash flows for reasonableness with assistance from internal valuation specialists. x Performing sensitivity analysis on the significant inputs and assumptions made by management in preparing its calculation; and x Assessing the adequacy of financial report disclosures. EMPIRED LIMITED | ANNUAL REPORT 2021 69 INDEPENDENT AUDIT REPORT Independent Audit Report (continued) Information other than the financial report and auditor’s report thereon The Directors are responsible for the other information. The other information comprises the information included in the Group’s annual report for the year ended 30 June 2021, but does not include the financial report and our auditor’s report thereon. Our opinion on the financial report does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Directors for the financial report The Directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the Directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the Directors are responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance Standards Board website at: https://www.auasb.gov.au/auditors_responsibilites/ar1_2020.pdf. This description forms part of our auditor’s report. Report on the remuneration report Opinion on the remuneration report We have audited the Remuneration Report included in pages 13 to 19 of the Directors’ report for the year ended 30 June 2021. In our opinion, the Remuneration Report of Empired Limited, for the year ended 30 June 2021 complies with section 300A of the Corporations Act 2001. EMPIRED LIMITED | ANNUAL REPORT 2021 70 INDEPENDENT AUDIT REPORT Independent Audit Report (continued) Responsibilities The Directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. GRANT THORNTON AUDIT PTY LTD Chartered Accountants L A Stella Partner – Audit & Assurance Perth, 17 August 2021 EMPIRED LIMITED | ANNUAL REPORT 2021 71 INDEPENDENT AUDIT REPORT SHAREHOLDING ANALYSIS In accordance with Listing Rule 4.10 of ASX Limited, the Directors provide the following shareholding information which was applicable as at 3 August 2021. a. Distribution of Shareholding Size of Shareholding Number of shareholders % 1 - 1,000 196 0.06 1,001 - 5,000 460 0.85 5,001 - 10,000 259 1.26 10001 - 100,000 417 8.39 100,001 - max 94 89.44 Total 1,426 100.00 b. Substantial Shareholders The following are registered by the Company as substantial shareholders, having declared a relevant interest in the number of voting shares shown adjacent, as at the date of giving the notice. Shareholder Number of shares held % Tiga Trading Pty Ltd 24,803,548 15.51 Microequities Asset Management Pty Ltd 24,569,654 15.33 National Nominees Ltd ACF Australian Ethical Investment Limited 14,666,710 9.15 Baskerville Investments Pty Ltd 7,450,059 6.21 EMPIRED LIMITED | ANNUAL REPORT 2021 72 SHAREHOLDING ANALYSIS c. Twenty Largest Shareholders Name Name Number of shares held % UBS NOMINEES PTY LTD 26,328,548 16.42 J P MORGAN NOMINEES AUSTRALIA PTY LIMITED 21,411,305 13.36 NATIONAL NOMINEES LIMITED 19,486,573 12.16 BASKERVILLE INVESTMENTS PTY LTD 9,295,683 5.80 CITICORP NOMINEES PTY LIMITED 7,736,873 4.83 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED - A/C 2 6,137,463 3.83 MICROEQUITIES ASSET MANAGEMENT PTY LTD 4,503,048 2.81 MR JOHN ALEXANDER BARDWELL 4,300,000 2.68 ICE COLD INVESTMENTS PTY LTD 3,000,000 1.87 CS FOURTH NOMINEES PTY LIMITED 2,313,111 1.44 NEWECONOMY COM AU NOMINEES PTY LIMITED <900 ACCOUNT> 2,285,810 1.43 ZERO NOMINEES PTY LTD 1,935,123 1.21 BNP PARIBAS NOMS (NZ) LTD 1,913,000 1.19 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED 1,869,457 1.17 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED-GSCO ECA 1,830,238 1.14 GABRIELLA NOMINEES PTY LTD 1,715,450 1.07 CS THIRD NOMINEES PTY LIMITED 1,602,234 1.00 B & R JAMES INVESTMENTS PTY LIMITED 1,400,000 0.87 MORGAN STANLEY AUSTRALIA SECURITIES (NOMINEE) PTY LIMITED 1,213,820 0.76 PJTR PTY LTD 1,002,809 0.63 Total 121,280,545 75.66 The twenty members holding the largest number of shares together held a total of 75.7% of issued capital. d. Issued Capital (i) Ordinary Shares The fully paid issued capital of the company consisted of 160,301,595 shares held by 1,426 shareholders. Each share entitles the holder to one vote. The number of shareholdings held in less than marketable parcels is 83. (ii) Unquoted Equity No options were issued in the year under the company share options plan. 3,475,000 performance rights were issued under the company’s LTI plan. Options and Performance Rights do not have any voting rights. e. On-Market Buy-Back Nil f. Company Secretary The Company Secretary is Mr David Hinton g. Registered Office The registered office of Empired Ltd is: Level 7, The Quadrant 1 William Street Perth WA 6000 Telephone +61 8 6333 2200 EMPIRED LIMITED | ANNUAL REPORT 2021 73 SHAREHOLDING ANALYSIS OTHER INFORMATION FOR SHAREHOLDERS In accordance with Listing Rule 4.10 of the ASX Limited, the Directors provide the following information not elsewhere disclosed in this report. SHAREHOLDER COMMUNICATIONS The Board of Directors aims to ensure that shareholders are informed of all major developments affecting the Company’s state of affairs. Information is communicated to shareholders as follows: • The Annual Report is distributed to shareholders who elect to receive the document. A copy of the full Annual Report is available free of charge, upon request, from the Company. The Board ensures that the Annual Report includes relevant information about the operation of the Company during the year, changes in the state of affairs of the Company and details of future developments, in addition to the other disclosures required by the Corporations Act; • The half-year report contains summarised financial information and a review of the operations of the Company during the period. The half-year financial report is prepared in accordance with the requirements of Accounting Standards and the Corporations Act, and is lodged with the Australian Securities and Investments Commission and the Australian Securities Exchange; and • The Company’s internet website at www.empired.com is regularly updated and provides details of recent material announcements by the Company to the stock exchange, Annual Reports and general information on the Company and its business. The Board encourages full participation of shareholders at the Annual General Meeting to ensure a high level of accountability and identification with the Company’s strategy and goals. Important issues are presented to the shareholders as single resolutions. INTERNET ACCESS TO INFORMATION Empired maintains a comprehensive Investor Relations section on its website at www.empired.com/Investors/ You can also access comprehensive information about security holdings at the Computershare Investor Centre at www-au.computershare.com/investor/ By registering with Computershare’s free Investor Centre service you can enjoy direct access to a range of functions to manage your personal investment details. You can create and manage your own portfolio of investments, check your security holding details, display the current value of your holdings and amend your details online. Changes to your shareholder details, such as a change of name or address, or notification of your tax file number or direct credit of dividend advice can be made by printing out the forms you need, filling them in and sending the changes back to the Computershare Investor Centre. SHARE REGISTRY ENQUIRIES Shareholders who wish to approach the Company on any matter related to their shareholding should contact the Computershare Investor Centre in Melbourne: The Registrar Computershare Investor Services Pty Ltd Level 11, 172 St Georges Terrace Perth WA 6000 Telephone +61 8 9323 2000 Facsimile +61 8 9323 2033 Website www-au.computershare.com/investor EMPIRED LIMITED | ANNUAL REPORT 2021 74 OTHER INFORMATION FOR SHAREHOLDERS ANNUAL GENERAL MEETING The 2021 Annual General Meeting of Empired Limited time and location to be advised. Formal notice of the meeting will be circulated to shareholders separate to this report. SECURITIES EXCHANGE LISTING Empired Limited shares are listed on the Australian Securities Exchange (ASX:EPD). The home exchange is Perth. All shares are recorded on the principal share register of Empired Limited, held by Computershare Investor Services Pty Limited at the following street address: Computershare Investor Services Pty Ltd Level 11, 172 St Georges Terrace Perth, WA 6000 EMPIRED LIMITED | ANNUAL REPORT 2021 75 OTHER INFORMATION FOR SHAREHOLDERS This page has intentionally been left blank. EMPIRED LIMITED | ANNUAL REPORT 2021 76 OTHER INFORMATION FOR SHAREHOLDERS 80525 acorndesign.com.au

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