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2023 ReportHealthia Limited and its Controlled Entities ACN 626 087 223 Annual Report - 30 June 2023 Healthia Limited and its Controlled Entities Contents 30 June 2023 Corporate directory Chairperson's letter Review of operations Directors' report Auditor's independence declaration 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 to the consolidated financial statements Note 1. General information Note 2. Significant accounting policies Note 3. Critical accounting judgements, estimates and assumptions Note 4. Segment Information Note 5. Revenue from contracts with customers Note 6. Other income Note 7. Expenses Note 8. Income tax Note 9. Cash and cash equivalents Note 10. Trade and other receivables Note 11. Inventories Note 12. Other assets Note 13. Investments accounted for using the equity method Note 14. Property, plant and equipment Note 15. Right-of-use assets Note 16. Intangibles Note 17. Trade and other payables Note 18. Borrowings Note 19. Lease liabilities Note 20. Derivative financial instruments Note 21. Employee benefit obligations Note 22. Provisions Note 23. Other liabilities Note 24. Issued capital Note 25. Reserves Note 26. Non-controlling interest Note 27. Dividends Note 28. Financial instruments Note 29. Fair value measurement Note 30. Key management personnel disclosures Note 31. Remuneration of auditors Note 32. Contingent liabilities Note 33. Related party transactions Note 34. Parent entity information Note 35. Business combinations Note 36. Interests in subsidiaries Note 37. Cash flow information Note 38. Earnings per share Note 39. Share-based payments Note 40. Events after the reporting period Directors' declaration Independent auditor's review report to the members of Healthia Limited Shareholder information 1 (Annual Report - 30 June 2023) 2 3 5 11 30 31 32 33 35 36 36 36 40 41 43 44 45 46 48 48 49 50 50 50 51 53 56 56 57 58 59 59 60 60 62 63 63 64 66 68 68 68 68 69 70 76 78 78 79 83 85 86 90 Healthia Limited and its Controlled Entities Corporate directory 30 June 2023 Directors Company Secretary Registered office Share register Auditor Solicitors Dr Glen Richards Paul Wilson Lisa Dalton Wesley Coote Darren Stewart Colin Kangisser Lisa Roach Julia Murfitt Chris Banks (Resigned 7 February 2023) Level 4, East Tower 25 Montpelier Road Bowen Hills QLD 4006 Link Market Services Limited Level 12, 680 George Street Sydney NSW 2000 www.linkmarketservices.com.au BDO Audit Pty Ltd Level 10, 12 Creek Street Brisbane QLD 4000 www.bdo.com.au Clayton Utz Level 28, Riparian Plaza 71 Eagle Street Brisbane QLD 4000 www.claytonutz.com.au Colin Biggers & Paisley Level 35, 1 Eagle Street Brisbane QLD 4000 www.cbp.com.au Website www.healthia.com.au Corporate Governance Statement The Consolidated Entity's directors and management are committed to conducting the company's business in an ethical manner and in accordance with the highest standards of corporate governance. The Consolidated Entity has adopted and substantially complies with the ASX Corporate Governance Principles and Recommendations (4th Edition) to the extent appropriate to the size and nature of the company's operations. The Consolidated Entity's policies can be found on its website: https://www.healthia.com.au/corporate-governance/ 2 (Annual Report - 30 June 2023) Healthia Limited and its Controlled Entities Chairperson's letter 30 June 2023 Dear Fellow Shareholders, The 2022/2023 financial year has proven to be one in which Healthia has made great progress in its mission to connect our patients and customers with allied health products and services, assisting them to live happier and healthier lives. Financial and Operational Performance In FY23, Healthia continued to deliver solid financial performance with underlying revenues up 26.2% to $255.9m, despite challenging market conditions. Statutory net profit after tax (NPAT) recovered from FY22’s COVID-impacted result (FY22: $0.3m) to a record $10.3m result, despite facing continuing absenteeism from COVID and flu, and one-off non-recurring costs relating to acquisitions, integrations and restructuring. Underlying EBITDA increased by 52.7% to $37.5m, a credible result given that guidance of greater than $40m was issued approximately 18 months earlier. In FY23, Healthia continued to grow organically and via acquisitive activity, the latter seeing the addition of 29 clinics and stores to take the overall size of the group to 332 clinics and stores. The Board remains committed to Healthia’s portfolio expansion through disciplined acquisition of complementary businesses which support long-term value accretion. Our acquisition pipeline continues to be very robust, with numerous allied health businesses being reviewed as part of our active pipeline. People and Culture During FY23, we continued our focus on the culture and engagement of our teams through education, training and leadership programs, the positive impact of which was reflected in the findings of our national employee engagement survey which found that Healthia was “above the norm” when compared against benchmarking norms for (among other things) our culture, our people, our workplaces and our values. Our culture engagement score remained steady (FY23: 59% v FY22: 60%), a pleasing result given we have experienced our toughest period of trading since listing, amid rapid growth and multiple changes on our teams as we further integrate the network. We are proud to acknowledge our recent graduate program as the most frequently cited reason as to why our 152 new and recent graduates chose Healthia as their preferred employer. Furthermore, Healthia’s recent graduate program featured in two publications in scientific peer reviewed international journals with Healthia’s Chief of Education and Research, Dr Kerrie Evans, being invited to speak at the Australian Physiotherapy Association’s National Conference in October 2022 and the World Conference of Physiotherapy in July 2023. FY23 also saw Healthia run its biannual integrated allied health conference, Inspired 2022 on the Gold Coast. This conference is a key staff retention strategy for Healthia and was attended by over 1,000 of Healthia’s clinicians and administration staff as well as internationally renowned presenters. Professional Development and R&D New professional development offerings this year included the Early Career Mentoring Program, Accelerated Mentoring Workshops, the Integrated Leadership Program and a specialised online stream for hand and upper limb therapists. These programs have been added to our regular suite of online sessions, leadership programs and practical workshops. Professional development remains a key focus of our business strategy, not only to provide career progression for our team members but to ensure we are delivering excellence in care to our patients and for our communities. Healthia is also committed to fostering research and development particularly where the project focuses on clinically meaningful outcomes, technology-enabled health care or innovative methods of service delivery. Notably, Healthia’s growing relationship with Australian Universities and other national funding bodies can be seen through an expanding number of successful grant applications, student placements, and attendances at Open Days and graduation events. In addition to Professional Development and Research and Development, the execution of an enhanced Technology Roadmap has been cited as one our key strategic pillars. The Roadmap is intended to support Healthia’s team members in an increasingly complex healthcare landscape via the use of integrated national practice management software and data-driven decision making tools. 3 (Annual Report - 30 June 2023) Healthia Limited and its Controlled Entities Chairperson's letter 30 June 2023 Scheme Implementation Deed As announced on 31 August 2023, Healthia entered into a Scheme Implementation Deed with Harold BidCo Pty Ltd, an entity owned by funds advised by Pacific Equity Partners (PEP), to acquire 100% of the fully diluted share capital in Healthia by way of a scheme of arrangement. Under the terms of the Scheme, Healthia shareholders will have the option to receive either $1.80 cash per Healthia share, unlisted scrip consideration or a combination of cash and unlisted scrip consideration. The unlisted scrip consideration alternative provides Healthia shareholders with the potential to participate in the future of Healthia, subject to rounding and scale back mechanisms. For clarity, the cash consideration of $1.80 per Healthia share represents a significant premium of 84.6% to the last closing price of $0.975 per share prior to the announcement and 73.5% to the 3-month volume weighted average price up to and including 30 August 2023. As such, Healthia’s Board has taken a position to unanimously recommend the Scheme, subject to no Superior Proposal emerging and the Independent Expert concluding (and continuing to conclude) that the Scheme is in the best interests of Healthia shareholders. While the Scheme is subject to certain conditions - which must be satisfied or waived before the Scheme can be implemented – the opportunity to partner with PEP is seen by the Board as one which will enable Healthia to fully deliver value as Australia and New Zealand’s leading diversified allied healthcare provider. Dividend The Directors of Healthia Limited have not yet determined whether to declare a final dividend for FY23 given the terms of the proposed acquisition of Healthia by way of the aforementioned Scheme Implementation Deed. Thank You My thanks extend, once again, to all Healthia staff for their ongoing dedication and commitment - your hard work is reflected in what has been an outstanding year of service, innovation and growth. To our shareholders, I would also like to say thank you for your continued belief and support in our vision and mission. On behalf of the Healthia Board, Dr Glen Frank Richards Chairperson 4 (Annual Report - 30 June 2023) Healthia Limited and its Controlled Entities Review of operations 30 June 2023 Commentary The statutory financial performance of the Consolidated Entity was impacted by staff absenteeism, patient / customer cancellations (due to spikes in COVID and other illness) and, more recently, uncertain economic conditions, and one-off non- recurring costs relating to acquisitions and restructuring. The Consolidated Entity’s Underlying Net Profit After Tax and Amortisation (NPATA)1 amounted to $18.3 million (30 June 2022: profit of $9.2 million), or an increase of 99.5%. A reconciliation between statutory and underlying financial performance is provided below at Table 4. 1. Significant changes in the state of affairs Significant changes in the state of affairs of the Consolidated Entity during the financial year include: i. Acquisitions The Consolidated Entity deployed $23.4 million (FY22: $111.3 million) of capital on 29 new allied health clinics and stores during the Financial Year as set out in Note 35: Business Combinations included in this Annual Report. ii. Capital Raising During the first half of FY23, the Consolidated Entity successfully undertook a capital raising of $11.0 million, providing funds to support working capital and provide flexibility for further acquisitions. iii. Long Term Incentive Performance Rights & Retention Performance Rights On 29 November 2022, the Consolidated Entity’s shareholders approved the grant of 1,114,594 unlisted performance rights to Executive Directors with a nil grant and exercise price. The performance rights will vest on 30 June 2025 (subject to satisfaction of the relevant vesting conditions) and expire on 31 October 2025. The vesting conditions include a number of performance and service conditions. The performance rights were issued on 27 March 2023. iv. Impacts from Absenteeism During FY23, Healthia experienced high levels of team member absenteeism in Financial Quarter 1 of FY23 due to illness and isolations resulting from COVID. Furthermore, in Q4FY23, Healthia again experienced higher than expected team member absenteeism due to spikes in COVID and other illness. This saw impacts on trading as team members were unable to present to work to service the Company’s patients. Chart 1 Sick Leave as % of Wages by financial quarter depicts these periods of abnormal staff absenteeism: Chart 1: Sick Leave as a % of Wages by Financial Quarter 1Underlying NPATA is a non-IFRS measure and equals net profit after income tax expense plus amortisation of customer list intangibles. Underlying profit reflects statutory profit as adjusted to reflect the Directors’ assessment of the result for the ongoing business activities of the Consolidated Entity, in accordance with AICD/Finsia principles of recording underlying profit. 5 (Annual Report - 30 June 2023) Healthia Limited and its Controlled Entities Review of operations 30 June 2023 v. Queens Memorial Day Healthia’s trading performance was further impacted (by c.$1.0 million) during FY23 by the unanticipated special public holiday (National Day of Mourning for the Queen). vi. Organic Revenue Growth While trading performance was impacted by a number of factors including those detailed above, Healthia achieved strong organic like for like revenue growth during the year, when compared to FY22 which was also impacted by the effects of staff absenteeism and patient cancellations due to COVID. Table 1 Quarterly Organic Revenue Growth FY23 shows organic like for like revenue growth percentage per quarter for FY23. While organic revenue growth was strong in H2FY23, it was impacted in Q4FY23 from the higher levels of staff absenteeism as highlighted in Chart 1. Table 1: Quarterly Organic Revenue Growth FY23 Organic Revenue Growth % 8.8% 0.4% 12.6% 6.8% Q1FY23 Q2FY23 Q3FY23 Q4FY23 2. Financial Overview - Statutory Performance The Consolidated Entity’s audited statutory performance is provided in Table 2 below. Table 2: Statutory Financial Performance Revenue Other Income Net profit/(loss) after income tax expense Non-controlling interest NPAT attributable to the owners of Healthia Limited1 1Net profit after income tax expense, net of Non-Controlling Interest (NCI) 3. Financial Overview – Underlying Performance FY23 $m FY22 $m 252.6 200.3 Change Change $m 52.3 % 26.1% 4.5 10.3 4.9 5.5 4.1 0.3 3.7 (3.3) 0.4 9.7% 10.0 2917.9% 1.2 8.8 32.6% NA To assist users of this report, information about the underlying performance of the Consolidated Entity is presented in Table 3 below which excludes the impact of acquisition and integration costs of the 29 (FY22: 95) allied health businesses acquired during the period and is adjusted for other one-off non-recurring items of income and expense. The Directors believe that this information is useful for investors and shareholders as it presents the Consolidated Entity’s financial performance as if these non-recurring transactions or circumstances had not occurred. The Consolidated Entity’s underlying performance is provided on an unaudited basis in Table 3 and a reconciliation between statutory and underlying performance is provided further below in Table 4. 6 (Annual Report - 30 June 2023) Healthia Limited and its Controlled Entities Review of operations 30 June 2023 Table 3: Underlying Financial Performance Unaudited Underlying Revenue1 FY23 $m FY22 $m Change Change $m % 255.9 202.8 53.1 26.2% Underlying EBITDA3,4 (removing impact of AASB16) Underlying NPATA2 Non-controlling interest (NCI) Net post-tax P&L impact of AASB16 adoption6 Underlying NPATA attributable to the owners of Healthia Limited (removing impact of AASB16)5 37.5 22.3 4.9 0.9 18.3 24.5 12.0 3.7 0.9 9.2 Underlying EBITDA margin (removing impact of AASB16)3,4 14.6% 12.1% Underlying NPATA margin (removing impact AASB16)5 7.2% 4.5% 12.9 52.7% 10.3 86.2% 1.2 0.0 32.6% 3.1% 9.1 99.49% 2.5% 2.6% 21.0% 58.1% Underlying Basic EPS (cents, removing impact AASB16)7 13.5ps 7.8cps 5.7cps 72.6% NCI / Underlying NPATA8 21.0% 28.5% (7.6%) (26.5%) 1 For the purposes of underlying performance, the Consolidated Entity calculates underlying revenue as revenue from contracts with customers and other income. The Consolidated Entity also included $0.6 million NSW JobSaver revenue subsidies received in FY22 only, nil in FY23. 2 Underlying profit reflects statutory profit as adjusted to reflect the Directors’ assessment of the result for the ongoing business activities of the Consolidated Entity, in accordance with AICD/Finsia principles of recording underlying profit. Underlying profit has not been audited. 3 Underlying EBITDA is a non-IFRS measure and equals earnings before interest, tax, depreciation and amortisation. Underlying EBITDA has not been audited. 4Underlying EBITDA has been adjusted for the impacts of AASB16. Lease payments of $20.7 million (FY22: $17.8 million) have been included to provide users with a like-for-like comparison with PCP. 5Underlying NPATA is a non-IFRS measure and equals net profit after income tax expense plus amortisation of customer list intangibles. Underlying NPATA has not been audited. 6The net post-tax P&L impact of the leasing standard, AASB16, has been added back to NPATA to provide users with a like-for-like comparison with PCP. The pre-tax impact of AASB 16 'Leases' in the current period is comprised of the following: occupancy costs increased by $20.0 million (FY22: $17.8 million), depreciation expense increased by $19.0 million (FY22: $16.0 million), and finance costs increased by $3.1 million (FY22: $3.1 million). The net post-tax P&L impact has not been audited. 7Underlying EPS or earnings per share is calculated as underlying NPATA attributable to the owners of Healthia Limited divided by the weighted average number of ordinary shares on issue for the period (FY23: 136.3 million, FY22: 117.9 million). Underlying EPS has not been audited. 8Non-Controlling Interest divided by Underlying NPATA. NCI/ Underlying NPATA has not been audited. 7 (Annual Report - 30 June 2023) Healthia Limited and its Controlled Entities Review of operations 30 June 2023 4. Financial Overview - Reconciliation from Underlying NPATA to Statutory NPAT A reconciliation of underlying NPATA to statutory NPAT performance is detailed in Table 4 below. Table 4: Reconciliation of Underlying EBITDA to Statutory NPAT Unaudited FY23 FY22 Underlying EBITDA (pre-AASB16) Less: Finance costs (pre-AASB16) Less: Tax expense (underlying) Less: Depreciation (pre-AASB16) Less: NCI (underlying) Underlying NPATA attributable to the owners of Healthia Limited1 Less: COVID-19 related expenses2 Less: Acquisition costs3 Less: Integration costs4 Less: Restructuring costs and discontinued operations5 Less: Share-based payments expense and associated costs6 Less: Doubtful debts10 Less: Amortisation7 Less: Net impact of AASB168 Add: Fair Value movements of contingent consideration9 Net taxation impact Statutory NPAT attributable to the owners of Healthia Limited1 $m 37.5 (6.3) (3.9) (4.0) (4.9) 18.3 (1.0) (3.5) (0.8) (3.9) (1.0) (0.5) (1.9) (0.9) 1.1 (0.4) 5.5 $m 24.5 (2.8) (5.5) (3.3) (3.7) 9.2 (3.4) (6.9) (1.5) (2.2) (1.4) (0.0) (1.7) (0.9) 1.6 3.9 (3.3) 1 Underlying NPATA is a non-IFRS measure and equals net profit after income tax expense plus amortisation of customer list intangibles. Underlying profit reflects statutory profit as adjusted to reflect the Directors’ assessment of the result for the ongoing business activities of the Consolidated Entity, in accordance with AICD/Finsia principles of recording underlying profit. Underlying NPATA has not been audited. 2 The Consolidated Entity incurred $1.0 million (FY22: $3.4 million) of costs directly related to excess staff absenteeism related to illness and COVID. 3 The Consolidated Entity incurred one-off acquisition costs of $3.4 million (FY22: $6.9 million) in relation to the acquisition of the 27 allied health businesses acquired. Acquisition costs include but are not limited to external legal, financial and taxation professional advisory services, stamp duty and other acquisition compliance costs, property lease assignment costs and directly attributable wage costs. When calculated as a percentage of capital deployed for the period (FY23: $23.4 million; FY22: $111.3 million), acquisition costs represent approximately 14.6% (FY22: 6.2%), which is in line with prior periods (FY21: 5.9%, FY20: 14.8%, FY19: 13.0%). 4 The Consolidated Entity incurred costs of $0.8 million for the integration of new businesses during the period. 5 Restructuring costs of $3.9 million relating to clinics which have been merged, relocated, closed or are in the process of being closed, and the associated earnings contribution of those clinics during the period. 6 Non-cash share-based payments expense relating to the issuance of Performance Rights to key management personnel, key clinicians and administration staff which remains subject to the achievement of a number of vesting conditions. 7 Amortisation of customer lists and software intangibles during the current period. 8 AASB 16 ‘Leases’ had a significant impact on the current period financial performance. This impact is comprised of the following changes due the application of AASB 16: occupancy costs increased by $20.7 million (FY22: $17.8 million), depreciation expense increased by $19.0 million (FY22: $16.0 million), and finance costs increased by $3.1 million (FY22: $3.1 million). 9 Fair value adjustment associated with the reversal of contingent consideration which is no longer expected to be achieved due to lower than expected trading. 10 Doubtful debts relate to a revision in recoverability of trade debtors. 8 (Annual Report - 30 June 2023) Healthia Limited and its Controlled Entities Review of operations 30 June 2023 5. Financial Overview – Underlying Cash Flow The Consolidated Entity has historically delivered strong cash flow conversion. As shown in Table 5 below, the underlying cash flow conversion continues to be strong but FY23’s conversion percentage reflects a strategic push into footwear and footwear accessories by the Feet and Ankles division in preparation for spring and summer of calendar 2023. Table 5: Underlying Cash Flow Unaudited EBITDA(u)(pre-AASB16)1,2 Less: Changes in underlying working capital Underlying operating cash flow (pre-tax, ungeared)3 Cash Conversion %4 Financing Costs (pre-AASB16)5 Tax Paid Underlying operating cash flow (pre-tax, ungeared)6 Dividends paid to non-controlling interests Capital Expenditure Underlying free cash flow7 FY23 $m 37.5 (7.4) 30.1 FY22 $m 24.5 (1.0) 23.5 80.2% 95.9% (6.3) (4.8) 19.0 (4.5) (7.0) 7.5 (3.0) (3.8) 16.7 (3.4) (4.1) 9.2 1 EBTDA(u) is underlying earnings before interest tax and amortisation. EBITDA(u) reflects statutory profit as adjusted to reflect the Directors’ assessment of the result for the ongoing business activities of the Consolidated Entity, in accordance with AICD/Finsia principles of recording underlying profit. Underlying profit has not been audited. 2 Underlying EBITDA excludes the impact from the adoption of AASB16 on lease payments of $20.7 million (FY21: $17.8 million). 3 Underlying operating cash flows (pre-tax, ungeared) reflects statutory operating cash flows less lease payments of $20.7 million and before finance costs and tax and excludes the impact non-recurring income and costs, such as acquisition costs ($3.4 million), integration costs ($0.8 million), restructuring costs ($3.0 million) and COVID related expenses ($1.0 million). 4 Cash conversion % is calculated as EBITDA(u) (pre-AASB16) dividend by Underlying operating cash flow (pre-tax, ungeared). 5 Finance costs include the finance and interest charged on the bank debt only and excludes interest associated with the accounting for AASB16. 6 Underlying cash flows (post tax, geared) reflects statutory operating cash flows lease payments of $20.7 million and before finance costs and tax and excludes the impact non- recurring income and costs, such as acquisition costs ($3.4 million), integration costs ($0.8 million), restructuring costs ($3.0 million) and COVID related expenses ($1.0 million). 7 Underlying free cash flow is calculated as Underlying cash flow (post-tax, geared) less capital expenditure for ongoing maintenance capex and for capital expansion and reflects the underlying cash generated by the Consolidated Entity. 6. Risk Management The Consolidated Entity is committed to identifying and mitigating risks that it faces in relation to its operations, business strategy and financial prospects to maintain a sustainable business and protect the interests of its shareholders. The Consolidated Entity has an established Audit and Risk Committee which is responsible for, among other things, identifying and monitoring significant business risk factors within the Consolidated Entity. More information on how the Consolidated Entity identifies and manages risks can be found in The Consolidated Entity’s Corporate Governance Statement and under the Corporate Governance section of our website. A non-exhaustive list of material risks and the mitigation strategies implemented by the Consolidated Entity are set out below in Table 6. The Consolidated Entity is not subject to any significant environmental regulations within the areas it operates. All key material social and governance risks are identified in Table 6. 9 (Annual Report - 30 June 2023) Consolidated Entity’s Response Comprehensive internal policies and procedures have been developed to minimise the risk of patient and staff member illness. Targeted recall programs in place to re-book patients that have cancelled appointments due to COVID. The scale and geographic diversification of operations provides a level of risk mitigation with respect to localised outbreaks and/or restrictions. is undertaken prior Extensive internal processes and procedures to ensure sufficient due diligence to completion. Comprehensive integration plans are put in place for all acquisitions and are managed by an experienced internal integrations team. The Consolidated Entity will continue to be disciplined in executing its growth strategy taking into consideration current trading conditions. The Consolidated Group has developed a Clinician Retention Program which allows clinicians to have an ownership interest in clinics (via Clinic Class Shares). A structured learning and education program is also in place to provide world class learning and education to position the Consolidated Entity as an employer of choice. The yearly graduate clinician intake is expected to cover any outstanding vacancies. The Consolidated Entity actively manages its leverage position and maintains a close and transparent relationship with its financiers to ensure ongoing support. Healthia Limited and its Controlled Entities Review of operations 30 June 2023 Table 6: Material Business Risks Risk Area Pandemic Risk Acquisition Risk Potential Impact The economic consequences of the COVID-19 pandemic could become more severe and may impact revenue and operations resulting from increased patient appointment cancellations and staff absenteeism. Further, some of the Consolidated Entity’s assets and liabilities comprise financial instruments that are carried at fair value, with changes in fair value recognised in the Consolidated Entity’s income statement. Market declines or weakened trading conditions could negatively impact the value of such financial instruments (including the impairment of goodwill). The Consolidated Entity may be unable to identify and/or execute suitable acquisition opportunities and a failure to do so could have an adverse impact on the Consolidated Entity. Further, new businesses may not perform in line with expectations and could be impacted if sufficient due diligence is not performed and/or if the acquired businesses are not integrated effectively. Staff Retention The Consolidated Entity relies on clinicians to provide allied health services to patients and a high turnover or the inability to retain experienced staff, specifically clinicians, could impact the quality and/or availability of clinical services. Funding Risk The availability of debt funding or an inability to secure funding or refinance current debt facilities may adversely impact the financial position of the Consolidated Entity. In addition, failure to meet financial covenants under the Consolidated Entity’s finance facilities, and the occurrence of other specified events (including goodwill being impaired by 5% or more or certain changes in key personnel occurring) may lead to an event of default or review event under the finance facility. From time to time the Consolidated Entity seeks waivers of various aspects of its facility agreements including financial covenants. There is no guarantee that waivers sought will be granted by the banking syndicate in which case there is a risk that the Consolidated Entity will breach its finance facilities. If an event of default or a review event applicable to any given facility occurs, there may be a requirement to make repayments in advance of the relevant maturity dates and/or termination of the facility which may impact on the financial performance and position of the Consolidated Entity and its ability to operate in the ordinary course of business. Interest Rate Risk Changes in interest rates will impact the costs of the Consolidated Entity’s debt funding with a majority of its bank borrowings at variable interest rates. The Consolidated Entity has received waivers from its financiers with respect to entering into interest rate swap contracts. The waivers expire 30 September 2023 after which the Consolidated Entity may look to enter into further interest rate swap contracts to hedge against potential exposure to fluctuations in interest rates. Cyber Security Risk of the Consolidated Entity’s IT systems being accessed which could result in a failure of or interruption to IT systems and the business or a breach of patient privacy. Any such failures or breaches could cause reputational damage, regulatory impositions and financial loss. The Consolidated Entity has comprehensive policies and procedures in place regarding the use and storage of confidential information as well as controls in place to minimise technology related business interruption. Cyber security insurance is also in place to mitigate potential financial losses. 10 (Annual Report - 30 June 2023) Healthia Limited and its Controlled Entities Directors' report 30 June 2023 The Directors present their report, together with the financial statements, on the consolidated entity (referred to hereafter as the 'Consolidated Entity') consisting of Healthia Limited (referred to hereafter as the 'Company' or 'parent entity') and the entities it controlled at the end of, or during, the year ended 30 June 2023. Directors The following persons were Directors of Healthia Limited during the whole of the financial year and up to the date of this report, unless otherwise stated: Dr Glen Frank Richards Paul David Wilson Lisa Jane Dalton Wesley James Coote Darren Lindsey Stewart Colin Jonathan Kangisser Lisa Michelle Roach Principal activities During the financial year the principal activities of the Consolidated Entity consisted of the following: ● ● the operation of podiatry and retail footwear businesses throughout Australia through the Feet and Ankles division; the operation of physiotherapy, occupational therapy, hand therapy, exercise physiology and speech pathology businesses throughout Australia and New Zealand through the Bodies and Minds division; and the operation of optometry and audiology businesses throughout Australia through the Eyes and Ears division. ● Dividends Dividends paid during the financial year were as follows: Interim dividend for the year ended 30 June 2023 of 2.0 cents per ordinary share Final dividend for the year ended 30 June 2021 of 2.5 cents per ordinary share Interim dividend for the year ended 30 June 2022 of 2.0 cents per ordinary share Consolidated 2023 $'000 2022 $'000 2,760 - - - 2,255 2,537 2,760 4,792 As at the date of signing the financial report, the Directors of Healthia Limited have not yet determined whether to declare a final dividend for FY23 given the terms of the proposed acquisition of Healthia by way of a scheme of arrangement. Review of operations Please refer to section titled Operating and financial review, immediately before this Directors' report. Significant changes in the state of affairs Acquisition of Corio Bay Health Group (Bodies and Minds Division) On 1 December 2022, the Consolidated Entity acquired the businesses trading under the name Corio Bay Health Group being a group of nine physiotherapy businesses located in Victoria. Initial consideration paid for the acquisition was $5.4 million including $4.3 million in cash consideration and $1.1 million in Clinic Class Shares consideration, with a fair valued additional $0.4 million in contingent consideration. For the 12 month period ended 30 June 2023, Corio Bay Health Group contributed revenue of $3.1 million and EBITDA of $0.8 million (pre-AASB 16) to the Consolidated Entity. If these acquisitions had been held for the full 12 month period (by extrapolating the actual performance) the acquired businesses would have contributed revenue of $5.3 million and EBITDA of $1.1 million (pre-AASB 16) to the Consolidated Entity. Acquisition of Melbourne Hand Rehab (Bodies & Minds Division) On 2 March 2023, the Consolidated Entity acquired the businesses trading under the name Melbourne Hand Rehab being a group of 8 hand therapy businesses located in Victoria. Initial consideration paid for the acquisition was $4.4 million including $3.3 million in cash consideration and $1.1 million in Clinic Class Shares consideration, with a fair valued additional $0.5 million in contingent consideration. 11 (Annual Report - 30 June 2023) Healthia Limited and its Controlled Entities Directors' report 30 June 2023 For the 12 month period ended 30 June 2023, Melbourne Hand Rehab contributed revenue of $1.6 million and EBITDA of $0.8m (pre-AASB 16) to the Consolidated Entity. If these acquisitions had been held for the full 12 month period (by extrapolating the actual performance) the acquired businesses would have contributed revenue of $4.7 million and EBITDA of $2.2 million (pre-AASB 16) to the Consolidated Entity. Acquisition of other Bodies and Minds clinics The Consolidated Entity acquired an additional 3 hand therapy clinics and 1 physiotherapy clinic during the current period. Initial consideration paid for the acquisitions was $3.1 million including $2.4 million in cash consideration and $0.7 million in Clinic Class Share consideration, with a fair value additional $0.1 million in contingent consideration. For the 12 month period ended 30 June 2023, the acquired businesses contributed revenue of $2.0 million and EBITDA of $0.4 million (pre-AASB 16) to the Consolidated Entity. If these acquisitions had been held for the full 12 month period (by extrapolating the actual performance) the acquired businesses would have contributed revenue of $3.1 million and EBITDA of $0.6 million (pre-AASB 16) to the Consolidated Entity. Acquisition of Kosmac & Clemens (Eyes & Ears Division) On 20 March 2023, the Consolidated Entity acquired the businesses trading under the name Kosmac & Clemens being a group of 6 Optometry businesses located in Victoria. Initial consideration paid for the acquisition was $7.5 million in cash consideration and an additional $1.9 million in deferred consideration. For the 12 month period ended 30 June 2023, Kosmac & Clemens contributed revenue of $0.6 million and EBITDA of $0.3 million (pre-AASB 16) to the Consolidated Entity. If these acquisitions had been held for the full 12 month period (by extrapolating the actual performance) the acquired businesses would have contributed revenue of $4.8 million and EBITDA of $2.0 million (pre-AASB 16) to the Consolidated Entity. Acquisition of Other Eyes & Ears stores The Consolidated Entity acquired an additional 2 optometry stores during the current period. Initial consideration paid for the acquisitions was $0.2 million in cash consideration. For the 12 month period ended 30 June 2023, the acquired businesses contributed revenue of $0.3 million and EBITDA of $0.03 million (pre-AASB 16) to the Consolidated Entity. If these acquisitions had been held for the full 12 month period (by extrapolating the actual performance) the acquired businesses would have contributed revenue of $1.1 million and EBITDA of $0.1 million (pre-AASB 16) to the Consolidated Entity. Long Term Incentive Performance rights On 29 November 2022, the Consolidated Entity’s shareholders approved the grant of 1,114,594 unlisted performance rights to Executive Directors with a nil grant and exercise price. The performance rights will vest on 30 June 2025 (subject to satisfaction of the relevant vesting conditions) and expire on 31 October 2025. The vesting conditions include a number of performance and service conditions. The performance rights were issued on 27 March 2023. Retention performance rights On 29 November 2022, the Consolidated Entity’s shareholders approved the grant of 432,996 unlisted retention performance rights to Executive Directors with a nil grant and exercise price. The retention performance rights will vest on 30 June 2023 (subject to satisfaction of the relevant vesting conditions) and expire on 31 October 2023. The vesting conditions include a number of performance and service conditions. The performance rights were issued on 27 March 2023. Finance Facility On 22 February 2023, the Consolidated Entity signed a variation to its current finance facility agreement with its financiers, namely ANZ, NAB and BOQ. The change increased its total finance facility from $100.0 million to $120.0 million, with a term (remaining maturity) of 2.5 years. The increased facility size and term provides further capacity to continue the stated strategy of pursuing value accretive acquisition opportunities. Resignation and Appointment of Chief Financial Officer The Group Chief Financial Officer and Joint Company Secretary, Christopher Banks, gave notice of this resignation from his position with the Consolidated Entity effective from 7 February 2023. Julia Murfitt, General Counsel and Joint Company Secretary, takes up the duties of Company Secretary of the Consolidated Entity effective from 7 February 2023. The Consolidated Entity appointed Damien Peters as the Group Chief Financial Officer on 20 March 2023. 12 (Annual Report - 30 June 2023) Healthia Limited and its Controlled Entities Directors' report 30 June 2023 There were no other significant changes in the state of affairs of the Consolidated Entity during the financial year. Matters subsequent to the end of the financial year New Acquisitions After Reporting Date, the Consolidated Entity entered into binding agreements to acquire and has reached settlement the following businesses: ● Walk Without Pain Podiatry Clinics (3 podiatry clinics located in Queensland); and, ● Melbourne Hand Therapy (4 hand therapy clinics and an additional 9 sessional locations located in Victoria). Total upfront consideration of $3.6 million for the acquisitions (plus stock, less employee entitlements) is as follows: ● ● Upfront cash consideration: $2.8 million; and, Issue of Clinic Class Shares: $0.8 million. In addition to the upfront consideration, contingent consideration of up to $0.7million may become payable in cash, subject to the achievement of pre-defined earnings targets. Scheme Implementation Deed On 31 August 2023, the Consolidated Entity entered into a Scheme Implementation Deed (the “Scheme”) with Harold BidCo Pty Ltd (“Harold BidCo”) ACN 670 606 827, an entity owned by funds advised by Pacific Equity Partners under which it is proposed that Harold BidCo will acquire 100% of the fully diluted share capital in Healthia by way of a scheme of arrangement. Under the Scheme, Healthia shareholders will have the option to receive either $1.80 cash per Healthia share or unlisted scrip consideration, or a mix of cash and unlisted scrip consideration (subject to certain conditions). The Scheme is subject to certain conditions, which must be satisfied or waived before the Scheme can be implemented, including obtaining Healthia shareholder approval following receipt of an Independent Expert’s Report concluding (and continuing to conclude) that the Scheme is in the best interest of the Healthia shareholders. In the event that the Scheme proceeds, Healthia Shareholders who participate in obtaining script consideration as part of the transaction may be subject to alternative risks and uncertainties from those as set out in Table 6: Material Business Risks of the Review of Operations in this report, and general market risks. In the event the Scheme does not proceed, Healthia Shareholders will continue to be subject to the risks and uncertainties associated with Healthia’s business and general market risks. Furthermore, if the Scheme does not proceed, and no comparable proposal or superior proposal is received by the Healthia Board, then Healthia’s share price is likely to be impacted. Details of the proposed acquisition are contained in a separate announcement released to the ASX on 31 August 2023. Impact of Scheme Implementation Deed on Performance Rights On 30 August 2023, the Healthia Board, using the ability to retrospectively amend the performance rights, determined that should the Scheme Implementation Deed become Effective, then all vesting conditions on all unvested Performance Rights, excluding the service condition, will be waived, with such resulting vested Performance Rights being automatically exercised, and issued, prior to the Scheme Record Date with each holder domiciled in Australia entitled to be issued one Healthia Share for each vested Performance Right (as applicable) held (that is, on a one for one basis). Such Healthia Shares will be captured by the Scheme. No other matter or circumstance has arisen since 30 June 2023 that has significantly affected, or may significantly affect the Consolidated Entity's operations, the results of those operations, or the Consolidated Entity's state of affairs in future financial years. Environmental regulation The Consolidated Entity is not subject to any significant environmental regulation under Australian Commonwealth or State law. 13 (Annual Report - 30 June 2023) Healthia Limited and its Controlled Entities Directors' report 30 June 2023 Information on Directors Name: Title: Appointed: Experience and expertise: Other current directorships: Former directorships (last 3 years): None Special responsibilities: Interests in shares: Interests in rights: Dr Glen Frank Richards Chairman and Non-Executive Director 10 May 2018 Glen is a veterinary surgeon and the founder and former CEO of Greencross Limited, Australia’s largest pet care company. Glen has spent over 20 years building a multi- million-dollar integrated pet care empire, which now operates more than 180 veterinary hospitals and 230 pet care retail stores in Australia and Animates in New Zealand. Chairman and Non-Executive Director of People Infrastructure Ltd (ASX code: PPE). Member of the Audit and Risk Committee and the Nomination and Remuneration Committee. 7,966,777 ordinary shares held at 22 September 2023 None Name: Title: Appointed: Experience and expertise: Paul David Wilson Independent Non-Executive Director 10 May 2018 Paul was a co-founder, director and shareholder of Mammoth Pet Holdings Pty Ltd (Pet Barn) prior to the merger with Greencross Limited. Prior to founding Mammoth, Paul was the Chief Operating Officer of ShopFast, Australia’s largest online grocery retailer (sold to Coles in 2003). Paul has worked in the retail industry for 26 years with roles including General Manager of Caltex/Boral JV, Vitalgas. Other current directorships: None Former directorships (last 3 years): None Special responsibilities: Chairman of the Audit and Risk Committee and a member of the Nomination and Remuneration Committee. 1,983,459 ordinary shares held at 22 September 2023 None Interests in shares: Interests in rights: Name: Title: Appointed: Experience and expertise: Lisa Jane Dalton Independent Non-Executive Director 10 May 2018 Lisa is an experienced director, senior executive and company secretary with expertise in the healthcare, medical, utilities, manufacturing, childcare, energy, mining and construction sectors. She has experience in leading teams responsible for strategy, governance, risk management, human resources, communication, stakeholder relations and program management. In recent times, Lisa has participated in 4 successful ASX listings. Lisa has strong practical experience in fit for purpose governance, risk management, strategic planning and motivating teams to find solutions to complex issues. Other current directorships: None Former directorships (last 3 years): None Special responsibilities: Chairman of the Nomination and Remuneration Committee and a member of the Audit and Risk Committee. 47,478 ordinary shares held at 22 September 2023 None Interests in shares: Interests in rights: 14 (Annual Report - 30 June 2023) Healthia Limited and its Controlled Entities Directors' report 30 June 2023 Name: Title: Appointed: Experience and expertise: Wesley James Coote Group Managing Director and Group Chief Executive Officer 29 April 2019 Wesley is the former Chief Financial Officer and Company Secretary of Greencross Ltd. Prior to Greencross, Wesley worked in Chartered Accounting where he provided business advice within the health sector, property sector and financial services industry. Wesley holds a Bachelor of Commerce from the University of Queensland and is a member of the Institute of Chartered Accountants, as well as a member of the Governance Institute of Australia. Wesley joined the Group in December 2015 as Chief Financial Officer and Company Secretary and was appointed Group Managing Director and Chief Executive Officer on 29 April 2019. Other current directorships: None Former directorships (last 3 years): None Interests in shares: Interests in rights: 1,899,120 ordinary shares held at 22 September 2023 1,270,000 performance rights held at 22 September 2023 Name: Title: Appointed: Experience and expertise: Darren Lindsey Stewart Executive Director 10 May 2018 Darren is a registered podiatrist and in 2004 co-founded the My FootDr Business with Greg Dower. The two had grown the group to 13 clinics by December 2015. In 2015, Darren and Greg saw the opportunity to grow their network of clinics through the acquisition of well-established podiatry clinics. Before merging with Balance Podiatry Group in December 2016, they had grown the network to 19 clinics. Today, Darren provides strategic leadership and direction to the Feet & Ankles business division. None Other current directorships: Former directorships (last 3 years): None Interests in shares: Interests in rights: 8,021,333 ordinary shares held at 22 September 2023 None Name: Title: Appointed: Experience and expertise: Colin Jonathan Kangisser Executive Director and Chief Executive Officer, Eyes & Ears Division 30 November 2020 Colin is a registered optometrist with over 30 years optical experience. He founded and grew multiple retail chains including Optic Express and Kays Optical prior to holding executive leadership positions with the OPSM Group and founding TOC in 2005. Other current directorships: None Former directorships (last 3 years): None Interests in shares: Interests in rights: 5,134,628 ordinary shares held at 22 September 2023 406,268 performance rights held at 22 September 2023 Name: Title: Appointed: Experience and expertise: Lisa Michelle Roach Executive Director and Chief Partnerships Officer 22 April 2022 Lisa was a founding partner in several of the Allsports Clinics and has over 29 years' experience in the allied health industry. Lisa was also a qualified and practicing physiotherapist for 10 years. Lisa has held an executive role and has been heavily involved and influential within Healthia since its IPO. Her current role is Chief Partnership Officer. Lisa holds a Bachelor of Physiotherapy, is a member of the Institute of Company Directors and has held board positions on Healthia's subsidiary since IPO. Other current directorships: None Former directorships (last 3 years): None Interests in shares: Interests in rights: 1,007,889 ordinary shares held at 22 September 2023 452,322 performance rights held at 22 September 2023 'Other current directorships' quoted above are current directorships for listed entities only and exclude directorships of all other types of entities, unless otherwise stated. 'Former directorships (last 3 years)' quoted above are directorships held in the last 3 years for listed entities only and exclude directorships of all other types of entities, unless otherwise stated. 15 (Annual Report - 30 June 2023) Healthia Limited and its Controlled Entities Directors' report 30 June 2023 Company secretary Christopher Banks - Christopher was the Chief Financial Officer and Joint Company Secretary and resigned on 7 February 2023. Julia Murfitt - Julia was appointed Company Secretary on 23 February 2022. Julia is a qualified and practicing solicitor with over 14 years' experience across Australia and New Zealand. Julia joined Healthia as General Counsel in August 2020 and has been instrumental in Healthia's growth since this time. Meetings of Directors The number of meetings of the Company's Board of Directors ('the Board') and of each Board committee held during the year ended 30 June 2023, and the number of meetings attended by each Director were: Full Board Nomination and Remuneration Committee Audit and Risk Committee Attended Held Attended Held Attended Held Dr Glen Frank Richards Paul David Wilson Lisa Jane Dalton Wesley James Coote Darren Lindsey Stewart Colin Jonathan Kangisser Lisa Michelle Roach 13 13 12 13 13 13 13 13 13 13 13 13 13 13 6 6 6 - - - - 6 6 6 - - - - 5 5 5 - - - - 5 5 5 - - - - Held: represents the number of meetings held during the time the Director held office or was a member of the relevant committee. Remuneration report (audited) The Board of Directors of the Consolidated Entity present the Remuneration Report (the Report) for the reporting period of 1 July 2022 to 30 June 2023. The Report forms part of the Directors' Report and has been prepared and audited in accordance with the Corporations Act 2001. The Report details the key management personnel remuneration arrangements for the Consolidated Entity. Key management personnel (KMP) are those persons having authority and responsibility for planning, directing and controlling the activities of the Consolidated Entity, directly or indirectly, including all directors. 16 (Annual Report - 30 June 2023) Healthia Limited and its Controlled Entities Directors' report 30 June 2023 The KMP of the Consolidated Entity covered in this report are: Name Position held Non-Executive Directors: Glen Richards Paul Wilson Lisa Dalton Executive Directors: Wesley Coote Darren Stewart Colin Kangisser Lisa Roach Other KMP: Roy Walker** Damien Peters** Katherine Baker* Christopher Banks* Chairman and Non-Executive Director Non-Executive Director Non-Executive Director Group Managing Director and Group Chief Executive Officer Executive Director Executive Director and Chief Executive Officer, Eyes & Ears Division Executive Director and Chief Operations and People Officer, Bodies & Minds and Feet & Ankles Divisions Chief Executive Officer, Bodies & Minds and Feet & Ankles Divisions Chief Financial Officer Chief Executive Officer, Bodies & Minds and Feet & Ankles Divisions Chief Financial Officer and Joint Company Secretary Appointed 10 May 2018 10 May 2018 10 May 2018 10 May 2018 10 May 2018 20 November 2020 21 April 2022 6 March 2023 20 March 2023 1 December 2020 (Resigned 12 December 2022) 10 May 2018 (Resigned 7 February 2023) * Katherine Baker and Christopher Banks both resigned during the current financial period and any remuneration information is to date of resignation. ** Roy Walker and Damien Peters were appointed during the financial period and any remuneration information is from date of appointment. Role of the Nomination and Remuneration Committee The Nomination and Remuneration Committee (the Committee) assists and makes recommendations to the Board in relation to the remuneration and incentive framework for its directors and KMP. The Committee’s responsibilities include, among other things: ● Reviewing and advising the Board on the process for overseeing performance accountability and effective monitoring of KMP including setting and evaluating performance against goals and targets; Reviewing and advising the Board on the Consolidated Entity’s remuneration structure including short term incentive (STI) and long term incentive (LTI) arrangements and participation; Reviewing the incentives and behaviours arising from the Consolidated Entity’s remuneration structure; Reviewing the succession plans for the Board, Group CEO and other senior executives; Assisting the Board by co-ordinating a Board performance review annually and to ensure that this review includes an assessment of a Board skills matrix which sets out the skills, knowledge, experience and diversity that the Board currently has or is looking to achieve; Assisting the Board in adopting measurable objectives for having diversity throughout the Consolidated Entity and assessing progress towards achieving those objectives. ● ● ● ● ● Under its charter, the Nomination and Remuneration Committee must consist of at least three members, a majority of whom, including the Committee Chair, are independent non-executive directors. A copy of the charter of the Committee is available on the Consolidated Entity’s website in the Corporate Governance section. During FY23, the members of the Committee were: ● ● ● Lisa Dalton – Independent Non-Executive Director (Chair) Dr Glen Richards – Non-Executive Director Paul Wilson – Independent Non-Executive Director The Nomination and Remuneration Committee may from time to time engage external remuneration consultants or access benchmarking information to ensure the KMP remuneration framework is market competitive and complementary to the remuneration strategy of the Consolidated Entity. 17 (Annual Report - 30 June 2023) Healthia Limited and its Controlled Entities Directors' report 30 June 2023 Remuneration overview and strategy The performance of the Consolidated Entity depends on the quality of its directors and executives. The remuneration philosophy is to attract, motivate and retain high performance and high-quality personnel. The objective of the Consolidated Entity's executive remuneration framework is to ensure reward for performance is competitive and appropriate for the results delivered. The framework aligns executive reward with the achievement of strategic objectives and the creation of value for all stakeholders, and it is considered to conform to the market best practice for the delivery of reward. The Board ensures that executive rewards satisfy the following key criteria for good reward governance practices: ● ● ● ● competitiveness and reasonableness acceptability to shareholders performance linkage / alignment of executive compensation transparency The reward framework is designed to align executive reward to stakeholder, including shareholders' interests. The Board has considered that it should seek to enhance shareholders' interests by: ● ● having economic profit as a core component of plan design focusing on sustained growth in shareholder wealth, consisting of dividends and growth in share price, and delivering constant or increasing return on assets as well as focusing the executive on key non-financial drivers of value attracting and retaining high calibre executives ● Additionally, the reward framework should seek to enhance executives' interests by: ● ● ● rewarding capability and experience reflecting competitive reward for contribution to growth in shareholder wealth providing a clear structure for earning rewards The Consolidated Entity utilises both short and long term incentives in addition to fixed remuneration to incentivise executives and reward performance. Fixed remuneration reflects executives’ qualifications, capabilities and experience and is aimed to attract and retain high performing and high quality experienced executives to ensure shareholder interests are managed in a responsible and effective manner. The STI’s are to award achievement of specific and challenging targets and key performance indicators during the financial year. In accordance with best practice corporate governance, the structure of Non-Executive Director and Executive Director remuneration is separate. Consolidated entity performance and link to remuneration Remuneration for certain individuals is directly linked to the performance of the Consolidated Entity. A portion of cash bonus and incentive payments are dependent on defined earnings per share targets being met. The remaining portion of the cash bonus and incentive payments are linked to job specific key performance indicators and at the discretion of the Nomination and Remuneration Committee. The Nomination and Remuneration Committee is of the opinion that the continued financial performance of the Consolidated Entity can be attributed in part to the adoption of performance based compensation and is satisfied that this will continue to increase shareholder wealth if maintained over the coming years. Performance rights plan On 27 March 2023, following shareholder approval at the 2022 Annual General Meeting (AGM), 1,114,594 unlisted performance rights were granted to Executive Directors (667,500 - Wesley Coote, 245,625 - Colin Kangisser and 201,469 Lisa Roach), with a nil grant and exercise price. The performance rights will vest on 30 June 2025 (subject to satisfaction of the relevant vesting conditions) and expire on 31 October 2025. The vesting conditions include a number of performance and service conditions. Retention performance rights plan On 27 March 2023, following shareholder approval at the AGM, 432,996 unlisted retention performance rights were granted to Executive Directors (222,500 - Wesley Coote, 115,643 - Colin Kangisser and 94,853 Lisa Roach), with a nil grant and exercise price. The retention performance rights will vest on 30 June 2023 (subject to satisfaction of the relevant vesting conditions) and expire on 31 October 2023. The vesting conditions include a number of performance and service conditions. 18 (Annual Report - 30 June 2023) Healthia Limited and its Controlled Entities Directors' report 30 June 2023 The fair value of performance rights (equity settled) with the relative TSR condition is calculated at the date of grant using the Monte-Carlo simulation model, taking into account the impact of the TSR condition and dividends during the vesting period. The value disclosed is the portion of fair value of the performance rights recognised in each reporting period. Refer to 'Share-based compensation' section of this remuneration report for the vesting conditions of the performance rights. The performance rights do not rank equally with existing ordinary shares quoted. Prior to vesting, the performance rights do not carry a right to vote or receive dividends. Where shares are issued upon the vesting and exercise of the performance rights (within the periods detailed below), those shares will rank equally with existing ordinary shares of Healthia Limited. To participate in a dividend, the ordinary shares must be issued prior to the record date for the dividend. Use of remuneration consultants During the financial year ended 30 June 2023, the Consolidated Entity engaged a remuneration consultant, Godfrey Remuneration Group Pty Ltd (GRG), to review its existing remuneration policies for the Chief Executive Office and Managing Directors remuneration and structure of the performance rights plans. GRG was paid $16,000 plus GST for this advice. An agreed set of protocols were put in place to ensure that the remuneration recommendations would be free from undue influence from the Chief Executive Officer and Managing Director. These protocols include requiring that the consultant not communicate with the Chief Executive Officer and Managing Director without a member of the Nomination and Remuneration Committee being present, and that the consultant not provide any information relating to the outcome of the engagement with the Chief Executive Officer and Managing Director. The Board is also required to make inquiries of the consultant's processes at the conclusion of the engagement to ensure that they are satisfied that any recommendations made have been free from undue influence. The Board is satisfied that these protocols were followed and as such there was no undue influence. Voting and comments made at the Company's 2022 Annual General Meeting ('AGM') At the AGM, 95.45% of the votes received supported the adoption of the remuneration report for the year ended 30 June 2022. The Company did not receive any specific feedback at the AGM regarding its remuneration practices. 19 (Annual Report - 30 June 2023) Healthia Limited and its Controlled Entities Directors' report 30 June 2023 Details of remuneration Details of the remuneration of KMP of the Consolidated Entity are set out in the following tables. Short-term benefits Post- employment benefits Long-term benefits Share- based payments Cash salary and fees $ Cash bonus $ Non- Super- monetary annuation $ $ Long service leave $ Equity- settled $ Other Cash ^ $ Total $ 2023 Non-Executive Directors: Glen Richards Paul Wilson Lisa Dalton Executive Directors: Wesley Coote Darren Stewart Colin Kangisser Lisa Roach Other KMP: Roy Walker** Damien Peters** Katherine Baker* Christopher Banks* 130,000 80,000 80,000 397,980 103,779 299,923 245,000 89,904 80,769 132,722 183,846 1,823,923 - - - - - - 31,357 - - 39,196 - 70,553 - - - - - - - - - - - - - - - - - - - - - 34,438 10,695 29,392 26,917 7,619 867 5,475 4,471 220,562 - 34,126 84,099 - - - - - - - 130,000 80,000 80,000 660,599 115,341 368,916 391,844 8,794 8,481 18,008 1,755 1,545 - 20,490 20,490 - - - 249,000 120,943 111,285 438,926 18,092 154,817 - 21,732 - 379,767 - 201,938 249,000 2,699,792 * ** ^ Remuneration to date of resignation as KMP Remuneration from appointment as KMP Other cash benefits include termination benefits paid to Katherine Baker. Details of incentives (LTIs) are disclosed in the Additional information section within this remuneration report. Other than as set out in the above table, no other STI's were paid to KMP during FY23 as a result of them not meeting the target performance criteria. 20 (Annual Report - 30 June 2023) Healthia Limited and its Controlled Entities Directors' report 30 June 2023 Short-term benefits Post- employment benefits Long-term benefits Share- based payments Cash salary and fees $ Cash bonus $ Non- Super- monetary annuation $ $ Long service leave $ Equity- settled $ Total $ 100,000 60,000 60,000 345,000 122,370 295,005 213,077 202,740 - - - - - - 34,650 - 220,769 232,500 1,851,461 - 43,312 77,962 - - - - - - - - - - - - - - - - - - - - 100,000 60,000 60,000 27,500 12,153 26,393 19,269 27,860 6,753 730 5,840 4,380 3,979 137,037 - 12,420 56,290 58,696 516,290 135,253 339,658 327,666 293,275 20,077 27,250 160,502 4,882 4,882 31,446 55,075 61,043 300,803 368,987 380,561 2,501,932 2022 Non-Executive Directors: Glen Richards Paul Wilson Lisa Dalton Executive Directors: Wesley Coote Darren Stewart Colin Kangisser Lisa Roach Anthony Ganter* Other KMP: Christopher Banks Katherine Baker * Remuneration is to date of cessation as a director. The proportion of remuneration linked to performance and the fixed proportion was as follows: Name Non-Executive Directors: Glen Richards Paul Wilson Lisa Dalton Executive Directors: Wesley Coote Darren Stewart Colin Kangisser Lisa Roach Other KMP: Roy Walker Damien Peters Katherine Baker Christopher Banks Fixed remuneration 2022 2023 At risk - STI At risk - LTI 2023 2022 2023 2022 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% - - - 66.6% 100.0% 90.7% 68.7% 83.1% 81.6% 34.3% 100.0% 73.5% 100.0% 96.3% 72.2% - - 71.8% 81.7% - - - 8.0% - - 65.7% - - - - - - - 10.8% - - 11.7% - - - - 33.4% - 9.3% 23.3% 16.9% 18.4% - - - - - 26.5% - 3.7% 17.0% - - 16.5% 18.3% 21 (Annual Report - 30 June 2023) Healthia Limited and its Controlled Entities Directors' report 30 June 2023 The proportion of the cash bonus paid/payable or forfeited was as follows: Name Executive Directors: Wesley Coote Colin Kangisser Lisa Roach Other KMP: Roy Walker Damien Peters Katherine Baker Christopher Banks Cash bonus paid/payable 2023 2022 Cash bonus forfeited 2022 2023 - - 26% - - 26% - - - 42% - - 53% - 100% 100% 74% 100% 100% 74% 100% 100% 100% 58% - - 47% 100% Executive remuneration overview The Consolidated Entity aims to reward executives based on their position and responsibility, with a level and mix of remuneration which has both fixed and variable components: ● ● ● ● Base pay and non-monetary benefits Short-term performance incentives Share-based payments Other remuneration such as superannuation and long service leave The combination of these comprises the executive's total remuneration. Fixed remuneration, consisting of base salary, superannuation and non-monetary benefits, are reviewed annually by the Nomination and Remuneration Committee based on individual and business unit performance, the overall performance of the Consolidated Entity and comparable market remunerations. Executives receive their fixed remuneration in the form of cash. Short-Term Incentives The short-term incentives ('STI') program is designed to align the targets of the business units with the performance hurdles of Executives. STI payments are granted to Executives based on specific and challenging annual targets and key performance indicators ('KPI's') being achieved. KPI's include profit contribution, customer satisfaction, leadership contribution and product management. Performance hurdles are linked to key performance indicators of the Executive personnel, key non-financial targets aligned to Healthia’s strategic objectives and Board approval. Executives are eligible for an annual STIs with an opportunity to earn up to 35% of their annual base fixed remuneration. Ongoing participation by executives in the STI plan is at the discretion of the Board. With reference to recommendations from the Nomination and Remuneration Committee, the Board will approve all executive STI payments, and may use its discretion to adjust STI remuneration up or down, to avoid unattended outcomes. Long Term Incentives The long-term incentives ('LTI') take the form of an equity incentive (Performance Rights). Performance Rights are awarded to executives and subject to performance hurdles over a three year period. Performance hurdles consist of indexed Total Shareholders Return and growth in Earnings Per Share of the Consolidated Entity. The Nomination and Remuneration Committee reviewed the long-term equity-linked performance incentives specifically for Executives during the year ended 2023. 22 (Annual Report - 30 June 2023) Healthia Limited and its Controlled Entities Directors' report 30 June 2023 Ongoing participation by executives in the LTI plan is at the discretion of the Board. With reference to recommendations from the Nomination and Remuneration Committee, the Board will approve all executive LTI payments, and may use its discretion to adjust the LTIs, to prevent any inappropriate reward outcomes. Contractual arrangements with executive KMPs Group Chief Executive Officer Fixed remuneration Contract duration Notice by the individual / company Termination of employment (with cause) or by the individual STI is not awarded and all unvested LTIs are forfeited Termination of employment (without cause) $445,000 (effective from 1 October 2022) Ongoing 6 months Entitlement to pro-rata STI for the year, subject to meeting specified performance criteria during the relevant period. All unvested LTI will lapse, unless the Board determines otherwise in its absolute discretion. Post-employment restraint for 18 months preventing the Group CEO from being employed or involved in a competing business. Restrictive covenants Other Senior Executives Fixed remuneration Contract duration Notice by the individual / company Termination of employment (with cause) or by the individual STI is not awarded and all unvested LTIs are forfeited Termination of employment (without cause) Range between $241,000 and $329,400 (effective from 1 July 2022) Ongoing contract 6 months All unvested LTI will lapse, unless the Board determines otherwise in its absolute discretion. Post-employment restraints between 12 and 18 months Restrictive covenants Non-executive director arrangements 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 Nomination and Remuneration Committee. The Nomination and Remuneration Committee may, from time to time, receive advice from independent remuneration consultants to ensure Non- Executive Directors' fees and payments are appropriate and in line with the market. Non-Executive Directors do not receive share options or other performance based pay or incentives. ASX listing rules require the aggregate Non-Executive Directors' remuneration be determined periodically by a general meeting. The most recent determination was at the Annual General Meeting held on 4 July 2018, where the shareholders approved a maximum annual aggregate remuneration of $500,000 per annum. All non-executive directors are appointed under a letter of appointment. The letter summarises the board policies and terms, including remuneration, relevant to the office of director. The current base fees, detailed below, were reviewed with effect from 1 September 2022. Directors may also be reimbursed for all travel and other expenses they incur in connection with the Consolidated Entity. Non-executive directors Per annum director fees (from 1 September 2022) Non-executive directors Additional allowances: Chair of Board Remuneration & Nomination Committee Chair Audit & Risk Committee Chair $70,000 (FY22: $50,000) $60,000 (FY22: $50,000) $10,000 (FY22: $10,000) $10,000 (FY22: $10,000) 23 (Annual Report - 30 June 2023) Healthia Limited and its Controlled Entities Directors' report 30 June 2023 Share-based compensation Unlisted long term incentive performance rights On 29 November 2022, the Consolidated Entity’s shareholders approved the grant of 1,551,260 unlisted performance rights to Executive Directors and KMP with a nil grant and exercise price. The performance rights will vest on 30 June 2025 (subject to satisfaction of the relevant vesting conditions) and expire on 31 October 2025. The vesting conditions include a number of performance and service conditions. The performance rights were issued on 27 March 2023. Unlisted retention performance rights On 29 November 2022, the Consolidated Entity’s shareholders approved the grant of 432,996 unlisted retention performance rights (RPR) to Executive Directors with a nil grant and exercise price. The retention performance rights will vest on 30 June 2023 (subject to satisfaction of the relevant vesting conditions) and expire on 31 October 2023. The vesting conditions include a number of performance and service conditions. The retention performance rights were issued on 27 March 2023. 2022 Grant - Performance Rights Grant date: Grant price: Exercise price: Vesting date: Expiry date: Restriction on shares issued on exercise: 27 March 2023 $nil $nil 30 June 2025 31 October 2025 Can only be traded in accordance with Securities Trading Policy and insider trading laws The fair value of performance rights (equity settled) with the relative TSR condition is calculated at the date of grant using the Monte-Carlo simulation model, taking into account the impact of the TSR condition and dividends during the vesting period. The value disclosed is the portion of fair value of the rights recognised in each reporting period. 24 (Annual Report - 30 June 2023) Healthia Limited and its Controlled Entities Directors' report 30 June 2023 Vesting conditions for long term incentive performance rights granted 27 March 2023 for all Key Management Personnel Service condition EPS Growth condition The performance rights will be exercisable upon satisfaction of the Service condition, being continuous employment with the Company from Grant Date until the Vesting Date. The Company’s compounding annual growth in underlying Earnings Per Share (underlying EPS) for the period from 1 July 2022 to 30 June 2025 based on the following vesting scale: - Below threshold and target being less than 4% - Nil Vesting - Threshold and target being between 4% and 10% - Pro rata vesting - Stretch being over 10% - 100% vesting The underlying EPS results to be used will be the Basic EPS recorded in the Company’s audited financial statements in the relevant years, adjusted for one-off and non-recurring items and the amortisation of customer lists, as determined by the Board in its discretion. Up to 50% of the Performance Rights will be exercisable if this condition is achieved. Indexed TSR (iTSR) Satisfaction of the iTSR performance condition against the S&P/ ASX Small Industrials Index, based on the following vesting scale: - Stretch being index movement of greater than 10% - 100% vesting - Between target and stretch being index movement of between 5% and 10% - pro rata vesting - Target being index movement of 5% - 50% vesting - Between threshold and target being index movement of between 0% and 5% - pro rata vesting - Threshold being equal to index movement - 25% vesting - Below threshold being less than the index movement - Nil vesting TSR is the sum of the change in share price and dividends (assumed to be reinvested in shares) during the Vesting Period. It is annualised for the purpose of the above vesting scale. The TSR of the Company will be calculated and converted to a compound annual growth rate (CAGR) value for the purpose of assessment against this scale. During periods of nil dividends being declared, TSR is equal to the change in share price. Up to 50% of the performance rights will be exercisable if this condition is achieved. Grant date: Grant price: Exercise price: Vesting date: Expiry date: Restriction on shares issued on exercise: 2022 Grant - Retention Performance Rights 27 March 2023 $nil $nil 30 June 2023 31 October 2023 Can only be traded in accordance with Securities Trading Policy and insider trading laws 25 (Annual Report - 30 June 2023) Healthia Limited and its Controlled Entities Directors' report 30 June 2023 Vesting conditions retention performance rights granted 27 March 2023 for all Key Management Personnel Service condition FY23 EBITDA(u) The performance rights will be exercisable upon satisfaction of the Service condition, being continuous employment with the Company from Grant Date until the Vesting Date. Achievement by the Company of EBITDA(u) of greater than $40 million for the financial year ended 30 June 2023. This reflects the Company's guidance on 31 August 2022 that it expects to deliver EBITDA(u) in FY23 of greater than $40 million. EBITDA(u) or Underlying EBITDA is statutory earnings before interest, tax, depreciation and amortisation (EBITDA) as adjusted to reflect the Directors’ assessment of the result for the ongoing business activities of the Consolidated Entity, in accordance with AICD/Finsia principles of recording underlying profit. EBITDA(u) is presented on a pre-AASB16 basis. Underlying EBITDA is a non-IFRS measure and will be determined by the Directors having regard to those principles and is not audited. The performance rights do not rank equally with existing ordinary shares quoted. Prior to vesting, the performance rights do not carry a right to vote or receive dividends. Where shares are issued upon the vesting and exercise of the performance rights (within the periods detailed above), those shares will rank equally with existing ordinary shares of Healthia Limited. To participate in a dividend, the ordinary shares must be issued prior to the record date for the dividend. The terms and conditions of each grant of performance rights over ordinary shares affecting remuneration of Directors and other KMP in this financial year or future reporting years are as follows: Name Number of rights granted Grant date Vesting date and exercisable date Expiry date Fair value per right at grant date Wesley Coote Colin Kangisser Lisa Roach Roy Walker Damien Peters Wesley Coote Colin Kangisser Lisa Roach Roy Walker Damien Peters Wesley Coote Lisa Roach Colin Kangisser Wesley Coote (RPR) Lisa Roach (RPR) Colin Kangisser (RPR) Wesley Coote Wesley Coote Lisa Roach Lisa Roach 333,750 27-Mar-23 122,813 27-Mar-23 100,735 27-Mar-23 109,167 27-Mar-23 109,167 27-Mar-23 333,750 27-Mar-23 122,812 27-Mar-23 100,734 27-Mar-23 109,165 27-Mar-23 109,165 27-Mar-23 187,500 19-Nov-21 66,000 19-Nov-21 45,000 19-Nov-21 222,500 27-Mar-23 94,853 27-Mar-23 115,643 27-Mar-23 96,250 1-Dec-20 96,250 1-Dec-20 45,000 30-Oct-20 45,000 30-Oct-20 30-Jun-25 30-Jun-25 30-Jun-25 30-Jun-25 30-Jun-25 30-Jun-25 30-Jun-25 30-Jun-25 30-Jun-25 30-Jun-25 18-Nov-24 18-Nov-24 18-Nov-24 30-Jun-23 30-Jun-23 30-Jun-23 31-Aug-23 31-Aug-23 31-Aug-23 31-Aug-23 31-Oct-25 31-Oct-25 31-Oct-25 31-Oct-25 31-Oct-25 31-Oct-25 31-Oct-25 31-Oct-25 31-Oct-25 31-Oct-25 31-Dec-24 31-Dec-24 31-Dec-24 31-Oct-23 31-Oct-23 31-Oct-23 31-Oct-23 31-Oct-23 31-Oct-23 31-Oct-23 Performance rights granted carry no dividend or voting rights. $1.130 $1.130 $1.130 $1.130 $1.130 $0.500 $0.500 $0.500 $0.500 $0.500 $0.420 $0.420 $0.420 $1.210 $1.210 $1.210 $0.910 $0.140 $0.910 $0.140 26 (Annual Report - 30 June 2023) Healthia Limited and its Controlled Entities Directors' report 30 June 2023 Additional disclosures relating to KMP Shareholding The number of shares in the Company held during the financial year by each Director and other KMP of the Consolidated Entity, including their personally related parties, is set out below: Balance at Received as part of the start of the year remuneration* Additions Disposals/ other Balance at the end of the year Ordinary shares Glen Richards Paul Wilson Lisa Dalton Wesley Coote Darren Stewart Colin Kangisser Lisa Roach Roy Walker Damien Peters Katherine Baker Christopher Banks 7,456,572 1,738,082 43,267 1,681,510 8,000,924 5,066,600 855,019 - - 12,857 192,270 25,047,101 - - - 161,253 - - 101,675 - - - - 262,928 510,205 245,377 4,211 56,357 20,409 68,028 51,195 - - - - 955,782 7,966,777 - 1,983,459 - 47,478 - 1,899,120 - 8,021,333 - 5,134,628 - 1,007,889 - - - - - - (12,857) (192,270) - (205,127) 26,060,684 * Shares issued as a result of performance rights vesting during the year. Performance rights holding The number of performance rights over ordinary shares in the Company held during the financial year by each Director and other members of KMP of the Consolidated Entity, including their personally related parties, is set out below: Performance rights over ordinary shares Glen Richards Paul Wilson Lisa Dalton Wesley Coote Darren Stewart Colin Kangisser Lisa Roach Roy Walker Damien Peters Katherine Baker Christopher Banks Performance rights over ordinary shares Wesley Coote Colin Kangisser Lisa Roach Roy Walker Damien Peters Katherine Baker Chris Banks Balance at the start of the year Granted - - - 552,463 - 45,000 264,840 - - 236,750 253,600 1,352,653 - - - 890,000 - 361,268 296,322 218,333 218,333 - - 1,984,256 Vested - - - (172,463) - - (108,840) - - - (81,906) (363,209) Expired/ forfeited/ other Balance at the end of the year - - - - - - - - - (236,750) (171,694) (408,444) - - - 1,270,000 - 406,268 452,322 218,333 218,333 - - 2,565,256 Maximum value yet to vest* $ 1,028,662 359,012 353,939 177,941 177,941 - - 2,097,495 27 (Annual Report - 30 June 2023) Healthia Limited and its Controlled Entities Directors' report 30 June 2023 * The maximum value of the deferred shares yet to vest has been determined as the amount of the grant date fair value of the rights that is yet to be expensed. Loans to KMP and their related parties There were no loans to KMP and their related parties at 30 June 2023. Other transactions with KMP and their related parties The following transactions occurred with related parties: Consideration relating to the acquisition of businesses at the time of acquisition of The Optical Company: Deferred cash payment for the acquisition of businesses associated with director Colin Kangisser Rent and outgoings paid to entities controlled by Darren Stewart Rent and outgoings paid to entities controlled by Lisa Roach Payment for bookkeeping services to an entity associated with Wesley Coote Payment for orthotics and prosthetics to an entity associated with Darren Stewart Consolidated Consolidated 2023 $ 2022 $ - 1,065,044 309,965 220,401 556,208 - 1,086,574 311,652 235,907 380,470 72,556 1,000,585 Terms and conditions All transactions were made on normal commercial terms and conditions and at market rates. This concludes the remuneration report, which has been audited. Shares under performance rights Unissued ordinary shares of Healthia Limited under performance rights at the date of this report are as follows: Grant date 30 October 2020 1 December 2020 19 November 2021 27 March 2023* 27 March 2023** * Performance Rights ** Retention Performance Rights Expiry date 31 October 2023 31 October 2023 31 December 2024 31 October 2025 31 October 2023 Number under rights 180,000 282,500 819,000 2,244,060 730,842 4,256,402 No person entitled to exercise the performance rights had or has any right by virtue of the performance right to participate in any share issue of the Company or of any other body corporate. Shares issued on the exercise of performance rights The following ordinary shares of Healthia Limited were issued during the year ended 30 June 2023 and up to the date of this report on the exercise of performance rights granted: Date performance rights granted 26 October 2022 Exercise price Number of shares issued $0.00 2,190,837 28 (Annual Report - 30 June 2023) Healthia Limited and its Controlled Entities Directors' report 30 June 2023 Indemnity and insurance of officers The Company has indemnified the Directors and executives of the Consolidated Entity 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. Post the end of the financial year, the Consolidated Entity paid a premium in respect of a contract to insure the Directors and executives of the company 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. Proceedings on behalf of the Company No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the Company, or to intervene in any proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the Company for all or part of those proceedings. Non-audit services Details of the amounts paid or payable to the auditor for non-audit services provided during the financial year by the auditor are outlined in note 31 to the financial statements. The Directors are satisfied that the provision of non-audit services during the financial year, by the auditor (or by another person or firm on the auditor's behalf), is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The Directors are of the opinion that the services as disclosed in note 31 to the financial statements do not compromise the external auditor's independence requirements of the Corporations Act 2001 for the following reasons: ● all non-audit services have been reviewed and approved to ensure that they do not impact the integrity and objectivity of the auditor; and none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants (including Independence Standards) issued by the Accounting Professional and Ethical Standards Board, including reviewing or auditing the auditor's own work, acting in a management or decision- making capacity for the Company, acting as advocate for the Company or jointly sharing economic risks and rewards. ● Officers of the Consolidated Entity who are former partners of BDO Audit Pty Ltd There are no officers of the Consolidated Entity who are former partners of BDO Audit Pty Ltd. Rounding of amounts The Company is of a kind referred to in Corporations Instrument 2016/191, issued by the Australian Securities and Investments Commission, relating to 'rounding-off'. Amounts in this report have been rounded off in accordance with that Corporations Instrument to the nearest thousand dollars, or in certain cases, the nearest dollar. 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 immediately after this Directors' report. Auditor BDO Audit Pty Ltd continues in office in accordance with section 327 of the Corporations Act 2001. This report is made in accordance with a resolution of Directors, pursuant to section 298(2)(a) of the Corporations Act 2001. On behalf of the Directors Dr Glen Frank Richards Director 29 September 2023 29 (Annual Report - 30 June 2023) Healthia Limited and its Controlled Entities Auditor’s independence declaration Tel: +61 7 3237 5999 Fax: +61 7 3221 9227 www.bdo.com.au Level 10, 12 Creek Street Brisbane QLD 4000 GPO Box 457 Brisbane QLD 4001 Australia DECLARATION OF INDEPENDENCE BY MICHAEL CUTRI TO THE DIRECTORS OF HEALTHIA LIMITED As lead auditor of Healthia Limited for the year ended 30 June 2023, I declare that, to the best of my knowledge and belief, there have been: 1. No contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and 2. No contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of Healthia Limited and the entities it controlled during the period. Michael Cutri Director BDO Audit Pty Ltd Brisbane, 29 September 2023 BDO Audit Pty Ltd ABN 33 134 022 870 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 Audit Pty Ltd 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. 30 (Annual Report – 30 June 2023) Healthia Limited and its Controlled Entities Consolidated statement of profit or loss and other comprehensive income For the year ended 30 June 2023 Revenue from contracts with customers 5 252,556 200,264 Other income Fair value movement of contingent consideration 6 29 3,358 1,106 2,520 1,550 Note Consolidated 2023 $'000 2022 $'000 Expenses Changes in inventories Raw materials and consumables used Employee benefits expense Occupancy costs Marketing costs Other expenses Impairment of receivables Acquisition costs Integration and restructuring costs Share-based payments expense Depreciation expense Amortisation expense Finance costs Profit before income tax expense Income tax expense Profit after income tax expense for the year Other comprehensive income for the year, net of tax Total comprehensive income for the year Profit for the year is attributable to: Non-controlling interest Owners of Healthia Limited Total comprehensive income for the year is attributable to: Non-controlling interest Owners of Healthia Limited 3,685 (24,293) (155,196) (6,816) (3,470) (13,447) (625) (3,505) (3,790) (1,000) (23,019) (1,946) (9,336) 2,527 (20,785) (129,189) (4,758) (3,218) (11,335) (268) (5,219) (2,183) (1,395) (19,341) (1,685) (5,895) 39 7 7 7 14,262 1,590 8 (3,926) (1,247) 10,336 343 - - 10,336 343 4,869 5,467 3,672 (3,329) 10,336 343 4,869 5,467 3,672 (3,329) 10,336 343 Cents Cents Basic earnings per share Diluted earnings per share 38 38 4.01 3.92 (2.82) (2.82) The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes 31 (Annual Report - 30 June 2023) Healthia Limited and its Controlled Entities Consolidated statement of financial position As at 30 June 2023 Assets Current assets Cash and cash equivalents Trade and other receivables Inventories Income tax refund due Other assets Total current assets Non-current assets Investments accounted for using the equity method Property, plant and equipment Right-of-use assets Intangibles Deferred tax Total non-current assets Total assets Liabilities Current liabilities Trade and other payables Borrowings Lease liabilities Employee benefit obligations Provisions Other liabilities Total current liabilities Non-current liabilities Borrowings Lease liabilities Derivative financial instruments Employee benefit obligations Provisions Other liabilities Total non-current liabilities Total liabilities Net assets Equity Issued capital Reserves Accumulated losses Equity attributable to the owners of Healthia Limited Non-controlling interest Total equity Note Consolidated 2023 $'000 2022 $'000 9 10 11 8 12 13 14 15 16 8 17 18 19 21 22 23 18 19 20 21 22 23 24 25 26 5,589 12,972 14,217 221 3,833 36,832 21 21,451 63,539 267,334 6,761 359,106 5,666 8,204 10,532 97 3,199 27,698 19 17,075 59,073 246,326 7,845 330,338 395,938 358,036 15,534 2,000 19,165 10,331 1,087 4,203 52,320 95,425 50,434 - 968 2,618 1,939 151,384 19,089 1,954 17,116 11,318 357 2,914 52,748 77,117 46,853 14 904 2,975 4,961 132,824 203,704 185,572 192,234 172,464 159,312 (1,124) (5,094) 153,094 39,140 146,213 (2,124) (7,801) 136,288 36,176 192,234 172,464 The above consolidated statement of financial position should be read in conjunction with the accompanying notes 32 (Annual Report - 30 June 2023) Healthia Limited and its Controlled Entities Consolidated statement of changes in equity For the year ended 30 June 2023 Consolidated Issued capital $'000 Reserves $'000 Retained profits/ (accumulated losses) $'000 Non- controlling interest $'000 Total equity $'000 Balance at 1 July 2021 79,578 (3,519) 320 16,148 92,527 Profit/(loss) after income tax expense for the year Other comprehensive income for the year, net of tax Total comprehensive income for the year Transactions with owners in their capacity as owners: Contributions of equity, net of transaction costs Issue of performance rights Issue of ordinary shares as consideration for business combinations (note 35) Issue of ordinary shares as part of Dividend Reinvestment Plan Contributions of clinic class shares Issue of clinic class shares as consideration for business combinations (note 35) Buy-back of clinic class shares Distributions paid to non-controlling interest Dividends paid (note 27) - - - 58,128 - 5,771 2,736 - - - - - - - - (3,329) 3,672 - - (3,329) 3,672 343 - 343 - 1,395 - - - - - - - - - - - - - - - (4,792) - - - - 1,154 18,816 (220) (3,394) - 58,128 1,395 5,771 2,736 1,154 18,816 (220) (3,394) (4,792) Balance at 30 June 2022 146,213 (2,124) (7,801) 36,176 172,464 The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes 33 (Annual Report - 30 June 2023) Healthia Limited and its Controlled Entities Consolidated statement of changes in equity For the year ended 30 June 2023 Consolidated Issued capital $'000 Reserves $'000 Retained profits/ (accumulated losses) $'000 Non- controlling interest $'000 Total equity $'000 Balance at 1 July 2022 146,213 (2,124) (7,801) 36,176 172,464 Profit after income tax expense for the year Other comprehensive income for the year, net of tax Total comprehensive income for the year Transactions with owners in their capacity as owners: Contributions of equity, net of transaction costs (note 24) Issue of ordinary shares in iOrthotics USA LLC Issue of performance rights Issue of ordinary shares as part of Dividend Reinvestment Plan (note 24) Contributions of clinic class shares Issue of clinic class shares as consideration for business combinations (note 35) Buy-back of clinic class shares Distributions paid to non-controlling interest Dividends paid (note 27) - - - 10,339 - - - - - - - 1,000 2,760 - - - - - - - - - - - 5,467 4,869 10,336 - - - 5,467 4,869 10,336 - - - - - - - - (2,760) - 10,339 268 - - 1,271 2,869 (1,637) (4,676) - 268 1,000 2,760 1,271 2,869 (1,637) (4,676) (2,760) Balance at 30 June 2023 159,312 (1,124) (5,094) 39,140 192,234 The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes 34 (Annual Report - 30 June 2023) Healthia Limited and its Controlled Entities Consolidated statement of cash flows For the year ended 30 June 2023 Cash flows from operating activities Receipts from customers (inclusive of GST) Payments to suppliers (inclusive of GST) Interest received Government grants (Covid-19) Interest and other finance costs paid Income taxes paid Note Consolidated 2023 $'000 2022 $'000 251,774 (217,032) 198,056 (171,818) 34,742 46 - (9,336) (2,861) 26,238 1 622 (5,895) (3,770) Net cash from operating activities 37 22,591 17,196 Cash flows from investing activities Payment for purchase of businesses, net of cash acquired Payments of contingent and deferred business purchases consideration Payments for property, plant and equipment Payments for intangibles Proceeds from disposal of property, plant and equipment Net cash used in investing activities Cash flows from financing activities Proceeds from issue of ordinary shares Share issue transaction costs Proceeds from issue of clinic class shares Buy-back of clinic class shares Proceeds from borrowings Repayment of lease liabilities Dividends paid to non-controlling interest Dividends paid Net cash from financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year 35 14 16 24 24 37 37 27 (17,641) (3,358) (7,420) (141) - (79,456) (1,554) (3,495) - 50 (28,560) (84,455) 13,742 (643) 1,271 (1,637) 18,308 (17,759) (4,676) (2,760) 62,570 (2,677) 1,154 (220) 29,065 (14,877) (3,394) (4,792) 5,846 66,829 (123) 3,712 (430) 4,142 Cash and cash equivalents at the end of the financial year 9 3,589 3,712 The above consolidated statement of cash flows should be read in conjunction with the accompanying notes 35 (Annual Report - 30 June 2023) Healthia Limited and its Controlled Entities Notes to the consolidated financial statements 30 June 2023 Note 1. General information The financial statements cover Healthia Limited as a consolidated entity consisting of Healthia Limited ('Company', 'Healthia' or 'parent entity') and the entities it controlled at the end of, or during, the year (referred to in these financial statements as the 'Consolidated Entity'). The financial statements are presented in Australian dollars, which is Healthia Limited's functional and presentation currency. Healthia Limited is a listed public company limited by shares, incorporated and domiciled in Australia. Its registered office and principal place of business is: Level 4, East Tower 25 Montpelier Road Bowen Hills QLD 4006 A description of the nature of the Consolidated Entity's operations and its principal activities are included in the Directors' report, which is not part of the financial statements. The financial statements were authorised for issue, in accordance with a resolution of Directors, on 29 September 2023. Note 2. Significant accounting policies The principal accounting policies adopted in the preparation of the financial statements are set out either in the respective notes or below. These policies have been consistently applied to all the years presented, unless otherwise stated. New or amended Accounting Standards and Interpretations adopted The Consolidated Entity has adopted all of the new or amended Accounting Standards and Interpretations issued by the Australian Accounting Standards Board ('AASB') that are mandatory for the current reporting period. The adoption of these Accounting Standards and Interpretations did not have any significant impact on the financial performance or position of the Consolidated Entity. Any new or amended Accounting Standards or Interpretations that are not yet mandatory have not been early adopted. Going concern The financial statements have been prepared on a going concern basis, which contemplates continuity of normal business activities and the realisation of assets and settlement of liabilities in the normal course of business. Working capital deficiency and compliance with banking covenants As presented in the financial statements, the Consolidated Entity generated a profit after tax of $10.3 million (FY22: $0.34 million) and had net cash inflows from operating activities of $22.6 million (FY22: $17.2 million) for the year ended 30 June 2023. As at that date the entity had net current liabilities of $15.5 million (FY22: $25.1 million). Within these current liabilities, the Directors further note: ● ● $19.2 million included in current liabilities relates to property leases (under AASB16) where the associated right-of-use assets are recognised as non-current assets. Cash flow from customers will be generated from the Consolidated Entity's business sites/clinics and a portion of these cash flows will be used to pay the respective lease liability repayments (property rents); and Other current liabilities of $3.3 million includes contingent consideration for business acquisitions (earn-outs), which will only be achieved if cash flow generation remains as forecast. The directors also believe that the preparation of the financial statements using the going concern basis of accounting is appropriate based on cash flow forecasts prepared, which show the Consolidated Entity is expected to be able to pay its debts as and when they fall due for the next 12 months and to realise the value of its assets and discharge its liabilities in the ordinary course of business. Therefore, the directors believe that the preparation of the financial statements using the going concern basis of accounting is appropriate. 36 (Annual Report - 30 June 2023) Healthia Limited and its Controlled Entities Notes to the consolidated financial statements 30 June 2023 Note 2. Significant accounting policies (continued) ● ● ● Key to the forecasts are relevant assumptions regarding the business, and about financing and shareholder support; in particular: ● Revenue and cash flow targets – the Consolidated Entity has prepared a cash flow forecast based on reasonable assumptions that the directors believe are achievable; Future business combinations – the cash flow forecasts do not incorporate any future business combinations, with the assumption that future acquisitions will be funded through a combination of the bank loan facility and shares; Capital raising – during the year the Consolidated Entity successfully undertaken a capital raising providing funds to support working capital and provide flexibility for further acquisitions; Bank support – in February 2023, the Consolidated Entity has obtained from its financiers: 1. An increase in the allowable cap for adjustments / addbacks during any 12-month period from $3 million to $5 million when calculating Adjusted EBITDA for the purposes of its bank covenants, in particular for the Leverage Covenant (Debt Adjusted EBITDA); 2. Waivers in relation to the requirement to enter into a new Hedge Agreement until the end of September 2023; and 3. An increase in the total facility limit from $100.0m to $120.0m. 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 ('AASB') and the Corporations Act 2001, as appropriate for for-profit oriented entities. These financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board ('IASB'). Historical cost convention The financial statements have been prepared under the historical cost convention, except for, where applicable, the revaluation of derivative financial instruments. Critical accounting estimates The preparation of the financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Consolidated Entity's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in note 3. Parent entity information In accordance with the Corporations Act 2001, these financial statements present the results of the Consolidated Entity only. Supplementary information about the parent entity, Healthia Limited, is disclosed in note 34. Principles of consolidation The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of the Company as at 30 June 2023 and the results of all subsidiaries for the year then ended. Subsidiaries are all those entities over which the Consolidated Entity has control. The Consolidated Entity controls an entity when the Consolidated Entity is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Consolidated Entity. They are de-consolidated from the date that control ceases. Intercompany transactions, balances and unrealised gains on transactions between entities in the Consolidated Entity are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Consolidated Entity. The acquisition of subsidiaries is accounted for using the acquisition method of accounting. A change in ownership interest, without the loss of control, is accounted for as an equity transaction, where the difference between the consideration transferred and the book value of the share of the non-controlling interest acquired is recognised directly in equity attributable to the parent. 37 (Annual Report - 30 June 2023) Healthia Limited and its Controlled Entities Notes to the consolidated financial statements 30 June 2023 Note 2. Significant accounting policies (continued) Non-controlling interest in the results and equity of subsidiaries are shown separately in the statement of profit or loss and other comprehensive income, statement of financial position and statement of changes in equity of the Consolidated Entity. Losses incurred by the Consolidated Entity are attributed to the non-controlling interest in full, even if that results in a deficit balance. Where the Consolidated Entity loses control over a subsidiary, it derecognises the assets including goodwill, liabilities and non-controlling interest in the subsidiary together with any cumulative translation differences recognised in equity. The Consolidated Entity recognises the fair value of the consideration received and the fair value of any investment retained together with any gain or loss in profit or loss. Current and non-current classification Assets and liabilities are presented in the statement of financial position based on current and non-current classification. An asset is classified as current when: it is either expected to be realised or intended to be sold or consumed in the Consolidated Entity's normal operating cycle; it is held primarily for the purpose of trading; it is expected to be realised within 12 months after the reporting period; or the asset is cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least 12 months after the reporting period. All other assets are classified as non-current. A liability is classified as current when: it is either expected to be settled in the Consolidated Entity's normal operating cycle; it is held primarily for the purpose of trading; it is due to be settled within 12 months after the reporting period; or there is no unconditional right to defer the settlement of the liability for at least 12 months after the reporting period. All other liabilities are classified as non-current. Deferred tax assets and liabilities are always classified as non-current. Associates Associates are entities over which the Consolidated Entity has significant influence but not control or joint control. Investments in associates are accounted for using the equity method. Under the equity method, the share of the profits or losses of the associate is recognised in profit or loss and the share of the movements in equity is recognised in other comprehensive income. Investments in associates are carried in the statement of financial position at cost plus post- acquisition changes in the Consolidated Entity's share of net assets of the associate. Goodwill relating to the associate is included in the carrying amount of the investment and is neither amortised nor individually tested for impairment. Dividends received or receivable from associates reduce the carrying amount of the investment. When the Consolidated Entity's share of losses in an associate equals or exceeds its interest in the associate, including any unsecured long-term receivables, the Consolidated Entity does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate. The Consolidated Entity discontinues the use of the equity method upon the loss of significant influence over the associate and recognises any retained investment at its fair value. Any difference between the associate's carrying amount, fair value of the retained investment and proceeds from disposal is recognised in profit or loss. Investments and other financial assets Investments and other financial assets are initially measured at fair value. Transaction costs are included as part of the initial measurement, except for financial assets at fair value through profit or loss. Such assets are subsequently measured at either amortised cost or fair value depending on their classification. Classification is determined based on both the business model within which such assets are held and the contractual cash flow characteristics of the financial asset unless an accounting mismatch is being avoided. Financial assets are derecognised when the rights to receive cash flows have expired or have been transferred and the Consolidated Entity has transferred substantially all the risks and rewards of ownership. When there is no reasonable expectation of recovering part or all of a financial asset, its carrying value is written off. Financial assets at amortised cost A financial asset is measured at amortised cost only if both of the following conditions are met: (i) it is held within a business model whose objective is to hold assets in order to collect contractual cash flows; and (ii) the contractual terms of the financial asset represent contractual cash flows that are solely payments of principal and interest. 38 (Annual Report - 30 June 2023) Healthia Limited and its Controlled Entities Notes to the consolidated financial statements 30 June 2023 Note 2. Significant accounting policies (continued) Impairment of financial assets The Consolidated Entity recognises a loss allowance for expected credit losses on financial assets which are either measured at amortised cost or fair value through other comprehensive income. The measurement of the loss allowance depends upon the Consolidated Entity's assessment at the end of each reporting period as to whether the financial instrument's credit risk has increased significantly since initial recognition, based on reasonable and supportable information that is available, without undue cost or effort to obtain. Where there has not been a significant increase in exposure to credit risk since initial recognition, a 12-month expected credit loss allowance is estimated. This represents a portion of the asset's lifetime expected credit losses that is attributable to a default event that is possible within the next 12 months. Where a financial asset has become credit impaired or where it is determined that credit risk has increased significantly, the loss allowance is based on the asset's lifetime expected credit losses. The amount of expected credit loss recognised is measured on the basis of the probability weighted present value of anticipated cash shortfalls over the life of the instrument discounted at the original effective interest rate. Impairment of non-financial assets Goodwill and other intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Other non- financial 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 the asset's carrying amount exceeds its recoverable amount. Recoverable amount is the higher of an asset's fair value less costs of disposal and value-in-use. The value-in-use is the present value of the estimated future cash flows relating to the asset using a pre-tax discount rate specific to the asset or cash-generating unit to which the asset belongs. Assets that do not have independent cash flows are grouped together to form a cash-generating unit. Finance costs Finance costs attributable to qualifying assets are capitalised as part of the asset. All other finance costs are expensed in the period in which they are incurred. Goods and Services Tax ('GST') and other similar taxes Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the tax authority. In this case it is recognised as part of the cost of the acquisition of the asset or as part of the expense. Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the tax authority is included in other receivables or other payables in the statement of financial position. Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to the tax authority, are presented as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the tax authority. Rounding of amounts The Company is of a kind referred to in Corporations Instrument 2016/191, issued by the Australian Securities and Investments Commission, relating to 'rounding-off'. Amounts in this report have been rounded off in accordance with that Corporations Instrument to the nearest thousand dollars, or in certain cases, the nearest dollar. New Accounting Standards and Interpretations not yet mandatory or early adopted Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet mandatory, have not been early adopted by the Consolidated Entity for the annual reporting period ended 30 June 2023. The Consolidated Entity has not yet assessed the impact of these new or amended Accounting Standards and Interpretations. 39 (Annual Report - 30 June 2023) Healthia Limited and its Controlled Entities Notes to the consolidated financial statements 30 June 2023 Note 3. Critical accounting judgements, estimates and assumptions The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts in the financial statements. Management continually evaluates its judgements and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgements, estimates and assumptions on historical experience and on other various factors, including expectations of future events, management believes to be reasonable under the circumstances. The resulting accounting judgements and estimates will seldom equal the related actual results. Allowance for expected credit losses for trade receivables The allowance for expected credit losses assessment for trade receivables requires a degree of estimation and judgement. It is based on the lifetime expected credit loss, grouped based on days overdue, and makes assumptions to allocate an overall expected credit loss rate for each group. These assumptions include recent sales experience, historical collection rates, the impact of the Coronavirus (COVID-19) pandemic and forward-looking information that is available. The allowance for expected credit losses, as disclosed in note 10, is calculated based on the information available at the time of preparation. The actual credit losses in future years may be higher or lower. Goodwill and other indefinite life intangible assets The Consolidated Entity tests annually, or more frequently if events or changes in circumstances indicate impairment, whether goodwill and other indefinite life intangible assets have suffered any impairment, in accordance with the accounting policy stated in note 2. The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations require the use of assumptions, including estimated discount rates based on the current cost of capital and growth rates of the estimated future cash flows. For the purpose of impairment testing, goodwill has been allocated to the Cash-Generating Units (CGUs), or groups of CGUs, that are expected to benefit from the synergies of the business combination and which represent the level at which management will monitor and manage the goodwill. The Consolidated Entity has identified three CGUs, being the Bodies & Minds, Feet & Ankles, Eyes & Ears divisions. Refer to Note 16 for details on impairment testing. Classification of Clinic Class Shares: Equity vs Financial liability Clinic Class Shares were issued to (1) the sellers on acquisition of various podiatry and physiotherapy clinics and (2) clinicians who wish to (i) ‘buy-in’ to existing clinics, or (ii) ‘buy-in’ to a new podiatry or physiotherapy clinic. The Clinic Class Shares were historically classified as a financial liability based on the fact that My FootDr (Aust) Limited previously had a contractual obligation to deliver cash in the form of preferential dividends payable to the holders each quarter by reference to profits derived from the Clinics. The Clinic Class Shares have been reclassified to equity in 2019 Financial year following amendments to the terms and conditions that result in the instruments having the characteristics of equity. Lease term The lease term is a significant component in the measurement of both the right-of-use asset and lease liability. Judgement is exercised in determining whether there is reasonable certainty that an option to extend the lease or purchase the underlying asset will be exercised, or an option to terminate the lease will not be exercised, when ascertaining the periods to be included in the lease term. In determining the lease term, all facts and circumstances that create an economical incentive to exercise an extension option, or not to exercise a termination option, are considered at the lease commencement date. Factors considered may include the importance of the asset to the Consolidated Entity's operations; comparison of terms and conditions to prevailing market rates; incurrence of significant penalties; existence of significant leasehold improvements; and the costs and disruption to replace the asset. The Consolidated Entity reassesses whether it is reasonably certain to exercise an extension option, or not exercise a termination option, if there is a significant event or significant change in circumstances. Incremental borrowing rate Where the interest rate implicit in a lease cannot be readily determined, an incremental borrowing rate is estimated to discount future lease payments to measure the present value of the lease liability at the lease commencement date. Such a rate is based on what the Consolidated Entity estimates it would have to pay a third party to borrow the funds necessary to obtain an asset of a similar value to the right-of-use asset, with similar terms, security and economic environment. 40 (Annual Report - 30 June 2023) Healthia Limited and its Controlled Entities Notes to the consolidated financial statements 30 June 2023 Note 3. Critical accounting judgements, estimates and assumptions (continued) Contingent consideration The contingent consideration liability relates to business combinations and is valued at fair value at the acquisition date as part of the business combination. At each reporting date, the contingent consideration liability is reassessed against revised estimates and any increase or decrease in the net present value of the liability will result in a corresponding gain or loss to profit or loss. The increase in the liability resulting from the passage of time is recognised as a finance cost. Refer to Note 29 for the fair value measurement of contingent consideration. Business combinations As discussed in note 35, business combinations are initially accounted for on a provisional basis. The fair value of assets acquired, liabilities and contingent liabilities assumed are initially estimated by the Consolidated Entity taking into consideration all available information at the reporting date. Fair value adjustments on the finalisation of the business combination accounting is retrospective, where applicable, to the period the combination occurred and may have an impact on the assets and liabilities, depreciation and amortisation reported. Note 4. Segment Information Identification of reportable segments For management purposes, the Consolidated Entity is organised into business units based on its products and services and has three reportable segments, as follows: : Feet & Ankles, Bodies & Minds and Eyes & Ears. These reportable segments are based on the internal reports reviewed and used by the Board of Directors (who are identified as the Chief Operating Decision Makers ('CODM')) in assessing performance and in determining the allocation of resources. The 'other' category comprises of corporate functions. The CODM reviews underlying EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation). Underlying EBITDA also excludes the impact of acquisition and integration costs, the revenue and expense impacts of 'COVID-19' and other one-off non-recurring income and expenses. Underlying EBITDA is reported on a pre-AASB16 basis, with property lease costs recognised as standard occupancy costs. The Consolidated Entity has included underlying EBITDA. This measure is not defined under IFRS and are, therefore, termed "non-IFRS" measures and are not audited. The information is reported to the CODM on a monthly basis. Types of products and services The principal products and services of each of these reportable segments are as follows: Feet and Ankles Division This division provides podiatry services and podiatry related services including the manufacturing and sale of orthotics and podiatry related products. Bodies and Minds Division This division provides physiotherapy and speciality hand therapy services. Eyes and Ears Division This division provides optometry and audiology services. Presentation of revenue and results Underlying results exclude the impact of non-recurring income and expenses such as acquisition and integration costs. Underlying EBITDA is reported on a pre-AASB16 basis, with property lease costs recognised as standard occupancy costs. 41 (Annual Report - 30 June 2023) Healthia Limited and its Controlled Entities Notes to the consolidated financial statements 30 June 2023 Note 4. Segment Information (continued) Reportable segment information Consolidated - 2023 Revenue Sales to external customers Total revenue EBITDA - underlying Addback property lease costs (**) Depreciation and amortisation expense Share-based payments expense Finance costs Excess sick leave (flu/COVID) Acquisition costs Integration and restructuring costs Doubtful debts Fair value movement of contingent consideration Profit/(loss) before income tax expense Income tax expense Profit after income tax expense Feet & Ankles $'000 Bodies & Minds $'000 Eyes & Ears $'000 Other* $'000 Total $'000 61,039 61,039 13,269 5,173 (6,145) - - - - - - - 12,297 148,284 148,284 43,233 43,233 - - 252,556 252,556 28,782 11,020 (13,250) - - - - - - - 26,552 8,327 4,555 (5,570) - - - - - - - 7,312 (12,912) - - (1,000) (9,336) (1,035) (3,505) (4,690) (527) 1,106 (31,899) 37,466 20,748 (24,965) (1,000) (9,336) (1,035) (3,505) (4,690) (527) 1,106 14,262 (3,926) 10,336 * ** The ‘Other’ category comprises corporate functions and does not represent an operating segment. Property lease costs are included in the underlying EBITDA reported to the CODM. This reporting is not consistent with AASB 16, which requires leases to be presented on the statement of financial position, with the associated expenses to be recognised as depreciation and finance costs. The property leases costs are therefore added back in this reconciliation between underlying EBITDA and statutory profit/(loss). Consolidated - 2022 Revenue Sales to external customers Total revenue EBITDA Addback property lease costs (**) Depreciation and amortisation expense Share-based payments expense Finance costs COVID related expenses Acquisition costs Integration and restructuring costs Fair value movement of contingent consideration Profit/(loss) before income tax expense Income tax expense Profit after income tax expense Feet & Ankles $'000 Bodies & Minds $'000 Eyes & Ears $'000 Other* $'000 Total $'000 53,183 53,183 109,825 109,825 37,256 37,256 - - 200,264 200,264 8,662 5,129 (6,175) - - - - - - 7,616 18,580 8,837 (10,206) - - - - - - 17,211 9,252 3,829 (4,644) - - - - - - 8,437 (11,956) - - (1,395) (5,895) (3,383) (6,859) (3,736) 1,550 (31,674) 24,538 17,795 (21,025) (1,395) (5,895) (3,383) (6,859) (3,736) 1,550 1,590 (1,247) 343 * ** The ‘Other’ category comprises corporate functions and does not represent an operating segment. Property lease costs are included in the underlying EBITDA reported to the CODM. This reporting is not consistent with AASB 16, which requires leases to be presented on the statement of financial position, with the associated expenses to be recognised as depreciation and finance costs. The property leases costs are therefore added back in this reconciliation between underlying EBITDA and statutory profit/(loss). 42 (Annual Report - 30 June 2023) Healthia Limited and its Controlled Entities Notes to the consolidated financial statements 30 June 2023 Note 4. Segment Information (continued) Accounting policy for reportable segments Reportable 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 segments and assessing their performance. Note 5. Revenue from contracts with customers Rendering of services Sale of goods Revenue from contracts with customers Disaggregation of revenue The disaggregation of revenue from contracts with customers is as follows: Segment Revenue Feet & Ankles Bodies & Minds Eyes & Ears Geographical regions Australia United States New Zealand Timing of revenue recognition Goods and services transferred at a point in time Accounting policy for revenue recognition The Consolidated Entity recognises revenue as follows: Consolidated 2023 $'000 2022 $'000 196,379 56,177 154,898 45,366 252,556 200,264 Consolidated 2023 $'000 2022 $'000 61,039 148,284 43,233 53,183 109,825 37,256 252,556 200,264 246,608 1,854 4,094 197,306 1,252 1,706 252,556 200,264 252,556 200,264 Revenue from contracts with customers Revenue is recognised at an amount that reflects the consideration to which the Consolidated Entity is expected to be entitled in exchange for transferring goods or services to a customer. For each contract with a customer, the Consolidated Entity: identifies the contract with a customer; identifies the performance obligations in the contract; determines the transaction price which takes into account estimates of variable consideration and the time value of money; allocates the transaction price to the separate performance obligations on the basis of the relative stand-alone selling price of each distinct good or service to be delivered; and recognises revenue when or as each performance obligation is satisfied in a manner that depicts the transfer to the customer of the goods or services promised. Sale of goods Revenue from the sale of goods is recognised at a point in time when the customer obtains control of the goods, which is generally at the time of delivery. 43 (Annual Report - 30 June 2023) Healthia Limited and its Controlled Entities Notes to the consolidated financial statements 30 June 2023 Note 5. Revenue from contracts with customers (continued) Revenue from the sale of goods from the orthotics laboratory and podiatry wholesale business goods is recognised when control of the products has transferred, being when the products are delivered to the customer. Delivery occurs when the goods have been shipped to the specific location, and the risks of obsolescence and loss have been transferred to the customer. A receivable is recognised when the goods are delivered as this is the point in time that the consideration is unconditional. Rendering of services Revenue from a contract to provide services is recognised as the services are rendered based on either a fixed price or an hourly rate. Note 6. Other income Government grants (COVID-19) Interest Sub-tenant rent Dividend income Other income Other income Consolidated 2023 $'000 2022 $'000 - 46 2,321 - 991 622 1 1,284 24 589 3,358 2,520 Government grants (COVID-19) During the Coronavirus (‘Covid-19’) pandemic, the Consolidated Entity received JobSaver support payments from the NSW State Government. These are recognised as government grants in the financial statements as other income when there is reasonable assurance that the grant will be received and all attached conditions will be complied with. It is recognised as other income on a systematic basis over the periods that the related employee benefits expense, for which it is intended to compensate, are expensed. Accounting policy for government grants Government grants relating to costs are deferred and recognised in profit or loss over the period necessary to match them with the costs that they are intended to compensate. Accounting policy for interest Interest revenue is recognised as interest accrues using the effective interest method. This is a method of calculating the amortised cost of a financial asset and allocating the interest income over the relevant period using the effective interest rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset. Accounting policy for rent Rent revenue is recognised on a straight-line basis over the lease term. Lease incentives granted are recognised as part of the rental revenue. Contingent rentals are recognised as income in the period when earned. 44 (Annual Report - 30 June 2023) Healthia Limited and its Controlled Entities Notes to the consolidated financial statements 30 June 2023 Note 7. Expenses Profit before income tax includes the following specific expenses: Cost of sales Cost of sales Depreciation Leasehold improvements Plant and equipment Land and buildings - right-of-use assets Plant and equipment - right-of-use assets Total depreciation Amortisation Customer lists Software Total amortisation Total depreciation and amortisation Finance costs Interest expense - bank Interest expense - lease liabilities Finance costs expensed Superannuation expense Defined contribution superannuation expense Share-based payments expense Share-based payments expense Consolidated 2023 $'000 2022 $'000 20,608 18,258 1,909 2,190 18,920 - 648 2,695 15,755 243 23,019 19,341 1,834 112 1,578 107 1,946 1,685 24,965 21,026 6,259 3,077 2,813 3,082 9,336 5,895 13,585 10,686 1,000 1,395 45 (Annual Report - 30 June 2023) Healthia Limited and its Controlled Entities Notes to the consolidated financial statements 30 June 2023 Note 8. Income tax Income tax expense Current tax Deferred tax - origination and reversal of temporary differences Adjustment recognised for prior periods Derecognition of DT balance Aggregate income tax expense Deferred tax included in income tax expense comprises: Decrease/(increase) in deferred tax assets Numerical reconciliation of income tax expense and tax at the statutory rate Profit before income tax expense Tax at the statutory tax rate of 30% Tax effect amounts which are not deductible/(taxable) in calculating taxable income: Capital costs expensed Reversal of contingent consideration Derecognition of DT balance Other Under/over Adjustment recognised for prior periods Income tax expense Amounts credited directly to equity Deferred tax assets Consolidated 2023 $'000 2022 $'000 3,674 347 (95) - 4,331 (2,681) (107) (296) 3,926 1,247 347 (2,681) 14,262 1,590 4,279 477 270 (373) - (648) 493 4,021 (95) 1,405 (394) (296) (51) 213 1,354 (107) 3,926 1,247 Consolidated 2023 $'000 2022 $'000 - (803) 46 (Annual Report - 30 June 2023) Healthia Limited and its Controlled Entities Notes to the consolidated financial statements 30 June 2023 Note 8. Income tax (continued) Deferred tax asset Deferred tax asset comprises temporary differences attributable to: Amounts recognised in profit or loss: Right-of-use asset Customer lists Employee benefits Leases Accrued expenses Blackhole expenses Other Losses - Revenue & Capital Deferred tax asset Movements: Opening balance Credited/(charged) to profit or loss Credited to equity Additions through business combinations Derecognition Other Under/over Closing balance Income tax refund due Income tax refund due Consolidated 2023 $'000 2022 $'000 (19,133) (1,441) 4,238 20,953 371 697 940 136 (17,722) (1,772) 5,562 19,191 303 956 68 1,259 6,761 7,845 7,845 (347) - 378 - - (1,115) 4,525 2,681 803 (301) (296) 143 290 6,761 7,845 Consolidated 2023 $'000 2022 $'000 221 97 Accounting policy for income tax The income tax expense or benefit for the period is the tax payable on that period's taxable income based on the applicable income tax rate for each jurisdiction, adjusted by the changes in deferred tax assets and liabilities attributable to temporary differences, unused tax losses and the adjustment recognised for prior periods, where applicable. Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to be applied when the assets are recovered or liabilities are settled, based on those tax rates that are enacted or substantively enacted, except for: When the deferred income tax asset or liability arises from the initial recognition of goodwill or an asset or liability in a ● transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting nor taxable profits; or When the taxable temporary difference is associated with interests in subsidiaries, associates or joint ventures, and the timing of the reversal can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. ● Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. 47 (Annual Report - 30 June 2023) Healthia Limited and its Controlled Entities Notes to the consolidated financial statements 30 June 2023 Note 8. Income tax (continued) The carrying amount of recognised and unrecognised deferred tax assets are reviewed at each reporting date. Deferred tax assets recognised are reduced to the extent that it is no longer probable that future taxable profits will be available for the carrying amount to be recovered. Previously unrecognised deferred tax assets are recognised to the extent that it is probable that there are future taxable profits available to recover the asset. Deferred tax assets and liabilities are offset only where there is a legally enforceable right to offset current tax assets against current tax liabilities and deferred tax assets against deferred tax liabilities; and they relate to the same taxable authority on either the same taxable entity or different taxable entities which intend to settle simultaneously. Note 9. Cash and cash equivalents Current assets Cash on hand Cash at bank Reconciliation to cash and cash equivalents at the end of the financial year The above figures are reconciled to cash and cash equivalents at the end of the financial year as shown in the statement of cash flows as follows: Balances as above Bank overdraft (note 18) Balance as per statement of cash flows Consolidated 2023 $'000 2022 $'000 252 5,337 225 5,441 5,589 5,666 5,589 (2,000) 5,666 (1,954) 3,589 3,712 Accounting policy for cash and cash equivalents Cash and cash equivalents include cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. For the statement of cash flows presentation purposes, cash and cash equivalents also include bank overdrafts, which are shown within borrowings in current liabilities on the Statement of Financial Position. Note 10. Trade and other receivables Current assets Trade receivables Less: Allowance for expected credit losses Other receivables GST recoverable Consolidated 2023 $'000 2022 $'000 11,062 (930) 10,132 2,807 33 8,562 (549) 8,013 - 191 12,972 8,204 Allowance for expected credit losses The Consolidated Entity has recognised a loss of $625,000 (30 June 2022: $268,000) in profit or loss in respect of the expected credit losses for the year ended 30 June 2023. 48 (Annual Report - 30 June 2023) Healthia Limited and its Controlled Entities Notes to the consolidated financial statements 30 June 2023 Note 10. Trade and other receivables (continued) The ageing of the receivables and allowance for expected credit losses provided for above are as follows: Consolidated Current 0 to 3 months overdue Over 3 months overdue Expected credit loss rate 2023 % 2022 % Carrying amount 2022 $'000 2023 $'000 - - 20% - - 22% 4,956 1,455 4,651 4,900 1,172 2,490 11,062 8,562 Allowance for expected credit losses 2023 $'000 2022 $'000 - - 930 930 - - 549 549 The calculation of expected credit losses has been revised as at 30 June 2023 and rates have decreased in the Over 3 months overdue category to 20% (30 June 2022: 22%). Accounting policy for trade and other receivables Trade receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method, less any allowance for expected credit losses. Trade receivables are generally due for settlement within 30 days. The Consolidated Entity has applied the simplified approach to measuring expected credit losses, which uses a lifetime expected credit loss allowance. To measure the expected credit losses, trade receivables have been grouped based on days overdue. The historical loss rates are adjusted to reflect current and forward-looking information on macroeconomic factors affecting the ability of the customers to settle the receivables. The Consolidated Entity has identified the following to be the most relevant factors in determining expected loss rates: ● ● ● unemployment rate inflation, and Reserve Bank of Australia cash rate Aged debtors greater than 90 days require investigation. Management uses judgment in determining which debtors are unlikely to be recovered and require write-off Other receivables are recognised at amortised cost, less any allowance for expected credit losses. Note 11. Inventories Current assets Consumables at cost Finished goods at cost Consolidated 2023 $'000 2022 $'000 1,388 12,829 951 9,581 14,217 10,532 Accounting policy for inventories Consumables and finished goods are stated at the lower of cost and net realisable value on a 'first in first out' basis. Cost comprises of direct materials and delivery costs, direct labour, import duties and other taxes. Costs of purchased inventory are determined after deducting rebates and discounts received or receivable. 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. 49 (Annual Report - 30 June 2023) Healthia Limited and its Controlled Entities Notes to the consolidated financial statements 30 June 2023 Note 12. Other assets Current assets Prepayments Other current assets Note 13. Investments accounted for using the equity method Non-current assets Investment in associate - Fracture Holdco Pty Ltd Reconciliation Reconciliation of the carrying amounts at the beginning and end of the current and previous financial year are set out below: Opening carrying amount Profit after income tax Closing carrying amount Consolidated 2023 $'000 2022 $'000 3,369 464 2,166 1,033 3,833 3,199 Consolidated 2023 $'000 2022 $'000 21 19 19 2 21 19 - 19 Interests in associates Interests in associates are accounted for using the equity method of accounting. Information relating to associates that are material to the Consolidated Entity are set out below: Name Principal place of business / Country of incorporation Ownership interest 2022 2023 % % Fracture Holdco Pty Ltd Australia 25.00% 40.00% Note 14. Property, plant and equipment Non-current assets Leasehold improvements - at cost Less: Accumulated depreciation Plant and equipment - at cost Less: Accumulated depreciation 50 (Annual Report - 30 June 2023) Consolidated 2023 $'000 2022 $'000 14,648 (6,940) 7,708 30,460 (16,717) 13,743 10,368 (5,032) 5,336 26,266 (14,527) 11,739 21,451 17,075 Healthia Limited and its Controlled Entities Notes to the consolidated financial statements 30 June 2023 Note 14. Property, plant and equipment (continued) Reconciliations Reconciliations of the written down values at the beginning and end of the current financial year are set out below: Consolidated Balance at 1 July 2022 Additions Additions through business combinations (note 35) Depreciation expense Balance at 30 June 2023 Leasehold Plant and improvements equipment $'000 $'000 Total $'000 5,336 3,964 317 (1,909) 11,739 3,456 738 (2,190) 17,075 7,420 1,055 (4,099) 7,708 13,743 21,451 Accounting policy for property, plant and equipment Plant and equipment is stated at historical cost less accumulated depreciation and impairment. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Depreciation is calculated on a reducing balance basis to write off the net cost of each item of property, plant and equipment over their expected useful lives as follows: Leasehold improvements Plant and equipment 3-10 years 3-7 years The residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each reporting date. Leasehold improvements are depreciated over the unexpired period of the lease or the estimated useful life of the assets, whichever is shorter. An item of property, plant and equipment is derecognised upon disposal or when there is no future economic benefit to the Consolidated Entity. Gains and losses between the carrying amount and the disposal proceeds are taken to profit or loss. Note 15. Right-of-use assets Non-current assets Land and buildings - right-of-use Less: Accumulated depreciation Plant and equipment - right-of-use Less: Accumulated depreciation Consolidated 2023 $'000 2022 $'000 115,129 (51,590) 63,539 91,668 (32,595) 59,073 622 (622) - 622 (622) - 63,539 59,073 51 (Annual Report - 30 June 2023) Healthia Limited and its Controlled Entities Notes to the consolidated financial statements 30 June 2023 Note 15. Right-of-use assets (continued) Reconciliations Reconciliations of the written down values at the beginning and end of the current financial year are set out below: Consolidated Balance at 1 July 2022 Additions Additions through business combinations (note 35) Depreciation expense Balance at 30 June 2023 Land and buildings - right- of-use $'000 Plant and equipment - right- of-use $'000 59,073 18,582 4,804 (18,920) 63,539 - - - - - Total $'000 59,073 18,582 4,804 (18,920) 63,539 For other lease disclosures, refer to: ● ● ● ● note 7 for depreciation on right-of-use assets and interest on lease liabilities; note 19 for lease liabilities at the reporting date; note 28 for maturity analysis of lease liabilities; and consolidated statement of cash flows for repayment of lease liabilities. Accounting policy for right-of-use assets A right-of-use asset is recognised at the commencement date of a lease. The right-of-use asset is measured at cost, which comprises the initial amount of the lease liability, adjusted for, as applicable, any lease payments made at or before the commencement date net of any lease incentives received, any initial direct costs incurred and except where included in the cost of inventories, an estimate of costs expected to be incurred for dismantling and removing the underlying asset, and restoring the site or asset. Right-of-use assets are depreciated on a straight-line basis over the unexpired period of the lease or the estimated useful life of the asset, whichever is shorter. Where the Consolidated Entity expects to obtain ownership of the leased asset at the end of the lease term, the depreciation is over its estimated useful life. Right-of-use assets are subject to impairment or adjusted for any remeasurement of lease liabilities. The Consolidated Entity has elected not to recognise a right-of-use asset and corresponding lease liability for short-term leases with terms of 12 months or less and leases of low-value assets. Lease payments on these assets are expensed to profit or loss as incurred. 52 (Annual Report - 30 June 2023) Healthia Limited and its Controlled Entities Notes to the consolidated financial statements 30 June 2023 Note 16. Intangibles Non-current assets Goodwill - at cost Trademarks and brands Customer lists Less: Accumulated amortisation Software - at cost Less: Accumulated amortisation Consolidated 2023 $'000 2022 $'000 257,353 235,242 4,855 4,855 10,346 (5,543) 4,803 840 (517) 323 9,646 (3,711) 5,935 699 (405) 294 267,334 246,326 Reconciliations Reconciliations of the written down values at the beginning and end of the current financial year are set out below: Consolidated Goodwill $'000 Trademarks Customer and brands $'000 lists $'000 Software $'000 Total $'000 Balance at 1 July 2022 Additions Additions through business combinations (note 35) Amortisation expense 235,242 - 22,111 - 4,855 - - - 5,935 - 700 (1,832) 294 141 - (112) 246,326 141 22,811 (1,944) Balance at 30 June 2023 257,353 4,855 4,803 323 267,334 A Cash-Generating Unit ('CGU') level summary of the goodwill allocation is presented below: Feet & Ankles Bodies & Minds Eyes & Ears Total goodwill Consolidated 2023 $'000 2022 $'000 43,323 155,755 58,275 43,323 142,571 49,348 257,353 235,242 Impairment testing The Consolidated Entity has tested goodwill, trademarks and brands for impairment, in accordance with the accounting policy stated in note 2. The recoverable amount has been determined based on value-in-use calculations using cash flow projections based on Board approved financial budgets and cover a five-year period. Cash flows beyond the 5-year period to the end of the assets useful life are estimated by extrapolating the management projections using a steady growth rate based on long term industry expectations. For the purpose of impairment testing, goodwill, trademarks and brands have been allocated to the CGU, or groups of CGUs, that are expected to benefit from the synergies of the business combination and which represent the level at which management will monitor and manage the goodwill, trademarks and brands. The Consolidated Entity has identified three CGUs, being the Bodies and Minds, Feet and Ankles and Eyes and Ears divisions. 53 (Annual Report - 30 June 2023) Healthia Limited and its Controlled Entities Notes to the consolidated financial statements 30 June 2023 Note 16. Intangibles (continued) Key assumptions used for the value-in-use calculations are those to which the recoverable amount of an asset or CGUs is most sensitive. The following key assumptions were used in the discounted cash flow model for both the Bodies & Minds, Feet & Ankles and Eyes & Ears divisions: ● The Consolidated Entity tests for impairment of goodwill, trademarks and brands on an annual basis. The recoverable amount of a CGU is determined based on a value-in-use calculation which require the use of assumptions. The calculations use cash flow projections over a five-year period, the first being 2024, based on the financial budget approved by the Board. Cash flow projections for periods beyond the 2024 period are extrapolated using the estimated growth rates below. Goodwill, trademarks and brands have been allocated to the three groupings of CGUs representing Bodies & Minds ('B&M'), Feet & Ankles ('F&A') and Eyes & Ears ('E&E'). Corporate overheads have been apportioned to the CGUs based on the following percentages: B&M Division: 58% F&A Division: 24% E&E Division: 18% Sensitivity analyses on growth and discount rates has been performed to assess the impact on the outcome of the model. ● ● ● ● Significant assumptions for the purposes of the value-in-use calculation include: ● ● ● ● ● ● Period of cash flows: 5 years 3.0% (2022: 3.0%) per annum projected revenue growth 3.0% (2022: 3.0%) per annum increase in operating costs and overheads Maintenance capital expenditures of 1.0% (2022: 1.0%) of revenue per annum 13.9% (2022: 13.0%) pre-tax discount rate 3.0% (2022: 3.0%) terminal value growth rate The Consolidated Entity believes that the assumptions adopted in the value-in-use calculations are appropriate. Management has determined the projected growth rates for revenue, operating costs and overheads over the five-year forecast period based on past performance and management's expectation of market development. The maintenance capital expenditure rate has been determined based on the historical experience of management, and the planned capital expenditure. The discount rate of 13.9% (2022: 13.0%) pre-tax reflects management’s estimate of the time value of money and the Consolidated Entity’s weighted average cost of capital, the long-term risk-free rate and the volatility of the share price relative to market movements. The terminal value growth rate is consistent with forecasts included within industry reports. Based on the above assumptions, the recoverable amount of the Bodies & Minds CGU exceeds the carrying amount by $88,508,083. Based on the above assumptions, the recoverable amount of the Feet & Ankles CGU exceeds the carrying amount by $62,590,073. Based on the above assumptions, the recoverable amount of the Eyes & Ears CGU exceeds the carrying amount by $20,383,803. Sensitivity As disclosed in note 3, the Directors have made judgements and estimates in respect of impairment testing of goodwill. Should these judgements and estimates not occur the resulting goodwill carrying amount may decrease. 54 (Annual Report - 30 June 2023) Healthia Limited and its Controlled Entities Notes to the consolidated financial statements 30 June 2023 Note 16. Intangibles (continued) Bodies & Minds division analysis: ● Growth rates for revenue, costs and terminal value would need to decrease by more than 341 basis points before goodwill would need to be impaired with all other assumptions remaining constant. The pre-tax discount rate would be required to increase by 479 basis points before goodwill would need to be impaired, with all other assumptions remain constant. FY24 EBITDA would need to decrease by more than 24.7% before goodwill would need to be impaired with all other assumptions remaining constant. Feet & Ankles division analysis: ● Growth rates for revenue, costs and terminal value would need to decrease by more than 800 basis points before goodwill would need to be impaired with all other assumptions remaining constant. The pre-tax discount rate would be required to increase by 1,100 basis points before goodwill would need to be impaired, with all other assumptions remain constant. FY24 EBITDA would need to decrease by more than 41.0% before goodwill would need to be impaired with all other assumptions remaining constant. Eyes & Ears division analysis: ● Growth rates for revenue, costs and terminal value would need to decrease by more than 210 basis points before goodwill would need to be impaired with all other assumptions remaining constant. The pre-tax discount rate would be required to increase by 286 basis points before goodwill would need to be impaired, with all other assumptions remain constant. FY23 EBITDA would need to decrease by more than 17.8% before goodwill would need to be impaired with all other assumptions remaining constant. ● ● ● ● ● ● As a result of the value-in-use calculation, it was determined no impairment was identified. Accounting policy for intangible assets Intangible assets acquired as part of a business combination, other than goodwill, are initially measured at their fair value at the date of the acquisition. Intangible assets acquired separately are initially recognised at cost. Indefinite life intangible assets are not amortised and are subsequently measured at cost less any impairment. Finite life intangible assets are subsequently measured at cost less amortisation and any impairment. The gains or losses recognised in profit or loss arising from the derecognition of intangible assets are measured as the difference between net disposal proceeds and the carrying amount of the intangible asset. The method and useful lives of finite life intangible assets are reviewed annually. Changes in the expected pattern of consumption or useful life are accounted for prospectively by changing the amortisation method or period. Goodwill Goodwill arises on the acquisition of a business. Goodwill is not amortised. Instead, goodwill is tested annually for impairment, or more frequently if events or changes in circumstances indicate that it might be impaired and is carried at cost less accumulated impairment losses. Impairment losses on goodwill are taken to profit or loss and are not subsequently reversed. Trademarks and Brands Trademarks and brands are tested annually for impairment. Customer list Customer lists acquired in a business combination are amortised on a straight-line basis over the period of their expected benefit, being their estimated useful life of 5 years. Software Significant costs associated with software are deferred and amortised on a straight-line basis over the period of their expected benefit, being their finite life of 5 years. 55 (Annual Report - 30 June 2023) Healthia Limited and its Controlled Entities Notes to the consolidated financial statements 30 June 2023 Note 17. Trade and other payables Current liabilities Trade payables Accruals PAYG tax payable Superannuation payable Other payables Consolidated 2023 $'000 2022 $'000 5,702 1,422 2,379 3,439 2,592 4,340 3,267 8,092 2,957 433 15,534 19,089 Accounting policy for trade and other payables These amounts represent liabilities for goods and services provided to the Consolidated Entity prior to the end of the financial year and which are unpaid. They are measured at amortised cost. The amounts are unsecured and are usually paid within 30 days of recognition. Note 18. Borrowings Current liabilities Bank overdraft Non-current liabilities Bank loans Consolidated 2023 $'000 2022 $'000 2,000 1,954 95,425 77,117 97,425 79,071 Refer to note 28 for further information on financial instruments. Assets pledged as security The bank overdraft and loan are secured by a General Security Agreement over the Consolidated Entity. 56 (Annual Report - 30 June 2023) Healthia Limited and its Controlled Entities Notes to the consolidated financial statements 30 June 2023 Note 18. Borrowings (continued) Financing arrangements Unrestricted access was available at the reporting date to the following lines of credit: Total facilities Bank overdraft Bank loans Used at the reporting date Bank overdraft Bank loans Unused at the reporting date Bank overdraft Bank loans Consolidated 2023 $'000 2022 $'000 2,000 120,000 122,000 2,000 100,000 102,000 2,000 95,425 97,425 - 24,575 24,575 1,954 77,117 79,071 46 22,883 22,929 During FY23, the Consolidated Entity increased its total finance facility from $100.00 million to $120.00 million with its financiers, namely ANZ, NAB and BOQ. At period end, the Consolidated Entity has undrawn facilities of approximately $24.6 million available with a tenor (remaining maturity) of 2.5 years. Accounting policy for borrowings Loans and borrowings are initially recognised at the fair value of the consideration received, net of transaction costs. They are subsequently measured at amortised cost using the effective interest method. Note 19. Lease liabilities Current liabilities Lease liability Non-current liabilities Lease liability Consolidated 2023 $'000 2022 $'000 19,165 17,116 50,434 46,853 69,599 63,969 Refer to note 28 for further information on financial instruments. The Consolidated Entity's leasing activities The Consolidated Entity leases various clinics, retail stores, offices and warehouses. Rental contracts are typically made for a fixed period of 3 to 5 years but may have extension options. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. The lease agreements do not impose any covenants other than the security interests in the leased assets that are held by the lessors. Lease assets may not be used as security for borrowing purposes. 57 (Annual Report - 30 June 2023) Healthia Limited and its Controlled Entities Notes to the consolidated financial statements 30 June 2023 Note 19. Lease liabilities (continued) Extension and termination options Extension and termination options are included in a number of property and equipment leases across the Consolidated Entity. These are used to maximise operational flexibility in terms of managing the assets used in the group's operations. The majority of extension and termination options held are exercisable only by the Consolidated Entity and not by the respective lessor. In determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise an extension option, or not exercise a termination option. Extension options (or periods after termination options) are only included in the lease term if the lease is reasonably certain to be extended (or not terminated). Most extension options in clinics, retail stores, offices and warehouses have not been included in the lease liability because the Consolidated Entity replaces the assets without significant cost or business disruption. Accounting policy for lease liabilities A lease liability is recognised at the commencement date of a lease. The lease liability is initially recognised at the present value of the lease payments to be made over the term of the lease, discounted using the interest rate implicit in the lease or if that rate cannot be readily determined, the Consolidated Entity's incremental borrowing rate. Lease payments comprise of fixed payments less any lease incentives receivable, variable lease payments that depend on an index or a rate, amounts expected to be paid under residual value guarantees, exercise price of a purchase option when the exercise of the option is reasonably certain to occur, and any anticipated termination penalties. Lease payments to be made under reasonably certain extension options are also included in the measurement of the liability. The variable lease payments that do not depend on an index or a rate are expensed in the period in which they are incurred. Lease liabilities are measured at amortised cost using the effective interest method. The carrying amounts are remeasured if there is a change in the following: future lease payments arising from a change in an index or a rate used; residual guarantee; lease term; certainty of a purchase option and termination penalties. When a lease liability is remeasured, an adjustment is made to the corresponding right-of-use asset, or to profit or loss if the carrying amount of the right-of-use asset is fully written down. Lease payments are allocated between principal and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. Note 20. Derivative financial instruments Non-current liabilities Interest rate swap derivative liabilities Refer to note 28 for further information on financial instruments. Refer to note 29 for further information on fair value measurement. Consolidated 2023 $'000 2022 $'000 - 14 Accounting policy for derivative financial instruments The Consolidated Entity uses derivative financial instruments, such as interest rate swaps, to hedge its interest rate risks. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative. 58 (Annual Report - 30 June 2023) Healthia Limited and its Controlled Entities Notes to the consolidated financial statements 30 June 2023 Note 21. Employee benefit obligations Current liabilities Annual leave Long service leave Non-current liabilities Long service leave Consolidated 2023 $'000 2022 $'000 6,869 3,462 8,151 3,167 10,331 11,318 968 904 11,299 12,222 Accounting policy for employee benefits Short-term employee benefits Liabilities for wages and salaries, including non-monetary benefits, annual leave and long service leave expected to be settled wholly within 12 months of the reporting date are measured at the amounts expected to be paid when the liabilities are settled. Other long-term employee benefits The liability for annual leave and long service leave not expected to be settled within 12 months of the reporting date are measured at the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the reporting date on high quality corporate bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. Defined contribution superannuation expense Contributions to defined contribution superannuation plans are expensed in the period in which they are incurred. Note 22. Provisions Current liabilities Lease make good provision Non-current liabilities Lease make good provision Consolidated 2023 $'000 2022 $'000 1,087 357 2,618 2,975 3,705 3,332 Lease make good The provision represents the present value of the estimated costs to make good the premises leased by the Consolidated Entity at the end of the respective lease terms. 59 (Annual Report - 30 June 2023) Healthia Limited and its Controlled Entities Notes to the consolidated financial statements 30 June 2023 Note 22. Provisions (continued) Accounting policy for provisions Provisions are recognised when the Consolidated Entity has a present (legal or constructive) obligation as a result of a past event, it is probable the Consolidated Entity will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the reporting date, taking into account the risks and uncertainties surrounding the obligation. If the time value of money is material, provisions are discounted using a current pre-tax rate specific to the liability. The increase in the provision resulting from the passage of time is recognised as a finance cost. Note 23. Other liabilities Current liabilities Contingent consideration Deferred consideration Other current liabilities Non-current liabilities Contingent consideration Deferred consideration Consolidated 2023 $'000 2022 $'000 3,297 950 (44) 1,214 1,700 - 4,203 2,914 989 950 4,961 - 1,939 4,961 6,142 7,875 Accounting policy for contingent consideration The contingent consideration liability relates to business combinations and is valued at fair value at the acquisition date as part of the business combination. When the contingent consideration meets the definition of a financial liability, it is subsequently re-measured to fair value at each reporting date. Any reassessment of the liability during the earlier of the finalisation of the provisional accounting or 12 months from acquisition-date is adjusted retrospectively as part of the provisional accounting rules in accordance with AASB 3 'Business Combinations'. Thereafter, at each reporting date, the contingent consideration liability is reassessed against revised estimates and any increase or decrease in the net present value of the liability will result in a corresponding gain or loss to profit or loss. The increase in the liability resulting from the passage of time is recognised as a finance cost. Note 24. Issued capital Ordinary shares - fully paid 140,192 128,316 159,312 146,213 Consolidated 2023 Shares '000 2022 Shares '000 2023 $'000 2022 $'000 60 (Annual Report - 30 June 2023) Healthia Limited and its Controlled Entities Notes to the consolidated financial statements 30 June 2023 Note 24. Issued capital (continued) Movements in ordinary share capital Details Date Shares '000 Issue price $'000 1 July 2021 Balance Issue of ordinary shares - Institutional Entitlement Offer 28 September 2021 Issue of ordinary shares - acquisition of businesses Issue of ordinary shares - acquisition of businesses Issue of ordinary shares - acquisition of businesses Issue of ordinary shares - Retail Entitlement Offer Issue of ordinary shares - Dividend Reinvestment Plan Issue of ordinary shares - acquisition of businesses Issue of ordinary shares - Dividend Reinvestment Plan Share issue transaction costs (net of tax) Balance 5 October 2021 12 October 2021 12 October 2021 13 October 2021 28 October 2021 30 November 2021 24 March 2022 30 June 2022 Issue of ordinary shares - Retail Entitlement Offer Issue of ordinary shares - Retail Entitlement Offer Issue of ordinary shares - Exercise of Performance Rights Issue of ordinary shares - Dividend Reinvestment Plan Share issue transaction costs (net of tax) 12 September 2022 5 October 2022 27 October 2022 27 March 2023 90,205 24,717 3,069 65 55 8,634 106 16 1,449 - 128,316 6,719 752 2,191 2,214 $1.80 $1.80 $1.78 $1.78 $1.80 $1.87 $2.15 $1.75 $1.47 $1.47 $0.00 $1.25 79,578 44,491 5,525 116 97 15,542 199 33 2,537 (1,905) 146,213 9,877 1,105 - 2,760 (643) Balance 30 June 2023 140,192 159,312 Ordinary shares Ordinary shares entitle the holder to participate in dividends and the proceeds on the winding up of the Company in proportion to the number of and amounts paid on the shares held. The fully paid ordinary shares have no par value and the Company does not have a limited amount of authorised capital. On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote. Capital risk management The Consolidated Entity's objectives when managing capital is to safeguard its ability to continue as a going concern, so that it can provide returns for shareholders and benefits for other stakeholders and to maintain an optimum capital structure to reduce the cost of capital. Capital is regarded as total equity, as recognised in the statement of financial position, plus net debt. Net debt is calculated as total borrowings less cash and cash equivalents. In order to maintain or adjust the capital structure, the Consolidated Entity may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. The Consolidated Entity would look to raise capital when an opportunity to invest in a business or company was seen as value adding relative to the current Company's share price at the time of the investment. The Consolidated Entity is subject to certain financing arrangements covenants and meeting these is given priority in all capital risk management decisions. There have been no events of default on the financing arrangements during the financial year. The capital risk management policy remains unchanged from the 30 June 2022 Annual Report. Accounting policy for issued capital Ordinary shares are classified as equity. 61 (Annual Report - 30 June 2023) Healthia Limited and its Controlled Entities Notes to the consolidated financial statements 30 June 2023 Note 24. Issued capital (continued) Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Note 25. Reserves Share-based payments reserve Transactions with non-controlling interest reserve Pre-IPO distributions reserve Consolidated 2023 $'000 2022 $'000 4,230 (2,860) (2,494) 3,230 (2,860) (2,494) (1,124) (2,124) Share-based payments reserve The reserve is used to recognise the value of equity benefits provided to employees and Directors as part of their remuneration, and other parties as part of their compensation for services. Transactions with non-controlling interest reserve The transactions with non-controlling interest reserve are used to record differences which may arise as a result of increases or decreases in non-controlling interests that do not result in a loss of control. Pre-IPO distribution reserve The reserve records any differences between the acquired net assets and the consideration under continuation accounting. The transaction relevant to the understanding of this reserve account is detailed below: Healthia Limited was incorporated on 10 May 2018 as a holding company to acquire the podiatry and physiotherapy service business as part of the Initial Public Offer of Healthia Limited. In this respect, Healthia Limited acquired all of the ordinary shares in My FootDr (Aust) Ltd (the MFDA Group) on 30 July 2018. In accordance with AASB3 Business Combinations, the acquisition of MFDA Group by Healthia Limited did not meet the definition of a business combination. Therefore, Healthia Limited's first issued financial statements applied the continuation method of accounting for the combination of the MFDA Group. Under continuation accounting, the Consolidated Entity effectively adopted book value accounting whereby the assets and liabilities of the legal acquiree (MFDA Group) were recognised at their previous carrying amounts. No adjustments were made to reflect fair values and no new assets (including goodwill) and liabilities of the legal acquiree were recognised at the date of the business combination. Any difference between the acquired net assets and the consideration were recognised through the pre-IPO distribution reserve account in equity. Movements in reserves Movements in each class of reserve during the current financial year are set out below: Consolidated Balance at 1 July 2022 Issue of performance rights Balance at 30 June 2023 Transactions with non- controlling interest $'000 Share-based payments $'000 Pre-IPO distributions $'000 Total $'000 3,230 1,000 (2,860) - (2,494) - (2,124) 1,000 4,230 (2,860) (2,494) (1,124) 62 (Annual Report - 30 June 2023) Healthia Limited and its Controlled Entities Notes to the consolidated financial statements 30 June 2023 Note 26. Non-controlling interest Issued equity - Clinic Class shares Retained profits Consolidated 2023 $'000 2022 $'000 37,850 1,290 35,079 1,097 39,140 36,176 Classification of Clinic Class Shares: Equity Clinic Class Shares were issued to (1) the sellers on acquisition of various podiatry clinics and (2) clinicians who wish to (i) ‘buy-in’ to existing clinics, or (ii) ‘buy-in’ to a new podiatry, physiotherapy, and optical clinic. In accordance with the substance of the contractual arrangements and the definition of an equity instrument, the Clinic Class Shares are classified as equity instruments. Refer to note 3 for details of the key judgements regarding the accounting treatment. Note 27. Dividends Dividends Dividends paid during the financial year were as follows: Interim dividend for the year ended 30 June 2023 of 2.0 cents per ordinary share Interim dividend for the year ended 30 June 2022 of 2.0 cents per ordinary share Final dividend for the year ended 30 June 2021 of 2.5 cents per ordinary share Consolidated 2023 $'000 2022 $'000 2,760 - - - 2,537 2,255 2,760 4,792 As at the date of signing the financial report, the Directors of Healthia Limited have not yet determined whether to declare a final dividend for FY23 given the terms of the proposed acquisition of Healthia by way of a scheme of arrangement. Franking credits Consolidated 2023 $'000 2022 $'000 Franking credits available for subsequent financial years based on a tax rate of 30% 9,577 10,388 The above amounts represent the balance of the franking account as at the end of the financial year, adjusted for: ● ● ● franking credits that will arise from the payment of the amount of the provision for income tax at the reporting date franking debits that will arise from the payment of dividends recognised as a liability at the reporting date franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date Accounting policy for dividends Dividends are recognised when declared during the financial year and no longer at the discretion of the Company. 63 (Annual Report - 30 June 2023) Healthia Limited and its Controlled Entities Notes to the consolidated financial statements 30 June 2023 Note 28. Financial instruments Financial risk management objectives The Consolidated Entity's activities expose it to a variety of financial risks: market risk (interest rate risk), credit risk and liquidity risk. The Consolidated Entity'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 Consolidated Entity. The Consolidated Entity uses derivative financial instruments such as interest rate swaps to hedge certain risk exposures. Derivatives are exclusively used for hedging purposes, i.e. not as trading or other speculative instruments. The Consolidated Entity uses different methods to measure different types of risk to which it is exposed. These methods include sensitivity analysis in the case of interest rate and other price risks. Risk management is carried out by senior finance executives ('finance') under policies approved by the Board of Directors ('the Board'). These policies include identification and analysis of the risk exposure of the Consolidated Entity and appropriate procedures, controls and risk limits. Finance identifies, evaluates and hedges financial risks within the Consolidated Entity's operating units. Finance reports to the Board on a monthly basis. Market risk Interest rate risk The Consolidated Entity's main interest rate risk arises from long-term borrowings and interest rate swap contracts. Borrowings obtained at variable rates expose the Consolidated Entity to interest rate risk. Borrowings obtained at fixed rates expose the Consolidated Entity to fair value interest rate risk. At the reporting date, the Consolidated Entity had the following variable rate borrowings and interest rate swap contracts outstanding: Bank loans Interest rate swaps (notional principal amount) Net exposure to cash flow interest rate risk Consolidated 2023 $'000 2022 $'000 95,425 - 77,117 (20,000) 95,425 57,117 An analysis by remaining contractual maturities is shown in 'liquidity and interest rate risk management' below. For the Consolidated Entity the bank loans outstanding, totalling $95,425,000 (30 June 2022: $77,117,000), are interest only loans. At the reporting date, $nil (30 June 2022: $20,000,000) of debt was hedged by floating to fixed interest rate swaps. An official increase in interest rates of 100 (30 June 2022: 100) basis points would have an adverse effect on profit before tax of $954,250 (30 June 2022: $571,170) per annum. The percentage change is based on the expected volatility of interest rates using market data and analysts' forecasts. Credit risk Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Consolidated Entity. The Consolidated Entity has a strict code of credit, including obtaining agency credit information, confirming references and setting appropriate credit limits. The Consolidated Entity obtains guarantees where appropriate to mitigate credit risk. The maximum exposure to credit risk at the reporting date to recognised financial assets is the carrying amount, net of any provisions for impairment of those assets, as disclosed in the Statement of Financial Position and notes to the financial statements. The Consolidated Entity does not hold any collateral. Liquidity risk Vigilant liquidity risk management requires the Consolidated Entity to maintain sufficient liquid assets (mainly cash and cash equivalents) and available borrowing facilities to be able to pay debts as and when they become due and payable. The Consolidated Entity manages liquidity risk by maintaining adequate cash reserves and available borrowing facilities by continuously monitoring actual and forecast cash flows and matching the maturity profiles of financial assets and liabilities. 64 (Annual Report - 30 June 2023) Healthia Limited and its Controlled Entities Notes to the consolidated financial statements 30 June 2023 Note 28. Financial instruments (continued) Financing arrangements Unused borrowing facilities at the reporting date: Bank overdraft Bank loans Consolidated 2023 $'000 2022 $'000 - 24,575 24,575 46 22,883 22,929 The bank overdraft facilities may be drawn at any time and may be terminated by the bank without notice. Subject to the continuance of satisfactory credit ratings, the bank loan facilities may be drawn at any time and have an average maturity of 2.50 years (30 June 2022: 2.25 years). Remaining contractual maturities The following tables detail the Consolidated Entity's remaining contractual maturity for its financial liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the financial liabilities are required to be paid. The tables include both interest and principal cash flows disclosed as remaining contractual maturities and therefore these totals may differ from their carrying amount in the Statement of Financial Position. Consolidated - 2023 Non-derivatives Non-interest bearing Trade and other payables Other liabilities Interest-bearing - variable Bank overdraft Bank loans Interest-bearing - fixed rate Lease liability Total non-derivatives Derivatives Interest rate swaps inflow Interest rate swaps outflow Total derivatives Weighted average interest rate % 1 year or less $'000 Between 1 and 2 years $'000 Between 2 and 5 years $'000 Over 5 years $'000 Non-interest bearing $'000 Remaining contractual maturities $'000 - - - - - - 8.97% 6.76% 2,000 6,383 - 6,383 - 97,617 - - - - 15,534 6,142 15,534 6,142 - - 2,000 110,383 5.00% 22,594 30,977 19,959 26,342 31,934 129,551 4,258 4,258 - 21,676 78,745 212,804 - - - - - - - - - - - - - - - - - - - - 65 (Annual Report - 30 June 2023) Healthia Limited and its Controlled Entities Notes to the consolidated financial statements 30 June 2023 Note 28. Financial instruments (continued) Consolidated - 2022 Non-derivatives Non-interest bearing Trade and other payables Other liabilities Interest-bearing - variable Bank overdraft Bank loans Interest-bearing - fixed rate Lease liability Total non-derivatives Derivatives Interest rate swaps inflow Interest rate swaps outflow Total derivatives Weighted average interest rate % 1 year or less $'000 Between 1 and 2 years $'000 Between 2 and 5 years $'000 Over 5 years $'000 Non-interest bearing $'000 Remaining contractual maturities $'000 - - - - - - 7.00% 5.00% 1,954 3,856 - 3,856 - 80,971 - - - - 19,089 7,875 19,089 7,875 - - 1,954 88,683 5.00% 17,826 23,636 18,310 22,166 30,964 111,935 4,309 4,309 - 26,964 71,409 189,010 1.19% 1.26% (60) 63 3 - - - - - - - - - - - - (60) 63 3 The cash flows in the maturity analysis above are not expected to occur significantly earlier than contractually disclosed above. Note 29. Fair value measurement Fair value hierarchy The following tables detail the Consolidated Entity's assets and liabilities measured or disclosed 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 Level 3: Unobservable inputs for the asset or liability Consolidated - 2023 Liabilities Interest rate swap Contingent consideration Total liabilities Consolidated - 2022 Liabilities Interest rate swap Contingent consideration Total liabilities Level 1 $'000 Level 2 $'000 Level 3 $'000 Total $'000 Level 1 $'000 - - - - - - - - - - 4,286 4,286 - 4,286 4,286 Level 2 $'000 Level 3 $'000 Total $'000 14 - 14 - 6,175 6,175 14 6,175 6,189 There were no transfers between levels during the financial year. The carrying amounts of trade and other receivables and trade and other payables are assumed to approximate their fair values due to their short-term nature. 66 (Annual Report - 30 June 2023) Healthia Limited and its Controlled Entities Notes to the consolidated financial statements 30 June 2023 Note 29. Fair value measurement (continued) The fair value of financial liabilities is estimated by discounting the remaining contractual maturities at the current market interest rate that is available for similar financial liabilities. Valuation techniques for fair value measurements categorised within level 2 and level 3 Derivative financial instruments have been valued using quoted market rates. This valuation technique maximises the use of observable market data where it is available and relies as little as possible on entity specific estimates. Contingent consideration has been valued based on expected EBITDA of the clinics, based on the knowledge of the business and how the current economic environment is likely to impact it. Contingent consideration of between $0 and $19,211,000 may become payable subject to the EBITDA achieved by the various acquired businesses. Level 3 assets and liabilities Movements in level 3 assets and liabilities during the current and previous financial year are set out below: Consolidated Balance at 1 July 2021 Additions - new business combinations Settlement of contingent consideration Fair value movements - through profit or loss Balance at 30 June 2022 Additions - new business combinations Settlement of contingent consideration Fair value movements - through profit or loss Balance at 30 June 2023 Contingent consideration $'000 2,662 5,552 (489) (1,550) 6,175 956 (1,739) (1,106) 4,286 The level 3 assets and liabilities unobservable inputs and sensitivity are as follows: Description Unobservable inputs Range (weighted average) Sensitivity Contingent consideration Expected EBITDA (pre- AASB 16) of acquired clinics $30,000 - $815,000 Contingent consideration of between $0 and $19,211,000 may become payable subject to the EBITDA achieved by the various acquired businesses. Accounting policy for fair value measurement When an asset or liability, financial or non-financial, is measured at fair value for recognition or disclosure purposes, the fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date; and assumes that the transaction will take place either: in the principal market; or in the absence of a principal market, in the most advantageous market. Fair value is measured using the assumptions that market participants would use when pricing the asset or liability, assuming they act in their economic best interests. For non-financial assets, the fair value measurement is based on its highest and best use. Valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, are used, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. Assets and liabilities measured at fair value are classified into three levels, using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. Classifications are reviewed at each reporting date and transfers between levels are determined based on a reassessment of the lowest level of input that is significant to the fair value measurement. 67 (Annual Report - 30 June 2023) Healthia Limited and its Controlled Entities Notes to the consolidated financial statements 30 June 2023 Note 29. Fair value measurement (continued) For recurring and non-recurring fair value measurements, external valuers may be used when internal expertise is either not available or when the valuation is deemed to be significant. External valuers are selected based on market knowledge and reputation. Where there is a significant change in fair value of an asset or liability from one period to another, an analysis is undertaken, which includes a verification of the major inputs applied in the latest valuation and a comparison, where applicable, with external sources of data. Note 30. Key management personnel disclosures Compensation The aggregate compensation made to Directors and other members of key management personnel of the Consolidated Entity is set out below: Short-term employee benefits Post-employment benefits Long-term benefits Share-based payments Other cash benefits Note 31. Remuneration of auditors Consolidated 2023 $ 2022 $ 1,894,476 154,817 21,732 379,767 249,000 1,929,423 160,502 31,446 380,561 - 2,699,792 2,501,932 During the financial year the following fees were paid or payable for services provided by BDO, the auditor of the Company: Audit and other assurance services - BDO Audit Pty Ltd Audit and review of the Group financial statements Non-audit services - BDO Services Pty Ltd Taxation and business advisory services Total remuneration of BDO Note 32. Contingent liabilities Consolidated 2023 $ 2022 $ 532,577 378,249 332,501 532,562 865,078 910,812 The Consolidated Entity has given bank guarantees as at 30 June 2023 of $5,497,360 (30 June 2022: $4,857,945) to various landlords. Note 33. Related party transactions Parent entity Healthia Limited is the parent entity. Subsidiaries Interests in subsidiaries are set out in note 36. Associates Interests in associates are set out in note 13. 68 (Annual Report - 30 June 2023) Healthia Limited and its Controlled Entities Notes to the consolidated financial statements 30 June 2023 Note 33. Related party transactions (continued) Key management personnel Disclosures relating to key management personnel are set out in note 30 and the remuneration report included in the Directors' report. Transactions with related parties The following transactions occurred with related parties: Consideration relating to the acquisition of businesses at the time of acquisition of The Optical Company: Deferred cash payment for the acquisition of businesses associated with director Colin Kangisser Other transactions: Rent and outgoings paid to entities controlled by director Darren Stewart Rent and outgoings paid to entities controlled by director and key management personnel Lisa Roach Payment for bookkeeping services to an entity associated with Wesley Coote Payment for orthotics and prosthetics to an entity associated with Darren Stewart Rent and outgoings paid to entities controlled by former director Anthony Ganter* Note: * Anthony Ganter was classified as Key Management Personnel in 2022 only. Consolidated 2023 $ 2022 $ - 1,065,044 309,965 311,652 220,401 556,208 - - 235,907 380,470 72,556 304,127 Receivable from and payable to related parties There were no trade receivables from or trade payables to related parties at the current and previous reporting date. Loans to/from related parties There were no loans to or from related parties at the current and previous reporting date. Terms and conditions All transactions were made on normal commercial terms and conditions and at market rates. Note 34. Parent entity information Set out below is the supplementary information about the parent entity. Statement of profit or loss and other comprehensive income Profit/(loss) after income tax Total comprehensive income Parent 2023 $'000 2022 $'000 1,413 4,333 1,413 4,333 69 (Annual Report - 30 June 2023) Healthia Limited and its Controlled Entities Notes to the consolidated financial statements 30 June 2023 Note 34. Parent entity information (continued) Statement of financial position Total current assets Total assets Total current liabilities Total liabilities Equity Issued capital Share-based payments reserve Accumulated losses Total equity Parent 2023 $'000 2022 $'000 3,943 38 241,906 210,181 2,167 1,492 97,592 78,622 114,401 4,117 25,796 101,302 3,115 27,143 144,314 131,559 Guarantees entered into by the parent entity in relation to the debts of its subsidiaries The parent entity had no guarantees in relation to the debts of its subsidiaries as at 30 June 2023 and 30 June 2022. Contingent liabilities The parent entity had no contingent liabilities as at 30 June 2023 and 30 June 2022. Capital commitments - Property, plant and equipment The parent entity had no capital commitments for property, plant and equipment as at 30 June 2023 and 30 June 2022. Significant accounting policies The accounting policies of the parent entity are consistent with those of the Consolidated Entity, as disclosed in note 2 and within the different notes to the financial statement, except for the following: ● ● ● Investments in subsidiaries are accounted for at cost, less any impairment, in the parent entity. Investments in associates are accounted for at cost, less any impairment, in the parent entity. Dividends received from subsidiaries are recognised as other income by the parent entity and its receipt may be an indicator of an impairment of the investment. Note 35. Business combinations 2023 Acquisition of Corio Bay Health Group (Bodies & Minds Division) On 1 December 2022, the Consolidated Entity acquired the businesses trading under the name Corio Bay Health Group being a group of nine physiotherapy businesses located in Victoria. Initial consideration paid for the acquisition was $5.4 million including $4.3 million in cash consideration and $1.1 million in Clinic Class Shares consideration, with a fair valued additional $0.4 million in contingent consideration. For the 12 month period ended 30 June 2023, Corio Bay Health Group contributed revenue of $3.1 million and EBITDA of $0.8 million (pre-AASB 16) to the Consolidated Entity. If these acquisitions had been held for the full 12 month period (by extrapolating the actual performance) the acquired businesses would have contributed revenue of $5.3 million and EBITDA of $1.1 million (pre-AASB 16) to the Consolidated Entity. Acquisition of Melbourne Hand Rehab (Bodies & Minds Division) On 2 March 2023, the Consolidated Entity acquired the businesses trading under the name Melbourne Hand Rehab being a group of 8 hand therapy businesses located in Victoria. Initial consideration paid for the acquisition was $4.4 million including $3.3 million in cash consideration and $1.1 million in Clinic Class Shares consideration, with a fair valued additional $0.5 million in contingent consideration. 70 (Annual Report - 30 June 2023) Healthia Limited and its Controlled Entities Notes to the consolidated financial statements 30 June 2023 Note 35. Business combinations (continued) For the 12 month period ended 30 June 2023, Melbourne Hand Rehab contributed revenue of $1.6 million and EBITDA of $0.8m (pre-AASB 16) to the Consolidated Entity. If these acquisitions had been held for the full 12 month period (by extrapolating the actual performance) the acquired businesses would have contributed revenue of $4.7 million and EBITDA of $2.2 million (pre-AASB 16) to the Consolidated Entity. Acquisition of Other Bodies and Minds Clinics The Consolidated Entity acquired an additional 3 hand therapy clinics and 1 physiotherapy clinic during the current period. Initial consideration paid for the acquisitions was $3.1 million including $2.4 million in cash consideration and $0.7 million in Clinic Class Share consideration, with a fair valued additional $0.1 million in contingent consideration. For the 12 month period ended 30 June 2023, the acquired businesses contributed revenue of $2.0 million and EBITDA of $0.4 million (pre-AASB 16) to the Consolidated Entity. If these acquisitions had been held for the full 12 month period (by extrapolating the actual performance) the acquired businesses would have contributed revenue of $3.1 million and EBITDA of $0.6 million (pre-AASB 16) to the Consolidated Entity. Acquisition of Kosmac & Clemens (Eyes & Ears Division) On 20 March 2023, the Consolidated Entity acquired the businesses trading under the name Kosmac & Clemens being a group of 6 Optometry businesses located in Victoria. Initial consideration paid for the acquisition was $7.5 million in cash consideration and up to an additional $1.9 million in deferred consideration. For the 12 month period ended 30 June 2023, Kosmac & Clemens contributed revenue of $0.6 million and EBITDA of $0.3 million (pre-AASB 16) to the Consolidated Entity. If these acquisitions had been held for the full 12 month period (by extrapolating the actual performance) the acquired businesses would have contributed revenue of $4.8 million and EBITDA of $2.0 million (pre-AASB 16) to the Consolidated Entity. Acquisition of Other Eyes & Ears stores The Consolidated Entity acquired an additional 2 optometry stores during the current period. Initial consideration paid for the acquisitions was $0.2 million in cash consideration. For the 12 month period ended 30 June 2023, the acquired businesses contributed revenue of $0.3 million and EBITDA of $0.03 million (pre-AASB 16) to the Consolidated Entity. If these acquisitions had been held for the full 12 month period (by extrapolating the actual performance) the acquired businesses would have contributed revenue of $1.1 million and EBITDA of $0.1 million (pre-AASB 16) to the Consolidated Entity. Acquisition rationale All acquisitions made during the period were consistent with the Consolidated Entity's stated strategic objective of acquiring and integrating allied health clinics. Given the fragmented nature of the targeted allied health industries, acquisitions will continue to be a central pillar of the Consolidated Entity's growth strategy. 71 (Annual Report - 30 June 2023) Healthia Limited and its Controlled Entities Notes to the consolidated financial statements 30 June 2023 Note 35. Business combinations (continued) Details of the acquisitions are as follows: Bodies and Minds Division Eyes & Ears Division CorioBay Fair value Melbourne Hand Therapy Fair value Others Fair value Kosmac & Clemens Fair value Others Fair value Inventories Plant and equipment Right-of-use assets Customer lists Deferred tax asset Other assets Deferred tax liability Employee benefits Lease liability Other liabilities Net assets acquired Goodwill Acquisition-date fair value of the total consideration transferred Representing: Cash paid or payable to vendor Contingent consideration Deferred consideration Clinic Class Shares issued to vendor(s) Cash used to acquire business, net of cash acquired: Acquisition-date fair value of the total consideration transferred Less: contingent consideration Less: deferred consideration Less: Clinic Class Shares issued to vendor(s) $'000 $'000 $'000 $'000 $'000 - 241 2,524 226 923 29 (825) (394) (2,524) (160) 40 5,684 121 235 831 161 303 79 (298) (177) (834) (11) 100 141 867 83 316 8 (285) (145) (867) (53) 200 401 329 190 148 22 (156) (164) (329) (50) 410 4,495 165 3,005 591 8,773 53 37 253 40 101 10 (88) (85) (253) (19) 49 154 Total $'000 474 1,055 4,804 700 1,791 148 (1,652) (965) (4,807) (293) 1,255 22,111 5,724 4,905 3,170 9,364 203 23,366 4,265 359 - 3,319 492 - 2,390 105 - 7,464 - 1,900 203 - - 17,641 956 1,900 1,100 1,094 675 - - 2,869 5,724 4,905 3,170 9,364 203 23,366 5,724 (359) - 4,905 (492) - 3,170 (105) - 9,364 - (1,900) 203 - - 23,366 (956) (1,900) (1,100) (1,094) (675) - - (2,869) Net cash used 4,265 3,319 2,390 7,464 203 17,641 Goodwill arising from business combinations is attributed to the reputation of the business in their local market, the benefit of marginal profit and synergies expected to be received by integrating into the Consolidated Entity's systems, expected revenue growth, future market development, the assembled workforce and knowledge of the local markets. These benefits are not able to be individually identified or recognised separately from goodwill. 2022 Acquisition of The Back in Motion Group (Bodies & Minds Division) On 20 September 2021, it was announced that the Consolidated Entity had entered binding agreements to acquire the Back In Motion Health Group (BIM), comprising the businesses of the 63 Back In Motion physiotherapy clinics and the shares in BIM IP Pty Ltd, which owned the brands, trademarks and other intellectual property. 72 (Annual Report - 30 June 2023) Healthia Limited and its Controlled Entities Notes to the consolidated financial statements 30 June 2023 Note 35. Business combinations (continued) The Back In Motion clinic acquisitions were settled over the period to 5 October 2021 through 23 December 2021 as landlord consents and other conditions precedent were satisfied. The goodwill is attributable mainly to the skills, technical talent and established clinics chain of BIM's work force and the synergies expected to be achieved from integrating the company into the Group's existing Health Industry business. None of the goodwill recognised is expected to be deductible for tax purposes. Initial consideration paid for the acquisitions was $87.65 million including $64.52 million in cash consideration, $15.66 million in Clinic Class Share consideration, $5.77 million in ordinary Healthia Limited share consideration and $1.70 million payable in deferred consideration. In addition, a fair value of $4.01 million payable in contingent consideration may become payable between 12 and 36 months after the completion date. Healthia shares were issued to the Vendors and were subject to voluntary escrow for 24 months. Acquisition of PhysioWorks Group (Bodies and Minds Division) The Consolidated Entity acquired the business named PhysioWorks, a group of five physiotherapy businesses located in South East Queensland. Initial consideration paid for the acquisition was $2.21 million including $1.81 million in cash consideration and $0.41 million in Clinic Class Shares consideration. Acquisition of Other Bodies and Minds Clinics The Consolidated Entity acquired an additional 11 physiotherapy and hand therapy clinics during the current period. Initial consideration paid for acquisitions was $8.77 million including $6.06 million in cash consideration, $2.71 million in Clinic Class Shares, with up to an additional $1.06 million in contingent consideration. Acquisition of Other Feet and Ankles Clinics The Consolidated Entity acquired an additional 1 podiatry clinic during the current period. Total consideration paid for the acquisition was $0.016 million in cash consideration. The acquired clinic was merged into surrounding clinics owned by the Consolidated Entity and as such, no stand alone earnings are able to be reported for the period. Acquisition of LensPro Group (Eyes and Ears Division) During the current period, the Consolidated Entity acquired the LensPro Optometrists Group comprising 8 optical stores. Initial consideration paid for acquisition was $6.49 million in cash consideration, with up to an additional $0.33 million in contingent consideration. Acquisition of Other Eyes and Ears Clinics The Consolidated Entity acquired additional 4 optical stores during the current period. Initial consideration paid for acquisition was $0.60 million including $0.56 million in cash consideration and $0.04 million in Clinic Class Shares, with up to an additional $0.13 million in contingent consideration. Acquisition Rationale All acquisitions made during the period were consistent with the Consolidated Entity's stated strategic objective of acquiring and integrating allied health clinics. Given the fragmented nature of the targeted allied health industries, acquisitions will continue to be a central pillar of the Consolidated Entity's growth strategy. 73 (Annual Report - 30 June 2023) Healthia Limited and its Controlled Entities Notes to the consolidated financial statements 30 June 2023 Note 35. Business combinations (continued) Details of the acquisitions are as follows: Eyes & Ears Division Bodies and Minds Division Feet & Ankles Division LensPro Others PhysioWork s BIM Other Others Fair value Fair value Fair value Fair value Fair value Fair value $'000 $'000 $'000 $'000 $'000 $'000 Total $'000 Trade receivables Inventories Other current assets Plant and equipment Right-of-use assets Brand Customer lists Deferred tax asset Deferred tax liability Employee benefits Lease liability Other liabilities Net assets/(liabilities) acquired Goodwill Acquisition-date fair value of the total consideration transferred Representing: Cash paid or payable to vendor Healthia Limited shares issued to vendor Contingent consideration Deferred consideration Clinic Class Shares issued to vendor Cash used to acquire business, net of cash acquired: Acquisition-date fair value of the total consideration transferred Less: deferred consideration Less: contingent consideration Less: Healthia Limited shares issued to vendor Less: Clinic Class Shares issued to vendor - 291 22 947 2,529 - 300 843 (849) (282) (2,529) (107) 1,165 5,656 - 103 - 255 466 - 80 162 (164) (74) (466) (53) 309 421 - 49 6 123 432 - 109 154 (162) (82) (432) (56) 821 764 407 2,811 13,146 4,600 3,400 5,008 (4,680) (3,525) (13,146) (2,109) 141 2,073 7,497 84,160 - 146 61 508 2,813 - 396 952 (963) (362) (2,813) (175) 563 9,264 - 1 - 8 18 - - 5 (5) - (18) (11) 821 1,354 496 4,652 19,404 4,600 4,285 7,124 (6,823) (4,325) (19,404) (2,511) (2) 18 9,673 101,592 6,821 730 2,214 91,657 9,827 16 111,265 6,492 564 1,807 64,515 6,062 16 79,456 - 329 - - - 128 - 38 - - - 5,771 4,010 1,700 - 1,055 - 407 15,661 2,710 - - - - 5,771 5,522 1,700 18,816 6,821 730 2,214 91,657 9,827 16 111,265 6,821 - (329) 730 - (128) 2,214 - - 91,657 (1,700) (4,010) 9,827 - (1,055) - - - - (5,771) - (38) (407) (15,661) (2,710) 16 - - 111,265 (1,700) (5,522) - - (5,771) (18,816) Net cash used 6,492 564 1,807 64,515 6,062 16 79,456 74 (Annual Report - 30 June 2023) Healthia Limited and its Controlled Entities Notes to the consolidated financial statements 30 June 2023 Note 35. Business combinations (continued) Goodwill arising from business combinations is attributed to the reputation of the business in their local market, the benefit of marginal profit and synergies expected to be received by integrating into the Consolidated Entity's systems, expected revenue growth, future market development, the assembled workforce and knowledge of the local markets. These benefits are not able to be individually identified or recognised separately from goodwill. Valuation techniques The valuation techniques used for measuring the fair value of material assets acquired were as follows. Asset acquired Valuation technique Property, plant and equipment Market comparison technique and cost technique: The valuation model considers market prices for similar items when they are available, and depreciated replacement cost when appropriate. Depreciated replacement cost reflects adjustments for physical deterioration as well as functional and economic obsolescence. Intangible assets The fair value of an intangible asset will reflect market participants' expectations at the acquisition date about the probability that the expected future economic benefits embodied in the asset will flow to the entity. There are three approaches to valuing intangible assets that correspond to the valuation approaches: - Market approaches; - Income approaches; and - Cost approaches. Inventories Market comparison technique: The fair value is determined based on the estimated selling price in the ordinary course of business less the estimated costs of completion and sale, and a reasonable profit margin based on the effort required to complete and sell the inventories. The trade receivables comprise gross contractual amounts due of $nil (30 June 2022: $0.8m), which are expected to be collectable. Acquisition and integration related costs of $7.3m (30 June 2022: $7.4m) are included in the consolidated statement of profit or loss and other comprehensive income. Accounting policy for business combinations The acquisition method of accounting is used to account for business combinations regardless of whether equity instruments or other assets are acquired. The consideration transferred is the sum of the acquisition-date fair values of the assets transferred, equity instruments issued or liabilities incurred by the acquirer to former owners of the acquiree and the amount of any non-controlling interest in the acquiree. For each business combination, the non-controlling interest in the acquiree is measured at either fair value or at the proportionate share of the acquiree's identifiable net assets. All acquisition costs are expensed as incurred to profit or loss. On the acquisition of a business, the Consolidated Entity assesses the financial assets acquired and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic conditions, the Consolidated Entity's operating or accounting policies and other pertinent conditions in existence at the acquisition-date. Where the business combination is achieved in stages, the Consolidated Entity remeasures its previously held equity interest in the acquiree at the acquisition-date fair value and the difference between the fair value and the previous carrying amount is recognised in profit or loss. Contingent consideration to be transferred by the acquirer is recognised at the acquisition-date fair value. Subsequent changes in the fair value of the contingent consideration classified as an asset or liability is recognised in profit or loss. Contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity. 75 (Annual Report - 30 June 2023) Healthia Limited and its Controlled Entities Notes to the consolidated financial statements 30 June 2023 Note 35. Business combinations (continued) The difference between the acquisition-date fair value of assets acquired, liabilities assumed and any non-controlling interest in the acquiree and the fair value of the consideration transferred and the fair value of any pre-existing investment in the acquiree is recognised as goodwill. If the consideration transferred and the pre-existing fair value is less than the fair value of the identifiable net assets acquired, being a bargain purchase to the acquirer, the difference is recognised as a gain directly in profit or loss by the acquirer on the acquisition-date, but only after a reassessment of the identification and measurement of the net assets acquired, the non-controlling interest in the acquiree, if any, the consideration transferred and the acquirer's previously held equity interest in the acquirer. Business combinations are initially accounted for on a provisional basis. The acquirer retrospectively adjusts the provisional amounts recognised and also recognises additional assets or liabilities during the measurement period, based on new information obtained about the facts and circumstances that existed at the acquisition-date. The measurement period ends on either the earlier of (i) 12 months from the date of the acquisition or (ii) when the acquirer receives all the information possible to determine fair value. Note 36. Interests in subsidiaries The consolidated financial statements incorporate the assets, liabilities and results of the following wholly-owned subsidiaries in accordance with the accounting policy described in note 2: Name Principal place of business / Country of incorporation Ownership interest 2022 2023 % % My FootDr (Aust) Limited Allsports (Aust) Limited Extend Rehab Pty Ltd iOrthotics Pty Ltd D.B.S. AUSTRALIA PTY. LTD. Allsports Physiotherapy Forest Lake Pty Ltd Allsports Pilates Sherwood Pty Ltd Southside Manipulative Physiotherapy Centre Pty Ltd Allsports Physiotherapy The Gap Pty Ltd Allsports Physiotherapy Toowong Pty Ltd My FootDr (Brookwater) Pty Ltd My FootDr (Camp Hill) Pty Ltd My FootDr Granda Pty Ltd My FootDr (Fortitude Valley) Pty Ltd My FootDr (Indooroopilly) Pty Ltd BIM Physiotherapy Group Holding Ltd (formerly My FootDr (Mackay) Pty Ltd) My FootDr (Newmarket) Pty Ltd My FootDr (Oxenford) Pty Ltd My FootDr (Redcliffe) Pty Ltd My FootDr (Shailer Park) Pty Ltd MyFootDr Administration Pty Ltd Orthema Australasia Pty Ltd Footwear Enterprises Pty Ltd PinPointe FootLaser Australia Pty Ltd MFD IP Pty Ltd Mackay Foot Centre Pty Ltd as trustee for the Mackay Foot Centre Unit Trust Balpod Holdings Pty Ltd Healthia (Services) Pty Ltd (formally My FootDr (Cleveland) Pty Ltd) Foot Care Solutions Australia Pty Ltd Trepar Pty Ltd Brisbane Podiatry & Footwear Pty Ltd as trustee for Brisbane Podiatry & Footwear Unit Trust Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia 76 (Annual Report - 30 June 2023) 100% 100% 100% 100% 75% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 75% 100% 100% 100% 100% 100% 75% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 75% 100% 100% 100% Healthia Limited and its Controlled Entities Notes to the consolidated financial statements 30 June 2023 Note 36. Interests in subsidiaries (continued) Name Foot Focus (Aust) Pty Ltd Foot Focus (NSW) Pty Ltd Foot Focus 4 Kids Pty Ltd Foot Focus Narellan Pty Ltd Healthia USA INC iOrthotics USA LLC Australian Eyewear Distributors Pty Ltd TOC Hearing Pty Ltd Blink Optical Gordon Pty Ltd Blink Optical Pty Ltd Blink Optical Robina Pty Ltd Blink Optical St Ives Pty Ltd Easer Pref Pty Ltd Eyewear Australia (S.E. Regional) Pty Ltd Glasses Galore Pty Ltd Kpfe - Malop St Pty Ltd Kpfe - Packington Street Pty Ltd Leopold Optical Pty Ltd Level 28 Pty Ltd Mount Gambier Optical Pty Ltd Point Cook Optical Pty Limited Stacey & Stacey Pty Ltd The Optical Company (International) Pty Ltd The Optical Company (NSW) Pty Ltd The Optical Company (Pacific) Pty Ltd The Optical Company Pty Ltd The Optical Company (Aust) Pty Ltd Motion Health Group Holding Ltd BIM IP Pty Ltd Principal place of business / Country of incorporation Ownership interest 2022 2023 % % Australia Australia Australia Australia United States United States Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia New Zealand Australia 100% 100% 100% 100% 100% 58% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 58% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries with non- controlling interests in accordance with the accounting policy described in note 2: Name Parent Principal place of business / Country of incorporation Ownership interest 2023 % Ownership interest 2022 % Non-controlling interest Ownership interest 2022 % Ownership interest 2023 % D.B.S, Australia Pty Ltd Foot Care Solutions Australia Pty Ltd iOrthotics USA LLC Australia Australia United States 75% 75% 58% 75% 75% 58% 25% 25% 42% 25% 25% 42% 77 (Annual Report - 30 June 2023) Healthia Limited and its Controlled Entities Notes to the consolidated financial statements 30 June 2023 Note 37. Cash flow information Reconciliation of profit after income tax to net cash from operating activities Profit after income tax expense for the year Adjustments for: Depreciation and amortisation Share-based payments Fair value movement of contingent consideration Change in operating assets and liabilities: Decrease/(increase) in deferred tax assets (Increase)/Decrease in trade and other receivables (Increase)/Decrease in inventories Decrease/(Increase) in prepayments Decrease/(Increase) in other operating assets Increase/(decrease) in trade and other payables Increase/(decrease) in provision for income tax Decrease in employee benefits (Decrease)/Increase in other liabilities and provisions Consolidated 2023 $'000 2022 $'000 10,336 343 24,965 1,000 (1,106) 21,026 1,395 (1,550) 1,223 (4,768) (3,211) (1,204) 718 (3,723) (124) (1,888) 373 (3,019) (2,604) (1,173) (1,038) 535 3,097 3,765 (507) (3,074) Net cash from operating activities 22,591 17,196 Changes in liabilities arising from financing activities Consolidated Balance at 1 July 2021 Net cash from/(used in) financing activities Acquisition/ modification of leases Changes through business combinations (note 35) Other changes Balance at 30 June 2022 Net cash from/(used in) financing activities Acquisition/ modification of leases Changes through business combinations (note 35) Balance at 30 June 2023 Note 38. Earnings per share Profit after income tax Non-controlling interest Bank loans $'000 Lease liabilities $'000 Total $'000 48,330 29,065 - - (278) 77,117 18,308 - - 44,119 (14,877) 15,322 19,404 1 63,969 (17,759) 18,582 4,807 92,449 14,188 15,322 19,404 (277) 141,086 549 18,582 4,807 95,425 69,599 165,024 Consolidated 2023 $'000 2022 $'000 10,336 (4,869) 343 (3,672) Profit/(loss) after income tax attributable to the owners of Healthia Limited 5,467 (3,329) 78 (Annual Report - 30 June 2023) Healthia Limited and its Controlled Entities Notes to the consolidated financial statements 30 June 2023 Note 38. Earnings per share (continued) Weighted average number of ordinary shares used in calculating basic earnings per share Adjustments for calculation of diluted earnings per share: Performance rights* Number Number '000 '000 136,278 117,892 3,358 - Weighted average number of ordinary shares used in calculating diluted earnings per share 139,636 117,892 Basic earnings per share Diluted earnings per share Cents Cents 4.01 3.92 (2.82) (2.82) * 3,943,000 performance rights have been excluded from the above calculation of diluted earnings per share for the current year as the Consolidated Entity has incurred losses meaning their inclusion would be anti-dilutive. Accounting policy for earnings per share Basic earnings per share Basic earnings per share is calculated by dividing the profit attributable to the owners of Healthia Limited, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the financial year. Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. Capital Raising On 8 September 2022, the Consolidated Entity announced it would raise up to $15.0 million via an accelerated non- renounceable pro-rata entitlement offer. The offer comprised an Institutional Entitlement Offer to raise approximately $10 million and a Retail Entitlement Offer to raise approximately $5 million. On 12 September 2022, the Consolidated Entity announced the completion of the Institutional Entitlement Offer and 6,718,785 new ordinary shares were issued at $1.47 per share, raising a total of approximately $9.9 million. 5 October 2022, the Consolidated Entity announced the completion of the Retail Entitlement Offer and 752,657 new ordinary shares were issued at $1.47 per share, raising a total of approximately $1.1 million. The Retail Entitlement Offer was not underwritten. Note 39. Share-based payments Performance rights Unlisted long term incentive performance rights On 29 November 2022, the Consolidated Entity’s shareholders approved the grant of 2,244,060 unlisted performance rights to Executive Directors, KMP and other staff with a nil grant and exercise price. The performance rights will vest on 30 June 2025 (subject to satisfaction of the relevant vesting conditions) and expire on 31 October 2025. The vesting conditions include a number of performance and service conditions. The performance rights were issued on 27 March 2023. Unlisted retention performance rights On 29 November 2022, the Consolidated Entity’s shareholders approved the grant of 730,842 unlisted retention performance rights to Executive Directors, KMP and other staff with a nil grant and exercise price. The retention performance rights will vest on 30 June 2023 (subject to satisfaction of the relevant vesting conditions) and expire on 31 October 2023. The vesting conditions include a number of performance and service conditions. The retention performance rights were issued on 27 March 2023. 79 (Annual Report - 30 June 2023) Healthia Limited and its Controlled Entities Notes to the consolidated financial statements 30 June 2023 Note 39. Share-based payments (continued) Details of the performance rights are as follows: 2022 Grant - Performance Rights Grant date: Grant price: Exercise price: Vesting date: Expiry date: Restriction on shares issued on exercise: Can only be traded in accordance with Securities Trading Policy and insider 27 March 2023 $nil $nil 30 June 2025 31 October 2025 trading laws The fair value of performance rights (equity settled) with the indexed TSR condition is calculated at the date of grant using the Monte-Carlo simulation model, taking into account the impact of the TSR condition and dividends during the vesting period. The value disclosed is the portion of fair value of the rights recognised in each reporting period. Vesting conditions performance rights granted 27 March 2023 2,244,060 of the 2022 Performance Rights which will vest in accordance with the Performance Rights Plan Rules is dependent on, and subject to, satisfaction of the following conditions Service condition The performance rights will be exercisable upon satisfaction of the Service condition, being continuous employment with the Company from Grant Date until the Vesting Date. The Company’s compounding annual growth in underlying Earnings Per Share (underlying EPS) for the period from 1 July 2022 to 30 June 2025 based on the following vesting scale: EPS Growth condition - Below threshold and target being less than 4% - Nil Vesting - Threshold and target being between 4% and 10% - Pro rata vesting - Stretch being over 10% - 100% vesting The underlying EPS results to be used will be the Basic EPS recorded in the Company’s audited financial statements in the relevant years, adjusted for one-off and non-recurring items and the amortisation of customer lists, as determined by the Board in its discretion. Indexed TSR (iTSR) 50% of the Performance Rights will be exercisable if this condition is achieved. Satisfaction of the iTSR performance condition against the S&P/ ASX Small Industrials Index, based on the following vesting scale: - Stretch being index movement of greater than 10% - 100% vesting - Between target and stretch being index movement of between 5% and 10% - pro rata vesting - Target being index movement of 5% - 50% vesting - Between threshold and target being index movement of between 0% and 5% - pro rata vesting - Threshold being equal to index movement - 25% vesting - Below threshold being less than the index movement - Nil vesting TSR is the sum of the change in share price and dividends (assumed to be reinvested in shares) during the Vesting Period. It is annualised for the purpose of the above vesting scale. The TSR of the Company will be calculated and converted to a compound annual growth rate (CAGR) value for the purpose of assessment against this scale. During periods of nil dividends being declared, TSR is equal to the change in share price. 50% of the performance rights will be exercisable if this condition is achieved. 80 (Annual Report - 30 June 2023) Healthia Limited and its Controlled Entities Notes to the consolidated financial statements 30 June 2023 Note 39. Share-based payments (continued) 2022 Grant - Retention Performance Rights Grant date: Grant price: Exercise price: Vesting date: Expiry date: Restriction on shares issued on exercise: Can only be traded in accordance with Securities Trading Policy and insider 27 March 2023 $nil $nil 30 June 2023 31 October 2023 trading laws 730,842 of the 2022 Retention Performance Rights which will vest in accordance with the Performance Rights Plan Rules is dependent on, and subject to, satisfaction of the following conditions Service condition The performance rights will be exercisable upon satisfaction of the Service condition, being continuous employment with the Company from Grant Date until the Vesting Date. Performance Rights will be exercisable if this condition is achieved. FY23 EBITDA(u) Achievement by the Company of EBITDA(u) of greater than $40 million for the financial year ended 30 June 2023. This reflects the Company's guidance on 31 August 2022 that it expects to deliver EBITDA(u) in FY23 of greater than $40 million. EBITDA(u) or Underlying EBITDA is statutory earnings before interest, tax, depreciation and amortisation (EBITDA) as adjusted to reflect the Directors’ assessment of the result for the ongoing business activities of the Consolidated Entity, in accordance with AICD/Finsia principles of recording underlying profit. EBITDA(u) is presented on a pre-AASB16 basis. Underlying EBITDA is a non-IFRS measure and will be determined by the Directors having regard to those principles and is not audited. The performance rights do not rank equally with existing ordinary shares quoted. Prior to vesting, the performance rights do not carry a right to vote or receive dividends. Where shares are issued upon the vesting and exercise of the performance rights (within the periods detailed above), those shares will rank equally with existing ordinary shares of Healthia Limited. To participate in a dividend, the ordinary shares must be issued prior to the record date for the dividend. Set out below are summaries of performance rights granted under the plan: 2023 Grant date Expiry date 27/11/2019 30/10/2020 01/12/2020 19/11/2021 27/03/2023 27/03/2023 31/10/2022 31/10/2023 31/10/2023 31/12/2024 31/10/2023 31/10/2025 Balance at the start of the year Granted Exercised Forfeited Balance at the end of the year 2,543,358 378,500 282,500 1,203,500 - - 4,407,858 - - - - 730,842 2,244,060 2,974,902 (2,190,837) - - - - - (2,190,837) (352,521) (198,500) - (384,500) - - (935,521) - 180,000 282,500 819,000 730,842 2,244,060 4,256,402 As at 30 June 2023, no rights had vested as the conditions of vesting had not been satisfied. Refer to note 40 for the impact on performance rights of the Scheme Implementation Deed entered into by the Consolidated Entity on 31 August 2023. 81 (Annual Report - 30 June 2023) Healthia Limited and its Controlled Entities Notes to the consolidated financial statements 30 June 2023 Note 39. Share-based payments (continued) 2022 Grant date Expiry date 27/11/2019 30/10/2020 01/12/2020 19/11/2021 31/10/2022 31/10/2023 31/10/2023 31/12/2024 Balance at the start of the year Granted Exercised Forfeited 2,543,358 378,500 282,500 - 3,204,358 - - - 1,203,500 1,203,500 - - - - - Balance at the end of the year - - - - - 2,543,358 378,500 282,500 1,203,500 4,407,858 The weighted average remaining contractual life of performance rights outstanding at the end of the financial year was 1.08 years (30 June 2022: 1.54 years). Set out below are equity settled payments made during the year: Equity settled payments Equity settled payments other Consolidated 2023 $ 2022 $ 1,000,000 1,395,000 Accounting policy for share-based payments Equity-settled and cash-settled share-based compensation benefits are provided to employees. Equity-settled transactions are awards of shares, or options over shares that are provided to employees in exchange for the rendering of services. Cash-settled transactions are awards of cash for the exchange of services, where the amount of cash is determined by reference to the share price. The cost of equity-settled transactions are measured at fair value on grant date. Fair value is independently determined using either the Binomial or Black-Scholes option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the option, together with non-vesting conditions that do not determine whether the Consolidated Entity receives the services that entitle the employees to receive payment. No account is taken of any other vesting conditions. The cost of equity-settled transactions are recognised as an expense with a corresponding increase in equity over the vesting period. The cumulative charge to profit or loss is calculated based on the grant date fair value of the award, the best estimate of the number of awards that are likely to vest and the expired portion of the vesting period. The amount recognised in profit or loss for the period is the cumulative amount calculated at each reporting date less amounts already recognised in previous periods. The cost of cash-settled transactions is initially, and at each reporting date until vested, determined by applying either the Binomial or Black-Scholes option pricing model, taking into consideration the terms and conditions on which the award was granted. The cumulative charge to profit or loss until settlement of the liability is calculated as follows: ● during the vesting period, the liability at each reporting date is the fair value of the award at that date multiplied by the expired portion of the vesting period. from the end of the vesting period until settlement of the award, the liability is the full fair value of the liability at the reporting date. ● All changes in the liability are recognised in profit or loss. The ultimate cost of cash-settled transactions is the cash paid to settle the liability. Market conditions are taken into consideration in determining fair value. Therefore any awards subject to market conditions are considered to vest irrespective of whether or not that market condition has been met, provided all other conditions are satisfied. 82 (Annual Report - 30 June 2023) Healthia Limited and its Controlled Entities Notes to the consolidated financial statements 30 June 2023 Note 39. Share-based payments (continued) If equity-settled awards are modified, as a minimum an expense is recognised as if the modification has not been made. An additional expense is recognised, over the remaining vesting period, for any modification that increases the total fair value of the share-based compensation benefit as at the date of modification. If the non-vesting condition is within the control of the Consolidated Entity or employee, the failure to satisfy the condition is treated as a cancellation. If the condition is not within the control of the Consolidated Entity or employee and is not satisfied during the vesting period, any remaining expense for the award is recognised over the remaining vesting period, unless the award is forfeited. If equity-settled awards are cancelled, it is treated as if it has vested on the date of cancellation, and any remaining expense is recognised immediately. If a new replacement award is substituted for the cancelled award, the cancelled and new award is treated as if they were a modification. Note 40. Events after the reporting period Acquisitions After Reporting Date, the Consolidated Entity entered into binding agreements to acquire and has reached settlement the following businesses: ● ● Walk Without Pain Podiatry Clinics (3 podiatry clinics located in Queensland; and, Melbourne Hand Therapy (4 hand therapy clinics and an additional 9 sessional locations located in Victoria). Total upfront consideration of $3.6 million for the acquisitions (plus stock, less employee entitlements) is as follows: ● ● Upfront cash consideration: $2.8 million; and Issue of Clinic Class Shares: $0.8 million. In addition to the upfront consideration, contingent consideration of up to $0.7million may become payable in cash, subject to the achievement of pre-defined earnings targets. Scheme Implementation Deed On 31 August 2023, the Consolidated Entity entered into a Scheme Implementation Deed (the “Scheme”) with Harold BidCo Pty Ltd (“Harold BidCo”) ACN 670 606 827, an entity owned by funds advised by Pacific Equity Partners under which it is proposed that Harold BidCo will acquire 100% of the fully diluted share capital in Healthia by way of a scheme of arrangement. Under the Scheme, Healthia shareholders will have the option to receive either $1.80 cash per Healthia share or unlisted scrip consideration, or a mix of cash and unlisted scrip consideration (subject to certain conditions). The Scheme is subject to certain conditions, which must be satisfied or waived before the Scheme can be implemented, including obtaining Healthia shareholder approval following receipt of an Independent Expert’s Report concluding (and continuing to conclude) that the Scheme is in the best interest of the Healthia shareholders. In the event that the Scheme proceeds, Healthia Shareholders who participate in obtaining script consideration as part of the transaction may be subject to alternative risks and uncertainties from those as set out in Table 6: Material Business Risks of the Review of Operations in this report, and general market risks. In the event the Scheme does not proceed, Healthia Shareholders will continue to be subject to the risks and uncertainties associated with Healthia’s business and general market risks. Furthermore, if the Scheme does not proceed, and no comparable proposal or superior proposal is received by the Healthia Board, then Healthia’s share price is likely to be impacted. Details of the proposed acquisition are contained in a separate announcement released to the ASX on 31 August 2023. 83 (Annual Report - 30 June 2023) Healthia Limited and its Controlled Entities Notes to the consolidated financial statements 30 June 2023 Note 40. Events after the reporting period (continued) Impact of Scheme Implementation Deed on Performance Rights On 30 August 2023, the Healthia Board, using the ability to retrospectively amend the performance rights, determined that should the Scheme Implementation Deed become Effective, then all vesting conditions on all unvested Performance Rights, excluding the service condition, will be waived, with such resulting vested Performance Rights being automatically exercised, and issued, prior to the Scheme Record Date with each holder domiciled in Australia entitled to be issued one Healthia Share for each vested Performance Right (as applicable) held (that is, on a one for one basis). Such Healthia Shares will be captured by the Scheme. No other matter or circumstance has arisen since 30 June 2023 that has significantly affected, or may significantly affect the Consolidated Entity's operations, the results of those operations, or the Consolidated Entity's state of affairs in future financial years. 84 (Annual Report - 30 June 2023) Healthia Limited and its Controlled Entities Directors' declaration 30 June 2023 In the Directors' opinion: ● ● ● ● the attached financial statements and notes comply with the Corporations Act 2001, the Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; the attached financial statements and notes comply with International Financial Reporting Standards as issued by the International Accounting Standards Board as described in note 2 to the financial statements; the attached financial statements and notes give a true and fair view of the Consolidated Entity's financial position as at 30 June 2023 and of its performance for the financial year ended on that date; and there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. The Directors have been given the declarations required by section 295A of the Corporations Act 2001. Signed in accordance with a resolution of Directors made pursuant to section 295(5)(a) of the Corporations Act 2001. On behalf of the Directors Dr Glen Frank Richards Director 29 September 2023 85 (Annual Report - 30 June 2023) Tel: +61 7 3237 5999 Fax: +61 7 3221 9227 www.bdo.com.au Level 10, 12 Creek Street Brisbane QLD 4000 GPO Box 457 Brisbane QLD 4001 Australia INDEPENDENT AUDITOR'S REPORT To the members of Healthia Limited Report on the Audit of the Financial Report Opinion We have audited the financial report of Healthia Limited (the Company) and its subsidiaries (the Group), which comprises the consolidated statement of financial position as at 30 June 2023, 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) Giving a true and fair view of the Group’s financial position as at 30 June 2023 and of its financial performance for the year ended on that date; and (ii) 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. 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. BDO Audit Pty Ltd ABN 33 134 022 870 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 Audit Pty Ltd 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. 86 (Annual Report – 30 June 2023) Impairment assessment of Goodwill and Other Intangible Assets and determination of Cash Generating Units (“CGU’s”) Key audit matter How the matter was addressed in our audit The Group’s disclosures in respect to intangible assets, including the impairment assessments of goodwill and other intangible assets are included in Note 16. The carrying value of intangible assets represent a significant asset of the Group. The Group is required to annually test the amount of goodwill and indefinite useful life intangible assets for impairment and assess other intangible assets for impairment indicators. This annual impairment test was significant to our audit because the goodwill and intangible assets balance is material to the financial statements and because management’s assessment process, including the determination of CGU’s, is complex, highly judgmental and includes estimates and assumptions relating to expected future market or economic conditions. Our procedures included, amongst others: • Evaluating management’s determination of the Group’s Cash Generating Units ("CGU's") to ensure they are appropriate, including being at a level no higher than the operating segments of the Group • Evaluating management’s process regarding the valuation of the Group’s goodwill and other intangible assets • Assessing the Group’s assumptions and estimates relating to forecast revenue, costs, capital expenditure and discount rates used to determine the recoverable amount of its assets • Assessing the historical accuracy of forecasting of the Group by comparing the current year actual results with FY23 figures included in prior year forecasts to consider whether any forecasts included assumptions, that with hindsight, had been optimistic • Involving our internal specialists to assess the discount rates and terminal growth rates against comparable market information • Challenging key assumptions by performing sensitivity analysis on the growth rates and discount rate assumptions used. BDO Audit Pty Ltd ABN 33 134 022 870 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 Audit Pty Ltd 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. 87 (Annual Report – 30 June 2023) Other information The directors are responsible for the other information. The other information comprises the information in the Group’s annual report for the year ended 30 June 2023, but does not include the financial report and the auditor’s report thereon. Our opinion on the financial report does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the directors for the Financial Report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the 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: https://www.auasb.gov.au/admin/file/content102/c3/ar1_2020.pdf This description forms part of our auditor’s report. BDO Audit Pty Ltd ABN 33 134 022 870 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 Audit Pty Ltd 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. 88 (Annual Report – 30 June 2023) Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 16 to 28 of the directors’ report for the year ended 30 June 2023. In our opinion, the Remuneration Report of Healthia Limited, for the year ended 30 June 2023, 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 Audit Pty Ltd Michael Cutri Director Brisbane, 29 September 2023 BDO Audit Pty Ltd ABN 33 134 022 870 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 Audit Pty Ltd 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. 89 (Annual Report – 30 June 2023) Healthia Limited and its Controlled Entities Shareholder information 30 June 2023 The shareholder information set out below is current as at 22 September 2023. Distribution of equitable securities Analysis of number of equitable security holders by size of holding: 1 to 1,000 1,001 to 5,000 5,001 to 10,000 10,001 to 100,000 100,001 and over Holding less than a marketable parcel Equity security holders Ordinary shares % of total Number of holders shares issued 631 851 351 507 100 0.23 1.68 1.88 10.93 85.28 2,440 100.00 - - Twenty largest quoted equity security holders The names of the twenty largest security holders of quoted equity securities are listed below: CITICORP NOMINEES PTY LIMITED HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED J P MORGAN NOMINEES AUSTRALIA PTY LIMITED BELAROO PTY LTD BRIDELL PTY LIMITED MAXIMUM (NQ) PTY LTD BNP PARIBAS NOMS PTY LTD DLH TRADING PTY LTD UBS NOMINEES PTY LTD JABEZ FUND PTY LTD ROM GROUP PTY LTD MAXIMUM (NQ) PTY LTD MR MILTON ZEVI LEVINE WILLEESE PTY LIMITED HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED - A/C 2 PACIFIC CUSTODIANS PTY LIMITED GF & LH RICHARDS SUPER PTY LTD NATIONAL NOMINEES LIMITED HGT INVESTMENTS PTY LTD DPC INVESTMENTS PTY LTD Unquoted equity securities Performance rights 90 (Annual Report - 30 June 2023) Ordinary shares % of total shares issued Number held 20,948,911 18,024,648 11,317,234 6,963,607 5,134,628 4,923,299 3,812,058 3,495,465 3,420,296 3,069,444 2,373,267 1,815,670 1,625,025 1,547,383 1,409,627 1,316,823 1,177,808 1,078,424 982,800 967,317 14.94 12.86 8.07 4.97 3.66 3.51 2.72 2.49 2.44 2.19 1.69 1.30 1.16 1.10 1.01 0.94 0.84 0.77 0.70 0.69 95,403,734 68.05 Number on issue Number of holders 4,256,402 18 Healthia Limited and its Controlled Entities Shareholder information 30 June 2023 Substantial holders Substantial holders in the Company are set out below: MA Financial Group Limited Wilson Asset Management Group Regal Funds Management Pty Ltd Mr Darren L Stewart Glen Frank Richards Voting rights The voting rights attached to ordinary shares are set out below: Ordinary shares Each ordinary share carries the right to one vote. Ordinary shares % of total shares issued Number held 13,779,591 10,670,424 8,412,836 8,021,333 7,966,777 9.99 8.32 6.00 5.94 5.56 Performance rights The performance rights do not rank equally with existing ordinary shares quoted. Prior to vesting, the performance rights do not carry a right to vote or receive dividends. There are no other classes of equity securities. Securities subject to voluntary escrow Class Ordinary shares Ordinary shares Ordinary shares Expiry date 30 September 2023 13 October 2023 30 November 2023 Number of shares 3,069,444 119,582 15,579 3,204,605 Share Registry Securityholders who have any questions regarding their holding should contact the company's registrar: Link Market Services Limited P: 1300 554 474 (in Australia) or +61 1300 554 474 (from overseas) F: +61 2 9287 0303 E: registrars@linkmarketservices.com.au www.investorcentre.linkmarketservices.com.au 91 (Annual Report - 30 June 2023)
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