3P Learning
Annual Report 2014

Plain-text annual report

Annual Report For the year ended 30 June 2014 Lodged with the ASX under the Listing Rule 4.3A 3P Learning Limited ABN 50 103 827 836 Dear Shareholders, On behalf of the Board of Directors, it is my pleasure to present to you the 3P Learning Limited (3PL) Annual Report for the financial year ended 30 June 2014. The year was significant for the company as it was highlighted by the successful Initial Public Offer of the Company and listing on the ASX and our continued expansion in global markets with student licenses growing 21% to 4.7 million. Group revenue increased 13.9% to $36.1 million and profit after tax by 70.1% to $5.1 million. This year marks the tenth anniversary of 3P Learning’s presence in online education. Over the ten years of our history, the company has expanded successfully both its range of products as well as our geographic presence – a trend that has continued throughout the 2013/4 financial year. We have increased our community of students and schools using 3PL products right across the world. The online education industry is growing rapidly, driven by the migration from printed textbooks and workbooks to online and technology-based education resources. The quality of 3P’s products, global sales force, scalable information technology infrastructure and track record of innovation mean 3PL is well positioned to capture market share in this expanding industry. 3PL has emerged as one of the best known and most highly respected brands in K to 12 online education. We got here by pursuing a clear strategic vision; maintaining a disciplined, long term viewpoint; and instilling enduring values in a team that has no equal in talent, professionalism and excellence. 3PL is extremely well positioned to deliver strong results for investors and to grow our businesses and global opportunities. An extraordinary team committed to excellence and innovation provides the expertise and wisdom to guide our decisions. On behalf of the Board I extend my thanks to the thousands of schools and hundreds of thousands of students who use our products and services every day, to our investors for their confidence in us and finally to everyone on the 3PLearning team for committing their talent and tenacity to our success. We look forward to reporting continued strong performance forwarding the years ahead. Samuel Weiss Chairman, 3P Learning Dear Shareholders, What an incredibly eventful year. It gives me great pleasure to know that you and many others are now a part of this journey with us – a testament to the work and tenacity of the entire 3P Learning team. 3P Learning is a group of people committed to helping a generation of students love learning. Over the last decade the hard work and creativity of the 3P team has created an award-winning learning resource in Mathletics, delivering a proven advantage in testing around the world, relative to every other learning resource. This is a huge and very meaningful contribution to a generation of children, based upon a decade of research with the leading schools around the world and the reason why the company is growing rapidly. Put simply, if you are a school without Mathletics you start with a disadvantage in the government testing your students will undertake. That’s a hugely powerful statement. In 2014, we introduced the next generation in learning with IntoScience. Students, through open inquiry and discovery-based learning, are exploring and mastering difficult concepts many years ahead of when they would be traditionally taught. They are in control of their learning, immersed in the purpose of what they are doing, as they create solar systems, classify animals, photograph the phases of a virtual moon and explore the world’s oldest caves system to discover how it was formed. 3P’s contribution to learning is unique, inspiring and something that all teachers and parents can believe in. From a commercial perspective, Mathletics has deservedly become the number one resource in primary schools in Australia, New Zealand, South Africa and the United Kingdom. It is now rapidly growing in Canada and the United States, delivering an advantage to those schools already. We look forward to another great decade, as we work with UNICEF and other similarly committed organisations, helping students have the knowledge and reasoning ability to solve the world’s problems. Tim Power CEO, 3P Learning 3P Learning Limited (Formerly known as 3P Learning Pty. Ltd.) Directors' report 30 June 2014 The directors present their report, together with the financial statements, on the consolidated entity (referred to hereafter as the 'Group') consisting of 3P Learning Limited (referred to hereafter as the 'Company' or 'parent entity') and the entities it controlled at the end of, or during, the year ended 30 June 2014. Directors The following persons were directors of 3P Learning Limited during the whole of the financial year and up to the date of this report, unless otherwise stated: Samuel Weiss (Chairman) (appointed on 2 June 2014) Timothy Power Roger Amos (appointed on 2 June 2014) Claire Hatton (appointed on 2 June 2014) Matthew Sandblom (resigned on 2 June 2014) Lawrence Handen (resigned on 2 June 2014) Jose Palmero (resigned on 2 June 2014) Katherine Pike (resigned on 2 June 2014) Alexander Harvey (resigned on 2 June 2014) Grant Smith (resigned on 2 June 2014) Belinda Cooney (alternate director to Alexander Harvey) (resigned on 2 June 2014) Susan Ho (alternate director to Grant Smith) (appointed on 15 April 2014 and resigned on 2 June 2014) Principal activities During the financial year the principal activities of the Group consisted of developing, sales and marketing of online educational programs to schools and parents of school-aged students. There was no significant change in the nature of these activities during the year. Dividends Final dividend for the year ended 30 June 2014 of $12,500,000 representing $82.73 per ordinary share (30 June 2013: $2,450,000 representing $16.21 per ordinary share). As detailed in the prospectus and as part of the capital restructure and listing of the Company, pre-IPO shareholders were entitled to a dividend of $12.5 million which was declared on 2 June 2014 and paid on 9 July 2014. The 'prospectus' refers to the document lodged by the Company and 3P Learning SaleCo Limited with Australian Securities and Investment Commission on 19 June 2014. Operating and financial review The profit for the Group after providing for income tax and non-controlling interest amounted to $5,052,000 (30 June 2013: $2,970,000). The Group operates in the online education segment of the global education industry, across multiple territories, with a focus on students in grades Kindergarten to grade 12 (K-12). The Group derives income from the sale of Student Licences and Home Licences, typically with a one year term. Licences are sold on a per student basis. Sales are made largely through the Group’s global sales and marketing team and websites. The Group also engages distributors to sell its products in some peripheral territories. The Group generates approximately 90% of revenue from Student Licences sold through schools. The Group also generates revenue from Home Licences, copyright fees and sponsorships. While underlying business growth remains strong the results were impacted by costs associated with listing of the Company on the Australian Stock Exchange (ASX) in July 2014 ('listing'). The Initial Public Offering impacted statutory profit with costs of $3,346,000 recognised in the period. Total revenue for the Group for the financial year ended 30 June 2014 was $36,161,000 (2013: $31,746,000). 1 3P Learning Limited (Formerly known as 3P Learning Pty. Ltd.) Directors' report 30 June 2014 All three of the Group’s segments improved their financial performance driven by strong licence growth in all regions. Licence numbers for the Group grew 20.5% from 3.9 million to 4.7 million with average revenue per licence of $8.41. The EMEA and the Americas were particularly strong with growth in licences of 56% and 41% respectively. Product revenue growth was driven by Mathletics and Reading Eggs which grew at 14% and 44% respectively. The launch of a new product, Into Science is showing promising early signs with 37,000 licences sold in the year. The financial position of the Group is very strong, driven by sustained positive cash flow conversion from operations. Net assets decreased by $7,220,000 due primarily to the Company declaring dividend of $12,500,000 and incurring IPO costs of $3,346,000. There is a deficiency of current assets over currents liabilities of $9,274,000. Current liabilities include deferred revenue of $18,748,000 for which there are no future cash outflows and accordingly, the financial statements continue to be prepared on a going concern basis. The online K-12 education industry is a fast moving industry and the rate of technological change and competition is increasing. The risk associated with the market requires Management to continually focus on innovation and change to keep pace with competitors and new entrants to the market. The Group invested $6,438,000 in product development and this level of investment is expected to continue to remain competitive. The current carrying value of intangible software assets is $5,775,000. The material business risks faced by the Group that are likely to have an effect on the financial prospects of the Group are outlined below: Competition risks: The Group operates in a highly competitive industry and there are a large number of participants targeting the K-12 segment, many with significant resources and capital. The Group’s existing and potential competitors may place pricing pressure on the product offering and may impact on the Group’s ability to retain existing customers as well as its ability to attract new business. Distribution rights to Reading Eggs Product risks: The Group does not own the intellectual property rights to Reading Eggs and Reading Eggspress. The Group has a sales agency agreement to sell these products to schools in Australia and many international markets. The loss of this agreement (which could reduce the product offering of the Group and its attractiveness to school and home users), or the renewal of this agreement on less favourable terms, could adversely affect the Group’s revenue and profitability. Technology and intellectual property risks: The Group’s technology platforms and systems may be disrupted which could affect the Group’s reputation, ability to generate income and financial performance. Cash and cash equivalents The Group has used cash and cash equivalents that are held at the time of listing in a way consistent with its stated business objectives. Significant changes in the state of affairs On 24 April 2014, the Company changed its status from a proprietary company to a public company. On 23 May 2014, 3P Learning Limited acquired the remaining 35% of the ordinary shares of Into Science Pty Limited for the total consideration of $1,415,000. There were no other significant changes in the state of affairs of the Group during the financial year. Matters subsequent to the end of the financial year Capital restructure and capital raising As part of the process of listing the Company, and as detailed in the Company’s prospectus, the following events were finalised subsequent to balance date: 2 3P Learning Limited (Formerly known as 3P Learning Pty. Ltd.) Directors' report 30 June 2014 Closure of 3P Employee Share Trust On 9 July 2014, the trustee of the share trust, 3PES Pty Ltd closed the operation of the share trust by notification to all unitholders in the trust that the units had been cancelled and shares held by the trustee were transferred to those unitholders. Dividend payment On 2 June 2014, the directors declared a pre IPO dividend of $12,500,000 to be paid on 9 July 2014 to existing Shareholders and Selling Shareholders in respect of the operation of the business prior to Listing. Capital raising The Company successfully raised $282.7 million pursuant to the prospectus dated 19 June 2014. The retail offer closed on 4 July 2014, and shares commenced trading on a conditional and deferred settlement basis on 9 July 2014. Share settlement occurred on 11 July 2014. New shares issued by the Company on 14 July 2014 amounted to 9.4 million. Funds raised from the IPO amounting to $259.2 million were utilised by 3P Learning SaleCo Limited (a special purpose vehicle established to sell Shares acquired from existing shareholders of the Company prior to IPO) to pay selling shareholders to acquire 103.7 million shares. These share were transferred to new shareholders on 14 July 2014. These shares commenced trading on a normal settlement basis as from 16 July 2014. Conversion of Class B Shares and subsequent share split On 10 July 2014, each Class B share on issue was converted into one fully-paid ordinary share such that the Company has only one class of ordinary share capital on issue. In addition, the share capital of the Company underwent a share split of 1 existing share for 830 new shares. Binding agreement The Group and Whatiph Business Consultants CC have entered into binding transaction for the acquisition of the South African distributor business of Whatiph. It is estimated that the acquisition will complete on 1 October 2014. Lead manager fee Macquarie Capital (Australia) Limited has acted as Lead Manager to the IPO and an underwriting fee equal to 3.5% of the funds raised was paid to Macquarie Capital (Australia) Limited upon listing on 9 July 2014. Macquarie Group Limited and its related bodies corporate had a significant influence in the Group until the sale of shares in relation to the IPO. No other matter or circumstance has arisen since 30 June 2014 that has significantly affected, or may significantly affect the Group's operations, the results of those operations, or the Group's state of affairs in future financial years. Likely developments and expected results of operations The Group’s growth is expected to be supported by the shift from printed resources to online learning resources in schools and in homes and by governments through the introduction of curriculum frameworks that encourage the integration of information and communications technology. The Group’s strategy is focused on organic growth in Student Licences and Home Licences in both existing and potential new territories. At the core of the strategy is Group’s focus on continuing to deliver quality education software in order to retain existing users and attract new users. The Group expects to continue to increase the functionality of the products, add additional content and invest in the development of new applications to enhance the user experience. The principal elements of the Group’s strategic plan to increase the number of Student Licences are outlined below: • Increase the number of school customers • Add students within the existing school customer base • Cross-sell other products to new and existing customers • Improve average revenue per licence. Environmental regulation The Group is not subject to any significant environmental regulation under Australian Commonwealth or State law. 3 3P Learning Limited (Formerly known as 3P Learning Pty. Ltd.) Directors' report 30 June 2014 Information on directors Name: Title: Qualifications: Experience and expertise: Other current directorships: Samuel Weiss (appointed on 2 June 2014) Independent Non-Executive Chairperson AB, MS Over 20 years of experience in senior management and directorship roles. Broad experience in education, technology and retail companies in Australia, North America, Europe and Asia. Chairman of Altium Limited (ASX: ALU). Independent director of Oroton Group Limited (ASX: ORL), Breville Group Limited (ASX: BRG) and iBuy Limited (ASX: IBY). Former directorships (last 3 years): Non-Executive Director of iProperty Group Limited (ASX: IPP) Special responsibilities: Chairman of the Nomination and Remuneration Committee and Member of the Audit and Risk Committee 130,400 ordinary shares Interests in shares: Name: Title: Qualifications: Experience and expertise: Timothy Power Chief Executive Officer LLB, BA 15 years of experience in educational technology development. Executive Director and early stage involvement in the Company since 2004 and CEO since 2007. Timothy was the co-founder of World Education Games, Into Science Pty Ltd, ClickView Pty Ltd and Coraggio Pty Ltd. Other current directorships: None Former directorships (last 3 years): None None Special responsibilities: 3,036,472 ordinary shares Interests in shares: Name: Title: Qualifications: Experience and expertise: Other current directorships: Roger Amos (appointed on 2 June 2014) Independent Non-Executive Director FCA, FAICD Over 25 years of experience in finance, business and accounting. Previously a partner at the international accounting firm KPMG for 25 years. Non-executive director of REA Group Limited (ASX: REA), Chairman of Tyrian Diagnostics Limited (ASX:TDX) and Deputy Chairman of Enero Group Limited (ASX:EGG). Former directorships (last 3 years): Non-executive director of Austar United Communication Limited (ASX: AUN) Special responsibilities: Member of the Nomination and Remuneration Committee and Chairman of the Audit and Risk Committee 8,000 ordinary shares Interests in shares: Name: Title: Qualifications: Experience and expertise: Claire Hatton (appointed on 2 June 2014) Independent Non-Executive Director BSc, MBA Over 20 years of global experience in strategy, sales, marketing and operations. Significant experience in the digital and technology market. Previously held senior roles at Google, Travelport and Zuji.com. None Other current directorships: Former directorships (last 3 years): None Special responsibilities: Member of the Audit and Risk Committee and the Nomination and Remuneration Committee 20,000 ordinary shares Interests in shares: 'Other current directorships' quoted above are current directorships for listed entities only and excludes directorships of all other types of entities, unless otherwise stated. 'Former directorships (last 3 years)' quoted above are directorships held in the last 3 years for listed entities only and excludes directorships of all other types of entities, unless otherwise stated. 4 3P Learning Limited (Formerly known as 3P Learning Pty. Ltd.) Directors' report 30 June 2014 Company secretary Mr.Jonathan Kenny (AICD, MBA, BEcon) has over 20 years of experience in finance and operations roles for ASX listed and multinational corporations. Broad industry experience including publishing, software, property development, data and analytics. Prior to joining the Group, Jonathan was Chief Financial Officer of ASX listed RP Data Limited and Bravura Solutions Pty Ltd. Jonathan was appointed Group company secretary on 28 March 2014. Meetings of directors The number of meetings of the Company's Board of Directors ('the Board') held during the year ended 30 June 2014, and the number of meetings attended by each director were: Full Board Attended Held Nomination and Remuneration Committee Attended Held Audit and Risk Committee Attended Held Samuel Weiss (#) Timothy Power Roger Amos (#) Claire Hatton (#) Matthew Sandblom Lawrence Handen Jose Palmero Katherine Pike Alexander Harvey Grant Smith Belinda Cooney (as alternate to Alexander Harvey) Susan Ho (as alternate to Grant Smith) 2 12 1 2 10 10 10 10 8 7 2 3 2 12 2 2 10 10 10 10 10 10 2 3 - - - - - - - - - - - - - - - - - - - - - - - - Held: represents the number of meetings held during the time the director held office. # Directors were appointed on 2 June 2014. - - - - - - - - - - - - - - - - - - - - - - - - Remuneration report (audited) The remuneration report, which has been audited, outlines the Key Management Personnel ('KMP') remuneration arrangements for the Group, in accordance with the requirements of the Corporations Act 2001 and its Regulations. The remuneration report is set out under the following main headings: ● Principles used to determine the nature and amount of remuneration ● Details of remuneration ● Service agreements ● Share-based compensation ● Additional disclosures relating to key management personnel Principles used to determine the nature and amount of remuneration The objective of the Group's executive reward framework is to ensure reward for performance is competitive and appropriate for the results delivered. The framework aligns executive reward with the achievement of strategic objectives and the creation of value for shareholders, and conforms to the market best practice for delivery of reward. The Board of Directors ('the Board') ensures that executive reward satisfies the following key criteria for good reward governance practices: ● competitiveness and reasonableness ● acceptability to shareholders ● performance linkage / alignment of executive compensation ● transparency The Nomination and Remuneration Committee is responsible for determining and reviewing remuneration arrangements for its directors and executives. The performance of the Group depends on the quality of its directors and executives. The remuneration philosophy is to attract, motivate and retain high performance and high quality personnel. This Committee was set up on 2 June 2014. 5 3P Learning Limited (Formerly known as 3P Learning Pty. Ltd.) Directors' report 30 June 2014 The Nomination and Remuneration Committee has structured an executive remuneration framework that is market competitive and complementary to the reward strategy of the Group. Alignment to shareholders' interests: ● has economic profit as a core component of plan design ● focuses on sustained growth in shareholder wealth, through payments of dividends, growth in share price, and delivering constant or increasing return on assets as well as focusing the executive on key non-financial drivers of value ● attracts and retains high calibre executives Alignment to program participants' interests: ● rewards capability and experience ● reflects competitive reward for contribution to growth in shareholder wealth ● provides a clear structure for earning rewards In accordance with best practice corporate governance, the structure of non-executive directors and executive remunerations are separate. Non-executive directors' remuneration Fees and payments to non-executive directors reflect the demands which are made on, and the responsibilities of, the directors. Non-executive directors' fees and payments are reviewed annually by the Nomination and Remuneration Committee. The chairman's fees are determined independently to the fees of other non-executive directors based on comparative roles in the external market. The chairman is not present at any discussions relating to determination of his own remuneration. Non-executive directors may receive shares as part of their remuneration. ASX listing rules require the aggregate non-executive director’s remuneration be determined periodically by a general meeting. The most recent determination was at the Board Meeting held on 2 June 2014, where the Board approved an aggregate remuneration of $650,000. The aggregate non-executive directors’ remuneration was initially outlined in the prospectus dated 19 June 2014. Executive remuneration The Group aims to reward executives with a level and mix of remuneration based on their position and level of responsibility, which has both fixed and variable components. The executive remuneration and reward framework has four components: ● base pay and non-monetary benefits ● short-term performance incentives ● share-based payments ● other statutory components such as superannuation and long service leave The combination of these comprises the executive's total available remuneration. Fixed remuneration, consisting of base salary, superannuation and non-monetary benefits, will be reviewed annually by the Nomination and Remuneration Committee, based on individual and business unit performance, the overall performance of the Group and comparable market remunerations. Executives may receive their fixed remuneration in the form of cash or other fringe benefits (for example motor vehicle benefits) where it does not create any additional costs for the Group and provides additional value to the executive. The short-term incentives ('STI') program is designed to align the targets of the business units with the targets of those executives responsible for meeting those targets. STI payments are granted to executives based on specific annual targets and key performance indicators ('KPI's') being achieved. KPI’s relate to qualitative and quantitative leadership performance and Group finance performance. The long-term incentives ('LTI') include long service leave, share-based payments and any annual leave not taken during the period. Shares are awarded to executives over a period of three years based on long-term incentive measures. These include increase in shareholders' value relative to the entire market and the increase compared to the Group's direct competitors. The Nomination and Remuneration Committee are responsible for reviewing the long-term equity-linked performance incentives specifically for executives. No LTI were granted during the year. 6 3P Learning Limited (Formerly known as 3P Learning Pty. Ltd.) Directors' report 30 June 2014 Group performance and link to remuneration Remuneration for certain individuals is directly linked to performance of the Group. A portion of bonus and incentive payments are dependent on defined earnings per share targets being met. The remaining portion of the bonus and incentive payments are at the discretion of the Nomination and Remuneration Committee. The Nomination and Remuneration Committee is of the opinion that results can be improved through the adoption of performance based compensation and is satisfied that this improvement will continue to increase shareholder wealth if maintained over the coming years. An agreed set of protocols were put in place to ensure that the remuneration recommendations would be free from undue influence from key management personnel. The Board is satisfied that these protocols were followed and as such there was no undue influence. Use of remuneration consultants During the financial year ended 30 June 2014, the Group did not use any remuneration consultants. Details of remuneration Amounts of remuneration Details of the remuneration of the key management personnel of the Group are set out in the following tables. In line with Regulation 2M.3.03 of Corporation Regulations 2001, the Company has elected not to disclose comparatives. The key management personnel of the Group consisted of the directors of 3P Learning Limited and the following persons: ● Jonathan Kenny - chief financial officer and company secretary Short-term benefits Post- employment benefits Long-term benefits* Share-based payments Cash salary and fees $ Bonus $ Non- monetary $ Super- annuation $ Leave $ Equity- settled $ Total $ 15,000 8,750 7,917 385,900 85,044 502,611 - - - - - - - - - - - - 1,388 809 732 - - - 25,820 77,540 6,474 35,223 - 77,540 - - - - - - 16,388 9,559 8,649 489,260 91,518 615,374 2014 Non-Executive Directors: Samuel Weiss Roger Amos Claire Hatton Executive Directors: Timothy Power Other Key Management Personnel: Jonathan Kenny * This includes annual leave not taken within 12 months Remuneration above is from the date of KMP appointment with the exception of Timothy Power who was employed for the complete financial year. The Directors who are not listed in the table above did not receive any remuneration during the financial year. 7 3P Learning Limited (Formerly known as 3P Learning Pty. Ltd.) Directors' report 30 June 2014 The proportion of remuneration linked to performance and the fixed proportion are as follows: Fixed Name Non-Executive Directors: Samuel Weiss Roger Amos Claire Hatton Executive Directors: Timothy Power Other Key Management Personnel: Jonathan Kenny remuneration At risk - STI At risk - LTI 2014 2014 2014 100% 100% 100% 100% 100% -% -% -% -% -% -% -% -% -% -% Service agreements Non-executive and executive directors Non-executive directors do not have fixed term contracts with the Company. On appointment to the Board, all non- executive directors enter into a service agreement with the Company in the form of a letter of appointment. The letter summarises the Board policies and terms, including compensation. Non-executive directors retire by whichever is the longer period: the third annual general meeting following their appointment, or the third anniversary date of appointment, but may then be eligible for re-election. Remuneration and other terms of employment for Group Executives are formalised in employment agreements. The Chief Executive Officer and Chief Financial Officer do not have a fixed term contract with the Company. Details of the employment agreements are as follows: 8 3P Learning Limited (Formerly known as 3P Learning Pty. Ltd.) Directors' report 30 June 2014 Name: Title: Agreement commenced: Term of agreement: Details: Name: Title: Agreement commenced: Term of agreement: Details: leadership performance and Group Timothy Power Chief Executive Officer 20 March 2014 Open ended The Chief Executive Officer, Timothy Power, is employed by the Group under an employment agreement. Timothy will receive a fixed annual remuneration of $400,000, plus superannuation at a rate in line with legislative requirements. Timothy will be eligible to receive a cash bonus of up to $100,000 or such other amount as determined by the Board for each financial year ending after 30 June 2015. Payment of the cash bonus will depend on the Group’s performance and Timothy’s achievement of certain key performance indicators (which generally relate to qualitative and quantitative financial performance), or as otherwise decided by the Board, regardless of whether Timothy meets these performance indicators. As part of a long term incentive package, Timothy may be entitled to receive Shares (Performance Shares) up to the value of $100,000 (valued at the Offer Price). The Performance Shares will vest on or shortly after the Company’s financial results for the financial year ending 30 June 2015 are approved by the Board. Timothy is entitled to up to 100% of the Performance Shares if the Company exceeds the pro forma Earnings before Interest, Tax, Depreciation and Amortisation (“EBITDA”). No Performance Shares will vest or be issued if the Company does not achieve the pro forma EBITDA. The Board may, at its absolute discretion, elect to issue some or all of these shares, regardless of whether the long term performance indicators are met. Timothy’s current long term incentive package will be for one year only, and it is proposed that Performance Shares to be granted under any future long term incentive plan will have a three year minimum vesting period. Either party may terminate the employment contract by giving six months’ notice in writing. The Group may terminate by making a payment in lieu of notice. In the event of serious misconduct or other specific circumstances warranting summary dismissal, the Group may terminate Timothy’s employment contract immediately by notice in writing and without payment in lieu of notice. Upon the termination of Timothy’s employment contract, he will be subject to a restraint of trade period of 24 months. The Group may elect to reduce the restraint of trade period, or eliminate the period in its entirety. The enforceability of the restraint clause is subject to all usual legal requirements. Jonathan Kenny Chief Financial Officer 1 July 2014 Open ended Jonathan Kenny is employed in the position of Chief Financial Officer and has entered into an employment contract with the Group. Jonathan will receive annual fixed remuneration of $330,000 plus superannuation at a rate in line with legislative requirements. Jonathan will also be eligible to receive an annual cash bonus of up to $75,000 or such other amount as determined by the Board. Payment of a cash bonus will depend on Jonathan’s achievement of certain key performance indicators (which generally relate to qualitative and quantitative leadership performance and Group financial performance). Either party may terminate the employment contract by giving six months’ notice in writing. The Group may terminate by making a payment in lieu of notice. In the event of serious misconduct or other specific circumstances warranting summary dismissal, the Group may terminate Jonathan’s employment contract immediately by written notice and without payment in lieu of notice. Jonathan’s employment contract also contains a post-employment restraint of trade period of 18 months. The Group may elect to reduce the restraint of trade period, or eliminate the period in its entirety. The enforceability of the restraint clause is subject to all usual legal requirements. Key management personnel have no entitlement to termination payments in the event of serious misconduct or other specific circumstances warranting summary dismissal. 9 3P Learning Limited (Formerly known as 3P Learning Pty. Ltd.) Directors' report 30 June 2014 Share-based compensation Issue of shares There were no shares issued to directors and other key management personnel as part of compensation during the year ended 30 June 2014. Options There were no options over ordinary shares issued to directors and other key management personnel as part of compensation that were outstanding as at 30 June 2014. There were no options over ordinary shares granted to or vested by directors and other key management personnel as part of compensation during the year ended 30 June 2014. Additional disclosures relating to key management personnel Shareholding The number of shares in the Company held during the financial year by each director and other members of key management personnel of the Group, including their personally related parties, is set out below: Ordinary shares Timothy Power Matthew Sandblom Katherine Pike Jonathan Kenny Balance at the start of the year Received as part of remuneration Additions Disposals/ other Balance at the end of the year 4,573 55,000 9,000 - 68,573 - - - - - - - - 70 70 - - - - - 4,573 55,000 9,000 70 68,643 Ordinary shares in the table above refer to ordinary shares class A. This concludes the remuneration report, which has been audited. Shares under option There were no unissued ordinary shares of 3P Learning Limited under option outstanding at the date of this report. Shares issued on the exercise of options There were no ordinary shares of 3P Learning Limited issued on the exercise of options during the year ended 30 June 2014 and up to the date of this report. Indemnity and insurance of officers The Company has indemnified the directors and executives of the Company for costs incurred, in their capacity as a director or executive, for which they may be held personally liable, except where there is a lack of good faith. During the financial year, the Company paid a premium in respect of a contract to insure the directors and executives of the Company against a liability to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of liability and the amount of the premium. Indemnity and insurance of auditor The Company has not, during or since the end of the financial year, indemnified or agreed to indemnify the auditor of the Company or any related entity against a liability incurred by the auditor. During the financial year, the Company has not paid a premium in respect of a contract to insure the auditor of the Company or any related entity. Proceedings on behalf of the Company No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the Company, or to intervene in any proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the Company for all or part of those proceedings. 10 3P Learning Limited (Formerly known as 3P Learning Pty. Ltd.) Directors' report 30 June 2014 Non-audit services Details of the amounts paid or payable to the auditor for non-audit services provided during the financial year by the auditor are outlined in note 31 to the financial statements. The directors are satisfied that the provision of non-audit services during the financial year, by the auditor (or by another person or firm on the auditor's behalf), is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The directors are of the opinion that the services as disclosed in note 31 to the financial statements do not compromise the external auditor's independence requirements of the Corporations Act 2001 for the following reasons: ● all non-audit services have been reviewed and approved to ensure that they do not impact the integrity and objectivity of the auditor; and ● none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants issued by the Accounting Professional and Ethical Standards Board, including reviewing or auditing the auditor's own work, acting in a management or decision-making capacity for the Company, acting as advocate for the Company or jointly sharing economic risks and rewards. Officers of the Company who are former audit partners of Ernst & Young There are no officers of the Company who are former audit partners of Ernst & Young. Rounding of amounts The Company is of a kind referred to in Class Order 98/100, issued by the Australian Securities and Investments Commission, relating to 'rounding-off'. Amounts in this report have been rounded off in accordance with that Class Order to the nearest thousand dollars, or in certain cases, the nearest dollar. Auditor's independence declaration A copy of the auditor's independence declaration as required under section 307C of the Corporations Act 2001 is set out on the following page. Auditor Ernst & Young continues in office in accordance with section 327 of the Corporations Act 2001. This report is made in accordance with a resolution of directors, pursuant to section 298(2)(a) of the Corporations Act 2001. On behalf of the directors ________________________________ Samuel Weiss Chairman 25 August 2014 Sydney 11 3P Learning Limited (Formerly known as 3P Learning Pty. Ltd.) Contents 30 June 2014 Contents Statement of profit or loss and other comprehensive income Statement of financial position Statement of changes in equity Statement of cash flows Notes to the financial statements Directors' declaration Independent auditor's report to the members of 3P Learning Limited Shareholder information Corporate directory 14 15 16 17 18 53 54 56 58 13 3P Learning Limited (Formerly known as 3P Learning Pty. Ltd.) Statement of profit or loss and other comprehensive income For the year ended 30 June 2014 Revenue Other income Expenses Employee benefits expense Depreciation and amortisation expense Professional fees Technology costs Marketing expenses Occupancy expenses Administrative expenses Profit before income tax (expense)/benefit Consolidated Note 2014 $'000 2013 $'000 (Restated) 6 7 8 8 36,161 31,746 904 978 (15,759) (1,947) (4,151) (1,239) (3,146) (2,289) (1,736) (21,662) (1,345) (934) (1,213) (1,958) (1,682) (1,998) 6,798 1,932 Income tax (expense)/benefit 9 (1,691) 377 Profit after income tax expense for the year 5,107 2,309 Other comprehensive income Items that may be reclassified subsequently to profit or loss Foreign currency translation Other comprehensive income for the year, net of tax Total comprehensive income for the year Profit for the year is attributable to: Non-controlling interest Owners of 3P Learning Limited Total comprehensive income for the year is attributable to: Non-controlling interest Owners of 3P Learning Limited Basic earnings per share Diluted earnings per share 25 117 117 106 106 5,224 2,415 55 5,052 5,107 55 5,169 5,224 (661) 2,970 2,309 (661) 3,076 2,415 Cents Cents 39 39 3,343.44 3,343.44 1,965.56 1,965.56 The above statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes 14 3P Learning Limited (Formerly known as 3P Learning Pty. Ltd.) Statement of financial position As at 30 June 2014 Assets Current assets Cash and cash equivalents Trade and other receivables Income tax Other Total current assets Non-current assets Receivables Plant and equipment Intangibles Deferred tax Total non-current assets Total assets Liabilities Current liabilities Trade and other payables Income tax Provisions Deferred revenue Finance lease payable Total current liabilities Non-current liabilities Provisions Deferred revenue Finance lease payable Total non-current liabilities Total liabilities Net assets Equity Issued capital Reserves Retained profits/(accumulated losses) Equity attributable to the owners of 3P Learning Limited Non-controlling interest Total equity Consolidated Note 2014 $'000 2013 $'000 (Restated) 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 24,442 5,895 - 2,369 32,706 - 1,322 9,124 7,415 17,861 14,782 6,630 1,514 2,153 25,079 417 1,624 3,701 4,990 10,732 50,567 35,811 7,979 1,017 13,975 18,748 262 41,981 473 813 36 1,322 4,984 - 891 14,430 256 20,561 363 93 309 765 43,303 21,326 7,264 14,485 2,352 7,954 (3,129) 7,177 87 2,352 7,165 4,319 13,836 649 7,264 14,485 The above statement of financial position should be read in conjunction with the accompanying notes 15 3P Learning Limited (Formerly known as 3P Learning Pty. Ltd.) Statement of changes in equity For the year ended 30 June 2014 Consolidated Issued capital $'000 Reserves $'000 Retained profits $'000 Non- controlling interest $'000 Total equity $'000 Balance at 1 July 2012 2,352 6,603 12,460 1,611 23,026 Adjustment for change in accounting policy (note 4) - 335 (8,661) - (8,326) Balance at 1 July 2012 - restated 2,352 6,938 3,799 1,611 14,700 Profit/(loss) after income tax (expense)/benefit for the year Other comprehensive income for the year, net of tax Total comprehensive income for the year Transactions with owners in their capacity as owners: Share-based payments Transaction with non-controlling interest Dividends paid (note 27) - - - - - - - 106 106 121 - - 2,970 (661) 2,309 - - 106 2,970 (661) 2,415 - - (2,450) - (301) - 121 (301) (2,450) Balance at 30 June 2013 2,352 7,165 4,319 649 14,485 Consolidated Issued capital $'000 Reserves $'000 Retained profits/ Accumulated losses $'000 Non- controlling interest $'000 Total equity $'000 Balance at 1 July 2013 2,352 7,165 4,319 649 14,485 Profit after income tax (expense)/benefit for the year Other comprehensive income for the year, net of tax Total comprehensive income for the year Transactions with owners in their capacity as owners: Share-based payments Acquisition of non-controlling interest in subsidiary Dividends paid (note 27) - - - - - - - 117 117 1,470 (798) - 5,052 - 5,052 55 - 55 5,107 117 5,224 - - 1,470 - (12,500) (617) - (1,415) (12,500) Balance at 30 June 2014 2,352 7,954 (3,129) 87 7,264 The above statement of changes in equity should be read in conjunction with the accompanying notes 16 3P Learning Limited (Formerly known as 3P Learning Pty. Ltd.) Statement of cash flows For the year ended 30 June 2014 Cash flows from operating activities Receipts from customers (inclusive of GST) Payments to suppliers and employees (inclusive of GST) Interest received Interest and other finance costs paid Income taxes refunded Income taxes paid Net cash from operating activities Cash flows from investing activities Payments for plant and equipment Payments for intangibles Payments for short term deposits Net cash used in investing activities Cash flows from financing activities Repayment of leases Acquisition of non-controlling interest Dividends paid Net cash used in financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year Effects of exchange rate changes on cash and cash equivalents Consolidated Note 2014 $'000 2013 $'000 46,316 (27,309) 38,930 (34,508) 19,007 411 (114) 2,177 (3,300) 4,422 323 - - (2,683) 38 18,181 2,062 (332) (6,408) (216) (575) (17) (2,009) (6,956) (2,601) (267) (1,415) - - - (2,450) (1,682) (2,450) 9,543 14,782 117 (2,989) 17,771 - 27 Cash and cash equivalents at the end of the financial year 10 24,442 14,782 The above statement of cash flows should be read in conjunction with the accompanying notes 17 3P Learning Limited (Formerly known as 3P Learning Pty. Ltd.) Notes to the financial statements 30 June 2014 Note 1. General information The financial statements cover 3P Learning Limited as a Group consisting of 3P Learning Limited and its subsidiaries. The financial statements are presented in Australian dollars, which is 3P Learning Limited's functional and presentation currency. 3P Learning Limited is a listed public company limited by shares, incorporated and domiciled in Australia. Its registered office and principal place of business is: Level 18, 124 Walker Street North Sydney NSW 2060 A description of the nature of the Group's operations and its principal activities are included in the directors' report, which is not part of the financial statements. On 24 April 2014, the Company changed its status from a proprietary company to a public company. The financial statements were authorised for issue, in accordance with a resolution of directors, on 25 August 2014. The directors have the power to amend and reissue the financial statements. Note 2. Significant accounting policies The principal accounting policies adopted in the preparation of the financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. New, revised or amending Accounting Standards and Interpretations adopted The Group has adopted all of the new, revised or amending Accounting Standards and Interpretations issued by the Australian Accounting Standards Board ('AASB') that are mandatory for the current reporting period. Except for the early adoption of AASB 2013-3 ‘Amendments to AASB 136 – Recoverable Amount Disclosures for Non- Financial Assets’, no other new, revised or amending Accounting Standards or Interpretations that are not yet mandatory have been early adopted. Any significant impact on the accounting policies of the Group from the adoption of these Accounting Standards and Interpretations are disclosed below. The adoption of these Accounting Standards and Interpretations did not have any significant impact on the financial performance or position of the Group. The following Accounting Standards and Interpretations are most relevant to the Group: AASB 10 Consolidated Financial Statements The Group has applied AASB 10 from 1 July 2013, which has a new definition of 'control'. Control exists when the reporting entity is exposed, or has the rights, to variable returns from its involvement with another entity and has the ability to affect those returns through its 'power' over that other entity. A reporting entity has power when it has rights that give it the current ability to direct the activities that significantly affect the investee's returns. AASB 12 Disclosure of Interests in Other Entities The Group has applied AASB 12 from 1 July 2013. The standard contains the entire disclosure requirement associated with other entities, being subsidiaries, associates, joint arrangements (joint operations and joint ventures) and unconsolidated structured entities. The disclosure requirements have been significantly enhanced when compared to the previous disclosures. AASB 13 Fair Value Measurement and AASB 2011-8 Amendments to Australian Accounting Standards arising from AASB 13 The Group has applied AASB 13 and its consequential amendments from 1 July 2013. The standard provides a single robust measurement framework, with clear measurement objectives, for measuring fair value using the 'exit price' and provides guidance on measuring fair value when a market becomes less active. The 'highest and best use' approach is used to measure non-financial assets whereas liabilities are based on transfer value. The standard requires increased disclosures where fair value is used. 18 3P Learning Limited (Formerly known as 3P Learning Pty. Ltd.) Notes to the financial statements 30 June 2014 Note 2. Significant accounting policies (continued) AASB 119 Employee Benefits (September 2011) and AASB 2011-10 Amendments to Australian Accounting Standards arising from AASB 119 (September 2011) The Group has applied AASB 119 and its consequential amendments from 1 July 2013. The standard changed the definition of short-term employee benefits, from 'due to' to 'expected to' be settled within 12 months. Annual leave that is not expected to be wholly settled within 12 months is now discounted allowing for expected salary levels in the future period when the leave is expected to be taken. AASB 127 Separate Financial Statements (Revised), AASB 128 Investments in Associates and Joint Ventures (Reissued) and AASB 2011-7 Amendments to Australian Accounting Standards arising from the Consolidation and Joint Arrangements Standards The Group has applied AASB 127, AASB 128 and AASB 2011-7 from 1 July 2013. AASB 127 and AASB 128 have been modified to remove specific guidance that is now contained in AASB 10, AASB 11 and AASB 12 and AASB 2011-7 makes numerous consequential changes to a range of Australian Accounting Standards and Interpretations. AASB 128 has also been amended to include the application of the equity method to investments in joint ventures. AASB 2012-2 Amendments to Australian Accounting Standards - Disclosures - Offsetting Financial Assets and Financial Liabilities The Group has applied AASB 2012-2 from 1 July 2013. The amendments enhance AASB 7 'Financial Instruments: Disclosures' and requires disclosure of information about rights of set-off and related arrangements, such as collateral agreements. AASB 2012-5 Amendments to Australian Accounting Standards arising from Annual Improvements 2009-2011 Cycle The Group has applied AASB 2012-5 from 1 July 2013. The amendments affect five Australian Accounting Standards as follows: Confirmation that repeat application of AASB 1 'First-time Adoption of Australian Accounting Standards' is permitted; Clarification of borrowing cost exemption in AASB 1; Clarification of the comparative information requirements when an entity provides an optional third column or is required to present a third statement of financial position in accordance with AASB 101 'Presentation of Financial Statements'; Clarification that servicing of equipment is covered by AASB 116 'Property, Plant and Equipment', if such equipment is used for more than one period; clarification that the tax effect of distributions to holders of equity instruments and equity transaction costs in AASB 132 'Financial Instruments: Presentation' should be accounted for in accordance with AASB 112 'Income Taxes'; and clarification of the financial reporting requirements in AASB 134 'Interim Financial Reporting' and the disclosure requirements of segment assets and liabilities. AASB 2012-10 Amendments to Australian Accounting Standards - Transition Guidance and Other Amendments The Group has applied AASB 2012-10 amendments from 1 July 2013, which amends AASB 10 and related standards for the transition guidance relevant to the initial application of those standards. The amendments clarify the circumstances in which adjustments to an entity's previous accounting for its involvement with other entities are required and the timing of such adjustments. Net current asset deficiency As at 30 June 2014, the Group and the Company were in a net current liability position of $9,274,000 and $4,092,000 respectively for which there are no future cash outflows and accordingly, the financial statements continue to be prepared on a going concern basis. Basis of preparation These general purpose financial statements have been prepared in accordance with Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board ('AASB') and the Corporations Act 2001, as appropriate for for-profit oriented entities. These financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board ('IASB'). Historical cost convention The financial statements have been prepared under the historical cost convention. 19 3P Learning Limited (Formerly known as 3P Learning Pty. Ltd.) Notes to the financial statements 30 June 2014 Note 2. Significant accounting policies (continued) Critical accounting estimates The preparation of the financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in note 3. Parent entity information In accordance with the Corporations Act 2001, these financial statements present the results of the Group only. Supplementary information about the parent entity is disclosed in note 35. Principles of consolidation The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of 3P Learning Limited ('Company' or 'parent entity') as at 30 June 2014 and the results of all subsidiaries for the year then ended. 3P Learning Limited and its subsidiaries together are referred to in these financial statements as the 'Group'. Subsidiaries are all those entities over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases. Intercompany transactions, balances and unrealised gains on transactions between entities in the Group are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. The acquisition of subsidiaries is accounted for using the acquisition method of accounting. A change in ownership interest, without the loss of control, is accounted for as an equity transaction, where the difference between the consideration transferred and the book value of the share of the non-controlling interest acquired is recognised directly in equity attributable to the parent. Non-controlling interest in the results and equity of subsidiaries are shown separately in the statement of profit or loss and other comprehensive income, statement of financial position and statement of changes in equity of the Group. Losses incurred by the Group are attributed to the non-controlling interest in full, even if that results in a deficit balance. Where the Group loses control over a subsidiary, it derecognises the assets including goodwill, liabilities and non- controlling interest in the subsidiary together with any cumulative translation differences recognised in equity. The Group recognises the fair value of the consideration received and the fair value of any investment retained together with any gain or loss in profit or loss. Operating segments Operating segments are presented using the 'management approach', where the information presented is on the same basis as the internal reports provided to the Chief Operating Decision Makers ('CODM'). The CODM is responsible for the allocation of resources to operating segments and assessing their performance. Foreign currency translation The financial statements are presented in Australian dollars, which is 3P Learning Limited's functional and presentation currency. Foreign currency transactions Foreign currency transactions are translated into Australian dollars using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at financial year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss. 20 3P Learning Limited (Formerly known as 3P Learning Pty. Ltd.) Notes to the financial statements 30 June 2014 Note 2. Significant accounting policies (continued) Foreign operations The assets and liabilities of foreign operations are translated into Australian dollars using the exchange rates at the reporting date. The revenues and expenses of foreign operations are translated into Australian dollars using the average exchange rates, which approximate the rate at the date of the transaction, for the period. All resulting foreign exchange differences are recognised in other comprehensive income through the foreign currency reserve in equity. The foreign currency reserve is recognised in profit or loss when the foreign operation or net investment is disposed of. Revenue recognition Revenue is recognised and measured at the fair value of the consideration received or receivable to the extent it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. A number of recognition criteria must also be met before revenue is recognised. Mathletics, Spellodrome and IntoScience licence revenues The Group recognises the majority of its revenue pursuant to software licence agreements and it provides its customers with access to the Group’s intellectual property as it exists at any given time. Revenue is therefore recognised over the duration of the agreement or for as long as the customer has been provided access, when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable and collectability is probable. Reading eggs products licence revenue The Group recognises commission revenue pursuant to a distribution agreement when it sells a third party’s online products to customers which provides these customers with access to the third party’s intellectual property as it exists at any given time. Revenue from the sale of Reading Eggs Products is recorded on a net basis when the online product is sold, consistent with an agency relationship. Sponsorship income Revenue is recognised in relation to sponsorship amounts provided by various external parties when the Company becomes entitled to the benefit and all of its obligations have been fulfilled. Translation fee Revenue is recognised in relation to translation of educational programs to the local language of the customer base, upon completion of the translation. Sale of workbooks Revenue is recognised in relation to workbook materials sold to schools and students, on sale of the items. Copyright licence fee Revenue is recognised in relation to copyright agency fees upon becoming entitled to compensation being at a time when the Group’s materials and resources are reproduced by third parties. Interest Revenue is recognised as interest accrues using the effective interest method. This is a method of calculating the amortised cost of a financial asset and allocating the interest income over the relevant period using the effective interest rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset. Deferred revenue Deferred revenue is recognised on all customer contracts where appropriate as revenue is recorded over the contract duration. Income tax The income tax expense or benefit for the period is the tax payable on that period's taxable income based on the applicable income tax rate for each jurisdiction, adjusted by changes in deferred tax assets and liabilities attributable to temporary differences, unused tax losses and the adjustment recognised for prior periods, where applicable. 21 3P Learning Limited (Formerly known as 3P Learning Pty. Ltd.) Notes to the financial statements 30 June 2014 Note 2. Significant accounting policies (continued) Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when the assets are recovered or liabilities are settled, based on those tax rates that are enacted or substantively enacted, except for: ● When the deferred income tax asset or liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting nor taxable profits; or ● When the taxable temporary difference is associated with interests in subsidiaries, associates or joint ventures, and the timing of the reversal can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. The carrying amount of recognised and unrecognised deferred tax assets are reviewed each reporting date. Deferred tax assets recognised are reduced to the extent that it is no longer probable that future taxable profits will be available for the carrying amount to be recovered. Previously unrecognised deferred tax assets are recognised to the extent that it is probable that there are future taxable profits available to recover the asset. Deferred tax assets and liabilities are offset only where there is a legally enforceable right to offset current tax assets against current tax liabilities and deferred tax assets against deferred tax liabilities; and they relate to the same taxable authority on either the same taxable entity or different taxable entities which intend to settle simultaneously. 3P Learning Limited (the 'head entity') and its wholly-owned Australian subsidiaries have formed an income tax consolidated group under the tax consolidation regime. The head entity and each subsidiary in the tax consolidated group continue to account for their own current and deferred tax amounts. The tax consolidated group has applied the 'separate taxpayer within group' approach in determining the appropriate amount of taxes to allocate to members of the tax consolidated group. In addition to its own current and deferred tax amounts, the head entity also recognises the current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from each subsidiary in the tax consolidated group. Assets or liabilities arising under tax funding agreements with the tax consolidated entities are recognised as amounts receivable from or payable to other entities in the tax consolidated group. The tax funding arrangement ensures that the intercompany charge equals the current tax liability or benefit of each tax consolidated group member, resulting in neither a contribution by the head entity to the subsidiaries nor a distribution by the subsidiaries to the head entity. Research and development rebate Research and development rebate are credited against tax payable and are not treated as revenue. Current and non-current classification Assets and liabilities are presented in the statement of financial position based on current and non-current classification. An asset is current when: it is expected to be realised or intended to be sold or consumed in normal operating cycle; it is held primarily for the purpose of trading; it is expected to be realised within 12 months after the reporting period; or the asset is cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least 12 months after the reporting period. All other assets are classified as non-current. A liability is current when: it is expected to be settled in normal operating cycle; it is held primarily for the purpose of trading; it is due to be settled within 12 months after the reporting period; or there is no unconditional right to defer the settlement of the liability for at least 12 months after the reporting period. All other liabilities are classified as non-current. Deferred tax assets and liabilities are always classified as non-current. 22 3P Learning Limited (Formerly known as 3P Learning Pty. Ltd.) Notes to the financial statements 30 June 2014 Note 2. Significant accounting policies (continued) Cash and cash equivalents Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Trade and other receivables Trade receivables, which generally have 30-60 day terms, are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less an allowance for impairment. Collectability of trade receivables is reviewed on an ongoing basis. Individual debts that are known to be uncollectible are written off when identified. An impairment provision is recognised when there is objective evidence that the Group will not be able to collect the receivable. Plant and equipment Plant and equipment is stated at historical cost less accumulated depreciation and impairment. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Depreciation is calculated on a straight-line basis to write off the net cost of each item of plant and equipment (excluding land) over their expected useful lives as follows: Office equipment Computers Furniture & fittings 3-5 years 3-5 years 3-7 years An item of plant and equipment and any significant part initially recognised is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the statement of comprehensive income when the asset is derecognised. The residual values, useful lives and methods of depreciation of plant and equipment are reviewed at each financial year end and adjusted prospectively, if appropriate. Leases The determination of whether an arrangement is or contains a lease is based on the substance of the arrangement at inception date, whether fulfilment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset, even if that right is not explicitly specified in an arrangement. A distinction is made between finance leases, which effectively transfer from the lessor to the lessee substantially all the risks and benefits incidental to ownership of leased assets, and operating leases, under which the lessor effectively retains substantially all such risks and benefits. Finance leases are capitalised. A lease asset and liability are established at the fair value of the leased assets, or if lower, the present value of minimum lease payments. Lease payments are allocated between the principal component of the lease liability and the finance costs, so as to achieve a constant rate of interest on the remaining balance of the liability. Leased assets acquired under a finance lease are depreciated over the asset's useful life or over the shorter of the asset's useful life and the lease term if there is no reasonable certainty that the Group will obtain ownership at the end of the lease term. Group as a lessee Operating lease payments are recognised as an operating expense in the statement of comprehensive income on a straight line basis over the lease term. Operating lease incentives are recognised as a liability when received and subsequently reduced by allocating lease payments between rental expense and reduction of the liability. 23 3P Learning Limited (Formerly known as 3P Learning Pty. Ltd.) Notes to the financial statements 30 June 2014 Note 2. Significant accounting policies (continued) Intangible assets Intangible assets 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. Internally generated intangible assets, excluding capitalised development costs, are not capitalised and expenditure is recognised in statement of comprehensive income in the year in which the expenditure is incurred. The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are amortised over the useful life and tested for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life is reviewed at least at each financial year-end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for prospectively by changing the amortisation period or method, as appropriate, which is a change in accounting estimate. The amortisation expense on intangible assets with finite lives is recognised in statement of comprehensive income in the expense category consistent with the function of the intangible asset. Intangible assets with an indefinite useful life are not amortised. The useful life of an intangible asset with an indefinite life is reviewed each reporting period to determine whether indefinite life assessment continues to be supportable. If not, the change in the useful life assessment from indefinite to finite is accounted for as a change in an accounting estimate and is thus accounted for on a prospective basis. Amortisation is recognised in the statement of comprehensive income on a straight-line basis over the estimated useful lives of intangible assets, other than goodwill, from the date that they are available for use. Internally generated intangible assets Research costs are expensed as incurred. Development expenditures on an individual project are recognised as an intangible asset when the Group can demonstrate: • The technical feasibility of completing the intangible asset so that the asset 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 asset • The ability to measure reliably the expenditure during development • The ability to use the intangible asset generated Following initial recognition of the development expenditure as an asset, the asset is carried at cost less any accumulated amortisation and accumulated impairment losses. Amortisation of the asset begins when development is complete and the asset is available for use. It is amortised over the period of expected future benefit. Amortisation is recorded in depreciation and amortisation. The estimated useful lives are as follows: • Patents and trademarks – 3 years • Development costs – 5 years 24 3P Learning Limited (Formerly known as 3P Learning Pty. Ltd.) Notes to the financial statements 30 June 2014 Note 2. Significant accounting policies (continued) Goodwill Goodwill acquired in a business combination is initially measured at cost being the excess of the cost of the business combination over the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units, or groups of cash generating units, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the Group are assigned to those units or groups of units. Impairment is determined by assessing the recoverable amount of the cash-generating unit (group of cash-generating units), to which the goodwill relates. When the recoverable amount of the cash-generating unit (group of cash-generating units) is less than the carrying amount, an impairment loss is recognised. When goodwill forms part of a cash-generating unit (group of cash generating units) and an operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this manner is measured based on the relative values of the operation disposed of and the portion of the cash- generating unit retained. Impairment losses recognised for goodwill are not subsequently reversed. Impairment of non-financial assets Non-financial assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. Recoverable amount is the higher of an asset's fair value less costs of disposal and value-in-use. The value-in-use is the present value of the estimated future cash flows relating to the asset using a pre-tax discount rate specific to the asset or cash-generating unit to which the asset belongs. Assets that do not have independent cash flows are grouped together to form a cash-generating unit. Trade and other payables These amounts represent liabilities for goods and services provided to the Group prior to the end of the financial year and which are unpaid. Due to their short-term nature they are measured at amortised cost and are not discounted. The amounts are unsecured and are usually paid within 30 days of recognition. Provisions Provisions are recognised when the Group has a present (legal or constructive) obligation as a result of a past event, it is probable the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the reporting date, taking into account the risks and uncertainties surrounding the obligation. If the time value of money is material, provisions are discounted using a current pre-tax rate specific to the liability. The increase in the provision resulting from the passage of time is recognised as a finance cost. Employee benefits Short-term employee benefits Liabilities for wages and salaries, including non-monetary benefits, annual leave and long service leave expected to be settled within 12 months of the reporting date are recognised in current liabilities in respect of employees' services up to the reporting date and are measured at the amounts expected to be paid when the liabilities are settled. 25 3P Learning Limited (Formerly known as 3P Learning Pty. Ltd.) Notes to the financial statements 30 June 2014 Note 2. Significant accounting policies (continued) Other long-term employee benefits The liability for annual leave and long service leave not expected to be settled within 12 months is measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the reporting date on national government bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. Defined contribution superannuation expense Contributions to defined contribution superannuation plans are expensed in the period in which they are incurred. Share-based payments Equity-settled share-based compensation benefits are provided to employees. Equity-settled transactions are awards of shares, or options over shares, which are provided to employees in exchange for the rendering of services. The cost of equity-settled transactions are measured at fair value on grant date. Fair value is independently determined using the Binomial model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the option, together with non-vesting conditions that do not determine whether the Group receives the services that entitle the employees to receive payment. No account is taken of any other vesting conditions. The cost of equity-settled transactions are recognised as an expense with a corresponding increase in equity over the vesting period. The cumulative charge to profit or loss is calculated based on the grant date fair value of the award, the best estimate of the number of awards that are likely to vest and the expired portion of the vesting period. The amount recognised in profit or loss for the period is the cumulative amount calculated at each reporting date less amounts already recognised in previous periods. Market conditions are taken into consideration in determining fair value. Therefore any awards subject to market conditions are considered to vest irrespective of whether or not that market condition has been met, provided all other conditions are satisfied. If equity-settled awards are modified, as a minimum an expense is recognised as if the modification has not been made. An additional expense is recognised, over the remaining vesting period, for any modification that increases the total fair value of the share-based compensation benefit as at the date of modification. If equity-settled awards are cancelled, it is treated as if it has vested on the date of cancellation, and any remaining expense is recognised immediately. If a new replacement award is substituted for the cancelled award, the cancelled and new award is treated as if they were a modification. Fair value measurement When an asset or liability, financial or non-financial, is measured at fair value for recognition or disclosure purposes, the fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date; and assumes that the transaction will take place either: in the principal market; or in the absence of a principal market, in the most advantageous market. Fair value is measured using the assumptions that market participants would use when pricing the asset or liability, assuming they act in their economic best interest. For non-financial assets, the fair value measurement is based on its highest and best use. Valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, are used, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. Assets and liabilities measured at fair value are classified, into three levels, using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. Classifications are reviewed each reporting date and transfers between levels are determined based on a reassessment of the lowest level input that is significant to the fair value measurement. 26 3P Learning Limited (Formerly known as 3P Learning Pty. Ltd.) Notes to the financial statements 30 June 2014 Note 2. Significant accounting policies (continued) For recurring and non-recurring fair value measurements, external valuers may be used when internal expertise is either not available or when the valuation is deemed to be significant. External valuers are selected based on market knowledge and reputation. Where there is a significant change in fair value of an asset or liability from one period to another, an analysis is undertaken, which includes a verification of the major inputs applied in the latest valuation and a comparison, where applicable, with external sources of data. Contributed equity Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Dividends Dividends are recognised when declared during the financial year and no longer at the discretion of the Company. Provision is made for the amount of any dividend declared, being appropriately authorised and no longer at the discretion of the Company, on or before the end of the financial year but not distributed at the reporting date. Business combinations The acquisition method of accounting is used to account for business combinations regardless of whether equity instruments or other assets are acquired. The consideration transferred is the sum of the acquisition-date fair values of the assets transferred, equity instruments issued or liabilities incurred by the acquirer to former owners of the acquiree and the amount of any non-controlling interest in the acquiree. For each business combination, the non-controlling interest in the acquiree is measured at either fair value or at the proportionate share of the acquiree's identifiable net assets. All acquisition costs are expensed as incurred to profit or loss. On the acquisition of a business, the Group assesses the financial assets acquired and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic conditions, the Group's operating or accounting policies and other pertinent conditions in existence at the acquisition-date. Where the business combination is achieved in stages, the Group remeasures its previously held equity interest in the acquiree at the acquisition-date fair value and the difference between the fair value and the previous carrying amount is recognised in profit or loss. Contingent consideration to be transferred by the acquirer is recognised at the acquisition-date fair value. Subsequent changes in the fair value of contingent consideration classified as an asset or liability is recognised in profit or loss. Contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity. The difference between the acquisition-date fair value of assets acquired, liabilities assumed and any non-controlling interest in the acquiree and the fair value of the consideration transferred and the fair value of any pre-existing investment in the acquiree is recognised as goodwill. If the consideration transferred and the pre-existing fair value is less than the fair value of the identifiable net assets acquired, being a bargain purchase to the acquirer, the difference is recognised as a gain directly in profit or loss by the acquirer on the acquisition-date, but only after a reassessment of the identification and measurement of the net assets acquired, the non-controlling interest in the acquiree, if any, the consideration transferred and the acquirer's previously held equity interest in the acquirer. Business combinations are initially accounted for on a provisional basis. The acquirer retrospectively adjusts the provisional amounts recognised and also recognises additional assets or liabilities during the measurement period, based on new information obtained about the facts and circumstances that existed at the acquisition-date. The measurement period ends on either the earlier of (i) 12 months from the date of the acquisition or (ii) when the acquirer receives all the information possible to determine fair value. 27 3P Learning Limited (Formerly known as 3P Learning Pty. Ltd.) Notes to the financial statements 30 June 2014 Note 2. Significant accounting policies (continued) Earnings per share Basic earnings per share Basic earnings per share is calculated by dividing the profit attributable to the owners of 3P Learning Limited, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the financial year. Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. Goods and Services Tax ('GST') and other similar taxes Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the tax authority. In this case it is recognised as part of the cost of the acquisition of the asset or as part of the expense. Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the tax authority is included in other receivables or other payables in the statement of financial position. Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to the tax authority, are presented as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the tax authority. Rounding of amounts The Company is of a kind referred to in Class Order 98/100, issued by the Australian Securities and Investments Commission, relating to 'rounding-off'. Amounts in this report have been rounded off in accordance with that Class Order to the nearest thousand dollars, or in certain cases, the nearest dollar. New Accounting Standards and Interpretations not yet mandatory or early adopted Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet mandatory, have not been early adopted by the Group for the annual reporting period ended 30 June 2014. The Group's assessment of the impact of these new or amended Accounting Standards and Interpretations, most relevant to the Group, are set out below. AASB 9 Financial Instruments and its consequential amendments This standard and its consequential amendments are applicable to annual reporting periods beginning on or after 1 January 2018 and completes phases I and III of the IASB's project to replace IAS 39 (AASB 139) 'Financial Instruments: Recognition and Measurement'. This standard introduces new classification and measurement models for financial assets, using a single approach to determine whether a financial asset is measured at amortised cost or fair value. The accounting for financial liabilities continues to be classified and measured in accordance with AASB 139, with one exception, being that the portion of a change of fair value relating to the entity's own credit risk is to be presented in other comprehensive income unless it would create an accounting mismatch. The Group will adopt this standard and the amendments from 1 July 2018 but the impact of its adoption is yet to be assessed by the Group. AASB 2012-3 Amendments to Australian Accounting Standards - Offsetting Financial Assets and Financial Liabilities The amendments are applicable to annual reporting periods beginning on or after 1 January 2014. The amendments add application guidance to address inconsistencies in the application of the offsetting criteria in AASB 132 'Financial Instruments: Presentation', by clarifying the meaning of 'currently has a legally enforceable right of set-off'; and clarifies that some gross settlement systems may be considered to be equivalent to net settlement. The adoption of the amendments from 1 July 2014 will not have a material impact on the Group. 28 3P Learning Limited (Formerly known as 3P Learning Pty. Ltd.) Notes to the financial statements 30 June 2014 Note 2. Significant accounting policies (continued) Annual Improvements to IFRSs 2010-2012 Cycle These amendments affects several Accounting Standards as follows: Amends the definition of 'vesting conditions' and 'market condition' and adds definitions for 'performance condition' and 'service condition' in AASB 2 'Share-based Payment'; Amends AASB 3 'Business Combinations' to clarify that contingent consideration that is classified as an asset or liability shall be measured at fair value at each reporting date; Amends AASB 8 'Operating Segments' to require entities to disclose the judgements made by management in applying the aggregation criteria; Clarifies that AASB 8 only requires a reconciliation of the total reportable segments assets to the entity's assets, if the segment assets are reported regularly; Clarifies that the issuance of AASB 13 'Fair Value Measurement' and the amending of AASB 139 'Financial Instruments; Recognition and Measurement' and AASB 9 'Financial Instruments' did not remove the ability to measure short-term receivables and payables with no stated interest rate at their invoice amount, if the effect of discounting is immaterial; Clarifies that in AASB 116 'Property, Plant and Equipment' and AASB 138 'Intangible Assets', when an asset is revalued the gross carrying amount is adjusted in a manner that is consistent with the revaluation of the carrying amount (i.e. proportional restatement of accumulated amortisation); and Amends AASB 124 'Related Party Disclosures' to clarify that an entity providing key management personnel services to the reporting entity or to the parent of the reporting entity is a 'related party' of the reporting entity. The adoption of these amendments will not have a material impact on the Group. Annual Improvements to IFRSs 2011-2013 Cycle These amendments affect four Accounting Standards as follows: Clarifies the 'meaning of effective IFRSs' in AASB 1 'First- time Adoption of Australian Accounting Standards'; Clarifies that AASB 3 'Business Combination' excludes from its scope the accounting for the formation of a joint arrangement in the financial statements of the joint arrangement itself; Clarifies that the scope of the portfolio exemption in AASB 13 'Fair Value Measurement' includes all contracts accounted for within the scope of AASB 139 'Financial Instruments; Recognition and Measurement' or AASB 9 'Financial Instruments', regardless of whether they meet the definitions of financial assets or financial liabilities as defined in AASB 132 'Financial Instruments: Presentation'; and Clarifies that determining whether a specific transaction meets the definition of both a business combination as defined in AASB 3 'Business Combinations' and investment property as defined in AASB 140 'Investment Property' requires the separate application of both standards independently of each other. The adoption of these amendments will not have a material impact on the Group. IFRS 15 Revenue from Contracts with Customers This standard is expected to be applicable to annual reporting periods beginning on or after 1 January 2017. The standard provides a single standard for revenue recognition. The core principle of the standard is that an entity will recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard will require: contracts (either written, verbal or implied) to be identified, together with the separate performance obligations within the contract; determine the transaction price, adjusted for the time value of money excluding credit risk; allocation of the transaction price to the separate performance obligations on a basis of relative stand-alone selling price of each distinct good or service, or estimation approach if no distinct observable prices exist; and recognition of revenue when each performance obligation is satisfied. Credit risk will be presented separately as an expense rather than adjusted to revenue. For goods, the performance obligation would be satisfied when the customer obtains control of the goods. For services, the performance obligation is satisfied when the service has been provided, typically for promises to transfer services to customers. For performance obligations satisfied over time, an entity would select an appropriate measure of progress to determine how much revenue should be recognised as the performance obligation is satisfied. Contracts with customers will be presented in an entity’s statement of financial position as a contract liability, a contract asset, or a receivable, depending on the relationship between the entity’s performance and the customer’s payment. Sufficient quantitative and qualitative disclosure is required to enable users to understand the contracts with customers; the significant judgments made in applying the guidance to those contracts; and any assets recognised from the costs to obtain or fulfil a contract with a customer. The adoption of these amendments will not have a material impact on the Group. 29 3P Learning Limited (Formerly known as 3P Learning Pty. Ltd.) Notes to the financial statements 30 June 2014 Note 3. Critical accounting judgements, estimates and assumptions The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts in the financial statements. Management continually evaluates its judgements and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgements, estimates and assumptions on historical experience and on other various factors, including expectations of future events, management believes to be reasonable under the circumstances. The resulting accounting judgements and estimates will seldom equal the related actual results. The judgements, estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities (refer to the respective notes) within the next financial year are discussed below. Goodwill and other indefinite life intangible assets The Group tests annually, or more frequently if events or changes in circumstances indicate impairment, whether goodwill and other indefinite life intangible assets have suffered any impairment, in accordance with the accounting policy stated in note 2. The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations require the use of assumptions, including estimated discount rates based on the current cost of capital and growth rates of the estimated future cash flows. Impairment of non-financial assets other than goodwill and other indefinite life intangible assets The Group assesses impairment of non-financial assets other than goodwill and other indefinite life intangible assets at each reporting date by evaluating conditions specific to the Group and to the particular asset that may lead to impairment. If an impairment trigger exists, the recoverable amount of the asset is determined. This involves fair value less costs of disposal or value-in-use calculations, which incorporate a number of key estimates and assumptions. Income tax The Group is subject to income taxes in the jurisdictions in which it operates. Significant judgement is required in determining the provision for income tax. There are many transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain. The Group recognises liabilities for anticipated tax audit issues based on the Group's current understanding of the tax law. Where the final tax outcome of these matters is different from the carrying amounts, such differences will impact the current and deferred tax provisions in the period in which such determination is made. Recovery of deferred tax assets Deferred tax assets are recognised for deductible temporary differences only if the Group considers it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Note 4. Restatement of comparatives Change in accounting policy - revenue recognition In accordance with AASB 118 ‘Revenue’, the Group previously recognised revenue in relation licences for periods up to one year for owned products (Mathletics, Spellodrome and Into Science) as well as products sold under a distribution agreement (Reading Eggs) at the point of sale of the licence. Revenue from the sale of Reading Eggs licences was recognised on a gross basis with the associated royalty payment to Blake eLearning Pty Ltd included as an expense. With the release of IFRS 15 ‘Revenue from contracts with customers’, the Group has considered the appropriateness of this policy. As a result, the current period’s financial statements contain a revised policy where the revenue from the sale of licences relating to owned products are spread evenly over the term of the licence. Revenue from the sale of Reading Eggs licences is still recognised at the point of sale of the licence, but the revenue is presented as the net amount received by the Group. The revised policy, refer to note 2, remains in accordance with AASB 118 and is also expected to comply with IFRS 15. The change in accounting policy is required to be accounted for in accordance with AASB 108 ‘Accounting policies, changes to estimates and errors’ and as such the change must be applied as if it had always been in place. 30 3P Learning Limited (Formerly known as 3P Learning Pty. Ltd.) Notes to the financial statements 30 June 2014 Note 4. Restatement of comparatives (continued) The impact of the change in accounting policy is as follows: The impact on the statement of financial position as at 30 June 2012 was: • Increase the liability representing the deferred revenue by $11,903,000 • Increase deferred tax asset by $3,577,000 • Increase foreign currency translation reserve by $335,000 • Net adjustment to retained earnings by $8,661,000 The impact on the statement of financial position as at 30 June 2013 was: • Increase the liability representing the deferred revenue by $14,161,000 • Increase deferred tax asset by $4,251,000 • Increase foreign currency translation reserve by $335,000 • Net adjustment to retained earnings by $10,245,000 The impact on the statement of profit or loss and other comprehensive income for the year ending 30 June 2013 was: •Decrease in revenue representing the deferred revenue by $5,217,000 •Increase in income tax benefit of $688,000 •Basic and diluted earnings per share has decreased by 1,047.64 cents per share. Reclassification Certain comparative figures have been reclassified to conform to the current year presentation. Note 5. Operating segments Identification of reportable operating segments The Group is organised into geographic operating segments: Australia & New Zealand ('ANZ'), America, Canada and South America ('Americas') and Europe, Middle-East and Africa ('EMEA'). These operating segments are based on the internal reports that are reviewed and used by the Board of Directors (who are identified as the Chief Operating Decision Makers ('CODM') in assessing performance and in determining the allocation of resources. There is no aggregation of operating segments. The CODM reviews EBITDA (earnings before interest, tax, depreciation and amortisation). The accounting policies adopted for internal reporting to the CODM are consistent with those adopted in the financial statements. The information reported to the CODM is on at least a monthly basis. Segment assets and liabilities are not reviewed by the CODM on a regular basis. Intersegment transactions Intersegment transactions were made at market rates. Intersegment transactions are eliminated on consolidation. Intersegment receivables, payables and loans Intersegment loans are initially recognised at the consideration received. Intersegment loans receivable and loans payable that earn or incur non-market interest are not adjusted to fair value based on market interest rates. Intersegment loans are eliminated on consolidation. 31 3P Learning Limited (Formerly known as 3P Learning Pty. Ltd.) Notes to the financial statements 30 June 2014 Note 5. Operating segments (continued) Operating segment information Consolidated - 2014 $'000 $'000 $'000 $'000 ANZ Americas EMEA Intersegment eliminations Revenue Sales to external customers Intersegment sales Total sales revenue Other revenue Total revenue EBITDA Depreciation and amortisation Interest revenue Finance costs Profit before income tax expense Income tax expense Profit after income tax expense 24,365 11,644 36,009 399 36,408 3,136 - 3,136 6 3,142 8,672 (1,056) 8,243 - 8,243 12 8,255 832 - (11,644) (11,644) - (11,644) - Consolidated - 2013 $'000 $'000 $'000 $'000 ANZ Americas EMEA Intersegment eliminations Revenue Sales to external customers Intersegment sales Total sales revenue Other revenue Total revenue EBITDA Depreciation and amortisation Interest revenue Finance costs Profit before income tax benefit Income tax benefit Profit after income tax benefit 24,038 9,720 33,758 217 33,975 2,257 - 2,257 9 2,266 4,839 (1,732) 5,211 - 5,211 14 5,225 (72) - (9,720) (9,720) - (9,720) (48) Total $'000 35,744 - 35,744 417 36,161 8,448 (1,947) 411 (114) 6,798 (1,691) 5,107 Total $'000 31,506 - 31,506 240 31,746 2,987 (1,345) 323 (33) 1,932 377 2,309 32 3P Learning Limited (Formerly known as 3P Learning Pty. Ltd.) Notes to the financial statements 30 June 2014 Note 6. Revenue Licence fees Sponsorship income Translation fees Sale of workbooks Copyright licence fees Other Net commission revenue Revenue Note 7. Other income Net foreign exchange gain Interest Other income Other income Consolidated 2014 $'000 2013 $'000 (Restated) 30,238 168 127 262 986 417 3,963 26,753 832 - 176 975 240 2,770 36,161 31,746 Consolidated 2014 $'000 2013 $'000 67 411 426 904 474 323 181 978 33 3P Learning Limited (Formerly known as 3P Learning Pty. Ltd.) Notes to the financial statements 30 June 2014 Note 8. Expenses Profit before income tax includes the following specific expenses: Depreciation Fixtures and fittings Office equipment Computers Total depreciation Amortisation Patents and trademarks Product development Total amortisation Total depreciation and amortisation Finance costs Interest and finance charges paid/payable Rental expense relating to operating leases Minimum lease payments Superannuation expense Defined contribution superannuation expense Research costs Research costs Professional fees included the following: Professional fees for initial public offering Consolidated 2014 $'000 2013 $'000 135 18 479 632 652 663 1,315 1,947 119 16 468 603 742 - 742 1,345 114 33 1,869 1,175 1,191 1,593 26 3,346 22 - 34 3P Learning Limited (Formerly known as 3P Learning Pty. Ltd.) Notes to the financial statements 30 June 2014 Note 9. Income tax expense/(benefit) Income tax expense/(benefit) Current tax Deferred tax - origination and reversal of temporary differences Adjustment recognised for prior periods Aggregate income tax expense/(benefit) Deferred tax included in income tax expense/(benefit) comprises: Increase in deferred tax assets (note 17) Numerical reconciliation of income tax expense/(benefit) and tax at the statutory rate Profit before income tax (expense)/benefit Tax at the statutory tax rate of 30% Tax effect amounts which are not deductible/(taxable) in calculating taxable income: Amortisation of intangibles Entertainment expenses Non-deductible expenses Research and development Effect of corporate tax rate change Adjustment recognised for prior periods Prior year temporary differences not recognised now recognised Difference in overseas tax rates Other Income tax expense/(benefit) Tax losses not recognised Unused tax losses for which no deferred tax asset has been recognised Potential tax benefit @ 30% Consolidated 2014 $'000 2013 $'000 (Restated) 2,917 (1,336) 110 1,322 (1,413) (286) 1,691 (377) (1,336) (1,413) 6,798 2,039 128 2 82 - 105 2,356 110 (797) (53) 75 1,691 1,932 580 - - 25 (632) - (27) (286) - (56) (8) (377) Consolidated 2014 $'000 2013 $'000 - - 789 237 35 3P Learning Limited (Formerly known as 3P Learning Pty. Ltd.) Notes to the financial statements 30 June 2014 Note 10. Current assets - cash and cash equivalents Cash at bank and in hand Short-term deposits Consolidated 2014 $'000 2013 $'000 15,439 9,003 6,848 7,934 24,442 14,782 Cash at bank earns interest at floating rates based on daily bank deposit rates. Short term deposits are made for varying periods between one day and three months, depending on the immediate cash requirements of the Group, and earn interest at the respective short term deposit rates. Bank guarantee for merchant facility and operating lease of $1,311,000 (2013: $1,311,000). Note 11. Current assets - trade and other receivables Trade receivables Other receivables Prepayments Advertising services receivable Consolidated 2014 $'000 2013 $'000 4,856 463 576 1,039 - 5,303 189 287 476 851 5,895 6,630 Past due but not impaired Customers with balances past due but without provision for impairment of receivables amount to $1,109,000 as at 30 June 2014 ($2,020,000 as at 30 June 2013). The ageing of the past due but not impaired receivables are as follows: Consolidated 2014 $'000 2013 $'000 1,109 2,020 Consolidated 2014 $'000 2013 $'000 - 1,514 1 to 12 months overdue Note 12. Current assets - Income tax Income tax refund receivable 36 Consolidated 2014 $'000 2013 $'000 2,218 151 2,369 2,009 144 2,153 Consolidated 2014 $'000 2013 $'000 - 417 Consolidated 2014 $'000 2013 $'000 904 (413) 491 3,236 (2,452) 784 148 (101) 47 834 (279) 555 2,995 (1,975) 1,020 132 (83) 49 1,322 1,624 3P Learning Limited (Formerly known as 3P Learning Pty. Ltd.) Notes to the financial statements 30 June 2014 Note 13. Current assets - other Term deposits Other deposits Note 14. Non-current assets - receivables Advertising services receivable Note 15. Non-current assets - plant and equipment Fixtures and fittings - at cost Less: Accumulated depreciation Computer equipment - at cost Less: Accumulated depreciation Office equipment - at cost Less: Accumulated depreciation 37 3P Learning Limited (Formerly known as 3P Learning Pty. Ltd.) Notes to the financial statements 30 June 2014 Note 15. Non-current assets - plant and equipment (continued) Reconciliations Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below: Consolidated Balance at 1 July 2012 Additions Disposals Write off of assets Depreciation expense Balance at 30 June 2013 Additions Write off of assets Depreciation expense Balance at 30 June 2014 Furniture and fittings Computers $'000 $'000 Office equipment $'000 Total $'000 385 304 (15) - (119) 555 71 - (135) 491 1,214 281 (4) (3) (468) 1,020 245 (2) (479) 784 52 14 (1) - (16) 49 16 - (18) 47 1,651 599 (20) (3) (603) 1,624 332 (2) (632) 1,322 Plant and equipment secured under finance leases Refer to note 33 for further information on plant and equipment secured under finance leases. Note 16. Non-current assets - intangibles Goodwill - at cost Product development - at cost Less: Accumulated amortisation Patents and trademarks - at cost Less: Accumulated amortisation Consolidated 2014 $'000 2013 $'000 3,012 6,438 (663) 5,775 3,074 (2,737) 337 3,012 - - - 2,774 (2,085) 689 9,124 3,701 38 3P Learning Limited (Formerly known as 3P Learning Pty. Ltd.) Notes to the financial statements 30 June 2014 Note 16. Non-current assets - intangibles (continued) Reconciliations Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below: Consolidated Balance at 1 July 2012 Additions Amortisation expense Balance at 30 June 2013 Additions Amortisation expense Balance at 30 June 2014 Goodwill $'000 Product development $'000 Patents and trademarks $'000 Total $'000 3,012 - - 3,012 - - 3,012 - - - - 6,438 (663) 5,775 1,414 17 (742) 689 300 (652) 337 4,426 17 (742) 3,701 6,738 (1,315) 9,124 Impairment testing for goodwill For the purpose of impairment testing, goodwill and indefinite life intangibles are allocated to the Group’s operating divisions, which represents the lowest level within the Group at which the goodwill and indefinite life intangibles are monitored for internal management purposes. The impairment test was based on a value-in-use approach for the IntoScience and PEG Learning operating divisions. Value-in-use for these operating divisions were determined by discounting the future cash flows generated from the continuing use of the business and was based on the following key assumptions: • Cash flows were projected based on actual operating results and the 5 year business plan. Cash flow beyond year 5 was projected at a growth rate of 2%; • Revenue was forecast based on the forecast financials prepared for the IPO; • Other income streams were forecast in proportion to what the business has achieved historically; • Direct costs were forecast based on the margins historically achieved by the business; • Overheads were forecast based on current levels adjusted for inflationary increases; and • A pre-tax discount rate of 15.6% was applied in determining the recoverable amount. The discount rate was estimated using the Capital Asset Pricing model. The values assigned to the key assumptions represent management’s assessment of future trends in the industry and are based on both external and internal data sources. Sensitivity analysis Management estimates that any reasonable changes in the key assumptions would not have a significant impact on the value-in-use of intangible assets and goodwill that would require the assets to be impaired. 39 3P Learning Limited (Formerly known as 3P Learning Pty. Ltd.) Notes to the financial statements 30 June 2014 Note 17. Non-current assets - deferred tax Deferred tax asset comprises temporary differences attributable to: Amounts recognised in profit or loss: Tax losses Accrued expenses Deferred Revenue IPO costs Research and development offset Royalty asset Intangibles Unrealised foreign exchange fluctuation Plant and equipment Other Deferred tax asset Movements: Opening balance Credited to profit or loss (note 9) Other Closing balance Note 18. Current liabilities - trade and other payables Trade payables Accrued expenses Accrued expense for IPO Goods and service tax Other payables Refer to note 28 for further information on financial instruments. Refer to note 34 for details of related party balances. Note 19. Current liabilities - income tax Provision for income tax 40 Consolidated 2014 $'000 2013 $'000 (Restated) 1,254 796 5,214 714 1,431 186 (1,614) (517) (81) 32 7,415 4,990 1,336 1,089 7,415 131 461 4,089 - 604 50 (21) (329) (101) 106 4,990 3,577 1,413 - 4,990 Consolidated 2014 $'000 2013 $'000 2,143 1,464 3,004 719 649 7,979 3,068 821 - 564 531 4,984 Consolidated 2014 $'000 2013 $'000 1,017 - 3P Learning Limited (Formerly known as 3P Learning Pty. Ltd.) Notes to the financial statements 30 June 2014 Note 20. Current liabilities - provisions Operating and employee benefits Dividend payable Consolidated 2014 $'000 2013 $'000 1,475 12,500 13,975 891 - 891 Operating and employee benefits Operating and employee benefits comprise of provisions for annual leave, long service leave and make good. Where an obligation is presented as current, the Group does not have an unconditional right to defer settlement. However, based on past experience, the Group does not expect all employees to take the full amount of accrued leave within the next 12 months. Dividends The provision represents dividends declared, being appropriately authorised and no longer at the discretion of the Company, on or before the end of the financial year but not distributed at the reporting date. Note 21. Current liabilities - Deferred revenue Deferred revenue Note 22. Non-current liabilities - provisions Employee benefits Employee benefits Employee benefits represents provision for long service leave. Note 23. Equity - issued capital Ordinary shares - fully paid - class A Ordinary shares - fully paid - class B Consolidated 2014 $'000 2013 $'000 (Restated) 18,748 14,430 Consolidated 2014 $'000 2013 $'000 473 363 Consolidated 2014 Shares 2013 Shares 2014 $'000 2013 $'000 83,785 67,317 83,785 67,317 151,102 151,102 2,352 - 2,352 2,352 - 2,352 Ordinary shares class A Fully paid ordinary class A shares carry one vote per share and carry the right to dividends. 41 3P Learning Limited (Formerly known as 3P Learning Pty. Ltd.) Notes to the financial statements 30 June 2014 Note 23. Equity - issued capital (continued) Ordinary shares class B Fully paid ordinary class B shares have the following additional rights: -on the occurrence of a liquidity event, Class B shares will have a priority distribution of capital -on the sale of the assets of the Company, class B shares will have a priority distribution of capital -if there is no qualified public offering of shares in the Company or no other sales of the shares within 5 years of the effective date, the shareholders are entitled to request the Company to procure the sales of their shares. If the Company is unable to procure a sale, the shareholders may appoint a banker on behalf of the Company to sell the Company (whether by merger, sale of shares or otherwise). Capital risk management The Group's objectives when managing capital is to safeguard its ability to continue as a going concern, so that it can provide returns for shareholders and benefits for other stakeholders and to maintain an optimum capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. The Group would look to raise capital when an opportunity to invest in a business or company was seen as value adding relative to the current Company's share price at the time of the investment. The Group is not actively pursuing additional investments in the short term as it continues to integrate and grow its existing businesses in order to maximise synergies. Note 24. Equity - reserves Foreign currency reserve Acquisition reserve Share-based payment reserve Consolidated 2014 $'000 2013 $'000 829 (798) 7,923 7,954 712 - 6,453 7,165 Foreign currency reserve The reserve is used to recognise exchange differences arising from translation of the financial statements of foreign operations to Australian dollars. Acquisition reserve The reserve resulted from the acquisition of non-controlling interests in a subsidiary. The acquisition of non-controlling interest is not a business combination but is an equity transaction between owners. Accordingly, the difference between consideration paid and fair value of identifiable net assets of the non-controlling interest has been accounted for in the acquisition reserve. Share-based payments reserve The reserve is used to recognise the value of equity benefits provided to employees and directors as part of their remuneration, and other parties as part of their compensation for services. 42 3P Learning Limited (Formerly known as 3P Learning Pty. Ltd.) Notes to the financial statements 30 June 2014 Note 24. Equity - reserves (continued) Movements in reserves Movements in each class of reserve during the current and previous financial year are set out below: Consolidated Balance at 1 July 2012 Adjustment for change in accounting policy (note 4) Foreign currency translation Share based payments Balance at 30 June 2013 Foreign currency translation Share based payments Acquisition reserve on account of acquisition on non- controlling interest in subsidiary Balance at 30 June 2014 Note 25. Equity - retained profits/(accumulated losses) Retained profits at the beginning of the financial year Profit after income tax expense for the year Dividends payable (note 27) Adjustment for change in accounting policy Foreign currency reserve $'000 Acquisition reserve $'000 Share based payment reserve $'000 Total $'000 271 335 106 - 712 117 - - 829 - - - - - - - (798) (798) 6,332 - - 121 6,453 - 1,470 - 6,603 335 106 121 7,165 117 1,470 (798) 7,923 7,954 Consolidated 2014 $'000 2013 $'000 4,319 5,052 (12,500) - 12,460 2,970 (2,450) (8,661) Retained profits/(accumulated losses) at the end of the financial year (3,129) 4,319 Note 26. Equity - non-controlling interest Reserves Retained profits/(accumulated losses) Consolidated 2014 $'000 2013 $'000 - 87 87 1,310 (661) 649 The non-controlling interest represents the 40% interest in Mathletics LLP. Note 27. Equity - dividends Dividends Final dividend for the year ended 30 June 2014 of $12,500,000 representing $82.73 per ordinary share (30 June 2013: $2,450,000 representing $16.21 per ordinary share). 43 3P Learning Limited (Formerly known as 3P Learning Pty. Ltd.) Notes to the financial statements 30 June 2014 Note 27. Equity - dividends (continued) As detailed in the prospectus and as part of the capital restructure and listing of the Company, pre-IPO shareholders were entitled to a dividend of $12.5 million which was declared on 2 June 2014 and paid on 9 July 2014. The 'prospectus' refers to the document lodged by the Company and 3P Learning SaleCo Limited with Australian Securities and Investment Commission on 19 June 2014. Franking credits Consolidated 2014 $'000 2013 $'000 Franking credits available for subsequent financial years based on a tax rate of 30% 7,123 6,135 The above amounts represent the balance of the franking account as at the end of the financial year, adjusted for: ● franking credits that will arise from the payment of the amount of the provision for income tax at the reporting date ● franking debits that will arise from the payment of dividends recognised as a liability at the reporting date ● franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date Note 28. Financial instruments Financial risk management objectives The Group's activities expose it to a variety of financial risks: market risk (including foreign currency risk, price risk and interest rate risk), credit risk and liquidity risk. The Group's overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. The Group uses different methods to measure different types of risk to which it is exposed. These methods include sensitivity analysis in the case of interest rate, foreign exchange and other price risks, ageing analysis for credit risk. The Board of directors have overall responsibility for the establishment and oversight of the risk management framework. The Board has established an Audit and Risk Committee, which is responsible for managing risk. The committee reports to the Board of Directors on its activities. Risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities. The Group through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations. The Audit and Risk Committee, oversees how management monitors compliance with the Group’s risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the Group. Market risk Foreign currency risk The Group undertakes certain transactions denominated in foreign currency and is exposed to foreign currency risk through foreign exchange rate fluctuations. Foreign exchange risk arises from future commercial transactions and recognised financial assets and financial liabilities denominated in a currency that is not the entity's functional currency. The risk is measured using sensitivity analysis and cash flow forecasting. 44 3P Learning Limited (Formerly known as 3P Learning Pty. Ltd.) Notes to the financial statements 30 June 2014 Note 28. Financial instruments (continued) The carrying amount of the Group's foreign currency denominated financial assets and financial liabilities at the reporting date was as follows: Consolidated US dollars Euros Pound Sterling Canadian dollars Other currencies Assets Liabilities 2014 $'000 2013 $'000 2014 $'000 2013 $'000 422 405 124 650 277 1,878 783 372 1,146 377 609 3,287 - - - - 59 59 272 - 4 - 24 300 The Group had net assets denominated in foreign currencies of $1,819,000 (assets $1,878,000 less liabilities $59,000) as at 30 June 2014 (2013: $2,987,000 (assets $3,287,000 less liabilities $300,000). Based on this exposure, had the Australian dollar weakened by 10%/strengthened by 10% (2013: weakened by 10%/strengthened by 10%) against these foreign currencies with all other variables held constant, the Group's profit before tax for the year would have been $182,000 higher/$182,000 lower (2013: $299,000 lower/$ 299,000 higher). The percentage change is the expected overall volatility of the significant currencies, which is based on management's assessment of reasonable possible fluctuations. Price risk The Group is not exposed to any significant price risk. Interest rate risk The Group's exposure to interest rate risk is limited to cash at bank and short term deposits. An official increase/decrease in interest rates of 50 (2013:50) basis points would have an adverse/favourable effect on profit before tax of $126,000 (2013:$74,000) per annum. The percentage change is based on the expected volatility of interest rates using market data and analysts forecasts. Credit risk Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group has a strict code of credit, including obtaining agency credit information, confirming references and setting appropriate credit limits. The Group obtains guarantees where appropriate to mitigate credit risk. The maximum exposure to credit risk at the reporting date to recognised financial assets is the carrying amount, net of any provisions for impairment of those assets, as disclosed in the statement of financial position and notes to the financial statements. The Group does not hold any collateral. Majority of schools pay upfront and the nature of the customer base has a low impact on the Group's credit risk exposure. Liquidity risk Vigilant liquidity risk management requires the Group to maintain sufficient liquid assets (mainly cash and cash equivalents) and available borrowing facilities to be able to pay debts as and when they become due and payable. The Group manages liquidity risk by maintaining adequate cash reserves by continuously monitoring actual and forecast cash flows and matching the maturity profiles of financial assets and liabilities. 45 3P Learning Limited (Formerly known as 3P Learning Pty. Ltd.) Notes to the financial statements 30 June 2014 Note 30. Key management personnel disclosures Compensation The aggregate compensation made to directors and other members of key management personnel of the Group is set out below: Short-term employee benefits Post-employment benefits Long-term benefits Consolidated 2014 $ 2013 $ 502,611 35,223 77,540 367,999 32,120 75,634 615,374 475,753 No share-based payment expenses or termination benefits incurred during the year (2013: Nil) Note 31. Remuneration of auditors During the financial year the following fees were paid or payable for services provided by Ernst & Young, the auditor of the Company: Audit services - Ernst & Young Audit or review of the financial statements Other services - Ernst & Young Financial reporting due diligence in relation to the IPO Tax due diligence in relation to the IPO IT due diligence in relation to the IPO Tax advice Preparation of financial statements Tax and advisory Consolidated 2014 $ 2013 $ 99,500 88,885 565,000 85,000 16,409 25,000 - - - - - - 17,000 70,025 691,409 87,025 790,909 175,910 Note 32. Contingencies There have been no contingent liabilities or assets as at reporting date which would have a material effect on the Group's financial statements as at 30 June 2014 (2013: nil) 47 3P Learning Limited (Formerly known as 3P Learning Pty. Ltd.) Notes to the financial statements 30 June 2014 Note 30. Key management personnel disclosures Compensation The aggregate compensation made to directors and other members of key management personnel of the Group is set out below: Short-term employee benefits Post-employment benefits Long-term benefits Consolidated 2014 $ 2013 $ 502,611 35,223 77,540 367,999 32,120 75,634 615,374 475,753 No share-based payment expenses or termination benefits incurred during the year (2013: Nil) Note 31. Remuneration of auditors During the financial year the following fees were paid or payable for services provided by Ernst & Young, the auditor of the Company: Audit services - Ernst & Young Audit or review of the financial statements Other services - Ernst & Young Financial reporting due diligence in relation to the IPO Tax due diligence in relation to the IPO IT due diligence in relation to the IPO Tax advice Preparation of financial statements Tax and advisory Consolidated 2014 $ 2013 $ 99,500 88,885 565,000 85,000 16,409 25,000 - - - - - - 17,000 70,025 691,409 87,025 790,909 175,910 Note 32. Contingencies There have been no contingent liabilities or assets as at reporting date which would have a material effect on the Group's financial statements as at 30 June 2014 (2013: nil) 47 3P Learning Limited (Formerly known as 3P Learning Pty. Ltd.) Notes to the financial statements 30 June 2014 Note 33. Commitments Lease commitments - operating Committed at the reporting date but not recognised as liabilities, payable: Within one year One to five years Lease commitments - finance Committed at the reporting date and recognised as liabilities, payable: Within one year One to five years Total commitment Less: Future finance charges Net commitment recognised as liabilities Consolidated 2014 $'000 2013 $'000 738 77 815 271 36 307 (9) 298 743 954 1,697 279 317 596 (31) 565 Operating lease commitments includes contracted amounts for commercial leases under non-cancellable operating leases expiring within 1 to 3 years with, in some cases, options to extend. The leases have various escalation clauses. On renewal, the terms of the leases are renegotiated. Finance lease commitments includes contracted amounts for various plant and equipment under finance leases expiring within 1 to 2 years. Under the terms of the leases, the Group has the option to acquire the leased assets for predetermined residual values on the expiry of the leases. Note 34. Related party transactions Parent entity 3P Learning Limited is the parent entity. Subsidiaries Interests in subsidiaries are set out in note 36. Key management personnel Disclosures relating to key management personnel are set out in note 30 and the remuneration report in the directors' report. 48 3P Learning Limited (Formerly known as 3P Learning Pty. Ltd.) Notes to the financial statements 30 June 2014 Note 34. Related party transactions (continued) Transactions with related parties The following transactions occurred with related parties: Other income: Other income (software development income) from Blake eLearning Pty Ltd, a director related entity Payment for goods and services: Payment for business development services from Insight Venture Partners, a director related entity Consolidated 2014 $ 2013 $ 270,980 86,800 30,853 20,000 Payment for other expenses: Reading eggs royalty paid to Blake eLearning Pty Ltd, a director related entity Annual strategy meeting and membership fees paid to Coraggio Pty Ltd, a director related entity 2,943,536 2,148,713 43,537 21,024 ClickView technology was provided by ClickView Pty Limited, a director related entity for no consideration. Receivable from and payable to related parties The following balances are outstanding at the reporting date in relation to transactions with related parties: Current payables: Trade payables to Blake eLearning Pty Ltd, a director related entity Trade payables to Coraggio Pty Ltd, a director related entity Loans to/from related parties There were no loans to or from related parties at the current and previous reporting date. Terms and conditions All transactions were made on normal commercial terms and conditions and at market rates. Note 35. Parent entity information Set out below is the supplementary information about the parent entity. Statement of profit or loss and other comprehensive income Profit/(loss) after income tax Total comprehensive income 49 Consolidated 2014 $ 2013 $ 1,334,880 43,717 780,662 39,493 Parent 2014 $'000 2013 $'000 (Restated) 19,912 19,912 (594) (594) 3P Learning Limited (Formerly known as 3P Learning Pty. Ltd.) Notes to the financial statements 30 June 2014 Note 35. Parent entity information (continued) Statement of financial position Total current assets Total assets Total current liabilities Total liabilities Equity Issued capital Share-based payment reserve Retained profits/(accumulated losses) Total equity Parent 2014 $'000 2013 $'000 (Restated) 20,878 13,355 36,161 24,044 24,970 21,259 25,059 21,824 2,352 7,923 827 2,352 6,453 (6,585) 11,102 2,220 Guarantees entered into by the parent entity in relation to the debts of its subsidiaries The parent entity had no guarantees in relation to its subsidiaries as at 30 June 2014 and 30 June 2013. As detailed in Note 4, the comparative figures for 2013 have also been restated. The comprehensive income/(loss) has changed from (34,000) to (594,000) with a corresponding impact on retained profits and reserves. The net asset has changed from $5,667,000 to $2,220,000. Contingent liabilities The parent entity had no contingent liabilities as at 30 June 2013 and 30 June 2014. Significant accounting policies The accounting policies of the parent entity are consistent with those of the Group, as disclosed in note 2, except for the following: ● Investments in subsidiaries are accounted for at cost, less any impairment, in the parent entity. ● Dividends received from subsidiaries are recognised as other income by the parent entity and its receipt may be an indicator of an impairment of the investment. Note 36. Interests in subsidiaries The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the accounting policy described in note 2: Name 3P Learning Australia Pty Limited PEG Learning Pty Limited Into Science Pty Ltd 3P International Holdings Pty Ltd 3P Learning Pty Limited 3P Learning Limited 3P Learning Inc 3P Learning Canada Mathletics LLP Principal place of business / Country of incorporation Australia Australia Australia Australia New Zealand United Kingdom United States Canada India 50 Ownership interest 2013 2014 % % 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 60.00% 100.00% 100.00% 65.00% 100.00% 100.00% 100.00% 100.00% 100.00% 60.00% 3P Learning Limited (Formerly known as 3P Learning Pty. Ltd.) Notes to the financial statements 30 June 2014 Note 37. Events after the reporting period Capital restructure and capital raising As part of the process of listing the Company, and as detailed in the Company’s prospectus, the following events were finalised subsequent to balance date: Closure of 3P Employee Share Trust On 9 July 2014, the trustee of the share trust, 3PES Pty Ltd closed the operation of the share trust by notification to all unitholders in the trust that the units had been cancelled and shares held by the trustee were transferred to those unitholders. Dividend payment On 2 June 2014, the directors declared a pre IPO dividend of $12,500,000 to be paid on 9 July 2014 to existing Shareholders and Selling Shareholders in respect of the operation of the business prior to Listing. Capital raising The Company successfully raised $282.7 million pursuant to the prospectus dated 19 June 2014. The retail offer closed on 4 July 2014, and shares commenced trading on a conditional and deferred settlement basis on 9 July 2014. Share settlement occurred on 11 July 2014. New shares issued by the Company on 14 July 2014 amounted to 9.4 million. Funds raised from the IPO amounting to $259.2 million were utilised by 3P Learning SaleCo Limited (a special purpose vehicle established to sell Shares acquired from existing shareholders of the Company prior to IPO) to pay selling shareholders to acquire 103.7 million shares. These share were transferred to new shareholders on 14 July 2014. These shares commenced trading on a normal settlement basis as from 16 July 2014. Conversion of Class B Shares and subsequent share split On 10 July 2014, each Class B share on issue was converted into one fully-paid ordinary share such that the Company has only one class of ordinary share capital on issue. In addition, the share capital of the Company underwent a share split of 1 existing share for 830 new shares. Binding agreement The Group and Whatiph Business Consultants CC have entered into binding transaction for the acquisition of the South African distributor business of Whatiph. It is estimated that the acquisition will complete on 1 October 2014. Lead manager fee Macquarie Capital (Australia) Limited has acted as Lead Manager to the IPO and an underwriting fee equal to 3.5% of the funds raised was paid to Macquarie Capital (Australia) Limited upon listing on 9 July 2014. Macquarie Group Limited and its related bodies corporate had a significant influence in the Group until the sale of shares in relation to the IPO. No other matter or circumstance has arisen since 30 June 2014 that has significantly affected, or may significantly affect the Group's operations, the results of those operations, or the Group's state of affairs in future financial years. 51 3P Learning Limited (Formerly known as 3P Learning Pty. Ltd.) Notes to the financial statements 30 June 2014 Note 38. Reconciliation of profit after income tax to net cash from operating activities Profit after income tax expense for the year Adjustments for: Depreciation and amortisation Write off of investments Share-based payments Foreign exchange differences Change in operating assets and liabilities: Decrease/(increase) in trade and other receivables Decrease in income tax refund due Decrease/(increase) in deferred tax assets Decrease in other operating assets Increase/(decrease) in trade and other payables Increase/(decrease) in provision for income tax Decrease in employee benefits Increase/(decrease) in other provisions Increase in other operating liabilities Net cash from operating activities Note 39. Earnings per share Profit after income tax Non-controlling interest Profit after income tax attributable to the owners of 3P Learning Limited Consolidated 2014 $'000 2013 $'000 5,107 2,309 1,947 2 - (293) 594 1,514 (2,425) 851 (984) 1,017 (781) (93) 11,725 1,345 - 121 (389) (1,303) - 864 - 235 (1,654) - 363 171 18,181 2,062 Consolidated 2014 $'000 2013 $'000 5,107 (55) 5,052 2,309 661 2,970 Number Number Weighted average number of ordinary shares used in calculating basic earnings per share 151,102 151,102 Weighted average number of ordinary shares used in calculating diluted earnings per share 151,102 151,102 Basic earnings per share Diluted earnings per share Cents Cents 3,343.44 3,343.44 1,965.56 1,965.56 52 3P Learning Limited (Formerly known as 3P Learning Pty. Ltd.) Directors' declaration 30 June 2014 In the directors' opinion: ● the attached financial statements and notes thereto comply with the Corporations Act 2001, the Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; ● the attached financial statements and notes thereto comply with International Financial Reporting Standards as issued by the International Accounting Standards Board as described in note 2 to the financial statements; ● the attached financial statements and notes thereto give a true and fair view of the Group's financial position as at 30 June 2014 and of its performance for the financial year ended on that date; and ● there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. The directors have been given the declarations required by section 295A of the Corporations Act 2001. Signed in accordance with a resolution of directors made pursuant to section 295(5)(a) of the Corporations Act 2001. On behalf of the directors ________________________________ Samuel Weiss Chairman 25 August 2014 Sydney 53 3P Learning Limited (Formerly known as 3P Learning Pty. Ltd.) Shareholder information 30 June 2014 The shareholder information set out below was applicable as at 13 August 2014. Distribution of equitable securities Analysis of number of equitable security holders by size of holding: 1 to 1,000 1,001 to 5,000 5,001 to 10,000 10,001 to 100,000 100,001 and over Holding less than a marketable parcel Equity security holders Twenty largest quoted equity security holders The names of the twenty largest security holders of quoted equity securities are listed below: National Nominees Limited JP Morgan Nominees Australia Limited Citicorp Nominees Pty Limited Pascal Educational Services Pty Ltd RBC Investors Services Australia Nominees Pty Limited Brispot Nominees Pty Ltd Citicorp Nominees Pty Limited Timothy Power HSBC Custody Nominees (Australia) Limited UBS Nominees Pty Ltd Katherine Pike BNP Paribas Noms Pty Ltd RBC Investors Services Australia Nominees Pty Limited Bond Street Custodians Limited (MACQ High Conv Fund) BNP Paribas Nominees Pty Ltd Bond Street Custodians Limited Argo Investments Limited Bond Street Custodians Limited National Nominees Limited Wendy Beckett Unquoted equity securities There are no unquoted equity securities. 56 Number of holders of options over ordinary shares Number of holders of ordinary shares 137 141 87 188 54 607 - - - - - - - - Ordinary shares Number held % of total shares issued 26,435,440 25,590,357 17,593,272 13,695,000 9,040,239 3,987,888 3,910,221 3,036,472 2,658,172 2,503,600 2,381,376 2,079,004 1,822,900 1,460,531 990,697 802,103 700,000 635,315 605,000 519,248 120,446,835 19.62 18.99 13.06 10.16 6.71 2.96 2.90 2.25 1.97 1.86 1.77 1.54 1.35 1.08 0.74 0.60 0.52 0.47 0.45 0.39 89.39 3P Learning Limited (Formerly known as 3P Learning Pty. Ltd.) Shareholder information 30 June 2014 Substantial holders Substantial holders in the Company are set out below: National Nominees Limited JP Morgan Nominees Australia Limited Citicorp Nominees Pty Limited Pascal Educational Services Pty Ltd RBC Investors Services Australia Nominees Pty Limited Voting rights The voting rights attached to ordinary shares are set out below: Ordinary shares Number held 26,435,440 25,590,357 17,593,272 13,695,000 9,040,239 % of total shares issued 19.62 18.99 13.06 10.16 6.71 Ordinary shares On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote. There are no other classes of equity securities. Securities subject to voluntary escrow Class Expiry date Number of shares Ordinary shares The first trading day after the announcement to the ASX of 3P Learning Limited’s audited financial results for the financial year ending on 30 June 2015 21,892,459 57 3P Learning Limited (Formerly known as 3P Learning Pty. Ltd.) Corporate directory 30 June 2014 Directors Samuel Weiss - Independent Non-Executive Chairman Timothy Power - Chief Executive Officer Roger Amos - Independent Non-Executive Director Claire Hatton - Independent Non-Executive Director Company secretary Jonathan Kenny Notice of annual general meeting The details of the annual general meeting of 3P Learning Limited are: Date: 21 November 2014 3P Learning Ltd Level 18, 124 Walker Street North Sydney 2:00 PM on Friday 21 November 2014 Registered office Principal place of business Share register Auditor Solicitors 3P Learning Limited Level 18 124 Walker Street North Sydney NSW 2060 3P Learning Limited Level 18 124 Walker Street North Sydney NSW 2060 The Registrar Link Market Services Limited Level 12 680 George Street Sydney NSW 2000 Ernst & Young 680 George Street Sydney NSW 2000 King & Wood Mallesons Level 61 Governor Phillip Tower 1 Farrer Place Sydney NSW 2000 Stock exchange listing 3P Learning Limited shares are listed on the Australian Securities Exchange (ASX code: 3PL) Website http://www.3plearning.com/ Corporate Governance Statement Corporate governance statement which was approved on 22 July 2014 can be found at http://www.3plearning.com/investors/governance/ 58 3P Learning Ltd Level 18, 124 Walker Street North Sydney, NSW 2060 T: 1300 850 331 F: 1300 762 165 customerservice@3plearning.com.au 

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