A I N S W O R T H G A M E T E C H N O L O G Y
A N N U A L R E P O R T 2 0 1 8
Welcome to our 2018
Annual Report
Within the global gaming industry,
Ainsworth Game Technology has
continued to strive towards future
visions built upon constant game
development and product
innovation. Our company delivers
outstanding products through
investing in research and
development, mathematical
methods and designing
aesthetically appealing
graphics.
CONTENTS
At a Glance
Chairman’s Report
Chief Executive Officer’s Report
Shareholder Information
Directors’ Report
Financial Statements
Notes to the Financial Statements
Directors' Declaration
Independent Auditor’s Report
Lead Auditor’s Independent Declaration
Corporate Directory
2
10
12
16
18
44
48
90
91
97
98
LICENSED PRODUCT &
SOCIAL CASINO APPS
S L O T S
NEW PRODUCTS 2018
NOTICE OF ANNUAL GENERAL
MEETING
Ainsworth Game Technology Limited
ABN 37 068 516 665
Notice is hereby given that the 2018 Annual General
Meeting of the members of Ainsworth Game Technology
Limited will be held at:
Bankstown Sports Club
“Georges River Room”
8 Greenfield Parade
(Cnr Greenfield Parade and Mona Street)
Bankstown NSW 2200
on Tuesday 27 November 2018 at 11:00am
Results Announcement
for Six Months Ending
31st December 2018:
Results Announcement
for Year Ending
30TH June 2019:
Tuesday
26TH Feb 2019
Dates may be subject to change
Tuesday
27TH Aug 2019
Dates may be subject to change
In accordance with ASX Listing Rule 4.10.3, Ainsworth Game Technology’s Corporate Governance
Statement can be found on its website at: http://www.agtslots.com.au/corporategovernance
ANNUAL REPORT 2018 01
01
ANNUAL REPORT 2018 Company Profile
Ainsworth Game Technology ("AGT"), born into the gaming industry in the year 1995
and growing for more than 20 years till this present day. Len Ainsworth founded the
company with the dedication to establish a leading manufacturer and supplier of gaming
products. AGT adopted a whole integrated operation procedure including design,
development, assembly testing, field service and sales. As a company, Ainsworth is
driven to continuously succeed in product innovation whether it be cabinet design,
standalone progressive games, linked games, online social gaming and real money
wager markets to provide consumers with engaging entertainment.
The key objective is to design and implement products that differentiate from others
and AGT is proud to provide venues and players with high engineering standard
technology, outstanding element graphics and quality customer service.
REVENUE
$265.6 MILLION
LICENSED JURISDICTIONS
266+
EMPLOYEES
597+
AGT'S GLOBAL PRESENCE
EUROPE
CANADA
UNITED
STATES
LATAM
SOUTH
AFRICA
AUSTRALIA
ASIA
NEW
ZEALAND
02
AINSWORTH GAME TECHNOLOGY Cabinet Innovation
CABINET
RANGE
03
ANNUAL REPORT 2018 PERFORMANCE
OVERVIEW
Performance Overview
Strategy to expand international footprint and higher quality earnings
delivering results. International revenue makes up 76% of total revenue
North America
• North America returning to growth, revenue +4%, profit -9%
• Slight revenue growth driven by strong ASP and increased win per day
on route
• Strong win per day driven by PAC-MAN™ placements
• Maintained Gaming Operations install base while increasing win per day
• 900 Historical Horse Racing units delivered to Churchill Downs (CDI)
Latin America
• Latin America revenues similar to pcp with less than 1% increase, profit
-19%
• Solid growth in gaming operations installing 1,600 new units. Converted
to sale 900 existing units for a net install base increase of 23%
• Increase in the number of used machine sales to meet market demand
for lower price point resulted in lower ASP
• Mexico remains an important market with significant market share
increases and strong results
• Strong 2H result, 15% growth on 1H with new game titles and broader
product offering
• Strong product performance in core Multi Games, Quad Shot™ series,
Oriental Fortune™ and PAC-MAN™
Australia
• Successful launch of EVO cabinet and Golden Cash™ game series driving
improvement in market share
• NSW share increased to 15% in June, more than twice the average share
for the year
• Decrease in revenue of 14% on pcp, due to lower sales made
• Despite challenging period for volume and revenue growth, ASP has
increased
• Continuous recovery in market share in FY19 is expected to be driven
by the initial positive response of Golden Cash™ game series and further
new game portfolio offerings
Other Regions
• Revenue drop due to lower Asia, NZ and Europe sales compared to pcp
• Delivered 1,000 units to Novomatic in FY18. Novomatic contributed
revenue of $6.8m in FY18 ($11.4m pcp) and profit of $4.4m ($5.5m pcp)
• Online contributed $4.1m in revenue, +15% on pcp
Online
• Real Money Gaming - Announced online agreement with GVC to launch
exclusive Ainsworth casino content for the first time in New Jersey at
MGM Resorts and Borgata casino and expand Ainsworth online content
– including more than 40 new land-based titles – into our existing
European partners and operators
• Social Gaming- Completed development of 40 Ainsworth slot titles
for Novomatic’s social casino platform for North American land-based
casinos
04
R&D EXPENDITURE PERCENTAGE
(Fiscal years ended June 30)
Total R&D Expenditure - AUD (M)
R&D as a Percentage of Revenues
34.2
34.4
25.4
11%
28.6
10%
12%
13%
FY15
FY16
FY17
FY18
AINSWORTH GAME TECHNOLOGY
Financial Highlights
• Reported NPAT of $32 million (2017: $38 million)
• NPAT excluding currency impacts of $29 million,
(-38% on pcp)
• EPS of $0.09 per share (2017: $0.12 per share)
• Reported EBITDA $68 million, down 3% on pcp
• R&D as percentage of revenue at 13% (2017: 12%)
REVENUE/PROFITABILITY - AUD (M)
(Fiscal years ended June 30)
Profit Before Tax (PBT) excluding foreign exchange effects
Total Revenue
240.6
285.5
282.1
265.6
68.8
FY15
70.4
FY16
57.4
FY17
39.2
FY18
EBITDA - AUD (M)
(Fiscal years ended June 30)
H1
H2
57.3
50.3
42.0
53.8
38.4
31.9
FY15
FY16
FY17
43.4
24.6
FY18
REVENUES - AUD (M)
(Fiscal years ended June 30)
H1
H2
143.6
159.3
145.3
141.9
122.8
120.3
128.7
111.9
FY15
FY16
FY17
FY18
NPAT - AUD (M)
(Fiscal years ended June 30)
H1
H2
35.8
22.6
34.6
33.1
17.3
20.6
FY15
FY16
FY17
22.2
9.7
FY18
HISTORICAL PERFORMANCE - AUD (M)
Normalised PAT (All FY's- excl foreign currency gain)
Domestic Revenue
International Revenue
Normalised Profit After Tax (PAT)
*Note 1: NPAT H1 FY17 includes $8m reversal of prior year
DTL recognition
240.6
147.6
93.0
52.5
FY15
285.5
204.0
282.1
208.0
265.6
202.0
81.5
52.4
FY16
74.1
47.6
FY17*
*Note 1
63.6
29.3
FY18
05
ANNUAL REPORT 2018
We are constantly expanding our product library with new and exciting products to enhance
players experience across gaming floors.
Some key highlight products for FY18 included the intriguing Golden Cash™ and Golden Link™
which resulted in over 1000 installations in Australia. Both key products installed on the A600™
and EVO™ cabinets.
Golden Cash™
Golden Link™
•
1 level standalone progressive
•
1 level link progressive
• 3 levels of bonus prizes
• Multi-Denomination
• 3 levels of bonus prizes
• Mid-High Denomination
• Hold and Respin feature can be triggered
• Hold and Respin feature can be triggered
• Four game titles
• Duo game packs
Triple Challenge™
•
1 level standalone progressive
• 3 levels of bonus prizes
• Multi-Denomination
• Change to trigger multiplying dice
features
06
AINSWORTH GAME TECHNOLOGY As we enter FY19, some new and exciting games are planned to be released. We thrive to pursue
growth opportunities and innovative product ranges that will expand our business and possitive
reputation throughout the industry.
Crazy Jackpots™
•
1 level Link Progressive & 1 level Standalone Progressive
• 3 Levels of Bonus Prizes
• Multi-Denomination
• Frequent occurence of ‘Crazy Jackpots’ feature that can award Bonuses & Jackpots
Mad Millions™
•
1 Level Link Progressive and 1 Level
Standalone Progressive
• 2 Levels of Scalable Bonuses
• Multi-Denomination
• Hold and Respin Feature with 4
individual games
07
ANNUAL REPORT 2018 BOARD OF DIRECTORS
"Our performance is a direct
result of the strategies we have
been implementing to expand
our international footprint, invest
in technology to enhance the
product suite, and build our
participation fleet to improve
the quality of earnings"
Graeme Campbell
Chairman
Graeme Campbell
Chairman and Independent Non-Executive
Director
Member – Audit Committee
Member – Remuneration and Nomination
Committee
Appointed 18 September 2007,
Chairman since 2016
08
AINSWORTH GAME TECHNOLOGY Danny Gladstone
Chief Executive Officer and Executive Director
Member – Regulatory and Compliance Committee
Danny Gladstone was appointed Chief Executive
Officer of Ainsworth Gaming Technology Limited
on 5 February 2007.
Appointed Executive Director 25 February 2010
Harald Neumann
Non-Executive Director
Currently Chief Executive Officer and Chairman of the
Executive Board of Novomatic since October 2014.
Appointed 21 February 2017
Michael Yates B.Com (with merit), LLB
Independent Non-Executive Director
Chairman – Regulatory and Compliance
Committee
Member – Audit Committee
Appointed 15 December 2009
Colin Henson Dip Law- BAB, FCPA,
FCIS, FAICD
Independent Non-Executive Director
Chairperson – Remuneration and
Nomination Committee
Chairperson – Audit Committee
Heather Scheibenstock GAICD, AGIA
Independent Non-Executive Director
Member – Remuneration and Nomination
Committee
Member – Regulatory and Compliance
Committee
Appointed 3 April 2013
Appointed 18 January 2016
09
ANNUAL REPORT 2018
"We will continue to judiciously invest
our cash flow in product improvements
and innovation, and sales and
marketing while retiring debt and
rewarding shareholders. In FY19
we expect to release a new suite
of products which should assist in
translating to improved results."
Graeme Campbell
Chairman
Chairman’s Report
Dear Shareholders,
I am pleased to report solid results for FY18. AGT’s
consistent strategy to expand and diversify its
offerings to the global gaming market is delivering
results.
For FY18 AGT achieved a Profit after Tax of $31.9
million. On a pre currency basis, Profit before Tax
was $39.2 million, slightly ahead of the upgraded
guidance we provided. Your company delivered an
improved second half performance with $23.0 million
PBT, an increase of 68% on the $13.7 million reported
in the first half, excluding the $2.5 million profit on the
sale of land.
Our performance is a direct result of the strategies we
have been implementing to expand our international
footprint, invest in technology to enhance the product
suite, and build our participation fleet to improve the
quality of earnings.
International sales now account for 76% of the group
total, climbing to 82% in the second half of the year.
Revenue in the key Americas region grew by 3%
for the year. Segment profits for the region were
adversely affected by a weaker sales mix as we
transitioned older cabinets out of participation into
sales.
A significant highlight for North America was the
cornerstone order to deliver 900 Historical Horse
Racing machines to Churchill Downs Incorporated
(CDI) in Kentucky. This sale was a direct result of the
investment undertaken over several years leveraging
off technology acquired from Nova Technologies.
AGT’s proprietary Historical Horse Racing system is
10
expected to provide additional opportunities in new
markets, as well as scope for further collaboration
with CDI.
Underpinning these results is the total number of
machines on lease and participation, which grew by
10%. In Latin America, I am pleased to report the fleet
increased by 23%. These machines generate daily
recurring income, totalling $45.9 million and now
account for 17% of group revenue.
AGT’s commitment to research and development
is the primary driver to compete successfully in our
markets and drive growth. Customers are responding
well to the array of new games shown at the Australian
Gaming Exhibition in August and we will have a
further opportunity to demonstrate these products
at the Global Gaming Expo (G2E) in Las Vegas in
October 2018.
With the current products that we displayed at recent
gaming exhibitions and new initiatives that are close
to completion, we are confident our share of the
domestic market will increase over time. The EVO™
cabinet is gaining market traction and the newly
launched game titles continue to outperform house
averages.
The Rest of the World segment reflects further
synergy benefits from our strategic partnership
with Novomatic. AGT will continue to build this core
relationship through developing joint product and
sales opportunities.
Our strategy in regulated real money gaming markets
focuses on expanding content offerings in the
AINSWORTH GAME TECHNOLOGY
Americas, especially New Jersey and Mexico, where
more than forty new land based titles have recently
been launched. Reflecting the increased level of
competition from market leaders, however, we have
reduced the carrying value of AGT’s 40% equity share
in 616 Digital by $2.5 million.
Strong cash flow was a pleasing feature of these
results. Cash from operating activities increased to
$18.4 million, up from $5.2 million in the prior year.
This cash flow allows us to fund our technology
growth initiatives, retire debt and provide returns to
shareholders through dividends.
As a sign of confidence, the Board resolved to
reinstate the dividend policy of returning profits to
shareholders. The Directors declared a 2.5 cents per
share final dividend fully franked with NIL Conduit
Foreign Income (CFI). This makes a total dividend
of 4 cents per share for the year which represents a
payout ratio of 42% of net profit.
AGT enters FY19 confident of further improvements.
While we recognise the intense competition we face
across our markets, we are certain that AGT can
outperform relative to its size. We continue to invest
and create new product offerings to reclaim market
share in traditional Class II and Class III gaming
markets, while pursuing new opportunities including
the
released Historical Horse Racing
products.
recently
We will continue to judiciously invest our cash flow
in product improvements and innovation, and sales
and marketing while retiring debt and rewarding
shareholders. In FY19 we expect to release a new
suite of products which should assist in translating to
improved results.
Acknowledgements
I am pleased to report Ainsworth’s achievements for
the year and the progress we are making in executing
on our strategies to grow our international footprint
and improve the quality of our earnings.
I would like to thank Len Ainsworth and my fellow
board members for their contributions and support.
I would also like to thank our CFO Mr Mark Ludski,
the rest of the highly capable executive team, along
with our dedicated and loyal employees, my fellow
shareholders and valued customers.
Finally, our CEO Mr Danny Gladstone deserves
special recognition. As we released to ASX in
September, Danny has notified the Company of his
intention to step down as CEO following the end of
the 2019 financial year. Danny has been an excellent
CEO for AGT and we look forward to recognising his
contribution more fully in the future. A search process
is underway to find a suitable replacement and Danny
has kindly agreed to remain in the role to ensure a
smooth and orderly transition.
Graeme Campbell
Chairman
11
ANNUAL REPORT 2018
Chief Executive Officer’s Report
Dear Shareholders,
We are pleased to deliver FY18 results slightly ahead
of our upgraded guidance due to a strong second
half performance. These results directly reflect our
investment in game technologies, success in building
and leveraging key partnerships and AGT’s ongoing
ability to outperform its size in competitive markets.
As we continue to execute our strategies to grow
our international footprint, broaden the product
library and drive higher quality recurring earnings,
we are well placed to increase our market share,
translating to improved financial results and returns
for shareholders. We have a positive outlook for FY19.
FY18 Results
On a pre-currency basis, Profit before Tax (PBT) was
$39.2 million, exceeding the original $36.0 million
guidance and slightly ahead of the updated guidance
provided in July 2018. We delivered an improved
second half performance, with $23.0 million PBT, an
increase of 68% on the $13.7 million reported in the
first half, excluding the $2.5 million gain on the sale of
land in Nevada. These results include $5.2m of one
off costs in the second half.
Sales revenue for FY18 was $265.6 million, a
decrease of 5.8% on the prior corresponding period.
Sales were higher in the second half of the year at
$145.3 million compared to $120.3 million in the first
half. Consistent with the Group’s strategy to increase
sales in key offshore markets, international revenues
increased to 76% of the total.
The number of units sold in FY18 was 9,714, a decrease
of 9%. North America decreased by 3%, Latin America
increased by 4% and Australia declined by 17%.
Units under gaming operations for the period were
5,852, an increase of 10% from the pcp.
12
Group EBITDA was $68.0 million, 3% lower compared
to FY17. The results include the $2.5 million gain on
the sale of land in Nevada reported in the first half and
$5.2m of one off costs in the second half. These costs
include a $2.7 million impairment loss on receivables
and a $2.5 million reduction in the carrying value of
616 Digital.
Gross margins at 59.0% were broadly consistent with
60.3% in FY17. EBITDA margins increased to 26% in
the year up 70 basis points from FY17, demonstrating
our disciplined cost controls.
Operating costs were carefully managed and
maintained with
research and development
expenses at $34.4 million and sales and marketing
expenses at $59.6 million, an increase of 14%, mainly
in the Americas. Headcount in Australia and the Rest
of the World segment fell slightly to 337. Headcount
in the Americas increased by 19 employees to 260,
reflecting the growth opportunity in this key market.
"We manage our capital as
carefully as the rest of the
business in order to enhance
returns for shareholders.
Cash flow from operations
increased to $18.4 million
($5.2 million in FY17) and
total cash held increased to
$35.7 million, a rise of $14.6
million."
AINSWORTH GAME TECHNOLOGY "As we continue to execute our
strategies to grow our international
footprint, broaden the product
library and drive higher quality
recurring earnings, we are well
placed to increase our market share,
translating to improved financial
results and returns for shareholders.
We have a positive outlook for FY19."
Danny Gladstone
Chief Executive Officer / Executive Director
Receivables totalled $193 million, an increase due
to the rise in sales revenue in the fourth quarter.
We collected the cash payment for the 900 CDI
machines in September 2018, further improving our
cash position.
Net debt at the end of the year reduced to $36.2m
from $44.6m. We expect this to fall further as more
debt is eliminated in FY19. We have a $90m multi
option debt facility to fund any non-organic additions,
and to provide us with more flexibility for growth. The
facility has been extended to September 2021.
The Board continues to maintain a conservative
approach to balance sheet leverage with debt to
EBITDA at 1.05 times at the end of the year, down
from 1.08 times at the end of the first half. Gearing is
low at 16%.
Business Review
AGT continues to grow its presence in the key North
American market with revenues increasing by 4% to
$105.7 million. Profitability was down by 9% to $40.7
million. Unit sales were lower at 3,021 compared
to 3,105 last year. The number of machines on
participation fell slightly, down 3% to 2,583. These
factors impacted the results. However, yield per day
increased to $25, from $22 due to the premium
earned for our PAC-MAN™ licensed product.
We were pleased to deliver a large order of 900 units
with our specifically designed proprietary Historical
Horse Racing product to CDI in Kentucky in 2H FY18.
This is an important strategic relationship for AGT
with scope for further collaboration in the future.
The new EVO™ cabinet is to be launched at G2E with
fifteen new game titles. We continue to invest and
create new product offerings to reclaim market share
in traditional Class III and II gaming markets, whilst
pursuing new opportunities including the recently
released Historical Horse Racing products.
Joseph Bertolone commenced as President of AGT
North America on 1st June 2018, based in Las Vegas.
AGT will benefit from his proven leadership and deep
industry expertise.
Latin America reported a consistent performance with
revenues of $78.7 million, compared to $78.5 million
in FY17. Units under gaming operations increased
strongly, up 23% to 3,269 and unit sales increased by
4% to 3,322. Profitability however, declined by 19% to
$30.6 million.
Given challenging economic conditions in the region,
AGT satisfied market demand for cheaper priced
products by selling a higher mix of second hand
machines and machines previously on participation
in the period. These second hand machines have
a lower average selling price and margin. These
sales reduced inventory and are expected to create
replacement demand for new higher priced product
elsewhere.
Domestic revenue was $63.6 million, a decrease
of 14% on the pcp. Sales to corporates and casinos
were well below the levels of previous years. Profit
was $19.4 million. Encouragingly, our market share
in New South Wales increased to 15% in June 2018,
more than twice the average for the year as the new
EVO™ cabinet and Golden Cash™ / Link game which
was launched in May, gained market traction. Further
market share gains are expected.
Rest of the World segment revenues were down by
37% to $17.6 million with lower results in Asia, Europe
and New Zealand. Profit was down by 31% to $10.4
million. Unit volumes fell to 1,215 compared to 1,807
last year.
13
ANNUAL REPORT 2018 "By growing international sales,
investing in game technologies,
increasing recurring revenues from
participation and leveraging our
partnerships, we are strengthening
AGT and driving profitable growth."
Danny Gladstone
Chief Executive Officer / Executive Director
Chief Executive Officer’s Report (continued)
Novomatic contributed revenue of $6.8 million and
profit of $4.4 million. 1,000 kits were delivered in
the year. We will continue to deliver returns for all
shareholders from this strategic partnership.
The digital and on line markets have long term
appeal. We can leverage our game library and
product development plans. However, these markets
are competitive and accordingly, we have reduced
the carrying value of our equity investment in 616
Digital to a more prudent level.
14
Outlook
AGT has a positive outlook for FY19. Put simply, we
have a clear strategic plan and we are executing that
plan well.
By growing international sales, investing in game
technologies, increasing recurring revenues from
participation and leveraging our partnerships, we are
strengthening AGT and driving profitable growth. It
is the execution of these strategies that will deliver
results.
We will leverage off Nova Technologies’ system and
game design expertise to further release Historical
Horse Racing products and our partnership with CDI
has scope for further growth.
The opportunities with Novomatic will continue to be
reviewed. We have completed the development and
integration of twenty AGT slot titles for their Greentube
Pro social casino platform, which will be used in North
American land based casinos. We are investigating
other licensing opportunities with land based casino
machine sales, taking a bundled approach.
Although we face intense competition, AGT will
invest in new product offerings designed to reclaim
market share in Class III and Class II markets, while
also pursuing new markets.
This broader product range and extended Class
II game titles underpins our growth plans. We
have new leadership in America, and we have the
hardware, the sales network, the brand and the game
titles to succeed. We outperform our size, and should
continue to do so.
AINSWORTH GAME TECHNOLOGY With the launch of new EVO™ cabinet and Golden
Cash™ / Link game in the domestic market, we are
gaining market traction. The key to our future is game
performance. We expect to recover more market
share this year.
I wish to express my appreciation to Mr Graeme
Campbell as the Chairman, for his commitment to
the Company. I would also like to thank the Board
of Directors, Mark Ludski
for his much-valued
contribution, the executive teams from North America,
Latin America and Australia for their impressive
work through the year, our talented employees,
our supportive shareholders and importantly our
customers for whom we strive to deliver the best in
gaming experiences.
Also in closing, I would like to acknowledge our past
Chair and Company founder Mr Len Ainsworth for his
valued contributions and continuing guidance.
Danny Gladstone
Chief Executive Officer / Executive Director
15
ANNUAL REPORT 2018 Shareholder Information
Distribution of shareholders
Category
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and over
Total
NUMBER OF EQUITY
SHAREHOLDERS
Ordinary
Shares
Performance
Rights
1,203
2,211
768
833
63
8
147
165
97
3
5,078
420
The number of shareholders holding less than a marketable
parcel of ordinary shares is 585 (101,685 ordinary shares).
On market buy-back
There is no current on market buy-back of ordinary shares.
Unquoted equity securities
At 18 September 2018, 4,741,197 performance rights have
been
to 420 employees, respectively. These
performance rights remain unexercised.
issued
Regulatory considerations affecting shareholders
The Company is subject to a strict regulatory regime in regard
to the gaming licences and operations within the gaming
industry. It is necessary for the Company to regulate the
holding of shares to protect the businesses of the Company
in respect of which a gaming licence is held. By accepting
shares, each potential investor acknowledges that having
regard to the gaming laws, in order for the Company to
maintain a gaming licence, the Company must ensure that
certain persons do not become or remain a member of
the Company. The Constitution of the Company contains
provisions that may require shareholders to provide certain
information to the Company and the Company has powers
to require divesture of shares, suspend voting rights and
suspend payments of certain amounts to shareholders.
INFORMATION ABOUT SHAREHOLDERS
Shareholder
the Australian
Securities Exchange Limited Listing Rules and not disclosed
elsewhere in this report is set out below:
required by
information
SHARE HOLDINGS (AS AT 18 SEPTEMBER 2018)
Number of shareholders and shares on issue
The issued shares in the Company were 332,512,925
ordinary shares held by 5,078 shareholders.
Substantial shareholders
The number of shares held by substantial shareholders and
their associates are set out below:
Shareholder
Novomatic AG
Votraint No. 1019 Pty Ltd
(MCA Private Investment A/C)
Allan Gray Investment
Management
Number of
Ordinary Shares
174,165,696
30,133,804
26,949,497
Voting rights
Ordinary shares
The voting rights attaching to ordinary shares are that on
a show of hands every member present in person or by
proxy has one vote and upon a poll, each share shall have
one vote.
Options and Performance Rights
Option and performance right holders have no voting rights.
16 AINSWORTH GAME TECHNOLOGY
Shareholder Information (continued)
Twenty largest shareholders
Name
NOVOMATIC AG
VOTRAINT NO 1019 PTY LIMITED
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
CITICORP NOMINEES PTY LIMITED
J P MORGAN NOMINEES AUSTRALIA LIMITED
NATIONAL NOMINEES LIMITED
ASSOCIATED WORLD INVESTMENTS PTY LTD
WRITEMAN PTY LIMITED
THE PAVILION MOTOR INN OF WAGGA WAGGA PTY LTD
MERRILL LYNCH (AUSTRALIA) NOMINEES PTY LIMITED
CASOLA HOLDINGS PTY LTD
MR CHRISTIAN JOHN HASTINGS AINSWORTH
MR SASHA ALEXANDER CAJKOVAC
MISS PATTARAWADEE SMARNKEO
BNP PARIBAS NOMS PTY LTD
MRS CHRISTINE EMILY COGHLAN
MR DAVID WARREN LARMENT + MRS CHIZURU LARMENT
BNP PARIBAS NOMINEES PTY LTD HUB24 CUSTODIAL SERV LTD DRP
MS AMY WAI-CHUN CHAN
BOND STREET CUSTODIANS LIMITED
Number of ordinary
shares held
Percentage
of total
174,165,696
30,133,804
25,193,142
19,312,541
1 5 ,1 8 1 , 9 6 5
6,408,767
6,190,994
2,911,622
1,500,000
1,460,694
1,070,000
770,650
690,000
684,999
681,500
600,000
600,000
560,014
530,000
500,000
52.38
9.06
7.58
5.81
4.57
1.93
1.86
0.88
0.45
0.44
0.32
0.23
0.21
0.21
0.20
0.18
0.18
0.17
0.16
0.15
Total
289,146,388
86.96
ANNUAL REPORT 2018
17
The directors present their report together with the consolidated financial statements of the Group comprising of Ainsworth
Game Technology Limited (the Company) and its subsidiaries for the financial year ended 30 June 2018 and the auditor’s report
thereon.
1. DIRECTORS
The directors of the Company at any time during or since the end of the financial year are:
Name, qualifications
and independence status
CURRENT
Age
Experience, special responsibilities and other directorships
Mr Graeme John Campbell OAM
Chairman and Independent Non-Executive
Director
61 yrs
– Graeme has specialised in the area of liquor and hospitality for over
30 years in corporate consultancy services with particular emphasis on
hotels and registered clubs
– Former Chairman of Harness Racing NSW, recipient of J.P. Stratton
award and Ern Manea Gold Medal. Inducted into the Inter Dominion
Hall of Fame in February 2014
– Former Director of Central Coast Stadium and Blue Pyrenees Wines
– Director of Liquor Marketing Group Limited (Bottle Mart) since 2013
– Director of Lantern Hotels Group and Chairman since July 2016
– Director of NSW Harness Racing Club since October 2016
– Chairman of Audit Committee of Illawarra Catholic Club Group
– Chairman of Audit Committee until 1 April 2017 and member since
1 April 2017, member of Regulatory and Compliance Committee until
1 July 2017, member of Remuneration and Nomination Committee
since 2015
– Lead Independent Non-Executive Director since 2013, Chairman
since 2016
Mr Michael Bruce Yates B.Com (with merit),
LLB
Independent Non-Executive Director
Mr Colin John Henson, Dip Law- BAB,
FCPA, FGIA, FAICD
Independent Non-Executive Director
64 yrs
– Michael has extensive commercial and corporate law experience in a
career spanning over 35 years
– He is a former senior corporate partner of Sydney Law practices
Holding Redlich and Dunhill Madden Butler and has acted for a number
of clients involved in the gaming industry
– Director since 2009
– Chairman of Regulatory and Compliance Committee since 2013 and
member of Audit Committee since 2015
70 yrs
– Colin has had a lengthy career in senior corporate positions and as a
director of private and publicly listed companies across a broad range
of industries
– Lead associate with Madison Cross Corporate Advisory Pty Ltd
since 2014
– Former directorships
include; Executive Chairman of Redcape
Property Fund Limited, an ASX Listed Property Trust; Chairman and
non-executive director of Videlli Limited.
– Fellow of the Australian Institute of Company Directors, Fellow of
CPA (Certified Practising Accountants) Australia and Fellow of the
Governance Institute of Australia. Colin is also a non-practising
member of the Law Society of NSW
– Director since 2013
– Member of Audit Committee until 1 April 2017 and Chairman since
1 April 2017
– Chairman of Remuneration and Nomination Committee since 2015
18 AINSWORTH GAME TECHNOLOGY
Directors’ Reportfor the year ended 30 June 2018 Name, qualifications
and independence status
CURRENT
Ms Heather Alice Scheibenstock
GAICD
Independent Non-Executive Director
Mr Daniel Eric Gladstone
Executive Director and Chief Executive
Officer
Age
Experience, special responsibilities and other directorships
50 yrs
– Heather has extensive leadership experience within the gaming and
hospitality industries specialising in strategic planning and offshore
growth spanning over 30 years
– She has previously held senior executive roles at Echo Entertainment
and Solaire Group
– Former director of Southern Metropolitan Cemeteries Trust
– Director of Ability Options since 2017
– Member of Australian Institute of Company Directors and Women
on Boards
– Director since 2016
– Member of Remuneration and Nomination Committee since 2016
– Member of Regulatory and Compliance Committee since 1 July 2017
63 yrs
– Danny has held senior positions within the gaming industry over a
successful career spanning 40 years
– Former Chairman of Gaming Technologies Association
– Inducted into the Club Managers Association Australia Hall of Fame
in 2000
– Chief Executive Officer since 2007, Executive Director since 2010
– Member of Regulatory and Compliance Committee since 2010
Mr Harald Michael Karl Neumann
Non-Executive Director
56 yrs
– Harald has extensive leadership experience in senior executive
positions in a career spanning over 20 years mainly within technology
companies
– Former Regional Chief Executive Officer at Alcatel AG (now Alcatel–
Lucent) a global tele-communications equipment Company
– Former Managing Director at Bundesrechenzentrum GmbH, the
Austrian government’s information technology service provider, until
2006
– Former CEO of G4S Security Services Austria AG, the Austrian
subsidiary of one of the world’s leading integrated security companies
before joining Novomatic in 2011
– Currently Chief Executive Officer and Chairman of the Executive Board
of Novomatic since 2014
– Graduate of the Vienna University of Economics and Business, Board
Member of the American Chamber of Commerce. Member of the
Rotary Club Klosterneuburg and Member of the Supervisory Board of
Casinos Austria AG since March 2017
– Non-Executive Director of Ainsworth Game Technology since 2017
ANNUAL REPORT 2018
19
Directors’ Report (continued)for the year ended 30 June 2018 1. DIRECTORS (continued)
Name, qualifications
and independence status
FORMER
Age
Experience, special responsibilities and other directorships
Mr Leonard Hastings Ainsworth AM,
DUniv, FAICD, FAIM
Executive Director
95 yrs
– Sixty five years gaming industry experience
– Founder and former Managing Director of Aristocrat
– Fellow of the Institute of Company Directors in Australia and the
Australian Institute of Management
– Life member – Clubs NSW
– Founder of Australian Gaming Machines Manufacturers Association –
now Gaming Technology Association
– Founder of Australasian Gaming Exhibition
– Inducted into the Australian Gaming Hall of Fame and U.S Gaming Hall
of Fame in 1994 and 1995, respectively
– Recognition as export hero in 2002 by Australian Institute of Export
– G2E Asia Gaming Visionary Award Recipient in 2010
– Recipient of Clubs NSW award for outstanding contribution to the club
industry in 2011
– Recipient of Keno and Club Queensland Award for excellence in
March 2014 for services to industry
– Awarded Higher Doctorate degree by the University of New South Wales
– Recipient of Jens Halle Memorial Award honouring excellence in
commercial gaming professionalism in 2016
– Chairman since 1995 (Executive Chairman since 2003) until 2016
– Director since 1995 (Executive Director since 2003), resigned on
5 January 2018
2. COMPANY SECRETARY
Mr Mark L Ludski has held the position of Company Secretary since 2000. Mr ML Ludski previously held the role of Finance
Manager with another listed public company for ten years and prior to that held successive positions in two leading accounting
firms where he had experience in providing audit, taxation and business advisory services.
Mr ML Ludski is a Chartered Accountant holding a Bachelor of Business degree, majoring in accounting and sub-majoring in
economics.
20 AINSWORTH GAME TECHNOLOGY
Directors’ Report (continued)for the year ended 30 June 2018 3. DIRECTORS’ MEETINGS
The number of directors’ meetings (including meetings of committees of directors) and number of meetings attended by each
of the directors of the Company during the financial year are:
Director
LH Ainsworth
GJ Campbell
MB Yates
DE Gladstone
CJ Henson
HA Scheibenstock
HK Neumann(1)
Board Meetings
B
A
5
10
9
10
10
10
8
5
10
10
10
10
10
8
Audit Committee
Meetings
Remuneration
& Nomination
Committee Meetings
Regulatory
& Compliance
Committee Meetings
A
–
2
2
–
2
–
–
B
–
2
2
–
2
–
–
A
–
3
–
–
3
3
–
B
–
3
–
–
3
3
–
A
–
–
4
4
–
4
–
B
–
–
4
4
–
4
–
A Number of meetings attended
B Number of meetings held during the time the director held office during the year (excluding approved leave of absence)
(1) Mr HK Neumann had leave of absence approved for two Board meetings during the financial year due to the time difference difficulties
and his international country of residence. All associated Board documentation and discussions held during these two meetings were
provided to him ensuring his knowledge of any Company business was appropriately made available.
4. PRINCIPAL ACTIVITIES
The principal activities of the Group during the course of the financial year were the design, development, production, lease,
sale and servicing of gaming machines and other related equipment and services. The Group continues to execute strategies
to expand and diversify its product offerings within both land-based and online gaming markets, including social gaming and
licensed “Real Money” gambling markets.
There were no significant changes in the nature of the activities of the Group during the year.
Objectives
Ainsworth is a leading gaming machine developer, designer and manufacturer operating in local and global markets. Our
strategy is to profitably and sustainably expand this footprint by leveraging off our deep expertise and substantial experiences
for the benefit of all shareholders.
The Group’s objectives are to:
– focus on increasing revenue and profitability within geographical markets that are expected to achieve the greatest
contributions to the Group’s financial results, and creation of sustained growth;
– diversify and expand on contributions from recurring revenue through units under gaming operation;
– continue investing in product research and development in order to provide quality market leading products that are innovative
and entertaining, and result in increased player satisfaction and therefore greater venue profitability;
– expand presence within online gaming markets, including social gaming and licensed “Real Money” gambling markets;
– prudently manage levels of investment in working capital and further improve cash flow from operations to facilitate investment
in growth opportunities; and
– provide a growing return on shareholder equity through increasing profitability, payment of dividends and share price growth.
In order to meet these objectives the following priority actions will continue to apply in future financial years:
– grow the Group’s footprint and operating activities in domestic and international markets;
– continual investment in research and development to produce innovative products with leading edge technology;
– review and evaluate growth opportunities both organically and through acquisitions;
– manage product and overhead costs through improved efficiencies in supply chain and inventory management;
– actively pursue initiatives to improve and reduce investment in working capital;
– maintain best practice compliance policies and procedures and increase stakeholder awareness of the Group’s regulatory
environment; and
– ensure retention and development of the Group’s talent base.
ANNUAL REPORT 2018
21
Directors’ Report (continued)for the year ended 30 June 2018 5. OPERATING AND FINANCIAL REVIEW
Overview of the Group
The Group’s profit for the year ended 30 June 2018 was a profit after tax of $31,936 thousand, a decrease of 16% on the $37,930
thousand in 2017. The profit after tax excluding the effect of net foreign currency gains was $29,299 thousand which is a
decrease of 38% compared to $47,569 thousand net of foreign currency losses in 2017.
The current year profit before tax result, excluding the effect of net foreign currency gains was $39,194 thousand. This result
was achieved on revenue of $265,584 thousand, a decrease of 6% compared to the previous corresponding period in 2017.
The second half of the current period represented revenue of $145,269 thousand, an increase of 21% compared to the first half
of FY18. This increase was largely achieved in the North American region through $20,958 thousand of revenue generated
from the sale of 900 Historical Horse Racing machines to Churchill Downs Inc. (CDI) for their planned opening of the Derby City
Gaming facility.
The following table summarises the results for the year:
In thousands of AUD
Total revenue
Underlying EBITDA
Reported EBITDA
EBIT
Profit before tax
Profit after tax
Total assets
Net assets
Earnings per share (fully diluted)
Total dividends per share
12 months to
30 June 2018
12 months to
30 June 2017
Variance
%
265,584
282,080
67,548
84,212
68,014
70,334
39,987
44,503
42,307
46,953
31,936
37,930
506,348
464,749
378,799
344,636
9.0 cents
12.0 cents
4.0 cents
–
(6%)
(20%)
(3%)
(10%)
(10%)
(16%)
9%
10%
(25%)
100%
A reconciliation of the reported EBITDA to the underlying EBITDA is shown in the following table:
In thousands of AUD
Reconciliation:
Profit before tax
Net interest
Depreciation and amortisation
Reported EBITDA
Foreign currency (gains)/losses
Impairment losses (Receivables)
Impairment losses (616 Digital LLC)
Gain on sale of land
Underlying EBITDA
12 months to
30 June 2018
12 months to
30 June 2017
Variance
%
42,307
46,953
(2,320)
(2,450)
28,027
25,831
68,014
70,334
(3,113)
2,714
2,451
(2,518)
10,531
3,347
–
–
67,548
84,212
(10%)
(5%)
9%
(3%)
(130%)
(19%)
100%
(100%)
(20%)
The information presented in this review of operations has not been audited in accordance with the Australian Auditing
Standards.
22 AINSWORTH GAME TECHNOLOGY
Directors’ Report (continued)for the year ended 30 June 2018 Shareholder returns
$’000
2018
2017
2016
2015
2014
Profit attributed to owners of the company
$31,936
$37,930
$55,703
$70,353
$61,570
Basic EPS ($A)
Dividends paid
$0.10
$0.12
$0.17
$0.22
$0.19
$4,966
$16,386
$32,245
$32,227
$32,211
Change in share price ($A)
($1.12)
No Change
($0.41)
($1.17)
($0.29)
Net profit amounts for 2014 to 2018 have been calculated in accordance with Australian Accounting Standards (AASBs).
Investments for future performance
The Group continues to review and evaluate opportunities within the gaming sector. Further investments in research and
development are expected to assist the ongoing expansion and breadth of innovative, technically advanced and consistently
high performing products.
During the period the Group identified and implemented improvements in the technology that underpins its game development
environment. This initially presented challenges to the Group’s ability to efficiently expand and create a more competitive and
diverse range of global products that aligned with the current high expectations of customers and players. These initiatives and
investment have been undertaken in the current period and is now complete. These allow the Group to fully benefit from the
breadth and depth of its creative talent through use and access to a more open, flexible and rapid development environment
which can be utilised by both internal and external development teams. Most importantly we are now able to more efficiently
produce a wider range of innovative game styles should resonate with customers and players alike. The initial release of
products incorporating this new operating technology was displayed at the Australasian Gaming Exhibition earlier this month
with the expected release of further internally and externally developed product in FY19. It is expected these improvements in
the gaming technology utilised will translate to revenue growth through the recoupment of market share.
Ainsworth’s online strategy in regulated real money gaming markets focuses on expanding its content offerings into the North
and Latin American markets with a primary focus on New Jersey and Mexico. In the social gaming space, the Group aims to
further extend its content distribution with Novomatic’s social casino platform and US land-based casino operators. Ainsworth
now have the ability to utilise its complete land-based game library and innovative remote gaming server (RGS) technology to
offer a complete online solution to partners in both Real Money Gaming and Social Casinos.
The Group’s social casino strategy continues with delivery of 40 new slot titles to Novomatic’s social casino platform, Greentube
Pro, for North American land-based casinos including Foxwoods, Treasure Island, Mount Airy and Hard Rock. Ainsworth’s own
Players Paradise Slots App is being further boosted to include its newest land-based game titles recently displayed at the
Australasian Gaming Expo.
In June, Ainsworth announced a landmark deal with the GVC Group to launch exclusive Ainsworth content for the first time in
the New Jersey online casino market with MGM Resorts and Borgata Casino. The Group continues to implement an aggressive
strategy of expanding online content to other land-based partners within New Jersey. Ainsworth also reached a content
distribution agreement with The Logrand Group to introduce Ainsworth games for the first time into Mexico in their online
casino Strendus.com.mx launching in September 2018. The Group also aims to grow its online content, including launching
more than 40 new land-based titles with its existing European platforms and partner casinos.
Significant changes in the state of affairs
The sale of 172.1 million ordinary shares held by Mr LH Ainsworth and entities controlled by him to Novomatic AG was completed
on 5 January 2018 and as a result, Novomatic AG became the majority shareholder of the Company.
Other than the matter noted above, there were no significant changes in the state of affairs of the Group during the financial year.
ANNUAL REPORT 2018
23
Directors’ Report (continued)for the year ended 30 June 2018 5. OPERATING AND FINANCIAL REVIEW (continued)
Review of principal businesses
Results in the current period and prior corresponding period are summarised as follows:
In thousands of AUD
Segment revenue
Australia
Americas
Rest of World
Total segment revenue
Segment result
Australia
Americas
Rest of World
Total segment result
Unallocated expenses
12 months to
30 June 2018
12 months to
30 June 2017
Variance
Variance
%
63,625
74,141
(10,516)
184,430
179,913
4,517
17,529
28,026
(10,497)
265,584
282,080
(16,496)
19,404
24,006
(4,602)
71,330
82,265
(10,935)
10,377
15,009
(4,632)
101,111
121,280
(20,169)
(14%)
3%
(37%)
(6%)
(19%)
(13%)
(31%)
(17%)
13,644
130%
(1%)
11%
1%
(246%)
22%
(8%)
(10%)
(5%)
(10%)
(15%)
(16%)
Net foreign currency gains/(losses)
R&D expenses
Corporate expenses
Other expenses
Share of (loss)/profit of equity-accounted investee
3,113
(34,407)
(10,531)
(34,161)
(23,274)
(26,187)
(2,451)
(224)
(2,473)
153
(246)
2,913
22
(377)
Total unallocated expenses
(57,243)
(73,199)
15,956
Less : interest included in segment result
(3,881)
(3,578)
(303)
EBIT
Net interest
Profit before income tax
Income tax
Profit after income tax
39,987
44,503
(4,516)
2,320
2,450
(130)
42,307
46,953
(4,646)
(10,371)
(9,023)
(1,348)
31,936
37,930
(5,994)
24 AINSWORTH GAME TECHNOLOGY
Directors’ Report (continued)for the year ended 30 June 2018 Key performance metrics
Segment result margin
Australia
Americas
Rest of World
Segment result margin
R&D expense
Adjusted EBIT(1)
Adjusted profit before income tax(1)
Adjusted profit after income tax(1)
Effective tax rate
% of revenue
Variance
12 months to
30 June 2018
12 months to
30 June 2017
Points
30
39
59
38
13
14
15
11
25
%
32
46
53
43
12
19
20
17
19
(2)
(7)
6
(5)
1
(5)
(5)
(6)
Variance
6
(1) Excludes net foreign currency gain of $3,113 thousand (2017: Net foreign currency loss of $10,531 thousand)
Revenue
Strong revenue of $145,269 thousand was achieved in the six months ending 30 June 2018 compared to the $120,315 thousand
in the six months ending 31 December 2017. The major contributors to the improved revenue in the six months ending 30 June
2018 resulted from revenue gains within the Americas and European regions with 52% improvement in the six month period.
The increase was assisted by the delivery of 900 Historical Horse Racing proprietary products in North America and 800 kits
to Europe in the second half of FY18.
Australian revenue declined to $63,625 thousand in 2018, a decrease of 14% compared to prior corresponding period. The
decline is mainly driven by lower sales as a result of minimal business activity with large corporate customers, continuing
pressure from competitors, regulatory approval delays in product submissions and further product development changes which
have deferred the approval and release of previously scheduled key game titles until the first half of FY19. Notwithstanding
these factors, the launch of the Golden Cash product in the last quarter in FY18 which has been well received by the market
and further improvement in AGT’s library of titles in the well-established EVOTM and A640TM cabinets are expected to provide
market share recovery within Australia.
International revenue was $201,959 thousand compared to $207,939 thousand in 2017, a slight decrease of 3%, mainly driven
by the decrease in sales in Asia and New Zealand. The Americas contributed 91% of total international revenue, with North
America and Latin America representing 52% and 39% respectively.
The Americas now constitutes 69% ($184,430 thousand) of total revenues, an increase of 5% on prior corresponding period. The
Group expects further revenue growth for the Americas by continuing to build its participation fleet to improve the quality of
earnings and capitalising on opportunities resulting from the Historical Horse Racing and Washington State Electronic Scratch
Ticket System development undertaken in FY18.
North America contributed $105,718 thousand in total revenue, an increase of 4% compared to prior corresponding period. The
increase in the period is driven by improved average selling price for outright sales and increased average fee per day due to
Pac-man™ placements.
In conjunction with the revenue achieved from outright sales, the Group maintained a base of 2,583 gaming units under
participation arrangements as at the reporting date in North America. Participation revenue contributed revenue of $29,790
thousand (28%) in the current period compared to $25,985 thousand (26%) in the previous period. Further game content
offerings in both Class II and Class III markets is expected to further increase the installed base of products under participation
in this market.
ANNUAL REPORT 2018
25
Directors’ Report (continued)for the year ended 30 June 2018 5.
OPERATING AND FINANCIAL REVIEW
(continued)
Revenue
thousand,
from Latin America was $78,712
similar to the corresponding period in 2017. The Group has
increased its footprint within this region and has 3,269 units
under gaming operations in this market at reporting date.
This represents an increase of 23% compared to the 2,648
units under gaming operations as at 30 June 2017. The solid
growth in units under gaming operations for this region is a
result of 1,600 new installations with 900 units converted
to sales during the period. Continued high performance of
products such as the Multi Win™ multi game range, Quad
Shots™ series, Oriental Fortune™ and PacMan™ has assisted
this region in maintaining its revenue. Mexico remains an
important market with significant market share increases.
During this period, the Group has presented its biggest wide
area progressive jackpot ever in Mexico to the Logrand
Entertainment Group and this is another step in the right
direction for Ainsworth to continue leading the market in
Mexico.
The Company is positioned to build on its reputation as a
provider of high performing gaming products and expects
to continue to expand its established footprint of products
under gaming operation.
Revenue from other international markets (“Rest of World”
segment) of New Zealand, Europe, Asia, and online
contributed $17,529 thousand representing a decrease of
37% compared to the prior corresponding period in 2017
as a result of decrease in unit sales in all the regions within
this segment except for online. Although it has been a
challenging year with the Group’s joint venture arrangement
with 616 Digital LLC, successful negotiations with major
social platform providers to provide Ainsworth premium slot
game content has provided the Group with $4,092 thousand
online gaming revenue compared to $3,545 thousand
in 2017.
During this period, the Group has established business
opportunities with major casinos such as GVC group for
New Jersey and the Logrand Entertainment Group in Mexico
to offer Ainsworth’s land-based content in ‘Real Money’
gaming market. This land-based content connection results
in Ainsworth’s digital/interactive games being more readily
identifiable and attractive to a broader audience of players
and operators alike in the competitive digital market place.
Operating costs
Gross margin of 59% was achieved for the full year FY18,
which was broadly consistent with prior corresponding
period of 60%. The slight reduction in the margin is a result
of product sales mix change resulting from transition to
the A600 product range in the Americas, which has higher
componentry cost, and second hand units making up a
larger share of Latin America sales mix. Progressive cost
reductions on the A600 product range along with further
recoveries through increased volumes and participation
and lease revenue in the Americas are expected to occur in
coming periods.
26 AINSWORTH GAME TECHNOLOGY
Operating costs, excluding cost of sales, other expenses
and financing costs were $117,268 thousand, an increase of
4% over 2017. This increase was primarily due to selling and
marketing costs in the Americas; increased expenditure on
new product initiatives, increased direct selling costs in Latin
America and increased depreciation for additional gaming
machines placed under the participation fleet compared
to 2017. Operating costs relating to global expansion are
continually assessed to ensure these costs are aligned to
the achievement of revenue growth before being incurred.
Research and development (R&D) expense was $34,407
thousand, an increase of $246 thousand over 2017, which
represented 13% of revenue (2017: 12%). Whilst the cost has
remained consistent compared to the prior corresponding
period, the Group has increased its investment in creating
a more diverse range of product offerings which has been
offset by cost savings through the refinement of global
product approval process. The Group expects to continue to
invest more in R&D in an efficient manner to provide revenue
opportunities in global markets the Group operates in.
Administration costs were $23,274 thousand, a decrease
of $2,913 thousand compared to 2017. The reduction in
administrative expenses include the reversal of previously
recognised 2015 Performance Rights share based payment
amortisation of $2,474 thousand. The Group will continue to
prudently manage its administration costs while meeting the
Company’s objectives.
Financing income and costs
Net financing income was $5,433 thousand in the current
period, compared to a net financing loss of $8,081 thousand in
2017. This positive movement of $13,514 thousand was a result
of foreign exchange gain of $3,113 thousand in the current
period compared to a foreign currency loss of $10,531 thousand
in 2017, a favourable change of $13,644 thousand.
Review of financial condition
Capital structure and treasury policy
The Company currently has on issue 332,512,925 ordinary
shares. The Board continues to ensure a strong capital base
is maintained to enable investment in the development of
the business. Group performance is monitored to oversee
an acceptable return on capital is achieved and dividends
are able to be provided to ordinary shareholders in future
periods. There were no changes in the Group’s approach to
capital management.
The Group is exposed to foreign currency risks on sales
and purchases that are denominated in currencies other
than AUD. The Group continually monitors and reviews
the financial impact of currency variations to determine
strategies to minimise the volatility of changes and adverse
financial effects in foreign currency exchange rates.
Cash flows from operations
The Group continues to generate positive cash flows from
operating activities. Net cash inflows from operations for the
year ended 30 June 2018 was $18,366 thousand, an increase
from $5,238 thousand to the corresponding period in 2017.
Directors’ Report (continued)for the year ended 30 June 2018 This increase in operating cash flows is primarily due to the decrease in cash paid to suppliers and employees of $23,427 thousand
offsetting the reduction in cash receipts from customers of $15,123 thousand compared to prior corresponding period. Efficient
inventory purchase management undertaken during the period has assisted with the improvement in net operating cash flows.
Liquidity and funding
In addition to cash and cash equivalents held of $35,667 thousand (2017: $21,094 thousand), the Group has extended its
existing A$90 million facility to 30 September 2021 with a leading Australian bank with similar financial covenants. This facility
will continue to allow the Group to pursue traditional financing alternatives, including the ability to minimise working capital
investment through cash reserves and ability to utilise US dollar borrowings.
The net debt ((debt less cash)/EBITDA) at the reporting date was 0.53 times which was considered within an acceptable
range of gearing for the Group. The Group actively monitors its working capital requirements and has increased its investment
particularly through the recurring revenue in the Americas under participation arrangements. The Group also expects to
commence debt repayments when cash flow allows.
Impact of legislation and other external requirements
The Group continues to work with regulatory authorities to ensure that the necessary product approvals to support its
operations within global markets are granted on a timely and cost effective basis. The granting of such licenses will allow the
Group to expand its operations. The Group aims to conduct its business worldwide in jurisdictions where gaming is legal and
commercially viable. Accordingly, the Group is subject to licensing and other regulatory requirements of those jurisdictions.
The Group’s ability to operate in existing and new jurisdictions could be adversely impacted by new or changing laws or
regulations and delays or difficulties in obtaining or maintaining approvals and licenses.
Market Capitalisation
An analysis based upon the share price at 30 June 2018 ($1.04) implies a market capitalisation of $345,813 thousand, which
indicates a deficit of $32,986 thousand to the net assets value of $378,799 thousand as at 30 June 2018. However, as the share
price does not include a premium for control, the inclusion of a control premium results in an implied market capitalisation which
exceeds the net assets at 30 June 2018. In addition, the directors note that the share price has increased subsequent to year
end. As such, it is our opinion that the market capitalisation of the business supports the overall net asset position. This is also
supported by the value in use calculations undertaken to assess the recoverability of the carrying value of cash generating
units as at 30 June 2018 (refer to Note 13 to the financial statements).
6. DIVIDENDS
The following dividends were declared by the Company for year ended 30 June 2018:
Declared and paid during the year 2018
Interim 2018 ordinary (franked)
Total amount
Cents
per share
Total amount
$’000
Date of
payment
1.5
4,966
4,966
8 May 2018
Declared after end of year
After the balance sheet date the following dividend was declared by the directors.
Final 2018 ordinary (franked)
Total amount
Cents
per share
2.5
Total amount
$’000
Date of
payment
7 November 2018
8,313
8,313
The financial effect of this dividend has not been brought to account in the consolidated financial statements for the year ended
30 June 2018 and will be recognised in subsequent financial reports, and there are no income tax consequences.
Dividends have been dealt with in the financial report as:
Dividends
Noted as a subsequent event
Note
19(c)
$’000
4,966
8,313
ANNUAL REPORT 2018
27
Directors’ Report (continued)for the year ended 30 June 2018 EVENTS SUBSEQUENT TO REPORTING DATE
7.
After the reporting date, the Company declared a franked dividend of 2.5 cents per ordinary share amounting to $8,313 thousand
with an expected payment date of 7 November 2018. The financial effect of this dividend has not been brought to account in the
financial statements for the year ended 30 June 2018 and will be recognised in subsequent financial reports.
Other than the matter discussed above, there has not arisen in the interval between the end of the financial year and the date of this
report any item, transaction or event of a material and unusual nature likely, in the opinion of the directors of the Company, to affect
significantly the operations of the Group, the results of those operations, or the state of affairs of the Group, in future financial years.
8. LIKELY DEVELOPMENTS
The Group continues to pursue development initiatives and the necessary product approvals to help ensure sustainable
revenue growth and financial improvement in future periods.
Further execution of strategies through the investment in a social online gaming company is expected to provide complementary
revenue gains within online social and “Real Money” gaming segments in future periods. This strategy is aimed at achieving increased
market share in selected geographical business sectors so as to positively contribute to Group results in future financial years.
Further information about likely developments in the operations of the Group and the expected results of those operations
in future financial years has not been included in this report because disclosure of the information would be likely to result in
unreasonable prejudice to the Group.
9. DIRECTORS’ INTERESTS
The relevant interest of each director in the shares and rights over such instruments issued by the companies within the Group
and other related bodies corporate, as notified by the directors to the ASX in accordance with S205G(1) of the Corporations
Act 2001, at the date of this report is as follows:
Mr GJ Campbell
Mr MB Yates
Mr CJ Henson
Ms HA Scheibenstock
Mr DE Gladstone
Mr HK Neumann
Ainsworth Game
Technology Limited
Ordinary shares
Performance
rights over
ordinary shares
360,533
30,600
132,164
–
–
–
–
–
52,868
462,771
–
–
10. SHARE OPTIONS/PERFORMANCE RIGHTS
Unissued shares under performance right
At the date of this report unissued ordinary shares of the Group under performance right are:
Expiry date
17 March 2020
01 March 2022
Instrument
Exercise price
Rights
Rights
$Nil
$Nil
Number of
shares
942,040
3,878,972
4,821,012
There are no other shares of the Group under performance right.
All performance rights expire on the earlier of their expiry date or termination of the employee’s employment. In addition,
the ability to exercise the final 50% of performance rights granted in FY15, which have a vesting date of 17 March 2019, is
conditional on the Group achieving annual growth in Earnings Per Share of at least eight per cent each year over four years
and ranking according to Total Shareholder Return in the fiftieth percentile compared to companies in the ASX300 index with
the same Consumer Services GICS industry sector as the Group. The performance rights granted in FY17 (i.e. 1 March 2017
performance rights) are subject to achievement of share price compounded growth of at least 15% per annum measured at each
vesting period. Further details about share based payments to directors and KMP’s are included in the Remuneration Report in
section 15. These rights do not entitle the holder to participate in any share issue of the Company or any other body corporate.
28 AINSWORTH GAME TECHNOLOGY
Directors’ Report (continued)for the year ended 30 June 2018 Shares issued on exercise of options
During or since the end of the financial year, the Group issued no ordinary shares of the Company as a result of the exercise of
options or performance rights.
INDEMNIFICATION AND INSURANCE OF OFFICERS AND AUDITORS
11.
Indemnification
The Group has agreed to indemnify current and former directors of the Group against all liabilities to another person (other
than the Company or a related body corporate) that may arise from their position as directors of the Company and its controlled
entities, except where the liability arises out of conduct involving a lack of good faith. The agreement stipulates that the
Company will meet the full amount of any such liabilities, including costs and expenses.
Neither the Group nor Company have indemnified the auditor in relation to the conduct of the audit.
Insurance premiums
Since the end of the previous financial year, the Company has paid insurance premiums in respect of directors’ and officers’ liability
and legal expenses’ insurance contracts, for current and former directors and officers, including senior executive officers of the
Company and directors, senior executive and secretaries of its controlled entities.
The directors have not included details of the nature of the liabilities covered or the amount of the premium paid in respect of
the directors’ and officers’ liability and legal expenses contracts, as such disclosure is prohibited under the terms of the contract.
12. NON-AUDIT SERVICES
During the year KPMG, the Group’s auditor, has performed certain other services in addition to the audit and review of the
financial statements.
The board has considered the non-audit services provided during the year by the auditor and in accordance with written advice
provided by resolution of the audit committee, is satisfied that the provision of those non-audit services during the year by the
auditor is compatible with, and did not compromise, the auditor independence requirements of the Corporations Act 2001 for
the following reasons:
– all non-audit services were subject to the corporate governance procedures adopted by the Group and have been reviewed
by the audit committee to ensure they do not impact the integrity and objectivity of the audit; and
– the non-audit services provided do not undermine the general principles relating to auditor independence as set out in APES
110 Code of Ethics for Professional Accountants, as they did not involve reviewing or auditing the auditor’s own work, acting in a
management or decision making capacity for the Group, acting as an advocate for the Group or jointly sharing risks and rewards.
Details of the amounts paid to the auditor of the Group, KPMG, and its network firms for audit and non-audit services provided
during the year are set out below:
Services other than audit and review of financial statements:
Other regulatory audit services
Controlled entity audit
Other services
Transaction support services
Audit and review of financial statements
Total paid/payable to KPMG
2018
$
22,500
20,000
42,500
282,000
324,500
LEAD AUDITOR’S INDEPENDENCE DECLARATION
13.
The Lead auditor’s independence declaration is set out on page 97 and forms part of the directors’ report for the financial year
ended 30 June 2018.
14. ROUNDING OFF
The Group is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors’ Report) Instrument 2016/191 and in
accordance with that Instrument, amounts in the consolidated financial statements and directors’ report have been rounded off
to the nearest thousand dollars, unless otherwise stated.
ANNUAL REPORT 2018
29
Directors’ Report (continued)for the year ended 30 June 2018 independent
15. REMUNERATION REPORT
Message from the Chairman of the Remuneration
and Nomination Committee
On behalf of the Remuneration and Nomination Committee
(RNC) and with the authority of the Board of Directors
I provide the FY18 Remuneration Report. At the 2017
Annual General Meeting (AGM), 29.67% of shareholders
voted against our Remuneration Report resulting in a
‘first strike’. During the lead-up and subsequent to the
AGM, the Company and Chairman of the RNC conducted
discussions with major shareholders to better understand
their concerns. Our engagement process is ongoing.
The Company contracted
remuneration
consultants (Remuneration Strategies Pty Ltd (RS)) to review
current remuneration practices and proxy service reports
to recommend remuneration structures to address any
shareholder concerns.
The objective of the engagement involved assisting the RNC
in not only reviewing the Remuneration Report, but more
importantly developing remuneration structures, including
Fixed Remuneration (FR), Short Term Incentives (STI) and
Long Term Incentives (LTI) that achieve the shareholders
financial objectives.
The Committee’s approach to remuneration structures
includes the following objectives:
– To align executive remuneration with the Group’s
business strategy and the interests of shareholders; and
– To support our people strategy by providing competitive
rewards to attract, motivate and retain our most important
asset – our people.
The remuneration of key executives are fully aligned to
our key business objectives listed in section 15.2 which
underpin future remuneration structures, including STI and
LTI compensation programs.
It should be noted that the 1st March 2017 Performance
Rights Plan remains in place, based on 15% compound
increases in the Volume Weighted Average Price (VWAP) –
refer to section 15.1.5.
FY18 remuneration outcomes
The key remuneration outcomes for FY18 include:
– No fixed annual remuneration
increases
management personnel for FY18 and FY19;
for key
– Short Term Incentive (STI) for FY18 was not awarded
given primary Board financial targets were not achieved.
It was determined that no discretionary non-financial
awards would be awarded given the non-achievement of
these financial targets;
– A review of Short Term Incentive (STI) and Long Term
Incentive (LTI) structures and plans is underway by RS
and no grants under related STI and LTI plans have been
made until this review is completed;
– Previous LTI grants under Rights Share Trust (RST) remain
unchanged:
– Grant of 22 July 2013 Performance Rights remaining
50% lapsed on 1 September 2017;
– Grant of 17 March 2015 Performance Rights first 50%
lapsed on 17 March 2018; and
– Grant of 1 March 2017 Performance Rights, Tranche
1 performance conditions were not met at 1 March
2018 vesting date and will be re-tested at the next
applicable performance period, subject to the higher
performance conditions for the next tranche.
We value feedback as our business and remuneration
strategies continue to evolve over the coming years.
Yours sincerely,
CJ Henson
Chairman, Remuneration and Nomination Committee
30 AINSWORTH GAME TECHNOLOGY
Directors’ Report (continued)for the year ended 30 June 2018 Contents
15.1
Remuneration Framework - audited
15.1.1 Fixed compensation
15.1.2 Performance linked compensation
15.1.3 Short-term incentive bonus
15.1.4 Non-Financial KPI’s
15.1.5 Long-term incentive
15.1.6 Short-term and long-term incentive structure
15.1.7 Other benefits
15.2 Linking the Remuneration Framework
to business outcomes – audited
15.2.1 Consequences of performance
on shareholder wealth
15.3 Service contracts – audited
15.4 Non-executive directors – audited
15.5 Services from remuneration consultants – audited
15.6 Directors’ and executive officers’
remuneration – audited
15.7 Analysis of bonuses included
in remuneration – audited
15.8 Equity instruments – audited
15.8.1 Rights over equity instruments granted
as compensation
15.8.2 Modification of terms of equity-settled
share-based payment transactions
15.8.3 Exercise of options granted as compensation
15.8.4 Details of equity incentives affecting current
and future remuneration
15.8.5 Analysis of movements in equity instruments
15.8.6 Rights over equity instruments
15.8.7 Movements in shares
32
32
32
33
33
33
34
34
35
35
35
36
36
37
40
40
40
40
40
41
42
42
43
ANNUAL REPORT 2018
31
Directors’ Report (continued)for the year ended 30 June 2018
15.1.1 Fixed compensation
Fixed compensation consists of base compensation (which
is calculated on a total cost basis and includes any Fringe
Benefits Tax (FBT) charges related to employee benefits
including motor vehicles), as well as employer contributions
to superannuation funds.
Compensation levels are reviewed annually by the RNC
through a process that considers individual, segment
and overall performance of the Group. In addition market
surveys are obtained to provide further analysis so as to
ensure the directors’ and senior executives’ compensation
is competitive in the market place. A senior executive’s
compensation
reviewed on promotion and
performance under the overall financial performance of
the Group. This review determined that no increases were
awarded from the previous year to any key management
personnel.
The RNC undertook a review of fixed compensation levels in
2018 to assist with determining an appropriate mix between
fixed and performance linked compensation for senior
executives of the Group during the year. Given the overall
financial performance in the current period no increases in
base compensation were recommended for the ensuring
year until the broader objective of financial performance
was achieved.
is also
15.1.2 Performance linked compensation
Performance linked compensation includes both short-
term and long-term incentives and is designed to reward
key management personnel for meeting or exceeding their
financial and personal objectives. The short-term incentive
(STI) is an ‘at risk’ bonus provided in the form of cash, while
the long-term incentive (LTI) is provided as performance
rights over ordinary shares of the Company under the rules
of the Employee Rights Share Plans (see Note 23 to financial
statements).
In addition to their salaries, selected key sales management
personnel receive commission on sales within their specific
business segments as part of their service contracts at each
vesting date.
As outlined a review was undertaken by the RNC to determine
and assess current performance linked compensation
arrangements - STI and LTI plans. This review was evaluated
by the Board to determine appropriate remuneration levels
taking into consideration the Group’s growth objectives,
industry specific and market considerations and related
retention of key employees.
15. REMUNERATION REPORT (continued)
15.1 Remuneration Framework – audited
Remuneration is referred to as compensation throughout
this report.
Key management personnel have authority and
responsibility for planning, directing and controlling the
activities of the Group, directly or indirectly, including
directors of the Company and other executives. Key
management personnel comprise the directors of the
Company and senior executives for the Group that are
named in this report.
Compensation levels for key management personnel of the
Group are competitively set to attract and retain appropriately
qualified and experienced directors and executives.
The
(RNC)
remuneration and nomination committee
regularly reviews market surveys on the appropriateness
of compensation packages of the Group given trends in
comparative companies both locally and internationally,
and the objectives of the Group’s compensation strategy.
In addition, independent remuneration consultants are
used to advise the RNC on compensation levels given
market trends.
The compensation structures explained below are
designed to attract suitably qualified candidates, reward
the achievement of strategic objectives, and achieve the
broader outcome of creation of value for shareholders. The
compensation structures take into account:
– The capability and experience of the key management
personnel;
– The key management personnel’s performance against
individual
Indicators
Key Performance
contributions to The Group’s performance;
(KPIs) and
– The Group’s performance including:
– revenue and earnings;
– growth in share price and delivering returns on
shareholder wealth; and
– the amount of incentives within each key management
person’s compensation.
Compensation packages include a mix of fixed and variable
compensation and short-term and long-term performance-
based incentives.
In addition to their salaries, the Group also provides non-
cash benefits to its key management personnel, and
contributes
to post-employment defined contribution
superannuation plans on their behalf.
32 AINSWORTH GAME TECHNOLOGY
Directors’ Report (continued)for the year ended 30 June 2018 15.1.3 Short-term incentive bonus
Each year the RNC determines the objectives and KPIs of
the key management personnel. The KPIs generally include
measures relating to the Group, the relevant segment, and
the individual, and include financial, people, customer,
compliance, strategy and risk measures. The measures are
chosen as they directly align the individual’s reward to the
KPIs of the Group and to its strategy and performance.
The financial performance objectives for FY18 comprise
50% for Group ‘profit before tax’ excluding foreign currency
gains / (losses) and 30% for ‘minimum international revenue’
with the remaining 20% being non-financial. These financial
performance targets were assessed by the RNC for all
key management personnel
(excluding non-executive
directors) and it was determined that the Group did not
achieve either the ‘profit before tax’ minimum target or the
minimum international revenue and no STI was payable in
the current year relating to these criteria.
15.1.4 Non-Financial KPI’s
The non-financial objectives comprising 20% vary with
position and responsibility and include measures such
as achieving strategic outcomes, safety measures, and
compliance with established
regulatory processes,
customer satisfaction and staff development. The non-
financial objectives
for key management personnel,
excluding directors (other than Mr Danny Gladstone, the
Chief Executive Officer (CEO)) were assessed by the RNC
and it was determined that given non-achievement of the
financial performance objectives no STI under these criteria
would be awarded in the current period.
Currently,
linked component of
compensation comprises approximately 5% (2017: 11%) of
total payments to key management personnel.
the performance
15.1.5 Long-term incentive
Performance Rights Plan
During a previous year an employee incentive plan
was established whereby performance
rights were
granted under the Rights Share Trust (RST). Under the
RST, eligible employees and executives were allocated
performance rights over ordinary shares in the Company.
The performance rights were granted at nil consideration
or exercise price however are dependent on service
conditions, vesting conditions and performance hurdles.
The performance rights convert to ordinary shares of the
Company on a one-for-one basis.
During the year, the final 50% of the rights granted on 22 July
2013 lapsed on 1 September 2017 due to performance
conditions not being met.
Details of the vesting conditions for each outstanding plan
are outlined as below:
17 March 2015 Granted Plan
Of each tranche that vests, 70% vest subject to Earnings
Per Share (EPS) targets and 30% vest subject to Total
Shareholder Return (TSR) targets. The relevant weighting
of performance conditions of 70% EPS and 30% TSR were
determined at that time as appropriate due to the following:
– EPS
is more reflective of the Group’s underlying
performance in terms of long term sustainable growth;
– To ensure relevance of
the LTI
for
international
employees;
– International expansion requires looking beyond ASX
listed companies for a more meaningful performance
comparison;
– Inherent volatility of the gaming industry makes TSR less
relevant and reflective of underlying performance; and
– There are limited numbers of gaming industry companies
in the ASX.
EPS growth is an absolute performance measure that refers
to consolidated results of operating activities. Relative TSR
measures the Group’s notional return in the form of share
price increases and dividends over the term against a
comparison group of companies in the ASX300 that have
the same Consumer Service GICS industry sector as the
Company.
The Board believed when these incentive plans were
introduced
in
combination, serve to align the interests of the individual
executives and employees with the interests of the
Company’s shareholders, as EPS growth is a key driver of
company long-term share price performance, and relative
TSR compared to the ASX300 comparator companies
provides a comparison of the entities performance against
potential alternative shareholder investment.
two performance hurdles,
these
that
ANNUAL REPORT 2018
33
Directors’ Report (continued)for the year ended 30 June 2018 15. REMUNERATION REPORT (continued)
15.1 Remuneration Framework – audited (continued)
Vesting on each tranche is as follows:
EPS growth
Tranche 1
Vesting
outcome
Less than 8.0% per annum
8.0% per annum
10.0% per annum
12.5% per annum or more
Nil vesting
25% vesting plus 1.25% for
each 0.1% increase in EPS
50% vesting plus 2.0% for
each 0.1% increase in EPS
100% vesting
Tranche 2
Company TSR
percentile ranking
Vesting
outcome
Below 50th percentile
Nil vesting
50th percentile
Between 50th and
75th percentile
At or above 75th percentile
50% vesting
Pro-rata (sliding scale)
percentage vesting
100% vesting
Rights that do not vest at the end of the vesting periods will lapse, unless the Board in its discretion determine otherwise. Upon
cessation of employment prior to the vesting date, rights will be forfeited and lapse. Performance rights do not entitle holder to
dividends that are declared during the vesting period. No adjustments to reported results from operating activities are made
when the remuneration committee determines whether the EPS hurdle is achieved.
During the year 50% of these rights with vesting date of 17 March 2018 lapsed as financial performance hurdles were not met.
1 March 2017 Granted Plan
The performance hurdles for this plan are based on a 15% compound increase on the share price of $1.86 (VWAP) for 90 days
ending 28/02/2017. The hurdles set for this plan were determined as appropriate due to the following:
– Share Price growth is considered more reflective of the Group’s underlying performance and is aligned to shareholder wealth;
– To ensure relevance of the LTI for international employees;
– International expansion reflects ASX share price and is a more meaningful performance measure;
– Inherent volatility of the gaming industry makes TSR and EPS less relevant; and
– There are limited numbers of gaming industry companies in the ASX.
Vesting on each tranche is as follows:
Tranche 1
Tranche 2
Tranche 3
Tranche 4
20% will vest if the VWAP for 20 days preceding 01/03/2018 is equal or greater than $2.14
20% will vest if the VWAP for 20 days preceding 01/03/2019 is equal or greater than $2.46
20% will vest if the VWAP for 20 days preceding 01/03/2020 is equal or greater than $2.83
40% will vest if the VWAP for 20 days preceding 01/03/2021 is equal or greater than $3.25
This plan currently remains in place.
Rights that do not vest at the end of the final vesting period will lapse, unless the Board in its discretion determine otherwise.
Upon cessation of employment prior to the vesting date, rights will be forfeited and lapse. Performance rights do not entitle
holder to dividends that are declared during the vesting period.
During the year, Tranche 1 of these rights did not vest at the first vesting date of 1 March 2018 due to performance conditions
not being met. The grant of this Tranche under the RST will be re-tested at the end of the next applicable performance vesting
date of 1 March 2019, subject to the higher performance conditions. If the performance conditions at the end of the next
applicable performance period are satisfied then the performance rights for the current performance period and any non-
vested performance rights from prior performance periods will vest.
15.1.6 Short-term and long-term incentive structure
Given the highly competitive nature of the gaming industry and to ensure retention of key employees, the RNC has and
continues to consider performance linked remuneration is appropriate.
The current review of both short-term and long-term incentive plans is ongoing to ensure these are aligned to Board and
shareholder interests.
15.1.7 Other benefits
Key management personnel receive additional benefits such as non-monetary benefits, as part of the terms and conditions of
their appointment. Non-cash benefits typically include payment of club memberships and motor vehicles, and the Group pays
fringe benefits tax on these benefits.
34 AINSWORTH GAME TECHNOLOGY
Directors’ Report (continued)for the year ended 30 June 2018 15.2 Linking the Remuneration Framework to business outcomes – audited
In the Chairman’s introduction to the Remuneration Report, we indicated that the key business objectives will underpin future
remuneration structures. The objectives are:
– Invest in product development to create a diverse and creative product offering to increase market share in global markets;
– Improve the Group performance through revenue and earnings growth in domestic and international markets;
– Improve cash flows through reduction in working capital investment and maintain a strong balance sheet to support growth
and deliver value; and
– Maintain a strong focus on best practice compliance throughout the Group in adherence to gaming laws and regulations.
The following remuneration structures are being considered by the Remuneration Consultant to achieve these business
objectives:
– Short-Term Incentives that measure and reward increased market share in selected global markets, adherent to the Good
Governance and Compliance with Gaming Laws and Regulations;
– Long-Term Incentives that measure and reward revenue and earnings growth in domestic and international markets, as well
as the achievement of the Balance Sheet and using Capital Investment Targets; and
– The objective of these incentive programs is to increase shareholder value for investors and key management stakeholders.
15.2.1 Consequences of performance on shareholder wealth
In considering the Group’s performance and benefits for shareholder wealth, the RNC have regard to the following indices in
respect of the current financial year and the previous four financial years. Profit is considered as one of the financial performance
targets in setting the short-term incentive bonus. Profit amounts for 2014 to 2018 have been calculated in accordance with
Australian Accounting Standards (AASBs).
$’000
2018
2017
2016
2015
2014
Profit attributable to owners of the company
$31,936
$37,930
$55,703
$70,353
$61,570
Dividends paid
Change in share price ($A)
$4,966
$16,386
$32,245
$32,227
$32,211
($1.12) No change
($0.41)
($1.17)
($0.29)
15.3 Service contracts – audited
It is the Group’s policy that service contracts for Australian key management personnel and key employees be unlimited in term
but capable of termination by either party on periods 3 to 12 months’ notice and that the Group retains the right to terminate the
contracts immediately, by making payment equal to the notice period.
The Group has entered into service contracts with each Australian key management personnel that provide for the payment
of benefits where the contract is terminated by the Group. The key management personnel are also entitled to receive on
termination of employment their statutory entitlements of accrued annual and long service leave, together with any accrued
superannuation.
The service contract outlines the components of remuneration paid to the key management personnel but does not prescribe
how remuneration levels are modified year to year. Remuneration levels are reviewed each year to take into account market
conditions, cost-of-living changes, any change in the scope of the role performed by the senior executive, retention of key
personnel and any changes required to meet the principles of the remuneration policy.
Mr Danny Gladstone, Executive Director and Chief Executive Officer (CEO), has a contract of employment with the Company
dated 5 February 2007 and amended on 7 December 2010. The contract specifies the duties and obligations to be fulfilled by
the CEO and provides that the board and CEO will early in each financial year, consult and agree objectives for achievement
during that year.
The CEO has no entitlement to a termination payment in the event of removal for misconduct as specified in his service contract.
Refer to Note 28 of the financial statements for details on the financial impact in future periods resulting from the Group’s
commitments arising from non-cancellable contracts for services with key management personnel.
ANNUAL REPORT 2018
35
Directors’ Report (continued)for the year ended 30 June 2018 15. REMUNERATION REPORT (continued)
15.4 Non-executive directors – audited
Total compensation for all non-executive directors, last voted upon by shareholders at the 2012 Annual General Meeting, is not
to exceed $850,000 per annum, with effect from 1 July 2012. Directors’ base fees are presently $120,000 per annum (excluding
superannuation) and is set based on a review of fees paid to other non-executive directors of comparable companies. The fees
paid to non-executive directors reflect the demands and responsibilities associated with their roles and the global nature of
the operations within the highly regulated environment within which the Group operates. Fees incorporate an allowance for the
onerous probity requirements placed on non-executive directors by regulators of the jurisdictions in which the Group operates
or proposes to operate in. In addition to these fees the cost of reasonable expenses are reimbursed as incurred.
There was no increase in non-executive compensation during the period. Compensation in section 15.6 Directors’ and executive
officers’ remuneration reflect change in the Chairman role during 2017 and associated changes to directors’ participation in
sub-committees.
Non-executive directors do not participate in performance related compensation and are not provided with retirement benefits
apart from statutory superannuation.
The CEO and Company Secretary do not receive any additional fees for undertaking Board or Committee responsibilities.
Following a review previously undertaken by an independent remuneration consultant, non-executive director’s fees were
assessed based on current market levels for comparable companies, demands and responsibilities associated with their roles
and the global nature of the Group’s operations within a highly regulated environment to ensure the Board is appropriately
compensated. Other independent non-executive directors who also chair or are a member of a committee receive a
supplementary fee in addition to their annual remuneration. Current fees for directors, excluding superannuation are set
out below.
POSITION
Independent Chair of Board
Australian resident non-executive director
Chair of Audit Committee
Chair of Regulatory and Compliance Committee
Chair of Remuneration and Nomination Committee
Member of Audit Committee
Member of Regulatory and Compliance Committee
Member of Remuneration and Nomination Committee
$
(per annum)
250,000
120,000
20,000
24,000
12,000
12,000
15,000
8,000
15.5 Services from remuneration consultants – audited
The RNC, comprising of independent non-executive directors only, secured the services of an independent remuneration
consultant (Remuneration Strategies Pty Ltd (RS)) to review remuneration practices of the Group following the ‘first strike’
received at the 2017 Annual General Meeting (AGM). The RNC has received a preliminary report and is awaiting a final report
from RS to assist in establishing short term and long-term incentives aligned to Board objectives and shareholder interests. A
total of $7,500 was paid during the year for this service.
The Board made its own inquiries and reviewed the processes and procedures followed by the remuneration consultant during
the course of their assignment to ensure that they were satisfied that any remuneration recommendations are made free from
undue influence.
The Board’s inquiries included a summary of the way in which the remuneration consultant carried out any work, details of any
interaction with non-executive directors in relation to the assignment and other services, and further questions in relation to
the assignment.
36 AINSWORTH GAME TECHNOLOGY
Directors’ Report (continued)for the year ended 30 June 2018 %
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37
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D
ANNUAL REPORT 2018
39
15. REMUNERATION REPORT (continued)
15.7 Analysis of bonuses included in remuneration – audited
Details of the vesting profile of the short-term incentive cash bonuses included as remuneration to each director of the Company,
and other key management personnel for 2018 are detailed below:
Included in remuneration
$ (A)
% Vested in year
(B)
% Forfeited in year
(C)
Short term incentive bonus
Director
Mr DE Gladstone
Executives
Mr ML Ludski
Mr V Bruzzese
Mr I Cooper
Mr K Power
89,375
46,037
24,566
6,678
11,520
– %
– %
– %
– %
– %
100%
100%
100%
100%
100%
A Amounts included in remuneration for the 2018 financial year represent the amount accrued in the current year for the Short Term
Incentive bonus achieved in a previous year which represented a deferred component subject to service conditions and the previously
deferred component paid during the period.
B The amount vested in the 2018 year represented any STI amounts awarded and either paid in the current period or to be paid.
C The amounts forfeited are due to the performance criteria not being met in relation to the current financial year.
15.8 Equity instruments – audited
All rights refer to rights over ordinary shares of Ainsworth Game Technology Limited, unless otherwise stated, which are
exercisable on a one-for-one basis under the RST plans.
15.8.1 Rights over equity instruments granted as compensation
No options over ordinary shares in the Company were granted as compensation to any key management person during the
reporting period.
15.8.2 Modification of terms of equity-settled share-based payment transactions
No terms of equity-settled share-based payment transactions (including performance rights granted as compensation to a key
management person) have been altered or modified by the issuing entity during the reporting period or the prior period.
15.8.3 Exercise of options granted as compensation
During the reporting period no shares (2017: nil shares) were issued on the exercise of options previously granted as
compensation.
40 AINSWORTH GAME TECHNOLOGY
Directors’ Report (continued)for the year ended 30 June 2018 15.8.4 Details of equity incentives affecting current and future remuneration
Details of vesting profiles of rights held by each key management person of the Group are detailed below:
Instrument
Number
Grant Date
% vested
in year
% forfeited
in year (A)
Financial
years in which
grant vests
Mr DE Gladstone
Mr ML Ludski
Mr V Bruzzese
Mr I Cooper
Mr K Power
Rights
Rights
Rights
Rights
Rights
Rights
Rights
Rights
Rights
Rights
Rights
Rights
Rights
69,471
22 July 2013
263,056 17 March 2015
328,791 01 March 2017
30,854
22 July 2013
95,773 17 March 2015
119,053 01 March 2017
22,685
22 July 2013
52,490 17 March 2015
62,131 01 March 2017
19,947
22 July 2013
46,953 17 March 2015
54,894 01 March 2017
112,228 01 March 2017
– %
– %
– %
– %
– %
– %
– %
– %
– %
– %
– %
– %
– %
100%
50%
– %
100%
50%
– %
100%
50%
– %
100%
100%
100%
– %
2017-2018
2018-2019
2018-2021
2017-2018
2018-2019
2018-2021
2017-2018
2018-2019
2018-2021
2017-2018
2018-2019
2018-2021
2018-2021
A. The % forfeited in the year represents the reduction from the maximum number of rights available to vest at the beginning of the year.
ANNUAL REPORT 2018
41
Directors’ Report (continued)for the year ended 30 June 2018 15. REMUNERATION REPORT (continued)
15.8 Equity instruments – audited (continued)
15.8.5 Analysis of movements in equity instruments
The movement during the reporting period, by value, of rights over ordinary shares in the Company held by each key
management person of the Group is detailed below:
Mr DE Gladstone
Mr ML Ludski
Mr V Bruzzese
Mr I Cooper
Mr K Power
Granted in year
$
Amount paid
on exercise
$
Value of rights
exercised
in year
$(A)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Forfeited
in year
$
485,853
192,942
122,415
183,544
–
A. No rights were exercised during the year.
15.8.6 Rights over equity instruments
The movement during the reporting period, by number of rights over ordinary shares in Ainsworth Game Technology Limited
held, directly, indirectly or beneficially, by each key management person, including their related parties, is as follows:
Held at
1 July 2017
Granted as
compensation
Exercised
Other
Changes*
Held at
30 June 2018
Vested during
the year
Vested and
exercisable at
30 June 2018
Rights
Mr DE Gladstone
Mr ML Ludski
Mr V Bruzzese
Mr I Cooper
Mr K Power
661,318
245,680
137,306
121,794
112,228
–
–
–
–
–
–
–
–
–
–
(198,547)
(77,848)
(48,441)
(121,794)
–
462,771
167,832
88,865
–
112,228
–
–
–
–
–
–
–
–
–
–
* Other changes represent rights that were forfeited during the year.
Rights held by key management personnel that are vested and exercisable at 30 June 2018 were Nil (2017: Nil). No rights or
options were held by related parties of key management personnel.
42 AINSWORTH GAME TECHNOLOGY
Directors’ Report (continued)for the year ended 30 June 2018 15.8.7 Movements in shares
The movement during the reporting period in the number of ordinary shares in Ainsworth Game Technology Limited held,
directly, indirectly or beneficially, by each key management person, including their related parties, is as follows:
Current
Mr GJ Campbell
Mr MB Yates
Mr CJ Henson
Ms HA Scheibenstock
Mr DE Gladstone
Mr HK Neumann
Mr M Ludski
Mr V Bruzzese
Mr Kieran Power
Former
Mr LH Ainsworth(1)
Mr I Cooper
Held at
1 July 2017
Purchases
Sales
Dividend
Re-Investment
Plan (DRP)
allotment
Held at
30 June 2018
307,785
30,600
131,156
–
56,973
–
10,000
759
–
50,000
–
–
–
–
–
–
–
4,662
–
–
–
–
–
–
–
–
2,748
–
1,008
–
422
–
–
6
–
360,533
30,600
132,164
–
57,395
–
10,000
765
4,662
212,475,104
6,297
–
–
(172,100,823)
–
–
49
40,374,281
6,346
(1) Included above Mr LH Ainsworth sold 172,100,823 ordinary shares to Novomatic AG on 5 January 2018.
No Shares were granted to key management personnel during the reporting period as compensation in 2017 or 2018.
There were no changes in key management personnel in the period after the reporting date and prior to the date when the
Financial Report was authorised for issue.
This Directors’ report is made out in accordance with a resolution of the directors:
GJ Campbell
Chairman
Dated at Sydney this 29th day of August 2018
ANNUAL REPORT 2018
43
Directors’ Report (continued)for the year ended 30 June 2018
In thousands of AUD
Assets
Cash and cash equivalents
Receivables and other assets
Current tax assets
Inventories
Prepayments
Total current assets
Receivables and other assets
Deferred tax assets
Property, plant and equipment
Intangible assets
Equity-accounted investee
Total non-current assets
Total assets
Liabilities
Trade and other payables
Loans and borrowings
Employee benefits
Current tax liability
Provisions
Total current liabilities
Loans and borrowings
Employee benefits
Deferred tax liabilities
Total non-current liabilities
Total liabilities
Net assets
Equity
Share capital
Reserves
Accumulated losses
Total equity
Note
2018
2017
18
17
16
17
15
12
13
14
24
21
22
25
21
22
15
19
19
19
35,667
153,464
324
79,304
5,239
21,094
128,646
3,168
74,732
9,360
273,998
237,000
39,259
5,001
118,593
67,496
2,001
39,877
4,727
109,560
68,902
4,683
232,350
227,749
506,348
464,749
37,500
32,993
239
9,513
4,069
1,100
52,421
71,721
589
2,818
75,128
127,549
178
8,367
7,335
938
49,811
65,512
676
4,114
70,302
120,113
378,799
344,636
203,032
200,245
179,787
152,867
(4,020)
(8,476)
378,799
344,636
The notes on pages 48 to 89 are an integral part of these consolidated financial statements.
44 AINSWORTH GAME TECHNOLOGY
Consolidated Statement of Financial Positionas at 30 June 2018 In thousands of AUD
Revenue
Cost of sales
Gross profit
Other income
Sales, service and marketing expenses
Research and development expenses
Administrative expenses
Other expenses
Results from operating activities
Finance income
Finance costs
Net finance income/(loss)
Share of (loss)/profit of equity accounted investee
Profit before tax
Income tax expense
Profit for the year
Other comprehensive income
Items that may be reclassified to profit and loss:
Foreign operations – foreign currency translation differences
Total other comprehensive income
Total comprehensive income for the year
Profit attributable to owners of the Company
Total comprehensive income attributable to the owners of the Company
Earnings per share:
Basic earnings per share (AUD)
Diluted earnings per share (AUD)
Note
7
8
11
11
15
2018
2017
265,584
282,080
(108,982)
(112,065)
156,602
170,015
2,929
(59,587)
(34,407)
(23,274)
(5,165)
37,098
7,013
(1,580)
5,433
(224)
42,307
(10,371)
31,936
5,624
5,624
37,560
31,936
37,560
$0.10
$0.09
719
(52,158)
(34,161)
(26,187)
(3,347)
54,881
3,657
(11,738)
(8,081)
153
46,953
(9,023)
37,930
(1,417)
(1,417)
36,513
37,930
36,513
$0.12
$0.12
The notes on pages 48 to 89 are an integral part of these consolidated financial statements.
ANNUAL REPORT 2018
45
Consolidated Statement of Profit or Loss and Other Comprehensive Incomefor the year ended 30 June 2018 In thousands of AUD
Balance at 1 July 2016
Attributable to owners of the Company
Issued
capital
Equity
compensation
reserve
Fair
value
reserve
Translation
reserve
Profit
reserve
Accumulated
losses
Total
equity
193,754
3,416
9,684
6,780 113,730
(11,477) 315,887
Total comprehensive income for the period
Profit
Transfer between reserves
Other comprehensive income
Foreign currency translation reserve
Total other comprehensive income
Total comprehensive income for the period
–
–
–
–
–
Transactions with owners, recorded
directly in equity
Issue of ordinary shares under the Dividend
Reinvestment Plan
Dividends to owners of the Company
Share-based payment amortisation
Total transactions with owners
6,491
–
–
6,491
–
–
–
–
–
–
–
2,131
2,131
–
–
–
–
–
–
–
–
–
–
–
37,930
37,930
– 34,929
(34,929)
–
(1,417)
(1,417)
–
–
–
–
(1,417)
(1,417)
(1,417) 34,929
3,001
36,513
–
–
– (16,386)
–
–
– (16,386)
–
–
–
–
6,491
(16,386)
2,131
(7,764)
Balance at 30 June 2017
200,245
5,547
9,684
5,363 132,273
(8,476) 344,636
Balance at 1 July 2017
200,245
5,547
9,684
5,363 132,273
(8,476) 344,636
Total comprehensive income for the period
Profit
Transfer between reserves
Other comprehensive income
Foreign currency translation reserve
Total other comprehensive income
Total comprehensive income for the period
–
–
–
–
–
Transactions with owners, recorded
directly in equity
Issue of ordinary shares under the Dividend
Reinvestment Plan
Dividends to owners of the Company
Share-based payment amortisation
Total transactions with owners
2,787
–
–
2,787
–
–
–
–
–
–
–
(1,218)
(1,218)
–
–
–
–
–
–
–
–
–
–
–
–
31,936
31,936
27,480
(27,480)
–
5,624
5,624
–
–
–
–
5,624
5,624
5,624
27,480
4,456
37,560
–
–
–
–
(2,787)
(2,179)
–
(4,966)
–
–
–
–
–
(2,179)
(1,218)
(3,397)
Balance at 30 June 2018
203,032
4,329
9,684
10,987 154,787
(4,020) 378,799
The notes on pages 48 to 89 are an integral part of these consolidated financial statements.
46 AINSWORTH GAME TECHNOLOGY
Consolidated Statement of Changes in Equityfor the year ended 30 June 2018 In thousands of AUD
Cash flows from operating activities
Cash receipts from customers
Cash paid to suppliers and employees
Cash generated from operations
Income taxes paid
Borrowing costs paid
Net cash from operating activities
Cash flows from investing activities
Proceeds from sale of property, plant and equipment
Interest received
Acquisitions of property, plant and equipment
Development expenditure
Net cash (used in)/from investing activities
Cash flows from financing activities
Proceeds from borrowings
Proceeds from finance lease
Payment of finance lease liabilities
Dividend paid
Net cash from/(used in) financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at 1 July
Effect of exchange rate fluctuations on cash held
Cash and cash equivalents at 30 June
Note
2018
2017
254,310
269,433
(224,007)
(247,434)
18(a)
12
13
30,303
(11,045)
(892)
18,366
4,638
3,900
(8,328)
(5,547)
(5,337)
3,130
217
(178)
(2,179)
990
14,019
21,094
554
21,999
(16,053)
(708)
5,238
6,297
3,657
(5,351)
(4,534)
69
–
136
(118)
(9,895)
(9,877)
(4,570)
26,433
(769)
35,667
21,094
The notes on pages 48 to 89 are an integral part of these consolidated financial statements.
ANNUAL REPORT 2018
47
Consolidated Statement of Cash Flowsfor the year ended 30 June 2018
1.
2.
3.
Reporting entity
Basis of preparation
Significant accounting policies
(a) Basis of consolidation
(b) Foreign currency
(c) Financial instruments
(d) Property, plant and equipment
(e) Intangible assets
(f) Leased assets
(g) Inventories
(h) Impairment
(i) Employee benefits
( j) Provisions
(k) Warranties
(l) Revenue
(m) Lease payments
(n) Finance income and finance costs
(o) Income tax
(p) Earnings per share
(q) Segment reporting
(r)
Change in new standards and
interpretations not yet adopted
4.
5.
6.
7.
8.
Determination of fair values
Financial risk management
Operating segments
Revenue
Other income
49
49
49
49
50
50
51
52
52
52
52
53
54
54
54
54
55
55
55
55
55
57
58
59
62
62
9.
Expenses by nature
10.
Employee benefit expenses
11.
Finance income and finance costs
12.
Property, plant and equipment
13.
14.
15.
16.
17.
Intangible assets
Equity-accounted investee
Taxes
Inventories
Receivables and other assets
18.
Cash and cash equivalents
18a.
Reconciliation of cash flows from
operating activities
19.
Capital and reserves
20.
Earnings per share
21.
Loans and borrowings
22.
Employee benefits
23.
Share-based payments
24.
Trade and other payables
25.
Provisions
26.
Financial instruments
27. Operating leases
28. Capital and other commitments
29.
Related parties
30. Group entities
31.
Subsequent events
32. Auditor’s remuneration
33.
Parent entity disclosures
62
63
63
64
65
68
69
70
71
72
72
73
74
75
76
76
80
80
81
85
85
86
88
88
89
89
48 AINSWORTH GAME TECHNOLOGY
Index to Notes to the Financial Statements and Significant Accounting Policiesfor the year ended 30 June 2018 1. REPORTING ENTITY
Ainsworth Game Technology Limited (the ‘Company’)
is a company domiciled in Australia. The address of the
Company’s registered office is 10 Holker Street, Newington,
NSW, 2127. The consolidated financial statements of the
Company as at and for the year ended 30 June 2018
comprise the Company and its subsidiaries (together
referred to as the ‘Group’ and individually as ‘Group
entities’). The Group is a for-profit entity and primarily is
involved in the design, development, manufacture, sale
and servicing of gaming machines and other related
equipment and services.
2. BASIS OF PREPARATION
(a) Statement of compliance
The consolidated financial statements are general
purpose financial statements which have been prepared in
accordance with Australian Accounting Standards (AASBs)
adopted by the Australian Accounting Standards Board
(AASB) and the Corporations Act 2001. The consolidated
financial statements comply with International Financial
Reporting Standards (IFRSs) adopted by the International
Accounting Standards Board (IASB).
The consolidated financial statements were authorised for
issue by the Board of Directors on 29 August 2018.
(b) Basis of measurement
The consolidated financial statements have been
prepared on the historical cost basis except for loans
and borrowings with a Director related entity, which were
measured initially at fair value and then subsequently
carried at amortised cost.
(c) Functional and presentation currency
The financial information of each of the Group’s entities
and foreign branches is measured using the currency of
the primary economic environment in which it operates
(the functional currency).
These consolidated financial statements are presented
in Australian dollars, which is the Company’s primary
functional currency.
The Company is of a kind referred to in ASIC Corporations
(Rounding
Instrument
in Financial/Directors Reports)
2016/191 and in accordance with that Instrument, all
financial information presented in Australian dollars has
been rounded to the nearest thousand unless otherwise
stated.
(d) Use of estimates and judgements
The preparation of the consolidated financial statements
in conformity with IFRSs requires management to make
judgements, estimates and assumptions that affect the
application of accounting policies and the reported
amounts of assets, liabilities, income and expenses. Actual
results may differ to these estimates.
Estimates and underlying assumptions are reviewed on
an ongoing basis. Revisions to accounting estimates are
recognised in the period in which the estimate is revised
and in any future periods affected.
The Group is subject to income taxes in Australia and
jurisdictions where it has foreign operations. Significant
judgement is required in determining the worldwide
provision for income taxes. There are certain transactions
and calculations undertaken during the ordinary course of
business for which the ultimate determination is uncertain.
The Group estimates its tax liabilities based on the Group’s
understanding of the tax law. Where the final outcome
of these matters is different from the amounts that were
initially recorded, such differences will impact the current
and deferred income tax assets and liabilities in the period
in which such determination is made.
Information about assumptions and estimation uncertainties
that have a significant risk of resulting in a material adjustment
to the carrying amounts of assets and liabilities within
the next financial year are included in Note 13 - Intangible
assets and Note 26 – Financial instruments (trade and other
receivables).
3. SIGNIFICANT ACCOUNTING POLICIES
The accounting policies set out below have been applied
consistently to all periods presented in these consolidated
financial statements, and have been applied consistently
by Group entities.
Business combination
(a) Basis of consolidation
(i)
The Group accounts for business combinations using the
acquisition method when control is transferred to the Group
(see (a)(ii)). The consideration transferred in the acquisition
is generally measured at fair value as are the identifiable
net assets acquired. Any goodwill that arises is tested
annually for impairment (refer Note 3(h)). Any gain on a
bargain purchase is recognised in profit or loss immediately.
Transaction costs are expensed as incurred, except if
related to the issue of debt of equity securities.
The consideration transferred does not include amounts
related to the settlement of pre-existing relationships.
Such amounts are generally recognised in profit or loss.
ANNUAL REPORT 2018
49
Notes to the Financial Statements (continued)for the year ended 30 June 2018 3.
SIGNIFICANT ACCOUNTING POLICIES
(continued)
(ii) Subsidiaries
Subsidiaries are entities controlled by the Group. The
Group controls an entity when it is exposed to, or has right
to, variable returns from its involvement with the entity
and has the ability affect those returns through its power
over the entity. The financial statements of subsidiaries
are included in the consolidated financial statements from
the date that control commences until the date that control
ceases.
Interest in equity-accounted investee
(iii)
A joint venture is an arrangement in which the Group has
joint control, and whereby the Group has rights to the
net assets of the arrangement, rather than rights to its
assets and obligations for its liabilities. Interest in a joint
venture is accounted for using the equity method. It is
recognised initially at cost, which includes transactions
costs. Subsequently to initial recognition, the consolidated
financial statements include the Group’s share of the
profit or loss and Other Comprehensive Income (“OCI”)
of the equity-accounted investee, until the date on which
significant influence of joint control ceases.
(iv) Transactions eliminated on consolidation
Intra-group balances and
transactions, and any
unrealised income and expenses arising from intra-group
transactions, are eliminated in preparing the consolidated
financial statements in accordance with AASBs.
(v) Acquisitions prior to 1 July 2004
As part of its transition to AASBs, the Group elected to
restate only those business combinations that occurred on
or after 1 July 2004. In respect of acquisitions prior to 1 July
2004, goodwill represents the amount recognised under
the Group’s previous accounting framework, Australian
GAAP.
(vi) Acquisitions on or after 1 July 2004
For acquisitions on or after 1 July 2004, goodwill represents
the excess of the cost of the acquisition over the Group’s
interest in the net fair value of the identifiable assets,
liabilities and contingent liabilities of the acquiree. When
the excess is negative (negative goodwill), it is recognised
immediately in profit or loss.
(vii) Common control acquisitions
Acquisitions made by the Group, where the combining
entities or businesses are ultimately controlled by the
same party or parties before and after the combination,
and that control is not transitory, are treated as common
control transactions and book value accounting is applied.
Under book value accounting no purchase price allocation
is performed. The acquired net assets are included in
the consolidated financial statements at carrying value.
The difference between the consideration transferred and
the net assets is recognised in equity in a common control
reserve.
50 AINSWORTH GAME TECHNOLOGY
Foreign currency transactions
(b) Foreign currency
(i)
Transactions in foreign currencies are translated to the
respective functional currencies of Group entities at
exchange rates at the dates of the transaction. Monetary
assets and liabilities denominated in foreign currencies at
the balance date are retranslated to the functional currency
at the foreign exchange rate at that date. The foreign
currency gain or loss on monetary items is the difference
between amortised cost in the functional currency at the
beginning of the period, adjusted for effective interest
and payments during the period, and the amortised cost
in foreign currency translated at the exchange rate at the
end of the year.
Foreign operations
(ii)
The assets and
liabilities of foreign operations are
translated to Australian dollars at exchange rates at the
reporting date. The income and expenses of foreign
operations are translated to Australian dollars at the
average exchange rates for the period.
Foreign currency differences are recognised in other
comprehensive income and presented in the Translation
Reserve in equity. When a foreign operation is disposed
of such that control is lost, the cumulative amount in the
Translation Reserve related to that foreign operation is
transferred to the profit or loss, as part of gain or loss on
disposal.
When the Group disposes of only a part of its interest in a
subsidiary that includes a foreign operation while retaining
control, the relevant portion of cumulative amounts is
re-attributed to non-controlling interest.
When the settlement of a monetary item receivable from or
payable to a foreign operation is neither planned nor likely
in the foreseeable future, foreign exchange gains and
losses arising from such a monetary item are considered
to form part of a net investment in a foreign operation,
are recognised in other comprehensive income and are
presented in the translation reserve in equity.
(c) Financial instruments
(i) Non-derivative financial assets
Non-derivative financial assets comprise trade and other
receivables and cash and cash equivalents
Trade and other receivables are recognised on the date
that they are originated. Financial assets are derecognised
if the Group’s contractual rights to the cash flows from
the financial assets expire or if the Group transfers the
financial asset to another party without retaining control
or substantially all risks and rewards of ownership of the
financial asset are transferred.
Financial assets and liabilities are offset and the net
amount presented in the statement of financial position
when, and only when, the Group has a legal right to offset
the amounts and intends either to settle on a net basis or
to realise the asset and settle the liability simultaneously.
Notes to the Financial Statements (continued)for the year ended 30 June 2018 Trade and other receivables are financial assets with
fixed or determinable payments that are not quoted in an
active market. Such assets are recognised initially at fair
value. Subsequent to initial recognition trade and other
receivables are measured at amortised cost using the
effective interest method, less any impairment losses.
The assessment amount of current and non-current
receivable involves reviewing the contractual term and
how it compares to the current payment trend. When
the current payment trend is less favourable from the
contractual term, the Group will base the current and
non-current assessment on payment trend.
Cash and cash equivalents comprise cash balances and
call deposits with original maturities of three months or less
from the acquisition date that are subject to an insignificant
risk of changes in their fair value, and are used by the
Group in the management of its short-term commitments.
(ii) Non-derivative financial liabilities
Non-derivative financial liabilities comprise loans and
borrowings and trade and other payables
Debt securities issued and subordinated liabilities are
initially recognised on the date that they are originated.
All other financial liabilities are recognised initially on
the trade date at which the Group becomes a party to
the contractual provisions of the instrument. The Group
derecognises a financial liability when its contractual
obligations are discharged or cancelled or expire.
Loans and borrowings and trade and other payables are
recognised initially at fair value plus any directly attributable
transaction costs. Subsequent to initial recognition, these
financial liabilities are measured at amortised cost with
any difference between cost and redemption value being
recognised in the income statement over the period of the
borrowings on an effective interest basis.
Where the terms and conditions of borrowings are
modified, the carrying amount is remeasured to fair value.
Any difference between the carrying amount and fair value
is recognised in equity.
(iii) Share capital
Ordinary shares
Ordinary shares are classified as equity. Incremental costs
directly attributable to issue of ordinary shares and share
options are recognised as a deduction from equity, net of
any tax effects.
Recognition and measurement
(d) Property, plant and equipment
(i)
Items of property, plant and equipment are measured at
cost less accumulated depreciation and impairment losses.
Cost includes expenditures that are directly attributable
to the acquisition of the asset. Purchased software that
is integral to the functionality of the related equipment is
capitalised as part of that equipment.
When parts of an item of property, plant and equipment have
different useful lives, they are accounted for as separate
items (major components) of property, plant and equipment.
Machines previously held as inventory are transferred
to property, plant and equipment when a rental or
participation agreement is entered into. When the rental
or participation agreements cease and the machines
become held for sale, they are transferred to inventory at
their carrying amount. Proceeds are reflected in revenue
while value disposed are recognised as cost of sale. These
are treated as an operating cash flow.
Gains and losses on disposal of an item of property,
plant and equipment are determined by comparing the
proceeds from disposal with the carrying amount of the
property, plant and equipment and are recognised net
within “other income” in profit and loss.
(ii) Subsequent costs
The cost of replacing a part of an item of property, plant
and equipment is recognised in the carrying amount of
an item if it is probable that the future economic benefits
embodied within the part will flow to the Group and its
cost can be measured reliably. The costs of the day-to-day
servicing of property, plant and equipment are recognised
in profit or loss as incurred.
(iii) Depreciation
Depreciation is based on the cost of an asset less its
residual value. Significant components of individual assets
are assessed and if a component has a useful life that is
different from the remainder of that asset, that component
is depreciated separately.
Depreciation is recognised in profit or loss on a straight-line
basis over the estimated useful lives of each part of an item
of property, plant and equipment since this most closely
reflects the expected pattern of consumption of the future
economic benefits embodied in the assets. Leased assets
are depreciated over the shorter of the lease term and
their useful lives unless it is reasonably certain that the
Group will obtain ownership by the end of the lease term.
Land is not depreciated.
Items of property, plant and equipment are depreciated
from the date that they are installed and are ready for use,
or in respect of internally constructed assets, from the
date that the asset is completed and ready for use.
The estimated useful lives for the current and comparative
periods are as follows:
– buildings
– leasehold improvements
– plant and equipment
39 – 40 years
10 years
2.5 – 20 years
The useful lives of capitalised machines leased under
rental or participation agreements are included in the
plant and equipment useful lives.
Depreciation methods, useful lives and residual values are
reviewed at each financial year-end and adjusted if appropriate.
ANNUAL REPORT 2018
51
Notes to the Financial Statements (continued)for the year ended 30 June 2018 3.
SIGNIFICANT ACCOUNTING POLICIES
(continued)
Intangible assets
(e)
(i) Goodwill
Goodwill that arises upon the acquisition of subsidiaries
is included in intangible assets. For the measurement of
goodwill at initial recognition, see Note 3(a)(v) and (vi).
Goodwill is subsequently carried at cost less accumulated
impairment losses (refer Note 3(h)).
(ii) Research and development
Expenditure on research activities, undertaken with
the prospect of gaining new technical knowledge and
understanding, is recognised in profit or loss when incurred.
Development activities involve a plan or design for the
production of new or substantially improved products and
processes. Development expenditure is capitalised only if
development costs can be measured reliably, the product
or process is technically and commercially feasible, future
economic benefits are probable, and the Group intends
to and has sufficient resources to complete development
and to use or sell the asset. The expenditure capitalised
includes the cost of materials, direct labour and overhead
costs that are directly attributable to preparing the asset
for its intended use. Other development expenditure
and discontinued projects that are expected to have no
further economic benefit are recognised in profit or loss
when incurred.
Capitalised development expenditure is measured at
cost less accumulated amortisation and accumulated
impairment losses.
(iii) Other intangible assets
Other intangible assets, which include intellectual property,
technology and software assets, customer relationships,
tradenames and trademarks, and service contracts, that
are acquired by the Group through business combinations,
which have finite useful lives, are measured at cost less
accumulated amortisation and accumulated impairment
losses. Refer Note 3(a)(i) for details on the determination of
cost of these acquired assets.
(iv) Subsequent expenditure
Subsequent expenditure is capitalised only when it
increases the future economic benefits embodied in the
specific asset to which it relates. All other expenditure,
including expenditure on internally generated goodwill
and brands, is recognised in profit or loss when incurred.
(v) Amortisation
Amortisation is based on the cost of an asset less its
residual value. Amortisation is recognised in profit or loss
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, since this most closely
reflects the expected pattern of consumption of the future
economic benefit embodied in the asset.
52 AINSWORTH GAME TECHNOLOGY
The estimated useful lives for the current and comparative
periods are as follows:
– capitalised development costs
– intellectual property
– technology and software
– customer relationships and contracts
acquired
– tradenames and trademarks
– service contracts
4-5 years
3-10 years
5-10 years
3-10 years
3 years
3 years
Amortisation methods, useful lives and residual values
are reviewed at each reporting date and adjusted if
appropriate.
Leased assets
(f)
Leases in terms of which the Group assumes substantially
all the risks and rewards of ownership are classified as
finance leases. Upon initial recognition the leased asset is
measured at an amount equal to the lower of its fair value
and the present value of the minimum lease payments.
Subsequent to initial recognition, the asset is accounted
for in accordance with the accounting policy applicable to
that asset.
Other leases are operating leases and the leased assets
are not recognised on the Group’s statement of financial
position.
Inventories
in acquiring the
(g)
Inventories are measured at the lower of cost and net
realisable value. The cost of inventories is based on
the first-in first-out principle, and includes expenditure
incurred
inventories, production or
conversion costs and other costs incurred in bringing
them to their existing location and condition. In the case
of manufactured inventories and work in progress, cost
includes an appropriate share of production overheads
based on normal operating capacity. Net realisable value
is the estimated selling price in the ordinary course of
business, less the estimated costs of completion and
selling expenses.
Impairment
(h)
(i) Non-derivative financial assets
A financial asset not carried at fair value through profit
or loss is assessed at each reporting date to determine
whether there is any objective evidence that it is impaired.
A financial asset is considered to be impaired if objective
evidence indicates that one or more events have had a
negative effect on the estimated future cash flows of that
asset that can be estimated reliably.
Objective evidence that financial assets are impaired can
include default or delinquency by a debtor, restructuring
of an amount due to the Group on terms that the Group
would not otherwise consider and indications that a debtor
will enter bankruptcy.
Notes to the Financial Statements (continued)for the year ended 30 June 2018 impairment
Financial assets measured at amortised cost
The Group considers evidence of impairment for financial
assets measured at amortised cost (loans and receivables)
at both a specific and collective level. All individually
significant financial assets are tested for impairment on
an individual basis. The remaining financial assets are
assessed collectively in groups that share similar credit
risk characteristics.
In assessing collective
the Group uses
historical trends of the probability of default, timing of
recoveries and the amount of loss incurred, adjusted for
management’s judgement as to whether current economic,
industry and credit conditions are such that the actual
losses are likely to be greater or less than suggested by
historical trends.
An impairment loss in respect of a financial asset measured
at amortised cost is calculated as the difference between
its carrying amount and the present value of the estimated
future cash flows discounted at the original effective
interest rate. All impairment losses are recognised in profit
or loss and reflected in an allowance account against
receivables. An impairment loss is reversed if the reversal
can be related objectively to an event occurring after the
impairment loss was recognised. When a subsequent
event causes the amount of impairment loss to decrease,
the decrease in impairment loss is reversed through profit
and loss.
(ii) Non-financial assets
The carrying amounts of the Group’s non-financial assets,
other than inventories and deferred tax assets, are
reviewed at each reporting date to determine whether
there is any indication of impairment. If any such indication
exists then the asset’s recoverable amount is estimated.
For goodwill and intangible assets that have indefinite
lives or that are not yet available for use, recoverable
amount is estimated at each reporting date. An impairment
loss is recognised if the carrying amount of an asset or its
related cash generating unit (CGU) exceeds its estimated
recoverable amount.
The recoverable amount of an asset or CGU is the greater
of its value in use and its fair value less costs to sell. In
assessing value in use, the estimated future cash flows
are discounted to their present value using a pre-tax
discount rate that reflects current market assessments of
the time value of money and the risks specific to the asset
or CGU. For the purpose of impairment testing, assets are
grouped together into the smallest group of assets that
generates cash inflows from continuing use that are largely
independent of the cash inflows of other assets (the “CGU”).
The goodwill acquired in a business combination for the
purpose of impairment testing, is allocated to CGU that is
expected to benefit from the synergies of the combination.
The Group’s corporate assets do not generate separate
cash inflows and are utilised by more than one CGU.
Corporate assets are allocated to CGUs on a reasonable
and consistent basis and tested for impairment as part
of the testing of the CGU to which the corporate asset
is allocated.
in profit or
losses are recognised
An impairment loss is recognised if the carrying amount
of an asset or its CGU exceeds its recoverable amount.
Impairment
loss.
Impairment losses recognised in respect of CGUs are
allocated first to reduce the carrying amount of any
goodwill allocated to the CGUs and then to reduce the
carrying amount of the other assets in the CGU on a pro
rata basis.
An impairment loss in respect of goodwill is not reversed.
In respect of other assets, impairment losses recognised
in prior periods are assessed at each reporting date for
any indications that the loss has decreased or no longer
exists. An impairment loss is reversed if there has been a
change in the estimates used to determine the recoverable
amount. An impairment loss is reversed only to the extent
that the asset’s carrying amount does not exceed the
carrying amount that would have been determined, net
of depreciation or amortisation, if no impairment loss had
been recognised.
Employee benefits
(i)
(i) Defined contribution superannuation funds
A defined contribution plan is a post-employment benefit
plan under which an entity pays fixed contributions into
a separate entity and will have no legal or constructive
obligation to pay further amounts.
Obligations
for contributions to defined contribution
superannuation funds are recognised as an employee
benefit expense in profit or loss in the periods during
which services are rendered by employees.
(ii) Other long term employee benefits
The Group’s net obligation in respect of long-term
employee benefits is the amount of future benefit that
employees have earned in return for their service in the
current and prior periods plus related on-costs; that benefit
is discounted to determine its present value, and the fair
value of any related assets is deducted. The discount rate
is the yield rate at the reporting date on corporate bonds
that have maturity dates approximating the terms of the
Group’s obligations.
(iii) Termination benefits
Termination benefits are recognised as an expense when
the Group is demonstrably committed, without realistic
possibility of withdrawal, to a formal detailed plan to
terminate employment before the normal retirement date
or to provide termination benefits as a result of an offer
made to encourage voluntary redundancy. Termination
benefits for voluntary redundancies are recognised if
the Group has made an offer encouraging voluntary
redundancy, it is probable that the offer will be accepted,
and the number of acceptances can be estimated reliably.
ANNUAL REPORT 2018
53
Notes to the Financial Statements (continued)for the year ended 30 June 2018 3.
SIGNIFICANT ACCOUNTING POLICIES
(continued)
(iv) Short term benefits
Liabilities for employee benefits for wages, salaries and
leave represent present obligations resulting
annual
from employees’ services provided to reporting date
and are calculated at undiscounted amounts based
on remuneration wage and salary rates that the Group
expects to pay as at reporting date including related
on-costs, such as workers remuneration insurance and
payroll tax. Non-accumulating non-monetary benefits,
such as cars and free or subsidised goods and services,
are expensed based on the net marginal cost to the Group
as the benefits are taken by the employees.
A liability is recognised for the amount expected to be
paid under short-term cash bonus plans if the Group has a
present legal or constructive obligation to pay this amount
as a result of past service provided by the employee and
the obligation can be estimated reliably.
(v) Share-based payment transactions
The grant date fair value of options granted to employees is
recognised as an employee expense, with a corresponding
increase in equity, over the period in which the employees
become unconditionally entitled to the options. The amount
recognised as an expense is adjusted to reflect the actual
number of share options for which the related service and
non-market vesting conditions are expected to be met,
such that the amount ultimately recognised is based on
the number of awards that meet the related service and
non-market performance conditions at the vesting date.
Where such adjustments result in a reversal of previous
expenses these are recognised as a credit to profit or
loss in the period that it is assessed that certain vesting
conditions will not be met.
(j) Provisions
A provision is recognised if, as a result of a past event,
the Group has a present legal or constructive obligation
that can be estimated reliably, and it is probable that an
outflow of economic benefits will be required to settle the
obligation. Provisions are determined by discounting the
expected future cash flows at a pre-tax rate that reflects
current market assessments of the time value of money
and, where appropriate, the risks specific to the liability.
The unwinding of the discount is recognised as a finance
cost.
for warranties
(k) Warranties
is recognised when the
A provision
underlying products are sold. The provision is based on
historical warranty data and a weighting of all possible
outcomes against their associated probabilities.
54 AINSWORTH GAME TECHNOLOGY
(l) Revenue
(a) Sale of goods and related licences
(i) Machine and part sales
Revenue from the sale of goods in the course of ordinary
activities is measured at the fair value of the consideration
received or receivable, net of returns, allowances and
trade discounts. Revenue is recognised when persuasive
evidence exists usually in the form of an executed sales
agreement, that the significant risks and rewards of
ownership have been transferred to the buyer, recovery
of the consideration is probable, the associated costs
and possible return of goods can be estimated reliably,
there is no continuing management involvement with
the goods, and the amount of revenue can be measured
reliably. Transfer of risks and rewards vary depending on
the individual terms of the contract of sale.
(ii) Multi element arrangements
When gaming machines, games, conversions and other
incidental items are licensed to customers for extended
periods, revenue is recognised on delivery for gaming
machines and games and for other items including
conversions on a straight line basis over the licence term.
The revenue recognised for each item is based on the
relative fair values of the items included in the arrangement.
(iii) Licence income
Licence income, including those received from online
business, is recognised when all obligations in accordance
with the agreement have been met which may be at
the time of sale or over the life of the agreement.
(b) Services
Revenue from services rendered is recognised in profit or
loss when the services are performed.
(c) Participation and rental
Participation revenue is revenue earned when the Group’s
owned machines are placed in venues either directly by
the Group or indirectly through a licensed operator for a
fee. The fee is calculated as either a daily fee or an agreed
fee based upon a percentage of turnover of participating
machines, depending on the agreement.
Revenue from rental of gaming machines is recognised in
profit or loss on a straight line basis over the term of the
rental agreement.
(m) Lease payments
Payments made under operating leases are recognised
in profit or loss on a straight-line basis over the term of
the lease. Lease incentives received are recognised as an
integral part of the total lease expense, over the term of
the lease.
Minimum lease payments made under finance leases
are apportioned between the finance expense and the
reduction of the outstanding liability. The finance expense
is allocated to each period during the lease term so as
to produce a constant periodic rate of interest on the
remaining balance of the liability.
Notes to the Financial Statements (continued)for the year ended 30 June 2018 (n) Finance income and finance costs
Finance income comprises interest income and foreign
currency gains. Interest income is recognised in profit or
loss as it accrues using the effective interest method.
Finance costs comprise interest expense on borrowings
and foreign currency losses. Borrowing costs that are not
directly attributable to the acquisition, construction or
production of a qualifying asset are recognised in profit or
loss using the effective interest method.
Foreign currency gains and losses are reported on a net
basis as either finance income or finance cost depending
on whether foreign currency movements are in a net gain
or net loss position.
Income tax
(o)
Income tax expense comprises current and deferred tax.
Current and deferred tax are recognised in profit or loss
except to the extent that it relates to items recognised
directly in equity, in which case it is recognised in other
comprehensive income.
Current tax is the expected tax payable on the taxable
income for the year, using tax rates enacted or substantively
enacted at the reporting date, and any adjustment to tax
payable in respect of previous years.
Deferred tax is recognised in respect of temporary
differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the
amounts used for taxation purposes. Deferred tax is not
recognised for temporary differences arising from: the
initial recognition of assets or liabilities that affect neither
accounting nor taxable profit, and differences relating to
investments in subsidiaries to the extent that they will
probably not reverse in the foreseeable future.
Deferred tax is not recognised for taxable temporary
differences arising from the initial recognition of goodwill.
Deferred tax is measured at the tax rates that are expected
to be applied to the temporary differences when they
reverse, based on the laws that have been enacted or
substantively enacted by the reporting date.
In determining the amount of current and deferred tax
the Group takes into account the impact of uncertain
tax positions and whether additional taxes and interest
may be due. The Group believes that its accruals for tax
liabilities are adequate for all open tax years based on
its assessment of many factors, including interpretations
of tax law and prior experience. This assessment relies
on estimates and assumptions and may involve a series
of judgements about future events. New information
may become available that causes the Group to change
its judgement regarding the adequacy of existing tax
liabilities; such changes to tax liabilities will impact tax
expense in the period that such a determination is made.
Deferred tax assets and liabilities are offset if there is a
legally enforceable right to offset current tax liabilities and
assets, and they relate to income taxes levied by the same
tax authority on the same taxable entity, or on different tax
entities, but they intend to settle current tax liabilities and
assets on a net basis or their tax assets and liabilities will
be realised simultaneously.
A deferred tax asset is recognised for unused tax losses,
tax credits and deductible temporary differences, to the
extent that it is probable that future taxable profits will
be available against which they can be utilised. Deferred
tax assets are reviewed at each reporting date and are
reduced to the extent that it is no longer probable that the
related tax benefit will be realised, see Note 15.
(p) Earnings per share
The Group presents basic and diluted earnings per share
(EPS) data for its ordinary shares. Basic EPS is calculated
by dividing the profit or loss attributable to ordinary
shareholders of the Company by weighted average
number of ordinary shares outstanding during the period.
Diluted EPS is determined by adjusting the profit or loss
attributable to ordinary shareholders and the weighted
average number of ordinary shareholders and
the
weighted average number of ordinary shares outstanding
for the effects of all dilutive potential ordinary shares,
which comprise convertible notes and share options
granted to employees.
(q) Segment reporting
An operating segment is a component of the Group
that engages in business activities from which it may
earn revenues and incur expenses, including revenues
and expenses that relate to transactions with any of the
Group’s other components. All operating segments’
operating results are regularly reviewed by the Group’s
CEO to make decisions about resources to be allocated
to the segment and assess its performance, and for which
discrete financial information is available.
Segment results that are reported to the CEO include
items directly attributable to a segment as well as those
that can be allocated on a reasonable basis.
(r)
Change in new standards and interpretations
not yet adopted
Certain new accounting standards and interpretations
have been published that are not mandatory for 30 June
2018 reporting periods. Those which may have a significant
to the Group are set out below. The Group does not plan to
adopt these standards early.
AASB 9 Financial Instruments
This standard is applicable to annual reporting periods
beginning on or after 1 January 2018, with the Group adopting
this standard from 1 July 2018. AASB 9 replaces AASB 139
Financial Instruments: Recognition and Measurement. The
new standard results in changes to accounting policies for
financial assets and liabilities covering classification and
measurement, hedge accounting and impairment.
ANNUAL REPORT 2018
55
Notes to the Financial Statements (continued)for the year ended 30 June 2018 The core principle of AASB 15 is that it requires identification
of distinct performance obligations within a transaction
and associated transaction price allocation to these
obligations. Revenue is recognised upon satisfaction of
these performance obligations, which occur when control
of goods or services is transferred, rather than on transfer
of risks and rewards.
Revenue received for a contract that includes a variable
amount is subject to revised conditions for recognition,
whereby it must be highly probable that no significant
reversal of the variable component may occur when the
uncertainties around its measurement are removed.
The Group has reviewed a representative sample of
sales contracts of its key revenue streams to assess the
impacts of adopting AASB 15. The Group’s assessment of
the impact of this standard on its consolidated financial
statements is ongoing and the likely impact on adoption
is not yet known. However, the following expected
implications have already been noted:
Multi-element arrangements: This sales arrangement
relates to gaming machines, games, conversions and
other incidental items that are licensed to customers for
extended periods. Currently revenue is recognised on
delivery for gaming machines and games and for other
items including conversions and interest on a straight-line
basis over the license term. Under the new AASB 15,
the transaction price allocation will vary from current
accounting practice. In allocating the transaction price to
the performance obligations, the standalone selling price
of the conversion option material right reflects the discount
that the customer would obtain when exercising the option,
adjusted for the likelihood that the option will be exercised.
Revenue will be recognised when the conversion option
is exercised or upon expiry of the option. These changes
will impact the timing and amount of revenue recognition
compared with current practice. Where a contract contains
a significant financing component there is no change from
current practice in recognising interest income.
In addition to the revenue recognition mentioned above,
the Group currently recognises commission fee payable
related to multi-element arrangement contracts as selling
expenses when they are incurred. Under AASB 15, the
Group will capitalise these commission fees as costs of
obtaining a contract. The capitalised contract cost asset
will be amortised based on the transfer of goods or
services in the contract to which the asset relates.
Operating
including
lease arrangements: Revenues
participation and rental will likely be out of scope of AASB
15 and fall within AASB 16.
3.
SIGNIFICANT ACCOUNTING POLICIES
(continued)
The Group has assessed the new standard and based
on its financial assets and liabilities, the key impact of
the standard on the Group will be in relation to trade
receivables and the assessment of the provision of
doubtful receivables under the ‘expected credit loss’
model (rather than the current ‘incurred loss model’). The
expected credit loss model requires the Group to account
for expected credit losses and changes in those expected
credit losses at each reporting date.
The Group expects that the provision for impairment of trade
receivables may increase upon the adoption of AASB 9 on
1 July 2018 as the expected credit loss model is expected
to result in an acceleration of impairment recognition. The
assessment of credit risk, and the estimation of ECL, will
be unbiased and probability weighted, and incorporate all
relevant available information relevant to the assessment,
including information about past events, current conditions
and reasonable and supportable information about future
events and economic conditions at the reporting date.
The Group’s assessment of the impact of this standard
on its consolidated financial statements is ongoing and
the likely impact on adoption is not yet known. Additional
disclosures surrounding expected credit losses will also
be required.
As permitted under AASB 9, the Group plans to adopt
the cumulative effect method, with the effect of initially
applying the standard recognised at the date of initial
application (i.e. 1 July 2018). As a result, the Group will
not apply the requirements of AASB 9 to the comparative
period and the cumulative effect of initially applying the
standard will be recognised as an adjustment to the
opening balance sheet at date of initial application.
AASB 15 Revenue from Contracts with Customers
This standard is applicable to annual reporting periods
beginning on or after 1 January 2018, with the Group
from 1 July 2018. AASB 15
adopting this standard
establishes a comprehensive five-step model
for
determining how much and when revenue is recognised,
including in respect of multiple element arrangements.
AASB 15 will supersede the current revenue recognition
guidance including AASB 111 Construction Contracts,
AASB 118 Revenue and AASB 1004 Contributions when it
becomes effective.
The five steps in the model are:
– Identify the contract with a customer
– Identify the performance obligations in the contract
– Determine the transaction price
– Allocate the transaction price to the performance
obligations in the contract
– Recognise revenue when (or as) the entity satisfies a
performance obligation
56 AINSWORTH GAME TECHNOLOGY
Notes to the Financial Statements (continued)for the year ended 30 June 2018 Additional disclosures of the following information by
revenue stream will be required:
– The nature, amount, timing and uncertainty of revenue
and cash flows;
– The performance obligations and the determination of
allocation of the relative stand-alone transaction price to
performance obligations; and
– Significant judgements applied in adopting the five-step
model.
As permitted under AASB 15, the Group plans to adopt
the cumulative effect method, with the effect of initially
applying the standard recognised at the date of initial
application (i.e. 1 July 2018). As a result, the Group will not
apply the requirements of AASB 15 to the comparative
period and the cumulative effect of initially applying the
standard will be recognised as an adjustment to the
opening balance sheet at date of initial application.
AASB 16 Leases
AASB 16 replaces the current AASB 17 Leases standard.
AASB 16 removes the classification of leases as either
operating leases or finance leases – for the lessee –
effectively treating all leases as finance leases. Most leases
will be capitalised on the balance sheet by recognising a
‘right-of-use’ asset and a lease liability for the present value
obligation. This will result in an increase in the recognised
assets and liabilities in the statement of financial position
as well as a change in expense recognition, with interest
and depreciation replacing operating lease expense.
Lessor accounting remains similar to current practice,
i.e. lessors continue to classify leases as finance and
operating leases.
including
lease arrangements: Revenues
Operating
participation and rental will likely be out of scope of
AASB 15 and fall within AASB 16.
AASB 16 is effective from annual reporting periods
beginning on or after 1 January 2019, with early adoption
permitted for entities that also adopt AASB 15.
This standard will primarily affect the accounting for the
Group’s operating leases. As at 30 June 2018, the Group
has $10,291 thousand of non-cancellable operating lease
commitments, predominantly relating to property leases.
The Group’s assessment of the impact of adopting AASB 16
on its consolidated financial statements is ongoing and the
quantitative effect will depend on, amongst other things,
additional leases that the Group enters into up until date
of adoption of the new standard, the transition method
chosen and, the extent to which the Group uses the
practical expedients available under the standard.
No other new standards, amendments to standards
and interpretations are expected to affect the Group’s
consolidated financial statements.
4. DETERMINATION OF FAIR VALUES
A number of
the Group’s accounting policies and
disclosures require the determination of fair value, for both
financial and non-financial assets and liabilities. Fair values
have been determined for measurement and/or disclosure
purposes based on
following methods. Where
applicable, further information about the assumptions
made in determining fair values is disclosed in the notes
specific to that asset or liability.
the
Intangible assets
(i)
The fair value of customer contracts acquired in a business
combination is based on the discounted cash flows
expected to be derived from the use or eventual sale of
these contracts. The fair value of other intangible assets
is based on the discounted cash flows expected to be
derived from the use and eventual sale of the assets.
(ii) Trade and other receivables/payables
For receivables/payables with a remaining life of less than
one year, the notional amount is deemed to reflect the fair
value. The fair value of all other receivables / payables
is estimated as the present value of future cash flows,
discounted at the market rate of interest at the reporting
date.
(iii) Non-derivative financial instruments
Fair value, which is determined for disclosure purposes, is
calculated based on the present value of future principal
and interest cash flows, discounted at the market rate of
interest at the reporting date. In respect of the liability
component of convertible notes, the market rate of interest
is determined by reference to similar liabilities that do not
have a conversion option. For finance leases the market
rate of interest is determined by reference to similar lease
agreements.
(iv) Loans and borrowings
Fair value is calculated based on discounted expected
future principal and interest cash flows.
(v) Finance lease liabilities
The fair value is estimated as the present value of
future cash flows, discounted at market interest rates
for homogeneous lease agreements. The estimated fair
values reflect changes in interest rates.
(vi) Share-based payment transactions
The fair value of employee stock options is measured using
the Black Scholes Merton model. Measurement inputs
include share price on measurement date, exercise price
of the instrument, expected volatility (based on weighted
average historic volatility adjusted for changes expected
due to publicly available information), weighted average
expected life of the instruments (based on historical
experience and general option holder behaviour),
interest rate
expected dividends, and
(based on government bonds). Service and non-market
performance conditions attached to the transactions are
not taken into account in determining fair value.
the risk-free
ANNUAL REPORT 2018
57
Notes to the Financial Statements (continued)for the year ended 30 June 2018 5. FINANCIAL RISK MANAGEMENT
Overview
The Group has exposure to the following risks from their
use of financial instruments:
– Credit risk;
– Liquidity risk; and
– Market risk.
This note presents information about the Group’s exposure
to each of the above risks, its objectives, policies and
processes for measuring and managing risk, and the
management of capital. Further quantitative disclosures
are included throughout this financial report.
Risk management framework
The Board of Directors has overall responsibility for the
establishment and oversight of the risk management
framework. The Board has established processes through
the Group’s Audit Committee, which is responsible for
developing and monitoring risk management policies.
The Audit Committee reports regularly 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 Group’s Audit 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. The Audit Committee is assisted in its
oversight role by Internal Audit. Internal Audit undertakes
reviews of risk management controls and procedures, the
results of which are reported to the Audit Committee.
Credit risk
Credit risk is the risk of financial loss to the Group if a
customer or counterparty to a financial instrument fails
to meet its contractual obligations, and arises principally
from the Group’s receivables from customers.
Trade and other receivables
The Group’s exposure to credit risk is influenced mainly by
the individual characteristics of each customer, including
the default risk of the industry and country in which
customers operate. The Group’s concentration of credit
risk is disclosed in Note 26.
Credit policy guidelines have been introduced under
which each new customer is assessed by the compliance
division as to suitability and analysed for creditworthiness
before
the Group’s standard payment and delivery
terms and conditions are offered. The Group’s review
includes investigations, external ratings, when available,
and in some cases bank references. Purchase limits
are established for each customer, which represents
the maximum open amount without requiring approval
from the Board. Customers that fail to meet the Group’s
creditworthiness criteria may only transact with the Group
within established limits unless Board approval is received
or otherwise only on a prepayment basis.
In monitoring customer credit risk, customers are grouped
according to their credit characteristics, including whether
they are an individual or legal entity, whether they are a
distributor, operator or customer, geographic location,
aging profile, maturity and existence of previous financial
difficulties. The Group’s trade and other receivables relate
mainly to the Group’s direct customers, operators and
established distributors. Customers that are graded as
“high risk” require future sales to be made on a prepayment
basis within sales limits approved by the Chief Executive
Officer and Chief Financial Officer, and thereafter only with
Board approval.
Goods are sold subject to retention of title clauses, so
that in the event of non-payment the Group may have a
secured claim. The Group does not require collateral in
respect of trade and other receivables.
The Group has established an allowance for impairment
that represents its estimate of incurred losses in respect
of trade and other receivables. The main components of
this allowance are a specific loss component that relates
to individually significant exposures.
Guarantees
The Group’s policy is to provide financial guarantees
only for wholly-owned subsidiaries. At 30 June 2018 no
guarantees were outstanding (2017: none).
Liquidity risk
Liquidity risk is the risk that the Group will not be able to
meet its financial obligations as they fall due. The Group’s
approach to managing liquidity is to ensure, as far as
possible, that it will always have sufficient liquidity to meet
its liabilities when due, under both normal and stressed
conditions, without
losses or
risking damage to the Group’s reputation.
Typically the Group ensures that it has access to sufficient
cash on demand to meet expected operational expenses
for a period of 60 days, including the servicing of financial
obligations; this excludes the potential impact of extreme
circumstances that cannot reasonably be predicted, such
as natural disasters.
incurring unacceptable
58 AINSWORTH GAME TECHNOLOGY
Notes to the Financial Statements (continued)for the year ended 30 June 2018 to
6. OPERATING SEGMENTS
Information reported
the Group’s Chief Executive
Officer (CEO) for the purposes of resource allocation and
assessment of performance is focused on the geographical
location of customers of gaming machines. The primary
geographical location of customers and therefore the
Group’s reportable segments under AASB 8 are outlined in
the table on the following page.
The NSW and North and Latin America segments include the
aggregation of the Group’s other operating segments that
are not separately reportable. Included in the NSW and North
and Latin America segments are the results of the operating
segments related to the servicing of gaming machines in
those geographical regions. These operating segments
are considered to have similar economic characteristics as
the nature of the products and services is complementary
and the nature of the regulatory environment and type of
customer are consistent. Performance of each reportable
segment is based on segment revenue and segment
result as included in internal management reports that are
reviewed by the Group’s CEO. Segment result only takes
into account directly attributable costs, which management
believes is the most relevant approach in evaluating
segment performance.
The Group has a large and dispersed customer base. The
Group’s largest customer accounts for only 8.62% of the
total reportable revenue.
Market risk
Market risk is the risk that changes in market prices, such
as foreign exchange rates and interest rates will affect the
Group’s income or the value of its holdings of financial
instruments. The objective of market risk management
is to manage and control market risk exposures within
acceptable parameters, while optimising the return.
Currency risk
The Group is exposed to currency risk on sales and
purchases that are denominated in a currency other than
the respective functional currencies of Group entities,
primarily the Australian dollar (AUD) and the US dollar
(USD). The currency in which these transactions are
primarily denominated is in USD for the Australian business
operations.
The Group continually monitors and reviews the financial
impact of currency variations to determine strategies to
minimise the volatility of changes and adverse financial
effects in foreign currency exchange rates. No hedging
arrangements were utilised during the reporting period.
In respect of other monetary assets and
liabilities
denominated in foreign currencies, the Group monitors
its net exposure to address short-term imbalances in its
exposure.
Interest rate risk
The Group’s main interest rate risk arises from floating rate
borrowings drawn under bank debt facilities.
Capital management
The Board’s policy is to maintain a strong capital base so
as to maintain investor, creditor and market confidence
and to sustain future development of the business. The
Board continues to monitor group performance so as
to ensure an acceptable return on capital is achieved
and that dividends are able to be provided to ordinary
shareholders in the short term.
The Board continues to review alternatives to ensure
present employees will hold equity in the Company’s
ordinary shares. This is expected to be an ongoing
process establishing long term incentive plans to further
align shareholders and employees interests.
There were no changes in the Group’s approach to capital
management during the year. The Group is not subject to
externally imposed capital requirements.
ANNUAL REPORT 2018
59
Notes to the Financial Statements (continued)for the year ended 30 June 2018 .
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ANNUAL REPORT 2018
61
7. REVENUE
In thousands of AUD
Sale of goods
Rendering of services
Rental and participation revenue
8. OTHER INCOME
In thousands of AUD
Royalties income
Rental income from lease of machinery
Gain on sale of property plant and equipment
9. EXPENSES BY NATURE
In thousands of AUD
Changes in raw material and consumables, finished goods and work in progress
Employee benefits expense
Depreciation and amortisation expense
Legal expenses
Evaluation and testing expenses
Marketing expenses
Operating lease expenses
Impairment loss
Other expenses
Note
2018
2017
211,809
232,936
7,862
45,913
7,890
41,254
265,584
282,080
2018
343
–
2,586
2,929
2017
584
63
72
719
2018
2017
98,598
62,101
28,027
801
6,591
5,261
2,241
5,165
22,630
231,415
103,571
64,255
25,831
290
9,905
4,633
2,276
3,347
13,810
227,918
16
10
12,13
27
62 AINSWORTH GAME TECHNOLOGY
Notes to the Financial Statements (continued)for the year ended 30 June 2018 10. EMPLOYEE BENEFIT EXPENSES
In thousands of AUD
Wages and salaries
Short term incentives
Contributions to defined contribution superannuation funds
Increase in liability for annual leave
Increase in liability for long service leave
Termination benefits
Equity settled share-based payment transactions
11. FINANCE INCOME AND FINANCE COSTS
In thousands of AUD
Interest income on trade receivables
Interest income on bank deposits
Net foreign exchange gain
Finance income
Interest expense on financial liabilities
Net foreign exchange loss
Finance costs
Net finance income / (costs) recognised in profit or loss
Note
22
22
2018
56,898
1,874
3,483
396
333
335
(1,218)
62,101
2018
3,881
19
3,113
7,013
(1,580)
–
(1,580)
5,433
2017
55,441
2,822
3,547
8
168
138
2,131
64,255
2017
3,578
79
–
3,657
(1,207)
(10,531)
(11,738)
(8,081)
ANNUAL REPORT 2018
63
Notes to the Financial Statements (continued)for the year ended 30 June 2018 12. PROPERTY, PLANT AND EQUIPMENT
In thousands of AUD
Cost
Balance at 1 July 2016
Re-classification of inventory to plant and equipment
Re-classification of PPE category
Additions
Disposals
Effect of movements in foreign exchange
Balance at 30 June 2017
Balance at 1 July 2017
Re-classification of inventory to plant and equipment
Re-classification of PPE category
Additions
Disposals
Effect of movements in foreign exchange
Balance at 30 June 2018
Depreciation and impairment losses
Balance at 1 July 2016
Depreciation charge for the year
Disposals
Effect of movements in foreign exchange
Balance at 30 June 2017
Balance at 1 July 2017
Depreciation charge for the year
Disposals
Effect of movements in foreign exchange
Balance at 30 June 2018
Carrying amounts
At 1 July 2016
At 30 June 2017
At 30 June 2018
Note
Land and
buildings
Plant and
equipment
Leasehold
improvements
Total
59,885
–
(2,858)
303
(193)
(2,071)
55,066
55,066
–
–
4,389
(2,432)
2,243
59,266
678
1,765
–
(57)
2,386
2,386
1,847
–
188
4,421
59,207
52,680
54,845
84,712
29,799
(873)
4,806
(15,674)
(1,756)
101,014
101,014
34,201
–
3,828
(38,694)
2,821
103,170
38,563
15,394
(6,591)
(1,434)
45,932
45,932
17,856
(24,417)
1,681
41,052
46,149
55,082
62,118
5,162
–
3,731
242
(6,036)
(8)
3,091
3,091
–
–
111
(163)
13
149,759
29,799
–
5,351
(21,903)
(3,835)
159,171
159,171
34,201
–
8,328
(41,289)
5,077
3,052
165,488
1,025
309
(35)
(6)
1,293
1,293
271
(163)
21
1,422
4,137
1,798
1,630
40,266
17,468
(6,626)
(1,497)
49,611
49,611
19,974
(24,580)
1,890
46,895
109,493
109,560
118,593
Disposals in the table above includes sale of gaming machines previously under participation or rental agreements of $12,624
thousand (2017: $8,901 thousand) at net book value.
The carrying amount of plant and equipment on operating lease is $46,598 thousand (2017: $38,672 thousand).
Leased plant and equipment
The Group leases plant and equipment and motor vehicles under hire purchase agreements. At the end of each of
these agreements the Group has the option to purchase the equipment at a beneficial price. The leased equipment
and guarantees by the Group secure lease obligations. At 30 June 2018, the net carrying amount of leased plant and
equipment was $59 thousand (2017: $96 thousand).
64 AINSWORTH GAME TECHNOLOGY
Notes to the Financial Statements (continued)for the year ended 30 June 2018 l
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ANNUAL REPORT 2018
65
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INTANGIBLE ASSETS (continued)
13.
Impairment testing for development costs
The four main CGUs or Group of CGUs are: Development, Australia and other (comprised of Asia, New Zealand, South Africa
and Europe), North America and Latin America.
The determination of CGUs for the purposes of testing development costs for impairment is consistent with last financial year.
The Group has maintained that the most reasonable and consistent basis upon which to allocate development costs is to have
the Group’s research and development function (‘Development CGU’) recharge product development costs to the Group’s
other CGUs, which are in line with the Group’s geographic operating segments.
The carrying amount of the Group’s development costs amounts to $28,451 thousand (2017: $28,063 thousand), comprising of
$26,353 thousand in development costs relating to product development and $2,098 thousand in development costs relating
to online development activities.
Development costs include development costs relating to products and online gaming that are not yet available for sale and as
such their recoverable amount is assessed at the end of each reporting period.
Product development costs are recharged from the Development CGU to individual CGUs, based on the forecasted unit sales
of each individual CGU. Other assets, consisting of intangible assets and property, plant and equipment, are allocated to the
individual CGUs to which they relate.
The Group has allocated corporate assets, goodwill and intangible assets on a consistent basis with last financial year. This
includes allocation of goodwill arising from the acquisition of Nova Technologies in 2016 which has been allocated to the North
America CGU.
The recoverable amount of each CGU was estimated based on its value in use. Value in use for each individual CGU was
determined by discounting the future cash flows generated from continuing use of the product development costs over a five
year period. Future cash flows are expected to be generated from the sales of machines and products and are based on the
following key assumptions:
CGUs
Development
Australia and other
North America
Latin America
2018
2017
Average
annual
revenue
growth rate(2)
3.3%
2.9%
3.1%
4.0%
Discount
rate(1)
14.3%
15.2%
13.5%
19.8%
Average
annual
revenue
growth rate(3)
4.8%
2.4%
7.8%
4.6%
Discount
rate(1)
14.4%
14.5%
17.2%
23.5%
(1) Discount rates are pre-tax discount rates.
(2) The 2018 average annual revenue growth rate for 5 years (2019 to 2023) presented above is calculated based on historical experience,
actual operating results and estimated financial results based on planned strategic initiatives.
(3) The 2017 average annual revenue growth rate for 5 years (2018 to 2022) presented above is calculated based on historical experience,
actual operating results and estimated financial results based on planned strategic initiatives.
The allocation of goodwill, indefinite useful life intangible assets and other assets to the Groups of CGUs are as follows:
2018
Indefinite life
intangible
assets
‘$000
Capitalised
Development
costs
‘$000
–
–
1,583
–
28,451
–
–
–
Goodwill
‘$000
–
2,436
20,608
–
Other
assets
‘$000
Recoverable
amount
‘$000
581
7,981
99,382
25,067
139,208
23,993
152,133
32,198
CGUs
Development
Australia and other
North America
Latin America
66 AINSWORTH GAME TECHNOLOGY
Notes to the Financial Statements (continued)for the year ended 30 June 2018 CGUs
Development
Australia and other
North America
Latin America
2017
Indefinite life
intangible
assets
‘$000
Capitalised
Development
costs
‘$000
–
–
1,583
–
28,063
–
–
–
Goodwill
‘$000
–
2,436
19,802
–
Other
assets
‘$000
Recoverable
amount
‘$000
361
9,824
100,175
16,219
105,244
28,497
177,600
36,073
Impairment testing for goodwill and indefinite life intangibles
Goodwill arising from the Class II gaming business acquired in 2016 and Nevada license indefinite life intangibles were allocated
to the North America CGU. The recoverable amount of this CGU was estimated based on its value in use, determined by
discounting future cash flows to be generated from the continuing use of the CGU.
The key assumptions used in estimation of value in use were as follows:
– The discount rate of 13.5% (2017: 17.2%) used is a pre-tax rate;
– Five years of cash flows were included in the discounted cash flow model. A long-term growth rate into perpetuity of 2.5%
(2017: 1.8%) has been determined based on growth prospects of this CGU industry and the overall economy; and
– The projected average revenue growth rate over the five years is 3.1% (2017: 7.8%) is based on past experience, adjusted for
anticipated revenue growth in the Class II markets in which this CGU operates.
As the recoverable amount of the CGU was estimated to be higher than the carrying amount of the CGU’s assets, no impairment
was considered necessary.
Goodwill arising from service business in Australia was allocated to the Australia and other CGU. The recoverable amount
of this CGU was estimated based on its value in use, determined by discounting future cash flows to be generated from the
continuing use of the CGU.
The key assumptions used in estimation of value in use were as follows:
– The discount rate of 15.2% (2017: 14.5%) used is a pre-tax rate;
– Five years of cash flows were included in the discounted cash flow model. A long-term growth rate into perpetuity of 2% (2017:
1.8%) has been determined based on growth prospects of this CGU industry and the overall economy; and
– The projected average revenue growth rate over the five years is 2.9% (2017: 2.4%) based on past experience, adjusted for
anticipated revenue growth.
As the recoverable amount of the CGU was estimated to be higher than the carrying amount of the CGU’s assets, no impairment
was considered necessary.
Impact of possible changes in key assumptions
Based on the net recoverable amount for each CGU illustrated above, Management does not believe a reasonable change in
key assumptions will result in a material impairment charge.
ANNUAL REPORT 2018
67
Notes to the Financial Statements (continued)for the year ended 30 June 2018 14. EQUITY-ACCOUNTED INVESTEE
616 Digital LLC (“616”) is a joint venture in which the Group has 40% ownership interest.
616 is an online social platform provider established in Delaware, USA and operates from Romania and Australia. This
arrangement allows both parties to jointly progress development and marketing of social gaming offering on both desktop
and mobile, leveraging the extensive game content library established for land based markets. An agreement has also been
established where the Group has the ability to purchase the remaining 60% interest in 616 at a future date. The investment in
equity accounted investee for the Group comprise the following:
In thousands of AUD
616 Digital LLC
Ownership
30-Jun-18
Ownership
30-Jun-17
Carrying
amount
30-Jun-18
40%
40%
2,001
Carrying
amount
30-Jun-17
4,683
The Group’s share of loss of equity accounted investee is $224 thousand (2017: $153 thousand profit).
616’s earnings growth profile has been adversely affected by the ongoing maturation of the North American and Australian
social gaming market and an increase in player acquisition and retention costs. These market changes have been to the
disadvantage of smaller operators like 616 in favour of larger scale competitors, and are reflected in lower than anticipated
year on year revenue and EBITDA growth, requiring a write down in the carrying value of AGT’s 40% interest in 616 by $2,451
thousand (2017: $nil thousand). The write down is reflected within ‘Other expenses’ and ‘Other expenses not allocated to
segments’ in the Consolidated Statement of Profit or Loss and Other Comprehensive Income and Note 6 respectively.
Summary financial information for the equity accounted investee, not adjusted for the percentage ownership held by the Group,
is as follows:
In thousands of AUD
Cash and cash equivalents
Current assets (excluding cash and cash equivalents)
Non-current assets
Current financial liabilities (excluding trade and other payables and provisions)
Current financial liabilities (including trade and other payables and provisions)
Net Assets
Income
Expenses
Elimination of upstream purchases
(Loss) / Profit
2018
705
264
7
(11)
(137)
828
2,069
(2,790)
161
(560)
2017
1,450
267
2
(21)
(149)
1,549
2,271
(2,222)
334
383
The movement of the Group’s investment in 616 during the year, adjusted for the percentage ownership held by the Group was
as follows:
Carrying amount at beginning of period
Share of (loss) / profit
Write down of carrying amount
Effects of movements in foreign exchange
Carrying amount at end of period
4,683
(224)
(2,451)
(7)
2,001
4,831
153
–
(301)
4,683
68 AINSWORTH GAME TECHNOLOGY
Notes to the Financial Statements (continued)for the year ended 30 June 2018 2018
2017
(19,141)
(24,312)
1,849
7,417
(9,875)
(1,480)
984
(496)
8,325
8,669
(7,318)
(1,705)
–
(1,705)
(10,371)
(9,023)
2017
2017
46,953
(14,086)
(2,360)
(9,519)
8,669
–
8,325
(52)
–
15. TAXES
Current tax expense
In thousands of AUD
Tax recognised in profit or loss
Current tax expense
Current year
Prior year adjustments
Recognition of R&D tax credits
Deferred tax benefit
Timing differences movement
Reduction in tax rate
Total income tax expense
Reconciliation of effective tax rate
In thousands of AUD
Profit before income tax
2018
2018
42,307
Income tax expense using the Company’s domestic tax rate
(30.00%)
(12,692)
(30.00%)
Effective tax rates in foreign jurisdictions
Non-deductible expenses
Non-assessable income and concessions
Other tax concessions
Prior year adjustments
Recognition of previously unrecognised tax losses and timing
differences
Impact of change in tax rates
Recognised deferred tax assets/liabilities
In thousands of AUD
Employee benefits
Provisions
Property, plant and equipment
Unrealised foreign exchange gain
Other items
Tax loss carry-forwards
Net tax assets/liabilities
(2.27%)
(15.77%)
17.53%
–
4.37%
(0.69%)
2.33%
(962)
(5.03%)
(6,673)
(20.28%)
7,417
–
1,849
(294)
984
18.46%
–
17.73%
(0.11%)
–
(24.50%)
(10,371)
(19.22%)
(9,023)
2018
2017
Deferred tax assets
2018
2017
Deferred tax liabilities
2,371
529
82
(1,191)
1,607
1,603
5,001
2,204
1,887
–
619
(127)
144
4,727
328
2,210
(4,756)
–
(600)
–
(2,818)
307
–
(6,475)
–
1,940
114
(4,114)
ANNUAL REPORT 2018
69
Notes to the Financial Statements (continued)for the year ended 30 June 2018 15. TAXES (continued)
The deductible temporary differences and tax losses do not expire under current tax legislation. R&D non-refundable tax offset
credits are available to be applied against income tax payable in future years and do not expire under current tax legislation.
During the first half, a tax reform was substantially enacted on 22 December 2017 in the United States, whereby the corporate
tax rate was reduced from 35% to 21% effective 1 January 2018. The members of the Group that were affected by this tax reform
have assessed the carrying value of their deferred tax assets and deferred tax liabilities and have appropriately included the
adjusted balances of these accounts in the consolidated financial reports.
Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and
they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they
intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously.
Management has assessed that the carrying amount of the deferred tax assets of $5,001 thousand should be recognised as
management considers it probable that future taxable profits would be available against which they can be utilised.
16.
INVENTORIES
In thousands of AUD
Raw materials and consumables
Finished goods
Stock in transit
Inventories stated at the lower of cost and net realisable value
2018
2017
37,333
38,254
3,717
79,304
37,859
31,699
5,174
74,732
During the year ended 30 June 2018 raw materials, consumables and changes in finished goods and work in progress
recognised as cost of sales amounted to $98,598 thousand (2017: $103,571 thousand).
A re-classification from inventory to property, plant and equipment of $34,201 thousand (2017: $29,799 thousand) was recorded
to reflect gaming products for which rental and participation agreements were entered into during the year.
During the year ended 30 June 2018, the write down of inventories to net realisable value amounted to $2,365 thousand
(2017: $1,174 thousand). The write down is included in cost of sales.
70 AINSWORTH GAME TECHNOLOGY
Notes to the Financial Statements (continued)for the year ended 30 June 2018 17. RECEIVABLES AND OTHER ASSETS
In thousands of AUD
Current
Trade receivables
Less impairment losses
Other assets
Amount receivable from director/shareholder controlled entities
Non-current
Trade receivables
Note
2018
2017
152,266
125,095
26
(3,931)
(3,017)
148,335
122,078
1
5,128
3
6,565
153,464
128,646
39,259
39,259
39,877
39,877
Information about the Group’s exposure to credit and market risks and impairment losses for trade and other receivables is
included in Note 26.
Leasing arrangements
Included in trade receivables are receivables from gaming machines that have been sold under finance lease arrangement. The
lease payments receivable under these contracts is as follows:
In thousands of AUD
Minimum lease payments under finance leases are receivable as follows:
Within one year
Later than one year but not later than 5 years
Unearned finance income
Within one year
Later than one year but not later than 5 years
The present value of minimum lease payments is as follows:
Within one year
Later than one year but not later than 5 years
Lease receivables are classified as follows:
Within one year
Later than one year but not later than 5 years
2018
2017
3,840
6,365
10,205
4,730
5,659
10,389
381
226
607
3,459
6,139
9,598
3,459
6,139
9,598
400
238
638
4,330
5,421
9,751
4,330
5,421
9,751
ANNUAL REPORT 2018
71
Notes to the Financial Statements (continued)for the year ended 30 June 2018 18. CASH AND CASH EQUIVALENTS
In thousands of AUD
Bank balances
Cash deposits
Cash and cash equivalents in the statement of cash flows
2018
2017
33,352
2,315
35,667
21,094
–
21,094
The Group’s exposure to interest rate risk and a sensitivity analysis for financial assets and liabilities are disclosed in Note 26.
18A. RECONCILIATION OF CASH FLOWS FROM OPERATING ACTIVITIES
In thousands of AUD
Cash flows from operating activities
Profit for the period
Adjustments for:
Depreciation
Impairment losses on trade receivables and provision for obsolescence
Write down on Equity-accounted investee
Amortisation of intangible assets
Net finance (income) / cost
Gain on sale of property, plant and equipment
Unrealised currency translation movements
Equity-settled share-based payment transactions
Income tax expense
Note
2018
2017
31,936
37,930
19,974
5,079
2,451
8,053
(5,433)
(2,554)
3,745
(1,218)
10,371
17,468
4,521
–
8,363
8,081
(26)
(241)
2,131
9,023
12
14
13
11
10
15
Operating profit before changes in working capital and provisions
72,404
87,250
(19,047)
(2,287)
(22,154)
(545)
3,498
(1,566)
30,303
(892)
(11,045)
18,366
(21,101)
(22,315)
(20,793)
(6,521)
4,489
990
21,999
(708)
(16,053)
5,238
Change in trade and other receivables
Change in inventories
Net transfers between inventory and leased assets
Change in other assets
Change in trade and other payables
Change in provisions and employee benefits
Interest paid
Income taxes paid
Net cash from operating activities
72 AINSWORTH GAME TECHNOLOGY
Notes to the Financial Statements (continued)for the year ended 30 June 2018 19. CAPITAL AND RESERVES
(a) Share capital
In thousands of shares
In issue at 1 July
Exercise of share options
Shares issued under dividend reinvestment plan
In issue at 30 June – fully paid
Ordinary shares
2018
2017
331,086
327,716
–
1,427
–
3,370
332,513
331,086
(i) Ordinary shares
The Company does not have authorised capital or par value in respect of its issued shares. All issued shares are fully paid. All
shares rank equally with regard to the Company’s residual assets.
The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per
share at meetings of the Company.
Issue of ordinary shares
During the year, 1,427 thousand ordinary shares were issued as a result of shareholders participation in the dividend reinvestment
plan.
(b) Nature and purpose of reserve
(i)
Equity compensation reserve
The equity compensation reserve represents the expensed cost of share options issued to employees.
(ii) Fair value reserve
The fair value reserve comprises the cumulative net change in fair value of related party loans and borrowings where interest
is charged at below market rates.
(iii) Translation reserve
The translation reserve comprises all foreign exchange differences arising from the translation of the financial statements
of foreign operations where their functional currency is different to the presentation currency of the reporting entity.
(iv) Profits reserve
This reserve is comprised wholly of the profits generated by the Australian entity which would be eligible for distribution as
a frankable dividend.
(c) Dividends
The following dividends were paid by the Company during the year:
In thousands of AUD
1.5 cents per qualifying ordinary share (2017: 5.0 cents)
2018
4,966
2017
16,386
After the reporting date, the following dividends were proposed by the board of directors (2017: $nil thousand). The dividends
have not been recognised as liabilities and there are no tax consequences.
In thousands of AUD
2.5 cents per qualifying ordinary share (2017: nil cents)
2018
8,313
2017
–
The amount of franking credits available to shareholders for subsequent financial years is $28,931 thousand (2017: $19,496
thousand). The ability to utilise the franking credits is dependent upon the ability to declare dividends.
ANNUAL REPORT 2018
73
Notes to the Financial Statements (continued)for the year ended 30 June 2018 20. EARNINGS PER SHARE
Basic earnings per share
The calculation of basic earnings per share at 30 June 2018 was based on the profit attributable to ordinary shareholders of
$31,936 thousand (2017: $37,930 thousand) and a weighted average number of ordinary shares outstanding during the financial
year ended 30 June 2018 of 331,293 thousand (2017: 329,673 thousand), calculated as follows:
Profit attributable to ordinary shareholders
In thousands of AUD
Profit for the period
Profit attributable to ordinary shareholders
Weighted average number of ordinary shares
In thousands of shares
Issued ordinary shares at 1 July
Effect of shares issued
Weighted average number of ordinary shares at 30 June
Total basic earnings per share attributable to the ordinary equity holders of the
Company
Note
19
2018
31,936
31,936
2017
37,930
37,930
331,086
207
327,716
1,957
331,293
329,673
$0.10
$0.12
Diluted earnings per share
The calculation of diluted earnings per share at 30 June 2018 was based on the profit attributable to ordinary shareholders of
$30,718 thousand (2017: $40,061 thousand) and a weighted average number of ordinary shares outstanding after adjustment
for the effects of all dilutive potential ordinary shares of 336,114 thousand (2017: 333,735 thousand), calculated as follows:
Profit attributable to ordinary shareholders (diluted)
In thousands of AUD
Profit attributable to ordinary shareholders
Amortisation of performance rights (RST)
Profit attributable to ordinary shareholders (diluted)
Weighted average number of ordinary shares (diluted)
In thousands of shares
Weighted average number of ordinary shares at 30 June
Effect of rights and options on issue
Weighted average number of ordinary shares (diluted) at 30 June
Total diluted earnings per share attributable to the ordinary equity holders of the
Company
2018
2017
31,936
(1,218)
30,718
37,930
2,131
40,061
331,293
329,673
4,821
336,114
4,062
333,735
$0.09
$0.12
74 AINSWORTH GAME TECHNOLOGY
Notes to the Financial Statements (continued)for the year ended 30 June 2018 21. LOANS AND BORROWINGS
This note provides information about the contractual terms of the Group’s interest-bearing loans and borrowings, which are
measured at amortised cost. For more information about the Group’s exposure to interest rate, foreign currency and liquidity
risk, see Note 26.
In thousands of AUD
Current
Finance lease liabilities
Non-current
Finance lease liabilities
Secured bank loan
2018
2017
239
178
–
71,721
71,721
11
65,501
65,512
Terms and debt repayment schedule
Terms and conditions of outstanding loans were as follows:
In thousands of AUD
Currency
Nominal
interest rate
Year of
maturity
Finance lease liabilities
AUD 0.90-2.90%
Secured bank loan
USD LIBOR+0.65%
2019
2021
Total interest-bearing
liabilities
2018
Face
value
243
71,721
Carrying
amount
239
71,721
2017
Face
value
Carrying
amount
194
65,501
189
65,501
71,964
71,960
65,695
65,690
The bank loan is secured by fixed and floating charges over identified assets of the Company and certain of its Australia and US
wholly owned subsidiaries, and imposes certain customary financial covenants measured on a six-monthly basis.
Finance lease liabilities
Finance lease liabilities of the Group are payable as follows:
In thousands of AUD
Less than one year
Between one and five years
Future
minimum
lease
payments
2018
243
–
243
Present value
of minimum
lease
payments
Future
minimum
lease
payments
2018
239
–
239
2017
183
11
194
Interest
2018
4
–
4
Present value
of minimum
lease
payments
2017
178
11
189
Interest
2017
5
–
5
The Group leases plant and equipment under finance leases with terms expiring within one year. At the end of the lease term,
there is the option to purchase the equipment at a discount to market value, a price deemed to be a bargain purchase option.
ANNUAL REPORT 2018
75
Notes to the Financial Statements (continued)for the year ended 30 June 2018 22. EMPLOYEE BENEFITS
In thousands of AUD
Current
Accrual for salaries and wages
Accrual for short term incentive plan
Liability for annual leave
Liability for long service leave
Non-current
Liability for long service leave
2018
2017
505
1,574
4,165
3,269
9,513
589
589
464
1,285
3,769
2,849
8,367
676
676
23. SHARE-BASED PAYMENTS
Performance rights programmes (equity-settled)
On 22 July 2013, 17 March 2015 and 1 March 2017, employee incentive plans were established whereby performance rights were
granted to all eligible Group employees under the Rights Share Trust (RST). Under the RST eligible employees were allocated
performance rights over ordinary shares in the Company at nil consideration or exercise price however are dependent on
service conditions, vesting conditions and performance hurdles.
The key terms and conditions related to the grants under these programmes are as follows; all rights are to be settled by the
physical delivery of shares.
Grant date/employee entitled
Rights grant to key management at 22 July 2013
Rights grant to senior and other employees at
22 July 2013
Number of
instruments
outstanding
–
–
Rights grant to key management at 17 March 2015
209,493
Rights grant to senior and other employees at
17 March 2015
732,547
Rights grant to key management at 1 March 2017
622,203
Rights grant to senior and other employees at
1 March 2017
Total rights RST
3,256,769
4,821,012
Vesting conditions
Four years service and
performance hurdles from grant
date as per RST below
Four years service and
performance hurdles from grant
date as per RST below
Four years service and
performance hurdles from grant
date as per RST below
Four years service and
performance hurdles from grant
date as per RST below
Four years service and
performance hurdles from grant
date as per RST below
Four years service and
performance hurdles from grant
date as per RST below
Contractual life of
options
5 years
5 years
5 years
5 years
5 years
5 years
76 AINSWORTH GAME TECHNOLOGY
Notes to the Financial Statements (continued)for the year ended 30 June 2018 To be eligible to participate in the RST the employee was selected by the directors and reviewed by the remuneration and
nomination committee. The RST provide for employees to receive shares for no consideration. Each right is convertible to one
ordinary share. Right holders have no voting or dividend rights. On conversion from right to ordinary shares, the issued shares
will have full voting and dividend rights. The ability to exercise the right is conditional on the continuing employment of the
participating employee.
For details of the related employee benefits expenses, see Note 10.
The estimate of the fair value of the services received is measured based on the Black Scholes Merton model. The fair value
of services received in return for share options and rights granted are measured by reference to the fair value of share options
and rights granted. The contractual life of the option and right is used as an input into this model. Expectations of early exercise
are incorporated into these models. The expected volatility is based on the historic volatility (calculated based on the weighted
average remaining life of the share options or rights), adjusted for any expected changes to future volatility due to publicly
available information.
Further details of the share performance rights issued under the RST are detailed below.
22 July 2013 Performance rights
(i)
The total rights granted to all eligible employees on 22 July 2013 was 1,489,358. During the year, the remaining 50% of these
performance rights lapsed on 1 September 2017 due to performance conditions not being met. 563,334 rights were cancelled
during the year with no rights outstanding at 30 June 2018.
The vesting conditions of the performance rights issued on 22 July 2013 under the RST were as follows:
Date
1 September 2016
1 September 2017
Vesting condition
(% of Rights vesting)
50%
50%
In addition to the vesting conditions on rights granted under the RST, specific performance hurdles relative to Total Shareholder
Return (TSR) relative targets and Earnings per Share (EPS) targets are required to be met as follows:
Vesting date of 1 September 2016:
– 30% vest subject to the TSR target below with a fair value at grant date of $2.4349;
– 70% vest subject to the EPS target below with a fair value at grant date of $3.2375; and
The remaining 50% of the rights vest on 1 September 2017, of which:
– 30% vest subject to the TSR target below with a fair value at grant date of $2.3892; and
– 70% vest subject to the EPS target below with a fair value at grant date of $3.1693.
The inputs used in the measurement of the above fair values at grant date of the equity settlement share based payment plan
under the RST were as follows:
Share price at grant date
Exercise price
Expected volatility
Expected life
Expected dividends
Risk-free interest rate (based on Treasury Bonds)
RST plan
$3.46
–
40.3%
5 years
2.1%
2.6%
ANNUAL REPORT 2018
77
Notes to the Financial Statements (continued)for the year ended 30 June 2018 23. SHARE-BASED PAYMENTS (continued)
Total Shareholder Return (TSR) Relative Targets
TSR rank
Less than 50% percentile
50th percentile
Proportion of TSR rights that vest
0%
50%
Between 50th and 75th percentile
Pro-rata (sliding scale) percentage
At or above 75th percentile
100%
The Comparison Group of Companies for the TSR hurdle are companies in the ASX 300 Index that have the same Consumer
Services GICS industry sector as Ainsworth.
EPS Targets
EPS achievement
Less than 8.0% p.a.
8.0% p.a.
10% p.a.
12.5% p.a.
Proportion of EPS rights that vest
0%
25% plus 1.25% for each 0.1% increase in EPS
50% plus 2.0% for each 0.1% increase in EPS
100%
17 March 2015 Performance rights
(ii)
The total rights granted to all eligible employees on 17 March 2015 was 2,555,853. During the year, the first 50% of these
performance rights lapsed on 17 March 2018 due to performance hurdles not being met. 1,110,089 rights were cancelled during
the year with 942,040 rights outstanding as at 30 June 2018.
The vesting conditions of the performance rights issued on 17 March 2015 under the RST are as follows:
Date
17 March 2018
17 March 2019
Vesting
condition
(% of Rights
vesting)
50%
50%
In addition to the vesting conditions on rights granted under the RST, specific performance hurdles relative to Total Shareholder
Return (TSR) relative targets and Earnings per Share (EPS) targets are required to be met as follows:
Vesting date of 17 March 2018:
– 30% vest subject to the TSR target below with a fair value at grant date of $1.9974;
– 70% vest subject to the EPS target below with a fair value at grant date of $2.3164; and
The remaining 50% of the rights vest on 17 March 2019, of which:
– 30% vest subject to the TSR target below with a fair value at grant date of $1.9290; and
– 70% vest subject to the EPS target below with a fair value at grant date of $2.2289.
78 AINSWORTH GAME TECHNOLOGY
Notes to the Financial Statements (continued)for the year ended 30 June 2018 The inputs used in the measurement of the above fair values at grant date of the equity settlement share based payment plan
under the RST are as follows:
Share price at grant date
Exercise price
Expected volatility
Expected life
Expected dividends
Risk-free interest rate (based on Treasury Bonds)
Total Shareholder Return (TSR) Relative Targets
TSR rank
Less than 50% percentile
50th percentile
Proportion of TSR rights that vest
0%
50%
RST plan
$2.60
–
24.1%
5 years
3.9%
2.5%
Between 50th and 75th percentile
Pro-rata (sliding scale) percentage
At or above 75th percentile
100%
The Comparison Group of Companies for the TSR hurdle are companies in the ASX 300 Index that have the same Consumer
Services GICS industry sector as Ainsworth.
EPS Targets
EPS achievement
Less than 8.0% p.a.
8.0% p.a.
10% p.a.
12.5% p.a.
Proportion of EPS rights that vest
0%
25% plus 1.25% for each 0.1% increase in EPS
50% plus 2.0% for each 0.1% increase in EPS
100%
1 March 2017 Performance rights
(iii)
The total rights granted to all eligible employees on 1 March 2017 was 4,408,803. During the year, Tranche 1 of these rights
did not vest at the first vesting date of 1 March 2018 due to performance conditions not being met. The grant of this Tranche
under the RST will be re-tested at the end of the next applicable performance vesting date of 1 March 2019, subject to the
higher performance conditions. If the performance conditions at the end of the next applicable performance period are
satisfied then the performance rights for the current performance period and any non-vested performance rights from prior
performance periods will vest. 484,826 rights were cancelled due to termination of employees during the year with 3,878,972
rights outstanding as at 30 June 2018.
The vesting conditions of the performance rights issued on 1 March 2017 under the RST are as follows:
Achievement of the performance hurdle is determined by a 15% compound increase on the share price of $1.86, being the
Volume Weighted Average Price (VWAP) for 90 days ending 28/02/2017.
– Tranche 1 - 20% will vest if the VWAP for 20 days preceding 01/03/2018 is equal to or greater than $2.14.
– Tranche 2 - 20% will vest if the VWAP for 20 days preceding 01/03/2019 is equal to or greater than $2.46.
– Tranche 3 - 20% will vest if the VWAP for 20 days preceding 01/03/2020 is equal to or greater than $2.83.
– Tranche 4 - 40% will vest if the VWAP for 20 days preceding 01/03/2021 is equal to or greater than $3.25.
ANNUAL REPORT 2018
79
Notes to the Financial Statements (continued)for the year ended 30 June 2018 23. SHARE-BASED PAYMENTS (continued)
The fair value of the performance rights granted on 1 March 2017 under the RST are as follows:
Fair value at grant date
– Vesting date 1 March 2018
– Vesting date 1 March 2019
– Vesting date 1 March 2020
– Vesting date 1 March 2021
Fair Value per
option
$0.56
$0.49
$0.42
$0.37
The inputs used in the measurement of the above fair values at grant date of the equity settlement share based payment plan
under the RST were as follows:
Share price at grant date
Exercise price
Expected volatility
Expected life
Expected dividends
Risk-free interest rate (based on Treasury Bonds)
24. TRADE AND OTHER PAYABLES
In thousands of AUD
Current
Trade payables
RST plan
$1.77
–
36.90%
5 years
5.65%
2.31%
Note
2018
2017
18,423
18,964
113
15,017
17,834
142
37,500
32,993
Other payables and accrued expenses
Amount payable to director/shareholder controlled entities
29
The Group’s exposure to currency and liquidity risk related to trade and other payables is disclosed in Note 26.
25. PROVISIONS
In thousands of AUD
Balance at 1 July 2017
Provisions made during the year
Provisions used during the year
Balance at 30 June 2018
80 AINSWORTH GAME TECHNOLOGY
Service/
warranties
828
959
(828)
959
Legal
110
141
(110)
141
Total
938
1,100
(938)
1,100
Notes to the Financial Statements (continued)for the year ended 30 June 2018 26. FINANCIAL INSTRUMENTS
Credit risk
Exposure to credit risk
Trade and other receivables
The carrying amount of the Group’s financial assets represents the maximum credit exposure. The Group’s maximum exposure
to credit risk at the reporting date was:
In thousands of AUD
Receivables
Note
17
Carrying amount
2018
2017
192,722
192,722
168,520
168,520
The Group’s gross maximum exposure to credit risk for trade receivables at the reporting date by geographic region was:
In thousands of AUD
Australia
Americas
Europe
New Zealand
Asia
South Africa
2018
23,825
163,247
5,174
1,101
3,070
236
2017
26,306
132,841
7,241
2,160
2,989
–
196,653
171,537
The Group’s concentration of credit risk arises from its two most significant receivable amounts is represented by customers in
North America. They account for $23,301 thousand (2017: $nil thousand) and $11,384 thousand (2017: $8,751 thousand) of the
trade receivables carrying amount at 30 June 2018 respectively.
Cash and cash equivalents
The Group held cash of $33,352 thousand at 30 June 2018 (2017: $21,094 thousand) and $2,315 thousand of cash deposits at
30 June 2018 (2017: $nil thousand), which represents its maximum credit exposure on these assets. The cash and cash deposits
are held with bank and financial institution counterparts, which are rated AA- to A-, based on rating agency Standard & Poor
ratings.
Impairment losses
The aging of the Group’s trade receivables at the reporting date was:
In thousands of AUD
Not past due
Past due 0-30 days
Past due 31-120 days
Past due 121 days to one year
More than one year
Gross
2018
Impairment
2018
Gross
2017
Impairment
2017
128,398
29,879
22,379
8,996
7,001
196,653
9
–
–
570
3,352
3,931
115,811
36,841
10,574
3,186
5,125
171,537
51
–
–
169
2,797
3,017
ANNUAL REPORT 2018
81
Notes to the Financial Statements (continued)for the year ended 30 June 2018 26. FINANCIAL INSTRUMENTS (continued)
The movement in the allowance for impairment in respect of trade receivables during the year was as follows:
In thousands of AUD
Balance at 1 July
Impairment loss written off
Provision during the year
Recovered
Effect of exchange rate fluctuations
Balance at 30 June
2018
3,017
(1,896)
2,714
(25)
121
3,931
2017
3,349
(3,569)
3,347
(37)
(73)
3,017
The provision of $2,714 thousand (2017: $3,347 thousand) was recognised in other expenses in the income statement.
Based on historic default rates and current repayment plans in place, the Group believes that apart from the above, no impairment
is necessary in respect of trade receivables not past due or on amounts past due as these relate to known circumstances that
are not considered to impact collectability.
At 30 June 2018, two significant impairment losses were recognised in the income statement relating to a North American customer
($922 thousand) and an Asian customer ($920 thousand) that were behind from previously negotiated payment plans. The remainder
of the impairment loss at 30 June 2018 relates to several customers that have also demonstrated poor payment history.
The allowance for impairment losses in respect of receivables is used to record impairment losses unless the Group is satisfied
that no recovery of the amount owing is possible; at that point the amounts are considered irrecoverable and are written off
against the financial asset directly.
Liquidity risk
The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding the
impact of netting agreements:
30 June 2018
In thousands of AUD
Non-derivative financial liabilities
Finance lease liabilities
Secured bank loan
Trade and other payables
Carrying
amount
Contractual
cash flows
6 mths or
less
6-12 mths
1-2 years
2-5 years
239
71,721
(243)
(71,721)
37,500
(37,500)
109,460
(109,464)
(238)
–
(37,500)
(37,738)
(5)
–
–
(5)
–
–
–
–
–
(71,721)
–
(71,721)
It is not expected that the cash flows included in the maturity analysis could occur significantly earlier or at significantly different
amounts.
30 June 2017
In thousands of AUD
Non-derivative financial liabilities
Finance lease liabilities
Secured bank loan
Trade and other payables
Carrying
amount
Contractual
cash flows
6 mths or
less
6-12 mths
1-2 years
2-5 years
189
65,501
32,993
98,683
(194)
(65,501)
(32,993)
(98,688)
(166)
–
(32,993)
(33,159)
(17)
–
–
(17)
(11)
(65,501)
–
(65,512)
–
–
–
–
Currency risk
The Group is exposed to foreign currency risk on sales and purchases that are denominated in a currency other than the AUD.
82 AINSWORTH GAME TECHNOLOGY
Notes to the Financial Statements (continued)for the year ended 30 June 2018 The Group monitors and assesses under its Treasury Risk policy and facilities available whether hedging of all trade receivables
and trade payables denominated in a foreign currency from time to time is considered appropriate.
Exposure to currency risk
The Group’s significant exposures to foreign currency risk at balance date were as follows, based on notional amounts:
In thousands of AUD
Trade receivables
Secured bank loan
Trade and other payables
2018
2017
USD
Euro
NZD
USD
Euro
NZD
167,551
4,829
1,087
135,556
6,666
2,148
(71,721)
(26,878)
–
–
–
–
(65,501)
(21,279)
–
(1)
–
(118)
Net exposure in statement of financial position
68,952
4,829
1,087
48,776
6,665
2,030
The following significant exchange rates applied during the year:
USD
Euro
NZD
Average rate
Reporting date spot rate
2018
2017
2018
2017
0.7753
0.6501
1.0854
0.7547
0.6919
1.0588
0.7391
0.6344
1.0903
0.7692
0.6730
1.0500
Sensitivity analysis
In managing currency risks the Group aims to reduce the impact of short-term fluctuations on the Group earnings. Over the
longer-term, however, permanent changes in foreign exchange will have an impact on profit or (loss).
A 10 percent strengthening of the Australian dollar against the following currencies at 30 June 2018 would have increased/
(decreased) equity and profit or loss by the amounts shown below. This analysis assumes that all other variables remain
constant. This analysis is based on foreign currency exchange rate variances that the Group considered to be reasonably
possible at the end of the reporting period.
Effect In thousands of AUD
30 June 2018
USD
Euro
NZD
30 June 2017
USD
Euro
NZD
Equity Profit or (loss)
(25,049)
(12,955)
(439)
(99)
(439)
(99)
(23,071)
(19,331)
(606)
(184)
(606)
(184)
ANNUAL REPORT 2018
83
Notes to the Financial Statements (continued)for the year ended 30 June 2018 26. FINANCIAL INSTRUMENTS (continued)
A 10 percent weakening of the Australian dollar against the following currencies at 30 June 18 would have increased/ (decreased)
equity and profit or loss by the amounts shown below. This analysis assumes that all other variables remain constant. This
analysis is based on foreign currency exchange rate variances that the Group considered to be reasonably possible at the end
of the reporting period.
Effect In thousands of AUD
30 June 2018
USD
Euro
NZD
30 June 2017
USD
Euro
NZD
Equity Profit or (loss)
34,454
15,834
536
121
536
121
28,167
23,626
741
225
741
225
Fair values
The fair values of financial assets and liabilities, together with the carrying amounts shown in the statement of financial position,
are as follows:
In thousands of AUD
Assets carried at amortised cost
Receivables and other assets
Cash and cash equivalents
In thousands of AUD
Liabilities carried at amortised cost
Trade and other payables
Secured bank loan
Finance leases
Note
17
18
Note
24
21
21
Carrying
amount
2018
Fair value
2018
Carrying
amount
2017
Fair value
2017
192,723
35,667
192,723
35,667
228,390
228,390
Carrying
amount
2018
Fair value
2018
37,500
71,721
239
37,500
71,721
239
168,523
168,523
21,094
189,617
Carrying
amount
2017
32,993
65,501
189
21,094
189,617
Fair value
2017
32,993
65,501
189
109,460
109,460
98,683
98,683
Estimates of fair values
The methods used in determining the fair values of financial instruments are discussed in Note 4.
84 AINSWORTH GAME TECHNOLOGY
Notes to the Financial Statements (continued)for the year ended 30 June 2018 Interest rates used for determining fair value
The interest rates used to discount estimated cash flows, where applicable, are based on the government yield curve as of 30
June 2018 plus an adequate constant credit spread and are as follows:
Receivables
Secured bank loan
Leases
2018
2017
6.00% - 7.20%
6.00% - 7.99%
LIBOR+0.65%
LIBOR+0.65%
0.90% - 2.90% 0.90% - 8.39%
Interest rate risk
A reasonably possible change of 100 basis points in interest rates at the reporting date would have increased/ (decreased)
profit or loss. An increase in 100 basis points would lead to a decrease in profit by $261 thousand and a decrease in 100 basis
points would lead to an increase in profit by $261 thousand. This analysis assumes that all other variables, in particular foreign
currency exchange rates, remain constant.
27. OPERATING LEASES
Leases as lessee
Non-cancellable operating lease rentals are payable as follows:
In thousands of AUD
Less than one year
Between one and five years
More than five years
2018
2,386
7,905
–
10,291
2017
2,489
8,956
2
11,447
The Group leases a number of warehouse and office facilities under operating leases. The leases typically run for a period
of 1-10 years, with an option to renew the lease after that date. Lease payments are increased every year either by annual
increases of 2-4% per annum, or by market rent reviews at stipulated dates. None of the leases include contingent rentals.
During the year $2,241 thousand was recognised as an expense in profit or loss in respect of operating leases (2017: $2,276 thousand).
The warehouse and office lease are combined leases of land and buildings. Since the land title does not pass, the rent paid to
the landlord for the building is increased to market rent at regular intervals, and the Group does not participate in the residual
value of the building, it was determined that substantially all the risks and rewards of the building are with the landlord. As such,
the Group determined that the leases are operating leases.
28. CAPITAL AND OTHER COMMITMENTS
In thousands of AUD
Plant and equipment
Contracted but not yet provided for and payable:
Within one year
Employee compensation commitments
Key management personnel
2018
2017
456
4,780
Commitments under non-cancellable employment contracts not provided for in the financial
statements and payable:
Within one year
2,081
2,059
ANNUAL REPORT 2018
85
Notes to the Financial Statements (continued)for the year ended 30 June 2018 29. RELATED PARTIES
The following were key management personnel of the Group at any time during the reporting period and unless otherwise
indicated were key management personnel for the entire period:
Non-executive directors
Current
Mr GJ Campbell
Mr MB Yates
Mr CJ Henson
Ms HA Scheibenstock
Mr HK Neumann
Executive directors
Current
Executives
Current
Mr ML Ludski (Chief Financial Officer and Company Secretary,
Ainsworth Game Technology Limited)
Mr V Bruzzese (General Manager Technical Services,
Ainsworth Game Technology Limited)
Mr K Power (Chief Technology Officer, Ainsworth Game
Technology Limited - appointed 16 Jan 2017)
Former
Mr I Cooper (General Manager Manufacturing, Ainsworth
Game Technology Limited), until 1 April 2018
Mr DE Gladstone (Executive Director and Chief
Executive Officer, Ainsworth Game Technology Limited)
Former
Mr LH Ainsworth (Executive Director), until 5 January 2018
Key management personnel compensation
The key management personnel compensation included in ‘employee benefit expenses’ (see Note 10) is as follows:
In AUD
Short-term employee benefits
Post-employment benefits
Share based payments
Other long term benefits
2018
2017
3,251,162
3,590,014
286,810
314,674
(304,187)
376,550
179,730
170,679
3,413,515
4,451,917
Individual directors and executives compensation disclosures
Information regarding individual directors and executives compensation and some equity instruments disclosures as permitted
by Corporations Regulations 2M.3.03 and 2M.6.04 is provided in the Remuneration Report section of the Directors’ Report.
Apart from the details disclosed in this note, no director has entered into a material contract with the Group since the end of the
previous financial year and there were no material contracts involving directors’ interests existing at year-end.
86 AINSWORTH GAME TECHNOLOGY
Notes to the Financial Statements (continued)for the year ended 30 June 2018 Other key management personnel transactions
A number of key management persons, or their related parties, hold positions in other entities that result in them having control
or significant influence over the financial or operating policies of those entities.
A number of those entities transacted with the Group during the year. Other than as described below the terms and conditions
of the transactions with key management persons and their related parties were no more favourable than those available, or
which might reasonably be expected to be available, on similar transactions to non-director related entities on an arm’s length
basis.
The aggregate value of transactions and outstanding balances relating to key management personnel and their related parties
were as follows:
In AUD
Key management
person
Mr LH Ainsworth
Transaction
Leased plant and equipment and
other costs
Mr LH Ainsworth
Sales of property, plant and
equipment
Mr LH Ainsworth Operating lease rental costs
Mr HK Neumann
Sales revenue
Mr HK Neumann Other charges made on behalf of
Mr HK Neumann
Novomatic
Purchases and other charges
payments made on behalf of the
Company
Transactions value year ended
30 June
Balance receivable/
(payable) as at
30 June
Note
2018
2017
2018
2017
(i),(ii)
(i),(iii)
(iv)
(v)
(v)
(v)
–
–
62,404
5,988,167
774,557
1,549,115
–
–
–
–
–
(142,002)
7,294,551
7,957,275
5,127,919
6,565,428
772,708
–
–
–
951,505
288,740
(112,996)
(78,003)
(i) Mr LH Ainsworth was a related party as he was the director of the company during financial year ending 30 June 2018. He ceased to
be a related party on 5th January 2018.
(ii) The Company leased associated plant and equipment from an entity controlled by Mr LH Ainsworth on normal commercial terms and
conditions. This lease was terminated at 30 June 2017 and no further obligation will occur from this date.
(iii) The Company sold its car park building at Newington on 15th August 2016 to an entity controlled by Mr LH Ainsworth. The car park was
sold at the cost of construction.
(iv) Operating leases rental costs of the premises at Newington from an entity controlled by Mr LH Ainsworth on normal commercial terms
and conditions.
(v) During the year, the Group transacted with Novomatic AG and its related entities of which Mr HK Neumann holds a directorship role
in Novomatic AG. The terms and conditions of these transactions were no more favourable than those available, or which might
reasonably be expected to be available, in similar transactions with non-key management personnel related companies on an arm’s
length basis. Transactions with Novomatic AG and its related entities are considered as related party transactions when Mr HK
Neumann became a Key Management Person of the Group effective from his appointment on 21 Feb 2017.
In addition to the transactions above, AGT Pty Argentina S.R.L. was incorporated in FY13 with the shareholding currently held
in trust by Mr D Gladstone and an officer of Ainsworth Game Technology Inc. on behalf of the Group. This shareholding is in the
process of being transferred and was originally structured to facilitate the incorporation within Argentina.
ANNUAL REPORT 2018
87
Notes to the Financial Statements (continued)for the year ended 30 June 2018 29. RELATED PARTIES (continued)
Amounts receivable from and payable to key management personnel and their related parties at reporting date arising from
these transactions were as follows:
In AUD
2018
2017
Assets and liabilities arising from the above transactions
Current receivables and other assets
Amount receivable from director/shareholder controlled entities
5,127,919
6,565,428
Current trade and other payables
Amount payable to director/shareholder controlled entities
112,996
220,005
Transaction with joint ventures in which entity is a joint venture
616 Digital LLC (“616”) is a joint venture in which the Group has 40% ownership interest. The portions of transactions with 616
that was not eliminated in applying equity accounting is $97 thousand (2017: $200 thousand).
Further information regarding the joint venture is provided in Note 14.
30. GROUP ENTITIES
Parent entity
Ainsworth Game Technology Limited
Subsidiaries
AGT Pty Ltd
AGT Pty Mexico S. de R.L. de C.V.
AGT Pty Peru S.A.C.
AGT Pty Argentina S.R.L.
AGT Pty Colombia SAS
AGT Alderney Limited
Ainsworth Game Technology Inc
Ainsworth Interactive Pty Ltd
AGT Gaming Services S. de R.L de C.V.
AGT Service Pty Ltd
AGT Service (NSW) Pty Ltd
J & A Machines Pty Ltd
RE & R Baker & Associates Pty Ltd
Bull Club Services Pty Ltd
31. SUBSEQUENT EVENTS
Ownership Interest
Country of
incorporation
2018
2017
Australia
Australia
Mexico
Peru
Argentina
Colombia
Alderney
USA
Australia
Mexico
Australia
Australia
Australia
Australia
Australia
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
–
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
After the reporting date, the Company declared a franked dividend of 2.5 cents per ordinary share amounting to $8,313
thousand with an expected payment date of 7 November 2018. The financial effect of this dividend has not been brought to
account in the financial statements for the year ended 30 June 2018 and will be recognised in subsequent financial reports.
Other than the matter discussed above, there has not arisen in the interval between the end of the financial year and the date of
this report any item, transaction or event of a material and unusual nature likely, in the opinion of the directors of the Company,
to affect significantly the operations of the Group, the results of those operations, or the state of affairs of the Group, in future
financial years.
88 AINSWORTH GAME TECHNOLOGY
Notes to the Financial Statements (continued)for the year ended 30 June 2018
32. AUDITOR’S REMUNERATION
In AUD
Audit and review services
Auditors of the Company - KPMG
Audit and review of financial statements
Other regulatory audit services
Other services
Auditors of the Company - KPMG
2018
2017
282,000
260,000
22,500
22,500
304,500
282,500
In relation other assurance, due diligence and taxation
20,000
35,451
33. PARENT ENTITY DISCLOSURES
As at and throughout the financial year ended 30 June 2018 the parent entity of the Group was Ainsworth Game Technology
Limited.
In thousands of AUD
Result of parent entity
Profit for the year
Total comprehensive income for the year
Financial position of parent entity at year end
Current assets
Total assets
Current liabilities
Total liabilities
Total equity of parent entity comprising of:
Share capital
Equity compensation and translation reserve
Fair value reserve
Profit reserves
Accumulated losses
Total equity
Parent entity capital commitments for acquisitions of property, plant and equipment
In thousands of AUD
Plant and equipment
Contracted but not yet provided for and payable:
Within one year
2018
2017
21,244
21,244
36,503
36,503
71,864
438,058
32,207
84,938
156,205
421,344
36,783
87,387
203,032
200,245
10,511
9,684
154,787
(24,894)
10,414
9,684
132,271
(18,657)
353,120
333,957
2018
2017
456
1,034
ANNUAL REPORT 2018
89
Notes to the Financial Statements (continued)for the year ended 30 June 2018
1.
In the opinion of the directors of Ainsworth Game Technology Limited (the ‘Company’):
(a) the consolidated financial statements and notes that are set out on pages 44 to 89 and the Remuneration report in
sections 15.1 to 15.8 in the Directors’ report, are in accordance with the Corporations Act 2001, including:
(i)
giving a true and fair view of the Group’s financial position as at 30 June 2018 and of its performance for the financial
year ended on that date; and
(ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and
(b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due
and payable.
2.
3.
The directors have been given the declarations required by Section 295A of the Corporations Act 2001 from the chief
executive officer and chief financial officer for the financial year ended 30 June 2018.
The directors draw attention to Note 2(a) to the consolidated financial statements, which includes a statement of compliance
with International Financial Reporting Standards.
Signed in accordance with a resolution of the directors:
Dated at Sydney this 29th day of August 2018.
GJ Campbell
Chairman
90 AINSWORTH GAME TECHNOLOGY
Directors’ Declarationfor the year ended 30 June 2018
Independent
Auditor’s Report
Independent Auditor’s Report
Independent Auditor’s Report
To the shareholders of Ainsworth Game Technology Limited
Report on the audit of the Financial Report
To the shareholders of Ainsworth Game Technology Limited
Report on the audit of the Financial Report
Opinion
We have audited the Financial Report of
Ainsworth Game Technology Limited (the
Opinion
Company).
In our opinion, the accompanying Financial
We have audited the Financial Report of
Report of the Company is in accordance
Ainsworth Game Technology Limited (the
with the Corporations Act 2001, including:
Company).
•
•
giving a true and fair view of the
In our opinion, the accompanying Financial
Group’s financial position as at 30
Report of the Company is in accordance
June 2017 and of its financial
with the Corporations Act 2001, including:
performance for the year ended on
giving a true and fair view of the
that date; and
Group’s financial position as at 30
complying with Australian Accounting
June 2018 and of its financial
Standards and the Corporations
performance for the year ended on
Regulations 2001.
that date; and
•
The Financial Report comprises:
• Consolidated statement of financial position as at 30
June 2017
The Financial Report comprises:
• Consolidated Statement of profit or loss and other
comprehensive income, Consolidated statement of
• Consolidated statement of financial position as at 30
changes in equity, and Consolidated statement of
June 2018
cash flows for the year then ended
• Consolidated Statement of profit or loss and other
• Notes including a summary of significant accounting
comprehensive income, Consolidated statement of
policies
changes in equity, and Consolidated statement of cash
flows for the year then ended
• Directors’ Declaration.
• Notes including a summary of significant accounting
The Group consists of the Company and the entities it
controlled at the year-end or from time to time during
the financial year.
• Directors’ Declaration.
policies
•
complying with Australian Accounting
Standards and the Corporations
Regulations 2001.
The Group consists of the Company and the entities it
controlled at the year-end or from time to time during the
financial year.
Basis for opinion
Basis for opinion
We conducted our audit in accordance with Australian Auditing Standards. We believe that the audit
We conducted our audit in accordance with Australian Auditing Standards. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Our responsibilities under those standards are further described in the Auditor’s responsibilities for
Our responsibilities under those standards are further described in the Auditor’s responsibilities for the
the audit of the Financial Report section of our report.
audit of the Financial Report section of our report.
We are independent of the Group in accordance with the Corporations Act 2001 and the ethical
We are independent of the Group in accordance with the Corporations Act 2001 and the ethical
requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics
requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for
for Professional Accountants (the Code) that are relevant to our audit of the Financial Report in
Professional Accountants (the Code) that are relevant to our audit of the Financial Report in Australia. We
Australia. We have fulfilled our other ethical responsibilities in accordance with the Code.
have fulfilled our other ethical responsibilities in accordance with the Code.
KPMG, an Australian partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG
International Cooperative (“KPMG International”), a Swiss entity.
Liability limited by a scheme approved under
Professional Standards Legislation.
KPMG, an Australian partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG
International Cooperative (“KPMG International”), a Swiss entity.
Liability limited by a scheme approved under
Professional Standards Legislation.
88
92
ANNUAL REPORT 2018
91
for the year ended 30 June 2018
Independent
Auditor’s Report (continued)
Key Audit Matters
The Key Audit Matters we identified are:
• Revenue recognition
• Recoverability of trade receivables
• Carrying value of goodwill and
intangible assets
Key Audit Matters are those matters that, in our
professional judgment, were of most significance in our
audit of the Financial Report of the current period.
These matters were addressed in the context of our audit
of the Financial Report as a whole, and in forming our
opinion thereon, and we do not provide a separate opinion
on these matters.
Revenue recognition
Refer to note 7 of the Financial Report ($265.6m AUD)
The key audit matter
How the matter was addressed in our audit
Revenue recognition was a key audit matter
due to the audit effort associated with multiple
revenue streams with different recognition
criteria across different geographic locations.
Key revenue streams include;
•
•
•
•
outright machine and spare parts sales,
rendering of services,
revenue from fixed and participation rental
and
revenue from multi-element arrangements
which consist of several components within
the revenue stream.
Due to varying revenue recognition and
measurement principles of the revenues
generated by the Group, it necessitated greater
involvement by the audit team to evaluate
timing and measurement of revenue
recognised.
Our procedures included:
•
•
•
•
•
evaluating the appropriateness of the Group’s
revenue recognition policies against the
requirements of AASB 118 Revenue and/or
AASB 117 Leases;
testing key revenue recognition controls of the
Group, across different geographic locations,
such as the Group’s process of matching
underlying documents to determine the timing
of revenue recognition. In testing this control
we inspected underlying documents such as
invoices, delivery notes, customer contracts,
purchase orders and sales orders;
testing statistical samples of transactions in
key revenue streams, across different
geographic locations, to underlying records.
We inspected the terms and conditions of the
revenue contract for consistency to the
Group’s policy for timing and measurement of
revenue recognition;
testing a sample of revenue transactions,
across different geographic locations, from
immediately before and immediately after year
end. We compared the year in which the
revenue was recognised by the Group to terms
of the underlying contract;
assessing the methodology used to calculate
the Group’s multi-element arrangement
revenue by checking samples of multi-element
revenue transactions recorded by the Group
against contract terms and rates and then
recalculating these samples for accuracy.
92 AINSWORTH GAME TECHNOLOGY
93
for the year ended 30 June 2018 Independent
Auditor’s Report (continued)
Recoverability of trade receivables
Refer to note 17 of the Financial Report ($192.7m AUD)
The key audit matter
How the matter was addressed in our audit
Recoverability of trade receivables was a key
audit matter because payment terms, prevailing
industry practices and market conditions vary
significantly across the different customers and
the geographic locations in which the Group
operates.
These conditions give rise to heightened
exposure to credit risk across the Group, thus
requiring greater audit focus.
The prevailing practice by the Group in certain
locations in which the Group operates is to
provide payment terms which are extended
beyond traditional payment terms observed in
Australia. This required a heightened element of
judgement, and scrutiny to be applied by us
when assessing the recoverability of trade
receivables, such as:
•
•
•
•
assessment of amounts overdue compared
to contractual payment terms;
evidence from internal diligence performed
by the Group on the continued credit
worthiness of customers;
settlement history of previous sales with
the Group; and
•
evidence of ongoing dialogue and
correspondence with the Group.
Our audit procedures included:
•
•
testing a key control in relation to credit limits
approvals by senior management within the
Group;
testing the recoverability of selected samples
of overdue receivable balances held by the
Group across geographic locations through:
-
-
enquiries with the Group on the samples
selected to understand the rationale behind
the Group’s recoverability assessment;
challenging the Group’s recoverability
assessment with our understanding of:
- market practice;
-
-
-
-
ongoing correspondence between the
debtor and the Group;
the Group’s internal diligence check on
the credit worthiness of the debtor;
customer payment history; and
customer contract to evidence
recoverability;
for those locations with a heightened risk of
non-recoverability, the trade receivable balance
by customer at year end was compared against
established credit limits. Our assessment of
those locations at higher risk of non-
recoverability was based on the historical
pattern for long outstanding trade receivables
in those locations.
ANNUAL REPORT 2018
94
93
for the year ended 30 June 2018 Independent
Auditor’s Report (continued)
Carrying value of goodwill and intangible assets
Refer to note 13 of the Financial Report ($67.5m AUD)
The key audit matter
How the matter was addressed in our audit
Annual testing of goodwill and intangible assets
is a key audit matter, due to the significant
judgement applied by us when evaluating the
significant forward looking assumptions
including:
•
•
•
forecast cash flows and the growth rates
(including terminal growth rates) applied to
those forecasts in light of current market
conditions. Whilst the Group continues to
generate a significant profit before interest
and tax, the performance of the Group has
continued its declining trend in the current
year due to ongoing competition. In
addition, the market capitalisation was less
than net assets at 30 June 2018. These
conditions increase the possibility of
goodwill and intangible assets being
impaired, plus the risk of inaccurate
forecasts or a wider range of outcomes for
us to consider.
value in use model prepared is sensitive to
the assumptions adopted by the Group
including forecast growth rates and the
discount rates applied for different
jurisdictions and geographic locations
applicable to each identified Cash
Generating Unit (CGU). Such assumptions
have a significant impact on the calculated
recoverable amount of the assets within
the identified CGUs. This drives additional
audit effort to assess the assumptions
adopted by the Group.
discount rates are complex in nature and
vary according to the conditions and
environment in which the CGU operates.
The Group operates in various jurisdictions
and is therefore subject to different
discount rates for each CGU. This drives
additional audit effort in challenging the
assumptions used by the Group in
determining the discount rate for each
CGU.
Working with our valuation specialists, our procedures
included:
•
•
analysing the Group’s share price and market
capitalisation including reading various analysts’
reports to obtain an understanding of the
market’s view of the value of the Group. This
included consideration of the share price
subsequent to year end; and
In relation to the key assumptions in the Group’s
value in use model, we:
•
•
•
•
•
challenged the Group’s forecast cash flow
and growth rates’ assumptions in light of
ongoing competition and against historical
results of the group;
applied increased scepticism to assumptions
in areas where previous forecasts were not
achieved;
compared key assumptions to the Board
approved plan and strategy;
compared forecast growth rates and the
terminal growth rates to published studies of
industry trends and expectations across
different jurisdictions and geographic
locations , and considered differences for the
Group’s operations;
applied our knowledge of the Group, their
past performance, business and customers,
and our industry experience;
• we considered the sensitivity of the models by
varying key assumptions, such as forecast growth
rates, terminal growth rates and discount rates,
within a reasonably possible range. We did this to
identify those assumptions at higher risk of bias
or inconsistency in application and to focus our
further procedures;
94 AINSWORTH GAME TECHNOLOGY
95
for the year ended 30 June 2018 Independent
Auditor’s Report (continued)
The Group uses complex models to perform
their annual impairment testing of goodwill and
intangible assets. Complex modelling,
particularly those containing highly judgemental
forward-looking assumptions tend to be prone
to greater risk of potential bias, error and
inconsistent application. Such conditions
necessitate additional scrutiny by us, in
particular to address the objectivity of sources
used to derive assumptions, and their
consistent application.
• we independently developed a discount rate
range, across different jurisdictions and
geographic locations applicable to each identified
CGU. We did this using publicly available market
data for comparable entities, adjusted by risk
factors specific to the Group and the industry it
operates in;
•
evaluating the appropriateness of the value in use
model used for goodwill and intangibles
impairment testing against the requirements of
the accounting standards;
• we assessed the integrity of the value in use
models used, including the accuracy of the
underlying calculation formulas; and
• we assessed the appropriateness and adequacy of
the disclosures in the financial report using our
understanding of the issue obtained from our
testing and against the requirements of the
accounting standards.
Other Information
Other Information is financial and non-financial information in Ainsworth Game Technology Limited’s
annual reporting which is provided in addition to the Financial Report and the Auditor's Report. The
Directors are responsible for the Other Information.
The Other Information we obtained prior to the date of this Auditor’s Report was the Directors Report,
and Remuneration Report. The 2018 At a Glance, Chairman’s Report, Chief Executive Officer’s Report,
Shareholder Information and Corporate Directory are expected to be made available to us after the date
of the Auditor's Report.
Our opinion on the Financial Report does not cover the Other Information and, accordingly, we do not
and will not express an audit opinion or any form of assurance conclusion thereon, with the exception of
the Remuneration Report.
In connection with our audit of the Financial Report, our responsibility is to read the Other Information. In
doing so, we consider whether the Other Information is materially inconsistent with the Financial Report
or our knowledge obtained in the audit, or otherwise appears to be materially misstated.
We are required to report if we conclude that there is a material misstatement of this Other Information,
and based on the work we have performed on the Other Information that we obtained prior to the date
of this Auditor’s Report we have nothing to report.
ANNUAL REPORT 2018
96
95
for the year ended 30 June 2018 Independent
Auditor’s Report (continued)
Responsibilities of the Directors for the Financial Report
The Directors are responsible for:
• preparing the Financial Report that gives a true and fair view in accordance with Australian
Accounting Standards and the Corporations Act 2001
•
•
implementing necessary internal control to enable the preparation of a Financial Report that gives a
true and fair view and is free from material misstatement, whether due to fraud or error
assessing the Group’s and Company’s ability to continue as a going concern and whether the use of
the going concern assumption is appropriate. This includes disclosing, as applicable, matters related
to going concern and using the going concern basis of accounting unless they either intend to
liquidate the Group and Company or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the Financial Report
Our objective is:
•
•
to obtain reasonable assurance about whether the Financial Report as a whole is free from material
misstatement, whether due to fraud or error; and
to issue an Auditor’s Report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in
accordance with Australian Auditing Standards will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error. They are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken on the
basis of the Financial Report.
A further description of our responsibilities for the audit of the Financial Report is located at the Auditing
and Assurance Standards Board website at: http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf.
This description forms part of our Auditor’s Report.
Report on the Remuneration Report
Opinion
Directors’ responsibilities
In our opinion, the Remuneration Report
of Ainsworth Game Technology Limited
for the year ended 30 June 2018,
complies with Section 300A of the
Corporations Act 2001.
The Directors of the Company are responsible for the
preparation and presentation of the Remuneration Report
in accordance with Section 300A of the Corporations Act
2001.
Our responsibilities
We have audited the Remuneration Report included in
pages 30 to 43 of the Directors’ report for the year ended
30 June 2018.
Our responsibility is to express an opinion on the
Remuneration Report, based on our audit conducted in
accordance with Australian Auditing Standards.
KPMG
Stephen May
Partner
Sydney
29 August 2018
96 AINSWORTH GAME TECHNOLOGY
97
for the year ended 30 June 2018 Independent Auditor’s Report
To the shareholders of Ainsworth Game Technology Limited
Independent Auditor’s Report
Lead Auditor’s Independence Declaration under
Section 307C of the Corporations Act 2001
To the shareholders of Ainsworth Game Technology Limited
Report on the audit of the Financial Report
To the Directors of Ainsworth Game Technology Limited
Report on the audit of the Financial Report
Opinion
no contraventions of any applicable code of professional conduct in relation to the audit.
I declare that, to the best of my knowledge and belief, in relation to the audit of Ainsworth Game
Technology Limited for the financial year ended 30 June 2018 there have been:
We have audited the Financial Report of
Ainsworth Game Technology Limited (the
Company).
The Financial Report comprises:
• Consolidated statement of financial position as at 30
Opinion
i.
no contraventions of the auditor independence requirements as set out in the
Corporations Act 2001 in relation to the audit; and
June 2017
In our opinion, the accompanying Financial
Report of the Company is in accordance
with the Corporations Act 2001, including:
We have audited the Financial Report of
Ainsworth Game Technology Limited (the
Company).
•
ii.
The Financial Report comprises:
• Consolidated Statement of profit or loss and other
comprehensive income, Consolidated statement of
changes in equity, and Consolidated statement of
cash flows for the year then ended
• Consolidated statement of financial position as at 30
June 2017
policies
KPM_INI_01
giving a true and fair view of the
In our opinion, the accompanying Financial
Group’s financial position as at 30
Report of the Company is in accordance
June 2017 and of its financial
with the Corporations Act 2001, including:
performance for the year ended on
that date; and
•
giving a true and fair view of the
Group’s financial position as at 30
•
complying with Australian Accounting
KPMG
June 2017 and of its financial
Standards and the Corporations
performance for the year ended on
Regulations 2001.
that date; and
• Consolidated Statement of profit or loss and other
• Notes including a summary of significant accounting
comprehensive income, Consolidated statement of
changes in equity, and Consolidated statement of
• Directors’ Declaration.
cash flows for the year then ended
PAR_SIG_01 PAR_NAM_01 PAR_POS_01 PAR_DAT_01 PAR_CIT_01
The Group consists of the Company and the entities it
controlled at the year-end or from time to time during
policies
the financial year.
• Directors’ Declaration.
Sydney
29 August 2018
The Group consists of the Company and the entities it
controlled at the year-end or from time to time during
the financial year.
Stephen May
• Notes including a summary of significant accounting
Partner
complying with Australian Accounting
Standards and the Corporations
Regulations 2001.
•
Basis for opinion
We conducted our audit in accordance with Australian Auditing Standards. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Basis for opinion
Our responsibilities under those standards are further described in the Auditor’s responsibilities for
the audit of the Financial Report section of our report.
We conducted our audit in accordance with Australian Auditing Standards. We believe that the audit
We are independent of the Group in accordance with the Corporations Act 2001 and the ethical
evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics
Our responsibilities under those standards are further described in the Auditor’s responsibilities for
for Professional Accountants (the Code) that are relevant to our audit of the Financial Report in
the audit of the Financial Report section of our report.
Australia. We have fulfilled our other ethical responsibilities in accordance with the Code.
We are independent of the Group in accordance with the Corporations Act 2001 and the ethical
requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics
for Professional Accountants (the Code) that are relevant to our audit of the Financial Report in
Australia. We have fulfilled our other ethical responsibilities in accordance with the Code.
KPMG, an Australian partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG
International Cooperative (“KPMG International”), a Swiss entity.
Liability limited by a scheme approved under
Professional Standards Legislation.
88
88
KPMG, an Australian partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG
International Cooperative (“KPMG International”), a Swiss entity.
KPMG, an Australian partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG
International Cooperative (“KPMG International”), a Swiss entity.
Liability limited by a scheme approved under
Professional Standards Legislation.
Liability limited by a scheme approved under
Professional Standards Legislation.
ANNUAL REPORT 2018
98
97
Lead Auditor’s Independent Declarationfor the year ended 30 June 2018
Corporate Directory
Securities Exchange Listing
The Company is listed on the
Australian Securities Exchange.
The Home Exchange is Sydney.
CODE: AGI
Websites
www.agtslots.com.au (Australiasia)
www.agtslots.com (The Americas)
Share Registry
Computershare Investor Services
Pty Ltd
Level 4, 60 Carrington Street,
Sydney NSW Australia 2001
Tel:
1300 850 505 (within Aust)
+61 3 9415 4000 (outside Aust)
Fax: +61 3 9473 2500
Auditor
KPMG
Level 38, Tower Three
International Towers Sydney
300 Barangaroo Avenue
Sydney NSW Australia 2000
Tel: +61 2 9335 7000
Fax: +61 2 9299 7001
Other Information
Ainsworth Game Technology Limited,
incorporated and domiciled in
Australia, is a publicly listed company
limited by shares.
ASIA
Macau
Mr Jim Tang
Key Account Sales Executive
Tel: +853 6648 5180
Email: jtang@agtslots.com
Singapore
Mr Alfred Hwee
Key Account Sales Executive
Tel: +65 9667 1375
Email: awhee@agtslots.com
THE AMERICAS
Nevada
5800 Rafael Rivera Way,
Las Vegas, NV 89118
Tel: +1 (702) 954-3000
Fax: +1 (702) 954-3001
Email: enquiries@agtslots.com
Florida
1011 SW 30th Avenue,
Deerfield Beach, FL 33442
Tel: +1 (954) 944-3800
Fax: +1 (954) 317-5555
Email: enquiries@agtslots.com
EUROPE
Astra Games Ltd / Novomatic AG
Astra House, 1 Kingsway
Bridgend Industrial Estate
Bridgend. CF31 3RY. UK
Tel: +44 (0) 1656 658658
Fax: +44 (0) 1656 672849
Email: sales@astra-games.com
CORPORATE DIRECTORY
Independent Non-Executive
Directors
Mr GJ Campbell – Chairman
Mr MB Yates
Mr CJ Henson
Ms HA Scheibenstock
Non-Executive Director
Mr HK Neumann
Chief Executive Officer
and Executive Director
Mr DE Gladstone
Company Secretary
and Chief Financial Officer
Mr ML Ludski
OFFICES
AUSTRALIA
Corporate and Head Office
10 Holker Street,
Newington NSW Australia 2127
Tel: +61 2 9739 8000
Fax: +61 2 9648 4327
Email: enquiries@agtslots.com
Queensland
Unit 5 / 3990 Pacific Highway
Loganholme QLD Australia 4129
Tel: +61 7 3209 6210
Fax: +61 7 3209 6510
Email: gcoleman@agtslots.com
Victoria
Mr Wayne Flood
State Sales Manager
Tel: +61 0419 551 454
Email: wflood@agtslots.com
South Australia
Mrs Kelly Frackowski
Snr Sales Manager
Tel: +61 0409 171 616
Email: kfrackowski@agtslots.com
98 AINSWORTH GAME TECHNOLOGY
Notes
ANNUAL REPORT 2018
99
Notes
100 AINSWORTH GAME TECHNOLOGY
AINSWORTH GAME TECHNOLOGY
ABN: 37 068 516 665
10 Holker Street, Newington
New South Wales, Australia 2127
T. +61 2 9739 8000
F. +61 2 9648 4327
www.agtslots.com.au
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