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Annual Report
2020
M8 Sustainable Limited (ACN 620 758 358) (M8S) is a Western Australian based business that owns and
operates a high-quality, waste recycling and disposal portfolio. Operations were acquired to integrate waste
streams, maximise synergies and establish a tier-one, full-service waste management operation.
Contents
Year in Brief
Managing Director’s Report
Business Locations
Board of Directors
Financial Report – Detailed Index
Independent Auditor’s Report
1
3
8
10
11
28
Auditor’s Independence Declaration 33
Shareholder Information
Corporate Directory
72
75
M8 Sustainable Limited Annual Report 2020
Year in Brief
• Successful completion of IPO raising $19.5M
• Listed on the ASX in December 2019 (ASX code: M8S)
• Recommenced trading at the Maddington Waste Facility in
August 2019
• Maddington Waste Facility experiencing encouraging activity
levels towards the end of FY20
• Construction of the Gingin Landfill Facility commenced with the
bulk earthworks completed
• Loss after tax of $13.8M ($7.2m pcp) largely due to one-off
expenses associated with the IPO and impairment losses
recognised in FY20
• Net assets of $20.7M and cash of $4.2M as at the end of FY20
IPO RAISING
$19.5M
NET ASSETS
$20.7M
CASH
$4.2M
1
2 M8 Sustainable Limited Annual Report 2020
Managing Director’s Report
I am pleased to present the Company’s first annual
report to shareholders.
completing construction and commissioning of Gingin
and delivering long-term shareholder value.
The last 12 months have been a transformational year
for M8 Sustainable, underpinned by the successful
completion of our Initial Public Offering listing in
December, which resulted in the Company raising
$19.5 million and welcoming a number of institutional
and sophisticated investors to our register.
The Company operates a metropolitan construction
and demolition waste processing facility in
Maddington, while our key growth asset is a major
new bioreactor landfill facility at Gingin in Perth’s
north, currently under construction.
The C&D market outlook is very encouraging,
supported by Federal and State Government grants for
new home builders and renovations and a
comprehensive infrastructure spend across Western
Australia.
The next 12 months will be focused on establishing
Maddington as a leading waste management facility,
Review of Operations
Financial Performance
For the financial year ended 30 June 2020, the Group
incurred a loss after tax from ordinary activities of
$13,794,138 ($7,230,316 for the prior corresponding
period). The result was significantly impacted by one-
off expenses associated with the IPO and impairment
losses recognised at 30 June 2020.
The IPO listing resulted in one-off net expenses of
$5,646,934, with $1,961,444 of this amount incurred
as cash expenses, slightly lower than the forecasted
amount of $2m outlined in the prospectus.
The balance of the IPO expenses related to non-cash
items associated with issuing promoter shares, a loss on
conversion of loans from debt to equity with SBANG
Sustainable Energies Ltd (“SBANG”) – the Company’s
largest shareholder and the issue of share options to
the IPO lead manager.
3
Construction of the
Gingin Landfill Facility
commenced with the
bulk earthworks
completed
4 M8 Sustainable Annual Report 2020
Managing Director’s Report (continued)
As a result of pressures associated with COVID-19,
which impacted activity volumes and competition
within the Commercial and Industrial (C&I) waste
sector, the Group undertook an impairment assessment
at 30 June 2020 and determined that the carrying value
of the Maddington site exceeded the recoverable value.
As a consequence, the Group recorded an impairment
loss of $2,245,501 which was segmented as follows -
Property, Plant and Equipment: $979,699 and Right-of-
use Assets: $1,265,802
Maddington
Following a significant remediation program, the
Company’s waste recycling facility in Maddington was
recommissioned on 1 July 2019 and commenced
receiving waste in August 2019. Revenue for
Maddington totalled $1,399,130 compared to $87,181
for the prior corresponding period. A significant factor
for the difference in revenue was that Maddington did
not process waste in the prior corresponding period.
The Group’s operations at Maddington were negatively
impacted during the period by:
- COVID-19, which significantly reduced volumes of
waste received in March, April and May 2020.
- Competitive pressures within Commercial and
Industrial (C&I) waste, a low volume-high value
waste stream
The table below shows activity levels at the
Maddington facility since it re-opened in August 2019
to the end of the reporting period.
Due to competitive pressures in the C&I waste sector, a
change of strategy was implemented to concentrate on
C&D which led to improved margins and a reduction in
landfill disposal costs.
Importantly, the Company has experienced improved
activity levels in C&D for the last 2 months of the re-
porting period and into the new financial year as the
Company continues to push marketing initiatives to
grow Maddington’s revenue.
Gingin
Site works at the Company’s fully permitted landfill
facility at Gingin WA commenced in early April 2020.
The bulk earthworks have been completed and the
Shire of Gingin issued a substantial commencement
certification - a major milestone for the project.
The cell liners have been ordered and delivered to site.
It is expected that the liner installation will commence
in early 2021.
Maddington Monthly Waste In & Product Sales Volumes
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
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400
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C&D
C7I
Product Sales
Daily Average In
5
Maddington Waste
Facility experiencing
encouraging activity
levels
6 M8 Sustainable Limited Annual Report 2020
Managing Director’s Report (continued)
The facility is anticipated to be completed by mid-2021
calendar year.
Brockway
The Brockway Waste Treatment Facility, which is owned
by Star Shenton Energy Pty Ltd, continued to generate
revenue for the Company by the provision of
management services.
COVID-19
The Group carefully monitored the COVID-19 crisis and
acted quickly to assess and implement necessary
processes and established short-term strategies focused
on safeguarding the key assets of the business,
lowering operational costs and ensuring business
continuity. As outlined above waste volumes received at
Maddington were particularly impacted for the months
of March, April and May.
Safety
It was pleasing to note that during the reporting
period, the Company achieved an excellent safety result
with no lost time injuries recorded. The safety of all its
employees remains a high priority for the Company.
Outlook
state economy, which is expected to result in continued
activity in the C&D waste recycling sector. Expenditure
on infrastructure in WA is likely to be higher on the
back of initiatives undertaken by various local councils.
These initiatives are expected to result in improved
levels of activity in the Company’s target markets.
However, given the market uncertainties resulting from
the pandemic impacts, it is not possible to provide full
year guidance.
Acknowlegments
I would like to acknowledge the support received from
my fellow Board members and thank the management
team and every person across the Company for their
contribution in what has been a challenging year.
On 14 October 2020, Robert McKinnon and Richard
Allen resigned as directors of the Company.
I would like to acknowledge and thank Bob and
Richard for their valuable contribution over the past
year, particularly in relation to the initial public
offering made by the Company, its eventual listing on
the ASX and the formative period following the listing.
Their experience and guidance through the IPO, which
has set us up for growth, has been invaluable.
The WA government has undertaken initiatives in the
construction and infrastructure industries to boost the
Tom Rudas
Managing Director
7
M8 Businesses
Maddington
A specialised waste and recycling facility focussing on construction and demolition (C&D) and
commercial and industrial (C&I) waste with an approved annual licensed capacity of 500,000
tonnes per annum
8 M8 Sustainable Limited Annual Report 2020
M8 Businesses (continued)
Gingin
Brockway
A fully permitted landfill facility with a
licensed capacity of 150,000 tonnes per
annum – currently under construction
A composting/digestive waste facility owned
by a third party to which M8 provides
management services
9
Board of Directors
Robert McKinnon
Independent
Non-Executive Chairman1
Tom Rudas
Managing Director
Richard Allen
Independent
Non-Executive Director1
Mark Puzey
Independent
Non-Executive Director
Saithsiri Saksitthisereekul
Non-Executive Director
Particulars of each director’s qualifications, special responsibilities, experience and
other directorships are set out on pages 12 to 13 of this Annual Report
1 Messrs McKinnon and Allen resigned as directors of M8 Sustainable Limited on 14 October 2020.
10 M8 Sustainable Limited Annual Report 2020
M8 Sustainable Limited and its Controlled Entity
Financial Report
for the year ended 30 June 2020
Contents
Directors’ Report
Remuneration Report (audited)
Directors’ Declaration
Independent Auditor’s Report
Auditor’s Independence Declaration
Consolidated Statement of Profit or Loss and Other
Consolidated 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
Note 2
Note 3
Note 4
Note 5
General information
Basis of Preparation and Summary of
Significant Accounting Policies
Revenue and Other Income
Employee Benefits, Salaries and Wages
Recycling, Waste Disposal and Other Site Costs
Note 6
IPO Related Costs
Note 7 Other Expenses
Note 8 Depreciation
Note 9
Finance Costs
Note 10
Impairment of Assets
Note 11
Income Tax
Note 12
Earnings per Share
Note 13 Cash and Cash Equivalents
Note 14
Trade and Other Receivables
Note 15 Advances to Contractor
Note 16
Property, Plant and Equipment
Note 17
Right-of-Use Assets
Note 18
Trade and Other Payables
Note 19
Borrowings
Note 20
Lease Liabilities
Note 21
Provisions
Note 22
Share Capital and Reserves
Note 23
Share-based Payments
Note 24 Operating Segments
Note 25 Auditor’s Remuneration
Note 26
Key Management Personnel (KMPs) Disclosures
Note 27
Related Party Transactions
Note 28
Parent Entity Disclosure
Note 29 Commitments and Contingent Liabilities
Note 30 Controlled Entity
Note 31
Financial Risk Management
Note 32
Events After the Reporting Period
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11
Directors’ Report
The Directors present their report together with the consolidated financial report for M8 Sustainable Limited (the Company) and
its controlled entity (the Group) for the year ended 30 June 2020.
1. DIRECTORS
Information on Directors
The directors of the Company at any time during or since the end of the financial year and up to the date of this report are:
Name, qualifications, independence status and
special responsibilities
Robert McKinnon
FCPA, FGIA, FCG, MAICD
Independent Non-executive Chairman
Chairman of Nomination Committee
Member of Audit and Risk and Remuneration Committees
Tomasz Jacek Rudas
BSc (Hons), MBA Managing Director
Member of Nomination Committee
12 M8 Sustainable Limited Annual Report 2020
Experience and other directorships
Mr McKinnon was appointed as a director and Chairman of
the Company on 9 December 2019. He has 40 years’ experience
in finance and general management positions in the light
manufacturing and industrial sectors in Australia, New Zealand
and Canada. He is the former managing director of Austal Ships
and Fleetwood Corporation Limited and spent 28 years with
Capral Aluminium (formerly Alcan Australia) in various financial
and senior executive positions. Mr McKinnon currently serves as
non-executive chairman of IAS Group and non-executive director
of Peet Limited. Mr McKinnon was also previously a non-executive
director of Bankwest until November 2012, chairman of the
Esperance Port Authority until September 2014, non-executive
director of Programmed Maintenance Services Limited until
October 2017 and Tox Free Solutions Limited until May 2018.
Mr McKinnon held the following other listed company
directorships during the past 3 financial years:
Peet Limited (ASX): PPC) – May 2014 to current
Tox Free Solutions Limited – July 2010 to May 2018
Programmed Maintenance Services Limited – November 2014 to
October 2017
Mr Rudas was appointed as a director of the Company on 15
August 2017. He has over 20 years of professional experience in
the waste management industry during which he has gained
extensive experience in many facets of waste management
operations and business activities. His experience gained from
working in the private sector for both small and large waste
management organizations, as well as the local government in
Perth, has given Mr Rudas a unique perspective of the commercial
dynamics and opportunities in the waste management market.
He was also the founder and managing director of a public
wastetechnology company AnaeCo Limited which under his
leadership raised over $100M in equity and infrastructure funding
and was successfully listed on the ASX in 2007. He ceased to be
a director on 21 June 2011.
Mr Rudas was the Winner of the 2009 Ernst & Young
Entrepreneur of the Year – Western Division in the Cleantech
Category.
Mr Rudas held no other listed company directorships during the
past 3 financial years.
Directors’ Report (continued)
1. DIRECTORS (continued)
Information on Directors (continued)
Richard Peter Allen
BEng (Civil), MAICD
Independent Non-executive Director
Chairman of Remuneration Committee
Member of Audit and Risk and Nomination Committees
Mark Robert Puzey
BCom, FCA, FAICD
Independent Non-executive Director
Chairman of Audit and Risk Committee
Member of Remuneration and Nomination Committees
Saithsiri Saksitthisereekul
MBA
Non-executive Director
Member of Remuneration and Nomination Committees
Damien Craig Flugge
Executive Director
(resigned 9 December 2019 as a director)
Mr Allen was appointed as a director of the Company on
9 December 2019. He has held a wide range of senior business
roles with over 30 years’ experience as both Executive and Non-
Executive Director in listed and private sectors in Australia, Asia
and the Middle East.
Mr Allen has extensive experience in the international offshore
marine oil and gas industries, having spent over 20 years
working locally and internationally with Baroid Drilling Fluids Inc
(acquired by Halliburton).
Mr Allen was the founder of Renewable Heat & Power Limited
and its wholly owned subsidiary Plantation Energy Australia Pty
Ltd which is one of the largest producers of biomass fuel pellets
in the southern hemisphere.
Mr Allen has served as the Managing Director of Tox Free
Solutions Limited from listing until 2004, Non-Executive Chairman
of Mo- bilarm Limited until March 2012, and Non-Executive
Director of Tox Free Solutions Limited from 2005 until May 2018
and is currently a Director of Renewable Heat & Power Limited.
Mr Allen held the following other listed company directorships
during the past 3 financial years:
Tox Free Solutions Limited – January 2005 to May 2018
Mr Puzey was appointed as a director of the Company on
9 December 2019. He is a Chartered Accountant with over 30
years of experience with a broad base of financial skills in a variety
of industries having spent 33 years with KPMG, including 18 years
as a partner. Mr Puzey’s role at KPMG included risk advisory,
internal and external audit, IT advisory and management
consulting experience in Australia, Asia and London.
He is currently a Non- Executive Director of Gold Corporation and
DUG Technology Limited.
Mr Puzey held the following other listed company directorships
during the past 3 financial years:
DUG Technology Limited (ASX: DUG) – 9 June 2020 to current
Mr Saksitthisereekul was appointed as a director of the Company
on 24 October 2018. He holds an Executive Master of Business
Administration from the National Institute of Development
Administra- tion (NIDA) and with 11 years in the renewable
energy sector is the CEO of SBANG Sustainable Energies Limited
(SBANG). SBANG is an integrated renewable energy company
based in Thailand. Its core business is to build, own and or operate
waste-to-energy and biomass power plants in Thailand.
Mr Saksitthisereekul held no other listed company directorships
during the past 3 financial years.
Mr Flugge was appointed as a director of the Company on 15
August 2017. He has over 20 years’ experience in management
and operational roles with an extensive and diverse business and
op- erational background from involvement in the family farming
operations. Mr Flugge was also involved in management and
ownership of various hospitality ventures in Australia and
overseas.
Mr Flugge held no other listed company directorships during the
past 3 financial years.
13
Directors’ Report (continued)
1. DIRECTORS (continued)
Directors’ Interests In Securities of the Company
As at the date of this report particulars of the relevant interest of each director in the securities of the Company are as follows:
Number of Ordinary Shares
Number of Performance
Rights
S Saksitthisereekul (1)
83,215,038
-
2
-
-
800,000
3,000,000
600,000
600,000
600,000
Director
R McKinnon
T Rudas
R Allen
R Puzey
(1) Mr Saksitthisereekul is the managing director and a shareholder of SBANG which holds 83,215,038 ordinary shares in the
Company. All shares held by SBANG are escrowed – 59,357,999 until 11 December 2020 and 23,857,039 until 11 December
2021.
During the 2019/20 financial year and as the date of this report no director has declared any interest in a contract or proposed
contract with the Company, the nature of which would be required to be reported in accordance with subsection 300(11)(d) of
the Corporations Act 2001 except as follows:
- Mr Rudas has entered into an employment contract with the Company;
- Messrs McKinnon, Allen and Puzey had entered into consultancy agreements with the Company until it was admitted to the
-
official list of the ASX on 11 December 2019; and
In March 2020, the Group awarded a contract for the construction of a landfill facility at Gingin WA with a value of $9.6 million
to SBANG Corporation Limited, a wholly owned subsidiary of SBANG, where Mr Saksitthisereekul is also a director.
Directors’ Meetings
The following table sets out the number of meetings of the Company’s board of directors and sub-committees held during the
financial year ended 30 June 2020 and the number of meetings attended by each director:
Board Member
Held
Board of Directors
Eligible to Attend
Attended
R McKinnon
T Rudas
R Allen
M Puzey
S Saksitthisereekul
D Flugge
15
15
15
15
15
15
9
15
9
9
15
6
9
15
9
9
11
6
Note: (1) Directors may pass resolutions in writing without a formal meeting being convened. Such meetings are deemed by the
Company’s constitution to be meetings. The above table does not include such meetings.
(2) As part of its review of corporate governance practices, the Directors formalised separate board committees as follows:
- Audit and Risk – established 29 May 2020
- Remuneration – established 24 June 2020
- Nomination – established 24 June 2020
Prior to their establishment, the committee functions were undertaken by the board of directors. No board committee
meetings were held during the reporting period.
2. PRINCIPAL ACTIVITIES
The principal activity of the Group during the financial year was receiving and recycling of Commercial & Industrial (C&I) and
Construction & Demolition (C&D) waste at its Maddington Waste Facility. Following a significant remediation program, Maddington
was re-commissioned on 1 July 2019 and commenced receiving waste in August 2019.
14 M8 Sustainable Limited Annual Report 2020
Directors’ Report (continued)
2. PRINCIPAL ACTIVITIES (continued)
The Company also provided operations and maintenance services to the Brockway recycling facility at Shenton Park which is owned
by Star Shenton Energy Pty Ltd.
The Group commenced development of the Gingin landfill facility.
3. CONSOLIDATED RESULTS
Year ended
30 June 2020
Year ended
30 June 2019
1,982,576
(14,466,979)
672,841
(13,794,138)
683,466
(7,244,802)
14,486
(7,230,316)
Revenue from contracts with customers
Loss before income tax
Income tax benefit
Loss for the year from continuing operations
4. DIVIDEND PAID OR RECOMMENDED
During the financial year, the Group did not declare or pay any dividends (2019: Nil).
5. REVIEW OF OPERATIONS AND FINANCIAL RESULTS
Operations
For the financial year ended 30 June 2020, the Group incurred a loss after tax from ordinary activities of $13,794,138 ($7,230,316
for the prior corresponding period). The result was significantly impacted by expenses associated with the Initial Public Offering
(IPO) in December and impairment losses recognised at 30 June 2020.
The IPO listing resulted in associated net expenses of $5,646,934, with $1,961,444 of this amount incurred as cash expenses,
slightly lower than the forecasted amount of $2 million outlined in the prospectus.
The balance of the IPO expenses related to non-cash items associated with issuing promoter shares, a loss on conversion of loans
from debt to equity with SBANG – the Company’s largest shareholder and the issue of share options to the IPO lead manager.
Following a significant remediation program, the Company’s waste recycling facility at Maddington was re-commissioned on
1 July 2019 and commenced receiving waste in August 2019. Revenue for Maddington totalled $1,399,130 compared to $87,181
for the prior corresponding period. A significant factor for the difference in revenue was that Maddington did not process C&D
waste in the prior corresponding period.
The Group’s operations at Maddington were negatively impacted during the period by:
• COVID-19, which significantly reduced volumes of waste received particularly in March, April and May 2020.
•
competitive pressures within C&I waste, a low volume-high value waste stream.
As a result of these pressures, the Group undertook an impairment assessment at 30 June 2020 and determined that the carrying
value of the Maddington site exceeded its recoverable value. As a consequence, the Group has recorded an impairment loss of
$2,245,501 which is set out in the following table:
Property,
Plant and
Equipment
$
Right-of-use
Assets
$
Total
$
Maddington
979,699
1,265,802
2,245,501
The Group has carefully monitored the COVID-19 crisis and has established short-term strategies focused on safe-guarding the
key assets of the business, lowering operational costs and ensuring business continuity. This included a 25% salary reduction for
an initial 2-month period for the Board, management and administrative staff which commenced in April 2020. In June, the salary
reductions were revised whereby Directors’ fees and executive salaries, except for administrative staff, were reduced by 10% with
an additional 10% deferred, with the Board reviewing the reduction on a monthly basis.
15
Directors’ Report (continued)
5. REVIEW OF OPERATIONS AND FINANCIAL RESULTS (continued)
Notwithstanding the impairment recorded, the Group has noted encouraging signs of improved activity levels in C&D, a high
volume-low value waste stream, at the end of the financial year and into the new year. The Company continues to focus its attention
on marketing initiatives to grow the revenue at Maddington.
The Company’s operations and maintenance contract for the Brockway facility continues to generate revenue.
Site works at the Group’s fully permitted Gingin Landfill Facility commenced in early April 2020. Bulk earthworks have been
completed and the Shire of Gingin has issued a substantial commencement certification - a major milestone for the project.
Key development work at the landfill site has identified significant sand deposits suitable for the construction industry. The Group
is in the process of obtaining a sand mining license. This provides a logistics opportunity for sand to be transported from Gingin to
the Maddington facility to be sold as both a bulk and retail product.
The Group has applied for a license to process green waste at Gingin. A hardstand measuring 2,500 square metres is being
constructed to receive the green waste.
Following the successful IPO, the Group’s balance sheet as at the end of the reporting period showed net assets of $20,706,997
with a cash position of $4,164,270.
Corporate
Initial Public Offering (IPO)
The Company successfully completed its IPO during December 2019 after raising the maximum amount of $19,500,000. Trading
in the Company’s shares commenced on 11 December 2019. At listing the Company had 233,229,835 fully paid ordinary shares,
20,000,000 options and 10,000,000 performance rights on issue. The Company’s largest shareholder SBANG held 35.68% of the
issued shares as at 30 June 2020.
Constitution
On 26 November 2019 a general meeting of shareholders of the Company approved a replacement Constitution required for a
listed public company and reflected the current provisions of the Corporations Act and ASX Listing Rules.
Issue of Promoter Shares
During the first half of the financial year ended 30 June 2020, the Company issued a total of 17,965,945 fully paid ordinary shares
for nil consideration to promoters of the Company (related to the IPO), which included 7,115,038 shares issued to SBANG.
Performance Rights
On 26 November 2019, a general meeting of shareholders of the Company approved the granting of a total of 7,100,000
Performance Rights (PRs) to the following related parties of the Company - Messrs Robert McKinnon (800,000 PRs), Tomasz Rudas
(3,000,000 PRs), Richard Allen (600,000 PRs), Mark Puzey (600,000 PRs), Saithsiri Saksitthisereekul (600,00PRs) and Damien Flugge
(1,500,000 PRs).
On 4 December 2019, as part of the Company’s IPO, a total of 10,000,000 approved PRs were issued. Apart from the PRs outlined
above, 2,900,000 PRs were issued to management of the Company.
Options
On 4 December 2019, as part of the Company’s IPO, 20,000,000 options were issued to the lead manager, Canaccord Genuity
(Australia) Pty Ltd and its nominees, Nascent Capital Partners Pty, Ratatat Investments Pty Ltd, Merchant Funds Management Pty
Ltd, Melshare Nominees Pty Ltd, and Munin Serbpongpan.
SBANG Loan Facilities
SBANG provided the Company with two secured loan facilities of $10,000,000 (on 7 February 2018) and $4,000,000 (on 15 July
2018) as well as a convertible note facility of $6,000,000 (on 15 November 2018).
In the current period prior to the IPO, there was a drawdown of $1,749,000 on the convertible note facility.
On 21 October 2019, accrued interest of $1,076,667 was paid in cash to SBANG.
The full principal amount of the $4,000,000 facility and a further $4,000,000 principal amount of the $10,000,000 facility were
converted to 51,282,051 fully paid ordinary shares on 10 July 2019.
16 M8 Sustainable Limited Annual Report 2020
Directors’ Report (continued)
5. REVIEW OF OPERATIONS AND FINANCIAL RESULTS (continued)
On 4 December 2019, the Company issued additional shares to SBANG as part of the settlement of the loan and convertible note
in line with the provisions of the prospectus. Loans amounting to $7,600,000 (($6,000,000 of remaining loan principal and
$1,600,000 of convertible note) were settled through the issue of 48,717,949 fully paid ordinary shares. The settlement of the
loan via a share issue resulted in a loss of $1,692,308 being incurred.
On 3 September 2019, SBANG provided a new $4,000,000 loan facility. The loan will be interest bearing at 10% p.a. and has a
two-year term. Shareholders at the Annual General Meeting held on 5 June 2020 approved the granting of security in favour of
SBANG for the loan. This new loan facility remains undrawn as at the date of this report.
On 11 December 2019, the remaining SBANG loan amounting to $4,400,000 plus accrued interest of $1,255,333 was repaid in
full.
Termination of Bonus Incentives
Certain bonus incentive clauses in contracts with employees were terminated on 4 and 13 September 2019 (see Note 6).
Termination of Directors’ Indemnity
On 5 September 2019 the Company terminated the directors’ indemnity agreement relating to unpaid superannuation guarantee
penalties (see Note 27(vi)).
Settlement of Flugge Superannuation Fund Loan
The amount due to a related party as at 30 June 2019 represented a $435,124 loan payable to the Flugge Superannuation Fund
(a related party of Damien Flugge, who resigned as a director on 9 December 2019) which was interest bearing at 10% per annum,
secured against all present and after-acquired property and repayable upon demand. The Company settled this loan by way of
issuing 2,229,709 fully paid ordinary shares on 4 December 2019.
Annual General Meeting
On 5 June, the Company held its first Annual General Meeting of shareholders.
Matters considered included the election of Messrs McKinnon, Allen, Puzey and Saksitthisereekul as directors of the Company, the
appointment of Ernst & Young as auditor of the Company and the granting of security to SBANG in relation to a loan facility of up
to $4 million which SBANG had undertaken to provide to the Company. All resolutions considered were passed and decided by
poll.
6. LIKELY DEVELOPMENTS AND EXPECTED RESULTS OF OPERATIONS
In July 2020, the WA state government announced $20 million of funding to encourage the recycling of plastic and tyre waste.
The federal government has agreed to match the WA government’s initiative. Expressions of interest are being sought to establish
new plastic and tyre recycling facilities. The Company is actively pursuing initiatives and identifying opportunities in this area as
well as the possibility of accessing government funding.
The WA government has undertaken initiatives in the construction and infrastructure industries to boost the state economy which
is expected to result in continued activity in the C&D waste recycling sector. Expenditure on infrastructure in WA is likely to be
higher on the back of initiatives undertaken by various local councils. A state-wide Construction Panel has been established to
expedite the delivery of projects across WA. The federal government announced its “Home Builder” plan to stimulate the residential
construction industry. On 7 June 2020, the WA state government announced its own stimulus package whereby eligible homebuyers
could qualify for cash grants. Additionally, WA Main Roads is fast-tracking the tendering process for projects worth $2.37 billion.
Building on the successful METRONET Railcar Manufacturing and Assembly facility, currently under construction in Bellevue, the
WA government has announced an additional $40.1 million to build a new diesel railcar maintenance facility.
In light of these initiatives, which have the potential to positively impact the Company’s C&D recycling business, the Group expects
a steady improvement in new home building renovation and demolition activities.
7. EARNINGS PER SHARE
Basic loss per share for the year ended 30 June 2020 was $0.08. This compares to a basic loss from per share of $2.93 for the
previous year. During the financial year, the Group did not declare or pay any dividends (2019: $Nil).
17
Directors’ Report (continued)
8. SIGNIFICANT CHANGES IN THE COMPANY’S AFFAIRS
All significant changes in the state of affairs of the Group during the financial year are discussed as detailed above under corporate
and below under events arising since the end of the reporting period.
9. EVENTS SUBSEQUENT TO REPORTING DATE
With the exception of the transactions noted below, no material transactions have occurred since 30 June 2020 and the date of
the approval of the financial statements which the Directors consider require disclosure.
The Company is progressing with the construction of the landfill project and has placed an order to procure the liners for the first
cell at a cost of $589,683 excluding GST.
10. REMUNERATION REPORT – Audited
The Remuneration Report contains the following sections:
10.1 Directors and Executive Key Management Personnel (KMP) Covered in this Report
10.2
Remuneration Governance
10.3 Use of Remuneration Consultants
10.4 Overview of Company Performance
10.5
10.6
10.7
10.8
10.9 Non-Executive Directors’ Remuneration
10.10 Other – KMP Disclosures
Executive Remuneration Strategy and Framework
FY20 Performance Incentive Outcomes for Executives
FY20 Executive Remuneration Paid and Accrued
Service Contracts
10.1 Directors and Executive KMP Covered in this Report
Name
Directors
Robert McKinnon
Tomasz Rudas
Mark Puzey
Richard Allen
Sathsiri Saksitthisereekul
Damien Flugge
Executive KMP
Vijay Joshi
Damien Flugge 1
John Colli
Position
Non-Executive Chairman (appointed 9 December 2019)
Managing Director (MD)
Non-Executive Director (appointed 9 December 2019)
Non-Executive Director (appointed 9 December 2019)
Non-Executive Director
Executive Director (resigned as a director on 9 December 2019)
Chief Financial Officer (CFO)
General Manager
Company Secretary
1 Damien Flugge resigned as a director on 9 December 2019 but continued as a KMP as General Manager
10.2 Remuneration Governance
The Remuneration Committee is a committee of the Board. It assists the Board in fulfilling its responsibilities relating to the
remuneration of Directors, the remuneration of, and incentives for the MD and other Executive KMP, and remuneration practices,
strategies and disclosures generally. The Remuneration Committee also reviews gender pay equity.
It is critical that the Remuneration Committee is independent of management when making decisions affecting employee
remuneration. Accordingly, the Remuneration Committee is comprised solely of Non-Executive Directors, majority of whom are
independent. As the Company listed on the ASX in December 2019, it is still in the process of reviewing various governance matters.
Accordingly, the Remuneration Committee, as a separate committee of the board, was established in June 2020.
A critical objective of the Remuneration Committee is to ensure that remuneration policies and structures are fair, competitive and
aligned with the long-term interests of the Group. In doing this, the Remuneration Committee will seek assistance from independent
remuneration consultants as required.
18 M8 Sustainable Limited Annual Report 2020
Directors’ Report (continued)
10.2 Remuneration Governance (continued)
The Corporate Governance Plan and the Remuneration Committee Charter provide further information on the role of the
Remuneration Committee. These can be viewed on the Group’s website www.m8sustainble.com.au under the tab – Investors,
Corporate Governance.
10.3 Use of Remuneration Consultants
During the year, no external remuneration consultants were engaged. As the Company grows, external consultants will be engaged
to help formulate the appropriate executive remuneration framework for the Company.
10.4 Overview of Company Performance
The table below sets out information about the Group’s earnings and movements in share price from incorporation and including
the current financial year.
Loss after income tax ($)
Share price at year end ($)
2020
2019
2018
13,794,138
7,230,316
1,779,198
0.09
N/A
N/A
10.5 Executive Remuneration Strategy and Framework
The objective of the Company’s executive remuneration framework is to ensure that remuneration for performance is competitive
and appropriate for the results delivered. The framework aligns executive remuneration with achievement of strategic objectives
and the creation of value for shareholders, and conforms to market practice for delivery of reward.
The Board ensures that executive remuneration satisfies the following key criteria for good reward governance practices:
•
•
competitive and reasonableness
acceptability to shareholders
• performance linkage / alignment of executive compensation
•
transparency
As a newly listed entity, the Remuneration Committee is developing a more fulsome remuneration framework that will be market
competitive and complementary to the reward strategy of the organisation. In doing so, it will be referenced to company
performance that will encourage long term growth.
The proposed framework will provide a mix of fixed and variable pay, and a blend of short and long-term incentives. As executives
gain seniority within the Group, the balance of this mix will shift to a higher proportion of ‘at risk’ rewards.
The executive remuneration framework consists of two key elements:
-
-
Fixed Annual Remuneration (FAR)
Performance Incentive Remuneration (PIR)
The Company’s remuneration policy is to position FAR at the 50th percentile of the market data. A benchmarking review will be
undertaken during FY21 to ensure the KMPs are appropriately remunerated.
10.6 FY20 Performance Incentive Outcomes for Executives
PIR consists of Performance Rights issued by the Company on 4 December 2019 (see section 10.10).
19
Directors’ Report (continued)
10.7 FY 20 Executive Remuneration Paid and Accrued
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2
Directors’ Report (continued)
10.8 Service Contracts
On appointment to the Board, all Non-Executive Directors enter into a service contract with the Group in the form of a letter of
appointment. The contract summarises the Board’s policies and terms, including compensation relevant to the Director.
Remuneration and other forms of employment for the MD, CFO and other Executive KMP are also formalised in service contracts.
Each of these contracts also provides for performance related incentives and other benefits. Other major provisions of the contracts
relating to remuneration are set out below.
All contracts with Executives may be terminated without cause early by either party providing notice, subject to termination
payments detailed below:
Name
Tomasz Rudas
Vijay Joshi
Damien Flugge
John Colli
Contract
Term
5 years 1
5 years 1
5 years 1
No fixed term
Employee
notice period
N/A
N/A
N/A
3 months
Employer
notice period
6 months
6 months
6 months
3 months
Base salary 2
$250,000
$200,000
$200,000
$200,000
Termination
benefit 3
$136,875
$109,500
$109,500
$ 54,750
1 The contract commenced on 1 September 2017 for a term of 5 years and may be extended by the Company for a further 5 years
by giving notice at any time during a 2-year period prior to the expiry of the initial 5-year term.
2 Base salaries (including FAR rights) are quoted for the year ended 30 June 2020. They are reviewed annually by the Remuneration
Committee and exclude superannuation.
3 Termination benefits are payable on early termination by the Group, other than for gross misconduct. Unless otherwise indicated
they are equal to base salary (including FAR rights and superannuation) for the notice period.
10.9 Non-Executive Directors’ Remuneration
Fees and payments to Non-Executive Directors reflect the demands which are made on, and the responsibilities of the Directors.
Non-Executive Directors’ fees and payments are reviewed annually by the Board.
The Company’s remuneration policy is to position annual remuneration at the 50th percentile of the market data. Current approved
fees:
Chair
Non-Executive Directors
150,000
75,000
Board fees including committee fees
and superannuation obligations
$
Superannuation contributions required under the Australian superannuation guarantee legislation continue to be made and are
deducted from the Directors’ overall fee entitlements.
As a result of the impact on the Company caused by the COVID-19 crisis, Non-Executive Directors’ fees were reduced by 25% for
a 2-month period commencing in April 2020. In June 2020, the fees were revised whereby the reduction was 10% with an
additional 10% deferred, with the Board reviewing the reduction on a monthly basis.
Non-Executive Directors’ fees are determined within an aggregate directors’ fee pool limit, which is periodically recommended for
approval by shareholders. The maximum currently stands at $500,000 per annum and was approved by shareholders at a General
Meeting held on 26 November 2019.
21
Directors’ Report (continued)
10.9 Non-Executive Directors’ Remuneration (continued)
Details of Non-Executive Directors’ remuneration for the year ended 30 June 2020 are set out below:
Short-
term
benefits
Fees
$
66,532
33,925
33,266
36,369
Post -
employ-
ment
benefits
Share-
based
payment
Consul-
tancy Fees
$
Super-
annuation
$
17,500
19,226
56,030
-
6,321
3,223
3,160
-
Rights
$
23,303
17,477
17,477
17,477
Total
$
113,656
73,851
109,933
53,846
170,092
92,756
12,704
75,734
351,286
Perfor-
mance
related
benefit
%
21
24
16
32
Current Non-Executive Directors
Robert McKinnon – Chairman
Richard Allen – Director
Mark Puzey – Director
Saithsiri Saksitthisereekul – Director
Superannuation contributions are made on behalf of Non-Executive Directors to satisfy the Group’s obligations under applicable
superannuation guarantee legislation.
Messrs McKinnon, Puzey and Allen entered into consultancy agreements with the Company on March 2019, January 2019 and
March 2019 respectively until the Company was admitted to the official list of the ASX on 11 December 2019. Details of
consultancy fees paid are set out in the financial statements in Note 27 Related Party Transactions.
Rights are not yet vested against the share-based payment recognised above.
10.10 Other – KMP Disclosures
KMP – Option Holdings
No KMP held any options for the financial year ended 30 June 2020.
KMP – Shareholdings
The movement during the financial year ended 30 June 2020 in the number of ordinary shares in the Company held directly,
indirectly or beneficially, by each KMP, including their related parties, is as follows:
Name
Robert McKinnon (appointed
9 December 2019)
Tomasz Rudas
Richard Allen (appointed
9 December 2019)
Mark Puzey (appointed
9 December 2019)
Saithsiri Saksitthisereekul 1
Damien Flugge
Vijay Joshi
John Colli
Held at
1 July 2019
Purchases/ Conversion
Acquired
of
Performance
Rights
Sales/
Held at
Transferred Resignation/
Retirement
Held at
30 June
2020
N/A
2
N/A
N/A
-
98
-
-
-
-
-
-
107,115,038
-
2,800
15,000
-
-
-
-
-
-
-
-
-
-
-
-
23,900,000
-
2,800
-
-
-
-
-
-
-
-
-
-
2
-
-
83,215,038
98
-
15,000
1 Mr Saksitthisereekul is the managing director and a shareholder of SBANG which holds 83,215,038 ordinary shares in the
Company. All shares held by SBANG are escrowed – 59,357,999 until 11 December 2020 and 23,857,039 until 11 December
2021. All share movements occurred in the period prior to the Company being admitted to the official list of the ASX.
22 M8 Sustainable Limited Annual Report 2020
Directors’ Report (continued)
10.10 Other – KMP Disclosures (continued)
KMP – Rights Holdings
The Company agreed, subject to shareholder approval, to issue 9,250,000 Performance Rights to KMPs of the Company. The grant
of the Performance Rights was approved by shareholders at a general meeting held on 26 November 2019. Upon listing of the
Company on the ASX, the Performance Rights were issued to all KMPs.
Name
Robert McKinnon (appointed
9 December 2019)
Tomasz Rudas
Richard Allen (appointed
9 December 2019)
Mark Puzey (appointed
9 December 2019)
Saithsiri Saksitthisereekul
Damien Flugge
Vijay Joshi
John Colli
Held at
1 July 2019
Issued
Conversion
of
Performance
Rights
Sales/
Held at
Transferred Resignation/
Retirement
Held at
30 June
2020
-
-
-
-
-
-
-
-
800,000
3,000,000
600,000
600,000
600,000
1,500,000
2,050,000
100,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
800,000
3,000,000
600,000
600,000
600,000
1,500,000
2,050,000
100,000
For each grant of Performance Rights for a right to acquire ordinary shares, the details of the award are set out in the table below.
The minimum value of the Rights yet to vest is nil, as the Rights will be forfeited if the vesting conditions are not met. The maximum
value of the Rights yet to vest is determined as the amount of the grant date fair value that is yet to be expensed.
23
Directors’ Report (continued)
10.10 Other – KMP Disclosures (continued)
KMP – Rights Holdings (continued)
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24 M8 Sustainable Limited Annual Report 2020
Directors’ Report (continued)
10.10 Other – KMP Disclosures (continued)
KMP – Rights Holdings (continued)
Each KMP received an equal proportion of their total right between the six classes detailed below. The milestones that are required
to be achieved for each Performance Right in the relevant class to be converted into one share at the election of the KMP for no
consideration are as follows:
Class A Performance Rights: Performance Rights will convert into Shares upon the Company achieving, in relation to its existing
business and assets at the date the Company is admitted to the Official List of ASX (Listing Date), an operating revenue of at least
$20 million in the first 12 months following issue.
Class B Performance Rights: Performance Rights will convert into Shares upon the Company achieving, in relation to its existing
business and assets at the Listing Date, an operating revenue of at least $40 million in the period commencing on the date which
is 12 months following issue and ending on the date which is 24 months following issue.
Class C Performance Rights: Performance Rights will convert into Shares upon the Company achieving, in relation to its existing
business and assets at the Listing Date, earnings before interest, tax, depreciation and amortisation of at least $5 million in the first
12 months following issue.
Class D Performance Rights: Performance Rights will convert into Shares upon the Company achieving, in relation to its existing
business and assets at the Listing Date, earnings before interest, tax, depreciation and amortisation of at least $12.5 million in the
period commencing on the date which is 12 months following issue and ending on the date which is 24 months following issue.
Class E Performance Rights: Performance Rights will convert into Shares upon the Maddington Facility operating at an annual
rate of 210,000 tonnes and/or m3 in the first 12 months following issue.
Class F Performance Rights: Performance Rights will convert into Shares upon the Gingin Facility being fully licensed and
operational in the first 24 months following issue. The profitable growth of the Group and the development of the Gingin landfill
facility were identified as key performance measures to enhance shareholder value.
Loans to KMP
No KMP was provided with a loan by the Company for the year ended 30 June 2020.
End of the Remuneration Report – Audited
11. ENVIRONMENTAL REGULATIONS AND PERFORMANCE
The Group’s operations are subject to environmental regulations under Western Australian law. The Group has procedures in
place to ensure regulations are adhered to. As at the date of this report the Group is not aware of any breaches in relation to
environmental matters.
12. PROCEEDINGS ON BEHALF OF THE GROUP
No proceedings have been brought on behalf of the Group nor has any application been made in respect of the Group under
Section 236 of the Corporations Act 2001.
13. SHARES OPTIONS
For the financial year and as at the date of this report, the Company had issued 20,000,000 options to acquire shares. All options
were issued pursuant to the prospectus for the Company’s Initial Public Offering to the lead manager Canaccord Genuity (Australia)
Limited.
14. INDEMNIFICATION AND INSURANCE OF DIRECTORS AND OFFICERS
The Company has indemnified all directors of the Company to the maximum extent of the law for liabilities and costs incurred, in
their capacity as a director,for which they may be held personally liable, except where there is a lack of good faith.
During the financial year, the Company paid a premium in respect of a contract to insure the directors 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
liability and the amount of the premium.
25
Directors’ Report (continued)
15. CORPORATE GOVERNANCE
The Statement of Corporate Governance Practices is disclosed on the Company’s website https://m8sustainable.com.au/ under
the tab Investors – Corporate Governance.
16. COMPANY SECRETARY
Mr. John Colli was appointed to the position of Company Secretary on 10 December 2018. Mr Colli has over 30 years’ experience
in secretarial activities of ASX listed companies including being the former company secretary of Coventry Group Ltd (ASX: CYG)
for 17 years and the former ASX listed company Challenge Bank Limited.
17. AUDITOR’S INDEMNIFICATION
To the extent permitted by law, the Company has agreed to indemnify its auditors, Ernst & Young, as part of the terms of its audit
engagement agreement against claims by third parties arising from the audit (for an unspecified amount). No payment has been
made to indemnify Ernst & Young during or since the financial year.
18. NON-AUDIT SERVICES
Details of the amounts paid or payable to the external auditor of the Group, Ernst & Young, for audit and non-audit services
provided during the year are disclosed in Note 25 to the Financial Statements.
The Directors are satisfied that the provision of non-audit services by the external auditor during the financial year is compatible
with the general standard of independence for auditors imposed by the Corporations Act 2001 for the following reasons:
•
•
all non-audit services have been reviewed and approved by the Board to ensure that they do not impact the integrity and
objectivity of the auditor.
all non-audit services were subject to the corporate governance processes adopted by the Group and have been reviewed to
ensure that they do not affect the integrity or objectivity of the auditor.
19. AUDITOR’S INDEPENDENCE DECLARATION
A copy of the Auditor’s Independence Declaration as required under section 307C of the Corporations Act 2001 is included on
page 33 of this financial report.
Signed in accordance with a resolution of the Directors.
Tomasz Rudas
Managing Director
Dated this 29th day of September 2020
Perth
Western Australia
26 M8 Sustainable Limited Annual Report 2020
Directors’ Declaration
The Directors of the Company declare that:
1.
In the Directors’ opinion, the attached consolidated financial statements and notes thereto are in accordance with the
Corporations Act 2001, including compliance with accounting standards and giving a true and fair view of the financial position
of the Group as at 30 June 2020 and performance of the Group for the financial year ended 30 June 2020;
2.
In the Directors’ opinion, there are reasonable grounds to believe that the Group will be able to pay its debts as and when they
become due and payable; and
3.
the financial statements and notes also comply with International Financial Reporting Standards as disclosed in Note 2(a)(i).
This declaration is made in accordance with a resolution of the Directors.
Tomasz Rudas
Managing Director
Dated this 29th day of September 2020
Perth
Western Australia
27
Ernst & Young
11 Mounts Bay Road
Perth WA 6000 Australia
GPO Box M939 Perth WA 6843
Tel: +61 8 9429 2222
Fax: +61 8 9429 2436
ey.com/au
Independent auditor’s report to the members of M8 Sustainable Limited
Report on the audit of the consolidated financial report
Opinion
We have audited the consolidated financial report of M8 Sustainable Limited (the Company) and its subsidiary (collectively the
Group), which comprises the consolidated statement of financial position as at 30 June 2020, the consolidated statement of
comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then
ended, notes to the financial statements, including a summary of significant accounting policies, and the directors’ declaration.
In our opinion, the accompanying consolidated financial report of the Group is in accordance with the Corporations Act 2001,
including:
a) giving a true and fair view of the consolidated financial position of the Group as at 30 June 2020 and of its consolidated
financial performance for the year ended on that date; and
b) complying with Australian Accounting Standards and the Corporations Regulations 2001.
Basis for opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further
described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the
Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of
the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including
Independence Standards) (the Code) that are relevant to our audit of the consolidated 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
M8 Sustainable Limited (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 judgment, were of most significance in our audit of the consolidated
financial report of the current year. These matters were addressed in the context of our audit of the consolidated financial report
as a whole, and informing our opinion thereon, but we do not provide a separate opinion on these matters. For each matter below,
our description of how our audit addressed the matter is provided in that context.
We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our
report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond
to our assessment of the risks of material misstatement of the consolidated financial report. The results of our audit procedures,
including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying
consolidated financial report.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
28 M8 Sustainable Limited Annual Report 2020
G
Australia
Impairment of Receivables
Why significant
How our audit addressed the key audit matter
The Group generates revenue from operating its waste
recycling facility in Maddington, Western Australia and has a
contract for the provision of operational and maintenance
services to a related party. The majority of sales are on credit
terms.
As disclosed in note 14, trade and other receivables was
$1,057,734 at 30 June 2020. The Group is required to assess
the recoverability of its trade receivables as at that date.
The recoverability of trade and other receivables was
significant to our audit due to the quantum as at year end.
Our audit procedures included the following:
• Selected a sample of waste revenue transactions and
agreed the consideration to sales invoices and weighbridge
tickets to ensure receivables correctly recognised.
• Agreed revenue relating to operational and maintenance
services to contracts to ensure receivables were correctly
recognised.
• Vouched cash collections post year end to determine that
receivables were recoverable.
• Obtained debtor confirmation for the amount receivable
from a related party as at year end and obtained a copy of
a support letter from a significant shareholder of the Group
for the amount outstanding from the related party.
• Assessed the adequacy and completeness of the disclosures
within the financial report.
Accounting for share-based payments
Why significant
How our audit addressed the key audit matter
The Group has issued performance rights to the Directors and
management of the Group and options to the Lead Manager
as part of the initial public offering (“IPO”).
Due to the complex and judgmental estimates used in
determining the fair value and, in respect of the performance
rights to Directors and management, determining the
likelihood of vesting conditions being met, we considered the
Group’s calculation of the share-based payment expense to be
a key audit matter.
The Group’s disclosures relating to share-based payments
recognised for the year ended 30 June 2020 are included
within Note 23 of the financial statements.
Our audit procedures included the following:
• Assessed the methodology used by the Group to determine
the fair value of the performance rights issued during the
period.
• Assessed the Group’s basis for determining the probability
of achieving the vesting conditions at the end of the
reporting period by critically assessing budgets and reports
prepared for and as approved by the Board of Directors.
• Obtained copies of independent valuations performed for
the options and performance rights issued during the year
and assessed the capability of the independent valuer.
• In conjunction with our EY specialists, considered the
appropriateness of the key assumptions used in the
valuation.
• Ensured the expense was recognised over the appropriate
vesting period.
• Assessed the adequacy and completeness of the disclosures
within the financial report.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
29
G
Australia
Accounting for capital raising costs
Why significant
How our audit addressed the key audit matter
During the year ended 30 June 2020, the Group undertook an
initial public offering (“IPO”). The IPO resulted in total costs of
$6,813,227 of which $1,166,293 was recognised in equity.
This was considered a key audit matter as judgement is required
by management to allocate costs related to the IPO between
those relating the issuance of new share capital and those that
do not. Costs relating to new share capital are allocated directly
against equity whilst the remainder are expensed in the profit
and loss.
The Group’s treatment of IPO related costs is detailed within
Note 6.
Impairment of non-financial assets
Our audit procedures included the following:
• Vouched significant IPO costs to supporting documentation
including contracts and invoices.
• Assessed the valuation of non-cash IPO expenses.
• Assessed the appropriateness of the allocation of IPO related
costs to equity and profit and loss in accordance with
Australian Accounting Standards.
• Assessed the adequacy and completeness of the disclosures
within the financial report.
Why significant
How our audit addressed the key audit matter
As required by Australian Accounting Standards, the Group
assesses at the end of each reporting period whether there are
any factors indicating that an asset may be impaired. As at 30
June 2020, an impairment assessment was conducted for the
Maddington cash generating units (CGU) and Gingin CGU,
resulting in an impairment charge of $2,245,501 in respect of
the Maddington CGU.
Given the significance of the CGU value relative to the Group’s
total assets and the degree of judgement involved in assessing
the recoverable value of the CGU, we consider this a key audit
matter.
Key assumptions, judgements and estimates applied in the
Group’s impairment assessment are set out in Note 10.
Our audit procedures included the following:
• Assessed the Group’s identification of CGUs and of indicators
of impairment
• Assessed the carrying value assigned to each CGU by the
Group
• In conjunction with our valuation specialists, examined the
Group’s impairment model which calculates the value in use
of the Maddington CGU and tested the reasonableness of
key assumptions including cash flow forecasts considering
the accuracy of previous forecasts, forecast capital
expenditure, revenue growth and discount rate
• Tested the mathematical accuracy of the impairment model
and compared relevant data to supporting documentation
• Recalculated the impairment recognised as the difference
between the value in use of the CGU and the net assets of
the CGU.
• Assessed the adequacy of the Group’s disclosures in respect
of asset carrying values, the impairment testing performed
and the impairment recognised.
Information other than the consolidated financial report and auditor’s report thereon
The directors are responsible for the other information. The other information comprises the information included in the Company’s
2020 Annual Report, but does not include the consolidated financial report and our auditor’s report thereon.
Our opinion on the consolidated financial report does not cover the other information and accordingly we do not express any form
of assurance conclusion thereon, with the exception of the Remuneration Report and our related assurance opinion.
In connection with our audit of the consolidated financial report, our responsibility is to read the other information and, in doing
so, consider whether the other information is materially inconsistent with the consolidated 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.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
30 M8 Sustainable Limited Annual Report 2020
G
Australia
Responsibilities of the Directors for the consolidated financial report
The directors of the Company are responsible for the preparation of the consolidated 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 consolidated financial report that gives a true and fair view and
is free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial report, the directors are responsible for assessing the Group’s ability to continue as a going
concern, disclosing, as applicable, matters relating to going concern and using the going concern basis of accounting unless the
directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the consolidated financial report
Our objectives are to obtain reasonable assurance about whether the consolidated 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 consolidated financial report.
As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgment and maintain
professional scepticism throughout the audit. We also:
• Identify and assess the risks of material misstatement of the consolidated financial report, whether due to fraud or error, design
and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide
a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting
from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures
made by the directors.
• Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence
obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s
ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in
our auditor’s report to the related disclosures in the consolidated financial report or, if such disclosures are inadequate, to modify
our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future
events or conditions may cause the Group to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the consolidated financial report, including the disclosures, and
whether the consolidated financial report represents the underlying transactions and events in a manner that achieves fair
presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the
Group to express an opinion on the consolidated financial report. We are responsible for the direction, supervision and
performance of the Group audit. We remain solely responsible for our audit opinion.
We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant
audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence,
and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence,
and where applicable, actions taken to eliminate threats or safeguards applied.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
31
G
Australia
From the matters communicated to the directors, we determine those matters that were of most significance in the audit of the
consolidated financial report of the current year and are therefore the key audit matters. We describe these matters in our auditor’s
report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine
that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be
expected to outweigh the public interest benefits of such communication.
Report on the audit of the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included in pages 9 to 18 of the directors’ report for the year ended 30 June 2020.
In our opinion, the Remuneration Report of M8 Sustainable Limited and its subsidiary (the Group) for the year ended 30 June
2020, complies with section 300A of the Corporations Act 2001.
Responsibilities
The directors of the Group 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.
Ernst & Young
Robert A Kirkby
Partner
Perth, Western Australia
29 September 2020
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
32 M8 Sustainable Limited Annual Report 2020
Ernst & Young
11 Mounts Bay Road
Perth WA 6000 Australia
GPO Box M939 Perth WA 6843
Tel: +61 8 9429 2222
Fax: +61 8 9429 2436
ey.com/au
Auditor’s independence declaration to the Directors of M8 Sustainable Limited
As lead auditor for the audit of the financial report of M8 Sustainable Limited for the financial year ended 30 June 2020, I declare
to the best of my knowledge and belief, there have been:
a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and
b) no contraventions of any applicable code of professional conduct in relation to the audit.
This declaration is in respect of M8 Sustainable Limited and the entity it controlled during the financial year.
Ernst & Young
Robert A Kirkby
Partner
29 September 2020
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
33
M8 Sustainable Limited and its Controlled Entity
Consolidated Statement of Profit or Loss and Other
Comprehensive Income
for the year ended 30 June 2020
Revenue from contracts with customers
Other income
Total income
Employee benefits, salaries and wages
Recycling, waste disposal and other site costs
Rental outgoings and licences fees
Insurance costs
Professional fees
IPO related costs
Other expenses
Depreciation
Finance costs
Impairment of non-financial assets
Loss before income tax
Income tax benefit
Loss after income tax
Other comprehensive income
Total comprehensive loss for the year
Earnings per share:
• Basic loss per share attributable to ordinary equity holders
of the parent (dollars per share)
• Diluted loss per share attributable to ordinary equity holders
of the parent (dollars per share)
Year ended
30 June 2020
$
1,982,576
53,183
Year ended
30 June 2019
$
683,466
397,500
2,035,759
1,080,966
(2,676,183)
(1,496,570)
(402,915)
(351,950)
(926,334)
(5,646,934)
(388,974)
(1,188,450)
(1,178,927)
(2,245,501)
(2,331,961)
(197,608)
(1,377,157)
(70,335)
(111,812)
(1,749,917)
(381,389)
(535,943)
(1,569,646)
-
(14,466,979)
(7,244,802)
672,841
14,486
(13,794,138)
(7,230,316)
-
-
(13,794,138)
(7,230,316)
(0.08)
(0.08)
(2.93)
(2.93)
Notes
3
4
5
6
7
8
9
10
11
12
12
The accompanying notes form part of and should be read in conjunction with these consolidated financial statements.
34 M8 Sustainable Limited Annual Report 2020
M8 Sustainable Limited and its Controlled Entity
Consolidated Statement of Financial Position
as at 30 June 2020
CURRENT ASSETS
Cash and cash equivalents
Trade and other receivables
Prepayments
Advances to contractor
Total Current Assets
NON-CURRENT ASSETS
Property, plant and equipment
Other non-current assets
Right-of-use asset
Total Non-current Assets
TOTAL ASSETS
CURRENT LIABILITIES
Trade other payables
Borrowings
Lease liabilities
Provisions
Total Current Liabilities
NON-CURRENT LIABILITIES
Borrowings
Lease liabilities
Deferred tax liabilities
Total Non-current Liabilities
TOTAL LIABILITIES
NET ASSETS / (LIABILITIES)
EQUITY / SHAREHOLDERS’ DEFICIT
Share capital
Shared-based payment reserve
Accumulated losses
TOTAL EQUITY / SHAREHOLDERS’ DEFICIT
Notes
30 June 2020
$
30 June 2019
$
13
14
15
16
17
18
19
20
21
19
20
22
22
4,164,270
1,057,734
277,366
250,000
5,749,370
17,214,592
406,500
6,136,773
23,757,865
41,007
1,737,320
55,883
-
1,834,210
15,616,375
146,000
-
15,762,375
29,507,235
17,596,585
950,547
61,237
211,067
101,921
1,579,636
20,550,167
-
1,015,935
1,324,772
23,145,738
1,348
7,474,118
-
7,475,466
20,089
-
672,841
692,930
8,800,238
23,838,668
20,706,997
(6,242,083)
41,991,364
1,519,285
(22,803,652)
2,345,438
421,993
(9,009,514)
20,706,997
(6,242,083)
The accompanying notes form part of and should be read in conjunction with these consolidated financial statements.
35
M8 Sustainable Limited and its Controlled Entity
Consolidated Statement of Changes in Equity
for the year ended 30 June 2020
Issued
capital
$
Share-
based
payment
reserve
$
Accumulated
losses
$
Total
equity
$
Balance as at 1 July 2018
125
233,751
(1,779,198)
(1,545,322)
Loss after tax
Other comprehensive income, net of tax
Total comprehensive loss for the year
Share-based payments
Shares issued
-
-
-
-
2,345,313
2,345,313
-
-
-
(7,230,316)
(7,230,316)
-
-
(7,230,316)
(7,230,316)
188,242
-
188,242
-
-
-
188,242
2,345,313
2,533,555
Balance as at 30 June 2019
2,345,438
421,993
(9,009,514)
(6,242,083)
Balance as at 1 July 2019
2,345,438
421,993
(9,009,514)
(6,242,083)
Loss after tax
Other comprehensive income, net of tax
Total comprehensive loss for the year
Share-based payments
Shares issued - IPO
-
-
-
-
19,500,000
Shares issued to promoters during the year
2,802,687
Shares issued to settle loans during the year
18,509,532
Capital raising costs
39,645,926
(1,166,293)
1,097,292
-
-
-
(13,794,138)
(13,794,138)
-
-
(13,794,138)
(13,794,138)
1,097,292
-
-
-
-
-
-
-
-
-
-
1,097,292
19,500,000
2,802,687
18,509,532
(1,166,293)
40,743,218
Balance as at 30 June 2020
41,991,364
1,519,285
(22,803,652)
20,706,997
The accompanying notes form part of and should be read in conjunction with these consolidated financial statements.
36 M8 Sustainable Limited Annual Report 2020
M8 Sustainable Limited and its Controlled Entity
Consolidated Statement of Cash Flows
for the year ended 30 June 2020
Cash flows from operating activities
Loss after income tax
Adjustment for:
Non-cash items:
Depreciation
Impairment of non-financial assets
Loss on disposal of property, plant and equipment
Interest expense
Non-cash issuance of promoter’s shares
Loss on conversion of SBANG debt
Share options – Lead manager (gross)
Share options – Lead manager transferred to equity
Director indemnity cancelled
Director and Executive bonuses rescinded
Share-based payment expense
Trade receivable settled against loan payable
Loss on settlement of loan
Changes in assets and liabilities:
Decrease/(increase) in receivables and other receivables
(Increase) in prepayments
(Increase) in advances to contractors
(Decrease)/increase in trade payable and other payables
(Decrease)/increase in provisions
(Decrease) in deferred tax liabilities
Net cash used in operating activities
Cash flows from investing activities
Purchase of property, plant and equipment
Proceeds from sale of fixed assets
Deposit for bank guarantee
Net cash used in investing activities
Cash flows from financing activities
Proceeds from issue of shares
Proceeds from short-term loans
Proceeds from related party loan
Proceeds from SBANG Sustainable Energies Ltd loan
Proceeds from SBANG Sustainable Energies Ltd – Debt
Proceeds from SBANG Sustainable Energies Ltd – Convertible Note
Repayment of short-term loans
Repayment of amount due to related party
Repayment of SBANG Sustainable Energies Ltd loan
Year ended
30 June 2020
$
Year ended
30 June 2019
$
Notes
(13,794,138)
(7,230,316)
1,188,450
2,245,501
53,479
1,131,991
2,802,687
2,463,590
1,150,000
(480,749)
(492,311)
(1,072,180)
291,285
-
-
679,587
(221,483)
(250,000)
(206,349)
(116,118)
(672,841)
535,943
-
8,625
1,672,971
1,230,717
-
-
-
-
-
-
(655,913)
707,442
(4,082)
(146,035)
-
417,887
325,641
(14,487)
(5,299,599)
(3,151,607)
(3,433,625)
(1,679,757)
107,454
(260,500)
75,000
-
(3,586,671)
(1,604,757)
19,500,000
565,458
1,410,457
-
401,000
1,749,000
(547,364)
(1,410,457)
(6,590,778)
-
113,636
561,137
8,940,000
-
-
(1,012,130)
(1,156,325)
(2,474,000)
37
M8 Sustainable Limited and its Controlled Entity
Consolidated Statement of Cash Flows
for the year ended 30 June 2020 (continued)
Repayment of shareholder loan
Repayment of principal portion of lease liabilities
Payment of capital raising cost
Interest paid
Net cash generated from financing activities
Notes
Year ended
30 June 2020
$
(50,000)
(211,066)
(685,544)
(1,121,173)
13,009,533
Year ended
30 June 2019
$
(100,000)
-
-
(147,518)
4,724,800
Net increase/(decrease) in cash and cash equivalents
4,123,263
(31,564)
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the financial year
13
41,007
4,164,270
72,571
41,007
The accompanying notes form part of and should be read in conjunction with these consolidated financial statements.
38 M8 Sustainable Limited Annual Report 2020
M8 Sustainable Limited and its Controlled Entity
Notes to the Consolidated Financial Statements
for the year ended 30 June 2020
Note 1 General Information
This financial report, which covers the consolidated financial statements of M8 Sustainable Limited (the “Company” or the “Parent”)
and its subsidiary (collectively the “Group”), was authorised for issue in accordance with a resolution of the Directors on
29 September 2020.
M8 Sustainable Limited is a company limited by shares, incorporated and domiciled in Australia. Its registered office is 4C Consulting
Pty Ltd, Unit 5, 145 Walcott Street, Mount Lawley WA 6050 and principal place of business is Unit 1, 48 Kelvin Road, Maddington
WA 6109.
The principal activity of the Group during the financial year was receiving and recycling of Commercial & Industrial (C&I) and
Construction & Demolition (C&D) waste at its Maddington Waste Facility. Following a significant remedi- ation program, Maddington
was re-commissioned on 1 July 2019 and commenced receiving waste in August 2019.
The Company also provided operations and maintenance services to the Brockway recycling facility at Shenton Park which is owned
by Star Shenton Energy Pty Ltd.
Note 2 Basis of Preparation and Summary of Significant Accounting Policies
a) Basis of preparation
(i) Compliance statement
The consolidated financial statements are general purpose financial statements that have been prepared in accordance with the
Corporations Act 2001, Australian Accounting Standards and Interpretations of the Australian Accounting Standard Board and in
compliance with International Financial Standards (“IFRS”). The Group is a for- profit entity for financial reporting purposes under
the Australian Accounting Standards. Material accounting policies adopted in the preparations of the financial statements are
presented below.
The consolidated financial statements have been prepared on a historical cost basis.
The accounting policies adopted by the Group are consistent with the prior year except for the impact of adopting new and
amended Accounting Standards and Interpretations which were effective from 1 July 2019 (see below) and the adoption of
accounting policies during the year relating to new transactions and events, as follows:
-
Inventory (see Note 2 (u)); and
- Government Grants (see Note 2 (v)).
The Group has not elected to early adopt any new or amended accounting standard or interpretation that has been issued but is
not yet effective.
(ii) Comparative figures
When required by Australian Accounting Standards, comparative figures have been adjusted to conform to changes in presentation
for the current financial year. Certain comparative financial information present in the statement of comprehensive income have
been reclassified in this financial report to improve presentation of information. The reclassification results in no net change to the
loss for the comparative period.
(iii) New and amended accounting standards and interpretations adopted
The Group has adopted all new or amended standards and interpretations effective from 1 July 2019. The adoption of these new
and amended accounting standards and interpretations did not result in any significant changes to the Group’s accounting policies,
with the exception of the adoption of AASB 16 Leases (“AASB 16”).
AASB 16
The Group adopted AASB 16 as of 1 July 2019. AASB 16 supersedes AASB 117 Leases (AASB 17) and related interpretations. The
standard sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to
account for most leases under a single on-balance sheet model.
AASB 16 provides a new lessee accounting model which requires a lessee to recognise assets and liabilities with a term of more
than 12 months unless the underlying asset is of low value. The depreciation of the lease assets and interest on the lease liabilities
are recognised in the consolidated income statement.
39
M8 Sustainable Limited and its Controlled Entity
Notes to the Consolidated Financial Statements
for the year ended 30 June 2020 (continued)
Note 2 Basis of Preparation and Summary of Significant Accounting Policies
a) Basis of preparation
Before the adoption of AASB 16, the Group classified each of its leases (as lessee) at inception as either a finance lease or operating
lease. For operating leases, the leased item was not capitalised and the lease payments were recognised in the consolidated income
statement on a straight-line basis.
The leases recognised by the Group under AASB 16 predominantly relate to the lease of premises for business operations.
Transition to AASB 16
The Group adopted the new standard using the modified retrospective approach and applied the practical expedient – to use a
single discount rate to a portfolio of leases with reasonably similar characteristics and applied the short-term leases exemption to
leases with lease terms that end within 12 months of the date of initial application.
Lease liabilities were measured at the present value of future lease payments on the initial date of application, being 1 July 2019.
Right of use assets were recognised at an amount equal to the lease liability. In accordance with the transitional provisions of AASB
16, comparative information has not been restated.
Right of use assets and lease liabilities are reflected on the face of the statement of financial position. The principal portion of lease
payments, previously included within operating cashflows, is now classified as a financing activity.
The impact of the application of AASB 16 is as follows:
Assets
Non-current assets
Right-of-use assets
Liabilities
Lease liabilities – current
Lease liabilities – non-current
Retained Earnings
Lease liabilities reconciliation on transition:
Operating lease commitments disclosed at 30 June 2019
Less:
Present value discounting of lease liabilities*
Short-term leases
Lease liabilities recognised on transition on 1 July 2019
01 July 2019
$
7,896,251
(211,067)
(7,685,184)
(7,896,251)
-
$
15,969,208
(8,039,649)
(33,308)
7,896,251
*Lease liabilities were discounted using a weighted average incremental borrowing rate of 10%
(iv) New and amended accounting standards and interpretations not yet effective and not adopted
Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet effective for entities
preparing financial statements for the year ended 30 June 2020 have not been adopted by the Group at the date of authorisation
of these financial statements. The Group has considered the impact of the below and does not expect them to have a material
impact on the financial statements upon adoption.
40 M8 Sustainable Limited Annual Report 2020
M8 Sustainable Limited and its Controlled Entity
Notes to the Consolidated Financial Statements
for the year ended 30 June 2020 (continued)
Note 2 Basis of Preparation and Summary of Significant Accounting Policies (continued)
Standard/Interpretation
Conceptual Framework for Financial Reporting
AASB 2019-1 Amendments to AASs – References to the Conceptual Framework
AASB 2018-6 Amendments to AASs – Definition of a Business
AASB 2019-3 Amendments to AASs – Interest Rate Benchmark Reform
AASB 2018-7 Amendments to AASs – Definition of Material
AASB 2019-5 Amendments to AASs – Disclosure of the Effect of New IFRS Standards Not
Yet Issued in Australia
AASB 2020-4 Amendments to AASs – Covid-19-Related Rent Concessions
AASB 2020-1 Amendments to AASs – Classification of Liabilities as Current or Non-current
Effective Date
1 January 2020
1 January 2020
1 January 2020
1 January 2020
1 January 2020
1 January 2020
1 June 2020
1 January 2022
AASB 2020-3 Amendments to AASs – Annual Improvements 2018–2020 and Other Amendments
1 January 2022
• Amendment to AASB 1, Subsidiary as a First-time Adopter
• Amendments to AASB 3, Reference to the Conceptual Framework
• Amendment to AASB 9, Fees in the ‘10 per cent’ Test for Derecognition of Financial Liabilities
• Amendments to AASB 116, Property, Plant and Equipment: Proceeds before Intended Use
• Amendments to AASB 137, Onerous Contracts—Cost of Fulfilling a Contract
• Amendment to AASB 141, Taxation in Fair Value Measurements
AASB 2014-10 Amendments to AASs – Sale or Contribution of Assets between an Investor and
its Associate or Joint Venture
1 January 2022
b) Basis of Consolidation
The consolidated financial statements comprise the financial statements of the Parent and its subsidiary as at 30 June each year.
Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the controlled entity
and has the ability to affect those returns through its power over the investee. The Group’s controlled entity has a reporting date
of 30 June.
All transactions and balances between Group companies are eliminated on consolidation, including unrealised gains and losses on
transactions between Group companies. Amounts reported in the financial statements of controlled entity have been adjusted
where necessary to ensure consistency with the accounting policies adopted by the Group.
The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or
more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary
and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or
disposed of during the year are included in the consolidated financial statements from the date the Group gains control until the
date the Group ceases to control the subsidiary.
c) Business Combinations
The Group applies the acquisition method in accounting for business combinations. The cost of an acquisition is measured as the
aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any non-controlling interest
(NCI) in the acquiree. Acquisition costs are expensed as incurred.
Goodwill is initially measured at cost being the excess of the aggregate of the consideration transferred and the amount recognised
for NCI over the fair value of the identifiable net assets acquired and liabilities assumed. If the fair value of the identifiable net
assets acquired is in excess of the aggregate consideration transferred, the Group reassesses whether it has correctly identified all
of the assets acquired and all of the liabilities assumed and reviews the procedures used to measure the amounts to be recognised
at the acquisition date. If the reassessment still results in an excess of the fair value of net assets acquired over the aggregate
consideration transferred, then the gain is recognised in the Consolidated Statement of Profit or Loss and Other Comprehensive
Income.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses, if any.
41
M8 Sustainable Limited and its Controlled Entity
Notes to the Consolidated Financial Statements
for the year ended 30 June 2020 (continued)
Note 2 Basis of Preparation and Summary of Significant Accounting Policies (continued)
d) Foreign currency translation
Functional and presentation currency
Both the functional and presentation currency of the Group and its subsidiary is Australian dollars (A$).
Transactions and balances
Transactions in foreign currencies are initially recorded in the functional currency by applying the exchange rates ruling at the date
of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the rate of exchange at the
reporting date.
All exchange differences are taken to the Consolidated Statement of Profit or Loss and Other Comprehensive Income.
e) Revenue from contracts with customers
The Group generates revenue from operating its waste recycling facility in Maddington, Western Australia, which is recognised at
point in time. The Group also has a contract for the provision of operational and maintenance services to a related party, which is
recognised over time.
Revenue from contracts with customers is recognised when control of the goods or services is transferred to the customer at the
amount that reflects the consideration to which the Group expects to be entitled in exchange for those goods or services. The
Group has concluded that it is the principal in its revenue arrangements, because it controls the goods and services before
transferring them to the customer.
Operational and maintenance services
The Group’s contract for rendering of operation and maintenance services to a related party involve various activities. These activities
tend to be substantially the same with the same pattern of transfer to the customer. These services are taken to be one performance
obligation satisfied over the contract period.
The performance obligation is fulfilled over time as services are consumed as provided. The customer is typically invoiced monthly
for a fixed management fee plus a service charge calculated as 10% of operational costs. For these contracts, the transaction price
is considered to be variable consideration. The Group applies the variable consideration allocation exception to allocate variable
consideration to distinct services in the services contract.
Maddington facility gate fee revenue
The Group collects gate fees from customers when the waste is received at its Maddington facility. The Group recognises revenue
at the point in time when the waste is received and accepted.
Inventory sales
Inventory sales of the Group consist of sand, drainage aggregate, clean fill, track material and road base. These items are the result
of processing C&D waste. Scrap steel, aluminium and other commodities are recovered from C&I waste. The Group recognises
revenue at the point in time control of the inventory is transferred to the customer.
f) Interest income
Interest revenue is recognised as interest accrues using the effective interest method.
g) Leases
Group as Lessee – policy applied from 1 July 2019
Right-of-use assets
The Group recognises right-of-use assets at the commencement date of the lease (i.e. the date the underlying asset is available for
use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses and adjusted for any
remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct
costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Unless the Group
is reasonably certain to obtain ownership of the leased asset at the end of the lease term, the recognised right-of-use assets are
depreciated on a straight-line basis over the shorter of its estimated useful life and the lease term. Right-of-use assets are subject
to impairment.
42 M8 Sustainable Limited Annual Report 2020
M8 Sustainable Limited and its Controlled Entity
Notes to the Consolidated Financial Statements
for the year ended 30 June 2020 (continued)
Note 2 Basis of Preparation and Summary of Significant Accounting Policies (continued)
Lease liabilities
At the commencement date of the lease, the Group recognises lease liabilities measured at the present value of lease payments to
be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease
incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual
value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the
Group and payments of penalties for terminating a lease, if the lease term reflects the Group exercising the option to terminate.
The variable lease payments that do not depend on an index or a rate are recognised as expense in the period on which the event
or condition that triggers the payment occurs.
In calculating the present value of lease payments, the Group uses the incremental borrowing rate at the lease commencement
date if the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities
is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease
liabilities is remeasured if there is a modification, a change in the lease term, a change in the in-substance fixed lease payments or
a change in the assessment to purchase the underlying asset.
Short-term leases and leases of low-value assets
The Group applies the short-term lease recognition exemption to its short-term leases of machinery and equipment (i.e., those
leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also
applies the lease of low-value assets recognition exemption to leases of office equipment that are considered of low value. Lease
payments on short-term leases and leases of low-value assets are recognised as expense on a straight-line basis over the lease
term.
Group as Lessee – policy applied prior to 1 July 2019
Prior to the adoption of AASB 16, the Group classified each of its leases at inception as either operating or finance leases based
on the extent to which, risks and rewards incidental to ownership of the leased asset were transferred to the Group.
Operating lease payments were previously recognised as an expense in the profit or loss on a straight-line basis over the lease term,
excluding contingent rentals which were expensed as incurred. Operating lease incentives were recognised as a liability when
received and subsequently reduced by allocating lease payments between rental expense and reduction of the liability.
h) Employee benefits
Wages, salaries and other short-term benefits
Liabilities for wages and salaries, including non-monetary benefits, accumulating sick leave and other short-term benefits expected
to be settled wholly within 12 months of the reporting date are recognised in respect of employees’ services up to the reporting
date. They are measured at the amounts expected to be paid when the liabilities are settled.
Superannuation
Contributions made by the Consolidated Entity to employee superannuation funds, which are defined contribution plans, are
charged as an expense when incurred.
Long term benefits
The long-term employee benefits within the Group relate to liabilities for long service leave of the Group’s employ- ees. The liability
for long service leave is recognised and measured at the present value of expected future payments to be made in respect of
services provided by employees up to the reporting date. The obligation is calculated using expected future increases in wage and
salary rates, experience of employee departures and period of service. Expected future payments are discounted using the market
yields at the reporting date on high quality corporate bonds which have maturity dates approximating the terms of the Group’s
obligations.
i) Income tax
The income tax expense or revenue for the year is the tax payable on the current year’s taxable income based on the applicable
income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences
and to unused tax losses.
43
M8 Sustainable Limited and its Controlled Entity
Notes to the Consolidated Financial Statements
for the year ended 30 June 2020 (continued)
Note 2 Basis of Preparation and Summary of Significant Accounting Policies (continued)
i) Income tax (continued)
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting
period in the countries where the Company’s subsidiaries and associates operate and generate taxable income. Management
periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to
interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.
Deferred income tax is provided in full using the liability method on temporary differences arising between the tax bases of assets
and liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax liabilities are not
recognised if they arise from the initial recognition of goodwill. Deferred income tax is also not accounted for if it arises from initial
recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects
neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted
or substantially enacted by the end of the reporting period and are expected to apply when the related deferred income tax asset
is realised, or the deferred income tax liability is settled.
Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future
taxable amounts will be available to utilise those temporary differences and losses.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and
when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the
entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability
simultaneously.
Current and deferred tax is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive
income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively.
Tax consolidation
The Group formed a tax consolidated group on 13 April 2018.
The parent company and subsidiary continue to account for their own current and deferred tax amounts. The Group has applied
the Group allocation approach in determining the appropriate amount of current taxes and deferred taxes to allocate to members
of the tax consolidated group.
In addition to its own current and deferred tax amounts, the Group also recognises the current tax liabilities (or assets) and the
deferred tax assets arising from unused tax losses and unused tax credits assumed from the subsidiary.
Any difference between the amounts assumed and amounts receivable or payable under the tax funding agreement are recognised
as a contribution to (or distribution from) wholly-owned tax consolidated entities.
Assets or liabilities arising under tax funding agreements with the tax consolidated entities are recognised as amounts receivable
from or payable to other entities in the Group.
j) Goods and Services Tax (GST)
Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable
from the taxation authority. In this case it is recognised as part of the cost of acquisition of the asset or as part of the expense.
Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable
from, or payable to, the taxation authority is included with other receivables or payables in the balance sheet.
Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which
are recoverable from, or payable to the taxation authority, are presented as operating cash flows.
k) Cash and cash equivalents
Cash and cash equivalents in the Statement of Financial Position includes cash on hand, deposits held at call with banks that are
readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value. For the purposes
of the Statement of Cash Flows, cash and cash equivalents are as described above.
44 M8 Sustainable Limited Annual Report 2020
M8 Sustainable Limited and its Controlled Entity
Notes to the Consolidated Financial Statements
for the year ended 30 June 2020 (continued)
Note 2 Basis of Preparation and Summary of Significant Accounting Policies (continued)
l) Trade and other receivables
Trade receivables that do not contain a significant financing component are measured at the transaction price determined in
accordance with the revenue policy. Other receivables are initially measured at its fair value plus, in the case of receivables not at
fair value through profit or loss, transaction costs.
Receivables at amortised cost
The Group measures receivables at amortised cost where the objective is to hold the financial asset in order to collect contractual
cash flows and the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of
principal and interest on the principal amount outstanding. This assessment is referred to as the SPPI test and is performed at an
instrument level.
Receivables at amortised cost are subsequently measured using the effective interest rate (EIR) method and are subject to
impairment. Gains and losses are recognised in profit or loss when the receivable is derecognised, modified or impaired.
Impairment
The Group recognises an allowance for expected credit losses (ECLs) for trade receivables and other receivable not held at fair value
through profit or loss. ECLs are based on the difference between the contracted cash flows due in accordance with the contract
and all the cash flows the Group expects to receive, discounted at an approximation of the original effective interest rate.
For trade receivables, the Group applies a simplified approach in calculating expected credit losses and recognises a loss allowance
based on lifetime expected credit losses at each reporting date. The Group has established a provision matrix that is based on its
historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment.
For other receivables, ECLs are recognised in two stages. For credit exposures for which there has not been a significant increase
in credit risk since initial recognition, ECLs are provided for credit losses that result from default events that are possible within the
next 12 months (a 12-month ECL). For those credit exposures where there has been a significant increase in credit risk since initial
recognition, a loss allowance is required for credit losses expected over the remaining life of the exposure, irrespective of the timing
of default (a lifetime ECL).
The Group considers a receivable to be in default when internal or external information indicates that the Group is unlikely to
receive the outstanding contractual amounts in full. A receivable is written off when there is no reasonable expectation of recovering
the contractual cash flows.
m) Property, plant and equipment
Property, plant and equipment is stated at cost less any accumulated depreciation and impairment. In the event the carrying amount
of an asset is greater than its estimated recoverable amount, the carrying amount is written down immediately to the estimated
recoverable amount and impairment losses are recognised in profit or loss. A formal assessment of recoverable amount is made
when impairment indicators are present.
Subsequent costs are included in the assets’ carrying amount or recognised as a separate asset, as appropriate, only when it is
probable that the future economic benefits associated with the item will flow to the Group and the cost of the item can be measured
reliably. All other repairs and maintenance are recognised as expenses in profit or loss during financial period in which they are
incurred.
Depreciation
The depreciable amount of fixed assets is depreciated on a straight-line (SL) basis over their useful lives to the Group commencing
from the time the asset is held ready for use. Leasehold improvements are depreciated over the shorter of the lease term, and the
useful life of the asset which will depend on the date of capitalisation. The following depreciation rates were applied during the
financial period:
• Mobile plant
•
Fixed plant
• Office equipment
• Motor vehicles
•
Leasehold improvements
20% pa
6% pa
25% pa
25% pa
20% pa
The residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting date.
Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These gains and losses are
recognised in profit or loss in the period in which they arise.
45
M8 Sustainable Limited and its Controlled Entity
Notes to the Consolidated Financial Statements
for the year ended 30 June 2020 (continued)
Note 2 Basis of Preparation and Summary of Significant Accounting Policies (continued)
n) Trade and other payables
Trade and other payables represent liabilities for goods and services provided to the Group prior to the end of the quarter which
are unpaid. The amounts are unsecured and are usually paid within 30 days of recognition. Trade payables and other payables are
carried at amortized cost and due to their short-term nature, they are not discounted.
o) Borrowings
Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at
amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in profit
or loss over the period of the borrowings using the effective interest rate method. Fees paid on the establishment of loan facilities
are recognised as transaction costs.
p) Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable
that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be
made of the amount of the obligation.
Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present
obligation at the reporting date. The discount rate used to determine the present value reflects current market assessments of the
time value of money and the risks specific to the liability. The increase in the provision resulting from the passage of time is
recognised in finance costs.
q) Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of assets that necessarily take a substantial
period of the time to prepare for their intended use or sale are added to the cost of those assets until such time as the assets are
substantially ready for their intended use or sale. Capitalisation of borrowing costs is suspended during periods where there is no
active development of a qualifying asset. All other borrowing costs are expensed in the period they occur. Borrowing costs consist
of interest and other costs that an entity incurs in con- nection with the borrowing of funds.
r) Contributed equity
Ordinary shares are classified as equity. Transaction costs of an equity transaction are accounted for as a deduction from equity, net
of any related income tax benefit. Distributions on ordinary shares are recognised as a liability in the period in which they are
declared.
s) Share-based payments
Equity settled transactions
Where employees are granted share-based payments, the cost of equity-settled transactions is determined at the grant date. Where
the fair value of the equity instruments granted cannot be reliably estimated, the Group measures the equity instruments at their
intrinsic value, initially at the grant date and subsequently at the end of each reporting period and at the date of final settlement,
with any change in intrinsic value recognised in profit and loss.
The amount recognised as an expense during the vesting period is based on the number of equity instruments expected to vest.
The Group revises that estimate if subsequent information indicates that the number of rights expected to vest differs from the
previous estimate. On vesting date, the Group revises the estimate to the number of rights that ultimately vest. After the vesting
date, the Group reverses the amount recognised if the rights are subsequently forfeited, or lapse.
Cash settled transactions
A liability is recognised for the fair value of cash-settled transactions. The fair value is measured initially and at each reporting date
up to and including the settlement date, with changes in fair value recognised in employee benefits expense. The fair value is
expensed over the period until the vesting date with recognition of a corresponding liability. The fair value is determined using an
appropriate valuation model.
46 M8 Sustainable Limited Annual Report 2020
M8 Sustainable Limited and its Controlled Entity
Notes to the Consolidated Financial Statements
for the year ended 30 June 2020 (continued)
Note 2 Basis of Preparation and Summary of Significant Accounting Policies (continued)
t) Convertible notes
Convertible notes are separated into liability and equity components based on the terms of the contract. On issuance of the
convertible notes, the fair value of the liability component is determined using a market rate for an equivalent non-convertible
instrument. This amount is classified as a financial liability measured at amortised cost (net of transaction costs) until it is extinguished
on conversion or redemption. Where relevant, the remainder of the proceeds is allocated to the conversion option that is recognised
and included in equity. Transaction costs are deducted from equity, net of associated income tax. The carrying amount of the
conversion option is not remeasured in subsequent years.
Transaction costs are apportioned between the liability and equity components of the convertible note based on the allocation of
proceeds to the liability and equity components when the instruments are initially recognised.
u) Inventories
Inventories are valued at the lower of cost and net realisable value. The cost of inventories is based on cost of direct materials and
labour and a proportion of manufacturing overheads based on the normal operating capacity, but excluding borrowing cost.
v) Government grants
Government grants are recognised where there is reasonable assurance that the grant will be received and all attached conditions
will be complied with. When the grant relates to an expense item, it is recognised as income when the grant is received. When the
grant relates to an asset, it is recognised as income in equal amounts over the expected useful life of the related asset.
w) Critical accounting estimates and judgments
The preparation of the financial report required the use of certain critical accounting estimates. It also requires management to
exercise its judgement in the process of applying the Group’s accounting policies.
The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom
equal the related actual results. The Group based its assumptions and estimates on parameters available when the consolidated
financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change
due to market changes or circumstances arising that are beyond the control of the Group. Such changes are reflected in the
assumptions when they occur.
The pandemic disease of COVID-19 has created certain uncertainties around the globe. The waste and recycling sector is no
exception. The Company’s activity level is directly proportionate to the level of activity in the construction industry. Factors such as
current earning levels coupled with a fair degree of certainty of future income plays a pivotal role in the level of construction
industry. While the COVID-19 impact was felt severely across the globe, Western Australia in particular, witnessed lower levels of
short-term impact. The impact of COVID-19 has been incorporated into the assessment of key estimates and judgements including
impairment.
Revenue from contracts with customers
The Group concluded that revenue for its service contract is to be recognised over time because the customer simultaneously
receives and consumes the benefits provided by the Group.
Lease terms for right-of-use assets and lease liabilities
The Group determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to
extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is
reasonably certain not to be exercised. In determining the lease term, the Group has applied judgement over the facts and
circumstances that create an economic incentive to exercise an extension option, or not exercise a termination option. All property
leases are considered reasonably certain to exercise an extension option.
Useful life of depreciable assets
Management reviews its estimates of the useful lives of depreciable assets at each reporting date, based on the expected useful
life of the assets. Uncertainties in estimates include assessing the impact of the Group’s operating environment and technical and
other forms of obsolescence.
47
M8 Sustainable Limited and its Controlled Entity
Notes to the Consolidated Financial Statements
for the year ended 30 June 2020 (continued)
Note 2 Basis of Preparation and Summary of Significant Accounting Policies (continued)
Contingent liability – royalty agreement
The Group has concluded that the royalty agreement (see Note 29) with Fernview Development Group Pty Ltd (an unrelated party)
represents a contingent liability as any obligation under the contract is dependent upon the future actions of the Group. The Group
has therefore determined that AASB 137 is the appropriate standard to account for the royalty.
Impairment of non-current assets
Impairment exists when the carrying value of an asset or cash generating unit exceeds its recoverable amount, which is the higher
of its fair value less costs of disposal and its value in use. The fair value less costs of disposal calculation is based on available data
from binding sales transactions, conducted at arm’s length, for similar assets or observable market prices less incremental costs of
disposing of the asset. The value in use calculation is based on a discounted cash flow (DCF) model.
In assessing impairment, management estimates the recoverable amount of each assets or cash-generating unit based on expected
future cash flows which are discounted using an appropriate discount rate. Estimation uncertainty relates to assumptions about
the expected future cash flows from operating results, the determination of a suitable discount rate used for the DCF model and
the growth rate used for extrapolation purposes (see Note 10).
Provision for expected credit losses on trade and other short-term receivables
For trade and other short-term receivables the Group uses the simplified approach based on life time expected credit loss. The loss
allowance is based on historically observed default rates and incorporates forward looking estimates. It also factors in receipts up
to the date of issuing the accounts.
Share-based payments
Estimating fair value for share-based payment transactions requires determination of the most appropriate valuation model, which
depends on the terms and conditions of the grant.
This estimate also requires determination of the most appropriate inputs to the valuation model and making as- sumptions about
them.
The fair value per security has been calculated using a Black Scholes pricing model taking into account the terms and conditions
upon which the options and performance rights were granted.
Useful life of depreciable assets
Management reviews its estimates of the useful lives of depreciable assets at each reporting date, based on the expected useful
life of the assets. Uncertainties in estimates include assessing the impact of the Group’s operating environment and technical and
other forms of obsolescence.
Recognition of deferred tax assets
The extent to which deferred tax assets can be recognised is based on an assessment of the probability of the Group’s future
taxable income against which the deferred tax assets can be utilised (see Note 11). Judgement is required to determine the amount
of deferred tax assets that can be recognised, based upon the likely timing and the level of future profits.
Leases - Estimating the incremental borrowing rate
The Group cannot readily determine the interest rate implicit in the lease, therefore, it uses its incremental borrowing rate (IBR) to
measure lease liabilities. The IBR is the rate of interest that the Group would have to pay to borrow over a similar term, and
with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic
environment.
48 M8 Sustainable Limited Annual Report 2020
M8 Sustainable Limited and its Controlled Entity
Notes to the Consolidated Financial Statements
for the year ended 30 June 2020 (continued)
Note 3 Revenue and other income
The Group generates revenue from operating its waste recycling facility in Maddington, Western Australia, which is recognised at
point in time. The Group also has a contract for the provision of operational and maintenance services to a related party, which is
recognised over time.
Year ended
30 June 2020
$
Year ended
30 June 2019
$
Revenue from contracts with customers
Government grant
Other income
1,982,576
50,000
3,183
2,035,759
The table below provides a disaggregation of segment revenues
from contracts with customers (see Note 24):
Year ended 30 June 2020
Revenue from contracts with customers
Year ended 30 June 2019
Revenue from contracts with customers
Disaggregated segment revenue includes eliminations.
Year ended 30 June 2020
Revenue from contracts with customers
Year ended 30 June 2020
Revenue from contracts with customers
Waste
Management
$
1,399,130
$
87,181
Point in time
$
1,399,130
$
87,181
Operations and
Maintenance
$
583,446
$
596,285
Over time
$
583,446
$
596,285
683,466
-
397,500
1,080,966
Total
operating
segments
$
1,982,576
$
683,466
Total
$
1,982,576
$
683,466
Note 4 Employee benefits, salaries and wages
Wages and salaries expenses
Labour contracting
Consulting
Share-based payments (performance rights)
Year ended
30 June 2020
$
Year ended
30 June 2019
$
(1,756,351)
(1,955,503)
(535,791)
(92,756)
(291,285)
(108,539)
(267,919)
-
Employee benefits, salaries and wages as disclosed
(2,676,183)
(2,331,961)
Cost of bonus shares and cash bonuses rescinded included as
IPO related costs (Note 6)
Indemnity cancelled included as IPO related costs (Note 6)
1,072,180
492,314
-
-
Total employee benefits, salaries and wages
(1,111,689)
(2,331,961)
49
M8 Sustainable Limited and its Controlled Entity
Notes to the Consolidated Financial Statements
for the year ended 30 June 2020 (continued)
Note 5 Recycling, waste disposal and other site costs
Waste disposal costs
Commodity purchases
Power, fuel and oil
Short term equipment hire
Repairs, maintenance and consumables
Other
Note 6 IPO related costs
Cash items
Transaction costs
Lead managers and legal fees
Non-cash items
Cost of issuing promoter shares
Loss on conversion of SBANG debt
Year ended
30 June 2020
$
Year ended
30 June 2019
$
(517,799)
(70,355)
(106,106)
(504,555)
(237,306)
(60,449)
(333,473)
-
(25,161)
57,380
129,752
(26,106)
(1,496,570)
(197,608)
$
$
(1,211,057)
(750,387)
(1,961,444)
(2,802,687)
(2,463,590)
-
-
-
(1,042,475)
-
Loss on settlement of Flugge superannuation loan
-
(707,442)
Share option expenses – Lead manager
Director and Executive indemnity cancelled
Director and Executive bonus rescinded
(1,150,000)
492,314
1,072,180
-
-
-
(4,851,783)
(1,749,917)
Capital raising costs and share options directly attributable to equity
Total Initial public offering and share option expenses
recognised in profit or loss
1,166,293
-
(5,646,934)
(1,749,917)
Capital raising costs
Share option expense
685,544
480,749
Total initial public offering and share option expense directly attributable to equity
1,166,293
-
-
-
50 M8 Sustainable Limited Annual Report 2020
M8 Sustainable Limited and its Controlled Entity
Notes to the Consolidated Financial Statements
for the year ended 30 June 2020 (continued)
Note 7 Other expenses
Marketing related costs
Office expenses
IT costs
Secretarial, legal and business expenses
Motor vehicle related expenses
Loss on asset sales
Note 8 Depreciation
Depreciation on property, plant and equipment
Depreciation on right-of-use assets
Note 9 Finance costs
Interest expense on lease liability
Interest expense
Finance charges
Less: Capitalised interest expense
Year ended
30 June 2020
$
Year ended
30 June 2019
$
(35,709)
(62,752)
(50,164)
(149,497)
(37,373)
(53,479)
(388,974)
(25,294)
(17,870)
(19,864)
(276,844)
(32,892)
(8,625)
(381,389)
$
$
(694,774)
(493,676)
(535,943)
-
(1,188,450)
(535,943)
$
$
(771,934)
(577,984)
(21,992)
(1,371,910)
192,983
-
(1,569,646)
-
(1,569,646)
-
(1,178,927)
(1,569,646)
The Group started construction of the Gingin facility in early April 2020. The construction is expected to be completed in mid
2021. The amount of borrowing costs capitalised during the year ended 30 June 2020 was $192,983 (2019: Nil). The rate used to
determine the amount of borrowing costs eligible for capitalisation was 10% being the effective interest rate of the Group’s general
borrowings which relate to the Group’s leases.
51
M8 Sustainable Limited and its Controlled Entity
Notes to the Consolidated Financial Statements
for the year ended 30 June 2020 (continued)
Note 10 Impairment of assets
The policy for impairment testing and methods used to determine recoverable amounts are consistent with the disclosure in Note
2(w). Impairment was considered across each of the Group’s cash generating units (CGUs):
Gingin (Landfill operations)
This asset is currently under construction. The feasibility study underlying the development of landfill asset continues to support
the current and future development of the asset. No impairment was identified.
No reasonable change in assumption would cause an impairment in the Gingin CGU.
Maddington (Waste Management)
Impairment triggers were identified in relation to the Maddington CGU including the impact of COVID-19 leading to significantly
reduced volumes of waste received particularly in March, April and May 2020 for both C&D and C&I waste.
Based on the triggers, impairment testing was undertaken. The recoverable amount of the CGU was determined based on a value-
in-use calculation. This calculation used real (excluding inflation) cash flow projections based on the 2021 budget approved by the
Board and the following 3 years projections approved by senior management. Cash flows beyond the four-year period were
extrapolated using a zero percent growth rate. Cashflows are restricted to a 14 year period representing the life of the Maddington
facility lease including lease options.
The impairment testing identified that the carrying value of the Maddington CGU exceeded its estimated recoverable value as at
30 June 2020, and the Group recorded an impairment loss of $2,245,501 which is set out in the following table:
Maddington waste facility CGU
Carrying value of net assets
Estimated recoverable amount
Impairment recognised
CGU
Maddington waste facility
Recoverable amount key assumptions
$
13,131,983
(10,886,482)
2,245,501
Total
$
2,245,501
Property, Plant
and Equipment
$
979,699
Right-of-use
Asset
$
1,265,802
The calculation of value-in-use for the Maddington facility is most sensitive to the following assumptions:
Discount rate
Discount rates represent the current market assessment of the risks specific to the CGU, taking
into consideration the time value of money and individual risks of the underlying assets that
have not been incorporated in the cash flow estimates. A real post-tax discount rate of 10%
has been applied.
An increase in the discount rate by 1% would increase the impairment by $709,166.
Revenue growth projections
Revenue growth projections are taken from the budget prepared each year and reflect changes
in volumes and prices based on contracts and identified opportunities.
A decrease in revenue by 5% over the period would increase the impairment by $556,196.
Capital expenditure
Capital expenditure is based on expected cash flows to maintain the asset in its current
condition.
An increase in capital expenditure by 5% over the period would increase the impairment by
$50,909.
52 M8 Sustainable Limited Annual Report 2020
M8 Sustainable Limited and its Controlled Entity
Notes to the Consolidated Financial Statements
for the year ended 30 June 2020 (continued)
Note 11 Income tax
The components of income tax benefit comprise:
Current income tax
Current income tax benefit
Deferred income tax
Deferred tax benefit relating to the origination and reversal of
temporary differences
Income tax benefit reported in the consolidated statement of
profit or loss and the other comprehensive income
Relationship between income tax expense/(benefit) and
accounting loss:
Loss before income tax
At the statutory income tax rate of 27.5%
Non-assessable income
Non-deductible expenses
Other adjustments
Adjustments to prior period tax returns
Deferred tax assets not recognised
Income tax (benefit) reported in the consolidated statement of
profit or loss and other comprehensive income
Deferred tax liabilities
Property, plant and equipment
Other deferred tax liabilities
Deferred tax liabilities
Deferred tax assets – brought to account
Net deferred tax assets on right-of-use assets and
lease liabilities
Business related capital expenditure
Accruals and provisions
Others
Deferred tax assets
Year ended
30 June 2020
$
Year ended
30 June 2019
$
-
-
672,841
672,841
-
-
14,486
14,486
(14,466,979)
(7,244,802)
(3,978,419)
(443,986)
1,691,675
(51)
17,641
2,040,299
(1,992,321)
-
481,228
-
124,164
1,372,443
(672,841)
(14,486)
(624,951)
(76,275)
(701,226)
(658,078)
(14,763)
(672,841)
425,813
173,573
74,695
27,145
701,226
-
-
-
-
-
Net deferred tax liability recognised
-
(672,841)
Estimated tax losses (including capital losses) of $4,472,341 (tax effected) (30 June 2019: $2,007,318, tax effected), including tax
losses transferred with the acquired subsidiary, have not been recognised as an asset as there is uncertainty that the amounts will
be available to offset future taxable income. In addition, deductible temporary differences of $414,159 have not been recognised.
53
M8 Sustainable Limited and its Controlled Entity
Notes to the Consolidated Financial Statements
for the year ended 30 June 2020 (continued)
Note 12 Earnings per share
The following table reflects the data used in the calculation of the basic and diluted earnings / (loss) per share:
Weighted average number of ordinary shares used in the
calculation of basic earnings / (loss) per share
Weighted average number of ordinary shares used in the
calculation of diluted earnings / (loss) per share
Loss attributable to ordinary equity holders of the Group
Basic and diluted loss per share
The estimated number of potential ordinary shares on issue but not
included in the diluted earnings / (loss) per share as they are anti-dilutive
or contingently issuable
Note 13 Cash and cash equivalents
Cash on hand and at bank
Note 14 Trade and other receivables
Trade receivables (i)
Receivable from Sbang Australia Pty Ltd (ii)
Amounts due from Star Shenton Energy Pty Ltd (iii)
Job Keeper subsidy due
Year ended
30 June 2020
$
Year ended
30 June 2019
$
165,006,380
2,468,550
165,006,380
2,468,550
$
(13,794,138)
(0.08)
$
(7,230,316)
(2.93)
Number
Number
30,000,000
37,004,000
30 June 2020
$
30 June 2019
$
4,164,270
41,007
$
$
173,706
228,862
631,166
24,000
4,082
-
1,733,238
-
1,057,734
1,737,320
(i) Trade receivables are non-interest bearing and are generally on 30 to 90 day terms.
(ii) Receivables from Sbang Australia are amounts paid to suppliers on behalf of SBANG to develop roadworks in Gingin prior to
the contract being signed which will be offset against future SBANG invoices.
(iii) Amounts due from Star Shenton Energy pertain to trade receivables. $441,583 of the receivable has been collected subsequent
to year end. Payment terms were negotiated with final payment of $189,583 due in October 2020. SBANG has provided a
letter of undertaking for this payment.
(iv) The Group did not recognise any provision for expected credit losses on its trade receivables. The Group has collected $151,670
of trade receivables subsequent to year end.
54 M8 Sustainable Limited Annual Report 2020
M8 Sustainable Limited and its Controlled Entity
Notes to the Consolidated Financial Statements
for the year ended 30 June 2020 (continued)
Note 15 Advances to contractor
Advances paid to Landfill contractor (i)
30 June 2020
$
30 June 2019
$
250,000
-
(i) The Group paid $2,500,000 as an advance to Sbang Australia Pty Ltd for the construction of the first phase of the landfill. As
at year end, $2,250,000 has been capitalised.
Note 16 Property, plant and equipment
Land
Gross carrying amount at cost
Mobile plant
Gross carrying amount at cost
Less: Accumulated depreciation and impairment
Fixed plant
Gross carrying amount at cost
Less: Accumulated depreciation and impairment
Office equipment
Gross carrying amount at cost
Less: Accumulated depreciation and impairment
Motor vehicles
Gross carrying amount at cost
Less: Accumulated depreciation and impairment
Leasehold improvement at cost
Less: Accumulated depreciation and impairment
$
$
9,200,000
9,200,000
690,140
(361,527)
328,613
4,498,287
(1,276,766)
3,221,521
100,711
(32,006)
68,705
200,353
(94,825)
105,528
1,496,708
(471,366)
1,025,342
842,500
(209,428)
633,072
4,498,287
(331,680)
4,166,607
25,500
(7,757)
17,743
190,469
(41,903)
148,566
1,117,798
(47,814)
1,069,984
Capital work in progress at cost
3,264,883
380,403
Total property, plant and equipment
Gross carrying amount at cost
Less: Accumulated depreciation and impairment
Total carrying amount
19,451,082
(2,236,490)
16,254,957
(638,582)
17,214,592
15,616,375
55
M8 Sustainable Limited and its Controlled Entity
Notes to the Consolidated Financial Statements
for the year ended 30 June 2020 (continued)
Note 16 Property, plant and equipment (continued)
$
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56 M8 Sustainable Limited Annual Report 2020
M8 Sustainable Limited and its Controlled Entity
Notes to the Consolidated Financial Statements
for the year ended 30 June 2020 (continued)
Note 17 Right-of-use assets
The leases recognised by the Group predominantly relate to the lease of premises for business operations.
Set out below are the carrying amounts of right-of-use assets recognised and the movements during the year:
As at 30 June 2019
Impact of adoption of AASB 16 Leases
As at 1 July 2019
Depreciation expense
Impairment losses
As at 30 June 2020
The following are the amounts recognised in profit or loss:
Depreciation expense of right-of-use assets
Impairment expense of right-of-use assets
Interest expense on lease liability
Expense relating to short-term leases (i)
Total amount recognised in profit or loss
Land and
buildings
$
-
7,896,251
7,896,251
(493,676)
(1,265,802)
6,136,773
Year ended
30 June 2020
$
(493,676)
(1,265,802)
(771,934)
(33,308)
(2,564,720)
(i) Payments of $33,308 for short term leases (lease term of 12 months or less) were expensed in the Consolidated Statement of
Profit or Loss and Other Comprehensive Income for the year ended 30 June 2020.
Total cash outflow for leases during the current financial year amounted to $1,016,308.
Note 18 Trade and other payables
Trade payables (i)
Accrued and other payables (ii)
Cash-settled share-based payment – at fair value
30 June 2020
$
30 June 2019
$
551,675
398,872
-
631,504
816,027
132,105
950,547
1,579,636
(i) Trade payables represent the liability for the goods and services received by the Group that remain unpaid at the end of the
reporting period. The balance is recognised as a current liability with the amounts normally paid within 30 days.
(ii) Other payables are non-interest bearing and have an average term of three months.
57
M8 Sustainable Limited and its Controlled Entity
Notes to the Consolidated Financial Statements
for the year ended 30 June 2020 (continued)
Note 19 Borrowings
Term borrowings (i)
Amount due to a related party (ii)
Loan from SBANG (iii)
Loan from shareholder (iv)
Less: Non-current portion
Current portion
30 June 2020
$
30 June 2019
$
62,585
-
-
-
62,585
(1,348)
61,237
44,491
435,124
20,040,641
50,000
20,570,256
(20,089)
20,550,167
(i) Term borrowings include amounts payable to Pepper Asset Financing Pty Ltd relating to financing for the Group’s motor vehicle
of $19,983 which bears interest at 7.99% and is repayable in monthly instalments by 11 July 2021. The non-current liability
component amounts to $1,348. The remaining balance is for premium funding of insurance with Attvest Premium Funding
and BOQ Finance for $12,331 and $30,271 respectively.
(ii) Amount due to a related party as at 30 June 2019 represented a $435,124 loan payable to Flugge Superannuation Fund (related
party of Damien Flugge, Director who resigned as a director on 9 December 2019) which was interest bearing at 10% per
annum, secured against all present and after-acquired property and repayable upon demand. The Group settled this loan by
way of issuing 2,229,709 ordinary shares on 4 December 2019.
(iii) SBANG provided the Group with two secured loan facilities of $10,000,000 (on 7 February 2018) and $4,000,000 (on 15 July
2018), both for a term of one year with 10% interest rate per annum. Also, a convertible note facility of $6,000,000 was
provided on 15 November 2018 for a term of one year with an agreed conversion price of $0.25.
In the current period prior to the IPO, there was a drawdown of $1,749,000 on the convertible note facility.
On 21 October 2019, accrued interest of $1,076,667 was paid in cash to SBANG.
The full principal amount of the $4,000,000 facility and a further $4,000,000 principal amount of the $10,000,000 facility
were converted to 51,282,051 shares on 10 July 2019.
On 4 December 2019, the Company issued additional shares to SBANG as part of the settlement of the loan and convertible
note in line with the variation of second deed of debt conversion and release dates 26 September 2019. Loans amounting to
$7,600,000 ($6,000,000 of remaining loan principal and $1,600,000 of convertible note) were settled through the issue of
48,717,949 shares. The settlement of the loan via a share issue resulted in a loss of $1,692,308 being incurred.
On 11 December 2019, the remaining SBANG loan amounting to $4,400,000 plus accrued interest of $1,255,333 was repaid
in full.
On 3 September 2019, SBANG provided a new $4,000,000 loan facility. The loan will be interest bearing at 10% p.a. and has
a two-year term. Any drawdowns on the loan will be subject to shareholder approval. This new loan facility is undrawn at the
date of this report.
(iv) Represented a loan from a shareholder, Mr. Y. Zhu. The amount payable was non-interest bearing, unsecured and payable on
demand. This was fully settled on 11 November 2019.
58 M8 Sustainable Limited Annual Report 2020
M8 Sustainable Limited and its Controlled Entity
Notes to the Consolidated Financial Statements
for the year ended 30 June 2020 (continued)
Note 19 Borrowings (continued)
Short-term Related party
Balance at 30 June 2019
Balance at 30 June 2020
Movement
Cash
Proceeds from short-term loans
Repayment of short-term loans
Proceeds from related party loan
Repayment of amount due to related party
SBANG drawdown – debt
SBANG drawdown – convertible note
1,749,000
Repayment of SBANG loan
Repayment of shareholder loan
Non-cash
Issuance of 2,229,709 fully paid shares (Note 27 (v))
SBANG conversion Phase 1
SBANG conversion Phase 2
Other non-cash adjustments
-
-
-
-
-
-
loan
$
44,491
62,585
565,458
(547,364)
-
-
-
loan
$
SBANG
loan
$
Shareholder
loan
$
435,124
20,040,641
50,000
-
-
-
(18,094)
435,124
20,040,641
50,000
-
-
1,410,457
(1,410,457)
-
-
-
-
(435,124)
-
-
-
-
401,000
(6,590,778)
-
-
-
-
-
(8,000,000)
(7,600,000)
137
-
-
-
-
-
-
(50,000)
-
-
-
-
18,094
(435,124)
(20,040,641)
(50,000)
Note 20 Lease liabilities
Set out below are the carrying amounts of lease liabilities and the movements during the year:
As at 30 June 2019
Impact of adoption of AASB 16 Leases
As at 1 July 2019
Repayment of principal portion of lease liabilities
As at 30 June 2020
Less: Non-current portion
Current portion
30 June 2020
$
-
7,896,251
7,896,251
(211,066)
7,685,185
(7,474,118)
211,067
59
M8 Sustainable Limited and its Controlled Entity
Notes to the Consolidated Financial Statements
for the year ended 30 June 2020 (continued)
Note 21 Provisions
Employee provisions
Restoration obligation
30 June 2020
$
30 June 2019
$
101,921
-
101,921
1,008,373
7,562
1,015,935
Prior year balance includes $842,962 of accrued expenses relating to Director bonuses which were rescinded during the current
year.
Restoration obligation reconciliation of movement
Balance at 1 July
Obligation fulfilled
Note 22 Share capital and reserves
Share Capital
(a) Issued and paid up capital
Issued and fully paid ordinary shares
(b) Movement in ordinary shares
Balance as at 01 July
Issuance of shares through IPO
Issued to promoters during the year
Issued to settle debt during the year
Capital raising costs
Balance as at 30 June
(c) Movement in ordinary shares
Balance as at 01 July
Issuance of shares through IPO
Issued to promoters during the year
Issued to settle debt during the year
Issued to settle share-based payments
Balance as at 30 June
2020
$
7,562
(7,562)
-
2019
$
74,918
(67,356)
7,562
30 June 2020
Number
30 June 2019
Number
233,229,835
15,534,181
$
2,345,438
19,500,000
2,802,687
18,509,532
(1,166,293)
41,991,364
2020
Number
15,534,181
97,500,000
17,965,945
102,229,709
-
$
125
-
1,042,475
1,302,838
-
2,345,438
2019
Number
125
-
6,682,530
8,351,526
500,000
233,229,835
15,534,181
Holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at
shareholder meetings. Effective 1 July 1998, the Corporations legislation in place abolished the concepts of authorised capital and
par share values.
60 M8 Sustainable Limited Annual Report 2020
M8 Sustainable Limited and its Controlled Entity
Notes to the Consolidated Financial Statements
for the year ended 30 June 2020 (continued)
Note 22 Share capital and reserves (continued)
Share-based Payment Reserve
Balance at 1 July
KMP bonus options
KMP bonus options – rescinded during the year
Cost of issuing options to the lead manager
Cost of issuing performance rights to Directors and Management
Cost of shares issued to Lothbury Advisory
Balance at 30 June
2020
$
421,993
-
(421,993)
1,150,000
291,285
78,000
1,519,285
2019
$
-
421,993
-
-
-
-
421,993
The share-based payments reserve is used to recognise the value of equity-settled share-based payments provided to employees,
including key management personnel and options issued to the lead manager or its nominees, as part of their remuneration.
Capital Management
For the purpose of the Group‘s capital management, capital includes issued capital, and all other equity reserves attributable to
the equity holders of the parent. The primary objective of the Group’s capital management is to maximise shareholder value.
The Group manages its capital structure and makes adjustments in light of changes in economic conditions and the requirements
of the financial covenants. The Group’s capital management, amongst other things, aims to ensure that it meets financial covenants
attached to the interest-bearing loans and borrowings that define capital structure requirements.
Note 23 Share-based payments
Promoter shares
During the year, the Company issued a total of 17,965,945 fully paid ordinary shares for nil consideration to promoters of the
Company, which included 7,115,038 shares issued to SBANG. As there were no specified services attached to the issue of these
shares, the transaction has been measured with reference to the estimated fair value of the shares issued. Fair value has been
determined to be $0.156 based upon their intrinsic value at 30 June 2019.
The expense recognised for share based payments to promoters during the period is shown in the following table:
Promoter shares
Options
30 June 2020
$
30 June 2019
$
2,802,687
1,042,475
The Company issued a total of 20,000,000 options to the lead manager of the Group’s IPO, upon the Company’s ASX listing. The
options were issued as consideration for the lead manager’s role in the IPO including corporate advisory, marketing and selling and
distribution services of the Company’s shares. The options have an exercise price of $0.25 and can be exercised at any time on or
prior to expiry date (10 December 2023). The value of the services represented by the options can’t be reliably measured and the
share-based payment has been estimated based on the fair value of the options issued. The fair value per security has been
calculated as $0.0575 using a Black Scholes share option pricing model taking in to account the terms and conditions upon which
the options were granted. The fair value of the options was calculated on the date of grant using the following assumptions:
Exercise price
Term
Dividend yield
Extended volatility
Risk free interest rate
$0.25
4 years
0%
60% to 70%
2.08%
61
M8 Sustainable Limited and its Controlled Entity
Notes to the Consolidated Financial Statements
for the year ended 30 June 2020 (continued)
Note 23 Share-based payments (continued)
Movements during the year
The following table illustrates the number and weighted average exercise prices (WAEP) of, and movements in, share options
during the year:
Outstanding at 1 July
Granted during the year
Forfeited during the year
Exercised during the year
Expired during the year
Outstanding at 30 June
Exercisable at 30 June
Performance rights
2020
Number
-
20,000,000
-
-
-
20,000,000
20,000,000
2020
WAEP
-
$0.25
-
-
-
$0.25
$0.25
2019
Number
2019
WAEP
-
-
-
-
-
-
-
-
-
-
-
-
-
-
The Company issued a total of 10,000,000 performance rights to Directors and Management of the Company under the
Performance Rights Offer. The estimated value of the performance rights at grant date has been quantified as $2,000,000. An
amount of $291,285 has been charged for the year ended 30 June 2020.
In determining the valuation of the performance rights, the Black-Scholes Method has been used.
The key inputs for the valuation of the Director rights were as follows:
Exercise price
Term
Share price
Dividend yield
Extended volatility
Risk free interest rate
Nil
1 and 2 years
$0.20
0%
50% to 60%
0.77%
The key inputs for the valuation of the Non-Director rights were as follows:
Exercise price
Term
Share price
Dividend yield
Extended volatility
Risk free interest rate
Nil
1 and 2 years
$0.20
0%
50% to 60%
0.80%
62 M8 Sustainable Limited Annual Report 2020
M8 Sustainable Limited and its Controlled Entity
Notes to the Consolidated Financial Statements
for the year ended 30 June 2020 (continued)
Note 23 Share-based payments (continued)
Movements during the year
The following table illustrates the number and weighted average exercise prices (WAEP) of, and movements in, performance rights
during the year:
Outstanding at 1 July
Granted during the year
Forfeited during the year
Exercised during the year
Expired during the year
Outstanding at 30 June
Exercisable at 30 June
2020
Number
-
10,000,000
-
-
-
10,000,000
-
2020
WAEP
2019
Number
2019
WAEP
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
The milestones that are required to be achieved for each Performance Right in the relevant class to be converted into one share at
the election of the KMP for no consideration are as follows:
Class A Performance Rights: 1,666,667 Performance Rights will convert into Shares upon the Com- pany achieving, in relation
to its existing business and assets at the date the Company is admitted to the Official List of ASX (Listing Date), an operating
revenue of at least $20 million in the first 12 months following issue.
Class B Performance Rights: 1,666,667 Performance Rights will convert into Shares upon the Company achieving, in relation to
its existing business and assets at the Listing Date, an operating revenue of at least $40 million in the period commencing on the
date which is 12 months following issue and ending on the date which is 24 months following issue.
Class C Performance Rights: 1,666,667 Performance Rights will convert into Shares upon the Company achieving, in relation to
its existing business and assets at the Listing Date, earnings before interest, tax, depreciation and amortisation of at least
$5 million in the first 12 months following issue.
Class D Performance Rights: 1,666,667 Performance Rights will convert into Shares upon the Company achieving, in relation to
its existing business and assets at the Listing Date, earnings before interest, tax, depreciation and amortisation of at least
$12.5 million in the period commencing on the date which is 12 months following issue and ending on the date which is
24 months following issue.
Class E Performance Rights: 1,666,667 Performance Rights will convert into Shares upon the Maddington Facility operating at
an annual rate of 210,000 tonnes and/or m3 in the first 12 months following issue.
Class F Performance Rights: 1,666,665 Performance Rights will convert into Shares upon the Gingin Facility being fully licensed
and operational in the first 24 months following issue.
Note 24 Operating segments
The Group has identified its operating segments based on the internal reports that are reviewed and used by the executive
management team (chief operation decision makers) in assessing performance and in determining the allocation of resources.
Operating segments outlined below are identified by management based on the nature of the operations. The executive
management team consider the business strategically and operationally from a service perspective and have identified the three
reportable segments:
• Waste Management
• Operations and Maintenance (O&M)
•
Landfill Operations
These have been varied from the prior period and comparatives have been adjusted as per the current segment reporting.
Management monitors the performance of the operating results of the segments separately for the purpose of making decisions
about resource allocation and performance assessment. The performance is measured in accordance with the Company’s
accounting policies.
63
M8 Sustainable Limited and its Controlled Entity
Notes to the Consolidated Financial Statements
for the year ended 30 June 2020 (continued)
Note 24 Operating segments (continued)
Types of services by reportable segments
(i) Waste Management
The Waste Management segment involves resource recovery from C&D waste and C&I waste. C&D waste includes waste from
demolition and civil construction activities, including roads and buildings. C&I waste includes waste industries including
manufacturing and retail as well as wholesale businesses.
(ii) Operations and Maintenance
The O&M segment primarily involves providing technical, business and other ancillary support to companies in the waste industry.
(iii) Landfill Operations
Landfill operations have not yet commenced, however the construction of the landfill in Gingin is underway. Currently there is no
revenue associated with this segment.
Corporate items of revenue and expenses have been allocated to the operating segments that receive the majority of the economic
value.
Summarised financial information concerning our reportable segments as at 30 June 2020 and 30 June 2019 are shown in the
following table:
Waste
Management
Operations
and
Maintenance
Landfill
Operations
Year ended 30 June 2020
Revenue from contracts with customers
Other income
$
1,399,130
53,183
1,452,313
$
583,446
-
583,446
Operating expenses
(10,555,713)
(539,122)
EBITDA
Depreciation and amortisation
Net finance costs
Impairment losses
Loss before income tax
Income tax benefit
Loss after income tax
(9,103,400)
(1,179,365)
(1,112,883)
(2,245,501)
(13,641,149)
605,557
(13,035,592)
44,324
(4,376)
(33,022)
-
6,926
33,642
40,568
Total
operating
segments
$
1,982,576
53,183
2,035,759
(11,889,860)
(9,854,101)
(1,188,450)
(1,178,927)
(2,245,501)
(14,466,979)
672,841
$
-
-
-
(795,025)
(795,025)
(4,709)
(33,022)
-
(832,756)
33,642
(799,114)
(13,794,138)
Capital expenditure
506,421
34,724
2,892,480
3,433,625
64 M8 Sustainable Limited Annual Report 2020
M8 Sustainable Limited and its Controlled Entity
Notes to the Consolidated Financial Statements
for the year ended 30 June 2020 (continued)
Note 24 Operating segments (continued)
Year ended 30 June 2019
Revenue from contracts with customers
Other income
Operating expenses
EBITDA
Depreciation and amortisation
Net finance costs
Loss before income tax
Income tax benefit
Loss after income tax
Waste
Management
Operations
and
Maintenance
Landfill
Operations
Total
operating
segments
$
87,181
397,500
484,681
(5,544,893)
(5,060,212)
(534,681)
(1,413,060)
(7,007,953)
13,038
(6,994,915)
$
596,285
-
596,285
(219,187)
377,098
(631)
(78,293)
298,174
724
298,898
$
-
-
-
(456,099)
(456,099)
(631)
(78,293)
(535,023)
724
$
683,466
397,500
1,080,966
(6,220,179)
(5,139,213)
(535,943)
(1,569,646)
(7,244,802)
14,486
(534,299)
(7,230,316)
Capital expenditure
1,197,749
101,605
380,403
1,679,757
Revenue from one customer amounted to $206,329 (2019: $852) arising from waste management CGU. Revenue from second
customer amounted to $583,446 (2019: $596,285) arising from O&M CGU.
No segments have been aggregated to form the above reportable segments.
Capital expenditure consists of additions of property, plant and equipment, which includes $2.9 million for the construction of
landfill in Gingin.
The Group’s executive management does not review segment assets and liabilities.
All non-current assets are based in Australia.
Note 25 Auditor’s remuneration
Fees to Ernst & Young (Australia)
Fees for auditing the statutory financial report of the parent covering the group
and auditing the statutory financial reports of any controlled entities
Fees for other assurance services
Fees for other services: - Tax compliance
- Others (due diligence)
Year ended
30 June 2020
$
Year ended
30 June 2019
$
422,515
79,350
47,500
80,854
630,219
308,400
-
-
85,000
393,400
65
M8 Sustainable Limited and its Controlled Entity
Notes to the Consolidated Financial Statements
for the year ended 30 June 2020 (continued)
Note 26 Key Management Personnel (KMPs) disclosures
The KMPs at 30 June 2020 are as follows:
1. Robert McKinnon – Chairman
2. Tomasz Rudas – Director
3. Richard Allen – Director
4. Mark Puzey – Director
5. Saithsiri Saksitthisereekul – Director
6. Damien Craig Flugge – Director (resigned 9 December 2019)
7. Vijay Joshi – Chief Financial Officer
8. John Colli – Company Secretary
The aggregate KMP compensation is set out below:
Short-term employee benefits
Post-employment benefits
Share-based payments – cash settled
Share-based payments – equity settled
Other non-monetary benefits – FBT on motor vehicles
Other non-monetary benefits – bonus shares rescinded
Indemnity cancelled
$
$
1,410,518
88,661
-
-
44,543
(1,072,180)
(492,314)
1,167,945
49,505
231,551
276,716
-
-
-
(20,772)
1,725,717
Bonus Incentive
Under employment contracts with 3 key management personnel dated 1 September 2017, the parties had a bonus incentive
whereby, on the listing of the Company on the ASX or other recognised stock exchange, the key management personnel would
be entitled to an individual bonus of:
• bonus shares equalling 0.5% of the Company’s issued capital at the time that the Company becomes listed (representing an
equity settled share-based payment) and a payment equivalent to the employee’s tax liability (representing a cash settled
share-based payment), and
•
cash bonus equivalent to 0.5% of the total capital raised by the Company before listing on the ASX.
The bonus shares and cash bonus clauses were rescinded by all 3 key management personnel on 4 and 13 September 2019. As
the Group used the intrinsic value method to account for these awards, a reversal of the cumulative share-based payment expense
associated with the bonus shares was recognised through profit and loss on the cancellation date.
Under the same employment contracts, 3 key management personnel are also entitled to an Executive Cash Bonus and to participate
in an Executive Share Scheme as follows:
•
•
a discretionary executive cash bonus equivalent of up to 50% of the employee’s base salary may be earned based on an
appraisal of individual and Company performance with the first milestone being the Company’s ASX listing; and
the participation in an executive share scheme whereby each eligible employee will receive up to 1,000,000 shares each year
with the first year’s milestone being the Company’s ASX listing, subject to Shareholder approval and to Directors’ discretion
(representing an equity settled share-based payment) and a payment equivalent to the employee’s tax liability (representing a
cash settled share based payment).
As at 30 June 2020, the Company did not provide for these bonus incentives because the terms and conditions of the awards had
not yet been determined.
66 M8 Sustainable Limited Annual Report 2020
M8 Sustainable Limited and its Controlled Entity
Notes to the Consolidated Financial Statements
for the year ended 30 June 2020 (continued)
Note 27 Related party transactions
i) Star Shenton Energy Pty Ltd (SSE), in which Tomasz Rudas, Saithsiri Saksitthisereekul and Damien Flugge were common Directors
up to 31 January 2019, 25 March 2019 and 9 December 2019 respectively, was invoiced $641,791 for the provision of
operations and maintenance services during the year (inclusive of GST).
ii) The Group has a receivable from Star Shenton Energy Pty Ltd for an amount of $631,166 ($1,733,238 as at 30 June 2019).
This amount is non-interest bearing and is payable on demand (see Note 14).
iii) The Group received a non-interest bearing short-term loan from Star Shenton Energy Pty Ltd for $1,410,457 during the year
which was repaid in full.
iv) Mr. Y. Zhu, who is a shareholder, was paid $150,000 in November 2017, $50,000 in November 2018 and $50,000 in January
2019 and the balance of $50,000 was due as at 30 June 2019. These amounts were payable for the release of mortgages
held by Mr. Y Zhu on personal properties of Tomasz Rudas and Damien Flugge (Directors of the Company) to facilitate the
Group to obtain a third party loan secured against the Directors’ personal properties. These amounts were included as KMP
compensation for Tomasz Rudas and Damien Flugge for the year ended 30 June 2018.
v) The Group owed an amount of $435,124 to Flugge Superannuation Fund (related party of Damien Flugge, previous Director)
as at 04 December 2019 which was interest bearing at 10% per annum. The loan was secured against all property disclosed
in Note 18. The Group entered into an agreement with the related party and settled the loan by way of the issue of 2,229,709
fully paid ordinary shares in the Company on 04 December 2019. A further amount of $595,396 was payable to the same
related party. The amount was repayable via the issue of ordinary shares at a price to be determined and arose on the business
combination transaction undertaken in 2018. 8,351,526 fully paid ordinary shares were issued on 3 May 2019, with a total
value of $1,302,838, in settlement of the Group’s obligation. The Group recognised an expense on settlement of the liability
of $707,442.
vi) The Group provided Indemnities to the Directors in respect of Australian Tax Office penalty notices for unpaid superannuation
guarantee payments for companies within the group from which M8 Sustainable Limited acquired the Maddington Facility
and the Fernview entity. This resulted in a liability of $492,314 to the Group, including taxes. The indemnity agreement was
subsequently terminated on 5 September 2019.
vii) In March 2020, the Group awarded a contract for the construction of a landfill facility at Gingin WA with a value of $9.6
million to Sbang Australia Pty Ltd, a wholly owned subsidiary of SBANG (Saithsiri Saksitthisereekul is a common director). The
contract was awarded following a comprehensive tender process and confirmation from the ASX that prior shareholder
approval was not required for the contract. Receivables from SBANG Australia amounting to $228,862 are amounts paid to
suppliers on behalf of SBANG to develop roadworks in Gingin prior to contract being signed which will be offset against future
SBANG invoices.
(viii) The Company is a party to a loan agreement with SBANG (pursuant to which SBANG has agreed to lend up to $4 million to
the Company. The Company is required to obtain shareholder approval for the purposes of ASX Listing Rule 10.1 to grant
security in favour of SBANG in security of the SBANG loan before it can request an advance under the loan. Shareholder
approval to grant security in favour of SBANG for the loan was obtained at the annual general meeting held on 5 June 2020.
As at the end of the reporting period, no amount has been borrowed by the Company under the loan.
(ix) Messrs McKinnon, Puzey and Allen, directors of the Company, entered into consultancy agreements with the Company in
March 2019, January 2019 and March 2019 respectively until the Company was admitted to the official list of the ASX on 11
December 2019. The fees paid to the Messrs McKinnon, Puzey and Allen pursuant to the consultancy agreement amounted
to $17,500, $56,030 and $19,226 respectively.
(x)
In December 2019, following its admission to the Official List of the ASX, the Company made a payment of $5,622,805 to
SBANG. This represented the repayment of the principal amount of a loan from SBANG of $4,440,000 and the payment of
interest on the SBANG loan of $1,222,805.
(xi) In accordance with the Company’s prospectus dated 30 October 2019 in which an initial public offer- ing of shares was made,
the Company agreed, subject to shareholder approval, to issue 7,100.000 Performance Rights to the Directors of the Company.
The grant of the Performance Rights was approved by shareholders at a general meeting held on 26 November 2019. Upon
listing of the Company on the ASX, the Performance Rights were issued as follows:
67
M8 Sustainable Limited and its Controlled Entity
Notes to the Consolidated Financial Statements
for the year ended 30 June 2020 (continued)
Note 27 Related party transactions (continued)
Name of Holder
Number of Performance Rights
Robert McKinnon (Mckinnon Family Trust #2)
Tomasz Rudas
Richard Allen (Allen Family Trust)
Ingrid Puzey (The Puzey Finance Trust) 1
Saithsiri Saksitthisereekul
Felicianna Hoi Wai Flugge 2
1 related party of Mark Puzey
2 related party of Damien Flugge – a director to 9 December 2019
800,000
3,000,000
600,000
600,000
600,000
1,500,000
Note 28 Parent entity disclosure
Statement of Financial Position
ASSETS
Current assets
Non-current assets
TOTAL ASSETS
LIABILITIES
Current liabilities
Non-current liabilities
TOTAL LIABILITIES
30 June 2020
$
30 June 2019
$
16,338,844
11,579,466
27,918,310
1,904,380
6,155,186
8,059,566
233,964
6,535,972
6,769,936
14,457,246
200,562
14,657,808
TOTAL NET ASSETS / (LIABILITIES)
19,858,744
(7,887,872)
SHAREHOLDERS’ SURPLUS / (DEFICIT)
Issued capital
Share based payment reserve
Accumulated losses
TOTAL SHAREHOLDERS’ SURPLUS / (DEFICIT)
Statement of Profit or Loss and Other Comprehensive Income
Total loss, net of tax
Loss for the year
The Parent has not entered into any guarantees with any of its subsidiaries.
The Parent has no contractual commitments or contingent liabilities as at year end.
68 M8 Sustainable Limited Annual Report 2020
41,991,364
1,519,285
1,042,600
1,724,831
(23,651,905)
(10,655,303)
19,858,744
(7,887,872)
Year ended
30 June 2020
$
Year ended
30 June 2019
$
(13,762,242)
(13,762,242)
(7,152,324)
(7,152,324)
M8 Sustainable Limited and its Controlled Entity
Notes to the Consolidated Financial Statements
for the year ended 30 June 2020 (continued)
Note 29 Commitments and contingent liabilities
Commitments
A contract to construct the Gingin Landfill, was awarded to Sbang Australia Pty Ltd. The contract value is fixed price of $9.6 million.
Out of the total fixed value, an amount of $2.5 million was paid towards the first phase of construction. The balance of $7.1
million is what the Company is committed to subject to a minor variation whereby the Company has further taken upon itself to
procure the liners totalling to $589,683. As a result, the net commitment is $6.5 million at the date of the accounts. One of the
material conditions of the contract being, the Company has a right to suspend the contract at its own accord giving additional
freedom should the second phase be delayed due to weather conditions or any such change that the Company deems fit to
suspend the project work.
Contingent liabilities
Fernview Environmental Pty Ltd has a royalty agreement whereby it will pay Fernview Development Group Pty Ltd (an unrelated
party) a royalty of $1.50 per tonne based on the number of tonnes of waste received at the Gingin Facility. Payment is contingent
on the development of the Gingin Facility and the receipt of waste.
The Group does not have any other contingent liabilities as at balance sheet date and none have arisen since balance sheet date
to the date of signing the Directors’ report.
Note 30 Controlled entity
The consolidated financial statements incorporate the assets, liabilities and results of the following controlled entity in accordance
with the accounting policy described in Note 2 (b):
Name
Name
Fernview Environmental Pty Ltd. (ACN 617 674 469)
Note 31 Financial risk management
Percentage owned
Country of
incorporation
Australia
30 June
2020
100%
30 June
2019
100%
The Group’s principal financial instruments comprise cash, receivables, payables and lease liabilities, The Group manages its exposure
to key financial risks in accordance with the Group’s financial risk management policy. The objective of the policy is to support the
delivery of the Group’s financial targets whilst protecting its future financial security.
The main risks arising from the Group’s financial instruments are credit risk and liquidity risk. The Group uses different methods to
measure and manage different types of risks to which it is exposed. These include:
• Aging analyses and monitoring of specific credit allowances are undertaken to manage credit risk.
•
Liquidity risk is monitored through the development of future rolling cash flow forecasts.
69
M8 Sustainable Limited and its Controlled Entity
Notes to the Consolidated Financial Statements
for the year ended 30 June 2020 (continued)
Note 31 Financial risk management (continued)
Credit Risk
Credit risk arises from the financial assets of the Group, which comprises cash and cash equivalents and trade and other
receivables.
Credit risk in respect of trade and other receivables arises when a customer fails to meet its contractual liabilities. The Group is
exposed to such risk. However, the Group will be seeking to minimise/reduce this risk by setting credit limits and focussing on
having a broader rather than narrow number of customers.
The Group’s exposure to credit risk arises from potential default of the counterparty, with a maximum exposure equal to the carrying
amount of these instruments. Exposure at reporting date is addressed in each applicable note.
The Group considers the probability of default upon initial recognition of a financial asset and whether there has been a significant
increase in credit risk on an ongoing basis throughout the reporting period.
Except for Trade receivables, contract assets and other short-term receivables (see below), ECLs are recognised in two stages. For
credit exposures for which there has not been a significant increase in credit risk since initial recognition, ECLs are provided for
credit losses that result from default events that are possible within the next 12 months (a 12-month ECL). For those credit exposures
for which there has been a significant increase in credit risk since initial recognition, a loss allowance is required for credit losses
expected over the remaining life of the exposure, irrespective of the timing of the default (a lifetime ECL).
To assess whether there is a significant increase in credit risk, the Group compares the risk of a default occurring on the asset as at
the reporting date with the risk of default as at the date of initial recognition. In making this assessment, the Group considers
information that is reasonable and supportable, includ- ing historical experience and forward-looking information. In particular,
the Group takes into account the counterparties external credit rating (as far as available), actual or expected significant changes
in the operating results of the counterparty and macroeconomic when assessing significant movements in credit risk.
Market Risk
For the Group, market risk comprises of mainly interest rate risk Financial instruments affected by market risk include loans and
borrowings, deposits, debt and equity investments and derivative financial instruments.
Interest Rate Risk
The Group’s exposure to the risk of changes in market interest rates is restricted to cash and cash equivalents of $4,164,270.
Therefore, there is no significant interest rate risk at the balance sheet date.
Liquidity Risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. It is the Group’s policy to
maintain sufficient funds in cash and cash equivalents to meet the financial obligations. Management prepares and monitors rolling
cash flows and regularly reviews existing funding arrangements to manage this risk. Also, SBANG has provided a $4,000,000 loan
facility on 03 Septem- ber 2019 which was approved by the shareholders on 05 June 2020 at the AGM.
70 M8 Sustainable Limited Annual Report 2020
M8 Sustainable Limited and its Controlled Entity
Notes to the Consolidated Financial Statements
for the year ended 30 June 2020 (continued)
Note 31 Financial risk management (continued)
The table below summarises the maturity profile of the Group’s financial liabilities based on undiscounted payments:
30 June 2020
Trade payables
Accrued and other payables
Term borrowings
Amount due to a related party
Loan from SBANG
Loan from shareholder
Lease liabilities
30 June 2019
Trade payables
Accruals and Other Payables
Term borrowings
Amount due to a related party
Loan from SBANG
Loan from shareholder
Fair value
One year
After one year
$
551,675
398,872
63,351
-
-
-
$
-
-
1,524
-
-
-
Total
$
551,675
398,872
64,875
-
-
-
983,000
1,996,898
13,758,833
13,760,357
14,741,833
15,757,255
631,504
948,132
24,402
435,124
20,040,641
50,000
22,129,803
-
-
20,089
-
-
-
631,504
948,132
44,491
435,124
20,040,641
50,000
20,089
22,149,892
The methods for estimating fair value are outlined in the relevant notes to the financial statements. The carrying amounts of
financial assets and liabilities of the Group carried at amortised cost approximate their fair values.
Note 32 Events after the reporting period
With the exception of the transactions noted below, no material transactions have occurred since 30 June 2020 and the date of
the approval of the financial statements which the Directors consider require disclosure.
The Company is progressing with the construction of the landfill project and has placed an order to procure the liners for the first
cell at a cost of $589,683 excluding GST.
71
SHAREHOLDER INFORMATION
as at 1 October 2020
TWENTY LARGEST SHAREHOLDERS
Rank Name
1
2
3
4
5
SBANG SUSTAINABLE ENERGIES LTD
STAR UNIVERSAL NETWORK PUBLIC COMPANY LIMITED
HSBC CUSTODY NOMINESS (AUSTRALIA) LIMITED
NATIONAL NOMINEES LIMITED
KINGSLEY CRAIG FLUGGE AND MARGARET FLUGGE
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