FLUENCE CORPORATION LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2019
Fluence Corporation Limited ABN 52 127 734 196
Annual Report - 31 December 2019
Contents
Corporate Directory
Directors' Report
Auditor's Independence Declaration
Financial Statements
Consolidated Statement of Profit or Loss and Other Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Notes(cid:3)to(cid:3)the(cid:3)Consolidated(cid:3)Financial(cid:3)Statements(cid:3)
Directors'(cid:3)Declaration
Independent(cid:3)Auditor's(cid:3)Report
Environmental(cid:3)and(cid:3)Sustainability(cid:3)information(cid:3)
Shareholder(cid:3)(cid:44)nformation
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Fluence Corporation Limited
Corporate Directory
Directors
Company Secretary
Registered Office
Principal Place of Business
Share Registry
Auditors
Solicitors
Bankers
Securities Quoted
Website
Mr Richard Irving
Non-Executive Chairman
Mr Henry Charrabe
Managing Director and Chief Executive Officer (CEO)
Mr Peter Marks
Non-Executive Director
Mr Ross Haghighat
Non-Executive Director
Dr Ramesh Rengarajan
Non-Executive Director
Mr Arnon Goldfarb
Non-Executive Director
Mr Paul Donnelly
Non-Executive Director
Mr Ross Kennedy
Level 3, 62 Lygon Street
Carlton VIC 3053
Australia
Phone: +61 (0)3 9824 5254
Fax: +61 (0)3 9822 7735
10 Bank Street
8th Floor
White Plains New York 10606
United States of America
Phone: +1 212 572 5700
Boardroom Pty Ltd
Level 12, 225 George Street,
Sydney, New South Wales, 2000, Australia
Phone: 1300 737 760 (local)
Fax: +61 (0)2 9290 9600 (international)
BDO East Coast Partnership
Tower 4, Level 18, 727 Collins Street,
Melbourne, Victoria, 3008, Australia
Lander & Rogers Lawyers
Level 12, Bourke place, 600 Bourke Street
Melbourne, Victoria, 3000, Australia
HSBC Bank Australia Limited
Melbourne, Victoria, Australia
Australian Securities Exchange
- Ordinary Fully Paid Shares (Code: FLC)
https://www.fluencecorp.com/investor-news/
Fluence Corporation Limited
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Fluence Corporation Limited
Directors' Report
31 December 2019
The Directors present their report, together with the financial statements for the year ended 31 December 2019 of
Fluence Corporation Limited ("Fluence", the "Company" or the "Group").
Directors
The following persons held office as Directors of Fluence Corporation Limited during the financial year:
Mr Richard Irving, Non-Executive Chairman
Mr Henry Charrabe, Managing Director and Chief Executive Officer (CEO)
Mr Peter Marks, Non-Executive Director
Mr Ross Haghighat, Non-Executive Director
Dr Ramesh Rengarajan, Non-Executive Director
Mr Arnon Goldfarb, Non-Executive Director
Mr Paul Donnelly, Non-Executive Director
Review of operations
1 Multiple milestones achieved in 2019
The main goals for Fluence for 2019 were to continue sales of Smart Products Solutions (SPS), specifically in China
and to grow the Recurring Revenue (RR) segment. Whilst revenues were lower than anticipated, the Company
managed to achieve several significant milestones during the year:
•
•
•
Smart Product Solutions revenue grew to US$26.4m in 2019, up 21.1% on 2018, contributing 43% of total
revenue
Ivory Coast water treatment plant contract signed for €165 million
Successful capital raising of AU$36m to increase assembly capacity in China working with local partners and
provide general working capital
• Received additional orders from ITEST for AspiralTM Membrane Aerated Biofilm Reactor (MABR) Smart Products
Solutions (SPS), and established new partnerships with Aerospace Kaitian Environmental Technology and
Liaoning Huahong New Energy with agreements to purchase MABR systems and to establish AspiralTM assembly
lines in their respective provinces
Expanded presence in China, with 38 partnerships, up from 26 in 2018
•
• Recurring revenue of more than US$7.0m, up 6.4% on 2018
• Continued to reduce overheads, which reduced by more than 10% year on year.
The total Company revenue for 2019 was US$61.3 million following a strong 2018 of more than US$101.1 million.
The reduction was due mainly to delays in revenue recognition for the Ivory Coast water treatment project, which
subsequently occurred on January 7, 2020, and delays in the commencement of construction for the San Quintin
project in Mexico.
Revenues for 2020 - 2022 are underpinned by the Ivory Coast water treatment project. The focus in the medium term
is on establishing higher margin, more reliable longer-term revenue streams with lower capital intensity, from Smart
Products Solutions and Recurring Revenue projects, underpinned by Fluence’s proprietary MABR technology.
2 Notable successes include
(i) Smart Products Solutions (SPS)
China
•
Exclusive partnership with ITEST signed in 2018 and delivering orders in 2019, with further orders confirmed for
2020 for Fluence AspiralTM MABR products
•
ITEST ordered an additional 40 AspiralTM units in Q1 2019, Fluence’s single largest AspiralTM order to date
Fluence Corporation Limited
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Directors' Report
31 December 2019
(continued)
Review of operations (continued)
2 Notable successes include (continued)
•
•
Signed new partnerships with Aerospace Kaitian Environmental Technology (Aerospace) and Liaoning Huahong
New Energy (Liaoning)
Signed the first contract in China to deliver a SUBRE project, and later a second SUBRE project designed to
achieve the China Class IV Surface Discharge standards.
Other markets
•
In Latin America, the Company
•
•
received its first AspiralTM order
executed an agreement for a US$5 million containerised SPS for a greenfield lithium mining project in
Argentina
executed an agreement for a US$3 million + lithium brine treatment solution in Argentina;
•
• Demand for NIROBOXTM increased, specifically in the Middle East where water scarcity and security have seen
increased risks for municipal, industrial and commercial entities, with the Company securing the sale of five
NIROBOXTM during the year
•
•
Another MABR order in the USA was received from a customer in New Mexico, where Fluence was able to meet
the high levels of water recycling standards in the United States.
Subsequent to year end, on 2 March 2020, the Company announced it had secured an MABR sale for more than
US$7 million in the Kingdom of Cambodia’s Sihanoukville Port for the Ministry of Land Management, Urban
Planning and Construction through its local partner Xwater Technology Co. Ltd.
(ii) Recurring Revenue and Aftermarket
• Commencement of the Bimini, Bahamas project achieved, delivering at leaset 450,000 gallons per day with a
capacity of up to 792,000 gallons per day, with the project creating recurring revenues of US$1.7m per annum for
the next 15 years
•
•
Secured and started development of a BOOT project in Peru, expected to be completed in the second half of
2020 and generate US$3.0m per annum revenue for 10 years, after completion
Secured a service contract for a NIROBOXTM installation on Barbuda
• Operation & Maintenance contracts for NIROBOXTM installations in Egypt
(iii) Custom-Engineered Solutions (CES)
• During 2019, the Company signed a commercial agreement with the Federal Government of Ivory Coast for the
turnkey supply of 150,000m3/day surface-water treatment plan. Financial close for the project was achieved on 7
January 2020, with the execution of the financing agreement by the Ministry of Finance of Ivory Coast (the
"Customer") and the Israeli Discount Bank ("IDB"), with credit insurance from Export Credit Agency of Israel,
ASHRA. Fluence expects all outstanding Conditions Precedent to be met and to receive Notice to Proceed in
order to begin construction work by Q2 2020. The landmark €165m deal is expected to help Fluence achieve
sustainable positive EBITDA growth in Q1 2020 and going forward
Fluence Corporation Limited
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Fluence Corporation Limited
Directors' Report
31 December 2019
(continued)
Review of operations (continued)
2 Notable successes include (continued)
• During the year, Fluence continued to work with local authorities regarding the San Quintin project in Mexico.
Fluence continues to have a strong working relationship with the State Water Commission of Baja California
(CEA) and the local municipality. Following the elections in Mexico, the new administration undertook a review of
all local projects and informed the Company of their intent to proceed with the project. Since such time, the
customer and the Company have been engaged in discussions to address any remaining open items under the
contract.
• On 13 May 2019, the Company signed a deal to design, engineer and construct a 12,000m3/day seawater
desalination plant in Brazil for one of the world’s largest steel producers with expected construction completion in
Q4 2020. The contract is worth US$10.0m and will be the largest desalination plant in Brazil.
3 Detailed review of key market segments
Current centralised water treatment plants present major challenges to address the growing global water scarcity
issue as they tend to be landlocked, have aging infrastructure and increasingly cannot meet the demands for clean
water. Moreover, such centralised water treatment plants cannot be easily expanded, and upgrades are costly.
In response to these challenges, investment is being made in alternative decentralised solutions to address capacity
needs quickly and economically, and importantly meet growing regulatory requirements. Fluence and its businesses
are focused on key environmental and sustainability pillars in alignment to the Sustainable Development Goals of the
United Nations. The installed base of Fluence’s innovative solutions such as AspiralTM, SUBRE and NIROBOXTM,
save approximately 19 GWh [gigawatt hours] (equivalent to 13,500 tons of CO2) annually compared to conventional
technologies. In addition, Fluence’s waste-to-energy installations around the world produce biogas from biomass and
generate 121 GWh, which is equivalent to saving more than 85,700 tons of CO2 emission annually compared to
fossil-fuelled power generation.
(i) Smart Products Solutions (SPS)
Smart Products Solutions revenue grew from US$22 million in 2018 to US$26.4 million in 2019, representing an
increase of 21.1%.
MABR - Aspiral™ / SUBRE
Fluence continued its expansion into China, both through sales and manufacturing facilities, through its strong
position, the Company has been able to leverage its market position to participate in the planned improvement in
China’s rural wastewater treatment quality. The current five-year plan outlined by the Chinese Government is
targeting, and provides finance for, an increase in wastewater treatment for remote rural villages, to the Class 1A
effluent discharge standard. With the five-year plan’s target to reach 70% treatment of rural wastewater in China,
Fluence’s Smart Packaged Aspiral™ system featuring MABR technology is the lowest cost treatment alternative
available in the decentralised market, and has the proven capability to consistently reach Class 1A effluent discharge
standards.
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Directors' Report
31 December 2019
(continued)
Review of operations (continued)
3 Detailed review of key market segments (continued)
The 21 provinces and districts in China highlighted are covered by 38 strategic partnerships
Fluence Chinese partner ITEST, which entered into a framework agreement in 2018, has been taking delivery of
orders throughout 2019. The relationship with ITEST continues to evolve, with Fluence receiving additional orders for
its AspiralTM during the year.
Fluence received its first order of AspiralTM in Latin America in February 2019, with this first sale driving a market
response in other regions. The interest in MABR-based products outside of China is evidence of the growing
recognition of the product’s unique operating cost advantages.
In February 2019, Phase I testing of Fluence’s Aspiral™ unit at the Codiga Resource Recovery Centre (CR2C) at
Stanford University (California, USA) was completed. CR2C released its interim report confirming MABR’s
compliance with California’s strict Title 22 reuse standard. These criteria are among the strictest water treatment
standards for water recycling and reuse in the United States. This validation bolsters Fluence’s view that MABR
technology is ideally suited to address the toughest wastewater challenges in the United States and around the world.
In April 2019, Fluence entered into an exclusive distribution agreement with Aquatec Maxcon (AQM) to promote and
sell Smart Packaged Aspiral™ MABR‐based solutions in Australia. Partnering with AQM allows Fluence to leverage
AQM’s extensive local water industry contacts and 50 years’ worth of operating expertise. Australia is a new market
for Fluence’s Aspiral™ technology and partnering with AQM will
increase the global footprint of Fluence’s Smart
Products Solutions without a significant investment by the company.
On 27 August 2019, Fluence signed a Letter of Intent with the Yiyang High-Tech Industrial District Management
Committee for the establishment of a final assembly facility for its MABR products. The increase in capacity was
underpinned by the Memorandum of Understanding Fluence signed with local partner Aerospace Kaitian
Environmental Technology Co, Ltd. to serve as the preferred supplier to Kaitian for wastewater treatment equipment.
Subject to execution of the binding purchase orders, Kaitian has indicated it is targeting orders of AspiralTM L4 to
satisfy capacity of up to 40,000m3/day or more by the end of 2021.
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Directors' Report
31 December 2019
(continued)
Review of operations (continued)
3 Detailed review of key market segments (continued)
In September 2019, Fluence signed an Investment Cooperation Agreement with The People’s Government of
Xinglontai District and Liaoning Huahong New Energy CO., Ltd for the establishment of a final assembly facility for its
proprietary MABR products and a volume commitment by Liaoning Huahong to purchase AspiralTM and SUBRE
products with a capacity of 52,500m3/day through the end of 2021. This agreement secured Fluence as the preferred
supplier of wastewater treatment equipment for Liaoning Huahong.
NIROBOX™
As water scarcity and water security become greater risks for municipal, industrial and commercial entities, we see
growing interest in our suite of offerings, particularly in the Middle East. Fluence is exploring partnership opportunities
for NIROBOXTM in key geographies around the world.
Finally, Fluence executed on a contract in October 2019 to deliver a Smart Products Solutions greenfield project for a
lithium mining project in Argentina, worth US$5.0m. The project will utilise Fluence’s ION exchange technology to
remove naturally occurring contaminants from lithium brine, resulting in the highest product quality for the customer.
The project is expected to be completed before the end of 2020.
(ii) Recurring Revenue and Aftermarket
In April 2019, Fluence made its first drawdown of approximately US$2 million on the US$50 million Generate Capital
non-recourse debt facility. The funds were used to finance and complete Fluence’s first seawater desalination plant in
the Bahamas, at a resort in North Bimini. The construction was completed during Q2 2019 and commercial operation
commenced in Q4, the delay in final commercial operation was due to the tragedy of Hurricane Dorian which battered
northern Bahamas in early September 2019, the project was a major milestone in the development of Fluence’s
business model. The customer is pleased with the water quality from testing and is eager to commence the long-term
supply agreement. Upon commercial operations, we expect to receive US$1.7 million annually for the next 15 years
of operation.
In December 2018 Fluence secured the rights to design, build and operate a seawater desalination plant in central
Peru, including a 10-year Water Purchase Agreement with an industrial client. Development work on Peru BOOT
project begun during 2019 following the receival of all permits and should allow Fluence to begin site construction in
the first half of 2020 and commence commercial operations in second half of 2020. Once completed, the project is
expected to generate annual recurring revenue of at least US $3 million for 10 years.
(iii) Engineered Solutions and Other Products (CES)
In February 2019, Fluence signed a landmark €165 million commercial agreement with the Federal Government of
Ivory Coast for the supply of a 150,000 m3/day surface-water treatment plant. Financial close was achieved on 7
January 2020 with the focus now on moving towards construction commencement of this important turnkey water
treatment plant.
The plant will treat water from Lagune Aghien, Ivory Coast’s largest freshwater reserve near Abidjan. This reserve is
dense with algae and other contaminants, with this project targeted to help meet the fresh water needs of the
country’s largest city. With 4.7 million people, Abidjan is in urgent need of reliable, clean water due to its growing
population and housing development.
In March 2019 Fluence’s Egyptian joint venture partnership, The International Co. for Water Services & Infrastructure
(IWSI), together with Hassan Allam EPC, was awarded a US$74 million contract to design and construct a 40,000
m3/day seawater desalination plant in New Mansoura. The infrastructure will be designed and built for a capacity
expansion to 80,000 m3/day. Fluence will act as the technology provider, and the general contractor designing the
process and supplying the pre-treatment, reverse osmosis skids, post-treatment equipment, and the start-up and
commissioning of the plant.
Fluence Corporation Limited
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Directors' Report
31 December 2019
(continued)
Review of operations (continued)
4 Review of financial results
The Group has used United States Dollars (US$), as its presentation currency in the attached financial report, which
conform to IFRS accounting standards.
The operating revenue from ordinary activities for the twelve months ended 31 December 2019 was US$61.0 million
(2018: 100.9 million) and the loss from ordinary activities after tax was US$31.6 million (2018: US$62.8 million). 2018
loss included a US$56.3 million non-cash goodwill write off.
Cost of sales for the twelve months ended 31 December 2019 decreased to US$51.5 million (2018: US$67.4 million).
The Group’s net assets decreased by US$4 million to US$47.1 million during the twelve months to 31 December
2019.
5
Significant changes in the state of affairs
During the twelve-month period, there was no significant change in the state of affairs of the company.
6
Likely developments and expected results of operations
The Group expects to continue to grow its global footprint through the design, manufacture and sale of Smart Product
Solutions for water and wastewater treatment, based on the core product portfolio which has been established:
AspiralTM (MABR) for wastewater treatment;
•
• NIROBOXTM and NIROFLEX for water desalination and treatment of brackish water;
•
•
SUBRE (MABR) for existing or new wastewater treatment; and,
Products that are more than 50% pre-engineered, standardised and have more than 25% gross margin
Revenues from Smart Products Solutions are forecast to reach at least US$32 million in 2020, compared to US$26
million in 2019 and US$22 million in 2018.
Fluence is also targeting sustainable EBITDA profitability for the full year 2020. This will be achieved through sales of
Custom-Engineered Solutions and other products plus increasing sales of Smart Product Solutions plus higher
recurring revenues from BOOT projects, water service agreements and aftermarket support.
The Product and Innovation segment is focused on improving existing technologies, identifying opportunities for cross
fertilisation of technology ideas between different products in the Group, developing new technologies applicable to
water and wastewater treatment, and ensuring that the intellectual property of the group is protected.
7 Notes regarding the operational impact of the COVID-19
With reference to the spread of the COVID-19 pandemic (the "Coronavirus") as of the date of this report no Fluence
team members are infected around the globe.
Fluence China is now operating effectively and efficiently and is continuously producing MABR products and shipping
from China to customers within China and from around the world without any material supply chain or shipping
delays. We are not currently anticipating any material deviation from our 2020 forecast sales in China. This includes
the recent SUBRE US$7 million order in Cambodia which is expected to be delivered by the end of Q2.
Other regions of the world are starting to be confronted by similar economic effects from the Coronavirus as China
experienced earlier this year. Particularly our team in northern Italy is affected by the repercussions of the spread of
the virus and the impact on business in that region.
Fluence Corporation Limited
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Directors' Report
31 December 2019
(continued)
Review of operations (continued)
7 Notes regarding the operational impact of the COVID-19 (continued)
We continue to focus on delivering products in a timely and efficient manner by utilising a largely reliable and
uninterrupted supply chain for manufacturing. We are also witnessing the benefits of being geographically diversified
with several supply sources available in different countries.
As we are going through these challenging times, we will continue to focus on the well-being of our staff, the timely
delivery of our solutions to our customers and partners, while also monitoring the constantly changing environment so
that we are ready to adjust as may be deemed necessary in the future.
Significant events after balance date
On 7 January 2020 the Company announced that financial close on the €165 million (US$182 million) Ivory Coast
water treatment plant has been achieved with the execution of the financing agreement by the Ministry of Finance of
Ivory Coast (the "Customer") and the Israeli Discount Bank ("IDB"). Export Agency of Israel, ASHRA will provide
credit risk insurance.
On 2 March 2020 the Company announced that it has secured a SUBRE membrane aerated biofilm reactor (MABR)
sale in the Kingdom of Cambodia through its local partner, Xwater Technology Co., Ltd. This order has a value of
more than US$7 million, consists of 66 SUBRE towers, and is expected to be delivered by June 2020.
Subsequent to reporting date, on 31 January 2020, the World Health Organisation (WHO) announced a global health
emergency because of a new strain of coronavirus (COVID-19 outbreak) and the risks to the international community
as the virus spreads globally beyond its point of origin. Because of the rapid increase in exposure globally, on 11
March 2020, the WHO classified the COVID-19 outbreak as a pandemic. These events are having a significant
negative impact on world stock markets, currencies and general business activities.
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Directors' Report
31 December 2019
(continued)
Information on directors
Richard Irving Non-Executive Chairman
Qualifications
B. Sc. (First class honours) in Electrical Engineering, Manchester University, UK
M. Sc. Electrical Engineering, Manchester University, UK
Experience and
expertise
Richard Irving is the Non-Executive Chairman of Fluence Corporation Limited. In January
2019 following the release of the Company’s results for 2018, Mr. Irving stepped down
from Executive Chairman to Non-Executive Chairman. Prior to Fluence Corporation
Limited, Mr. Irving served as Executive Chairman & Chairman of Emefcy Group Limited
from 2010.
Based in Silicon Valley, Richard co-founded Pond Venture Partners in 1997 and brings
over 30 years’ experience in venture capital, business management, marketing and
engineering in technology companies including AT&T Bell Labs, AMD, and Brooktree.
Richard has helped create over $3 billion in shareholder value through IPOs,
acquisitions, and private financings.
Past exits include LiveRail (Facebook), Gigle Networks (Broadcom), 4Home (Motorola
Mobility), Transitive (IBM), and Microcosm Communications (Conexant).
Richard also serves as a Venture Advisor to Samsung.
Other current public
company directorships
Former public company
directorships in last 3
years
None
None
Special responsibilities Non-Executive Chairman
Member of the Remuneration and Nomination Committee
Interest in shares
Interest in options
Richard has an indirect interest through Pond Venture Nominees III Limited in
36,264,579 shares and a direct interest in 1,000,000 shares, for a total of 37,264,579
shares in the Group.
Direct interest in:
950,000 Director options with an exercise price of A$1.20;
950,000 Director options with an exercise price of A$1.50
Contractual rights to
shares
Nil
Fluence Corporation Limited
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Directors' Report
31 December 2019
(continued)
Information on directors (continued)
Henry Charrabé Managing Director & CEO
Qualifications
Mr. Charrabé received a B.A. from the Freie Universität in Berlin and Tel Aviv University.
He earned an M.A. in Political Science and an M.A. in International Economics and
Finance, both from Brandeis University, as well as an M.A. in Public Administration from
the John F. Kennedy School of Government at Harvard University.
Experience and
expertise
Henry Charrabé serves as the Managing Director and Chief Executive Officer of Fluence.
He brings more than 15 years of experience in developing water and wastewater
management and investment solutions to his role at the Group.
Prior to the establishment of Fluence, Mr. Charrabé served as President and Chief
Executive Officer of RWL Water from its inception in 2010 up to the time of the
acquisition by Emefcy Group Limited on 14 July 2017. During his tenure, Mr. Charrabé
was instrumental in establishing RWL Water as a global player through strategic
acquisitions and significant organic growth. Prior to RWL Water, Mr. Charrabé was a
senior executive at RSL Investments Corporation in the United States and Europe.
From 2003 to 2005, Mr. Charrabé served as Chief Operating Officer of W2W, an
electrocoagulation wastewater technology company.
Other current
directorships
Former directorships in
last 3 years
Nil
Nil
Special responsibilities Nil
Interest in shares
Nil
Interest in options
Direct interest in:
10,391,855 Director options with an exercise price of A$0.93;
3,360,000 Director options with an exercise price of A$0.39.
Contractual rights to
shares
None
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Directors' Report
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(continued)
Information on directors (continued)
Peter Marks Non-Executive Director
Qualifications
Experience and
expertise
B.Ec, LLB and Graduate Diploma in Commercial Law, Monash University, Melbourne,
Australia
MBA degree from the University of Edinburgh, Scotland (Scottish Business School)
Peter Marks serves as Non-Executive Director for Fluence Corporation. Mr. Marks has
over 30 years' of experience in corporate finance and investment banking, specialising in
capital raisings (for listed and unlisted companies), underwriting, IPOs, corporate
restructurings, and venture capital transactions with a focus on emerging technologies
and life sciences.
Furthermore, he has participated in over $3 billion in public and private capital raisings
and has served as an Executive and Non-Executive Director of many entities which have
been listed on the ASX, NASDAQ and AIM markets.
Other current
directorships
Alterity Therapeutics Ltd. (listed on ASX and NASDAQ), Noxopharm Ltd, Nyrada Inc.
(listed on ASX), Electriq~Global Ltd (unlisted) and Elsight Ltd (listed on ASX)
Former directorships in
last 3 years
Nil
Special responsibilities Member of the Remuneration and Nomination Committee
Chair of the Audit and Risk Committee.
Interest in shares
Indirect interest in 2,754,403 shares through Lampam Pty Ltd.
Interest in options
Direct interest in:
700,000 Director options with an exercise price of A$1.20;
700,000 Director options with an exercise price of A$1.50.
Contractual rights to
shares
None
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Directors' Report
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(continued)
Information on directors (continued)
Ross Haghighat Non-Executive Director
Qualifications
Experience and
expertise
B.Sc. and a Masters in Material Science in Organometallic Chemistry, Rutgers University
(USA). MBA, Boston College - Carroll School of Management (USA)
Ross Haghighat serves as a Non-Executive Director for Fluence Corporation. He has
over 30 years' of experience in the technology sector as founder or co-founder of half a
dozen companies with a combined shareholder value exceeding $4.5B.
With over 20 years' in operating and strategic roles and a decade in the investment
arena, he has helped to create a number of global enterprises in the private and public
space in the US, China, Australia and Europe. Mr. Haghighat was
Non-Executive Director of Emefcy Group Limited from 2015.
He serves as Chairman for Triton Systems Group - a Global Investment and Product
Venturing firm. He serves as a Director at Aduro Biotech a clinical stage biopharma
(Nasdaq: ADRO) and is Chairman of FRX Polymers, a specialty chemicals firm with
operations in the US, Europe, and China.
Other current
directorships
Aduro Biotech, Inc, Triton Systems, Inc, FRX Polymers, Inc, Redrock Biometrics, Inc.,
Angel Medical Systems, Inc.
Former directorships in
last 3 years
None
Special responsibilities Chair of the Remuneration and Nomination Committee
Member of the Audit and Risk Committee until 28 August 2018
Interest in shares
Direct interest in 500,000 shares
Indirect interest in 2,254,403 shares
Interest in options
Direct interest in:
700,000 Director options with an exercise price of A$1.20;
700,000 Director options with an exercise price of A$1.50.
Contractual rights to
shares
None
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(continued)
Information on directors (continued)
Dr Ramesh Rengarajan Non-Executive Director
Qualifications
Experience and
expertise
Bachelor in Chemical Engineering from Annamalai University in India
Masters in Chemical Engineering from University of Akron in Ohio, USA
Doctorate in Chemical Engineering from University of Akron in Ohio, USA
Dr. Ramesh serves as Non-Executive Director for Fluence Corporation. He is an
Operating partner at Eagletree Capital since 2010. Previously, Dr. Ramesh supported
RWL Water’s efforts to evaluate the best water treatment technologies and companies
around the world.
Dr. Ramesh has held senior management positions at GE Water and Process
Technologies, including Chief Technology Officer (CTO), a role which he held for more
than four years. As CTO, Dr. Ramesh played a key role in the development and
implementation of the strategy that led to the creation of GE’s $2.5 billion global water
platform. While at GE, he also led the technology and engineering organisations for GE
Sensing, GE Security, and GE Fanuc. He also served on the board of GE’s Asia Pacific
American Forum.
In addition to his role at GE, Dr. Ramesh served in numerous senior management roles
over a two-decade career with A. Schulman, Inc., a global multi-billion-dollar specialty
chemicals manufacturer. He also served on the International Advisory Board for the
Ministry of Environment and Water, Government of Singapore from 2006-2016.
He currently serves on the board of Students2Science a non-profit organisation serving
inner-city schools by proving hands on lab training to teachers and students.
Other current
directorships
Nil
Former directorships in
last 3 years
Liqtech - (NYSE:LIQT)
Special responsibilities Nil
Interest in shares
Nil
Interest in options
Direct interest in 1,500,000 Director options with an exercise price of A$0.835
Contractual rights to
shares
None
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(continued)
Information on directors (continued)
Arnon Goldfarb Non-Executive Director
Qualifications
Experience and
expertise
Arnon Goldfarb holds a B.Sc. in Chemistry from the Hebrew University, Jerusalem, Israel
and a M.Sc. in Ocean Engineering from University of Rhode Island, USA.
Arnon Goldfarb serves as Non-Executive Director for Fluence Corporation. Currently he
is a partner at More Ventures and has significant entrepreneurial experience and
interests in chemistry, materials and industrial processes.
Until early 2011, Arnon served as CEO of TMB Water, a water project company active in
desalination, aquaculture and water treatment efforts in Israel and abroad, and the
predecessor to RWL Water. Prior to establishing TMB in 2001, Arnon spent 17 years with
Israel Chemicals Ltd., where he served as Corporate VP for Business Development and
Chairman of the R&D, Fertilisers and Chemicals, and Ceramics units. He was also a
director at ICL’s Israel Desalination Engineering (IDE) subsidiary as well as its potash,
phosphate and bromine subsidiaries.
Previously, Arnon worked in the oil and gas industry in Israel and the US as a production
and facilities engineer with Superior Oil and Israel National Oil Co., and as a production
and field manager for Israel’s Sadot natural gas field.
Arnon serves as Chairman of Atlantium Technologies, as well as on the boards of TGA, a
waste treatment facility, TSP, a chemical company and Hpnow, a company that
developed hydrogen peroxide equipment
Other current
directorships
Atlantium, TGA, TSP and Hpnow (see above)
Former directorships in
last 3 years
Nil
Special responsibilities Nil
Interest in shares
Nil
Interest in options
Direct interest in:
750,000 Director options with an exercise price of A$1.20;
750,000 Director options with an exercise price of A$1.50.
Contractual rights to
shares
None
Fluence Corporation Limited
14
Fluence Corporation Limited
Directors' Report
31 December 2019
(continued)
Information on directors (continued)
Paul Donnelly Non-Executive Director
Qualifications
BSc (Hons) Chemistry, University of Southampton
Advanced Management Programme, Harvard Business School
Member of Institute of Chartered Accountants in England & Wales
Graduate Australian Institute of Company Directors
Experience and
expertise
Paul Donnelly serves as Non-Executive Director for Fluence Corporation. Mr. Donnelly is
an accomplished financial services executive with international experience across all
aspects of capital markets.
Mr. Donnelly is Chief Executive Office of Flagstaff Partners, an independent corporate
advisory firm.
Previously, Mr. Donnelly was an Executive Director at Macquarie Capital, where he
worked for 25 years in various roles, including President & CEO of Macquarie’s Canadian
operations, and Global Head of Equity and Debt Capital Markets.
Mr. Donnelly has a broad range of investment banking experience, in Australia and
internationally, with particular skills in capital markets. Over his thirty-year career he has
gathered deep transactional experience advising on significant and complex transactions
for leading Australian and international companies.
Other current
directorships
Melbourne Recital Centre
Former directorships in
last 3 years
Nil
Special responsibilities Member, Audit and Risk Committee
Interest in shares
Indirect interest in 500,000 shares held by Tres Petitbijou Pty Ltd ATF
Interest in options
Indirect interest through Tres Petitbijou Pty Ltd ATF in:
250,000 Director options with an exercise price of A$0.60;
250,000 Director options with an exercise price of A$0.80.
Contractual rights to
shares
None
Company secretary
The Company Secretary is Ross Kennedy. Mr. Kennedy was appointed to the position of Company Secretary on 23
December 2015. Ross was previously Secretary and Executive General Manager of St Barbara Limited for ten years.
Ross is an experienced Company Secretary, holding the professional qualifications of Fellow Governance Institute of
Australia; Fellow Australian Institute of Company Directors; and Chartered Accountant.
Fluence Corporation Limited
15
Fluence Corporation Limited
Directors' Report
31 December 2019
(continued)
Meetings of directors
The number of meetings of the Group's Board of Directors (the "Board") and of each Board Committee held during
the year ended 31 December 2019, and the number of meetings attended by each Director were:
Fluence - for the year ended 31 December 2019
Mr Richard Irving
Mr Henry Charrabé **
Mr Ross Haghighat
Mr Peter Marks
Dr Ramesh Rengarajan **
Mr Arnon Goldfarb **
Mr Paul Donnelly
Mr Ross Kennedy (Company Secretary and Audit Committee
member)
Full
Board
Meetings of committees
Remuneration
and
Nomination
Audit
A
11
12
12
12
11
10
11
-
B
12
12
12
12
12
12
12
-
A
-
-
-
11
-
-
11
11
B
-
-
-
11
-
-
11
11
A
4
-
4
4
-
-
-
-
B
4
-
4
4
-
-
-
-
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
** = Not a member of a Board Committee
Environmental regulation
As a provider of water and wastewater treatment solutions, the Group is subject to environmental regulations in each
jurisdiction in which it operates. MABR has demonstrated compliance with China Class 1A effluent standards as well
as with Title 22 Certification in California, USA. The consolidated entity is not subject to any other significant
environmental regulation under Australian Commonwealth or State law.
Remuneration report (Audited)
(a) Principles used to determine the nature and amount of remuneration
The objective of the Group's executive reward framework is to ensure reward for performance is competitive in
attracting and retaining talent and appropriate for the business results delivered. The framework aligns executive
reward with the achievement of strategic objectives and the creation of value for shareholders, and conforms to
generally accepted industry standards for remuneration. The Board ensures that executive reward satisfies the
following key criteria in accordance with good reward governance practices:
• Competitiveness to attract and retain talent;
• Reasonableness in terms of industry benchmarks;
•
•
•
Acceptability to shareholders;
Alignment of compensation incentives to business performance goals; and
Transparency.
Remuneration is aligned to shareholders’ interests and program participants’ interests as follows:
(a)
Alignment to shareholders' interests:
•
Achievement of strategic goals as a core component of plan design;
Fluence Corporation Limited
16
Fluence Corporation Limited
Directors' Report
31 December 2019
(continued)
Remuneration report (Audited) (continued)
(a) Principles used to determine the nature and amount of remuneration (continued)
•
•
•
The MD & CEO has added focus on growth in shareholder wealth, as measured by growth in the
share price;
Focusing the executives on key non-financial drivers of value; and
Attracts and retains high calibre executives.
(b)
Alignment to program participants' interests:
•
•
•
Rewards capability and experience;
Reflects competitive reward for successful execution of the business strategy and business
performance; and
Provides a clear structure for earning rewards.
In accordance with best practice corporate governance, the structure of Non-Executive Directors and executive
remuneration are separate.
Directors remuneration
Fees and payments to Non-Executive Directors reflect the demands and responsibilities of their role. Non-Executive
Directors'
fees and payments are reviewed annually by the Remuneration and Nomination Committee with
recommendations made to the full Board.
level of Non-Executive Directors'
fees and payments remain in line with previous benchmarking
The current
recommendations provided by Mercer Consulting. Mercer is regarded as one of the world’s largest remuneration
benchmarking and consulting services companies. The firm was engaged by the Remuneration and Nomination
Committee to recommend Executive Chair and Non-Executive Directors' fees, including Board Committee fees, are
appropriate for the demands on being on the Board of a developing and global technology business, and as
benchmarked against market rates for comparable positions for peer companies.
In early 2019, the Executive Chairman role transitioned to Non-Executive Chair.
The Board has determined that there will be no increase in Non-Executive Director fees for 2020.
This follows the same decision in 2018 and 2019, such that Non-Executive Director fees are unchanged from the
Mercer Consulting recommendations in 2017.
The Non-Executive Chair's fees for 2019 were determined in parallel to the fees of other Non-Executive Directors,
and also having regard to the scope of the role and comparative roles in the external market. The Non-Executive
Chairman did not participate in any discussions relating to the determination of his own remuneration.
Directors engaged on Committees of the Board are also entitled to receive Board Committee fees. These too have
remained unchanged since 2017.
In view of the growing and developing nature of the Company, Non-Executive Directors may also be engaged on
specific projects, on commercial arm’s length terms, where the executive team either does not have the same skill
sets or capacity. All such special purpose project arrangements are approved by the full Board with the relevant
Director abstaining.
Other than Director Fee and Board Committee Fees, Directors may receive share options but do not receive other
incentives or compensation.
ASX listing rules require the aggregate Non-Executive Directors remuneration be determined periodically by a
general meeting. The most recent determination on 12 July 2017 was that shareholders approved an aggregate
remuneration of AU$ 1,000,000 (equivalent of US$ 767,000 at that time).
Fluence Corporation Limited
17
Fluence Corporation Limited
Directors' Report
31 December 2019
(continued)
Remuneration report (Audited) (continued)
(a) Principles used to determine the nature and amount of remuneration (continued)
Executive remuneration
The consolidated Company aims to reward executives with a level and mix of remuneration based on their position
and responsibility, which has both fixed and variable components.
The executive remuneration and reward framework has four components:
Base pay, deferred compensation and allowance;
Short-term performance incentives;
Share-based payments; and
•
•
•
• Other remuneration such as superannuation and long service leave.
The combination of these comprises the executive's total remuneration.
Executive remuneration levels also reference to a detailed benchmarking review of peer companies undertaken by
Mercer Consulting in mid-2017 updated for subsequent increases for cost of living adjustments and any changes in
the scope of responsibilities.
Fixed remuneration, consisting of base salary, superannuation and non-monetary benefits, are reviewed annually by
the Remuneration and Nomination Committee and then the Board of Directors. The review also had regard to
individual responsibilities, performance and business unit performance.
In the latter part of 2018, ClearBridge Compensation Group, was engaged to design an Executive remuneration
system. The resulting recommendation adopted by the Board comprised a fixed base, a short-term incentive ("STI")
targets and the continuing long-term incentive (“LTI”) program
program incorporating Company and individual
incorporating equity-based compensation.
The STI program for 2019 is comprised of specific Company-wide targets and tailored individual targets to aligned to
specific areas of responsibility. Key Performance Indicators ("KPI's") include meeting or exceeding budget goals for
the year.
The Board also reserves the right to award discretionary bonuses to executives for exceptional achievements which
may relate to specific transactions.
The LTI program is comprised of equity-based remuneration in the form of unlisted options. An employee option plan
was originally approved by shareholders on 17 November 2015 and was last amended on 18 June 2019. Options are
awarded to executives as long-term incentives aligned to shareholder wealth through the exercise price being
calculated at a premium to volume weighted average market price prior to the date of grant. Appropriately structured
LTI's also provide incentives to retain talent.
Certain executive options are comprised of a 50%-time vesting element and a 50% performance-based vesting
element. The performance-based element requires KPI’s set annually to be achieved for these options to vest.
Business performance in 2019 and executive remuneration
Fluence undertakes its activities on a global basis and employs staff across multiple geographies. As part of its
practice of recruiting and retaining staff of the highest calibre on a long-term basis, the Company is constantly
monitoring and developing compensation practices. As noted above, international benchmarking is used as an
important tool
in setting remuneration practices. In reflection of the modest business achievements during 2019
executive STI bonuses for 2019 were towards the lower end of the available bonus quantum. No performance options
have been deemed to have vested with respect to the 2019 year.
Fluence Corporation Limited
18
Fluence Corporation Limited
Directors' Report
31 December 2019
(continued)
Remuneration report (Audited) (continued)
(a) Principles used to determine the nature and amount of remuneration (continued)
Consolidated entity performance and link to remuneration
The Remuneration and Nomination Committee is of
compensation will continue to increase shareholder wealth if maintained over the coming years.
the opinion that
the adoption of performance-based
Key management personnel bonuses for the year 2020 will be considered by the Remuneration and Nomination
Committee and the Board on the basis of both the individual’s and consolidated entity’s performance relative to
pre-determined KPI's during the financial year and exceptional achievements.
Directors consider that the option program and the exercise prices provide incentives to management and Directors
which are aligned with the interests of shareholders to lift the value of the company in the medium term. Any
remuneration derived by employees from the employee option program is directly linked to the improved share price
performance of the consolidated entity relative to the exercise price determined at the time of the issue of the options.
The Directors' report presents the Fluence Corporation Limited 2019 remuneration report, outlining key aspects of our
remuneration policy and framework, and remuneration awarded this year.
(b) Details of remuneration
Amounts of remuneration (shown in USD)
The following tables show details of the remuneration expense recognised for the Group's Directors and Executive
key management personnel
the current and previous financial year measured in accordance with the
requirements of the accounting standards.
for
Directors and other key management personnel for 2019 consisted of:
• Richard Irving - Non-Executive Chairman
• Henry Charrabe - Managing Director and Chief Executive Officer (CEO)
• Peter Marks - Non-Executive Director
• Ross Haghighat - Non-Executive Director
• Rengarajan Ramesh - Non-Executive Director
• Arnon Goldfarb - Non-Executive Director
• Paul Donnelly - Non-Executive Director
• Francesco Fragasso - Chief Financial Officer
• Anthony Hargrave - Chief Operating Officer
• Erik Arfalk - Chief Marketing Officer
• Spencer Smith - Chief Legal Officer
Fluence Corporation Limited
19
Fluence Corporation Limited
Directors' Report
31 December 2019
(continued)
Remuneration report (Audited) (continued)
(b) Details of remuneration (continued)
Amounts of remuneration (shown in USD) (continued)
Directors and other key management personnel for 2018 consisted of:
• Richard Irving - Non-Executive Chairman
• Henry Charrabe - Managing Director and Chief Executive Officer (CEO)
• Peter Marks - Non-Executive Director
• Ross Haghighat - Non-Executive Director
• Robert Wale - Non-Executive Director (ceased to be a director on 24 May 2018)
• Rengarajan Ramesh - Non-Executive Director
• Arnon Goldfarb - Non-Executive Director
• Paul Donnelly - Non-Executive Director (appointed 20 July 2018)
• Francesco Fragasso - Chief Financial Officer (appointed 2 April 2018)
• Anthony Hargrave - Chief Operating Officer (appointed 16 May 2018)
• Erik Arfalk - Chief Marketing Officer (appointed 15 March 2018)
• Spencer Smith - Chief Legal Officer (determined as a key management personnel 1 January 2018)
• Philippe Laval - Chief Operating Officer (resigned on 31 August 2018)
• Robert Wowk - Chief Financial Officer (resigned on 31 May 2018)
Fluence Corporation Limited
20
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l
Fluence Corporation Limited
Directors' Report
31 December 2019
(continued)
Remuneration report (Audited) (continued)
(b) Details of remuneration (continued)
Issue of shares
The number of shares in the Group held during the period by each Director and other Key Management Personnel,
including their personally related parties, are set out below.
2019
Executive Director
Henry Charrabé
Non-Executive Directors
Richard Irving
Peter Marks
Ross Haghighat
Rengarajan Ramesh
Arnon Goldfarb
Paul Donnelly*
Key Management Personnel
Francesco Fragasso
Anthony Hargrave
Erik Arfalk
Spencer Smith
Total
Balance at the
start of the
year
Received as
compensation
Options
exercised
Net change
exercised /
purchased
-
37,264,579
2,754,403
500,000
-
-
-
40,518,982
-
-
-
-
-
40,518,982
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total
-
-
-
-
-
-
-
500,000
500,000
-
-
-
-
-
500,000
37,264,579
2,754,403
500,000
-
-
500,000
41,018,982
-
-
-
-
-
41,018,982
* Paul Donnelly acquired 500,000 Fluence shares on 11 March 2019 via Tres Petitbijou Pty Ltd ATF (the "Fund").
Paul is a Director of the Trustee and beneficiary of the Fund.
Fluence Corporation Limited
27
Fluence Corporation Limited
Directors' Report
31 December 2019
(continued)
Remuneration report (Audited) (continued)
(b) Details of remuneration (continued)
Issue of shares (continued)
2018
Executive Director
Henry Charrabé
Non-Executive Directos
Richard Irving*
Peter Marks*
Ross Haghighat*
Rengarajan Ramesh
Arnon Goldfarb
Robert Wale (ceased to be a
director on 24 May 2018
Paul Donnelly (appointed 20 July
2018)
Key Management Personnel
Francesco Fragasso (appointed 2
April 2018)
Anthony Hargrave (appointed 16
May 2018)
Erik Arfalk (appointed 15 March
2018)
Spencer Smith (determined as
KMP 1 January 2018)
Philippe Laval (resigned 31 August
2018)
Robert Wowk (resigned 31 May
2018)
Total
Balance at the
start of the
year
Received as
compensation
Options
exercised
Net change
exercised /
purchased
-
36,264,579
2,254,403
-
-
-
-
-
38,518,982
-
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-
-
-
38,518,982
-
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1,000,000
500,000
500,000
-
-
-
-
2,000,000
-
-
-
-
-
-
-
2,000,000
Total
-
37,264,579
2,754,403
500,000
-
-
-
-
40,518,982
-
-
-
-
-
-
-
40,518,982
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-
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-
-
-
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*An amount of US$473,744 was paid for options exercised during the year by the following Directors:
Name
Richard Irving
Ross Haghighat
Peter Marks
Amount paid
257,092
108,326
108,326
Fluence Corporation Limited
28
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Fluence Corporation Limited
Directors' Report
31 December 2019
(continued)
Remuneration report (Audited) (continued)
(b) Details of remuneration (continued)
Share-based payments granted as compensation during the year
For the period, options were issued to one director as approved by shareholders and to Key Management Personnel
under the Fluence Corporation Limited Employee Share Option Plan 2015 (amended 2017). In accordance with
AASB 2 Share Based Payments, the tables include employee options agreed to be issued up to and including 31
December 2019. Options issued to Key Management Personnel generally vest 50% on a time basis in 16 equal
quarterly increments subject to the employee continuing to be employed by the Group at the vesting date and 50%
subject to meeting annual performance criteria.
Details of options granted to directors and other key management personnel as compensation during the reporting
period are as follows:
Fluence Corporation Limited
31
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Fluence Corporation Limited
Directors' Report
31 December 2019
(continued)
Remuneration report (Audited) (continued)
Service agreements
Remuneration and other terms of employment for key management personnel are formalised in service agreements.
Details of these agreements are as follows:
Richard Irving
Non-Executive Chairman
Name:
Title:
Agreement commenced: 18 December 2015. Mr Irving was previously Executive Chairman of Emefcy Limited
Term of agreement:
Details:
Open
Non-Executive Chairman Director fees of AU$250,000 (US$173,808) fees per annum.
Remuneration is reviewed annually by the Remuneration and Nomination Committee
Name:
Title:
Agreement commenced: 12 May 2015
Term of agreement:
Details:
Peter Marks
Non-Executive Director
Open
Non-Executive Director fees of AU$120,000 (US$83,428) per annum plus Member of
Remuneration and Nomination Committee fees of AU$12,000 (US$8,343) per annum and
Chair of Audit and Risk Committee fees of AU$16,000 (US$11,124) per annum.
Remuneration is reviewed annually by the Remuneration and Nomination Committee.
Name:
Title:
Agreement commenced: 18 December 2015
Term of agreement:
Details:
Ross Haghighat
Non-Executive Director
Open
Non-executive Director fees of AU$120,000 (US$83,428) per annum plus Chair of
Remuneration and Nomination Committee fees of AU$16,000 (US$11,124) per annum.
Remuneration is reviewed annually by the Remuneration and Nomination Committee.
Name:
Title:
Agreement commenced: 14 July 2017
Term of agreement:
Details:
Dr. Rengarajan Ramesh
Non-executive Director
Open
Non-executive director fees of AU$120,000 (US$83,428) per annum. Remuneration is
reviewed annually by the Remuneration and Nomination Committee.
Name:
Title:
Agreement commenced: 19 September 2017
Term of agreement:
Details:
Arnon Goldfarb
Non-executive Director
Open
Non-executive director fees of AU$120,000 (US$83,428) per annum. Remuneration is
reviewed annually by the Remuneration and Nomination Committee.
Name:
Title:
Agreement commenced: 20 July 2018
Term of agreement:
Details:
Paul Donnelly
Non-executive Director
Open
Non-executive director fees of AU$120,000 (US$83,428) per annum plus Member of Audit
and Risk Committee fees of AU$12,000 (US$8,343) per annum. Remuneration is
reviewed annually by the Remuneration and Nomination Committee.
Fluence Corporation Limited
34
Fluence Corporation Limited
Directors' Report
31 December 2019
(continued)
Remuneration report (Audited) (continued)
Service agreements (continued)
Name:
Title:
Agreement commenced:
Term of agreement:
Details of remuneration:
Cash salary and fees:
Bonuses and deferred remuneration:
Other Benefits:
Employment Based Option Remuneration:
Henry Charrabé
Managing Director and Chief Executive Officer
26 May 2017
Initial two-year term followed by automatic one-year renewals.
The contract was renewed for an additional one year term on 3 July
2019.
US$600,000 (base salary)
US$300,000 (year-end deferred remuneration annually), discretionary
bonus of up to US$75,000, payable annually and a cash bonus of up
to US$300,000 for outperformance on defined performance metrics for
2019
Health insurance and other health and welfare benefits for Mr.
Charrabé and his family (capped at 30% of base salary) and housing
allowance of US$255,232 per annum
Number of options
granted
5,595,668
Grant date
Exercise Price
Vesting Period
31 May 2017
AU$0.93
Options will vest and become exercisable in
equal instalments at the end of each
consecutive three (3) month period over
four (4) years, commencing on 26 May
2017 (Share Purchase Agreement signing
date)
840,000
840,000
30 May 2019
AU$0.39
Options are fully vested
30 May 2019
AU$0.39
Options will vest and become exercisable in
equal instalments at the end of each
consecutive three (3) month period over two
(2) years, commencing on 30 May 2019
Fluence Corporation Limited
35
Fluence Corporation Limited
Directors' Report
31 December 2019
(continued)
Remuneration report (Audited) (continued)
Service agreements (continued)
Performance Based Option Remuneration:
Number of options
granted
5,595,668
31 May 2017
AU$0.93
Grant date
Exercise Price
Vesting Period
1,680,000
30 May 2019
AU$0.39
Options are exercisable in equal annual
instalments at the end of each consecutive
twelve (12) month period over four (4) years
period, commencing on 26 May 2018.
Vesting of these options will be subject to
meeting performance criteria established by
the board
Options vest subject to the Company
achieving two (2) consecutive positive
EBITDA quarters during the period
beginning with Q3 2019 and ending with Q2
2021
If there is a change in control of the Company, all of the then unvested options will immediately vest and become
exercisable. Otherwise, all of the options will expire on the earlier of 60 days after termination of Mr Charrabé’s
employment or by 14 July 2025.
Fluence Corporation Limited
36
Fluence Corporation Limited
Directors' Report
31 December 2019
(continued)
Remuneration report (Audited) (continued)
Service agreements (continued)
Name:
Title:
Agreement commenced:
Term of agreement:
Details of remuneration:
Francesco Fragasso
Chief Financial Officer
2 April 2018
Notice period by either party of 60 days
Cash salary and fees:
Bonuses and deferred remuneration:
Other Benefits:
US$271,667 (base salary)
Performance based bonus of up to 40% of base salary
Health insurance for Mr. Fragasso and his family
Employment Based Option Remuneration:
Number of
options granted
400,000
Grant date
Exercise price
Vesting period
26 March 2018
AU$0.48
Options will vest and become exercisable in
equal instalments at the end of each
consecutive three (3) months period over
four (4) years, commencing on 26 March
2018
Performance Based Option Remuneration:
Number of
options granted
400,000
Grant date
Exercise price
Vesting period
26 March 2018
AU$0.48
Options are exercisable in equal annual
instalments at the end of each consecutive
twelve (12) months period over four (4)
years period, commencing on 26 March
2018. Vesting of these options will be
subject to meeting performance criteria
established by the Board.
Fluence Corporation Limited
37
Fluence Corporation Limited
Directors' Report
31 December 2019
(continued)
Remuneration report (Audited) (continued)
Service agreements (continued)
Name:
Title:
Agreement commenced:
Term of agreement:
Details of remuneration:
Anthony Hargrave
Chief Operating Officer
Mr Hargrave joined Fluence Corporation Limited on 16 May 2018
Notice period by either party of 90 days
Cash salary and fees:
Bonuses and deferred remuneration:
Other Benefits:
US$300,000 (base salary)
Performance based bonus of up to 30% of based salary
Health insurance for Mr. Hargrave and his family
Employment Based Option Remuneration:
Number of
options granted
250,000
Grant date
Exercise price
Vesting period
28 June 2018
AU$0.46
Options will vest and become exercisable in
equal instalments at the end of each
consecutive three (3) months period over
four (4) years, commencing on 28 June
2018
Performance Based Option Remuneration:
Number of
options granted
250,000
Grant date
Exercise price
Vesting period
28 June 2018
AU$0.46
Options are exercisable as follows: 12.5%
on 31 January 2019, 75% in 3 equal
instalments on 31 January 2020, 31
January 2021 and 31 January 2022 with the
remaining 12.5% on 31 July 2022. Vesting
of these options will be subject to meeting
performance criteria established by the
Board.
Fluence Corporation Limited
38
Fluence Corporation Limited
Directors' Report
31 December 2019
(continued)
Remuneration report (Audited) (continued)
Service agreements (continued)
Name:
Title:
Agreement commenced:
Term of agreement:
Details of remuneration:
Erik Arfalk
Chief Marketing Officer
Mr Arfalk joined Fluence Corporation Limited on 15 March 2018
Notice period by either party of 30 days
Cash salary and fees:
Bonuses and deferred remuneration:
Other Benefits:
US$225,500 (base salary)
Performance based bonus up to 25% of base salary
Health insurance for Mr. Arfalk and his family
Employment Based Option Remuneration:
Number of
options granted
250,000
Grant date
Exercise price
Vesting period
26 March 2018
AU$0.48
Options will vest and become exercisable in
equal instalments at the end of each
consecutive three (3) months period over
four (4) years, commencing on 26 March
2018
Performance Based Option Remuneration:
Number of
options granted
250,000
Grant date
Exercise price
Vesting period
26 March 2018
AU$0.48
Options are exercisable in equal annual
instalments at the end of each consecutive
twelve (12) months period over four (4)
years period, commencing on 26 March
2018. Vesting of these options will be
subject to meeting performance criteria
established by the Board.
Fluence Corporation Limited
39
Fluence Corporation Limited
Directors' Report
31 December 2019
(continued)
Remuneration report (Audited) (continued)
Service agreements (continued)
Name:
Title:
Agreement commenced:
Term of agreement:
Details of remuneration:
Cash salary and fees:
Bonuses and deferred remuneration:
Other Benefits:
Employment Based Option Remuneration:
Spencer Smith
Chief Legal Officer
Mr Smith joined Fluence Corporation Limited on 31 May 2016
The contract was renewed for an additional one year term on July 17,
2019
US$274,840 (base salary)
US$35,000 (year-end deferred remuneration annually) and
performance based bonus
Health insurance for Mr. Smith and his family
Number of
options granted
350,000
14 July 2017
AU$0.84
Grant date
Exercise price
Vesting period
75,000
140,000
26 March 2018
31 January 2019
AU$0.48
AU$0.39
Options will vest and become exercisable in
equal instalments at the end of each
consecutive three (3) months period over
four (4) years, commencing on 14 July 2017
Options are fully vested
49,000 options vested at grant date, 91,000
options will vest and become exercisable in
ten equal instalments at the end of each
consecutive three (3) month period,
commencing on 30 April 2019
Fluence Corporation Limited
40
Fluence Corporation Limited
Directors' Report
31 December 2019
(continued)
Remuneration report (Audited) (continued)
Financial performance
The Directors disclose the following three years of financial performance on the basis that they consider this period
most relevant
for comparative purposes. This period includes Emefcy Group Limited being renamed Fluence
Corporation Limited following the acquisition of the RWL Water LLC group on 14 July 2017.
The earnings of the consolidated entity for the three years to 31 December 2019 are summarised below:
Financial results
Revenue
Loss before income tax
Loss for the year
2019
$'000
2018
$'000
*2017
$'000
61,294
(29,598)
(31,585)
101,123
(62,360)
(62,802)
33,188
(22,881)
(23,568)
*The results for 2017 reflect contributions from RWL Water LLC for the period 14 July 2017 (date of acquisition by
Emefcy Group Limited) to 31 December 2017.
Other factors relevant to shareholder returns include the share price performance and earnings per share over the
same period:
31 December 31 December 31 December
2018
$'000
2017
$'000
2019
$'000
Market factors
Share price
Financial factors
Loss per share from continuing
operations
AU$0.43
AU$0.31
AU$0.54
2019
$
2018
$
2017
$
(0.06)
(0.14)
(0.07)
[This concludes the Remuneration Report, which has been audited]
Fluence Corporation Limited
41
Fluence Corporation Limited
Directors' Report
31 December 2019
(continued)
Shares under option
Unissued ordinary shares
Unissued ordinary shares of Fluence Corporation Limited under option at the date of this report are as follows:
Date options granted
Expiry date
Issue price of shares (AU$)
Number under option
29 February 2016
29 February 2016
11 April 2016
17 May 2016
17 May 2016
18 May 2016
18 May 2016
15 June 2016
25 July 2016
25 August 2016
23 September 2016
23 September 2016
27 October 2016
1 November 2016
9 February 2017
9 February 2017
28 March 2017
5 May 2017
31 May 2017
1 July 2017
14 July 2017
14 July 2017
14 July 2017
14 July 2017
14 July 2017
14 September 2017
10 January 2018
26 March 2018
28 June 2018
31 July 2018
31 July 2018
31 January 2019
10 April 2019
10 April 2019
16 April 2019
30 May 2019
30 May 2019
30 May 2019
28 February 2020
28 February 2020
13 April 2020
16 May 2020
28 May 2020
18 May 2020
18 May 2021
31 May 2020
25 July 2020
25 August 2020
25 September 2020
9 November 2020
26 October 2020
31 October 2020
10 January 2021
9 February 2021
4 March 2021
3 May 2021
25 May 2025
6 July 2021
13 July 2021
13 July 2021
13 July 2021
25 May 2025
10 September 2021
13 November 2021
11 March 2022
25 May 2022
27 August 2022
31 July 2022
31 July 2022
30 September 2021
3 June 2022
3 December 2022
15 June 2023
13 June 2023
13 June 2023
14 July 2025
$0.30
$0.40
$0.35
$0.59
$0.59
$0.40
$0.40
$0.93
$0.79
$0.87
$1.00
$1.00
$1.07
$0.74
$0.84
$1.00
$0.82
$0.86
$0.93
$0.97
$1.20
$1.50
$0.84
$0.84
$0.81
$0.86
$0.58
$0.48
$0.46
$1.20
$1.50
$0.39
$0.46
$0.46
$0.53
$0.60
$0.80
$0.39
100,000
100,000
500,000
400,000
100,000
1,000,000
1,000,000
1,000,000
250,000
225,000
200,000
200,000
150,000
500,000
25,000
350,000
1,000,000
150,000
10,391,855
100,000
3,850,000
3,850,000
1,500,000
350,000
2,632,000
1,140,000
80,000
1,334,375
496,094
750,000
750,000
1,043,000
120,250
69,000
31,250
250,000
250,000
3,360,000
39,597,824
Fluence Corporation Limited
42
Fluence Corporation Limited
Directors' Report
31 December 2019
(continued)
Insurance of officers and indemnities
(a)
Insurance of officers
The Group has indemnified the Directors and executives of the Group for costs incurred, in their capacity as a
Director or executive, for which they may be held personally liable, except where there is a lack of good faith.
During the financial year, the Group paid a premium in respect of a contract to insure the Directors and executives of
the Group against a liability to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits
disclosure of the nature of the liability and the amount of the premium.
(b) Indemnity of auditors
The Group has not, during or since the end of the financial year, indemnified or agreed to indemnify the auditor of the
Group or any related entity against a liability incurred by the auditor.
During the financial year, the Group has not paid a premium in respect of a contract to insure the auditor of the Group
or any related entity.
Proceedings on behalf of the Group
No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on
behalf of the Group, or to intervene in any proceedings to which the Group is a party, for the purpose of taking
responsibility on behalf of the Group for all or part of those proceedings.
Non-audit services
Details of the amounts paid or payable to the auditor for audit and non-audit services provided during the year are set
out in Note 24 in the financial statements.
The board of Directors has considered the position and, in accordance with advice received from the audit committee,
is satisfied that the provision of the non-audit services is compatible with the general standard of independence for
auditors imposed by the Corporations Act 2001. The Directors are satisfied that the provision of non-audit services by
the auditor, as set out below, did not compromise the auditor independence requirements of the Corporations Act
2001 for the following reasons:
•
•
all non-audit services have been reviewed by the Audit Committee to ensure they do not impact the impartiality
and objectivity of the auditor
none of the services undermine the general principles relating to auditor independence as set out in APES 110
Code of Ethics for Professional Accountants.
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 45.
Rounding of amounts
The amounts contained in the directors’ report and in the financial report have been rounded to the nearest $1,000
(where rounding is applicable) under the option available to the Company under ASIC Corporations (Rounding in
Financial/Directors’ Report) Legislative Instrument 2016/191. The Company is an entity in which the Legislative
Instrument applies.
Fluence Corporation Limited
43
Tel: +61 3 9603 1700
Fax: +61 3 9602 3870
www.bdo.com.au
Collins Square, Tower Four
Level 18, 727 Collins Street
Melbourne VIC 3008
GPO Box 5099 Melbourne VIC 3001
Australia
DECLARATION OF INDEPENDENCE BY DAVID GARVEY TO THE DIRECTORS OF FLUENCE CORPORATION
LIMITED
As lead auditor of Fluence Corporation Limited for the year ended 31 December 2019, I declare that, to
the best of my knowledge and belief, there have been:
1.
2.
No contraventions of the auditor independence requirements of the Corporations Act 2001 in
relation to the audit; and
No contraventions of any applicable code of professional conduct in relation to the audit.
This declaration is in respect of Fluence Corporation Limited and the entities it controlled during the
period.
David Garvey
Partner
BDO East Coast Partnership
Melbourne, 30 March 2020
BDO East Coast Partnership ABN 83 236 985 726 is a member of a national association of independent entities which are all members of BDO Australia Ltd
ABN 77 050 110 275, an Australian company limited by guarantee. BDO East Coast Partnership and BDO Australia Ltd are members of BDO International Ltd,
a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved
under Professional Standards Legislation.
Fluence Corporation Limited
Consolidated Statement of Profit or Loss and Other Comprehensive Income
For the year ended 31 December 2019
Revenues
Operating revenue
Other income
Testing
Expenses
Cost of sales (*)
Research and development expenses
Sales and marketing expenses (*)
General and administration expenses
Goodwill impairment
Other gains - net
Finance income/(costs) - net
Loss before income tax
Income tax expense
Loss for the year
Loss for the year is attributable to:
Owners of Fluence Corporation Limited
Non-controlling interests
Other comprehensive income
Items that may be reclassified to profit or loss:
Exchange differences on translation of foreign operations, net of tax
Total comprehensive income for the year
Total comprehensive income for the year is attributable to:
Owners of Fluence Corporation Limited
Non-controlling interests
Consolidated entity
31 December
2019
$'000
31 December
2018
$'000
Notes
3
3
3
3
3
3
5
20
20
60,962
332
61,294
100,873
250
101,123
(51,473)
(4,658)
(9,985)
(25,559)
-
1,328
(545)
(29,598)
(1,987)
(31,585)
(31,434)
(151)
(31,585)
(67,422)
(7,214)
(9,769)
(27,742)
(56,293)
4,436
521
(62,360)
(442)
(62,802)
(63,757)
955
(62,802)
882
(30,703)
(14,376)
(77,178)
(30,552)
(151)
(30,703)
(78,133)
955
(77,178)
Losses per share from continuing operations attributable to the ordinary
equity holders of the Group:
Basic and diluted loss per share
6
(0.06)
(0.14)
(*) Commission expenses were reclassified in 2019 from "Sales and marketing expenses" to "Cost of sales". As the result of this
reclassification, for the year ending 31 December 2018, "Cost of sales" increased by $920 thousand to $67,422 thousand and
"Sales and market expenses" have decreased by $920 thousand to $9,769 thousand.
The above Consolidated Statement of Profit or Loss and Other Comprehensive Income should be read in conjunction
with the accompanying notes. All amounts are presented in US dollars.
Fluence Corporation Limited
46
Fluence Corporation Limited
Consolidated Statement of Financial Position
As at 31 December 2019
ASSETS
Current assets
Cash and cash equivalents
Other financial assets
Trade and other receivables
Inventories
Prepayments
Concession arrangement assets
Other assets
Total current assets
Non-current assets
Other receivables
Investments accounted for using the equity method
Deferred tax assets
Property, plant and equipment
Intangible assets
Concession arrangement assets
Other assets
Total non-current assets
Total assets
White
LIABILITIES
Current liabilities
Trade and other payables
Borrowings
Current tax liabilities
Provisions
Deferred revenue
Total current liabilities
Non-current liabilities
Other liabilities
Borrowings
Deferred tax liabilities
Provisions
Total non-current liabilities
Total liabilities
Net assets
EQUITY
Contributed equity
Foreign currency translation reserve
Accumulated losses
Non-controlling interests
Total equity
Consolidated entity
31 December
2019
$'000
31 December
2018
$'000
Notes
7
7
8
9
10
11
8
12
5
13
14
10
11
15
16
17
18
15
16
5
17
19
21
20
21,908
5,416
39,777
12,610
7,021
512
357
87,601
-
434
858
14,162
5,998
20,961
4,180
46,593
134,194
43,826
877
38
6,264
21,596
72,601
9,812
2,030
2,041
632
14,515
87,116
47,078
38,741
2,417
33,514
18,866
4,049
-
67
97,654
10
484
1,208
14,846
5,603
18,830
3,159
44,140
141,794
48,845
368
853
4,092
25,898
80,056
9,301
-
532
838
10,671
90,727
51,067
211,840
(14,870)
(150,955)
46,015
1,063
47,078
185,126
(15,752)
(119,521)
49,853
1,214
51,067
The above Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes.
All amounts are presented in US dollars.
Fluence Corporation Limited
47
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T
Fluence Corporation Limited
Consolidated Statement of Cash Flows
For the year ended 31 December 2019
Cash flows from operating activities
Receipt from customers
Payments to suppliers and employees (*)
Royalties paid to Chief Scientist Office (Israel)
Receipt from/(transfer to) restricted cash
Interest received
Interest and other costs of finance paid
Income taxes paid
Net cash (outflow) from operating activities
Cash flows from investing activities
Payment for purchases of plant and equipment
Funds transferred to term deposit, net
Proceeds from sale of property, plant and equipment
Acquisition of non-controlling interest in a subsidiary
Payments for construction of concession assets (*)
Net cash (outflow) from investing activities
Cash flows from financing activities
Proceeds from issues of ordinary shares
Proceeds from exercise of share options
Final payment to redeem a note from original vendor of Emefcy Ltd (Israel)
Contributions from non-controlling interests
Transactions costs related to issue of ordinary shares
Proceeds from / (repayment of) borrowings
Finance lease payments
Net cash inflow from financing activities
Net (decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the financial year
Effects of exchange rate changes on cash and cash equivalents
Cash and cash equivalents at end of year
Consolidated entity
31 December
2019
$'000
31 December
2018
$'000
Notes
60,635
(96,384)
-
(114)
306
(654)
(512)
(36,723)
(1,092)
(4,018)
2,443
(300)
(1,946)
(4,913)
26,072
20
-
-
(1,128)
2,557
(1,849)
25,672
(15,964)
38,741
(869)
21,908
50,168
(99,317)
(23)
108
3,066
(353)
(154)
(46,505)
(2,848)
(780)
24
(1,803)
(3,378)
(8,785)
26,415
799
(1,000)
105
(977)
(519)
(1,631)
23,192
(32,098)
75,153
(4,314)
38,741
7
7
(*) Payments for construction of concession assets were separated in 2019 from "Payments to suppliers and employees" and
reclassified from "Cash flows from operating activities" to "Cash flows from investing activities". As the result of this reclassification,
for the year ending 31 December 2018, "Payments to suppliers and employees" have decreased by $3,378 thousand to $99,317
thousand and "Payments for construction of concession assets" have increased to $3,378 thousand.
The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes. All
amounts are presented in US dollars.
Fluence Corporation Limited
49
Fluence Corporation Limited
Notes to the Consolidated Financial Statements
31 December 2019
1 Summary of significant accounting policies
(a) Corporate information
The Financial Report of Fluence Corporation Limited and its controlled entities (the “Group”) for the year ended 31
day of March
December 2019 was authorised for issue in accordance with a resolution of the Directors on the 26
2020.
th
Fluence Corporation Limited is a for profit listed public company limited by shares incorporated and domiciled in
Australia whose shares are publicly traded on the Australian Securities Exchange (“ASX”). The Group provides
fast-to-deploy, decentralised and packaged water and wastewater treatment solutions.
(b) Basis of preparation
These general purpose financial statements have been prepared in accordance with Australian Accounting Standards
and interpretations issued by the Australian Accounting Standards Board and the Corporations Act 2001.
The financial statements also comply with International Financial Reporting Standards (IFRS) as issued by the
international accounting standards board.
The financial report has been prepared on an accruals basis and is based on historical costs, except for those assets
and liabilities measured at fair value. The financial report is presented in United States Dollars, which is the Group’s
presentation currency. All values are rounded to the nearest $1,000 (where rounding is applicable) under the option
available to the Company under ASIC Corporations (Rounding in Financial/Directors' Report) Legislative Instrument
2016/191. The Company is an entity in which the Legislative Instrument applies.
Management is required to make judgements, estimates and assumptions about carrying values of assets and
liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on
historical experience and various other factors that are believed to be reasonable under the circumstance, the results
of which form the basis of making the judgements. Actual results may differ from these estimates. The estimates and
underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the
period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future
periods if the revision affects both current and future periods.
Judgements made by management in the application of Australian Accounting Standards that have significant effects
on the financial statements and estimates with a significant risk of material adjustments in the next year are
disclosed, where applicable, in the relevant notes to the financial statements (refer to Note 1 (aa)).
Accounting policies are selected and applied in a manner which ensures that the resulting financial
information
satisfies the concepts of relevance and reliability, thereby ensuring that the substance of the underlying transactions
or other events is reported.
(i) Going concern
The financial statements have been prepared on the going concern basis, which assumes the consolidated entity will
have sufficient cash to pay its debts, as and when they become payable, for a period of at least 12 months from the
date the financial report was authorised for issue.
For the year ended 31 December 2019, the consolidated entity incurred an operating loss after tax of $31,585,000
(2018: $62,802,000) and had cash outflows from operating activities of $36,723,000 (2018: $46,505,000), and total
net cash outflows of $15,964,000, after including cash outflows from investing activities and cash inflows from
financing activities. The Group had cash and cash equivalents of $21,908,000 and other financial assets of
$5,416,000 at 31 December 2019.
Fluence Corporation Limited
50
Fluence Corporation Limited
Notes to the Consolidated Financial Statements
31 December 2019
(continued)
1 Summary of significant accounting policies (continued)
(b) Basis of preparation (continued)
(i) Going concern (continued)
The consolidated entity has prepared a cash flow forecast supported by detailed assumptions and scenario planning
directed to sustaining business growth. These forecasts indicate that the consolidated entity will be able to fund its
ongoing operations for a period of 12 months from the date the financial report was authorised for issue.
The Group has prepared cash flow forecasts that include the following:
•
•
•
Positive Group operating cash inflows for the 12 months ended 31 December 2020 and 15 months
ended 31 March 2021; positive Group net cash flows for the 12 months ended 31 December 2020,
and 15 months ended 31 March 2021 after allowing for operating, investing and financing cash flows.
The positive Group operating cash inflows have been based on a substantial contracted sales
backlog of US$155million for FY 2020, which includes the Ivory Coast Project and other projects.
Revenues from the Ivory Coast Project are US$ 187 million for financial years 2020, 2021 and 2022.
Key assumptions include the Ivory Coast Project commencing during the 2020 financial year, and
cash flows from other projects in the contracted sales backlog will continue to be generated as
scheduled in the cash flow forecasts.
The Group also has in place a project financing loan facility with Generate Capital, which will be
applied to finance completion of strong cash flow generation projects. The cash flow forecasts allow
for a drawdown on the Generate Capital facility. The resulting net cash flows from major projects will
provide further working capital to the consolidated entity.
Subsequent to reporting date, on 31 January 2020, the World Health Organisation (WHO) announced a global health
emergency because of a new strain of coronavirus (COVID-19 outbreak) and the risks to the international community
as the virus spreads globally beyond its point of origin. Because of the rapid increase in exposure globally, on 11
March 2020, the WHO classified the COVID-19 outbreak as a pandemic. These events are having a significant
negative impact on world stock markets, currencies and general business activities.
Completion of projects included in the current cash flows from operating activities do not allow for significant delays,
which may result from the global COVID-19 pandemic. At this stage it is impossible to forecast the impact that this
pandemic may have, if any, on the timing for completion of projects. If the global COVID-19 pandemic does cause
delays in completion of the key projects, this can be expected to materially affect Group forecast cash flows in terms
of operating, investing and financial activities. The occurrence of significant delays in forecast operating activities and
plans may lead to requiring the Group to raise additional finance or equity to fund ongoing operations. As a
consequence the potential impact the global COVID-19 pandemic may have on the Group’s business operations and
resulting cash flows may create a material uncertainty that may cast doubt on the consolidated entity’s ability to
continue as a going concern.
The financial statements, as presented, do not reflect the situation should the consolidated entity be unable to
continue as a going concern. If the going concern assumption is not valid, the consequence is the consolidated entity
may be unable to realise the value of its assets including its intangible assets and discharge its liabilities in the
ordinary course of business.
(ii) New and amended standards adopted by the group
The Group has adopted all of the new, revised or amending Accounting Standards and Interpretations issued by the
Australian Accounting Standards Board ('AASB') that are mandatory for the current reporting period (refer to note
1(ab) for more information about first implementation of new standards).
All other accounting standards adopted by the Group are consistent with the most recent Annual Report for the year
ended 31 December 2018.
Fluence Corporation Limited
51
Fluence Corporation Limited
Notes to the Consolidated Financial Statements
31 December 2019
(continued)
1 Summary of significant accounting policies (continued)
(c) Comparatives
Where necessary comparatives have been reclassified for consistency with the current period disclosures.
(i) Revision to Appendix 4E Preliminary Final Report for the year ended 31 December 2019
The current portion of Concession arrangement assets previously included in the Consolidated Statement of
Financial Position in the Appendix 4E Preliminary Final Report for the year ended 31 December 2019 within
"Non-current assets" has been reclassified to "Concession arrangement assets" within Current assets for a more
accurate presentation.
As a result of this reclassification, for the year ending 31 December 2019, "Concession arrangement assets" (current)
have increased by $512,000 to $512,000 and "Concession arrangement assets" (non-current) has decreased by
$512,000 to $20,961,000, when compared to the Appendix 4E Preliminary Final Report.
The Acquisitions of non-current assets in Note 2 "Segment Information" have been updated after Notes 13 "Property,
plant and equipment" and 14 "Intangible assets" have been finalised.
(d) Principles of consolidation
The consolidated financial statements incorporate all of the assets, liabilities and results of the parent company,
Fluence Corporation 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 the subsidiaries is provided in Note 28.
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 Group entities are fully eliminated on consolidation.
Accounting policies of subsidiaries have been changed and adjustments made where necessary to ensure uniformity
of the accounting policies adopted by the Group. Equity interests in a subsidiary not attributable, directly or indirectly,
to the Group are presented as “non-controlling interests”.
The Group initially recognises non-controlling interests that are present ownership interests in subsidiaries and are
entitled to a proportionate share of
the
non-controlling interests’ proportionate share of
to initial recognition,
non-controlling interests are attributed their share of profit or loss and each component of other comprehensive
income.
the subsidiary’s net assets on liquidation at either fair value or at
the subsidiary’s net assets. Subsequent
Non-controlling interests are shown separately within the equity section of the Statement of Financial Position and
Statement of Profit or Loss and Other Comprehensive Income.
(e) Operating segments
Operating segments are presented using the 'management approach', where the information presented is on the
same basis as the internal reports provided to the Chief Operating Decision Makers ('CODM'). The CODM is
responsible for the allocation of resources to operating segments and assessing their performance.
Fluence Corporation Limited
52
Fluence Corporation Limited
Notes to the Consolidated Financial Statements
31 December 2019
(continued)
1 Summary of significant accounting policies (continued)
(f) Revenue recognition
Revenue is recognised when goods or services are transferred to a customer, in an amount that reflects the
consideration to which the entity excepts to be entitled in exchange to those goods or services. Before recognising
revenue,
identify separate performance obligations, determine the
transaction price, allocate the transaction price to the performance obligations and recognise revenue as or when
each performance obligation is satisfied. Performance obligations can be satisfied at a point in time or over time.
the Group needs to identify the contract,
Revenue related to construction or upgrade services under service concession arrangements is recognised over
time, consistent with the Group's accounting policy on recognising revenue on construction contracts. Operating or
service revenue is recognised in the period in which the services are provided by the Group. If the service concession
arrangement contains more than one performance obligation, then the consideration received is allocated with
reference to the relative stand-alone selling price of the services delivered.
(g) Government grants
Grants from the government are recognised at their fair value where there is a reasonable assurance that the grant
will be received, and the group will comply with all attached conditions. Note 15 provides further information on how
the group accounts for government grants.
Government grants are recognised in profit and loss on a systematic basis over the periods in which the entity
recognises expenses for the related costs for which the grants are intended to compensate.
Grants received from the Government of Israel that are required to be repaid by payment of royalties on sales
revenue or refunded if relevant conditions are not met are recorded as other payables.
(h) Leases
The Group recognises assets and liabilities for all leases with a term of more than 12 months, unless the underlying
asset is of low value. The Group recognises a right-of-use asset representing its right to use the underlying leased
asset and a lease liability representing its obligation to make lease payments. Right-in-use assets and lease liabilities
are measured initially on a present value basis. The Group recognises depreciation of the right-of-use asset and
interest on the lease liability. Depreciation is on a straight-line basis.
(i) Employee benefits
(i) Wages and salaries
Wages and salaries include non-monetary benefits, annual leave and long service leave. These are recognised and
presented in different ways in the financial statements:
•
•
•
•
The liability for annual leave and the portion of long service leave expected to be paid within twelve months is
measured at the amount expected to be paid.
The liability for long service leave and annual leave expected to be paid after one year is measured as the
present value of expected future payments to be made in respect of services provided by employees up to the
reporting date.
The liability for annual leave and the portion of long service leave that has vested at the reporting date included in
the current provision for employee benefits.
The portion of long service leave that has not vested at the reporting date is included in the non-current provision
for employee benefits.
Fluence Corporation Limited
53
Fluence Corporation Limited
Notes to the Consolidated Financial Statements
31 December 2019
(continued)
1 Summary of significant accounting policies (continued)
(i) Employee benefits (continued)
(ii) Share-based payments
Employees (including senior executives) of the Group receive remuneration in the form of share-based payments,
whereby employees render services as consideration for equity instruments (equity-settled transactions).
Equity-settled transactions
The cost of equity-settled transactions is determined by the fair value at the date when the grant is made using an
appropriate valuation model, further details of which are given in Note 4.
That cost is recognised in employee benefits expense, together with a corresponding increase in equity (other capital
reserves), over the period in which the service and, where applicable, the performance conditions are fulfilled (the
vesting period). The cumulative expense recognised for equity-settled transactions at each reporting date until the
vesting date reflects the extent to which the vesting period has expired and the Group’s best estimate of the number
of equity instruments that will ultimately vest. The expense or credit in the Statement of Profit or Loss and Other
Comprehensive Income for a period represents the movement in cumulative expense recognised as at the beginning
and end of that period.
Service and non-market performance conditions are not taken into account when determining the grant date fair
value of awards, but the likelihood of the conditions being met is assessed as part of the Group’s best estimate of the
number of equity instruments that will ultimately vest. Market performance conditions are reflected within the grant
date fair value. Any other conditions attached to an award, but without an associated service requirement, are
considered to be non-vesting conditions. Non-vesting conditions are reflected in the fair value of an award and lead to
an immediate expensing of an award unless there are also service and/or performance conditions.
No expense is recognised for awards that do not ultimately vest because non-market performance and/or service
conditions have not been met. Where awards include a market or non-vesting condition, the transactions are treated
as vested irrespective of whether the market or non-vesting condition is satisfied, provided that all other performance
and/or service conditions are satisfied.
When the terms of an equity-settled award are modified, the minimum expense recognised is the grant date fair value
of the unmodified award, provided the original terms of the award are met. An additional expense, measured as at the
date of modification, is recognised for any modification that increases the total fair value of the share-based payment
transaction, or is otherwise beneficial to the employee. Where an award is cancelled by the entity or by the
counterparty, any remaining element of the fair value of the award is expensed immediately through profit or loss.
The dilutive effect of outstanding options is reflected as additional share dilution in the computation of diluted
earnings per share.
(j)
Investment in associates and joint ventures
An associate is an entity over which the Group has significant influence. Significant influence is the power to
participate in the financial and operating policy decisions of the investee but is not control or joint control over those
policies.
A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have
rights to the net assets of the joint venture. Joint control
is the contractually agreed sharing of control of an
arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the
parties sharing control.
Fluence Corporation Limited
54
Fluence Corporation Limited
Notes to the Consolidated Financial Statements
31 December 2019
(continued)
1 Summary of significant accounting policies (continued)
(j)
Investment in associates and joint ventures (continued)
The considerations made in determining significant influence or joint control are similar to those necessary to
determine control over subsidiaries.
The Group’s investments in its associate and joint venture are accounted for using the equity method.
Under the equity method, the investment in an associate or a joint venture is initially recognised at cost. The carrying
amount of the investment is adjusted to recognise changes in the Group’s share of net assets of the associate or joint
venture since the acquisition date.
The Statement of Profit or Loss reflects the Group’s share of the results of operations of the associate or joint
venture. Any change in OCI of those investees is presented as part of the Group’s Other Comprehensive Income
(OCI). In addition, when there has been a change recognised directly in the equity of the associate or joint venture,
the Group recognises its share of any changes, when applicable, in the statement of changes in equity. Unrealised
gains and losses resulting from transactions between the Group and the associate or joint venture are eliminated to
the extent of the interest in the associate or joint venture.
The aggregate of the Group’s share of profit or loss of an associate and a joint venture is shown on the face of the
Statement of Profit or Loss outside operating profit and represents profit or loss after tax and non-controlling interests
in the subsidiaries of the associate or joint venture.
The financial statements of the associate or joint venture are prepared for the same reporting period as the Group.
When necessary, adjustments are made to bring the accounting policies in line with those of the Group.
After application of the equity method, the Group determines whether it is necessary to recognise an impairment loss
on its investment in its associate or joint venture. At each reporting date, the Group determines whether there is
objective evidence that the investment in the associate or joint venture is impaired. If there is such evidence, the
Group calculates the amount of impairment as the difference between the recoverable amount of the associate or
joint venture and its carrying value, and then recognises the loss as ‘Share of profit of an associate and a joint
venture’ in the Statement of Profit or Loss and Other Comprehensive Income.
Upon loss of significant influence over the associate or joint control over the joint venture, the Group measures and
recognises any retained investment at its fair value. Any difference between the carrying amount of the associate or
joint venture upon loss of significant influence or joint control and the fair value of the retained investment and
proceeds from disposal is recognised in profit or loss.
(k)
Impairment of non financial assets
Impairment exits when the carrying value of an asset or cash generating unit exceeds its recoverable amount, which
is the higher of its fair value less costs of disposal and its value in use. The fair value less costs of disposal
calculation is based on available data from binding sales transactions, conducted at arm’s length, for similar assets or
observable market prices less incremental costs of disposing of the asset. The value in use calculation is based on a
Discounted Cash Flow (DCF) model.
The cash flows are derived from the budget for the next five years and do not include restructuring activities that the
Group is not yet committed to or significant future investment that will enhance the performance of the assets of the
Cash Generating Unit (CGU) being tested.
The recoverable amount is sensitive to the discount rate used for the DCF model as well as the expected future
cash-inflows and the growth rate used for extrapolation purposes. These estimates are most relevant to goodwill and
other intangibles with indefinite useful lives recognised by the Group.
Fluence Corporation Limited
55
Fluence Corporation Limited
Notes to the Consolidated Financial Statements
31 December 2019
(continued)
1 Summary of significant accounting policies (continued)
(l) Cash and cash equivalents
Cash and short-term deposits in the Consolidated Statement of Financial Position comprise cash at bank and in hand
and short-term deposits with an original maturity of three months or less.
For the purposes of the Consolidated Statement of Cash Flows, cash and cash equivalents consist of cash and cash
equivalents as defined above.
(m) Other financial assets
Cash and short-term deposits in the Consolidated Statement of Financial Position comprise cash at bank and in hand
and short-term deposits with an original maturity of more than three months.
Restricted cash that is invested in highly liquid deposits, which are used mainly as security for guarantees provided to
lessors of office and production premises, bid bonds and performance guarantees.
(n) Trade and other receivables
Trade receivables are initially recognised at fair value and subsequently measured at amortised cost, less any
appropriate provision for estimated irrecoverable amounts.
A provision for impairment is made when there is objective evidence that the Group will not be able to collect the
debts. The criteria used to determine that there is objective evidence that an impairment loss has occurred include
whether the financial asset is past due and whether there is any other information regarding increased credit risk
associated with the financial asset. Bad debts which are known to be uncollectible are written-off when identified.
(o) Property, plant and equipment
Property, plant and equipment are stated at historical cost less depreciation. Historical cost includes expenditure that
is directly attributable to the acquisition of the items. Subsequent costs are included in the asset's carrying amount or
recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated
with the item will flow to the consolidated entity and the cost of the item can be measured reliably. The carrying
amount of the replaced part is derecognised. AII other repairs and maintenance are charged to profit or loss during
the reporting period in which they are incurred.
Depreciation on plant and equipment is calculated using the straight-line method to allocate their cost or revalued
amounts, net of their residual values, over their estimated useful lives, as follows:
25-50 years
Buildings
Over the shorter of the term of the lease or useful life of an asset
Leasehold improvements
4-17 years
Production equipment
Office furniture and equipment
3-17 years
Computers and peripheral equipment 3-15 years
Vehicles
Capitalised development costs
5-7 years
15 years
The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting date.
An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is
greater than its estimated recoverable amount.
Gains and losses on disposals are determined by comparing proceeds the carrying amount. These are included in
profit or loss.
Fluence Corporation Limited
56
Fluence Corporation Limited
Notes to the Consolidated Financial Statements
31 December 2019
(continued)
1 Summary of significant accounting policies (continued)
(p) Inventories
Raw materials, work in progress and finished goods are stated at the lower of cost and net realisable value. Cost
comprises direct materials, direct labour and an appropriate proportion of variable and fixed overhead expenditure,
the latter being allocated on the basis of normal operating capacity. Costs are assigned to individual
items of
inventory on basis of First in-First out (FIFO). Costs of purchased inventory are determined after deducting rebates
and discounts. Net realisable value is the estimated selling price in the ordinary course of business less the estimated
costs of completion and the estimated costs necessary to make the sale.
(q) Foreign currency translation
(i) Functional Currency
Items included in the financial statements of each of the Group’s entities are measured using the currency of the
primary economic environment in which the entity operates (‘the functional currency’). The financial statements of
Fluence Corporation Limited (the parent entity of the Group) are measured in Australian Dollars (AU$) which is that
entity’s functional currency.
(ii) Presentation Currency
The consolidated financial statements are presented in US Dollars (US$), which is the Group’s presentation currency.
(iii) Translation and balances
Transactions in foreign currencies are converted to the functional currency at the exchange rate at the date of the
transaction. Amounts payable to and by the Group outstanding at reporting date and denominated in foreign
currencies have been converted to local currency using rates prevailing at the end of the financial year. All exchange
differences are taken to profit or loss.
(iv) Group companies
The results of foreign subsidiaries and the parent entity are translated to US Dollars at the exchange rate at the date
of the transaction. Assets and liabilities of foreign subsidiaries and the Australian parent are translated to US Dollars
at exchange rates prevailing at balance date. All
resulting exchange differences are recognised in other
comprehensive income and in the foreign currency translation reserve in equity.
(v) Foreign currency translation reserve
The foreign currency translation reserve is used to record exchange differences on translation of foreign controlled
subsidiaries. Amounts are reclassified to profit or loss when the investment is disposed of.
(r)
Income tax
Deferred income tax is provided on all temporary differences at the reporting date between the tax bases of assets
and liabilities and their carrying amounts for financial reporting purposes.
Deferred income tax liabilities are recognised for all taxable temporary differences except where the deferred income
tax liability arises from the initial recognition of an asset or liability in a transaction that is not a business combination
and, at the time of the transaction, affects neither the accounting loss nor taxable profit or loss.
Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax
assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the
deductible temporary differences, and the carry-forward of unused tax assets and unused tax losses can be utilised
except where the deferred income tax asset relating to the deductible temporary differences arises from the initial
recognition of an asset or liability in a transaction that is not a business combination and, at the time of transaction,
affects neither the accounting loss nor taxable profit or loss.
Fluence Corporation Limited
57
Fluence Corporation Limited
Notes to the Consolidated Financial Statements
31 December 2019
(continued)
1 Summary of significant accounting policies (continued)
(r)
Income tax (continued)
The carrying amount of deferred income tax assets is reviewed at each reporting date and reduced to the extent that
it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax
asset to be utilised.
Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when
the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or
substantively enacted at reporting date.
Income taxes relating to items recognised directly in equity are recognised in equity and not in profit or loss.
(s) Goods and Services Tax (GST)
Revenues, expenses and assets are recognised net of the amount of GST, except:
• where the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in
which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as
applicable; and
receivables and payables are stated with the amount of GST included.
•
Cash flows arising from operating activities are included in the Consolidated Statement of Cash Flows on a gross
basis (i.e. including GST) and the GST component of cash flows arising from investing and financing activities, which
is recoverable from, or payable to, the taxation authority are classified as operating cash flows. Commitments and
contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority. The net
amount of GST recoverable from or payable to, the taxation authority is included as part of the receivables or
payables in the Consolidated Statement of Financial Position.
(t)
Intangible assets
Intangible assets are initially measured at cost. Following initial recognition, intangible assets are carried at cost less
lives of intangible assets are
any accumulated amortisation and any accumulated impairment losses. The useful
life and
assessed to be either finite or indefinite. Intangible assets with finite lives are amortised over the useful
assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation
period and the amortisation method for an intangible asset with a finite useful life is reviewed at least at each financial
year end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits
embodied in the asset are accounted for by changing the amortisation period or method, as appropriate, which is a
change in an accounting estimate. The amortisation expense on intangible assets with finite lives is recognised in
profit or loss in the expense category consistent with the function of the intangible asset.
(i) Research and development
Research costs are expensed as incurred.
An intangible asset arising from development expenditure on an internal project is recognised only when the Group
can demonstrate the technical feasibility of completing the intangible asset so that it will be available for use or sale,
its intention to complete and its ability to use or sell the asset, how the asset will generate future economic benefits,
the availability of resources to complete the development and the ability to measure reliably the expenditure
attributable to the intangible asset during its development.
Following initial recognition of the development expenditure, the cost model
carried at cost
capitalised is amortised over the period of expected benefits from the related project.
less any accumulated amortisation and accumulated impairment
is applied requiring the asset to be
losses. Any expenditure so
Fluence Corporation Limited
58
Fluence Corporation Limited
Notes to the Consolidated Financial Statements
31 December 2019
(continued)
1 Summary of significant accounting policies (continued)
(t)
Intangible assets (continued)
(i) Research and development (continued)
The carrying value of an intangible asset arising from development expenditure is tested for impairment annually
when the asset is not available for use, or more frequently when an indication of impairment arises during the
reporting period.
Amortisation commences when the assets are ready for use.
(ii) Concession asset
An intangible asset arising from a concession arrangement. The group recognises an intangible asset to the extent
that it receives a right to charge users over the life of arrangement for the use of the asset. The intangible asset is
measured initially at cost. The intangible assets will be amortised over the useful life of the arrangement and will be
measured at cost less any accumulated amortisation and accumulated impairment losses.
The carrying value of an intangible asset arising from a service concession arrangement is tested for impairment
annually when the asset is not available for use, or more frequently when an indication of impairment arises during
the reporting period.
(u) Impairment of non-financial assets
The carrying values of non-financial assets are tested for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable.
An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable
amount. Recoverable amount is 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 that are largely independent of the cash inflows from other assets or groups of assets (cash-generating
units). Non-financial assets that suffer impairment are tested for possible reversal of the impairment whenever events
or changes in circumstances indicate that the impairment may have reversed.
Impairment exists when the carrying value of an asset exceeds its estimated recoverable amount. The asset is then
written down to its recoverable amount.
(v) Trade and other payables
Trade and other payables are carried at amortised cost and represent liabilities for goods and services provided to
the Group prior to the end of the financial year that are unpaid and arise when the Group becomes obliged to make
future payments in respect of the purchase of these goods and services.
(w) Contributed equity
Ordinary shares are classified as equity. Any transaction costs arising on the issue of ordinary shares are recognised
directly in equity as a reduction (net of tax) of the share proceeds received.
(x) Provisions
A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that
can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the
obligation. Where applicable, provisions are determined by discounting the expected future cash flows at a pre-tax
rate that reflects current market assessments of the time value of money and the risks specific to the liability.
Fluence Corporation Limited
59
Fluence Corporation Limited
Notes to the Consolidated Financial Statements
31 December 2019
(continued)
1 Summary of significant accounting policies (continued)
(y) Earnings per share
Basic earnings per share is calculated as net profit or loss attributable to members, adjusted to exclude costs of
servicing equity (other than dividends), divided by the weighted average number of ordinary shares, adjusted for any
bonus element.
Diluted earnings per share is calculated as net profit or loss attributable to members, adjusted for:
•
•
•
costs of servicing equity (other than dividends);
the after tax effect of dividends and interest associated with dilutive potential ordinary shares that have been
recognised as expenses; and
other non-discretionary changes in revenues or expenses during the period that would result from the dilution of
potential ordinary shares; divided by the weighted average number of ordinary shares and dilutive potential
ordinary shares, adjusted for any bonus element.
(z) Concession asset
A financial asset arising from a concession arrangement. The Group recognises a financial asset to the extent that it
receives an unconditional contractual right to receive a specified or determinable amount of cash or another financial
asset in return for constructing or upgrading a public sector asset, and then operating and maintaining the asset for a
specified period of time. The financial asset is measured at fair value. The financial asset is reduced when amounts
are received.
(aa) Significant Accounting Estimates and Assumptions
The carrying amounts of certain assets and liabilities are often determined based on estimates and assumptions of
future events. The key estimates and assumptions that have a significant risk of causing a material adjustment to the
carrying amounts of certain assets and liabilities within the next annual reporting period are:
(i) Fair Value of Financial Liability
The Group assessed the fair value of the financial milestone payments and government grant liabilities, which
incorporate a number of key estimates and assumptions. For further details, please refer to note 15 Trade and other
payables and other liabilities.
Income tax
(ii)
The Group is subject to income taxes in the jurisdictions in which it operates. Significant judgement is required in
determining the provision for income tax. There are many transactions and calculations undertaken during the
ordinary course of business for which the ultimate tax determination is uncertain. The Group recognises liabilities for
anticipated tax audit issues based on the Group's current understanding of the tax law. Where the final tax outcome
of these matters is different from the carrying amounts, such differences will
impact the current and deferred tax
provisions in the period in which such determination is made.
(iii) Share-based payment transactions
Under AASB 2 Share Based Payments, the consolidated entity must recognise the fair value of shares granted to
directors, employees and consultants as remuneration as an expense on a pro-rata basis over the vesting period in
profit or loss with a corresponding adjustment to equity.
The consolidated entity provides benefits to employees (including directors) of the consolidated entity in the form of
share-based payment transactions, whereby employees render services in exchange for shares or rights over shares
("equity-settled transactions").
Fluence Corporation Limited
60
Fluence Corporation Limited
Notes to the Consolidated Financial Statements
31 December 2019
(continued)
1 Summary of significant accounting policies (continued)
(aa) Significant Accounting Estimates and Assumptions (continued)
(iii) Share-based payment transactions (continued)
Estimating fair value of share-based payment transactions requires determination of the most appropriate valuation
model, which depends on the terms and conditions of the grant. This estimate also requires determination of the most
appropriate inputs to the valuation model including the expected life of the share option or appreciation right, volatility
and dividend yield and making assumptions about them. For the measurement of the fair value of equity-settled
transactions with employees at the grant date, the Group uses a binominal model for the options. The assumptions
and models used for estimating fair value for share-based payment transactions are disclosed in Note 4 - People
costs.
(iv) Fair value measurement hierarchy
The consolidated entity is required to classify all assets and liabilities, measured at fair value, using a three level
hierarchy, based on the lowest level of input that is significant to the entire fair value measurement, being: Level 1:
Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the
measurement date; Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset
or liability, either directly or indirectly; and Level 3: Unobservable inputs for the asset or liability. Considerable
judgement is required to determine what is significant to fair value and therefore which category the asset or liability is
placed in can be subjective.
The fair value of assets and liabilities classified as level 3 is determined by the use of valuation models. These
include discounted cash flow analysis or the use of observable inputs that require significant adjustments based on
unobservable inputs.
Impairment of non financial assets
(v)
Impairment exists when the carrying value of an asset or cash generating unit exceeds its recoverable amount, which
is the higher of its fair value less costs of disposal and its value in use. The fair value less costs of disposal
calculation is based on available data from binding sales transactions, conducted at arm’s length, for similar assets or
observable market prices less incremental costs of disposing of the asset. The value in use calculation is based on a
Discounted Cash Flow (DCF) model. The cash flows are derived from the budget for the next five years and do not
include restructuring activities that the Group is not yet committed to or significant future investments that will
enhance the performance of the assets of the Cash Generating Units (CGU) being tested. The recoverable amount is
sensitive to the discount rate used for the DCF model as well as the expected future cash-inflows and the growth rate
used for extrapolation purposes. These estimates are most relevant to goodwill and other intangibles with indefinite
useful lives recognised by the Group. Refer to Note 14 for further detail.
(vi) Revenue recognition over time
The value of work performed using stage of completion method is used to determine revenue recognition on
contracts where revenue is recognised over time. This measurement is an accounting judgment as management
uses judgement to estimate costs incurred to date as a percentage of total estimated costs.
(vii) PDVSA project
In December 2014, Fluence Argentina entered into significant work agreements with PDVSA Agricola (PDVSA), a
wholly owned company by the Venezuelan government. These work agreements consisted of a series of purchase
orders (POs) from PDVSA (the 'PDVSA contract'), for detailed engineering and supply of water and wastewater
treatment systems and composting systems for five ethanol production plants in Venezuela. In relation to those work
agreements, Fluence Argentina received an advance collection of approximately US$95 million in June 2015.
During March 2016, PDVSA rescinded the original work agreements. During that period, Fluence Argentina had
invested significant amounts in the engineering design of the projects. In January 2017, PDVSA expressed its
intention to continue with the plant named "Portuguesa", at a project value of US$45 million.
Fluence Corporation Limited
61
Fluence Corporation Limited
Notes to the Consolidated Financial Statements
31 December 2019
(continued)
1 Summary of significant accounting policies (continued)
(aa) Significant Accounting Estimates and Assumptions (continued)
(vii) PDVSA project (continued)
During 2018, the Company recognised revenues in the amount of US$24.8 million related to Portuguesa, and it had
recognised approximately US$33 million in prior years (US$15.2 million related Portuguesa and US$17.8 million
related the rescinded POs). The Company also recognised variable consideration in relation to the PDVSA contract
during the year resulting from rescinded purchase orders. Further, an onerous contract provision originally recognised
in 2016, was reassessed in light of the progress of the project. It was determined that it was no longer probable that
an outflow of resources will be required post 31 December 2018 and that remaining the provision of US$11.3m was
released to cost of sales in 2018.
During 2019, the United States Office of Foreign Assets Control (OFAC), enacted further sanctions with respect to
Venezuela (the Venezuelan Sanctions). As Fluence is headquartered in the US, the Company has determined that
the Venezuelan Sanctions are applicable to the Company and its subsidiaries. While in place, the Venezuelan
Sanctions prohibit US persons from having certain dealings with Venezuela (subject to certain exceptions). This
extends to any work Fluence’s Argentinean subsidiary may otherwise have performed for PDVSA. We are keeping
the customer informed as permitted under the OFAC regulations, and to date no claims have been brought in
response to the issue. We are currently exploring all possible options to move forward in light of the Venezuelan
Sanctions, including seeking an OFAC license to perform under the arrangements with PDVSA.
(viii)San Quintin project
In January 2016, the Group entered into a service concession arrangement in Mexico to build and operate a
desalination plant (the "Desalination Plant"). The construction started in October 2018 and is expected to be
completed by September 2021.Under the terms of the agreement, the Group will operate and maintain the plant and
will sell water to the grantor for a period of 30 years. The grantor will provide the Group a guaranteed minimum
annual payment for each year that the Desalination Plant will be in operation to cover the investment. Additionally, the
Group has received the right to charge fees for water consumed from the Desalination Plant, which the Group will
collect and retain. At the end of the concession period, the Desalination Plant will be transferred and will become the
property of the grantor and the Group will have no further involvement in its operation or maintenance requirements.
During the years 2017, 2018 and 2019, The Company recognised revenue of US$0.6 million, US$13.1 million and
US$1.1 million, respectively, on the construction of the Desalination Plant. The revenue recognised represents the
fair value of the construction services provided in constructing the Desalination Plant.
The new Administration of the State of Baja California took office at the end of 2019 and subsequently appointed new
officials at the Comisión Estatal del Agua de Baja California (the “Customer”). The Customer informed the Company
on 15 February 2020 of their intent to proceed with the San Quintin project. Since such time, the Customer and the
Company have been engaged in discussions to address any remaining open items under the contract.
(ab)New and amended standards adopted by the group
AASB Interpretation 23: Uncertainty over income tax treatments (IFRIC 23):
IFRIC 23 clarifies the application of recognition and measurement requirements of AASB 112 Income Taxes where
there is uncertainty over income tax treatments. The Interpretation specifically addresses:
• Whether an entity considers uncertain tax treatments separately;
•
•
That the entity should assume a tax authority will examine the uncertain tax treatments and have full knowledge
of all related information, i.e. that detection risk should be ignored;
That the entity should reflect the effect of the uncertainty in its income tax accounting when it is not probable that
the tax authorities will accept the treatment;
Fluence Corporation Limited
62
Fluence Corporation Limited
Notes to the Consolidated Financial Statements
31 December 2019
(continued)
1 Summary of significant accounting policies (continued)
(ab)New and amended standards adopted by the group (continued)
•
•
That the impact of the uncertainty should be measured using either the most likely amount or the expected value
method, depending on which method best predicts the resolution of the uncertainty; and,
That the judgements and estimates made must be reassessed whenever circumstances have changed or there is
new information that affects the judgements.
The Group has assessed the impact of IFRIC 23 on the financial statements. The assessment concluded that the
Interpretation did not have any material impact on the Group’s financial statements. Consequently, no retrospective
adjustment is required.
2 Segment information
Segment disclosure replicates the manner in which the Managing Director and Chief Operating Decision Maker
(CODM) monitors the business performance.
The Group's operating segments are:
• Operating Units (OUs) - These are defined as the operating entities of the Group that earn revenues and incur
expenses that are reviewed by the CODM and their discrete financial information is available. OUs include the
Group's entities in Argentina, Italy, Israel, USA, China and Middle East. The OUs are aggregated into a single
operating segment on the basis that the OUs are similar in each of the following respects:
•
•
•
•
•
nature of the products and services;
nature of the production processes;
type or class of customer for their products and services;
methods used to distribute their products or provide their services; and
nature of the regulatory environment
• Product and Innovation Group (P&I) - Defined as the Research and Development vehicle of the Group.
2019
Segment revenue
Operating revenue and other income
Segment expense
Segment depreciation and amortisation
Share of profits of associates
Write off of inventories
Segment expense
Unallocated expenses - corporate
Segment results
Operating
Units
$'000
Production
and
Innovation
$'000
Intersegment
Elimination
$'000
Total
$'000
60,765
60,765
(2,038)
84
(1,299)
(63,578)
-
(66,831)
(6,066)
1,920
1,920
(863)
-
-
(7,730)
-
(8,593)
(6,673)
(1,391)
(1,391)
-
-
-
(6,783)
-
(6,783)
(8,174)
61,294
61,294
(2,901)
84
(1,299)
(78,091)
(10,672)
(92,879)
(31,585)
Fluence Corporation Limited
63
Fluence Corporation Limited
Notes to the Consolidated Financial Statements
31 December 2019
(continued)
2 Segment information (continued)
2019
Assets
Investments in associates
Segment assets
Unallocated assets - corporate
Liabilities
Segment liabilities
Unallocated liabilities - corporate
Acquisitions of non-current assets
2018
Segment revenue
Operating revenue and other income
Segment expense
Segment depreciation and amortisation
Goodwill impairment
Share of profits of associates
Write off of inventories
Segment expense
Unallocated expenses - corporate
Segment result
Assets
Investments in associates
Segment assets
Unallocated assets - corporate
Liabilities
Segment liabilities
Unallocated liabilities - corporate
Acquisitions of non-current assets
Operating
Units
$'000
Production
and
Innovation
$'000
Intersegment
Elimination
$'000
Total
$'000
434
110,880
-
111,314
(80,184)
-
(80,184)
2,804
-
6,536
-
6,536
(8,871)
-
(8,871)
80
-
(5,483)
-
(5,483)
4,168
-
4,168
-
434
111,933
21,827
134,194
(84,887)
(2,229)
(87,116)
2,884
Operating
Units
$'000
Production
and
Innovation
$'000
Intersegment
Elimination
$'000
Total
$'000
100,722
100,722
(1,886)
(56,293)
38
(172)
(103,556)
-
(161,869)
(61,147)
484
115,475
-
115,959
(81,469)
-
(81,469)
4,087
1,588
1,588
(1,187)
(1,187)
101,123
101,123
(860)
-
-
-
(11,995)
-
(12,855)
(11,267)
-
9,006
-
9,006
(8,663)
-
(8,663)
733
-
-
-
-
22,661
-
22,661
21,474
-
(1,383)
-
(1,383)
3,004
-
3,004
-
(2,746)
(56,293)
38
(172)
(92,890)
(11,862)
(163,925)
(62,802)
484
123,098
18,212
141,794
(87,128)
(3,599)
(90,727)
4,820
Fluence Corporation Limited
64
Fluence Corporation Limited
Notes to the Consolidated Financial Statements
31 December 2019
(continued)
2 Segment information (continued)
Unallocated expenses
Other corporate expenses
Unallocated assets
Cash and cash equivalents
Other assets
Unallocated liabilities
Trade and other payables
Other liabilities
Consolidated entity
31 December
2019
$'000
31 December
2018
$'000
(10,672)
(11,862)
Consolidated entity
31 December
2019
$'000
31 December
2018
$'000
11,575
10,252
21,827
14,003
4,209
18,212
Consolidated entity
31 December
2019
$'000
31 December
2018
$'000
(882)
(1,347)
(2,229)
(2,126)
(1,473)
(3,599)
Intersegment transactions
Intersegment
consolidation.
transactions are made on a arm's-length basis.
3 Operating revenue and expenses
Intersegment
transactions are eliminated on
Operating revenue
Space
Contract revenue
Smart product solutions
Customer engineering solutions
Service concession arrangements revenue
Space
Consolidated entity
31 December
2019
$'000
31 December
2018
$'000
26,394
25,247
2,465
54,106
21,795
51,820
20,847
94,462
Fluence Corporation Limited
65
Fluence Corporation Limited
Notes to the Consolidated Financial Statements
31 December 2019
(continued)
3 Operating revenue and expenses (continued)
Service revenue
Revenues on services
Other
Research and development
Salaries and other employee related expenses
Materials
Depreciation
Professional fees
Travel and entertainment
Other
Sales and marketing
Salaries and other employee related expenses
Marketing activities
Travel and entertainment
Professional fees
Other
Consolidated entity
31 December
2019
$'000
31 December
2018
$'000
4,946
1,910
6,856
3,699
2,712
6,411
60,962
100,873
Consolidated entity
31 December
2019
$'000
31 December
2018
$'000
2,266
1,246
465
267
191
223
4,658
2,153
4,093
205
210
227
326
7,214
Consolidated entity
31 December
2019
$'000
31 December
2018
$'000
Notes
6,352
1,106
1,013
701
813
9,985
5,639
1,719
1,124
466
821
9,769
Fluence Corporation Limited
66
Fluence Corporation Limited
Notes to the Consolidated Financial Statements
31 December 2019
(continued)
3 Operating revenue and expenses (continued)
General and administration
Salaries and other employee related expenses
Professional fees
Depreciation
Director expense
Office expenses
Travel and entertainment
Insurance
Bank charges
Import and export expenses
Maintenance
Increase/(reversal of) bad debt provision
Other
Other gains/(loss) - net
Foreign exchange gain / (loss)
Gain / (loss) on disposal of Property, plant and equipment
Write down of inventory
Withholding taxes
(Increase)/reversal of provisions
Loss from investments accounted for using the equity method
Other
Finance income/(costs) - net
Interest income
Fund valuation gain/(loss)
Interest expense
Project financing and other
Consolidated entity
31 December
2019
$'000
31 December
2018
$'000
11,141
4,904
2,338
1,870
1,677
1,364
873
339
219
101
(91)
824
25,559
9,961
5,987
2,554
1,761
1,076
1,396
689
368
852
255
2,229
614
27,742
Consolidated entity
31 December
2019
$'000
31 December
2018
$'000
1,634
1,393
(1,299)
(550)
(334)
84
400
1,328
5,255
(19)
(172)
(686)
78
38
(58)
4,436
Consolidated entity
31 December
2019
$'000
31 December
2018
$'000
328
129
(579)
(423)
(545)
3,066
(1,947)
(407)
(191)
521
Fluence Corporation Limited
67
Fluence Corporation Limited
Notes to the Consolidated Financial Statements
31 December 2019
(continued)
3 Operating revenue and expenses (continued)
Aggregate expenses
Aggregate depreciation and amortisation expenses
Aggregate employee benefits expense
4 People costs
(a) Share-based payments
Employee Option Plan
Consolidated entity
31 December
2019
$'000
31 December
2018
$'000
3,089
27,752
2,937
29,120
A share option plan has been established by the consolidated entity and approved by shareholders at a general
meeting, whereby the consolidated entity may, at the discretion of the Board of Directors, grant options over ordinary
shares in the Group to certain key management personnel of the consolidated entity. The options are issued for nil
consideration and are granted in accordance with performance guidelines established by the Remuneration and
Nomination Committee.
Set out below are summaries of options granted under the plan:
Fluence Corporation Limited
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Fluence Corporation Limited
Notes to the Consolidated Financial Statements
31 December 2019
(continued)
4 People costs (continued)
(a) Share-based payments (continued)
Employee Option Plan (continued)
(i) Fair value of options granted
For the options granted during the current financial year, the valuation model inputs used to determine the fair value
at the grant date are outlined below. The expected volatility reflects the assumption that the historical volatility is
indicative of future trends, which may also not necessarily be the actual outcome.
Grant date
a
31 January 2019
10 April 2019
16 April 2019
30 May 2019
30 May 2019
30 May 2019
Expiry Date
30 September 2021
3 June 2022
15 June 2023
14 July 2025
13 June 2023
13 June 2023
Share price at
grant date (AU$)
0.363
0.550
0.530
0.455
0.455
0.455
Exercise
Price (AU$)
0.39
0.46
0.53
0.39
0.60
0.80
Dividend
yield
Nil
Nil
Nil
Nil
Nil
Nil
Risk-free
interest rate
(%)
1.77
1.43
1.48
1.39
1.15
1.15
Fair value at
grant date
0.0888
0.1717
0.1692
0.1529
0.1120
0.0893
The weighted average remaining contractual life of options outstanding at year-end was 2.89 years.
The fair value of the options granted to employees is considered to represent the value of the employee services
received over the vesting period.
The weighted average fair value of options granted during the year was $0.1965. These values were calculated using
the binomial lattice, based on the Cox, Ross Rubinstein (1979) method applying the following inputs:
Weighted average exercise price: $0.62
Expected share price volatility: 59%
The volatility measure was obtained based on the historical returns of the company's stock on the ASX.
(b) Expenses arising from share-based payment transactions
Share based payment expense
Consultant share based payments
Employee share based payments
Director share based payments
(c) Key Management Personnel Disclosures
Compensation
Consolidated entity
31 December
2019
$'000
31 December
2018
$'000
146
349
1,210
1,705
74
823
1,094
1,991
The aggregate compensation made to directors and other members of key management personnel of the Group is
set out below:
Fluence Corporation Limited
71
Fluence Corporation Limited
Notes to the Consolidated Financial Statements
31 December 2019
(continued)
4 People costs (continued)
(c) Key Management Personnel Disclosures (continued)
Compensation (continued)
Short-term employee benefits
Share based payments
Consolidated entity
31 December
2019
$
31 December
2018
$
2,905,179
1,327,156
4,232,335
3,599,150
1,283,452
4,882,602
The above Key Management Personnel disclosures represents the remuneration of Key Management Personnel
defined in the Remuneration Report and paid or payable for the 12 months ended 31 December 2019 and 31
December 2018.
For more information on Key Management Personnel Compensation disclosed under the Corporations Act 2001,
please refer to Remuneration Report contained within the Directors’ Report.
5 Income tax
(a)
Income tax expense
The components of tax expense comprise:
Current tax
Current tax
Adjustments for current tax of prior periods
(Increase)/decrease in deferred tax assets
Increase/(decrease) in deferred tax liabilities
Consolidated entity
31 December
2019
$'000
31 December
2018
$'000
(3,146)
(350)
1,509
(1,987)
(18)
715
(1,139)
(442)
Fluence Corporation Limited
72
Fluence Corporation Limited
Notes to the Consolidated Financial Statements
31 December 2019
(continued)
5 Income tax (continued)
(b) Numerical reconciliation of income tax expense to prima facie tax payable
Loss from continuing operations before income tax
space
Prima facie tax on profit from ordinary activities
Tax losses carried forward
Tax expense - Fluence Italy S.R.L.
Tax expense - Fluence Israel Ltd
Tax expense - Fluence Argentina
Tax expense - other
Income tax expense
(c) Deferred tax balances
(i) Deferred tax assets
The balance comprises temporary differences attributable to:
Tax losses
Unrealised foreign exchange gain/loss
Accrued WIP
Accrued licence fee
Other accruals
Doubtful debts provision
Annual leave provision
Other
Consolidated entity
31 December
2019
$'000
31 December
2018
$'000
(29,598)
(62,360)
(8,879)
8,879
(79)
(162)
(1,760)
14
(1,987)
(18,708)
18,708
(111)
(152)
(110)
(69)
(442)
Consolidated entity
31 December
2019
$'000
31 December
2018
$'000
232
-
199
-
155
74
54
144
858
184
1
19
361
107
-
60
476
1,208
Fluence Corporation Limited
73
Fluence Corporation Limited
Notes to the Consolidated Financial Statements
31 December 2019
(continued)
5 Income tax (continued)
(c) Deferred tax balances (continued)
(ii) Deferred tax liabilities
The balance comprises temporary differences attributable to:
Unrealised foreign exchange gain/loss
WIP
Fixed assets
Other
(d) Unrecognised deferred tax assets
Consolidated entity
31 December
2019
$'000
31 December
2018
$'000
-
1,018
87
936
2,041
4
238
290
-
532
A few of the Group's subsidiaries have been accumulating losses in the past years. The consolidated balance of the
tax losses carried forward as of 31 December 2019 was $38,447,000 (2018: $29,568,000).
6 Loss per share
(a) Basic loss per share
Consolidated entity
31 December
2019
$
31 December
2018
$
Loss attributable to the ordinary equity holders of the Group
(0.06)
(0.14)
(b) Diluted loss per share
Consolidated entity
31 December
2019
$
31 December
2018
$
Loss attributable to the ordinary equity holders of the Group
(0.06)
(0.14)
Fluence Corporation Limited
74
Fluence Corporation Limited
Notes to the Consolidated Financial Statements
31 December 2019
(continued)
6 Loss per share (continued)
(c) Reconciliation of earnings used in calculating earnings per share
Consolidated entity
31 December
2019
$'000
31 December
2018
$'000
Profit attributable to the ordinary equity holders of the Group used in calculating basic
earnings per share:
From continuing operations
(31,585)
(62,802)
(d) Weighted average number of shares
Consolidated entity
2018
2019
Number
Number
Weighted average number of ordinary shares used as the denominator in calculating
basic and diluted loss per share
553,262,961
439,535,108
7 Cash and cash equivalents, Other financial assets, Cash Flows
(a) Cash and cash equivalents
Cash and cash equivalents
(b) Other financial assets
Restricted cash
Short term deposits
Consolidated entity
31 December
2019
$'000
31 December
2018
$'000
21,908
21,908
38,741
38,741
Consolidated entity
31 December
2019
$'000
31 December
2018
$'000
416
5,000
5,416
1,538
879
2,417
Fluence Corporation Limited
75
Fluence Corporation Limited
Notes to the Consolidated Financial Statements
31 December 2019
(continued)
7 Cash and cash equivalents, Other financial assets, Cash Flows (continued)
(c) Cash flow information
(Loss) after income tax
Adjustment for:
Depreciation and amortisation expenses
Share based payments expense
Impairment loss
Increase/(decrease) in bad debt provision
Warranty provision
Inventory reserve
(Gain)/loss on disposal of property, plant and equipment
Share of profits of associates and joint ventures
Increase/(decrease) in provision for losses
Increase/(decrease) in employee benefits provision
Restructuring provision
Finance costs - net
Foreign exchange differences
Decrease in restricted cash
(Increase)/decrease in trade and other receivables
(Increase)/decrease in inventory
(Increase) in prepaid expenses
Decrease in net tax asset
(Increase)/decrease in other current and non-current assets
Increase/(decrease) in trade and other payables (*)
(Decrease) in deferred revenues
Cash generated from operations
Consolidated entity
31 December
2019
$'000
31 December
2018
$'000
(31,585)
(62,802)
2,901
1,705
-
(91)
241
1,299
(1,393)
(84)
334
(370)
1,741
197
(1,634)
1,040
4,971
5,081
(3,069)
2,257
(1,423)
(16,022)
(2,819)
(36,723)
2,937
1,991
56,293
2,229
1,008
172
21
(38)
(11,347)
29
-
2,192
(5,255)
108
(5,708)
(394)
(717)
442
2,061
4,087
(33,814)
(46,505)
(*) Payments for construction of concession assets included in Cash flows from operating activities for the year
ending 31 December 2018 have been reclassified to Cash flows from investing activities. As the result of this
reclassification, for the year ending 31 December 2018, Cash flows from operating activities decreased by $3,378
thousand to $46,505 thousand. The non-cash increase of concession arrangements asset for the year ending 31
December 2018 has been reclassified to Increase/(decrease) in trade and other payables for a purpose of accurate
comparison between 2019 and 2018.
Fluence Corporation Limited
76
Fluence Corporation Limited
Notes to the Consolidated Financial Statements
31 December 2019
(continued)
8 Trade and other receivables
Current receivables - Trade receivables
Contract receivables
Contract unbilled receivables
Provision for impairment - contract receivables
Current receivables - Other receivables
GST receivable
Income tax receivable
Other taxes receivable
Other receivables
Consolidated entity
31 December
2019
$'000
31 December
2018
$'000
22,936
15,689
(2,874)
35,751
2,953
997
(29)
105
4,026
15,176
17,882
(3,211)
29,847
2,631
529
406
101
3,667
Total current trade and other receivables
39,777
33,514
Non-current receivables
Long-term receivables
Provision for impairment - long-term receivables
Total non-current receivables
Additional information on contract debtors
Total contract debtors
Total contract liabilities
1,190
(1,190)
-
1,223
(1,213)
10
Consolidated entity
31 December
2019
$'000
31 December
2018
$'000
Notes
15
35,751
(22,116)
13,635
29,847
(29,040)
807
Contract assets are balances due from customers under long-term contracts as work is performed and therefore a
contract asset is recognised over the period in which the performance obligation is fulfilled. This represents the
Group's right to consideration for the products and services transferred to date. Amounts are generally reclassified to
contract receivables when this have been invoiced to the customer.
Fluence Corporation Limited
77
Fluence Corporation Limited
Notes to the Consolidated Financial Statements
31 December 2019
(continued)
9 Inventories
Raw materials - at cost
Work in progress - at cost
Finished goods - at lower of cost or net realisable value
10 Concession asset
Consolidated entity
31 December
2019
$'000
31 December
2018
$'000
8,537
1,318
2,755
12,610
9,217
6,151
3,498
18,866
The Group have three concession service arrangements on hand as of 31 December 2019:
•
•
•
In July 2018 the Group entered into a service concession arrangement in the Bahamas to build a seawater
desalination potable treatment plant. The onsite execution and construction started in October 2018 and
completed in January 2020. Under the terms of the agreement, the Group will operate the desalination plant and
provide water to the grantor for a period of 15 years. The Group will be responsible for any maintenance services
required during the concession period. The Group does not expect major repairs to be necessary during the
concession period. The grantor will provide the Group a guaranteed minimum annual payment for each year that
the desalination plant will be in operation. At the end of the concession period, the desalination plant will become
the property of the grantor and the Group will have no further involvement in its operation or maintenance
requirements. For the year ended 31 December 2019, the Group has recognised revenue of $0.5 million on the
construction of the desalination plant. The revenue recognised represents the fair value of the construction
services provided in constructing the desalination plant and are recognised as a concession asset.
In January 2016 the Group entered into a service concession arrangement in Mexico to build and operate a
desalination plant. The construction started in October 2018 and is expected to be completed by September
2021. Under the terms of the agreement, the Group will operate and maintain the plant and will sell water to the
grantor for a period of 30 years. The grantor will provide the Group a guaranteed minimum annual payment for
each year that the Desalination plant will be in operation to cover the investment. Additionally, the Group has
received the right to charge fees for water consumed from the desalination plant, which the Group will collect and
retain. At the end of the concession period, the desalination plant will be transferred and will become the property
of the grantor and the Group will have no further involvement in its operation or maintenance requirements. For
the year ended 31 December 2019, the Group has recognised revenue of $1.1 million on the construction of the
Desalination plant. The revenue recognised represents the fair value of the construction services provided in
constructing the desalination plant. The Group recognised an intangible asset and a financial asset received as
consideration for providing construction services of $0.3 million and $0.8 million, respectively. The intangible
asset represents the right to charge users a fee for use of the desalination plant. The financial asset represents
an unconditional contractual right to receive a specified amount of cash. For more information refer to note 1 (aa)
(viii).
In November 2018 the Group acquired a company holding a concession service arrangement to build a
desalination plant in Peru for a period of 10 years. The Group started construction in March 2018. The
construction is expected to be completed in July 2020. The Group will operate and maintain the desalination plant
and will sell water to the client for a period of 10 years. At the end of the concession period, the desalination plant
will remain in the Group's custody and the agreement might be extended or transferred to a new client. For the
year ended 31 December 2019, the Group has recognised revenue of $0.8 million on the construction of the
desalination plant. The revenue recognised represents the fair value of the construction services provided in
constructing the desalination plant and were recognised as a concession asset.
Fluence Corporation Limited
78
Fluence Corporation Limited
Notes to the Consolidated Financial Statements
31 December 2019
(continued)
10 Concession asset (continued)
a
Concession assets
Current concession asset
Non-current concession asset
11 Other assets
a
Current assets
Other
a
Non-current assets
Construction bond
Other
12 Investments accounted for using the equity method
Consolidated entity
31 December 31 December
2019
$'000
2018
$'000
512
20,961
21,473
-
18,830
18,830
Consolidated entity
31 December 31 December
2019
$'000
2018
$'000
357
357
67
67
Consolidated entity
31 December 31 December
2019
$'000
2018
$'000
3,526
654
4,180
2,400
759
3,159
Quoted fair value / Carrying
Amount
31 December 31 December
2019
$'000
2018
$'000
a
Name of entity
E.T.G.R Water
Infrastructure
Management
Place of
business/
country of
incorporation
% of
ownership
interest
Nature of
relationship
Measurement
method
Israel
50%
Associate Equity method
434
484
As of 31 December 2019, the Group holds 50% interest in E.T.G.R Water Infrastructure Management partnership.
This investment contributed a gain of $84,000 to Fluence Corporation Limited, which is included in 'Other gains/(loss)
- net' in the Consolidated Statement of Profit or Loss and Other Comprehensive Income.
Fluence Corporation Limited
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Fluence Corporation Limited
Notes to the Consolidated Financial Statements
31 December 2019
(continued)
14 Intangible assets
Consolidated entity
Year ended 31 December 2018
Opening net book amount
Additions
Impairment loss (i)
Amortisation charge
Currency translation differences
Closing net book amount
Year ended 31 December 2019
Opening net book amount
Additions
Amortisation charge
Currency translation differences
Closing net book amount
Capitalised
development
costs
$'000
Capitalised
concession
asset
$'000
Goodwill
$'000
Total
$'000
56,293
-
(56,293)
-
-
-
-
-
-
-
-
2,208
-
-
(138)
(158)
1,912
1,912
-
(193)
157
1,876
1,666
2,017
-
-
8
3,691
3,691
295
-
136
4,122
60,167
2,017
(56,293)
(138)
(150)
5,603
5,603
295
(193)
293
5,998
Impairment tests for goodwill
(i)
Goodwill and intangible assets with 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.
Other intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. An impairment loss is recognised for the amount by which carrying amount
exceeds its recoverable amount.
Intangibles have been allocated to three Cash Generating Units (CGUs) for impairment testing as follows:
• Israel Business Unit
• Italy Business Unit
• All other Business Units that include the Group's operations mostly in Argentina, USA and UAE
The Directors conducted an overall review of their Value in Use model at 30 June 2018 and determined the Goodwill
to be fully impaired for all three Cash Generating Units (CGU's) the Goodwill was attributed to. An impairment of
$56,293,000 was recognised in the Financial Statements for the year ended 31 December 2018.
Movement in Goodwill by CGU for the twelve months ended 31 December 2018:
CGU
Balance of goodwill
Israel Business Unit
Italy Business Unit
Other Business Units
Total
31 December 2017
$'000
30,898
6,103
19,292
56,293
Goodwill impairment
For the 12 months ended
31 December 2018
$'000
Balance of goodwill
31 December 2018
$'000
(30,898)
(6,103)
(19,292)
(56,293)
-
-
-
-
Fluence Corporation Limited
82
Fluence Corporation Limited
Notes to the Consolidated Financial Statements
31 December 2019
(continued)
15 Trade and other payables and other liabilities
Current
Trade payables
Accrued payroll liabilities
Accrued project expenses
Payable to non-controlling interests (i)
Government grants (ii)
Lease liability (iii)
Other accruals
Non-current
Government grants (ii)
Lease liability (iii)
Other liabilities
Consolidated entity
31 December
2019
$'000
31 December
2018
$'000
Notes
8
12,357
2,594
22,116
-
1,384
1,201
4,174
43,826
3,178
6,329
305
9,812
10,558
2,919
29,040
300
1,852
1,319
2,857
48,845
2,982
6,026
293
9,301
(i) Payable to non-controlling interests
In May 2017, the agreement was reached between RWL Water LLC Group (RWL) and the non-controlling interests
owners of its subsidiary in Argentina that RWL would buy out the remaining 30% ownership share and become the
sole owner of its subsidiary in Argentina. The deal was contingent upon the Emefcy Group acquisition of RWL, which
took place on 14 July 2017. The consideration paid to non-controlling interests was determined as $4,618,000 and
included three components: $300,000 payable in cash; $4,018,000 payable when the shares issued by Fluence
corporation in relation to this transaction are sold; and $300,000 as contingent consideration, payable when the
certain performance conditions are met. The cash portion of the consideration was paid in July 2017, leaving
$4,318,000 unpaid as of 31 December 2017. The shares issued by Fluence corporation in relation to this transaction
were sold in January 2018 and $4,018,000 was paid to non-controlling interests as per agreement. The balance of
$300,000 remained unpaid as of 31 December 2018. It has been fully paid as of 31 December 2019.
(ii) Government Grant Liability
The Group participates in programs sponsored by the Office of the Chief Scientist (“OCS”) of Israel, for the support of
research and development projects. In exchange for the Chief Scientist's participation in the programs, the Group is
required to pay royalties to the Chief Scientist at a rate between 3% and 4.5% of sales to end customers of products
developed with funds provided by the Chief Scientist, if and when such sales are recognised. As of December 31,
2019 and 2018, the Group recognised a liability to the OCS in the amount of $4,359,000 and $4,628,000 respectively
for the obligation for future royalty payments. The recognition of a liability for the Group to repay the grants from
future royalty payments is based on its estimation at the end of each year. The discounted rate used by the Group for
the liability is 13.9%.
The Group has also participated in programs sponsored by the Ministry of National Infrastructures (“MNI”) of Israel,
for the support of research and development projects. In exchange for the MNI's participation in the programs, the
Group is required to pay royalties to the MNI at a rate of 5% of the sales to end customers of products developed with
funds provided by the MNI, if and when such sales are recognised. As of 31 December 2019 and 2018, the Group
recognised a liability to the MNI in the amount of $203,000 and $206,000 respectively. The exceptions of the Group
to pay the grants are based on its estimation at the end of each year. The discounted rate used by the Group for the
liability is 13.9%.
Fluence Corporation Limited
83
Fluence Corporation Limited
Notes to the Consolidated Financial Statements
31 December 2019
(continued)
15 Trade and other payables and other liabilities (continued)
(iii) AASB 16 lease liability
In 2018, the Group implemented AASB 16. The liability of $7,530,000 arising from the implementation of this new
standard represents the Group obligation to make lease payments as of 31 December 2019 (31 December 2018:
$7,345,000).
16 Borrowings
a
Borrowings
Current borrowings
Non-current borrowings
Consolidated entity
31 December 31 December
2019
$'000
2018
$'000
877
2,030
2,907
368
-
368
In March 2019, the Company drew down a $2 million from its $50 million non-recourse debt facility with Generate
Capital which was put in place to fund its Build, Own, Operate and Transfer ('BOOT') projects.
17 Provisions
Current
Employee benefits
Provision - onerous contracts
Warranty provision
Other provisions
Non-current
Employee benefits
Consolidated entity
Current
At 1 January 2019
Additions
Reversal
Utilised
Currency translation differences
Total
Consolidated entity
31 December
2019
$'000
31 December
2018
$'000
1,316
334
1,540
3,074
6,264
632
632
1,469
-
1,299
1,324
4,092
838
838
Employee
benefits
$'000
Warranty
$'000
Onerous
contracts
$'000
Other
$'000
Total
$'000
1,469
55
-
(214)
6
1,316
1,299
667
-
(426)
-
1,540
-
334
-
-
-
334
1,324
2,109
(368)
-
9
3,074
4,092
3,165
(368)
(640)
15
6,264
Fluence Corporation Limited
84
Fluence Corporation Limited
Notes to the Consolidated Financial Statements
31 December 2019
(continued)
17 Provisions (continued)
Consolidated entity
Non-current
At 1 January 2019
Additions
Reversal
Utilised
Currency translation differences
18 Deferred revenue
Deferred revenue
Employee
benefits
$'000
Warranty
$'000
Onerous
contracts
$'000
Other
$'000
Total
$'000
838
98
-
(309)
5
632
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
838
98
-
(309)
5
632
Consolidated entity
31 December
2019
$'000
31 December
2018
$'000
21,596
25,898
Deferred revenue represents remaining pre-payments made primarily by PDVSA upon entering into a multi-year
contract with the Group in 2015. For more information regarding the PDVSA project refer to note 1(aa)(vii).
19 Contributed equity
Ordinary shares
Options
Share capital
31 December
2019
No.
31 December
2018
No.
31 December
2019
$'000
31 December
2018
$'000
624,854,034
39,597,824
664,451,858
537,375,296
46,436,671
583,811,967
204,056
7,784
211,840
179,047
6,079
185,126
(a) Ordinary Shares - Fully Paid
Number of shares
$'000
Opening balance 1 January 2018
Shares issued for Milestone 2
Shares issued for RWL Water LLC group acquisition, previously
subject to holdback
Private placement at AU$0.37 per share
Shares issued pursuant to a Share Purchase plan announced on
26 October 2018 at AU$0.37 per share
Exercise of options
Transaction costs arising on share issue
Balance 31 December 2018
Notes
(i)
411,279,194
3,988,973
20,100,000
89,455,295
9,051,835
3,499,999
537,375,296
-
537,375,296
152,810
-
-
23,987
2,428
799
180,024
(977)
179,047
Fluence Corporation Limited
85
Fluence Corporation Limited
Notes to the Consolidated Financial Statements
31 December 2019
(continued)
19 Contributed equity (continued)
Opening balance 1 January 2019
Private placement at AU$0.44 per share
Shares issued pursuant to a Share Purchase plan announced on
28 October 2019 at AU$0.44 per share
Exercise of options
Transaction costs arising on share issue
Balance 31 December 2019
(i)
Number of shares
537,375,296
81,818,181
$'000
179,047
24,455
5,381,453
279,104
624,854,034
-
624,854,034
1,617
65
205,184
(1,128)
204,056
(i) Transaction costs relating to share issues
Under AASB 132, incremental costs that are directly attributable to issuing new shares should be deducted from
equity. The share issue expense relates to costs directly attributable to the issuing of new shares, costs associated
with the listing have been deducted from equity.
Ordinary shares
Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the Group in
proportion to the number of shares held. At shareholder meetings, each ordinary share is entitled to one vote when a
poll is called; otherwise each shareholder has one vote on a show of hands.
(b) Options
2018
w
Opening balance
Unlisted options issued to employees
Unlisted options issued to consultants
Unlisted options issued to directors
Reversal of unlisted options issued to employees
Reversal of unlisted options issued to consultants
Exercised options
Cancelled options
Balance at 31 December 2018
2019
w
Opening balance
Unlisted options issued to employees
Unlisted options issued to directors
Exercised options
Cancelled, lapsed and forfeited options
Balance at 31 December 2019
Number of options
52,778,282
2,243,000
100,000
1,500,000
(992,000)
(2,040,001)
(3,499,999)
(3,652,611)
46,436,671
Number of options
46,436,671
1,970,000
3,860,000
(484,518)
(12,184,329)
39,597,824
(c) Summary of all unlisted options in existence
Date options granted
Expiry date
Issue price of shares (AU$)
Number under option
29 February 2016
29 February 2016
11 April 2016
17 May 2016
17 May 2016
18 May 2016
18 May 2016
28 February 2020
28 February 2020
13 April 2020
16 May 2020
28 May 2020
18 May 2020
18 May 2021
$0.30
$0.40
$0.35
$0.59
$0.59
$0.40
$0.40
100,000
100,000
500,000
400,000
100,000
1,000,000
1,000,000
Fluence Corporation Limited
86
Fluence Corporation Limited
Notes to the Consolidated Financial Statements
31 December 2019
(continued)
19 Contributed equity (continued)
(iii) Summary of all unlisted options in existence (continued)
Date options granted
Expiry date
Issue price of shares (AU$)
15 June 2016
25 July 2016
25 August 2016
23 September 2016
23 September 2016
27 October 2016
1 November 2016
9 February 2017
9 February 2017
28 March 2017
5 May 2017
31 May 2017
1 July 2017
14 July 2017
14 July 2017
14 July 2017
14 July 2017
14 July 2017
14 September 2017
10 January 2018
26 March 2018
28 June 2018
31 July 2018
31 July 2018
31 January 2019
10 April 2019
10 April 2019
16 April 2019
30 May 2019
30 May 2019
30 May 2019
31 May 2020
25 July 2020
25 August 2020
25 September 2020
9 November 2020
26 October 2020
31 October 2020
10 January 2021
9 February 2021
4 March 2021
3 May 2021
25 May 2025
6 July 2021
13 July 2021
13 July 2021
13 July 2021
25 May 2025
10 September 2021
13 November 2021
11 March 2022
25 May 2022
27 August 2022
31 July 2022
31 July 2022
30 September 2021
3 June 2022
3 December 2022
15 June 2023
13 June 2023
13 June 2023
14 July 2025
$0.93
$0.79
$0.87
$1.00
$1.00
$1.07
$0.74
$0.84
$1.00
$0.82
$0.86
$0.93
$0.97
$1.20
$1.50
$0.84
$0.84
$0.81
$0.86
$0.58
$0.48
$0.46
$1.20
$1.50
$0.39
$0.46
$0.46
$0.53
$0.60
$0.80
$0.39
20 Non-controlling interests
a
Opening Balance at 1 January 2018
Contributed equity
Profit for the year attributable to non-controlling interests
Closing Balance at 31 December 2018
Consolidated entity
31 December
2018
$'000
154
105
955
1,214
Number under option
1,000,000
250,000
225,000
200,000
200,000
150,000
500,000
25,000
350,000
1,000,000
150,000
10,391,855
100,000
3,850,000
3,850,000
1,500,000
350,000
2,632,000
1,140,000
80,000
1,334,375
496,094
750,000
750,000
1,043,000
120,250
69,000
31,250
250,000
250,000
3,360,000
39,597,824
Fluence Corporation Limited
87
Fluence Corporation Limited
Notes to the Consolidated Financial Statements
31 December 2019
(continued)
20 Non-controlling interests (continued)
a
Opening Balance at 1 January 2019
Contributed equity
Profit for the year attributable to non-controlling interests
Closing Balance at 31 December 2019
Consolidated entity
31 December
2019
$'000
1,214
-
(151)
1,063
The group has four subsidiaries with non-controlling interests, none of which are material to the group.
(i) Desaladora Kenton SA de CV, Mexico was founded in December 2015 by RWL Water LLC group ('RWL') and
Mexican partners in order to invest in the project to build, finance, operate and transfer (BOT) a seawater desalination
plant in San Quintin, Baja California, Mexico. RWL holds the 51% ownership share in Desaladora Kenton SA de CV.
(ii) Constructora Kenton SA de CV, Mexico was founded in May 2016 by RWL and Mexican partners in order to act
as the EPC contractor for the project to build, finance, operate and transfer (BOT) a seawater desalination plant in
San Quintin, Baja California, Mexico. RWL holds the 51% ownership share in Constructora Kenton SA de CV.
(iii) RWL acquired the 70% share in Acquavit Ltda., Brazil in March 2017. Acquavit Ltda. delivers water and
wastewater treatment projects to industrial and municipal clients. The company has expertise in advanced oxidation,
disinfection processes, membrane systems, ion exchange systems, water and wastewater treatment units, and water
reuse systems.
(iv) In October 2018 the Group formed a new entity The International Company for Water Services and Infrastructure
S.A.E. in Egypt to supply the desalination plants to projects owned by the Egyptian Ministry of Housing. The Group
holds 75% share in this entity.
21 Foreign currency translation reserve
Consolidated entity
31 December
2019
$'000
31 December
2018
$'000
Notes
Foreign currency translation reserve
(14,870)
(15,752)
Foreign currency translation reserve is used to record exchange differences on translation of foreign controlled
subsidiaries. Amounts are reclassified to profit or loss when the investment is disposed of.
22 Financial risk management
The Group’s activities expose it to a variety of financial risks: market risk (including currency risk, interest rate risk
and price risk), credit risk and liquidity risk. The Group’s overall risk management program focuses on the
unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of
the Group. The Group uses different methods to measure different types of risk to which it is exposed.
The Board provides principles for overall risk management, as well as policies covering specific areas, such as
foreign exchange risk, interest rate risk, credit risk and investment of excess liquidity.
Fluence Corporation Limited
88
Fluence Corporation Limited
Notes to the Consolidated Financial Statements
31 December 2019
(continued)
22 Financial risk management (continued)
(a) Market risk
(i) Foreign exchange risk
The Group undertakes certain transactions denominated in foreign currency and is exposed to foreign currency risk
through foreign exchange rate fluctuations.
Foreign exchange rate risk arises from future commercial transactions and recognised financial assets and financial
liabilities denominated in a currency that is not the Group’s functional currency.
The carrying amounts of the Group’s foreign currency denominated monetary assets and liabilities at the reporting
date are as follows:
Consolidated entity
31 December 2019
Assets
Liabilities
ILS
$'000
1,939
(1,326)
613
EUR
$'000
3,217
(7,303)
(4,086)
AUD
$'000
1,897
-
1,897
ARS
$'000
1,518
(680)
838
RMB
$'000
9,837
(5,714)
4,123
BRL
$'000
4,173
(2,933)
1,240
MXN
$'000
AED
$'000
415
(99)
316
112
-
112
EGP
$'000
6,515
-
6,515
A strengthening or weakening of 10% of the United States Dollar against the following currencies would have an
equal and opposite effect on loss after tax and equity as outlined below. The analysis assumes that all other
variables, in particular interest rates, remain constant.
The use of 10% was determined based on the analysis the above currencies change, on an absolute value basis,
between 31 December 2019 and 31 December 2018.
w
Israeli New Shekel (ISL)
Euro (EUR)
Australian Dollar (AUD)
Argentina Peso (ARS)
Renminbi (RMB)
Brazilian Real (BRL)
Mexican Peso (MXN)
United Arab Emirates Dirham (AED)
Egyptian Pound (EGP)
2019
+10%/-10%
$'000
61/(61)
(409)/409
190/(190)
84/(84)
412/(412)
124/(124)
32/(32)
11/(11)
652/(652)
Interest rate risk
(ii)
The Group is exposed to interest rate risks via the cash and cash equivalents that it holds. Interest rate risk is the risk
that a financial
instruments value will fluctuate as a result of changes in market interest rates and the effective
weighted average interest rates on classes of financial assets and financial liabilities.
Fluence Corporation Limited
89
Fluence Corporation Limited
Notes to the Consolidated Financial Statements
31 December 2019
(continued)
22 Financial risk management (continued)
(a) Market risk (continued)
(ii)
Interest rate risk (continued)
Instruments with cash flow risk
Cash and cash equivalents
Consolidated entity
31 December
2019
$'000
31 December
2018
$'000
21,908
38,741
An increase or decrease of 1% in interest rates at the reporting date would have the following increase/ (decrease)
effect on after tax loss and equity. The analysis assumes that all other variables remain constant.
The use of 1% was determine based on analysis of the US Federal Funds rates change, on an absolute value basis,
between December 2017, December 2018 and December 2019. The average change of rate was 0.125%.
w
Cash and cash equivalents
(b) Credit risk
2019
+1%/-1%
$'000
219/(219)
2018
+1%/-1%
$'000
396/(396)
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to
the Group. The Group closely monitors the activities of its counterparties and controls the access to its intellectual
property which enables it to ensure the prompt collection of customers’ balances. The Group’s main financial assets
are cash and cash equivalents as well as trade and other receivables and represent the Group’s maximum exposure
to credit risk in connection with its financial assets. Trade and other receivables are carried on the balance sheet net
of bad and doubtful debt provisions estimated by management based on prior year experience and an evaluation of
prevailing economic circumstances. Wherever possible and commercially practical the Group holds cash with major
financial institutions in various regions.
Maturity profile
The table below analyses the consolidated entity’s financial assets into relevant maturity groupings based on the
aging profile at the reporting date. The amounts disclosed in the table are the aging profiles of trade and other
receivables for the Group.
Contractual maturities of financial assets
At 31 December 2019
Trade receivables
Other receivables
Less than
6 months
$'000
Greater
than 6
months
$'000
Total
contractual
cash flows
$'000
18,249
105
18,354
1,813
-
1,813
20,062
105
20,167
Fluence Corporation Limited
90
Fluence Corporation Limited
Notes to the Consolidated Financial Statements
31 December 2019
(continued)
22 Financial risk management (continued)
(b) Credit risk (continued)
Contractual maturities of financial assets
At 31 December 2018
Trade receivables
Other receivables
Less than
6 months
$'000
Greater
than 6
months
$'000
Total
contractual
cash flows
$'000
11,730
101
11,831
235
10
245
11,965
111
12,076
Impairment of financial assets
In relation to the impairment of financial assets, AASB 9 requires an expected credit loss model as opposed to an
incurred credit loss model under AASB 139. The expected credit loss model requires the Group to account for
expected credit losses at each reporting date to reflect changes in credit risk since initial recognition of the financial
assets. In other words, it is no longer necessary for a credit event to have occurred before credit losses are
recognised.
In particular, AASB 9 requires the Group to measure the loss allowance for a financial instrument at an amount equal
to the lifetime expected credit losses (ECL) if the credit risk of that financial instrument has increased significantly
instrument is a purchased or originated credit-impaired financial asset.
since initial recognition, or if the financial
However, if the credit risk on a financial instrument has not increased significantly since initial recognition (except for
a purchased or originated credit-impaired financial asset), the Group is required to measure the loss allowance for
that financial
instrument at an amount equal to 12-months ECL. AASB 9 also requires a simplified approach for
measuring the loss allowance at an amount equal to lifetime ECL for trade receivables, contract assets and lease
receivables in certain circumstances.
The Group recognises a loss allowance for expected credit losses on investments in debt instruments that are
measured at amortised cost, amounts due from customers, as well as on loan commitments and financial guarantee
contracts. The amount of expected credit losses is updated at each reporting date to reflect changes in credit risk
since initial recognition of the respective financial instrument.
Low credit risk financial instruments
Some financial instruments are considered low credit risk due to contracts held with certain counterparties, including
government organisations with strong capacity to meet contractual cash flow obligations in the near term and not
expected to be affected by changes in economic and business conditions.
Measuring movements in credit risk
The Group has developed a sophisticated approach to periodically reviewing each contract. The Group measures its
credit risk through credit assessment criteria and use risk mitigation actions to manage credit risk.
The Group uses the following credit assessment criteria:
•
•
Exposure - The magnitude of credit exposure indicates the extent to which the Group is exposed to the risk of
loss in the event of the counterparty default. Credit exposure can be minimized through avoiding engagement
with only several counterparties in the same geographical area, background checks on new customers, establish
credit limits, use credit and political risk insurance, etc.
Probability of default (PD) - the likelihood of a default over a particular time horizon. It provides an estimate of the
likelihood that a counterparty will be unable to meet its contractual obligations. PD can be minimized by
developing a credit score for each counterparty by using historical information such as financial statements or use
external rating agencies and developing a standard process to handling overdue accounts.
Fluence Corporation Limited
91
Fluence Corporation Limited
Notes to the Consolidated Financial Statements
31 December 2019
(continued)
22 Financial risk management (continued)
(b) Credit risk (continued)
Impairment of financial assets (continued)
The Company considers the probability of default upon initial recognition of the asset and whether there has been a
significant increase in credit risk on an ongoing basis throughout each reporting period. To assess whether there is a
significant increase in credit risk the Company compares the risk of a default occurring on the asset as at the
reporting date with the risk of default as at the date of initial recognition. In making this assessment, the Group
considers both quantitative and qualitative information that
including historical
experience and forward-looking information that is available without undue cost or effort. Forward-looking information
considered includes the future prospects of the industries in which the Group’s debtors operate, obtained from
economic expert
think-tanks and other similar
organisations, as well as consideration of various external sources of actual and forecast economic information that
relate to the Group’s core operations. In particular, the following information is taken into account when assessing
significant movements in credit risk:
financial analysts, governmental bodies,
is reasonable and supportable,
relevant
reports,
•
•
•
•
•
•
•
internal credit rating;
external credit rating (as far as available);
actual or expected significant adverse changes in business, financial or economic conditions that are expected to
cause a significant change to the counterparty’s ability to meet its obligations;
actual or expected significant changes in the operating results of the counterparty;
significant increases in credit risk on other financial instruments of the same counterparty;
significant changes in the value of the collateral supporting the obligation or in the quality of third-party
guarantees or credit enhancements;
significant changes in the expected performance and behaviour of the counterparty, including changes in the
payment status of counterparties in the Group and changes in the operating results of the counterparty;
• macroeconomic information such as market interest rates and growth rates; and,
•
political condition of the region where the counterparty is located.
Definition of default
The Group considers the following as constituting an event of default for internal credit risk management purposes as
historical experience indicates that receivables that meet either of the following criteria are generally not recoverable.
•
•
if there is a material breach of financial covenants by the counterparty and this is not expected to be remedied in
the foreseeable future; or
information developed internally or obtained from external sources indicates that the counterparty is unlikely to
pay its creditors, including the Group, in full (without taking into account any collaterals held by the Group).
Irrespective of the above analysis, the Group considers that default has occurred when a financial asset is
significantly past due unless the Group has reasonable and supportable information to demonstrate that a more
lagging default criterion is more appropriate.
Credit-impaired financial assets
A financial asset is credit-impaired when one or more events that have a detrimental impact on the estimated future
cash flows of
is credit-impaired includes
observable data about the following events:
financial asset have occurred. Evidence that a financial asset
that
•
•
•
a breach of contract, such as a default or past due event;
it is becoming probable that the borrower will enter bankruptcy or other financial reorganisation; or
the disappearance of an active market for that financial asset because of financial difficulties.
Fluence Corporation Limited
92
Fluence Corporation Limited
Notes to the Consolidated Financial Statements
31 December 2019
(continued)
22 Financial risk management (continued)
(b) Credit risk (continued)
Impairment of financial assets (continued)
Write-off policy
The Group writes off a financial asset when there is information indicating that the counterparty is in severe financial
difficulty and there is no realistic prospect of recovery, e.g. when the counterparty has been placed under liquidation
or entered into bankruptcy proceedings. Financial assets written off may still be subject to enforcement activities
under the Group’s recovery procedures, taking into account legal advice where appropriate. Any recoveries made are
recognised in profit or loss.
(c) Liquidity risk
Liquidity risk is the risk that the consolidated entity will not be able to meet its financial obligations as they fall due.
Prudent liquidity risk management implies maintaining sufficient cash balances and access to equity funding when
needed.
Maturity profile
The table below analyses the consolidated entity’s financial liabilities into relevant maturity groupings based on the
remaining period at the reporting date to the contractual maturity date. The amounts disclosed in the table are the
contracted undisclosed cash flows.
Contractual maturities of financial liabilities
At 31 December 2019
Trade and other payables and other liabilities
Borrowings
Lease liabilities
At 31 December 2018
Trade and other payables and other liabilities
Borrowings
Lease liabilities
Greater
than 6
months
$'000
Total
contractual
cash
flows
$'000
Less than
6 months
$'000
41,199
756
599
42,554
40,237
108
659
41,004
4,909
2,151
6,931
13,991
10,564
260
6,686
17,510
46,108
2,907
7,530
56,545
50,801
368
7,345
58,514
Non-recourse debt facility
Fluence holds a US$50 million non-recourse stand-by debt facility for project financing of Build, Own, Operate and
Transfer ("BOOT") projects, enhancing the Company’s ability to grow the recurring revenues based on its Smart
Products Solutions. The facility is provided by Generate Capital, a leading US-based infrastructure investment firm.
Fluence is expected to have access to this facility on a project-by-project basis for 3 years without any geographical
limitation.
Fluence Corporation Limited
93
Fluence Corporation Limited
Notes to the Consolidated Financial Statements
31 December 2019
(continued)
22 Financial risk management (continued)
(d) Capital risk management
The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern
and to maintain an optimal capital structure so as to maximise shareholder value. In order to maintain or achieve an
optimal capital structure, the Group may issue new shares or reduce its capital, subject to the provisions of the
Group's constitution. The capital structure of the Group consists of equity attributed to equity holders of the Group,
comprising contributed equity, reserves and accumulated losses. By monitoring undiscounted cash flow forecasts
and actual cash flows provided to the Board by the Group's Management the Board monitors the need to raise
additional equity from the equity markets.
(i) Loan covenants
Under the terms of the debt facility with Generate Capital, the Company is required to comply with a minimum debt
service ratio. The debt service ratio is determined on a consolidated basis.
The Company has complied with these covenants throughout the reporting period.
23 Recognised fair value measurements
Fair value hierarchy
All assets and liabilities for which fair value is measured or disclosed are categorised according to the fair value
hierarchy as follows:
•
•
•
Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2 - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either
directly or indirectly; and
Level 3 - Inputs for the assets or liability that are not based on observable market data (unobservable inputs).
2019
Recurring fair value measurements
Financial liabilities
Government grant liability
a
2018
Recurring fair value measurements
Financial liabilities
Government grant liability
a
Level 1
$'000
Level 2
$'000
Level 3
$'000
Total
$'000
-
-
-
-
Level 1
$'000
Level 2
$'000
4,562
4,562
Level 3
$'000
4,562
4,562
Total
$'000
-
-
-
-
4,834
4,834
4,834
4,834
Disclosed fair values
The group also has assets and liabilities which are not measured at fair value, but for which fair values are disclosed
in the notes to the financial statements.
Due to their short-term nature, the carrying amount of trade and other receivables, trade and other payables and
provisions are assumed to approximate their fair values because the impact of discounting is not significant.
Fluence Corporation Limited
94
Fluence Corporation Limited
Notes to the Consolidated Financial Statements
31 December 2019
(continued)
23 Recognised fair value measurements (continued)
Valuation techniques and assumptions used to derive Level 3 fair values recognised in the financial
statements
The fair value of the government grant liability is determined by the expected time period that the grant liability is to
be repaid from the royalty stream from future revenue discounted over time at a rate of 13.9% (2018: 13.9%)
Reconciliation of Level 3 fair value movements
The following table sets out the movements in Level 3 fair values for recurring measurements.
Opening Balance at 1 January 2018
Payment
Adjustment to fair value of liability
Currency translation differences
Closing Balance at 31 December 2018
Adjustment to fair value of liability
Currency translation differences
Closing Balance at 31 December 2019
24 Remuneration of auditors
Audit and other assurance services
Audit and review of financial statements - BDO East Coast Partnership
Audit and review of financial statements - BDO related practices
Overruns from prior years audits
a
Other services
BDO - Non-assurance services (i)
Government grant
$'000111
2,402
23
2,448
(39)
4,834
(292)
20
4,562
Consolidated entity
2019
$
222,000
248,360
-
470,360
44,000
44,000
2018
$
232,000
246,857
23,000
501,857
32,410
32,410
(i) BDO non-assurance relate to the provision of services in connection with tax related services.
25 Commitments and Contingent Liabilities
(a) Commitments
(i) As at 31 December 2019 the group provided bank guarantees for fulfilment of a lease commitment, for bid bonds
and for performance guarantees for its projects in the amount of $1,519 thousand (2018: $2,864 thousand).
(ii) The Group has a government grant liability of $4,562 thousands for more details refer to Note 15 - Trade and
other payables and other liabilities.
Fluence Corporation Limited
95
Fluence Corporation Limited
Notes to the Consolidated Financial Statements
31 December 2019
(continued)
25 Commitments and Contingent Liabilities (continued)
(b) Contingent liabilities
The Group was party to several claims during the year. With respect to claims brought against the Company, Fluence
will vigorously defend itself and is confident they will be successfully defended. There is significant uncertainty as to
whether a future liability will arise in respect of these claims. The amount of liability, if any, that may arise cannot be
measured reliably at this time. The Directors are of the opinion that all known liabilities have been brought to account
and that adequate provision has been made for any anticipated losses
26 Related party transactions
Parent entity
Fluence Corporation Limited is the legal parent entity in the consolidated entity.
Subsidiaries
Interests in subsidiaries are set out in note 28.
Key management personnel
Disclosures relating to key management personnel are set out in note 4 and the remuneration report in the directors'
report.
Loans to/from related parties
Fluence Israel Limited has a balance payable to its non-controlling interests, Libra Ingenieros Civiles SA de CV and
RJ Ingenieria of $53,000 and $120,000, on which the interest payable was accrued at $21,000 and $57,000 for the
year 2019.
Other than the issue of shares and options, no other related party transactions have been entered into between key
management personnel and the Group during the financial year 2019 and 2018.
Other transactions with related parties
Fluence Italy S.R.L leases its operating facilities from TMR Immobiliare S.r.l. (TMR), which is an Italian private limited
liability company in which two employees (former minority shareholders of the company) are members. The lease
requires Fluence Italy to pay an annual rent in twelve monthly instalments plus all management expenses of the
property and the cost of utilities. Rent paid on this lease was approximately $118,000 for the year 2019. The balance
future commitment is approximately $122,000 for the year 2020.
Fluence USA Inc. leases its Ohio sales office from Bear Cabin 14 LLC, (“Bear Cabin”), a limited liability company in
which the majority stockholder is an RWL Water USA employee. The lease, renewed in September 2018 for 12
months, requires Fluence USA to pay a monthly base rent. Rent paid on this lease was approximately $18,000 for the
year 2019. The lease expired in October 2019 with no further intention to renew.
Fluence USA Inc. purchases goods from Waste Water Depot, LLC, a limited liability company in which an employee
of Fluence USA was the member. The employee relationship ended in 2019. There is some residual business activity
with Waste Water Depot, LLC, primarily for spare parts. Activity is expected to decline over time.
Fluence Corporation Limited
96
Fluence Corporation Limited
Notes to the Consolidated Financial Statements
31 December 2019
(continued)
27 Parent entity financial information
Summary financial information
The functional currency of the parent entity is Australian Dollars. The individual Financial Statements for the parent
entity show the following aggregate amounts:
Current assets
Total assets
Current liabilities
Total liabilities
Issued capital
Reserves
Accumulated losses
Total Equity
Loss for the period
Total comprehensive loss
31 December
2019
$'000
AUD
31 December
2018
$'000
AUD
-
3,978
72,865
468
492
253,916
13,788
(195,331)
72,373
(38,652)
(38,652)
-
15,633
73,260
896
918
215,611
13,410
(156,679)
72,342
(104,926)
(104,926)
Guarantees entered into by the parent entity in relation to the debts of its subsidiaries
The parent entity has not entered into any guarantees in the current or prior financial year in relation to debts of its
subsidiaries.
Significant accounting policies
The accounting policies of the parent entity are consistent with those of the Group as disclosed in note 1.
Contractual commitments and Contingent Liabilities
At 31 December 2019 Fluence Corporation Limited had no contractual commitment and contingent liabilities.
28 Subsidiaries
Name
Parent Entity
Fluence Corporation Limited
Subsidiaries of Fluence Corporation Limited
Fluence Water Products and Innovation Limited
Emefcy Hong Kong Limited
Subsidiaries of Emefcy Hong Kong Limited
Fluence Water Technologies (Jiangsu) Limited
Fluence China Limited (Liaoning)
Subsidiaries of Fluence Corporation Limited
Fluence Corporation LLC
Subsidiaries of Fluence Corporation LLC
Aeromix Systems, Inc.
Place of
incorporation
Ownership
interest 2019
Ownership
interest 2018
Australia
Israel
Hong Kong
China
China
USA
USA
N/A
100%
100%
100%
100%
100%
100%
N/A
100%
100%
100%
N/A
100%
100%
Fluence Corporation Limited
97
Fluence Corporation Limited
Notes to the Consolidated Financial Statements
31 December 2019
(continued)
28 Subsidiaries (continued)
Name
Fluence Middle East FZE
Nirosoft Trading (1987) Limited
Fluence Water Israel Limited
Subsidiaries of Fluence Water Israel Limited
VIC Water Systems S.R.L
Nirosoft Industries Limited - Sucursal Colombia
Nirosoft Cyprus Limited
Central America SA de CV
Constructora Kenton SA de CV
Subsidiaries of Fluence Corporation LLC
Fluence Investments Limited
Subsidiaries of Fluence Investments Limited
RWL Desal Holding S de RL de CV
Desaladora Kenton
Subsidiaries of Fluence Corporation LLC
Fluence Argentina SA
Subsidiaries of Fluence Argentina SA
Fluence Brazil Industria e Comercio de Sistemas
de Tratamento de Agua Ltda.
Subsidiaries of Fluence Corporation LLC
Fluence Italia S.R.L
Subsidiaries of Fluence Italia S.R.L
Fluence France SAS
Subsidiaries of Fluence Corporation LLC
Fluence Investments LLC
Subsidiaries of Fluence Investments LLC
International Company for Water Services and
Infrastructure S.A.E.
Subsidiaries of Fluence Corporation LLC
Fluence Boot Finance LLC
Subsidiaries of Fluence Boot Finance LLC
Fluence Generate GCM SA de CV
GCM Peru Ltda
FLC Water Bahamas Limited
Place of
incorporation
Ownership
interest 2019
Ownership
interest 2018
UAE
Israel
Israel
Italy
Colombia
Cyprus
Mexico
Mexico
100%
100%
100%
100%
100%
100%
100%
51%
United Kingdom
100%
Mexico
Mexico
Argentina
Brazil
Italy
France
USA
Egypt
USA
Mexico
Peru
Bahamas
100%
51%
100%
70%
100%
100%
100%
75%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
51%
100%
100%
51%
100%
70%
100%
100%
100%
75%
100%
N/A
N/A
N/A
29 Events occurring after the reporting period
On 7 January 2020 the Company announced that financial close on the €165 million (US$182 million) Ivory Coast
water treatment plant has been achieved with the execution of the financing agreement by the Ministry of Finance of
Ivory Coast (the "Customer") and the Israeli Discount Bank ("IDB"). Export Agency of Israel, ASHRA will provide a
credit risk.
On 2 March 2020 the Company announced that it has secured a SUBRE membrane aerated biofilm reactor (MABR)
sale in the Kingdom of Cambodia through its local partner, Xwater Technology Co., Ltd. This order has a value of
more than US$7 million, consists of 66 SUBRE towers, and is expected to be delivered by June 2020.
Fluence Corporation Limited
98
Fluence Corporation Limited
Notes to the Consolidated Financial Statements
31 December 2019
(continued)
29 Events occurring after the reporting period (continued)
Subsequent to reporting date, on 31 January 2020, the World Health Organisation (WHO) announced a global health
emergency because of a new strain of coronavirus (COVID-19 outbreak) and the risks to the international community
as the virus spreads globally beyond its point of origin. Because of the rapid increase in exposure globally, on 11
March 2020, the WHO classified the COVID-19 outbreak as a pandemic. These events are having a significant
negative impact on world stock markets, currencies and general business activities.
Fluence Corporation Limited
99
Tel: +61 3 9603 1700
Fax: +61 3 9602 3870
www.bdo.com.au
Collins Square, Tower Four
Level 18, 727 Collins Street
Melbourne VIC 3008
GPO Box 5099 Melbourne VIC 3001
Australia
INDEPENDENT AUDITOR'S REPORT
To the members of Fluence Corporation Limited
Report on the Audit of the Financial Report
Opinion
We have audited the financial report of Fluence Corporation Limited (the Company) and its subsidiaries
(the Group), which comprises the consolidated statement of financial position as at 31 December 2019,
the consolidated statement of profit or loss and other comprehensive income, the consolidated
statement of changes in equity and the consolidated statement of cash flows for the year then ended,
and notes to the financial report, including a summary of significant accounting policies and the
directors’ declaration.
In our opinion the accompanying financial report of the Group, is in accordance with the Corporations
Act 2001, including:
(i)
(ii)
Giving a true and fair view of the Group’s financial position as at 31 December 2019 and of its
financial performance for the year ended on that date; and
Complying with Australian Accounting Standards and the Corporations Regulations 2001.
Basis for opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
those standards are further described in the Auditor’s responsibilities for the audit of the Financial
Report section of our report. We are independent of the Group in accordance with the Corporations
Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s
APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code)
that are relevant to our audit of the financial report in Australia. We have also fulfilled our other
ethical responsibilities in accordance with the Code.
We confirm that the independence declaration required by the Corporations Act 2001, which has been
given to the directors of the Company, would be in the same terms if given to the directors as at the
time of this auditor’s report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our opinion.
Material uncertainty related to going concern
We draw attention to Note 1 in the financial report which describes the events and/or conditions which
give rise to the existence of a material uncertainty that may cast significant doubt about the group’s
ability to continue as a going concern and therefore the group may be unable to realise its assets and
discharge its liabilities in the normal course of business. Our opinion is not modified in respect of this
matter.
BDO East Coast Partnership ABN 83 236 985 726 is a member of a national association of independent entities which are all members of
BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO East Coast Partnership and BDO Australia Ltd
are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of
independent member firms. Liability limited by a scheme approved under Professional Standards Legislation.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in
our audit of the financial report of the current period. These matters were addressed in the context of
our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide
a separate opinion on these matters.
Revenue – contract revenue and services revenue How the matter was addressed in our audit
The Group is a project driven business, which
enters into contracts in different geographies.
Contract revenues are recognised over time or at
point in time, as performance obligations are
fulfilled. Contract revenue is recorded by
Management after assessing all factors relevant to
each contract including:
(cid:120) For revenue recognised over time, after
determination of stage of completion and
measurement of progress towards satisfaction of
performance obligations; including estimation of
total contract revenue and costs
(cid:120) For revenue recognised at a point in time, when
the performance obligation is satisfied
(cid:120) Determination of transaction price
(cid:120) Estimation of project completion date.
In the case of those contracts recognised over time,
judgement is required in order to determine the
appropriate percentage of completion based on
accurate costs incurred within the reporting period
and the revenue recognised in accordance with the
margins inherent in the contract.
The Group recognises within contract assets and
contract receivables the value to customers of
goods and services progressively transferred, the
value of work completed as well as amounts
invoiced to customers. The recognition of these
amounts is based on Management’s assessment of
the expected amounts receivable from the
customer.
This has been determined as a key audit matter due
to the:
(cid:120) Degree of estimation required over the course of
a contract
(cid:120) Unique nature of individual contract terms
(cid:120)
leading to complex and judgemental revenue
recognition
Judgement involved to assess the probability of
recovery of contract assets and receivables.
The accounting policy for revenue as described in
Note 1(f), ‘Revenue recognition’, and details of the
key accounting estimates and assumptions associated
with revenue are disclosed in Note 1(aa)(vi).
Our audit procedures included, but were not
limited to:
(cid:120) Evaluating Management’s processes and
controls in respect of the recognition of
revenue
(cid:120) Selecting a sample of contracts for testing
based on a number of quantitative and
qualitative factors which may indicate that a
greater level of judgement is required in
recognising revenue, including:
- History of issues identified
- High potential impact and high likelihood
of risk events
- Material new contracts
- High value contracts.
(cid:120) For the samples selected the following
procedures were performed, as appropriate:
- Obtaining an understanding of the
contract terms and conditions to evaluate
whether they reflected Management’s
position including estimate of forecast
revenue and costs
Testing a sample of costs incurred to date
and agreeing these to supporting
documentation
Assessing the measurement of stage of
completion for contracts which satisfy the
requirement to record revenue over time
Assessing the forecast costs to complete
through discussion and challenging the
project managers and finance personnel
Evaluating contract performance in the
period post year end to the date of the
audit opinion to confirm Management’s
year end revenue recognition judgements
Evaluating the probability of recovery of
outstanding amounts by reference to the
status of contract negotiations, historical
recoveries and supporting documentation.
-
-
-
-
-
(cid:120) Assessing the appropriateness of the relevant
disclosures in the financial statements.
How the matter was addressed in our audit
Our audit procedures included, but were not
limited to:
(cid:120) Testing the determination of the revenue
recognition in accordance with IFRIC 12 and
the margins and timeline in line with the
terms of the concession arrangement both by
our group audit team and by our component
auditors
(cid:120) Vouching a sample of costs incurred to
supporting documentation
(cid:120) Assessment of related loan agreements and
the accounting for the finance component of
the concession arrangements
(cid:120) Evaluating the impairment assessment of all
material concession assets recognised at
reporting date
(cid:120) Review of the adequacy of disclosure
surrounding these concession arrangements
within the financial statements.
Accounting for B.O.T.
(‘Build, Operate, Transfer’) contracts
The Group has entered into several B.O.T.
contracts across different geographical locations,
which have resulted in material assets, revenues
and costs in the financial statements.
Accounting for B.O.T. contracts is a key audit
matter as there a degree of judgement in applying
IFRIC 12, Service Concession Arrangements, in
terms of the recognition of concession assets
depending on whether the arrangement provides
the Group with a right to receive payment or a
right to charge the public for use of the asset. A
right to charge the public for use of the asset is
categorised as an intangible and amortised over
the contract term.
Further complexity arises in the determination of
the individual performance obligations within the
B.O.T. contract. Additionally, as the performance
obligation is performed, revenue recognition is
satisfied over time in accordance with the margins
and time-line inherent in the contract.
The Group has entered into new debt agreements
in order to finance these arrangements, which
gives rise to a financing component within the
revenue recognition.
Further, there is an element of judgement
required by management in order to conduct an
annual impairment assessment. The assessment
needs to be take into account varying economic
and political conditions inherent in the differing
locations where B.O.T. arrangements exist.
The accounting policy for revenue is described in
Note 1(f) and details of the key accounting estimates
and assumptions associated with revenue are
disclosed in Note 1(aa)(vi).
Consolidation and financial reporting
How the matter was addressed in our audit
The Group comprises multiple interdependent
subsidiaries operating across various geographical
regions.
This has been determined as a key audit matter
due to:
Our audit procedures included, but were not
limited to:
(cid:120) Evaluating Management’s processes and
controls in respect of the consolidated
financial reporting
(cid:120) Reviewing the consolidation and performing
detailed testing on the inputs, adjustments
and eliminations recorded
(cid:120) Assessing Management’s determination of the
functional currency of Fluence Argentina as
the United States dollar in accordance with
AASB 121 The Effects of Changes in Foreign
Exchange Rates
(cid:120) Engaging our component auditors in Argentina
to audit the change in functional currency
from ARS to $USD
(cid:120) Reviewing the judgements and assumptions
made by Management to apply the
requirements of AASB 121
(cid:120) Assessing the relevance and adequacy of
disclosures within the financial statements.
(cid:120) Fluence’s global operations necessitate
(cid:120)
significant intergroup transactions. This is
considered a heightened risk due to the
complexity associated with accounting and
consolidating such transactions, in particular
those recognised in foreign currencies other
than the United States dollar, which is the
currency that Fluence Corporation Limited
(‘Fluence’) prepares its financial report
In 2019 the Group’s subsidiary in Argentina,
Fluence Argentina S.A., changed its functional
currency from the Argentinian Peso (ARS) to the
United States dollar ($USD). AASB121 The
Effects of Changes in Foreign Exchange Rates
requires the Group to prospectively apply the
change from 1 January 2019. This is considered
a heightened risk due to the size and
materiality of the Argentinian entity to the
Group
The accounting policy for consolidation as described
in Note 1(d), ‘Principles of consolidation’, and
details on the controlled entities as disclosed in Note
28 of the accompanying financial report are the basis
of this key audit matter.
Other information
The directors are responsible for the other information. The other information comprises the
information contained in the Group’s Annual report for the year ended 31 December 2019, but does not
include the financial report and our auditor’s report thereon, which we obtained prior to the date of
this auditor’s report, and the Shareholder Information, which is expected to be made available to us
after that date.
Our opinion on the financial report does not cover the other information and we do not express any
form of assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other information
identified above 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 on the other information that we obtained prior to the date
of this auditor’s report, 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.
When we read the Shareholder Information, if we conclude that there is a material misstatement
therein, we are required to communicate the matter to the directors and will request that it is
corrected. If it is not corrected, we will seek to have the matter appropriately brought to the
attention of users for whom our report is prepared.
Responsibilities of the directors for the Financial Report
The directors of the Company are responsible for the preparation of the financial report that gives a
true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001
and for such internal control as the directors determine is necessary to enable the preparation of the
financial report that gives a true and fair view and is free from material misstatement, whether due to
fraud or error.
In preparing the financial report, the directors are responsible for assessing the ability of the group to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either intend to liquidate the Group or to cease
operations, or has no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the Financial Report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free
from material misstatement, whether due to fraud or error, and to issue an auditor’s report that
includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an
audit conducted in accordance with the Australian Auditing Standards will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material
if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of this financial report.
A further description of our responsibilities for the audit of the financial report is located at the
Auditing and Assurance Standards Board website (http://www.auasb.gov.au/Home.aspx) at:
http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf
This description forms part of our auditor’s report.
Report on the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included in pages 16 to 41 of the directors’ report for the
year ended 31 December 2019.
In our opinion, the Remuneration Report of Fluence Corporation Limited, for the year ended 31
December 2019, complies with section 300A of the Corporations Act 2001.
Responsibilities
The directors of the Company are responsible for the preparation and presentation of the
Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility
is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with
Australian Auditing Standards.
BDO East Coast Partnership
David Garvey
Partner
Melbourne, 30 March 2020
Fluence Corporation Limited
Enviornmental and Sustainability information
31 December 2019
Environmental and Sustainability Impact
to the
Fluence and its businesses are focused on key environmental and sustainability pillars in alignment
Sustainable Development Goals of the United Nations. The installed base of Fluence’s innovative solutions such as
AspiralTM, SUBRE and NIROBOXTM, save 19 GWh [giga watt per hour] (equivalent to 13,500 tons of CO2) annually
compared to conventional technologies. In addition, Fluence’s waste-to-energy installations around the world produce
biogas from biomass and generate 121 GWh, which is equivalent to saving more than 85,700 tons of CO2 emission
annually compared to fossil-fuelled power generation.
Pollution through the generation of excess nitrogen and phosphorus is one of the world’s most widespread and costly
environmental challenges. Fluence’s installed base of MABR systems remove over 500 tons of such nutrients
annually and through our reuse solutions, we recycle more than 8.6 billion litres of water annually.
Fluence and United Nations Sustainable Development Goals
Fluence Corporation Limited
107
Fluence Corporation Limited
Enviornmental and Sustainability information
31 December 2019
(continued)
Sustainability Impact from Fluence’s Installations
Fluence Corporation Limited
108
Fluence Corporation Limited
Shareholder information
31 December 2019
Additional information for the 2019 Annual Report
The shareholder information set out below was applicable as at 23 March 2020.
A. Distribution of equity securities
Analysis of numbers of ordinary shareholders by size of holding:
Holding Range
Holders
Total Units
%
a
1-1,000
1,000-5,000
5,001-10,000
10,001-100,000
100,001-999,999,999
Totals
562
1,294
696
1,664
345
4,561
161,354
3,569,226
5,611,326
56,823,319
558,688,809
624,854,034
0.03
0.57
0.90
9.09
89.41
100.00
Based on the Fluence closing share price on March 23, 2020 of A$0.265, there were 923 holders of less than a
marketable parcel of ordinary shares, holding 652,940 shares in aggregate.
All issued ordinary shares carry one vote per share.
B. Equity security holders
Twenty largest equity security holders
The twenty largest registered holders of Ordinary Fully Paid Ordinary Shareholders are as follows:
Name
RSL Investments Corporation
HSBC Custody Nominees (Australia) Limited-GSCO ECA
Pond Ventures Nominees 111 Limited
RSL Capital LLC
Citicorp Nominees Pty Limited
CS Third Nominees Pty Limited
HSBC Custody Nominees (Australia) Limited
Employee Equity Administration Pty Ltd
Plan B Ventures I LLC
ESOP Management & Trust Services Ltd
Jagen Pty Ltd
JP Morgan Nominees Australia Pty Limited
BNP Paribas Nominees Pty Ltd
Mr Hao Jing
Plan B Ventures II LLC
Dr Stuart Lloyd Phillips & Mrs Fiona Jane Phillips
John W King Nominees Pty Ltd
Dr Stuart Lloyd Phillips & Mrs Fiona Jane Phillips
HSBC Custody Nominees (Australia) Limited - A/C 2
Pyxis Holdings Pty Ltd
Total Securities of Top 20 Holdings
Total Securities of remaining shareholders
Total of Securities
Balance
23 March 2020
Percentage
131,037,848
57,303,365
36,264,579
31,046,683
28,784,500
28,374,567
16,573,563
14,166,593
12,104,532
11,739,928
11,644,393
11,234,886
9,889,599
9,100,000
7,902,619
5,692,500
5,563,909
4,323,041
4,321,800
3,813,200
440,882,105
183,971,929
624,854,031
21.0%
9.2%
5.8%
5.0%
4.6%
4.5%
2.7%
2.3%
1.9%
1.9%
1.9%
1.8%
1.6%
1.5%
1.3%
0.9%
0.9%
0.7%
0.7%
0.6%
70.6%
29.4%
100.0%
(cid:20)(cid:19)(cid:28)
Fluence Corporation Limited
Shareholder information
31 December 2019
(continued)
B. Equity security holders (continued)
Options
The options (not listed) are as follows:
Class
Director Options
Company ESOP
Total of Securities
Total Options
Granted
No. of Holders
25,552,938
14,546,519
40,099,457
9*
237
241
Exercise Price
Range
AU$
Earliest Expiry
Date
Latest Expiry
Date
$0.35-$1.50
$0.30-$1.50
13 April 2020
3 May 2020
14 July 2025
25 May 2025
* Includes vested options for former Directors
Share options do not carry the right to vote.
C. Substantial holders
Based on the latest notices received, the Company’s Substantial Holders are as follows:
Holder
RSL Investments Corporation and RSL Capital LLC
Watermark Services, LLC as the Investment Manager of each
of 2020 Foundation, Inc and Spark Investments, LLLC
Pond Ventures Nominees 111 Limited and Richard Irving
Total
Shares
165,408,542
52,846,024
37,264,579
255,519,034
%
26.5%
8.5%
6.0%
40.9%
(cid:20)(cid:20)(cid:19)
Fluence Corporation Limited
Shareholder information
31 December 2019
(continued)
Shareholder enquiries
Shareholders with enquiries about their shareholdings should contact the share registry:
Boardroom Pty Ltd
Level 12, 225 George Street, Sydney, NSW, 2000, Australia
Telephone: 1300 737 760 (local), +61 2 9290 9600 (international)
Email: enquiries@boardroomlimited.com.au
Change of address, change of name, consolidation of shareholdings
Shareholders should contact the Share Registry to obtain details of the procedure required for any of these changes.
Annual report
Shareholders do not automatically receive a hard copy of the Group's Annual Report unless they notify the Share
the Annual Report can be viewed on the Group's website:
Registry in writing. An electronic copy of
www.fluencecorp.com
Tax file numbers
It is important that Australian resident Shareholders, including children, have their tax file number or exemption
details noted by the Share Registry.
CHESS (Clearing House Electronic Subregister System)
Shareholders wishing to move to uncertified holdings under the Australian Securities Exchange CHESS system
should contact their stockbroker.
Uncertified share register
Shareholding statements are issued at the end of each month that there is a transaction that alters the balance of an
individual/company's holding.
Company Secretary
The name of the Company Secretary is Mr Ross Kennedy.
Registered office
The address of the Company’s registered office is Level 3, 62 Lygon Street, Carlton Victoria 3053, Australia.
The Company’s phone number is + 61 3 9824 5254
Stock exchange listing
Quotation has been granted for all the ordinary shares of the Company on all member exchanges of the Australia
Securities Exchange Limited.
(cid:20)(cid:20)(cid:20)
www.fluencecorp.com
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