TETRA Technologies, Inc. Annual Report 2020

FY2020 Annual Report · TETRA Technologies, Inc.

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ANNUAL REPORT 2020
ANNUAL REPORT 2020

TRAFFIC TECHNOLOGIES LTD
ABN 21 080 415 407
AND CONTROLLED ENTITIES

ANNUAL FINANCIAL REPORT

FOR THE YEAR ENDED 30 JUNE 2020

ABN 21 080 415 407
Traffic Technologies Ltd.
address. 31 Brisbane Street, Eltham Victoria 3095 Australia
PO Box 828, Eltham Victoria 3095 Australia
phone. + 61 3 9430 0222 facsimile. + 61 3 9430 0244
web. www.trafficltd.com.au

Traffic Technologies Ltd and Controlled Entities
Chairman’s Letter

Dear Shareholder,

I have pleasure in enclosing the Annual Report for Traffic Technologies Ltd for the financial year ended 30 June
2020.

The 2020 financial year has been challenging and we are disappointed to report a loss for the year. The loss
included an impairment provision of $10.6m made against goodwill at the half-year. Revenue and EBITDA have
been affected by generally weak trading conditions in key markets in which we operate. Despite initial positive
signs, issues we have encountered in the past including a slowdown in orders and delays to the approval of several
projects were again experienced in the first half. In the second half of the year we were faced with the challenges
of Coronavirus (COVID-19).

The Company has been able to continue operating during the coronavirus pandemic and associated lockdowns.
Delays in the supply chain have been experienced caused by lockdowns affecting some of the Company’s suppliers
and freight forwarders, however demand for the Company’s products and services has been better than
anticipated at the start of the lockdown period and more importantly has increased further as activities have re-
opened in states where lockdown restrictions have eased.

The outlook is more promising particularly with the easing of lockdown restrictions and the anticipated growth in
government spending on infrastructure. The Company has a strong order book, with several significant orders for
its LED street lighting products, including the Ausgrid contract announced in August 2020. The Company’s Smart
City platform continues to gain acceptance in several states of Australia and we remain confident about the
significant growth opportunity it represents for the Company in the years ahead.

As previously advised, the Company has undertaken a strategic review of the Company’s activities with a view to
identifying opportunities for improving shareholder value. A number of opportunities have been identified and
while the disruption of COVID-19 has delayed implementation of some of the recommendations, (particularly as
a result of travel restrictions), several aspects related to staffing and integration of activities are well advanced or
completed. We are optimistic that we will be able to share further details on this together with growth in long
term contractual orders over coming months.

The Company has been addressing the need to re-finance its facility with ADM Capital and to reduce further its
cost of finance. We expect to make further announcements on this in due course.

I would like to take this opportunity to thank shareholders for their support of the Group. Along with my fellow
Directors, I thank you for your continued support.

Garry Lowrey
Chairman

Traffic Technologies Ltd and Controlled Entities
Managing Director’s Operating and Financial Review

Dear Shareholder,

Operating Result

The Group has reported the following result for the financial year ended 30 June 2020:

Sales revenue

Earnings before Interest, Tax, Depreciation
and Amortisation (EBITDA)

Depreciation Amortisation and Impairment
Expense

Earnings before Interest and Tax (EBIT)

Net (Loss)/Profit After Tax (NPAT)

Year to
30 June 2020

Year To
30 June 2019+

$’m

44.5

1.4

(12.9)

(11.4)

(14.0)

$’m

48.3

4.3

(1.5)

2.8

1.3

+ The FY20 result includes the capitalisation of property leases under AASB 16. Comparative figures for FY19 have not been
restated.

Trading revenue was $44.5m, compared to $48.3m in the previous financial year and EBITDA was $1.4m,
compared to EBITDA of $4.3m, whilst NPAT was a loss of $14.0m including an impairment of $10.6m made at the
half-year, compared to NPAT of $1.3m in 2019. Through this extremely volatile year the Company has experienced
weaker trading conditions in the market as reflected in the results.

The 2020 financial year has been challenging and the consolidated entity incurred a net loss for the year. Revenue
and EBITDA were affected by generally weak trading conditions. There was a slowdown in orders and delays to
the approval of several projects. In the second half of the year the consolidated entity was faced with the
challenges of Coronavirus (COVID-19). Consequently, there is material uncertainty that may cast significant doubt
whether the Group can continue as a going concern.

The financial statements have been prepared on a going concern basis, which assumes continuity of normal
business activities and the realisation of assets and the settlement of liabilities in the ordinary course of business.
Accordingly, the financial statements do not include any adjustments relating to the recoverability and
classification of recorded assets or to the amounts and classification of liabilities that might be necessary should
the consolidated entity not continue as a going concern, except for the classification of the ADM Capital loan
facility as a current liability.

The Company has however been able to continue operating during the coronavirus (COVID-19) pandemic despite
delays in the supply chain caused by lockdowns affecting local and overseas suppliers and freight forwarders.

Encouragingly demand for the Company’s products and services has seen an increase in the second half of the
2020 year during the COVID-19 lockdown with an increase of 3% in revenue and almost 90% in EBITDA, where we
saw several projects released and customer orders increasing. More encouraging is that the trend has continued
as activities have re-opened in most states in the first quarter of the 2021 financial year.

The Company has taken advantage of Federal and State stimulus programs where possible to mitigate the financial
impact of COVID-19, but has not been eligible for the Federal Government’s JobKeeper program as turnover had
not fallen below the required threshold. The Company has continued to review its cost base during the lockdown
period and has reduced costs significantly along with increasing manufacturing efficiencies.

The result for the year includes the $10.6m impairment made against the value of goodwill in the financial
statements and a bad debt provision of $0.7m.

Depreciation and amortisation expenses were $2.3m (2019 $1.5m), mainly comprising amortisation of intangible
assets. Finance costs were $2.4m (2019: $1.4m).

Financial Position

Net assets were $7.1m at 30 June 2020 compared to $21.2m at 30 June 2019, reflecting the net loss for the year,
including the impairment. In October 2019, the Company partially refinanced the debt facility managed by Asia
Debt Management Hong Kong Limited (ADM Capital). The refinancing involved a repayment by the Company of
AUD $7.5m to ADM Capital funded by entering into a secured debtor and trade finance facility with Octet Finance
Pty Ltd (Octet) and a secured note facility with First Samuel Limited. This has reduced finance costs by 13%. Net
debt, excluding liabilities associated with capitalised property leases, was $7.9m at 30 June 2020 a reduction of
22%, compared to $10.1m at 30 June 2019.

The Group has capitalised certain property leases as “right of use assets” in accordance with AASB 16 and the
assets relating to such leases have been included in property plant and equipment ($1.1m) and the liability in
interest-bearing loans and borrowings ($1.2m). The introduction of AASB 16 has also affected occupancy costs,
depreciation expense and finance costs.

Cash Flow

Net operating cash inflows were $5.3m for the year (2019: inflow $1.5m), reflecting the Group’s trading operations
during the year. The introduction of the debtor finance facility in October 2019 has enabled the Company to
access funds from its trade receivables more quickly than was previously the case. Net investing cash outflow was
$2.1m (2019: outflow $2.3m), including investment in R&D to further expand and develop the Group’s “Smart City
Software” and product portfolio. Net financing cash outflow was $2.6m (2019: outflow $0.1m), after taking into
account the refinancing of debt in October 2019.

Review of Operations

The 2020 financial year has been challenging. The Group has been affected by delays in decisions on a number of
government projects and term contracts which were expected to have been awarded in the 2019 and 2020. We
understand however that a number of these projects are now likely to commence later in 2020 and beyond.

Despite initial uncertainty around the coronavirus and government lockdown measures, the Group was able to
continue to trade throughout the lockdown period and all factories and offices have remained open, although
supply chain delays have been experienced which has affected the Group’s trading result.

The Group has continued to develop and roll-out its proprietary “Smart City” software “TST”, enabling road
authorities, councils and power companies to fully utilise and manage critical assets in real time where possible.

The continuing roll-out of LED street lights across the country has led the Group’s lighting products to be well
positioned for further growth, having secured approvals, long term supply contracts and orders from state and
local government agencies, power companies and contractors. The year provided the Group with the opportunity

to increase its lighting activities from 2019 and expectations are, with term contracts in place and the increase in
infrastructure programs, the trend will continue especially with the newly developed LED street lights with a lower
carbon footprint meeting demanding government requirements.

The Group continues to be a major supplier of traffic signals and road signs to all states and territories in the
domestic market, with the ability to service the requirements of state road authorities, local government and the
largest road projects. With the next generation of LED traffic signals being available, the Group anticipates
increasing activity in the years ahead with large scale infrastructure programs commenced by State and Federal
governments.

Export Markets

The Group‘s export markets include the UK, New Zealand, Asia, the Middle East and South America, with “TST”,
our “Smart City” platform, and the Group’s traffic controllers continuing to enjoying success. Significant export
orders have recently come from New Zealand, Singapore, China, Vietnam and Qatar. The Group has identified
opportunities to supply its state-of-the-art lighting control systems and “Smart City” software to overseas markets
in England, Ireland, Hong Kong and Peru and, whilst there have been some project delays due to lockdowns and
international travel restrictions, demand has continued despite these restrictions and the outlook is promising
when government restrictions ease.

Business Strategies and Prospects

We have continued to invest in research and development with the major focus of development being the roll-
out of our “Smart City” platform “TST”. Significantly, we have first mover advantage in various aspects of this
technology as our “Smart City” platform has multiple applications which are of significant benefit to users. Major
customers include road authorities in Australia and overseas and local councils as well as operators of large
networks of assets.

Our “Smart City” platform enables users to monitor and control thousands of assets linked through a secure
private network to a central control system. Applications include control of traffic management assets such as
street lights, as well as detection of traffic flows, parking availability, environmental and waste management. The
Group’s “Smart City” software “TST” is attractive to road authorities, councils and power companies due to its
ability to fully utilise and maintain critical assets in real time in a significantly more cost-effective manner, driving
financial savings and higher utilisation of assets as well as reduction of greenhouse gases.

With our system “TST”, activated and functioning in Victoria, New South Wales, South Australia and Queensland,
governments are realising the cost-benefit of “Smart City” systems and the power it delivers. The base structure
today has enabled the Group to explore and trial the system on a global scale with an anticipated annuity revenue
stream for years to come.

The Group’s LED, “Smart City”-ready lighting products are well positioned for further growth, having secured
approvals, long term supply contracts and orders from state and local government agencies, power companies
and contractors. We continue to win significant contracts in this area and, and subject to COVID, we anticipate
that these contract wins will underpin our growth moving forward.

The newest addition by acquisition to the Group, L&M, will enable the Group to further develop its maintenance
business across Victoria and strengthen the Group’s relationships with local councils serviced by L&M. Strategic
benefits include vertical integration of the Group’s current portfolio and more importantly to integrate our
proprietary “Smart City Solution” TST into L&M’s existing maintenance contracts giving councils real time
information in order to make informed decisions on their assets enabling comprehensive Smart City capability.

Outlook

We believe the outlook for the Group, despite COVID, is positive taking into consideration government focus on
infrastructure. We expect governments to invest in infrastructure programs to assist economic recovery following
the coronavirus crisis and this was quite evident from the recently announced Federal budget. The Group is also
expected to benefit in the years ahead from its diversification program into “Smart Cities” technology with IoT,
new state-of-the-art products introduced and from significant long-term customer supply contracts with
government authorities and power companies.

I would like to thank all shareholders for their ongoing support, staff for the relentless commitment to the
Company and our financiers who have supported the Company and in particular ADM who have extended their
facility during these turbulent times.

Con Liosatos

Managing Director

CORPORATE INFORMATION

This annual report covers both Traffic Technologies Ltd (ABN 21 080 415 407) and its subsidiaries. The Group’s
functional and presentation currency is AUD ($).

A description of the Group’s operations and of its principal activities is included in the operating and financial review
in the Directors’ Report.

Directors

Mr. Garry Lowrey
Mr. Con Liosatos
Mr. Mark Hardgrave

Company Secretary & Chief Financial Officer

Mr. Peter Crafter

Registered Office & Principal Place of Business
Traffic Technologies Ltd
31 Brisbane Street
Eltham VIC 3095

Share Register

Computershare Investor Services Pty Limited
Yarra Falls, 452 Johnston Street
Abbotsford VIC 3067
Tel: 1300 850 505

Traffic Technologies Ltd shares are listed on the Australian Securities Exchange (stock code: “TTI”).

Lawyers

K&L Gates
Level 25
525 Collins Street
Melbourne VIC 3000

Bankers

Westpac Banking Corporation
Level 6
150 Collins Street
Melbourne VIC 3000

Auditors

ShineWing Australia
Level 10
530 Collins Street
Melbourne VIC 3000

Traffic Technologies Ltd and Controlled Entities
Financial Report for the year ended 30 June 2020

CONTENTS

Page No.

Directors’ Report

Auditor’s Independence Declaration

Corporate Governance Statement

Consolidated Statement of Profit or Loss and Other Comprehensive Income

Consolidated Statement of Financial Position

Consolidated Statement of Changes in Equity

Consolidated Statement of Cash Flows

Notes to the Consolidated Financial Statements

Directors’ Declaration

ASX Additional Information

Independent Audit Report

Traffic Technologies Ltd
Directors’ Report

Your Directors submit their report for the year ended 30 June 2020.

DIRECTORS

The names and details of the Company’s Directors in office during the financial year and until the date of this report
are as follows. Directors were in office for the entire period unless otherwise stated.

Mr. Garry P Lowrey (Age 58) BBus MAppFin CA

Independent Non-Executive Chairman. Appointed November 2015.

Mr. Lowrey has over 30 years of experience in a variety of advisory, management and director roles for both private
and public companies. Earlier in his career, he was a Director of Potter Warburg's Corporate Finance team,
specialising in providing capital markets and mergers and acquisitions advice to small and mid-market companies.
Mr. Lowrey was the Managing Director of Wilson Investment Group, an ASX listed wealth management and
investment group. Mr. Lowrey served as an Executive Director of Shaw and Partners Limited and was Chairman of
Oaktree Group a private retirement village developer and operator. He is presently a Non-Executive Director of
Greenwich Capital Partners, a non-Executive Director of Argus Property Partners Pty Ltd and Chairman of Credit
Repair Pty Ltd. Mr. Lowrey holds a Bachelor of Business degree from the University of Technology, Sydney and a
Masters of Applied Finance from Macquarie University. He is a chartered accountant. Mr. Lowrey is a member of
the Audit, Risk, Nomination & Remuneration and Corporate Governance committees. Mr. Lowrey has not served
as a Director of any other listed companies during the three years to June 2020.

Mr. Con L Liosatos (Age 58) MAICD

Managing Director. Appointed April 2003.

Mr. Liosatos has over 30 years’ experience in the construction industry, including over 25 years in the lighting
industry specialising in research and design. He also has 15 years’ experience in the traffic industry. He has been
involved with major design and manufacturing projects for clients such as MCG Lighting, Etihad Stadium, the
Melbourne Sport and Aquatic Centre and the Vodafone Arena. He led the VicRoads LED Signals Upgrade, Hong Kong
Highways Department (Bus and Roadway Interchange) Upgrade and the WA Main Roads LED Signals Upgrade. Mr.
Liosatos has owned and managed a multinational project lighting company, Moonlighting Pty Ltd. Mr. Liosatos has
qualifications in Mechanical Design and Lighting Engineering. Mr. Liosatos was Chairman of the ITS World Congress
2016 Sponsorship Committee and is active on Australian Standards AS 2144 and AS 1158. Mr. Liosatos is the
Managing Director of Traffic Technologies Ltd. Mr. Liosatos was appointed a Director of Traffic Technologies Ltd in
April 2003. Mr. Liosatos is a member of the Risk and Corporate Governance committees. Mr. Liosatos has not served
as a Director of any other listed companies during the three years to June 2020.

Mr. Mark W Hardgrave (Age 62) B Com ACA MAICD

Independent Non-Executive Director. Appointed January 2013.

Mr. Hardgrave has a corporate advisory and investment management background. He is also a Non-Executive
Director of ASX listed companies Forbidden Foods Limited and Pental Limited. He was co-founder and former Joint
Managing Director of M&A Partner. Mr. Hardgrave was also previously Chief Executive Officer of Bennelong Group,
which specialises in listed equities, property and private equity. Earlier in his career he worked in senior roles in a
number of investment groups including Brencorp Group, Merrill Lynch and Thorney Investment Group. Mr.
Hardgrave holds a Bachelor of Commerce degree from the University of Queensland. He is a chartered accountant
and a member of the Australian Institute of Company Directors. Mr. Hardgrave is Chairman of the Audit, Risk,
Nomination & Remuneration and Corporate Governance committees.

Traffic Technologies Ltd
Directors’ Report

Skills and Experience

The following table shows the skills sets of each of the Board members:

Garry Lowrey

Con Liosatos

Mark Hardgrave

Corporate Governance

Traffic Management & Infrastructure

ASX Listed Companies

Human Resources

Legal

Finance

Commercial

Manufacture/assembly

Government Contracts

Information Technology

Company Secretary



Mr. Peter K Crafter (Age 63) LL.B (Hons.) MBA FCA CA MCT FAICD FCIS FGIA

Company Secretary and Chief Financial Officer. Appointed Company Secretary March 2004; appointed Chief
Financial Officer October 2007.

Mr. Crafter is a Chartered Accountant in both Australia and the UK and qualified Corporate Treasurer with extensive
experience in financial management including several years with KPMG and Touche Ross in the United Kingdom. He
holds an honours degree in Law from the University of London and an MBA from Heriot-Watt University, Scotland.
He was appointed Chief Financial Officer and Company Secretary of Traffic Technologies Ltd in March 2004 and
retired as Chief Financial Officer in February 2006. He was reappointed Chief Financial Officer of Traffic Technologies
Ltd in October 2007.

INTEREST IN SHARES

Directors’ interests in the shares of the Company were:

Directors

Mr. Garry Lowrey

Mr. Con Liosatos

Mr. Mark Hardgrave

Executive

Mr. Peter Crafter

Total

Balance at
1 July 2019

Acquired through
On-Market Trades

Other

Balance at
30 June 2020

7,166,667

32,056,923

1,670,000

3,215,054

10,000

42,448,644

1,670,000

7,166,667

33,726,923

3,215,054

10,000

44,118,644

Traffic Technologies Ltd
Directors’ Report

DIVIDENDS

The Directors do not recommend the payment of a dividend for the financial year ended 30 June 2020
(2019: Nil).

OPERATING AND FINANCIAL REVIEW

Review of Operations

Traffic Technologies is Australia’s premier traffic solutions company. Established in 2004 and listed on ASX in 2005,
the Company’s head office is in Eltham, Victoria with offices in all States of Australia and an office in England.

The Group specialises in the design, manufacture and installation of traffic signals, traffic controllers, pedestrian
countdown timers, electronic road signs, emergency telephones, road lighting products and “Smart City” control
systems. The Group also supplies a wide range of directional and regulatory traffic signs and traffic control products
to road traffic authorities, municipal councils and construction companies.

The Group’s proprietary “Traffic SmartCity Technology” (TST) platform, developed for the road industry, councils
and power authorities, enables the integration of street lights and other traffic management equipment to a central
control/management system via remote “Internet of Things” (IoT) sensors.

The Group, through its subsidiary, Aldridge Traffic Systems, has been the major participant in the traffic signals
market in Australia for over 50 years where customers are mainly state road authorities or contractors building or
maintaining traffic intersections for state road authorities.

The Group, through its subsidiary, Quick Turn Circuits Pty Ltd (QTC), is involved in the manufacture of traffic
controllers. A traffic controller is an automated device that regulates the sequencing and timing of traffic signals by
monitoring vehicular and pedestrian demands and adjusting to meet these requirements. The controller has the
ability to allow co-ordination of traffic flows between adjacent intersections when connected to a coordinated
adaptive traffic system.

In October 2019, the Group entered into an agreement to acquire the business and assets of L&M Traffic Signals Pty
Ltd (L&M). L&M is an accredited provider and installer for Vic Roads involving traffic signal installation and
maintenance and fully approved for installation work by the Department of Transport in Victoria and holds a number
of term maintenance contracts with local councils across Victoria. The acquisition was completed on 28 August
2020.

The Group is a key supplier to the road signage market across Australia, with customers including state road
authorities, local councils and construction companies. The Group’s signage products are distributed from depots
around Australia with manufacturing focused in Victoria, Western Australia and the Northern Territory.

The Group exports its traffic controllers, traffic signals and associated products such as pedestrian countdown timers
and emergency telephones to an increasing number of international customers.

Material Business Risks



The material business risks faced by the Group that could have a significant impact on the financial prospects
of the Group and how the Group manages these risks include:

Changes or delays in Federal or State government expenditure on road infrastructure – the Group maintains
regular contact with state road authorities to ensure that it can plan the resources required for major projects
as far ahead as possible or allow for the deferral of major projects in times of economic slowdown.

Adverse change in economic conditions affecting demand for the Group’s products or services – the Group
plans as far ahead as possible to adjust its cost base in times of economic uncertainty.

Traffic Technologies Ltd
Directors’ Report

OPERATING AND FINANCIAL REVIEW (continued)



Technological obsolescence – the Group works closely with road traffic authorities and incurs significant
research and development expenditure to ensure that its products are state-of-the-art and competitive.

Foreign exchange risk - a decrease in the Australian dollar exchange rate can affect import prices: the Group
purchases components from a number of Asian countries denominated in US dollars. Conversely, an increase
in the Australian dollar exchange rate can affect export opportunities as the Group sells its products to a
number of countries around the world. The Group has a foreign exchange exposure through its term loan
which is denominated in US dollars and a forward exchange contract has been taken out to hedge its currency
exposure.

General inflation risk, including labour costs – the Group constantly monitors its cost base and implements cost
savings and operating efficiencies where possible.

Availability of financing facilities – the Group is reliant on the continued availability of its financing facilities in
order to conduct its operations. The Group ensures compliance with its facility agreements and negotiates
extensions to its financing facilities when required.

Competition – the Group maintains its competitive position by investing in research and development to
ensure its products are state-of the-art and by ensuring its products are priced competitively.

Cyber security – the Group has been addressing cyber security as part of its risk management strategy in the
light of recent well-publicised breaches and increased risk in this area.

Climate change – the Group is not significantly exposed to climate change issues unless a carbon tax is
reintroduced. A significant number of the Group’s products use LED technology which is energy saving and
reduces greenhouse gas emissions.

COVID-19 – the Group’s response to the coronavirus has been a significant issue in 2020. The Group has been
able to continue trading during the pandemic having implemented a variety of measures including enhanced
hygiene, social distancing and a COVID Safe plan.

Significant Changes in State of Affairs

There were no significant changes in the nature of the Group’s activities during the year.

Significant Events After Balance Date

The acquisition of the L&M Traffic Signals business was completed on 28 August 2020. The term of the ADM loan
facility has been extended to 2 July 2021 (see Note 12).

Environmental Regulation and Performance

The Group’s operations are not regulated by any significant environmental regulations under a law of the
Commonwealth or of a state or territory. There have been no significant known breaches of the Group’s compliance
with environmental regulations.

Share Options

As at the date of this report, there were no unissued ordinary shares of the Company under option.

Indemnification and Insurance of Directors, Officers and auditors

During the financial year ended 30 June 2020, the Group paid premiums of $118,736 in respect of a Directors’ and
Officers’ insurance policy insuring Directors and Officers in respect of claims which may be brought against them.
The contract of insurance prohibits disclosure of the nature of the liability. The Company has not otherwise, during
or since the end of the financial year, except to the extent permitted by law, indemnified or agreed to indemnify an
officer or auditor of the Company or any related body corporate against a liability incurred as such by an officer or
auditor.

Traffic Technologies Ltd
Directors’ Report

REMUNERATION REPORT (AUDITED)

This Remuneration Report for the financial year ended 30 June 2020 outlines non-executive director and executive
remuneration arrangements for Traffic Technologies Ltd (Company) in accordance with the requirements of the
Corporations Act 2001 (Cth) (Corporations Act) and its Regulations.

For the purposes of this report, Key Management Personnel (KMP) of the Company are defined as those persons
having authority and responsibility for planning, directing and controlling all activities of the Company, directly or
indirectly, including any director (whether executive or otherwise) of the Company.

For the purposes of this report, the term ‘executive’ includes the Managing Director and the Chief Financial Officer.

The disclosures in this Remuneration Report have been audited.

1. Persons covered by this Remuneration Report

This Remuneration Report applies to the following persons.

Non-executive director

Mr. Garry Lowrey

Independent Non-executive Chairman

Mr. Mark Hardgrave

Independent Non-executive Director

Executives

Mr. Con Liosatos

Managing Director

Mr. Peter Crafter

Chief Financial Officer and Company Secretary

2. Overview of the Company's remuneration policy

The Company seeks to attract, retain and motivate skilled non-executive directors and executives of the highest
calibre. The Company aims to ensure that the remuneration packages of non-executive directors and executives are
appropriate and reflect a person's duties and responsibilities.

In this regard, the Company has put in place a Nomination & Remuneration Committee which supports and advises
the Board in fulfilling its responsibilities to shareholders. The Nomination & Remuneration Committee is responsible
for ensuring that the Board is appropriately remunerated, structured and comprised of individuals who are best able
to discharge the responsibilities of directors.

The remuneration policy of the Company has been designed to align KMP objectives with shareholder and business
objectives by providing a fixed remuneration component and offering incentives to reward sustainable long-term
performance and shareholder value creation.

KMP or closely related parties of KMP are prohibited from entering into hedge arrangements that would have the
effect of limiting the risk exposure relating to their remuneration.

In accordance with best practice corporate governance, the structure of non-executive director and executive
remuneration is separate and distinct.

Traffic Technologies Ltd
Directors’ Report

3. Details of executive remuneration structure

3.1. Objective

The Company's objective is to ensure that executive remuneration is designed to promote sustainable long-term
performance and shareholder value creation. In this regard, the Company aims to reward executives with a level
and mix of remuneration commensurate with their position and responsibilities within the Company so as to:

reward executives for the Company's and individual performance;

align the interests of executives with those of shareholders;

link reward with the strategic goals and performance of the Company; and

ensure total remuneration is competitive by market standards.

3.2. Approach to setting remuneration

Remuneration levels are determined annually through a remuneration review that considers market data,
remuneration trends, performance of the Company, individual responsibilities, individual performance and the
broader economic environment.

Fixed remuneration

The objective of fixed remuneration is to provide a base level of remuneration which is appropriate and reasonable
given the executive's experience, qualifications, core duties and responsibilities. Additionally, an executive's
remuneration is determined with reference to remuneration paid by similar sized companies in similar industry
sectors.

Executives are given the opportunity to receive their fixed remuneration in a variety of forms including cash,
superannuation contributions and non-monetary benefits such as motor vehicles. It is intended that the manner of
payment chosen will be optimal for the recipient without creating undue cost for the Company.

An executive's remuneration is reviewed annually by the Nomination & Remuneration Committee.

Variable remuneration

Performance based components of an executive’s remuneration seek to align the executive’s reward with the
achievement of the Company's long-term objectives and the creation of shareholder value over the short and long
term. The relevant performance-based components are STI and LTI (as described below).

Traffic Technologies Ltd
Directors’ Report

3.3. The current structure of executive remuneration

The executive remuneration structure, including performance hurdles and performance targets, is outlined below:

Combination of fixed and variable remuneration

Remuneration

Components

Purpose

Link to Performance

Total Fixed
Remuneration (TFR)

Comprises base salary,
non-monetary benefits,
and superannuation
contributions.

Short term incentives
(STIs)

The Company operates
an STI at the discretion of
the Board which is
accessed based on the
Company's performance
above budget plan.
Bonuses are paid in cash.

To provide
competitive fixed
remuneration taking
account of the role,
market, experience
and performance.

To reward executives
for their contribution
to achievement of
Company outcomes
according to specified
KPI’s.

Long term incentives
(LTIs)

The Company operates
an LTI at the discretion of
the Board. Options are
allotted in accordance
with our LTI plan.

To reward executives
for their contribution
to the creation of
shareholder value
over the longer term.

Company and individual
performance are assessed
during the annual
remuneration review.

Linked to achievement of
operational targets and KPI’s.
Where actual financial
performance exceeds budget
plan by up to 100%, the
Company makes payment of
an STI bonus up to 20%.

The grant by the Company of
the options will be dependent
on the share price
performance of the Company
relative to the ASX 300 small
ordinaries index. If the
Company's share price
performance exceeds the ASX
300 small ordinaries index for
the relevant period, the LTI
may be awarded for that
financial year.
Subsequent to being granted,
the LTI options will only vest if
the executive does not resign
or is not terminated for cause
within a two-year period
(after the end of the relevant
financial year in which the
options are granted). The
exercise price of the options
will be equivalent to the
Company’s share price on the
last day of the relevant
financial year.

b) Performance hurdles

Performance hurdles are thresholds which are required to be met for an executive's remuneration to vest.

Traffic Technologies Ltd
Directors’ Report

(i)

The following performance hurdles are used to determine whether variable remuneration vests for executives:

STI Targets

LTI Targets

Managing
Director

10% of base salary if targeted EBIT is
exceeded by 50%.

20% of base salary if targeted EBIT is
exceeded by 100%.

Targets are based on achievement of
KPI’s set annually by the Nomination &
Remuneration Committee. A summary of
the KPIs are outlined below.

Chief Financial
Officer

5% of base salary if targeted EBIT is
exceeded by 50%.

10% of base salary if targeted EBIT is
exceeded by 100%.

Targets are based on achievement of
KPI’s set annually by the Nomination &
Remuneration Committee. A summary of
the KPIs are outlined below.

10% of base salary paid according to
KPI’s set by the Board.

10% of base salary if the Company’s share price
performance exceeds the ASX 300 small
ordinaries index by 10% for the relevant
financial year.

20% of base salary if the Company’s share price
performance exceeds the ASX 300 small
ordinaries index by 25% for the relevant
financial year.

40% of base salary if the Company’s share price
performance exceeds the ASX 300 small
ordinaries index by 50% for the relevant
financial year.
5% of base salary if the Company’s share price
performance exceeds the ASX 300 small
ordinaries index by 10% for the relevant
financial year.

10% of base salary if the Company’s share price
performance exceeds the ASX 300 small
ordinaries index by 25% for the relevant
financial year.

20% of base salary if the Company’s share price
performance exceeds the ASX 300 small
ordinaries index by 50% for the relevant
financial year.

(ii) What are the KPIs and why were they chosen?

STIs

The Company has chosen Earnings before Interest and Tax (EBIT) as its STI performance measure. EBIT is a common
operational performance measure used by many companies. The Board considers this financial measure to be
appropriate as it is reflective of the performance of the Company and aligns the Company's objective of delivering
profitable growth and, ultimately, improved shareholder returns.

LTIs

The Company has chosen its share price performance relative to the ASX 300 small ordinaries index as its LTI
performance measure. This is an external, relative, market-based performance measure against competing
companies. It provides a direct link between senior executive reward and returns to shareholders.

(iii) What is the performance period?

The performance hurdle for STI's are measured over a 12-month period. There will be no re-testing of performance
hurdles.

The performance hurdle for LTI targets are measured over three years, being the relevant 12-month period and a
requirement for the executive to remain with the Company for a further two years. There will be no re-testing of
performance hurdles.

Traffic Technologies Ltd
Directors’ Report

(iv) When are performance hurdles not considered to be met?

Performance hurdles will not be considered to be met where an executive achieves the performance hurdle as a
result of an acquisition by the Company.

Claw back

The Company has the ability to reduce, cancel or claw back performance-based remuneration in the event of serious
misconduct or material financial misstatement.

4. Details of Non-Executive remuneration structure

4.1 Objective

The Board seeks to set aggregate remuneration at a level that provides the Company with the ability to attract and
retain directors of the highest calibre, whilst incurring a cost that is acceptable to shareholders.

4.2 Approach to setting remuneration

Each non-executive director receives a fixed fee for being a director and a fee for the additional time commitment
made when serving as Chair. Non-executive Directors do not receive retirement benefits, other than statutory
superannuation, nor do they participate in any incentive programs.

The Company’s Constitution and the ASX Listing Rules specify that the aggregate remuneration of non-executive
Directors shall be determined from time to time by a general meeting. The notice convening a general meeting at
which it is proposed to seek approval to increase that maximum aggregate sum must specify the proposed new
maximum aggregate sum and the amount of the proposed increase. The latest determination was at the AGM held
in 2005 when shareholders approved an aggregate remuneration of $400,000 per year. The amount of
remuneration paid to non-executive directors is reviewed annually against remuneration paid to non-executive
directors of comparable companies. The board did not use external consultants during the financial year ended 30
June 2020.

It is considered good governance for Directors to have a stake in the Company on whose Board they sit. Non-
executive Directors are encouraged to hold shares in the Company (purchased by the Director on market).

4.3 Non-executive Director Agreements

The non-executive Directors have entered into non-executive Director Agreements with the Company. The non-
executive Director agreements:

entrench a Director’s rights to be indemnified by the Company to the maximum extent permitted by law;

require the Company to take out an appropriate Directors’ and officers’ insurance policy to protect the Director
from liability (to the extent permitted by law); and

provides the non-executive Director with access to the Company's books and records relating to the period the
Director acted as a Director of the Company. After resignation as a Director, the Director can only use this
information for the purposes of defending a claim.

Traffic Technologies Ltd
Directors’ Report

Performance outcomes

5.1 Executives

Managing Director – Mr. Con Liosatos

The Managing Director, Mr. Liosatos, is employed under a rolling employment contract. A summary of Mr. Liosatos’
entitlements for the financial year ended 30 June 2020 is as follows:



TFR for the financial year ended 30 June 2020 was $530,935.

No STI was awarded to Mr. Liosatos for the 2020 financial year.

No LTI was awarded to Mr. Liosatos for the 2020 financial year.

Employment may be terminated by the giving, by either party, of twelve months’ notice, or by the payment or
forfeiture of an equivalent amount of pay in lieu of notice from any monies owing. The Company retains the
right to terminate the contract at any time without notice in the case of serious misconduct.

Further details of the executives’ remuneration for the financial years ended 30 June 2019 and 30 June 2020
are included in the table below.

Chief Financial Officer – Mr. Peter Crafter

The Company Secretary and Chief Financial Officer, Mr. Peter Crafter, is employed under a rolling employment
contract. A summary of Mr. Crafter’s entitlements is as follows:



TFR for the financial year ended 30 June 2020 was $290,495.

No STI was awarded to Mr. Crafter for the 2020 financial year.

No LTI was awarded to Mr. Crafter for the 2020 financial year.

Further details of the executives’ remuneration for the financial years ended 30 June 2019 and 30 June 2020
are set out in the table below.

Performance against targets



No STI’s were awarded for the 2020 financial year.

No LTI’s were awarded for the 2020 financial year.

Traffic Technologies Ltd
Directors’ Report

5.2 Non-executive Directors

Details of non-executive Directors’ remuneration for the financial years ended 30 June 2019 and 30 June 2020 are
set out in the table below. The Company considers the non-executive Directors’ remuneration to be reasonable
taking into account their duties, responsibilities, market, experience and performance.

5.3 Company Performance and Shareholder Returns

2020

2019

2018

2017

2016

Net profit/(loss) $’000)

($13,985)

$1,263

$6,072

$1,011

($22,250)

EPS (cents)

Share price (cents)

(2.90)

1.8

0.26

2.4

1.88

3.3

0.37

3.6

(8.07)

2.6

Management remuneration is not related to the Company's performance and shareholder returns except to the
extent disclosed above.

Traffic Technologies Ltd
Directors’ Report

REMUNERATION OF KEY MANAGEMENT PERSONNEL

Short-term benefits

Post-employment
benefits

Termination
Benefits

Salary & fees
$

Non-monetary
$

Cash
Bonus
$

Superannuation
$

Long-term
benefits
Long service
leave
$

Share based
payments

Options
$

Total

%
performance
related

108,674

57,750

492,962

247,921

907,307

108,674

57,750

492,962

247,921

907,307

11,815

16,551

28,366

12,973

19,022

31,995

10,324

5,486

25,000

23,552

64,362

10,324

5,486

25,000

23,552

64,362

14,176

15,032

29,208

9,111

4,781

13,892

118,998

63,236

543,953

303,056

- 1,029,243

118,998

63,236

540,046

295,276

- 1,017,556

Year to 30 June 2019

Non-executive Directors
Mr. Garry Lowrey

Mr. Mark Hardgrave

Executives

Mr. Con Liosatos

Mr. Peter Crafter

Total

Year to 30 June 2020

Non-executive Directors
Mr. Garry Lowrey

Mr. Mark Hardgrave

Executives

Mr. Con Liosatos

Mr. Peter Crafter

Total

END OF AUDITED REMUNERATION REPORT

Traffic Technologies Ltd
Directors’ Report

DIRECTORS’ MEETINGS

The number of meetings of Directors (including meetings of committees of Directors) held during the financial year
and the number of meetings attended by each Director was as follows:

Directors’
Meetings

Audit
Committee

Risk Committee

Nomination &
Remuneration
Committee

Corporate
Governance
Committee

Number
eligible to
attend

Number
attended

Number
eligible
to attend

Number
attended

Number
eligible
to attend

Number
attended

Number
eligible
to attend

Number
attended

Number
eligible
to attend

Number
attended

Mr. Garry Lowrey

Mr. Con Liosatos

Mr. Mark Hardgrave

BOARD COMMITTEES

As at the date of this report the Company had an Audit Committee, a Nomination & Remuneration Committee, a
Corporate Governance Committee and a Risk Committee of the Board of Directors. The eligibility and attendance
of each of the Directors is disclosed in the table above. The chairman of each committee was:



Audit – Mr. Mark Hardgrave

Nomination & Remuneration – Mr. Mark Hardgrave

Corporate Governance – Mr. Mark Hardgrave

Risk - Mr. Mark Hardgrave

ROUNDING

The amounts contained in this report and in the financial report have been rounded to the nearest $1,000 (unless
otherwise stated) under the option available to the Company under ASIC Corporations (Rounding
in
Financial/Directors’ Reports) Instrument 2018/191. The Company is an entity to which the Instrument applies.

AUDITOR’S INDEPENDENCE AND NON-AUDIT SERVICES

A copy of the auditor’s independence declaration in relation to the audit for the financial year is provided
immediately following this report.

Signed in accordance with a resolution of the Directors.

Mr. Garry Lowrey
Independent Non-Executive Chairman
14 October 2020
Melbourne

Take the lead

Auditor’s Independence Declaration under Section 307C of the Corporations Act

2001 to the directors of Traffic Technologies Ltd

I declare that, to the best of my knowledge and belief, during the year ended 30 June 2020 there have been:

i. No contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to

the audit, and

ii. No contraventions of any applicable code of professional conduct in relation to the audit.

ShineWing Australia
Chartered Accountants

Rami Eltchelebi
Partner

Melbourne, 14 October 2020

Brisbane
Level 14
12 Creek Street
Brisbane QLD 4000
T + 61 7 3085 0888

Melbourne
Level 10
530 Collins Street
Melbourne VIC 3000
T + 61 3 8635 1800
F + 61 3 8102 3400

Sydney
Level 8
167 Macquarie Street
Sydney NSW 2000
T + 61 2 8059 6800
F + 61 2 8059 6899

ShineWing Australia ABN 39 533 589 331. Liability limited by a scheme approved under Professional
Standards Legislation. ShineWing Australia is an independent member of ShineWing International Limited.

shinewing.com.au

Traffic Technologies Ltd
Corporate Governance Statement

The Board and management of Traffic Technologies Ltd are committed to conducting the Group’s business in an
ethical manner and in accordance with the highest standards of corporate governance. The Company has adopted
and has substantially complied with the ASX Corporate Governance Principles and Recommendations (Fourth
Edition) (Recommendations) to the extent appropriate to the size and nature of the Group’s operations.

The Company has prepared a statement which sets out the corporate governance practices that were in operation
throughout the financial year for the Company, identifies any Recommendations that have not been followed and
provides reasons for not following such Recommendations (Corporate Governance Statement).

The Corporate Governance Statement is accurate and up to date as at 14 October 2020 and has been approved by
the Board.

In accordance with ASX Listing Rules 4.10.3 and 4.7.4, the Corporate Governance Statement is available for review
on the Company’s website (www.trafficltd.com.au) and will be lodged together with an Appendix 4G at the same
time that this Annual Report is lodged with ASX.

Appendix 4G identifies each Recommendation that needs to be reported against by the Company and provides
shareholders with information as to where relevant governance disclosures can be found.

The Company’s corporate governance policies and charters are all available on the Company’s website
(www.trafficltd.com.au).

Traffic Technologies Ltd and Controlled Entities
Consolidated Statement of Profit or Loss and Other Comprehensive Income
For the year ended 30 June 2020

Revenue

Other income

Changes in inventories of finished goods and work in progress

Raw materials and consumables used

Employee benefits expense

Occupancy costs

Advertising and marketing expense

Other expenses

Depreciation and amortisation expense

Impairment expense

Note

Consolidated

2020
$’000

44,522

(2,480)

(23,126)

(13,749)

(1,161)

(72)

(2,593)

(2,297)

(10,554)

2019
$’000

48,321

125

2,433

(28,986)

(13,661)

(1,907)

(123)

(1,879)

(1,474)

Earnings before interest and tax (EBIT)

(11,444)

2,849

Finance costs

(2,381)

(1,380)

Net (loss)/profit for the year before income tax

(13,825)

1,469

Income tax expense

(160)

(206)

Net (loss)/profit for the year

(13,985)

1,263

Other comprehensive income

Total comprehensive (loss)/income for the year

(13,985)

1,263

(Loss)/earnings per share

- Basic (cents per share)

- Diluted (cents per share)

Cents

(2.90)

Cents

0.26

The accompanying notes form part of these financial statements.

Traffic Technologies Ltd and Controlled Entities
Consolidated Statement of Financial Position as at 30 June 2020

Note

Consolidated

2020
$’000

2019
$’000

3,636

7,863

10,117

21,616

2,319

9,177

11,496

3,107

8,803

12,597

251

24,758

1,224

10,554

8,929

20,707

33,112

45,465

8,752

8,598

2,730

1,001

525

7,341

142

2,685

861

21,606

11,029

4,165

203

4,368

25,974

7,138

54,755

(47,617)

7,138

13,073

203

13,276

24,305

21,160

54,755

(33,595)

21,160

ASSETS

Current Assets

Cash and cash equivalents

Trade and other receivables

Inventories

Derivative financial instrument

Total Current Assets

Non-Current Assets

Property, plant and equipment

Goodwill

Intangible assets

Total Non-Current Assets

TOTAL ASSETS

LIABILITIES

Current Liabilities

Trade and other payables

Interest bearing loans and borrowings

Provisions

Deferred tax liability

Derivative financial instrument

Total Current Liabilities

Non-Current Liabilities

Interest bearing loans and borrowings

Provisions

Total Non-Current Liabilities

TOTAL LIABILITIES

NET ASSETS

EQUITY

Contributed equity

Accumulated losses

TOTAL EQUITY

The accompanying notes form part of these financial statements.

Traffic Technologies Ltd and Controlled Entities
Consolidated Statement of Changes in Equity
For the year ended 30 June 2020

Consolidated

At 1 July 2018

Profit for the year

Other comprehensive income

Total comprehensive income for the year

Contributed
Equity
$’000

Accumulated
Losses
$’000

Total

$’000

54,755

(34,858)

19,897

1,263

At 30 June 2019

54,755

(33,595)

21,160

Adjustment from the adoption of AASB 16

Loss for the year

Other comprehensive income

Total comprehensive income for the year

(37)

(13,985)

At 30 June 2020

54,755

(47,617)

7,138

The accompanying notes form part of these financial statements.

Consolidated Consolidated
2019

2020

$'000

50,512

54,659

(43,813)

(51,950)

(1,459)

(1,267)

(4)

5,252

(4)

1,486

(406)

(1,638)

(82)

(180)

(2,159)

(2,082)

(2,334)

7,500

(10,052)

(89)

(2,641)

(89)

529

(937)

3,107

3,636

4,044

3,107

Traffic Technologies Ltd and Controlled Entities
Consolidated Statement of Cash Flows
For the year ended 30 June 2020

Cash flows from operating activities

Receipts from customers

Payments to suppliers and employees

Interest received

Interest paid

Income tax paid

Net cash from operating activities

Cash flows from investing activities

Proceeds from sale of plant and equipment

Purchase of property, plant and equipment

Purchase of intangible assets

Acquisition Costs

Net cash from investing activities

Cash flows from financing activities

Proceeds from borrowings

Repayment of borrowings

Payment of borrowing costs

Net cash from financing activities

Net increase/(decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of the financial year

Cash and cash equivalents at end of the financial year

The accompanying notes form part of these financial statements.

Traffic Technologies Ltd and Controlled Entities
Notes to the Consolidated Financial Statements
For the year ended 30 June 2020

The financial report of Traffic Technologies Ltd (the Company) for the year ended 30 June 2020 was authorised for
issue in accordance with a resolution of the Directors on 14 October 2020. The Company is a company limited by
shares incorporated in Australia whose shares are publicly traded on the Australian Securities Exchange. The nature
of the operations and principal activities of the Group are described in the Directors’ Report.

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Preparation

This financial report is a general purpose financial report that has been prepared in accordance with the
requirements of the Corporations Act 2001, Australian Accounting Standards and other authoritative
pronouncements of the Australian Accounting Standards Board (AASB) and AASB Interpretations. The consolidated
financial statements of Traffic Technologies Ltd and its subsidiaries also comply with International Financial
Reporting Standards (IFRS) as issued by the International Accounting Standards Board. The financial report has been
prepared on an accruals basis and under the historical cost convention. The financial report covers Traffic
Technologies Ltd and its subsidiaries (the Group). Traffic Technologies Ltd is a for profit Australian listed public
company limited by shares, incorporated and domiciled in Australia. The nature and operations and principal
activities of the Group are described in the Directors’ Report. The following is a summary of material accounting
policies adopted by the Group in the preparation and presentation of the financial report. The accounting policies
have been consistently applied, unless otherwise stated.

Rounding

The amounts contained in the financial report have been rounded to the nearest thousand dollars ($’000) (unless
otherwise stated) under the option available to the Company under ASIC Corporations (Rounding
in
Financial/Directors’ Reports) Instrument 2018/191. The Company is an entity to which the Instrument applies.

New Standards Adopted by the Group

AASB 16: Leases.

AASB 16 has replaced the accounting requirements applicable to leases in AASB 117: Leases and related
Interpretations. AASB 16 has introduced a single lessee accounting model that eliminates the requirement for leases
to be classified as operating or finance leases. On adoption of AASB 16, the Group recognised lease liabilities in
relation to leases which had previously been classified as operating leases under the previous standard AASB 117.
These liabilities have been measured at the present value of the remaining lease payments, discounted using the
lessee’s incremental borrowing rate applicable to debt of similar characteristics with the same underlying security
as at 1 July 2019. The weighted average lessee’s incremental borrowing rate applied to the lease liabilities on 1 July
2019 was 15%.

The adoption of AASB 16 resulted in the Group recognising a right-of-use asset of $1.5m and related lease liability
of $1.5m in connection with all former operating leases except for those identified as low value or having a remaining
lease term of less than 12 months from the date of initial application.

AASB 16 has been applied using the modified retrospective approach, with the cumulative effect of adopting AASB
16 being recognised in equity as a reduction to the opening balance of retained earnings of $37,000 for the current
period. Prior periods have not been restated. For contracts in place at the date of initial application, the Group has
elected to apply the definition of a lease from AASB 117 and has not applied AASB 16 to arrangements that were
previously not identified as a lease under AASB 117. On transition, for leases previously accounted for as operating
leases with a remaining lease term of less than 12 months and for leases of low value assets, the Group has applied
the optional exemptions to not recognise right-of-use assets but to account for the lease expense on a straight-line
basis over the remaining lease term.

Traffic Technologies Ltd and Controlled Entities
Notes to the Consolidated Financial Statements
For the year ended 30 June 2020

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

c) Going concern

The 2020 financial year has been challenging and the consolidated entity incurred a net loss for the year. Revenue
and EBITDA were affected by generally weak trading conditions. There was a slowdown in orders and delays to the
approval of several projects. In the second half of the year the consolidated entity was faced with the challenges of
Coronavirus (COVID-19). Consequently, there is material uncertainty that may cast significant doubt whether the
Group can continue as a going concern.

However, although the consolidated entity incurred a loss for the financial year ended 30 June 2020, in assessing
the appropriateness of the going concern concept the following factors have been taken into consideration by the
Directors:






The consolidated entity has been able to continue trading throughout the COVID-19 lockdown period.
The Directors are of the view that the consolidated entity is expected to continue to generate positive earnings
before interest, tax, depreciation and amortisation (EBITDA) in the 2021 financial year.
A significant part of the loss in the financial year ended 30 June 2020 related to the non-cash impairment
provision against goodwill.
The consolidated entity is expected to continue generate positive operating cash flows in the 2021 financial
year.
The Directors are working on a strategy to refinance the debt facility with ADM Capital.

The Directors note that after the reporting date the term of the loan facility from ADM Capital of $5,139,000 (2019:
$12,931,000) has been extended to 2 July 2021.

The financial statements have been prepared on the going concern basis for the above reasons. Accordingly, the
financial statements do not include any adjustments relating to the recoverability and classification of recorded
assets or to the amounts and classification of liabilities that might be necessary should the consolidated entity not
continue as a going concern, except for the classification of the ADM Capital loan facility as a current liability.

d) Basis of consolidation

The consolidated financial statements incorporate all of the assets, liabilities and results of the parent (Traffic
Technologies Ltd) and all of the subsidiaries. Subsidiaries are entities the parent controls. The parent controls an
entity when it 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 over the entity.

Subsidiaries are consolidated from the date on which control is obtained by the Group. The consolidation of a
subsidiary is discontinued from the date that control ceases. Intercompany transactions, balances and unrealised
gains or losses on transactions between group entities are fully eliminated on consolidation. Accounting policies of
subsidiaries have been changed and adjustments made where necessary to ensure uniformity of the accounting
policies adopted by the Group. Changes in the ownership interests in a subsidiary that do not result in a loss of
control are accounted for as equity transactions and do not affect the carrying amounts of goodwill.

Business combinations are accounted for using the acquisition method. The acquisition method of accounting
involves recognising at acquisition date, separately from goodwill, the identifiable assets acquired, the liabilities
assumed and any non-controlling interest in the acquiree. The identifiable assets acquired and the liabilities
assumed are measured at their acquisition date fair values. When the Group acquires a business, it assesses the
financial assets 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 as at the acquisition date.

Traffic Technologies Ltd and Controlled Entities
Notes to the Consolidated Financial Statements
For the year ended 30 June 2020

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

If the business combination is achieved in stages, the acquisition date fair value of the acquirer's previously held
equity interest in the acquiree is remeasured at fair value as at the acquisition date through the statement of
comprehensive income. Any contingent consideration to be transferred by the acquirer will be recognised at fair
value at the acquisition date. Subsequent changes to the fair value of the contingent consideration which is deemed
to be an asset or liability will be recognised in the statement of comprehensive income. If the contingent
consideration is classified as equity, it will not be remeasured.

All transaction costs incurred in relation to business combinations, other than those associated with the issue of a
financial instrument, are recognised as expenses in profit or loss when incurred. The acquisition of a business may
result in the recognition of goodwill or a gain from a bargain purchase.

Significant 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 and estimates on historical experience and other factors it believes to be reasonable under the
circumstances. Management has identified the following critical accounting policies for which significant
judgements, estimates and assumptions are made. Actual results may differ from these estimates under different
assumptions and conditions and may materially affect financial results or the financial position reported in future
periods.

Significant accounting judgements

Impairment testing of non-financial assets

The Group assesses impairment of all assets at each reporting date by evaluating conditions specific to the Group
and to the particular asset that may lead to impairment. These include product and manufacturing performance,
technology, economic and political environments and future product and service delivery expectations. If an
impairment trigger exists the recoverable amount of the asset is determined. This involves value in use calculations,
which incorporate a number of key estimates and assumptions.

Capitalised development costs

Development costs are only capitalised by the Group when the Group can demonstrate the technical feasibility of
completing the intangible asset so that it will be available for use or sale, its intention to complete and its ability to
use or sell the asset, how the asset will generate future economic benefits, the availability of resources to complete
the development and the ability to measure reliably the expenditure attributable to the intangible asset during its
development.

Taxation

The Group's accounting policy for taxation requires management's judgement as to the types of arrangements
considered to be a tax on income in contrast to an operating cost. Judgement is also required in assessing whether
deferred tax assets and certain deferred tax liabilities are recognised in the statement of financial position. Deferred
tax assets, capital losses and temporary differences, are recognised only where it is considered more likely than not
that they will be recovered, which is dependent on the generation of sufficient future taxable profits. Assumptions
about the generation of future taxable profits depend on management's estimates of future cash flows. Judgements
are also required about the application of income tax legislation.

Traffic Technologies Ltd and Controlled Entities
Notes to the Consolidated Financial Statements
For the year ended 30 June 2020

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Significant accounting estimates and assumptions

Long service leave provision

The liability for long service leave is recognised and measured at the present value of the estimated future cash
flows to be made in respect of all employees at balance date. In determining the present value of the liability,
attrition rates and pay increases through inflation and promotion have been taken into account. The Group’s
obligations towards long service leave liabilities are presented as non-current provisions in its statement of financial
position, except where the Group does not have an unconditional right to defer settlement for at least 12 months
after the end of the reporting period, in which case the obligations are presented as current provisions.

Allowance for impairment loss on receivables

Where receivables are outstanding beyond the normal trading terms, the likelihood of recovery of these receivables
is assessed by management. Debts that are considered to be uncollectible are written off when identified.

Estimation of useful lives of assets

The estimation of useful lives of assets has been based on historical experience (for plant and equipment), lease
terms (for leased equipment) and turnover policies (for motor vehicles). In addition, the condition of assets is
assessed at least once a year and considered against the remaining useful life. Adjustments to useful life are made
when considered necessary. Any change in the useful life or residual lives is treated as a change in accounting
estimate and recognised in the statement of comprehensive income.

Maintenance warranties

In determining the level of the provision required for warranties, the Group has made judgements in7 respect of
the expected performance of the products and any liability resulting from installation works. Historical experience
and current knowledge of the performance of products has been used in determining this provision.

Finance costs

In assessing the amount of finance costs charged in the year, the Group has taken into account the increase in
interest costs over the term of the loan facility provided by ADM Capital to the Group and finance costs associated
with the partial refinancing of the Group in October 2019.

h) Prior period error

The financial report for the Group for the years ended 30 June 2016 through to 30 June 2019 did not disclose related
party transactions between the Group and an entity associated with the Company's Managing Director, Mr. Con
Liosatos and a loan from the Group to Mr. Liosatos. Note 22(b) retrospectively restates these related party
disclosures for the preceding financial years.

Traffic Technologies Ltd and Controlled Entities
Notes to the Consolidated Financial Statements
For the year ended 30 June 2020

2. REVENUE

Revenue

Sale of goods

Other income

Net profit on disposal of fixed assets

Net exchange gain/(loss) on foreign currency borrowings

Net (loss)/gain on derivatives held for trading

Other income

Total other income

Consolidated

2020
$’000

2019
$’000

44,522

48,321

534

(525)

(881)

862

143

125

Revenue from contracts with customers is recognised when control of the goods or services are transferred to the
customer at an amount that reflects the consideration to which the Group expects to be entitled in exchange for
those goods or services.

Sale of goods

Revenue from sale of goods is recognised when control of the goods is transferred to the customer at an amount
that reflects the consideration to which the Group expected to be entitled in exchange for those goods.

Rendering of services

Revenue is recognised in the accounting period in which the services are rendered. For fixed-price contracts,
revenue is recognised based on the actual service provided to the end of the reporting period as a proportion of the
total services to be provided (performance obligations satisfied over time). When the contract outcome cannot be
estimated reliably, revenue is recognised only to the extent of the expenses recognised that are recoverable.

Interest income

Interest income 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.

Finance and other income

Finance and other income is recognised when the right to receive the income is established.

Traffic Technologies Ltd and Controlled Entities
Notes to the Consolidated Financial Statements
For the year ended 30 June 2020

3. EXPENSES

Employee related expenses

Wages and salaries

Superannuation (defined contribution)

Other employee benefits expense

Other expenses

Administrative costs

Bad debts

Public company costs

Finance costs

Interest on loans

Lease interest

Amortisation of capitalised transaction costs

Capitalised interest

Total finance costs

Consolidated
2020
$’000

Consolidated
2019
$’000

10,151

1,010

2,588

13,749

1,660

723

210

2,593

1,443

215

663

2,381

10,272

1,012

2,377

13,661

1,559

120

200

1,879

1,059

113

204

1,380

Research and development costs

Research and development costs charged directly to cost of
sales in profit or loss

Traffic Technologies Ltd and Controlled Entities
Notes to the Consolidated Financial Statements
For the year ended 30 June 2020

INCOME TAX

Income Tax Expense

Current tax

Deferred tax - origination and reversal of temporary differences

Aggregate income tax expense

Reconciliation of income tax expense and tax at the statutory tax rate

Accounting (loss)/profit before income tax

Tax at the statutory rate of 30% (2019: 30%)

Permanent difference

Variance in deferred tax adjustments

Non-refundable foreign tax offset

Recoupment of R&D tax offset

Prior year under/over

Initial recognition of borrowing costs and other tax adjustments

Unrecognised deferred tax asset on tax losses

Aggregate income tax expense

Weighted average effective tax rate

Consolidated
2020
$’000

Consolidated
2019
$’000

156

160

(13,825)

(4,147)

3,233

(22)

566

374

160

202

206

1,469

441

(391)

206

14%

Deferred tax

Statement of Financial Position Statement of Profit or Loss Income

Consolidated
2020
$’000

Consolidated
2019
$’000

Consolidated
2020
$’000

Consolidated

2019
$’000

Temporary differences

Intangible assets

Plant and equipment

Inventory

Employee provisions

Warranty provisions

Credit notes

Doubtful debts

Foreign exchange

Other capital expenditure

Other accruals and provisions

Right of use assets

(2,317)

(163)

(2,113)

(189)

927

209

(3)

209

936

381

Deferred tax asset/(liability)

(1,001)

(861)

(204)

(289)

(9)

200

(6)

(172)

(140)

187

120

(2)

(206)

(55)

(202)

Traffic Technologies Ltd and Controlled Entities
Notes to the Consolidated Financial Statements
For the year ended 30 June 2020

4. INCOME TAX (continued)

Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be
recovered from or paid to the taxation authorities. Current income tax expense charged to profit or loss is the tax
payable on taxable income. Current and deferred income tax expense/(income) is charged or credited outside profit
or loss when the tax relates to items that are recognised outside profit or loss.

Deferred income tax assets are recognised for all deductible temporary differences, to the extent that is probable
that taxable profit will be available against which the deductible temporary differences and the carry forward of
unused tax credits can be utilised. The carrying amount of deferred income tax assets is reviewed at each balance
date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow
all or part of the deferred income tax asset to be utilised. Deferred tax assets and liabilities are measured at the tax
rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates
(and tax laws) that have been enacted or substantively enacted at the balance date.

Tax losses

The following tax losses have not been recognised as a deferred tax asset:

Tax losses – revenue

Tax losses – capital

Carried forward tax offsets

Total deferred tax assets

Consolidated
2020
$’000

Consolidated
2019
$’000

1,247

1,708

2,955

1,096

Tax losses are available to carry forward against future revenue-related profits (but not against capital related
profits) without expiry.

Tax Consolidation

Traffic Technologies Ltd and its 100% owned Australian resident subsidiaries formed a tax consolidated group with
effect from 1 July 2005 and are therefore taxed as a single entity from that date. The head entity within the tax
consolidated group is Traffic Technologies Ltd. Each wholly owned subsidiary of Traffic Technologies Ltd is a member
of the tax consolidated group, as identified at note 19.

Tax Funding Arrangements and Tax Sharing Agreements

The Company has entered into a tax funding agreement that sets out its funding obligations of the tax
consolidated group in respect of tax amounts. Contributions to fund the current tax liabilities are payable in
accordance with the tax funding agreement and reflect the timing of the head entity’s obligation to make
payments for the tax liabilities to the relevant taxation authority.

Traffic Technologies Ltd and Controlled Entities
Notes to the Consolidated Financial Statements
For the year ended 30 June 2020

5. EARNINGS PER SHARE

Earnings used in calculating earnings per share

For basic and diluted earnings per share:

Consolidated
2020
$’000

Consolidated
2019
$’000

Net (loss)/profit attributable to ordinary equity holders of the parent

(13,985)

1,263

Weighted average number of shares

Weighted average number of ordinary shares used in calculating basic
earnings per share

Weighted average number of ordinary shares adjusted for the effect of

dilution

Consolidated
2020
Thousands

Consolidated
2019
Thousands

482,225

Basic earnings per share is calculated as net profit/loss attributable to members of the parent entity divided by the
weighted average number of ordinary shares. Diluted earnings per share is calculated as net profit/loss attributable
to members of the parent entity divided by the weighted average number of ordinary shares and dilutive potential
ordinary shares. The following reflects the income and share data used in the basic and diluted earnings per share
computations:

There are no instruments excluded from the calculation of diluted earnings per share that could potentially dilute
earnings per share in the future because they are anti-dilutive for 2020 (2019: nil). There have been no other
transactions involving ordinary shares or potential ordinary shares between the reporting date and the date of
completion of these financial statements.

Traffic Technologies Ltd and Controlled Entities
Notes to the Consolidated Financial Statements
For the year ended 30 June 2020

TRADE AND OTHER RECEIVABLES

Trade receivables

Allowance for impairment loss

Prepayments

Other receivables

Ageing of trade receivables not impaired:

1-30 days

31-60 days

61 days and over

Movement in Provision for Impairment Loss:

Balance at the beginning of the year

Charge for the year

Amounts recovered during the year

Allowance no longer required

Amounts written off as uncollectible

Balance at the end of the year

Consolidated
2020
$’000

Consolidated
2019
$’000

6,825

(727)

6,098

1,092

673

7,863

3,852

1,631

615

6,098

723

(2)

(17)

(7)

727

7,591

(30)

7,561

494

748

8,803

4,270

2,482

809

7,561

120

(6)

(38)

(81)

Trade receivables, which generally have 30-day terms, are recognised initially at fair value plus any directly
attributable transaction costs and subsequently measured at amortised cost using the effective interest rate
method, less an allowance for any uncollectible amounts. Trade receivables are non-interest bearing. Collectability
of trade receivables is reviewed on an ongoing basis. Amounts over 60 days are deemed overdue. Credit is stopped
until full payment is made.

An allowance for impairment loss is recognised when there is objective evidence that an individual trade receivable
is impaired. The amount of the allowance for impairment loss has been measured as the difference between the
carrying amount of the trade receivables and the estimated future cash flows expected to be received from the
relevant debtors.

Traffic Technologies Ltd and Controlled Entities
Notes to the Consolidated Financial Statements
For the year ended 30 June 2020

INVENTORIES

Raw materials

Work in progress

Finished goods

Consolidated
2020
$’000

Consolidated
2019
$’000

3,874

199

6,044

4,299

205

8,093

10,117

12,597

Inventories including raw materials, work-in-progress and finished goods are valued at the lower of cost and net
realisable value.

Costs incurred in bringing each product to its present location and condition are accounted for as follows:



Raw materials – purchase cost on a first-in, first-out basis. The cost of purchase comprises the purchase price,
import duties and other taxes (other than those subsequently recoverable by the entity from the taxing
authorities), transport, handling and other costs directly attributable to the acquisition of raw materials and
volume discounts and rebates.

Finished goods and work-in-progress – cost of direct materials and labour and a proportion of variable and fixed
manufacturing overheads based on normal operating capacity but excluding borrowing costs.

Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of
completion and the estimated costs necessary to make the sale.

Inventory write-downs recognised as an expense totaled $56,565 (2019: $Nil).

Traffic Technologies Ltd and Controlled Entities
Notes to the Consolidated Financial Statements
For the year ended 30 June 2020

PROPERTY, PLANT AND EQUIPMENT

Consolidated

Movement in Carrying Amounts

At 1 July 2018 net book value

Additions

Disposals

Depreciation expense

At 30 June 2019 net book value

Adjustment on transition to AASB 16

Additions

Disposals

Depreciation expense

At 30 June 2020 net book value

Carrying Amounts

At 30 June 2019

Cost

Accumulated depreciation

Carrying amount at 30 June 2019

At 30 June 2020

Cost

Accumulated depreciation

Carrying amount at 30 June 2020

Right of Use
Assets
$’000

Plant &
Equipment
$’000

1,488

244

(614)

1,118

2,037

(919)

1,118

1,253

260

(4)

(285)

1,224

306

(36)

(293)

1,201

8,647

(7,423)

1,224

8,886

(7,685)

1,201

Total
$’000

1,253

260

(4)

(285)

1,224

1,488

550

(36)

(907)

2,319

8,647

(7,423)

1,224

10,922

(8,603)

2,319

Property, plant and equipment is stated at historical cost less accumulated depreciation.

Depreciation is calculated on a straight-line basis over the estimated useful life of the specific assets as follows:

Right of use assets

Plant and equipment

2020

Lease term

2019
-

1 to 15 years

The Group’s property, plant and equipment is pledged as security against the Group’s borrowings - see note 12.

Leased assets are pledged as security for the related lease liabilities – see note 13.

Traffic Technologies Ltd and Controlled Entities
Notes to the Consolidated Financial Statements
For the year ended 30 June 2020

9. GOODWILL

Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net
identifiable assets of the acquired subsidiary at the date of acquisition.

Carrying amount of goodwill allocated to each cash-generating unit

Signals

Less: Impairment expense

Controllers

Less: Impairment expense

Carrying amount

Consolidated
2020
$’000

Consolidated
2019
$’000

30,535

(30,535)

(19)

30,535

(20,000)

10,535

10,554

Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. The Group
conducts an annual internal review of asset values, which is used as a source of information to assess for any
indicators of impairment. External factors, such as changes in expected future processes, technology and economic
conditions, are also monitored to assess for indicators of impairment. If any indication of impairment exists, an
estimate of the asset's recoverable amount is calculated.

Impairment of Goodwill

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 to sell and value in use. For the purposes
of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash
inflows that are largely independent of the cash inflows from other assets or groups of assets (cash-generating
units).

As at 31 December 2019, the market capitalisation of the Group was below the book value of its equity, indicating
a potential impairment of goodwill. The Group calculated the recoverable amount of each CGU at that date and
recognised an impairment expense ($10.6m) to write-off the goodwill so that each CGU was measured at its
recoverable amount.

Traffic Technologies Ltd and Controlled Entities
Notes to the Consolidated Financial Statements
For the year ended 30 June 2020

10. INTANGIBLE ASSETS

Consolidated

Movement in Carrying Amounts
At 1 July 2018 net book value
Additions
Amortisation
At 30 June 2019 net book value
Additions
Amortisation
At 30 June 2020 net book value

Carrying Amounts
At 30 June 2019
Cost
Accumulated amortisation
Impairment
Carrying amounts at 30 June 2019

At 30 June 2020
Cost
Accumulated amortisation
Carrying amounts at 30 June 2020

Development
Costs
$’000

Other Intangible
Assets
$’000

7,857
1,886
(907)
8,836
1,453
(1,180)
9,109

18,088
(8,852)
(400)
8,836

17,316
(8,207)
9,109

99
272
(278)
93
185
(210)
68

2,390
(2,297)
-
93

2,569
(2,501)
68

Total

$’000

7,956
2,158
(1,185)
8,929
1,638
(1,390)
9,177

20,478
(11,149)
(400)
8,929

19,885
(10,708)
9,177

Intangible assets are carried at cost less accumulated amortisation and any accumulated impairment losses.

Development costs

Research costs are expensed as incurred. An intangible asset arising from development expenditure on an internal
project is recognised only when the Group can demonstrate the technical feasibility of completing the intangible
asset so that it will be available for use or sale, its intention to complete and its ability to use or sell the asset, how
the asset will generate future economic benefits, the availability of resources to complete the development and the
ability to measure reliably the expenditure attributable to the intangible asset during its development. Following
the initial recognition of the development expenditure, the cost model is applied requiring the asset to be carried
at cost less any accumulated amortisation and accumulated impairment losses.

Any expenditure so capitalised is amortised over the period of expected benefit from the related project which is
generally 5 years (2019: 5 years). The amortisation is recognised in the statement of comprehensive income in the
line item ‘depreciation, amortisation and impairment expense’.

Software costs

Software costs are carried at cost less any accumulated amortisation and any accumulated impairment losses.
Purchased software development is assessed to have a finite life and is amortised over a period of 1-4 years (2019:
1-4 years).

Traffic Technologies Ltd and Controlled Entities
Notes to the Consolidated Financial Statements
For the year ended 30 June 2020

10. INTANGIBLE ASSETS (continued)

Patents and trademarks

Patents and trademarks acquired separately or in a business combination are initially measured at cost. The cost of
an intangible asset acquired in a business combination is its fair value as at the date of acquisition. Following initial
recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated
impairment losses.

Intangible assets that are not yet available for use are not subject to amortisation but are tested annually for
impairment or more frequently if events or changes in circumstances indicate that they might be impaired. Other
assets are tested 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 to sell and value
in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are
separately identifiable cash inflows that are largely independent of the cash inflows from other assets or groups of
assets (cash-generating units). Assets have been allocated to the signals and controllers cash-generating units.

The recoverable amount of the Signals cash-generating unit, which exceeds the carrying value of $7.7m, has been
determined based on a value in use calculation using cash flow projections based on financial budget forecasts
prepared by management covering a five-year period, with the following key assumptions:

Growth rate beyond budget period

Growth rate beyond 5 years

Pre-tax discount rate (WACC)

2020

14.3%

2019

14.8%

The key assumptions used in the value in impairment calculations represent management’s best estimates at 30
June 2020. Management has considered the sensitivity of the value in use calculations to changes in assumptions.
If revenue for the signals cash-generating unit is below budget by $1.7m (8%) the carrying value will equal its
recoverable amount, if all other assumptions are unchanged.

The recoverable amount of the Controllers cash-generating unit, which exceeds the carrying value of $1.5m, has
been determined based on estimated fair value less costs of disposal. The Group performed impairment testing at
30 June 2020 and 30 June 2019. Management has considered the sensitivity of fair value less costs of disposal
calculations to changes in assumptions. There was no impairment of intangible assets at those dates.

Traffic Technologies Ltd and Controlled Entities
Notes to the Consolidated Financial Statements
For the year ended 30 June 2020

11. TRADE AND OTHER PAYABLES

Trade creditors

Sundry creditors and accruals

Consolidated
2020
$’000

Consolidated
2019
$’000

6,511

2,241

8,752

6,038

1,303

7,341

Trade and other payables are carried at amortised cost due to their short-term nature and are not discounted. They
represent liabilities for goods and services provided to the Group prior to the end of the financial year that are
unpaid and arise when the Group becomes obliged to make future payments in respect of the purchase of these
goods and services. The amounts are unsecured and are usually paid within 60 days of recognition. Trade payables
are non-interest bearing and are normally settled on 30-60 day terms.

12. INTEREST BEARING LOANS AND BORROWINGS

Current borrowings
Debtor & trade finance facility (Octet Finance)
Term facility (ADM Capital)
Equipment lease liabilities
Property lease liabilities

Non-current borrowings
Term facility (ADM Capital)
Note facility (First Samuel)
Equipment lease liabilities
Property lease liabilities
Capitalised borrowing costs

Consolidated
2020
$’000

Consolidated
2019
$’000

2,657
5,139
110
692
8,598

-
3,500
164
533
(32)
4,165

-
-
142
-
142

12,931
-
142
-
-
13,073

Loans and borrowings are initially recognised at the fair value of the consideration received less directly attributable
transaction costs. After initial recognition, interest bearing loans and borrowings are subsequently measured at
amortised cost using the effective interest rate method. Fees paid on the establishment of loan facilities that are
yield related are included as part of the carrying amount of the loans and borrowings. Borrowings are classified as
current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12
months after balance date.

Traffic Technologies Ltd and Controlled Entities
Notes to the Consolidated Financial Statements
For the year ended 30 June 2020

12.

INTEREST BEARING LOANS AND BORROWINGS (continued)

Terms and conditions relating to the above financial instruments

Lender

Octet Finance

ADM Capital

Facility Amount (AUD)

$5.5m

$5.1m

Facility Type

Debtor & trade finance

Term loan

First Samuel

$3.5m

Note deed

Interest

Expiry

Security

BBSW + 6.25%

7% cash; 10% capitalised

11%

18 October 2022

18 April 2021 (extended after
reporting date to 2 July 2021)

18 October 2022

Second ranking charge
First ranking charge over
trade receivables

First ranking charge
Second ranking charge over
trade receivables

Third ranking charge

Currency of loan

AUD

USD

Derivative expiring on 19
October 2020 (see note 14)
USD $826,000 margin on
derivative

AUD

Hedging

Contingent liability

Financing facilities available

Total facilities at reporting date
Term debt facility (ADM Capital)
Debtor & trade finance facility (Octet)
Note facility (First Samuel)
Bank guarantee facility (Westpac)

Facilities used at reporting date
Term debt facility (ADM Capital)
Debtor & trade finance facility (Octet)
Note facility (First Samuel)
Bank guarantee facility (Westpac)

Facilities unused at reporting date
Term debt facility (ADM Capital)
Debtor & trade finance facility (Octet)+
Note facility (First Samuel)
Bank guarantee facility (Westpac)

Consolidated
2020
$’000

Consolidated
2019
$’000

5,139
5,500
3,500
265
14,404

5,139
2,657
3,500
133
11,429

-
2,843
-
132

2,975

12,931
-
-
265
13,196

12,931
-
-
133
13,064

-
-
-
132

132

+ The amount of debtor financing available at any point in time is based on the amount of eligible invoicing.

Traffic Technologies Ltd and Controlled Entities
Notes to the Consolidated Financial Statements
For the year ended 30 June 2020

13. LEASE LIABILITIES

Current
Equipment leases
Property leases

Non-current
Equipment leases
Property leases

Lease liability commitments payable
Less than one year
Later than one year but less than five years

Less future finance charges
Total lease liabilities

Lease payments not recognised as a liability

Consolidated
2020
$’000

Consolidated
2019
$’000

110
692
802

164
533
697

946
763
1,709
(210)
1,499

142
-
142

154
153
307
(23)
284

The Group has elected not to recognise a lease liability for short-term leases (leases with an expected term of 12
months or less) or for leases of low value assets. Payments made under such leases are expensed on a straight-line
basis. The expense relating to payments not included in the measurement of the lease liability is as follows:

Short-term property lease expense

Short-term property lease commitments:

Less than one year

Later than one year but less than five years

Total

Reconciliation of total operating lease commitments 30
June 2019 to lease liabilities at 1 July 2019

Total operating lease commitments at 30 June 2019

Discounted using the Group’s incremental borrowing rate
of 15%
Add: finance lease liabilities recognised as at 30 June 2019

Less: Short-term leases recognised on straight line basis

Lease liability recognised as at 1 July 2019

Consolidated
2020
$’000

Consolidated
2019
$’000

647

1,418

424

848

1,364

1,950

3,314

Consolidated
2019
$’000

3,314

(327)

284

(1,445)

1,826

Traffic Technologies Ltd and Controlled Entities
Notes to the Consolidated Financial Statements
For the year ended 30 June 2020

13. LEASE LIABILITIES (continued)

Equipment lease liabilities

Leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased
item, are capitalised at the inception of the lease at the fair value of the leased property or, if lower, at the present
value of the minimum lease payments. Lease payments are apportioned between the finance charges and reduction
of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance
charges are recognised as an expense. Capitalised leased assets are depreciated over the shorter of the estimated
useful life of the asset and the lease term if there is no reasonable certainty that the Group will obtain ownership
by the end of the lease term.

Property lease liabilities

The Group leases a number of warehouse, factory and office facilities under operating leases. The leases typically
run for periods up to 5 years with an option to renew the lease after that date. The Group leases plant and
equipment and motor vehicles with terms up to 4 years. The Group classifies its right-of-use assets in a consistent
manner to its property, plant and equipment (see note 8).

On adoption of AASB 16, the Group recognised lease liabilities in relation to property leases which had previously
been classified as operating leases under the previous standard AASB 117. These liabilities have been measured at
the present value of the remaining lease payments, discounted using the lessee’s incremental borrowing rate
applicable to debt of similar characteristics with the same underlying security as at 1 July 2019. The adoption of
AASB 16 resulted in the Group recognising a right-of-use asset and related lease liability of in connection with all
former operating leases except for those identified as low value or having a remaining lease term of less than 12
months from the date of initial application.

14. DERIVATIVE FINANCIAL INSTRUMENT

Derivative financial (liability)/asset for foreign currency forward contracts

2020

$’000

(525)

2019

$’000

251

Derivatives are only used for economic hedging purposes and not speculative instruments. Derivatives are classified
as held for trading and accounted for at fair value through profit or loss unless they are designated as hedges. They
are presented as current assets or liabilities if they are expected to be settled within 12 months after the end of the
reporting year. Because the derivatives used by the Group are not traded in an active market, fair value is
determined using valuation techniques which maximise the use of observable market data and do not rely on entity-
specific estimates. The fair value of foreign currency forward contracts is determined using forward exchange rates
at balance sheet date. The fair value of derivatives is estimated at the amount that the Group would receive or pay
to terminate the contract at the end of the reporting period taking into account current market conditions (volatility
and appropriate yield curve) and the current creditworthiness of the counterparties.

Traffic Technologies Ltd and Controlled Entities
Notes to the Consolidated Financial Statements
For the year ended 30 June 2020

15. PROVISIONS

Current
Employee benefits
Warranty provision

Non-current
Employee benefits

Employee benefits

Consolidated
2020
$’000

Consolidated
2019
$’000

2,682
48

2,730

2,645
40

2,685

203

Provision is made for the Group’s obligation for short-term employee benefits. Short-term employee benefits are
benefits that are expected to be settled wholly before 12 months after the end of the annual reporting period in
which the employees render the related service. Provision is made for employees’ long service leave entitlements
not expected to be settled wholly within 12 months after the end of the annual reporting period in which the
employees render the related service; such long-term employee benefits are presented as non-current provisions
in its statement of financial position, except where the Group does not have an unconditional right to defer
settlement for at least 12 months after the end of the reporting period, in which case the obligations are presented
as current provisions.

Warranty provision

A provision has been recognised for expected warranty claims on products supplied by the Group, based on current
sales levels, current information available about past returns and repairs and the warranty period for products sold.
Based on past experience, the Group does not expect the full balance of the current provision to be settled within
12 months. However, as the Group does not have an unconditional right of deferral, the balance is presented as
current.

16. CONTRIBUTED EQUITY

Ordinary shares
At 30 June 2019

At 30 June 2020

No. of
Shares ‘000

$’000

482,225

54,755

482,225

54,755

Ordinary shares have the right to receive dividends as declared and, in the event of a winding up of the Company,
to participate in the proceeds from the sale of all surplus assets in proportion to the number and amounts paid up
on shares held. Ordinary shares entitle their holder to one vote, either in person or by proxy, at a meeting of the
Company.

Traffic Technologies Ltd and Controlled Entities
Notes to the Consolidated Financial Statements
For the year ended 30 June 2020

17. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

Financial risk management objectives and policies

The Group’s principal financial instruments comprise term loan facilities, debtor and trade finance, leases, hire
purchase contracts, forward contracts to purchase foreign currency and cash and short-term deposits.

The totals for each category of financial instruments are as follows:

Financial assets
Cash and cash equivalents
Trade and other receivables
Derivative financial instrument

Financial liabilities
Trade and other payables
Financial liabilities at amortised cost
Derivative financial instrument

Net exposure

Consolidated
2020
$’000

Consolidated
2019
$’000

3,636
7,863
-

3,107
8,803
251

(8,752)
(12,763)
(525)

(7,341)
(13,215)
-

(10,541)

(8,395)

The Group manages its exposure to key financial risks, including interest rate and currency risk in accordance with
the Group's financial risk management policy. The objective of the policy is to support the delivery of the Group's
financial targets whilst protecting future financial security. The Group has various financial assets and liabilities such
as trade receivables and trade payables, which arise directly from its operations. It is the Group’s policy that no
trading in financial instruments shall be undertaken. The carrying amount of financial assets and financial liabilities
recorded in the financial statements represents their respective fair values. The main risks arising from the Group’s
financial instruments are interest rate risk, credit risk, liquidity risk and foreign currency risk.

Interest rate risk

The Group's exposure to market interest rates relates primarily to the Group's long-term debt obligations. At
balance date the Group had the following financial assets and liabilities exposed to market interest rate risk:

The Group’s exposure to market risk for changes in interest rates relates primarily to the Group’s long-term debt
obligations. At 30 June 2020 79% of the Group's borrowings were at a fixed rate of interest (2019: 100%). Details
of the Group’s debt are disclosed in note 12.

The Group constantly analyses its interest rate exposure. Within this analysis consideration is given to potential
renewals of existing positions, alternative financing, alternative hedging positions and the mix of fixed and variable
interest rates.

Traffic Technologies Ltd and Controlled Entities
Notes to the Consolidated Financial Statements
For the year ended 30 June 2020

17. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)

Credit risk

The Group trades only with recognised, creditworthy third parties and, as such, collateral is not requested nor is it
the Group's policy to securitise its trade and other receivables.

It is the Group's policy that all customers who wish to trade on credit terms are subject to credit verification
procedures including an assessment of their independent credit rating, financial position, past experience and
industry reputation.

Risk limits are set for each individual customer in accordance with parameters set by the Board. These risk limits are
regularly monitored.

Receivables balances are monitored on an ongoing basis with the result that the Group's exposure to bad debts is
not significant. For transactions that are not denominated in the functional currency of the relevant operating unit,
the Group does not offer credit terms without the specific approval of senior management.

There are no significant concentrations of credit risk within the Group.

Liquidity risk

The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of
current working capital, term loans and lease liabilities.

Traffic Technologies Ltd and Controlled Entities
Notes to the Consolidated Financial Statements
For the year ended 30 June 2020

17. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)

Maturity analysis of financial liabilities

Year ended 30 June 2020

Payables

Interest bearing loans & borrowings

Bank guarantees

Total financial liabilities

Year ended 30 June 2019

Payables

Interest bearing loans & borrowings

Bank guarantees

Total financial liabilities

Foreign exchange risk

≤ 6
months
$’000

8,752

3,058

6-12
months
$’000

5,540

11,810

5,540

≤ 6
months
$’000

7,341

142

7,483

6-12
months
$’000

1 – 5
years
$’000

4,165

133

4,298

1 – 5
years
$’000

13,073

133

13,206

> 5
years
$’000

Total

$’000

8,752

12,763

133

21,648

Total

$’000

7,341

13,215

133

20,689

Exposure to foreign exchange risk arises where the Group purchases certain components denominated in foreign
currency.

The Group’s borrowing facility with ADM Capital is denominated in US dollars. To manage the risk associated with
the exposure of this balance to exchange rate fluctuations the Group entered into a foreign currency forward
contract. This foreign currency forward contract is accounted for as held for trading with gains (losses) recognised
in the statement of comprehensive income. The exchange gain or loss on foreign currency transactions is recognised
directly in the statement of comprehensive income.

The Group's exposure to foreign currency risk on its foreign currency borrowings and associated forward exchange
contracts, expressed in Australian dollars, was as follows:

2020

AUD

2019

AUD

$’000

5,139

12,931

(525)

251

Loan (USD exposure)

Forward exchange contracts (USD exposure)

Traffic Technologies Ltd and Controlled Entities
Notes to the Consolidated Financial Statements
For the year ended 30 June 2020

17. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)

During the financial year, the following foreign-exchange related amounts were recognised in profit or loss:

Amounts recognised in profit or loss

Net foreign exchange (loss)/gain on foreign currency derivatives not qualifying as
hedges included in other income/other expense

2020

2019

AUD

$’000

(525)

862

Exchange gain/(loss) on foreign currency borrowing included in other income

534

(881)

Total net foreign exchange gain/(loss) recognised in profit before income tax for the
period

(19)

Sensitivity Analysis

At 30 June 2020 21% of the Group's borrowings were at a fixed rate of interest (2019: Nil). If interest rates were to
increase or decrease by 1%, the net change in finance costs would be approximately $27,000 (2019: Nil).

The Group is primarily exposed to changes in the US dollar exchange rate. The sensitivity of profit or loss to changes
in the exchange rates arises mainly from US dollar-denominated financial instruments is illustrated in the table
below.

Impact on post tax profit

US/$exchange rate – increase 5%

US/$exchange rate – decrease 5%

2020

USD

2019

USD

$’000

(402)

(994)

348

861

The Group has taken out a forward exchange contract to hedge its currency exposure (see note 12).

Traffic Technologies Ltd and Controlled Entities
Notes to the Consolidated Financial Statements
For the year ended 30 June 2020

18. NOTES TO THE STATEMENT OF CASH FLOWS

Cash and cash equivalents in the statement of financial position comprise cash at bank and in hand and short-term
deposits with an original maturity of three months or less. For the purposes of the statement of cash flows, cash
and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts.

Reconciliation of cash

Cash at bank and on hand

Reconciliation of net (loss)/profit after tax to net cash flows from operations

Net (loss)/profit

Adjustments for:

Depreciation, amortisation of non-current assets

Impairment of goodwill

Profit on sale of fixed assets

Foreign exchange gain

Amortisation of capitalised borrowing costs

Doubtful debts expense/ (written off)

Changes in assets and liabilities:

(Increase)/decrease in trade and other receivables

(Increase)/decrease in inventories

Increase/(decrease) in trade and other payables

(Increase)/decrease in deferred tax liabilities

Increase/(decrease) in provisions

Net cash provided by operating activities

Non cash financing and investing activities

Consolidated
2020
$’000

Consolidated
2019
$’000

3,636

3,107

Consolidated
2020
$’000

Consolidated
2019
$’000

(13,985)

1,263

2,297

10,554

(8)

(12)

723

218

2,480

2,743

140

5,252

1,474

(1)

(54)

113

(5)

1,968

(2,433)

(1,158)

202

117

1,486

During the year the Group acquired property, plant and equipment with an aggregate value of $83,705 (2019:
$83,705) by means of leases. These acquisitions are not reflected in the Statement of Cash Flows.

Traffic Technologies Ltd and Controlled Entities
Notes to the Consolidated Financial Statements
For the year ended 30 June 2020

19. BUSINESS COMBINATION

Summary of Acquisition

In October 2019, the Group entered into an agreement to acquire the business and assets of L&M Traffic Signals Pty
Ltd (L&M). L&M is an accredited provider and installer for Vic Roads involving traffic signal installation and
maintenance and fully approved for installation work by the Department of Transport in Victoria and holds a number
of term maintenance contracts with six local councils across Victoria. The acquisition was completed on 28 August
2020 and from this date L&M is a controlled entity of the Group.

Details of the purchase consideration and net assets acquired are as follows:

Purchase consideration

Cash deposit paid on completion

Balance payable in instalments

Earnout payable if financial targets met

Total purchase consideration

The assets and liabilities to be recognised as a result of the acquisition are estimated to be as follows:

Net tangible assets

Intangible assets

Net assets to be acquired

$’000

288

840

300

1,428

Fair value
$’000

1,426

1,428

Estimated revenue and profit contribution (full year)

L&M had revenue of $5.4m and net profit of $1.2m in the financial year ended 30 June 2020. As L&M was controlled
from 28 August 2020, L&M’s results have not been consolidated for the Group for the year ended 30 June 2020.

Acquisition-related costs

Acquisition-related costs of $82,000 are included in other expenses in profit and loss and in investing cash flows in
the statement of cash flows.

Traffic Technologies Ltd and Controlled Entities
Notes to the Consolidated Financial Statements
For the year ended 30 June 2020

20. CLAIMS AND CONTINGENCIES

Guarantees

The Company is party to a deed of cross guarantee with its wholly-owned subsidiaries. The extent to which an
outflow of funds will be required is dependent on the future operations of the entities that are party to the deed of
cross guarantee. No liability is expected to arise. The deed of cross guarantee will continue to operate indefinitely.
As detailed in note 12, the Company is party to finance facility agreement with its financiers to which the Company’s
subsidiaries are guarantors. The extent to which an outflow of funds will be required is dependent on the risk of
default under the finance facility agreement. The Directors do not expect default to occur.

21. SUBSIDIARIES

The consolidated financial statements include the financial statements of Traffic Technologies Ltd and the
subsidiaries listed in the following table.

Principal
Place of
Business

Principal Activity

Ownership
Held by
2020
%

Interest
the Group
2019
%

Name of Subsidiary

Traffic Technologies Signal & Hardware
Division Pty Ltd

Traffic Technologies Traffic Management
Division Pty Ltd

De Neefe Pty Ltd

Traffic Technologies Traffic Hire Pty Ltd

Sunny Sign Company Pty Ltd

Pro-Tech Traffic Management Pty Ltd

KJ Aldridge Investments Pty Ltd

Aldridge Traffic Group Pty Ltd

Excelsior Diecasting Pty Limited

Aldridge Traffic Systems Pty Ltd

Aldridge Plastics Pty Ltd

Australia

Non-trading

Australia

Non-trading

Manufacture signs

Non-trading

Manufacture signs

Non-trading

Manufacture signals,
lights etc.

Non-trading

Quick Turn Circuits Pty Ltd

Australia Manufacture controllers

Traffic Technologies International Limited

Hong Kong

Telensa Pty Ltd

Telensa Australia Pty Ltd

L&M Traffic Services Pty Ltd

Australia

Non-trading

Maintenance

100

Traffic Technologies Ltd and Controlled Entities
Notes to the Consolidated Financial Statements
For the year ended 30 June 2020

22. RELATED PARTY TRANSACTIONS

Transactions with Shareholders

First Samuel Limited (one of the Company’s lenders – see note 7) has disclosed that it owns 22,864,297 ordinary
shares in the Company.

Transactions with Directors or Director-related entities

The Company entered into related party transactions for FY 2020 with an entity associated with the Company's
Managing Director, Mr. Con Liosatos.

Inventory was purchased by the related entity and sold to the Company at cost price and a requisite interest charge
at normal commercial rates was incurred by the Group. The related party transactions were on arm's length
commercial terms and, after the application of foreign exchange and interest costs, no profit was made by the
related party. As a result, the related party transactions were within the arm's length exception under Part 2E of
the Corporations Act 2001.

Inventory purchases and associated finance charges from the related entity in FY 2020 amounted to $71,000 (2019:
$47,000), (2018: $182,000), (2017: $171,000), (2016: $1,134,000) with $130,000 included in trade payables at 30
June 2020 (2019: $52,000), (2018: $180,000), (2017: $1,144,000), (2016: $1,156,000).

The Group paid insurance premiums totaling $73,000 on behalf of Mr. Con Liosatos following an acknowledgement
by him to have his remuneration reduced from FY 2016 by the amount of the insurance premiums; this amount
remained as a loan to Mr. Liosatos as at the reporting date which has subsequently been repaid in full. Interest has
been charged on the loan at the Company’s average cost of funds.

The historic omission of those financial transactions (where effectively there was no profit or benefit of the related
party, merely a pass through of expenditure) from the relevant financial statements was inadvertent and was
disclosed by the Company in preparing the financial statements for FY 2020.

There were no other transactions during the year.

23. SUBSEQUENT EVENTS

The acquisition of the L&M Traffic Signals business was completed on 28 August 2020.

The term of the ADM loan facility has been extended to 2 July 2021 (see Note 12).

24. AUDITOR’S REMUNERATION

Amounts received or due and receivable by:

Audit or review of the financial report of the entity and any
other entity in the Group

ShineWing Australia

Consolidated Consolidated
2019
$

2020
$

173,689

81,500

Traffic Technologies Ltd and Controlled Entities
Notes to the Consolidated Financial Statements
For the year ended 30 June 2020

25. KEY MANAGEMENT PERSONNEL DISCLOSURES

a) Compensation of Key Management Personnel

Details of the nature and amount of each element of the remuneration of key management personnel are disclosed
in the Remuneration Report section of the Directors’ Report.

Compensation by Category:
Key Management Personnel
Short-term employee benefits

Post-employment benefits

Other long-term benefits

Consolidated

2020
$

2019
$

939,302

935,673

64,362

13,892

29,208

1,017,556

1,029,243

Shares issued on exercise of remuneration options

No shares have been issued to key management personnel as a result of the exercise of remuneration options.

c) Option holdings of Key Management Personnel

There were no share options outstanding at 30 June 2020 or at the date of this report (2019: nil). No shares have
been issued to key management personnel as a result of the exercise of remuneration options.

Loans to Key Management Personnel

Details of a loan to Mr. Con Liosatos are set out in note 22.

Traffic Technologies Ltd and Controlled Entities
Notes to the Consolidated Financial Statements
For the year ended 30 June 2020

26. OPERATING SEGMENTS

The Group has only one business segment: Traffic Products. The Group’s chief operating decision maker (the
Managing Director) reviews financial information on a consolidated basis and makes strategic decisions based on
this consolidated information.

Major customers

Revenue from government agencies accounted for 11% of sales (2019: 9%). Revenue from the largest non-
government customer accounted for 7% (2019: 11%) of sales.

Geographical information

The Group operates in one principal geographical location, namely Australia.

Revenue by geographic location:

Consolidated

2020
$’000

39,854

4,668

44,522

2019
$’000

41,923

6,398

48,321

2020

$’000

3,222

51,171

61,766

70,395

54,755

(73,979)

(19,224)

(3,979)

133

2019

$’000

6,429

54,545

57,048

69,790

54,755

(70,000)

(15,245)

(2,574)

133

Australia

Overseas

Total

All the Group’s non-current assets are located in Australia.

27. PARENT ENTITY DISCLOSURES

Current assets

Total assets

Current liabilities

Total liabilities

Issued capital

Retained earnings

Total shareholders’ equity

Profit/(loss) of the parent entity

Total comprehensive income of the parent entity

Guarantees entered into by the parent entity in relation to debts of its subsidiaries

Traffic Technologies Ltd
Directors’ Declaration
For the year ended 30 June 2020

DIRECTORS’ DECLARATION

The Directors of the Company declare that:

The consolidated financial statements and notes of Traffic Technologies Ltd are in accordance with the
Corporations Act 2001 and:

a) comply with Australian Accounting Standards and the Corporations Regulations 2001; and

b) give a true and fair view of the consolidated entity’s financial position as at 30 June 2020 and of its

performance for the year ended on that date.

The Company has included in the notes to the financial statements an explicit and unreserved statement of
compliance with International Financial Reporting Standards.

In the Directors’ opinion, 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 by the Managing Director and Chief Financial Officer required
by section 295A of the Corporations Act 2001.

The members of the Closed Group identified in note 21 are parties to the deed of cross guarantee under which
each company guarantees the debts of the others. At the date of this declaration there are reasonable grounds to
believe that the companies which are parties to this deed of cross guarantee will as a consolidated entity be able
to meet any obligations or liabilities to which they are, or may become, subject to, by virtue of the deed of cross
guarantee described in note 20.

This declaration is made in accordance with a resolution of the Board of Directors and is signed for and on behalf
of the Directors by:

On behalf of the Board

Garry Lowrey
Chairman

Melbourne
14 October 2020

ASX Additional Information
As at 7 September 2020

Additional information required by the Australian Securities Exchange and not shown elsewhere in this report is as
follows. The information is current as at 7 September 2020.

Distribution of Shareholdings

1 - 1,000

1,001 - 5,000

5,001 - 10,000

10,001 - 100,000

100,001 and over

Holdings less than a marketable parcel

Twenty Largest Shareholders

Ordinary Shares

Number of
Holders
151

Number of
Shares
21,020

85,931

374,832

407

18,809,974

269 462,932,938

904 482,224,695

267

1,023,719

Name

RSAM INVESTMENTS PTY LTD

No. of Shares

50,148,883

% Held

10.40%

BNP PARIBAS NOMINEES PTY LTD HUB24 CUSTODIAL SERV LTD

43,103,941

J P MORGAN NOMINEES AUSTRALIA PTY LIMITED

MR LAMBROU LIOSATOU *

BANNABY INVESTMENTS PTY LTD

NETWEALTH INVESTMENTS LIMITED

BROWNLOW PTY LTD

PETHOL (VIC) PTY LTD

LIOSATOS SUPERANNUATION PTY LTD *

10 GP MANAGEMENT P/L

CLAPSY PTY LTD

12 MR ROBERT SCOTT ANTHONY MINNEY

ANNLEW INVESTMENTS PTY LTD

DOLPHIN CAPITAL PARTNERS PTY LTD

15 MR GARRY PATRICK LOWREY *

MR ALEXANDER DAMIEN BEARD + MRS MARIE PASCALE BEARD

17 MR PAUL DAVID NEATE

18 NETWEALTH INVESTMENTS LIMITED

19 HYDRONOMEES PTY LTD

TARAKITA PTY LTD

Total

* Associated with Directors.

23,104,362

19,844,761

17,606,063

15,878,686

15,064,982

14,137,739

13,882,162

12,000,150

11,848,360

10,644,630

9,729,153

8,250,000

7,166,667

7,040,291

6,000,000

5,993,675

5,195,377

5,069,922

8.94%

4.79%

4.12%

3.65%

3.29%

3.12%

2.93%

2.88%

2.49%

2.46%

2.21%

2.02%

1.71%

1.49%

1.46%

1.24%

1.08%

1.05%

301,709,804

62.57%

ASX Additional Information
As at 7 September 2020

Substantial Shareholders (greater than 5%)

Holder Name

Mr. Con Liosatos

Mr. Robert Minney

Voting Rights

All ordinary shares carry one vote per share without restriction.

Ordinary shares subject to voluntary escrow restrictions

None.

Ordinary Shares

Number

33,726,923

6.99

60,793,513

12.61

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INDEPENDENT AUDITOR’S REPORT

TO THE MEMBERS OF TRAFFIC TECHNOLOGIES LTD

Report on the Audit of the Financial Report

Opinion

We have audited the financial report of Traffic Technologies Ltd (the Company) and its subsidiaries (the Group)
which comprises the consolidated statement of financial position as at 30 June 2020, the consolidated statement of
comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash
flows for the year then ended, and notes to the financial statements, including a summary of significant accounting
policies, and the directors’ declaration.

In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001,
including:

(a) giving a true and fair view of the Group’s financial position as at 30 June 2020 and of its financial performance

for the year then ended; and

(b) complying with Australian Accounting Standards and the Corporations Regulations 2001.

Basis for Opinion

We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those
standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our
report. We are independent of the Group in accordance with the auditor independence requirements of the
Corporations Act 2001 and the ethical requirements of the Accounting Professional & Ethical Standards Board’s
APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are
relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in
accordance with the Code.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Material Uncertainty Related to Going Concern

We draw attention to Note 1 of the financial report, which states that the Group incurred a net loss for the year
ended 30 June 2020 and part of the Group’s debt is due for repayment in July 2021. As stated in Note 1, these
events or conditions, along with other matters as set forth in Note 1, indicate that a material uncertainty exists that
may cast significant doubt on the Group’s ability to continue as a going concern. Our opinion is not modified in
respect of this matter.

Brisbane
Level 14
12 Creek Street
Brisbane QLD 4000
T + 61 7 3085 0888

Melbourne
Level 10
530 Collins Street
Melbourne VIC 3000
T + 61 3 8635 1800
F + 61 3 8102 3400

Sydney
Level 8
167 Macquarie Street
Sydney NSW 2000
T + 61 2 8059 6800
F + 61 2 8059 6899

shinewing.com.au

Take the lead

Key Audit Matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of
the financial report of the current period. These matters were addressed in the context of our audit of the financial
report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Impairment of Goodwill and other non-
financial assets

Area of focus

How our audit addressed the area of focus

Refer to Note 1 (Accounting Policy), Note 9
(Goodwill) and Note 10 (Intangible assets)

An impairment expense was recognised during the
year ended 30 June 2020 in the amount of $10.6m
and was allocated to goodwill acquired through
previous business combinations.

Australian Accounting Standards require the Group
to perform impairment testing in relation to non-
financial assets where impairment indicators are
identified from internal and external sources of
information.

In addition, the Directors are required to perform
annual impairment testing for Goodwill, intangible
assets not yet available for use and intangible
assets with an indefinite useful life regardless of
whether indicators exist.

Non-financial assets of the Group including
Goodwill are allocated to appropriate Cash
Generating Units (CGUs) for impairment testing.
The Directors’ impairment assessment process is
highly judgemental and is based on assumptions
including:

 Identifying the Group’s CGUs;
 Cash flow forecasts;
 Growth rates; and
 The Discount rate.

These assumptions are affected by expected future
growth and profitability of product lines (including
new products) and the continuing profitability of the
core business.

Our procedures included:

 Enquired with management in relation to the basis

of assumptions applied in the value in use model to
obtain an understanding of the key variables
impacting the recoverable amount of the Signals
CGU;

 Enquired with management in relation to the basis

of assumptions applied in the fair value less costs of
disposal model to obtain an understanding of the
key variables impacting the recoverable amount of
the controllers CGU;

 A detailed evaluation of the group’s budgeting

procedures upon which the forecasts are based and
tested the principles and integrity of the discounted
future cash flow models;

 Tested the accuracy of the calculation derived from
each forecast model and assessing key inputs to
the calculations such as revenue growth, discount
rates and working capital assumptions. This is
carried out with reference to the Board approved
forecasts, data external to the group and using our
own assessments;

 Obtained and evaluated the assumptions and

methodology applied in the Directors' fair value less
costs of disposal model in in respect of the
controllers CGU;

 Performed sensitivity analysis on the key

assumptions and variables to determine various
outcomes of the recoverable amount calculations in
assessing whether the CGUs are impaired; and

 We also considered the adequacy of the Group’s
disclosures in relation to the impairment testing.

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2. Related party transactions

Area of focus

How our audit addressed the area of focus

Refer to Note 1 (Accounting Policy) and Note 22
(Related party transactions)

Related party transactions have been entered into
during the year. The financial report sets out a prior
period error in relation to previously undisclosed
related party transactions.

As such, there is a risk that not all related party
transactions are disclosed in the financial report.
This could result in insufficient information being
provided in order to enable understanding of the
nature and effect of the various related party
relationships and transactions.

Our audit procedures included:

 Assessment of the Group’s controls to identify and
disclose related party transactions and transactions
in accordance with the relevant accounting standards
and the Corporations Act 2001;

 Conducted an ASIC search for external directorships
held by key management personnel to evaluate
whether all related party relationships and
transactions had been appropriately identified and
disclosed; and

 For each class of related party transaction, we

compared the financial statement disclosures against
the underlying transactions.

3. Capitalised Development Costs

Area of focus

How our audit addressed the area of focus

Refer to Note 1 (Accounting Policy) and Note 10
(Intangible assets)

 Reviewed management's internal documentation and

policy in respect of development costs;

During the year the Group had capitalised
development costs relating to traffic product
development projects.
For internally generated intangible assets, the
Australian Accounting Standards require certain
conditions to be satisfied prior to development costs
being capitalised.

Determining the that the requirements could be met
was complex and required judgements by the
Directors and Group management, specifically in
determining that the specific criteria, for
capitalisation, stipulated by Australian Accounting
Standards had been addressed.

 Reviewed transfers from development assets to

amortising intangible assets when available for use to
determine whether the transfers were appropriate;

 Reviewed development cost spend in the year against

the accounting standard criteria; and

 Assessed the adequacy of the Group’s disclosures in

respect of the capitalised development costs.

Information Other than the Financial Report and Auditor’s Report Thereon

The directors are responsible for the other information. The other information comprises the information included in
the Group’s annual report for the year ended 30 June 2020, but does not include the financial report and our
auditor’s report thereon.

Our opinion on the financial report does not cover the other information and accordingly we do not express any
form of assurance conclusion thereon.

In connection with our audit of the financial report, our responsibility is to read the other information and, in doing
so, consider whether the other information is materially inconsistent with the financial report or our knowledge
obtained in the audit or otherwise appears to be materially misstated.

If, based on the work we have performed, we conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing to report in this regard.

Take the lead

Responsibilities of the Directors for the Financial Report

The directors of the Company are responsible for the preparation of the financial report that gives a true and fair
view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal
control as the directors determine is necessary to enable the preparation of the financial report that gives a true
and fair view and is free from material misstatement, whether due to fraud or error.

In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a
going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the Group or to cease operations, or has no realistic
alternative but to do so.

Auditor’s Responsibilities for the Audit of the Financial Report

Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from
material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance
with Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can
arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the basis of this financial report.

As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and
maintain professional scepticism throughout the audit. We also:



Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error,
design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and
appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from
fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control.

 Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are

appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
Group’s internal control.



Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and
related disclosures made by the directors.

Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on
the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast
significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material
uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the
financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the
audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause
the Group to cease to continue as a going concern.

Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and
whether the financial report represents the underlying transactions and events in a manner that achieves fair
presentation.

 Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business

activities within the Group to express an opinion on the financial report. We are responsible for the direction,
supervision and performance of the Group audit. We remain solely responsible for our audit opinion.

We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and
significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide the directors with a statement that we have complied with relevant ethical requirements regarding
independence, and to communicate with them, all relationships and other matters that may reasonably be thought
to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied.

Take the lead

From the matters communicated with the directors, we determine those matters that were of most significance in
the audit of the financial report of the current period and are therefore the key audit matters. We describe these
matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in
extremely rare circumstances, we determine that a matter should not be communicated in our report because the
adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such
communication.

Report on the Remuneration Report

Opinion on the Remuneration Report

We have audited the Remuneration Report included in pages 5 to 12 of the directors’ report for the year ended 30
June 2020.

In our opinion, the Remuneration Report of Traffic Technologies Ltd for the year ended 30 June 2020 complies with
section 300A of the Corporations Act 2001.

Responsibilities

The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in
accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the
Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards.

ShineWing Australia
Chartered Accountants

Rami Eltchelebi
Partner

Melbourne, 14 October 2020

Traffic Technologies Ltd
Traffic Technologies Ltd
Traffic Technologies Ltd

31 Brisbane Street
31 Brisbane Street
31 Brisbane Street
Eltham 3095
Eltham 3095
Eltham 3095
Victoria, Australia
Victoria, Australia
Victoria, Australia

P: +61 3 9430 0222
P: +61 3 9430 0222
P: +61 3 9430 0222
F: +61 3 9430 0244
F: +61 3 9430 0244
F: +61 3 9430 0244
E: tt@trafficltd.com.au
E: tt@trafficltd.com.au
E: tt@trafficltd.com.au

trafficltd.com.au
trafficltd.com.au
trafficltd.com.au

ANNUAL REPORT 2020