Class Limited Appendix 4E Preliminary final report 1. Company details Name of entity: ABN: Reporting period: Previous period: Class Limited 70 116 802 058 For the year ended 30 June 2016 For the year ended 30 June 2015 2. Results for announcement to the market Revenues from ordinary activities $'000 up 44.9% to 22,731 Net profit after tax from ordinary activities, before one-off IPO expenses, attributable to the owners of Class Limited up 71.1% to 5,827 Profit from ordinary activities after tax attributable to the owners of Class Limited up 53.0% to 5,210 Profit for the year attributable to the owners of Class Limited up 53.0% to 5,210 Dividends Franked Amount per security Cents amount per security Cents Final dividend for the year ended 30 June 2015 paid on 19 August 2015 1st quarter interim dividend for the year ending 30 June 2016 paid on 9 October 2015 2nd quarter interim dividend for the year ending 30 June 2016 paid on 7 March 2016 3rd quarter interim dividend for the year ending 30 June 2016 paid on 13 May 2016 0.750 0.750 1.000 1.000 - - - - On 18 July 2016, the directors declared an unfranked final dividend for the year ending 30 June 2016 of 1 cent per ordinary share with record date of 25 July 2016 and payment date of 12 August 2016. Comments Refer to Chairman's letter and CEO's report for further commentary on the results. 3. Net tangible assets Net tangible assets per ordinary security Reporting period Cents Previous period Cents 12.77 5.17 The net tangible assets per ordinary share amount is calculated based on 116,820,283 ordinary shares on issue as at 30 June 2016 and 106,774,764 ordinary shares as at 30 June 2015. 4. 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. Class Limited Appendix 4E Preliminary final report 5. Attachments Details of attachments (if any): The Annual Report of Class Limited for the year ended 30 June 2016 is attached. 6. Signed Signed ___________________________ Date: 16 August 2016 Barry Lambert Chairman Sydney Annual Report 2016 CLASS LIMITED ACN 116 802 058 About Class Class Limited was founded in 2005 when a group of administrators and financial specialists came together to build a cloud-based software system to improve the efficiency of self managed super fund (SMSF) administration. The company has since focused on streamlining SMSF administration by building a highly automated and cost-effective solution for accountants, administrators and advisers. Class Super was launched in 2009 after extensive development and testing. Instead of struggling with time- consuming manual processes and desktop-based software tools, users were able to manage all their SMSF administration and reporting needs from a single cloud based system. This included all steps from setting up a client to generation of their financial reports and lodgements with the ATO. Class Super quickly became Australia’s leading cloud-based SMSF administration and accounting software system, serving customers that included both large and small accounting firms, professional SMSF administrators, financial advisers and auditors. As of 30 June 2016, Class Super was used to administer more than 110,000 SMSFs and accounted for more than 19% of the SMSF administration software market. The strength of Class Limited lies in its award-winning level of innovation. Class’ software integrates real-time data feeds and facilitates collaboration between SMSF trustees and their professional advisers. It allows accountants, administrators, advisers and auditors to access a data system as their source of truth, where all functions regarding an SMSF can be carried out and recorded. The automation of certain processes has saved users hours, and in some cases days, of manual work. In 2015, Class expanded in the wealth accounting market with the launch of Class Portfolio. Class Portfolio streamlines the administration of investment portfolios held by non-super entities such as companies, trusts and individuals. In addition to providing software, Class has built an ecosystem of best-of-breed partners to automate the supply of additional services relevant to SMSF administration and wealth management. This ecosystem includes audit, actuarial, financial, legal and insurance products and service providers. Class’ software now integrates with more than 40 partner product and service providers to supply streamlined services to SMSF and other portfolio administrators. Table of contents Financial highlights Chairman’s letter CEO’s report Financial report 2016 Shareholder information Corporate directory Class Annual Report 2016 1 2 4 6 11 59 63 2 Class Annual Report 2016 Financial highlights Year ended 30 June 2016 $22.73m 45% REVENUE GROWTH IN 2016 +7.05m from $15.68m $10.05m 69% EBITDA* GROWTH IN 2016 +4.09m from $5.96m * All references are before one-off expenses relating to the initial public offering. They are non-IFRS measures and are used internally by management to assess the performance of the business and have been extracted or derived from the full year financial report. Class Annual Report 2016 3 $8.6m NPBT* 66% +3.4m from $5.2m $5.8m NPAT* 71% +2.4m from $3.4m 5.2c EPS* 64% +2.0c from 3.2c 3.75c DIVIDEND 67% +1.5c from 2.25c * All references are before one-off expenses relating to the initial public offering. They are non-IFRS measures and are used internally by management to assess the performance of the business and have been extracted or derived from the full year financial report. 4 Class Annual Report 2016 Chairman’s letter On behalf of the Board of Directors, I am pleased to welcome you to Class Limited’s first annual report as a listed company. In particular, I would like to welcome our new shareholders. I trust your long-term experience will be very rewarding. On 16 August 2016 we reported an increased net profit after tax (NPAT) of $5.8 million1 for the year ended 30 June 2016, up 71% on the prior year. Dividends for the period were 3.75 cents per share, which was up 67% on the prior year. Class was incorporated in 2005 and listed on the Australian Securities Exchange (ASX) on 18 December 2015. The share price has risen steadily ever since, particularly after each market update, and more recently with the commencement of analyst coverage. We will do our best to continue to develop and grow your business and therefore, your profits and dividends. Your directors understand the importance of balancing the interests of stakeholders – including our shareholders, our professional customers and, of course, our wonderful staff. Your company’s success is due to all of these stakeholders and, in particular, the confidence shown by our new and existing customers who choose to use Class. Growth of Class Solutions Class Super has continued to grow at a fast rate, as outlined in the chart below. We expect the growth of this premium solution for the administration of self-managed super funds (SMSFs) will continue. Billable Portfolios on Class – June 2014 to June 2016 s o i l o f t r o P e b a l l l i B 120,000 110,000 100,000 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 1,200 1,100 1,000 900 800 700 600 500 400 300 200 100 0 s r e m o t s u C Jun 2014 Sep Dec March Jun 2015 Sep Dec March Class Super Class Portfolio Jun 2016 Customers Class Portfolio is our recently released non-super product. Its growth has been steady and similar to that of Class Super in the early period after its release. Our CEO, Kevin Bungard, provides a more detailed report on the operations of the business in his report. 1 All references are before one-off expenses relating to the initial public offering. They are non-IFRS measures and are used internally by management to assess the performance of the business and have been extracted or derived from the full year financial report. Class Annual Report 2016 5 Profit and Dividend Outlook While we expect both our earnings per share (EPS) and dividends will continue to grow in line with the growth of our funds, we will continue with quarterly updates to the market. However we will not be making projections, as we believe our factual quarterly market updates are better than conservative annual projections. We will of course advise the market of any material changes as they occur. Customers and Staff The directors would like to thank our customers for the continuing and growing confidence they are showing in our services, and of course the Class team for their outstanding performance. They are truly in a class of their own! Annual General Meeting I look forward to meeting many of you at our annual general meeting on Monday, 17 October 2016. Barry Lambert Chairman 6 Class Annual Report 2016 CEO’s report A Milestone Year I would like to echo the Chairman’s sentiments and welcome you to our first annual report. It has been a year of milestones for Class. We celebrated our 10 year anniversary, passed 100,000 billable portfolios, completed a successful initial public offering (IPO) and achieved a record result at year end. Congratulations must go to all stakeholders and especially our staff. Financial Results The directors of Class are pleased to report a strong year to 30 June 2016. The Company recorded a 71% increase in NPAT and a 69% increase in earnings before interest, tax, depreciation and amortisation (EBITDA) on the previous financial year. These increases are before one-off costs in relation to the IPO. After IPO transaction costs are taken into account, net profit after tax was $5.2 million, up 53%. Total revenue grew by 45%. This was primarily driven by an increase in the number of billable portfolios, which grew by a record 30,618 in the past 12 months. Annualised licence fees at 30 June 2016 were $24.5 million. Expenses excluding amortisation, depreciation and one-off expenses relating to the IPO increased by $2.9 million. This was driven by increased investment in the development of our new product, Class Portfolio, which is allowing us to expand into the non-SMSF portfolio administration space. Employee benefits accounted for $2.5 million of our increased expenses. This was due in large part to the expansion of our client acquisition team, including the addition of implementation consultants and additional sales staff. These additional resources are needed to drive sales and bring customers on board, especially given the record number of portfolios brought onto Class during the year. Billable Portfolios and Market Share At 30 June 2016, Class had a total of 112,441 billable portfolios (30 June 2015: 81,823) including 110,614 billable SMSFs on the Class Super product. Class Super’s share of the SMSF market at 30 June 2016 was 19.2% (out of an estimated total market of 576,000 SMSFs). In addition to strong growth in sales of Class Super, there has also been increasing interest in Class’ non-super solution. This new Class Portfolio product has experienced steady growth since its official release in October 2015 and had close to 2,000 billable portfolios as of 30 June 2016. While it is still early days, we expect Class Portfolio to continue to gain momentum as we release additional features, and refine and ramp up our marketing and sales efforts. Quarterly Net Portfolio Growth 12,000 10,000 8,000 6,000 4,000 2,000 0 September December March June FY12 FY13 FY14 FY15 FY16 Class Annual Report 2016 7 Operational Highlights Class continues to be highly rated by accountants and advisers in our Customer Service and Satisfaction surveys. Our products are also being recognised by the industry, with Class Super winning the 2016 Investment Trends Overall User Satisfaction with SMSF Software award2 for the second year in a row.3 “Class Super continues to be the top rated SMSF software provider in terms of overall satisfaction, with users’ recognition of recent enhancements and innovations from Class Super keeping it in the lead. The continued expansion of data feeds and greater automation within the system has been well received by accountants. Users have also been enthusiastic about Class Super’s foreign asset support, expansion of actuarial certificate providers and improved reporting functionality.” Investment Trends3 Class Super scored above the industry average for all features in the Investment Trends study. These features included the product’s level of automation, smartphone/tablet functionality, data feeds, integration with actuarial and other document providers, timeliness of reporting, ease of generating tax returns, value for money, quality of training for software, and technical support. More Class Super users were able to cite new features, processes and innovations than users of any other SMSF software provider. In the past 12 months, these improvements included a Member Console, better and more data feeds, online training and partner integrations. In addition to the 2016 Investment Trends award, Class also won the following awards in FY16: SMSF Adviser 2016 SMSF Award – SMSF Software Provider Winner (for the 3rd year running) 2015 BRW most Innovative Companies – Class placed 5th CoreData 2015 SMSF award (SMSF Accounting Software category) 2 Source: Investment Trends February 2016 SMSF Accountant Report based on a survey of 1182 accountants in public practice. 3 Source: Investment Trends February 2016 SMSF Accountant Report based on a survey of 1182 accountants in public practice. 8 Class Annual Report 2016 CEO’s report continued These high ratings are reflected in our client retention rate, which has remained about 99% in terms of billable portfolios.4 With the exception of AMP, which is discussed below, our subscribers continue to choose Class and this high retention rate underpins the strong recurring revenue stream of our business. Retention of Billable Portfolios (%) 100% 99% 98% 97% 96% 95% 94% 93% 92% 91% 90% s e t a R n o i t n e t e R 98.9% 99.3% 99.8% 99.8% 96.9% 520 341 360 FY12 FY13 FY14 175 FY15 182 FY16 Portfolios Lost Retention Rates 1000 900 800 700 600 500 400 300 200 100 0 t s o L s o i l o f t r o P As previously advised in our supplementary prospectus and the December 2015 interim report, AMP has provided notice that one of its business groups will discontinue using Class Super. We expect AMP to transfer all of its SMSFs onto its own SMSF platform by early November 2017. As at 30 June 2016, the number of SMSF portfolios administered by AMP on Class by AMP has seen a 4% reduction to 10,134. See the Significant Change of Affairs section of the Directors’ report (page 13) for further details. Class onboarded a record number of SMSFs over the past 12 months. Since 1 July 2015, the total number of billable portfolios on Class Super has grown by 36.8%. This growth was driven by the expansion in our sales team, increased marketing efforts and a gradual but persistent increase in the rate of cloud adoption by accountants. Percentage of Accountants likely to change systems in the coming 12 months 19% 21% 23% 16% 25 20 15 10 5 0 2013 2014 2015 2016 Likely System Change 4 The number of portfolios retained for billing at the end of the period as a percentage of the number of billable portfolios for the whole period Class Annual Report 2016 9 The above chart shows the number of accountants who indicated they were likely to change their SMSF software in the February 2016 SMSF Accountant Report by Investment Trends. Based on our own research, we estimate that around one in four accountants who intended to change systems did so over the past year.5 When asked about their priorities in regard to selecting new systems, ‘cloud’ was rated second only to ‘ease of use’ in the Investment Trends report.6 “The proportion of accountants saying they are likely to begin using a new SMSF software provider over the next 12 months reached the highest level observed (23%, up from 21% in 2015). Ease, having a cloud-based solution, less manual processing and good reporting tools are key to attracting these accountants.” Investment Trends6 Innovation Class has been nominated as one of Australia’s most innovative companies by The Australian Financial Review for the past two years. Innovation is central to how our business is structured, how we engage with our users and how we coordinate and allocate resources across the organisation. Our broader strategy is to continue to innovate and create a significant competitive gap between us and our competitors. In addition to delivering an array of new data feeds, online training and document management capabilities, we introduced an industry-first, well-received ‘one-click audit’ feature. A couple of examples of the many new features added to Class Super during the year are: Client View – mobile-optimised access that allows clients to view their investment data for SMSFs and other investment portfolios administered on Class. Client View enables accountants and advisers to improve the service and experience they provide to clients, which assists in retention. Member Console – enables accountants to easily track their clients’ contribution caps and pension limits to ensure those funds remain compliant. It enables accountants and advisers to have timely conversations with clients about retirement planning. To ensure that innovation is embedded as a key part of our culture, we launched our internal Change Champion awards in 2014. These are awarded to staff in recognition of their contribution to innovation and change within the business. Outlook As the Chairman has stated, we will not be making projections. However, we will continue to update the market quarterly with our Shareholder Updates. On behalf of the executive team I would like to thank our customers and shareholders who continue to reward our work with their loyalty and support. To our staff, we thank you for your efforts in making Class Australia’s leading cloud software for SMSF administration. Kevin Bungard Chief Executive Officer and Managing Director 5 We estimate that cloud solutions market share rose from 23% to 28% in the year ending June 2016 and therefore at least 5% of accountants moved to a new cloud based system. Investment Trends February 2016 SMSF Accountant Report based on a survey of 1182 accountants in public practice. 6 This page is left blank intentionally. Financial report 2016 12 Class Annual Report 2016 Class Limited Directors' report 30 June 2016 The directors present their report, together with the financial statements, on the consolidated entity (referred to hereafter as the 'Group') consisting of Class Limited (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 2016. Directors The following persons were directors of Class Limited during the whole of the financial year and up to the date of this report, unless otherwise stated: Barry Lambert - Chairman Kevin Bungard Roderick Kibble Rajarshi Ray Kathryn Foster (appointed 1 July 2015) Matthew Quinn (appointed 1 July 2015) Anthony Fenning (appointed 15 July 2015) Principal activities During the financial year the principal continuing activities of the Group were to develop and distribute cloud-based accounting, investment reporting and administration software, namely Class Super and Class Portfolio. Dividends Dividends paid during the financial year were as follows: Final dividend for the year ended 30 June 2015 of 0.75 cents per ordinary share (2014: 2.5 cents before share-split) 1st quarter interim dividend for the year ended 30 June 2016 of 0.75 cents per ordinary share paid on 9 October 2015 2nd quarter interim dividend for the year ended 30 June 2016 of 1 cents per ordinary share paid on 7 March 2016 (2015: 3 cents before share-split) 3rd quarter interim dividend for the year ended 30 June 2016 of 1 cents per ordinary share paid on 13 May 2016 (2015: 3 cents before share-split) Consolidated 2016 $'000 2015 $'000 835 835 1,168 1,168 694 - 832 832 4,006 2,358 On 18 July 2016, the directors declared an unfranked final dividend for the year ended 30 June 2016 of 1 cent per ordinary share with payment date of 12 August 2016 to eligible shareholders on the register as at 25 July 2016. This equates to a total distribution of $1,168,000, based on the number of ordinary shares on issue as at 30 June 2016. The financial effect of dividends declared after the reporting date is not reflected in the 30 June 2016 financial statements and will be recognised in subsequent financial reports. Review of operations Sales revenue Cost of undertaking business EBITDA* Interest revenue Depreciation and amortisation Tax expense* Net profit after tax* One-off IPO expenses** Statutory net profit after tax 2016 $'000 2015 $'000 Change $'000 Change % 22,563 (12,512) 10,051 168 (1,631) (2,761) 5,827 (617) 5,210 15,598 (9,639) 5,959 86 (859) (1,780) 3,406 - 3,406 6,965 (2,873) 4,092 82 (772) (981) 2,421 (617) 1,804 45% 30% 69% 95% 90% 55% 71% - 53% Class Annual Report 2016 13 Class Limited Directors' report 30 June 2016 * ** All references are before one-off initial public offering ('IPO') expenses. They are non-IFRS measures and are used internally by management to assess the performance of the business and have been extracted or derived from the financial report. One-off IPO expenses net of tax benefits. Basic Earnings per share before one-off IPO expenses amounted to 5.19 cents (2015: 3.17 cents). Basic Earnings per share after one-off IPO expenses amounted to 4.64 cents (2015: 3.17 cents). Refer to Chairman's letter and CEO's report for further commentary on the results Significant changes in the state of affairs On 15 June 2015 the shareholders passed a resolution to change the Company from a private company to a public company. On 18 September 2015 the Company obtained necessary approval from Australian Securities and Investments Commission for the conversion. As a result the Company changed its name from Class Pty Ltd to Class Limited. Initial Public Offering ('IPO') and capital raising During the financial year, the Company successfully completed an IPO raising capital of $5,429,000 by issuing 5,469,603 new ordinary shares. The Company was admitted to the Official List of Australian Securities Exchange Limited ('ASX') on 16 December 2015 with the ASX code: CL1. Termination of loan funded share plan ('LFSP") On 8 December 2015, the LFSP was terminated. 4,575,916 unvested options issued pursuant to LFSP were treated as fully vested in accordance with the IPO prospectus. SuperIQ Pty Ltd As advised in the Supplementary Prospectus dated 9 November 2015, AMP Ltd acquired SuperIQ Pty Ltd (‘SuperIQ’), a customer of the Group, as well as a competing software solution to the Group during the IPO period. Subsequently, SuperIQ terminated its reseller agreement with the Group by providing two years’ notice as required by relevant contracts. As at 31 October 2015, AMP Ltd and its related bodies corporate, including SuperIQ ('AMP Entities') administered approximately 10,550 Billable Portfolios using the Group's products, representing approximately 9.3% of total licence fees. Notwithstanding the termination notice, AMP Ltd has advised the Group that it does not plan to terminate any other agreement between the AMP Entities and the Group. However, the Directors believe that there is a possibility that the AMP Entities may, over time, do so and transfer these funds from the Class Super product to the competitor. As at 30 June 2016, AMP Entities billable portfolios on the Group's products remained steady. However, given the growth of the Group their percentage contribution to overall licence fees has fallen to approximately 7.35%. There were no other significant changes in the state of affairs of the Group during the financial year. Matters subsequent to the end of the financial year Apart from the dividend declared as discussed above, no other matter or circumstance has arisen since 30 June 2016 that has significantly affected, or may significantly affect the Group's operations, the results of those operations, or the Group's state of affairs in future financial years. Likely developments and expected results of operations Information on likely developments in the operations of the Group and the expected results of those operations are contained in the Chairman's letter and CEO’s report. Environmental regulation The Group is not subject to any significant environmental regulation under Australian Commonwealth or State law. 14 Class Annual Report 2016 Class Limited Directors' report 30 June 2016 Information on directors Name: Title: Experience and expertise: Other current directorships: Former directorships (last 3 years): None Special responsibilities: Interests in shares: Name: Title: Experience and expertise: Barry Lambert Non-Executive Chairman Barry Lambert was appointed Chairman of the Group in November 2008. Mr Lambert is also the Chairman of ASX listed Countplus Limited. A former banker, in 1980 Mr Lambert was the founder of ASX Listed Count Financial Limited, a financial services group, which was taken over by the Commonwealth Bank of Australia (CBA) in 2011. Mr. Lambert remained as Chairman of the CBA owned Count Financial Limited until 20 January 2014. Mr Lambert is also the founder and Chairman of the Count Charitable Foundation. Chairman of Countplus Limited Chairman of the Board and member of the Nomination Remuneration and Human Resources Committee 2,047,318 Kevin Bungard Chief Executive Officer and Managing Director ('CEO') Mr Bungard is a highly regarded industry expert in cloud technology systems, with more than 30 years’ experience developing software solutions and applying technology in the Australian financial services and superannuation administration industries. Mr Bungard joined the Group in 2008 as Chief Operating Officer and has overseen the commercialisation, launch and rapid growth of Class Super. In April 2014, Mr Bungard was appointed Chief Executive Officer and has continued to play an instrumental role in driving and delivering key innovation and successes for the Group. Mr Bungard also has responsibility, together with the Company Secretary, for human resource issues within the Group. Prior to joining the Group, Mr Bungard was a General Manager at the IQ Group where he managed the delivery of technology and business process outsourcing solutions to Australia’s largest superannuation funds and their administrators. Significant projects included the development, sale and commercialisation of enterprise software solutions to Bravura and Australian Unity. Prior to his role at IQ Group, Mr Bungard was involved in major projects with Westfield, AMP, Macquarie and many of Australia’s largest financial institutions. Other current directorships: None Former directorships (last 3 years): None Interests in shares: Interests in options: 2,305,572 975,860 Experience and expertise: Name: Title: Qualifications: Roderick Kibble Non-Executive Director Bachelor of Commerce, University of New South Wales. Chartered Accountant and Fellow of the Financial Services Institute of Australasia. He is also a graduate of the Australian Institute of Company Directors. Mr Kibble has over 20 years’ experience in bank assurance and investment markets, having been a senior executive at Price Waterhouse, Jardine Fleming Ord Minnett and J.P. Morgan Australia. Mr Kibble is a founding shareholder and Board member of the Company, appointed in November 2005. None Other current directorships: Former directorships (last 3 years): None Interests in shares: 19,664,320 Class Annual Report 2016 15 Class Limited Directors' report 30 June 2016 Experience and expertise: Name: Title: Qualifications: Rajarshi Ray Non-Executive Director Bachelor of Information Technology and Graduate Diploma in Accounting. Member of Chartered Accountants Australia and New Zealand. Graduate Diploma from the Financial Services Institute of Australia. Mr. Ray has over 20 years’ experience in the Australian financial and information technology (IT) sectors, having held IT and finance roles across a number of companies. Most recently, for a decade at American Express, he held senior management roles in Europe, Asia, North America and Australia, including Head of Financial Planning and Funds Management, and Head of Small Business Services, and led several cross-border financial and technology-based infrastructure projects. Other current directorships: None Former directorships (last 3 years): None Special responsibilities: Interests in shares: Chairman of the Audit and Risk Committee 1,450,740 Experience and expertise: Name: Title: Qualifications: Kathryn Foster Non-Executive Director Bachelor of Science (BSc) - International Marketing from Oregon State University, Associate of Science (ASc) - Computer Science and Information Systems from Shoreline Community University Ms Foster has over 20 years’ experience creating and running large internet based businesses. Prior to becoming a professional director, Ms Foster was Senior Director of Microsoft Store online where she managed the sales and merchandising team for Microsoft Store online across 232 geographies. As the Senior Director, she was responsible for an annual revenue budget in the low billions of dollars. As Senior Director of e-commerce strategy in Supply Chain, and prior to that, for the inception of the Xbox Games Marketplace, Ms Foster set business vision, strategy and drove the technical execution around digital and physical supply chain technology and operations to enable Xbox’s billion-dollar business globally. Other current directorships: None Former directorships (last 3 years): None Special responsibilities: Interests in shares: Chairman of the Nomination Remuneration and Human Resources Committee 783,312 Name: Title: Qualifications: Experience and expertise: Other current directorships: Former directorships (last 3 years): None Special responsibilities: Interests in shares: Matthew Quinn Non-Executive Director First Class Honours Degree in Chemistry & Management Science. Chartered Accountant. Mr Quinn was formerly managing director of Stockland, an ASX top 50 company, from 2000 to 2013. He has an extensive background in commercial, retail, industrial and residential property investment and development. He is now a Non-Executive Director of CSR Limited and UrbanGrowth NSW, a state owned corporation and is Chairman of Carbonxt Group Limited and mPort Pty Ltd. He was National President of the Property Council of Australia from 2003 to 2005 and a director of the Business Council of Australia in 2012. Mr Quinn is involved in a number of not-for-profits and is on the boards of the Public Interest Advocacy Centre and the Australian Business and Community Foundation. Non-executive director CSR Limited (ASX: CSR) Member of the Audit and Risk Committee and member of the Nomination Remuneration and Human Resources Committee 50,000 16 Class Annual Report 2016 Class Limited Directors' report 30 June 2016 Name: Title: Qualifications: Experience and expertise: Anthony Fenning Non-Executive Director Bachelor of Economics (BEc), Bachelor of Laws (LLB) and an MBA in Management at the Australian Graduate School of Management. Mr Fenning was appointed Chief Executive Officer of Shadforth Financial Group, a leading financial and business advisory firm in 2006. He took on the role of Managing Director of SFG Australia Ltd from 2011 to 2014, before the acquisition in 2014 of the business by IOOF. Previously, he was the Chief Executive Officer at Tynan Mackenzie and before that had a career in law and banking. None Other current directorships: Former directorships (last 3 years): SFG Australia Ltd Special responsibilities: Interests in shares: Member of the Audit and Risk Committee None 'Other current directorships' quoted above are current directorships for listed entities only and excludes directorships of all other types of entities, unless otherwise stated. 'Former directorships (last 3 years)' quoted above are directorships held in the last 3 years for listed entities only and excludes directorships of all other types of entities, unless otherwise stated. Chief financial officer and company secretary Glenn Day joined the Group in September 2008. Mr Day holds a Bachelor of Business, majoring in Accounting and is a member of CPA Australia. Mr Day is responsible for the financial management of the Group, its corporate affairs and company secretarial matters. Mr Day also has responsibility, with the Chief Executive Officer, for human resources issues within the Group. Prior to joining the Group, Mr Day was the Head of Finance of an ASX-listed entity and has more than 15 years experience in the financial services and superannuation industries. Meetings of directors The number of meetings of the Company's Board of Directors ('the Board') and of each Board committee held during the year ended 30 June 2016, and the number of meetings attended by each director were: Full Board Audit and Risk Committee Nomination Remuneration and Human Resources Committee ('NRHRC') Attended Held Attended Held Attended Held Barry Lambert Kevin Bungard Roderick Kibble* Rajarshi Ray Kathryn Foster Matthew Quinn** Anthony Fenning*** 14 14 14 14 13 11 12 14 14 14 14 14 14 14 - - 1 3 - 3 1 - - 1 3 - 3 2 5 - 5 - 4 - - 5 - 5 - 5 - - Held: represents the number of meetings held during the time the director held office or was a member of the relevant committee. Roderick Kibble resigned as a member of Audit and Risk Committee on 6 October 2015 and NRHRC on 18 July 2016. Matthew Quinn was appointed as a member of NRHRC on 18 July 2016. * ** *** Anthony Fenning was appointed as a member of Audit and Risk Committee on 6 October 2015. Remuneration report (audited) The remuneration report details the key management personnel ('KMP') remuneration arrangements for the Group, in accordance with the requirements of the Corporations Act 2001 and its Regulations. KMP are those persons having authority and responsibility for planning, directing and controlling the activities of the entit y, directly or indirectly, including all directors. Class Annual Report 2016 17 Class Limited Directors' report 30 June 2016 The remuneration report is set out under the following main headings: ● ● ● ● ● ● Principles used to determine the nature and amount of remuneration Details of remuneration Service agreements Share-based compensation Additional information Additional disclosures relating to key management personnel Principles used to determine the nature and amount of remuneration The objective of the Group'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 conforms to 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, Remuneration and Human Resources Committee ('NRHRC') is responsible for determining and reviewing remuneration arrangements for directors and executives. The performance of the Group depends on the quality of its directors and executives. The remuneration philosophy is to attract, motivate and retain high performing and high quality personnel. The NRHRC has structured an executive remuneration framework that is market competitive and complementary to the reward strategy of the Group. 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 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 NRHRC. The NRHRC 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 do not receive share options or other incentives. 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 24 November 2014 where the shareholders approved a maximum annual aggregate remuneration of $500,000. Executive remuneration The Group aims to reward executives with a level and mix of remuneration based on their position and responsibility, which has both fixed and variable components. 18 Class Annual Report 2016 Class Limited Directors' report 30 June 2016 The executive remuneration and reward framework has three components: ● ● ● base pay and other remuneration such as superannuation, long service leave and non-monetary benefits short-term performance incentives long term performance incentives (share-based payments) The combination of these comprises the executive's total remuneration. Fixed remuneration, consisting of base salary, superannuation and non-monetary benefits, is reviewed annually by the NRHRC and any proposed changes are recommended to the Board for approval. Remuneration is based on individual performance and overall performance of the Group and is positioned at the market median against the appropriate index for roles of comparative size, or relative to their counterparts in related industries. There is no guaranteed base pay increase included in the executive contracts. Executives may receive their fixed remuneration in the form of cash or other fringe benefits (for example motor vehicle benefits) where it does not create any additional costs to the Group and provides additional value to the executive. The short-term incentives ('STI') program is designed to align the targets of the business units with the targets of those executives responsible for meeting those targets. 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 development. The long-term incentives ('LTI') comprise of share-based payments. The NRHRC reviewed the long-term equity-linked performance incentives specifically for executives during the year ended 30 June 2016, resulting in the termination of the Loan Funded Share Plan ('LFSP') and the establishment of an Employee Share Option Plan ('ESOP'). Options are granted to executives by the Board based on the recommendations of the NRHRC, having considered the individual’s contribution to the Group’s performance. The Board may specify vesting conditions for any option granted and may, at its discretion, waive or vary these conditions in regard to any option at any time. The Board will determine the exercise price and vesting conditions. Group performance and link to remuneration STI payments are directly linked to the performance of the Group. A portion of cash bonus and incentive payments are dependent on financial targets being met such as budgeted net profit after tax. The remaining portion of the cash bonus and incentive payments are at the discretion of the NRHRC. Refer to the section 'Additional information' below for details of the earnings and total shareholders return for the last two years. The NRHRC 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. Use of remuneration consultants During the financial year ended 30 June 2016, the Group did not use any remuneration consultants. Details of remuneration Amounts of remuneration Details of the remuneration of KMP of the Group are set out in the following tables. In line with Regulation 2M.3.03 of Corporation Regulations 2001, the Group has elected not to disclose comparatives. The KMP of the Group consisted of the directors of Class Limited and the: ● Chief Financial Officer Class Annual Report 2016 19 Class Limited Directors' report 30 June 2016 Short-term benefits Post- employment benefits Long-term benefits Share-based payments 2016 Cash salary and fees $ Cash bonus* $ Non- Super- Long service Equity-settled monetary annuation $ $ leave $ options $ Total $ Non-Executive Directors: Barry Lambert Roderick Kibble Rajarshi Ray Kathryn Foster Matthew Quinn Anthony Fenning Executive Directors: Kevin Bungard Other Key Management Personnel: Glenn Day 90,000 60,000 60,000 60,000 60,000 60,000 - - - - - - - - - - - - 8,550 5,700 5,700 5,700 5,700 5,700 - - - - - - - - - - - - 98,550 65,700 65,700 65,700 65,700 65,700 261,863 15,000 - 27,639 8,509 93,044 406,055 206,158 858,021 25,000 40,000 - - 21,410 86,099 7,936 16,445 79,215 172,259 339,719 1,172,824 * Bonuses were awarded on 5 August 2016 and are in relation to performance for the year ended 30 June 2016. Non-Executive Directors' salaries are 100% fixed. The fixed proportion and the proportion of remuneration linked to performance of Executive Directors and KMP are as follows: Name Executive Directors: Kevin Bungard Other Key Management Personnel: Glenn Day Fixed remuneration 2016 At risk - STI 2016 At risk - LTI 2016 73% 4% 23% 69% 8% 23% Service agreements Non-Executive Directors do not have fixed term contracts with the Group. On appointment to the Board, all Non-Executive Directors enter into a service agreement with the Group in the form of a letter of appointment. The letter summarises the Board policies and terms, including compensation. Non-Executive directors retire by whichever is the longer period: the third annual general meeting following their appointment, or the third anniversary from the date of appointment, but may then be eligible for re-election. 20 Class Annual Report 2016 Class Limited Directors' report 30 June 2016 Remuneration and other terms of employment for Executives are formalised in service agreements. Details of these agreements are as follows: Name: Title: Agreement commenced: Term of agreement: Details: Name: Title: Agreement commenced: Term of agreement: Details: Kevin Bungard Chief Executive Officer and Managing Director ('CEO') 8 October 2015 Ongoing The terms of employment and remuneration of the CEO are detailed in a tailored service agreement. The agreement is not of a fixed duration and may be terminated by either party, providing an adequate notice period is given. Prior to the first anniversary of the agreement, the required notice period is 6 months, decreasing to 3 months if notice is given after the first anniversary. The agreement entitles the individual to a base salary and superannuation contributions, as well as eligibility to participate in the Executive Incentive Plan (EIP). The Board retains absolute discretion relating to the EIP, it's continuance and whether any payments will be made in any given year. Upon termination, the individual is bound by restraint clauses spanning a period of up to 12 months and no less than 3 months, dependant on the circumstances surrounding the termination. Glenn Day Chief Financial Officer and Company Secretary ('CFO') 8 October 2015 Ongoing The terms of employment and remuneration of the CFO are detailed in a tailored service agreement. The agreement is not of a fixed duration and may be terminated by either party, providing a notice period of 3 months is given. The agreement entitles the individual to a base salary and superannuation contributions, as well as eligibility to participate in the EIP. The Board retains absolute discretion relating to the EIP, it's continuance and whether any payments will be made in any given year. Upon termination, the individual is bound by restraint clauses spanning a period of up to 12 months and no less than 3 months, dependant on the circumstances surrounding the termination. Key management personnel have no entitlement to termination payments in the event of removal for misconduct. Share-based compensation Issue of shares There were no shares issued to directors and other key management personnel as part of compensation during the year ended 30 June 2016. Options The terms and conditions of each grant of options over ordinary shares affecting remuneration of directors and other key management personnel in this financial year or future reporting years are as follows: Fair value per option Grant date Particulars Expiry date Exercise price at grant date 17/08/2015 17/08/2015 30/09/2015 30/09/2015 30/09/2015 30/09/2015 29/06/2016 29/06/2016 Kevin Bungard: 260,000 options Glenn Day: 253,979 options Kevin Bungard: 495,860 options Glenn Day: 484,377 options Kevin Bungard: 280,000 options Glenn Day: 120,000 options Kevin Bungard: 200,000 options Glenn Day: 90,000 options 16/06/2017 16/06/2017 30/09/2019 30/09/2019 30/09/2020 30/09/2020 30/06/2021 30/06/2021 Options granted under ESOP carry no dividend or voting rights. $0.69 $0.69 $1.10 $1.10 $1.33 $1.33 $3.81 $3.81 $0.053 $0.053 $0.197 $0.197 $0.168 $0.168 $0.661 $0.661 Class Annual Report 2016 21 Class Limited Directors' report 30 June 2016 The number of options over ordinary shares granted to and vested in directors and other key management personnel as part of compensation during the year ended 30 June 2016 are set out below: Name Kevin Bungard Rajarshi Ray Glenn Day Number of Number of options granted options vested during the during the year 2016 year 2016 1,235,860 - 948,356 1,140,000 240,000 613,979 Additional information The earnings of the Group for the two years to 30 June 2016 are summarised below: Sales revenue EBITDA Profit after tax Dividends paid The factors that are considered to affect total shareholders return ('TSR') are summarised below: Share price at financial year end ($) Basic earnings per share (cents per share) Additional disclosures relating to key management personnel 2016 $'000 2015 $'000 22,563 10,051 5,210 4,006 15,598 5,959 3,406 2,358 2016 2015 3.30 4.64 - 3.17 Shareholding The number of shares in the Company held during the financial year by each director and other members of key management personnel of the Group, including their personally related parties, is set out below: Balance at Received as part of the start of the year remuneration Additions* Disposals/ other Balance at the end of the year Ordinary shares Barry Lambert Kevin Bungard Roderick Kibble Rajarshi Ray Kathryn Foster Matthew Quinn Glenn Day 184,148 1,743,236 22,884,320 1,297,500 979,140 - 740,664 27,829,008 - - - - - - - - 1,900,000 1,222,336 - 333,240 - 50,000 717,315 4,222,891 (36,830) (660,000) 2,047,318 2,305,572 (3,220,000) 19,664,320 1,450,740 (180,000) 783,312 (195,828) 50,000 - (1,055,479) 402,500 (5,348,137) 26,703,762 * Additions include 1,993,979 ordinary shares issued on exercise of options pursuant to LFSP 22 Class Annual Report 2016 Class Limited Directors' report 30 June 2016 Option holding The number of options over ordinary shares in the Company held during the financial year by each director and other members of key management personnel of the Group, including their personally related parties, is set out below: Options over ordinary shares Kevin Bungard Rajarshi Ray* Glenn Day Balance at the start of the year Granted Exercised Expired/ forfeited/ other Balance at the end of the year 880,000 240,000 360,000 1,480,000 1,235,860 - 948,356 2,184,216 (1,140,000) (240,000) (613,979) (1,993,979) - - - - 975,860 - 694,377 1,670,237 * Options issued on 3 December 2013 when Mr. Ray was CEO of the Company. This concludes the remuneration report, which has been audited. Shares under option Unissued ordinary shares of Class Limited under option at the date of this report are as follows: Grant date 30/09/2015 30/09/2015 29/06/2016 Expiry date 30/09/2019 30/09/2020 30/06/2021 Exercise price Number under option $1.10 $1.33 $3.81 2,624,084 1,058,506 1,168,202 4,850,792 No person entitled to exercise the options had or has any right by virtue of the option to participate in any share issue of the Company or of any other body corporate. Shares issued on the exercise of options The following ordinary shares of Class Limited were issued during the year ended 30 June 2016 and up to the date of this report on the exercise of options granted: Date options granted 03/12/2013 28/04/2014 30/06/2014 17/08/2015 Exercise price Number of shares issued $0.61 $0.59 $0.75 $0.69 2,400,000 400,000 400,000 1,375,916 4,575,916 The exercise of options above were all issued under the LFSP prior to the IPO. Indemnity and insurance of officers The Company has indemnified the directors and executives of the Company for costs incurred, in their capacity as a director or executive, for which they may be held personally liable, except where there is a lack of good faith. During the financial year, the Company paid a premium in respect of a contract to insure the directors and executives of the Company against a liability to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium. Indemnity and insurance of auditor The Company has not, during or since the end of the financial year, indemnified or agreed to indemnify the auditor of the Company or any related entity against a liability incurred by the auditor. Class Annual Report 2016 23 Class Limited Directors' report 30 June 2016 During the financial year, the Company has not paid a premium in respect of a contract to insure the auditor of the Company or any related entity. Proceedings on behalf of the Company No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the Company, or to intervene in any proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the Company for all or part of those proceedings. Non-audit services Details of the amounts paid or payable to the auditor for non-audit services provided during the financial year by the auditor are outlined in note 22 to the financial statements. The directors are satisfied that the provision of non-audit services during the financial year, by the auditor (or by another person or firm on the auditor's behalf), is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The directors are of the opinion that the services as disclosed in note 22 to the financial statements do not compromise the external auditor's independence requirements of the Corporations Act 2001 for the following reasons: ● all non-audit services have been reviewed and approved to ensure that they do not impact the integrity and objectivity of the auditor; and none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants issued by the Accounting Professional and Ethical Standards Board, including reviewing or auditing the auditor's own work, acting in a management or decision-making capacity for the Company, acting as advocate for the Company or jointly sharing economic risks and rewards. ● Officers of the Company who are former partners of Grant Thornton There are no officers of the Company who are former partners of Grant Thornton. Rounding of amounts The Company is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191, issued by the Australian Securities and Investments Commission, relating to 'rounding-off'. Amounts in this report have been rounded off in accordance with that Corporations Instrument to the nearest thousand dollars, or in certain cases, the nearest dollar. Auditor's independence declaration 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 Grant Thornton 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 ___________________________ Barry Lambert Chairman 16 August 2016 Sydney ___________________________ Kevin Bungard Chief Executive Officer and Managing Director 24 Class Annual Report 2016 Level 17, 383 Kent Street Sydney NSW 2000 Correspondence to: Locked Bag Q800 QVB Post Office Sydney NSW 1230 T +61 2 8297 2400 F +61 2 9299 4445 E info.nsw@au.gt.com W www.grantthornton.com.au Auditor’s Independence Declaration To the Directors of Class Limited In accordance with the requirements of section 307C of the Corporations Act 2001, as lead auditor for the audit of Class Limited for the year ended 30 June 2016, I declare that, to the best of my knowledge and belief, there have been: a b no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and no contraventions of any applicable code of professional conduct in relation to the audit. GRANT THORNTON AUDIT PTY LTD Chartered Accountants Matthew Leivesley Partner - Audit & Assurance Sydney, 16 August 2016 Grant Thornton Audit Pty Ltd ACN 130 913 594 a subsidiary or related entity of Grant Thornton Australia Ltd ABN 41 127 556 389 ‘Grant Thornton’ refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to their clients and/or refers to one or more member firms, as the context requires. Grant Thornton Australia Ltd is a member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide partnership. GTIL and each member firm is a separate legal entity. Services are delivered by the member firms. GTIL does not provide services to clients. GTIL and its member firms are not agents of, and do not obligate one another and are not liable for one another’s acts or omissions. In the Australian context only, the use of the term ‘Grant Thornton’ may refer to Grant Thornton Australia Limited ABN 41 127 556 389 and its Australian subsidiaries and related entities. GTIL is not an Australian related entity to Grant Thornton Australia Limited. Liability limited by a scheme approved under Professional Standards Legislation. Liability is limited in those States where a current scheme applies. Class Limited Statement of profit or loss and other comprehensive income For the year ended 30 June 2016 Revenue Expenses Employee benefits expense Depreciation and amortisation expense Selling and marketing expenses Occupancy expenses Technology costs Transaction costs on initial public offering Other expenses Profit before income tax expense Income tax expense Class Annual Report 2016 25 Note Consolidated 2016 $'000 2015 $'000 5 6 22,731 15,684 (9,813) (1,631) (834) (309) (407) (882) (1,149) (7,347) (859) (705) (215) (464) - (908) 7,706 5,186 7 (2,496) (1,780) Profit after income tax expense for the year attributable to the owners of Class Limited Other comprehensive income for the year, net of tax Total comprehensive income for the year attributable to the owners of Class Limited 5,210 3,406 - - 5,210 3,406 Cents Cents Basic earnings per share Diluted earnings per share 29 29 4.64 4.59 3.17 3.17 The above statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes 26 Class Annual Report 2016 Class Limited Statement of financial position As at 30 June 2016 Assets Current assets Cash and cash equivalents Trade and other receivables 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 Income tax provision Provisions Total current liabilities Non-current liabilities Provisions Total non-current liabilities Total liabilities Net assets Equity Issued capital Reserves Retained earnings Total equity Note Consolidated 2016 $'000 2015 $'000 8 9 10 11 12 7 13 7 14 15 16 17 15,179 2,318 496 17,993 604 3,571 307 4,482 5,950 1,667 265 7,882 480 2,381 1,111 3,972 22,475 11,854 2,268 666 434 3,368 313 313 1,615 523 402 2,540 297 297 3,681 2,837 18,794 9,017 24,260 559 (6,025) 16,152 2,647 (9,782) 18,794 9,017 The above statement of financial position should be read in conjunction with the accompanying notes Class Annual Report 2016 27 Class Limited Statement of changes in equity For the year ended 30 June 2016 Consolidated Issued capital $'000 Profit reserve $'000 Other reserves $'000 Retained earnings $'000 Total equity $'000 Balance at 1 July 2014 16,866 1,593 (95) (9,870) 8,494 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: Share-based payments (note 30) Treasury shares Transfer to profit reserve Application of dividends to loan funded share plan Dividends paid (note 18) - - - - (714) - - - - - - - - 3,318 - (2,358) Balance at 30 June 2015 16,152 2,553 - - - 153 - - 36 - 94 3,406 3,406 - - 3,406 3,406 - - (3,318) 153 (714) - - - 36 (2,358) (9,782) 9,017 Consolidated Issued capital $'000 Profit reserve $'000 Other reserves $'000 Retained earnings $'000 Total equity $'000 Balance at 1 July 2015 16,152 2,553 94 (9,782) 9,017 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: Contributions of equity, net of transaction costs (note 16) Share-based payments (note 30) Transfer from profit reserve Dividends paid (note 18) - - - - - - 8,108 - - - - - (2,553) - Balance at 30 June 2016 24,260 - - - - - 465 - - 559 5,210 5,210 - - 5,210 5,210 - - 2,553 (4,006) 8,108 465 - (4,006) (6,025) 18,794 The above statement of changes in equity should be read in conjunction with the accompanying notes 28 Class Annual Report 2016 Class Limited Statement of cash flows For the year ended 30 June 2016 Cash flows from operating activities Receipts from customers (inclusive of GST) Payments to suppliers and employees (inclusive of GST) Interest received Income taxes refunded/(paid) Note Consolidated 2016 $'000 2015 $'000 24,168 (14,661) 168 (1,549) 16,584 (10,216) 86 464 Net cash from operating activities 28 8,126 6,918 Cash flows from investing activities Payments for property, plant and equipment Payments for intangibles Payments for term deposits Proceeds from disposal of property, plant and equipment Net cash used in investing activities Cash flows from financing activities Proceeds from issue of shares Proceeds from treasury shares on vesting of loan funded share plan Payments for share purchase by employee share trust - treasury shares Share issue transaction costs Dividends paid 18 Net cash from/(used in) financing activities Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year (318) (2,627) (54) - (168) (1,853) - 1 (2,999) (2,020) 5,429 2,943 - (264) (4,006) - - (714) - (2,358) 4,102 (3,072) 9,229 5,950 1,826 4,124 Cash and cash equivalents at the end of the financial year 8 15,179 5,950 The above statement of cash flows should be read in conjunction with the accompanying notes Class Annual Report 2016 29 Class Limited Notes to the financial statements 30 June 2016 Note 1. General information These financial statements represent the consolidated financial statements of the Group consisting of Class Limited (the Company) and its subsidiaries. The financial statements are presented in Australian dollars, which is the Company's functional and presentation currency. Class Limited is a listed public company limited by shares, incorporated and domiciled in Australia. Its registered office and principal place of business is: Class Limited Level 3, 228 Pitt Street Sydney, NSW 2000 A description of the nature of the Group's operations and its principal activities are included in the directors' report, which is not part of the financial statements. The financial statements were authorised for issue, in accordance with a resolution of directors, on 16 August 2016. The directors have the power to amend and reissue the financial statements. Note 2. Significant accounting policies The principal accounting policies adopted in the preparation of the financial statements are set out either in the respective notes or below. These policies have been consistently applied to all the years presented, unless otherwise stated. New, revised or amending Accounting Standards and Interpretations adopted The Group has adopted all of the new, revised or amending Accounting Standards and Interpretations issued by the Australian Accounting Standards Board ('AASB') that are mandatory for the current reporting period. The adoption of these Accounting Standards and Interpretations did not have any significant impact on the financial performance or position of the Group. Any new, revised or amending Accounting Standards or Interpretations that are not yet mandatory have not been early adopted. Basis of preparation These general purpose financial statements have been prepared in accordance with Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board ('AASB') and the Corporations Act 2001, as appropriate for for-profit oriented entities. These financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board ('IASB'). Historical cost convention The financial statements have been prepared under the historical cost convention. Critical accounting estimates The preparation of the financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in note 3. Parent entity information In accordance with the Corporations Act 2001, these financial statements present the results of the Group only. Supplementary information about the parent entity is disclosed in note 26. Rounding of amounts The Company is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191, issued by the Australian Securities and Investments Commission, relating to 'rounding-off'. Amounts in this report have been rounded off in accordance with that Corporations Instrument to the nearest thousand dollars, or in certain cases, the nearest dollar. 30 Class Annual Report 2016 Class Limited Notes to the financial statements 30 June 2016 Note 3. Critical accounting judgements, estimates and assumptions The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts in the financial statements. Management continually evaluates its judgements and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgements, estimates and assumptions on historical experience and on other various factors, including expectations of future events, management believes to be reasonable under the circumstances. The resulting accounting judgements and estimates will seldom equal the related actual results. The judgements, estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities (refer to the respective notes) within the next financial year are discussed below. 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 taking into account the recent sales experience, the ageing of receivables, historical collection rates and specific knowledge of the individual debtor's financial position. Capitalised software development costs Distinguishing the research and development phases of a new customised software project and determining whether the recognition requirements for the capitalisation of development costs are met requires judgement. After capitalisation, management monitors whether the recognition requirements continue to be met and whether there are any indicators that capitalised costs may be impaired. Estimation of useful lives of assets The Group determines the estimated useful lives and related depreciation and amortisation charges for its property, plant and equipment and finite life intangible assets. The useful lives could change significantly as a result of technical innovations or some other event. The depreciation and amortisation charge will increase where the useful lives are less than previously estimated. Technically obsolete or non-strategic assets that have been abandoned or sold will be written off or written down. Impairment of non-financial assets The Group assesses impairment of non-financial assets at each reporting date by evaluating conditions specific to the Group and to the particular asset that may lead to impairment. If an impairment trigger exists, the recoverable amount of the asset is determined. This involves fair value less costs of disposal or value-in-use calculations, which incorporate a number of key estimates and assumptions. Income tax The Group is subject to income taxes in the jurisdictions in which it operates. Significant judgement is required in determining the provision for income tax. There are many transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain. The Group recognises liabilities for anticipated tax audit issues based on the Group's current understanding of the tax law. Where the final tax outcome of these matters is different from the carrying amounts, such differences will impact the current and deferred tax provisions in the period in which such determination is made. Recovery of deferred tax assets Deferred tax assets are recognised for deductible temporary differences and losses only if the Group considers it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Class Annual Report 2016 31 Class Limited Notes to the financial statements 30 June 2016 Note 4. Operating segments The Group's operating segments are based on the internal reports that are reviewed and used by the Board of Directors (who are identified as the Chief Operating Decision Makers ('CODM')) in assessing performance and in determining the allocation of resources. The Directors have determined that there is one operating segment identified and located in Australia. The information reported to the CODM is the consolidated results of the Group. The segment results are as shown in the statement of profit or loss and other comprehensive income. Refer to statement of financial position for segment assets and liabilities. Accounting policy for operating segments Operating segments are presented using the 'management approach', where the information presented is on the same basis as the internal reports provided to the CODM. The CODM is responsible for the allocation of resources to operating segments and assessing their performance. Note 5. Revenue Sales revenue Software licence fees Service fees Commission and partner fees Other revenue Interest Revenue Consolidated 2016 $'000 2015 $'000 21,432 252 879 22,563 14,908 162 528 15,598 168 86 22,731 15,684 Accounting policy for revenue recognition Revenue is recognised when it is probable that the economic benefit will flow to the Group and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable. Software licence fees The Group recognises revenue pursuant to software licence agreements upon the provision of access to its customers of the Group’s intellectual property as it exists at any given time during the period of the license. Revenue is recognised over the duration of the agreement or for as long as the customer has been provided access, when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable and collectability is probable. Service fees Fees for the provision of services are recognised as revenue as the services are rendered, in accordance with the terms and conditions of the service agreement. Commission and partner fees The Group recognises commission and partner fees pursuant to an agreement when it sells a third party’s products to customers which provides these customers with access to products and services. Interest Interest revenue is recognised as interest accrues using the effective interest method. This is a method of calculating the amortised cost of a financial asset and allocating the interest income over the relevant period using the effective interest rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset. Other revenue Other revenue is recognised when it is received or when the right to receive payment is established. 32 Class Annual Report 2016 Class Limited Notes to the financial statements 30 June 2016 Note 6. Expenses Profit before income tax includes the following specific expenses: Depreciation Leasehold improvements Furniture and fittings Computer equipment Office equipment Total depreciation Amortisation Website tools development Software development Computer software Total amortisation Total depreciation and amortisation Rental expense relating to operating leases Minimum lease payments Superannuation expense Defined contribution superannuation expense Consolidated 2016 $'000 2015 $'000 32 12 139 11 194 52 1,360 25 1,437 1,631 54 8 86 13 161 36 640 22 698 859 282 196 1,058 867 Class Annual Report 2016 33 Class Limited Notes to the financial statements 30 June 2016 Note 7. Income tax Income tax expense Current tax Deferred tax - origination and reversal of temporary differences Aggregate income tax expense Deferred tax included in income tax expense comprises: Decrease in deferred tax assets Numerical reconciliation of income tax expense and tax at the statutory rate Profit before income tax expense Tax at the statutory tax rate of 30% Tax effect amounts which are not deductible/(taxable) in calculating taxable income: Entertainment expenses Share-based payments Non allowable deductions Research and development uplift and investment allowance Capital gain on tax consolidation Income tax expense Deferred tax asset Deferred tax asset comprises temporary differences attributable to: Amounts recognised in profit or loss: Tax losses Accrued expenses Software development - R & D Deferred tax asset Movements: Opening balance Charged to profit or loss Closing balance Provision for income tax Provision for income tax Consolidated 2016 $'000 2015 $'000 1,692 804 530 1,250 2,496 1,780 804 1,250 7,706 5,186 2,312 1,556 15 150 19 - - - 66 (82) 2,496 - 1,540 240 2,496 1,780 Consolidated 2016 $'000 2015 $'000 596 741 (1,030) 1,482 321 (692) 307 1,111 1,111 (804) 2,361 (1,250) 307 1,111 Consolidated 2016 $'000 2015 $'000 666 523 34 Class Annual Report 2016 Class Limited Notes to the financial statements 30 June 2016 Note 7. Income tax (continued) Accounting policy for income tax The income tax expense or benefit for the period is the tax payable on that period's taxable income based on the applicable income tax rate for each jurisdiction, adjusted by the changes in deferred tax assets and liabilities attributable to temporary differences, unused tax losses and the adjustment recognised for prior periods, where applicable. Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to be applied when the assets are recovered or liabilities are settled, based on those tax rates that are enacted or substantively enacted, except for: ● When the deferred income tax asset or liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting nor taxable profits; or When the taxable temporary difference is associated with interests in subsidiaries, associates or joint ventures, and the timing of the reversal can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. ● Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. The carrying amount of recognised and unrecognised deferred tax assets are reviewed at each reporting date. Deferred tax assets recognised are reduced to the extent that it is no longer probable that future taxable profits will be available for the carrying amount to be recovered. Previously unrecognised deferred tax assets are recognised to the extent that it is probable that there are future taxable profits available to recover the asset. Deferred tax assets and liabilities are offset only where there is a legally enforceable right to offset current tax assets against current tax liabilities and deferred tax assets against deferred tax liabilities; and they relate to the same taxable authority on either the same taxable entity or different taxable entities which intend to settle simultaneously. Class Limited (the 'head entity') and its wholly-owned Australian subsidiaries have formed an income tax consolidated group under the tax consolidation regime with effect from 1 July 2014. The head entity and each subsidiary in the tax consolidated group continue to account for their own current and deferred tax amounts. The tax consolidated group has applied the 'separate taxpayer within group' approach in determining the appropriate amount of taxes to allocate to members of the tax consolidated group. In addition to its own current and deferred tax amounts, the head entity also recognises the current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from each subsidiary in the tax consolidated group. Assets or liabilities arising under tax funding agreements with the tax consolidated entities are recognised as amounts receivable from or payable to other entities in the tax consolidated group. The tax funding arrangement ensures that the intercompany charge equals the current tax liability or benefit of each tax consolidated group member, resulting in neither a contribution by the head entity to the subsidiaries nor a distribution by the subsidiaries to the head entity. Note 8. Current assets - cash and cash equivalents Cash on hand and at bank Consolidated 2016 $'000 2015 $'000 15,179 5,950 Accounting policy for 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. Class Limited Notes to the financial statements 30 June 2016 Note 9. Current assets - trade and other receivables Trade receivables Less: Provision for impairment of receivables Accrued revenue Class Annual Report 2016 35 Consolidated 2016 $'000 2015 $'000 2,307 (8) 2,299 1,645 (3) 1,642 19 25 2,318 1,667 Impairment of receivables The Group has recognised a loss of $5,000 (2015: $3,000) in profit or loss in respect of impairment of receivables for the year ended 30 June 2016. The ageing of the impaired receivables provided for above are as follows: 0 to 3 months overdue 3 to 6 months overdue Over 6 months overdue Movements in the provision for impairment of receivables are as follows: Opening balance Additional provisions recognised Closing balance Consolidated 2016 $'000 2015 $'000 4 4 - 8 Consolidated 2016 $'000 2015 $'000 3 5 8 - 1 2 3 - 3 3 Past due but not impaired Customers with balances past due but without provision for impairment of receivables amount to $28,000 as at 30 June 2016 ($7,000 as at 30 June 2015). The Group 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 3 months overdue Consolidated 2016 $'000 2015 $'000 28 7 36 Class Annual Report 2016 Class Limited Notes to the financial statements 30 June 2016 Note 9. Current assets - trade and other receivables (continued) Accounting policy for 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 and 90 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 Group 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 120 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. Note 10. Current assets - other Prepayments Term deposits* Consolidated 2016 $'000 2015 $'000 355 141 496 178 87 265 *Includes term deposit which is held as security for lease of office premises $141,000 (2015: $87,000). Note 11. Non-current assets - property, plant and equipment Leasehold improvements - at cost Less: Accumulated depreciation Furniture and fittings - at cost Less: Accumulated depreciation Computer equipment - at cost Less: Accumulated depreciation Office equipment - at cost Less: Accumulated depreciation Consolidated 2016 $'000 2015 $'000 156 (107) 49 133 (29) 104 722 (341) 381 105 (35) 70 604 156 (75) 81 117 (17) 100 435 (202) 233 90 (24) 66 480 Class Annual Report 2016 37 Class Limited Notes to the financial statements 30 June 2016 Note 11. Non-current assets - property, plant and equipment (continued) Reconciliations 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 2014 Additions Disposals Depreciation expense Balance at 30 June 2015 Additions Depreciation expense Balance at 30 June 2016 Leasehold Furniture and improvements $'000 fittings $'000 Computer equipment Office equipment $'000 $'000 118 17 - (54) 81 - (32) 49 95 13 - (8) 100 16 (12) 104 188 136 (5) (86) 233 287 (139) 381 76 3 - (13) 66 15 (11) 70 Total $'000 477 169 (5) (161) 480 318 (194) 604 Accounting policy for property, plant and equipment Plant and equipment is stated at historical cost less accumulated depreciation and impairment. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Depreciation is calculated on a straight-line basis to write off the net cost of each item of property, plant and equipment over their expected useful lives as follows: Leasehold improvements Furniture and fittings Computer equipment Office equipment 3-5 years 10-20 years 3-5 years 3-10 years The residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each reporting date. Leasehold improvements are depreciated over the unexpired period of the lease or the estimated useful life of the assets, whichever is shorter. An item of property, plant and equipment is derecognised upon disposal or when there is no future economic benefit to the Group. Gains and losses between the carrying amount and the disposal proceeds are taken to profit or loss. 38 Class Annual Report 2016 Class Limited Notes to the financial statements 30 June 2016 Note 12. Non-current assets - intangibles Website tools development - at cost Less: Accumulated amortisation Trademarks and domain names - at cost Software development - at cost Less: Accumulated amortisation Computer software - at cost Less: Accumulated amortisation Consolidated 2016 $'000 2015 $'000 157 (101) 56 36 12,185 (8,730) 3,455 76 (52) 24 155 (49) 106 36 9,570 (7,370) 2,200 68 (29) 39 3,571 2,381 Reconciliations 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 2014 Additions Amortisation expense Balance at 30 June 2015 Additions Amortisation expense Balance at 30 June 2016 Website tools development $'000 Trademarks and domain names $'000 Software development $'000 Computer software $'000 Total $'000 63 79 (36) 106 2 (52) 56 18 18 - 36 - - 36 1,117 1,723 (640) 2,200 2,615 (1,360) 3,455 29 32 (22) 39 10 (25) 24 1,227 1,852 (698) 2,381 2,627 (1,437) 3,571 Accounting policy for 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. Website tool and software development Research costs are expensed in the period in which they are incurred. Development costs are capitalised when: it is probable that the project will be a success considering its commercial and technical feasibility; the Group is able to use or sell the asset; the Group has sufficient resources; and intent to complete the internal development: and the costs incurred can be measured reliably. These capitalised costs are amortised commencing from the time the asset's development reaches the condition necessary for it to be capable of operation in the manner intended by management. Amortisation is on a straight-line basis over the period of their expected benefit, being their finite useful lives of three years. Class Annual Report 2016 39 Class Limited Notes to the financial statements 30 June 2016 Note 12. Non-current assets - intangibles (continued) Trademarks and domain names Significant costs associated with trademarks and domain names are capitalised. Such assets are not on the basis that they are deemed to have an indefinite life. This assumption is reassessed every year. Instead, trademarks and domain names are tested annually for impairment, or more frequently if events or changes in circumstances indicate that it might be impaired. They are carried at cost less accumulated impairment losses. Computer software Software purchased from third parties are capitalised and amortised on a straight-line basis over the period of their expected benefit of between three to five years. Note 13. Current liabilities - trade and other payables Trade payables Accrued expenses BAS payable Consolidated 2016 $'000 2015 $'000 517 1,303 448 362 938 315 2,268 1,615 Refer to note 19 for further information on financial instruments. Accounting policy for trade and other payables These amounts represent liabilities for goods and services provided to the Group prior to the end of the financial year and which are unpaid. Due to their short-term nature they are measured at amortised cost and are not discounted. The amounts are unsecured and are usually paid within 30 days of recognition. Note 14. Current liabilities - provisions Annual leave Deferred lease incentives Consolidated 2016 $'000 2015 $'000 387 47 434 355 47 402 Deferred lease incentives The provision represents operating lease incentives received. The incentives are allocated to profit or loss in such a manner that the rent expense is recognised on a straight-line basis over the lease term. Accounting policy for employee benefits Short-term employee benefits Liabilities for wages and salaries, including non-monetary benefits, annual leave and long service leave expected to be settled wholly within 12 months of the reporting date are measured at the amounts expected to be paid when the liabilities are settled. The liability for annual leave not expected to be settled within 12 months of the reporting date but for which employees have a current entitlement is 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 (refer to the accounting policy in note 15 for further details). Such amounts are presented as current liabilities as the Group does not have an unconditional right to defer settlement. However, based on past experience, the Group does not expect all employees to take the full amount of accrued leave or require payment within the next 12 months. 40 Class Annual Report 2016 Class Limited Notes to the financial statements 30 June 2016 Note 15. Non-current liabilities - provisions Long service leave Deferred lease incentives Consolidated 2016 $'000 2015 $'000 285 28 313 222 75 297 Movements in provisions Movements in each class of provision (current and non-current) during the current financial year, other than employee benefits, are set out below: Consolidated - 2016 Carrying amount at the start of the year Amounts used Carrying amount at the end of the year Deferred lease incentives $'000 122 (47) 75 Accounting policy for other long-term employee benefits The liability for long service leave not expected to be settled within 12 months of the reporting date is 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. Pursuant to this method, consideration is given to expected future wage and salary levels, past experience of employee departures and periods of service. Expected future payments are discounted using market yields at the reporting date on corporate bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. Note 16. Equity - issued capital Consolidated 2016 Shares 2015 Shares 2016 $'000 2015 $'000 Ordinary shares - fully paid Less: Treasury shares 116,820,283 111,350,680 (4,575,916) - 24,260 - 18,715 (2,563) 116,820,283 106,774,764 24,260 16,152 Class Annual Report 2016 41 Class Limited Notes to the financial statements 30 June 2016 Note 16. Equity - issued capital (continued) Movements in ordinary share capital Details Date Shares $'000 Balance Transfer of Class A shares into ordinary shares Transfer of Class B shares into ordinary shares Share split 1 July 2014 15 June 2015 15 June 2015 15 June 2015 - 1,500,000 26,337,670 83,513,010 - 16 18,699 - Balance Exercise price transferred on vesting of loan funded share plan Issuance of shares at $1.00 per share Issuance of shares in the employee offer Issuance of shares at $1.00 per share Share issue transaction costs, net of tax 30 June 2015 111,350,680 18,715 8 December 2015 14 December 2015 14 December 2015 24 December 2015 - 5,318,603 41,000 110,000 - 380 5,319 - 110 (264) Balance 30 June 2016 116,820,283 24,260 Movements in Treasury Shares Details Date Shares $'000 Balance Shares purchase by employee share trust Share split 1 July 2014 24 February 2015 15 June 2015 (860,000) (283,979) (3,431,937) (1,849) (714) - Balance Termination of loan funded share plan due to vesting of all unvested shares 30 June 2015 (4,575,916) (2,563) 8 December 2015 4,575,916 2,563 Balance 30 June 2016 - - Ordinary shares Ordinary shares entitle the holder to participate in dividends and the proceeds on the winding up of the Company in proportion to the number of and amounts paid on the shares held. The fully paid ordinary shares have no par value and the Company does not have a limited amount of authorised capital. On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote. Share buy-back There is no current on-market share buy-back. Conversion of Class A shares and Class B shares and subsequent share split (comparative period) On 15 June 2015, each Class A and Class B share on issue was converted into one fully-paid ordinary share such that the Company has only one class of ordinary share capital on issue. In addition, the share capital of the Company underwent a share split of 4 new shares for each existing share on that date. Termination of loan funded share plan ('LFSP") The Company had an equity scheme pursuant to which certain employees accessed a loan funded share plan ('LFSP'). The acquisition of shares by an employee in the Company was fully funded by the Company through the granting of a full recourse loan over a period of up to 42 months. On 8 December 2015, the LFSP was terminated. 4,575,916 unvested options issued pursuant to LFSP were treated as fully vested in accordance with the IPO prospectus. On vesting the employees fully repaid the loan amount including the exercise price as per the LFSP. 42 Class Annual Report 2016 Class Limited Notes to the financial statements 30 June 2016 Note 16. Equity - issued capital (continued) Capital risk management The Group's objectives when managing capital is to safeguard its ability to continue as a going concern, so that it can provide returns for shareholders and benefits for other stakeholders and to maintain an optimum capital structure and reduce the cost of capital. Capital is regarded as total equity, as recognised in the statement of financial position, plus net debt. Net debt is calculated as total borrowings less cash and cash equivalents. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. The Group would look to raise capital when an opportunity to invest in a business or company was seen as value adding relative to the current Company's share price at the time of the investment. The Group is not actively pursuing additional investments in the short term as it continues to integrate and grow its existing businesses in order to maximise synergies. The Group has complied with the capital requirements prescribed under its Australian Financial Service Licence. The capital risk management policy remains unchanged from the 30 June 2015 Annual Report. Accounting policy for 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. Treasury shares Shares issued as part of the Loan Funded Share Plan are held on trust and disclosed as treasury shares under issued capital. Note 17. Equity - reserves Profit reserve Share-based payments reserve Acquisition reserve Consolidated 2016 $'000 2015 $'000 - 612 (53) 559 2,553 147 (53) 2,647 Profit reserve The reserve was previously used to transfer profits from retained earnings for the purpose of distributing dividends. Dividends are now distributed out of retained earnings. Share-based payments reserve The reserve is used to recognise the value of equity benefits provided to employees and directors as part of their remuneration. Acquisition reserve The reserve resulted from the acquisition of non-controlling interests in a subsidiary. The acquisition of non-controlling interests is not a business combination but is an equity transaction between owners. Accordingly, the difference between consideration paid and fair value of identifiable net assets of the non-controlling interest has been accounted for in the acquisition reserve. Class Annual Report 2016 43 Class Limited Notes to the financial statements 30 June 2016 Note 17. Equity - reserves (continued) Movements in reserves Movements in each class of reserve during the current and previous financial year are set out below: Consolidated Balance at 1 July 2014 Transfer from retained earnings Dividends paid Share based payment Application of dividends to loan funded share plan Balance at 30 June 2015 Transfer to retained earnings Share based payment Balance at 30 June 2016 Note 18. Equity - dividends Dividends Dividends paid during the financial year were as follows: Profit reserve $'000 Share-based payment reserve $'000 Acquisition reserve $'000 Total $'000 1,593 3,318 (2,358) - - 2,553 (2,553) - - (42) - - 153 36 147 - 465 612 (53) - - - - (53) - - (53) 1,498 3,318 (2,358) 153 36 2,647 (2,553) 465 559 Final dividend for the year ended 30 June 2015 of 0.75 cents per ordinary share (2014: 2.5 cents before share-split) 1st quarter interim dividend for the year ended 30 June 2016 of 0.75 cents per ordinary share paid on 9 October 2015 2nd quarter interim dividend for the year ended 30 June 2016 of 1 cents per ordinary share paid on 7 March 2016 (2015: 3 cents before share-split) 3rd quarter interim dividend for the year ended 30 June 2016 of 1 cents per ordinary share paid on 13 May 2016 (2015: 3 cents before share-split) Consolidated 2016 $'000 2015 $'000 835 835 1,168 1,168 694 - 832 832 4,006 2,358 On 18 July 2016, the directors declared an unfranked final dividend for the year ended 30 June 2016 of 1 cent per ordinary share with payment date of 12 August 2016 to eligible shareholders on the register as at 25 July 2016. This equates to a total distribution of $1,168,000, based on the number of ordinary shares on issue as at 30 June 2016. The financial effect of dividends declared after the reporting date is not reflected in the 30 June 2016 financial statements and will be recognised in subsequent financial reports. Franking credits Franking credits available for subsequent financial years based on a tax rate of 30% 1,454 24 The above amounts represent the balance of the franking account as at the end of the financial year, adjusted for: ● ● ● franking credits that will arise from the payment of the amount of the provision for income tax at the reporting date franking debits that will arise from the payment of dividends recognised as a liability at the reporting date franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date Consolidated 2016 $'000 2015 $'000 44 Class Annual Report 2016 Class Limited Notes to the financial statements 30 June 2016 Note 18. Equity - dividends (continued) At 30 June 2016 there was a deferred franking liability of $Nil (2015: $151,000) resulting from refunds received in relation to Research and Development Tax Incentive. Accounting policy for dividends Dividends are recognised when declared during the financial year and are no longer at the discretion of the Company. Note 19. Financial instruments Financial risk management objectives The Group's activities expose it to a variety of financial risks: market risk (including foreign currency risk, price risk and interest rate risk), credit risk and liquidity risk. The Group's overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. The Group uses different methods to measure different types of risk to which it is exposed. These methods include sensitivity analysis in the case of interest rate, foreign exchange and other price risks and ageing analysis for credit risk. Risk management is carried out by senior finance executives ('finance') under policies approved by the Board of Directors ('the Board'). These policies include identification and analysis of the risk exposure of the Group and appropriate procedures, controls and risk limits. Finance identifies, evaluates and hedges financial risks within the Group's operating units. Market risk Foreign currency risk The Group is not exposed to any significant foreign currency risk. Price risk The Group is not exposed to any significant price risk. Interest rate risk The Group's exposure to interest rate risk is limited to cash at bank and short term deposits. An official increase/decrease in interest rates of 50 (2015: 50) basis points would have an adverse/favourable effect on profit before tax of $77,000 (2015: $30,000) per annum. The percentage change is based on the expected volatility of interest rates using market data and analysts' forecasts. Credit risk Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group has a strict code of credit, including obtaining agency credit information, confirming references and setting appropriate credit limits. The Group obtains guarantees where appropriate to mitigate credit risk. The maximum exposure to credit risk at the reporting date to recognised financial assets is the carrying amount, net of any provisions for impairment of those assets, as disclosed in the statement of financial position and notes to the financial statements. The Group does not hold any collateral. Liquidity risk Vigilant liquidity risk management requires the Group to maintain sufficient liquid assets (mainly cash and cash equivalents) to be able to pay debts as and when they become due and payable. The Group manages liquidity risk by maintaining adequate cash reserves by continuously monitoring actual and forecast cash flows and matching the maturity profiles of financial assets and liabilities. Class Annual Report 2016 45 Class Limited Notes to the financial statements 30 June 2016 Note 19. Financial instruments (continued) Remaining contractual maturities The following tables detail the Group's remaining contractual maturity for its financial instrument liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the financial liabilities are required to be paid. The tables include both interest and principal cash flows disclosed as remaining contractual maturities and therefore these totals may differ from their carrying amount in the statement of financial position. Consolidated - 2016 Non-derivatives Non-interest bearing Trade payables Total non-derivatives Consolidated - 2015 Non-derivatives Non-interest bearing Trade payables Total non-derivatives 1 year or less $'000 Between 1 and 2 years $'000 Between 2 and 5 years $'000 Over 5 years $'000 Remaining contractual maturities $'000 517 517 - - - - - - 517 517 1 year or less $'000 Between 1 and 2 years $'000 Between 2 and 5 years $'000 Over 5 years $'000 Remaining contractual maturities $'000 362 362 - - - - - - 362 362 The cash flows in the maturity analysis above are not expected to occur significantly earlier than contractually disclosed above. Note 20. Fair value measurement Unless otherwise stated, the carrying amounts of financial instruments reflect their fair value. The carrying amounts of trade and other receivables and trade and other payables are assumed to approximate their fair values due to their short term nature. The fair value of financial liabilities is estimated by discounting the remaining contractual maturities at the current market interest rate that is available for similar financial liabilities. Accounting policy for fair value measurement When an asset or liability, financial or non-financial, is measured at fair value for recognition or disclosure purposes, the fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date; and assumes that the transaction will take place either: in the principal market; or in the absence of a principal market, in the most advantageous market. Fair value is measured using the assumptions that market participants would use when pricing the asset or liability, assuming they act in their economic best interests. For non-financial assets, the fair value measurement is based on its highest and best use. Valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, are used, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. 46 Class Annual Report 2016 Class Limited Notes to the financial statements 30 June 2016 Note 21. Key management personnel disclosures Compensation The aggregate compensation made to directors and other members of key management personnel of the Group is set out below: Short-term employee benefits Post-employment benefits Long-term benefits Share-based payments Note 22. Remuneration of auditors Consolidated 2016 $ 2015 $ 898,021 86,099 16,445 172,259 836,348 78,803 37,341 85,836 1,172,824 1,038,328 During the financial year the following fees were paid or payable for services provided by Grant Thornton, the auditor of the Company: Audit services - Grant Thornton Audit or review of the financial statements Other services - Grant Thornton Due diligence Tax compliance services Taxation advisory services Consolidated 2016 $ 2015 $ 67,950 44,915 40,000 15,750 108,775 - 25,500 - 164,525 25,500 232,475 70,415 Note 23. Contingent liabilities The Group has given bank guarantees as at 30 June 2016 of $141,000 (2015: $87,000) to various landlords. Note 24. Commitments Lease commitments - operating Committed at the reporting date but not recognised as liabilities, payable: Within one year One to five years Consolidated 2016 $'000 2015 $'000 517 1,253 1,770 246 390 636 Operating lease commitments relate to leases of office premises under non-cancellable operating leases expiring within two and four years with options to extend. The leases have various escalation clauses. On renewal, the terms of the leases are renegotiated. Class Annual Report 2016 47 Class Limited Notes to the financial statements 30 June 2016 Note 25. Related party transactions Parent entity Class Limited is the parent entity. Subsidiaries Interests in subsidiaries are set out in note 27. Key management personnel Disclosures relating to key management personnel are set out in note 21 and the remuneration report included in the directors' report. Transactions with related parties Rajarshi Ray, a director of the Company is also a director of Heffron Consulting Pty Ltd, a major customer of the Group. Heffron Consulting Pty Ltd also provides actuarial certificates to the customers of the Group. Mr Ray is not a shareholder of Heffron, is one of three directors and is not related to any of the other directors. Transactions between Heffron Consulting Pty Ltd and the Group are at arm's length and on normal commercial terms. Barry Lambert, a director of the Company is also a director of Countplus Limited, a major customer of the Group. Barry Lambert is one of five Directors and is not related to any of the other directors. Transactions between Countplus Limited and the Group are at arm's length and on normal commercial terms. Receivable from and payable to related parties There were no trade receivables from or trade payables to related parties at the current and previous reporting date. Loans to/from related parties There were no loans to or from related parties at the current and previous reporting date. Terms and conditions All transactions were made on normal commercial terms and conditions and at market rates. Note 26. Parent entity information Set out below is the supplementary information about the parent entity. Statement of profit or loss and other comprehensive income Profit after income tax Total comprehensive income Parent 2016 $'000 2015 $'000 4,442 2,022 4,442 2,022 48 Class Annual Report 2016 Class Limited Notes to the financial statements 30 June 2016 Note 26. Parent entity information (continued) Statement of financial position Total current assets Total assets Total current liabilities Total liabilities Equity Issued capital Profit reserve Share-based payments reserve Retained earnings Total equity Parent 2016 $'000 2015 $'000 12,849 4,705 23,526 14,986 2,987 3,472 3,300 3,769 24,260 - 612 (4,646) 16,152 1,256 147 (6,338) 20,226 11,217 Guarantees entered into by the parent entity in relation to the debts of its subsidiaries The parent entity had no guarantees in relation to the debts of its subsidiaries as at 30 June 2016 and 30 June 2015. Contingent liabilities The parent entity had no contingent liabilities as at 30 June 2016 and 30 June 2015. Capital commitments - Property, plant and equipment The parent entity had no capital commitments for property, plant and equipment as at 30 June 2016 and 30 June 2015. Significant accounting policies The accounting policies of the parent entity are consistent with those of the Group, as disclosed in note 2, except for the following: ● ● ● Investments in subsidiaries are accounted for at cost, less any impairment, in the parent entity. Investments in associates are accounted for at cost, less any impairment, in the parent entity. Dividends received from subsidiaries are recognised as other income by the parent entity and its receipt may be an indicator of an impairment of the investment. Note 27. Interests in subsidiaries The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the accounting policy described in note 2: Name Principal place of business / Country of incorporation Class Super Pty Limited Class Investment Reporter Pty Ltd Super IP Incentive Pty Ltd Australia Australia Australia Ownership interest 2015 2016 % % 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% Class Annual Report 2016 49 Class Limited Notes to the financial statements 30 June 2016 Note 28. Reconciliation of profit after income tax to net cash from operating activities Profit after income tax expense for the year Adjustments for: Depreciation and amortisation Net loss on disposal of property, plant and equipment Share-based payments Change in operating assets and liabilities: Increase in trade and other receivables Decrease in income tax refund due Decrease in deferred tax assets Increase in prepayments Increase in other operating assets Increase in trade and other payables Increase in provision for income tax Increase in employee benefits Decrease in other provisions Net cash from operating activities Note 29. Earnings per share Consolidated 2016 $'000 2015 $'000 5,210 3,406 1,631 - 465 (651) - 804 (177) - 653 143 95 (47) 859 5 188 (575) 472 1,250 (79) (1) 696 523 221 (47) 8,126 6,918 Consolidated 2016 $'000 2015 $'000 Profit after income tax attributable to the owners of Class Limited 5,210 3,406 Weighted average number of ordinary shares used in calculating basic earnings per share Adjustments for calculation of diluted earnings per share: 112,336,128 107,515,443 Options over ordinary shares 1,114,769 - Weighted average number of ordinary shares used in calculating diluted earnings per share 113,450,897 107,515,443 Number Number Basic earnings per share Diluted earnings per share Accounting policy for earnings per share Cents Cents 4.64 4.59 3.17 3.17 Basic earnings per share Basic earnings per share is calculated by dividing the profit attributable to the owners of Class Limited, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the financial year. Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. 50 Class Annual Report 2016 Class Limited Notes to the financial statements 30 June 2016 Note 30. Share-based payments The Group has established the Class Limited Tax Exempt Employee Share Plan ('Tax Exempt ESP') to assist the Group in rewarding employees by providing them with the opportunity to own shares in the Company. The Tax Exempt ESP enables the Group to issue shares to qualifying employees on a non-discriminatory basis so as to permit the application of section 83A-35 of the Income Tax Assessment Act 1997. The Group also has a long term incentive plan ('LTIP'), Class Limited Employee Share Option Plan ('ESOP') to assist the Group in retaining and attracting current and future employees by providing them with the opportunity to allow them to acquire options or rights as part of the remuneration for their services. The ESOP is by invitation of the Board (or a committee of the Board). During the financial year 6,281,708 (2015: Nil) options were granted. The share-based payment expense for the year was $465,000 (2015: $153,000). Loan Funded Share Plan ('LFSP') (comparative period) The LFSP was a long term incentive for employees of the Group set up prior to the IPO. Under the plan, employees were granted an allocation of loan-funded shares which were held on their behalf by an employee share trust. The shares were issued at market value which was determined by the Board. 4,575,916 options granted under LFSP were fully exercised during the year. Set out below summary of the options granted under the plan: 2016 Grant date Expiry date price* Exercise Balance at the start of the year Granted Exercised Expired/ forfeited/ other Balance at the end of the year 03/12/2013 28/04/2014 30/06/2014 17/08/2015 30/09/2015 30/09/2015 29/06/2016 02/06/2017 26/10/2017 28/12/2017 16/06/2017 30/09/2019 30/09/2020 30/06/2021 $0.61 $0.59 $0.75 $0.69 $1.10 $1.33 $3.81 2,400,000 400,000 400,000 - - - - 3,200,000 - - - 1,375,916 2,624,084 1,113,506 1,168,202 6,281,708 (2,400,000) (400,000) (400,000) (1,375,916) - - - (4,575,916) - - - - - (55,000) - (55,000) - - - - 2,624,084 1,058,506 1,168,202 4,850,792 Weighted average exercise price $0.62 $1.54 $0.64 $1.33 $1.78 * Exercise price and balance at the start of the year has been adjusted for share-split. 2015 Grant date Expiry date price* Exercise Balance at the start of the year Granted Exercised Expired/ forfeited/ other** Balance at the end of the year 03/12/2013 28/04/2014 30/06/2014 02/06/2017 26/10/2017 28/12/2017 $0.61 $0.59 $0.75 660,000 100,000 100,000 860,000 - - - - - - - - 1,740,000 300,000 300,000 2,340,000 2,400,000 400,000 400,000 3,200,000 Weighted average exercise price $0.62 $0.00 $0.00 $0.62 $0.62 * ** Exercise price has been adjusted for share-split. Other represents effect of share-split as detailed in note 16, adjusted for 60,000 options forfeited prior to share-split The weighted average share price during the financial year was $2.29. The weighted average remaining contractual life of options outstanding at the end of the financial year was 4 years (2015: 2 years). Class Annual Report 2016 51 Class Limited Notes to the financial statements 30 June 2016 Note 30. Share-based payments (continued) None of the options outstanding as at 30 June 2016 were exercisable (30 June 2015: Nil). For the options granted during the current financial year, the valuation model inputs used to determine the fair value at the grant date, are as follows: Grant date Expiry date 17/08/2015 30/09/2015 30/09/2015 29/06/2016 16/06/2017 30/09/2019 30/09/2020 30/06/2021 Share price Exercise at grant date price Expected volatility Dividend Risk-free Fair value yield interest rate at grant date $0.69 $1.00 $1.00 $3.29 $0.69 $1.10 $1.33 $3.81 41.00% 33.64% 33.64% 33.64% 3.00% 3.00% 3.00% 3.00% 2.04% 1.99% 2.19% 1.67% $0.053 $0.197 $0.168 $0.661 Accounting policy for share-based payments Equity-settled share-based compensation benefits are provided to employees. Equity-settled transactions are awards of shares, or options over shares, that are provided to employees in exchange for the rendering of services. The cost of equity-settled transactions is measured at fair value on grant date. Fair value is determined using either the Binomial or 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, together with non-vesting conditions that do not determine whether the Group receives the services that entitle the employees to receive payment. No account is taken of any other vesting conditions. The cost of equity-settled transactions is recognised as an expense with a corresponding increase in equity over the vesting period. The cumulative charge to profit or loss is calculated based on the grant date fair value of the award, the best estimate of the number of awards that are likely to vest and the expired portion of the vesting period. The amount recognised in profit or loss for the period is the cumulative amount calculated at each reporting date less amounts already recognised in previous periods. If equity-settled awards are modified, as a minimum an expense is recognised as if the modification has not been made. An additional expense is recognised, over the remaining vesting period, for any modification that increases the total fair value of the share-based compensation benefit as at the date of modification. If the non-vesting condition is within the control of the Group or employee, the failure to satisfy the condition is treated as a cancellation. If the condition is not within the control of the Group or employee and is not satisfied during the vesting period, any remaining expense for the award is recognised over the remaining vesting period, unless the award is forfeited. If equity-settled awards are cancelled, it is treated as if it has vested on the date of cancellation, and any remaining expense is recognised immediately. If a new replacement award is substituted for the cancelled award, the cancelled and new award is treated as if they were a modification. Note 31. Events after the reporting period Apart from the dividend declared as disclosed in note 18, no other matter or circumstance has arisen since 30 June 2016 that has significantly affected, or may significantly affect the Group's operations, the results of those operations, or the Group's state of affairs in future financial years. 52 Class Annual Report 2016 Class Limited Notes to the financial statements 30 June 2016 Note 32. Other accounting policies Principles of consolidation The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Class Limited ('Company' or 'parent entity') as at 30 June 2016 and the results of all subsidiaries for the year then ended. Class Limited and its subsidiaries together are referred to in these financial statements as the 'Group'. Subsidiaries are all those entities over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases. Intercompany transactions, balances and unrealised gains on transactions between entities in the Group are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. The acquisition of subsidiaries is accounted for using the acquisition method of accounting. A change in ownership interest, without the loss of control, is accounted for as an equity transaction, where the difference between the consideration transferred and the book value of the share of the non-controlling interest acquired is recognised directly in equity attributable to the parent. Where the Group loses control over a subsidiary, it derecognises the assets including goodwill, liabilities and non- controlling interests in the subsidiary together with any cumulative translation differences recognised in equity. The Group recognises the fair value of the consideration received and the fair value of any investment retained together with any gain or loss in profit or loss. Current and non-current classification Assets and liabilities are presented in the statement of financial position based on current and non-current classification. An asset is classified as current when: it is either expected to be realised or intended to be sold or consumed in the Group's normal operating cycle; it is held primarily for the purpose of trading; it is expected to be realised within 12 months after the reporting period; or the asset is cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least 12 months after the reporting period. All other assets are classified as non-current. A liability is classified as current when: it is either expected to be settled in the Group's normal operating cycle; it is held primarily for the purpose of trading; it is due to be settled within 12 months after the reporting period; or there is no unconditional right to defer the settlement of the liability for at least 12 months after the reporting period. All other liabilities are classified as non-current. Deferred tax assets and liabilities are always classified as non-current. Leases The determination of whether an arrangement is or contains a lease is based on the substance of the arrangement and requires an assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset. A distinction is made between finance leases, which effectively transfer from the lessor to the lessee substantially all the risks and benefits incidental to the ownership of leased assets, and operating leases, under which the lessor effectively retains substantially all such risks and benefits. Finance leases are capitalised. A lease asset and liability are established at the fair value of the leased assets, or if lower, the present value of minimum lease payments. Lease payments are allocated between the principal component of the lease liability and the finance costs, so as to achieve a constant rate of interest on the remaining balance of the liability. Leased assets acquired under a finance lease are depreciated over the asset's useful life or over the shorter of the asset's useful life and the lease term if there is no reasonable certainty that the Group will obtain ownership at the end of the lease term. Operating lease payments, net of any incentives received from the lessor, are charged to profit or loss on a straight-line basis over the term of the lease. Class Annual Report 2016 53 Class Limited Notes to the financial statements 30 June 2016 Note 32. Other accounting policies (continued) Impairment of non-financial assets Other intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Other non- financial assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. Recoverable amount is the higher of an asset's fair value less costs of disposal and value-in-use. The value-in-use is the present value of the estimated future cash flows relating to the asset using a pre-tax discount rate specific to the asset or cash-generating unit to which the asset belongs. Assets that do not have independent cash flows are grouped together to form a cash-generating unit. Goods and Services Tax ('GST') and other similar taxes Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the tax authority. In this case it is recognised as part of the cost of the acquisition of the asset or as part of the expense. Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the tax authority is included in other receivables or other payables in the statement of financial position. Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to the tax authority, are presented as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the tax authority. New Accounting Standards and Interpretations not yet mandatory or early adopted Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet mandatory, have not been early adopted by the Group for the annual reporting period ended 30 June 2016. The Group's assessment of the impact of these new or amended Accounting Standards and Interpretations, most relevant to the Group, are set out below. AASB 9 Financial Instruments This standard is applicable to annual reporting periods beginning on or after 1 January 2018. The standard replaces all previous versions of AASB 9 and completes the project to replace IAS 39 ‘Financial Instruments: Recognition and Measurement’. AASB 9 introduces new classification and measurement models for financial assets. New hedge accounting requirements are intended to more closely align the accounting treatment with the risk management activities of the entity. New impairment requirements will use an ‘expected credit loss’ (‘ECL’) model to recognise an allowance. The Group will adopt this standard from 1 July 2018 but the impact of its adoption is not expected to be material. AASB 15 Revenue from Contracts with Customers This standard is applicable to annual reporting periods beginning on or after 1 January 2018. The standard provides a single standard for revenue recognition. The core principle of the standard is that an entity will recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Group expects to adopt this standard from 1 July 2018 but the impact of its adoption is yet to be assessed by the Group. 54 Class Annual Report 2016 Class Limited Notes to the financial statements 30 June 2016 Note 32. Other accounting policies (continued) AASB 16 Leases This standard is applicable to annual reporting periods beginning on or after 1 January 2019. For lessee accounting, the standard eliminates the ‘operating lease’ and ‘finance lease’ classification required by AASB 117 ‘Leases’. Subject to exceptions, a ‘right-of-use’ asset will be capitalised in the statement of financial position, measured as the present value of the unavoidable future lease payments to be made over the lease term. The exceptions relate to short-term leases of 12 months or less and leases of low-value assets (such as personal computers and office furniture) where an accounting policy choice exists whereby either a ‘right-of-use’ asset is recognised or lease payments are expensed to profit or loss as incurred. A liability corresponding to the capitalised lease will also be recognised, adjusted for lease prepayments, lease incentives received, initial direct costs incurred and an estimate of any future restoration, removal or dismantling costs. Straight-line operating lease expense recognition will be replaced with a depreciation charge for the leased asset (included in operating costs) and an interest expense on the recognised lease liability (included in finance costs). For classification within the statement of cash flows, the lease payments will be separated into both a principal (financing activities) and interest (either operating or financing activities) components. For lessor accounting, the standard does not substantially change how a lessor accounts for leases. The Group will adopt this standard from 1 July 2019 but the impact of its adoption is yet to be assessed by the Group. Class Annual Report 2016 55 Class Limited Directors' declaration 30 June 2016 In the directors' opinion: ● ● ● ● 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 2 to the financial statements; the attached financial statements and notes give a true and fair view of the Group's financial position as at 30 June 2016 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 ___________________________ Barry Lambert Chairman 16 August 2016 Sydney ___________________________ Kevin Bungard Chief Executive Officer and Managing Director 56 Class Annual Report 2016 Level 17, 383 Kent Street Sydney NSW 2000 Correspondence to: Locked Bag Q800 QVB Post Office Sydney NSW 1230 T +61 2 8297 2400 F +61 2 9299 4445 E info.nsw@au.gt.com W www.grantthornton.com.au Independent Auditor’s Report To the Members of Class Limited We have audited the accompanying financial report of Class Limited (the “Company”), which comprises the consolidated statement of financial position as at 30 June 2016, the consolidated statement of profit or loss and other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, notes comprising a summary of significant accounting policies and other explanatory information and the directors’ declaration of the consolidated entity comprising the Company and the entities it controlled at the year’s end or from time to time during the financial year. Directors’ responsibility for the financial report The Directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001. The Directors’ responsibility also includes 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. The Directors also state, in the notes to the financial report, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, the financial statements comply with International Financial Reporting Standards. Auditor’s responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require us to comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. Grant Thornton Audit Pty Ltd ACN 130 913 594 a subsidiary or related entity of Grant Thornton Australia Ltd ABN 41 127 556 389 ‘Grant Thornton’ refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to their clients and/or refers to one or more member firms, as the context requires. Grant Thornton Australia Ltd is a member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide partnership. GTIL and each member firm is a separate legal entity. Services are delivered by the member firms. GTIL does not provide services to clients. GTIL and its member firms are not agents of, and do not obligate one another and are not liable for one another’s acts or omissions. In the Australian context only, the use of the term ‘Grant Thornton’ may refer to Grant Thornton Australia Limited ABN 41 127 556 389 and its Australian subsidiaries and related entities. GTIL is not an Australian related entity to Grant Thornton Australia Limited. Liability limited by a scheme approved under Professional Standards Legislation. Liability is limited in those States where a current scheme applies. Class Annual Report 2016 57 In making those risk assessments, the auditor considers internal control relevant to the Company’s preparation of the financial report that gives a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Directors, as well as evaluating the overall presentation of the financial report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. Auditor’s opinion In our opinion the financial report of Class Limited: a is in accordance with the Corporations Act 2001, including: i ii giving a true and fair view of the consolidated entity’s financial position as at 30 June 2016 and of its performance for the year ended on that date; and complying with Australian Accounting Standards and the Corporations Regulations 2001; and b complies with International Financial Reporting Standards as disclosed in the notes to the financial statements. Report on the remuneration report We have audited the remuneration report included in pages 16 to 22 of the directors’ report for the year ended 30 June 2016. The Directors of the Company are responsible for the preparation and presentation of the remuneration report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the remuneration report, based on our audit conducted in accordance with Australian Auditing Standards. Auditor’s opinion on the remuneration report In our opinion, the remuneration report of Class Limited for the year ended 30 June 2016, complies with section 300A of the Corporations Act 2001. GRANT THORNTON AUDIT PTY LTD Chartered Accountants Matthew Leivesley Partner - Audit & Assurance Sydney, 16 August 2016 This page is left blank intentionally. Shareholder information 60 Class Annual Report 2016 Class Limited Shareholder information 30 June 2016 The shareholder information set out below was applicable as at 1 August 2016. Distribution of equitable securities Analysis of number of equitable security holders by size of holding: Number of holders of options Number of holders of ordinary ordinary over 1 to 1,000 1,001 to 5,000 5,001 to 10,000 10,001 to 100,000 100,001 and over Holding less than a marketable parcel Equity security holders Twenty largest quoted equity security holders The names of the twenty largest security holders of quoted equity securities are listed below: shares shares 1,068 1,841 619 445 69 4,042 - - - 11 13 6 30 - TRONCELL PTY LTD HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED RBC INVESTOR SERVICES AUSTRALIA PTY LIMITED COUNTPLUS LIMITED MR JOSEPH CHARLES CAMUGLIA & MRS KIRSTEN INGRET CAMUGLIA ARMELEK PTY LTD J P MORGAN NOMINEES AUSTRALIA LIMITED ACN 154 462 334 PTY LIMITED CANEMOON INVESTMENTS PTY LTD MR KEITH FINKELDE & MRS ANNE FINKELDE & MR WAYNE FINKELDE RICHARD GEORGE BARBER & ALICE ISABELLA KATHARINA KIRMEYER RODERICK KIBBLE & MICHELLE KIBBLE PETER DORIAN KIBBLE & LORRAINE LESTER PROFITOUS PTY LTD BNP PARIBAS NOMS PTY LTD SMARTSUPER OPTIONS PTY LTD MR KEVIN BUNGARD MASSEY RECRUITMENT PTY LTD MR SCOTT EDWARD LAWSON & MRS PATRICIA LAWSON MR RAJARSHI MANU RAY Unquoted equity securities Options over ordinary shares Ordinary shares % of total Number held 17,255,700 7,756,813 6,717,223 5,882,540 4,410,000 3,600,000 3,553,555 3,418,478 3,000,000 2,518,545 2,507,592 2,001,652 2,001,652 1,830,281 1,754,648 1,620,028 1,560,912 1,553,564 1,286,650 1,201,892 shares issued 14.77 6.64 5.75 5.04 3.78 3.08 3.04 2.93 2.57 2.16 2.15 1.71 1.71 1.57 1.50 1.39 1.34 1.33 1.10 1.03 75,431,725 64.59 Number on issue Number of holders 4,850,792 30 Class Limited Shareholder information 30 June 2016 Substantial holders Substantial holders in the Company are set out below: TRONCELL PTY LTD HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED RBC INVESTOR SERVICES AUSTRALIA PTY LIMITED COUNTPLUS LIMITED Voting rights The voting rights attached to ordinary shares are set out below: Class Annual Report 2016 61 Ordinary shares % of total Number held 17,255,700 7,756,813 6,717,223 5,882,540 shares issued 14.77 6.64 5.75 5.04 Ordinary shares On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote. There are no other classes of equity securities. Restricted securities Class Ordinary shares Expiry date Number of shares 14 December 2018 or the day after the date on which a participant ceases to be an Employee. 36,000 This page is left blank intentionally. Corporate directory 64 Class Annual Report 2016 Corporate directory 30 June 2016 Auditor Grant Thornton Audit Pty Ltd Level 17 383 Kent Street Sydney NSW 2000 Ph: 02 8297 2400 Solicitors Addisons Level 12 60 Carrington Street Sydney NSW 2000 Ph: 02 8915 1000 Stock exchange listing Class Limited shares are listed on the Australian Securities Exchange (ASX code: CL1) Website www.class.com.au Corporate Governance Statement The Corporate Governance Statement which was approved at the same time as the Annual Report can be found at https://investors.class.com.au/Investors/ Directors Barry Lambert Roderick Kibble Rajarshi Ray Kevin Bungard Matthew Quinn Anthony Fenning Kathryn Foster Company Secretary Glenn Day Notice of Annual General Meeting The details of the Annual General Meeting of Class Limited are: Level 17 383 Kent Street Sydney NSW 2000 Monday 17 October 2016 at 10:00am Registered office Level 3 228 Pitt Street Sydney NSW 2000 Ph: 1300 851 057 Principal place of business Level 3 228 Pitt Street Sydney NSW 2000 Ph: 1300 851 057 Share register Link Market Services Level 12 680 George Street Sydney NSW 2000 Ph: 02 8280 7100 www.class.com.au
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