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ANNUAL REPORT 2015
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Contents
Our Story
Chairman
& CEO’s Report
Financial Report
01
02
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to brands
in every home
Our Story
Since 1996, Funtastic has been recognised as a pioneering manufacturer and distributor
– developing and sourcing the brightest and best products from around the world.
Famous for creating family fun, we remain passionately proud of being part of those
magic moments that last a lifetime. Today, Funtastic has the same family values, yet has
evolved into so much more. Building leading brands is our business.
Fostering a collaborative design-led culture, from our Melbourne HQ we drive global
innovation across the homewares, toy, sporting and consumable categories. Our sales
and marketing team in Australia, Hong Kong and the USA implement world-class
strategies to drive maximum brand awareness and sales, whilst our R&D and operations
team in China keep us way ahead of the curve in NPD and state-of-the-art manufacturing.
As a vertically integrated company, we have significant influence in over 50 of the world’s
most lucrative markets.
Funtastic
Annual
Report
2015
1
With sales of
11 million units in
over 50 countries,
we’re proud to say
our Chill Factor
brand is now a
global sensation.
Chairman &
Chairman &
CEO’s Report
On behalf of the
Board of Directors
of Funtastic Limited
we present to you
our 2015 Annual
Report.
The Period in Review
The twelve months ended 31 July
2015 was a particularly tough year
transforming the business following the
disposal of the Madman Entertainment
group of companies at the end of the
previous financial year.
The Board was expecting a return
to profit in the current financial year
however the challenges were far
greater than expected and the time
to implement changes was
underestimated. These included:
yy Re-alignment of the back office
infrastructure as a result of the sale
of the Madman Entertainment
group of companies.
yy Impact of the decline of the
Australian dollar on the margins
of our domestic business.
yy The high level of inventory in the
trade and distributors.
yy The continued high cost of doing
business with Australian retailers.
yy Limited depth of product range
limiting growth.
yy Timing to fully implement our own
distribution model in the US.
At the end of the first half of the year
the company re-assessed the carrying
value of the group using a value-in-use
methodology which resulted in an
impairment charge of $11,120,000.
Due to the current losses, tax
benefits previously brought to account
were required to be reversed. The
company currently has tax losses of
approximately $73,791,000 of which
$7,257,000 has been recognised, with
a deferred tax asset of $2,177,000
carried on the balance sheet. No
further impairment and tax adjustments
were considered necessary at the end
of the financial year.
Despite the losses incurred there has
been a number of achievements during
the financial year which has seen
a considerable improvement in the
second half of the year with a sound
foundation to return to profit in FY16.
2
Funtastic
Annual
Report
2015
New innovation
is what we do best
– introducing the
Zap Chef range of
microwave cooking.
These included:
yy Significant reduction of slow
moving and excess inventory
resulting in more than 50%
reduction in warehouse space.
yy Re-assessed and commenced
implementing key changes to
the corporate strategy.
yy Implemented improved product
cost and pricing controls.
yy Stabilised the business:
–
Implemented cost reduction
initiatives
– Made key organisational changes
– Enhanced our capabilities
– Focused on key drivers
of growth
– Re-aligned banking facilities
yy Strengthened our relationships
with key agency partners
yy Expanded into homewares and
health foods.
Paw Patrol is the
fastest growing
infant and preschool
property in the
Australian market
place.
y Continued to invest in product
yy Continued to invest in product
innovation:
innovation:
– Messi Foot Bubbles (worldwide)
– Fun Bites (worldwide)
– Zap Chef range of products
– Chill Factor line extensions
– Zorbz water balloons
yy Leveraged the Australian
distribution network securing new
innovative products including:
– Anylock
– Grill Daddy
– Pure Organic
The Group’s reported result under
IFRS was a disappointing loss after
tax of $37.5m. The Group’s Earnings
Before Interest, Depreciation and
Amortisation (EBITDA) from
continuing operations was a loss of
$6.6m (excluding the impairment
charge of $11.1m), compared to a loss
of $0.820m in the previous year.
3
Razor continues to lead the scooter
market globally, driven by unique
product and continued innovation.
Chairman &
CEO’s Report
continued
Outlook
The company is significantly more
stable than the previous financial
period, with enhanced internal
controls, sound cash management
principles, reduction in excess
inventories and appropriate short
term financing. The first quarter
has started positively and the Board
is confident that the company will
be profitable for the full 2016
financial year.
The company has re-defined its
core business and rightsized the
organisation for the future with
the appropriate focus on the
right products and markets. The
organisation has gone through some
structural changes appointing key
people in positions aligned to
4
the company’s long term strategy.
This resulted in increased employee
engagement with sound commitment
and capabilities supported by
appropriate incentive programs.
Key operational issues have been
addressed, resulting in improved sales
and marketing, continued innovation,
proper price structuring, and cost
reductions in the right parts of the
business supported by improved
information and control systems.
Winner of the
BEST OF TOY FAIR
in 2015 awarded by
Popular Science
Signing Messi is
the culmination of
the culmination of
months of planning
months of planning
and negotiation – it’s
and negotiation – it’s
an exciting chapter
an exciting chapter
for Funtastic and
for Funtastic and
we have now set
a high benchmark
a high benchmark
for the global
Toy industry.
The National Australian Bank has been
extremely supportive and understand
the magnitude of the changes that were
required to support the turnaround
strategy. The bank facilities have been
restructured, enabling the business
to operate in an efficient and
effective manner.
The company has a strong line-up of
new and innovative products enabling
the company to effectively leverage
its cost base. Trade and distributor
inventory are at normal levels that will
ensure a more solid performance.
The Directors would like to thank all
of our staff, shareholders, bankers,
suppliers, key agency partners and
customers for their ongoing loyalty
and support.
Shane Tanner
Chairman
of the Board
Nir Pizmony
Managing Director and
Chief Executive Officer
Funtastic
Annual
Report
2015
5
Contents
Company Information
Corporate Governance Statement
Directors’ Report
Remuneration Report (Audited)
Auditor’s Independence Declaration
Independent Auditor’s Report
Directors’ Declaration
Consolidated Statement of Profit or Loss and
other Comprehensive Income
Consolidated Statement of Financial Position
Statement of Changes in Equity
Consolidated Statement of Cash Flows
Notes to the Financial Statements
Note 1:
Significant accounting policies
Note 2: Application of new and revised
Accounting Standards
Note 3: Critical accounting judgments and key sources
of estimation uncertainty
Note 4:
Segment information
Note 5: Discontinued operations
Note 6: Revenue
Note 7: Profit for the year
Note 8:
Income tax
Note 9:
Finance costs
Note 10: Current assets – Trade and other receivables
Note 11: Current assets – Inventories
Note 12: Other assets
Note 13: Other financial assets
Note 14: Non-current assets – Plant and equipment
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Note 15: Non-current assets – Goodwill
Note 16: Non-current assets – Other intangibles
Note 17: Assets pledged as security
Note 18: Current Liabilities – Trade payables
Note 19: Borrowings
Note 20: Provisions
Note 21: Other Liabilities
Note 22: Other financial liabilities
Note 23: Leasing arrangements
Note 24:
Issued Capital
Note 25: Accumulated losses
Note 26: Reserves
Note 27: Earnings per share
Note 28: Dividends on equity instruments
Note 29: License guarantee commitments
Note 30: Operating Leases
Note 31: Subsidiaries
Note 32: Notes to the cash flow statements
Note 33: Financial Instruments
Note 34: Share-based payments
Note 35: Key management personnel compensation
Note 36: Related party transactions
Note 37: Remuneration of Auditors
Note 38: Parent entity disclosures
Note 39: Subsequent Events
Note 40: Contingent Liabilities and Assets
Note 41: General Information
Additional stock exchange information
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6
Company Information
Directors
Shane Tanner
Chairman and Independent Non-Executive Director
Nir Pizmony
Managing Director and Chief Executive Officer (appointed CEO on 1 August 2014)
Craig Mathieson
Non-Executive Director (resigned 26 May 2015)
Stephen Heath
Independent Non-Executive Director
Linda Norquay
Independent Non-Executive Director
Grant Mackenzie
Executive Director (appointed 6 August 2014)
Company Secretary
Grant Mackenzie
Registered Office
Level 2 Tower 2 Chadstone Place
1341 Dandenong Road Chadstone Vic 3148
Principal Administrative Office
Level 2 Tower 2 Chadstone Place
1341 Dandenong Road Chadstone Vic 3148
Share Registry
Boardroom Limited
Grosvenor Place, Level 12, 225 George Street
Sydney NSW 2000
Auditors
Deloitte Touche Tohmatsu
550 Bourke Street
Melbourne Vic 3000
Bankers
National Australia Bank
500 Bourke Street
Melbourne Vic 3000
Solicitors
Clarendon Lawyers
Level 19, 333 Collins Street
Melbourne VIC 3000
7
Funtastic Annual Report 2015 Corporate Governance Statement
The Corporate Governance principles that guide the operations of Funtastic Limited (“Funtastic” or “Company”) are detailed in this
statement. Funtastic respects and endorses the ASX Corporate Governance Council’s Principles and Recommendations. The Board
believes that it has been compliant with the spirit of the ASX Corporate Governance Council’s principles and recommendations
throughout the 2015 financial year.
The ASX principles that have been adopted are outlined below. Where an alternative approach has been adopted, this is outlined within
the relevant section. All these practices unless otherwise stated, were in place for the entire year.
Principle 1: Lay solid foundations for management and oversight
Role and Responsibility of the Board
The Board of Directors is elected by the shareholders to represent the interests of all shareholders, collectively, and in this regard,
its primary purpose is to safeguard the financial security of Funtastic.
Although responsibility for the operation of the Funtastic business is delegated to management, the Board remains responsible for,
amongst other things:
yy establishing, monitoring and modifying Funtastic’s corporate strategies;
yy ensuring best practice corporate governance;
yy appointing the Chief Executive Officer and approving succession plans;
yy monitoring the performance of Funtastic’s management;
yy ensuring that appropriate risk management systems, internal control and reporting systems and compliance frameworks are in place
and are operating effectively;
yy monitoring financial results;
yy ensuring that business is conducted ethically and transparently;
yy approving decisions concerning Funtastic’s capital, including capital restructures and dividend policy; and
yy ensuring effective external disclosure policies so that the market is fully informed on all matters that may influence the share price.
Board members have complete and open access to management.
The Company has a written agreement with each Director and Senior Executive setting out the terms of their agreement.
The Company Secretary provides advice and support to the Board and is responsible for the Company’s day to day governance
framework.
The Chairman on behalf of the Board undertakes a review of the Managing Director’s performance at least on an annual basis.
Objectives are set and aligned to the overall business goals and the Company’s requirement of the position.
The performance of senior management is evaluated by the Managing Director through formal performance reviews undertaken on an
annual basis. The individual performance of each Senior Executive is reviewed against goals set in the previous year and new objectives are
established for the following financial year.
Diversity
Funtastic is an equal opportunity employer and makes its recruitment decisions based on the best person for the role with no
discrimination on the grounds of gender or any other factor. The company is committed to being a business which is an appealing and
rewarding place to work for men and women.
Funtastic has established a Diversity Policy which is published on the company’s website. As at 31 July 2015 the group’s mix of employees
was as follows:
General employees
Middle managers
Senior managers
Board
Total
8
Female
Male
Total
45
15
5
1
66
18
11
17
4
50
63
26
22
5
116
Principle 1: Lay solid foundations for management and oversight continued
Diversity continued
Funtastic has elected not to establish targets with regard to gender mix within its workforce on the grounds that, as a small business such
targets could place unreasonable restrictions on the company’s ability to operate effectively.
Director competencies
The Board plans annual self-assessments of its collective performance, and its subcommittees. This exercise takes into consideration the
collective Directors’ competency, skills, experience and expertise. Where necessary, Funtastic will provide the required resources to assist
Directors in improving their performance.
New Directors are provided with a letter of appointment setting out the Company’s expectations, their responsibilities, rights and the
terms and conditions of their appointment. All new Directors participate in an induction program which covers the operation of the Board
and its committees and financial, strategic, operations and risk management issues.
Principle 2: Structure of the board to add value
Nomination Committee
The current members of the Nomination Committee are Mr Shane Tanner (Chairman), Ms Linda Norquay and Mr Stephen Heath.
The role of the Nomination Committee is to assist the Board in ensuring that the Board is comprised of individuals who are best able to
discharge the responsibilities of a Director, having regard to the law and the highest standards of governance, by:
yy assessing the skills, knowledge, experience and diversity required on the Board and the extent to which they are represented;
yy establishing processes for the identification of suitable candidates for appointment to the Board; and
yy overseeing succession planning for the Board.
The principal purposes of the Committee are to:
yy establish a formal and transparent procedure for the selection and appointment of new Directors to the Board;
yy regularly review the succession plans in place for membership of the Board to ensure that an appropriate balance of skills, experience
and expertise is maintained;
yy review the time commitment required from a Non-executive Director and whether Non-executive Directors are meeting this
requirement; and
yy take all reasonable steps to ensure that all individuals nominated for appointment to the Board as a Non-executive Director, expressly
acknowledge prior to their election that they are able to fulfil the responsibilities and duties expected of them.
The committee seeks advice and guidance, as appropriate, from external experts.
Board Membership
The members of the Board and details regarding their appointment, removal, term of office, attendance at Board meetings and other
committee meetings, skills and experience are detailed in the Directors’ Report. The Board composition is determined using the following
principles:
yy the Board should comprise between 3 and 9 Directors;
yy the maximum age for Directors is 72;
yy the Board should comprise Directors with a broad range of skills and experience; and
yy the term of any appointment is subject to continuing shareholder approval.
The Directors believe that limits on tenure may cause loss of experience and expertise that are important contributors to the efficient
working of the Board. As a consequence, the Board does not support arbitrary limits on tenure and regards nominations for re-election as
not being automatic but based on the needs of Funtastic. The constitution sets out the rules to which Funtastic must adhere to and which
include rules as to the nomination, appointment and re-election of Directors. The constitution provides for two of the Directors to retire
and stand for re-election each year at the Annual General Meeting. Directors appointed during the year by the Board stand for re-election
at the next Annual General Meeting.
At the commencement of the financial year, the Board comprised of four Non-executive Directors and two Executive Directors (the Chief
Executive Officer and the Chief Finance Officer/Chief Operating Officer). This was reduced to three Non-executive Directors following
the resignation of Mr Craig Mathieson during the financial year. The details of each Director’s qualifications, experience and skills are set
out on pages 15 and 16 of the Annual Report.
9
Funtastic Annual Report 2015 Corporate Governance Statement
continued
Principle 2: Structure of the board to add value continued
Board and Director Independence
The Board has assessed the criteria for independence as outlined in the ASX Corporate Governance Council’s best practice
recommendation 2.1. Independent Directors of Funtastic are those not involved in the day to day management of the company and are
free from any real or reasonably perceived business or other relationship that could materially interfere with the exercise of their
unfettered and independent judgement.
Currently, three of the five Directors are considered to be independent. It is the Board’s view that Mr Shane Tanner, Ms Linda Norquay
and Mr Stephen Heath are independent Directors.
Mr Nir Pizmony and Mr Grant Mackenzie are Executive Directors and are deemed not to be independent Directors.
Regardless of whether Directors are defined as independent, all Directors are expected to bring independent views and judgement to
Board deliberations.
The Board strongly believes that the degree of commitment, depth of experience and independence of thought present in the current
structure is appropriate and will best serve the company and all its shareholders at this stage of its development. The Board periodically
assesses the independence of each Director.
Funtastic operates in an entrepreneurial environment and requires, and benefits from, the passionate involvement of Directors who have
been either instrumental in the business, and or who have specialised knowledge of, and expertise in, this business sector.
The chairman of the Board is a Non-executive Director and is elected by the Board. The chairman is responsible for the management
of the affairs of the Board and represents the Board in periods between Board meetings.
Work of Directors
Materials for Board meetings are circulated in advance. The agenda is formulated with input from the Chief Executive Officer and the
Chairman. Directors are free to nominate matters for inclusion on the agenda for any Board or Board committee meeting.
The Board is provided with reports from management on the financial performance of the business. The reports include details of all key
financial results reported against budgets approved by the Board, with regular updates on forecasts for the year. The Chief Executive
Officer and Chief Financial Officer attest to the integrity of the financial reports provided to the Board each meeting. Similarly, the written
statement provided to the Board, in relation to Funtastic’s full year accounts states that Funtastic’s financial reports present a true and fair
view, in all material respects. Further, it confirms that Funtastic’s financial condition and operational results are in accordance with relevant
accounting standards.
Non-executive Directors spend approximately thirty days each year on Board business and activities including Board and committee
meetings, visits to operations and meeting employees, customers, business associates and other stakeholders.
The Chairman regularly meets with the Chief Executive Officer to review key issues and performance trends affecting the business
of Funtastic.
Conflict of Interest
In accordance with the Corporations Act 2001 and Funtastic’s Constitution, Directors must keep the Board advised on an ongoing basis, of
any interest that could potentially conflict with those of Funtastic. Where the Board believes that a significant conflict exists, the Director
concerned does not receive the relevant Board papers and is not present at the meeting while the item is being considered.
Independent Professional Advice
Each Director has the right to seek independent professional advice at the expense of Funtastic. Prior written approval of the chairman
is required, which will not be unreasonably withheld. All Directors are made aware of the professional advice sought and obtained.
Principle 3: Act ethically and responsibly
Ethical Standards
All Directors, officers and employees are expected to perform their duties professionally and act with the utmost integrity and objectivity,
striving at all times to enhance the reputation and performance of Funtastic and its brands. The Board oversees the identification and
implementation of procedures and development of policies in respect of the maintenance of appropriate ethical standards. Funtastic has
a Code of Conduct, which sets out the standards as to how Directors and employees of Funtastic are expected to act. Employees are
required to read the updated Employee Code of Conduct in the performance of their duties and to sign an acknowledgement stating
that they have read and understood this document.
10
Principle 3: Act ethically and responsibly continued
Ethical Compliance
Funtastic uses its best endeavours through contract negotiations to ensure that all its products are manufactured in accordance with local
and internationally accepted labour, environmental and employment laws. Funtastic is working to ensure that manufacturing occurs under
working conditions that meet legal standards and without the use of child, forced or prison labour.
Dealings in Funtastic shares by Directors, Officers and Employees
The Board permits Directors to acquire shares in Funtastic. It is recommended that all employees do not buy or sell shares in the company
at any time they are aware of any material price sensitive information that has not been made public, and are reminded of the laws against
“insider trading”.
Certain “Designated Officers”, including all Directors and Senior Executives, are also prohibited from trading during certain “blackout”
periods. These blackout periods are:
(a) From the close of the accounts (on 31 January each year) to 2 business days after the publication to the ASX of the half-year financial
results; i.e. the Appendix 4D (a 2-business day blackout period would apply from the publication to the ASX of the final half-year
financial report in the event that they were materially different from the Appendix 4D results);
(b) From the close of the accounts (on 31 July each year) to 2 business days after the publication to the ASX of the full-year financial
results; i.e. the Appendix 4E (a 2-business day blackout period would apply from the publication to the ASX of the final full-year
financial report in the event that they were materially different from the Appendix 4E results); and
(c) Forty eight hours after the public release of any market guidance update.
Exceptions to this prohibition can be approved by the Chairman (for other Directors) or the Company Secretary (for all other employees)
in circumstances of financial hardship. Prohibitions also apply to financial instruments related to Funtastic shares and to trading in the
shares of other entities using information obtained through employment with Funtastic.
In accordance with provisions of the Corporations Act 2001 and the Listing Rules of the Australian Stock Exchange (ASX), Directors or their
related entities advise the ASX of any transaction conducted by them in buying or selling any shares in Funtastic.
Principle 4: Safeguard integrity in corporate reporting
Audit, Risk and Compliance Committee
Funtastic has noted the ASX Corporate Governance Council’s best practice recommendation that listed companies have an independent
Director as Chairman of the Audit, Risk and Compliance Committee. This Committee is comprised of three Non-executive Directors.
Ms Linda Norquay is the chairman of the committee, following the resignation of Mr Craig Mathieson. The Board considers that three
independent Directors on the committee are sufficient for the independence of the committee.
Audit, Risk and Compliance Committee Charter and Responsibilities
The Committee’s key responsibilities and functions are to:
yy monitor the company’s relationship with the external auditor (including the rotation of external auditor personnel on a regular basis)
and the external audit function generally;
yy oversee the adequacy of internal control systems in relation to the preparation of financial statements and reports; and
yy oversee the process of identification and management of business, financial and commercial risks.
Meetings of the Audit, Risk and Compliance Committee
The Audit, Risk and Compliance Committee may have in attendance or by invitation such members of management or others as it may
deem necessary to provide appropriate information or explanations.
The Audit, Risk and Compliance Committee meet at least three times per year and more frequently if required. The External Auditor
attends Audit, Risk and Compliance Committee meetings when requested by the Audit, Risk and Compliance Committee Chairman.
Reporting by the Audit, Risk and Compliance Committee
The Chairman of the Audit, Risk and Compliance Committee ordinarily reports to the full Board after committee meetings. The Audit,
Risk and Compliance Committee reports matters regarding its role and responsibilities, including:
yy the system of internal control, which management has established to safeguard the company’s assets;
yy processes are in place such that accounting records are properly maintained in accordance with statutory requirements; and
yy processes exist to reasonably guarantee that financial information provided to investors and the Board is reliable and free of
material misstatement.
11
Funtastic Annual Report 2015 Corporate Governance Statement
continued
Principle 4: Safeguard integrity in corporate reporting continued
Reporting by the Audit, Risk and Compliance Committee continued
The following are intended to form part of the normal procedures for the Committee’s audit responsibility:
yy recommending to the Board the appointment and removal of the external auditors and reviewing the terms of engagement;
yy approving the audit plan of the internal and external auditors;
yy monitoring the effectiveness and independence of the external auditor; obtaining assurances that the audit is conducted in accordance
with the Auditing Standards and all other relevant accounting policies and standards;
yy providing recommendations to the Board as to the need for and the role of an internal audit function;
yy reviewing and appraising the quality of audits conducted by the internal and external auditors and confirming their respective authority
and responsibilities;
yy monitoring the relationship between management and the external auditors;
yy determining the adequacy, effectiveness, reliability, and appropriateness of administrative, operating and internal control systems
and policies;
yy evaluating compliance with approved policies, controls, and with applicable accounting standards and other requirements relating
to the preparation and presentation of financial results;
yy overseeing financial reporting and disclosure practice and the resultant information; and
yy reviewing (in consultation with management and external auditors) the appropriateness of the accounting principles adopted
by management in the composition and presentation of financial reports and approving all significant accounting policy changes.
yy evaluating the structure and adequacy of business continuity plans;
yy determine the appropriateness of insurances on an annual basis;
yy reviewing and making recommendations on the strategic direction, objectives and effectiveness of financial and operational risk
management policies;
yy overseeing the establishment and maintenance of processes to ensure that there is:
– an adequate system of internal control, management of business risks and safeguard of assets; and
– a review of internal control systems and the operational effectiveness of the policies and procedures related to risk and control.
yy evaluating exposure to fraud and monitoring investigations of allegations of fraud or malfeasance;
yy reviewing corporate governance practices for completeness and accuracy;
yy determining the adequacy and effectiveness of legal compliance systems; and
yy providing recommendations as to the reporting of and propriety of related party transactions.
Management Certification Process
A management certification process operates across the business. The process serves the following purposes:
yy provide assurance to the Board to support their approval of the annual financial reports;
yy formalise the process by which the executive team sign-off on those areas of risk responsibility delegated to them by the Board; and
yy ensure a true and fair view of Funtastic’s financial statements.
The key steps in the certification process are as follows:
yy completion of a questionnaire by key management covering information that is critical to the financial statements, risk management
and internal controls; and
yy review by the Audit, Risk and Compliance Committee of all exceptions and management comments.
Certification by the Chief Executive Officer and Chief Financial Officer to the Board that:
yy the financial statements provide a true and fair view, in all material respects of Funtastic’s financial condition and operating results;
yy the financial statements provide a sound system of risk management and internal compliance and control;
yy there is compliance with relevant laws and regulations;
yy Funtastic’s risk management, internal compliance and control systems are operating efficiently and effectively in all material respects; and
yy all material business risks have been identified and communicated to the Board.
The external auditor attends the AGM and is available to answer questions from security holders relevant to the audit.
12
Principle 5: Make timely and balanced disclosure
Communication and disclosure
The company complies with all relevant disclosure laws and Listing Rules prescribed by the ASX and has policies and procedures designed
to ensure accountability at a senior management level for that compliance.
The Company Secretary is accountable to the Board, through the Chairman, on compliance and governance matters.
Funtastic is committed to effective communication with its investors so as to give them ready access to balanced and
understandable information.
Principle 6: Respect the rights of security holders
The company maintains a corporate website which provides information freely and readily to current and potential security holders.
The company actively engages with security holders as well as meeting with security holders upon request and responds to enquiries
from time to time.
The company provides the option for security holders to receive communications from, and send communications to, the entity and
its security registry electronically.
Principle 7: Recognise and manage risk
Recognising and managing risk
The responsibility for risk management and oversight is coordinated through the Audit, Risk and Compliance Committee, in conjunction
with management. The committee’s specific function with respect to risk management is to review and report to the Board that:
yy the company’s ongoing risk management program effectively identifies areas of potential risk;
yy adequate policies and procedures are designed and implemented to manage identified risks; and
yy appropriate remedial action is undertaken to redress areas of weakness.
The following are intended to form part of the normal procedures for the Committee’s risk responsibility:
yy determine the adequacy and effectiveness of the management reporting and systems used to monitor adherence to policies and
guidelines and limits approved by the Board for management of financial risks;
yy determine the adequacy and effectiveness of financial and operational risk management systems by reviewing risk registers and reports
from management and external auditors;
Internal Audit Function
The internal audit function is absorbed within the head office finance function. The finance function is able to conduct internal control
reviews and assessments as and when required by the Audit, Risk and Compliance Committee. The Board received and reviewed the
minutes of the meetings of all Board committees including the Audit, Risk and Compliance Committee.
Principle 8: Remunerate fairly and responsibly
Remuneration and Evaluation Committee
The members of the Remuneration and Evaluation Committee are Mr Stephen Heath (Chairman), Shane Tanner and Ms Linda Norquay.
The Remuneration and Evaluation Committee is appointed by the Board primarily to monitor, review, assess, recommend and approve:
yy remuneration policies and practices which will serve to attract and retain Executives and Directors who will create value for
shareholders. These policies and practices should fairly and responsibly reward Executives and Directors, having regard to the
performance of the Company, the performance of the individual, and the general remuneration environment;
yy succession planning for Senior Executives who report directly to the Chief Executive Officer;
yy the remuneration, superannuation and incentive policies for Senior Executives who report directly to the Chief Executive Officer; and
yy all equity and cash-based remuneration plans.
The Remuneration and Evaluation Committee provides additional support for the human resources strategy of Funtastic. It assists the
Board by ensuring that the appropriate people, people related strategies, policies and procedures are in place to support Funtastic’s vision
and values and its strategic and financial goals.
13
Funtastic Annual Report 2015 Corporate Governance Statement
continued
Principle 8: Remunerate fairly and responsibly continued
Remuneration and Evaluation Committee Charter and Responsibilities
The committee is responsible for monitoring, reviewing, reporting and recommending to the Board with respect to each of the following:
yy the company’s policy for determining Executive and Non-executive Directors’ remuneration, superannuation, and incentives as well
as any retention or other compensation payments, and any proposed amendments to the policy;
yy remuneration includes base pay, incentive payments, equity awards, retirement rights and service contracts;
yy the implementation of the remuneration policy;
yy the proposed specific remuneration for each Non-executive and Executive Director, including the Chief Executive Officer, having
regard to independent advice and the remuneration policy. The committee will need to determine whether any shareholder approvals
are required. The remuneration of individual Non-executive Directors will ultimately be determined by the Board and approved in
aggregate by the shareholders in accordance with the Corporations Act 2001 and the ASX Listing Rules;
yy the proposed specific remuneration and other benefits for the direct reports of the Chief Executive Officer and the design of all
incentive plans, including performance hurdles; and
yy the total proposed payments from any Executive incentive plan.
The committee seeks advice and guidance, from external experts, as appropriate.
The review of the performance of the Chief Executive Officer is undertaken by the Remuneration and Evaluation Committee, which
recommends to the Board any remuneration adjustment or incentive payment.
The review of the performance of senior management is undertaken by the Chief Executive Officer who provides a recommendation
to the Remuneration and Evaluation Committee on any remuneration adjustments or incentive payments. The committee provides its
recommendation to the Board for approval.
Remuneration Policy
Funtastic’s remuneration policies and practices in relation to Directors and senior management are disclosed in the remuneration report
contained in the Directors’ Report.
Remuneration Disclosure
The Remuneration Report contained in the Directors’ Report discloses the Directors’, Non-executive Directors’ and key management
personnel’s remuneration, benefits, incentives and allowances where relevant.
14
Directors’ Report
Funtastic
Annual
Report
2015
Directors
Your Directors present their report on the Group consisting of Funtastic Limited and the entities it controlled at the end of, or during,
the year ended 31 July 2015.
The following persons were Directors of Funtastic Limited during or since the end of the financial year:
Shane Tanner
FCPA, ACIS
Chairman and Independent
Non-Executive Director
Appointed to the Board in March 2009
as an Independent Non-Executive
Director and appointed as Chairman of
the Board effective from the AGM on
21 May 2010. Mr Tanner is Chairman of
the Nomination Committee and a member
of the Remuneration and Evaluation
Committee and the Audit, Risk and
Compliance Committee.
Mr Tanner is Chairman of Vision Eye
Institute Ltd and Paragon Care Ltd.
He is a former CEO of Mayne Nickless
Diagnostic Services and Director of
Sterihealth Ltd. Mr Tanner has vast
commercial and financial experience.
Nir Pizmony
Managing Director and
Chief Executive Officer
Appointed to the Board in August 2009 as
an Executive Director. He was appointed
as Managing Director & Chief Executive
Officer on 1 August 2014. Mr Pizmony has
over twenty-five years experience in
consumer products. He has founded,
developed and subsequently sold two
successful toy companies. Mr Pizmony’s
knowledge and reputation in the toy
industry is well proven both in
Australia and globally.
Craig Mathieson
(resigned 26 May 2015)
B.Bus
Non-Executive Director
Appointed to the Board in August 2009 as
a Non-Executive Director. Mr Mathieson
was Chairman of the Audit, Risk and
Compliance Committee, a member of the
Remuneration and Evaluation Committee
and of the Nomination Committee.
Mr Mathieson is CEO of The Mathieson
Group. He was Managing Director of DMS
Glass from 2001 to 2007. He has a banking
and commercial background gained while
working with the Business Banking division
of ANZ Bank and the Property Finance
division of St George Bank.
15
Directors’ Report
continued
Directors continued
Stephen Heath
Independent Non-Executive Director
Appointed to the Board in October 2010
as an Independent Non-Executive
Director. Mr Heath is a member of the
Audit, Risk and Compliance Committee,
the Nomination Committee and
Chairman of the Remuneration
and Evaluation Committee.
Mr Heath has extensive retail
experience comprising 18 years across
iconic Australian retail brands including
Harvey Norman, Rebel Sport, and
Godfreys. Mr Heath is currently Managing
Director & CEO of Fantastic Holdings
Limited. Previous to his current
appointment Stephen was Managing
Director of International Cleaning
Solutions Holdings. Mr Heath was CEO of
Rebel Sport during its public listing on the
ASX. He also spent 5 years with Sharp
Corporation managing the retail accounts
of major retailers such as Harvey Norman,
Myer, David Jones and Kmart.
Linda Norquay
B.Com, CA, GAICD
Independent Non-Executive Director
Appointed to the Board in September
2011 as an Independent Non-Executive
Director. Ms Norquay is a member of the
Audit, Risk and Compliance Committee
(appointed Chairman on 29 July 2015),
the Nomination Committee and the
Remuneration and Evaluation Committee.
Ms Norquay is currently Chief Financial
Officer at Illyria Pty. Ltd. Ms Norquay
brings a wealth of financial and strategic
experience to Funtastic Limited and has
previously held senior financial and
management roles at Allco Finance
Group, Macquarie Bank Limited and
Barclays Bank Plc in London.
Grant Mackenzie
(Appointed 6 August 2014)
B.Acc, CA, MBA, GAICD
Executive Director
Appointed to the Board as Executive
Director and to the position of Chief
Operating Officer in August 2014.
Mr Mackenzie is also the Chief Financial
Officer & Company Secretary of
the Company.
Mr Mackenzie has over 20 years
experience in various senior executive
roles with significant experience in brand
management. His most recent role prior to
joining Funtastic was Finance Director for
Brown-Forman Australia. Grant brings
with him a successful record of
international, strategic and commercial
management such that he is considered
a key asset to the Group in executing its
long term geographical expansion of its
own brands.
Directorships of other listed companies
Directorships of other listed companies held by Directors in the 3 years immediately before the end of the financial period are as follows:
Director
Shane Tanner
Company
Vision Eye Institute Ltd
Paragon Care Limited
Stephen Heath
Fantastic Holdings Limited
Period
2004 to current
2005 to current
2013 to current
Company Secretary
Mr Mackenzie was appointed to the position of Company Secretary on 1 November 2013.
16
Principal activities
The Group’s principal continuing activity during the period was as a brand builder and distributor of toys, sporting, confectionery and
homeware products, operating globally.
Subsequent events
Since the end of the financial period, the company, with the support of the National Australia Bank has amended its banking facilities and
extended the maturity of these facilities out to 31 December 2016. The revised facilities and new covenants that have been established are
more aligned with the revised outlook of the business.
There has not been any other matter or circumstances occurring subsequent to the end of the financial year that has significantly affected,
or may significantly affect, the operations of the Group, the results of those operations or the state of affairs of the Group in future
financial years.
Environmental regulations
The Group is not required to hold any Environmental Protection Authority Licences.
Review operations
Key strategic achievements:
yy Re-assessed and commenced implementing key changes to the corporate strategy:
– Continued development of our own brands
– Continued to develop our global distribution network
– Expanded into homewares and health foods
Key operating achievements:
yy Significant reduction of slow moving and excess inventory resulting in a 50% reduction in warehouse space.
yy Implemented improved product cost and pricing controls.
yy Stabilised the business:
–
Implemented cost reduction initiatives
– Made key organisational changes
– Enhanced our capabilities
– Focus on key drivers of growth
– Re-aligned banking facilities
yy Strengthened our relationships with key agency partners
yy Continued to invest in product innovation:
– Messi Foot Bubbles
– Zap Chef Range of products
– Chill Factor line extensions
– Zorbz water balloons
yy Leveraged the Australian distribution network securing new innovative products including:
– Anylock
– Grill Daddy
– Pure Organic
Key financial results continuing operations:
yy NPAT loss of $33.9m.
yy EBITDA loss of $6.6m (excluding impairment charge recognised in the period of $11.1m).
yy Finance costs fell by 27% to $3m due to a reduction in the underlying interest rate aligned with adjusted facilities better structured
to the company’s business needs.
yy Borrowings increased by $5.8m.
17
Funtastic Annual Report 2015 Directors’ Report
continued
Key Financials (Continuing Activities)
AUD’m
Revenue
EBITDA
PBT
NPAT
Basic EPS (cents)
Dividend per share (cents)
ROE(i)
Net Debt ($m)
Gearing(ii)
(i) NPAT/average shareholder equity;
(ii) Net debt/shareholder equity;
FY15
105.9
(17.7)
(24.2)
(33.9)
(5.08)
N/A
(17.3%)
41.5
138%
FY14
124.6
(0.8)
(9.3)
(10.0)
(1.51)
N/A
(2.9%)
31.7
47%
% Change
16%
2061%
160%
238%
236%
N/A
490%
31%
195%
Outlook
Funtastic has developed a solid foundation that will enable it to continue to create, develop and market innovative brands that enrich
lifestyles around the world, whilst delivering improved returns to our shareholders. The company has broadened its categories we
operative to include homewares and health food products whilst continuing in toys, sporting and confectionery categories.
The benefits of the initiatives that have been implemented in FY15 will have a positive impact in FY16. These include:
yy The continued expansion of our own products.
yy Increased product portfolio of agency brands.
yy Ongoing benefits derived from cost savings initiatives structural organisational and key people changes
yy Improved margins with a better mix of new products, own products, clearance sales and channel
Through our own and key agency brands we continue to enhance our manufacturing and innovation capabilities, global distribution
networks, brand building capabilities and domestic distribution expertise that will enable us to strengthen a well-balanced diversified
portfolio of key brands.
Dividends
In respect of the financial year ended 31 July 2015, no dividends have been declared or paid.
Rounding of amounts to nearest thousand dollars
The Company is of a kind referred to in Class Order 98/0100, issued by the Australian Securities & Investments Commission, relating to
the ‘rounding off’ of amounts in the Directors’ Report. Amounts in the Directors’ Report and Financial Statements have been rounded off
in accordance with that Class Order to the nearest thousand dollars, or in certain cases, to the nearest dollar.
18
Share Options
Options granted to Directors and Executives of the Company
During or since the end of the financial year, the Company granted options under the Employee Share Loan Scheme (ESLS) over unissued
ordinary shares in the Company to the following Directors and Executives, as part of their remuneration:
Directors and Executives
Directors
N. Pizmony
G. Mackenzie
Executives
P.S. Lopez
Number of options
granted during
the year
Number of ordinary
shares under option
12,000,000
1,500,000
12,000,000
1,800,000
3,600,000
4,800,000
(i) The ESLS is treated in substance as an option for accounting purposes and is therefore disclosed as share options in the Directors’ Report, Remuneration Report and in the
Notes to the financial statements. Further details on the ESLS are set out in Note 34 of the financial statements.
Unissued shares under option
At the date of this report, unissued shares of the Company under option are:
(a) Employee share loan scheme (ESLS)
Tranche
Tranche 1
Grant date
Number of
shares
Exercise price
Exercise date
Vesting date
Expiry date
8 July 2013
600,000
$0.1599
1 January 2016
1 January 2016
Tranche 2
27 January 2014
1,500,000
$0.1660
27 January 2017
27 January 2017
Tranche 3a(i)
31 July 2015
13,500,000
$0.0244
31 July 2015
31 July 2015
Tranche 3b
31 July 2015
3,600,000
$0.0244
31 July 2018
31 July 2017
(i) There are no vesting conditions attached to Tranche 3a options. Option issued vested at the grant date.
19,200,000
N/A
N/A
N/A
N/A
Of the 2,400,000 options granted on 8 July 2013, 1,800,000 had been forfeited due to resignations of employment. Of the 2,200,000
options were granted on 27 January 2014, 700,000 had been forfeited due to resignations of employment. None of these forfeited shares
had been exercised and they had a nil value at the forfeited dates.
(b) Unissued options
On 23 December 2013, unlisted options of 6,333,333 were issued to Mr Nir Pizmony with shareholder approval as an incentive
component of Mr Nir Pizmony’s remuneration package. On 10 August 2014, 1,333,333 vested options expired and on 31 December
2014 the remaining 5,000,000 vested options expired.
Indemnity of Officers and Auditors
During the financial year the Company paid a premium in respect of a contract insuring the Directors of Funtastic Limited and all Executive
Officers of the Company and of any related body corporate against a liability incurred as such Director, secretary or Executive Officer to
the extent permitted by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of the liability and the
amount of the premium.
The Company has not otherwise, during or since the end of the financial year, except to the extent permitted by law indemnified or agreed
to indemnify an officer or auditor of the Company or of any related body corporate against a liability incurred by such an officer or auditor.
19
Funtastic Annual Report 2015 Directors’ Report
continued
Meetings of Directors
The number of meetings of the Company’s Directors held during the year ended 31 July 2015 and the number of meetings attended by
each Director were:
Remuneration Committee
Board of Directors
Audit, Risk and
Compliance Committee
A
1
1
*
1
1
*
B
1
1
*
1
1
*
A
15
10
15
15
13
15
B
15
12
15
15
15
15
A
2
1
*
2
2
*
B
2
2
*
2
2
*
S Tanner
C Mathieson(i)
N Pizmony
L Norquay
S Heath
G Mackenzie
(i) resigned 26 May 2015
Note:
A Number of meetings attended during the year the Director was a member of the Board and/or Committee(s).
B Number of meetings eligible to attend during the year the Director was a member of the Board and/or Committee(s).
There is also a Nominations Committee but no meetings were held during the year since no changes to Board composition were
contemplated.
Directors’ shareholdings
Securities in the Company or in a related body corporate in which Directors have a relevant interest as at the date of this report were:
Director
S Tanner
N Pizmony
S Heath
L Norquay
Issuing entity
Funtastic Limited
Funtastic Limited
Funtastic Limited
N/A
G Mackenzie
Funtastic Limited
Ordinary Shares
Share Options
500,000
30,238,601
4,452,802
–
7,446,976
–
12,000,000
–
–
1,800,000
Option holdings
The number of options over ordinary shares in the Company held during and after the end of the financial year by each Director of
Funtastic Limited and each of the key management personnel (KMP) of the Group, including their related entities, are set out in the
Remuneration Report.
The Board has discretion to waive any vesting conditions or other restrictions to the ESLS in accordance with the ESLS plan rules provided
such amendments do not widely prejudice the rights of existing participants.
Changes in state of affairs
There was no significant change in the state of affairs of the consolidated entity during the financial year.
20
Non-audit services
Details of amounts paid or payable to the auditor for non-audit services provided during the year by the auditor are outlined in Note 37
to the financial statements. The Directors are satisfied that the provision of non-audit services, during the year, by the auditor (or by
another person or firm on the auditor’s behalf) is compatible with the general standard of independence for auditors imposed by the
Corporations Act 2001.
The Directors are of the opinion that the services as disclosed in Note 37 to the financial statements do not compromise the external
auditor’s independence, based on advice received from the Audit, Risk and Compliance Committee, for the following reasons:
yy all non-audit services have been reviewed and approved to ensure that they do not impact the integrity and objectivity of the auditor; and
yy none of the services undermine the general principles relating to auditor independence as set out in Code of Conduct APES 110 Code
of Ethics for Professional Accountants issued by the Accounting Professional & Ethical Standards Board, including reviewing or auditing
the auditor’s own work, acting in a management or decision-making capacity for the Company, acting as advocate for the Company or
jointly sharing economic risks and rewards.
A copy of the Auditor’s Independence Declaration as required under section 307C of the Corporations Act 2001 is set out on page 33
of this annual report.
Remuneration Report (Audited)
Details of key management personnel
The following Directors and key management personnel of the Group during or since the end of the financial year were:
Position
Period in position during the year
Chairman and Independent Non-executive Director
Full year
Name
Shane Tanner
Nir Pizmony
Executive Director
Managing Director and Chief Executive Officer
Craig Mathieson
Non-executive Director
Stephen Heath
Linda Norquay
Independent Non-executive Director
Independent Non-executive Director
Pedro Sangil Lopez
International Manager
Grant Mackenzie
Chief Operating Officer, Chief Financial Officer
and Company Secretary
Executive Director
Remuneration policy for Directors and Executives
Principles of Compensation
Full year
Appointed 1 August 2014
Resigned 26 May 2015
Full year
Full year
Full year
Full year
Appointed 6 August 2014
The Remuneration and Evaluation Committee makes specific recommendations to the Board on compensation packages and other terms
of employment for Directors and other Senior Executives. The Board then considers these recommendations and makes appropriate
determinations, with compensation packages set at a level that is intended to attract and retain Executives capable of managing the
consolidated entity’s diverse operations.
Compensation of the Senior Executives is reviewed on an annual basis by the Remuneration and Evaluation Committee having regard to
personal and corporate performance and relevant comparative information. Compensation for Senior Executives comprises both fixed
compensation and an “at risk” component. The “at risk” component comprises a short term incentive payment based on a combination
of the company’s results and individual performance levels, and a long term incentive component pursuant to the Employee Share
Loan Scheme.
The payment of short-term incentives is dependent on the achievement of operating and financial targets set at the beginning of each year
and assessed on an annual basis by the Board.
Compensation and other terms of employment for Senior Executives are formalised in service agreements.
21
Funtastic Annual Report 2015 Directors’ Report
continued
Remuneration Report (Audited) continued
Remuneration policy for Directors and Executives continued
Principles of Compensation continued
The Group’s Executive remuneration is directly related to the performance of the Group through the linking of short and long term
incentives to certain financial performance measures. These performance measures, as described below, are selected by the Board
of Directors and considered relevant to the management of the diverse operations of the Group and to effectively align the long-term
interests of the Directors, Executives and shareholders. The performance conditions are assessed periodically by the Remuneration
and Evaluation Committee to ensure they remain relevant.
Compensation and company performance
Funtastic Limited’s Net Profit before Tax (NPBT) and Diluted Earnings per Share (EPS) growth have been the key performance measures
for the Company’s incentive plans for Executives. Other measures include revenue growth, return on average funds employed, net
operating cash flow, total shareholder return and other business objectives.
In 2015, no Short Term Incentive (‘STI”) eligible payments were made (2014:$nil).
The table below shows the Group’s earnings in the reporting period and the previous four financial periods/years as well as an indication
of the Group’s value over the corresponding period:
NPAT ($’000)(i)
EPS Basic (Cents)(ii)
Diluted EPS (Cents)(ii)
Total Dividends ($’000)
Year End Share Price ($)
Shares on Issue (No.)(iv)
Year ended
31 July 2015
Year ended(iii)
31 July 2014
Year ended(iii)
31 July 2013
Year ended(iii)
31 July 2012
Year ended(iii)
31 July 2012
(37,533)
(35,707)
13,962
10,436
(38,205)
(5.63)
(5.63)
Nil
0.029
(5.39)
(5.39)
3,335
0.077
2.58
2.57
2,702
0.17
2.77
2.77
Nil
0.16
(11.2)
(11.2)
Nil
0.07
667,169,723
667,169,723
642,169,723
537,799,605
340,997,682
Market Capitalisation ($’000)
19,348
51,372
109,169
86,048
23,870
(i) NPAT from group operations
(ii) Basic & Diluted EPS from group operations
(iii) Includes Madman Entertainment group of companies
(iv) Shares on Issue does not included shares held by the Group issued under the Employee Share Loan Scheme.
Components of Compensation
Fixed Compensation
The terms of employment for all Executive management contains a fixed compensation component, which is expressed in local currency.
This fixed component is set in accordance with the market rate for a comparable role by reference to appropriate external benchmark
information and having regard to an individual’s responsibilities, performance, qualifications, experience and location. An Executive’s
compensation is also reviewed on promotion.
Fixed compensation includes contributions to superannuation and pension plans in accordance with relevant legislation or as contractually
required. Fixed compensation is structured as a total employment cost package which may be delivered to the Executive as a mix of cash
and prescribed non-financial benefits at the Executive’s discretion. There are no guaranteed pay increases in any Senior Executive’s contract.
Benefits for termination of employment may be payable subject to the circumstances of the termination and within the terms of the
employment contract.
22
Remuneration Report (Audited) continued
Components of Compensation continued
At risk Compensation
Annual Bonus
yy The STI plan is linked to specific targets (predominantly financial) with the opportunity to earn incentives based on a percentage of
fixed compensation.
yy Performance measurements have been applied to each component of STI and accordingly, entitlements were determined with regard
to the Executive’s level and area of responsibility. Performance against the objectives was determined and incentives and entitlements
assessed against the audited financial results.
yy Due to the company’s financial position, the STI for the following key Executives was converted to an LTI utilising the Employee Share
Loan Scheme (all of which were issued on 31 July 2015 and therefore no expense recognised during the current year):
– Nir Pizmony
– Grant Mackenzie
– Pedro San Gil
Directors
Shane Tanner
Craig Mathieson
Stephen Heath
Linda Norquay
Executive Officers
Nir Pizmony
Grant Mackenzie
Pedro Sangil Lopez
Fixed remuneration
Remuneration linked
to performance
2015
2014
2015
2014
100%
100%
100%
100%
100%
100%
92%
100%
100%
100%
100%
100%
100%
84%
–
–
–
–
–
–
–
–
–
–
–
–
8%
16%
Share Options/Share Performance Right Plans/Employee Share Loan Scheme
The Company’s long-term incentive arrangements (LTI) are designed to link Executive compensation with growth in shareholder value
through the grant of options or rights over equity securities (shares) in the Company. The Company’s Executive Share Option Plan (ESOP)
and Funtastic Employee Performance Share Rights (EPSR) were replaced by the Employee Share Loan Scheme (ESLS) established during
the 2013 financial year. As at the 31 July 2015 all options relating to the ESOP and EPSR had expired.
During the 2013 financial year (as part of the Company’s LTI arrangements), the Company established the Funtastic Employee Share Loan
Scheme (ESLS). At the Board’s discretion, eligible employees were invited to participate in the scheme.
The Funtastic Employee Share Loan Scheme Trust (Trust) was established for the purpose of purchasing and holding shares on behalf of
participants to satisfy exercises made under the ESLS operated by Funtastic. Under the ESLS, an interest free limited recourse loan (a loan
where the participant’s risk will be limited to the shares issued to the participant under or in connection with the plan) to the value of the
grant date issue price per share was granted to each participant. Each participant directs Funtastic to pay the loan amount to the trustee of
the Trust and the trustee to use the loan amount to acquire shares on behalf of the Participant, which are held until the exercise date of the
option under which they were purchased.
The loan is repayable by the participant when the options become exercisable, being after the vesting date and subject to the satisfaction
of the vesting conditions. When the options are exercisable, in the event that the balance of the loan is less than the estimated market
value of shares that secure the loan less estimated transaction costs, a participant may request Funtastic to sell the shares on the ASX and
that the funds received from the sale of those shares, less any costs incurred in connection with the sale and less the loan balance be
remitted to the participant.
23
Funtastic Annual Report 2015
Directors’ Report
continued
Remuneration Report (Audited) continued
Share Options/Share Performance Right Plans/Employee Share Loan Scheme continued
The shares are eligible to participate in dividends declared by the Company. Any dividends paid will be utilised to reduce the carrying value
of each scheme participant’s individual loan balance on the dividend payment date. In the event that the loan balance is greater than the sale
proceeds, a participant may request Funtastic to transfer the shares which secure the loan to the participant provided that the participant
remits any outstanding balance of the loan to Funtastic as repayment of the loan.
In the event that an employee ceases employment with Funtastic, is entitled to vested shares and does not direct Funtastic to sell or
transfer such Shares to the participant and the balance of the loan is greater than the estimated proceeds amount, Funtastic must buy back
and cancel such shares with the consideration from the buyback being the full satisfaction of the then outstanding balance of the loan. The
participant will have no further entitlements to or in respect of the shares.
No performance conditions are attached to the ESLS and the only vesting condition is a service condition which requires participants to
remain in employment until 1 January 2016 for Tranche 1, 6 November 2016 for Tranche 2 and 31 July 2017 for Tranche 3a. There were
no performance conditions attached to share options under Tranche 3b, options vested at date of grant. Although there are no
performance conditions attached to the ESLS, eligible employees only benefit from the scheme through improvements in the share price
of the company, which results from improved performance. The options become exercisable only when the vesting conditions are met.
(See Note 34)
The expiry date of the ESLS options is on the date the employee ceases employment with Funtastic. Further details on the ESLS, the ESLS
Trust and the ESLS’s interest free limited recourse loan are set out in Note 34 of the financial statements.
The board has discretion to waive any vesting conditions or other restrictions attached to the ESLS in accordance with the ESLS plan rules
provided that such amendments do not unduly prejudice the rights of existing participants.
Share Options granted
During the financial year, the following share-based payment arrangements were in existence:
Share-based
payment
Share option
Share option
Series
Tranche
Grant
date
Expiry
date
Grant
date
average
fair value
Number
of shares
at 31 July
2015
Vesting
date
Exercise
date
ESLS(i),(ii)
ESLS(i),(ii)
Tranche 1
08/07/2013
Tranche 2
27/01/2014
Share option
ESLS(iii)
Tranche 3a(i) 31/07/2015
Share option
ESLS(i),(ii)
Tranche 3b
31/07/2015
N/A
N/A
N/A
N/A
$0.0502
600,000 01/01/2016 01/01/2016
$0.0634
1,500,000 27/01/2017 27/01/2016
$0.0154
13,500,000 31/07/2015 31/07/2018
$0.0154
3,600,000 31/07/2017 31/07/2018
Share option
Share option
Share option
Total
Unlisted(i)
Unlisted(i)
Unlisted(i)
23/12/2013 10/08/2014
$0.1350
– 23/12/2013 23/12/2013
23/12/2013 31/12/2014
$0.1000
– 23/12/2013 23/12/2013
23/12/2013 31/12/2014
$0.1350
– 23/12/2013 23/12/2013
19,200,000
(i) There are no performance conditions attached to this share option. The only vesting condition is for participants to remain in employment until 1 January 2016 for
tranche 1, 6 November 2016 for tranche 2 and 31 July 2017 for tranche 3b. The design of the ESLS is to link Executive compensation with continuing service commitment
to Funtastic and growth in shareholder value.
(ii) The expiry date is on the date the employee ceases employment with Funtastic whether vested or not.
(iii) There are no vesting conditions attached to the share options in the Tranches. Options issued vested at the date of grant.
There have been no alteration of the terms and conditions of the above share-based payment arrangements since the grant date.
Shares provided on exercise of remuneration options
No ESOP or ESLS options were exercised during the current financial year or preceding financial year.
24
$
l
a
t
o
T
0
0
6
3
2
1
,
5
7
1
2
5
,
6
6
4
2
6
,
0
0
8
1
6
,
,
6
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Funtastic Annual Report 2015
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26
Remuneration Report (Audited) continued
Key management personnel equity holdings
The number of ordinary shares and options over ordinary shares in the company held during the financial year by each Director of
Funtastic Limited and each of the key management personnel of the consolidated entity, including their related entities, are set out below.
Share options
The tables below include balances for both options granted under the Employee Share Loan Scheme and Unlisted options.
Balance at
the start of
the year
Granted
during the
year
Options
expired
during the
year
Options
forfeited
during the
year
Balance at
the end of
the year
Vested and
exercisable
at the end
of the year(iii)
Vested and
unexercisable
at the end
of the year
Year ended
31 July 2015
Executive
Directors
Nir Pizmony
6,333,333
12,000,000(i)
(6,333,333)
Grant
Mackenzie
Executives
Pedro Sangil
Lopez
300,000
1,500,000(i)
1,200,000
3,600,000(ii)
–
–
Totals
7,833,333
17,100,000
(6,333,333)
–
–
–
–
12,000,000
1,800,000
4,800,000
18,600,000
–
–
–
–
12,000,000
1,800,000
–
13,800,000
(i) The ESLS options were granted in lieu of STI component of management compensation.
(ii) The ESLS options were granted in lieu of retention bonus payable under current employment contract.
(iii) No options were exercised during FY15.
Balance at
the start of
the year
Granted
During the
year
Options
expired
during the
year
Options
forfeited
during the
year
Balance at
the end of
the year
Vested and
exercisable
at the end
of the year
Vested and
unexercisable
at the end
of the year
Year ended
31 July 2014
Executive
Directors
Stewart
Downs
4,600,000
–
(200,000)
(3,066,667)
1,333,333
1,333,333
Nir Pizmony
–
6,333,333
Paul Weigard
200,000
100,000
Executives
Tim
Anderson
200,000
100,000
James Cody
1,200,000
–
Pedro Sangil
Lopez
Grant
Mackenzie
200,000
1,000,000
–
300,000
–
–
–
–
–
–
–
6,333,333
(300,000)
(300,000)
(1,200,000)
–
–
–
–
–
1,200,000
300,000
–
–
–
–
–
–
Totals
6,400,000
7,833,333
(200,000)
(4,866,667)
9,166,666
1,333,333
–
–
–
–
–
–
–
–
27
Funtastic Annual Report 2015 Directors’ Report
continued
Remuneration Report (Audited) continued
Key management personnel equity holdings continued
Share options continued
Year ended
31 July 2015
Executive Directors
Nir Pizmony
Grant Mackenzie
Executives
Pedro Sangil Lopez
Totals
No. of options
granted at the
grant date
Value of
options
granted at the
grant date(i)
No. of options
exercised
Value of
options
exercised at
the exercise
date(ii)
12,000,000
1,500,000
3,600,000
17,100,000
184,800
23,100
55,440
263,340
–
–
–
–
–
–
–
–
(i) The value of the ESLS options granted during the financial year is calculated as at grant date using the Black Scholes model. This grant date value is allocated to
remuneration of key management personnel on a straight-line basis over the period from grant date to vesting/exercise date
(ii) Not applicable as there were no options exercised during the year.
Name
Nir Pizmony
Performance Share Right holdings
Financial year in which the
options were granted
No. of options lapsed during the
current year
2014
6,333,333
There were no Performance Share Rights held by management personnel of the Group at the beginning and/or during the financial year
(2014: nil).
Ordinary shares
The numbers of shares in the company held during the financial year by each key management personnel of the Group, including their
related entities, are set out below.
Balance at
the start of
the year
Shares
purchased
privately
during
the year
500,000
–
29,238,601
1,000,000
Year ended
31 July 2015
Directors
Shane Tanner
Nir Pizmony
Craig Mathieson(i)
111,382,853
–
Steven Heath
Linda Norquay
666,667
3,786,135
–
–
Grant Mackenzie
3,568,405
3,878,571
Executives
Pedro Sangil Lopez
3,634,733
–
Received on
exercise
of options
Other
changes
Balance at
the end of
the period
Balance held
nominally
–
–
–
–
–
–
–
–
–
500,000
500,000
30,238,601
21,504,918
(111,382,853)
–
–
–
–
–
4,452,802
4,452,802
–
–
7,446,976
1,292,856
3,887,362
7,522,095
–
Totals
148,991,259
8,664,706
(107,495,491)
50,160,474
27,750,576
28
(i) Resigned 26 May 2015. As Craig Mathieson is not a KMP at 31 July 2015, his shareholdings in the Group are no longer disclosed.
Remuneration Report (Audited) continued
Key management personnel equity holdings continued
Ordinary shares continued
Balance at
the start of
the year
Shares
purchased
privately
during
the year
400,000
100,000
Year ended
31 July 2014
Directors
Shane Tanner
Stewart Downs
–
Nir Pizmony
30,185,131
Craig Mathieson(i)
111,382,853
Steven Heath
Linda Norquay
Paul Wiegard
Executives
James Cody
Tim Anderson
Pedro Sangil Lopez
Grant Mackenzie
666,667
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3,634,733
3,568,405
Totals
142,634,651
7,303,138
Loans to and other transactions with Key Management Personnel
(a) Equity interests in related parties
Equity interests in subsidiaries.
Received on
exercise
of options
Other
changes
Balance at
the end of
the period
Balance held
nominally
–
–
–
–
–
–
–
–
–
–
–
–
–
–
500,000
500,000
–
–
(946,530)
29,238,601
21,504,918
–
–
–
–
–
–
–
–
111,382,853
–
666,667
666,667
–
–
–
–
3,634,733
–
–
–
–
–
3,568,405
1,292,856
(946,530)
148,991,259
22,671,585
Details of the percentage of ordinary shares held in subsidiaries are disclosed in Note 31 to the financial statements.
(b) Transactions with Key Management Personnel
Key management personnel compensation
Details of key management personnel compensation are disclosed in Note 35 to the financial statements.
Loans from key management personnel
There are no outstanding loans from key management personnel.
29
Funtastic Annual Report 2015 Directors’ Report
continued
Remuneration Report (Audited) continued
Loans to and other transactions with Key Management Personnel continued
(c) Transactions with key management personnel of the Group
Profit for the year includes the following items of revenue and expense that resulted from transactions, other than compensation or equity
holdings, with key management personnel or their related entities:
Consolidated revenue includes the following amounts arising from transactions with key
management personnel of the Group or their related parties:
Gross revenue
Interest revenue
Consolidated profit includes the following amounts arising from transactions with key
management personnel of the Group or their related parties:
Cost of goods sold
Interest expense
Other expenses
Total assets arising from transactions with key management personnel or their related parties:
Current – Other (prepaid expenses)
Current – Inventories
Year ended
31 July 2015
Year ended
31 July 2014
$
1,854
–
1,854
5,823
–
1,971
7,794
$
–
–
–
5,126,923
4,225
969
5,132,117
Year ended
31 July 2015
Year ended
31 July 2014
$
–
–
–
$
838,353
1,616
839,969
The above transactions were performed at arm’s length.
During the financial year, the Group recognised the following transactions with key management personnel:
yy Purchases of $1,645 (2014: $nil) to Annabel Mackenzie a party related to Mr Grant Mackenzie for external consulting
yy Purchases of $326 for provision of employment services (2014: $nil) from Sherelle Pizmony a party related to Mr Nir Pizmony;
yy Commission revenue of $1,854 and Cost of goods sold of $5,823 for product items that were sold on behalf of The 3 of Us Limited an
entity related to Mr Nir Pizmony;
30
Remuneration Report (Audited) continued
Loans to and other transactions with Key Management Personnel continued
(c) Transactions with key management personnel of the Group continued
Consistent with prior year, Funtastic holds a combined media purchasing arrangement with The Three of Us, which results in
advantageous marketing costs. The media purchasing arrangement positions Funtastic to facilitate payment of marketing costs for both
Funtastic and The Three of Us, following which The Three of Us reimburses Funtastic for their portion of advertising. A total amount of
$2,078,859 (2014: $1,024,968) was passed through to Funtastic in respect to their arrangements. In this respect Funtastic is acting as an
agent for the Three of Us, however earning no margin in the process. Given the substance of this arrangement, there is no impact upon
the Group’s consolidated profit or loss.
(d) Transactions with other related parties
Transactions between Funtastic Limited and other entities in the wholly-owned Group during the financial years ended 31 July 2015
and 31 July 2014, which were eliminated on consolidation, consist of:
yy sales made by Funtastic Limited;
yy loans advanced and interest charged by Funtastic Limited;
yy payments made by KMP on behalf of Funtastic Limited;
yy advances made by KMP on behalf of Funtastic Limited;
yy management services provided to Funtastic Limited; and
yy payment to/from Funtastic Limited for the above services.
Service Agreements
Remuneration and other terms of employment for the Chairman, Managing Director, Non-Executive Directors, Chief Executive Officer
and the other Executives are formalised in service agreements/employment letters. In the case of the Chief Executive officer and other
Executives, these allow for the provision of performance-related cash bonuses, and where eligible, participation in the Funtastic Limited
Employee Share Loan Scheme (excludes Chairman, Managing Director and Non-Executive Directors). Additionally, other benefits
including car allowances can be provided to all Key Management Personnel.
Other major provisions of the service agreements relating to the remuneration of Directors and Executives are set out below:
Shane Tanner – Chairman & Independent Non-executive Director
yy Term of the agreement – Full-Time permanent and no specific term.
yy Payment of a termination benefit on early termination by the employer is not applicable.
Craig Mathieson – Non-executive Director (resigned 26 May 2015)
yy Term of the agreement – full-time permanent and no specific term.
yy Payment of a termination benefit on early termination by the employer is not applicable.
Nir Pizmony – Managing Director and Chief Executive Officer (appointed 1 August 2014)
yy Term of the agreement – full-time permanent and no specific term.
yy Payment of termination benefit on early termination by the employer, other than for gross misconduct, equal to 6 months’ base salary.
yy Notice period 6 months.
Grant Mackenzie – Executive Director, Chief Financial Officer & Chief Operating Officer (appointed 1 August 2014)
yy Term of the agreement – full-time permanent and no specific term.
yy Payment of termination benefit on early termination by the employer, other than for gross misconduct, equal to 12 weeks base salary.
yy Notice period 12 weeks.
Stephen Heath – Non-executive Director
yy Term of the agreement – full-time permanent and no specific term.
yy Payment of a termination benefit on early termination by the employer is not applicable.
31
Funtastic Annual Report 2015 Directors’ Report
continued
Remuneration Report (Audited) continued
Service Agreements continued
Linda Norquay – Non-executive Director
yy Term of the agreement – full-time permanent and no specific term.
yy Payment of a termination benefit on early termination by the employer is not applicable.
Pedro Sangil Lopez – International Manager
yy Term of the agreement – full-time permanent and no specified term.
yy Payment of termination benefit on early termination by the employer, other than for gross misconduct, equal to 6 months base salary.
yy Notice period 6 months
This Directors’ Report is signed in accordance with a resolution of Directors made pursuant to s.298(2) of the Corporations Act 2001.
On behalf of the Directors,
Shane Tanner
Chairman of the Board
Melbourne
30 September 2015
32
Auditor’s Independence Declaration
Funtastic
Annual
Report
2015
Deloitte Touche Tohmatsu
ABN 74 490 121 060
550 Bourke Street
Melbourne VIC 3000
GPO Box 78
Melbourne VIC 3001 Australia
DX 111
Tel: +61 (0) 3 9671 7000
Fax: +61 (0) 3 9671 7001
www.deloitte.com.au
The Board of Directors
Funtastic Limited
Level 2, Tower 2, Chadstone Place
1341 Dandenong Road,
CHADSTONE VIC 3148
30 September 2015
Dear Board Members
Funtastic Limited
In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following
declaration of independence to the directors of Funtastic Limited.
As lead audit partner for the audit of the financial statements of Funtastic Limited for the financial year
ended 31 July 2015, I declare that to the best of my knowledge and belief, there have been no
contraventions of:
(i) the auditor independence requirements of the Corporations Act 2001 in relation to the audit;
and
(ii) any applicable code of professional conduct in relation to the audit.
Yours sincerely
DELOITTE TOUCHE TOHMATSU
Chris Biermann
Partner
Chartered Accountants
Liability limited by a scheme approved under Professional Standards Legislation.
Member of Deloitte Touche Tohmatsu Limited
33
Independent Auditor’s Report
Deloitte Touche Tohmatsu
ABN 74 490 121 060
550 Bourke Street
Melbourne VIC 3000
GPO Box 78
Melbourne VIC 3001 Australia
DX 111
Tel: +61 (0) 3 9671 7000
Fax: +61 (0) 3 9671 7001
www.deloitte.com.au
Independent Auditor’s Report
to the Members of Funtastic Limited
Report on the Financial Report
We have audited the accompanying financial report of Funtastic Limited, which comprises the
statement of financial position as at 31 July 2015, the statement of profit or loss and other
comprehensive income, the statement of cash flows and the statement of changes in equity for the year
ended on that date, notes comprising a summary of significant accounting policies and other
explanatory information, and the directors’ declaration of the consolidated entity, comprising the
company and the entities it controlled at the year’s end or from time to time during the financial year
as set out on pages 36 to 96.
Directors’ Responsibility for the Financial Report
The directors of the company are responsible for the preparation of the financial report that gives a
true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001
and for such internal control as the directors determine is necessary to enable the preparation of the
financial report that gives a true and fair view and is free from material misstatement, whether due to
fraud or error. In Note 2, the directors also state, in accordance with Accounting Standard AASB 101
Presentation of Financial Statements, that the consolidated financial statements comply with
International Financial Reporting Standards.
Auditor’s Responsibility
Our responsibility is to express an opinion on the financial report based on our audit. We conducted
our audit in accordance with Australian Auditing Standards. Those standards require that we comply
with relevant ethical requirements relating to audit engagements and plan and perform the audit to
obtain reasonable assurance whether the financial report is free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures
in the financial report. The procedures selected depend on the auditor’s judgement, including the
assessment of the risks of material misstatement of the financial report, whether due to fraud or error.
In making those risk assessments, the auditor considers internal control, relevant to the company’s
preparation of the financial report that gives a true and fair view, in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the company’s internal control. An audit also includes evaluating the appropriateness
of accounting policies used and the reasonableness of accounting estimates made by the directors, as
well as evaluating the overall presentation of the financial report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our audit opinion.
Liability limited by a scheme approved under Professional Standards Legislation.
Member of Deloitte Touche Tohmatsu Limited
34
Auditor’s Independence Declaration
In conducting our audit, we have complied with the independence requirements of the Corporations
Act 2001. We confirm that the independence declaration required by the Corporations Act 2001,
which has been given to the directors of Funtastic Limited, would be in the same terms if given to the
directors as at the time of this auditor’s report.
Opinion
In our opinion:
(a) the financial report of Funtastic Limited is in accordance with the Corporations Act 2001,
including:
(i) giving a true and fair view of the consolidated entity’s financial position as at 31 July 2015
and of its performance for the year ended on that date; and
(ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and
(b) the consolidated financial statements also comply with International Financial Reporting
Standards as disclosed in Note 2.
Report on the Remuneration Report
We have audited the Remuneration Report included in pages 21 to 32 of the directors’ report for the
year ended 31 July 2015. The directors of the company are responsible for the preparation and
presentation of the Remuneration Report in accordance with section 300A of the Corporations Act
2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit
conducted in accordance with Australian Auditing Standards.
Opinion
In our opinion the Remuneration Report of Funtastic Limited for the year ended 31 July 2015,
complies with section 300A of the Corporations Act 2001.
DELOITTE TOUCHE TOHMATSU
Chris Biermann
Partner
Chartered Accountants
Melbourne, 30 September 2015
Funtastic
Annual
Report
2015
35
Directors’ Declaration
The Directors declare that:
(a)
(b)
(c)
in the Directors’ opinion there are reasonable grounds to believe that the Company will be able to pay its debts as and when they
become due and payable;
in the Directors’ opinion the attached financial statements are in compliance with International Financial Reporting Standards,
as stated in Note 2 to the financial statements;
in the Directors’ opinion, the attached financial statements and Notes thereto are in accordance with the Corporations Act 2001,
including compliance with accounting standards and giving a true and fair view of the financial position and performance of the
Group; and
(d)
the Directors have been given the declarations required by section 295A of the Corporations Act 2001.
At the date of this declaration, the Company is within the class of companies affected by ASIC Class Order 98/1418 and has entered into
a deed of cross guarantee as contemplated in that order. The nature of the deed of cross guarantee is such that each company which is
party to the deed guarantees to each creditor payment in full of any debt in accordance with the deed of cross guarantee.
In the Directors’ opinion, there are reasonable grounds to believe that the Company and the companies to which the ASIC Class Order
applies, as detailed in Note 31 to the financial statements will, as a Group, be able to meet any obligations or liabilities to which they are,
or may become, subject by virtue of the deed of cross guarantee.
Signed in accordance with a resolution of the Directors made pursuant to section 295(5) of the Corporations Act 2001.
On behalf of the Directors,
Shane Tanner
Chairman of the Board
Melbourne
30 September 2015
36
Consolidated Statement of Profit or Loss and
other Comprehensive Income
for the year ended 31 July 2015
Funtastic
Annual
Report
2015
Continuing operations
Revenue
Cost of goods sold
Gross profit
Investment income
Warehouse and distribution expenses
Marketing and selling expenses
Administration expenses
Impairment of Goodwill and Intangible Assets
Gain on sale of QuickSmart
Earnings before interest, taxation, depreciation and amortisation expenses
(EBITDA)
Finance costs
Depreciation and amortisation expenses
Loss before income tax
Income tax expense
Loss for the year from continuing operations
Discontinued operation
Loss from discontinued operation, net of tax
Loss for the year
Other comprehensive income
Items that may be reclassified subsequently to profit or loss
Exchange differences arising on translation of foreign operations
Loss on cash flow hedges taken to equity
Other comprehensive loss for the year (net of tax)
Total comprehensive loss for the year attributable
to members of Funtastic
Earnings per share
Basic earnings per share (cents per share)
Diluted earnings per share (cents per share)
Earnings per share – continuing operations
Basic earnings per share (cents per share)
Diluted earnings per share (cents per share)
Year ended
31 July 2015
Year ended
31 July 2014
Note
$’000
$’000
6
7
7
9
7
8
5
27
27
27
27
105,867
(77,182)
28,685
652
(7,526)
(12,110)
(16,289)
(11,120)
–
(17,708)
(2,992)
(3,472)
(24,172)
(9,692)
124,589
(90,689)
33,900
619
(8,678)
(11,579)
(16,652)
–
1,570
(820)
(4,052)
(4,418)
(9,290)
(720)
(33,864)
(10,010)
(3,669)
(37,533)
(25,697)
(35,707)
(53)
(215)
(268)
37
(359)
(322)
(37,801)
(36,029)
(5.63)
(5.63)
(5.08)
(5.08)
(5.39)
(5.39)
(1.51)
(1.51)
The above statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes.
37
Consolidated Statement of Financial Position
as at 31 July 2015
Current Assets
Cash
Trade and other receivables
Inventories
Other current assets
Other financial assets
Current tax assets
Total Current Assets
Non-Current Assets
Plant and equipment
Goodwill
Other intangibles
Deferred tax assets
Other investment
Other assets
Total Non-Current Assets
Total Assets
Current Liabilities
Trade payables
Borrowings
Provisions
Tax liabilities
Other liabilities
Other financial liabilities
Total Current Liabilities
Non-Current Liabilities
Borrowings
Provisions
Deferred tax liabilities
Other liabilities
Total Non-Current Liabilities
Total Liabilities
Net Assets
Equity
Issued capital
Accumulated losses
Reserves
Total Equity
Year ended
31 July 2015
Note
$’000
Year ended
31 July 2014
$’000
(Restated)
32
10
11
12
13
8
14
15
16
8
12
18
19
20
8
21
22
19
20
8
21
24
25
26
904
10,136
16,563
3,372
38
–
4,909
17,138
17,914
6,314
–
5
31,013
46,280
1,750
39,165
15,427
3,367
–
405
60,114
91,127
11,615
42,431
1,080
195
4,632
435
1,568
49,995
17,379
12,654
29
469
82,094
128,374
17,280
29,357
884
–
4,584
180
60,388
52,285
26
227
254
115
622
61,010
30,117
208,372
(179,048)
793
30,117
7,299
485
235
310
8,329
60,614
67,760
208,372
(141,515)
903
67,760
The above statement of financial position should be read in conjunction with the accompanying notes.
38
Statement of Changes in Equity
for the year ended 31 July 2015
Funtastic
Annual
Report
2015
Accumu-
lated
Losses
Foreign
Currency
Translation
Reserve
Share
Capital
Balance at 1 August 2013
204,497
(102,473)
$’000
$’000
Payment of Dividends
Loss for the year
Other comprehensive (loss)
income
Total comprehensive (loss)
income
Recognition of share-based
payments
–
–
–
–
–
Issue of ordinary shares re Chill
Factor Global acquisition
3,875
(3,335)
(35,707)
–
(35,707)
–
–
$’000
(1,013)
–
–
37
37
–
–
Equity-
settled
Employee
Benefits
Reserve
$’000
1,639
–
–
–
–
302
–
Balance at 31 July 2014
208,372
(141,515)
(976)
1,941
Loss for the year
Other comprehensive loss
Total comprehensive (loss)
income
Recognition of share-based
payments
–
–
–
–
(37,533)
–
(37,533)
–
–
(53)
(53)
–
–
–
–
Cash Flow
Hedging
Reserve
$’000
Total
$’000
297
102,947
–
–
(359)
(3,335)
(35,707)
(322)
(359)
(36,029)
–
–
(62)
–
(215)
(215)
302
3,875
67,760
(37,533)
(268)
(37,801)
158
–
158
Balance at 31 July 2015
208,372
(179,048)
(1,029)
2,099
(277)
30,117
The above statement of changes in equity should be read in conjunction with the accompanying notes.
39
Consolidated Statement of Cash Flows
for the year ended 31 July 2015
Year ended
31 July 2015
Year ended
31 July 2014
Note
$’000
$’000
Cash Flows from Operating Activities
Receipts from customers
Payments to suppliers and employees
Cash (utilised) generated from operations
Income taxes paid
Interest and other costs of finance paid
Net cash (outflow) inflow from operating activities
32(c)
Cash Flows from Investing Activities
Interest and other investment income received
Payments for acquisition of businesses
Payments for plant and equipment
Payments for other intangible assets
Proceeds from sale of business
Proceeds from sale of plant and equipment
5, 32(d)
106,768
(111,576)
(4,808)
(50)
(3,022)
(7,880)
652
–
(1,200)
(1,031)
–
21
167,558
(162,268)
5,290
(76)
(3,432)
1,782
619
(529)
(198)
(2,894)
21,861
–
Net cash outflow (inflow) from investing activities
(1,558)
18,859
Cash Flows from Financing Activities
Proceeds from borrowings
Repayment of borrowings
Dividends paid to owners of the Company
Borrowings transaction costs
Net cash (outflow) inflow from financing activities
Net (decrease) increase in Cash Held
Cash and cash equivalents at the beginning of the year
Effects of exchange rate changes on the balance of cash held in foreign currencies
Cash and cash equivalents at the end of the year
32(a)
The above statement of cash flows should be read in conjunction with the accompanying notes.
8,700
(2,899)
–
–
5,801
(3,637)
4,909
(368)
904
2,700
(19,469)
(3,283)
(130)
(20,182)
459
4,305
145
4,909
40
Notes to the Financial Statements
31 July 2015
Note 1: Significant accounting policies
Statement of compliance
These financial statements are general purpose financial statements which have been prepared in accordance with the Corporations
Act 2001, Accounting Standards and Interpretations, and comply with other requirements of the law. The financial statements comprise
the consolidated financial statements of the Group.
For the purpose of preparing the consolidated financial statements the Group is a for profit entity.
Accounting Standards include Australian Accounting Standards. Compliance with Australian Accounting Standards ensures that the
financial statements and notes comply with International Financial Reporting Standards (IFRS).
The financial statements were authorised for issue by the Directors on 30 September 2015.
The Company is a company of the kind referred to in ASIC Class Order 98/0100, dated 10 July 1998, and in accordance with that Class
Order amounts in the Director’s report and the financial report are rounded off to the nearest thousand dollars, unless otherwise indicated.
Basis of preparation
The financial report has been prepared on the basis of historical cost, except for derivative financial instruments that have been measured
at fair value. Cost is based on the fair values of the consideration given in exchange for assets. All amounts are presented in Australian
dollars, unless otherwise stated.
Going concern basis
The loss of $37,533,000 and operating cash outflow of $7,880,000 in the current financial period were primarily driven by softer revenue
from international markets due to slower than anticipated release of products as well as from the continued program of clearing excess
inventory. Since 31 July 2014, when the group divested its Madman Entertainment business, the Group has restructured its operations
such that all assets and resources are managed at a Group level. This has resulted in significant cost savings which have been realised in the
second half of the financial year, together with the benefits of improved pricing negotiated with a number of major customers and suppliers
and the results expected from the release of new products into new markets including the United States, the benefit for which is expected
in FY16. Based on management’s forecasts, the Group will return to profit during the first half of the new financial year.
Whilst there is a net current liability position of $29,375,000 (2014: $6,005,000), the financial statements have been prepared on a going
concern basis, due to the fact that of the total current borrowings of $42,431,000 (2014: $29,357,000), $22,657,000 (2014: $25,427,000)
relate to trade finance facilities that will be available to the Group beyond the next twelve months and a further $11,965,000 relates to
long term debt reassigned as short term in the current financial period due to the updated facility agreement not executed until after
31 July 2015.
Based on the Group’s forecasts, the revised facility is expected to be sufficient to meet Funtastic’s cash flow requirements and no breaches
of financial covenants are forecast.
(a) Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company
(its subsidiaries) (referred to as “the Group” in these financial statements). Control is achieved when the Company:
yy has the power over the investee;
yy is exposed, or has rights, to variable returns from its involvement with the investee; and
yy has the ability to use its power to affect its returns.
The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more
of the three elements of control listed above.
Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the Company losses control
of the subsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated
statement of profit or loss and other comprehensive income from the date the Company gains control until the date the Company ceases
to control the subsidiary.
Profit or loss and each component of other comprehensive income are attributed to the owners of the Company and to the non-controlling
interests. Total comprehensive income of subsidiaries is attributed to the owners of the Company and to the non-controlling interests even
if this results in the non-controlling interest having a deficit balance.
When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the
Group’s accounting policies.
All intra-Group assets and liabilities, equity, income and expenses and cash flows relating to transactions between members of the Group
are eliminated in full on consolidation.
41
Funtastic Annual Report 2015 Notes to the Financial Statements
continued
Note 1: Significant accounting policies continued
Going concern basis continued
(b) Income tax
(i) Current tax
The income tax expense or revenue for the year is the tax payable or receivable on the current year’s taxable income based on the national
income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences
between the tax bases of assets and liabilities and their carrying amounts in the financial statements and to unused tax losses.
(ii) Deferred tax
Deferred tax is accounted for using the balance sheet liability method. Assets and liabilities are recognised for temporary differences at
the tax rates expected to apply when the assets are recovered or liabilities are settled, based on those tax rates which are enacted, or
substantively enacted, for each jurisdiction. The relevant tax rates are applied to the cumulative amounts of deductible and taxable
temporary differences to measure the deferred tax asset or liability.
An exception is made for certain temporary differences arising from the initial recognition of an asset or a liability. No deferred tax asset
or liability is recognised in relation to these temporary differences if they arose in a transaction, other than a business combination, that
at the time of the transaction did not affect either accounting profit or taxable profit or loss.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
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.
Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of investments
in controlled entities where the parent entity is able to control the timing of the reversal of the temporary differences and it is probable
that the differences will not reverse in the foreseeable future.
(iii) Current and deferred tax for the period
Current and deferred tax balances attributable to amounts recognised directly in equity are also recognised directly in equity.
(iv) Tax Losses
A deferred tax asset in respect to tax losses is only recognised where there is a reasonable certainty that future taxable profits will be
guaranteed. Management assesses continuity of ownership bi-annually and based on the expected future profits, for the 2 years following
balance date, books a deferred tax asset to reflect the future benefits from tax revenue losses incurred to date. Management are confident
that the company will deliver sustainable profits.
(v) Tax Consolidation
The company and its wholly-owned Australian resident entities are part of a tax-consolidated Group under Australian taxation law.
Funtastic Limited is the head entity in the tax-consolidated Group. Tax expense/revenue, deferred tax liabilities and deferred tax assets
arising from temporary differences of the members of the tax-consolidated Group are recognised in the separate financial statements of
the members of the tax-consolidated Group using the “separate taxpayer within Group” approach by reference to the carrying amounts
in the separate financial statements of each entity and the tax values applying under tax consolidation.
Due to the existence of a tax funding arrangement between the entities in the tax-consolidated Group, amounts are recognised as payable
to or receivable by the company and each member of the Group in relation to the tax contribution amounts paid or payable between the
parent entity and the other members of the tax-consolidated Group in accordance with the arrangement. Further information about the
tax funding arrangement is detailed in Note 8 to the financial statements.
(c) Foreign currency translation
(i) Functional and presentation currency
Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic
environment in which the entity operates. Financial statements are presented in Australian dollars, which is Funtastic Limited’s functional
and presentation currency.
42
Note 1: Significant accounting policies continued
Going concern basis continued
(c) Foreign currency translation continued
(ii) Transactions and balances
Foreign currency transactions are translated into the functional currency 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 year-end
exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement, except when
deferred in equity as qualifying cash flow hedges and qualifying net investment hedges.
Translation differences on non-monetary items, such as equities held at fair value through profit or loss, are reported as part of the fair
value gain or loss.
(iii) Group companies
The results and financial position of all the Group entities, (none of which has the currency of a hyperinflationary economy), that have
a functional currency different from the presentation currency, are translated into the presentation currency as follows:
yy assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;
yy income and expenses for each profit or loss presented are translated at the average exchange rates (unless this is not a reasonable
approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are
translated at the dates of the transactions); and
yy all resulting exchange differences are recognised as a separate component of equity.
On consolidation, exchange differences arising from the translation of any net investment in foreign entities, and of borrowings and other
currency instruments designated as hedges of such investments, are taken to equity. When a foreign operation is sold or borrowings
repaid a proportionate share of such exchange differences are recognised in the profit or loss as part of the gain or loss on sale.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity
and translated at the closing rate.
(d) Cash and cash equivalents
Cash and cash equivalents includes cash on hand and deposits at call which are readily convertible to cash on hand and are subject to
an insignificant risk of changes in value. Bank overdrafts are shown within borrowings in current liabilities in the balance sheet.
(e) Revenue
Revenue is measured at the fair value of the consideration received or receivable. Revenue is reduced for estimated customer returns,
discounts, rebates and GST paid.
Revenue from the sale of goods is recognised when a Group entity has delivered products to the customer. Delivery does not occur until
the products have been shipped to the specified location, the risks of obsolescence and loss have been transferred to the customer and the
customer has accepted the products in accordance with the sales contract, the acceptance provisions have lapsed or the Group has
objective evidence that all criteria for acceptance have been satisfied.
Commission revenue is recorded when the consideration is receivable based on when the goods have been dispatched to a customer
by the third party.
Interest income is recognised on a time proportionate basis using the effective interest rate method. Management fee revenue is
recognised in accordance with the entitlement to fees for the management services provided and is brought to account on an accrual basis.
(f) Rental Income
Rental income from operating leases is recognised on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in
negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised on a straight-line basis
over the lease term.
(g) Plant and Equipment
Plant and equipment are stated at cost less accumulated depreciation and impairment. Cost includes expenditure that is directly
attributable to the acquisition of the item.
Depreciation is calculated on a straight line basis to write off the net cost of each item of plant and equipment over the shorter of its
expected useful life and the lease term. Estimates of remaining useful lives are made on a regular basis for all assets, with annual
reassessments for major items.
43
Funtastic Annual Report 2015 Notes to the Financial Statements
continued
Note 1: Significant accounting policies continued
Going concern basis continued
(g) Plant and Equipment continued
The cost of improvements to or on leasehold properties is amortised over the estimated useful life of the improvement to the Group.
The expected useful lives are as follows:
Plant and equipment:
Leasehold improvements:
(h) Loans and receivables
2.5 – 10 years
5 Years
Trade, loans and other receivables, are measured at amortised cost, less allowance for doubtful debts, rebates and settlement discounts,
where appropriate.
Collectability of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectible are written off. An allowance
for doubtful receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according
to the original terms of the receivables. The amount is recognised in the profit or loss.
(i) Inventories
Inventories are stated at the lower of cost and net realisable value. Costs are assigned to individual items of stock on the basis of weighted
average costs. Net realisable value represents the estimated selling price less the carrying value of inventory and costs necessary to make
the sale.
Stock write downs occur where the estimated selling price of stock, in the ordinary course of business, is less than the estimated costs
of completion and costs necessary to make the sale. Excess stock levels are reviewed on a regular basis, where discussions with the sales
teams are undertaken.
(j) Trade payables
These amounts represent liabilities for goods and services provided to the Group prior to the end of the financial year for which an invoice
has been processed through the Group’s payables system and the amount remains unpaid.
The amounts are unsecured and usually paid within 30 days of recognition.
(k) Goods and services tax
Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST), except:
yy where the amount of GST incurred is not recoverable from the taxation authority, it is recognised as part of the cost of acquisition
of an asset or as part of an item of expense; or
yy for receivables and payables which are recognised inclusive of GST.
The net amount of GST recoverable from, or payable to, the tax authority is included as a current asset or liability in the balance sheet.
Cash flows are included in the cash flow statement on a gross basis. The GST components of cash flows arising from investing and financing
activities which are recoverable from, or payable to, the tax authority are classified as operating cash flows.
(l) Leased Non-Current Assets
A distinction is made between finance leases which effectively transfer from the lessor to the lessee substantially all the risks and benefits
incidental to ownership of leased non-current assets (finance leases), and operating leases under which the lessor effectively retains
substantially all such risks and benefits.
Finance leases are capitalised (Note 23). A leased asset and a liability are established at the lower of fair value and the present value of
minimum lease payments. Lease payments are allocated between the principal component of the lease liability and the interest expense,
so as to achieve a constant rate of interest on the remaining balance of the liability.
The leased assets are amortised on a straight line basis over the term of the lease, or where it is likely that the economic entity will obtain
ownership of the asset, the life of the asset. Leased assets held at the reporting date are being amortised over five years.
Lease payments are allocated between interest (calculated by applying the interest rate implicit in the lease to the outstanding amount
of the liability) and reduction of the liability.
Operating lease payments are charged to the profit or loss account on a straight line basis over the period of the lease. In the event that
lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefits of incentives
are recognised as a reduction of rental expense on a straight-line basis over the lease term, except where another systematic basis is more
representative of the time pattern in which economic benefits from the leased asset are consumed.
44
Note 1: Significant accounting policies continued
Going concern basis continued
(m) Share-based payments
Share-based compensation benefits are provided to employees via the Funtastic Executive Share Option Plan, Employee Performance
Share Rights Plan and the Employee Share Loan Scheme.
The fair value of options and performance share rights granted under the Funtastic Executive Share Option Plan, Funtastic Employee
Performance Share Rights Plan and Employee Share Loan Scheme is recognised as an employee benefit expense with a corresponding
increase in equity. The fair value is measured at grant date and recognised over the period during which the employees become
unconditionally entitled to the options (vesting period).
The fair value at grant date is independently determined using an appropriate option pricing model that takes into account the exercise
price, the term of the option, the vesting and performance criteria, the impact of dilution, the non-tradeable nature of the option, the share
price at grant date and expected price volatility of the underlying share, the expected dividend yield, total shareholder performance
hurdles and the risk-free interest rate for the term of the option.
The fair value of the options, performance share rights and schemes granted excludes the impact of any non-market vesting conditions
(for example, profitability and sales growth targets). Non-market vesting conditions are included in assumptions about the number of
options that are expected to become exercisable. At each balance sheet date, the entity revises its estimate of the number of options that
are expected to become exercisable. The employee benefit expense recognised each period takes into account the most recent estimate.
Upon the exercise of options or performance share rights, the balance of the share-based payments reserve relating to those options is
transferred to share capital.
The market value of shares issued to employees for no cash consideration under the employee share scheme is recognised as an employee
benefits expense with a corresponding increase in equity when the employees become entitled to the shares.
(n) Borrowings
Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs.
Other financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense
recognised on an effective yield basis.
The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the
relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of
the financial liability, or, where appropriate, a shorter period.
(o) Borrowing costs
Borrowing costs are recognised as expenses in the period in which they are incurred. Borrowing costs include:
yy interest on bank overdrafts and short-term and long-term borrowings;
yy finance lease charges; and
yy certain exchange differences arising from foreign currency borrowings.
(p) Employee benefits
(i) Wages and salaries and annual leave
A liability is recognised for benefits accruing to employees in respect of wages and salaries, annual leave and long service leave where it is
probable that settlement will be required and they are capable of being measured reliably.
Liabilities recognised in respect of short-term employee benefits expected to be settled within 12 months, are measured at their nominal
values using the remuneration rate expected to apply at the time of settlement.
Liabilities recognised in respect of employee benefits which are not expected to be settled within 12 months are measured at the present
value of the estimated future cash outflows to be made by the Group in respect of services provided by employees up to reporting date.
(ii) Defined contribution plans
Contributions to defined contribution superannuation plans are expensed when incurred.
(iii) Profit sharing and bonus plans
Liabilities for profit sharing and bonus plans are expected to be settled within 12 months and are measured at the amounts expected
to be paid when they are settled.
45
Funtastic Annual Report 2015 Notes to the Financial Statements
continued
Note 1: Significant accounting policies continued
Going concern basis continued
(p) Employee benefits continued
(iv) Employee benefit on-costs
Employee benefit on-costs, including payroll tax, are recognised and included in employee benefit liabilities and costs, when the employee
benefits to which they relate are recognised as liabilities.
(q) Intangible assets
Intangible assets acquired separately or in a business combination are initially measured at cost. The cost of an intangible asset acquired
in a business combination is its fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less
any accumulated amortisation and any accumulated impairment losses. Internally generated intangible assets, excluding capitalised
development costs, are not capitalised and expenditure is recognised in profit or loss in the year in which the expenditure is incurred.
Amortisation of the Group’s intangible assets is recognised on a straight-line basis over their estimated useful lives. The estimated useful
life and amortisation method are reviewed at the end of each annual reporting period, with the effect of any changes in estimate being
accounted for on a prospective basis.
Intangible assets are amortised, based on the useful live assessed by management, as follows:
yy Software
yy Patents
yy Trademarks
yy Licensed distribution agreements
yy Brand names
10-15 years
1-10 years
Indefinite
3-7 years
20 years
During the current financial year, management reassessed the useful life of licensed distribution agreements relating to certain brands
owned by the company to be 10 years with amortisation commencing from the start of the current financial year.
(r) Goodwill
Goodwill arising in a business combination is recognised as an asset at the date that control is acquired (the acquisition date). Goodwill is
measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the
fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisition date amounts of the
identifiable assets acquired and the liabilities assumed.
If, after reassessment, the Group’s interest in the fair value of the acquiree’s identifiable net assets exceeds the sum of the consideration
transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer’s previously held equity interest
in the acquiree (if any), the excess is recognised immediately in profit or loss as a bargain purchase gain.
Goodwill is not amortised but is reviewed for impairment at least annually. For the purpose of impairment testing, goodwill is allocated to
each of the Group’s cash generating units (CGUs), or groups of CGUs, expected to benefit from the synergies of the business combination.
CGUs (or groups of CGUs) to which goodwill has been allocated are tested for impairment annually, or more frequently if events or
changes in circumstances indicate that goodwill might be impaired.
If the recoverable amount of the CGU (or group of CGUs) is less than the carrying amount of the CGU (or groups of CGUs), the
impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the CGU (or groups of CGUs) and then to the
other assets of the CGU (or groups of CGUs) pro-rata on the basis of the carrying amount of each asset in the CGU (or groups of CGUs).
An impairment loss recognised for goodwill is recognised immediately in profit or loss and is not reversed in subsequent periods.
On disposal of an operation within a CGU, the attributable amount of goodwill is included in the determination of the profit or loss on
disposal of the operation.
(s) Derivative financial instruments
The Group enters into a variety of derivative financial instruments to manage its exposure to interest rate and foreign exchange rate risk,
including forward contracts comprising foreign exchange forward contracts and options and interest rate swaps. Further details of
derivative financial instruments are disclosed in Note 34 to the financial statements.
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured to their
fair value at each reporting date. The resulting gain or loss is recognised in profit or loss immediately unless the derivative is designated and
effective as a hedging instrument, in which event, the timing of the recognition in profit or loss depends on the nature of the hedge
relationship. The Group designates certain derivatives as either hedges of the fair value of recognised assets or liabilities or firm
commitments (fair value hedges), or hedges of highly probable forecast transactions or hedges of foreign currency risk of firm
commitments (cash flow hedges).
46
Note 1: Significant accounting policies continued
Going concern basis continued
(s) Derivative financial instruments continued
The fair value of hedging derivatives is classified as a current asset or current liability if the remaining maturity of the hedge relationship is
less than 12 months and as a non-current asset or a non-current liability if the remaining maturity of the hedge relationship is more than
12 months.
(i) Cash flow hedges
The Group designates certain hedging instruments, derivatives in respect of foreign currency, as cash flow hedges.
At the inception of the hedge relationship, the entity documents the relationship between the hedging instrument and the hedged item,
along with its risk management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception of
the hedge and on an ongoing basis, the Group documents whether the hedging instrument is highly effective in offsetting changes in fair
values or cash flows of the hedged item.
Note 33 contains details of the fair values of the derivative instruments used for hedging purposes. Movements in the hedging reserve
in equity are also detailed in the statement of changes in equity.
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in equity
in the hedging reserve. The gain or loss relating to the ineffective portion is recognised immediately in other comprehensive income.
Amounts accumulated in equity are recycled in the statement of profit or loss in the periods when the hedged item will affect profit or
loss (for instance when the forecast sale that is hedged takes place). However, when the forecast transaction that is hedged results in the
recognition of a non-financial asset (for example, inventory) or a non-financial liability, the gains and losses previously deferred in equity
are transferred from equity and included in the measurement of the initial cost or carrying amount of the asset or liability. When a hedging
instrument expires or is sold or terminated, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss
existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the statement
of profit or loss. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is
immediately transferred to the statement of profit or loss.
(t) Financial assets
All financial assets are recognised and derecognised on trade date where the purchase or sale of the financial asset is under a contract
which terms require delivery of the investment within the timeframe established by the market concerned, and are initially measured at
fair value, plus transaction costs, except for those financial assets classified as fair value through profit or loss (FVTPL) which are initially
measured at fair value.
Financial assets are classified as at FVTPL when the financial asset is either held for trading or it is designated as at FVTPL. A financial asset
is classified as held for trading if:
yy it has been acquired principally for the purpose of selling it in the near term; or
yy on initial recognition it is part of a portfolio of identified financial instruments that the Group manages together and has a recent actual
pattern of short-term profit-taking; or
yy it is a derivative that is not designated and effective as a hedging instrument.
Financial assets at FVTPL are stated at fair value, with any gains or losses arising on re-measurement recognised in profit or loss. The net
gain or loss recognised in profit or loss incorporates any dividend or interest earned on the financial asset. Fair value is determined in the
manner described in Note 33.
(i) Impairment of financial assets
Financial assets are assessed for indicators of impairment at each balance sheet date. Financial assets are impaired where there is objective
evidence that as a result of one or more events that occurred after the initial recognition of the financial asset the estimated future cash
flows of the investment have been impacted. For financial assets carried at amortised cost, the amount of the impairment is the difference
between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate.
The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade
receivables where the carrying amount is reduced through the use of an allowance account. When a trade receivable is uncollectible,
it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited to profit or loss.
If in a subsequent period the amount of impairment loss decreases and the decrease can be related objectively to an event occurring after
the impairment was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent the carrying
amount of the investment at the date of the impairment is reversed does not exceed what the amortised cost would have been had the
impairment not been recognised.
47
Funtastic Annual Report 2015 Notes to the Financial Statements
continued
Note 1: Significant accounting policies continued
Going concern basis continued
(u) Financial instruments issued by the Group
(i) Equity instruments
Equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement.
Transaction costs arising on the issue of equity instruments are recognised directly in contributed equity.
(ii) Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss are stated at fair value, with any resultant gain or loss recognised in profit or loss.
The net gain or loss recognised in profit or loss incorporates any interest paid on the financial liability. Fair value is determined in the
manner set out in Note 34.
(iii) Other financial liabilities
Other financial liabilities, including borrowings, are initially measured at fair value net of transaction costs. Other financial liabilities are
subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis.
The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the
relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of
the financial liability, or, where appropriate, a shorter period.
(v) Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that 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 a best estimate of the consideration required to settle the present obligation at reporting date,
taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated
to settle the present obligations, its carrying amount is the present value of those cash flows.
When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, the receivable
is recognised as an asset if it is virtually certain that recovery will be received and the amount of the receivable can be measured reliably.
(w) Onerous contracts
The Group enters into royalty contracts with key suppliers. The terms of the royalty agreements require minimum levels of royalty
payments to be offset against the minimum guarantees received at the start of the contract. An onerous contract is deemed to exist for
the Group if, after calculating the net contribution relating to the products sold under the specific contract, there is a shortfall between the
minimum guarantee and the actual royalty derived (or forecast to be derived in future periods) from the reported sales. Net contribution
is calculated after taking into account net sales revenue, cost of goods sold, applicable royalties and direct selling costs. If the royalty
shortfall cannot be recovered from the resulting net contribution a provision for onerous contracts is made through profit or loss.
(x) Impairment of tangible and intangible assets (other than goodwill)
At each reporting date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any
indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated
in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from
other assets, the Group estimates the recoverable amount of the CGU to which the asset belongs. Where a reasonable and consistent
basis of allocation can be identified, corporate assets are also allocated to individual CGU, or otherwise they are allocated to the smallest
group of CGU for which a reasonable and consistent allocation basis can be identified.
Recoverable amount is the higher of fair value less cost to sell and value in use. In assessing value in use, the estimated future cash flows
are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money
and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset
(or CGU) is estimated to be less than its carrying amount, the carrying amount of the asset (or CGU) is reduced to its recoverable amount.
An impairment loss is recognised immediately in the profit and loss.
Where an impairment loss subsequently reverses, the carrying amount of the asset (CGU) is increased to the revised estimate of its
recoverable amount, but only to the extent that the increased carrying amount does not exceed the carrying amount that would have
been determined had no impairment loss been recognised for the asset (CGU) in prior years.
48
Note 1: Significant accounting policies continued
Going concern basis continued
(y) Discontinued operations
A discontinued operation is a component of the Group’s business, the operations and cash flows of which can be clearly distinguished
from the rest of the Group and which:
yy represents a separate major line of business or geographical area of operations;
yy is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations; or
yy is a subsidiary acquired exclusively with a view to re-sale.
Classification as a discontinued operation occurs upon disposal or when the operation meets the criteria to be classified as held-for-sale,
if earlier.
When an operation is classified as a discontinued operation, the comparative statement of profit or loss and other comprehensive income
is re-presented as if the operation had been discontinued from the start of the comparative year.
The assets or disposal group, are measured at the lower of their carrying amount and fair value less costs to sell. Any impairment loss on
a disposal group, is first allocated to goodwill, and then to remaining assets and liabilities on a pro-rata basis, except that no loss is allocated
to inventories, financial assets and deferred tax assets which continue to be measured in accordance with the Group’s other accounting
policies. Gains or losses on disposal are recognised in profit or loss.
(z) Determination of fair values
A number of the Group’s accounting policies and disclosures require the determination of fair value, for both financial and non-financial
assets and liabilities. Fair values have been determined for measurement and/or disclosure purposes, based on the methods as stated
below. When applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific
to that asset or liability.
In estimating the fair value of an asset or liability, the Group uses market observable data to the extent it is available. Where it is not
available, the Group engages third party qualified valuers to perform the valuation.
The fair value of the asset or liability is the price that would be received to sell the asset or paid to transfer the liability in an orderly
transaction between market participants at measurement date.
The Group shall use valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure
fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.
To increase consistency and comparability in fair value measurements and related disclosures, the Group has adopted the fair value
hierarchy established in AASB 13 ‘Fair Value Measurement’ that categorises fair value measurement into three levels:
yy Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities.
yy Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable
for the asset or liability, either directly (ie. as prices) or indirectly (ie. derived from prices).
yy Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not
based on observable market data (unobservable inputs).
Valuation techniques used to measure fair value shall be applied consistently. However, a change in a valuation technique or its application
(eg. a change in its weighting when multiple valuation techniques are used or a change in an adjustment applied to a valuation technique)
is appropriate if the change results in a measurement that is equally or more representative of fair value in the circumstances.
49
Funtastic Annual Report 2015 Notes to the Financial Statements
continued
Note 2: Application of new and revised Accounting Standards
2.1 Standards and Interpretations affecting amounts reported in the current period (and/or prior periods)
The following new and revised Standards and Interpretations have been adopted in the current year and may have affected the amounts
reported in these financial statements.
(a) Standards affecting presentation and disclosure
(i) AASB 2012-3 ‘Amendments to AASB 136 – Recoverable Amount Disclosures for Non-Financial Assets’
The amendments to AASB 136 remove the requirement to disclose the recoverable amount of a cash-generating unit (CGU) to which
goodwill or other intangible assets with indefinite useful lives had been allocated, when there has been no impairment or reversal of
impairment of the related CGU. Furthermore, the amendments introduce additional disclosure requirements applicable to when the
recoverable amount of an asset or a CGU is measured at fair value less costs of disposal. These new disclosures include the fair value
hierarchy, key assumptions and valuation techniques used which are in line with the disclosure required by AASB 13 ‘Fair Value
Measurements’. This amendment has been adopted by the Company and reflected in Note 15 to the financial statements.
(ii) AASB 2014-1 ‘Amendments to Australian Accounting Standards’ (Part A: Annual Improvements 2010-2012 and 2011-2013 Cycles)
The Annual Improvements 2010-2012 has made number of amendments to various AASBs, which are summarised below.
yy The amendments to AASB 2 (i) change the definitions of ‘vesting condition’ and ‘market condition’; and (ii) add definitions for
‘performance condition’ and ‘service condition’ which were previously included within the definition of ‘vesting condition’. The
amendments to AASB 2 are effective for share based payment transactions for which the grant date is on or after 1 July 2014.
yy The amendments to AASB 3 clarify that contingent consideration that is classified as an asset or a liability should be measured at fair
value at each reporting date, irrespective of whether the contingent consideration is a financial instrument within the scope of AASB 9
or AASB 139 or a non-financial asset or liability. Changes in fair value (other than measurement period adjustments) should be
recognised in profit and loss. The amendments to AASB 3 are effective for after 1 July 2014.
yy The amendments to AASB 8 (i) require an entity to disclose the judgements made by management in applying the aggregation
criteria to operating segments, including a description of the operating segments aggregated and the economic indicators assessed in
determining whether the operating segments have ‘similar economic characteristics’; and (ii) clarify that a reconciliation of the total of
the reportable segments’ assets to the entity’s assets should only be provided if the segment assets are regularly provided to the chief
operating decision-maker.
yy The amendments to the basis for conclusions of AASB 13 clarify that the issue of AASB 13 and consequential amendments to
AASB 139 and AASB 9 did not remove the ability to measure short-term receivables and payables with no stated interest rate at
their invoice amounts without discounting, if the effect of discounting is not material.
yy The amendments to AASB 124 clarify that a management entity providing key management personnel services to a reporting entity
is a related party of the reporting entity. Consequently, the reporting entity should disclose as related party transactions the amounts
incurred for the service paid or payable to the management entity for the provision of key management personnel services. However,
disclosure of the components of such compensation is not required.
The Annual Improvements 2011-2013 has made number of amendments to various AASBs. Management have assessed that these
improvements do have an impact on the Group.
The application of these amendments does not have any material impact on the disclosures or on the amounts recognised in the Group’s
consolidated financial statements.
(iii) AASB 1031 ‘Materiality’, AASB 2013-9 ‘Amendments to Australian Accounting Standards – Conceptual Framework, Materiality
and Financial Instruments’ (Part B: Materiality), AASB 2014-1 ‘Amendments to Australian Accounting Standards’ (Part C: Materiality)
The revised AASB 1031 is an interim standard that cross-references to other Standards and the ‘Framework for the Preparation and
Presentation of Financial Statements’ (issued December 2013) that contain guidance on materiality. The AASB is progressively removing
references to AASB 1031 in all Standards and Interpretations. Once all of these references have been removed, AASB 1031 will be
withdrawn. The adoption of AASB 1031, AASB 2013-9 (Part B) and AASB 2014-1 (Part C) does not have any material impact on the
disclosures or the amounts recognised in the Group’s consolidated financial statements.
50
Note 2: Application of new and revised Accounting Standards continued
2.1 Standards and Interpretations affecting amounts reported in the current period (and/or prior periods) continued
(b) Standards and Interpretations affecting the reported results or financial position
(i) AASB 2012-3 ‘Amendments to Australian Accounting Standards – Offsetting Financial Assets and Financial Liabilities’
The amendments to AASB 132 clarify the requirements relating to the offset of financial assets and financial liabilities. Specifically, the
amendments clarify the meaning of ‘currently has a legally enforceable right of set-off’ and ‘simultaneous realisation and settlement’.
The amendments have been applied retrospectively.
The Group has assessed whether certain of its financial assets and financial liabilities qualify for offset based on the criteria set out in the
amendments and concluded that the application of the amendments does not have any material impact on the amounts recognised in the
Group’s consolidated financial statements.
2.2 Standards and Interpretations in issue not yet adopted
At the date of authorisation of the financial statements, the Standards and Interpretations listed below were in issue but not yet effective.
Standard/Interpretation
AASB 9 ‘Financial Instruments’, and the relevant amending standards(i)
AASB 15 ‘Revenue from Contracts with Customers’ and AASB 2014-5
‘Amendments to Australian Accounting Standards arising from AASB 15’
Effective for annual
reporting periods
beginning on or after
1 January 2018
1 January 2018
Expected to be
initially applied
in the financial
year ending
31 July 2019
31 July 2018
AASB 2014-4 ‘Amendments to Australian Accounting Standards – Clarification
of Acceptable Methods of Depreciation and Amortisation’
1 January 2016
31 July 2017
AASB 2015-1 ‘Amendments to Australian counting Standards – Annual
Improvements to Australian Accounting Standards 2012-2014 Cycle’
AASB 2014-9 ‘Amendments to Australian counting Standards – Disclosure
Initiative: Amendments to AASB 101’
AASB 2014-9 ‘Amendments to Australian counting Standards arising from
the Withdrawal of AASB 1031 Materiality’
AASB 2014-9 ‘Amendments to Australian counting Standards – Investment
Entities: Applying the Consolidation Exception’
(i) The AASB has issued the following versions of AASB 9:
1 January 2016
31 July 2017
1 January 2016
31 July 2017
1 July 2015
31 July 2016
1 January 2016
31 July 2017
yy AASB 9 ‘Financial Instruments’ (December 2009) and the relevant amending standard;
yy AASB 9 ‘Financial Instruments’ (December 2010) and the relevant amending standards;
yy AASB 2013-9 ‘Amendment to Australian Accounting Standards – Conceptual Framework, Materiality and Financial Instruments’, Part C – Financial Instruments
yy AASB 9 ‘Financial Instruments’ (December 2014) and the relevant amending standards
All the standards have an effective date of annual reporting periods beginning on or after 1 January 2018. Either AASB 9 (December 2009) or AASB 9 (December 2010)
can be early adopted if the initial application date is before 1 February 2015. After this date only AASB 9 (December 2014) can be early adopted.
At the date of authorisation of the financial statements, the following IASB standards and IFRIC Interpretations were also in issue but not
yet effective, although Australian equivalent Standards and Interpretations have not yet been issued.
The potential impacts of the above Standards on the reported results or financial position are yet to be assessed.
51
Funtastic Annual Report 2015
Notes to the Financial Statements
continued
Note 3: Critical accounting judgments and key sources of estimation uncertainty
In the application of the Group’s accounting policies, which are described in Note 2, the Directors are required to make judgements,
estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources.
The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant.
Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the
period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the
revision affects both current and future periods.
Key sources of estimation uncertainty
The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting
period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next
financial year.
(i) Impairment of goodwill in continuing business segments
The Group tests annually or when impairment indicators are identified, whether goodwill has suffered any impairment, in accordance
with the accounting policy. The recoverable amounts of the cash-generating units have been determined on a value in use basis. These
calculations require the use of assumptions. A significant change to these assumptions may affect the recoverable amount of the cash
generating units (refer to Note 15).
(ii) Recoverability of prepaid and committed royalty and license agreements
In order to secure product distribution rights the Group is required to prepay for royalties relating to licensed products. The Group
reviews the recoverability of prepaid royalty and license agreements (Note 12) on an annual basis. The Group takes into account current
and projected market sell through in assessing the recoverability of royalty commitments.
(iii) Useful life of intangible assets
Management have assessed the useful life of intangibles on the following basis:
yy Software – based on the licence or expected
yy Patents and Trademarks – based on the contractual life of the patent
yy Licensed distribution agreements – based on the term of the agreement or the expected Brand product life cycle
Whilst the current useful lives are management’s best estimate, a periodic review is undertaken to ensure that these remain appropriate.
(iv) Recoverability of inventory
The Group periodically assesses whether the net realisable value (NRV) of its inventories is reasonable in light of changing market
conditions within the retail sector and the Group’s reassessment of brand portfolio. Whilst the Group has provided to recognise the best
estimate for the amount for which its inventory will be realised, the final amounts will be subject to the prevailing market conditions and
may differ from the amounts provided for.
(v) Recoverability of debtors
The Group periodically assesses the net realisable value of its trade debtors in light of ageing and other market indicators of impairment.
Whilst the Group has provided against impaired debts based on its best estimate of the recoverable amount, final amounts recovered may
differ to that provided against.
(vi) Taxation losses recognised as asset
The Group has recognised a deferred tax asset in respect to revenue tax losses of approximately 2 years future profits based on the
expected future taxable income. The final amount recoverable will depend on losses being available under the “continuity of ownership
test”, where applicable the “same business test” and the Group achieving further taxable income. Management assesses both “continuity
of ownership test” and availability of taxable income at each balance date. Based on the current assessment, Management believe it is
appropriate to continue recognising two years of future taxable income, determined using current budget forecasts for FY16. Refer to
Note 8 for details of tax losses taken up as at 31 July 2015.
(vii) Discontinued operations
On 31 July 2014, the Group entered into and completed a sale agreement to dispose of Madman Entertainment. Consequently, Madman
Entertainment ceased to be a subsidiary of the Group at 31 July 2014. At 31 July 2014, the Company recognised an asset of $3.8m relating to
the working capital adjustment due from the Purchaser on final settlement in respect to the Madman sale. During the year, an independent
review process was undertaken resulting in a determination that the amount receivable from Madman was $332,000. The Group has
written down $3.5m against the receivable to reflect this determination. Whilst a provision has been made, the Group does not agree with
the determination and is in the process of an appeal. The Group has received an expert’s opinion that it has a high probability of success.
52
Note 4: Segment information
From 31 July 2014, post the sale of Madman Entertainment, Funtastic restructured the Group and consolidated its business strategy such
that the Chief Operating Decision Maker directs assets and resources on a group wide basis. Accordingly, Funtastic have aligned internal
reporting to reflect this change which has resulted in the company reducing the number from two segments at 31 July 2014 down to one
at 31 July 2015.
Geographical Information
The Group operates in three principal geographical areas – Australia, Hong Kong and USA. The Group’s revenue from external
customers and information by geographical location is as follows:
Revenue from External Customers
Australia
Hong Kong
USA
Revenue from
External Customers
Non-Current Assets(i)
Year ended
31 July 2015
Year ended
31 July 2014
31 July 2015
31 July 2014
$’000
84,363
21,313
159
$’000
90,650
33,299
–
$’000
55,157
1,479
24
$’000
96,874
968
–
105,835
123,949
56,660
97,842
(i) Non-current assets exclude financial instruments, deferred tax assets, post-employment benefit assets, and assets arising from insurance contracts. Goodwill and
other intangibles have been allocated to Australian geography as this is the Company’s main domicile and these assets are not allocated to a level lower than the
consolidated group.
Information about major customers
Included in revenues of Australia of $84,363,000, are revenues of approximately $62,434,000 (2014:$34,704,090), which arose from
sales to that region’s four largest customers.
Included in revenues of Hong Kong of $21,313,000, are revenues of approximately $7,158,000 (2014:14,374,917), which arose from sales
to that region’s four largest customers.
Total USA revenue for 2015 and 2014, arose from sales to that region’s three largest customers.
Funtastic
Annual
Report
2015
53
Notes to the Financial Statements
continued
Note 5: Discontinued operations
On 31 July 2014, Madman Entertainment ceased to be a subsidiary of the Group.
The Group recognised a loss before tax on the sale of the Madman Entertainment operations of $29,441,000 as at 31 July 2014. During
the year ended 31 July 2015, the Company recognised further losses in respect to the sale of $3,669,000 relating to accumulated costs
incurred for completion ($229,000) and a write down of the deferred consideration recognised at 31 July 2014 ($3,440,000). Whilst
the Company has provided for the reduction in the deferred consideration to align with the Independent Accountant’s assessment, it
is confident that the court appeal process will result in the recovery of a significant portion of the amount, and therefore a future profit
being recognised by the Group.
Consideration received
Sale consideration – Madman
Cash asset – Madman
Total amount received from sale of businesses
Deferred consideration – Madman
Total proceeds from sale of businesses
Costs to sell
Net proceeds from sale of businesses
Results of discontinued operation
Revenue
Expenses
Results from operating activities
Tax
Result from operating activities, net of tax
Loss on sale of discontinued operation
Tax benefit on loss on sale of discontinued operation
Loss for the year from discontinued operations
Basic earnings per share (cents per share)
Diluted earnings per share (cents per share)
Cash flows from (used in) discontinued operation
Net cash from operating activities
Net cash used in investing activities
Net cash flows for the year
54
$’000
21,500
(1,603)
19,897
332
20,229
(1,434)
18,795
Year ended
31 July 2015
Year ended
31 July 2014
$’000
–
(229)
(229)
–
(229)
(3,440)
–
$’000
37,867
(40,369)
(2,502)
632
(1,870)
(29,441)
5,614
(3,669)
(25,697)
(0.55)
(0.55)
(3.88)
(3.88)
Year ended
31 July 2015
Year ended
31 July 2014
$’000
–
–
–
$’000
2,671
(1,596)
1,075
Note 5: Discontinued operations continued
Year ended
31 July 2015
Year ended
31 July 2014
Effect of disposal on the financial position of the Group
$’000
Trade receivables
Current tax assets
Inventories
Other assets
Intangible assets
Plant and equipment
Trade payable
Provisions
Other liabilities
Net assets disposed of
Goodwill relating to Madman (CGU)
Net asset effect of disposal of Madman to the Group
Less: net proceeds from sale of business
Loss on disposal of Madman Entertainment, before tax
Note 6: Revenue
The following is an analysis of the Group’s revenue for the year from continuing operations.
Revenue from the sale of goods
Gross revenue
Less settlement discounts and rebates
Commissions received
Other
–
–
–
–
–
–
–
–
–
–
–
–
3,440
3,440
$’000
4,153
121
3,043
24,860
1,737
910
(6,606)
(1,184)
(3,979)
23,055
28,850
51,905
(22,464)
29,441
Year ended
31 July 2015
Year ended
31 July 2014
$’000
117,252
(11,417)
105,835
42
(10)
32
$’000
140,044
(16,095)
123,949
637
3
640
105,867
124,589
Funtastic
Annual
Report
2015
55
Notes to the Financial Statements
continued
Note 7: Profit for the year
(Loss) profit for the year from continuing operations has been arrived at after charging/(crediting):
Year ended
31 July 2015
Year ended
31 July 2014
Note
$’000
$’000
10
642
652
11,120
715
(261)
570
333
2,305
264
3,472
129
603
158
236
10,358
11,355
15
604
619
–
135
–
691
279
2,969
479
4,418
884
806
302
558
9,824
11,490
Investment Income
Interest from bank deposits
Rental income
Impairment of goodwill and intangible assets
15/16
Impairment loss recognised on trade receivables
Reversal of impairment loss recognised on trade receivables
Depreciation and amortisation expense
Depreciation of plant & equipment
Depreciation of leasehold improvements
Amortisation of other intangible assets
Amortisation of product development costs/trademarks
Total depreciation and amortisation expense
Research costs expensed as incurred
Employee benefits expense
Defined contribution plans
Equity-settled share-based payments
Termination benefits
Other employee benefits
Total employee benefits expense
56
Note 8: Income tax
(a) Income tax expense relating to continuing operations
Tax expense comprises:
Current tax expense in respect of the current year
Adjustments recognised in the current year in relation to the current tax expense
of prior years
Deferred tax expense comprises:
Effect of reversal of previously recognised and unused tax losses
Deferred tax (benefit) expense relating to the origination and reversal
of temporary differences
Adjustments recognised in the current year in relation to the deferred tax of prior years
Deferred tax reclassified from equity to profit or loss
Total tax expense relating to continuing operations
(b) Income tax recognised in profit or loss
The expense for the year can be reconciled to the accounting profit as follows:
Loss from continuing operations
Tax benefit at the Australian tax rate of 30%
Tax effect of amounts which are not deductible/(taxable) in calculating taxable income:
Expenses that are not deductible in determining taxable loss
Effect of current year’s unrecognised and unused tax losses
Effect of reversal of previously recognised and unused tax losses
Effect on previously unrecognised and unused capital losses
Effect of different tax rates of subsidiaries operating in other jurisdictions
Other
Adjustments recognised in the current year in relation to the deferred tax of prior years
Income tax expense recognised in profit or loss
Year ended
31 July 2015
Year ended
31 July 2014
$’000
$’000
187
14
201
7,984
1,428
134
(55)
9,692
48
–
48
1,139
(734)
(75)
342
720
Year ended
31 July 2015
Year ended
31 July 2014
$’000
$’000
(24,172)
(7,252)
(9,290)
(2,787)
4,124
4,924
7,984
–
(212)
(10)
9,558
134
9,692
968
3,057
–
(471)
28
–
795
(75)
720
Funtastic
Annual
Report
2015
57
Notes to the Financial Statements
continued
Note 8: Income tax continued
(c) Income tax recognised directly in equity
Deferred Tax/asset:
Financial instruments treated as cash flow hedges
Relating to share issue expenses deductible over 5 years
(d) Current tax balances
Current tax liabilities and assets
Income tax payable (receivable) / from tax office:
Other – overseas subsidiaries
(e) Deferred tax balances
Deferred tax assets comprises:
Revenue tax losses
Temporary differences
Deferred tax liabilities comprises:
Temporary differences
Net deferred tax asset
Deferred tax assets/(liabilities) arise from the following:
Provisions – receivables
Provisions – employee benefits
Provisions – onerous contracts
Revenue tax losses
Accruals
Prepaid royalties
Other provisions
Foreign exchange
Cash flow hedges
Section 40 –880 deductions (capital raising)
Other
Year ended
31 July 2015
Year ended
31 July 2014
$’000
$’000
119
180
299
54
315
369
Year ended
31 July 2015
Year ended
31 July 2014
$’000
$’000
(195)
5
Year ended
31 July 2015
Year ended
31 July 2014
$’000
$’000
2,177
1,190
3,367
(254)
3,113
78
219
49
2,177
117
(190)
399
(64)
119
180
29
10,161
2,493
12,654
(235)
12,419
229
199
153
10,161
74
(180)
1,385
(54)
54
315
83
58
3,113
12,419
Note 8: Income tax continued
(e) Deferred tax balances continued
2015 Temporary
differences
Opening
Balance
Recognised
in Profit
& Loss
Recognised
in Other
Compre-
hensive
income
Recognised
directly in
equity
Adjust-
ments
on divest-
ments of
Madman
Closing
Balance
2015 Gross Deferred Tax Liabilities
Prepaid royalties
FX on foreign operations
2015 Gross Deferred Tax Assets
Provisions
Accruals
Cash flow hedges
Capital Raising (S40-880)
Tax Losses
Other
(180)
(54)
(234)
(10)
–
(10)
1,966
(1,221)
74
54
315
10,161
84
12,654
43
–
–
(7,984)
(55)
(9,217)
–
(10)
(10)
–
–
65
–
–
–
65
–
–
–
–
–
–
(135)
–
–
(135)
–
–
–
–
–
–
–
–
–
–
2014 Temporary
differences
Opening
Balance
Recognised
in Profit
& Loss
Recognised
in Other
Compre-
hensive
income
Recognised
directly in
equity
Adjust-
ments
on divest-
ments of
Madman
2014 Gross Deferred Tax Liabilities
Prepaid royalties
FX on foreign operations
2014 Gross Deferred Tax Assets
Provisions
Accruals
Cash flow hedges
Capital Raising (S40-880)
Tax Losses
Other
(5,883)
(207)
(6,090)
1,876
103
(207)
509
10,161
224
12,666
(823)
146
(677)
855
39
–
–
–
(62)
832
–
7
7
–
–
261
–
–
–
–
–
–
–
–
–
(194)
–
–
261
(194)
6,526
–
6,526
(765)
(68)
–
–
–
(78)
(911)
(190)
(64)
(254)
745
117
119
180
2,177
29
3,367
Closing
Balance
(180)
(54)
(234)
1,966
74
54
315
10,161
84
12,654
Funtastic
Annual
Report
2015
59
Notes to the Financial Statements
continued
Note 8: Income tax continued
(e) Deferred tax balances continued
The following deferred tax assets have not been brought to account as assets:
Tax losses – Revenue
Tax losses – Capital
Unused tax credits
Year ended
31 July 2015
Year ended
31 July 2014
$’000
66,553
53,267
–
119,820
$’000
24,463
49,598
–
74,061
Unrecognised taxable temporary differences associated with investments and interests in subsidiaries
Under the tax law, the taxable profit made by a tax-consolidated group in relation to an entity leaving the group depends on a range
of factors, including the tax values and/or carrying values of the assets and liabilities of the leaving entities, which vary in line with the
transactions and events recognised in each entity. The taxable profit or loss ultimately made on any disposal of the investments within the
tax-consolidated group will therefore depend upon when each entity leaves the tax-consolidated group and the assets and liabilities that
the leaving entity holds at that time.
The Group considers the effects of entities entering or leaving the tax-consolidated group to be a change of tax status that is only
recognised when those events occur. As a result temporary differences and deferred tax liabilities have not been measured or recognised
in relation to investments remaining within the tax-consolidated group.
Tax consolidation
(i) Relevance of tax consolidation to the Group
The Company and its wholly-owned Australian resident entities formed a tax-consolidated Group with effect from 1 January 2003 and are
therefore taxed as a single entity from that date. The head entity within the tax-consolidated Group is Funtastic Limited. The members of
the tax-consolidated Group are identified in Note 31.
(ii) Nature of tax funding arrangement and tax sharing agreement
Entities within the tax-consolidated Group have entered into a tax funding arrangement and a tax sharing agreement with the head entity.
Under the terms of the tax funding arrangement, Funtastic Limited and each of the entities in the tax-consolidated Group have agreed to
pay a tax equivalent payment to or from the head entity, based on the current tax liability or current tax asset of the entity. Such amounts
are reflected in amounts receivable from or payable to the other entities in the tax consolidated Group.
The tax sharing agreement entered into between members of the tax-consolidated Group provide for the determination of the allocation
of income tax liabilities between the entities should the head entity default on its tax payment obligations or if an entity should leave the
tax consolidated Group. The effect of the tax sharing agreement is that each member’s liability for tax payable by the tax consolidated
Group is limited to the amount payable to the head entity under the tax funding arrangement.
Tax Losses
As at 31 July 2015 the Australian Group has carried forward revenue tax losses of approximately $73,791,000 (2014: $57,332,000).
As at 31 July 2015 a deferred tax asset of $2,177,000 (2014: $10,161,000) has been booked relating to revenue tax losses of $7,257,000
(2013: $33,873,000). The Company made losses in the current and previous reporting period. Following the assessment of the probability
of recovery, having considered forecast future taxable income and current tax legislation with respect to carrying forward revenue tax
losses, the full balance of tax losses available at 31 July 2015 of $66,553,000 has not been booked as a deferred tax asset in these
financial statements.
The utilisation of deferred tax assets is dependent on the Company generating future taxable profits in excess of the profits arising from
the reversal of existing temporary differences. The Company has performed assessment of FY16 forecasts and results to date support
the carrying of these losses.
60
Funtastic
Annual
Report
2015
Note 9: Finance costs
Continuing operations
Interest on bank overdrafts and loans
Fair value losses on interest rate swaps designated as cash flow hedges transferred
from equity
Note 10: Current assets – Trade and other receivables
Trade receivables(i)
Allowance for doubtful debts
Allowance for credit notes, rebates and settlement discounts
Other receivables
Year ended
31 July 2015
Year ended
31 July 2014
$’000
$’000
3,011
(19)
4,606
(554)
2,992
4,052
Year ended
31 July 2015
Year ended
31 July 2014
$’000
12,948
(260)
(2,891)
9,797
339
10,136
$’000
21,193
(763)
(4,242)
16,188
950
17,138
(i) The average credit period on sales of goods is 60 days (2014: 56 days). No interest is charged on the trade receivables.
The Group has provided for any receivable considered uncollectible and therefore deemed to be not recoverable.
Included in the Group’s trade receivable balance are debtors with a carrying amount of $1,679,000 (2014: $2,797,288) which are past
due at the reporting date for which the Group has not provided as there has not been a significant change in credit quality and the Group
believes the amounts are recoverable.
Age of receivables that are past due but not impaired
30-60 days
60-90 days
90-120 days
Total
Average age (days)
Year ended
31 July 2015
Year ended
31 July 2014
$’000
1,094
311
274
1,679
60
$’000
1,954
195
648
2,797
68
The Group does not hold any collateral over these balances.
The Group reviews trade debtors on an ongoing basis and makes a provision against specific debtors based on management’s assessment
of the debtors’ ability to settle the debt.
The Group reviews the provision for credit notes, rebates and settlement discounts on an ongoing basis and makes allowances for
individual customers based on historical sales, trading terms and expected returns, settlement discounts and rebates.
61
Notes to the Financial Statements
continued
Note 10: Current assets – Trade and other receivables continued
Movement in Allowance for doubtful debts, credit notes,
rebates and settlement discounts
Rebates,
credit notes
& settlement
discounts
Doubtful debts
$’000
$’000
2015
Balance at beginning of year
Utilised
Reversed
Provisions raised
Balance as at 31 July 2015
2014
Balance at beginning of year
Utilised
Reclassed from accruals
Provisions raised
Balance as at 31 July 2014
(763)
144
453
(94)
(260)
(461)
133
(300)
(135)
(763)
(4,242)
11,025
281
(9,955)
(2,891)
(7,855)
4,131
–
(518)
Total
$’000
(5,005)
11,169
734
(10,049)
(3,151)
(8,316)
4,264
(300)
(653)
(4,242)
(5,005)
In determining the recoverability of a trade receivable the Group considers any change in the credit quality of the trade receivable from
the date credit was initially granted up to the reporting date. The concentration of credit risk is limited due to the customer base being
large and unrelated. Accordingly, the Directors believe that there is no further credit provision required in excess of the allowance for
doubtful debts.
Note 11: Current assets – Inventories
Finished goods
Year ended
31 July 2015
Year ended
31 July 2014
$’000
16,563
$’000
17,914
The cost of inventories recognised as an expense during the year in respect of continuing operations was $77,182,000 (2014: $90,689,000).
62
Funtastic
Annual
Report
2015
Note 12: Other assets
Current other assets
Prepaid royalties
Prepayments
Deferred sale consideration
Other
Non-current other assets
Product development costs
Trademarks
Other
Note 13: Other financial assets
Current
Derivatives that are designated and effective as hedging instruments carried at fair value
– foreign currency forward contracts
Year end
31 July 2015
Year end
31 July 2014
Note
$’000
$’000
5
633
1,114
332
1,293
3,372
103
216
86
405
716
1,766
3,772
60
6,314
129
130
210
469
Year ended
31 July 2015
Year ended
31 July 2014
$’000
$’000
38
38
–
–
These are classified as Level 2 fair value measurement. Future cash flows are estimated based on forward exchange rates (from observable
forward exchange rates at the end of the reporting period) and contract forward rates, discounted at a rate that reflects the credit risks of
various counter parties.
Note 14: Non-current assets – Plant and equipment
Plant and equipment – at cost
Less: accumulated depreciation
Leasehold improvements – at cost
Less: accumulated depreciation
Net book value at 31 July 2015
Year ended
31 July 2015
Year ended
31 July 2014
$’000
3,688
(2,605)
1,083
1,971
(1,304)
667
1,750
$’000
2,805
(2,136)
669
1,773
(874)
899
1,568
63
Notes to the Financial Statements
continued
Note 14: Non-current assets – Plant and equipment continued
Reconciliations
Reconciliations of the carrying amounts of each class of plant and equipment at the beginning and end of the current financial year are set
out below:
31 July 2015
Cost
Opening Balance
Additions
Disposals
Transfers
Net foreign exchange difference
Closing Balance
Accumulated Deprecation
Opening Balance
Disposals
Depreciation
Transfers
Net foreign exchange difference
Closing Balance
Written Down Value
Opening Balance
Closing Balance
31 July 2014
Cost
Opening Balance
Additions
Disposals
De-recognition on disposal of a subsidiary
Net foreign exchange difference
Closing Balance
Accumulated Deprecation
Opening Balance
Disposals
De-recognition on disposal of a subsidiary
Depreciation
Net foreign exchange difference
Closing Balance
Written Down Value
Opening Balance
Closing Balance
64
Plant &
Equipment
Leasehold
Improvements
$’000
$’000
2,805
1,132
(567)
3
315
3,688
(2,136)
516
(570)
(6)
(409)
1,773
68
(48)
–
178
1,971
(874)
41
(333)
–
(138)
Total
$’000
4,578
1,200
(615)
3
493
5,659
(3,010)
557
(903)
(6)
(547)
(2,605)
(1,304)
(3,909)
669
1,083
899
667
1,568
1,750
4,383
568
(509)
(1,617)
(20)
2,805
(2,962)
558
1,031
(784)
21
(2,136)
1,421
669
2,206
124
(12)
(545)
–
1,773
(708)
3
221
(390)
–
(874)
1,498
899
6,589
692
(521)
(2,162)
(20)
4,578
(3,670)
561
1,252
(1,174)
21
(3,010)
2,919
1,568
Note 15: Non-current assets – Goodwill
Carrying amount
Balance at the beginning of financial year
De-recognition on disposal of a subsidiary
Impairment losses for the year
Balance at the end of financial year
Year ended
31 July 2015
Year ended
31 July 2014
$’000
49,995
–
(10,830)
39,165
$’000
78,845
(28,850)
–
49,995
Since 31 July 2014, post the sale of Madman Entertainment, Funtastic has restructured the operations of the Group and consolidated its
business. As a result of this re-structuring, the number of CGU’s has reduced from two down to one. Goodwill is allocated to the single
CGU in the business.
The CGU is required to perform an impairment test annually on goodwill and other indefinite life intangible assets as required by
AASB 136. More frequent reviews are performed for indications of impairment of the CGU, and where an indication of impairment
is identified a formal impairment assessment is performed.
In addition to the requirement to perform the annual test, the Group has identified the following Indicators of impairment at 31 July 2015:
yy The financial year result was below budget expectations. This is due to lower than anticipated international sales as a result of
high international distributor inventory levels and the continued efforts to clear excess inventory at lower margins and cost
rationalisation initiatives.
yy The market capitalisation has declined during the financial year as a result of the devaluation of share price. This is the result of:
– Divestment by one of the major institutions.
– Lower than expected performance and the impact of the turnaround strategies not yet evident to the market.
– High price volatility due to significant shareholding held by limited number of shareholders resulting in a limited volume of share
available for trading.
As a result, the Group assessed the recoverable amount of the CGU and related goodwill and intangibles at 31 July 2015 having regard to
the value-in-use approach.
Impairment testing – Value-in-use
In calculating value-in-use, the cash flows include projections of cash inflows and outflows from continuing use of the group of assets making
up the CGU. The cash flows are estimated for the assets of the CGU in their current condition and discounted to their present value using
a post-tax discount rate that reflects the current market assessments of the risks specific to the CGU. The group uses a 5 year discounted
cash flow model with a terminal growth rate for years beyond the 5 year forecast period.
Key assumptions
In determining the value-in-use, the following key assumptions were used:
yy EBITDA margin of 5.7% based upon the forecast product, sales and customer mix and assumptions about the fixed cost base;
yy The FY16 forecast includes expectations that, between 5%-10% of the Company’s revenue will be from the USA. Given the stage
of the developments, this revenue has a higher level of uncertainty.
yy Terminal growth rate of 1.5% which is materially consistent with long term economic growth in the key markets in which the
CGU operates;
yy Post-tax discount rate of 11%, which reflects the risks specific to the CGU.
Cash flow forecasts for the CGU are based on forecast sales and gross margins for FY2016. The forecast FY2016 sales forecast
assumes that the CGU will achieve higher sales than FY2015 particularly in the international market. Margins used in the forecast are
based upon a bottom up forecast approach, historical and anticipated product margins and assumptions on projected sales mix and
rebate arrangements.
Funtastic
Annual
Report
2015
65
Notes to the Financial Statements
continued
Note 15: Non-current assets – Goodwill continued
Outcome of assessment
The Directors recognised an impairment of goodwill by an amount of $10,830,000 as at 31 January 2015. This impairment amount
represented the lower impairment charge from the value-in-use impairment assessment completed at that date, and the cross check
to fair value less cost of disposal (as disclosed in 31 January 2015 Half Year accounts).
The assessment completed at 31 July 2015 has resulted in a recoverable amount of $50,258,434. As such, no additional impairment
has been recognised.
Sensitivity analysis
Changes in the key assumptions in the table below would have the following approximate impact on the recoverable amount of the
CGU at 31 July 2015:
EBITDA margin
USA Gross Revenue
Post tax discount rate
Effect on
recoverable
amount
$’000
5,164
(5,164)
2,278
(4,463)
(4,428)
5,466
Change in
variable
+ 0.5%
– 0.5%
+ 30.0%
– 30.0%
+ 2.0%
– 2.0%
Changes in the assumptions used in the CGU value-in-use model, when considered in isolation, will result in the following impairment
impact on the profit or loss.
EBITDA margin
USA Gross Sales
Post tax discount rate
Change in
variable
– 0.5%
– 30.0%
+ 1.0%
Effect on
profit or loss
$’000
(1,422)
(721)
(686)
It must be noted that each of the sensitivities above assumes that a specific assumption moves in isolation, while the other assumptions
are held constant. In reality, a change in one of the aforementioned assumptions could be accompanied by a change in another assumption,
which may increase or decrease the net impact.
66
Funtastic
Annual
Report
2015
Total
$’000
27,013
662
–
(28)
6
27,653
27,950
2,886
(1,125)
(2,211)
(487)
27,013
(9,634)
(2,305)
(290)
6
(3)
(12,226)
(6,901)
(3,479)
(4)
474
276
Note 16: Non-current assets – Other intangibles
Licenses,
distribution
agreements
and supplier
relationships(vii)
Chill Factor
Trademarks
and patents(iii)
Software
Brand names(i)
$’000
$’000
$’000
$’000
Cost
Balance at 1 August 2014
5,650
1,015
10,423
Additions(iv)
Disposals
Transfer(vi)
Foreign exchange difference
Balance at 31 July 2015
Balance at 1 August 2013
Additions
Revaluation adjustment
De-recognition on disposal
of a subsidiary
Disposals
Balance at 31 July 2014
Accumulated amortisation
and impairment
Balance at 1 August 2014
Amortisation expense(ii)
Impairment expense(v)
Transfer(vi)
Foreign exchange difference
Balance at 31 July 2015
Balance at 1 August 2013
Amortisation expense
Net foreign exchange
difference
De-recognition on disposal
of a subsidiary
Disposals
106
–
(28)
6
5,734
5,967
2,360
–
(2,211)
(466)
5,650
(4,040)
(527)
–
6
(3)
(4,564)
(3,814)
(972)
(4)
474
276
Balance at 31 July 2014
(4,040)
–
–
–
–
1,015
1,015
–
–
–
–
–
–
–
–
10,423
11,341
207
(1,125)
–
–
1,015
10,423
–
–
(290)
–
–
(537)
(538)
–
–
–
(290)
(1,075)
–
–
–
–
–
–
–
(537)
–
–
–
9,925
556
–
–
–
10,481
9,627
319
–
–
(21)
9,925
(5,057)
(1,240)
–
–
–
(6,297)
(3,087)
(1,970)
–
–
–
Net book value
As at 31 July 2014
As at 31 July 2015
1,610
1,170
1,015
725
9,886
9,348
4,868
4,184
17,379
15,427
67
(537)
(5,057)
(9,634)
Notes to the Financial Statements
continued
Note 16: Non-current assets – Other intangibles continued
(i) Brand names acquired and separately identified as part of the acquisition of Mike & Jack confectionery in May 2006. The Group intends to continue the use of the brand
names for an indefinite period and are therefore not amortised but are subject to an annual test for impairment. The key assumptions used in the fair value less cost to sell
calculations are stated in Note 15.
(ii) The amortisation expense has been included in the line item ‘amortisation’ in the statement of profit or loss and other comprehensive income. Useful lives used in the
calculation of amortisation of computer software costs are between 3 and 7 years. Distribution agreements have useful lives in the range of 1-10 years.
(iii) Chill Factor trademarks and patents were acquired on 31 July 2013. The useful lives have been assessed as being between 10-15 years for trademarks and 20 years for
patents in accordance with the contractual live of the asset.
(iv) On 30 January 2015, Funtastic acquired the remaining 25% of equity in Safety Products International Pty Limited for the amount of $277,000. This resulted in Funtastic
currently having 100% ownership over the subsidiary.
(v) During the year, the Group assessed the recoverable value of its other intangible assets. As a result of the impairment assessment, the Directors have determined to impair
Brand names by an amount of $290,000.
(vi) Software transfers relate to reclassification of intangibles to PPE.
(vi) Licenses, distribution agreements and supplier relationships include the Pillow Pets and Floaties Brands which are now wholly owned and no longer licenced from third parties.
Reassessment of Useful life
The company reassessed the useful life of intangibles in respect to certain Brands. The useful lives of these particular intangibles were
assessed to be 10 years, with amortisation commencing 1 August 2014. The impact of this reassessment on the results for FY15, and
for each future period ending 31 July 2024, is an amortisation charge of $407,000 per annum.
Impairment testing – Other Intangibles (Brands)
The brands recoverability has been assessed based on the royalty method by applying a market related royalty rate to the expected future
sales and terminal growth rate. Projected sales were calculated based on historical sales, current budgets and long term forecasts. The
estimated product life cycle of the intangible was also included in the calculation. Projected sales forecasts are consistent with forecasts
used in the assessment of goodwill. Assets designated as Brand names are not amortised as they are considered to have an indefinite
useful life.
Key assumptions
The following key assumptions were used:
yy Royalty rates based on comparative rates and adjusted for key brand attributes;
yy Terminal growth rate of 2.5%, and
yy Pre-tax discount rate of 13.5%, which reflects the risk specific to brands.
yy Included in the cash flow forecast is revenue expected from the Company’s distribution expansion in to the USA. Management is
expecting between 5%-10% of the Company’s revenue from this market, which given its stage of development, has a higher level
of uncertainty.
Outcome of assessment
The Group assessed the recoverable value of its other intangible assets at 31 January and 31 July 2015. As a result of this impairment
assessment, the Directors impaired the confectionery Brand by an amount of $290,000 as at 31 January 2015. This impairment has arisen
based upon an assessment of the discounted future earnings, determined by applying a market related royalty rate to expected future
sales and terminal growth rate. No additional impairment is deemed necessary based on an impairment assessment conducted as at
31 July 2015.
Note 17: Assets pledged as security
In accordance with the security arrangements of liabilities as disclosed in Note 19 to the financial statements, all assets of the Group,
except goodwill and deferred tax assets, have been pledged as security. The Group does not have the right to sell or re-pledge the assets.
Note 18: Current Liabilities – Trade payables
Trade payables(i)
Year ended
31 July 2015
Year ended
31 July 2014
$’000
11,615
$’000
17,280
(i) The average credit period on purchases of certain goods from international suppliers ranges from 4 weeks to 4 months. There is no interest charged on trade payables.
The Group has financial risk management policies in place to ensure that, as often as possible, all payables are paid within a reasonable timeframe.
68
Note 19: Borrowings
Secured – at amortised cost
Note
$’000
$’000
Year ended
31 July 2015
Year ended
31 July 2014
Current
Bill finance
Debtors finance
Finance lease liabilities
Trade finance
Overdraft
Total Current
Non-current
Bill finance
Finance lease liabilities
Total Non-current
Current borrowings
Non-current borrowings
23
23
15,965
-
130
22,657
3,679
42,431
-
26
26
42,431
26
42,457
3,665
4,783
265
20,644
-
29,357
7,000
299
7,299
29,357
7,299
36,656
The Trade finance, Bill finance and Overdraft facilities are secured by a first ranking registered mortgage debenture over all assets and
undertakings of the Group. See Note 17.
Post 31 July 2015 the overall facilities were extended to 31 December 2016. Due to the nature of the debtor and trade finance facilities,
amounts are continually repaid and redrawn based on normal trade debtor and trade creditor terms. Amounts due at 31 December 2016
in respect of these facilities have been disclosed as current borrowings in the statement of financial position.
Financing Arrangements
Post the Group’s financial year end the Group’s senior lender, National Australia Bank, agreed to vary the terms of the existing facilities
agreement to vary the timing of the 2015/2016 borrowing repayments. On 29 September 2015 the Group finalised an extension to the
existing facilities to 31 December 2016.
The current interest rates are 8.45% on the trade finance facility and 7.14% on the bill finance facility (2014: 7.49% and 5.97% respectively,
and debtors finance facility 5.78%)
Financing Arrangements – Controlled Entities
All facilities are secured by a first ranking mortgage debenture of the Group. Refer to Note 33 Financial Instruments for further details
regarding the lending covenants associated with the borrowings.
Funtastic
Annual
Report
2015
69
Notes to the Financial Statements
continued
Note 20: Provisions
Current
Employee benefits(i)
Onerous lease contracts(ii)
Licensor audits(iii)
Total Current
Non-current
Employee benefits(i)
Onerous lease contracts(ii)
Total Non-current
Balance at 1 August 2014
Reductions resulting from re-measurement or settlement without cost
Reductions arising from payments/other sacrifices of future
economic benefits
Balance at 31 July 2015
Balance at 1 August 2013
Additional provisions recognised
Reductions resulting from re-measurement or settlement without cost
Balance at 31 July 2014
Year ended
31 July 2015
Year ended
31 July 2014
Note
$’000
$’000
30
30
787
188
105
1,080
83
144
227
526
236
122
884
213
272
485
1,307
1,369
Onerous lease
contracts(ii)
$’000
Licensor
Audits(iii)
$’000
508
–
(176)
332
867
–
(359)
508
122
(17)
–
105
421
54
(353)
122
Total
$’000
630
(17)
(176)
437
1,288
54
(712)
630
(i) The provision for employee benefits represents annual leave and long service leave entitlements accrued and compensation claims made by employees.
(ii) Represents the present value of the Directors’ best estimate of the future outflow of economic benefits that will be required to satisfy obligations in respect to onerous
lease contracts (Note 30).
(iii) Product license agreements contain audit rights for licensors. At year end, in respect of licensor audits the Group has provided for the best estimate of amounts payable.
The final amounts payable will be subject to negotiation with the licensor and may differ to the amounts provided in the annual report.
70
Note 21: Other Liabilities
Current
Accrued royalties
GST payable
Lease incentives
Payroll accruals
Other creditors
Other accrued expenses
Sales deposits(i)
Non-current
Lease incentives
Other Creditors
(i) Relates to deposits received for prepaid international sales for the period post 31 July 2015.
Note 22: Other financial liabilities
Current
Derivatives that are designated and effective as hedging instruments carried
at fair value:
Foreign currency forward contracts
Interest rate swaps
Disclosed in the financial statements as:
Current other financial liabilities
Year ended
31 July 2015
Year ended
31 July 2014
Note
$’000
$’000
30
30
1,031
63
182
126
189
1,777
1,264
4,632
100
15
115
924
–
160
367
125
3,008
–
4,584
310
–
310
Year ended
31 July 2015
Year ended
31 July 2014
Note
$’000
$’000
–
435
435
435
44
136
180
180
33
These are classified as Level 2 fair value measurement. Future cash flows are estimated based on forward exchange rates (from observable
forward exchange rates at the end of the reporting period) and contract forward rates, discounted at a rate that reflects the credit risks of
various counter parties.
Funtastic
Annual
Report
2015
71
Notes to the Financial Statements
continued
Note 23: Leasing arrangements
The Group leases certain equipment under finance lease arrangements. The average lease term is 5 years. Of the three leases the Group
has an option to purchase the equipment at the end of the lease terms in respect to one of the contracts. The Group’s obligations under
finance leases are secured by the lessors’ title to the leased assets.
Interest rates underlying all obligations under finance leases are fixed at respective contract dates ranging from 4.67% to 5.1%
(2014: 0.0% to 8.9%) per annum.
Finance lease liabilities
Not later than one year
Later than one year and not later than five years
Less: Future finance charges
Present value of minimum lease payments
Included in the consolidated financial statements:
Current borrowings
Non-current borrowings
Note 24: Issued Capital
Minimum Lease payments
Present value of minimum
lease payments
Year ended
31 July 2015
Year ended
31 July 2014
Year ended
31 July 2015
Year ended
31 July 2014
$’000
$’000
$’000
$’000
130
29
159
(3)
156
272
318
590
(26)
564
130
26
156
–
156
265
299
564
–
564
Year ended
31 July 2015
Year ended
31 July 2014
Note
$’000
$’000
19
19
130
26
156
265
299
564
Year ended
31 July 2015
Year ended
31 July 2014
Included in the Company and consolidated financial statements
$’000
$’000
Share Capital
667,169,723 fully paid ordinary shares (2014: 667,169,723)
208,372
208,372
Fully paid ordinary shares carry one vote per share.
72
Note 24: Issued Capital continued
Movements in Ordinary Share Capital included in the Company and consolidated financial statements:
2015
Share capital
$’000
Number of
shares(i)
Number of
shares(i)
Opening balance 1 August
669,869,723
208,372
644,569,723
2014
Share capital
$’000
204,497
3,875
–
–
–
–
–
–
–
–
–
–
–
–
–
(400,000)
(200,000)
13,500,000
3,600,000
–
–
–
–
–
–
–
–
–
25,000,000
(200,000)
2,200,000
(1,200,000)
(500,000)
–
–
–
–
Chill Factor Global (October 2013)
ESLS 1 forfeiture in November 2013
Shares issued under ESLS 2 in January 2014
ESLS 1 cancellations on 31 July 2014
ESLS 2 cancellations on 31 July 2014
ESLS 1 cancellation during in December 2014
ESLS 2 cancellation during in January 2015
Shares issued under ESLS 3a in July 2015
Shares issued under ESLS 3b in July 2015
Closing balance 31 July
Treasury shares
686,369,723
208,372
669,869,723
208,372
(19,200,000)
–
(2,700,000)
–
Adjusted closing balance
667,169,723
208,372
667,169,723
208,372
(i)
Includes shares issued under the Employee Share Loan Scheme through the Employee Share Plan Rules
Dividend Reinvestment Plan
The company has a dividend reinvestment plan under which holders of ordinary shares may elect to have all or part of their dividend
entitlements satisfied by the issue of new ordinary shares rather than being paid in cash.
Share Purchase Plan
There were no Share Purchase Plans offered to shareholders during the current year.
Options
Executive Share Option Plan
As at 31 July 2015, no options were on issue under the Executive Share Option Plan (2014: 9,333,333 over ordinary shares of the
company). 1,333,333 share options expired on 10 August 2014.
Employee Share Loan Schemes
On 31 July 2015, Funtastic Limited granted 17,100,000 options over ordinary shares of the Company under the Employee Share Loan
Scheme (ESLS). Tranche 3b (3,600,000) options vest on 31 July 2018, conditional upon continued employment with Funtastic at that date.
The remaining 13,500,000 options (Tranche 3a) vested on grant date.
The ESLS Trust was established for the purpose of purchasing and holding shares on behalf of participants. The trust is consolidated into
the group financial statements at each report date. Upon acceptance of the ESLS invitation, these shares are granted to participants and
held by the trust to satisfy Funtastic’s obligation under the ESLS. The share issue in respect of the ESLS shares is represented by treasury
shares taken out of authorised unissued shares. Further details of the ESLS are set out in Note 34.
Funtastic
Annual
Report
2015
73
Notes to the Financial Statements
continued
Note 25: Accumulated losses
Opening balance
Net loss after tax for the year
Dividends paid
Year ended
31 July 2015
Year ended
31 July 2014
$’000
(141,515)
(37,533)
–
$’000
(102,473)
(35,707)
(3,335)
Balance at the end of financial year
(179,048)
(141,515)
Note 26: Reserves
Foreign currency translation reserve
Equity-settled benefits reserve
Cash flow hedging reserve
Foreign currency translation reserve
Balance at the beginning of the period
Income tax related to translation of foreign operations
Translation of foreign operations
Year ended
31 July 2015
Year ended
31 July 2014
$’000
(1,029)
2,099
(277)
793
(976)
10
(63)
(1,029)
$’000
(976)
1,941
(62)
903
(1,013)
(7)
44
(976)
Exchange differences relating to the translation from United States dollars and Hong Kong dollars, being the functional currencies of the
Group’s foreign controlled entities in USA and Hong Kong/China (neither of which are principal places of business), into Australian dollars,
are brought to account by entries made directly to the foreign currency translation reserve.
Equity settled benefit reserve
Balance at the beginning of the period
Share based payments expense
Year ended
31 July 2015
Year ended
31 July 2014
$’000
1,941
158
2,099
$’000
1,639
302
1,941
The equity-settled benefit reserve arises on the grant of share options and performance share rights to Executives and other beneficiaries
under the Executive Share Option (ESOP), Employee Performance Share Rights Plans (EPSR) and Employee Share Loan Scheme (ESLS).
The Company’s ESOP and EPSR were replaced by the ESLS established during the 2013 financial year. As at the 31st July 2015 all options
relating to the ESOP and EPSR had expired.
Amounts are transferred out of the reserve and into issued capital when the options are exercised. Further information about share-based
payments is made in Note 34 to the financial statements.
74
Note 26: Reserves continued
Cash flow hedging reserve
Balance at the beginning of the period
Gain recognised:
Forward exchange contracts
Interest rate swaps
Transferred to profit or loss(i):
Forward exchange contracts
Interest rate swaps
Transferred to initial carrying amount of hedged item:
Forward exchange contracts
Interest rate swaps
Deferred tax liability arising on hedges
Year ended
31 July 2015
Year ended
31 July 2014
$’000
(62)
417
(177)
–
–
(334)
(186)
65
(277)
$’000
297
983
727
564
(644)
(2,379)
129
261
(62)
(i) Gains and losses from Interest swaps, transferred from equity to profit or loss during the period are included in Finance costs in the Statement of Profit or Loss and Other
Comprehensive Income. Gains and losses from Forward exchange contracts, transferred from equity to profit or loss during the period are included in the Cost of Goods
Sold in the Statement of Profit or Loss and other Comprehensive Income.
Net gain on forward exchange contracts, recognised in Cost of Goods Sold
Transfer against Finance income
Year ended
31 July 2015
Year ended
31 July 2014
$’000
$’000
418
(19)
399
564
(554)
10
Funtastic
Annual
Report
2015
75
Notes to the Financial Statements
continued
Note 27: Earnings per share
Basic earnings per share
From continuing operations
From discontinued operations
Total Earnings per share
Diluted earnings per share
From continuing operations
From discontinued operations
Total Earnings per share
31 July 2015
31 July 2014
Cents per
share
Cents per
share
(5.08)
(0.55)
(5.63)
(5.08)
(0.55)
(5.63)
(1.51)
(3.88)
(5.39)
(1.51)
(3.88)
(5.39)
Basic earnings per share calculation:
The earnings and weighted average number of ordinary shares used in the calculation of earnings per share are as follows:
Net loss after tax for the year – continuing operations
Net loss after tax for the year – discontinued operations
Loss used in the calculation of total basic EPS from continuing operations
Weighted average number of ordinary shares outstanding during the year used in the
calculation of basic earnings per share
Diluted earnings per share calculation:
Weighted average number of ordinary shares outstanding during the year used in the
calculation of basic earnings per share
Add: Shares deemed to be issued for no consideration in respect of:
Employee Share Loan Scheme
Weighted average number of ordinary shares and potential ordinary shares used
as the denominator in calculating diluted earnings per share
31 July 2015
31 July 2014
$’000
(33,864)
(3,669)
(37,533)
2015
No. ’000
667,170
$’000
(10,010)
(25,697)
(35,707)
2014
No. ’000
662,740
2015
2014
No. ’000
No. ’000
667,170
662,740
–(i)
–(i)
667,170
662,740
(i) The following potential ordinary shares are anti-dilutive and are therefore excluded from the weighted average number of ordinary shares for the purposes of diluted
earnings per share calculation. Potential ordinary shares are anti-dilutive when their conversion to ordinary shares would increase earnings per share or decrease loss
per share from continuing operations.
76
Funtastic
Annual
Report
2015
Note 27: Earnings per share continued
Potential options – non-dilutive
31 July 2015
31 July 2014
No. ’000
No. ’000
–
–
7,667
7,667
Potential options at 31 July 2014 – non-dilutive is made up of: ESOP 1,333,333 shares; and Unlisted options 6,333,333 shares.
Note 28: Dividends on equity instruments
Recognised amounts
Fully paid ordinary shares
Interim dividend
Year ended 31 July 2015
Year ended 31 July 2014
Cents per
Share
Total
$’000
Cents per
share
Total $’000
–
–
–
–
0.5
0.5
3,335
3,335
Adjusted franking account balance
Impact on franking account balance of dividends not recognised
Year ended
31 July 2015
Year ended
31 July 2014
$’000
19,302
–
$’000
19,302
–
The above amount represents the balances of the franking account as at the end of the financial year, adjusted for:
yy franking credits that will arise from the payment / (refund) of income tax payable as at the end of the year;
yy franking debits that will arise from the payment of dividends proposed as at the end of the year; and
yy franking credits that may be prevented from being distributed in the subsequent financial year.
Note 29: License guarantee commitments
License guarantee commitments
Under the terms of various License Agreements the company guarantees the minimum levels of royalty payments. The commitment
in relation to these guarantees is as follows:
Not later than one year
Later than one year but not later than two years
Year ended
31 July 2015
Year ended
31 July 2014
$’000
1,121
760
1,881
$’000
513
286
799
77
Notes to the Financial Statements
continued
Note 30: Operating Leases
The operating leases are non-cancellable leases with respect to office and warehouse premises with lease terms of between six months
and six years, some with options to extend. All operating leases with options to extend contain market review clauses in the event that the
Group exercises its option to renew. The Group does not have an option to purchase the leased asset at the expiry of the leased period.
The Group has entered into a non-cancellable sub-lease arrangement in respect to a warehouse premise.
Minimum lease payments recognised as an expense:
Minimum lease payments
Sub-lease payments received
Commitments in relation to non-cancellable operating leases contracted
for but not capitalised in the accounts are payable as follows:
No later than 1 year
Later than 1 but not later than 5 years
Later than 5 years
Sub-lease receivables in relation to non-cancellable operating leases contracted
for but not capitalised in the accounts are receivable as follows:
No later than 1 year
Later than 1 but not later than 5 years
Net commitments payable under non-cancellable operating leases contracted
for but not capitalised in the accounts:
No later than 1 year
Later than 1 but not later than 5 years
Liabilities recognised in respect of non-cancellable operating leases
Onerous lease contracts:
Current
Non-current
Lease incentives:
Current
Non-current
78
Year ended
31 July 2015
Year ended
31 July 2014
$’000
2,305
(607)
1,698
2,490
1,531
–
4,021
(607)
(530)
(1,137)
1,883
1,001
2,884
$’000
1,515
(604)
911
3,725
5,444
–
9,169
(607)
(1,176)
(1,783)
3,118
4,268
7,386
Year ended
31 July 2015
Year ended
31 July 2014
Note
$’000
$’000
20
20
21
21
188
144
182
100
614
236
272
160
310
978
Note 31: Subsidiaries
Name of Entity
Company
Funtastic Limited(i),(iii)
Subsidiaries
JNH Australia Pty Limited(ii),(iii)
Fun International Limited
Funtastic International Limited
Funtastic (NZ) Pty Limited(ii),(iii)
Dorcy Irwin Pacific Pty Limited(iii)
Funtastic Employee Share Loan Scheme Trust(iv)
Dorcy Investments Pty Limited(iii)
Irwin Pacific Pty Limited(ii)
Dorcy NZ Pty Limited(v)
Funtastic USA Pty Limited (formerly Judius Pty Limited)(ii),(iii)
Funtastic America Inc. (formerly My Paint Box Inc.)
NSR (HK) Limited(iii)
Hkeepod (HK) Limited
Safety Products International Pty Limited(ii),(v),(vi)
Chill Factor Global Pty Limited(ii),(iii)
Hydro-Turbine Developments Pty Limited(ii),(iii)
Fun Toy Products Consulting (Shenzhen) Company Limited
(i) Funtastic Limited is the head entity within the tax consolidated Group.
(ii) These companies are members of the tax consolidated Group.
Equity Holding
Year ended
31 July 2015
Year ended
31 July 2014
%
100
100
100
100
100
100
100
100
100
50
100
100
100
100
100
100
100
100
%
100
100
100
100
100
100
100
100
100
50
100
100
100
100
75
100
100
100
Country of
Incorporation
Australia
Australia
Hong Kong
Hong Kong
Australia
Australia
Australia
Australia
Australia
New Zealand
Australia
USA
Hong Kong
Hong Kong
Australia
Australia
Australia
China
(iii) These wholly-owned subsidiaries have entered into a deed of cross guarantee with Funtastic Limited pursuant to ASIC Class Order 98/1418 and are relieved from
the requirement to prepare and lodge an audited financial report. The subsidiaries became a party to the deed of cross guarantee on 23 July 2008.
(iv) During 2013 the Board established the Funtastic Employee Share Loan Scheme Trust for the purpose of purchasing and holding shares on behalf of participants in
accordance with ESLS Rules. The assets of the scheme are held separately from those of the Company and are administered by trustees appointed by the Company.
The Trust is consolidated into the Group financial statements at each reporting date.
(v) The value attributed to the minority interest is $nil (2014: $nil).
(vi) On 30 January 2015, Funtastic acquired the remaining 25% of equity in Safety Products International Pty Limited for the amount of $277,000. This resulted in Funtastic
currently having 100% ownership over the subsidiary.
79
Funtastic Annual Report 2015 Notes to the Financial Statements
continued
Note 31: Subsidiaries continued
The consolidated Statements of Profit or Loss and other Comprehensive Income and Statements of Financial Position of the entities party
to the deed of cross guarantee are:
Statement of profit or loss and other Comprehensive Income
$’000
$’000
Year ended
31 July 2015
Year ended
31 July 2014
Continuing operations
Revenue
Cost of goods sold
Gross profit
Investment income
Warehouse and distribution expenses
Marketing and selling expenses
Administration expenses
Impairment of Goodwill and other intangible assets
Gain on sale of QuickSmart
Earnings before interest, taxation, depreciation and amortisation expenses (EBITDA)
Finance costs
Depreciation and amortisation expenses
Loss before income tax
Income tax (charge)/benefit
Loss for the year from continuing operations
Loss from discontinued operations
Loss for the year
Other comprehensive income
Items that subsequently may be reclassified to profit or loss:
Profit on equity settled benefits transferred from/taken to equity
Loss on cash flow hedges taken to equity
Other comprehensive income (loss) for the year (net of tax)
105,867
(77,288)
28,579
652
(7,397)
(10,149)
(12,889)
(11,120)
–
(12,324)
(2,575)
(3,194)
(18,093)
(9,316)
(27,409)
(3,669)
(31,078)
(158)
268
90
123,269
(89,894)
33,375
619
(10,083)
(11,490)
(15,815)
1,572
(1,822)
(3,689)
(4,108)
(9,619)
632
(8,987)
(24,291)
(33,278)
(302)
(322)
(624)
Total comprehensive loss for the year
(30,988)
(33,902)
80
Funtastic
Annual
Report
2015
Note 31: Subsidiaries continued
The consolidated Statements of Financial Position of the entities party to the deed of cross guarantee are:
Statement of Financial Position
Current Assets
Cash
Trade and other receivables
Inventories
Other assets
Other financial assets
Total Current Assets
Non-current Assets
Property, plant and equipment
Goodwill
Other intangibles
Other investments
Deferred tax assets
Other assets
Total Non-current Assets
Total Assets
Current Liabilities
Trade and other payables
Borrowings
Provisions
Other liabilities
Other financial liabilities
Total Current Liabilities
Non-current Liabilities
Borrowings
Provisions
Deferred tax liabilities
Other liabilities
Total Non-current Liabilities
Total Liabilities
Net Assets
Equity
Issued capital
Accumulated losses
Reserves
Total Equity
Year ended
31 July 2015(i)
Year ended
31 July 2014
$’000
$’000
531
9,927
16,723
16,438
38
43,657
1,482
39,165
14,950
–
3,367
358
59,322
102,979
11,596
42,431
756
4,462
435
59,680
26
98
254
242
620
60,300
42,679
208,372
(167,118)
1,425
42,679
4,797
15,813
16,095
15,349
–
52,054
1,276
49,995
17,351
29
12,876
–
81,527
133,581
16,189
29,357
782
3,784
180
50,292
7,299
1,002
235
541
9,077
59,369
74,212
208,372
(136,040)
1,880
74,212
(i) From and at 31 July 2014, the Deed excludes Madman Entertainment Group.
81
Notes to the Financial Statements
continued
Note 32: Notes to the cash flow statements
(a) Reconciliation of cash and cash equivalents
For the purposes of the cash flow statement, cash and cash equivalents includes cash on hand and in banks and investments in money
market instruments, net of outstanding bank overdrafts. Cash and cash equivalents at the end of the financial year as shown in the cash
flow statement is reconciled to the related items in the Statement of Financial Position as follows:
Cash and cash equivalents
(b) Financing facilities
Total Financing Facilities Available
National Debtor Finance Facility
Overdraft
Trade Refinance Facility
Combined Trade Refinance Facility and Letter of Credit i)
Commercial Bill Facility
Letters of Credit
Bank Guarantees
Other Facilities
Reconciliation of Total Financing Facilities
Facilities Used at Balance Date
National Debtor Finance Facility
Overdraft
Trade Refinance Facility
Combined Trade Refinance Facility and Letter of Credit i)
Commercial Bill Facility
Letters of Credit
Bank Guarantees
Other facilities
Facilities Unused at Balance Date
National Debtor Finance Facility
Overdraft
Trade Refinance Facility
Combined Trade Refinance Facility and Letter of Credit i)
Letters of Credit
Bank Guarantees
Other Facilities
Total Financing Facilities
(i) On 30 April 2015 the Trade Refinance Facility and Letter of Credit line were combined into one joint facility.
82
Year ended
31 July 2015
Year ended
31 July 2014
$’000
904
$’000
4,909
Year ended
31 July 2015
Year ended
31 July 2014
$’000
$’000
–
3,700
–
31,000
15,965
–
3,300
1,250
55,215
–
3,679
–
30,935
15,965
–
2,199
3
52,781
–
21
–
65
–
1,101
1,247
2,434
55,215
8,000
–
22,000
–
10,665
11,000
3,300
1,250
56,215
4,783
–
20,644
–
10,665
7,726
2,199
38
46,055
3,217
–
1,356
–
3,274
1,101
1,212
10,160
56,215
Funtastic
Annual
Report
2015
Note 32: Notes to the cash flow statements continued
(c) Reconciliation of Profit after Income Tax to Net Cash Inflow from Operating Activities
Loss after income tax
Income tax expense recognised in profit or loss
Impairment
Amortisation
Depreciation
Finance Costs recognised in profit or loss
Share options expense
Loss on sale of non-current assets
Impairment loss (reversed) recognised on trade receivables
Interest revenue
Net loss on assets designated as held for sale
Loss for the year from discontinued operations
Gain on QuickSmart sale and other
Changes in net assets and liabilities, net of effects from acquisition and disposal of businesses:
Decrease in trade and other receivables
Decrease in inventories
Decrease in prepayments and other current assets
Decrease in trade creditors
Decrease in provisions
(Decrease)/increase in other liabilities
Cash (utilised) generated from operations
Income tax paid
Interest Paid
Net cash (outflow) inflow from operating activities
(d) Cash consideration received on sale of businesses
Madman Entertainment
QuickSmart
Net cash received on sale of businesses
Year ended
31 July 2015
Year ended
31 July 2014
$’000
(37,533)
9,692
11,120
2,569
903
2,992
158
38
(453)
(652)
–
3,440
–
6,413
1,351
3,220
$’000
(35,707)
89
3,963
1,173
4,052
302
90
135
(619)
23,825
–
(1,570)
14,892
4,470
35
(7,809)
(12,972)
(62)
(195)
(4,808)
(50)
(3,022)
(7,880)
(370)
3,502
5,290
(76)
(3,432)
1,782
Note
5
Year ended
31 July 2015
Year ended
31 July 2014
$’000
–
–
–
$’000
19,897
1,964
21,861
83
Notes to the Financial Statements
continued
Note 33: Financial Instruments
Capital risk management
The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximizing the return
to stakeholders through the optimisation of the debt and equity balance.
The capital structure of the Group consists of debt, which comprises the borrowings detailed in Note 19, cash and cash equivalents and
equity attributable to equity holders of the parent, comprising issued capital, accumulated losses and reserves as disclosed in Notes 24,
25 and 26 respectively.
The Board reviews the capital structure on a regular basis. As part of this review the cost of capital and the risks associated with each class
of capital is considered. The Group balances its overall capital structure through the payment of dividends, new share issues and share
buy-backs as well as the issue of new debt and the repayment of debt.
Whilst the company has been in the process of finalising the appropriate financing structure, post the sale of Madman Entertainment
on 31 July 2014, the Company received waivers in relation to a number of breaches to covenants.
Significant accounting policies
Details of significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the
basis on which income and expenses are recognised, in respect of each class of financial asset, financial liability and equity instrument are
disclosed in Note 1 to the financial statements. These policies were consistent throughout the current year and the previous year.
Categories of financial instruments
Financial assets
Derivative instruments in designated hedge accounting relationships
Cash and cash equivalents
Loans and receivables
Financial liabilities
Derivative instruments in designated hedge accounting relationships
Non-derivative financial liability
Year ended
31 July 2015
Year ended
31 July 2014
$’000
$’000
38
904
11,883
435
58,717
–
4,909
18,589
180
58,289
Financial risk management objectives
The Group’s finance function provides services to the business, co-ordinates access to domestic and international financial markets,
monitors and manages the financial risks relating to the operations of the Group through internal risk reports which analyse exposures
by degree and magnitude of risk. These risks include market risk (including currency risk, interest rate risk), credit risk and liquidity risk.
The Group seeks to minimise the effects of these risks, by using various financial instruments to hedge these exposures. The use of
financial instruments is governed by the Group’s policies approved by the Board of Directors, who provide written principles on foreign
exchange risk, interest rate risk, credit risk, the use of financial derivatives and non-derivative financial instruments and the investment
of excess liquidity.
Compliance with policies and exposure limits is reviewed on a continual basis. The Group does not enter into any trade financial
instruments, including derivative financial instruments, for speculative purposes.
Market risk
The Group’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates and interest rates. The Group
enters into a variety of derivative financial instruments to manage its exposure to interest rate risk and foreign currency risk, including:
yy Foreign exchange forward contracts to hedge the exchange rate risk arising on the import of goods denominated in US dollars; and
yy Interest rate swaps to mitigate the risk of rising interest rates.
At a Group level, market risk exposures are measured through sensitivity analysis and stress scenario analysis.
In 2015, while there has been a recent stabilisation of low variable interest rates there has been no material change to the Group’s
exposure to market risk or the manner in which it manages and measures the risk.
84
Note 33: Financial Instruments continued
Foreign currency risk management
Foreign currency risk refers to the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes
in foreign exchange rates. The Group’s exposure to foreign exchange risk arises from the net investment in the United States operations
and the undertaking of certain transactions denominated in foreign currencies.
The carrying amount of the Group’s foreign currency denominated monetary assets and monetary liabilities at the reporting date
is as follows:
US dollars
Euro
Other
2015
$’000
8,698
–
–
Liabilities
2014
$’000
12,798
257
–
2015
$’000
5,523
–
363
Assets
2014
$’000
8,199
–
115
Foreign currency sensitivity
The Group is mainly exposed to the US dollar, Euro and the HK dollar. The following table details the Group’s sensitivity to a 5% increase
and 15% decrease in the Australian dollar against the relevant foreign currencies. 5/15% is the sensitivity rate which represents management’s
assessment of the possible change in foreign exchange rates. The sensitivity analysis includes only outstanding foreign currency denominated
monetary items and adjusts their translation at the period end for a 15% change in foreign currency rates. A positive number indicates an
increase in profit or loss where the Australian dollar strengthens against the respective currency. For a weakening of the Australian dollar
against the respective currency there would be an equal and opposite impact on profit or loss and the balances below would be equal and
opposite. A positive number indicates an increase in other equity where the Australian dollar weakens against the respective currency.
For a strengthening of the Australian dollar against the respective currency there would be an equal and opposite impact on other equity
and the balances below would be negative.
5% increase in AUD against foreign currency
Profit or Loss(i)
Other equity(ii)
15% decrease in AUD against foreign currency
Profit or Loss(i)
Other equity(ii)
USD Impact
EURO Impact
2015
$’000
135
23
(502)
(85)
2014
$’000
560
415
(685)
(296)
2015
$’000
2014
$’000
–
–
–
–
(23)
–
29
–
(i) This is mainly attributable to the exposure outstanding in USD receivables and payables at year end.
(ii) This is mainly as a result of the changes in fair value of derivative instruments designated as cash flow hedges.
85
Funtastic Annual Report 2015 Notes to the Financial Statements
continued
Note 33: Financial Instruments continued
Forward foreign exchange contracts
The settlement dates, dollar amounts to be received/(paid) and contractual rates of the Group’s outstanding contracts at balance date are:
Average Exchange
Rate
Foreign Currency
Contract Value
Fair Value
Outstanding contracts
2015
2014
2015
2014
2015
2014
2015
2014
Buy US dollar
0-12 months
AUD/USD US$’000 US$’000
A$’000
A$’000
A$’000
A$’000
0.7826
0.9094
500
3,500
639
3,849
677
3,804
The Group has entered into contracts to purchase inventory from overseas suppliers. These forward foreign exchange contracts are for
terms not exceeding 12 months to hedge the exchange rate risk arising from these anticipated future purchases, which are designated into
cash flow hedges.
At balance date these purchase contracts were assets of the Group of $38,000 (2014: $44,000 liability).
During the year ended 31 July 2015 a gain on hedging instruments for the Group of $418,000 (31 July 2014: gain $983,000) has been
brought to account in other current financial assets (Note 13) and liabilities (Note 22). An amount, net of tax, was transferred to equity
(Note 26). It is anticipated these purchases will take place during the year to 31 July 2016 at which stage the amount deferred in equity
will be included in the carrying amount of the finished goods inventory. It is anticipated that the finished goods inventory will be sold within
12 months after purchase at which stage the amount deferred in equity will impact profit or loss.
Interest rate risk management
Interest rate risk refers to the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in
market interest rates. The Group is exposed to interest rate risk as it borrows funds at both fixed and floating interest rates. The risk is
managed by the use of interest rate swap contracts. Hedging activities are evaluated regularly to align with interest rate views and defined
risk appetite, ensuring optimal hedging strategies are applied, by either positioning the statement of financial position or protecting interest
expense through different interest rate cycles.
The Group’s exposure to interest rates on financial assets and financial liabilities are detailed in the liquidity risk management section below.
Interest rate sensitivity
The sensitivity analyses below have been determined based on the exposure to interest rates to the Group at the reporting date and
the stipulated change taking place at the beginning of the financial year and held constant throughout the reporting period. The Group
considers the likelihood of a 25 basis point increase or a 25 basis point decrease to be reasonable when reporting interest rate risk
internally to key management personnel, as this represents management’s best estimate of the possible change in interest rates.
At reporting date, if interest rates had been 25 basis points higher or 25 basis points lower and all other variables were held constant,
the Group’s:
yy Net profit after taxation would increase/(decrease) by $147,000/($147,000) respectively (2014: $386,000/($386,000)). This is mainly
due to the Group’s exposure to interest rates on its variable rate borrowings; and
yy Equity would increase by $168,000/$75,000 (2014: $28,000/$23,000 increase). This is due to the Group’s interest rate swap entered
into on 4 November 2014.
Interest Rate Swap Contracts
Bank loans of the Group currently bear an average variable interest rate of 7.64% (2014: 6.82%). It is the Group’s policy to protect part of
the loans from exposure to increasing interest rates. Accordingly, the Group has entered into an interest rate swap contract under which it
is obliged to receive interest at variable rates and to pay interest at fixed rates. The contract is settled on a net basis and the net amount
receivable or payable at the reporting date is included in financial assets/liabilities.
The floating rate on the interest rate swap is the Australian bank bill swap rate (BBSW).
The contract requires settlement of net interest receivable or payable quarterly. The settlement dates coincide with the dates on which
interest is payable on the underlying debt.
The swap currently in place covers 59% of the total debt outstanding with its senior lender and is timed to expire on 1 December 2017
(2014: swap in place covered 73% of the long term loan principal outstanding). The fixed interest rate is 3.09% (2014: 4.02%) and the
variable rate is the bank bill rate of the term of the underlying bill which at balance date was 2.11% (2014: 2.71%).
86
Note 33: Financial Instruments continued
Interest Rate Swap Contracts continued
As at 31 July 2015, the notional principal amounts and the periods of expiry of the interest rate swap contracts for the Group were
as follows:
Average contracted fixed
interest rate
Notional principal amount
Fair value
2015
%
–
3.09
3.09
2014
%
4.02
–
4.02
2015
$’000
–
25,000
25,000
2014
$’000
30,000
–
30,000
2015
$’000
–
(435)
(435)
2014
$’000
(136)
–
(136)
Less than 1 year
1-2 years
The interest rate swap contract exchanging floating rate interest amounts for fixed rate interest amounts is designated as a cash flow hedge
in order to reduce the Group’s cash flow exposure resulting from variable interest rates on borrowings. The interest rate swap and the
interest payments on the loan occur simultaneously and the amount deferred in equity is recognised in profit or loss over the loan period.
Credit risk management
Credit risk refers to the risk that a counter party will default on its contractual obligations resulting in a financial loss to the Group.
The Group has adopted a policy of only dealing with creditworthy counterparties. The Group’s exposure and the credit ratings of its
counterparties are continuously monitored and the aggregate value of transactions concluded is spread amongst approved counterparties.
Trade receivables consist of a large number of customers spread across diverse industries. Ongoing credit evaluation is performed
on the financial condition of accounts receivable and, where appropriate, credit guarantee insurance is purchased.
The Group has a credit risk exposure to a small number of major ASX listed corporations for which credit guarantee insurance is not
purchased. Ongoing credit evaluation is performed on the financial condition of these accounts receivable.
The carrying amount of financial assets recorded in the financial statements, net of any allowance for losses, represents the Group’s
maximum exposure to credit risk.
Liquidity risk management
Ultimate responsibility for liquidity risk management rests with the Board of Directors, who have built an appropriate liquidity
risk management framework for the management of the Group’s short, medium and long-term funding and liquidity management
requirements. The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities
by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities.
Funtastic
Annual
Report
2015
87
Notes to the Financial Statements
continued
Note 33: Financial Instruments continued
Liquidity and interest tables – financial liabilities
The following table detail the Group’s remaining contractual maturity for its non-derivative financial liabilities. The table has been drawn up
based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay. The table
includes both interest and principal cash flows.
Weighted
average
effective
interest rate
%
–
7.64
Less than
1 month
1 – 3
months
3 months
to 1 year
1 – 5
years
5+ years
$’000
$’000
$’000
$’000
$’000
2,449
3,529
9,292
6,206
4,519
2,379
–
3,780
7.79
5,335
11,486
2,996
9,038
11,313
26,984
9,894
12,818
–
6.82
3,823
2,558
13,824
6,256
3,986
–
–
2,131
7.87
5,990
14,643
208
5,302
12,371
34,723
4,194
7,433
Total
$’000
16,260
15,894
28,855
61,009
21,633
10,945
26,143
58,721
–
–
–
–
–
–
–
–
2015
Non-interest bearing
Variable interest rate
instruments
Fixed interest rate
instruments
2014
Non-interest bearing
Variable interest rate
instruments
Fixed interest rate
instruments
Liquidity and interest tables – financial assets
The following table details the Group’s expected maturity for its non-derivative financial assets. The table below has been drawn up based
on the understood contractual maturities of the financial assets including interest that will be earned on those assets except where the
Group anticipates that the cash flow will occur in a different period.
Weighted
average
effective
interest rate
Less than
1 month
1 – 3
months
3 months
to 1 year
1 – 5
years
5+ years
%
$’000
$’000
$’000
$’000
$’000
–
2.10
2,027
904
8,109
1,747
–
–
2,931
8,109
1,747
–
2.71
3,413
4,909
13,653
1,523
–
–
8,322
13,653
1,523
–
–
–
–
–
–
–
–
–
–
–
–
Total
$’000
11,883
904
12,787
18,589
4,909
23,498
2015
Non-interest bearing
Variable interest rate
instruments
2014
Non-interest bearing
Variable interest rate
instruments
88
Note 33: Financial Instruments continued
Fair value of financial instruments
The fair values of financial assets and financial liabilities are determined as follows:
yy The fair value of other financial assets and financial liabilities (excluding derivative instruments) are determined in accordance
with generally accepted pricing models based on discounted cash flow analysis using prices from observable current market
transactions; and
yy The fair value of derivative instruments, are calculated using quoted prices. Where such prices are not available, discounted cash flow
analysis using the applicable yield curve for the duration of the instruments for non-optional derivatives and option pricing models for
optional derivatives is used.
The Directors consider that the carrying amounts of financial assets and financial liabilities recorded at amortised cost in the financial
statements approximates their fair values.
Fair value measurements recognised in the consolidated statement of financial position
Fair value measurements are discussed in Note 3 and in the notes specific to that asset or liability.
Note 34: Share-based payments
Executive Share Option Plan (ESOP)
No options were granted under the plan during the current financial year or preceding financial year. The Executive Share Option Plan
(ESOP) was replaced by the Employee Share Loan Scheme (ESLS) established during the 2013 financial year.
The following reconciles the outstanding share options granted under the Executive Share Option Plan at the beginning and end of the
financial year:
Opening balance 1 August
Granted during the financial year
Forfeited during the financial year
Exercised during the financial year
Number of
options
1,333,333
–
–
–
Expired during the financial year
(1,333,333)
Closing balance at 31 July
Exercisable at end of year
–
–
2015
Weighted
average
exercise price
$
0.161
–
–
–
–
–
–
2014
Weighted
average
exercise price
$
0.161
–
–
–
–
–
0.161
Number of
options
5,200,000
–
(3,666,667)
–
(200,000)
1,333,333
1,333,333
There has been no alteration of the terms and conditions of the above share-based payment arrangements since the grant date.
Employee Performance Share Rights
As at 31 July 2015, there were no EPSR Balances outstanding.
No rights were granted under the plan during the current financial year or preceding financial year. The Employee Performance Share
Rights (EPSR) was replaced by the Employee Share Loan Scheme (ESLS) established during the 2013 financial year.
89
Funtastic Annual Report 2015 Notes to the Financial Statements
continued
Note 34: Share-based payments continued
Employee Performance Share Rights continued
The following reconciles the outstanding EPSRs granted under the Employee Performance Share Rights Option Plan at the beginning and
end of the financial year:
Year Ended 31 July 2015
Year ended 31 July 2014
Weighted
average
exercise price
$
–
–
–
–
–
–
–
Number of
EPSRs
–
–
–
–
–
–
–
Weighted
average
exercise price
$
–
–
–
–
–
–
–
Number of
EPSRs
10,000
–
–
–
(10,000)
–
–
Balance at the beginning of the financial year
Granted during the financial year
Forfeited during the financial year
Exercised during the financial year
Expired during the financial year
Balance at the end of the financial year
Exercisable at the end of the financial year
Unlisted Share Options
As at 31 July 2015, there were no unlisted share option balances outstanding. No options were granted under the plan during the current
financial year or preceding financial year.
The following reconciles the outstanding Unlisted share options granted at the beginning and end of the financial year:
Year Ended 31 July 2015
Year ended 31 July 2014
Number
of unlisted
share options
Balance at the beginning of the financial year
6,333,333
Granted during the financial year
Forfeited during the financial year
Exercised during the financial year
–
–
–
Expired during the financial year
(6,333,333)
Balance at the end of the financial year
Exercisable at the end of the financial year
–
–
Weighted
average
exercise price
$
0.121
Number
of unlisted
share options
–
Weighted
average
exercise price
$
–
–
–
–
–
–
–
6,333,333
0.121
–
–
–
6,333,333
–
–
–
–
0.121
–
Employee Share Loan Scheme
During the 2013 financial year (as part of the Company’s LTI arrangements), the Company established the Funtastic Employee Share Loan
Scheme (ESLS). At the Board’s discretion, eligible employees were invited to participate in the scheme.
The Funtastic Employee Share Loan Scheme Trust (Trust) was established for the purpose of purchasing and holding shares on behalf of
participants to satisfy exercises made under the ESLS operated by Funtastic. Under the ESLS, an interest free limited recourse loan (a loan
where the participant’s risk will be limited to the shares issued to the participant under or in connection with the plan) to the value of the
grant date issue price per share was granted to each participant. Each participant directs Funtastic to pay the loan amount to the trustee
of the Trust and the trustee to use the loan amount to acquire shares on behalf of the Participant, which are held until the exercise date
of the option under which they were purchased.
90
Note 34: Share-based payments continued
Employee Share Loan Scheme continued
The loan is repayable by the participant when the options become exercisable, being after the vesting date and subject to the satisfaction
of the vesting conditions. When the options are exercisable, in the event that the balance of the loan is less than the estimated market
value of shares that secure the loan less estimated transaction costs, a participant may request Funtastic to sell the shares on the ASX
and that the funds received from the sale of those shares, less any costs incurred in connection with the sale and less the loan balance
be remitted to the participant.
The shares are eligible to participate in dividends declared by the Company. Any dividends paid will be utilised to reduce the carrying value
of each scheme participant’s individual loan balance on the dividend payment date.
In the event that the loan balance is greater than the sale proceeds, a participant may request Funtastic to transfer the shares which secure
the loan to the participant provided that the participant remits any outstanding balance of the loan to Funtastic as repayment of the loan.
In the event that an employee ceases employment with Funtastic, is entitled to vested shares and does not direct Funtastic to sell or
transfer such Shares to the participant and the balance of the loan is greater than the estimated proceeds amount, Funtastic must buy
back and cancel such shares with the consideration from the buyback being the full satisfaction of the then outstanding balance of the loan.
The participant will have no further entitlements to or in respect of the shares.
No performance conditions are attached to the ESLS and the only vesting condition is a service condition which requires participants
to remain in employment until 1 January 2016 for Tranche 1 and 6 November 2016 for Tranche 2. Although there are no performance
conditions attached to the ESLS, eligible employees benefit from the scheme through improvements in the share price of the company,
which results from improved performance. The options become exercisable only when the vesting conditions are met. The expiry date
of the ESLS options is on the date the employee ceases employment with Funtastic. Further details on the ESLS, the ESLS Trust and the
ESLSs interest free limited recourse loan are set out in Note 34 of the financial statements.
The board has discretion to waive any vesting conditions or other restrictions attached to the ESLS in accordance with the ESLS plan rules
provided that such amendments do not unduly prejudice the rights of existing participants.
ESLS shares outstanding at the end of the financial year
Tranche
2015
Tranche 1(i)
Tranche 2(i)
Tranche 3a(iii)
Tranche 3b(i)
2014
Tranche 1
Tranche 2
Vesting Date
Grant date
Exercise date
Exercise
price(ii)
Fair value
at grant date
Balance
at end of
Financial year
01/01/2016
8/07/2013
01/01/2016
27/01/2017
27/01/2014
27/01/2017
31/07/2015
31/07/2015
31/07/2015
31/07/2017
31/07/2015
31/07/2018
$0.1599
$0.1660
$0.0244
$0.0244
$0.0502
$0.0634
600,000
1,500,000
$0.0154
13,500,000
$0.0154
3,600,000
19,200,000
01/01/2016
8/07/2013
01/01/2016
27/01/2017
27/01/2014
27/01/2017
$0.1599
$0.1660
$0.0502
$0.0634
1,000,000
1,700,000
2,700,000
(i) The expiry date is the date the employee ceases employment with Funtastic whether vested or not. The options granted under the ESLS do not have an expiry date and
can be exercised at any date after vesting conditions have been met.
(ii) The exercise price represents the issue price per share offered to participants upon invitation to participate in the ESLS. As part of the ESLS, an interest-free, limited
recourse loan to each participant was offered for the purpose of acquiring shares in Funtastic. Further details on the loan are set out above. Dividends paid or payable
if any, (less the estimated net tax payable on such dividends) are used or will be used to repay the principal of the loan granted to the participant. No dividends have
been paid or are currently payable in relation to the ESLS since the inception of the scheme.
(iii) The vesting date for the 13,500,000 ESLS options in Tranche 3a is the grant date, as there are no vesting conditions attached to the options.
Funtastic
Annual
Report
2015
91
Notes to the Financial Statements
continued
Note 34: Share-based payments continued
Fair value of ESLS options granted
Fair values have been determined in accordance with AASB 2 ‘Share-based Payments’ where the value of options is determined at grant
date and are included in remuneration on a proportionate basis from grant date to vesting date. ESLS options are valued using a Black
Scholes option pricing model. The model inputs for options granted include:
Option Number
Grant date
Vesting date
Expiry date
Exercise price
Stock price at issue
Expected life (years)(i)
Volatility
Risk free rate
Dividend yield
Vesting period (years)
Tranche 1
Tranche 2
Tranche 3a
Tranche 3b
8/07/2013
27/01/2014
31/07/2015
31/07/2015
01/01/2016
27/01/2017
31/07/2015
31/07/2017
N/A
$0.1599
$0.1599
N/A
55.55%
3.00%
N/A
0.4
N/A
$0.1660
$0.1660
N/A
55.55%
3.00%
N/A
2.5
N/A
$0.0244
$0.0290
N/A
72.60%
1.90%
N/A
3.0
N/A
$0.0244
$0.0290
N/A
72.60%
1.90%
N/A
3.0
Average fair value at Grant date
$0.0502
$0.0634
$0.0154
$0.0154
The following reconciles the outstanding share options granted under the Employee Share Loan Scheme at the beginning and end of the
financial year:
2015
Weighted
average
exercise price
$
$0.1637
$0.0244
–
–
–
–
–
2014
Weighted
average
exercise price
$
$.01599
$0.1660
–
–
–
–
–
Number of
options
2,400,000
2,200,000
(1,900,000)
–
–
2,700,000
–
Number of
options
2,700,000
17,100,000
(600,000)
–
–
19,200,000
–
Balance at the beginning of the financial year
Granted during the financial year
Forfeited during the financial year
Exercised during the financial year
Expired during the financial year
Balance at the end of the financial year
Exercisable at the end of the financial year
During the year, 17,100,000 ESLS options were granted to employees. Of the 17,100,000, 13,500,000 ESLS options vested at the date
of issue, with the remaining shares vesting at 31 July 2017.
The average remaining contractual life of the share options outstanding as at 31 July 2015 is 2.7 years.
Aggregate proceeds received from employees on the exercise of options and recognised as issued capital in the financial period was $nil.
Market value of shares issued to employees on the exercise of options as at their issue date in the financial period was $0.0290.
92
Funtastic
Annual
Report
2015
Note 35: Key management personnel compensation
Details of key management compensation
The aggregate compensation made to key management personnel of the Group is set out below:
Short-term employee benefits
Post-employment benefits
Other long-term benefits
Termination benefits
Share-based payments
Note 36: Related party transactions
(a) Equity interests in related parties
Equity interests in subsidiaries.
Year ended
31 July 2015
Year ended
31 July 2014
$
$
1,617,563
2,558,885
76,549
8,818
–
163,599
181,233
4,689
483,636
272,744
1,866,529
3,501,187
Details of the percentage of ordinary shares held in subsidiaries are disclosed in Note 31 to the financial statements.
(b) Transactions with Key Management Personnel
Key management personnel compensation
Details of key management personnel compensation are disclosed in Note 35 to the financial statements.
Loans from key management personnel
There are no outstanding loans from key management personnel.
(c) Transactions with key management personnel of the Group
Profit for the year includes the following items of revenue and expense that resulted from transactions, other than compensation
or equity holdings, with key management personnel or their related entities:
Consolidated revenue includes the following amounts arising from transactions with key
management personnel of the Group or their related parties:
Gross revenue
Interest revenue
Consolidated profit includes the following amounts arising from transactions with key
management personnel of the Group or their related parties:
Cost of goods sold
Interest expense
Other expenses
Year ended
31 July 2015
Year ended
31 July 2014
$
1,854
–
1,854
5,823
–
1,971
7,794
$
–
–
–
5,126,923
4,225
969
5,132,117
93
Notes to the Financial Statements
continued
Note 36: Related party transactions continued
(c) Transactions with key management personnel of the Group continued
Total assets arising from transactions with key management personnel or their related parties:
Current – Other (prepaid expenses)
Current – Inventories
Year ended
31 July 2015
Year ended
31 July 2014
$
–
–
–
$
838,353
1,616
839,969
The above transactions were performed at arm’s length.
During the financial year, the Group recognised the following transactions with key management personnel:
yy Purchases of $1,645 (2014: $nil) to Annabel Mackenzie a party related to Mr Grant Mackenzie for external consulting;
yy Purchases of $326 for provision of employment services (2014: $nil) from Sherelle Pizmony a party related to Mr Nir Pizmony;
yy Commission revenue of $1,854 and Cost of goods sold of $5,823 for product items that were sold on behalf of The 3 of Us Limited
an entity related to Mr Nir Pizmony;
yy Consistent with prior year, Funtastic holds a combined media purchasing arrangement with The Three of Us, which results in
advantageous marketing costs. The media purchasing arrangement positions Funtastic to facilitate payment of marketing costs for
both Funtastic and The Three of Us, following which The Three of Us reimburses Funtastic for their portion of advertising. A total
amount of $2,078,859 (2014: $1,024,968) was passed through to Funtastic in respect to their arrangements. In this respect Funtastic
is acting as an agent for the Three of Us, however earning no margin in the process. Given the substance of this arrangement, there
is no impact upon the Group’s consolidate profit or loss.
(d) Transactions with other related parties
Transactions between Funtastic Limited and other entities in the wholly-owned Group during the financial years ended 31 July 2015
and 31 July 2014, which were eliminated on consolidation, consist of:
yy sales made by Funtastic Limited;
yy loans advanced and interest charged by Funtastic Limited;
yy payments made by KMP on behalf of Funtastic Limited;
yy advances made by KMP on behalf of Funtastic Limited;
yy management services provided by Funtastic Limited;
yy management services provided to Funtastic Limited; and
yy payment to/from Funtastic Limited for the above services.
94
Note 37: Remuneration of Auditors
Auditor of the parent entity
Audit and review of the financial reports of the entity
Audit of the financial report of overseas subsidiary(i)
Preparation of tax return
General taxation services
Other advisory services
The auditor of Funtastic Limited is Deloitte Touche Tohmatsu.
(i) Related practice of parent entity auditor.
Note 38: Parent entity disclosures
Financial Position
Assets
Current assets
Non-current assets
Liabilities
Current liabilities
Non-current liabilities
Equity
Issued capital
Accumulated losses prior to 31 July 2011
Loss reserved from 1 August 2011
Reserves:
Equity-settled benefits
Cash flow hedging
Funtastic
Annual
Report
2015
95
Year ended
31 July 2015
Year ended
31 July 2014
$
$
280,000
230,000
20,000
35,000
15,132
100,540
450,672
30,000
53,000
–
268,048
581,048
Year ended
31 July 2015
Year ended
31 July 2014
$’000
$’000
28,693
59,218
87,911
(57,822)
(620)
39,145
81,278
120,423
(51,998)
(8,296)
(58,442)
(60,294)
(208,372)
(208,372)
123,755
56,970
(2,099)
277
123,755
26,368
(1,941)
62
(29,469)
(60,128)
Notes to the Financial Statements
continued
Note 38: Parent entity disclosures continued
Financial Performance
(Loss)/profit for the year – continuing operations
Loss for the year – discontinued operations
Other comprehensive income/(loss)
Total comprehensive loss
Year ended
31 July 2015
Year ended
31 July 2014
$’000
(26,933)
(3,669)
110
(30,492)
$’000
7,266
(21,827)
(624)
(15,185)
Commitments for expenditure
There were no commitments to acquire property, plant and equipment at 31 July 2015. Contingent liabilities as disclosed in Note 40 relate
to the parent entity as well as the Group.
Note 39: Subsequent Events
There has not been any matter or circumstance occurring subsequent to the end of the financial period, not already covered in the financial
statements, that has significantly affected, or may significantly affect, the operations of the Group, the results of those operations, or the
state of affairs of the Group in future financial years.
Note 40: Contingent Liabilities and Assets
Contingent Liabilities
Legal proceedings
Year ended
31 July 2015
Year ended
31 July 2014
$’000
–
$’000
1,031
In 2014, the Company was subject to a royalty claim, in respect to disputed IP ownership on a product line. The Company has since
(14 August 2015) reached an agreement, whereby a full and final payment of US$350,000 will be made. Accordingly, a provision has
been made as at 31 July 2015 in respect to this claim in the financial statements. And no contingent liability is required.
Contingent Assets
Final Madman working capital adjustment
Year ended
31 July 2015
Year ended
31 July 2014
$’000
3,042
$’000
–
As part of the share sale agreement the Company were required to provide final completion accounts and where an objection is received
have a period in which to resolve any amount in dispute. Subsequent to the dispute, an independent accountant was appointed to
adjudicate the claims. The Independent Accountant concluded in their final report, that an adjustment amount of $332,000 in Funtastic’s
favour was payable by MFM.
Funtastic has since sought external opinions on the Independent Accountant’s report from a number of reputable independent sources.
All opinions are materially consistent with Management’s view on the appropriate classification of the disputed adjustments.
The Company has further filed a Statement of Claim, declaring the Independent Accountant made a manifest error in its findings and that
the final decision of the Independent Accountant is not conclusive or binding on the parties for the purposes of determining adjustments to
the draft completion accounts. Based on current advice, management have written down the deferred consideration receivable to $332,000.
However, Management maintains the position that the amount of $3.38m as previously reported at January 2015 is fully recoverable.
Note 41: General Information
Funtastic Limited (the Company) is a limited company incorporated in Australia. The addresses of its registered office and principal place
of business are disclosed in the introduction to the Annual Report. The principal activities of the Company and its subsidiaries (the Group)
are described in Note 4.
96
Additional stock exchange information
as at 24 September 2015
Funtastic
Annual
Report
2015
Distribution of equity securities
Analysis of numbers of equity security holders by size of holdings:
Range
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and over
Substantial Shareholders
Substantial Shareholders holders in the Company are set out below:
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED – A/C 2
CITICORP NOMINEES PTY LIMITED
BELL POTTER NOMINEES LTD
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