Annual Report 2017 CLASS LIMITED ACN 116 802 058 Table of contents Financial highlights Chairman’s letter CEO’s report Financial report 2017 Shareholder information Corporate directory Class Annual Report 2017 1 2 4 5 9 63 67 2 Class Annual Report 2017 Financial highlights Year ended 30 June 2017 $29.20m 28% REVENUE GROWTH IN 2017 +6.47m from $22.73m $13.97m 39% EBITDA* GROWTH IN 2017 +3.92m from $10.05m * 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 2017 3 $11.7m NPBT* 36% +3.1m from $8.6m $8.0m NPAT* 37% +2.2m from $5.8m 6.8c BASIC EPS* 6.7c DILUTED EPS* 31% +1.6c from 5.2c 31% +1.6c from 5.1c 5.0c DIVIDEND 34% +1.25c from 3.75c * 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 2017 Chairman’s letter Dear Shareholder On behalf of my fellow directors, I am pleased to present our annual report for the year ended 30 June 2017 and to announce net profit after tax of $7.988 million, up 37%1 on the prior year. In addition to increased profit and a record 31,503 new accounts added to the platform, we have set the company up to deliver further growth in coming years. With over 140,000 SMSFs now administered on the Class platform, our market share has increased from 19% to 24% of the estimated 594,000 SMSFs. Continued investment in product development has been rewarded with significant industry recognition, including the Investment Trends SMSF Software Award, the third year in a row we have received this honour. We also received the SMSF Adviser SMSF Software Provider of the Year Award for the fourth year running. As well as significant investment in the Class Super product, we continue to invest in Class Portfolio with additional staff and resources allocated to its development. Class Portfolio accounts grew by 78%, with 26% of Class Super subscribers now also using Class Portfolio. We are moving from quarterly to six monthly dividends in line with our financial reporting periods and you will receive the equivalent of an extra quarter dividend in September to provide an orderly transition. I would like to thank our shareholders for your continued support and we look forward to seeing you at the Annual General Meeting on 16 October 2017. We would also like to thank our 1,164 subscribers, and to reconfirm our ongoing commitment to further developing our products to make your businesses more streamlined and profitable. To Class employees, congratulations on another record-breaking year and thank you for your dedication to the company. Yours sincerely Matthew Quinn Chairman 1 Reference is before one-off expenses relating to the initial public offering. This is a non-IFRS measure and is used internally by management to assess the performance of the business and has been extracted or derived from the full year financial report. Class Annual Report 2017 5 CEO’s report I would like to join the Chairman in welcoming shareholders to the annual report for the year ending 30 June 2017, our first full year as a publicly listed company. In a year where the industry experienced the most significant reforms in a decade, Class has continued to increase market share and deliver record results. Financial Results Class Limited (Class) has posted a 37%2 increase in profit to $7.988 million for the full year ended 30 June 2017, driven by a record increase in accounts. The increase is compared to the FY16 numbers prior to one-off costs in relation to the company’s Initial Public Offering (IPO) in that year. Earnings before interest, tax, depreciation and amortisation (‘EBITDA’) grew 39% to $13.973 million. Operating revenue grew by 28% to $28.893 million. This was primarily driven by an increase in accounts which grew by a record 31,503 in the last 12 months. Expenses excluding amortisation and depreciation increased by $2.350 million, of which $1.274 million was in relation to employee costs. This was driven by continued investment in the Class Super product, Class Portfolio product and customer acquisition with the expansion and restructuring of the sales team and additional marketing and implementations staff. The Super Reforms had a major impact on the Class Super product and required an immediate and significant investment in product development. The increased costs required have been spread across the FY17 and FY18 years. While the reforms are time consuming for the industry in the short-term, they have increased the need for Class software and we expect they will be a positive impact in the longer-term. Accounts and Market Share At 30 June 2017, Class had a total of 143,944 accounts (30 June 2016: 112,441) including 140,690 Self Managed Super Funds (SMSFs) on the Class Super product. Class Super’s share of the SMSF market at 30 June 2017 was 23.7% (estimated total market 594,000 SMSFs). SMSF Software Market Share By estimated number of SMSFs administered on each system3 DIY unchanged at 15% Excel down from 15% to 13% Class up from 19% to 24% Other SMSF Software down from 51% to 48% 2 Reference is before one-off expenses relating to the initial public offering. This is a non-IFRS measure and is used internally by management to assess the performance of the business and has been extracted or derived from the full year financial report. 3 Estimated from company announcements and various Investment Trends surveys of SMSF Investors, Planners and Accountants in 2016 and 2017. DIY = SMSFs administered directly by investors. Excel = SMSFs administered by accountants on Excel and general accounting software. 6 Class Annual Report 2017 6 Class Annual Report 2017 CEO’s report continued Class Portfolio subscriptions continue to grow. At 30 June 2017, there was a total of 3,254 investment accounts (30 June 2016: 1,827), a 78% increase over the period. Quarterly Net Account Growth s t n u o c c A 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 September December March June FY 14 FY 15 FY 16 FY 17 Operational Highlights Class’ flagship product, Class Super, has once again received significant industry recognition this year, winning the 2017 Investment Trends Highest Overall Client Satisfaction: SMSF Software Award4 for the third year running. The award recognises that Class Super users were the most satisfied with their SMSF software compared with all other providers. Class Super scored above average for all industry features in the Investment Trends awards again this year. 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 improved client access functionality, changes to customised reporting, increased availability of feeds and greater automation. In addition to the 2017 Investment Trends award, Class also won the 2017 SMSF Adviser SMSF Software Provider of the Year Award, for the fourth year running. As well as industry recognition, our Customer Service Satisfaction surveys continue to show that accountants and advisers rate Class very highly, particularly in the areas of ease of use, efficiency, support, staff satisfaction with Class, implementation and transitions. These high ratings continue to be reflected in our retention rate, which has remained above 99% in terms of accounts. 4 Source: Investment Trends 2017 SMSF Accountant Report. Class Annual Report 2017 7 Retention of Accounts (%) 98.9% 99.3% 99.8% 99.8% 99.4% s e t a R n o i t n e t e R 100% 99% 98% 97% 96% 95% 2013 2014 2015 2016 2017 Retention Rates Financial Year Retention Rate = (Accounts for the period less Accounts lost due to subscriber terminations) / Accounts for the period Accounts = billable accounts, accounts lost = the maximum number of accounts the subscriber had during the year Class has previously advised the market that AMP’s SuperIQ business has provided notice on their licence agreement which covers over 5,000 SMSFs (of the approximate 11,000 SMSFs on Class Super under AMP’s various licenses). We have also advised that we expected AMP to transfer all of the affected SMSFs onto its own SMSF platform by early November 2017; this is no longer the case. Class and AMP’s SuperConcepts business are finalising the consolidation of the various Class licences that SuperConcepts hold into one standard contract covering all the SuperConcepts’ brands. As a result of this change there is no longer a set end-date for the migration of the SuperIQ SMSFs off the Class platform. SuperConcepts does however retain the right, under the new agreement, to provide a standard 90 days’ notice of termination which is the same as a typical Class customer. Class onboarded a record number of SMSFs over the past 12 months. Since 1 July 2016, the total number of accounts on Class Super has grown by 27.2%. This growth was again driven by the expansion in our sales team, increased marketing efforts and an increase in the rate of cloud adoption by accountants. Innovation Class has twice been nominated as one of Australia’s most innovative companies by The Australian Financial Review. Innovation is key to how our business is structured and is what sets us apart from our competitors. Class Super underwent significant development during the year to help accountants and SMSF administrators manage the Super Reforms. New functionality includes bulk commutation of pension accounts, Capital Gains Tax relief report for proportionate funds and new data filters on the member console. Class made an investment of $5.217 towards development this period, an increase of 17.3%, which included a significant commitment towards innovation. 8 Class Annual Report 2017 CEO’s report continued As well as these improvements, more new features were added to Class Super during the year. A couple are listed below: Consolidated Reporting – accountants and advisers can now administer and report on investors’ SMSF and non-SMSF wealth using one software platform. They can easily report back to investors on their total investment performance and process transactions for all their accounts without moving between different platforms. Investor communication tools – new communication channels for the timely, secure exchange of financial information, including documents; two-way messaging between accountants and investors; a dedicated mobile app for investors; and document management enhancements to facilitate simpler document exchange. Innovation doesn’t only relate to our software, it is embedded as a key part of our culture. Our internal Change Champion awards are awarded to staff annually in recognition of significant contribution to innovation and change within the business. Thank you The Class journey has been an exciting one so far and we are positive about the opportunities that lie ahead for further growth and success. We will continue to provide shareholders with regular updates throughout the year. On behalf of the executive team I would like to thank all our shareholders, subscribers, partners and employees for your continued support. Kevin Bungard Chief Executive Officer and Managing Director Financial report 2017 10 Class Annual Report 2017 Class Limited Directors' report 30 June 2017 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 2017. 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: Matthew Quinn - Chairman Kevin Bungard Anthony Fenning Kathryn Foster Rajarshi Ray Nicolette Rubinsztein (appointed on 1 April 2017) Barry Lambert (resigned on 9 February 2017) Roderick Kibble (resigned on 15 December 2016) 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. 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 2017 $'000 2016 $'000 Change $'000 Change % 28,893 (14,920) 13,973 313 (2,584) (3,714) 7,988 - 7,988 22,563 (12,512) 10,051 168 (1,631) (2,761) 5,827 (617) 5,210 6,330 (2,408) 3,922 145 (953) (953) 2,161 617 2,778 28% 19% 39% 86% 58% 35% 37% (100%) 53% * ** 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 [6.82] cents (2016: 5.19 cents). Basic Earnings per share after one-off IPO expenses amounted to [6.82] cents (2016: 4.64 cents). Refer to Chairman's letter and CEO's report for further commentary on the results Class Limited Directors' report 30 June 2017 Dividends Dividends paid during the financial year were as follows: Final dividend for the year ended 30 June 2016 of 1 cent per ordinary share (2016: 0.75 cents) Interim dividend for the year ended 30 June 2017 of 1 cent per ordinary share (2016: 0.75 cents) Interim dividend for the year ended 30 June 2017 of 1 cents per ordinary share (2016: 1 cent) Interim dividend for the year ended 30 June 2017 of 1 cents per ordinary share (2016: 1 cent) Class Annual Report 2017 11 Consolidated 2017 $'000 2016 $'000 1,168 1,168 1,168 1,176 835 835 1,168 1,168 4,680 4,006 On 15 August 2017, the directors declared a fully franked final dividend for the year ended 30 June 2017 of 2 cents per ordinary share with payment date of 5 September 2017 to eligible shareholders on the register as at 17 August 2017. This equates to a total distribution of $2,350,000, based on the number of ordinary shares on issue as at 30 June 2017. The financial effect of dividends declared after the reporting date is not reflected in the 30 June 2017 financial statements and will be recognised in subsequent financial reports. Significant changes in the state of affairs There were no significant changes in the state of affairs of the Group during the financial year. Matters subsequent to the end of the financial year Apart from the dividend declared as discussed above, no other matter or circumstance has arisen since 30 June 2017 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. 12 Class Annual Report 2017 Class Limited Directors' report 30 June 2017 Information on directors Name: Title: Qualifications: Experience and expertise: Matthew Quinn Non-Executive Chairman First Class Honours Degree in Chemistry & Management Science. Chartered Accountant. Mr. Quinn joined the Board in July 2015. He 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 Urban Growth NSW, a state owned corporation and is Chairman of Carbonxt Group Limited and mPort 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 board of the Australian Business and Community Foundation. Non-executive director CSR Limited (ASX: CSR) Member of the Nomination Remuneration and Human Resources Committee 60,000 Other current directorships: Former directorships (last 3 years): None Special responsibilities: Interests in shares: Name: Title: Experience and expertise: 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: 1,905,572 975,860 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 joined the Board in July 2015. He is the former Chief Executive Officer of Shadforth Financial Group (SFG), a leading financial and business advisory firm. Appointed 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 Class Annual Report 2017 13 Class Limited Directors' report 30 June 2017 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 joined the Class Board in July 2015. 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: Chairperson of the Nomination Remuneration and Human Resources Committee 522,208 Experience and expertise: Name: Title: Qualifications: Rajarshi Ray Non-Executive Director Bachelor of Information Technology and Graduate Diploma in Accounting. Fellow of Chartered Accountants Australia and New Zealand. Graduate Diploma from the Financial Services Institute of Australia. Graduate of the Australian Institute of Company Directors. Mr Ray joined the Board in 2008. He is a former Director / Executive at American Express and Coopers & Lybrand. In addition to Class, he is Chairman, Venus Shell Systems; and Non-Executive Director, Heffron and is also involved in a number of not-for-profits. He holds post graduate qualifications in Information Technology, Accounting and Finance. He is a Fellow of the Institute of Chartered Accounts, a Member of the Financial Institute of Australia and a Graduate of the Australian Institute of Company Directors. Other current directorships: None Former directorships (last 3 years): None Special responsibilities: Interests in shares: Chairman of the Audit and Risk Committee 1,248,848 Experience and expertise: Name: Title: Qualifications: Nicolette Rubinsztein Non-Executive Director Qualified actuary, an executive MBA from the Australian Graduate School of Management and a graduate of the Australian Institute of Company Directors. Ms Rubinsztein joined the Board in April 2017. Ms Rubinsztein is a non-executive director of UniSuper, OnePath Insurance, SuperEd and the Actuaries Institute. In her executive career, she held senior roles at CBA / Colonial First State, BT Funds Management and Towers Perrin. Ms Rubinsztein was also a director of the Association of Superannuation Funds of Australia (ASFA) for eight years and chair of its Super System Design Council. None Other current directorships: Former directorships (last 3 years): None Special responsibilities: Member of the Audit and Risk Committee and member of the Nomination Remuneration and Human Resources Committee None Interests in shares: '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. 14 Class Annual Report 2017 Class Limited Directors' report 30 June 2017 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 2017, and the number of meetings attended by each director were: Matthew Quinn Kevin Bungard Anthony Fenning Kathryn Foster Rajarshi Ray Nicolette Rubinsztein Barry Lambert Roderick Kibble Full Board Attended 9 10 9 10 10 3 6 5 Held 10 10 10 10 10 3 6 5 Audit and Risk Committee Attended 3 - 4 - 4 1 - - Held 3 - 4 - 4 1 - - Nomination Remuneration and Human Resources Committee (‘NRHRC’) Held 5 - - 5 1 2 2 1 Attended 5 - - 5 1 2 2 - Remuneration report (audited) This remuneration report provides a summary of the Group’s remuneration policy and practices during the past financial year as they apply to the Group’s directors and executives. The remuneration report has been prepared in accordance with the requirements of section 300A of the Corporations Act 2001 and Corporations Regulation 2M.3.03 and has been audited by the Group’s external auditor. The report contains an overview which is intended to provide a ‘plain English’ explanation for shareholders of the key management personnel (KMP) and senior executives’ actual remuneration outcomes for the year ended 30 June 2017 (FY17) and the remuneration framework including proposed changes for the financial year ended 30 June 2018 (FY18). Key management personnel (KMP) and senior executives KMP, as defined by the Accounting Standard AASB 124 Related Party Disclosures (AASB 124), for the year ended 30 June 2017 are detailed in the table below. The Group’s KMP are the non-executive directors, the chief executive officer/managing director and the chief financial officer. This is consistent with the assessment performed for last year. Key management personnel Name Non-executive directors (NEDs) Matthew Quinn Anthony Fenning Kathryn Foster Rajarshi Ray Nicolette Rubinsztein Barry Lambert Roderick Kibble Executive KMP Kevin Bungard Glenn Day Position Chairman Director Director Director Director Director Director Chief Executive Officer & Managing Director (CEO) Chief Financial Officer Term as KMP Full year Full year Full year Full year Appointed 3 April 2017 Resigned 9 February 2017 Resigned 15 December 2016 Full year Full year Overview of remuneration approach and framework 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. Class Annual Report 2017 15 Class Limited Directors' report 30 June 2017 The Group’s remuneration framework is based on the principles that remuneration is performance driven, aligns with shareholder interests and provides market competitive remuneration opportunities. The key features of the Group’s executive remuneration and non-executive remuneration frameworks are outlined below, with further details provided in the body of the report. Remuneration type The following are non-IFRS measures that are used to provide shareholders with a clear and transparent view of the remuneration structure and how remuneration was paid to the executive KMP for the year ended 30 June 2017. Fixed Remuneration Short Term Incentive Consists of a cash bonus under the Group's 'Short Term Incentive Plan', and related Consists of cash salary, fees and related superannuation contributions. Long Term Incentive superannuation contributions. Consists of the value of LTIs that have vested and become unrestricted during the year, calculated based on the number of options valued using the five-day volume weighted average price (VWAP) prior to the latter of the vesting of the options, or removal of disposal restrictions. Excludes the value of unvested or restricted LTIs at 30 June 2017. The Group’s executive remuneration framework Feature Market positioning Fixed and variable pay mix Short term incentive (STI) plan Long term incentive (LTI) plan Explanation Fixed remuneration is positioned at the market median against the appropriate services index for roles of comparative size, or relative to their counterparts in related industries. Variable remuneration provides executives the opportunity to earn upper quartile total remuneration for exceptional performance. Total remuneration is comprised of fixed plus variable (or ‘at risk’) remuneration. A significant proportion of the total remuneration opportunity for senior executives is variable and ‘at risk’ based on performance. The STI plan provides rewards to executives for achievement of business financial performance metrics (60% weighting) and individual performance goals (40% weighting). Weightings of 50% financial and 50% individual performance goals may apply to lower job grades. The Employee Share Option Plan (ESOP) provides the Group’s executives with grants of options 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 exercise price is based on a 10% compounding annual growth in the share price to the last vesting date. Non-executive director remuneration framework Feature Market comparison Fee pool Explanation Non-executive directors are paid a base fee for service to the board. The NRHRC may, from time to time, receive advice from independent remuneration consultants to ensure the chairman and other non-executive directors' fees and payments are appropriate and in line with the market for companies of a similar size and complexity. The fee pool is currently $500,000 per annum including superannuation. Actual Remuneration Actual remuneration disclosure has been prepared to provide shareholders with a clear and transparent view of the remuneration structure and how remuneration was paid to the executive KMP for FY17. Actual remuneration received by executive KMP is set out in the table below. The remuneration disclosure is prepared on the basis summarised under remuneration types above. No termination benefits were paid to executive KMP during the year. Actual remuneration received by executive KMP FY17 Fixed remuneration Kevin Bungard 308,198 223,795 Glenn Day - - * There were no vested options that became unrestricted during the year Short term incentive 30,660 33,569 Long term incentive - * - * Other benefits Total 338,858 257,364 Given the flat organisational structure of the Group and following a review of senior executives against the criteria for determining executive KMP, only the CEO and chief financial officer qualify as executive KMP. 16 Class Annual Report 2017 Class Limited Directors' report 30 June 2017 Remuneration framework changes The board continually reviews the remuneration framework to ensure it supports the overall business strategy, is aligned with shareholder interests, is competitive with market practices and is simple for both participants and shareholders to understand. There were no significant changes to the remuneration framework as a consequence of the review undertaken for FY17. Remuneration Policy Remuneration governance The Group’s remuneration governance framework is set out below. Whilst the board retains ultimate responsibility, the Group’s remuneration policy is implemented through the NRHRC. The composition and functions of the NRHRC, which oversees remuneration issues and human resources matters, are set out in the charter available from the Class website. The charter is reviewed each year. Class Annual Report 2017 17 Class Limited Directors' report 30 June 2017 The Group’s remuneration governance framework The Group’s Board • Overall responsibility for the remuneration strategy and outcomes for executives and non-executive directors. • Reviews and, as appropriate, approves recommendations from the Group’s NRHRC. Nomination, Remuneration & Human Resources Committee (NRHRC) Management and Board remuneration policy Human Resources, Talent Management and Diversity Monitors, recommends and reports to the board on: Monitors, recommends and reports to the board on: • • • • • • • Alignment of remuneration incentive policies and guidelines for executive managers and senior employees with long-term growth and shareholder value. Superannuation arrangements. Employee share plans. Recruitment, retention and termination policies and procedures for senior management. Board remuneration including the terms and conditions of appointment and retirement, non-executive remuneration within by shareholders. aggregate approved induction of new non- Overseeing executive directors and evaluation of board performance. The remuneration of the CEO and senior executives. • • • • • • The adequacy of talent pools for senior management succession. policies and The effectiveness of diversity including an annual assessment performance against measurable objectives and proportion of women at all levels. the the Group’s initiatives, of relative Management development frameworks and individual development progress for key talent. Monitoring surveys conducted by the Group in relation to the culture of the organisation. Initiatives to improve and drive a strong performance culture. Assessing performance against Group’s reporting requirements. compliance with the external CEO and Chief Financial Officer External advisors Makes recommendations to the NRHRC on: • • • • Incentive targets and outcomes. Remuneration policy for all employees. Long term incentive participation. Individual remuneration and contractual arrangements for executives. • • Provide independent advice, information and to remuneration decisions. recommendations relevant Throughout the year, the NRHRC and management received information from external provider Boyden ANZ Pty Ltd related to remuneration market data and director recruitment. 18 Class Annual Report 2017 Class Limited Directors' report 30 June 2017 Remuneration strategy The core elements of the Group’s remuneration strategy for the executive KMP and executives are outlined below. Performance driven Alignment with shareholder interests Market competitive remuneration opportunities Total target executive remuneration Fixed Fixed remuneration Fixed remuneration is targeted at the median of the market for jobs of comparable size and responsibility. • • • Base salary Superannuation Other short-term benefits At risk Group’s Short term incentive executives The participate in an STI plan. Typically, the STI plan is weighted 60% to financial metrics and 40% to individual performance metrics. Long term incentive LTIs are provided through the ESOP and are linked to performance with an exercise based on a 10% compounding annual growth in the share price to the last vesting date. • Cash • Equity The key principles on which the Group’s executive remuneration policy is based are outlined below. Key principles of the Group’s executive remuneration policy Objective Performance driven Market competitive remuneration opportunities Alignment with shareholder interests Explanation Remuneration should reward executives based on annual performance against business plans and longer-term shareholder returns. The variable components of remuneration (both short term and long term) are driven by challenging targets focused on both external and internal measures of financial and non-financial performance. A significant proportion of executive remuneration is ‘at risk’. Remuneration opportunities, including those elements which can be earned subject to performance, are set at competitive levels that will attract, motivate and retain high quality executives. Executive remuneration is reviewed annually. The Group aims to provide market- competitive remuneration against jobs of comparable size and responsibility as follows: • • fixed remuneration for executives is targeted at market median; and variable remuneration (through STI and LTI) provides the opportunity to earn total remuneration (fixed remuneration plus variable remuneration) that reaches the top quartile of the market for exceptional performance. Executives’ remuneration is aligned with shareholder interests through a significant emphasis on variable remuneration. Incentive plans and performance measures are aligned with the Group’s short and long-term success. Ownership of the Company’s shares is encouraged through the use of equity as the vehicle for the LTI plan for executive KMP and senior executives. Composition of remuneration The components of the fixed and variable or ‘at risk’ remuneration (STI and LTI) are detailed below. (i) Fixed remuneration Fixed remuneration is made up of base salary, superannuation and other short-term benefits provided by the Group. As outlined above, fixed remuneration is targeted at the median of the market for jobs of comparable size and responsibility. In some cases, superior performance or strong market demand for specific job categories may justify above-median fixed remuneration. Base salary is reviewed annually. There are no guaranteed base salary increases included in any executives’ contracts. Class Annual Report 2017 19 Class Limited Directors' report 30 June 2017 Details of the short-term incentive plan (ii) At risk remuneration – short term incentive plan Purpose Frequency and timing Financial measures Individual objectives used (and rationale) Assessment of performance against measures To drive individual and team performance to deliver annual business objectives and increase shareholder value. Awards are determined on an annual basis with performance measured over the reporting period. Payment is normally made in August following the end of the performance year. The quantum of the STI pool is determined by the board. Typically, the STI plan is weighted 60% to financial metrics and 40% to individual performance metrics. The financial targets are set each year by the CEO, in consultation with the executives and are approved by the board. The CEO’s targets are set each year by the board. A financial performance gateway has been set by the board, below which no financial component can be paid. Individual objectives are set for each participant and are aligned to the business plan. These objectives include customer satisfaction, leadership and development of people, sales targets, operational improvement, product targets, growth and other personally attributable goals. At the end of the Group’s performance period, each participant’s performance is assessed based on financial results for the Group and individual objectives. A review by the CEO is undertaken to determine performance against the relevant individual objectives for each senior executive. The NRHRC makes recommendations to the board regarding KMP and senior executive STIs and the overall STI pool in aggregate. STI assessments and recommendations are made by the participant’s immediate manager, as he or she is best placed to assess the individual’s performance. All recommendations for non-executive staff are reviewed and approved by the senior executives, the chief financial officer and the CEO. Payment for the individual component is normally dependent on the business financial result. Should the Group fail to reach the financial performance gateway set by the board, then any payment for the individual component will be at the discretion of the board. (iii) At risk remuneration – long term incentive plan • The Group’s LTI program aims to: • drive performance and deliver strategic objectives that create long-term shareholder value; • provide executives with the opportunity to build their interests in the Group’s equity; and • attract, motivate and retain the necessary talent to deliver and sustain business performance and increase returns to shareholders. All securities referred to in this report are granted by Class Limited. Features of the long-term incentive plan – summary of the Employee Share Option Plan (ESOP) Participation Grant frequency Type of award Vesting and performance period CEO, direct reports and selected key roles are eligible, subject to approval by the board. Grants are made on an annual basis. Grants of options are subject to service requirements and performance vesting criteria. If performance conditions are met, the Company will either issue new shares or shares will be purchased on market and transferred to participants. Refer to ‘Vesting and performance period’ below for more detail. As at 30 June 2017, all unvested options were subject to a three-year vesting period. Future options will vest in annual instalments. All options are subject to disposal restrictions being the earlier of three years from grant date or cessation of employment. (iv) Other equity incentive plans To provide employees, other than directors and senior executives, with the opportunity to own shares in the company, the Group established the Class Limited Employee Share Plan (ESP). The ESP enables the Group to issue shares to qualifying employees on a non-discriminatory basis. Each year, the board approves the issue of shares up to a maximum of $1,000 in value (being the limit of the tax exemption) for each eligible participant. Shares vest immediately upon acquisition by participants. The shares can only be sold three years after the date of grant, unless the participant ceases employment prior. The plans are designed to encourage share ownership for employees and therefore do not have any performance conditions attached. Participants are entitled to dividends and other distributions and have full voting rights. 20 Class Annual Report 2017 Class Limited Directors' report 30 June 2017 Linking remuneration to performance A key underlying principle of the Group’s executive remuneration strategy is the link between company performance and executive reward. (i) STI and LTI financial measures STI payments are based on a variety of performance metrics, both financial and non-financial. The key financial measure in FY17 for determining the value of STI payments was NPBT. Building on the strong financial performance in FY16, the FY17 NPBT performance of the Group improved significantly, increasing by 36% to $11.702 million (or increasing by 52% when the significant costs of the IPO are considered for FY16). The improvements in financial performance and specifically NPBT results moderately exceeded the NPBT target for STIs set by the board. LTIs have been linked to company performance as follows: • the value of options (under the ESOP) ultimately depends on share price performance; and • the exercise price is based on a 10% compounding annual growth in the share price to the last vesting date. The following table summarises the clear link between company performance and incentives awarded to executive KMP, senior executives and other eligible employees: Summary of financial performance and STIs and LTIs awarded Financial Performance STI Year Revenue (‘000) NPBT (‘000) Earnings Per Share (cents) Dividends Per Share (cents) Share price ($) Executive KMP ($) LTI All eligible employees STI as a % of NPBT FY17 FY16 FY15 28,893 22,563 15,598 11,702 8,588 5,186 6.82 5.19 3.17 5.00 3.75 2.25 $3.00 $3.30 N/A 64,229 43,800 40,515 5.2% 4.8% 4.9% Vested & unrestricte d value – Executive KMP N/A N/A N/A Vested & unrestricted value – All eligible employees ($) 1,120,716 N/A N/A 1. NPBT and EPS are calculated before significant items (FY16 STI as % of NPBT after significant items totals 5.2%). 2. Closing share price at 30 June. 3. Represents approved and expensed STI for FY17 but at the time of writing this report, this amount has not yet been paid. 4. Represents the value of ESOPs which became vested and unrestricted in the period, valued using the VWAP for the five days prior, less the exercise price. 5. STI excludes any sales commission paid/ payable, but includes superannuation paid on bonus payments and the value of the shares issued under the ESP. Class Annual Report 2017 21 Class Limited Directors' report 30 June 2017 (ii) STI non-financial measures For FY17, payments approved by the board for the non-financial component of the STI averaged across executive KMP and senior executives were above target. The following table provides some examples of key performance measures used in FY17 to assess executive performance in the non-financial component of the STI. Non-financial measures and FY17 performance Performance area People and Culture Measure Culture Leadership Development Succession Diversity Innovation and Growth Product Development Growth from New Business Operational improvement Customer Customer Service Customer focused culture Performance Above target The Group takes part in the annual Great Place to Work® Trust Index© Employee Survey which is carried out by Great Place to Work® Australia. Over 95% of staff completed the survey this year with no significant variance in engagement levels between genders. Overall employee satisfaction rating increased to 89 (2016: 86) with the company scoring extremely high in the areas of diversity including age (95), race (96), gender (97) and sexual orientation (97). Female participation in the business has remained stable overall at approximately 40% with significant increases at board and management level. The Group provides regular compulsory training to staff and management to promote appropriate behaviour in the office. On target The business has targets to develop and introduce new products and services. Over the period new features were added to Class Super including consolidated reporting and investor communication tools and a dedicated mobile app for investors. The Group commenced the business transformation program to accelerate innovation, growth and operational improvements. Above target The Group monitors a range of customer service metrics during the year. Class Super won the 2017 Investment Trends Highest Overall Client Satisfaction: SMSF Software Award for the third year running as well as the SMSF Adviser Software Provider of the Year Award, for the fourth year running. Specific customer objectives are now included in the FY18 STI plan. These all provide greater certainty, visibility and improved service for our customers 22 Class Annual Report 2017 Class Limited Directors' report 30 June 2017 Use of remuneration consultants During the financial year ended 30 June 2017, the Group engaged Boyden ANZ Pty Limited ('Boyden') to recruit a Non- Executive Director. Boyden also provided recommendations on the level of remuneration for the Group’s Directors. These services were performed at no additional cost. The recommendations made by Boyden were reviewed by the NRHRC which recommended an increase in Director remuneration effective 1 April 2017. Total director fees were kept within the limits previously approved by shareholders. Voting and comments made at the Company's 2016 Annual General Meeting ('AGM') At the 2016 AGM, shareholders voted to approve the adoption of the remuneration report for the year ended 30 June 2016. The Company did not receive any specific feedback at the AGM regarding its remuneration practices. Details of statutory remuneration Amounts of statutory remuneration Details of the statutory remuneration of KMP of the Group are set out in the following tables. The KMP of the Group consisted of the directors of Class Limited and the chief financial officer. Details of remuneration Short-term benefits Post- employment benefits Long-term benefits Share- based payments Cash salary and fees $ Cash bonus $ Non- Super- monetary annuation $ $ Long service leave $ Equity- settled options $ Total $ 81,625 65,000 65,000 65,000 20,000 55,125 27,581 - - - - - - - 305,623 28,000 204,836 889,790 30,657 58,657 - - - - - - - - - - 7,754 6,175 6,175 6,175 1,900 5,237 2,620 - - - - - - - - - - - - - - 89,379 71,175 71,175 71,175 21,900 60,362 30,201 19,616 10,607 98,844 462,690 19,616 75,268 7,776 18,383 64,800 163,644 327,685 1,205,742 2017 Non-Executive Directors: Matthew Quinn Anthony Fenning Kathryn Foster Rajarshi Ray Nicolette Rubinsztein* Barry Lambert** Roderick Kibble** Executive Directors: Kevin Bungard*** Other Key Management Personnel: Glenn Day*** * ** Represents remuneration from the date of appointment as KMP for Nicolette Rubinsztein on 1 April 2017. Represents remuneration up to the date of resignation as KMP for Barry Lambert on 9 February 2017 and Roderick Kibble on 15 December 2016. *** Kevin Bungard and Glenn Day achieved bonuses of 50% and 75% respectively of the potential STI for the period. No STI was deferred or forfeited during the period. Class Annual Report 2017 23 Class Limited Directors' report 30 June 2017 2016 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 Short-term benefits Post- employment benefits Long-term benefits Share- based payments Cash salary and fees Cash Non- Super- bonus* monetary annuation $ $ $ $ Long service leave $ Equity- settled $ Total $ 90,000 60,000 60,000 60,000 60,000 60,000 - - - - - - 261,863 15,000 206,158 858,021 25,000 40,000 - - - - - - - - - 8,550 5,700 5,700 5,700 5,700 5,700 - - - - - - - - - - - - 98,550 65,700 65,700 65,700 65,700 65,700 27,639 8,509 93,044 406,055 21,410 86,099 7,936 16,445 79,215 172,259 339,719 1,172,824 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 2017 At risk - STI 2017 At risk - LTI 2017 73% 6% 21% 71% 9% 20% 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. 24 Class Annual Report 2017 Class Limited Directors' report 30 June 2017 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 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 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. is detailed 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 2017. 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: Grant date Particulars Expiry date Exercise price at grant date 30/09/2015 30/09/2015 30/09/2015 30/09/2015 29/06/2016 29/06/2016 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 30/09/2019 30/09/2019 30/09/2020 30/09/2020 30/06/2021 30/06/2021 $1.10 $1.10 $1.33 $1.33 $3.81 $3.81 $0.197 $0.197 $0.168 $0.168 $0.661 $0.661 Options granted under ESOP carry no dividend or voting rights. Vesting is subject to continuity of service and there are no performance conditions. Fair value per option Class Annual Report 2017 25 Class Limited Directors' report 30 June 2017 The number of options over ordinary shares granted to and vested in directors and other key management personnel as part of compensation are set out below: Name Kevin Bungard Rajarshi Ray Glenn Day Number of Number of Number of Number of options granted options granted options vested options vested during the during the during the during the year 2017 year 2016 year 2017 year 2016 - - - 1,235,860 - 948,356 495,860 - 484,377 1,140,000 240,000 613,979 Additional disclosures relating to key management personnel 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: Ordinary shares Matthew Quinn Kevin Bungard Kathryn Foster Rajarshi Ray Barry Lambert* Roderick Kibble** Glenn Day Balance at the start of the year Received as part of remuneration Additions Disposals/ other Balance at the end of the year 50,000 2,305,572 783,312 1,450,740 2,047,318 19,664,320 402,500 26,703,762 - - - - - - - - 10,000 - - - - - - - (400,000) (261,104) (201,892) (2,047,318) (19,664,320) (100,000) 10,000 (22,674,634) 60,000 1,905,572 522,208 1,248,848 - - 302,500 4,039,128 * ** Disposal/others represents disposal of 447,318 shares during the period and 1,600,000 shares held at resignation date. Disposal/others represents disposal of 2,250,000 shares during the period and 17,414,320 shares held at resignation date. 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 Glenn Day Options over ordinary shares Kevin Bungard Glenn Day Balance at the start of the year Granted Exercised Expired/ forfeited/ other Balance at the end of the year 975,860 694,377 1,670,237 - - - - - - - - - 975,860 694,377 1,670,237 Vested and exercisable Vested and unexercisable 495,860 484,377 980,237 - - - This concludes the remuneration report, which has been audited. 26 Class Annual Report 2017 Class Limited Directors' report 30 June 2017 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 24/07/2017 Expiry date 30/09/2019 30/09/2020 30/06/2021 15/03/2022 Exercise price Number under option $1.10 $1.33 $3.81 $3.99 1,948,991 1,058,506 1,058,202 1,168,000 5,233,699 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 2017 and up to the date of this report on the exercise of options granted: Date options granted 30/09/2015 Exercise price Number of shares issued $1.10 675,093 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. 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. Class Annual Report 2017 27 Class Limited Directors' report 30 June 2017 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 Corporations 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 Matthew Quinn Chairman 15 August 2017 Sydney Kevin Bungard Chief Executive Officer and Managing Director 28 Class Annual Report 2017 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 2017, I declare that, to the best of my knowledge and belief, there have been: a no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and b no contraventions of any applicable code of professional conduct in relation to the audit. GRANT THORNTON AUDIT PTY LTD Chartered Accountants Matthew Leivesley Partner - Audit & Assurance Sydney, 15 August 2017 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. Class Limited Statement of profit or loss and other comprehensive income For the year ended 30 June 2017 Revenue Expenses Employee benefits expense Depreciation and amortisation expense Selling and marketing expenses Occupancy expenses Technology and data costs Transaction costs on initial public offering Other expenses Profit before income tax expense Income tax expense Class Annual Report 2017 29 Note Consolidated 2017 $'000 2016 $'000 5 6 29,206 22,731 (11,130) (2,584) (1,206) (524) (940) - (1,120) (9,813) (1,631) (834) (309) (738) (882) (818) 11,702 7,706 7 (3,714) (2,496) Profit after income tax expense for the year attributable to the owners of Class Limited Other comprehensive income for the year, net of tax 7,988 5,210 - - Total comprehensive income for the year attributable to the owners of Class Limited Basic earnings per share Diluted earnings per share 7,988 5,210 Cents Cents 29 29 6.82 6.72 4.64 4.59 The above statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes 30 Class Annual Report 2017 Class Limited Statement of financial position As at 30 June 2017 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 Deferred tax Provisions Total non-current liabilities Total liabilities Net assets Equity Issued capital Reserves Retained earnings Total equity Note Consolidated 2017 $'000 2016 $'000 8 9 10 11 12 7 13 7 14 7 15 16 17 19,413 3,120 732 23,265 835 5,025 - 5,860 15,179 2,318 496 17,993 604 3,571 307 4,482 29,125 22,475 2,384 1,765 547 4,696 682 344 1,026 2,268 666 434 3,368 - 313 313 5,722 3,681 23,403 18,794 24,994 1,126 (2,717) 24,260 559 (6,025) 23,403 18,794 The above statement of financial position should be read in conjunction with the accompanying notes Class Annual Report 2017 31 Class Limited Statement of changes in equity For the year ended 30 June 2017 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) - - - - - - - - - 5,210 5,210 - - 5,210 5,210 8,108 - - - - - (2,553) - - 465 - - - - 2,553 (4,006) 8,108 465 - (4,006) Balance at 30 June 2016 24,260 - 559 (6,025) 18,794 Consolidated Issued capital $'000 Profit reserve $'000 Other reserves $'000 Retained earnings $'000 Total equity $'000 Balance at 1 July 2016 24,260 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) Dividends paid (note 18) Balance at 30 June 2017 - - - 734 - - 24,994 - - - - - - - - 559 (6,025) 18,794 - - - 7,988 7,988 - - 7,988 7,988 - 567 - - - (4,680) 734 567 (4,680) 1,126 (2,717) 23,403 The above statement of changes in equity should be read in conjunction with the accompanying notes 32 Class Annual Report 2017 Class Limited Statement of cash flows For the year ended 30 June 2017 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 2017 $'000 2016 $'000 31,013 (17,155) 280 (1,626) 24,168 (14,661) 168 (1,549) Net cash from operating activities 28 12,512 8,126 Cash flows from investing activities Payments for property, plant and equipment Payments for intangibles Payments for term deposits 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 Share issue transaction costs Dividends paid Net cash from/(used in) financing activities Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year (578) (3,691) (63) (318) (2,627) (54) (4,332) (2,999) 734 - - (4,680) 5,429 2,943 (264) (4,006) (3,946) 4,102 4,234 15,179 9,229 5,950 18 Cash and cash equivalents at the end of the financial year 8 19,413 15,179 The above statement of cash flows should be read in conjunction with the accompanying notes Class Annual Report 2017 33 Class Limited Notes to the financial statements 30 June 2017 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 15 August 2017. 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 or amended Accounting Standards and Interpretations adopted The Group has adopted all of the new or amended Accounting Standards and Interpretations issued by the Australian Accounting Standards Board ('AASB') that are mandatory for the current reporting period. The adoption of these Accounting Standards and Interpretations did not have any significant impact on the financial performance or position of the Group. Any new or amended 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 Corporations 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. 34 Class Annual Report 2017 Class Limited Notes to the financial statements 30 June 2017 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 2017 35 Class Limited Notes to the financial statements 30 June 2017 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 2017 $'000 2016 $'000 27,454 233 1,206 28,893 21,432 252 879 22,563 313 168 29,206 22,731 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. 36 Class Annual Report 2017 Class Limited Notes to the financial statements 30 June 2017 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 2017 $'000 2016 $'000 66 21 214 46 347 40 2,179 18 32 12 139 11 194 52 1,360 25 2,237 1,437 2,584 1,631 483 282 1,425 1,058 Class Annual Report 2017 37 Class Limited Notes to the financial statements 30 June 2017 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 Income tax expense Deferred tax asset/(liability) Deferred tax asset comprises temporary differences attributable to: Amounts recognised in profit or loss: Tax losses Employee benefits Accrued expenses Software development - Research and Development Other Amounts recognised in equity: Transaction costs on share issue Deferred tax asset/(liability) Movements: Opening balance Charged to profit or loss Closing balance Consolidated 2017 $'000 2016 $'000 2,725 989 1,692 804 3,714 2,496 989 804 11,702 7,706 3,511 2,312 14 170 19 15 150 19 3,714 2,496 Consolidated 2017 $'000 2016 $'000 - 250 288 (1,480) 32 596 202 206 (1,030) 29 (910) 3 228 (682) 307 (989) (682) 304 307 1,111 (804) 307 38 Class Annual Report 2017 Class Limited Notes to the financial statements 30 June 2017 Note 7. Income tax (continued) Provision for income tax Provision for income tax Consolidated 2017 $'000 2016 $'000 1,765 666 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. Class Limited Notes to the financial statements 30 June 2017 Note 8. Current assets - cash and cash equivalents Cash on hand and at bank Class Annual Report 2017 39 Consolidated 2017 $'000 2016 $'000 19,413 15,179 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. Note 9. Current assets - trade and other receivables Trade receivables Less: Provision for impairment of receivables Accrued revenue Consolidated 2017 $'000 2016 $'000 3,099 (12) 3,087 2,307 (8) 2,299 33 19 3,120 2,318 Impairment of receivables The Group has recognised a loss of $4,000 (2016: $5,000) in profit or loss in respect of impairment of receivables for the year ended 30 June 2017. 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 2017 $'000 2016 $'000 - 5 7 12 Consolidated 2017 $'000 2016 $'000 8 4 12 4 4 - 8 3 5 8 Past due but not impaired Customers with balances past due but without provision for impairment of receivables amount to $46,000 as at 30 June 2017 ($28,000 as at 30 June 2016). 40 Class Annual Report 2017 Class Limited Notes to the financial statements 30 June 2017 Note 9. Current assets - trade and other receivables (continued) 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 3 to 6 months overdue Consolidated 2017 $'000 2016 $'000 22 24 46 28 - 28 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 2017 $'000 2016 $'000 528 204 732 355 141 496 *Includes term deposit which is held as security for lease of office premises $204,000 (2016: $141,000). Class Limited Notes to the financial statements 30 June 2017 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 Class Annual Report 2017 41 Consolidated 2017 $'000 2016 $'000 338 (174) 164 289 (50) 239 940 (555) 385 127 (80) 47 835 156 (107) 49 133 (29) 104 722 (341) 381 105 (35) 70 604 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 2015 Additions Depreciation expense Balance at 30 June 2016 Additions Depreciation expense Balance at 30 June 2017 Leasehold improvement s $'000 Furniture and Computer Office fittings $'000 equipment $'000 equipment $'000 Total $'000 81 - (32) 49 181 (66) 164 100 16 (12) 104 156 (21) 239 233 287 (139) 381 218 (214) 385 66 15 (11) 70 23 (46) 47 480 318 (194) 604 578 (347) 835 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 3-20 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. 42 Class Annual Report 2017 Class Limited Notes to the financial statements 30 June 2017 Note 11. Non-current assets - property, plant and equipment (continued) 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. 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 2017 $'000 2016 $'000 157 (141) 16 46 15,828 (10,909) 4,919 100 (56) 44 157 (101) 56 36 12,185 (8,730) 3,455 76 (52) 24 5,025 3,571 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 2015 Additions Amortisation expense Balance at 30 June 2016 Additions Amortisation expense Balance at 30 June 2017 Website tools development $'000 Trademarks and domain names $'000 Software development $'000 Computer software $'000 Total $'000 106 2 (52) 56 - (40) 16 36 - - 36 10 - 46 2,200 2,615 (1,360) 3,455 3,643 (2,179) 4,919 39 10 (25) 24 38 (18) 44 2,381 2,627 (1,437) 3,571 3,691 (2,237) 5,025 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. Class Annual Report 2017 43 Class Limited Notes to the financial statements 30 June 2017 Note 12. Non-current assets - intangibles (continued) 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 the asset's expected benefit, being its finite useful lives of three years. Trademarks and domain names Significant costs associated with trademarks and domain names are capitalised. Such assets are not amortised 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 they 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 2017 $'000 2016 $'000 405 1,385 594 517 1,303 448 2,384 2,268 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 Long service leave Deferred lease incentives Consolidated 2017 $'000 2016 $'000 458 72 17 547 387 - 47 434 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. 44 Class Annual Report 2017 Class Limited Notes to the financial statements 30 June 2017 Note 14. Current liabilities - provisions (continued) 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. Note 15. Non-current liabilities - provisions Long service leave Deferred lease incentives Lease make good Consolidated 2017 $'000 2016 $'000 300 21 23 344 285 28 - 313 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 - 2017 Carrying amount at the start of the year Additional provisions recognised Amounts used Carrying amount at the end of the year Deferred lease incentives $'000 Lease make good $'000 75 50 (87) 38 - 23 - 23 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 Ordinary shares - fully paid 117,515,849 116,820,283 24,994 24,260 Consolidated 2017 Shares 2016 Shares 2017 $'000 2016 $'000 Class Annual Report 2017 45 Class Limited Notes to the financial statements 30 June 2017 Note 16. Equity - issued capital (continued) Movements in ordinary share capital Details Date Shares $'000 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 1 July 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 Issuance of shares under Tax Exempt Employee Share Plan for nil consideration Issuance of shares at $1.10 per share on exercise of options Issuance of shares at $1.10 per share on exercise of options 30 June 2016 116,820,283 24,260 20 December 2016 28 February 2017 7 March 2017 20,473 484,377 190,716 - 527 207 Balance 30 June 2017 117,515,849 24,994 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. 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 has complied with the capital requirements prescribed under its Australian Financial Service Licence. The capital risk management policy remains unchanged from the 30 June 2016 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. 46 Class Annual Report 2017 Class Limited Notes to the financial statements 30 June 2017 Note 17. Equity - reserves Share-based payments reserve Acquisition reserve Consolidated 2017 $'000 2016 $'000 1,179 (53) 1,126 612 (53) 559 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. 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 2015 Transfer to retained earnings Share based payment Balance at 30 June 2016 Share based payment Balance at 30 June 2017 Profit reserve $'000 Share-based payment reserve $'000 Acquisition reserve $'000 Total $'000 2,553 (2,553) - - - - 147 - 465 612 567 1,179 (53) - - (53) - (53) 2,647 (2,553) 465 559 567 1,126 Class Limited Notes to the financial statements 30 June 2017 Note 18. Equity - dividends Dividends Dividends paid during the financial year were as follows: Final dividend for the year ended 30 June 2016 of 1 cent per ordinary share (2016: 0.75 cents) Interim dividend for the year ended 30 June 2017 of 1 cent per ordinary share (2016: 0.75 cents) Interim dividend for the year ended 30 June 2017 of 1 cents per ordinary share (2016: 1 cent) Interim dividend for the year ended 30 June 2017 of 1 cents per ordinary share (2016: 1 cent) Class Annual Report 2017 47 Consolidated 2017 $'000 2016 $'000 1,168 1,168 1,168 1,176 835 835 1,168 1,168 4,680 4,006 On 15 August 2017, the directors declared a fully franked final dividend for the year ended 30 June 2017 of 2 cents per ordinary share with payment date of 5 September 2017 to eligible shareholders on the register as at 17 August 2017. This equates to a total distribution of $2,350,000, based on the number of ordinary shares on issue as at 30 June 2017. The financial effect of dividends declared after the reporting date is not reflected in the 30 June 2017 financial statements and will be recognised in subsequent financial reports. Franking credits Consolidated 2017 $'000 2016 $'000 Franking credits available for subsequent financial years based on a tax rate of 30% 2,753 1,454 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 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. 48 Class Annual Report 2017 Class Limited Notes to the financial statements 30 June 2017 Note 19. Financial instruments (continued) 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 (2016:50) basis points would have an adverse/favourable effect on profit before tax of $98,000 (2016: $77,000) 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. 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 - 2017 Non-derivatives Non-interest bearing Trade payables Total non-derivatives Consolidated - 2016 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 $'000 405 405 - - - - - - 405 405 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 The cash flows in the maturity analysis above are not expected to occur significantly earlier than contractually disclosed above. Class Annual Report 2017 49 Class Limited Notes to the financial statements 30 June 2017 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 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. 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 2017 $ 2016 $ 948,447 75,268 18,383 163,644 898,021 86,099 16,445 172,259 1,205,742 1,172,824 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 2017 $ 2016 $ 79,118 67,950 - 24,420 15,400 40,000 15,750 108,775 39,820 164,525 118,938 232,475 50 Class Annual Report 2017 Class Limited Notes to the financial statements 30 June 2017 Note 23. Contingent liabilities The Group has given bank guarantees as at 30 June 2017 of $204,000 (2016: $141,000) 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 2017 $'000 2016 $'000 638 653 517 1,253 1,291 1,770 Operating lease commitments relate to leases of office premises under non-cancellable operating leases expiring within one and three years with no options to extend. The leases have various escalation clauses. On renewal, the terms of the leases are renegotiated. 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 former 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. Terms and conditions All transactions were made on normal commercial terms and conditions and at market rates. Class Limited Notes to the financial statements 30 June 2017 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 Statement of financial position Total current assets Total assets Total current liabilities Total liabilities Equity Issued capital Share-based payments reserve Retained earnings Total equity Class Annual Report 2017 51 Parent 2017 $'000 2016 $'000 5,479 4,442 5,479 4,442 Parent 2017 $'000 2016 $'000 14,850 12,849 26,798 23,526 3,505 2,987 4,455 3,300 24,994 1,179 (3,830) 24,260 612 (4,646) 22,343 20,226 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 2017 and 30 June 2016. Contingent liabilities The parent entity had no contingent liabilities as at 30 June 2017 and 30 June 2016. Capital commitments - Property, plant and equipment The parent entity had no capital commitments for property, plant and equipment as at 30 June 2017 and 30 June 2016. Significant accounting policies The accounting policies of the parent entity are consistent with those of the Group, as disclosed in note 2, except for the following: ● ● Investments in subsidiaries are accounted for at cost, less any impairment, in the parent entity. Dividends received from subsidiaries are recognised as other income by the parent entity and its receipt may be an indicator of an impairment of the investment. 52 Class Annual Report 2017 Class Limited Notes to the financial statements 30 June 2017 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 2016 2017 % % 100% 100% 100% 100% 100% 100% 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 Share-based payments Change in operating assets and liabilities: Increase in trade and other receivables Decrease in deferred tax assets Increase in prepayments Increase in trade and other payables Increase in provision for income tax Increase in deferred tax liabilities Increase in employee benefits Decrease in other provisions Consolidated 2017 $'000 2016 $'000 7,988 5,210 2,584 567 (802) 307 (173) 116 1,099 682 158 (14) 1,631 465 (651) 804 (177) 653 143 - 95 (47) Net cash from operating activities 12,512 8,126 Note 29. Earnings per share Consolidated 2017 $'000 2016 $'000 Profit after income tax attributable to the owners of Class Limited 7,988 5,210 Weighted average number of ordinary shares used in calculating basic earnings per share Adjustments for calculation of diluted earnings per share: Options over ordinary shares Number Number 117,054,948 112,336,128 1,806,985 1,114,769 Weighted average number of ordinary shares used in calculating diluted earnings per share 118,861,933 113,450,897 Basic earnings per share Diluted earnings per share Cents Cents 6.82 6.72 4.64 4.59 Class Annual Report 2017 53 Class Limited Notes to the financial statements 30 June 2017 Note 29. Earnings per share (continued) Accounting policy for earnings per share 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. 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). The share-based payment expense for the year was $567,000 (2016: $465,000). No options were granted during the year ended 30 June 2017 (2016: 6,281,708). Set out below summary of the options granted under the plan: 2017 Grant date Expiry date 30/09/2015 30/09/2015 29/06/2016 30/09/2019 30/09/2020 30/06/2021 Exercise price Balance at the start of the year Granted Exercised Expired/ forfeited/ other Balance at the end of the year $1.10 $1.33 $3.81 2,624,084 1,058,506 1,168,202 4,850,792 - - - - (675,093) - - (675,093) - - (110,000) (110,000) 1,948,991 1,058,506 1,058,202 4,065,699 Weighted average exercise price $1.78 $0.00 $1.10 $3.81 $1.87 2016 Grant date Expiry date 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 Exercise price Balance at the start of the year Granted Exercised Expired/ forfeited/ other** Balance at the end of the year $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 54 Class Annual Report 2017 Class Limited Notes to the financial statements 30 June 2017 Note 30. Share-based payments (continued) The weighted average share price during the financial year was $3.26 (2016:$2.29). The weighted average remaining contractual life of options outstanding at the end of the financial year was 3 years (2016: 4 years). 2,624,084 options outstanding as at 30 June 2017 are vested and exercisable (30 June 2016: Nil). 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 2017 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. Class Annual Report 2017 55 Class Limited Notes to the financial statements 30 June 2017 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 2017 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. 56 Class Annual Report 2017 Class Limited Notes to the financial statements 30 June 2017 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. Comparatives Comparatives in the statement of profit or loss and other comprehensive income have been realigned to current year presentation. There has been no effect on the profit for the year. 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 2017. 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. Adoption of AASB 15 is not expected to significantly impact the recognition of revenue on the basis that all of the Group's revenue is recognised at the time of transfer of services to the customer which represents the satisfaction of the primary performance obligation. The main impact of adopting AASB 15 is expected to be in relation to contract acquisition costs and contract fulfilment costs directly incremental to the obtaining of a new contract. These will be recorded as an asset and then amortised on a systematic basis that is consistent with the entity’s transfer of the related services to the customer. This will be a change in practice as the Group currently expenses these costs as they are incurred. The full impact is not yet known as the Group is in the process of undertaking an exercise to quantify the expected impact on the financial statements on initial adoption. Class Annual Report 2017 57 Class Limited Notes to the financial statements 30 June 2017 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. 58 Class Annual Report 2017 Class Limited Directors' declaration 30 June 2017 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 2017 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 Matthew Quinn Chairman 15 August 2017 Sydney Kevin Bungard Chief Executive Officer and Managing Director 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 Report on the audit of the financial report Opinion We have audited the financial report of Class Limited (the Company) and its subsidiaries (the Group), which comprises the consolidated statement of financial position as at 30 June 2017, 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, and notes to the consolidated financial statements, including a summary of significant accounting policies, and the directors’ declaration. In our opinion, the accompanying financial report of Class Limited is in accordance with the Corporations Act 2001, including: a Giving a true and fair view of the Group’s financial position as at 30 June 2017 and of its performance for the year ended on that date; and b Complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. 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. Class Annual Report 2017 59 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 Report on the audit of the financial report Opinion We have audited the financial report of Class Limited (the Company) and its subsidiaries (the Group), which comprises the consolidated statement of financial position as at 30 June 2017, 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, and notes to the consolidated financial statements, including a summary of significant accounting policies, and the directors’ declaration. In our opinion, the accompanying financial report of Class Limited is in accordance with the Corporations Act 2001, including: a Giving a true and fair view of the Group’s financial position as at 30 June 2017 and of its performance for the year ended on that date; and b Complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. 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. 60 Class Annual Report 2017 Key audit matter How our audit addressed the key audit matter Measurement and recognition of capitalised development costs – Note 12 Non-current assets - intangibles Capitalised software development costs had a net carrying value of $4,919,000 at 30 June 2017. AASB 138 Intangible Assets sets out the specific requirements to be met in order to capitalise development costs. Intangible assets should be amortised over their useful economic lives in accordance with AASB 138. The process to measure the amount of development costs to capitalise involves significant management judgement in assessing whether costs meet the development phase criteria described in AASB 138 and in relation to the estimate of the assets’ useful lives. Our procedures included, amongst others: • agreeing a sample of internal salary costs and external contractor invoices capitalised to supporting documentation and assessing those amounts against the recognition criteria of AASB 138; • assessing the company’s accounting policy for software development costs for adherence to AASB 138; • considering the reasonableness of useful lives During the year, the Company capitalised $3,643,000 of software development costs. The capitalised software development costs are being amortised over 3 years. • This area is a key audit matter due to subjectivity and management judgement applied in the assessment of whether costs meet the development phase criteria described in AASB 138. applied; and assessing the adequacy of disclosures included in the financial report for adherence to AASB 138. Information Other than the Financial Report and Auditor’s Report Thereon The directors are responsible for the other information. The other information comprises the information included in the Company's annual report for the year ended 30 June 2017, but does not include the financial report and our auditor's report thereon. Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Directors’ for the Financial Report The Directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the Directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the Directors are responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance Standards Board website at: http://www.auasb.gov.au/auditors_files/ar2.pdf. This description forms part of our auditor’s report. Report on the Remuneration Report We have audited the Remuneration Report included in pages 14 to 25 of the directors’ report for Opinion on the Remuneration Report the year ended 30 June 2017. In our opinion, the Remuneration Report of Class Limited, for the year ended 30 June 2017, complies with section 300A of the Corporations Act 2001. Responsibilities The Directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. GRANT THORNTON AUDIT PTY LTD Chartered Accountants Matthew Leivesley Partner - Audit & Assurance Sydney, 15 August 2017 Class Annual Report 2017 61 Auditor’s Responsibilities for the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance Standards Board website at: http://www.auasb.gov.au/auditors_files/ar2.pdf. This description forms part of our auditor’s report. Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 14 to 25 of the directors’ report for the year ended 30 June 2017. In our opinion, the Remuneration Report of Class Limited, for the year ended 30 June 2017, complies with section 300A of the Corporations Act 2001. Responsibilities The Directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. GRANT THORNTON AUDIT PTY LTD Chartered Accountants Matthew Leivesley Partner - Audit & Assurance Sydney, 15 August 2017 62 Class Annual Report 2017 This page is left blank intentionally. Shareholder information 64 Class Annual Report 2017 Class Limited Shareholder information 30 June 2017 The shareholder information set out below was applicable as at 1 August 2017. Distribution of equitable securities Analysis of number of equitable security holders by size of holding: 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: 68 504 794 2,543 1,604 5,513 - Number of holders of ordinary shares Number of holders of options over ordinary shares 6 27 7 - - 40 - TRONCELL PTY LTD HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED J P MORGAN NOMINEES AUSTRALIA LIMITED RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY LTD MR JOSEPH CHARLES CAMUGLIA & MRS KIRSTEN INGRET CAMUGLIA CITICORP NOMINEES PTY LIMITED ARMELEK PTY LTD NATIONAL NOMINEES LIMITED BNP PARIBAS NOMINEES PTY LTD BNP PARIBAS NOMS PTY LTD CANEMOON INVESTMENTS PTY LTD MR KEITH FINKELDE & MRS ANNE FINKELDE & MR WAYNE FINKELDE MR PETER DORIAN KIBBLE & MRS LORRAINE LESTER MR RODERICK KIBBLE & MRS MICHELLE KIBBLE MR KEVIN BUNGARD ONE MANAGED INVESTMENT FUNDS LIMITED PROFITOUS PTY LTD KAPITAL SUPER FUND P/L MR RAJARSHI MANU RAY FYLPANE PTY LTD CITICORP NOMINEES PTY LIMITED Ordinary shares % of total Number held shares issued 15,005,700 11,635,875 7,939,518 7,105,094 3,593,000 3,460,692 3,300,000 2,837,977 2,818,708 2,764,888 2,404,650 2,054,528 2,001,652 2,001,652 1,160,912 1,068,447 1,044,175 1,007,592 1,000,000 990,000 934,419 12.77 9.90 6.76 6.05 3.06 2.94 2.81 2.41 2.40 2.35 2.05 1.75 1.70 1.70 0.99 0.91 0.89 0.86 0.85 0.84 0.80 75,195,060 63.99 Class Limited Shareholder information 30 June 2017 Unquoted equity securities Options over ordinary shares Substantial holders Substantial holders in the Company are set out below: TRONCELL PTY LTD HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED J P MORGAN NOMINEES AUSTRALIA LIMITED RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY LTD Voting rights The voting rights attached to ordinary shares are set out below: Class Annual Report 2017 65 Number on Number of issue holders 5,233,699 40 Ordinary shares % of total Number held shares issued 15,005,700 11,635,875 7,939,875 7,105,094 12.77 9.90 6.76 6.05 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 Ordinary shares Ordinary shares Expiry date 13 October 2018 or the day after the date which the shareholder ceases to be an employee 14 December 2018 or the day after the date which the shareholder ceases to be an employee 20 December 2019 or the day after the date which the shareholder ceases to be an employee Number of shares 190,716 30,000 17,697 238,413 66 Class Annual Report 2017 This page is left blank intentionally. Corporate directory 68 Class Annual Report 2017 Corporate directory 30 June 2017 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 Matthew Quinn Kevin Bungard Anthony Fenning Kathryn Foster Rajarshi Ray Nicolette Rubinsztein Company Secretary Glenn Day Notice of Annual General Meeting The details of the Annual General Meeting of Class Limited are: Hilton Sydney Level 1, 488 George Street Sydney NSW 2000 Monday 16 October 2017 at 3:00pm 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 class.com.au
Continue reading text version or see original annual report in PDF format above