Annual Report 2021 “First class service from a team of experts in the printing industry. Woolworths are very thankful and appreciative of the team at Ovato over the 20 plus years we have been partners.” Andrew Kenny, Head of Trade Planning, Customer Projects & Advertising Woolworths Limited Ovato’s Paper Procurement Policy requires that all paper used by the company is sourced in a sustainable and responsible manner consistent with recognised international standards. This policy enables our customers to have a high level of confidence in the sustainability of their printed communications. When producing this annual report, Ovato applied the following additional criteria: • Support paper suppliers who are striving to achieve the highest sustainability targets; • Insist on FSC® Certified paper. The paper used in this report is produced from responsible sources, is manufactured under an ISO14001 compliant environmental management system and uses elemental chlorine free, FSC® certified pulp. The 2021 Annual Report was designed, printed and bound by Ovato. Paper sourcing 2 Ovato Limited Annual Report 2021 Ovato Limited ABN 39 050 148 644 Registered Office: Level 4, 60 Union Street Pyrmont NSW 2009 Tel: 02 9412 6111 ovato.com.au Annual general meeting The Ovato Limited annual general meeting (AGM) will be held at 11.00am on Wednesday, 24 November 2021. The meeting will be held virtually online via the Lumi platform at https://web.lumiagm.com with meeting ID 336-196-543. Details of how shareholders can access this platform and of the business of the meeting are contained in the separate Notice of Meeting. Board of directors Chair Michael Hannan CEO/Managing Director James Hannan Non-Executive Directors Dhun Karai Andrew McMaster Share registry Computershare Investor Services Pty Ltd Level 5, 115 Grenfell Street, Adelaide SA 5000 GPO Box 1903, Adelaide SA 5001 Enquiries: Within Australia: 1300 556 161 International: +61 3 9415 4000 computershare.com Investor information Shareholders requiring information should contact the share registry or chief financial officer: Andrew Stedwell Tel: 02 9412 6000 andrew.stedwell@ovato.com.au ASX Code: OVT Contents Overview Company profile...............................................................................................5 Chair review.......................................................................................................13 CEO review....................................................................................................... 16 Health and safety........................................................................................... 18 Financial report Directors’ report............................................................................................ 20 Remuneration report................................................................................... 26 Independent auditor’s declaration..........................................................31 CFO review.......................................................................................................32 Financial statements Consolidated statement of profit or loss and other comprehensive income..........................................................33 Consolidated statement of financial position................................... 34 Consolidated statement of changes in equity...................................35 Consolidated statement of cash flows................................................. 36 Financial notes................................................................................................37 Directors’ declaration...................................................................................82 Independent auditor’s report.................................................................. 83 Shareholder information............................................................................ 86 Share register information.........................................................................87 Ovato Limited Annual Report 2021 3 4 Ovato Limited Annual Report 2021 Company profile Ovato provides the printing solutions, platforms, and tools clients’ need to get in front of the right people. Our capabilities are diverse, but our focus is single-minded: we deliver high quality print products including magazines, catalogues, commercial work, point of sale, packaging and books – on time and on demand. We offer an unmatched breadth of print solutions through our significant footprint across Australia and New Zealand, helping clients reach the people that matter to them with print material that works. Our experienced team of specialists work with clients across multiple industries, from Retail to Publishing, eCommerce to FMCG and many more. Everything we do is based on a deep understanding of print and its business impact, allowing us to continually improve on our work for clients’. Ovato Efficiency Smart solutions that get printed material to market faster. Effectiveness Experience and knowledge drive measurable success for campaigns. Impact Maximise print activities with cutting-edge solutions. At Ovato we promise: We know print. Ovato Limited Annual Report 2021 5 Catalogues Catalogues are a powerful marketing tool, putting our clients’ brands in customers’ hands and homes. They help buyers make purchase decisions, discover new products and share offers with friends and family. Ovato has enjoyed an extended tenure in the print industry, and our clients trust us to print bespoke catalogues that speak to customers based on our significant expertise and innovative spirit. We enjoy a national footprint with unrivalled manufacturing capability. This gives our clients faster speed to market and the flexibility to make content or volume decisions at any time. Ovato’s catalogue solutions range is diverse, be it 8 pages through to 800 pages. We can print on 45gsm up to 350gsm – and everything in between. We can even link the physical and digital experiences with immersive Augmented Reality (AR), loyalty program registration or steer customers to an online point of purchase. We work with brands of all sizes to print and publish catalogues that work. Whatever they need, we offer a print catalogue solution. From concept to customers. “ Ovato has the national footprint and experienced team to provide the most reliable service. For over 18 years, Ovato has been printing a national, weekly catalogue for us, and they have never missed a deadline.” Julie Sorrell, Production Director BMF 6 Ovato Limited Annual Report 2021 Magazines Inspire and engage consumers. “We have worked with the Ovato team for many years. We do so because we believe they’re the best, and because we believe there’s strength in long-term relationships. We know that Ovato is always looking around the world at different ways things are being done in order to share best practice with us. They do this without losing track of what’s important on the ground at home: the shared belief that good people and relationships are at the heart of good business.” Mark Muller, Editor-in-Chief R.M.Williams Publishing Pty Ltd. Print magazines remain a source of inspiration, entertainment and education for consumers of all ages, backgrounds and demographics. Readers might dwell on the beautifully shot front cover or curl up with an interesting interview and a cup of tea. They collect pages for scrapbooks, recipe inspiration or to share articles with friends and family. From niche interests to everyday living, magazines deliver curated content in an accessible, portable, and interactive format. At Ovato, we carry out a critical role in magazine creation – printing, binding, and finishing - but our background in publishing and content production means we also understand every single element of the magazine process. We have been printing magazines for over 50 years and currently print over 100 titles. We work with leading publishers to print Australia’s most recognisable titles, including Australian Women’s Weekly, Gourmet Traveller, R.M.Williams OUTBACK, Vogue, Reader’s Digest, Australian Wine Selector, New Scientist, The Economist, Woman’s Day and many, many more. Ovato Limited Annual Report 2021 7 From Harry Potter and Girl on a Train to Michelle Obama’s Becoming, we know how to print bestsellers. For decades, we’ve been helping authors reach their readers with the worlds and words they create. We deliver high-quality book printing that publishers and authors can be proud of. Ovato can deliver tens of thousands of books in a single run, with a combination of digital production and conventional print. Our team works in partnership with authors and publishers to produce new titles and re-prints of which they can be proud. We create paperbacks and hardbacks. Plus, we’re part of a global network giving them the opportunity to print their book in the part of the world where readers will enjoy it. We provide clients with a one-stop-shop print, binding and finishing solution for everything book related. Capturing audience imagination across Australia and New Zealand. Books “We continue to be impressed with Ovato’s commitment to innovation and agile approach to printing, given the ever-changing environment. We believe it is important to partner with a company that is focused on setting up strong foundations for future success.” Gavin Schwarcz, Sales & Operations Director Penguin Random House Australia 8 Ovato Limited Annual Report 2021 “Ovato has been a partner for many years and in that time have always provided first class solutions, from concept finished cartons. Ovato has delivered on time, every time even with short turnaround times and we can always count on quality product.” Gabi Bishop, Brand Manager Darrell Lea First impressions are important. Well-designed custom product packaging reflects our clients’ brand values, quality and customer care – and it can make or break a sale. We’ll make sure their product is the one that customers want to pick off the shelf. Our large-scale production capabilities and deep knowledge of the FMCG market means we can produce a unique packaging solution for brands and target audience. When designing product packaging, we digest all customer research to ensure the packaging is both compelling and functional. Ovato works with clients across the design, printing, converting, storage and logistics stages, as well as providing a consultancy service to review packaging materials, styles, machinery, print techniques and finishes. And we have access to a range of carton boards ranging from premium virgin high strength white-back boards, FDA approved direct food contact boards, wet-strength boards, recycled boards and plastic laminates such as PP/PE and PET. Special finishes that we offer include embossing, debossing, braille, RFID tagging, varnish free areas, foil stamping, spot UV glosses and other specialty coatings accredited via ISO 9001:2008 Quality Assurance System. Let your product speak for itself. Packaging Ovato Limited Annual Report 2021 9 “ I am forever grateful for our partnership with Ovato. I cannot thank the team enough for everything they do for us, the entire POS process from digital printing, kitting to delivery is seamless. Our accomplishments would not have been possible without the Ovato team.” Mandy Chew, Global Visual Merchandiser Williams Sonoma If a client’s brand is going to grow, their marketing needs to reach as many new and existing customers as possible. The point of sale is the time and place when all elements of a physical sale – consumer, purchase and product – come together. To get the most value out of this confluence of events, you need strong comms and marketing material right there in place. Point of sale (POS) printing, displays, packaging, sales promotions, and in-store advertising all influence the consumer’s buying decision. Our innovative, well-managed and attractive in store point of sale programmes will stop a customer in their tracks to impulse buy. Whether our clients sell chewing gum or state-of-the- art TVs, a point-of-sale program is essential to grab attention, pique interest and deliver the right information. Reach customers at the right time, right place. Point of sale WE DARE YOU TO COMPARE SCAN TO FIND OUT MORE ABOUT ME! DB KS SGL SINGLE King Queen 1880mm Length x 920mm Width KING SINGLE 2030mm Length x 1070mm Width DOUBLE 1880mm Length x 1370mm Width QUEEN 2030mm Length x 1530mm Width KING 2030mm Length x 1830mm Width REVIVIFY SUPPORT Centre Gel Visco Lumbar 5 Zone Pocket Foam Comfort Layers Stretch Knit Fabric Grey 3D Breathable Border Bed in Box Full Foam Box Euro Top 10 Year Warranty CertiPUR-US® OEKO-TEX® Medium Available in 1 Feel WE DARE YOU TO COMPARE SCAN TO FIND OUT MORE ABOUT ME! King Queen QUEEN 2030mm Length x 1530mm Width KING 2030mm Length x 1830mm Width 10 Year Warranty OEKO-TEX® CertiPUR-US® Available in 2 Feels 7 Zone Spring Air Pocket Foam Comfort Layer Full Foam Box Gel Visco Memory Foam Stretch Knit Fabric Latex Layer Available in 2 Feels Firm Medium Euro Top CLOUD 7 WE DARE YOU TO COMPARE SCAN TO FIND OUT MORE ABOUT ME! Adjustable Electric Base Wireless Remote Control Head & Foot Motion Motion in Box 2 Year Motor Warranty Articulate Motion Zero G LS Queen LONG SINGLE 2030mm Length x 920mm Width QUEEN 2030mm Length x 1530mm Width 10 Ovato Limited Annual Report 2021 Professional promotional materials are a must-have for businesses of all shapes and sizes. We help bring our clients’ brands to life in print so they are represented well, from letterbox drops to conferences and events. We offer a wide variety of sizes and paper stocks to complement their brand and product campaign objectives to help tell a story. Leaflets and flyers are an accessible format that give customers all the details they need on one page. Think menus, events, services, contact info and more. Pamphlets offers increased pagination so you can share more information. A range of fold options are available to suit our clients delivery needs. Booklets are a great way to communicate it clearly. We produce everything from DL to A5 size booklets, covering things like regional tourism information, company profiles, training guides and educational courses. We can even personalise booklets for individual people, so the message achieves the best impact possible. Communicate clearly to your customers. Commercial work “ Ovato has been printing The Travel Corporation brochures for over 20 years, helping us achieve the highest quality of print. Our brochure production for many of our brands are based in the UK and the biggest asset is the Ovato team’s flexibility and ability to support us 24/7. Thanks to Ovato we never had to compromise the quality on our brands extremely time sensitive travel brochures, where a timely delivery to our distribution centre is a must.” Ela Swiecicki, Director, Print Management Services Travcorp Ovato Limited Annual Report 2021 11 Direct marketing We are the largest Print Post mailer in Australia. Our highly experienced team can wrap and mail 420,000 articles in 24 hours, all under one roof. Our audience-centric approach allows clients to create material that is personalised, cost-effective and measurable. The single goal of direct marketing is to persuade the recipient to take action. We can help clients achieve this with our addressed and unaddressed mailing solutions. Items are printed, folded, packed, wrapped or inserted and then delivered to either an existing database or a broad reach audience built using demographic, geographic and behavioural targeting. Cut through the noise. “Ovato has been instrumental in assisting Myer to reach the right customers with print catalogues through their mail solutions. The Ovato team has worked closely with the Myer data and insights team to target the best pool of customers to receive the catalogue to drive the highest engagement.” Tamlin Watson, Head of Operations Myer 12 Ovato Limited Annual Report 2021 Chair review Chair review Michael Hannan Chair It was clearly a most difficult year, undertaking and funding a financial and operational restructure of the business in view of industry-wide falling revenue trends and the impact of a pandemic that has defied all predictions. As the year was coming to a close, we saw a false dawn with a lessening of restrictions and some signs of return to new normality. That optimism, believing that the worst was behind us, and that we had a year of steady recovery in front of us, was not to be. In July we were back to levels of uncertainty in the community and the severest of lockdowns since the start of the pandemic in March last year. Consumer confidence is once again taking a battering. The disruption has been felt most heavily in our retail catalogue printing volumes, this segment of our business has been the main driver of the downturn in sales in FY21 by $45M. There were, however, some bright spots during this period; magazine print volumes were not as heavily affected as expected and, in some sectors, have remained surprisingly buoyant. Our book printing business has grown during FY21 due to the onshoring of book printing where supply chain issues caused uncertainty for publishers, driving demand for local print suppliers. We expect that the new volume levels will be maintained in this part of the business presenting further growth opportunities in the future. Through the entire period we have continued to right size and reshape Ovato for a stable future. We have removed old & excess capacity from our print sites and made good headway on other cost saving plans. We have also taken a brutal look at our overhead structure and made significant reductions Ovato Limited Annual Report 2021 13 in labour right across the business. We have focussed on exiting from non-core businesses and a loss-making letter box distribution business to reduce our debt and improve our cash balance sheet position. As a result, Ovato will emerge as a highly focussed and well-equipped print business Kevin Slaven stood down as CEO in June and remained in a Transformation Advisory role until his contract expired in September. I have worked with Kevin for more than 20 years, majority of that time while he was CFO and CEO at IPMG then at PMP and Ovato. He is a highly capable and caring CEO, and the Board and I give our sincere thanks to him for guiding us through the multiple challenges that have faced the company in the last two years. James Hannan who has extensive knowledge of print operations and was most recently Ovato COO and responsible for its restructuring and transformation program, has been installed as CEO. We also have a new CFO in Andrew Stedwell following the departure of Geoff Stephenson after many years in the role. Before Ovato, Andrew spent over 20 years at Are Media (Bauer), and before that, Australian Consolidated Press (ACP). Andrew has broad digital and print media experience having held senior roles across finance, publishing, operations, general management and marketing. Our long serving Company Secretary and Legal Counsel Alistair Clarkson continues to guide us with his vast knowledge and invaluable experience. We also owe a debt of gratitude to all our employees who through COVID-19 and major disruption and restructuring have truly risen to the occasion. It has been gratifying to see the dedication from them all given the circumstances. I’d also like to give thanks to our clients, many of whom we have relationships going back decades. While some of their volumes reduced during the pandemic, they are the backbone of our business. They have remained loyal and supportive through all the disruption we have faced, and we are grateful to them for their continued support. In turn, despite the disruption, our record of performance and quality remains intact, and we take pride in not having let them down during the most difficult of periods. To all our shareholders, we are grateful for your support as we work to being a better, stable, and profitable business to the benefit of all shareholders. Finally, thank you to my fellow Board directors and the executive team for whom it has been a very difficult year to navigate. Your insight through this period has helped us make good decisions which will lead to the company delivering better outcomes and see our clients well served. The focus for Ovato now returns to the core competency of efficient print production - the engine room of the Ovato business. The changes we have made better aligns our cost base to the 14 Ovato Limited Annual Report 2021 expected revenue base, from which we will yield benefit as time goes on. We have an industry leading print management team that are highly focussed, and with the myriad of distractions behind us, now have a far more simplified operating business model, the tools and the energy to shift Ovato to be highly competitive and sustainably profitable into the future. Chair review “We also owe a debt of gratitude to all our employees who through COVID-19 and major disruption and restructuring have truly risen to the occasion.” Michael Hannan Chair Ovato Limited Annual Report 2021 15 When Kevin made his report last year, he covered how the COVID-19 pandemic had impacted our business. The challenges have been both numerous and difficult since then. I want to acknowledge Kevin’s work over the last four years at Ovato. As a friend and mentor in that time, his calm demeanour and ability to find focus even under astounding pressure was a useful skill to learn from. I wish him the best for his next endeavours as our new management team takes the lead from here. We have and continue to make the hard decisions necessary to ensure a sustainable future for the Ovato business. My new management team understands the challenge we have ahead of us and are committed to the effort and excellence it will require. We can now solely focus on the future. We are returning our business to a singular focus and to the thing we do best – print production. When we hold a shared & focused vision, success will follow. That journey is already underway. The sale of our Retail Distribution business to Are Media is now complete, as is the divestment of our Marketing Services business, both these events strengthening our balance sheet and providing funds for further transformation. In July, we also announced the closure of our Residential Distribution Business in Australia to prevent ongoing trading losses in a part of the businesses where volumes have continued to steeply decline. CEO review James Hannan Chief Executive Officer and Managing Director 16 Ovato Limited Annual Report 2021 CEO review Our immediate future is as a substantially smaller business. This has meant we have had to say goodbye to many of our team members as we find our new point of stability in the market. The resilience the Ovato community has shown, and the resolve it continues to hold are very encouraging as we move forward. I expect and will lead a shift in our mindset to one of a smaller business, where everyone on the team is committed, connected, and working together for a shared outcome – success. This tighter team, increased focus and greater agility are advantages we will press. Already we recognise opportunities for growth in a print-centric strategy. Sensible adjacencies exist for us in growing our point of sale and packaging offerings. We will pursue this growth once we have achieved our first goals in ensuring our core print business is as efficient as possible. The context for our operation remains challenging and will likely be for some time to come. Your new management team has a clear plan, valuable experience and the determination required to succeed. “When we hold a shared & focused vision, success will follow. That journey is already underway.” Ovato Limited Annual Report 2021 17 James Hannan Chief Executive Officer and Managing Director Health and safety Keeping people safe continues to be a primary concern at Ovato. The COVID-19 pandemic continued to shift all focus throughout the year to the immediate health and safety of our personnel and their families. While Ovato’s strategic plan was disrupted by the continuing pandemic we had no recorded positive cases in Australia or New Zealand. All sites engaged in high levels of communication ensuring immediate controls including personal protective equipment, cleaning and hygiene were implemented. We adopted a cautious approach across our businesses with any potential cases remaining at home until a negative test result was received. Ovato’s HSEQ team worked to secure the re-certification for our ISO 45001:2018 Integrated Management System while ensuring the business was able to adopt positive new ways to work throughout the pandemic. Toward the end of the year, the pandemic presented some greater challenges to the business with the Delta strain outbreak, especially in NSW. Ovato found further measures to protect personnel and their families by implementing on-site COVID-19 testing. At a group level, although Ovato saw a significant drop in staff working hours due to the Pandemic we saw more than a 20% reduction in our Total Recordable Injury Frequency Rate (“TRIFR”) to 10.44, down from 13.19 in the prior year. This equates to a reduction in the number of reported injuries from 34 to 21, with no increase in severity. We also retained a very strong emphasis on early intervention and a well-supported return to work plan for those staff members. Our result reinforces the priority that Ovato puts on the health, safety and wellbeing of our personnel. As teams continued to be put under increased stress because of the pandemic, Ovato saw the positive impact that the mental health first aid training program in line to support our “Working Safe, Living Well, It’s ALL About ALL of You” campaign. No work-related stress claims have been reported. *Total Recordable Injury Frequency Rate FY21 FY20 TRIFR* 10.44 13.19 Occupational health and safety 0 50 100 150 GHG emissions (KT) 2018 139 2017 156 2016 83 2019 105 2020 105 2021 75 18 Ovato Limited Annual Report 2021 “Our commitment to keeping people safe is a core value of Ovato.” Health and safety Ovato Limited Annual Report 2021 19 20 Michael Hannan CHAIR Appointed 19 November 2019 NON-EXECUTIVE DIRECTOR Appointed 1 March 2017 Mr Hannan has been a Director since 1 March 2017, following the merger of IPMG Group with Ovato (formerly PMP). Mr Hannan was a member of the Appointments and Compensation Committee from 31 May 2017 to 30 May 2019. Mr Hannan was appointed Chair of Ovato from 19 November 2019. Mr Hannan was instrumental in taking IPMG into printing in the early 1970s and in the early 1980s into heatset printing and throughout that time continuing to drive the development of its community newspaper group and its consumer magazine empire. Under Mr Hannan’s Chairship, IPMG had the largest group of privately owned print and digital marketing services businesses in the southern hemisphere. He also has responsibility for significant Hannan family interests including industrial, commercial, rural and property portfolios together with other key investments. James Hannan B Bus CHIEF EXECUTIVE OFFICER AND MANAGING DIRECTOR Appointed 4 June 2021 James Hannan has extensive experience in print operations and has held senior executive responsibilities since 2014. Prior to his appointment as CEO, he served as the Groups COO, responsible for the Group’s operations. James also played a pivotal role in the successful negotiations with all stakeholders through the 2020 recapitalisation and restructure of the business. Dhun Karai B Comm, MBA, CA ANZ, MAICD NON-EXECUTIVE DIRECTOR Appointed 1 June 2016 Ms Karai has been an independent Non-Executive Director since 1 June 2016. Ms Karai has been a member of the Appointments and Compensation Committee from 31 May 2019 and was appointed Chair of that Committee on 19 November 2019. Ms Karai was appointed a member of the Audit and Risk Management Committee (“ARMC”) on 19 November 2019. She was previously a member from 1 June 2016 to 30 May 2019. She was Chair of the ARMC from 26 August 2016 to 30 May 2019. Ms Karai’s experience spans over 20 years in senior executive roles in financial services, customer engagement, digital / new products development, internal audit and risk management, initiating major transformational projects in Australia, New Zealand and the UK. Ms Karai held the position of Chief Manager Personal Markets with the Commonwealth Bank and for over ten years as the Head of Group Financial Services at Woolworths spearheading its banking services, digital partnerships, customer loyalty and data- driven marketing initiatives. Currently Ms Karai is a Partner at Grant Thornton Australia. Ms Karai’s other directorships have included being a Non-Executive Director of eftpos Payments Australia Limited and GI Technology Private Limited. Her committee memberships have included the Australian Payments Council, the National Financial Literacy Program and the International Merchants Advisory Group (USA). Directors’ report For the year ended 30 June 2021 The Directors of Ovato Limited (referred to as “Ovato” or “Company”) submit their report and the Company’s consolidated financial report for the year ended 30 June 2021 and the Auditor’s report thereon. Throughout the report, the consolidated entity is referred to as the Group. 21 Kevin Slaven BCom, CA, GAICD MD AND CEO Appointed 27 February 2018 Resigned 4th June 2021 Mr Slaven was the managing director and chief executive officer from 27 February 2018 to 4 June 2021. Andrew McMaster BCom (Hons), CA NON-EXECUTIVE DIRECTOR Appointed 4 October 2018 Mr McMaster joined the Board of Ovato as a Non-Executive Director on 4 October 2018. Mr McMaster was appointed a member of the Audit and Risk Management Committee on 22 February 2019 and Chair from 31 May 2019. Mr McMaster was appointed a member of the Appointments and Compensation Committee on 19 November 2019. Mr McMaster has extensive professional financial and accounting experience, including 27 years as an Audit Partner of KPMG. Mr McMaster was the inaugural Chief Financial Officer of Service NSW for five years, directly involved in all aspects of the design and building of the cultural, structural, governance and financial foundations of Service NSW as an executive agency of the NSW government. Mr McMaster was a Director of Sydney Swans Limited for 22 years until February 2017. He was also a Director and Treasurer of The Bradman Foundation and the Bradman Museum Trust from 1996 to 2006. 1. Directors The Directors of Ovato during the financial year were: CHAIR Michael Hannan (appointed 19 November 2019) MANAGING DIRECTOR (“MD”) and CHIEF EXECUTIVE OFFICER (“CEO”) Kevin Slaven (resigned 4 June 2021) James Hannan (appointed 4 June 2021) NON-EXECUTIVE DIRECTORS Dhun Karai Andrew McMaster 2. Directors’ and Executives’ Disclosures The disclosures required for Director share holdings and Director and Executive remuneration are included within the Remuneration Report. 3. Company Secretary – Qualifications & Experience Alistair Clarkson B Com, LLB, MBA, FCIS, GradDipACG Mr Clarkson was appointed Company Secretary on 24 April 2009 and has been Company Secretary of Ovato’s subsidiaries since December 2005. He is accountable directly to the Board, through the Chair, on all matters to do with the proper functioning of the Board. Mr Clarkson holds a Bachelor of Commerce, a Bachelor of Laws, a Masters of Business Administration and a post graduate diploma of Applied Corporate Governance. He is a fellow of the Institute of Chartered Secretaries and a member of the Law Society of NSW. As Company Secretary of Ovato, Mr Clarkson is responsible for managing the Company’s corporate governance framework, its continuous disclosure and listing rule compliance and managing all matters relating to the Company’s Board of Directors and Board Committees. Mr Clarkson has been Corporate Counsel for Ovato since 2001 and General Counsel since 2009. Prior to joining Ovato, Mr Clarkson was an associate at a law firm in New Zealand. 5. Corporate Governance Statement Ovato Limited’s Corporate Governance Statement is available on its website at: www.ovato.com.au/corpgovstatement2021 4. Directors’ Meetings The number of Directors’ meetings (including meetings of Board Committees) and the number of meetings attended by each of the Directors of Ovato during the financial year were: 22 For the year ended 30 June 2021 Directors’ report Table 1. Directors’ Meetings. * Michael Hannan abstained from 2 meetings due to having a material personal interest # James Hannan abstained from 1 meeting due to having a material personal interest Directors may attend Committee meetings but where not Committee members, their attendance is not recorded. Michael Hannan * Dhun Karai Andrew McMaster James Hannan Kevin Slaven Monthly Board Meetings Attended 10 10 10 1 9 Maximum 10 10 10 1 9 Audit & Risk Management (“ARMC”) Meetings Attended 8 8 Maximum 8 8 Appointments & Compensation (“ACC”) Meetings Attended 1 1 Maximum 1 1 Adhoc Board Meetings Attended 9 11 11 0# 10 Maximum 11 11 11 1 10 23 6. Other Matters 6.1 Remuneration policy The Group’s remuneration policies for Directors and management are detailed in the Remuneration Report included in this report. Non-Executive Directors’ fees are within the limits set by shareholders at the 2004 Annual General Meeting and are set at levels which fairly represent the responsibilities of, and time spent by, the Non-Executive Directors on Group matters. 6.2 Principal activities The principal activities of the Ovato Group during FY21 were marketing services, digital premedia, commercial printing, letterbox delivery and magazine distribution services. 6.3 Results The consolidated result after income tax of the Ovato Group for the financial year ended 30 June 2021 was a $67.1M loss (2020: $108.8M loss). 6.4 Dividends No dividends were declared or paid during the year ended 30 June 2021 (2020: Nil). 6.5 Review of operations OVERVIEW A statutory net loss after tax of $67.1M was recorded for the 2021 year which was a $41.7M improvement on the prior period. EBITDA before significant items at $31.1M was down $1.3M on the previous corresponding period (“pcp”) on 17.9% lower revenues. While tier 1 catalogue food & beverage revenues were down in H1, revenue in H2 was consistent on pcp of FY20. Non-food & beverage catalogues were down 38.0% driven largely by a major retailer not returning to catalogue printing in FY21. The various levels of lockdown across States continue to create uncertainty about demand from key catalogue and publishing customers. Given a $96.6M or 17.9% fall in sales in FY21 compared to FY20, the Company acted on its fixed cost base albeit as print volumes continue to decline further restructuring to both the Company’s manufacturing and support infrastructures is required and continuing. Results compared to pcp are as follows: • FY21 sales revenue at $442.7M is $96.6M or 17.9% lower • FY21 EBITDA* at $31.1M down $1.3M or 4.2% • Ovato Australia EBITDA* of $29.0M down $2.2M or 7.7% • Ovato New Zealand EBITDA* of $2.1M up $0.8M or 69.1% • Net debt at June 2021 was $39.9M vs December 2020 at $34.7M and June 2020 at $72.9M * Before significant items FY21 Group sales at $442.7M were down $96.6M or 17.9%, primarily due to $90.5M lower revenues at Ovato Australia. This was mainly from lower Print and Residential Distribution sales in weak retail markets, combined with the unfavourable COVID-19 impact across the year, particularly felt with non-food & beverage catalogue customers. Revenues at Ovato New Zealand were $6.0M lower with lower print and residential distribution volumes noted across the board. Due to the impact of COVID-19 on the Group, Ovato has received financial support from the Australian Government’s JobKeeper wage subsidy scheme, and the New Zealand Government’s Wage Subsidy Scheme. Ovato also sought and received the continuing support and understanding of its financiers, suppliers and customers. The Company’s plans to de-leverage the business via asset sales and equity re- capitalisation was executed during the 2021 financial year (previously delayed due to the widespread impact of COVID-19). During the 2nd quarter, the restructure and re-capitalisation involved: • Renegotiation of the Print Australia Enterprise Agreement with reduced redundancy scales and more flexible working practices. • Reduction of the $40M corporate bond to $15M by way of debt forgiveness and the note holders consenting to the conversion of the remaining $15M into equity by a further issue of shares in Ovato. • Court approved Creditors’ and Members’ Scheme of Arrangement resulting in certain debt being forgiven and the liquidation of certain companies of the Group allowing the closure of the Victorian heatset print site. • Negotiations with landlords allowing the termination and re-establishment of terms for certain onerous property leases and deferral of equipment financing loans. • Establishment of a new $17M secured debt facility to cash back the existing bank guarantee facility. • Raising of $40M in new equity. This was largely complete by the 3rd quarter when the remaining $15M of the corporate bond and the surrender of an onerous lease were converted to equity through a further issue of shares in Ovato. During the 4th quarter, Ovato entered into agreements to sell two business units, Ovato Retail Distribution for a headline price of $15M together with the assumption of $27M negative working capital and Ovato Marketing Services for $9M. On 30 July 2021, Ovato completed the sale of the magazine distribution businesses in Australia to Are Media Limited and also sold its marketing services business to Ballygriffin Holdings Pty Ltd. On 31 August 2021, Ovato completed the sale of the magazine distribution business in New Zealand to Are Media. On 5 July 2021 Ovato announced its intention to close its letterbox distribution business in Australia with effect from 30 July 2021, which is expected to achieve savings for the Ovato Group in 2022. OVATO AUSTRALIA Ovato Australia sales at $358.8M were down $90.5M or 20.1% on pcp mostly from $67.1M lower print sales, with $49.5M reductions in print catalogues and $19.5M in print magazines & newspapers. While tier 1 catalogue food & beverage revenues were down in H1, revenue in H2 was consistent on the pcp of FY20. Non-food & beverage catalogues were down 38.0% driven largely by a major retailer not returning to catalogue printing in FY21. Residential Distribution sales fell 35.8% or $21.7M on lower existing customer volumes as a result of very slow COVID-19 retail conditions. Retail Distribution continued to expand their product range into retail outlets to partially offset the impact of lower magazine revenues. Ovato Australia’s EBITDA* at $29M was down $2.2M or 7.7% due to the drop in revenue which was partially offset by the savings from the closure of the Victorian heatset print site, tight cost controls and Government wage subsidies. The various stages of lockdowns across the year as a result of COVID-19 and the resulting subdued consumer confidence saw a continuation of retail conditions where the volumes of catalogues, and real estate dependent publications fell further than anticipated. OVATO NEW ZEALAND Ovato New Zealand EBITDA* of $2.1M was up $0.8M year on year. New Zealand continues to be impacted by overcapacity in the heatset printing market and fierce competition for residential distribution volumes to support two separate delivery networks, resulting in continued intense pricing pressure leading to lower revenues and reduced margins. On 7 September 2021 Ovato New Zealand announced the closure of its Christchurch operations. *Before significant items 24 For the year ended 30 June 2021 Directors’ report OTHER Full year FY21 statutory loss after tax was $67.1M vs $108.8M loss in FY20, improved by $41.7M pcp mostly due to lower significant items and depreciation expense, partially offset by higher income tax expense as a result of a non-cash impairment of the deferred tax asset. Net cash flow in FY21 of negative $5.9M was $4.2M better pcp, as lower cash receipts and higher supplier and employee payments were offset by higher Government grants received and lower capex spend. Controls remain in place to tightly manage liquidity and cash. SIGNIFICANT ITEMS Significant items booked in FY21 were $20.4M pre-tax down $52.1M pcp. Cash significant items at $17.4M includes employee related costs, the Victorian heatset print site closure costs, legal fees, professional fees and finance costs. Non-cash significant items at ($3M) include a net benefit from the scheme of arrangement of $37.7M less impairments of PP&E and right of use assets, onerous lease provisions and inventory write downs. DEBT The company has a net debt position at June 2021 of $40.1M (excluding lease liabilities from the adoption of AASB 16), which is $33M lower than June 2020. 6.6 Significant changes in the state of affairs The closure of Ovato’s Victorian heatset print site was completed during the 2021 financial year. Whilst some plant, equipment and inventory was relocated to Warwick Farm, Ovato’s largest and most modern print facility, the remaining assets were scrapped or sold where possible. Ovato’s marketing services business was sold with completion occurring on 30 July 2021. Ovato’s magazine distribution business, Ovato Retail Distribution was sold, with the sale in Australia completed on 30 July 2021 and in New Zealand on 31 August 2021. COVID-19 has significantly impacted Ovato. In response to the decrease in revenues, from 1 April 2020 the Group’s workforce agreed to a temporary shortened working week which continued for many staff through to the end of December 2020 (when the majority of Ovato employers ceased to be eligible for the JobKeeper wage subsidy), although some staff were back at full capacity before that time. Both the Australian JobKeeper and New Zealand wage subsidies were an important cashflow support to the Ovato Group in 2021. 6.7 Risks, likely developments and future prospects Following the sale of Ovato Retail Distribution and Ovato Marketing Services and the closure of the letterbox distribution business Ovato returned to a singular focus and to the thing it does best – print production across catalogues, magazines, books and packaging. The COVID-19 global pandemic continues to impact Ovato’s business. The most significant economic risk currently faced by Ovato is the uncertainty relating to the extent, and the continued duration of, the material downturn in the Group’s revenues due to the pandemic, and the inability to predict its permanent impact with confidence. Under normal economic and operating conditions, Ovato believes there are a number of inherent material risks, both specific to the industry in which it operates, and of a general nature, which may impact its ability to achieve its business strategies and objectives. The main risk in this regard is that, Ovato’s long term profitability and cash flows are subjected to domestic economic conditions in Australia and New Zealand. For example, catalogue printing is driven by consumer confidence and retailer activity and the printing of these publications are all influenced by user migration to electronic information platforms. Other risks include fluctuations in demand volume, timing and extent of title closures and pagination reductions by publishers, competitive market pricing pressure, migration of media from print to digital platforms, reliance on the continuity of supply of utilities, raw material inputs and fluctuations in the cost of these supplies. Catalogue and magazine printing make up the majority of Ovato’s earnings. 6.8 Environmental regulation performance Ovato is committed to conducting its business activities with respect for the environment, while continuing to meet its obligations to its shareholders, employees, customers and suppliers. Ovato believes its operations are in compliance with all environmental regulations to the extent material to its financial position or results of its continuing operations. As of the date of this report, there were no material legal proceedings concerning environmental matters pending against Ovato or against any of its properties. Ovato completed the required National Pollution Inventory report. 6.9 Share issues Share issues Shares (000’s) Balance as at 1 July - ordinary shares 732,004 - Share issue1 8,000,808 - Bond/Debt Conversion2 3,480,000 Balance at 30 June - ordinary shares 12,212,812 1 After approval of the schemes by the Court, equity of $40M was raised by the issue of 8,000,807,935 fully paid ordinary shares on 24 December 2020 at $0.005 per share. The total number of shares on issue after the equity raising was 8,732,812,252. 2 On 23 March 2021, as part of the restructuring of the Ovato Group in connection with the Schemes, the company entered agreements with the note holders and a landlord to convert debt to equity. $15M for note holders and $2.4M for the landlord were converted to equity at 0.005c per share. 6.10 Share rights The names of the persons who currently hold rights are entered in the register of rights kept by the Company pursuant to Section 168 of the Corporations Act 2001. Pursuant to an Australian Securities and Investments Commission Class Order, the Directors have taken advantage of relief available from the requirement to disclose the names of executives not being Directors (other than the Key Management Personnel executives of the Group) to whom rights are issued, and the number of rights issued to each person. 6.11 Share buy back There is not a current on-market buy back in place for Ovato shares. 6.12 Non-audit services The Audit and Risk Management Committee reviewed the non-audit services provided by RSM Australia. These non-audit services include taxation and related compliance services and corporate advisory services. The following non-audit services were provided during the 12 months to 30 June 2021: Description of non audit services Australia New Zealand Total non-audit services Taxation and related compliance services 61,772 18,003 79,775 Corporate advisory services — — — Unless otherwise specified all amounts have been paid or are due and payable to a member firm of RSM or its affiliates.. In accordance with advice provided by the Audit and Risk Management Committee, the Directors are satisfied that based on the approval procedures required for the external auditors to provide non-audit services to Ovato and from a review of actual services provided the non-audit services provided by RSM Australia met the standards of independence. 25 6.13 Auditor’s independence declaration In accordance with the Audit Independence requirements of the Corporations Act 2001, the Directors have received and are satisfied with the Auditor’s Independence Declaration provided by the Ovato Group external auditors, RSM Australia. The Independent Auditor’s Declaration has been attached to the Directors’ Report on page 83. 6.14 Directors’ and Officers’ liability insurance and indemnity Ovato has liability insurance policies for all Directors and Officers of the Ovato Group. The policy agreement prohibits disclosure of the policy terms and the premium paid. Directors and Officers are also indemnified by the Company against all liabilities to another person (other than Ovato or a related body corporate) that may arise from their position as Directors or Officers of Ovato and the Ovato Group. The insurance cover and indemnity is not applicable where the liability arises out of conduct involving a lack of good faith. 6.15 Significant events after balance date The Directors are not aware of any matters or circumstance arising since balance date not otherwise dealt with in this report or the financial statements, that has significantly affected or may significantly affect the operations of the Ovato Group, the results of those operations or the state of affairs of the Ovato Group in subsequent years, other than: • Sales of Retail Distribution (Australia and New Zealand) and Marketing Services (Australia) - The Company completed the sale of its retail distribution businesses in Australia on 30 July 2021 and in New Zealand on 31 August 2021. • Sales of Marketing Services (Australia) - The Company exercised its Put Option for the sale of its marketing services businesses on 29 July 2021 with the sale completing on 30 July 2021. • Closure of Residential Distribution - The Ovato Residential Distribution business in Australia ceased operating on 30 July 2021. • Closure of Print Operations at Christchurch, New Zealand On 7 September 2021 Ovato New Zealand announced the closure of its Christchurch operations with the closure effective on 30 September 2021. 6.16 Proceedings on behalf of the Company No proceedings have been brought on behalf of the Company, nor have any applications been made in respect of the Company under Section 237 of the Corporations Act 2001. 6.17 Rounding of amounts The company is of the kind referred to in ASIC Corporations (Rounding in Financial/ Directors’ Reports) Instrument 2016/191, dated 24 March 2016, and in accordance with that Corporations Instrument amounts in the financial report are rounded off to the nearest thousand dollars, unless otherwise indicated. 26 7. Remuneration Report 7.1 Coverage This remuneration report outlines the Director and executive remuneration arrangements in accordance with the requirements of the Corporations Act 2001 and its Regulations. It covers the Directors of Ovato, the CEO, and other Key Management Personnel with the authority and responsibility for planning, directing and controlling the activities of Ovato. The report also contains information about the broader remuneration practices applying to management below the executive level. 7.2 Remuneration principles Ovato’s remuneration policy provides a direct link between remuneration and corporate performance by: • Offering sufficiently competitive rewards to attract and retain high calibre executives; • Putting a portion of executive remuneration at risk against performance benchmarks; • Setting appropriate stretch performance hurdles to variable executive remuneration; and • Linking short term incentives to both Company and personal performance. The Board also recognises that, although remuneration is a major factor in recruiting and retaining talented and effective people, other factors play a substantial role in attracting suitable candidates, including: Ovato’s business operations, corporate reputation, ethical culture and other human resources’ policies and practices. Combined with its policies, Ovato’s remuneration principles ensure that: • Executive remuneration packages are appropriately benchmarked against the market for comparative roles in similar sized entities at the time of appointment and upon review to attract and retain critical talent; • Executive remuneration packages for key middle and senior personnel include an ‘at risk’ variable component that is developed in line with Ovato’s short term incentive program; and • Variable pay schemes align to key areas of focus for the business. 7.3 Remuneration structure The roles and responsibilities of the Appointments and Compensation Committee are discussed in the Corporate Governance Statement. The Board believes well designed and managed incentive plans that provide incentives are important elements of employee remuneration, providing tangible incentives for employees to strive to improve Ovato’s performance, and thereby aligning their interest with shareholders. To ensure executives are sufficiently motivated and aligned with Ovato company performance objectives, executives have up to 25% of their maximum potential remuneration at risk. BASE SALARY Ovato generally sets salaries based on a classification structure which is referenced to the market median, while also allowing flexibility from this reference point where it is warranted by individual performance levels and where there is a critical demand for particular skills and experience. The remuneration structure is managed by the Human Resources function leveraging tools such as: job evaluation, career level benchmarking and salary reviews. Ovato’s remuneration system allows some flexible packaging of benefits via salary sacrifice at no additional total employment cost (“TEC”) to the Company. SUPERANNUATION Ovato complies with all relevant statutory superannuation obligations to its employees. The standard Company superannuation plan is primarily an accumulation plan, providing a lump sum benefit equal to the balance of a member’s account, which includes contributions made by the member and the relevant Ovato group entity, together with net fund earnings. Relevant superannuation contributions for all senior executives form part of the executive’s total remuneration package. All such amounts are included in the fixed remuneration disclosed for the CEO and key management personnel in this report. OTHER BENEFITS Ovato does not provide senior executives or Directors with benefits such as life insurance, vehicle allowance, club memberships or retirement benefits other than the superannuation benefits, as required by law. SHORT TERM INCENTIVES Short term incentives (STI) applies to key middle and senior personnel roles, directly linking variable remuneration to Ovato’s corporate strategy. The employee’s STI is generally up to 25% of their TEC. The STI is dependent on achieving a number of targets. For eligible personnel, the targets are generally allocated between earnings, safety and personal objectives. The personal objectives align individual behaviours with Company strategy and organisational values. The targets are set by the CEO in consultation with the Appointments and Compensation Committee. STI entitlements are formalised after the end of year accounts have been finalised and any entitlement is paid in September. STI payments to the CEO and other specified executives satisfying the definition of Key Management Personnel are disclosed in this report. None of the Executive Management Team will be paid an STI under the STI plan for the 2021 financial year. Remuneration report 27 FY2017 FY2018 FY2019 FY2020 FY2021 NPAT ($M) (126.400) (43.800) (84.300) (108.800) (67.100) Earnings per ordinary share ($ basic) (0.330) (0.086) (0.160) (0.150) (0.012) Dividends per share paid ($) (0.024) - - - - Closing Share Price ($) 0.745 0.235 0.089 0.011 0.003 7.4 Key Management Personnel (other than Directors) Ovato’s Key Management Personnel during the financial year are: P Gardiner MD - Ovato NZ Limited G Stephenson CFO (Resigned as CFO 1 February 2021) A Stedwell CFO (Appointed as CFO 1 February 2021) 7.5 Shareholder Return Performance Indicators The table below shows total shareholder return performance indicators: 28 For the year ended 30 June 2021 Directors’ report Employment contracts Ovato does not (subject to limited exceptions) include termination or severance payments for Ovato executives in their employment contracts other than agreed notice provisions and the application of the Ovato redundancy policy (where applicable). Name Term of Agreement Notice Period Ovato Notice Period Employee Termination Payments J Hannan 3 years 6 months 6 months No specific termination payment provided for. A Stedwell Open 6 months 6 months No specific termination payment provided for. P Gardiner Open 6 months 6 months No specific termination payment provided for. G Stephenson Open 3 months 3 months No specific termination payment provided for. Table 2. Executive Employment Contracts. Remuneration of Key Management Personnel The table below outlines the remuneration packages of Key Management Personnel (“KMP”) (excluding Non-Executive Directors). Key Management Personnel (excluding Non-Executive Directors) Short Term Long Term Grand Total Salary Non-Monetary benefits Other Post Employment Superannuation LSL 2021 $ $ $ $ $ $ J Hannan 2021 38,022 — — 1,408 17,671 57,101 A Stedwell 2021 187,251 — — 10,666 — 197,917 P Gardiner2021 348,588 — — 10,458 — 359,046 2020 139,156 — — 4,175 — 143,331 K Slaven 2021 541,676 — — 20,133 9,671 571,480 2020 568,957 — — 21,003 10,475 600,435 G Stephenson 2021 456,603 — 174,167 14,553 - 645,323 2020 410,661 — 419,583 21,003 7,510 858,757 S Ellis 2020 279,239 — — 8,377 — 287,616 Total Remuneration KMP (excluding Non-Executive Directors) 2021 1,746,307 — 174,167 57,218 27,342 1,830,867 2020 1,398,013 — 419,583 50,320 17,985 1,890,139 Table 3. Key Management Personnel (excluding Non-Executive Directors) remuneration of the Company and the Group. Appointed MD and CEO on 4 June 2021 on a base salary including superannuation of $550,000, remuneration up until appointment $352,952. Appointed CFO on a base salary including superannuation $475,000. New Zealand dollar payment converted into Australian dollars at the average profit and loss exchange rate prevailing during 2021. Ceased as CEO & MD 3 June 2021 and took up the role of Transformation Manager, remuneration as CEO & MD $541,676. A maximum LTI award of $2,437,500 subject to satisfying a 3-year cumulative EBITDA performance target. Mr Stephenson received a retention payment of $174,167 (2020:$300,833) and ceased as CFO on 1 February 2021, with statutory termination benefits of $184,277 included as part of salary. In 2020 Mr Stephenson also received a bonus of $118,750 in respect of the completion of the bond and rights issue. In response to the financial impact of COVID-19, all KMP have taken a 20% reduction in salaries from 1 July 2020 to 31 October 2020 and had taken a 40% reduction in salaries from 1 April 2020 to 30 June 2020. 7.6 Non-Executive Director Remuneration The remuneration of Non-Executive Directors is determined by the full Board, within a maximum amount approved by shareholders in a general meeting and with regard to the level of fees paid to Non-Executive Directors by other companies of similar size. The maximum allowance for the aggregate amount of fees has remained unchanged since 2004 at $750,000 per annum. In the last financial year, the Board paid $419,242 of this amount for Non-Executive Directors’ remuneration - as shown in Table 5. In the current financial year, the Board paid Non-Executive Director remuneration of $274,510. Non-Executive Directors are not entitled to retirement benefits other than statutory superannuation or other statutory required benefits. Fees * Chair of the Board $215,222 Non-Executive Director $82,125 Chair of Audit and Risk Management Committee $28,470 Member of Audit and Risk Management Committee $14,235 Chair of Appointments and Compensation Committee $28,470 Member of Appointments and Compensation Committee $14,235 There is no element of Non-Executive Director salaries contingent on performance. * Inclusive of statutory superannuation of 9.5%. 7.7 Performance assessment The Chair continuously evaluates the Board and Director performance directly with each Director. 7.8 Retirement benefits Non-Executive Directors receive cash remuneration plus statutory superannuation contributions only. 29 Share rights No Directors were granted or hold rights over shares of Ovato Limited. During and since the end of the financial year none of the Directors and top 5 remunerated officers were granted share rights. No share rights vested to management during FY21. Shareholdings of Directors and Key Management Personnel The following table sets out each director and each key management personnel and their relevant interest in shares, debentures, and rights options and shares or debentures of the Company or a related body corporate as at the date of this report: Balance 30 June 2020 Acquired Disposed Balance 30 June 2021 2021 M Hannan 393,730,555 4,892,793,044 — 5,286,527,599 J Hannan 393,730,555 4,892,793,044 — 5,286,527,599 K Slaven 386,620 4,225,758 — 4,612,378 D Karai 221,428 2,420,210 — 2,641,638 Executives P Gardiner — — — — A Stedwell — — — — G Stephenson 780,378 — — 780,378 Total 788,849,536 9,792,232,056 10,581,081,592 Table 4. Share holdings of Directors and Key Management Personnel. Michael Hannan and James Hannan are each the registered holders of 567,373,830 Ovato shares and have a relevant interest in the remainder. 30 For the year ended 30 June 2021 Directors’ report Specified Director Remuneration Specified Directors Salary & Fees Non - Monetary Benefits Post Employment Superannuation Short Term Incentive Long Service Leave Grand Total $ $ $ $ $ $ Total Remuneration: Non-Executive Directors M Hannan (Board Chair) 2021 37,500 — 3,675 — — 41,175 2020 56,250 — 5,938 — — 62,188 D Karai 2021 106,400 — 10,108 — — 116,508 2020 92,704 — 8,807 — — 101,511 A McMaster 2021 106,400 — 10,427 — — 116,827 2020 97,699 — 9,281 — — 106,980 M Bickford-Smith 2020 81,896 — 7,780 — — 89,676 T Sinclair 2020 36,667 — 3,483 — — 40,150 W Tang 2020 17,111 — 1,626 — — 18,737 Total 2021 250,300 — 24,210 — — 274,510 2020 382,327 — 36,915 — — 419,242 Total Remuneration: Executive Directors J Hannan (CEO) 2021 38,022 — 1,408 — 17,671 57,101 K Slaven 2021 541,676 20,133 9,671 571,480 2020 568,957 — 21,003 — 10,475 600,435 Total 2021 579,698 — 21,541 — 27,342 628,581 2020 568,957 — 21,003 — 10,475 600,435 Total Remuneration: Directors 2021 829,998 — 45,751 — 27,342 903,091 2020 951,284 — 57,918 — 10,475 1,019,677 Table 5. Specified Director remuneration. From 1 Janaury 2021 he received fees for being a non-executive director. Resigned as Board Chair on 18 November 2019. Resigned on 18 November 2019. Resigned on 10 September 2019. Appointed CEO & MD 4 June 2021. Ceased as CEO & MD 4 June 2021. In response to the financial impact of COVID-19, Directors took a 20% reduction in fees from 1 July 2020 to 31 October 2020. This report has been made in accordance with a resolution of Directors. Michael Hannan James Hannan Chair Managing Director and Chief Executive Officer 31 Independent auditor’s declaration For the year ended 30 June 2021 32 Sales Revenue Sales revenue for the year ended 30 June 2021 was $442.7M down $96.6M or 17.9%, due mainly to lower Ovato Australia sales, down $90.5M. Ovato Australia sales of $358.8M were down 20.1% mostly from $67.1M lower print sales, with $49.5M reductions in print catalogues and $19.5M lower print magazine & newspapers. While tier 1 catalogue food & beverage revenues were down in H1, revenue in H2 was consistent on the previous corresponding period (“pcp”) of FY20. Non-food & beverage catalogues were down 38.0% driven largely by a major retailer not returning to catalogue printing in FY21. Residential Distribution fell 35.8% or $21.7M on lower existing customer volumes as a result of very slow COVID-19 retail conditions. Ovato New Zealand sales were down $6M or 7.2% with lower print and residential distribution revenues. During the year, Retail Distribution continued to expand their product range into retail outlets to partially offset the impact of lower magazine revenues. Earnings Before Interest, Tax and Depreciation (“EBITDA”) EBITDA (before significant items) was $31.1M, down $1.3M pcp. Ovato Australia EBITDA of $29.0M was down $2.2M or 7.7% due to the drop in revenue which was partially offset by the savings from the closure of the heatset print site in Victoria, tight cost controls and Government wage subsidies. Ovato New Zealand EBITDA at $2.1M was up $0.8M or 69.1% mostly due to tight cost controls and Government wage subsidies which offset the impact of lower print revenues. Net Loss After Tax A statutory net loss after significant items and tax of $67.1M was recorded for FY21 which was $41.7M improved on the $108.8M loss in the previous year, mostly due to lower significant items and depreciation expense, partially offset by higher income tax expense as a result of a non-cash impairment of the deferred tax asset. Net Cash Flow1 The Group’s net cash flow at negative $5.9M was $4.2M better compared to FY20, as lower cash receipts and higher supplier and employee payments were offset by higher Government grants received and lower capex spend. Balance Sheet At year end, net assets for the Group were $7.5M, down $10.3M from $17.8M in the previous year, mainly due to the $67.1M statutory loss in fiscal year 2021 (offset by increased capital of $56.4M). Current assets at $121.7M were down by $39.4M on lower debtor and inventory balances. Current liabilities at $126.3M were down $96.1M on lower trade payables and interest-bearing liability balances. In fiscal year 2021, the company issued a new $50M Receivables Financing Facility (‘RFF’) with Scottish Pacific for 3 years to replace the previous Asset Secure facility. Ovato also undertook a recapitalisation/restructure of its balance sheet. Elements of the restructuring included the closure of the Victoria heatset plant, debt forgiveness/deferrals and equity conversions, a new enterprise agreement for the Australian print business, a new $17M secured debt facility to replace the existing bank guarantee facility, the exit of various onerous leases, the reduction of the $40M corporate bond to $15M by way of debt forgiveness and the note holders consenting to the conversion of the $15M into equity by a further issue of shares in Ovato. This was largely complete by the 3rd quarter when the remaining $15M of the corporate bond and the surrender of an onerous lease were converted to equity through a further issue of shares in Ovato. Recapitalisation and restructure activities throughout the year have improved the current ratio from 0.96 to 1.23 (0.72 in FY20) on a pro forma basis post the divestments of Retail Distribution and Marketing Services. 1 Net cash flow equals net cash flows from operations less investing cash flows and proceeds from share issue. The CFO of Ovato is responsible for all finance and support functions in the Company as well as leading a corporate team covering financial accounting, management reporting, treasury, taxation and investor relations. Andrew has had broad digital and print media experience having held senior roles across finance, publishing, operations, general management and marketing. Before Ovato he spent over 20 years at Are Media (Bauer), and before that, Australian Conslidated Press (ACP). CFO review 2021 Andrew Stedwell Chief Financial Officer (“CFO”) Appointed 1 February 2021 33 CFO review For the year ended 30 June 2021 Consolidated statement of profit or loss and other comprehensive income Consolidated 2021 2020 YEAR ENDED 30 JUNE 2021 NOTES $’000 $’000 Revenue 4 442,721 539,270 Other income 5 61,936 23,960 Expenses Raw materials and consumables used (167,915) (210,568) Cost of finished goods sold (8,613) (5,125) Employee benefits expense (182,635) (230,592) Outside production services (11,608) (12,241) Freight (49,007) (59,666) Repairs and maintenance (9,915) (12,863) Occupancy costs (15,059) (7,770) Impairment of goodwill — (37,244) Impairment of plant and equipment (26,930) (6,670) Other expenses (19,586) (20,231) Depreciation and amortisation 6 (32,573) (36,966) Loss on sale of assets (379) — Finance costs 6 (18,160) (18,660) Loss before income tax (37,723) (95,366) Income tax expense 8 (29,363) (13,384) Loss after income tax expense for the year attributable to the owners of Ovato Limited 25 (67,086) (108,750) Other comprehensive income Items that will not be reclassified subsequently to profit or loss: Defined benefit plan actuarial losses 27 635 (447) Income tax relating to items that will not be reclassified subsequently (190) 134 Other 2 — Items that may be reclassified subsequently to profit or loss: Foreign currency translation (82) (435) Loss on cash flow hedges taken to equity 28 (275) Income tax relating to items that may be reclassified subsequently (8) 83 Other comprehensive income for the year, net of tax 385 (940) Total comprehensive income for the year attributable to the owners of Ovato Limited (66,701) (109,690) Basic earnings per share (cents) 38 (1.2) (14.9) Diluted earnings per share (cents) 38 (1.2) (14.9) The above Consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes. 34 Financial statements For the year ended 30 June 2021 Consolidated statement of financial position Consolidated 2021 2020 AS AT 30 JUNE 2021 NOTES $’000 $’000 Current assets Cash and cash equivalents 9 16,652 16,200 Trade and other receivables 10 46,936 50,654 Inventories 11 20,169 87,871 Derivative financial instruments 28 — 80 Other 13 22,944 6,278 106,701 161,083 Assets classified as held for sale 14 14,988 — Total current assets 121,689 161,083 Non-current assets Property, plant and equipment 15 67,104 105,952 Right-of-use assets 12 41,957 58,341 Intangibles 16 — 1,410 Deferred tax 17 9,094 41,559 Other 13 5,930 13,082 Total non-current assets 124,085 220,344 Total assets 245,774 381,427 Current liabilities Trade and other payables 18 31,452 131,394 Interest bearing liabilities 19 7,597 37,192 Lease liabilities 12 18,687 23,878 Derivative financial instruments 28 — 110 Current tax liabilities 20 7 8 Provisions 21 29,349 29,804 87,092 222,386 Liabilities directly associated with assets classified as held for sale 22 39,241 — Total current liabilities 126,333 222,386 Non-current liabilities Interest bearing liabilities 19 46,866 48,829 Lease liabilities 12 57,998 83,776 Provisions 21 7,106 8,678 Total non-current liabilities 111,970 141,283 Total liabilities 238,303 363,669 Net assets 7,471 17,758 Equity Issued capital 23 553,937 497,523 Reserves 24 11,014 11,076 Accumulated losses 25 (557,480) (490,841) Total equity 7,471 17,758 The above Consolidated statement of financial position should be read in conjunction with the accompanying notes. 35 The above Consolidated statement of cash flows should be read in conjunction with the accompanying notes. YEAR ENDED 30 JUNE 2021 Consolidated ($’000) Issued capital Foreign currency translation reserve Cashflow hedge reserve Accumulated losses Total equity Balance at 1 July 2019 497,523 11,531 172 (367,353) 141,873 Change in accounting policy — — — (14,425) (14,425) Balance at 1 July 2019 - restated 497,523 11,531 172 (381,778) 127,448 Loss after income tax expense for the year — — — (108.750) (108.750) Other comprehensive income for the year, net of tax — (435) (192) (313) (940) Total comprehensive income for the year — (435) (192) (109,063) (109,690) Balance at 30 June 2020 497,523 (11,096) (20) (490,841) 17,758 Balance at 1 July 2020 497,523 11,096 (20) (490,841) 17,758 Loss after income tax expense for the year — — — (67,086) (67,086) Other comprehensive income for the year, net of tax — (82) 20 447 385 Total comprehensive income for the year — (82) 20 (66,639) (66,701) Right issue1 40,004 — — — 40,004 Debt conversion to equity2 17,400 — — — 17,400 Transaction costs3 (990) — — — (990) Balance at 30 June 2021 553,937 11,014 — (557,480) 7,471 The above table represents the Ovato Group position. 1 On 1 December 2020, Ovato Ltd announced a conditional and partially underwritten pro-rata entitlement offer to existing shareholders. The offer consisted of 10.93 new fully paid ordinary shares in Ovato for every 1 share held at the record date at $0.005 cents per new share. Gross proceeds of $40M was raised. 8,000,807,935 shares were issued on 24 December 2020 and trading commenced on 29 December 2020. 2 On 23 March 2021, as part of the restructuring of the Ovato Group in connection with the Schemes, the company entered agreements with the note holders and a landlord to convert debt to equity. $15.0M for note holders and $2.4M for the landlord were converted to equity at 0.005c per share. 3 Transaction costs arising from the rights issues and debt conversion of $1.0M were accounted for as a deduction from equity during the financial period. Consolidated statement of changes in equity 36 Financial statements For the year ended 30 June 2021 Consolidated statement of cash flows Consolidated 2021 2020 YEAR ENDED 30 JUNE 2021 NOTES $’000 $’000 Cash flows from operating activities Receipts from customers (inclusive of GST) 838,159 1,001,886 Payments to suppliers and employees (inclusive of GST) (849,695) (986,241) Government grants received 23,175 9,013 Fee for early termination of corporate bond (173) — Interest received 752 631 Dividends received — 276 Interest and other costs of finance paid (9,165) (9,033) Lease interest payments (8,217) (8,386) Income tax paid (16) (57) Net cash from/(used in) operating activities 37 (5,180) 8,089 Cash flows from investing activities Payments for property, plant and equipment 15 (682) (20,151) Payments for development and licence costs (129) (393) Cash funds to liquidator for scheme (2,030) — Proceeds from disposal of property, plant and equipment 277 1,124 Receipts from subleases, excluding the financing component 1,835 1,243 Net cash used in investing activities (729) (18,177) Cash flows from financing activities Lease principal payments (22,810) (17,698) Cash held on deposit for bank guarantees (17,249) — Proceeds from close out of cross currency swap — 1,866 Repayment of borrowings (11,858) (17,506) Proceeds from new borrowings 19,507 21,197 Proceeds from issue of shares 23 39,014 — Net cash from/(used in) financing activities 6,604 (12,141) Net increase/(decrease) in cash and cash equivalents 695 (22,229) Cash and cash equivalents at the beginning of the financial year 16,200 38,701 Effects of exchange rate changes on cash and cash equivalents (43) (272) Cash and cash equivalents at end of the financial year 9 16,852 16,200 Cash and cash equivalents at end of the financial year 16,852 16,200 Cash held for resale (200) — Reported Cash 16,652 16,200 The above Consolidated statement of changes in equity should be read in conjunction with the accompanying notes. 1 Significant accounting policies 2 Critical accounting judgements, estimates and assumptions 3 Operating segments 4 Revenue 5 Other income 6 Expenses 7 Significant items 8 Income tax expense 9 Cash and cash equivalents 10 Trade and other receivables 11 Inventories 12 Right-of-use assets 13 Other 14 Assets classified as held for sale 15 Property, plant and equipment 16 Intangibles 17 Deferred tax 18 Trade and other payables 19 Interest bearing liabilities 20 Current tax liabilities 21 Provisions 22 Liabilities directly associated with assets classified as held for sale 23 Issued capital 24 Reserves 25 Accumulated losses 26 Dividends 27 Pension plans 28 Derivative financial instruments 29 Financial instruments 30 Related parties 31 Remuneration of auditors 32 Contingent liabilities 33 Commitments 34 Parent entity information 35 Controlled entities 36 Events after the reporting period 37 Reconciliation of loss after income tax to net cash from/(used in) operating activities 38 Earnings per share Directors’ declaration Independent auditor’s report 37 Financial notes 1 Significant accounting policies Statement of compliance Compliance with IFRS The financial statements are presented in accordance with Australian Accounting Standards which comply with International Financial Reporting Standards (“IFRS”). Going concern The financial statements have been prepared on the going concern basis, which contemplates continuity of normal business activities and the realisation of assets and discharge of liabilities in the normal course of business. The Directors believe this is appropriate based on the successful completion of restructuring activities during the financial period, the subsequent events referred to in note 36, and on cashflow forecasts prepared by management. There remains uncertainty in respect of the ongoing effects of the COVID-19 pandemic on the operations of the consolidated entity. Following the restructuring activities, the consolidated entity is in a much stronger financial condition and there exists a greater ability to manage costs in line with actual revenue generated. The principal accounting policies adopted in the preparation of the financial statements are set out either in the respective notes or below. These policies have been consistently applied to all the years presented, unless otherwise stated. New or amended Accounting Standards and Interpretations adopted The Group has adopted all of the new or amended Accounting Standards and Interpretations issued by the Australian Accounting Standards Board (‘AASB’) that are mandatory for the current reporting period. Any new or amended Accounting Standards or Interpretations that are not yet mandatory have not been early adopted. Basis of preparation These general purpose financial statements have been prepared in accordance with Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board (‘AASB’) and the Corporations Act 2001, as appropriate for for-profit oriented entities. These financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board (‘IASB’). Historical cost convention The financial statements have been prepared under the historical cost convention, except for, where applicable, the revaluation of financial assets and liabilities at fair value through profit or loss, financial assets at fair value through other comprehensive income, investment properties, certain classes of property, plant and equipment and derivative financial instruments. Critical accounting estimates The preparation of the financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in note 2. Parent entity information In accordance with the Corporations Act 2001, these financial statements present the results of the Group only. Supplementary information about the parent entity is disclosed in note 34. Principles of consolidation The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Ovato Limited (‘Company’ or ‘parent entity’) as at 30 June 2021 and the results of all subsidiaries for the year then ended. Ovato Limited and its subsidiaries together are referred to in these financial statements as the ‘Group’. Subsidiaries are all those entities over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases. Intercompany transactions, balances and unrealised gains on transactions between entities in the Group are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. The acquisition of subsidiaries is accounted for using the acquisition method of accounting. A change in ownership interest, without the loss of control, is accounted for as an equity transaction, where the difference between the consideration transferred and the book value of the share of the non-controlling interest acquired is recognised directly in equity attributable to the parent. Where the Group loses control over a subsidiary, it derecognises the assets including goodwill, liabilities and non-controlling interest in the subsidiary together with any cumulative translation differences recognised in equity. The Group recognises the fair value of the consideration received and the fair value of any investment retained together with any gain or loss in profit or loss. Foreign currency translation The financial statements are presented in Australian dollars, which is Ovato Limited’s functional and presentation currency. Foreign currency transactions Foreign currency transactions are translated into Australian dollars using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at financial year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss. Foreign operations The assets and liabilities of foreign operations are translated into Australian dollars using the exchange rates at the reporting date. The revenues and expenses of foreign operations are translated into Australian dollars using the average exchange rates, which approximate the rates at the dates of the transactions, for the period. All resulting foreign exchange differences are recognised in other comprehensive income through the foreign currency reserve in equity. The foreign currency reserve is recognised in profit or loss when the foreign operation or net investment is disposed of. Current and non-current classification Assets and liabilities are presented in the statement of financial position based on current and non-current classification. An asset is classified as current when: it is either expected to be realised or intended to be sold or consumed in the Group’s normal operating cycle; it is held primarily for the purpose of trading; it is expected to be realised within 12 months after the reporting period; or the asset is cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least 12 months after the reporting period. All other assets are classified as non-current. A liability is classified as current when: it is either expected to be settled in the Group’s normal operating cycle; it is held primarily for the purpose of trading; it is due to be settled within 12 months after the reporting period; or there is no unconditional right to defer the settlement of the liability for at least 12 months after the reporting period. All other liabilities are classified as non-current. Deferred tax assets and liabilities are always classified as non-current. Impairment of non-financial assets Goodwill and other intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Other non-financial assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. 38 Notes to and forming part of the financial statements for the year ended 30 June 2021 Financial statements 1 Significant accounting policies (continued) Recoverable amount is the higher of an asset’s fair value less costs of disposal and value-in-use. The value-in-use is the present value of the estimated future cash flows relating to the asset using a pre-tax discount rate specific to the asset or cash- generating unit to which the asset belongs. Assets that do not have independent cash flows are grouped together to form a cash-generating unit. Finance costs Finance costs attributable to qualifying assets are capitalised as part of the asset. All other finance costs are expensed in the period in which they are incurred. Goods and Services Tax (‘GST’) and other similar taxes Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the tax authority. In this case it is recognised as part of the cost of the acquisition of the asset or as part of the expense. Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the tax authority is included in other receivables or other payables in the statement of financial position. Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to the tax authority, are presented as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the tax authority. Rounding of amounts The Company is of a kind referred to in Corporations Instrument 2016/191, issued by the Australian Securities and Investments Commission, relating to ‘rounding-off’. Amounts in this report have been rounded off in accordance with that Corporations Instrument to the nearest thousand dollars, or in certain cases, the nearest dollar. 2 Critical accounting judgements, estimates and assumptions The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. As outlined in note 1, there has been continued pressure on the industry which has been exacerbated by the COVID-19 pandemic. As such management has specifically assessed the impact of the COVID-19 pandemic on the financial statements. As part of this process management reviewed all financial areas which could potentially be impacted by COVID-19 and considered areas of judgement and if additional disclosures are required. Where there are specific impacts from the COVID-19 pandemic, disclosures have been made in the relevant note. In particular, information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most significant effect in the amount recognised in the financial statements are described in the following notes: • Note 15 ‘Property, plant and equipment’ • Note 16 ‘Intangibles’ • Note 8 ‘Income tax expense’ • Note 29 ‘Financial instruments’ (i) Fair value measurement and valuation process Ovato has financial instruments that are carried at fair value in the Consolidated statement of financial position. The best evidence of fair value is quoted prices in an active market. If the market for a financial instrument is not active, Ovato determines fair value by using various valuation models. The objective of using a valuation technique is to establish the price that would be received to sell an asset or paid to transfer a liability between market participants. The fair values of all positions include assumptions made on the recoverability based on the counterparty’s and Ovato’s credit risk. Details of the inputs to the fair value of financial instruments are included in note 29. (ii) Goodwill, intangible assets, property, plant and equipment In accordance with Ovato policy, impairment testing has been undertaken at 30 June 2021 for all cash generating units (“CGU’s”) where there is an indication of impairment. CGU testing undertaken did not include those business units held for sale at the end of June 2021 (nor did it include the Australian Residential Distribution business that closed on 31 July 2021). Value in use The testing has been conducted using the value in use method. In assessing value in use, the estimated future cash flows, excluding future uncommitted restructurings and associated benefits, are discounted to their present value using a post -tax discount rate. Impairment Based on testing carried out at 30 June 2021, the Ovato Australia business unit impairment analysis showed a surplus of $14.0M. The impairment analysis for Ovato New Zealand is showing a deficit. Therefore, assets associated with this CGU were impaired by $7.5M at 30 June 2021. Key Assumptions Management judgement is required in assessing whether the carrying value of assets can be supported by the net present value of future cash flows. The following are the key estimates and assumptions used in determining the net present value of future cash flows using a value in use calculation: • Budgeted EBITDA which is internally approved by senior management. This includes changes in volumes, new business assumptions, the impact of COVID-19 and various cost saving initiatives for various CGU’s • Budgeted capital expenditure • WACC rates • Working capital movements Sensitivities The valuation continues to be highly sensitive to a range of assumptions particularly given the economic impacts of the COVID-19 pandemic. The impact of changes in key assumptions is shown in the table below. Each change has been calculated in isolation from other changes. Key Assumption Assumption Ovato Australia EBITDA (10%) $13M - $15M impairment EBITDA (20%) $42M - $44M impairment WACC @ 10.0% + 0.5% $4M - $6M impairment (iii) Deferred tax assets Deferred tax assets are recognised for all unused tax losses and future deductible temporary differences to the extent that it is probable that future taxable profits will be available against which the losses and deductions can be utilised. Significant management judgement is required to determine the amount of deferred tax asset that can be recognised, based on the likely timing and level of future taxable profits. The Directors have written off the previously recognised tax losses of $5.9M and have impaired the amount of deductible temporary differences recognised as part of the deferred tax asset by $27.0M, given the losses and these impaired temporary differences are no longer forecast to be recouped over a reasonable recovery period of 6 years. The deferred tax assets of $11.8M pertaining to the current financial year Australian tax loss and $1.5M pertaining to the current New Zealand tax loss were not recognised in the financial statements as at 30 June 2021, consistent with prior year treatment. 39 2 Critical accounting judgements, estimates and assumptions (continued) Despite the non-recognition of tax losses on the consolidated statement of financial position, the losses will be available indefinitely for offset against future taxable profits, subject to continuing to meet the statutory tax tests of continuity of ownership or failing that, the same business test (this test only applying to the Australian tax losses, which make up the majority of the groups unrecognised tax losses). (iv) Fair value measurement and valuation process Ovato has financial instruments that are carried at fair value in the Statement of financial position. The best evidence of fair value is quoted prices in an active market. If the market for a financial instrument is not active, Ovato determines fair value by using various valuation models. The objective of using a valuation technique is to establish the price that would be received to sell an asset or paid to transfer a liability between market participants. The chosen valuation models make maximum use of market inputs and relies as little as possible on entity specific inputs. The fair values of all positions include assumptions made on the recoverability based on the counterparty’s and Ovato’s credit risk. (v) Leases The Group has applied judgement to determine the lease term for some lease contracts in which it is a lessee that include renewal options. The assessment of whether the Group is reasonably certain to exercise such options impacts the lease term, which significantly affects the amount of lease liabilities and ROU assets recognised. 3 Operating segments Description of segments Management has determined the operating segments based on the manner in which the Group is structured and managed by the Executive Management Team (“EMT”). All reports regularly reviewed by the Chief Executive Officer and the EMT are presented on this basis which group similar operations or geographic locations. Ovato Australia Group includes all of the businesses in Australia and Corporate and the Ovato New Zealand Group segment includes all businesses in New Zealand. The operational segment and the geographic segment are the same. Therefore, the geographical segment is not shown separately. Transactions between segments are carried out at arm’s length and are eliminated on consolidation. Segment revenue and results The following is an analysis of the Group’s revenue and results by reportable segment for the periods presented: Ovato Australia Group Ovato New Zealand Group Consolidated (a) Operational and Geographic Segments 2021 2020 2021 2020 2021 2020 $'000 $'000 $’000 $'000 $’000 $'000 Revenue External sales 346,943 433,626 77,439 82,546 424,382 516,172 External sales significant items 500 (1,000) — — 500 (1,000) Freight 11,319 16,645 6,520 7,453 17,839 24,098 Other revenue 1 22,101 14,048 2,093 3,589 24,194 17,637 Other revenue significant items2 37,742 6,323 — — 37,742 6,323 Total revenue 418,605 469,642 86,052 93,588 504,657 563,230 EBITDA ~ before significant items 28,982 31,202 2,072 1,225 31,054 32,427 Depreciation and amortisation (26,929) (31,069) (5,644) (5,897) (32,573) (36,966) EBIT^ before significant items 2,053 133 (3,572) (4,672) (1,519) (4,539) Significant items before income tax (10,387) (68,960) (7,657) (3,207) (18,044) (72,167) Segment EBIT after significant items (8,334) (68,827) (11,229) (7,879) (19,563) (76,706) Significant items - Finance costs — — — — (2,382) (321) Finance costs — — — — (15,778) (18,339) Loss before income tax (8,334) (68,827) (11,229) (7,879) (37,723) (95,366) Income tax expense — — — — (29,363) (13,384) Net loss after income tax (8,334) (68,827) (11,229) (7,879) (67,086) (108,750) 1. Other revenue includes government assistance through the Australian Federal Government JobKeeper program of $18.3M (2020: $9.7M) and the New Zealand Government Employer Wage Subsidy Scheme of $1.6M (2020: $2.5M). 2. The income of $37.7M mainly arose from debt forgiveness, with $25M related to a partial forgiveness of the $40M corporate bond and a net $12.7M relating to the Creditors Scheme of Arrangement. ~ EBITDA - Profit/(loss) before depreciation, amortisation, finance costs and income tax ^EBIT - Profit/(loss) before finance costs and income tax 40 Notes to and forming part of the financial statements for the year ended 30 June 2021 Financial statements 3 Operating segments (continued) Ovato Australia Group Ovato New Zealand Group Consolidated (b) Significant items by operating segments 2021 2020 2021 2020 2021 2020 $'000 $'000 $’000 $'000 $’000 $'000 Significant items of revenue Scheme of Arrangement 37,742 — — — 37,742 — Sales rebate 500 (1,000) — — 500 (1,000) Net gain on disposal of plant and equipment — 347 — — — 347 Gain on de-recognition of ROU assets and recognition of finance lease receivables — 5,976 — — — 5,976 Total segment significant items of revenue 38,242 5,323 — — 38,242 5,323 Significant items of expenses Net loss on disposal of plant and equipment (292) — (61) — (353) — Restructure initiatives and other one-off costs including Clayton site closure (16,655) (24,723) (505) (718) (17,160) (25,441) Onerous leases and make good provisions (8,778) (1,326) — — (8,778) (1,326) Relocation of presses (127) (4,219) — — (127) (4,219) Impairment of goodwill — (35,203) — (2,041) — (37,244) Impairment of plant and equipment (18,702) (6,670) (4,758) — (23,460) (6,670) Impairment of ROU assets (747) — (2,723) — (3,470) — Impairment of inventory (3,328) (2,142) 390 (448) (2,938) (2,590) Total segment significant items of expense (48,629) (74,283) (7,657) (3,207) (56,286) (77,490) Total segment significant items before income tax (10,387) (68,960) (7,657) (3,207) (18,044) (72,167) Significant items - Finance costs Loss on cross currency swap realised — (133) — — — (133) Fee for corporate bond covenant waivers (173) (188) — — (173) (188) Unwind Bank Fees (2,209) — — — (2,209) — Total segment significant items - finance costs (2,382) (321) — — (2,382) (321) Revenue by product set (i) Disaggregation of revenue by major product and service offerings The Group derives revenue at a point in time and over time. Set out below is the disaggregation of the Group’s revenue from contracts with customers by operating segment. Ovato Australia Group Ovato New Zealand Group Consolidated (c) Other segment information 2021 2020 2021 2020 2021 2020 $'000 $'000 $’000 $'000 $’000 $'000 Segment Revenue Commercial printing, marketing services and residential distribution 265,186 353,462 67,435 73,457 332,621 426,919 Book printing 31,943 28,987 — — 31,943 28,987 Magazine distribution 50,314 50,177 10,004 9,089 60,318 59,266 Freight 11,319 16,645 6,520 7,453 17,839 24,098 Total sales revenue 358,762 449,271 83,959 89,999 442,721 539,270 41 3 Operating segments (continued) ii. Major customers Included in the Ovato Australia Group and the Ovato New Zealand Group segments are sales revenue of approximately $82.6M (19% of Group gross sales) which arose from sales to the Group’s largest customer (2020: The sales revenue from this customer was $105M, 19% of the Group’s gross sales). Consolidated 2021 $’000 2020 $’000 External sales 424,882 515,172 Freight 17,839 24,098 Revenue 442,721 539,270 Accounting policy for revenue recognition (a) Significant accounting policies Revenue is recognised when the Group transfers control of the good or service to a customer. It is measured based on the consideration specified in a contract with a customer and excludes amounts collected on behalf of third parties. Amounts are recognised net of returns, discounts and rebates. Some contracts with customers may contain multiple deliverables such as printing and distribution. These are considered separate performance obligations. Revenues are recognised as each performance obligation is met. (b) Nature of goods and services Below is a description of the principal activities from which the Group derives its revenue separated by reportable segments. The Group may also be engaged by customers to provide a freight service to a specified location. These services form part of a contract with multiple deliverables. Freight is treated as a separate performance obligation as it is a distinct service that is separately included in the customer contract. It is not part of the overall performance obligation as not every customer engages the Group to perform this service. Freight services are provided across all reportable operating segments. Revenue is recognised at a point of time, being when the freight services are provided. For more information about reportable segments refer to note3. i. Commercial and book printing The Ovato Australia Group and Ovato New Zealand Group segments generate revenue from the printing of magazines and books for publishers and catalogues for customers. • Revenue is recognised when control of the good is transferred, being as the printing jobs are completed over time. Customers provide specifications for each job and as the printing work is performed, control is then passed to the customer. • For each job, there is no alternative use for this asset to the Group, and the Group has a right to payment for performance completed todate. Revenue is accrued for partly completed jobs in the month of service using the input method. This is calculated based on resources consumed (i.e. paper issued) relative to total resources expected to be consumed (i.e. paper allocated). • Contracts can have separate transaction pricing for each service provided and includes fixed and variable pricing. Variable pricing includes discounts, revenue rebates and volume based rebates. The Group estimates the amount using a ‘most likely method’ and is included to the extent that it is highly probable that a significant reversal of revenue will not occur. ii. Residential distribution The Ovato Australia Group and Ovato New Zealand Group segments generate revenue from letterbox delivery of addressed and unaddressed, mass and targeted catalogues and newspapers. • Revenue is recognised when control of the goods is transferred to the customer, which is when the product is available for delivery to the letterbox or into store in accordance with the customers contract. • Contracts can have separate transaction pricing for each service provided and includes fixed and variable pricing. Variable pricing includes discounts, revenue rebates and volume based rebates. The Group estimates the amount using a ‘most likely method’ and is included to the extent that it is highly probable that a significant reversal of revenue will not occur. iii. Retail distribution • Ovato Retail Distribution distributes magazines and other products to stores and outlets located across Australia and New Zealand. Ovato Retail Distribution is engaged by publishers to sell magazines on their behalf to retail outlets and is acting as an agent. A distribution fee is earned for this service based on copies sold or delivered. • Revenue is recognised in the accounting period in which the distribution occurs, and control is passed, and the services are satisfied in accordance with the contractual arrangements. iv. Marketing services • Marketing services are provided in Australia and include digital printing and professional services (photography, creative, public relations, digital premedia and infrastructure services). • Professional services revenue is recognised up to the amount of the fees that the Group is entitled to invoice for services performed to date based on contracted rates and the percentage of job completion. This percentage is determined by reference to the actual hours incurred per time sheets as a proportion of the estimated total hours expected to complete the job. The performance obligations are satisfied over time, generally being three to six months. • Digital printing revenue is recognised when control of the good is transferred, being as the printing jobs are completed over time. • Contracts may include discounts and are estimated to the extent that it is highly probable that a significant reversal of revenue will not occur. (c) Financing component The Group in general does not have any contracts with a financing component as the period between when the Group transfers the promised good or service to a customer and the customer pays for it is less than one year. As a consequence, the Group does not adjust any of the transaction prices for the time value of money. (d) Contract balances Contract assets relate to the Group’s rights to consideration for product and services provided but not invoiced at the reporting date. Contract assets at the reporting date are disclosed in note 10 as other receivables. Contract liabilities primarily relate to consideration received in advance from customer contracts. The Group has an immaterial contract liability balance of $0.8M (2020: $1.0M) at 30 June 2021 which will be recognised in the next reporting period on performance of outstanding marketing service obligations. Contract liabilities are disclosed in note 18 as other accruals. Changes in contract assets and liabilities during the period resulted from satisfaction of performance obligations. The opening contract liability relating to income received in advance was recognised as revenue during the period. (e) Transaction price allocated to the remaining performance obligations The revenue expected to be recognised in the future related to performance obligations that are unsatisfied (or partially unsatisfied) at the reporting date is disclosed in the below table. Consolidated 2021 $’000 2020 $’000 Commercial and book printing 3 526 Distribution 130 — Marketing services 631 478 764 1,004 4 Revenue 42 Notes to and forming part of the financial statements for the year ended 30 June 2021 Financial statements 4 Revenue (continued) The Group expects that 100% of the transaction price allocated to the unsatisfied contracts as of 30 June 2021 will be recognised as revenue during the next reporting period. (f) Costs to obtain a contract Under AASB 15 the incremental costs of obtaining a contract with a customer are capitalised when expected to be recovered under the contract. In accordance with AASB 15, the Group can expense the incremental costs of obtaining a contract with a customer as incurred, as if capitalised would have been amortised within less than 1 year. (g) Disaggregation of revenue The Group derives revenue at a point in time and over time. At 30 June 2021 revenue earned over time is considered immaterial. Note 3 provides details of revenue by major products and service offerings, by geographical segment and by operating segment. 5 Other income Included in the loss before income tax are the following items of other revenue: Consolidated 2021 $’000 2020 $’000 Government grants1 19,947 12,172 Scheme of Arrangement2 37,742 — Recoveries from the manufacturing process 2,964 3,867 Dividends — 276 Interest income 12 151 Gain on de-recognition of ROU assets and recognition of finance lease receivables — 5,976 Other income - external 410 336 Net gain on disposal of plant and equipment — 501 Rental income 121 63 Unwind of discount on finance lease receivables 740 618 Other income 61,936 23,960 1 Other revenue includes government assistance through the Australian Federal Government Jobkeeper program of $18.3M (2020: $9.7M) and the New Zealand Government Employer Wage Subsidy Scheme of $1.6M (2020: $2.5M). 2 The income of $37.7M mainly arose from debt forgiveness, with $25M related to a partial forgiveness of the $40M corporate bond and a net $12.7M relating to the Creditors Scheme of Arrangement. Accounting policy for revenue recognition Revenue other than contracts with customers Ovato recycles materials from the manufacturing process and revenue is recognised when the materials are sold. Rental income is recognised on a straight line basis over the lease term. Interest income is recognised as interest accrues. 43 6 Expenses Consolidated 2021 $’000 2020 $’000 Loss before income tax includes the following specific expenses: Depreciation Leasehold improvements 1,123 1,153 Plant and equipment 16,087 19,204 Right-of-use assets 14,595 15,804 Total depreciation 31,805 36,161 Amortisation Development and licence costs 768 805 Total depreciation and amortisation 32,573 36,966 Loss before income tax is arrived at after charging/(crediting) the following items: Lease rental expenses - operating leases 9,316 8,184 Net remeasurement of expected credit loss allowance (note 10) 461 1,734 Total 9,777 9,918 Finance costs Bank loans and overdraft 7,449 8,369 Unwind of discount on long term onerous lease and make good provisions 112 129 Interest on lease liabilities 8,217 9,841 Total interest expense 15,778 18,339 Loss on cross currency swap realised — 133 Fee for corporate bond covenant waivers 173 188 Fee paid for early termination of corporate bond — — Unwind Bank Fees 2,209 — Total finance costs 18,160 18,660 Interest income (12) (151) Unwind of discount on finance lease receivables (740) (618) Net finance costs 17,408 17,891 Finance costs are recognised in the Consolidated statement of profit or loss and other comprehensive income in the period in which they are incurred. 44 Notes to and forming part of the financial statements for the year ended 30 June 2021 Financial statements Consolidated 2021 $’000 2020 $’000 Included in net loss after income tax are the following significant items of income and expense: Scheme of Arrangement (37,742) — Gain on de-recognition of ROU asset and recognition of finance lease receivable — (5,976) Sale rebate (500) 1,000 Restructure initiatives and other one-off costs 17,133 25,441 Onerous leases and make good provisions 8,778 1,326 Relocation of presses/property 153 4,219 Net (gain)/loss on disposal of plant and equipment 353 (347) Impairment of goodwill — 37,244 Impairment of ROU Asset 3,470 — Impairment of plant and equipment 23,460 6,670 Impairment of inventory 2,938 2,590 Loss on cross currency swap realised — 133 Fee for corporate bond covenant waivers 173 188 Unwind Bank Fees 2,209 — Total significant items (included in loss before interest and tax) 20,425 72,488 Tax benefit associated with significant items (13,870) (10,550) Adjustment of prior year losses not recognised to actual (1,242) (120) Tax losses not brought to account 13,279 20,239 Impairment of deferred tax asset 32,827 10,000 Significant Tax expense included in net loss after tax 30,994 19,569 Significant items have been included in the Consolidated statement of profit or loss and other comprehensive income within the following categories: External sales - Sales rebate (500) 1,000 Other revenue - Scheme of arrangement (37,742) — Other revenue - Net gain on sale of equipment — (347) Other revenue - Gain on de-recognition of ROU asset and recognition of finance lease receivable — (5,976) Raw materials and consumables used 1,146 1,486 Cost of finished goods sold 2,938 2,590 Employee expenses 5,014 20,289 Freight 741 571 Repairs and maintenance 113 136 Occupancy costs 8,804 1,326 Impairment of plant and equipment - ROU assets 3,470 — - Plant and equipment 23,460 43,914 Other expenses - Legal and professional fees 10,098 2,773 - Relocation of presses 127 4,219 - Net loss on disposal of plant and equipment 353 — - Other expenses 21 186 Finance costs 2,382 321 Total significant items (included in loss before interest and tax) 20,425 72,488 7 Significant items 45 Consolidated 2021 2020 $’000 $’000 (a) Reconciliation of income tax expense Loss before income tax (37,723) (95,366) Tax at the statutory tax rate of 30% (11,317) (28,610) Tax effect amounts which are not deductible/(taxable) in calculating taxable income: Effect of differences in overseas tax rate 252 185 Income tax under/(over) provided in previous year 508 75 Net non assessable items for tax purposes (8,110) — Non deductible items for tax purposes 1,924 11,495 Tax losses not brought to account 13,279 20,239 Impairment of deferred tax asset 32,827 10,000 Income tax expense 29,363 13,384 Major component of income tax expense: Current tax benefit (12,009) (20,039) Deferred tax expense 41,372 33,423 Income tax expense attributable to loss 29,363 13,384 (b) Deferred tax assets and deferred tax liabilities At 30 June 2021 there is no recognised or unrecognised deferred tax liability for taxes that would be payable on the unremitted earnings of Ovato’s wholly owned subsidiaries, as the Ovato Group has no liability for additional taxation should such amounts be remitted or any such tax due would be offset by existing unrecognised deferred tax losses (2020: $nil). Consolidated 2021 2020 $’000 $’000 (c) Franking credits The amount of franking credits available are: Franking account balance as at the end of the financial year at 30% (2020: 30%) 62,559 62,559 (d) Tax consolidation and tax effect accounting by members of the tax consolidated group Effective 1 July 2003, for the purposes of income taxation, Ovato Limited and its 100% owned Australian subsidiaries formed a tax consolidated group. Members of the group have entered into a tax sharing agreement in order to allocate income tax expense to the wholly owned subsidiaries on a pro-rata basis. The agreement also provides for the allocation of income tax liabilities between the entities should the head entity default on its obligations. At the balance date the possibility of default is remote. The head entity of the tax consolidation group is Ovato Limited. Members of the Australian tax consolidated group have also entered into a tax funding agreement. The tax funding agreement provides for the allocation of current tax assets and liabilities between wholly owned group members. Each group member of the Ovato tax group calculates its current year tax liability/tax loss on the basis of the stand alone approach. Once each member has calculated its own current year tax liability/tax loss the head entity will then assume these current year tax liabilities/tax losses and be paid/pay compensation for this assumption by way of an intercompany receivable/payable. Allocations under the tax funding agreement are made on a yearly basis. All 100% owned Ovato entities operating in New Zealand are members of the Ovato NZ Limited tax consolidated group. Although there is no NZ tax funding agreement, Ovato NZ Limited and its group members have also calculated their current year tax liabilities/tax losses, and Ovato NZ Limited is paid/pays compensation for this assumption by way of an intercompany receivable/payable on a yearly basis, in the same manner as the Australian tax funding agreement operates. $’000 (e) Tax losses not brought to account Gross Tax effected Revenue losses 473,443 141,750 Capital losses 282,942 84,883 The benefit of these revenue losses has not been brought to account as realisation is not probable. Refer to note 17 for further details. In addition, capital losses are only able to be used against capital gains and so are not recognised until used in any tax year. The revenue losses have been reduced for gains associated with the Scheme of Arrangement under the commercial debt forgiveness rules, but overall the losses have increased due to the current year losses not recognised and the impairment of tax losses previously recognised. 8 Income tax expense 46 Notes to and forming part of the financial statements for the year ended 30 June 2021 Financial statements 9 Cash and cash equivalents Consolidated 2021 2020 $’000 $’000 Current assets Cash at bank 16,652 16,200 Accounting policy for cash and cash equivalents Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. 10 Trade and other receivables Consolidated 2021 2020 $’000 $’000 Current assets Trade receivables* 47,792 46,290 Less: Allowance for expected credit losses (2,181) (2,197) Total trade receivables 45,611 44,093 Other receivables 1,325 6,561 Total receivables 46,936 50,654 * Trade debtors are non-interest bearing and are on commercial terms. There were no material unhedged foreign currency receivables. (a) Impaired trade receivables Ovato Group: At 30 June 2021 an allowance for expected credit losses of $2,181,000 (2020: $2,197,000) has been recognised. This relates to a variety of customers who are in unexpectedly difficult economic situations. Consolidated 2021 2020 Movements in the allowance for expected credit losses are as follows: $’000 $’000 Balance as at 1 July 2,197 1,211 Amounts written off (238) (746) Net remeasurement of allowance 461 1,734 Net foreign currency translation difference (1) (2) Held for Resale (238) — Balance at 30 June 2,181 2,197 The Group has applied the simplified impairment approach in assessing the expected credit losses associated with trade debtors. This requires expected lifetime losses to be recognised from initial recognition of all trade debtors. The allowance has been calculated by grouping trade debtors by shared credit risk characteristics and the days past due. A provision matrix is then determined based on the historic credit loss rate. This is adjusted for changes in current and forward-looking factors that affect the ability of customers to pay. (f) Significant accounting policies The income tax expense or benefit for the year is the tax payable on the current year’s taxable income based on the notional income tax rate for each jurisdiction, adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements, and unused tax losses. 47 10 Trade and other receivables (continued) Allowance for expected credit losses The allowance for expected credit losses as at 30 June 2021 and 30 June 2020 was determined as follows: Expected credit loss rate Carrying amount Allowance for expected credit losses Consolidated 2021 % 2020 % 2021 $’000 2020 $’000 2021 $’000 2020 $’000 Current 1.8% 0.5% 43,347 36,825 764 184 < 30 days 2.7% 1.4% 2,862 6,908 76 97 30 - 60 days 10.2% 8.0% 174 390 18 35 61 - 90 days 36.3% 35.0% 104 296 38 104 > 90 days 98.5% 95.0% 1,305 1,871 1,285 1,777 Total 47,792 46,290 2,181 2,197 (b) Past due but not impaired At 30 June 2021 there were $3,028,000 (2020: $7,452,000) of trade receivables in the Ovato Group past due but not impaired. The aging analysis of these trade receivables is as follows: Consolidated 2021 2020 $’000 $’000 Past due 1 - 30 days 2,786 6,811 Past due 31 - 60 days 156 355 Past due 61 - 90 days 66 192 Past due greater than 90 days 20 94 Total 3,028 7,452 There are no receivables that have had renegotiated terms that would otherwise, without that renegotiation, have been past due or impaired. (c) Other debtors Other debtors generally arise from transactions outside of usual operating activities of the Group. Other debtors do not contain impaired assets and are not past due. Collateral is not usually obtained. (d) Significant accounting policies Trade debtors are initially recognised at fair value and subsequently measured at amortised cost using the effective interest rate method less any allowance under the expected credit loss model. Bad debts are written-off as incurred. Subsequent recoveries of amounts previously written off are credited against the same line item Receivables from related parties are recognised and carried at the nominal amount due less allowance for expected credit losses. 11 Inventories Consolidated 2021 2020 $’000 $’000 Current assets Raw materials, spare parts and stores - at cost 17,781 49,356 Less: Provision for diminution (445) (627) Net raw materials, spare parts and stores 17,336 48,729 Work in progress - at cost 2,643 2,681 Finished goods - at cost 190 36,461 Total 20,169 87,871 48 Notes to and forming part of the financial statements for the year ended 30 June 2021 Financial statements 11 Inventories (continued) Accounting policy for inventories Inventories are valued at the lower of cost and net realisable value Costs incurred in bringing each product to its present location and condition are accounted for as follows: • Raw materials: cost is determined by the average cost method • Finished goods and work-in-progress: cost of direct material and labour and an appropriate proportion of fixed and variable manufacturing overheads based on normal operating capacity. The Group regularly tests its inventory for signs of impairment. During the year, inventories have been reduced by $2.9M (2020: $2.6M) as a result of the write-down to net realisable value. The write-down was recognised as an expense in 2021, through Cost of finished goods sold. 12 Right-of-use assets The Group’s rental contracts are typically made for fixed periods. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. Property leases relating to other items are assessed on an individual basis, after evaluating the terms of the contact. Short term leases (less than 12 months) and Low Value Leases (less than $10,000 to purchase brand new) are not recognised as Right-of-Use (ROU) assets under AASB 16, but rather expensed as incurred through the Consolidated statement of profit and loss. Finance lease receivables have also been recognised by the Group for long term contracts it has entered into as a Lessor. These relate to properties sub-leased by the Group to other parties. The net investment in the lease is recognised as a receivable. (a) Right-of-use assets The carrying value of ROU assets is presented below: Consolidated 2021 2020 $’000 $’000 Non-current assets Property - right-of-use 118,935 131,947 Less: Accumulated depreciation (81,915) (84,843) Less: Impairment (1,828) — Carrying amount of property 35,192 47,104 Other - right-of-use 14,314 15,195 Less: Accumulated depreciation (6,650) (3,958) Less: Impairment (897) — Carrying amount of other 6,765 11,237 Carrying amount 41,957 58,341 Reconciliations Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below: Property Other Total Consolidated $’000 $’000 $’000 Balance at 1 July 2019 — — — Recognition on initial application of AASB 16 64,874 14,115 78,989 Additions 287 1,071 1,358 Remeasurements 91 9 100 Depreciation expense (11,841) (3,963) (15,804) Impairment of assets (250) — (250) Derecognition due to sub-lease (5,797) — (5,797) Net foreign currency translation difference (260) 5 (255) Balance at 30 June 2020 47,104 11,237 58,341 Additions — 1,733 1,733 Remeasurements 2,813 (4) 2,809 Depreciation expense (10,471) (4,124) (14,595) 49 (b) Lease liabilities The carrying value of ROU assets is presented below: Consolidated 2021 2020 $’000 $’000 Lease liabilities - current 18,687 23,878 Lease liabilities - non-current 57,998 83,776 Total lease liabilities 76,685 107,654 Opening balance 107,654 — Recognition on initial application of — 122,874 Additions 1,733 1,311 Remeasurements 2,809 100 COVID - deferrals 433 — Interest expense (note 6) 8,217 9,841 Payments for the interest component of lease liabilities (8,126) (8,386) Repayment of lease liabilities (22,900) (17,698) Terminations (10,132) (388) Net foreign currency translation difference (72) — Liabilities held for resale (2,931) — Total lease liabilities 76,685 107,654 (c) Maturity profile of contractual undiscounted lease liability cashflows as at 30 June 2021 Consolidated 2021 2020 $’000 $’000 - not later than one year 24,541 32,012 - later than one year but not later than five years 55,852 83,075 - later than five years 14,215 18,445 Total undiscounted lease liabilities 94,608 133,532 12 Right-of-use assets (continued) Reconciliations (continued) Property Other Total Consolidated $’000 $’000 $’000 Terminations (9) (26) (35) Impairment (2,573) (899) (3,470) Transfer to make good (25) — (25) Net foreign currency translation difference (44) (6) (50) Assets held for resale (1,603) (1,148) (2,751) Balance at 30 June 2021 35,192 6,765 41,957 50 Notes to and forming part of the financial statements for the year ended 30 June 2021 Financial statements 12 Right-of-use assets (continued) (d) Finance Lease Receivables During the 2021 financial year, the Group surrendered the lease of two properties that had been sub-leased. The Group recognised a $6.2M expense as a result, and it was included in property expenses. Interest income of $0.7M on the unwind of the discount on finance lease receivables was recognised during the financial year (2020: $0.6M). The carrying value of finance lease receivables is presented below: Consolidated 2021 2020 $’000 $’000 Finance lease receivables - current 1,991 3,215 Finance lease receivables - non-current 4,297 11,576 Carrying amount 6,288 14,791 Opening balance 14,791 — Recognition on initial application of AASB 16 — 4,123 Additions (3) 11,772 Interest income (note 5) 740 618 Unearned income (435) — Receipts (2,575) (1,722) Lease surrender expense (6,230) — Carrying amount 6,288 14,791 (e) Maturity profile of contractual undiscounted lease receivables The following table sets out a maturity analysis of lease receivables, showing the undiscounted lease payments to be received after the reporting date. Under AASB 17, the Group did not have any finance leases as a lessor. Consolidated 2021 2020 $’000 $’000 - not later than one year 2,362 4,046 - later than one year but not later than five years 4,659 12,940 Total undiscounted lease receivable 7,021 16,986 (f) Other amounts recognised in the Consolidated statement of profit or loss. Consolidated 2021 2020 $’000 $’000 Depreciation expense on ROU assets 14,595 15,804 Impairment of ROU assets 3,740 — Interest expense on lease liabilities (8,126) 9,841 Expenses relating to short-term leases 1,454 1,948 Expenses relating to low value leases 131 142 Variable lease payments not included in the measurement of lease liabilities 3,740 3,982 Unwind of discount on finance lease receivables (740) (618) Gain on de-recognition of ROU asset and recognition of finance lease receivable — (5,976) Lease surrender (3,526) — COVID-19 deferrals (335) — Income from operating sub-leases — (63) 51 12 Right-of-use assets (continued) (g) Amounts recognised in the Consolidated statement of cash flows Consolidated 2021 2020 $’000 $’000 Lease interest payments (8,217) (8,386) Lease principal payments (22,900) (17,698) Receipts from subleases, excluding the financing component 1,835 1,243 Total net cash outflow for leases (29,282) (24,841) Payments for short term leases, low value leases and variable lease payments are included in Payments to suppliers and employees (h) Bank guarantees The company has a number of bank guarantees in place that support various property leases in the name of either Ovato Limited or its subsidiaries. As at 30 June 2021 the value of bank guarantees was $17.2M (2020: $16.4M). (i) Significant accounting policies The Group assesses whether a contract is, or contains a lease at inception of the contract. A lease arises when the Group has the right to direct the use of an identified asset which is not substitutable and to obtain substantially all economic benefits from the use of the asset throughout the period of use. A lease liability and corresponding lease asset are recognised at commencement of the lease. Lease liabilities Lease liabilities are recorded at the present value of future lease payments. Future payments comprise fixed payments, variable lease payments linked to an index or rate, extension options expected to be exercised, amounts payable under residual value guarantees less any incentives receivable. When there is a change in lease term or a change in future lease payments, lease liabilities are remeasured with a corresponding adjustment to ROU assets. ROU assets ROU assets are initially measured at cost comprising the initial lease liability, any lease payments made at or before the commencement date (less any incentives received), any initial direct costs, and any make good costs. ROU assets are subsequently depreciated on a straight-line basis over the shorter of the lease term or the useful life of the underlying asset. Lease assets are tested for impairment in accordance with the policy for non-financial assets in note 15 and note 16. Short-term leases Short-term leases of 12 months or less are recognised as an expense in the Consolidated statement of profit or loss as incurred. Low-value leases The Group does not capitalise leases which are low-value (fair value of less than $10,000 to purchase brand new) as a ROU asset and lease liability. The payments for these leases are recognised as an expense in the Consolidated statement of profit or loss as incurred. Determining the lease term In determining the lease term, the Group considers all factors and circumstances that create an economic incentive to exercise an extension option, or not exercise a termination option. The assessment is reviewed if a significant event or significant change in circumstances occurs which affects this assessment. Extension options are most common for property leases. At 30 June 2021, the weighted average lease expires for the portfolio of leases were: Weighted average expiry years* 2021 Weighted average expiry years* 2020 Ovato Australia Group 4.24 5.4 Ovato New Zealand Group 3.71 5.9 Group 3.92 5.4 * Represents the weighted average number of years from the end of the reporting period to the end of the reasonably certain lease term. Discount rates In calculating the lease liability, the lease payments are discounted using the rate implicit in the lease or the Group’s incremental borrowing rate. Determining the incremental borrowing rate requires significant judgement. The discount rate is derived from external market based rates, the Group’s credit margin, and the length of the lease At the end of the reporting period, the weighted average incremental borrowing rate for the Group was 9.08%. 52 Notes to and forming part of the financial statements for the year ended 30 June 2021 Financial statements 12 Right-of-use assets (continued) (i) Significant accounting policies (continued) Finance lease receivables Amounts due from lessees under a finance lease are recognised as receivables. The finance lease receivable is calculated as the discounted payments yet to be received. The interest rate implicit in the lease is used to discount the payments, however, if this is not readily determinable the Group’s IBR is used. The ROU asset from the head lease is de-recognised. Any difference between the receivable balance and ROU asset is recorded in the income statement. The lease liability under the head lease remains unchanged. Finance income is recognised over the term of the lease, in the income statement. 13 Other Consolidated 2021 2020 $’000 $’000 Current assets Bank guarantees deposits 17,128 — Prepayments 3,825 3,063 Finance lease receivables* 1,991 3,215 Total Other current assets 22,944 6,278 Non-Current assets Defined benefit assets** 1,518 1,093 Finance lease receivables* 4,297 11,576 Other non-current assets 115 413 Total Other non-current assets 5,930 13,082 Total Other assets 28,874 19,360 * Refer to note 12 for more information on finance lease receivables ** Refer to note 27 for more information on defined benefit plan asset 14 Assets classified as held for sale On 4 June 2021, the Board & Management announced the following sales of their non core businesses: • Ovato Retail Distribution Pty Ltd and Ovato Retail Distribution NZ Limited (‘Retail Distribution Australia and New Zealand’) to Are Media Limited (“Are Media”); and • Ovato Creative Services Pty Ltd, Ovato Technology Pty Ltd, Ovato Communications Pty Ltd and Ovato Creative Services Clayton Pty Ltd (‘Marketing Services (Australia)’) to Ballygriffin Holdings Pty Limited. • The sales of Retail Distribution Australia and Marketing Services (Australia) were completed on 30 July 2021, and the sale of Retail Distribution NZ was completed on 31 August 2021. The Board considered the subsidiaries to meet the criteria to be classified as held for sale at the end of the reporting date for the following reasons: • The subsidiaries are available for immediate sale and can be sold to the buyer in its current condition; • The actions to complete the sale were initiated and expected to be completed within one year from the date of initial classification; and • The potential buyers have been identified and the Company entered into binding agreements to sell the subsidiaries prior to the financial year end. As the operating results of these non core businesses were not material to the operational segments there is no separate disclosure of the profit or loss relating to these businesses for the year to 30 June 2021. 53 14 Assets classified as held for sale (continued) Retail Distribution (Australia and New Zealand) 2021 $’000 Marketing Services 2021 $’000 Total 2021 $’000 As at 30 June 2021 Current Assets Cash and cash equivalents — 200 200 Receivables 1,446 3,926 5,372 Inventories 874 329 1,203 Other 85 204 289 Total current assets 2,405 4,659 7,064 Non-Current assets Property, plant and equipment 726 536 1,262 Right-of-use assets 1,490 1,261 2,751 Deferred tax assets 2,339 560 2,899 Goodwill and intangible assets 240 772 1,012 Total non-current assets 4,795 3,129 7,924 Total assets 7,200 7,788 14,988 Refer to note 22 for liabilities directly associated with assets classified as held for sales. Accounting policy for assets or disposal groups classified as held for sale Assets and assets of disposal groups are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continued use. They are measured at the lower of their carrying amount and fair value less costs of disposal. For assets or assets of disposal groups to be classified as held for sale, they must be available for immediate sale in their present condition and their sale must be highly probable. An impairment loss is recognised for any initial or subsequent write down of the non-current assets and assets of disposal groups to fair value less costs of disposal. A gain is recognised for any subsequent increases in fair value less costs of disposal of assets and assets of disposal groups, but not in excess of any cumulative impairment loss previously recognised. Assets are not depreciated or amortised while they are classified as held for sale. Interest and other expenses attributable to the liabilities of assets held for sale continue to be recognised. Assets classified as held for sale and the assets of disposal groups classified as held for sale are presented separately on the face of the statement of financial position, in current assets. The liabilities of disposal groups classified as held for sale are presented separately on the face of the statement of financial position, in current liabilities. 54 Notes to and forming part of the financial statements for the year ended 30 June 2021 Financial statements 15 Property, plant and equipment Consolidated 2021 2020 $’000 $’000 Non-current assets Leasehold improvements - at cost 14,041 16,237 Less: Accumulated amortisation (10,557) (10,665) Less: Accumulated impairment (1,327) (1,844) Carrying amount - Leasehold improvement 2,157 3,728 Plant and equipment - at cost 369,945 535,750 Less: Accumulated depreciation (253,512) (397,285) Less: Accumulated impairment (51,486) (36,241) Carrying amount - Plant and equipment 64,947 102,224 Lease plant and equipment — 220 Less: Accumulated depreciation — (220) Carrying amount - Lease plant and equipment — — Total carrying amount 67,104 105,952 (b) Impairment Consolidated 2021 2020 $’000 $’000 Impairment of plant and equipment* 23,460 6,670 *In 2021 $18.7M of the impairment was due to the consolidation of Print Sites (2020: $0.7M) and $4.8M due to a deficit in the New Zealand cash generating unit (2020: $6.0M due to a deficit in the Australian cash generating unit) Accounting policy for property, plant and equipment Carrying value Property, plant and equipment is stated at cost less accumulated depreciation and any impairment in value. Subsequent costs are included either in the assets carrying value or as a separate asset only when it is probable that future economic benefits will flow to the Group and the cost can be reliably measured. Derecognition Property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement is the difference between the sales proceeds and the carrying amount of the asset and is recognised in profit or loss. Depreciation Property, plant and equipment is depreciated or amortised at rates based upon their expected useful lives using the straight line method. Major depreciation periods are consistent with the prior period and are as follows: Leasehold improvements to the lease term Printing presses 7.5-20 years Computer equipment 3-4 years 15 Property, plant and equipment (continued) (a) Reconciliations Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below: Leasehold improvements $’000 Plant and equipment $’000 Total $’000 Consolidated Balance at 1 July 2019 3,776 109,634 113,410 Additions — 20,049 20,049 Disposals (99) (40) (139) Expensed to the profit and loss — (50) (50) Net foreign currency translation difference (26) (195) (221) Impairment of assets — (6,670) (6,670) Transfer to inventories — (70) (70) Transfers to other asset category 1,230 (1,230) — Depreciation expense (1,153) (19,204) (20,357) Balance at 30 June 2020 3,728 102,224 105,952 Additions 158 501 659 Disposals (178) (1,128) (1,306) Transfer from (to) other asset category 2 (2) — Depreciation expense (1,123) (16,087) (17,210) Impairment (charge)/reversal (254) (23,206) (23,460) Classified as held for sale (note 14) (171) (1,091) (1,262) Net foreign currency translation difference (5) (37) (42) Transfer from inventory — 3,794 3,794 Expensed to the profit and loss — (21) (21) Balance at 30 June 2021 2,157 64,947 67,104 55 15 Property, plant and equipment (continued) Useful lives are reviewed, and adjusted, if appropriate at each reporting date. Any adjustments are made on a prospective basis. Impairment Property, plant and equipment is tested for impairment when there is an indication that an asset may be impaired (assessed at least at each reporting date) or where there is an indication that an existing impairment may have changed. Where an indicator of impairment exists, the Ovato Group makes a formal estimate of recoverable amount. Where the carrying amount of an asset exceeds its recoverable amount the asset is considered impaired and is written down to its recoverable amount. Recoverable amount is the greater of fair value less costs of disposal and value in use. It is determined for an individual asset, unless it does not generate inflows that are largely independent of those from other assets or groups of assets, in which case, the recoverable amount is determined for the cash generating unit to which the asset belongs. Consolidated 2021 2020 $’000 $’000 Non-current assets Goodwill - at cost 129,994 133,963 Less: Accumulated impairment (136,867) (136,867) Net foreign currency translation difference 6,873 2,904 Carrying amount - Goodwill — — Development and licence costs - at cost — 8,247 Less: Accumulated amortisation — (6,837) Carrying amount - Development and licence costs — 1,410 Carrying amount - Intangibles — 1,410 Value in use The testing has been conducted using the value in use method. In assessing value in use, the estimated future cash flows, excluding future uncommitted restructurings and associated benefits, are discounted to their present value using a post-tax discount rate. Key assumptions Management judgement is required in assessing whether the carrying value of assets can be supported by the net present value of future cash flows. The following are the key estimates and assumptions used in determining the net present value of future cash flows using a value in use calculation: Budgeted EBITDA - The Group prepares a budget plus a longer-term plans which are internally approved by senior management; - These plans form the basis of the discounted cash flow models used for impairment testing and are based upon past experience and future outlook. EBITDA Key assumptions - Print volumes declined in FY21 and are expected to stabilise in FY22 and the longer term; - Strategic cost saving initiatives; - An annual growth rate of 0% has been applied. Budgeted capital expenditure - The cash flow forecasts for capital expenditure are based on past experience and include the ongoing capital expenditure required to maintain current fixed asset levels after taking into account budgeted repairs and maintenance. Discount rate - The post tax discount rate applied to the cash flows was 10.0% (2020: 10.0%). 16 Intangibles Sensitivities The valuation continues to be highly sensitive to a range of assumptions particularly given the economic impacts of the COVID-19 pandemic. The impact of changes in key assumptions is shown in the table below. Each change has been calculated in isolation from other changes. Key Assumption Assumption Ovato Australia EBITDA (10%) $13M - $15M impairment EBITDA (20%) $42M - $44M impairment WACC @ 10.0% +0.5% $4M - $6M impairment 56 Notes to and forming part of the financial statements for the year ended 30 June 2021 Financial statements 16 Intangibles (continued) Accounting policy for intangible assets Goodwill Goodwill represents the excess of the purchase consideration over the fair value of identifiable net assets and contingent liabilities acquired at the date of acquisition of a business. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is not amortised, but is reviewed for impairment each reporting date, or more frequently if events or changes indicate that the carrying amount may be impaired. At the date of any acquisition, goodwill acquired is allocated to the cash generating unit or groups of cash generating units expected to benefit from the acquisition. Where the recoverable amount of the cash generating unit is less than the carrying amount of goodwill, an impairment loss is recognised. Where goodwill forms part of a cash generating unit and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included within the carrying amount of the operation when determining the gain or loss on disposal of the operation. Development and licence costs Costs incurred in acquiring products or systems that will generate future benefits are capitalised. Amortisation is charged on a straight line basis, the expense is taken to the Consolidated statement of profit or loss and other comprehensive income through the “amortisation” line item as follows: • Database development costs - 3 years • Software development costs - 3 to 7 years Useful lives are examined on an annual basis and adjustments, where applicable, are made on a prospective basis. 57 Reconciliations Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below: Goodwill $’000 Development and licence costs $’000 Total $’000 Consolidated Balance at 1 July 2019 37,295 1,822 39,117 Additions — 393 393 Exchange differences (51) — (51) Impairment of assets (37,244) — (37,244) Amortisation expense — (805) (805) Balance at 30 June 2020 — 1,410 1,410 Additions — 129 129 Amortisation expense — (767) (767) Held for resale — (772) (772) Balance at 30 June 2021 — — — In accordance with Ovato policy, impairment testing has been undertaken at 30 June 2021 for all cash generating units (“CGU’s”) with indefinite useful life intangible assets or where there is an indication of impairment. The testing has been conducted using the higher of a value in use model and a fair value less costs of disposal model. The CGU’s remain unchanged from prior year. 17 Deferred tax Consolidated 2021 2020 $’000 $’000 Non-current assets Temporary differences: - Provisions/accruals 2,515 14,867 - Lease liabilities 6,715 30,747 - Property, plant and equipment 2,397 (4,581) - Cash flow hedges — 8 - Other assets (2,533) (5,341) Tax losses — 5,859 Total Deferred tax assets 9,094 41,559 (a) Movements in deferred tax assets Provisions/ accruals Lease liabilities Other assets Property, plant and equipment Cash flow hedges Tax losses Total $’000 $’000 $’000 $’000 $’000 $’000 $’000 At 1 July 2019 23,075 — (926) 10,819 (74) 15,918 48,812 (Charged)/credited — — — — — — — - to profit or loss (2,240) (5,648) (1,784) 6,368 — — (3,304) - to other comprehensive income 92 36,395 (237) (30,096) 82 — 6,236 - foreign currency translation reserve (30) — — (96) — (22) (148) Reclassify (6,030) — (2,394) 8,424 — — — Reduce prior year New Zealand tax losses — — — — — (37) (37) Impairment — — — — — (10,000) (10,000) At 30 June 2020 14,867 30,747 (5,341) (4,581) 8 5,859 41,559 (Charged)/credited - to profit or loss 1,837 (7,538) 2,998 6,195 — — 3,492 - to other comprehensive income — — (190) — (8) — (198) - foreign currency translation reserve (6) (24) — 1 — (4) (33) Impairment (11,373) (15,599) — — — (5,855) (32,827) Held for resale (2,810) (871) — 782 — — (2,899) At 30 June 2021 2,515 6,715 (2,533) 2,397 — — 9,094 (b) Deferred tax asset in respect of tax losses and deductible temporary differences Deferred tax assets are recognised for all unused tax losses and future deductible temporary differences to the extent that it is probable that future taxable profits will be available against which the losses and deductions can be utilised. Significant management judgement is required to determine the amount of deferred tax asset that can be recognised, based on the likely timing and level of future taxable profits. The Directors have written off the previously recognised tax losses of $5.9M and have impaired the amount of deductible temporary differences recognised as part of the deferred tax asset by $27M, given the losses and these impaired temporary differences are no longer forecast to be recouped over a reasonable recover period of 6 years. The deferred tax assets of $11.8M pertaining to the current financial year Australian tax loss and $1.5M pertaining to the current New Zealand tax loss were not recognised in the financial statements as at 30 June 2021, consistent with prior year treatment. Despite the non-recognition of tax losses on the consolidated statement of financial position, the losses will be available indefinitely for offset against future taxable profits, subject to continuing to meet the statutory tax tests of continuity of ownership or failing that, the same business test (this test only applying to the Australian tax losses, which make up the majority of the group’s unrecognised tax losses). 58 Notes to and forming part of the financial statements for the year ended 30 June 2021 Financial statements 17 Deferred tax (continued) (c) Significant accounting policies Deferred tax assets and liabilities are recognised for temporary differences at the rates expected to apply when the assets are recovered or liabilities are settled, based on the tax rates for each jurisdiction. The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary differences to measure the deferred tax asset or liability. 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 liabilities and assets are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis. 18 Trade and other payables Consolidated 2021 2020 $’000 $’000 Current liabilities Trade payables and accruals* 31,407 130,695 Interest payable 45 699 Total Trade and other payables 31,452 131,394 * Trade creditors are non-interest bearing and on normal commercial terms. Refer to note 29 for further information on financial instruments. Accounting policy for trade and other payables Liabilities for trade creditors and other amounts are carried at amortised cost which is the fair value of the consideration to be paid in the future for goods and services received, whether or not billed to the consolidated entity. Payables to related parties are carried at the principal amount. 19 Interest bearing liabilities Consolidated 2021 2020 $’000 $’000 Current liabilities Bank overdraft — 4,280 Export financing - repayable in Euros* 3,148 4,887 Export financing - Australian dollars — 4,229 Receivables financing — 21,401 Corporate bond — 3,750 ScotPac loan 3,157 — Are Media loan 2,300 — Prepaid finance costs (1,008) (1,355) Total current interest bearing liabilities 7,597 37,192 Non-current liabilities Export financing - repayable in Euros* 3,148 1,628 Export financing - Australian dollars 16,917 12,688 Corporate bond — 36,250 Receivables financing 22,906 — ScotPac loan 4,966 — Prepaid finance cost (1,071) (1,737) Total non-current interest bearing liabilities 46,866 48,829 Total interest bearing liabilities 54,463 86,021 * Represents Euro denominated export financing facility of €4.0M (2020: €4.0M) measured at the exchange rate prevailing at balance date. Refer to note 29 for further information on financial instruments. 59 19 Interest bearing liabilities (continued) (a) Interest bearing liabilities - facility details Facility Drawn Available $’000 $’000 $’000 2021 Secured Euro export finance facility * 6,296 6,296 — Export finance facility 16,917 16,917 — Receivables financing facility # 22,906 22,906 — ScotPac loan 8,123 8,123 — Are Media loan 2,300 2,300 — Ballygriffin Holdings loan 2,300 — 2,300 Total facilities 58,842 56,542 2,300 2020 Secured Overdraft facility 10,000 4,280 5,720 Euro export finance facility * 6,515 6,515 — Export finance facility 16,917 16,917 — Receivables financing facility # 39,500 21,401 18,099 Corporate bond 40,000 40,000 — Total facilities 112,932 89,113 23,819 * Represents the export finance facility measured at the exchange rate prevailing at balance date. # The drawn amount represents the amount lent against the relevant receivables that were available to be sold into the facility as per the terms and conditions of the facility at each reporting date. (b) Terms and conditions Australian Dollar Receivables financing facility with Scottish Pacific Business Finance Pty Ltd. (“ScotPac”). Floating interest rate + margin. Loan drawn to $19.5M. The drawn amount on the receivable financing facility represents the amount lent against the relevant receivables that were available to be sold into the facility as per the terms and conditions of the facility at each reporting date. Matures August 2023. There is the ability to draw up to $50M under this facility, however there were not sufficient debtors to draw further amounts at 30 June 2021. The Chattel Mortgage Facility with ScotPac (amortising) $8.1M secured by a charge over the assets of the Group. The facility matures December 2023. New Zealand Dollar Receivables financing facility with ScotPac. Floating interest rate + margin. Loan drawn to A$3.4M. The drawn amount on the receivable financing facility represents the amount lent against the relevant receivables that were available to be sold into the facility as per the terms and conditions of the facility at each reporting date. Matures February 2024. There is the ability to draw up to NZ$10M under this facility, however there were not sufficient debtors to draw further amounts at 30 June 2021. Australian dollar floating interest rate export financing facility secured against a press. The lender is Aktiengesllschaft (“Commerzbank”). Loan drawn to $16.9M. Matures June 2027 (renegotiated new amortisation schedule). Euro denominated floating interest rate export financing facility secured against a press. Loan drawn to €4.0M (A$6.3M). Matures June 2023 (renegotiated new amortisation schedule). Ovato Limited entered into a loan agreement with Are Media Holdco Pty Ltd dated 17 May 2021 to borrow $2.3M which was repaid on the completion of the sale of the shares in Ovato Retail Distribution Pty Ltd was completed on 30 July 2021 other than for $10,000 which was repaid on 16 August 2021. The loan had no ordinary interest payable. The loan was secured by a first ranking security over the shares of Ovato Retail Distribution Pty Ltd and Ovato Retail Distribution NZ Ltd and the facility has now expired. Ovato Limited entered into a loan agreement with Ballygriffin Holdings Pty Ltd dated 18 June 2021 to borrow $2.3M that was to be repaid on the completion of the sale of shares in the Marketing Services companies. The loan was not drawn against and the facility has now expired. The loan had no ordinary interest payable. The loan was secured by a first ranking security over the shares and assets of the Marketing Services companies. 60 Notes to and forming part of the financial statements for the year ended 30 June 2021 Financial statements 61 19 Interest bearing liabilities (continued) (c) Net debt Consolidated 2021 2020 $’000 $’000 Cash (16,652) (16,200) Cash held for resale 200 — Overdraft — 4,280 Corporate bond: Australian dollars — 40,000 Export financing - repayable in Euros - measured at the exchange rate prevailing at balance date 6,296 6,515 ScotPac loan 8,123 — Are Media loan 2,300 — Export financing: Australian dollars 16,917 16,917 Receivables financing: Australian dollars 22,906 21,401 Net debt 40,090 72,913 Lease liabilities 76,685 107,654 Net lease adjusted debt 116,775 180,567 20 Current tax liabilities Consolidated 2021 2020 $’000 $’000 Current liabilities Provision for income tax 7 8 (d) Reconciliation of liabilities arising from financing activities Non-cash changes 2020 Cash Flows Other Foreign Exchange Movement Held for Sale 2021 $’000 $’000 $’000 $’000 $’000 $’000 Overdraft 4,280 (4,280) — — — — Corporate bond1 40,000 — (40,000) — — — Export financing - EUR 6,515 — — (219) — 6,296 Are Media loan — 2,300 — — — 2,300 ScotPac loan — 8,123 — — — 8,123 Export financing 16,917 — — — — 16,917 Receivables financing 21,401 1,505 — — — 22,906 Total current & non-current interest bearing liabilities 89,113 7,648 (40,000) (219) — 56,542 Lease liabilities borrowings 107,654 (31,027) 3,061 (73) (2,930) 76,685 Total liabilities from financing activities 196,767 (23,379) (36,939) (292) (2,930) 133,227 1 The bond of $40M was discharged through $25M of debt forgiveness with the remaining $15M converted to equity. # Excludes prepaid financing costs as does not form part of cash flow from financing activities reconciliation. 21 Provisions Consolidated 2021 2020 $’000 $’000 Current Provisions Employee entitlements 20,716 28,004 Other 8,633 1,800 Total current provisions 29,349 29,804 Non-current Provisions Employee entitlements 772 1,492 Other 6,334 7,186 Total non-current provisions 7,106 8,678 Total provisions 36,455 38,482 Movements in each class of provision during the financial year, other than employee benefits, are set out below: Make good Onerous leases & contracts FBT Other Total $’000 $’000 $’000 $’000 $’000 Current Carrying amount at 1 July 2020 978 591 93 138 1,800 Charged/(credited) to profit or loss - additional provisions recognised 2,002 733 271 7,251 10,257 - unused amounts reversed — — (91) (50) (141) - discount unwind 5 7 — — 12 Transfer (to)/from current/non-current 271 655 — — 926 Amounts used during the period (549) (1,043) (184) (2,427) (4,203) Liabilities held for resale — — (18) — (18) Carrying amount at 30 June 2021 2,707 943 71 4,912 8,633 Make good Onerous leases & contracts Other Total $’000 $’000 $’000 $’000 Non-Current Carrying amount at 1 July 2020 6,227 959 — 7,186 Charged/(credited) to profit or loss - additional provisions recognised — 729 697 1,426 - unused amounts reversed (946) — — (946) - discount unwind 101 — — 101 Transfer (to)/from current/non-current (271) (655) — (926) Transfered from ROU assets (25) — — (25) Net foreign currency translation difference (7) — — (7) Liabilities held for resale (475) — — (475) Carrying amount at 30 June 2021 4,604 1,033 697 6,334 62 Notes to and forming part of the financial statements for the year ended 30 June 2021 Financial statements 21 Provisions (continued) Accounting policy for provisions Provisions are recognised when the Ovato Group has a legal, equitable or constructive obligation to make a future sacrifice of economic benefits to other entities as a result of past transactions or other past events, it is probable that a future sacrifice of economic benefits will be required and a reliable estimate can be made of the amount of the obligation. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost. Movements in ordinary share capital Details Date Shares ‘000 Issue Price $’000 Balance 1 July 2019 732,004 497,523 Balance 30 June 2020 732,004 497,523 Right issue 1 24 December 2020 8,000,808 $0.005 40,004 Conversion of debt to equity - lease exit consideration 2 23 March 2021 480,000 $0.005 2,400 Conversion of outstanding corporate bond to equity 2 23 March 2021 3,000,000 $0.005 15,000 Share issue costs 3 — — (990) Balance 30 June 2021 12,212,812 553,937 Ordinary shares Ordinary shares have no par value. Fully paid ordinary shares carry one vote per share and carry the right to dividends. 22 Liabilities directly associated with assets classified as held for sale Retail Distribution (Australia and New Zealand) 2021 Marketing Services 2021 Total 2021 ’000 ’000 ’000 As at 30 June 2021 Current liabilities Payables 29,695 1,880 31,575 Lease liabilities 473 465 938 Income tax payable — 44 44 Provisions 2,053 1,810 3,863 Total current liabilities 32,221 4,199 36,420 Non-Current liabilities Lease liabilities 1,094 899 1,993 Provisions 350 478 828 Total non-current liabilities 1,444 1,377 2,821 Total liabilities 33,665 5,576 39,241 Refer to note 14 for further details on assets classified as held for sales. 23 Issued capital Consolidated 2021 Shares 2020 Shares 2021 2020 ’000 ’000 $’000 $’000 Ordinary shares - fully paid 12,212,812 732,004 553,937 497,523 63 23 Issued capital (continued) Accounting policy for issued capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. 1 On 1 December 2020, Ovato Ltd undertook a conditional and partially underwritten pro-rata entitlement offer to existing shareholders. The offer consisted of 10.93 new fully paid ordinary shares in Ovato for every 1 share held at the record date at $0.005 cents per new share. Gross proceeds of $40M was raised. 8,000,807,935 shares were issued on 24 December 2020 and trading commenced on 29 December 2020. 2 On 23 March 2021, as part of the restructuring of the Ovato Group in connection with the Schemes, the company entered agreements with the note holders and a landlord to convert debt to equity. $15.0M for note holders and $2.4M for the landlord were converted to equity at 0.005c per share. 3 Transaction costs arising from the rights issues and debt conversion of $1M were accounted for as a deduction from equity during the financial period. Movements in reserves Movements in each class of reserve during the current and previous financial year are set out below: Consolidated Foreign currency translation reserve Cash flow hedge reserve Total $’000 $’000 $’000 Balance at 1 July 2019 11,531 172 11,703 Foreign currency translation (435) — (435) Cash flow hedge — (275) (275) Tax effect of cash flow hedge — 83 83 Balance at 30 June 2020 11,096 (20) 11,076 Foreign currency translation (82) — (82) Cash flow hedge — 28 28 Tax effect of cash flow hedge — (8) (8) Balance at 30 June 2021 11,014 — 11,014 Nature and purpose of reserves i. Foreign currency translation reserve The translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign operations. ii. Cash flow hedge reserve The cash flow hedge reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments related to hedge transactions that have not yet occurred. The cumulative deferred net change is recognised in the Consolidated statement of profit or loss when the hedged transaction affects profit or loss or included in the initial cost or other carrying amount of a non-financial asset when the hedged asset is received. 64 Notes to and forming part of the financial statements for the year ended 30 June 2021 Financial statements 24 Reserves Consolidated 2021 2020 $’000 $’000 Foreign currency translation reserve 11,014 11,096 Other reserves — (20) Total reserves 11,014 11,076 65 25 Accumulated losses Consolidated 2021 2020 $’000 $’000 Accumulated losses at the beginning of the financial year (490,841) (381,778) Loss after income tax expense for the year (67,086) (108,750) Actuarial gain on defined benefit plans, net of tax 447 — Actuarial loss on defined benefit plans, net of tax — (313) Accumulated losses at the end of the financial year (557,480) (490,841) 26 Dividends There were no dividends paid, recommended or declared during the current or previous financial year. Accounting policy for dividends Provision is made for the amount of any dividend declared, being properly authorised and no longer at the discretion of the entity, on or prior to the financial year end but not distributed at balance date. Due to the statutory loss Ovato has not declared a dividend for the 2021 year (nor paid any interim dividends). The dividend reserve of Ovato Limited has a balance of $33.0 million. Refer to note 34. 27 Pension plans The Ovato Group contributes to a defined benefit fund and accumulation plans as a consequence of legislation or Trust Deeds. Legal enforceability is dependent upon the terms of the legislation and the Trust Deeds. Accumulation and defined benefit member accounts are held within the PEP Superannuation Plan which is a sub-plan of the AMP SuperSignature Plan. Ovato manages superannuation commitments through a Superannuation Policy Committee in conjunction with the trustees of the AMP Superannuation Savings Trust, within which is the AMP SuperSignature Plan. This master trust provides defined benefits based on years of membership and final average salary and accumulation benefits (defined contribution fund). Employees contribute to the plan at various percentages of their wages and salaries. Employer contributions to superannuation plans in the year ended 30 June 2021 totalled $8,796,024 (2020: $10,319,727). Accumulation funds Contribution obligations in respect of each accumulation fund for the year to 30 June 2021 was 9.5% (2020: 9.5%) of members’ wages or as defined by the Trust Deed. Defined benefit funds i. Nature of the benefits provided Defined benefit members receive lump sum benefits on retirement, death, disablement and withdrawal. The defined benefit section of the Plan is closed to new members. All new members receive accumulation only benefits. ii. Regulatory framework The Superannuation Industry (Supervision) (SIS) legislation governs the superannuation industry and provides the framework within which superannuation plans operate. The SIS Regulations require an actuarial valuation to be performed for each defined benefit superannuation plan every three years, or every year if the plan pays defined benefit pensions. iii. Governance of the Plan The Plan’s Trustee is responsible for the governance of the Plan. The Trustee has a legal obligation to act solely in the best interests of Plan beneficiaries. The trustee has the following roles: • administration of the Plan and payment to the beneficiaries from Plan assets when required in accordance with the Plan rules; • management and investment of the Plan assets; and • compliance with superannuation laws and other applicable regulations. The prudential regulator, the Australian Prudential Regulation Authority (APRA), licences and supervises regulated superannuation plans. iv. Risks There are a number of risks to which the Plan exposes the Company. The more significant risks relating to the defined benefits are: • Investment risk - the risk that investment returns will be lower than assumed and the Company will need to increase contributions to offset this shortfall. • Salary growth risk - the risk that wages or salaries (on which future benefit amounts will be based) will rise more rapidly than assumed, increasing defined benefit amounts and thereby requiring additional employer contributions. • Legislative risk - the risk is that legislation changes could be made which increase the cost of providing the defined benefits. 66 Notes to and forming part of the financial statements for the year ended 30 June 2021 Financial statements Consolidated 2021 2020 % % Discount rate 1.70% 1.90% Expected salary increase rate 1.25% 1.25% Consolidated 2021 2020 $’000 $’000 (a) Statement of financial position impact Defined benefit obligation (5,081) (10,051) Less: fair value of plan assets 6,599 11,144 Net defined benefit plan asset (note 13) 1,518 1,093 (b) Movement in net defined benefit plan asset Net defined benefit plan asset at start of year 1,093 1,527 Defined benefit plan cost (320) (142) Remeasurements recognised in other comprehensive income 635 (447) Employer contributions 110 155 Net defined benefit plan asset (note 13) 1,518 1,093 (c) Reconciliation of the net defined benefit plan asset Net defined benefit plan asset at start of year 1,093 1,527 Current service cost (148) (177) Net interest 17 35 Actual return on plan assets less interest income 1,632 (717) Actuarial (losses) arising from changes in financial assumptions (28) (161) Actuarial gains/(losses) arising from liability experience (969) 431 Past service curtailment/cost (189) — Employer contributions 110 155 Net defined benefit plan asset at end of year (note 13) 1,518 1,093 If a surplus exists in the plan, Ovato Limited expect to be able to take advantage of it in the form of a reduction in the required contribution rate, depending on the advice of the Plan’s actuary. Ovato Limited may at any time by notice to the Trustee terminate its contributions. Ovato Limited has a liability to pay the contributions due prior to the effective date of the notice, but there is no requirement for it to pay any further contributions, irrespective of the financial condition of the plan. (d) Actuarial assumptions The principal actuarial assumptions used in determining Ovato’s pension obligations are as follows: 27 Pension plans (continued) v. Description of significant events There were no Plan amendments affecting the defined benefits payable, curtailments or settlements during the year. 67 27 Pension plans (continued) (e) Significant accounting policies An asset or liability in respect of the defined benefit fund is recognised in the Consolidated statement of financial position and is measured as the present value of the defined benefit obligation plus unrecognised actuarial gains/losses less the fair value of the superannuation fund’s assets at that date and any unrecognised past service cost. The present value of the defined benefit fund has been determined using the projected unit credit actuarial valuation method. Various assumptions are required when determining the Group’s benefit obligation. Contributions to the defined contribution fund are recognised as an expense as they become payable. 28 Derivative financial instruments Consolidated 2021 2020 $’000 $’000 Current assets Forward currency contracts — 80 Current liabilities Forward currency contracts — (110) Total derivatives — (30) Refer to note 29 for further information on financial instruments. Hedges of a net investment Hedges of a net investment in a foreign operation include monetary items that are considered part of the net investment. Gains or losses on the hedging instrument relating to the effective portion of the hedge are recognised directly in equity whilst gains or losses relating to the ineffective portion are recognised in profit or loss. On disposal of the foreign operation, the cumulative value of any such gains or losses recognised directly in equity is transferred to profit or loss. 29 Financial instruments The Group’s activities expose it to a variety of financial risks: market risk (including currency and interest rate risk), credit risk and liquidity risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the group. Categories of financial instrument: The Group holds the following categories of financial instruments: Consolidated 2021 2020 $’000 $’000 Financial assets Cash and cash equivalents (note 9) 16,652 16,200 Trade and other receivables (note 10) 46,936 50,654 Bank guarantees (note 13) 17,128 — Finance lease receivables (note 13) 6,288 14,791 Derivative financial instruments (note 28) — 80 Total financial assets 87,004 81,725 Financial liabilities Trade and other payables (note 18) 31,452 131,394 Interest bearing liabilities (note 19) 54,463 86,021 Lease liabilities (note 12(b)) 76,685 107,654 Derivative financial instruments (note 28) — 110 Total financial liabilities 162,600 325,179 Accounting policy for financial instruments The Ovato Group trades internationally and used derivative financial instruments such as forward exchange contracts hedge its risks associated foreign currency fluctuations. Derivative financial instruments are initially recognised at cost on the date a derivative contract is entered into and are subsequently re-measured to their fair value. The Ovato group no longer uses forward exchange contracts to hedge its risk against currency fluctuations. The fair value of forward exchange contracts is calculated by reference to current forward contracts with similar maturity profiles. The fair value of interest rate swap and cross currency swap contracts are determined by reference to market values for similar instruments. 2021 Weighted average interest rate 2021 Balance 2020 Weighted average interest rate 2020 Balance % $’000 % $’000 Bank Loans - Overdraft — — 3.0% (4,280) ScotPac loan 8.8% (8,123) — — ScotPac Aus RFF loan 6.7% (19,461) 4.7% (21,401) ScotPac NZ RFF loan 7.3% (3,445) — — Commerzbank loan 2.7% (16,917) 2.8% (16,917) Commerzbank loan - EUR floating rate 2.0% (6,296) 2.0% (6,515) Are Media loan — (2,300) — — Corporate Bond — — 8.3% (40,000) Year end borrowing cost (excl. cash, fees & charges) 5.0% (56,542) 5.6% (89,113) Cash and cash equivalents 0.1% 16,652 0.1% 16,200 As at balance date, the Group maintained floating rate borrowings of $54.2M (2020: $49.1M), that were not hedged by interest rate swaps or fixed rate borrowings. The associated interest rate risk is partially mitigated by expected free cash flow and intra-period movements in cash requirements. In 2021, the average borrowing rate excluding capitalised fees and charges was 6.2% (2020: 5.8%). Ovato Limited’s receivables and payables are non-interest bearing. Cash and overdraft amounts are at the floating interest rate applicable to the Ovato Group. ii. Fair value of cross currency swaps At 30 June 2021, no loss has been recorded in the Consolidated statement of profit or loss and other comprehensive income as the swap was closed out in the previous year (2020: $133,311 loss). (c) Liquidity risk management Liquidity risk is the risk that funds may be insufficient to settle a transaction on the due date, and the Group may be forced to sell financial assets at a value which is below what they are worth. Ovato manages liquidity risk by maintaining adequate reserves, banking facilities and borrowing facilities by continually monitoring actual and forecast cash flows and matching the maturity profiles of financial assets and liabilities. The table below shows the Group’s financial liabilities and derivative instruments in relevant maturity groupings based on the remaining period at the reporting date to the contractual maturity date. The amounts shown in the table are the contractual, undiscounted cash flows and include both principal and interest. 68 Notes to and forming part of the financial statements for the year ended 30 June 2021 Financial statements 29 Financial instruments (continued) (i) Cash flow hedge The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in equity in the hedging reserve. The gain or loss relating to the ineffective portion is recognised immediately in the Consolidated statement of profit or loss and other comprehensive income. Amounts accumulated in equity are recycled in the Consolidated statement of profit or loss and other comprehensive income in the periods when the hedged item will affect the profit and loss. However, when the forecast purchase or sale transaction that is hedged results in the recognition of a non-financial asset, the gains and losses previously deferred in equity are transferred from equity and included as a basis adjustment to the initial cost or carrying amount of the asset. Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised, or no longer qualifies for hedge accounting. At that point in time, any cumulative gain or loss on the hedging instrument recognised in equity is kept in equity until the forecasted transaction occurs. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is transferred to net profit or loss for the year. (ii) Derivatives that do not qualify for hedge accounting Certain derivatives do not qualify for hedge accounting. Changes in the fair value of any derivative instrument that does not qualify for hedge accounting are recognised immediately in the Consolidated statement of profit or loss and other comprehensive income. (a) Hedging policy - overview The economic entity has adopted certain principles in relation to derivative financial instruments: (i) It does not trade in derivatives that are not used in hedging the underlying business exposure of the economic entity; (ii) All hedging is undertaken through the Group’s central treasury operation and is in accordance with Board approved policies. i. Interest rate risk exposure The following table sets out the amount of cash, variable rate borrowings and interest rate contracts outstanding. 69 29 Financial instruments (continued) Consolidated Carrying amount Consolidated Contractual cash flows Consolidated Less than 1 year Consolidated 1 to 2 years Consolidated 2 to 5 years Consolidated > 5 years $’000 $’000 $’000 $’000 $’000 $’000 30 June 2021 Interest bearing liabilities Bank loans - Australian dollars 16,917 19,018 448 448 13,753 4,369 Bank loans - Euros 6,296 6,650 3,340 3,310 — — ScotPac loan 8,123 9,029 3,736 3,736 1,557 — ScotPac Aus RFF loan 19,461 22,139 1,284 1,284 19,570 — ScotPac NZ RFF loan 3,445 4,095 250 250 3,595 — Are Media loan 2,300 2,300 2,300 — — — Lease liabilities 76,685 94,608 24,541 22,601 33,251 14,215 Prepaid finance costs (2,079) — — — — — Payables 31,452 31,452 31,452 — — — Total 162,600 189,290 67,351 31,629 71,726 18,584 30 June 2020 Interest bearing liabilities Bank Overdraft - Australian dollars 4,280 4,310 4,310 — — — Corporate Bond - Australian dollars 40,000 47,322 6,972 7,836 32,514 — Bank Loans - Australian dollars 38,318 41,549 7,504 5,269 28,776 — Bank Loans - Euros 6,515 6,632 4,986 1,646 — — Lease Liabilities 107,654 133,532 32,012 27,692 55,383 18,445 Forward FX Contracts1 - inflows (69) (1,404) (1,404) — — — - outflows 99 6,791 6,791 — — — Prepaid finance costs (3,092) — — — — — Payables 131,394 131,394 131,394 — — — Total 325,099 370,126 192,565 42,443 116,673 18,445 (1) This represents the Australian Dollar equivalents of the foreign currency payment/receipt leg of the forward foreign exchange contracts. (d) Foreign exchange management Foreign currency risk refers to the risk that the value of a financial commitment, recognised asset or liability will fluctuate due to changes in foreign currency rates. The Group’s foreign currency exchange risk arises primarily from where the Group has firm commitments or highly probable forecast transactions for receipts and payments that are to be settled in foreign currencies, or where the price is dependent on foreign currencies and also the risk that arises on translation of net investments in foreign operations. The Group is exposed to foreign exchange risk from various currency exposures, primarily with respect to the New Zealand Dollar, the US Dollar, the Euro and the Great British Pound. Foreign currency risk also arises on translation of the net assets of Ovato’s non-Australian controlled entities which have a different functional currency. The foreign currency gains or losses arising from this risk are recorded through the foreign currency translation reserve on translation to Australian Dollars on consolidation. i. Foreign currency borrowings Consolidated 2021 2020 $’000 $’000 Euro borrowings 6,296 6,515 70 Notes to and forming part of the financial statements for the year ended 30 June 2021 Financial statements iii. New Zealand entity contracts to exchange foreign currency - relating to receipts and payments Average exchange rate 2021 Average exchange rate 2020 Consolidated 2021 NZD Consolidated 2020 NZD Consolidated 2021 AUD Consolidated 2021 AUD $ $ $’000 $’000 $’000 $’000 United States Dollars - less than one year — 0.637 — 628 — 587 Total — — — 628 — 587 29 Financial instruments (continued) ii. Australian entity contracts to exchange foreign currency - relating to receipts and payments Average exchange rate Consolidated 2021 2020 2021 2020 $ $ $’000 $’000 United States Dollars - less than one year — 0.669 — 1,703 UK Pounds receivables - less than one year — 0.530 — (1,404) Euro - less than one year — 0.630 — 4,510 Total — — — 4,809 iv. Fair value of forward exchange contracts Consolidated 2021 2020 $’000 $’000 Australian entity - foreign exchange contracts relating to receipts — 69 Australian entity - foreign exchange contracts relating to payments — (95) New Zealand entity - foreign exchange contracts relating to payments — (4) Total fair value of forward exchange contracts — (30) Financial assets - current (note 28) — 80 Financial liabilities - current (note 28) — (110) Total fair value of forward exchange contracts — (30) At 30 June 2021, a $44,000 credit (2020: $66,000 credit) has been recognised within the Consolidated statement of profit or loss and other comprehensive income, with Nil included in equity (2020: $29,000 debit pre tax) is included within the cash flow hedge reserve in equity. There was no transfer to inventory during the financial year ended 30 June 2021 (2020: $46,000 debit). (e) Credit Risk Credit risk is the risk that a counterparty will default on their financial obligations resulting in financial loss to the Group. Credit risk exists from cash and cash equivalents, trade and other receivables and derivative financial instruments. The Group’s exposure to credit risk arises from the potential default of the counter party, with a maximum exposure equal to the carrying value of these assets net of any provision for doubtful debts (refer to note 10). The credit risk on cash and cash equivalents and financial instruments is limited as the counterparties are financial institutions with credit ratings of A- or higher. Also, Ovato has policies that limit the amount of credit exposure to any one financial institution. Ovato has an approved Credit Policy Manual which provides guidelines for the management of credit risk. This provides guidance for the way in which the credit risk of customers is assessed, and the use of credit risk rating and other information in order to set appropriate trading limits with customers (f) Fair values The fair value of all financial assets and liabilities equates to the carrying value. 71 29 Financial instruments (continued) (g) Fair value measurements The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure purposes. The fair value measurement hierarchy: (a) quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1); (b) inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices) (Level 2); and (c) inputs for the asset or liability that are not based on observable market data (unobservable inputs) (Level 3). The following tables present the Group’s assets and liabilities measured and recognised at fair value. Level 1 Level 2 Level 3 Total $’000 $’000 $’000 $’000 30 June 2021 Financial derivatives being hedge accounted Forward Foreign Exchange Contracts — — — — Financial derivatives not hedge accounted Forward Foreign Exchange Contracts — — — — Total financial derivatives — — — — Level 1 Level 2 Level 3 Total $’000 $’000 $’000 $’000 30 June 2020 Financial derivatives being hedge accounted Forward Foreign Exchange Contracts — (99) — (99) Financial derivatives not hedge accounted Forward Foreign Exchange Contracts — 69 — 69 Total financial derivatives — (30) — (30) The fair value of financial instruments that are not traded in an active market (for example, derivatives used for hedging) is determined using valuation techniques. Cross currency swaps and forward foreign exchange contracts are valued using a discounted cash flow approach. h) Hedge Reserve Reconciliation Total Cross Currency Swaps Forward Exchange Contracts $’000 $’000 $’000 30 June 2021 Opening balance (20) — (20) Gain/(Loss) arising on changes in fair value of hedging instruments entered into for cash flow hedges: - Other 28 — 28 - Tax effect (8) — (8) 20 20 Transfer out - Other — — — Total cash flow hedge reserve — — — 72 Notes to and forming part of the financial statements for the year ended 30 June 2021 Financial statements 29 Financial instruments (continued) Total Cross Currency Swaps Forward Exchange Contracts $’000 $’000 $’000 30 June 2020 Opening balance 172 (71) 243 Gain/(Loss) arising on changes in fair value of hedging instruments entered into for cash flow hedges: Movement - Other (30) — (30) - Tax effect (10) — (10) Total movement (20) — (20) Transfer out - Other (245) 102 (347) - Tax effect 73 (31) 104 Total transfer out (172) 71 (243) Total cash flow hedge reserve (20) — (20) 30 Related parties (a) Key Management Personnel Details of Key Management Personnel, including remuneration, are included in the section titled “Remuneration Report” included in the Directors’ Report. No Key Management Personnel received or is entitled to receive a benefit, other than a benefit included in the aggregate amount of emoluments. Any transactions with Key Management Personnel are made on normal commercial terms and conditions. (b) Compensation of Key Management Personnel The aggregate compensation made to Directors and other members of Key Management Personnel of the company and the Group is set out below: Consolidated 2021 2020 $ $ Short-term employee benefits 1,996,607 2,199,923 Other long-term employee benefits 27,342 17,985 Post-employment benefits 81,428 91,473 Total compensation 2,105,377 2,309,381 (c) Key Management Personnel shareholdings This information is disclosed within the “Remuneration Report” included in the Directors’ Report. (d) Transactions with Key Management Personnel and their related parties A number of Key Management Personnel, or their related parties, hold positions in other companies that result in them having control or significant influence over these companies. The aggregate value of transactions and outstanding balances related to Key Management Personnel and entities over which they have control or significant influence were as follows: Payments/ (receipts) transaction value for the year ended 30 June 2021 Payments/ (receipts) transaction value for the year ended 30 June 2020 Payable/ (receivable) balance outstanding as at 30 June 2021 Payable/ (receivable) balance outstanding as at 30 June 2020 Director / Executive Transaction $’000 $’000 $’000 $’000 M Hannan & J Hannan Property leases (i) 7,393 10,789 603 2,003 M Hannan & J Hannan Interest on corporate bond — 407 — 44 D Karai Whistle-blower reporting service (ii) 7 7 — — (i) Mesrs Hannan are beneficiaries of the Rathdrum Property Trust (“RPT”). Ovato Limited lease some properties from RPT. The Lidcombe lease was surrendered on 16 December 2020. The surrender fee of $2.4M was converted to shares at 0.005 cents per share. RPT is also a shareholder of Wicklow Properties Pty Limited of which $1.875M of corporate notes were converted to shares at 0.005 cents per share. (ii) Ms Karai is a Partner at Grant Thornton Australia. Grant Thornton provides a whistleblower reporting service to Ovato Limited. Amounts were billed at normal market rates for such services and payable under normal payment terms. During the financial year Ovato Limited and its subsidiaries paid rentals in relation to RPT lease commitments of $7.4M (2020: $10.8M). The amounts disclosed includes $0.6M of agreed rental deferrals until August 2021 and does not include $0.8M of January 2020 deferred rent paid in 2021. The maturity profile of total lease commitments to RPT to 30 June 2026 is as follows: 2021* $’000 2020 $’000 - not later than one year 6,251 9,996 - later than one year but not later than five years 21,326 28,372 - later than five years 13,363 — 40,940 38,368 * Does not include Offset Alpine Printing Pty Limited agreed lease deferral of $322K over 38 months. (e) Transactions with related parties in the wholly owned group Details of controlled entities are set out in note 35. The entities and Ovato conduct business transactions between themselves. Such transactions include the purchase and sale of goods, services, plant and equipment and the receipt and payment of management fees, dividends and interest. All such transactions are conducted on the basis of normal commercial terms and conditions, have been eliminated on consolidation and are not disclosed in this note. (f) Transactions with other related parties There were no transactions with any other related parties of the Ovato Group. 31 Remuneration of auditors During the financial year the following fees were paid or payable for services provided by RSM Australia Partners, the auditor of the Company: Consolidated 2021 2020 $’000 $’000 RSM Partners and related network firms (2020: Deloitte and related network firms) Audit or review of financial reports - Australia 302,000 448,518 - New Zealand 63,000 106,267 Total 365,000 554,785 Other services - Corporate advisory services — 237,115 - Taxation and related compliance services 79,775 199,752 Total 79,775 436,867 73 32 Contingent liabilities Contingent liabilities classified in accordance with the party for whom the liability could arise are: The Company: • Ovato has guaranteed the debts of certain wholly owned Australian controlled entities in accordance with ASIC Corporations (Wholly-owned Companies) Instrument 2016/785 issued by the Australian Securities and Investments Commission, which provides relief from the requirements to prepare, audit and lodge financial statements (refer to note 35). Related bodies corporate: • Ovato Limited guarantees the borrowings of Ovato Finance Pty Ltd and Ovato NZ Limited (and until 22 December 2020 Ovato Print Pty Ltd (in liquidation) and Hannanprint NSW Pty Limited (in liquidation)) to facilitate banking arrangements. • Entities in the Ovato Group contribute to a number of defined benefit superannuation funds and have undertaken to contribute annually such amounts as the actuaries consider necessary to secure the rights of members. 33 Commitments The following capital expenditure commitments are not reflected in the balance sheet and are payable as follows: Consolidated 2021 2020 $’000 $’000 Capital expenditure: - not later than one year 118 49 At 30 June 2021 the Group capital expenditure commitments relate to the acquisition of new plant and equipment. 34 Parent entity information As at 30 June 2021, and throughout the 2021 financial year, the parent company of Ovato Group was Ovato Limited. Statement of profit or loss and other comprehensive income Parent 2021 2020 $ $ Loss after income tax (67,879) (19,511) Other comprehensive income for the year, net of tax 444 (313) Total comprehensive income (67,435) (19,824) Statement of financial position Parent 2021 2020 $ $ Total current assets 80,398 5,481 Total non-current assets 127,468 24,666 Total assets 207,866 30,147 Total current liabilities 149,221 8,662 Total non-current liabilities 52,433 4,252 Total liabilities 201,654 12,914 Net assets 6,212 17,233 Equity Issued capital 553,937 497,523 Accumulated losses (580,713) (513,278) Dividend reserve 32,988 32,988 Total equity 6,212 17,233 74 Notes to and forming part of the financial statements for the year ended 30 June 2021 Financial statements On 21 December 2020 the NSW Supreme court approved the Ovato Members scheme of arrangement. As part of the scheme of arrangement the parent assumed the contracts, assets and liabilities of four of its subsidiaries (other than certain assets and liabilities not transferred under the scheme) prior to those subsidiaries being placed into liquidation on 29 December 2020. Please refer to note 35 for more information with respect to these subsidiaries in liquidation. Parent maturity profile of contractual undiscounted cash flows Consolidated 2021 2020 $ $ - not later than one year 16,178 1,417 - later than one year but not later than five years 46,870 2,742 Total undiscounted lease liabilities 63,048 4,159 Parent capital commitments for acquisition of property, plant and equipment There were no capital commitments for the acquisition of property, plant and equipment as at 30 June 2021 (2020: $nil). Investment in controlled entities There were no capital commitments for the acquisition of property, plant and equipment as at 30 June 2021 (2020: $nil). Parent capital guarantees in respect of debts of certain subsidiaries The parent has entered into a Deed of Guarantee with subsidiaries whereby in the event of windup of a subsidiary, the parent guarantees debts of that subsidiary. Further details of the Deed of Cross Guarantee and the subsidiaries subject to the deed are disclosed in note 35. Parent contingent liabilities There were no contingent liabilities for the year ended 30 June 2021 (2020: $nil). 75 35 Controlled entities Interest held 2021 2020 Name Principal place of business / Country of incorporation % % Pacific Publications Holdings Pty Limited a Australia 100% 100% Attic Futura Pty Limited a Australia 100% 100% Pacific O’Brien Publications Pty Limited a Australia 100% 100% Total Sampling Pty Limited a Australia 100% 100% PMP Publishing Pty Limited a Australia 100% 100% Ovato Print Pty Ltd (in liquidation) a d Australia 100% 100% PMP Property Pty Limited a Australia 100% 100% PT Pac-Rim Kwartanusa Printing Indonesia 95% 95% PMP Advertising Solutions Pty Limited a Australia 100% 100% PMP Home Media Pty Limited a Australia 100% 100% Shomega Pty Limited a Australia 100% 100% Show-Ads Pty Limited a Australia 100% 100% Linq Plus Pty Limited a Australia 100% 100% PMP Wholesale Pty Limited a Australia 100% 100% Ovato Creative Services Clayton Pty Ltd a Australia 100% 100% Pacific Intermedia Pty Limited a Australia 100% 100% The Argus & Australasian Pty Limited a Australia 100% 100% Ovato Retail Distribution Pty Ltd a Australia 100% 100% A.C.N. 128 266 268 Pty Limited b Australia 100% 100% Scribo Holdings Pty Limited b Australia 100% 100% The Scribo Group Pty Limited b Australia 100% 100% Tower Books Pty Limited b Australia 100% 100% Gary Allen Pty Limited b Australia 100% 100% ilovemagazines.com.au Pty Ltd a Australia 100% 100% PMP Directories Pty Limited a Australia 100% 100% Argyle Print Pty Limited b Australia 100% 100% Red PPR Holdings Pty Limited a Australia 100% 100% Ovato Finance Pty Lt a Australia 100% 100% PMP Share Plans Pty Limited Australia 100% 100% Manningtree Investments Pty Limited a Australia 100% 100% Canberra Press Pty Limited a Australia 100% 100% Ovato NZ Limited New Zealand 100% 100% Ovato Print NZ Limited New Zealand 100% 100% PMP Maxum Limited New Zealand 100% 100% Ovato Residential Distribution NZ Limited New Zealand 100% 100% Ovato Retail Distribution NZ Limited New Zealand 100% 100% PMP Digital Limited New Zealand 100% 100% Ovato Print Cairns Pty Ltd c Australia 100% 100% Ovato Packaging Pty Ltd c Australia 100% 100% IPMG Holdco Pty Limited c Australia 100% 100% IPMG Subco Pty Limited c Australia 100% 100% Propsea Pty Limited c Australia 100% 100% MJV Pty Limited c Australia 100% 100% Tigerstone Pty Limited c Australia 100% 100% KTAR Pty Limited c Australia 100% 100% PMP Subco No.6 Pty Limited c Australia 100% 100% D. Livingstone Pty Limited c Australia 100% 100% PMP Subco No.2 Pty Limited c Australia 100% 100% 76 Notes to and forming part of the financial statements for the year ended 30 June 2021 Financial statements 35 Controlled entities (continued) Interest held 2021 2020 Name Principal place of business / Country of incorporation % % PMP Subco No.3 Pty Limited c Australia 100% 100% PMP Subco No.4 Pty Limited c Australia 100% 100% IPMG Pty Limited c Australia 100% 100% Hannan Finance Corporation Pty Limited c Australia 100% 100% IPMG Administration Pty Limited c Australia 100% 100% NDD Distribution Pty Limited c Australia 100% 100% Southern Independent Publishers Pty Limited c Australia 100% 100% The Federal Publishing Co Pty Limited c Australia 100% 100% PMP Subco No.1 Pty Limited c Australia 100% 100% IPMG Management (No.2) Pty Limited c Australia 100% 100% IPMG Digital Pty Limited c Australia 100% 100% Forty Two International Pty Limited c Australia 100% 100% Holler Australia Pty Ltd c Australia 100% 100% Holler Administration Pty Ltd c Australia 100% 100% IPMG Consulting Pty Limited c Australia 100% 100% Massmedia Studios Pty Ltd c Australia 100% 100% Max Australia Pty Ltd c Australia 100% 100% Ovato Creative Services Pty Ltd c Australia 100% 100% Ovato Creative Services Geebung Pty Ltd c Australia 100% 100% Ovato Communications Pty Ltd c Australia 100% 100% Ovato Communications Singapore Pte Ltd e Singapore — 100% Spin Comm Syd Pty Limited c Australia 100% 100% The Gang of 4 Pty Limited c Australia 100% 100% Ovato Technology Pty Ltd c Australia 100% 100% Ovato Technology London Limited United Kingdom 100% 100% Ovato Technology Chennai Private Limited India 100% 100% The Independent Print Media Group Pty Limited c Australia 100% 100% PMP Subco No.5 Pty Limited c Australia 100% 100% Offset Alpine Printing Group Pty Limited c Australia 100% 100% Kierle Investments Pty Limited c Australia 100% 100% Offset Alpine Printing Pty Limited c Australia 100% 100% Craft Printing Pty Limited c Australia 100% 100% Hannanprint NSW Pty Limited (in liquidation) c d Australia 100% 100% Hannanprint Victoria Pty Limited (in liquidation) c d Australia 100% 100% SYNC Communications Management Pty Limited c Australia 100% 100% Warwick Farm Business Park Pty Ltd c Australia 100% 100% Woodox Pty Limited c Australia 100% 100% Inprint Pty Limited (in liquidation) c d Australia 100% 100% 77 35 Controlled entities (continued) Footnotes refer to all of Note 19. a These companies entered into a Deed of Cross Guarantee dated 27 June 2008 with Ovato Limited which replaced the previous deed dated 10 June 1992. The deed provides that all parties to the deed will guarantee to each creditor payment in full of any debt of each company participating in the deed on winding up of that company. As a result of a Corporations Instrument 2016/785 issued by the Australian Securities and Investments Commission, those companies are relieved from the requirement to prepare financial statements. b On 11 June 2009 these companies were joined as parties to the Deed of Cross Guarantee referred above. c These Companies were acquired by Ovato on 1 March 2017, and were joined on 6 June 2017 as parties to the Deed of Cross Guarantee referred above. d These companies were placed into liquidation by Court Order on 29 December 2020 and were removed from the Deed of Cross Guarantee on this date. As such these companies ceased to be reported as part of the closed group from this date. e This company ceased trading in 2020 and was struck off the companies register in Singapore on 18 January 2021. f Notes on the closed group: - Ovato Limited is the ultimate parent company of the Ovato Group. - All companies have ordinary share capital. The aggregate assets, liabilities and net result after income tax of the companies which are parties to the Deed of Cross Guarantees are as follows: Closed Group 2021 2020 $’000 $’000 Statements of profit or loss and other comprehensive income of the closed group - Sales revenue 357,947 448,359 - Other revenue 62,735 21,107 Revenue 420,682 469,466 Raw materials and consumables used (133,791) (171,790) Cost of finished goods sold (9,023) (4,666) Employee expenses (145,024) (190,756) Outside production services (10,646) (11,394) Freight (41,035) (50,420) Repairs and maintenance (8,130) (10,642) Occupancy costs (9,797) (7,005) Other expenses (59,008) (73,563) Loss before depreciation, amortisation, finance costs and income tax 4,228 (50,760) Depreciation and amortisation (26,913) (31,060) Loss before finance costs and income tax (22,685) (81,820) Finance costs (16,849) (17,304) Loss before income tax (39,534) (99,124) Income tax expense (27,409) (13,082) Net loss attributable to members of the closed group (66,943) (112,206) 78 Notes to and forming part of the financial statements for the year ended 30 June 2021 Financial statements 35 Controlled entities (continued) Statement of financial position of the closed group Closed Group 2021 2020 $’000 $’000 Current assets Cash and cash equivalents 12,307 10,783 Receivables 41,031 42,455 Inventories 17,433 71,008 Financial assets — 80 Other 20,519 5,935 Disposal groups 13,411 — Total current assets 104,701 130,261 Non-current assets Property, plant and equipment 67,096 97,394 Right-of-use assets 36,036 47,913 Deferred tax assets 4,985 35,387 Goodwill and intangible assets — 1,404 Other 6,334 28,063 Total non-current assets 114,451 210,161 Total assets 219,152 340,422 Current liabilities Payables 25,983 110,642 Interest bearing liabilities 14,706 37,192 Lease liabilities 16,160 21,446 Financial liabilities — 106 Provisions 27,059 27,403 Disposal groups 32,159 — Total current liabilities 116,067 196,789 Non-current liabilities Interest bearing liabilities 43,431 48,829 Lease liabilities 46,887 70,371 Provisions 5,563 7,160 Total non-current liabilities 95,881 126,360 Total liabilities 211,948 323,149 Net assets 7,204 17,273 Equity Contributed equity 553,937 497,523 Reserves — (17) Accumulated losses (546,733) (480,233) Total equity 7,204 17,273 79 36 Events after the reporting period Sales of Retail Distribution (Australia and New Zealand) and Marketing Services (Australia) On 4 June 2021, the Company announced the sales of its retail distribution business in Australia and New Zealand and its marketing business in Australia. The sales of its retail distribution and marketing services businesses in Australia were completed on 30 July 2021. The sale of the New Zealand retail distribution business was completed on 31 August 2021. Retail Distribution Australia was sold for a cash consideration of $10M and the acceptance of a negative working capital position of a base $22.5M to Are Media Limited, and retail distribution New Zealand was sold to Are Media Limited for a cash consideration of $5.0M, and the acceptance of a base negative working capital position of $4.5M. The marketing services businesses comprise of Ovato Creative Services Pty Ltd, Ovato Technology Pty Ltd, Ovato Communications Pty Ltd, Ovato Creative Services Clayton Pty Ltd, and a related entity in India (along with their subsidiaries), were sold for a cash consideration of $9M to Ballygriffin Holdings Pty Limited. Closure of Residential Distribution The Ovato Residential Distribution business in Australia ceased operating on 30 July 2021. The closure of the business will predominantly incur redundancy and leasing costs, all of which will be recovered well within the 2022 financial year as the company avoids on going trading losses in a business where volumes have continued to steeply decline. Closure of Print Operations Christchurch On 7 September 2021 the closure of the Print operation in Christchurch was announced with the closure to be completed by 30 September 2021. No other matter or circumstance has arisen since 30 June 2021 that has significantly affected, or may significantly affect the Group’s operations, the results of those operations, or the Group’s state of affairs in future financial years. 37 Reconciliation of loss after income tax to net cash from/(used in) operating activities Consolidated 2021 2020 $’000 $’000 Loss after income tax expense for the year (67,086) (108,750) Adjustments for: Depreciation and amortisation 32,573 36,966 Scheme of arrangement (22,315) — Impairment of property, plant and equipment 23,460 6,670 Impairment of ROU assets 3,470 — Impairment of goodwill — 37,244 Impairment - deferred tax asset 32,827 10,000 Non-cash deferred tax (3,261) (2,747) (Credit)/provision for doubtful debts/bad debts written off 221 986 Net loss/(gain) on disposal of property, plant and equipment 379 (501) Gain on de-recognition of ROU assets and recognition of finance lease receivable — (5,976) Lease adjustments (602) — Non-cash superannuation expense — 142 Other non-cash items (2,489) 9 Change in operating assets and liabilities: Decrease/(increase) in trade and other receivables (1,876) 30,142 Decrease in inventories 66,500 14,821 Decrease in other current assets 797 — Decrease in non-current asset 59 6,091 Decrease/(increase) in prepayments (1,754) 1,676 (Decrease) in liabilities (61,847) (19,693) Increase/(Decrease) in provision for employee benefits (4,236) 1,008 Net cash from/(used in) operating activities (5,180) 8,089 80 Notes to and forming part of the financial statements for the year ended 30 June 2021 Financial statements 38 Earnings per share Consolidated 2021 2020 $’000 $’000 Loss after income tax attributable to the owners of Ovato Limited (67,086) (108,750) Weighted average number of ordinary shares used in calculating basic earnings per share 5,828,313 732,004 Weighted average number of ordinary shares used in calculating diluted earnings per share 5,828,313 732,004 2021 2020 Cents Cents Basic earnings per share (1.2) (14.9) Diluted earnings per share (1.2) (14.9) Accounting policy for earnings per share Basic earnings per share Basic earnings per share is calculated by dividing the profit attributable to the owners of Ovato Limited, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the financial year. Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. 81 82 Directors’ declaration for the year ended 30 June 2021 Ovato Limited - ABN 39 050 148 644 83 For the year ended 30 June 2021 Independent auditor’s report 84 For the year ended 30 June 2021 Independent auditor’s report Key Audit Matter How our audit addressed this matter Going Concern Refer to Note 1 in the financial statements For the year ended 30 June 2021, Ovato Limited had incurred a net loss of $67.1 million, net cash outflows from operating activities of $5.2 million and net cash outflows from investing activities of $729k. The directors have prepared the financial report on the going concern basis. The directors’ assessment of the Group’s ability to continue as going concern is based on a cash flow budget. We determined this assessment of going concern to be a key audit matter due to the significant judgements involved in preparing the cashflow budget and the potential material impact of the results of management’s assessment. Our audit procedures included, among others: Critically assessing the directors’ reasons as to why they believe it appropriate to prepare the financial report on a going concern basis; Reviewing the current financial position of the Group; Assessing the appropriateness and mathematical accuracy of the cash flow forecasts and budgets prepared by management; Challenging the reasonableness of key assumptions used; and Assessing the adequacy of the going concern disclosures in the financial report. Other Information The directors are responsible for the other information. The other information comprises the information included in the Group's annual report for the year ended 30 June 2021, but does not include the financial report and the auditor's report thereon. Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Directors for the Financial Report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. 85 For the year ended 30 June 2021 Independent auditor’s report Auditor's Responsibilities for the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance Standards Board website at: https://www.auasb.gov.au/admin/file/content102/c3/ar2_2020.pdf This description forms part of our auditor's report. Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 26 to 30 of the directors' report for the year ended 30 June 2021. In our opinion, the Remuneration Report of Ovato Limited., for the year ended 30 June 2021, complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. RSM Australia Partners Anthony Travers Partner Sydney, NSW Dated: 30 September 2021 86 ASX Code: OVT Investor Information Shareholders requiring information should contact the share registry, or: Andrew Stedwell Chief Financial Officer Telephone: 02 9412 6111 Email: andrew.stedwell@ovato.com.au Shareholder Details Ovato shareholders who: • have changed their name or address • wish to consolidate two or more separate holdings • wish to lodge their tax file numbers • do not wish to receive an Annual Report should advise Ovato’s share registry by completing the relevant forms available from www.computershare.com or by telephoning 1300 556 161 to request the appropriate forms. Alternatively, shareholders can visit http://www. computershare.com.au/easyupdate/ovt to update their payment details, shareholder communication elections or Tax File Number or exemption details. Shareholders will need to key in their Holder Identification Number (HIN) if their securities are broker-sponsored and held in CHESS, while shareholders with securities held in an issuer- sponsored sub-register will need to key in their Security Reference Number (SRN). Tax File Numbers: It is important that Australian resident shareholders have their tax file number or exemption details noted by the share registry. While it is not compulsory to provide a tax file number or exemption details, Ovato is required by law to deduct tax at the top marginal rate from the unfranked part of any dividend paid to Australian resident shareholders who have not supplied these details. Share Registry Computershare Investor Services Pty Limited Level 5, 115 Grenfell Street Adelaide SA 5000 GPO Box 1903 Adelaide SA 5001 Enquiries within Australia: 1300 556 161 Enquiries outside Australia: +61 3 9415 4000 Website: www.computershare.com Receive Information by Email Shareholders can receive notifications about Notice of Meeting and Proxy, Statements, and company announcements, annual and periodic reports and other company information by email. By registering for this service, shareholders can be kept up to date with significant company announcements as they happen. To Register Electronically: Visit http://www.computershare.com.au/easyupdate/ ovt and follow these easy steps: Click on Register Your Email Address for shareholder information Then enter your personal security information: • Holder Identification Number (HIN) or • Security Reference Number (SRN) • Postcode • Read and agree with the Terms and Conditions Click on “Next” and follow the prompts Chief Entity Auditors RSM Australia Principal Bankers ANZ Banking Group Limited Commerzbank AG Scottish Pacific Business Finance Pty Ltd The Ovato Limited Annual General Meeting. Meeting will be held at 11.00am on Wednesday, 24 November 2021. The meeting will be held virtually online via the Lumi platform at https://web.lumiagm.com with meeting ID 336-196-543. Details of how shareholders can access this platform and of the business of the meeting are contained in the separate Notice of Meeting. COMPANY SECRETARY APPOINTED 24 APRIL 2009 Alistair Clarkson B Com LLB MBA FCIS GradDipACG Shareholder information 87 Substantial shareholders of ordinary shares (as reported to the ASX) Number of Shares % Voting Power Lindsay Hannan and Sayman Pty Ltd in its capacity as trustee for the Lindsay Hannan Family Trust, Michael Hannan, James Hannan, Richard O’Connor and Adrian O’Connor. 4,431,527,599 43.29% Are Media Pty Ltd 2,000,000,000 16.38% Tozer & Co Pty Ltd 1,012,500,000 8.29% Norfolk Enchants Pty Ltd ATF Trojan Retirement Fund 915,000,000 7.49% Top Holders (Ungrouped) as at 1 September 2021 Number of Shares % of Total Issued 1 Sayman Pty Limited 2,201,275,796 18.02% 2 Are Media Pty Limited 2,000,000,000 16.38% 3 Tozer & Co Pty Ltd 1,012,500,000 8.29% 4 Norfolk Enchants Pty Ltd 915,000,000 7.49% 5 Mr James Michael Hannan 567,373,830 4.65% 5 Mr Michael Ashton Hannan 567,373,830 4.65% 7 Mr Richard Ashton Charles O'Connor 549,230,026 4.50% 8 Mr Adrian Thomas O'Connor 546,274,117 4.47% 9 Rathdrum Properties Pty Ltd 480,000,000 3.93% 10 Wicklow Properties Pty Ltd 375,000,000 3.07% 11 Nine Investments Pty Ltd 330,000,000 2.70% 12 Trafalgar Custodians Pty Ltd 167,020,000 1.37% 13 Sporran Lean Pty Ltd 147,999,999 1.21% 14 Mr Michael Jefferies + Mrs Julie Jefferies 120,000,000 0.98% 15 Mr Jay Evan Dale Hughes 65,000,000 0.53% 16 Mrs Elisabeth Fichter 52,500,000 0.43% 17 Beirne Trading Pty Ltd 50,847,572 0.42% 18 Inkese Pty Ltd 50,000,000 0.41% 18 Piama Pty Ltd 50,000,000 0.41% 20 Jagsons Pty Ltd 49,938,000 0.41% Totals: Top 20 holders of FULLY PAID ORDINARY SHARES (Total) 10,297,333,170 84.32% Total Remaining Holders Balance 1,915,479,082 15.68% Distribution of Shareholders as at 1 September 2021 Number of Shareholders Number of Shares % of Issued Capital 1 - 1,000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001 - 9,999,999,999 605 328,167 0.00% 1,157 3,174,234 0.03% 283 2,243,878 0.02% 894 37,829,487 0.31% 896 12,169,236,486 99.64% Total Number 3,537 12,212,812,252 100.00% Unmarketable Parcels Minimum Parcel Size Holders Units Minimum $ 500.00 parcel at $ 0.0030 per unit 166,667 3,072 61,013,638 Shareholder information Level 4, 60 Union Street, Pyrmont NSW 2009 + 61 2 9412 6111 ovato.com.au ABN 39 050 148 644