Alpha Pro Tech, Ltd. Annual Report 2020

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FY2020 Annual Report · Alpha Pro Tech, Ltd.

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evolution.

Afterpay Limited FY20 Annual Report

Highlights

Performance
highlights.

Key Operating Metrics

$11.1b

Up
112%

Afterpay
Underlying
Sales 1

$5.2b

FY19

FY20

9.9m

Up
116%

Afterpay
Active
Customers 1, 2

4.6m

FY19

FY20

Key Financial Metrics

Group

Total

Income

Afterpay

Total

Income1

$519.2 million

Up 97% on prior year

$502.7 million

Up 103% on prior year

Group

Margin 2

Net Transaction

$261.3 million

Up 101% on prior year

Afterpay

Net Transaction

Margin

$250.2 million

Up 110% on prior year

2.3% 3

Afterpay
Active
Merchants 1, 2

55.4k

Up
72%

32.3k

Change calculations may not

equate due to rounding.

Notes: 1. Unaudited information.

2. Active is defined as having

transacted at least once in the

last 12 months.

EBITDA

(excluding

Significant items)

$44.4 million

Up 73% on prior year

FY19

FY20

Change calculations may not equate due to rounding. Notes: 1. Afterpay Total Income includes Afterpay Income and Other Income (Late Fees), excludes Pay Now

Revenue. 2. Group Net Transaction Margin is equal to Afterpay Net Transaction Margin and Pay Now Gross Margin. 3. Afterpay Net Transaction Margin as a percentage of

Afterpay Underlying Sales.

Performance

highlights.

Key Operating Metrics

$11.1b

112%

$5.2b

4.6m

32.3k

FY19

FY20

9.9m

116%

FY19

FY20

55.4k

72%

Afterpay

Underlying

Sales 1

Afterpay

Active

Customers 1, 2

Afterpay

Active

Merchants 1, 2

Key Financial Metrics

Group
Total
Income

Afterpay
Total
Income1

$519.2 million

Up 97% on prior year

$502.7 million

Up 103% on prior year

Group
Net Transaction
Margin 2

$261.3 million

Up 101% on prior year

Afterpay
Net Transaction
Margin

$250.2 million

Up 110% on prior year

2.3% 3

Change calculations may not

equate due to rounding.

Notes: 1. Unaudited information.

2. Active is defined as having

transacted at least once in the

last 12 months.

EBITDA
(excluding
Significant items)

$44.4 million

Up 73% on prior year

FY19

FY20

Change calculations may not equate due to rounding. Notes: 1. Afterpay Total Income includes Afterpay Income and Other Income (Late Fees), excludes Pay Now

Revenue. 2. Group Net Transaction Margin is equal to Afterpay Net Transaction Margin and Pay Now Gross Margin. 3. Afterpay Net Transaction Margin as a percentage of
Afterpay Underlying Sales.

About Afterpay

Founded five years ago in Sydney,

Afterpay is deeply committed to

Australia, Afterpay has over 10 million

delivering positive outcomes for

customers and 55,000-plus merchants

customers. The majority of Afterpay’s

now using the platform globally across

income is derived from merchants,

Australia, US, UK (where it is called

rather than customers. If a customer

Clearpay) and New Zealand. Afterpay

misses a payment, they won’t be able

has also just launched in Canada.

to use Afterpay until the payments

Afterpay’s global team is currently

are up-to-date. Late payment fees are

made up of more than 650 people

charged but are fixed, capped and do

and growing.

Afterpay’s business model is

completely free for customers who

pay on time – helping people spend

not accumulate over time. Customers

are never entrapped in revolving

debt and never incur interest. We are

focused on supporting our community

responsibly without incurring interest,

of shoppers.

fees or extended debt. Afterpay

We trust in the next generation and

empowers customers to access the

share a vision of a more accessible

things they want and need, while still

and sustainable world in which people

allowing them to maintain financial

are rewarded for doing the right thing.

wellness and control, by splitting

payments in four, for both online

and in-store purchases.

Afterpay’s mission is to power an

economy in which everyone wins.

About Afterpay

Founded five years ago in Sydney,

Afterpay is deeply committed to

Australia, Afterpay has over 10 million

delivering positive outcomes for

customers and 55,000-plus merchants

customers. The majority of Afterpay’s

now using the platform globally across

income is derived from merchants,

Australia, US, UK (where it is called

rather than customers. If a customer

Clearpay) and New Zealand. Afterpay

misses a payment, they won’t be able

has also just launched in Canada.

to use Afterpay until the payments

Afterpay’s global team is currently

are up-to-date. Late payment fees are

made up of more than 650 people

charged but are fixed, capped and do

and growing.

Afterpay’s business model is

completely free for customers who

pay on time – helping people spend

not accumulate over time. Customers

are never entrapped in revolving

debt and never incur interest. We are

focused on supporting our community

responsibly without incurring interest,

of shoppers.

fees or extended debt. Afterpay

We trust in the next generation and

empowers customers to access the

share a vision of a more accessible

things they want and need, while still

and sustainable world in which people

allowing them to maintain financial

are rewarded for doing the right thing.

wellness and control, by splitting

payments in four, for both online

and in-store purchases.

Afterpay’s mission is to power an

economy in which everyone wins.

Contents
2 Highlights
6 FY20 in Review
24 Directors’ Report
52 Remuneration Report
84 Financial Report
140 Auditor’s Report

FY20 in Review

Letter from the Chair

2020 in
Review.

Dear Shareholders,

At the outset, I would like to thank all
of our employees for their amazing
efforts while working under the often
challenging conditions brought about
by COVID-19. Across all our locations,
all of our people adapted to the changed
circumstances and remained focused
and committed on providing the best
service for all our stakeholders.

The Afterpay
Evolution

The past five years has seen

the company scale rapidly and

it has had to mature quickly to

keep up with the expectations

of our stakeholders. As such, the

business has evolved substantially

over this time, which has been

both challenging and rewarding.

We have

transitioned from

a top 300 to a

top 100

company

and are one

of the top 50

largest

companies

in Australia by

market cap

operate in

countries

We have grown

from <30 employees

in FY16 to

>650

employees

in FY20

We have had

Our customers

five years of

Our merchant partners

operations which

Our regulators, and the

has helped us better

Expectations of our

understand:

Communities

Afterpay continued its strong

Our performance throughout FY20

Our FY20 achievements are a

Our people are our greatest asset.

The team at Afterpay have one thing

momentum in the 2020 financial year,

demonstrates the power of our

testament to the amazing team

The Afterpay team has expanded

in common – they are extremely

despite the impacts being felt globally

differentiated model and our ability to

at Afterpay. The commitment and

significantly over the past five years.

passionate about the business and the

as a result of the COVID-19 pandemic.

adapt despite adversity in economic

passion of our employees is reflected

With more than 650 employees,

value proposition to our customers

Our employees, customers, merchant

and social conditions. We have

in the successful execution of our

how we manage the wellbeing and

and retailers. Over the past 12 months,

partners and shareholders have all

continued to provide a budgeting

strategy over the past five years.

retention of our highly talented teams,

there has been a considerable focus

been impacted. The second half of

solution to our growing Gen Z and

It is important to reflect on what has

whilst continuing to attract new talent,

on growing the capacity and capability

the financial year was firmly focused

Millennial customer cohorts, which

been achieved in a relatively short

is of utmost importance.

of our teams, and ensuring we are well

on the wellbeing of our people and

enables them to pay for goods in four

period of time. I thank all our talented

providing support to our stakeholders

instalments, without incurring interest

employees for everything they have

wherever possible. The true impacts

or revolving debt.

of COVID-19 are yet to become clear

within communities around the world.

In the meantime, we will remain

flexible in our management of the

business day to day whilst progressing

our strategic objectives.

A business model in which profitability

relies on customers paying on time

is extremely valuable in periods of

economic uncertainty. This has been

evidenced through the continued

decline in credit card usage and the

continued shift towards debit during

the pandemic. Having a business

that is heavily weighted towards

e-commerce has been particularly

beneficial with the ever increasing

shift to online spending. This delivered

more customers to our platform and

attracted more retailers to our offering.

done, and continue to do, to deliver

value for both our shareholders and

stakeholders alike.

Our People
are what
makes us
great

Remuneration

As disclosed in our FY19 Remuneration

Report, we developed a new

remuneration framework for FY20.

Our global compensation framework

has been designed to attract the best

talent and treat people fairly. We strive

to be globally consistent and market

competitive while respecting local

market nuances. Our framework

is underpinned by the philosophy

of ‘Acting as Owners’ and delivering

strong outcomes for our customers,

merchants and shareholders.

The Remuneration Report outlines

our new FY20 executive remuneration

framework in detail as well as

remuneration outcomes for the FY20

financial year.

equipped to deliver our significant

growth aspirations.

Accompanying this rapid growth

of our workforce has been a number

of renewed policies and processes,

which ensure what we have in place

is fit for purpose. There have also

been a range of areas identified

where we can improve our employee

value proposition.

Letter from the Chair

2020 in

Review.

Dear Shareholders,

At the outset, I would like to thank all

of our employees for their amazing

efforts while working under the often

challenging conditions brought about

by COVID-19. Across all our locations,

all of our people adapted to the changed

circumstances and remained focused

and committed on providing the best

service for all our stakeholders.

The Afterpay

Evolution

The past five years has seen

the company scale rapidly and

it has had to mature quickly to

keep up with the expectations

of our stakeholders. As such, the

business has evolved substantially

over this time, which has been

both challenging and rewarding.

We have
transitioned from
a top 300 to a
top 100
company

and are one
of the top 50
largest
companies
in Australia by
market cap

We
operate in

countries

We have grown
from <30 employees
in FY16 to
>650
employees

in FY20

We have had
five years of
operations which
has helped us better
understand:

Our customers
Our merchant partners
Our regulators, and the
Expectations of our
Communities

Afterpay continued its strong

Our performance throughout FY20

Our FY20 achievements are a

Our people are our greatest asset.

The team at Afterpay have one thing

momentum in the 2020 financial year,

demonstrates the power of our

testament to the amazing team

The Afterpay team has expanded

in common – they are extremely

despite the impacts being felt globally

differentiated model and our ability to

at Afterpay. The commitment and

significantly over the past five years.

passionate about the business and the

as a result of the COVID-19 pandemic.

adapt despite adversity in economic

passion of our employees is reflected

With more than 650 employees,

value proposition to our customers

Our employees, customers, merchant

and social conditions. We have

in the successful execution of our

how we manage the wellbeing and

and retailers. Over the past 12 months,

partners and shareholders have all

continued to provide a budgeting

strategy over the past five years.

retention of our highly talented teams,

there has been a considerable focus

been impacted. The second half of

solution to our growing Gen Z and

It is important to reflect on what has

whilst continuing to attract new talent,

on growing the capacity and capability

the financial year was firmly focused

Millennial customer cohorts, which

been achieved in a relatively short

is of utmost importance.

of our teams, and ensuring we are well

on the wellbeing of our people and

enables them to pay for goods in four

period of time. I thank all our talented

providing support to our stakeholders

instalments, without incurring interest

employees for everything they have

wherever possible. The true impacts

or revolving debt.

of COVID-19 are yet to become clear

within communities around the world.

In the meantime, we will remain

flexible in our management of the

business day to day whilst progressing

our strategic objectives.

A business model in which profitability

relies on customers paying on time

is extremely valuable in periods of

economic uncertainty. This has been

evidenced through the continued

decline in credit card usage and the

continued shift towards debit during

the pandemic. Having a business

that is heavily weighted towards

e-commerce has been particularly

beneficial with the ever increasing

shift to online spending. This delivered

more customers to our platform and

attracted more retailers to our offering.

done, and continue to do, to deliver

value for both our shareholders and

stakeholders alike.

Our People

are what

makes us

great

equipped to deliver our significant

growth aspirations.

Accompanying this rapid growth

of our workforce has been a number

of renewed policies and processes,

which ensure what we have in place

is fit for purpose. There have also

been a range of areas identified

where we can improve our employee

value proposition.

Remuneration

As disclosed in our FY19 Remuneration

Report, we developed a new

remuneration framework for FY20.

Our global compensation framework

has been designed to attract the best

talent and treat people fairly. We strive

to be globally consistent and market

competitive while respecting local

market nuances. Our framework

is underpinned by the philosophy

of ‘Acting as Owners’ and delivering

strong outcomes for our customers,

merchants and shareholders.

The Remuneration Report outlines

our new FY20 executive remuneration

framework in detail as well as

remuneration outcomes for the FY20

financial year.

Diversity and Inclusion

As a company that was born of

thinking differently, a diverse and

inclusive culture is pivotal to our future

success. Being a global business, there

already exists a level of diversity in the

cultural norms associated with each

region. This will continue to expand

as we move into new geographies.

A new Diversity and Inclusion Policy

was developed which outlines our

commitment to all of our employees,

regardless of gender, marital or family

status, sexual orientation, gender

identity, age, disability, ethnicity,

religious beliefs, cultural background,

socio-economic background,

perspective and experience.

Our focus on gender diversity in FY20

has delivered positive outcomes

across the business and the Board

has set gender targets for Directors

and senior management of 40% male,

40% female, 20% open, by 2023.

Employee health
and wellbeing through
COVID-19

The impacts of the COVID-19 pandemic

There have, and will continue to be,

are continuing to be felt by our

unintended consequences resulting

employees globally. Our immediate

from the various government imposed

response plan prioritised the health

restrictions. Mental health issues are

and wellbeing of our teams, and

continues to be our focus. In mid-

of particular concern for everyone and

is something we are focused on at

Afterpay. Health and wellbeing surveys

have been conducted to ensure we are

monitoring the mental health of our

employees and listening to how they

are feeling.

We will continue to monitor and identify

further ways to support our employees

during this challenging period.

In May 2020, events that occurred in

March all employees were asked to

the US saw the rise to prominence of

work from home to mitigate the risks

the Black Lives Matter movement on

of contracting the virus and to keep

a global scale. This movement raised

our people safe.

awareness within our business on

issues relating to racial injustice, and

other under-served communities

across the world. We will continue

to identify ways to support these

communities. In Australia we know

more needs to be done to educate and

raise awareness of issues impacting

Indigenous people. As part of our

Diversity and Inclusion strategy we will

identify ways in which we can support

and positively make a difference in the

countries in which we operate.

Further information on our Diversity

and Inclusion outcomes and strategy

are included in the Do The Right Thing

section of this Annual Report.

Our inbuilt risk settings

prevent customers revolving

in debt and the revenue

we generate from late fees

as a proportion of our income

continues to decline.

Continuing

to Engage with

Regulators

Afterpay has continued to engage

with regulators in all regions in FY20.

In an environment where the buy now

pay later sector is growing and diverse,

it is imperative that we continue to

engage with regulators to explain how

the Afterpay model is different and the

consumer benefits we generate from

our focus on responsible spending.

Our inbuilt risk settings prevent

customers revolving in debt, and the

revenue we generate from late fees

as a proportion of our total income

continues to decline.

During FY20 there were opportunities

for Afterpay to participate in various

Australian forums, such as the

development of a Buy Now Pay

Later Code of Practice which is still in

progress. Afterpay remains strongly

supportive of the Code.

AUSTRAC Update

The independent audit, in respect

of anti-money laundering/counter

terrorism financing (AML/CTF),

required by AUSTRAC, was completed

and a report was provided to the

regulator in November 2019. The

Report referred to matters of historic

non-compliance by Afterpay and

made recommendations in relation

to Afterpay’s ongoing AML/ CTF

compliance. Afterpay accepted and

acted on the recommendations made.

Pleasingly, the Independent Auditor

confirmed that Afterpay’s current

program is aligned with the AML/

CTF Act and that Afterpay is a low risk

business in regards to its likelihood of

being used for the purposes of money

laundering or terrorist financing. The

Auditor also noted that Afterpay has

Afterpay made submissions to both

a strong compliance culture.

the Senate Committee Inquiry into

Financial Technology and Regulatory

Technology and the Reserve Bank

of Australia’s Issues Paper on

payment system regulation. The

recommendations from the Senate

Committee Inquiry are due in 2020,

while the outcomes from the RBA

Issues Paper has been deferred to 2021.

AUSTRAC is still considering the

Independent Auditor’s report, and

we continue to fully cooperate with

the regulator.

Afterpay continues to proactively

engage with regulators in the US and

the UK to highlight its commitment to

consumer protection and responsibility

and compliance with applicable laws.

Diversity and Inclusion

As a company that was born of

thinking differently, a diverse and

inclusive culture is pivotal to our future

success. Being a global business, there

already exists a level of diversity in the

cultural norms associated with each

region. This will continue to expand

as we move into new geographies.

A new Diversity and Inclusion Policy

was developed which outlines our

commitment to all of our employees,

regardless of gender, marital or family

status, sexual orientation, gender

identity, age, disability, ethnicity,

religious beliefs, cultural background,

socio-economic background,

perspective and experience.

Our focus on gender diversity in FY20

has delivered positive outcomes

across the business and the Board

has set gender targets for Directors

and senior management of 40% male,

40% female, 20% open, by 2023.

awareness within our business on

issues relating to racial injustice, and

other under-served communities

across the world. We will continue

to identify ways to support these

communities. In Australia we know

more needs to be done to educate and

raise awareness of issues impacting

Indigenous people. As part of our

Diversity and Inclusion strategy we will

identify ways in which we can support

and positively make a difference in the

countries in which we operate.

Further information on our Diversity

and Inclusion outcomes and strategy

are included in the Do The Right Thing

section of this Annual Report.

Employee health

and wellbeing through

COVID-19

The impacts of the COVID-19 pandemic

There have, and will continue to be,

are continuing to be felt by our

unintended consequences resulting

employees globally. Our immediate

from the various government imposed

response plan prioritised the health

restrictions. Mental health issues are

and wellbeing of our teams, and

continues to be our focus. In mid-

In May 2020, events that occurred in

March all employees were asked to

the US saw the rise to prominence of

work from home to mitigate the risks

the Black Lives Matter movement on

of contracting the virus and to keep

a global scale. This movement raised

our people safe.

of particular concern for everyone and

is something we are focused on at

Afterpay. Health and wellbeing surveys

have been conducted to ensure we are

monitoring the mental health of our

employees and listening to how they

are feeling.

We will continue to monitor and identify

further ways to support our employees

during this challenging period.

Our inbuilt risk settings
prevent customers revolving
in debt and the revenue
we generate from late fees
as a proportion of our income
continues to decline.

Continuing
to Engage with
Regulators

Afterpay has continued to engage

with regulators in all regions in FY20.

In an environment where the buy now

pay later sector is growing and diverse,

it is imperative that we continue to

engage with regulators to explain how

the Afterpay model is different and the

consumer benefits we generate from

our focus on responsible spending.

Our inbuilt risk settings prevent

customers revolving in debt, and the

revenue we generate from late fees

as a proportion of our total income

continues to decline.

During FY20 there were opportunities

for Afterpay to participate in various

Australian forums, such as the

development of a Buy Now Pay

Later Code of Practice which is still in

progress. Afterpay remains strongly

supportive of the Code.

AUSTRAC Update
The independent audit, in respect

of anti-money laundering/counter

terrorism financing (AML/CTF),

required by AUSTRAC, was completed

and a report was provided to the

regulator in November 2019. The

Report referred to matters of historic

non-compliance by Afterpay and

made recommendations in relation

to Afterpay’s ongoing AML/ CTF

compliance. Afterpay accepted and

acted on the recommendations made.

Pleasingly, the Independent Auditor

confirmed that Afterpay’s current

program is aligned with the AML/

CTF Act and that Afterpay is a low risk

business in regards to its likelihood of

being used for the purposes of money

laundering or terrorist financing. The

Auditor also noted that Afterpay has

Afterpay made submissions to both

a strong compliance culture.

the Senate Committee Inquiry into

Financial Technology and Regulatory

Technology and the Reserve Bank

of Australia’s Issues Paper on

payment system regulation. The

recommendations from the Senate

Committee Inquiry are due in 2020,

while the outcomes from the RBA

Issues Paper has been deferred to 2021.

AUSTRAC is still considering the

Independent Auditor’s report, and

we continue to fully cooperate with

the regulator.

Afterpay continues to proactively

engage with regulators in the US and

the UK to highlight its commitment to

consumer protection and responsibility

and compliance with applicable laws.

Fortifying the foundations

to deliver long term

shareholder value

In order to deliver long-term growth

Prior to the July 2020 capital raising,

to shareholders, we must continue

retail shareholders participated

to invest in our existing regions and

in another SPP that was announced

expedite our expansion into new

on 11 June 2019. This SPP was deferred

markets. A balance sheet that can

following the receipt of the notice from

support this investment is key, as it

AUSTRAC. The SPP was completed at

underpins the funding of our rapid

a price of $23 per share, which was the

growth in underlying sales and provides

same price at which shares were issued

the capacity to execute on potential

in a placement to institutional and

merger and acquisition opportunities.

professional investors in June 2019.

The Afterpay balance sheet was

The capital support from our

fortified in July 2020 by a fully

shareholder base demonstrates their

underwritten institutional placement

belief in the long term prospects of our

raising $650 million. The placement

business, and is further validation of

was complemented by a share

our differentiated business model.

purchase plan (SPP) that raised

approximately $136 million from

eligible Australian and New Zealand

retail investors. Shares in both the

placement and SPP were issued at $66.

Concurrent with the institutional

placement, the co-founders each sold

2.05 million shares, which equated

to 10% of their individual holdings

and 1.5% of total shares outstanding

in Afterpay. The founders remain

Afterpay’s largest shareholders.

The capital raising and sell down

was overseen by a sub-committee of

independent Non-Executive Directors.

The capital support from our

shareholder base demonstrates

their belief in the long term

prospects of our business,

and is further validation of our

differentiated business model.

Committed to good
Corporate Governance

As Afterpay has continued to grow

rapidly, so has our focus on corporate
governance. We understand that long
term sustainability relies on meeting

the governance expectations of our

stakeholders. In FY20 there was a

focus on delivering Board renewal

commitments and strengthening

our internal capabilities. The Board

continually reviews Afterpay’s

governance policies and practices to

ensure they are in line with corporate

Board Renewal

We were delighted to welcome three

new independent non-executive

Directors to the Afterpay Board

in FY20. Gary Briggs (January 2020)

and Sharon Rothstein (June 2020) are

based in the US. Pat O’Sullivan (March

2020) is based in Australia and is the

Chair of the Audit, Risk & Compliance

Committee. Cliff Rosenberg retired

from the Board in May 2020.

governance expectations and

The renewed majority independent

developments. Afterpay has reviewed

Board is a highly accomplished

its corporate governance framework

team that provides a diverse range

against the 4th edition of the ASX

of views and experience to support

Principles and Recommendations

the management team in setting the

and will be reporting against the 4th

strategic direction of the business.

edition for the financial year ending

Having Directors with global

30 June 2021.

knowledge and relationships across

the core functions of our business

is extremely valuable.

On behalf of the Board, I would like

to take this opportunity to thank Cliff

for his significant contribution to the

business and the Board. Cliff has had

a long association with Afterpay and

remains a major supporter of our

future prospects.

Fortifying the foundations
to deliver long term
shareholder value

In order to deliver long-term growth

Prior to the July 2020 capital raising,

to shareholders, we must continue

retail shareholders participated

to invest in our existing regions and

in another SPP that was announced

expedite our expansion into new

on 11 June 2019. This SPP was deferred

markets. A balance sheet that can

following the receipt of the notice from

support this investment is key, as it

AUSTRAC. The SPP was completed at

underpins the funding of our rapid

a price of $23 per share, which was the

growth in underlying sales and provides

same price at which shares were issued

the capacity to execute on potential

in a placement to institutional and

merger and acquisition opportunities.

professional investors in June 2019.

The Afterpay balance sheet was

The capital support from our

fortified in July 2020 by a fully

shareholder base demonstrates their

underwritten institutional placement

belief in the long term prospects of our

raising $650 million. The placement

business, and is further validation of

was complemented by a share

our differentiated business model.

purchase plan (SPP) that raised

approximately $136 million from

eligible Australian and New Zealand

retail investors. Shares in both the

placement and SPP were issued at $66.

Concurrent with the institutional

placement, the co-founders each sold

2.05 million shares, which equated

to 10% of their individual holdings

and 1.5% of total shares outstanding

in Afterpay. The founders remain

Afterpay’s largest shareholders.

The capital raising and sell down

was overseen by a sub-committee of

independent Non-Executive Directors.

The capital support from our
shareholder base demonstrates
their belief in the long term
prospects of our business,
and is further validation of our
differentiated business model.

Committed to good

Corporate Governance

As Afterpay has continued to grow

rapidly, so has our focus on corporate

governance. We understand that long

term sustainability relies on meeting

the governance expectations of our

stakeholders. In FY20 there was a

focus on delivering Board renewal

commitments and strengthening

our internal capabilities. The Board

continually reviews Afterpay’s

governance policies and practices to

ensure they are in line with corporate

Board Renewal

We were delighted to welcome three

new independent non-executive

Directors to the Afterpay Board

in FY20. Gary Briggs (January 2020)

and Sharon Rothstein (June 2020) are

based in the US. Pat O’Sullivan (March

2020) is based in Australia and is the

Chair of the Audit, Risk & Compliance

Committee. Cliff Rosenberg retired

from the Board in May 2020.

governance expectations and

The renewed majority independent

developments. Afterpay has reviewed

Board is a highly accomplished

its corporate governance framework

team that provides a diverse range

against the 4th edition of the ASX

of views and experience to support

Principles and Recommendations

the management team in setting the

and will be reporting against the 4th

strategic direction of the business.

edition for the financial year ending

Having Directors with global

30 June 2021.

knowledge and relationships across

the core functions of our business

is extremely valuable.

On behalf of the Board, I would like

to take this opportunity to thank Cliff

for his significant contribution to the

business and the Board. Cliff has had

a long association with Afterpay and

remains a major supporter of our

future prospects.

Acknowledging
all who contribute
to our success

My decision to formally take on the

role of Chair of Afterpay was made easy

by the people who are part of our world

class business. It is a privilege to take

on this important role and I am excited

to continue on this challenging, but

very rewarding journey.

None of what we have achieved would

be possible without the hard work

and dedication of the Afterpay team.

On behalf of the Board, I would like

to thank the founders, management

team and all employees for their

continued focus and dedication

through what has been a very

challenging year. I would also like

to acknowledge my fellow Board

members, old and new, for the time

they dedicate to our business and the

passion they share with the team.

Lastly and importantly, I would like

to take this opportunity to thank you,

our Afterpay shareholders for your

ongoing support and belief in our

ability to deliver long-term value to you,

and to achieve our mission to power

an economy in which everyone wins.

Elana Rubin

Independent Chair

Afterpay

Our FY20 achievements are a

testament to the amazing team

at Afterpay. The commitment

and passion of our employees

is reflected in the successful

execution of our strategy over

the past five years.

Acknowledging

all who contribute

to our success

My decision to formally take on the

role of Chair of Afterpay was made easy

by the people who are part of our world

class business. It is a privilege to take

on this important role and I am excited

to continue on this challenging, but

very rewarding journey.

None of what we have achieved would

be possible without the hard work

and dedication of the Afterpay team.

On behalf of the Board, I would like

to thank the founders, management

team and all employees for their

continued focus and dedication

through what has been a very

challenging year. I would also like

to acknowledge my fellow Board

members, old and new, for the time

they dedicate to our business and the

passion they share with the team.

Lastly and importantly, I would like

to take this opportunity to thank you,

our Afterpay shareholders for your

ongoing support and belief in our

ability to deliver long-term value to you,

and to achieve our mission to power

an economy in which everyone wins.

Elana Rubin

Independent Chair

Afterpay

Our FY20 achievements are a
testament to the amazing team
at Afterpay. The commitment
and passion of our employees
is reflected in the successful
execution of our strategy over
the past five years.

Message from the CEO

Dear fellow shareholders

The past 12 months has seen an accelerated
movement away from traditional credit and a shift to
online shopping. It has also been a year of continued
growth and expansion across our regions, despite
the challenges we have faced with COVID-19.

Our incredible team of over 650 people,

Our brand

not only transitioned seamlessly to

working from home during COVID-19,

they continued to work passionately to

help deliver the best for our customers

Grow

Innovate

Perform

and merchants. Our priority has been,

Do the right thing

and will continue to be, taking care

of our people above all else.

During the past year, the leadership

team has evaluated what long-term

success looks like for our business.

As we evolve with our customers,

merchants and stakeholders towards

a retail landscape that is increasingly

driven by e-commerce, we have

redefined our vision to reflect this shift.

Our next chapter will see this vision

Our Brand

Our renewed brand enables us to

more accurately reflect who our

customers are and why they choose

Afterpay. Our brand symbolises our

evolution. It’s defined by our vision, our

mission and our values. It represents

where we came from, and where we

come to life.

are heading.

With a focus on millennials and

Gen Z, we have redefined our vision

that aspires to fairness and financial

freedom for all – this is the world we

want to see. Our mission is to power

an economy in which everyone

wins – we will look to evolve in a way

that delivers a “win/win” for all of our

stakeholders.

Our values are reflective of the mindset

we encourage our employees to have

as we execute our strategy.

Our brand provides a platform that

allows us to clearly articulate who

we are and what we do. It captures

and celebrates the value we deliver

to merchants and customers. We

strive to influence better behaviours

by empowering people and seeking

a “win/win” for everyone.

Our mission provides us with

a north star and our values help us

navigate our future – one in which

we can continue to build a leading

We have the right strategy and we’re

company, driven by the success

evolving our priorities in FY21. We will

of all our stakeholders.

deliver our next chapter through:

Millennials at our core
With a focus on millennials and Gen Z,

we have redefined our vision that aspires

to fairness and financial freedom for all.

Underlying Sales
$11.1b
Up 112% on FY19

Active Customers
9.9 million
Up 116% on FY19

Active Merchants
55.4k

Up 72% on FY19

GrowGrowth has remained a key focus throughout FY20. Our global expansion has seen strong growth across all our markets and our key metrics of underlying sales, customers and merchants all performed extremely well.Pivotal milestones have been achieved – the US celebrated 5 million active customers within two years, and our UK team reached 1 million active customers in their first full financial year.In ANZ, new verticals were launched and key new merchants (now live or in the process of integrating), include: Qantas Frequent Flyer, eBay, Ticketek, Webjet, Chemist Warehouse and Priceline.Notwithstanding the challenges of COVID-19, we launched in-store with selected retail stores in the US. I am proud of the team and the support we could provide our merchant partners as they gradually re-opened for their customers.Merchant acceptance continues to be the ultimate driver of customer acquisition and, as we continue to expand into new markets, this will deepen our major enterprise merchant partnerships.We are now live in Canada with a small number of merchants in testing and initial launch phase. We have a strong pipeline and we’re building on our talented team in the US to drive growth in this new North American market. Preparations have also commenced to launch in Europe and Asia.InnovateThrough innovation, we will leverage our pay-in-four product to expand our differentiated value proposition, which ultimately drives value for merchants and customers through product enhancement.Innovation continues to be at the forefront of the service we offer.We have a strong product and innovation roadmap, reflecting feedback from our customers and merchants. Listening is how we ensure we are evolving with their expectations and needs in mind.In July 2020, we launched in the US our one-of-a-kind loyalty program, called Pulse, rewarding our customers who use Afterpay in a responsible way. ANZ and UK launches will follow. Pulse is the only mass market program of its kind, incentivising customers to make payments on time and rewarding them for it.We successfully launched a virtual in-store card in the US with Apple Pay and Google Pay. Apple Pay was also rolled out as a repayment method for customers globally, providing more options to purchase items in a way that suits their lifestyle.Our team is absolutely passionate about building innovative products that align with our vision and mission, and creates value that meets the needs of our customers.PulsePerformWe delivered a solid set of results in FY20 and I want to thank our incredible team – without them, we wouldn’t have realised these achievements.We achieved strong Underlying Sales and income growth was matched by strong margin performance in FY20.Our Group Total Income of $519.2m, 97% higher than FY19, was driven by strong performance of the Afterpay business which delivered income of $502.7m, 103% higher than FY19. We sustained merchant margins at 3.9% of underlying sales, supported by a growing number of SMB’s joining the platform.We achieved historically low loss rates with Gross Loss at 0.9% of Underlying Sales. Net Transaction Loss (NTL) of 0.4% was in line with FY19, with the benefit of lower Gross Loss offsetting a decreasing contribution from Late Fees.Afterpay Net Transaction Margin (NTM) as a percentage of Underlying Sales remained strong at 2.3% despite lower contribution from Late Fees and an increasing contribution from earlier life-cycle, initially lower-margin, international markets.Our EBITDA (excluding Significant Items) of $44.4m, up 73% on FY19, was driven by growth in Underlying Sales, income and NTM.While global trading and capital market conditions remain uncertain during this period, our already strong balance sheet and liquidity position was further enhanced by a successful capital raise in July 2020 which delivered net proceeds of $769.8m. Inclusive of the net proceeds of the capital raising, Afterpay has an extremely strong balance sheet position with over $1.3b of cash and over $2b of combined pro forma liquidity and growth capacity. The combined pro forma liquidity and growth capacity position can fund in excess of $30b in annualised underlying sales above the current run-rate of over $15b. This excludes additional liquidity that may be created by increasing existing or new debt warehouse facilities.15Message from the CEO

Dear fellow shareholders

The past 12 months has seen an accelerated

movement away from traditional credit and a shift to

online shopping. It has also been a year of continued

growth and expansion across our regions, despite

the challenges we have faced with COVID-19.

Our incredible team of over 650 people,

Our brand

not only transitioned seamlessly to

working from home during COVID-19,

they continued to work passionately to

help deliver the best for our customers

Grow

Innovate

Perform

and merchants. Our priority has been,

Do the right thing

and will continue to be, taking care

of our people above all else.

During the past year, the leadership

team has evaluated what long-term

success looks like for our business.

As we evolve with our customers,

merchants and stakeholders towards

a retail landscape that is increasingly

driven by e-commerce, we have

redefined our vision to reflect this shift.

Our next chapter will see this vision

Our Brand

Our renewed brand enables us to

more accurately reflect who our

customers are and why they choose

Afterpay. Our brand symbolises our

evolution. It’s defined by our vision, our

mission and our values. It represents

where we came from, and where we

come to life.

are heading.

With a focus on millennials and

Gen Z, we have redefined our vision

that aspires to fairness and financial

freedom for all – this is the world we

want to see. Our mission is to power

an economy in which everyone

wins – we will look to evolve in a way

that delivers a “win/win” for all of our

stakeholders.

Our values are reflective of the mindset

we encourage our employees to have

as we execute our strategy.

Our brand provides a platform that

allows us to clearly articulate who

we are and what we do. It captures

and celebrates the value we deliver

to merchants and customers. We

strive to influence better behaviours

by empowering people and seeking

a “win/win” for everyone.

Our mission provides us with

a north star and our values help us

navigate our future – one in which

we can continue to build a leading

We have the right strategy and we’re

company, driven by the success

evolving our priorities in FY21. We will

of all our stakeholders.

deliver our next chapter through:

Millennials at our core

With a focus on millennials and Gen Z,

we have redefined our vision that aspires

to fairness and financial freedom for all.

Underlying Sales

$11.1b

Up 112% on FY19

Active Customers

9.9 million

Up 116% on FY19

Active Merchants

55.4k

Up 72% on FY19

focused and

committed to doing

the right thing – it

underpins everything

we do. It’s the reason

we exist.

Do the right thingOur people are focused and committed to doing the right thing – it underpins everything we do. It’s the reason we exist.It’s because of our global team that we delivered another year of solid results. The level of integrity and passion with which they did this is what I am most proud of.While a lot has changed in the five years since the company began, Afterpay’s core principles and purposefully different model remain, and continue to resonate with customers around the world.Our purposefully different approach and appeal to customers who want a budgeting tool is reflected in the fact that average outstanding balances have remained consistently low across the portfolio ($190), notwithstanding frequency has increased significantly over time and that approximately 90% of customers use a debit card on the Afterpay platform.As we continue to grow and mature, how we contribute to society is extremely important. We are committed to leading and educating consumers about financial wellbeing as we work towards our mission to power an economy in which everyone wins.The past 12 months we have seen our communities tested during particularly trying times. From the bushfires in Australia to the global COVID-19 pandemic, this has not only truly tested our business model but also how we support our communities during challenging circumstances.Shaping the futureI feel so privileged to be leading the Afterpay team. There is no doubt that the success we have seen is thanks to them and the passion they bring to Afterpay every single day. On behalf of Nick Molnar and the leadership team, I would like to say thank you.Thank you to our Board and leadership team for their support and guidance. It’s invaluable as we continue to scale and grow.I would also like to thank our customers and merchant partners, as well as our investors. You are such an integral part of our success and growth, and we are grateful for your loyalty and trust.Our future is exciting. Our achievements over the past five years have set the foundation for the successes to come.We have aspirational goals and a talented team ready to achieve them. We are committed to seeing a world of fairness and financial freedom for all. We will continue to work hard every day as we move towards our mission – to power an economy in which everyone wins.Anthony Eisen CEO & Managing Director AfterpayOur team supported our small-to-medium business partners through introducing Afterpay Access – a new one-stop-shop for small businesses that offers resource tools, and expert advice on how to grow during this challenging period and beyond.We partnered with charities in each region to help raise awareness and funds. One initiative we launched was our ‘Add $1 / £1’ at the checkout with the funds going directly to partner charities.We have also continued to attract global talent across our regions. We welcomed David Katz (Chief Product Officer), Geoff Seeley (Chief Marketing Officer), Cassandra Williams (Chief Enterprise Risk Officer), Marie Festa (Executive Vice President, Investor Relations and Communications) and Lee Hatton (Executive Vice President, New Platforms).Our team is absolutely passionateabout building innovative products that align with our vision and mission, and creates value that meets the needs of our customers.16Our people are
focused and
committed to doing
the right thing – it
underpins everything
we do. It’s the reason
we exist.

17
17

Fairness and
Financial Freedom
for all

Our Mission (Our role in achieving our vision)

To power an economy
in which everyone wins

Our Strategy

Our Values

Be Brave
Keep it Real
Do the Right Thing
Shape the Future

Brand
Grow
Innovate
Perform
Do the
Right
Thing

Sustainability

Looking after employees

The health and wellbeing

of our team is always

front of mind for our

leadership team.

Do the

Right Thing

Sustainability

Caring for

our people

It’s our team who have made us who

We keep our teams connected through

we are and the success we have seen.

Global All Hands, where our teams

Over the past 12 months we have

hear from our leaders and have the

grown from 447 to ~650 employees.

opportunity to ask questions that are

Through the challenges we faced

and continue to face during COVID-19

we have, and always will take care of

our people above all else. Our team

transitioned seamlessly to working

from home and, through a Culture

important to them. Further building

a listening culture is absolutely critical

as we evolve and grow. We will always

seek feedback and commit to fostering

an open and transparent culture.

As we enter our next chapter, our team

Amp Survey we conducted in the first

and the culture at Afterpay is more

few weeks, 94% of our team told us

important than ever.

they felt supported and informed.

The health and wellbeing of our

Through our new values – Be Brave,

Keep it Real, Do the Right Thing and

team is always front of mind for our

Shape the Future – we will drive the

leadership team. Initiatives such as

right behaviours in how we work

Mental Health First Aid training and

together and the decisions we make

to deliver a sustainable business.

our Employee Assistance Program

have been communicated broadly

to our team. We will continue to

provide resources and listen to ensure

our people are supported in the best

way we can.

> 650

employees

8 cities

Over the past 12 months

we have grown from 447

to over 650 employees

Through the

challenges we

faced and continue

to face during

COVID-19 we have,

and always will take

care of our people

above all else.

Sustainability

Looking after employees
The health and wellbeing

of our team is always

front of mind for our

leadership team.

Do the
Right Thing
Sustainability

Our Vision (the world we want to see)

Fairness and

Financial Freedom

for all

Our Mission (Our role in achieving our vision)

To power an economy

in which everyone wins

Our Values

Be Brave

Keep it Real

Do the Right Thing

Shape the Future

Our Strategy

Brand

Grow

Innovate

Perform

Do the

Right

Thing

Caring for
our people

It’s our team who have made us who

We keep our teams connected through

we are and the success we have seen.

Global All Hands, where our teams

Over the past 12 months we have

hear from our leaders and have the

grown from 447 to ~650 employees.

opportunity to ask questions that are

Through the challenges we faced

and continue to face during COVID-19

we have, and always will take care of

our people above all else. Our team

transitioned seamlessly to working

from home and, through a Culture

important to them. Further building

a listening culture is absolutely critical

as we evolve and grow. We will always

seek feedback and commit to fostering

an open and transparent culture.

As we enter our next chapter, our team

Amp Survey we conducted in the first

and the culture at Afterpay is more

few weeks, 94% of our team told us

important than ever.

they felt supported and informed.

The health and wellbeing of our

Through our new values – Be Brave,

Keep it Real, Do the Right Thing and

team is always front of mind for our

Shape the Future – we will drive the

leadership team. Initiatives such as

right behaviours in how we work

Mental Health First Aid training and

together and the decisions we make

our Employee Assistance Program

have been communicated broadly

to our team. We will continue to

provide resources and listen to ensure

our people are supported in the best

way we can.

to deliver a sustainable business.

> 650
employees

8 cities

Over the past 12 months
we have grown from 447
to over 650 employees

Through the
challenges we
faced and continue
to face during
COVID-19 we have,
and always will take
care of our people
above all else.

Throughout June it was Pride Month
Even though we couldn’t march in the streets

like we did last year, our Pride Community

at Afterpay still made sure we celebrated.

As we shape the future our focus will

In May this year, we were horrified

be on:

• Enhancing our recruitment

processes to ensure we are attracting

candidates from the widest pool of

people with diverse backgrounds,

experiences, skills and perspectives.

• Achieving gender targets of 40,40,20

for Directors and senior management

by FY23

• Understanding the baseline of our

diversity across our global team and

develop action plans and groups

to address the areas where we need

to focus

by the racial injustice experienced

in the US and supported the rise

of the Black Lives Matter movement

that rightfully gained global attention.

Led by our US team, Anthony Eisen

and Nick Molnar had the privilege

of joining a listening session with the

team to not only grieve what had

happened but to listen, to understand,

and to learn about experiences related

to racism and bias. Our team also led

a social media campaign to promote

and support Black-owned businesses.

This movement also forced us to

reflect on the injustices that occur

• Educating our leaders through

in Australia’s Indigenous communities

training to ensure they are equipped

and how we can play a part in raising

and can role model the changes

greater awareness.

we want to see

Throughout June it was Pride Month,

Our team has made some good

and even though we couldn’t march

progress on gender diversity.

in the streets like we did last year,

Gender balance remained a key focus

across the business in FY20. This year

we welcomed Lee Hatton, Cassandra

Williams and Marie Festa to our Global

Leadership team, which is now made

up of 40% women.

Across our regions we celebrated

International Women’s Day by hearing

stories from our team across all levels

of what equality means to them.

We shared our commitments and

our Pride Community at Afterpay still

made sure we celebrated. The team

had a Virtual LGBT History Experience,

developed a social media campaign

around the theme of hopefulness and

resilience, and developed a Global

Pride Employee Newsletter.

We know we have more to do, but

with our team, we will be a better

company and support a better society

through a more diverse and inclusive

ideas on how we can drive even greater

work environment.

equality across our teams.

Diversity and
Inclusion

Afterpay is a fast paced and dynamic

organisation that knows diversity

of thought and an inclusive culture

are at the heart of innovation.

Building a diverse and inclusive

culture is not only the right thing to

do but it also makes business sense.

Diversity means bringing different

insights and perspectives to help drive

sustainable growth.

This year we developed a new Diversity

and Inclusion Policy which outlines

our commitments. At the core, we are

about building and fostering a safe and

supportive culture, where individuals

feel confident and comfortable to be

who they are.

It’s important that our team reflects

the diversity of our customers and the

communities in which we operate.

As we continue to embed diversity and

inclusion into our DNA, the Afterpay

leadership team is committed to the

following strategy:

Grow: We will attract, retain and
develop a pipeline of talent from the

widest pool of people, who will bring

with them diverse backgrounds,

experiences, skills and perspectives

Perform: We will embed the
importance of Diversity and Inclusion

within our culture by encouraging

a commitment to inclusion by leaders

at all levels

Innovate: We will build innovation
through fostering our team’s diversity

of thought, skills and experience

Do the right thing: We will embrace,
role model and encourage our team

members to balance their work and

life commitments by building a holistic

flexible working culture

Even though we couldn’t march in the streets

like we did last year, our Pride Community

at Afterpay still made sure we celebrated.

As we shape the future our focus will

In May this year, we were horrified

be on:

• Enhancing our recruitment

processes to ensure we are attracting

candidates from the widest pool of

people with diverse backgrounds,

experiences, skills and perspectives.

• Achieving gender targets of 40,40,20

for Directors and senior management

by FY23

• Understanding the baseline of our

diversity across our global team and

develop action plans and groups

to address the areas where we need

to focus

by the racial injustice experienced

in the US and supported the rise

of the Black Lives Matter movement

that rightfully gained global attention.

Led by our US team, Anthony Eisen

and Nick Molnar had the privilege

of joining a listening session with the

team to not only grieve what had

happened but to listen, to understand,

and to learn about experiences related

to racism and bias. Our team also led

a social media campaign to promote

and support Black-owned businesses.

This movement also forced us to

reflect on the injustices that occur

• Educating our leaders through

in Australia’s Indigenous communities

training to ensure they are equipped

and how we can play a part in raising

and can role model the changes

greater awareness.

we want to see

Throughout June it was Pride Month,

Our team has made some good

and even though we couldn’t march

progress on gender diversity.

in the streets like we did last year,

Gender balance remained a key focus

across the business in FY20. This year

we welcomed Lee Hatton, Cassandra

Williams and Marie Festa to our Global

Leadership team, which is now made

up of 40% women.

Across our regions we celebrated

International Women’s Day by hearing

stories from our team across all levels

of what equality means to them.

We shared our commitments and

our Pride Community at Afterpay still

made sure we celebrated. The team

had a Virtual LGBT History Experience,

developed a social media campaign

around the theme of hopefulness and

resilience, and developed a Global

Pride Employee Newsletter.

We know we have more to do, but

with our team, we will be a better

company and support a better society

through a more diverse and inclusive

ideas on how we can drive even greater

work environment.

equality across our teams.

Diversity and

Inclusion

Afterpay is a fast paced and dynamic

organisation that knows diversity

of thought and an inclusive culture

are at the heart of innovation.

Building a diverse and inclusive

culture is not only the right thing to

do but it also makes business sense.

Diversity means bringing different

insights and perspectives to help drive

sustainable growth.

This year we developed a new Diversity

and Inclusion Policy which outlines

our commitments. At the core, we are

about building and fostering a safe and

supportive culture, where individuals

feel confident and comfortable to be

who they are.

It’s important that our team reflects

the diversity of our customers and the

communities in which we operate.

As we continue to embed diversity and

inclusion into our DNA, the Afterpay

leadership team is committed to the

following strategy:

Grow: We will attract, retain and

develop a pipeline of talent from the

widest pool of people, who will bring

with them diverse backgrounds,

experiences, skills and perspectives

Perform: We will embed the

importance of Diversity and Inclusion

within our culture by encouraging

a commitment to inclusion by leaders

at all levels

Innovate: We will build innovation

through fostering our team’s diversity

of thought, skills and experience

Do the right thing: We will embrace,

role model and encourage our team

members to balance their work and

life commitments by building a holistic

flexible working culture

Caring for our communitiesFY20 was no doubt a year of challenges, including devastating bushfires in Australia and a global pandemic unlike anything we have ever experienced in our lifetime.During the Australian Summer, Australia witnessed devastating fires across the country. We are incredibly proud that our team supported the bushfire appeal through donating $250,000, with our customers, to the Red Cross Bushfire Appeal. We also provided hardship relief for affected customers and support for impacted merchants. COVID-19 created uncertainty for many in the community, especially our small-to-medium business partners (SMBs).Through our merchant partners we understand that running a SMB can be fulfilling and stimulating, but also challenging, even without the disruption of COVID-19.To help our SMB community we introduced Afterpay Access – a new one-stop-shop for small businesses that offers resource tools, and expert advice on how to grow during this challenging period and beyond.Our team also provide support such as:• Launching campaigns such as Afterpay Connect and Support Small, to showcase and connect small businesses with millions of Afterpay customers• Providing a suite of offers and online ‘how to guides’ to help SMBs efficiently and effectively move to online transactionsIn May, we partnered with five incredible charity partners in each of our regions – Thread Together in Australia, Dress for Success in New Zealand, Baby2Baby and Common Thread in the US, and NHS Charities Together in the UK.Our aim was to help make a difference to those who needed it, especially during these challenging times.“Thread Together is thrilled to be partnering with Afterpay. Afterpay’s support will go a long way in supporting Thread Together’s recent bushfire and COVID-19 relief efforts.Future contributions from Afterpay’s customers will help us even more as we continue to provide new clothing, a basic human right, to some of the most vulnerable families across the country during this very challenging time.”Anthony Chesler CEO, Thread TogetherCampaigns such as Afterpay Connect and Support Small showcase and connect small businesses with millions of Afterpay customers.One of the initiatives we launched was “Add $1 / £1 at the checkout”, which provided our customers the option to add $1 / £1 at checkout, with the funds going directly to the charities we have partnered with.Overall, our customers raised over $330,000 and our ‘at the checkout’ initiative has helped increase much needed awareness and support.21Responsible spendingEnableAfterpay has created a budgeting tool that is free for customers to use if they pay on time. Our business model is purposefully designed to benefit from positive repayment behaviours and is not about extending credit to customers over long periods. Customers can purchase an item today and pay for it in four equal instalments every two weeks.We want our customers to spend responsibly and pay on time, so that they can use our service again for their next purchase.Our business modelNew customers with Afterpay start on low limits. Customer spending limits only increase with proven positive repayment behaviour over time. Afterpay never charges interest, our late fees are low and capped, and we pause our service as soon as a customer misses a payment.Afterpay has built a successful model without the need for credit checks. Over half our customers do not have established credit histories. Our proprietary algorithm has been tested against credit bureau data and validated that credit checks would not help Afterpay make better decisions.The traditional credit reporting system is designed to benefit lenders by helping them recover debts from customers. The threat of adverse credit listings is applied to customers that are behind in repayments.Afterpay instead manages its credit risk by suspending customers from spending more on our platform as soon as they miss a repayment. This prevents customers spiraling in debt and means they are more likely to be able to pay us back and continue using our service. It also means we can keep our overall losses lower.SupportAfterpay’s primary focus is to prevent consumers from experiencing financial hardship. We do not approve all customers that seek to use our platform and approve individual transactions in real time.Now more than ever, we also recognise that a person’s circumstances can change. Afterpay has a well-established, broad and generous hardship program, and our approach to hardship assistance goes above and beyond what is required by the law for traditional lenders.We immediately freeze late fees for customers in hardship, and we offer a range of short-term and longer term solutions, depending on individual circumstances. Our hardship program is easily accessible and, unlike the majority of other lenders, we do not require any documentary evidence from customers to support their hardship requests.We are committed to continual improvement and have engaged with Financial Counselling Australia (FCA) to help us further enhance our hardship program. While Afterpay received the highest rating among buy now pay later companies in the FCA’s July 2020 report on hardship1, we know we can do even better.RewardConsistent with our commitment to responsible spending, Afterpay has designed a rewards program called Pulse, that recognises customers who spend responsibly. Customers can unlock the rewards available under our Pulse program by demonstrating a continued series of on-time repayments.1. https://www.financialcounsellingaustralia.org.au/docs/rank-the-banks-and-other-creditors-2019/Our business modelNew customers with Afterpay start on low limits. Customer spending limits only increase with proven positive repayment behaviour over time.EnvironmentAfterpay is achieving carbon neutralityAfterpay is committed to environmental sustainability and recognises the direct impact that our business has on the environment.Afterpay’s direct impact on the environment is driven primarily by the physical offices we occupy around the world, the use of data centres to power our platform, and business travel. In 2020, we independently calculated our carbon footprint across our global operations. To achieve carbon neutrality, Afterpay is purchasing the necessary carbon credits to offset our emissions. We are currently working towards achieving certification from Climate Active.Afterpay recognises its broader impactAfterpay is a platform that connects consumers with merchants. We recognise the important role we have in understanding and influencing the indirect environmental impacts generated by our suppliers and retail supply chains.Afterpay has started to take steps to encourage greater awareness of ethical and sustainable fashion.We have started to empower our customers to make informed choices about fashion through a new partnership with Good On You, the world’s leading source for sustainable fashion brand ratings. Good On You uses expert analysis and proprietary technology to give each fashion brand an easy-to-understand score based on ethical and sustainable criteria. Afterpay’s Shop Directory, which sends around 14.5 million referrals to retailers every month, has a Shop Sustainably category that will be powered by Good On You. To help grow this category, and increase the number of merchants that have a Good On You rating, Afterpay has committed to providing Good On You with funding to review and rate additional labels.Through our partnership with Thread Together we are committed to helping vulnerable people who need clothing by addressing the problem of excess new fashion ending up as landfill. In 2020, Afterpay became Thread Together’s principal partner, and is committed to ensuring that Thread Together receives at least $200,000 per year.Like Afterpay, Thread Together is an Australian start-up with strong roots in fashion and is the only charity organisation in Australia whose mission and focus is to source new clothing from fashion retailers and redistribute items to those in our communities that need it most.Hundreds of Australian fashion retailers donate excess stock to Thread Together, including brands and partners of Afterpay, such as THE ICONIC, Bec + Bridge, P.E. Nation, Under Armour, Calvin Klein, Tommy Hilfiger, Bendon Lingerie and Retail Apparel Group. This has resulted in tonnes of new clothing being diverted from landfill to date and cemented Thread Together’s role as the highest ethical response to the textile waste problem in Australia.The Afterpay shop directory, which sends14.5 millionreferrals to retailers every month1, has a Shop Sustainably category that will soon be poweredby Good On YouSustainable fashionAfterpay has started to take steps to encourage greater awareness of ethical and sustainable fashion.1. Based on Q4 FY2023Responsible spendingEnableAfterpay has created a budgeting tool that is free for customers to use if they pay on time. Our business model is purposefully designed to benefit from positive repayment behaviours and is not about extending credit to customers over long periods. Customers can purchase an item today and pay for it in four equal instalments every two weeks.We want our customers to spend responsibly and pay on time, so that they can use our service again for their next purchase.Our business modelNew customers with Afterpay start on low limits. Customer spending limits only increase with proven positive repayment behaviour over time. Afterpay never charges interest, our late fees are low and capped, and we pause our service as soon as a customer misses a payment.Afterpay has built a successful model without the need for credit checks. Over half our customers do not have established credit histories. Our proprietary algorithm has been tested against credit bureau data and validated that credit checks would not help Afterpay make better decisions.The traditional credit reporting system is designed to benefit lenders by helping them recover debts from customers. The threat of adverse credit listings is applied to customers that are behind in repayments.Afterpay instead manages its credit risk by suspending customers from spending more on our platform as soon as they miss a repayment. This prevents customers spiraling in debt and means they are more likely to be able to pay us back and continue using our service. It also means we can keep our overall losses lower.SupportAfterpay’s primary focus is to prevent consumers from experiencing financial hardship. We do not approve all customers that seek to use our platform and approve individual transactions in real time.Now more than ever, we also recognise that a person’s circumstances can change. Afterpay has a well-established, broad and generous hardship program, and our approach to hardship assistance goes above and beyond what is required by the law for traditional lenders.We immediately freeze late fees for customers in hardship, and we offer a range of short-term and longer term solutions, depending on individual circumstances. Our hardship program is easily accessible and, unlike the majority of other lenders, we do not require any documentary evidence from customers to support their hardship requests.We are committed to continual improvement and have engaged with Financial Counselling Australia (FCA) to help us further enhance our hardship program. While Afterpay received the highest rating among buy now pay later companies in the FCA’s July 2020 report on hardship1, we know we can do even better.RewardConsistent with our commitment to responsible spending, Afterpay has designed a rewards program called Pulse, that recognises customers who spend responsibly. Customers can unlock the rewards available under our Pulse program by demonstrating a continued series of on-time repayments.1. https://www.financialcounsellingaustralia.org.au/docs/rank-the-banks-and-other-creditors-2019/Our business modelNew customers with Afterpay start on low limits. Customer spending limits only increase with proven positive repayment behaviour over time.EnvironmentAfterpay is achieving carbon neutralityAfterpay is committed to environmental sustainability and recognises the direct impact that our business has on the environment.Afterpay’s direct impact on the environment is driven primarily by the physical offices we occupy around the world, the use of data centres to power our platform, and business travel. In 2020, we independently calculated our carbon footprint across our global operations. To achieve carbon neutrality, Afterpay is purchasing the necessary carbon credits to offset our emissions. We are currently working towards achieving certification from Climate Active.Afterpay recognises its broader impactAfterpay is a platform that connects consumers with merchants. We recognise the important role we have in understanding and influencing the indirect environmental impacts generated by our suppliers and retail supply chains.Afterpay has started to take steps to encourage greater awareness of ethical and sustainable fashion.We have started to empower our customers to make informed choices about fashion through a new partnership with Good On You, the world’s leading source for sustainable fashion brand ratings. Good On You uses expert analysis and proprietary technology to give each fashion brand an easy-to-understand score based on ethical and sustainable criteria. Afterpay’s Shop Directory, which sends around 14.5 million referrals to retailers every month, has a Shop Sustainably category that will be powered by Good On You. To help grow this category, and increase the number of merchants that have a Good On You rating, Afterpay has committed to providing Good On You with funding to review and rate additional labels.Through our partnership with Thread Together we are committed to helping vulnerable people who need clothing by addressing the problem of excess new fashion ending up as landfill. In 2020, Afterpay became Thread Together’s principal partner, and is committed to ensuring that Thread Together receives at least $200,000 per year.Like Afterpay, Thread Together is an Australian start-up with strong roots in fashion and is the only charity organisation in Australia whose mission and focus is to source new clothing from fashion retailers and redistribute items to those in our communities that need it most.Hundreds of Australian fashion retailers donate excess stock to Thread Together, including brands and partners of Afterpay, such as THE ICONIC, Bec + Bridge, P.E. Nation, Under Armour, Calvin Klein, Tommy Hilfiger, Bendon Lingerie and Retail Apparel Group. This has resulted in tonnes of new clothing being diverted from landfill to date and cemented Thread Together’s role as the highest ethical response to the textile waste problem in Australia.The Afterpay shop directory, which sends14.5 millionreferrals to retailers every month1, has a Shop Sustainably category that will soon be poweredby Good On YouSustainable fashionAfterpay has started to take steps to encourage greater awareness of ethical and sustainable fashion.1. Based on Q4 FY2023Directors’ Report

Directors’
Report.

Afterpay has built
a successful model
without the need for
credit checks. Over
half our customers do
not have established
credit histories.

Directors’

Report.

Afterpay has built

a successful model

without the need for

credit checks. Over

half our customers do

not have established

credit histories.

Directors’ Report

The Directors submit their report on the consolidated entity consisting of Afterpay

Limited (Company) and the entities it controlled (Group) at the end of, or during, the

year ended 30 June 2020.

Directors

As at the date of this report, the Directors of Afterpay Limited are:

Elana Rubin

Chair, Independent Non-Executive Director

Anthony Eisen

Chief Executive Officer and Managing Director

Nick Molnar

Global Chief Revenue Officer and Executive Director

Gary Briggs

Independent Non-Executive Director

Pat O’Sullivan

Independent Non-Executive Director

Sharon Rothstein

Independent Non-Executive Director

Dana Stalder

Independent Non-Executive Director

The Directors listed above each held office as a Director of Afterpay Limited throughout

the period and until the date of this report, other than:

• Gary Briggs, who was appointed as a Director on 1 January 2020;

• Pat O’Sullivan, who was appointed as a Director on 1 March 2020; and

• Sharon Rothstein, who was appointed as a Director on 1 June 2020.

The following individuals were a Director of Afterpay Limited for a portion of the year:

• David Hancock, who ceased to be a Director on 8 October 2019; and

• Clifford Rosenberg, who ceased to be a Director on 24 May 2020.

Principal Activities

The principal activities of the Group are to provide technology-driven payments

solutions for customers and merchants through its Afterpay and Pay Now services and

businesses.

Financial Result

The Group reported a Statutory Loss After Tax of $22.9 million for the year ended

30 June 2020 (2019: $43.8 million).

Operating & Financial
Review

The year ended 30 June 2020 was a period of continued financial growth and

international expansion for the Group. Overall, in the year ended 30 June 2020, Afterpay:

• doubled Underlying Sales to $11.1 billion with increases achieved across all regions

•

increased Afterpay Income Margin to 3.9% of Underlying Sales, with a broadened

merchant portfolio

recorded historically low losses with Receivables Impairment Expense (Gross Loss) at

0.9% of Underlying Sales, through proactive risk management during a period of

increased economic uncertainty

sustained Net Transaction Margin at over 2% of Underlying Sales, despite increasing

contribution from newer markets which are initially lower margin

• accelerated investment in line with a publicly stated ambition to exceed $20 billion in

Underlying Sales by the end of FY22

•

strengthened an already strong balance sheet position, with the ability to fund over

$30 billion in incremental Underlying Sales over the current Underlying Sales run rate of

$15 billion (Q4 annualised).

The final months of the year were overshadowed by the effects of the COVID-19

pandemic on the economies in which Afterpay operates. Underlying Sales, Total

Income, and Net Transaction Margin continued to grow notwithstanding the broader

economic consequences of COVID-19, with the platform benefiting from a shift from

in-store to online spending and from cash payments to digital payments.

Strong growth matched by strong margin
performance, notwithstanding:

• increased contribution from less-mature
markets which are initially lower margin;

• materially lower late fees as a percentage of

Afterpay Total Income

1. Group Summary

Total Income was $519.2 million for the year ended 30 June 2020, up 97% on the prior

year driven by growth in Underlying Sales and an expanding merchant margin.

Net Transaction Margin (NTM) for Afterpay was $250.2 million, up 110% on the prior year,

increasing broadly in line with Underlying Sales due to an expanding merchant margin

and stable variable cost margins.

The Group achieved EBITDA (excluding Significant Items) of $44.4 million for the year

ended 30 June 2020, up $18.7 million on the prior year, driven by growth in NTM which

more than offset planned increased investment in Employment and Operating

Expenses to support Afterpay’s continued expansion.

Table 1

Summary Financial Results

For the year ended 30 June

Total Income

Cost of Sales

2020
$m

519.2

2019
$m

Change
$m

Change
%

264.1

255.0

97%

(134.3)

(59.6)

(74.7)

(125%)

Receivables Impairment Expenses

(94.5)

(58.7)

(35.8)

(61%)

Employment Expenses

(86.1)

(51.4)

(34.7)

(67%)

Operating Expenses1,2

(146.3)

(73.2)

(73.1)

(100%)

Afterpay Net Transaction Margin3

250.2

119.3

130.8

110%

EBITDA (excl. Significant Items)2,4

44.4

25.7

Loss before tax

Loss for the year

(26.8)

(42.8)

18.7

16.0

73%

37%

(22.9)

(43.8)

20.9

48%

1. Operating Expenses include one-off items of $6.4 million (2019: $7.5 million) and foreign currency (FX) gain of $19.9 million

(2019: $3.0 million) which are not included in the calculation of EBITDA (excluding Significant Items). One-off items relate to
international expansion costs, business combination, AUSTRAC-related costs, and other one-off gains or costs.

2. The Group adopted AASB 16 Leases from 1 July 2019 using the modified retrospective method and has not restated comparatives for
the prior year, as per the specific transitional provisions. EBITDA in the year ended 30 June 2020 is $5.6 million higher due to the
adoption of AASB 16 than it would have been under the previous accounting standard, AASB 117 Leases.

3. Net Transaction Margin is a non-IFRS measure that is not audited but is a key financial metric used by management.
4. EBITDA is a non-IFRS measure that is not audited but is a key financial metric used by management at a Group level. EBITDA
(excluding Significant Items) excludes foreign currency gains, share-based payment expenses, net loss on financial liabilities
at fair value, share of loss of associate and one-off items.

2. Afterpay Platform Key Drivers

The financial results of Afterpay are supported by a number of underlying drivers

including Underlying Sales, Active Customers, and Active Merchants. Afterpay tracks,

and periodically reports, on these drivers in its half year and full year results

announcements.

Table 2

Summary Platform Drivers

For the year ended 30 June

2020

2019

Change

Change %

Underlying Sales ($m)

11,114

5,247

5,867

Active Customers (millions)1

Active Merchants (‘000s)1

9.9

55.4

4.6

32.3

5.3

23.1

112%

116%

72%

1. Active is defined as having transacted at least once in the last 12 months.

2.1 Underlying Sales

Underlying Sales were $11.1 billion in the year ended 30 June 2020, more than doubling

the prior year driven by strong growth across all regions.

Table 3

Underlying Sales

For the year ended 30 June

2020

2019

Change %

ANZ

6,566.9

3,990.4

557.0

4,314.1

927.5

5.6

Underlying Sales ($m)

11,114.2

5,247.2

52%

330%

112%

Underlying Sales growth increased during the COVID-19 affected months of the year

ended 30 June 2020. In the nine months to 31 March 2020, Underlying Sales were up

105% on the prior year. From 1 April to 30 June 2020, during which time the impacts of

COVID-19 were in full effect, Afterpay achieved its highest Underlying Sales quarter on

record at $3.8 billion, an increase of 127% on Q4 of the prior year.

2.2 Active Customers

Afterpay ended the year with almost 10 million Active Customers1, an increase of 116% on
the prior year. The average number of orders per Active Customer in the period

(otherwise referred to as customer frequency) also increased across all regions.

Table 4

Active Customers

For the year ended 30 June

ANZ

Active Customers (millions)

2020

3.3

5.6

1.0

9.9

2019

2.8

1.8

0.0

4.6

Change %

18%

219%

116%

1. Active is defined as having transacted at least once in the last 12 months.

2.3 Active Merchants

Afterpay had more than 55,000 Active Merchants1 by the end of the year, an increase of
more than 23,000, or 72%, on the prior year.

A broadening of the merchant portfolio to add more SMBs continued to be a focus for

Afterpay in the period. Enterprise merchants contributed 61% to Underlying Sales in

FY20, down from 63% in the prior year.

Table 5

Active Merchants

For the year ended 30 June

ANZ

Active Merchants ('000s)

2020

42.8

11.5

1.1

55.4

2019

Change %

28.4

3.8

0.0

32.3

51%

202%

72%

1. Active is defined as having transacted at least once in the last 12 months.

3. Total Income by Service

Total Income for the Group was $519.2 million for the year ended 30 June 2020, an

increase of 97% on the prior year. Afterpay generates income from its Afterpay service

together with a smaller contribution from the Pay Now business, each of which are

discussed separately below.

3.1 Afterpay

Afterpay Total Income is comprised of Afterpay Income (income from merchants) and

Other Income.

In the year ended 30 June 2020, Afterpay Income increased by 116% on the prior year to

$433.8 million. Afterpay Income as a percentage of Afterpay Underlying Sales was 3.9%

in the year, an increase of 0.1 percentage points on the prior year.

Other Income (Late Fees) increased to $68.8 million from $46.1 million in the prior year.

Late Fees grew at a far slower rate than the increase in Underlying Sales and are now

less than 14% of Afterpay Total Income.

Table 6

Afterpay Total Income

For the year ended 30 June

2020

2019

Change %

Afterpay Income ($m)

433.8

200.9

% of Afterpay Underlying Sales

3.9%

3.8%

Other Income ($m)

68.8

46.1

% of Afterpay Total Income

Afterpay Total Income ($m)

13.7%

502.7

18.7%

247.0

116%

0.1pp

49%

-5.0pp

103%

3.2 Pay Now

Pay Now Revenue declined by $0.6 million to $16.5 million for the year ended 30 June

2020. Pay Now Revenue in the prior year included $0.9 million of revenue associated

with the European e-Services business unit, which was divested in the prior year. Pay

Now Revenue would have increased year-on-year, after adjusting to exclude the

contribution of the European e-Services business unit in the prior year.

4. Expenses

Expenses increased in the year ended 30 June 2020 as the Group invested in

operational expansion to support its publicly stated ambition to exceed $20 billion of

Underlying Sales by the end of FY22. In particular, the year ended 30 June 2020

represented the first full year period of investment to successfully grow Afterpay’s UK

operations, as well as investment to maximise growth in Afterpay’s largest market

opportunity, the US, in its second full year of trading.

Afterpay quickly implemented a response plan that included a focus on limiting losses

during the uncertain COVID-19 period, which contributed to Gross Loss improving

during the COVID-19 period. The Group has continued to execute upon its mid-term

plan while managing risks; and did not receive any government grants or other COVID-

19-related benefits in the year.

The Group is well positioned to continue accelerating investment for growth in line with

a publicly stated ambition to exceed $20 billion in Underlying Sales by the end of FY22.

4.1 Cost of Sales

Cost of Sales for the year ended 30 June 2020 was $134.3 million, up 125% on the prior

year, largely due to increased processing and other variable costs associated with higher

Underlying Sales.

Cost of Sales represented 1.2% of Underlying Sales, an increase of 0.1 percentage points

on the prior year due to an increased contribution of Underlying Sales from the US and

UK regions which have higher processing costs relative to ANZ. Specifically, US and UK

contribution to total Underlying Sales grew from 18% in the year ended 30 June 2019 to

41% in the current year.

Afterpay contributed $128.9 million to Cost of Sales in the period relative to $5.4 million

for Pay Now.

Table 7

Cost of Sales

For the year ended 30 June

2020

2019

Change %

Cost of Sales ($m)

134.3

59.6

% of Afterpay Underlying Sales

1.2%

1.1%

125%

0.1pp

4.2

Losses

4.2.1 Receivables Impairment Expense (Gross Loss)

Gross Loss was $94.5 million for the year ended 30 June 2020, representing 0.9% of

Underlying Sales and improving by 0.3 percentage points on the prior year. Gross Loss

improved notwithstanding the impact of the COVID-19 pandemic and increased

Underlying Sales contribution from the newer US and UK markets which have higher

losses relative to ANZ, due to their earlier growth phase.

Improvements in risk management practices and a higher proportion of returning

customers (who are less risky) were key drivers of the improvement in Gross Loss

performance through the year. Notably, collections of instalment payments and Gross

Loss improved during the COVID-19 period.

Table 8

Gross Loss

For the year ended 30 June

2020

2019

Change %

Gross Loss ($m)

94.5

58.7

61%

% of Afterpay Underlying Sales

0.9%

1.1%

-0.3pp

Net Transaction Loss

Gross Loss is a key input into Afterpay’s Net Transaction Loss (NTL), a management
metric comprised of the sum of Gross Loss, Chargebacks, Debt Recovery Costs, less
Afterpay Other Income (Late Fees). Chargebacks and Debt Recovery Costs are reported
within Other Operating Expenses.

NTL for the year ended 30 June 2020 was $42.8 million, or 0.4% of Underlying Sales. NTL
as a percentage of Underlying Sales was in line with the prior period with a reduction in
Gross Loss offsetting a reduction in Other Income (Late Fees).

Table 9

NTL

For the year ended 30 June

NTL ($m)

% of Afterpay Underlying Sales

2020

42.8

0.4%

2019

Change %

22.2

0.4%

93%

0.0pp

Employment Expenses were $86.1 million for the year ended 30 June 2020, up 67% on
the prior year but declining as a percentage of Underlying Sales by 0.2 percentage
points.

The growth in Employment Expenses in dollar terms reflected the Group’s continued
investment in talent, particularly across the sales, technology and product functions, to
support Afterpay’s mid-term plan. Headcount was added in all regions with the Group
closing the year with 665 employees globally, up from 447 employees at 30 June 2019.

Afterpay plans to continue to invest in talent to accelerate market penetration and
global expansion in line with mid-term plans.

Table 10

Employment Expenses

For the year ended 30 June

2020

2019

Change %

Employment Expenses ($m)

86.1

51.4

67%

% of Afterpay Underlying Sales

0.8%

1.0%

-0.2pp

Operating Expenses, which comprise Marketing and Other Operating Expenses, were
$146.3 million for the year ended 30 June 2020, up 100% on the prior year. Operating
Expenses represented 1.3% of Underlying Sales and were 0.1 percentage points lower
than the prior year.

Table 11

Operating Expenses

For the year ended 30 June

Operating Expenses ($m)

% of Afterpay Underlying Sales

Operating Expenses
(excl. Significant Items) ($m)

% of Afterpay Underlying Sales

2020

146.3

1.3%

159.8

1.4%

2019

Change %

73.2

1.4%

68.7

1.3%

100%

-0.1pp

133%

0.1pp

4.4.1 Marketing Expenses

Marketing Expenses were $70.5 million in the year ended 30 June 2020, up by 208% and

0.2 percentage points of Underlying Sales compared to the prior year. Marketing

Expenses include both co-marketing initiatives with major brand merchant partners

and other marketing spend such as digital paid media and visual merchandising.

The increase in Marketing Expenses was in line with the Group’s statements at the half

year to increase marketing spend and partner with major brand merchants to

accelerate growth in Underlying Sales. Marketing Expenses in the year also supported

increased investment in brand, including the recent global Afterpay re-brand. Further

investment in marketing will continue next year in line with mid-term plans.

Table 12 Marketing expenses

For the year ended 30 June

2020

2019

Change %

Marketing Expenses ($m)

70.5

22.9

% of Afterpay Underlying Sales

0.6%

0.4%

208%

0.2pp

4.4.2 Other Operating Expenses

Other Operating Expenses comprise technology costs which support the global

Afterpay service, costs for outsourced customer services teams, and corporate costs

such as legal, compliance, finance, and other general and administrative costs.

Other Operating Expenses were $75.8 million in the year ended 30 June 2020, up 51% on

the prior year but improving as a percentage of Underlying Sales due to operational

leverage. Increased investment in Other Operating Expenses was made to support

Underlying Sales growth and global expansion, in line with the Group’s mid-term plan,

and will continue to be an area of investment.

Other Operating Expenses included $6.4 million of one-off items (2019: $7.5 million) and

$19.9 million of foreign currency gains (2019: $3.0 million gain). Other Operating

Expenses excluding the net impact of these items would have been $89.3 million,

representing 0.8% of Afterpay Underlying Sales, 0.1 percentage points better than the

prior year.

Table 13

Other Operating Expenses

For the year ended 30 June

Other Operating Expenses ($m)

% of Afterpay Underlying Sales

Other Operating Expenses

(excl. Significant Items) ($m)

% of Afterpay Underlying Sales

2020

75.8

0.7%

89.3

0.8%

2019

Change %

50.3

1.0%

45.8

0.9%

51%

-0.3pp

95%

-0.1pp

5. Margin & EBITDA

5.1 Net Transaction Margin – Afterpay

Net Transaction Margin (NTM) is a non-IFRS measure that is not audited but is a key

financial metric used by management to track Afterpay’s gross profit inclusive of losses

and funding costs. Afterpay NTM is comprised of Afterpay Income less Afterpay variable

costs, including Cost of Sales, NTL, and direct Receivables funding costs.

Afterpay NTM was $250.2 million in the year ended 30 June 2020, up 110% on the prior

year. Afterpay NTM as a percentage of Underlying Sales was stable at 2.3%, reflecting a

stable NTL percentage and higher merchant margin offsetting a higher Cost of Sales

percentage.

Table 14

NTM – Afterpay

For the year ended 30 June

NTM – Afterpay ($m)

% of Afterpay Underlying Sales

2020

250.2

2.3%

2019

Change %

119.3

2.3%

110%

-0.0pp

A reconciliation of Statutory Gross Profit as presented in the Consolidated Statement of
Comprehensive Income to NTM is set out in Figure 1.

Figure 1

Gross Profit bridge to NTM – Afterpay ($ millions)

384.9

(94.5)

(11.9)

261.3

250.2

(17.1)

(11.1)

Statutory Gross
Profit

Receivables
Impairment
Expenses

NTM Finance costs

Chargebacks and
Debt Recovery costs

Group NTM

Pay Now Margin

Afterpay NTM

Afterpay
receivables
impairment
expense reported
below Gross Profit
but is included in
NTM

Finance cost
associated with
external
receivables
funding reported
in interest
expense but
included in NTM1

Transaction costs
reported in
operating
expenses but
included in NTM

Pay Now revenue
less Pay Now cost
of sales

Note:
1. Finance cost associated with external receivables funding: reported in finance costs but included in NTM. Excludes

amortisation of capitalised borrowing costs, corporate bond interest, lease expense and interest income. Methodology
consistent with prior periods.

5.2 EBITDA (excluding Significant Items)

The Group’s EBITDA (excluding Significant Items) was $44.4 million in the year ended 30

June 2020, up 73% on the prior year. The increase in EBITDA (excluding Significant

Items) was driven by growth in Underlying Sales, Afterpay Income, and Net Transaction

Margin in the Afterpay business, partially offset by increased Employment and

Operating Expenses to support strong Underlying Sales growth.

Table 15

EBITDA (excluding Significant Items)

For the year ended 30 June

2020

2019

Change %

EBITDA (excl. Significant Items) ($m)

44.4

25.7

73%

A reconciliation from Loss for the year as presented in the Consolidated Statement of

Comprehensive Income to EBITDA (excluding Significant Items) is set out in Figure 2

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 2

Reconciliation from Loss for the year to EBITDA (excluding Significant Items) ($ millions)

44.4

(19.9)

2.0

30.5

6.4

21.1

1.1

(22.9)

(3.9)

(26.8)

30.0

Loss for the
year

Income Tax
Benefit

Loss Before
Tax

Depreciation
And
Amortisation

Share Of Loss
Of Associate

Net Finance
Cost

One-Off
Costs

Fair Value Of
Financial
Liabilities

Share Based
Payments

Foreign
Currency
Gains

EBITDA (excl.
significant
items)

6. Constant Currency

Afterpay’s reported results are impacted by movements in foreign exchange rates given

the extent of the Group’s global operations and the growth in contribution from

international markets outside of Australia.

Constant currency (CC) is provided to facilitate comparability of Afterpay’s operational

performance, excluding the impact of foreign currency fluctuations. Constant currency

is a non-IFRS measure and has been calculated by translating the results for the year

ended 30 June 2020 at the effective exchange rates for the prior year ended 30 June

2019 for each of Underlying Sales and Afterpay Income.

Table 16

Constant Currency

For the year ended 30 June

2020 (CC)

2020

2019

Change
in CC %

Reported
change %

Underlying Sales ($m)

10,851.8

11,114.2

5,247.2

107%

Afterpay Income ($m)

423.8

433.8

200.9

111%

112%

116%

7. Financial Position

The Group’s financial position has increased to Net Assets of $946.4 million as at 30 June

2020, up from $648.5 million at 30 June 2019.

Total Assets were $1,608.5 million, an increase of $788.1 million, which is primarily due to

growth in Cash and Cash Equivalents (up $374.6 million) and Receivables (up $329.2

million). The increase in Receivables to $781.9 million at 30 June 2020 was due to the

continued growth in Underlying Sales.

Total Liabilities were $662.2 million, an increase of $490.2 million from 30 June 2019

primarily due to growth in Interest Bearing Loans and Borrowings (up $418.8 million)

and Trade and Other Payables (up $70.7 million). The increase in total Interest Bearing

Loans and Borrowings to $469.0 million at 30 June 2020 was due to increased use of

debt to fund the growth in Receivables.

8. Capital Management

The Group is focused on capital management to ensure that it has sufficient cash and

available facilities to meet current and future funding requirements and growth

aspirations. As at 30 June 2020, the Group’s Balance Sheet and Liquidity position

remained strong with the launch of new, and extension of existing, warehouse funding

facilities during the period. The Group’s Balance Sheet and Liquidity position was further

enhanced following an equity capital raising in July 2020.

8.1 Net Cash / Debt

As at 30 June 2020, reported Net Cash was $138.5 million, comprising Total Cash of

$607.6 million less Interest Bearing Loans and Borrowings of $469.0 million.

Reported Net Cash was $44.7 million lower than prior year due primarily to funding of

growth in Receivables which have increased by $329.2 million from the prior year,

partially offset by capital raisings during the year, which included the $200.0 million

Coatue capital raising completed in the first half of the financial year.

Table 17

Net Cash / (Debt)

As at 30 June

Cash and Cash Equivalents

Restricted Cash1

Total Cash

2020
$m

606.0

1.5

607.6

Interest Bearing Loans and Borrowings

(469.0)

Net Cash

138.5

2019
$m

231.5

2.0

233.5

(50.2)

183.3

Change
$m

374.6

(0.5)

374.1

(418.8)

(44.7)

1. Restricted Cash relates to cash assets held with banks as collateral for daily cash settlements with merchants and payments

to funding providers. Included within Other Financial Assets in the Financial Statements.

The Group completed a capital raising in July 2020, post the conclusion of the financial

year. After allowing for net proceeds from the July 2020 capital raising, Afterpay has pro

forma Total Cash of $1,377.3 million and pro forma net cash of $908.3 million.

Table 18

Pro Forma Net Cash / (Debt)

As at 30 June

Net Capital Raising Proceeds1

Pro Forma Total Cash

2020
$m

769.8

1,377.3

Pro Forma Net Cash
1. Relates to the $786.2 million capital raising in July 2020, net of capital raising fees.

908.3

2019
$m

233.5

183.3

Change
$m

769.8

1,143.9

725.0

8.2 Debt Funding

The Group’s debt funding is diversified by both source and maturity. During the year
ended 30 June 2020 and through to the date of this report, Afterpay:

> Established a US$200 million US receivables warehouse funding facility with

Goldman Sachs to mature in December 2021;

> Extended the US$200 million US receivables warehouse funding facility with Citi to
May 2022. The US facility with Citi was also reduced from US$300 million to US$200

million, concurrent to the establishment of the Goldman Sachs facility;

> Established a NZ$20 million New Zealand receivables warehouse funding facility

with Bank of New Zealand and subsequently increased the commitment to NZ$50

million and extended the facility to March 2022;

> Extended the $300 million Australian receivables warehouse funding facility with

NAB to December 2022;

> Extended the $200 million Australian receivables warehouse funding facility with Citi

to December 2022; and

> Repaid $50 million unsecured retail notes in Australia.

Afterpay has no debt maturity within the next 12 months (earliest maturity in December

2021), with an average debt facility maturity of ~2.0 years as at the date of this report.

The table below sets out the Group’s debt funding sources as at the date of this report.

Table 19

Debt funding sources

Facility

Region

Provider

Facility Size

Drawn

Maturity

Receivables Warehouse Funding

Citi

$200m

A$75.0m

Dec-22

NAB

$300m

A$80.0m

Dec-22

BNZ

NZ$50m

NZ$25.0m

Mar-22

GS US$200m US$193.0m

Dec-21

Citi US$200m

US$4.0m

May-22

8.3

Liquidity & Growth Capacity

The Group maintains a strong liquidity position and capacity to fund future growth.

Liquidity for Afterpay is calculated as:

the Cash and Cash Equivalents balance; plus

> undrawn capacity under receivables warehouse facilities.

Afterpay had Liquidity of $728.4 million at 30 June 2020.

The nature of Afterpay’s warehouse facilities is that funds become available in line with

the growth in Receivables. Growth Capacity for Afterpay reflects:

the facility limit; less

> drawn debt; less

the undrawn capacity under available receivables warehouse facilities.

Afterpay had Growth Capacity of $541.8 million at 30 June 2020.

The combination of Liquidity and Growth Capacity at 30 June 2020 was $1,270.2 million.

Inclusive of the net proceeds from the capital raising in July 2020, Afterpay has Pro

Forma Liquidity of $1,498.2 million. Combined Pro Forma Liquidity and Growth Capacity

is $2,039.9 million, which together provide the ability to fund in excess of $30 billion in

annualised Underlying Sales above the current annualised Underlying Sales run-rate of

$15 billion (Q4).

Figure 3

Afterpay Liquidity and Growth Capacity ($ millions).

606.0

122.4

728.4

541.8

1,270.2

769.8

2,039.9

Growth
Capacity
541.8

Pro Forma
Liquidity
1,498.2

Unrestricted Cash

Undrawn
Warehouse
Capacity

Liquidity

Growth
Capacity

Total Liquidity +
Growth Capacity

Net Capital
Raising Proceeds

Pro Forma
Total Liquidity
+ Growth Capacity

As at 30 June

Pro Forma

9. Outlook for FY21

Afterpay will further accelerate investment for growth in FY21. With new markets
tracking in line with ANZ blueprint, and additional markets coming online in FY21, we
will further accelerate our investment to:

• Enhance our platform and continue to grow our people resources

• Pursue co-marketing opportunities and invest in our retail partners

• Consolidate our market-leading position in existing markets

• Establish a footprint and first/early-mover advantage in new markets

10. Other

This Operating and Financial Review should be read in conjunction with the 2020 in

Review described earlier in this Annual Report.

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.

Key Risks & Business
Challenges

The Group continues to establish its presence in the Australian, New Zealand, US and
the UK markets. The principal risks and business challenges for the Group are:

Key Risks

Loss of, or failure to attract, key management personnel

Ability to continue driving customer and merchant growth

• Ability to retain and grow Afterpay’s retail merchant client base;
• Ability to retain and grow Afterpay customers in all markets;
• Ability to increase transaction volumes, merchant and end customer numbers;
• Increased competition and new market entrants;
• Ability of the Group’s technology to integrate with third party platforms,

particularly websites, point of sale systems, and other merchant systems;
• Risks associated with the emergence of new technologies and customer

requirements; and

• Risks associated with macroeconomic factors, including a slowdown in merchant

and customer growth resulting from the COVID-19 pandemic.

Risks related to technology infrastructure, performance and intellectual property

• Failures or disruption to technology systems and communication networks;
• Banking and payment processing performance;
• Exposure to potential security breaches and data protection issues;
• Protection and ownership of technology and intellectual property;
• Capacity constraints on platform and network infrastructure; and
• Risks that the Group’s technology may be superseded by other technology or

changes in business practice.

Credit, fraud and other related risks

• Risk of Afterpay end customers not repaying; and
• Risk of fraud.

Access to funding to support the growth in instalment payments receivables

• Access to equity funding sources; and

• Access to debt funding sources.

Risks associated with compliance and changes to the regulatory environment that
may impact the Group’s products, product delivery, brand and/or financial returns
(due to potential higher compliance costs). Some of these risks may include:

• Financial product regulation
• Payment system regulation
• Regulatory interpretation
• AML / CTF laws
• Privacy laws

A particular area of focus for the Group in the year ended 30 June 2020 has been to

build and expand its enterprise risk management focus and capability, including the

appointment of a Chief Enterprise Risk Officer, to proactively identify and mitigate risks.

The Group’s continued engagement with local regulatory and other stakeholder groups

on its product and service offering in all operating regions has also been a focus.

The Group also continues to strengthen and invest in its business development

resources and processes in sales and marketing as well as in its customer risk, product

and technology / engineering talent and capability with the aim of improving the

Afterpay platform and supporting continued growth.

Information on Directors

Elana Rubin

Anthony Eisen

Chair, Independent
Non-Executive Director

Chief Executive Officer and
Managing Director

Chair since 25 May 2020.

Chief Executive Officer and Managing

Independent Non-Executive Director

Director since 1 July 2019.

since 30 March 2017.

Executive Chairman from 5 July 2017

to 30 June 2019.

Background and Experience: Elana

previously served as an Interim Chair from 1

Background and Experience: Prior to his
current role, Anthony served as Executive

July 2019 and has been an Independent Non-

Chairman of Afterpay for two years. Anthony

Executive Director of Afterpay since

has over 25 years’ experience in investing,

2017. Elana has been a longstanding director

public company directorships and providing

of a number of public and private companies,

corporate advice across a variety of sectors.

with extensive experience in property,

Prior to co-founding Afterpay, he was the

insurance and financial services.

Chief Investment Officer at Guinness Peat

Other Roles: Elana is currently a Non-

Executive Director of ASX-listed Telstra

Corporation 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

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.

Director of Mirvac Limited. She was the

Other Roles: Anthony is currently also a

former Chair of AustralianSuper and the

Director of Stone & Chalk Pty Ltd.

Victorian WorkCover Authority. Elana has

over 20 years’ experience as a Non-Executive

Director.

Interests in Shares and Options1:

• 64,847 ordinary shares in Afterpay Limited

Interests in Shares and Options1:

• 20,450,659 ordinary shares in Afterpay

Limited

• 1,500,000 unlisted options relating to equity

awards under the Group’s legacy

remuneration framework, with an exercise

price of $1.00 per option and an expiry date

of 31 December 2020

• 125,000 unlisted options, with an exercise
price of $37.31 per option and an expiry

date of 1 July 2024

1. As at 30 June 2020.

Nick Molnar

Gary Briggs

Global Chief Revenue Officer &
Executive Director

Independent Non-Executive
Director

Global Chief Revenue Officer & Executive

Independent Non-Executive Director since 1

Director since 1 July 2019.

January 2020.

Executive Director since 5 July 2017.

Background and Experience: Nick has

Background and Experience: Gary is

extensive experience in online retail. Prior to

currently the Chairman of Hawkfish, a digital

co-founding Afterpay, Nick launched the

agency focused on Democratic causes and

leading American online jeweller, Ice.com,

initiatives. From 2013-2018, Gary was the Chief

into Australia under the local brand

Marketing Officer of Facebook, responsible

Iceonline.com.au. Nick successfully grew Ice

for the Company’s brand, consumer, and

in Australia to become the largest online-only

product marketing. He was Facebook’s first

jewellery and watch retailer. Prior to

CMO. From 2010-13, Gary was at Google,

launching Ice, Nick was an Investment

where he led marketing efforts for search,

Analyst at venture capital fund M.H. Carnegie

maps, commerce, Chrome, Google+,

& Co., where he was primarily responsible for

Google.org, and the Google brand overall. He

growth stage investment opportunities in the

also led marketing for Motorola Mobility,

technology sector. Nick holds a Bachelor of

upon its acquisition by Google. Before

Commerce from Sydney University.

Google, Gary was CEO at Plastic Jungle, a gift

Interests in Shares and Options1:

• 20,450,659 ordinary shares in Afterpay

Limited

• 1,500,000 unlisted options relating to equity

awards under the Group’s legacy

remuneration framework, with an exercise

price of $1.00 per option and an expiry date

of 31 December 2020

card startup, where he joined from their

Board of Directors. Before that, Gary worked

at eBay from 2002-08 in roles as Vice

President of Consumer Marketing, General

Manager of eBay Canada, Global Marketing

Head of PayPal, and CMO of eBay North

America. Earlier in his career, Gary worked for

six years at Pepsi, where he launched

Aquafina, Pepsi's joint venture with Starbucks

• 125,000 unlisted options, with an exercise
price of $37.31 per option and an expiry

and was Director of Brand Pepsi. He also

spent two years at IBM running worldwide

date of 1 July 2024

1. As at 30 June 2020.

brand strategy and was an engagement

manager at McKinsey. He earned a Bachelor

of Arts degree in 1984 from Brown University

and a Masters in Management in 1989 from

the Kellogg School of

Management, Northwestern University.

Other Roles: Gary also serves on the Boards

of Etsy, Inc (NASDAQ: Etsy) and Petco, and is

an advisor to several early stage companies.

Interests in Shares and Options1:

Nil holdings in Afterpay Limited

Pat O’Sullivan

Sharon Rothstein

Independent Non-Executive
Director

Independent Non-Executive Director since 1

March 2020.

June 2020.

Background and Experience: Pat is

Background and Experience: Sharon

currently a director of several companies and

currently serves as an Operating Partner at

previously worked for 30 years in various

growth equity firm, Stripes Group, and is also

senior financial and operational roles in

a listed company director. Prior to her current

Ireland, the US, Australia and New Zealand

roles, Sharon was the Executive Vice

across a number of industries including

President, Global Chief Marketing Officer of

traditional and online media,

Starbucks Corporation for five years, following

telecommunications, fast moving consumer

her position as Senior Vice President of

goods and professional accounting. He was

Marketing at Sephora. Sharon has held senior

the Chief Financial Officer of Optus from 2001

marketing and brand management positions

to 2006 and was the Chief Operating Officer

with Godiva, Starwood Hotels and Resorts,

and Finance Director of Nine Entertainment

Nabisco Biscuit Company and Procter &

Co Pty Limited (formerly PBL Media Pty Ltd)

Gamble. Sharon holds a Bachelor of

from 2006 until 2012. Pat is a member of The

Commerce from the University of British

Institute of Chartered Accountants in Ireland

Columbia and an M.B.A. from the University

and Australia. He is a graduate of the Harvard

of California, Los Angeles.

Business School’s Advanced Management

Program.

Other Roles: Sharon is currently a Director of

Yelp Inc (NYSE: YELP), and Non-Executive

Other Roles: Pat is currently Chairman of

Director of InterContinental Hotels Group

carsales.com Limited (ASX:CAR), and Deputy

(LON: IHG).

Interests in Shares and Options1:

• Nil holdings in Afterpay Limited

Chair of Calvary Health. Pat was previously an

Independent Non-Executive Director of the

following ASX listed companies; APN Outdoor

(ASX: APO), iSentia (ASX:ISD), Marley Spoon

(ASX:MMM), iSelect (ASX:ISU) and iiNet (ASX:

IIN) and was previously Chairman

of HealthEngine. He is also Chairman of

dreams2live4 an Australian charity that

grants dreams to people with metastatic

cancer.

Interests in Shares and Options1:

• 7,169 ordinary shares in Afterpay Limited

1. As at 30 June 2020.

Dana Stalder

Independent Non-Executive
Director

Independent Non-Executive Director since

24 January 2018.

Background and Experience: Dana brings

over 20 years of experience as a technology

company operator and investor. His

experience spans multiple disciplines

including sales, marketing, finance,

technology and product management at

companies such as eBay, Netscape and

PayPal. Dana is an expert in FinTech and an

active FinTech and consumer internet

investor in Silicon Valley. Dana holds a

Bachelor of Science in Commerce from Santa

Clara University, and began his career at

Ernst & Young advising technology

companies. His executive experience extends

to positions held at Netscape

Communications, AOL, Respond.com, eBay

and PayPal before joining Matrix Partners in

2008 as a General Partner. His investments

focus primarily on FinTech, Consumer
Marketplaces, and Enterprise Software.
Other Roles: Dana currently serves on the

Board of Directors of several private US based

technology companies.

Interests in Shares and Options1:

• 19,300 ordinary shares in Afterpay Limited

• 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

1. As at 30 June 2020.

Former Directors

Clifford Rosenberg

David Hancock

Former Independent
Non-Executive Director

Former Executive Director

Executive Director from 5 July 2017 to 8

Independent Non-Executive Director from 30

October 2019.

March 2017 to 24 May 2020.

Group Head from 5 July 2017 to 30 June 2019.

Independent Non-Executive Director from 30

March 2017 to 4 July 2017.

Background and Experience: Clifford has

spent more than 20 years working at digital

Background and Experience: David has over
30 years of broad experience in financial

companies leading innovation and change in

services. This experience includes being CEO

the industry both as an entrepreneur and

of listed Tower Limited, Executive General

senior executive. Clifford was previously a

Manager at the Commonwealth Bank of

senior executive at LinkedIn, serving as the

Australia, with a variety of roles, including

Managing Director of LinkedIn for South East

capital markets, fixed income and equities.

Asia, Australia and New Zealand. Prior to

Prior to that, he served in senior investment

LinkedIn, Clifford was Managing Director at

banking roles at JPMorgan where he was a

Yahoo Australia and New Zealand, and

Managing Director. Previous to that, David

previously the founder and Managing

spent approximately 10 years at Citi (formerly

Director of iTouch Australia and New Zealand,

County Natwest) where he was Managing

one of the biggest mobile content and

Director and Co-Head of Investment Banking.

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, a member of the Technology

Committee of AustralianSuper, and a Board

member of BidCorp (JSE). Clifford has

previously been a Director of ASX listed

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 Options1:

• 950,000 ordinary shares in Afterpay Limited

• 200,000 unlisted options relating to equity

awards under the Group’s legacy

remuneration framework with an exercise

price of $1.00 per option and an expiry date

companies IXUP Limited and Pureprofile Ltd.

of 31 December 2020

Interests in Shares and Options1:

• 1,450,659 ordinary shares in Afterpay

Limited

• 2,699,087 unlisted options relating to

equity awards under the Group’s legacy

remuneration framework with an exercise

price of $2.70 per option and an expiry date

of 1 September 2022

1. As at the date of cessation of being a Director of Afterpay Limited.

Company Secretary

Amanda Street

Nat McKaig

Company Secretary

Deputy Company Secretary

Company Secretary since 18 August 2020.

Company Secretary since 15 May 2020.

Background and Experience: Amanda was

Background and Experience: Nat has over 15

formerly with Transurban Group, having been

years of legal and company secretariat

Company Secretary since February 2011.

experience. Before joining Afterpay, Nat held

Before joining Transurban, Amanda was

governance / company secretariat roles at

Assistant Company Secretary at AusNet

various listed entities, including BHP Limited,

Services, and Senior Corporate Counsel at

National Australia Bank Limited and Treasury

National Australia Bank. She has over 20 years

Wine Estates Limited. Prior to that, Nat was a

of legal, governance, company secretariat,

solicitor specialising in commercial and

and other relevant experience. Prior to her in-

corporate law. Nat has a Bachelor of Laws,

house work, Amanda was a solicitor

Graduate Diploma in Company Secretarial

specialising in M&A work with Australian law

Practice and is a Fellow of the Governance

firm, King & Wood Mallesons. Amanda has a

Institute of Australia.

Bachelor of Law (Honours) and Bachelor of

Commerce from the University of Melbourne.

Meetings of Directors

During the year ended 30 June 2020, Afterpay Limited held 19 meetings of the Board of

Directors, of which 10 were standard scheduled Board meetings and nine were held to

discuss additional business. Attendance of the Directors at meetings of the Board

during the year is set out below:

Table 20 Board Meetings

Scheduled

Additional

Eligible1

Attended

Eligible1

Attended

Elana Rubin

Anthony Eisen

Nick Molnar

Gary Briggs

Pat O’Sullivan

Sharon Rothstein

Dana Stalder

David Hancock

Clifford Rosenberg

–

Notes:
1. The number of meetings held during the time the Director was a member of the Board.

The Group as at 30 June 2020 had an:

• Audit, Risk & Compliance Committee (ARCC);

• People, Remuneration & Nomination Committee (PRNC); and

• AML/CTF Review Sub-Committee.

The current members of each committee are as follows:

–

Audit, Risk & Compliance
Committee (ARCC)

People, Remuneration &
Nomination Committee (PRNC)

AML/CTF Review
Sub-Committee

Pat O’Sullivan (Chair1)

Elana Rubin (Interim Chair2)

Elana Rubin (Chair)

Elana Rubin

Pat O’Sullivan

Anthony Eisen

Dana Stalder

Sharon Rothstein

Damian Kassabgi

Cassandra Williams

Leon Zwier3

Notes:
1. Pat O’Sullivan became Chair of the ARCC on 1 March 2020. Dana Stalder was Chair of the ARCC from 1 July 2019 to 29 February

2020.

2. Elana Rubin became Interim Chair of the PRNC on 1 June 2020. Clifford Rosenberg was Chair of the PRNC from 1 July 2019 to

24 May 2020.

3. Leon Zwier commenced a leave of absence from the AML/CTF Review Sub-Committee on 17 April 2020.

Attendance of the Directors at meetings of committees of the Board during the year is

set out below:

Table 21

Board Committee Meetings

Audit, Risk &
Compliance

People, Remuneration &
Nomination

AML/CTF Review Sub-
Committee4

Eligible1

Attended

Eligible1

Attended

Eligible1

Attended

Elana Rubin

Anthony Eisen

Nick Molnar

Gary Briggs

Pat O’Sullivan

Sharon Rothstein

Dana Stalder

David Hancock

Clifford Rosenberg

–

6 X

5 2

6 2

1 2

1 X

– X

6 X

2 X

4 X

–

7 X

7 2

6 2

2 2

2 3

1 X

3 2

1 2

6 X

–

33 X

34 5

–

9 X

–

Notes:
1. The number of meetings held during the time the Director was a member of the Board.
2. Denotes the Director is not a member of the relevant committee.
3. Pat O’Sullivan attended one meeting as an invitee and one meeting as a member of the relevant committee.
4. The AML/CTF Review Sub-Committee was established on 19 June 2019.
5. The meetings were attended by Anthony Eisen or his delegate.

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 Group completed a $786.2 million capital raising subsequent to 30 June 2020,
which comprised a $650.0 million Institutional Placement and a $136.2 million Share
Purchase Plan (SPP).

On 21 August 2020, a wholly owned subsidiary of the Group entered into a Share
Purchase Agreement (SPA) with NBQ Corporate SLU (NBQ) to acquire 100% of the
shares outstanding in Pagantis SAU and PMT Technology SLU (collectively, Pagantis).
Pagantis currently provides a range of buy now, pay later and traditional credit services
across Spain, France and Italy with regulatory approval to also operate in Portugal and a
pending application to passport its payment institution licence into Germany. Further
details are set out in Note 23 of the Financial Statements.

On 26 August 2020, a wholly owned subsidiary of the Group entered into a Share
Purchase Agreement (SPA) with PT Empat Kali Indonesia (EmpatKali). EmpatKali is a
small, Singapore-based, buy now, pay later company operating in Indonesia. Further
details are set out in Note 23 of the Financial Statements.

The Directors are not aware of any other matters or circumstances that have arisen
since 30 June 2020 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.

No dividends were declared or paid to shareholders during the year.

Details of share-based payment plans are set out in Note 20 of the Financial Statements.

Afterpay understands the importance of considering the impact of environmental and
social factors on the sustainability of its businesses. Pages 19 to 23 disclose climate
change information and sustainability initiatives that are in place across the Group.

The Group 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 or in any
of the other jurisdictions that Afterpay currently, or is soon to, have a presence in.

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
Limited 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 in line 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 https://www.afterpay.com/en-AU/corporate-governance/.

Remuneration Report

The Remuneration Report set out on pages 52 to 83 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

There are no proceedings brought or intervened in, or applications to bring or intervene

in proceedings, on behalf of the company by a member or other person entitled to do so

under section 237 of the Corporations Act 2001 (Cth).

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 & 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 & 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 24.

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.

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 Limited

As lead auditor for the audit of the financial report of Afterpay Limited for the financial year ended 30

June 2020, 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 Limited and the entities it controlled during the financial year.

Ernst & Young

David McGregor

Partner

27 August 2020

Elana Rubin

Chair, Independent Non-Executive Director

Melbourne

27 August 2020

A member firm of Ernst & Young Global Limited

Liability limited by a scheme approved under Professional Standards Legislation

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 Limited

As lead auditor for the audit of the financial report of Afterpay Limited for the financial year ended 30
June 2020, 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 Limited and the entities it controlled during the financial year.

Ernst & Young

David McGregor
Partner
27 August 2020

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

Remuneration Report

Remuneration
Report.

Through our new values –
Be Brave, Keep it Real, Do the
Right Thing and Shape the Future
– we will drive the right behaviours
in how we work together and the
decisions we make to deliver a
sustainable business.

Remuneration

Report.

Through our new values –

Be Brave, Keep it Real, Do the

Right Thing and Shape the Future

– we will drive the right behaviours

in how we work together and the

decisions we make to deliver a

sustainable business.

Remuneration Report

1. Executive Summary

On behalf of the Board of Directors of Afterpay Limited (Afterpay or the Group), we are pleased to present

the FY20 Remuneration Report (Report).

At Afterpay, 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. We recognise that remuneration is only one of a number of reasons why our people come to

work for us every day. Further detail on people and culture at Afterpay is set out in the “Do the Right Thing”
section of this Annual Report.

1.1 FY20 – Strength in an uncertain environment

FY20 has presented a number of challenges for businesses globally. Most notably, the emergence of

COVID-19 has created wide ranging social and economic uncertainty.

During FY20, Afterpay acted quickly to implement its COVID-19 response plan to manage the business

through the current climate. Our response centred upon taking care of our people, preserving our strong

relationships with customers and merchants, limiting losses, preserving margins and maintaining our strong

balance sheet and capital position.

Despite challenging market conditions, our response plan and business delivered strong financial

performance in FY20 and we continued to achieve a number of significant operational milestones. Afterpay’s

share price increased 143% during FY20, the highest share price return in the benchmark S&P/ASX 200 Index;

the Group processed more than $11.1 billion of Underlying Sales on its platform, growing 112% on the prior

year; Afterpay expanded its market leading position in its home market of Australia (with 3.3 million Active

Customers at 30 June 2020); the US platform continued to grow above expectations (with 5.6 million Active

Customers reached in that market); the UK reached 1.0 million Active Customers in its first full year of

operations; and significant progress was made in preparing for further international expansion.

At Afterpay, one of our core strategic pillars is “Do the Right Thing”. We are focused on never losing sight of

our key stakeholders (including our customers, merchants, shareholders and other external parties) and

recognise that the impacts of COVID-19 have been widely felt across the community.

In this context, in April 2020 at the height of the uncertainty of the impact of COVID-19, and despite the

Group’s strong performance, the Group’s co-founders Anthony Eisen and Nick Molnar (the Co-Founders)

elected to take a 20% reduction in base salaries for three months from May 2020 and the Non-Executive

Directors (NEDs) elected to take a 20% reduction in their Board base member and Committee fees for the

same period.

Separate to the response to COVID-19, the Co-Founders also volunteered to forego the short-term incentive

and restricted stock unit components of the new FY20 executive remuneration framework, having regard to

their existing shareholdings which encourage a focus on long-term sustainable decision making.

Further detail in respect of the Group’s FY20 performance and remuneration outcomes for Executive Key

Management Personnel (Executive KMP) is outlined in sections 2 and 5.

1.2 Our new FY20 executive remuneration framework implemented

Competing for talent in the global technology talent pool

Afterpay is one of only a small group of ASX listed companies operating in the global technology sector. The

global market for technology talent is highly competitive, particularly in regions like the US. The

remuneration packages offered to top-tier talent within these markets are typically more leveraged to the

long-term than in the Australian market, and often place greater emphasis on equity grants which are

subject to continued employment only (rather than long-term performance hurdles). The weighting to equity

grants is also often a reflection of cash-conservation in an early start-up phase to re-invest in growth.

The Group’s legacy executive remuneration arrangements (which have previously comprised low cash base

salary, low cash short-term incentives and one-off equity awards subject to continued service and KPIs in

some cases (refer section 5.6)) were reflective of the Group’s need to attract top talent from this global

technology talent pool in a cash-constrained early growth phase.

These service-based equity arrangements were successful in attracting and securing key talent that the

Group would not have otherwise been able to attract as a smaller company. However, in line with the Group’s

growth, and as disclosed in the FY19 Remuneration Report, the Board spent considerable time and effort

listening to and addressing stakeholder feedback and developing a new FY20 Executive KMP remuneration

framework to meet the expectations of our stakeholders as a top S&P/ASX 100 company.

Key features of our new framework

An overview of our FY20 remuneration framework is provided in section 4 and the framework is outlined in

detail in section 5. Key features of the new Executive KMP remuneration framework include:

• delivery of Executive KMP remuneration packages in four elements (subject to transitionary

arrangements). Packages comprise a “fixed remuneration” component which is made up of two elements,

being fixed cash remuneration (base salary and superannuation), set below market, and an annual fixed

grant of restricted stock units (RSUs), which vest in equal parts annually over three years (subject to service).

The “variable remuneration” component of packages is also comprised of two elements being a moderate

cash short-term incentive (STI), and a formal long-term incentive program (LTI) comprising annual grants of

options, which are subject to formal long-term performance hurdles tested over three years. Our moderate

STI and formal LTI programs are aligned to Australian listed market expectations;

•

remuneration packages that are highly leveraged to the long-term and equity (as opposed to the short-

term and cash, respectively) 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

mechanism, creates shareholder alignment and supports in the attraction of key talent from global

technology markets where service-based equity is common practice). The combination of these two

elements (i.e. the ‘‘fixed remuneration’’ component) is positioned at or around the median of total fixed

remuneration of peer companies. Our cash STI program is also positioned conservatively relative to peer

companies, with the LTI component making up the majority of Executive KMP total remuneration;

• a new balanced scorecard approach for the FY20 STI, reflecting key financial and non-financial value
drivers for the business. Performance measures and targets are set at challenging levels in line with the

Group’s mid-term plan;

•

introduction of a formal performance-tested LTI. Annual LTI grants are 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. These measures represent core tenets of the

Group’s growth strategy and are key metrics used by the market to assess the Group’s performance. Delivery

of the LTI in options also encourages a focus on the Group’s share price performance as the LTI will only

deliver value to Executive KMP if both the share price increases above the exercise price and the performance

measures are met; and

• 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

apply to all elements of the framework. In addition to overarching Board discretion, the STI is subject to a

Board discretion modifier for “doing the right thing”.

All new employees joining at the Executive KMP level from FY20 will commence on the framework and be

eligible to receive all four elements (outlined above). The former Global Chief Operating Officer’s employment

package was in line with the new framework when he commenced employment in FY20.

In respect of existing Executive KMP:

• The Co-Founders elected to forego any STI or RSU component under the FY20 framework having regard
to their existing shareholdings which already encourage a focus on long-term sustainable decision making.

•

It is intended that the Global Chief Financial Officer (Global CFO) will transition onto the equity components

of the new framework (i.e. the LTI and RSUs), having regard to the vesting dates of his legacy option grants

(which are not yet fully vested). The transitionary arrangements for the Global CFO will be disclosed in the

FY21 Remuneration Report.

2. FY20 Performance & Remuneration—

Snapshot

We set out below a snapshot of the Group’s FY20 performance highlights and how these have been reflected
in FY20 remuneration outcomes.

FY20 Group Performance

Group
performance
highlights

(SECTION 5.1)

• The Group achieved exceptional growth across all key platform metrics including

Underlying Sales of $11.1b (up 112% on FY19), Active Customers of 9.9m (up 116% on FY19) and
Active Merchants of 55.4k (up 72% on FY19).

• At the same time, the Group has delivered strong risk management outcomes with Net
Transaction Loss (NTL) maintained at 0.4% of Underlying Sales notwithstanding the
increasing contributions from newer, initially higher loss markets.

• Afterpay NTM of 2.3% remains above the Group’s mid-term target of approximately 2% by

FY22.

• EBITDA (excluding Significant Items) of $44.4m was up 73% on FY19 and a strong result

considering the investment for growth as planned.

FY20 Executive KMP Remuneration Outcomes

Fixed
remuneration

(SECTION 5.2)

FY20 STI
outcomes

(SECTION 5.3)

FY20 LTI
grants

(SECTION 5.4)

• FY20 fixed remuneration comprises a cash component (base salary and superannuation)

and RSUs (which vest over 3 years).

• The Co-Founders elected to forego the RSU component for FY20 and no RSUs were granted
to the Global CFO in recognition of his legacy one-off awards which are not yet fully vested.

• The Co-Founders’ fixed cash remuneration during FY20 was $450,000 (inclusive of

superannuation), on an annualised basis, which is positioned well below market. The Co-
Founders elected to take a 20% reduction in base salaries for three months from May 2020
in recognition of the impact of COVID-19 across the community.

• Despite the Group’s strong performance in FY20, the Global CFO was the only Executive

KMP who received an STI, for which vesting was 86% of the maximum.

•

In respect of other Executive KMP, the Co-Founders elected to forego an STI under the new
FY20 framework and the former Global Chief Operating Officer and Group Head were not
eligible for an STI (refer section 3).

• FY20 LTI grants were made to the Co-Founders (as approved by shareholders at the 2019
AGM) and the former Global Chief Operating Officer. In addition to being performance
tested, the exercise price on the Co-Founders’ option grants was set at a 20% premium to
market.

• No LTI grant was made to the Global CFO in recognition of his legacy one-off equity awards.

Legacy one-off
equity grants

(SECTION 5.6)

• No new one-off equity grants were made to Executive KMP during FY20 as the Group

transitioned to its new FY20 executive remuneration framework. The second tranche of the
Global CFO’s legacy one-off equity awards, which was due to vest in June 2020, has fully
vested. The third and final tranche of the Global CFO’s legacy one-off equity awards is due to
vest in June 2021.

Non-Executive Director Remuneration

• At the 2019 AGM, the Group’s shareholders approved a Non-Executive Director fee pool of $1,800,000.

• The Group’s new FY20 Non-Executive Director fee schedule (as disclosed in FY19) became effective during the
Reporting Period, accompanied by a new minimum shareholding requirement to further align the interests of
Non-Executive Directors with our shareholders.

•

In April 2020, the Group’s Non-Executive Directors elected to take a 20% reduction in their Board base member
and Committee fees for three months from May 2020, reflecting the uncertainty about the impact of COVID-19 on
key stakeholders and the community at that time.

Other Changes

• As previously disclosed, during FY19, Executive KMP volunteered for their FY19 STI awards to be withheld until the
outcomes of the final report from the independent external auditor of the AUSTRAC audit were known (with the
Board reserving discretion to make adjustments to final outcomes). FY19 STI awards and a portion of the former
Group Head’s options will continue to be withheld until the final determination of the AUSTRAC audit.

• The Group’s Remuneration & Nomination Committee was also expanded to a People, Remuneration &

Nomination Committee with greater oversight over people-related policies.

Underlying
Sales

112%

on FY19

Active
Customers

116%

on FY19

Active
Merchants

72%

on FY19

Net Transaction
Margin

2.3%

of underlying sales

Net Transaction
Loss

0.4%

of underlying sales

3. Who is covered by this Report

This Report outlines the remuneration arrangements in place for KMP of the Group in FY20, which comprises

all Non-Executive Directors and senior executives who have authority and responsibility for planning,

directing and controlling the activities of the Group. Table 1 below sets out the Group’s KMP during FY20.

Afterpay seeks to maintain a global organisational structure that enables and empowers our teams to deliver

on our strategic objectives. In FY20, we transitioned to a simpler leadership structure, with more focused

roles, to enable our leaders to better execute on a global scale and enhance our ability to respond quickly in a

rapidly changing business environment.

As part of these changes, it was determined that the broad accountabilities of the former Global Chief

Operating Officer (Frerk-Malte (Malte) Feller), including product and technology, would be allocated to

dedicated executive roles. The former Global Chief Operating Officer ceased as an Executive KMP on 12 June

2020 and, from this date, will work out a mutually agreed notice period until 25 November 2020 to facilitate

the transition of his role (as required), at which time he will cease formal employment with the Group. Refer

section 5.5 for further detail on the treatment of the former Global Chief Operating Officer’s equity

arrangements upon cessation of employment.

As part of our commitment to increasing the representation of independent Non-Executive Directors, and a

continuous focus on expanding our Board’s skillset, the Board also undertook an extensive global search

during FY20 for new talent. The Group announced the appointment of three highly experienced Non-

Executive Directors to the Board: Gary Briggs, Pat O’Sullivan and Sharon Rothstein. The Group was also

pleased to announce the appointment of Elana Rubin as Independent Chair of the Board in May 2020. Refer

section 6 for further detail on these changes.

Table 1

Overview of FY20 KMP

KMP

Position

Term as KMP

Executive KMP

Anthony Eisen1

Nick Molnar2

Chief Executive Officer and Managing Director

Full Year

Global Chief Revenue Officer and Executive
Director

Full Year

Luke Bortoli

Global Chief Financial Officer

Full Year

Frerk-Malte Feller3

Global Chief Operating Officer

Ceased as KMP on 12 June 2020

David Hancock4

Group Head and Executive Director

Ceased as KMP on 8 October 2019

Non-Executive Directors

Elana Rubin5

Dana Stalder

Independent Chair

Non-Executive Director

Full Year

Clifford Rosenberg6

Non-Executive Director

Ceased as KMP on 24 May 2020

Gary Briggs7

Non-Executive Director

Effective 1 January 2020

Pat O’Sullivan8

Non-Executive Director

Sharon Rothstein9

Non-Executive Director

Effective 1 March 2020

Effective 1 June 2020

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. 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.

3. Frerk-Malte Feller held the position of Global Chief Operating Officer during the 2020 financial year effective from 1 July 2019. Malte ceased as KMP on 12

June 2020 and will cease formal employment with the Group on 25 November 2020.

4. David Hancock held the position of Group Head and Executive Director during the 2019 financial year, i.e. until 30 June 2019. David transitioned his role to
the Chief Executive Officer and Managing Director at the conclusion of FY19 and ceased as an Executive KMP on 8 October 2019 when he ceased as a
Director of Afterpay Limited.

5. Elana Rubin was appointed as Independent Interim Chair, effective 1 July 2019, and transitioned into the permanent role of Independent Chair effective 25

May 2020.

6. Clifford Rosenberg ceased as a Non-Executive Director, effective 24 May 2020.
7. Gary Briggs was appointed as a Non-Executive Director, effective 1 January 2020.
8. Pat O’Sullivan was appointed as a Non-Executive Director, effective 1 March 2020.
9. Sharon Rothstein was appointed as a Non-Executive Director, effective 1 June 2020.

4. FY20 Executive Remuneration

Framework

4.1 Snapshot

1. Our Strategic Priorities

Brand

Grow

Innovate

Perform

Do the Right Thing

It’s not pay in four, or BNPL,
it’s Afterpay.

Expand globally to deepen
retailer partnerships.

We are the verb and our own
category.

New visual identity to
enhance alignment with our
global customer base and
differentiation.

Increased focus on SMB
acceptance in newer
markets.

Utilise brand and innovation
to drive customer
acceptance and retention.

Drive greater ecosystem
value to customers and
merchants.

Customer-led differentiation
via platform enhancements.

Merchant insights, tools and
value-added outcomes.

Maintain focus in every
aspect of our performance.

Accelerate investment in the
global addressable market
opportunity.

Maintain focus on our
people, protecting the
business, caring for
communities and good
corporate governance.

2. Remuneration Policy & Principles

3. Our Executive KMP Remuneration Framework – Visualised

Acting like owners and pay for
performance

Strong alignment between executive
reward and shareholder outcomes

Drive an “ownership mindset” and
encourage a focus on long-term sustainable
decision making in the interests of all of 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

Attract, motivate and retain world’s
best talent

Market competitive remuneration to attract
and retain world-class talent from the global
technology talent pool, with the skills and
experience to drive our global expansion
and shareholder returns

Fixed Cash Base Salary + Super

1 year

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

Fixed Annual RSU Grant

1 to 3 years

Annual RSU grants as part of fixed remuneration to reflect the higher
focus on equity under the framework

Vesting in equal annual tranches over 3 years (subject to service)

Subject to malus and clawback

Short-Term Incentive

1 year

Positioned below the median of peers

Paid in cash at end of financial year

Subject to clawback and a Board discretion modifier for “doing the
right thing”

Doing the right thing

LTI Performance Tested Options

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

3 years

Annual LTI grants subject to formal performance testing

Positioned above the median of peers and subject to malus and
clawback

Fixed
Remuneration

Aggregate of cash
base salary and
super, and RSUs, is
positioned at or
around the median
of total fixed
remuneration of
peer companies

Variable
Remuneration

Heavy weighting in
variable
remuneration
towards LTI (as
against STI) to
support long-term
sustainable
decision making

4. A Pay Mix for Performance

Heavy weighting towards equity and the long-term to support alignment with shareholder interests

Co-Founders1

23%

77%

Other Executive KMP2

14%

19%

14%

52%

Fixed (cash base salary + super)

Fixed (RSUs)

Short-term incentive

Long-term incentive

1. The Co-Founders volunteered not to receive an STI or RSUs for FY20. Total fixed remuneration for the Co-Founders is shown on an annualised basis and does

not take into account the voluntary 20% reduction in base salaries for May and June 2020.

2. This pay mix reflects the annual FY20 package of the former Global Chief Operating Officer (Frerk-Malte Feller). It is intended that the Global CFO (Luke

Bortoli) will transition onto the equity components of the FY20 framework having regard to the vesting dates of his legacy option grant.

4.2 More Detail

We set out below a more detailed description of each element of the FY20 executive remuneration

framework and the rationale and positioning relative to peer companies.

Table 2

Detailed Overview of FY20 Executive Remuneration Framework

Element

Description

Positioning against peers and rationale

Fixed Remuneration

Fixed cash
remuneration

(SECTION 5.2)

• Comprises base salary and superannuation

• Set conservatively having regard to the individual’s role,
responsibilities, skills, experience and performance, and
remuneration levels offered by comparable companies
with whom the Group competes for talent

• Positioned below median of peer companies in
recognition of the annual RSU grant which is also
part of fixed compensation

• Reviewed periodically with adjustments only for

change in role or promotion, internal relativities and
significant market changes, including material
market relativity changes (not CPI / wage growth
increases)

Annual RSU
grant

(SECTION 5.2)

•

Instrument: RSUs (i.e. a right to a share upon satisfaction of
vesting conditions) granted annually

• Allocation methodology: Annual grants at market price

• Compensates for conservative positioning of fixed
cash remuneration and is awarded as part of fixed
remuneration to reflect the higher focus on equity

(i.e. face value allocation methodology)

• Restricted equity component generates strong

• Vesting period / conditions: three equal tranches vesting

annually over three years (subject to continued
employment at vesting dates)

• Subject to malus / clawback and no dividend or voting

rights over vesting period

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

Fixed cash remuneration is positioned low relative to peers in recognition of the annual RSU grant. The sum of these two elements represents
“total fixed remuneration” and is positioned at or around the median of peer companies (having regard to market capitalisation and
comparable companies in relevant industries), with a higher weighting to equity than cash to encourage alignment with shareholders

Variable Remuneration

Short-term
incentive

(SECTION 5.3)

•

Instrument: cash

• Performance period: financial year
• Vesting conditions: balanced scorecard comprising
financial (50%), customer (20%), merchants (10%),
innovation (10%), and people (10%) measures

• Subject to clawback and Board discretion modifier for
“doing the right thing” (i.e. downward adjustments for
conduct, risk, regulatory and reputational issues, and
quality of results)

• Positioned below the median of peer companies
in favour of heavy weighting towards LTI to provide
for a stronger alignment to shareholder interests
and to support long-term decision making

• To reward the achievement of challenging annual

goals set in line with the Group’s mid-term plan and
to reflect the key value drivers of the business to
deliver returns for shareholders

Long-term
incentive

(SECTION 5.4)

•

Instrument / allocation methodology: options granted
annually using a Binomial Model

• LTI opportunity is positioned above market (i.e.

packages are highly leveraged to LTI)

• Exercise price: set based on volume weighted average

• To reward for achievement of challenging long-term

price (VWAP) of Afterpay Limited shares based on the 10
day VWAP post release of full year results (with a 20%
premium for the Co-Founders for FY20)

• Performance period: three years

• Performance conditions: GMV (i.e. Underlying Sales) (50%)

and NTM (50%)

• Subject to malus and clawback

goals, generate strong alignment between
executives and shareholders, and encourage
sustainable decision making in the long-term
interests of shareholders

• Market price options (with a premium for the Co-
Founders for FY20) also encourage a focus on
growing the share price and shareholder return

Cash STI levels are conservative relative to peers, with packages highly leveraged to the LTI to support long-term sustainable decision making
and alignment with shareholders

FY20 Transitionary Approach – New and Existing Executive KMP

• All new employees joining

Afterpay at the Executive KMP
level from FY20 will commence
on the new framework and be
eligible to receive all four
elements

• Reflecting this, the FY20

remuneration package for the
former Global Chief Operating
Officer (who commenced on 1
July 2019) was aligned with the
new FY20 framework

• As previously disclosed, the Co-Founders
volunteered to forego the STI and RSU
components of the new framework for FY20,
having regard to their existing shareholdings
which encourage a focus on long-term
sustainable decision making

• The Co-Founders’ total remuneration for FY20
was positioned very conservatively relative to
market with a modest cash base salary and a
heavy weighting towards their LTI (which was
approved by shareholders at the 2019 AGM)

• The exercise price on the Co-Founders’ LTI
options was also set at a 20% premium

• The Global CFO only received fixed

remuneration and an STI for FY20 (i.e. he
was not granted RSUs or an LTI in FY20), in
recognition of his legacy option grant (refer
section 5.6)

•

It is intended that the Global CFO will
transition onto the equity components of
the new framework (i.e. the LTI and RSUs)
having regard to the vesting dates of his
legacy one-off option grant (refer section
5.5). The transitionary arrangements for the
Global CFO will be disclosed in the FY21
Remuneration Report

5. FY20 Executive Remuneration

Outcomes

5.1 Overview of Group performance

The Group is committed to ensuring strong alignment between the Group’s performance and shareholder

experience, and what is paid to its executives in remuneration. During FY20, the Group achieved strong

growth in respect of key financial and non-financial indicators set out in Table 3 below. Group performance is

only shown from FY18 as the Group was only formed in June 2017.

Table 3

FY20 Group performance relative to FY19 and FY18

$m (unless otherwise stated)

Change1 %

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

143%

Total dividends paid

GMV (i.e. Underlying Sales)

Active Customers (m)

Active Merchants (‘000s)

Total Income2

Net Transaction Loss3

Afterpay Net Transaction Margin4

EBITDA (excluding Significant Items)5,6

112%

116%

72%

97%

93%

110%

73%

FY20

60.99

FY19

25.07

FY18

9.35

11,114.2

5,247.2

2,184.6

9.9

55.4

519.2

(42.8)

250.2

44.4

4.6

32.3

264.1

(22.2)

119.3

25.7

2.0

16.0

142.3

(9.3)

55.7

33.8

1. Change percentage based on FY20 compared to FY19.
2. Total income comprises Afterpay income, Pay Now revenue and Other income.
3. NTL is comprised of receivables impairment expense (gross loss), chargebacks, debt recovery costs less Other income.
4. Afterpay NTM is a key financial metric used by management and reflects Afterpay income less variable costs, which includes cost of sales, NTL, and direct

receivables funding costs. A reconciliation of statutory gross profit to Afterpay net transaction margin is included in the Operating and Financial Review of
the 2020 Annual Report.

5. FY20 EBITDA (excluding Significant Items) excludes a favourable $19.9 million FX gain; FY19 has been restated to exclude a favourable $3.0 million FX gain;

and FY18 has been restated to exclude a favourable $1.4 million FX gain.

6. FY20 EBITDA (excluding Significant Items) includes a $5.6 million benefit from the adoption of AASB 16 Leases. FY19 and FY18 EBITDA (excluding Significant

Items) have not been restated for the adoption of AASB 16 Leases, as per the specific transitional provisions.

Delivery of strong operational and financial performance in the Reporting Period translated to strong returns

for Afterpay’s shareholders. The Group’s share price increased by 143% from a closing share price of $25.07 at

28 June 2019 (the last trading day of FY19) to $60.99 on 30 June 2020, representing the highest share price

return of all companies in the S&P/ASX 200 Index at period end. By comparison, the S&P/ASX 200 Index

declined by 11% from 6618.77 points to 5897.88 points. Moreover, total shareholder return when assessed over

the last two financial years is higher, with the Group’s share price increasing from $9.35 at 29 June 2018 (the

last trading day of FY18) to $60.99 on 30 June 2020, representing a total return of 552%.

Figure 1

FY20 APT share price performance compared to the S&P/ASX 200 Index

250%

220%

190%

160%

130%

100%

70%

40%

10%

)
0
0
1
=
9
1
0
2
y
l
u
J

1
(
e
c
i
r
P
d
e
x
e
d
n

143%

(11)%

Jun-2019

Aug-2019

Oct-2019

Dec-2019

Feb-2020

Apr-2020

Jun-2020

Financial Year 2020

APT

S&P/ASX 200 Index

Source: Bloomberg

5.2 Total fixed remuneration

5.2.1 Overview of FY20 total fixed remuneration levels

As outlined in section 4, under the FY20 remuneration framework, the fixed remuneration component for

Executive KMP comprises two elements being (1) fixed cash remuneration which includes cash base salary

and superannuation; and (2) fixed annual grant of RSUs which vests in equal tranches annually over 3 years

(subject to service at the respective vesting dates).

Table 4 below outlines Executive KMP’s contractual fixed remuneration on an annualised basis. As noted

above, in addition to electing to forego an RSU component for FY20 under the new framework, in April 2020

the Co-Founders elected to take a 20% reduction in their cash base salaries for three months from May 2020,

reflecting the uncertainty of the impact of COVID-19 on the community. The Global CFO did not receive an

RSU grant during FY20 having regard to his legacy one-off equity grant which is not yet fully vested.

Table 4

FY20 fixed remuneration levels for Executive KMP (contract values)

Total Fixed Remuneration (FY20)

Executive KMP

Anthony Eisen3

Nick Molnar3

Luke Bortoli

Frerk-Malte Feller (part year)4

Fixed cash
remuneration1

Face value of RSUs

Face value of RSUs
(% of fixed cash
remuneration)

Total fixed
remuneration2

$450,000

$300,000

N/A

$400,000

N/A

133%

$450,0003

$300,000

$700,000

1. Fixed cash remuneration represents the contract value and includes cash base salary and superannuation.
2. Total fixed remuneration represents the sum of fixed cash remuneration and the face value of RSUs (as applicable).
3. Total fixed remuneration for the Co-Founders is shown on an annualised basis and excludes the voluntary 20% reduction in salaries for May and June 2020.
4. Total fixed remuneration for the former Global Chief Operating Officer is shown on an annualised basis. Refer section 5.5 for further detail regarding the

treatment of the former Global Chief Operating Officer’s RSUs which will apply on cessation of employment.

5.2.2 FY20 RSUs key terms – further detail

Table 5 below sets out the key terms which apply to the RSUs granted as part of total fixed remuneration

during FY20. The former Global Chief Operating Officer was the only Executive KMP to receive RSU grants

during the period.

Table 5

RSUs – key terms

Restricted Stock Units (RSUs) – Key Terms

Term

Further Detail

Allocation
methodology

Entitlement

Vesting
conditions and
schedule

RSUs were granted on a face value basis by dividing the participant’s RSU dollar value opportunity in Australian dollars for FY20
by the 10-day VWAP of Afterpay Limited shares traded in the period immediately following the release of the 2019 full year
results.

Upon satisfaction of the vesting conditions, each RSU entitles the participant to one fully paid ordinary share in Afterpay Limited
(or a cash equivalent payment in lieu of a share at the discretion of the Board). Participants are not required to pay any amount
(e.g. an exercise price) upon vesting of the RSUs.

The RSUs will vest subject to the participant remaining employed by, or continuing to provide services to, the Group at each
vesting date. The vesting schedule in respect of the RSUs granted during FY20 is set out below:

Tranche

Vesting Date

Percentage of FY20 RSUs

1 July 2020

1 July 2021

1 July 2022

One-third

Treatment on
cessation of
employment

If the participant ceases to be employed, any unvested RSUs will immediately lapse.

However, the Board may, in its absolute discretion and subject to any requirement for shareholder approval, determine to treat
any of the unvested RSUs in a different manner (e.g. in the case of a “good leaver”). A “good leaver” may include, for example, an
employee who leaves the company 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’’. Refer to section 5.5 for further
detail regarding treatment of the former Global Chief Operating Officer’s FY20 RSUs upon cessation of his employment.

Malus and
clawback

Amongst other things, the Board may elect to forfeit any unvested awards (i.e. malus) or recoup any vested and paid awards (i.e.
clawback) in the following circumstances:

• a participant has engaged in serious misconduct (including but not limited to fraud, dishonesty, gross negligence or a

breach of employment conditions);

• a material misstatement in, or omission from the Group’s financial statements or a misstatement of an applicable vesting

condition;

• a participant has acted or failed to act in a way that has contributed to material reputational damage to the Group; or

•

in the opinion of the Board, acting in good faith, all or part of the initial RSU award is no longer justified having regard to the
circumstances or information which has subsequently come to light after a grant was made.

Change of
control

Where a transaction or event is proposed that, in the opinion of the Board, may result in a person becoming entitled to control
of Afterpay Limited, the Board retains the discretion (to be exercised consistently with the ASX Listing Rules) to determine that
a particular treatment will apply to unvested RSUs.

Where this discretion is not exercised and a change of control event (as defined) occurs, any unvested RSUs will vest on a pro-
rata basis to time, based on the portion of the vesting period that has passed at the time of the change of control event (unless
the Board determines otherwise).

Voting and
dividends

Hedging

RSUs do not carry any dividend or voting rights.

Participants are not permitted to enter into any arrangement for the purpose of hedging, borrowing or otherwise affecting their
economic exposure to RSUs.

5.3 FY20 short-term incentive outcomes

5.3.1 Overview of FY20 STI outcomes

The maximum STI awards that Executive KMP were eligible to receive in respect of FY20 are set out in Table 6

below.

As noted above, the Co-Founders elected not to be eligible for an STI award under the new FY20 Executive

KMP framework. The maximum FY20 STI opportunity levels for the remaining Executive KMP are positioned

conservatively relative to market.

FY20 STI awards were assessed against a balanced scorecard of annual objectives that are aligned with the

Group’s value drivers, achievement of our challenging mid-term plan 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). The FY20 STI scorecard is set out at section 5.3.2 below.

Despite the Group’s strong performance, the Global CFO was the only Executive KMP to receive an STI in

FY20. In respect of other Executive KMP: the Co-Founders elected not to be eligible for an STI award

under the new framework; the Board determined that the former Global Chief Operating Officer will not

receive an STI; and the former Group Head was not eligible.

The final vesting outcome against the FY20 STI scorecard (for the Global CFO’s STI) is outlined in section 5.3.2.

The final outcome reflects the Group’s strong performance including exceptional growth across all key

platform metrics, strong risk management outcomes, and a strong EBITDA result notwithstanding the

accelerated investment in global expansion.

The Board is comfortable that the FY20 STI outcomes strike an appropriate balance between the Group’s

strong FY20 performance as well as recognising the broader implications of COVID-19 on the community.

Table 6

FY20 STI opportunities and outcomes

FY20 STI Opportunities and Outcomes

Executive KMP

Anthony Eisen3

Nick Molnar3

Luke Bortoli

Maximum STI
opportunity1 ($)

Maximum STI
opportunity (% of
fixed remuneration2)

STI awarded

% of maximum
FY20 STI
awarded

% of maximum
FY20 STI award
forfeited

N/A

$400,000

N/A

133%

43%

N/A

$344,000

N/A

86%

N/A

14%

100%

Frerk-Malte Feller (part year)4

$300,000

1. These figures represent the maximum STI that can be earned by Executive KMP when performance targets are met.
2. Total fixed remuneration is based on the figures disclosed in section 5.2. For the Global CFO, this represents total fixed cash remuneration. For the former

Global Chief Operating Officer, this represents the sum of fixed cash remuneration and the face value of RSUs.

3. As noted above, the Co-Founders volunteered not to be eligible for an STI award under the FY20 framework.
4. The Board determined that the former Global Chief Operating Officer will not receive an STI award for FY20.

5.3.2 Performance against the FY20 STI scorecard

Performance against the FY20 STI scorecard is set out below. Targets are set at challenging levels to ensure Executive KMP are rewarded for exceptional performance. For each

measure, 50% vesting occurs at threshold with up to 100% vesting at target (with straight line vesting in between). No vesting occurs below threshold. Threshold performance

is generally set at 90% of target. Final STI outcomes are subject to a Board discretion modifier for “doing the right thing” and assessment of the quality of results.

Figure 2

FY20 STI scorecard and performance

Measure

Weight

Strategic Link

Vesting Outcome1

Outcome Commentary

Financial measures (50%)

Threshold (50% vesting) Target (100% vesting)

GMV
(i.e. Underlying Sales)

EBITDA

25%

Non-financial measures (50%)

Strong financial performance, including
EBITDA (excluding Significant Items) and GMV
(i.e. Underlying Sales), is critical to delivering
long-term shareholder value.

)

Active Customers
%
0
2
(

Net Transaction
Loss (NTL)

10%

At Afterpay, we are committed to putting our
customers first and achieving our mission to
power an economy in which everyone wins.
Execution of our mid-term plan is underpinned
by strong customer expansion annually. STI
measures reflect both the number of active
customers and customer defaults.

Active Merchants

10%

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

Achievement of
FY20 product
development
roadmap
milestones

)

Employee Net
%
0
1
(

Promoter Score
(eNPS)

10%

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.

s
r
e
m
o
t
s
u
C

s
t
n
a
h
c
r
e
M

n
o
i
t
a
v
o
n
n

e
p
o
e
P

)

%
0
1
(

)

%
0
1
(

1. Vesting bar chart is a guide only and not to scale.

FY20 STI outcome 86%

While GMV of $11.1bn was marginally below the FY20 target, it was more than double FY19 (up
112%). The doubling of GMV was driven by growth across all regions both before and after the
impact of COVID-19 began to be felt across the regions in which the Group operates.

EBITDA (excluding Significant Items) of $44.4m was above target and up 73% on FY19,
notwithstanding the significant planned investment in global expansion.

Active Customers of 9.9m exceeded the FY20 target. Key Active Customer milestones were
achieved in both the US and UK, with the US reaching 5.6m and the UK 1.0m. Customer growth
and engagement was also strong in ANZ, our most mature market, which reached 3.3m active
customers.

NTL of 0.4% exceeded the FY20 target, as a result of the increasing sophistication in risk
management and a higher proportion of returning customers.

During FY20, the merchant acquisition strategy shifted to actively prioritising the onboarding of
Enterprise merchants to drive GMV and customer growth. This strategy was successful and
Afterpay onboarded significant marquee Enterprise brands including eBay, American Eagle,
Finish Line, ASOS and Marks & Spencer amongst others. Globally, SMB merchants are larger in
number than Enterprise and the target was not adjusted for the change in priority to the lower
volume Enterprise category. Overall active merchants grew by 72% on FY19, to 55.4k.

Achieved delivery of key product plan milestones including: preparing for Canada expansion in Q1
FY21; US in-store launch; international rollout of cross-border trade; variable first payment;
streamlining merchant integration via virtual card; risk innovations; limit transparency; and a
loyalty program that rewards customers for using the service responsibly.

Achieved positive results in employee engagement surveys assessed using the CultureAMP
methodology and continued to prioritize the health and wellbeing of employees through COVID-
19 including providing robust working from home arrangements.

5.3.3 FY20 STI terms - further detail

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

during FY20.

Table 7

Description of key terms of FY20 Executive KMP STI

FY20 STI – Key Terms

Term

Further Detail

Performance
period

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

Assessment of
performance
measures

Performance against the scorecard measures is assessed annually by the Board based on recommendations from the
People, Remuneration & Nomination Committee (with input from the Chief Executive Officer and Managing Director)
after the end of the performance period, as part of the broader performance review process for each Executive KMP.

Financial and non-financial measures are assessed quantitatively against predetermined benchmarks where
applicable. When testing financial measures, financial results are extracted from 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.

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)).

The Board retains absolute discretion in respect of STI awards and final vesting outcomes. As part of its overarching
discretion, the Board may reduce final STI outcomes having regard to affordability considerations and the Group’s
financial performance over the period.

In addition to this overarching discretion, final STI outcomes will be subject to a Board discretion modifier for “doing
the right thing” 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.

Subject to Board discretion, if an Executive KMP ceases to be employed:

•

in “bad leaver” circumstances (e.g. termination for cause) during the performance period, the Executive KMP will
not be eligible for an STI award (unless the Board determines otherwise); or

in “good leaver” circumstances (i.e. other than as a bad leaver), the treatment of their unvested STI awards will be at
the absolute discretion of the Board.

Board discretion
modifier for
“doing the right
thing”

Treatment on
cessation of
employment

Malus and
clawback

The Board may elect to forfeit an Executive KMP’s FY20 STI award (i.e. malus) or recoup any vested and paid awards (i.e.
clawback) in the circumstances specified in respect of the FY20 RSUs at section 5.2.2.

Change of control Where a transaction or event is proposed that, in the opinion of the Board, may result in a person becoming entitled to

control of Afterpay Limited during the performance period, the Board retains the discretion (to be exercised
consistently with the ASX Listing Rules) to determine that a particular treatment will apply to STI awards.

Where this discretion is not exercised and a change of control event (as defined) occurs during the performance
period, any unvested STI awards will vest on a pro-rata basis to time, based on the portion of the vesting period that
has passed at the time of the change of control event (unless the Board determines otherwise).

5.3.4 Withheld FY19 STI awards

As disclosed in the FY19 Remuneration Report, while the Board assessed performance of the FY19 STI awards,

the Executive KMP volunteered for their STI awards to be withheld until the outcomes of the final report of

the external AUSTRAC audit were known. The Board reserved the discretion to make any adjustments to final

STI outcomes (as appropriate), having regard to the outcomes of the AUSTRAC audit. FY19 STI awards will

continue to be withheld until the outcome of the final AUSTRAC determination is known.

•

5.4.3 FY20 LTI key terms – further detail

The table below outlines the key terms of the LTI awards granted to Executive KMP during FY20.

Table 9

Key terms of FY20 LTI awards granted to Executive KMP

Long-Term Incentive (FY20) – Key Terms

Term

Further Detail

Entitlement

Subject to the satisfaction of the performance conditions and payment of the exercise price, each LTI option entitles the
holder to one fully paid ordinary share in Afterpay Limited (or a cash equivalent payment at the discretion of the Board).

Allocation
methodology

The number of LTI options granted was calculated by dividing the participant’s dollar value LTI opportunity for FY20 (as
outlined in section 5.4.2 above) by the market value of the options.

The market value of options was calculated by using a Binomial Model, based on the 10-day VWAP of Afterpay Limited
shares in the period immediately following the release of full year results and the exercise price of the options outlined
below. The market value of options is not reduced for the likelihood of performance hurdles being met.

Exercise price

Participants are required to pay an exercise price to exercise their LTI options upon vesting. In respect of the FY20 LTI
awards, the exercise price for the:

• Co-Founders is $37.31. This was set at a 20% premium to the market value of Afterpay Limited shares, equal to the 10-
day VWAP of Afterpay Limited shares in the period immediately following the release of 2019 full year results; and

• Global Chief Operating Officer is $31.09. This was set at the market value of Afterpay Limited shares, being equal to the

10-day VWAP of Afterpay Limited shares in the period immediately following the release of 2019 full year results.

Expiry date

The FY20 LTI options will expire on 1 July 2024.

Performance
period

Performance
conditions and
vesting schedule

The performance period is 3 years, commencing on 1 July 2019 to 30 June 2022.

The options are subject to performance testing against the following performance conditions over the performance
period:

• GMV (i.e. Underlying Sales) – 50%. GMV is a measure of the total order value processed on the Afterpay platform; and

• Afterpay NTM – 50%. Afterpay NTM reflects Afterpay income less variable costs, which includes cost of sales, NTL, and
direct receivables funding costs. A reconciliation of statutory gross profit to Afterpay NTM is included in the Operating
and Financial Review of this Annual Report.

GMV performance condition

The vesting schedule in respect of the GMV performance condition is set out below. Vesting will occur on a straight-line
basis between target and maximum levels of performance. No vesting occurs if target performance is not achieved.

Level of
performance

Vesting of GMV-target
related measure (%)

GMV (targets)

Target

Maximum

50%

100%

$15b in final year of performance period.

$25b in final year of performance period.

Afterpay NTM performance condition

The vesting schedule in respect of the Afterpay NTM performance condition is set out below. Vesting will occur on a
straight-line basis between target and maximum levels of performance. No vesting occurs if target performance is not
achieved.

Specific targets in respect of Afterpay NTM will be disclosed at the end of the performance period due to commercial
sensitivity. A transparent disclosure of the calculation of Afterpay NTM (that reconciles to the statutory accounts) will also
be provided at the end of the performance period.

Level of
performance

Vesting of NTM-target
related measure (%)

Afterpay NTM (targets)

Target

50%

Maximum

100%

Targets to be disclosed at the end of the performance period
due to commercial sensitivity.

Treatment on
cessation of
employment

Malus and
clawback

Change of
control

Voting and
dividend rights

Hedging

Subject to Board discretion, if an Executive KMP ceases to be employed:

•

in “bad leaver” circumstances (e.g. termination for cause) during the performance period, all of the unvested LTI
options will lapse (unless the Board determines otherwise); and

in “good leaver” circumstances (i.e. other than as a bad leaver), the treatment of unvested LTI options will be at the
discretion of the Board (subject to applicable law). The Board’s intention is that the LTI options would be pro-rated to
time served in employment and left on foot to be tested and vest in the ordinary course.

The Board may elect to forfeit any unvested LTI awards (i.e. malus) or recoup any vested and paid LTI awards (i.e.
clawback) in the circumstances specified in respect of the FY20 RSUs at section 5.2.2.

Where a transaction or event is proposed that, in the opinion of the Board, may result in a person becoming entitled to
control of Afterpay Limited, the Board retains the discretion (to be exercised consistently with the ASX Listing Rules) to
determine that a particular treatment will apply to unvested LTI awards.

Where this discretion is not exercised and a change of control event (as defined) occurs, any unvested LTI awards will
vest on a pro-rata basis to time served in employment, based on the portion of the vesting period that has passed at the
time of the change of control event (unless the Board determines otherwise).

LTI awards do not carry any dividend or voting rights over the performance period.

Participants are not permitted to enter into any arrangement for the purpose of hedging, borrowing or otherwise
affecting their economic exposure to LTI options.

5.5 Treatment of equity arrangements for the former Global Chief

Operating Officer

As noted in section 3, the former Global Chief Operating Officer, Frerk-Malte (Malte) Feller, ceased as an

Executive KMP on 12 June 2020 and will cease as an employee of the Group on 25 November 2020.

The Board determined that Malte will be considered a “good leaver” upon cessation of employment and his

equity arrangements would be treated as set out in Table 10 below.

Table 10

Treatment of equity arrangements (the former Global Chief Operating Officer)

Equity Awards

Treatment on cessation of employment

FY20 RSUs
(refer section 5.2)

In accordance with the terms of the awards, the first tranche of service-based RSUs vested in the ordinary course on 1
July 2020. The remaining two tranches of the RSUs will lapse on cessation of employment in November 2020.

FY20 LTI
(refer section 5.4)

The Board exercised its discretion to pro-rata the LTI options to time served, and will leave one-third on foot to be tested
against the original performance hurdles and vest in the ordinary course at the end of the original three year
performance period (being 30 June 2022). The remaining two-thirds will lapse on cessation of employment in November
2020.

Buy-out
Payment

During FY20 and as previously disclosed to the market, the former Global Chief Operating Officer was granted a “buy-out
payment” (Buy-out Payment) in the form of RSUs with a total face value of $900,000. The Buy-out Payment was granted
to compensate Malte for equity foregone at his former employer (for which all hurdles other than employment had been
satisfied) and to align his interests with the interests of the Group and its shareholders.

The Buy-out Payment was considered necessary to attract an executive of Malte’s calibre and wealth of experience at
fast-growing, globally expanding technology enterprises including Facebook, eBay and PayPal, to the Group.

Consistent with market practice, the number of RSUs granted was determined by dividing the face value of the award
by the 10-day VWAP of Afterpay Limited shares up to (and excluding) Malte’s commencement date of 1 July 2019. All of
the other terms of the Buy-out Payment (including the vesting schedule) were consistent with the FY20 RSUs (as
outlined in section 5.2.2).

In accordance with the terms of the award, the first tranche of the “Buy-out Payment” vested at the original vesting date
of 1 July 2020. Given the purpose of the award of RSUs was to compensate for equity foregone by Malte at his former
employer (for which all hurdles other than employment had been satisfied) and that Malte was leaving in “good leaver”
circumstances, the Board exercised its discretion to allow the remaining two tranches of his “Buy-out Payment” to
remain on foot to vest at the original vesting dates of 1 July 2021 and 1 July 2022.

5.6

Legacy one-off equity awards

5.6.1 Overview of legacy one-off equity awards

As part of the Group’s legacy executive remuneration arrangements, Executive KMP received one-off grants

of equity (in the form of options, loans shares or rights) at the time they commenced employment with the

Group, which were subject to continued employment and the achievement, in some cases, of KPIs.

The Group’s legacy one-off equity awards reflected the need to compete for talent (as a small company with

limited financial resources) in the global technology sector where these arrangements are commonly used

and provided a strong retention mechanism for key talent during the start-up phase by requiring Executive

KMP to remain employed until the end of the vesting period to realise the incentive.

However, as noted above, the Group has transitioned to a formal performance-tested LTI program under the

new FY20 remuneration framework (refer section 5.4) and no new one-off equity awards were granted to

Executive KMP during FY20.

5.6.2 Legacy one-off equity awards vesting in FY20

Group Head (Former)

The Group’s shareholders approved a grant of options to the former Group Head (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 expertise and experience to oversee the merger of Afterpay and Touchcorp.

The second (and final) tranche of these options (1,492,555 options with an exercise price of $2.70 and expiry

date of 1 September 2022) were subject to the achievement of KPIs and David’s continued employment with

the Group. David’s KPIs included financial KPIs relating to EBITDA and revenue, and non-financial KPIs in

respect of customer NPS, merchant NPS and employee NPS.

The second (and final) tranche of options vested on the vesting date at 1 September 2019. However, as a

consequence of the AUSTRAC audit in 2019, 200,000 of these options were withheld pending the outcomes

of the final report of the external audit and AUSTRAC’s final determination. The Board reserves discretion to

lapse any of these options. These options will continue to be withheld until the outcome of the final AUSTRAC

determination is known.

Global CFO

In June 2018, Global CFO 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 options were eligible

to vest in equal tranches over three years.

The options 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 second tranche of Luke’s options vested in full on 1 June 2020, reflecting that the service conditions were

met and certain individual KPIs were achieved, including managing financing costs to below budget targets,

overseeing various capital management initiatives to strengthen the Group’s balance sheet, as well as

continuing to build a scalable global Finance function to support the Group’s global growth aspirations.
Luke’s final tranche is eligible to vest on 1 June 2021.

5.6.3 Legacy one-off equity awards terms – further detail

Table 11 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 FY20 to Executive KMP (as the Group has transitioned onto its new FY20 remuneration

framework).

Table 11

Key terms of legacy one-off equity awards for Executive KMP

Legacy one-off equity awards – Key terms

Element

Overview

Form of award

Vesting period

Description

Under the Group’s legacy arrangements, Executive KMP were eligible to receive one-off equity awards (in the
form of options, loan shares or rights) in Afterpay Limited equity at the time they commenced employment.

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. Options are granted for nil consideration.

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).

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 People, Remuneration & Nomination Committee and
the Chief Executive Officer (where appropriate).

Disposal restrictions

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.

Treatment on
cessation of
employment

Change of control

Clawback

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

• remains employed with the Group on that date; or

• has ceased employment as a ‘‘good leaver’’ and the Board exercises discretion to allow the options to vest.

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.

5.8 Actual remuneration snapshot

Table 13 below provides a summary of the actual take-home pay received by Executive KMP during the Reporting Period. Unlike the statutory remuneration tables in section

5.7, 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.

The options vested and exercised in FY20 by the Global CFO represent the legacy one-off equity arrangements outlined in section 5.6.2. The value delivered from these options

is aligned with the value delivered to shareholders over the vesting period. As noted previously, the Group has now moved to a formal annual LTI program (subject to formal

performance hurdles assessed over a 3 year period).

Table 13

FY20—Actual Remuneration—Executive KMP

Actual Remuneration

KMP

Anthony Eisen

Nick Molnar

Luke Bortoli

Frerk-Malte Feller (part year)4

David Hancock (part year)5

Fixed remuneration1
(1)

Other monetary benefits
(2)

Non-monetary benefits2
(3)

Cash Bonus
(4)

495,897

489,353

321,199

300,620

82,336

100,000

79,861

9,797

71,056

Options vested and
exercised in FY203
(5)

Total actual remuneration
(1) + (2) + (3) + (4) + (5)

495,897

569,214

31,293,000

31,623,996

471,676

82,336

1. Fixed remuneration includes base salary and superannuation. This figure excludes the tranches of Malte’s FY20 RSUs and Buy-out Payment which vested on 1 July 2020, as vesting occurred during FY21.
2. Non-monetary benefits represent benefits such as insurance, rent and relocation expenses.
3. Options vested and exercised is calculated as the difference between the share price at the date of exercise less the exercise price, and includes options vested in prior years that were exercised in FY20.
4. Frerk-Malte Feller ceased as KMP on 12 June 2020. Malte’s other monetary benefits relate to a $100,000 one-off cash payment received at the commencement of his employment for his relocation from San Francisco to Sydney. Malte was not entitled

to an FY20 STI cash bonus.

5. David Hancock ceased as KMP on 8 October 2019.

6. Non-Executive Director Remuneration

6.1 Overview of FY20

6.1.1 COVID-19 response

One of our core strategic pillars is “Doing the Right Thing”. We are focussed on never losing sight of our key

stakeholders (including our customers, merchants, shareholders and other external parties). In this context, in

April 2020 the Non-Executive Directors (NEDs) elected to forego 20% of their Board base member and

Committee fees for three months from May 2020, reflecting the uncertain impact of COVID-19 on key

stakeholders and the community at that time.

6.1.2 Evolving composition of the Group’s Board

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.

As part of this commitment, the Group took a number of steps during FY20 towards its objective of having a

majority independent Board with an independent Chair.

Effective from 1 July 2019, Elana Rubin was appointed as Independent Interim Chair (with Anthony Eisen

transitioning from Executive Chairman to the role of Chief Executive Officer and Managing Director). On 25

May 2020, Elana was appointed permanently to the position of Independent Chair following her strong

performance as Interim Independent Chair and significant contribution to Afterpay as a Director since March

2017.

The Group also undertook a global search for additional Non-Executive Directors and was pleased to

announce the appointment of three independent Non-Executive Directors onto the Group’s Board: Gary

Briggs, Pat O’Sullivan and Sharon Rothstein, to complement and further strengthen the skillsets of the

Board’s existing high-calibre Directors.

Gary Briggs brings extensive marketing knowledge and expertise to the Group’s Board in the digital and

technology sectors. Gary has worked in a number of senior executive positions including, most recently, Chief

Marketing Officer at Facebook, as well as other marketing roles at industry leading technology companies

including Motorola Mobility, Google, eBay and PayPal. He also brings board experience as Chairman of

Hawkfish, and as a board member of Etsy and Petco.

Pat O’Sullivan also brings a wide range of experience to complement the current Afterpay Board, having

worked in various financial and operational roles in Ireland, the US, Australia and New Zealand for over 30

years across a number of sectors. Pat is also a seasoned Non-Executive Director, as Chairman of carsales.com

and previously a board member of a number of ASX-listed companies including APN Outdoor, iSentia, Marley

Spoon, iSelect and iiNet and was previously Chairman of HealthEngine.

Sharon Rothstein brings deep expertise and experience across leading consumer brands and her

background will provide the Board and management with key retailer insights and assist in the development

of new relationships and networks globally. Sharon is currently serving as Operating Partner at growth equity

firm Stripes Group, and previously held senior marketing positions at market leaders Starbucks and Sephora.

Sharon is currently a member of the Board of Yelp and InterContinental Hotels Group.

The composition of the Board has been significantly strengthened over FY20 and its composition will be

continually monitored going forward to ensure that the Board has the right mix of skills, expertise,

experience and values to support the Group’s continued growth, global expansion and long-term success

(refer section 2 of the Group’s FY20 Corporate Governance Statement for further detail).

6.2 Remuneration policy and arrangements

The Board sets the fees for its Non-Executive Directors in line with the key objectives of the Group’s Non-

Executive Director remuneration policy set out below. The People, Remuneration & Nomination Committee

makes recommendations to the Board regarding remuneration for Non-Executive Directors (refer section 7.1

for further detail regarding “Remuneration Governance”).

As in previous years, the Group’s Executive Directors (Anthony Eisen and Nick Molnar) are not entitled to be

paid Directors’ fees.

The Group does not make sign-on payments to new Non-Executive Directors nor provide for retirement

allowances / benefits for Non-Executive Directors (other than superannuation for Australian based Directors).

Figure 3 Non-Executive Director remuneration policy

Market competitive to secure and retain
talented, qualified Directors

Preserving and safeguarding
independence and impartiality

Aligning Director and security holder
interests

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:

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

•

fees paid by comparable companies;

• the size, complexity and international
spread of the Group’s operations; and

• the workload and time commitment of

Non-Executive Directors.

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

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

A formal minimum shareholding policy
for Non-Executive Directors became
effective in FY20 to further strengthen
this alignment (refer section 6.4).

1. 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 the Afterpay and Touchcorp businesses. These relate to legacy one-off
arrangements and have now fully vested.

6.3 Fees and other benefits

6.3.1 Board and Committee fees

The table below sets out the fees (inclusive of superannuation) payable to the Non-Executive Directors of the

Group in respect of FY20 (i.e. effective 1 July 2019). Committee fees are paid in addition to the Non-Executive

Director base fee, with the exception of fees payable to the Independent Chair who receives an “all-inclusive

fee” (i.e. is not eligible for additional Committee fees).

As outlined in the FY19 Remuneration Report, the Board undertook a review of Non-Executive Directors’ fees

during FY19, having regard to market data provided by independent remuneration consultants. The Board

and Committee fees for FY20 were set having regard to the following considerations:

•

the need to be market competitive for world-class Non-Executive Director talent. It is critical that the

Group’s Non-Executive Director fees are set at competitive levels (having regard to the Group’s current

market capitalisation, complexity, geographic spread and the global technology sector within which it

operates) in order to support the attraction and retention of high calibre Non-Executive Directors, such as the

Group’s new Non-Executive Director appointments of Gary Briggs, Pat O’Sullivan and Sharon Rothstein; and

the significant workload of directors in light of the international expansion of the Group into new markets

(including the UK, Canada and further proposed new markets) and the increasing complexity of the

regulatory environment in which the Group operates.

As shown in the table below, the Group’s fees are positioned conservatively relative to market and their

appropriateness will continue to be reviewed going forward. In addition, to support the attraction and

retention of overseas directors (particularly out of the US where director fee levels are significantly higher

than Australian fees), the Board retains 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 was provided to Gary Briggs and Sharon

Rothstein as new US-based director appointments in FY20.

Table 14

FY20 Non-Executive Director fees

Board and Committee fees (per annum)

Chair of the Board – base fee

Non-Executive Director – base fee

Committee Chair (Audit, Risk & Compliance)

Committee Chair (People, Remuneration & Nomination)

Committee Member (Audit, Risk & Compliance)

Committee Member (People, Remuneration &

Nomination)

FY20 (effective 1 July 2019)1

$350,000 (all inclusive)3

$150,0004

$30,000

$25,000

$15,000

Median fee ($) in
comparator group2

$495,000

$170,000

$41,500

$36,000

$20,300

$12,500

$19,500

1. These fees are on an annualised basis and do not include the temporary reduction in Board base member and Committee fees as noted in section 6.1.1.
2. These figures represent the median fee (i.e. 50th percentile) of a comparator group comprising companies with a market capitalisation ranging from $4.3b
to $15.9b based on a 12 month rolling average market capitalisation up to 1 June 2020. The comparator group was selected based on 50% to 200% of APT’s
market capitalisation of $8.3b on a 12 month rolling average up to and excluding 1 June 2020. The Group’s spot market capitalisation at the end of FY20
(based on the Group’s closing share price of $60.99 on 30 June 2020) of $16.3b was significantly higher than $8.3b. Any temporary reductions in NED fees
within the comparator group as a consequence of COVID-19 have been excluded from the market data.

3. Elana Rubin assumed the role of Independent Interim Chair effective 1 July 2019 and was appointed as Independent Chair effective 25 May 2020. Elana’s fee

is all-inclusive, i.e. she will not receive additional Committee fees for permanent Committees.

4. 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.

6.3.2 Aggregate fee pool

The FY20 aggregate fee pool for Non-Executive Directors’ fees (including Committee fees) is $1,800,000 and

was approved by the Group’s shareholders at the 2019 AGM. Afterpay’s aggregate fee pool is positioned

conservatively relative to market, with the median fee pool of companies within the market capitalisation

comparator group (noted above) being $2,400,000.

6.3.3 Further information

In late FY19, the Group’s subsidiary (Afterpay Pty Ltd) received a notice requiring it to appoint an external

auditor to carry out an audit in respect of its AML / CTF Compliance. The Group takes its regulatory

responsibilities very seriously and established a dedicated AML / CTF Review Sub-Committee, charged with

assisting the Board with the oversight and management of the associated external audit program.

Elana Rubin was charged with leading the dedicated Sub-Committee. In recognition of the additional duties,

responsibilities and workload associated with this role, Elana received a special exertion allowance of $10,000

per month (inclusive of superannuation) for a period of 5 months only from July 2019 to November 2019.

However, as noted above, Elana does not receive additional fees for permanent Committees.

6.4 Minimum shareholding requirements

As outlined in the FY19 Remuneration Report, the Group’s Board resolved to introduce a minimum

shareholding requirement (which became effective during FY20). The purpose of this requirement was to

facilitate share ownership and further strengthen the alignment between Directors and Group’s

shareholders. The table below sets out key information regarding this policy.

Table 15

Overview of minimum shareholding requirements

Minimum shareholding requirement

Quantum

Timeframe

1 x base member fee1

Non-Executive Directors are required to build a shareholding with a monetary value equal to
1 x base member fee within a three-year timeframe, being the later of:

• three years from the effective date of the policy of 16 October 2019; and

• three years from date of commencement as a Non-Executive Director for those appointed

after 16 October 2019

1. As noted above, the Group’s base member fee is currently AUD$150,000. In the final Policy adopted by the Board, the base member fee is calculated as

gross of income tax (rather than net of income tax) to facilitate greater share ownership amongst Non-Executive Directors

The shareholdings of the Group’s Non-Executive Directors at the end of the Reporting Period are outlined in

detail in section 7.4 of this Report. Elana Rubin, Dana Stalder and Pat O’Sullivan have shareholdings well in

excess of the minimum shareholding requirement (being 1 x base member fee of AUD$150,000). Gary Briggs

and Sharon Rothstein, who were appointed as Non-Executive Directors on 1 January 2020 and 1 June 2020
respectively, have not yet met this requirement.

6.5 Non-Executive Directors – statutory remuneration

The fees paid or payable to the Non-Executive Directors of the Group in respect of FY20 are set out in the

table below. These fees include the temporary reduction in Board base member and Committee fees as

noted in section 6.1.1 above.

Table 16

Non-Executive Directors – statutory remuneration

Afterpay remuneration ($)
for the years ending 30 June 2020
and 30 June 2019

Financial
year

Short-term
Benefits

Long-term

Benefits

Share-based
payments

Salary & Fees

Superannuation

Options

Total

Elana Rubin

Dana Stalder

Clifford Rosenberg (part year)

Gary Briggs (part year)

Pat O’Sullivan (part year)

Sharon Rothstein (part year)

Total

2020

2019

2020

20191

20202

2019

20204

20205

20206

2020

2019

377,832

109,589

169,500

90,000

170,996

105,000

50,266

15,833

889,427

304,589

10,501

10,411

4,775

15,276

10,411

388,333

120,000

169,500

90,000

170,996

1,7903

106,790

105,000

55,041

15,833

904,703

1,790

316,790

1. Dana Stalder was appointed as a Non-Executive Director on 24 January 2018.
2. Clifford Rosenberg ceased as a Non-Executive Director effective 24 May 2020.
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 the Afterpay and Touchcorp businesses. These relate to legacy one-off
arrangements and have now fully vested.

4. Gary Briggs was appointed as a Non-Executive Director on 1 January 2020. As a newly appointed overseas based director, the base member fee payable to

Gary Briggs included an uplift of 50% to the Board member fee payable to Australia based directors.

5. Pat O’Sullivan was appointed as a Non-Executive Director on 1 March 2020.
6. Sharon Rothstein was appointed as a Non-Executive Director on 1 June 2020. As a newly appointed overseas based director, the base member fee payable

to Sharon Rothstein included an uplift of 50% to the Board member fee payable to Australian based directors.

In recognition of the value we place on our people at Afterpay, during FY20, the Board resolved to expand the
Remuneration & Nomination Committee to the People, Remuneration & Nomination Committee, with
additional oversight and responsibilities in respect of monitoring corporate culture, employee engagement,
and other people-related policies (including talent identification, training and development, and diversity).
These expanded responsibilities were reflected in the People, Remuneration & Nomination Charter.

The People, Remuneration & Nomination Committee represents one element of the Group’s robust
remuneration governance framework (summarised below), which aims to ensure that the Group’s
remuneration practices are fair, reasonable, aligned with best practice and consistent with the Group’s
remuneration principles outlined in section 4.1.

In addition to maintaining a robust remuneration governance framework, Afterpay meets with shareholders
and proxy advisors regularly in relation to feedback on remuneration practices and outcomes.

Figure 4 Overview of the Group’s remuneration governance framework

Afterpay 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).

People, Remuneration & Nomination Committee

Role and Responsibilities

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

The People, Remuneration & Nomination Committee Charter sets out the Committee's role and responsibilities,
composition, structure and membership requirements. As noted above, the People, Remuneration & Nomination
Committee’s responsibilities were expanded during FY20, which was reflected in the Committee’s Charter.

Composition

It is critical that the People, Remuneration & Nomination Committee is independent of management when making
decisions affecting employee remuneration. Accordingly, the People, Remuneration & Nomination Committee
consists entirely of Non-Executive Directors, all of whom are independent. Where appropriate, the Group’s two
Executive Directors (Anthony Eisen and Nick Molnar), Global Human Resources Director, Global Head of
Remuneration and Benefits, and Global CFO attend Committee meetings. However, they do not participate in formal
decision-making or in discussions relating to their own remuneration.

The People, Remuneration & Nomination Committee also has appropriate access to the Chief Enterprise Risk Officer
and Audit, Risk & Compliance Committee to ensure that risk considerations (both financial and non-financial) are
reflected in final remuneration outcomes for Executive KMP.

Management

Remuneration Advisers

Proposals on executive remuneration outcomes and
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 People, Remuneration & Nomination
Committee (including a copy of the Committee’s Charter), please refer to the Corporate Governance section
on our website (https://www.afterpay.com/en-AU/corporate-governance/).

7.2 Use of remuneration consultants

The People, 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 to discharge its duties. Any

advice from consultants is used as a reference point by the Committee and the Board and does not serve as a

substitute for thorough consideration by the Non-Executive Directors.

During the Reporting Period, KPMG was engaged by the People, Remuneration & Nomination Committee to

provide independent advice on a range of matters. In FY20, KPMG provided remuneration recommendations

as defined in section 9B of the Corporations Act 2001 in relation to the structure and quantum of Executive

KMP remuneration, as well as advice in respect of remuneration arrangements of Executive KMP on

termination of employment. KPMG was paid $95,000, excluding GST, for these services.

The Board is satisfied that the recommendations were made free from undue influence by the member or

members of Executive KMP to whom the recommendations relate. In addition to adhering to Board-

approved protocols, KPMG provided a formal declaration in this regard to the Chair of the People,

Remuneration & Nomination Committee.

KPMG as a firm also provided other advice relating to the provision of data and market practice as well as

legal, tax, accounting, governance, external communications and engagement, and sustainability services

during FY20. KPMG was paid a total of $844,368, excluding GST, and disbursements for services provided to

the Group during FY20.

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.

As previously disclosed, updates to the terms of the Executive Service Agreements of the Co-Founders were

made following the 2019 AGM to reflect best practice and to be in line with their new roles from 1 July 2019.

Table 17

Key terms of Executive KMP contracts in FY20

Executive service agreements

Element

Duration

Further detail

Ongoing term

Periods of notice required to
terminate

Either party may terminate the contract by giving:

• six months’ written notice for Anthony Eisen and Nick Molnar; and

• three months’ written notice for Luke Bortoli and Frerk-Malte Feller.

For all Executive KMP, the Group may terminate the service agreement immediately
without notice in certain circumstances, including (but not limited to) where the relevant
Executive KMP engages in a serious breach of agreement or serious misconduct.

Termination payments

Members of the Executive KMP are not entitled to any termination payments. A payment
may be made in lieu of notice at the discretion of the Board where termination occurs other
than for cause.

1. As noted in sections 3 and 5.5, by mutual agreement, it was agreed that Frerk-Malte Feller would work out an extended notice period on a passive basis

from 12 June 2020 to 25 November 2020 to facilitate the transition of his role (as required). He will cease employment with the Group on 25 November 2020.

As noted in section 3, Afterpay’s former Group Head and Executive Director (David Hancock) ceased as a

Director and KMP of Afterpay Limited on 8 October 2019.

In order to facilitate the transition of his role to the Chief Executive Officer and Managing Director, and other

members of the leadership team, a variation was made to David’s executive service agreement (effective 1

July 2019) where he was employed in the role of Senior Group Advisor reporting to the Chief Executive Officer

and, if requested, the Board.

In accordance with his varied service agreement:

•

the term of David’s employment in this role was for a period of 6 months (i.e. until 31 December 2019) or until

terminated by either party, with an option to extend the term of his employment for an additional period of

time, as agreed in writing by both parties; and

• during this 6 month term, David’s employment could be terminated by the Group by providing a payment in
lieu of notice in respect of the remaining balance of the 6 month term. With the exception of a payment in

lieu of notice, David was not entitled to any other termination payments (e.g. redundancy payments or other

compensation).

By mutual agreement, David’s employment ceased with the Group on 8 October 2019 and he received fixed

remuneration and statutory entitlements up to that date and no other compensation.

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).

As disclosed to the market in July 2020, concurrent with the Group’s Share Purchase Plan, the Co-Founders

each agreed to sell 2.05 million shares, representing 10% of their respective holdings in the Group. Anthony

and Nick remain fully committed to Afterpay and remain the two largest shareholders in the Group.

Table 18. Movements in shareholdings not held under an employee share plan

Non-Executive Directors

Elana Rubin

Dana Stalder

Opening balance
1-Jul-19

Purchase of shares

Disposal of shares

57,141

7,706

19,300

Balance
30-Jun-20

64,847

19,300

Clifford Rosenberg (part year)

650,574

900,085

(100,000)

1,450,6591

Gary Briggs (part year)

Pat O’Sullivan (part year)

Sharon Rothstein (part year)

Executive KMP

Anthony Eisen

Nick Molnar

Luke Bortoli

Frerk-Malte Feller (part year)

-2

-3

-4

20,450,574

David Hancock (part year)

950,000

7,169

900,000

(900,000)

7,169

20,450,659

950,0005

1. Ending balance at 24 May 2020, being the date that Clifford Rosenberg ceased as a Non-Executive Director.
2. Opening balance at 1 January 2020, being the date that Gary Briggs was appointed as a Non-Executive Director.
3. Opening balance at 1 March 2020, being the date that Pat O’Sullivan was appointed as a Non-Executive Director.
4. Opening balance at 1 June 2020, being the date that Sharon Rothstein was appointed as a Non-Executive Director.
5. Ending balance at 8 October 2019, being the date that David Hancock ceased as a KMP and Director.

Table 19 Movements in shareholdings held under an employee share plan

Instrument

Opening
balance
1-Jul-19

Granted

Exercised

Lapsed /
cancelled

Balance
30-Jun-20

Exercisable
30-Jun-20

Non-Executive Directors

Elana Rubin

Dana Stalder

Clifford Rosenberg (part year)

Options1

900,000

Gary Briggs (part year)

Pat O’Sullivan (part year)

Sharon Rothstein (part year)

Executive KMP

Anthony Eisen

Nick Molnar

Luke Bortoli

Frerk-Malte Feller
(part year)

Options

1,500,000

125,000

Options

1,500,000

125,000

Options

1,350,000

(900,000)

Options

RSUs

80,704

50,240

(900,000)

1,625,000

1,500,000

1,625,000

1,500,000

450,000

80,7042

50,2403

2,899,0874

David Hancock (part year)

Options

2,899,087

1. 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 the Afterpay and Touchcorp businesses. These relate to legacy one-off
arrangements and have now fully vested. Ending balance at 24 May 2020, being the date that Clifford Rosenberg ceased as a Non-Executive Director.

2. Ending balance is shown at 12 June 2020, being the date that Frerk-Malte Feller ceased as KMP. As described in section 5.5, the Board exercised its

discretion to pro-rate the LTI options to time served, and have determined to leave one-third on foot to be tested against the original performance hurdles
and vest (as applicable) in the ordinary course at 30 June 2022. The remaining LTI options will lapse on cessation of Malte’s employment in November 2020.

3. Ending balance is shown at 12 June 2020, being the date that Frerk-Malte Feller ceased as a KMP. As described in section 5.5, the first tranche of Malte’s

FY20 service-based RSUs (4,289 RSUs) and Buy-out Payment (12,459 RSUs) vested in the ordinary course on 1 July 2020. The remaining 8,576 FY20 service-
based RSUs will lapse on cessation of his employment in November 2020 and the remaining 24,916 Buy-out Payment RSUs will remain on foot to vest at the
original vesting dates of 1 July 2021 and 1 July 2022.

4. Ending balance is shown at 8 October 2019, being the date that David Hancock ceased as a KMP and Director. As noted in section 5.6.2, as a consequence of

the AUSTRAC audit in 2019, 200,000 options were withheld pending the outcomes of the final report of the external audit and AUSTRAC’s final
determination. The Board reserves discretion to lapse any of these options. These options will continue to be withheld until the outcome of the final
AUSTRAC determination is known.

8. Further Information

8.1 US ESOP

The Afterpay US, Inc. 2018 Equity Incentive Plan (US ESOP) is a share option plan established in 2018 under

which the Group may issue options to eligible participants to acquire shares in Afterpay US, Inc., the Group’s

US based subsidiary. The Group has limited the total US ESOP pool to options over a maximum of 10% of

Afterpay US, Inc. fully diluted shares on issue and the Group has confirmed that there is no intention to

expand this pool. The Group has previously confirmed that the US ESOP is currently at or near the maximum

10% issuance.

The US ESOP was established to facilitate the attraction and retention of top-tier talent in the US, who have

been critical to delivering the Group’s US growth aspirations. While successful in achieving these aims, as

previously announced, the US ESOP is closed to new offers and new incentive awards made to US

employees are being provided by way of awards over APT equity to ensure a globally aligned and

consistent approach going forward and to provide greater transparency for our stakeholders. All existing

US ESOP grants will remain on foot to be tested (as appropriate) and vest in the ordinary course. No

Executive KMP participated in the US ESOP.

In order to provide eligible participants with a mechanism to liquidate their exercised shares, the exercised

shares in Afterpay US, Inc. may be exchanged for fully paid ordinary APT shares in specified circumstances

(subject to a cap). Further detail in respect of the US ESOP, including the exchange mechanism and

maximum dilution impact, is outlined in detail in Notes 5 and 20 of the Notes to the Financial Statements.

8.2 UK ESOP

The Group has previously confirmed that it would establish an equity incentive plan comprising equity

options in Afterpay’s UK based subsidiary ClearPay Finance Limited (Clearpay) (UK ESOP), in accordance

with the terms of the acquisition of Clearpay from ThinkSmart. As part of these terms, ThinkSmart agreed to

provide for an equity pool of 3.5% Clearpay shares on issue (out of its remaining 10% shareholding in Clearpay)

that could be used for the purposes of a UK ESOP in the form of options over the 3.5% of Clearpay shares. In

this way, the UK ESOP will not dilute Afterpay’s 90% shareholding in Clearpay.

The terms of the UK ESOP have now been finalised and the Board of Afterpay and Clearpay have adopted the

UK ESOP Rules. The Group is currently in the process of allocating the 3.5% pool noted above. As previously

disclosed, after the UK ESOP pool has been fully allocated to UK employees, new incentive awards made

to UK employees will be provided by way of awards over APT equity to ensure consistency with market

practice and transparency for our shareholders going forward. No Executive KMP will participate in the UK

ESOP.

As previously disclosed, on exercise of the UK ESOP options, eligible participants will be allocated shares in

Clearpay (exercised shares). In order to provide eligible participants with a mechanism to liquidate their

exercised shares, the exercised shares may be exchanged for fully paid ordinary APT shares or cash (at the

Group’s election) in specific circumstances (subject to a cap on the number of APT shares that may be

exchanged). Further detail in respect of the UK ESOP, including the exchange mechanism and maximum

dilution impact, is outlined in detail in Notes 5 and 20 of the Notes to the Financial Statements.

8.3 Movement of securities

The table below discloses the number of options or RSUs granted, vested or lapsed during FY20 for Executive KMP.

Table 20 Options or RSUs awarded, vested and lapsed during the reporting period for Executive KMP

Key Management
Personnel

Executive KMP

Financial
year

Instrument

Awarded
during the
reporting
period

Award date

Fair value at
award date1
$

Vesting
date2

Exercise
price
$

Expiry date

No. vested
during the
reporting
period

No. lapsed
during the
reporting
period

Anthony Eisen

2020

Options

125,000

13/11/2019

10.37

30/06/2022

37.31

01/07/2024

Nick Molnar

Luke Bortoli4

Frerk-Malte
Feller5 (part year)

David Hancock6
(part year)

2020

Options

125,000

13/11/2019

10.37

30/06/2022

37.31

01/07/2024

2020

Options

450,000

2020

Options

80,704

1/7/2019

13.63

30/06/2022

31.09

01/07/2024

RSUs

50,240

1/7/2019

24.40

01/09/2022

2020

Options

31/12/2022

1,492,555

Value
granted
during the
reporting
period
$

972,373

Value of
options
exercised
during the
reporting
period
$3

31,293,000

1,099,753

1,225,856

1. The fair value of options are calculated using the Binomial Model.
2. Vesting date is the earliest date the vested options can be exercised.
3. Options vested and exercised is calculated as the difference between the share price at the date of exercise less the exercise price, and includes options vested in prior years that were exercised in FY20.
4. The second tranche of Luke Bortoli’s options vested on 1 June 2020 (i.e. 450,000 options), with the third and final tranche (i.e. 450,000 options) to be tested against vesting conditions on 1 June 2021.
5. Frerk-Malte Feller ceased as KMP on 12 June 2020.
6. David Hancock had 1,492,555 options tested for vesting conditions at 1 September 2019. As a consequence of the AUSTRAC audit in 2019, 200,000 options were withheld pending the outcomes of the final report of the external audit and AUSTRAC’s final

determination. The Board reserves discretion to lapse any of these options. These options will continue to be withheld until the outcome of the final AUSTRAC determination is known.

8.4 Other transactions and balances with Executive KMP

8.4.1 Loans to Executive KMP

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

8.4.2 Other Executive KMP transactions

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

Reporting Period.

Financial Report

FY20 Financial Statements.Growth momentum continues in all markets with FY20 global underlying sales increasing 112% to $11.1b, with annualised run rate now over $15b.Contents.

86 Consolidated statement of comprehensive income
87 Consolidated statement of financial position
88 Consolidated statement of changes in equity
89 Consolidated statement of cash flows
90 Notes to the financial statements

121 Group structure

90 Note 1-Basis of preparation

91 Group performance
91 Note 2-Segment information

94 Note 3-Expenses

95 Note 4-Taxation

99 Note 5-Earnings per share (EPS)

102 Assets and liabilities

102 Note 6-Cash and cash equivalents

103 Note 7-Receivables

106 Note 8-Other financial assets

106 Note 9-Property, plant and equipment

107 Note 10-Right-of-use assets

108 Note 11-Intangible assets

111 Capital structure, financing

& risk management

111 Note 12-Equity

112 Note 13-Interest bearing loans and borrowings

114 Note 14-Other financial liabilities

115 Note 15-Financial risk management

objectives and policies

121 Note 16-Business combinations

123 Note 17-Related party disclosure

124 Note 18-Information relating to Afterpay
Limited (formerly known as Afterpay
Touch Group Limited) (The Parent)

124 Note 19-Deed of cross guarantee

127 Employee remuneration

127 Note 20-Share-based payment plans

133 Note 21-Key management personnel

134 Items not recognised in
the financial statements
134 Note 22-Commitments and contingencies

135 Note 23-Events occurring after

the reporting period

137 Other information
137 Auditor’s remuneration

137 Other significant accounting policies

139 Directors’ declaration
140 Auditor’s Report
147 Additional Securities
Exchange Information
151 Corporate information

FY20 Financial Statements.Growth momentum continues in all markets with FY20 global underlying sales increasing 112% to $11.1b, with annualised run rate now over $15b.Consolidated statement of
comprehensive income

For the year ended 30 June 2020

Afterpay income

Pay Now revenue

Other income

Total income

Cost of sales

Gross profit

Depreciation and amortisation expenses1

Employment expenses

Share-based payment expenses

Receivables impairment expenses

Net loss on financial liabilities at fair value

Operating expenses

Operating loss

Share of loss of associate

Finance income

Finance costs1

Loss before tax

Income tax benefit/(expense)

Loss for the year

Other comprehensive loss

Note

2020

$'000

2019

$'000

433,815

200,868

16,493

17,095

68,843

46,149

519,151

264,112

(134,295)

(59,562)

384,856

204,550

(30,035)

(22,371)

(86,129)

(51,445)

(30,454)

(30,545)

(94,493)

(58,675)

(1,999)

(146,305)

(73,210)

(4,559)

(31,696)

(1,101)

1,408

563

(22,530)

(11,653)

(26,782)

(42,786)

3,925

(1,013)

(22,857)

(43,799)

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

Exchange differences on translation of foreign operations

Total comprehensive loss for the year, net of tax

Loss attributable to

Owners of Afterpay Limited

Non-controlling interests

Earnings per share for loss attributable to the ordinary equity
holders of the company

Basic loss per share

Diluted loss per share

(17,904)

(776)

(40,761)

(44,575)

(19,780)

(42,861)

(3,077)

(938)

(0.08)

(0.18)

1. The Group adopted AASB 16 Leases using the modified retrospective method and has not restated comparatives for 2019.
The 2019 comparatives are not comparable to 2020 for recognition and measurement, as disclosed further in Note 25.

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 2020

ASSETS

Current Assets

Cash and cash equivalents

Receivables

Other financial assets

Other assets

Total Current Assets

Non-Current Assets

Property, plant and equipment

Right-of-use assets1

Intangible assets

Deferred tax assets

Investment in associate

Other financial assets

Other assets

Total Non-Current Assets

TOTAL ASSETS

LIABILITIES

Current Liabilities

Trade and other payables

Employee benefit provision

Contract liability

Interest bearing loans and borrowings1

Other financial liabilities

Income tax payable

Total Current Liabilities

Non-Current Liabilities

Employee benefit provision

Other provisions

Other financial liabilities

Interest bearing loans and borrowings1

Total Non-Current Liabilities

TOTAL LIABILITIES

NET ASSETS

EQUITY

Issued capital

Accumulated losses

Reserves

Equity attributable to the owners of Afterpay Limited

Non-controlling interest

TOTAL EQUITY

Note

2020

$’000

2019

$’000

606,041

781,895

10,660

6,695

231,456

452,699

3,003

9,130

1,405,291

696,288

5,127

6,999

106,589

78,291

5,166

893

170

4,213

89,072

27,280

3,035

580

203,235

124,180

1,608,526

820,468

180,730

109,981

5,279

224

4,278

1,883

1,158

2,585

100

597

1,772

5,370

193,552

120,405

513

305

3,038

464,767

468,623

662,175

946,351

317

565

1,039

49,626

51,547

171,952

648,516

975,317

(90,355)

58,711

674,769

(70,575)

41,365

943,673

645,559

2,678

2,957

946,351

648,516

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 2020

At 1 July 2019

Loss for the year

Other comprehensive loss

Total comprehensive loss for the year

Transactions

Issue of share capital

Share issue expenses (net of tax)

Share options exercised (net of tax)

Share-based payments

Accumulated
Losses

Foreign
Currency
Translation
Reserve

Other
Reserves

$’000

Issued
Capital

$’000

Non-
Controlling
Interest

$’000

Total

$’000

Total

$’000

674,769

(70,575)

(821)

42,186

645,559

2,957

648,516

(19,780)

(17,904)

(19,780)

(17,904)

233,012

(1,782)

69,318

(19,780)

(3,077)

(22,857)

(17,904)

(37,684)

(3,077)

(40,761)

233,012

(1,782)

233,012

(1,782)

6,637

75,955

957

76,912

28,613

1,841

30,454

At 30 June 2020

975,317

(90,355)

(18,725)

77,436

943,673

2,678

946,351

For the year ended 30 June 2019

$’000

Issued
Capital

Accumulated
Losses

Foreign
Currency
Translation
Reserve

Other
Reserves

Non-
Controlling
Interest

$’000

Total

$’000

Total

$’000

At 1 July 2018

192,628

(22,195)

(45)

13,167

183,555

Initial application of AASB 9 and AASB 15

(5,519)

Restated balance at 1 July 2018

192,628

(27,714)

(45)

13,167

178,036

Loss for the year

Other comprehensive loss

Total comprehensive loss for the year

Transactions

(42,861)

(776)

(42,861)

(938)

(43,799)

(776)

(42,861)

(776)

(43,637)

(938)

(44,575)

Issue of share capital

459,269

Share issue expenses (net of tax)

(10,050)

Issue of ordinary shares, as
consideration for a business
combination, net of transaction costs
and tax

17,826

Non-controlling interest on acquisition
of subsidiary

Share options exercised (net of tax)

15,096

Share-based payments

459,269

(10,050)

17,826

(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

(70,575)

(821)

42,186

645,559

2,957

648,516

The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes.

Consolidated statement of
cash flows

For the year ended 30 June 2020

Cash flows from operating activities

Receipts from customers (inclusive of GST)

Payments to employees

Note

2020

$'000

2019

$'000

9,954,963

4,823,012

(80,895)

(39,827)

Payments to merchants and suppliers (inclusive of GST)

(10,103,761)

(4,916,304)

Income taxes paid

(4,260)

(9,073)

Net cash outflow from operating activities

(233,953)

(142,192)

Cash flows from investing activities

Interest received

Decrease/(Increase) in term deposits

Payments for development of intangible assets

Purchase of intangibles

Purchase of plant and equipment

Proceeds from sale of business

Contributions to associates

Net cash outflow from investing activities

Cash flows from financing activities

Proceeds from borrowings

Repayment of borrowings

Decrease in restricted cash

Proceeds from exercise of share options

Proceeds from issue of shares, net

Capital raising expenses

Payment of lease liabilities1

Interest and bank fees paid1

1,476

560

686

(866)

(40,754)

(21,055)

(1,452)

(485)

(3,389)

(2,070)

7,500

(5,088)

(48,647)

(16,290)

1,386,247

414,988

(970,826)

(526,493)

494

21,711

30,550

13,631

233,012

459,269

(5,208)

(11,424)

(5,307)

(19,514)

(14,549)

Net cash inflow from financing activities

649,448

357,133

Net increase in cash and cash equivalents

Foreign exchange on cash balance

Cash and cash equivalents at beginning of the year

366,848

198,651

7,737

246

231,456

32,559

Cash and cash equivalents at end of the year

606,041

231,456

The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes.

Notes to the financial
statements

Basis of preparation

Afterpay Limited (formerly known as Afterpay Touch Group Limited) is a for-profit

company incorporated on 30 March 2017 and domiciled in Australia. The securities of

Afterpay Limited (the Company) are listed on the Australian Securities Exchange (ASX).

Afterpay Limited’s ASX code is ‘APT’. The activities of Afterpay Limited and its

subsidiaries (together referred to as ‘the Group’) are described in the Directors’ Report.

The Group’s principal place of business is 406 Collins Street, Melbourne, Victoria,

Australia.

The Consolidated Financial Statements of Afterpay Limited as at and for the year ended

30 June 2020 were authorised for issue in accordance with a resolution of the Directors

on 27 August 2020.

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, except for the

revaluation of certain financial instruments that are measured at fair value;

• are presented in Australian dollars. 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 judgements, estimates and assumptions

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.

The impact of the COVID-19 pandemic remains uncertain. To the extent necessary, the

Group has used judgements, estimates and assumptions that reflect this uncertainty.

Further details of significant judgements, estimates and assumptions may be found in

the following notes to the financial statements:

• Note 4 Taxation;

• Note 7 Receivables;

• Note 11 Intangible assets; and

• Note 20 Share-based payment plans.

Group performance

Segment information

The Group’s reportable operating segments have been identified based on the financial

information currently provided to the Chief Operating Decision Makers (CODMs). The

CODMs, who are responsible for allocating resources and assessing performance of the

operating segments, have 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 ANZ: Comprises the Afterpay Australia and New Zealand platforms;

• Afterpay US: Comprises the Afterpay United States platform;

• Clearpay: Comprises the Clearpay United Kingdom platform;

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

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

the Afterpay, Clearpay or Pay Now segments.

Non-IFRS financial measures are reviewed by the CODMs for decision making purposes.

EBITDA (excluding significant items) has been disclosed as it is the most IFRS-like

measure reported to the CODMs.

The number of operating segments has increased from the 30 June 2019 financial

statements as a reflection of the growth of the Clearpay business (previously included

within Afterpay Other) and changes to reporting reviewed by the CODMs (Afterpay New

Zealand was previously included within Afterpay Other but is now managed within

Afterpay ANZ). The 2019 comparatives have been restated in line with the current year

presentation.

The Group continuously reviews its global operating model, financial reporting systems

and relevant financial measures reviewed by the CODMs for decision making purposes

in light of its expansion into markets outside of Australia. 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.

Year ended 30 June 2020

Total segment income1

Segment results

Segment EBITDA

(excl. significant items)2,3

Foreign currency gains

Share-based payment expenses

Net loss on financial liabilities at fair value

Share of loss of associate

One-off items

EBITDA

Depreciation and amortisation

Net finance cost

Loss before income tax

Income tax benefit

Loss for the year

Year ended 30 June 20194

Total segment income1

Segment results

Segment EBITDA

(excl. significant items)2,3

Foreign currency gains

Share-based payment expenses

One-off items

EBITDA

Depreciation and amortisation

Net finance cost

Loss before income tax

Income tax expense

Loss for the year

Afterpay
ANZ

Afterpay
US

Clearpay

Pay Now

Corporate

Total
Segments

$’000

313,687

162,724

26,247

16,493

519,151

142,177

(47,000)

(12,922)

6,532

(44,387)

44,400

19,948

(30,454)

(1,999)

(1,101)

(6,419)

24,375

(30,035)

(21,122)

(26,782)

3,925

(22,857)

Afterpay
ANZ

Afterpay
US

Clearpay

Pay Now

Corporate

Total
Segments

$’000

207,870

39,002

145

17,095

264,112

87,860

(24,554)

(4,402)

4,930

(38,119)

25,715

2,961

(30,545)

(7,456)

(9,325)

(22,371)

(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. Segment EBITDA (excluding significant items) excludes the impact of share-based payment expenses, foreign currency

gains, net loss on financial liabilities at fair value, share of loss of associate and one-off items. No government grants or other
COVID-19-related benefits have been recognised in the year (2019: nil).

3. EBITDA in the year ended 30 June 2019 has not been restated for the adoption of AASB 16 Leases. EBITDA in the year ended
30 June 2020 includes a $5.6 million benefit from the adoption of AASB 16. The Group adopted AASB 16 using the modified
retrospective method and has not restated comparatives for the prior year, as per the specific transitional provisions.

4. The prior year comparative has been restated to be comparable with the current year segment classifications.

Significant accounting policies

Afterpay income

Afterpay income is derived from the difference between the consumer’s

underlying order value processed on the Afterpay platform and the amount paid

to the merchant by Afterpay, referred to as Merchant fees. Afterpay generally

pays merchants the net amount of the order value less the Merchant fees, which

consists of fixed and variable rates, and Afterpay then assumes all non-

repayment risk from the consumer. There are no interest or fees charged by

Afterpay, 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 consumer 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-consumer

payments being approximately 25 days or less (2019: 30 days or less). This

deferred income is recorded as a reduction in the consumer receivables balance

in Note 7.

Pay Now Revenue

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, as required by AASB 15 Revenue from Contracts with

Customers. 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.

Contract liabilities are recorded in the Consolidated Statement of Financial

Position in respect of any unsatisfied performance obligations. 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 goods 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.

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.

Expenses

Depreciation and amortisation expenses

Depreciation

Amortisation

2020

$'000

2019

$'000

(7,607)

(1,978)

(22,428)

(20,393)

Total depreciation and amortisation expenses

(30,035)

(22,371)

Employment expenses

Wages and salaries

Employee on-costs

Total employment expenses

Operating expenses

(74,113)

(42,429)

(12,016)

(9,016)

(86,129)

(51,445)

Debt recovery costs, including chargebacks

(17,135)

(9,721)

Consulting and contractor costs

Marketing expenses

Communication and technology

Operating lease expenses1

Foreign currency gains

Net gain on sale of business2

AUSTRAC related costs

General and administrative expenses

Total operating expenses

(32,896)

(17,177)

(70,520)

(22,877)

(18,536)

(8,202)

(1,159)

19,948

(4,122)

2,961

1,271

(3,723)

(1,079)

(22,284)

(14,264)

(146,305)

(73,210)

Includes expenses relating to short-term leases and leases of low value assets. The 2019 comparatives relate to operating
lease expenses recognised under AASB 117 Leases. AASB 117 was replaced with AASB 16 Leases from 1 July 2019. These
expenses are not comparable year on year as disclosed further in Note 25.

2. Represents the net gain on sale of the European e-Services business, which was completed on 1 November 2018. The
European e-Services business did not represent a separate major line of business or geographical area of operations.

Significant accounting policies

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 Company’s functional and

presentation currency. Exchange differences arising on translation of the foreign

controlled entities are recognised in other comprehensive income and

accumulated in the Foreign currency translation reserve within equity. The

cumulative amount is reclassified to the Consolidated Statement of

Comprehensive Income upon disposal of any net investment in foreign

controlled entities.

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 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 are presented in the Consolidated Statement

of Comprehensive Income on a net basis within operating expenses.

Taxation

Income tax expense

The major components of Income tax expense:

Current income tax charge

Current Income tax expense

2020

$'000

2019

$'000

(21,945)

(15,263)

Adjustments in respect of current income tax of previous years

734

Deferred income tax

Relating to origination/reversal of temporary differences

25,619

14,082

Adjustment in relation to deferred income tax of previous years

Income tax benefit/(expense) as reported in the income
statement

(483)

3,925

113

(1,013)

Statement of changes in equity

Current income tax related to share-based payments

2020

$'000

(46,420)

2019

$'000

Deferred income tax related to opening retained earnings

(2,362)

Deferred income tax related to capital raising costs

(764)

(4,293)

Total income tax related to items credited directly to equity

(47,184)

(6,655)

Numerical reconciliation between aggregate Income tax expense recognised in
the Consolidated Statement of Comprehensive Income and Income 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% (2019: 30%)

Expenditure not allowed for income tax purposes

Foreign tax rate differential

Amount under provided in prior years

Non-recoverable foreign taxes

Utilisation of tax losses not previously recognised

2020

$'000

2019

$'000

(26,782)

(42,786)

8,035

(2,199)

(1,339)

252

(824)

12,836

(12,150)

(1,911)

168

Income tax benefit/(expense)

3,925

(1,013)

Deferred income tax

2020

$'000

2019

$'000

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 and equipment

Deferred receivables

Other

Gross deferred tax liabilities

Deferred tax assets

Capitalisation of development expenditure

Employee benefits

Other provisions

Capital raising costs

Research and development tax offsets

Property, plant and equipment

Provision for expected credit losses

Deferred receivables

Losses

Other

Gross deferred tax assets

Net deferred tax assets

112

1,530

1,331

5,772

2,200

10,945

708

5,768

580

3,314

1,000

640

10,028

2,583

262

1,805

758

159

1,449

796

5,276

3,754

1,429

3,790

8,328

2,305

63,434

11,774

1,181

1,176

89,236

32,556

78,291

27,280

Significant accounting judgements, estimates and
assumptions

Timing of recognition of deferred tax balances

The value of the net deferred tax recognised requires judgement regarding the

assessment of probable future profits. Differences between the future profits of

the Group (and the timing of these profits) and the tax positions in the financial
report could necessitate future adjustments to deferred tax balances 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.

Tax consolidation legislation

Afterpay Limited and its wholly-owned Australian controlled subsidiaries formed

a tax consolidated group effective from 15 August 2017. Afterpay 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 Limited, as the head entity, 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.

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 Limited for basic
earnings

2020

$'000

2019

$'000

(19,780)

(42,861)

No.'000

Weighted average number of ordinary shares for basic EPS

259,147

231,919

Adjustment for calculation of diluted EPS1

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

6,839

11,827

265,986

243,746

1. Includes the effect of dilution from share options, loan shares and rights (e.g. restricted stock units and performance rights).

Basic EPS amounts are calculated by dividing the loss for the period attributable to

ordinary equity holders of Afterpay Limited by the weighted average number of

ordinary shares outstanding during the period.

Diluted EPS amounts are calculated by dividing the loss attributable to ordinary equity

holders of Afterpay Limited by the sum of the weighted average number of ordinary

shares outstanding during the period and the weighted average number of ordinary

shares that would be issued if all securities which have the potential to cause dilution

are converted into ordinary shares.

The adjustment for the calculation of diluted EPS in the table above does not take into

account any options or similar conversion or exchange rights issued under the two

convertible notes issued to Matrix Partners X L.P and Weston & Co X LLC (Matrix

Convertible Notes), options granted under the Afterpay US, Inc. 2018 Equity Incentive

Plan (US ESOP), the put and call option to acquire the remaining shares in ClearPay

Finance Limited (Clearpay Put and Call Option) or the equity incentive plan comprising

options over equity in ClearPay Finance Limited (UK ESOP).

The potential number of APT shares that could be issued under these arrangements

were excluded from the adjustment for the calculation of diluted EPS in the table above

given the number of APT shares to be issued will only be determined on exercise and

conversion or exchange (as applicable) 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 or exchange is subject to

maximum levels.

Matrix Convertible Notes

On 19 January 2018, Afterpay US, Inc. issued two convertible notes to Matrix Partners X

L.P and Weston & Co X LLC (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. Conversion of the Matrix Convertible Notes may also be

accelerated, at the Group’s election, in the event of a change in control of APT.

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 (‘VWAP’) 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 on conversion of the Matrix

Convertible Notes is capped at 21,777,661 being 10% of the number of APT shares on

issue at the date the Matrix Convertible Notes were issued. This now equates to less

than 8% of current APT shares on issue due to subsequent share issues since the Matrix

Convertible Notes were issued. The Group considers it unlikely that the maximum

number of APT shares would be issued on conversion because for this to happen it

would 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.

US ESOP

The Afterpay US, Inc. 2018 Equity Incentive Plan (US ESOP) is a share option plan

established in 2018 under which the Group may issue options to eligible participants to

acquire shares in Afterpay US, Inc., the Group’s US based subsidiary. On vesting and

exercise of US ESOP options, eligible participants are allocated shares in Afterpay US,

Inc. (exercised shares). In order to provide eligible participants with a mechanism to

liquidate their exercised shares, the exercised shares may be exchanged for fully paid

ordinary APT shares in specific circumstances.

The number of APT shares which are issued in exchange for exercised shares in Afterpay

US, Inc. 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, or based on an independent

valuation in the case of exchange occurring at the discretion of the APT Board, as

applicable).

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.

This now equates to less than 8% of current APT shares on issue due to subsequent

share issues since the Matrix Convertible Notes were issued. For the reasons set out

above in respect of the Matrix Convertible Notes, the Group considers it unlikely that the

maximum number of APT shares would be issued upon exchange.

Further detail in respect of the US ESOP, including the exchange mechanism, is

outlined in Note 20.

Clearpay Put and Call Option

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 of the acquisition of 90%

of Clearpay (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 the abovementioned

date of completion.

APT has the right to exercise the call option earlier than 5 years from the

abovementioned date of completion 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.

100

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 that may

be issued and exchanged as consideration for the remaining Clearpay shares will be

based on the value of the remaining Clearpay shares divided by the volume weighted

average price (VWAP) of APT shares over the 5 trading days up to the date of option

exercise. The maximum number of APT shares that may be issued or exchanged for the

remaining 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

The Group had previously confirmed that it would establish an equity incentive plan

comprising options over equity in Afterpay’s UK based subsidiary ClearPay Finance

Limited (Clearpay) (UK ESOP), in accordance with the terms of the acquisition of

Clearpay from ThinkSmart. As part of these terms, ThinkSmart agreed to provide for an

equity pool of 3.5% Clearpay shares on issue (out of its remaining 10% shareholding in

Clearpay) that could be used for the purposes of a UK ESOP in the form of options over

the 3.5% of Clearpay shares. In this way, the UK ESOP will not dilute Afterpay’s 90%

shareholding in Clearpay. The terms of the UK ESOP have now been finalised and the

Board of Afterpay and Clearpay adopted the UK ESOP Rules on 24 June 2020. The Group

is currently in the process of allocating the 3.5% pool noted above.

On exercise of UK ESOP options, eligible participants will be allocated shares in Clearpay

(exercised shares). In order to provide eligible participants with a mechanism to

liquidate their exercised shares, it is intended that exercised shares may be exchanged

for fully paid ordinary APT shares or cash (at the Group’s election) in specified

circumstances. It is intended that exercised shares in Clearpay will be exchanged into

APT shares or cash at the same valuation of Clearpay shares as the Clearpay Put and Call

Option (as applicable) outlined above.

The maximum number of APT shares that can be issued in exchange for exercised

Clearpay shares under the UK ESOP is subject to a cap of 3% of APT shares on issue at

the date of adoption of the UK ESOP Rules, being 267,967,466 shares on 24 June 2020.

The Group considers it unlikely that the maximum number of APT shares of 8% across

the Clearpay Put and Call Option (with a cap of 5% as outlined above) and the UK ESOP

(with a cap of 3% as outlined in this section) would 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 at the time of exchange.

Further detail in respect of the UK ESOP, including the exchange mechanism, is

outlined in Note 20.

101

Assets and liabilities

6. Cash and cash equivalents

Cash at bank

Short-term deposits

Total cash and cash equivalents

2020

$'000

2019

$'000

512,984

121,365

93,057

110,091

606,041

231,456

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

Loss before tax

Adjustments for:

Depreciation and amortisation expenses

Share-based payment expenses

Net loss on financial liabilities at fair value

Share of loss of associate

Finance costs

Finance income

2020

$’000

2019

$’000

(26,782)

(42,786)

30,035

30,454

1,999

1,101

22,530

(1,408)

22,371

30,545

11,653

(563)

Gain on sale of European e-Services business

Foreign currency gains

(1,271)

(19,948)

(2,535)

Changes in assets and liabilities:

Increase in total receivables

Impact of accounting standard changes on
receivables

(Increase)/Decrease in other financial assets and
other assets

Increase in trade and other payables, contract
liabilities and provisions

Tax paid

(329,196)

(213,631)

(7,847)

(11,981)

2,861

73,503

68,084

(4,260)

(9,073)

Net cash outflow from operating activities

(233,953)

(142,192)

Significant accounting policies

Cash and cash equivalents in the Consolidated Statement of Financial Position

comprises cash at bank and in hand, cash in transit and cash in escrow for daily

receipts and settlements that is settled within one to seven days. Cash and cash

equivalents also comprise 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.

102

Receivables

Consumer receivables - face value

Consumer receivables - recognised over time1

Consumer receivables

2020

$’000

2019

$’000

816,812

482,123

(16,678)

(9,647)

800,134

472,476

Trade and other receivables

15,712

7,983

Total receivables before provision for expected credit losses

815,846

480,459

Provision for expected credit losses

Opening balance

Provided in the year

Debts written off/collected

Total provision for expected credit losses

(27,760)

(18,054)

(94,493)

(58,675)

88,302

48,969

(33,951)

(27,760)

Total receivables

781,895

452,699

1. Recognised over time represents the consumer transactions completed by period end but earned over the collection period of

the consumer receivables. Refer to Note 2 for further details.

Significant accounting judgements, estimates and
assumptions

Judgement is applied in measuring the Provision for expected credit losses and

determining 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 expected

credit loss (ECL) calculations. The inclusion of forward-looking information

increases the degree of judgement required to assess effects on the Group’s

ECLs. The impact of the COVID-19 pandemic remains uncertain and represents a

material downside risk to the economy. However, the Group’s collections

subsequent to year end have not deteriorated relative to past experience. While

the methodologies applied to the ECL calculations remained unchanged from

those applied in 2019, the Group has incorporated judgements, estimates and

assumptions specific to the impact of COVID-19, where relevant, in the

measurement of ECL.

The assumptions and methodologies applied are reviewed regularly.

103

Significant accounting policies

Trade and other receivables

Trade and other receivables are primarily amounts due from merchants as a

result of transactions with consumers. 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). The Group’s business

model is to hold the receivables with the objective to collect the contractual cash

flows. Trade and other receivables are measured at amortised cost and generally

have 1 - 30 day payment terms. There are no contract assets at 30 June 2020

(2019: nil).

Collectability of trade and other receivables is reviewed on an ongoing basis.

Individual debts that are known to be non-collectable are written off when

identified. 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.

The Group applies a simplified approach in calculating the ECLs for trade

receivables based on lifetime expected credit losses.

Consumer receivables

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 Effective Interest Rate (EIR) method. They are generally due within 14 –

56 days.

Provision for expected credit losses (ECLs)

The Group applies the general provision approach permitted under AASB 9

Financial Instruments 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 Consumer

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). For consumers on hardship cases, payment terms may be extended

which is determined on a per case basis.

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.

The Group also applies the general provision approach permitted under AASB 9

Financial Instruments to account for ECLs on other receivables measured at

amortised cost. Due to the short-term nature of the other receivables (due on

invoice) and the Group’s historical credit experience, the other receivables are

written off once overdue and there is no reasonable expectation of recovery.

104

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:

Ageing

Measurement basis

Stage

Stage 1

Stage 2

Not yet due

1 to 61 days
past due

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.

When the Consumer receivable is greater than 61 days past due,
there is considered to be objective evidence of impairment.
Ageing greater than 61 days is considered to have an adverse
impact on the estimated future cash flows of the Consumer
receivable.

Stage 3

Greater than 61
days past due

Receivables are written off when the Group has no reasonable expectation of

recovery. Prior period receivable balances are either fully written off or collected

during the current financial year. 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.

20201

$'000

Consumer receivables - face value2

783,679

25,007

$'000

8,126

Stage 1

Stage 2

Stage 3

Total

$'000

816,812

Provision for expected credit losses

(11,473)

(14,910)

(7,568)

(33,951)

Net consumer receivables

772,206

10,097

558

782,861

20191

Consumer receivables - face value2

453,266

21,880

6,977

482,123

Provision for expected credit losses

(6,434)

(14,440)

(6,886)

(27,760)

Net consumer receivables

446,832

7,440

454,363

1. The simplified approach prescribed in AASB 9 is used for Trade receivables, therefore the related provision for

expected credit losses is excluded from the ECL staging table for both 2020 and 2019. While the general approach
is used for other receivables, staging has not been provided as all balances that are at risk of non-recovery have

been written off. The provision for expected credit losses related to Trade and other receivables was nil (2019: nil).

2. ECL for Consumer receivables is calculated on the Consumer receivables – face value.

As the Group’s receivables are short-term in nature, the staging transfer

disclosures have not been provided.

105

8. Other financial assets

Restricted cash

Short-term deposits

Other

2020

$'000

1,536

3,448

6,569

2019

$'000

2,030

4,008

Total other financial assets

11,553

6,038

Total Current

Total Non-Current

Total other financial assets

10,660

893

3,003

3,035

11,553

6,038

Restricted cash are cash assets held with AA-/BBB+ banks as collateral for daily cash

settlements with merchants and payments to funding providers. Refer to Note 13 for

further information on the Group’s receivables warehouse facilities. Short-term deposits

are cash assets held with AA-/BBB+ banks as collateral for bank guarantees (see Note

22) and as part of the Group’s normal business operations.

Property, plant and equipment

The net book value of property, plant and equipment of $5.1 million (2019: $4.2 million)

primarily includes computer equipment, furniture fittings and leasehold improvements.

During the period, the Group purchased property, plant and equipment of $3.4 million

(2019: $2.4 million), reclassified $0.3 million to Right-of-use assets (see Note 25), disposed

$nil million (2019: $0.2 million) and recognised depreciation of $2.2 million (2019: $2.0

million) in the Consolidated Statement of Comprehensive Income.

Significant accounting policies

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

depreciation and any accumulated impairment losses.

Depreciation is calculated on the straight-line basis over the estimated useful life

of the specific assets of 3 - 5 years.

106

10. Right-of-use assets

Cost

At 1 July (Note 25)

Additions

Modifications

Terminations

At 30 June

Accumulated depreciation

At 1 July

Depreciation

Terminations

At 30 June

Net book value

At 30 June 2020

Commercial property leases

8,614

4,480

(749)

(1,255)

11,090

2020

$'000

8,614

4,480

(749)

(1,255)

11,090

(5,338)

1,247

(4,091)

6,999

Significant accounting policies

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 arrangement is dependent on the use of the specific asset and

whether the arrangement conveys a right to use the asset.

Leases are recognised as a right-of-use asset and a corresponding liability in the

Consolidated Statement of Financial Position at the date at which the leased

asset is available for use by the Group.

Right-of-use assets are measured at cost comprising the following:

•
the amount of the initial measurement of lease liability (see Note 13);
• any lease payments made at or before the commencement date less any

lease incentives received; and

• any initial direct costs.

Depreciation is calculated on the straight-line basis over the shorter of the asset’s

useful life and the lease term. Rental contracts are typically made for fixed

periods between 12 months and 4 years but may include extension options.

107

11.

Intangible assets

Cost

At 1 July 2018

Core
Technology

Customer
Contracts

Other
Intangibles

Goodwill

$'000

Total

$'000

53,803

15,352

140

23,575

92,870

Additions - internally generated

21,538

Other additions

Acquisition of a subsidiary

689

21,538

689

3,985

16,232

20,217

Disposals

(6,473)

(1,248)

(7,721)

At 30 June 2019

68,868

14,104

4,814

39,807

127,593

Additions - internally generated

38,884

Other additions

Disposals

228

834

39,112

834

At 30 June 2020

107,752

14,104

5,876

39,807

167,539

Accumulated Amortisation

At 1 July 2018

Amortisation

Disposals

(15,473)

(4,882)

(20)

(13,369)

(4,605)

(2,419)

1,692

555

(20,375)

(20,393)

2,247

At 30 June 2019

(27,150)

(8,932)

(2,439)

(38,521)

Amortisation

Disposals

(19,029)

(2,591)

(809)

At 30 June 2020

(46,179)

(11,523)

(3,248)

(22,429)

(60,950)

Net book value

At 30 June 2019

At 30 June 2020

41,718

5,172

2,375

39,807

89,072

61,573

2,581

2,628

39,807

106,589

Significant accounting judgements, estimates and
assumptions

Goodwill is tested for impairment at least annually. The impairment assessment

requires management judgement with respect to an estimate of the recoverable

amount of the cash generating unit (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 and equity.

108

Significant accounting policies

Goodwill

On acquisition, goodwill is initially measured as 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 has an indefinite useful life and is not

amortised but is measured at cost less any accumulated impairment losses.

Goodwill is tested for impairment at least annually.

Intangible assets (excluding goodwill)

Intangible assets, including Core technology, Customer contracts and Other

intangible assets are measured at cost on initial recognition. Intangible assets

acquired as a result of a business combination are measured at fair value as at

the date of acquisition. Following initial recognition, intangible assets are carried

at cost less accumulated amortisation and any 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.

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 use the intangible asset generated.

the ability to reliably measure the expenditure during development; and

Following initial recognition of the development expenditure as an asset, the

asset is carried at cost less accumulated amortisation and any 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.

A summary of the policies applied to the Group’s intangible assets (excluding

goodwill) is as follows:

Core technology

Customer contracts

Other intangibles

Internally Generated/
Acquired

Internally generated
and acquired

Acquired

Useful Lives

Finite: 3 - 5 years

Finite: 2 - 7 years

Amortisation Method Used

Straight-line

Impairment

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

109

Impairment tests for intangible assets, including goodwill

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.

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.

The Group performed a detailed impairment review of goodwill and concluded

that there was no impairment for the financial year ended 30 June 2020. At 30

June 2020, the market capitalisation of the Group was significantly greater than

the Group’s equity book value, further supporting no impairment of goodwill or

other assets of the CGUs.

For the purpose of the 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. A summary of the goodwill allocation and impairment

testing assumptions are presented below:

Afterpay AU

Clearpay

Pay Now

TOTAL

Goodwill allocation

$'000

21,220

$'000

16,232

Risk-weighted pre-tax discount rate

17.6%

34.8%

Risk adjusted growth rate beyond 5
years

N/A

$'000

2,355

13.6%

(1%)

Revenue multiple beyond 2 years

N/A

1.4x

N/A

$'000

39,807

N/A

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

for Pay Now would need to increase by approximately 20 basis points, or the

terminal value growth rate would need to decrease by approximately 30 basis

points, before the recoverable amount would equal its carrying value.

Afterpay AU and Pay Now

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.

Clearpay

The recoverable amount 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.

110

Issued and fully paid

At 1 July 2018

Shares issued

Share options and loan shares exercised

Acquisition of a subsidiary

Capital raising costs (net of tax)

At 30 June 2019

Shares issued

Share options and loan shares exercised

Capital raising costs (net of tax)

At 30 June 20201

2020

$’000

2019

$’000

975,317

674,769

No.'000

216,204

$'000

192,628

22,131

459,269

12,157

15,096

1,000

17,826

(10,050)

251,492

674,769

8,453

7,680

233,012

69,318

(1,782)

267,625

975,317

1. The total number of ordinary shares on issue excludes 0.4m loan shares.

For the financial year ended 30 June 2020, Afterpay Limited raised capital totalling
$233.0 million. This comprised:

 $200.0 million Institutional Placement completed on 27 November 2019; and

 $33.0 million Share Purchase Plan (SPP) completed on 10 February 2020.

Subsequent to 30 June 2020 the Group completed a $786.2 million capital raising, which
comprised a $650.0 million Institutional Placement and a $136.2 million Share Purchase
Plan (SPP). See Note 23.

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

 $117.0 million Institutional Placement and $25.0 million SPP, completed by September

2018; and $317.3 million Institutional Placement completed in June 2019.

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.

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 20.

111

13.

Interest bearing loans and borrowings

Secured interest bearing borrowings

Senior unsecured notes

Matrix convertible notes

Total interest bearing borrowings

Lease liabilities

2020

$'000

461,444

156

2019

$'000

49,737

144

461,600

49,881

7,445

342

Total interest bearing loans and borrowings

469,045

50,223

Total Current

Total Non-Current

4,278

597

464,767

49,626

Total interest bearing loans and borrowings

469,045

50,223

Secured interest bearing borrowings

The Group’s Australian receivables warehouse funding facility totalling $500.0 million

(2019: $500.0 million) is provided by National Australia Bank (NAB) ($300.0 million) and

Citi ($200.0 million) and is secured against Afterpay AU receivables, which are

transferred into the facility. As at 30 June 2020, the carrying value of Afterpay AU

consumer receivables is $368.0 million (2019: $339.7 million) and the facilities have $155.0

million drawn (2019: undrawn). For the year ended 30 June 2020, drawings under these

facilities incurred a weighted average interest rate of 2.2% p.a. (2019: 3.6%). Both facilities

mature in December 2022.

The Group’s US receivables warehouse funding facilities totalling US$400 million ($582.8

million) are provided by Citi (US$200 million) and Goldman Sachs (US$200 million). The

facilities are secured against Afterpay US receivables, which are transferred into the

facility. As at 30 June 2020, the carrying value of Afterpay US consumer receivables is

US$226.4 million ($329.9 million) (2019: $84.0 million). As at 30 June 2020 the Citi facility

has US$4.0 million ($5.9 million) drawn (2019: undrawn), and the Goldman Sachs facility

has US$193.0 million ($281.2 million) drawn. For the year ended 30 June 2020, drawings

under these facilities incurred a weighted average interest rate of 3.2% p.a. (2019: nil). The

Citi facility matures in May 2022 and the Goldman Sachs facility matures in December

2021.

The Group increased its receivables warehouse facility with Bank of New Zealand (BNZ)

by NZ$30 million to NZ$50.0 million ($46.7 million) in June 2020. The facility is secured

against Afterpay NZ receivables, which are transferred into the facility. As at 30 June

2020, the carrying value of Afterpay NZ consumer receivables is NZ$37.9 million ($35.4

million), and the facility has NZ$25.0 million ($23.4 million) drawn (2019: undrawn). For

the year ended 30 June 2020, drawings under this facility incurred a weighted average

interest rate of 1.65% p.a. (2019: nil). The facility matures in March 2022.

The Group has capitalised $4.9 million of borrowing costs at 30 June 2020 (2019: $4.6

million). The effective interest rates used to determine the amount of borrowing costs

eligible for capitalisation is specific to the individual facilities.

Borrowings are classified as non-current when there is no obligation or expectation that
the liability will be settled within the next 12 months at the reporting date.

112

Senior unsecured notes

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 term

(interest payable semi-annually). The notes were redeemed on 27 April 2020.

Matrix convertible notes

On 19 January 2018, Afterpay US, Inc. issued two convertible notes to Matrix Partners X

L.P and Weston & Co X LLC (Matrix Convertible Notes). The Matrix Convertible Notes

have a carrying value of US$0.1 million, carry a fixed interest rate of 6.0% for a 7-year

maximum term and may be converted into APT shares in certain circumstances

(subject to a cap) between 5 and 7 years from the date of issue of the notes (being 19

January 2018), with conversion at the noteholder’s election. Further detail in respect of

the Matrix Convertible Notes, including the conversion mechanism and maximum

dilution impact, is outlined in Note 5.

Lease liabilities

The Group leases various offices across Australia, New Zealand, the United States and

the United Kingdom. Rental contracts are typically made for fixed periods of more than

12 months to 4 years but may have extension options. Lease terms are negotiated on an

individual basis and contain a wide range of different terms and conditions.

Prior to 1 July 2019, leases of property, plant and equipment were classified as operating

leases. Payments made under operating leases (net of any incentives received from the

lessor) were charged to profit or loss on a straight-line basis over the period of the lease.

See Note 25 for impact of the adoption of AASB 16 Leases on 1 July 2019.

From 1 July 2019, at the inception of a contract, the Group assesses whether a contract is,

or contains, a lease.

Liabilities arising from a lease are initially measured on a present value basis. Lease

liabilities include the net present value of the following lease payments:

•

fixed payments (including in-substance fixed payments), less any lease incentives

receivable;

• variable lease payment that are based on an index or a rate;

• amounts expected to be payable by the lessee under residual value guarantees;

•

the lease component of contracts that include non-lease components and other

services, within the lease liability;

the extension option if the lessee is reasonably certain to exercise that option; and

• payments of penalties for terminating the lease, if the lease term reflects the lessee

exercising that option.

The lease payments are discounted using the interest rate implicit in the lease. If that

rate cannot be determined, the lessee’s incremental borrowing rate is used, being the

rate that the lessee would have to pay to borrow the funds necessary to obtain an asset

of similar value in a similar economic environment with similar terms and conditions.

Refer to Note 15(d) for maturity of future lease payments.

Each lease payment is allocated between the liability and finance cost. The finance cost

is charged to profit or loss over the lease period so as to produce a constant periodic

rate of interest on the remaining balance of the liability for each period.

Payments associated with short-term leases, leases of low-value assets and variable

leases are recognised as operating expenses as incurred. Short-term leases are leases

with a lease term of less than 12 months. Low-value assets comprise point of sale
equipment (terminals) and small items of office furniture.

113

14. Other financial liabilities

Exercised options not yet settled

Clearpay put option

Other

Total other financial liabilities

Total Current

Total Non-Current

Total other financial liabilities

Clearpay put option

Note

2020

$'000

1,672

2019

$'000

1,772

3,038

1,039

211

4,921

2,811

1,883

3,038

4,921

1,772

1,039

2,811

As outlined in Note 5, the Group has a call option to acquire the remaining Clearpay

Finance Limited (Clearpay) shares held by ThinkSmart Limited (ThinkSmart), which is

exercisable any time after 5 years from the date of completion of the acquisition of 90%

of Clearpay (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 shares it holds in

Clearpay to the Group, exercisable any time after 5.5 years from the abovementioned

date of completion.

A discounted cash flow model has been used to obtain the fair value of the put option

held by ThinkSmart at 30 June 2020. Significant inputs to the valuation are consistent

with those used in the Clearpay goodwill impairment assessment included in Note 11.

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. Gains or losses are recorded in the Consolidated Statement of

Comprehensive Income.

Further detail in respect of the Clearpay put option is outlined in Note 5.

Reconciliation of liabilities arising from financing activities

Cash
movements

Non-cash movements

Opening
balance

Cash flows2 Amortisation

Other1

2020

Secured interest bearing
borrowings

$'000

449,638

$'000

5,567

Senior unsecured notes

49,737

(50,000)

263

Matrix convertible notes

Lease liabilities

Total interest bearing
loans and borrowings

144

342

(4,867)

50,223

394,771

5,830

18,221

$'000

6,239

11,970

Fair value
loss

Closing
balance

$'000

461,444

156

7,445

469,045

Other financial liabilities

2,811

939

(828)

1,999

4,921

Total liabilities arising
from financing activities

53,034

395,710

5,830

17,393

1,999

473,966

Includes foreign exchange movement and impact of adoption of AASB 16 Leases. Refer to Note 25 for further details.

1.
2. Movements include the net cash inflows (e.g. drawdowns) and outflows (e.g. repayments and interest payments)

114

Cash
movements

Non-cash movements

Opening
balance

Cash flows2 Amortisation

2019

$'000

Secured interest bearing
borrowings

111,593

(111,593)

Other1

$'000

Senior unsecured notes

49,491

294

(48)

(94)

128

393

161,605

(111,687)

294

Matrix convertible notes

Lease liabilities

Total interest bearing
loans and borrowings

Clearpay
put option

Closing
balance

$'000

49,737

144

342

50,223

Other financial liabilities

2,164

Total liabilities arising
from financing activities

161,605

(109,523)

294

(392)

(381)

1,039

2,811

1,039

53,034

Includes foreign exchange movements and other non-cash movements.

1.
2. Movements include the net cash inflows (e.g. drawdowns) and outflows (e.g. repayments and interest payments)

15. Financial risk management objectives and policies

The Group’s principal financial instruments comprise cash and cash equivalents,

receivables, other financial assets, trade and other payables, other financial liabilities and

interest bearing loans and borrowings.

The Group manages its exposure to key financial risks, including interest rate, foreign

currency, credit and liquidity 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.

115

(a)

Interest rate risk

The Group’s exposure to market interest rates relate primarily to the Group’s Cash and

cash equivalents, Other financial assets (Restricted cash and Short-term deposits) and

Secured interest bearing borrowings. At balance date, the Group had the following mix

of financial assets and liabilities exposed to variable interest rate risk:

Financial Assets

Cash and cash equivalents

Other financial assets

Total financial assets

Financial Liabilities

Secured interest bearing borrowings

Total financial liabilities

2020

$'000

2019

$'000

606,041

231,456

4,984

6,038

611,025

237,494

(461,444)

Net Exposure

149,581

237,494

The following sensitivity analysis is based on the interest rate risk exposures in existence

at the reporting date.

At 30 June 2020, if interest rates had moved, as illustrated in the table below, with all

other variables held constant, loss for the year and equity would have been affected as

follows:

Judgements of reasonably possible movements:

-0.25% (25 basis points)

+1.00% (100 basis points)

Loss for the year

(Higher)/Lower

Equity

(Higher)/Lower

2020

$'000

(262)

1,047

2019

$'000

(416)

2020

$'000

262

2019

$'000

416

1,662

(1,047)

(1,662)

The Matrix Convertible Notes are on a fixed interest rate basis. The Group’s receivables

warehouse funding facilities are on a variable rate (30 day) basis. This aligns closely to

the weighted average life of the Afterpay consumer receivables they finance.

The financial liabilities as disclosed in Note 14 comprise the put option held by

ThinkSmart and early exercised unvested options, which are not exposed to interest rate

risks.

There are no other financial liabilities subject to interest rate risk as at 30 June 2020. The

Group has not hedged any interest rate risk during the year or at 30 June 2020.

116

(b) Foreign currency risk

Fluctuations in foreign exchange rates may impact the Group’s results. The Group’s

Consolidated Statement of Financial Position can be affected by movements in the US

Dollar, New Zealand Dollar, and Great British Pound.

The Group has not hedged any foreign currency risk during the year or at 30 June 2020.

At 30 June 2020, the Group has the following exposure to foreign currency that is not

designated in cash flow hedges:

Financial Assets

Cash and cash equivalents

NZD

USD

GBP

Other

Receivables and other financial assets

NZD

USD

GBP

Financial Liabilities

Trade and other payables

NZD

USD

GBP

Other

Financial liabilities

NZD

USD

GBP

Net exposure

2020

$'000

2019

$'000

15,582

193,062

33,383

4,173

31,379

4,512

34,616

17,846

331,594

84,597

52,275

3,296

660,512

145,805

3,541

94,320

20,866

235

23,214

284,547

3,038

2,950

37,559

3,683

1,916

1,039

429,761

47,147

230,751

98,658

The following sensitivity analysis is based on the foreign currency risk exposures in

existence at the reporting date.

117

At 30 June 2020, if exchange rates had moved, as illustrated in the table below, with all

other variables held constant, loss for the year 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%

Loss for the year

(Higher)/Lower

Equity

(Higher)/Lower

2020

$'000

2019

$'000

(1,492)

(1,213)

2020

$'000

1,492

864

703

(864)

2019

$'000

1,213

(703)

(9,277)

(4,868)

9,277

4,868

5,371

2,818

(5,371)

(2,818)

(3,930)

(196)

3,930

2,275

114

(2,275)

(9)

(15)

196

(114)

Credit risk arises from the financial assets of the Group. The Group’s exposure to credit

risk arises from potential default of the Consumer receivables, 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 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 7.

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.

(d) Liquidity risk

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.

The Group’s receivables warehouse funding facilities all have maturity dates greater

than 12 months after balance date as per below.

118

Maturity analysis of financial assets and liabilities

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 2020

$'000

< 1 year

1-2 years

2-3 years

> 3 years

Financial assets

Cash and cash equivalents

606,041

Receivables

Other financial assets

781,895

10,660

Total financial assets

1,398,596

893

Financial liabilities

Trade and other payables

180,730

6,499

316,947

157,705

Secured interest bearing
borrowings

Matrix convertible notes

Financial liabilities

Lease liabilities

1,883

4,517

207

3,038

4,921

1,774

1,003

573

7,867

Total

$'000

606,041

781,895

11,553

1,399,489

180,730

481,151

Total financial liabilities

193,629

318,721

158,708

3,818

674,876

Net maturity

1,204,967

(317,828)

(158,708)

(3,818)

724,613

Year ended 30 June 2019

$'000

< 1 year

1-2 years

2-3 years

> 3 years

Financial assets

Cash and cash equivalents

231,456

Receivables

Other financial assets

Total financial assets

Financial liabilities

452,699

3,003

687,158

Trade and other payables

109,981

3,035

Senior unsecured notes

3,625

53,625

Matrix convertible notes

Financial liabilities

Lease liabilities

1,772

258

199

1,039

Total

$'000

231,456

452,699

6,038

690,193

109,981

60,875

199

2,811

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

The carrying value of financial assets and liabilities approximates their fair value.

119

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 12, the Group raised $233.0 million in the year (2019: $459.3 million) for

the purpose of funding medium-term underlying sales and other working capital. As

detailed in Note 23, a further $786.2 million was raised subsequent to 30 June 2020.

As detailed in Note 13, the Group has receivable warehouse funding facilities. The

receivables warehouse funding facilities contain portfolio parameters. The Group

satisfied the portfolio parameters during the financial year ended and at 30 June 2020.

The Group’s cash and net debt position as at the end of the reporting period is as

follows:

Cash and cash equivalents

Restricted cash

2020

$'000

2019

$'000

606,041

231,456

1,536

2,030

Interest bearing loans and borrowings

(469,045)

(50,223)

Net cash/(debt) position

138,534

183,263

Fair value measurement

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.

The following table summarises the levels of the fair value hierarchy for financial

liabilities held at fair value:

Year ended 30 June 2020

$'000

Clearpay put option (Note 14)

Total financial liabilities

Level 1

Level 2

Level 3

$'000

3,038

Total

$'000

3,038

Year ended 30 June 2019

$'000

Clearpay put option (Note 14)

Total financial liabilities

$'000

1,039

Level 1

Level 2

Level 3

Total

$'000

1,039

If the discount rate increased/decreased by 250 basis points, the valuation of the liability

would decrease/increase by $0.3 million. If the revenue multiple increased/decreased by

0.1x, the valuation of the liability would increase/decrease by $0.7 million.

120

Group structure

16. Business combinations

On 23 August 2018 (the completion date), 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 acquisition of Clearpay met the recognition criteria for consolidation, with the

transaction treated as though the Group had effectively acquired 100% of Clearpay at

the completion date. The financial statements for the year ended 30 June 2019 therefore

included 100% of the results of Clearpay for the ten-month period from the completion

date.

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 acquired Clearpay to accelerate and de-risk the Group’s launch of the

Afterpay product into the UK market, which 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. 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:

Fair value recognised
on acquisition

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

$'000

355

3,985

4,340

713

3,575

(1,981)

16,232

17,826

Acquisition-related costs of approximately $0.9 million were included in operating

expenses in the Consolidated Statement of Comprehensive Income for the year ended

30 June 2019.

For the non-controlling interests in Clearpay retained by ThinkSmart, the Group elected

to recognise the non-controlling interests at its proportionate fair value.

121

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.

122

17. Related party disclosure

The ultimate controlling entity is Afterpay Limited, otherwise described as the parent

company.

The Consolidated Financial Statements include the financial statements of Afterpay

Limited and its subsidiaries. These are listed in the following table:

Name

Afterpay Australia Pty Ltd (formerly known as
Afterpay Pty Ltd) 1

Afterpay Holdings Pty Ltd 1

Afterpay Warehouse Trust

Afterpay Touch Group Employee Share Plan
Trust

Country of
incorporation

Australia

% Equity interest

2020

100%

2019

100%

Afterpay Touch Group No.2 Pty Ltd 1

Australia

100%

Afterpay US, Inc. 4

United States

Afterpay Receivables Warehouse-C LLC 2

United States

Afterpay Receivables Warehouse-GS LLC 2,5

United States

Afterpay US Services, LLC 2

Afterpay NZ Limited

Afterpay NZ Warehouse Trust 5

ClearPay Finance Limited

ClearPay Finance HCB Limited 3

Afterpay Canada Limited 5

Touchcorp Limited 1

Afterpay China Holdings Pty Ltd 5

Afterpay Information Technology Service
(Shanghai) Co., Ltd5

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

United States

New Zealand

United Kingdom

Canada

Bermuda

Australia

China

Australia

Singapore

Touch Networks Payments (Malaysia) Sdn Bhd 6

Malaysia

96%

100%

90%

100%

99%

100%

90%

100%

1. Refer to Note 19 for further information on the parties subject to a deed of cross guarantee.
2. Wholly owned subsidiaries of Afterpay US, Inc.
3. Wholly owned subsidiary of Clearpay Finance Limited.
4. The Group’s equity interest in Afterpay US, Inc is approximately 96% due to vested and exercised options under the US ESOP.

Refer to Note 20 for further information.
5. New legal entity established during the year.
6. Legal entity wound-up during the year.

123

The following table provides the total amount of transactions that have been entered

into with related parties for the year ended 30 June 2020. There were no similar

transactions or balances for the year ended 30 June 2019.

Statement of Comprehensive Income

Statement of Financial Position

Sales to
related parties

Purchases
from related
parties

Share of loss of
associate

Amounts
owed by
related parties

Amounts
owed to
related parties

Contributions
made to
associate

Year ended 30 June 2020

$'000

Associate

AP Ventures Limited 1
(‘APV’)

1,180

(1,101)

6,587

1. Afterpay owns 43.9% of the common shares of APV (2019: 4.6%), is entitled to 24.2% of the voting rights (2019: 4.6%), has no
representation on the Board and has no involvement in the management of APV through contractual arrangements.

18.

Information relating to Afterpay Limited (formerly known
as 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

2020

$'000

2019

$'000

57,486

12,085

971,893

720,087

1,029,379

732,172

6,754

12,008

49,140

61,148

1,022,625

671,024

957,932

641,949

82,409

(17,716)

45,193

(16,118)

1,022,625

671,024

Loss of the Parent entity

(1,598)

(14,943)

Total comprehensive loss of the Parent entity

(1,598)

(14,943)

19. Deed of cross guarantee

The subsidiaries identified in Note 17 ‘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 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.

124

The Consolidated Statement of Financial Position of the Closed Group is as follows:

As at 30 June

ASSETS

Current Assets

Cash and cash equivalents

Receivables

Other financial assets

Other assets

Total Current Assets

Non-Current Assets

Investments in associates

Investments in subsidiaries

Property, plant and equipment

Rights-of-use assets

Intangible assets

Deferred tax asset

Other financial assets

Other assets

Related party receivables

Total Non-Current Assets

TOTAL ASSETS

LIABILITIES

Current Liabilities

Trade and other payables

Provisions

Contract liabilities

Interest bearing loans and borrowings

Income tax payable

Total Current Liabilities

Non-Current Liabilities

Provisions

Interest bearing loans and borrowings

Related party payables

Financial liabilities

Total Non-Current Liabilities

TOTAL LIABILITIES

NET ASSETS

EQUITY

Contributed equity

Retained earnings/(losses)

Reserves

TOTAL EQUITY

2020

$'000

2019

$'000

185,154

369,518

3,015

5,314

171,842

347,660

857

5,106

563,001

525,465

5,166

570,527

4,164

5,318

73,280

43,144

893

170

702,662

1,265,663

17,826

3,627

67,151

15,446

2,450

580

180,798

287,878

813,343

61,700

70,447

5,131

226

3,159

917

2,511

100

597

5,122

71,133

78,777

513

3,167

121,474

3,038

128,192

199,325

1,066,338

975,317

17,266

73,755

1,066,338

882

49,480

1,039

51,401

130,178

683,165

674,769

(29,759)

38,155

683,165

125

The Consolidated Statement of Comprehensive Income of the subsidiaries that are

members of the Closed Group is as follows:

For the year ended 30 June

Profit before income tax

Income tax expense

2020

$'000

65,991

2019

$'000

1,855

(19,805)

(11,969)

Total comprehensive income/(loss) for the year, net of

46,186

(10,114)

tax

126

Employee remuneration

20. Share-based payment plans

Overview of plans

(a) Purpose of incentive plans

Employees of the Group may receive remuneration in the form of share-based

payments under the Group’s equity incentive plans, whereby employees render services

as consideration for equity instruments (i.e. equity-settled transactions).

The purpose of these plans is to:

• Attract, retain and motivate world-class talent from the global technology talent pool to

deliver on the Group’s growth aspirations;

• Align the interests of employees with the Group’s shareholders; and

• Encourage long-term decision making and drive sustainable performance in the

interests of the Group’s shareholders, customers and other stakeholders.

(b) Plans operated during the year

During the year ended 30 June 2020, the Group operated share-based payment plans

across the following instruments:

• Awards over APT equity comprising of options and restricted stock units (RSUs) under
the Group’s new Afterpay Equity Incentive Plan (approved at the 2019 AGM on 13

November 2019). The new plan reflects best practice and was developed and adopted to

operationalise the new FY20 Remuneration Framework outlined in the Remuneration

Report;

• Awards over APT equity comprising of options, loan shares and performance rights
under the Group’s legacy remuneration plan, the Afterpay Employee Incentive Plan

(which was adopted prior to listing in July 2017); and

• Equity in Afterpay US, Inc. (a subsidiary of Afterpay Limited) under the Afterpay US, Inc.

2018 Equity Incentive Plan (US ESOP).

The Group had previously confirmed that it would establish an equity incentive plan

comprising options over equity in Afterpay’s UK based subsidiary ClearPay Finance

Limited (Clearpay) (UK ESOP), in accordance with the terms of the acquisition of

Clearpay from ThinkSmart. As part of these terms (and as set out in the “UK ESOP”

section of this Note below), ThinkSmart agreed to provide for an equity pool of 3.5% of

Clearpay shares on issue (out of its remaining 10% shareholding) that could be used for

the purposes of a UK ESOP in the form of options over the 3.5% of Clearpay shares. The

terms of the UK ESOP have now been finalised and the Board of Afterpay and Clearpay

adopted the UK ESOP Rules on 24 June 2020. No options had been granted under the

UK ESOP as at 30 June 2020; the Group is currently in the process of allocating the 3.5%

pool noted above.

The Group is committed to providing greater transparency in respect of its employee

incentive plans for its stakeholders. To this end, the Group has committed to providing

new awards to employees globally in the form of awards over APT equity. This creates

alignment of future equity incentive awards in all Afterpay’s markets and provides a

path towards greater visibility of the impact of incentive plans on APT issued share

capital.

127

In particular, the US ESOP is now closed to new offers and new incentive awards made

to US employees are being made in the form of APT equity. In respect of the UK, once

the UK ESOP equity pool noted above has been allocated, new awards to UK employees

will also be provided in the form of APT equity. Refer to the sections “US ESOP” and “UK

ESOP” of this Note for further detail.

Significant accounting judgements, estimates and
assumptions

The fair value of options is determined in accordance with the fair market value

of the shares available at the grant date. The fair value of the options has been

calculated using the ten-day VWAP of the five trading days immediately

preceding the 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 6.5% of Clearpay owned by ThinkSmart. These

fair values are determined by valuations conducted by independent valuers.

Some inputs to the Binomial Model require the application of judgement. The

fair value of options granted during year were estimated on the grant date using

the assumptions set out below:

Expected volatility

Risk-free interest rate

Expected life of share
options (years)

Dividend yield

FY20

FY19

FY20

FY19

APT

US ESOP

50-80%

1.00%

50%

2.20%

60%

1.39%

60%

2.51%

The expected volatility and life of share options are based on historical data and

current expectations and are not necessarily indicative of actual outcomes.

The weighted average fair value of the awards granted under the APT ESOP and

US ESOP during the year was $32.85 and $2.64, respectively (2019: $10.31 and

$0.27, respectively).

Significant accounting policies

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.

128

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 the estimate. Revisions to the prior period

estimate are recognised in the Consolidated Statement of Comprehensive

Income.

Awards over APT equity

(a) Overview

As noted above, the new Afterpay Equity Incentive Plan was approved by the Group’s

shareholders at the 2019 AGM. Under this plan, eligible employees may be granted

equity awards in the listed company (including options, rights (e.g. RSUs) and restricted

shares), which are subject to vesting conditions. The Group also has a legacy Afterpay

Employee Incentive Plan (adopted prior to listing).

(b) Detail of APT equity awards during the period

Set out below is an overview of the APT equity awards for the year ended 30 June 2020.

Options

During the year, 1,341,092 options were granted to employees, comprising:

• 330,704 LTI options granted to Key Management Personnel (KMP) under the new

Afterpay Equity Incentive Plan approved at the 2019 AGM and in accordance with the

FY20 Executive KMP Remuneration Framework (as detailed in the Remuneration

Report); and

•

1,010,388 LTI options granted to other eligible employees, comprising 401,326 options

granted under the new Afterpay Equity Incentive Plan (approved partway through the

period at the 2019 AGM) and 609,062 LTI options granted under the legacy Afterpay

Employee Incentive Plan (adopted prior to listing).

Restricted Stock Units (RSUs)

During the year, 1,005,767 RSUs were granted under the new Afterpay Equity Incentive

Plan approved at the 2019 AGM, comprising:

• 50,240 RSUs granted to KMP in accordance with the FY20 Executive KMP
Remuneration Framework (as detailed in the Remuneration Report);

•

135,532 RSUs granted as part of a once-off Global Award to existing Afterpay employees

who had not received share-based awards previously (under any of Afterpay’s equity

incentive plans). These once-off awards are aligned with Afterpay’s “ownership culture”

and create even greater alignment with Afterpay’s shareholders, customers and other

stakeholders; and

• 819,995 RSUs granted to other eligible employees.

Legacy arrangements—loan shares and performance rights

Historically, and as part of Afterpay’s legacy remuneration arrangements, Afterpay has

issued performance rights to certain employees under the legacy Afterpay Employee

Incentive Plan (adopted prior to listing) 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 vest over a one to four-year 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. No
new loan shares or performance rights were granted during the period.

129

Detailed breakdown of APT equity awards

The following table provides a detailed breakdown of the movement in APT equity
awards during the period.

2020

2019

2020

2019

2020

2019

Share options

Loan Shares

Rights1 & RSUs

No.

’000

WAEP

No. WAEP

’000

14,907

5.49

21,005

1.66

1,143

3.91

1,910

3.62

No.

’000

Outstanding at the
beginning of the year

Granted during the year

1,341

32.85

5,444

10.31

Forfeited during the year

(63)

21.61

(187)

1.08

1,006

(8)

No.

’000

Exercised during the
year

Outstanding at the end
of the year2

Exercisable at the end
of the year2

(6,794)

4.12

(11,355)

0.80

(724)

3.56

(767)

3.18

(35)

9,391

10.28

14,907

5.49

419

4.50

1,143

3.91

998

5,668

3.65

7,589

1.93

264

3.69

813

3.46

1. Performance rights relating to legacy remuneration arrangements were fully exercised in the prior comparable period and

no further awards have been granted.

2. The outstanding and exercisable share options at the end of the year includes 4,506,000 options which have an exercise price

of between $1.00 and $2.77.

(a) Overview

The Afterpay US, Inc. 2018 Equity Incentive Plan (US ESOP) is a share option plan
established in 2018 under which the Group may issue options to eligible participants to
acquire shares in Afterpay US, Inc., the Group’s US based subsidiary. The Group has
limited the total US ESOP pool to options over a maximum of 10% of Afterpay US, Inc.
fully diluted shares on issue.

US ESOP options typically vest over a four-year period and are subject to vesting
conditions. On vesting and exercise of US ESOP options, eligible participants are
allocated shares in Afterpay US, Inc. (exercised shares). In order to provide eligible
participants with a mechanism to liquidate their exercised shares, the exercised shares
may be exchanged for fully paid ordinary APT shares in specified circumstances.
Specifically, the exercised shares in Afterpay US, Inc. will be automatically exchanged for
APT shares 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) (the Matrix Convertible Note
conversion mechanism is outlined in Note 5).

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 in exchange for exercised shares in Afterpay
US, Inc. 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, or based on an independent
valuation in the case of exchange occurring at the discretion of the APT Board, as
applicable) compared to the 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).

130

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.

This now equates to less than 8% of current APT shares on issue due to subsequent

share issues since the Matrix Convertible Notes were issued. The Group considers it

unlikely that the maximum number of APT shares would be issued on exchange

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.

As outlined above, the total US ESOP pool is limited to options over a maximum of 10%

of Afterpay US, Inc. fully diluted shares on issue and the Group has confirmed that there

is no intention to expand this pool. In light of this limit, the Group’s ownership interest in

Afterpay US, Inc. will not decline below 90% due to the exercise of options on Afterpay

US, Inc. shares under the US ESOP and will increase back to 100% following the

exchange of exercised shares for APT shares (assuming no other issues of shares in

Afterpay US, Inc. in the intervening period). The Group has previously confirmed that the

US ESOP is currently at or near the maximum 10% issuance.

The US ESOP was established in 2018 to facilitate the attraction and retention of top-tier

talent in the US, who have been critical to delivering the Group’s US growth aspirations.

While successful in achieving these aims, as noted above, the US ESOP is now closed to

new offers and new incentive awards made to US employees are being provided by way

of awards over APT equity to ensure a globally aligned and consistent approach going

forward.

(b) Detail of US ESOP awards during the period

The table below provides a breakdown of the movement in US ESOP share options

during the period.

Outstanding at the beginning of the year

Granted during the year

Forfeited during the year

Exercised during the year

Outstanding at the end of the year2

Exercisable at the end of the year

2020

2019

Share options

No.

’000

8,998

392

(756)

(2,870)

5,764

1,136

WAEP

0.27

2.641

0.30

0.42

0.43

No.

’000

6,992

4,078

(428)

(1,644)

8,998

382

WAEP

0.25

0.27

1. The weighted average exercise price (WAEP) of the options granted during the year was $2.64 or US$1.81 per share (2019:

$0.27 or US$0.18). The exercise price is set on a periodic basis by reference to a third-party valuation of Afterpay US, Inc. which
is conducted for US tax purposes.

2. This number includes options that have been exercised early but remain subject to vesting and a re-purchase right by

Afterpay US, Inc.

During the year, the Group received $0.1 million (2019: $2.2 million) from US ESOP option

holders who elected to early exercise unvested options. An early exercise mechanism is

provided under the US ESOP whereby option holders may elect to exercise options and

receive unvested shares in Afterpay US, Inc. before full vesting of the options occurs. Any

unvested options and any such unvested shares 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 (e.g. if the vesting conditions are

not met).

131

If Afterpay US, Inc. elects to exercise the repurchase right, it 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 $1.1 million (30 June 2019: $1.8 million) has been

recognised as a current financial liability in the financial statements to account for this

potential repurchase event.

The US ESOP provides for options on non-voting shares 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.

UK ESOP

(a) Overview

The Group had previously confirmed that it would establish an equity incentive plan

comprising options over equity in Afterpay’s UK based subsidiary ClearPay Finance

Limited (Clearpay) (UK ESOP), in accordance with the terms of the acquisition of

Clearpay from ThinkSmart. As part of these terms, ThinkSmart agreed to provide for an

equity pool of 3.5% Clearpay shares on issue (out of its remaining 10% shareholding in

Clearpay) that could be used for the purposes of a UK ESOP in the form of options over

the 3.5% of Clearpay shares.

The terms of the UK ESOP have now been finalised and the Board of Afterpay and

Clearpay adopted the UK ESOP Rules on 24 June 2020. The UK ESOP options have both

continued service and performance-based vesting conditions. On exercise of UK ESOP

options, eligible participants will be allocated shares in Clearpay (exercised shares). In

order to provide eligible participants with a mechanism to liquidate their exercised

shares, it is intended that exercised shares may be exchanged for fully paid ordinary APT

shares or cash (at the Group’s election) in specified circumstances. Specifically, the

exercised shares in Clearpay may only be exchanged for APT shares or cash at the same

time as the exercise of the Clearpay Put and Call Option by APT or ThinkSmart, as

applicable (the Clearpay Put and Call Option mechanism is outlined in Note 5). If UK

ESOP options are not exercised and exchanged with such event, the UK ESOP options

will lapse. This mechanism is intended to ensure that there are no outstanding UK ESOP

options once APT moves to a 100% shareholding in Clearpay via exercise of the Clearpay

Put and Call Option.

Further, it is intended that exercised shares in Clearpay will be exchanged into APT

shares or cash at the same valuation of Clearpay shares as the Clearpay Put and Call

Option (as applicable). Consistent with the Clearpay Put and Call Option, the number of

APT shares that may be issued and exchanged as consideration for the exercised shares

in Clearpay will be based on the value of the exercised shares in Clearpay divided by the

volume weighted average price (VWAP) of APT shares over the 5 trading days up to the

date of option exercise.

As noted above, consideration for exercised shares may be paid by the Group in cash or

APT shares (at the Group’s election). The maximum number of APT shares that can be

issued in exchange for exercised Clearpay shares under the proposed UK ESOP will be

subject to a cap of 3% of APT shares on issue at the date of first adoption of the UK ESOP

Rules on 24 June 2020, being 267,967,466 shares. Separately, and as outlined in Note 5,

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. The Group

considers it unlikely that the maximum number of APT shares of 8% across the Clearpay

Put and Call Option and the 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.

The UK ESOP was contemplated in the terms of the acquisition of Clearpay to facilitate

the attraction and retention of top-tier talent in the UK, who will be critical to delivering

132

the Group’s UK growth aspirations. As noted above, after the UK ESOP pool has been

fully allocated to UK employees, new incentive awards made to UK employees will be

provided by way of awards over APT equity to ensure a globally aligned and consistent

approach going forward.

(b) Detail of UK ESOP awards during the period

As noted above, the Board of Afterpay and Clearpay adopted the UK ESOP Rules on 24

June 2020. No options had been granted under the UK ESOP as at 30 June 2020; the

Group is currently in the process of allocating the 3.5% pool noted above.

Matrix Convertible Notes

The Group determined the US$0.1 million Matrix Convertible Notes included a share-

based payment component, for services to be delivered by Matrix. The fair value of the

Matrix 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

payment.

The fair value of the Convertible Notes was determined by using a multi-stage process,

including 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.

The Matrix Convertible Notes are outlined in Note 5.

21. Key management personnel

Compensation of Key Management Personnel

Short-term employee benefits

Post-employment benefits

Other long-term benefits

Share-based payments

Total compensation

2020

2019

3,083,648

2,997,685

115,174

107,316

24,796

10,257

4,269,242

17,530,018

7,492,860

20,645,276

Compensation of Key Management Personnel (KMP) includes Executive KMP and Non-

Executive Directors. Compensation details for KMP are included in Sections 5.7 and 6.5

of the Remuneration Report.

133

Items not recognised in the
financial statements

22. 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 ‘Notice’.

Mr Neil Jeans of AML/CTF firm ‘Initialism’ was appointed as the auditor on 29 July 2019.

The Final Audit Report (Final Report) was provided to AUSTRAC on 22 November 2019.

The Final Report refers to matters of historic non-compliance by Afterpay and makes

recommendations in relation to Afterpay’s ongoing AML/CTF compliance. The Final

Report states that the majority of these matters have been addressed.

Subsequent to receipt of the Final Report, AUSTRAC requested clarification of a number

of matters included in the Final Report. AUSTRAC is considering the Final Report,

together with the Group’s subsequent responses, and will determine whether it will

take further action. In cases of non-compliance with the AML/CTF Act, the AUSTRAC

Chief Executive Officer may apply for civil penalty orders under s176 of the AML/CTF Act.

If the Federal Court is satisfied that a reporting entity has contravened a civil penalty

provision, then the Federal Court may order a pecuniary penalty to be paid to the

Commonwealth.

Currently, it is not possible to determine the extent or timing of any potential financial

impact to the Group that might result from the AML/CTF compliance audit.

Consequently, no amounts have been included as contingent liabilities at the reporting

date.

(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 2020 or 30 June 2019

which required recognition of a provision or contingent liability.

The Group had entered into bank guarantee arrangements totalling $2.9 million 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.

134

23. Events occurring after the reporting period

With the exception of the items listed below, no other matters or circumstances have

occurred subsequent to 30 June 2020 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.

(a) Capital raising

Subsequent to 30 June 2020, the Group completed a $786.2 million capital raising,

which comprised a $650.0 million Institutional Placement and a $136.2 million Share

Purchase Plan (SPP).

(b) Pagantis Acquisition

On 21 August 2020, a wholly owned subsidiary of the Group entered into a Share

Purchase Agreement (SPA) with NBQ Corporate SLU (NBQ) to acquire 100% of the

shares outstanding in Pagantis SAU and PMT Technology SLU (collectively, Pagantis).

Pagantis currently provides a range of buy now, pay later and traditional credit services

across Spain, France and Italy with regulatory approval to also operate in Portugal and a

pending application to passport its payment institution licence into Germany.

Afterpay is acquiring the Pagantis corporate entities, regulatory licences, multilingual

technology stack and platform, intellectual property, contracts with relevant service

providers, and an experienced, fully staffed team (69 FTEs) with local knowledge of the

EU market and regulatory landscape. Pagantis is authorised and supervised by the Bank

of Spain and has a Payment Institution licence (Licence). This Licence is eligible for

“passporting” to other EU member states and will provide Afterpay with the regulatory

structure that is required to operate across all EU member states (subject to regulatory

approval from the Bank of Spain to the proposed change of control).

Pagantis' existing consumer fee instalment and credit card offerings will be

discontinued post completion of the acquisition.

As part of the SPA, NBQ will receive a minimum €50m in consideration (subject to

customary adjustments), payable as follows:

• Upfront Consideration - €5 million in cash payable at completion; and

• Deferred Consideration in the form of a Convertible Note - €45 million in cash, payable 3
years post completion. Deferred Consideration can exceed €45 million, with any excess

being payable in cash or shares in Afterpay Limited (at Afterpay’s election), provided the

equity value of Pagantis exceeds €45 million, 3 years post completion.

Deferred Consideration received by NBQ will be determined by reference to the equity
value (Equity Value) of Pagantis, 3 years post completion.

If the Equity Value of Pagantis:

•

Is less than or equal to €45m; NBQ will receive €45m in Deferred Consideration payable

in cash; or

• Exceeds €45m; NBQ will receive €45 million, payable in cash, plus:

> 50% of any Equity Value above €45 million, up to €100 million; plus

> 40% of any Equity Value above €100 million, up to €150 million; plus

10% of any Equity Value above €150 million in Deferred Consideration.

Any Deferred Consideration above the €45 million minimum is payable in cash or

Afterpay scrip, at Afterpay’s election. The maximum Deferred Consideration payable

(whether in cash or Afterpay shares) will be capped at 3% of the total Afterpay shares on

issue at completion, multiplied by the 5-day volume weighted average price, 3 years

post completion.

135

The Equity Value will be determined by agreement between Afterpay and NBQ or,

failing that, independent experts with reference to agreed valuation principles.

Payment of Deferred Consideration may be accelerated if Afterpay is subject to a

change of control.

The acquisition will accelerate the planned launch into Europe and continues the

preferred model of partnering with a local market presence to de-risk global expansion

(consistent with the Company’s successful UK expansion strategy). Pagantis currently

provides a range of buy now, pay later and traditional credit services across Spain,

France and Italy, with regulatory approval to also operate in Portugal and a pending

application to passport its payment institution licence into Germany.

The financial effects of this transaction have not been recognised at 30 June 2020. The

operating results and assets and liabilities of Pagantis will be consolidated following

completion of the transaction.

Completion of the acquisition is expected to occur in or before December 2020, and is

subject to certain conditions being satisfied, principally regulatory approval for the

acquisition being granted by the Bank of Spain.

On 26 August 2020, a wholly owned subsidiary of the Group entered into a Share

Purchase Agreement (SPA) to acquire 100% of the shares outstanding from the

founders (Founders) of PT Empat Kali Indonesia (EmpatKali). EmpatKali is a small,

Singapore-based, buy now, pay later company operating in Indonesia.

As part of the SPA, the Founders will receive a total of US$2m in consideration (subject

to customary adjustments) payable in Afterpay Limited (APT) shares.

The financial effects of this transaction have not been recognised at 30 June 2020. The

operating results and assets and liabilities of EmpatKali will be consolidated following

completion of the transaction. Completion of the acquisition is expected to occur before

December 2020.

136

Other information

24. Auditor’s remuneration

2020

2019

Amounts received or due and receivable by EY (Australia) for:

Total audit or review of the financial report of the entity and any
other entity in the consolidated Group

1,383,886

997,061

Support of new accounting standards implementation

206,760

Other assurance services

Other non-audit services

81,920

73,840

Total auditor's remuneration

1,465,806

1,277,661

25. Other significant accounting policies

New and amended standards adopted by the Group

The following new accounting standards and interpretations became applicable and

were adopted during the current reporting period:

• AASB 16 Leases; and

• AASB Interpretation 23 Uncertainty over Income Tax Treatments.

The Group has also chosen to early adopt the following amendment:

• Amendments to AASB 101 and AASB 108 Definition of material

The impact of the adoption of AASB 16 is disclosed below. The adoption of AASB

Interpretation 23 and the amendments to AASB 101 and AASB 108 did not have a

material impact on the Group’s accounting policies and do not require retrospective

adjustments.

A number of other amendments also became effective during the period, but did not

have a material impact on the Group’s accounting policies.

AASB 16 Leases

The Group adopted AASB 16 using the modified retrospective method with the date of

initial application of 1 July 2019 and, as required under the specific transitional provisions

in the standard, the Group has not restated comparatives for the 2019 reporting period.

The reclassifications and the adjustments arising from the new leasing rules are

therefore recognised in the opening balance sheet on 1 July 2019.

On adoption of AASB 16, the Group recognised lease liabilities in relation to leases which

had previously been classified as ‘operating leases’ under the principles of AASB 117

Leases. These liabilities were measured at the present value of the remaining lease

payments, discounted using the lessee’s incremental borrowing rate as of 1 July 2019.

The Group recognised a right-of-use asset at the date of initial application at the

amount equal to the lease liability, adjusted by the amount of any prepaid or accrued

lease payments relating to that lease recognised in the statement of financial position

immediately before the date of initial application.

137

For leases previously classified as finance leases in accordance with AASB 117, the

carrying amount of the right-of-use asset and the lease liability at the date of initial

application was the carrying amount of the lease asset and lease liability immediately

before that date measured applying AASB 117.

The table below presents a reconciliation of the operating lease commitments as

disclosed in the Group’s 30 June 2019 financial statements, to the lease liabilities

recognised on the transition date:

Reconciliation of operating lease commitments

Operating lease commitments disclosed as at 30 June 2019

(Less): discounting using the lessee's incremental borrowing rate at the date of
initial application of 4.70% (weighted average incremental borrowing rate)

Add: finance lease liabilities recognised as at 30 June 2019

Add: adjustments as a result of a different treatment of extension options

(Less): contracts reassessed as low value assets

Lease liabilities recognised as at 1 July 2019

Of which are:

Current lease liabilities

Non-current lease liabilities

$’000

7,119

(261)

342

1,382

(115)

8,467

4,427

4,040

The change in accounting policy affected the following items in the Consolidated

Statement of Financial Position on 1 July 2019:

• Right-of-use assets – increase by $8.6 million

• Property, plant and equipment – decrease by $0.3 million

• Prepayments (included in Other assets) – decrease by $0.4 million

• Lease liabilities (included in Interest bearing loans and borrowings) – increase by $8.1

million

• Other provisions – decrease by $0.2 million

• Net impact on retained earnings on 1 July 2019 was $nil.

In applying AASB 16 for the first time, the Group has used the following practical

expedients required by the standard:

•

the use of a single discount rate to a portfolio of leases with reasonably similar

characteristics;

reliance on previous assessments on whether leases are onerous;

the accounting for leases with a remaining lease term of less than 12 months as at 1 July

2019 as short-term leases;

the exclusion of initial direct costs for the measurement of the right-of-use asset at the

date of initial application; and

the use of hindsight in determining the lease term where the contract contains options

to extend or terminate the lease.

The Group has also elected not to reassess whether a contract is or contains a lease at

the date of initial application. Instead, for contracts entered into before the transition

date the Group relied on its assessment made applying AASB 117 and Interpretation 4

Determining whether an Arrangement contains a Lease.

138

Directors’ declaration

In accordance with a resolution of the Directors of Afterpay Limited, I state that:

In the opinion of the Directors:

(a)

The financial statements and notes of Afterpay Limited for the year ended 30 June 2020

are in accordance with the Corporations Act 2001, including:

(i)

giving a true and fair view of its financial position as at 30 June 2020 and of the

Group’s performance for the 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;

(c)

The remuneration disclosures set out in the Directors’ Report comply with Accounting

Standards 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

Chair, Independent Non-Executive Director

Melbourne

27 August 2020

139

Auditor’s Report

Auditor’s
Report.

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 Limited

Report on the Audit of the Financial Report

Opinion

We have audited the financial report of Afterpay Limited (the Company) and its subsidiaries (collectively

the Group), which comprises the consolidated statement of financial position as at 30 June 2020, 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

giving a true and fair view of the consolidated financial position of the Group as at 30 June 2020

and of its consolidated financial performance for the year ended on that date; and

complying with Australian Accounting Standards and the Corporations Regulations 2001.

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

(including Independence Standards) (the Code) that are relevant to our audit of the financial report in

Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code.

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

2001, including:

Basis for Opinion

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.

A member firm of Ernst & Young Global Limited

Liability limited by a scheme approved under Professional Standards Legislation

Auditor’s

Report.

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 Limited

Report on the Audit of the Financial Report

Opinion

We have audited the financial report of Afterpay Limited (the Company) and its subsidiaries (collectively
the Group), which comprises the consolidated statement of financial position as at 30 June 2020, 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 2020
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
(including Independence Standards) (the Code) that are relevant to our audit of the financial report in
Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code.

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

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.

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

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.

Capitalisation of internally generated intangible assets

Why significant

How our audit addressed the key audit matter

The Group’s income is generated through the
processing of transactions with its customers
through its internally developed software
platforms disclosed as Core Technology in Note
11 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 $38.9 million and the net
book value of Core Technology amounted to
$61.6 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;

•

the assessment of future economic benefits
and the technical feasibility of the product;
and

the timing of amortisation and the useful
lives for projects.

Our audit procedures included the following:

• We selected a sample of projects to determine

the nature and status of the project and assessed
whether the project met the capitalisation
requirements of the Australian Accounting
Standards.

•

For a sample of capitalised employee and sub-
contractor costs we agreed the pay rates to
employment contracts, supplier invoices and
obtained evidence to support the time charged to
development projects.

• 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 capitalisation
methodology applied by the Group in comparison
to prior reporting periods.

• We assessed the adequacy of the related

disclosures in the financial report in respect of
the capitalised costs.

Provision for expected credit losses on Afterpay consumer receivables

Why significant

How our audit addressed the key audit matter

The nature of the Group’s business is to

Our audit procedures included the following:

assume the credit risk of merchant

transactions with consumers. Under AASB 9

Financial Instruments, the Group has applied

the forward-looking expected credit loss (ECL)

model.

With the Coronavirus outbreak being declared a

pandemic by the World Health Organization in

March 2020, the Group has assessed the

impact to trading over the last three months of

the financial year and has incorporated any

changes in loss rates along with forward-

looking factors in the measurement of the ECL.

A provision of $34.0 million has been

recognised at 30 June 2020.

This was a key audit matter as significant

judgement is involved in determining the

provision for expected credit losses based on

the estimated loss rates on outstanding

receivables.

The Group’s disclosure for the receivables

impairment on consumer receivables is

disclosed in Note 7 of the financial report.

• 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.

• 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 impact of the Coronavirus

outbreak on the loss rates along with forward-

looking factors in the measurement of the ECL.

• 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 2020 Annual Report, 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.

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

A member firm of Ernst & Young Global Limited

Liability limited by a scheme approved under Professional Standards Legislation

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.

Capitalisation of internally generated intangible assets

Why significant

How our audit addressed the key audit matter

The Group’s income is generated through the

Our audit procedures included the following:

processing of transactions with its customers

through its internally developed software

platforms disclosed as Core Technology in Note

11 of the financial report.

• We selected a sample of projects to determine

the nature and status of the project and assessed

whether the project met the capitalisation

requirements of the Australian Accounting

Software development is core to the Company’s

Standards.

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 $38.9 million and the net

book value of Core Technology amounted to

$61.6 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;

the assessment of future economic benefits

and the technical feasibility of the product;

•

and

the timing of amortisation and the useful

lives for projects.

•

For a sample of capitalised employee and sub-

contractor costs we agreed the pay rates to

employment contracts, supplier invoices and

obtained evidence to support the time charged to

development projects.

• 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 capitalisation

methodology applied by the Group in comparison

to prior reporting periods.

• We assessed the adequacy of the related

disclosures in the financial report in respect of

the capitalised costs.

Provision for expected credit losses on 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. Under AASB 9
Financial Instruments, the Group has applied
the forward-looking expected credit loss (ECL)
model.

With the Coronavirus outbreak being declared a
pandemic by the World Health Organization in
March 2020, the Group has assessed the
impact to trading over the last three months of
the financial year and has incorporated any
changes in loss rates along with forward-
looking factors in the measurement of the ECL.

A provision of $34.0 million has been
recognised at 30 June 2020.

This was a key audit matter as significant
judgement is involved in determining the
provision for expected credit losses based on
the estimated loss rates on outstanding
receivables.

The Group’s disclosure for the receivables
impairment on consumer receivables is
disclosed in Note 7 of the financial report.

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.

• 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 impact of the Coronavirus

outbreak on the loss rates along with forward-
looking factors in the measurement of the ECL.

• 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 2020 Annual Report, 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.

A member firm of Ernst & Young Global Limited

Liability limited by a scheme approved under Professional Standards Legislation

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

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.

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.

We also provide the directors with a statement that we have complied with relevant ethical requirements

regarding independence, and to communicate with them all relationships and other matters that may

reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate

threats or safeguards applied.

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 53 to 83 of the directors' report for the year

ended 30 June 2020.

In our opinion, the Remuneration Report of Afterpay Limited for the year ended 30 June 2020, complies

with section 300A of the Corporations Act 2001.

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

A member firm of Ernst & Young Global Limited

Liability limited by a scheme approved under Professional Standards Legislation

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.

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.

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

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 53 to 83 of the directors' report for the year
ended 30 June 2020.

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

A member firm of Ernst & Young Global Limited

Liability limited by a scheme approved under Professional Standards Legislation

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

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
27 August 2020

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

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

Responsibilities

Auditing Standards.

Ernst & Young

David McGregor

Partner

Melbourne

27 August 2020

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 21 August 2020.

Corporate Governance Statement

The Company’s Directors and management are committed to conducting the Group’s

business in an ethical manner and in accordance with high standards of corporate

governance. The Board continually reviews the Company’s governance policies and

practices to ensure that they remain appropriate in light of changes in corporate

governance expectations and developments. The Company has reviewed its corporate
governance framework against the 4th edition of the ASX Principles and
Recommendations and will be reporting against the 4th edition for the financial year
ending 30 June 2021. The Company’s corporate governance policies and charters are all
available at https://www.afterpay.com/en-AU/corporate-governance/.

For the year ended 30 June 2020, the Company's governance practices were consistent
with the 3rd edition of the ASX Corporate Governance Principles and Recommendations
(ASX Principles and Recommendations) unless otherwise indicated in the Corporate

Governance Statement. Further details of the Company’s corporate governance

framework and practices are described in the Company's Corporate Governance

Statement.

The Company's Corporate Governance Statement, together with the ASX Appendix 4G,
have been lodged with the ASX and are available at https://www.afterpay.com/en-AU
/corporate-governance/.

Substantial holders

As at 21 August 2020, 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

Anthony Eisen

Nicholas Molnar

Vanguard Group

Mitsubishi UFK Financial Group, Inc

Tencent Holdings Limited and Tencent
Mobility Limited

Number of Equity
Securities held

% of total issued
securities capital in
relevant class

18,405,963

15,714,991

13,928,673

13,355,399

6.62

5.61

5.01

5.00

A member firm of Ernst & Young Global Limited

Liability limited by a scheme approved under Professional Standards Legislation

147

Number of holders

As at 21 August 2020, the number of holders in each class of equity securities is as

follows:

Class of Equity Securities

Fully paid ordinary shares

Options to acquire ordinary shares

Convertible Note

Restricted Stock Units

Number of holders

57,208

428

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 21 August 2020 is as follows:

Total Shares

UMP Shares

UMP Holders

% of issued shares held by UMP
holders

280,107,063

459

0.0003

Voting rights of equity securities

The only class of equity securities on issue in the Company which carries voting rights is

fully paid ordinary shares. As at 21 August 2020, there were 57,208 holders of a total of

280,107,063 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 which 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 21 August

2020 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

Holders

50,461

5,664

590

442

Total Units

9,942,865

11,682,874

4,121,274

10,077,863

244,282,187

Totals

57,208

280,107,063

3.55

4.17

1.47

3.60

87.21

100

148

Holders

Total Units

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

Distribution of Restricted Stock Unit (RSU) holders

Holdings Ranges

1 – 1,000

1,001 – 5,000

5,001 – 10,000

10,001 – 100,000

100,001 – 999,999,999

Holders

334

20,000

27,666

2,222,655

6,929,667

9,199,988

Total Units

132,235

150,259

201,889

361,776

134,819

Totals

428

980,978

0.22

0.30

24.16

75.32

100

13.48

15.32

20.58

36.88

13.74

100

The Company has issued one convertible note to each of two holders, Matrix Partners X
L.P and Weston & Co X LLC.

Class of restricted
securities

Type of restriction

Number of
securities

End date of escrow period

Ordinary shares

Voluntary escrow

7,017,544

29 November 2020

Ordinary shares

Voluntary escrow

1,440,213

16 January 2021

Ordinary shares

Voluntary escrow

1,440,213

16 January 2025

Ordinary shares

Voluntary escrow

418,926

On APT’s instructions

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

Convertible Note

Options to acquire ordinary shares

Restricted Stock Units

Number of unquoted
Equity Securities

Number of holders

9,199,988

980,978

428

No person holds 20% or more of any class of Unquoted Equity Securities on issue.

149

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

Balance at 21
August 2020

HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED

60,547,145

21.62

J P MORGAN NOMINEES AUSTRALIA PTY LIMITED

39,815,164

14.21

CITICORP NOMINEES PTY LIMITED

24,643,428

8.80

Afterpay Limited ACN 618 280 649

HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED-GSCO ECA

18,485,366

6.60

ANTHONY MATHEW EISEN

18,405,963

6.57

NICHOLAS MOLNAR PTY LTD

18,405,963

6.57

MERRILL LYNCH (AUSTRALIA) NOMINEES PTY LIMITED

COATUE FLAGSHIP AUSTRALIA I LP

CLEEVECORP PTY LTD

NATIONAL NOMINEES LIMITED

CITICORP NOMINEES PTY LIMITED

ATC CAPITAL PTY LTD

BNP PARIBAS NOMINEES PTY LTD

11,794,306

4.21

7,017,544

2.51

6,642,000

2.37

6,225,124

2.22

3,869,784

1.38

3,392,304

3,265,122

1.21

1.17

HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED - A/C 2

3,126,719

1.12

BNP PARIBAS NOMINEES PTY LTD

MATRIX PARTNERS X L P

BNP PARIBAS NOMS PTY LTD

ESTATE LATE ADRIAN CLEEVE

2,801,803

1.00

2,717,394

0.97

2,369,875

0.85

1,820,260

0.65

NETWEALTH INVESTMENTS LIMITED

1,131,801

0.40

HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED

Total number of shares of Top 20 Holders

Total Remaining Holders Balance

905,331

0.32

237,382,396

84.75

42,724,667

15.25

150

Corporate

information.

Board of Directors

Auditor

Elana Rubin (Chair, Independent

Ernst & Young

Non-Executive Director)

Anthony Eisen (Chief Executive Officer

and Managing Director)

8 Exhibition Street

Melbourne VIC 3000

Nick Molnar (Global Chief Revenue

Share Registry

Officer and Executive Director)

Gary Briggs (Independent

Non-Executive Director)

Pat O’Sullivan (Independent

Non-Executive Director)

Sharon Rothstein (Independent

Non-Executive Director)

Dana Stalder (Independent

Non-Executive Director)

Australian Registered Office

Level 5

406 Collins Street

Melbourne VIC 3000

Phone: +61 1300 100 729

Company Secretaries

Amanda Street

Nat McKaig

Solicitors

Baker & McKenzie

Level 19, CBW

181 William Street

Melbourne VIC 3000

Computershare Investor Services

Yarra Falls

452 Johnston Street

Abbotsford VIC 3067

Phone: 1300 137 328

web.queries@computershare.com.au

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

buy-back.

The Company is not currently conducting an on-market

There are no issues of securities approved for the purposes

of item 7 of section 611 of the Corporations Act which 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.

Corporate information

Corporate
information.

Afterpay Limited ACN 618 280 649

Board of Directors

Auditor

Elana Rubin (Chair, Independent

Ernst & Young

Non-Executive Director)

Anthony Eisen (Chief Executive Officer

and Managing Director)

8 Exhibition Street

Melbourne VIC 3000

Nick Molnar (Global Chief Revenue

Share Registry

Officer and Executive Director)

Gary Briggs (Independent

Non-Executive Director)

Pat O’Sullivan (Independent

Non-Executive Director)

Sharon Rothstein (Independent

Non-Executive Director)

Dana Stalder (Independent

Non-Executive Director)

Australian Registered Office

Level 5

406 Collins Street

Melbourne VIC 3000

Phone: +61 1300 100 729

Company Secretaries

Amanda Street

Nat McKaig

Solicitors

Baker & McKenzie

Level 19, CBW

181 William Street

Melbourne VIC 3000

Computershare Investor Services

Yarra Falls

452 Johnston Street

Abbotsford VIC 3067

Phone: 1300 137 328

web.queries@computershare.com.au

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 which 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.