Teaminvest Private Group Limited
Annual Report 2021

Plain-text annual report

Teaminvest Private Group Limited (ASX:TIP) ACN 629 045 736 CEO letter For the year ended 30 June 2021 Noble purpose: Transferring knowledge between generations Mission: Assist successful business owners to enhance their legacy; and mentor the next generation of business leaders Vision: To build a society where the knowledge we accumulate over a lifetime isn’t lost to retirement, forcing the next generation to learn it all again Record operating performance in FY21 It is my pleasure to present the CEO report for the year ended 30 June 2021 (FY21) for Teaminvest Private Group Limited (TIP) and the strong and resilient operating performance it contains. FY21 was a record Segment Result for the group: a pleasing achievement considering the ongoing coronavirus pandemic and ever-changing restrictions. Our portfolio leadership teams have again risen to the challenge and, as owners of our business, you should be proud of their accomplishments. Segment Results Segment Results are the normalised revenue and EBITDA for each segment of our Group. They provide shareholders with the best approximation of our operating performance, and it is the figure that we (as management) spend most time discussing. Whilst we find Segment Results to be the most useful measure of our performance, they often differ from Statutory Consolidated Income reported in accordance with accounting standards. This is discussed further below. Segment Revenue ($m) Segment EBITDA ($m) Group Segment EBITDA was up 9% on FY20 to $14.7m, a new record for the Group (pre-abnormals). Whilst we regard less revenue important than profit (as the saying goes: “revenue is vanity while profit is sanity”), Segment Revenue was also a record, growing by 5% to $144.6m. as trailer Our world-leading engineering business Graham Lusty Trailers (GLT) (Engineering Division, 100% owned) delivered a third consecutive record year in FY21. GLT’s focus on market-leading innovation, quality and efficiency saw revenue (up 4% compared to FY20) and EBITDA (up 52%) grow substantially from already record highs. GLT’s unique designs command a substantial premium in the transport market, and their never-ending quest for innovation continues to enhance their reputation as the “Rolls Royce” of bulk haulage. Happily, the use of a GLT trailer adds so much to most haulage companies’ bottom line, that customers now place orders up to a year in advance just to secure a booking in GLT’s busy Brisbane facility. East Coast Traffic Control (ECT) (Services Division, 100% owned) similarly delivered a third consecutive record year, achieving excellent improvements in revenue (up 16% compared to FY20) and EBITDA (up 55%). ECT’s focus on innovation, safety and client delivery continues to grow their scale and reputation. As ECT looks to grow beyond Queensland, their nimble depot model and strict adherence to the highest ethical standards gives us confidence that the enthusiastic team will continue to deliver scale and profit improvements. It has also been particularly pleasing to watch the leadership team grow and transition over the course of the second half of FY21. ($m)RevenueEBITDASegmentFY17FY18FY19FY20FY21Δ%FY17FY18FY19FY20FY21Δ%Engineering57.761.666.067.966.5(2%)(0.7)4.63.67.77.93%Services59.664.169.769.678.112%1.53.83.65.96.817%Pre-abnormal117.3125.7135.7137.5144.65%0.88.47.213.614.79%Abnormal3.5(0.1)3.5(2.2)Total117.3125.7135.7141.0144.52%0.88.47.217.112.5(27%)57.761.666.067.966.559.664.169.769.678.1FY17FY18FY19FY20FY21EngineeringServices(0.7)4.63.67.77.91.53.83.65.96.8FY17FY18FY19FY20FY21EngineeringServices(0.7)4.63.67.77.91.53.83.65.96.8FY17FY18FY19FY20FY21EngineeringServices Icon Metal (Engineering Division, 100% owned) also delivered a third consecutive record revenue and earnings in FY21. As in FY20, this growth was primarily driven through improvements in second tier management capability, enabling Icon Metal to take on larger and more complex projects. Revenue (up 21% compared to FY20) and EBITDA (up 28%) continue to grow as Icon Metal impresses their clients whilst securing and training even more talented engineering staff. The successful execution of these projects by Icon Metal’s talented and energetic team secures their position as the architectural metalwork firm of choice for Tier 1 construction projects in Sydney. Multimedia Technology (MMT) (Services Division, 30% owned), our only Melbourne headquartered business, pleasingly achieved a third consecutive year of record results in FY21. Despite interruptions from COVID lockdowns, supply constraints and operating limitations, MMT grew revenue (up 4% compared to FY20) and EBITDA (up 30%). Growth was primarily driven by MMT’s agility in navigating the stressful and ever-changing environment. The leadership displayed by the company’s founder and CEO, John Hassall, cannot be understated in this outstanding result. MMT continues to build this mindset of agility and opportunity beyond John’s direct oversight, allowing the business to gain market share and margins at the expense of more hidebound competitors. Rounding out the fifth of our Portfolio Companies to deliver a third consecutive record result is Colour Capital (Services Division, 33% owned). Colour Capital is a franchise management business that operates the GJ Gardner home building master franchises for NSW/ACT and WA, the Gold’s Gym’s business in Australia and New Zealand and the Raw Energy café’s business in Australia. Despite the impact of COVID on all three arms of the business, Colour Capital delivered record revenue (up 38% compared to FY20) and EBITDA (up 62%). On the other side of the ledger from these excellent Portfolio Company results was the poor performance of Coastal Energy (Engineering Division, 100% owned). I wrote in my half-yearly letter that we had been disappointed with the former management and had made changes to improve the culture. Unfortunately, these changes came too late to avoid the loss of the company’s Energex license in April and the need for a drastic company restructure. The result is that we booked an operating EBITDA loss from Coastal Energy of $1.5m for FY21 and took a further non-operating charge of $5.2m (discussed further below). Whilst the Energex rating has not yet been returned, the new leadership team has successfully restructured the business and our staff are back at work with a strict focus on safety, integrity, and respect. Whilst the learnings of FY21 have been painful, we expect that Coastal Energy will ultimately recover stronger from the experience. Acquisitions, mergers and disposals In FY21 we acquired two new Portfolio Companies: Automation Group and Teaminvest. We also merged four of our existing Portfolio Companies (Kitome, DecoGlaze, The Step Ahead Builders Assistant and Forever Glass Art) into one new entity (TIP Residential Group, Services Division) with a united leadership to capitalise on synergies between the businesses. No disposals of Portfolio Companies occurred in FY21. Automation Group Automation Group (Engineering Division, 100% owned) is a niche distribution and support business that works to empower a smarter future with state-of-the-art remote industrial monitoring and control technology used in defence, power, gas, mining, rail, transport and water industries. Integrating Automation Group increases our technical abilities in the fast-growing industries of automation, artificial intelligence, robotics and remote management. Whilst it remains early days, Automation Group generated a pleasing $4.2m in Revenue and $0.5m in EBITDA for the nine months since we acquired the business in September 2020. In addition, Automation Group has begun working with other Portfolio Companies to develop new moats. Some examples of projects in examination include ‘smart trailers’ in conjunction with GLT, augmented reality applications in conjunction with TIP Residential Group, and advanced traffic management solutions with ECT. Teaminvest On the 30th of June 2021, the last day of FY21, we acquired our former ‘parent’ Teaminvest (Services Division, 100% owned). Established in 2007, Teaminvest is an educational business founded on the noble purpose of “educating those who wish to manage their wealth wisely, rather than paying others to do it badly for them”. Acquiring Teaminvest gives us access to a growing annuity stream of highly profitable revenue from the existing education business; and the ability to leverage the Teaminvest intellectual property to form the foundation of a new financial services division in conjunction with our existing investments in the insurance and trustee/managed fund industries. Because of the timing of this acquisition our Segment Results include only one day’s worth of the $3.9m in revenue and $1.4m in EBITDA generated by Teaminvest during FY21. Commencing in FY22, we expect to see the revenue and EBITDA from this new acquisition contribute to our performance. TIP Residential Group In September 2020, we elected to merge the existing Portfolio Companies Kitome, DecoGlaze, The Step Ahead Builders Assistant (TSABA) and Forever Glass Art into one new business called TIP Residential Group (TIPRG). TIPRG is now able to offer clients a much broader suite of services from architectural design to manufacture and construction of the home. Moreover, the combined TIPRG now has the financial strength to be able to offer these services to developers and trade customers, not only retail clients. Whilst it is early days, we expect the decision to merge these businesses will turbocharge growth as we develop a broader residential construction business within the group. Statutory Comprehensive Income (SCI) Unlike Segment Results, which are compiled on a normalised (i.e. operating) basis, SCI is calculated in accordance with the technical accounting standards in force at any time. It encompasses consolidation accounting where we own 50% or more of a business, equity accounting where we own a substantial share of between 20% and 50%, and investment accounting where we own less than 20%. Because it reflects accounting standards, and not operating performance, SCI is also regularly affected by one-off items, changes in accounting rules, and technical quirks. Whilst SCI is the official published result of the Group, shareholders should be aware of its limitations when using it to draw conclusions about operating performance. The table below sets out our SCI and a summary balance sheet. ($m)($m)P&LFY19FY20FY21Balance SheetFY19FY20FY21Revenue28.4 89.0 91.4 Current assets27.035.038.7Operating expenses(28.4)(77.3)(78.4)Non-current assets68.272.993.8EBITDA(0.0)11.7 13.1 Total assets95.2108.0132.5D&A(0.3)(2.5)(7.1)Current liabilities21.623.324.8EBIT(0.3)9.2 5.9 Non-current liabilities0.93.59.1Interest income / (expense)(2.3)(0.3)(0.1)Total liabilities22.526.833.9PBT(2.7)8.9 5.8 Equity72.781.298.6Tax income / (expense)0.2 (0.6)(0.6)Statutory NPAT(2.5)8.3 5.2 Cash6.710.812.3Abnormal items-(3.3)1.7 Total debt (traditional)5.21.52.2Operating NPAT(2.5)5.0 6.9 Total debt (AASB 16)5.25.66.0 Comparing SCI across periods letter, I have again Following the positive response to my half- yearly included a reconciliation of Statutory NPAT with Operating NPAT (left). This shows the after- tax effect of the various ‘abnormal’ items in FY20 (the insurance payout and windfall gain) and FY21 (the ECT payment, the Coastal Energy restructuring charge and impairment, and the Teaminvest acquisition – all discussed below). Positive abnormal items refer to one-off costs that should be added back to compare Operating NPAT, and negative items refer to one-off gains that should be removed. From the table you can see that Operating NPAT grew 39% in FY21 to a new record of $6.9m. In contrast, Statutory NPAT reported in our SCI and Appendix 4D shows a 37% decline, after including all non-operating items. Yet more reason why owners should read our announcements in full, not just the summary front page! Explanation of one-off items ECT long-term reward When TIP was listed in May 2019, we took over the employment agreement in place with the CEO of East Coast Traffic Control (Services Division, 100% owned). Under the terms of that agreement, the CEO of ECT was to be awarded a bonus equivalent to 10% of the share capital in ECT upon achieving a successful turn-around. After stellar performance the hurdle was met in December, resulting in a one-off payment of $535,000. This welcome payment and its associated costs appear as an ‘abnormal’ amount in our Segment Results for FY21 (as it was a one-off event), and in full in our SCI. More information about the ECT long-term reward can be found in my letter for the first half of FY21. Coastal Energy non-operating charges As discussed in the operating section of this report, Coastal Energy had its Energex rating suspended in April. The loss of this rating forced the business to undertake an immediate stand-down and restructure. As part of this restructure we incurred one-off costs of $0.9m, predominantly comprising employee redundancies and legal fees. As the rating had not been returned by 30 June, we also elected to take a non-cash impairment charge of $4.3m. The effect of this impairment is to reduce both goodwill and SCI by this amount. The impairment means that TIP no longer carries any goodwill on our balance sheet associated with Coastal Energy. These abnormal items totalling $5.2m are excluded from our Segment Results but included in SCI. Teaminvest acquisition Whilst the acquisition of Teaminvest had no impact on Segment Results during FY21, it did have a one-off impact on our SCI for the period. Accounting rules require us to record the fair value of all assets acquired on our balance sheet as of the date of acquisition. The fair value was calculated by EverEdge Global, a global leader in intellectual asset valuation; and audited by KPMG. As the fair value of the intellectual property we acquired exceeded the acquisition value (what the accounting rules eloquently term a ‘bargain purchase’), we are required to book a one off gain of $3.7m to our SCI this year. ($m)ComparisonFY20FY21Δ%Statutory NPAT8.3 5.2 (37%)-insurance payout(2.8)-- FY20 windfall gain(0.5)-- ECT one-off bonus-0.4-Coastal Energy restructuring charge-0.6-Coastal Energy non-cash impairment-4.3-Teaminvest 'bargain purchase'-(3.7)-Other small items-0.2Operating NPAT5.06.939%Like the Coastal Energy impairment, this one-off gain is a non-cash item that appears on our balance sheet and in SCI but is excluded from our Segment Results. One-off items in FY20 During our comparison period (FY20) the Group recorded one-off abnormal gains associated with an insurance payout and our IPO restructure. If you would like more information about these abnormal items, greater detail can be found in the FY20 CEO letter. Year ahead FY22 promises to be exciting. We are confident that our talented Portfolio Company management and boards will again find new ways to enhance their businesses and grow their profits. When challenges inevitably arise, we are lucky that within our Group we have a deep pool of resources available to address them. As I wrote in FY20: “My hope is that each future period will also have more ups than downs, but (as we have just seen) the world does not always work that way: and we can’t always prepare for momentous unplanned events such as the ongoing global emergencies. Fortunately, in this instance we have been largely unaffected, but this may not always be the case in the future. However, I am confident that the talent, hard work, great ethics and dedication of our growing team of business leaders will deliver long term success regardless of any bumps they experience in the road on the way.” Our results in FY21 again bear this out. During the year: ▪ We acquired two new Portfolio Companies that both increase our stock of valuable intellectual property and should generate substantial and growing profits; and ▪ Seven of the ten Portfolio Companies we owned for the full year increased earnings by more than 25% despite the challenges of a pandemic, travel restrictions, consumer uncertainty and a shifting set of global rules. For these outstanding results our leadership teams throughout the Group deserve our praise and admiration. In the few cases where our teams have struggled, our pool of 88 Selected Shareholders has provided invaluable advice and mentorship; made connections and offered referrals; brainstormed and acted as a sounding board (during the day and well into the night!); and in a demonstration of being prepared to go above and beyond what can be expected of volunteers, some even rolled up their sleeves and assisted in helping to resolve the messy situation at Coastal Energy. For these contributions I know I speak on behalf of everyone at TIP when I say a heartfelt “thank you”. It is this shared philosophy of acquiring great businesses, rewarding talent, creating space for opportunity in adversity, and providing mentorship and support via our Selected Shareholders, that gives TIP our unique edge. It is the “special sauce” that drives our results and generates shareholder wealth. It’s also what makes me so proud to be part of this amazing organisation. Long term goals In 2019 I wrote that: “Looking forward ten years we want to develop and grow an ever-increasing portfolio of entrepreneurial CEOs who think differently to their competition and enhance society whilst delivering outstanding profits. Whenever we look at acquiring a new business, or mentoring an existing one, we do so through a lens of growing management and business capability: our people and our moats.” Following the merger of Kitome, DecoGlaze, TSABA and Forever Glass Art into TIP Residential Group during FY21, we now have twelve Portfolio Companies. They span industries as diverse as heavy manufacturing to financial services, but they all share the same goal: to transfer knowledge between generations and enhance our society. We have taken further steps to promote staff across Portfolio Companies to ensure that we can attract, retain, develop and reward the best talent: and we are looking forward to further advances on this front every year. Creating opportunity and transferring knowledge to the next generation is, after all, embedded in TIP’s DNA. The scale of our noble purpose is large, and this is what makes it so exciting. As our outstanding businesses grow organically, we must continue to support them with an ever-increasing pool of Selected Shareholders who can provide mentorship and support. If we develop the skills of our people, whilst providing space for them to grow into greater roles, then we should comfortably meet our long-term goals. A final word Whilst each period presents new challenges and opportunities, in the long run we are confident that a mix of successful management teams, surrounded by dedicated mentors, with access to our group philosophy and balance sheet will deliver outstanding results, achieve our noble purpose and reward our shareholders handsomely for their support. If you are excited by our noble purpose, and would like to participate in our unique organisation, please apply to become a Selected Shareholder. The application form, followed by our operating philosophy, follows this letter. The knowledge you bring, and the value you add, will accelerate our future growth. I would also like to remind all shareholders that we are, at our core, a natural acquirer and developer of executives and SMEs. If you are the owner or leader of an SME, or know of one, who has reached a stage in their development where access to the mentorship, support and financial capacity that TIP provides will take your business to the next level, we would like to hear from you. Owners looking to sell out completely, or financial advisers looking to make a quick buck, need not apply. Best wishes, Andrew Coleman CEO Teaminvest Private Group Limited Application to become a Selected Shareholder Name of applicant Phone number Email address Qualifications Condensed resume Areas of interest  Analysis of investment opportunities  Mentorship of Portfolio Companies  Directorship of Portfolio Companies Acknowledgement By applying to become a Selected Shareholder, I acknowledge that: ▪ ▪ ▪ I have read the Company’s Securities Trading Policy and agree to be bound by it if accepted; I understand that serving as a mentor or director carries specific legal responsibilities; and I understand that there is no guarantee that my application will be accepted. Signature Date Please send this form, along with a complete copy of your resume, to either: ▪ By email: ▪ By post: andrew.coleman@tipgroup.com.au Teaminvest Private Group Limited Suite 302, 80 Mount Street North Sydney, NSW 2060  GUIDANCE FOR INVESTORS Our Noble Purpose drives every decision we make We have long held the belief that businesses perform best when they act in the service of others. It is why we started Teaminvest Private, and why we developed our unique Selected Shareholder model. Our noble purpose, mission and vision are core to who we are and what we do. They are: Noble purpose: Transferring knowledge between generations Mission: Assist successful business owners to enhance their legacy; and mentor the next generation of business leaders Vision: To build a society where the knowledge we accumulate over a lifetime isn’t lost to retirement, forcing the next generation to learn it all again It is core to our being that we will never take an action that could be detrimental to the long-term delivery of our noble purpose. Similarly, we are always prepared to invest in areas that will see our ability to deliver our noble purpose increase: even if doing so comes at a short-term cost. Our noble purpose is core to who we are and what we do. As part owners in our business, we trust all our investors share our passion. It takes time for share prices to reflect intrinsic value Time is the enemy of poor businesses, and the friend of the good business. Research by Dr John Price (and Teaminvest) have proven this truism over and over. While the market can move on momentum for a while, in the end price must always tend towards the formula “Price = Earnings * P/E ratio”. Whilst P/E ratios can fluctuate wildly for days, weeks, months or even a few years, over the course of an economic cycle they will (by definition) gravitate towards the market average. In Australia this has usually been around 4x for a private company and 17.5x for a listed company. Therefore, the only way for a company to dramatically increase its share price in the long-term is through consistently increasing earnings. Any business that grows earnings consistently will, over time, see a corresponding increase in share price and value. Conversely. any company with declining profits will have a decrease in value. As investors you should therefore be aware that we measure, reward and focus our executives on growing the earnings generated by our Portfolio Companies. We have no rewards based on share price, P/E ratio or “market reputation”. We do this because, as long-term investors we want concrete earnings increases: not the value gains driven by sentiment that can come and go with the newest fad. You will also note that our letters to investors will never talk about moves made to “gain exposure” or “increase institutional awareness”: but they will talk about concrete steps taken to increase profits generated. This will mean that our share price may, for long periods, deviate from our intrinsic value as we focus on profits not media exposure. This can create great opportunities for those investors who seek to increase their holdings when Mr Market offers our stock at a price below what they consider is the intrinsic value driven by our earnings. This however is up to you: we don’t intend to intervene in the market or put fluff pieces in the press: doing so would just be a distraction from our single focus of delivering our noble purpose and growing our earnings over time. Portfolio approach Diversification is a cost-effective way to reduce risks and improve returns in financial markets. We consider it wise to spread our investments over a portfolio of underlying companies, rather than investing in only one – no matter how much we may like the company and the management. Over time, this should provide better returns at lower risk.  Risks and opportunities over 5 years Companies do not commonly run for 5 years without disappointments or ‘bad’ news on the sector, their market or the general economy. Our Portfolio Companies also expect short-term disappointments and ‘bad’ news. Being smaller than our group as a whole, they may experience larger ups and downs than we do. Investing in the Company is not risk-free. We expect our Investment Committee, TIPReps and Strategy Committee will keep a keen eye out for structural or long-term negative news that may be a sign of an eventual capital killer, but we are human and could miss them or fail to act appropriately. Long-term investments In private equity, it takes several years before we can begin to consider the success of an investment. When you choose to make an investment in the Company, we suggest a similar logic applies. Some shareholders may trade in-and-out of our shares regularly, however we believe value creation has a different cadence and does not move daily. We consider an investment in the Company is best held for the medium or long term. Guidance for Selected Shareholders In addition to being a passive shareholder of the Company, Shareholders may apply to participate directly in our investment process by applying to be appointed a Selected Shareholder. A Shareholder may wish to become a Selected Shareholder for a number of reasons including: ▪ passing their knowledge and experience to a younger generation; ▪ mentoring an already successful CEO as they develop their business; ▪ seeking more intellectual stimulation than possible from passive investing; or ▪ giving back to the Australian business community. Any shareholder may apply to become a Selected Shareholder. Before being accepted, they are required to undertake a rigorous selection process and must demonstrate the appropriate skills, alignment and acumen to either participate in the investment process, or to provide guidance and mentorship. The role can be highly rewarding, but it comes with significant responsibilities as outlined throughout this document. Ways Selected Shareholders can contribute to the Group This section provides a detailed overview of the Company’s philosophy towards Selected Shareholders. Participation as a Selected Shareholder may involve: Participating in SMaRT meetings: Selected Shareholders may be invited to participate in management meetings with potential investments. SMaRT meetings improve our initial analysis on whether or not to invest and, if an investment proceeds, also improve how we manage the Portfolio Company in future years. The application of collective wisdom at SMaRT meetings is a crucial stage of the Group’s investment process. Commercial due diligence: Selected Shareholders may be invited to participate as members of the committee formed to conduct due diligence on a potential investment. Commercial due diligence is designed to confirm the initial assessment of the SMaRT meeting, to confirm the moats identified, to confirm there are no misunderstood or significant risks, and to confirm that Portfolio Company management are suitable for investment by the Group. This committee forms a key risk mitigation step for our investment process. Strategy days: Selected Shareholders may be invited to attend strategy days attended by the Board, Company management, the management of Portfolio Companies and TIPReps. Strategy days are designed to provide insights and ideas for future growth. Adviser, Consultant or Interim Executive: Selected Shareholders – depending on their professional experience and mentoring skills – can help increase value for the Group by becoming a TIPRep or providing assistance in other ways, for example as an adviser, consultant or interim executive to a Portfolio Company. Once TIPReps understand the most important profit-levers in a particular business, (assisted by our TIPBars reporting system), they can assist our investments to deliver outstanding returns.  Compliance with policies Selected Shareholders are required to agree to be bound by all Company policies including our investment philosophy, confidentiality obligations and the Company’s securities trading policy. In particular, Selected Shareholders will be subject to the same trading restrictions that apply to the Company’s Board and management. An investor seeking to become a Selected Shareholder should seek their own advice before applying to ensure they are familiar with all relevant legal and compliance obligations. GUIDANCE FOR TIPREPS Introduction Investing in TIP opens the opportunity for Selected Shareholders to be a non-executive board member (TIPRep) of a Portfolio Company. The following section provides guidance for shareholders who may be interested in applying for the role of TIPRep. It is not an attempt to take into account legal obligations as a board member. For that, we refer you to the Australian Institute for Company Directors, ASIC and ASX Governance documents, amongst others. Our approach draws on how Warren Buffett and Charlie Munger stimulate the management of their private businesses to grow profits organically and via bolt-on acquisitions. TIPReps are appointed to instil our philosophy into our Portfolio Companies. We expect them to deliver: 1. A clear and obvious path to significant capital gain over the longer-term; while 2. Providing attractive periodic dividends to the Company in return for the funds we have invested We expect TIPReps to transfer wisdom and experience to our executives – enabling them to grow as CEOs, generate increasing free cash, and materially increase the value of the business. This is often accomplished by providing an attractive vision to keep creative juices flowing and enthusiasm high. The role of a TIPRep TIPReps have five roles for which they are appointed and against which their performance is judged. These are to: 1. Mentor executives; 2. Allocate capital within the business; 3. Strengthen moats and reduce risks; 4. Ensure compliance with all laws, regulations and governance requirements; and 5. Deliver regular dividends to TIP. The best TIPReps are those who regularly examine and improve upon these objectives. TIPReps that fail to do so will be replaced over time as they are letting themselves, our executives, and our shareholders down. Mentoring executives: TIPReps are responsible for mentoring executives. Mentorship is distinct from managing: it involves guiding, educating and encourage executives to think differently to enhance their skill set and grow the business in a visionary manner. It does not include getting involved in day-to-day decision making or short-term tactical considerations which are the role of executives. Executives are responsible for delivering monthly results and, if TIPReps become concerned that executives are not delivering appropriately, they should immediately notify the Strategy Committee so that TIP can look to enhance or replace the executive team rather than becoming quasi- executives themselves. TIPReps should ensure that they understand the distinction between acting as a director or a member of the executive team. Allocating capital: TIPReps are responsible for examining and approving capital allocation within the business up to the amounts set out in the TIP Group Limits of Authority policy. Capital can be used in three main ways: funds for organic growth towards the long-term strategy of building value; funds for bolt-on acquisitions that can increase future dividends and capital value; and returning capital to TIP via attractive dividends. TIP expects that all companies should deliver a combination of increased value and attractive dividends over time. Strengthening moats and reducing risks: One of the key responsibilities of a TIPRep is to continually seek ways to strengthen moats and reduce risks. Strengthened moats allow the business to increase profitability and grow faster. Reduced risks ensure that profits and dividends can continue to grow without undue stress. TIPReps would do well to remember that the simplest way to reduce risk is to improve the Break-Even Safety Margin (BESM), and one of the key tasks of a board is to ensure that the BESM continues to increase over time. Ensuring compliance: One of the biggest risks to any business is damage to reputation or the advent of litigation. Ensuring a culture of compliance to the highest possible standards helps to protect each Portfolio Company and the Group as a whole. As the saying goes: “it takes a lifetime to make a reputation, and one oversight to ruin it”. Delivering regular dividends to TIP: When TIP agrees to acquire a share of a business we do so on the expectation it will deliver returns to our shareholders for the use of their funds, the effort they put in as mentors, and the belief they place in executives and TIPReps. The best proof of success of any Portfolio Company and its TIPReps is delivering on this expectation. Preparation before becoming a TIPRep Application: If you have experience or other wisdom to offer, please make your interest known to the Company. Following a formal selection process, we may appoint you to the board of one of our Portfolio Companies as a TIPRep. TIPReps serve at the pleasure of the Company and can be removed or replaced at any time. Compliance obligations: TIPReps are bound by the same legal and compliance obligations as Selected Shareholders. This includes adherence to the Company’s investment philosophy, confidentiality obligations and securities trading policy. Desirable experience: Whilst there is no set formula for a great TIPRep, candidates should have run a larger business (in terms of staff, revenue and profits) than the business on which they serve. This enables them to better mentor executives and grow the company. TIPReps should enjoy thinking about visionary opportunities as this is one of the key roles of a board or mentor. An understanding of accounting, corporate law and governance are valuable but not a prerequisite. Prior participation in the SMaRT and Due Diligence Process: It is preferable for potential TIPReps to have previously participated in SMaRT and due diligence processes. This enables them to better understand our philosophy and the ways they can add value. We consider it advantageous for TIPReps to have participated in the SMaRT and due diligence process for the business to which they are appointed. This provides a greater understanding of the moats the company should enhance (to drive profits), the future risks the company should mitigate or prepare for (to avoid or minimise losses) and the personalities involved. If a potential TIPRep has not participated in the specific SMaRT and due diligence, we will usually require them to attend board meetings as an observer before we confirm their appointment. SMaRT and Due Diligence Reports: Before their first board meeting, TIPReps should review the SMaRT and due diligence reports. These contain analysis of the rationale behind our investment, and the moats and risks identified. Knowledge of these is a pre-requisite to adding value as a board member. Terms of Acquisition: TIPReps should ensure they understand the key acquisition terms. These differ by company and may include performance hurdles, conditional payments, remuneration packages, debt funding arrangements, vendor financing and succession plans. TIPReps should periodically review progress against the terms of acquisition and keep TIP informed. TIPBars and TIPTool: TIPReps must be familiar with TIPBars and TIPTool, our two proprietary financial analysis tools. TIPBars provides a standardised set of board financial reporting across the group. It also contains built-in audit functions to enhance the integrity of financial reporting. TIPTool allows the board to easily model alternative paths for substantially increasing profits. If substantially increasing profits were easy, executives would already have done so. TIPTool allows board and management to have an accurate and robust discussion about the most practical path to achieve their targets.  Common learnings TIPReps have experienced the following common learnings: 1. You can’t have valuable board meetings without best-practice financial reporting: Many creative entrepreneurs are wonderfully successful through inspiring and motivating their staff to work ‘miracles’ and their clients to pay highly for their products. However, many see financial record-keeping and reporting to a board as a distraction. Since our formation in 2012, we have learned that it is impossible for boards to add value to Executives without the benefit of best-practice financial reporting. Worse, if there are concerns about the veracity of reporting, the board will quickly become dysfunctional, and profits will decline as trust breaks down. TIPReps must therefore work to address this concern as one of their highest priorities by either: a. Encouraging the Portfolio Company to hand financial reporting over to TIP head office. This will ensure that Executives and TIPReps can focus on strategy without being concerned or distracted about the preparation, and accuracy, of financial reporting and the six-monthly audit process. It is also likely to be financially beneficial due to the costs saved by harnessing group economies of scale. Portfolio Companies who were not already audited for a number of years prior to partnering with TIP, or who don’t already have the benefit of a highly- educated, multi-person, financial team will benefit most from this approach; or b. Showing how best practice record keeping, reporting and discussions can increase profits and enhance decision making: enhancing company internal structures and creating an environment where the board can encourage profitable action based on forward looking projections, not just rear-view examination. This approach is best available to Portfolio Companies who already have robust, audit ready, systems in place with a highly-educated CFO leading discussions. TIPReps in this situation can immediately focus on TIPBars and TIPTool, confident that the forward looking analysis is meaningful for strategic discussion. 2. True leadership rarely extends below one or two key executives: SME’s rarely have top quality executives below the C-level. This is simply a function of their size: supremely talented people are unlikely to be attracted to a smaller organisation with limited career development opportunities. Therefore, in order for the business to grow, or the founder to reduce their hours, a key requirement will be attracting the right kind of talent into the right roles. In particular we have found that: a. Existing employees rarely have the drive or skill required to step up to C-level in an SME. This is a function of self-selection, ambitious and talented employees are unlikely to remain in a business where they cannot see opportunities for rapid advancement. In smaller businesses this career path caps out by about the age of 30, so most supremely talented staff either move on to bigger companies, or remain only if their ambition has declined. With ambition being one of the three key requirements for leadership success (the other two being passion and intelligence), fishing in the existing pool is likely to be unrewarding, and may well be why the founder was attracted by TIP’s promise to help “transfer knowledge between generations”; b. When external hires are considered, they are almost always the wrong kind. One of the great hiring fallacies is that we look to hire people with already demonstrated experience in the role for which they are applying. This sounds seductive, but it is a big mistake: someone who has demonstrated success in a role, is almost never looking to take on the same role again in a smaller organisation. The only reason they would be prepared to take such a role is if they know they had failed. Hiring “with experience” is almost certain to result in hiring the wrong calibre of employee. c. As we get older we forget just how young we were when we first took a leadership role. Most successful CEO’s got their first real leadership break in their 20’s, and by their 30’s were running teams of 30 or more. Yet when we look for leadership hires these same 20 and 30 year olds (as we once were) often appear brash, uncultured and inexperienced, so we gloss over them for older hires. This plays into two traps: firstly it means that we never hire the best talent – because a supremely talented 30 year old who is passed over for a role at your company is running something far too large by 40 for us to ever get them; and secondly it means we miss out on the well-documented fact that ambition and passion decline from middle-age onwards. Whilst a 50 year old is likely to know more than a 25 year old, they are unlikely to be prepared to throw themselves in with the ambition and passion required to drive transformational growth… and they are certainly unlikely to do so if they still report upwards to another Executive! 3. Distractions kill. A year may elapse between when our Portfolio Companies approach a broker to market their business, to when we finalise contracts and appoint TIPReps. Sales and profits may become secondary to ‘doing the deal’. Working with a board may also initially distract our Portfolio Companies. Together this may cause revenue and profits to disappoint. This can result in a downward spiral unless (and until) TIPReps once again make driving the profits of the business the core focus of the Executive team. 4. Vendor remorse is normal but must be addressed head-on. It is natural that after selling part of their baby, founders and executives will wonder if they made the right decision. If there is more than one senior executive or founder, one may feel regret more keenly, causing internal friction. TIPReps should address this head on by discussing the issue to give comfort, and immediately working on creating a company-wide Noble Purpose, Mission, Vision and Big Hairy Audacious Goal. By setting these as a team early, we harness the power of passion to drive results and overcome any fear or concern about the decision to sell. A clear path to “growing their baby together” is the fastest and most effective way of motivating Executives and giving comfort that they made the right decision to partner with TIP. 5. Focus board time on delivering the Noble Purpose, not working on the day to day. Executives working ‘in the business’ rarely have time to think in a visionary way ‘outside of the business’. Day-to-day issues keep them busy and are most likely to be reported to the board. TIPReps should not involve themselves in day-to-day business and instead should constantly work on focussing Executives on the steps needed to achieve the company’s Noble Purpose. By doing so you will get most out of the board meeting and drive double digit growth. Discussions will focus on major opportunities, new moats and mitigating risks, not the daily grind. A TIPRep who finds themselves involved in day-to-day decision making, is doing a disservice to executives and their fellow shareholders. Interacting with executives Learn what ‘makes them tick’: Before joining a board, TIPReps should meet with Executives and other board members informally to learn ‘what makes them tick’. It is easier to mentor and build profits with people we understand. Meeting in an informal setting allows a prospective TIPRep to see what interests and cultural values they have in common with the Executives (critical for mentoring and driving profit) and their prospective fellow directors (critical for defining long term goals and maintaining passion towards achieving them). You should also use this opportunity to find out more about the business, discuss moats and risks identified during the SMaRT and Due Diligence, and to find out what has already done to strengthen moats and eliminate, mitigate or manage risks. With a good starting point a TIPRep is certain to add more value than coming in blind and learning on the job. Understanding the business: It takes time for a relative outsider to understand the most important Key Performance Indicators (KPIs) that drive profits. Executives with a history of profitable leadership in the business should already know what is most important to measure: even if they may not always communicate it with clarity. TIPReps would therefore be wise to ask lots of “Why” questions. “Why did we do X?”, “Why do you consider Y worth measuring?”, “Why do you think this is a good or bad idea?”. Asking lots of Why questions (instead of What or How questions) is the fastest way to build a deep and intuitive understanding of the key drivers of the business. And as a board member you need that intuitive understanding to better mentor the CEO and make fast decisions. Noble Purpose and long-term goals: It is the responsibility of Executives to ensure a profitable business every month. Providing the Executives are doing so, the key responsibility of TIPReps becomes focussing on mentoring and developing executives to achieve the Noble Purpose and long term goals of the Portfolio Company. TIPReps should therefore spend the majority of their time with Executives focussed on exploring how the company can grow it’s moats, reduce it’s risks and deliver it’s Noble Purpose. Executive remuneration: Executive remuneration is set by the Strategy Committee and follows TIP’s principles of handsomely rewarding performance, and penalising failure. In particular, TIPReps should be aware that executives are remunerated with three components: ▪ A low base salary, of sufficient size to keep the lights on but small enough that a poor performing Executive will quickly look for a job elsewhere; ▪ A monthly bonus paid for every month that is profitable, to incentivise Executives to design and operate the business in such a way that it never loses money; and ▪ A share of the audited NPAT of the business, providing an outsized reward for stellar performance. Any changes in remuneration for Executives is therefore linked entirely to their performance. TIPReps should be aware of this, and take actions that encourage the Executives to achieve their monthly bonus every month (e.g. focussing on BESM), whilst ensuring a path to meaningful long term profit growth. In this way both the Executive and TIP’s shareholders will win together. Succession planning: Risks associated with key management personnel are front-of-mind when the board interacts with management. This risk scores highly in every SMaRT. TIPReps should ameliorate this risk by encouraging our Portfolio Company executives to delegate and to develop an executive team. Within a few years of investment in a Portfolio Company, the board and CEO should have identified an appropriate successor for an emergency - or should the CEO retire. Growth planning: Most valuable is for TIPReps to assist Portfolio Company founders to develop a team of talented reports who enjoy doing what our Portfolio Company founders enjoys least. This will free up the time of our CEOs for strategic thinking to add value in conjunction with their board, rather than being immersed in day-to-day management. Focus on BESM: A powerful way of reducing risks is by increasing the gap between sales revenue and the Break-even Point of the business. This increases the BESM (Break-Even Safety Margin). Replacing fixed costs with variable costs increases BESM and reduces risk. Focussing on increasing BESM is a key hallmark of a successful business. Size of companies and expected volatility: Our Portfolio Companies are predominantly SMEs. Missteps by management or TIPReps can wipe out short-term profits, while good decisions can hugely lift short-term profits. Even when long-term profits are excellent, short-term profits may vary between disappointing and enthusing. Experience shows us that the most effective way to reduce volatility is by increasing BESM. Trustworthiness: It is a pre-requisite that the executives who manage the business are trustworthy. If TIPReps are ever concerned that this is changing, they should inform the Strategy Committee immediately and in the strongest possible terms. Frequency of board meetings: Board meetings should be held monthly. Meetings should be face-to-face with an option to join by teleconference. If board meetings are taking full days, chances are TIPReps are becoming involved in issues best left to management. A few days prior to the board meeting, each CEO should provide the monthly TIPBars financial report plus a short explanation on any issues on which they seek input. Helping our Portfolio Companies grow: TIPReps should inspire, mentor, and act as a sounding board for our executives. They should regularly ask themselves three questions: “What visionary ideas can we suggest to substantially grow profits?” and “How can we help make the CEO’s role simpler?” and “How can we assist the CEO make faster and more profitable decisions?” Mindful they have sold ‘part of their baby’: Portfolio Company founders have sold ‘part of their baby’ which they loved and nurtured for years. Nothing will faster demotivate them, and destroy the value of our investment, than giving the impression ‘the baby is ugly and needs cosmetic surgery’. It is natural for one or more executives to initially experience some vendor remorse. This should dissipate once they realise we are working towards growing the business and substantially increasing profits. Financial terminology: Executives of SMEs may appear unsophisticated in the use of financial terminology or reporting procedures. Fortunately, financial terminology and detailed reporting are not a pre-requisite for building a great niche business. However, they become more important as the business grows. TIPBars will provide financial information most useful to TIPReps. Executives can provide any other information they know is important. Meetings can then focus on “what can we do to build free cash and profits” and testing this in TIPTool. Instructing management: The board as a whole may instruct executives. Individual board members should never do so. Capital Management and Board Strategies Dividends and cash buffers: The boards of our Portfolio Companies have a responsibility to return part of profits as free cash to the Company via periodic dividends. This is covered in detail in the Group Distribution Policy. TIPReps should be familiar with this policy, and in particular its focus on the mix between paying down debt, reinvesting for growth and paying dividends. Bolt-on acquisitions or disposals of divisions: Each board should continually monitor their markets for a substantial increase of profitability via a bolt-on acquisition. Conversely, they may conclude that the business would be more profitable after the disposal of an unwanted division. Such major capital allocation decisions should be referred to the Strategy Committee for assistance. More capital or debt: It is our philosophy that debt increases risk. Boards should avoid raising debt unless it is for highly profitable organic growth or accretive acquisitions. If debt is needed, it must first be approved by the Strategy Committee. Focus on high margin revenue: Market share is vanity, profits are sanity and free cash flow is reality! We acquire niche businesses that make higher profits and generate more cash from increasing margins, than from chasing market share. This can be quickly tested using TIPTool. Good strategy often involves turning away low-margin business. If a business is short of cash, the chances are the margins are too low. In niche businesses, it’s often easier to increase value through increasing margins than increasing size. Moats and outside circumstances: ‘Circumstances beyond our control’ are often blamed for a profit downturn. TIPReps should look beyond this and seek ways the company can increase profits even in a downturn. If profits disappoint, and TIPReps can’t immediately find a way to fix this, raise it with the Strategy Committee quickly, so we can brainstorm ways of benefiting from adversity – whether real or perceived. Outside influences can often be overcome by a concerted effort to strengthen moats. Deal with causes not symptoms: Niche businesses may experience cash-flow challenges from time to time. TIPReps and executives must strengthen the businesses by dealing with the cause of cash-flow problems, rather than dealing with symptoms. TIPTool can be useful for this. Eliminating causes of cash-flow challenges can add huge value to any investment. Leverage technology: Technology, data and online connectivity are rapidly changing the world. Every business will be affected. Those that remain stuck in the past find competitors able to offer similar outcomes cheaper or faster, or superior products at the same prices. Those that embrace ‘modernisation’ benefit via higher margins. TIPReps should continually seek to modernise everything our Portfolio Companies do to stay ahead, and to improve margins against the competition. The outcomes of any costs and margin improvement can easily be checked in TIPTool. Use our tools: TIPBars and TIPTool allow the board to model the various alternative paths for substantially increasing profits. TIPReps should frequently use TIPTool to strengthen the business by testing the likely increased profits from the choices of increased sales, decreased fixed or variable costs, and increased prices. No path is likely to be easy, but choosing the best path to profit is made easier using TIPTool. Culture Skills available: An incredible range of skills and experiences are available from Selected Shareholders. TIPReps should regularly contact the Strategy Committee to seek advice about the challenges they face. We are all in it together: Boards of profitable niche businesses work as a non-hierarchical team. To maximise profits, board members should ensure a culture of open, frank and enjoyable cooperation between executives (who know the business very well), non-executives (who know business principles well) and the Strategy Committee. Serving while you add value: TIPReps should stay on a board while they remain enthusiastic about the business and feel they can help deliver excellent returns. When considering whether to serve another year on the same board, you should assess how you have added value to date, and how you can add further value in the coming year. Comfort with executives: TIPReps and Portfolio Company executives must get along well professionally to be successful. If a TIPRep is uncomfortable with an executive for personal reasons they should inform the Strategy Committee and seek to be replaced. If a majority of TIPReps are uncomfortable with an executive, they should inform the Strategy Committee immediately so that we can replace that executive (if we control the Portfolio Company) or find a timely exit (if we are a minority shareholder). Making improvements: Businesses of the size of our Portfolio Companies are unlikely to have the resources to implement more than one ‘improvement’ at any time. A board that successfully implements one substantial profit improvement in any half-year has provided excellent value. Asking a CEO to implement several ‘improvements’ simultaneously, risks overwhelming executives and almost certainly ensuring the ‘improvements’ won’t happen. Cash flow is king: The value of a business is in the cash it generates. If the business is paying attractive half-yearly dividends to the Company, and earnings are growing, TIPReps and executives are doing an excellent job. However, if this is not happening, then TIPReps and management are letting down shareholders and themselves. If the TIPReps can’t see a way to deliver attractive dividends, they should request the help of the Strategy Committee or request to be replaced. Reporting to TIP Strategy Committee: TIPReps report to the Strategy Committee. The Strategy Committee meets with each board on a quarterly basis to assess performance and provide advice. In particular, each Portfolio Company is required to fill out a quarterly board self-assessment sheet (focussed on the performance of the board) and a Quarterly Traction Report (focussed on the performance of the company towards it’s Noble Purpose and growth targets). The Strategy Committee will use the performance of the Portfolio Company, and the results of these quarterly assessments to tweak the TIPRep mix to achieve the best results for the Group. Annual reports and reporting to TIP: Each company must report regularly to the Strategy Committee and produce an annual report. Whilst annual reports are not widely distributed, they are an important strategic tool that disciplines each company to regularly set and track results against their targets. They are also invaluable should we one day decide to raise capital for, divest, or spin-out one of our Portfolio Companies. Budgets and cash flow projections: Whilst detailed budgets and cash flow projections have been shown to improve results in large corporations they can be detrimental to profits in smaller entrepreneurial companies when they shift focus from ‘acting’ to ‘reporting’. A simple high-level target, accompanied by a report on the main variables (KPIs) contributing to the Break-Even Point (BEP) and the approximate net profits at any level of sales above the BEP significantly improves profit generation in smaller niche companies. TIPBars and TIPTool automatically provide the BEP, Profit, and Break-even Safety Margin (BESM) for all possible scenarios. The Strategy Committee will work with each Portfolio Company to establish appropriate long term profit and cash flow targets via the Quarterly Traction Report. Strategy days: Twice yearly, TIPReps and executives are required to attend Strategy Days. Each Portfolio Company is expected to develop their plans for one or more of the four ways for delivering shareholder value: 1. Maximising half- yearly dividends; 2. Organic Growth or a new division using the current assets of the business; 3. Bolt-on acquisitions or growth that may require additional capital at attractive returns; 4. Combining with another Portfolio Company to enhance the returns from each. GUIDANCE FOR EXECUTIVES The role of executives Executives have four roles for which they are appointed and against which their performance is judged. These are to: 1. Deliver monthly profits; 2. Manage the cash; 3. Develop a great culture; and 4. Increase BESM. The best executives are those who regularly work on fostering a high performing culture to deliver growing profits and margins. TIPReps are there to mentor management to deliver on these key goals, but ultimately it is the responsibility of executives to manage day-to-day operations and deliver monthly profits. Monthly profits: Good businesses are designed such that they rarely make a loss in any month. Great businesses are those that never do. The primary role of an executive is to ensure that the business is designed and operated such that monthly profits are expected and delivered year in, year out. Executives should seek guidance from TIPReps and the Strategy Committee if they are ever unsure how better to ensure this. Managing the cash: Cash flow is the lifeblood of any business. Great executives look at ways of not only growing profits but enhancing cash flow which can then be made available for reinvestment or delivering healthy dividends to shareholders. Building a healthy cash buffer ensures executives can sleep easy knowing that they are protected from any unexpected headwind. It also allows for healthy dividends which is the fastest way for executives to gain promotion within the group or receive a pay rise. Conversely, an executive who regularly “mines shareholders wallets” will soon find themselves without a role. Culture and mentoring: Just as it’s the role of TIPReps to mentor and grow the skills of executives, it is the role of executives to mentor and grow the skills of their staff. Good executives look to constantly improve and educate their team: either by enhancing staff members existing skills, or hiring high achievers. A focus on mentorship and the development of a high performance culture is key to making the role of an executive less stressful, and it is the simplest long-term path to higher earnings. Increasing BESM: The most effective way for executives to increase profits whilst reducing risk is by working to increase BESM. Building a culture of understanding BESM within an organisation will allow younger managers to similarly provide ideas to enhance the business. Those executives who regularly increase BESM will most likely be offered larger roles within the Group. Economic Moats are the Path to Higher Profits Economic moats: Businesses generate attractive returns when they build and maintain economic moats. During the SMaRT and Due Diligence, the Company assessed and scored the promising economic moats of the business. This list won’t be complete - some scores may not be accurate. Executives should discuss these moats with their board and make an accurate list. Then they can continually seek ways to maintain and strengthen moats – and find ways to develop new ones. Test for economic moats: Warren Buffett tells the CEOs of his many businesses to frequently ask themselves: “Would we have to call a prayer meeting before increasing prices to our customers?” Ask yourself the same question. If the answer is ‘yes’ then you have not yet built strong economic moats. If the answer is ‘no’ then you can increase prices and be proud of the strong moats you have built. Capital Management Capital allocation: A sure path to increasing returns is to allocate capital to the most profitable parts of the business. Minimise costs in those parts of the business that generate low profits or don’t directly generate income. For example, a good extra salesperson should generate more profit than cost, while larger premises often eat more profit than they generate. Property expense also adds risk since a mistake can be time consuming to undo. A mistake in hiring can be quickly reversed. Capital for growth: The Company can provide additional capital when executives find opportunities to grow profits at attractive rates of return via geographic expansion, acquisition of another business, or adding a profitable division. When such an opportunity offers outstanding returns (greater than 15% per annum), please inform the Strategy Committee in a timely manner. Dividends matter: In order to make cash available for the most profitable opportunities, the Company looks to receive funds from our investments via dividends. These funds are then allocated to those who can use them best. If you have a profitable opportunity that requires further investment, you should write a succinct business case and put this to the Strategy Committee. In this way, opportunities can be compared across the group and funds allocated to those offering the best returns. Fast action: The primary responsibility of a CEO is to look after cash and keep the business running profitably every month and every quarter. The Company trusts executives and TIPReps will take immediate action should a Portfolio Business ever fall into a loss. Fast action to bring the business back to profit is always better than delaying for discussion. Capital for turnarounds: The Company has an aversion to providing capital to help a business out of difficulty. Getting into financial distress is a key symptom of executives either failing to develop an appropriate BESM, being blindsided by changes in their market, or a result of a significant error in judgement. Only where executives can demonstrate a clear path to returning a business to profitability, and are prepared to agree to strict conditions around the use of cash, will Group funds be made available. Asking for cash to “save a business” is the largest indicator of an executive team that has failed in their role. Whilst we understand that everyone may make mistakes, the decision to invest Group money to save a once profitable business is perhaps the most serious decision the Strategy Committee can make. In effect it is asking those who have performed well to use their hard earned cash to subsidise the bad decisions of another. Financial Reporting Financial reporting and TIPBars: The best financial reports help boards and CEOs make large improvements in profits for the least effort. Before we invest, most executives use financial reports designed for accountants and the tax office. These focus on the past, but rarely point the way to increasing profits. We have developed TIPBars to improve profits with the least amount of work, while highlighting dangerous risks. TIPBars is produced every month and shows where each business is working well financially, where hidden risks may be lurking, and where financial improvements should be made. Break-even safety margin: TIPBars highlights the trend in Break-even Safety Margin (‘BESM’): whether the business is becoming less risky (as we prefer), or more risky (a dangerous trend). Should the trend show increasing risk, TIPBars shows where you and your board can fix this well before the business loses money. Standard accounting usually highlights losses after the money is gone. Easiest path to improve profits: TIPTool allows board and executives to quickly ascertain which levers can be pulled to most easily improve profits. When joining TIP, each business is required to provide general ledger data for the previous 12 months. This allows TIPBars and TIPTool to be implemented immediately. Used properly, TIPBars and TIPTool can add considerably to profit every year. Audits: Upon joining the Group, each Portfolio Company is required to participate in the Company’s regular audits. Rather than seeing this as an imposition on executive time, each Portfolio Company should see it as a way of learning how to better improve systems and processes so that greater returns can be made in the future. What seems like a frustration at first can add profound value if used to address weaknesses in company systems. Building a Stronger Executive Team Stronger executive team: The Company can help each Portfolio Company develop a stronger executive team. That way more can be achieved with less time from executives and board members. This increases the value of the business; produces bigger half-yearly profits and dividends; allows executives and board to be more relaxed and makes shareholders happier. The ‘perfect’ chief executive: It is virtually impossible to be the ‘perfect’ Chief Executive. A perfect Chief Executive would have expertise in leadership, production, general management, marketing, sales, finance, administration, accounting, people management and business management. The Strategy Committee can advise how to surround the CEO with quality executives reporting to them who can add missing strengths. Why an executive team: CEOs of outstanding niche businesses live in a gruelling combination of being the Chief ‘Enthusiasm’ Officer and the Chief ‘Operating’ Officer. As Enthusiasm Officer they must inspire their team to greatness and inspire their clients to provide a good margin for their wonderful work. As Operating Officer, they must ensure work is efficient, of the highest standard, and systems are scalable for doubling and tripling volume and profits. This is a gruelling task and limits the growth of the organisation. What to delegate to grow: As a business grows, these dual roles become exhausting. As a first step to working less hard for more profit, the CEO will benefit from either an outstanding Operating Officer to take off their shoulders much of the thinking about day-to-day business. Or they will benefit from an ‘Enthusiasm’ Officer to reduce their role of thinking about inspiring staff and customers to maximise profits. In choosing which to delegate first, choose the role they find less enjoyable. Once the business becomes larger, the company may need one of each reporting to the CEO. Functional executives: When a business grows at 20% per year, after 10 years it will be six times the size. To avoid executives having to work impossibly harder, the business eventually needs an executive (not simply a manager) to take responsibility for each functional area: production, marketing, sales, finance, administration and accounting. TIPReps and executives should act before the CEO becomes overwhelmed by rapid growth. Then look to promote or recruit an executive to relieve some of the load and facilitate further expansion. Our aim should be to make the business more profitable and less stressful. Develop or recruit: Businesses develop a superior culture when they develop and promote internal candidates rather than recruiting externally. If the business has not had previous success with developing internal management, do not despair. Several of our Selected Shareholders have extensive experience in building organisations around rapid management development and can advise if asked. Similarly, if the business has not had positive experience recruiting external candidates, you are not alone. Several of our Selected Shareholders have considerable experience in hiring executives for entrepreneurial companies and can advise if asked. Replacing a successful CEO: If tempted to seek one person to take over from a successful CEO, including all the thinking they do about the business, ask two questions: “How easily will we find someone who can handle both roles of Chief Enthusiasm Officer and Chief Operating Officer?” and “If a candidate seems capable of handling everything superbly, why aren’t they running their own business – one at least as big and profitable as ours?” It is likely that we will need several outstanding executives to replace a successful CEO: one to provide enthusiasm; and one or more responsible for operations. Provided the board does this while the successful CEO is still engaged, they will have time to mould their thinking and ensure a smooth transition. Continuing Roles and Responsibilities Continuing roles: As an executive, the role of profitably running the business remains largely unchanged after becoming part of the Group. Executives gain access to our tools, balance sheet, TIPReps and Selected Shareholders, but they are still responsible for the results of the business. In exchange they are expected to regularly report to their board, and follow the advice of the Strategy Committee. The board and Strategy Committee are there to help mentor and guide executives to grow the business: but executives are still responsible for ensuring results and will be judged accordingly. Reporting to a Board: Reporting to a board can be daunting for those not used to it. Executives should ask three questions before including anything in a report to their board: “Could input from the board be helpful on this?”, “Could this be financially material?” and “Could this provide an opportunity to substantially increase profits?” If the answer is “yes” to any one of these questions, include it in the meeting agenda. If the answer to all three is “no”, omit it. Continuous and immediate disclosure: A key principle of the Company, and the ASX, is that of continuous and immediate disclosure of all material information. This means that if executives become aware of anything that could have a material impact on the business they must immediately inform their board. Where the board agrees, they must immediately inform the Strategy Committee who, in conjunction with the Board of the Company, will determine if the item requires disclosure to the market. Gaining most benefit from a board Using a board effectively: Our Portfolio Companies derive most benefit from their board when they share half-formed ideas, major dilemmas and concerns, knowledge of their business and why they run it as they do. Well briefed, TIPReps can arrange a host of free contacts with expertise the business could not otherwise access. Briefing the board: A week prior to the meeting, executives should provide a report from the CEO, including a short explanation of any issues on which they would like input, plus TIPBars and any other important reports, so everyone is properly briefed. If board meetings regularly take longer than half a day, executives are probably involving the board in matters best left to management. Forward looking discussion: TIPReps add most value when executives use TIPBars and TIPTool to provide a helicopter view of the past month and then provide forward looking key indicators to show where the business is heading. These include activity indicators driving sales or revenue in coming months; sales driving profits in coming months; and actions building moats to improve future margins. The board adds most value when focused on factors that improve these leading indicators. Questions at board meetings: TIPReps will ask challenging questions to identify where and how they can assist executives to generate higher cash profits. The better they understand the business, the more they can make profitable suggestions; and the more they will be able to introduce executives to shareholders who can add value. If questions get into minutiae, say so: boards are most valuable when focused on big picture items that increase capital value. Thinking in a visionary way: Until the CEO has built an executive team to free up their time, they will continue working in the business. TIPReps will think along lines like: “How could the business make larger profits without doing more work?” or “How could this business expand into other business or geographic areas?” or “How could this business combine with another TIP Company to increase profits for both?” Executives should ask their TIPReps for these ideas at meetings so they can implement the best one or two each year. Governance: Governance is, and should be seen as, a powerful way to enhance the performance of a company. Good governance grows sustainable profits rather than being a dead weight. To ensure good governance, and assist our Companies to develop sustainable profits, TIP provides each board with a ‘governance checklist’ as a customisable template to keep track of many regulatory and governance requirements. The updated checklist should be discussed at the meeting following each calendar quarter. Gaining most value from the Company Responsibility: Executives and board are responsible to the Company and our shareholders. When considering any major decision, the board should ask: “Will this increase the regular dividends we pay to the Company?” If the answer is ‘no’, ask: “Will this increase the capital value of the business?” If the answer is still ‘no’, ask: “Will this strengthen an economic moat or reduce a risk?” If the answer is still ‘no’ ask: “Why are we considering this?” Strategy Committee: Each quarter, executives and TIPReps must present their board self-assessment and Quarterly Traction Report to the Strategy Committee. Each company can use this opportunity to ask the Strategy Committee for contacts or assistance with any challenges they are facing. The Strategy Committee is also likely to ask challenging questions aimed at improving the business or assessing performance. Strategy days: TIP holds half-yearly strategy days: one in February and the other after the conclusion of the financial year. Executives and TIPReps must attend the Strategy Days. During the day, each company presents their plans for one (or more) of the four ways for delivering shareholder value: 1. Maximising profits and dividends without sales growth; 2. Growth or a new division using the current assets of the business; 3. Bolt-on acquisitions or growth that may require extra capital; 4. Working with another Portfolio Company to enhance returns. Value from other Portfolio Companies: The Company invests in an increasing number of businesses – all of them run by talented people. Portfolio Companies should work together to generate increased profits. This can vary from being suppliers to one another, quoting together where a wider range of skill sets is needed, sharing executive or staff expertise, pooling marketing ideas, or combining to create a larger company with more depth of management. Economies of scale: Through the Group, each business has access to considerable buying power. This can save money on insurance, vehicle financing, accounting, legal costs and other services. If you are considering a merger, acquisition or divestment, the Company can save substantial legal, accounting, secretarial, compliance and distribution costs. Delivering value Benchmark profitability: Portfolio Companies should be among the most profitable businesses: they were founded by talented executives and have a shareholder that can provide access to expertise and capital. Over time, our Portfolio Companies should aim to achieve Net Profit Margins of 10% to 15% of revenue. Above 15% they should feel proud. Below 10% they are letting down the Company and themselves. Focus on building moats: Building economic moats enables businesses to earn more profits than competitors. To test whether a business has developed economic moats the board should ask: “Can we increase prices faster than inflation without having to call a prayer meeting?” If the answer is ‘yes’, then they have built at least one strong economic moat. If the answer is ‘no’, think: “How can we build at least one economic moat to increase our profit percentage?” Increasing margins or increasing sales: Niche businesses increase profits more via a small increase in margins, than via a large increase in sales. Executives can use TIPTool to see the relative uplift in profits from increases in margins, increases in sales and reductions in costs. Test scenarios to find the fastest way to increase profits with the least additional work. Fixed versus variable expenses: The best businesses should never record a loss. Reduce the risk of losses by building the business around a higher proportion of variable expenses (which go up or down as sales revenue goes up or down) and a lower proportion of fixed expenses. Fixed expenses such as long leases on premises, increase the risk of losses while reducing flexibility for growth. For fastest growth with lowest risk, minimise fixed costs by converting them to variable expenses. The world is changing fast: Technology, data and online connectivity are changing the world. All businesses will be affected. Those stuck in the past will find competitors offering similar outcomes cheaper or faster, or superior products at the same prices. Those embracing ‘modernisation’ will thrive via higher margins. Modernise the business to stay ahead of the competition and improve margins. Use TIPTool to check the improved profit from higher margins after any planned ‘costs of modernisation’. Profiting from inflation: Inflation is both an opportunity and threat. Business inflation is generally above CPI. A business that doesn’t develop and maintain economic moats is hurt as input and labour costs rise before the business can increase prices. Businesses without moats grow weaker still. Some go broke. Executives can ensure their business thrives by strengthening existing moats and building new moats. This enables the business to dominate its industry by increasing prices faster than inflation, building a war chest, and seizing opportunities to acquire competitors. Profit growth matters: When profits are growing quickly, the best employees can see opportunities for advancement and higher income. This motivates them to produce better quality work. When profits cease growing, the best staff seek employment elsewhere, staff quality goes down and output suffers. This makes it imperative that executives continue growing their profits. Sales team: To grow profits substantially, it is almost certain the business will need a dedicated sales team. Hire only those who are highly enthusiastic. Poor salespeople cost more than any profit they generate. The right salespeople generate far more profit than they cost. Long Term Aims Long term aim: The Company invests for many years at a time. We aim to assist executives to grow profits and dividends attractively each year. For new Portfolio Company founders, a substantial way of increasing wealth is by exchanging shares owned in an underlying business for shares in the Company. At the right exchange, this increases the value of both their shares and ours. It also improves access to finance, adds liquidity and makes it easier to buy competitors and dominate the industry. Succession planning: Although our executives plan to continue leading our businesses for many years, a major responsibility of senior executives is to develop a top-quality leadership team. A quality executive team helps a business grow faster and ensures it is preserved should anything happen to senior executives. To reduce risk, the board should identify an emergency successor and ensure that key staff are aware of the decision so they can act quickly and with reduced impact if anything untoward occurs. Expertise available: TIPReps and Selected Shareholders are available to provide advice, inspiration, and suggestions for executives to build value beyond what would be possible alone. Reporting to TIP and the company board Reporting to the company board: Each month, the company board will want to know: ▪ sales revenue for the period (month, quarter, year to date); ▪ profitability for the period; ▪ how this translated to free cash; ▪ how executives are building, maintaining or strengthening moats to improve margins; ▪ any OH&S issues - and that they have been dealt with appropriately; and ▪ the view of executives on how the business is tracking. Reporting to the Strategy Committee: The Strategy Committee will want to know each quarter what the board and executives have done to: ▪ ▪ ▪ ▪ strengthen the profit-enabling moats of our business; reduce the likelihood or severity of any risks to the business; increase the net profit of our business; increase dividends; and ▪ make progress towards building a stronger executive team. Bad news and good news: Material good and bad news should be reported to the board immediately. Good news so we can share the success, and bad news so that we can act quickly to solve the problem. When communicating bad news, a good executive team will also provide potential ways of addressing the problem. This is so the board may act quickly in advising the best path to mitigate damage and turn the bad news into a new opportunity. Loss making quarter: Should the business report a loss for a calendar quarter, the company board must immediately arrange a meeting with the Strategy Committee and Board of the Company. The purpose of the meeting is to seek advice or assistance, and discuss what changes, if any, are necessary to get the business back to acceptable profit. We will be happier with the Portfolio Company when they also inform us how they have already ensured the loss will not be repeated. If acceptable changes are not made, the Strategy Committee would expect to replace the executives and TIPReps. Compliance and culture: Executives are expected to comply with all of the Company’s corporate governance policies, and to instil a culture of acting entrepreneurially, ethically and responsibly. Teaminvest Private Group Limited ABN 74 629 045 736 Annual Report - 30 June 2021 Teaminvest Private Group Limited Contents 30 June 2021 Corporate directory Directors’ report Auditor’s independent declaration Statement of profit or loss and other comprehensive income Statement of financial position Statement of changes in equity Statement of cash flows Notes to the financial statements Directors’ declaration Independent auditor’s report to the members of Teaminvest Private Group Limited Shareholder information 2 3 18 19 20 21 22 23 68 69 76 1 Teaminvest Private Group Limited Corporate directory 30 June 2021 Directors Malcolm Jones - Chair Andrew Coleman Howard Coleman Ian Kadish Regan Passlow Company secretary Anand Sundaraj Registered office Share register Auditor Solicitors Suite 302 80 Mount Street North Sydney NSW 2060 Computershare Investor Services Pty Ltd 452 Johnston Street Abbotsford VIC 3067 Tel: 1300 850 505 KPMG Level 38, Tower Three, International Towers Sydney 300 Barangaroo Avenue Sydney NSW 2000 Sundaraj & Ker Level 36, Australia Square 264 George Street Sydney NSW 2000 Stock exchange listing Teaminvest Private Group Limited shares are listed on the Australian Securities Exchange (ASX code: TIP) Website http://www.teaminvestprivate.com.au Corporate Governance Statement The directors and management are committed to conducting the business of Teaminvest Private Group Limited in an ethical manner and in accordance with the highest standards of corporate governance. Teaminvest Private Group Limited has adopted and has substantially complied with the ASX Corporate Governance Principles and Recommendations (Third Edition) ('Recommendations') to the operations. extent appropriate nature size and the its of to The Group’s Corporate Governance Statement, which was approved by the Board of Directors at the same time as the Annual Report, sets out the corporate governance practices that were in operation during the financial period and identifies and explains any Recommendations that have not been followed. The Corporate Governance Statement for the year ended 30 June 2021 and the Group’s corporate governance policies can be found on the Company’s website at https://www.teaminvestprivate.com.au/investor-information. 2 Teaminvest Private Group Limited Directors’ report 30 June 2021 The directors present their report, together with the financial statements, on the consolidated entity (referred to hereafter as the 'Group') consisting of Teaminvest Private Group Limited (referred to hereafter as the 'Company' or 'parent entity') and the entities it controlled at the end of, or during, the year ended 30 June 2021. Directors The following persons were directors of Teaminvest Private Group Limited during the whole of the financial year and up to the date of this report, unless otherwise stated: • Malcolm Jones - Chair • Andrew Coleman • Howard Coleman • Ian Kadish • Regan Passlow Principal activities During the financial period the principal continuing activities of the Group consisted of investing in Australian businesses. Dividends There were no dividends paid, recommended, or declared during the current or previous financial year. Review of operations The profit for the Group after providing for income tax amounted to $5,201,000 (30 June 2020: $8,306,000). The Group as a whole has delivered another solid performance increasing NPAT on a comparable basis (excluding insurance recoveries) to FY20. Whilst some individual subsidiaries have been affected by COVID-19, previous years bushfires and trade disruptions from international suppliers, the impact has been to the revenue line. The majority of the Group have effectively managed to increase profit as a result of Management’s strategy of capitalising on opportunities that have arisen from the pandemic. Coastal Energy has been adversely impacted due to being suspended as a rated service provider by Energex Corporation Limited, resulting in a loss of $6,100,000. The portfolio structure of our Group has enabled the results to continue along the growth path expected as a whole. The new management have a key focus on reinvigorating the business model, operations, and safety practices of Coastal Energy. While the performance of Coastal Energy detracted from the Group performance significantly, swift action has been taken to limit the future impact. Refer to the 'CEO report' for further details of operations and commentary on the results. Significant changes in the state of affairs On 17 September 2020, the Group acquired 100% of the shares in Automation Group Investments Pty Ltd for the initial purchase price of $2,660,000 and a contingent consideration of $400,000 based on a percentage of revenue generated under a key contract for financial year 2021 payable after completion of the 2021 financial year audit. Refer to note 34 to the financial statements for further information. On 30 June 2021, the Group acquired 100% of the shares in Teaminvest Pty Ltd and other related entities, through the issue of shares in the Group, for a non-cash purchase price of $8,110,000. Refer to note 34 to the financial statements for further information. There were no other significant changes in the state of affairs of the Group during the financial year. 3 Teaminvest Private Group Limited Directors’ report 30 June 2021 Matters subsequent to the end of the financial year The impact of the COVID-19 pandemic is ongoing and whilst individual subsidiaries have been impacted differently, the net effect on the Group's results remain within a reasonable bound compared to 30 June 2021. It is not practicable to estimate the potential impact, positive or negative, after the reporting date as the situation attributed to the Delta variant is evolving. Any future estimate is dependent on measures imposed by both State and Australian Governments, such as lockdowns, quarantine, travel restrictions and any economic stimulus that may be provided. Likely developments and expected results of operations Refer to the 'CEO letter' for details of likely developments and expected results of operations. Environmental regulation The Group is not subject to any significant environmental regulation under Australian Commonwealth or State law. Information on directors Name: Title: Qualifications: Experience and expertise: Malcolm Jones Independent Chair FCA Malcolm has experience in managing large organisations. He has held positions as a member of the Group Management Board Zurich Financial Services in Switzerland, CEO Zurich Financial Services Asia Pacific, CEO Zurich Financial Services Australia Ltd, CEO NRMA Ltd & NRMA Insurance Ltd and CEO State Government Insurance commission of South Australia. Prior to these executive roles Malcolm was a Partner at Ernst & Young where he had worked for 18 years. Other current directorships: Former directorships (last 3 years): Special responsibilities: Interest in shares: Interest in options: Contractual rights to shares: None None Member of Strategy Committee and Audit Committee 2,169,359 None None Name: Title: Qualifications: Experience and expertise Andrew Coleman Managing Director and Chief Executive Officer ('CEO') B.Ec (Hons) Andrew is a Co-Founder of Teaminvest Private and is responsible for sourcing, structuring and overseeing investments and general management. Prior to joining Teaminvest Private, Andrew worked in Sydney as an investment banker for Credit Suisse. Andrew advised and assisted clients on significant corporate deals in Australia and internationally with a specific focus on mergers and acquisitions and capital raising activity. He is also a co-author of 'Relative Performance Incentives and Price Bubbles in Experimental Asset Markets' published in the Southern Economic Journal. Other current directorships: Former directorships (last 3 years): Special responsibilities: Interest in shares: Interest in options: Contractual rights to shares: None None Member of the Strategy Committee and Investment committee 12,250,092 None None 4 Teaminvest Private Group Limited Directors’ report 30 June 2021 Name: Title: Qualifications: Experience and expertise: Other current directorships: Former directorships (last 3 years): Special responsibilities: Interest in shares: Interest in options: Contractual rights to shares: Name: Title: Qualifications: Experience and expertise: Howard Coleman Non-Executive Director BSc in Physics Howard has over 40 years’ experience as a founder and CEO in the areas of language and sales, marketing, publishing, consumer mathematics education in Australia, South Africa and the UK. Howard has held Board positions in a number of private companies in several countries including South Africa, UK, Australia and Canada . His extensive background and experience are invaluable for assessing the strengths and weaknesses of companies. This particularly applies to identifying their future risks, and the ability and strategies of the board and senior management to deal with them. finance, and He is a graduate of the Harvard Business School Owner/President Management Program and completed the Australian Institute of Company Directors’ program for company directors. He is a director of a number of private companies and has won many business awards including the prestigious Speaker of The Year Award from The Executive Connection. Howard has regularly appeared as a guest commentator on Sky Business and Ausbiz. Howard is a founding director of Teaminvest, Teaminvest Private and Conscious Capital. None None Member of the Strategy Committee 17,173,795 None None Ian Kadish Independent Non-Executive Director MBBCH MBA Experience and expertise: Ian has a wealth of experience including outstanding public company board and executive experience as CEO and Managing Director of ASX listed Integral Diagnostics Limited; CEO and Managing Director of ASX listed Pulse Health Group; CEO and Managing Director of private equity owned Healthcare Australia Limited and Executive Director of JSE listed Network Healthcare Holdings Limited. In addition to his public company experience, he has served as a senior executive and board member of large private businesses owned and operated by private equity and listed equity, including CEO of Laverty Pathology, Chief Operating Officer of Greencross Vets Limited, and Co-founder and Non-Executive Director of Digital Healthcare Solutions. Ian holds a Master's of Business Administration ('MBA') from the Wharton Business School at the University of Pennsylvania, United States of America, and a Bachelor of Medicine and Surgery from the University of Witwatersrand, South Africa. In addition to his executive career in the United States, South Africa and Australia, Ian has also worked as a consultant for McKinsey and as an advisor to boards on executing and integrating mergers and acquisitions. Other current directorships: Former directorships (last 3 years): Special responsibilities: Interest in shares: Interest in options: Contractual rights to shares: Integral Diagnostics Limited (ASX: IDX) None Chairman of the Strategy Committee and member of Audit Committee 236,459 None None 5 Teaminvest Private Group Limited Directors’ report 30 June 2021 Name: Title: Qualifications: Experience and expertise Regan Passlow Non-Executive Director MA, Mgmt Regan has worked as an executive director for nearly 40 years for both national and multi-national companies. His focus has been primarily on strategic business development, administration and back-office systems. He has over 40 years’ experience in senior management and governance roles in private organisations. He is the former co-founder of WebProfit.com.au, a business established in the 1990’s to provide executives of small and medium- sized enterprises ('SMEs') with strategic advice on the use of the Internet and e-commerce. He is also the co-founder of retail lender EM Finance Corporation and a founding director of Teaminvest, Teaminvest Private and EM Commercial Finance. He has historically chaired the investment committee and has held directorships on five portfolio companies. Other current directorships: Former directorships (last 3 years): Special responsibilities: Interest in shares: Interest in options: Contractual rights to shares: None None Chairman of the Investment Committee and member of Audit Committee 3,622,448 None None 'Other current directorships' quoted above are current directorships for listed entities only and excludes directorships of all other types of entities, unless otherwise stated. 'Former directorships (last 3 years)' quoted above are directorships held in the last 3 years for listed entities only and excludes directorships of all other types of entities, unless otherwise stated. Company secretary Anand Sundaraj is a corporate lawyer with over 20 years’ experience and is currently a principal at Sundaraj & Ker, a Sydney-based law firm. Anand specialises in advising on mergers and acquisitions, and capital raisings for both publicly listed and privately held entities. He also advises on funds management and general securities law matters including listing rule compliance and corporate governance. 6 Teaminvest Private Group Limited Directors’ report 30 June 2021 Meetings of directors The number of meetings of the Company's Board of Directors ('the Board') and of each Board committee held during the year ended 30 June 2021, and the number of meetings attended by each director were: Malcolm Jones Andrew Coleman Howard Coleman Ian Kadish Regan Passlow Full Board Attended 12 12 12 12 12 Held 12 12 12 12 12 Investment Committee Held - 24 - - 24 Attended - 21 - - 22 Strategy Committee Held 12 12 12 12 - Attended 12 12 12 12 - Held: represents the number of meetings held during the time the director held office or was a member of the relevant committee. Audit Committee The Company has established an Audit Committee which has three members, two of whom are independent (including an independent Chair): - Dr Ian Kadish, independent chair of the committee; - Mr Malcolm Jones, independent member of the committee; and - Mr Regan Passlow, non-executive member of the committee. The number of meetings of the Audit Committee held during the year ended 30 June 2021, and the number of meetings attended by each director were: Malcolm Jones Ian Kadish Regan Passlow Audit Committee Attended 3 3 3 Held 3 3 3 Held: represents the number of meetings held during the time the director held office or was a member of the relevant committee. Risk and Compliance Committee The Company has established a Risk and Compliance Committee which has seven members comprising Mr Dean Robinson, the CFO of the Company and chair of the committee, and six Selected Shareholders. The Risk and Compliance Committee’s function is to continuously review the risk, compliance framework and corporate governance policies of the Group’s Portfolio Companies to inculcate and improve operations. The Risk and Compliance Committee meets on a monthly basis. Nomination and Remuneration Committee The Company has not constituted a Nomination and Remuneration Committee given the nature and scale of the Group’s operations. The Board as a whole fulfils the functions normally delegated to a Nomination and Remuneration Committee. Remuneration report (audited) The remuneration report details the key management personnel remuneration arrangements for the Group, in accordance with the requirements of the Corporations Act 2001 and its Regulations. Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Company, directly or indirectly, including all directors. 7 Teaminvest Private Group Limited Directors’ report 30 June 2021 The remuneration report is set out under the following main headings: • Principles used to determine the nature and amount of remuneration • Details of remuneration • Service agreements • Share-based compensation • Additional information • Additional disclosures relating to key management personnel Principles used to determine the nature and amount of remuneration The objective of the Group's executive reward framework is to ensure reward for performance is competitive and appropriate for the results delivered. The framework aligns executive reward with the achievement of strategic objectives and the creation of value for shareholders, and it is considered to conform to the market best practice for the delivery of reward. The Board of Directors ('the Board') ensures that executive reward satisfies the following key criteria for good reward governance practices: competitiveness and reasonableness; • • acceptability to shareholders; • performance linkage / alignment of executive compensation; and • transparency. The Board is responsible for determining and reviewing remuneration arrangements for its directors and executives. The performance of the Group depends on the quality of its directors and executives. The remuneration philosophy is to attract, motivate and retain high performance and high quality personnel. The Board determines its remuneration policies having regard to the Group’s earnings and the consequences of the Group’s performance on shareholder wealth. The Board has structured an executive remuneration framework that is market competitive and complementary to the reward strategy of the Group. The reward framework is designed to align executive reward to shareholders' interests. The Board considers that it should seek to enhance shareholders' interests by: • having economic profit as a core component of plan design; • focusing on sustained growth in shareholder wealth, consisting of dividends and growth in share price, and delivering constant or increasing return on assets as well as focusing the executive on key non-financial drivers of value; and • attracting and retaining high calibre executives. Additionally, the reward framework seeks to enhance executives' interests by: rewarding capability and experience; reflecting competitive reward for contribution to growth in shareholder wealth; and • • • providing a clear structure for earning rewards. In accordance with best practice corporate governance, the structure of non-executive director and executive director remuneration is separate. Non-executive directors' remuneration Fees and payments to non-executive directors reflect the demands and responsibilities of their role. Non-executive directors' fees and payments are reviewed annually by the Board. The chair's fees are determined independently to the fees of other non-executive directors based on comparative roles in the external market. The chair is not present at any discussions relating to the determination of their own remuneration. Non-executive directors do not receive share options or other incentives. The annual non-executive directors' fees currently agreed to be paid by the Company are set out below: Director Director's fees Malcolm Jones $100,000 per annum (including superannuation). Howard Coleman $70,000 per annum (including superannuation). Ian Kadish $70,000 per annum (including superannuation). Regan Passlow $70,000 per annum (including superannuation). 8 Teaminvest Private Group Limited Directors’ report 30 June 2021 Each non-executive director has agreed with the Company that half of their remuneration will be accrued but not paid during each financial year. If shareholder approval is received at the annual general meeting following the end of each financial year, this accrued remuneration will be issued as ordinary shares. If shareholder approval is not received, the accrued remuneration will be paid as cash. Australian Securities Exchange ('ASX') listing rules require the aggregate non-executive directors' remuneration be determined periodically by a general meeting. The maximum aggregate non-executive directors' remuneration approved by the Constitution is $500,000. Any changes to this amount will be approved by shareholders in the annual general meeting. Executive remuneration Fixed remuneration, consisting of base salary, superannuation and non-monetary benefits, are reviewed annually by the Board based on individual and business unit performance and the overall performance of the Group. The fixed remuneration is set below comparable market remunerations. A greater percentage of total executive remuneration is available through short term and long term incentives based on performance. The executive remuneration and reward framework has four components: • base pay and non-monetary benefits; short-term performance incentives; • • share-based payments; and • other remuneration such as superannuation, annual leave and long service leave. The combination of these comprises the executive's total remuneration. Fixed remuneration, consisting of base salary, superannuation and non-monetary benefits, are reviewed annually by the Board based on individual and business unit performance, the overall performance of the Group and comparable market remunerations. Executives may receive their fixed remuneration in the form of cash or other fringe benefits (for example motor vehicle benefits) where it does not create any additional costs to the Group and provides additional value to the executive. The short-term incentives ('STI') program is designed to align the targets of the business units with the performance hurdles of executives. STI payments are granted to executives based on specific annual targets and key performance indicators ('KPI's') being achieved. KPI's include profit contribution, customer satisfaction, leadership contribution and product management. The KPI for the period ended 30 June 2020, in relation to Andrew Coleman and Dean Robinson STI of $50,000 (inclusive of super) was awarded for successfully managing the Group, enabling a positive collaborative environment and enhancing the growth of the Group through difficult economic times. The STI Program has not been continued in period ended 30 June 2021. 9 Teaminvest Private Group Limited Directors’ report 30 June 2021 Period up to 30 June 2020 Remuneration for certain individuals is directly linked to the performance of the Group as part of the LTI. After shareholder approval, the Company issued four tranches of $300,000 performance rights to Andrew Coleman and four tranches of $250,000 performance rights to Dean Robinson, over four years. Each tranche of performance rights was converted into ordinary shares upon the achievement of the comprehensive income per share targets set out below. The last two tranches have lapsed due to change in remuneration policy as approved by shareholders in the 2020 annual general meeting. Comprehensive income per share target Dollar value of performance rights that vest (Andrew Coleman) Dollar value of performance rights that vest (Dean Robinson) $0.0675 $0.0810 $0.0945 $0.1080 $300,000 $300,000 $300,000 $300,000 $250,000 $250,000 $250,000 $250,000 Remuneration under LTI consists of performance shares with an income per share target. The first tranche of performance share targets represented a significant premium to the income per share at listing. Each subsequent tranche represented a further large increase in income per share. Period from 01 July 2020 The Board introduced incentive based on Net Profit After Tax as described below. An annual bonus equal to 3.5% of the Group’s audited comprehensive income for the financial year (before expensing the cost of the bonus) comprising: • 50% to be paid in cash (Cash Component); and • 50% to be issued as shares in the Company (Share Component). The cash component of the bonus is determined twice each financial year: 1. 50% is paid after the half year review; and 2. 50% is paid after the audited full year results. The share component is to be determined after the audited full year results, the shares are issued at a 10-day VWAP as at 30 June. In addition, any shares issued in satisfaction of the Share Component will be subject to escrow for 30 months from the end of the financial year Use of remuneration consultants During the financial period ended 30 June 2021, the Group did not engage the use of remuneration consultants, to review its existing remuneration policies and provide recommendations on how to improve both the STI and LTI programs. Details of remuneration The key management personnel of the Group consisted of the following directors of Teaminvest Private Group Limited: • Malcolm Jones - Independent Chair • Howard Coleman - Non-Executive Director • • Regan Passlow - Non-Executive Director • Andrew Coleman - Managing Director and Chief Executive Officer ('CEO') Ian Kadish - Independent Non-Executive Director And the following person • Dean Robinson - Chief Finance Officer ('CFO') 10 Teaminvest Private Group Limited Directors’ report 30 June 2021 Amounts of remuneration Details of the remuneration of key management personnel of the Group are set out in the following tables. Short-term benefits Post-Employment benefits Cash salary and fees Cash bonus Annual leave Superannuation Long- term benefits Long service leave Share-based payment Equity unsettled* LTI unsettled Total 30 June 2021 $ $ $ $ $ $ $ $ Non-Executive Directors: Malcolm Jones 45,662 Howard Coleman 31,963 Ian Kadish 31,963 Regan Passlow 31,963 - - - - - - - - 8,676 6,073 6,073 6,073 - - - - 45,662 31,963 31,963 31,963 - - - - 100,000 70,000 70,000 70,000 Executive Directors: Andrew Coleman Other Key Management Personnel: Dean Robinson 200,000 97,858 15,385 23,338 3,333 97,858 - 437,772 200,000 97,858 15,385 23,338 - 97,858 541,552 195,716 30,770 73,571 3,333 337,268 - - 434,439 1,182,210 * share based payments represent half of non-executive directors' remuneration and half of executive director and other key management personnel's bonuses, that have been accrued and not paid during the financial year. These payments are to be settled in share based payments subject to Board approval and shareholder vote at the AGM. If approval is not granted, these will be paid in cash. 11 Teaminvest Private Group Limited Directors’ report 30 June 2021 Short-term benefits Post-Employment benefits Cash bonus Annual leave Superannuation Long- term benefits Long service leave Share-based payments Equity settled**** Equity unsettled# LTI unsettled Total $ $ $ $ $ $ $ $ - - - - - - - - 4,765 6,073 6,073 6,073 2,147 - - - - - - 25,077 17,500 14,464 23,333 8,631 23,333 8,631 22,789 - - - - - - 54,919 70,000 70,000 71,834 45,578 Cash salary and fees $ 25,077 31,963 30 June 2020 Non- Executive Directors: Malcolm Jones* Howard Coleman Ian Kadish 31,963 Regan Passlow Katherine Woodthorpe** 31,963 20,642 Executive Directors: Andrew Coleman*** Other Key Management Personnel: Dean Robinson*** 200,000 45,662 15,385 23,338 3,333 - - 600,000 887,718 200,000 45,662 15,385 23,338 - - - 500,000 784,385 543,276 91,324 30,769 71,974 3,333 86,955 56,803 1,100,000 1,984,435 * ** *** **** # Remuneration disclosed is for the period from 13 December 2019 to 30 June 2020. Remuneration disclosed is for the period from 1 July 2019 to 13 December 2019. The long-term incentive amounts were met, and the board resolved on 31/08/2020 that the first two tranches were vested. Share based payments – Equity settled portion were approved at the 2019 AGM by Shareholder vote. Share based payments represent half of non-executive directors’ remuneration were accrued and not paid during the financial year. Payments were settled in share-based payments subsequent to a Shareholder vote at the AGM. 12 Teaminvest Private Group Limited Directors’ report 30 June 2021 Service agreements Remuneration and other terms of employment for key management personnel are formalised in service agreements. Details of these agreements are as follows: Name: Title: Agreement commenced: Term of agreement: Details: Name: Title: Agreement commenced: Term of agreement: Details: Name: Title: Agreement commenced: Term of agreement: Details: Name: Title: Agreement commenced: Term of agreement: Details: Name: Title: Agreement commenced: Term of agreement: Details: Name: Title: Agreement commenced: Term of agreement: Details: Malcolm Jones Independent Chairperson 13 December 2019 Ongoing $100,000 per annum (including superannuation) Howard Coleman Non-Executive Director 1 March 2019 Ongoing $70,000 per annum (including superannuation) Ian Kadish Non-Executive Director 26 February 2019 Ongoing $70,000 per annum (including superannuation) Regan Passlow Non-Executive Director 1 March 2019 Ongoing $70,000 per annum (including superannuation) Andrew Coleman Managing Director and Chief Executive Officer 26 February 2019 Ongoing $219,000 per annum (including superannuation). Employment notice is 3 months. Dean Robinson Chief Finance Officer 1 November 2018 Ongoing $219,000 per annum Key management personnel have no entitlement to termination payments in the event of removal for misconduct. Leave entitlements are accrued on top of the annual salary. 13 Teaminvest Private Group Limited Directors’ report 30 June 2021 Share-based compensation Issue of shares Details of shares issued to directors and other key management personnel as part of compensation during the year ended 30 June 2021 are set out below: 30 June 2021 Shares issued to KMP Shares issued to directors 30 June 2020 Shares issued to directors* Issue Date Number of Shares Issue Price Total Value 04/09/2020 04/12/2020 2,080,181 107,416 $0.53 $0.53 1,100,000 56,803 27/11/2019 184,259 $0.84 154,999 The shares were issued in lieu of 50% of the directors' fees accrued but not paid to non-executive directors during the 30 June 2019 and 30 June 2020 financial years. There were no options over ordinary shares granted to or vested by directors and other key management personnel as part of compensation during the year ended 30 June 2021. Additional information The earnings of the Group for the two years to 30 June 2021 are summarised below: EBITDA Statutory comprehensive income/(loss) - pre-bonus Profit/(loss) after tax 2021 $13,058,000 $5,592,000 $5,201,000 2020 $11,834,000 $9,076,000 $8,306,000 Statutory comprehensive income/(loss) per share - pre-bonus LTI % achieved n/a n/a $0.082 50% 14 Teaminvest Private Group Limited Directors’ report 30 June 2021 Additional disclosures relating to key management personnel Shareholding The number of shares in the Company held during the financial year by each director and other members of key management personnel of the Group, including their personally related parties, is set out below: Ordinary shares Malcolm Jones Howard Coleman Ian Kadish Regan Passlow Andrew Coleman Dean Robinson Balance at the start of the year Received as part of remuneration Additions Disposals/other Balance at the end of the year 2,121,937 47,422 - - 2,169,359 16,777,525 16,321 12,979,949 (12,600,000)* 17,173,795 149,107 27,352 60,000 1,077,045 16,321 2,529,082 11,022,744 1,134,644 92,704 - - - - 236,459 3,622,448 12,250,092 1,078,455 132,917 31,281,275 945,538 - 2,187,598 15,661,735 (12,600,000) 36,530,608 * Related to the Teaminvest Pty Ltd and related entities acquisition as per note 34. This concludes the remuneration report, which has been audited. 15 Teaminvest Private Group Limited Directors’ report 30 June 2021 Shares under option There were no unissued ordinary shares of Teaminvest Private Group Limited under option outstanding at the date of this report. Shares issued on the exercise of options There were no ordinary shares of Teaminvest Private Group Limited issued on the exercise of options during the year ended 30 June 2021 and up to the date of this report. Indemnity and insurance of officers The Company has indemnified the directors and executives of the Company for costs incurred, in their capacity as a director or executive, for which they may be held personally liable, except where there is a lack of good faith. During the financial year, the Company paid a premium in respect of a contract to insure the directors and executives of the Company against a liability to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium. Indemnity and insurance of auditor The Company has not, during or since the end of the financial year, indemnified or agreed to indemnify the auditor of the Company or any related entity against a liability incurred by the auditor. During the financial year, the Company has not paid a premium in respect of a contract to insure the auditor of the Company or any related entity. Proceedings on behalf of the Company No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the Company, or to intervene in any proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the Company for all or part of those proceedings. Non-audit services Details of the amounts paid or payable to the auditor for non-audit services provided during the financial year by the auditor are outlined in note 29 to the financial statements. The directors are satisfied that the provision of non-audit services during the financial year, by the auditor (or by another person or firm on the auditor's behalf), is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The directors are of the opinion that the services as disclosed in note 29 to the financial statements do not compromise the external auditor's independence requirements of the Corporations Act 2001 for the following reasons: • all non-audit services have been reviewed and approved to ensure that they do not impact the integrity and objectivity of the auditor; and • none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants (including Independence Standards) issued by the Accounting Professional and Ethical Standards Board, including reviewing or auditing the auditor's own work, acting in a management or decision-making capacity for the Group, acting as advocate for the Group or jointly sharing economic risks and rewards. Officers of the Company who are former partners of KPMG There are no officers of the Company who are former partners of KPMG. Rounding of amounts The Company is of a kind referred to in Corporations Instrument 2016/191, issued by the Australian Securities and Investments Commission, relating to 'rounding-off'. Amounts in this report have been rounded off in accordance with that Corporations Instrument to the nearest thousand dollars, or in certain cases, the nearest dollar. 16 Teaminvest Private Group Limited Directors’ report 30 June 2021 Auditor's independence declaration A copy of the auditor's independence declaration as required under section 307C of the Corporations Act 2001 is set out immediately after this directors' report. Auditor KPMG continues in office in accordance with section 327 of the Corporations Act 2001. This report is made in accordance with a resolution of directors, pursuant to section 298(2)(a) of the Corporations Act 2001. On behalf of the directors Andrew Coleman Managing Director and Chief Executive Officer 26 August 2021 Sydney 17 To the Directors of Teaminvest Private Group Limited I declare that, to the best of my knowledge and belief, in relation to the audit of Teaminvest Private Group Limited for the financial year ended 30 June 2021 there have been: i. ii. no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and no contraventions of any applicable code of professional conduct in relation to the audit. KPM_INI_01 KPMG Tony Nimac Partner Sydney 26 August 2021 PAR_SIG_01 PAR_NAM_01 PAR_POS_01 PAR_DAT_01 PAR_CIT_01 © 2021 KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation. Liability limited by a scheme approved under Professional Standards Legislation. 18 Teaminvest Private Group Limited Statement of profit or loss and other comprehensive income For the year ended 30 June 2021 Consolidated Note 30 Jun 2021 $'000 30 Jun 2020 $'000 Revenue Revenue from contracts with customers Share of profits of associates accounted for using the equity method Other income Interest revenue calculated using the effective interest method Expenses Raw materials and consumables used Employee benefits expense Depreciation and amortisation expense Impairment of goodwill Impairment of receivables Net loss on disposal of property, plant and equipment Occupancy expense Initial public offering ('IPO') listing expense Other expenses Finance costs Profit before income tax Income tax expense Profit after income tax for the year attributable to the owners of Teaminvest Private Group Limited 5 13 6 7 16 7 8 91,443 2,867 6,803 261 (40,332) (39,524) (2,869) (4,260) (360) - (627) - (7,212) (399) 89,002 1,858 5,747 93 (41,676) (35,661) (2,514) - (302) (60) (1,227) (42) (5,898) (399) 5,791 8,921 (590) (615) 5,201 8,306 Other comprehensive income for the year, net of tax - - Total comprehensive income for the year attributable to the owners of Teaminvest Private Group Limited 5,201 8,306 Basic earnings per share Diluted earnings per share 37 37 Cents 4.46 4.43 Cents 7.47 7.32 The above statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes 19 Teaminvest Private Group Limited Statement of financial position As at 30 June 2021 Consolidated Assets Current assets Cash and cash equivalents Trade and other receivables Contract assets Inventories Prepayments and other deposits Total current assets Non-current assets Investments accounted for using the equity method Other financial assets Property, plant and equipment Right-of-use assets Intangibles Total non-current assets Total assets Liabilities Current liabilities Trade and other payables Contract liabilities Borrowings Lease liabilities Income tax Employee benefits Provisions Deferred consideration Total current liabilities Non-current liabilities Lease liabilities Deferred taxes Employee benefits Total non-current liabilities Total liabilities Net assets Equity Issued capital Retained profits Total equity Note 30 Jun 2021 $'000 30 Jun 2020 $'000 9 10 11 12 13 14 15 16 17 18 19 20 21 23 8 24 25 12,346 8,959 8,049 8,379 938 38,671 21,412 111 5,618 3,606 63,044 93,791 10,777 8,397 9,033 6,612 228 35,047 19,124 4 4,200 3,817 45,770 72,915 132,462 107,962 13,780 4,877 1,323 1,997 191 2,168 193 258 24,787 2,694 5,996 377 9,067 33,854 98,608 87,597 11,011 98,608 15,759 3,117 379 1,976 2 1,790 248 - 23,271 3,196 6 293 3,495 26,766 81,196 75,386 5,810 81,196 The above statement of financial position should be read in conjunction with the accompanying notes 20 Teaminvest Private Group Limited Statement of changes in equity For the year ended 30 June 2021 Consolidated Note Issued capital $'000 Retained profits/ (accumulated losses) $'000 Total equity $'000 Balance at 1 July 2019 75,231 (2,496) 72,735 Profit after income tax for the year Other comprehensive income for the year, net of tax Total comprehensive income for the year Transactions with owners in their capacity as owners: Issue of ordinary shares for directors' fees' Issue of ordinary shares for bonuses - - - 155 - 155 8,306 - 8,306 - 8,306 8,306 - - - 155 - 155 Balance at 30 June 2020 75,386 5,810 81,196 Consolidated Note Issued capital $'000 Retained profits $'000 Total equity $'000 Balance at 1 July 2020 75,386 5,810 81,196 Profit after income tax for the year Other comprehensive income for the year, net of tax Total comprehensive income for the year Transactions with owners in their capacity as owners: Issue of ordinary shares for settlement of share based payments Issue of ordinary shares related to business combinations Issue of ordinary shares for directors' fees' Issue of ordinary shares for bonuses 34 Balance at 30 June 2021 - - - 1,100 10,769 57 285 12,211 87,597 5,201 - 5,201 - 5,201 5,201 - - - - - 1,100 10,769 57 285 12,211 11,011 98,608 The above statement of changes in equity should be read in conjunction with the accompanying notes 21 Teaminvest Private Group Limited Statement of cash flows For the year ended 30 June 2021 Consolidated Cash flows from operating activities Receipts from customers (inclusive of GST) Payments to suppliers and employees (inclusive of GST) Other receipts Interest received Dividends received Interest and other finance costs paid Income taxes refunded/(paid) Net cash from operating activities Cash flows from investing activities Net cash acquired from business combinations Payments for investment in associates Payments for other financial assets Payments for property, plant and equipment Payments for intangibles Proceeds from disposal of property, plant and equipment Net cash used in investing activities Cash flows from financing activities Proceeds from borrowings Repayment of lease liabilities Loans from/(to) related and other parties Repayment of invoice discounting Net cash used in financing activities Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year Note 30 Jun 2021 $'000 30 Jun 2020 $'000 36 34 14 16 92,745 (92,311) 3,947 261 653 (399) 500 93,645 (88,180) 5,221 93 233 (399) (576) 5,396 10,037 1,188 (74) - (2,622) (468) 95 (60) - (4) (1,131) (124) 61 (1,881) (1,258) 43 (2,269) - (35) (340) (1,663) (1,375) (478) (2,261) (3,856) 1,254 10,777 4,923 5,854 Cash and cash equivalents at the end of the financial year 9 12,031 10,777 Represented by: Cash and cash equivalents Less: bank overdraft 12,346 (315) 10,777 - 12,031 10,777 The above statement of cash flows should be read in conjunction with the accompanying notes 22 Teaminvest Private Group Limited Notes to the financial statements For the year ended 30 June 2021 Note 1. General information The financial statements cover Teaminvest Private Group Limited as a Group consisting of Teaminvest Private Group Limited ('Company' or 'parent entity') and the entities it controlled at the end of, or during, the period (referred to in these financial statements as the 'Group'). The financial statements are presented in Australian dollars, which is Teaminvest Private Group Limited's functional and presentation currency. Teaminvest Private Group Limited is a listed public company limited by shares, incorporated and domiciled in Australia. Its registered office and principal place of business is: Suite 302, 80 Mount Street North Sydney, NSW 2060 A description of the nature of the Group's operations and its principal activities are included in the directors' report, which is not part of the financial statements. For the purposes of the consolidated financial statements, Teaminvest Private Pty Ltd has been identified as the accounting parent (legal acquiree) and the Group as the legal parent (accounting acquiree). The financial statements were authorised for issue, in accordance with a resolution of directors, on 26 August 2021. The directors have the power to amend and reissue the financial statements. Note 2. Significant accounting policies The principal accounting policies adopted in the preparation of the financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. New or amended Accounting Standards and Interpretations adopted The Group has adopted all of the new or amended Accounting Standards and Interpretations issued by the Australian Accounting Standards Board ('AASB') that are mandatory for the current reporting period. Any new or amended Accounting Standards or Interpretations that are not yet mandatory have not been early adopted. New Accounting Standards and Interpretations not yet mandatory or early adopted Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet mandatory, have not been early adopted by the Group for the annual reporting period ended 30 June 2021. The Group's assessment of the impact of these new or amended Accounting Standards and Interpretations, most relevant to the Group, are set out below. New Conceptual Framework for Financial Reporting The revised Conceptual Framework is applicable to annual reporting periods beginning on or after 1 January 2020 and early adoption is permitted. The Conceptual Framework contains new definition and recognition criteria as well as new guidance on measurement that affects several Accounting Standards. Where the Group has relied on the existing framework in determining its accounting policies for transactions, events or conditions that are not otherwise dealt with under the Australian Accounting Standards, the Group may need to review such policies under the revised framework. At this time, the application of the Conceptual Framework is not expected to have a material impact on the Group's financial statements. 23 Teaminvest Private Group Limited Notes to the financial statements For the year ended 30 June 2021 Note 2. Significant accounting policies (continued) Basis of preparation These general purpose financial statements have been prepared in accordance with Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board ('AASB') and the Corporations Act 2001, as appropriate for for-profit oriented entities. These financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board ('IASB'). Historical cost convention The financial statements have been prepared under the historical cost convention, unless otherwise stated. Critical accounting estimates The preparation of the financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in note 3. Parent entity information In accordance with the Corporations Act 2001, these financial statements present the results of the Group only. Supplementary information about the parent entity is disclosed in note 39. Principles of consolidation The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Teaminvest Private Group Limited as at 30 June 2021 and the results of all subsidiaries for the period then ended. Subsidiaries are all those entities over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases. Intercompany transactions, balances and unrealised gains on transactions between entities in the Group are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. The acquisition of subsidiaries is accounted for using the acquisition method of accounting. A change in ownership interest, without the loss of control, is accounted for as an equity transaction, where the difference between the consideration transferred and the book value of the share of the non-controlling interest acquired is recognised directly in equity attributable to the parent. Where the Group loses control over a subsidiary, it derecognises the assets including goodwill, liabilities and non- controlling interest in the subsidiary together with any cumulative translation differences recognised in equity. The Group recognises the fair value of the consideration received and the fair value of any investment retained together with any gain or loss in profit or loss. Operating segments Operating segments are presented using the 'management approach', where the information presented is on the same basis as the internal reports provided to the Chief Operating Decision Makers ('CODM'). The CODM is responsible for the allocation of resources to operating segments and assessing their performance. 24 Teaminvest Private Group Limited Notes to the financial statements For the year ended 30 June 2021 Note 2. Significant accounting policies (continued) Revenue recognition The Group recognises revenue as follows: Revenue from contracts with customers Revenue is recognised at an amount that reflects the consideration to which the Group is expected to be entitled in exchange for transferring goods or services to a customer. For each contract with a customer, the Group: identifies the contract with a customer; identifies the performance obligations in the contract; determines the transaction price which takes into account estimates of variable consideration and the time value of money; allocates the transaction price to the separate performance obligations on the basis of the relative stand-alone selling price of each distinct good or service to be delivered; and recognises revenue when or as each performance obligation is satisfied in a manner that depicts the transfer to the customer of the goods or services promised. Variable consideration within the transaction price, if any, reflects concessions provided to the customer such as discounts, rebates and refunds, any potential bonuses receivable from the customer and any other contingent events. Such estimates are determined using either the 'expected value' or 'most likely amount' method. The measurement of variable consideration is subject to a constraining principle whereby revenue will only be recognised to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur. The measurement constraint continues until the uncertainty associated with the variable consideration is subsequently resolved. Amounts received that are subject to the constraining principle are recognised as a refund liability. Sale of goods Revenue from the design, manufacture and installation of the products listed below is typically recognised at the point in time when the customer obtains control of the goods, which is generally at the time of installation or delivery. • glass splashbacks, glass bathroom walls and toughened mirrors; • • automation and remote monitoring products. semi-trailers; and Revenue from the design, development and installation of electrical network extensions and upgrades work in exchange for a fixed fee is recognised over time. Rendering of services Revenue from a contract to provide logistic support services is recognised at a point in time when the services are rendered based on a fixed price. Revenue from the design, development and installation of architectural metal work and traffic management services in exchange for a fixed fee, are recognised over time. Due to the high degree of interdependence between the various elements of these projects, they are accounted for as a single performance obligation. The performance obligation is based on the 'output method', where progress is measured against internally predetermined project milestones, being the most faithful depiction of the transfer of goods and services to each customer based on historical experience. As the performance obligation is generally completed within 12 months, the Group has used the practical expedient not to adjust for the effects of financing. The revenue from subscription and education services is recognised over the respective deemed benefit period. Interest Interest revenue is recognised as interest accrues using the effective interest method. This is a method of calculating the amortised cost of a financial asset and allocating the interest income over the relevant period using the effective interest rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset. Other revenue Other revenue is recognised when it is received or when the right to receive payment is established. 25 Teaminvest Private Group Limited Notes to the financial statements For the year ended 30 June 2021 Note 2. Significant accounting policies (continued) Income tax The income tax expense or benefit for the period is the tax payable on that period's taxable income based on the applicable income tax rate for each jurisdiction, adjusted by the changes in deferred tax assets and liabilities attributable to temporary differences, unused tax losses and the adjustment recognised for prior periods, where applicable. Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to be applied when the assets are recovered or liabilities are settled, based on those tax rates that are enacted or substantively enacted, except for: • When the deferred income tax asset or liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting nor taxable profits; or • When the taxable temporary difference is associated with interests in subsidiaries, associates or joint ventures, and the timing of the reversal can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. The carrying amount of recognised and unrecognised deferred tax assets are reviewed at each reporting date. Deferred tax assets recognised are reduced to the extent that it is no longer probable that future taxable profits will be available for the carrying amount to be recovered. Previously unrecognised deferred tax assets are recognised to the extent that it is probable that there are future taxable profits available to recover the asset. Deferred tax assets and liabilities are offset only where there is a legally enforceable right to offset current tax assets against current tax liabilities and deferred tax assets against deferred tax liabilities; and they relate to the same taxable authority on either the same taxable entity or different taxable entities which intend to settle simultaneously. Teaminvest Private Group Limited (the 'head entity') and its wholly-owned Australian subsidiaries have formed an income tax consolidated group under the tax consolidation regime. The head entity and each subsidiary in the tax consolidated group continue to account for their own current and deferred tax amounts. The tax consolidated group has applied the 'separate taxpayer within group' approach in determining the appropriate amount of taxes to allocate to members of the tax consolidated group. In addition to its own current and deferred tax amounts, the head entity also recognises the current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from each subsidiary in the tax consolidated group. Assets or liabilities arising under tax funding agreements with the tax consolidated entities are recognised as amounts receivable from or payable to other entities in the tax consolidated group. The tax funding arrangement ensures that the intercompany charge equals the current tax liability or benefit of each tax consolidated group member, resulting in neither a contribution by the head entity to the subsidiaries nor a distribution by the subsidiaries to the head entity. Current and non-current classification Assets and liabilities are presented in the statement of financial position based on current and non-current classification. An asset is classified as current when: it is either expected to be realised or intended to be sold or consumed in the Group's normal operating cycle; it is held primarily for the purpose of trading; it is expected to be realised within 12 months after the reporting period; or the asset is cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least 12 months after the reporting period. All other assets are classified as non-current. A liability is classified as current when: it is either expected to be settled in the Group's normal operating cycle; it is held primarily for the purpose of trading; it is due to be settled within 12 months after the reporting period; or there is no unconditional right to defer the settlement of the liability for at least 12 months after the reporting period. All other liabilities are classified as non-current. Deferred tax assets and liabilities are always classified as non-current. 26 Teaminvest Private Group Limited Notes to the financial statements For the year ended 30 June 2021 Note 2. Significant accounting policies (continued) Cash and cash equivalents Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. For the statement of cash flows presentation purposes, cash and cash equivalents also includes bank overdrafts, which are shown within borrowings in current liabilities on the statement of financial position. Trade and other receivables Trade receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method, less any allowance for expected credit losses. Trade receivables are generally due for settlement within 30 days. The Group has applied the simplified approach to measuring expected credit losses, which uses a lifetime expected loss allowance. To measure the expected credit losses, trade receivables have been grouped based on days overdue. Other receivables are recognised at amortised cost, less any allowance for expected credit losses. Contract assets Contract assets are recognised when the Group has transferred goods or services to the customer but where the Group has yet to issue an invoice. Contract assets are treated as financial assets for impairment purposes. Inventories Raw materials, work in progress and finished goods are stated at the lower of cost and net realisable value on a 'first in first out' basis. Cost comprises of direct materials and delivery costs, direct labour, import duties and other taxes, an appropriate proportion of variable and fixed overhead expenditure based on normal operating capacity, and, where applicable, transfers from cash flow hedging reserves in equity. Costs of purchased inventory are determined after deducting rebates and discounts received or receivable. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. Associates Associates are entities over which the Group has significant influence but not control or joint control. Investments in associates are accounted for using the equity method. Under the equity method, the share of the profits or losses of the associate is recognised in profit or loss and the share of the movements in equity is recognised in other comprehensive income. Investments in associates are carried in the statement of financial position at cost plus post-acquisition changes in the Group's share of net assets of the associate. Goodwill relating to the associate is included in the carrying amount of the investment and is neither amortised nor individually tested for impairment. Dividends received or receivable from associates reduce the carrying amount of the investment. When the Group's share of losses in an associate equals or exceeds its interest in the associate, including any unsecured long-term receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate. The Group discontinues the use of the equity method upon the loss of significant influence over the associate and recognises any retained investment at its fair value. Any difference between the associate's carrying amount, fair value of the retained investment and proceeds from disposal is recognised in profit or loss. 27 Teaminvest Private Group Limited Notes to the financial statements For the year ended 30 June 2021 Note 2. Significant accounting policies (continued) Property, plant and equipment Plant and equipment is stated at historical cost less accumulated depreciation and impairment. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Depreciation is calculated on a straight-line basis to write off the net cost of each item of property, plant and equipment (excluding land) over their expected useful lives as follows: Leasehold improvements Plant and equipment Plant and equipment under lease Motor vehicles over the term of the lease 1-10 years 2-5 years 4 years The residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each reporting date. Leasehold improvements are depreciated over the unexpired period of the lease or the estimated useful life of the assets, whichever is shorter. An item of property, plant and equipment is derecognised upon disposal or when there is no future economic benefit to the Group. Gains and losses between the carrying amount and the disposal proceeds are taken to profit or loss. Right-of-use assets A right-of-use asset is recognised at the commencement date of a lease. The right-of-use asset is measured at cost, which comprises the initial amount of the lease liability, adjusted for, as applicable, any lease payments made at or before the commencement date net of any lease incentives received, any initial direct costs incurred, and, except where included in the cost of inventories, an estimate of costs expected to be incurred for dismantling and removing the underlying asset, and restoring the site or asset. Right-of-use assets are depreciated on a straight-line basis over the unexpired period of the lease or the estimated useful life of the asset, whichever is the shorter. Where the Group expects to obtain ownership of the leased asset at the end of the lease term, the depreciation is over its estimated useful life. Right-of use assets are subject to impairment or adjusted for any remeasurement of lease liabilities. The Group has elected not to recognise a right-of-use asset and corresponding lease liability for short-term leases with terms of 12 months or less and leases of low-value assets. Lease payments on these assets are expensed to profit or loss as incurred. Intangible assets Intangible assets acquired as part of a business combination, other than goodwill, are initially measured at their fair value at the date of the acquisition. Intangible assets acquired separately are initially recognised at cost. Indefinite life intangible assets are not amortised and are subsequently measured at cost less any impairment. Finite life intangible assets are subsequently measured at cost less amortisation and any impairment. The gains or losses recognised in profit or loss arising from the derecognition of intangible assets are measured as the difference between net disposal proceeds and the carrying amount of the intangible asset. The method and useful lives of finite life intangible assets are reviewed annually. Changes in the expected pattern of consumption or useful life are accounted for prospectively by changing the amortisation method or period. Goodwill Goodwill arises on the acquisition of a business. Goodwill is not amortised. Instead, goodwill is tested annually for impairment, or more frequently if events or changes in circumstances indicate that it might be impaired and is carried at cost less accumulated impairment losses. Impairment losses on goodwill are taken to profit or loss and are not subsequently reversed. Customer contracts Customer contracts acquired in a business combination are amortised on a straight-line basis over the period of their expected benefit, being their finite life of 6 to 15 years, unless determined otherwise. 28 Teaminvest Private Group Limited Notes to the financial statements For the year ended 30 June 2021 Note 2. Significant accounting policies (continued) Software Significant costs associated with software are deferred and amortised on a straight-line basis over the period of their expected benefit, being their finite useful life of 5 years, unless determined otherwise. Formation costs Costs in relation to the formation of the Group are capitalised as an asset. These costs are not subsequently amortised. Patents, licence and trademarks Significant costs associated with patents, licenses, brands, and trademarks, if with a finite life, are deferred and amortised on a straight-line basis over the period of their expected benefit, being their finite useful life or 10 years. Impairment of non-financial assets Goodwill is not subject to amortisation and is tested annually for impairment, or more frequently if events or changes in circumstances indicate that it might be impaired. Other non-financial assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. Recoverable amount is the higher of an asset's fair value less costs of disposal and value-in-use. The value-in-use is the present value of the estimated future cash flows relating to the asset using a pre-tax discount rate specific to the asset or cash-generating unit to which the asset belongs. Assets that do not have independent cash flows are grouped together to form a cash-generating unit. Trade and other payables These amounts represent liabilities for goods and services provided to the Group prior to the end of the financial year and which are unpaid. Due to their short-term nature they are measured at amortised cost and are not discounted. The amounts are unsecured and are usually paid within 30 days of recognition. Contract liabilities Contract liabilities represent the Group's obligation to transfer goods or services to a customer and are recognised when a customer pays consideration, or when the Group recognises a receivable to reflect its unconditional right to consideration (whichever is earlier) before the Group has transferred the goods or services to the customer. Borrowings Loans and borrowings are initially recognised at the fair value of the consideration received, net of transaction costs. They are subsequently measured at amortised cost using the effective interest method. Lease liabilities A lease liability is recognised at the commencement date of a lease. The lease liability is initially recognised at the present value of the lease payments to be made over the term of the lease, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group's incremental borrowing rate. Lease payments comprise of fixed payments less any lease incentives receivable, variable lease payments that depend on an index or a rate, amounts expected to be paid under residual value guarantees, exercise price of a purchase option when the exercise of the option is reasonably certain to occur, and any anticipated termination penalties. The variable lease payments that do not depend on an index or a rate are expensed in the period in which they are incurred. Lease liabilities are measured at amortised cost using the effective interest method. The carrying amounts are remeasured if there is a change in the following: future lease payments arising from a change in an index or a rate used; residual guarantee; lease term; certainty of a purchase option and termination penalties. When a lease liability is remeasured, an adjustment is made to the corresponding right-of use asset, or to profit or loss if the carrying amount of the right-of-use asset is fully written down. 29 Teaminvest Private Group Limited Notes to the financial statements For the year ended 30 June 2021 Note 2. Significant accounting policies (continued) Finance costs Finance costs are expensed in the period in which they are incurred. Provisions Provisions are recognised when the Group has a present (legal or constructive) obligation as a result of a past event, it is probable the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the reporting date, taking into account the risks and uncertainties surrounding the obligation. If the time value of money is material, provisions are discounted using a current pre-tax rate specific to the liability. The increase in the provision resulting from the passage of time is recognised as a finance cost. Employee benefits Short-term employee benefits Liabilities for wages and salaries, including non-monetary benefits, annual leave and long service leave expected to be settled wholly within 12 months of the reporting date are measured at the amounts expected to be paid when the liabilities are settled. Other long-term employee benefits The liability for annual leave and long service leave not expected to be settled within 12 months of the reporting date are measured at the present value of expected future payments to be made in respect of services provided by employees up to the reporting date. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the reporting date on high quality corporate bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. Defined contribution superannuation expense Contributions to defined contribution superannuation plans are expensed in the period in which they are incurred. Share-based payments Equity-settled share-based compensation benefits are provided to employees. Equity-settled transactions are awards of shares, or options over shares, that are provided to employees in exchange for the rendering of services. Cash-settled transactions are awards of cash for the exchange of services, where the amount of cash is determined by reference to the share price. Fair value measurement When an asset or liability, financial or non-financial, is measured at fair value for recognition or disclosure purposes, the fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date; and assumes that the transaction will take place either: in the principal market; or in the absence of a principal market, in the most advantageous market. Fair value is measured using the assumptions that market participants would use when pricing the asset or liability, assuming they act in their economic best interests. For non-financial assets, the fair value measurement is based on its highest and best use. Valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, are used, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. Assets and liabilities measured at fair value are classified into three levels, using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. Classifications are reviewed at each reporting date and transfers between levels are determined based on a reassessment of the lowest level of input that is significant to the fair value measurement. For recurring and non-recurring fair value measurements, external valuers may be used when internal expertise is either not available or when the valuation is deemed to be significant. External valuers are selected based on market knowledge and reputation. Where there is a significant change in fair value of an asset or liability from one period to another, an analysis is undertaken, which includes a verification of the major inputs applied in the latest valuation and a comparison, where applicable, with external sources of data. 30 Teaminvest Private Group Limited Notes to the financial statements For the year ended 30 June 2021 Note 2. Significant accounting policies (continued) Issued capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Business combinations The acquisition method of accounting is used to account for business combinations regardless of whether equity instruments or other assets are acquired. The consideration transferred is the sum of the acquisition-date fair values of the assets transferred, equity instruments issued or liabilities incurred by the acquirer to former owners of the acquiree and the amount of any non-controlling interest in the acquiree. For each business combination, the non-controlling interest in the acquiree is measured at either fair value or at the proportionate share of the acquiree's identifiable net assets. Acquisition costs are expensed as incurred. On the acquisition of a business, the Group assesses the financial assets acquired and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic conditions, the Group's operating or accounting policies and other pertinent conditions in existence at the acquisition-date. Where the business combination is achieved in stages, the Group remeasures its previously held equity interest in the acquiree at the acquisition-date fair value and the difference between the fair value and the previous carrying amount is recognised in profit or loss. Contingent consideration to be transferred by the acquirer is recognised at the acquisition-date fair value. Subsequent changes in the fair value of the contingent consideration classified as an asset or liability is recognised in profit or loss. Contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity. The difference between the acquisition-date fair value of assets acquired, liabilities assumed and any non-controlling interest in the acquiree and the fair value of the consideration transferred and the fair value of any pre-existing investment in the acquiree is recognised as goodwill. If the consideration transferred and the pre-existing fair value is less than the fair value of the identifiable net assets acquired, being a bargain purchase to the acquirer, the difference is recognised as a gain directly in profit or loss by the acquirer on the acquisition-date, but only after a reassessment of the identification and measurement of the net assets acquired, the non-controlling interest in the acquiree, if any, the consideration transferred and the acquirer's previously held equity interest in the acquiree. Business combinations are initially accounted for on a provisional basis. The acquirer retrospectively adjusts the provisional amounts recognised and also recognises additional assets or liabilities during the measurement period, based on new information obtained about the facts and circumstances that existed at the acquisition-date. The measurement period ends on either the earlier of (i) 12 months from the date of the acquisition or (ii) when the acquirer receives all the information possible to determine fair value. When two or more entities combine through an exchange of equity interests, AASB 3 requires one of the entities to be deemed the acquirer under a reverse acquisition. In a ‘reverse acquisitions’, the issuing entity is the deemed to be the acquiree (legal parent) and the acquirer is deemed to be the subsidiary. In identifying the acquirer in a reverse acquisition the consideration is given in facts and circumstances including (a) the relative voting rights in the combined entity after the business combination; (b) the existence of a large minority voting interest in the combined entity if no other owner or organised group of owners has a significant voting interest; (c) the composition of the governing body of the combined entity; (d) the composition of the senior management of the combined entity and (e) the terms of the exchange of equity interests. The acquirer is usually the combining entity whose relative size (measured in, for example, assets, revenues or profit) is significantly greater than that of the other combining entity or entities. 31 Teaminvest Private Group Limited Notes to the financial statements For the year ended 30 June 2021 Note 2. Significant accounting policies (continued) Earnings per share Basic earnings per share Basic earnings per share is calculated by dividing the profit attributable to the owners of Teaminvest Private Group Limited, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the financial year. Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after-income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. Goods and Services Tax ('GST') and other similar taxes Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the tax authority. In this case it is recognised as part of the cost of the acquisition of the asset or as part of the expense. Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the tax authority is included in other receivables or other payables in the statement of financial position. Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to the tax authority, are presented as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the tax authority. Comparative information Comparatives have been restated, where appropriate, to conform to changes in presentation in the current year and to enhance comparability. There was no net effect on the net asset position. Rounding of amounts The Company is of a kind referred to in Corporations Instrument 2016/191, issued by the Australian Securities and Investments Commission, relating to 'rounding-off'. Amounts in this report have been rounded off in accordance with that Corporations Instrument to the nearest thousand dollars, or in certain cases, the nearest dollar. 32 Teaminvest Private Group Limited Notes to the financial statements For the year ended 30 June 2021 Note 3. Critical accounting judgements, estimates and assumptions The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts in the financial statements. Management continually evaluates its judgements and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgements, estimates and assumptions on historical experience and on other various factors, including expectations of future events, management believes to be reasonable under the circumstances. The resulting accounting judgements and estimates will seldom equal the related actual results. The judgements, estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities (refer to the respective notes) within the next financial year are discussed below. COVID-19 pandemic Judgement has been exercised in considering the impacts that the COVID-19 pandemic has had, or may have, on the Group based on known information. This consideration extends to the nature of the products and services offered, customers, supply chain, staffing and geographic regions in which the Group operates. Other than as addressed in specific notes, there does not currently appear to be either any significant impact upon the financial statements or any significant uncertainties with respect to events or conditions which has impacted the Group unfavourably as at the reporting date or subsequently as a result of the COVID-19 pandemic. Revenue recognition over time For performance obligations satisfied over time, management uses judgement to select a method for measuring its progress towards complete satisfaction of that performance obligation. In exercising that judgement, management selects a method that depicts its performance in transferring control of goods or services to the customer. For the provision of architectural metal work, management has determined that progress should be measured by internally predetermined project milestones (an output method). Specifically this method involves estimating the progress towards satisfying performance obligations within the contract and contract costs expected to be incurred to satisfy the performance obligations. Allowance for expected credit losses The allowance for expected credit losses assessment requires a degree of estimation and judgement. It is based on the lifetime expected credit loss, grouped based on days overdue, and makes assumptions to allocate an overall expected credit loss rate for each group. These assumptions include recent sales experience, historical collection rates, the impact of the COVID-19 pandemic and forward-looking information that is available Provision for impairment of inventories The provision for impairment of inventories assessment requires a degree of estimation and judgement. The level of the provision is assessed by taking into account the recent sales experience, the ageing of inventories and other factors that affect inventory obsolescence. Estimation of useful lives of assets The Group determines the estimated useful lives and related depreciation and amortisation charges for its property, plant and equipment and finite life intangible assets. The useful lives could change significantly as a result of technical innovations or some other event. The depreciation and amortisation charge will increase where the useful lives are less than previously estimated lives, or technically obsolete or non-strategic assets that have been abandoned or sold will be written off or written down. 33 Teaminvest Private Group Limited Notes to the financial statements For the year ended 30 June 2021 Note 3. Critical accounting judgements, estimates and assumptions(continued) Goodwill The Group tests annually, or more frequently if events or changes in circumstances indicate impairment, whether goodwill has suffered any impairment, in accordance with the accounting policy stated in note 2. The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations require the use of assumptions, including estimated discount rates based on the current cost of capital and growth rates of the estimated future cash flows. Income tax The Group is subject to income taxes in the jurisdictions in which it operates. Significant judgement is required in determining the provision for income tax. There are many transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain. The Group recognises liabilities for anticipated tax audit issues based on the Group's current understanding of the tax law. Where the final tax outcome of these matters is different from the carrying amounts, such differences will impact the current and deferred tax provisions in the period in which such determination is made. Recovery of deferred tax assets Deferred tax assets are recognised for deductible temporary differences only if the Group considers it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Incremental borrowing rate Where the interest rate implicit in a lease cannot be readily determined, an incremental borrowing rate is estimated to discount future lease payments to measure the present value of the lease liability at the lease commencement date. Such a rate is based on what the Group estimates it would have to pay a third party to borrow the funds necessary to obtain an asset of a similar value to the right-of-use asset, with similar terms, security and economic environment. 34 Teaminvest Private Group Limited Notes to the financial statements For the year ended 30 June 2021 Note 4. Operating segments Identification of reportable operating segments The Group is organised into two operating segments based on the whether it manufactures ('Engineering') or provides services ('Services'). These operating segments are based on the internal reports that are reviewed and used by the Board of Directors (who are identified as the Chief Operating Decision Makers ('CODM')) in assessing performance and in determining the allocation of resources. Further details are as follows: Segment name Description Engineering segment Services segment The engineering segment includes three wholly-owned subsidiaries of the Group: Lusty TIP Trailers Pty Ltd; Icon Metal Pty Ltd; Automation Group Investments Pty Ltd and Coastal Energy Pty Ltd. The services segment includes five wholly-owned subsidiaries; East Coast Traffic Controllers Pty Ltd, Teaminvest Private Residential Group Pty Ltd (aggregation of DecoGlaze Holdings Pty Ltd (previously under Engineering segment), Kitome Pty Ltd, Boutique Portraits Pty Ltd, and The Step Ahead Builder’s Assistant Pty Ltd), Valuestream Investment Management Limited and Teaminvest Pty Ltd and three associate entities: Colour Capital Pty Ltd, Multimedia Technology Pty Ltd and Teaminvest Private Insurance Services Pty Ltd. There is no aggregation of operating segments. The CODM reviews EBITDA (earnings before interest, tax, depreciation and amortisation). The accounting policies adopted for internal reporting to the CODM are consistent with those adopted in the financial statements. The information reported to the CODM is on a monthly basis. Intersegment transactions There were no material intersegment transactions. Intersegment receivables, payables and loans There were intersegment receivables, payables and loans amounting to $nil (2020 $nil). Major customers During the period ended 30 June 2021, the Group had sales to a construction customer that amounted to $13,250,249 (2020: $9,175,000). 35 Teaminvest Private Group Limited Notes to the financial statements For the year ended 30 June 2021 Note 4. Operating segments (continued) Consolidated - 30 June 2021 Engineering $'000 Services $'000 Total $'000 Revenue Sales to customers Other revenue Total EBITDA Depreciation and amortisation expense Interest revenue Other income Gain on business combinations Government grants Finance costs Impairment of intangibles Corporate overheads Profit before income tax expense Income tax Profit after income tax expense Assets Segment assets Unallocated assets: Corporate assets Total assets Liabilities Segment liabilities Unallocated liabilities: Provision for income tax Deferred tax liability Deferred consideration Corporate liabilities Total liabilities 64,210 286 64,496 26,259 371 26,630 90,469 657 91,126 5,111 3,922 9,033 (2,869) 261 317 3,734 2,522 (399) (4,294) (2,514) 5,791 (590) 5,201 55,865 70,774 126,639 5,823 132,462 18,067 7,625 25,692 191 5,996 258 1,717 33,854 36 Teaminvest Private Group Limited Notes to the financial statements For the year ended 30 June 2021 Note 4. Operating segments (continued) Consolidated - 30 June 2020 Engineering $'000 Services $'000 Total $'000 Revenue Sales to customers Other revenue Total EBITDA Depreciation and amortisation expense Interest revenue Other income Gain on business combinations Government grants Finance costs Corporate overheads Profit before income tax expense Income tax Profit after income tax expense Assets Segment assets Unallocated assets: Corporate assets Total assets Liabilities Segment liabilities Unallocated liabilities: Provision for income tax Deferred tax liability Corporate liabilities Total liabilities 61,895 381 62,276 25,635 363 25,998 87,530 744 88,274 5,963 7,275 13,238 (2,514) 93 728 594 1,096 (399) (3,915) 8,921 (615) 8,306 54,826 49,560 104,386 3,576 107,962 18,395 6,783 25,178 2 6 1,580 26,766 37 Teaminvest Private Group Limited Notes to the financial statements For the year ended 30 June 2021 Note 5. Revenue from contracts with customers Consolidated Revenue from contracts with customers Sale of goods Rendering of services Other revenue Other sales revenue Revenue Disaggregation of revenue The disaggregation of revenue from contracts with customers is as follows: 30 Jun 2021 $'000 30 Jun 2020 $'000 39,805 50,664 90,469 974 91,443 48,827 38,703 87,530 1,472 89,002 Consolidated - 30 June 2021 Geographical Regions Australia Timing of Revenue recognition Goods transferred at a point in time Goods transferred over time Services transferred at a point in time Services transferred over time Consolidated - 30 June 2020 Geographical Regions Australia Timing of Revenue recognition Goods transferred at a point in time Goods transferred over time Services transferred at a point in time Services transferred over time Engineering $'000 Services $'000 Total $'000 64,210 26,259 90,469 35,486 6,902 604 21,218 4,319 - 9,647 12,293 39,805 6,902 10,251 33,511 64,210 26,259 90,469 Engineering $'000 Services $'000 Total $'000 61,895 25,635 87,530 30,242 13,523 438 17,692 5,063 - 10,085 10,487 35,305 13,523 10,523 28,179 61,895 25,635 87,530 38 Teaminvest Private Group Limited Notes to the financial statements For the year ended 30 June 2021 Note 6. Other income Consolidated Gain on bargain purchase Government grants Insurance recoveries Reimbursement of expenses Other Net gain on disposal of property, plant, and equipment Other Income 30 Jun 2021 $'000 30 Jun 2020 $'000 3,734 2,522 - 84 368 95 6,803 594 1,096 4,020 37 - - 5,747 Government grants (COVID-19) The Group as a whole has delivered another solid performance increasing NPAT on a comparable basis to FY20. Whilst some individual subsidiaries have been affected by COVID-19, previous years bushfires and trade disruptions from international suppliers, the impact has been to the revenue line. The remainder of the group, due to strength of management have been able to capitalise on the opportunities presented by the pandemic and have grown revenue and managed overheads to be able to increase profits. The portfolio structure of our Group has enabled the results to continue along the growth path expected as a whole. As the result of the loss of the founder of a subsidiary in July 2019 the group received an insurance payout of $4,020,000 under two keyman policies. Refer to the 'CEO report' for further details of operations and commentary on the results. 39 Teaminvest Private Group Limited Notes to the financial statements For the year ended 30 June 2021 Note 7. Expenses Consolidated Profit before income tax includes the following specific expenses: Depreciation Leasehold improvements Plant and equipment Motor vehicles Buildings right-of-use assets Plant and equipment right-of-use assets Motor vehicles right-of-use assets Total depreciation Amortisation Patents and trademarks Customer contracts Software Formation costs Total amortisation Total depreciation and amortisation Finance costs Interest paid on borrowings Interest paid on lease liabilities Finance costs expensed Leases Short-term lease payments Low-value assets lease payments 30 Jun 2021 $'000 30 Jun 2020 $'000 98 470 360 1,419 32 49 2,428 94 249 66 32 441 2,869 159 240 399 68 - 68 66 335 374 1,054 48 32 1,909 1 601 3 - 605 2,514 243 156 399 858 17 875 40 Teaminvest Private Group Limited Notes to the financial statements For the year ended 30 June 2021 Note 8. Income tax Consolidated Income tax expense Current tax Deferred tax - origination and reversal of temporary differences Adjustment recognised for prior periods Aggregate income tax expense Numerical reconciliation of income tax expense/(benefit) and tax at the statutory rate Profit before income tax Tax at statutory rate of 30% Tax effect amounts which are not deductible/(taxable) in calculating taxable income: Insurance recoveries Gain on bargain purchase Other non-taxable income Share of profits - associates Non-deductible expenses Adjustment recognised for prior periods Income tax expense 30 Jun 2021 $'000 30 Jun 2020 $'000 208 590 (208) (522) 1,024 113 590 615 5,791 8,921 1,737 2,676 - (1,120) (258) (860) 1,299 798 (208) 590 (1,206) (178) (281) (551) 46 502 113 615 41 Teaminvest Private Group Limited Notes to the financial statements For the year ended 30 June 2021 Note 8. Income tax (continued) Consolidated Deferred tax asset/(liability) Deferred tax asset/(liability) comprises temporary differences attributable to: Amounts recognised in profit or loss: Tax losses Allowance for expected credit losses Rights-of-use Contract liabilities Employee benefits Provision for warranties and claims Accrued expenses Retention receivable Prepayments Contract assets Inventories Intangible assets Property, plant, equipment Other Deferred tax asset/(liability) Movements: Opening balance Credited/(charged) to profit or loss Additions through business combinations (note 34) Other Closing balance 30 Jun 2021 $'000 30 Jun 2020 $'000 767 36 66 802 795 40 (18) (683) (54) (1,558) (11) (5,781) (125) (272) (5,996) (6) (590) (5,128) (272) (5,996) 640 91 79 1,482 1,074 60 39 (460) (41) (2,150) (11) (707) (102) - (6) 995 (1,024) - 23 (6) 42 Teaminvest Private Group Limited Notes to the financial statements For the year ended 30 June 2021 Note 9. Current assets – cash and cash equivalents Cash on hand Cash at bank Cash on deposit 30 Jun 2021 $'000 30 Jun 2020 $'000 4 12,081 261 12,346 2 8,466 2,309 10,777 Reconciliation to cash and cash equivalents at the end of the financial year The above figures are reconciled to cash and cash equivalents at the end of the financial year as shown in the statement of cash flows as follows: Balances above Bank overdraft Balance as per statement of cash flows Note 10. Current assets - trade and other receivables Trade receivables Allowance for expected credit losses Loan receivable Receivable from employees Receivable from related parties Other Receivables 12,346 (315) 12,031 10,777 - 10,777 30 Jun 2021 $'000 30 Jun 2020 $'000 9,259 (398) 8,861 69 11 80 - 18 8,959 8,215 (302) 7,913 - 8 8 13 463 8,397 43 Teaminvest Private Group Limited Notes to the financial statements For the year ended 30 June 2021 Note 10. Current assets – trade and other receivables (continued) Allowance for expected credit losses The ageing of the receivables and allowance for expected credit losses provided for above are as follows: Expected credit loss rate Gross carrying amount Carrying Amount Allowance for expected credit losses 30 June 2021 % 30 June 2020 % 30 June 2021 $'000 30 June 2020 $'000 30 June 2021 $'000 30 June 2020 $'000 - - 7,473 5,768 - 18.18% 100% - 11.45% 61.12% 1,407 110 269 9,259 1,512 262 673 8,215 - - 20 378 398 - - 30 272 302 Consolidated Not overdue (less than 1 month) Between 1 to 3 months Between 3 to 6 months Over 6 months* *Higher expected credit losses rate attributed to Coastal Energy. Movements in the allowance for expected credit losses are as follows: Consolidated Opening balance Additional provisions recognised Additions through business combinations Receivables written off during the year as uncollectable Unused amounts reversed Closing balance Note 11. Current assets - contract assets Consolidated Contract assets Opening balance Additions Additions through business combinations Transfer to trade receivables Closing balance 30 Jun 2021 $'000 30 Jun 2020 $'000 302 360 40 (77) (227) 398 443 26 - (165) (2) 302 30 Jun 2021 $'000 30 Jun 2020 $'000 8,049 9,033 9,033 35,906 (2) (36,888) 8,049 5,699 34,335 3 (31,004) 9,033 44 Teaminvest Private Group Limited Notes to the financial statements For the year ended 30 June 2021 Note 12. Current assets – inventories Consolidated Raw materials - at cost Work in progress - at cost Finished goods - at cost 30 Jun 2021 $'000 30 Jun 2020 $'000 3,687 2,531 2,161 8,379 100 3,789 2,723 6,612 Note 13. Non-current assets - investments accounted for using the equity method Consolidated 30 Jun 2021 $'000 30 Jun 2020 $'000 Investment in associates 21,412 19,124 Reconciliation Reconciliation of the Group’s carrying amounts at the beginning and end of the current and previous financial year are set out below: Consolidated Opening carrying amount Profit after income tax Additions Dividends received Closing carrying amount 30 Jun 2021 $'000 30 Jun 2020 $'000 19,124 2,867 74 (653) 17,499 1,858 - (233) 21,412 19,124 Detailed Reconciliation: A detailed reconciliation of the Group’s carrying amounts at the beginning and end of the current and previous financial year are set out below: Colour Capital Multimedia Technology 30 Jun 2021 $'000 30 Jun 2020 $'000 30 Jun 2021 $'000 30 Jun 2020 $'000 Teaminvest Private Insurance 30 Jun 30 Jun 2020 2021 $'000 $'000 Reconciliation of the Group's carrying amount Beginning balance/acquisition price Share of profit/(loss) after income tax Share of dividends received 8,096 1,006 (500) 7,677 11,038 1,859 (150) 502 (83) 9,822 1,366 (150) Closing carrying amount 8,602 8,096 12,747 11,038 64 2 (3) 63 - (10) - - 45 Teaminvest Private Group Limited Notes to the financial statements For the year ended 30 June 2021 Note 13. Non-current assets - investments accounted for using the equity method (continued) Interest in associates Name Principal place of business/Country of incorporation Colour Capital Pty Ltd Multimedia Technology Pty Ltd Teaminvest Private Insurance Services Pty Ltd Australia Australia Australia Ownership interest 30 Jun 2021 % 30 Jun 2020 % 33.30% 30.00% 50.00% 33.30% 30.00% 50.00% Summarised statement of financial position of the current and previous financial year are set out below Summarised statement of financial position Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities Colour Capital Multimedia Technology Teaminvest Private Insurance 30 Jun 2021 $'000 30 Jun 2020 $'000 30 Jun 2021 $'000 30 Jun 2020 $'000 30 Jun 2021 $'000 30 Jun 2020 $'000 4,417 2,391 3,269 2,276 37,935 3,392 29,520 4,048 211 - 6,808 5,545 41,327 33,568 211 1,610 4 1,827 41 15,754 - 9,954 6,396 137 - 1,614 1,868 15,754 16,350 137 66 4 70 76 - 76 Net assets/(liabilities) 5,194 3,677 25,573 17,218 74 (6) Summarised statement of profit or loss and other comprehensive income are set out below: Colour Capital Multimedia Technology Teaminvest Private Insurance 30 Jun 2021 $'000 30 Jun 2020 $'000 30 Jun 2021 $'000 30 Jun 2020 $'000 30 Jun 2021 $'000 30 Jun 2020 $'000 Summarised statement of profit or loss and other comprehensive income Revenue Expenses 16,084 (11,976) 11,505 (9,071) 151,025 (142,170) 144,838 (138,354) Profit/(loss) before income tax Income tax (expense)/benefit 4,109 (1,091) 2,434 (928) 8,855 (2,656) 6,484 (1,931) Profit/(loss) after income tax 3,018 1,506 6,199 4,553 Other comprehensive income/(loss) - (1) - - Total comprehensive income/(loss) 3,018 1,505 6,199 4,553 105 99 6 (2) 4 - 4 60 (74) (14) 4 (10) - (10) 46 Teaminvest Private Group Limited Notes to the financial statements For the year ended 30 June 2021 Note 14. Non-current assets - property, plant and equipment Land - at cost Leasehold improvements Less: Accumulated depreciation Plant and equipment - at cost Less: Accumulated depreciation Motor vehicles - at cost Less: Accumulated depreciation 30 Jun 2021 $'000 54 30 Jun 2020 $'000 54 673 (138) 535 4,045 (1,026) 3,019 2,596 (586) 2,010 5,618 211 (42) 169 2,458 (402) 2,056 2,250 (329) 1,921 4,200 Reconciliations Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below: Consolidated Balance at 30 June 2019 Additions Disposals Reclassifications Impairment of assets Depreciation expense Balance at 30 June 2020 Additions through business combinations Additions Disposals Reclassifications Impairment of assets Depreciation expense Balance at 30 June 2021 Land $'000 Leasehold Improvements $'000 Plant and Equipment $'000 Motor Vehicles $'000 Total $'000 159 154 (33) (45) - (66) 169 - 495 (31) - - (98) 535 2,013 803 (14) (411) - (335) 2,056 19 1,432 (16) - (2) (470) 3,019 1,711 174 (14) 456 (32) (374) 1,921 4 695 (247) - (3) (360) 2,010 3,937 1,131 (61) - (32) (775) 4,200 23 2,622 (294) - (5) (928) 5,618 54 - - - - - 54 - - - - - - 54 47 Teaminvest Private Group Limited Notes to the financial statements For the year ended 30 June 2021 Note 15. Non-current assets - right-of-use assets Consolidated Land & Buildings - right-of-use Accumulated Depreciation Plant & Equipment -right-of-use Accumulated Depreciation Motor Vehicles-right-of-use Accumulated Depreciation 30 Jun 2021 $'000 30 Jun 2020 $'000 6,445 (2,912) 3,533 93 (35) 58 43 (28) 15 3,606 4,760 (1,054) 3,706 - - - 159 (48) 111 3,817 Additions to the right-of-use assets during the period were $1,788,000 The Group leases land and buildings for its offices, warehouses and retail outlets under agreements of between 1 to 5 years with, in some cases, options to extend. The leases have various escalation clauses. On renewal, the terms of the leases are renegotiated. The Group also leases plant and equipment under agreements of between 1 to 5 years. The Group leases office equipment under agreements of less than 1 year. These leases are either short-term or low-value, so have been expensed as incurred and not capitalised as right-of-use assets. Note 16. Non-current assets – intangibles Consolidated Goodwill at cost Patents and trademarks - at cost less: accumulated amortisation Customer Contracts - at cost less: accumulated amortisation Software - at cost less: accumulated amortisation Formation costs less: accumulated amortisation Other intangibles 30 Jun 2021 $'000 30 Jun 2020 $'000 42,279 42,619 575 (95) 480 3,420 (884) 2,536 638 (159) 479 302 (32) 270 17,000 63,044 543 (1) 542 2,957 (601) 2,356 259 (43) 216 37 - 37 - 45,770 48 Teaminvest Private Group Limited Notes to the financial statements For the year ended 30 June 2021 Note 16. Non-current assets – intangibles (continued) Reconciliations Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below: Patents and Trademarks $'000 Customer Relationships $'000 Software $'000 Formation Costs $'000 Other Intangibles $'000 Total $'000 Consolidated Goodwill Balance at 30 June 2019 Additions Additions through business combinations Amortisation expense Balance as at 30 June 2020 Additions Additions through business combinations Impairment Amortisation expense Balance at 30 June 2021 $'000 42,619 - - - 42,619 - 3,920 (4,260) - 42,279 Other intangible assets include: Intangible Asset Confidential information and know-how Technology-based intangible asset - website Content Regulatory approval Networks and relationships Brand Separately Identified Assets Acquired 78 - 465 2,957 132 - - 87 - (1) (601) (3) 542 32 - - (94) 480 2,356 - 463 (34) (249) 216 171 158 - (66) - 37 - - 37 265 - - (32) - 45,786 - - - 124 465 (605) - 45,770 - 468 17,000 21,541 - - (4,294) (441) 2,536 479 270 17,000 63,044 Fair value $’000 5,926 6,702 150 300 2,166 1,756 17,000 49 Teaminvest Private Group Limited Notes to the financial statements For the year ended 30 June 2021 Note 16. Non-current assets – intangibles (continued) Impairment testing Goodwill has been allocated to the cash-generating units ('CGUs') as follows: Consolidated Goodwill allocated to engineering segment: Coastal Energy Icon Metal Lusty TIP Trailers Automation Group Investments Engineering segment Goodwill allocated to services segment: East Coast Traffic Controllers Teaminvest Private Residential Group Services Segment 30 Jun 2021 $'000 30 Jun 2020 $'000 - 8,595 10,462 3,689 22,746 3,057 16,476 19,533 4,260 8,595 10,462 - 23,317 2,826 16,476 19,302 Coastal Energy has been adversely impacted due to being suspended as a rated provider by Energex Corporation Limited. However, in light of the adverse effect on the Coastal Energy operations and outlook, the directors have impaired Coastal Energy’s goodwill of $4,260,000 and carrying value of the customer relationship intangibles of $34,000. 50 Teaminvest Private Group Limited Notes to the financial statements For the year ended 30 June 2021 Note 16. Non-current assets – intangibles (continued) The recoverable amount of the Group's goodwill has been determined by a value-in-use calculation using a discounted cash flow model, based on management approved budget and the application of a growth rate for a 5 year projection period, together with a terminal value. The following assumptions were used in the discounted cash flow models for the period subsequent to management's approved budget: 2021 Revenue growth rate % 5.61% 4.56% 7.64% 4.94% 8.13% - - 2021 Discount rate (pre-tax) % 10.60% 10.00% 11.00% 2021 Terminal growth rate % 2.75% 2.75% 2.75% 9.90% 10.60% 2.75% 2.75% - - - - 2020 Revenue growth rate % 10.00% 5.80% - 9.20% - 8.00% 5.40% 2020 Discount rate (pre-tax) % 11.05% 9.52% - 2020 Terminal growth rate % 2.75% 2.75% - 9.35% - 10.54% 11.04% 2.75% - 2.75% 2.75% Icon Metal Lusty TIP Trailers Automation Group Investments East Coast Traffic Controllers Teaminvest Private Residential Group Kitome DecoGlaze The Group performed a restructure of business operations of DecoGlaze and Kitome during the year ended 30 June 2021. The restructure included combining product offerings from Kitome and DecoGlaze into a single contract and a single management overseeing Teaminvest Private Residential Group Pty Ltd. As a result, impairment testing was performed treating Teaminvest Private Residential Group Pty Ltd as a single cash generating unit. Key assumption Revenue growth rate Discount rate Terminal growth rate Approach used to determine values Management believes revenue growth is appropriate based on market conditions and outlook with businesses being driven by top line results with limited fixed costs, stable cost of goods sold when considering the general market in which the relevant CGU operates. Pre-tax discount rate reflects management’s estimate of the time value of money and the relevant portfolio company’s weighted average cost of capital adjusted for the risk-free rate and the volatility of the relevant portfolio company’s industry relative to market movements. Management have estimated that the terminal growth rate will be in line with the Reserve Bank of Australia ('RBA') expected gross domestic products ('GDP') growth rate. Based on the above, other than Coastal Energy which has been fully impaired, the recoverable amount of the remaining CGUs exceed the carrying amount and therefore, goodwill is not considered to be further impaired. 51 Teaminvest Private Group Limited Notes to the financial statements For the year ended 30 June 2021 Note 16. Non-current assets – intangibles (continued) Sensitivity As disclosed in note 3, the directors have made judgements and estimates in respect of impairment testing of goodwill. Should these judgements and estimates not occur the resulting goodwill carrying amount may decrease. The recoverable amount of the CGU would equal its carrying amount if the key assumptions were to change as follows: Icon Metal Lusty TIP Trailers Automation Group Investments East Coast Traffic Controllers Teaminvest Private Residential Group Kitome DecoGlaze 2021 Revenue growth rate decrease by % 23.89% 18.86% 22.77% 31.60% 18.27% - - 2021 Discount rate increases by % 10.88% 20.81% 19.18% 20.29% 17.39% - - 2020 Revenue growth rate decrease by % 18.57% 14.65% - 20.75% - 4.80% 3.87% 2020 Discount rate increases by % 12.32% 15.02% - 23.72% - 3.12% 3.77% 52 Teaminvest Private Group Limited Notes to the financial statements For the year ended 30 June 2021 Note 17. Current liabilities - trade and other payables Consolidated Trade payables Accrued expenses BAS payable Other payables Refer to note 27 for further information on financial instruments. Note 18. Current liabilities – contract liabilities Consolidated Contract Liabilities Opening balance Payments received in advance Additions through business combinations Transfer to revenue - from additions through business combinations Transfer to revenue - from advance payments received during the period Closing balance 30 Jun 2021 $'000 30 Jun 2020 $'000 7,009 4,682 981 1,108 13,780 6,138 6,848 966 1,807 15,759 30 Jun 2021 $'000 30 Jun 2020 $'000 4,877 3,117 3,117 11,012 1,919 - (11,171) 4,877 1,489 15,415 14 (5) (13,796) 3,117 Unsatisfied performance obligations The aggregate amount of the transaction price allocated to the performance obligations that are unsatisfied at the end of the reporting period was $4,877,000 as at 30 June 2021 ($3,117,000 as at 30 June 2020) and is expected to be recognised as revenue in future periods as follows: 30 Jun 2021 $'000 30 Jun 2020 $'000 2,564 2,313 4,877 2,911 206 3,117 30 Jun 2021 $'000 30 Jun 2020 $'000 315 422 (35) 621 1,323 - 379 - - 379 Consolidated Within 6 months 6 to 12 months Total Note 19. Current liabilities – borrowings Consolidated Bank overdraft Bank loans Invoice discounting Payable to other parties Refer to note 27 for further information on financial instruments. Invoice discounting is secured by the trade receivables. 53 Teaminvest Private Group Limited Notes to the financial statements For the year ended 30 June 2021 Note 20. Current liabilities - lease liabilities Consolidated Lease liability Lease liability (under AASB 16) Refer to note 27 for further information on financial instruments. Note 21. Current liabilities - employee benefits Consolidated Annual leave Long service leave Note 22. Financing facilities 30 Jun 2021 $'000 495 1,502 1,997 30 Jun 2020 $'000 680 1,296 1,976 30 Jun 2021 $'000 1,693 475 2,168 30 Jun 2020 $'000 1,428 362 1,790 Financing arrangements Unrestricted access was available at the reporting date to the following lines of credit: Consolidated Total facilities Bank overdraft Bank loan Invoice discounting Used at the reporting date Bank overdraft Bank loan Invoice discounting Unused at the reporting date Bank overdraft Bank loan Invoice discounting 30 Jun 2021 $'000 30 Jun 2020 $'000 2,150 2,154 500 4,804 315 422 (35) 702 1,835 1,732 535 4,102 4,400 700 800 5,900 - 379 - 379 4,400 321 800 5,521 54 Teaminvest Private Group Limited Notes to the financial statements For the year ended 30 June 2021 Note 23. Non-current liabilities - lease liabilities Consolidated Lease liability Lease liability (under AASB 16) Note 24. Non-current liabilities - employee benefits Consolidated Long service leave Note 25. Equity - issued capital 30 Jun 2021 $'000 30 Jun 2020 $'000 372 2,322 2,694 461 2,735 3,196 30 Jun 2021 $'000 30 Jun 2020 $'000 377 293 30 Jun 2021 Shares 30 Jun 2020 Shares 30 Jun 2021 $'000 30 Jun 2020 $'000 Ordinary shares - fully paid 130,499,310 111,230,952 87,597 75,386 Movements in ordinary share capital Details Date Shares Balance Issue of ordinary shares for settlement of share based payments Issue of ordinary shares related to business combinations Issue of ordinary shares for directors' fees' Issue of ordinary shares for bonuses Issue of ordinary shares related to business combinations Balance 01-Jul-20 111,230,952 2,080,181 04-Sep-20 17-Sep-20 04-Dec-20 29-Dec-20 30-Jun-21 4,001,708 107,416 388,072 12,690,981 30-Jun-21 130,499,310 Issue Price 0.5288 0.6644 0.5288 0.7344 0.6390 $'000 75,386 1,100 2,659 57 285 8,110 87,597 Ordinary Shares Ordinary shares entitle the holder to participate in any dividends declared and any proceeds attributable to shareholders should the Company be wound up, in proportions that consider both the number of shares held and the extent to which those shares are paid up. The fully paid ordinary shares have no par value and the Company does not have a limited amount authorized capital. On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote. Share buy-back There is no current on-market share buy-back. Capital risk management The Group’s objectives when managing capital is to safeguard its ability to continue as a going concern, so that it can provide returns for shareholders and benefits for other stakeholders and to maintain an optimum capital structure to reduce the cost of capital. 55 Teaminvest Private Group Limited Notes to the financial statements For the year ended 30 June 2021 Note 25 – Equity issued capital (continued) Capital is regarded as total equity, as recognised in the statement of financial position, plus net debt. Net debt is calculated as total borrowings less cash and cash equivalents. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. The Group would look to raise capital when an opportunity to invest in a business or company was seen as value adding relative to the current Company's share price at the time of the investment. The Group is actively looking for accretive acquisitions to grow in alignment with the Group’s investment mandate. The Group is subject to certain financing arrangements covenants and meeting these is given priority in all capital risk management decisions. There have been no events of default on the financing arrangements during the financial year. Note 26. Equity – dividends Dividends There were no dividends paid, recommended or declared during the current or previous financial year. Consolidated 30 Jun 2021 $'000 30 Jun 2020 $'000 Franking credits available for subsequent financial years based on a tax rate of 30% 2,339 1,454 The above amounts represent the balance of the franking account as at the end of the financial year, adjusted for: • • • franking credits that will arise from the payment of the amount of the provision for income tax at the reporting date franking debits that will arise from the payment of dividends recognised as a liability at the reporting date franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date 56 Teaminvest Private Group Limited Notes to the financial statements For the year ended 30 June 2021 Note 27. Financial instruments Financial risk management objectives The Group's activities expose it to a variety of financial risks: market risk (including interest rate risk), credit risk and liquidity risk. The Group's overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. The Group uses different methods to measure different types of risk to which it is exposed. These methods include sensitivity analysis in the case of interest rate and ageing analysis for credit risk. Risk management is carried out by senior finance executives ('finance') in conjunction with the Risk and Compliance committee ('RCC'). Finance identifies, evaluates and hedges financial risks within the Group's operating units. Finance reports to the Board on a monthly basis. Market risk Foreign currency risk The Group is not exposed to any significant foreign currency risk. Price risk The Group is not exposed to any significant price risk. Interest rate risk The Group's main interest rate risk arises from its long-term borrowings. Borrowings obtained at variable rates expose the Group to interest rate risk. Borrowings obtained at fixed rates expose the Group to fair value interest rate risk. As at the reporting date, the Group had the following variable rate borrowings outstanding: Consolidated 30 June 2021 Weighted average interest rate % Balance $'000 Bank overdraft and bank loans 4.23% 702 702 30 June 2020 Weighted average interest rate % 5.95% Balance $'000 379 379 An analysis by remaining contractual maturities in shown in 'liquidity risk' below. For the Group, the bank overdraft and loans outstanding, totalling $702,000 (2020: $379,000), are principal and interest payment loans. An official increase/decrease in interest rates of 100 (2020: 100) basis points would have an adverse/favourable effect on profit before tax of $7,020 (2020: $3,790) per annum. The percentage change is based on the expected volatility of interest rates using market data and analysts' forecasts. 57 Teaminvest Private Group Limited Notes to the financial statements For the year ended 30 June 2021 Note 27 – Financial instruments (continued) Credit risk Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group has a strict code of credit, including obtaining agency credit information, confirming references and setting appropriate credit limits. The maximum exposure to credit risk at the reporting date to recognised financial assets is the carrying amount, net of any expected credit losses of those assets, as disclosed in the statement of financial position and notes to the financial statements. The Group does not hold any collateral. The Group has adopted a lifetime expected loss allowance in estimating expected credit losses to trade receivables through the use of a provisions matrix using fixed rates of credit loss provisioning. These provisions are considered representative across all customers of the Group based on recent sales experience, historical collection rates and forward-looking information that is available. Generally, trade receivables are written off when there is no reasonable expectation of recovery. Indicators of this include the failure of a debtor to engage in a repayment plan, no active enforcement activity and a failure to make contractual payments for a period greater than one year. Liquidity risk Vigilant liquidity risk management requires the Group to maintain sufficient liquid assets (mainly cash and cash equivalents) and available borrowing facilities to be able to pay debts as and when they become due and payable. The Group manages liquidity risk by maintaining adequate cash reserves and available borrowing facilities by continuously monitoring actual and forecast cash flows and matching the maturity profiles of financial assets and liabilities. Financing arrangements Unused borrowing facilities at the reporting date: Bank overdraft Bank loan Invoice discounting 30 Jun 2021 $'000 1,835 1,732 535 4,102 30 Jun 2020 $'000 4,400 321 800 5,521 The bank overdraft facilities may be drawn at any time and may be terminated by the bank without notice. Subject to the continuance of satisfactory credit ratings, the bank loan facilities may be drawn at any time. Remaining contractual maturities The following tables detail the Group's remaining contractual maturity for its financial instrument liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the financial liabilities are required to be paid. The tables include both interest and principal cash flows disclosed as remaining contractual maturities and therefore these totals may differ from their carrying amount in the statement of financial position. The cash flows in the maturity analysis above are not expected to occur significantly earlier than contractually disclosed above. 58 Teaminvest Private Group Limited Notes to the financial statements For the year ended 30 June 2021 Note 27 – Financial instruments (continued) Weighted average interest rate % 1 year or less $'000 Between 1 and 2 years $'000 Between 2 and 5 years $'000 Over 5 years $'000 Remaining contractual maturities $'000 - - 2.95% 5.95% 4.21% 4.00% 6.65% 4.50% 7,009 6,771 422 315 (35) 621 495 1,502 - - - - - - - - - - 164 1,090 208 1,232 17,100 1,254 1,440 - - - - - - - - 7,009 6,771 422 315 (35) 621 867 3,824 19,794 Weighted average interest rate % 1 year or less $'000 Between 1 and 2 years $'000 Between 2 and 5 years $'000 Over 5 years $'000 Remaining contractual maturities $'000 - - 5.45% - 7.20% 5.00% 5.00% 6,138 1,807 379 - - 680 1,296 - - - - - - 6,138 1,807 - - - 354 1,305 - - - 107 1,271 - - - - 159 379 - - 1,141 4,031 10,300 1,659 1,378 159 13,496 Consolidated - 30 Jun 2021 Non-derivatives Non-interest bearing Trade payables Other payables Interest-bearing - variable Bank loans Bank overdraft Invoice discounting Other loans Lease liability Lease liability (AASB 16) Total non- derivatives Consolidated - 30 Jun 2020 Non-derivatives Non-interest bearing Trade payables Other payables Interest-bearing - variable Bank loans Bank overdraft Invoice discounting Lease liability Lease liability (AASB 16) Total non- derivatives Note 28. Fair value measurement The carrying amounts of trade and other receivables and trade and other payables are assumed to approximate their fair values due to their short-term nature. 59 Teaminvest Private Group Limited Notes to the financial statements For the year ended 30 June 2021 Note 29. Remuneration of auditors During the financial year the following fees were paid or payable for services provided by KPMG, the auditor of the Company: Audit Services - KPMG Audit or review of financial statements Other services - KPMG Tax compliance services Non-Audit Services - Software license charges 30 Jun 2021 $ 30 Jun 2020 $ 181,000 153,675 25,000 - 25,000 - 58,759 58,759 206,000 212,434 Note 30. Contingent liabilities The Group has given bank guarantees $1,368,643 as at 30 June 2021 (2020: $498,000). Contingent liability for unsettled claims against the Group is $nil as at 30 June 2021 (2020: $nil). Note 31. Commitments Consolidated Lease commitments - operating Within one year Total Lease commitments - finance (repayments) Within one year One to five years Total commitment Less: Future finance charges Net commitment recognised as liabilities 30 Jun 2021 $'000 30 Jun 2020 $'000 68 68 269 679 948 (81) 867 31 31 727 488 1,215 (74) 1,141 60 Teaminvest Private Group Limited Notes to the financial statements For the year ended 30 June 2021 Note 31 – Commitments (continued) Operating lease commitments represent short term and low value leases only. Finance lease commitments includes contracted amounts for various plant and equipment with a written down value of $867,000 as of 30 June 2021 under finance leases expiring within one to six years. Under the terms of the leases, the Group has the option to acquire the leased assets for predetermined residual values on the expiry of the leases. With the application of AASB 16, these are now recognised as right-of-use assets with corresponding current and non- current lease liabilities (see note 15, note 20 and note 23). Note 32. Related party transactions Parent entity Teaminvest Private Group Limited is the parent entity. Subsidiaries Interests in subsidiaries are set out in note 35. Associates Interests in associates are set out in note 13. Key management personnel Disclosures relating to key management personnel are set out in note 33 and the remuneration report included in the directors' report. Transactions with related parties There were no transactions with related parties during the current year (30 June 2020: 13,218). Receivable from and payable to related parties Consolidated Current receivables: Receivables from other related parties Note 33. Key management personnel disclosures 30 Jun 2021 $ 30 Jun 2020 $ - 13,218 Compensation The aggregate compensation paid to directors and other members of key management personnel of the Group is set out below: Consolidated Short-term employee benefits Post employment benefits Long-term benefits Share based payments Long-term incentives - settled Long-term incentives - unsettled 30 Jun 2021 $ 30 Jun 2020 $ 768,038 73,571 3,333 337,268 - - 1,182,210 665,369 71,974 3,333 143,758 - 1,100,000 1,984,434 61 Teaminvest Private Group Limited Notes to the financial statements For the year ended 30 June 2021 Note 34. Business Combinations Acquisition of Automation Group Investments Pty Ltd On 17 September 2020, the Group acquired 100% of the shares in Automation Group Investments Pty Ltd for the non- cash purchase price of $2,660,000 through the issue of Company shares and a contingent consideration of $400,000, based on a percentage of revenue generated under a key contract for financial year 2021 payable after completion of the 2021 financial year. This operates in the Engineering segment of the Group. The acquired business contributed revenues of $4,213,761 and profit after tax of $290,022 to the Group for the period from 18 September 2020 to 30 June 2021. If the acquisition occurred on 1 July 2020, the full-year contributions would have been revenues of $5,360,271 and income after tax of $388,776. The values identified in relation to the acquisition are finalised as at 30 September 2020. Acquisition of Teaminvest Pty Ltd On 30 June 2021, the Group acquired 100% of the shares in Teaminvest Pty Ltd and related entities for the non-cash purchase price of $8,110,000 through the issue of Company shares. This business operates in the Services segment of the Group. The acquired business contributed revenues of $10,650 and profit after tax of $1,653 to the Group for the period on 30 June 2021. If the acquisition occurred on 1 July 2020, the full-year contributions would have been revenues of $3,890,496 and profit after tax of $1,375,000. The values identified in relation to the acquisition are finalised as at 30 June 2021. The transaction was completed in two steps: 1. 2. the acquisition of Teaminvest Pty Ltd; and the “pass-through” of 12.6 million shares owned by Teaminvest Pty Ltd. to the vendors, via a selective buy- back, cancellation and issuance of new shares. Both steps were approved at the EGM on 29 June 2021. Automation Group Fair value $'000 Teaminvest Pty Ltd Fair value $'000 39 613 745 51 23 30 463 3 - (587) (116) (220) (1,531) (31) (30) (81) (629) 3,689 3,060 2,660 400 3,060 1,149 95 - 472 - - - 17,155 101 (178) (1,803) (49) - - (5,098) - 11,844 (3,734) 8,110 8,110 - 8,110 Cash and cash equivalents Trade and other receivables Inventories Financial assets Plant and equipment Right-of-use assets Customer contracts Other intangibles* Other financial assets Trade payables and other payables Contract liabilities Employee benefits Borrowings Lease liability Deferred tax liability Other liabilities Net (liabilities)/assets acquired Goodwill/(gain on bargain purchase) Acquisition-date fair value of the total consideration transferred Representing: Teaminvest Private Group Limited shares issued to vendor Deferred consideration 62 Teaminvest Private Group Limited Notes to the financial statements For the year ended 30 June 2021 Note 34 – Business Combinations (continued) *The income approach / excess earning method was used to determine the fair value of Teaminvest Pty Ltd’s intangible assets. Within the income method, it used the discounted cash flow (DCF), the Relief-from-Royalty and the with-or- without (based on DCF) methods. The asset-based approach (replication method) was utilised as a secondary cross- check for technology-based intangible asset. External valuer was engaged to assist with the valuation of Teaminvest Pty Ltd. The value in use was determined by discounting the future cash flows to be generated from the Teaminvest Pty Ltd and is based on the following key assumptions: • Average net annual membership growth of 5.12% was used for revenue projections. This growth was referenced against the average annual historical growth rates over the past 5 years; • Average churn rate of 15% was used as part the revenue projection forecast. This rate was referenced against the average annual historical churn rates over the past 5 years; • Long term growth rate of 2.50% was used in reference to the average growth forecast of the industry; • A pre-tax discount rate of 12% based on the weighted average cost of capital. Note 35. Interests in subsidiaries The consolidated financial statements incorporate the assets, liabilities, and results of the following subsidiaries in accordance with the accounting policy described in note 2: Name Teaminvest Private Pty Ltd Coastal Energy Pty Ltd DecoGlaze Holdings Pty Ltd and its controlled entities: -DecoGlaze Franchising Pty Ltd -DecoGlaze Intellectual Property Pty Ltd -DecoGlaze Pty Limited -DecoGlaze Surface Cleaner Pty Ltd -DecoGlaze Surface Cleaner Unit Trust East Coast Traffic Controllers Pty Ltd Icon Metal Pty Ltd Kitome Pty Ltd Lusty TIP Trailers Pty Ltd Boutique Portraits Pty Ltd The Step Ahead Builder’s Assistant Pty Ltd Valuestream Investment Management Limited Teaminvest Private Residential Group Pty Ltd Automation Group Investments Pty Ltd Automation Group Limited Radtel Engineering Pty Ltd Teaminvest Pty Ltd Conscious Investor Pty Ltd Teaminvest Limited (NZ) Teaminvest Australia Pty Ltd Principal place of business Country of incorporation Ownership interest 30 Jun 2021 % 30 Jun 2020 % Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia New Zealand Australia Australia Australia New Zealand Australia 100% 100% - - - - - 100% 100% - 100% - - 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% - - - - - - - Teaminvest Private Residential Group Pty Ltd is aggregation of DecoGlaze Holdings Pty Ltd (previously under Engineering segment), Kitome Pty Ltd, Boutique Portraits Pty Ltd, and The Step Ahead Builder’s Assistant Pty Ltd. 63 Teaminvest Private Group Limited Notes to the financial statements For the year ended 30 June 2021 Note 36. Reconciliation of profit/(loss) after income tax to net cash from/(used in) operating activities Consolidated Profit after income tax expense Adjustments for: Depreciation, amortisation and impairment Share based payments Dividends received - associates Net gain on disposal of PPE Share of profit - associates Gain on bargain purchase Change in operating assets and liabilities: Change in trade and other receivables Change in contract assets Change in inventories Change in deferred tax assets Change in prepayments Change in other operating assets Change in trade and other payables Change in contract liabilities Change in provision for income tax Change in deferred tax liabilities Change in employee benefits Change in other provisions Working capital adjustments from business combinations 30 Jun 2021 $'000 5,201 30 Jun 2020 $'000 8,306 7,129 285 653 (95) (2,867) (3,734) (562) 984 (1,767) - (710) - (1,979) 1,760 189 862 462 (55) (360) 2,514 155 233 - (1,858) (594) (641) (3,334) 408 995 (107) (41) 4,007 1,628 (1,070) 6 (156) (414) - Net cash from operating activities 5,396 10,037 64 Teaminvest Private Group Limited Notes to the financial statements For the year ended 30 June 2021 Note 37. Earnings per share Profit after income tax attributable to the owners of Teaminvest Private Group Limited Weighted average number of ordinary shares used in calculating basic earnings per share Adjustments for calculation of diluted earnings per share: Shares issued for bonuses and fees 30 Jun 2021 $'000 5,201 30 Jun 2020 $'000 8,306 Number 116,701,908 Number 111,230,952 652,892 2,188,475 Weighted average number of ordinary shares used in calculating diluted earnings per share 117,354,800 113,419,427 Basic earnings per share Diluted earnings per share Note 38. Share-based payments Cents 4.46 4.43 Cents 7.47 7.32 Details of shares issued to directors and other key management personnel as part of compensation during the year ended 30 June 2021 and 30 June 2020 are set out below: 30 June 2021 Shares issued to KMP Shares issued to directors 30 June 2020 Shares issued to directors* Issue Date Number of Shares Issue Price Total Value 04/09/2020 04/12/2020 2,080,181 107,416 $0.53 $0.53 1,100,000 56,803 27/11/2019 184,259 $0.84 154,999 65 Teaminvest Private Group Limited Notes to the financial statements For the year ended 30 June 2021 Note 39. Parent entity information Set out below is the supplementary information about the parent entity. Statement of profit or loss and other comprehensive income Profit/(loss) after income tax Total comprehensive profit/(loss) Statement of financial position Total current assets Total assets Total current liabilities Total liabilities Equity Issued Capital Accumulated losses Total Equity 30 Jun 2021 $'000 30 Jun 2020 $'000 (6,444) (6,444) (2,475) (2,475) 30 Jun 2021 $'000 30 Jun 2020 $'000 5,354 77,895 463 894 87,597 (10,596) 77,001 3,288 74,891 3,529 3,657 75,386 (4,152) 71,234 Guarantees entered into by the parent entity in relation to the debts of its subsidiaries The parent entity had guarantees of $1,368,643 in relation to the debts of its subsidiaries as at 30 June 2021 ($498,000 as at 30 June 2020). Contingent liabilities The parent entity had no contingent liabilities as at 30 June 2021 and 30 June 2020. Capital commitments - Property, plant and equipment The parent entity had no capital commitments for property, plant and equipment as at 30 June 2021 and 30 June 2020. Significant accounting policies The accounting policies of the parent entity are consistent with those of the Group, as disclosed in note 2, except for the following: • Investments in subsidiaries are accounted for at cost, or fair value should a bargain purchase be acquired in the parent entity. Investments in associates are accounted for at cost, less any impairment, in the parent entity. • • Dividends received from subsidiaries are recognised as other income by the parent entity and its receipt may be an indicator of an impairment of the investment. 66 Teaminvest Private Group Limited Notes to the financial statements For the year ended 30 June 2021 Note 40. Events after the balance date The impact of the COVID-19 pandemic is ongoing and whilst individual subsidiaries have been impacted differently, the net effect on the Group's results remain within a reasonable bound compared to 30 June 2021, it is not practicable to estimate the potential impact, positive or negative, after the reporting date as the situation attributed to COVID-19 and its Delta variant is evolving and is dependent on measures imposed by the State Governments, Australian Government and other countries, such as lockdowns, quarantine, travel restrictions and any economic stimulus that may be provided. 67 Teaminvest Private Group Limited Directors’ declaration For the year ended 30 June 2021 In the directors' opinion: • • • • the attached financial statements and notes comply with the Corporations Act 2001, the Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; the attached financial statements and notes comply with International Financial Reporting Standards as issued by the International Accounting Standards Board as described in note 2 to the financial statements; the attached financial statements and notes give a true and fair view of the Group's financial position as at 30 June 2021 and of its performance for the financial year ended on that date; and there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. The directors have been given the declarations required by section 295A of the Corporations Act 2001. Signed in accordance with a resolution of directors made pursuant to section 295(5)(a) of the Corporations Act 2001. On behalf of the directors Andrew Coleman Managing Director and Chief Executive Officer 26 August 2021 Sydney 68 To the shareholders of Teaminvest Private Group Limited Report on the audit of the Financial Report Opinion We have audited the Financial Report of Teaminvest Private Group Limited (the Company). In our opinion, the accompanying Financial Report of the Company is in accordance with the Corporations Act 2001, including: giving a true and fair view of the Group’s financial position as at 30 June 2021 and of its financial performance for the year ended on that date; and complying with Australian Accounting Standards and the Corporations Regulations 2001. The Financial Report comprises: Statement of financial position as at 30 June 2021 Statement of profit or loss and other comprehensive income, Statement of changes in equity, and Statement of cash flows for the year then ended Notes including a summary of significant accounting policies Directors' Declaration. The Group consists of the Company and the entities it controlled at the year-end or from time to time during the financial year. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the Financial Report section of our report. We are independent of the Group in accordance with the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including the Independence Standards) (the Code) that are relevant to our audit of the Financial Report in Australia. We have fulfilled our other ethical responsibilities in accordance with the Code. © 2021 KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation. Liability limited by a scheme approved under Professional Standards Legislation. 69 Key Audit Matters The Key Audit Matters we identified are: • Revenue recognition • Carrying value of intangibles • Business combinations Key Audit Matters are those matters that, in our professional judgement, were of most significance in our audit of the Financial Report of the current period. These matters were addressed in the context of our audit of the Financial Report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Revenue recognition Refer to note 5 of the Financial Report ($91.4m) The key audit matter How the matter was addressed in our audit Recognition of revenue is a key audit matter due to: The significance of revenue to the Financial Report; and The Group has entered a large number of contracts across its different businesses, operating in multiple industries, with a wide range of customers. These contracts may have numerous performance measurement events which occur over the course of the contract’s life. This may also result in judgmental revenue recognition from rendering of services contracts and therefore significant audit effort is required to gather sufficient audit evidence. Our procedures included: We obtained an understanding of the Group’s process of recognising revenue for rendering of services and sale of goods; We evaluated the appropriateness of the Group’s revenue recognition policies against the requirements of AASB 15 Revenue from contracts with customers; We selected a sample of contracts for testing, across businesses, industries and customer types, focusing on key revenue streams where revenue is recognised over time. For each contract selected, we read the contract terms and conditions to evaluate the individual characteristics of each contract for consistency with the Group’s method of measuring performance and revenue to date; We used statistical sampling to select a sample of transactions recognising revenue through rendering of services and examined either progress claim certificates or management’s assessment of progress against project plans. We obtained signed contracts and checked the performance milestones against the value of service revenue recognised. We used statistical sampling to select a sample of sale of goods transactions and examined delivery dockets and sales invoices; 70  We selected a sample of revenue transactions from rendering of services immediately before and immediately after year end. We examined the underlying contract, project plan and other supporting documentation and compared this to the timing of the revenue recognised; We selected a sample of revenue transactions from sale of goods immediately before and immediately after year end. We examined the supporting documentation including date of delivery and compared this to the timing of the revenue recognised. Carrying value of intangibles Refer to note 16 of the Financial Report ($63.1m) The key audit matter How the matter was addressed in our audit A key audit matter was the Group’s annual testing of intangibles for impairment, given the size of the balance (being 46% of total assets) and the impairment charge recorded in respect of the Coastal Energy business of $4.3m. We focused on the significant forward-looking assumptions the Group applied in its value in use models, including: forecast cash flows and growth rates (including terminal growth rates) applied to the forecasts in light of market conditions in the current year and the impacts of COVID-19. These conditions increase the both the possibility of goodwill being impaired, as well as the risk of inaccurate forecasts or a wider range of outcomes. We focused on the Group’s business model when assessing the feasibility of the Group’s forecast cashflows. discount rates, as they can be complex in nature and vary according to the conditions and environment in which the Cash Generating Unit (CGU’s) operate. The Group operates in various industries Working with our valuation specialists, our procedures included: We considered the appropriateness of the value-in-use method applied by the Group to perform its annual impairment testing of intangibles against the requirements of the relevant accounting standards. We assessed the integrity of the value in use models used, including the accuracy of the underlying calculation formulas. We inquired with management to understand the impact of COVID-19 to the Group, the impact to the FY21 results, and implications for forecasting. We compared the forecast cash flows and capital expenditure contained in the value in use models to Board approved 2022 forecasts. For subsequent years, we have compared growth rates applied to historical results and management’s plans for the business. We challenged the Group’s forecast cash flow and growth assumptions in light of market conditions. We assessed key assumptions such as what the Group considers as its future 71 business model. We used our knowledge of the Group, business and customers, and our industry experience. We sourced authoritative and credible inputs from our specialists. We assessed the Group’s underlying methodology and documentation for the allocation of corporate costs to the forecast cash flows in the value in use model, for consistency with our understanding of the business and the criteria in the accounting standards. We assessed the Group’s determination of its CGUs based on our understanding of the operations of the Group’s business, including how independent cash inflows are generated, against the requirements of the accounting standards. We considered the sensitivity of the models by varying key assumptions, such as the Group’s forecast growth rates, terminal growth rates and discount rates, within a reasonably possible range. We considered the interdependencies of key assumptions when performing the sensitivity analysis and what the Group consider to be reasonably possible. We did this to identify those CGUs at higher risk of impairment and to focus our further procedures. We assessed the disclosures in the financial report using our understanding obtained from our testing against the requirements of the accounting standards. and is therefore subject to different discount rates for each CGU. This drives additional audit effort in challenging the assumptions used by the Group in determining the discount rate for each CGU. We involved our valuations specialist with the assessment. the models’ sensitivity to assumptions adopted by the Group, including forecast growth rates and terminal growth rates applied to each identified CGU. Such assumptions have a significant impact on the recoverable amount of the assets within the identified CGUs. This drives additional audit effort specific to their feasibility and consistency of application to the Group’s strategy. In addition to the above: The Group has a large number of operating businesses necessitating our consideration of the Group’s determination of CGUs, based on the smallest group of assets to generate largely independent cash inflows. The Group uses complex models to perform its annual impairment testing of goodwill. The models are largely manually prepared and use a range of internal and external sources as inputs to the assumptions. Complex modelling, particularly those containing highly judgemental forward-looking assumptions tend to be prone to greater risk of potential bias, error and inconsistent application. Such conditions necessitate additional scrutiny by us, in particular to address the objectivity of sources used to derive assumptions, and their consistent application. 72 Business combinations Refer to note 34 of the Financial Report The key audit matter How the matter was addressed in our audit During the year, the Group acquired two businesses, Automation Group Investments Pty Limited and its controlled entities and Teaminvest Pty Ltd and related entities. Accounting for the acquisition of a business can be complex and accounting standards require the Group to identify all assets and liabilities of the newly acquired businesses and estimate the fair value of each item. We determined that the acquisitions were a key audit matter because of the size of the transactions and the high level of judgment used by the Group in determining: consideration payable for the acquisition including the fair value of the contingent consideration; the identification of acquired intangible assets; the assumptions and estimates used when performing intangible assets valuations, including estimated future cash flows, growth rates and discount rates; in respect of the Teaminvest Pty Ltd acquisition a bargain purchase gain of $3.8m; and appropriate disclosure in the financial statements. Management used external experts to assist with the identification and valuation of the intangible assets acquired. Our procedures included: We obtained an understanding of the acquisitions during the year through reading the transaction documents related to the acquisitions to understand the structure, key terms and conditions; We considered the appropriateness of the business combination performed by the Group against the requirements of AASB 3 Business Combinations; We worked with our valuation specialists to assess and challenge key assumptions used in the Group’s external valuation of acquired intangible assets by: o o o assessing the scope, objectivity and competency of the independent valuer engaged by the Group; comparing key assumptions, such as growth rates, membership and customer churn, discount rates and costs assumptions, used by the Group’s independent valuer against historical performance and external evidence; and challenging the Group’s independent valuer’s approach and methodology to valuing their assets by comparing to the requirements of the accounting standards. We considered the sensitivity of the external valuation by varying key assumptions, such as the Group’s forecast growth rates, membership and customer churn rates, discount rates and costs assumptions, within a reasonably possible range. We considered the interdependencies of key assumptions when performing the sensitivity analysis and what the Group consider to be reasonably possible; We audited the opening balance sheet of the businesses acquired as at acquisition dates; and 73  We assessed the disclosures in the financial report using our understanding obtained from our testing and against the requirements of the accounting standards. Other Information Other Information is financial and non-financial information in Teaminvest Private Group Limited’s annual reporting which is provided in addition to the Financial Report and the Auditor’s Report. The Directors are responsible for the Other Information. Our opinion on the Financial Report does not cover the Other Information and, accordingly, we do not express an audit opinion or any form of assurance conclusion thereon, with the exception of the Remuneration Report and our related assurance opinion. In connection with our audit of the Financial Report, our responsibility is to read the Other Information. In doing so, we 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. We are required to report if we conclude that there is a material misstatement of this Other Information, and based on the work we have performed on the Other Information that we obtained prior to the date of this Auditor’s Report we have nothing to report. Responsibilities of the Directors for the Financial Report The Directors are responsible for: preparing the Financial Report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001: implementing necessary internal control to enable the preparation of a Financial Report that gives a true and fair view and is free from material misstatement, whether due to fraud or error: and assessing the Group and Company's ability to continue as a going concern and whether the use of the going concern basis of accounting is appropriate. This includes disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless they either intend to liquidate the Group and Company or to cease operations, or have no realistic alternative but to do so. 74 Auditor’s responsibilities for the audit of the Financial Report Our objective is: 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 Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error. They 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 the Financial Report. A further description of our responsibilities for the audit of the Financial Report is located at the Auditing and Assurance Standards Board website at: https://www.auasb.gov.au/admin/file/content102/c3/ar1_2020.pdf. This description forms part of our Auditor’s Report. Report on the Remuneration Report Opinion Directors’ responsibilities In our opinion, the Remuneration Report of Teaminvest Private Group Limited for the year ended 30 June 2021, complies with Section 300A of the Corporations Act 2001. 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 responsibilities We have audited the Remuneration Report included in pages 7 to 15 of the Directors’ report for the year ended 30 June 2021. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. PM_INI_01 KPM _INI_01 KPMG Tony Nimac Partner Sydney 26 August 2021 75 Teaminvest Private Group Limited Shareholder information The shareholder information set out below was applicable as at 20 August 2021. Distribution of equitable securities Analysis of number of equitable security holders by size of holding: 1 to 1,000 1,001 to 5,000 5,001 to 10,000 10,001 to 100,000 100,001 and over Number of holders of ordinary shares Number of ordinary shares Percentage 43 123 87 271 151 27,940 378,031 748,982 12,325,347 117,019,010 0.02% 0.30% 0.57% 9.44% 89.67% 675 130,499,310 100% Holding less than a marketable parcel 23 9,343 Equity security holders Twenty largest quoted equity security holders The names of the twenty largest security holders of quoted equity securities are listed below: Ordinary shares % of total shares issued Number held 14,680,285 7,555,345 6,624,644 5,625,448 4,363,049 3,361,599 3,361,599 2,821,615 2,696,117 2,671,709 2,612,010 1,642,443 1,633,395 1,615,900 1,504,862 1,491,923 1,485,067 1,421,541 1,380,628 1,318,546 11.25 5.79 5.08 4.31 3.34 2.58 2.58 2.16 2.07 2.05 2.00 1.26 1.25 1.24 1.15 1.14 1.14 1.09 1.06 1.01 69,867,725 53.54 ELECTRONIC MARKETING PTY LTD (COLFAM A/C) V MARK PTY LTD (MORELAND PROPERTY A/C) MR ANDREW COLEMAN ONE FUNDS MANAGEMENT LIMITED (TDGF A/C) CROOKS PTY LTD CS THIRD NOMINEES PTY LIMITED (HSBC CUST NOM AU LTD 13 A/C) PLUTO MINING PTY LTD PRICE VALUE PTY LIMITED (PRICE VALUE A/C) KITOME PASTORAL PTY LIMITED PRIBULA FAMILY PTY LTD (PRIBULA FAMILY A/C) REGAN GEORGE PASSLOW BNP PARIBAS NOMINEES PTY LTD (IB AU NOMS RETAILCLIENT DRP) LE GRAND PTY LTD DECOGLAZE AUSTRALIA PTY LTD BAXTERO PTY LIMITED (CARMICHAEL SUPERFUND A/C) MALONGA PTY LTD (THE G DOOLAN FAMILY A/C) MR MALCOLM OLIVER THOMPSON + MS ELIZABETH THOMPSON MR MALCOLM MURRAY JONES + MRS LYNNETTE ANNE JONES (RELM A/C) ROBERT BREIT PENMARK SUPER PTY LTD (PENMARK SUPER FUND A/C) Equity securities Ordinary securities (quoted): 130,499,310 Performance rights (unquoted): Nil 76 Teaminvest Private Group Limited Shareholder information Substantial holders Substantial holders in the Company are set out below: Mark Moreland Graham Lusty Howard Harry Coleman Andrew Joseph Coleman Securities subject to escrow Ordinary shares Number held 9,229,868 6,733,198 17,173,795 12,250,092 % of total shares issued 7.07 5.15 13.16 9.39 Type of escrow Escrow period Number of shares Nil Nil Nil Voting rights The voting rights attached to equity securities are set out below: Ordinary shares On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote. Performance rights Performance rights do not have voting rights. 77 

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