Alpha Pro Tech, Ltd. Annual Report 2019

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FY2019 Annual Report · Alpha Pro Tech, Ltd.

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Afterpay Touch Group Limited ASX: APT

APPENDIX 4E
PRELIMINARY FINAL REPORT

UNDER ASX LISTING RULE 4.3A

Company details
NAME OF ENTITY:

AFTERPAY TOUCH GROUP LIMITED

ACN:

618 280 649

REPORTING PERIOD: FOR THE YEAR ENDED 30 JUNE 2019

PREVIOUS PERIOD:

FOR THE YEAR ENDED 30 JUNE 2018

Results for announcement to the market

STATUTORY RESULTS SUMMARY

Total income 1

Loss before tax

Loss after tax

CHANGE FROM YEAR ENDED 30 JUNE

2019

2018

264.1

from

142.3

(42.8)

from

(43.8)

from

(7.6)

(9.0)

86%

q 463%

q 387%

Loss after tax attributable to the ordinary equity holders
of Afterpay Touch Group Limited (before non-controlling
interests)

q 377%

(42.9)

from

(9.0)

1. Total income consists of Afterpay income, Pay Now revenue and Other income. The impact of the adoption of AASB 15 and AASB 9 is recognised in

current period results, whereas as permitted by the new standards, the prior corresponding period impact was reflected in opening retained earnings.

Total income increased by 86% from $142.3 million to $264.1 million for the financial year ended 30
June 2019 compared to the financial year ended 30 June 2018. The growth is primarily driven by the
first full year performance of the Afterpay US business and continued strong growth in the Australian
and New Zealand Afterpay businesses. The Group launched its Afterpay service in the United Kingdom
in May 2019 under the Clearpay brand name, which made a minor contribution during the period.

Total income for the financial year ended 30 June 2019 includes an $8.4 million negative impact
from the adoption of two new accounting standards (AASB 15 and AASB 9) in the period. Excluding
this impact, total income for the financial year ended 30 June 2019 would have increased by 91%
compared to the prior corresponding period to $272.5 million.

The Group achieved stable year on year performance in underlying earnings, as measured by pro forma
earnings before interest, tax, depreciation and amortisation (Pro forma EBITDA (excluding significant
items)), despite a significant investment in start-up costs to grow and launch the US and UK platforms,
as previously announced by the Group. Pro forma EBITDA (excluding significant items) was $35.5
million for the financial year ended 30 June 2019 slightly above the $35.2 million achieved in the prior
corresponding period. Continued strong earnings in Australia and New Zealand was offset by the
significant investment required to support the Group’s global expansion.

The Group recorded a statutory loss before and after tax of $42.8 million and $43.8 million,
respectively, for the financial year ended 30 June 2019. Statutory loss before tax is significantly
impacted by one-off and non-cash items (including share-based payment expenses and the initial
application of new accounting standards) which totaled $44.8 million in the period. Excluding these
items, the statutory loss before and after tax would have been a statutory profit.

FINANCIAL SUMMARY

2019

YEAR ENDED 30 JUNE

2018

MOVEMENT

Total income 1

264.1

142.3

Pro forma EBITDA2 (excl. significant items)

Initial application of new accounting standards 3

EBITDA (excl. significant items)

Share-based payments

One-off items

International expansion & strategy alignment costs

Net gain on sale of business

Business combination

AUSTRAC related costs

EBITDA

Net interest expense

Depreciation & amortisation

Loss before tax

35.2

(18%)

(30.5)

(16.4)

35.2

(3.0)

(1.3)

(1.7)

86%

N/A

86%

150%

238%

N/A

94%

N/A

15.8

(159%)

(6.1)

(17.3)

(7.6)

82%

29%

463%

35.5

(6.8)

28.7

(7.5)

(4.4)

1.3

(3.3)

(1.1)

(9.3)

(11.1)

(22.4)

(42.8)

1. Total income consists of Afterpay income, Pay Now revenue and Other income. The impact of the adoption of AASB 15 and AASB 9 is recognised in

current period results, whereas as permitted by the new standards, the prior corresponding period impact was reflected in opening retained earnings.

2. Pro forma Earnings Before Interest, Tax, Depreciation and Amortisation excludes the impact of new accounting standards (AASB 15 and AASB 9).
3. Initial application of new accounting standards is recognised in current period results, whereas as permitted by AASB 15 and AASB 9, the prior

corresponding period impact was reflected in opening retained earnings.

NET TANGIBLE ASSETS PER ORDINARY SHARE

Net tangible assets per ordinary share

Dividends

2019

2018

2.22

0.51

No dividends will be declared or paid for the financial year ended 30 June 2019.

Basis of preparation

This preliminary final report is based on the Consolidated Financial Statements of Afterpay Touch
Group Limited which have been audited by Ernst & Young.

Other information required by Listing Rule 4.3A

Additional Appendix 4E disclosure requirements and commentary on significant features of the
operation performance, results of segments, trends in performance and other factors affecting the
results of the year are contained in the Consolidated Financial Statements for the financial year
ended 30 June 2019 and in the Directors’ Report for the financial year ended 30 June 2019.

This document should be read in conjunction with the 2019 Annual Report, 2019 Directors’ Report
and any public announcements made in the period by the Group in accordance with the continuous
disclosure requirements of the Corporations Act 2001 (Cth) and the ASX Listing Rules.

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A F T E R P A Y T O U C H G R O U P L I M I T E D – A N N U A L R E P O R T

F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 9

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PERFORMANCE HIGHLIGHTS
Key Operating Metrics

AFTERPAY
UNDERLYING
SALES

AFTERPAY
ACTIVE
CUSTOMERS1

AFTERPAY
ACTIVE
MERCHANTS1

$
5.2b

2.2b

UP
140%

FY18

FY19

4.6m

2.0m

FY18

FY19

32.3k

16.0k

FY18

FY19

UP
130%

UP
101%

1. As at 30 June 2019, defined as having transacted at least once in the last 12 months.

Key Financial Metrics

FY19 PRO FORMA1
TOTAL INCOME – GROUP

$272.5 MILLION

91% ON PRIOR YEAR

FY19 PRO FORMA1
TOTAL INCOME – AFTERPAY

$251.6 MILLION

115% ON PRIOR YEAR

FY19 PRO FORMA1
NET TRANSACTION MARGIN (NTM)2 – GROUP

$136.5 MILLION

93% ON PRIOR YEAR

FY19 PRO FORMA1
NET TRANSACTION MARGIN – AFTERPAY

$126.1 MILLION

126% ON PRIOR YEAR

FY19 PRO FORMA1
EBITDA (EXCLUDING SIGNIFICANT ITEMS) – GROUP

$35.5 MILLION

1% ON PRIOR YEAR

2. Net transaction margin is equal to Afterpay net transaction margin and Pay Now gross margin.

CONTENTS

PERFORMANCE HIGHLIGHTS

ABOUT AFTERPAY TOUCH GROUP

MESSAGE FROM THE INTERIM CHAIR

MESSAGE FROM THE CHIEF EXECUTIVE OFFICER AND MANAGING DIRECTOR

SUSTAINABILITY

OPERATING & FINANCIAL REVIEW

DIRECTORS’ REPORT

REMUNERATION REPORT

CONSOLIDATED FINANCIAL STATEMENTS

“

AFTERPAY IS A VALUABLE PARTNER TO
DSW. THEY ARE GENUINELY INVESTED
IN DRIVING GROWTH BY DELIVERING A
DIFFERENTIATED SHOPPING EXPERIENCE.
WE’VE SEEN SIGNIFICANT IMPROVEMENTS
IN CRITICAL KPIS WITH OUR AFTERPAY
CUSTOMERS, WHO TELL US THEY’RE
VERY PLEASED WITH THE OPTION.
WE LOOK FORWARD TO BUILDING
UPON THIS SUCCESS TOGETHER.

“

CHAD MILLER – DIRECTOR,
CUSTOMER EXPERIENCE, DSW

ABOUT AFTERPAY TOUCH GROUP

Afterpay Touch Group is a global technology-driven payments
company comprising the Afterpay and Pay Now (Touch)
services and businesses. The Group was formed from the
merger of Afterpay and Touchcorp in June 2017. The Group’s
mission is to be ‘the world’s most loved way to pay’.

Afterpay

Afterpay is a modern-day instalment payment service that enables consumers to buy products on
a ’buy now, receive now, pay later’ basis. Afterpay was founded in Australia in 2014 and has since
launched its Afterpay service in New Zealand, the United States and the United Kingdom.

The Afterpay service is offered as a payment option by participating merchants either online or
instore. Customers who choose to purchase products using Afterpay receive the purchased products
upfront and repay the purchase price (or order value) in four equal instalment payments (every two
weeks) to Afterpay. Afterpay pays the merchant for the purchased products upfront.

Participating merchants pay a fee to Afterpay for using the Afterpay service. Merchant fees are
structured as a percentage of the order value or purchase price, and in most circumstances, a fixed
fee per transaction is also applied. The majority of Afterpay’s income is derived from merchants
rather than customers.

Afterpay is an alternative to traditional credit. Afterpay is a no cost service to the customer if
instalment payments are made on time. Responsible spending rules and consumer protections are
built into the service – these rules help ensure customers never revolve in debt, no exceptions. In
circumstances where the customer does not pay their instalment payments on time, their service is
immediately suspended, and late payment fees can be applied. Late payment fees are fixed, capped
and do not accumulate or compound over time.

The Afterpay service has gained significant popularity in the Australian and New Zealand markets
with both customers and Afterpay’s merchant partners. Afterpay launched in the US in May 2018 and
has achieved rapid growth. Afterpay also recently launched in the UK under the Clearpay brand.

Pay Now

Pay Now comprises innovative digital payment businesses servicing major consumer-facing
organisations in the telecommunications, health and convenience retail sectors in Australia.

The Pay Now segment comprises three service lines, Mobility, Health and e-Services. Each of these
service lines provide payment guarantee services for businesses against fraud using proprietary
platforms. They also enable consumers to quickly and simply purchase products both instore and
online, through methods such as mobile apps and interactive voice recognition (IVR) systems.

MESSAGE FROM THE
INTERIM CHAIR

Dear Shareholders,

The 2019 financial year was another transformational year for
the Afterpay Touch Group as we moved even further towards
fulfilling our mission of being ‘the world’s most loved way to pay’.

A number of significant milestones were achieved during the 2019 financial year with the team kept
busy establishing and expanding our global operations and ensuring we have the best people to
successfully execute and communicate our extraordinary story.

The Afterpay service has been extremely well received in the US market and we have now attracted
over 2.1 million active customers1 in the US. Annualised underlying sales in the US has reached $1.7
billion2 in only 14 months since launch. Meanwhile, we already have over 200,000 active customers1
in the UK since launch in May 2019. The pace at which we have acquired customers in the UK
has exceeded that of the US and was achieved in a smaller addressable market. We continued to
consolidate our market-leading market position in Australia and New Zealand, which included the
expansion of our instore proposition and entry into new verticals. Over $1 billion worth of Afterpay
transactions have now been processed instore in Australia and New Zealand. Globally, we now have
more than 5.2 million active customers1 and 35,300 active merchants1. Afterpay’s underlying sales
run rate is over $7.2 billion globally2.

Our growth and belief in our differentiated business model has driven our value; and in FY19 we
became a S&P/ASX 100 company with a current market capitalisation of approximately $6 billion.

The heart and soul of our business drives success

I have been on the Board of the Afterpay Touch Group for over two years and have seen it transform
substantially over this period. When I consider the rapid pace of growth in this business and how
quickly it catapulted into a S&P/ASX 100 company, I reflect on how this happened and what makes
us different to other companies.

When I read the Group’s mission — ‘to be the world’s most loved way to pay’ — I feel proud to be part
of a company that has such a bold aspiration. But this is the perfect statement for us as it represents
so much of what we stand for:

• We trust and respect our customers by offering them the option to enjoy life now and pay later in a

contained and simple time frame;

• We care by putting in place a number of rigorous customer protections that align with responsible

lending practices; and

• We help our merchants, in particular small-to-medium businesses, connect with millions of

customers each and every day.

I believe having a strong purpose, well-articulated values, and a workforce that is aligned and
passionate about our mission is a great recipe for strong business performance. Our FY19 results are
certainly a testament to that.

1 As at 23 August 2019, defined as having transacted at least once in the last 12 months.
2 Based on the month of June 2019.

Some of the challenges we have faced

There is no denying the Afterpay Touch Group is unique. It is unique in its service, business model
and stated addressable market. We have grown faster than most ASX-listed companies and have
transitioned from an Australian start-up to a globally recognised brand.

With this comes a number of opportunities — and, of course, some challenges. We acknowledge that
we don’t always get it right, but we learn from our mistakes and continue to strive to do the right thing.

I am very pleased that in this year’s report we have included more information on the various
initiatives and commitments we make to our people, our customers and the community. Our focus
on aspiring to do the right thing by our stakeholders will ensure the sustainability of our business for
many years to come.

As our service challenges an incumbent and highly regulated sector, we knew that it would be
important to engage collaboratively with regulators. Compliance with regulatory requirements and
our company-specific policies and procedures are core to our operations.

During the year, the Group participated in the Australian Senate Economics References Committee’s
inquiry into Credit and Financial Services, and we supported the recommendations and outcomes
from that Inquiry. The ‘buy now, pay later’ sector continues to not be subject to the National Credit
Code; however, the Australian Securities and Investment Commission (ASIC) has now been provided
with Product Intervention Powers to formally regulate our product. The powers enable ASIC to
intervene in the ‘buy now, pay later’ sector if it believes there is a significant detriment to consumers.

On 12 June 2019, a Group subsidiary, Afterpay Pty Ltd, received a notice from AUSTRAC requiring
it to appoint an external auditor to carry out an audit in respect of its anti-money laundering/
counter-terrorism financing (AML/CTF) compliance. The Board takes this matter very seriously and
has approached this formal process as an opportunity to identify opportunities to further improve
our AML/CTF compliance practices. An external auditor has been appointed, and an interim audit
report is due by 24 September 2019, followed by a final audit report due by 23 November 2019. We
welcome the opportunity to continue to work closely with AUSTRAC and all other regulators, and are
committed to continually improving what we do.

Attracting and retaining talent is a key focus for the Group. The number of new and innovative
technology businesses that exist globally means that competition for highly experienced and well-
credentialed people in this sector is extremely high. In order to attract the right people, the Group
needs to be flexible in how it structures its remuneration and must compete with some of the
most successful and innovative employers in the world. We do however acknowledge that as an
S&P/ASX 100 company, our remuneration arrangements should evolve to reflect the maturity of our
organisation and the expectations of shareholders. We have listened to our shareholders and have
spent considerable time and effort developing a new framework, with the assistance of external
advisors, to strike a balance between the need to compete for world-class talent as well as meeting
the expectations of the market.

Improving our governance and organisation structure

We understand that having grown into a $6 billion company, our investors expect a level of
governance that is commensurate with similar-sized companies. We are heavily focused on meeting
these expectations and, to demonstrate our commitment, we announced several Board changes that
will allow us to transition to a majority independent Board with an independent Chair. A global search
process has commenced to recruit at least two additional independent Directors and an independent
Chair who will complement the existing Board’s skill set.

We also announced a new management structure that has been designed to reflect the ongoing
globalisation and expansion of our business. As part of this reorganisation, co-founder, Anthony Eisen,
has assumed the role of Chief Executive Officer and Managing Director, and co-founder Nick Molnar,
assumed the role of Global Chief Revenue Officer, while also continuing to lead the US business. Malte
Feller formally joined the team as Global Chief Operating Officer in July 2019 and brings significant
experience in the operations of fast-growing, globally expanding technology enterprises.

I would like to take the opportunity to thank David Hancock, who held the role of Group Head of the
Group since 2017 and will be stepping down from the Board at the conclusion of 2019 financial
year-end matters. David has been instrumental in the successful development of our business and
preparing the Group for the next phase of growth. We are very grateful for the leadership that David
has provided.

Our future

In the midst of all the activity in FY19, we announced that we are targeting underlying sales of
$20bn++ and a net transaction margin (NTM) of 2% by the end of FY22. We successfully raised $317
million of equity in June 2019 to support the execution of our mid-term strategy.

The year ahead will be another significant one for the Group as we continue to execute on our mid-
term strategy. We will grow our platform in key markets and continue to innovate to ensure that we
are meeting the needs of our customers and merchant partners. Importantly, we will remain true to
our purpose and continue to develop our unique culture, enabling our people to do their best work.

On behalf of the Board, I would like to thank my fellow Directors and our highly talented people
for their hard work and significant contribution throughout the year. I would also like to thank our
shareholders and funding partners for their support, and our customers, our merchant partners, and
everyone who interacts with our services, for their contribution to our success.

Elana Rubin

Independent Interim Chair

“

THIS HAS HONESTLY CHANGED
THE WAY I SHOP. SUPER
AFFORDABLE PAYMENTS,
THEY SEND REMINDERS
BEFORE A PAYMENT IS DUE
AND THE PAYMENTS ARE
SPREAD OUT JUST RIGHT.
I LOVE USING AFTERPAY!

CASEY THOMPSON

“

MESSAGE FROM THE
CHIEF EXECUTIVE OFFICER
AND MANAGING DIRECTOR

Dear fellow Shareholders

Our purposefully different business model continued to outperform
in FY19 and we couldn’t be more proud of what we have achieved.

The past 12 months have been a period of immense growth for our company. Our platform and business model
have continued to resonate strongly with our customers and merchants in Australia and internationally. My belief
in our passion and determination to empower the customer and innovate the retail economy remains as strong as
ever. What has changed is that I am now privileged to be in the role of CEO and Managing Director of the Group.
This transition provides me with even more time to focus on delivering our ambitious growth strategy.

Our strategy is simple. To be successful we must do three things: we must continue to GROW; we must
continue to PERFORM; and we must continue to INNOVATE. And we need to continue doing all of this with
our mindset of aspiring to do the right thing. If we achieve this, I believe we will deliver value to our people, our
customers, our merchant partners, our communities and, of course, our shareholders. I am confident that we
have the right business model, the right people and the right culture to succeed in our mission of becoming
‘the world’s most loved way to pay’.

Grow

To become ‘the world’s most loved way to pay’ we need to continue to scale our network. We now have a greater
understanding of the sheer scale of the addressable global market available to us, and we are confident that our
purposefully different business model will see our strong growth trajectory continue for many years to come.

Our platform is now truly global. We launched our Afterpay Day sales event globally across Australia, New
Zealand, the US and the UK for the first time in August 2019. Over 388,000 active customers, of which 10% were
newly acquired customers, and almost 13,000 merchants participated in the two-day sales event. Our brand
continues to resonate. Afterpay Day is now a recognised event on the retail calendar, and the incredible customer
and merchant recognition drove us to achieve record global underlying sales of $69 million for the two-day event.

Afterpay’s immediate markets present a $6 trillion opportunity, which includes an online contribution of $780 billion
alone. Our experience in expanding our operations to date supports our strategy to accelerate our investment in
the global opportunity to maximise shareholder value. Millennials and Gen Z are moving away from traditional
forms of credit and are empowered to budget through Afterpay by spending their own money. Millennials make
up 27% of the global population and will have the highest spending power by 2020. By 2025, Millennials in the US
will contribute to almost half of all salary earned. As part of our mid-term strategy, we are targeting $20bn++ in
underlying sales and a 2% net transaction margin. Executing on our strategic objectives and reaching our targets
will position us well to maximise long-term shareholder value.

MILLENNIALS
MAKE UP

27%1

OF THE ENTIRE
GLOBAL POPULATION

BY 2020, MILLENNIALS
WILL HAVE THE HIGHEST
SPENDING POWER,
ALMOST US$15 TRILLION
WORLDWIDE2

BY 2025, MILLENNIALS
WILL CONTRIBUTE ALMOST
HALF OF ALL SALARY EARNED
IN THE US3

MILLENNIALS AND GEN Z ARE DRIVING CHANGE IN GLOBAL
SPENDING HABITS, WHICH IS MEANINGFUL TODAY AND
WILL BE EVEN MORE MEANINGFUL IN 10 YEARS

AFTERPAY IS
UNIQUELY POSITIONED TO
BENEFIT FROM THIS SHIFT

Notes: 1. A.T. Kearney (2016). 2. Financial Times (2018). 3. Visa (2015).

Perform

Our continued performance is well demonstrated in our FY19 results.

The Group achieved pro forma total income of $272.5 million, up 91% on FY18. This was driven by a
140% uplift in underlying sales as a result of continued outperformance in Australia and New Zealand,
and very strong growth in the US. Our pro forma EBITDA (excluding significant items) of $35.5 million
has remained stable, an exceptional result that was achieved despite significant investment to
support the Group’s global expansion.

Our Group net transaction margin improved by 93% in dollar terms compared to the prior year and
we saw a 40bps reduction in our pro forma gross losses as a percentage of underlying sales. This
is a great outcome as it reflects the nature of our purposefully different business model and our
principles of responsible spending.

We have a strong balance sheet to support our mid-term growth aspirations. We further diversified
our funding and have maintained an appropriate debt maturity profile, including establishing a
dedicated US receivables warehouse facility of US$300 million in H2 FY19. In addition to this, we
raised $317 million in equity in June 2019 to underpin the funding of our expansion plans and
execution of our mid-term strategy. As at the end of FY19, we had liquidity of $610.1 million and our
receivables warehouse facilities are fully undrawn. Importantly, we have capacity to fund in excess of
$16 billion of underlying sales above current run-rate, leaving us well capitalised to achieve our mid-
term strategy.

Innovate

Innovation is in our DNA; it is what got us here and is what will keep us around for a long time.
I am proud that our efforts were recognised by FinTech Australia, which awarded us the FinTech
Organisation of the Year for the third year in a row.

Our priority is to deliver value for our customers and merchants through an expanding network effect
and other initiatives. Our approach to innovation is based on four principles:

Listen – listening to our customers and merchants to better understand what they want and need
and how they measure value.

People & Culture – having the right people and culture in place to drive innovation and embrace
opportunities to deliver change that adds value.

Process – having an operating model that empowers our teams and drives collaboration across the
organisation and a streamlined decision making process to prioritise and scale our best ideas.

Product – continuously identifying product and technology innovations that deliver value to our
customers and merchants will keep us ahead of our competitors.

Our innovation pipeline is strong and will enable us to expand our addressable market without
increasing risk for our customers and merchants. We will ensure that any innovation we add to our
business aligns with our purpose and values, and builds on our aspiration to do the right thing.

Our people

It is our global team of over 400 people that has made this company what it is today. They have
delivered another year of strong results and have continued to work with integrity and a strong
passion for the business and its customers. Striving to do the right thing is a mindset that extends
across our organisation. While we don’t always get things right, we ensure we use the learnings from
our mistakes to identify areas in which we can improve. We are committed to doing the right thing for
our people, for our customers, and for all of our stakeholders in the community.

It is a huge source of pride to see our Australian-led technology and talent perform on a global
stage. Likewise, it is a privilege that our Group keeps attracting globally leading talent into our team
in multiple jurisdictions. We continue to build a world-leading risk, data and technology team; now
spanning all markets. Our senior leadership team has been significantly complemented by Carl
Scheible who is leading our UK business and Malte Feller who has been appointed as our Global
Chief Operating Officer.

On behalf of my co-founder Nick Molnar and the entire senior leadership team, I’d like to take this
opportunity to thank everyone in the Afterpay Touch Group team for their ongoing commitment
and for turning our aspirations into reality. I would like to thank the Board and senior team for their
unwavering support and effective leadership over the past year. In particular, I would like to thank
David Hancock for his vision, drive, commitment and leadership over the past two and a half years;
firstly as a member of our Board and then taking on the role of Group Head. Lastly, I’d like to thank
our customers, merchant partners and investors for being a key part of the success and growth of
our business.

The coming year will no doubt be another significant one for us. We will continue to grow, perform
and innovate — and move even closer to our goal of becoming ‘the world’s most loved way to pay’.

Anthony Eisen

Chief Executive Officer and Managing Director

DOMONTIERO“

AS A COLLEGE STUDENT
WHO NEEDS TO BE ON A
BUDGET BUT STILL LOVES
TO SHOP I RECOMMEND THIS
TO ALL OF MY FRIENDS!
DOMONTIERO

“

SUSTAINABILITY

ASPIRING TO
DO THE RIGHT THING

Our Commitment to our People

Our people are our greatest asset and our business is all about human connection. Having the right
culture and a team of people with shared values and a clear purpose is critical to the sustainability of
our business. It allows us to retain and attract the best people possible and provides an environment
where continuing to innovate for our customers and merchants is always front of mind.

We’re proud of our young and dynamic workforce and its close alignment to our core customer base.
Over 60% of us are millennials with an average age of 36 across the Group. The globalisation and
expansion of our business means we can provide career development opportunities for many of our
people across geographies.

We engage with our people in a transparent manner and encourage feedback at all times. Our ‘all
hands’ sessions are regular company-wide briefings from the Chief Executive Officer and Managing
Director that are broadcast to all employees and typically used for making major announcements —
any questions can be asked of our founders and executive team.

We seek to maintain a workplace that reflects a new generation of work, including our open plan
offices, flat team structures and a relaxed dress code that allows for individual expression. We also
aspire to be part of tech-based precincts in the cities we operate. Our Sydney office is based out of
a converted warehouse in Surry Hills, our new offices in Melbourne will be located in Cremorne’s
emerging tech precinct, and our US office is located in San Francisco, the epicentre of Silicon Valley.

DIVERSITY, INCLUSION AND PAY EQUITY

Having a culture that values diversity and inclusion is key to our business as it helps us better
understand our customers.

Gender diversity is important to us. Females currently account for approximately 45% of our
workforce. Gender diversity at the senior management level is an area where we believe we can
improve in the future. In 2019, we strengthened our commitment to gender diversity by completing
a broad pay parity review which resulted in a short- and long-term plan to correct like-for-like gender
pay gaps — we continue to work towards 100% global gender pay equity.

When we think about diversity, we think beyond gender diversity. Our workforce is diverse in
many ways and embraces people of all races, age/generational perspectives, sexual orientation,
gender identity and gender expression, political and religious beliefs, work styles, socioeconomic
backgrounds and life experiences.

Aligning our diversity with an inclusive culture that encourages people to speak up and share their
ideas is important for a company whose competitive advantage is linked to innovation. By listening
to our people, we are able to gain insight into our customer base and deliver innovative solutions that
meet the needs of our users.

As a leadership team we are in the process of further developing initiatives to improve diversity
at all levels, including gender diversity. These initiatives will target our recruitment and promotion
processes that aim to empower all of our employees.

We fully support the principles of equal employment opportunity (EEO) and provide employee
training on protecting human rights. We address EEO principles and grievance-handling processes
in our Code of Conduct and also have a whistle-blower policy in place for our employees to raise
confidential concerns.

VOLUNTEERING AND CHARITABLE INITIATIVES

We believe that we have a responsibility to give back to our community and as such we enable our
employees to take paid volunteering leave. In 2019, this paid leave offered 2,500+ volunteer hours
for employees to give back to important causes. Our core focus in innovation means we are keen to
support others who do the same. As such, our employee volunteer program operates in partnership
with 10 x 10, a live crowd-funding organisation that supports innovative, grass roots charities across
a wide range of sustainability issues. We are continuously evolving our charitable strategic direction
and we intend to advance our efforts in areas that create shared value, including the promotion of
financial health, small business mentorships and supporting the growth of females in tech.

CASE STUDY ON DIVERSITY AND INCLUSION

CULTURE CLUB

Culture Club is a global
committee that includes
ambassadors from our various
teams and geographies. The
committee is dedicated to leading
and driving our unique culture
and instilling our values from the
bottom up. Diversity and inclusion
is a key focus for the Culture Club
and has resulted in a number of
initiatives and events being rolled
out globally.

In the US, the team created
events to coincide with San
Francisco’s LGBTQ+ Pride
Parade. During that week
they rolled out a number of
initiatives including:

• A sexuality and gender

workshop

• A Pride newsletter

• A fundraising event

• Wig Friday

Approximately 70 employees
and their friends and family
participated in the 2019
Parade March.

Our Commitment to our Customers

Millennials form the core of our customer base and they are turning away from traditional credit
cards and debt due to general distrust and caution. This is demonstrated by credit card ownership
rates in this core group being 37% lower than those of older generations and falling1. This trend
is manifested in the Group’s own statistics, which show that 85% of our customers use their own
money, not credit cards, to make repayments. Approximately 77% of millennials in Australia are
using our service as a budgeting tool and they have different spending priorities compared to older
generations1. For example1:

• Home ownership rates among young people are down 25% from 40 years ago;

• Young people are cutting back on alcohol and tobacco; and

• They are instead spending more on public transport and private health insurance.

Simply put, this group is reframing the ‘what’ and ‘how’ of spending — and they are choosing Afterpay
because we fit this shifting consumer mindset.

Afterpay has received a Roy Morgan Research Net Trust Score of 612, which was higher than all other
Australian and international digital payments companies. This is a clear demonstration of the strong
brand reputation we have with our customers and the trust they have in our service.

In March 2019, Afterpay conducted its own annual customer Net Promoter Score survey, which saw
Afterpay continue to outperform relevant peer groups. We use this survey to track our performance
and also to identify opportunities for improvement. Afterpay’s Net Promoter Score consistently sits
above 80.

RESPONSIBLE SPENDING AND CONSUMER PROTECTIONS

Our Afterpay service is an alternative to traditional credit products that profit from customers being
charged interest fees and revolving debt. Our proprietary platform verifies serviceability by requiring
up-front payments for first time customers and low initial spending limits that only increase once
positive repayment behaviour has been demonstrated. Our consumer protections include freezing
accounts at the first sign of non-payment, relatively low spending limits, caps on late fees, and
requiring each individual transaction to be approved. We protect our customers from being trapped in
a cycle of debt by prohibiting debt rollovers or allowing payment to extend the debt. Customers have
responded well to Afterpay’s service — we see around 95% of all payments made on time.

Our business model is one where we do not seek to generate income from our customer, but rather,
we partner with merchants who pay a fee when a transaction occurs. While we do charge customers
a late fee if they fail to pay an instalment on time, these fees are relatively low, are capped and do not
cover Afterpay’s costs as a result of failed repayments.

Today, more than 90% of customers are repeat purchasers, which is a positive for Afterpay as our
business model freezes out those who cannot pay on time. We are proud of the fact that more than
80% of our income is derived from merchants and our late fee income is on a downwards trajectory.
We are also pleased that our customer repayment profile is continuing to improve, with our gross
losses declining from 1.5% in FY18 to 1.1% (pro forma)3 in FY19.

What sets us apart from many other ‘buy now, pay later’ services is that we never charge interest and
our late fees never compound — this is the complete opposite of the business model of traditional
credit products.

1. Review conducted by AlphaBeta Advisors with data supplied by Afterpay, IPSOS and illion (June 2018).
2. Roy Morgan Research Base: Australians 14+; July 17-June 18 NPSSM and Net Trust Score is a service mark of Bain & Company, Inc., Satmetrix

Systems, Inc. and Mr Frederick Reichheld.

3. New Accounting standards adopted from 1 July 2018 impacted Afterpay income and receivables impairment expense. To enable comparability to

prior year performance we have presented pro forma financials which remove the impact of the accounting standard changes.

GROSS LOSS
PERCENTAGE1

1.5%

LATE FEES
PERCENTAGE1

40BPS

IMPROVEMENT
(PRO FORMA2)

1.3%

40BPS

IMPROVEMENT

1.1%

0.0%

AASB 9
IMPACT

1.1%

LIKE
FOR
LIKE

0.9%

FY18

FY19

FY18

FY19

Note: Change calculations may not equate due to rounding.
1. Gross Loss and Late Fees are shown as a percentage of underlying sales in the period.
2. New accounting standards adopted from 1 July 2018 impacted Afterpay income and receivables impairment expense. To enable comparability to prior

year performance we have presented pro forma financials which remove the impact of these accounting standard changes

HARDSHIP

Customer trust and our customer-centric value proposition gives us a reason to exist. Supporting
our customers is important to us, and we want to be there for them when times are tough. While
the significant majority of payments from customers are paid on time, we understand that some
customers may experience unforeseen life circumstances that place them in financial difficulty.
As such, we have a hardship policy in place that provides customers, under a range of circumstances,
with extra time to make repayments without having to incur additional fees. We have a dedicated
hardship team and have been a member of the Australian Financial Complaints Authority (AFCA) since
2016. We are proud of our track record on customer complaints. The most common complaint to AFCA
about Afterpay, to date, has been around ‘denial of service’ — that is, those that have frozen accounts.

We continue to identify initiatives that seek to further prevent our customers paying late fees or
overcommitting to more than they can repay.

Our Commitment to Continuous improvement
in Corporate Governance

The Board is committed to having a governance framework in place that reflects the needs of the
business now and into the future. We recognise that management of our risks and opportunities are
critical to the long-term sustainability of our business and we are determined to continue integrating
these issues into our purpose, strategic objectives, culture and values.

BOARD INDEPENDENCE

We are in the process of transitioning to a majority independent Board headed by an independent
Chair. We are currently undertaking a rigorous process to recruit at least two additional independent
Directors and an independent Chair. We intend to select people who will complement the skills of our
existing Directors and are taking into consideration factors such as:

• Ensuring we have the right mix of skills and experience;

• Greater gender and cultural diversity; and

• The need to reflect the global nature of our company.

The new Directors along with our existing Board members will help guide the strategic direction of
the business and look to position the Group for long-term growth and continued success.

CUSTOMER CASE
STUDY HEALTHCARE

We help customers manage their budgets and
their health by providing an alternative way to
pay and break down the barrier to treatment,
especially for medical services that may not be
covered by Medicare or are outside core private
health insurance. This includes services such as
dental, optometry and certain pharmaceuticals.
Our offering is rapidly expanding deeper into the
healthcare sector. We are partnering with more
than 1,300 practices to deliver services to more
than 43,000 customers.

“ WE WANT TO HELP
MUTUAL BENEFIT“

SMBs DREAM BIG AND
WE BELIEVE IN THE
VALUE OF SHARED
SUCCESS WITH

FINANCIAL INITIATIVES
(INCLUDING SMB MENTORING)

More than 90% of our merchant
partnerships are with small and medium-
sized businesses (SMBs). We want to
help SMBs dream big and we believe
in the value of shared success with
mutual benefit. Our Global Mentorship
Program, targeted to SMBs, provides
unparalleled opportunities for them to be
recognised via digital platform marketing,
global networking and participating in
mentorships with some of the world’s
most successful retailers. Merchants
have experienced increased basket sizes,
increased conversion rates, the addition
of highly loyal or ‘sticky’ customers
and consistently lower return rates. For
example, Australian SMB merchants
that were on-boarded in FY18 grew their
basket size by approximately 8% in FY19.
We will continue to expand our platform
to provide further benefits to all of our
merchants and continue to connect them
with an even larger customer base.

2019 — 2020DATA PRIVACY AND FINANCIAL CRIME

Ensuring our customers’ data privacy and security is one of
our essential responsibilities in an environment of rapidly
developing digital financial technology. We recognise that
we have a responsibility to protect the privacy and security
of customer and merchant data. Our information security
teams employ a wide-ranging set of technologies, processes
and programs to mitigate data security risks and safeguard
the data entrusted to us by customers and merchants.

Compliance with regulatory requirements including those
relating to financial crime, fraud and money laundering, is
important to us. We are committed to working closely with
AUSTRAC and all other regulators to identify opportunities
to ensure our systems and processes continue to be fit for
purpose as our business grows.

CLIMATE CHANGE

We acknowledge that climate change is a critical risk that is
already affecting countries and industries globally, as detailed
in the latest Intergovernmental Panel on Climate Change (IPCC)
Special Report on Global Warming of 1.5 degrees.

We understand the importance of considering the impact of climate change on the sustainability of
our business and aim to be transparent with our investors and other stakeholders by disclosing on
climate change-related data, including the reporting of our greenhouse gas (GHG) emissions.

In the following table, we have included our FY19 Scope 1 and Scope 2 GHG emissions, our energy
use and water consumption across 76% of our Australia and New Zealand facilities. We see this as a
first step towards more meaningful disclosure in future years and intend to assess the materiality of
our climate change-related risks and opportunities.

KEY PERFORMANCE INDICATOR

GREENHOUSE GAS (GHG) EMISSIONS

UNIT

FY19

Scope 11

Scope 22

Total

tCO2e

Carbon intensity per unit of revenue

tCO2e/Millions$A

Carbon intensity per full-time equivalent (FTE) employee

tCO2e/FTE

ENERGY USE

Electricity consumption

Australia

New Zealand

WATER CONSUMPTION

Total annual water consumption

MWh

1.79

173.36

175.15

0.66

0.47

177.92

175.58

2.34

1,762

Notes:
1. Scope 1 – direct emissions from sources under our operational control in Australia and New Zealand, representing 76% of our emissions by FTE.
2. Scope 2 – indirect emissions from the production of electricity purchased to run own operations in Australia and New Zealand, representing 76%

of our global emissions by FTE.

Future Commitments

Our approach to sustainability is based on delivering shared value and mutual
benefit to all of our stakeholders. Our business model is inherently structured
to create the most value for our shareholders when our customers and
stakeholders prosper. Over the next 12 months, we will be evolving the way we
approach sustainability and intend to develop a more structured approach to how
we strategically integrate, report and disclose the positive impact that comes
from our desire to do the right thing.

I LOVE AND ADORE @AFTERPAYUSA
BECAUSE IT HELPS ME TO BE
FINANCIALLY INTELLIGENT. I GET
TO BUY THE THINGS I COULD ONLY
WISH FOR AND MAKE SURE I’M
SAVING AND TAKING CARE OF MY
OBLIGATIONS! PLEASE, PLEASE,
PLEASE ADD MORE STORES WITH
THE #AFTERPAY OPTION!

IAMMIAR83

““OPERATING
& FINANCIAL
REVIEW

REVIEW OF GROUP
PERFORMANCE AND
FINANCIAL POSITION

The Group has delivered strong financial results in FY19 as
our brand and business model continues to resonate across
multiple markets. The Group has achieved strong growth in total
income and has maintained stable pro forma EBITDA, despite
investments made to support the Group’s growth strategy.

Group Performance

The pro forma1 total operating income and other income for the Group for financial year ended 30
June 2019 was $272.5 million, up 91% on the prior comparable period and driven principally by
strong growth in Afterpay income (income from merchant fees). The Group achieved pro forma
EBITDA (excluding significant items) of $35.5 million, a good result considering the significant
investments made to support the Group’s global expansion. Other expenses (excluding significant
items) increased to $117.2 million, up 153%. The Group reported a statutory loss before tax of $42.8
million for the period as the Group continued to invest in technology, people and marketing to scale
its operations in all regions.

SUMMARY FINANCIAL RESULTS

FULL-YEAR

FY19

FY18

CHANGE2

A$’000 (UNLESS OTHERWISE STATED)

STATUTORY

PRO FORMA 1

Total operating and other income

264,112

272,525

142,345

130,180

Receivables impairment expense

Cost of sales

Other expenses3

EBITDA (excl. significant items)4

Loss before tax

(58,675)

(59,562)

(56,506)

(63,358)

(32,610)

(28,210)

(117,182)

(46,362)

28,693

(42,786)

35,479

N/A

35,163

(7,586)

(23,896)

(35,148)

(70,820)

316

91%

73%

125%

153%

1. The statutory results for financial year ended 30 June 2019 reflect the adoption of two new accounting standards; AASB 9 – Financial Instruments

and AASB 15 – Revenue from Contracts with Customers. The adoption of these standards has affected the preparation of the Statement of
Comprehensive Income (profit and loss statement) and the Consolidated Statement of Financial Position (balance sheet). To enable comparison
on a like-for-like basis with the prior comparable period (financial year ended 30 June 2018), in this report pro forma financial results are presented
which remove the impact of these accounting standard changes.

2. Change is calculated as the pro forma result for the financial year ended 30 June 2019 against the financial year ended 30 June 2018.
3. Other expenses in FY19 comprises employment expenses of $51.4 million plus operating expenses of $73.2 million less significant items

of $7.5 million.

4. EBITDA is a non-IFRS measure that has not been audited but is a key financial metric used by management at a Group level. EBITDA (excluding

significant items) is calculated by adjusting reported results for significant and non-recurring items. Pro forma EBITDA (excluding significant items)
is calculated by adjusting reported results for significant and non-recurring items as well as the impact of the adoption of new accounting standards.

A reconciliation of loss before tax as presented in the Consolidated Statement of Comprehensive
Income to pro forma EBITDA (excluding significant items) is set out in Figure 1 below. EBITDA is a
non-IFRS measure that has not been audited but is a key financial metric used by management to
operate the business at a Group level.

FIGURE 1 RECONCILIATION FROM LOSS
BEFORE TAX FOR THE PERIOD TO PRO FORMA
EBITDA (EXCLUDING SIGNIFICANT ITEMS)
FINANCIAL YEAR ENDED 30 JUNE 2019

6.8

35.5

30.5

28.7

A$M

7.5

(9.3)

11.1

(42.8)

22.4

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Business Service Performance

AFTERPAY

Afterpay was the primary growth driver and contributor to total income for the Group. In the financial
year ended 30 June 2019, pro forma Afterpay income (income from merchant fees) increased
by 133% on the prior comparable period to $205.5 million. Other income (late fees) increased to
$46.1 million from $28.4 million in the prior comparable period and declined as a percentage of
total Afterpay income and other income consistent with the Group’s strategy and inbuilt consumer
protections in the product.

Key drivers:

PRO FORMA AFTERPAY INCOME1

OTHER INCOME (LATE FEES)

FULL-YEAR TO

30 JUN 19

30 JUN 18

$205.5M

$88.3M

3.9%

% Afterpay
underlying
sales

4.0%

% Afterpay
underlying
sales

Afterpay
Income

133%

On prior
comparative
period

FULL-YEAR TO

30 JUN 19

$46.1M

18.7%

30 JUN 18

$28.4M

24.4%

Late fees as %
total Afterpay
income and other
income

570 BPS2

% total Afterpay
income and
other income

On prior
comparative
period

Significant increase in Afterpay income was due
to the strong performance across each region in
which the Group operates.

Other income (late fees) increased in the period as a
dollar value primarily driven by the significant increase
in underlying sales and customers utilising the platform.

Importantly, due to active steps taken by the business,
other income declined as a percentage of total Afterpay
income3 to below 20% (18.7%).

Afterpay underlying sales (the total value of sales
processed via the Afterpay platform) doubled in
Australia and New Zealand, while the US performed
strongly in its first full year of operation, and the
recent launch in the UK produced pleasing results,
albeit immaterial to the overall result.

Afterpay income at 3.9% of underlying sales was
broadly in line with the prior comparative period
despite a higher contribution from less mature
international markets with an earlier life-cycle
customer and merchant mix.

1. Pro forma financial results for the financial year ended 30 June 2019.
2. Basis points change calculated as the financial year ended 30 June 2019 result less the financial year ended 30 June 2018 result.
3. Late fees as a percentage of Afterpay total income (statutory)

PAY NOW

Pro forma Pay Now revenue declined by $4.7 million to $20.9 million when compared to the prior
period, largely resulting from the sale of the e-Services EU business line in October 2018.

Afterpay Platform KPIs

The financial results of the Afterpay segment were driven by a number of underlying key performance
indicators. Underlying sales (the total value of sales processed through the Afterpay platform) was
$5.2 billion in the financial year ended 30 June 2019, growing by 140% on the prior comparable
period. This material growth in Afterpay underlying sales was driven by a more than doubling of
active customers and active merchants, as well as increased usage of the Afterpay service by
existing customers.

Key drivers:

AFTERPAY UNDERLYING SALES1

FULL-YEAR TO

30 JUN 19

30 JUN 18

$5.2B

$2.2B

140% increase in Afterpay underlying sales reflected
continued growth across all channels in Australia and
New Zealand (instore and online), the first full year of
operation in the US, and small contribution from the UK
business, which was launched in May 2019.

Afterpay
underlying
sales

140%

On prior
comparative
period

AFTERPAY ACTIVE CUSTOMERS1,2

AFTERPAY ACTIVE MERCHANTS1,2

AS AT

Active
Customers

AS AT

30 JUN 19

30 JUN 18

30 JUN 19

30 JUN 18

4.6M

2.0M

130%

On prior
comparative
period

32.3k

16.0k

Active
Merchants

101%

On prior
comparative
period

Strong growth in customers adopting the Afterpay
platform largely driven by the US (+1.7m) and ANZ
(+0.9m).

The 1.8m active customers as at 30 June 2019 in
the US demonstrates the platform is resonating
with a new customer base in a new region, after
only launching the service in May 2018.

Increasing number of merchants onboarded to the
Afterpay platform in ANZ (+12k) and the US (+3.7k),
reflecting an increase in both large enterprise
retailers (which in turn drive new customer visibility
and adoption) as well as a continued focus on
onboarding SMB merchants (who are typically
higher margin).

1. Unaudited information.
2. As at 30 June 2019, defined as those having transacted at least once in the last 12 months.

Expenses & EBITDA

The Group’s pro forma EBITDA (excluding significant items) was $35.5 million in the financial year
ended 30 June 2019, up 1% on the prior comparable period, remaining stable despite significant
investments in establishing operations in new geographies.

Key drivers:

PRO FORMA RECEIVABLES
IMPAIRMENT EXPENSE
(GROSS LOSS)1

OTHER EXPENSES
(EXCL. SIGNIFICANT ITEMS)2,3

FULL-YEAR TO

30 JUN 19

30 JUN 18

$56.5M

$32.6M

1.1%

% Afterpay
underlying
sales

1.5%

% Afterpay
underlying
sales

Gross loss
% Afterpay
underlying
sales

40 BPS4

On prior
comparative
period

FULL-YEAR TO

30 JUN 19

30 JUN 18

$117.2M

$46.4M

2.2%

2.1%

% total
underlying
sales

Other Expenses
% of total
underlying sales
10 BPS4

On prior
comparative
period

Receivables impairment expenses of 1.1% of
Afterpay underlying sales, down from 1.5% in the
comparative period reflects the Group’s continued
focus and investment in risk management to reduce
losses.

Increased investment in people, processes and
systems, particularly to support growth of the US
and UK businesses, as well as increased marketing
spend to drive enterprise retailer adoption as a key
element of the Group’s mid-term strategy.

PRO FORMA EBITDA
(EXCL. SIGNIFICANT ITEMS)1,2

FULL-YEAR TO

30 JUN 19

30 JUN 18

$35.5M

$35.2M

Pro forma
EBITDA
(excl.
significant
items)
1%

On prior
comparative
period

Maintained relatively stable (+1%) pro forma
EBITDA (excluding significant items) as strong
growth in operating income and stable margins
in the Afterpay business was offset by continued
investment in establishing Afterpay in the US and UK
markets in line with the Group’s mid-term strategy,
which was announced at the first half 2019 results
announcement.

1. Pro forma financial results for the financial year ended 30 June 2019.
2. Unaudited financial information.
3. Other expenses in FY19 comprises employment expenses of $51.4 million plus operating expenses of $73.2 million less significant items of

$7.5 million.

4. Basis points change is calculated as the financial year ended 30 June 2019 result less the financial year ended 30 June 2018 result.

Financial Position

The Group’s net asset position increased to $648.5 million as at 30 June 2019, up from $183.6 million
at the prior reporting date. Total assets were $820.5 million, an increase of $428.2 million which
is primarily due to growth in cash and cash equivalents ($198.9 million) and receivables ($213.6
million). Receivables have increased by $213.6 million to $452.7 million due to the continued growth
in Afterpay underlying sales. Total liabilities as at 30 June 2019 were $172.0 million, a decrease of
$36.7 million from the prior comparable period.

Debt and Funding

Total debt has decreased to $50.2 million as at 30 June 2019 from $161.6 million at the prior
comparable period. The Group had a net cash position of $183.3 million at 30 June 2019, compared
to a net debt position of $105.3 million in the prior corresponding period. The reduction in debt has
occurred primarily due to proceeds from equity raises ($459.3 million) completed during the financial
year being used to repay debt and partially fund receivables growth.

The Group’s capital management framework is designed to ensure that it is able to meet its funding
requirements to support current and future growth. The Group has a diversity of funding by both
source and maturity. The Group continued to develop its access to funding sources and maturity
across the financial year ending 30 June 2019.

As at 30 June 2019, the Group had the following funding sources:

• a $500 million receivables warehouse funding facility in Australia (nil drawn);

• a $49.7 million1 senior unsecured note in Australia (fully drawn);

• a NZ$20 million revolving cash advance facility in New Zealand (nil drawn);

• a US$300 million receivables warehouse funding facility in the United States (nil drawn); and

• $231.5 million of cash (excluding restricted cash of $2.0 million classified within Other

Financial Assets).

The total debt position comprised primarily of the $49.7 million senior unsecured note. Importantly,
the Group’s warehouse funding facilities were undrawn at 30 June 2019, providing significant growth
funding capacity. The Group has $946.9 million of undrawn committed facilities (in AUD equivalent
value) to fund future underlying sales growth. The weighted average term to maturity across the
Group’s funding facilities as at 30 June 2019 was 1.6 years.

1. Drawn debt of $49.7 million as shown in the Statement of Financial Position (Note 12) is adjusted for capitalised borrowing costs and accrued

interest. The senior unsecured notes have a carrying value of $50.0 million.

Note on Adoption of New Accounting Standards

The statutory results for financial year ending 30 June 2019 reflect the adoption of two new
accounting standards; AASB 9 – Financial Instruments and AASB 15 – Revenue from Contracts with
Customers. The adoption of these standards has affected the preparation of various line items in the
Statement of Comprehensive Income (profit and loss statement) and the Consolidated Statement
of Financial Position (balance sheet). To enable comparison on a like-for-like basis with the prior
comparable period (financial year ended 30 June 2018), pro forma financial results are presented in
this report which remove the impact of these accounting standard changes.

The table below provides a reconciliation of the financial results to the pro forma financial results
across each key line item that has been impacted by the accounting standard changes.

RECONCILIATION FROM FINANCIAL RESULTS TO PRO FORMA RESULTS

A$’000 (UNLESS OTHERWISE STATED)

Impact on income:

Afterpay income

Pay Now revenue

Total income

Impact on Afterpay NTL:

Net Transaction Loss

Impact on Pay Now cost of sales:

Cost of sales

Impact on EBITDA:

FULL-YEAR ENDED 30 JUNE 2019

UNADJUSTED

ACCOUNTING
STANDARD
CHANGES

PRO FORMA

247,017

17,095

264,112

4,617

3,796

8,413

251,634

20,891

272,525

(22,222)

2,167

(20,055)

(6,720)

(3,796)

(10,516)

EBITDA (excl. significant items)

28,693

6,785

35,479

OPERATING & FINANCIAL REVIEW
OUR BUSINESS & STRATEGY

The Group’s international expansion has continued
in FY19, with the first full year of operations in the US,
a launch in the UK, and Afterpay consolidating its
market-leading position in Australia and New Zealand.

UNITED STATES

The Group’s first full year of operations in the US has delivered merchant, customer and underlying
sales growth beyond expectations. In a short period, Afterpay has become a leader in the US in what
we do; which is a service that customers and merchants prefer over interest-bearing competitor
products. We reached over $1.7 billion in annualised underlying sales based on the month of June
2019 and now have approximately 2.1 million active customers1 and 4,700 active merchants1.
Merchants are also increasingly attracted to the marketing and lead generation benefits of the
Afterpay platform, with the US business reaching over 3.8 million retailer referrals in the month of
July 2019 alone. During FY19, the US business achieved merchant margins that were broadly in line
with the Australian business as a result of a higher contribution from small-to-medium businesses
to total underlying sales. The US business has also achieved an improvement in losses through
the optimisation of risk systems and growth in the returning customer base. Growth in the US is
now supported by a dedicated US$300 million receivables funding facility announced in May 2019,
which is able to fund in excess of US$4 billion of underlying sales. Afterpay is now partnering with or
onboarding over 6,500 merchants2, which represent more than 10% of the online fashion and beauty
industry in the US3.

UNITED KINGDOM

The Group launched strongly in the UK, commencing operations in May 2019 under the Clearpay
brand. UK customer additions reached over 200,0001 after 15 weeks of operations — exceeding
the pace of growth experienced in the US over the same period. We are now partnering with or
onboarding2 over 150 merchants1 in the UK. Underlying sales contribution of $5.6 million for FY19
represented seven weeks of trading – Australia took 14 months to reach the same level. Our business
model is resonating with key UK merchants including Boohoo, JD Sports and Pretty Little Thing. In
this early phase, Clearpay is focused on the Group’s core segments of fashion and beauty, with a goal
to broaden this base in the future.

AUSTRALIA & NEW ZEALAND

The Group’s leading market positions in Australia and New Zealand were reinforced in FY19, despite
the increasing number of ‘buy now, pay later’ operators in the sector. The acceleration of the Group’s
instore proposition has been a key feature of the continued strong growth in underlying sales in
Australia and New Zealand. Instore cumulative underlying sales has now reached $1 billion and has
contributed 18% to Australia and New Zealand’s combined underlying sales in FY19.

New industry verticals and cross-border trade remain nascent opportunities for Afterpay in Australia
and New Zealand. The Group entered into new verticals including healthcare and travel in FY19 and
will continue to explore new segments and grow cross-border trade in FY20.

1. As at 23 August 2019.
2. Includes active and signed merchants.
3. Calculated using data sourced from Euromonitor.

WE ARE INVESTING FOR GROWTH AND
ARE TARGETING $20BN++ OF UNDERLYING
SALES AND A 2% NET TRANSACTION
MARGIN BY THE END OF FY22.

MID-TERM STRATEGY

The addressable opportunity for the Afterpay platform globally
is substantial. The immediate markets where Afterpay is present
represent a $6 trillion opportunity, including an online contribution of
$780 billion. The Group’s experience to date supports an accelerated
investment in this global opportunity to maximise shareholder value
including accelerating growth in the US, building our business in the UK
and continued investment in Australia and New Zealand.

Our execution path and expansion
plan is based on maximising
long-term shareholder value

INVESTMENT IN GROWTH AND
CUSTOMER LIFETIME VALUE

TARGET
$20BN++ GMV
AND
c. 2% NTM
(POST ACCOUNTING
CHANGES)
(END FY22)

FY20
FOCUSED
INTERNATIONAL
EXPANSION

FY21
CONTINUED
PLATFORM
GROWTH

FY22
OPERATING
LEVERAGE

STRONG MERCHANT
AND CUSTOMER
EXPANSION

EBITDA
GROWTH

STRATEGIC PILLARS

The Group’s four strategic pillars drive the strategic and
operational priorities that underpin our mid-term strategy:

GROW

PERFORM

INNOVATE

SCALE OUR NETWORK
AMONG OUR CUSTOMERS
AND MERCHANTS AS WE
CONTINUE ON OUR MISSION
TO BECOME THE WORLD’S
MOST LOVED WAY TO PAY

DELIVERING
STRONG FINANCIAL
PERFORMANCE AND
VALUE

CONTINUED CUSTOMER
AND MERCHANT
INNOVATION OF
OUR PRODUCT AND
PLATFORM, REFLECTIVE
OF OUR CORE VALUES
AND DIFFERENTIATED
APPROACH

DO THE
RIGHT THING

ASPIRING TO DO
THE RIGHT THING BY
OUR PEOPLE, OUR
COMMUNITIES AND ALL
OF OUR STAKEHOLDERS

Our strategic pillars will drive the execution of the following priorities in FY20:

• Accelerate underlying sales growth. FY20 will represent only the second
full year the Group has operated in the US and it will be the first full year
of operations in the UK. These markets are still nascent opportunities for
Afterpay, and there is significant potential to accelerate our online offering
or expand into new channels and verticals. We continue to assess further
international expansion opportunities.

• Invest in enterprise. The Group’s partnerships with large enterprise

merchants are important to attract new consumers and drive our customer
base. Co-marketing investments with enterprise merchants are typically high
return-on-investment and will continue to be developed in a considered way
to support platform growth.

• Scale small-to-medium (SMB) businesses. Our platform connects millions

of consumers with tens of thousands of small, medium and large businesses.
The deep pool of SMB merchants presents a meaningful opportunity for
the Group to grow in Australia and New Zealand and could support stronger
margins globally. The Group adopts a strategic approach to identifying SMB
merchants to work with, and investments will be made in technology and
processes to accelerate onboarding of SMB merchants and maximise the
SMB opportunity.

• Invest further in platform innovation. Driving loyalty and customer

engagement will unlock further opportunities for the Group. Our focus is
to increase our customer lifetime value by building on our existing strong
engagement and creating new income opportunities. New innovative product
features will provide consumers and merchants with new ways to engage
on our platform. The Group is committed to enabling and investing in its
innovation mindset and culture to support further platform innovation.

• Broaden base capabilities. The Group is committed to the continual

development of a strong foundation in risk and compliance as well as
business support and infrastructure. We have enhanced our capabilities
in these areas with well-credentialed strategic hires over the past year in a
number of our teams including technology, product development, risk and
analytics, and compliance and assurance. We will continue investing in and
developing our talent pool to ensure that the Group is well positioned to fully
leverage its innovative culture.

ACCELERATE
SALES GROWTH
MAXIMISE OUR GLOBAL
MARKET OPPORTUNITY

INVEST IN
ENTERPRISE
KEY BRAND
RELATIONSHIPS

SCALE SMB
GROW INTERNATIONAL
EXECUTION CAPABILITY
AHEAD OF THE CURVE

INVEST
FURTHER IN
PLATFORM
INNOVATION

BROADEN
BASE
CAPABILITIES
APPROPRIATELY

OPERATING & FINANCIAL REVIEW
KEY RISKS & CHALLENGES

The nature of the Group’s business and the pace of change in the sector in which we operate mean
we have a number of opportunities to grow the business, but also a number of inherent risks and
uncertainties. Some of these risks may not be within the Group’s control.

The Board and Management are committed to continuously developing and improving strategies, controls
and mitigations to support the delivery of sustainable outcomes for stakeholders in a rapidly changing
environment. The Group has strengthened its risk and business development resources and processes
while continuing to invest in improving its transaction integrity engine and expanding its service offering.

The material business risks for the Group are summarised below.

REGULATORY RISKS

The Group operates in a range of jurisdictions including Australia, New Zealand, the US and the UK, and
may become subject to additional legal, regulatory, tax, licensing, compliance requirements and industry
standards. These environments are constantly changing as a result of our geographic expansion. Changes
in how the Group is regulated, or a failure (or alleged failure) to comply with legal obligations, could have
a material adverse impact on revenues, profitability and the ability of the Group to operate or expand in
accordance with its strategy. In particular, enforcement action by a regulator or a government agency
could involve material fines or penalties, or a requirement to operate in a manner that restricts the Group’s
desired business model.

Some of these regulatory risks could relate to:

• Financial product regulation

• Regulatory interpretation and exercise of discretions by regulators

• AML/CTF laws and compliance obligations

• Privacy laws

• Compliance costs

Our response: We recognise that our business model was not fully envisaged by the law and, as such,
we are committed to continuing to work with regulators across all jurisdictions. We understand the
importance of clear, transparent and timely communications with regulators. In FY19, we participated in
the Australian Senate Inquiry, engaged with ASIC through their ‘buy now, pay later’ review process, and
commenced the current ongoing AML/CTF audit. Compliance with regulatory requirements and company-
specific policies and procedures remain core to our operations and we are focused on continuous
improvement in this area.

COMPETITIVE LANDSCAPE RISKS

The Group’s Afterpay service is a market leader in Australia in the ‘buy now, pay later’ sector. A number of
operators currently offer ‘buy now, pay later’ services, as well as the transaction-processing technology
solutions that our Pay Now service offers. Existing competitors, as well as new competitors entering
the industry, both in Australia and offshore, may engage in aggressive customer acquisition campaigns,
develop superior technology offerings or consolidate with other entities to deliver enhanced scale benefits.
Such competitive pressures may materially and adversely impact the Group’s ability to retain and grow its
merchant base and its customers in all markets, and therefore impact revenue and profitability.

Our response: We continue to differentiate our businesses from competitors and maintain focus on
executing our mid-term strategy. This strategy includes further investing in the Afterpay platform,
continued investment in high return-on-investment co-marketing opportunities, and maintaining a

fundamental innovation mindset to continue to provide mutually beneficial initiatives to customers and
merchants. In the main, our competitors continue to offer interest-bearing products, which mimic the
traditional credit industry – products that our target markets are averse to.

BRAND REPUTATION AND PROTECTION RISKS

The Group’s strong brand reputation is critical to our ability to increase the number of merchants and end
customers which in turn impacts our revenue and profitability. Damage to our brand could lead to a loss
of key merchants and customers, or result in failure to secure new merchants or customers on favourable
terms. A significant event or issue related to the Group’s activities or behaviours could have a negative
impact on our strong brand position. The Group’s brand could also be impacted by negative sentiment
towards the ‘buy now, pay later’ sector driven by competitor behaviours or services.

Furthermore, it is critical for the Group to protect our intellectual property in brands, software, systems
and technology. A loss of that intellectual property, either by reason of unauthorised use or successful
challenge by a third party, could have a material adverse impact on the Group’s financial performance
and reputation.

Our response: We continue to communicate the core principles of our business model, including the
consumer protections that we have in place, in order to differentiate our service from other ‘buy now,
pay later’ providers. We have a Code of Conduct, a whistle-blower policy, and a strong culture focused
on doing the right thing to mitigate against adverse events or issues that may impact our brand
reputation. We take enforcement action to protect our intellectual property when we become aware
of the unauthorised use of our brands; and we seek to register or otherwise protect our intellectual
property as necessary. We are proud of the fact that Afterpay’s Net Promoter Score among our
customers is consistently above 80.

TECHNOLOGY RISKS

The Group must adequately maintain, develop and protect its technology to meet its future business
needs. This includes ensuring its technology:

• remains current: there is a risk that new products, technologies or alternative systems developed

by third parties will supersede our technology. This may materially and adversely impact the Group’s
revenue and/or profitability.

• is effective: the Group’s business model relies on its technology to assess the potential for fraud and
a customer’s repayment capability for each transaction in real time. The Group’s financial results are
sensitive to net transaction losses, and a failure of our technology in this regard could have a material
adverse impact on profitability.

• is easy to integrate: our technology and systems need to smoothly integrate and operate with

various third-party systems and platforms, particularly websites, point of sale systems and other
merchant systems.

• has appropriate capacity: continued increases in transaction volumes may require the Group to

expand and adapt its network infrastructure to avoid interruptions to its systems. Expansions into
new offshore markets may require additional data centre capacity.

• is protected: there is a risk that unauthorised use or copying of any of the Group’s software, data,

specialised technology or platforms will occur.

The Group is also dependent on third-party technology systems, communication networks, banking
and payment processing providers in the operation of its technology. Any failures or disruptions to such
platforms may cause our technology to become unavailable.

Our response: We have a technology strategy with processes, procedures and investment that take
into consideration the mitigation of these technology risks. One of our strategic pillars is to innovate to
deliver further opportunities for customers, and to connect merchants with even more consumers via
our highly successful Afterpay platform. Innovation is part of our DNA and we will continue to make
considered investments in the platform and technology talent pool.

DATA SECURITY RISKS

Through the ordinary course of business, the Group collects a wide range of confidential and personal
information. Cyber-attacks on the Group’s technology platforms could lead to breaches of such
information. Any data security breaches or the Group’s failure to protect confidential and personal
information could result in the loss of information integrity or breach the Group’s obligations under
applicable laws or agreements; either of these may have a material adverse impact the Group’s financial
performance and reputation.

Our response: We recognise that we have a responsibility to protect the privacy and security of
customer data. Our information security teams employ a wide-ranging set of technologies, processes
and programs to mitigate these risks in order to safeguard the data entrusted to the Group by customers
and merchants. We have recently strengthened its capabilities in cyber security and data protection
expertise through key hires.

MACROECONOMIC RISKS

The Group is exposed to several macroeconomic risks, such as retail trading conditions, employment
rates, poor consumer confidence and weakness in local or global economies. Our business depends on
customers transacting with retail merchants, which in turn can be affected by changes in general economic
conditions. This could impact the Group’s ability to generate revenue and collect from customers.

Our response: We regularly analyse and monitor economic and retail conditions and other relevant data to
help mitigate the future impact on our Afterpay and Pay Now businesses. For example, our proprietary risk
decision making rules are constantly reviewed and refined to mitigate credit risk on customer repayments.
Having operations across multiple global markets also enables us to minimise the impact of any downturn
in economic conditions or consumer sentiment specific to a local economy.

CAPITAL MANAGEMENT RISKS

The Group has financing arrangements with a number of external lending partners to support the
funding of purchases by customers. In the unlikely event of repayments not being made or certain terms
and conditions not being satisfied under the Group’s facilities, lending partners may terminate their
obligations.

Our response: Our capital management framework is designed to ensure that we are able to meet
the funding requirements to support current and future growth. The liquidity, debt maturity profile and
funding capacity of the Group are continuously monitored, and we continue to work on maintaining
strong relationships with our funding partners.

KEY PERSONNEL RISKS

The Group’s ability to effectively execute our growth strategy depends on the performance and expertise
of our key management personnel. The loss of key management personnel, or any delay in their
replacement, may adversely affect the Group’s future financial performance. We also rely on being able
to attract and retain highly skilled specialists across a range of areas, including technology which is a
field where competition for talent is intense. The inability to retain, replace or grow our talent may have
a material adverse impact on our ability to operate the business and develop and commercialise new
features or services.

Our response: We believe that having the right employee value proposition in place to attract and retain
key personnel is important. Furthermore, having the right culture with shared values and a clear purpose
is critical to the sustainability of the business. In order to attract the right people, we remain flexible on
how we structure remuneration in order to compete with some of the most successful and innovative
employers in the world. This is balanced with evolving our remuneration framework to reflect the
maturity of the organisation and the expectations of shareholders.

DIRECTORS’
REPORT

DIRECTORS’ REPORT

The Directors submit their report on the consolidated entity consisting of Afterpay Touch Group
Limited (Company) and the entities it controlled (Group) at the end of, or during the year ended,
30 June 2019.

Directors

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

• Elana Rubin

• Anthony Eisen

• Nick Molnar

• David Hancock

• Clifford Rosenberg

• Dana Stalder

Changes to the Afterpay Touch Group Board were
announced in July 2019 (effective 1 July 2019).

• Anthony Eisen was appointed as Chief Executive Officer and Managing Director.

• Nick Molnar was appointed Global Chief Revenue Officer and remains on the Board as an

Executive Director.

• Elana Rubin was appointed as Independent Interim Chair.

• David Hancock’s role as Group Head will come to an end in line with the timing stipulated in

David’s employment agreement, and he will step down from the Board at the conclusion of the
2019 financial year-end matters.

Information on Directors

ELANA RUBIN / INTERIM CHAIR, INDEPENDENT NON-EXECUTIVE DIRECTOR

Interim Chair of Afterpay Touch Group since 1 July 2019

Independent Non-Executive Director of Afterpay Touch Group since 30 March 2017

Background and experience: Elana previously served as an Independent Non-Executive Director of
Afterpay Touch Group, a position she held for more than two years. Elana has been a longstanding
director of a number of public and private companies, with extensive experience in property,
insurance and financial services.

Other roles: Elana is currently a Non-Executive Director of ASX listed Mirvac Limited and Slater and
Gordon Limited. She is also a director of several unlisted companies and/or government bodies.
Elana was previously a Non-Executive Director of TAL Life and Bravura Solutions and was the former
Chair of AustralianSuper and the Victorian WorkCover Authority. Elana has over 20 years’ experience
as a Non-Executive Director.

Interests in Shares and Options:

57,141 ordinary shares in Afterpay Touch Group Limited

ANTHONY EISEN / CHIEF EXECUTIVE OFFICER AND MANAGING DIRECTOR

Chief Executive Officer and Managing Director since 1 July 2019

Executive Chairman of Afterpay Touch Group 5 July 2017 – 30 June 2019

Background and experience: Prior to his current role, Anthony served as Executive Chairman of
Afterpay Touch Group for two years. Anthony has over 25 years’ experience in investing, public
company directorships and providing corporate advice across a variety of sectors. Prior to co-
founding Afterpay, he was the Chief Investment Officer at Guinness Peat Group (GPG). He was
actively involved in a number of financial services, software and technology companies in which
GPG was a major shareholder. Before joining GPG, Anthony was involved in investment banking,
specialising in mergers and acquisitions.

Other roles: Anthony is currently a Director of Foundation Life (N.Z) Limited and Stone & Chalk Pty Ltd.

Interests in Shares and Options:

20,450,574 ordinary shares in Afterpay Touch Group Limited

1,500,000 unlisted options relating to equity awards under the Group’s legacy remuneration framework
(refer section 5.4(a) and 7.4 of the Remuneration Report for further detail) with an exercise price of
$1.00 per option and an expiry date of 31 December 2020

NICK MOLNAR / GLOBAL CHIEF REVENUE OFFICER AND EXECUTIVE DIRECTOR

Global Chief Revenue Officer of Afterpay Touch Group since 1 July 2019

Executive Director of Afterpay Touch Group since 5 July 2017

Background and experience: Nick has extensive experience in online retail. Prior to co-founding
Afterpay, Nick launched the leading American online jeweller, Ice.com, into Australia under the
local brand Iceonline.com.au. Nick successfully grew Ice in Australia to become the largest online-
only jewellery and watch retailer. Prior to launching Ice, Nick was an Investment Analyst at venture
capital fund M. H. Carnegie & Co., where he was primarily responsible for growth stage investment
opportunities in the technology sector. Nick holds a Bachelor of Commerce from Sydney University.

Interests in Shares and Options:

20,450,574 ordinary shares in Afterpay Touch Group Limited

1,500,000 unlisted options relating to equity awards under the Group’s legacy remuneration framework
(refer section 5.4(a) and 7.4 of the Remuneration Report for further detail), with an exercise price of
$1.00 per option and an expiry date of 31 December 2020

DAVID HANCOCK / EXECUTIVE DIRECTOR

Executive Director of Afterpay Touch Group since 5 July 2017

Group Head of Afterpay Touch Group 5 July 2017 – 30 June 2019

Independent Non-Executive Director of Afterpay Touch Group 30 March 2017 – 5 July 2017

Background and experience: David has over 30 years of broad experience in financial services. This
experience includes being Chief Executive Officer of listed Tower Limited, Executive General Manager
at the Commonwealth Bank of Australia, with a variety of roles including capital markets, fixed
income and equities. Prior to that, he served in senior investment banking roles at JPMorgan where
he was a Managing Director. Previous to that, David spent approximately 10 years at Citi (formerly
County Natwest) where he was Managing Director and Co-Head of Investment Banking.

Other roles: David currently serves as Chairman of FinClear Pty Ltd and has previously been a Director
of ASX listed companies Tower Limited, Elmo Software Limited and Freedom Insurance Group Ltd.

Interests in Shares and Options:

950,000 ordinary shares in Afterpay Touch Group Limited

200,000 unlisted options relating to equity awards under the Group’s legacy remuneration framework
(refer section 5.4(a) and 7.4 of the Remuneration Report for further detail), with an exercise price of
$1.00 per option and an expiry date of 31 December 2020

2,699,087 unlisted options relating to equity awards under the Group’s legacy remuneration framework
(refer section 5.4(a) and 7.4 of the Remuneration Report for further detail), with an exercise price of
$2.70 per option and an expiry date of 1 September 2022

CLIFFORD ROSENBERG / INDEPENDENT NON-EXECUTIVE DIRECTOR

Independent Non-Executive Director of Afterpay Touch Group since 30 March 2017

Background and experience: Clifford has spent more than 20 years working at digital companies
leading innovation and change in the industry both as an entrepreneur and senior executive. Clifford
was previously a senior executive at LinkedIn, serving as the Managing Director of LinkedIn for South
East Asia, Australia and New Zealand. Prior to LinkedIn, Clifford was Managing Director at Yahoo
Australia and New Zealand, and previously the founder and Managing Director of iTouch Australia
and New Zealand, one of the biggest mobile content and application service providers in Australia.
Prior to iTouch Clifford was the Head of Strategy for Vodafone Australasia. Clifford has a Bachelor of
Business Science (Honours) and a Master of Science in Management.

Other roles: Clifford is also a Non-Executive Director of ASX listed companies Nearmap Ltd, A2B
Australia Limited and Technology One Limited. Clifford has previously been a Director of ASX listed
companies IXUP Limited and Pureprofile Ltd.

Interests in Shares and Options:

650,574 ordinary shares in Afterpay Touch Group Limited

700,000 unlisted options relating to equity awards under the Group’s legacy remuneration framework
(refer section 7.4 of the Remuneration Report for further detail), with an exercise price of $0.20 per
option and an expiry date of 1 September 2020

200,000 unlisted options relating to equity awards under the Group’s legacy remuneration framework
(refer section 7.4 of the Remuneration Report for further detail), with an exercise price of $1.00 per
option and an expiry date of 31 December 2020

DANA STALDER / INDEPENDENT NON-EXECUTIVE DIRECTOR

Independent Non-Executive Director of Afterpay Touch Group since 24 January 2018

Background and experience: Dana is a General Partner with Matrix Partners, a global technology
focused venture capital firm, where he focuses primarily on FinTech, Consumer Marketplaces, and
Enterprise Software investing. Dana has over 20 years of experience as a technology company
operator and investor, with leadership experience cutting across multiple disciplines including sales,
marketing, finance, technology and product management at companies such as Netscape, eBay and
PayPal. Dana holds a Bachelor of Science in Commerce from Santa Clara University.

Other roles: Dana currently serves on the Board of Directors of several private US-based technology
companies.

Interests in Shares and Convertible Notes:

Dana is a General Partner in Matrix Partners, which is the general partner of Matrix Partners X, L.P. and
Weston & Co. X LLC, however he does not have a relevant interest in the APT shares and convertible
notes held by those two entities

Matrix Partners X, L.P. – 2,717,394 ordinary shares in Afterpay Touch Group and 1 convertible note

Weston & Co X LLC – 163,032 ordinary shares in Afterpay Touch Group and 1 convertible note

CHRISTOPHER STEVENS / GENERAL COUNSEL AND COMPANY SECRETARY

General Counsel and Company Secretary since 17 September 2018

Background and experience: Christopher has over 15 years’ experience as a corporate, commercial
and regulatory lawyer with leading Australian and international organisations. Prior to his
appointment, Christopher was Deputy General Counsel at Tabcorp Limited and previously established
the Global Legal Operations function at fast-fashion retailer ASOS.com in London. Christopher is a
member of the Association of Corporate Counsel GC100, Law Institute of Victoria and Governance
Institute of Australia.

“

AFTERPAY HAS
TO BE THE BEST
THING ON EARTH

GEORGIE RENEE

“

Meetings of Directors

During the financial year ended 30 June 2019, Afterpay Touch Group Limited held 26 meetings of
the Board of Directors, of which 11 were standard scheduled Board meetings and 15 were held
to discuss special business. Special Board meetings were often called at short notice to address
significant emerging issues.

The attendance of the Directors at meetings of the Board and standing Board Committees during the
year in review were as follows:

BOARD

COMMITTEES

SCHEDULED

SPECIAL

AUDIT, RISK AND
COMPLIANCE

REMUNERATION AND
NOMINATION

AML/CTF REVIEW
SUB-COMMITTEE 4

ELIGIBLE 1 ATTENDED ELIGIBLE 1 ATTENDED ELIGIBLE 1 ATTENDED ELIGIBLE 1 ATTENDED ELIGIBLE 1 ATTENDED

Anthony Eisen

David Hancock

Nick Molnar

Elana Rubin

Clifford Rosenberg

Dana Stalder

14 3

13 3

11 3

8 2

7 2

1 5

1 2

1. The number of meetings held during the time the Director was a member of the Board or of the relevant Committee.
2. Denotes the Director is not a member of the relevant committee.
3. Denotes Anthony did not attend one meeting as he had a material personal interest in the substantive matter discussed during the relevant meetings,
David did not attend two meetings as he had a material personal interest in the substantive matter discussed during the relevant meetings, and Nick
did not attend one meeting as he had a material personal interest in the substantive matter discussed during the relevant meetings.

4. The AML/CTF Review Sub-Committee was established on 19 June 2019.
5. In addition to discussions at Remuneration and Nomination Committee meetings, remuneration related matters were also discussed on a number of
occasions at full Board meetings due to the strategic importance to the Group of its personnel. These discussions are not included in the number of
Remuneration and Nomination Committee meetings.

As at the date of this report, the Group has an Audit, Risk and Compliance Committee, Remuneration
and Nomination Committee and AML/CTF Review Sub-Committee of the Board of Directors. The
members of each committee are as follows:

AUDIT, RISK AND COMPLIANCE COMMITTEE

REMUNERATION AND NOMINATION COMMITTEE

AML/CTF REVIEW SUB-COMMITTEE 1

Dana Stalder (Chair)

Clifford Rosenberg

Elana Rubin

Clifford Rosenberg (Chair)

Elana Rubin (Chair)

Elana Rubin

Anthony Eisen

David Hancock

Christopher Stevens

Damian Kassabgi

Leon Zwier

1. The Committee was established on 19 June 2019.

Principal Activities

The principal activities of the Afterpay Touch Group are to provide technology-driven payments
solutions for consumers and businesses through its Afterpay and Pay Now services and businesses.

Financial Result

The Group reported a statutory loss of $43.8 million after tax for the 12 months ended 30 June 2019
(2018: loss of $9.0 million after tax).

Operating and Financial Review

The Operating and Financial Review on Pages 20 to 31 forms part of this Directors’ Report and sets
out:

• a review of operations during the year and the results of those operations;

• comments on the financial position; and

• the business strategies of the Group

Any other detail on likely developments in the operations of the consolidated entity and prospects
for future financial years have not been included in this report because the Directors believe it to be
commercial-in-confidence and therefore likely to result in unreasonable prejudice to the Group.

Significant Changes in the State of Affairs

In the opinion of the Directors, there were no significant changes in the state of affairs of the
consolidated entity during the financial period, except as otherwise noted in this report.

Significant Events Subsequent to the End of the Full Year

The Directors are not aware of any matters or circumstances that have arisen since 30 June 2019
that have significantly affected or may significantly affect the operations of the consolidated entity in
subsequent financial years, the results of those operations, or the state of affairs of the consolidated
entity in future financial years.

Dividends

No dividends were paid to shareholders during the year.

Share-based Payment Plans

Details of share-based payment plans are disclosed in Note 19 of the Financial Statements.

Sustainability

The Group understands the importance of considering the impact of environmental and social
factors on the sustainability of its businesses. The Group also understands there is heightened
expectation from investors to report on climate change initiatives and metrics.

As a first step, pages 12 to 19 disclose some climate change information and sustainability initiatives
that are in place across the Group. The Group sees this as a first step towards more meaningful
disclosure in future years. The Group is intending to conduct an assessment of the materiality of
its climate-related risks and opportunities as well as develop a sustainability framework that allows
the measurement, monitoring and improvement of performance on climate risks. Progress on the
sustainability framework will be disclosed in the FY20 Annual Report.

The Group also confirms that it is not subject to any particular or significant environmental legislation
under a law of the Commonwealth, State or Territory law of Australia.

Corporate Governance

In recognising the need for the highest standards of corporate behaviour and accountability, the
Directors support and have adhered to the principles of corporate governance.

The Board monitors the operational and financial position and performance of Afterpay Touch
Group and oversees its business strategy, including approving the strategic goals of the Group and
considering and approving its annual business plan and associated budget. The Board is committed
to generating appropriate levels of shareholder value and financial return, and achieving the growth
and success of the Group. In conducting the Group’s business with these objectives, the Board seeks
to ensure that the Group is properly managed to protect and enhance shareholder interests and that
the Group, its Directors, officers and personnel operate in an appropriate environment of corporate
governance. Accordingly, the Board has adopted a framework of corporate governance including risk
management practices and internal controls that it believes appropriate for the Group’s businesses.
Details of the Group’s key policies and the charters for the Board and each of the committees are
available at www.afterpaytouch.com

Remuneration Report

The Remuneration Report set out on pages 42 to 67 forms part of this Directors’ Report.

Insurance of Directors and Officers

During the year, the Group paid a premium for a Directors and Officers Liability Insurance Policy. This
policy covers Directors and Officers of the Group and the Consolidated entity. In accordance with
normal commercial practices under the terms of the insurance contracts, the disclosure of the nature
of the liabilities insured against and the amount of the premiums are prohibited by the policy.

Indemnification of Auditors

To the extent permitted by law, the Group has agreed to indemnify its auditors, Ernst & Young, as part
of the terms of its audit engagement agreement against claims by third parties arising from the audit
(for an unspecified amount). No payment has been made to indemnify Ernst & Young during or since
the financial year.

Proceedings on Behalf of the Group

No person has sought to bring proceedings on behalf of the Group, and the Group is not a party
to any proceedings, for the purpose of taking responsibility on behalf of the Group for any such
proceedings, or for a particular step in any such proceedings.

Non-Audit Services

The Group may decide to employ the auditor on assignments additional to their statutory audit
duties where the auditor’s expertise and experience with the Group and/or the consolidated entity are
important.

The Board of Directors has considered the position and, in accordance with the advice received from
the Audit, Risk and Compliance Committee, is satisfied that the provision of the non-audit services
is compatible with the general standard of independence for auditors imposed by the Corporations
Act 2001. The Directors are satisfied that the provision of non-audit services by the auditor, as set out
below, did not compromise the auditor independence requirements of the Corporations Act 2001 for
the following reasons:

• all non-audit services have been reviewed by the Audit, Risk and Compliance Committee to ensure

they do not impact the impartiality and objectivity of the auditor; and

• none of the services undermine the general principles relating to auditor independence as set

out in APES 110 Code of Ethics for Professional Accountants, including reviewing or auditing the
auditor’s own work, acting in a management or a decision making capacity for the Group, acting as
advocate for the Group or jointly sharing economic risk and rewards.

Details of the audit and non-audit fees paid or payable for services provided by the auditor of the
parent entity, and its related practices, are detailed in Note 23.

Auditor Independence

A copy of the Auditors’ Independence Declaration as required under Section 307C of the Corporations
Act 2001 is included in this Report.

Rounding Off of Amounts

The amounts contained in this report and in the financial report have been rounded to the nearest
$1,000 (unless otherwise stated) under the option available to the Group under ASIC Corporations
(Rounding in Financial/Directors’ Reports) Instruments 2016/191. The Group is an entity to which the
legislative instrument applies.

This report is made in accordance with a resolution of the Directors.

Elana Rubin

Independent Interim Chair

Melbourne

28 August 2019

Ernst & Young
8 Exhibition Street
Melbourne VIC 3000 Australia
GPO Box 67 Melbourne VIC 3001

Tel: +61 3 9288 8000
Fax: +61 3 8650 7777
ey.com/au

Auditor’s Independence Declaration to the Directors of Afterpay Touch
Group Limited

As lead auditor for the audit of the financial report of Afterpay Touch Group Limited for the financial year
ended 30 June 2019, I declare to the best of my knowledge and belief, there have been:

a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in

relation to the audit; and

b) no contraventions of any applicable code of professional conduct in relation to the audit.

This declaration is in respect of Afterpay Touch Group Limited and the entities it controlled during the
financial year.

Ernst & Young

David McGregor
Partner
28 August 2019

A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation

414141

REMUNERATION
REPORT

1 Executive summary

On behalf of the Board of Directors of Afterpay Touch
Group Limited (the Group), we are pleased to present
the FY19 Remuneration Report (Report).

Our people are our greatest asset and our business is all about human connection. We value our
people and seek to provide a workplace that delivers high employee engagement and satisfaction.
We have a high-performing culture that supports our pace of growth and global expansion
achievements and future aspirations. It is our fundamental belief that the behaviour and performance
of all employees should be aligned with our values and expectations to drive business performance.
We embrace diversity and promote an inclusive culture to ensure we can continue to innovate by
listening to our people and their ideas.

1.1 FY19 – GLOBAL EXPANSION, RENEWED LEADERSHIP

FY19 saw the continued evolution of the Group from a start-up, Australian-focused business to a
company delivering its Afterpay service to an increasingly global customer base. Since the Group’s
initial public offering only approximately three years ago, the Group has undergone a period of rapid
growth, which has today positioned the Group as an emerging global technology company in a new
sector. During FY19, the Group achieved a number of important milestones in its aspiration to be the
“world’s most loved way to pay”. The Group continued to expand its customer and retail network in
its home market of Australia; take up of the Afterpay service in the US exceeded expectations in the
first full year of operations; and the Afterpay service was successfully launched in the UK under the
Clearpay name. The Group also achieved exceptional growth in respect of key financial and non-
financial indicators, which are set out in section 5.

At Afterpay Touch Group, we are focused on never losing sight of our key stakeholders (including
customers, merchants, shareholders and other external parties) and on ensuring we meet regulatory,
market and community expectations. In July 2019, the Group announced important changes to its
Board and executive leadership team to further enhance our governance practices and executive
talent pool, as well as to support the execution of the Group’s mid-term strategy and delivery of value
to our shareholders. As part of a commitment to evolve the independence and capabilities of our
Board, independent Non-Executive Director Elana Rubin was appointed as Independent Interim Chair
from 1 July 2019 and a global search has commenced to recruit at least two additional independent
Directors and an independent Chair. Co-Founders and Executive Directors Anthony Eisen and Nick
Molnar assumed new roles as Chief Executive Officer and Managing Director, and Global Chief
Revenue Officer and Executive Director respectively, and remain fully committed to the business and
as excited as ever to execute on the Group’s global growth plan. Refer section 3 for further detail.

As the Group has grown, there have been a number of regulatory reviews into the ‘buy now, pay
later’ segment, including an ASIC review and a Senate Inquiry, both of which recognised the Group’s
business model as different to traditional credit. In late FY19, the Group’s subsidiary (Afterpay Pty
Ltd) received a notice from AUSTRAC requiring it to appoint an external auditor to carry out an audit
in respect of its AML/CTF compliance. The Board takes its regulatory responsibilities very seriously
and welcomes the opportunity to continue to work closely and constructively with all regulators.

In light of the ongoing AUSTRAC matter, while the Board has assessed performance against the
FY19 short term incentive (STI) measures, the Executive Key Management Personnel (KMP) have
volunteered for their STI awards to be withheld until the outcomes of the final report of the external
audit are released in November 2019. The Board reserves its discretion to make any adjustments to
final STI outcomes for the Executive KMP as appropriate, to reflect the outcomes of the AUSTRAC
audit. Consideration will be given to any impact on Non-Executive Director fees (if appropriate),
following the final report of the AUSTRAC audit.

Refer below for further detail in respect of FY19 incentive outcomes and their link to Group
performance.

1.2 EXECUTIVE KMP REMUNERATION – OUR NEW FY20 FRAMEWORK

In only a few years, the Group has grown rapidly from an Australian-focused start-up in 2015 to the
S&P/ASX 100 listed global company it is today. The Group’s executive remuneration arrangements
have been reflective of its origins as a smaller company while balancing the need to attract and
retain top-tier talent in a highly competitive global technology talent pool to deliver on our growth
aspirations. In the global technology sector, in particular, service-based equity arrangements (e.g.
option tranches) are common practice. These service-based equity arrangements have been
successful in attracting and securing key talent that the Group would have not otherwise been able to
attract. The Group does, however, acknowledge that our remuneration framework should be evolved
to reflect the growing maturity and scale of the organisation and the expectations of shareholders.

The Board has listened and is committed to addressing stakeholder feedback. During FY19, the
Board spent considerable time and effort developing a new framework with assistance from external
advisors, that aims to strike a balance between the need to compete for world-class talent as well as
meet the expectations of a top 100 S&P/ASX company.

The new remuneration arrangements will apply from FY20 and will be disclosed in detail in next year’s
remuneration report.

Key features

Key features of the new framework include:

• delivery of executive remuneration packages in four components being moderate fixed cash
remuneration (comprising base salary and superannuation), an annual fixed grant of restricted
stock units (RSUs), which vest in equal parts over three years subject to service, a moderate cash
short-term incentive (STI), and a formal long-term incentive program (LTI) comprising annual
grants of market priced options, which are subject to formal long-term performance hurdles tested
over three years. Refer below for further detail as to how the new framework will apply to existing
and new Executive KMP;

• remuneration packages that are highly leveraged to the long term (as opposed to the short

term) and equity (as opposed to cash) to generate strong alignment between Executive KMP
and shareholders, encourage long-term sustainable decision making and support our objective
of remaining competitive for talent in the US market and unlisted technology segments. The
fixed cash remuneration component is positioned below market in recognition of the annual fixed
grant of RSUs (which serves as a retention device and aids in the attraction of key talent out of
the global technology markets where service-based equity is common practice). The combination
of these two elements (fixed cash and RSUs) comprises the ‘‘fixed remuneration’’ component of
the remuneration package and is positioned at or around the median of total fixed remuneration
of peer companies. Cash STI is also positioned low relative to peer companies, with the LTI
component making up the majority of Executive KMP total remuneration. Our moderate STI and
formal LTI programs are aligned to Australian listed market expectations and comprise the ‘‘at-risk’’
component of the remuneration package;

• a new balanced scorecard approach used for the FY20 STI, which reflects the key value drivers
of the business. Performance against each of the scorecard measures will be transparently
disclosed to the market at the end of each financial year. From FY20, Executive KMP STI will
be assessed against five key categories of measures, being financial (50%), customer (20%),
merchants (10%), innovation (10%) and people (10%). Performance metrics and targets will be set
at challenging levels in line with the Group’s mid-term strategy (refer section 2.5 for further detail;

• introduction of a performance-tested LTI. Annual LTI grants will be tested against two equally

weighted measures, being absolute gross merchandise value (GMV) (i.e. underlying sales) (50%)
and Afterpay net transaction margin (NTM) (50%) assessed over three years. Delivery of the LTI in
market value options will also encourage a focus on the Group’s share price performance;

• strengthening our consequence management mechanisms to set a clear ‘tone from the top’

and provide the Board with the ability to address any sub-optimal behaviour. Malus / clawback
requirements will apply to all elements of the framework. In addition to overarching Board
discretion, the STI will also be subject to a Board discretion modifier for ‘doing the right thing’,
where the Board will consider regulatory and conduct issues, risk, brand and reputation, and the
quality of financial results in determining final incentive outcomes and may make downwards
adjustments (as appropriate); and

• greater transparency of the Group’s employee incentive plans by satisfying new Awards under

incentive programs in APT listed parent company equity going forward (refer sections 8.1 and 8.2
for further detail).

Transitionary approach

• all new employees joining at the Executive KMP level will commence on the framework and be
eligible to receive all four elements (i.e. fixed remuneration (base salary and superannuation, and
RSUs) and at-risk remuneration (cash STI and LTI) from FY20;

• it is intended that the Co-Founders (Anthony and Nick) will forego any STI or RSU component
under the new framework having regard to their existing shareholding and the vesting dates
of legacy option grants which encourage a focus on long-term sustainable performance. They
have also elected to remain on their current base salary until a review is conducted in FY20. Any
participation in the LTI (as determined by the Board) will be disclosed in the 2019 Notice of Meeting
(if applicable). Details of their FY20 remuneration packages will be disclosed once finalised; and

• the CFO will transition onto the new STI scorecard approach for FY20 and onto the equity

components of the new framework over time having regard to the vesting dates of his legacy
option grants. The CFO will only receive fixed cash remuneration and STI for FY20 (i.e. he will not
receive an LTI or RSUs in FY20) given he has a legacy option grant that is not yet vested.

Refer section 2 for further detail in respect of the new framework.

1.3 NON-EXECUTIVE DIRECTOR FEE REVIEW

As part of continuing to evolve our Board composition and increasing our representation of
independent Directors, the Group is currently undertaking a global search to recruit a new
independent Chair and at least two additional independent Directors over the medium term to
complement the skill sets of the existing Non-Executive Directors.

The Group’s FY19 Non-Executive Director fees were set at a time when the Group was significantly
smaller in market capitalisation, complexity and geographic spread, and as a consequence, Board
and Committee fees are positioned well below market. As part of ensuring its Non-Executive
Directors are competitively remunerated and the need to be market competitive to attract and retain
new Directors (including overseas Directors), the Board undertook a review of Non-Executive Director
fees (facilitated by independent market data provided by an independent remuneration consultant)
during FY19.

Informed by this review, the Board determined that an increase to Non-Executive Director fees
(effective from FY20) was appropriate. In addition, shareholder approval will be sought at the 2019
AGM for an increase to the aggregate Non-Executive Director fee pool to provide sufficient flexibility
to compensate an independent Chair and additional independent Director appointments (including
overseas appointments) over the medium term.. Refer section 6.3 for further detail.

1.4 FY19 INCENTIVE OUTCOMES AND LINK TO GROUP PERFORMANCE

Subject to the outcomes of the final report of the AUSTRAC audit, the maximum STI awards that the
Executive KMP will be eligible to receive in respect of FY19 are set out in section 5.3(a), reflecting the
Group’s exceptional performance across all regions. In particular, GMV (i.e. underlying sales), active
customers and active merchants were up 140%, 130% and 101% on FY18 respectively; Australia
and New Zealand continued to track strongly; and the performance of the US business significantly
exceeded expectations.

In FY19, legacy one-off equity awards (in the form of options) vested for all four Executive KMP. None
of these options were exercised by Executive KMP during FY19. Details regarding these awards
were disclosed in the FY18 Remuneration Report. The options vesting with the Group Head in FY19
received shareholder approval at the 2018 AGM. No new one-off equity grants were made during
FY19 to Executive KMP. Refer section 5.4(a) for further detail.

2 Our new FY20 remuneration framework

2.1 COMPETING FOR WORLD-CLASS TALENT IN THE GLOBAL TECHNOLOGY SECTOR

Afterpay Touch Group is one of a small segment of ASX listed companies operating in the global
technology sector and competing for world-class talent in a highly competitive global technology
talent pool (particularly out of the US). The remuneration packages offered to top-tier talent within
these markets are typically more highly leveraged to the long term than the Australian market,
and often place greater emphasis on large one-off equity grants, a significant portion of which are
typically subject to continued employment only rather than long-term performance hurdles.

The Group’s executive remuneration arrangements to date (which have comprised low base salary,
low cash short-term incentives and one-off equity awards (negotiated on a bilateral basis) subject to
continued service and KPIs in some cases (refer section 5.4)) have been highly reflective of the need
to attract top talent out of these markets (particularly as a cash-constrained company in the start-up
phase) to deliver exceptional returns to our shareholders.

However, as the Group is now a larger listed company with a much higher market capitalisation,
the Board acknowledges that our existing remuneration arrangements need to evolve to meet the
expectations of our stakeholders as a top S&P/ASX 100 company.

During FY19, the Board undertook an extensive review of the Group’s executive remuneration
arrangements for Executive KMP and engaged with a number of our investors and proxy advisers
to understand their key concerns. Having regard to this feedback, the Board has developed a new
framework (to apply from FY20) that aims to strike an appropriate balance between the need to
compete for world-class talent out of the technology sector in different markets and meet the
expectations of a top S&P/ASX 100 company. On the following pages, we set out further detail in
respect of the new framework (which will be disclosed in detail in the FY20 Remuneration Report).
We also set out below a summary of the key issues raised by stakeholders and how these have been
addressed under the new framework.

2.2 STAKEHOLDER CONCERNS RAISED IN FY18

We set out below an overview of the changes we have made to address stakeholder concerns raised
in FY18.

STAKEHOLDER CONCERNS RAISED IN FY18

CONCERN RAISED

CHANGES WE HAVE MADE (FY20)

A lack of an overall strategy
for remunerating executives
(including no clear
comprehensive LTI plan)

Lack of transparency
particularly around STI
measures, weighting and
targets, making it difficult to
ascertain whether measures
are truly stretching

One-off equity grants were
excessive with short vesting
periods and no performance
hurdles

• From FY20, new Executive KMP will be remunerated under a consistent

framework with packages comprising four elements, being moderate fixed
cash remuneration, an annual grant of RSUs vesting in equal tranches annually
over three years, low cash STI and a formal annual LTI program. The fixed
cash remuneration and RSUs comprise the ‘‘fixed remuneration’’ and the STI
and LTI comprise the ‘‘at-risk’’ remuneration in the package. Refer section 2.4
for further detail as to how the new framework will apply to existing and new
Executive KMP

• Packages will be highly leveraged to the long term (as opposed to the short

term) and to equity (as opposed to cash)

• From FY20, cash STI will be tested against a balanced scorecard reflecting

key value drivers in the business. The Group is committed to providing greater
transparency in respect of STI measures under the new framework (including
the reasons why they have been chosen) and performance against each STI
measure when it discloses STI outcomes in the FY20 Remuneration Report

• From FY20, the annual LTI program will be wholly performance tested against

two key equally weighted metrics (being GMV (i.e. underlying sales) and
Afterpay NTM) over a three-year performance period

• Consistent with market practice, the LTI will also take the form of smaller
annual grants of market value options (as opposed to large one-off equity
awards)

• One-off equity awards (negotiated on a bilateral basis) without long-term

performance testing will not be part of the remuneration framework going
forward

Lack of transparency as to
dilution impact of equity
plans

• Going forward all new offers under Group Employee Incentive Plans will be

satisfied by equity in the listed company rather than unlisted subsidiaries (refer
section 8.1 and 8.2 for further detail on the US ESOP and UK ESOP)

2.3 FY20 REMUNERATION FRAMEWORK – SNAPSHOT

1. OUR STRATEGIC PILLARS

GROW

PERFORM

INNOVATE

DO THE RIGHT THING

Scale our network among our
customers and merchants as
we continue on our mission
to be the ‘world’s most loved
way to pay’

Delivering
strong financial
performance and
value

Continued customer and
merchant innovation of
our product and platform,
reflective of our core values
and differentiated approach

Aspiring to do the right
thing by our people,
our communities and
all of our stakeholders

2. OUR EXECUTIVE KMP

REMUNERATION POLICY
& PRINCIPLES

3. OUR FY20 EXECUTIVE
KMP REMUNERATION
FRAMEWORK

ATTRACT, MOTIVATE AND
RETAIN WORLD’S BEST TALENT

Ensure we are market competitive in
attracting and retaining world-class talent
from the global technology talent pool,
with the skills and experience to drive
the Group’s international expansion and
returns for shareholders

ACTING LIKE OWNERS AND
PAY FOR PERFORMANCE

Generate strong alignment between
executive reward and shareholder
outcomes

Drive an ‘ownership mindset’ among
participants and encourage a focus on
long-term sustainable decision making in
the interests of all our stakeholders

STRATEGY LED AND
CUSTOMER CENTRIC

Aligned with the Group’s key value drivers
and strategic objectives

Support the Group’s high-performance
culture and focus executives on delivering
exceptional results and the best possible
user experience for our customers

DOING THE RIGHT THING

Has the structure and transparency
expected of a large ASX listed company
going forward

Meets the expectations of our
shareholders, customers, regulators and
the broader community

T
N
E
N
O
P
M
O
C
D
E
X
I
F

T
N
E
N
O
P
M
O
C
K
S
I
R
-
T
A

FIXED BASE SALARY + SUPER

Positioned below the median of peers (in recognition
of annual RSU grant)

Annual review process with adjustments only for
change in role or promotion, internal relativities and
significant market changes

RSU RESTRICTED EQUITY

Vesting in equal tranches over three years (subject to
service at vesting dates)

Combination of fixed cash remuneration and face
value of RSUs is positioned at or around the median
of total fixed remuneration of peer companies

Subject to malus and clawback

STI BALANCED SCORECARD

Paid in cash at end of financial year

Positioned below median of peers

Subject to clawback and Board discretion modifier for
‘doing the right thing’

LTI MARKET VALUE OPTIONS (100%)

PERFORMANCE TESTED AGAINST ABSOLUTE GMV UNDERLYING
SALES (50%) AND NET TRANSACTION MARGIN (50%)

LTI grants made annually

Above market position (75th percentile)

Subject to subsequent performance testing over three years

Subject to malus and clawback

1 YEAR

3 YEARS

1 YEAR

3 YEARS

2.4 FY20 REMUNERATION FRAMEWORK – MORE DETAIL

ELEMENT

DESCRIPTION

STRATEGIC, CULTURAL, TALENT LINK

F I X E D CO M P O N E N T

FIXED CASH
REMUNERATION

Fixed cash remuneration comprises base salary and
superannuation

Fixed remuneration is positioned conservatively (albeit
having regard to):

• the individual’s role, responsibilities, skills, experience

and performance levels; and

• the remuneration levels offered by comparable

companies with whom the Group competes for talent

RESTRICTED
EQUITY
(ANNUAL
GRANT)

• Instrument: restricted stock units (RSUs) (i.e. a right
to a share upon satisfaction of vesting conditions)
granted annually on a face value basis

• Vesting period / conditions: three equal tranches
vesting annually over three years (subject to
continued employment)

• Subject to malus / clawback and no dividend or

voting rights over vesting period

AT- R I S K CO M P O N E N T

SHORT-TERM
INCENTIVE

• Instrument: cash

• Performance period: financial year

• Vesting conditions: balanced scorecard comprising
financial (50%), customer (20%), merchants (10%),
innovation (10%) and people (10%) – refer section 2.5
for further detail

• Subject to clawback and Board discretion modifier

for ‘doing the right thing’ (i.e. downward adjustments
for conduct, risk, regulation, reputation and brand,
and quality of results)

• Positioned conservatively (i.e. below the
median of peers) in recognition of the
annual RSUs component

• Reviewed annually with adjustments only
for change in role or promotion, internal
relativities and significant market changes
(not CPI / wage growth increases)

• Restricted equity component generates

strong alignment between executives and
shareholders and provides a retention
device for key talent (as vesting is subject
to continued employment at vesting dates)

• Combination of fixed cash remuneration
and face value of RSUs is positioned
at or around the median of total fixed
remuneration of peer companies

• To reward for achievement of stretching
annual goals set in line with the Group’s
mid-term strategy and reflecting key value
drivers of the business to deliver returns
for shareholders

• Positioned below the median of peer

companies (in favour of heavy weighting
towards LTI)

LONG-TERM
INCENTIVE

• Instrument / allocation methodology: market value
options granted annually using a Black Scholes
methodology

• LTI opportunity levels are positioned

above market (i.e. packages are highly
leveraged to LTI)

• Performance period: three years

• Vesting conditions: GMV (i.e. underlying sales)

– 50%, net transaction margin (NTM) – 50%, and
subject to payment of exercise price. Refer section
2.5(b) for further detail

• Subject to malus and clawback

• •To reward for achievement of challenging
long-term goals, generate strong alignment
between executives and shareholders, and
encourage sustainable decision making in
the long-term interests of shareholders

• Market price options also encourage a

focus on growing the Group’s share price
and total shareholder return

Under the FY20 framework, fixed cash pay is positioned low relative to peers in recognition of the annual RSU grant. The sum
of these elements represents ‘‘total fixed remuneration’’ and is positioned around the median of peer companies. Cash STI
levels are conservative relative to peers, with packages highly leveraged to the LTI.

F Y 2 0 T RA N S I T I O N A RY A P P R OAC H – N EW A N D E X I ST I N G E X E C U T I V E K M P

• All new employees

joining at the Executive
KMP level will commence
on the framework and
be eligible to receive all
four elements (as set out
above) from FY20

• It is intended that the Co-Founders (Anthony and Nick)
will forego any STI or RSU component under the new
framework having regard to their existing shareholding
and the vesting dates of legacy option grants
which encourage a focus on long-term sustainable
performance. They have also elected to remain on
their current base salary until a review is conducted in
FY20. Any participation in the LTI (as determined by the
Board) will be disclosed in the 2019 Notice of Meeting
(if applicable). Details of their FY20 remuneration
packages will be disclosed once finalised

• The CFO will transition onto the new

STI scorecard approach for FY20 and
onto the equity components of the new
framework over time having regard to
the vesting dates of his legacy option
grants. The CFO will only receive fixed
cash remuneration and STI for FY20
(i.e. he will not receive an LTI or RSUs in
FY20) recognising that he has a legacy
option grant that is not yet vested

2.5 FY20 PERFORMANCE MEASURES

(a) FY20 STI scorecard

In FY20, STI awards to Executive KMP will be determined based on an assessment of the balanced
scorecard set out below (with threshold and target levels of vesting of 50% and 100% in respect of
each measure). Our balanced scorecard reflects annual objectives aligned with our key value drivers
and generation of long-term value for our shareholders (with the introduction of new measures
relating to ‘innovation and ‘people’ to reflect their importance to our business).

Targets will be set at challenging levels to ensure Executive KMP are rewarded for exceptional
performance. Specific details of how the Group has performed against each STI measure will be
transparently disclosed in the FY20 Remuneration Report, once outcomes are known.

In addition to retaining overarching discretion in respect of the FY20 remuneration framework,
final STI outcomes will be subject to a Board discretion modifier whereby the Board may make
downward adjustments (including to zero) for regulatory issues, conduct issues, brand and
reputational issues, and non-financial and financial risk issues. In determining final outcomes,
the Board will also have regard to the quality of the result in each category (facilitated by contra /
supplementary indicators, including customer complaints and customer Net Promoter Score (NPS)).

In addition, as part of its overarching discretion under the Plan, the Board may reduce final STI
outcomes having regard to affordability considerations and the Group’s financial performance over
the period.

FY20 STI SCORECARD

CATEGORY

MEASURES

WEIGHTING

RATIONALE

FINANCIAL
(50%)

GMV (I.E. UNDERLYING
SALES)

25%

EBITDA

CUSTOMER
(20%)

NUMBER OF ACTIVE
CUSTOMERS

NET TRANSACTION
LOSS (NTL)

MERCHANTS
(10%)

NUMBER OF ACTIVE
MERCHANTS

INNOVATION
(10%)

ACHIEVEMENT OF
FY20 PRODUCT
DEVELOPMENT
ROADMAP
MILESTONES

25%

10%

PEOPLE (10%)

eNPS
(I.E. EMPLOYEE NET
PROMOTER SCORE)

10%

Strong annual growth in our underlying financials, including
GMV (i.e. underlying sales) and EBITDA, is critical to
delivering long-term shareholder value

We are committed to putting our customers first and
achieving our mission to be ‘the world’s most loved way to
pay’. Execution of our mid-term strategy is underpinned by
strong customer expansion annually. STI measures reflect
both the number of customers as well as customer defaults

Expansion of our global merchant base and supporting more
leading retailers is core to our long-term success.

We are a platform. We are focussed on providing new
and valuable experiences to customers and merchants.
‘Innovation’ reflects achievement of key product, technology
and network build milestones

Our people are at the heart of everything we do. A high-
performing and engaged workforce are critical to delivering
superior returns for our shareholders. The Board will
continue to review our people measure (and other STI
measures) to ensure they are fit for purpose.

Final STI outcomes will be subject to a Board discretion modifier for ‘doing the right thing’ and assessment of
the quality of results.

(b) FY20 LTI measures

The LTI component of the Group’s FY20 remuneration framework will be tested against two equally
weighted measures, being GMV (i.e. underlying sales) and Afterpay net transaction margin (NTM)
over the three-year performance period. These measures were selected as they align with the Group’s
stretching mid-term strategy, are reflective of the key value drivers of the business over the long term
and, in the Board’s view, strike an appropriate balance between growth and long-term profitability.
Remuneration packages are also highly leveraged to the performance-tested LTI to encourage long-
term sustainable decision making in the interests of our customers and other key stakeholders.

While a number of ASX listed companies have some form of share price measure in their LTI (e.g.
relative TSR), the use of market value options under the LTI (with an exercise price based on Afterpay
Touch Group’s share price at the time of grant) has an implicit share price hurdle. That is, executives
are incentivised to drive share price performance in the interests of our shareholders, as the
market price at the time of vesting will need to exceed the exercise price for the options to deliver
any value to executives.

We set out below the vesting schedule and associated targets in respect of GMV (i.e. underlying
sales). Specific targets in respect of Afterpay NTM will be disclosed at the end of the performance
period due to commercial sensitivity. Specifically, a key component of Afterpay NTM is Afterpay’s
revenue margin, which is the average price at which Afterpay negotiates its merchant contracts
across the portfolio in any given period.

FY20 LTI MEASURES

MEASURE

DESCRIPTION

VESTING SCHEDULE

GMV (UNDERLYING
SALES)
(50%)

GMV (i.e. underlying sales) is a measure
of the dollar value of total merchandise
sold through the Afterpay platform.

Target (50% vesting) — $15B in final year of
performance period

Maximum (100% vesting) — $25B in final year of
performance period

Vesting on a straight-line basis between target
and maximum levels of performances

Three-year performance period from 1 July 2019
to 30 June 2022

AFTERPAY NET
TRANSACTION
MARGIN (NTM)
(50%)

Net transaction margin is a measure of
gross profit margin (post-receivables
impairment expense and receivables
financing costs, pre-operating costs)
generated by transactions on the Afterpay
platform. A transparent disclosure of the
calculation of NTM (that reconciles to the
statutory accounts) will be provided at the
end of the performance period.

Target (50% vesting) – targets to be disclosed
at the end of the performance period due to
commercial sensitivity

Maximum (100% vesting) – targets to be
disclosed at the end of the performance period
due to commercial sensitivity

Vesting on a straight-line basis between target
and maximum levels of performances

Three-year performance period from 1 July 2019
to 30 June 2022.

3 Who is covered by this report

This Report outlines the remuneration arrangements in place for the Executive KMP of the Group in
FY19, which comprises all Non-Executive Directors and senior executives who have authority and
responsibility for planning, directing and controlling the activities of the Group. The table below sets
out the Group’s Executive KMP during FY19.

As announced to the market in July 2019, the Group has made a number of changes to its Board and
Executive Leadership Team (effective 1 July 2019), which are reflected in the table below.

As part of its commitment to evolving its Board, the Group’s Board appointed independent Non-
Executive Director Elana Rubin as Independent Interim Chair and a global search is underway to

appoint at least two additional independent Directors and an independent Chair (refer section 6.1 for
further detail on composition of the Board).

Anthony Eisen (Co-Founder and Executive Chairman in FY19) will continue to lead the Group in a
newly formed Chief Executive Officer and Managing Director role, and will focus on managing the
global business and overseeing management of the Group’s operations. Nick Molnar (Co-Founder,
Executive Director and CEO of Afterpay in FY19) will maintain his focus on managing the US business
and building global merchant relations in his new role as Global Chief Revenue Officer and Executive
Director.

Our Group Head and Executive Director, David Hancock (who has played a key role in the integration
of Afterpay and Touchcorp and the successful development of Afterpay Touch GroupGroup) will step
down from the Board at the conclusion of 2019 financial year matters. In line with his contractual
arrangements, the role of Group Head will also come to an end and David will facilitate the transition
of his role to the Chief Executive Officer and Managing Director, and other members of the leadership
team over a period of up to 12 months.

The Group was also pleased to announce the appointment of Frerk-Malte Feller (Malte) (effective 1
July 2019) in a newly created Global Chief Operating Officer role. Malte brings extensive experience in
fast growing, global technology enterprises to the Group’s leadership team, including Facebook, eBay
and PayPal. Malte is expected to be an Executive KMP for FY20.

KMP DURING THE REPORTING PERIOD

KMP

EXECUTIVE KMP

Anthony Eisen1

David Hancock2

Nick Molnar3

Luke Bortoli

POSITION

Chief Executive Officer and Managing Director

Group Head and Executive Director

Global Chief Revenue Officer and Executive Director

Global Chief Financial Officer

NON-EXECUTIVE DIRECTORS

Clifford Rosenberg

Director

Elana Rubin4

Dana Stalder

Independent Interim Chair

Director

TERM AS KMP

Full Year

1. Anthony Eisen held the role of Executive Chairman during the 2019 financial year i.e. until 30 June 2019. Anthony ceased in his role as Executive

Chairman on 30 June 2019 and assumed the role of Chief Executive Offer and Managing Director effective 1 July 2019.

2. David Hancock held the position of Group Head and Executive Director during the 2019 financial year i.e. until 30 June 2019. David will transition his
role to the Chief Executive Officer and Managing Director and other members of the leadership team over a period of up to 12 months and will step
down from the Board at the conclusion of 2019 financial year matters.

3. Nick Molnar held the position of Executive Director and CEO, Afterpay during the 2019 financial year i.e. until 30 June 2019. Nick assumed the role of

Global Chief Revenue Officer (reporting to the Chief Executive Officer and Managing Director) effective 1 July 2019.

4. Elana Rubin was appointed as Independent Interim Chair, effective 1 July 2019.

4 Executive KMP Remuneration Framework FY19 – snapshot

As noted in section 2.3, Executive KMP remuneration is designed to support the Group’s
organisational strategy and key value drivers, align remuneration outcomes with the shareholder
experience, encourage an ownership mindset among Executive KMP, and support the attraction,
motivation and retention of the world’s best talent from the global technology talent pool.

As set out in the table below, total annual remuneration for Executive KMP during FY19 included
a moderate fixed remuneration component (comprising base salary and superannuation) and a
moderate cash STI (subject to achievement of performance conditions), which Executive KMP
volunteered to be withheld by the Board in light of the ongoing AUSTRAC matter (refer section 5.3(a)
for further detail). The Executive KMP have legacy one-off equity awards vesting in FY19, which were
negotiated on a bilateral basis and have previously been disclosed to shareholders. No new one-off
equity awards were made to Executive KMP during FY19 (as the Group transitions to its new annual
LTI program – refer section 2 for further detail in respect of the new FY20 remuneration framework
and the transitionary approach in respect of new and existing Executive KMP).

ELEMENTS OF EXECUTIVE KMP REMUNERATION IN FY19

ELEMENT

DESCRIPTION

STRATEGIC LINK

FIXED
REMUNERATION

Fixed remuneration comprises base salary and
superannuation (and, in some cases, other benefits
such as relocation allowances).

Fixed remuneration is set having regard to:

• the individual’s role, responsibilities, skills,
experience and performance levels; and

• the remuneration levels offered by comparable
companies with whom the Group competes for
talent.

Refer section 5.2 for further detail.

SHORT TERM
INCENTIVE

Executive KMP participate in the Group’s
short-term incentive (STI) program.

• Instrument: cash awarded annually if

performance conditions are met

• Performance measures: achievement of

challenging financial and non-financial key
performance indicators (KPIs) tied to the Group’s
key strategic drivers.

Refer section 5.3 for further detail.

Fixed remuneration is ongoing remuneration in
recognition of day-to-day accountabilities.

The Group positions fixed remuneration
conservatively (albeit at market competitive
levels) relative to companies with a similar
market capitalisation in favour of higher at-risk
components.

Cash STI is positioned conservatively relative
to peers (in favour of long-term equity based
awards).

The STI is intended to motivate and reward
executives for delivering exceptional
performance over the short term.

STI performance measures and targets are tied
to the key value drivers of the business and the
Group’s core strategic objectives, and are set at
challenging levels to drive performance in the
interests of our shareholders.

LEGACY ONE-
OFF EQUITY
AWARDS

Executive KMP were eligible to receive one-off
equity awards (in the form of options, loans
shares or rights) at the time they commenced
employment with the Group. The Executive KMP
have legacy awards vesting in FY19 (in the form
of options). No new one-off grants were made in
FY19.

• Instrument: legacy awards on foot for Executive
KMP comprise options (which vest subject to
payment of strike price)

• Performance / vesting conditions: subject to

The Group’s legacy one-off equity award
arrangements reflected the need to compete for
talent as a small company with limited financial
resources and in the global technology sector
where these arrangements are commonly
used. Global technology markets are highly
competitive for talent and place a greater
emphasis on at-risk, equity based remuneration
than is typical among ASX listed companies.

The one-off equity awards generate a strong
alignment with the shareholder experience.

continued employment at the end of the vesting
period and payment of exercise price (and KPIs
in some cases, aligned with the Group’s key
strategic pillars and generation of long-term
value to shareholders)

One-off awards also provided a strong retention
hook for key talent during the start-up phase by
requiring that Executive KMP remain employed
until the end of the vesting period to realise the
incentive.

• Vesting period: varied per individual. Options

typically vest in two or three equal tranches after
one, two and three years following the grant date
(as appropriate).

Refer section 5.4 for further detail.

5 Executive KMP Remuneration Framework – FY19 outcomes

5.1 OVERVIEW OF COMPANY PERFORMANCE

The Group is committed to ensuring a strong alignment between the Group’s performance and
shareholder experience, and what is paid to its executives in remuneration. During the Reporting
Period, the Group achieved exceptional growth in respect of key financial and non-financial indicators
set out in the table below. Group performance is only shown from 1 July 2017 as the Group was only
formed in June 2017.

FY19 GROUP PERFORMANCE RELATIVE TO FY18

A$M (UNLESS OTHERWISE STATED)

Share price performance as at y/e ($/sh)

Total dividends paid

GMV (i.e. underlying sales)

Active customers (m)

Active merchants (‘000s)

Total income3

Afterpay NTM

EBITDA (excluding significant items)

FY19

25.07

FY19 PRO FORMA
(EXCL. ACC.
CHANGES)1

25.07

FY18

9.35

5,247.2

2,184.6

4.6

32.3

264.1

119.3

28.7

4.6

32.3

272.5

126.1

35.5

2.0

16.0

142.3

55.7

35.2

CHANGE2 %

168%

140%

130%

101%

91%

126%

1. New accounting standards adopted from 1 July 2018 impacted Afterpay income, Pay Now revenue and receivables impairment expense. To enable
comparability to prior year performance, the Group has presented pro forma financials, which remove the impact of these accounting standard
changes. Total income, Afterpay NTM and EBITDA are the only three items in the table above impacted by the new accounting standards and for
which pro forma financials have been presented.

2. Change percentage based on FY19 pro forma compared to FY18.
3. Total income comprises Afterpay income, other income (late fees) and Pay Now revenue.

The Group’s share price increased materially during the Reporting Period when compared to the
benchmark ASX 200 Index. The Group’s share price rose from $9.35 at 29 June 2018 (the last
trading day of FY18) to $25.07 at 28 June 2019 (the last trading day of FY19). Over the same period
the S&P/ASX 200 Index rose from 6194.20 to 6618.78. This represented a return to the Group’s
shareholders of 168% compared with 7% for the S&P/ASX 200 Index as illustrated by the chart below.

5.2 FIXED ANNUAL REMUNERATION

As noted in section 4, all Executive KMP receive fixed remuneration comprising cash, compulsory
superannuation and any salary-sacrificed items (including fringe benefits). As appropriate, Executive
KMP receive additional support, including accommodation allowances, travel, ad hoc taxation advice
and insurance. Executive KMP do not receive retirement benefits beyond superannuation.

Having regard to the ongoing remuneration review conducted in FY19, the Board determined that no
fixed pay increases should be made for Executive KMP in FY19.

APT’S SHARE PRICE PERFORMANCE COMPARED TO THE S&P/ASX 200

300

)
0
0
1

O
T
D
E
S
A
B
E
R
(
E
C
R
P
D
E
X
E
D
N

100

AFTERPAY TOUCH GROUP
168%

S&P/ASX 200 INDEX
7%

JUL 18

AUG 18

OCT 18

DEC 18

FEB 19

APR 19

JUN 19

Source: Bloomberg

FINANCIAL YEAR 2019

5.3 SHORT-TERM INCENTIVE OVERVIEW

(a) FY19 overview

The Board has assessed performance against the FY19 STI Group KPIs (as set out in section 5.3(b))
and Individual KPIs. However, in light of the ongoing AUSTRAC audit, the Executive KMP have
volunteered for their STI awards to be withheld by the Board until the final report is handed down in
November 2019. The Board reserves its discretion to make any adjustments to final STI outcomes
for the Executive KMP, as appropriate to reflect the outcomes of the AUSTRAC audit.

Subject to the outcomes of the final report of the AUSTRAC audit, the maximum STI awards that
Executive KMP will be eligible to receive in respect of FY19 are set out below. These outcomes reflect
the Group’s exceptional performance against key metrics, including GMV (i.e. underlying sales),
active customers and active merchants, which were up 140%, 130% and 101% on FY18 respectively.
Despite significant investment in the US and UK, pro forma EBITDA (excluding significant items) was
also up 1% on FY18. Final STI awards will be disclosed in the FY20 Remuneration Report.

TABLE 7. EXECUTIVE KMP STI OUTCOMES

EXECUTIVE KMP

Anthony Eisen4

MAXIMUM STI
OPPORTUNITY1 ($)

MAXIMUM STI
OPPORTUNITY (% OF
FIXED REMUNERATION2)

MAXIMUM VALUE OF
STI AWARDED3

% OF MAXIMUM
FY19 STI AWARDED

% OF MAXIMUM STI
AWARD FORFEITED

N/A

300,000

(WITHHELD)

N/A4

David Hancock

300,000

87%

300,000

100%

(WITHHELD)

Nick Molnar

300,000

86%

300,000

100%

(WITHHELD)

Luke Bortoli

400,000

127%

400,000

100%

(WITHHELD)

1. These figures represent the maximum STI that can be earned by Executive KMP when performance targets are met.
2. Total fixed remuneration earned in FY19 includes base salary and superannuation as well as leave accruals, but excludes other benefits (e.g.

relocation and accommodation allowances).

3. STI awards to the Executive KMP will be withheld until the final report of the AUSTRAC audit is handed down in November 2019.
4. Anthony Eisen’s terms of employment do not specify a STI component. Based on FY19 performance, Anthony would have been eligible for a bonus

at the discretion of the Board. Anthony has volunteered that this bonus be withheld until the outcomes of the AUSTRAC audit are known.

(b) FY19 Group KPI outcomes

STI outcomes are determined by the Board based on an assessment of performance against a scorecard
of stretching group KPIs (as well as individual KPIs per executive, which are specific to their role).

The FY19 Group KPIs scorecard is set out in the table below. Each measure has an equal weighting (with
threshold and target levels of performance, which result in 50% and 100% vesting of each component
respectively, with straight line vesting in between). Performance below threshold results in no vesting.

If the Group achieves maximum levels of performance against the Group KPIs (i.e. target performance or
above against each measure resulting in a Group KPIs outcome of 100%), Executive KMP are eligible to
receive their maximum STI opportunities (as set out in section 5.3(a)).

The Board then assesses each Executive KMP’s performance against their individual KPIs (including ‘what’
the executive achieved during FY19 and ‘how’ these outcomes have been achieved) in determining final
STI awards to each individual Executive KMP (noting performance against individual KPIs can only reduce
the outcome).

The table below sets out Group performance against the Group KPIs scorecard for FY19. The Group KPIs
outcome was 100% for FY19 reflecting achievement of above target levels of performance in respect of
each measure. However, as noted above, the Executive KMP have volunteered for their STI awards to be
withheld until the final report of the AUSTRAC audit is handed down in November 2019.

FY19 GROUP PERFORMANCE AGAINST GROUP KPIS SCORECARD

GROUP KPIS

WEIGHTING (%) FY19 OUTCOME

OUTCOME COMMENTARY

FINANCIAL KPIS

THRESHOLD 50%

TARGET 100%

GMV (I.E.
UNDERLYING
SALES)

20%

AFTERPAY NTM

20%

EBITDA

20%

NON-FINANCIAL KPIS

ACTIVE
CUSTOMERS

ACTIVE
MERCHANTS

20%

GMV (i.e. underlying sales) of
$5.2bn was above FY19 Target
and 2.4x the GMV in FY18

Pro forma1 Afterpay NTM of
$126.1m was above FY19 Target
and 2.3x the NTM in FY18

Pro forma1 EBITDA (excl. sig. items)
of $35.5m was above FY19 Target
(net of subsequently announced
investments in US and UK).

Active customers of 4.6m was
above FY19 Target and 2.3x the
2.0m customers at end of FY18

Active merchants of 32.3k was
above FY19 Target and 2.0x the
16.0k merchants at end of FY18

Group outcome (FY19) – 100%

The table below outlines the key terms and conditions applying to the STI arrangements for the
Executive KMP during the Reporting Period.

DESCRIPTION OF EXECUTIVE KMP STI GRANTED IN FY19

ELEMENT

DESCRIPTION

OVERVIEW OF STI

PERFORMANCE
PERIOD

PERFORMANCE
CONDITIONS

STI arrangements are an at-risk component of Executive KMP remuneration involving the
payment of a cash award if performance conditions are met.

STI awards are measured over the 12-month financial year. Any STI award payments are
made after performance is tested at the end of the performance period.

STI performance conditions include Group KPIs and individual KPIs. These performance
measures reflect the key drivers of the Group’s business strategy, with the aim of
rewarding Executive KMP for the successful execution of the Group’s strategy over the
short term in the interests of shareholders.

As set out in section 5.3(b) above, Group KPIs cover the following key areas (reflecting
core value drivers of the business):

• Financial performance including GMV (i.e. underlying sales), NTM and EBITDA

performance;

• Merchants including number of active merchants; and

• Customers including number of active customers.

Individual KPIs consist of business goals specific to the Executive KMP’s role and aligned
with the Group’s strategies, as well as a compliance component.

The Board believes that having a mix of financial and non-financial KPIs will encourage
individual performance against financial criteria strongly linked to year-on-year
shareholder returns as well as the achievement of personal business goals consistent
with the Group's overall objectives.

From FY20, Executive KMP STI will be assessed against a balanced scorecard of
measures across five categories, being financial, customer, merchant, people and
innovation (refer section 2.5 for further detail). Performance against the STI measures
will be transparently disclosed to the market after the performance period in the FY20
Remuneration Report.

ELEMENT

DESCRIPTION

MEASUREMENT OF
PERFORMANCE
CONDITIONS

Performance against the KPIs is assessed annually by the Board based on
recommendations from the Remuneration & Nomination Committee (with input from the
Group Head) after the end of the performance period as part of the broader performance
review process for each Executive KMP.

Financial and non-financial conditions are assessed quantitatively against predetermined
benchmarks where appropriate. When testing financial KPIs, financial results are
extracted by reference to the Group’s accounting system.

These methods of assessing performance were chosen because they are, as far as
practicable, objective and fair. The use of the Group’s accounting system ensures the
integrity of the measure and alignment with the true financial performance of the Group.

TREATMENT ON
CESSATION OF
EMPLOYMENT

Generally, if an Executive KMP ceases to be employed during the 12-month performance
period in ‘good leaver’ circumstances, they will be entitled to a pro rata STI award unless
the Board determines otherwise.

5.4 LEGACY ONE-OFF EQUITY AWARDS — FURTHER DETAIL

(a) Legacy one-off equity awards vesting in FY19 financial year — overview

As noted above, members of the Executive KMP received one-off grants of equity (typically in the
form of options) at the time they commenced employment with the Group.

Each of the Executive KMP had legacy one-off equity awards (in the form of options) vesting in
FY19. None of these options have been exercised. These awards have previously been disclosed to
shareholders with the Group Head’s awards voted on by shareholders at the 2018 AGM. No one-off
equity grants were made during FY19 to Executive KMP.

As noted in section 2, under the FY20 framework, new LTI awards will be performance tested over
three years against GMV (i.e. underlying sales) (50%) and NTM (50%).

(i) Chief Executive Officer and Global Chief Revenue Officer

Co-Founders Anthony Eisen and Nick Molnar (who founded the Afterpay business and have been
instrumental in building and leading the Group and delivering exceptional returns to shareholders)
were each granted 1,500,000 options in March 2016 under the Group’s legacy one-off equity award
arrangements (with an exercise price of $1.00 and expiry date of 31 December 2020). The options
vested in three equal tranches annually over three years from the date of grant (subject to continued
employment). The final tranche of these options (i.e. 500,000 options) vested with each of the Co-
Founders in March 2019 (but have not been exercised).

(ii) Group Head

As detailed in the Group’s 2018 Notice of Meeting, shareholders approved a grant of options to
David Hancock at the 2018 AGM (in satisfaction of David’s contractual award arrangements). The
arrangements were necessary to attract an executive of David’s significant expertise and experience
to oversee the merger of the Afterpay and Touchcorp businesses.

The first tranche of David’s options (1,206,532 options with an exercise price of $2.70 and an expiry
date of 1 September 2022) vested with David upon receipt of shareholder approval at the 2018 AGM.

The second tranche of David’s options (1,492,555 options with the same exercise price and expiry
date) were also approved by shareholders at the 2018 AGM and are subject to the achievement of
KPIs and his continued employment with the Group. David’s KPIs include specific financial targets
relating to EBITDA and revenue, and non-financial targets in respect of customer NPS, merchant NPS
and employee NPS. This tranche will be tested on 1 September 2019.

On 1 March 2019 David had 66,667 options vest with an exercise price of $1.00. This was the third
and final equal tranche of options granted on 1 March 2016 as consideration for serving on the Board
through the IPO process. These arrangements were necessary to attract a Director of David’s calibre
at this important milestone in the Group’s history.

(iii) Global Chief Financial Officer

In June 2018, Global Chief Financial Officer Luke Bortoli was granted 1,350,000 options under the
Group’s legacy one-off equity arrangements (with an exercise price of $5.00 and expiry date of 31
December 2022).

The option awards were necessary to attract an executive of Luke’s calibre, skillset and experience
to the Group in May 2018, with Luke having held a number of senior finance and strategy roles in the
technology / gaming sector and investment banking.

The options were eligible to vest in equal tranches over three years, subject to achievement of
specific financial KPIs (as well as role-specific KPIs) and his continued employment with the Group.

During FY19, the Board determined that the first tranche of Luke’s legacy 450,000 options, should
vest in full on 1 June 2019, as the service conditions and KPIs were achieved.

In addition to his continued employment, the KPIs attaching to the first tranche of options included
achievement of specific quantitative targets, including finance costs, which are a significant individual
cost item for the Group under the influence of finance team activities. In FY19, the Group achieved
exceptional performance in respect of finance costs with total financing costs of $11.7m or 0.22%
of underlying sales relative to $6.6m or 0.30% of underlying sales in the prior corresponding period.
Other role-specific KPIs include completion of key milestones related to the design and establishment
of a globalised finance function, implementation of new finance systems, the establishment of
receivables funding facilities in the ANZ and US markets, and development of a three-year capital
management plan to support the mid-term strategy.

Luke’s remaining tranches are eligible to vest on 1 June 2020 and 1 June 2021 subject to
achievement of specific quantitative targets, including finance costs and non-financial targets,
including the continued building of a Finance function that is scalable to support the Group’s global
growth aspirations and capital management initiatives. Specific targets and performance against
them will be disclosed at the end of the respective vesting periods.

(b) Legacy one-off equity awards – further detail

The table below outlines the key terms and conditions applying to the legacy one-off equity award
arrangements in respect of Executive KMP vesting during the Reporting Period. No one-off equity
grants were made during FY19 to Executive KMP (as the Group transitions onto its new FY20
remuneration framework – refer section 2 for further detail).

DESCRIPTION OF LEGACY ONE-OFF EQUITY AWARDS FOR EXECUTIVE KMP

ELEMENT

DESCRIPTION

OVERVIEW OF
LEGACY ONE-OFF
EQUITY AWARD
ARRANGEMENTS
ELIGIBLE FOR VESTING
DURING REPORTING
PERIOD

FORM OF AWARD

VESTING PERIOD

Under the Group’s one-off equity award arrangements to date, Executive KMP are eligible
to receive one-off equity awards (in the form of options, loan shares or rights) in APT
equity at the time they commence employment.

One-off equity awards were a key part of the Group’s strategy to attract and retain key
executive talent to the organisation from the highly competitive global technology talent
pool where these arrangements are more commonly employed.

The Executive KMP set out in this Report received options in APT equity. No one-off
equity awards were made to Executive KMP in FY19 and the remuneration framework
for FY20 introduces a formal performance-tested LTI plan.

Options entitle the holder to one share in the Group for every option exercised, subject
to payment of the exercise price at the end of the vesting period and continued
employment of the Executive.

Options are granted for nil consideration as they are part of an Executive’s remuneration.

Option awards were negotiated on a bilateral basis with varying vesting periods for each
individual Executive KMP. Options granted to Executive KMP typically vest in two or three
equal tranches after one, two or three years following the grant date (as appropriate).

ELEMENT

DESCRIPTION

VESTING CONDITIONS

Option awards are subject to continued employment at the end of the vesting period and
only convert to shares after payment of the exercise price.

In some cases, options may also be subject to the achievement of KPIs over the
vesting period. KPIs may take the form of financial and non-financial performance
conditions that are aligned with the Group’s financial, strategic, capital management and
governance plans over the vesting period (in addition to continued employment).

MEASUREMENT OF
PERFORMANCE
CONDITIONS

Performance against KPIs is assessed for each member of the Executive KMP after
each of the relevant vesting dates by the Board, based on recommendations from the
Remuneration & Nomination Committee and Group Head where appropriate.

Financial and non-financial performance conditions are assessed quantitatively against
predetermined benchmarks where appropriate. When testing the financial performance
conditions, financial results are extracted by reference to the Group’s financial
statements. Where quantitative assessment is not practicable, qualitative performance
appraisals are undertaken by the Board in consultation with the Remuneration &
Nomination Committee.

These methods of assessing performance were chosen because they are, as far as
practicable, objective and fair. The use of financial statements ensures the integrity of
the measure and alignment with the true financial performance of the Group.

Options are subject to dealing restrictions until they are exercised. Upon exercise and
payment of the exercise price, participants are allocated fully paid ordinary shares in the
Group.

Participants are free to deal with the shares allocated to them following vesting (and
exercise where applicable) subject to the Group’s Securities Trading Policy.

DISPOSAL
RESTRICTIONS

TREATMENT ON
CESSATION OF
EMPLOYMENT

Options only vest at the applicable vesting date if the participant:

• remains employed with the Group on that date; or

CHANGE OF CONTROL

CLAWBACK

• they have ceased employment as ‘a good leaver’ (for example, due to death, total or
permanent disablement, illness, genuine redundancy, or other factors determined by
the Board to constitute sufficient reason to treat the person as ‘a good leaver’).

If a takeover bid is made, or a scheme of arrangement, selective capital reduction or
other transaction is initiated that has an effect similar to a full takeover bid for shares in
the Group, the Board has discretion to waive any outstanding performance conditions.

The Board has clawback powers that it may exercise in specific circumstances if, for
example, a participant has acted fraudulently or unlawfully, or engaged in conduct in
material breach of the Group’s policies and codes of conduct, and this contributed to the
vesting of their options.

5.5 EXECUTIVE KMP REMUNERATION STATUTORY TABLE

The table below sets out Executive KMP remuneration for FY19 (and FY18 for comparative purposes)
in accordance with the requirements of the Accounting Standards and Corporations Act 2001 (Cth).
The table reflects the accounting value of remuneration attributable to KMP, derived from the various
components of their remuneration. As per section 5.3(a), in light of the ongoing AUSTRAC audit, the
Executive KMP have volunteered for their STI awards to be withheld by the Board until the final report
is handed down in November 2019.

STATUTORY REMUNERATION TABLE

AFTERPAY
TOUCH GROUP
REMUNERATION
FOR THE YEARS
ENDING 30 JUNE
2019 AND 30 JUNE
2018

EXECUTIVE KMP

SHORT-TERM

FINANCIAL
YEAR

SALARY &
FEES

CASH
BONUS

NON-
MONETARY
BENEFITS1

SUPER-
ANNUATION

LONG-TERM

LONG
SERVICE

SHARE-BASED PAYMENTS

TOTAL

LEAVE TERMINATION

OPTIONS

LOAN
SHARES

TOTAL

PERFORMANCE
RELATED

ANTHONY EISEN

2019

323,140

300,000

2018

283,518

300,000

DAVID HANCOCK

2019

320,050

300,000

25,000

2,836

32,600

2,293

379

1,135

651,355

619,546

25,000

1,721

14,812,642

15,459,413

2018

321,499

300,000

33,319

30,542

573

NICK MOLNAR

2019

323,141

300,000

78,449

25,000

5,109

2018

298,771

300,000

126,097

34,050

5,118

LUKE BORTOLI

2019

294,212

420,0005

34,104

21,905

591

20182

32,315

20183

386,856

8,251

3,070

25,000

163 11,986,3484

12,672,444

379

1,135

732,078

765,171

2,714,828

3,485,640

237,009

280,645

124,447

536,303

2019 1,260,543

1,320,000

112,553

96,905

10,257

17,528,228

20,328,486

2018

1,322,959

900,000

167,667

125,262

7,984

239,442

12,110,795

14,874,109

NADINE LENNIE

TOTAL

1 Non-monetary benefits includes benefits such as insurance, rent and relocation expenses.
2 Luke Bortoli commenced employment as the Group’s CFO on 21 May 2018.
3 Nadine Lennie ceased employment with the Group on 15 March 2018.
4 David Hancock’s one-off 2,000,000 loan shares awarded in 2018 were included for accounting purposes and disclosed in the 2018 Remuneration
Report pending approval by shareholders. The 2,000,000 loan shares were cancelled and replaced with 2,699,087 options as approved at the 2018
AGM. 1,206,532 options vested on 1 September 2018 in respect of this award and 1,492,555 options will be tested for vesting conditions at 1
September 2019. David Hancock also had 66,667 options vest in FY19 and FY18 relating to his service on the Board of Afterpay through the IPO
process.

5 Luke Bortoli’s cash bonus of $420,000 comprises $400,000 relating to STI for FY19 performance and $20,000 relating to performance for a partial

year in FY18 that was determined following the release of the FY18 Annual Report.

5.6 ACTUAL REMUNERATION SNAPSHOT

During FY19, take-home pay received by the Executive KMP comprised fixed remuneration only. This
reflects that the Executive KMP volunteered for their STI awards to be withheld until the outcomes of
the final report of the AUSTRAC audit are released in November 2019 (refer section 5.3). Subject to
finalisation of the AUSTRAC audit, the maximum STI that Executive KMP may be eligible to receive
in respect of FY19 is $300,000 (other than the CFO who is eligible to receive up to $400,000). In
addition, none of the options that vested with the Executive KMP (refer section 5.4 for further detail)
were exercised during FY19.

The table below outlines a summary of the actual take-home pay received by Executive KMP during
the Reporting Period. Unlike the statutory remuneration tables in section 5.5, the below table has not
been prepared in accordance with the requirements of the Australian Accounting Standards and is
unaudited. It is included on a voluntary basis to show the remuneration actually received by Executive
KMP during the Reporting Period.

FY19—ACTUAL REMUNERATION—EXECUTIVE KMP

KMP

Anthony Eisen

Nick Molnar

David Hancock

Luke Bortoli

FIXED
REMUNERATION1
(1)

NON-MONETARY
BENEFITS2
(2)

FY19 CASH STI3
(3)

OPTIONS VESTED AND
EXERCISED IN FY194
(4)

TOTAL ACTUAL
REMUNERATION
(1) + (2) + (3) + (4)

348,140

348,141

345,050

316,117

78,449

34,104

348,140

426,590

345,050

350,221

1. Total fixed remuneration earned in FY19 includes base salary and superannuation as well as leave accruals, but excludes other benefits (e.g.

relocation and accommodation allowances).

2. Non-monetary benefits represent non-monetary benefits, such as rent and relocation expenses.
3. As noted in section 5.3, Executive KMP have volunteered for their FY19 STI awards to be withheld until the final report of the AUSTRAC audit is

released.

4. No options vested and were subsequently exercised by Executive KMP in the Reporting Period. The take-home amount or proceeds from the

exercise of options is only received at the time of exercising the options. Those proceeds remain uncertain given they are subject to the market price
of APT shares at the date of exercise.

46%

49%

98%

97%

41%

39%

90%

84%

23%

6 Non-Executive Director remuneration

6.1 BOARD CHANGES FOR FY20

As the Group continues on its journey from an Australia-focused start-up to an ASX listed company
with a global presence, the Group is committed to ensuring it meets the highest standards of
corporate governance and external expectations, which includes the composition and independence
of its Board. Ensuring the Board has the right composition and set of skills, expertise, experience and
values to support the expansion and globalisation of the Afterpay business is critical to the Group’s
long-term success.

Reflecting this, and as announced to the market in July 2019, the Group is in the process of
transitioning to a majority independent Board with an independent Chair. As noted above, an initial
step towards this transition was the appointment of Elana Rubin as Independent Interim Chair
(effective 1 July 2019) until a new independent Chair is appointed. Executive Chairman (Anthony
Eisen) assumed the role of Chief Executive Officer and Managing Director (effective 1 July 2019).

The Group is currently in the process of conducting a global search to recruit at least two additional
independent Directors and an independent Chair to complement the skill sets of existing Non-
Executive Directors and to support the international expansion of the Group.

The Board undertook a review of Non-Executive Directors’ fees with external assistance in FY19 to
ensure that fees are set at market-competitive levels to support the attraction and retention of world-
class Director talent (refer section 6.3 for further detail).

6.2 REMUNERATION POLICY AND ARRANGEMENTS

The Board sets the fees for the Non-Executive Directors in line with the key objectives of the Group’s
Non-Executive Director remuneration policy set out below. The Remuneration & Nomination Committee
makes recommendations to the Board regarding remuneration for Non-Executive Directors.

The Executive Directors are not entitled to be paid Directors’ fees. This extended to Anthony Eisen in his
role as Executive Chair during FY19.

NON-EXECUTIVE DIRECTOR REMUNERATION POLICY

Market competitive to secure
and retain talented, qualified
Directors

The Board’s policy is to remunerate
Non-Executive Directors at market-
competitive rates to attract and
retain Non-Executive Directors of
the highest calibre and requisite
expertise having regard to:

• fees paid for comparable

companies; and

• the size, complexity and

international spread of the
Group’s operations

Preserving and safeguarding
independence and impartiality

Aligning Director and security
holder interests

Directors are encouraged to hold
securities in the Group to create
alignment between the interests of
Directors and shareholders.

In FY19, the Group introduced a
formal minimum shareholding
policy for Non-Executive Directors
to further strengthen this alignment
(refer section 6.4).

Director remuneration consists
of base fees, and additional
fees for the Chair and members
of any Board Committee (with
the exception of the new role of
independent Chair who will receive
an all-inclusive fee from FY20).

No element of Non-Executive
Director remuneration is 'at risk'
(i.e. Non-Executive Directors are
not entitled to any performance-
related remuneration) to preserve
the Directors' independence and
impartiality.1

1. Non-Executive Director Clifford Rosenberg was granted options under legacy arrangements (in respect of pre-IPO advisory services and service on

the Board of Afterpay at the time of IPO), which were exchanged for APT options as part of the merger of Afterpay Holdings and Touch Group. These
relate to legacy one-off arrangements and have now fully vested.

6.3 FEES AND OTHER BENEFITS

(a) Board and Committee fees

As noted above, during FY19, the Board undertook a review of Non-Executive Directors’ fees and
independent remuneration consultants were engaged to provide market data in respect of Directors’
fees and the aggregate fee pool.

The Board determined that an increase to Board and Committee fees was appropriate (in conjunction
with the introduction of a new minimum shareholding requirement – refer section 6.4) having regard to:

• the need to be market competitive for world-class Non-Executive Director talent. The Group’s

current fees were set when the Group was significantly smaller in market capitalisation, complexity
and geographic spread, and were positioned well below market relative to other Australian
companies of a comparable size by market capitalisation (i.e. generally below the 10th percentile),
as well as the fees paid by other specific ASX-listed comparator companies in the fin-tech and
technology sectors.

Reflecting the need to ensure the Group is able to attract and retain high-calibre Non-Executive
Directors with the requisite skills, expertise and experience (recognising the Board is responsible
for the stewardship of the Group), Board and Committee fees have been increased to be positioned
just below the median of the market capitalisation comparator group (comprising companies’
market capitalisation ranging from $2.5bn to $9.95bn at the time of preparation of the market data
during FY19). Market competitiveness of fees is particularly important as the Group looks to recruit
at least two additional Non-Executive Directors to support the Group’s global expansion.

In addition, as the Board seeks to attract overseas directors (particularly out of the US where
director fee levels are significantly higher than Australian fees), the Board will retain the discretion
to provide overseas Directors with an uplift to the base member fee (as set out below) of up to 50%
(as required). This uplift would not apply to Committee fees; and

• the significant workload of directors in light of the international expansion of the Group into new
markets, including the UK, and the increasing complexity of the regulatory environment in which
the Group operates.

The table below sets out the fees payable (inclusive of superannuation) to the Non-Executive
Directors during FY19 and the fees proposed for FY20 (effective 1 July 2019). As noted above,
overseas directors on the Afterpay Board may receive an uplift of up to 50% on the FY20 base
member fee (as required) to ensure market competitiveness. Committee fees are paid in addition
to the Non-Executive Director base fee, with the exception of the newly created role of independent
Chair who receives an ‘all-inclusive fee’ and is not eligible for additional Committee fees.

NON-EXECUTIVE DIRECTOR FEES

BOARD AND COMMITTEE FEES (PER ANNUM)

FY19

FY20

MEDIAN FEE

Chair of the Board – base fee

Non-Executive Director – base fee

Committee Chair (Audit, Risk & Compliance)

Committee Chair (Remuneration & Nomination)

Committee Member (Audit, Risk & Compliance)

Committee Member (Remuneration & Nomination)

(AS OF
1 JANUARY 2019)

(EFFECTIVE 1 JULY 2019)1

($) IN COMPARATOR
GROUP2

N/A3

$85,000

$20,000

$15,000

$5,000

$350,000
(all inclusive)4

$150,0005

$30,000

$25,000

$15,000

$12,500

$383,500

$153,300

$35,200

$31,000

$18,200

$16,500

1. As noted above, consideration will be given to any impact on Non-Executive Director fees (if appropriate), following the release of the final report of

the AUSTRAC audit.

2. These figures represent the median fee (i.e. 50th percentile) of the comparator group comprising companies with a market capitalisation ranging
from $2.50bn to $9.95bn at the time of preparation of the data. The Board also considered the fees paid by other specific ASX listed comparator
companies in the fin-tech and technology sectors and a number of additional factors, including complexity of operations, geographic spread and
workload of Directors, in determining an appropriate level of fees for FY20.

3. Anthony Eisen held the position of Executive Chairman during FY19. He assumed the role of Chief Executive Officer and Managing Director effective

1 July 2019. Anthony did not receive Non-Executive Director fees during FY19 in his role as Executive Chairman.

4. Elana Rubin assumed the role of Independent Interim Chair effective 1 July 2019. Elana’s fee is all-inclusive, i.e. she will not receive additional

Committee fees.

5. The Board will retain the discretion to provide overseas directors with an uplift to the base member fee of up to 50% (as required).

In addition to Board fees, Non-Executive Directors are entitled to be reimbursed for all reasonable
business-related expenses, including travel, as may be reasonably incurred in the discharge of
their duties. The Group does not make sign-on payments to new Non-Executive Directors and the
Board does not provide for retirement allowances / benefits for Non-Executive Directors (other than
superannuation).

(b) Aggregate fee pool

Non-Executive Directors’ fees (including committee fees) were set by the Board within the maximum
aggregate amount of $700,000 in FY19.

In recognition of the need to appropriately compensate an independent Chair and to provide the
flexibility to appoint multiple new Non-Executive Directors in the medium term (including overseas
Directors), shareholder approval will be sought at the 2019 AGM to increase the fee pool cap
to $1,800,000. The proposed fee pool of $1,800,000 is positioned below the median fee pool of
companies within the market capitalisation comparator group (noted above) of $1,950,000.

6.4 NEW MINIMUM SHAREHOLDING REQUIREMENTS (FY20)

In FY19, the Board resolved to introduce a new minimum shareholding requirement for its Non-
Executive Directors to facilitate share ownership and further strengthen the alignment between
Directors and the Group’s shareholders.

The table below sets out key information regarding this policy.

NEW MINIMUM SHAREHOLDING REQUIREMENTS

QUANTUM

TIMEFRAME

Non-Executive
Directors

1 x base
member fee1

The later of:
• 3 years from the effective date of the policy; and
• 3 years from date of commencement as Non-Executive Director

1. Base member fee is calculated net of income tax.

6.5 NON-EXECUTIVE DIRECTORS – STATUTORY REMUNERATION

The fees paid or payable to the Non-Executive Directors of the Group in respect of the 2019 financial
year are set out in the table below.

NON-EXECUTIVE DIRECTORS – STATUTORY REMUNERATION

AFTERPAY TOUCH GROUP
REMUNERATION FOR THE
YEARS ENDING 30 JUNE 2019
AND 30 JUNE 2018

FINANCIAL
YEAR

Elana Rubin

Clifford Rosenberg

Dana Stalder

Michael Jefferies2

TOTAL

2019

2018

2019

2018

2019

20181

20182

2019

2018

SHORT TERM
BENEFITS

LONG-TERM
BENEFITS

SHARE BASED
PAYMENTS

SALARY & FEES

SUPERANN-
UATION

OPTIONS

109,589

10,411

94,959

7,541

105,000

97,802

90,000

26,192

47,359

304,589

266,312

2,375

1,7903

8,0373

2,814

10,411

12,730

163

1,790

8,200

120,000

102,500

106,790

108,214

90,000

26,192

50,336

316,790

287,242

TOTAL

PERFORM-
ANCE RELATED

1. Dana Stalder was appointed as a Non-executive Director on 24 January 2018.
2 Michael Jefferies was Non-Executive Director for the period of 5 July 2017 to 16 January 2018.
3 Clifford Rosenberg was granted options under legacy arrangements (in respect of pre-IPO advisory services and service on the Board of Afterpay at
the time of IPO), which were exchanged for APT options as part of the merger of Afterpay Holdings and Touch Group. These relate to legacy one-off
arrangements and have now fully vested.

7 Remuneration governance

7.1 RESPONSIBILITY FOR SETTING REMUNERATION

The Group has a robust governance framework in place to ensure the Group’s remuneration practices
are fair, reasonable and consistent with best practice. The diagram below provides an overview of
this framework.

AFTERPAY TOUCH GROUP BOARD

Review and approve remuneration policy and principles, remuneration framework for executives and
Non-Executive Directors, and specific remuneration outcomes for Executive KMP (including exercise
of discretion).

REMUNERATION & NOMINATION COMMITTEE

ROLE AND RESPONSIBILITIES

The Board has adopted a Remuneration Policy. In line with that Policy, the Committee is responsible
for assisting the Board to set the Remuneration Policy and determine the appropriate remuneration
for Directors and senior management. The Committee refers to the Policy when developing Board
recommendations about Executive KMP remuneration outcomes.

The Remuneration & Nomination Committee Charter sets out the Remuneration & Nomination
Committee’s role and responsibilities, composition, structure and membership requirements.

COMPOSITION

It is critical that the Remuneration & Nomination Committee is independent of management
Management when making decisions affecting employee remuneration. Accordingly, the Committee
consists entirely of Non-Executive Directors, all of whom are independent. Where appropriate, the
Group Head, Chief Executive Officer and Managing Director, and Chief Financial Officer attend
Committee meetings. However, they do not participate in formal decision-making or in discussions
relating to their own remuneration.

MANAGEMENT

REMUNERATION ADVISERS

Proposals on executive remuneration
outcomes implementing remuneration
policies

External and independent remuneration advice
and information (refer section 7.2 for further
detail)

For further details of the composition and responsibilities of the Remuneration & Nomination
Committee, please refer to Corporate Governance Statements on our website (https://www.
afterpaytouch.com/corporate-governance/)

7.2 USE OF REMUNERATION CONSULTANTS

The Remuneration & Nomination Committee (through the Chair of the Committee) may seek and
consider advice from external advisers from time to time to assist the Committee discharge its
duties. Any advice from consultants is used to guide the Committee and the Board, but does not
serve as a substitute for thorough consideration by Non-Executive Directors.

During the Reporting Period, KPMG 3dc were engaged by the Remuneration & Nomination
Committee to provide independent advice on a range of matters, including Executive KMP
remuneration. In FY19, KPMG 3dc provided remuneration recommendations as defined in section 9B
of the Corporations Act 2001 in relation to the Executive KMP remuneration framework for Executive
KMP and Non-Executive Director fees for FY20. KPMG 3dc was paid $75,000, excluding GST for
these services.

The Board is satisfied that the recommendations were made free from any undue influence by the
member or members of Executive KMP to whom the recommendations relate. In addition to adhering
to Board-approval protocols, KPMG 3dc provided a formal declaration in this regard.

KPMG as a firm also provided other advice related to broader data, governance, tax and legal services
during FY19. KPMG was paid a total of $195,500, excluding GST, and disbursements for services
provided to Afterpay Touch Group during FY19.

7.3 DETAILS OF EXECUTIVE SERVICE AGREEMENTS

All Executive KMP have a written Executive Service Agreement with the Group. The key terms of
these agreements are detailed in the table below.

KEY TERMS OF EXECUTIVE KMP CONTRACTS IN FY19

TERM

EXECUTIVE KMP

DURATION

Ongoing term

PERIODS
OF NOTICE
REQUIRED TO
TERMINATE

TERMINATION
PAYMENTS

Either party may terminate the contract by giving three months’ notice for all
Executive KMP other than David Hancock for whom six months’ notice applies.

The Group may terminate immediately in certain circumstances, including where the
relevant Executive KMP engages in serious misconduct.

David Hancock is entitled to six months’ base salary where termination occurs (i) by
the Group without notice or for incapacity, or (ii) by David Hancock on other grounds
(such as a material adverse change in role). David Hancock is not entitled to this
payment if the Group terminates for cause.

Other members of the Executive KMP are entitled to three months’ salary where
termination occurs other than for cause.

7.4 EXECUTIVE KMP AND DIRECTOR SHARE OWNERSHIP

The two tables below set out the number of shares held directly, indirectly or beneficially by Directors
and Executive KMP (including their related parties).

Co-Founders Anthony Eisen and Nick Molnar retain a significant shareholding in the Group and do not
intend to sell any further shares during the next financial year (FY20). As indicated to the market, both
Anthony and Nick remain fully committed to the Group and remain as excited as ever to continue to
build Afterpay’s global footprint.

MOVEMENTS IN SHAREHOLDINGS NOT HELD UNDER AN EMPLOYEE SHARE PLAN

NON-EXECUTIVE DIRECTORS

OPENING BALANCE
1-JUL-18

PURCHASE OF
SHARES

DISPOSAL OF
SHARES

OTHER CHANGES
DURING THE YEAR

Elana Rubin

Clifford Rosenberg

Dana Stalder

EXECUTIVE KMP

Anthony Eisen

David Hancock

Nick Molnar

Luke Bortoli

56,567

800,000

574

(150,000)

22,500,000

574

(2,050,000)

1,900,000

(950,000)

22,500,000

574

(2,050,000)

50,000

(50,000)

BALANCE
30-JUN-19

57,141

650,574

20,450,574

950,000

20,450,574

MOVEMENTS IN SHAREHOLDINGS HELD UNDER AN EMPLOYEE SHARE PLAN

NON-EXECUTIVE DIRECTORS

INSTRUMENT

OPENING
BALANCE
1-JUL-18

GRANTED

EXERCISED

LAPSED /
CANCELLED

BALANCE
30-JUN-19

EXERCISABLE
30-JUN-19

Clifford Rosenberg

Options2

900,000

EXECUTIVE KMP

Anthony Eisen

Options

1,500,000

David Hancock1

Options

200,000

2,699,087

900,000

1,500,000 1,500,000

2,899,087 1,406,532

Loan Shares

2,000,000

Nick Molnar

Options

1,500,000

Luke Bortoli

Options

1,350,000

- (2,000,000)

1,500,000 1,500,000

1,350,000

450,000

1 David Hancock’s one-off 2,000,000 loan shares awarded in FY18 were included for accounting purposes and disclosed in the 2018 Remuneration Report

pending approval by shareholders. The 2,000,000 loan shares were cancelled and replaced with 2,699,087 options as approved at the FY18 AGM.
2 Clifford Rosenberg was granted options under legacy arrangements (in respect of pre-IPO advisory services and service on the Board of Afterpay at
the time of IPO), which were exchanged for APT options as part of the merger of Afterpay Holdings and Touch Group. These relate to legacy one-off
arrangements and have now fully vested.

8 Further information

8.1 US ESOP

A share option plan was established in Afterpay US, Inc. (Afterpay US) for its employees in June 2018 with
a total option pool of 10% of Afterpay US at that time per the terms of the US Employee Share Ownership
Plan (US ESOP). The US ESOP was approved by shareholders at the 2018 AGM. No KMP participated in
the US ESOP Plan. Refer to section 3.4 of our FY18 Remuneration Report for further detail.

The US ESOP was intended to facilitate the attraction and retention of world-class talent in the US
who are critical to delivering the Group’s US growth aspirations. The Board believes the US ESOP has
been successful in its aims and critical to attracting the talent needed to achieve the success that
Afterpay has been able to achieve in a short timeframe in the US market.

There are a small number of US ESOP awards that are currently proposed but have not yet been
issued that will be made in the short term. It is expected that these awards will take the US ESOP
issuance close to (or at) the 10% limit of the Afterpay US option pool. There is no intent to expand
the US ESOP beyond the 10% maximum threshold (noted above).

In response to stakeholder concerns as to the transparency of the US ESOP for the Group’s
shareholders, the US ESOP will be closed to new offers once the small number of US awards noted
above have been made. This will occur within the next 12 months.

Going forward, new incentive awards made to US employees will be provided by way of equity
awards in the Parent company (i.e. the Australian listed entity being Afterpay Touch Group Limited) to
ensure consistency with market practice and transparency for our shareholders. All existing US ESOP
grants will remain on foot to be tested (as appropriate) and vest in the ordinary course to provide
certainty to our people.

As previously announced, the shares in Afterpay US that may be issued to participants in the US
ESOP can be exchanged for shares in the Group in certain circumstances. The number of shares in
the Group that may be issued in exchange will be based on a valuation of Afterpay US and is capped
at 21,777,661 (being 10% of the number of shares on issue at the date the Matrix convertible notes
issue was announced). This maximum number is now less than 9% of current shares on issue in the
Group due to further share issues since that date.

8.2 UK ESOP

Under the terms of the acquisition of Clearpay Finance Limited (Clearpay), Thinksmart Limited
(Thinksmart) retained 10% of the issued shares in Clearpay and agreed (as part of the sale and

purchase agreement) to provide for an option pool out of this holding that could be used for the
purposes of a UK Employee Share Option Plan (UK ESOP). The intention to operate the UK ESOP over
Thinksmart’s shares in Clearpay was announced at the time of the transaction.

As of the reporting date, the terms of the UK ESOP are not finalised and no options have been
granted under the plan. However, as previously announced, the UK ESOP options will not be options
over unissued shares in Clearpay, but will instead entitle employees to acquire existing Clearpay
shares from the 10% of Clearpay that is held by ThinkSmart. A maximum of 3.5% of Clearpay is
allocated from ThinkSmart’s holding for this purpose, at no cost to Clearpay. In this way, the UK
ESOP will not dilute the Group’s 90% shareholding in Clearpay.

As previously announced, the shares in Clearpay held by ThinkSmart and by UK ESOP participants
may be exchanged for shares in the Group in certain circumstances, and the Group may elect to pay
the assessed value in cash instead of shares. The number of shares in the Group that may be issued
for such an exchange will be based on a valuation of Clearpay. In relation to the Clearpay shares held
by UK ESOP participants, the number of Group shares is intended to be capped at 3% of shares on
issue at the date of adoption of the UK ESOP.

There are a number of options that are proposed to be issued to UK employees in the period
immediately following the UK ESOP terms being finalised. After the 3.5% of Clearpay pool has been
allocated to UK employees (which is expected to occur within 12 months), new incentive awards
made to UK employees will be provided by way of equity awards in the Parent company (i.e. the
Australian listed entity being Afterpay Touch Group Limited) to ensure consistency with market
practice and transparency for our shareholders.

8.3 MOVEMENT OF SECURITIES

The table below discloses the number of share options and loan shares granted, vested or lapsed
during the year for Executive KMP.

OPTIONS AND LOAN SHARES AWARDED, VESTED AND LAPSED
DURING THE REPORTING PERIOD FOR EXECUTIVE KMP

KEY
MANAGEMENT
PERSONNEL

FINANCIAL
YEAR

OPTIONS
AWARDED
DURING THE
REPORTING
PERIOD

FAIR
VALUE PER
OPTION
AT AWARD
DATE3
$

AWARD
DATE

VESTING
DATE4

EXERCISE
PRICE
$

EXPIRY DATE

NO. VESTED
DURING THE
REPORTING
PERIOD

NO. LAPSED
DURING THE
REPORTING
PERIOD

VALUE OF
OPTIONS
GRANTED
DURING THE
REPORTING
PERIOD
$

VALUE OF
OPTIONS /
LOAN SHARES
EXERCISED
DURING THE
REPORTING
PERIOD
$

Anthony
Eisen

David
Hancock1

2019

500,000

2019

2,699,087 5/12/18

10.37 1/9/18

2.7

1/9/22 1,273,199

- 27,989,532

Nick Molnar

2019

Luke Bortoli2 2019

500,000

450,000

1. David Hancock’s one-off 2,000,000 loan shares awarded in 2018 were included for accounting purposes and disclosed in the 2018 Remuneration
Report pending approval by shareholders. The 2,000,000 loan shares were cancelled and replaced with 2,699,087 options as approved at the 2018
AGM. 1,206,532 options vested on 1 September 2018 in respect of this award and 1,492,555 options will be tested for vesting conditions at 1
September 2019. David also 66,667 options vest in FY19 and FY18 relating to David’s service on the Board of Afterpay through the IPO process.

2. One third of Luke Bortoli’s options vested on 1 June 2019, the remaining two thirds will vest on 1 June 2020 and 1 June 2021, respectively.
3. The fair value of options and loan shares are calculated using the Binomial Model.
4. Vesting date is the earliest date the vested options can be exercised.

8.4 OTHER TRANSACTIONS AND BALANCES WITH EXECUTIVE KMP

(a) Loans to Executive KMP

No Executive KMP or their related parties held any loans from the Group during the Reporting Period.

(b) Other Executive KMP transactions

The Group did not engage in any transactions with Executive KMP or their related parties during the
Reporting Period.

CONSOLIDATED FINANCIAL

STATEMENTS

AFTERPAY
TOUCH GROUP
FINANCIAL
STATEMENTS

CONTENTS

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

CONSOLIDATED STATEMENT OF CASH FLOWS

NOTES TO THE FINANCIAL STATEMENTS
1. BASIS OF PREPARATION

GROUP PERFORMANCE
2. SEGMENT INFORMATION
3. EXPENSES
4. EARNINGS PER SHARE (EPS)

ASSETS AND LIABILITIES
5. CASH & CASH EQUIVALENTS
6. RECEIVABLES
7. OTHER FINANCIAL ASSETS
8. PROPERTY, PLANT & EQUIPMENT
9.
10. TAXATION

INTANGIBLE ASSETS

CAPITAL STRUCTURE, FINANCING & RISK MANAGEMENT
11. EQUITY
12.
13. FINANCIAL LIABILITIES
14. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

INTEREST BEARING BORROWINGS

GROUP STRUCTURE
15. BUSINESS COMBINATIONS
16. RELATED PARTY DISCLOSURE
17.
18. DEED OF CROSS GUARANTEE

INFORMATION RELATING TO AFTERPAY TOUCH GROUP LIMITED (THE PARENT)

EMPLOYEE REMUNERATION
19. SHARE-BASED PAYMENT PLANS
20. KEY MANAGEMENT PERSONNEL
21. COMMITMENTS AND CONTINGENCIES

ITEMS NOT RECOGNISED IN THE FINANCIAL STATEMENTS
21. COMMITMENTS AND CONTINGENCIES
22. EVENTS AFTER THE BALANCE SHEET DATE

OTHER INFORMATION
23. AUDITOR’S REMUNERATION
24. OTHER SIGNIFICANT ACCOUNTING POLICIES

DIRECTORS’ DECLARATION

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF AFTERPAY TOUCH GROUP LIMITED

ADDITIONAL SECURITIES EXCHANGE INFORMATION

74
74

75
75
79
80

83
83
84
86
87
87
90

93
93
94
95
96

101
101
103
103
104

106
106
110
111

111
111
112

113
113
113

115

116

123

CONSOLIDATED STATEMENT
OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 30 JUNE 2019

NOTE

Afterpay income

Pay Now revenue

Other income

Total income

Cost of sales

Gross profit

Depreciation & amortisation expenses

Employment expenses

Share-based payment expenses

Receivables impairment expenses

Operating expenses

Operating loss

Finance income

Finance cost

Loss before tax

Income tax expense

Loss for the year

10a

2019

$'000

200,868

17,095

46,149

2018 1

$'000

88,328

25,571

28,446

264,112

142,345

(59,562)

(28,210)

204,550

114,135

(22,371)

(51,445)

(30,545)

(58,675)

(73,210)

(31,696)

(17,329)

(22,245)

(16,374)

(32,610)

(27,077)

(1,500)

563

531

(11,653)

(42,786)

(1,013)

(43,799)

(6,617)

(7,586)

(1,390)

(8,976)

Other comprehensive loss

Other comprehensive loss to be reclassified to profit or loss in
subsequent periods (net of tax)

Exchange differences on translation of foreign operations

Total other comprehensive loss for the period, net of tax

(776)

(45)

Total comprehensive loss for the year, net of tax

(44,575)

(9,021)

Loss attributable to

Owners of Afterpay Touch Group Limited

(42,861)

(8,976)

Non-controlling interests

Earnings per share for loss attributable to the ordinary
equity holders of Afterpay Touch Group Limited

Basic loss per share

Diluted loss per share

(938)

(0.18)

(0.04)

1. Due to the adoption of AASB 15 for Afterpay income and Pay Now revenue, and the adoption of AASB 9 for Receivables impairment expenses using
the modified retrospective approach, the 2018 comparatives are not comparable to 2019 for recognition and measurement, as disclosed further in
Note 24.

The above Consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.

CONSOLIDATED STATEMENT
OF FINANCIAL POSITION

AS AT 30 JUNE 2019

ASSETS

Current Assets

Cash & cash equivalents

Receivables

Other financial assets

Other current assets

Total Current Assets

Non-Current Assets

Property, plant & equipment

Intangible assets

Deferred tax assets

Other non-current financial assets

Other non-current assets

Total Non-Current Assets

TOTAL ASSETS

LIABILITIES

Current Liabilities

Trade & other payables

Employee benefit provision

Contract liabilities

Interest bearing borrowings

Financial liabilities

Income tax payable

Total Current Liabilities

Non-Current Liabilities

Employee benefits provision

Office lease provision

Financial liabilities

Interest bearing borrowings

Total Non-Current Liabilities

TOTAL LIABILITIES

NET ASSETS

EQUITY

Issued capital

Accumulated losses

Reserves

Equity attributable to the owners of Afterpay Touch
Group Limited

Non-controlling interests

TOTAL EQUITY

NOTE

2019

$’000

2018 1

$’000

10d

231,456

32,559

452,699

239,068

3,003

9,130

23,935

7,859

696,288

303,421

4,213

89,072

27,280

3,035

580

4,008

72,495

9,261

2,165

875

124,180

88,804

820,468

392,225

109,981

2,585

100

597

1,772

5,370

42,916

1,793

252

1,582

120,405

46,593

317

565

1,039

157

365

49,626

161,555

51,547

162,077

171,952

208,670

648,516

183,555

674,769

192,628

(70,575)

(22,195)

41,365

13,122

645,559

183,555

2,957

648,516

183,555

The above Consolidated statement of financial position should be read in conjunction with the accompanying notes.

CONSOLIDATED STATEMENT
OF CHANGES IN EQUITY

FOR THE YEAR ENDED 30 JUNE 2019

$’000

FOREIGN
CURRENCY
TRANSLATION
RESERVE

ISSUED
CAPITAL

ACCUMULATED
LOSSES

RESERVES

NON-
CONTROLLING
INTEREST

$’000

TOTAL

$’000

TOTAL

$’000

At 1 July 2018

192,628

(45)

(22,195)

13,167

183,555

Initial application of
accounting standards1

(5,519)

At 1 July 2018

192,628

(45)

(27,714)

13,167

178,036

(5,519)

178,036

Loss for the period

Other comprehensive
loss

Total comprehensive
loss for the period

Transactions

Issue of share capital

459,269

Share issue expenses
(net of tax)

Issue of ordinary shares,
as consideration for a
business combination

Non-controlling interest
on acquisition of
subsidiary

(10,050)

17,826

Share options exercised

15,096

Share-based payments

(42,861)

(938)

(43,799)

(776)

(42,861)

(43,637)

(938)

(44,575)

459,269

(10,050)

17,826

(1,039)

1,981

942

(3,678)

11,418

372

11,790

33,736

1,542

35,278

At 30 June 2019

674,769

(821)

(70,575)

42,186

645,559

2,957

648,516

1. Refer Note 24 for details

FOR THE YEAR ENDED 30 JUNE 2018

$’000

FOREIGN
CURRENCY
TRANSLATION
RESERVE

ISSUED
CAPITAL

ACCUMULATED
LOSSES

RESERVES

NON-
CONTROLLING
INTEREST

$’000

TOTAL

$’000

TOTAL

$’000

(13,219)

1,891

160,083

(8,976)

(45)

(8,976)

(45)

(9,021)

At 1 July 2017

171,411

Loss for the year

Other comprehensive
loss

Total comprehensive
loss for the year

Transactions

Issue of share capital

18,700

Share issue expenses
(net of tax)

Share options exercised

Share-based payments

(203)

2,720

(8,976)

(45)

(8,976)

18,700

(203)

(431)

2,289

11,707

At 30 June 2018

192,628

(45)

(22,195)

13,167

183,555

The above Consolidated statement of changes in equity should be read in conjunction with the accompanying notes.

18,700

(203)

2,289

11,707

183,555

CONSOLIDATED STATEMENT
OF CASH FLOWS

FOR THE YEAR ENDED 30 JUNE 2019

NOTE

Cash flows from operating activities

2019

$’000

20181

$’000

Receipts from customers (inclusive of goods & services tax)

4,823,012

2,208,612

Payments to employees (inclusive of on-costs)

(39,827)

(17,853)

Payments to merchants & suppliers (inclusive of goods
& services tax)

Income taxes paid

(4,916,304)

(2,287,985)

(9,073)

(1,004)

Net cash (outflow) from operating activities

(142,192)

(98,230)

Cash flows from investing activities

Interest received

Increase in term deposits

686

(866)

524

(2,165)

Payments for development of intangible assets

(21,055)

(11,499)

Purchase of intangibles

Purchase of plant & equipment

Proceeds from sale of business

(485)

(2,070)

7,500

(1,082)

Net cash (outflow) from investing activities

(16,290)

(14,222)

Cash flows from financing activities

Proceeds from borrowings

Repayment of borrowings

Decrease/(increase) of restricted cash

Proceeds from exercise of share options

Proceeds from issue of shares

Capital raising expenses

Interest & bank fees paid

Net cash inflow from financing activities

Net increase in cash & cash equivalents

FX on cash balance

Cash & cash equivalents at beginning of the year

Cash & cash equivalents at end of the year

414,988

(526,493)

21,711

13,631

459,269

(11,424)

(14,549)

179,663

(65,000)

(14,848)

2,276

18,700

(7,009)

357,133

113,782

198,651

246

32,559

231,456

1,330

1,627

29,602

32,559

1. The prior year cash at end of year balance has been restated to be comparable with the current year presentation of cash in transit. Other

comparative cash flow figures have been updated accordingly.

The above Consolidated statement of cash flows should be read in conjunction with the accompanying notes.

NOTES TO THE
FINANCIAL
STATEMENTS

1. BASIS OF PREPARATION

The Consolidated Financial Statements of Afterpay Touch Group Limited for the financial year
ended 30 June 2019 were authorised for issue in accordance with a resolution of the Directors
on 28 August 2019.

The securities of Afterpay Touch Group Limited (the Company) are listed on the Australian
Securities Exchange (ASX). The activities of Afterpay Touch Group Limited and its subsidiaries
(the Group) are described in the Directors’ Report. The Group’s principal place of business is
406 Collins Street, Melbourne, Victoria, Australia.

The Company was incorporated on 30 March 2017 as a for-profit company and domiciled
in Australia.

These financial statements:

• are general-purpose financial statements, which have been prepared in accordance with

Australian Accounting Standards and other authoritative pronouncements of the Australian
Accounting Standards Board (AASB), and the Corporations Act 2001;

• comply with Australian Accounting Standards and International Financial Reporting Standards

(IFRS), as issued by the International Accounting Standards Board;

• have been prepared on a going concern basis using historical cost basis and is presented in
Australian dollars and all values are rounded to the nearest thousand ($’000), except when
otherwise indicated in accordance with the Australian Securities and Investments Commission
(ASIC) Corporations Instrument 2016/191;

• where necessary, comparative information has been restated to conform to changes in

presentation in the current year; and

• apply significant accounting policies consistently to all periods presented, unless otherwise

stated.

Significant estimates and judgements

Management has identified a number of accounting policies for which significant judgements,
estimates and assumptions are made. Actual results may differ from these estimates under
different assumptions and conditions and may materially affect financial results or the financial
position reported in future periods. Further details of these assumptions may be found in the
following notes to the financial statements:

Note 6 Receivables;

Note 9 Intangible assets;

Note 10 Taxation; and

Note 19 Share-based payment plans.

2. SEGMENT INFORMATION (continued)

GROUP PERFORMANCE

2. SEGMENT INFORMATION

The Group’s reportable operating segments have been identified based on the financial
information currently provided to the Chief Operating Decision Maker (CODM). The CODM, who
is responsible for allocating resources and assessing performance of the operating segments,
has been identified as the Chief Executive Officer and Managing Director, Global Chief Revenue
Officer and Executive Director and Global Chief Financial Officer. The business operates under
the following segments:

• Afterpay AU: Comprises the Afterpay Australia platform;

• Afterpay US: Comprises the Afterpay United States platform;

• Afterpay Other: Comprises other Afterpay platforms outside of Australia and the United

States that are in expansion phase or below the quantitative thresholds per AASB 8 Operating
Segments;

• Pay Now: Comprises Mobility, Health and e-Services; and

• Corporate: Comprises Group expenses that are not directly attributable or allocated to the

Afterpay or Pay Now segments.

Non-IFRS financial measures are reviewed by the CODM for decision making purposes. EBITDA
(excluding significant items) has been disclosed in the period as it is the most IFRS-like measure
reported to the CODM.

The number of operating segments has increased from the 30 June 2018 financial statements
as a reflection of the new markets in which the Group has entered with the Afterpay services.
The 2018 comparatives have been restated in line with the current year presentation. The Group
is in the early stages of expanding the Afterpay platform into markets outside of Australia. The
Group is reviewing its global operating model, financial reporting systems and relevant financial
measures reviewed by the CODM for decision making purposes in light of its expansion. The
Group’s reportable operating segments may change in the future in line with this expansion and
review.

Services provided between operating segments are on an arm’s-length basis and are eliminated
on consolidation.

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)2. SEGMENT INFORMATION (continued)

YEAR ENDED 30 JUNE 2019

$’000

AFTERPAY AU

AFTERPAY US

AFTERPAY
OTHER

PAY NOW

CORPORATE

TOTAL

$’000

Total segment income 1

196,832

39,002

11,183

17,095

264,112

Segment results

Segment pro forma EBITDA
(excl. significant items and
accounting standard charges)

Initial application of new
accounting standards 2

Segment EBITDA
(excl. significant items) 3

Share-based payments

One-off items

EBITDA

Depreciation & amortisation

EBIT

Net finance expense

Loss before income tax

Income tax expense

Loss for the year

90,661

(21,963)

(3,008)

4,930

(35,141)

35,479

(3,681)

(2,591)

(514)

(6,786)

86,980

(24,554)

(3,522)

4,930

(35,141)

28,693

(30,545)

(7,473)

(9,325)

(22,371)

(31,696)

(11,090)

(42,786)

(1,013)

(43,799)

1. Total segment income includes Afterpay income, Pay Now revenue and Other income, which relates to Afterpay’s late fees.
2. Initial application of new accounting standards is recognised in current period results, whereas, as permitted by AASB 15 and AASB 9, the prior

corresponding period impact was reflected in the opening retained earnings for the 30 June 2019 financial year.
3. Segment EBITDA (excluding significant items) excludes the impact of share-based payments and one-off items.

YEAR ENDED 30 JUNE 2018

$’000

AFTERPAY AU

AFTERPAY US

AFTERPAY
OTHER

PAY NOW

CORPORATE

TOTAL

$’000

Total segment income

114,202

484

2,088

25,571

142,345

43,633

(2,747)

7,247

(13,066)

35,163

Segment results

Segment EBITDA
(excl. significant items) 1

Share-based payments

One-off items

EBITDA

Depreciation & amortisation

EBIT

Net finance expense

Loss before income tax

Income tax expense

Loss for the year

1. Segment EBITDA (excluding significant items) excludes the impacts of share-based payments and one-off items.

(16,374)

(2,960)

15,829

(17,329)

(1,500)

(6,086)

(7,586)

(1,390)

(8,976)

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)2. SEGMENT INFORMATION (continued)

Significant accounting policies – Revenue & Income

Pay Now Revenue Recognition

The Pay Now business primarily generates its revenue via transaction fees for delivery of
completed transactions and integration fees to connect new, or grant existing customers
access to additional service models.

The transaction revenue is generated from facilitating the sales of electronic products and
services where the Group receives a fee (either fixed or a percentage of the transaction
volume) for every successful transaction. Revenue is recognised on completion of a
successful transaction or when products are delivered and activated by end-customers. The
Group is generally remunerated for the transactional services on a weekly and monthly basis.

Revenue from integration services is considered a distinct service, and is recognised by
reference to the stage of completion of a contract or contracts in progress at balance date.
Stage of completion is measured by reference to labour hours of each contract, which aligns
with the transfer of the services. Where there is a final customer acceptance condition in the
contract, revenue is recognised only upon customer acceptance.

For the financial year ended 30 June 2019, the transaction and integration revenue post
adoption of AASB 15 Revenue from Contracts with Customers was $15.6 million (2018: $23.0
million) and $1.5 million (2018: $2.6 million), respectively. As the Group adopted AASB 15 on
1 July 2018 and used the modified retrospective approach, the 2018 comparatives are not
comparable to 2019 for recognition and measurement. Refer below for further details.

The Group continues to recognise its ‘Contract liabilities’ under AASB 15 in respect of any
unsatisfied performance obligations. Any liabilities are disclosed as ‘Contract liabilities’ in the
Consolidated statement of financial position. The Group does not have any contract assets
due to the invoicing and payment terms generally being in advance of the service provision.

The Group does not have contracts where the period between the transfer of the promised
good or services to the customer and payment by the customer exceeds 1 year. Therefore, the
Group does not adjust any of the transaction prices for the time value of money. Payments
from customers are generally collected within 30 days of the provision of services.

Income Recognition

Afterpay income

Afterpay income is derived from the difference between the customer’s underlying order
value processed on the Afterpay platform and the amount paid to the merchant by Afterpay,
referred to as Merchant fees. Afterpay pays merchants upfront the net amount of the previous
day orders less the Merchant fees, which consists of fixed and variable rates, and Afterpay
then assumes all non-repayment risk from the customer. There are no interest or fees
charged by Afterpay to customers, other than late fees described below.

Merchant fees are recognised in the Consolidated statement of comprehensive income using
the Effective Interest Rate (EIR) method, accreting the Merchant fees over the average period
from initial payment to the merchant by Afterpay to the final instalment paid by the customer
to Afterpay. The Group defers Afterpay income over the average time it takes for the collection
of the receivable to occur, with the current average weighted duration to recoup end-customer
payments being approximately 30 days or less.

Other income – Late fees

Late fee charges are currently used by Afterpay as an incentive to encourage end-customers
to pay their outstanding balances as and when they fall due. Late fees are recognised as Other
income when late fees become payable and are expected to be recovered.

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)2. SEGMENT INFORMATION (continued)

Impact of the adoption of AASB 15 Revenue from Contracts with Customers (AASB 15) on
Revenue & Income.

(a) Impact on initial adoption

The Group has adopted AASB 15 using the modified retrospective method with the date of initial
application of 1 July 2018. The cumulative effect of applying AASB 15 is recognised at the date
of initial application as an adjustment to the opening balance of retained earnings. Therefore,
information for the prior corresponding period was not restated. Refer to Note 24 for further
information.

(b) Impact of adoption on current year

AASB 15 supersedes AASB 118 Revenue and related interpretations, and it applies to all
revenue arising from contracts with customers, unless those contracts are in the scope of other
standards. It makes several changes to the previous guidance on the criteria to which revenue
is recognised. By applying the five-step approach specified in the standard, the recognition of
revenue is directly aligned with the delivery of performance obligations specified within the
contracts with customers.

The Group has performed an assessment of its contracts with customers in accordance with
AASB 15 and has determined the following impacts and changes to its accounting policies as a
result of adoption.

CONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME (EXTRACT)

Afterpay income

Pay Now revenue

Other income

Total income

Cost of sales

Gross profit

30 JUNE 2019
UNDER AASB 15 &
AASB 9 1

AASB 15 & AASB 9
ADJUSTMENTS

30 JUNE 2019
UNDER AASB 118

$’000

200,868

17,095

46,149

264,112

(59,562)

204,550

$’000

4,617

3,796

$’000

205,485

20,891

46,149

8,413

272,525

(3,796)

(63,358)

4,617

209,167

1. Afterpay income is recognised under AASB 9 as of 1 July 2018 as discussed below.

Afterpay income

Prior to the adoption of AASB 9 and AASB 15, Afterpay income was recognised as revenue at
customer order date in accordance with AASB 118. Due to the adoption of the new standards,
Afterpay income (previously disclosed as ‘Revenue’) is recognised in the Consolidated statement
of comprehensive income under AASB 9 Financial Instruments using the EIR method.

Pay Now revenue

The Pay Now business has marketing contribution agreements, some of which are with
merchants based on agreed monthly underlying sales or revenue processed on the Pay Now
platform. Prior to the adoption of AASB 15, these marketing contribution agreements were
recognised as part of cost of sales. In accordance with AASB 15, transaction revenue for Pay
Now is recorded net of any marketing contribution costs (based on monthly underlying sales or
revenue) because the customer is not deemed to provide a distinct good or service in exchange
for the marketing contribution.

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)3. EXPENSES (continued)

3. EXPENSES

Depreciation & amortisation expenses

Depreciation

Amortisation

Total depreciation & amortisation expenses

Employment expenses

Wages & salaries

Other employee on-costs

Total employment expenses

Operating expenses

Debt recovery costs, including bank charges

Consulting & contractor costs

Marketing expenses

Communication & technology

Operating lease expenses

Foreign currency gains

Net gain on sale of business1

Merger related costs

AUSTRAC related costs

General & administrative expenses

Total operating expenses

2019

$’000

2018

$’000

(1,978)

(1,808)

(20,393)

(15,521)

(22,371)

(17,329)

(42,429)

(19,199)

(9,016)

(3,046)

(51,445)

(22,245)

(9,721)

(17,177)

(22,877)

(8,202)

(4,122)

2,961

1,271

(6,569)

(4,339)

(5,794)

(2,653)

(1,530)

1,395

(1,686)

(1,079)

(14,264)

(5,901)

(73,210)

(27,077)

1. This represents the net gain on sale of the European e-Services business, which was completed on 1 November 2018. As the European

e-Services business does not represent a separate major line of business or geographical area of operations, it was not disclosed separately in
accordance with AASB 5 Non-current assets held for sale and discontinued operations.

The Group continues to invest in development to create new, and enhance existing products, and
services for merchants and customers. Employee-related development costs that are eligible for
capitalisation for the financial year ended 30 June 2019 are $21.5 million (2018: $11.5 million).
Refer to Note 9 for further information.

Significant accounting policies – foreign currency translation

Functional and presentation currency

Items included in the financial statements of each of the Group’s entities are measured using
the currency of the primary economic environment in which the entity operates (the functional
currency). The Consolidated Financial Statements are presented in Australian dollars ($),
which is the Group’s functional and presentation currency. Exchange differences arising on
translation of the foreign controlled entities are recognised in other comprehensive income
and accumulated in a separate reserve within equity. The cumulative amount is reclassified to
the Consolidated statement of comprehensive income upon disposal of any net investment.

Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange
rates at the dates of the transactions. Foreign exchange gains and losses resulting from the
settlement of such transactions, and from the translation of monetary assets and liabilities
denominated in foreign currencies at year end exchange rates, are generally recognised in the

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

3. EXPENSES

3. EXPENSES (continued)

Consolidated statement of comprehensive income. They are deferred in equity if they relate to
qualifying cash flow hedges and qualifying net investment hedges or are attributable to part of
the net investment in a foreign operation.

Foreign exchange gains and losses that relate to borrowings are presented in the
Consolidated statement of comprehensive income, within finance costs. All other foreign
exchange gains and losses are presented in the Consolidated statement of comprehensive
income on a net basis within other gains/(losses).

4. EARNINGS PER SHARE (EPS)

The following table outlines the loss and share data used in the basic and diluted EPS calculations:

Loss attributable to owners of Afterpay Touch Group Limited for basic EPS

2019

$’000

(42,861)

No.’000

2018

$’000

(8,976)

No.’000

Weighted average number of ordinary shares for basic EPS

231,919

214,551

Effect of dilution from:

Share options (‘000)

Weighted average number of ordinary shares adjusted for the effect
of dilution

11,827

16,487

243,746

231,038

Basic EPS amounts are calculated by dividing the loss for the year attributable to ordinary equity
holders of the Parent by the weighted average number of ordinary shares outstanding during the
financial year.

Diluted EPS amounts are calculated by dividing the loss attributable to ordinary equity holders
of Afterpay Touch Group Limited by the sum of the weighted average number of ordinary shares
outstanding during the year and the weighted average number of ordinary shares that would be
issued on conversion of all the dilutive potential ordinary shares into ordinary shares.

The share options number above does not take into account any options or similar conversion
rights issued under the two convertible notes issued to Matrix Partners X L.P and Weston & Co
X LLC (Matrix Convertible Notes), Afterpay US, Inc., 2018 Equity Incentive Plan (US ESOP), put
and call option to acquire the remaining 10% of ClearPay Finance Limited (Clearpay) that were on
issue as at 30 June 2019 or prospective equity incentive plan for UK employees (UK ESOP).

The potential number of APT shares that could be issued under these arrangements were
excluded from the share options number above given the number of APT shares to be issued
will only be determined on exercise and conversion which will occur at a future date and based
on future valuations which are unable to be reliably estimated today. In all arrangements, the
number of APT shares which may be issued on conversion is subject to maximum levels.

Matrix Convertible Notes

The Matrix Convertible Notes may be converted into APT shares in certain circumstances
between 5 and 7 years from the date of issue of the notes (being 19 January 2018), with
conversion at the noteholder’s election. The number of APT shares which may be issued on
conversion is determined by a conversion value calculated based on 10% of the future value
of Afterpay US, Inc. in excess of US$50 million (to be determined by an independent valuation
at the time of conversion) divided by the volume weighted average price of APT shares over
the 30 trading days up to (but excluding) the date on which an exercise notice is delivered. The
maximum number of shares in APT that may be issued is capped at 21,777,661 (being 10% of
the number of APT shares on issue at the date of issue of the Matrix Convertible Notes). It is
unlikely that the maximum number of APT shares would be issued on conversion, because for
this to happen it would necessarily mean that the value of APT (excluding Afterpay US, Inc.) is

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

4. EARNINGS PER SHARE (EPS) (continued)

negligible or very low in comparison to the assessed value of Afterpay US, Inc. Conversion of the
Matrix Convertible Notes may be accelerated, at the Group’s election, in the event of a change of
control occurring with respect to the Group.

US ESOP

Options issued under the US ESOP are options to acquire common stock in Afterpay US, Inc. In
specified circumstances, common stock in Afterpay US, Inc. which is received via the exercise of
US ESOP options may be exchanged for APT shares. The exercised common stock in Afterpay
US, Inc. will automatically be exchanged for fully paid ordinary shares of APT if conversion of
the Matrix Convertible Notes occurs between 5 and 7 years from the date of issue of the notes
(being 19 January 2018). Exchange for APT shares may also occur at the discretion of the APT
Board if the Matrix Convertible Notes are not converted and are no longer on issue, at least 5
years have elapsed since the US ESOP was initially adopted, and other specified corporate events
have not occurred. Holders of exercised stock do not have a separate right to require exchange
for APT shares. The number of APT shares which are issued to US ESOP holders upon exchange
will be based on the future value of Afterpay US, Inc. shares (to be determined by an independent
valuation at the time of exchange) compared to a volume weighted average price (VWAP) of
APT shares over the 30 trading days up to (but excluding) the date of conversion of the Matrix
Convertible Notes or the date of discretionary conversion by APT (as applicable). The total
US ESOP pool is limited to 10% of Afterpay US, Inc. fully diluted shares on issue. The Group’s
ownership interest in Afterpay US, Inc. will not decline below 90% due to the exercise of options
on Afterpay US, Inc. common stock under the US ESOP plan and will increase back to 100%
following the exchange of Afterpay US, Inc. common stock for APT shares (assuming no other
issues of common stock in Afterpay US, Inc. in the intervening period). The maximum number
of APT shares that can be issued under the US ESOP in exchange for exercised shares cannot
exceed 21,777,661 APT shares (being 10% of the number of APT shares on issue at the date the
Matrix Convertible Notes were issued). It is unlikely that the maximum number of APT shares
would be issued on conversion, because for this to happen it would necessarily mean that the
value of APT (excluding Afterpay US, Inc.) is negligible or very low in comparison to the assessed
value of Afterpay US, Inc.

Clearpay Put and Call Option

As discussed in Note 15, on 23 August 2018, the Group acquired 90% of the issued shares in
ClearPay Finance Limited (Clearpay) (an unlisted entity based in the United Kingdom, 100%
owned by ThinkSmart Limited) (ThinkSmart) for total consideration of 1.0 million APT shares.
The Group has a call option to acquire the remaining Clearpay shares held by ThinkSmart, which
is exercisable any time after 5 years from the completion date being 23 August 2018. If the
Group does not exercise its call option within that period, then ThinkSmart has a put option to
sell all the remaining shares it holds in Clearpay to the Group, exercisable any time after 5.5 years
from completion date. APT has the right to exercise the call option earlier than 5 years from
the completion date in the event of a change of control of either APT or ThinkSmart. APT may
also exercise the Call option early on certain events of default or insolvency events in relation
to ThinkSmart, in which case the exercise price will be based on Clearpay’s net tangible assets
instead of the valuation principles described below.

Under the terms of the acquisition of Clearpay, ThinkSmart also agreed to provide for an
option pool out of its remaining 10% shareholding that could be used for the purposes of an
equity incentive plan for UK employees of Clearpay (UK ESOP) of up to 3.5%, which will reduce
ThinkSmart’s shareholding to 6.5% following exercise of the maximum pool of options. As of the
reporting date, that plan is not finalised, and no options have been granted under the proposed
UK ESOP.

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)4. EARNINGS PER SHARE (EPS) (continued)

Consideration for the remaining Clearpay shares held by ThinkSmart at the time of exercise of
the put or call option will be determined by agreement, or failing agreement, by an independent
expert valuation of Clearpay shares. Consideration may be paid by the Group in cash or APT
shares, at APT’s election. The number of APT shares in the Group that may be issued for such
an exchange will be based on the 5-trading day VWAP of APT shares up to the date of option
exercise. Any exchange of Clearpay shares held by ThinkSmart as a result of its exercise of the
put option is capped at 5% of APT shares on issue at the time of exchange.

UK ESOP

It is the Group’s intention to establish an equity incentive plan for UK employees or UK ESOP
with an options pool in Clearpay over a maximum of 3.5% of Clearpay shares on issue. As of the
reporting date, that plan is not finalised, and no options have been granted under the proposed UK
ESOP. Under the terms of the acquisition of Clearpay, ThinkSmart agreed to provide for an options
pool out of its remaining 10% shareholding that could be used for the purposes of a UK ESOP of up
to 3.5%. In this way, the UK ESOP will not dilute the Group’s 90% shareholding in Clearpay.

It is intended that the UK ESOP options will have both continued service and performance based
vesting conditions. The exercise price is yet to be determined, however upon exercise of the
options, the exercise price will be paid to ThinkSmart as the provider of the option shares. The
UK ESOP options, even if vested, will only be able to be exercised in conjunction with exercise of
the ThinkSmart put or call option (including in the event of early exercise, such as on a change of
control), and if not exercised with such event, the options will lapse. This is intended to ensure that
there are no outstanding UK ESOP options once APT moves to 100% shareholding in Clearpay.

Further, it is intended that any Clearpay shares provided to employees on the exercise of their
vested options will be sold to APT at the same per-share price as the Clearpay Put and Call
Option (as applicable) as outlined as above. APT will have the election to pay for the UK ESOP
shares in cash or in the form of APT shares at equivalent value, subject to a cap of 3% of APT
shares on issue at the date of first adoption of the UK ESOP Rules.

After the 3.5% of Clearpay pool has been allocated to UK employees (which is expected to
occur within 12 months), new incentive awards made to UK employees will be provided by way
of equity awards in the parent company (i.e. APT) to ensure a globally aligned and consistent
approach going forward.

It is unlikely that the maximum number of APT shares of 8% across the Clearpay Put and Call
Option and UK ESOP would ever be issued, because for this to happen it would necessarily mean
that the value of APT (excluding Clearpay) is negligible or very low in comparison to the assessed
value of Clearpay.

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)5. cash & cash equivalents (continued)

ASSETS AND LIABILITIES

5. CASH & CASH EQUIVALENTS

Cash at bank & in hand

Short-term deposits

Total cash & cash equivalents

2019

$’000

20181

$’000

121,365

110,091

231,456

17,394

15,165

32,559

Reconciliation from the net loss before tax to the net cash flows from operations

Loss before tax

Adjustments for:

Depreciation & amortisation expenses

Share-based payment expenses

Finance cost

Finance income

Gain on sale of European e-Services business

Unrealised foreign currency gains

Changes in assets and liabilities:

Increase in total receivables

Impact of accounting standard changes on receivables

Decrease in other financial assets and other assets

Increase in trade & other payables

Income tax paid

2019

$’000

20181

$’000

(42,786)

(7,586)

22,371

30,545

11,653

(563)

(1,271)

(2,535)

17,329

16,374

6,617

(531)

(1,501)

(213,631)

(140,683)

(7,847)

2,861

68,084

(9,073)

2,424

10,331

(1,004)

Net cash used in operating activities

(142,192)

(98,230)

1. The prior year cash at end of year balance has been restated to be comparable with the current year presentation of cash in transit. Other

comparative cash flow figures have been updated accordingly.

Significant accounting policies – cash & cash equivalents

Cash & cash equivalents in the Consolidated statement of financial position comprises
cash at bank and in hand, cash in transit and short-term deposits with an original maturity
of three months or less, that are readily convertible to known amounts of cash and which
are subject to an insignificant risk of changes in value. For the purposes of the Consolidated
statement of cash flows, cash and cash equivalents consists of cash and cash equivalents
as defined above.

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

6. RECEIVABLES (continued)

6. RECEIVABLES

Trade receivables – Pay Now

Consumer receivables

Consumer receivables - face value

Consumer receivables - recognised over time1

Net consumer receivables

Less provision for doubtful debts

Opening balance2

Provided in the year

Debts written off/collected

Total provision for doubtful debts

Net consumer receivables balance

Total receivables

2019

$’000

7,983

2018

$’000

5,423

482,123

248,788

(9,647)

472,476

248,788

(18,054)

(58,675)

(5,292)

(32,610)

48,969

22,759

(27,760)

(15,143)

444,716

233,645

452,699

239,068

1. Value of receivables when Afterpay income is recognised over the collection period using the EIR method.
2. Due to the initial application of AASB 9 the opening balance has been adjusted, refer to Note 24 for further information.

Impact of the adoption of AASB 9 Financial Instruments (AASB 9) on Receivables

The Group has adopted AASB 9, the date of initial application being 1 July 2018. The adoption of
AASB 9 resulted in changes in accounting policies and adjustments to the amounts recognised
in the financial statements. The effect of initially applying AASB 9 is recognised at the date
of initial application as an adjustment to opening retained earnings, as disclosed in Note 24,
therefore comparative figures have not been restated.

(a) Impact on current year – classification and measurement change

On adoption of AASB 9, the Group’s management assessed which business models to apply to
the financial assets held by the Group and classified its financial instruments into the appropriate
AASB 9 categories. There are no significant impacts resulting from the classification. The
Group’s financial assets are initially recognised at amortised cost, and subject to impairment.

(b) Impact on current year – impairment charge

The adoption of AASB 9 has changed the Group’s accounting for impairment losses for financial
assets by replacing the previously applied AASB 139’s incurred loss approach with a forward-
looking Expected Credit Loss (ECL) approach under AASB 9.

There is no impact to the statement of cash flows and the basic and diluted EPS.

The adoption of AASB 9 did not impact the Group’s borrowings as the current debt arrangements
are not hedged and do not include any derivative financial instruments.

Other adjustments

In addition to the adjustments to Consumer receivables, upon adoption of AASB 9, other items
of the primary financial statements, such as deferred taxes and opening retained earnings were
adjusted as necessary. The impacts of these adjustments have been summarised in Note 24.

Significant accounting policies

Trade receivables – Pay Now

A receivable represents the Group’s right to an amount of consideration that is unconditional
(i.e. only the passage of time is required before payment of the consideration is due).

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

6. RECEIVABLES (continued)

Generally, trade receivables have 7–30 day payment terms and due to the short-term nature,
their carrying amount (less allowance for doubtful debts) is approximately equal to their fair
value. There are no Pay Now contract assets at 30 June 2019.

Trade receivables impairment – Pay Now

Collectability of trade receivables is reviewed on an ongoing basis. Individual debts that are
known to be non-collectable are written off when identified. The Group applies a simplified
approach in calculating the ECLs based on lifetime expected credit losses. The Group has
established a provision matrix that is based on the Group’s historical credit experience
adjusted for forward-looking factors specific to the debtors and the economic environment.

Consumer receivables – Afterpay

Consumer receivables are amounts due from consumers for outstanding instalment
payments on orders processed on the Afterpay platform. The Group’s business model is
to hold the receivables with the objective to collect the contractual cash flows. Consumer
receivables are measured at amortised cost using the EIR method. They are generally due
within 14–56 days.

Receivables Impairment – Consumer receivables - Afterpay

The Group applies the general provision approach permitted under AASB 9 to account
for ECLs on Consumer receivables measured at amortised cost. ECLs are based on the
difference between the contractual cash flows due in accordance with the Afterpay terms
and all the cash flows that the Group expects to receive. Due to the short-term nature of the
Afterpay receivables, the ECLs are based on the lifetime ECL.

The Group uses ageing of Consumer receivables as the basis for ECL measurement given the
short duration of consumer payment terms (maximum 56 days).

At each reporting date, the Group assesses impairment risk on initial recognition of the
Consumer receivable and movements in the ageing of outstanding Consumer receivables to
estimate the ECL.

Under this impairment approach, AASB 9 requires the Group to classify Consumer receivables
into three stages, which measure the ECL based on credit migration between the stages. The
Group has defined these stages as follows:

STAGE

MEASUREMENT BASIS

Receivables
not yet due
(Stage 1)

Receivables aged
1 to 61 days
(Stage 2)

While the Consumer receivables are not yet due, an ECL has been determined
based on a probability of a default event occurring over the life of the Consumer
receivables.

Although there is usually no objective evidence of impairment, when a
consumer has not paid by the due date, it is an indication that credit risk has
increased. As a result, the loss allowance for that Consumer receivable is
measured at an amount equal to the lifetime ECL for increased credit risk.
Lifetime ECL is the expected credit losses that result from all possible default
events over the expected life of the Consumer receivables.

Receivables aged
greater than 61 days
(Stage 3)

Stage 3 includes Consumer receivables aged greater than 61 days past due
where there is objective evidence of impairment at reporting date. Ageing
greater than 61 days is considered to have an adverse impact on the estimated
future cash flows of the Consumer receivables.

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)6. RECEIVABLES

6. RECEIVABLES (continued)

STAGE 1
NOT YET DUE

STAGE 2
AGED 1 – 61 DAYS

STAGE 3
AGED GREATER
THAN 61 DAYS

$’000

TOTAL

$’000

20191

Consumer receivables – face value2

453,266

21,880

6,977

482,123

Provision for doubtful debts

Net consumer receivables

2018

(6,434)

(14,440)

(6,886)

(27,760)

446,832

7,440

454,363

Consumer receivables – face value2

230,660

13,608

4,520

248,788

Provision for doubtful debts3

Net consumer receivables

(1,531)

(9,189)

(4,193)

(14,913)

229,129

4,419

327

233,875

1 The simplified provision approach prescribed in AASB 9 is used for Trade receivables – Pay Now, therefore these receivables and provision for
doubtful debts are excluded from the ECL staging table for both 2019 and 2018. The 2018 Provision for doubtful debts included $0.2 million
related to Pay Now (2019:$0).

2. ECL for Afterpay Consumer receivable is calculated on the Consumer receivables – face value.
3 Due to the initial application of AASB 9, opening balances have been adjusted; however, comparative information has not been restated. Refer

to Note 24 for further information.

As the Group’s Consumer receivables are short term in nature, the staging transfer disclosures
have not been provided. Prior period Consumer receivables balances are either fully written off or
collected during the current financial year.

Significant accounting judgements, estimates and assumptions

Judgement is applied in measuring ECL and whether the risk of default has increased
significantly since initial recognition of the Consumer receivable. The Group considers both
quantitative and qualitative information, including historical loss experience, internal expert
risk assessment and data examination and forward-looking information and analysis.
Historical balances as well as the proportion of those balances that have defaulted over time
are used as a basis to determine the probability of default. The Group also considers forward
looking adjustments, including macro-economic seasonality trends that are not captured
within the base ECL calculations. The inclusion of forward-looking information increases the
degree of judgement required to assess effects on the Group’s ECLs. The assumptions and
methodologies applied are reviewed regularly.

Write off

The Group’s policy under AASB 9 remains the same as it was under AASB 139. Receivables
are written off when the Group has no reasonable expectation of recovery. Any subsequent
recoveries following write off are credited to Receivables impairment expenses within the
Consolidated statement of comprehensive income in the period in which they were recovered.

7. OTHER FINANCIAL ASSETS

Total Current – Other financial assets

Total Non-Current – Other financial assets

Total other financial assets

2019

$’000

3,003

3,035

6,038

2018

$’000

23,935

2,165

26,100

Other financial assets include restricted cash held in trust of $2.0 million (2018: $23.7 million)
under the Group’s Australian receivables warehouse facility and term deposits of $4.0 million
(2018: $2.4 million). Refer to Note 12(a)(i) for further information on the Group’s Australian
receivables warehouse facility.

The Non-Current other financial assets are term deposits with AA-/BBB+ banks and bank
guarantee collateral (Note 21), which is part of the Group’s normal business operations.

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

8. PROPERTY, PLANT & EQUIPMENT (continued)

8. PROPERTY, PLANT & EQUIPMENT

The net book value of property, plant and equipment of $4.2 million (2018: $4.0 million) primarily
includes computer equipment, furniture fittings and leasehold improvements. During the period,
the Group purchased property, plant and equipment of $2.4 million (2018: $1.3 million), disposed
$0.2 million (2018: $0) and recognised depreciation of $2.0 million (2018: $1.8 million).

Significant accounting policies

Recognition and measurement

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

Useful life of assets

Depreciation is calculated on the straight-line basis over the estimated useful life of the
specific assets of 3–5 years.

9. INTANGIBLE ASSETS

CORE TECHNOLOGY

CUSTOMER
CONTRACTS

OTHER
INTANGIBLES

GOODWILL

$’000

42,310

11,493

53,803

21,538

(6,473)

68,868

15,352

(1,248)

14,104

TOTAL

$’000

81,363

11,507

92,870

23,575

126

140

689

22,227

3,985

16,232

20,217

(7,721)

4,814

39,807

127,593

Cost

At 1 July 2017

Additions

30 June 2018

Additions

Acquisition of a
subsidiary

Disposal

At 30 June 2019

Amortisation

At 1 July 2017

Amortisation

At 30 June 2018

Amortisation

Disposal

(4,854)

(10,619)

(15,473)

(4,882)

(20)

(13,369)

(4,605)

(2,419)

1,692

555

(4,854)

(15,521)

(20,375)

(20,393)

2,247

(38,521)

At 30 June 2019

(27,150)

(8,932)

(2,439)

Net book value

At 30 June 2019

At 30 June 2018

41,718

38,330

5,172

10,470

2,375

120

39,807

23,575

89,072

72,495

Significant accounting policies

(a) Recognition and measurement

(i) Intangible assets

Intangible assets, including Core technology, Customer contracts and Other intangibles are
measured at cost on initial recognition. Intangible assets acquired as a result of a business

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

9. INTANGIBLE ASSETS (continued)

combination are measured at fair value as at the date of acquisition. Following initial recognition,
intangible assets are carried at cost less any accumulated amortisation and accumulated
impairment losses. Internally generated intangibles, excluding capitalised development costs,
are not capitalised and the related expenditure is reflected in the Consolidated statement of
comprehensive income in the period in which the expenditure is incurred.

The useful lives of intangible assets are assessed to be either finite or indefinite.

Core technology

Core technology includes internally generated software being developed as research and
development projects.

Research costs are expensed as incurred.

Development expenditures on an individual project are recognised as an intangible asset
when the Group can demonstrate:

• the technical feasibility of completing the intangible asset so that the asset will be available

for use or sale;

• its intention to complete and its ability to use or sell the asset;

• how the asset will generate future economic benefits;

• the ability to reliably measure the expenditure during development; and

• the ability to use the intangible asset generated.

Following initial recognition of the development expenditure as an asset, the asset is carried
at cost less any accumulated amortisation and accumulated impairment losses. Amortisation
of the asset begins when development is complete, and the asset is available for use. It is
amortised over the period of expected future benefit.

(ii) Goodwill

On acquisition, goodwill is initially measured at the excess of the purchase consideration of
the acquired business over the fair value of the identifiable net assets.

Goodwill is allocated to each of the cash generating units expected to benefit from the
business combination. Goodwill is not amortised, but is measured at cost less any
accumulated impairment losses. Goodwill is tested for impairment annually.

(b) Useful life of intangible assets, other than goodwill

A summary of the policies applied to the Group’s intangible assets is as follows:

CORE TECHNOLOGY

CUSTOMER CONTRACTS

OTHER INTANGIBLES

USEFUL LIVES

Finite

AMORTISATION METHOD USED 3–5 years – Straight-line

3–5 years – Straight-line

2–7 years – Straight-line

INTERNALLY GENERATED/
ACQUIRED

Internally generated and
acquired

Acquired

IMPAIRMENT TESTING

Amortisation method is reviewed at every reporting period. Reviewed annually
for indicators of impairment.

The Group initially considers the relationship between its market capitalisation and its book
value, among other factors specific to each cash generating unit (CGU), when reviewing for
indicators of impairment.

At 30 June 2019, the market capitalisation of the Group was significantly greater than the
Group’s equity book value, indicating no potential impairment of goodwill or impairment of the
assets of the CGUs. In addition, the Group performed a detailed impairment review of goodwill
and concluded that there was no impairment for the financial year ended 30 June 2019.

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)9. INTANGIBLE ASSETS (continued)

For the purpose of the annual impairment test, goodwill is allocated to CGUs. The carrying
amount of each CGU is compared to its recoverable amount. In assessing for impairment, the
Group’s assets are grouped at the lowest level of separately identifiable cash inflows, which
are largely independent of the cash flows from other assets or CGUs. Assets apart from
goodwill that have previously recognised impairment in the past are reviewed for possible
reversal at the end of each reporting period.

The Group has allocated goodwill from the acquisition of Clearpay to the Clearpay CGU
which is included within Afterpay Other segment. Afterpay Other is the operating segment
that is expected to benefit from the acquisition. The remaining goodwill has been allocated
consistently with 30 June 2018.

A summary of the goodwill allocation and impairment testing assumptions are presented below:

Goodwill allocation

Risk-weighted pre-tax discount rate

Risk adjusted growth rate beyond 5 years

Afterpay AU and Pay Now

AFTERPAY AU AFTERPAY OTHER

PAY NOW

$’000

21,220

16,232

17.6%

2.0%

N/A

2,355

12.6%

2.0%

TOTAL

$’000

39,807

N/A

The recoverable amounts have been determined based on a value-in-use calculation using
five-year post-tax cash flow projections. The post-tax cashflow projections are based on the
Group’s expectations of growth, excluding the impact of possible future acquisitions, business
improvement and restructuring.

Afterpay Other

The goodwill within Afterpay Other only relates to the Clearpay CGU. The recoverable amount
of Clearpay has been determined based on a fair value less costs of disposal calculation using
a number of inputs including cash flow projections based on two years of financial forecasts
approved by senior management. The valuation is measured using inputs that are not based
on observable market data. Therefore, they are considered to be level 3 within the fair value
hierarchy as per AASB 13 Fair Value Measurement. Cash flows are projected over a two-year
period to reflect the current economic conditions and the growth profile of the business, which
commenced trading in May 2019. Cash flows beyond the two-year period are extrapolated
using a revenue multiple.

The Group has performed a detailed sensitivity analysis as part of its impairment testing to
ensure that the results of its testing are reasonable. The discount rate would need to increase
by approximately 200 basis points, or the terminal value growth rate would need to decrease
by approximately 300 basis points, before the recoverable amount of any of the CGUs would
equal its carrying value.

As the Group continues to acquire operations and reorganise the way operations are
managed, reporting structures may change giving rise to a reassessment of CGUs and/or the
allocation of goodwill to those CGUs.

Significant accounting judgements, estimates and assumptions

The asset impairment assessment requires management judgement with respect to an
estimate of the recoverable amount of the CGU using a discounted cash flow methodology.
This calculation uses cash flow projections based on operating budgets and strategic
business plans, after which a terminal value is applied, based on management’s view of the
expected long-term growth profile of the business. The determination of cash flows over the
life of an asset requires management judgement in assessing the future number of merchant
acquisitions, customer usage, potential price changes as well as any changes to the costs of
the product and of other operating costs incurred by the Group. The implied pre-tax discount
rate is calculated with reference to long-term government bond rates, external analyst views
and the Group’s pre-tax cost of debt.

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
10. TAXATION (continued)

10. TAXATION

(a) Income tax expense

2019

$’000

2018

$’000

The major components of income tax expense:

Current income tax charge

(15,263)

(8,974)

Adjustments in respect of current income tax of previous years

Deferred income tax

Relating to origination/reversal of temporary differences

Adjustment in relation to deferred income tax of previous years

14,082

113

7,493

Income tax expense as reported in the income statement

(1,013)

(1,390)

(b) Statement of changes in equity

Deferred income tax related to items credited directly to equity, opening
retained earnings

Deferred income tax related to items credited directly to equity, capital
raising costs

Total deferred income tax related to items credited directly to equity

2019

$’000

(2,362)

(4,293)

(6,655)

2018

$’000

(84)

statement and tax expense calculated per the statutory income tax rate

A reconciliation between tax expense and the product of accounting loss before income tax
multiplied by the Group’s applicable income tax rate is as follows:

Accounting loss before tax

At the Group's statutory rate of 30% (2018: 30%)

Expenditure not allowed for income tax purposes

Foreign tax rate differential

Amount under provided in prior years

Tax losses not recognised

Utilisation of tax losses not previously recognised

2019

$’000

(42,786)

12,836

(12,150)

(1,911)

168

2018

$’000

(7,586)

2,276

(3,558)

(59)

(140)

Income tax expense

(1,013)

(1,390)

(d) Deferred income tax

Deferred income tax at 30 June relates to the following:

Deferred tax liabilities

Capitalisation of development expenditure

Prepayments

Customer contracts

Unrealised foreign exchange

Property, plant & equipment

Deferred receivables

2019

$’000

2018

$’000

262

1,805

758

159

1,449

3,612

413

3,144

447

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

10. TAXATION (continued)

Other

Gross deferred tax liabilities

Set-off of deferred tax assets

Net deferred tax liabilities

Deferred tax assets

Employee benefits

Other provisions

Capital raising costs

R&D offsets

Provision for doubtful debts

Deferred receivables

Losses

Other

Gross deferred tax assets

Set-off of deferred tax liabilities

Net deferred tax assets

796

5,276

195

7,811

(5,276)

(7,811)

3,754

1,429

3,790

8,328

2,305

11,774

1,176

3,307

1,085

410

4,530

6,818

922

32,556

17,072

(5,276)

27,280

(7,811)

9,261

Significant accounting judgements, estimates and assumptions

Taxation interpretation, regulation and timing recognition

Uncertainties exist with respect to the interpretation of complex tax regulations, changes in
tax laws, and the amount and timing of future taxable income. Differences between the actual
results and the tax positions in the financial report could necessitate future adjustments to
current and deferred tax already recorded.

Significant accounting policies

Income tax

Income tax expense comprises current and deferred tax. Income tax expense is recognised
in the Consolidated statement of comprehensive income except for those items recognised
directly in equity.

Current tax in respect of the taxable income for the year is measured at the amount expected
to be recovered from, or paid to, the taxation authorities. The tax rates and tax laws used to
compute the amount are those that are enacted or substantively enacted by the reporting date.

Deferred tax is recognised using the balance sheet method in which temporary differences
are calculated based on the difference between the tax bases of assets and liabilities and their
carrying amounts for financial reporting purposes.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in
the year when the asset is realised, or the liability is settled, based on tax rates (and tax laws)
that have been enacted or substantively enacted at the reporting date. Deferred tax assets are
recognised for deductible temporary differences and unused tax credits and tax losses only
to the extent that it is probable that future taxable profit will be available against which the
assets can be utilised.

Unrecognised deferred tax assets are reassessed at each reporting date and are recognised
to the extent that it has become probable that future taxable profit will allow the deferred tax
asset to be recovered.

Deferred tax assets and deferred tax liabilities are offset only if a legally enforceable right
exists to set off current tax assets against current tax liabilities and the deferred tax assets
and liabilities relate to the same taxable entity and the same taxation authority.

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

10. TAXATION (continued)

Tax consolidation legislation

Afterpay Touch Group Limited and its wholly-owned Australian controlled subsidiaries formed
a tax consolidated group effective from 15 August 2017. Afterpay Touch Group Limited and
the members of the tax consolidated group recognise their own current tax and deferred
tax assets and liabilities arising from temporary differences using the ‘standalone taxpayer
approach’ by reference to the carrying amounts of assets and liabilities in the separate
financial statements of each entity and the tax values applying under tax consolidation. In
addition to its current and deferred tax balances, Afterpay Touch Group Limited has assumed
the current tax liabilities and any deferred tax assets arising from unused tax credits or losses
of the members in the tax consolidated group.

Nature of tax funding arrangements and tax sharing arrangements

Entities in the tax consolidated group entered into a tax funding agreement with the head
entity. The arrangements require payments to/(from) the head entity equal to the current
tax liability/(asset) assumed by the head entity and any deferred taxes relating to unused
tax losses or unused tax credits transferred to the head entity, resulting in the head entity
recognising an inter-entity receivable/(payable) equal in amount to the tax liability/(asset)
assumed.

The inter-entity receivables/(payables) are at call. Contributions to fund the current tax
liabilities are payable as per the tax funding agreement. The head entity, in conjunction with
other members of the tax consolidated group, has entered into a tax sharing agreement.
The tax sharing agreement provides for the determination of the allocation of income tax
liabilities between the entities should the head entity default on its tax payment obligations.
No amounts have been recognised in the financial statements in respect of this agreement as
payment of any amounts under the tax sharing agreement is considered remote.

Other taxes

Revenues, expenses and assets are recognised net of the amount of goods and services tax
(GST) except:

• when the GST incurred on a purchase of goods and services is not recoverable from the

taxation authority, in which case the GST is recognised as part of the cost of acquisition of
the asset or as part of the expense item as applicable; and

• receivables and payables are stated with the amount of GST included.

The net amount of GST recoverable from, or payable to, the taxation authority is included as
part of receivables or payables in the Consolidated statement of financial position.

Cash flows are included in the Consolidated statement of cash flows on a gross basis and
the GST component of cash flows arising from investing and financing activities, which is
recoverable from, or payable to, the taxation authority, is classified as operating cash flows.
Commitments and contingencies are disclosed net of the amount of GST recoverable from,
or payable to, the taxation authority.

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)11. EQUITY (continued)

CAPITAL STRUCTURE, FINANCING & RISK
MANAGEMENT

11. EQUITY

Issued and fully paid

Movement in ordinary shares on issue

At 1 July 2017

Share issued

Share options exercised

Capital raising costs (net of tax)

At 30 June 2018

Shares issued

Share options exercised

Acquisition of a subsidiary

Capital raising costs (net of tax)

At 30 June 2019

2019

$’000

2018

$’000

674,769

192,628

No.’000

$’000

212,409

171,411

2,880

915

18,700

2,720

(203)

216,204

192,628

22,131

12,157

1,000

459,269

15,096

17,826

(10,050)

251,492

674,769

For the financial year ended 30 June 2019, Afterpay Touch Group Limited raised capital totalling
$459.3 million. This comprised:

• $117.0 million Institutional Placement and $25.0 million Share Purchase Plan (‘SPP’),

completed by September 2018; and

• $317.3 million Institutional Placement completed in June 2019.

Significant accounting policies – contributed equity

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of
new shares or options are shown in equity as a deduction, net of tax, from the proceeds raised
via the issue of new shares.

Shares to be held by the Afterpay Touch Group Employee Share Plan Trust from 8 April
2019 will be disclosed as treasury shares and deducted from contributed equity. The trust is
Consolidated in accordance with the principles in Note 16. As of 30 June 2019, there are no
treasury shares that are held by the Trust for the purpose of issuing shares under the Group’s
incentive plans.

Information relating to employee options, including details of options issued, exercised and
lapsed during the financial year and options outstanding at the end of the reporting period,
is disclosed in Note 19.

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

12. INTEREST BEARING BORROWINGS (continued)

12. INTEREST BEARING BORROWINGS

Secured interest bearing borrowings

Senior unsecured notes

Convertible notes

Finance lease liabilities

Total interest bearing borrowings

Total Current

Total Non-Current

Total interest bearing borrowings

2019

$’000

2018

$’000

111,593

49,737

49,491

144

342

128

393

50,223

161,605

597

49,626

50,223

161,555

161,605

a) Secured interest bearing borrowings comprise:

(i) The Group’s Australian receivables warehouse funding facility totalling $500.0 million
(2018: $350.0 million) provided by National Australia Bank (NAB) ($300.0 million) and
Citi ($200.0 million). As at 30 June 2019, the facility is undrawn. The facility is secured
against Afterpay AU receivables, which are transferred into the facility. As at 30 June
2019, the carrying value of Afterpay AU Consumer receivables is $339.7 million. The
facility matures in November 2020 (NAB) and August 2020 (Citi). For the financial year
ended 30 June 2019, drawings under this facility incurred a weighted average interest
rate of 3.6% p.a. (2018: 3.8%).

(ii) On 2 May 2019, Afterpay US signed a US$300.0 million receivables warehouse funding
facility with Citi. As at 30 June 2019, the facility is undrawn. The facility is secured
against Afterpay US receivables, which are transferred into the facility. As at 30 June
2019, the carrying value of Afterpay US Consumer receivables is $84.0 million. The
facility matures in May 2021.

(iii) The Group also holds a NZ$20.0 million facility with ASB to assist with funding the

Group’s New Zealand operations. As at 30 June 2019, the facility is undrawn.

b) Senior unsecured notes with a carrying value of $50.0 million were issued to institutional and
professional investors on 27 April 2018 for a fixed rate of 7.25% over a four-year maturity
with interest payable semi-annually.

c) Convertible notes with a carrying value of US$0.1 million were issued to Matrix Partners on
19 January 2018. The notes carry a fixed interest rate of 6.0% for a 7-year maximum term.
The notes have a conversion period of 5 to 7 years from the date of issue with conversion
at the noteholder’s election. See Note 4 for further details, including the conversion
mechanism.

Significant accounting policies

Interest bearing borrowings

All borrowings are initially recognised at cost, being the fair value of the consideration received
net of issue costs associated with the borrowings. After initial recognition, interest bearing
borrowings are subsequently measured at amortised cost using the effective interest method.
Amortised cost is calculated by taking into account any borrowing costs and any discount or
premium on settlement.

Borrowings are classified as non-current liabilities when the Group has an unconditional right
to defer settlement for at least 12 months from reporting date.

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
12. INTEREST BEARING BORROWINGS

12. INTEREST BEARING BORROWINGS (continued)

Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of a
qualifying asset are capitalised as part of the cost of that asset. All other borrowing costs are
expensed in the period they occur. Borrowing costs consist of interest and other costs that
are incurred in connection with the borrowing of funds.

Borrowings are removed from the Consolidated statement of financial position when the
obligation specified in the contract is discharged, cancelled or expired. The difference between
the carrying amount of a financial liability that has been extinguished or transferred to another
party and the consideration paid, including any non-cash assets transferred, or liabilities
assumed, is recognised in the Consolidated statement of comprehensive income as Other
income or Finance costs.

Derivative financial instruments and hedging

The Group does not use derivative financial instruments to hedge its risks associated with
interest rate fluctuations. This decision is within the scope of the existing company risk profile.

13. FINANCIAL LIABILITIES

Liability to US ESOP option participants

Put option on remaining Clearpay UK shares

Total financial liabilities

Total Current

Total Non-Current

Total financial liabilities

NOTE

2019

$’000

1,772

1,039

2,811

1,772

1,039

2,811

2018

$’000

Reconciliation of liabilities arising from financing activities

CASH
MOVEMENTS

NON-CASH MOVEMENTS

OPENING
BALANCE

CASH FLOWS

AMORTISATION

FOREIGN
EXCHANGE
MOVEMENT

OTHER

PUT OPTION

CLOSING
BALANCE

2019

$’000

Secured interest bearing borrowings

111,593

(111,593)

Senior unsecured notes

Convertible notes

Finance lease liabilities

49,491

128

393

(94)

Total interest bearing borrowings

161,605 (111,687)

Financial liabilities

2,164

294

(48)

49,737

144

342

50,223

(392)

1,039

2,811

Total borrowings & financial
liabilities

161,605 (109,523)

294

(389)

1,039

53,034

CASH
MOVEMENTS

NON-CASH MOVEMENTS

OPENING
BALANCE

CASH FLOWS AMORTISATION

FOREIGN
EXCHANGE
MOVEMENT

OTHER

NEW LEASE

CLOSING
BALANCE

2018

$’000

Secured interest bearing borrowings

46,748

64,664

Senior unsecured notes

Convertible notes

Finance lease liabilities

Total borrowings & financial
liabilities

48,846

128

(11)

46,748

113,627

$’000

181

645

$’000

404

111,593

49,491

128

393

826

404

161,605

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
14. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)

14. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The Group’s principal financial instruments comprise receivables, payables, cash and short-term
deposits, other financial assets, financial liabilities and interest-bearing borrowings.

The Group manages its exposure to key financial risks, including interest rate, foreign currency,
liquidity and credit risk in accordance with the Group’s financial risk management policy; the
objective of which is to support the delivery of the Group’s financial targets, while protecting
future financial security.

These mitigations include monitoring levels of exposure to interest rate and foreign exchange
risk and assessments of market forecasts for interest rate and foreign exchange, and by
depositing funds with several different banking institutions. Ageing analysis and monitoring
of specific credit allowances are undertaken to manage credit risk. Liquidity risk is monitored
through the development of future rolling cash flow forecasts.

INTEREST
RATE RISK

FOREIGN
CURRENCY RISK

LIQUIDITY RISK

CREDIT RISK

The Group’s exposure to market interest rates relate primarily to the Group’s cash &
cash equivalents, other financial assets and interest bearing borrowings. Refer Note
14(a).

Risk that fluctuations in foreign exchange rates may impact the Group’s results. The
Group’s Consolidated statement of financial position at 30 June 2019 can be affected
by movements in the US Dollar, New Zealand Dollar, and Great British Pound. Refer Note
14(b).

The Group’s objective is to maintain a balance between continuity of funding and
flexibility through the use of credit facilities. The Group mitigates funding and liquidity
risks by ensuring it has (1) sufficient funds on hand to meet its working capital and
investment objectives; (2) is focused on improving operational cash flow and (3) has
adequate flexibility in financing facilities to balance the growth objectives with
short-term and long-term liquidity requirements. Refer Note 14(c).

Credit risk arises from the financial assets of the Group. The Group’s exposure to credit
risk arises from potential default of the end-consumer receivable, with a maximum
exposure equal to the carrying amount of these instruments.

The Group utilises its proprietary fraud engine and risk decisioning rules to mitigate
credit risk for its Afterpay Consumer Receivables. The Group regularly reviews the
adequacy of the provision for doubtful debts to ensure that it is sufficient to mitigate
credit risk exposure in terms of financial reporting. The provision for doubtful debts
represents management’s best estimate at reporting date of the expected credit losses
based on their experienced judgement. Further details have been provided in Note 6.

Credit risk also arises from cash held with bank and financial institutions, and from the
investment of financial assets when they are available with designated counterparties.

(a) Interest rate risk

At balance date, the Group had the following mix of financial assets and liabilities exposed to
variable interest rate risk:

Financial Assets

Cash & cash equivalents

Other financial assets

Total financial assets

Financial Liabilities

Interest bearing borrowings

Total financial liabilities

Net exposure

2019

$’000

2018

$’000

231,456

6,038

32,559

26,100

237,494

58,659

111,593

237,494

(52,934)

The Convertible Notes and Senior unsecured notes are on a fixed interest rate basis. The
Group’s Australian receivables warehouse funding facility was fully repaid prior to 30 June 2019.
Consequently, they are not exposed to interest rate risks.

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
14. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)

The financial liabilities as disclosed in Note 13 comprise the put option held by ThinkSmart and
early exercised unvested options by US ESOP participants (Note 19), which are not exposed to
interest rate risks.

There are no other financial liabilities subject to interest rate risk as at 30 June 2019. The Group
has not hedged any interest rate risk during the year or at 30 June 2019.

The following sensitivity analysis is based on the interest rate risk exposures in existence at the
reporting date.

At 30 June 2019, if interest rates had moved, as illustrated in the table below, with all other
variables held constant, post tax profit and equity would have been affected as follows:

JUDGEMENTS OF REASONABLY POSSIBLE MOVEMENTS:

-0.25% (25 basis points)

+1.00% (100 basis points)

(b) Foreign currency risk

POST TAX PROFIT

EQUITY

HIGHER/(LOWER)

2019

$’000

(416)

2018

$’000

2019

$’000

(416)

2018

$’000

1,662

(371)

1,662

(371)

The Group has not hedged any foreign currency risk during the financial year or at 30 June 2019.

At 30 June 2019, the Group has the following exposure to foreign currency that is not designated
in cash flow hedges:

Financial Assets

Cash & cash equivalents

NZD

USD

GBP

Other

Receivables & other financial assets

NZD

USD

GBP

Other

Financial Liabilities

Trade & other payables

NZD

USD

GBP

Other

Financial liabilities

USD

GBP

Net exposure

2019

$’000

2018

$’000

4,173

31,379

4,512

17,846

84,597

3,296

670

20,900

5,422

6,775

589

145,805

34,362

2,950

37,559

3,683

1,916

1,039

47,147

98,658

761

2,958

329

4,048

30,314

The following sensitivity analysis is based on the foreign currency risk exposures in existence
at the reporting date.

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
14. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)

At 30 June 2019, if exchange rates had moved, as illustrated in the table below, with all other
variables held constant, post tax profit and equity would have been affected as follows:

JUDGEMENTS OF REASONABLY
POSSIBLE MOVEMENTS:

AUD/NZD +10%

AUD/NZD -5%

AUD/USD +10%

AUD/USD -5%

AUD/GBP+10%

AUD/GBP -5%

AUD/Other +10%

AUD/Other -5%

POST TAX PROFIT

(HIGHER)/LOWER

EQUITY

HIGHER/(LOWER)

2019

$’000

(1,213)

703

2018

$’000

(339)

196

2019

$’000

1,213

(703)

(4,868)

(1,573)

4,868

2,818

911

(2,818)

(196)

114

(16)

196

(114)

2018

$’000

339

(196)

1,573

(911)

(10)

The Group’s Australian receivables warehouse funding facility was fully repaid prior to 30 June
2019.

Maturity analysis of financial assets and liabilities is based on management’s expectation of
settlement

The table below reflects all contractually fixed payments and receivables for settlement,
repayments and interest resulting from recognised financial assets and liabilities.

YEAR ENDED 30 JUNE 2019

$’000

< 1 YEAR

1–2 YEARS

2–3 YEARS

> 3 YEARS

TOTAL

$’000

Financial Assets

Cash & cash equivalents

Receivables

Other financial assets

Total financial assets

Financial Liabilities

Trade & other payables

Senior unsecured notes

Convertible notes

Financial liabilities

231,456

452,699

3,003

687,158

109,981

3,035

3,625

53,625

231,456

452,699

6,038

690,193

109,981

60,875

1,772

199

1,039

2,811

Financial lease liabilities

258

446

Total financial liabilities

115,472

3,719

53,883

1,238

174,312

Net maturity

571,686

(3,719)

(50,848)

(1,238)

515,881

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)14. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)

YEAR ENDED 30 JUNE 2018

Financial Assets

Cash & cash equivalents

Receivables

Other financial assets

Total financial assets

Financial Liabilities

Trade & other payables

< 1 YEAR

1-2 YEARS

2-3 YEARS

> 3 YEARS

$’000

TOTAL

$’000

32,559

239,068

23,935

295,562

42,916

2,165

32,559

239,068

26,100

297,727

42,916

116,479

Interest bearing borrowings

4,240

112,239

Senior unsecured notes

Convertible notes

Financial lease liabilities

Total financial liabilities

3,625

53,625

64,500

192

258

192

540

50,875

115,958

3,719

54,075

224,627

Net maturity

244,687 (115,958)

(1,554)

(54,075)

73,100

The carrying value of financial assets and liabilities approximates their fair value.

Capital management

The Group reviews its capital management position on a regular basis to ensure that it maintains
adequate funding for near-term and medium-term obligations.

In particular, the Group periodically reviews its capital management strategy to ensure that
funding initiatives are in place to support medium-term growth objectives and, as detailed in
Note 11, the Group raised $459.3 million in the year ending 30 June 2019 for the purpose of
funding medium-term underlying sales and other working capital.

As detailed in Note 12, the Group has Senior unsecured notes and receivable warehouse funding
facilities. The Senior unsecured notes contain an interest cover covenant and the receivables
warehouse funding facilities contain portfolio parameters. The Group satisfied the interest cover
covenant and portfolio parameters during the financial year ended and at 30 June 2019.

The Group’s cash and net debt position as at the end of the reporting period is as follows:

Cash & cash equivalents

Restricted cash

Interest bearing borrowings

Net cash/(net debt)

Fair value measurement

2019

$’000

231,456

2,030

50,223

2018

$’000

32,559

23,741

161,605

183,263

(105,305)

All assets and liabilities for which fair value is measured or disclosed in the financial statements
are categorised within the fair value hierarchy, described as follows, based on the lowest level
input that is significant to the fair value measurement as a whole:

• Level 1 — Quoted (unadjusted) market prices in active markets for identical assets or liabilities;

• Level 2 — Valuation techniques for which the lowest level input that is significant to the fair

value measurement is directly or indirectly observable; and

• Level 3 — Valuation techniques for which the lowest level input that is significant to the fair

value measurement is unobservable.

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
14. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)

The following table summarises the levels of the fair value hierarchy for financial liabilities held at
fair value:

YEAR ENDED 30 JUNE 2019

Financial liabilities

Total financial liabilities

YEAR ENDED 30 JUNE 2018

Financial liabilities

Total financial liabilities

LEVEL 1

$’000

LEVEL 2

$’000

LEVEL 1

$’000

LEVEL 2

$’000

LEVEL 3

$’000

1,039

LEVEL 3

$’000

TOTAL

$’000

1,039

TOTAL

$’000

100

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)15. BUSINESS COMBINATIONS (continued)

GROUP STRUCTURE

15. BUSINESS COMBINATIONS

On 23 August 2018, the Group acquired 90% of the issued shares in ClearPay Finance Limited
(Clearpay) (an unlisted entity based in the United Kingdom, 100% owned by ThinkSmart Limited)
(ThinkSmart) for total consideration of 1.0 million Afterpay Touch Group (APT) shares.

The Group has a call option to acquire the remaining 10% of Clearpay, which is exercisable
any time after 5 years from the completion date being 23 August 2018. If the Group does not
exercise its call option within that period, then ThinkSmart has a put option to sell the remaining
10% of issued shares it holds in Clearpay (excluding 3.5% of issued shares that are to be
allocated to an equity incentive plan to UK employees) to the Group, exercisable any time after
5.5 years from completion date. In each case the sale price will be based on agreed valuation
principles. Consideration for the remaining 10% of issued shares in Clearpay can be paid by the
Group in cash or APT shares. A discounted cash flow model has been used to obtain the fair
value of the put option held by ThinkSmart with $1.0 million recognised as a financial liability of
the Group as at 30 June 2019. The measurement basis of the put option is fair value through
profit and loss and is classified as a level 3 financial liability in accordance with AASB 13 Fair
Value Measurement.

The acquisition of Clearpay meets the recognition criteria for consolidation, with the transaction
treated as though the Group has effectively acquired 100% of Clearpay at the completion date.
The financial statements for the financial year ended 30 June 2019 therefore includes 100% of
the results of Clearpay for the ten-month period from the completion date (23 August 2018).

Clearpay contributed income of $0.14 million and incurred $8.1 million of losses to the Group
for the period from 23 August 2018 to 30 June 2019 (the majority being the one-off costs to
launch the business). If the acquisition had taken place on 1 July 2018, total income would have
been approximately $0.2 million and the loss for the period would have been approximately
$8.6 million.

The Group has acquired Clearpay to accelerate and de-risk the Group’s launch of the Afterpay
product into the UK market and is consistent with its NZ and US expansion strategies to partner
with local market participants. Goodwill is the difference between the fair value of the net
assets of ClearPay Finance Limited and the deemed purchase consideration. The goodwill has
been adjusted from the provisional allocation at 31 December 2018 to reflect finalised taxation
amounts. Details of the purchase consideration and the fair values of the identifiable assets and
liabilities of Clearpay as at the date of acquisition were as follows:

Assets

Current assets

Intangible assets

Total assets

Liabilities

Trade and other payables

Deferred tax liabilities

Total identifiable net assets at fair value

Less: non-controlling interest

Add: Goodwill arising on acquisition

Purchase consideration transferred

FAIR VALUE
RECOGNISED ON
ACQUISITION

$’000

355

3,985

4,340

713

3,575

(1,981)

16,232

17,826

101

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

15. BUSINESS COMBINATIONS (continued)

Acquisition-related costs of approximately $0.9 million are included in the operating expenses in
the Consolidated statement of comprehensive income.

The Group recognises a non-controlling interest in an acquired entity either at fair value or at
the non-controlling interest’s proportionate share of the acquired entity’s net identifiable assets.
This decision is made on an acquisition-by-acquisition basis. For the non-controlling interests in
Clearpay retained by ThinkSmart, the Group elected to recognise the non-controlling interests at
its proportionate fair value.

Significant accounting policies

Business combinations are accounted for using the acquisition method. The cost of an
acquisition is measured as the aggregate of the consideration transferred, which is measured
at acquisition date fair value, and the amount of any non-controlling interests in the acquiree.
For each business combination, the Group elects whether to measure the non-controlling
interests in the acquiree at fair value or at the proportionate share of the acquiree’s identifiable
net assets. Acquisition-related costs are expensed as incurred and included in administrative
expenses.

When the Group acquires a business, it assesses the financial assets and liabilities assumed
for appropriate classification and designation in accordance with the contractual terms,
economic circumstances and pertinent conditions as at the acquisition date.

Goodwill is initially measured at cost (being the excess of the aggregate of the consideration
transferred and the amount recognised for non-controlling interests and any previous interest
held over the net identifiable assets acquired and liabilities assumed).

If the fair value of the net assets acquired is in excess of the aggregate consideration
transferred, the Group re-assesses whether it has correctly identified all of the assets acquired
and all of the liabilities assumed and reviews the procedures used to measure the amounts
to be recognised at the acquisition date. If the reassessment still results in an excess of the
fair value of the net assets acquired over the aggregate consideration transferred, the gain is
recognised in the Consolidated statement of comprehensive income.

102

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)16. RELATED PARTY DISCLOSURE (continued)

16. RELATED PARTY DISCLOSURE

Ultimate controlling entity

The ultimate controlling entity is Afterpay Touch Group Limited, otherwise described as the
parent company.

Subsidiaries

The Consolidated Financial Statements include the financial statements of Afterpay Touch Group
Limited and its subsidiaries. These are listed in the following table:

NAME

Afterpay Pty Ltd 1

Afterpay Holdings Pty Ltd 1

Afterpay Warehouse Trust

Afterpay Touch Group Employee Share Plan Trust 2

Afterpay Touch Group No.2 Pty Ltd 1

Afterpay US, Inc. 3

Afterpay Receivables Warehouse-C LLC 2

Afterpay US Services, LLC 2

Afterpay NZ Limited

ClearPay Finance Limited 2

ClearPay Finance HCB Limited 2

Touchcorp Limited 1

Touch Holdings Pty Ltd 1

Touch Networks Australia Pty Ltd 1

Touch Australia Pty Ltd 1

Touch Networks Pty Ltd 1

Touchcorp Singapore Pte Ltd

Touch Networks Payments (Malaysia) Sdn Bhd

COUNTRY OF INCORPORATION

% EQUITY INTEREST 2019

Australia

United States

New Zealand

United Kingdom

Bermuda

Australia

Singapore

Malaysia

100%

99%

100%

90%

100%

1. Refer to Note 18 for further information on the parties subject to a deed of cross guarantee.
2. These are the companies that were acquired or created during the period.
3. The Group’s equity interest in Afterpay US, Inc is 98.52% due to vested and exercised options under the US ESOP. Refer to Note 19 for further

information.

17. INFORMATION RELATING TO AFTERPAY TOUCH GROUP LIMITED

(THE PARENT)

Current Assets

Non-Current Assets

Total Assets

Current Liabilities

Non-Current Liabilities

Total Liabilities

Net Assets

Issued capital

Reserves

Accumulated losses

Total Equity

Loss of the Parent entity

Total comprehensive loss of the Parent entity

2019

$’000

12,085

2018

$’000

6,314

720,087

237,886

732,172

244,200

12,008

49,140

6,011

49,492

61,148

55,503

671,024

188,697

641,949

181,927

45,193

11,198

(16,118)

(4,428)

671,024

188,697

(14,943)

(4,044)

103

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
18. DEED OF CROSS GUARANTEE (continued)

18. DEED OF CROSS GUARANTEE

The subsidiaries identified in Note 16 ‘Related Party Disclosure’ are parties to a deed of cross
guarantee under which each guarantees the debts of the others. By entering into the Deed, the
wholly-owned entities have been relieved of the requirement to prepare a financial report and
Directors’ Report under ASIC Corporations (Wholly-owned Companies) Instruments 2016/785.

These subsidiaries and Afterpay Touch Group Limited together referred to as the ‘Closed Group’,
originally entered into the Deed on 29 November 2017. The effect of the Deed is that each party
to it has guaranteed to pay any deficiency in the event of the winding up of any of the entities in
the Closed Group. The Consolidated statement of financial position of the subsidiaries that are
members of the Closed Group is as follows:

ASSETS

Current Assets

Cash & cash equivalents

Receivables

Other financial assets

Other current assets

Total Current Assets

Non-Current Assets

Property, plant & equipment

Intangible assets

Deferred tax asset

Other financial assets

Other non-current assets

Related party receivables

Total Non-Current Assets

TOTAL ASSETS

LIABILITIES

Current Liabilities

Trade & other payables

Employee benefit provision

Contract liabilities

Interest bearing borrowings

Income tax payable

Total Current Liabilities

Non-Current Liabilities

Employee benefit provision

Related party borrowings

Office lease provision

Interesting bearing borrowings

Total Non-Current Liabilities

TOTAL LIABILITIES

NET ASSETS

EQUITY

Contributed equity

Accumulated losses

Reserves

TOTAL EQUITY

2019

$’000

2018

$’000

171,842

25,140

347,660

227,093

857

5,106

2,306

8,604

525,465

263,143

3,627

44,076

15,446

2,450

580

177,510

243,689

769,154

3,902

30,766

13,795

875

49,338

312,481

70,447

2,511

100

597

39,546

1,785

252

5,122

1,481

78,777

43,114

317

157

64,118

565

49,480

365

49,833

50,362

114,473

129,139

157,587

640,015

154,894

630,580

166,264

(29,759)

(25,862)

39,194

14,492

640,015

154,894

104

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
18. DEED OF CROSS GUARANTEE (continued)

Consolidated statement of comprehensive loss

Profit before income tax

Income tax expense

Loss after income tax

2019

$’000

2018

$’000

1,855

2,708

(11,969)

(10,114)

(4,332)

(1,624)

105

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
19. SHARE-BASED PAYMENT PLANS (continued)

EMPLOYEE REMUNERATION

19. SHARE-BASED PAYMENT PLANS

Employees (including senior executives) of the Group may receive remuneration in the form
of share-based payments whereby employees render services as consideration for equity
instruments (equity-settled transactions). The Group currently has share-based payment plans in
Australia (Afterpay Touch Group Limited Employee Incentive Plan or APT ESOP), the US (Afterpay
US, Inc. 2018 Equity Incentive Plan or US ESOP) and is in the process of establishing a plan in
the UK (ClearPay Finance Limited 2019 Share Option Plan or UK ESOP). These plans align the
interests of employees with the objectives of the Group and incentivise Executive Directors,
senior executives and staff to drive long term sustainable performance in the interests of our
shareholders. Under the ESOP plans, awards are made to employees, contractors and others
who have the ability to drive the Group’s performance. ESOP awards are generally delivered in
the form of options over shares which vest over a number of years subject to meeting certain
performance measures. Options which are granted under the ESOP plans carry no dividend or
voting rights.

APT ESOP

The APT ESOP includes option awards over APT ordinary shares which typically vest over a
two to five-year service period and are conditional on the achievement of agreed KPIs in certain
circumstances. Historically, the Group has also issued performance rights to certain senior
executives and staff as part of the APT ESOP which vest over a one to two-year period and loan
shares (non-interest bearing, limited recourse loans from the Group for the sole purpose of
acquiring shares in APT) which also vest over a one to two-year service period. Under AASB 2
Share-based payment, these performance rights and loan shares are treated as ‘in substance
options’ even where the equity instrument itself is not a share option.

US ESOP

The US ESOP includes options to acquire common stock in Afterpay US, Inc. In specified
circumstances, common stock in Afterpay US, Inc. which is received via the exercise of US ESOP
options may be exchanged for APT shares. The exercised common stock in Afterpay US, Inc.
will automatically be exchanged for fully paid ordinary shares of APT if conversion of the Matrix
Convertible Notes occurs. Exchange for APT shares may also occur at the discretion of the APT
Board if the Matrix Convertible Notes are not converted and are no longer on issue, at least 5
years have elapsed since the US ESOP was initially adopted, and other specified corporate events
have not occurred. Holders of exercised shares do not have a separate right to require exchange
for APT shares. The number of APT shares which are issued to US ESOP holders upon exchange
will be based on the future value of Afterpay US, Inc. shares (based on the same valuation as
referred to in the Matrix Convertible Notes) compared to a VWAP of APT shares over the 30
trading days up to (but excluding) the date of conversion of the Matrix Convertible Notes or the
date of discretionary conversion by APT (as applicable). The total US ESOP pool is limited to 10%
of Afterpay US, Inc. fully diluted shares on issue. The Group’s ownership interest in Afterpay US,
Inc. will not decline below 90% due to the exercise of options on Afterpay US, Inc. common stock
under the US ESOP plan and will increase back to 100% following the exchange of Afterpay US,
Inc. common stock for APT shares (assuming no other issues of common stock in Afterpay US,
Inc. in the intervening period). The maximum number of APT shares that can be issued under the
US ESOP in exchange for exercised shares cannot exceed 21,777,661 APT shares (being 10% of
the number of APT shares on issue at the date the Matrix Convertible Notes were issued). It is
unlikely that the maximum number of APT shares would be issued on conversion because for
this to happen it would necessarily mean that the value of APT (excluding Afterpay US, Inc.) is
negligible or very low in comparison to the assessed value of Afterpay US, Inc.

106

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)19. SHARE-BASED PAYMENT PLANS (continued)

The US ESOP was established to facilitate the attraction and retention of top-tier talent in the US
over the last 18 months, who have been critical to delivering the Group’s US growth aspirations.
While successful in achieving these aims there is no intent to expand the US ESOP Plan beyond
the 10% total option pool noted above and it will be closed to any new grants within 12 months
(refer section 8.1 of the Remuneration Report for further detail). New incentive awards made
to US employees will be provided by way of equity awards in the parent company (i.e. APT) to
ensure a globally aligned and consistent approach going forward.

UK ESOP

It is intended that the UK ESOP options will have both continued service and performance based
vesting conditions. The exercise price is yet to be determined, however upon exercise of the
options the exercise price will be paid to ThinkSmart as the provider of the option shares. The
UK ESOP options, even if vested, will only be able to be exercised in conjunction with exercise of
the ThinkSmart put or call option (including in the event of early exercise, such as on a change of
control), and if not exercised with such event the options will lapse. This is intended to ensure that
there are no outstanding UK ESOP options once APT moves to 100% shareholding in Clearpay.

Further, it is intended that any Clearpay shares provided to employees on the exercise of their
vested options will be sold to APT at same per-share price as the Clearpay Put and Call Option
(as applicable) as outlined in Note 4. APT will have the election to pay for the UK ESOP shares in
cash or in the form of APT shares at equivalent value, subject to a cap of 3% of APT shares on
issue at the date of first adoption of the UK ESOP Rules.

It is unlikely that the maximum number of APT shares of 8% across the Clearpay Put and Call
Option and UK ESOP would ever be issued because for this to happen it would necessarily mean
that the value of APT (excluding Clearpay) is negligible or very low in comparison to the assessed
value of Clearpay.

APT ESOP

2019

2018

2019

2018

NO.

WAEP

NO.

WAEP

NO.

WAEP

NO.

WAEP

2019

NO.

2018

NO.

SHARE OPTIONS

LOAN SHARES

PERFORMANCE RIGHTS

’000

Outstanding at the
beginning of the year

21,005

1.66 16,085

0.61

1,910

3.62

2,346

3.03

155

Granted during the year

5,444

10.31

5,100

4.99

Forfeited during the year

(187)

1.08

(147)

2.28

338

5.89

(12)

Exercised during the year

(11,355)

0.80

(33)

2.23

(767)

3.18

(774)

2.82

(35)

(108)

Outstanding at the end of
the year

Exercisable at the end of
the year

14,907

5.49

21,005

1.66

1,143

3.91

1,910

3.62

7,589

1.93

10,531

0.62

813

3.46

1,187

3.38

The exercise price of the APT ESOP options granted during the year ranges from $2.70 to $25.74.
The weighted average share price during the year is $17.79.

107

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

19. SHARE-BASED PAYMENT PLANS (continued)

A share-based payment expense of $30.5 million was recognised for the year ended 30 June
2019 (2018: $16.4 million). The share-based payment expense for the year ended 30 June 2019
includes an issue of 2,699,087 options to the Group Head that was approved at the 2018 Annual
General Meeting on 28 November 2018. This grant replaced the 2,000,000 Loan Shares which
were proposed to be granted to the Group Head as disclosed in the Group’s 30 June 2018 Annual
Report. A share-based payment expense of $14.8 million was recognised for the year ended 30
June 2019 for the options granted to the Group Head and reflecting the share price increase
in the period and up until the date of the 2018 Annual General Meeting. Prior to the approval
of shareholders, the share-based payment expense relating to the Group Head’s share-based
compensation (whether loan shares or options) was based on a fair value calculation at the
prevailing APT share price at each period end. The share-based payment expense therefore
increased as APT’s share price increased.

US ESOP

Outstanding at the beginning of the year

Granted during the year

Forfeited during the year

Exercised and vested during the year

Outstanding at the end of the year

Exercisable and vested at the end of the year

2019

2018

NO.

WAEP

NO.

WAEP

SHARE OPTIONS

’000

6,992

4,078

(428)

(1,644)

8,998

382

0.25

0.27

’000

6,992

0.25

6,992

0.25

The APT ESOP and US ESOP tables above provide a breakdown of APT ESOP shares options,
APT ESOP loan shares, APT ESOP performance rights and US ESOP share options for the year
ended 30 June 2019 and the prior comparable period. As at 30 June 2019, the aggregate of the
number of APT ESOP share options (14.9 million), APT loan shares (1.1 million) and US ESOP
share options (9.0 million) outstanding is 25.0 million (2018: 29.9 million).

For the year ended 30 June 2019, the Group received $2.2 million (2018: $0) from Afterpay US
option holders who elected to early exercise unvested options and at balance date, there was
$1.8 million (2018: $0) outstanding for early exercised and unvested options. An early exercise
mechanism is provided under the US ESOP whereby option holders may elect to exercise options
and receive unvested common stock in Afterpay US, Inc. before full vesting of the options
occurs. Any unvested options and any such unvested common stock may be subject to, among
other things, a repurchase right whereby Afterpay US, Inc. can, at its election, repurchase those
securities if the Board determines it to be appropriate such as if the vesting conditions are not
met. If the repurchase right is exercised, the Group has the contractual obligation to return the
funds to the option holder in accordance with the terms of the US ESOP. The repurchase price is
set at the lower of the fair market value and the early exercise price. A financial liability of $1.8
million has been recognised as a current financial liability in the financial statements to account
for this potential repurchase event. The weighted average exercise price of the US ESOP options
granted during the year was $0.27.

The US ESOP provides for options on non-voting common stock in Afterpay US, Inc. and when
vested and exercised will be recognised as a non-controlling interest in Afterpay US, Inc. in
accordance with AASB 10 Consolidated Financial Statements.

108

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)19. SHARE-BASED PAYMENT PLANS (continued)

Significant accounting judgements, estimates and assumptions

The cost of equity-settled transactions is determined by the fair value at the date when
the grant is made using the Binomial Model. That cost is recognised in employee benefits
expense together with a corresponding increase in equity reserves over the period in which
the service and, where applicable, the performance conditions are fulfilled (the vesting period).

Where the transaction is with a non-employee, the cost is based on the fair value of the asset
or service received. That cost is recognised, together with a corresponding increase in other
capital reserves or share capital in equity, over the period in which the performance and/or
service conditions are fulfilled and/or the asset or service is delivered/received.

Settlement of share options upon vesting are recognised as contributed equity.

The share-based payments expense considers the impact of any non-vesting conditions, but
ignores the effect of any service and non-market performance vesting conditions. Non-market
vesting conditions are taken into account when considering the number of options expected
to vest and at the end of each reporting period, the Group revisits its estimate. Revisions to
the prior period estimate are recognised in the Consolidated statement of comprehensive
income and equity.

The fair value of performance rights is determined in accordance with the fair market value
of the shares available at the grant date. The fair value of performance rights has been
calculated using the five-day VWAP of the five trading days immediately preceding grant date.

The value of the US and UK businesses are a significant estimate used to determine the fair
value of the options issued under the US ESOP, the fair value of the share-based payments
component of the Matrix convertible notes and the options to acquire the remaining 10% of
Clearpay. These fair values are determined by valuations conducted by independent valuers.

Some inputs to the Binomial Model require application of significant judgement.

The fair value of options granted during the financial year ended 30 June was estimated on
the grant date using the following assumptions:

2019

2018

2019

2018

2019

2018

APT ESOP

US ESOP

MATRIX CONVERTIBLE NOTES

Expected volatility

Risk-free interest rate

Expected life (years)

Dividend yield

50%

40%

60%

2.20%

2.07%

2.51%

2.52%

2.66%

The weighted average fair value of the options granted under the APT ESOP and US ESOP
during the period was $9.33 and $0.23, respectively (2018: $2.32 and $0.25, respectively).

Convertible notes

The Group determined the US$0.1 million Convertible Notes subscribed by Matrix included a
share-based payment component, for services to be delivered by Matrix. The fair value of the
Convertible Notes when issued of US$1.7 million exceeded their face value and were determined
to be a share-based payment in accordance with AASB 2 Share-based payments.

The fair value of the Convertible Notes was determined by using the multi-stage process, which
involved calculating the equity value of Afterpay US, Inc., which was then used as an input into
the Binomial Model. The share-based payments will be recognised over the expected period the
services will be performed, currently estimated at 5 years. Refer Note 4 for further information.

109

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
20. KEY MANAGEMENT PERSONNEL (continued)

20. KEY MANAGEMENT PERSONNEL

COMPENSATION OF KEY MANAGEMENT PERSONNEL

Short-term employee benefits

Post-employment benefits

Other long-term benefits

Share-based payment

Total compensation

2019

2018

2,997,685

2,656,938

107,316

137,992

10,257

7,984

17,530,018

12,358,437

20,645,276

15,161,351

Compensation of Key Management Personnel (KMP) includes Executive KMP and Non-
Executive Directors. Compensation details for KMP are included in Sections 5.5 and 6.5 of the
Remuneration Report.

110

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)21. COMMITMENTS AND CONTINGENCIES

21. COMMITMENTS AND CONTINGENCIES (continued)

ITEMS NOT RECOGNISED IN THE FINANCIAL
STATEMENTS

21. COMMITMENTS AND CONTINGENCIES

Contingent liabilities and contingent assets

Details of contingent liabilities and contingent assets where the probability of future payments
is not considered remote are set out below as well as details of contingent liabilities, which
although considered remote, the Directors consider should be disclosed as they are not
disclosed elsewhere in the notes to the financial statements.

(a) Contingent liabilities – AUSTRAC

On 12 June 2019, AUSTRAC issued a notice (the ‘Notice’) requiring an external audit of Afterpay
Pty Ltd (Afterpay) to examine its compliance with the Anti-Money Laundering and Counter-
Terrorism Financing Act 2006 (AML/CTF). The Group has established a dedicated Sub-
Committee of the Board of Directors in order to support the external audit process and other
AML/CTF matters, led by Independent Interim Chair, Elana Rubin. The Sub-Committee reports to
the Board.

Mr Neil Jeans was appointed as the auditor on 29 July 2019. The audit will cover the period
from 19 January 2015 to the date of the Notice. An interim report is required to be provided to
AUSTRAC by 24 September 2019 and the final report is due by 23 November 2019.

The audit has commenced but has not concluded. At this stage, it is not possible to determine the
extent of any potential financial impact to the Group that might result from the audit. Consequently,
no amounts have been included as contingent liabilities as at the date of this report.

(b) Legal commitments and claims

Claims can be raised by customers and suppliers against the Group in the ordinary course of
business. There were no outstanding claims at 30 June 2019 that required recognition of a
provision or contingent liability.

Bank guarantees

The Group had entered into a bank guarantee arrangement totalling of $2.2 million in 2018 of
which $2.0 million has been cross guaranteed as part of a Consolidated sub-agency agreement.
The remaining guarantee is part of the Group’s normal business operations.

Operating lease commitments – Group as Lessee

The Group has entered commercial leases for its registered offices in Melbourne, Sydney, New
Zealand, the United States and United Kingdom. The Group has also entered into leases for a
data centre and associated communication costs, and an agreement of the supply of terminals.
There are no restrictions placed upon the lessee by entering into this lease. Future minimum
rentals payable under the non-cancellable operating lease are as follows:

Within one year

After one year but not more than five years

Total minimum lease payments

2019

$’000

4,930

2,189

7,119

2018

$’000

1,864

3,174

5,038

Significant accounting policies – Leases

The determination of whether an arrangement is or contains a lease is based on the
substance of the arrangement and requires an assessment of whether the fulfilment of the

111

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

22. EVENTS AFTER THE BALANCE SHEET DATE (continued)

arrangement is dependent on the use of the specific asset and whether the arrangement
conveys a right to use the asset.

Group as a Lessee

Operating lease payments are recognised as an expense in the Consolidated statement of
comprehensive income on a straight-line basis over the lease term.

Finance leases are recognised as a lease asset and lease liability in the Consolidated
statement of financial position, calculated at the present value of the minimum lease
payments at inception of the lease. Depreciation of the lease asset is recognised on a straight-
line basis through the Consolidated statement of comprehensive income.

A proportion of the lease payment is assigned as a finance charge in the Consolidated
statement of comprehensive income with the remainder allocated as a reduction in the lease
liability in the Consolidated statement of financial position.

22. EVENTS AFTER THE BALANCE SHEET DATE

No matters or circumstances have occurred subsequent to period end that have significantly
affected, or may significantly affect, the operations of the Group, the results of those operations
or the state of affairs of the Group in subsequent financial years.

112

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)23. AUDITOR’S REMUNERATION (continued)

OTHER INFORMATION

23. AUDITOR’S REMUNERATION

Amounts received or due and receivable by Ernst & Young (Australia) for:

Total audit or review of the financial report of the entity and any other
entity in the consolidated Group

Support of new accounting standards implementation

Other assurance services

Other non-audit services

Total auditor's remuneration

2019

2018

997,061

371,145

206,760

130,000

73,840

29,208

1,277,661

530,353

24. OTHER SIGNIFICANT ACCOUNTING POLICIES

Impact of new accounting standards on Opening retained earnings

A number of new or amended standards became applicable for the current reporting period and
the Group has changed its accounting policies as a result of adopting the following standards:

• AASB 9 Financial Instruments; and

• AASB 15 Revenue from Contracts with Customers.

AASB 9 was adopted without restating comparative information. The adjustments arising from
the adoption of AASB 9 are not reflected in the Consolidated statement of financial position as at
30 June 2018, but are recognised in the opening balance of retained earnings on 1 July 2018.

The Group adopted AASB 15 using the modified retrospective method with the date of initial
application of 1 July 2018. The cumulative effect of initially applying AASB 15 is recognised
at the date of initial application as an adjustment to the opening balance of retained earnings.
Therefore, the comparative information was not restated.

The following table shows the adjustments recognised for each individual item as a result of
the adoption of AASB 15 and AASB 9 on 1 July 2018. Line items that were not affected by the
changes have not been included. As a result, the sub-totals and totals disclosed cannot be
recalculated from the numbers provided.

CONSOLIDATED STATEMENT OF
FINANCIAL POSITION (EXTRACT)

30 JUNE 2018
AS ORIGINALLY
PRESENTED

DOUBTFUL DEBT
IMPACT OF AASB 9 1

REVENUE & INCOME
IMPACT OF AASB 15

$’000

1 JULY 2018

$’000

Current Assets

Receivables

Non-Current Assets

Deferred tax assets

Total Assets

Equity

Retained earnings

Total Equity

1. Refer to Note 6 Receivables for further details.

239,068

(2,911)

(4,936)

231,221

9,261

248,329

192,628

(22,195)

170,433

859

1,469

11,589

(2,052)

(3,467)

242,810

(2,052)

192,628

(3,467)

(27,714)

164,914

113

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

New accounting standards issued but not yet effective

Australian Accounting Standards and Interpretations that are issued, but are not yet effective, up to
the date of issuance of the Group’s financial statements, are disclosed below. The Group intends to
adopt these new standards and interpretations, if applicable, when they become effective.

(a) AASB 16 Leases

AASB 16 Leases (AASB 16) replaces the current AASB 117 Leases standard for the Group’s
financial year commencing on 1 July 2019. AASB 16 sets out a comprehensive model for
identifying and measuring lease arrangements. A contract contains a lease if it conveys the right
to control the use of an identified asset for a period of time. Contracts that are leases within the
scope of AASB 16 from the lessee’s perspective require the recognition of a right-of-use (ROU)
asset and a related lease liability, being the present value of future lease payments. This results
in an increase in the recognised assets and liabilities in the Group’s Consolidated statement
of financial position. The income statement will include interest expense on the lease liability
together with depreciation of the ROU asset. As compared to AASB 117, the pattern of expense
recognition changes with higher costs in the earlier stages of the lease as a result of the interest
expense being determined on the lease liability that amortises over the lease term.

Transition

The new standard is expected to impact leases that are currently classified by the Group as
operating leases, being mainly leases over premises and terminals. Alternative methods of
calculating the ROU assets are permitted under AASB 16, which impacts the size of the transition
adjustment. The Group will apply the modified retrospective approach as permitted by AASB
16. Under the modified retrospective transition approach, prior period comparative financial
statements are not restated.

Based on the elected transition method, the Group will recognise lease liabilities of approximately
$8.6 million, which is the present value of the remaining lease payments and ROU assets
of approximately $9.0 million based on lease liabilities (subject to certain adjustments). As
permitted by AASB 16, the Group is electing practical expedients to not recognise short-term or
low values leases on its Consolidated statement of financial position at the transition date.

Judgement has been applied by the Group in determining the transition adjustment, which includes
the determination of which contractual arrangements represent a lease, the period over which the
lease exists, the incremental borrowing rate of the Group, and the variability of future cash flows.

(b) AASB Interpretation 23 Uncertainty over Income Tax Treatment

Interpretation 23 clarifies the application of the recognition and measurement criteria in
AASB 112 Income Taxes (AASB 112) where there is uncertainty over income tax treatments
and requires an assessment of each uncertain tax position as to whether it is probable that a
taxation authority will accept the position. Where it is not probable, the effect of the uncertainty
will be reflected in determining the relevant taxable profit or loss, tax bases, unused tax losses
and unused tax credits or tax rates. The amount will be determined as either the single most
likely amount or the sum of the probability weighted amounts in a range of possible outcomes,
whichever better predicts the resolution of the uncertainty. Judgements will be reassessed as
and when new facts and circumstances are presented.

Interpretation 23 will apply to the Group from 1 July 2019. The Group’s existing recognition and
measurement accounting policies are aligned with the requirements of Interpretation 23 and
hence no transition adjustment to retained earnings is required.

114

DIRECTORS’ DECLARATION

In accordance with a resolution of the Directors of Afterpay Touch Group Limited, I state that:

In the opinion of the Directors:

(a) The financial statements and notes of Afterpay Touch Group Limited for the financial year ended

30 June 2019 are in accordance with the Corporations Act 2001, including:

(i) giving a true and fair view of its financial position as at 30 June 2019 and of the Group’s

performance for the financial year ended on that date; and

(ii) complying with Accounting standards (including the Australian Accounting Interpretations)

and Corporations Regulations 2001.

(b) There are reasonable grounds to believe that the Group will be able to pay its debts as and when

they become due and payable;

AASB 124 Related Party Disclosures and the Corporations Regulations 2001; and

(d) The financial statements and notes also comply with International Financial Reporting Standards

as disclosed in the financial statements.

The Directors have been given the declarations by the Chief Executive Officer and Managing Director
required by section 295a of the Corporations Act 2001.

On behalf of the Board.

Elana Rubin
Independent Interim Chair
Melbourne
28 August 2019

115

INDEPENDENT
AUDITOR’S REPORT
TO THE MEMBERS OF
AFTERPAY TOUCH
GROUP LIMITED

116

Ernst & Young
8 Exhibition Street
Melbourne VIC 3000 Australia
GPO Box 67 Melbourne VIC 3001

Tel: +61 3 9288 8000
Fax: +61 3 8650 7777
ey.com/au

Independent Auditor's Report to the Members of Afterpay Touch Group
Limited

Report on the Audit of the Financial Report

Opinion

We have audited the financial report of Afterpay Touch Group Limited (the Company) and its subsidiaries
(collectively the Group), which comprises the consolidated statement of financial position as at 30 June
2019, the consolidated statement of comprehensive income, consolidated statement of changes in equity
and consolidated statement of cash flows for the year then ended, notes to the financial statements,
including a summary of significant accounting policies, and the Directors' declaration.

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

giving a true and fair view of the consolidated financial position of the Group as at 30 June 2019
and of its consolidated financial performance for the year ended on that date; and

complying with Australian Accounting Standards and the Corporations Regulations 2001.

Basis for Opinion

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

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

Key Audit Matters

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 year. These matters were addressed in the context of our audit
of the financial report as a whole, and in forming our opinion thereon, but we do not provide a separate
opinion on these matters. For each matter below, our description of how our audit addressed the matter
is provided in that context.

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We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the
Financial Report section of our report, including in relation to these matters. Accordingly, our audit
included the performance of procedures designed to respond to our assessment of the risks of material
misstatement of the financial report. The results of our audit procedures, including the procedures
performed to address the matters below, provide the basis for our audit opinion on the accompanying
financial report.

Acquisition of Clearpay Finance Limited

Why significant

How our audit addressed the key audit matter

Our audit procedures included the following:

• We assessed the terms and conditions of the
share purchase agreement to obtain an
understanding of the transaction and the key
terms.

• We assessed the value of the purchase
consideration inclusive of the deferred
consideration with reference to the APT share
price at the date of acquisition.

• We assessed the competence, qualifications and
objectivity of the experts engaged by the Group
to assist with the identification and valuation of
assets acquired, and the liabilities assumed.

• We involved our valuation specialists to assess
the reasonableness of the valuation approach
and the methodology applied to fair value the
assets acquired, liabilities assumed and the fair
value of the put option.

• We assessed the adequacy of the related

disclosures in the financial report in respect of
the acquisition.

On 23 August 2018, the Group acquired 90% of
the issued shares in Clearpay Finance Limited
(Clearpay) from Thinksmart Limited (Thinksmart)
for total consideration of 1 million Afterpay
Touch Group Limited (APT) shares. The
acquisition has been accounted for in accordance
with AASB 3 Business Combinations.

The Group acquired identifiable intangible assets
of $4.0 million, other net liabilities of $0.4
million, and goodwill of $16.2 million was
recognised. The purchase price accounting for
the acquisition was finalised during the financial
year.

The share consideration was payable in two
tranches resulting in judgment around the
measurement of the deferred consideration for
the second tranche.

As described in Note 15, the Group has a call
option and Thinksmart has a put option over the
remaining shares. The Group has recognised a
financial liability of $1.0 million for the put
option which is recognised at fair value.

The acquisition of Clearpay was a key audit
matter based on the quantitative materiality of
the acquisition and the judgements involved in
the finalisation of the purchase price accounting
exercise.

Refer to Note 15 of the financial report for the
relevant disclosures in relation to the acquisition.

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Capitalisation of internally generated intangible assets

Why significant

How our audit addressed the key audit matter

The Group’s revenue is generated through the
processing of transactions with its customers
through its internally developed software
platforms disclosed as Core Technology in Note
9 of the financial report.

Software development is core to the Company’s
operations and requires judgement as to whether
it meets the capitalisation criteria as per AASB
138 Intangible Assets. Costs incurred during the
year that were capitalised to the Core
Technology totalled $21.5 million.

The capitalisation of internally generated
intangible assets was a key audit matter due to
the significant management judgements,
including:

• whether the costs incurred relate to research

costs that should be expensed or
development costs that are eligible for
capitalisation;

Our audit procedures included the following:

• We selected a sample of projects to determine
the nature of the project, the status of the
project and assess whether the project met the
capitalisation criteria per Australian Accounting
Standards.

•

For a sample of capitalised employee costs we
agreed the rates for development staff to
employee contracts and obtained evidence to
support the hours charged to development
projects. In addition, we tested a sample of
controls to evaluate the effectiveness of the
Group’s key controls related to payroll
processing.

• We assessed the useful lives and amortisation

rate allocated to capitalised development costs
as well as recalculating the amortisation
expense for the period for all intangible assets.

• We assessed the consistency of the

•

the assessment of future economic benefits
and the technical feasibility of the product;
and

capitalisation methodology applied by the
Company in comparison to prior reporting
periods.

the timing of amortisation and the useful
lives of the assets.

• We assessed the adequacy of the related

disclosures in the financial report in respect of
the capitalised costs.

Provision for doubtful debts for Afterpay consumer receivables

Why significant

How our audit addressed the key audit matter

The nature of the Group’s business is to assume
the credit risk of merchant transactions with
consumers. With the adoption of AASB 9
Financial Instruments, the Group has applied the
forward looking expected credit loss (ECL)
model. A provision of $27.8 million has been
recognised at 30 June 2019.

Our audit procedures included the following:

• We assessed whether the methodology applied
by management in the model is in accordance
with the requirements of AASB 9.

• We assessed the mathematical accuracy of the
model and recalculated the aging of the
consumer receivables at period end.

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Why significant

How our audit addressed the key audit matter

This was a key audit matter as significant
judgement is involved to determine the provision
for doubtful debt based on the estimated loss
rates on outstanding receivables.

The Group’s disclosure for the impairment on
consumer receivables is disclosed in Note 6 of
the financial report.

• We assessed the integrity of assumptions

around current and historical loss rates for
receivables throughout the period. We
compared these assumptions to those of the
prior period and investigated any significant
variances.

• We assessed the adequacy of the provision by

comparing the post period end cash receipts to
the outstanding consumer receivables at period
end.

• We assessed the adequacy of the related

disclosures in the financial report in respect of
the consumer receivables.

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

The Directors are responsible for the other information. The other information comprises the information
included in the Company’s Annual Report for the year ended 30 June 2019, but does not include the
financial report and our auditor’s report thereon.

Our opinion on the financial report does not cover the other information and accordingly we do not
express any form of assurance conclusion thereon, with the exception of the Remuneration Report and
our related assurance opinion.

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

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

Responsibilities of the Directors for the Financial Report

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

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

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Auditor's Responsibilities for the Audit of the Financial Report

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

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

•

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

Obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Group’s internal control.

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

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

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

Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the Group to express an opinion on the financial report. We are
responsible for the direction, supervision and performance of the Group audit. We remain solely
responsible for our audit opinion.

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

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

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

Report on the Audit of the Remuneration Report

Opinion on the Remuneration Report

We have audited the Remuneration Report included in pages 42 to 67 of the directors' report for the year
ended 30 June 2019.

In our opinion, the Remuneration Report of Afterpay Touch Group Limited for the year ended 30 June
2019, complies with section 300A of the Corporations Act 2001.

Responsibilities

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

Ernst & Young

David McGregor
Partner
Melbourne
28 August 2019

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ADDITIONAL SECURITIES EXCHANGE
INFORMATION
In accordance with ASX Listing Rule 4.10, the Company provides the following information to
shareholders not elsewhere disclosed in this Annual Report. The information provided is current as at
5 August 2019 (Reporting Date).

Corporate Governance Statement

The Company’s Directors and management are committed to conducting the Group’s business in
an ethical manner and aspire to the highest standards of corporate governance. The Board regularly
reviews its corporate governance policies and processes to ensure they are appropriate and meet
governance standards and regulatory requirements. The Company’s corporate governance policies
and charters are all available at https://www.afterpaytouch.com/corporate-governance/

For the 2019 financial year, the Company’s governance practices substantially complied with the
ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations (Third
Edition) (Recommendations). Further details are set out in the Company’s Corporate Governance
Statement, which sets out key aspects of the Company’s corporate governance framework and
practices, and discloses how the Company substantially complied with the Recommendations.

The Company’s Corporate Governance Statement, together with the ASX Appendix 4G, have been
lodged with the ASX and are available at https://www.afterpaytouch.com/corporate-governance/

Substantial holders

As at the Reporting Date, the names of the substantial holders of the Company and the number of
equity securities in which those substantial holders and their associates have a relevant interest, as
disclosed in substantial holding notices given to the Company, are as follows:

HOLDER OF EQUITY SECURITIES

CLASS OF EQUITY SECURITIES

NUMBER OF EQUITY SECURITIES
HELD

% OF TOTAL ISSUED SECURITIES
CAPITAL IN RELEVANT CLASS

Anthony Eisen

Ordinary Shares

Nicholas Molnar

Ordinary Shares

EQT Holdings Limited

Ordinary Shares

20,450,574

13,184,001

8.09

5.22

Number of holders

As at the Reporting Date, the number of holders in each class of equity securities is as follows:

CLASS OF EQUITY SECURITIES

NUMBER OF HOLDERS

Fully paid ordinary shares

Options to acquire ordinary shares

Convertible Note

40,747

Less than marketable parcels of ordinary shares (UMP Shares)

The number of holders of less than a marketable parcel of ordinary shares based on the closing
market price at the Reporting Date is as follows:

TOTAL SHARES

252,635,692

UMP SHARES

UMP HOLDERS

% OF ISSUED SHARES HELD BY UMP HOLDERS

900

0.00005

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Voting rights of equity securities

The only class of equity securities on issue in the Company that carries voting rights is fully paid
ordinary shares.

As at the Reporting Date, there were 40,747 holders of a total of 252,635,692 ordinary shares of the
Company.

At a general meeting of the Company, every holder of ordinary shares present in person or by proxy,
attorney or representative has one vote on a show of hands and on a poll, one vote for each ordinary
share held. On a poll, every member (or his or her proxy, attorney or representative) is entitled to vote
for each fully paid share held and in respect of each partly paid share, is entitled to a fraction of a vote
equivalent to the proportion that the amount paid up (not credited) on that partly paid share bears
to the total amounts paid and payable (excluding amounts credited) on that share. Amounts paid in
advance of a call are ignored when calculating the proportion.

Distribution of holders of equity securities

The distribution of holders of equity securities on issue in the Company as at the Reporting Date is as
follows:

DISTRIBUTION OF ORDINARY SHAREHOLDERS

HOLDINGS RANGES

1 – 1,000

1,001 – 5,000

5,001 – 10,000

10,001 – 100,000

100,001 – 999,999,999

Totals

DISTRIBUTION OF OPTION HOLDERS

HOLDINGS RANGES

1 – 1,000

1,001 – 5,000

5,001 – 10,000

10,001 – 100,000

100,001 – 999,999,999

Totals

HOLDERS

31,119

7,686

1,030

834

40,747

TOTAL UNITS

9,472,094

17,415,282

7,626,522

20,608,210

197,513,584

252,635,692

HOLDERS

TOTAL UNITS

1,033,334

13,874,087

14,907,421

3.75

6.89

3.02

8.16

78.18

100.00

6.93

93.07

100.00

The Company has issued one convertible note to each of two holders, Matrix Partners X L.P and
Weston & Co X LLC.

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Twenty largest shareholders

The Company only has one class of quoted securities, being ordinary shares. The names of the 20
largest holders of ordinary shares, and the number of ordinary shares and percentage of capital held
by each holder, is as follows:

RANK HOLDER NAME

HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED

CITICORP NOMINEES PTY LIMITED

J P MORGAN NOMINEES AUSTRALIA PTY LIMITED

ANTHONY MATHEW EISEN

NICHOLAS MOLNAR PTY LTD

ATC CAPITAL PTY LTD

NATIONAL NOMINEES LIMITED

HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED - A/C 2

BNP PARIBAS NOMINEES PTY LTD

ESTATE LATE ADRIAN CLEEVE

BNP PARIBAS NOMINEES PTY LTD

12 MATRIX PARTNERS X L P

CITICORP NOMINEES PTY LIMITED

BNP PARIBAS NOMS PTY LTD

NETWEALTH INVESTMENTS LIMITED

HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED-GSCO ECA

17 MR RICHARD HARRIS

FIFTY SECOND CELEBRATION PTY LTD

UBS NOMINEES PTY LTD

NORFOLK ENCHANTS PTY LTD

Total number of shares of Top 20 Holders

Total Remaining Holders’ Balance

BALANCE AS AT
REPORTING DATE

39,715,163 15.72

26,790,115 10.60

24,545,356

20,450,574

9,984,000

7,775,494

5,701,110

3,293,153

3,200,001

2,801,559

2,717,394

2,606,737

2,070,555

1,979,865

1,957,359

1,770,000

1,475,000

1,195,883

1,000,000

9.72

8.09

3.95

3.08

2.26

1.30

1.27

1.11

1.08

1.03

0.82

0.78

0.77

0.70

0.58

0.47

0.40

181,479,892 71.82

71,155,800 28.18

Escrow

CLASS OF RESTRICTED SECURITIES

TYPE OF RESTRICTION

NUMBER OF SECURITIES

END DATE OF ESCROW PERIOD

Ordinary shares

Voluntary escrow

250,000

1,440,213

844,996

18 October 2019

16 January 2021

16 January 2025

On APT’s instructions

Unquoted equity securities
The number of each class of unquoted equity securities on issue, and the number of holders in each such class,
are as follows:

CLASS OF EQUITY SECURITIES

NUMBER OF UNQUOTED EQUITY SECURITIES

NUMBER OF HOLDERS

Options to acquire ordinary shares

14,907,421

Convertible Note

No person holds 20% or more of any class of Unquoted Equity Securities on issue.

Company Secretary

The Company’s General Counsel & Company Secretary is Christopher Stevens.

125

Registered Office

The address and telephone number of the Company’s registered office is:
Level 5
406 Collins Street
Melbourne VIC 3000
Telephone: +61 1300 100 729

Share Registry

The address and telephone number of the Company’s share registry, Computershare Investor
Services, are:

Street Address:
Yarra Falls
452 Johnson Street
Abbotsford Victoria 3067

Telephone: 1300 137 328

Stock Exchange Listing

The Company’s ordinary shares are quoted on the Australian Securities Exchange (ASX). The
Company was admitted to the official list of the ASX on 29 June 2017 (ASX issuer code: APT).

Other Information

The Company is not currently conducting an on-market buy-back.

There are no issues of securities approved for the purposes of item 7 of section 611 of the
Corporations Act that have not yet been completed.

No securities were purchased on-market during the reporting period under or for the purposes of an
employee incentive scheme or to satisfy the entitlements of the holders of options or other rights to
acquire securities granted under an employee incentive scheme.

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CORPORATE INFORMATION

Afterpay Touch Group Limited ACN 618 280 649

Board of Directors

Elana Rubin (Interim Chair, Independent Non-Executive Director)
Anthony Eisen (Chief Executive Officer and Managing Director)
Nicholas Molnar (Global Chief Revenue Officer and Executive Director)
David Hancock (Executive Director)
Clifford Rosenberg (Independent Non-Executive Director)
Dana Stalder (Independent Non-Executive Director)

Australian Registered Office

Level 5
406 Collins Street
Melbourne VIC 3000

General Counsel & Company Secretary

Christopher Stevens

Solicitors

Baker & McKenzie
Level 19, CBW
181 William Street
Melbourne VIC 3000

Auditor

Ernst & Young
8 Exhibition Street
Melbourne VIC 3000

Share Registry

Computershare Investor Services Yarra Falls
452 Johnston Street
Abbotsford VIC 3067
Phone: 1300 137 328
web.queries@computershare.com.au

Stock Exchange Listing

Afterpay Touch Group Limited shares are listed on the Australian Securities Exchange

127