Cirrus Networks
Annual Report 2019

Plain-text annual report

Cirrus Networks APPENDIX 4E 30 June 2019 Cirrus Networks Holdings Ltd (CNW) ABN: 98 103 348 947 Cirrus Staff Profile - Joe Citizen (Commercial in Confidence) Copyright © 2019 Cirrus Networks Pty Ltd 2 CURRENT PERIOD 1 July 2018 to 30 June 2019 PREVIOUS CORRESPONDING PERIODS 1 July 2017 to 30 June 2018 For personal use only  Contents DESCRIPTION 1. Results for announcement to the market 2. Net tangible assets per ordinary share 3. Details of entities over which control has been gained during the period 4. Details of entities over which control has been lost during the period 5. Dividends 6. Details of associates and joint venture entities 7. Audit qualification or review 8. Attachments 9. Signed PAGE 2 3 3 3 3 3 3 4 4 Cirrus Networks Holdings Ltd – ABN 98 103 348 947 Appendix 4E and Annual Report 1 For personal use only 1. Results for announcement to the market Revenues from ordinary activities Profit / (Loss) from ordinary activities after tax attributable to the owners of Cirrus Networks Holdings Ltd up down 16% 73% to to $88,038,326 $776,279 Profit / (Loss) for the year attributable to the owners of Cirrus Networks Holdings Ltd down 73% to $776,279 REVIEW OF OPERATIONS Another excellent year for the Company in FY19 with revenues from ordinary activities up 16% to $88m and the preferred earnings measure of EBTIDA (pre options) up 338% to $1.9m. The statutory result for the consolidated entity after providing for income tax amounted to a net profit of $776k (30 June 2018: $2.83m). However, this result included a number of one-off and non-cash expenses including: • non cash expensing of share-based options $303k; • redundancy and restructure costs $268k; and • amortisation of intangible and depreciation $663k After adjusting for these transactions and non-cash expenses (per table below) the entity had an EBITDA (pre options) of $1,918k (30 June 2018: $438k profit). NORMALISED EBITDA Adjustments FY2017 FY2018 FY2019 $861,155 $1,033,825 $2,187,485 Investment in Canberra (Pre CC Acquisition) ($1,138,413) ($272,003) Redundancy Cost Voluntary Escrow Payment ($165,345) ($267,510) ($50,000) Acquisition Costs for due diligence ($103,784) ($97,943) Foreign Exchange Impact EBITDA (PRE-OPTIONS) Interest (Net) R&D Tax Offset ($45,977) ($10,872) ($2,058) ($427,019) $437,662 $1,917,917 $19,209 ($175,404) $1,188,686 $356,759 Amortisation & Depreciation ($130,164) ($466,215) ($663,196) Share based compensation - options ($230,927) ($226,046) ($303,038) NET PROFIT/(LOSS) BEFORE DTA RECOGNITION $400,576 $121,369 $776,279 Deferred tax asset recognition $2,709,922 STATUTORY NET PROFIT/(LOSS) $400,576 $2,831,291 $776,279 At 30 June 2019, the Group had a cash balance of $5.01m. Cirrus has a positive $3.61m net cash (2018: positive $4.43m) with the only borrowing being $1.4m of acquisition funding drawn down for the payment of the Correct Communications acquisition. Cirrus Networks Holdings Ltd – ABN 98 103 348 947 Appendix 4E and Annual Report 2 For personal use only 2. Net tangible assets per ordinary share Net tangible assets per ordinary security $0.003 $0.001 REPORTING PERIOD PREVIOUS PERIOD 3. Details of entities over which control has been gained during the period Gain of control of entities during the period – Nil. 4. Details of entities over which control has been lost during the period Loss of control of entities during the period – Nil. 5. Dividends Current Period There were no dividends paid, recommended or declared during the current financial period. 6. Details of associates and joint venture entities Equity accounted Associates and Joint Venture Entities – Nil. 7. Audit qualification or review Details of audit/review dispute or qualification (if any): The financial statements have been audited and an unqualified opinion has been issued. Cirrus Networks Holdings Ltd – ABN 98 103 348 947 Appendix 4E and Annual Report 3 For personal use only 8. Attachments Details of attachments (if any): The Annual Report of Cirrus Networks Holdings Ltd for the year ended 30 June 2019 is attached. 9. Signed Matt Sullivan Managing Director Signature: Date: 22 August 2019 Cirrus Networks Holdings Ltd – ABN 98 103 348 947 Appendix 4E and Annual Report 4 For personal use only Cirrus Networks ANNUAL REPORT 30 June 2019 Cirrus Networks Holdings Ltd (CNW) ABN: 98 103 348 947 Cirrus Staff Profile - Joe Citizen (Commercial in Confidence) Copyright © 2019 Cirrus Networks Pty Ltd 2 For personal use only Corporate Directory CURRENT DIRECTORS AUDITOR • Mr Andrew Milner (Chairman) • Mr Daniel Rohr (Non-Executive Director) • Mr Matthew Sullivan (Managing Director) • Mr Paul Everingham (Non-Executive Director) COMPANY SECRETARY Ms Catherine Anderson Telephone: + 61 8 6180 4222 SHARE REGISTRY* Computershare Registry Services Pty Ltd Level 2, 45 St Georges Terrace Perth WA 6000 Telephone: +61 8 9323 2000 +61 8 9323 2033 Facsimile: BDO Audit (WA) Pty Ltd 38 Station Street Subiaco WA 6008 Telephone: +61 8 6382 4600 ASX Code: CNW REGISTERED OFFICE Arcadia Chambers Level 2, 1 Roydhouse Street Subiaco WA 6008 Telephone: +61 8 6180 4222 Email: info@cirrusnetworks.com.au Website: www.cirrusnetworks.com.au *This entity is included for information purposes only. This entity has not been involved in the preparation of this Annual Report. Cirrus Networks Holdings Ltd – ABN 98 103 348 947 Appendix 4E and Annual Report 6 For personal use only Contents DESCRIPTION Directors Report Auditor’s Independence Declaration Consolidated Statement of Profit or Loss and Other Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Consolidated Financial Statements Directors’ Declaration Independent Auditor’s Report Corporate Governance Additional ASX Required Information PAGE 9 25 26 27 28 29 30 61 62 67 77 Cirrus Networks Holdings Ltd – ABN 98 103 348 947 Appendix 4E and Annual Report 7 For personal use only Letter from the Chairman Dear Shareholder Welcome to the Cirrus Networks Limited 2019 Annual Report. Your Company reported a record EBITDA of $1.9m (pre option expense) for the period, as both consolidated revenue and gross margins continue their positive trajectory. As the Company nears the end of its 5 year strategic plan, management’s focus moves from revenue growth to gross margin expansion and improvement in quality of earnings. Approaching $100m in revenue, the business is starting to benefit from rapidly accelerating economies of scale; blended gross margins across Professional & Managed Services improved from 22% (FY18) to 29%, driving this year’s overall gross margin from 15.4% to 18%. Growth in FY19 was entirely organic, with no acquisitions completed during the period – a positive indicator of the growing sales and delivery capability in the Services portfolio, but more importantly a validation of the culture that is nurturing this transformation as we seek long term competitive advantage. The rapid growth of Professional & Managed Services at both the revenue and gross margin line (GM: $4.1m in FY18 to $7.3m) has improved quality of earnings substantially, with all Services contributing 46% of total gross margin in FY19 – up from 27% in FY17 and 35% in FY18. Further growth in Services revenue with a continued focus on containing overheads is expected to drive improving EBITDA in FY20. Management’s disciplined approach to vendor selection, service capability and customer satisfaction ensures the business remains focused on the strategic goal of becoming one of Australia’s top ranked Managed & Professional Services organizations. On behalf of the Board and Management I thank you for your continued support and look forward to a rewarding 2020. Andrew Milner Chairman Cirrus Networks Holdings Ltd – ABN 98 103 348 947 Appendix 4E and Annual Report 8 For personal use only Directors’ Report – 30 June 2019 The Directors present their report, together with the financial statements, on the consolidated entity (referred to hereafter as the 'Consolidated Entity' or ‘Group’) consisting of Cirrus Networks Holdings Ltd (referred to hereafter as the 'Company' or 'Parent Entity') and the entities it controlled at the end of, or during, the year ended 30 June 2019. DIRECTORS – TERMS OF OFFICE, SKILLS AND EXPERIENCE The following persons were Directors of Cirrus Networks Holdings Ltd during the entire the financial year and up to the date of this report, unless otherwise stated: • Andrew Milner -Non-Executive Chairman • Daniel Rohr – Non-Executive Director • Matthew Sullivan – Managing Director • Paul Everingham – Non-Executive Director (appointed 23 July 2018) • Patrick Glovac – Non-Executive Director (resigned 23 July 2018) ANDREW MILNER (Non-Executive Chairman) Appointed 2 July 2015 Andrew Milner is a veteran of the Australian Information Communications Technology industry and has more than 20 years’ experience in managing successful high-growth technology businesses. Founding Wantree Internet (Wantree) in 1995 (which became one of Australia’s first commercial Internet Service Providers), he was appointed to the iiNet board when Wantree was vended into the iiNet Ltd IPO in 1999. Mr Milner spent 9 years with that company in a variety of executive and non-executive Director roles. iiNet grew to a $1.4 billion market capitalization with over 2,000 staff and $1 billion in annual revenue, prior to being acquired by TPG Telecom Ltd in 2015. From 2004, Mr Milner was co-founder and non-executive Chairman of L7 Solutions, one of WA’s fastest growing systems integrators, with a turnover of $55m at the time of its acquisition by Amcom Telecommunications in 2011. During the previous 3 years, Mr Milner has not held any other directorships in listed entities. DANIEL ROHR (Non-Executive Director) Appointed 2 July 2015 Daniel Rohr is a Chartered Accountant with a Bachelor of Commerce degree and has over 25 years’ management, corporate advisory, finance and accounting experience across a range of listed and unlisted companies in Australia and overseas. He is currently the CFO of HealthEngine Pty Ltd and has recently acted as a corporate advisor for a number of listed and non-listed businesses in the IT and mining sectors. Mr Rohr has extensive experience in managing the development of high growth and start-up companies in the digital, mining, real estate and financial services industries. During the previous 3 years, Mr Rohr has held the role of non-executive director of Velpic Limited. Cirrus Networks Holdings Ltd – ABN 98 103 348 947 Appendix 4E and Annual Report 9 For personal use only MATTHEW SULLIVAN (Managing Director) Appointed 2 July 2015 Matthew Sullivan has more than 20 years’ experience in the Information Technology (“IT”) industry and has held various executive roles within strong performing and high growth IT organisations in Australia and was CEO and co-founder (with Mr Milner) of L7 Solutions in 2004 until its 2011 acquisition by Amcom. During this time the company was awarded numerous industry accolades including: • 5th fastest growing WA company in 2007 (WA Business News) • 18th fastest growing Australian company in 2008 (BRW Fast 100) • 2005 Cisco A/NZ Partner of the Year; and • 2010 EMC WA partner of the Year. Mr Sullivan was also a 2005 and 2008 winner of the WA Business News "40 under 40" and Western Region finalist in the 2010 Ernst & Young Entrepreneur of the Year. Most recently Mr Sullivan has been Chief Solutions Officer of Amcom and Chief Operations Officer at Comscentre. During the previous 3 years, Mr Sullivan has not held any other directorships in listed entities. PAUL EVERINGHAM (Non-Executive Director) Appointed 23 July 2018 Mr Everingham is Chief Executive Officer of the Chamber of Minerals & Energy of Western Australia. Prior to joining the Chamber of Minerals & Energy, Paul held numerous senior executive roles in business and government including; Chief Executive of Marketforce Australia, a leading Australian advertising agency; Founder and Managing Director of GRA Everingham Advisory, Western Australia's premier government relations advisory business; Executive Director of the Liberal Party of Australia (WA); and as a Senior Adviser in the Commonwealth Treasury. Paul has a Bachelor of Commerce from the University of Queensland; a Post Graduate Diploma in Applied Finance & Investment from the University of NSW; and a Graduate Certificate in Financial Mathematics from Queensland University of Technology. During the previous 3 years, Mr Everingham has not held any other directorships in listed entities. PATRICK GLOVAC (Former Non-Executive Director) Appointed 2 July 2015 and Resigned 23 July 2018 Mr Glovac holds a Bachelor of Commerce majoring in Finance, Banking, Management and also holds a Diploma of Management. In 2013 Mr Glovac co-founded GTT Ventures Pty Ltd, a boutique corporate advisory firm, specializing in the resource and technology sector. GTT has funded numerous listed and private companies since its inception across multiple markets including Australia, USA and the United Kingdom. Previously he worked as an investment advisor for Bell Potter Securities Limited since 2013, focusing on high net-worth clients and corporate advisory services. During the previous 3 years, Mr Glovac has held other directorship positions including the role of managing director of ASX listed Applabs Technologies Limited and non-executive director of ASX listed GB Energy Limited and Sovereign Gold Company Limited. Cirrus Networks Holdings Ltd – ABN 98 103 348 947 Appendix 4E and Annual Report 10 For personal use only DIRECTORS’ INTERESTS IN SHARES AND OPTIONS OF THE COMPANY The following relevant interests in shares and options of the Company are held by the Directors who hold office as at the date of this report, with the holdings being as at the date of this report: DIRECTOR Andrew Milner Daniel Rohr Matthew Sullivan Paul Everingham SHARES OPTIONS 44,323,387 7,678,863 48,273,387 7,880,000 2,500,000 2,500,000 20,000,000 - COMPANY SECRETARY - CATHERINE ANDERSON – B JURIS (HONS) LLB (UWA) Appointed 8 March 2011 Catherine Anderson is a legal practitioner admitted in Western Australia and Victoria and has over 25 years’ experience in both private practice and in-house legal roles from working in Melbourne and Perth, particularly in the area of capital raisings and corporate structures. During her career, Ms Anderson has advised on all aspects of corporate and commercial law and today brings this extensive commercial experience to the Company and oversaw the transition of the Company from Liberty to Cirrus, including its re-admission to ASX. Ms Anderson also has experience in company secretarial roles for other ASX listed resource companies, as well as having been a director of an ASX listed junior explorer. She currently also provides consultancy services to entities wishing to proceed to IPO and listing on ASX, and has twice been nominated for the Telstra Business Woman of the Year Award for an online retail business she established in 2007. MEETINGS OF DIRECTORS The number of Directors’ meetings and number of committee meetings attended by each of the Directors of the Company during the financial year or during the period of appointment were: DIRECTOR BOARD OF DIRECTORS AUDIT COMMITTEE REMUNERATION COMMITTEE Andrew Milner Daniel Rohr Matthew Sullivan Paul Everingham Patrick Glovac A 12 12 11 10 1 B 12 12 12 11 1 A 2 2 - 2 - B 2 2 - 2 - A 1 1 - 1 - B 1 1 - 1 - A – Number of meetings attended B – Number of meetings eligible to attend Cirrus Networks Holdings Ltd – ABN 98 103 348 947 Appendix 4E and Annual Report 11 For personal use only PRINCIPAL ACTIVITIES The principal activity of the Group is the provision of information technology services and related third-party product sales. There were no significant changes in the nature of the activities of the Group during the year. DIVIDENDS There were no dividends paid, recommended or declared during the current or previous financial year. SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS There were no significant changes in the state of affairs of the Consolidated Entity other than those disclosed in other areas of this annual financial report. REVIEW OF OPERATIONS *Non-IFRS Financial Information Adjustments to reflect movement from underlying performance to statutory consolidated result of the Group: NORMALISED EBITDA $861,155 $1,033,825 $2,187,485 FY2017 FY2018 FY2019 Adjustments Investment in Canberra (Pre CC Acquisition) ($1,138,413) ($272,003) Redundancy Cost Voluntary Escrow Payment ($165,345) ($267,510) ($50,000) Acquisition Costs for due diligence ($103,784) ($97,943) Foreign Exchange Impact ($45,977) ($10,872) ($2,058) EBITDA (PRE-OPTIONS) ($427,019) $437,662 $1,917,917 Interest (Net) R&D Tax Offset $19,209 ($175,404) $1,188,686 $356,759 Amortisation & Depreciation ($130,164) ($466,215) ($663,196) Share based compensation - options ($230,927) ($226,046) ($303,038) NET PROFIT/(LOSS) BEFORE DTA RECOGNITION $400,576 $121,369 $776,279 Deferred tax asset recognition $2,709,922 STATUTORY NET PROFIT/(LOSS) $400,576 $2,831,291 $776,279 At 30 June 2019, the Group had a cash balance of $5.01m. Cirrus has a positive $3.61m net cash (2018: positive $4.43m) with the only borrowing being $1.4m of acquisition funding drawn down for payment of the Correct Communications Pty Ltd acquisition. Cirrus Networks Holdings Ltd – ABN 98 103 348 947 Appendix 4E and Annual Report 12 For personal use only OPTIONS ON ISSUE The Company has the following classes of options on issue as at the date of this report: CLASS EXERCISE PRICE EXPIRY DATE VESTING NUMBER 2019 2018 2,062,500 2,062,500 2,062,500 2,062,500 7,000,000 7,000,000 6,287,500 9,612,500 6,287,500 9,612,500 5,612,500 5,837,500 5,612,500 5,837,500 $0.035 $0.045 $0.080 $0.035 $0.045 $0.035 $0.045 30-06-22 30-06-22 31-12-19 13-11-20 13-11-20 30-06-21 30-06-21 Vested Vests 09-07-20 Vested Vested Vested Vested Vests 20-07-19 5,000,000 5,000,000 $0.045 5 years from vesting date When EBIT > $2M 5,000,000 5,000,000 $0.060 5 years from vesting date When EBIT > $4M 5,000,000 5,000,000 5,000,000 5,000,000 1,762,500 3,000,000 1,762,500 3,000,000 7,500,000 7,500,000 7,500,000 7,500,000 4,250,000 4,250,000 4,250,000 4,250,000 1,500,000 1,500,000 - - $0.045 $0.060 $0.035 $0.045 $0.060 $0.045 $0.035 $0.045 $0.035 $0.045 18-04-23 18-10-24 30-06-22 30-06-22 11-10-23 11-10-21 22-11-21 22-11-21 30-06-22 30-06-22 Vested Vests 18-10-19 Vested Vested Vests 11-10-22 Vests 11-10-20 Vested Vested Vests 28-03-20 Vests 28-09-21 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 TOTAL 84,950,000 111,775,000 Cirrus Networks Holdings Ltd – ABN 98 103 348 947 Appendix 4E and Annual Report 13 For personal use only REMUNERATION REPORT (Audited) The remuneration report details the key management personnel remuneration arrangements for the consolidated entity, in accordance with the requirements of the Corporations Act 2001 and its Regulations. Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including all directors. The Key Management Personnel for the year 1 July 2018 – 30 June 2019 were the Directors of the Company: • Andrew Milner – Non-Executive Chairman • Daniel Rohr - Non-Executive Director • Matthew Sullivan – Managing Director • Paul Everingham – Non-Executive Director (appointed 23 July 2018) • Patrick Glovac – Former Non-Executive Director (resigned 23 July 2018) The other Key Management Personnel were: • Christopher McLaughlin – Chief Operating Officer • Matthew Green – Chief Financial Officer The remuneration report is set out under the following main headings: • Principles used to determine the nature and amount of remuneration • Key Management Personnel remuneration • Share-based compensation • Option holdings of Key Management Personnel • Share holdings of Key Management Personnel PRINCIPLES USED TO DETERMINE THE NATURE AND AMOUNT OF REMUNERATION The objective of the Consolidated Entity's executive reward framework is to ensure reward for performance is competitive and appropriate for the results delivered. The framework aligns executive reward with the achievement of strategic objectives and the creation of value for shareholders, and it is considered to conform to the market best practice for the delivery of reward. The Board of Directors ('the Board') ensures that executive reward satisfies the following key criteria for good reward governance practices: • competitiveness and reasonableness • acceptability to shareholders • performance linkage / alignment of executive compensation • transparency The Nomination and Remuneration Committee is responsible for determining and reviewing remuneration arrangements for its directors and executives. The performance of the consolidated entity depends on the quality of its directors and executives. The remuneration philosophy is to attract, motivate and retain high performance and high-quality personnel. The Nomination and Remuneration Committee has structured an executive remuneration framework that is market competitive and complementary to the reward strategy of the consolidated entity. The reward framework is designed to align executive reward to shareholders' interests. The Board have considered that it should seek to enhance shareholders' interests by: • having economic profit as a core component of plan design • focusing on sustained growth in shareholder wealth, consisting of dividends and growth in share price, and delivering constant or increasing return on assets as well as focusing the executive on key non-financial drivers of value Cirrus Networks Holdings Ltd – ABN 98 103 348 947 Appendix 4E and Annual Report 14 For personal use only REMUNERATION REPORT (Audited) – (continued) • attracting and retaining high calibre executives Additionally, the reward framework should seek to enhance executives' interests by: • • rewarding capability and experience reflecting competitive reward for contribution to growth in shareholder wealth • providing a clear structure for earning rewards In accordance with best practice corporate governance, the structure of Non-Executive Director and Executive Director remuneration is separate. Non-Executive Directors’ Remuneration Fees and payments to Non-Executive Directors reflect the demands and responsibilities of their role. Non-Executive Directors' fees and payments are reviewed annually by the Nomination and Remuneration Committee. The Nomination and Remuneration Committee may, from time to time, receive advice from independent remuneration consultants to ensure non-executive directors' fees and payments are appropriate and in line with the market. The Chairman's fees are determined independently to the fees of other Non-Executive Directors based on comparative roles in the external market. The Chairman is not present at any discussions relating to the determination of his own remuneration. Non- Executive Directors have not received share options or other incentives as Director remuneration. ASX listing rules require the aggregate Non-Executive Directors' remuneration be determined periodically by a general meeting. The most recent determination was at the Annual General Meeting held on 20 November 2018, where the shareholders approved a maximum annual aggregate remuneration of $250,000 for Director fees. Executive Remuneration The Consolidated Entity aims to reward executives based on their position and responsibility, with a level and mix of remuneration which has both fixed and variable components. The executive remuneration and reward framework has four components: • base pay and non-monetary benefits • • short-term performance incentives share-based payments • other remuneration such as superannuation and long service leave The combination of these comprises the executive's total remuneration. Fixed remuneration, consisting of base salary, superannuation and non-monetary benefits, are reviewed annually by the Nomination and Remuneration Committee based on individual and business unit performance, the overall performance of the consolidated entity and comparable market remunerations. The short-term incentives ('STI') program is designed to align the targets of the business units with the performance hurdles of executives. STI payments are granted to executives based on specific annual targets and key performance indicators ('KPI's') being achieved. KPI's include profit contribution, customer satisfaction, leadership contribution and product management. The long-term incentives ('LTI') include long service leave and share-based payments. Cirrus Networks Holdings Ltd – ABN 98 103 348 947 Appendix 4E and Annual Report 15 For personal use only REMUNERATION REPORT (Audited) – (continued) Employment Contracts Remuneration and other terms of employment for the Managing Director, Matthew Sullivan, as at 30 June 2019, were formalised in an employment agreement, the terms of which are set out below: Matthew Sullivan, Managing Director: • Term of agreement: commenced 2 July 2015. Amended on 1 August 2018. • Termination notice period: three months. • Annual Executive Director salary of $280,000 (2018 - $265,000) • STI At-Risk of $120,000 based on the following KPI’s: FY19 NPAT Margin Annuity Growth Cost Control Customer Satisfaction Employee Satisfaction % 70 10 5 5 5 5 FY18 Underlying Profit Margin Annuity Growth Delivery Efficiency Customer Satisfaction Employee Satisfaction % Indexed 25 30 15 15 15 In addition, in October 2016 the general meeting of shareholders approved Matthew Sullivan to be issued with the following options: Options Grant date Expiry date TIER 1 TIER 2 TIER 3 TIER 4 18 Oct 2016 18 Oct 2016 18 Oct 2016 18 Oct 2016 5 years from vesting 5 years from vesting 18 April 2023 18 Oct 2024 Share price at grant date $0.028 Exercise price $0.045 $0.028 $0.060 $0.028 $0.045 $0.028 $0.060 Vesting Conditions When Cirrus achieves $2 million in EBIT When Cirrus achieves $4 million in EBIT After 18 months’ service After 36 months’ service Fair value at grant date $0.0101 $0.0098 $0.0101 $0.0098 Number granted 5,000,000 5,000,000 5,000,000 5,000,000 Total fair value $50,681 $48,766 $50,681 $48,766 Remuneration expense for FY19 Remuneration expense for FY18 $12,670 $18,287 - $16,256 $12,670 $18,287 $25,340 $16,256 Cirrus Networks Holdings Ltd – ABN 98 103 348 947 Appendix 4E and Annual Report 16 For personal use only REMUNERATION REPORT (Audited) – (continued) Remuneration and other terms of employment for the Chief Operating Officer, Christopher McLaughlin, as at 30 June 2019, were formalised in an employment agreement, the terms of which are set out below: Christopher McLaughlin., Chief Operating Officer: • Term of agreement: commenced 1 June 2016. Amended on 1 January 2019. • Termination notice period: three months. • Annual Chief Operating Officer salary of $250,000 • STI At-Risk of $75,000 based on the following KPI’s: FY19 NPAT Annuity Growth Professional Services Growth Delivery Efficiency - Annuity Delivery Efficiency - Professional Services Customer Satisfaction Employee Satisfaction % 70 5 5 5 5 5 5 Options Grant date Expiry date TIER 1 TIER 2 05/07/2016 05/07/2016 30/06/2021 30/06/2021 Share price at grant date $0.028 Exercise price $0.035 $0.028 $0.045 Vesting Conditions Vested Vests 20/07/2019 Fair value at grant date $0.0123 $0.0105 Number granted 1,675,000 1,675,000 Total fair value $20,593 $17,540 Remuneration expense for FY19 - $5,847 Cirrus Networks Holdings Ltd – ABN 98 103 348 947 Appendix 4E and Annual Report 17 For personal use only REMUNERATION REPORT (Audited) – (continued) Remuneration and other terms of employment for the Chief Financial Officer, Matthew Green, as at 30 June 2019, were formalised in an employment agreement, the terms of which are set out below: Matthew Green, Chief Financial Officer: • Term of agreement: commenced 10 August 2015. Amended on 1 August 2018. • Termination notice period: three months. • Annual Chief Financial Officer salary of $240,000 • STI At-Risk of $75,000 based on the following KPI’s: FY19 NPAT Cost Control Delivery Efficiency Customer Satisfaction Employee Satisfaction % 70 10 10 5 5 Options Grant date Expiry date TIER 1 TIER 2 TIER 3 TIER 4 20/11/2015 20/11/2015 05/07/2016 05/07/2016 13/11/2020 13/11/2020 30/06/2021 30/06/2021 Share price at grant date $0.030 Exercise price Vesting Conditions $0.035 Vested $0.030 $0.045 Vested Fair value at grant date $0.0095 $0.0088 Number granted 1,675,000 1,675,000 Total fair value $31,829 $29,489 $0.028 $0.035 $0.028 $0.045 Vested Vests 20/07/2019 $0.0123 862,500 $10,604 $0.0105 862,500 $9,032 Remuneration expense for FY19 - $3,683 - $3,011 Cirrus Networks Holdings Ltd – ABN 98 103 348 947 Appendix 4E and Annual Report 18 For personal use only REMUNERATION REPORT (Audited) – (continued) All other Key Management Personnel were appointed as Directors under the Corporations Act, on the following terms: Andrew Milner, Non-Executive Chairman: • Term of agreement: commenced 2 July 2015 and subject to re-election as required by the Company’s Constitution. • Termination as per constitution or breach of the code of conduct. • Annual Chairman’s fee of $70,000 (2018 - $70,000) (plus statutory superannuation) Daniel Rohr, Non-Executive Director: • Term of agreement: commenced 2 July 2015 and subject to re-election as required by the Company’s Constitution. • Termination as per constitution or breach of the code of conduct. • Annual non-executive director’s fee of $48,402 (2018 - $48,402) (plus statutory superannuation) Paul Everingham, Non-Executive Director (appointed 23 July 2018): • Term of agreement: commenced 23 July 2018 and subject to re-election as required by the Company Constitution. • Termination as per constitution or breach of the code of conduct • Annual non-executive director’s fee of $43,836 (plus statutory superannuation) Patrick Glovac, Former Non-Executive Director (resigned 23 July 2019): • Term of agreement: commenced 2 July 2015 and subject to re-election as required by the Company’s Constitution. • Termination as per constitution or breach of the code of conduct. • Annual non-executive director’s fee of $43,836, pro-rata for one month served $2,529 (2018 - $43,386) (plus statutory superannuation) No Director or Executive is entitled to any termination payments apart from payment in lieu of the notice periods outlined above, remuneration payable up to and including the date of termination and payments due by way of accrued leave entitlements. Consolidated Entity performance and link to remuneration Remuneration for certain individuals is directly linked to the performance of the consolidated entity. A portion of cash bonus and incentive payments are dependent on defined growth targets being met. The remaining portion of the cash bonus and incentive payments are at the discretion of the Nomination and Remuneration Committee. The Nomination and Remuneration Committee is of the opinion that the continued improved results can be attributed in part to the adoption of performance-based compensation and is satisfied that this improvement will continue to increase shareholder wealth if maintained over the coming years. Specifically, in relation to options, this effectively links directors’ performance to the share price performance and therefore to the interests of the shareholders. For this reason, there are no performance conditions prior to grant, but instead an incentive to increase the value to all shareholders. Cirrus Networks Holdings Ltd – ABN 98 103 348 947 Appendix 4E and Annual Report 19 For personal use only REMUNERATION REPORT (Audited) – (continued) Performance KPI’s for the current and prior year are set out below: FY2019 Underlying Profit Margin Annuity Growth Cost Control Customer Satisfaction Employee Satisfaction FY2018 Underlying Profit Margin Annuity Growth Delivery Efficiency Customer Satisfaction Employee Satisfaction Voting and comments made at the Company's 20 November 2018 Annual General Meeting ('AGM') At the 2018 AGM, 91% of the votes received supported the adoption of the remuneration report for the year ended 30 June 2018. The Company did not receive any specific feedback at the AGM regarding its remuneration practices. KEY MANAGEMENT PERSONNEL REMUNERATION FOR THE YEAR ENDED 30 JUNE 2019 SHORT-TERM EMPLOYEE BENEFITS POST-EMPLOYMENT BENEFITS EQUITY-SETTLED SHARE-BASED NAME POSITION YEAR Salary & Fees $ Bonuses* $ Other $ Super $ Other $ Andrew Milner 2019 68,654 NON-EXECUTIVE CHAIRMAN 2018 70,000 Daniel Rohr 2019 47,471 NON-EXECUTIVE DIRECTOR 2018 48,402 Paul Everingham NON-EXECUTIVE DIRECTOR 2019 40,520 Matthew Sullivan 2019 273,365 - - - - - - - - - - - 6,522 6,650 4,510 4,598 3,849 6,599 24,964 MANAGING DIRECTOR 2018 262,916 35,050¹ - 28,307 Christopher McLaughlin CHIEF OPERATING OFFICER 2019 238,526 Matthew Green CHIEF FINANCIAL OFFICER 2019 233,718 Patrick Glovac 2019 2,529 FORMER NON-EXECUTIVE DIRECTOR 2018 43,836 TOTAL 2019 904,783 - - - - - 3,660 22,075 (1,524) 22,203 - - 240 4,164 8,734 84,363 2018 425,155 35,050 - 43,719 Cirrus Networks Holdings Ltd – ABN 98 103 348 947 Appendix 4E and Annual Report - - - - - - - - - - - - - Shares & Share Options TOTAL $ PERFORMANCE RELATED $ - 75,176 23,625 100,275 - 51,981 23,625 76,625 - 44,369 47,213 352,141 72,553 398,826 5,847 270,108 6,693 261,090 - 2,769 23,625 71,625 59,753 1,057,634 143,428 647,352 - - - - - 9% 9% - - - - - - 20 For personal use only REMUNERATION REPORT (Audited) – (continued) ¹. Matthew Sullivan achieved 35% of the STI in 2018 based on the following KPIs: FY17 % Target % Achieved NPAT Growth Improvement Customer Satisfaction Employee Satisfaction Total 30% Indexed 50% of target - Indexed 30% 20% 10% 10% 100% 30% 20% 10% 10% 35% SHARE BASED COMPENSATION TO KEY MANAGEMENT PERSONNEL DURING THE YEAR ENDED 30 JUNE 2019 There are no performance conditions attached to the Director options issued in the prior year. Options issued to Directors carry no dividends or voting rights and each option is convertible to one share of the company. Options have been valued using a Black & Scholes model which includes the following inputs. MATTHEW SULLIVAN’S OPTIONS Grant date Expiry date TIER 1 TIER 2 TIER 3 TIER 4 18 Oct 2016 18 Oct 2016 18 Oct 2016 18 Oct 2016 5 years from vesting 5 years from vesting 18 April 2023 18 Oct 2024 Share price at grant date $0.028 Exercise price $0.045 $0.028 $0.060 $0.028 $0.045 $0.028 $0.060 Vesting Conditions When Cirrus achieves $2 million in EBIT When Cirrus achieves $4 million in EBIT After 18 months’ service After 36 months’ service Fair value at grant date $0.0101 $0.0098 $0.0101 $0.0098 Number granted 5,000,000 5,000,000 5,000,000 5,000,000 Total fair value $50,681 $48,766 $50,681 $48,766 Remuneration expense for FY19 Remuneration expense for FY18 $12,670 $18,287 - $16,256 $12,670 $18,287 $25,340 $16,256 Matthew’s share-based payment expense for the 2019 year made up 20.10% of his total compensation. Cirrus Networks Holdings Ltd – ABN 98 103 348 947 Appendix 4E and Annual Report 21 For personal use only REMUNERATION REPORT (Audited) – (continued) OPTION HOLDINGS OF KEY MANAGEMENT PERSONNEL 30 JUNE 2019 BALANCE AT THE START OF THE YEAR BALANCE AT APPOINTMENT / (RESIGNATION) DATE GRANTED AS REMUNERATION NET CHANGE Andrew Milner 2,500,000 Daniel Rohr 2,500,000 Paul Everingham - Matthew Sullivan 20,000,000 Christopher McLaughlin 3,350,000 Matthew Green 5,075,000 - - - - - - Patrick Glovac 7,666,667 (7,666,667)* TOTAL 41,091,667 (7,666,667) - - - - - - - - *As at the time of Patrick Glovac’s resignation, he held 7,666,667 options. BALANCE AT THE END OF THE YEAR 2,500,000 2,500,000 - 20,000,000 3,350,000 5,075,000 - - - - - - (7,666,667) - (7,666,667) 33,425,000 30 JUNE 2019 Andrew Milner Daniel Rohr Paul Everingham TOTAL 2,500,000 2,500,000 - Matthew Sullivan 5,000,000 Christopher McLaughlin 1,675,000 Matthew Green 4,212,500 VESTED AS AT END OF YEAR EXERCISABLE NOT EXERCISABLE 2,500,000 2,500,000 - 5,000,000 1,675,000 4,212,500 - - - - - - - TOTAL 15,887,500 15,887,500 Cirrus Networks Holdings Ltd – ABN 98 103 348 947 Appendix 4E and Annual Report 22 For personal use only REMUNERATION REPORT (Audited) – (continued) SHARE HOLDINGS OF KEY MANAGEMENT PERSONNEL 30 JUNE 2019 BALANCE AT THE START OF THE YEAR BALANCE AT APPOINTMENT / (RESIGNATION) DATE GRANTED AS REMUNERATION ACQUIRED / (SOLD) ON MARKET NET CHANGE BALANCE AT THE END OF THE YEAR Andrew Milner 44,323,387 Daniel Rohr 7,678,863 Paul Everingham - Matthew Sullivan 47,023,387 Christopher McLaughlin - Matthew Green 14,457,781 - - - - - Patrick Glovac 7,033,334 (7,033,334) TOTAL 120,516,752 (7,033,334) - - - - - - - - - - - 44,323,387 7,678,863 4,880,000 4,880,000 4,880,000 1,250,000 1,250,000 48,273,387 - - - 13,000,000 13,000,000 27,457,781 - (7,033,334) - 19,130,000 12,096,666 132,613,418 *As at the time of Patrick Glovac’s resignation, he held 7,033,334 shares. This concludes the remuneration report, which has been audited. MATTERS SUBSEQUENT TO THE END OF THE FINANCIAL YEAR There has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a material and unusual nature likely, in the opinion of the directors of the Company, to affect significantly the operations of the Group, the results of those operations, or the state of affairs of the Group, in future financial years. Cirrus Networks Holdings Ltd – ABN 98 103 348 947 Appendix 4E and Annual Report 23 For personal use only PROCEEDINGS ON BEHALF OF THE COMPANY No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the company, or to intervene in any proceedings to which the company is a party for the purpose of taking responsibility on behalf of the company for all or part of those proceedings. NON-AUDIT SERVICES During the year, BDO, the Group’s auditor, has performed certain other services in addition to the audit and review of financial statements. The Board has considered the non-audit services provided during the year by the auditor and in accordance with written advice provided by resolution of the audit committee, is satisfied that the provision of those non-audit services during the year by the auditor is compatible with, and did not compromise, the auditor independence requirements of the Corporations Act 2001 for the following reasons: 
 • • all non-audit services were subject to the corporate governance procedures adopted by the Group and have been reviewed by the audit committee to ensure they do not impact the integrity and objectivity of the auditor; and the non-audit services provided do not undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants, as they did not involve reviewing or auditing the auditor’s own work, acting in a management or decision-making capacity for the Group, acting as an advocate for the Group or jointly sharing risks and rewards. Details of the amounts paid to the auditor of the Group, BDO, and its network firms for audit and non-audit services provided during the year are set out below: Services other than audit and review of financial statements Audit and review of financial statements TOTAL AUDITOR'S INDEPENDENCE DECLARATION 90,818 48,854 139,672 A copy of the auditor's independence declaration as required under section 307C of the Corporations Act 2001 is set out immediately after this Directors' report. AUDITOR BDO Audit (WA) Pty Ltd continues in office in accordance with section 327 of the Corporations Act 2001. This report is made in accordance with a resolution of Directors, pursuant to section 298(2)(a) of the Corporations Act 2001. On behalf of the Directors Matt Sullivan Managing Director Signature: Date: 22 August 2019 Cirrus Networks Holdings Ltd – ABN 98 103 348 947 Appendix 4E and Annual Report 24 For personal use onlyTel: +61 8 6382 4600 Fax: +61 8 6382 4601 www.bdo.com.au 38 Station Street Subiaco, WA 6008 PO Box 700 West Perth WA 6872 Australia DECLARATION OF INDEPENDENCE BY DEAN JUST TO THE DIRECTORS OF CIRRUS NETWORKS HOLDINGS LIMITED As lead auditor of Cirrus Networks Holdings Limited for the year ended 30 June 2019, I declare that, to the best of my knowledge and belief, there have been: 1. No contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and 2. No contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of Cirrus Networks Holdings Limited and the entities it controlled during the period. Dean Just Director BDO Audit (WA) Pty Ltd Perth, 22 August 2019 BDO Audit (WA) Pty Ltd ABN 79 112 284 787 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit (WA) Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation. For personal use onlyConsolidated Statement of Profit or Loss and Other Comprehensive Income For the year ended 30 June 2019 REVENUE Revenue Other Income EXPENSES Purchase of Goods Employee and labor related costs Depreciation & Amortisation Finance costs Other Expenses Foreign exchange losses Share based compensation – options Redundancy & Business Restructure PROFIT/(LOSS) BEFORE INCOME TAX Income tax benefit PROFIT AFTER INCOME TAX FOR THE YEAR ATTRIBUTABLE TO THE OWNERS OF CIRRUS NETWORKS HOLDINGS LTD Other comprehensive income NOTE 2.2 2.3 2.4 2.5 CONSOLIDATED ($) 2019 ($) 2018 88,038,326 76,092,829 125,794 614,977 88,164,120 76,707,806 (56,805,785) (57,014,004) (25,753,011) (16,630,743) (663,196) (223,564) (466,215) (23,198) (3,369,679) (2,537,538) (2,058) (303,038) (267,510) (10,872) (226,046) (165,345) (87,387,841) (77,073,961) 776,279 - (366,155) 3,197,446 776,279 2,831,291 Other comprehensive income for the year, net of tax - - TOTAL COMPREHENSIVE INCOME FOR THE YEAR ATTRIBUTABLE TO THE OWNERS OF CIRRUS NETWORKS HOLDINGS LTD 776,279 2,831,291 EARNINGS PER SHARE FROM CONTINUING OPERATIONS NOTE Basic earnings per share Diluted earnings per share 2.6 CENTS 0.0884 0.0884 CENTS 0.343 0.343 The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes. Cirrus Networks Holdings Ltd – ABN 98 103 348 947 Appendix 4E and Annual Report 26 For personal use onlyConsolidated Statement of Financial Position As at 30 June 2019 NOTE CONSOLIDATED ($) 2019 ($) 2018 ASSETS CURRENT ASSETS Cash and cash equivalents Trade and other receivables Inventories Other TOTAL CURRENT ASSETS NON-CURRENT ASSETS Property, plant and equipment Intangibles Deferred tax asset TOTAL NON-CURRENT ASSETS TOTAL ASSETS LIABILITIES CURRENT LIABILITIES Trade and other payables Borrowings Provisions Financial liability TOTAL CURRENT LIABILITIES NON-CURRENT LIABILITIES Borrowings Provisions TOTAL NON-CURRENT LIABILITIES TOTAL LIABILITIES NET ASSETS NET ASSETS EQUITY Issued capital Reserves Accumulated losses TOTAL EQUITY 4.1 4.2 3.1 3.2 3.3 2.4 4.3 5.2 4.4 6.4 5.2 4.4 5.1 6.1 2.5 5,012,769 22,383,899 294,406 78,518 5,263,581 14,659,295 210,069 341,658 27,769,592 20,474,603 559,888 8,727,466 2,709,922 11,997,276 39,766,868 653,143 8,792,795 2,709,922 12,155,860 32,630,463 26,100,021 17,877,816 800,000 695,057 - 27,595,078 600,000 267,513 867,513 28,462,591 11,304,277 14,200,608 1,037,493 (3,933,824) 11,304,277 333,332 656,490 3,000,000 21,867,638 500,001 257,490 757,491 22,625,129 10,005,334 13,775,608 734,455 (4,504,729) 10,005,334 The above consolidated statement of financial position should be read in conjunction with the accompanying notes. Cirrus Networks Holdings Ltd – ABN 98 103 348 947 Appendix 4E and Annual Report 27 For personal use onlyConsolidated Statement of Changes in Equity For the year ended 30 June 2019 CONSOLIDATED ($) ISSUED CAPITAL ($) RESERVES ($) ACCUMULATED LOSSES ($) TOTAL EQUITY Balance at 1 July 2017 12,552,411 508,409 (7,336,020) 5,724,800 Profit after income tax expense for the year Other comprehensive income for the year, net of tax TOTAL COMPREHENSIVE INCOME FOR THE YEAR - - - TRANSACTIONS WITH OWNERS IN THEIR CAPACITY AS OWNERS Issue of share capital (note 5.1) Capital raising costs (note 5.1) 1,287,705 (64,508) - - - - - Issue of Options (note 6.1) - 226,046 2,831,291 2,831,291 - - 2,831,291 2,831,291 - - - 1,287,705 (64,508) 226,046 BALANCE AT 30 JUNE 2018 13,775,608 734,455 (4,504,729) 10,005,334 CONSOLIDATED ($) ISSUED CAPITAL ($) RESERVES ($) ACCUMULATED LOSSES ($) TOTAL EQUITY Balance at 1 July 2018 13,775,608 734,455 (4,504,729) 10,005,334 Retrospective adjustment upon change in accounting policy (AASB 9) (Note 1.4) - - (205,374) (205,374) Restated total equity at 30 June 2018 13,775,608 734,455 (4,710,103) 9,799,960 Profit after income tax for the year Other comprehensive income for the year, net of tax TOTAL COMPREHENSIVE INCOME FOR THE YEAR - - - TRANSACTIONS WITH OWNERS IN THEIR CAPACITY AS OWNERS Issue of share capital (note 5.1) 425,000 - - - - Issue of Options (note 6.1) - 303,038 776,279 776,279 - - 776,279 776,279 - - 425,000 303,038 BALANCE AT 30 JUNE 2019 14,200,608 1,037,493 (3,933,824) 11,304,277 The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes. Cirrus Networks Holdings Ltd – ABN 98 103 348 947 Appendix 4E and Annual Report 28 For personal use onlyConsolidated Statement of Cash Flows For the year ended 30 June 2019 CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers Payments to suppliers and employees Interest received NOTES CONSOLIDATED ($) 2019 ($) 2018 90,827,446 85,695,903 (88,492,424) (84,430,017) 48,159 42,407 NET CASH FROM OPERATING ACTIVITIES 4.1 2,383,181 1,305,493 CASH FLOWS FROM INVESTING ACTIVITIES Payments for property, plant and equipment (400,037) (437,317) Cash held by Correct Communications Pty Ltd at acquisition date - 413,947 Payment for purchase of subsidiary NET CASH (USED IN) INVESTING ACTIVITIES CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issue of shares Proceeds from borrowings Repayment of borrowings Other - Interest paid Other - Capital raising costs NET CASH PROVIDED BY FINANCING ACTIVITIES Net (decrease)/increase in cash and cash equivalents (2,575,000) (1,500,000) (2,975,037) (1,523,370) - 787,705 1,250,000 1,000,000 (683,334) (166,667) (223,564) (22,625) - (64,508) 343,102 1,533,905 (248,753) 1,316,028 Cash and cash equivalents at the beginning of the financial year 5,263,581 3,947,553 Effects of exchange rate changes on cash and cash equivalents (2,058) - CASH AND CASH EQUIVALENTS AT THE END OF THE FINANCIAL YEAR 5,012,769 5,263,581 The above consolidated statement of cash flows should be read in conjunction with the accompanying notes. Cirrus Networks Holdings Ltd – ABN 98 103 348 947 Appendix 4E and Annual Report 29 For personal use only Notes to the Financial Statements For the year ended 30 June 2019 1 BASIS OF PREPERATION In preparing the 2019 financial statements, the Group has made a number of changes in structure, layout and wording in order to make the financial statements less complex and more relevant for the shareholders and other users. We have grouped notes into sections under six key categories 1. 2. Basis of preparation Results for the year 3. Assets and liabilities 4. Working capital disclosures 5. Equity and funding 6. Other disclosures Significant accounting policies, critical judgemental, estimates and assumptions specific to one note are included within that note and where possible, wording has been simplified to provide clearer commentary on the financial report of the Group. Accounting policies determined non-significant are not included in the financial statements. There have been no changes to the Group’s accounting policies that are no longer disclosed in the financial statements. 1.1 GENERAL INFORMATION Cirrus Networks Holdings Limited ('the Company') is a for-profit- public company domiciled in Australia. The Company’s registered office is located at Arcadia Chambers, Level 2, 1 Roydhouse Street, Subiaco, WA, 6008. These consolidated financial statements comprise the Company and its controlled entities at the end of, or during, the year (together referred to as ‘the Group’) and were authorised for issue by the Board of Directors on 22 August 2019. Cirrus Networks is a next-generation technology service provider delivering advisory services, integration services and managed services. 1.2 BASIS OF PREPARATION These financial statements are general purpose financial statements which • have been prepared in accordance with the requirements of the Corporations Act 2001, Australian Accounting Standards ('AASB’s') and other authoritative pronouncements of the Accounting Standards Board. The consolidated financial statements comply with International Financial Reporting Standards ('AASB') as issued by the International Accounting Standards Board ('IASB'); • have been prepared on a going concern basis. Based on forecast cash flows, the Group has sufficient working capital to fund its mandatory obligations for the period ending 12 months from the date of this report. There are no indicators suggesting going concern problems and, therefore, no significant doubt regarding the entity's ability to continue as a going concern; • have been prepared on a historical cost basis, except for, where applicable, the revaluation of available- for-sale financial assets, financial assets and liabilities at fair value through profit or loss, investment properties, certain classes of property, plant and equipment and derivative financial instruments. The basis of measurement is discussed further in the individual notes; Cirrus Networks Holdings Ltd – ABN 98 103 348 947 Appendix 4E and Annual Report 30 For personal use only1.2 BASIS OF PREPARATION – (continued) • are presented in Australian Dollars ($) unless otherwise stated, being, the Company’s functional currency, in accordance with ASIC Corporations (Rounding in Financial/ Directors’ Reports) Instrument 2016/191; • adopts all of the new, revised or amended Accounting Standards and Interpretations issued by AASB that are relevant to the operations of the Group and effective for reporting periods beginning on or after 1 July 2018. Refer to note 1.4 for further details; and • do not early adopt any Australian Accounting Standards or Interpretations that have been issued or amended but not yet effective. Refer to note 6.7 for further details. 1.3 BASIS OF CONSOLIDATION The consolidated financial statements comprise the financial statements of the Group. In preparing the consolidated financial statements, all intercompany transactions, balances and unrealised gains on transactions between entities in the Group are eliminated. Subsidiaries are consolidated from the date on which control is obtained to the date on which control is disposed. The acquisition of subsidiaries is accounted for using the acquisition method of accounting. 1.4 CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES In the year ended 30 June 2019, the Group has reviewed all new and revised Standards and Interpretations issued by the AASB that are relevant to its operations and effective for annual reporting periods beginning on or after 1 July 2018. New standards impacting the Group that have been adopted from 1 July 2018 are: • AASB 15 Revenue from Contracts with Customers (AASB 15); and • AASB 9 Financial Instruments (AASB 9). The Group has chosen to adopt the cumulative effect method for the above new standards and as such, the comparative information throughout these consolidated financial statements has not been restated to reflect the requirements of the new standards. Other new and amended standards and interpretations issued by the AASB have been determined by the Group to have no impact, material or otherwise, on its business and therefore no further changes, other than those mentioned above, are necessary to the Group’s accounting policies. No retrospective change in accounting policy or material reclassification has occurred requiring the inclusion of a third Statement of Financial Position as at the beginning of the comparative financial period, as required by AASB 101. Impact of new accounting standards The effects of initially applying the following new standards on the Group’s consolidated financial statements from 1 July 2018 are: • • the adoption of AASB 15 has resulted in changes in accounting policies and disclosures in the financial statements but has had no significant impact on the amount of revenue recognised for the Group in the current or previous periods. Refer to note 2.2 for the new revenue accounting policy and the Group’s new revenue disclosures; and The adoption of AASB 9 has resulted in changes in accounting policies and has resulted in an adjustment of $205,374 that has been posted to opening retained earnings to recognise the expected credit loss relating to the Group’s trade receivables as at 1 July 2018. Refer to note 6.5 for the new financial instruments accounting policy. Cirrus Networks Holdings Ltd – ABN 98 103 348 947 Appendix 4E and Annual Report 31 For personal use only1.5 ACCOUNTING JUDGEMENTS AND ESTIMATES The preparation of financial statements in conformity with AASB’s requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. Information about judgements and estimates which are material to the consolidated financial statements are included in the following notes: NOTE KEY JUDGEMENT AND ESTIMATE Note 2.2 – Revenue Note 2.2 – Revenue Principal versus agent Allocation of transaction price Note 2.4 – Income tax Income tax Note 3.2 – Property, plant and equipment Estimation of useful lives of assets Note 3.3 – Intangible assets Useful life of intangible assets Note 3.3 – Intangible assets Goodwill and other indefinite life intangible assets Note 3.3 - Intangible assets Key assumptions used for value-in-use calculations Note 4.2 – Trade and other receivables Provision for impairment of receivables Note 4.4 – Provisions Employee benefit provision Note 6.1 – Share based payments Share based payment transactions Note 6.4 – Entity Acquisitions Business combinations 2 RESULTS FOR THE YEAR This section focuses on the results and performance of the Group, with disclosures including segmental information, components of the operating profit, taxation and earnings per share. 2.1 OPERATING SEGMENTS The Company has identified its operating segments based on the internal reports that are reviewed and used by the Board of Directors (chief operating decision makers) in assessing performance and determining the allocation of resources. The reportable segment is represented by the primary statements forming this financial report, being one segment, an information technology business in Australia. Cirrus Networks Holdings Ltd – ABN 98 103 348 947 Appendix 4E and Annual Report 32 For personal use only 2.2 REVENUE As a result of the adoption of AASB 15, the Group has changed its accounting policy for revenue recognition from 1 July 2018 as detailed below: Revenue is recognised when or as the Group transfers control of goods or services to a customer at the amount to which the Group expected to be entitled. If the consideration promised includes a variable amount, the Group estimates the amount of consideration to which it will be entitled. The primary geographic market in which the Group generates its revenue is Australia. The following is a description of the principle activities from which the Group generates its revenue: • Product sales – The Group generates revenue from the sale of products, which is recognised at a point in time when the goods are delivered, the legal title has passed and the customer has accepted the goods. The amount of revenue recognised for goods delivered is adjusted by expected returns. Credit terms for product sales is 30 days. • Professional services – Revenue from the provision of professional services is recognised as follows: - Fixed price contracts: revenue is recognised based on actual services rendered as a proportion of total services to be provided as the customer receives and uses the benefits simultaneously. Hence revenue is recognised over time. Customers pay based on monthly payment schedules, if the services rendered exceed the payment plan, a contract asset is recognised. If the payments exceed the services rendered, a contract liability is recognised. - Hourly charge out model: revenue is recognised based on actual services rendered over the agreed customer term, representing a distinct service, that are substantially the same with the same pattern of transfer, such that they would be recognised over time. Customers are invoiced on a monthly basis and consideration is payable when invoiced. - Bundled professional services: where professional services are bundles with sales of hardware and software (‘products’), the sale of products is a separate performance obligation and the transaction price is allocated to the products and the professional services based on the relative stand-alone prices basis. • Managed services – Revenue from the provision of managed services is recognised in the period in which the services are rendered. The performance obligation is the supply of managed services over the contractual terms. The terms represent distinct contracted services that are substantially the same with the same pattern of transfer, such that they would be recognised over time. Key judgements and estimates – principal versus agent A key judgement made by the directors in the sale of goods is that the entity acts as the principal rather than an agent. The directors arrived at this conclusion on the basis that: • The entity has primary responsibility for fulfilling the order from the customer; and • The entity has latitude in establishing prices. On this basis the revenue recorded for goods is the gross amount billed. Key judgements and estimates– allocation of transaction price Some fixed price contracts include multiple deliveries such as sale of hardware and software, customisation and installation and ongoing support and maintenance. In such contracts, two or more performance obligations are identified as distinct and hence the transaction is allocated to the performance obligation on relative stand-alone selling price basis. The standalone price of product sold is an estimate based on the retail price. Cirrus Networks Holdings Ltd – ABN 98 103 348 947 Appendix 4E and Annual Report 33 For personal use only 2.2 REVENUE – (continued) DISAGGREGATION OF REVENUE PRODUCT TYPE Product sales Professional services Managed services TIMING OF TRANSFER OF GOODS AND SERVICES Point in time Over time CONSOLIDATED ($) 2019 ($) 2018 62,800,220 57,504,282 15,439,527 13,453,816 9,798,579 5,134,731 88,038,326 76,092,829 62,800,220 57,504,282 25,238,106 18,588,547 88,038,326 76,092,829 The amount of revenue that will be recognised in future periods for the Company’s significant contracts greater than 12 months, when the remaining performance obligations will be satisfied is as follows: CONSOLIDATED ($) 2020 5,095,912 ($) 2021 3,817,118 ($) 2022+ 3,262,812 Significant Long Term Contracts 2.3 OTHER INCOME Other income – is recognised when the amount can be reliably measured and control of the right to receive the income has passed to the Group. Finance income - is recognised using the effective interest method. Government grants received - Grants for research and development incentives are recognised as revenue in the period in which they are received, in accordance with IAS 20 “Government Grants”. The grants received in the prior period are for Research and Development (R&D) tax incentives for the 2017 financial year and fulfil all the necessary attached conditions. Interest Income Vendor Marketing Support R&D Tax Offset Cirrus Networks Holdings Ltd – ABN 98 103 348 947 Appendix 4E and Annual Report CONSOLIDATED ($) 2019 ($) 2018 48,160 77,634 - 125,794 42,407 215,811 356,759 614,977 34 For personal use only 2.4 INCOME TAX Income tax expense or benefit comprises current and deferred tax. Current tax assets and liabilities are measured at the amount expected to be recovered from, or paid to, the taxation authorities. Current tax is based on the applicable income tax rates enacted or substantially enacted at the reporting date. Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax base used for calculating taxable profits except for: • When the deferred income tax asset or liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting nor taxable profits; or • When the taxable temporary difference is associated with interests in subsidiaries, associates or joint ventures, and the timing of the reversal can be controlled, and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax balances are disclosed net to the extent that they relate to taxes levied by the same authority and the Group has the right of set-off. Deferred tax assets and liabilities are always classified as non-current. The carrying amount of recognised and unrecognised deferred tax assets are reviewed at each reporting date. Deferred tax assets and liabilities are offset only where there is a legally enforceable right to offset current tax assets against current tax liabilities and deferred tax assets against deferred tax liabilities; and they relate to the same taxable authority on either the same taxable entity or different taxable entities which intend to settle simultaneously. Key judgements and estimates– deferred tax assets The group has concluded that a deferred tax asset will be recoverable using the estimated future taxable income based on the approved business plans and budgets for the group. The group is expected to generate taxable income from 2020 onwards. The losses can be carried forward indefinitely and have no expiry date. Key judgements and estimates– income tax The consolidated entity is subject to income taxes in the jurisdictions in which it operates. Significant judgement is required in determining the provision for income tax. There are many transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain. The consolidated entity recognises liabilities for anticipated tax audit issues based on the consolidated entity's current understanding of the tax law. Where the final tax outcome of these matters is different from the carrying amounts, such differences will impact the current and deferred tax provisions in the period in which such determination is made. Cirrus Networks Holdings Ltd – ABN 98 103 348 947 Appendix 4E and Annual Report 35 For personal use only 2.4 INCOME TAX – (continued) (A) INCOME TAX EXPENSE/(BENEFIT) Current tax Deferred tax Recoupment of prior year tax losses TOTAL INCOME TAX EXPENSE/(BENEFIT) (B) RECONCILIATION OF INCOME TAX EXPENSE TO PRIMA FACIE TAX PAYABLE (Loss)/profit for the period Prima facie tax payable at 30% ADD TAX EFFECT OF: Non-deductible expenses Non-assessable income Current year losses realised Movement in timing differences not brought to account (344,622) Other deferred tax assets brought to account Deferred tax asset on losses brought to account INCOME TAX BENEFIT / (EXPENSE) (C) DEFERRED TAX LIABILITY Accrued Revenue Prepaid expenditure Intangible Other temporary differences Offset of deferred tax assets CONSOLIDATED ($) 2019 ($) 2018 - - - - - (3,197,446) - (3,197,446) 776,279 (366,155) (232,884) (109,847) 111,738 80,803 - - - - - - 96 (107,013) 85,675 - 50,382 (3,197,446) (3,197,446) 125,173 7,022 306,452 487,524 389 5,597 (306,937) (625,315) NET DEFERRED TAX LIABILITY RECOGNISED - - Cirrus Networks Holdings Ltd – ABN 98 103 348 947 Appendix 4E and Annual Report 36 For personal use only 2.4 INCOME TAX – (continued) (D) DEFERRED TAX ASSET Tax losses Property, plant and equipment Expenses taken into equity Other temporary differences Offset of deferred tax liabilities Net deferred tax assets recognised 2,625,476 2,756,185 2,789 49,806 2,369 90,472 338,788 486,211 3,016,859 3,335,237 (306,937) (625,315) 2,709,922 2,709,922 DEFERRED TAX ASSET ON TAX LOSSES NOT BROUGHT TO ACCOUNT 2,010,737 2,663,659 (E) TAX LOSSES CARRIED FORWARD As at 30 June 2019, the Company had $2,010,737 (2018: $2,663,659) of unrecognised deferred tax assets relating to unused tax losses. Net deferred tax assets of $318,378 (2018: $2,709,922) have been recognised in the statement of financial position in respect of the amount of these losses brought to account to the extent that it is probable future taxable profits will be generated by the Group. 2.5 ACCUMULATED LOSSES CONSOLIDATED ($) 2019 ($) 2018 Accumulated losses at the beginning of the financial year (4,504,729) (7,336,020) Retrospective adjustment upon change in accounting policy (AASB 9) (note 1.4) (205,374) Restated accumulated losses at the beginning of the financial year (4,710,103) - - Profit after income tax expense for the year 776,279 2,831,291 ACCUMULATED LOSSES AT THE END OF THE FINANCIAL YEAR (3,933,824) (4,504,729) Cirrus Networks Holdings Ltd – ABN 98 103 348 947 Appendix 4E and Annual Report 37 For personal use only 2.6 EARNINGS PER SHARE Earnings per share (‘EPS’) is the amount of post-tax profit or loss attributable to each share. The calculation of basic earnings per share at year end has been based on the profit attributable to ordinary shareholders and weighted average number of ordinary shares outstanding. Diluted EPS takes into account the dilutive effect of all potential ordinary shares, being share options on issue. EARNINGS PER SHARE ATTRIBUTABLE TO ORDINARY SHAREHOLDERS CONSOLIDATED 2019 2018 Profit attributable to the owners of Cirrus Networks Holdings Ltd $776,279 $2,831,291 Weighted average number of ordinary shares 877,988,673 825,153,515 Earnings per share – cents Diluted earnings per share – cents 0.0884 0.0884 0.3431 0.3431 The number of options on issue at 30 June 2019 is 84,950,000 (2018: 111,775,000). These are not considered dilutive as the average market price of the ordinary shares exceeds the exercise price of the options. 3 ASSETS AND LIABILITIES This section focuses on the assets and liabilities which form the core of the ongoing business, including inventories, property, plant and equipment, intangible assets as well as capital and other commitments at year end. 3.1 INVENTORIES Stock on hand is stated at the lower of cost and net realisable value. Cost comprises of purchase and delivery costs, net of rebates and discounts received or receivable. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale INVENTORIES - AT COST 3.2 PROPERTY, PLANT AND EQUIPMENT Recognition and measurement CONSOLIDATED ($) 2019 294,406 ($) 2018 210,069 The carrying value of property, plant and equipment is measured as the cost of the asset, less depreciation and impairment. Costs include purchase price, other directly attributable costs and the initial estimate of the costs of dismantling and restoring the asset, where applicable. Depreciation The depreciable amount of all property, plant and equipment is depreciated on a straight-line method from the date that management determine that the asset is available for use. Items of plant and equipment are depreciated using the cost model, depreciated on a straight-line basis over their useful lives. The cost model is where the asset is carried at its cost less any accumulated depreciation and any impairment losses. The estimated useful lives of plant and equipment held by the Group (office and computer equipment and hosting infrastructure) is 4 years. Cirrus Networks Holdings Ltd – ABN 98 103 348 947 Appendix 4E and Annual Report 38 For personal use only 3.2 PROPERTY, PLANT AND EQUIPMENT - (continued) Leasehold improvements are depreciated over the shorter of the term of the lease and the assets useful life. The estimated useful life of leasehold improvements is 4 years. Impairment Property, plant and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Impairment loss is recognised for the amount by which the carrying amount exceeds its recoverable amount. Recoverable amount is the higher of an assets fair value less costs of disposal and value-in-use. The value-in-use is the present value of the estimated future cash flows relating to the asset using a pre-tax discount rate specific to the asset or cash-generating unit to which the asset belongs. Assets that do not have independent cash flows are grouped together to form a cash-generating unit. Derecognition Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These gains or losses are recognised in profit or loss when the item is de-recognised. Key judgements and estimates – Estimation of useful lives of assets The consolidated entity determines the estimated useful lives and related depreciation and amortisation charges for its property, plant and equipment and finite life intangible assets. The useful lives could change significantly as a result of technical innovations or some other event. The depreciation and amortisation charge will increase where the useful lives are less than previously estimated lives, or technically obsolete or non-strategic assets that have been abandoned or sold will be written off or written down. PROPERTY, PLANT AND EQUIPMENT Computer equipment - at cost Less: Accumulated depreciation Office equipment - at cost Less: Accumulated depreciation Hosting Infrastructure - at cost Less: Accumulated depreciation Leasehold Improvements - at cost Less: Accumulated depreciation CONSOLIDATED ($) 2019 453,858 (287,495) 166,363 332,956 ($) 2018 413,985 (209,959) 204,026 306,074 (222,342) (179,463) 110,614 591,785 126,611 450,075 (332,318) (159,772) 259,467 158,932 290,303 138,932 (135,488) (106,729) 23,444 559.888 32,203 653,143 Cirrus Networks Holdings Ltd – ABN 98 103 348 947 Appendix 4E and Annual Report 39 For personal use only 3.2 PROPERTY, PLANT AND EQUIPMENT - (continued) Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below: CONSOLIDATED Balance at 1 July 2017 Additions Additions through business combinations COMPUTER EQUIPMENT ($) OFFICE EQUIPMENT ($) HOSTING INFRASTRUCTURE ($) LEASEHOLD IMPROVEMENT ($) TOTAL ($) 147,908 114,604 40,913 11,151 80,665 297,000 13,233 108,420 - 78,788 348,274 - - 422,755 121,653 Depreciation expense (71,719) (33,873) (87,362) (46,585) (239,539) BALANCE AT 30 JUNE 2018 204,026 126,611 Additions 34,371 17,178 290,303 141,710 32,203 653,143 20,000 213,259 Depreciation expense (72,034) (33,175) (172,546) (28,759) (306,514) BALANCE AT 30 JUNE 2019 166,363 110,614 259,467 23,444 559,888 3.3 INTANGIBLE ASSETS The Intangible assets Intangible assets acquired as part of a business combination, other than goodwill, are initially measured at their fair value at the date of the acquisition. Intangible assets acquired separately are initially recognised at cost. Indefinite life intangible assets are not amortised and are subsequently measured at cost less any impairment. Finite life intangible assets are subsequently measured at cost less amortisation and any impairment. The gains or losses recognised in profit or loss arising from the derecognition of intangible assets are measured as the difference between net disposal proceeds and the carrying amount of the intangible asset. The method and useful lives of finite life intangible assets are reviewed annually. Changes in the expected pattern of consumption or useful life are accounted for prospectively by changing the amortisation method or period. Goodwill Goodwill arises on the acquisition of a business and is initially measured at cost. Cost is measured as the cost of the business combination minus the net fair value of the acquired and identifiable assets, liabilities and contingent liabilities. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Impairment losses on goodwill are taken to profit or loss and are not subsequently reversed. Impairment Goodwill and other intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Impairment loss is recognised for the amount by which the carrying amount exceeds its recoverable amount. Recoverable amount is the higher of an assets fair value less costs of disposal and value-in-use. The value-in-use is the present value of the estimated future cash flows relating to the asset using a pre-tax discount rate specific to the asset or cash-generating unit to which the asset belongs. Assets that do not have independent cash flows are grouped together to form a cash-generating unit. Cirrus Networks Holdings Ltd – ABN 98 103 348 947 Appendix 4E and Annual Report 40 For personal use only 3.3 INTANGIBLE ASSETS – (continued) Key judgements and estimates – useful life of intangible assets Intangible assets are stated at their historical cost and amortised on a straight-lined basis over their expected useful lives. The fair value determination of customer contracts and related relationships is derived from expected retention rates and cash flows over the customer’s remaining estimated lifetime. Amortisation of customer relationships is over 5 years. Amortisation of software is over 3 years. Key judgements and estimates – impairment of goodwill and other indefinite life intangible assets The consolidated entity tests annually, or more frequently if events or changes in circumstances indicate impairment, whether goodwill and other indefinite life intangible assets have suffered any impairment. The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations require the use of assumptions, including estimated discount rates based on the current cost of capital and growth rates of the estimated future cash flows. Intangible assets Goodwill - at cost CONSOLIDATED ($) 2019 1,407,860 7,319,606 8,727,466 ($) 2018 1,473,189 7,319,606 8,792,795 Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below: CONSOLIDATED Balance at 1 July 2017 Additions through asset purchase Additions through business combinations (note 6.4) Accumulated amortisation and impairment BALANCE AT 30 JUNE 2018 Additions through asset purchase Accumulated amortisation and impairment BALANCE AT 30 JUNE 2019 TOTAL ($) 3,532,247 1,625,080 3,862,144 (226,676) 8,792,795 291,354 (356,683) 8,727,466 Cirrus Networks Holdings Ltd – ABN 98 103 348 947 Appendix 4E and Annual Report 41 For personal use only 3.3 INTANGIBLE ASSETS – (continued) The aggregate carrying amount of intangibles allocated to the Group’s reportable segment is: Intangible assets – customer relationships Intangible assets – software Goodwill – Correct Communications Pty Ltd Goodwill – NGage Technology Group Pty Ltd Goodwill – L7 Solutions CONSOLIDATED ($) 2019 1,116,506 291,354 3,862,144 2,499,988 957,474 8,727,466 ($) 2018 1,473,189 - 3,862,144 2,499,988 957,474 8,792,795 For the purpose of impairment testing, intangibles are allocated to one (2018: one) Cash Generating Unit (‘CGU’). As at 30 June 2019, the business monitors the operating results of one distinct business unit for the purposes of making decisions about resource allocation and performance assessment. The performance of this business unit was primarily evaluated based on Earnings before Interest, Taxes, Depreciation and Amortisation (EBITDA). 2019: THE AGGREGATE CARRYING AMOUNTS ALLOCATED TO THE CGU IS: Cirrus Networks Holdings Ltd CLOSING VALUE AT 30 JUNE 2019 2018: THE AGGREGATE CARRYING AMOUNTS ALLOCATED TO THE CGUS ARE: Cirrus Networks Holdings Ltd CLOSING VALUE AT 30 JUNE 2018 ($) 2019 8,727,466 8,727,466 ($) 2018 8,792,795 8,792,795 Key judgements and estimates – key assumptions used for value-in-use calculations The Group tests whether goodwill has suffered any impairment on an annual basis. The recoverable amount of a CGU is determine based on value-in-use calculations which require the use of assumptions. The calculations use cash flow projections based on financial budgets approved by management covering a five-year period. Cash flows beyond the five-year period are extrapolated using the estimated growth rates stated below. These growth rates are consistent with forecasts included in industry reports specific to the industry in which the CGU operates. The following table sets out the key assumptions for those CGUs that have significant goodwill allocated to them. DESCRIPTION Sales growth (% annual growth rate) Budgeted gross margin (%) Other operating costs ($’000) Annual capital expenditure ($’000) Long term growth rate (%) Pre-tax discount rate (%) Cirrus Networks Holdings Ltd – ABN 98 103 348 947 Appendix 4E and Annual Report 2019 CGU 2018 CGU 5.0 20.0 14,256 100 2.5 13.0 5.0 18.0 15,108 100 2.5 13.0 42 For personal use only 3.3 INTANGIBLE ASSETS – (continued) Management has determined the values assigned to each of the above key assumptions as follows: ASSUMPTION Sales growth APPROACH USED TO DETERMINE VALUES Average annual growth rate over the five-year forecast based on past performance and management’s expectations of market development. Budgeted gross margin Based on past performance and management’s expectations for the future. Other operating costs Fixed costs of the CGUs, which do not vary significantly with sales growth. Management forecasts these costs based on the current structure of the business, adjusting for inflationary increases but not reflecting any future restructurings or cost saving measures. Annual capital expenditure There is generally limited need for additions or capital improvements therefore no capital expenditure assumed in the five-year forecast. Long-term growth rate Post-tax discount rate This is the weighted average growth rate used to extrapolate cash flows beyond the budgeted period. Reflect specific risks relating to the relevant segments and the countries in which they operate. Sensitivity to change in assumptions The Directors and management have considered and assessed reasonable possible changes to key assumptions that result in a change to the recoverable amount for each CGU. With regards to the assessment, management recognises that the actual time value of money and the discount rate used may vary from the estimated. Management note that there is sufficient headroom in estimates that no significant changes to key assumptions will result in an impairment, based on expected cash flows of the CGU. 3.4 COMMITMENTS Operating lease commitments The Group leases three office premises which are all non-cancellable leases. • One lease has a five-year term, with rent payable monthly in advance. Contingent rental provisions within this lease agreement require that the minimum lease payments shall be increased by CPI + 1% per annum. An option exists to renew the lease at the end of the five-year term and the lease allows for subletting of all lease areas pending the lessor's consent. • One lease has a five-year term, with rent payable monthly in advance. Contingent rental provisions within this lease agreement require that the minimum lease payments shall be increased by 3.75% per annum. • The other lease has a four year, with rent payable monthly in advance. Contingent rental provisions within this lease agreement require that the minimum lease payments shall be increased by 3.75% per annum. MINIMUM LEASE PAYMENTS UNDER NON-CANCELLABLE OPERATING LEASES 2019 ($) 2018 ($) Within one year After one year but not more than five years More than five years 771,188 1,667,890 - 335,696 313,948 - 2,439,078 649,644 Cirrus Networks Holdings Ltd – ABN 98 103 348 947 Appendix 4E and Annual Report 43 For personal use only 3.5 CONTINGENT LIABILITIES AND ASSETS The Group has no known contingent liabilities or contingent assets. 4 WORKING CAPITAL DISCLOSURES This section focuses on the cash funding available to the Group and working capital position at year end. 4.1 CASH AND CASH EQUIVALENTS Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short- term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. RECONCILIATION OF CASH AND CASH EQUIVALENTS CASH AT BANK CONSOLIDATED ($) 2019 5,012,769 ($) 2018 5,263,581 RECONCILIATION OF THE NET PROFIT AFTER INCOME TAX TO THE CONSOLIDATED NET CASH FLOWS USED IN OPERATIONS PROFIT FOR THE YEAR ($) 2019 776,279 Cash flows excluded from profit attributable to operating activities non-cash flows in profit: depreciation and amortisation employee remuneration (options) Changes in assets and liabilities (net effect): (increase)/decrease in trade and other receivables (increase)/decrease in other assets 663,196 303,038 (7,724,604) 84,337 ($) 2018 2,831,291 466,215 226,046 4,043,486 298,813 increase/(decrease) in trade and other payables 8,232,345 (4,148,413) increase/(decrease) in income taxes payable increase/(decrease) in employee benefits CASH FLOW FROM (USED IN) OPERATIONS - (2,709,922) 48,590 2,383,181 297,977 1,305,493 2019: NON-CASH INVESTING AND FINANCING ACTIVITIES Issue of 21,881,449 deferred consideration shares in Cirrus Networks Holdings for acquisition of Correct Communications Pty Ltd – refer to note 6.4 2018: NON-CASH INVESTING AND FINANCING ACTIVITIES Issue of 21,969,621 deferred consideration shares in Cirrus Networks Holdings for acquisition of Correct Communications Pty Ltd – refer to note 6.4 Cirrus Networks Holdings Ltd – ABN 98 103 348 947 Appendix 4E and Annual Report ($) 2019 $425,000 ($) 2018 $500,000 44 For personal use only 4.2 TRADE AND OTHER RECEIVABLES Trade receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method, less any provision for impairment. Trade receivables are generally due for settlement within 30 days. Collectability of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectable are written off by reducing the carrying amount directly. A provision for impairment of trade receivables is raised when there is objective evidence that the consolidated entity will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation and default or delinquency in payments (more than 60 days overdue) are considered indicators that the trade receivable may be impaired. The amount of the impairment allowance is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. Cash flows relating to short-term receivables are not discounted if the effect of discounting is immaterial. Other receivables are recognised at amortised cost, less any provision for impairment. Key judgements and estimates– provision for impairment of receivables The provision for impairment of receivables assessment requires a degree of estimation and judgement. The level of provision is assessed by using the expected credit loss model. Trade receivables Other receivables CONSOLIDATED ($) 2019 ($) 2018 20,467,838 14,091,213 1,916,061 568,082 22,383,899 14,659,295 Receivables past due but not impaired Customers with balances past due but without provision for impairment of receivables amount to $1,626,538 as at 30 June 2019 (2018: $2,134,235). The consolidated entity did not consider a credit risk on the aggregate balances after reviewing the credit terms of customers based on recent collection practices. The ageing of the past due but not impaired receivables are as follows: 0 to 1 month overdue 1 to 3 months overdue Over 3 months overdue CONSOLIDATED ($) 2019 918,649 627,331 80,558 ($) 2018 1,366,383 767,852 - 1,626,538 2,134,235 Refer to note 6.5 for further information on credit ratings of all trade receivables. Cirrus Networks Holdings Ltd – ABN 98 103 348 947 Appendix 4E and Annual Report 45 For personal use only 4.3 TRADE AND OTHER PAYABLES These amounts represent liabilities for goods and services provided to the Consolidated Entity prior to the end of the financial year and which are unpaid. Due to their short-term nature they are measured at amortised cost and are not discounted. The amounts are unsecured and are usually paid within 30 days of recognition. Trade payables Accruals & customer deposits Other payables Refer to note 6.5 for further information on financial risk management. 4.4 PROVISIONS Provisions CONSOLIDATED ($) 2019 ($) 2018 24,795,131 15,394,753 381,320 923,570 730,438 1,752,625 26,100,021 17,877,816 Provisions are recognised when the Group has a present (legal or constructive) obligation as a result of a past event, it is probable the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the reporting date, taking into account the risks and uncertainties surrounding the obligation. If the time value of money is material, provisions are discounted using a current pre- tax rate specific to the liability. The increase in the provision resulting from the passage of time is recognised as a finance cost. Short-term employee benefits Liabilities for wages and salaries, including non-monetary benefits, annual leave and long service leave expected to be settled wholly within 12 months of the reporting date are measured at the amounts expected to be paid when the liabilities are settled. Other long-term employee benefits The liability for annual leave and long service leave not expected to be settled within 12 months of the reporting date are measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the reporting date on national government bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. Key judgements and estimates - Employee benefits provision The liability for employee benefits expected to be settled more than 12 months from the reporting date are recognised and measured at the present value of the estimated future cash flows to be made in respect of all employees at the reporting date. In determining the present value of the liability, estimates of attrition rates and pay increases through promotion and inflation have been taken into account. CURRENT PROVISIONS Annual leave Provision for onerous lease Lease incentive Cirrus Networks Holdings Ltd – ABN 98 103 348 947 Appendix 4E and Annual Report CONSOLIDATED ($) 2019 680,230 12,847 1,980 695,057 ($) 2018 615,966 38,544 1,980 656,490 46 For personal use only 4.5 PROVISIONS – (continued) NON-CURRENT PROVISIONS Lease incentive Long service leave CONSOLIDATED ($) 2019 11,880 255,633 267,513 ($) 2018 23,760 233,730 257,490 5 EQUITY AND FUNDING This section focuses on the share capital, options and debt funding available to the Group at year end 5.1 ISSUED CAPITAL Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. ISSUED AND PAID UP CAPITAL Share Capital Capital Raising Costs CONSOLIDATED 2019 (NO.) 2018 (NO.) 2019 ($) 2018 ($) 883,384,099 861,502,650 15,721,584 15,296,584 - - (1,520,976) (1,520,976) 883,384,099 861,502,650 14,200,608 13,775,608 MOVEMENT RECONCILIATION CONSOLIDATED 2019 (NO.) 2018 (NO.) 2019 ($) 2018 ($) Balance at the beginning of the year 861,502,650 795,771,629 13,775,608 12,552,411 Issue of shares 21,881,449 43,761,400 425,000 Issue of deferred consideration shares Less: Capital raising costs - - 21,969,621 - - - 787,705 500,000 (64,508) BALANCE AT THE END OF THE YEAR 883,384,099 861,502,650 14,200,608 13,775,608 Cirrus Networks Holdings Ltd – ABN 98 103 348 947 Appendix 4E and Annual Report 47 For personal use only 5.1 ISSUED CAPITAL – (continued) Options on issue The Company had the following classes of options on issue as at the balance date: CLASS 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 NUMBER 2019 2018 - - 6,500,000 13,750,000 2,062,500 2,062,500 2,062,500 2,062,500 7,000,000 7,000,000 6,287,500 10,025,000 6,287,500 10,025,000 5,612,500 5,912,500 5,612,500 5,912,500 5,000,000 5,000,000 5,000,000 5,000,000 5,000,000 5,000,000 5,000,000 5,000,000 1,762,500 3,000,000 1,762,500 3,000,000 7,500,000 7,500,000 7,500,000 7,500,000 4,250,000 4,250,000 4,250,000 4,250,000 1,500,000 1,500,000 - - EXERCISE PRICE EXPIRY DATE VESTING $0.180 $0.060 $0.035 $0.045 $0.080 $0.035 $0.045 $0.035 $0.045 $0.045 $0.060 $0.045 $0.060 $0.035 $0.045 $0.060 $0.045 $0.035 $0.045 $0.035 $0.045 31-12-18 31-05-18 30-06-22 30-06-22 31-12-19 13-11-20 13-11-20 30-06-21 30-06-21 Vested Vested Vested Vests 09-07-20 Vested Vested Vested Vested Vests 20-07-19 5 years from vesting date When EBIT > $2M 5 years from vesting date When EBIT > $4M 18-04-23 18-10-24 30-06-22 30-06-22 11-10-23 11-10-21 22-11-21 22-11-21 30-06-21 30-06-21 Vested Vests 18-10-19 Vested Vested Vests 11-10-22 Vests 11-10-20 Vested Vested Vests 28-03-20 Vests 28-09-21 TOTAL 84,950,000 112,750,000 Movements in the number of options on issue during the current and prior financial years are as follows: DESCRIPTION BALANCE AS AT 1 JULY 2017 Options issued during the year – employees Options issued during the year – Directors Options cancelled/expired during the year BALANCE AS AT 30 JUNE 2018 Options issued during the year – employees Options cancelled/expired during the year BALANCE AS AT 30 JUNE 2019 Cirrus Networks Holdings Ltd – ABN 98 103 348 947 Appendix 4E and Annual Report NO. 100,925,000 24,250,000 7,500,000 (19,925,000) 112,750,000 3,000,000 (30,800,000) 84,950,000 48 For personal use only 5.2 LOANS AND BORROWINGS This note provides information about the contractual terms of the Group’s interest-bearing loans and borrowings. For more information about the Group’s exposure to interest rate risk, see note 6.5. DESCRIPTION Borrowings-current Borrowings-non-current CONSOLIDATED ($) 2019 800,000 600,000 1,400,000 ($) 2018 333,332 500,001 833,333 The Group entered into a separate unsecured Commercial Advance Facility with Bankwest specifically for Acquisition Funding. Interest payable at BBSY plus a margin of 3.00% per annum. The loan is repayable over 3 years. As at 30 June 2019, $1,400,000 has been drawn down under the Commercial Advance Facility 6 OTHER DISCLOSURES This section focuses on share schemes in operation and financial risk management of the Group. Other mandatory disclosures, such as details of related party transactions can also be found here. 6.1 SHARE BASED PAYMENTS Goods or services received or acquired in a share-based payment transaction are recognised as an increase in equity if the goods or services were received in an equity-settled share-based payment transaction or as a liability if the goods and services were acquired in a cash settled share-based payment transaction. Key judgements and estimates - Share-based payment transactions For equity-settled share-based transactions, goods or services received are measured directly at the fair value of the goods or services received provided this can be estimated reliably. If a reliable estimate cannot be made the value of the goods or services is determined indirectly by reference to the fair value of the equity instrument granted using a Black-Scholes option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk-free interest rate for the term of the option. Transactions with employees and others providing similar service are measured by reference to the fair value at grant date of the equity instrument granted using a Black-Scholes option pricing model RESERVES Equity Settled Employee Benefits Reserve CONSOLIDATED ($) 2019 1,037,493 1,037,493 ($) 2018 734,455 734,455 Cirrus Networks Holdings Ltd – ABN 98 103 348 947 Appendix 4E and Annual Report 49 For personal use only 6.1 SHARE BASED PAYMENTS – (continued) Share based payment plans for Directors and other Key Management Personnel The following share-based payment arrangements were in place during the current and prior periods: 2019 NUMBER OF OPTIONS GRANT DATE EXPIRY DATE EXERCISE PRICE SHARE PRICE AT GRANT DATE FAIR VALUE AT GRANT DATE % VESTED 7,000,000 02-12-14 31-12-19 $0.0800 $0.0200 $162,400 100% 6,287,500 20-11-15 13-11-20 $0.0350 $0.0300 $190,498 100% 6,287,500 20-11-15 13-11-20 $0.0450 $0.0300 $176,490 100% 5,612,500 05-07-16 30-06-21 $0.0350 $0.0280 $72,686 100% 5,612,500 05-07-16 30-06-21 $0.0450 $0.0280 $61,911 $0.0450 $0.0280 $50,681 0% 0% 5,000,000 18-10-16 5,000,000 18-10-16 5 years from vesting date 5 years from vesting date $0.0600 $0.0280 $48,766 0% 5,000,000 18-10-16 18-04-23 $0.0450 $0.0280 $50,681 100% 5,000,000 18-10-16 18-10-24 $0.0600 $0.0280 $48,766 0% 1,762,500 13-06-17 30-06-22 $0.0350 $0.0170 $6,169 1,762,500 13-06-17 30-06-22 $0.0450 $0.0170 $7,931 2,062,500 09-07-17 30-06-22 $0.0350 $0.0170 $24,956 2,062,500 09-07-17 30-06-22 $0.0450 $0.0170 $23,756 7,500,000 11-10-17 11-10-21 $0.0450 $0.0230 $76,530 7,500,000 11-10-17 11-10-23 $0.0600 $0.0230 $89,822 4,250,000 23-11-17 22-11-21 $0.0350 $0.0170 $41,650 4,250,000 23-11-17 22-11-21 $0.0450 $0.0170 $38,675 1,500,000 28-09-18 30-06-22 $0.0350 $0.019 $12,459 1,500,000 28-09-18 30-06-22 $0.0450 $0.019 $10,855 100% 100% 100% 0% 0% 0% 100% 100% 0% 0% VESTING DATE 02-12-14 13-05-17 13-11-18 05-12-17 20-07-19 When EBIT >2M When EBIT >4M 18-03-18 18-10-19 13-06-17 13-06-17 09-12-18 09-07-20 11-10-20 11-10-22 23-11-17 23-11-17 28-03-20 28-09-20 Cirrus Networks Holdings Ltd – ABN 98 103 348 947 Appendix 4E and Annual Report 50 For personal use only 6.1 SHARE BASED PAYMENTS – (continued) 2018 NUMBER OF OPTIONS GRANT DATE EXPIRY DATE EXERCISE PRICE SHARE PRICE AT GRANT DATE FAIR VALUE AT GRANT DATE % VESTED 6,500,000 25-11-13 31-12-18 $0.1800 $0.0300 $117,000 100% 7,000,000 02-12-14 31-12-19 $0.0800 $0.0200 $162,400 100% 13,750,000 2-07-15 31-05-19 $0.0600 $0.0170 $123,750 100% 10,025,000 20-11-15 13-11-20 $0.0350 $0.0300 $190,498 100% 10,025,000 20-11-15 13-11-20 $0.0450 $0.0300 $176,490 0% 5,912,500 05-07-16 30-06-21 $0.0350 $0.0280 $72,686 100% 5,912,500 05-07-16 30-06-21 $0.0450 $0.0280 $61,911 $0.0450 $0.0280 $50,681 0% 0% 5,000,000 18-10-16 5,000,000 18-10-16 5 years from vesting date 5 years from vesting date $0.0600 $0.0280 $48,766 0% 5,000,000 18-10-16 18-04-23 $0.0450 $0.0280 $50,681 100% 5,000,000 18-10-16 18-10-24 $0.0600 $0.0280 $48,766 0% 3,000,000 13-06-17 30-06-22 $0.0350 $0.0170 $13,500 3,000,000 13-06-17 30-06-22 $0.0450 $0.0170 $10,507 2,062,500 09-07-17 30-06-22 $0.0350 $0.0170 $24,956 2,062,500 09-07-17 30-06-22 $0.0450 $0.0170 $23,756 7,500,000 11-10-17 11-10-21 $0.0450 $0.0230 $76,530 7,500,000 11-10-17 11-10-23 $0.0600 $0.0230 $89,822 4,250,000 23-11-17 22-11-21 $0.0350 $0.0170 $41,650 4,250,000 23-11-17 22-11-21 $0.0450 $0.0170 $38,675 100% 100% 0% 0% 0% 0% 100% 100% VESTING DATE 25-11-13 02-12-14 02-07-15 13-05-17 13-11-18 05-12-17 05-07-19 When EBIT >2M When EBIT >4M 18-03-18 18-09-19 13-06-17 13-06-17 09-12-18 09-07-20 11-10-20 11-10-23 23-11-17 23-11-17 Cirrus Networks Holdings Ltd – ABN 98 103 348 947 Appendix 4E and Annual Report 51 For personal use only 6.1 SHARE BASED PAYMENTS – (continued) The following table illustrates the number and weighted average exercise prices of and movements in share options issued during the year. 2019 2018 NUMBER ($) WEIGHTED AVERAGE EXERCISE PRICE NUMBER ($) WEIGHTED AVERAGE EXERCISE PRICE Outstanding at the beginning of year 112,750,000 Granted during the year Forfeited during the year Exercised during the year Expired during the year Outstanding at the end of year Exercisable at the end of the year 3,000,000 (10,550,000) - (20,250,000) 84,950,000 44,275,000 0.06 0.04 0.04 - 0.1 0.05 0.04 100,925,000 31,750,000 (15,425,000) - (4,500,000) 112,750,000 62,687,500 0.07 0.05 0.04 - 0.30 0.06 0.03 The options outstanding at 30 June 2019 had an exercise price in the range of $0.035 to $0.080. The weighted average remaining contractual life of options outstanding (excluding EBIT based options) at the end of the year was 1.9 years. Expenses arising from share-based payment transactions Total expenses arising from share-based payment transactions recoginsed during the period as part of employee benefit expense were as follows: Options issued under employee option plan 303,038 226,046 ($) 2019 ($) 2018 Fair value of options granted The fair value of the equity-settled share options granted under the option plan is estimated as at the date of grant using the Black and Scholes model taking into account the terms and conditions upon which the options were granted. Cirrus Networks Holdings Ltd – ABN 98 103 348 947 Appendix 4E and Annual Report 52 For personal use only 6.1 SHARE BASED PAYMENTS – (continued) For the options granted during the current financial period, the valuation model inputs used to determine the fair value at the grant date are as follows: EMPLOYEE OPTIONS Grant date Expiry date Share price at grant date Exercise price Expected volatility Dividend yield Risk free interest rate Fair value at grant date Number granted Total fair value 2019 TIER 1 TIER 2 28 Sep 2018 28 Sep 2018 30 Jun 2022 30 Jun 2022 $0.019 $0.035 78.95% 0.00% 2.29% $0.0083 1,500,000 $12,450 $0.019 $0.045 78.95% 0.00% 2.29% $0.0072 1,500,000 $10,855 For the options granted during the 2018 financial year, the valuation model inputs used to determine the fair value at the grant date are as follows: EMPLOYEE OPTIONS Grant date Expiry date Share price at grant date Exercise price Expected volatility Dividend yield Risk free interest rate Fair value at grant date Number granted Total fair value 2018 TIER 1 TIER 2 9 Jul 2017 9 Jul 2017 30 Jun 2022 30 Jun 2022 $0.017 $0.035 110.58% 0.00% 2.25% $0.0121 4,125,000 $49,820 $0.017 $0.045 110.58% 0.00% 2.25% $0.0121 4,125,000 $47,511 Cirrus Networks Holdings Ltd – ABN 98 103 348 947 Appendix 4E and Annual Report 53 For personal use only 6.1 SHARE BASED PAYMENTS – (continued) EMPLOYEE OPTIONS Grant date Expiry date Share price at grant date Exercise price Expected volatility Dividend yield Risk free interest rate Fair value at grant date Number granted Total fair value EMPLOYEE OPTIONS Grant date Expiry date Share price at grant date Exercise price Expected volatility Dividend yield Risk free interest rate Fair value at grant date Number granted Total fair value 2018 TIER 1 TIER 2 11 Oct 2017 11 Oct 2017 11 Oct 2021 11 Oct 2023 $0.023 $0.045 78.95% 0.00% 2.37% $0.0102 7,500,000 $76,530 $0.023 $0.06 110.58% 0.00% 2.37% $0.012 7,500,000 $89,821 2018 TIER 1 TIER 2 23 Nov 2017 23 Nov 2017 22 Nov 2021 22 Nov 2021 $0.017 $0.035 100% 0.00% 2.20% $0.0098 4,250,000 $41,650 $0.017 $0.045 100% 0.00% 2.20% $0.0091 4,250,000 $38,675 The expected life of the options is based on historical data and is not necessarily indicative of exercise patterns that may occur. The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome. No other features of options granted were incorporated into the measurement of fair value. 6.2 REMUNERATION OF AUDITORS During the financial year the following fees were paid or payable for services provided by BDO Audit (WA) Pty Ltd, the auditor of the Company: DESCRIPTION Audit services - BDO Audit (WA) Pty Ltd Audit or review of the financial statements CONSOLIDATED ($) 2019 48,854 ($) 2018 50,425 Other services - BDO Corporate Tax (WA) Pty Ltd 90,818 66,781 Tax advice & return preparation 139,672 117,206 Cirrus Networks Holdings Ltd – ABN 98 103 348 947 Appendix 4E and Annual Report 54 For personal use only 6.3 RELATED PARTY TRANSACTIONS There were no key management personnel, or their related parties, holding positions in other entities during the financial year that result in them having control or significant influence over the financial or operating policies of those entities. For the prior year, the terms and conditions of those transactions were no more favourable than those available, or which might reasonably be expected to be available, in similar transactions with non-key management personnel related companies on an arm’s length basis. The aggregate value of transactions and outstanding balances (excluding reimbursements of expenses incurred on behalf of the Company) relating to key management personnel and entities over which they have control or significant influence for the prior year were as follows: KEY MANAGEMENT PERSONNEL COMPENSATION Short-term employee benefits Post-employment benefits (superannuation) Long-term benefits Share-based payments Marketing Costs ($) 2019 913,518 84,363 - 59,753 1,057,634 ($) 2018 460,205 43,719 - 143,428 647,352 For the period ending 30 June 2019 no marketing fees and related costs (2018: $108,370) were paid to Roobix Pty Ltd (of which Andrew Milner and Matthew Sullivan were Directors up to 30 April 2018). As at 30 June 2019, there is nil (2018: nil) in outstanding invoices payable to Roobix Pty Ltd. 6.4 ENTITY ACQUISITIONS The acquisition method of accounting is used to account for business combinations regardless of whether equity instruments or other assets are acquired. The consideration transferred for the acquisition of a subsidiary comprises the: • • fair values of the assets transferred liabilities incurred to the former owners of the acquired business • equity interests issued by the group • • fair value of any asset or liability resulting from a contingent consideration arrangement, and fair value of any pre-existing equity interest in the subsidiary Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition date. The Group recognises any non- controlling interest in the acquired entity on an acquisition-by-acquisition basis either at fair value or at the non- controlling interest’s proportionate share of the acquired entity’s net identifiable assets. Acquisition-related costs are expensed as incurred. The excess of the: • consideration transferred, • amount of any non-controlling interest in the acquired entity, • and acquisition-date fair value of any previous equity interest in the acquired entity over the fair value of the net identifiable assets acquired is recorded as goodwill. If those amounts are less than the fair value of the net identifiable assets of the subsidiary acquired, the difference is recognised directly in profit or loss as a bargain purchase. Cirrus Networks Holdings Ltd – ABN 98 103 348 947 Appendix 4E and Annual Report 55 For personal use only 6.4 ENTITY ACQUISITIONS – (continued) Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions. Contingent consideration is classified either as equity or a financial liability. Amounts classified as a financial liability are subsequently re-measured to fair value with changes in fair value recognised in profit or loss. Key judgements and estimates - Business combinations Business combinations are initially accounted for on a provisional basis. The fair value of assets acquired, liabilities and contingent liabilities assumed are initially estimated by the consolidated entity taking into consideration all available information at the reporting date. Fair value adjustments on the finalisation of the business combination accounting is retrospective, where applicable, to the period the combination occurred and may have an impact on the assets and liabilities, depreciation and amortisation reported. Acquisition of Correct Communications Pty Ltd On 23 November 2017, Cirrus Networks Holdings Limited completed the acquisition of 100% of the share capital of Correct Communications Pty Ltd for 3.92 times FY18 EBIT (“EBIT multiple”) with a minimum purchase price of $2 million and a maximum of $5 million. The purchase price comprises two tranches. The first tranche being $1.5 million in cash on completion and $500,000 in CNW shares to be issued by 30 June 2018 at an issue price based on 5-day VWAP at the time of issue and escrowed for 2 years. The second tranche being dependent on the EBIT multiple result being greater than $2 million and to be calculated after the release of the audited 30 June 2018 full year financial results. The first tranche was completed on 20 May 2018. The second tranche was calculated after the release of the audited 30 June 2018 full year financial statements. The EBIT calculated resulted in a tranche 2 payment of $3 million being due. Pursuant to the sale agreement, the Company elected to pay $2.575 million in cash and issue $425,000 in fully paid ordinary shares in the Company with the issue price being calculated using the 5-day VWAP immediately prior to issue. The $2.575 million cash component was funding by a combination of a $1.25 million extension to the Company’s current acquisition facility (refer to note 5.2 for further details on the facility) and the balance from the Company’s existing cash reserves. The second tranche payment was finalised on 28 September 2018. 6.5 FINANCIAL INSTRUMENTS Fair value of financial instruments Due to their short-term nature, the carrying amount of the current receivables, current payables and current borrowings is assumed to approximate their fair value. Loans and borrowings are recognised at their fair value of the consideration received, net of transaction costs. Adoption of AASB 9 and new accounting policy for financial instruments The Group has adopted AASB 9 with a date of initial application of 1 July 2018 and has elected not to restate its comparatives. As a result, the Group has changed its accounting policy for financial instruments from 1 July 2018 as detailed below. Recognition and derecognition Financial assets and financial liabilities are recognised when the Group becomes a party to the contractual provisions of the financial instrument. Financial assets are derecognised when the contractual rights to the cash flows from the financial asset expire, or when the financial asset and substantially all the risks and rewards are transferred. A financial liability is derecognised when it is extinguished, discharged, cancelled or expires. Cirrus Networks Holdings Ltd – ABN 98 103 348 947 Appendix 4E and Annual Report 56 For personal use only 6.5 FINANCIAL INSTRUMENTS – (continued) Classification and initial measurement of financial assets Financial assets are classified according to their business model and the characteristics of their contractual cash flows and initially measured at fair value adjusted for transaction costs (where applicable). Subsequent measurement of financial assets For the purpose of subsequent measurement, financial assets, other than those designated and effective as hedging instruments, are classified into the following four categories: • Financial assets at amortised cost • Financial assets at fair value through profit or loss (FVTPL) • Debt instruments at fair value through other comprehensive income (FVTOCI) • Equity instruments at FVTOCI All income and expenses relating to financial assets that are recognised in profit or loss are presented within finance costs, finance income or other financial items, except for impairment of trade receivables which is presented within other expenses. Financial assets at amortised cost Financial assets with contractual cash flows representing solely payments of principal and interest and held within a business model of ‘hold to collect’ contractual cash flows are accounted for at amortised cost using the effective interest method. The Group’s trade and most other receivables fall into this category of financial instruments. Impairment The Group assessed on a forward-looking basis the expected credit losses associated with its debt instruments carried at amortised cost and FVOCI. The impairment methodology applied depends on whether there has been a significant increase in credit risk. The Group makes use of a simplified approach in accounting for trade and other receivables as well as contract assets and records the loss allowance at the amount equal to the expected lifetime credit losses. In using this practical expedient, the Group uses its historical experience, external indicators and forward-looking information to calculate the expected credit losses using a provision matrix. The Group considers a financial asset in default when contractual payments are 90 days past due. However, in certain cases, the Group may also consider a financial asset to be in default when internal or external information indicates the Group is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Group. The Expected Credit Loss is based on historical default rates and expected future losses. Financial risk management objectives The Consolidated Entity's activities expose it to a variety of financial risks: market risk (including foreign currency risk, price risk and interest rate risk), credit risk and liquidity risk. The Consolidated Entity's overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the consolidated entity. The Board of Directors has overall responsibility for the establishment and oversight of the risk management framework. Management monitors and manages the financial risks relating to the operations of the Group through regular reviews of the risks. Market risk Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group's income or the value of its holdings of financial instruments. The objective of market Cirrus Networks Holdings Ltd – ABN 98 103 348 947 Appendix 4E and Annual Report 57 For personal use only 6.5 FINANCIAL INSTRUMENTS – (continued) risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return. Foreign currency risk The Consolidated Entity undertakes certain transactions denominated in foreign currency and is exposed to foreign currency risk through foreign exchange rate fluctuations. This risk is considered low for the Group. Foreign exchange risk arises from future commercial transactions and recognised financial assets and financial liabilities denominated in a currency that is not the entity's functional currency. The risk is measured using sensitivity analysis and cash flow forecasting. Price risk The Consolidated Entity is not exposed to any significant price risk. Interest rate risk Any movement up or down 100 basis points on the Consolidated Entity's interest rate on borrowings would not have a significant impact. Credit risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from the Group's receivables from customers. The Group limits its exposure to credit risk from trade receivables through regular review. At the reporting date there were no significant concentrations of credit risk. The credit quality of financial assets that are neither past due nor impaired can be assessed by reference to external credit ratings (if available) or to historical information about counterparty default rates. TRADE RECEIVABLES Counterparties without external credit ratings* Group 1 Group 2 Group 3 TOTAL TRADE RECEIVABLES CONSOLIDATED ($) 2019 320,164 ($) 2018 1,586,774 21,253,012 12,504,439 - - 21,573,176 14,091,213 *Group 1 – new customers (less than 6 months) Group 2 – existing customers (more than 6 months) with no defaults in the past Group 3 – existing customers (more than 6 months) with some defaults in the past. All defaults were fully recovered. Liquidity risk Vigilant liquidity risk management requires the consolidated entity to maintain sufficient liquid assets (mainly cash and cash equivalents) and available borrowing facilities to be able to pay debts as and when they become due and payable. The Consolidated Entity manages liquidity risk by maintaining adequate cash reserves and available borrowing facilities by continuously monitoring actual and forecast cash flows and matching the maturity profiles of financial assets and liabilities. If the Directors anticipate a need to raise additional capital in the next 12 months to meet forecasted operational activities, then the decision on how the Group will raise future capital will depend on market conditions existing at that time. Cirrus Networks Holdings Ltd – ABN 98 103 348 947 Appendix 4E and Annual Report 58 For personal use only 6.5 FINANCIAL INSTRUMENTS – (continued) Financing Facilities Available The Group maintains a Multi Option Facility with Bankwest which forms part of the cash management for general business purposes. This Bankwest Multi Option Facility includes the following facilities drawn at the company’s discretion across any or all of the facilities and totalling $1,000,000. The facility options are: • Commercial Advance Facility with interest payable at the rate of BBSY plus a Margin of • • 2.20% per annum; Bank Guarantee Contingent Instrument Facility and Business Corporate Transaction Account Facility with interest payable at the rate of the variable Bankwest Business Variable Overdraft Reference Rate. The Group also entered into a separate Commercial Advance Facility with Bankwest specifically for Acquisition Funding. Interest is payable at BBSY plus a margin of 3.00% per annum. The loan is repayable over 3 years. As at 30 June 2019, $1,400,000 has been drawdown under the Commercial Advance Facility; 6.6 PARENT ENTITY DISCLOSURES a) Financial Position DESCRIPTION ASSETS Current Assets Non-Current Assets TOTAL ASSETS LIABILITIES Current Liabilities Non-Current Liabilities TOTAL LIABILITIES EQUITY Issued Capital Accumulated Losses Equity Settled Employee Benefits Reserve TOTAL EQUITY b) Statement of Profit or Loss and other Comprehensive Income PROFIT FOR THE YEAR Profit/(Loss) for the Year Other Comprehensive Income TOTAL COMPREHENSIVE INCOME ($) 2019 ($) 2018 8,316,782 3,340,275 11,657,057 1,194,294 937,791 2,132,085 13,983,308 (5,495,828) 1,037,493 9,524,972 ($) 2019 (1,207,542) - 2,792,232 11,183,346 13,975,578 3,333,310 637,791 3,971,101 13,558,308 (4,288,286) 734,455 10,004,477 ($) 2018 2,597,014 - (1,207,542) 2,597,014 Cirrus Networks Holdings Ltd – ABN 98 103 348 947 Appendix 4E and Annual Report 59 For personal use only 6.6 PARENT ENTITY DISCLOSURES – (continued) c) Contingent Liabilities of the Parent Company The Company has no known contingent liabilities or contingent assets. d) Guarantees The Company has entered into cross guarantees in relation to the debts of its subsidiaries. e) Contractual Commitments At 30 June 2019, the Company had not entered into any contractual commitments for the acquisition of property, plant or equipment. 6.7 NEW ACCOUNTING STANDARDS AND INTERPRETATIONS NOT YET ADOPTED At the date of authorisation of the financial statements, the following Australian Accounting Standards and Interpretations have recently been issued or amended but are not yet effective and have not been adopted by the Group for the year ended 30 June 2019. APPLICATION DATE OF STANDARD APPLICATION DATE FOR THE GROUP PERIODS BEGINNING ON OR AFTER 1 Jan 2019 1 Jul 2019 REF LEASES SUMMARY AASB 16 Leases The new Standard introduces three main changes: • Enhanced guidance on identifying whether a contract contains a lease; • A completely new leases accounting model for lessees that require lessees to recognise all leases on balance sheet, except for short-term leases and leases of low value assets; • Enhanced disclosures. Lessor accounting will not significantly change. Impact: The Company has assessed the impact of the new leasing standard and concluded there will be no change to the accounting treatment for short-term leases less than 12 months and leases of low value items, which will continue to be expensed on a straight- line basis. Right to use assets will be brought on the Balance sheet and the Company is in the process of assessing the impact. 6.8 SUBSEQUENT EVENTS There has been no transaction or event of a material and unusual nature likely, in the opinion of the directors of the Company, to affect significantly the operations of the Group, the results of those operations, or the state of affairs of the Group, in future financial years. Cirrus Networks Holdings Ltd – ABN 98 103 348 947 Appendix 4E and Annual Report 60 For personal use only Directors’ Declaration 30 June 2019 The Directors of the Company declare that: • • • • the attached financial statements and notes comply with the Corporations Act 2001, the Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; the attached financial statements and notes comply with International Financial Reporting Standards as issued by the International Accounting Standards Board as described in note 1.2 to the financial statements; the attached financial statements and notes give a true and fair view of the consolidated entity's financial position as at 30 June 2019 and of its performance for the financial year ended on that date; and there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable. The Directors have been given the declarations required by section 295A of the Corporations Act 2001. Signed in accordance with a resolution of Directors made pursuant to section 295(5)(a) of the Corporations Act 2001. On behalf of the Directors Matt Sullivan Managing Director Signature: Date: 22 August 2019 Cirrus Networks Holdings Ltd – ABN 98 103 348 947 Appendix 4E and Annual Report 61 For personal use only Tel: +61 8 6382 4600 Fax: +61 8 6382 4601 www.bdo.com.au 38 Station Street Subiaco, WA 6008 PO Box 700 West Perth WA 6872 Australia INDEPENDENT AUDITOR'S REPORT To the members of Cirrus Networks Holdings Limited Report on the Audit of the Financial Report Opinion We have audited the financial report of Cirrus Networks Holdings Limited (the Company) and its subsidiaries (the Group), which comprises the consolidated statement of financial position as at 30 June 2019, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial report, including a summary of significant accounting policies and the directors’ declaration. In our opinion the accompanying financial report of the Group, is in accordance with the Corporations Act 2001, including: (i) Giving a true and fair view of the Group’s financial position as at 30 June 2019 and of its financial performance for the year ended on that date; and (ii) Complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the Financial Report section of our report. We are independent of the Group in accordance with the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Company, would be in the same terms if given to the directors as at the time of this auditor’s report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. BDO Audit (WA) Pty Ltd ABN 79 112 284 787 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit (WA) Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation. For personal use onlyImpairment testing of intangible assets Key audit matter How the matter was addressed in our report Note 3.3 in the financial report discloses the individual intangible assets and the assumptions used by the Group in testing these assets for impairment. This was determined to be a key audit matter as management’s assessment of the recoverability of the intangible assets is supported by a value in use cash flow forecast which requires estimates and judgements about future performance. These include judgements and estimates over the expectation of future revenues, anticipated budgeted costs, growth rates expected and the discount rate applied. Our procedures included, but are not limited to the following: (cid:127) (cid:127) (cid:127) Evaluating the Group’s categorisation of cash generating units (“CGUs”) and the allocation of goodwill to the carrying value of CGUs based on our understanding of the Group’s business; Evaluating management’s ability to accurately forecast cash flows by assessing the precision of the current year actuals against forecasted outcomes; Challenging key inputs used in the value in use calculations including the following: o o o o assessing the discount rate used by involving internal valuation experts and comparing them to market data and industry research; Comparing growth rates with third party data for the information technology industry; Comparing the Group’s forecast cash flows to the board approved budget; and Performing sensitivity analysis on the growth and discount rates. Evaluating the adequacy of the related disclosures in the financial report. For personal use onlyRevenue recognition Key audit matter How the matter was addressed in our audit AASB 15 Revenue from Contracts with Customers (AASB 15) became effective for periods beginning on or after 1 July 2018. A substantial amount of the Group’s revenue relates to revenue from sale of goods and rendering of services (which includes professional services and managed services). Revenue recognition was determined to be a key audit matter as this area involves significant judgments and estimates made by management including whether contracts contain multiple performance obligations which should be accounted for separately and the most appropriate method of recognition of revenue for the identified performance obligations. This comprises allocation of consideration to the individual performance obligations based on its standalone pricing and whether the performance obligation is satisfied at a point in time or overtime. Refer to note 2.2 in the financial report for disclosures relating to the Group’s revenue accounting policy and significant judgements applied in revenue recognition. Our audit procedures in respect of this area included but were not limited to the following: (cid:127) (cid:127) (cid:127) (cid:127) (cid:127) (cid:127) Discussing with management and critically assessing the financial impact of the new revenue standard and changes to the Group’s revenue recognition policies on transition 1 July 2018; Obtaining and reviewing a sample of contracts, considering the terms and conditions, performance obligations of these arrangements, its stand-alone pricing and assessing the accounting treatment under AASB 15; Challenging management’s assessment of the performance obligations promised to customers within a contract; Performing cut-off procedures to ensure all revenue was captured in the appropriate financial year; Performing detailed analytical procedures to identify any revenue trends outside our expectations; and Assessing the adequacy of the disclosure in Note 2.2 in the financial report. For personal use onlyOther information The directors are responsible for the other information. The other information comprises the information in the Group’s annual report for the year ended 30 June 2019, but does not include the financial report and the auditor’s report thereon. Our opinion on the financial report does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the directors for the Financial Report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the ability of the group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Auditor’s responsibilities for the audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance Standards Board website (http://www.auasb.gov.au/Home.aspx) at: http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf This description forms part of our auditor’s report. For personal use onlyReport on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 14 to 23 of the directors’ report for the year ended 30 June 2019. In our opinion, the Remuneration Report of Cirrus Networks Holdings Limited, for the year ended 30 June 2019, complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Group 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. BDO Audit (WA) Pty Ltd Dean Just Director Perth, 22 August 2019 For personal use onlyCorporate Governance This statement reports on the Company’s key governance framework, principles and practices as at 22 August 2019. These principles and practices are reviewed regularly and revised as appropriate to reflect changes in law and best practice in corporate governance. ASX PRINCIPLES OF GOOD CORPORATE GOVERNANCE The Company, as a listed entity, must comply with the Corporations Act 2001 (Cth) (“Corporations Act”), the Australian Securities Exchange Limited (“ASX”) Listing Rules (“ASX Listing Rules”) and other Australian laws. To the extent applicable, the Company has adopted the 3rd edition of The Corporate Governance Principles and Recommendations (“Recommendations”) as published by the ASX Corporate Governance Council. ASX Listing Rule 4.10.3 requires ASX listed companies to report on the extent to which they have followed the Recommendations and require the Board to consider carefully the development and adoption of appropriate corporate governance policies and practices founded on the same. ACCESS TO INFORMATION ON THE WEBSITE Further information about the Company's corporate governance practices is set out on the Company's website at www.cirrusnetworks.com.au. In accordance with the Recommendations, information published on the Company's website includes charters (for the Board and its Committees), the Company's code of conduct and other policies and procedures relating to the Board and its responsibilities. COMPLIANCE WITH ASX PRINCIPLES OF GOOD CORPORATE GOVERNANCE Commensurate with the spirit of the Recommendations, the Company has followed each recommendation where the Board has considered it to be an appropriate benchmark for corporate governance practices, taking into account factors such as the size of the Company and the Board, resources available and the activities of the Company. Where, after due consideration, the Company's corporate governance practices depart from the Recommendations, the Board has offered full disclosure of the nature of, and reason for, the adoption of its own practice. 1. THE BOARD OF DIRECTORS a) Board composition and expertise The Board has an expansive range of relevant industry experience, financial and other skills and expertise to meet its objectives. Election of Board members is substantially the province of the Shareholders in general meetings, with the Company being committed to the following principles: • The Board is to comprise persons with a blend of skills, experience and attributes appropriate for the Company and its business; and • The principal criterion for the appointment of new Directors is their ability to add value to the Company and its business. No formal nomination committee or procedures have been adopted for the identification, appointment and review of the Board’s membership, but an informal assessment process, facilitated in consultation with the Company’s professional advisors, has been committed to by the Board. The Board at the end of the Reporting Period comprised of one Managing Director, one Non-Executive Chairman and two other Non-Executive Directors. Details on each of the director’s backgrounds including experience, knowledge and skills and their status as an independent or non‐independent director are set out in the directors’ report. Cirrus Networks Holdings Ltd – ABN 98 103 348 947 Appendix 4E and Annual Report 67 For personal use only b) Board role and responsibilities The roles and responsibilities of the Board are formalised in the Board Charter. The Board Charter defines in detail the matters that are reserved for the Board and its committees, and those that the Board has delegated to management. The central role of the Board is to oversee and approve the company’s strategic direction, to select and appoint a Managing Director (“MD”), to oversee the Company’s management and business activities and report to Shareholders. The goals of the corporate governance processes are to: • Maintain and increase Shareholder value; • Ensure a prudential and ethical basis for the Company’s conduct and activities; and • Ensure compliance with the Company’s legal and regulatory objectives. Consistent with these goals, the Board assumes the following responsibilities: • Developing initiatives for profit and asset growth; • Reviewing the corporate, commercial and financial performance of the Company on a regular basis; • Acting on behalf of, and being accountable to, the Shareholders; and • Identifying business risks and implementing actions to manage those risks and corporate systems to assure quality. The Company is committed to the circulation of relevant materials to Directors in a timely manner to facilitate Directors’ participation in the Board’s discussions on a fully-informed basis. The Board also recognises its responsibilities to the Company’s personnel, the communities and environments within which the Company operates and, where relevant, other stakeholders. Responsibility for management of the Company’s business activities is delegated to the Managing Director who is accountable to the Board. c) Chairman The Chairman is responsible for leadership of the Board, for the efficient organisation and conduct of the Board’s function and for the promotion of relations between Board members and between Board and management that are open, cordial and conducive to productive co‐operation. Mr Andrew Milner was appointed Non-Executive Chairman of the Company on 2 July 2015. Cirrus Networks Holdings Ltd – ABN 98 103 348 947 Appendix 4E and Annual Report 68 For personal use only d) Director independence The Board has approved a policy on independence of Directors, a copy of which is available in the corporate governance section of the Company’s website. The policy provides that the independence of a Director will be assessed by determining whether the Director is independent of management and free of any business or other relationship that could materially interfere with, or could reasonably be perceived to materially interfere with, the exercise of their unfettered and independent judgement. The test of whether a relationship or business is material is based on the nature of the relationship or business and on the circumstances and activities of the director. Materiality is considered from the perspective of the Company, the persons or organisations with which the Director has an affiliation and from the perspective of the Director. Materiality thresholds are considered by the Board from time to time. The Board considers that: A supplier is material if the Company accounts for more than 5% of the supplier’s consolidated gross revenue; • A substantial shareholder of the Company is someone who holds greater than 5% of the voting capital of the Company; and • Service on the Board for a period exceeding 10 years is a period which could, or could reasonably be perceived to, materially interfere with a director’s ability to act in the best interests of the Company. In the event that one or more of these thresholds is exceeded, the Board then focuses on whether or not in their view that impacts materially on the independent judgement of the Director. On appointment, each Director is required to provide information for the Chairman to assess and confirm their independence as part of their consent to act as a Director. The Chairman has considered the associations of each of the Non‐Executive Directors in office at the date and considers that all Non‐Executive Directors are considered independent. e) Directors’ retirement and re‐election The Company’s Constitution states that at each annual general meeting (“AGM”) one of its Directors (excluding the Managing Director and any director appointed to fill a casual vacancy) and any director who has held office for three or more years since their last election must retire. At least one non‐executive Director must stand for election at each AGM. Any Director appointed to fill a casual vacancy since the date of the previous AGM must submit themselves to shareholders for election at the next AGM. Directors who retire as required may offer themselves for re‐ election by shareholders at the next AGM. Re‐appointment of Directors retiring by rotation or filling a casual vacancy is not automatic. f) Board succession planning The Board in conjunction with the Remuneration and Nominations Committee reviews the size and composition of the Board and the mix of existing and desired competencies across members from time to time. Criteria considered by the Directors when evaluating prospective candidates are contained in the Board’s Charter g) Board performance evaluation The Board undertakes ongoing self‐assessment and review of performance of the Board, committees and individual Directors annually. The Chairman of the Board is responsible for determining the process for evaluating Board performance. The Chairman’s performance is reviewed each year by the other members of the Board. Cirrus Networks Holdings Ltd – ABN 98 103 348 947 Appendix 4E and Annual Report 69 For personal use only h) Nominations and appointment of new directors Recommendations for nomination of new Directors are considered by the Remuneration and Nominations Committee and approved by the Board as a whole. The Remuneration and Nominations Committee reviews director appointments having regard to the candidate’s commercial experience, skills and other qualities. External consultants may be used from time to time to access a wide base of potential Directors. Further information on the Remuneration and Nominations Committee is set out below. i) Professional advice Subject to the Chairman’s approval (not to be unreasonably withheld), the Directors, at the Company’s expense, may obtain independent professional advice on issues arising in the course of their duties. j) Conflicts of interest Directors are required to disclose any actual or potential conflict or material personal interests on appointment as a Director and are required to keep these disclosures up to date. In the event that there is, or may be, a conflict between the personal or other interests of a Director, then the Director with an actual or potential conflict of interest in relation to a matter before the Board does not receive the Board papers relating to that matter. When the matter comes before the Board for discussion, the Director withdraws from the meeting for the period the matter is considered and takes no part in the discussion or decision-making process. k) Terms of appointment, induction training and continuing education All new Directors are provided with a formal letter of appointment setting out the key terms and conditions of the appointment, including duties, rights and responsibilities, the time commitment envisaged and the Board’s expectations regarding their involvement with committee work. An induction folder is provided to all new Directors. It includes a copy of the Constitution, board and committee charters and key Company policies. All Directors are expected to maintain the skills required to discharge their obligations to the Company. Directors are encouraged to undertake continuing professional education and where this involves industry seminars and approved education courses, this is paid for by the Company where appropriate. A Directors’ Skills Matrix is contained in the Directors’ Report. l) Directors’ remuneration Details of remuneration paid to Directors (Chairman and non‐executive) are set out in the remuneration report. The remuneration of an executive Director will be decided by the Board, without the affected executive Director participating in that decision-making process. The total maximum remuneration of non-executive Directors is initially set by the Constitution and subsequent variation is by ordinary resolution of Shareholders in general meeting in accordance with the Constitution, the Corporations Act and the ASX Listing Rules, as applicable. The determination of non-executive Directors’ remuneration within that maximum will be made by the Board having regard to the inputs and value to the Company of the respective contributions by each non-executive Director. The current amount has been set at an amount not to exceed $250,000 per annum. In addition, a Director may be paid fees or other amounts (i.e. subject to any necessary Shareholder approval, non-cash performance incentives such as options) as the Directors determine where a Director performs special duties or otherwise performs services outside the scope of the ordinary duties of a Director. Directors are also entitled to be paid reasonable travelling, accommodation and other expenses incurred by them respectively in or about the performance of their duties as Directors. Cirrus Networks Holdings Ltd – ABN 98 103 348 947 Appendix 4E and Annual Report 70 For personal use only The Board will review and approve the remuneration policy to enable the Company to attract and retain executives and Directors who will create value for Shareholders having consideration to the amount considered to be commensurate for a company of its size and level of activity as well as the relevant Directors’ time, commitment and responsibility. The Board is also responsible for reviewing any employee incentive and equity-based plans including the appropriateness of performance hurdles and total payments proposed. Further information on the Remuneration Committee is set out below. m) Board meetings The Chairman sets the agenda for each meeting in conjunction with the executive management and the Company Secretary. Any Director may request additional matters be added to the agenda. Members of senior management attend meetings of the Board by invitation and sessions are also held for non‐executive Directors to meet without management present. Copies of Board papers are circulated in advance of the meetings in either electronic or hard copy form. Directors are entitled to request additional information where they consider the information is necessary to support informed decision making. The Board works to an agenda encompassing periodic reviews of the Company’s operating business units, recurring statutory obligations, business approvals, strategy and other responsibilities identified in the Board Charter. n) Company Secretary Responsibilities for the secretarial function include providing advice to directors and executives on corporate governance and regulatory matters, developing the Company’ corporate governance framework and giving effect to the Board’s decisions. All directors have access to advice from the Company Secretary. The Company Secretary is Catherine Anderson. Ms Anderson is a legal practitioner admitted in Western Australia and Victoria and has over 25 years’ experience in both private practice and in house legal roles from working in Melbourne and Perth. Catherine also has experience in company secretarial roles for ASX listed companies, as well as having been a director of an ASX listed junior explorer. She currently also provides consultancy services to entities wishing to proceed to IPO and listing on ASX and has twice been nominated for the Telstra Business Woman of the Year Award for an online retail business she established. 2. BOARD COMMITTEES a) Board committees and membership During the reporting period, the Board had a maximum of five and a minimum of three members but continued to maintain two committees to assist in the discharge of its responsibilities. These are the: i. Audit and Risk Management Committee; and ii. Remuneration and Nominations Committee. As at the date of this Report, the Company has 4 Directors. The charters of all Board committees detailing the roles and duties of each are available in the corporate governance section of the Company’s website. All Board committee charters are reviewed at least annually. During the reporting period and while the relevant person remained a Director of the Company the membership of each Board committee was as follows: Cirrus Networks Holdings Ltd – ABN 98 103 348 947 Appendix 4E and Annual Report 71 For personal use only AUDIT AND RISK MANAGEMENT COMMITTEE REMUNERATION AND NOMINATIONS COMMITTEE Andrew Milner Andrew Milner (Chairman) Daniel Rohr (Chairman) Paul Everingham Daniel Rohr Paul Everingham Committee members are chosen for the skills, experience and other qualities they bring to the committees. The executive management attends, by invitation, board committee meetings. Any papers considered by the standing committees are available on request to Directors who are not on that committee. Following each committee meeting, generally at the next Board meeting, the Board is given a verbal update by the Chair of each committee. In addition, minutes of all committee meetings are provided to all Directors. The Company Secretary provides secretariat services for each committee. Other committees are convened to address major transactions or other matters calling for special attention. This did not occur in this reporting period. b) Audit and Risk Management Committee The role of the Audit and Risk Management Committee is to assist the Board to meet its oversight responsibilities in relation to the Company’s financial reporting, internal control structure, financial and operational risk management procedures and the internal and external audit function. In doing so, it is the Committee’s responsibility to maintain free and open communication between the Committee and the external auditors and the management of the Company. The duties of this Committee include but are not limited to, monitoring and reviewing any matters of significance affecting financial reporting and compliance, the integrity of the financial reporting of the Company, the Company’s internal financial control system and risk management systems and the external audit function. The Audit and Risk Management Committee is required to have a minimum of three members composed of independent non‐executive Directors. The external auditors and Managing Director attend Committee meetings by invitation. This Committee met twice during the reporting period. Cirrus Networks Holdings Ltd – ABN 98 103 348 947 Appendix 4E and Annual Report 72 For personal use only c) Remuneration and Nominations Committee The role of the Remuneration and Nominations Committee is to assist the Board by reviewing and approving the Company’s remuneration policies and practices and the appointment of non‐executive Directors to the Board. The Committee’s responsibilities include: • Assessing the necessary and desirable competencies of Board members; • Reviewing Board succession plans and Board performance; • Reviewing the Company’s remuneration framework, which is used to attract, retain and motivate employees to achieve operational excellence and create value for shareholders; • Reviewing the remuneration packages and incentive schemes for the Managing Director and senior executives, to establish rewards, which are fair and responsible, having regard to the financial results of the group, individual performance and general remuneration conditions; • Reviewing the performance and succession planning for the Managing Director and senior executives; • Reviewing the Company’s corporate governance policies and practices. • The Managing Director attends committee meetings by invitation This Committee met once during the reporting period. 3. AUDIT GOVERNANCE AND INDEPENDENCE a) Approach to audit and governance The Board is committed to the basic principles that: • The Company’s financial reports represent a true and fair view; • The Company’s accounting practices are comprehensive, relevant and comply with applicable accounting standards and policies; and • The external auditor is independent and serves shareholder’s interests. b) External auditor relationship The Company’s independent external auditor is BDO Audit (WA) Pty Ltd (“BDO”). BDO was appointed by shareholders at the 2015 Annual General Meeting in accordance with the Corporations Act. c) Attendance of auditor at the AGM The Company’s external auditor attends the AGM and is available to answer questions from shareholders on: • The conduct of the audit; • The preparation and content of the auditor’s report; • The accounting policies adopted by the Company in relation to the preparation of the financial statements; and • The independence of the auditor in relation to the conduct of the audit. Cirrus Networks Holdings Ltd – ABN 98 103 348 947 Appendix 4E and Annual Report 73 For personal use only 4. CONTROLLING AND MANAGING RISK a) Approach to risk management The Board and senior executives are responsible for overseeing the implementation of the Company’s Risk Management Policy. The Company’s approach to risk management is based on the identification, assessment, monitoring and management of material risks embedded in its business and management systems. This framework is based on the Australian Standards for Risk Management. The Company’s management team is responsible for implementation of the Board approved risk management strategy and developing policies, processes and procedures to identify risks and mitigation strategies in the Company’s activities. b) Managing Director and accounting assurance on corporate reporting The Board receives regular reports about the financial condition and operational results of the Company and its controlled entities. The Managing Director and the Company accountants provide, at the end of each six-monthly period, a formal statement to the Board confirming that the Company’s financial reports present a true and fair view, in all material respects, and the group’s financial condition and operational results have been prepared accordance with the relevant accounting standards. The statement also confirms the integrity of the Company’s financial statements and notes to the financial statements, is founded on a sound system of risk management and internal compliance and control which implements the policies approved by the Board, and that the Company’s risk management and internal compliance and control systems, to the extent they relate to financial reporting, are operating efficiently and effectively in all material respects. 5. PROMOTING ETHICAL AND RESPONSIBLE BEHAVIOUR a) Codes of conduct The Board has approved a Code of Conduct which describes the standards of ethical behaviour that the Directors and employees are required to maintain. Compliance with the Code of Conduct by Directors and employees will also assist the Company in effectively managing its operating risks and meeting its legal and compliance obligations, as well as enhancing the Company’s corporate reputation. The Code of Conduct describes requirements on matters such as confidentiality, conflicts of interest, sound employment practices, compliance with laws and regulations and the protection and proper use of the Company’s assets. The Code of Conduct can be viewed on the Company’s website. b) Share trading policy The Company’s Securities Trading Policy (“Policy”) is binding on all Directors and employees. The Policy provides a summary of the law on insider trading and other relevant laws, sets out the restrictions on dealing in securities by people who work for, or are associated with, the Company and is intended to assist in maintaining market confidence in the integrity of dealings in the Company’s securities. The Policy stipulates that the only appropriate time for a Director or employee to deal in the Company’s securities is when he or she is not in possession of ‘price sensitive information’ that is not generally available to the share market. A Director wishing to deal in the Company’s securities may only do so after first having advised the Chairman of their intention to do so. A senior executive wishing to deal must first notify the Managing Director. Confirmation of any dealing must also be given by the director or senior executive within two business days after the dealing and advised to the Company Secretary. Cirrus Networks Holdings Ltd – ABN 98 103 348 947 Appendix 4E and Annual Report 74 For personal use only In the case of other employees, contractors, consultants and advisers, there is no notification requirement. Directors and senior executives’ dealings in the Company’s securities are also subject to specified closed periods, which are set out in the Policy or as otherwise determined by the Board from time to time. The Policy can be viewed on the Company’s website. 6. CORPORATE RESPONSIBILITY AND SUSTAINABILITY The Company aims to produce positive outcomes for all stakeholders in managing its business and to maximise financial, social and environmental value from its activities. In practice, this means having a commitment to transparency, fair dealing, responsible treatment of employees and customers and positive links into the community. Sustainable and responsible business practices within the Company are viewed as an important long-term driver of performance and Shareholder value. Through such practices, the Company seeks to reduce operational and reputation risk and enhance operational efficiency while contributing to a more sustainable society. The Company accepts that the responsibilities on the Board and management, which flow from this approach, go beyond strict legal and financial obligations. The Board seek to take a practical and broad view of directors’ fiduciary duties, in line with stakeholders’ expectations. 7. CONTINUOUS DISCLOSURE The Company is committed to maintaining a level of disclosure that meets the highest standards and provides all investors with timely and equal access to information. The Company’s Continuous Disclosure Policy reinforces the Company’s commitment to ASX continuous disclosure requirements and outlines management’s accountabilities and the processes to be followed for ensuring compliance. The policy also describes the Company’s guiding principles for market communications. The Company’s Continuous Disclosure Policy can be viewed on the Company’s website. 8. SHAREHOLDER COMMUNICATIONS AND PARTICIPATION The Company is committed to giving all Shareholders comprehensive, timely and equal access to information about its activities so that they can make informed decisions. Similarly, prospective new investors are entitled to be able to make informed investment decisions when considering the purchase of the Company’s shares. A wide range of communication approaches are employed including direct communications with Shareholders and presentations to Shareholders at the company’s Annual General Meeting. Publication of all relevant Company information, including the Company’s Annual Report is in the “Investors” section of the Company’s website. Shareholders have the opportunity to receive information in print or electronic format. The Company strive to communicate effectively with Shareholders and give them ready access to balanced and understandable information about the Company. The way it does this includes: • • • • • Ensuring that financial reports are prepared in accordance with applicable laws; Ensuring the disclosure of full and timely information about the Company’s activities in accordance with the continuous disclosure principles of the ASX Listing Rules and the Corporations Act 2001. The Chairman and Managing Director being present at the Company’s Annual General Meeting; Placing all ASX announcements (including financial reports) on the Company’s website as soon as practicable following release; and Ensuring that reports, notices of meeting and other Shareholder communications are prepared in a clear and concise manner. Cirrus Networks Holdings Ltd – ABN 98 103 348 947 Appendix 4E and Annual Report 75 For personal use only 9. DIVERSITY POLICY The Company has in place a Diversity Policy. The Board is committed to workplace diversity and is responsible for developing measurable objectives and strategies to meet the Objectives of the Diversity Policy (Measurable Objectives) and monitoring the progress of the Measurable Objectives through the monitoring, evaluation and reporting mechanisms listed below. The Board will conduct all Board appointment processes in a manner that promotes gender diversity, including establishing a structured approach for identifying a pool of candidates, using external experts where necessary. The Company’s diversity strategies include: a) Recruiting from a diverse pool of candidates for all positions, including senior management and the various subsidiary company boards; b) Reviewing succession plans to ensure an appropriate focus on diversity; c) d) Identifying specific factors to take account of in recruitment and selection processes to encourage diversity; Developing programs to develop a broader pool of skilled and experienced senior management and board candidates, including, workplace development programs, mentoring programs and targeted training and development; and e) Developing a culture which takes account of domestic responsibilities of employees. As at 30 June 2019, the Board consisted of 4 male members and no female members. The Company Secretary is female. As at 30 June 2019, the Company has 137 employees, of which 113 are male (FY18:115) and 24 are female (FY18:15) Cirrus Networks Holdings Ltd – ABN 98 103 348 947 Appendix 4E and Annual Report 76 For personal use only ASX RECOMMENDATION AND PRINCIPLES COMPLIANCE TABLE Set out below is a table describing the various ASX Principles and statements as to the Company’s compliance or otherwise with them. PRINCIPLES AND RECOMMENDATIONS COMPLY (YES/NO) EXPLANATION PRINCIPLE 1: LAY SOLID FOUNDATIONS FOR MANAGEMENT AND OVERSIGHT Recommendation 1.1 YES The Company has adopted a Board Charter. A listed entity should have and disclose a charter which sets out the respective roles and responsibilities of the board, the chair and management; and includes a description of those matters expressly reserved to the board and those delegated to management. Recommendation 1.2 A listed entity should: (a) Undertake appropriate checks before appointing a person, or putting forward to security holders a candidate for election, as a director; and Provide security holders with all material information relevant to a decision on whether or not to elect or re-elect a director. Recommendation 1.3 A listed entity should have a written agreement with each director and senior executive setting out the terms of their appointment. Recommendation 1.4 The company secretary of a listed entity should be accountable directly to the board, through the chair, on all matters to do with the proper functioning of the board. YES YES YES The Board Charter sets out the specific responsibilities of the Board, requirements as to the Boards composition, the roles and responsibilities of the Chairman and Company Secretary, the establishment, operation and management of Board Committees, Directors access to company records and information, details of the Board’s relationship with management and details of the Board’s disclosure policy. The Managing Director (as a delegate of the board) is responsible for the effective leadership and day to day operations and administration of the Company. A copy of the Company’s Board Charter is available on the Company’s website. (a) The Company undertakes checks on any person who is being considered as a director. These checks may include character, experience, education and financial history and background. (b) All material information relevant to a decision on whether or not to elect or re-elect a Director will be provided to security holders in a Notice of Meeting pursuant to which the resolution to elect or re-elect a Director will be voted on. Each senior executive and executive director has a formal employment contract and the non-executive directors have a letter of appointment. The Company Secretary is accountable directly to the Board, through the Chair, on all matters to do with the proper functioning of the Board. The Company Secretary has primary responsibility for ensuring that Board processes and procedures run efficiently and effectively. Cirrus Networks Holdings Ltd – ABN 98 103 348 947 Appendix 4E and Annual Report 77 For personal use only YES (a) The Company has adopted a Diversity Policy (i) The Diversity Policy provides a framework for the Company to achieve a list of measurable objectives that encompass gender, age, ethnicity and cultural equality. (ii) The Diversity Policy provides for the monitoring and evaluation of the scope and currency of the Diversity Policy. The Company is responsible for implementing, monitoring and reporting on the measurable objectives. (b) Information on the Company’s Diversity Policy is set out in the Annual Report. (i) The measurable objectives set by the board are included in the Annual Report. In addition, the board will review progress against the objectives in its annual performance assessment. The Board includes in the Annual Report each year the measurable objectives, progress against the objectives, and the proportion of male and female employees in the whole organisation, at senior management level and at Board Level. Recommendation 1.5 A listed entity should: (a) Have a diversity policy which includes requirements for the board: (i) To set measurable objectives for achieving gender diversity; and (ii) To assess annually both the objectives and the entity’s progress in achieving them; (b) Disclose that policy or a summary or it; and (c) Disclose as at the end of each reporting period: (i) The measurable objectives for achieving gender diversity set by the board in accordance with the entity’s diversity policy and its progress towards achieving them; and (ii) Either: (A) The respective proportions of men and women on the board, in senior executive positions and across the whole organisation (including how the entity has defined “senior executive” for these purposes); or (B) The entity’s “Gender Equality Indicators”, as defined in the Workplace Gender Equality Act 2012. Recommendation 1.6 A listed entity should: YES (a) Have and disclose a process for periodically evaluating the performance of the board, its committees and individual directors; and (b) Disclose in relation to each reporting period, whether a performance evaluation was undertaken in the reporting period in accordance with that process. The Chairman is responsible for evaluating the performance of the Board, its committees and individual directors. This is generally done through a meeting with the Chair. The review is currently informal but is based on a review of goals for the Board and individual Directors. Due to the re-admission of the Company to ASX on 8 July 2015, the regulatory requirements for which had been underway for a significant part of the reporting period, no formal evaluations took place. Generally, the goals for the Board are based on corporate requirements and any areas for improvement that may be identified. The Chairman will provide each Director with confidential feedback on his or her performance. Recommendation 1.7 A listed entity should: (a) Have and disclose a process for periodically evaluating the performance of its senior executives; and (b) Disclose in relation to each reporting period, whether a performance evaluation was undertaken in the reporting period in accordance with that process. YES (a) The Remuneration Committee is responsible for evaluating the performance of senior executives. The Committee is to arrange an annual performance evaluation of the senior executives. (b) The Remuneration Committee is required to disclose whether or not performance evaluations were conducted during the relevant reporting period. Details of the performance evaluations conducted will be provided in the Company’s Annual Report. Due to the re-admission of the Company to ASX on 8 July 2015, the regulatory requirements for which had been underway for a significant part of the reporting period, no formal evaluations took place. Cirrus Networks Holdings Ltd – ABN 98 103 348 947 Appendix 4E and Annual Report 78 For personal use only PRINCIPLES AND RECOMMENDATIONS COMPLY (YES/NO) EXPLANATION PRINCIPLE 2: STRUCTURE THE BOARD TO ADD VALUE Recommendation 2.1 YES The board of a listed entity should: (a) Have a nomination committee which: (i) Has at least three members, a majority of whom are independent directors; and (ii) Is chaired by an independent director, and disclose: (iii) The charter of the committee; (iv) The members of the committee; and (v) As at the end of each reporting period, the number of times the committee met throughout the period and the individual attendances of the members at those meetings; or (b) If it does not have a nomination committee, disclose that fact and the processes it employs to address board succession issues and to ensure that the board has the appropriate balance of skills, experience, independence and knowledge of the entity to enable it to discharge its duties and responsibilities effectively. Recommendation 2.2 YES A listed entity should have and disclose a board skill matrix setting out the mix of skills and diversity that the board currently has or is looking to achieve in its membership. A nomination committee has been established and the Company has a Remuneration and Nomination Committee Charter which is available on the Company’s website. This Committee comprises a minimum of 3 non-executive Directors. During the reporting period, this Committee met once. The Board reviews capabilities, technical skills and personal attributes of its directors. It will normally review the Board’s composition against those attributes and recommend any changes in Board composition that may be required. An essential component of this will be the time availability of Directors. Information about the skills and expertise of all Board members is contained in the Annual Report. The Board believes that it has a diverse mix of experience and skills which will lead to a better outcome for the Company and the Shareholders, and the Board is comfortable with the skills matrix represented by the current Board. Recommendation 2.3 A listed entity should disclose: (a) The names of the directors considered by the board to be independent directors; (b) If a director has an interest, position, association or relationship of the type described in Box 2.3 of the ASX Corporate Governance Principles and Recommendation (3rd Edition), but the board is of the opinion that it does not compromise the independence of the director, the nature of the interest, YES (a) Disclosure of the names of Directors, considered by the board to be independent is provided in the Annual Report. (b) Directors’ interests, positions, associations and relationships are regularly assessed by the Board. Details of the Directors interests, positions associations and relationships are provided in the Annual Report. (c) The Board Charter provides for the determination of the Directors’ terms and requires the length of service of each Director to be disclosed. The length of service of each Director is provided in the Annual Report. Cirrus Networks Holdings Ltd – ABN 98 103 348 947 Appendix 4E and Annual Report 79 For personal use only position, association or relationship in question and an explanation of why the board is of that opinion; and (c) The length of service of each director Recommendation 2.4 A majority of the board of a listed entity should be independent directors. Recommendation 2.5 The chair of the board of a listed entity should be an independent director and, in particular, should not be the same person as the CEO of the entity. Recommendation 2.6 A listed entity should have a program for inducting new directors and providing appropriate professional development opportunities for continuing directors to develop and maintain the skills and knowledge needed to perform their role as a director effectively. YES YES YES The Board Charter requires that an appropriate balance between independent and non-independent directors is represented on the Board. Details of each Director’s independence are provided in the Annual Report. This is complied with as at the date of this Report, with Andrew Milner the non-executive, independent Chairman from 2 July 2015. All new Directors are provided with a copy of all Company Policies and Charters. It is also the responsibility of the Board to procure appropriate professional development opportunities for Directors. The Remuneration and Nominations Committee is responsible for the approval and review of induction and continuing professional development programs and procedures for Directors to ensure that they can effectively discharge their responsibilities. PRINCIPLES AND RECOMMENDATIONS COMPLY (YES/NO) EXPLANATION PRINCIPLE 3: ACT ETHICALLY AND RESPONSIBLY Recommendation 3.1 A listed entity should: (a) Have a code of conduct for its directors, senior executives and employees; and (b) Disclose that code or a summary of it. YES (a) The Company’s Code of Conduct applies to the Company’s Directors, senior executives and employees. (b) The Company’s Code of Conduct is available on the Company’s website. Cirrus Networks Holdings Ltd – ABN 98 103 348 947 Appendix 4E and Annual Report 80 For personal use only PRINCIPLES AND RECOMMENDATIONS COMPLY (YES/NO) EXPLANATION PRINCIPLE 4: SAFEGUARD INTEGRITY IN FINANCIAL REPORTING Recommendation 4.1 YES (a) The Audit and Risk Committee Charter states that: (i) The Audit and Risk Committee shall comprise the Company’s non-executive directors; (ii) The Audit and Risk Committee Charter is available on the Company website; (iii) The Audit and Risk Committee Charter requires the Committee in relation to the reporting period to disclose the number of times that the Committee met throughout the period, and the individual attendances of the members at those Committee meetings. Details of the Committee meetings will be provided in the Company’s Annual Report. This Committee met twice during the reporting period. The board of a listed entity should: (a) Have an audit committee which: (i) Has at least three members, all of whom are non-executive directors and a majority of whom are independent directors; and (ii) Is chaired by an independent director, who is not the chair of the board, and disclose: (iii) The charter of the committee; (iv) The relevant qualifications and (v) experience of the members of the committee; and In relation to each reporting period, the number of times the committee met throughout the period and the individual attendances of the members at those meetings; or (b) If it does not have an audit committee, disclose that fact and the processes it employs that independently verify and safeguard the integrity of its financial reporting, including the processes for the appointment and removal of the external auditor and the rotation of the audit engagement partner. Recommendation 4.2 YES The board of a listed entity should, before it approves the entity’s financial statements for a financial period, receive from its CEO and CFO a declaration that the financial records of the entity have been properly maintained and that the financial statements comply with the appropriate accounting standards and give a true and fair view of the financial position and performance of the entity and that the opinion has been formed on the basis of a sound system of risk management and internal control which is operating effectively. Before the Board approves the entity’s financial statements for a financial period, the CEO and CFO declares that in their opinion the financial records of the entity have been properly maintained and that the financial statements comply with the appropriate accounting standards and give a true and fair view of the financial position and performance of the entity and that the opinion has been formed on the basis of a sound system of risk management and internal control which is operating effectively. Recommendation 4.3 YES A listed entity that has an AGM should ensure that its external auditor attends its AGM and is available to answer questions from security holders relevant to the audit. The Audit and Risk Committee Charter provides that the Committee must ensure the Company’s external auditor attends its AGM and is available to answer questions from security holders relevant to the audit. Cirrus Networks Holdings Ltd – ABN 98 103 348 947 Appendix 4E and Annual Report 81 For personal use only PRINCIPLES AND RECOMMENDATIONS COMPLY (YES/NO) EXPLANATION PRINCIPLE 5: MAKE TIMELY AND BALANCED DISCLOSURE Recommendation 5.1 A listed entity should: (a) Have a written policy for complying with its continuous disclosure obligations under the Listing Rules; and (b) Disclose that policy or a summary of it. YES (a) The Company has a Continuous Disclosure Policy. (b) This Policy is available on the Company’s website, as is all information provided to ASX for release to the market. PRINCIPLES AND RECOMMENDATIONS COMPLY (YES/NO) EXPLANATION PRINCIPLE 6: RESPECT THE RIGHTS OF SECURITY HOLDERS Recommendation 6.1 A listed entity should provide information about itself and its governance to investors via its website. YES Information about the Company and its governance is available in its Corporate Governance Policies which can be found on the Company’s website. Recommendation 6.2 YES A listed entity should design and implement an investor relations program to facilitate effective two-way communication with investors. Recommendation 6.3 YES A listed entity should disclose the policies and processes it has in place to facilitate and encourage participation at meetings of security holders. A link is available on the Company’s website to the Company’s announcements page on the ASX website, meaning that all the Company’s ASX announcements are immediately accessible through the Company’s website. The Company aims to promote and facilitate effective two- way communication with investors through the availability of the MD and the Company Secretary to respond directly to shareholder queries. A link to directly email the Company Secretary is available on the Company’s website, as well as the provision of a general email address investors@cirrusnetworks.com.au Shareholders are encouraged to participate at all EGMs and AGMs of the Company. Upon the dispatch of any notice of meeting to Shareholders, the Company Secretary shall send out material with that notice of meeting stating that all Shareholders are encouraged to participate at the meeting. Shareholders who are not able to attend at meetings and vote in person are able to utilise the share registry’s electronic voting platform, either online or by downloading the relevant phone Application. The introduction of this facility has resulted in a marked increase in the number of Shareholders voting. Recommendation 6.4 A listed entity should give security holders the option to receive communications from, and send communications to, the entity and its security registry electronically. YES The Company's share registry provides (through its website) the ability to email the share registry and to receive documents by email from the share registry. Shareholders queries should be referred to the Company Secretary at first instance. Contact details are provided on the Company’s website. Cirrus Networks Holdings Ltd – ABN 98 103 348 947 Appendix 4E and Annual Report 82 For personal use only PRINCIPLES AND RECOMMENDATIONS COMPLY (YES/NO) EXPLANATION The Board has adopted an Audit and Risk Committee Charter and a Financial Risk Management Policy. These are available on the Company’s website. There is no other risk management committee and this role is undertaken by the Board, however, the overall basis for risk management is to provide recommendations about: 1. Assessing the internal processes for determining and managing key risk areas, particularly: • Non-compliance with laws, regulations, standards and best practice guidelines, including environmental and industrial relations laws; • Litigation and claims; and • Relevant business risks other than those that are dealt with by other specific Board Committees. 2. Ensuring that the Company has an effective risk management system and that major risks are reported at least annually to the Board. 3. Receiving from management reports on all suspected and actual frauds, thefts and breaches of laws. 4. Evaluating the process, the Company has in place for assessing and continuously improving internal controls, particularly those related to areas of significant risk. 5. Assessing whether management has controls in place for unusual types of transactions and/or any potential transactions that may carry more than an acceptable degree of risk. 6. Meeting periodically with key management, internal and external auditors and compliance staff to understand and discuss the Company’s control environment. The Board meets on a regular basis to discuss the Company’s operating activities. As part of this, all risks are considered including but not limited to strategic, operational, legal, reputation and financial risks. This is an on-going process rather than an annual formal review. As referred to above, the Company has in place a Financial Risk Management Policy. PRINCIPLE 7: RECOGNISE AND MANAGE RISK Recommendation 7.1 YES The board of a listed entity should: (a) have a committee or committees to oversee risk, each of which: (i) has at least three members, a majority of whom are independent directors; and (ii) is chaired by an independent director, and disclose: (iii) the charter of the committee; (iv) the members of the committee; and (v) as at the end of each reporting period, the number of times the committee met throughout the period and the individual attendances of the members at those meetings; or (b) if it does not have a risk committee or committees that satisfy (a) above, disclose that fact and the process it employs for overseeing the entity’s risk management framework. Recommendation 7.2 YES The board or a committee of the board should: (a) Review the entity’s risk management framework with management at least annually to satisfy itself that it continues to be sound, to determine whether there have been any changes in the material business risks the entity faces and to ensure that they remain within the risk appetite set by the board; and (b) Disclose in relation to each reporting period, whether such a review has taken place. Recommendation 6.2 A listed entity should design and implement an investor relations program to facilitate effective two-way communication with investors. Cirrus Networks Holdings Ltd – ABN 98 103 348 947 Appendix 4E and Annual Report 83 For personal use only YES The Company does not have a formal internal audit function but reviews its risk management and internal control processes on a regular basis and has in place a Financial Risk Management Policy as referred to above. Recommendation 7.3 A listed entity should disclose: (a) If it has an internal audit function, how the function is structured and what role it performs; or (b) If it does not have an internal audit function, that fact and the processes it employs for evaluating and continually improving the effectiveness of its risk management and internal control processes. Recommendation 7.4 YES A listed entity should disclose whether, and if so how, it has regard to economic, environmental and social sustainability risks and, if it does, how it manages or intends to manage those risks. The Company is of the view that its operations do not create a material exposure to economic and social sustainability risks. With respect to past minerals exploration activities and the environment, the Company has complied with all rehabilitation requirements of the relevant legislation. PRINCIPLES AND RECOMMENDATIONS COMPLY (YES/NO) EXPLANATION PRINCIPLE 8: REMUNERATE FAIRLY AND RESPONSIBLY Recommendation 8.1 YES (a) The Remuneration and Nomination Committee The board of a listed entity should: (a) Have a remuneration committee which: (i) Has at least three members, a majority of whom are independent directors; and (ii) Is chaired by an independent director, and disclose: (iii) The charter of the committee; (iv) The members of the committee; and (v) As at the end of each reporting period, the number of times the committee met throughout the period and the individual attendances of the members at those meetings; or (b) If it does not have a remuneration committee, disclose that fact and the processes it employs for setting the level and composition of remuneration for directors and senior executives and ensuring that such remuneration is appropriate and not excessive. Recommendation 8.2 A listed entity should separately disclose its policies and practices regarding the remuneration of non-executive directors and the remuneration of executive directors and other senior executives and ensure that the different roles and responsibilities of non- executive directors compared to executive Charter outlines the roles and responsibilities of that Committee and provides that the Committee comprises the non-executive members of the Board but excludes the relevant member of the Board when their performance is under review; (b) The Remuneration and Nomination Committee Charter is available on the Company’s website. (c) The Remuneration and Nomination Committee discloses the number of times that the Committee meets throughout the period, and the individual attendances of the members at those Committee meetings. Details of the Committee meetings will be provided in the Company’s Annual Report. During the reporting period this Committee met once. YES The Company provides disclosure of all Directors’ and executives’ remuneration in its Annual Report. Non-executive Directors are remunerated at a fixed fee to take account of their time, commitment and responsibilities. Remuneration for non-executive Directors is not linked to the performance of the Company. There are no documented agreements providing for termination or retirement benefits for non-executive Directors. Any Cirrus Networks Holdings Ltd – ABN 98 103 348 947 Appendix 4E and Annual Report 84 For personal use only directors and other senior executives are reflected in the level and composition of their remuneration. Recommendation 8.3 N/A A listed entity which has an equity-based remuneration scheme should: (a) Have a policy on whether participants are permitted to enter into transactions (whether through the use of derivatives or otherwise) which limit the economic risk of participating in the scheme; and (b) Disclose that policy or a summary of it. long term performance incentives may include options or shares granted at the discretion of the Board and subject to obtaining the relevant Shareholder approvals. Executive Directors and senior executives are offered a competitive level of base pay at market rates which are reviewed annually to ensure market competitiveness. Long term performance incentives may include performance and sales bonus payments, shares and/or options granted at the discretion of the Board and subject to obtaining relevant Shareholder approvals (if required). The Company does not have an equity based remuneration scheme which is affected by this recommendation although it has previously obtained Shareholder approval to the issue of shares to directors in lieu of fees; and for the issue of bonus options to Directors. The Company has in place a “Directors and Employees Share Option Plan”, under which both employees and Directors may be offered options (subject to Shareholder approval in the case of any officer of the Company). Cirrus Networks Holdings Ltd – ABN 98 103 348 947 Appendix 4E and Annual Report 85 For personal use onlyShareholder Information DISTRIBUTION OF SHAREHOLDERS At 20 August 2019 there were 1,473 holders of 883,384,099 ordinary fully paid shares in the Company. Analysis of numbers of equity holders by size of holding: NUMBER OF SHARES HELD HOLDERS 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over TOTAL 52 138 82 611 590 1,473 UNITS 6,970 486,774 677,528 26,799,834 855,412,993 883,384,099 The number of shareholders holding less than a marketable parcel of 11,905 shares: 290 SUBSTANTIAL SHAREHOLDERS At 20 August 2019 the substantial shareholders in the Company are the following: NAME OF SHAREHOLDER NUMBER HELD PERCENTAGE WILSON ASSET MANAGEMENT GROUP 69,659,366 7.89 Cirrus Networks Holdings Ltd – ABN 98 103 348 947 Appendix 4E and Annual Report 86 For personal use onlySUBSTANTIAL OPTION HOLDERS At 20 August 2019 the substantial option holders in the Company are set out below: NAME OF OPTION HOLDER NUMBER HELD PERCENTAGE JARABA AVENUE PTY LTD 20,000,000 MR GLENN MCATEE + MS HEIDI MCATEE 15,000,000 ZENIX NOMINEES PTY LTD MR MATTHEW GREEN MR CHRISTOPHER MCLAUGHLIN MR BRENDAN MACDONALD ALCOTRACK PTY LTD BEARNICK PTY LTD MURDOCH CAPITAL PTY LTD GTT VENTURES PTY LTD TESHA PTY LTD Remaining Holders TOTAL VOTING RIGHTS 6,000,000 5,075,000 3,350,000 3,000,000 2,500,000 2,500,000 2,500,000 2,000,000 2,000,000 21,025,000 109,100,000 23.54 17.66 7.06 5.97 3.94 3.53 2.94 2.94 2.94 2.35 2.35 24.75 100.00 The voting rights attaching to the ordinary shares are in accordance with the Company’s Constitution being that: • • • Each Shareholder entitled to vote may vote in person or by proxy, attorney or corporate representative; On a show of hands, every person present who is a Shareholder or a proxy, attorney or corporate representative of a Shareholder has one vote; and On a poll, every person present who is a Shareholder or a proxy, attorney or corporate representative of a Shareholder shall, in respect of each fully paid share held by them, or in respect of which they are appointed a proxy, attorney or corporate representative, have one vote for the share, but in respect of partly paid shares, shall, have such number of votes as bears the proportion which the paid amount (not credited) is of the total amounts paid and payable (excluding amounts credited). There are no voting rights attached to options in the Company. Voting rights will be attached to the unissued ordinary shares when options have been exercised. STOCK EXCHANGE LISTING Cirrus Networks Holdings Limited securities are listed on the Australian Securities Exchange (‘ASX’). The Company’s ASX code is CNW. Prior to the re-admission to ASX as Cirrus on 8 July 2015, the Company was named Liberty Resources Limited and its ASX code was LBY. The Company has no listed options on the ASX. Directors’ interests in share capital are disclosed in the Directors’ Report. There is currently no on-market buy-back in place. Cirrus Networks Holdings Ltd – ABN 98 103 348 947 Appendix 4E and Annual Report 87 For personal use onlyEQUITY SECURITY HOLDERS Top 20 ordinary shareholders at 20 August 2019: NO. NAME OF ORDINARY SHAREHOLDER NUMBER OF SHARES HELD PERCENTAGE OF SHARES HELD 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED 89,403,592 10.12 JARABA AVENUE PTY LTD ALCOTRACK PTY LTD WEIR SUPER FUND PTY LTD MR MATTHEW GREEN + MRS NATALIE GREEN CITICORP NOMINEES PTY LIMITED MR MARK NEIL BLACKBURNE OLIVER MR GRAHAME GILSON VERTEC IT SOLUTIONS PTY LTD ZERRIN INVESTMENTS PTY LTD MR CHRISTOPHER STEVENS CH GLOBAL PTY LTD J P MORGAN NOMINEES AUSTRALIA PTY LIMITED NATIONAL NOMINEES LIMITED MR MATTHEW CHARLES MILNER MRS MEGAN LEANNE JOHNSON MR DIGBY NEIL GILMOUR MR GAVIN BRADLEY LEHMANN + MRS MICHELLE YVETTE LEHMANN MR JOHNATHON MATTHEWS UBS NOMINEES PTY LTD TOTALS – TOP 20 TOTALS – REMAINING SHAREHOLDERS 48,273,387 44,323,387 43,851,070 27,457,781 25,753,642 22,000,000 17,466,478 17,172,572 16,000,000 11,779,477 10,000,000 9,066,251 8,429,675 8,227,001 8,000,000 8,000,000 7,940,066 7,588,382 7,278,328 5.46 5.02 4.96 3.11 2.92 2.49 1.98 1.94 1.81 1.33 1.13 1.03 0.95 0.93 0.91 0.91 0.90 0.86 0.82 441,054,936 354,716,693 49.58 50.42 REGISTERED OFFICE & PRINCIPAL PLACE OF BUSINESS Arcadia Chambers Level 2, 1 Roydhouse Street Subiaco WA 6008 Telephone: (08) 6180 4222 REGISTER OF SECURITIES The register of securities is held at: Computershare Registry Services Pty Ltd Level 2, 45 St Georges Terrace Perth WA 6000 Telephone: +61 8 9323 2000 Facsimile: +61 8 9323 2033 Cirrus Networks Holdings Ltd – ABN 98 103 348 947 Appendix 4E and Annual Report 88 For personal use only

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