Appen
Annual Report 2018

Plain-text annual report

Annual Report 2018 Appen is a global leader in the development of high-quality, human-annotated datasets for machine learning and artificial intelligence. Appen brings over 20 years of experience capturing and enriching a wide variety of data types including speech, text, image and video. With deep expertise in more than 180 languages and access to a global crowd of over 1,000,000 skilled contractors, Appen partners with technology, automotive and eCommerce companies – as well as governments worldwide – to help them develop, enhance and use products that rely on natural languages and machine learning. Chairman’s Report CEO’s Report Environmental, Social and Governance Summary Directors’ Report 2 4 6 9 27 Auditor’s Independence Declaration 28 Consolidated Statement of Profit or Loss and Other Comprehensive Income 29 Consolidated Statement of Financial Position 30 Consolidated Statement of Changes in Equity 31 Consolidated Statement of Cash Flows 32 Notes to the Consolidated Financial Statements 83 Directors’ Declaration 84 88 Shareholder Information 91 Corporate Directory Independent Auditor’s Report ABN 60 138 878 298 1 Appen helps leading search and social media companies deliver relevant content and news to their users. Appen creates training datasets that enable chatbots to interact with humans. Appen provides image and video data collection and annotation at scale, supporting industry-leading solutions for computer vision, image recognition and more. Appen helps the world’s leading vehicle makers develop hands- free, voice-activated systems for safer driving. Appen helps major eCommerce vendors improve search accuracy to make shopping easier, improve conversion rates and grow businesses. Appen’s work underpins speech recognition technologies for government and commercial applications such as Skype Translator which connects friends and businesses around the globe. Appen Limited 2018 Annual Report2 Chairman’s Report Chris Vonwiller The full year financial performance has allowed the board to declare a final dividend of 4 cents per share. Together with the interim dividend of 4 cents per share paid last September, the total dividend for 2018 is 8 cents per share. This final dividend will be paid on 25 March 2018. The continued growth in Appen’s market capitalisation led to our inclusion in the ASX200 index during the first half of 2018. Late in 2017 we completed the acquisition of Leapforce and throughout 2018 we have implemented a detailed plan to integrate the Leapforce and Appen teams and assets. Although this work continues into the first quarter of 2019, we have already cemented the underlying structure to allow us to harvest many benefits which underpinned the strategic rationale of the purchase. The Leapforce software now forms the centrepiece of our highly automated Appen Connect platform. We are benefiting from increased scale and scope, and this is yielding a lower cost structure and improved margins, as well as improved responsiveness and value for our customers. Strategy and Outlook Appen provides large volumes of annotated data for training machine learning and artificial intelligence (AI) applications. The data we supply includes speech, text, image and video, and our customers are the world’s largest and most sophisticated IT companies. In previous reports the board has highlighted our strategic imperative of investing in new technology to reduce costs, improve margins and sharpen responsiveness to evolving customer requirements. We also stressed the objective of broadening our base of customers and establishing a presence in China to participate in the dramatic growth of artificial intelligence and machine learning take-up in that country. In 2018, we have made good progress in all these identified priorities. We continue to be optimistic about the ongoing growth potential in the broader AI space, and consequently for Appen. In addition to our established positions in the technology, automotive and government sectors, there are attractive opportunities in the medium term for machine learning applications in financial services and industrial sector. Success here will consolidate our existing leadership position. Management and Employees Under our CEO Mark Brayan’s leadership, the management team and staff have responded in outstanding fashion to the challenges and stress of continuing growth. During the year, we strengthened our top management with two significant hires - Tom Sharkey as SVP, Content Relevance in Client Services and Wilson Pang as Chief Technology Officer. We are investing in greater software development resources to enhance our competitive offering and position, and we have commenced recruitment in China to build our team. We have made excellent progress in 2018, both financially and strategically. Dear Shareholders We have made excellent progress in 2018, both financially and strategically. Appen is well positioned to build upon this for further growth. Financial Performance Our financial results for 2018 were very pleasing: – Revenue increased by 119% to $364.3M – Underlying EBITDA grew from $28.1M to $71.3M, a growth of 153%. Statutory EBITDA was $68.1M, 206% up from 2017 – Underlying NPAT increased from $19.7M to $49.0M, 148% up on the prior year. Statutory NPAT was $41.7M, a 192% increase on 2017 Appen Limited 2018 Annual Report3 Total Revenue up 119% on FY2017 $364.3m EBITDA up 153% on FY2017 $71.3m NPAT up 148% on FY2017 $49.0m Overall, our workforce grew to 513 employees by the end of 2018, up from 374 at the end of 2017. The board is deeply appreciative of our employees’ sustained contributions throughout the year. We aim to pay management fairly and provide appropriate short-term and long-term incentives. The skills we require are sought after globally in one of the fastest growing business domains. The board is careful to design employee reward structures which are aligned with long-term shareholder wealth. Appen has a richly diverse employee base, with a blend of gender, nationalities, ethnicities and religion which we believe would be among the best of Australian enterprises. However, at the most senior management levels, and despite ongoing efforts, we have yet to achieve an acceptable balance of gender. The board has committed itself to remedy this, and we have implemented plans to progressively achieve an optimal and balanced outcome in this dimension. The board is active and engaged in oversight of the company and its strategy. Among the directors, there is a strong combination of industry expertise, finance, strategy formulation, governance and operations. We regularly review board effectiveness to ensure we can meet the challenges of the fast-moving and innovative industry in which we operate. I thank my fellow directors for their engagement and contributions. We appreciate your loyalty and trust as shareholders. Above all, we are conscious of our obligations to you for the future successful performance of our company. Sincerely Chris Vonwiller Chairman Appen Limited 2018 Annual Report 4 CEO’s Report Mark Brayan The growth in AI is driving the demand for high quality training data. Dear Shareholders We’re very pleased to report that Appen’s strong growth continues. We delivered strong financial results in 2018, with growth in revenue and earnings as well as margin expansion. Growth resulted from the accelerating AI market and the strong demand for high quality training data. Our existing customers were the major contributors to growth, through current and new projects, and we added new customers as more companies develop AI and need quality data. Content Relevance played its role as the Company’s growth engine with year on year revenue growth of 148%, from $126.2M to $312.8M, made up of strong organic growth and the integration of Leapforce, acquired in late 2017. The division expanded its operating margins from 17.6% to 23.9% due to Leapforce and economies of scale. Our Language Resources team delivered a very strong second half that resulted in a record revenue year for the division of $51.4M, up 27% on the prior year. While margins were off historic peaks due to the mix of work and less complex government work, our strategic focus on the technology sector proved worthwhile with a number of new projects contributing to the result. We delivered on a number of initiatives that supported growth in 2018. The integration of Leapforce is all but complete with roughly half the projects migrated onto the enhanced Leapforce system, now known as Appen Connect, between December 2018 and now, with the balance to migrated by end of April. The Company’s secure facilities, all operable with multiple clients, are a source of competitive advantage for Appen. We achieved ISO 27001 certification for information security for our Manila facility, increasing its attractiveness to security-aware customers and prospects. The growth in AI, fuelled by a growing range of use cases, the availability of enabling infrastructure and the need for businesses to harness its benefits to compete, is driving the demand for high quality training data. The performance of AI improves with the volume of data and its currency requires regular refresh, both of which contribute further to the demand for quality data. While Appen’s highly scalable crowd-sourced delivery model is proven and aligns well with our customers’ needs, our ability to deliver a step change in volume and quality depends on enabling technology that enhances the productivity of our crowd. Appen Limited 2018 Annual Report5 The addition of our new CTO, Wilson Pang, and our growing engineering team will improve our existing products and add new products that will enable delivery of higher volumes of high- quality data at speed and cement our competitive advantage. We have identified circa $6M of efficiency gains from the integration with Leapforce and will redeploy these savings as investments in engineering in 2019. Along with technology, our plans for 2019 include two key initiatives. Effective January 2019, we unified our Language Resources and Content Relevance teams to provide greater customer focus and to optimize the customer experience. We now have a single global Sales team and a combined Client Services division. The unified Sales team will provide greater sales focus and growth and the single Client Services team will improve customer engagement, satisfaction and data quality. We’ll continue to report by data type, but our new structure places our customers at the centre of our attention. China remains an attractive market for us and we are investing judiciously to participate in this opportunity with a new office and staff in Shanghai that bring us closer to customers. While we benefit from a strong and well- earned position in a high growth market, our results are only possible through the hard work and dedication of our global staff. I thank all of them for their work and I enjoy working alongside them to deliver great quality outcomes for our customers and shareholders. We also commend the work of our global crowd of over 1 million in more than 130 countries worldwide. They provide the necessary human touch that delivers high quality data to our customers. Thank you for your valuable and ongoing support. Sincerely Mark Brayan Managing Director and Chief Executive Officer Appen Limited 2018 Annual Report 6 Environmental, Social and Governance Summary Appen is a truly global company, with over 1 million skilled contractors worldwide. We celebrate our diversity, as do our customers who value this as a core differentiator. Our work from home model provides a source of income to individuals that may otherwise find this difficult, including the disabled. Appen’s ESG (Environmental, Social, Governance) priorities are focussed on diversity of our workforce, social responsibility, environmental footprint, corporate governance and risk management. Diversity Social responsibility Environment Appen is proud of the cultural and ethnic diversity in our workforce, with crowd workers in 130 countries who speak 180 languages and dialects. Appen has a broadly-based diversity policy. https://appen.com/wp-content/ uploads/2017/08/Appen-Diversity- Policy-final24069684_6.pdf. Appen celebrates that our employee population is 61% female and 39% male. We are launching a new initiative in 2019 to further develop female leaders. The new initiatives will have both long- and short-term objectives and will include elements for all levels within the organization. We will focus on inclusion and career development to improve diversity among our workforce. Appen’s Board and CEO are committed to enhancing the gender diversity of our senior leadership team. Appen is an active supporter of people with disabilities. Through our Philippines operations we initially onboarded over 50 people with partial or full hearing impairment to support image annotation work, and have now expanded this group to over 200 people. Appen has an active Corporate Social Responsibility (CSR) program that supports those in need in the countries that we operate. Participation is encouraged, and community projects are publicised and celebrated via our intranet. On several occasions Appen has raised funds to support employees in need, with Appen matching all money raised. Appen also supports research, and has provided technical and linguistic resources to further research and community projects (https://appen. com/empowering-community-enabling- linguistic-research/). Appen’s corporate approach to CSR includes partnerships with organizations such as Translators without Borders and the National Council of Disability Affairs in Manila, Philippines. Employees also have a voice and are able to raise awareness around a need by contacting the CSR committee and asking for it to be a focus for employees around the globe. Funds raised are matched by the Company. Appen strives to ensure that crowd workers have sustainable conditions, with responsible renumeration at or above local minimum wage. Appen is a professional, knowledge- based workplace with minimal environmental footprint. Each of Appen’s offices includes recycling facilities and the Company encourages thoughtful use of resources. Appen has a low carbon footprint with the exception of air travel, which is necessary for some executives given the global nature of our business. Appen uses video and phone conferencing to reduce the extent of travel, and the travel budget is managed and monitored. Our million plus crowd workers work from home using internet-based tools, with minimal carbon impact. As a result, Appen rates reliance on carbon as low risk. Currently, there is no mandatory external reporting on carbon risk, but Appen will comply with any incoming legislation, regulation or best practice principles (such as ASX corporate governance principles) which require carbon reporting. Appen Limited 2018 Annual Report7 Corporate Governance Risks Economic risks – the business is exposed to general economic conditions. Specifically, there is a material risk in customer concentration, however these customers are active with several separate projects across the business; Environmental risks – there is no current material exposure to environmental risks, however the Board monitors these risks and notes initiatives to lower the Company’s carbon footprint where possible by using video and phone conferencing to reduce the extent of travel, and has a million plus crowd workers that work from home using internet-based tools; and Social sustainability – there is risk associated with the engagement and conditions of crowd and remote workers to the extent that these workers may be incorrectly classified as employees and thus entitled to employee benefits. Appen has adopted a Modern Slavery policy in the UK and is in the process of codifying a global policy which incorporates our current practice of monitoring crowd and remote worker payment levels. The Board notes that part of the Company’s business is in the area of artificial intelligence and as such, it continues to monitor the social, ethical and political context in which the Company operates. Appen has a number of Board endorsed policies and statements which focus on company culture including corporate governance statement, code of conduct and diversity policy. Appen does not tolerate behaviours which are at odds with the Company’s culture and has taken action to address such behaviours, on the rare occasions that it is needed. Appen’s Corporate Governance Statement sets out how we meet or exceed the requirements of ASX Corporate Governance Council’s Principles and Recommendations. The Board and the Board Audit and Risk Committee spend time on ESG issues which include employee and crowd pay rates, privacy, community projects and, generally, the sustainability of the Appen businesses and business model. Appen tests its culture through employee annual surveys and root cause analysis of incidents or breaches. Appen Limited 2018 Annual Report8 Appen Limited 2018 Annual ReportDirectors’ Report for the year ended 31 December 2018 9 The directors present their report, together with the financial statements, on the consolidated entity (referred to  hereafter as the ‘Group’) consisting of Appen Limited (referred  to hereafter as the ‘Company’ or ‘parent entity’) and the  entities it controlled at the end of, or during, the year ended  31 December 2018. Supporting both divisions is a global on-demand crowd  workforce providing customers with very flexible in-country  linguistic and cultural expertise in support of 130 global  markets. Appen was founded in 1996 and listed on the Australian  Securities Exchange on 7 January 2015. Directors The following persons were directors of Appen Limited during  the whole of the financial year and up to the date of this report,  unless otherwise stated: Dividends Dividends paid during the financial year to the shareholders  of Appen Limited were as follows: Christopher Charles Vonwiller – Chairman Mark Ronald Brayan Stephen John Hasker Robin Jane Low William Robert Pulver Deena Robyn Shiff Principal activities During the financial year the principal continuing activities of  the Group consisted of the provision of quality data solutions  and services for machine learning and artificial intelligence  applications for global technology companies, auto  manufacturers and government agencies. Appen operates through two operating divisions: – Content Relevance which provides annotated data used  in search technology (embedded in web, e-commerce  and social engagement) for improving relevance and  accuracy of search engines, social media applications and  ecommerce; and – Language Resources which provides annotated speech,  natural language and image data used in speech and image  recognisers, machine translation, speech synthesisers and  other machine-learning technologies resulting in more  engaging and fluent devices including internet-connected  devices, in-car automotive systems and speech-enabled  consumer electronics. Final dividend paid out of the  profits reserve for the year  ended 31 December 2017 of  3.0 cents per ordinary share  (2017: 31 December 2016 of  3.0 cents) Interim dividend paid out of  the profits reserve for the year  ended 31 December 2018 of  4.0 cents per ordinary share  (2017: 31 December 2017 of  3.0 cents) Group 31 Dec 2018 $’000 31 Dec 2017 $’000 3,174  2,928  4,258  7,432 2,933  5,861 Dividend declared On 25 February 2019, the Company declared a final dividend  for the year ended 31 December 2018 of 4.0 cents per share,  partially franked. The dividend is to be paid out of the profits  reserve. The record date for determining entitlements to the  dividend is 1 March 2019. The financial effect of these dividends  has not been brought to account in the financial statements  for the year ended 31 December 2018 and will be recognised  in subsequent financial periods. Appen Limited 2018 Annual Report10 Directors’ Report continued Review of operations The profit for the Group after providing for income tax amounted to $41,728k (31 December 2017: $14,282k). Financial performance Content Relevance Language Resources Other Total revenue from principal activities Underlying net profit after tax (‘NPAT’) Less: underlying adjustments (net of tax) Transaction costs Acquisition related share-based payments Amortisation of acquisition related identifiable intangible assets Statutory NPAT Add: tax Add: net interest expense/(income) EBIT* Add: Depreciation and amortisation Statutory EBITDA** Add: underlying adjustments Transaction costs Acquisition related share-based payments Underlying EBITDA Statutory diluted earnings per share (cents) Underlying diluted earnings per share (cents) % Statutory EBITDA/Sales % Underlying EBITDA/Sales % Segment Profit/Sales: Language Resources Content Relevance *  EBIT is defined as earnings before interest and tax. **  EBITDA is EBIT before depreciation and amortisation. 2017 $’000 Change % Percentage change constant currency % 140%  25%  – 112% 133% 148%  27%  – 119% 148% 192% 173% 190% 173% 206% 190% 2018 $’000 312,846  51,361  82  126,160  40,397  14  364,289 166,571 49,028 19,749 (1,055) (1,666) (4,579) 41,728 14,226  3,185  59,139 8,941  68,080 1,507  1,666  (5,467) – – 14,282 6,093  3 20,378 1,863  22,241 5,877  – 71,253 28,118 153% 141% 38.55  45.29  18.7%  19.6%  21.8%  23.9%  14.36  19.86  13.4%  16.9%  30.1%  17.6%  Total revenue for the financial year ended 31 December 2018 was $364,289k compared to 2017 revenue of $166,571k. The drivers  behind this change in revenue were: – The Language Resources division recorded a 27% (constant currency: 25%) increase in revenue over the prior year, driven  mainly by increased volumes from the technology sector, particularly in the second half of the year; and – The Content Relevance division delivered a 148% (constant currency: 140%) increase in revenue over the prior year. This was  driven both by the Leapforce acquisition and significant increases in scope and volume from major customers as well as  revenue from new customers. For the full year it is not possible to split out the revenue contribution from Leapforce as it has  been combined with Appen, however Leapforce contributed 82% of the 146% revenue growth for the half year as compared to  the previous corresponding period. Appen Limited 2018 Annual ReportDirectors’ Report continued 11 The Company reported statutory EBITDA of $68,080k representing a 206% (constant currency: 190%) increase over 2017. This result  included transaction costs of $1,507k and share based payment expenses of $1,666k relating to the Leapforce acquisition. Excluding  these costs, underlying EBITDA was $71,253k, representing a 153% (constant currency: 141%) increase over the prior year. This  was driven by the Leapforce acquisition and significant organic revenue increase and operating cost efficiency through scalability  of operations. This is evidenced by operating expenses (expenses excluding services purchased, depreciation, impairment,  transaction costs and finance costs) for 2018 comprising 17% of revenue as compared to 24% in 2017. The underlying EBITDA margin  of 19.6% as compared to the prior year margin of 16.9% underpins the scalable and successful delivery of the top line growth. This  does not reflect any synergies from the Leapforce acquisition, which are expected to flow in 2019. The Company plans to reinvest  these synergy savings back into the business in the form of engineering infrastructure and capability, to build platforms and tools  to further enhance Appen’s competitive positioning as a world leader in the provision of data annotation services and products. The Language Resources division return on sales decreased to 21.8% as compared to 30.1% in the prior year, as the customer mix  was adversely impacted by a significant reduction in complex, value added government work. The reduction in the operating  margin is seen as a timing issue, not structural. However, as flagged at the half year, the planned strategic focus on expanding the  sales pipeline in the technology sector was successful, resulting in a significant increase in revenue and earnings in the second half. The Content Relevance division return on sales of 23.9% was significantly higher than the 2017 return of 17.6%, due to continued  improved gross margin, achieved through operating scale efficiencies and economies, and contribution from Leapforce earnings.  For the full year it is not possible to split out the earnings contribution from Leapforce as it has been combined with Appen, however  Leapforce contributed 129% of the 217% EBITDA growth for the half year as compared to the previous corresponding period. The impact of foreign exchange on revenue and EBITDA resulted in reported growth being higher than real growth. Growth over  the prior year in constant currency amounted to 7% less revenue growth and 12% less underlying EBITDA growth as compared to  reported revenue. Significant changes in the state of affairs There were no significant changes in the state of affairs of the Group during the financial year. Matters subsequent to the end of the financial year Apart from the dividend declared as discussed above, no other matter or circumstance has arisen since 31 December 2018 that  has significantly affected, or may significantly affect the Group’s operations, the results of those operations, or the Group’s state of  affairs in future financial years. Likely developments and expected results of operations The Group will continue to pursue its strategy to grow profitability in Content Relevance and Language Resources across a wider  customer base. Environmental regulation The Group is not subject to any significant environmental regulation under Australian Commonwealth or State Law. The Board  believes that the Group has adequate systems in place for the management of its environmental requirements and is not aware of  any breach of those environmental requirements as they may apply to the Group during the period covered by this report. Appen Limited 2018 Annual Report12 Directors’ Report continued Information on directors Name: Title: Qualifications: Experience and expertise: Special responsibilities: Interests in shares: Interests in options: Interests in rights: Name: Title: Qualifications: Experience and expertise: Special responsibilities: Interests in shares: Interests in options: Interests in rights: Name: Title: Qualifications: Experience and expertise: Special responsibilities: Interests in shares: Interests in options: Interests in rights: Christopher Charles Vonwiller Non-Executive Chairman BSc, BE (Hons), MBA, FIE (Aust.), FTSE Chris is the Non-Executive Chairman of Appen having formerly served as Appen CEO from  1999-2010. Prior to joining Appen, Chris served for 20 years in senior executive positions with  the Australian telecommunications carrier Telstra Corporation Limited, playing a leading role  in the development and deployment of innovative internet services, multimedia, and pay  television. Chris is a former Chairman of the Warren Centre for Advanced Engineering at The  University of Sydney. Chris holds degrees in science and engineering, with honours, from The  University of Sydney and an MBA from Macquarie University. He was elected a Fellow of the  Australian Academy of Technological Sciences and Engineering in 2007. Chair of the Board 11,060,083 ordinary shares (indirectly) None None Mark Ronald Brayan Managing Director and Chief Executive Officer MBA, BSurv (Hons) Mark joined Appen in July 2015 as CEO and is responsible for the company’s leadership,  strategy and culture. Mark has over twenty-five years’ experience in technology and services.  Prior to joining Appen, Mark was CEO of MST Global, a provider of technology solutions to  the resources sector. Before that he was the CEO of Integrated Research Limited (ASX:IRI), an  international software company listed on the Australian Stock exchange. Mark was also COO of  the HR outsourcing company Talent2 (ASX:TWO) and CEO of Concept Systems (ASX:CSI) before  its merger with Talent2. Mark has an MBA from the Australian Graduate School of Management  and Bachelor of Surveying with 1st Class Honours from the University of NSW. None 358,676 ordinary shares (directly/indirectly) None 378,118 performance rights William Robert Pulver Non-Executive Director BCom (Marketing) William (Bill) has been a non-executive director of Appen since 31 January 2013. He is also a non- executive director of Smartpay Holdings Limited (ASX: SMP). Bill was the CEO of the Australian  Rugby Union from 2013-2018 having formerly served as Appen CEO from 2010-2012. Previously  he was the President and CEO of NetRatings, Inc., a NASDAQ-listed company (NTRT), specializing  in Internet media and market research. Prior to this Bill held leadership roles at ACNielsen with  eRatings.com, Pacific region and Australia. Bill holds a Bachelor of Commerce degree, with a major  in marketing, from the University of New South Wales, Australia. Chair of Nominations and Remuneration Committee 1,000,000 ordinary shares (indirectly) None None Appen Limited 2018 Annual ReportDirectors’ Report continued 13 Name: Title: Qualifications: Experience and expertise: Special responsibilities: Interests in shares: Interests in options: Interests in rights: Name: Title: Qualifications: Experience and expertise: Special responsibilities: Interests in shares: Interests in options: Interests in rights: Name: Title: Qualifications: Experience and expertise: Special responsibilities: Interests in shares: Interests in options: Interests in rights: Robin Jane Low Independent Non-Executive Director BCom, FCA, GAICD Robin has been a non-executive director of Appen since 30 October 2014. Her other listed  company directorships include AUB Group Limited (ASX: AUB), CSG Limited (ASX: CSV) and IPH  Limited (ASX: IPH). Robin is also on the board of Australian Reinsurance Pool Corporation and  she is the Deputy Chair of the Auditing and Assurance Standards Board. Previously Robin had  a 28 year career at PricewaterhouseCoopers where she was a partner specialising in assurance  and risk, mainly in financial services. Robin is also involved with not-for-profit organizations  and serves on the boards of Public Education Foundation, Primary Ethics and Sydney Medical  School Foundation. Robin has a Bachelor of Commerce from the University of New South  Wales and is a Fellow of the Institute of Chartered Accountants Australia and New Zealand. Chair of the Audit and Risk Committee 172,743 ordinary shares (indirectly) None None Stephen John Hasker Non-Executive Director B.Com, MBA, MIA, ACAA Steve has been a non-executive director of Appen since 7 April 2015. Steve is Chief Executive  Officer of Creative Artists Agency Global, based in Los Angeles where he oversees CAA’s  commercial activities. Prior to joining CAA in January 2018, Steve was Global President  and COO of Nielsen, based in New York, responsible for Nielsen’s commercial and product  activities across all of its media and consumer businesses. Prior to joining Nielsen in 2009,  he was a partner at McKinsey & Company’s Global Media, Entertainment and Information  practice in New York. Before joining McKinsey, Steve spent five years in several financial roles  in the U.S., Russia and Australia. Steve holds an undergraduate economics degree from the  University of Melbourne and has an MBA and a master’s in international affairs, both with  honours, from Columbia University. He is also a non-executive director of Global Eagle, and is  a member of Institute of Chartered Accountants Australia and New Zealand. None 50,000 ordinary shares None None Deena Robyn Shiff Non-Executive Director B.Sc. (Econ); B.A. (Law) Deena has been a Non-Executive Director since May 2015. Deena has enjoyed a distinguished  business career covering senior roles in the legal profession and in corporate positions.  She was a partner in the leading law firm Mallesons Stephen Jaques before rejoining  Telstra Corporation where she rose to Group Managing Director. She holds several other  non-executive director roles, including Chair of Marley Spoon AG (ASX: MMM), Chair of BAI  Communications and director on the board of Infrastructure Australia. She was previously a  director of the Citadel Group Limited (ASX:CGL). Deena holds a degree in law from Cambridge  University and a degree in economics from the London School of Economics, both with  honours. She is a Fellow of the Australian Institute of Company Directors. None 50,229 ordinary shares (indirectly) None None Appen Limited 2018 Annual Report14 Directors’ Report continued Company secretary Carl Middlehurst was appointed as Company Secretary on 8 February 2019. Carl was admitted to practice as a solicitor in NSW in  1988. In addition, he is also a member of the California bar. He was an adjunct professor at Santa Clara University Law School where  he taught internet, ecommerce and privacy law in the late nineties. He has worked in Australia and United States and has held  the position of General Counsel for various companies and been Company Secretary for an unlisted public company and private  companies in Australia. Leanne Ralph resigned as Company Secretary on 8 February 2019. Meetings of directors The number of meetings of the Company’s Board of Directors (‘the Board’) and of each Board committee held during the year  ended 31 December 2018, and the number of meetings attended by each director were: Christopher Vonwiller William Pulver Mark Brayan Deena Shiff Stephen Hasker Robin Low Full Board Audit and Risk Management Committee Nomination and Remuneration Committee Attended Held Attended Held Attended Held 14  14  14  14  14  14  14  14  14  14  14  14  4  – – 4  – 4  4  – – 4  – 4  – 2  – – 2  2  – 2  – – 2  2  Held: represents the number of meetings held during the time the director held office or was a member of the relevant committee. Remuneration report (audited) This report outlines the remuneration arrangements in place for key management personnel (‘KMP’) of the Company in connection  with the management of the affairs of the entity and its subsidiaries during the year to 31 December 2018 (‘Remuneration Report’). KMP have authority and responsibility for planning, directing and controlling the activities of the Company and the consolidated  entity, including Directors of the Company and other executives. KMP comprise the Directors of the Company and executives of the  Company and the consolidated entity. This Remuneration Report has been audited and an opinion provided as required by section 308(3C) of the Corporations Act 2001 (Cth). The Remuneration Report is set out under the following main headings: 1.  Remuneration Philosophy – Governance & Principles 2.  Nomination and Remuneration Committee 3.  Audit and Risk Management Committee 4.  Non-Executive Director Remuneration and Shareholding 5.  Executive Remuneration 6.  Executive Shareholdings and Performance Rights The figures are in Australian Dollars unless otherwise noted. Appen Limited 2018 Annual ReportDirectors’ Report continued 15 Details of KMP for 2018 C Vonwiller S Hasker R Low W Pulver D Shiff And the following persons: M Brayan K Levine T Sharkey Non-Executive Chairman Independent Non-Executive Director Independent Non-Executive Director Independent Non-Executive Director Independent Non-Executive Director Managing Director and Chief Executive Officer Chief Financial Officer Senior Vice-President, Content Relevance 1. Remuneration Philosophy – Governance & Principles The Company’s objective is to provide the maximum benefit to shareholders. The Board believes that the Company will achieve this  objective by retaining a high-quality Board and executive team remunerated fairly and appropriately. The Company’s remuneration philosophy is to ensure that the level and composition of remuneration is both competitive and  reasonable. Remuneration should be linked to performance and appropriate for the results delivered. The Company’s policies are  designed to attract and maintain talented and motivated Directors and employees, thereby raising the level of performance of the  Company and enhancing shareholder value. The Company’s remuneration policy is to: – implement remuneration structures designed to attract and retain high quality directors and be globally competitive and  continually benchmarked to attract, retain and motivate senior executives with the expertise to enhance the performance and  growth of the Company and create value for shareholders; – ensure that: – executive directors and senior executives are encouraged to pursue the growth and success of the Company (both in the  short-term and over the longer term), without taking undue risks; and – non-executive directors’ remuneration is consistent with their obligation to bring an independent judgement to matters  before the Board; – review the employment conditions of Appen’s employees on an ongoing basis to ensure the Company remains competitive in  terms of remuneration and other incentives; and – review employee incentive plans from time to time with a view to further aligning management and employees’ interests with  those of the Company and shareholders. In accordance with best practice corporate governance, the structure of Non-Executive Director and executive remuneration is  separate and distinct. 2. Nomination and Remuneration Committee The Board has established a Nomination and Remuneration Committee, which provides advice, recommendations and assistance  to the Board in relation to compensation arrangements for Directors and executives. The Nomination and Remuneration Committee assesses the appropriateness of the nature and amount of emoluments of officers  on a periodic basis by reference to relevant employment market conditions, with the overall objective of ensuring maximum  shareholder benefit from the retention of a high quality Board and executive team. It is intended that any schemes or other  structures chosen will be optimal for the recipient without creating undue cost for the Company. The members of the Nomination and Remuneration Committee during the reporting period were: William Pulver, Committee Chair;  Robin Low; and Stephen Hasker. The number of meetings of the Nomination and Remuneration Committee held during the reporting period, and attendance by the  Nomination and Remuneration Committee members, is set out in the ‘Meetings of directors’ section of the Directors’ Report. Further information about the Nomination and Remuneration Committee is set out in the Company’s Corporate Governance  Statement, which is available at https://appen.com/investors/corporate-governance/. Appen Limited 2018 Annual Report16 Directors’ Report continued 3. Audit and Risk Management Committee The Board has established an Audit and Risk Management Committee to assist the Board in fulfilling its statutory, corporate  governance, risk management and compliance practices and responsibilities. The Audit and Risk Management Committee monitors and reviews the integrity of the Company’s internal financial reporting and  external financial statements, the effectiveness of internal financial controls, the independence, objectivity and performance of  external auditors, the policies on risk oversight and management and makes recommendations to the Board in relation to the  appointment of external auditors and approves the remuneration and terms of their engagement. The members of the Audit and Risk Management Committee during the reporting period were: Robin Low, Committee Chair;  Chris Vonwiller; and Deena Shiff. The number of meetings of the Audit and Risk Committee held during the reporting period, and attendance by the Nomination and  Remuneration Committee members, is set out in the ‘Meetings of directors’ section of the Directors’ Report. Further information about the Audit and Risk Management Committee is set out in the Company’s Corporate Governance  Statement, which is available at https://appen.com/investors/corporate-governance/. 4. Non-Executive Director Remuneration and Shareholdings Remuneration Non-Executive Directors are remunerated by way of Board and Committee fees that were set prior to the Company’s listing on the  ASX. The current fee structure for Non-Executive Directors (effective 1 May 2018) is as follows: Role Board Chair Non-Executive Director Audit and Risk Committee Chair Nomination and Remuneration Committee Chair * All fees are inclusive of statutory superannuation. Fee* $125,000 $85,000 $15,000 $15,000 The Non-Executive Directors are remunerated from the maximum aggregate amount approved by shareholders. The current fee  pool limit of $800,000 was approved by shareholders at the annual general meeting in 2018. Details of fees paid to directors in 2018  and 2017 are outlined below: Amounts paid to Non-Executive Directors Director C Vonwiller W Pulver R Low J Samuel* D Shiff S Hasker 2018 2017 Fees $ Superannuation $ Total $ Fees $ Superannuation $ Total $ 113,333 82,002  87,563  – 69,635  76,250  2,969  116,302  7,790  89,792  3,687  91,250  – – 6,615  76,250  – 76,250 60,750  63,356  67,352  9,167  53,653  58,750  33,000  93,750  6,019  6,398  – 69,375  73,750  9,167  5,097  58,750  – 58,750  428,783 21,061 449,844 313,028 50,514 363,542 *   Jeremy Samuel resigned as Non-Executive Director on 29 November 2016. Appen Limited 2018 Annual ReportDirectors’ Report continued 17 The amount of aggregate remuneration sought to be approved by shareholders and the manner in which it is apportioned among  Directors will be reviewed annually. The Board seeks to set aggregate Director remuneration at a level that provides the Company  with the ability to attract and retain Directors of the highest calibre, while incurring a cost that is acceptable to shareholders. The  Board will consider fees paid to Non-Executive Directors of comparable companies when undertaking the annual review, as well as  any additional time commitment of Directors who serve on one or more Committees, and any other assistance to the Company in  respect of specific projects or transactions. The remuneration packages of Non-Executive Directors are fee-based. Non-Executive Directors do not participate in the schemes  designed for the remuneration of executives, or performance-based schemes or awards such as options or bonus payments. Non- Executive Directors are not entitled to any retirement benefits other than statutory superannuation. Non-Executive Director Shareholdings The Company does not currently have a formal minimum shareholding requirement for Non-Executive Directors, however Non- Executive Directors are encouraged by the Board to hold shares purchased on-market in accordance with the Company’s Securities  Dealing Policy. The Board considers that by holding shares in the Company, Directors align themselves with the interests of the  shareholders as a whole. As at the date of this Remuneration Report the Directors held the following shareholdings in the Company: Director C Vonwiller W Pulver M Brayan R Low D Shiff S Hasker Number of shares Purchased/ vested during the year No. Sold during the year No. 31 December 2018 No. – – 192,768  – – – (2,000,000) 11,060,083  (800,495) (29,000) – – – 1,000,000  358,676  172,743  50,229  50,000  1 January 2018 No. 13,060,083  1,800,495  194,908  172,743  50,229  50,000  15,328,458 192,768 (2,829,495) 12,691,731 5. Executive Remuneration The Company aims to reward executives with a level and mix of remuneration commensurate with their position and  responsibilities within the Company so as to: – reward executives by reference to both company and individual performance; – align the interests of executives with those of shareholders; – encourage retention of executives and other employees; – link reward with the strategic goals and performance of the Company; and – ensure total remuneration is competitive by market standards. Appen Limited 2018 Annual Report18 Directors’ Report continued In considering the Group’s performance and benefits for shareholder wealth, the Remuneration and Nomination Committee  considered the following metrics over the last five years: Net profit after tax Underlying net profit after tax* Underlying EBITDA** Dividends Basic earnings per share - cents per share Basic underlying earnings per share - cents per share* 2018 $’000 41,728  49,028  71,253  7,432  39.25  46.11  2017 $’000 14,282  19,749  28,118  5,861  14.55  20.12  2016 $’000 10,489  10,620  17,312  4,851  10.81  10.95  2015 $’000 8,308  8,308  13,822  1,155  8.67  8.67  2014 $’000 1,616  1,616  6,674  1,188  2.15  2.15  Before amortisation of identifiable assets (tax adjusted). *  **  Earnings before interest, tax, depreciation, amortisation, change in fair value of contingent consideration, transaction costs and excise tax refund. Executive remuneration comprises of: – fixed remuneration; – short term incentives; and – long term incentives through equity based compensation. Service Contracts Remuneration and other terms of employment for KMP are formalised in service contracts. All executive KMP service contracts  provide for immediate termination in the event of serious misconduct. Details of other key terms are summarised below: Executive Role M Brayan K Levine T Sharkey Managing Director CFO SVP, Content Relevance Contract Term No fixed term No fixed term No fixed term Annual Salary Review Notice Period by either party 1 March 1 March 1 March 6 months 3 months 90 days Fixed Remuneration Fixed remuneration consists of base pay, superannuation and other non-monetary benefits and is designed to reward for: – the scope of the executive’s role; – the executive’s skills, experience and qualifications; and – individual performance. Executives are offered a competitive base pay. Reference is made to industry benchmarks to ensure that the base pay is set to  reflect the market for a comparable role. Base pay is reviewed annually by reference to both the individual’s and the consolidated  entity’s performance, and alignment with market remuneration levels. There are no guaranteed base pay increases included in any  executive contracts. Short Term Incentives Executive service contracts recognise the potential for the award of short term incentives linked to specific performance criteria. The Company operates an executive bonus plan that entitles certain executives of the Company to a cash bonus ranging from  0% to 150% of a target bonus, which is typically a percentage of the relevant executive’s annual salary. Appen Limited 2018 Annual ReportDirectors’ Report continued 19 Key performance measures for payment of a bonus and the typical percentage weighting for each measure are as follows: Performance Measure Revenue EBITDA 2018 Weighting 2017 Weighting 33%  67%  33%  67%  The bonus is calculated based on the combined result of all the performance measures. Therefore, if the Company achieves 50% of the revenue target and 100% of the EBITDA target, the overall score for the purposes of  the calculation of any bonus (‘Financial Metric’) that may be awarded would be 83.5% of the relevant executive’s on-target bonus. Any actual bonus that may be awarded is calculated on a sliding scale between 0% and 150% - for example: Financial Metric Below 80% 80% 90% 122.25% or more Potential Bonus amount – % of target bonus Nil 64% 81% 150% Using the performance measures and personal performance objectives assessed against key performance indicators (‘KPIs’), the  Company ensures variable rewards are only paid when the relevant KMP have met or exceeded their agreed individual work plan  objectives, financial metrics have been achieved and value has been created for shareholders. The Board reviews the Financial Metric on an annual basis. Any bonus payment is at the discretion of the Board and is subject to  Board approval. Performance and Remuneration Outcomes At the end of the financial year, the Remuneration and Nomination Committee reviewed the performance against each of the  metrics to determine a recommended short-term incentive (‘STI’) payment for the relevant executive KMPs. This recommendation  was subsequently reviewed and approved by the Board. The tables below outline the performance results against these metrics  and the final STI payment made to the executives. 2018 Results and STI Payments Revenue Underlying EBITDA *  Payout capped at 150%. Target Actual % Actual/ Target % Payout* $274,933,515  $364,207,316  $51,553,054  $71,253,243  132%  138%  150%  150%  Appen Limited 2018 Annual Report20 Directors’ Report continued Weighted average performance payout is 150% Executive M Brayan K Levine P Hall(a) T Garves(b) T Sharkey(c) Fixed remuneration* $ Currency STI Target % Performance Payout % (max 150%) % AUD AUD AUD USD USD 500,000  350,000  67,798  107,003  167,346  50%  30%  30%  30%  40%  150.0%  150.0%  – – Total STI Payout $ 375,000  157,500  – – Total STI Payout (AUD) $ 375,000  157,500  – – 150.0%  100,408  134,193  Includes superannuation for Australian-based executives. *  (a)  Retired 29 March 2018. (b)  Exited 4 May 2018. (c)  Commenced 9 July 2018. Certain executives have a divisional metric in addition to the metrics detailed above. 2017 Results and STI Payments Revenue** EBITDA** Payout capped at 150%. *  **  Excludes contribution from Leapforce and transaction costs. Weighted average performance payout is 149% Target Actual % Actual/ Target % Payout* $132,724,000  $160,546,995  $21,401,000  $26,574,323  121%  124%  146%  150%  Executive M Brayan K Levine P Hall T Garves T White(a) Fixed remuneration* $ Currency AUD AUD AUD USD USD 475,000  325,000  261,500  256,053  94,789  STI Target % Performance Payout % (max 150%) % 50%  30%  30%  30%  30%  149.0%  149.0%  122.8%  149.0%  – Total STI Payout $ 353,850  145,265  96,337  114,447  – Total STI Payout (AUD) $ 353,850  145,265  96,337  149,250  – Includes superannuation for only Australian-based executives. *  (a)  Exited 17 May 2017. Long Term Incentives Long-term incentives to the Managing Director, other executive KMP and employees are provided by the Company’s long-term  incentive plan, which is designed to align the interests of management and shareholders and assist the Company in the attraction,  motivation and retention of executives. The Appen Long Term Incentive Plan (‘LTIP’) is intended as the primary vehicle for aligning the interests of the Company’s senior  management and shareholders, and for the retention of key executives. It is intended that the LTIP will be used to deliver awards  to employees in all countries, subject to variations to meet specific legal or tax requirements. Appen Limited 2018 Annual ReportDirectors’ Report continued 21 Current LTI Plans Performance Rights Plan The Company developed a long-term incentive plan that incorporates performance conditions and was effective from 1 January  2015. The long-term incentive plan provides for annual grants of performance rights to senior management and are subject to an  employment condition and annual performance hurdles (refer table below for further detail on how achievement is measured and  assessed). Vesting of performance rights aligns with local practices, and as such, performance rights vest as follows: – Performance rights issued to executives in Australia - vest at the end of 3 years from grant date.; and – Performance rights issued to executives in United States - vest evenly on an annual basis over a 3 year period from the  grant date. The performance rights will only vest subject to: – achievement of an underlying Basic Earnings Per Share (‘EPS’) performance condition for the three consecutive years  applicable to the grant, tested annually and measured on the performance for that period. If a performance condition is missed  in a particular year it can be caught up in subsequent years; and – continuation of employment until the beginning of the calendar year in which the performance rights are subject to vesting. Shareholder alignment is achieved through senior management being incentivised to grow the share price through the three year  vesting period, to maximise the value of any award. If a recipient leaves before the performance rights vest (and despite one or multiple EPS conditions being met), the rights lapse. The  plan also acts as a retention tool. Vested performance rights will convert to ordinary shares in the Company on a one-for-one basis for nil financial consideration. The Board has adopted an EPS performance condition for the LTIP, using a consistent EPS growth method that applies each year.  Under this calculation method, an annual EPS growth target is set at the beginning of each performance period. A key factor in the Board‘s considerations is that the LTIP should be both simple to understand and provide both a performance  and retention element for participants. The Board considers that a consistent EPS growth method is best aligned to these  principles and best provides a long term EPS growth element that is predicated on the maximisation of shareholder value. Appen Limited 2018 Annual Report22 Directors’ Report continued Overview of Performance Rights and Conditions Plan Grant date Expiry date1 Exercise price Tranche Performance measurement Performance target Performance target measurement date Target achieved2 Vesting condition Vesting date Value per right at grant date 2016 1 Mar 2016 N/A 2016 1 Mar 2016 N/A 2016 1 Mar 2016 N/A 2017 1 Mar 2017 N/A 2017 1 Mar 2017 N/A 2017 1 Mar 2017 N/A 2018 20 Feb 2018 N/A 2018 20 Feb 2018 N/A 2018 20 Feb 2018 N/A 2018 STI 20 Feb 2018 N/A 2018  Special 2018  Special 2018  Special 20 Feb 2018 N/A 20 Feb 2018 N/A 20 Feb 2018 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 1 2 3 1 2 3 1 2 3 1 1 2 3 EPS EPS EPS EPS EPS EPS EPS EPS EPS Completion  of Leapforce  acquisition EPS EPS EPS 10.0% End 2016 10.0% End 2017 10.0% End 2018 10.0% End 2017 10.0% End 2018 Yes Yes Yes Yes Yes Employed at  1 Jan 2019 Employed at  1 Jan 2019 1 Jan 2019 $1.41 1 Jan 2019 $1.41 Employed at  1 Jan 2019 Release of  2018 results $1.41 Employed at  1 Jan 2020 Employed at  1 Jan 2020 1 Jan 2020 $2.58 1 Jan 2020 $2.58 10.0% End 2019 Pending Employed at  1 Jan 2020 Release of  2019 results $2.58 10.0% End 2018 Yes Employed at  1 Jan 2021 1 Jan 2021 $8.15 10.0% End 2019 Pending 10.0% End 2020 Pending N/A Completion  date 20.0% End 2018 Yes Yes 20.0% End 2019 Pending Employed at  1 Jan 2021 1 Jan 2021 $8.15 Employed at  1 Jan 2021 Release of  2020 results $8.15 N/A 20 Feb 2018* $8.15 Employed at  1 Jan 2021 Employed at  1 Jan 2021 1 Jan 2021 $8.15 1 Jan 2021 $8.15 20.0% End 2020 Pending Employed at  1 Jan 2021 Release of  2020 results $8.15 *  1  2   The equity-settled performance rights for the successful completion of the Leapforce acquisition on 7 December 2017 were vested immediately on  grant date of 20 February 2018.  Rights are automatically converted to shares on the vesting dates, assuming all the performance conditions of the plan and the employment condition  are met. Target achievement table: EPS Target Achieved 100% or more of EPS Target 90-99% of EPS Target* Less than 90% *  At the board’s discretion. % Performance Rights Allocated 100%  50-80%  Nil Appen Limited 2018 Annual ReportDirectors’ Report continued 23 The number of performance rights allocated to executives at the end of the year are: Plan 2016 2017 2018 2018 Special Total M Brayan No. K Levine No. T Sharkey No. 95,535  59,430  23,153  150,000  328,118 63,690  35,022  12,155  100,000  210,867 – – 8,518  – 8,518 The movement during the reporting period of performance rights owned by executive KMP are outlined in the table below: Executive Plan Held at 1 January 2018 Granted during the year Exercised during the year* Forfeited during the year Held at 31 December 2018 Vested during the year Vested and exercisable at 31 December 2018 M Brayan K Levine 2015 2016 2017 2018 2018 STI 2018 Special 2016 2017 2018 2018 STI 2018 Special T Sharkey 2018 142,768  95,535  59,430  – – – 297,733 63,690  35,022  – – – 98,712 – – – – 23,153  50,000  150,000  223,153 – – 12,155  33,334  100,000  145,489 8,518  (142,768) – – – (50,000) – (192,768) – – – (33,334) – (33,334) – – 8,518 – * Details of the performance rights exercised are detailed in the table below: Executive M Brayan K Levine – – – – – – – – – – – – – – – – 142,768  95,535  59,430  23,153  – – – – 50,000  150,000  328,118 63,690  35,022  12,155  – 192,768 – – – – 33,334  100,000  210,867 8,518  8,518 – 33,334 – – – – – – – – – – – – – – – – – Number of rights exercised Value of rights at grant date Value of rights at exercisable date 192,768  33,334  $506,010  $1,434,002  $271,672  $271,672  Appen Limited 2018 Annual Report24 Directors’ Report continued Summary of Executive Remuneration Details of the remuneration of the KMP of the Group are set out in the tables below: 31 Dec 2018 Short-term benefits Post-employment benefits Long-term benefits Share-based payments M Brayan K Levine P Hall(a) T Garves(b) T Sharkey(c) Cash salary $ STI $ Super- annuation* $ Termination payments $ Leave entitlements $ Equity- settled Rights $ Cash- settled $ 484,960  375,000  332,791  157,500  62,785  143,007  – – 223,654  134,193  1,247,197 666,693 15,041  17,209  5,012  21,554  20,949  79,765 – – – – – – 28,698  828,921  6,744  544,078  – – – – 18,688  18,377  54,130 1,391,376 – – – – – – Total $ 1,732,620  1,058,322  67,797  164,561  415,861  3,439,161  Includes discretionary company contributions to an approved 401k pension fund and insurance contributions in US. *  (a)  Retired 29 March 2018. (b)  Exited 4 May 2018. (c)  Commenced 9 July 2018. 31 Dec 2017 Short-term benefits Post-employment benefits Long-term benefits Share-based payments Cash salary $ STI $ Super- annuation* $ Termination payments $ Leave entitlements $ M Brayan K Levine P Hall T Garves T White(a) 459,631  353,850  305,294  145,265  238,813  96,337  333,916  149,250  123,613  – 15,369  19,707  22,687  38,210  30,385  1,461,267 744,702 126,358 – – – – – – 38,354  24,928  36,888  34,483  25,659  160,312 188,853 Equity- settled Rights $ 66,671  34,914  36,401  50,867  – Cash- settled $ – – – – – – Total $ 933,875  530,108  431,126  606,726  179,657  2,681,492  Includes discretionary company contributions to an approved 401k pension fund and insurance contributions in US. *  (a)  Exited 17 May 2017. The proportion of remuneration linked to performance and the fixed proportion are as follows: Name M Brayan K Levine P Hall T Garves T Sharkey Proportion of remuneration performance related Value of equity as proportion of remuneration 31 Dec 2018 31 Dec 2017 31 Dec 2018 31 Dec 2017 69%  66%  – – 37%  45%  34%  31%  33%  – 48%  51%  – – 4%  7%  7%  8%  8%  – Appen Limited 2018 Annual ReportDirectors’ Report continued 25 6. Executive Shareholdings and Performance Rights The table below outlines the current shares and performance rights held by the executive KMP as at 31 December 2018: Executive M Brayan K Levine T Sharkey Number of ordinary shares currently held (direct and indirect) Security Number 172,743  Rights 109,916  Rights – Rights 328,118  210,867  8,518  It is company policy that Directors and KMP must not enter into transactions in associated products that operate to limit the  economic risk of security holdings in the Company. A copy of the Company’s Securities Dealing Policy is available at  https://appen.com/investors/corporate-governance/. This concludes the remuneration report, which has been audited. Shares under option Unissued ordinary shares of the Company under option at the date of this Remuneration Report are as follows: Expiry date 1 March 2019 Exercise price Number of options $0.494  40,900  No person entitled to exercise the options had or has any right by virtue of the option to participate in any share issue of the  Company or of any other body corporate. Shares under performance rights Unissued ordinary shares of Appen Limited under performance rights at the date of this report are as follows: Plan 2016 2017 2018 2018 Special Number of rights 303,273  252,327  113,914  464,718  1,134,232 No person entitled to exercise the performance rights had or has any right by virtue of the performance right to participate in any  share issue of the Company or of any other body corporate. Shares issued on the exercise of options During the year, 67,463 ordinary shares of the Company were issued and fully paid for on the exercise of options during the year  ended 31 December 2018 and up to the date of this Remuneration Report as outlined below (there are no amounts unpaid on the  shares issued). Shares issued on the exercise of performance rights During the year, 603,374 ordinary shares of the Company were issued on the exercise of performance rights during the year ended  31 December 2018 and up to the date of this Remuneration Report. Appen Limited 2018 Annual Report26 Directors’ Report continued Indemnity and insurance of officers The Company has indemnified the current and former directors and executives of the Company and its controlled entities for costs  incurred, in their capacity as a director or executive, for which they may be held personally liable, except where there is a lack of good faith. During the financial year, the Company paid a premium in respect of a contract to insure the current and former directors and  executives of the Company and its controlled entities against a liability to the extent permitted by the Corporations Act 2001.  The contract of insurance prohibits disclosure of the nature of liability and the amount of the premium. Executives include all the key management personnel as defined in the remuneration report as well as their direct reports. Indemnity and insurance of auditor The Company has not, during or since the end of the financial year, indemnified or agreed to indemnify the auditor of the Company  or any related entity against a liability incurred by the auditor. During the financial year, the Company has not paid a premium in respect of a contract to insure the auditor of the Company or any  related entity. Proceedings on behalf of the Company No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the  Company, or to intervene in any proceedings to which the Company is a party for the purpose of taking responsibility on behalf of  the Company for all or part of those proceedings. Auditor independence and non-audit services The directors received an independence declaration from KPMG as required under section 307C of the Corporations Act 2001. It is set  out immediately after the Directors’ report. During the year KPMG, the Group’s auditor, has performed certain other services in addition to the audit and review of the financial  statements. These relate to transfer pricing, employee share scheme, transaction assistance and taxation services, including US  excise services. Details of the amounts paid or payable to the auditor for non-audit services provided during the financial year by  the auditor are outlined in Note 25 to the financial statements. The directors are satisfied that the provision of non-audit services during the financial year, by the auditor (or by another person or  firm on the auditor’s behalf), is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. Auditor KPMG continues in office in accordance with section 327 of the Corporations Act 2001. Rounding of amounts The Company is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors Reports) Instrument 2016/191 (Rounding  Instrument), issued by the Australian Securities and Investments Commission, relating to ‘rounding-off’. Amounts in this report  have been rounded off in accordance with that Corporations Instrument to the nearest thousand dollars, or in certain cases, the  nearest dollar. This report is made in accordance with a resolution of directors, pursuant to section 298(2)(a) of the Corporations Act 2001. On behalf of the directors Christopher Vonwiller Director 25 February 2019 Sydney Appen Limited 2018 Annual ReportAuditor’s Independence Declaration to the directors of Appen Limited 27 Appen Limited 2018 Annual Report28 Consolidated Statement of Profit or Loss and Other Comprehensive Income for the year ended 31 December 2018 Revenue Interest income calculated using the effective interest method Net foreign exchange gain Expenses Services purchased - data collection Employee benefits expense Share-based payments expense Depreciation and amortisation expense Impairment of receivables Travel expense Professional fees Rental expense Communication expense Transaction costs Net foreign exchange loss Other expenses Finance costs Profit before income tax expense Income tax expense Profit after income tax expense for the year attributable to the owners of Appen Limited Other comprehensive income/(loss) Items that may be reclassified subsequently to profit or loss Foreign currency translation Other comprehensive income/(loss) for the year, net of tax Total comprehensive income for the year attributable to the owners of Appen Limited Basic earnings per share Diluted earnings per share Group Note 31 Dec 2018 $’000 31 Dec 2017 $’000 6 7 7 7 8 23 38 38 364,273  166,561 16  –  (228,338) (43,813) (4,017) (8,941) (100) (1,503) (3,787) (1,915) (911) (1,507) (116) (10,186) (3,201) 55,954 (14,226) 10  969  (99,816) (29,117) (410) (1,863) – (1,064) (1,920) (894) (337) (5,877) – (5,854) (13) 20,375 (6,093) 41,728 14,282 7,643  7,643 (882) (882) 49,371 13,400 Cents 39.25  38.55  Cents 14.55  14.36  Refer to Note 4 for detailed information on Restatement of comparatives - adoption of AASB 9 ‘Financial Instruments’ and AASB 15  ‘Revenue from Contracts with Customers’. The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes Appen Limited 2018 Annual ReportConsolidated Statement of Financial Position as at 31 December 2018 29 Assets Current assets Cash and cash equivalents Trade and other receivables Contract assets Derivative financial instruments Income tax refund due Prepayments Total current assets Non-current assets Property, plant and equipment Intangibles Other non-current assets Total non-current assets Total assets Liabilities Current liabilities Trade and other payables Contract liabilities Derivative financial instruments Income tax Provisions Total current liabilities Non-current liabilities Borrowings Deferred tax Provisions Total non-current liabilities Total liabilities Net assets Equity Issued capital Reserves Accumulated losses Total equity Group 31 Dec 2018 $’000 31 Dec 2017 $’000 Restated Note 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 40,045  60,469  10,354  – 588  2,859  24,015  31,638  11,270  123  – 1,121  114,315 68,167 4,906  119,144  37  124,087 238,402 1,762  116,253  1,866  119,881 188,048 37,015  1,535  249  – 1,529  21,173  1,237  46  1,303  1,151  40,328 24,910 56,330  1,965  379  58,674 99,002 139,400 69,602  73,668  (3,870) 139,400 67,885  1,369  473  69,727 94,637 93,411 69,569  27,712  (3,870) 93,411 Refer to Note 4 for detailed information on Restatement of comparatives - adoption of AASB 9 ‘Financial Instruments’ and AASB 15  ‘Revenue from Contracts with Customers’.  The above consolidated statement of financial position should be read in conjunction with the accompanying notes Appen Limited 2018 Annual Report30 Consolidated Statement of Changes in Equity for the year ended 31 December 2018 Group Balance at 1 January 2017 Profit after income tax expense for the year Other comprehensive loss for the year, net of tax Total comprehensive income/(loss) for the year Transfer between reserves Transactions with owners in their capacity as owners: Issue of ordinary shares, net of transaction costs (Note 21) Share-based payments Dividends paid (Note 24) Balance at 31 December 2017 Issued capital $’000 Reserves $’000 Accumulated losses $’000 19,510  19,763  – – – – 50,059  – – 69,569 – (882) (882) 14,282 – 410 (5,861) 27,712 (3,870) 14,282  – 14,282 (14,282) – – – (3,870) Total equity $’000 35,403  14,282  (882) 13,400 – 50,059  410 (5,861) 93,411 Refer to Note 4 for detailed information on Restatement of comparatives - adoption of AASB 9 ‘Financial Instruments’ and AASB 15  ‘Revenue from Contracts with Customers’. Group Balance at 1 January 2018 Profit after income tax expense for the year Other comprehensive income for the year, net of tax Total comprehensive income for the year Transfer between reserves Transactions with owners in their capacity as owners: Issue of ordinary shares, net of transaction costs (Note 21) Share-based payments Dividends paid (Note 24) Balance at 31 December 2018 Issued capital $’000 Reserves $’000 Accumulated losses $’000 69,569  27,712  – – – – 33 – – – 7,643 7,643 41,728 – 4,017 (7,432) (3,870) 41,728  – 41,728 (41,728) – – – Total equity $’000 93,411  41,728  7,643 49,371 –  33 4,017 (7,432) 69,602 73,668 (3,870) 139,400 The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes Appen Limited 2018 Annual ReportConsolidated Statement of Cash Flows for the year ended 31 December 2018 31 Cash flows from operating activities Receipts from customers (inclusive of GST) Payments to suppliers and employees (inclusive of GST) Interest received Interest paid Income taxes paid Net cash from operating activities Cash flows from investing activities Payments for acquisition Cash acquired on acquisition Transaction costs paid for acquisition Payments for property, plant and equipment Payments for intangibles Net cash used in investing activities Cash flows from financing activities Proceeds from issue of shares, net of transaction costs Proceeds from borrowings Repayment of borrowings Dividends paid Net cash from/(used in) financing activities Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year Effects of exchange rate changes on cash and cash equivalents Cash and cash equivalents at the end of the financial year Group Note 31 Dec 2018 $’000 31 Dec 2017 $’000 340,353  (274,974) 65,379  16  (2,994) (15,602) 46,799 157,706  (136,772) 20,934  10  (13) (7,547) 13,384 (1,308) (93,127) – (2,300) (2,826) (1,162) (7,596) 33 – (17,830) (7,432) (25,229) 13,974  24,015  2,056  40,045 4,915  (3,577) (3,174) (2,628) (97,591) 29,428  69,241  – (5,861) 92,808 8,601  16,471  (1,057) 24,015 36 33 33 21 24 9 The above consolidated statement of cash flows should be read in conjunction with the accompanying notes Appen Limited 2018 Annual Report32 Notes to the Consolidated Financial Statements for the year ended 31 December 2018 1. General information The financial statements cover Appen Limited as a Group  consisting of Appen Limited and the entities it controlled at  the end of, or during, the year. The financial statements are  presented in Australian dollars, which is Appen Limited’s  functional and presentation currency. Appen Limited is a listed public company limited by shares,  incorporated and domiciled in Australia. Its registered office  and principal place of business is: Level 6 9 Help Street Chatswood NSW 2067 introduced a new contract-based revenue recognition model  with a measurement approach that is based on an allocation  of the transaction price. This is described further in the  accounting policies below. Contracts with customers are  presented in an entity’s statement of financial position as a  contract liability, a contract asset, or a receivable, depending  on the relationship between the entity’s performance and the  customer’s payment. Customer acquisition costs and costs to  fulfil a contract can, subject to certain criteria, be capitalised as  an asset and amortised over the contract period. Determining  the timing of the transfer of promised goods and services at  either a point in time or over time requires judgement. No  customer acquisition costs have been capitalised up to the  reporting date. The financial statements were authorised for issue, in  accordance with a resolution of directors, on 25 February 2019. Type of service 2. Significant accounting policies The principal accounting policies adopted in the preparation of  the financial statements are set out below. These policies have  been consistently applied to all the years presented, unless  otherwise stated. New or amended Accounting Standards and Interpretations adopted The Group has adopted all of the new or amended Accounting  Standards and Interpretations issued by the Australian  Accounting Standards Board (‘AASB’) that are mandatory for  the current reporting period. The adoption of these Accounting Standards and  Interpretations did not have any significant impact on the  financial performance or position of the Group. The principal accounting policies adopted are consistent with  those of the previous financial year and corresponding interim  reporting period, except for the policies stated below. Initial adoption of AASB 15 ‘Revenue from contracts with customers’ The Group has adopted AASB 15 from 1 January 2018 and has  elected to use the full retrospective transition method and  applies the practical expedient on the completed contracts,  and will record any transition adjustments only for contracts  not considered complete at the beginning of the earliest period  presented. Under AASB 15, revenue is recognised to depict  the transfer of promised goods or services to customers at  an amount that reflects the consideration to which the entity  expects to be entitled in exchange for those annotated and/ or collected data as per customer requirement. The standard  Content Relevance Content Relevance provides annotated data used in search  technology (embedded in web, e-commerce and social  engagement) for improving relevance and accuracy of search  engines, social media applications and e-commerce. Language Resources Language Resources provides annotated speech, natural  language and image data used in speech recognisers, machine  translation, speech synthesisers and other machine-learning  technologies resulting in more engaging and fluent devices  including internet-connected devices, in-car automotive  systems and speech-enabled consumer electronics. Timing of satisfaction of performance obligations and significant payment terms The Group has determined that for both Content Relevance  and Language Resources services, the customer obtains  control of the data as the services are being performed. This  is because under those contracts, the services are provided  to a customer’s specification and if a contract is terminated  by a customer, then the Group is entitled to the payment for  services performed to date, calculated via cost or cost plus  method as agreed with customer. Therefore, revenue from  these contracts and the associated costs are recognised over  time i.e. before the date of delivery to the customer. Under AASB 15, the total consideration in the contract is  allocated to each service based on the stand alone selling  prices. Invoices are issued according to contractual terms and  are payable with varying payment terms. Uninvoiced amounts  are presented as contract assets. Amounts invoiced in advance  of the service are presented as contract liabilities. Appen Limited 2018 Annual ReportNotes to the Consolidated Financial Statements continued 33 2. Significant accounting policies (continued) Nature of change in accounting policy AASB 15 did not have a significant impact on the Group’s  accounting policy. In 2017, under AASB 118, uninvoiced  amounts were presented as work in progress. Under AASB  15, as control passes to the customer over time, uninvoiced  amounts are presented as contract assets. On transition to  AASB 15, other liabilities were reclassified as contract liabilities. There was no impact of transition to AASB 15 on the opening  balance of retained earnings. Initial adoption of AASB 9 ‘Financial Instruments’ The Group has adopted AASB 9 from 1 January 2018. There  was no impact of transition to AASB 9 on the opening balance  of retained earnings. The details of new significant accounting  policies are set out below. AASB 9 sets out the requirements to recognise and measure  financial assets and financial liabilities. This standard  replaces AASB 139 ‘Financial Instruments: Recognition and  Measurement’. With the exception of hedge accounting, which  the Group applied prospectively, the Group has applied AASB  9 retrospectively, with the initial application date of 1 January  2018 and adjusting the comparative information for the period  beginning 1 January 2017. held within a business model whose objective is to hold assets  in order to collect contractual cash flows; (ii) the contractual  terms of the financial asset represent contractual cash flows  that are solely payments of principal and interest, and (iii) is  not designated as at FVTPL. All financial assets not measured at amortised cost as   described above are measured at FVTPL. This includes all   derivative assets. On initial recognition, the Group may   irrevocably designate a financial asset that otherwise meets   the requirements to be measured at amortised cost as at   FVTPL if doing so eliminates or significantly reduces an   accounting misstatement that would otherwise arise. The following accounting policies apply to the subsequent  measurement of financial assets: Financial assets at FVTPL These assets are subsequently measured at fair value. Net  gains or losses, including interest or dividend income are  recognised in profit or loss. Financial assets at amortised cost These assets are subsequently measured at amortised cost  using the effective interest method. The amortised cost is  reduced by impairment losses (see impairment of financial  assets). Financial assets Under AASB 9, on initial recognition, a financial asset is  classified at amortised cost or fair value through profit or  loss (‘FVTPL’). The classification under AASB 9 is based on the  Group’s business model for managing the financial assets and  the contractual cash flow characteristics of the financial assets.  A financial asset is measured at amortised cost only if: (i) it is  Interest income, foreign exchange gains and losses and  impairment are recognised in profit or loss. Any gain or loss on  derecognition is recognised in profit or loss. The following table and accompanying notes below explain the  original measurement categories under AASB 139 and the new  measurement categories under AASB 9 for each class of the  Group’s financial assets as at 1 January 2018.  Financial assets Original classification New classification Change in carrying amount Trade and other receivables Loans and receivables Amortised cost Cash and cash equivalents Loans and receivables Amortised cost There was no impact on the  carrying amount from the  transition to AASB 9 Forward foreign exchange contract  (derivative financial instruments) Held-for-trading FVTPL Appen Limited 2018 Annual Report34 Notes to the Consolidated Financial Statements continued 2. Significant accounting policies (continued) Impairment of financial assets The AASB 9 impairment model is based on an expected  credit loss (‘ECL’) methodology instead of the incurred loss  methodology of AASB 139. Impairment of receivables The adoption of AASB 9 has changed the Group’s accounting  for impairment loss for trade and other receivables by  replacing AASB 139’s incurred loss approach with a forward- looking expected credit loss (‘ECL’) approach. AASB 9 required  the Group to record an allowance for ECLs for trade and other  receivables not held at fair value through profit or loss (‘FVPL’).  For trade and other receivables, the Group has applied the  standard’s simplified approach and has calculated ECLs based  on lifetime expected credit losses. The Group has established  a provision matrix that is based on the Group historical credit  loss experience over the past five years, adjusted for forward- looking factors specific to the debtors and the economic  environment. The Group has determined that the application of AASB 9’s  impairment requirement at 1 January 2018 did not result in  any change to the impairment allowance. Basis of preparation Statement of compliance These general purpose financial statements have been  prepared in accordance with Australian Accounting Standards  and Interpretations issued by the Australian Accounting  Standards Board (‘AASB’) and the Corporations Act 2001, as  appropriate for for-profit oriented entities. These financial  statements also comply with International Financial Reporting  Standards as issued by the International Accounting Standards  Board (‘IASB’). Historical cost convention The financial statements have been prepared under the  historical cost convention, except for, where applicable, the  revaluation of financial assets at fair value through profit or  loss, financial assets at fair value through other comprehensive  income, investment properties, certain classes of property,  plant and equipment, derivative financial instruments and  share-based payments, which are measured at fair value. Critical accounting estimates The preparation of the financial statements requires the  use of certain critical accounting estimates. It also requires  management to exercise its judgement in the process of  applying the Group’s accounting policies. The areas involving  a higher degree of judgement or complexity, or areas where  assumptions and estimates are significant to the financial  statements, are disclosed in Note 3. Parent entity information In accordance with the Corporations Act 2001, these financial statements present the results of the Group only.  Supplementary information about the parent entity is  disclosed in Note 32. Principles of consolidation The consolidated financial statements incorporate the assets  and liabilities of all subsidiaries of Appen Limited (‘Company’  or ‘parent entity’) as at 31 December 2018 and the results of  all subsidiaries for the year then ended. Appen Limited and  its subsidiaries together are referred to in these financial  statements as the ‘Group’. Subsidiaries are all those entities over which the Group  has control. The Group controls an entity when the Group  is exposed to, or has rights to, variable returns from its  involvement with the entity and has the ability to affect those  returns through its power to direct the activities of the entity.  Subsidiaries are fully consolidated from the date on which  control is transferred to the Group. They are de-consolidated  from the date that control ceases.  Intercompany transactions, balances and unrealised gains  on transactions between entities in the Group are eliminated.  Unrealised losses are also eliminated unless the transaction  provides evidence of the impairment of the asset transferred.  Accounting policies of subsidiaries have been changed where  necessary to ensure consistency with the policies adopted by  the Group. The acquisition of subsidiaries is accounted for using the  acquisition method of accounting. A change in ownership  interest, without the loss of control, is accounted for as  an equity transaction, where the difference between the  consideration transferred and the book value of the share of  the non-controlling interest acquired is recognised directly in  equity attributable to the parent. Where the Group loses control over a subsidiary, it  derecognises the assets including goodwill, liabilities and  non-controlling interest in the subsidiary together with any  cumulative translation differences recognised in equity. The  Group recognises the fair value of the consideration received  and the fair value of any investment retained together with  any gain or loss in profit or loss. Operating segments Segment results that are reported to the Group’s CEO (the Chief  Operating Decision Maker (‘CODM’)) includes items directly  attributable to a segment as well as those that can be allocated  on a reasonable basis. Unallocated items comprise mainly  corporate assets, head office expenses and income tax assets  and liabilities. Foreign currency translation The financial statements are presented in Australian dollars,  which is Appen Limited’s functional and presentation currency. Appen Limited 2018 Annual ReportNotes to the Consolidated Financial Statements continued 35 2. Significant accounting policies (continued) Foreign currency transactions Foreign currency transactions are translated into Australian  dollars using the exchange rates prevailing at the dates of the  transactions. Foreign exchange gains and losses resulting from  the settlement of such transactions and from the translation  at financial year-end exchange rates of monetary assets and  liabilities denominated in foreign currencies are recognised  in profit or loss. Foreign operations The assets and liabilities of foreign operations are translated  into Australian dollars using the exchange rates at the reporting  date. The revenues and expenses of foreign operations are  translated into Australian dollars using the average exchange  rates, which approximate the rates at the dates of the  transactions, for the period. All resulting foreign exchange  differences are recognised in other comprehensive income  through the foreign currency reserve in equity. Revenue recognition The Group recognises revenue as follows: Revenue from contracts with customers Revenue is recognised at an amount that reflects the   consideration to which the Group is expected to be entitled   in exchange for transferring annotated and/or collected   data as per customer requirement. For each contract   with a customer, the Group: identifies the contract with a   customer; identifies the performance obligations in the   contract; determines the transaction price which takes   into account estimates of variable consideration and the   time value of money; allocates the transaction price to the   separate performance obligations on the basis of the relative   stand-alone selling price of each distinct good or service   to be delivered; and recognises revenue when or as each   performance obligation is satisfied in a manner that depicts   the transfer to the customer of the data required. Variable consideration within the transaction price, if any,  reflects concessions provided to the customer such as  discounts, rebates and refunds, any potential bonuses  receivable from the customer and any other contingent events.  Such estimates are determined using either the ‘expected  value’ or ‘most likely amount’ method. The measurement of  variable consideration is subject to a constraining principle  whereby revenue will only be recognised to the extent  that it is highly probable that a significant reversal in the  amount of cumulative revenue recognised will not occur.  The measurement constraint continues until the uncertainty  associated with the variable consideration is subsequently  resolved. Amounts received that are subject to the constraining  principle are initially recognised as deferred revenue in the  form of a separate refund liability. Services Revenue from services represents the sale of contract service  or licence products and database. Revenue is recognised in  profit or loss progressively as the annotated and/or collected  data is completed and validated or approved by the customers.  Stage of completion of transactions involving the rendering of  services is determined by reference to the services performed  to date as a percentage of total services to be performed  on cost to cost basis. No revenue is recognised if there are  either significant uncertainties regarding recovery of the  consideration due, the costs incurred or to be incurred cannot  be measured reliably, there is a risk of disputes on service  quality, or there is continuing management involvement with  the products. Interest Interest revenue is recognised as interest accrues using the  effective interest method. This is a method of calculating the  amortised cost of a financial asset and allocating the interest  income over the relevant period using the effective interest  rate, which is the rate that exactly discounts estimated future  cash receipts through the expected life of the financial asset to  the net carrying amount of the financial asset. Other revenue Other revenue is recognised when it is received or when the  right to receive payment is established. Income tax The income tax expense or benefit for the period is the  tax payable on that period’s taxable income based on the  applicable income tax rate for each jurisdiction, adjusted by  the changes in deferred tax assets and liabilities attributable to  temporary differences, unused tax losses and the adjustment  recognised for prior periods, where applicable. Deferred tax assets and liabilities are recognised for temporary  differences at the tax rates expected to be applied when the  assets are recovered or liabilities are settled, based on those  tax rates that are enacted or substantively enacted, except for: – When the deferred income tax asset or liability arises from  the initial recognition of goodwill or an asset or liability in a  transaction that is not a business combination and that, at  the time of the transaction, affects neither the accounting  nor taxable profits; or – When the taxable temporary difference is associated  with interests in subsidiaries, associates or joint ventures,  and the timing of the reversal can be controlled and it is  probable that the temporary difference will not reverse in  the foreseeable future. Deferred tax assets are recognised for deductible temporary  differences and unused tax losses only if it is probable that  future taxable amounts will be available to utilise those  temporary differences and losses. Appen Limited 2018 Annual Report36 Notes to the Consolidated Financial Statements continued 2. Significant accounting policies (continued) The carrying amount of recognised and unrecognised deferred  tax assets are reviewed at each reporting date. Deferred tax  assets recognised are reduced to the extent that it is no longer  probable that future taxable profits will be available for the  carrying amount to be recovered. Previously unrecognised  deferred tax assets are recognised to the extent that it is  probable that there are future taxable profits available to  recover the asset. Deferred tax assets and liabilities are offset only where there is  a legally enforceable right to offset current tax assets against  current tax liabilities and deferred tax assets against deferred  tax liabilities; and they relate to the same taxable authority  on either the same taxable entity or different taxable entities  which intend to settle simultaneously. Appen Limited (the ‘head entity’) and its wholly-owned  Australian subsidiaries have formed an income tax  consolidated group under the tax consolidation regime.  The head entity and each subsidiary in the tax consolidated  group continue to account for their own current and deferred  tax amounts. The tax consolidated group has applied the  ‘separate taxpayer within group’ approach in determining the  appropriate amount of taxes to allocate to members of the tax  consolidated group. A liability is classified as current when: it is either expected  to be settled in the Group’s normal operating cycle; it is held  primarily for the purpose of trading; it is due to be settled  within 12 months after the reporting period; or there is no  unconditional right to defer the settlement of the liability for at  least 12 months after the reporting period. All other liabilities  are classified as non-current. Cash and cash equivalents Cash and cash equivalents includes cash on hand, deposits  held at call with financial institutions, other short-term, highly  liquid investments with original maturities of three months or  less that are readily convertible to known amounts of cash and  which are subject to an insignificant risk of changes in value. Trade and other receivables Trade receivables are initially recognised at fair value and  subsequently measured at amortised cost using the effective  interest method, less any allowance for expected credit losses.  Trade receivables are generally due for settlement within  30 days. The Group has applied the simplified approach to measuring  expected credit losses, which uses a lifetime expected loss  allowance. To measure the expected credit losses, trade  receivables have been grouped based on days overdue. In addition to its own current and deferred tax amounts, the  head entity also recognises the current tax liabilities (or assets)  and the deferred tax assets arising from unused tax losses and  unused tax credits assumed from each subsidiary in the tax  consolidated group. Contract assets, for the year 2017, includes those projects fully  completed or significantly completed by year-end, but invoices  have been issued after year-end, due to the milestones for  invoicing yet to be reached, or customers’ approval procedure  being delayed. Assets or liabilities arising under tax funding agreements  with the tax consolidated entities are recognised as amounts  receivable from or payable to other entities in the tax  consolidated group. The tax funding arrangement ensures  that the intercompany charge equals the current tax liability  or benefit of each tax consolidated group member, resulting in  neither a contribution by the head entity to the subsidiaries nor  a distribution by the subsidiaries to the head entity. Current and non-current classification Assets and liabilities are presented in the statement of financial  position based on current and non-current classification. An asset is classified as current when: it is either expected to  be realised or intended to be sold or consumed in the Group’s  normal operating cycle; it is held primarily for the purpose of  trading; it is expected to be realised within 12 months after the  reporting period; or the asset is cash or cash equivalent unless  restricted from being exchanged or used to settle a liability for  at least 12 months after the reporting period. All other assets  are classified as non-current. Other receivables are recognised at amortised cost, less any  provision for impairment. Contract assets Contract assets are recognised when the Group has transferred  goods or services to the customer but where the Group is yet  to establish an unconditional right to consideration. Contract  assets are treated as financial assets for impairment purposes. Derivative financial instruments Derivatives are initially recognised at fair value on the date  a derivative contract is entered into and are subsequently  remeasured to their fair value at each reporting date. The  accounting for subsequent changes in fair value depends on  whether the derivative is designated as a hedging instrument,  and if so, the nature of the item being hedged. Derivatives are classified as current or non-current depending  on the expected period of realisation. Appen Limited 2018 Annual ReportNotes to the Consolidated Financial Statements continued 37 2. Significant accounting policies (continued) Cash flow hedges Cash flow hedges are used to cover the Group’s exposure  to variability in cash flows that is attributable to particular  risks associated with a recognised asset or liability or a firm  commitment which could affect profit or loss. Under AASB 139,  all gain and loss arising from the Group’s cash flow hedging  relationships were eligible to be subsequently reclassified to  profit or loss. However, under AASB 9, gains and losses arising  on cash flow hedges of forecast purchases of non-financial  assets need to be incorporated into initial carrying amounts  of the non-financial assets. Therefore, upon adoption of  AASB 9, the gain or loss on cash flow hedge is recognised in  other comprehensive income, whilst the ineffective portion  is recognised in profit or loss. Amounts taken to equity are  transferred out of equity and included in the measurement of  the hedged transaction when the forecast transaction occurs. Cash flow hedges are tested for effectiveness on a regular  basis both retrospectively and prospectively to ensure that  each hedge is highly effective and continues to be designated  as a cash flow hedge. If the forecast transaction is no longer  expected to occur, the amounts recognised in equity are  transferred to profit or loss. If the hedging instrument is sold, terminated, expires, exercised  without replacement or rollover, or if the hedge becomes  ineffective and is no longer a designated hedge, the amounts  previously recognised in equity remain in equity until the  forecast transaction occurs. Property, plant and equipment Plant and equipment is stated at historical cost less  accumulated depreciation and impairment. Historical cost  includes expenditure that is directly attributable to the  acquisition of the items. Depreciation is calculated on a straight-line basis to write off  the net cost of each item of property, plant and equipment  (excluding land) over their expected useful lives as follows: Leasehold improvements  Over the lease term Fixtures and fittings  3 - 13 years Computer equipment  Audio equipment  1 - 4 years 1 - 4 years Make good  Over the lease term The residual values, useful lives and depreciation methods are  reviewed, and adjusted if appropriate, at each reporting date. Leasehold improvements and plant and equipment under  lease are depreciated over the unexpired period of the lease or  the estimated useful life of the assets, whichever is shorter. An item of property, plant and equipment is derecognised  upon disposal or when there is no future economic benefit  to the Group. Gains and losses between the carrying amount  and the disposal proceeds are taken to profit or loss. Any  revaluation surplus reserve relating to the item disposed of is  transferred directly to retained profits. Leases The determination of whether an arrangement is or contains  a lease is based on the substance of the arrangement and  requires an assessment of whether the fulfilment of the  arrangement is dependent on the use of a specific asset or  assets and the arrangement conveys a right to use the asset. A distinction is made between finance leases, which effectively  transfer from the lessor to the lessee substantially all the risks  and benefits incidental to the ownership of leased assets, and  operating leases, under which the lessor effectively retains  substantially all such risks and benefits. Finance leases are capitalised. A lease asset and liability are  established at the fair value of the leased assets, or if lower, the  present value of minimum lease payments. Lease payments  are allocated between the principal component of the lease  liability and the finance costs, so as to achieve a constant rate  of interest on the remaining balance of the liability. Leased assets acquired under a finance lease are depreciated  over the asset’s useful life or over the shorter of the asset’s  useful life and the lease term if there is no reasonable certainty  that the Group will obtain ownership at the end of the lease  term. Operating lease payments, net of any incentives received from  the lessor, are charged to profit or loss on a straight-line basis  over the term of the lease. Intangible assets Intangible assets acquired as part of a business combination,  other than goodwill, are initially measured at their fair value  at the date of the acquisition. Intangible assets acquired  separately are initially recognised at cost. Indefinite life  intangible assets are not amortised and are subsequently  measured at cost less any impairment. Finite life intangible  assets are subsequently measured at cost less amortisation  and any impairment. The gains or losses recognised in profit  or loss arising from the derecognition of intangible assets are  measured as the difference between net disposal proceeds  and the carrying amount of the intangible asset. The method  of amortisation and useful lives of finite life intangible assets  are reviewed annually. Changes in the expected pattern of  consumption or useful life are accounted for prospectively by  changing the amortisation method or period. Appen Limited 2018 Annual Report38 Notes to the Consolidated Financial Statements continued 2. Significant accounting policies (continued) Goodwill Goodwill arises on the acquisition of a business. Goodwill is not  amortised. Instead, goodwill is tested annually for impairment,  or more frequently if events or changes in circumstances  indicate that it might be impaired and it is carried at cost  less accumulated impairment losses. Impairment losses on  goodwill are taken to profit or loss and are not subsequently  reversed. Systems implementation Significant costs associated with systems implementation are  deferred and amortised on a straight-line basis over the period  of their expected benefit, being their finite life of 7 years. Platform development Platform development costs are capitalised at the direct  costs incurred and amortised on a straight-line basis over the  period of their expected benefit being their finite life from 3 to  7 years. Amortisation starts at the time that the technology is  activated and is used by both internal and external customers.  The capitalised costs of platform technology include the direct  costs of internal staff and any supporting software acquired  from a third party. Leapforce platform development costs acquired are  capitalised and amortised on a straight-line base over the  period of their expected benefit, being their finite life of 7 years. Customer relationships Customer relationships acquired in a business combination  are amortised on a straight-line basis over the period of their  expected benefit, being their finite life of 7 years. Crowd database Crowd database products are capitalised at the direct costs  incurred. The capitalised costs of database products include  direct costs of internal staff, services purchased from overseas’  field partners, and supporting software acquired from a third- party supplier. Crowd database costs are amortised on a straight-line basis  over the period of their expected benefit, being their finite life  of up to one year. Customer contracts Customer contracts acquired in a business combination are  amortised on a straight-line basis over the period of their  expected benefit, being their finite life of 5 years. Other intangibles Costs in relation to other intangibles are capitalised as an asset  and amortised on a straight-line basis over the period of their  expected benefit being 3 to 5 years. Impairment of non-financial assets Goodwill and other intangible assets that have an indefinite  useful life are not subject to amortisation and are tested  annually for impairment, or more frequently if events or  changes in circumstances indicate that they might be impaired.  Other non-financial assets are reviewed for impairment  whenever events or changes in circumstances indicate that  the carrying amount may not be recoverable. An impairment  loss is recognised for the amount by which the asset’s carrying  amount exceeds its recoverable amount. Recoverable amount is the higher of an asset’s fair value less  costs of disposal and value-in-use. The value-in-use is the  present value of the estimated future cash flows relating to  the asset using a pre-tax discount rate specific to the asset or  cash-generating unit to which the asset belongs. Assets that do  not have independent cash flows are grouped together to form  a cash-generating unit. Trade and other payables These amounts represent liabilities for goods and services  provided to the Group prior to the end of the financial year  and which are unpaid. Due to their short-term nature they  are measured at amortised cost and are not discounted. The  amounts are unsecured and are usually paid within 30 days of  recognition. Contract liabilities Contract liabilities represent the Group’s obligation to transfer  goods or services to a customer and are recognised when a  customer pays consideration, or when the Group recognises  a receivable to reflect its unconditional right to consideration  (whichever is earlier) before the Group has transferred the  goods or services to the customer. Refund liabilities Refund liabilities are recognised where the Group receives  consideration from a customer and expects to refund some,  or all, of that consideration to the customer. A refund liability  is measured at the amount of consideration received or  receivable for which the Group does not expect to be entitled  and is updated at the end of each reporting period for changes  in circumstances. Historical data is used across product  lines to estimate such returns at the time of sale based on an  expected value methodology. Borrowings Loans and borrowings are initially recognised at the fair value  of the consideration received, net of transaction costs. They  are subsequently measured at amortised cost using the  effective interest method. Where there is an unconditional right to defer settlement of  the liability for at least 12 months after the reporting date, the  loans or borrowings are classified as non-current. Appen Limited 2018 Annual ReportNotes to the Consolidated Financial Statements continued 39 2. Significant accounting policies (continued) Finance costs Finance costs attributable to qualifying assets are capitalised  as part of the asset. All other finance costs are expensed in the  period in which they are incurred. Provisions Provisions are recognised when the Group has a present (legal  or constructive) obligation as a result of a past event, it is  probable the Group will be required to settle the obligation,  and a reliable estimate can be made of the amount of the  obligation. The amount recognised as a provision is the best  estimate of the consideration required to settle the present  obligation at the reporting date, taking into account the risks  and uncertainties surrounding the obligation. If the time  value of money is material, provisions are discounted using a  current pre-tax rate specific to the liability. The increase in the  provision resulting from the passage of time is recognised as a  finance cost. Employee benefits Short-term employee benefits Liabilities for wages and salaries, including non-monetary  benefits, annual leave and long service leave expected to  be settled wholly within 12 months of the reporting date  are measured at the amounts expected to be paid when the  liabilities are settled. Other long-term employee benefits The liability for annual leave and long service leave not  expected to be settled within 12 months of the reporting date  are measured at the present value of expected future payments  to be made in respect of services provided by employees up  to the reporting date using the projected unit credit method.  Consideration is given to expected future wage and salary  levels, experience of employee departures and periods of  service. Expected future payments are discounted using  market yields at the reporting date on high-quality corporate  bonds with terms to maturity and currency that match, as  closely as possible, the estimated future cash outflows. Share-based payments Equity-settled share-based compensation benefits are  provided to employees. Equity-settled transactions are awards of shares, or options  over shares, that are provided to employees in exchange for  services. The cost of equity-settled transactions is measured at fair  value on grant date. Fair value is independently determined  using the Binomial option pricing model that takes into  account the exercise price, the term of the option, the impact  of dilution, the share price at grant date and expected price  volatility of the underlying share, the expected dividend  yield and the risk free interest rate for the term of the option,  together with non-vesting conditions that do not determine  whether the Group receives the services that entitle the  employees to receive payment. No account is taken of any  other vesting conditions. The cost of equity-settled transactions is recognised as an  expense with a corresponding increase in equity over the  vesting period. The cumulative charge to profit or loss is  calculated based on the grant date fair value of the award, the  best estimate of the number of awards that are likely to vest  and the expired portion of the vesting period. The amount  recognised in profit or loss for the period is the cumulative  amount calculated at each reporting date less amounts already  recognised in previous periods. All changes in the liability of the employee benefits are  recognised in profit or loss. The ultimate cost of cash-settled  transactions is the cash paid to settle the liability. Market conditions are taken into consideration in determining  fair value. Therefore, any awards subject to market conditions  are considered to vest irrespective of whether or not that  market condition has been met, provided all other conditions  are satisfied. If equity-settled awards are modified, as a minimum an  expense is recognised as if the modification has not been  made. An additional expense is recognised, over the remaining  vesting period, for any modification that increases the total fair  value of the share-based compensation benefit as at the date  of modification. If the non-vesting condition is within the control of the Group  or employee, the failure to satisfy the condition is treated as  a cancellation. If the condition is not within the control of the  Group or employee and is not satisfied during the vesting  period, any remaining expense for the award is recognised over  the remaining vesting period, unless the award is forfeited. If equity-settled awards are cancelled, it is treated as if it has  vested on the date of cancellation, and any remaining expense  is recognised immediately. If a new replacement award is  substituted for the cancelled award, the cancelled and new  award is treated as if they were a modification. Fair value measurement When an asset or liability, financial or non-financial, is  measured at fair value for recognition or disclosure purposes,  the fair value is based on the price that would be received  to sell an asset or paid to transfer a liability in an orderly  transaction between market participants at the measurement  date; and assumes that the transaction will take place either: in  the principal market; or in the absence of a principal market, in  the most advantageous market. Appen Limited 2018 Annual Report40 Notes to the Consolidated Financial Statements continued 2. Significant accounting policies (continued) Fair value is measured using the assumptions that market  participants would use when pricing the asset or liability,  assuming they act in their economic best interests. For  non-financial assets, the fair value measurement is based  on its highest and best use. Valuation techniques that are  appropriate in the circumstances and for which sufficient data  are available to measure fair value, are used, maximising the  use of relevant observable inputs and minimising the use of  unobservable inputs. Assets and liabilities measured at fair value are classified  into three levels, using a fair value hierarchy that reflects the  significance of the inputs used in making the measurements.  Classifications are reviewed at each reporting date and  transfers between levels are determined based on a  reassessment of the lowest level of input that is significant to  the fair value measurement. For recurring and non-recurring fair value measurements,  external valuers may be used when internal expertise is either  not available or when the valuation is deemed to be significant.  External valuers are selected based on market knowledge and  reputation. Where there is a significant change in fair value of  an asset or liability from one period to another, an analysis is  undertaken, which includes a verification of the major inputs  applied in the latest valuation and a comparison, where  applicable, with external sources of data. Issued capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new  shares or options are shown in equity as a deduction, net of  tax, from the proceeds. Dividends Dividends are recognised when declared during the financial  year and no longer at the discretion of the Company. Business combinations The acquisition method of accounting is used to account  for business combinations regardless of whether equity  instruments or other assets are acquired. The consideration transferred is the sum of the acquisition- date fair values of the assets transferred, equity instruments  issued or liabilities incurred by the acquirer to former owners of  the acquiree and the amount of any non-controlling interest in  the acquiree. All acquisition costs are expensed as incurred to  profit or loss. On the acquisition of a business, the Group assesses  the financial assets acquired and liabilities assumed for  appropriate classification and designation in accordance  with the contractual terms, economic conditions, the  Group’s operating or accounting policies and other pertinent  conditions in existence at the acquisition-date. Contingent consideration to be transferred by the acquirer  is recognised at the acquisition-date fair value. Subsequent  changes in the fair value of the contingent consideration  classified as an asset or liability is recognised in profit or loss.  Contingent consideration classified as equity is not remeasured  and its subsequent settlement is accounted for within equity. The difference between the acquisition-date fair value of  assets acquired, liabilities assumed and any non-controlling  interest in the acquiree and the fair value of the consideration  transferred and the fair value of any pre-existing investment in  the acquiree is recognised as goodwill. Business combinations are initially accounted for on a  provisional basis. The acquirer retrospectively adjusts the  provisional amounts recognised and also recognises additional  assets or liabilities during the measurement period, based on  new information obtained about the facts and circumstances  that existed at the acquisition-date. The measurement period  ends on either the earlier of (i) 12 months from the date of the  acquisition or (ii) when the acquirer receives all the information  possible to determine fair value. Earnings per share Basic earnings per share Basic earnings per share is calculated by dividing the profit  attributable to the owners of Appen Limited, excluding any  costs of servicing equity other than ordinary shares, by the  weighted average number of ordinary shares outstanding  during the financial year, adjusted for bonus elements in  ordinary shares issued during the financial year. Diluted earnings per share Diluted earnings per share adjusts the figures used in the  determination of basic earnings per share to take into account  the after income tax effect of interest and other financing costs  associated with dilutive potential ordinary shares and the  weighted average number of shares assumed to have been  issued for no consideration in relation to dilutive potential  ordinary shares. Goods and Services Tax (‘GST’) and other similar taxes Revenues, expenses and assets are recognised net of the  amount of associated GST, unless the GST incurred is not  recoverable from the tax authority. In this case it is recognised  as part of the cost of the acquisition of the asset or as part of  the expense. Receivables and payables are stated inclusive of the amount of GST  receivable or payable. The net amount of GST recoverable from,  or payable to, the tax authority is included in other receivables or  other payables in the statement of financial position. Appen Limited 2018 Annual ReportNotes to the Consolidated Financial Statements continued 41 2. Significant accounting policies (continued) Cash flows are presented on a gross basis. The GST  components of cash flows arising from investing or financing  activities which are recoverable from, or payable to the tax  authority, are presented as operating cash flows. Commitments and contingencies are disclosed net of the  amount of GST recoverable from, or payable to, the tax authority. impact of the new accounting standard. Based on the work  performed to date, the management team expects the new  accounting standard to have the following impact: – increase in total assets of $9,490,000 – increase in total liabilities of $9,929,000 – increase in earnings before interest, tax, depreciation and  amortisation of $1,508,000. Rounding of amounts The Company is of a kind referred to in ASIC Corporations  (Rounding in Financial/Directors Reports) Instrument  2016/191, issued by the Australian Securities and Investments  Commission, relating to ‘rounding-off’. Amounts in this report  have been rounded off in accordance with that Corporations  Instrument to the nearest thousand dollars, or in certain cases,  the nearest dollar. New Accounting Standards and Interpretations not yet mandatory or early adopted Australian Accounting Standards and Interpretations that  have recently been issued or amended but are not yet  mandatory, have not been early adopted by the Group for  the annual reporting period ended 31 December 2018. The  Group’s assessment of the impact of these new or amended  Accounting Standards and Interpretations, most relevant to the  Group, are set out below. AASB 16 Leases This standard is applicable to annual reporting periods  beginning on or after 1 January 2019. For lessee accounting,  the standard eliminates the ‘operating lease’ and ‘finance  lease’ classification required by AASB 117 ‘Leases’. Subject  to exceptions, a ‘right-of-use’ asset will be capitalised in the  statement of financial position, representing its rights to use  the underlying assets. The exceptions relate to short-term  leases of 12 months or less and leases of low-value assets  (such as personal computers and office furniture) where an  accounting policy choice exists whereby either a ‘right-of- use’ asset is recognised or lease payments are expensed  to profit or loss as incurred. A liability corresponding to the  capitalised lease will also be recognised, adjusted for lease  prepayments, lease incentives received, initial direct costs  incurred and an estimate of any future restoration, removal  or dismantling costs. Straight-line operating lease expense  recognition will be replaced with a depreciation charge for  the leased asset (included in operating costs) and an interest  expense on the recognised lease liability (included in finance  costs). For classification within the statement of cash flows,  the lease payments will be separated into both a principal  (financing activities) and interest (either operating or financing  activities) components. For lessor accounting, the standard  does not substantially change how a lessor accounts for  leases. The Group will adopt this standard from 1 January 2019.  Management has commenced a project to understand the  3. Critical accounting judgements, estimates and assumptions The preparation of the financial statements requires  management to make judgements, estimates and assumptions  that affect the reported amounts in the financial statements.  Management continually evaluates its judgements and  estimates in relation to assets, liabilities, contingent liabilities,  revenue and expenses. Management bases its judgements,  estimates and assumptions on historical experience and  on other various factors, including expectations of future  events, management believes to be reasonable under the  circumstances. The resulting accounting judgements and  estimates will seldom equal the related actual results. The  judgements, estimates and assumptions that have a significant  risk of causing a material adjustment to the carrying amounts  of assets and liabilities (refer to the respective notes) within the  next financial year are discussed below. Share-based payment transactions The Group measures the cost of equity-settled transactions  with employees by reference to the fair value of the equity  instruments at the date at which they are granted. The fair  value of options is determined by using the Binomial model  taking into account the terms and conditions upon which the  instruments were granted. Performance rights are valued on a  discounted dividend stream method. The accounting estimates  and assumptions relating to equity-settled share-based  payments would have no impact on the carrying amounts of  assets and liabilities within the next annual reporting period  but may impact profit or loss and equity. Determination of variable consideration Judgement is exercised in estimating variable consideration  which is determined having regard to past experience  with respect to the goods returned to the Group where  the customer maintains a right of return pursuant to the  customer contract or where goods or services have a variable  component. Revenue will only be recognised to the extent that  it is highly probable that a significant reversal in the amount  of cumulative revenue recognised under the contract will  not occur when the uncertainty associated with the variable  consideration is subsequently resolved. Appen Limited 2018 Annual Report42 Notes to the Consolidated Financial Statements continued 3. Critical accounting judgements, estimates and assumptions (continued) Allowance for expected credit losses The allowance for expected credit losses assessment requires  a degree of estimation and judgement. It is based on the  lifetime expected credit loss, grouped based on days overdue,  and makes assumptions to allocate an overall expected credit  loss rate for each group. These assumptions include recent  sales experience and historical collection rates. Impairment of non-financial assets other than goodwill and other indefinite life intangible assets The Group assesses impairment of non-financial assets other  than goodwill and other indefinite life intangible assets at each  reporting date by evaluating conditions specific to the Group  and to the particular asset that may lead to impairment. If an  impairment trigger exists, the recoverable amount of the asset  is determined. This involves fair value less costs of disposal or  value-in-use calculations, which incorporate a number of key  estimates and assumptions. Fair value measurement hierarchy The Group is required to classify all assets and liabilities,  measured at fair value, using a three level hierarchy, based  on the lowest level of input that is significant to the entire fair  value measurement, being: Level 1: Quoted prices (unadjusted)  in active markets for identical assets or liabilities that the entity  can access at the measurement date; Level 2: Inputs other  than quoted prices included within Level 1 that are observable  for the asset or liability, either directly or indirectly; and Level  3: Unobservable inputs for the asset or liability. Considerable  judgement is required to determine what is significant to fair  value and therefore which category the asset or liability is  placed in can be subjective. The fair value of assets and liabilities classified as level 3 is  determined by the use of valuation models. These include  discounted cash flow analysis or the use of observable inputs  that require significant adjustments based on unobservable  inputs. Goodwill and other indefinite life intangible assets The Group tests annually, or more frequently if events or  changes in circumstances indicate impairment, whether  goodwill and other indefinite life intangible assets have  suffered any impairment, in accordance with the accounting  policy stated in Note 2. The recoverable amounts of cash- generating units have been determined based on value- in-use calculations. These calculations require the use of  assumptions, including estimated discount rates based on the  current cost of capital and growth rates of the estimated future  cash flows. Estimation of useful lives of assets The Group determines the estimated useful lives and related  depreciation and amortisation charges for its property, plant  and equipment and finite life intangible assets. The useful lives  could change significantly as a result of technical innovations  or some other event. The depreciation and amortisation  charge will increase where the useful lives are less than  previously estimated lives, or technically obsolete or non- strategic assets that have been abandoned or sold will be  written off or written down. Income tax The Group is subject to income taxes in the jurisdictions  in which it operates. Significant judgement is required in  determining the provision for income tax. There are many  transactions and calculations undertaken during the ordinary  course of business for which the ultimate tax determination  is uncertain. The Group recognises liabilities for anticipated  tax audit issues based on the Group’s current understanding  of the tax law. Where the final tax outcome of these matters  is different from the carrying amounts, such differences will  impact the current and deferred tax provisions in the period in  which such determination is made. Recovery of deferred tax assets Deferred tax assets are recognised for deductible temporary  differences only if the Group considers it is probable that future  taxable amounts will be available to utilise those temporary  differences and losses. Business combinations As discussed in Note 2, business combinations are initially  accounted for on a provisional basis. The fair value of assets  acquired, liabilities and contingent liabilities assumed are  initially estimated by the Group taking into consideration  all available information at the reporting date. Fair value  adjustments on the finalisation of the business combination  accounting is retrospective, where applicable, to the period the  combination occurred and may have an impact on the assets  and liabilities, depreciation and amortisation reported. 4. Restatement of comparatives - adoption of AASB 9 ‘Financial Instruments’ and AASB 15 ‘Revenue from Contracts with Customers’ Adoption of AASB 9 ‘Financial Instruments’ The Group has adopted AASB 9 from 1 January 2018, using the  full retrospective approach of adoption (with the exemption of  hedge accounting) and comparatives have been restated. The investment classifications ‘Available-for-sale financial  assets’ and ‘Held-to-maturity investments’ are no longer used  and ‘Financial assets at fair value through other comprehensive  income’ was introduced. There were no investments held in  these categories as at 31 December 2017. Appen Limited 2018 Annual ReportNotes to the Consolidated Financial Statements continued 43 4. Restatement of comparatives - adoption of AASB 9 ‘Financial Instruments’ and AASB 15 ‘Revenue from Contracts with Customers’ (continued) ‘Interest revenue’ is no longer included in the ‘Revenue’ note and is now shown separately on the face of the statement of profit or  loss and other comprehensive income, resulting in a reclassification of $10,000 for the year ended 31 December 2017. The consolidated entity has applied the simplified approach to measuring expected credit losses, resulting in an additional  impairment expense of $nil (and a total impairment expense of $75,000) for the year ended 31 December 2017 and an additional  allowance for expected credit losses of $nil and an additional deferred tax asset of $nil as at 31 December 2017. Adoption of AASB 15 ‘Revenue from Contracts with Customers’ The consolidated entity has adopted AASB 15 from 1 January 2018, using the full retrospective transition method showing no  impact on the statement of profit or loss and other comprehensive income for the year ended 31 December 2017 and resulting in  the restatement of comparatives for the statement of financial position as at 31 December 2017. The impact on the statement of profit or loss and other comprehensive income and statement of financial position is as follows: Statement of profit or loss and other comprehensive income Revenue Interest income calculated using the effective interest method Net foreign exchange gain Expenses Services purchased - data collection Employee benefits expense Share-based payments expense Depreciation and amortisation expense Travel expense Professional fees Rental expense Communication expense Transaction costs Other expenses Finance costs Profit before income tax expense Income tax expense Profit after income tax expense for the year attributable to the owners of Appen Limited Other comprehensive loss Foreign currency translation Other comprehensive loss for the year, net of tax Total comprehensive income for the year attributable to the owners of Appen Limited Basic earnings per share Diluted earnings per share 31 Dec 2017 $’000 Reported 166,571  – 969 Group $’000 Adjustment (10) 10 –  31 Dec 2017 $’000 Restated 166,561 10 969  (99,816) (29,117) (410) (1,863) (1,064) (1,920) (894) (337) (5,877) (5,854) (13) 20,375 (6,093) 14,282 (882) (882) 13,400 – – – – – – – – – – – – – – – – – (99,816) (29,117) (410) (1,863) (1,064) (1,920) (894) (337) (5,877) (5,854) (13) 20,375 (6,093) 14,282  (882) (882) 13,400 Cents Reported Cents Adjustment Cents Restated 14.55 14.36 – – 14.55 14.36 Appen Limited 2018 Annual Report44 Notes to the Consolidated Financial Statements continued 4. Restatement of comparatives - adoption of AASB 9 ‘Financial Instruments’ and AASB 15 ‘Revenue from Contracts with Customers’ (continued) Statement of financial position at the beginning of the earliest comparative period Assets Current assets Cash and cash equivalents Trade and other receivables Contract assets Prepayments Total current assets Non-current assets Property, plant and equipment Intangibles Other non-current assets Total non-current assets Total assets Liabilities Current liabilities Trade and other payables Contract liabilities Derivative financial instruments Income tax Provisions Revenue received in advance Total current liabilities Non-current liabilities Borrowings Deferred tax Provisions Total non-current liabilities Total liabilities Net assets Equity Issued capital Reserves Accumulated losses Total equity 1 Jan 2017 $’000 Reported Group $’000 Adjustment 1 Jan 2017 $’000 Restated 16,471  21,861  – 415  38,747  725  14,543  12  15,280  54,027 12,177  – 199  1,447  884  716  15,423  6  2,778  417  3,201  18,624 35,403 19,510  19,763  (3,870) 35,403 – (7,184) 7,184  – – – – – – – – 716  – – – (716) – – – – – – – – – – – 16,471  14,677  7,184  415  38,747  725  14,543  12  15,280  54,027 12,177  716  199  1,447  884  – 15,423  6  2,778  417  3,201  18,624 35,403 19,510  19,763  (3,870) 35,403 Appen Limited 2018 Annual ReportNotes to the Consolidated Financial Statements continued 45 4. Restatement of comparatives - adoption of AASB 9 ‘Financial Instruments’ and AASB 15 ‘Revenue from Contracts with Customers’ (continued) Statement of financial position at the end of the earliest comparative period Assets Current assets Cash and cash equivalents Trade and other receivables Contract assets Derivative financial instruments Prepayments Total current assets Non-current assets Property, plant and equipment Intangibles Other non-current assets Total non-current assets Total assets Liabilities Current liabilities Trade and other payables Contract liabilities Derivative financial instruments Income tax Provisions Revenue received in advance Total current liabilities Non-current liabilities Borrowings Deferred tax Provisions Total non-current liabilities Total liabilities Net assets Equity Issued capital Reserves Accumulated losses Total equity 31 Dec 2017 $’000 Reported Group $’000 Adjustment 31 Dec 2017 $’000 Restated 24,015  42,908  – 123  1,121  68,167  1,762  116,253  1,866  119,881  188,048 21,173  – 46  1,303  1,151  1,237  24,910  67,885  1,369  473  69,727  94,637 93,411 69,569  27,712  (3,870) 93,411 – (11,270) 11,270  – – – – – – – – – 1,237  – – – (1,237) – – – – – – – – – – – 24,015  31,638  11,270  123  1,121  68,167  1,762  116,253 1,866  119,881 188,048 21,173 1,237  46  1,303  1,151  – 24,910 67,885  1,369  473  69,727  94,637 93,411 69,569  27,712  (3,870) 93,411 Appen Limited 2018 Annual Report46 Notes to the Consolidated Financial Statements continued 5. Operating segments Identification of reportable operating segments The Group is organised into two operating segments based on differences in products and services provided: Content Relevance  and Language Resources. These operating segments are based on the internal reports that are reviewed and used by the Group’s  Chief Executive Officer (‘CEO’), who is identified as the Chief Operating Decision Maker, in assessing performance and in determining  the allocation of resources. There is no aggregation of operating segments. The CEO reviews a set of financial reports which covers EBITDA (earnings before interest, tax, depreciation and amortisation),  revenue and operating segment reports on a monthly basis. The accounting policies adopted for internal reporting to the CEO are  consistent with those adopted in the financial statements. Types of products and services The principal products and services of each of these operating segments are as follows: Content Relevance Content Relevance provides annotated data used in search technology (embedded in web, e-commerce and  social engagement) for improving relevance and accuracy of search engines, social media applications and  e-commerce. Language Resources Language Resources provides annotated speech, natural language and image data used in speech  recognisers, machine translation, speech synthesisers and other machine-learning technologies resulting  in more engaging and fluent devices including internet-connected devices, in-car automotive systems and  speech-enabled consumer electronics. Intersegment transactions Intersegment transactions were made at market rates. Intersegment transactions are eliminated on consolidation. Intersegment receivables, payables and loans Intersegment loans are initially recognised at the consideration received. Intersegment loans receivable and loans payable that  earn or incur non-market interest are not adjusted to fair value based on market interest rates. Intersegment loans are eliminated  on consolidation. Major customers During the year ended 31 December 2018 approximately 89.1% (2017: 86%) of the Group’s external revenue was derived from sales  to five major customers. Appen Limited 2018 Annual ReportNotes to the Consolidated Financial Statements continued Content Relevance $’000 Language Resources $’000 Other segments $’000 312,846  51,361  – – – – 312,846 51,361 74,800  11,177  – 16  66  82 66  5. Operating segments (continued) Operating segment information Group - 31 Dec 2018 Revenue Services revenue Interest Other income Total revenue Segment result Corporate overhead Marketing expenses Net foreign exchange loss Share-based payment - employees Share-based payment - Leapforce Transaction costs Depreciation and amortisation Interest Profit before income tax expense Income tax expense Profit after income tax expense 47 Total $’000 364,207  16  66  364,289 86,043  (11,056) (1,479) 112  (2,351) (1,666) (1,507) (8,941) (3,201) 55,954 (14,226) 41,728 Appen Limited 2018 Annual Report48 Notes to the Consolidated Financial Statements continued 5. Operating segments (continued) Group - 31 Dec 2017 Revenue Services revenue Interest Other income Total revenue Segment result Corporate overhead Marketing expenses Net foreign exchange gain Share-based payments - employees Transaction costs Depreciation and amortisation* Interest Profit before income tax expense Income tax expense Profit after income tax expense Content Relevance $’000 Language Resources $’000 Other segments $’000 126,160  40,397  – – – – 126,160 40,397 – 10  4  14 22,147  12,176  (256) Total $’000 166,557  10  4  166,571 34,067  (5,557) (919) 937  (410) (5,877) (1,863) (3) 20,375 (6,093) 14,282 *  Amortisation expense includes AUD$572,719 for the disposal of ERP system purchased in March 2014, since there is no probable future economic benefits. Geographical information Australia US Other countries Services revenue Geographical non-current assets 31 Dec 2018 $’000 31 Dec 2017 $’000 31 Dec 2018 $’000 31 Dec 2017 $’000 40,583  316,480  7,144  40,393  126,164  – 1,250  117,143  6,175  1,106  114,035  4,740  364,207 166,557 124,568 119,881 Appen Limited 2018 Annual ReportNotes to the Consolidated Financial Statements continued 49 6. Revenue Revenue from contracts with customers Services revenue Other income Other income Revenue Group 31 Dec 2018 $’000 31 Dec 2017 $’000 364,207  166,557 66 4 364,273 166,561 Disaggregation of services revenue Services revenue is disaggregated by type of service and primary geographical country as follows: Group - 31 Dec 2018 Geographical regions Australia US Other countries Group - 31 Dec 2017 Geographical regions Australia US Content Relevance $’000 Language Resources $’000 – 312,846  – 40,583  3,634  7,144  Total $’000 40,583  316,480  7,144  312,846 51,361 364,207 Content Relevance $’000 Language Resources $’000 – 40,393  Total $’000 40,393  126,164  126,160  126,160 4  40,397 166,557 Appen Limited 2018 Annual Report50 7. Expenses Notes to the Consolidated Financial Statements continued Profit before income tax includes the following specific expenses: Depreciation Leasehold improvements Fixtures and fittings Computer equipment Audio equipment Make good Total depreciation Amortisation Systems implementation* Platform development Customer relationships Crowd database Customer contracts Other intangibles Total amortisation Total depreciation and amortisation Finance costs Interest and finance charges paid/payable Employee benefits expense Defined contribution superannuation expense Employee benefits expense Total employee benefits expense Group 31 Dec 2018 $’000 31 Dec 2017 $’000 570  124  801  16  – 1,511 476  782  5,005  1,067  70  30  7,430 8,941 120  43  207  17  5  392 930  460  – – 67  14  1,471 1,863 3,201  13 1,817  41,996  43,813 1,194  27,923  29,117 * Amortisation expense in 2017 includes $572,719 for the disposal of ERP system purchased in March 2014, since there is no probable future economic  benefits. Appen Limited 2018 Annual ReportNotes to the Consolidated Financial Statements continued 51 8. Income tax expense Income tax expense Current tax Deferred tax - origination and reversal of temporary differences Aggregate income tax expense Deferred tax included in income tax expense comprises: Increase/(decrease) in deferred tax liabilities (Note 19) Numerical reconciliation of income tax expense and tax at the statutory rate Profit before income tax expense Tax at the statutory tax rate of 30% Tax effect amounts which are not deductible/(taxable) in calculating taxable income:   Amortisation of intangibles   Depreciation of property, plant and equipment   Entertainment expenses   Share-based payment expense   Year end accruals deductible in future years Difference in overseas tax rates Income tax expense 9. Current assets - cash and cash equivalents Cash on hand Cash at bank 10. Current assets - trade and other receivables Trade receivables Less: Allowance for expected credit losses Other receivables GST receivable Group 31 Dec 2018 $’000 31 Dec 2017 $’000 13,630  596  14,226 7,502  (1,409) 6,093 596  (1,409) 55,954  16,786  93  371  5  4,017  (5,735) 15,537 (1,311) 14,226 20,375  6,113  60  12  5  (123) 159  6,226 (133) 6,093 Group 31 Dec 2018 $’000 31 Dec 2017 $’000 2  40,043  40,045 3 24,012  24,015 Group 31 Dec 2018 $’000 31 Dec 2017 $’000 59,628  (184) 59,444 908  117  30,923  (75) 30,848 498  292  60,469 31,638 Appen Limited 2018 Annual Report52 Notes to the Consolidated Financial Statements continued 10. Current assets - trade and other receivables (continued) Allowance for expected credit losses The Group has recognised an additional provision of $100,000 (2017: $nil) in profit or loss in respect of impairment of receivables for  the year ended 31 December 2018. The ageing of the receivables and allowance for expected credit losses provided for above are as follows: Group Not overdue 0 to 3 months overdue 3 to 6 months overdue Over 6 months overdue Expected credit loss rate Carrying amount Allowance for expected credit losses 31 Dec 2018 % 31 Dec 2017 % 31 Dec 2018 $’000 31 Dec 2017 $’000 31 Dec 2018 $’000 31 Dec 2017 $’000 – – 100%  – – – – 100%  51,648  7,796  184  – 27,130  3,701  60  32  59,628 30,923 – – 184  – 184 – – – 32  32 Movements in the allowance for expected credit losses are as follows: Opening balance Additional provisions recognised Foreign currency revaluation on opening balance Closing balance 11. Current assets - contract assets Contract assets Reconciliation Reconciliation of the written down values at the beginning and end of the current and previous  financial year are set out below: Opening balance Additions Transfer to trade receivables Revaluation Closing balance Group 31 Dec 2018 $’000 31 Dec 2017 $’000 75  100  9  184 81  – (6) 75 Group 31 Dec 2018 $’000 31 Dec 2017 $’000 10,354 11,270 11,270  44,272  (46,713) 1,525  10,354 7,184  11,659  (7,811) 238  11,270 Appen Limited 2018 Annual ReportNotes to the Consolidated Financial Statements continued 53 12. Current assets - derivative financial instruments Forward foreign exchange contracts - cash flow hedges Refer to Note 26 for further information on fair value measurement. 13. Non-current assets - intangibles Goodwill - at cost Systems implementation - at cost Less: Accumulated amortisation Platform development - at cost Less: Accumulated amortisation Customer relationships - at cost Less: Accumulated amortisation Crowd database - at cost Less: Accumulated amortisation Customer contracts - at cost Less: Accumulated amortisation Other intangibles - at cost Less: Accumulated amortisation Group 31 Dec 2018 $’000 31 Dec 2017 $’000 –  123  Group 31 Dec 2018 $’000 31 Dec 2017 $’000 Restated 81,055  5,284  (2,498) 2,786 5,137  (1,892) 3,245 36,994  (5,285) 31,709 1,134  (1,134) – 3,337  (3,126) 211 529  (391) 138 71,615  4,732  (1,802) 2,930 4,162  (968) 3,194 36,994  – 36,994 1,134  – 1,134 3,035  (2,765) 270 467  (351) 116 119,144 116,253 Appen Limited 2018 Annual Report54 Notes to the Consolidated Financial Statements continued 13. Non-current assets - intangibles (continued) Reconciliations Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below: Group Balance at 1 January  2017 Additions Additions through  business combinations  (Note 33) - Restated Reclassifications Exchange differences Amortisation expense* Balance at 31 December 2017 - Restated*** Additions Additions through  business combinations  (Note 33) Disposals Exchange differences Amortisation expense Balance at 31 December 2018 Systems implement- ation $’000 Goodwill** $’000 Platform development $’000 Customer relationships $’000 Crowd database $’000 Customer contracts $’000 Other intangibles $’000 Total $’000 11,463  – 1,967  2,022  1,090  502  – – – – 60,485  (333) – – – (107) (22) (930) 2,126  36,994  1,134  107  (171) (460) – – – – – – 71,615 – 2,930 227  3,194 886  36,994 – 1,134 – 1,308 – 8,132  – – – 105  (476) – – (53) (782) – – – – (281) (5,004) (67) (1,067) – – – 333 4  (67) 270 – – – 11 (70) 23  104  14,543  2,628  – – 3 (14) 101,739  – (186) (1,471) 116 49  116,253 1,162  – (1) 5  (31) 1,308 (1) 7,852  (7,430) 81,055 2,786 3,245 31,709 – 211 138 119,144 Amortisation expense includes $572,719 for the disposal of ERP system purchased in March 2014, since there is no probable future economic benefits. * **  Goodwill has been adjusted to recognise the separately identifiable intangible assets associated with the Leapforce acquisition. ***   31 December 2017 balances have been restated to reflect the impact of acquisition accounting adjustments made during the period on opening  balances. Refer to Note 33. Valuations For the purposes of impairment testing, identifiable intangible assets have been valued according to the following valuation methodologies: Customer relationships Crowd database Platform development Customer relationships were valued on an excess earnings basis. The excess earnings method is predicated  on the basis that the value of an intangible asset is the present value of the earnings it generates, net of a  reasonable return on other assets also contributing to that stream of earnings. Crowd database was valued on a replacement cost basis. Under the replacement cost-based methodology,  the value of an intangible asset is estimated by reference to the costs that would have to be expended in  order to recreate the asset or the cost historically incurred to create the asset. Platform development was valued on a replacement cost basis. Under the replacement cost-based methodology,  the value of an intangible asset is estimated by reference to the costs that would have to be expended in order  to recreate the asset or the cost historically incurred to create the asset. This was cross checked to the relief from  royalty methodology. The relief from royalty methodology involves estimating the amount of hypothetical royalty  that would be paid if the identifiable intangible asset was licensed from an independent third party owner. The  fair value of the identifiable intangible asset is the net present value of the prospective stream of hypothetical  royalty savings that would be generated over the expected useful life of the intangible asset. Appen Limited 2018 Annual ReportNotes to the Consolidated Financial Statements continued 55 13. Non-current assets - intangibles (continued) Impairment of intangible assets Goodwill relates to the acquisition of Butler Hill, Inc., Leapforce, Inc. and Raterlabs, Inc. in the United States, and Mendip Media  Group Limited ‘MMG’) in the United Kingdom. The recoverable amount of this business, at balance date, was estimated based on its  value in use. Butler Hill, Inc., Leapforce, Inc. and Raterlabs, Inc. Value in use for the Content Relevance cash-generating unit (‘CGU’) was determined by discounting the future cashflows to be  generated from the Content Relevance division and is based on the following key assumptions: – Cashflows were projected based on forecast operating results over a 5 year period. – Average annual revenue growth rates of 8% for 2019 to 2023 were used for revenue projections. This growth was referenced  against the average annual historical growth rates over the past 4 years and the long-term growth rate of the industry. All future  years of the model use a constant rate of 3%; and – A pre-tax discount of 15.4% based on the weighted average cost of capital. The Goodwill carrying value of $79,045,000 has been allocated to the Content Relevance CGU. Mendip Media Group Limited Value in use for the Language Resources CGU was determined by discounting the future cash flows to be generated from the  Language Resources division and is based on the following key assumptions: – Cashflows were projected based on forecast operating results over a 5 year period. – Average annual revenue growth rates of 10% for 2019 to 2023 were used for revenue projections. This growth was referenced  against average annual historical growth rates over the past 4 years and the long-term growth rate of the industry. All future  years of the model use a constant rate of 3%; and – A pre-tax discount of 16.4% based on the weighted average cost of capital. The Goodwill carrying value of $2,010,000 has been allocated to the Language Resources CGU. 14. Current liabilities - trade and other payables Trade payables Other payables and accrued expenses Refer to Note 25 for further information on financial instruments. Group 31 Dec 2018 $’000 31 Dec 2017 $’000 20,709  16,306  37,015 9,240  11,933  21,173 Appen Limited 2018 Annual Report56 Notes to the Consolidated Financial Statements continued 15. Current liabilities - contract liabilities Invoices issued/deposits received in advance Reconciliation Reconciliation of the written down values at the beginning and end of the current and previous  financial year are set out below: Opening balance Payments received in advance Transfer to revenue Revaluation Closing balance Group 31 Dec 2018 $’000 31 Dec 2017 $’000 1,535  1,237  1,237  802  (566) 62  1,535 716  990  (443) (26) 1,237 Unsatisfied performance obligations The aggregate amount of the transaction price allocated to the performance obligations that are unsatisfied at the end of the  reporting period was $1,535,000 as at 31 December 2018 ($1,237,000 as at 31 December 2017) and is expected to be recognised as  revenue in future periods as follows: Less than 3 months Over 3 months 16. Current liabilities - derivative financial instruments Forward foreign exchange contracts Foreign exchange contracts - Collars Refer to Note 25 for further information on financial instruments. Refer to Note 26 for further information on fair value measurement. Group 31 Dec 2018 $’000 31 Dec 2017 $’000 1,048  487  1,535 421  816  1,237 Group 31 Dec 2018 $’000 31 Dec 2017 $’000 249  – 249 – 46  46 Appen Limited 2018 Annual ReportNotes to the Consolidated Financial Statements continued 57 17. Current liabilities - provisions Annual leave Lease make-good Group 31 Dec 2018 $’000 31 Dec 2017 $’000 1,429  100  1,529 1,051  100  1,151 Lease make-good The provision represents the present value of the estimated costs to make good the premises leased by the Group at the end of the  respective lease terms. Movements in provisions Movements in each class of provision during the current financial year, other than employee benefits, are set out below: Group - 31 Dec 2018 Carrying amount at the start of the year Carrying amount at the end of the year 18. Non-current liabilities - borrowings Facility A (Senior debt) Facility B (Working capital) Lease liability Lease make- good $’000 100  100 Group 31 Dec 2018 $’000 31 Dec 2017 $’000 56,330  –  –  50,843  17,038  4  56,330 67,885 Refer to Note 25 for further information on financial instruments. Facility A The facility was established in December 2017 with a limit of US$40 million. This facility has a three year term with a bullet  repayment at the end of the term and is not subject to annual review. Mandatory prepayment of 7.5% of the outstanding principal  balance of the facility is required if certain metrics are triggered, measured at each six monthly reporting period ending on or  after 30 June 2018. The facility was used to fund the Leapforce acquisition and is fully drawn. This facility attracts interest at a  margin over bank reference rates, based on the net leverage ratio. The value disclosed above is net of borrowing costs of $365,000  (2017: $394,000). Facility B The facility was established in December 2017 with a limit of A$20 million. This facility has a three year term and is not subject  to annual review. Technically, each drawing under this facility is required to be rolled over at the end of its interest period and  available for automatic re-draw if no default is existing. The facility is used to fund working capital in connection with the Leapforce  acquisition and general working capital requirements. This facility attracts interest at a margin over bank reference rates, based on  the net leverage ratio. The facility B of $17,038,000 was fully repaid in 2018. Appen Limited 2018 Annual Report58 Notes to the Consolidated Financial Statements continued 18. Non-current liabilities - borrowings (continued) Total secured liabilities The total secured liabilities (current and non-current) are as follows: Facility A (Senior debt) Facility B (Working capital) Lease liability Group 31 Dec 2018 $’000 31 Dec 2017 $’000 56,330  –  –  50,843  17,038  4  56,330 67,885 Assets pledged as security The bank loans are secured by a fixed charge over the assets of the Group.  The lease liabilities are effectively secured as the rights to the leased assets, recognised in the statement of financial position,  revert to the lessor in the event of default. Financing arrangements Unrestricted access was available at the reporting date to the following lines of credit: Total facilities   Facility A (Senior debt)*   Facility B (Working capital) Used at the reporting date   Facility A (Senior debt)*   Facility B (Working capital) Unused at the reporting date   Facility A (Senior debt)*   Facility B (Working capital) * Balance excludes borrowing cost of $365,000 (2017: $394,000). Group 31 Dec 2018 $’000 31 Dec 2017 $’000 56,695  20,000  76,695 56,695  –  56,695 –  20,000  20,000 51,237  20,000  71,237 51,237  17,038  68,275 – 2,962  2,962 Appen Limited 2018 Annual ReportNotes to the Consolidated Financial Statements continued 59 19. Non-current liabilities - deferred tax Deferred tax liability comprises temporary differences attributable to: Amounts recognised in profit or loss:   Platform development costs Impairment of receivables   Property, plant and equipment Intangible assets   Employee benefits   Accrued expenses   Contract assets   Foreign currency revaluation and other expense Deferred tax liability Movements: Opening balance Charged/(credited) to profit or loss (Note 8) Closing balance Group 31 Dec 2018 $’000 31 Dec 2017 $’000 337  (45) (302) 1,949  (1,132) (327) 2,845  (1,360) 1,965 1,369  596  1,965 298  (20) 62  929  (893) (955) 1,962  (14) 1,369 2,778  (1,409) 1,369 The Corporate Federal tax rate for company registered in United States changed to 21% effective from 1 January 2018. The deferred  tax reported has been computed with the new Federal tax rate. 20. Non-current liabilities - provisions Long service leave Group 31 Dec 2018 $’000 31 Dec 2017 $’000 379 473 Appen Limited 2018 Annual Report    60 Notes to the Consolidated Financial Statements continued 21. Equity - issued capital Group 31 Dec 2018 Shares 31 Dec 2017 Shares 31 Dec 2018 $’000 31 Dec 2017 $’000 Ordinary shares - fully paid 106,599,647  105,804,907  69,602  69,569  Movements in ordinary share capital Details Balance Issue of shares on exercise of options Issue of shares on exercise of options Issue of shares on exercise of options Issue of shares on exercise of options Issue of shares on exercise of options Issue of shares on exercise of performance rights Issue of shares on exercise of options Issue of shares on exercise of options Issue of shares on exercise of options Issue of shares as consideration of acquisition of Leapforce,  Inc and RaterLabs, Inc. Issue of shares as consideration of acquisition of Leapforce,  Inc and RaterLabs, Inc. Shares issued under Share Purchase plan Share issue transaction costs Balance Issue of shares on exercise of performance rights Issue of shares on exercise of performance rights Issue of shares on exercise of options Issue of shares on exercise of options Issue of contingent Leapforce shares Balance Date Shares Issue price $’000 1 January 2017 97,180,407  1 March 2017 1 March 2017 1 March 2017 3 March 2017 9 March 2017 10 April 2017 16 June 2017 8 November 2017 22 November 2017 318,750  20,450  20,450  53,125  106,250  9,398  53,125  40,900  40,900  $0.500  $0.489  $0.432  $0.500  $0.500  $0.500  $0.412  $0.412  19,510  159  10  9  27  53  – 27  17  17  6 December 2017 4,310,345  $5.800  25,000  7 December 2017 21 December 2017 2,787,826  862,981  $7.400  $5.800  31 December 2017 1 March 2018 4 June 2018 28 June 2018 27 September 2018 7 December 2018 105,804,907 520,040  83,334  40,900  26,563  123,903  $10.600  $10.210  $0.494  $0.500  20,630  5,005  (895) 69,569 – – 20  13 – 31 December 2018 106,599,647 69,602 Ordinary shares Ordinary shares entitle the holder to participate in dividends and the proceeds on the winding up of the Company in proportion to  the number of and amounts paid on the shares held. The fully paid ordinary shares have no par value and the Company does not  have a limited amount of authorised capital. On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall  have one vote. Share buy-back There is no current on-market share buy-back. Appen Limited 2018 Annual ReportNotes to the Consolidated Financial Statements continued 61 21. Equity - issued capital (continued) Capital risk management The Group’s objectives when managing capital is to safeguard its ability to continue as a going concern, so that it can provide  returns for shareholders and benefits for other stakeholders and to maintain an optimum capital structure to reduce the cost  of capital. Capital is regarded as total equity, as recognised in the statement of financial position, plus net debt. Net debt is calculated as total  borrowings less cash and cash equivalents. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return  capital to shareholders, issue new shares or sell assets to reduce debt. The Group would raise capital when an opportunity to invest in a business or company was seen as value adding relative to the  current Company’s share price at the time of the investment.  The capital risk management policy remains unchanged from the 31 December 2017 Annual Report. 22. Equity - reserves Common control reserve Foreign currency translation reserve Share-based payments reserve Profits reserve Other reserves Group 31 Dec 2018 $’000 31 Dec 2017 $’000 (1,416) 10,433  5,996  56,796  1,859  73,668 (1,416) 2,790  1,979  22,500  1,859  27,712 Common control reserve The reserve represents the difference between the consideration transferred by the Company for the acquisition of commonly  controlled entities and the existing book value of those entities immediately prior to the acquisition. Foreign currency translation reserve The reserve is used to recognise exchange differences arising from translation of the financial statements of foreign operations to  Australian dollars. Share-based payments reserve The reserve is used to recognise the value of equity benefits provided to employees and directors as part of their remuneration, and  other parties as part of their compensation for services. Profits reserve The Profits reserve represents current year profits transferred to a reserve to preserve the characteristic as a profit so as to  quarantine from being appropriated against prior year accumulated losses. Such profits are available to enable payment of franked  dividends in the future should the directors declare so by resolution. Other reserves This reserve represents the equity settled portion of contingent consideration together with any capital raising expenses that are  allocated to equity, in connection with the acquisition of Butler Hill, Inc. Appen Limited 2018 Annual Report62 Notes to the Consolidated Financial Statements continued 22. Equity - reserves (continued) Movements in reserves Movements in each class of reserve during the current and previous financial year are set out below: Group Balance at 1 January 2017 Foreign currency translation Share-based payments Transfer from accumulated losses Dividends paid Balance at 31 December 2017 Foreign currency translation Share-based payments Transfer from accumulated losses Dividends paid Foreign currency translation $’000 Share-based payments $’000 Common control $’000 (1,416) – – – – 3,672  (882) – – – (1,416) – 2,790 7,643  – – – – – – 1,569  – 410  – – 1,979 – 4,017  – – Profits $’000 14,079  – – 14,282  (5,861) 22,500 – – 41,728  (7,432) 56,796 Balance at 31 December 2018 (1,416) 10,433 5,996 23. Equity - accumulated losses Accumulated losses at the beginning of the financial year Profit after income tax expense for the year Transfer to Profits reserve Accumulated losses at the end of the financial year 24. Equity - dividends Dividends Dividends paid during the financial year were as follows: Final dividend paid out of the profits reserve for the year ended 31 December 2017 of 3.0 cents per  ordinary share (2017: 31 December 2016 of 3.0 cents) Interim dividend paid out of the profits reserve for the year ended 31 December 2018 of 4.0 cents per  ordinary share (2017: 31 December 2017 of 3.0 cents) Other $’000 1,859  – – – – 1,859 – – – – Total $’000 19,763  (882) 410  14,282  (5,861) 27,712 7,643  4,017  41,728  (7,432) 1,859 73,668 Group 31 Dec 2018 $’000 31 Dec 2017 $’000 (3,870) 41,728  (41,728) (3,870) (3,870) 14,282 (14,282) (3,870) Group 31 Dec 2018 $’000 31 Dec 2017 $’000 3,174  2,928  4,258  7,432 2,933  5,861 Appen Limited 2018 Annual ReportNotes to the Consolidated Financial Statements continued 63 24. Equity - dividends (continued) Dividend declared On 25 February 2019, the Company declared a final dividend for the year ended 31 December 2018 of 4.0 cents per share, partially  franked. The dividend is to be paid out of the profits reserve. The record date for determining entitlements to the dividend is  1 March 2019. The financial effect of these dividends has not been brought to account in the financial statements for the year ended  31 December 2018 and will be recognised in subsequent financial periods. Franking credits Group 31 Dec 2018 $’000 31 Dec 2017 $’000 Franking credits available for subsequent financial years based on a tax rate of 30% 1,326 3,446 The above amounts represent the balance of the franking account as at the end of the financial year, adjusted for: – franking credits that will arise from the payment of the amount of the provision for income tax at the reporting date – franking debits that will arise from the payment of dividends recognised as a liability at the reporting date – franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date 25. Financial instruments Financial risk management objectives The Group’s activities expose it to a variety of financial risks: market risk (including foreign currency risk, price risk and interest  rate risk), credit risk and liquidity risk. The Group’s overall risk management program focuses on the unpredictability of financial  markets and seeks to minimise potential adverse effects on the financial performance of the Group. The Group uses derivative  financial instruments such as forward foreign exchange contracts to hedge certain foreign currency risk exposures. Derivatives are  exclusively used for hedging purposes, i.e. not as trading or other speculative instruments. The Group uses different methods to  measure different types of risk to which it is exposed. These methods include sensitivity analysis in the case of interest rate, foreign  exchange and other price risks, ageing analysis for credit risk and beta analysis in respect of investment portfolios to determine  market risk. Risk management is carried out by senior finance executives (‘finance’) under policies approved by the Board of Directors (‘the  Board’). These policies include identification and analysis of the risk exposure of the Group and appropriate procedures, controls  and risk limits. Finance identifies, evaluates and hedges financial risks within the Group’s operating units. Finance reports to the  Board on a monthly basis. Appen Limited 2018 Annual Report64 Notes to the Consolidated Financial Statements continued 25. Financial instruments (continued) Market risk Foreign currency risk The Group undertakes certain transactions denominated in foreign currency and is exposed to foreign currency risk through foreign  exchange rate fluctuations. Foreign exchange risk arises from future commercial transactions and recognised financial assets and financial liabilities  denominated in a currency that is not the entity’s functional currency. The risk is measured using sensitivity analysis and cash flow  forecasting. In order to protect against exchange rate movements, the Group has entered into forward foreign exchange contracts. These  contracts are hedging highly probable forecast cash flows for the ensuing financial year. Appen’s policy is to hedge at least 80% of  its US denominated revenues generated by its Language Resources division for the subsequent 12 months. The maturity, settlement amounts and the average contractual exchange rates of the Group’s outstanding forward foreign  exchange contracts and foreign exchange - collars at the reporting date were as follows: Sell United States dollars Foreign exchange forward contract maturity: 0 - 3 months 3 - 6 months Sell United States dollars Foreign exchange option contract maturity: 0 - 3 months 3 - 6 months Buy Australian dollars Average exchange rates 31 Dec 2018 $’000 31 Dec 2017 $’000 31 Dec 2018 31 Dec 2017 13,260  2,784  7,180  3,247  0.7164  0.7185  0.7591  0.7700  Buy Australian dollars Average exchange rates 31 Dec 2018 $’000 31 Dec 2017 $’000 31 Dec 2018 31 Dec 2017 – – 1,300  3,247  – – 0.7690  0.7687  The average exchange rates and reporting date exchange rates applied were as follows: Australian dollars United States Dollars European Economic and Monetary Union Euro United Kingdom Pound Sterling Hong Kong Dollars Philippine Pesos Chinese Yuan Average exchange rates Reporting date exchange rates 31 Dec 2018 31 Dec 2017 31 Dec 2018 31 Dec 2017 0.7450  0.5596  0.6317  5.8368  39.2972  4.9333  0.7692  0.5930  0.6773  5.9946  39.8340  – 0.7055  0.6164  0.5540  5.5230  37.1044  4.8497  0.7809  0.5787  0.6517  6.0994  39.0305  – Appen Limited 2018 Annual ReportNotes to the Consolidated Financial Statements continued 65 25. Financial instruments (continued) The carrying amount of the Group’s foreign currency denominated financial assets and financial liabilities at the reporting date  were as follows: Group United States Dollars European Economic and Monetary Union Euro United Kingdom Pound Sterling Hong Kong Dollars Philippine Pesos Chinese Yuan Assets Liabilities 31 Dec 2018 $’000 31 Dec 2017 $’000 31 Dec 2018 $’000 31 Dec 2017 $’000 95,610  2,228  533  1 1,011  205  47,283  1,313 351  1 913  – 78,048  58,431  – 85  – 297  – – 81  – 177  – 99,588 49,861 78,430 58,689 The Group had net assets denominated in foreign currencies of $21,158,000 (assets $99,588,000 less liabilities $78,430,000) as at 31  December 2018 (2017: net liabilities of $8,828,000 (assets $49,861,000 less liabilities $58,689,000)). Based on this exposure, had the Australian dollar weakened by 5% or strengthened by 5% (2017: weakened by 5% or strengthened  by 5%) against these foreign currencies with all other variables held constant, the Group’s profit before tax for the year based on  the assets dominated in foreign currency, excluding the translation difference for consolidated reporting purpose, and the Group’s  equity would have been lower or higher by the following: AUD strengthened AUD weakened Group - 31 Dec 2018 % change United States Dollars European Economic and Monetary Union  Euro United Kingdom Pound Sterling Hong Kong Dollars Philippine Pesos Chinese Yuan 5%  5%  5%  5%  5%  5%  Effect on profit before tax $’000 Effect on equity $’000 2,278  (3,476) (111) (12) – – – – (21) – (36) (10) Effect on profit before tax $’000 Effect on equity $’000 (2,278) 3,476  111 12  – – – – 21  – 36  10  % change 5%  5%  5%  5%  5%  5%  2,155 (3,543) (2,155) 3,543 Appen Limited 2018 Annual Report66 Notes to the Consolidated Financial Statements continued 25. Financial instruments (continued) AUD strengthened AUD weakened Group - 31 Dec 2017 % change United States Dollars European Economic and Monetary Union  Euro United Kingdom Pound Sterling Hong Kong Dollars Philippine Pesos 5%  5%  5%  5%  5%  Effect on profit before tax $’000 Effect on equity $’000 2,343  (1,929) (66) (10) (3) – – (11) (8) (37) Effect on profit before tax $’000 Effect on equity $’000 (2,343) 1,929  66  10  3 – – 11 8  37  % change 5%  5%  5%  5%  5%  2,264 (1,985) (2,264) 1,985 The percentage change is the expected overall volatility of the significant currencies, which is based on management’s assessment  of reasonable possible fluctuations taking into consideration movements over the last 12 months each year and the spot rate at  each reporting date. Price risk The Group is not exposed to any significant price risk. Interest rate risk The Group’s main interest rate risk arises from long-term borrowings. Borrowings issued at variable rates expose the Group to  interest rate risk. As at the reporting date, the Group had the following variable rate borrowings: Group Facility A Facility B Net exposure to cash flow interest rate risk 31 Dec 2018 Balance $’000 31 Dec 2017 Balance $’000 56,695  – 56,695 51,237  17,038  68,275 An analysis by remaining contractual maturities in shown in ‘liquidity and interest rate risk management’ below. For the Group the net exposure to interest rate risk totalled $56,695,000 (2017: $68,275,000). Appen Limited 2018 Annual ReportNotes to the Consolidated Financial Statements continued 67 25. Financial instruments (continued) Cash flow sensitivity analysis for variable-rate instruments A reasonable possible change of 100 base points in interest rates at the reporting date would have increased or decreased equity  and profit or loss by the amounts below. This analysis assumes that all other variables, in particular foreign currency exchange  rates, remain constant. Group - 31 Dec 2018 Facility A Facility B Group - 31 Dec 2017 Facility A Facility B Basis points increase Basis points decrease Basis points change Effect on profit before tax $’000 Effect on equity $’000 Basis points change Effect on profit before tax $’000 Effect on equity $’000 100  100  (567) – (567) (567) – (567) 100  100  567  – 567 567  – 567 Basis points increase Basis points decrease Basis points change Effect on profit before tax $’000 Effect on equity $’000 Basis points change Effect on profit before tax $’000 Effect on equity $’000 100  100  (512) (170) (682) (512) (170) (682) 100  100  512  170  682 512  170  682 Credit risk Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group.  The Group has a strict code of credit, including obtaining agency credit information, confirming references and setting appropriate  credit limits. The Group obtains guarantees where appropriate to mitigate credit risk. The maximum exposure to credit risk at  the reporting date to recognised financial assets is the carrying amount, net of any provisions for impairment of those assets, as  disclosed in the statement of financial position and notes to the financial statements. The Group does not hold any collateral. The Group has adopted a lifetime expected loss allowance in estimating expected credit losses to trade receivables through the  use of a provisions matrix using fixed rates of credit loss provisioning. These provisions are considered representative across all  customers of the Group based on recent sales experience, historical collection rates and forward-looking information that is  available. Generally, trade receivables are written off when there is no reasonable expectation of recovery. Indicators of this include the failure  of a debtor to engage in a repayment plan, no active enforcement activity and a failure to make contractual payments for a period  greater than 1 year. Liquidity risk Liquidity risk requires the Group to maintain sufficient liquid assets (mainly cash and cash equivalents) and available borrowing  facilities to be able to pay debts as and when they become due and payable. The Group manages liquidity risk by maintaining adequate cash reserves and available borrowing facilities by continuously  monitoring actual and forecast cash flows and matching the maturity profiles of financial assets and liabilities. Appen Limited 2018 Annual Report68 Notes to the Consolidated Financial Statements continued 25. Financial instruments (continued) Financing arrangements Unused borrowing facilities at the reporting date: Facility B (Working capital) Group 31 Dec 2018 $’000 31 Dec 2017 $’000 20,000 2,962 Remaining contractual maturities The following tables detail the Group’s remaining contractual maturity for its financial instrument liabilities. The tables have been  drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the financial liabilities  are required to be paid. The tables include both interest and principal cash flows disclosed as remaining contractual maturities and  therefore these totals may differ from their carrying amount in the statement of financial position. Group - 31 Dec 2018 Non-derivatives Non-interest bearing Trade payables Other payables Interest-bearing - variable Facility A - Senior debt Total non-derivatives Derivatives Forward foreign exchange contracts  net settled Total derivatives Group - 31 Dec 2017 Non-derivatives Non-interest bearing Trade payables Other payables Interest-bearing - variable Facility A - Senior debt Facility B - Working capital Lease liability Total non-derivatives Derivatives Foreign exchange contracts - Collars Total derivatives Weighted average interest rate % 1 year or less $’000 Between 1 and 2 years $’000 Between 2 and 5 years $’000 Over 5 years $’000 Remaining contractual maturities $’000 – – – – 20,709  16,306  1,106  38,121 – – – – 1,106  1,106 57,801  57,801 249  249 – – – – – – – – – – 20,709  16,306  60,013  97,028 249  249 Weighted average interest rate % 1 year or less $’000 Between 1 and 2 years $’000 Between 2 and 5 years $’000 Over 5 years $’000 Remaining contractual maturities $’000 – – – – – – 9,240  681  999  332  – – – 999  332  4  11,252 1,335 46  46 – – – – 52,237  17,370  – 69,607 – – – – – – – – – – 9,240  681  54,235  18,034  4  82,194 46  46 The cash flows in the maturity analysis above are not expected to occur significantly earlier than contractually disclosed above. Appen Limited 2018 Annual ReportNotes to the Consolidated Financial Statements continued 69 26. Fair value measurement Fair value hierarchy The following tables detail the Group’s assets and liabilities, measured or disclosed at fair value, using a three level hierarchy, based  on the lowest level of input that is significant to the entire fair value measurement, being: Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement  date Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or  indirectly Level 3: Unobservable inputs for the asset or liability Group - 31 Dec 2018 Liabilities Forward foreign exchange contracts Total liabilities Group - 31 Dec 2017 Assets Forward foreign exchange contracts Total assets Liabilities Foreign exchange contracts - Collars Total liabilities Level 1 $’000 Level 2 $’000 Level 3 $’000 – – 249  249 – – Level 1 $’000 Level 2 $’000 Level 3 $’000 – – –  – 123  123 46  46 – – –  – Total $’000 249  249 Total $’000 123  123 46  46 There were no transfers between levels during the financial year. The carrying amounts of trade and other receivables and trade and other payables are assumed to approximate their fair values  due to their short-term nature. Valuation techniques for fair value measurements categorised within level 2 Derivative financial instruments have been valued using quoted market rates. This valuation technique maximises the use of  observable market data where it is available and relies as little as possible on entity specific estimates. Appen Limited 2018 Annual Report70 Notes to the Consolidated Financial Statements continued 27. Key management personnel disclosures Compensation The aggregate compensation made to directors and other members of key management personnel of the Group is set out below: Short-term employee benefits Post-employment benefits Long-term benefits Share-based payments Group 31 Dec 2018 $ 31 Dec 2017 $ 2,342,673  2,518,996  100,826  54,130  1,391,376  176,873  160,312  188,852  3,889,005 3,045,033 28. Remuneration of auditors During the financial year the following fees were paid or payable for services provided by KPMG, the auditor of the Company, and its  network firms: Audit services - KPMG Audit or review of the financial statements Other services - KPMG Taxation and compliance services - Australia Other services Audit services - network firms Audit or review of the financial statements Other services - network firms Taxation and compliance services - USA Other services Group 31 Dec 2018 $ 31 Dec 2017 $ 210,770  212,534  256,802  –  256,802  72,514  153,750  226,264  467,572 438,798 47,762  33,197  463,269  –  85,793  42,561  463,269  128,354  511,031 161,551 29. Contingent liabilities The Group has given bank guarantees as at 31 December 2018 of $133,000 (2017: $133,000) in satisfaction of its performance  obligations with respect to rental premises. Appen Limited 2018 Annual Report Notes to the Consolidated Financial Statements continued 71 30. Commitments Lease commitments - operating Committed at the reporting date but not recognised as liabilities, payable: Within one year One to five years More than five years Group 31 Dec 2018 $’000 31 Dec 2017 $’000 1,608  3,524  207  5,339 1,505  4,519  –  6,024 Operating lease commitments includes a contracted amount for an office under a non-cancellable operating lease expiring within  5 years with an option to extend. The leases have various escalation clauses. On renewal, the terms of the lease are renegotiated. 31. Related party transactions Parent entity Appen Limited is the parent entity. Subsidiaries Interests in subsidiaries are set out in Note 34. Key management personnel Disclosures relating to key management personnel are set out in Note 27 and the remuneration report included in the directors’ report. Transactions with related parties There were no transactions with related parties during the current financial year. Receivable from and payable to related parties There were no trade receivables from or trade payables to related parties at the current and previous reporting date. Loans to/from related parties There were no loans to or from related parties at the current and previous reporting date. 32. Parent entity information Set out below is the supplementary information about the parent entity. Statement of profit or loss and other comprehensive income Profit after income tax Total comprehensive income Company 31 Dec 2018 $’000 31 Dec 2017 $’000 6,653  6,653 3,183  3,183 Appen Limited 2018 Annual Report72 Notes to the Consolidated Financial Statements continued 32. Parent entity information (continued) Statement of financial position Total current assets Total assets Total current liabilities Total liabilities Equity Issued capital Share-based payments reserve Profits reserve Other reserves Accumulated losses Total equity Company 31 Dec 2018 $’000 31 Dec 2017 $’000 66,543  80,731  380  1,050  68,705  80,712  3,991  4,337  69,602  69,569  5,997  7,828  1,859  (5,605) 79,681 1,980  8,572  1,859  (5,605) 76,375 Guarantees entered into by the parent entity in relation to the debts of its subsidiaries The parent entity had a deed of cross guarantee in relation to the debts of its subsidiaries as at 31 December 2018 and  31 December 2017. Contingent liabilities The parent entity had no contingent liabilities as at 31 December 2018 and 31 December 2017. Capital commitments - Property, plant and equipment The parent entity had no capital commitments for property, plant and equipment as at 31 December 2018 and 31 December 2017. Significant accounting policies The accounting policies of the parent entity are consistent with those of the Group, as disclosed in Note 2, except for the following: – Investments in subsidiaries are accounted for at cost, less any impairment, in the parent entity. – Dividends received from subsidiaries are recognised as other income by the parent entity and its receipt may be an indicator of  an impairment of the investment. 33. Business combinations 2018 An additional amount of $1,308,000 was paid in 2018 for the Leapforce acquisition in 2017. There were no business combinations in the year to 31 December 2018. Appen Limited 2018 Annual Report          Notes to the Consolidated Financial Statements continued 73 33. Business combinations (continued) 2017 On 7 December 2017, Appen Limited acquired 100% of the ordinary shares of Leapforce Inc. and RaterLabs Inc. (‘Leapforce’) for  the total consideration of USD$80,000,000 plus working capital. Leapforce is a leading provider of search relevance services in the  United States of America. This was a strategic acquisition to secure the services of Leapforce to enable Appen to grow its position  as a global leader of high quality data provision for machine learning and artificial intelligence. The goodwill of $61,793,000 represents the difference in the fair value of assets acquired to consideration paid. The values identified  in relation to the acquisition of Leapforce are final as at 31 December 2018. Details of the acquisition are as follows: Cash and cash equivalents Trade receivables Prepayments Fixtures and fittings Customer relationships Other intangible assets Crowd database Trade payables Employee benefits Accrued expenses Share–based payment Working capital adjustment Net assets acquired Goodwill Acquisition-date fair value of the total consideration transferred Representing: Cash paid or payable to vendor Cash paid to vendor for working capital Appen Limited shares issued to vendor Contingent consideration Acquisition costs expensed to profit or loss Cash used to acquire business, net of cash acquired: Acquisition-date fair value of the total consideration transferred Less: cash and cash equivalents Less: shares issued by Company as part of consideration Less: contingent consideration Net cash used Provisional amount disclosed at 31 Dec 2017 Fair value $’000 Acquisition adjustments Fair value $’000 Restated balance at 31 Dec 2017 Fair value $’000 4,915  12,548  32  102  – – – (4,348) (112) (156) 5,260  37  18,278  100,739  119,017 84,155  8,972  20,630  5,260  119,017 5,877 119,017  (4,915) (20,630) (5,260) 88,212 – – – – 2,126  36,994  1,134  – – – – – 40,254  (38,946) 4,915  12,548  32  102  2,126  36,994  1,134  (4,348) (112) (156) 5,260  37  58,532  61,793  1,308 120,325 1,308  – – – 85,463  8,972  20,630  5,260  1,308 120,325 – 5,877 1,308  120,325  – – – 1,308 (4,915) (20,630) (5,260) 89,520 Appen Limited 2018 Annual Report74 Notes to the Consolidated Financial Statements continued 34. Interests in subsidiaries The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with  the accounting policy described in Note 2: Name Principal place of business/ Country of incorporation Appen Butler Hill Pty Limited Australia Appen Butler Hill Inc.* Appen (Europe) Limited* Mendip Media Group Limited Appen (Hong Kong) Limited* Beijing Appen Technology Co., Ltd* Leapforce Inc. RaterLabs Inc. United States of America United Kingdom United Kingdom Hong Kong China United States of America United States of America Appen Financial Services Pty Ltd Australia * Wholly-owned subsidiaries of Appen Butler Hill Pty Limited. Ownership interest 31 Dec 2018 % 31 Dec 2017 % 100%  100%  100%  100%  100%  100%  100%  100%  100%  100%  100%  100%  100%  100%  100%  100%  100%  100%  35. Deed of cross guarantee The following entities are party to a deed of cross guarantee under which each company guarantees the debts of the others: Appen Limited Appen Butler Hill Pty Limited By entering into the deed, the wholly-owned entities have been relieved from the requirement to prepare financial statements and  directors’ report under Corporations Instrument 2016/785 issued by the Australian Securities and Investments Commission. The above companies represent a ‘Closed Group’ for the purposes of the Corporations Instrument, and as there are no other parties  to the deed of cross guarantee that are controlled by Appen Limited, they also represent the ‘Extended Closed Group’. Appen Limited 2018 Annual ReportNotes to the Consolidated Financial Statements continued 75 35. Deed of cross guarantee (continued) Set out below is a consolidated statement of profit or loss and other comprehensive income and statement of financial position of  the ‘Closed Group’. Statement of profit or loss and other comprehensive income 31 Dec 2018 $’000 31 Dec 2017 $’000 Revenue Services purchased - data collection Employee benefits expense Depreciation and amortisation expense Travel expense Professional fees Rental expense Communication expense Transaction costs Other expenses Finance costs Profit before income tax (expense)/benefit Income tax (expense)/benefit Profit after income tax (expense)/benefit Other comprehensive income/(loss) Foreign currency translation Other comprehensive income/(loss) for the year, net of tax Total comprehensive income for the year Equity - retained profits Retained profits at the beginning of the financial year Profit after income tax (expense)/benefit Transfer to Profits reserve Retained profits at the end of the financial year 56,195  (6,629) (25,621) (1,393) (700) (1,661) (1,180) (1,546) 547  (3,608) – 14,404  417  14,821  (17) (17) 42,082  (7,844) (14,141) (339) (575) (994) (504) (748) (3,873) (1,599) (1) 11,464  (2,871) 8,593  66  66  14,804 8,659 31 Dec 2018 $’000 31 Dec 2017 $’000 – 14,821  (14,821) – – 8,593  (8,593) – Appen Limited 2018 Annual Report76 Notes to the Consolidated Financial Statements continued 35. Deed of cross guarantee (continued) Statement of financial position Current assets Cash and cash equivalents Trade and other receivables Derivative financial instruments Income tax refund due Prepayments Non-current assets Investments accounted for using the equity method Property, plant and equipment Intangibles Deferred tax Intercompany loan Other non-current assets Total assets Current liabilities Trade and other payables Derivative financial instruments Income tax Provisions Revenue received in advance Non-current liabilities Borrowings Deferred tax Provisions Total liabilities Net assets Equity Issued capital Reserves Total equity 31 Dec 2018 $’000 31 Dec 2017 $’000 11,412  14,296  – 46  1,783  27,537 6,593  4,310  265  2,212  54,914  159  68,453 95,990 4,639  249  752  756  1,274  7,670 – 670  379  1,049 8,719 87,271 69,602  17,669  87,271 10,025  9,783  123  – 437  20,368 6,337  1,363  328  – 55,070  1,866  64,964 85,332 5,888  46  1,584  606  473  8,597 4  343  473  820 9,417 75,915 69,569  6,346  75,915 Appen Limited 2018 Annual ReportNotes to the Consolidated Financial Statements continued 77 36. Reconciliation of profit after income tax to net cash from operating activities Profit after income tax expense for the year Adjustments for: Depreciation and amortisation Net loss on disposal of property, plant and equipment Share-based payments Foreign exchange differences Transaction costs paid for acquisition Change in operating assets and liabilities: Increase in trade and other receivables Increase/(decrease) in trade and other payables Increase in employee benefits and provisions Increase in contract liabilities Decrease in provision for income tax Increase/(decrease) in deferred tax liabilities Net cash from operating activities 37. Changes in liabilities arising from financing activities Group Balance at 1 January 2017 Net cash from/(used in) financing activities Other changes Balance at 31 December 2017 Net cash used in financing activities Revaluation Other changes Balance at 31 December 2018 Facility A $’000 Facility B $’000 Lease $’000 – 51,808  (1,360) 50,448  – 5,882  – 56,330 – 16,861  – 16,861  (17,830) 969  – – 6  (2) – 4  – – (4) – Group 31 Dec 2018 $’000 31 Dec 2017 $’000 41,728  14,282  8,941  3 4,017  5,246  1,507  (29,652) 12,228  3,778  298  (1,891) 596  46,799 1,863  – 410  (975) 3,577  (9,166) (773) 5,198  521  (144) (1,409) 13,384 Total $’000 6  68,667  (1,360) 67,313  (17,830) 6,851  (4) 56,330 Appen Limited 2018 Annual Report            78 Notes to the Consolidated Financial Statements continued 38. Earnings per share Profit after income tax attributable to the owners of Appen Limited Group 31 Dec 2018 $’000 31 Dec 2017 $’000 41,728  14,282  Number Number Weighted average number of ordinary shares used in calculating basic earnings per share 106,324,919  98,150,474  Adjustments for calculation of diluted earnings per share: Options and rights over ordinary shares 1,932,042  1,275,102  Weighted average number of ordinary shares used in calculating diluted earnings per share 108,256,961  99,425,576  Basic earnings per share Diluted earnings per share 39. Share-based payments Performance rights Cents Cents 39.25 38.55 14.55 14.36 Long-term incentive plan The Company has developed a long term incentive plan (‘LTIP’) which incorporates performance conditions and was effective from  1 January 2015. The long term incentive plan provides for awards of Performance Rights to senior management, vesting at the end of a three year  period and subject to an annual earnings per share non-market performance condition tested over each year within the three year  period. Even if the EPS target is satisfied, the Performance Rights will continue, but will lapse if an employee ceases employment  with the Company. Details are outlined in the table below. The fair value of the performance rights has been measured based on the share price at the date of the grant less the present value  of the future dividend stream. The dividend stream has been based on a payout ratio of 30% - 46%, discounted at a discount rate of  2.25%. Appen Limited 2018 Annual Report  79 Balance at the end of the year – 303,273  252,327  113,914  464,718  – Notes to the Consolidated Financial Statements continued 39. Share-based payments (continued) Set out below are summaries of performance rights granted under the plan: 31 Dec 2018 Plan 2015 2016 2017 2018 2018 Special 2018 STI 31 Dec 2017 Plan 2015 2016 2017 Balance at the start of the year 520,040  423,160  315,390  – – – 1,258,590 Balance at the start of the year 820,648  544,575  – 1,365,223 Granted Exercised Expired/forfeited/ other – – – 113,914  464,718  83,334  661,966 (520,040) – – – – (83,334) (603,374) – (119,887) (63,063) – – – (182,950) 1,134,232 Granted Exercised Expired/forfeited/ other – – 315,390  315,390 (9,398) – – (291,210) (121,415) – (9,398) (412,625) 1,258,590 Balance at the end of the year 520,040  423,160  315,390  The weighted average remaining contractual life of performance rights outstanding at the end of the financial year was 1.16 years  (2017: 1.00 years). Appen Limited 2018 Annual Report80 Notes to the Consolidated Financial Statements continued 39. Share-based payments (continued) Overview of Performance Rights and Conditions Plan Grant date Expiry date1 Exercise price Tranche Performance measurement Performance target Performance target measurement date Target achieved2 Vesting condition Vesting date Value per right at grant date 2016 1 Mar 2016 N/A 2016 1 Mar 2016 N/A 2016 1 Mar 2016 N/A 2017 1 Mar 2017 N/A 2017 1 Mar 2017 N/A 2017 1 Mar 2017 N/A 2018 20 Feb 2018 N/A 2018 20 Feb 2018 N/A 2018 20 Feb 2018 N/A 2018 STI 20 Feb 2018 N/A 2018  Special 2018  Special 2018  Special 20 Feb 2018 N/A 20 Feb 2018 N/A 20 Feb 2018 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 1 2 3 1 2 3 1 2 3 1 1 2 3 EPS EPS EPS EPS EPS EPS EPS EPS EPS Completion  of Leapforce  acquisition EPS EPS EPS 10.0% End 2016 10.0% End 2017 10.0% End 2018 10.0% End 2017 10.0% End 2018 Yes Yes Yes Yes Yes Employed at  1 Jan 2019 Employed at  1 Jan 2019 1 Jan 2019 $1.41 1 Jan 2019 $1.41 Employed at  1 Jan 2019 Release of  2018 results $1.41 Employed at  1 Jan 2020 Employed at  1 Jan 2020 1 Jan 2020 $2.58 1 Jan 2020 $2.58 10.0% End 2019 Pending Employed at  1 Jan 2020 Release of  2019 results $2.58 10.0% End 2018 Yes Employed at  1 Jan 2021 1 Jan 2021 $8.15 10.0% End 2019 Pending 10.0% End 2020 Pending N/A Completion  date 20.0% End 2018 Yes Yes 20.0% End 2019 Pending Employed at  1 Jan 2021 1 Jan 2021 $8.15 Employed at  1 Jan 2021 Release of  2020 results $8.15 N/A 20 Feb 2018* $8.15 Employed at  1 Jan 2021 Employed at  1 Jan 2021 1 Jan 2021 $8.15 1 Jan 2021 $8.15 20.0% End 2020 Pending Employed at  1 Jan 2021 Release of  2020 results $8.15 * 1 2  The equity-settled performance rights for the successful completion of the Leapforce acquisition on 7 December 2017 were vested immediately on  grant date of 20 February 2018. Rights are automatically converted to shares on the vesting dates, assuming all the performance conditions of the plan and the employment condition  are met. Target achievement table: EPS Target Achieved 100% or more of EPS Target 90-99% of EPS Target* Less than 90% * At the board’s discretion. % Performance Rights Allocated 100% 50-80% Nil Appen Limited 2018 Annual ReportNotes to the Consolidated Financial Statements continued 81 39. Share-based payments (continued) The number of performance rights allocated to executives are: Plan 2016 2017 2018 2018 STI 2018 Special Total Options M Brayan No. K Levine No. T Sharkey No. 95,535  59,430  23,153  50,000  150,000  378,118 63,690  35,022  12,155  33,334  100,000  244,201 – – 8,518  – – 8,518 Subscription deeds The Options may be exercised for the exercise price specified on grant of the Option. The Options may only be exercised during  the designated exercise period for the relevant tranche of Options. The Options may be exercised by lodging the option certificate,  a signed exercise notice and an amount equal to the exercise price multiplied by the number of Options being exercised at the  Company’s registered office. On exercise, the holder will be issued one ordinary share for each Option exercised. The Options lapse automatically: – if the Subscriber ceases to be a full-time employee of the Company, subject to the discretion of the Board; or – at the end of the designated exercise period for the relevant tranche of Options. The Company may, with 5 days’ written notice, elect to purchase all of the Options held by the holder for the “option value”, being  the value of the shares that would be issued on exercise of the Options, less the relevant exercise price. Employee Share Option Plan  The Board may invite employees of the Group to participate in the Plan. The Options may be exercised for the exercise price specified in the relevant invitation. The Options may only be exercised during  a specified exercise period, after the vesting conditions and any other exercise conditions specified in the invitation have been  met. The Options may be exercised by delivering an exercise notice to the Company and paying the exercise price. On exercise, the  holder will be issued one ordinary share for each Option exercised. Each share acquired on exercise of an Option ranks equally in all  respects with all other Shares. All unvested Options lapse automatically if the holder ceases to be employed by the Company. Any vested Options lapse  automatically: – if the holder leaves the Company in circumstances which make them a “non-qualifying leaver” including termination for a  material breach of their employment agreement, non-performance, fraud, wilful or serious misconduct; or – on the earlier of the expiry date of the Options set out in the invitation and the fifth anniversary of the grant of the Options. In the event of a reconstruction of share capital prior to the exercise of the Options, the number of Shares to be issued on the  exercise of the Option and/or the exercise price must be reconstructed accordingly. A holder cannot dispose of their Options without the prior written consent of the Board. Appen Limited 2018 Annual Report82 Notes to the Consolidated Financial Statements continued 39. Share-based payments (continued) Set out below are summaries of Options granted under the plans: 31 Dec 2018 Grant date Expiry date 31/08/2013 01/03/2019 24/12/2014 01/03/2020 24/12/2014 01/03/2021 Exercise price $0.494  $0.500  $0.500  Balance at the start of the year 81,800  13,281  13,281  108,362 Granted Exercised Forfeited* – – – – (40,900) (13,281) (13,281) (67,462) – – – – Weighted average exercise price $0.495  $0.000 $0.496  $0.000 *  Options forfeited due to participants leaving Appen. All options above were granted under the terms of the Employee Share Option Plan. 31 Dec 2017 Grant date Expiry date 31/08/2013 01/03/2018 31/08/2013 01/03/2019 31/03/2014 01/03/2018 31/03/2014 01/03/2019 24/12/2014 01/03/2020 24/12/2014 01/03/2021 Exercise price Balance at the start of the year Granted Exercised Forfeited* $0.412  $0.494  $0.432  $0.489  $0.500  $0.500  81,800  81,800  20,450  20,450  119,531  438,281  762,312 – – – – – – – (81,800) – (20,450) (20,450) (106,250) (425,000) (653,950) – – – – – – – Balance at the end of the year 40,900  –  –  40,900 $0.494  Balance at the end of the year –  81,800  –  –  13,281  13,281  108,362 Weighted average exercise price $0.488  $0.000 $0.487  $0.000 $0.495  *  Options forfeited due to participants leaving Appen. Set out below are the options exercisable at the end of the financial year: Grant date Expiry date 31/08/2013 24/12/2014 24/12/2014 01/03/2019 01/03/2020 01/03/2021 31 Dec 2018 Number 31 Dec 2017 Number 40,900  – – 81,800  13,281  13,281  40,900 108,362 The weighted average share price during the financial year was $11.645 (2017: $4.872). The weighted average remaining contractual life of options outstanding at the end of the financial year was 0.17 years (2017: 1.54 years). 40. Events after the reporting period Apart from the dividend declared as disclosed in Note 24, no other matter or circumstance has arisen since 31 December 2018 that  has significantly affected, or may significantly affect the Group’s operations, the results of those operations, or the Group’s state of  affairs in future financial years. Appen Limited 2018 Annual ReportDirectors’ Declaration 83 In the directors’ opinion: – the attached financial statements and notes comply with the Corporations Act 2001, the Australian Accounting Standards, the  Corporations Regulations 2001 and other mandatory professional reporting requirements; – the attached financial statements and notes comply with International Financial Reporting Standards as issued by the  International Accounting Standards Board as described in Note 2 to the financial statements; – the attached financial statements and notes give a true and fair view of the Group’s financial position as at 31 December 2018  and of its performance for the financial year ended on that date; –  there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and  payable; and –  at the date of this declaration, there are reasonable grounds to believe that the members of the Extended Closed Group will  be able to meet any obligations or liabilities to which they are, or may become, subject by virtue of the deed of cross guarantee  described in Note 35 to the financial statements. The directors have been given the declarations required by section 295A of the Corporations Act 2001. Signed in accordance with a resolution of directors made pursuant to section 295(5)(a) of the Corporations Act 2001. On behalf of the directors Christopher Vonwiller Director 25 February 2019 Sydney Appen Limited 2018 Annual Report 84 Independent Auditor’s Report to the members of Appen Limited Appen Limited 2018 Annual ReportIndependent Auditor’s Report continued 85 Appen Limited 2018 Annual Report86 Independent Auditor’s Report continued Appen Limited 2018 Annual ReportIndependent Auditor’s Report continued 87 Auditor's responsibilities for the audit of the Financial Report Our objective is: • • to obtain reasonable assurance about whether the Financial Report as a whole is free from material misstatement, whether due to fraud or error; and to issue an Auditor's Report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error. They are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the Financial Report. A further description of our responsibilities for the audit of the Financial Report is located at the Auditing and Assurance Standards Board website at: http://www.auasb.qov.au/auditors responsibilities/ar1 .pdf. This description forms part of our Auditor's Report. Report on the Remuneration Report Opinion Directors' responsibilities In our opinion, the Remuneration Report of Appen Limited for the year ended 31 December 2018 complies with Section 300A of the Corporations Act 2001. The Directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with Section 300A of the Corporations Act 2001. Our responsibilities We have audited the Remuneration Report included in pages 14 to 25 of the Directors' report for the year ended 31 December 2018. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. KPMG Tony Nimac Partner Sydney 25 February 2019 83 Appen Limited 2018 Annual Report88 Shareholder Information 31 December 2018 Additional information required under ASX Listing Rule 4.10 and not shown elsewhere in this Annual Report is as follows. This  information is current as at 7 February 2019. Distribution of shareholders The distribution of issued capital is as follows: 100,001 and over 10,001 to 100,000 5,001 to 10,000 1,001 to 5,000 1 to 1,000 Total Distribution of optionholders The distribution of unquoted options on issue are as follows: 100,001 and over 10,001 to 100,000 5,001 to 10,000 1,001 to 5,000 1 to 1,000 Total Number of shareholders Ordinary shares % of issued capital % 34  408  670  4,545  8,352  14,009 78,623,683  9,332,637  4,697,297  10,572,509  3,373,521  106,599,647  73.76  8.75  4.41  9.92  3.16  100.00  Number of optionholders Unlisted options –  1 – – – 1 – 40,900  – – – 40,900  % of total options % – 100.00  – – – 100.00  The options on issue are unquoted and have been issued under an employee incentive scheme. Distribution of performance right holders The distribution of unquoted options on issue are as follows: 100,001 and over 10,001 to 100,000 5,001 to 10,000 1,001 to 5,000 1 to 1,000 Total Number of performance rights holders Unlisted performance rights % of total performance rights % 3 10  13 36  6  68  723,982  234,214  88,309  84,687  3,040  1,134,232  63.82  20.65  7.79  7.47  0.27  100.00  The performance rights on issue are unquoted and have been issued under an employee incentive scheme. Less than marketable parcels of ordinary shares There are 149 shareholders with unmarketable parcels totalling 584 shares. Appen Limited 2018 Annual ReportShareholder Information continued 89 Equity security holders Twenty largest quoted equity security holders The names of the twenty largest security holders of quoted equity securities are listed below: HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED J P MORGAN NOMINEES AUSTRALIA PTY LIMITED C & J VONWILLER PTY LIMITED CITICORP NOMINEES PTY LIMITED NATIONAL NOMINEES LIMITED BNP PARIBAS NOMINEES PTY LTD CITIBANK NA NATIONAL NOMINEES LIMITED DAREN JACKSON NEW GREENWICH PTY LTD BNP PARIBAS NOMS PTY LTD GINGA PTY LTD SIDMOUTH PTY LIMITED AMP LIFE LIMITED CITICORP NOMINEES PTY LIMITED NAMAL (L) LTD BNP PARIBAS NOMINEES PTY LTD HUB24 CUSTODIAL SERV LTD DRP BNP PARIBAS NOMINEES PTY LTD MR WILLIAM JOHN LAUKKA & MRS ELIZABETH ANNE LAUKKA HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED-GSCO ECA Total number of ordinary shares on issue Unquoted equity securities The Company had the following unquoted securities on issue as at 7 February 2019: Options over ordinary shares issued Performance rights over ordinary shares issued Ordinary shares Number held % of total shares issued 22,741,189  19,135,085  11,060,083  7,086,084  5,422,524  1,960,541  1,672,696  1,390,100  1,115,130  1,000,000  870,003  500,000  400,000  372,327  349,386  300,000  280,323  271,032  250,229  236,015  21.33  17.95  10.38  6.65  5.09  1.84  1.57  1.30  1.05  0.94  0.82  0.47  0.38  0.35  0.33  0.28  0.26  0.25  0.23  0.22  76,412,747 71.69 30,186,900 106,599,647 Number on issue Number of holders 40,900  1,134,232  1 68 Appen Limited 2018 Annual Report90 Shareholder Information continued Substantial Shareholders The names of the Substantial Shareholders listed in the Company’s Register as at 7 February 2019 as advised by notices lodged  with ASX: C & J Vonwiller Pty Limited Vinva Investment Management Restricted securities Class Ordinary shares, in respect of the Leapforce acquisition Ordinary shares Number held 11,060,083  5,393,221  % of total shares issued 10.38  5.06  Expiry date Number of shares 7 December 2019 1,115,130  7 December 2020 557,566  1,672,696 Voting rights In accordance with the Constitution each member present at a meeting whether in person, or by proxy, or by power of attorney,  or in a duly authorised representative in the case of a corporate member, shall have one vote on a show of hands, and one vote  for each fully paid ordinary share, on a poll. Options and performance rights have no voting rights. On-market buy-backs There is no current on-market buy-back in relation to the Company’s securities. Appen Limited 2018 Annual ReportCorporate Directory 91 Directors Christopher Charles Vonwiller – Chairman Mark Ronald Brayan – Managing Director and Chief Executive Officer Stephen John Hasker Robin Jane Low William Robert Pulver Deena Robyn Shiff Company secretary Carl Middlehurst (appointed 8 February 2019) Leanne Ralph (resigned 8 February 2019) Registered office Level 6 9 Help Street Chatswood NSW 2067 Tel: 02 9468 6300 Share register Link Market Services Limited Level 12 680 George Street Sydney NSW 2000 Telephone: 1300 554 474 Facsimile: (02) 9287 0303  Auditor KPMG Tower Three International Towers Sydney 300 Barangaroo Avenue Sydney NSW 2000 Stock exchange listing Appen Limited shares are listed on the  Australian Securities Exchange (ASX code: APX) Website www.appen.com Corporate Governance Statement https://appen.com/investors/corporate-governance/ Appen Limited 2018 Annual ReportLevel 6 9 Help Street Chatswood NSW 2067 Tel: 02 9468 6300 www.appen.com 

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