Saferoads Holdings Limited
Annual Report 2021

Plain-text annual report

Annual Report 1 Saferoads Holdings Limited ABN 81 116 668 538 SAFEROADS.COM.AUImproving public safety Saferoads is an ASX listed company specialising in the provision of innovative road safety solutions throughout Australia, New Zealand and North America. The company provides state government departments, local councils, road construction companies and equipment hire companies with a broad range of products and services designed to direct, protect, inform and illuminate for the public’s safety. 2 SAFEROADS.COM.AUContents Chairman’s Overview Chief Executive Officer’s Review of Operations and Activities The Year in Review Directors’ Report Auditor’s Independence Declaration Corporate Governance Statement Financial Statements Notes to the Financial Statements Directors’ Declaration Independent Auditor’s Report ASX Additional Information Corporate Directory 4 7 9 14 22 23 24 28 53 54 58 59 3 SAFEROADS.COM.AUChairman’s Overview Dear Shareholder, Financial Overview On behalf of the Board, I am pleased to report a profit after tax for the year of $535k, a stable result in what is still a significantly uncertain economic environment with the ongoing COVID-19 global pandemic. Whilst we had a strong first half, we experienced a decline in the second half of the year mainly attributable to the deferral of some road construction projects in Victoria impacting our equipment hire earnings, and lower demand from international opportunities. However, the road infrastructure sector has been somewhat shielded from the direct effects of COVID-19 with various governments still committed to significant infrastructure budgets. For some years now, we have strengthened our digital sales platform and during COVID-19 restrictions, this has continued to allow our customers to access our products and services without the need for face-to-face contact. Our total revenue was down $3.247 million, or 20% in FY2021, that is mainly attributable to the disposal of the on-grid lighting product portfolio and reduced level of International sales. Our overall gross margin improved, driven by sales mix, and very positively impacted by the divestment of our low margin on-grid lighting product portfolio in February. Our ongoing focus on cost optimisation saw an overall decrease in operating costs of 2.3%, year on year. This led to an overall 4.5% increase in Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) to $2.053 million – the main economic indicator of our operational and cash performance and a 92% improvement from where we were two years ago (FY2019). Our business model is now more capital intensive with the continued expansion of the rental fleet - Road Safety Rental and that has driven an increase in depreciation and amortisation of 10.6%. Whilst our borrowings have increased, interest rates have fallen, and we saw an overall reduction in interest cost of 10.6%. The repayment terms are quite short so that our overall gearing does not exceed acceptable levels in this environment of some uncertainty. 4 SAFEROADS.COM.AUThe table below summarizes the key metrics over the past three financial years: Year ending 30 June 2019 $’000 17,946 6,571 1,070 (41) 542 - 29.7% 2020 $’000 16,497 6,279 1,964 521 2,265 - 19.7% 2021 $’000 13,250 6,303 2,053 535 1,513 1.0 26.7% Revenue Gross profit EBITDA Profit/(loss) after tax Operating cash flows Dividend paid (cents per share) Gearing* (net debt / net debt + equity) * Excluding right-of-use asset lease liabilities We continued our expansion of Road Safety Rental during the year, investing a further $2.4 million in additional rental stock, including temporary barriers, solar powered Variable Message Sign (VMS) trailers, and portable solar lights. This expansion is to meet the demand of our key customers for their work zone needs and to provide initial rental stock for our recently opened Campbelltown, NSW branch. This growth was facilitated by additional borrowings of $1.35 million in equipment finance during the year, with the balance funded through the proceeds from the sale of the on-grid lighting product portfolio and continued strong working capital, with $1.5 million generated from operating cashflows during the year. We continue to receive support from our primary financier, Commonwealth Bank, who approved additional funding lines in July last year. Our gearing ratio, whilst increased from FY2020, is still a modest 26.7%. Corporate Activities In November last year the Board was pleased to announce the payment of a dividend to shareholders. This was a significant turning point for the Company, as long-standing shareholders would know, as it was the first time in a while that the Company had been in a position to be able to reward shareholders for their patience and support. The current financial performance of the Company and the ongoing COVID-19 impacts do not allow us to declare a dividend at this stage, but the resumption of a regular dividend stream remains a core objective of the Company. The Board continued to look at and assess our position in the industry and identify opportunities to better focus and improve the Company with product rationalisation and strategic acquisition. This latter objective being made quite challenging given the COVID-19 constraints on business and the need to be more conservative in times of uncertainty. This strategic approach has seen the Company dispose of the poorly performing on-grid lighting product portfolio and further expand our rental business with more rental fleet and the opening of the NSW branch. Our international business has continued to be hard hit by the pandemic with many sales opportunities put on hold pending a more stable outlook and economic certainty. However, we have continued to work on the international business with further regulatory approvals in the USA for our HV2TM temporary barrier with a notable key approval from the state of Texas. We now have 18 state approvals in USA and one in Canada. We have continued to work with potential business partners in the US to restart our sale of product once market uncertainties are overcome. 5 SAFEROADS.COM.AUOutlook We continue to be strategically well placed with our business model aligned to the infrastructure sector that will enable us to support our earnings base and grow. We will continue to offer leading edge products and services to this sector as various governments continue with strong transport infrastructure spending and rebuild economies impacted by the COVID-19 pandemic. Road Safety Rental has secured some solid medium term contracts on Victorian road and rail upgrades, including some Level Crossing Removal projects in metropolitan Melbourne. We are budgeting to continue expansion of this business by growth of our rental fleet to meet our solid customer demands. The benefits of this strategy are well established and it is worth reiterating that most of our rental fleet originates from our own proprietary products, so our fleet investment cost is lower than most of our peers. There has been no change to this strategy. Our expansion into the NSW equipment rental market has been impacted by the recent COVID-19 outbreak in Greater Sydney, but we are optimistic that once this settles, we are well placed to offer our products to an economy keen to rebuild after multiple lockdowns. We had made initial inroads prior to the present lockdown. We anticipate our international markets will take longer to recover due to the COVID-19 impacts to the economies, however we maintain regular contact with existing relationships and continue to work to enhance our international business when the time is right. Acknowledgments I would like to acknowledge and thank our staff and management team for their ongoing commitment to the business, particularly during these disruptive and uncertain times with multiple State lockdowns. They have found a way to maintain the operations of the business in challenging circumstances and meet customer expectations. I also sincerely thank all our shareholders for their continued support. Our primary focus continues to be the improvement in the financial performance and sustainability of our Company, and we were pleased that we could reward this support with the dividend paid in November 2020. Finally, I wish to acknowledge my fellow directors and their diligent and collaborative efforts and ongoing contribution during these unprecedented times. David Ashmore Chairman of the Board 30 August 2021 6 SAFEROADS.COM.AUChief Executive Officer’s Review of Operations and Activities Performance during 2020 - 2021 Despite the ongoing disruptions being felt by the COVID-19 pandemic, I am pleased to report another year of profit for Saferoads. This has not been easy in a business environment fraught with uncertainty and constant change. The way of doing business has necessarily adapted to a largely contactless environment where digital tools are the most efficient means to promote our products and services. During the first half of the year, we made the strategic decision to divest our low-margin on-grid lighting product portfolio as we did not see a strategic fit in our go-forward business model. We were able to find a buyer and completed the transaction in February receiving proceeds of $1.062 million and realising a minor ($57k) loss after selling costs. This was the major reason overall revenue was down 20% to FY2020, but also ended up being the major driver for an improvement in gross profit margins. Our Australian product sales were up 17.3% (excluding the on-grid lighting product line). Growth mainly came from our solar lighting solutions, Variable Message Sign trailers and traffic calming rubber products. Significant efforts had been made in better promoting our full product suite online and we saw an increase in online enquiries (and new customer opportunities) come to fruition over the past financial year. Road Safety Rental started the financial year strongly with ongoing demand for existing government road projects. However, this did taper off slightly in the second half of the year where we saw numerous deferrals of new road projects. I am pleased to report that we enter the new financial year having secured some large medium term works which will see a significant improvement in asset utilisation levels and returns in this space. We also have experienced some challenges in establishing our NSW equipment rental branch, with the recent Greater Sydney COVID-19 lockdowns. We have made some good initial business connections but need Greater Sydney to substantively reopen to be able to continue our initiatives here. We did however get our first HV2TM barrier system deployment in Victoria and initial feedback from industry players has been highly favourable. Having built up some solid International leads in FY2019 and FY2020, we were unable to progress these further in FY2021 due to the restrictions relating to the COVID-19 pandemic. Sales decreased 66% on the prior year however, the feedback we have received from existing customers have been positive with the HV2TM temporary barrier system out on hire in New Zealand, and we did secure our first sale of the OmniStopTM portable bollard system to Canada. In addition, we now have the HV2TM temporary barrier system approved in eighteen US States and Ontario Province in Canada. With the improved gross profit and focus on controlling costs, we were able to deliver an improved EBITDA of $2,053 million, up 4.5% on FY2020. This demonstrates that our current strategy of focussing on more profitable business lines is working and we will continue to strive for better returns and not just look to drive revenue growth alone. 7 SAFEROADS.COM.AUInnovation Initiatives Whilst COVID-19 has disrupted business as usual, we have still been able to look at product innovation and have fine-tuned some existing products with minor enhancements to keep them “best of breed”. We also took the opportunity during the year to establish our own crash testing facility near Warragul, Victoria, which will allow us to conduct low-cost testing of current and new products. This decision was made as there is no nationally accredited testing facility in Australia, with the only options being New Zealand or the United States. The time and costs associated with freighting product and test vehicles overseas and back far outweighed a minor investment in a local solution. With access to independent experts who can certify accreditation, we should be in a better position to have new products tested, enhanced and approved to domestic and global standards. Looking Ahead Reliable forecasting in the current economic environment remains challenging. The forward order book is presently reasonable, but factors outside our control, such as continued government-enforced lockdowns in response to the ongoing COVID-19 pandemic makes doing business very challenging, particularly when it impacts not only our business but also our customer base and supply chain. As the nation’s vaccination rates increase and the need for lockdowns should diminish, infrastructure budgets are still there to be spent, and we believe we have the right products and services to meet the needs of these projects. We will continue to selectively invest further in our Road Safety Rental brand, through offering a broader range of work zone products and services for the construction sector, but will do so in a measured way, ensuring that assets are optimally utilised and generating appropriate returns. Finally, I would like to acknowledge the support of all the Saferoads team, who have delivered a solid result for FY2021 and have adapted well to the challenges of operating in the current COVID-19 environment. Darren Hotchkin Chief Executive Officer 30 August 2021 8 SAFEROADS.COM.AUThe Year in Review FY21 has been a period of significant change for Saferoads. The divestment of the on-grid lighting business was completed, allowing a renewed focus on the core business and strategies. Additionally, the implementation of a new ERP system has enabled the business to benefit from more current technology. The rental division has seen some incredible milestones this year, including the opening of our new Road Safety Rental NSW Branch in Campbelltown as well as the introduction of a new barrier into the rental fleet, with almost 100% utilisation since its arrival (HV2 Barrier). The year has presented some major challenges with the ongoing impact of the COVID-19 pandemic and resulting lockdowns in our two largest markets (Victoria and New South Wales). Despite this, national product sales achieved: • An overall sales increase on the prior year (excluding on-grid lighting) • Growth in sales of solar lighting solutions, variable message sign trailers and traffic calming products • Introduction to the market of the BIG Blockout Barrier and One-Piece SnapLoc Guide Post • Improvement to Saferoads’ online presence with the addition of product group videos to our website, in order to assist customers’ purchasing decisions in an environment which has prevented interpersonal marketing • An increase in online enquiries and new customer opportunities Trent Loveless, General Manager There is no doubt that the vast lockdowns also left Road Safety Rental with an uphill task this year, however, some significant success has been seen in this division including: • First ever Australian HV2 Barrier deployment • Unveiling of the new branch in NSW • Recruitment of knowledgeable and talented personnel • The largest T-Lok Barrier deployment in Road Safety Rental’s history • Increase of the Ironman Hybrid fleet to over 7kms, and additional VMS and solar lighting added to the fleet • The introduction of two new temporary barriers (HV2 and BIG Blockout) and end treatment (SLED) to the rental market Looking ahead With the vast array of challenges that 2020-2021 has delivered, Saferoads and Road Safety Rental have managed to find ways to hold close the successes of the previous year and position itself for growth in the FY22 period. There is much excitement for the future with the company’s continual efforts in the development and pioneering of innovative products and road safety ideas. The brand continues to become more widely known and recognised, and, provided external factors are minimised in the coming 12 months we are well positioned to grow substantially in the years ahead. 9 SAFEROADS.COM.AUWork Zone Barrier Saves Lives Ironman Hybrid Barrier A recent Ironman Hybrid barrier deployment in Victoria’s North West region successfully redirected a 60 tonne B triple truck. The barriers possibly saved the life of the truck driver, who had fallen asleep behind the wheel, in addition to other contractors working nearby. This demonstrates how a temporary barrier deployed around a work zone can save lives. The Ironman Hybrid Barrier offers excellent flexibility for 40, 60 and some 80km/h projects, and has an Austroads Safety Barrier Assessment Panel (ASBAP) approval to 80km/h. This freestanding temporary longitudinal approved crash barrier system has been successfully crash tested to NCHRP 350 TL-3 and MASH TL2 70km/h. Its lightweight and stackable design offers transport cost savings when compared to traditional concrete barriers. 10 SAFEROADS.COM.AUImproving Cyclist Safety Separation Kerb and Caterpillar Safe Cycle were deployed as part of Melbourne’s new bike lane roll out to ease traffic congestion Saferoads were contracted by Road Safety Services & Maintenance (RSSM) to supply traffic calming products as part of a rapid roll out, by Yarra City Council of improved bike lanes that stretch 100km through the Melbourne CBD and surrounding suburbs. This initiative saw both Separation Kerb and Caterpillar Safe Cycle installed. These products are designed to direct and separate traffic whilst alerting drivers to the bike lanes. By increasing safety for bike lane users more people will be encouraged to ride, reducing congestion on roads and public transport. 11 SAFEROADS.COM.AUHV2 Barrier Deployed on M80 Ring Road, Melbourne Road Safety Rental were recently appointed by Healey Infrastructure to manage a major temporary safety barrier installation on the M80 Ring Road in Melbourne, while another major infrastructure program was being delivered. The Road Safety Rental team have worked successfully with Healey Infrastructure on many occasions. The entire team were excited to witness the very first Australian installation of the world’s only MASH TL-4 freestanding temporary barrier system; the Saferoads HV2 Barrier on Thursday 18th March, 2021. The deployment was a fantastic success with approximately 600m of HV2 Barrier and four segments of QuadGuard end treatments being installed in a single night shift with an install team of four of Road Safety Rental’s best! 12 SAFEROADS.COM.AUT-Lok Barriers deployed in Gippsland, Victoria Road Safety Rental completed their largest, single barrier deployment to date, in Gippsland Victoria. This deployment saw the installation of over 4000m of T-Lok Barriers, including anti-gawk screen and 11 QuadGuard CZ end treatments. The project will significantly improve safety in the area, reducing risks around intersecting roads with pavement improvements and upgrades plus additional permanent safety barrier installations throughout the route. Works started late in July 2021 and were completed in early August, making this the longest and most successful installation completed by the Road Safety Rental Team, and the fantastic subcontracting teams at Willaton Transport, Gravity and Plunketts. These improvements will lead to dramatically improved safety for commuters along this popular, and busy part of Gippsland. 13 SAFEROADS.COM.AUDirectors’ Report Your Directors submit their report for the year ended 30 June 2021. Directors David Ashmore  Darren Hotchkin  Hayden Wallace  David Cleland  Non-Executive Chairman  Appointed 22 November 2012  Executive Director (CEO)  Appointed 21 October 2005  Non-Executive Director  Non-Executive Director  Appointed 16 March 2020  Appointed 1 December 2010 Resigned 25 November 2020  Directors’ Profiles David Ashmore (Age 69) (FCA GAICD F.FIN) Non-Executive Chairman David Ashmore was appointed to the Board on 22 November 2012 and was re-elected at the November 2013, October 2015, October 2017 and October 2019 AGM’s. He was appointed Chairman of the Board on 19 August 2013. He is Chairman of the Remuneration/ Nomination Committee and a member of the Audit and Risk Committee. David is a career Chartered Accountant with 40 years of professional public practice experience focused on audit, finance, due diligence, risk and governance advisory. He is a Fellow of the Institute Chartered Accountants in Australia, a Graduate member of the Australian Institute of Company Directors and a Fellow of the Financial Services Institute of Australia. David has not served as a Director of any other listed companies during the preceding three years. Darren Hotchkin (Age 57) Executive Director/Chief Executive Officer Darren Hotchkin was appointed to the Board on 21 October 2005 as Managing Director. On 7 February 2011 he stepped aside as Managing Director but remained on the Board as a Non-Executive Director and was re-elected at the October 2011 and November 2013 AGM’s. He was appointed as Chief Executive Officer on 10 April 2012. Darren is the founder of Saferoads. He has a background in the automotive industry where he owned and operated several businesses. In 1992, he founded the company now trading as our wholly owned subsidiary, Saferoads Pty Ltd, to commercialise his invention of a rubber guidepost, manufactured from recycled car tyres. As Chief Executive Officer, Darren’s key contribution to the business is in the strategic development of the Company’s product range and manufacturing processes as well as in business development. He continues to be active in Research and Development and in seeking to effectively expand the Company’s product base through international research of products that have the potential to find a sustainable place in the Australian market. Darren is also an eagerly sought-after international expert speaker on road safety barriers, having presented at various International Road Federation conferences. Darren has not served as a Director of any other listed companies during the preceding three years. 14 SAFEROADS.COM.AUHayden Wallace (Age 50) (MBA, B. Eng.) Non-Executive Director Hayden Wallace was appointed to the Board on 16 March 2020. He is Chairman of the Audit and Risk Committee and a member of the Remuneration/Nomination Committee. Mr. Wallace is a respected and leading figure in the road safety barrier industry with over 20 years’ experience in leading multi-site product manufacturing and distribution facilities serving the national road safety barrier market. Hayden has invented numerous road and vehicle safety barrier systems covered by international patents. He has been involved in advancing best practice for safety barrier systems through active participation in the Australian and New Zealand Standard for Road Safety Barriers as well as championing the advancement of numerous public domain road safety barrier systems to the Australian market. Hayden has led the design and construction of several manufacturing plants for production of road safety barriers as well as a galvanising facility. He is the founding director and a major shareholder of Safe Direction Pty Ltd, a company that designs, manufactures, supplies and installs innovative guardrail systems and safety barriers for roads, car parks, warehouses and pedestrians. These products are not competitive with, but are complementary to, Saferoads’ product range. Hayden holds a Master’s of Business Administration from The University of Technology, Sydney and Bachelor of Engineering from The University of Sydney. Hayden has not served as a Director of any other listed companies during the preceding three years. David Cleland (Age 76) (Dip.ME GAICD FIE (retired)) Non-Executive Director (resigned 25 November 2020) David Cleland was appointed to the Board on 1 December 2010 and was re-elected at the October 2011, November 2014, October 2016 and October 2018 AGM’s. He resigned at the conclusion of the 2020 AGM on 25 November 2020. He was appointed acting Chief Executive Officer on 28 November 2011, handing over the role to Darren Hotchkin on 10 April 2012. He was Chairman of the Audit and Risk Committee and a member of the Remuneration/Nomination Committee until his resignation. David has not served as a Director of any other listed companies during the preceding three years. Company Secretaries Aimee Taylor (BComm (PR)) (appointed 28 October 2020) Aimee joined Saferoads in November 2018 and is the Company’s Media, Communications and Human Resources Manager. She was appointed Company Secretary on 28 October 2020. Aimee has completed a Bachelor of Media and Communications majoring in Public Relations at Deakin University. She is currently studying a Graduate Certificate of Human Resource Management and manages her own small business. Peter Fearns (CPA, BBus (Acctg)) (appointed 22 December 2016, resigned 28 October 2020) Peter joined Saferoads in December 2011 as Chief Financial Officer and was appointed Company Secretary on 22 December 2016. He has over 20 years’ experience managing finance functions in the information technology, infrastructure, and professional services sectors, covering both public listed and private companies. He was Group Financial Controller of former ASX listed UXC Limited. Prior to Saferoads, he was Chief Financial Officer of a national privately owned urban planning and property advisory business. Having resigned in October 2020, Peter returned to Saferoads as Chief Financial Officer in April 2021. Peter is a Certified Practising Accountant (CPA) and holds a Bachelor of Business degree majoring in Accounting. 15 SAFEROADS.COM.AUInterest in Shares As at the date of this report, Directors’ interests in the shares of the Company are: Name David Ashmore  Darren Hotchkin  Hayden Wallace  Dividends Shares 1,462,755  9,765,937  Nil  The Company paid a one cent dividend (fully franked) on 19 November 2020 totalling $364,000. $244,214 was distributed in shares (1,061,783 new shares issued at $0.23) which were issued under the Company’s Dividend Reinvestment Plan. No final dividend was paid or is declared for the financial year ended 30 June 2021. No interim or final dividend was declared or paid for the financial year ended 30 June 2020. Principal Activities The principal activity of the Group continued to be the sale or rental of road safety products and solutions primarily to end users. Products and services the Company provides includes flexible guideposts and signage; rubber-based traffic calming products including separation kerbing and wheel stops; variable messaging sign boards; permanent and temporary public solar lighting poles; permanent and temporary crash cushions including bollards and safety barriers. In all its activities, the Company remains focused on providing innovative products and materials that protect the safety of all road users – motorists, road construction workers and pedestrians. Review and Results of Operations A review of the operations and activities of the Company during the financial period and the results of these operations is set out in the Chairman’s Overview and Chief Executive Officer’s Review of Operations and Activities. Significant Changes in State of Affairs During the 2020-21 year, there has been no significant change in the Company’s state of affairs other than as disclosed in this financial report. Significant Events after Reporting Date Since the end of the financial year, the Company has drawn down a further $404,730 under its existing asset finance facility with Commonwealth Bank for the procurement of further equipment rental assets to fulfill a new rental contract. Likely Developments and Expected Results Likely developments in the operations of the entity and the expected results of these operations have been set out in the Chairman’s Overview and the Chief Executive Officer’s Review of Operations and Activities. 16 SAFEROADS.COM.AUIndemnification and Insurance of Directors, Officers and Auditors During the year, Directors’ and Officers’ insurance premiums were paid for any person who was a Director and/or Officer of the Company. The Group has not agreed to indemnify its auditors, Grant Thornton. Environmental Regulation and Performance The Company’s operations are not regulated by any significant environmental regulations under a law of the Commonwealth or of a state or territory. In respect of its own activities, the Company is not a major emitter of greenhouse gases and falls well below the reporting thresholds set by the National Greenhouse and Energy Reporting Act 2007. Proceedings on Behalf of the Company No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the Company, or to intervene in any proceedings to which the Company is a party, for the purpose of taking responsibility on behalf of the Company for all or part of those proceedings. Options At the date of this report, there were no un-issued shares of the Company under option. 17 SAFEROADS.COM.AURemuneration Report The Company’s remuneration policy is to ensure that the level of remuneration paid to key personnel is market competitive and will help to attract and retain the skills and expertise required. To determine what is a competitive level of remuneration the Company refers to salary information provided by various professional organisations. Remuneration of Directors and Key Management Personnel Non-Executive Directors Total remuneration for non-executive Directors for 2020-21 was $169,583. Their remuneration packages comprised only fixed Directors’ fees plus statutory superannuation (where applicable) and were within the limits set out in the Company’s constitution. Currently this limit is set at $350,000 per annum and can only be changed at a general meeting. Executive Director Mr Darren Hotchkin, Chief Executive Officer, received total remuneration of $412,816, including statutory superannuation. In addition, Mr Hotchkin was eligible for a discretionary bonus based on the Company’s financial performance exceeding budget targets for FY2021. This did not eventuate. Key Management Personnel Key Management Personnel (“KMP”) is defined by AASB 124 - Related Party Disclosures. Only Directors and Executive Management that have the authority and responsibility for planning, directing, and controlling the activities of Saferoads, directly or indirectly and are responsible for the entity’s governance are classified as KMP. Performance-based Remuneration No performance-based remuneration (bonus incentives) was paid or payable to key management personnel, including the CEO, for the year (FY2020: nil). The criteria for discretionary bonuses were the Company’s financial performance exceeding budget targets for FY2021. This did not eventuate. A summary of Company performance for the past five financial years is below. EPS (cents)  Net profit/(loss) ($)  Share price ($)  2021  1.4  535,173  $0.21  2020  1.4  521,029  $0.20  2019  (0.1)  (41,586)  $0.22  2018  1.9  709,692  $0.20  2017  0.3  118,847  $0.11  Employment Contracts Executive employment agreements have been entered into with the Chief Executive Officer and the Chief Financial Officer as disclosed. These agreements are of a standard form containing provisions of confidentiality and restraint of trade usually required in such agreements. Payments to be made on termination of an executive employment contract have been clearly detailed and are limited to payout of accrued leave entitlements and up to four months’ salary as redundancy or termination pay. 18 SAFEROADS.COM.AURemuneration of Directors and Key Management Personnel Short Term Long Term Salaries & Fees Non- monetary Cash Bonus Termination Payment Super- annuation $ $ $ $ $ Long Service Leave $ Total Perform- ance Related Share Based Payment Options $ $ % 75,342  16,787  54,795  -  -  -  D Hotchkin  360,000  31,122  Executive *  P Fearns #  Total  105,180  612,104  -  31,122  -  -  -  -  -  -  -  -  -  -  7,158  10,296  5,205  21,694  51,130  51,130  12,182  56,535  -  -  -  -  5  5  -  -  -  -  -  -  82,500  27,083  60,000  412,816  168,497  750,896  * Key Management Personnel is defined as those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly. # Mr. Fearns resigned as Chief Financial Officer on 30 October 2020 and was reappointed on 26 April 2021 Short Term Long Term Salaries & Fees Non- monetary Cash Bonus Termination Payment Super- annuation $ $ $ $ $ Long Service Leave $ Share Based Payment Options Total Perform- ance Related $ $ % 30 June 2021 Non Executive Directors  D Ashmore  D Cleland  H. Wallace  Executive Director  30 June 2020 Non Executive Directors  D Ashmore  D Cleland  H. Wallace  Executive Director  67,808  31,514  10,502  -  -  -  D Hotchkin  302,950  21,927  Executive P Fearns  Total  175,500  588,274  -  21,927  -  -  -  -  -  -  -  -  -  -  -  -  6,442  26,986  998  21,003  22,147  77,576  -  -  -  -  3,662  3,662  -  -  -  -  -  -  74,250  58,500  11,500  345,880  201,309  691,439  Note, in response to the COVID-19 situation, the non-executive directors agreed to a 40% reduction and the executive director a 20% reduction in remuneration for the period covering April to June 2020. End of audited Remuneration Report. 19 -  -  -  -  -  -  -  -  -  -  SAFEROADS.COM.AUShareholdings of Key Management Personnel Shares held in Saferoads Holdings Limited: Balance at 1 July 2020  Acquired through On- Market trade  Acquired through Dividend Reinvestment Plan  Sold  Other*  Balance at 30 June 2021  Directors  D Hotchkin  D Ashmore  D Cleland  H Wallace  Executive  P Fearns  Total  9,359,025  1,401,807  508,610  -  33,000  11,302,442  -  -  -  -  -  -  406,912  60,948  22,113  -  -  489,973  -  -  -  -  -  -  -  -  9,765,937  1,462,755  (530,723)  -  -  -  -  33,000  (530,723)  11,261,692  * Mr Cleland resigned 25 November 2020 – value represents shareholding at time of resignation. All equity transactions with Key Management Personnel have been entered into under terms and conditions no more favourable than those the entity would have adopted if dealing at arm’s length. Directors’ Meetings The number of meetings of Directors (including meetings of committees of Directors) held during the year, and the number of meetings attended by each Director, were as follows: Names Directors Audit & Risk Remuneration/Nomination Eligible Attended Eligible Attended Eligible Attended Mr D Ashmore  Mr D Hotchkin  Mr H Wallace  Mr D Cleland *  10  10  10  5  10  10  10  5  * Mr Cleland resigned 25 November 2020 Non-Audit Services 4  -  4  2  4  -  4  2  1  -  1  -  1  -  1  -  There were no non-audit services performed by Grant Thornton, the Company’s auditors, in addition to their statutory audit duties, during the year. Details of the amounts paid to the auditors of the Company, Grant Thornton, and its related practices for audit services provided during the year are set out in Note 21 to the financial statements. 20 SAFEROADS.COM.AURounding of Amounts Saferoads Holdings Limited is a type of Company that is referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191 and therefore the amounts contained in this report and in the financial report have been rounded to the nearest dollar. Auditor’s Independence Declaration The attached independence declaration has been obtained from the Company’s auditors, Grant Thornton. Signed in accordance with a resolution of Directors David Ashmore Director 30 August 2021 21 SAFEROADS.COM.AUCollins Square, Tower 5 727 Collins Street Melbourne VIC 3008 Correspondence to: GPO Box 4736 Melbourne VIC 3001 T +61 3 8320 2222 F +61 3 8320 2200 E info.vic@au.gt.com W www.grantthornton.com.au Auditor’s Independence Declaration To the Directors of Saferoads Holdings Limited In accordance with the requirements of section 307C of the Corporations Act 2001, as lead auditor for the audit of Saferoads Holdings Limited for the year ended 30 June 2021, I declare that, to the best of my knowledge and belief, there have been: a b no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and no contraventions of any applicable code of professional conduct in relation to the audit. Grant Thornton Audit Pty Ltd Chartered Accountants Michael Climpson Partner Melbourne, 30 August 2021 Grant Thornton Audit Pty Ltd ACN 130 913 594 a subsidiary or related entity of Grant Thornton Australia Ltd ABN 41 127 556 389 www.grantthornton.com.au ‘Grant Thornton’ refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to their clients and/or refers to one or more member firms, as the context requires. Grant Thornton Australia Ltd is a member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide partnership. GTIL and each member firm is a separate legal entity. Services are delivered by the member firms. GTIL does not provide services to clients. GTIL and its member firms are not agents of, and do not obligate one another and are not liable for one another’s acts or omissions. In the Australian context only, the use of the term ‘Grant Thornton’ may refer to Grant Thornton Australia Limited ABN 41 127 556 389 and its Australian subsidiaries and related entities. GTIL is not an Australian related entity to Grant Thornton Australia Limited. Liability limited by a scheme approved under Professional Standards Legislation. 18 22 SAFEROADS.COM.AU Corporate Governance Statement The Board of Directors of Saferoads Holdings Limited is responsible for the corporate governance of the Saferoads group. The Board has considered the ASX Corporate Governance Principles and Recommendations (“ASX Governance Principles”) and reports on compliance with these Principles. The Board’s objective is to ensure investor confidence in the Company and its operations given its size, stage of development and complexity. The Group’s Corporate Governance Statement for the financial year ending 30 June 2021 is dated as at 30 June 2021 and was approved by the Board on 26 August 2021. The Board advises that it complies with the ASX Corporate Governance Principles set out in the Company’s Corporate Governance Statement, which is located on the Company’s website www.saferoads.com.au/investors/corporate-governance. 23 SAFEROADS.COM.AUSaferoads Holdings Limited Consolidated Statement of Profit or Loss and Other Comprehensive Income FOR THE YEAR ENDED 30 JUNE 2021 Notes CONSOLIDATED 2021 $ 2020 $ Revenue Revenue from product sales and services Cost of direct materials and labour Movement in inventories Gross profit Other income Employee benefits Motor vehicle costs Occupancy costs Travel and accommodation costs IT & Communications costs Warehouse costs Impairment (loss)/gain of financial assets Other expenses Earnings before interest, tax, depreciation and amortisation (EBITDA) Depreciation and amortisation Earnings before interest and tax (EBIT) Finance costs Profit/(loss) before income tax Income tax benefit/(expense) Net profit/(loss) for the period Net profit/(loss) attributable to members of the parent Other comprehensive income Total comprehensive income/(loss) for the period Total comprehensive income/(loss) attributable to members of the parent Earnings per share - Basic for profit/(loss) for the full year - Diluted for profit/(loss) for the full year Dividend paid per share (cents) The accompanying notes form part of these financial statements 24 4 4 4 4 5 6 6 7 13,250,184 (7,532,985) 586,281 6,303,480 (5,392) (2,925,361) (117,166) (49,695) (18,337) (121,151) (197,309) - (815,551) 2,053,518 (1,212,112) 841,406 (260,129) 581,277 16,496,950 (9,772,926) (445,283) 6,278,741 33,655 (2,652,680) (129,437) (47,422) (103,226) (128,513) (179,645) (76,950) (1,030,579) 1,963,944 (1,083,143) 880,801 (290,616) 590,185 (46,104) (69,156) 535,173 521,029 535,173 521,029 - 535,173 - 521,029 535,173 521,029 Cents 1.44 1.44 1.00 Cents 1.43 1.43 - SAFEROADS.COM.AUSaferoads Holdings Limited Consolidated Statement of Financial Position AS AT 30 JUNE 2021 ASSETS Current Assets Cash and cash equivalents Trade and other receivables Inventories Prepayments Total Current Assets Non-current Assets Property, plant and equipment Intangible assets Deferred tax assets Other non-current assets Total Non-current Assets TOTAL ASSETS LIABILITIES Current Liabilities Trade and other payables Contract liabilities Interest-bearing loans and borrowings Lease liabilities Provisions Total Current Liabilities Non-current Liabilities Interest-bearing loans and borrowings Lease liabilities Provisions Total Non-current Liabilities TOTAL LIABILITIES NET ASSETS EQUITY Contributed equity Retained earnings TOTAL EQUITY The accompanying notes form part of these financial statements 25 Notes CONSOLIDATED 2021 $ 2020 $ 8 9 10 11 12 5 13 14 15 16 14 15 16 17 17 745,787 1,494,810 2,660,122 227,138 5,127,857 8,114,031 1,396,538 1,152,593 186,794 10,849,956 15,977,813 1,257,468 1,725,092 3,057,902 256,048 6,296,510 5,950,093 1,272,622 1,198,697 17,939 8,439,351 14,735,861 1,991,214 1,856,926 13,979 834,380 480,527 315,276 200,710 640,999 241,076 312,593 3,635,376 3,252,304 2,457,434 1,568,654 42,540 4,068,628 7,704,004 8,273,809 2,549,282 1,024,741 46,991 3,621,014 6,873,318 7,862,543 5,593,998 2,679,811 8,273,809 5,353,905 2,508,638 7,862,543 SAFEROADS.COM.AUSaferoads Holdings Limited Consolidated Statement of Changes in Equity FOR THE YEAR ENDED 30 JUNE 2021 CONSOLIDATED At 1 July 2019 Net profit/(loss) for the period Other comprehensive income for the period Total comprehensive income for the period At 30 June 2020 At 1 July 2020 Net profit/(loss) for the period Other comprehensive income for the period Total comprehensive income for the period Transactions with owners in their capacity as owners: Dividend paid (1.0 cent per share) Shares issued under Dividend Reinvestment Plan Share issue costs At 30 June 2021 The accompanying notes form part of these financial statements Contributed Equity $ Retained Earnings $ Total Equity $ 5,353,905 - - - 1,987,609 521,029 - 521,029 5,353,905 2,508,638 7,341,514 521,029 - 521,029 7,862,543 5,353,905 2,508,638 7,862,543 - - - - 244,214 (4,121) 240,093 5,593,998 535,173 535,173 - - 535,173 535,173 (364,000) - - (364,000) 2,679,811 (364,000) 244,214 (4,121) (123,907) 8,273,809 26 SAFEROADS.COM.AUSaferoads Holdings Limited Consolidated Statement of Cash Flows FOR THE YEAR ENDED 30 JUNE 2021 Cash flows from operating activities Receipts from customers Payments to suppliers and employees Net cash flows from operating activities Cash flows from investing activities Proceeds from sale of non-trade inventory, plant and equipment Purchase of plant and equipment Product development costs R&D tax rebate received Net cash flows from investing activities Cash flows from financing activities Proceeds from borrowings Repayment of loans and borrowings Proceeds from asset finance leases Repayment of lease liabilities Dividends paid (net of Dividend Reinvestment Plan shares) Share issue costs (Dividend Reinvestment Plan shares) Interest received Interest paid Net cash flows from financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period The accompanying notes form part of these financial statements Notes CONSOLIDATED 2021 $ 2020 $ 14,786,471 (13,273,385) 1,513,086 18,651,456 (16,386,466) 2,264,990 1,132,722 (2,317,687) (470,289) - (1,655,254) 498,206 (723,564) 521,512 (281,702) (119,786) (4,121) 71 (260,129) (369,513) (511,681) 1,257,468 745,787 145,850 (741,787) (82,866) 351,850 (326,953) - (701,500) - (222,725) - - 5,041 (290,616) (1,209,800) 728,237 529,231 1,257,468 8 8 27 SAFEROADS.COM.AU1. CORPORATE INFORMATION Saferoads Holdings Limited is a company limited by shares incorporated in Australia whose shares are publicly traded on the Australian Securities Exchange (ASX). 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Basis of preparation The financial report is a general purpose financial report which is prepared in accordance with Australian Accounting Standards, Australian Accounting Interpretations of the authoritative pronouncements of the Australian Accounting Standards Board and the Corporations Act 2001. The financial report has also been prepared on a historical cost basis. Saferoads Holdings Limited is a for-profit entity for the purposes of preparing the financial statements. (b) Statement of compliance The financial report has been prepared in accordance with the requirements of the Corporations Act 2001, Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board (AASB). Compliance with Australian Accounting Standards results in full compliance with the International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). New and revised standards that are effective for these financial statements During the financial year, the International Financial Reporting Interpretations Committee (IFRIC) identified that various approaches to customisation and configuration costs for cloud computing arrangements were utilised by companies depending on internal policy. These policies varied from expensing all costs in full to capitalisation of all costs in full, with most entities taking a more nuanced approach in their capitalisation policy and differentiating between expenditure with different underlying fact patterns. The Agenda Decision requires that management capitalise those elements of expenditure that meet the definition of an “Intangible Asset” as defined by AASB 138 Intangible Assets and recognise any additional amounts as an expense as the entity benefits from the expenditure – either by applying AASB 138 or applying another accounting standard. The impact of this decision has not had a material impact on the consolidated entity’s financial statements. The group has adopted all of the other new or amended Accounting Standards and Interpretations issued by the Australian Accounting Standard Board (‘AASB’) that were mandatory for the 30 June 2021 reporting period. Other new accounting standards and interpretations published but not yet mandatory for the 30 June 2021 reporting period have not been early adopted by the group. The group’s initial assessment of the impact of these standards and interpretations is that there will be no material impact upon future application. The financial statements were authorised for issue by the Directors on 30 August 2021. The Directors have the power to amend and reissue the financial statements. (c) Basis of consolidation The consolidated financial statements comprise the financial statements of the legal parent entity, Saferoads Holdings Limited and its subsidiaries (‘the Group’). The separate financial statements of the parent entity have not been presented within this financial report as permitted by the Corporations Act 2001. The financial statements of subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. Adjustments are made to bring into line any dissimilar accounting policies that may exist. All intercompany balances and transactions, including unrealised profits arising from intra-group transactions, have been eliminated in full. Subsidiaries are consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group. Where there is loss of control of a subsidiary, the consolidated financial statements include the results for the part of the reporting period during which Saferoads Holdings Limited has control. 28 SAFEROADS.COM.AUSaferoads Holdings LimitedNotes to the Financial StatementsFOR THE YEAR ENDED 30 JUNE 2021(d) Foreign currency translation Functional and presentation currency The functional currency of each of the Group’s entities is measured using the currency of the primary economic environment in which that entity operates. The consolidated financial statements are presented in Australian dollars which is the parent entity’s functional and presentation currency. Transactions and balances Foreign currency transactions are translated into functional currency using the exchange rates prevailing at the date of the transaction. Foreign currency monetary items are translated at the year end exchange rate. Non monetary items measured at historical cost continue to be carried at the exchange rate at the date of the transaction. Non monetary items measured at fair value are reported at the exchange rate at the date when fair values were determined. Exchange differences arising on the translation of monetary items are recognised in the statement of profit or loss and other comprehensive income, except where deferred in equity as a qualifying cash flow or net investment hedge. Exchange differences arising on the translation of monetary items are recognised directly in equity to the extent that the gain or loss is directly recognised in equity, otherwise the exchange difference is recognised in the statement of profit or loss and other comprehensive income. Group companies The financial results and position of foreign operations whose functional currency is different from the Group’s presentation currency are translated as follows: • Assets and liabilities are translated at year end exchange rates prevailing at that reporting date; • Income and expenses are translated at average exchange rates for the period; and • Retained earnings are translated at the exchange rates prevailing at the date of the transaction. Exchange differences arising on the translation of foreign operations are transferred directly to the Group’s foreign currency translation reserve in the statement of financial position. These differences are recognised in the statement of profit or loss and other comprehensive income in the period in which the operation is disposed. (e) Property, plant and equipment Property, plant and equipment are stated at cost less any accumulated depreciation and any impairment in value. Depreciation is calculated on a diminishing value basis or prime cost method, over the estimated useful life, as denoted below: • Property/leasehold improvements (prime cost - 10% to 50%) • Plant and equipment (diminishing value and prime cost - 5% to 50%) • Motor vehicles (diminishing value - 18% to 25%) • Rental equipment (prime cost - 5% to 33%) (f) Borrowing costs Borrowing costs are recognised as an expense when incurred. (g) Impairment of non-financial assets other than goodwill The Group assesses whether there is any indication that an asset may be impaired when events or changes in circumstances indicate the carrying value may not be recoverable. Where an indicator of impairment exists, the 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. 29 SAFEROADS.COM.AUSaferoads Holdings LimitedNotes to the Financial StatementsFOR THE YEAR ENDED 30 JUNE 2021Recoverable amount is the greater of fair value less costs to sell and value in use. It is determined for an individual asset, unless the asset’s value in use cannot be estimated to be close to its fair value less costs to sell and it does not generate cash 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. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. (h) Goodwill and intangible assets Goodwill Goodwill acquired in a business combination is initially measured at cost being the excess of the cost of the business combination over the group’s interest in the fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the group’s cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the group are assigned to those units or groups of units. Each unit or group of units to which the goodwill is so allocated : • Represents the lowest level within the group at which the goodwill is monitored for internal management purposes, and • Is not larger than a segment based on either the group’s primary or the group’s secondary reporting format determined in accordance with AASB 8 Operating Segments. Impairment is determined by assessing the recoverable amount of the cash-generating unit (group of cash-generating units), to which the goodwill relates. When the recoverable amount of the cash-generating unit (group of cash-generating units) is less than the carrying amount, an impairment loss is recognised. When goodwill forms part of the cash-generating unit (group of cash-generating units) and an operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this manner is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained. Intangibles Intangible assets acquired separately are capitalised at cost and from a business combination are capitalised at fair value as at the date of acquisition. Following initial recognition, the cost model is applied to the class of intangible. The useful lives of these intangible assets are assessed to be either finite (10 years) or indefinite. Where amortisation is charged on assets with finite lives, this expense is taken to the statement of profit or loss and other comprehensive income through the amortisation line item. Intangible assets, excluding development costs, created within the business are not capitalised and expenditure is charged against profits in the period in which the expenditure is incurred. Intangible assets are tested for impairment where an indicator of impairment exists, and in the case of indefinite life intangibles annually, either individually or at the cash generating unit level. Useful lives are also examined on an annual basis and adjustments, where applicable, are made on a prospective basis. Research and development costs Research costs are expensed as incurred. Development expenditure incurred on an individual project is carried forward when its future recoverability can reasonably be regarded as assured. Following the initial recognition of the development expenditure, the cost model is applied requiring the asset to be carried at cost 30 SAFEROADS.COM.AUSaferoads Holdings LimitedNotes to the Financial StatementsFOR THE YEAR ENDED 30 JUNE 2021less any accumulated amortisation and accumulated impairment losses. Any expenditure carried forward is amortised over the period of expected future sales from the related project. The carrying value of each development project is reviewed for impairment annually when the asset is not yet in use, or more frequently when an indicator of impairment arises during the reporting year indicating that the carrying value may not be recoverable. Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the statement of profit or loss and other comprehensive income when the asset is derecognised. Any Research and Development tax rebates received or receivable are offset against the respective capitalised development costs to the extent to which they relate to the claim. (i) 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: purchase cost on a first-in, first-out basis; • Finished goods and work-in-progress: cost of direct materials and labour and a proportion of manufacturing overheads based on normal operating capacity but excluding borrowing costs. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale. (j) Trade and other receivables The Group makes use of a simplified approach in accounting for trade and other receivables and records the loss allowance at the amount equal to the expected lifetime credit losses. In using this practical expedient, the Group uses its historical experience, external indicators and forward-looking information to calculate the expected credit losses using a provision matrix. The Group assesses impairment of trade receivables on a collective basis as they possess credit risk characteristics based on the days past due. An estimate for doubtful debts is made when collection of the full amount is no longer probable. Bad debts are written off when identified. (k) Cash and cash equivalents Cash in the statement of financial position comprises cash at bank and on hand. For the purposes of the statement of cash flows, cash and cash equivalents consist of cash and cash equivalents as defined above, net of any outstanding bank overdrafts. (l) Assets classified as held for sale Assets are classified as held for sale and measured at the lower of their carrying amount and fair value less costs to sell if their carrying amount will be recovered principally through a sale transaction. They are not depreciated or amortised. For an asset to be classified as held for sale it must be available for immediate sale in its present condition and its sale must be highly probable. (m) Interest-bearing loans and borrowings All loans and borrowings are initially recognised at cost, being the fair value of the consideration received net of issue costs associated with the borrowing. Interest expense is recognised as it accrues. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method. Gains and losses are recognised in the statement of profit or loss and other comprehensive income when the liabilities are derecognised as well as through the amortisation process. 31 SAFEROADS.COM.AUSaferoads Holdings LimitedNotes to the Financial StatementsFOR THE YEAR ENDED 30 JUNE 2021(n) Leases For any new contracts entered into, the Group considers whether a contract is, or contains a lease. A lease is defined as ‘a contract, or part of a contract, that conveys the right to use an asset (the underlying asset) for a period of time in exchange for consideration’. To apply this definition the Group assesses whether the contract meets three key evaluations which are whether: • the contract contains an identified asset, which is either explicitly identified in the contract or implicitly specified by being identified at the time the asset is made available to the Group • the Group has the right to obtain substantially all of the economic benefits from use of the identified asset throughout the period of use, considering its rights within the defined scope of the contract • the Group has the right to direct the use of the identified asset throughout the period of use. The Group assess whether it has the right to direct ‘how and for what purpose’ the asset is used throughout the period of use. At lease commencement date, the Group recognises a right-of-use asset and a lease liability on the balance sheet. The right-of- use asset is measured at cost, which is made up of the initial measurement of the lease liability, any initial direct costs incurred by the Group, an estimate of any costs to dismantle and remove the asset at the end of the lease, and any lease payments made in advance of the lease commencement date (net of any incentives received). The Group depreciates the right-of-use assets on a straight-line basis from the lease commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The Group also assesses the right-of-use asset for impairment when such indicators exist. At the commencement date, the Group measures the lease liability at the present value of the lease payments unpaid at that date, discounted using the interest rate implicit in the lease if that rate is readily available or the Group’s incremental borrowing rate. Lease payments included in the measurement of the lease liability are made up of fixed payments (including in substance fixed), variable payments based on an index or rate, amounts expected to be payable under a residual value guarantee and payments arising from options reasonably certain to be exercised. Subsequent to initial measurement, the liability will be reduced for payments made and increased for interest. It is remeasured to reflect any reassessment or modification, or if there are changes in in-substance fixed payments. The Group has elected to account for short-term leases and leases of low-value assets using the practical expedients. Instead of recognising a right-of-use asset and lease liability, the payments in relation to these are recognised as an expense in profit or loss on a straight-line basis over the lease term. (o) Provisions Provisions are recognised when the Group has a present obligation (legal and constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the Group expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the statement of profit or loss and other comprehensive income net of any reimbursement. 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. (p) Contributed equity 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. 32 SAFEROADS.COM.AUSaferoads Holdings LimitedNotes to the Financial StatementsFOR THE YEAR ENDED 30 JUNE 2021(q) Revenue To determine whether to recognise revenue, the Group follows a 5-step process: 1. Identifying the contract with a customer 2. Identifying the performance obligations 3. Determining the transaction price 4. Allocating the transaction price to the performance obligations 5. Recognising revenue when/as performance obligation(s) are satisfied In all transactions, the total price for a contract is allocated amongst the various performance obligations based on their relative stand- alone selling prices. The transaction price for a contract excludes any amounts collected on behalf of third parties. Revenue is recognised either at a point in time or over time, when (or as) the Group satisfies performance obligations by transferring the promised goods or services to its customers. The Group’s future obligation to transfer goods or services to a customer for which the Group has received consideration from the customer is recognised as a contract liability, and reports these amounts as such in its statement of financial position, until such time as the performance obligations are satisfied. If the Group satisfies a performance obligation before it receives the consideration, the Group recognises either a contract asset or a receivable in its statement of financial position, depending on whether something other than the passage of time is required before the consideration is due. Sales of goods Revenue from sales of goods for a fixed fee with no significant service obligation is recognised when or as the Group has transferred control of the assets to the customer. Control of the asset is considered to transfer to the buyer at the time of delivery of the goods to the customer. Rendering of services The Group rents its equipment to customers and recognises revenue over time based on fixed daily rental rates. Revenue for these transactions is therefore recognised over time based on monthly billing in arrears for rental services provided. In this respect, the Group has a right to the consideration and the amount billed corresponds directly with the value to the customer for the Group’s performance completed to date. If a product is returned before month end, revenue is recognised when returned for the period it has been rented. Customers are charged a fee for the deployment to site and the demobilisation of the rental unit. Lease components are recognised separately from performance revenue. (r) Income Tax Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to taxation authorities based on the current period’s taxable income. The tax rates and tax laws used to compare the amount are those that are enacted by the reporting date. Deferred income tax assets are recognised for all deductible temporary differences, carry-forward or unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and future unused tax assets and unused tax losses can be utilised. The carrying amount of deferred income tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Deferred income tax assets are measured at the tax rates that are expected to apply to the year when the asset is realised, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date. 33 SAFEROADS.COM.AUSaferoads Holdings LimitedNotes to the Financial StatementsFOR THE YEAR ENDED 30 JUNE 2021(s) Other taxes Revenues, expenses and assets are recognised net of the amount of GST except: • where the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and • receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position. Cash flows are included in the statement of cash flows on a gross basis and the GST component of cash flows arising from the investing and financing activities, which is recoverable from, or payable to, the taxation authority are classified as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority. (t) Employee benefits Provision is made for the Group’s liability for employee benefits arising from services rendered by employees to reporting date. Employee benefits expected to be settled wholly within one year have been measured at the amounts expected to be paid when the liability is settled plus related on-costs. All other employee benefit liabilities are measured at the present value of the estimated future cash outflows to be made for those benefits. (u) Trade and other payables Trade payables and other payables represent liabilities for goods and services provided to the Group prior to the end of the financial year that are unpaid and arise when the Group becomes obliged to make future payments in respect of the purchase of these goods and services. (v) Derivative Financial Instruments The group may use derivative financial instruments such as forward currency contracts to hedge risks associated with foreign currency fluctuations. Such derivative financial instruments are initially recognised at fair value at the date on which the derivative contract is entered into and are subsequently remeasured to fair value. Derivatives are carried as assets when the fair value is positive and as liabilities when their fair value is negative. Any gains or losses arising from changes in the fair value of derivatives are taken directly to the statement of profit or loss and other comprehensive income for the year. (w) Critical Accounting Estimates and Judgements The Directors evaluate estimates and judgements incorporated into the financial report based on historical knowledge and best available current information. Estimates assume a reasonable expectation of future events and are based on current trends and economic data, obtained both externally and within the Group. Key Judgements (i) Provision for impairment of receivables Collectability of Trade Receivables is reviewed on an ongoing basis. Debts which are known to be uncollectable are written off by reducing the carrying amount directly. A provision for impairment is established when there is objective evidence that the company will not be able to collect all amounts due according to the original terms of the receivables. (ii) Intangible assets - capitalised development costs Development expenditure incurred on an individual project is carried forward when its future recoverability can reasonably be regarded as assured. Determining whether the recognition requirements for the capitalisation of these development costs are met requires judgement. After capitalisation, management monitors whether the recognition requirements continue to be met and whether there are any indicators that capitalised costs may be impaired. 34 SAFEROADS.COM.AUSaferoads Holdings LimitedNotes to the Financial StatementsFOR THE YEAR ENDED 30 JUNE 2021(iii) Recognition of deferred tax assets The extent to which deferred tax assets can be recognised is based on an assessment of the probability that future taxable income will be available against which the deductible temporary differences and tax loss carry-forwards can be utilised. (iv) Going concern - COVID-19 pandemic The financial statements have been prepared on the basis that the Consolidated entity is a going concern, which assumes that in the medium term the Company will continue normal business activities and the realisation of assets and the settlement of liabilities in the ordinary course of business. The COVID-19 global pandemic continues to impact domestic and international economies. The degree and duration of the financial impact on the activities and financial position of the Company is presently unknown as it is very difficult to assess. The Company will continue to monitor the COVID-19 situation and react accordingly to protect its employees, assets and shareholder interests. Whilst the current trading environment has been impacted by numerous State and Federal government COVID-19 lockdowns and restrictions, the Company is still servicing demand for critical and essential infrastructure construction. The Company has the ability to scale back the business where necessary, if the economic conditions worsen, however it is the Directors’ current view that governments historically have responded to past recessionary situations with significant investments in public infrastructure and the Company is well-placed to provide its products and services in support of this investment going forward. At the date of this report, the Company has a strong liquidity position and has support from its primary financier. (x) Government grants Grants from the government are recognised at their fair value where there is a reasonable assurance that the grant will be received and the group will comply with all the attached conditions. Government grants relating to costs are deferred and recognised in the profit or loss over the period necessary to match them with the costs that they are intended to compensate. Government grants relating to cash subsidies are recognised in the profit or loss as other income. (y) Prior period restatement During the year, the Group determined that some financing arrangements previously included as Lease liabilities in the prior year are more accurately classified as Interest-bearing loans and borrowings. These liabilities have been corrected in the current year and comparative figures have been adjusted to conform to changes in the presentation. The impact on the consolidated statement of financial position in the prior year is a $1,532,000 decrease in lease liabilities ($485,652 current and $1,046,348 non-current) and a corresponding increase in interest-bearing loans and borrowings. 3. SEGMENT INFORMATION The Group’s chief operating decision maker (Chief Executive Officer) reviews financial information on a consolidated basis and makes strategic decisions based on this consolidated information. The Group operates predominantly in Australia. No single customer represented greater than 10% of the Group’s revenues in 2021 (2020: $1,653,023 or 10%). 35 SAFEROADS.COM.AUSaferoads Holdings LimitedNotes to the Financial StatementsFOR THE YEAR ENDED 30 JUNE 20214. REVENUES AND EXPENSES Specific Items Profit/(loss) before income tax expense includes the following revenues and expenses whose disclosure is relevant in explaining the performance of the entity: (i) Revenue Revenue from product sales - point in time Revenue from provision of services - over time (ii) Other income Net gain/(loss) on sale of assets (1) Interest Government grant (COVID-19 Cash Boost) Net foreign exchange gains/(losses) Other CONSOLIDATED 2021 $ 2020 $ 9,654,592 3,595,592 12,770,525 3,726,425 13,250,184 16,496,950 (22,690) 71 50,000 (36,574) 3,801 (5,392) 15,947 5,041 50,000 (41,064) 3,731 33,655 13,244,792 16,530,605 (1) Included in Net gain/(loss) on sale of assets is the net loss on sale of the Ongrid lighting product portfolio. On 9 February 2021 the Company disposed of certain assets pertaining to its former Ongrid lighting product portfolio for gross proceeds of $1,062,044, realising a minor loss before tax of $56,878, after selling costs. Breakdown of the transaction is as follows: Fair value of assets disposed Inventories Property, plant and equipment Intangible assets Proceeds received from sale less: Selling costs Net (loss) on sale of Ongrid lighting product portfolio 984,061 56,491 21,370 1,061,922 1,062,044 122 (57,000) (56,878) 36 SAFEROADS.COM.AUSaferoads Holdings LimitedNotes to the Financial StatementsFOR THE YEAR ENDED 30 JUNE 2021(iii) Expenses Depreciation and amortisation - Property, plant & equipment - Right-of-use assets - Intangible assets Impairment of plant and equipment Finance costs - Bank borrowings - Leasing arrangements Bad debts written off Provision (writeback) for doubtful debts 2021 $ 2020 $ 718,856 292,715 200,541 614,351 240,866 227,926 1,212,112 1,083,143 - 47,083 66,546 193,583 260,129 - - 95,012 195,604 290,616 60,920 16,030 During the year, the Company was a recipient of a wage subsidy provided by the Australian Federal government in response to the COVID-19 pandemic. An amount of $324,000 (2020: $318,000) is included as an offset in Employee benefits expense. 37 SAFEROADS.COM.AUSaferoads Holdings LimitedNotes to the Financial StatementsFOR THE YEAR ENDED 30 JUNE 20215. INCOME TAX Major components of income tax expense for the year ended 30 June 2021 are: CONSOLIDATED 2021 $ 2020 $ Statement of Profit or Loss and Other Comprehensive income Current income tax charge/(benefit) 46,104 69,156 Income tax expense/(benefit) reported in statement of profit or loss and other comprehensive income 46,104 69,156 A reconciliation of income tax expense applicable to accounting profit/(loss) before income tax at the statutory income tax rate to income tax expense at the Group’s effective income tax rate is as follows: Accounting profit/(loss) before income tax 581,277 590,185 At the statutory income tax rate of (2021: 26%; 2020: 27.5%) 151,132 162,301 Non-deductible expenses Recognition of prior year unbooked tax losses 22 (105,050) 46,104 1,812 (94,957) 69,156 Deferred income tax Deferred income tax at 30 June relates to the following: CONSOLIDATED Deferred income tax asset/(liability) Employee entitlements Capitalised Research & Development Costs Other Deferred tax assets relating to other temporary differences Carry forward tax losses brought to account Gross deferred income tax (liability)/asset Deferred income tax charge Statement of Financial Position Statement of Profit or Loss and Other Comprehensive Income 2021 $ 2020 $ 2021 $ 2020 $ 93,032 98,886 (289,627) (270,351) 4,168 192,427 15,552 155,913 1,152,593 1,198,697 1,152,593 1,198,697 5,854 19,276 11,384 (141,564) 105,050 39,835 (99,398) (4,408) (30,986) 94,957 - - As as 30 June 2021, the consolidated entity has carry forward tax losses with a tax effect of $1,712,885, measured at the new corporate tax rate of 25%. Carry forward tax losses with a tax effect of $1,152,593 (2020: $1,198,697) have been brought to account as a deferred tax asset. Carry forward tax losses with a tax effect of $560,292 relating to a prior year have not been brought to account. The consolidated entity has realised capital losses with a gross amount of $1,832,149 that is available for offset against any future taxable capital gains. 38 SAFEROADS.COM.AUSaferoads Holdings LimitedNotes to the Financial StatementsFOR THE YEAR ENDED 30 JUNE 20216. EARNINGS PER SHARE Basic earnings per share amounts are calculated by dividing net profit/(loss) for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year. Diluted earnings per share amounts are calculated by dividing the net profit/(loss) attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year (adjusted for the effects of dilutive options). The following reflects the income and share data used in the total operation’s basic and diluted earnings per share computations: CONSOLIDATED 2021 $ 2020 $ Net profit/(loss) attributable to equity holders from continuing operations Net profit/(loss) attributable to equity holders of the parent 535,173 535,173 521,029 521,029 Net profit/(loss) attributable to ordinary shareholders for diluted earnings per share 535,173 521,029 Weighted average number of ordinary shares for basic earnings per share Adjusted weighted average number of ordinary shares for diluted earnings per share 37,048,706 37,048,706 36,400,000 36,400,000 - Basic for profit/(loss) for the full year - Diluted for profit/(loss) for the full year Cents 1.44 1.44 Cents 1.43 1.43 For the purpose of calculating earnings and dividends per share, it is the ordinary shares of the legal parent that is used, being the proportionate weighting of the 37,461,783 (2020: 36,400,000) shares on issue. 7. DIVIDENDS PAID AND PROPOSED CONSOLIDATED 2021 $ 2020 $ Equity dividends on ordinary shares: Interim franked dividend paid for 2021: 1.0 cent (2020: 0.0 cents) 364,000 Dividends proposed and not recognised as a liability: Final franked dividend for 2021: 0.0 cents (2020: 0.0 cents) - - - Franking Credit Balance: The amount of franking credits available for future reporting periods after the payment of income tax payable and the impact of dividends proposed. 3,655,178 4,134,941 39 SAFEROADS.COM.AUSaferoads Holdings LimitedNotes to the Financial StatementsFOR THE YEAR ENDED 30 JUNE 20218. NOTES TO THE STATEMENT OF CASH FLOWS CONSOLIDATED 2021 $ 2020 $ Reconciliation of cash For the purposes of the statement of cash flows, cash and cash equivalents comprise the following at 30 June: Cash at bank and on hand 745,787 1,257,468 Reconciliation from the net profit/(loss) after tax to the net cash flows from operations Profit/(loss) after tax for the year 535,173 521,029 Adjustments for: Depreciation and amortisation Net (profit)/loss on disposal of plant and equipment Impairment of assets Bad and doubtful debts Interest received Interest paid Changes in assets and liabilities (Increase)/decrease in trade and other receivables (Increase)/decrease in inventories (Increase)/decrease in other assets Decrease/(increase) in deferred tax asset (Decrease)/increase in trade and other payables (Decrease)/increase in contract liabilities (Decrease)/increase in provisions Net cash from operating activities Non-cash financing and investing activities 1,212,112 22,690 - - (71) 260,129 230,282 (665,573) (139,945) 46,104 200,684 (186,731) (1,768) 1,083,143 (15,947) 47,083 76,950 (5,041) 290,616 610,423 273,571 (58,697) 69,156 (606,641) 124,201 (144,856) 1,513,086 2,264,990 During the year, the Group acquired plant and equipment (excluding right-of-use assets) with an aggregate value of $1,358,467 (2020:$157,480) by means of leases. 40 SAFEROADS.COM.AUSaferoads Holdings LimitedNotes to the Financial StatementsFOR THE YEAR ENDED 30 JUNE 2021CONSOLIDATED 2021 $ 1,510,784 56 (16,030) 1,494,810 900,487 517,935 60,018 16,314 2020 $ 1,622,174 118,948 (16,030) 1,725,092 986,630 547,264 70,647 1,603 1,494,754 1,606,144 16,030 - - 16,030 - - 16,030 16,030 CONSOLIDATED 2021 $ 2020 $ 2,660,122 3,057,902 9. TRADE AND OTHER RECEIVABLES (CURRENT) Trade receivables Other receivables Provision for impairment Ageing of trade receivables not impaired 1 - 30 days 31 - 60 days 61 - 90 days 91 days and over Trade receivables are non-interest bearing. Movement in provision for impairment Balance at the beginning of financial year Amounts written off Additional impairment provision recognised/(released) 10. INVENTORIES INVENTORIES Stock on hand 41 SAFEROADS.COM.AUSaferoads Holdings LimitedNotes to the Financial StatementsFOR THE YEAR ENDED 30 JUNE 202111. PROPERTY, PLANT AND EQUIPMENT Property, plant & equipment at cost Less accumulated depreciation Total plant & equipment Movements in Carrying Amounts Balance at 1 July 2019 Additions Depreciation expense Disposals Assets transferred to inventories Impairment Property/ Leasehold improvements $ 1,404,853 3,123 (253,206) - - - Carrying amount at 30 June 2020 1,154,770 Balance at 1 July 2020 Additions Depreciation expense Disposals Assets transferred from inventories Impairment 1,154,770 571,826 (289,877) - - - CONSOLIDATED 2021 $ 2020 $ 12,179,153 10,079,373 (4,065,122) (4,129,280) 8,114,031 5,950,093 Plant & equipment Motor vehicles Rental equipment Total $ $ $ 591,843 3,279,255 5,982,324 - 953,950 1,005,744 (101,154) (122,373) - - (369,488) (4,694) (5,772) - (855,217) (129,903) (5,772) (47,083) 368,316 3,853,251 5,950,093 368,316 3,853,251 5,950,093 5,000 2,386,151 3,189,198 (89,069) (496,070) (1,011,571) - - - (23,498) 74,292 - (92,981) 79,292 - $ 706,373 48,671 (131,369) (2,836) - (47,083) 573,756 573,756 226,221 (136,555) (69,483) 5,000 - Carrying amount at 30 June 2021 1,436,719 598,939 284,247 5,794,126 8,114,031 Included in the net carrying amount of Property, plant and equipment are right-of-use assets as follows: Net carrying amount b/f $ 1,287,695 20,303 1,307,998 Net carrying amount b/f Additions Depreciation $ - - - $ (230,714) (10,152) (240,866) Additions Depreciation Net carrying amount $ 1,056,981 10,151 1,067,132 Net carrying amount $ $ $ $ 1,056,981 544,620 (264,180) 1,337,421 10,151 - - 521,512 (10,151) (18,384) - 503,128 1,067,132 1,066,132 (292,715) 1,840,549 2020 Property Plant & equipment Total right-of-use assets 2021 Property Plant & equipment Equipment under finance lease Total right-of-use assets 42 SAFEROADS.COM.AUSaferoads Holdings LimitedNotes to the Financial StatementsFOR THE YEAR ENDED 30 JUNE 2021 12. INTANGIBLE ASSETS Product development costs Less accumulated amortisation Website development costs Less accumulated amortisation Patents and product approvals Less accumulated amortisation CONSOLIDATED 2021 $ 2020 $ 1,843,556 (729,607) 1,113,949 56,427 (50,014) 6,413 335,386 (59,210) 276,176 1,559,516 (576,422) 983,094 56,427 (34,137) 22,290 301,622 (34,384) 267,238 1,396,538 1,272,622 Movement in carrying amounts Website dev’t costs Patents/Product approvals Product dev’t costs Balance at 1 July 2019 Capitalisation of costs R&D tax rebate allocation Amortisation expense Carrying amount at 30 June 2020 Balance at 1 July 2020 Capitalisation of costs Disposals Amortisation expense Carrying amount at 30 June 2021 $ $ 33,340 7,350 - (18,400) 22,290 22,290 - - (15,877) 6,413 264,350 37,272 - (34,384) 267,238 267,238 61,787 (21,370) (31,479) 276,176 $ 1,344,541 38,244 (224,549) (175,142) 983,094 983,094 284,040 - (153,185) 1,113,949 Total $ 1,642,231 82,866 (224,549) (227,926) 1,272,622 1,272,622 345,827 (21,370) (200,541) 1,396,538 Patents/product approvals predominantly relate to various applications for new products that have yet to be commercialised. Once the related asset is in use, then the relevant patent/product approval will be amortised over its expected useful life. 13. TRADE AND OTHER PAYABLES (CURRENT) Trade payables Accrued expenses GST payable Payables are non-interest bearing and are normally settled between 30 and 60-day terms. 43 CONSOLIDATED 2021 $ 2020 $ 1,650,612 310,487 30,115 1,991,214 1,556,024 237,712 63,190 1,856,926 SAFEROADS.COM.AUSaferoads Holdings LimitedNotes to the Financial StatementsFOR THE YEAR ENDED 30 JUNE 202114. INTEREST-BEARING LOANS AND BORROWINGS Current Bank loans Borrowings for asset finance Non-current Bank loans Borrowings for asset finance CONSOLIDATED 2021 $ 2020 $ 165,826 668,554 834,380 1,348,223 1,109,211 2,457,434 155,347 485,652 640,999 1,502,934 1,046,348 2,549,282 Financing facilities available At reporting date, the Company had the following financing facilities provided by Commonwealth Bank available: CONSOLIDATED 2021 $ 2020 $ Total facilities: - term loan - asset finance - overdraft - bank charge card Facilities used at reporting date - term loan - asset finance - overdraft - bank charge card Facilities unused at reporting date - asset finance - overdraft - bank charge card 1,514,049 1,500,000 500,000 75,000 3,589,049 1,514,049 1,108,125 - 55,000 2,677,174 391,875 500,000 20,000 911,875 1,658,281 - 500,000 75,000 2,233,281 1,658,281 - - 40,000 1,698,281 - 500,000 35,000 535,000 The bank facilities are secured by a registered charge over certain assets and undertakings, and also a registered charge over the assets and undertakings of Saferoads Holdings Ltd. The term loan facility matures in December 2024. The Group was in compliance with its facility covenants at 30 June 2021. Pursuant to the finance facility agreement, the Company is required to provide the Commonwealth Bank with six-monthly financial information. Since the end of the financial year, the Company has drawn down a further $404,730 under its existing asset finance facility with Commonwealth Bank for the procurement of further equipment rental assets to fulfill a new rental contract. 44 SAFEROADS.COM.AUSaferoads Holdings LimitedNotes to the Financial StatementsFOR THE YEAR ENDED 30 JUNE 2021 15. LEASE LIABILITIES Current Right-of-use asset leases Non-current Right-of-use asset leases CONSOLIDATED 2021 $ 2020 $ 480,527 480,527 241,076 241,076 1,568,654 1,568,654 1,024,741 1,024,741 Hire purchase liabilities are secured by a charge over the related non-financial assets. Lease payments not recognised as a liability The Group has elected not to recognise a lease liability for short term leases (leases with an expected term of 12 months or less) or for leases of low value assets. Payments made under such leases are expensed on a straight-line basis. The expense relating to payments not included in the measurement of the lease liability is as follows: Short-term leases Leases of low value assets 2021 $ 2020 $ 12,300 6,589 18,889 - 6,468 6,468 The Group leases its head office and warehouse facility and other warehouse sites with terms ranging from 3 to 10 years. There are no material make good obligations with leases, individually or in the aggregate. The Group has leases for the main warehouse and related facilities, an office and production building, equipment rental assets, company motor vehicles, production equipment and office equipment. With the exception of short-term leases and leases of low-value underlying assets, each lease is reflected on the balance sheet as a right-of-use asset and a lease liability. The Group classifies its right-of-use assets in a consistent manner to its property, plant and equipment (see Note 11). There are no other commitments or contingent liabilities of the Group. 45 SAFEROADS.COM.AUSaferoads Holdings LimitedNotes to the Financial StatementsFOR THE YEAR ENDED 30 JUNE 202116. PROVISIONS Current Employee benefits Non-Current Employee benefits 17. EQUITY Contributed Equity Ordinary shares Balance at beginning of period Dividend Reinvestment Plan Share issue costs Issued and fully paid Movements in ordinary shares on issue (legal parent) Balance at beginning of the period Shares issued under Dividend Reinvestment Plan At 30 June CONSOLIDATED 2021 $ 2020 $ 315,276 315,276 312,593 312,593 42,540 42,540 46,991 46,991 CONSOLIDATED 2021 $ 2020 $ 5,353,905 5,353,905 244,214 (4,121) - - 5,593,998 5,353,905 No. of shares 36,400,000 1,061,783 37,461,783 36,400,000 - 36,400,000 Ordinary shares carry one vote per share, either in person or by proxy, at a meeting of the Company, and carry the rights to dividends and the proceeds on winding up of the parent entity in proportion to the number of shares held. There is no current on-market buy-back of ordinary shares. Retained Earnings Movements in retained earnings are as follows: Balance at beginning of period Net profit for the year Less: Dividend paid (refer note 7) Balance at 30 June 46 CONSOLIDATED 2021 $ 2020 $ 2,508,638 535,173 (364,000) 2,679,811 1,987,609 521,029 - 2,508,638 SAFEROADS.COM.AUSaferoads Holdings LimitedNotes to the Financial StatementsFOR THE YEAR ENDED 30 JUNE 2021 18. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES The Group’s principal financial instruments comprise a term loan, lease liabilities, cash and short-term deposits. The main purpose of these financial instruments is to raise finance for the Group’s operations. The totals for each category of financial instruments are as follows: Financial Assets - Cash and cash equivalents - Financial assets at amortised cost Total Financial Assets Financial Liabilities - Financial liabilities at amortised cost Total Financial Liabilities CONSOLIDATED 2021 $ 2020 $ 745,787 1,494,810 1,257,468 1,725,092 2,240,597 2,982,560 7,332,209 6,313,024 7,332,209 6,313,024 The Group has various financial instruments such as trade debtors and trade creditors, which arise directly from its operations. It is, and has been throughout the period under review, the Group’s policy that no trading in financial derivatives shall be undertaken. The main risks arising from the Group’s financial instruments are interest rate risk, liquidity risk, foreign currency risk and credit risk. The Board reviews and agrees policies for managing each of these risks and they are summarised below. The Group also monitors the market price risk arising from all financial instruments. 47 SAFEROADS.COM.AUSaferoads Holdings LimitedNotes to the Financial StatementsFOR THE YEAR ENDED 30 JUNE 202118. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued) (a) Interest rate risk The Group’s exposure to market risk for changes in interest rates relates primarily to the Group’s long-term debt obligations. The company’s exposure to interest rate risk, which is the risk that the Financial Instrument’s value will fluctuate as a result of changes in market interest rates and the effective weighted average interest rates on classes of financial assets and financial liabilities, is as follows: Weighted Average Interest Rate Non Interest Bearing Variable Interest Rate Within 1 year 2 to 5 years Later than 5 years Total Fixed Interest Rate Maturing % $ $ $ $ $ $ 2021 Financial Assets - Cash - Receivables 0.07% N/A - 745,787 1,494,810 - Total Financial Assets 1,494,810 745,787 Financial Liabilities - Payables - Bank loans - Borrowings for asset finance - Lease liabilities N/A 3.78% 6.18% 5.91% 1,991,214 - 1,514,049 - - - - - - - - - - - - 745,787 1,494,810 - 2,240,597 - - 1,991,214 1,514,049 - - 668,554 1,109,211 - 1,777,765 480,527 1,456,836 111,818 2,049,181 Total Financial Liabilities 2020 Financial Assets - Cash - Receivables Total Financial Assets Financial Liabilities - Payables - Bank loans - Borrowings for asset finance - Lease liabilities Total Financial Liabilities 48 1,991,214 1,514,049 1,149,081 2,566,047 111,818 7,332,209 % $ $ $ $ $ $ 0.58% N/A N/A 4.67% 6.22% 5.05% - 1,257,468 1,725,092 - 1,725,092 1,257,468 1,856,926 - 1,658,281 - - - - - - - - - - - - - - - 1,257,468 1,725,092 2,982,560 1,856,926 1,658,281 - - 485,652 1,046,348 - 1,532,000 241,076 912,923 111,818 1,265,817 1,856,926 1,658,281 726,728 1,959,271 111,818 6,313,024 - - - - - - SAFEROADS.COM.AUSaferoads Holdings LimitedNotes to the Financial StatementsFOR THE YEAR ENDED 30 JUNE 2021 18. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued) (b) Credit risk The Group trades only with recognised, credit worthy third parties. It is the Group’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures and pre- agreed credit limits. In addition, receivable balances are monitored on an ongoing basis with the result that the Group’s exposure to bad debts is managed closely. The maximum exposure to credit risk, excluding the value of any collateral or other security, at reporting date recognised as financial assets is the carrying amount, net of any provisions for doubtful debts which is $16,030 at 30 June 2021 (2020: $16,030), as disclosed in the statement of financial position and notes to the financial statements. The company holds no collateral or security in relation to financial assets. As at reporting date, the amount of financial assets past due, but not impaired, is $76,332 (2020: $72,250). The Group does not have any material unmanaged credit risk to any single debtor or group of debtors under financial instruments entered into by the company. (c) Liquidity risk The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of current working capital, bank loans, and lease liabilities. Maturity analysis of financial liabilities: 2021 - Payables - Bank loans - Borrowings for asset finance - Lease liabilities Within 1 Year 1 to 5 Years Over 5 Years $ $ $ Total $ 1,991,214 165,826 668,554 480,527 - 1,348,223 1,109,211 1,456,836 - - - 111,818 1,991,214 1,514,049 1,777,765 2,049,181 Total Financial Liabilities 3,306,121 3,914,270 111,818 7,332,209 2020 - Payables - Bank loans - Borrowings for asset finance - Lease liabilities Within 1 Year 1 to 5 Years Over 5 Years $ $ $ Total $ 1,856,926 155,347 485,652 241,076 - 1,502,934 1,046,348 912,923 - - - 111,818 1,856,926 1,658,281 1,532,000 1,265,817 Total Financial Liabilities 2,739,001 3,462,205 111,818 6,313,024 49 SAFEROADS.COM.AUSaferoads Holdings LimitedNotes to the Financial StatementsFOR THE YEAR ENDED 30 JUNE 202118. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued) (d) Fair Values The carrying amount of financial assets and liabilities recorded in the financial statements represents their respective fair values, determined in accordance with the accounting policies disclosed in Note 2 to the financial statements. (e) Foreign Exchange Risk Exposure to foreign exchange risk may result in the fair value or future cash flows of a financial instrument fluctuating due to movement in foreign exchange rates of currencies in which the Group holds financial instruments which are other than the AUD functional currency of the Group. (f) Sensitivity Analysis The following table illustrates sensitivities to the Group’s exposures to changes in interest rates on borrowings and exchange rates on purchases. The table indicates the impact on how profit and equity values reported at reporting date would have been affected by changes in the relevant risk variable that management considers to be reasonably possible. These sensitivities assume that the movement in a particular variable is independent of other variables. The following sensitivities are based on market experience over the last 12 months. Year Ended 30 June 2021 +/-2% in interest rates +/-5c in AUD / USD Year Ended 30 June 2020 +/-2% in interest rates +/-5c in AUD / USD 19. SUBSIDIARIES CONSOLIDATED Profit/(loss) $ Equity $ +/-30,300 +/-226,000 +/-30,300 +/-226,000 $ $ +/-33,000 +/-298,000 +/-33,000 +/-298,000 The consolidated financial statements include the financial statements of Saferoads Holdings Limited and the subsidiaries listed in the following table. Name Country of incorporation Saferoads Pty Ltd Australia % equity interest 2021 100% 2020 100% 50 SAFEROADS.COM.AUSaferoads Holdings LimitedNotes to the Financial StatementsFOR THE YEAR ENDED 30 JUNE 202120. RELATED PARTIES Transactions with Key Management Personnel During the financial year the Company acquired certain consumable manufacturing materials and contract labour services from an entity related to Mr D. Hotchkin at normal commercial rates aggregating $84,312 (2020: $220,550), with $11,423 included in Trade payables at 30 June 2021 (2020: $59,175). During the financial year the Company leased premises from an entity related to Mr D. Hotchkin at normal commercial rates aggregating $12,300 (2020: nil), with a $3,075 security deposit. During the financial year the Company procured an operational asset from an entity related to Mr D. Hotchkin at normal commercial rates aggregating $4,081, with $4,489 included in Trade payables at 30 June 2021. During the financial year an entity related to Mr D. Hotchkin purchased goods at normal commercial rates for $689 (2020: nil). 21. AUDITORS’ REMUNERATION Amounts received or due and receivable by: - Grant Thornton, for the audit of the financial report 2021 $ 2020 $ 69,000 73,500 - Other services (2020: R&D tax rebate): Grant Thornton - 24,100 22. KEY MANAGEMENT PERSONNEL DISCLOSURES (a) Details of Management Personnel (i) Directors David Ashmore Darren Hotchkin David Cleland Hayden Wallace (ii) Executives Peter Fearns Non-Executive Chairman Chief Executive Officer Non-Executive (resigned 25 November 2020) Non-Executive Chief Financial Officer (resigned 30 October 2020 and was reappointed 26 April 2021) (b) Compensation of Key Management Personnel Details of the nature and amount of each element of the remuneration of Key Management Personnel (“KMP”) are disclosed in the Remuneration Report section of the Directors’ Report. Compensation of Key Management Personnel by category: - Short-term employee benefits - Post-employment benefits - Long-term employee benefits 51 2021 $ 2020 $ 694,356 56,535 5 750,896 610,201 77,576 3,662 691,439 SAFEROADS.COM.AUSaferoads Holdings LimitedNotes to the Financial StatementsFOR THE YEAR ENDED 30 JUNE 202123. PARENT ENTITY DISCLOSURES Current assets Total assets Current liabilities Total liabilities Net assets Issued capital Retained earnings Profit/(loss) of the parent entity Total comprehensive income of the parent entity 2021 $ 2020 $ - - 5,600,022 5,359,929 - - 5,600,022 5,593,998 6,024 364,000 364,000 - - 5,359,929 5,353,905 6,024 - - Guarantees entered into by the parent entity in relation to debts of its subsidiaries 669,640 941,815 24. SUBSEQUENT EVENTS Since the end of the financial year, the Company has drawn down a further $404,730 under its existing asset finance facility with Commonwealth Bank for the procurement of further equipment rental assets to fulfill a new rental contract. 52 SAFEROADS.COM.AUSaferoads Holdings LimitedNotes to the Financial StatementsFOR THE YEAR ENDED 30 JUNE 2021Directors’ Declaration In the opinion of the Directors of Saferoads Holdings Limited and its controlled entities: (a) The financial statements and notes of the consolidated entity and the remuneration disclosures that are contained in the Remuneration Report that forms part of the Directors’ Report are in accordance with the Corporations Act 2001 (Cth), including: i) Giving a true and fair view of the consolidated entity’s financial position as at 30 June 2021 and of its performance for the year ended that date; and ii) Complying with Accounting Standards and Corporations Regulations 2001. (b) There are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable; (c) The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as reported in Note 2. This declaration has been made after receiving the declarations required to be made to the Directors by the Chief Executive Officer and the Chief Financial Officer in accordance with section 295A of the Corporations Act 2001 (Cth). Signed in accordance with a resolution of the Directors. On behalf of the Board. David Ashmore Director 30 August 2021 53 SAFEROADS.COM.AUCollins Square, Tower 5 727 Collins Street Melbourne VIC 3008 Correspondence to: GPO Box 4736 Melbourne VIC 3001 T +61 3 8320 2222 F +61 3 8320 2200 E info.vic@au.gt.com W www.grantthornton.com.au Independent Auditor’s Report To the Members of Saferoads Holdings Limited Report on the audit of the financial report Opinion We have audited the financial report of Saferoads Holdings Limited (the Company) and its subsidiaries (the Group), which comprises the consolidated statement of financial position as at 30 June 2021, the consolidated statement of profit or loss and other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies, and the Directors’ declaration. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: a giving a true and fair view of the Group’s financial position as at 30 June 2021 and of its performance for the year ended on that date; and b complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Grant Thornton Audit Pty Ltd ACN 130 913 594 a subsidiary or related entity of Grant Thornton Australia Ltd ABN 41 127 556 389 www.grantthornton.com.au ‘Grant Thornton’ refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to their clients and/or refers to one or more member firms, as the context requires. Grant Thornton Australia Ltd is a member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide partnership. GTIL and each member firm is a separate legal entity. Services are delivered by the member firms. GTIL does not provide services to clients. GTIL and its member firms are not agents of, and do not obligate one another and are not liable for one another’s acts or omissions. In the Australian context only, the use of the term ‘Grant Thornton’ may refer to Grant Thornton Australia Limited ABN 41 127 556 389 and its Australian subsidiaries and related entities. GTIL is not an Australian related entity to Grant Thornton Australia Limited. Liability limited by a scheme approved under Professional Standards Legislation. 47 54 SAFEROADS.COM.AU Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Key audit matter How our audit addressed the key audit matter Revenue from product sales and services – Note 4 The total revenues from product sales and services earned by Saferoads Holdings Limited was $13,250,184. The Group derives revenue through the sale of goods and the rendering of services which are performed under a combination of individual agreements and contractual arrangements. Under AASB 15 Revenue from Contracts with Customers, revenue may be recognised at a point in time or over time, as performance obligations are satisfied. This is a key audit matter due to the volume of associated transactions, the level management judgement applied, and the importance of revenue as a financial measure. Intangible assets – Note 12 Our procedures included, amongst others:  Assessing revenue recognition policies to ensure compliance with AASB 15;  Documenting and testing the design effectiveness of internal controls relating to revenue streams;  Testing a sample of revenue recognised during the year to supporting documentation to verify the occurrence;  Performing non-substantive analytical testing on revenue balances; and  Assessing the adequacy of the disclosures in the financial statements. Capitalised product development costs in respect to databases and software had a net carrying value of $1,113,949 at 30 June 2021. During the year, the Group capitalised $284,040 of product development costs. These intangible assets are being amortised over a 10 year period, and an amortisation expense of $200,541 has been included in the statement of profit or loss and other comprehensive income. AASB 138 Intangible Assets sets out the specific requirements to be met in order to capitalise development costs. Intangible assets should be amortised over their useful economic lives in accordance with AASB 138. Given the nature of the industry in which the Group operates, there is also a risk that there could also be a material impairment to capitalised development costs carried as intangible assets, which needs to be considered under accounting standard AASB 136 Impairment of Assets. Our procedures included, amongst others:  Assessing the Group’s accounting policy in respect of product development costs for adherence to AASB 138;  Evaluating management’s assessment of each product for compliance with the recognition criteria set out in AASB 138, including discussing product plans with management to develop an understanding of the nature and feasibility of key products at 30 June 2021;  Testing a sample of costs capitalised to supporting documentation to understand the nature of the item and whether the expenditure was attributable to the development of the related asset and assessing compliance with the recognition criteria set out in AASB 138; This area is a key audit matter due to subjectivity and management judgement applied in the assessment of whether costs meet the development phase criteria described in AASB 138, the estimate of the assets’ useful lives and consideration of whether any impairment indicators existence as per the requirements of AASB 136.  Evaluating the appropriateness of the useful economic lives over which capitalised costs are being amortised;  Assessing the appropriateness of management’s fair value assessment for any intangible assets not yet available for use as per the requirements of AASB 136;  Assessing the appropriateness of management’s determination that there are no impairment indicators at reporting date for those intangible assets being amortised as per the requirements of AASB 136; and  Assessing the adequacy of the financial statement disclosures. 55 48 SAFEROADS.COM.AUInformation other than the financial report and auditor’s report thereon 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 our auditor’s report thereon. Our opinion on the financial report does not cover the other information and we do not express any form of assurance conclusion thereon. 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 Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue 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/auditors_responsibilites/ar1_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 18 to 19 of the Directors’ report for the year ended 30 June 2021. In our opinion, the Remuneration Report of Saferoads Holdings Limited, for the year ended 30 June 2021 complies with section 300A of the Corporations Act 2001. 56 49 SAFEROADS.COM.AU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. Grant Thornton Audit Pty Ltd Chartered Accountants Michael Climpson Partner Melbourne, 30 August 2021 57 50 SAFEROADS.COM.AUASX Additional Information The shareholder information set out below was applicable as at 31 August 2021. At this date, the Company had on issue 37,461,783 ordinary shares in the company held by 481 shareholders. SUBSTANTIAL SHAREHOLDERS The names of substantial shareholders who have notified the Company in accordance with section 671B of the Corporations Act. Holder name No. of ordinary shares in which interest is held 9,765,937 4,753,978 4,340,549 No. of Shares % Held 8,033,691 4,240,154 3,243,300 1,732,246 1,466,074 1,462,755 1,387,848 1,000,000 921,883 904,055 881,240 629,438 544,630 480,836 347,678 333,913 292,095 260,000 250,009 240,000 21.45 11.32 8.66 4.62 3.91 3.90 3.70 2.67 2.46 2.41 2.35 1.68 1.45 1.28 0.93 0.89 0.78 0.69 0.67 0.64 28,651,845 76.46 Holders Total Units 96 147 73 120 45 481 46,985 417,775 591,405 3,962,452 32,443,166 37,461,783 % 0.12 1.12 1.58 10.58 86.60 100.00 MR DARREN JOHN HOTCHKIN & MRS JENNIFER ANN HOTCHKIN RUMINATOR PTY LTD and related entities CAON PTY LTD and related entities TWENTY LARGEST SHAREHOLDERS Name MR DARREN JOHN HOTCHKIN & MRS JENNIFER ANN HOTCHKIN CAON PTY LTD RUMINATOR PTY LTD MR DARREN JOHN HOTCHKIN & MRS JENNIFER ANN HOTCHKIN MR DUNCAN FRANCIS SMITH MR DAVID ALBERT McCLURE ASHMORE & MRS NOLA JOY ASHMORE MR GLENN SCOTT WADSWORTH & MR RICKI MARK WADSWORTH MR PHILIP BOMFORD NLKM PTY LTD CARRIER INTERNATIONAL PTY LTD CONTEMPLATOR PTY LTD STITCHING PTY LTD MRS JANET GRIFFITHS LIVINGSTONE SERVICES PTY LTD MR PETER FROST ELFIC INDUSTRIES PTY LTD ROADWORX GROUP PTY LTD MR BRUCE ALLAN HEAD & MRS BETH ALISON HEAD C J CORNWELL & SON PTY LTD MR ROSS GEORGE YANNIS DISTRIBUTION OF SHAREHOLDINGS Holdings Ranges 1-1,000 1,001-5,000 5,001-10,000 10,001-100,000 100,001 and over The number of shareholders’ holdings less than a marketable parcel is 135. VOTING RIGHTS All ordinary shares carry one vote per share. NUMBER OF ORDINARY SHARES SUBJECT TO ESCROW Nil. 58 SAFEROADS.COM.AUCorporate Directory Directors David Ashmore Chairman Darren Hotchkin Chief Executive Officer Hayden Wallace Auditors Grant Thornton GPO Box 4736 Melbourne VIC 3001 ASX Code SRH Company Secretary Aimee Taylor Bankers Commonwealth Bank of Australia Registered Office PO Box 2030 22 Commercial Drive, Pakenham VIC 3810 1800 060 672 +61 3 5945 6600 (International) sales@saferoads.com.au saferoads.com.au Share Registry Automic Registry Services Level 5, 126 Phillip Street Sydney NSW 2000 GPO Box 5193 Sydney NSW 2001 1300 288 664 +61 2 9698 5414 (International) hello@automic.com.au automic.com.au Proud to Support ISO Certifications Professional Affiliations 59 SAFEROADS.COM.AUImproving public safety through ongoing innovation. S A F E R O A D S . C O M . A U 60 SAFEROADS.COM.AU

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