Envirosuite
Annual Report 2021

Plain-text annual report

18 August 2021 Appendix 4E Summary Financial Report Results for announcement to the market For the financial year ended 30 June 2021 Consolidated Group Year ended 30 June 2021 Year ended 30 June 2020 Variance to prior year $’000 $’000 $’000 % Revenues from ordinary activities 48,570 23,857 24,713 104% Profit/(loss) after tax from ordinary activities attributable to members (12,497) (18,236) 5,739 Net profit/(loss) attributable to members (12,497) (18,236) 5,739 31% 31% Net tangible assets/(liabilities) per security (cents) 1.7 2.5 The net tangibles asset backing per security of 1.7 cents presented above is inclusive of right-of-use assets and lease liabilities. The net tangible asset per security, as at 30 June 2021, would reduce to 1.4 cents if right-of use assets were excluded. Dividends and distributions The company has not declared, and does not propose to pay, any dividends for year ended 30 June 2021. Details of any dividend or distribution reinvestment plans in operation: N/A Other Revenues for the prior year ending 30 June 2020 include only 4 months of the EMS Bruel & Kjaer Holdings which was acquired on 28 February 2020. Additional Appendix 4E disclosure requirements and commentary on significant features of the operating performance, results of segments, business combination, trends in performance, foreign entities and other factors affecting the results for the period are contained in the 2021 Annual Report, including the Chairman’s Letter and CEO Report. This document should be read in conjunction with the 2021 Annual Report, including Chairman’s Letter and CEO Report, and any public an- nouncements made in the period by Envirosuite Limited in accordance with the continuous disclosure requirements of the Corporations Act 2001 (Cth) and the ASX Listing Rules. This report is based on consolidated financial statements which have been audited by PKF Brisbane Audit. 1 Envirosuite LimitedSuite 1, Level 10, 157 Walker StNorth Sydney NSW 2060(ASX: EVS) ACN: 122 919 948www.envirosuite.comPhone: (02) 8484 58192021 Annual Report Harness the power of environmental intelligence for a sustainable future. WHAT’S INSIDE At a glance Chairman’s Letter CEO Report Our Products & Technology Our Strategy Our Growth Our Operations Our People Financial Statements 3 4 Envirosuite Annual Report 2021Envirosuite Annual Report 2021Key Metrics $46.5m Annual Recurring Revenue1 + 8.1% YOY 373 Client sites + 13.4% YOY $48.6m Statutory revenue + 104% YOY2 42.4% Gross profit % + 36.8% YOY $(4.5m) Adjusted EBITDA (loss) + 56% YOY TOTAL SITES 89 329 340 373 Dec 2019 Jun 2020 Dec 2020 Jun 2021 GROSS PROFIT % 32.0% 25.6% 44.0% 40.6% Envirosuite is a global leader in environmental intelligence and is a trusted partner to the world’s leading industry operators in Aviation, Mining & Industrial, Waste & Wastewater and Water. Envirosuite provides industry with Software as with industry expertise to help businesses a Service (SaaS) and Solution as a Service in unlock value beyond compliance, allowing them managing and mitigating their environmental to engage with communities and to make real- impacts on communities in relation to noise, time decisions to minimise costs and optimise vibration, odour, dust, air quality and water operations. quality. Envirosuite’s proprietary software combines intelligence, Envirosuite helps industries grow leading-edge science and innovative technology sustainably and communities to thrive. By harnessing the power of environmental H1FY20 H2FY20 H1FY21 H2FY21 WHAT IS ENVIRONMENTAL INTELLIGENCE? ADJUSTED EBITDA POSITIVE IN Q4 FY21 Q1 -$2.3m FY21 Q2 FY21 Q3 FY21 Q4 $43k + $2.3m We take environmental input such as: and harness the power of: so our customers can receive: Flight tracking Machine learning Noise Water Weather Dust & Air Quality Vibration Decades of experience Proven data algorithm Scientific excellence Predictive modelling Automated compliance analysis Real-time smart alerting Trusted quality insights to make informed decisions that enable: Increased production Tangible cost savings Optimised operations Social license to operate 5 1 Annual Recurring Revenue represents the monthly recurring revenue at the reporting date that the company expects to receive from customers based on sales orders received net of any churn. 2 Prior year includes only 4 months of revenue from the EMS Bruel & Kjaer business which was acquired on 28 February 2020 Envirosuite Annual Report 2021 6 Chairman’s Letter Dear Fellow Shareholders, At the outset, I would like to personally thank all our employees. The impact globally brought This is central for Envirosuite; a technology platform that seeks to serve the productive interests of all stakeholders. about by the COVID-19 pandemic has been This is Envirosuite’s time. We are in the sweet relentless and our people have been tireless in spot of the most critical and mainstream themes their efforts in making sure our customers in industry, government, community and capital come first. markets: Climate Change, Environmental Social Our platform is utilised by many of the largest value. He brings vast international technology international brand names in each of our chosen experience, knowledge and contacts in our key industry sectors that now includes the world’s geographic markets and is quickly developing most recognised aeronautics technology leader productive relationships with our commercial and – NASA. Envirosuite joins a consortium to support investor stakeholders. NASA’s X-59 quiet supersonic flight community response program. I have never been more excited to be part of Envirosuite. The historical macro tailwinds of Governance (ESG) and digital transformation. Going forward there is a determined commitment environmental management being at the forefront David Johnstone Chairman This month the Intergovernmental Panel on Climate Change (IPCC) startled the world with Envirosuite moves into the new financial the accelerated warnings on the impacts of year with a funded strategic plan to grow its climate change and the UN has labelled it a ‘code red for humanity’, saying that immediate actions global business and it continues to expand its technology platform that has launched into the need to be taken to avert climate catastrophies. water space to complement the strong position We then saw public reactions around the world that it already holds in air and noise. targeting the perceived insufficient actions of governments and industry. During the latter months of the second half year 2021, we achieved adjusted EBITDA We see here another catalyst in the shift in positivity. This was a key milestone for the the global psyche towards acknowledging the company demonstrating a backdrop of increasingly unavoidable need for practical action business sustainability. While acknowledging by industry and government with intensifying this milestone we are conscious that we will by the Board and CEO to ensure that we keep are with us once again, as the global challenges the market well informed of the key value points due to the COVID-19 pandemic of the last year in the business including across our platform, are abating. We are already seeing that climate commercial relationships, industry sectors and geographies. change will resume its priority place with renewed intensity that at the practical level, speaks very directly to the adoption of Envirosuite’s While the last twelve months have seen a great deal of transformational progress across all market offerings. key parts of the business, the Board has heard We have shown that we can execute on strategic and acknowledges that much of this has been M&A and we have set strong organic growth challenging for our shareholders to follow and targets with each new contract adding to our appreciate based on the nature and frequency compound growth story. We are achieving a information is released by the Company. critical mass commercially and operationally that pressures descending from all sides of be prioritising strategic investment in platform We will be releasing through both the ASX community, regulators, investors and customers. development and market offerings, new sectors platform and our online channels as appropriate An awareness is setting in for government, industry and community that climate change and accelerating in key geographies to sustain and I encourage all interested investors to our first-mover advantage. subscribe and follow our progress on many fronts. issues must be practically addressed on the Our annualised recurring revenues (ARR) are now I take this opportunity to recognise the tenure frontline. A critical element of this is that each $46.5m, which is more than 8x from where they and achievements of Peter White who has led industry participant must do their part to sustain were just 2 years ago when we reported $5.6m the early formation and growth of the company their business and brand. The community also has a vested interest in the actions that industry take both as a neighbour, though also as a stakeholder on other levels such as a customer, and a shareholder of industry. It is the latter that provides a common objective of ARR. As a testament to industry recognition of our mature product solutions, we have seen customers entering into longer term contracts with Envirosuite with terms of 3 to 7 years for many years, and I sincerely thank him for all his efforts as well as working with the Board on the recruitment and orderly transition to his successor Jason Cooper. Jason is exceptionally with the portfolio currently having an average placed to take the company through its next contractual life of 2.25 years. levels of growth and in the few short months to date has already started to put his positive stamp on the business. in ensuring that ‘productivity’, expressed in the Our EVS Water solutions that have been broadest sense, is maximised for all parties. This commercialised in the last twelve months are is increasingly allowing us to approach the higher levels of corporate connections in our target sectors. On this point I note the recent addition of one of the world’s most senior resources executives, Alberto Calderon, joining as a key sector advisor on an all-incentive basis. Thank you to all our shareholders for your continued support that we look forward to progressively rewarding as the company pursues its strategic growth agenda. includes the productivity of business, the natural already seeing strong market acceptance and we Jason is highly energised and determined to drive environment and of the community. are confident this will convert into new sales. a strong and sustained uplifts in the Company’s David Johnstone Chairman 7 8 Envirosuite Annual Report 2021Envirosuite Annual Report 2021CEO Report I would like to start by thanking our employees for levels in an increasingly important, complex their amazing efforts over the last year, working and regulated environment. We have proven its transformation to set up for a strong period of growth and leverage its scale, with a foundation through incredibly challenging conditions brought that we have a stable business model as well that we believe is now the global leader in about by COVID-19. Across all of our offices as the emerging importance of environmental providing technology solutions for EI. Gross profit % continues to improve with gross profit % of 42.4% compared with 31.0% in prior year Jason Cooper CEO globally, our people have constantly adapted to intelligence (EI) that has underpinned our growth the changing situation and remained focused on in all sectors. In these rapidly evolving times, providing the best possible service to all of our Envirosuite remained resilient and continued to stakeholders. grow. In these extraordinary circumstances we Since I moved into the role of CEO, we have witnessed many global transformational trends followed two simple principles to drive success evolving, with the Environmental, Social and Governance (ESG) agenda continuing to gain - focus and discipline. I have been impressed with how our people, also known as Environauts, significant momentum, against a backdrop of around the world have united and supported accelerating focus on digital transformation the vision of the company – to help industries across all industries. grow sustainably and communities thrive - and It is testament to the value and solutions that executed on the strategy. we have created for our customers by enabling This year we achieved some remarkable records clients to operate their assets at optimum that I look forward to exceeding in FY22. I am Total revenue of $48.6m for FY21 of which 83% was recurring, more than doubling the revenue reported in the prior year $48.6m $23.8m proud of the exceptional results of our EVS Omnis SaaS product that achieved 24% growth as well as our EVS Aviation business that achieved a 2% growth in ARR in what was an incredibly challenging environment for our customers around the world. I am particularly proud of some of the key financial metrics that we were able to achieve this year. We achieved an Adjusted EBITDA positive result in Q4 in line with our guidance. Ending the year at $46.5M ARR was a significant milestone that shows that we have a strong revenue base that we are determined to grow. We continue to focus on improving the gross margin, which increased to 42.4% in FY21, up from 31.0% in the prior year. The teams have evolved through the year and we have added some incredible talent to our organisation which has helped achieve these results and positioned us well to grow in the 2020 2021 future. The company has now completed its integration of EMS Bruel & Kjaer (EMS) and has accelerated ENVIRONMENTAL INTELLIGENCE During this transition year, the leadership team has evaluated what long term success looks like for our business and set in place a 3-year strategy that will ensure we deliver long term value for our customers, our staff, and our shareholders. As we accelerate our evolution as a company, we are well positioned to leverage the growing importance of environmental intelligence and the appropriate solutions to support our customers and communities. Part of our evolution is the emergence of our new brand. This renewed brand enables us to 42.4% 2021 We would like to thank all of our shareholders for their continuing support. more accurately reflect the relationships our Our strategy is simple. To leverage the enormous customers have with their boundaries and the opportunity that is in front of us, we need three people in those surroundings, while positioning things: 1) we must continue to drive growth, us as the leading technology provider in solving 2) we must accelerate our investment into environmental issues through our EI offering. Our product, and 3) we must continue to focus on new brand provides a platform to communicate our customer. The Board and the Envirosuite who we are and what do more clearly than ever leadership are driven to act now with a sense of before. It captures the 3-dimensional geographic urgency, with an unrelenting focus on our target space that our customers operate within and our segments and a discipline in our business to direction as a company driving forward. ensure we meet our high targets. This reflects into our purpose, vision, and mission. By having a strong mission statement, we are all united behind one common theme that ensures as a company we are moving as one. It is with this focus we can continue to build a globally significant technology company, driven by the success of all our stakeholders. In June, we completed a successful capital raise where we raised $14M to support the investment into the development team, the acceleration of our EVS Water product suite and to support the growth agenda that we see in North America. GROWTH Growth has remained a key focus in FY21, and we have been able to leverage our global footprint to accelerate our rate of customer acquisition. We have focused on refining our target customer segments and where we can drive the most value in a highly scalable and repeatable manner. We have ensured that our unique value proposition drives customer value that will translate to a strong revenue and profit growth trajectory for many years to come. 9 10 31.0%2020Envirosuite Annual Report 2021Envirosuite Annual Report 2021CEO report CEO report This year we have upgraded to a more focused a rate of almost 2% last year, in what was cycles to identify, prioritise and implement these sales and marketing strategy which is about an extraordinarily challenging time for our technology improvements. maximising our reach in the region, through a Airport customers. We were able to support more targeted customer acquisition journey. our customers through this period re-signing We already have some of the most significant contracts, launching new product features and customers in our target sectors, however, we focusing on innovative value creation. We successfully completed the acquisition of technology delivering innovative artificial intelligence (AI) and deterministic modelling approaches to the water sector. This technology still have opportunity to maximise our enterprise relationships and expand our installation base. This year we launched a formal Land, Expand and Scale program which is focused on creating a higher level of customer penetration and usage. Experience has shown us that when we win with a customer, we can continue providing more growth in the coming years. While the launch of our EVS Water product suite combined with the commercialisation of IP did not have meaningful impact to our growth in licenced from The University of Queensland’s FY21 it importantly laid the foundation for a truly Advanced Water Management Centre focussed unique solution for our current and future water on management of corrosion and odour within customers. This new product suite has enormous potential and is well positioned for considerable Our growth agenda in the future is centred on adding new customers to our software platform to drive value creation and provide solutions for sewer networks. These products comprise our newest product segment: EVS Water. Early wins for Envirosuite in this space included the selection of EVS Water by Singapore PUB, the country’s national water agency, in their Global Innovation Challenge. value to them year on year. Our EVS Omnis platform is now used at over 200 sites around the world and helps some of the most significant Mining, Waste and Wastewater companies drive their operations with the assistance of our environmental solutions. Last year we added 38 sites to the platform which reflected a 22% increase in platform expansion. This increase in customer acquisition reflected in a 24% increase in ARR to achieve a $14.6M ARR at year end. Two significant market innovation achievements this year was the successful consortium engagements with NASA for the research into the impact of supersonic travel on communities, as well as the selection for the Urban Air Mobility (UAM) ecosystem in Paris. We were incredibly pleased with the results of our EVS Aviation business, growing at our customers. We are focused on collecting and In Aviation we launched several new products: analysing EI data across multiple segments to drive our success and innovation engine. PRODUCT As we transitioned to a Product-led, Sales Focused organisation we introduced a new structure and added new leadership roles into the Product group. This has resulted in a closer relationship with our product and development teams, and this is now driving a clear strategic roadmap and ensuring we hit specific product related milestones that achieve better client outcomes. Innovation is a core part of our DNA, and we are driving innovative thinking at all levels of our organisation. Additionally, we have developed a closer link into our customer and ideation development. We also have in place a number of arrangements with world class universities around world. It is through these engagements that we are listening to our market opportunities, the macros trends and geographic investment ANOMS X and Carbon Emissions, the latter helping Airports to assess and communicate about Aviation carbon footprint. Furthermore, we invested into Amazon Web Services (AWS) to drive functionality improvement, strengthen our security posture, reduce complexity, and improve time to deploy and support. Two significant market innovation achievements this year were the successful consortium engagements with NASA for the research into the impact of supersonic travel on communities, as well as the selection for the Urban Air Mobility (UAM) ecosystem in Paris that will research the environmental impact of air mobility on local communities. It’s these achievements that demonstrate the breadth of the EVS Aviation solutions beyond Airports and into innovation projects to measure the impact on communities and inform the future of travel. In EVS Omnis we have been working intensely to include Noise and Vibration technology from the EMS acquisition into our EI platform. Our scientific models were further enhanced, and we have improved the accuracy of our predictive, risk-based forecasts while efforts have been made to upgrade our modelling technology ultimately increasing our modelling performance. As a technology leader, we have continued to drive the importance of product differentiation and innovation. Following the capital raise completed in June, we have increased the amount of investment into product development to ensure that we are able to continue to deliver a strong road map that supports our customers current and future needs. Our teams around the world are actively engaged in building our products that align with our vision and mission – thus continuing to create value and solutions for our customers and communities that we serve. 11 12 Envirosuite Annual Report 2021Envirosuite Annual Report 2021CEO report global process and support function that actively intelligence will be one of the most significant We will continue to work with strategic reduced the number of tickets raised and areas of value creation for our customers, partners that will support our focus segments, reduced the time to respond to customer needs. helping to keep their business running, many geographic coverage, accelerate deployment We also introduced a customer success program that was focused on ensuring our customers were maximising the software platforms which are crucial for society to function, such and complement our technology to ensure we as Airports, Mines, Industrial facilities, and are able to accelerate the adoption of EI for Wastewater Treatment plants. industries and communities around the world. capabilities in delivering value and solutions. This As a company we are prepared for the continued We are optimistic about the prospects for FY22 resulted in an increase in usage of the products challenges and volatility by creating greater due to the strong tailwinds in the environmental and the level of satisfaction and benefits that we flexibility and adaptability in our business. Our intelligence market, our world leading were able to create for our customers. key priority has been our commitment to the technology position, the breadth of our global health and safety of our people and customers coverage and our proven ability to rapidly evolve through the pandemic, and we will continue this with market needs. PEOPLE It is a huge privilege in being chosen to lead Envirosuite. Envirosuite has an immensely talented and diverse group of people around the world. We will continue to invest in our focus. OUTLOOK Our focus in 2022 will be centred on value people to further increase our capability as we creation for our customers. Providing actionable accelerate our growth in the coming years. This insights from our world leading EI platforms for year we have made some critical hires in our our existing customers and our new customers Product and Sales and Marketing teams. These that we will be engaging with this year. As we appointments are already providing a significant build out the capabilities of the sales team positive influence on our business. We have around the world, we will remain focused on been delighted with the quality of the people we customer acquisition and rapidly building our are now attracting to join Envirosuite and look capability in our environmental platforms. The forward to the benefits of their energy, creativity, pace of EI innovation and use case acceleration and passions. will further support our technological leadership. CUSTOMER In FY21 we focused heavily on our customer engagement and retention. Knowing that many of our airport customers were experiencing significant challenges, we turned this into our strategic focus and supported them through the use of our technology to further support Airport A key addition to the Envirosuite team this year Our product and technology differentiation are optimisation. was the appointment of Alberto Calderon as my at the core of our future growth strategy. The Our churn rate of approximately 2% for the year across EVS Aviation and EVS Omnis was remarkably low, demonstrating that customers who select Envirosuite typically stay with our solutions. This low churn was a fundamental pillar in our focus on customer engagement and retention strategy. By consolidating the regions from five into three: APAC, EMEA and Americas, we attained cost reductions, and introduced a support structure that allowed our customers to engage with a regional business model in the right time zone, the right language and with intimate knowledge of the customers assets and their unique requirements. This was supported through a advisor. Alberto has been a significant support growing capability, scalability and security of for me as I became the CEO this year and has worked tirelessly with the broader team around our platform will position us for further value creation within our rapidly growing customer the importance of extracting value for the base. This will improve our speed, efficiency, and customer and being able to communicate this. His quality of our customer deployments. We will wealth of knowledge within the Mining sector has continue the excellent work that we have started assisted us with rapidly developing our Mining offering and we are already starting to see the in FY22 in transforming the operating model and aggressively improving the gross margin to our benefits from increased customer engagement, target of above 50% as we move into FY23. a pipeline that has grown and ideation into the future of the product. We are highly encouraged by the early market interest in EVS Water products and are expecting There is a significant opportunity for Envirosuite, to deliver reference sales in each product area an Australian technology company, to set the global standard for environmental intelligence and continue to add world class innovative products for our customer base. Environmental and geographical region, deliver a meaningful contribution to new ARR, and consolidating a new important area of growth for Envirosuite. We look forward to the coming year and the challenges and opportunities that it presents. This will be another year of focus and discipline where we are delivering significant growth through new customer acquisition and expanding existing customers use of our platform on current and additional sites. On behalf of the entire senior leadership team, I would like to take this opportunity to thank everyone in the Envirosuite team for their ongoing support and commitment. I would like to thank the Board and executive team for their continued support, stewardship, and governance over the past year. Lastly, I would like to thank our valued customers and shareholders for being a key part of the success and growth of this amazing business. Signature Jason Cooper CEO 13 14 Envirosuite Annual Report 2021Envirosuite Annual Report 2021 A global leader in Environmental Intelligence Over the last 12 months we have created one of be Product-led by driving extensive collaboration the implementation of platform user analytics to help industries to unlock value beyond the most exciting environmental intelligence (EI) around our customers, their problems, and our to inform strategies based on user behavior compliance and optimise their operations. technology portfolios in the world. The products opportunities to innovate and address them most and trends, and regular product strategy and offer us a unique capability to deliver our mission effectively today, tomorrow and into the future. roadmap feedback sessions bringing customer statement to our customers – we harness the power of environmental intelligence, so industries grow sustainably, and communities thrive. Our product investment and focus continue to grow – as we look to ensure we create products that are going to be unique, drive innovation and deliver long-term value for our customers. The Product-led strategy provides a platform for significantly improved focus on delivering valuable, science-based and market-leading products. This strategy enables newfound stories together. After significant multi-year development, leveraging a combination of our decades of industry leadership and modern design thinking, Our customer problems continue to evolve at we launched our new EVS Aviation platform an accelerating pace; our Aviation customers ANOMS X - our comprehensive next generation are burdened by compliance while experiencing web-based platform. ANOMS X will be the collaboration between Product Strategy, Product expert staff loss and cost pressures, our consolidated platform for our aviation products Marketing, Marketing, Sales, and Technology to Industrial customers are being held to a and seeks to be the go-to portal for all our efficiently bring products to market. Stronger higher than ever standard of environmental Aviation customers for noise, airfield operations, As we shifted the momentum to become a patterns across the organisation are already consciousness and operational pressures, community engagement and modules like Carbon Product-led organisation, we have organised our emerging: new opportunities for collaboration respect for the communities neighboring Emissions and Airport Metrics. critical teams in Engineering, Research, DevOps, between our Product Managers and our and Product Management under a united product strategy group. We accelerated the transition to customers, earlier and more in-depth inclusion of Product Marketing in the ideation phase, operations continues to make headlines around the world. These pressures are driving the urgency for environmental intelligence solutions evs omnis evs water Market: Aviation evs aviation 163 Sites evs IoT evs engage evs omnis Market: Mining & Industrial, Waste & Wastewater evs water 207 Sites evs aviation evs omnis evs IoT evs water Market: Water evs 3 Sites engage Launched November 2020 evs aviation evs IoT evs engage evs omnis evs water evs aviation evs IoT evs engage evs omnis evs water evs aviation evs omnis evs IoT evs water evs engage evs aviation evs IoT evs engage 15 16 Envirosuite Annual Report 2021Envirosuite Annual Report 2021 A global leader in Environmental Intelligence Cont. EVS Technology Product-led growth Focus on product as the main vehicle to acquire, activate, and retain customers Power of Machine Learning Embedded in our software to provide customers actionable insights Technology creates value Turning data into EI to help reduce risk, optimise operations and create a sustainable future Science built-in Highly complex scientific modelling across our technology Results-driven workflows Operational processes are embedded and automated enabling operational efficiencies Innovation through expertise In-house domain experts help drive innovation with real world EI experience ANOMS X seeks to deliver insights and analytics In EVS Omnis, our science-based forecast in an efficient and accessible way never accuracy grew with considerable progress experienced before in the sector. Designed to be made to correctly model the impacts of cloud powerful enough for expert users to inform their cover and cloud heights, improving confidence stakeholders through to casual users to derive in decisions that can be made from our forecast insights. This coincides with the changing of our information. user base off the back of COVID-19, which sees a reduced number of experts retained at airports. ANOMS X is already in use by over 30 customers including Heathrow airport. ANOMS X will be the future of Aviation environmental intelligence. We have partnered with the Cranfield Universities Digital Aviation Research & We continue to make ambitious bets on new technology across Envirosuite to evolve our products. FY21 saw the initiation of one of the biggest digital transformation initiatives seen in our company’s history - our Aviation cloud transformation project. An initiative which will see the migration of a vast majority Technology Centre (DARTeC) in their Unmanned of our customers from individually managed Aerial Vehicle (UAV, e.g., Drones) noise study, informing future regulatory considerations for the future of unmanned flight. In our Industrial space we have combined the EVS and EMS products into one suite named EVS Omnis. Overlapping technology solutions were consolidated to realise cost savings. To support and improve the growing adoption of the platform globally, new platform scaling solutions were developed. Work on the new EVS Omnis platform is ongoing and seeks to leverage the unique capabilities of EVS, both technically and scientifically across noise, vibration, air quality, meteorology, hyper-localised modelling and predictive capabilities. EVS Omnis delivers an operational overlay informing industries and communities alike to derive operational efficiencies and respect the surrounding communities and environment. In combination with the EVS Omnis platform, we launched the next generation eNose Ambient odour and air quality IoT device. The eNose Ambient allows customers to quickly identify and respond to potential emission concerns immediately. The low-cost nature of the device also allows the facility to deploy a network of devices to work with their surrounding community quickly and effectively to pin-point areas of concern. systems to a consolidated set of centrally managed Amazon Web Services (AWS) clusters. This transformation will put our customers on world-leading infrastructure, allowing EVS to rapidly deploy new capabilities to all customers, improve product quality and do so with much more scalable tools. This will provide Our product strategy and delivery capability improvements to not only to our customers, but has never been more experienced, structured, also quality and efficiency across numerous aligned, focused, or funded to deliver EVS departments including engineering exceptional products. As we continue to and operations, enabling gross margin entrench advanced Product-Led techniques improvements. Furthermore, it provides exciting across our teams, 2022 will see greater future technology opportunities leveraging the understanding our of customers, their value vast array of contemporary tools AWS provide, drivers – and allow us to translate them into even from artificial intelligence (AI), machine learning more exciting products and solutions. (ML), deployment tools, database technologies, security tools and other platform tools. As we look forward to 2022, we will continue to build a world-leading, outcome driven, and With the acquisition of AqMB digital twin customer focused product organisation. Our technology and licensing of SeweX, we created main strategies for FY22 are: the EVS Water portfolio. The portfolio targets the dynamic global water processing and treatment market. The market is faced with higher regulation, increasing chemical and power costs, whilst being significantly asset restrained, resulting in the need for expensive capital projects to meet the aforementioned issues. The initial focus of EVS Water has been to extend the product foundations, working closely with the first customers to model implementation 1. Grow our R&D investment across Research, Product, and Engineering to deliver deeper science-based innovation to win in our chosen market sectors. 2. Implement best practices to intimately understand our customers and users challenges to directly inform our product plans. processes and system scalability, whilst actively 3. Drive a culture of innovation and scientific growing the repeatability of the combined deterministic and ML led solvers. excellence across our business to grow our capabilities and value for our customers. 17 18 Envirosuite Annual Report 2021Envirosuite Annual Report 2021evs omnis evs water evs aviation evs IoT evs engage VALUE PROPOSITION Key Stats 163 client sites EVS Aviation products make up the world’s leading comprehensive airport environmental management solution. Deep analytics on top ~$194m SAM (ARR) $31.8m ARR 1.4% Churn evs omnis evs omnis evs water evs water evs aviation VALUE PROPOSITION Key Stats EVS Omnis is a cloud-based platform designed to be used by specialists and non-specialists alike to easily interpret complex environmental 207 client sites ~$1.2b SAM (ARR) $14.6m ARR 4.2% Churn evs engage of rich data sets deliver insights to reduce environmental impact and demonstrate evs aviation operational efficiency. compliance to key stakeholders, while improving evs IoT PROGRESS ANOMS X platform launched to deliver aviation insights and analytics in an efficient and accessible way never experienced before in the sector Carbon Emissions launched on ANOMS X platform Cloud transformation initiative underway Partnership with Cranfield Universities Digital Aviation Research & Technology Centre (DARTeC) in their Unmanned Aerial Vehicle evs IoT $195,092 ARPS $5,798k CLTV evs IoT evs Marquee engage Customers Port Authority of New York and New Jersey Los Angeles World Airports Aena Airservices Heathrow Airport Amsterdam Airport Schipol evs engage $70,531 ARPS $716k CLTV evs water Anglo American Marquee Customers evs aviation Thames Water Fortescue Metals Group Vale Veolia BHP research project data. The platform provides easily understood information to help operators address environmental challenges and build trust with stakeholders and surrounding communities. evs omnis PROGRESS Improved forecasting accuracy with new computation of cloud cover and height impacts System and operational scalability to support accelerated platform adoption Next generation eNose Ambient IoT device launched and over 100 devices shipped, allowing customers to deploy a network of sensors to respond rapidly and accurately to potential emission concerns Technology consolidation for EMS and EVS to realise cost savings New EVS Omnis platform under development seeking to leverage the unique capabilities of the EVS and EMS organisations, both technically and scientifically across noise, vibration, air quality, meteorology, hyper- localised modelling, and predictive capabilities 19 Envirosuite Annual Report 2021 evs omnis evs water evs aviation evs IoT evs engage VALUE PROPOSITION Key Stats Launched November 2020 EVS Water is a cloud-based engineering solution which interprets complex process model information, providing predictive and real-time 2.8b SAM (ARR) $0.1m ARR $21,800 ARPS evs omnis advice to design new infrastructure, avoid water quality incidents, reduce operating costs and achieve regulatory targets with pinpoint evs water accuracy. Customers & Innovation Partners GHD evs aviation WaterWorks Engineers Universidad Metropolitana evs IoT evs engage Queensland University of Technology UNSW Sydney PROGRESS Acquired AqMB and created “EVS Water” portfolio Developed product foundations including security, automated deployment tools, monitoring platform, user account management Recruited additional scientific modelling expertise Developed functional SeweX solver system Modeled implementation processes and system scalability with initial customers Grew the repeatability of the combined scientific deterministic and Machine Learning led solvers 21 22 Envirosuite Annual Report 2021Envirosuite Annual Report 2021Our aim is to make a positive contribution with everything that we do. Creating a sustainable future is one of today’s greatest challenges. As a leading environmental intelligence company, we want to positively contribute to society and industry, and be part of the solution. We believe EI will have the greatest impact when everyone can benefit from it. OUR PURPOSE OUR VISION OUR MISSION We believe environmental We harness the power of We are driven to create world-leading, intelligence is the environmental science-based key to improving the intelligence, so wellbeing of people industries grow technology to help our customers act and the planet. sustainably, and faster, perform communities thrive. better, and realise their full potential with environmental intelligence. OUR VALUES OUR DIFFERENCE We know that to achieve our long-term goals, We are the only environmental intelligence we need to build a culture of high performance. technology provider that solves complex One where all Environauts are committed to our purpose, work collaboratively as a environmental challenges across air, water, noise and vibration with our suite of software products team, while focusing on innovation to deliver and IoT. value to our customers. To drive unity and action, we refreshed our company values from accountability, innovation and customer centricity. As Environauts, we rise to the challenge because: We’re driven by purpose We move as one We believe customers are the reason We earn the trust We challenge the now OUR BUSINESS ADVANTAGES First mover – a global first mover in environmental intelligence software and IoT Commitment to customers – we have long- lasting relationships with sector-leading customers Global presence – established operations and high performing teams across key growth markets Digital transformation – deeply embedded into customer operations and their digital ecosystems Importance of problem statement – growing focus on environmental impact due to ESG, SDG and social licence to operate 23 24 Envirosuite Annual Report 2021Envirosuite Annual Report 2021OUR GROWTH DRIVERS We recognise that there is a growing interdependence between society and the natural environment. We believe that building technology that supports ESG criteria and advances the SDG agenda serves the interest of all stakeholders, including our shareholders. GLOBAL TRENDS SUPPORT OUR BUSINESS FOCUS Global trends such as urbanisation, digitalisation and the growing environmental concerns benefit Envirosuite’s choice of segments and support the focus on products and solutions for better sustainability. Over the last decade, there has been an accelerated focus towards solving global environmental challenges. Environmental risks are peaking 3 out of the top 5 global risks are led by extreme weather (1) Coexistence is the new norm By 2025, there will be 33 mega cities and 21 mega regions globally (2) Global water infrastructure is critical USD $1.9 Trillion required to address shortages by 2030 (3) Air pollution kills ~7 million per year 9 out of 10 people breathe air that contains high levels of pollutants (4) 1 World Economic Forum, The Global Risks Report 2021 2 Frost & Sullivan 2020 report, Environmental Intelligence: Driving growth in a changing climate 3 World Economic Forum, The Global Risks Report 2019 4 World Health Organisation, Air Pollution 5 Deloitte, Value Beyond Compliance in Australia ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) Envirosuite operates in market segments where there is potential to achieve favourable and leading positions due to the accelerating pressures for industries to align to ESG. As the intersection of society and industry grows, so does the importance of environmental adaptation. ESG is becoming business imperative and placing greater expectation on organisations and leaders to reframe their role in society. This shift is creating urgency for industries to adopt technologies such as environmental intelligence – turning it from a nice to have to a must have. ENVIRONMENTAL This includes energy consumption, waste discharge, resources, carbon emissions, climate change and a company’s affect on the environment and its surroundings. SOCIAL Addresses the relationships a company has and the reputation it fosters with people, institutions and the communities where it does business, plus employee relations, diversity and inclusion. GOVERNANCE The internal system of practices, controls, and procedures a company adopts in order to govern itself, make effective decisions, comply with the law, and meet the needs of external stakeholders. SUSTAINABLE DEVELOPMENT GOALS (SDG) The SDGs are designed to be a those doing business who want to “blueprint to achieve a better and minimise emissions and impact. more sustainable future for all”. SDGs are helping to set the global This is central to Envirosuite’s agenda and commitment to the purpose. We are focused on environment, people and the planet. delivering practical solutions to Envirosuite supports the following improve the environment and for SDGs: SOCIAL LICENCE TO OPERATE (SLO) According to Deloitte5, this is the number one concern for Mining profitability. SLO is focused on community acceptance being operators for the second year in addressed alongside commercial a row. Social licence to operate considerations. SLO is not only refers to the ongoing acceptance impacting Mines but also Airports and approval of a facility by the and other facilities that create neighbouring community and other an impact on the community it stakeholders that can affect its operates within. operations and ultimately their 25 26 Envirosuite Annual Report 2021Envirosuite Annual Report 2021OUR OPERATIONS In 2020, the global pandemic presented us with unprecedented challenges. It was a year of change, for the world and Envirosuite. Americas A$15.2m ARR 150 Sites EMEA A$14.9m ARR 118 Sites Asia Pacific A$16.4m ARR 105 Sites These changes presented us with the opportunity OUR ORGANISATION GEOGRAPHIC CONSOLIDATION to redefine our strategy which was underpinned by two words - focus and discipline. Changes were made across the company to create sustainable growth, improve performance and build scalable practices for profitability. Focus and discipline were crucial factors behind From Australia to the world. We combine global resources with local our earnings resilience in FY21. Implementing a clear direction with a reorganisation at the executive level to support our strategic pillars of growth, product, customer and continuous improvement. Driving meaningful change is core to our leadership. Our team brings experience from global organisations and management practices, agility and scale from building billion- dollar tech companies and a desire to grow Envirosuite into the number one Environmental Intelligence company. presence to provide greater value to our customers through a more consistent approach to sales and operations. In FY21, we refined our regional approach from five to three regions: Americas, APAC and EMEA.. This has resulted in reduced structural costs and increased efficiency. Continuous efforts to improve geographic balance, optimise the portfolio, improve structures and strive for excellence will help yield consistent and positive results. LAND, EXPAND AND SCALE An example of this is our relationship with Teck Resources (Mining). Q4, FY20 FY21 FY22 Won 1st site in 2nd site added and Exploring global Canada currently proposing opportunities additional sites in Canada To develop robust profitability, our sustainable long term growth strategy is to Land, Expand and Scale. Envirosuite is focused on developing long term customer relationships, growing from single site to multi-site, expanding our value with customers, and ultimately shifting to enterprise agreements. This strategy will reduce our cost of acquisition and focus the team on creating and communicating long term value to our customers. In addition to this customer-oriented business strategy, our long-standing commitment to putting the customer first has ensured that we have remarkably low churn rates and are well placed to capitalise on upsell and cross-sell opportunities across all sectors. 27 28 Envirosuite Annual Report 2021Envirosuite Annual Report 2021Reimagining the brand and employee experience to see us through our next phase of growth. OUR PEOPLE Our global team is made up of talented and passionate people. Our team are driven by our collective purpose to bring environmental intelligence and Envirosuite to the world – to help people and the planet. Supporting our people through COVID-19 With the ongoing COVID-19 uncertainties and rolling lock downs across the globe, we initiated programs to engage our teams, to keep them connected and support their mental health and wellbeing during these challenging times. We will continue to focus on our Environauts wellbeing and listen to their Our people are our greatest asset and have shown needs to enhance the support we provide. remarkable resilience, passion and determination over the past year. COVID-19 prompted us to reflect on our culture and the opportunity to adapt to the changing environment. We have seen our people at their best - committed and purposeful. Strength in our talent We strive to retain our best talent through internal promotions and training opportunities, while attracting new talent and promoting diversity through initiatives such as our pilot internship program. We believe that a diverse pool of talents creates added value for our business. Cultivating a strong culture The past year taught us the value of a strong, renewed and engaged culture. We focused on building an environment where everyone can feel safe, valued, included and where every person can offer their unique contribution - no matter where they are in the world. In our first employee engagement survey, we gave every Environaut an opportunity to be heard and to help us build a better employee experience. As a result of the survey, we introduced a variety of activities and programs to improve engagement with our teams including fireside chats, social communication channels and virtual events. OUR BRAND Over the years Envirosuite has evolved from serving Mining, Industrial, Waste and Wastewater, to the inclusion of Aviation and now Water. With a strong focus on the future, our purpose and our customers, it was time for us to take the natural step forward with our brand to reflect the company that we’ve become and to set the foundations for the next chapter for Envirosuite. Our new logo and brand were inspired by our customers. It reflects the intersection between industry and the boundaries in which they operate, and the forward movement of change. The fresh colour palette evokes the natural elements of the different environments. Over time you will see more of the brand come to life with our new corporate website launching in late 2021. In the meantime, our brand story is best told on our micro site at www.envirosuite.com/brand 29 30 Envirosuite Annual Report 2021Envirosuite Annual Report 2021DIRECTORS’ REPORT Your directors present their report, together with the financial statements of the consolidated entity (referred to hereafter as the Group) consisting of Envirosuite Limited (ABN: 42 122 919 948) (referred to hereafter as the Company) and its controlled entities, for the financial year ended 30 June 2021. Directors The following persons were directors of the Company at any time during, or since the end of, the financial year up to the date of this report: David Johnstone (Non-executive Chairman) Peter White (Non-executive Director) Hugh Robertson (Non-executive Director) Adam Gallagher (Director and Company Secretary) – Resigned 31 July 2020 Zhigang Zhang (Non-executive Director) – Resigned 27 November 2020 Sue Klose (Non-executive Director) - Appointed 1 December 2020 Peter White was CEO and Executive Director of the Group through to 1 March 2021 and Managing Director from 12 October to 1 March 2021 at which time he retired as CEO and Managing Director and became a Non-executive Director. Directors have been in office since the start of the financial year to the date of this report unless otherwise stated. Particulars of each director’s experience and qualifications are set out later in this report. Principal activities and significant changes in nature of activities During the year the principal activities of the Group consisted of the development and sale of environmental intelligence technology solutions. On 17 August 2020, the Group completed its acquisition of AqMB Pty Ltd, a water modelling R&D technology software company that assists in the design stage of wastewater treatment plants and allows the plant to optimise chemicals and electricity usage while maintaining compliance with strict local regulations around water quality and discharge. In November 2020, EVS Water was launched, which combines the AqMB technology acquired with EVS’s exclusive license over SeweX algorithms to monitor and prolong the operational life of water collection and distribution infrastructure. The offering aims to significantly improve the economics and environmental outcomes for water asset operators. In December 2020, EVS Water was selected to the final 2 grant nominees of 104 applicants in Singapore Public Utility Board’s (PUB) Global Innovation Challenge, in the category ‘Seamless Coagulation Control’. As a global leader in the space, Singapore PUB is focused on the constant pursuit of innovation to transform into a Smart Utility of the Future. The Directors strongly believe that EVS Water presents the Group with an additional path to material revenue growth through a pure Software as a Solution offering that provides a meaningful return on investment to its customers. In May 2021, EVS announced that it was consolidating its products into three product suites, being EVS Aviation, EVS Omnis and EVS Water. EVS also announced that it was consolidating its regional management structure from 5 regions into 3 regions being Asia Pacific, Americas, and EMEA. China was consolidated into Asia Pacific while North and South America were merged to form the Americas region. As part of this restructure, management have reduced the level of investment and industry focus in China to ensure that the business focuses on customers and contracts that utilise Envirosuite solutions through its recurring revenue model. In June 2021, EVS raised $14,025k of equity ($13,096k net of transaction costs) through an institutional placement and Accelerated Non-renounceable Entitlement Offer with the funds broadly to be used to accelerate growth in EVS Water and the North American market, as well as to fund transformation initiatives and strengthen the balance sheet. 31 Envirosuite Annual Report 2021Movement $ Movement % Operating results and review of operations for the year Operating Results A$000 Recurring revenue Non-recurring revenue Other revenue Total revenue Cost of revenue Gross profit Operating expenses1 Other income/(expense) Operating deficit Net Loss after tax FY21 40,391 8,154 25 48,570 (27,980) 20,590 (31,955) (377) (11,742) (12,497) FY20 17,915 5,418 524 23,857 (16,463) 7,394 (25,616) (155) (18,377) (18,236) 22,476 2,736 (499) 24,713 (11,517) 13,196 (6,339) (222) 6,635 5,739 Adjusted EBITDA (4,492) (10,220)2 5,728 Other Key Metrics3 # Sites ARR $ Churn % Recurring revenue % Gross profit % 373 46,472 2.2% 83.2% 42.4% 329 42,990 2.1% 75.1% 31.0% 44 3,482 0.1% 8.1% 11.4% 125% 50% (95%) 104% (70%) 179% 25% (143%) 36% 32% 56% 13.4% 8.1% 3.6% 10.7% 36.8% 1 Includes transaction and integration costs connected with the EMS acquisition of $0.6m (FY20: $2.3m) and share-based payments of $0.9m (FY20: $3.2m) 2 Amount has been restated for revised definition of Adjusted EBITDA to include R&D capitalisation. See page 35 for further discussion and reconciliation to net loss after tax. 3 Key Metrics provided as at 30 June 2021 and 2020 other than Recurring revenue % and gross profit % which are for the year ending 30 June 2021 and 2020. Key Highlights • Total revenue of $48.6m for FY21 of which 83% was recurring, more than doubling the revenue reported in the prior year • Gross margin continues to improve with gross margin of 42.4% compared with 31.0% in prior year • Operating expenses increased 25% over prior year but represented 66% of revenue compared with 107% in prior year • Adjusted EBITDA loss of $4.5m with the Group generating a positive Adjusted EBITDA in the 4th quarter, The following pages provide further commentary around the result and includes Annual Recurring Revenue (ARR), and Revenue on a Constant Currency Basis. ARR is the recurring revenue of the Group based on existing contracts, including new sales orders where services may not yet be turned on. Revenue on a Constant Currency Basis is provided in this report to facilitate comparability of Envirosuite’s revenue between reporting periods excluding the impacts of foreign currency fluctuations and to demonstrate the impact that fluctuations in exchange rates have had on the reported revenue of the Group. Revenue on a Constant Currency Basis has been calculated by translating the results for the year ended 30 June 2021 at the average effective exchange rates for the year ending 30 June 2020. Details on the calculation of Adjusted EBITDA are provided below. ARR and Revenue on a Constant Currency Basis, as well as Adjusted EBITDA, are non-GAAP measures that are key financial measures used by management to assess the performance of the underlying business. 32 Envirosuite Annual Report 2021Directors’ report Revenue A$000 Recurring revenue Non-recurring revenue Other revenue Total Operating revenue Revenue on a Constant Currency Basis FY21 40,391 8,154 25 48,570 FY20 17,915 5,418 524 23,857 Movement $ Movement % 22,476 2,736 (499) 24,713 125% 50% (95%) 104% 51,033 23,857 27,176 114% Revenue was materially higher in FY21 than the prior year, which was primarily attributable to FY21 being the first reporting period with a full 12 months of the EMS Bruel & Kjaer (EMS) business which was acquired in February 2020. While materially up as a result of the acquisition, revenue was negatively impacted by the appreciating AUD on Envirosuite’s foreign currency income as well as discounts offered to some of its airport customers who were impacted by COVID-19 restrictions on air travel. It is estimated that the appreciation of the AUD had a negative impact of $1.9m on the recurring revenue reported and $0.6m on non-recurring revenue. This is shown by presenting Revenue on a Constant Currency Basis, which is the revenue for the period ending 30 June 2021 translated using the average exchange rate for the financial year ending 30 June 2020. Revenue by Region A$000 FY21 FY20 Movement $ Movement % Recurring revenue Asia Pacific Americas EMEA Total Recurring revenue Non-Recurring revenue Asia Pacific Americas EMEA Total Non-Recurring revenue Total Trading revenue Asia Pacific Americas EMEA Total Trading revenue Other revenue Total operating revenue 14,980 12,565 12,846 40,391 2,593 3,588 1,973 8,154 17,573 16,152 14,820 48,545 25 48,570 6,470 5,904 5,541 17,915 3,725 1,261 432 5,418 10,195 7,165 5,973 23,333 524 23,857 8,510 6,661 7,305 22,476 (1,132) 2,327 1,541 2,736 7,378 8,987 8,847 25,212 (499) 24,713 132% 113% 132% 126% (30%) 185% 356% 51% 72% 125% 148% 108% (95%) 104% Regional revenue was up across all three regions with the exception of non-recurring revenue in Asia Pacific which was down 30% on FY20 as the prior year result included $3.4m of large one-off projects in China that were not repeated in FY21. The projects in China were primarily sold at single digit margins and, therefore, the impact on the operating result was immaterial. 33 Envirosuite Annual Report 2021EVS Aviation The EVS Aviation product suite includes the market-leading ANOMS environmental monitoring software that allows Envirosuite’s Airport customers to monitor and manage compliance with noise regulations, engage with community members and provide deep insights into carbon emissions and tarmac management. ANOMS is the #1 noise monitoring software used in the Airport sector4. A$000 FY21 FY20 Movement $ Movement % EVS Aviation Recurring revenue Non-Recurring revenue Total Trading revenue Other Key Metrics # Sites ARR $ Churn % Recurring revenue % 29,050 3,017 32,067 163 31,770 1.4% 90.5% 10,723 759 11,482 160 31,202 1.5% 93.4% 18,327 2,258 20,585 3 568 0.2% (2.8%) 171% 298% 179% 1.9% 1.8% n/a -3% The Aviation business continued to be impacted by COVID restrictions on travel as well as the appreciating AUD. Despite these factors, the business was still able to grow with ARR increasing 1.8% over the prior year. EVS Omnis The EVS Omnis product family includes the market-leading Envirosuite environmental monitoring software that provides customers with real-time actionable insights around managing the environmental impacts on communities in relation to dust, odour, air quality, water quality as well as noise. The Omnis solution works across a wide range of industries with the Group currently focusing on the Waste & Wastewater and Mining industries while also supporting customers in the Construction industry as well as Ports and cities around the world. A$000 EVS Omnis Recurring revenue Non-Recurring revenue Total Trading revenue Other Key Metrics # Sites ARR $ Churn % Recurring revenue % FY21 FY20 Movement $ Movement % 11,298 5,134 16,432 207 14,637 4.2% 68.8% 7,191 4,660 11,851 169 11,788 3.8% 60.7% 4,107 474 4,581 38 2,848 0.4% 8.1% 57.1% 10.2% 38.7% 22.5% 24.2% n/a 13.3% While the increase in revenue in the prior year is partially attributed to FY21 being the first reporting period with 12 months of the EMS business, EVS Omnis was able to grow ARR by 24.2% during FY21 and increase recurring revenue as a percentage of total revenue from 60.7% to 68.8%. 4 Based on market share of airports with passenger volumes greater than 2m per year 34 Envirosuite Annual Report 2021Directors’ report EVS Water The EVS Water product family includes the pure SaaS Plant Designer and Plant Optimiser products. Plant Designer is sold on a per user basis primarily to engineering services businesses that operate in the Water sector, while Plant Optimiser is sold on a per-site basis to water utilities or operators of water and wastewater treatment plants. Plant Designer has been estimated to reduce the time to design a water treatment facility by up to 70% while desktop studies have shown that Plant Optimiser can reduce operating costs (primarily electricity and chemical usage) by 20-30%. A$000 EVS Water Recurring revenue Non-Recurring revenue Total Trading revenue Other Key Metrics # Sites ARR $ Churn % FY21 FY20 Movement $ Movement % 43 3 46 3 65 0% - - - - - - - n/a n/a n/a 3 65 n/a n/a n/a n/a n/a n/a - n/a n/a Recurring revenue % 93.4% EVS Water was launched in November 2020 and has so far signed up 3 customers. As part of the recent capital raise completed in June 2021, the Group is looking to accelerate its sales focus on EVS Water. Earnings before interest, tax, depreciation and amortisation (EBITDA) EBITDA is calculated by adding back depreciation, amortisation and interest from net loss before tax. Adjusted EBITDA also adds back share-based compensation expense, foreign currency gains and losses, and transaction and integration costs connected with acquisitions which are seen as non-recurring. Adjusted EBITDA excludes the impacts of adopting AASB 16 as the application of the standard results in operating expenses being excluded from EBITDA. In the FY20 Annual Report, Adjusted EBITDA also added back capitalised internally developed software costs. This adjustment has been removed in the current reporting period to align Envirosuite’s reporting of EBITDA and Adjusted EBITDA to industry standard. Prior year comparatives have been restated to align with the current year presentation. EBITDA and Adjusted EBITDA are non-GAAP measures that are key financial measures used by management to assess the performance of the underlying business. A$000 Net loss after tax Add back: Tax expense / (benefit) Add back: Net finance expense / (income) Add back: Depreciation and amortisation EBITDA Less: AASB 16 Depreciation & interest Add back: Share-based payments Add back: Foreign currency losses/(gains) Add back: Transaction and integration costs FY21 FY20 Movement $ (12,497) (18,236) 468 287 6,996 (4,746) (1,578) 946 293 593 (230) 89 3,241 (15,136) (656) 3,154 155 2,263 5,739 698 198 3,755 10,390 (922) (2,208) 138 (1,670) 5,728 Adjusted EBITDA (4,492) (10,220) Adjusted EBITDA materially improved in FY21 partially as a result of revenue growth, gross margin improvement, and the impacts of cost reductions that were implemented during the year. 35 Envirosuite Annual Report 2021k $ A 1,000 - (1,000) (2,000) (3,000) (4,000) (5,000) (6,000) (7,000) (8,000) Adjusted EBITDA The Group continued to reduce the Adjusted EBITDA loss in the 2nd half of FY21 to a loss of less than $1m and was able to deliver a positive Adjusted EBITDA result in the 4th quarter. Envirosuite raised capital in June 2021 in order to accelerate its product development, growth in EVS Water and in the North American market, as well as fund transformation projects. Off the back of this capital raise, the Group expects to invest into product development as well as sales and marketing to assist with this accelerated growth of product and revenue FY20 H1 FY20 H2 FY21 H1 FY21 H2 during FY22. Financial Position The net tangible assets of the consolidated Group increased from $15.8m at 30 June 2020 to $17.5m as at 30 June 2021. A$000 Cash and cash equivalents Current assets Current liabilities Net current assets Total tangible assets Net tangible assets Net cash from / (used in) operating activities FY21 17,640 33,665 (16,082) 17,583 40,034 17,491 (8,510) FY20 24,385 39,412 (23,791) 15,621 46,881 15,796 (10,699) Movement $ (6,745) (5,747) 7,709 1,962 (6,847) 1,695 2,189 In June 2021, the Company raised $14m of additional equity ($13m net of transaction costs). However, overall cash and cash equivalents decreased by $6.7m as a result of the following: • $8.5m of cash used in operating activities (FY20: $10.7m), which included $3.5m of cash payments made to redundant staff as part of the integration of the EMS business; • $3.1m (FY20: $2.4m) cash used in acquisition of intangible assets which includes $2.4m (FY20: $1.9m) of capitalised • • • product development costs; $0.7m cash used in acquisition of property, plant and equipment; $1.5m on repayment of lease liabilities; and $5.6m cash used in acquisition of businesses (including the final $4.3m paid for EMS Bruel & Kjaer Holdings and $1.2m paid for AqMB) Total cash used in operating activities when adding capitalised development costs (included in cash flows from investing activities) and repayment of lease liabilities (included in cash flows from financing activities), and excluding integration cash flows connected with the acquisition of EMS Bruel & Kjaer (“Adjusted Operating Cash Flow”) was an outflow $8,946k (FY20: $12,538k). The Directors note that the Adjusted Operating Cash Flow for 2H FY21 was an outflow of $3,882k compared with an outflow of $5,064k in H1 FY21 and $7,697k k $ A in H2 FY20, showing the improving operating position of the Group. Noting the additional cash raised during the financial period, the lack of debt on the balance sheet other than lease liabilities, combined with the continuing improvement of the Adjusted EBITDA and Adjusted Operating Cash Flow, the Directors are of the view that the Group will continue to be able to pay its debts as and when they fall due and have prepared the financial report on a going concern basis. 1,000 - (1,000) (2,000) (3,000) (4,000) (5,000) (6,000) (7,000) (8,000) (9,000) Adjusted Operating Cash Flow FY20 H1 FY20 H2 FY21 H1 FY21 H2 36 Envirosuite Annual Report 2021Directors’ report Significant changes in the state of affairs On 17 August 2020, the group completed the acquisition of AqMB Pty Ltd, a water modelling R&D technology software company. The acquisition is part of the Group’s strategy to expand into the market for Environmental Intelligence within the Water industry with the technology from AqMB, along with Envirosuite’s exclusive license over SeweX algorithms, used in Envirosuite’s EVS Water product which was launched in November 2020. Dividends paid or recommended No dividends were paid by the Company to members during the financial year. No dividends were recommended or declared for payment, but not paid, to members during the financial year. Events after the reporting period No other matters or circumstances other than those disclosed in this report have arisen since the end of the financial year that significantly affected, or could significantly affect, the operations of the Group, the results of those operations, or the state of affairs of the Group in future financial years. Likely developments and expected results of operations There are no likely developments in the operations of the Group that were not finalised at the date of this report. Additional comments on expected results of certain operations of the Group are included in this annual report under the Chairman’s Letter and CEO’s Report. Environmental regulation The Group is not subject to any significant environmental regulation under a law of the Commonwealth or of a State or Territory, in which the group operates. Information on Directors David Johnstone, Chairman (Appointed 10 February 2014) David is an experienced executive and chairman who has been actively involved in business for more than 35 years, successfully starting, owning and operating a vast range of businesses. David has experience gained nationally and internationally in tech start-ups, selling, licensing, merging and acquiring businesses, having also arranged funding for management buy outs along with the successful placement/ listing of companies on the London Stock Exchange and the Australian Stock Exchange. David is a keen investor, chairman and advisor to various technology companies in the communications, finance, insurance, risk management and sporting sectors, which are investing and advancing technology to the forefront of their respective industries. David joined the Board as a non-executive Director in February 2014 and was appointed Chairman in September 2016. Member of the Audit and Risk Management Committee, Chairman of the Audit and Risk Management Committee (from 1 August 2020), Chairman of the Remuneration and Nomination Committee. Peter White, Director (Appointed 10 July 2017) Mr White was the CEO of Envirosuite from April 2012 to May 2016 and returned to be CEO again in July 2017 and was appointed Managing Director in October 2020. Mr White retired from being CEO and Managing Director in February 2021 and became a Non-executive director of Envirosuite. During his time at Envirosuite, Mr White led the successful development and transition to a cloud-based SaaS offering of the Envirosuite platform that has become the core part of the Omnis product family the Company has today. Mr White also led the acquisition of EMS Bruel & Kjaer Holdings and AqMB and secured the exclusive license to SeweX. Over the past 32 years, Mr White has held executive and sales management positions in global technology companies including Hewlett Packard, Motorola, Siemens and Tandem Computers. He has extensive global experience gained through international business development roles in Asia, Europe and the USA. Peter has a particular skillset and experience in selling innovative and large, technology deals. This has included individual deals worth hundreds of millions of dollars, as well as application software deals to several governments, as well as some of the world’s biggest banks and telecommunication carriers. 37 Envirosuite Annual Report 2021Hugh Roberston, Director (Appointed 1 November 2018) Hugh Robertson has over 30 years experience in the financial services sector and equity markets. Hugh is an experienced company director across a broad range of businesses with a concentration on small cap industrial stocks. His more recent directorships include AMA Group Limited (ASX:AMA), Centrepoint Alliance Limited (ASX:CAF),TasFoods Limited (ASX:TFL), Hub24 Limited (ASX:HUB) and is currently on the board of Maggie Beer Holdings Ltd (ASX: MBH). Committee Member of the Audit and Risk Management Committee (effective 1 August 2020 through 1 December 2020) Zhigang Zhang, Director (Appointed 6 December 2019 / Resigned 27 November 2020) Mr Zhang has worked in the water remediation and the environmental protection industry in China and overseas for over 30 years. Since 2014, Mr Zhang has held the role of General Manager of Beijing BHZQ Environmental Engineering Technologies Co., Ltd. Prior to his current role, he held Senior Management positions at a number of environmental protection companies including: Standard Waters Co. Ltd where he was an Executive Director and the CEO; China Water Holdings Limited (Singapore) where he held the position of Chairman and General Manager; Beijing Herocan Environmental Engineering Technology Co., Ltd where he was the Chairman and General Manager; and Beijing Bi-Leaf Environmental Engineering Co., Ltd where he was the Chief Engineer and General Manager. Adam Gallagher, Director and Company Secretary (Appointed 18 October 2012 / Resigned 31 July 2020) Adam has strong technology sector knowledge and experience across corporate transactions, sales management, finance and capital market operations through nearly 20 years of commercial, IT and investment experience. Adam is a strategist who is known for his corporate problem solving acumen, to both resolve impediments to, and optimise opportunities for, true shareholder value creation. His particular passion for technology arises from a career interest in the convergence of applied creative, commercial and scientific efforts that bring about positive change. Adam has worked in corporate banking, private equity, early stage technologies, stock exchanges, digital media, communications and listed companies. For the last ten years he has predominantly worked with expansion stage technology businesses both listed and unlisted as an officeholder, advisor and investor. In addition to his roles with Envirosuite Limited, Adam was also an Executive Director of Constellation Technologies Limited (ASX:CT1). Adam holds a Bachelor of Economics, Masters in Commerce, Graduate Diploma in Information Systems and a Graduate Diploma in Applied Corporate Governance. Chairman of the Audit and Risk Management Committee (through 31 July 2020), Member of the Audit and Risk Management Committee (from 1 August 2020 to 31 December 2020), Member of the Remuneration and Nomination Committee (through 31 December 2020) Sue Klose, Director (Appointed 1 December 2020) Sue Klose is an experienced non-executive director and executive, with a diverse background in digital business growth and operations, corporate development, strategy and marketing. She is currently a non-executive director of Nearmap (ASX: NEA), a provider of aerial imagery and location intelligence; Pureprofile (ASX: PPL), a digital consumer data and research firm; Stride, one of Australia’s largest mental health care providers; and Honan Insurance Group, an insurance, risk and financial solutions provider. Previously the Head of Digital and Chief Marketing Officer (CMO) of GraysOnline, Ms Klose was responsible for digital product strategy, brandy strategy and marketing operations. In prior roles in digital and media companies including 12WBT and News Ltd, Ms Klose led strategic planning and development. As Director of Digital Corporate Development for News Ltd, Ms Klose screened hundreds of potential investments, leading multiple acquisitions, establishing the CareerOne and Carsguide joint ventures, and held multiple board roles in high-growth digital and SaaS businesses. Ms Klose has an MBA in Finance, Strategy and Marketing from the JL Kellogg School of Management at Northwestern University, and a Bachelor of Science in Economics from the Wharton School of the University of Pennsylvania. Member of the Audit and Risk Management Committee (from 1 December 2020) 38 Envirosuite Annual Report 2021Directors’ report Directors equity participation and other relevant interests As of the date of this report, Directors have relevant interests in ordinary shares, as well as options and performance rights to subscribe for ordinary shares in Envirosuite Limited, as outlined in the following table. Each option entitles the holder to subscribe for one ordinary share of Envirosuite Limited subject to the holder paying the exercise price. Each performance right entitles the holder to receive one ordinary share upon certain vesting conditions being met. Executive Directors David Johnstone Peter White Hugh Robertson Sue Klose Meetings of directors Ordinary Shares 7,033,106 9,237,681 19,269,933 500,000 Options 5,000,000 5,000,000 5,000,000 2,000,000 The numbers of meetings of the Company’s Board of directors and committees of the Board held during the year ended 30 June 2021, and the numbers of meetings attended by each director were as follows: 2021 Meetings David Johnstone Peter White Hugh Robertson Zhigang Zhang Sue Klose Adam Gallagher Full Meetings of Directors Audit and Risk Management Committee (*) Remuneration and Nomination Committee (*) A 12 12 11 3 7 2 B 12 12 12 5 7 2 A 4 - 1 - 2 2 B 4 - 2 - 2 2 A 3 - - - - 3 B 3 - - - - 3 A - Number of meetings attended. B - Number of meetings held during the time the director held office or was a member of the committee during the year (number eligible to attend). * - The committee charters provides for 2 meetings to be held each year per committee. In addition to formal meetings the members meet informally on a regular basis and discuss matters within the charter. Each committee Chair provides a report to the board at each monthly board meeting. Shares under option Unissued ordinary shares of Envirosuite Limited under option at the date of this report are as follows: Grant date 23-Oct-18 25-Oct-18 25-Nov-19 25-Nov-19 28-Feb-20 28-Feb-20 19-Mar-20 21-Dec-20 29-Apr-21 Total Expiry date Exercise price ($) Number under option 11-May-22 30-Oct-22 5-Dec-21 31-Mar-22 28-Feb-23 28-Feb-23 1-Apr-23 21-Dec-22 29-Apr-25 0.10 0.16 0.40 0.15 0.20 0.25 0.40 0.40 0.20 2,000,000 750,000 22,500,000 26,250,000 75,000,000 20,000,000 1,000,000 2,000,000 10,000,000 159,500,000 In December 2020, the Company issued 2,000,000 options to Ms Sue Klose in connection with her appointment to the Board of Directors. In April 2021, the Company issued 10,000,000 options to Mr Alberto Calderon in connection with his appointment as advisor to the CEO of Envirosuite. 39 Envirosuite Annual Report 2021No option holder has any right under the options to participate in any other share issue of the Company or any other related entity. During the financial year, options for 333,333 of shares lapsed without being exercised. An additional 500,000 options were issued and exercised during the reporting period. No options have lapsed post balance date. Indemnification and insurance of officers or auditor During the year, the Group paid insurance premiums for a Directors and Officers Liability Insurance Policy. This policy covers Directors and Officers of the Group. In accordance with normal commercial practices under the terms of the insurance contracts, the disclosure of the nature of the liabilities insured against and the amount of the premiums are prohibited by the policy. No indemnities have been given or insurance premiums paid, during or since the end of the financial year for the auditor of the Group. Proceedings on behalf of the Company No proceedings have been brought or intervened in on behalf of the company with leave of the Court under section 237 of the Corporations Act 2001. Non audit services No fees were paid or payable to PKF Brisbane Audit, being the auditor the Group, for non-audit and other assurance work during the year ending 30 June 2021 (2020: $112,724). Amounts paid or payable to PKF and its related practices for non- audit and other assurance work totaled $4,504 (2020: $198,207). Details of the amounts paid or payable to the auditor for non-audit services provided during the financial year by the auditor are outlined in note 5 to the financial statements. The directors are satisfied that the provision of non-audit services during the financial year, by the auditor (or by another person or firm on the auditor’s behalf), is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The directors are of the opinion that the services as disclosed in note 5 to the financial statements do not compromise the external auditor’s independence requirements of the Corporations Act 2001 for the following reasons: • all non-audit services have been reviewed and approved to ensure that they do not impact the integrity and objectivity of the auditor; and • none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants issued by the Accounting Professional and Ethical Standards Board, including reviewing or auditing the auditor’s own work, acting in a management or decision-making capacity for the company, acting as advocate for the company or jointly sharing economic risks and rewards Auditor’s independence declaration A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 49. Rounding of amounts The Company is an entity to which Legislative Instrument 2016/191 applies and accordingly amounts in the financial statements and directors’ report have been rounded to the nearest thousand dollars, unless otherwise stated. 40 Envirosuite Annual Report 2021REMUNERATION REPORT The information provided in this remuneration report has been audited as required by section 308(3C) of the Corporations Act 2001. The report is structured as follows: A. B. C. D. E. F. G. A. Key management personnel covered in this report Principles used to determine the nature and amount of remuneration and link to performance Share-based compensation Details of remuneration Shareholdings of key management personnel Loans to key management personnel Other transactions with key management personnel Key management personnel covered in this report The remuneration disclosures in this report cover the following persons who were classified as Key Management Personnel (KMP) of the Group during the 2021 financial year. KMP (as defined in AASB 124 Related Party Disclosures) are those persons who, directly or indirectly, have authority and responsibility for planning, directing and controlling major activities of the Group. Executives Position Term Chief Executive Officer and Managing Director Retired 28 Feb 2021 Peter White Jason Cooper Jason Cooper Chief Executive Officer Chief Operating Officer Matthew Patterson Chief Financial Officer Effective 1 Mar 2021 1 Jul 2020 - 28 Feb 2021 Full Year Adam Gallagher Company Secretary and Director Resigned 31 July 2020 Non-Executive Directors David Johnstone Independent Chair Peter White Non-Executive Director Hugh Robertson Non-Executive Director Zhigang Zhang Non-Executive Director Sue Klose Non-Executive Director Full Year Effective 1 March 2021 Full Year Resigned 27 Nov 2020 Effective 1 Dec 2020 Mr White was Chief Executive Officer and Director of Envirosuite and was appointed as the Managing Director from October 2020. On 28 February 2021, Mr White retired as Chief Executive Officer and Managing Director but remained on the Board of Directors, becoming a Non-Executive Director from 1 March 2021. Remuneration disclosures in this report for Mr White are split between his role as an Executive Director and his role as a Non-Executive Director. Mr Gallagher resigned from the Board on 31 July 2020 at which point he ceased to be a KMP. He stepped down as Company Secretary on 31 August 2020 and the Company agreed to retain his services for a monthly fee of $15,000 plus GST from 1 August to 31 December 2020. From 1 August to 31 December 2020, Mr Gallagher continued to serve on the Audit and Risk Management Committee and on the Remuneration and Nomination Committee as a non-Board member. B. (i) Principles used to determine the nature and amount of remuneration Executive pay The objective of the Group’s executive reward framework is to ensure reward for performance is competitive and appropriate for the results delivered. The framework seeks to align executive reward with achievement of strategic objectives and the creation of value for shareholders and conforms to market practice for delivery of reward. 41 Envirosuite Annual Report 2021The Board seeks to ensure that executive reward satisfies the following key criteria for good governance practices: • • • • • competitiveness shareholder alignment performance transparency and simplicity capital management The Group has structured an executive remuneration framework that it believes is market competitive and complementary to the objectives of the organisation. The executive pay and reward framework generally has three components: Fixed remuneration Base Pay • Executives are offered a competitive base pay that comprises the fixed component of pay and rewards. • • There are no guaranteed base pay increases included in any executives’ contracts. Retirement benefits are delivered under the Australian superannuation legislation at 9.5% of base salary for the financial year ended 30 June 2021, up to the maximum superannuation contribution base. • Base pay is structured as a total remuneration package which may be delivered as a combination of cash and prescribed non-financial benefits at the executives’ discretion Performance-based remuneration Short-term Incentives • STI is provided to Executive KMPs equivalent to 30% of their base pay, where (STI) payment is dependent upon satisfaction of certain performance conditions • The performance conditions are based on a combination of new ARR contracts awarded (1/3), Adjusted EBITDA (1/3) and personal targets (1/3). Long-term incentives • Executive KMP are awarded LTIs upon entering into an employment contract with (LTI) the Company where vesting conditions are split between remaining employed by the Company and share price performance. Details of these awards to Executive KMP are discussed further below. • Executive KMP may also be entitled to an LTI of 10% of their base pay after a period of 2 years from their commencement date. Remuneration and other terms of employment for executive key management personnel are formalised in service or employee agreements. The agreements provide for the provision of performance related cash bonuses, when eligible. All service agreements are reviewed annually by the directors. Overview of FY21 Remuneration Fixed Remuneration STI Entitlement LTI Entitlement Peter White Jason Cooper Matthew Patterson Adam Gallagher $300,000 $300,000 $280,000 $90,000 30% 30% 30% n/a 4,000,000 Performance Rights 4,000,000 Performance Rights 2,000,000 Performance Rights n/a 42 Envirosuite Annual Report 2021Remuneration report Mr Gallagher resigned from the Board effective 31 July 2020 at which point he ceased to be a KMP. The fixed remuneration provided above represents the annual fee he was entitled to under his contract with the Company as company secretary. Mr White received the following Performance Rights as an LTI covering the period 1 July 2020 and expiring 30 June 2023: • 1,000,000 fully paid ordinary shares, in the event that the Company’s share price as listed on the Australian Securities Exchange (ASX) reaches $0.50 per share and remains at or above $0.50 per share for a continuous period of 30 days thereafter; • 1,000,000 fully paid ordinary shares if the Company’s share price as listed on the ASX reaches $0.75 per share and remains at or above $0.75 per share for a continuous period of 30 days thereafter; • 1,000,000 fully paid ordinary shares if the Company’s share price as listed on the ASX reaches $1.00 per share and remains at or above $1.00 per share for a continuous period of 30 days thereafter; • 500,000 fully paid ordinary shares upon the Executive remaining in the Company’s employment as at 30 June 2021, and a further 500,000 fully paid ordinary shares upon the Executive remaining in the Company’s employment as at 30 June 2022. A termination payment of six months applies in the event of change in control and a notice period of three months applies on termination. As part of his retirement from the CEO position, Mr White forfeited his right to the LTI noted above and instead received an entitlement to a cash payment of $100,000. On 1 July 2021, Envirosuite Operations Pty Ltd and Equilateral Consulting Pty Limited, a company controlled by Mr Peter White, entered into a consulting agreement whereby Envirosuite agrees to pay Equilateral Consulting Pty Limited a consulting fee of $21,666 per month for a period of 6 months. The contract can be terminated by either party providing 1 months notice. Matthew Patterson was appointed the Chief Financial Officer (CFO) on 2 June 2020 and Jason Cooper was appointed the Chief Operating Officer (COO) on 1 July 2020. The CFO and COO were each issued 2,000,000 Performance Rights that vest and convert to fully paid ordinary shares as follows: • 1,000,000 fully paid ordinary shares of which 50% vest on the first anniversary of their employment with the Company and 50% vest on the second anniversary; • 500,000 fully paid ordinary shares that vest in the event that the Company’s share price as listed on the Australian Securities Exchange (ASX) reaches $0.25 per share and remains at or above $0.25 per share for a continuous period of 30 days thereafter; and • 500,000 fully paid ordinary shares that vest in the event that the Company’s share price as listed on the Australian Securities Exchange (ASX) reaches $0.40 per share and remains at or above $0.40 per share for a continuous period of 30 days thereafter. On 1 March 2021, Mr Cooper and the Company entered into a new agreement as part of his appointment as Chief Executive Officer of the Group under which Mr Cooper is entitled to the following additional Performance Rights as an LTI covering the period 1 March 2021 and expiring 28 February 2024: • 1,000,000 fully paid ordinary shares if the Company’s share price as listed on the ASX reaches $0.75 per share and remains at or above $0.75 per share for a continuous period of 30 days thereafter; • 1,000,000 fully paid ordinary shares if the Company’s share price as listed on the ASX reaches $1.00 per share and remains at or above $1.00 per share for a continuous period of 30 days thereafter; A termination payment of six months applies in the event of change in control and a notice period of three months applies on termination. (ii) Non-executive directors On appointment to the Board, all directors enter into a service agreement with the Company in the form of a letter of appointment. The letter summarises the Board policies and terms, including compensation, relevant at the time of their appointment to the office of director. 43 Envirosuite Annual Report 2021Fees and payments to non-executive directors reflect the demands which are made on, and the responsibilities of, the directors. Non-executive directors’ fees and payments are reviewed annually by the Board. Non-executive director’s fees are determined within an aggregate directors’ fee pool limit. The current pool limit is $400,000 per annum which is unchanged from the prior year. The following fees apply: Fees per Annum Chair Other Directors Committee Chair Committee Member FY21 $90,000 $60,000 $10,000 nil FY20 $90,000 $60,000 $10,000 nil No fees as described above are paid to Directors who hold an employment contract with the Company. C. (i) Share-based compensation Options and Performance Rights The Group issues options and Performance Rights to employees to provide long-term incentives for employees to deliver value to shareholders by aligning interests and conserving cash. The Group also issues options to Directors to align the personal interests with that of the shareholders. Each option provides the right to acquire one ordinary share in Envirosuite Limited for a stated exercise price, subject to the relevant vesting conditions being met. Each Performance Right provides the right to acquire one ordinary share in Envirosuite Limited subject to the relevant vesting rights being met. Options and Performance Rights carry no voting rights or entitlements to receive dividends. Mr Johnstone, Mr White and Mr Robertson each hold options in the Company that were issued in prior financial years following shareholder approval. During the 2021 financial year: • • 2,000,000 options were issued on 1 December 2020 to Ms Sue Klose with an exercise price of $0.40 per share 2,000,000 performance rights were issued on 1 July 2020 to Mr Jason Cooper with an additional 2,000,000 performance rights granted on 1 March 2021 and subject to shareholder approval. The options issued to employees in prior financial years were designed to provide long-term incentives for employees to deliver value to shareholders by aligning interests and conserving cash reserves. All options granted, once converted to ordinary shares, carry standard dividend and voting rights available to ordinary shareholders. Details of options and Performance Rights over ordinary shares in the Company provided as remuneration to each director of Envirosuite Limited and each of the KMP of the Company and the Group are set out below. When exercisable, each option is convertible into one ordinary share in Envirosuite Limited. Further information on the options is set out in Note 16 to the financial statements. 44 Envirosuite Annual Report 2021Remuneration report Options Finan- cial Year Balance at Start of Year Granted Exercised Forfeited / Other Balance at End of Year Vested and Exercisable Unvested Executive Director P. White (retired 28 Feb 2021) A. Gallagher 2021 5,000,000 - - (5,000,000)** - - 2020 2,000,000 5,000,000 (2,000,000) - 5,000,000 5,000,000 2021 7,500,000 - - (7,500,000)* - - (resigned 31 July 2020) 2020 4,000,000 7,500,000 (4,000,000) C. Lander 2021 - (departed 29 May 2020) 2020 2,000,000 Non-Executive Director D. Johnstone 2021 5,000,000 - - - - - - 2020 4,000,000 5,000,000 (4,000,000) P. White (From 1 March 2021) 2021 2020 - - H. Robertson 2021 5,000,000 - - - (appointed 1 Nov 2018) 2020 - 5,000,000 Z. Zhang 2021 12,500,000 - (appointed 6 Dec 2019), resigned 28 Nov 2020 S.Klose (appointed 1 Dec 2020) 2020 2021 2020 - - - 12,500,000 2,000,000 - - - - - - - - - - - (2,000,000)* 7,500,000 7,500,000 -- - - - - - 5,000,000 5,000,000 5,000,000 5,000,000 5,000,000** 5,000,000 5,000,000 - - - - - 5,000,000 5,000,000 5,000,000 5,000,000 (12,500,000)* - 12,500,000 - - - - - 2,000,000 2,000,000 - - - - - - - - - - - - - - - - - 12,500,000 * - departed Envirosuite during the year, options not included as part of balance at end of year. ** - Mr White retired as CEO and Managing Director on 28th February 2021 at which point he was no longer an Executive Director and became a Non-Executive Director. Details of options and performance rights has been split between the period of Mr White in his role of Executive Director and the period of his role as Non- Executive Director. Performance rights Finan- cial Year Balance at Start of Year Executives J. Cooper (appointed 1 Jul 2020) 2021 2020 - - M. Patterson 2021 2,000,000 (appointed 2 Jun 2020) C. Lander 2020 2021 - - (departed 29 May 2020) 2020 2,049,180 Granted Vested Forfeited / Other Balance at End of Year Vested and Exercisable Unvested 4,000,000 - - 2,000,000 - - - - - - - (2,049,180) - - - - - - 4,000,000 - - - 4,000,000 - 2,000,000 500,000 1,500,000 2,000,000 2,000,000 - - (ii) Shares No shares were granted to key management personnel during the year. 45 Envirosuite Annual Report 2021D. Details of remuneration The table below sets out Executive and Non-Executive KMP remuneration for the financial year ending 30 June 2021 and the prior year comparative period in accordance with the requirements of the Accounting Standards and the Corporations Act (Cth). The table reflects the accounting value of remuneration attributable to KMP, derived from the various components of compensation. Refer to the accounting policies in the financial statements for details on how remuneration has been measured, including the determination of fair value of options and Performance Rights granted. Remuneration ($) Financial Year Salary and fees STI Other Short Term Benefits Superannuation Performance rights Options Total Short Term Long Term Share-Based Payments Executive Director P. White1 A. Gallagher2 J. Cooper3 M.Patterson4 C.Lander5 2021 200,000 25,830 121,161 2020 279,003 73,446 2021 12,500 2020 160,000 - - 2021 286,667 42,291 2020 - - 2021 280,000 41,307 2020 2021 22,256 - - - - - - - - - - - 21,694 21,003 - - - - - - - 368,685 371,210 744,662 - 12,500 556,815 716,815 21,694 106,707 - - 21,694 97,240 2,114 9,001 - - - - - - - 457,359 - 440,242 33,372 - 2020 275,133 24,762 41,538 20,977 47,445 5,794 415,648 Non-Executive Director D. Johnstone P.White1 H.Robertson Z.Zhang6 S.Klose7 2021 109,167 2020 100,000 2021 2020 2021 2020 2021 2020 2021 2020 20,000 - 60,000 60,000 25,000 35,000 41,500 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 109,167 371,210 471,210 - - - 20,000 - 60,000 371,210 431,210 (526,881) (501,881) 526,881 561,881 123,000 164,500 - - 1 Mr White was CEO for all of FY2020 and was CEO and Managing Director from 2 August 2020 to 28 February 2021 when we retired from CEO and Managing Director and became a Non-Executive Director. Payments that were paid or payable to Mr White as part of his retirement are disclosed in ‘Other’. Mr White was entitled to Performance Rights during FY21 but forfeited those rights upon his retirement. Amounts paid or payable to Mr White in his role as Non-Executive Director are presented separate to those in his role as an Executive. 2 Mr Gallagher ceased to be a KMP on the 31st July 2020 when he resigned from the Board of Directors. His remuneration includes fees charged for his role as Company Secretary as well as Director fees up to this date. 3 Mr Cooper was appointed COO on 1st July 2020 at which point he became a KMP. Mr Cooper was appointed the CEO effective 1st March 2021. 4 Mr Patterson was appointed CFO on 2 June 2020 5 Mr Lander was CFO until his departure date of 29th May 2020 6 Mr Zhang was appointed as a Non-executive Director on 6th December 2019 and resigned on 28th November 2020. The options issued to Mr Zhang in FY20 only vest on $10,000,000 in revenue (audited in accordance with international financial reporting standards) being received into the wholly owned China subsidiaries of Envirosuite Limited by 31 December 2021. The probability of this occurring was assessed to 0% as at 30 June 2021 which resulted in the reversal of the option expense recognised in the prior year. 7 Ms Klose was appointed as a Non-executive Director on 1st December 2020. 46 Envirosuite Annual Report 2021Remuneration report E. Shareholdings of key management personnel The numbers of shares in the Company held during the financial year by each director of Envirosuite Limited and other KMP of the Group, including their personally related parties, are set out below. Where an individual is no longer deemed KMP the Group during the year, their shareholdings are removed through the ‘other changes during the year’ column. Options Financial Year Balance at Start of Year Granted as compensation Exercise of options granted as compensation Other changes during the year Balance at end of the year Executive Director P. White (retired 28 Feb 2021) A. Gallagher (resigned 31 Jul 2020) M. Patterson (appointed 2 Jun 2020) C. Lander (departed 29 May 2020) Non-Executive Director D. Johnstone P. White (from 1 Mar 2021) H. Robertson Z. Zhang (appointed 6 Dec 2019, resgined 28 Nov 2020) S.Klose (appointed 1 Dec 2020) 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 9,237,681 7,091,340 4,639,526 602,941 - - - - - - - - - - 650,000 2,049,180 6,815,459 3,339,118 - - 18,935,279 9,157,620 25,292,682 - - - - - - - - - - - - - - (9,237,681)** - 2,000,000 2,146,341 9,237,681 - (4,639,526)* - 4,000,000 36,585 4,639,526 - - - - - 847,253 847,253 - - (2,699,180)* - - - 217,647 7,033,106 (4,000,000) (523,659) 6,815,459 - - - - - - - - 9,237,681** 9,237,681 - - 1,485,939 20,421,209 9,777,659 18,935,279 (25,292,682)* 25,292,682 - - 500,000 500,000 - - * - departed Envirosuite during the year, shares not included as part of balance at end of year. ** - Mr White retired as CEO and Managing Director on 28th February 2021 at which point he was no longer an Executive Director and became a Non-Executive Director. Details of options and performance rights has been split between the period of Mr White in his role of Executive Director and the period of his role as Non- Executive Director. F. Loans to key management personnel There were no loans to key management personnel during the reporting period 47 Envirosuite Annual Report 2021G. Other transactions with key management personnel Mr David Johnstone is a Director and Chairman of the Company. His fees were paid to DOAK Pty Ltd, a related party. Mr Adam Gallagher was a Director and the Company Secretary of the Company. His fees were paid to Famile Pty Ltd, a related party. Mr Gallagher resigned as a Director on 31 July 2020 and resigned as Company Secretary effective from 31 August 2020. The Company entered into a consulting arrangement with Famile Pty Ltd to 31 December 2020. There were no transactions with key management personnel of Envirosuite Limited, other than those disclosed above, during this reporting period. *END OF REMUNERATION REPORT* This Director’s report, incorporating the Remuneration Report, is signed in accordance with a resolution of the Board of Directors. David Johnstone Chairman 17 August 2021 48 Envirosuite Annual Report 2021AUDITOR’S INDEPENDENCE DECLARATION UNDER SECTION 307C OF THE CORPORATIONS ACT 2001 TO THE DIRECTORS OF ENVIROSUITE LIMITED I declare that, to the best of my knowledge and belief, during the year ended 30 June 2021, there have been no contraventions of: (a) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (b) any applicable code of professional conduct in relation to the audit. PKF BRISBANE AUDIT SHAUN LINDEMANN PARTNER BRISBANE 17 AUGUST 2021 49 CONSOLIDATED INCOME STATEMENT AND STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2021 Consolidated Group Trading revenue Other revenue Total operating revenue Cost of revenue Gross profit Operating expenses Sales and marketing Product development General and administrative Total operating expenses Other income and expense Operating deficit Net finance income / (expense) Net loss before tax Income tax (expense) / benefit Net loss after tax Other comprehensive income Items that may be reclassified to profit or loss Exchange differences on translation of foreign operations Other comprehensive income for the year, net of tax Notes 4 5 2021 $’000 48.545 25 48,570 2020 $’000 23,333 524 23,857 (27,980) (16,463) 20,590 7,394 (12,143) (5,679) (14,133) 5 (31,955) (377) (8,078) (3,235) (14,303) (25,616) (155) (11,742) (18,377) (287) (89) (12,029) (18,466) (468) 230 (12,497) (18,236) (278) (278) (464) (464) Total comprehensive income/(loss) for the year (12,775) (18,700) Net (loss)/profit attributed to: Equity holders of Envirosuite Limited Total comprehensive (loss)/income attributable to: Equity holders of Envirosuite Limited Basic earnings / (loss) per share Diluted earnings / (loss) per share The accompanying notes form part of these financial statements. (12,497) (18,236) (12,775) (18,700) 23 23 Cents (1.22) (1.22) Cents (2.94) (2.94) Envirosuite Annual Report 2021 50 CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2021 Consolidated Group Notes 2021 $’000 2020 $’000 ASSETS Current Assets Cash and cash equivalents Trade and other receivables Other assets Inventories Total current assets Non-current Assets Property, plant and equipment Right of use assets Deferred tax assets Intangible assets Other assets Total non-current assets TOTAL ASSETS LIABILITIES Current Liabilities Trade and other payables Revenue in advance Employee benefit provisions Lease liabilities and other borrowings Total current liabilities Non-current Liabilities Employee benefit provisions Lease liabilities and other borrowings Deferred tax liabilities Total non-current liabilities TOTAL LIABILITIES NET ASSETS EQUITY Issued capital Reserves Retained losses TOTAL EQUITY The accompanying notes form part of these financial statements. 51 7 8 10 9 11 12 6 13 10 14 15 12 15 12 6 16 17 17 17,640 11,555 1,996 2,474 24,385 10,730 1,195 3,102 33,665 39,412 3,047 3,253 878 3,304 3,743 1,250 108,931 108,939 69 422 116,178 117,658 149,843 157,070 7,973 2,686 3,894 1,530 16,083 141 2,472 3,847 6,460 13,010 3,230 6,203 1,348 23,791 230 3,059 4,005 7,294 22,543 31,085 127,300 125,985 169,520 11,928 (54,148) 127,300 155,908 11,740 (41,663) 125,985 Envirosuite Annual Report 2021CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2021 At 1 July 2019 Comprehensive income Loss for the year Other comprehensive income for the year Total comprehensive loss for the year Transactions with owners, in their capacity as owners, and other transfers Issue of shares Transaction costs of capital raising (inc. tax effect) Shares issued / to be issued to employees Employee share options - value of employee services Share options issued – EMS acquisition Shares options expired At 30 June 2020 At 1 July 2020 Comprehensive income Loss for the year Other comprehensive income for the year Total comprehensive loss for the year Transactions with owners, in their capacity as owners, and other transfers Issue of shares Transaction costs of capital raising (inc. tax effect) Options and Performance Rights issued - value of services Shares issued / to be issued to employees Shares options expired Ordinary shares $’000 Reserves $’000 Retained losses $’000 Total Equity $’000 36,060 132 (23,863) 12,329 - - - 121,617 (2,992) 1,223 - - - - - - 14,026 (930) 55 461 - - (18,236) (18,236) (464) (464) - - (427) 3,202 9,313 (16) - (464) (18,236) (18,700) - - 420 - - 16 436 121,617 (2,992) 1,216 3,202 9,313 - 132,356 - (12,497) (12,497) (278) (278) - - 939 (461) (12) 466 - (278) (12,497) (12,775) - - - - 12 12 14,026 (930) 994 - - 14,090 Total transactions with owners and other transfers 119,848 12,072 155,908 11,740 (41,663) 125,985 155,908 11,740 (41,663) 125,985 Total transactions with owners and other transfers 13,612 At 30 June 2021 169,520 11,928 (54,148) 127,300 The accompanying notes form part of these financial statements. 52 Envirosuite Annual Report 2021CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2021 Consolidated Group Cash flows from operating activities Receipts from customers Payments to suppliers and employees Other revenue Taxes paid Interest received Interest paid Notes June 2021 $’000 June 2020 $’000 48,482 29,043 (56,674) (40,076) (8,192) (11,033) 180 (482) 1 (17) 504 (197) 110 (83) Net cash (used in) operating activities 21 (8,510) (10,699) Cash flows from investing activities Payments for property, plant and equipment Payments for acquisition of business Payments for intangible assets Net cash (used in) / provided by investing activities Cash flows from financing activities Repayment of borrowings Proceeds from issue of shares Share issue transaction costs Repayment of lease liabilities Net cash provided by financing activities Net (decrease) / increase in cash and cash equivalents Effects of exchange rate changes on cash and cash equivalents Cash and cash equivalents at the beginning of the financial year Cash and cash equivalents at the end of the period (741) (176) (5,599) (65,394) (3,116) (2,398) (9,456) (67,968) (58) 14,025 (929) (1,521) 11,517 (6,449) (296) 24,385 17,640 (3) 98,001 (2,149) (560) 95,289 16,622 199 7,564 24,385 The accompanying notes form part of these financial statements. 53 Envirosuite Annual Report 2021NOTES TO FINANCIAL STATEMENTS 55 (1.) Summary of significant accounting policies 74 (14.) Trade and other payables 64 (2.) Financial risk management 74 (15.) Employee provisions 65 (3.) Segment information 75 (16.) Issued capital 66 (4.) Revenue 67 (5.) Expenses 68 (6.) Tax 76 (17.) Reserves and retained losses 76 (18.) Commitments and contingencies 77 (19) Related party disclosures 69 (7.) Cash and cash equivalents 78 (20.) Business combinations 70 (8.) Trade and other receivables 78 (21.) Cash flow statement reconciliation 70 (9.) Inventories 70 (10.) Other assets 79 (22.) Share based payments 80 (23.) Earnings per share 71 (11.) Property, plant and equipment 80 (24.) Subsequent events 72 (12.) Right of use assets and lease liabilities 80 (25.) Parent entity financial information 73 (13.) Intangible assets 54 Envirosuite Annual Report 2021NOTES TO FINANCIAL STATEMENTS Notes to Financial Statements For the Financial Year Ended 30 June 2021 For the Financial Year Ended 30 June 2021 These consolidated financial statements and notes represent those of Envirosuite Limited and controlled entities (the “Consolidated Group” or “Group”). The separate financial statements of the parent entity, Envirosuite Limited, have not been presented within this financial report as permitted by the Corporations Act 2001. The financial statements were authorised for issue on 17 August 2021 by the directors of the company. 1. (a) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of preparation The consolidated financial statements are general purpose financial statements that have been prepared in accordance with Australian Accounting Standards and Interpretations of the Australian Accounting Standards Board and the Corporations Act 2001. The Group is a for-profit entity for financial reporting purposes under Australian Accounting Standards. Australian Accounting Standards set out accounting policies that the Australian Accounting Standards Board has concluded would result in financial statements containing relevant and reliable information about transactions, events and conditions. Material accounting policies adopted in the preparation of these financial statements are presented below and have been consistently applied unless stated otherwise. Compliance with IFRSs as issued by the IASB Compliance with Australian Accounting Standards ensures that this Financial Report complies with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). Consequently, this Financial Report is compliant with IFRS. Basis of Measurement Except for cash flow information, the financial statements have been prepared on an accruals basis and are based on historical costs, modified, where applicable, by the measurement at fair value of selected non-current assets, financial assets and financial liabilities. Comparative Periods Comparative periods presented in these financial statements have been restated to align with current year presentation. Critical accounting estimates and judgements The directors evaluate estimates and judgements incorporated into the financial statements based on historical knowledge and best available current information. Estimates assume a reasonable expectation of future events and are based on current trends and economic data, obtained both externally and within the Group. The following are: • • • • Measurement of ECL allowance for trade receivables - The measurement of the ECL allowance for trade receivables relies on estimates of expected credit losses to be incurred for trade receivables taking into account historical losses and the financial condition of the customer. Refer to Note 1(j) for further discussion. Impairment of goodwill and other intangible assets – the Group tests goodwill and other intangible assets, including capitalised software development costs, for impairment in accordance with the accounting policy stated in note 1(g). These calculations require the use of assumptions regarding the future profitability of the cash generating units to which the goodwill and intangibles have been allocated, as well as future cash flows related to the intangible asset. Refer to Note 13 for details of the assumptions used in determining the recoverable amount of goodwill and other intangible assets. Valuation of options – the Group has issued share options in connection with the acquisition of EMS Bruel & Kjaer Holdings as well as to employees and Directors as compensation for services. The valuation of these options is based on using a Black-Scholes valuation model that relies on various assumptions. Refer to note 22 for details of these assumptions. Recovery of deferred tax assets - Deferred tax assets are recognised for deductible temporary differences if management considers that it is probable that future taxable profits will be available to utilise those temporary differences. Sufficient management judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and the level of future taxable profits over the next two years together with future tax planning strategies. Refer to note 6 for details for the unused tax losses. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Basis of preparation (continued) 1. (a) • COVID-19 Pandemic – Judgement has been exercised in considering the impacts of the COVID-19 Pandemic has or may have on the Group. This consideration extends to the nature of services offered, customers, supply chains, staffing and geographical regions in which the group operates. Other than addressed above or in specific notes, there does not appear either any significant impact upon the financial statements or any significant uncertainties with respect to events or conditions which may impact the Group unfavorably as a reporting date or subsequently as a result of the COVID-19 Pandemic. The board continues to actively monitor the situation. • Inventory provisions - Judgement has been exercised in calculating the net realisable value of inventory to determine whether a provision for inventory obsolescence should be recognised. based on an assessment of technological and market developments and on an analysis of historical and projected usage with regard to quantities on hand. (b) Principles of consolidation The consolidated financial statements incorporate all of the assets, liabilities and results of the parent (Envirosuite Limited) and all of the subsidiaries. Subsidiaries are entities the parent controls. The parent controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. A list of subsidiaries is contained in note 19 to the financial statements. The assets, liabilities and results of all subsidiaries are fully consolidated into the financial statements of the Group from the date on which control is obtained by the Group. The consolidation of a subsidiary is discontinued from the date that control ceases. Intercompany transactions, balances and unrealised gains or losses on transactions between entities in the Consolidated Group are eliminated in full on consolidation. Accounting policies of subsidiaries have been changed and adjustments made where necessary to ensure consistency with the policies adopted by the Group. Investments in subsidiaries are accounted for at cost in the individual financial statements of Envirosuite Limited. (c) Business Combinations Business combinations occur where an acquirer obtains control over one or more businesses. The acquisition method of accounting is used to account for all business combinations, unless it is a combination involving entities or businesses under common control. The business combination will be accounted for from the date that control is attained, at which point the fair value of identifiable assets acquired and liabilities (including contingent liabilities) assumed is recognised (subject to certain limited exemptions). When measuring the consideration transferred in the business combination, any asset or liability resulting from a contingent consideration arrangement is also included. Subsequent to initial recognition, contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity. Contingent consideration classified as an asset or liability is remeasured in each reporting period to fair value, with changes in fair value recognised in profit or loss, unless the change in fair value can be identified as existing at acquisition date. All transaction costs incurred in relation to business combinations, other than those associated with the issue of a financial instrument, are recognised as expenses in the profit and loss when incurred. The acquisition of a business may result in the recognition of goodwill or a gain from a bargain purchase. Goodwill is carried at cost less any accumulated impairment losses. Goodwill is calculated as the excess of the sum of: • • • the consideration transferred; any non-controlling interests; and assets acquired. the acquisition date fair value of any previously held equity interest; over the acquisition date fair value of net identifiable Adjustments may be made to fair value of net identifiable assets acquired and to goodwill after the acquisition date if additional information is obtained about facts and circumstances related to the acquired business that existed at the acquisition date. However, no further adjustments are made to the acquisition balance sheet and initial goodwill recognised beyond one year from the acquisition date. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill is not amortised. Instead, goodwill is tested for impairment annually or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is allocated to cash generating units for the purpose of impairment testing. The allocation is made to those cash- generating units or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose. Changes in the ownership interests in a subsidiary that do not result in a loss of control are accounted for as equity transactions and do not affect the carrying amount of goodwill. 55 Envirosuite Annual Report 2021 1. (a) • • SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Basis of preparation (continued) COVID-19 Pandemic – Judgement has been exercised in considering the impacts of the COVID-19 Pandemic has or may have on the Group. This consideration extends to the nature of services offered, customers, supply chains, staffing and geographical regions in which the group operates. Other than addressed above or in specific notes, there does not appear either any significant impact upon the financial statements or any significant uncertainties with respect to events or conditions which may impact the Group unfavorably as a reporting date or subsequently as a result of the COVID-19 Pandemic. The board continues to actively monitor the situation. Inventory provisions - Judgement has been exercised in calculating the net realisable value of inventory to determine whether a provision for inventory obsolescence should be recognised. based on an assessment of technological and market developments and on an analysis of historical and projected usage with regard to quantities on hand. (b) Principles of consolidation The consolidated financial statements incorporate all of the assets, liabilities and results of the parent (Envirosuite Limited) and all of the subsidiaries. Subsidiaries are entities the parent controls. The parent controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. A list of subsidiaries is contained in note 19 to the financial statements. The assets, liabilities and results of all subsidiaries are fully consolidated into the financial statements of the Group from the date on which control is obtained by the Group. The consolidation of a subsidiary is discontinued from the date that control ceases. Intercompany transactions, balances and unrealised gains or losses on transactions between entities in the Consolidated Group are eliminated in full on consolidation. Accounting policies of subsidiaries have been changed and adjustments made where necessary to ensure consistency with the policies adopted by the Group. Investments in subsidiaries are accounted for at cost in the individual financial statements of Envirosuite Limited. (c) Business Combinations Business combinations occur where an acquirer obtains control over one or more businesses. The acquisition method of accounting is used to account for all business combinations, unless it is a combination involving entities or businesses under common control. The business combination will be accounted for from the date that control is attained, at which point the fair value of identifiable assets acquired and liabilities (including contingent liabilities) assumed is recognised (subject to certain limited exemptions). When measuring the consideration transferred in the business combination, any asset or liability resulting from a contingent consideration arrangement is also included. Subsequent to initial recognition, contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity. Contingent consideration classified as an asset or liability is remeasured in each reporting period to fair value, with changes in fair value recognised in profit or loss, unless the change in fair value can be identified as existing at acquisition date. All transaction costs incurred in relation to business combinations, other than those associated with the issue of a financial instrument, are recognised as expenses in the profit and loss when incurred. The acquisition of a business may result in the recognition of goodwill or a gain from a bargain purchase. Goodwill is carried at cost less any accumulated impairment losses. Goodwill is calculated as the excess of the sum of: • • • the consideration transferred; any non-controlling interests; and the acquisition date fair value of any previously held equity interest; over the acquisition date fair value of net identifiable assets acquired. Adjustments may be made to fair value of net identifiable assets acquired and to goodwill after the acquisition date if additional information is obtained about facts and circumstances related to the acquired business that existed at the acquisition date. However, no further adjustments are made to the acquisition balance sheet and initial goodwill recognised beyond one year from the acquisition date. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill is not amortised. Instead, goodwill is tested for impairment annually or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is allocated to cash generating units for the purpose of impairment testing. The allocation is made to those cash- generating units or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose. Changes in the ownership interests in a subsidiary that do not result in a loss of control are accounted for as equity transactions and do not affect the carrying amount of goodwill. 56 Envirosuite Annual Report 2021 1. (d) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Foreign currency translation Functional and presentation currency The functional currency of each of the Group’s entities is measured using the currency of the primary economic environment in which that entity operates. The consolidated financial statements are presented in Australian dollars, which is the parent entity’s functional currency. Transactions and balances Foreign currency transactions are translated into functional currency using the exchange rates prevailing at the date of the transaction. Foreign currency monetary items are translated at the year-end exchange rate. Non-monetary items measured at historical cost continue to be carried at the exchange rate at the date of the transaction. Non-monetary items measured at fair value are reported at the exchange rate at the date when fair values were determined. Exchange differences arising on the translation of monetary items are recognised in profit or loss, except where deferred in equity as a qualifying cash flow or net investment hedge. Group companies The financial results and position of foreign operations, whose functional currency is different from the Group’s presentation currency, are translated as follows: • • • assets and liabilities are translated at exchange rates prevailing at the end of the reporting period; income and expenses are translated at average exchange rates for the period; and retained earnings are translated at the exchange rates prevailing at the date of the transaction. Exchange differences arising on translation of foreign operations with functional currencies other than Australian dollars are recognised in other comprehensive income and included in the foreign currency translation reserve in the statement of financial position. The cumulative amount of these differences is reclassified into profit or loss in the period in which the operation is disposed of. (e) Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Chief Executive Officer and the board of directors. Refer Note 3 for segment information, which also describes the change in segments during the year. Geographical segmentation is the primary basis of segmentation used by the Group. Operating segments that meet the quantitative criteria as prescribed by AASB 8 Operating Segments are reported separately. However, an operating segment that does not meet the quantitative criteria is still reported separately where information about the segment would be useful to users of the financial statements. (f) Revenue recognition The following is a summary of the revenue recognition for each revenue stream: Recurring revenue Includes software platform subscription revenues and maintenance and support services related to monitoring equipment provided by the Group. These revenues are recognised over time being over the term of the contracts, based on the effort incurred by the Group being as the services are provided. Non recurring revenue Includes revenue from projects for the installation of environmental monitoring solutions and upgrades, and sales of environmental monitoring units. Project revenue is recognised over time based on a percentage of completion method, as this is the performance obligation. The stage or completion for determining the amount of revenue to recognise is assessed based on the cost-to-cost method whereby the percentage of completion is estimated based on the costs incurred to date as a percentage of the total expected costs to deliver the project. The estimate of the total costs to deliver the project is an estimate that requires judgement of management and is based on quotes from third parties, the cost of the equipment held in inventory, and estimated cost of internal labour based on number of labour hours required. Sales of environmental monitoring units are recognised when risk has transferred to the buyer. 57 Envirosuite Annual Report 2021 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 1. (d) Foreign currency translation Functional and presentation currency The functional currency of each of the Group’s entities is measured using the currency of the primary economic environment in which that entity operates. The consolidated financial statements are presented in Australian dollars, which is the parent entity’s functional currency. Transactions and balances Foreign currency transactions are translated into functional currency using the exchange rates prevailing at the date of the transaction. Foreign currency monetary items are translated at the year-end exchange rate. Non-monetary items measured at historical cost continue to be carried at the exchange rate at the date of the transaction. Non-monetary items measured at fair value are reported at the exchange rate at the date when fair values were determined. Exchange differences arising on the translation of monetary items are recognised in profit or loss, except where deferred in equity as a qualifying cash flow or net investment hedge. Group companies currency, are translated as follows: The financial results and position of foreign operations, whose functional currency is different from the Group’s presentation • • • assets and liabilities are translated at exchange rates prevailing at the end of the reporting period; income and expenses are translated at average exchange rates for the period; and retained earnings are translated at the exchange rates prevailing at the date of the transaction. position. The cumulative amount of these differences is reclassified into profit or loss in the period in which the operation is disposed of. (e) Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Chief Executive Officer and the board of directors. Refer Note 3 for segment information, which also describes the change in segments during the year. Geographical segmentation is the primary basis of segmentation used by the Group. Operating segments that meet the quantitative criteria as prescribed by AASB 8 Operating Segments are reported separately. However, an operating segment that does not meet the quantitative criteria is still reported separately where information about the segment would be useful to users of the financial statements. (f) Revenue recognition The following is a summary of the revenue recognition for each revenue stream: Recurring revenue Non recurring revenue monitoring units. Includes software platform subscription revenues and maintenance and support services related to monitoring equipment provided by the Group. These revenues are recognised over time being over the term of the contracts, based on the effort incurred by the Group being as the services are provided. Includes revenue from projects for the installation of environmental monitoring solutions and upgrades, and sales of environmental Project revenue is recognised over time based on a percentage of completion method, as this is the performance obligation. The stage or completion for determining the amount of revenue to recognise is assessed based on the cost-to-cost method whereby the percentage of completion is estimated based on the costs incurred to date as a percentage of the total expected costs to deliver the project. The estimate of the total costs to deliver the project is an estimate that requires judgement of management and is based on quotes from third parties, the cost of the equipment held in inventory, and estimated cost of internal labour based on number of labour hours required. Sales of environmental monitoring units are recognised when risk has transferred to the buyer. 1. (i) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Revenue recognition (continued) Government grants and rebates Grants and rebates from the government are recognised at their fair value where there is a reasonable assurance that the grant or rebate will be received and the Group will comply with all the attached conditions. Government grants and rebates relating to costs are deferred and recognised as income over the period necessary to match them with the costs that they are intended to compensate. Government grants and rebates relating to the purchase of property, plant and equipment and the development of IT and software capital costs are included in non-current liabilities as deferred income and are credited to income on a straight line basis over the expected lives of the related assets. Contract assets and liabilities Where the Group provides services to customers and the consideration is unconditional, a receivable is recognised as accrued income and included within Trade and other receivables. Where the customer pays upfront for services that have not yet been provided, a contract liability is recognised, which is disclosed on the face of the balance sheet as Revenue in Advance. (ii) Employee benefits Employee benefits includes wages and salaries, bonuses, annual leave and long service leave. Certain employees are awarded share based payments in the form of options and/or performance rights, which entitle the employee to shares in Envirosuite Limited upon certain vesting conditions being met. A liability is recognised for employee benefits in the period that the service is performed where the Group has a present legal or constructive obligation to pay the amount as a result of past service provided by the employee, and the obligation can be estimated reliably. Exchange differences arising on translation of foreign operations with functional currencies other than Australian dollars are recognised in other comprehensive income and included in the foreign currency translation reserve in the statement of financial Short-term obligations Liabilities for wages and salaries, including non-monetary benefits and annual leave expected to be settled within 12 months after the end of the period in which the employees render the related service are recognised in respect of employees' services up to the end of the reporting period and are measured at the amounts expected to be paid when the liabilities are settled. The liability for annual leave is recognised in the provision for employee benefits. All other short-term employee benefit obligations are presented as payables. Long-term employee benefit obligations The liability for long service leave and annual leave which is not expected to be settled within 12 months after the end of the period in which the employees render the related service is recognised in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the end of the reporting period. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the end of the reporting period on Australian Corporate bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. Share based payments Share based compensation benefits are provided to employees and directors via the Envirosuite Limited Employee Share Option Plan, the Envirosuite Performance Rights Plan, the Envirosuite Limited Employee Share Plan. Information relating to these schemes is set out in note 22. The fair value of options granted under the Envirosuite Limited Employee Share Option Plan and Performance Rights granted under the Envirosuite Performance Rights Plan is recognised as an employee benefit expense with a corresponding increase in equity. The total amount to be expensed is determined by reference to the fair value of the options and Performance Rights granted, which includes any market performance conditions but excludes the impact of any service and non-market performance vesting conditions and the impact of any non-vesting conditions. Fair value of options at grant date are determined using a Black & Scholes option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the option. Fair value of Performance Rights granted is based on the share price at grant date and the risk free interest rate for the term of the vesting period of the Performance Right. Non-market vesting conditions are included in assumptions about the number of options and Performance Rights that are expected to vest. The total expense is recognised over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied. At the end of each period, the entity revises its estimates of the number of options and Performance Rights that are expected to vest based on the non-marketing vesting conditions. It recognises the impact of the revision to original estimates, if any, in profit or loss, with a corresponding adjustment to equity. 58 Envirosuite Annual Report 2021 1. (g) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Employee benefits (continued) Termination benefits Termination benefits are payable when employment is terminated before the normal retirement date, or when an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits when it is demonstrably committed to either terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal or providing termination benefits as a result of an offer made to encourage voluntary redundancy. Benefits falling due more than 12 months after reporting date are discounted to present value. (h) Income tax Income tax expense comprises current and deferred tax. It is recognised in profit or loss except to the extent that it relates to a business combination, or items recognised directly in other comprehensive income or otherwise directly in equity. Income tax on items recognised directly in Other Comprehensive Income or otherwise directly in equity is also recognised in other comprehensive income or directly in equity, respectively. Deferred tax is recognised for assets and liabilities initially recognised as a result of a business combination, other than goodwill, where the accounting basis is different to the tax basis. Current Tax Current tax expense charged to the profit or loss is the tax payable on taxable income. Current tax liabilities/(assets) are measured at the amounts expected to be paid to/(recovered from) the relevant taxation authority. Deferred Tax Deferred tax expense reflects movements in deferred tax asset and deferred tax liability balances during the year as well as unused tax losses. Deferred tax is provided in full, using the Asset-Liability Method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax is not recognised for: • • • temporary differences on the initial recognition of an asset or liability in a transaction that is not business combination and that neither affects accounting nor taxable profit nor loss; temporary differences related to investments in subsidiaries, associates, and joint arrangements to the extent that the Company is able to control the timing of reversal of the temporary differences and it is probable that they will not reverse in the foreseeable future; and taxable temporary differences arising on the initial recognition of goodwill. Deferred tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the reporting date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Deferred tax assets and liabilities are offset when a legally enforceable right of set-off exists and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. Envirosuite Limited and its wholly-owned Australian controlled entities have implemented the tax consolidation legislation. As a consequence, these entities are taxed as a single entity and the deferred tax assets and liabilities of these entities are set off in the consolidated financial statements. In addition to its own current and deferred tax amounts, Envirosuite Limited also recognises the current tax liabilities and the deferred tax amounts arising from unused tax losses and unused tax credits assumed from controlled entities in the Tax Consolidated Group. Goods and Service Tax Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the taxation authority. In this case it is recognised as part of the cost of acquisition of the asset or as part of the expense. Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the taxation authority is included with other receivables or payables in the statement of financial position. Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to the taxation authority, are presented as operating cash flows included in receipts from customers or payments to suppliers. Envirosuite Limited and its wholly owned Australian controlled entities except Envirosuite Holdings Pty Ltd are grouped for GST. 59 Envirosuite Annual Report 2021 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 1. (g) Employee benefits (continued) Termination benefits 1. (i) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Cash and cash equivalents The Group classifies petty cash, cash balances and term deposits with financial institutions that have a term of 90 days or less as cash and cash equivalents. Termination benefits are payable when employment is terminated before the normal retirement date, or when an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits when it is demonstrably (j) Trade and other receivables committed to either terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal or providing termination benefits as a result of an offer made to encourage voluntary redundancy. Benefits falling due more than 12 months after reporting date are discounted to present value. Income tax expense comprises current and deferred tax. It is recognised in profit or loss except to the extent that it relates to a business combination, or items recognised directly in other comprehensive income or otherwise directly in equity. Income tax on items recognised directly in Other Comprehensive Income or otherwise directly in equity is also recognised in other comprehensive income or directly in equity, respectively. Deferred tax is recognised for assets and liabilities initially recognised as a result of a business combination, other than goodwill, where the accounting basis is different to the tax basis. Current tax expense charged to the profit or loss is the tax payable on taxable income. Current tax liabilities/(assets) are measured at the amounts expected to be paid to/(recovered from) the relevant taxation authority. Deferred tax expense reflects movements in deferred tax asset and deferred tax liability balances during the year as well as The Group has a single business model for its financial assets whose objective is hold the assets to collect contractual cash flows that are solely payments of principal and interest. Financial assets include trade receivables which are initially recognised when they are originated. Trade receivables are typically due within 30 to 90 days of the invoice being issued and are initially measured at the transaction price. Impairment The Group recognises loss allowance for expected credit loss (ECLs) on trade receivables and contract assets. The Company measures loss allowances using the simplified approach under AASB 9 Financial Instruments, which is an amount equal to lifetime ECLs. Loss allowances for trade receivables and contract assets are always measured at an amount equal to lifetime ECLs. When determining whether the credit risk of a trade receivable has increased significantly since initial recognition and when estimating ECLs, the Group considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the Group’s historical experience and informed credit assessment and including forward-looking information. In assessing credit risk, customers were disaggregated based on various industry groups, location and customer size. The Group assumes that the credit risk on a trade receivable has increased significantly if it is more than 90 days past due. The Group considers a financial asset to be in default when: Deferred tax is provided in full, using the Asset-Liability Method, on temporary differences arising between the tax bases of assets • significant financial difficulty of the customer; and liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax is not recognised for: • a breach of contract such as a default or being more than 90 days past due; or temporary differences on the initial recognition of an asset or liability in a transaction that is not business combination • it is probable that the customer will enter bankruptcy or other financial reorganisation. and that neither affects accounting nor taxable profit nor loss; Measurement of ECLs temporary differences related to investments in subsidiaries, associates, and joint arrangements to the extent that the Company is able to control the timing of reversal of the temporary differences and it is probable that they will not reverse in the foreseeable future; and taxable temporary differences arising on the initial recognition of goodwill. Deferred tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the reporting date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls (i.e. the difference between the cash flows due to the entity in accordance with the contract and the cash flows that the Group expects to receive). ECLs are discounted at the effective interest rate of the financial asset. Loss allowances for financial assets measured at amortised cost are deducted from the gross carrying amount of the assets. The gross carrying amount of a financial asset is written off when the Group has no reasonable expectations of recovering a financial asset in its entirety or a portion thereof. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. (k) Inventories (h) Income tax Current Tax Deferred Tax unused tax losses. • • • Deferred tax assets and liabilities are offset when a legally enforceable right of set-off exists and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. Envirosuite Limited and its wholly-owned Australian controlled entities have implemented the tax consolidation legislation. As a consequence, these entities are taxed as a single entity and the deferred tax assets and liabilities of these entities are set off in the consolidated financial statements. In addition to its own current and deferred tax amounts, Envirosuite Limited also recognises the current tax liabilities and the deferred tax amounts arising from unused tax losses and unused tax credits assumed from controlled entities in the Tax Consolidated Group. Goods and Service Tax Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the taxation authority. In this case it is recognised as part of the cost of acquisition of the asset or as part of the expense. Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the taxation authority is included with other receivables or payables in the statement of financial position. Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to the taxation authority, are presented as operating cash flows included in receipts from customers or payments to suppliers. Envirosuite Limited and its wholly owned Australian controlled entities except Envirosuite Holdings Pty Ltd are grouped for GST. The Group acquires and manufactures environmental monitoring instruments and accessories, which are initially accounted for as inventory. Inventories are measured at the lower of cost and net realisable value. The cost of environmental monitor inventories is based on the specific identification of their individual costs while the cost of consumables and other smaller inventory items is based on a weighted average cost formula. Provisions are made to write down slow-moving, excess and obsolete items to net realisable value, based on an assessment of technological and market developments and on an analysis of historical and projected usage with regard to quantities on hand. Where instruments are used for demonstration purposes or when customers enter into a contract to use instruments where the Group retains ownership, the instrument is transferred from Inventories to Property, plant and equipment and is depreciated on a straight-line basis over its useful life. If the instrument is returned at the end of the contract, it is not transferred back to Inventories but is retained in Property, plant and equipment. The cost to install the instrument at the customer’s site is expensed as incurred. (l) Property, plant and equipment Recognition and measurement Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. Subsequent expenditure is capitalised only when it is probable that the future economic benefits associated with the expenditure will flow to the Group. If significant parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment. Any gain and loss on disposal of an item of property, plant and equipment is recognised in profit or loss. 60 Envirosuite Annual Report 2021 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) (m) Property, plant and equipment (continued) Depreciation Depreciation is calculated to write off the cost of property, plant and equipment less their estimated residual values using the straight-line basis over their estimated useful lives, and is generally recognised in profit or loss. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Group will obtain ownership by the end of the lease term. Land is not depreciated. The estimated useful lives of property, plant and equipment for the current period is as follows: • • • • • Computer equipment 4 years Furniture and fixtures 5 - 10 years Leasehold improvements Remaining life of the lease (3 - 5 years) Monitors and sensors 5 years Right-of-use assets lower of economic or lease life (n) Right of use assets Right of use assets are measured at cost and comprise the amount that is recognised for the lease liability on initial recognition (refer to Note 1(q)) less any lease incentives received, and including direct costs and restoration-related costs. Right of use assets include leased buildings and data centers and are depreciated over the life of the lease which is 5 – 7 years. The Group does not recognise a right of use asset for short term or low value leases, instead the expense is recognised over the lease term as appropriate as part of operating expenses in the income statement. (o) Intangible assets Intangible assets include acquired intangible assets as part of asset acquisitions and business combinations, as well as internally developed software costs. The estimated useful lives of intangible assets for the current period is as follows: • • • • Internally developed software 5-7 years Acquired software Customer relationships Brand value 5 years 5 years 5 years Research and development The Company develops software which it uses for sale to its customers through monthly license revenue. The Company also develops environmental monitoring equipment that it either sells or leases to its customers as part of providing them with environmental monitoring solutions. Research expenditure is recognised as an expense as incurred. Costs incurred on development projects (relating to the design and testing of new or improved products) are recognised as intangible assets when it is probable that the project will, after considering its commercial and technical feasibility, be completed and generate future economic benefits and its costs can be measured reliably. The expenditure capitalised comprises all directly attributable costs, including costs of materials, services and direct labour Other development expenditures that do not meet these criteria are recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. Capitalised development costs are recorded as intangible assets and amortised from the point at which the asset is ready for use on a straight line basis over its useful life. Impairment At the end of each reporting period, the Group assess whether there is any indication that an asset may be impaired. The assessment will include the consideration of external and internal sources. If such an indication exists, an impairment test is carried out on the asset by comparing the assets carrying value to its recoverable amount being the higher of an asset's fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash generating units). Goodwill and intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. 61 Envirosuite Annual Report 2021 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) (m) Property, plant and equipment (continued) Depreciation Depreciation is calculated to write off the cost of property, plant and equipment less their estimated residual values using the straight-line basis over their estimated useful lives, and is generally recognised in profit or loss. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Group will obtain ownership by the end of the lease term. Land is not depreciated. The estimated useful lives of property, plant and equipment for the current period is as follows: • • • • • Computer equipment 4 years Furniture and fixtures 5 - 10 years Leasehold improvements Remaining life of the lease (3 - 5 years) Monitors and sensors 5 years Right-of-use assets lower of economic or lease life (n) Right of use assets Right of use assets are measured at cost and comprise the amount that is recognised for the lease liability on initial recognition (refer to Note 1(q)) less any lease incentives received, and including direct costs and restoration-related costs. Right of use assets include leased buildings and data centers and are depreciated over the life of the lease which is 5 – 7 years. The Group does not recognise a right of use asset for short term or low value leases, instead the expense is recognised over the lease term as appropriate as part of operating expenses in the income statement. (o) Intangible assets Intangible assets include acquired intangible assets as part of asset acquisitions and business combinations, as well as internally developed software costs. The estimated useful lives of intangible assets for the current period is as follows: • • • • Internally developed software 5-7 years Acquired software Customer relationships Brand value 5 years 5 years 5 years 1. (p) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Trade and other payables These amounts represent liabilities for goods and services provided to the Group prior to the end of financial year which are unpaid. The amounts are unsecured and are usually paid within 30 to 90 days of recognition. Trade and other payables are presented as current liabilities unless payment is not due within 12 months from the reporting date. They are recognised initially at their fair value and subsequently measured at amortised cost using the effective interest method. (q) Lease liabilities Lease liabilities are initially measured at the present value of the future lease payments at the commencement date of the lease, discounted using the interest rate implicit in the lease (or if that rate cannot be readily determined, the lessee’s incremental borrowing rate). Lease payments are allocated between interest principal and interest with the interest component recognised in the income statement as part of finance expense. Any variable lease payments not included in the measurement of the lease liability are recognised in the income statement within operating expenses in the period in which the event or condition that triggers those payments occurs. Lease liabilities are remeasured when there is a change in future lease payments arising from a change in lease term, an assessment of an option to purchase the underlying asset, or a change in the estimated amounts payable under the lease. When the lease liability is remeasured, a corresponding adjustment is made to the carrying value of the Right of use asset, or in the income statement if the carrying value of the Right of use asset has been fully written down. (r) Provisions Provisions for legal claims and make good obligations are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and the amount has been reliably estimated. Provisions are not recognised for future operating losses. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small. Provisions are measured at the present value of management's best estimate of the expenditure required to settle the present obligation at the reporting date. The discount rate used to determine the present value reflects current market assessments of the time value of money and the risks specific to the liability. The increase in the provision due to the passage of time is recognised as interest expense. (s) Contributed equity Ordinary shares are classified as equity. Research and development The Company develops software which it uses for sale to its customers through monthly license revenue. The Company also develops environmental monitoring equipment that it either sells or leases to its customers as part of providing them with environmental monitoring solutions. Research expenditure is recognised as an expense as incurred. Costs incurred on development projects (relating to the design and testing of new or improved products) are recognised as intangible assets when it is probable that the project will, after considering its commercial and technical feasibility, be completed and generate future economic benefits and its costs can be measured reliably. The expenditure capitalised comprises all directly attributable costs, including costs of materials, services and direct labour Other development expenditures that do not meet these criteria are recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. Capitalised development costs are recorded as intangible assets and amortised from the point at which the asset is ready for use on a straight Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Incremental costs directly attributable to the issue of new shares or options for the acquisition of a business are not included in the cost of the acquisition as part of the purchase consideration. If the entity reacquires its own equity instruments, for example as the result of a share buyback, those instruments are deducted from equity and the associated shares are cancelled. No gain or loss is recognised in the profit or loss and the consideration paid including any directly attributable incremental costs (net of income taxes) is recognised directly in equity. (t) Dividends Provision is made for the amount of any dividend declared, being appropriately authorised and no longer at the discretion of the entity, on or before the end of the financial year but not distributed at balance date. line basis over its useful life. Impairment At the end of each reporting period, the Group assess whether there is any indication that an asset may be impaired. The assessment will include the consideration of external and internal sources. If such an indication exists, an impairment test is carried out on the asset by comparing the assets carrying value to its recoverable amount being the higher of an asset's fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash generating units). Goodwill and intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. 62 Envirosuite Annual Report 2021 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) (u) Earnings per share Basic earnings per share Basic earnings per share is calculated by dividing: • • the profit or loss attributable to equity holders of the Company, excluding any costs of servicing equity other than ordinary shares and by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the year. Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account: • • the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares, and the weighted average number of additional ordinary shares that would have been outstanding assuming the conversion of all dilutive potential ordinary shares. (v) Rounding of amounts The Company is of a kind referred to in legislative instrument 2016/191, issued by the Australian Securities and Investments Commission, relating to the ''rounding off'' of amounts in the financial report. Amounts in the financial report have been rounded off in accordance with that instrument to the nearest thousand dollars, or in certain cases, the nearest dollar. 63 Envirosuite Annual Report 2021 (u) Earnings per share Basic earnings per share shares and ordinary shares issued during the year. Diluted earnings per share • • • • all dilutive potential ordinary shares. (v) Rounding of amounts the profit or loss attributable to equity holders of the Company, excluding any costs of servicing equity other than ordinary by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account: the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares, and the weighted average number of additional ordinary shares that would have been outstanding assuming the conversion of The Company is of a kind referred to in legislative instrument 2016/191, issued by the Australian Securities and Investments Commission, relating to the ''rounding off'' of amounts in the financial report. Amounts in the financial report have been rounded off in accordance with that instrument to the nearest thousand dollars, or in certain cases, the nearest dollar. 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2. FINANCIAL RISK MANAGEMENT Basic earnings per share is calculated by dividing: (a) Credit risk The Group is exposed to a variety of financial risks, principally related to credit, liquidity, and foreign currency risk. The Chief Executive Officer (CEO) and Chief Financial Officer (CFO) are responsible for managing financial risk exposures of the Group. The board provides written principles for overall risk management, as well as policies covering specific areas, such as foreign exchange risk, credit risk, and investment of excess liquidity. The Group is exposed to the risk of a financial loss if a customer or counterparty to a financial instrument fails to meet its contractual obligations. Credit risk arises principally from the Group’s receivables from customers. The Group’s maximum exposure to credit risk at the balance date is the carrying amount of financial assets, net of any provisions for impairment and excluding the value of any other collateral or other security. The gross trade and other receivables balance at 30 June 2021 was $13,641k (2020: $12,813k) and the aging analysis of trade receivables is provided in Note 8. The Group exposure to credit risk is affected by the regions and industries the Group’s customers operate in. The majority of the Group’s customers are airports and water and waste operators around the world with a growing exposure to customers within the mining industry. Trade receivables are managed on an ongoing basis. The Group does not have any material credit risk exposure to any single debtor. Aging analysis and ongoing collectability reviews are performed and, when appropriate, an expected credit risk loss provision is raised. Historically, the Group has not had any significant write-offs in its trade receivables, which includes the historical period during which the EMS businesses operated prior to the acquisition in February 2020. (b) Liquidity risk Liquidity risk is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due. As at 30 June 2021, the Group had cash and cash equivalents of $17,640k (2020: $24,385k). Total cash used in operating activities when adding capitalised development costs (included in cash flows from investing activities) and repayment of lease liabilities (included in cash flows from financing activities) (“Adjusted Operating Cash Flow”) was an outflow $8,946k (FY20: $12,538k). However, the Adjusted Operating Cash Flow for 2H FY21 was an outflow of $3,882k compared with an outflow of $5,064k in H1 FY21. In June 2021, the raised additional equity of $14,025k ($13,096k net of transaction costs). Noting the additional cash raised during the financial period, the lack of debt on the balance sheet (other than lease liabilities recognised under AASB 16), combined with the continuing improvement of the Adjusted Operating Cash Flow, the Directors are of the view that the Group will continue to be able to pay its debts as and when they fall due and have prepared the financial report on a going concern basis. (c) Foreign currency risk Foreign currency risk is the risk that the future cash flows of a financial instrument or forecasted transaction will fluctuate because of changes in foreign exchange rates. The Group operates internationally and as such has exposure to foreign currency movements. Approximately 69% of the Group’s revenue for the period ended 30 June 2021 was earned in foreign currency (2020: 67%). The Group primarily has exposure to Euro (“EUR”), US dollars (“USD”), Canadian dollars (“CAD”), British pound (“GBP”), and Chinese renminbi (“RMB”) from cash balances and trade receivables which are partially offset by trade and other payables, employee provisions and borrowings in those currencies. The table below shows the impact to comprehensive income before tax from a 10% increase and 10% decrease in the foreign currency exchange rate against the Australian dollar (“AUD”). $’000 CAD EUR GBP RMB USD Other Total 2021 2020 Expoure (in AUDe) -10% +10% Expoure (in AUDe) -10% +10% 117 1,962 659 1,043 3,367 2,344 13 218 73 116 374 260 (11) (178) (60) (95) (306) (213) 580 (220) 576 1,914 957 1,927 9,492 1,055 (863) 5,734 64 (24) 64 213 106 214 637 (53) 20 (52) (174) (87) (175) (521) 64 Envirosuite Annual Report 2021 3. SEGMENT INFORMATION In May 2021, the Group announced that it was consolidating its products into three product families, being EVS Aviation, EVS Omnis and EVS Water. EVS also announced that it was consolidating its regional management structure from 5 regions into 3 regions being Asia Pacific, Americas, and EMEA. China was consolidated into Asia Pacific while North and South America were merged to form the Americas region. As part of this restructure, management have reduced the level of investment and industry focus in China to ensure that the business focuses on customers and contracts that utilise Envirosuite solutions through its recurring revenue model. As a result of consolidation of the regional management structure, the Group has updated its operating segments into the 3 geographic operating segments: Asia-Pacific, America’s & EMEA (Europe, Middle-East and Africa) plus a central Corporate segment which contains costs that are managed centrally that are not allocated to the geographic segments. These operating segments are based on the internal reports that are reviewed and used by the CEO and Board of Directors, (who are identified as the Chief Operating Decision Makers) in assessing performance and in determining the allocation of resources. Segment assets and liabilities are not presented as they are not regularly provided to the chief operating decision makers. Asia Pacific 14,980 2,593 3 17,576 EMEA 12,846 1,973 10 14,829 (11,950) 4,626 (7,625) 7,204 (3,693) (56) 877 (31) 846 (2,821) (64) 4,319 (6) 4,313 America 12,565 3,588 - 16,153 (7,405) 8,748 (3,390) (257) 5,101 (45) 5,056 Corporate - - 12 12 - 12 (22,051) - (22,039) (205) (22,244) Total 40,391 8,154 25 48,570 (27,980) 20,590 (31,955) (377) (11,742) (287) (12,029) Asia Pacific 6,470 3,725 9 10,204 EMEA 5,540 433 - 5,973 America 5,904 1,261 - 7,165 Corporate - - 516 516 Total 17,914 5,419 525 23,858 (7,438) 2,765 (2,962) 3,011 (4,626) 2,539 (1,437) (921) (16,463) 7,395 (3,448) - (683) (22) (705) (1,136) - 1,875 - 1,875 (1,810) - 729 (1) 728 (19,222) (155) (20,298) (66) (20,364) (25,616) (155) (18,377) (89) (18,466) Regional 2021 $‘000 Recurring revenue Non recurring revenue Other revenue Total operating revenue Cost of revenue Gross profit Operating expenses Other income/(expense) Operating deficit before tax Net finance income/(expense) Net loss before tax 2020 $‘000 Recurring revenue Non recurring revenue Other revenue Total operating revenue Cost of revenue Gross profit Operating expenses Other income/(expense) Operating deficit before tax Net finance income/(expense) Net loss before tax 65 Envirosuite Annual Report 2021 In May 2021, the Group announced that it was consolidating its products into three product families, being EVS Aviation, EVS Omnis and EVS Water. EVS also announced that it was consolidating its regional management structure from 5 regions into 3 regions being Asia Pacific, Americas, and EMEA. China was consolidated into Asia Pacific while North and South America were merged to form the Americas region. As part of this restructure, management have reduced the level of investment and industry focus in China to ensure that the business focuses on customers and contracts that utilise Envirosuite solutions through its recurring revenue model. As a result of consolidation of the regional management structure, the Group has updated its operating segments into the 3 geographic operating segments: Asia-Pacific, America’s & EMEA (Europe, Middle-East and Africa) plus a central Corporate segment which contains costs that are managed centrally that are not allocated to the geographic segments. These operating segments are based on the internal reports that are reviewed and used by the CEO and Board of Directors, (who are identified as the Chief Operating Decision Makers) in assessing performance and in determining the allocation of resources. Segment assets and liabilities are not presented as they are not regularly provided to the chief operating decision makers. Regional 2021 $‘000 Recurring revenue Non recurring revenue Other revenue Total operating revenue Cost of revenue Gross profit Operating expenses Other income/(expense) Operating deficit before tax Net finance income/(expense) Net loss before tax 2020 $‘000 Recurring revenue Non recurring revenue Other revenue Total operating revenue Cost of revenue Gross profit Operating expenses Other income/(expense) Operating deficit before tax Net finance income/(expense) Net loss before tax Asia Pacific America Corporate 14,980 2,593 3 EMEA 12,846 1,973 10 12,565 3,588 - 17,576 14,829 16,153 (11,950) 4,626 (7,625) 7,204 (7,405) 8,748 Total 40,391 8,154 25 48,570 (27,980) 20,590 - - 12 12 - 12 (3,693) (2,821) (3,390) (22,051) (31,955) (56) 877 (31) 846 (64) 4,319 (6) 4,313 (257) 5,101 (45) - (377) (22,039) (11,742) (205) (287) 5,056 (22,244) (12,029) Asia Pacific America Corporate 6,470 3,725 9 EMEA 5,540 433 - 10,204 5,973 5,904 1,261 - 7,165 - - 516 516 Total 17,914 5,419 525 23,858 (7,438) 2,765 (2,962) 3,011 (4,626) 2,539 (1,437) (921) (16,463) 7,395 (3,448) (1,136) (1,810) (19,222) (25,616) - (683) (22) (705) - - 1,875 1,875 - 729 (1) 728 (155) (155) (20,298) (18,377) (66) (89) (20,364) (18,466) 3. SEGMENT INFORMATION 3. SEGMENT INFORMATION (continued) For FY21, the Group also has adopted a secondary operating segment which is each Product family, being Aviation, Omnis and EVS Water. Chief operating decision makers are provided with reporting on the recurring and non-recurring revenue for these secondary operating segments. Product family 2021 $‘000 Recurring revenue Non recurring revenue Other revenue Total operating revenue 2020 $‘000 Recurring revenue Non recurring revenue Other revenue Total operating revenue 4. REVENUE Aviation 29,050 3,017 - 32,067 Omnis 11,298 5,134 - 16,432 EVS Water 43 3 - 46 Corporate - - 25 25 Total 40,391 8,154 25 48,570 Aviation 10,723 759 - 11,482 Omnis 7,191 4,660 - 11,851 EVS Water - - - - Corporate - - 525 525 Total 17,914 5,419 525 23,858 Recurring revenue Non recurring revenue Trading revenue Research and development tax incentives Other revenue Profit on sale of fixed assets Other revenue 2021 $’000 40,391 8,154 48,545 6 19 - 25 2020 $’000 17,915 5,418 23,333 357 159 9 525 Total revenue 48,570 23,857 The Group generated 66% of its revenues for the current reporting period from customers in the Airport industry (FY20: 49%). In addition, the Group generated 20% of its total income and 23% of its recurring income from the Australian government and companies controlled by the Australian government (FY20: 15% and 19%). 66 Envirosuite Annual Report 2021 5. EXPENSES The Group categorises expenses within the Consolidated Income Statement based on the function of the expense. The table below discloses expenses based on the nature of the expense. Cost of revenue and operating expenses Cost of revenue Total operating expenses Total cost of revenue and operating expenses Total cost of revenue and operating expenses is comprised of: Employment costs Share based compensation Consultants and contractors Professional fees Computer expenses Equipment costs Building costs Director’s fees Audit and audit related fees Depreciation and amortisation (excl intangible asset – software amortisation) Other operating expenses Sub-total Software development cost - capitalised Intangible asset – software amortisation R&D costs capitalised, net 2021 $’000 2020 $’000 (27,980) (31,955) (59,935) (33,358) (946) (1,886) (2,479) (2,352) (3,546) (957) (277) (299) (5,515) (9,142) (60,757) 2,301 (1,479) 822 (16,463) (25,616) (42,079) (20,618) (3,154) (2,613) (2,060) (2,453) (4,682) (567) (265) (216) (2,154) (4,003) (42,865) 1,873 (1,087) 786 Total cost of revenue and operating expenses (59,935) (42,079) During the year the following fees were paid or payable for services provided by the auditor of the parent entity, its related practices and non-related audit firms: Audit and review of financial reports Other assurance services Other non-audit services Total remuneration of auditors 2021 $’000 299 - 5 304 2020 $’000 216 113 85 414 67 Envirosuite Annual Report 2021 Cost of revenue and operating expenses Cost of revenue Total operating expenses Total cost of revenue and operating expenses Total cost of revenue and operating expenses is comprised of: Employment costs Share based compensation Consultants and contractors Professional fees Computer expenses Equipment costs Building costs Director’s fees Audit and audit related fees amortisation) Other operating expenses Sub-total Software development cost - capitalised Intangible asset – software amortisation R&D costs capitalised, net Depreciation and amortisation (excl intangible asset – software (27,980) (31,955) (59,935) (33,358) (946) (1,886) (2,479) (2,352) (3,546) (957) (277) (299) (5,515) (9,142) (60,757) 2,301 (1,479) 822 (16,463) (25,616) (42,079) (20,618) (3,154) (2,613) (2,060) (2,453) (4,682) (567) (265) (216) (2,154) (4,003) (42,865) 1,873 (1,087) 786 Total cost of revenue and operating expenses (59,935) (42,079) During the year the following fees were paid or payable for services provided by the auditor of the parent entity, its related practices and non-related audit firms: Audit and review of financial reports Other assurance services Other non-audit services Total remuneration of auditors 2021 $’000 299 - 5 304 2020 $’000 216 113 85 414 5. EXPENSES 6. TAX The Group categorises expenses within the Consolidated Income Statement based on the function of the expense. The table below discloses expenses based on the nature of the expense. 2021 $’000 2020 $’000 (a) Income tax expense / (benefit) Current tax expense / (benefit) Deferred tax expense / (benefit) Total income tax expense / (benefit) 2021 $’000 243 225 468 2020 $’000 770 (1,000) (230) Reconciliation of income tax expense to prima facie tax payable (b) Prima facie tax expense on operating profit at 26.0% (2020: 27.5%) (3,128) (5,078) Tax effects of items which are non-deductible / (non-assessable) in calculating taxable income: Non-allowable items (including R&D expenditure) Non-assessable R&D income Share options expensed during the year Difference in offshore tax rates Add / (less): Under/(over) provision for income tax in prior year Equity raising costs Revaluation of Deferred tax balances due to change in tax rate Deferred tax valuation allowance increase Total income tax expense / (benefit) (c) Deferred income tax (25) 246 169 (640) (174) 4,020 468 516 (98) 867 131 - (95) - 3,527 (230) 2021 Trade and other receivables Inventory Property, plant and equipment Right of use asset and Lease liability Intangible asset Trade and other payables Revenue in advance Employee provisions Issued capital Net DTA / (DTL) Tax losses Valuation allowance Balance as 30 June 2021 Opening Balance $’000 120 92 (42) 184 (5,692) 94 166 1,384 564 - 6,138 (5,763) (2,755) Acquired in business combination $’000 - - Recognised in profit or loss $’000 361 537 Charged directly to Equity $’000 - - Effect of foreign exchange $’000 - - Deferred Tax Asset $’000 481 629 Deferred Tax Liability $’000 - - - - - - - - - - - - - 25 13 (137) (94) 8 (577) - - 3,660 (4,020) (223) - - - - - - 14 - - - 14 - - - - - - - - - (3) (3) - 197 - - 174 807 578 (17) - (5,829) - - - - (1,999) 1,999 9,798 (9,787) - - 878 (3,847) 68 Envirosuite Annual Report 2021 6. TAX (Continued) 2020 Trade and other receivables Inventory Property, plant and equipment Right of use asset and Lease liability Intangible asset Trade and other payables Revenue in advance Employee provisions Issued capital Net DTA / (DTL) Opening Balance $’000 - - - - - (24) - 325 152 - Acquired in business combination $’000 (22) - - - 142 92 (42) 184 (4,188) (1,503) - - - - - 116 166 1,059 - - Tax losses Valuation allowance Balance as 30 June 2020 1,251 (1,251) 453 854 (854) (4,210) 4,034 (3,660) 588 Recognised in profit or loss $’000 Charged directly to Equity $’000 Effect of foreign exchange $’000 Deferred Tax Asset $’000 Deferred Tax Liability $’000 - - - - - - - - 412 - - - 412 - - - - - 2 - - - - - - - 120 92 - 184 - 94 166 1,384 564 - - (42) - (5,692) - - - - (1,729) 1,729 6,138 (5,763) 1,250 - - (4,005) The Group has unused tax losses of $34,266,606 (2020: $22,105,394) and R&D tax offsets of $1,058,808 for which a valuation allowance has been placed against the related deferred tax asset of $9,797,582 (2020: $6,138,000) and has not been recognised. 7. CASH AND CASH EQUIVALENTS Cash at bank Term deposits Cash and cash equivalents 2021 $’000 17,488 152 17,640 2020 $’000 20,266 4,119 24,385 Term deposits are with financial institutions with an investment grade rating and are for a term of 90 days or less. While the Group is exposed to interest rate risk on cash and term deposits, the impact of fluctuations in market interest rates is not material to the Group’s performance. 69 Envirosuite Annual Report 2021 6. TAX (Continued) 8. TRADE AND OTHER RECEIVABLES Acquired in Charged Effect of foreign Opening Balance $’000 business Recognised in directly to Deferred Deferred combination profit or loss Equity $’000 exchange Tax Asset Tax Liability $’000 $’000 $’000 2020 Inventory Trade and other receivables Property, plant and equipment Right of use asset and Lease liability Intangible asset Trade and other payables Revenue in advance Employee provisions Issued capital Net DTA / (DTL) - - - - - - (24) 325 152 - $’000 (22) - - - - - - - - $’000 142 92 (42) 184 116 166 1,059 - - (4,188) (1,503) Tax losses Valuation allowance Balance as 30 June 2020 1,251 (1,251) 453 854 (854) (4,210) 4,034 (3,660) 588 - - - - - - - - - - - 412 412 - - - - - 2 - - - - - - - 120 92 - 184 - 94 166 1,384 564 (42) (5,692) - - - - - - - - - (1,729) 1,729 6,138 (5,763) 1,250 (4,005) The Group has unused tax losses of $34,266,606 (2020: $22,105,394) and R&D tax offsets of $1,058,808 for which a valuation allowance has been placed against the related deferred tax asset of $9,797,582 (2020: $6,138,000) and has not been recognised. Trade receivables Provision for impairment Trade receivables, net Contract assets Other debtors Trade and other receivables Trade receivables, net aging analysis Not past due Past due 1-30 days Past due 31-60 days Past due 61-90 days Past due more than 91 days Total Fair value and credit risk 2021 $’000 10,079 (2,086) 7,993 3,552 10 11,555 5,383 740 435 418 1,017 7,993 2020 $’000 9,550 (2,082) 7,468 1,992 1,270 10,730 4,154 1,077 983 577 677 7,468 Due to the short term nature of these receivables, the carrying amount is assumed to approximate their fair value. The maximum exposure to credit risk at the reporting date is the carrying amount of each class of receivables mentioned above. The fair value of securities held for certain trade receivables is insignificant as is the fair value of any collateral sold or re-pledged. Refer to note 2 for more information on the risk management policy of the Group and the credit quality of the Group's trade receivables. Management have considered the impact of COVID-19 on trade and other receivables and do not anticipate a significant deterioration of recoverability beyond the level of current provisioning. 7. CASH AND CASH EQUIVALENTS 9. INVENTORIES Cash at bank Term deposits Cash and cash equivalents 2021 $’000 17,488 152 17,640 2020 $’000 20,266 4,119 24,385 Work in progress Finished goods Inventories Term deposits are with financial institutions with an investment grade rating and are for a term of 90 days or less. While the Group is exposed to interest rate risk on cash and term deposits, the impact of fluctuations in market interest rates is not material to the Group’s performance. Inventories are carried at the lower of cost or net realisable value. 10. OTHER ASSETS Prepayments Finance lease receivables Deposits Other current assets Prepayments Finance lease receivables Deposits Other non-current assets 2021 $’000 371 2,103 2,474 2021 $’000 960 65 971 1,996 51 18 - 69 2020 $’000 982 2,120 3,102 2020 $’000 924 - 271 1,195 - - 422 422 Prepayments represent prepaid insurance, prepaid software licenses, and other prepaid expenses. Deposits include deposits for building leases as well as cash backed bid and performance bond deposits. These deposits are pledged as security against non- performance of the Group, including non-payment of rent, inability to deliver based on the bid submitted, or inability to deliver based on a contract entered into with a customer. 70 Envirosuite Annual Report 2021 11. PROPERTY, PLANT AND EQUIPMENT Reconciliations of the carrying amounts of the various components of property, plant and equipment at the beginning and end of the current year and prior year are presented in the table below. Refer to Note 20 for further details on the acquired balances as part of the acquisition of AqMB Group in FY21. 2021 $’000 Cost value Balance as at 1 June 2020 Additions Transfer from inventories Disposals Asset write-off Effect of foreign exchange Balance as at 30 June 2021 Accumulated depreciation Balance as at 1 June 2020 Depreciation for the period Disposals Asset write-off Effect of foreign exchange Balance as at 30 June 2021 Net book value 2020 $’000 Cost value Balance as at 1 June 2019 Acquired in business combination Additions Transfer from inventories Disposals Effect of foreign exchange Balance as at 30 June 2020 Accumulated depreciation Balance as at 1 June 2019 Acquired in business combination Depreciation for the period Disposals Effect of foreign exchange Balance as at 30 June 2020 Net book value Furniture and fixtures Computer equipment Monitors and sensors Leasehold improvements 1,106 71 - - (661) (28) 488 (894) (85) - 663 22 (294) 194 2,704 419 - (15) (1,442) (120) 1,546 (2,133) (276) - 1,441 115 (853) 693 8,783 96 433 (12) (2,649) (226) 6,425 (6,499) (744) 12 2,637 50 (4,543) 1,881 360 149 - - - (2) 507 (123) (105) - - - (228) 279 Furniture and fixtures Computer equipment Monitors and sensors Leasehold improvements 110 1,035 14 - (29) (24) 1,106 (39) (829) (70) 28 15 (894) 212 82 2,559 95 - (2) (30) 2,704 (25) (2,030) (104) - 23 (2,133) 571 - 8,617 - 449 (95) (188) 8,783 - (6,295) (439) 95 140 (6,499) 2,284 194 96 68 - - 2 360 (46) (12) (64) - (1) (123) 237 Total 12,953 735 433 (27) (4,752) (376) 8,966 (9,649) (1,210) 12 4,741 188 (5,919) 3,047 Total 386 12,307 177 449 (126) (240) 12,953 (110) (9,166) (677) 123 178 (9,649) 3,304 71 Envirosuite Annual Report 2021 11. PROPERTY, PLANT AND EQUIPMENT 12. RIGHT OF USE ASSETS AND LEASE LIABILITIES Right of use assets Buildings Balance at 1 July Additions Terminations of leases Derecognition of right of use asset Acquired in business combination Depreciation Effect of foreign exchange Balance at end of year Data centres Balance at 1 July Acquired in business combination Depreciation Effect of foreign exchange Balance at end of year Total Right of use assets 2021 $’000 3,227 1,161 (212) (62) - (1,043) (55) 3,016 516 - (239) (40) 237 2020 $’000 209 849 - - 2,662 (457) (36) 3,227 - 629 (89) (23) 516 3,253 3,743 Furniture and fixtures Computer equipment Monitors and Leasehold sensors improvements Total Lease liabilities Current Non Current Balance at end of year 2021 $’000 1,530 2,472 4,002 2020 $’000 1,348 3,059 4,407 Building leases for periods of less than 12 months and variable lease payments for recharge of overhead costs by the building owner are included within Building costs as disclosed in Note 5. Lease liabilities are included within lease liabilities and other borrowings on the Statement of Financial Position. Interest expense on lease liabilities for FY21 was $296,066 (FY20: $158,000) and is included within finance costs on the Income Statement: Reconciliations of the carrying amounts of the various components of property, plant and equipment at the beginning and end of the current year and prior year are presented in the table below. Refer to Note 20 for further details on the acquired balances as part of the acquisition of AqMB Group in FY21. Furniture and fixtures Computer equipment Monitors and Leasehold sensors improvements Total 2021 $’000 Cost value Additions Balance as at 1 June 2020 Transfer from inventories Disposals Asset write-off Effect of foreign exchange Balance as at 30 June 2021 Accumulated depreciation Balance as at 1 June 2020 Depreciation for the period Disposals Asset write-off Effect of foreign exchange Balance as at 30 June 2021 Net book value 2020 $’000 Cost value Balance as at 1 June 2019 Acquired in business combination Additions Disposals Transfer from inventories Effect of foreign exchange Balance as at 30 June 2020 Accumulated depreciation Balance as at 1 June 2019 Acquired in business combination Depreciation for the period Disposals Effect of foreign exchange Balance as at 30 June 2020 Net book value 1,106 71 - - (661) (28) 488 (894) (85) - 663 22 (294) 194 110 1,035 14 - (29) (24) 1,106 (39) (829) (70) 28 15 (894) 212 2,704 419 - (15) (1,442) (120) 1,546 (2,133) (276) - 1,441 115 (853) 693 82 2,559 95 - (2) (30) 2,704 (25) (2,030) (104) - 23 (2,133) 571 8,783 96 433 (12) (2,649) (226) 6,425 (6,499) (744) 12 2,637 50 (4,543) 1,881 8,617 - - 449 (95) (188) 8,783 - (6,295) (439) 95 140 (6,499) 2,284 360 149 - - - (2) 507 (123) (105) - - - (228) 279 194 96 68 - - 2 (46) (12) (64) - (1) (123) 237 12,953 735 433 (27) (4,752) (376) 8,966 (9,649) (1,210) 12 4,741 188 (5,919) 3,047 386 12,307 177 449 (126) (240) (110) (9,166) (677) 123 178 (9,649) 3,304 360 12,953 72 Envirosuite Annual Report 2021 13. INTANGIBLE ASSETS Reconciliations of the carrying amounts of the various components of intangible assets at the beginning and end of the current year and prior year are presented in the table below. Other intangibles consist of customer relationships, brand value and intellectual property. Refer to Note 20 for further details on the acquired balances as part of the acquisition of AqMB in FY21 and EMS in FY20. 2021 $’000 Cost value Balance as at 1 July 2020 Acquired in business combination Additions Effects of foreign exchange Balance as at 30 June 2021 Accumulated amortisation Balance as at 1 July 2020 Amortisation for the period Balance as at 30 June 2021 Net book value 2020 $’000 Cost value Balance as at 1 July 2019 Acquired in business combination Additions Balance as at 30 June 2020 Accumulated amortisation Balance as at 1 July 2019 Amortisation for the period Balance as at 30 June 2020 Net book value Impairment tests Goodwill 89,383 - 128 2 89,513 - - - 89,513 Goodwill 340 89,043 - 89,383 - - - 89,383 Internally developed software Acquired Software Other Intangibles 8,769 - 2,301 - 11,070 (2,784) (1,479) (4,263) 6,807 9,398 1,204 770 - 11,372 (616) (2,077) (2,693) 8,679 5,103 - 90 - 5,193 (315) (946) (1,261) 3,932 Internally developed software Acquired Software Other Intangibles 6,896 - 1,873 8,769 (1,697) (1,087) (2,784) 5,984 - 9,233 166 9,398 - (616) (616) 8,783 16 4,727 360 5,103 - (315) (315) 4,788 Total 112,653 1,204 3,289 2 117,148 (3,714) (4,503) (8,217) 108,931 Total 7,252 103,002 2,399 112,653 (1,697) (2,017) (3,714) 108,939 The Group has identified that there are three (3) regional Cash Generating Units (CGU) which are aligned with the operating segments disclosed in Note 3 and against which goodwill and other intangible assets are allocated and tested. As noted in Note 3, the number of CGUs was consolidated during the year from five (5) in FY20 to three (3) in FY21 as part of a management restructure that occurred in May 2021. Goodwill has been allocated to each CGU as follows: Asia Pacific Americas EMEA Total Goodwill allocated 2021 $’000 37,705 22,107 29,701 89,513 The Group performed an impairment test on each of the CGUs including the goodwill allocated to them as at 30 June 2021 due to the decrease in the share price between 31 December 2020 and 30 June 2021 being identified as an indicator of impairment. Based on this impairment test, the recoverable value of each CGU, based on their calculated fair value less cost to sell, was identified as being greater than their carrying value and therefore, no impairment was recognised. The fair value was determined based on applying Envirosuite Limited’s revenue multiple of 2.0x, as calculated by dividing the broker consensus forecast of the next twelve months (NTM) revenue by the market capitalisation of Envirosuite, and applying this revenue multiple to internal forecasts of NTM revenue for each CGU. The market capitali sation of Envirosuite based on the 30-day VWAP of Envirosuite Limited’s closing share price as quoted on the Australian Stock Exchange (ASX). 73 Envirosuite Annual Report 2021 Goodwill 89,383 128 - 2 89,513 89,513 Goodwill 340 89,043 89,383 - - - - - - - 89,383 Internally developed software Acquired Software Other Intangibles 8,769 2,301 - - 11,070 (2,784) (1,479) (4,263) 6,807 6,896 - 1,873 8,769 (1,697) (1,087) (2,784) 5,984 9,398 1,204 770 - 11,372 (616) (2,077) (2,693) 8,679 - 9,233 166 9,398 - (616) (616) 8,783 Total 1,204 3,289 2 90 - - 5,193 117,148 (315) (946) (1,261) 3,932 (3,714) (4,503) (8,217) 108,931 Total 7,252 103,002 2,399 112,653 (1,697) (2,017) (3,714) 108,939 16 4,727 360 5,103 - (315) (315) 4,788 Internally developed software Acquired Software Other Intangibles EMS in FY20. 2021 $’000 Cost value Balance as at 1 July 2020 Acquired in business combination Additions Effects of foreign exchange Balance as at 30 June 2021 Accumulated amortisation Balance as at 1 July 2020 Amortisation for the period Balance as at 30 June 2021 Net book value 2020 $’000 Cost value Balance as at 1 July 2019 Acquired in business combination Additions Balance as at 30 June 2020 Accumulated amortisation Balance as at 1 July 2019 Amortisation for the period Balance as at 30 June 2020 Net book value Impairment tests Asia Pacific Americas EMEA Total Goodwill allocated 13. INTANGIBLE ASSETS 13. INTANGIBLE ASSETS (continued) Reconciliations of the carrying amounts of the various components of intangible assets at the beginning and end of the current year and prior year are presented in the table below. Other intangibles consist of customer relationships, brand value and intellectual property. Refer to Note 20 for further details on the acquired balances as part of the acquisition of AqMB in FY21 and The recoverable amount of internally developed software is determined based on a relief-from-royalty method (value-in-use) method, which is based on the theory that the intangible asset owner would be willing to pay a reasonable royalty to use the intangible asset assuming that they did not already own the asset. These calculations use revenue projections based on financial forecasts approved by management covering a five year period with a terminal value included. A royalty rate of 7% has been applied against these revenue projections to calculate the assumed royalty which is then discounted using a weighted average cost of capital of 9.1% (FY20: 9.1%). Based on this calculation, there was no impairment charge to be recorded against internally developed software (FY20: nil). 5,103 112,653 14. TRADE AND OTHER PAYABLES Trade payables GST / VAT payable Accrued expenses Payable for EMS acquisition Other liabilities Total trade and other payables 15. EMPLOYEE PROVISIONS Employee benefits Current Opening balance 1 July Acquired in business combination Additional provisions Amounts used Unused amounts reversed Balance at 30 June Non-current Opening balance 1 July Acquired in business combination Additional provisions Amounts used Unused amounts reversed Balance at 30 June 2021 $’000 3,480 233 683 - 3,577 7,973 2021 $’000 6,203 - 267 (2,576) - 3,894 230 - - (89) - 141 2020 $’000 3,478 544 671 4,181 4,136 13,010 2020 $’000 625 4,058 1,633 (113) - 6,203 63 246 - (79) - 230 The Group has identified that there are three (3) regional Cash Generating Units (CGU) which are aligned with the operating segments disclosed in Note 3 and against which goodwill and other intangible assets are allocated and tested. As noted in Note 3, the number of CGUs was consolidated during the year from five (5) in FY20 to three (3) in FY21 as part of a management restructure that occurred in May 2021. Goodwill has been allocated to each CGU as follows: The Group performed an impairment test on each of the CGUs including the goodwill allocated to them as at 30 June 2021 due to the decrease in the share price between 31 December 2020 and 30 June 2021 being identified as an indicator of impairment. Based on this impairment test, the recoverable value of each CGU, based on their calculated fair value less cost to sell, was identified as being greater than their carrying value and therefore, no impairment was recognised. The fair value was determined based on applying Envirosuite Limited’s revenue multiple of 2.0x, as calculated by dividing the broker consensus forecast of the next twelve months (NTM) revenue by the market capitalisation of Envirosuite, and applying this revenue multiple to internal forecasts of NTM revenue for each CGU. The market capitali sation of Envirosuite based on the 30-day VWAP of Envirosuite Limited’s closing share price as quoted on the Australian Stock Exchange (ASX). Amounts not expected to be settled within the next 12 months The provision for long service leave includes an estimate of the entitlements for employees in Australia who are expected to have completed seven to ten years of continuous employment depending on the state in which they reside. The entire amount of long service leave for employees where there is an unconditional entitlement is presented as current, since the Group does not have an unconditional right to defer settlement. Provision for long service leave where the entitlement only becomes unconditional in a period beyond 12 months are presented as non-current. 2021 $’000 37,705 22,107 29,701 89,513 74 Envirosuite Annual Report 2021 16. ISSUED CAPITAL Movements in the number of ordinary shares on issue during the financial year is presented in the following table. Movements in ordinary shares Balance at 1 July Issue of ordinary shares - exercising of employee and director share options Issue of ordinary shares - employee performance rights Issue of ordinary shares - institutional and share placement Issue of ordinary shares - accelerated non-renounceable entitlement offer Issue of ordinary shares - acquisition of EMS Bruel & Kjaer Ordinary shares on issue at 30 June 2021 1,024,685,906 500,000 3,648,555 120,178,667 44,826,299 - 1,193,839,427 2020 370,202,780 10,700,000 4,252,861 504,530,265 - 135,000,000 1,024,685,906 Options For the year ended 30 June 2021, the Company issued the following options: • • • 2,000,000 (2020: 22,500,000) issued to Directors with an exercise price of $0.40 each that expire in December 2022. 10,000,000 (2020: 26,250,000) issued to investors with an exercise price of $0.20 each that expire in April 2025. No options (2020: 1,000,000) issued to employees for the year ended 30 June 2021. In addition, for the year ended 30 June 2020, a total of 95,000,000 options were issued in relation to acquisition of EMS. Each option allows the holder to receive 1 ordinary share of Envirosuite Limited upon paying the exercise price prior to the expiration date. Information relating to the options, including details of options issued, exercised and lapsed during the financial year and options outstanding at the end of the financial year, is set out in note 22. At the 2019 Annual General Meeting held on 25 November 2019, shareholders approved the grant of up to 15,000,000 options under the China Employee ESOP. These options are yet to be granted to any named employees so remain a contingent liability. The options are expected to be granted progressively and otherwise not later than 3 years from the date of approval. These options will expire on 31 March 2022 and will only vest on $10,000,000 in revenue (audited in accordance with international financial reporting standards) being received into the wholly owned China subsidiaries of Envirosuite Limited by 31 December 2021. During FY21, the probability of the options vesting was reassessed as nil, resulting in the reversal of option expense recognised in the prior period. Share based payments Executive performance rights issued to employees for the year ended 30 June 2021 totaled 13,596,890 (30 June 2020: 5,405,266). Each Performance Right entitles the holder to receive 1 ordinary share of Envirosuite Limited upon certain vesting conditions being met. Other equity securities The amount shown for other equity securities is the value of the conversion rights relating to historic convertible instruments. Capital risk management The Group's objectives when managing capital are to safeguard its ability to continue as a going concern, so that it can provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. Consistent with others in the industry, the Group monitors capital on the basis of the quick ratio. This ratio is calculated as current assets (excluding inventory) divided by current liabilities. The quick ratio as at 30 June 2021 was 1.94x (30 June 2020: 1.53x) As at 30 June 2021, the Group had cash and cash equivalents of $17,640k and no borrowings other than lease liabilities recognised under AASB 16. The Group also has standing credit facility arrangements with banks of $359k (2020: $479k) of which $237k was available as at 30 June 2021 (2020: $181k). The Group generated an operating cash outflow of $8,510k for the year ending 30 June 2021 (2020: $11,259k). The Group focuses on rolling cash flow forecasts to ensure that it has sufficient funding available from cash and cash equivalents to fund operations. 75 Envirosuite Annual Report 2021 16. ISSUED CAPITAL 17. RESERVES AND RETAINED LOSSES Movements in the number of ordinary shares on issue during the financial year is presented in the following table. Movements in ordinary shares Balance at 1 July Issue of ordinary shares - exercising of employee and director share options Issue of ordinary shares - employee performance rights Issue of ordinary shares - institutional and share placement Issue of ordinary shares - accelerated non-renounceable entitlement offer Issue of ordinary shares - acquisition of EMS Bruel & Kjaer Ordinary shares on issue at 30 June 2021 2020 1,024,685,906 370,202,780 500,000 3,648,555 120,178,667 44,826,299 10,700,000 4,252,861 504,530,265 - - 135,000,000 1,193,839,427 1,024,685,906 Options • • • For the year ended 30 June 2021, the Company issued the following options: 2,000,000 (2020: 22,500,000) issued to Directors with an exercise price of $0.40 each that expire in December 2022. 10,000,000 (2020: 26,250,000) issued to investors with an exercise price of $0.20 each that expire in April 2025. No options (2020: 1,000,000) issued to employees for the year ended 30 June 2021. In addition, for the year ended 30 June 2020, a total of 95,000,000 options were issued in relation to acquisition of EMS. Each option allows the holder to receive 1 ordinary share of Envirosuite Limited upon paying the exercise price prior to the expiration date. Information relating to the options, including details of options issued, exercised and lapsed during the financial year and options outstanding at the end of the financial year, is set out in note 22. At the 2019 Annual General Meeting held on 25 November 2019, shareholders approved the grant of up to 15,000,000 options under the China Employee ESOP. These options are yet to be granted to any named employees so remain a contingent liability. The options are expected to be granted progressively and otherwise not later than 3 years from the date of approval. These options will expire on 31 March 2022 and will only vest on $10,000,000 in revenue (audited in accordance with international financial reporting standards) being received into the wholly owned China subsidiaries of Envirosuite Limited by 31 December 2021. During FY21, the probability of the options vesting was reassessed as nil, resulting in the reversal of option expense recognised in the prior period. Executive performance rights issued to employees for the year ended 30 June 2021 totaled 13,596,890 (30 June 2020: 5,405,266). Each Performance Right entitles the holder to receive 1 ordinary share of Envirosuite Limited upon certain vesting The amount shown for other equity securities is the value of the conversion rights relating to historic convertible instruments. The Group's objectives when managing capital are to safeguard its ability to continue as a going concern, so that it can provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of Share based payments conditions being met. Other equity securities Capital risk management capital. Reserves Foreign exchange translation reserve Movements Balance 1 July Effects of foreign exchange translation Foreign exchange translation reserve – balance 30 June Share-based payments reserve Movements Balance 1 July Option expense Transfer to retained losses Share based payment reserve – balance 30 June Total Reserves Retained Losses Movements Opening retained losses Transfer from employee shares reserve Net profit/(loss) for the year Balance 30 June Nature and purpose of reserves 2021 $’000 (647) (278) (925) 12,387 479 (12) 12,854 11,929 2021 $’000 (41,663) 12 (12,497) (54,148) 2020 $’000 (183) (464) (647) 315 12,515 (443) 12,387 11,740 2020 $’000 (23,863) 436 (18,236) (41,663) Foreign currency translation reserve Exchange differences arising on translation of foreign controlled entities are recognised in other comprehensive income and accumulated in a separate reserve within equity. The cumulative amount is reclassified to profit or loss when the net investment is disposed of. Share based payments reserve The share based payments reserve is used to recognise the accrued grant date fair value of options and Performance Rights issued to employees and directors but not exercised and issued. The fair value of options and Performance Rights is accrued into the share based payment reserve over the service period. When options and Performance Rights are exercised and issued, the grant date fair value is transferred from the share based payment reserve to Ordinary shares. When options are vested but not exercised by the expiry date, the grant date fair value is transferred from the share based payment reserve to Retained Losses. Dividends The Group has not paid or declared any dividends during the period (2020: nil). Franking credits available for subsequent financial years based on a tax rate of 26.0% amount to $651,756 (2020: nil). Consistent with others in the industry, the Group monitors capital on the basis of the quick ratio. This ratio is calculated as current assets (excluding inventory) divided by current liabilities. The quick ratio as at 30 June 2021 was 1.94x (30 June 2020: 1.53x) 18. COMMITMENTS AND CONTINGENCIES As at 30 June 2021, the Group had cash and cash equivalents of $17,640k and no borrowings other than lease liabilities recognised under AASB 16. The Group also has standing credit facility arrangements with banks of $359k (2020: $479k) of which $237k was available as at 30 June 2021 (2020: $181k). The Group generated an operating cash outflow of $8,510k for the year ending 30 June 2021 (2020: $11,259k). The Group focuses on rolling cash flow forecasts to ensure that it has sufficient funding available from cash and cash equivalents to fund operations. Contingencies The Group has potential exposure to guarantees it has issued to third parties in relation to the performance and obligation of controlled entities with respect to property lease rentals and customer contractual obligations amounting to $1,423,305 (30 June 2020: $2,127,863). 76 Envirosuite Annual Report 2021 19. RELATED PARTY DISCLOSURES Key management personnel Refer to the remuneration report contained in the directors’ report for details of the remuneration paid or payable to each member of the Group’s key management personnel (KMP) for the year ended 30 June 2021. The totals of remuneration paid to KMP of the company and the Group during the year are as follows: Short-term employee benefits Post-employment benefits Other long-term benefits Share-based payments Total KMP compensation 2021 $’000 1,266 65 - (200) 1,131 2020 $’000 1,071 44 - 2,260 3,375 During FY21, the probability of options issued to KMP in the prior period vesting was reassessed as nil, resulting in the reversal of option expense recognised in the prior period. Parent entity The parent entity within the Group is Envirosuite Limited Subsidiaries Entity Name Envirosuite Operations Pty Ltd Envirosuite Holdings Pty Ltd Envirosuite Corp Envirosuite Europe Sociedad Limitada Envirosuite Canada Inc. Envirosuite Chile SpA Envirosuite Colombia S.A.S.(1) Beijing Envirosuite Environmental Science & Technology(1) Hengli Ruiyan Environmental Engineering Co. Ltd(1) Envirosuite Brasil Comercializacao De Equioamentos Ltda(2). AqMB Pty Ltd(3). AqMB Holdings Pty Ltd(3). Envirosuite Holdings No 2 Pty Ltd Envirosuite Australia No 2 Pty Ltd EMS Bruel & Kjaer Pty Ltd EMS Bruel & Kjaer Inc EMS Bruel & Kjaer Iberica S.A. Envirosuite Denmark Aps EMS Bruel & Kjaer BV Envirosuite UK Ltd EMS Bruel & Kjaer Korea Ltd EMS Bruel & Kjaer Taiwan Ltd EMS Bruel & Kjaer Environmental Monitoring (Beijing) Ltd(4) Country of Incorporation 30 June 2021 % 30 June 2020 % Australia Australia USA Spain Canada Chile Colombia China China Brazil Australia Australia Australia Australia Australia USA Spain Denmark Netherlands United Kingdom South Korea Taiwan China 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 - - - 100 100 100 100 100 100 100 100 100 100 100 (1) (2) (3) (4) These subsidiaries have a financial year-end of 31 December as required by local regulations. The Group has received an exemption from ASIC from aligning the financial year end of these subsidiaries with that of the Envirosuite Limited, being 30 June. Envirosuite Brazil was established July 2020. Acquired 100% of the issued capital of AqMB Pty Ltd and AqMB Holdings Pty Ltd in August 2020 EMS Bruel & Kjaer Environmental Monitoring (Beijing) Ltd is deregistered in December 2020 Transactions with other related parties There were no other transactions with related parties during the financial year. 77 Envirosuite Annual Report 2021 19. RELATED PARTY DISCLOSURES Key management personnel 20. BUSINESS COMBINATIONS Acquisition of AqMB Group Refer to the remuneration report contained in the directors’ report for details of the remuneration paid or payable to each member of the Group’s key management personnel (KMP) for the year ended 30 June 2021. The totals of remuneration paid to KMP of the company and the Group during the year are as follows: On 17 August 2020, the group acquired 100% of the issued capital of AqMB Pty Ltd, a water modelling R&D technology software company. Through acquiring 100% of the issued capital of AqMB Pty Ltd, the Group has obtained control of the company, which primarily represented the rights to the software developed. The acquisition is part of the Group’s strategy to expand into the market for Environmental Intelligence within the Water industry with the technology from AqMB, along with Envirosuite’s exclusive license over SeweX algorithms, used in Envirosuite’s EVS Water product which was launched in November 2020. During FY21, the probability of options issued to KMP in the prior period vesting was reassessed as nil, resulting in the reversal of option expense recognised in the prior period. The parent entity within the Group is Envirosuite Limited 2021 $’000 1,266 65 - (200) 1,131 2020 $’000 1,071 44 - 2,260 3,375 Acquisition Balance Sheet Purchase consideration Cash paid Less: cash acquired Purchase consideration, net Fair value of identifiable net assets acquired Acquired software Trade and other receivables Total fair value of identifiable net assets acquired Residual representing goodwill Acquisition of EMS Bruel & Kjaer Holdings 2021 $’000 1,205 - 1,205 1,204 1 1,205 - Country of 30 June 2021 30 June 2020 Incorporation On 28 February 2020, the group acquired all of the share capital of EMS Bruel & Kjaer Holdings Pty Ltd (“EMS”) with the details of that acquisition disclosed in the 2020 Annual Report. During the year ending 30 June 2021, the final purchase consideration payments were made totalling $4,394k, which was $213k greater than the amount provisioned as at 30 June 2020. The additional purchase consideration amount of $213k was offset with additional provisions recognised in connection with the acquisition and resulted in a net increase to the goodwill recognised for EMS of $128k during FY21. 21. CASH FLOW STATEMENT RECONCILIATION Reconciliation of net profit / (loss) after tax to net cash flow from operations Profit/(loss) after tax Add back: Depreciation and amortisation Add back: Finance expense / (income) Add back: Foreign exchange loss / (gain) Add back: Non-cash share based payments Sub-total Changes in operating assets and liabilities (Increase) / decrease in trade and other debtors (Increase) / decrease in inventories (Increase) / decrease in other assets (Increase) / decrease in deferred tax Increase / (decrease) in trade creditors Increase / (decrease) in other liabilities Increase / (decrease) in other provisions Net cash inflow / (outflow) from operating activities 2021 $’000 (12,497) 6,994 - 377 946 (4,180) (825) 628 (801) 214 (1,317) 169 (2,398) (8,510) 2020 $’000 (18,236) 3,241 15 155 3,154 (11,671) (1,986) 550 (26) (125) 717 (158) 1,440 (11,259) Cash flow from operating activities excludes cash paid to suppliers and employees that are capitalised as internally developed software within intangible assets. These cash flows are included as cash paid for intangible assets. Non-cash transactions Refer to Note 20 for shares issued in the acquisition of AqMB during the financial year. 78 Short-term employee benefits Post-employment benefits Other long-term benefits Share-based payments Total KMP compensation Parent entity Subsidiaries Entity Name Envirosuite Operations Pty Ltd Envirosuite Holdings Pty Ltd Envirosuite Corp Envirosuite Europe Sociedad Limitada Envirosuite Canada Inc. Envirosuite Chile SpA Envirosuite Colombia S.A.S.(1) AqMB Pty Ltd(3). AqMB Holdings Pty Ltd(3). Envirosuite Holdings No 2 Pty Ltd Envirosuite Australia No 2 Pty Ltd EMS Bruel & Kjaer Pty Ltd EMS Bruel & Kjaer Inc EMS Bruel & Kjaer Iberica S.A. Envirosuite Denmark Aps EMS Bruel & Kjaer BV Envirosuite UK Ltd EMS Bruel & Kjaer Korea Ltd EMS Bruel & Kjaer Taiwan Ltd Beijing Envirosuite Environmental Science & Technology(1) Hengli Ruiyan Environmental Engineering Co. Ltd(1) Envirosuite Brasil Comercializacao De Equioamentos Ltda(2). Australia Australia USA Spain Canada Chile Colombia China China Brazil Australia Australia Australia Australia Australia USA Spain Denmark Netherlands United Kingdom South Korea Taiwan China % 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 % 100 100 100 100 100 100 100 100 100 - - - 100 100 100 100 100 100 100 100 100 100 100 EMS Bruel & Kjaer Environmental Monitoring (Beijing) Ltd(4) (1) These subsidiaries have a financial year-end of 31 December as required by local regulations. The Group has received an exemption from ASIC from aligning the financial year end of these subsidiaries with that of the Envirosuite Limited, being 30 June. Envirosuite Brazil was established July 2020. (2) (3) (4) Acquired 100% of the issued capital of AqMB Pty Ltd and AqMB Holdings Pty Ltd in August 2020 EMS Bruel & Kjaer Environmental Monitoring (Beijing) Ltd is deregistered in December 2020 Transactions with other related parties There were no other transactions with related parties during the financial year. Envirosuite Annual Report 2021 22. SHARE BASED PAYMENTS The Group issued options and Performance Rights to employees and Directors as compensation for services provided. Employee share plan Under the Envirosuite Limited Employee Share Plan, shares issued to employees for no cash consideration vest immediately on grant date. On this date, the market value of the shares issued is recognised as an employee benefits expense with a corresponding increase in equity. Performance Rights Under the Envirosuite Performance Rights Plan, the Company issues performance rights to employees that provide them with the right to acquire shares for no consideration upon certain vesting conditions being met, including remaining employed with the Company, and/or share price performance. There was 13,596,890 Performance Rights issued during the year (2020: 5,405,266). Employee share option plan and scheme The establishment of the Employee Share Option Plan was approved by the Board prior to the IPO of Envirosuite Limited (formerly: Pacific Environment Limited). The plan is designed to provide long term incentives for employees and executive directors to deliver long term shareholder returns. Participation in the plan is at the Board's discretion and no individual has a contractual right to participate in the plan or to receive any guaranteed benefits. The amount of options that will vest depends on the individual contracts agreed by Envirosuite Limited. Once vested, the options remain exercisable for a period of up to seven years after the grant date. When exercisable, each option is convertible into one ordinary share on the day of the next Board meeting or within 15 business days, whichever is earlier. The exercise price of options is pre-determined in the individual option agreements. Options were issued to employees under the Employee Share Option Plan. Under this scheme, options granted vest as specified under the individual option. The options are not forfeitable but lapse on the date specified in the individual option agreement. If an employee ceases employment the options vest immediately and the employee has seven days to exercise the option at the current market price or the original exercise price, whichever is greater. If the employee does not exercise the options, the options lapse. Options were also granted to non-employees during the period that have similar terms to those under the Employee Share Option Plan. Set out on the following pages are summaries of options granted. Options outstanding as at 30 June 2019 Granted Forfeited Exercised Expired Options outstanding as at 30 June 2020 Granted Forfeited Exercised Expired Options outstanding as at 30 June 2021 Number of options 15,333,333 144,750,000 (750,000) (10,700,000) (800,000) 147,833,333 12,000,000 - - (333,333) 159,500,000 Weighted average exercise price 0.11 0.23 0.11 0.11 0.09 0.23 0.23 - - 0.16 0.23 As at 30 June 2021, there were 133,250,000 options (2020: 121,583,333) that were exerciseable at a weighted average price of $0.24 per share (2020: $0.25 per share). The weighted average remaining life of the options outstanding is 1.46 years (2020: 2.30 years). 79 Envirosuite Annual Report 2021 22. SHARE BASED PAYMENTS 23. EARNINGS PER SHARE The Group issued options and Performance Rights to employees and Directors as compensation for services provided. In calculating earnings per share, there were no adjustments made to net loss after tax or comprehensive loss for the period. Under the Envirosuite Limited Employee Share Plan, shares issued to employees for no cash consideration vest immediately on grant date. On this date, the market value of the shares issued is recognised as an employee benefits expense with a Employee share plan corresponding increase in equity. Performance Rights Under the Envirosuite Performance Rights Plan, the Company issues performance rights to employees that provide them with the right to acquire shares for no consideration upon certain vesting conditions being met, including remaining employed with the Company, and/or share price performance. There was 13,596,890 Performance Rights issued during the year (2020: 5,405,266). Employee share option plan and scheme The establishment of the Employee Share Option Plan was approved by the Board prior to the IPO of Envirosuite Limited (formerly: Pacific Environment Limited). The plan is designed to provide long term incentives for employees and executive directors to deliver long term shareholder returns. Participation in the plan is at the Board's discretion and no individual has a contractual right to participate in the plan or to receive any guaranteed benefits. The amount of options that will vest depends on the individual contracts agreed by Envirosuite Limited. Once vested, the options remain exercisable for a period of up to seven years after the grant date. When exercisable, each option is convertible into one ordinary share on the day of the next Board meeting or within 15 business days, whichever is earlier. The exercise price of options is pre-determined in the individual option agreements. Options were issued to employees under the Employee Share Option Plan. Under this scheme, options granted vest as specified under the individual option. The options are not forfeitable but lapse on the date specified in the individual option agreement. If an employee ceases employment the options vest immediately and the employee has seven days to exercise the option at the current market price or the original exercise price, whichever is greater. If the employee does not exercise the options, the options Weighted average number of shares used in denominator Basic earnings per share Diluted earnings per share 2021 number 1,027,169,980 1,027,169,980 2020 number 619,896,792 619,896,792 There are 28,250,000 in share options issued and in-the-money, and 12,483,001 of performance rights that are not included in diluted earnings per share as these would have an antidilutive effect on earnings per share. These potential ordinary shares are antidilutive as their conversion to ordinary shares would decrease loss per share. If these share options were included in the calculation of diluted earnings per share, the weighted average number of shares used in the denominator would be 1,060,320,277. 24. SUBSEQUENT EVENTS The Directors are not aware of any matters or circumstances have arisen since the end of the financial year that significantly affected, or could significantly affect, the operations of the consolidated Group, the results of those operations, or the state of affairs of the consolidated Group in future financial years. 25. PARENT ENTITY FINANCIAL INFORMATION Parent entity financial statements The following information has been extracted from the books and records of the parent entity and has been prepared in accordance with Australian Accounting Standards. Non-current assets includes investment in subsidiaries which are accounted for at cost value less impairment. lapse. Granted Forfeited Exercised Expired Granted Forfeited Exercised Expired 2.30 years). Options outstanding as at 30 June 2019 Options outstanding as at 30 June 2020 Options outstanding as at 30 June 2021 Options were also granted to non-employees during the period that have similar terms to those under the Employee Share Option Statement of Financial Position Plan. Set out on the following pages are summaries of options granted. Number of options exercise price Weighted average 15,333,333 144,750,000 (750,000) (10,700,000) (800,000) 147,833,333 12,000,000 - - (333,333) 159,500,000 0.11 0.23 0.11 0.11 0.09 0.23 0.23 - - 0.16 0.23 Assets Current assets Non-current assets Total Assets Liabilities Current liabilities Non-current liabilities Total Liabilities Equity Issued capital Reserves Retained losses Total Equity As at 30 June 2021, there were 133,250,000 options (2020: 121,583,333) that were exerciseable at a weighted average price of $0.24 per share (2020: $0.25 per share). The weighted average remaining life of the options outstanding is 1.46 years (2020: Income Statement and Statement of Comprehensive Income Profit / (loss) after tax Total comprehensive profit / (loss) 2021 $’000 11,604 148,207 159,811 546 1,813 (2,359) 169,520 12,854 (24,922) 157,452 2021 $’000 (8,342) (8,342) 2020 $’000 13,448 142,487 155,935 4,639 - 4,639 155,537 12,388 (16,629) 151,296 2020 $’000 (5,095) (5,095) 80 Envirosuite Annual Report 2021 DIRECTORS DECLARATION In accordance with a resolution of the directors of Envirosuite Limited, the directors of the Company declare that: (a) The financial statements and notes set out on pages 50 to 87 are in accordance with the Corporations Act 2001 , and: (i) comply with Australian Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; and (ii) give a true and fair view of the financial position as at 30 June 2021 and of the performance for the year ended on that date of the Consolidated Group; and (b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. The directors have been given the declarations by the chief executive office and chief financial officer required by section 295A of the Corporations Act 2001 David Johnstone, Chairman 17 August 2021 81 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF ENVIROSUITE LIMITED Report on the Financial Report Opinion We have audited the accompanying financial report of Envirosuite Limited (the company), which comprises the consolidated statement of financial position as at 30 June 2021, the consolidated income statement and statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, notes comprising a summary of significant accounting policies and other explanatory information, and the directors’ declaration of the company and the consolidated entity comprising the company and the entities it controlled at the year’s end or from time to time during the financial year. In our opinion the financial report of Envirosuite Limited is in accordance with the Corporations Act 2001, including: a) 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 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 believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We are independent of the consolidated entity 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. 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. The matter was 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 the matter. For the matter below, our description of how our audit addressed the matter is provided in that context. Envirosuite Annual Report 2021 DIRECTORS DECLARATION In accordance with a resolution of the directors of Envirosuite Limited, the directors of the Company declare that: (a) The financial statements and notes set out on pages 50 to 87 are in accordance with the Corporations Act 2001 , and: (i) comply with Australian Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; and (ii) give a true and fair view of the financial position as at 30 June 2021 and of the performance for the year ended on that date of the Consolidated Group; and (b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. The directors have been given the declarations by the chief executive office and chief financial officer required by section 295A of the Corporations Act 2001 David Johnstone, Chairman 17 August 2021 82 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF ENVIROSUITE LIMITED Report on the Financial Report Opinion We have audited the accompanying financial report of Envirosuite Limited (the company), which comprises the consolidated statement of financial position as at 30 June 2021, the consolidated income statement and statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, notes comprising a summary of significant accounting policies and other explanatory information, and the directors’ declaration of the company and the consolidated entity comprising the company and the entities it controlled at the year’s end or from time to time during the financial year. In our opinion the financial report of Envirosuite Limited is in accordance with the Corporations Act 2001, including: a) 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 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 believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We are independent of the consolidated entity 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. 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. The matter was 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 the matter. For the matter below, our description of how our audit addressed the matter is provided in that context. 83 1. Carrying amount of intangible assets Why significant How our audit addressed the key audit matter As at 30 June 2021 the carrying value of intangible assets is $108,931,000 (2020: $108,939,000), as disclosed in Note 13. The consolidated entity’s accounting policy in respect of intangible assets is outlined in Note 1(o), and for goodwill in Note 1(c). The carrying amount of intangible assets is a key audit matter due to:  the significance of the balance (being 72% of total assets); and  the level of judgement applied in evaluating management’s assessment of impairment. As outlined in Notes 1 and 13, management assessed the carrying amount of intangible assets through impairment testing utilising a fair value less costs of disposal model in which significant judgements are applied in determining key assumptions. These assumptions include the assessment of the enterprise value or revenue multiple to be applied, forecasted revenue and estimated costs of disposal. The judgements made in determining the underlying assumptions in the model have a significant impact on the carrying amount of intangible assets, and accordingly the amount of any impairment charge, to be recorded in the current financial year. In assessing this key audit matter, we involved senior audit team members who understand the industry. Our audit procedures included, amongst others:  evaluating management’s methodology for determining the carrying amount of intangible assets by comparing the fair value less costs of disposal model with generally accepted valuation methodology and accounting standard requirements;  conducting sensitivity analysis on key assumptions such as the enterprise value or revenue multiple and forecasted revenue, within reasonable foreseeable ranges, and comparing the calculated recoverable amount to the carrying value of net assets of each cash-generating unit (‘CGU’);  challenging the key assumptions used in management’s value in use model by: - assessing forecasted revenue set by management in comparison to historical results and future approved budgets - evaluating the enterprise value or revenue multiple set by management in comparison to market and industry information available - assessing the impact of the COVID-19 pandemic on all key assumptions  assessing the appropriateness of any changes in key assumptions during the year and the change in CGU designation; and  assessing the appropriateness of the related disclosures in Note 13. Other Information The Directors are responsible for the other information. The other information comprises the information included in the consolidated entity’s annual report, 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. Envirosuite Annual Report 202184 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. Directors’ Responsibilities 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 consolidated entity’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 consolidated entity 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 and auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individual or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. As part of an audit in accordance with Australian Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:  Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.  Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the consolidated entity’s internal control.  Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and other related disclosures made by the Directors.  Conclude on the appropriateness of the Directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the consolidated entity’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the consolidated entity to cease to continue as a going concern. Envirosuite Annual Report 202185  Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation.  Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the consolidated entity to express an opinion on the group financial report. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with the Directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the Directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied. From the matters communicated with the Directors, we determine those matters that were of most significance in the audit of the financial report of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on the Remuneration Report We have audited the Remuneration Report included in the directors’ report for the year ended 30 June 2021. 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. Opinion In our opinion, the Remuneration Report of Envirosuite Limited for the year ended 30 June 2021 complies with section 300A of the Corporations Act 2001. PKF BRISBANE AUDIT SHAUN LINDEMANN PARTNER BRISBANE 17 AUGUST 2021 Envirosuite Annual Report 2021NOTES TO FINANCIAL STATEMENTS SHAREHOLDER INFORMATION The shareholder information set out below was applicable at 12 August 2021 The shareholder information set out below was applicable as at 12 August 2021 1. SHAREHOLDING Distribution of equity securities Analysis of numbers of equity security holders by size of holding: Size of holding 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over Shares 91 559 663 2,136 1,114 4,563 Options - - - - 17 17 The number of shareholdings held in less than marketable parcels was 449 with total shares of 1,122,232 Substantial holders Substantial holders in the Company are set out below: Ordinary shares National Nominees Limited Macquarie Corporate Holdings Voting Rights The voting rights attaching to each class of equity securities are set out below Number held 88,331,832 80,000,000 Percentage 7.49% 6.71% Ordinary shares Every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote. Options Options carry the standard voting rights available to ordinary shareholders when converted to ordinary shares. 86 Page 83 Envirosuite Annual Report 2021 Number held 91,457,434 80,000,000 52,684,459 39,030,605 30,801,812 28,627,974 27,805,537 24,904,939 22,392,058 21,014,705 20,700,000 18,341,253 16,292,286 12,828,279 12,000,000 11,419,342 10,689,656 10,496,962 10,000,000 8,311,156 Percentage 7.64% 6.69% 4.40% 3.26% 3.27% 2.39% 2.32% 2.08% 1.89% 1.76% 1.73% 1.53% 1.36% 1.07% 1.00% 0.94% 0.89% 0.88% 0.84% 0.70% 549,598,457 49.93% Number held 159,500,000 1. SHAREHOLDING (continued) Twenty largest quoted equity security holders The names of the twenty largest holders of quoted equity securities are listed below: Name National Nominees Limited Macquarie Corporate Holdings UBS Nominees Pty Ltd Citicorp Nominees Pty Limited BNP Paribas Noms Pty Ltd HSBC Custody Nominees Rubi Holdings Pty Ltd Mr Robin Omerod & Ms Kristin Zeise Fifty Second Celebration Pty The Adams McLean Coalwell Pty Limited Mr Zhigang Zhang Thirty-Fifth Celebration Pty Bungeeltap Pty Ltd BSD Pty Ltd Mr Robin Ormerod Fordholm Consultants Pty Ltd HSBC Custody Nominees Spectris Group Holdings Ltd The Elsie Cameron Foundation Unquoted equity securities Envirosuite Limited unlisted options 87 Page 84 Envirosuite Annual Report 2021 This page is intentionally left blank 88 Envirosuite Annual Report 2021CORPORATE DIRECTORY Envirosuite Limited ABN: 42 122 919 948 Board of Directors David Johnstone Chairman Hugh Robertson Director Peter White Director Sue Klose Director Company Secretary Rachel Ormiston Registered office and principal place of business Suite 1, Level 10, 157 Walker St North Sydney NSW 2060 Phone: 02 8484 5819 Share Registry Boardroom Pty Limited Level 12, 225 George Street, Sydney, New South Wales 2000 Phone: 02 9290 9600 Auditor PKF Brisbane Audit Level 6, 10 Eagle Street, Brisbane, Queensland 4000 Phone: 07 3839 9733 Stock Exchange Listing Envirosuite Limited shares are listed on the Australian Securities Exchange (Code EVS) www.envirosuite.com 

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