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8
Annual
Report
2018
Table of contents
Financial highlights
Chairman’s letter
CEO’s report
Financial report 2018
Shareholder information
Corporate directory
Class Annual Report 2018 1
2
4
5
11
79
IBC
About Class
AGM Details
Class is the leading provider of cloud-based
administration software for SMSFs, with around 27%
of all SMSFs administered on Class Super.
We also provide Class Portfolio to streamline the
administration of investment portfolios held by
non-SMSF entities such as companies, trusts
and individuals.
More than 169,000 accounts are administered using
Class software by more than 1,300 accounting,
administration and financial planning practices.
The 2018 Annual General Meeting (AGM) of
Class Limited will be held at 3:00pm on Monday
15 October 2018 at the Hilton Sydney,
488 George Street, Sydney.
2 Class Annual Report 2018
Financial highlights
Year ended 30 June 2018
$34.0M 18%
REVENUE GROWTH
IN 2018
+4.8m from $29.2m
$15.9M 14%
EBITDA GROWTH
IN 2018
+1.9m from $14.0m
Class Annual Report 2018 3
$12.6M
NPBT
7%
+0.9m from $11.7m
$8.7M
NPAT
9%
+0.7m from $8.0m
7.4C
BASIC EPS
8%
+0.6c from 6.8c
4 Class Annual Report 2018
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 2018 and to announce a net profit
after tax of $8.7m, up 9% on the prior year.
This is a good result given the significant disruption to our business
caused by the Federal Government’s Super Reforms, which led to slower
adoption of new technology by the SMSF accounting profession and
required us to spend approximately $2m on the development of
Class Super to ensure our customers comply with the new
reporting requirements.
Despite this disruption, Class continued its strong track record of
growth with 22,774 new SMSF accounts added to the platform. With
over 163,000 SMSFs now administered on Class, our estimated market
share has increased from 24% to 27%.
Our investment in Class Portfolio is starting to pay off, with accounts
growing by 83% to 5,949, and 31% of Class Super subscribers now
also using Class Portfolio.
We also invested heavily in our partner program, creating a new team,
led by Strategic Alliances Director Glenn Poynton, to build out our Application Programming Interface
sets (APIs) and allow complementary businesses to connect their platforms to Class. Glenn also leads our
engagement with the financial planning segment, leveraging Class’ capabilities to help financial planners
be more productive and profitable.
Accountants have again rated Class Super #1 for Highest Overall Client Satisfaction and #1 for Value for Money
in the 2018 Investment Trends SMSF Software Awards1. This is the fourth year in a row that Class Super has won
overall first place in these independent survey-based awards.
I would like to thank our customers for such positive feedback and I reiterate our commitment to building market
leading software solutions, enabling you to provide superior service to your clients and grow your businesses.
Sadly, our fellow director Tony Fenning passed away in April. Tony made an invaluable contribution to Class,
including assisting with the company’s IPO. His knowledge and professionalism will be missed both here at
Class and across the wider industry.
On behalf of the board, I would like to thank our shareholders for your continued support and my fellow directors,
the executive team and all Class employees for their dedication and commitment.
We look forward to seeing you at the Annual General Meeting on 15 October 2018.
Yours sincerely
Matthew Quinn
Chairman
1
Source: Investment Trends 2018 SMSF Accountant Report, based on a survey of 942 accountants in public practice.
Class Annual Report 2018 5
CEO’s report
I would like to join the Chairman in welcoming shareholders to the
annual report for the year ending 30 June 2018.
Despite the industry impact of regulatory change and the
exceptional workload the Federal Government’s Super Reforms created
for accountants, Class has continued to increase market share and
deliver solid account growth.
Financial Results
Class Limited (Class) has posted a 9% increase in net profit after tax
to $8.7m for the full year ended 30 June 2018 (FY18).
Earnings before interest, tax, depreciation and amortisation (‘EBITDA’)
grew 14% to $15.9m.
Operating revenue grew by 18% to $34.0m. This was primarily driven by
an increase in accounts which grew by 25,469 in the last 12 months.
Expenses excluding amortisation and depreciation increased by $3.2m.
This was driven by continued investment in the Class Super product,
Class Portfolio product and the building out of the partner team,
including the new executive role.
The Super Reforms have had a bigger impact on business than we expected, and we have experienced
slower growth in the last quarter than in previous years. New reporting requirements and the ATO’s decision to
defer lodgment for SMSFs from mid-May to the end of June again this year, has affected the loading of funds on
to Class while practices focused on tax lodgments. ATO data indicated that as of 21 June 2018, 35% of SMSF
annual returns had still not been lodged.
We remain confident that while the Super Reforms have been incredibly disruptive for the industry in the
short-term, we have seen that they have increased the need for Class software and we expect they will have
a positive impact in the longer term.
Accounts and Market Share
At 30 June 2018, Class had a total of 169,413
accounts (30 June 2017: 143,944) including 163,464
Self-managed super funds (SMSFs) on the Class Super
product. Class Super’s estimated share of the SMSF
market at 30 June 2018 was 27% (estimated total
market 600,000 SMSFs).
1 The Investment Trends 2018 SMSF Accountant Report is based
on a detailed online survey of accountants in public practice
conducted between February and March 2018. After data
cleaning, validation and de-duplication a total of 942 responses
were received from accountants in public practice, 871 of which
were from accountants who service clients with an SMSF.
DIY = SMSFs administered directly by investors.
Other = SMSFs administered by accountants on Excel and
general accounting software.
SMSF Software Market Share
est. % of SMSFs administered using each provider1
AMP 8%
CLASS 27%
OTHER 10%
DIY 14%
BGL 41%
6 Class Annual Report 2018
Class Portfolio subscriptions continue to grow steadily. At 30 June 2018, there was a total of 5,949 investment
accounts (30 June 2017: 3,254), an 83% increase over the period.
Total Account growth
■ FY14 ■ FY15 ■ FY16 ■ FY17 ■ FY18
15000
10000
5000
S
T
N
U
O
C
C
A
SEPTEMBER
DECEMBER
MARCH
JUNE
SMSF Industry Consolidation and Growth
The customer growth graph below does not tell the full story about new customers added in FY18. Although
Class saw 203 net new customers added, the actual number of new customers was 30% higher. The reduction
was caused by a dramatic increase in consolidation of ‘books of business’ across the industry. Just within the
Class customer base, we saw 60 consolidations in FY18, this is a 12-fold increase of the 5 consolidations that
occurred in FY17.
Total Customer growth
■ FY14 ■ FY15 ■ FY16 ■ FY17 ■ FY18
100
80
60
40
20
S
R
E
M
O
T
S
U
C
SEPTEMBER
DECEMBER
MARCH
JUNE
This trend is likely to be driven by firms reassessing their commitment to SMSF administration given the higher
specialisation required to manage the tighter regulations and reporting requirements rolled out since the 2016
Federal Budget. These consolidations typically involve smaller books, with an average of 74 funds each. Some of
these consolidations are from outsourcing and some are due to trade sales – we think the uptick in FY18 is a
continuing trend that will play out over the next year or so.
The industry consolidation trend is also a factor that helped see Class customers continue to grow at nearly
three times the industry growth rate – net SMSF growth for the industry was down to just 2.3% in FY18.
Established Class customers (excluding AMP) averaged 6.5% growth in their fund numbers.
Class Annual Report 2018 7
Our customers’ success is not just from consolidation, it is also down to the underlying industry growth and
to the organic growth that firms get from leveraging the efficiencies and improved service levels from using
Class, and their expertise, to win administration clients away from their industry peers.
Collectively, established customers added over 20% of Class’ new fund growth in FY18. This ‘organic growth’,
combined with our high retention rates, is set to continue to underpin growth in recurring revenue in
FY19 and beyond.
KPMG analysis1 expects to see a bounce-back in the establishments of SMSFs and, as shown below, there is
still a significant number of SMSFs for Class to win, through our own sales efforts and by supporting our
customers as they win or consolidate funds from the rest of the market.
KPMG Analysis
900,000
700,000
500,000
300,000
100,000
)
Y
R
T
S
U
D
N
I
(
s
F
S
M
S
F
O
R
E
B
M
U
N
SMSFs ON CLASS
■ CLASS SMSFs
■ SMSFs NOT ON CLASS
■ DIY ADMINISTRATORS
● KPMG PROJECTION
● SMSFs INDUSTRY TOTAL
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019 2020 2021
2022 2023
FINANCIAL YEAR
Growth from Key Segments
In terms of SMSFs added, Class customer size remained steady at around 120 funds per firm on average.
Despite the growth of established customers into the 500 and 1,000+ brackets, the 25–250 range saw the
most SMSFs added. As shown below, growth was nicely distributed across the key market growth segments
that we are focusing on.
SMSFs
Administered
SMSF Administration
Segment
SMSFs on Class
Class Super
% Share of Market Segment
FY17
FY18 Growth
1
DIY Trustee
–
–
– 0%
<25 General Accounting Practice
2,411
2,682
271
1%
25–100
Small SMSF Practice
32,198
38,323
6,125
27%
101–250 Medium SMSF Practice
34,761
42,481
7,720
34%
251–500
Large SMSF Practice
27,038
29,905
2,867
13%
501–1000
Emerging Administrator
7,173
10,392
3,219
14%
1000+ Major Administrator
37,109
39,681
2,572
11%
Key
segments for
Class Super
growth
1 KPMG Super Insights 2018 – https://home.kpmg.com/au/en/home/insights/2018/05/superannuation-insights.html
n Class Share
8 Class Annual Report 2018
Market Leading Features
Class Super continues to be highly regarded and was again rated #1 in customer satisfaction and value for
money by Investment Trends2. Despite many years of development, our competitors typically lag Class’ products in
many key feature areas as outlined in the table below.
Class Features
Typical Competitor Features3
Fully automated general ledger streamlining admin,
audit and actuarial services
Still requires many manual journal entries that undermine
efficiency, reliability and integration
Android and Apple mobile app tailored specifically
for planners and investors
Web browser interface only
ASAE 3402 audited transaction data feeds direct from
providers for:
Transaction data feeds that aren’t formally assured for use
by SMSF auditors
•
•
Cash accounts
Share trading
• Wrap and other platforms
Automated FX accounting
Encrypted and securely-integrated broker data feeds
Daily broker balance confirmations
Foreign exchange rates need manual application
Email/PDF scraped data that can’t be assured as source
documents for SMSF auditors
Quarterly balance confirmations from some registries, that
aren’t formally assured for use by SMSF auditors
Automated accounting of international share transactions
and pricing conversion for 20+ exchanges
Some foreign market pricing but accounting needs to be
done manually
Bulk corporate action processing with automated journaling
Fund-by-fund processing with some manual journaling
Audited, encrypted and securely-integrated data feeds for
the top 20 wrap and managed account platform providers
Incomplete coverage and unaudited manual file export/import
XPLAN integration via API and data feeds
Manual file export/import to XPLAN
2
Investment Trends 2018 SMSF Accountant Report.
3 Some competitors may have addressed some of these differences since this table was produced.
10 Class Annual Report 2018
People & Culture
At Class we have a diverse, passionate and dedicated team building and delivering excellent products. We have
great people, doing great things, every day. I’m extremely proud of the team we have created and believe that
our people’s dedication to our customers and their passion for our product has been critical to our success.
To find, attract and retain talent in the hugely competitive technology market, we focused attention this year on
building our culture to ensure Class is a great place to work, as well as reviewing how we reward and recognise
our people.
In 2018 we conducted our third Great Place to Work engagement survey. I was pleased to see Class maintain
and increase its high engagement level with an overall score of 90. Importantly, Class scored extremely high in
the areas of diversity including age, race, gender and sexual orientation, which reflects our belief that our diverse
workforce helps us improve the quality of our decisions and improve our engagement with customers.
At Class, we believe in recognising our people who strive for success. This year, I was delighted to launch our
‘Best in Class’ recognition program, where we recognise the best across Class in the areas of customer service,
innovation, opportunity generation, brand promotion and team work. We look forward to this program becoming
our formal recognition program, to shine a light on members of our team going above and beyond for our
customers and for Class.
In FY18, the Nomination, Remuneration and Human Resources Committee (NRHRC) conducted a review of Class’
reward framework to be rolled out in FY19. Ms Kathryn Foster, Chair of the NRHRC, outlines this review and
upcoming changes to Class’ remuneration framework in the Remuneration Report.
I’d like to thank every member of the team at Class for their efforts and dedication in FY18 and look forward to
continuing to do great things together in the year ahead.
Thank You
Our industry continues to change and evolve, and Class is in a great position to take advantage of the challenges
that creates for our customers. We have a clear and defined strategy for long term success and remain positive
about the growth of the business moving in to 2019 and beyond. We will continue to provide shareholders with
regular updates throughout the year.
I would like to personally acknowledge the contribution Tony Fenning made to Class and to assisting me, during
his time on the board. He will be remembered fondly for his knowledge and the commitment he made to the
business over the last three years, and will be sadly missed.
On behalf of the executive team I would like to thank all our shareholders, customers and partners for your
continued support.
Kevin Bungard
Chief Executive Officer and Managing Director
Class Annual Report 2018 11
Financial
report 2018
12 Class Annual Report 2018
Class Limited
Directors’ Report
30 June 2018
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 2018.
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
Kathryn Foster
Rajarshi Ray
Nicolette Rubinsztein
Christopher Cuffe (appointed on 16 October 2017)
Anthony Fenning (ceased on 11 April 2018)
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
Finance cost
Depreciation and amortisation
Tax expense
Statutory net profit after tax
2018
$’000
33,978
(18,083)
15,895
406
(6)
(3,736)
(3,861)
8,698
2017
$’000
28,893
(14,920)
13,973
313
–
(2,584)
(3,714)
7,988
Change
$’000
Change
%
5,085
(3,163)
1,922
93
(6)
(1,152)
(147)
710
18%
21%
14%
30%
–
45%
4%
9%
Refer to Chairman’s letter and CEO’s report for further commentary on the results
Dividends
Dividends paid during the financial year were as follows:
Final fully franked dividend for the year ended 30 June 2017
of 2 cents per ordinary share (2017: 1 cent)
Interim fully franked dividend for the year ended 30 June 2018
of 2.5 cents per ordinary share (2017: 3 cents)
Consolidated
2018
$’000
2,350
2017
$’000
1,168
2,942
3,512
5,292
4,680
Class Annual Report 2018 13
Class Limited
Directors’ Report
30 June 2018
On 21 August 2018 the directors declared a final fully franked dividend for the year ended 30 June 2018 of
2.5 cents per ordinary share with a payment date of 17 September 2018 to eligible shareholders on the register as
at 27 August 2018. This equates to a total distribution of $2,942,000, based on the number of ordinary shares on
issue as at 30 June 2018. The financial effect of dividends declared after the reporting date is not reflected in the
30 June 2018 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 2018 that has significantly affected, or may significantly affect the Group’s operations, the results of
those operations, or the Group’s state of affairs in future financial years.
Likely developments and expected results of operations
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.
Information on directors
Name
Title
Qualifications
Matthew Quinn
Non-Executive Chairman
First Class Honours Degree in Chemistry & Management Science.
Chartered Accountant.
Experience and expertise
Mr Quinn joined the board in July 2015. Mr Quinn was formerly the Managing
Director of Stockland, an ASX top 50 company, from 2000 to 2013.
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.
He is now a non-executive director of CSR Limited and Regis Limited, and is
Chairman of Carbonxt Group Limited.
Mr Quinn is involved in a number of not-for-profits and is on the board of the
Australian Business and Community Foundation.
Other current directorships
Non-executive director CSR Limited (ASX: CSR),
Non-executive director Regis Healthcare Limited (ASX: REG)
Non-executive director Carbonxt Group Limited (ASX: CG1)
Former directorships (last 3 years): None
Special responsibilities:
Member of the Nomination, Remuneration and Human Resources Committee
Interests in shares:
60,000 ordinary shares
14 Class Annual Report 2018
Class Limited
Directors’ Report
30 June 2018
Name
Title
Experience and expertise
Kevin Bungard
Chief Executive Office 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.
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:
1,905,572 ordinary shares
Interests in options:
1,175,860 options over ordinary shares
Name
Title
Qualifications
Experience and expertise
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 board in July 2015 and is the Chair of the
Nomination, Remuneration and Human Resources Committee. Ms Foster
has over 20 years’ experience creating and running large internet-based
businesses. Ms Foster serves on the Nuheara (ASX: NUH) board and is
an adviser to QSuper Audit and Risk Committee. 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
Non-executive director Nuheara (ASX: NUH)
Former directorships (last 3 years):
Iwebgate Limited (ASX: IWG)
Special responsibilities:
Chair of the Nomination, Remuneration and Human Resources Committee
Interests in shares:
162,208 ordinary shares
Class Annual Report 2018 15
Class Limited
Directors’ Report
30 June 2018
Name
Title
Qualifications
Experience and expertise
Rajarshi Ray
Non-Executive Director
Bachelor, Information Technology (BIT); Graduate Diploma Accounting
(Grad Dip Acctg.); Chartered Accountants Australia and New Zealand
(FCA); Financial Services Institute of Australia (FFin); Australian Institute
of Company Directors (GAICD)
Mr Ray joined the board in 2008. He has over 25 years’ experience in the
finance and information technology (IT) sectors, having held senior
management or CEO roles in Europe, Asia, North America and Australia.
Mr Ray is also involved in a number of not-for-profit boards in Agriculture,
Tourism and Education.
Other current directorships
None
Former directorships (last 3 years): None
Special responsibilities:
Member of the Audit and Risk Committee
Interests in shares:
1,248,848 ordinary shares
Name
Title
Qualifications
Experience and expertise
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, CBHS Health Fund,
SuperEd and is the Senior Vice President of 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.
Other current directorships
None
Former directorships (last 3 years): None
Special responsibilities:
Chair of the Audit and Risk Committee
Interests in shares:
20,000 ordinary shares
16 Class Annual Report 2018
Class Limited
Directors’ Report
30 June 2018
Name
Title
Qualifications
Experience and expertise
Other current directorships
Christopher Cuffe
Non-Executive Director
Bachelor of Commerce and a Diploma from the Financial Services Institute
of Australia. A Fellow of Chartered Accountants Australia and New Zealand,
a Fellow of the Institute of Company Directors and an Associate of the
Financial Services Institute of Australasia.
Mr Cuffe has many years experience building successful wealth
management practices. Most notably he joined Colonial First State in 1988
and became CEO two years later. In 2003 Mr Cuffe became the CEO of
Challenger Financial Services Group Limited and subsequently headed up
Challenger’s Wealth Management business. Mr Cuffe was formerly Chairman
of UniSuper. He is the current Chairman of Australian Philanthropic Services
and Atrium Investment Management Pty Ltd.
In October 2017, Mr Cuffe was inducted into the Australian Fund Manager’s
RBS Hall of Fame for services to the investment industry. He is also a
founder/producer of online weekly financial newsletter, Cuffelinks.
Non-executive director Global Value Fund Limited (ASX: GVF)
Non-executive director Argo Investments Limited (ASX: ARG)
Non-executive director Antipodes Global Investment Company Ltd (ASX: APL)
Former directorships (last 3 years): None
Special responsibilities:
Member of the Audit and Risk Committee, Member of the Nomination,
Remuneration and Human Resources Committee
Interests in shares:
10,000 ordinary 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.
Name
Title
Glenn Day
Chief Financial Officer and Company Secretary (CFO)
Qualifications
Bachelor of Business, majoring in Accounting, member of CPA Australia.
Experience and expertise
Mr Day joined the Group in September 2008.
Mr Day is responsible for the financial management of the Group, its
corporate affairs and company secretarial matters. 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.
Interests in shares:
252,500 ordinary shares
Class Annual Report 2018 17
Class Limited
Directors’ Report
30 June 2018
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 2018, and the number of meetings attended by each director were:
Full Board
Audit and Risk
Committee
Nomination,
Remuneration and
Human Resources
Committee
Attended
Held
Attended
Held
Attended
Held
9
9
8
9
9
6
5
9
9
9
9
9
7
6
–
–
–
4
4
–
4
–
–
–
4
4
–
4
4
–
4
–
2
2
–
4
–
4
–
2
2
–
Matthew Quinn
Kevin Bungard
Kathryn Foster
Rajarshi Ray
Nicolette Rubinsztein
Christopher Cuffe
Anthony Fenning
18 Class Annual Report 2018
Class Limited
Directors’ Report
30 June 2018
A message to our shareholders
Dear Shareholder
On behalf of the Nomination, Remuneration & Human Resources
Committee (NRHRC), I am pleased to present the Group’s Remuneration
Report for the 2018 financial year (FY18).
The Group is focused on continuing its momentum to gain a significant
share of a growing market through investment in people and technology.
This will enable us to deliver long-term future profitability.
Our executive remuneration framework reflects the Group’s desire
to attract, reward and retain the best people in a highly competitive
technology sector – people who can create shareholder value, carefully
manage our risks, maintain a strong corporate governance framework
and most importantly, drive successful business outcomes.
Remuneration principles
We believe that performance results must drive Key Management
Personnel (KMP) remuneration outcomes, with financial measures being
a core component of these results. We also support the inclusion of non-financial
measures to balance the needs of our shareholders, customers and employees.
We believe with this balance, long term shareholder value will be created.
Our remuneration policies are designed to:
• Focus on business performance results;
• Reflect the Group’s business, professional and cultural requirements;
• Align with shareholder interests; and
• Provide market competitive remuneration opportunities.
Remuneration strategic review
This year we conducted a comprehensive, strategic review of our executive remuneration
programs to ensure they remain fit for purpose and aligned to the Group’s strategy.
This review has been conducted to attract and retain top talent in the context of a
highly competitive technology sector. During the review we considered feedback from
shareholders and their advisers, internal experts and external remuneration specialists
to develop a robust and market appropriate remuneration framework.
The review highlighted a number of weaknesses in the current framework:
• The pay mix for the CEO has been skewed towards fixed pay and a higher percentage
should be at risk;
• Executive and shareholder interests could be better aligned and there was a need to
increase equity exposure; and
• The current options scheme is no longer fit for purpose and should be replaced with
a share plan with specific performance hurdles.
Class Annual Report 2018 19
Class Limited
Directors’ Report
30 June 2018
Remuneration outlook – Changes in FY19
We have made significant changes to our executive remuneration framework to address these issues, which
will take effect from 1 July 2018, and aim to:
•
Increase sophistication of performance and reward practices, without adding complexity;
• Create long term shareholder value by focusing KMP performance on long term growth drivers; and
• Provide a compelling remuneration package in the highly competitive technology sector to attract and
retain critical talent.
This will be delivered by:
•
Increasing the variable component of executive target remuneration mix to place a greater share of
remuneration at risk and subject to ongoing performance hurdles;
• An enhanced short term incentive (STI) program with the addition of a deferral mechanism to deliver
meaningful equity exposure and provide retention for key executives; and
• Replacing the existing options scheme and introducing performance rights to focus KMP on long term
value creation through performance hurdles linked to the Group’s EPS and customer growth.
The NRHRC and board appreciate the feedback received throughout the year from shareholders and their advisers
regarding the Group’s remuneration programs. We believe these changes to the reward framework are aligned
with positive shareholder outcomes and will deliver long-term valuable growth results for the Group.
Ms Kathryn Foster
Chair, Nomination, Remuneration & Human Resources Committee
20 Class Annual Report 2018
Class Limited
Directors’ Report
30 June 2018
Remuneration Report (audited)
Contents
1.
Introduction
2. Key Management Personnel (KMP)
3. Remuneration Governance
4. Executive Remuneration Framework & Programs FY18
5. Performance Outcomes FY18
6. Remuneration Outcomes FY18
7. Remuneration in Detail
8. Executive Remuneration Changes FY19
9. Non-Executive Remuneration
10. Service Agreements
11. Share-based Compensation
12. Additional Disclosures
Class Annual Report 2018 21
Class Limited
Directors’ Report
30 June 2018
1. Introduction
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 executives’ remuneration outcomes for FY18 and the existing remuneration
framework, as well as proposed changes for FY19.
2. Key Management Personnel
KMP, as defined by the Accounting Standard AASB 124 Related Party Disclosures (AASB 124), for the year ended
30 June 2018 are detailed in the table below.
Accounting standards define KMP as those executives and non-executive directors with the authority and
responsibility for planning, directing and controlling the activities of the Group, either directly or indirectly. Given
the flat organisation structure of the Group and following a review of senior executives against the criteria for
determining executive KMP, it was deemed that the Chief Executive Officer (CEO) and the Chief Financial Officer
(CFO) qualify as executive KMP.
Name
Chairman
Matthew Quinn
Current non-executive directors
Kathryn Foster
Rajarshi Ray
Nicolette Rubinsztein
Christopher Cuffe
Former non-executive directors
Anthony Fenning
Executive KMP
Kevin Bungard
Glenn Day
Position
Chairman
Director
Director
Director
Director
Director
Chief Executive Officer (CEO)
& Managing Director
Chief Financial Officer (CFO)
& Company Secretary
1. Christopher Cuffe was appointed as a non-executive director on 16 October 2017.
2. Anthony Fenning ceased on 11 April 2018.
Term
Full Year
Full Year
Full Year
Full Year
Part Year1
Part Year2
Full Year
Full Year
22 Class Annual Report 2018
Class Limited
Directors’ Report
30 June 2018
3. Remuneration governance
The Group has a robust remuneration governance framework overseen by the 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.
Class board
Management & Board Remuneration Policy
Human Resources, Talent Management & Diversity
Monitors, recommends and reports to the board on:
Monitors, recommends and reports to the board on:
NRHRC
• 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 the fee pool approved by shareholders;
Induction of new non-executive directors and evaluation
of board performance; and
•
Remuneration of the CEO and senior executives.
The adequacy of talent pools for senior management
succession;
The effectiveness of the Group’s diversity policies and
initiatives, including an annual assessment of performance
against measurable objectives and the relative proportion of
women at all levels;
• 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; and
• Assessing performance against the Group’s compliance
with external reporting requirements.
CEO & HR Director
External Advisors
Makes recommendations to the NRHRC for its endorsement of:
•
•
•
•
Incentive targets and outcomes;
Remuneration policy for all employees;
Long term incentive participation; and
Individual remuneration and contractual arrangements
for executives.
Provide independent advice, market trend information and pay
benchmark data relevant to remuneration decisions.
•
•
This year the NRHRC and management reviewed previously
provided information from external provider Boyden ANZ Pty
Ltd related to market data and director remuneration.
The NRHRC worked with QHR Consulting Pty Ltd in the
development of the new remuneration framework.
• No external advisors provided a formal remuneration
recommendation as defined under section 300a of the
Corporations Act during FY18.
The board retains discretion to adjust STI outcomes as deemed appropriate.
All variable remuneration outcomes are subject to board review prior to grant and/or payment.
Managing Risk
Class Annual Report 2018 23
Class Limited
Directors’ Report
30 June 2018
4. Executive remuneration framework & programs FY18
Overview of existing remuneration approach and framework
The NRHRC is responsible for determining and reviewing remuneration arrangements for directors and executives.
The performance of the Group depends on the quality of its directors and executives. The executive remuneration
framework is designed to attract and retain high-calibre talent by rewarding them for achieving goals that are
designed to deliver the Group’s profitability, strategy and shareholder value.
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.
Please note that the description of STI and LTI relates to the framework that applied in FY18. A description of the
new framework to apply from 1 July 2018 is included in Section 8.
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.
Remuneration Principles
Remuneration Strategy
Performance Driven
Aligned with Shareholders
Market competitive
remuneration opportunities
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 meaningful proportion of executive
remuneration is ‘at risk’.
Executives’ remuneration is
aligned with shareholder interests
through an emphasis on variable
remuneration. Incentive plans and
performance measures are aligned with
the Group’s short and long-term success.
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.
Ownership of the Company’s shares is
encouraged through the use of equity as
the vehicle for the long term Incentive
(LTI) plan that applies to executive KMP
and some executives.
Executive remuneration is reviewed
annually. The Group aims to provide
market competitive remuneration:
•
•
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.
24 Class Annual Report 2018
Class Limited
Directors’ Report
30 June 2018
Overview of existing remuneration approach and framework (Cont.)
Fixed Remuneration
STI (at risk)
LTI (at risk)
Fixed remuneration is made up of base
salary, superannuation and other
short-term benefits provided by the
Group.
Fixed remuneration is targeted at the
median of the market for jobs of
comparable size and responsibility. In
some cases, 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.
STI consists of a cash bonus under the
Group’s STI plan.
LTIs are provided through the Employee
Share Options Plan (ESOP).
The STI plan provides rewards to KMP
for achievement of business financial
performance metrics (60% weighting)
and individual performance goals
(40% weighting).
The ESOP is linked to performance over
a three-year period with an exercise
based on a 10% compounding annual
growth in the share price to the last
vesting date.
Allocations are made at the discretion
of the board.
100% PAID AS CASH
RECOMMENDED BY THE NRHRC
APPROVED BY THE BOARD
Voting and comments made at the Company’s 2017 Annual General Meeting (‘AGM’)
At the 2017 AGM, 97.36% of shareholders voted to approve the adoption of the remuneration report for the year
ended 30 June 2017. The Company did not receive any specific concerns at the AGM regarding its remuneration
practices, however, the board has responded to general feedback from shareholders and their advisers in
considering change for FY19.
Use of remuneration consultants
In FY18, the NRHRC engaged the services of QHR Consulting Pty Ltd (QHR) to inform and provide considerations
for the development of the FY19 remuneration framework. These services included advice on executive
remuneration structure, facilitation of discussion and provision of guidance on current trends in executive
remuneration practices. QHR did not provide a formal remuneration recommendation as defined in section 9B of
the Corporations Act 2001 during FY18. Any advice provided by QHR was used as a guide and was not used as a
substitute for consideration of all the issues by each member of the NRHRC.
During the period of engagement, QHR reported directly to the Chair of the NRHRC and all advice was provided
directly to the Chair. QHR was permitted to speak to management throughout the engagement to understand
company processes, current remuneration practices, other business issues and to obtain management perspectives.
The board is satisfied that the services were made free from undue influence from any members of the KMP.
See Section 8 of this remuneration report for greater detail on the upcoming changes to the Group’s remuneration
frameworks in FY19.
Class Annual Report 2018 25
Class Limited
Directors’ Report
30 June 2018
Composition of remuneration
The following table details the components of the Group’s fixed and variable or ‘at risk’ remuneration (STI and LTI)
for FY18:
Scheme
Overview
Fixed Remuneration
Fixed remuneration is made up of base salary, superannuation and other short-term benefits
provided by the Group. Fixed remuneration is targeted at the median of the market for jobs of
comparable size and responsibility. In some cases, specialist skills or expertise, scope of role 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.
STI (at risk)
Purpose
To drive individual and team performance to deliver annual business objectives, short term
profitability and increase shareholder value.
Frequency and timing financial measures
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. Weightings of 50% financial and 50%
individual performance goals may apply to some executives.
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 used (and rationale) and assessment of performance against measures
Individual objectives are set for the CEO & CFO by the board and are aligned to the Group’s
business plan. These objectives include shareholder, customer, strategic growth, people & culture
and risk 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. 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
employees are reviewed by the senior executives, the CFO and the CEO and proposed to the
NRHRC. The NRHRC makes recommendations to the board regarding KMP and senior executive
STIs and the overall STI pool in aggregate. The board retains discretion to adjust STI outcomes as
deemed appropriate.
Payment for the individual component is 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.
26 Class Annual Report 2018
Class Limited
Directors’ Report
30 June 2018
Scheme
LTI (at risk)
Overview
Features of the LTI Plan – a summary of the ESOP
Purpose
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.
Participation
CEO, direct reports and selected key roles are eligible, subject to
approval by the board.
Grant frequency
Grants are made on an annual basis.
Type of award
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.
Vesting and
performance period
Prior to 30 June 2017, all options were subject to a three-year
vesting period.
Options issued in FY18 vest in equal annual instalments,
designed to be competitive with current market practices in the
technology industry.
All options are subject to disposal restrictions being the earlier of
three years from grant date or cessation of employment.
The option exercise price is determined by applying a 10%
compound growth rate to the share price at the start of the period.
Other equity
incentive plans
Purpose
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).
Features
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.
Class Annual Report 2018 27
Class Limited
Directors’ Report
30 June 2018
5. Performance outcomes in FY18
a) 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 financial measures
STI payments are based on a variety of performance metrics, both financial and non-financial.
The key financial measure in FY18 for determining the value of STI payments was NPBT. Other measures are
selected to ensure a broader view of performance and specific strategic priorities is considered when assessing
performance and incentive outcomes. The measures are aligned to the Group’s business plans. The table below
outlines the key objectives for the CEO for FY18. The objectives for the CFO were aligned to the CEO.
The Group continued to grow and added 25,469 new accounts to the platform and the FY18 NPBT performance
of the Group increased by 7% to $12.6 million. With over 163,000 SMSFs now administered on Class, our
estimated market share has increased from 24% to 27%.
The performance and specifically NPBT result was in line with targets for STIs set by the board having allowed
for the industry disruption caused by the Super Reforms.
(ii) LTI financial measures
LTIs have been linked to company performance as follows:
• The value of options (under the ESOP) ultimately depends on share price performance; and
• The exercise price is based on a 10% compounding annual growth in the share price to the last vesting date.
The following table summarises the link between company performance and incentives awarded to executive
KMP, senior executives and other eligible employees:
Summary of financial performance and STIs and LTIs awarded
Financial Performance
EBITDA1
(‘000)
NPBT1
(‘000)
NPAT1
(‘000)
Year
Sales
Revenue
(‘000)
STI3
Earnings
per share1
(cents)
Dividends
per share
(cents)
Share
price2
($)
Executive
KMP
($)
STI paid to all
eligible
employees as
a % of NPBT
FY18
FY17
FY16
FY15
33,978
15,895
12,559
28,893
22,563
15,598
13,973
10,051
5,959
11,702
8,588
5,186
8,698
7,988
5,827
3,406
7.39
6.82
5.19
3.17
5.00
$2.40
5.00
$3.00
72,051
64,231
3.75
$3.30
43,800
2.25
N/A
40,515
5.1%
5.2%
4.8%
4.9%
1. EBITDA, NPBT, NPAT and EPS are calculated before significant items in FY16 (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 FY18 but paid post year end. STI excludes any sales commission paid/ payable,
but includes superannuation paid on bonus payments and the value of the shares issued under the ESP.
28 Class Annual Report 2018
Class Limited
Directors’ Report
30 June 2018
b) CEO performance & STI outcome
The CEO remuneration structure in FY18 is as set out earlier in this report. The FY18 STI outcome of $31,536
(50% of maximum opportunity) reflects the board’s assessment of the CEO’s performance against the key
objectives outlined below, including financial & non-financial measures.
Non-financial
Performance
Measures
FY18
Objective
CEO Performance & STI Outcome
Outcome
Comments
Shareholder
• NPBT
On Target
• EPS
Customer
• Customer
On Target
Satisfaction
• Retention
Short
Term
Incentive
Strategic
Growth
• New
On Target
Products
• New
Initiatives
• Market
Share
The Group continued to grow steadily with both NPBT and
EPS increasing by 7% which was in line with targets set by the
board having allowed for the industry disruption caused by the
Super Reforms.
The Group monitors a range of customer service metrics during
the year including net promoter score and customer satisfaction,
which form part of the CEO’s Key Performance Indicators (KPIs).
These measures provide greater certainty and improved service
for our customers.
Accountants have again rated Class Super #1 for Highest Overall
Client Satisfaction and #1 for Value for Money in the 2018
Investment Trends SMSF Software Awards. This is the fourth year
in a row Class Super has taken out overall first place in these
independent survey-based awards.1
The business has targets to develop and introduce new products
and services including growing the partner ecosystem and leading
the development of new capabilities for partner and client firms.
The Super Reforms had a major impact on the Class Super product
and required major product development over the
period with new features added to assist customers to comply
with ongoing requirements of the Super Reforms including
the new transfer balance cap measure and event-based
reporting framework.
Despite the impact of this disruption on the workflow of SMSF
administrators, our estimated market share has increased from
24% to 27% of the estimated 600,000 SMSFs.
Class Portfolio grew by 83% this year. 31% of Class Super
subscribers now also use Class Portfolio.
Class Annual Report 2018 29
Class Limited
Directors’ Report
30 June 2018
Non-financial
Performance
Measures
FY18
Objective
CEO Performance & STI Outcome
Outcome
Comments
People &
Culture
• Succession
Planning
On Target
• Employee
Engage-
ment
• Turnover
Short
Term
Incentive
During the year the Group conducted a Succession Planning &
Talent Management review. Key appointments were successfully
made in the Group in FY18 to complement the existing team
structures to bring new expertise into the Group to build for
future success. Progress was made against development plans
for identified talent and internal successors.
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 91% of employees completed the survey
this year with no significant variance in engagement levels
between genders.
Overall employee satisfaction rating increased to 90 (2017: 89)
with the company scoring extremely high in the areas of
diversity including age (95), race (96), gender (97) and
sexual orientation (97).
The Group is committed to investing in people & culture programs
to reduce turnover and associated costs. In FY18 overall turnover
was 20%.
Risk
• Product
On Target
• Compliance
The board determined that the Group had met its obligations
relating to product and regulatory compliance.
Source: Investment Trends 2018 SMSF Accountant Report, based on a survey of 942 accountants in public practice.
c) CFO performance & STI outcome
The CFO remuneration structure in place in FY18 is as set out earlier in this report. The FY18 STI outcome of
$40,515 (75% of maximum opportunity) reflects the CEO and board’s assessment of the CFO’s performance
against the key objectives including financial & non-financial measures.
30 Class Annual Report 2018
Class Limited
Directors’ Report
30 June 2018
6. Remuneration outcomes FY18
Component
FY18 Outcomes
FY18 Fixed
Remuneration (FR)
FR is reviewed annually and considers the complexity and expertise required for individual roles. FR
is set in the context of the Group’s competitive market.
To assess the competitiveness of FR, the NRHRC considered market data and published surveys.
Accordingly, the CEO’s FR was reviewed and a marginal increase of 2% was applied.
The CFO’s remuneration was considered with regard to the scope of the role, level of skill, expertise
and knowledge required to effectively perform the role. The board reviewed the CFO’s remuneration
to ensure fair and equitable pay in relation to market benchmarking against peers. Based on existing
pay falling below desired market positioning and expanded remit of the CFO which includes
company secretary responsibilities, the board approved an increase of $46,205 (20.6%) being
applied. This structural correction better reflects the scope of the role requirements, the CFO’s critical
role in guiding the Group and decreases the retention risk for the critical CFO role.
FY18 Fixed Remuneration Outcomes
FY17 FR
308,198
223,795
Increase $
Increase %
6,803
46,206
2.2%
20.6%
FY18 FR
315,000
270,000
CEO
CFO
FY18 STI Outcomes
•
STI outcomes have been improving since FY16 as the Group has moved through
a period of significant growth.
• During FY18 the Group’s financial performance grew steadily with both NPBT
and EPS increasing by 7% which was in line with targets for STIs set by the board having allowed
for industry disruption cause by the Super Reforms.
•
•
The CEO delivered a commendable full year result for the Group.
Based on this and the board’s assessment of the CEO & CFO against their key performance
indicators the following STI’s were awarded:
FY18 STI Outcomes
FY17 STI Outcomes
$
% of
Target
% of
Maximum
CEO
CFO
31,536
40,515
100%
150%
50%
75%
$
30,661
33,570
% of
Target
% of
Maximum
100%
150%
50%
75%
Class Annual Report 2018 31
Class Limited
Directors’ Report
30 June 2018
Component
FY18 LTI Grant
FY18 Outcomes
LTI grants were made in FY18 in accordance with the target remuneration mix for each KMP.
The ESOP is linked to performance over a three-year period with an exercise based on a 10%
compounding annual growth in the share price to the last vesting date.
Allocations are made at the discretion of the board. In FY18:
•
•
The CEO was granted 200,000 options, valued at $68,2001; and
The CFO was granted 100,000 options, valued at $34,1001.
This options program has been discontinued and, subject to shareholder approval at the AGM, will be
replaced by a performance rights plan. See section 8 of this remuneration report for greater details.
Options Vesting
The options issued in FY18 vest in equal annual instalments on 1 July 2018, 1 July 2019 and 1 July 2020.
Non-Executive
Director Fees
•
•
•
Total fee pool available to non-executive directors is $750,000, as approved by shareholders
at the Annual General Meeting in October 2017.
Total amount paid to non-executive directors in FY18 was $542,917 (FY17 $415,367).
In FY18, the board approved the introduction of sub-committee membership fees.
1 Value is based on the fair value of the option at grant date.
32 Class Annual Report 2018
Class Limited
Directors’ Report
30 June 2018
Remuneration mix
The board sets a target remuneration mix. The remuneration mix is set with consideration to market
benchmarking and is designed to attract and retain the calibre of executives required to deliver profit and
long term, strategic objectives.
The mix that applied in FY18 is shown below:
Charts 1 & 2: CEO & CFO FY18 Target and Actual Remuneration Mix
Chart 1: CEO & CFO target remuneration mix FY18
Chart 2: CEO & CFO actual remuneration mix FY18
LTI 15%
STI 8%
CEO
CFO
76%
8% 16%
78%
12% 10%
FR 77%
CEO & CFO maximum STI opportunity FY18
The table below shows the FY18 maximum incentive opportunity for KMP.
Target STI1
10%
Maximum STI1
20%
1 Represented as a % of total fixed remuneration.
The review of remuneration structure conducted in FY18 highlighted that the pay mix for the KMP was skewed
towards fixed remuneration with insufficient pay at risk. In FY19 a higher proportion of pay for the KMP will be at
risk, a portion of STI will be subject to deferral into shares and LTI will be subject to performance hurdles.
See section 8 of this remuneration report for greater detail on the upcoming changes to the Group’s remuneration
frameworks in FY19.
Class Annual Report 2018 33
Class Limited
Directors’ Report
30 June 2018
7. Remuneration in detail
The following table details the statutory accounting expense of all remuneration related items for the KMP.
This includes remuneration costs in relation to both FY18 and FY17. The table below is different to the actual
remuneration mix chart on page 32, which shows the fair value on grant date of LTI in FY18 rather than the accrual
of amounts on the statutory accounting basis. The table has been developed and audited against the relevant
Australian Accounting Standards. Refer to the footnotes for more detail on each remuneration type.
No termination benefits were paid to executive KMP during the year.
Fixed Remuneration1
Short-term Benefits2
Base
Remuner-
ation3
Super-
annuation
STI4
Other5
Long-term
Benefits
Long
Service
Leave6
Share-
based
Payments 14
Equity-
settled
$
$
$
$
$
$
Non-executive directors
Matthew
Quinn7
Christopher
Cuffe8
Anthony
Fenning9
Kathryn
Foster
Rajarshi
Ray
Nicolette
Rubinsztein10
Barry
Lambert11
Roderick
Kibble12
SUB TOTAL
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
130,000
12,350
81,625
58,276
7,754
5,536
–
–
62,540
65,000
82,500
65,000
80,000
65,000
82,500
20,000
5,941
6,175
7,837
6,175
7,600
6,175
7,837
1,900
–
–
55,125
5,237
–
–
27,581
495,816
2,620
47,101
379,331
36,036
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
Statutory
Remuner-
ation
$
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
142,350
89,379
63,812
–
68,481
71,175
90,337
71,175
87,600
71,175
90,337
21,900
–
60,362
–
30,201
542,917
415,367
34 Class Annual Report 2018
Class Limited
Directors’ Report
30 June 2018
Fixed Remuneration1
Short-term Benefits2
Base
Remuner-
ation3
Super-
annuation
STI4
Other5
Long-term
Benefits
Long
Service
Leave6
Share-
based
Payments 14
Equity-
settled
$
$
$
$
$
$
Total
Statutory
Remuner-
ation
$
2018
294,952
20,049
31,536
(15,274)
6,233
100,669
438,165
288,581
19,616
30,661
14,381
10,607
98,844
462,690
249,953
20,049
40,515
7,057
2017
204,179
19,616
33,570
(2,256)
11,741
7,776
47,017
376,332
64,800
327,685
2018
2017
544,905
40,098
72,051
(8,217)
17,974
147,686
814,497
492,760
39,232
64,231
12,125
18,383
163,644
790,375
Executive KMP
Kevin
Bungard13
Glenn
Day13
SUB TOTAL
2017
2018
GRAND TOTAL
2018
1,040,721
87,199
72,051
(8,217)
17,974
147,686
1,357,414
2017
872,091
75,268
64,231
12,125
18,383
163,644
1,205,742
1. Fixed Remuneration comprises of Base Remuneration and Superannuation (post-employment benefit).
2. Short-term benefits include non-monetary benefits, however no non-monetary benefits were received by non-executives and
executive directors during the year ended 30 June 2018.
3. Base Remuneration includes cash salary received, short-term personal compensated absences and any salary sacrificed benefits
during the year.
4. Executive KMP participate in an STI plan. STI includes cash bonuses in relation to performance for the year ended 30 June.
5. Other includes short-term annual compensated absences (annual leave movement).
6. Long service entitlements accrued during the year as well as impact of changes to long service valuation assumption,
which are determined in line with Australian Accounting Standards.
7. Represents remuneration during the period including from date of election of Matthew Quinn as Chairman on 9 February 2017.
8. Represents remuneration from the date of appointment as KMP for Christopher Cuffe on 16 October 2017.
9. Represents remuneration up to the date of cessation as KMP for Anthony Fenning on 11 April 2018.
10. Represents remuneration from the date of appointment as KMP for Nicolette Rubinsztein on 1 April 2017.
11. Represents remuneration up to the date of resignation as KMP for Barry Lambert on 9 February 2017.
12. Represents remuneration up to the date of resignation as KMP for Roderick Kibble on 15 December 2016.
13. Kevin Bungard and Glenn Day achieved bonuses of 50% and 75% respectively of the potential STI in both FY17 & FY18.
No STI was deferred or forfeited for these periods.
14. The cost of equity-settled share-based payments recognised during the year is measured at fair value on grant date.
This valuation assumption is in line with Australian Accounting Standards.
Class Annual Report 2018 35
Class Limited
Directors’ Report
30 June 2018
8. Executive remuneration changes in FY19
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. It is critical that our remuneration policies evolve with the business, ensuring
they remain current and competitive and continue to align to shareholder interests.
As a result, we have made significant changes to our executive remuneration approach, which will better enable the
Group to attract and retain top talent in an extremely competitive candidate market, while remaining aligned with
positive shareholder outcomes and driving focus on value creation through growth outcomes.
Fixed Remuneration
STI (at risk)
LTI (at risk)
ISSUES IDENTIFIED
Fixed remuneration must be better
targeted to comparable roles in the
market and reflect role size and
responsibilities to minimise retention
risk of critical roles.
Remuneration mix for KMP is skewed
towards fixed pay and a higher portion
should be at risk.
All STI is paid in cash and there should
be a portion paid in equity.
The current options scheme has no
specific performance hurdles related to
the business and exposes the executive to
the absolute share price rather than
drivers of the share price that they can
influence and control, such as EPS and
customer growth.
Fixed Remuneration
Variable Remuneration
CHANGES WE HAVE MADE
Increased variable component of executive target remuneration mix to allow a
greater share of remuneration at risk and subject to performance.
See Chart 1 for changes to CEO target remuneration mix.
STI (at risk)
LTI (at risk)
•
•
The Group will continue to target
fixed remuneration at the median of
the market for jobs of comparable
size and responsibility.
The Group will continue to
benchmark against market data to
determine if it has appropriately
reached its desired positioning.
Strong market demand for specific
job categories may justify above-
median fixed remuneration for
certain roles.
•
•
•
•
Options scheme will be replaced with the
executive LTI plan in the form of
performance rights.
• Grants will be made annually with
•
vesting after three years.
Performance hurdles will be
introduced and reviewed annually by
the board to align with the Group’s
strategic plan. The hurdles to apply
to the FY19 grant will be based on:
– Annualised Committed Monthly
Revenue (ACMR)
at the end of year three.
– Growth in income from
partner programs and new
revenue streams.
EPS growth over the three
year period.
–
Increased equity exposure
and retention with a portion
of STI paid in shares with
deferred vesting.
STI paid in shares will initially
be 75% of total STI in FY19, reducing
to 50% in FY20 and 25% thereafter.
This transition has been applied to
mitigate the increased P&L expense
in the early years.
• Deferral will be by way of
•
•
performance rights, vesting
annually in equal instalments over
a two-year period.
The board retains discretion to review
the allotment of shares at vesting
through claw back provisions.
STI hurdles will continue to be based
on financial outcomes (principally
NPAT) with 60% weighting and
non-financial outcomes with 40%
weighting.
FY19 STI
25% Cash
75% Deferred
36 Class Annual Report 2018
Class Limited
Directors’ Report
30 June 2018
Charts 1 & 2: CEO & CFO Target Remuneration Mix Comparison (FY19 versus FY18)
Chart 1: CEO Target Remuneration Mix FY19
Chart 2: CFO Target Remuneration Mix FY19
LTI 25%
LTI 15%
LTI 20%
LTI 15%
STI 8%
STI 8%
FR 50%
FR 77%
STI 20%
FR 77%
STI 25%
FY19 TARGET
REMUNERATION MIX
FY18 TARGET
REMUNERATION MIX
FR 60%
FY19 TARGET
REMUNERATION MIX
FY18 TARGET
REMUNERATION MIX
Charts 3 & 4: CEO & CFO Target Remuneration Mix Comparison Cash versus Equity (FY18 to FY21)
Chart 3: CEO Target Remuneration Mix
Cash vs Equity FY18 to FY21
Chart 4: CFO Target Remuneration Mix
Cash vs Equity FY18 to FY21
FY18
77%
8% 15%
FY18
77%
8% 15%
FY19
50%
6% 19%
25%
FY19
60%
5% 15% 20%
FY20
50%
12.5% 12.5% 25%
FY20
60%
10% 10% 20%
FY21
50%
19% 6% 25%
FY21
60%
15% 5% 20%
CASH
EQUITY
Fixed
STI Cash
STI Deferred
LTI
CASH
EQUITY
Fixed
STI Cash
STI Deferred
LTI
Class Annual Report 2018 37
Class Limited
Directors’ Report
30 June 2018
9. Non-executive remuneration
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 $750,000 per annum including superannuation as approved at the 2017 AGM.
The Chairman is paid fees of $130,000 plus superannuation and other non-executive directors are paid fees
of $80,000 plus superannuation.
In FY18, the NRHRC and management reviewed the previously provided information from external provider
Boyden ANZ Pty Ltd related to remuneration market data. In order to appropriately recognise the increased
responsibility and time commitment related to the board sub-committees (particularly for the chair), the
board approved the introduction of sub-committee membership fees as follows, effective from 1 April 2018:
• Director fees to be inclusive of membership of one sub-committee;
• Additional fee of $5,000 plus superannuation to be paid to non-executive directors for membership
of any additional sub-committee; and
• Chair of sub-committees to be paid an additional fee of $10,000 plus superannuation.
Based on the current board and sub-committee composition, total fees for FY19 would be $607,725.
Non-executive director – minimum shareholding
The board has confirmed and agreed the expectation that all non-executive directors should, within a reasonable
period of their initial appointment, establish and maintain a shareholding in the Company which is at least
equivalent in value based on higher of market price or purchase cost to one year’s directors’ fees, to further align
their interests with those of other shareholders.
38 Class Annual Report 2018
Class Limited
Directors’ Report
30 June 2018
10. 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 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.
Remuneration and other terms of employment for executives are formalised in service agreements,
summarised as follows:
Name
Title
Kevin Bungard
Chief Executive Officer and Managing Director (‘CEO’)
Agreement Commenced
8 October 2015
Term of Agreement
Ongoing
Details
Name
Title
The terms of employment and remuneration of the CEO are detailed in a tailored service agreement.
The agreement is not of a fixed duration and may be terminated by either party, providing 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, its 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, dependent on the circumstances
surrounding the termination.
Glenn Day
Chief Financial Officer and Company Secretary (‘CFO’)
Agreement Commenced
8 October 2015
Term of Agreement
Ongoing
Details
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, its 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, dependent on the circumstances surrounding the termination.
KMP have no entitlement to termination payments in the event of removal for misconduct.
Class Annual Report 2018 39
Class Limited
Directors’ Report
30 June 2018
11. Share based compensation
Issue of shares
There were no shares issued to directors and other KMP as part of compensation during the year ended
30 June 2018.
Options
The terms and conditions of each grant of options over ordinary shares affecting remuneration of directors
and other KMP in this financial year or future reporting years are as follows:
Number
granted
Grant date
Value per
option at
grant date
($)1
Value of
options at
grant date
($)2
Number
vested
Exercise
price
($)
Vesting
and first
exercise
date
Last
exercise
date
Kevin Bungard
495,860
30/09/2015
280,000
200,000
200,000
Glenn Day
484,377
120,000
90,000
100,000
30/09/2015
29/06/2016
24/07/2017
30/09/2015
30/09/2015
29/06/2016
24/07/2017
0.197
0.168
0.661
0.341
0.197
0.168
0.661
0.341
97,684
495,860
1.10
01/01/2017
30/09/2019
47,040
132,200
68,200
–
–
–
1.33
30/09/2018
30/09/2020
3.81
30/09/2019
30/06/2021
3.99
3
15/03/2022
95,422
484,377
1.10
01/01/2017
30/09/2019
20,160
59,490
34,100
–
–
–
1.33
30/09/2018
30/09/2020
3.81
30/09/2019
30/06/2021
3.99
3
15/03/2022
1 The options granted are measured at the fair value on grant date. Fair value is determined using either the Binomial or Black-Scholes
option pricing model that considers the exercise price, term of the option, impact of dilution, share price at grant date and expected
price volatility of the underlying share, expected dividend yield and the risk-free interest rate for the term of the option, together with
the non-vesting conditions that do not determine whether the Group receives the services that entitle the employees to receive
payment. This valuation assumption is in line with Australian Accounting Standards.
2 The share-based payment expense of the option is recognised as an expense with a corresponding increase in equity spread
over the vesting period.
3 Equal annual instalments on 1 July 2018, 1 July 2019 and 1 July 2020.
40 Class Annual Report 2018
Class Limited
Directors’ Report
30 June 2018
Options granted under ESOP carry no dividend or voting rights. Vesting is subject to continuity of service
and there are no performance conditions.
The number of options over ordinary shares granted to and vested in directors and other KMP as part of
compensation is set out below:
Number of options
granted during the
year 2018
Number of options
granted during the
year 2017
Number of options
vested during the
year 2018
Number of options
vested during the
year 2017
200,000
100,000
300,000
–
–
–
–
–
–
495,860
484,377
980,237
Kevin Bungard
Glenn Day
Option holding
The number of options over ordinary shares in the Company held during the financial year by each director
and other members of KMP 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
200,000
100,000
300,000
–
–
–
–
–
–
1,175,860
794,377
1,970,237
Vested and
exercisable
Vested and
unexercisable
495,860
484,377
980,237
–
–
–
Class Annual Report 2018 41
Class Limited
Directors’ Report
30 June 2018
12. Additional disclosures relating to KMP
Shares held by key management personnel
The number of ordinary shares in the Company held during the financial year by each director and other KMP,
including their personally related parties, is set out below:
Balance at the
start of the year
Received
as part of
remuneration
Additions
Disposals/
other
Balance at
the end of
the year
Non-executive directors
Matthew Quinn
60,000
–
–
Christopher Cuffe1
–
–
10,000
–
–
60,000
10,000
Anthony Fenning2
–
–
20,000
(20,000)
–
Kathryn Foster
Rajarshi Ray
522,208
–
–
(360,000)
162,208
1,248,848
–
–
–
1,248,848
Nicolette Rubinsztein
–
–
20,000
–
20,000
Executive KMP
Kevin Bungard
Glenn Day
1,905,572
–
–
–
1,905,572
302,500
–
–
(50,000)
252,500
4,039,128
–
50,000
(430,000)
3,659,128
1. Christopher Cuffe was appointed on 16 October 2017
2. Disposals/Other represents 20,000 shares held at cessation date.
Loans
There were no loans to KMP during the reporting period.
This concludes the remuneration report, which has been audited.
42 Class Annual Report 2018
Class Limited
Directors’ Report
30 June 2018
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.
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.
Class Annual Report 2018 43
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
21 August 2018, Sydney
Kevin Bungard
Chief Executive Officer and Managing Director
44 Class Annual Report 2018
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 445
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 2018, I declare that, to the best of my knowledge and belief, there have been:
a
b
no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and
no contraventions of any applicable code of professional conduct in relation to the audit.
Grant Thornton Audit Pty Ltd
Chartered Accountants
M R Leivesley
Partner – Audit & Assurance
Sydney, 21 August 2018
Grant Thornton Audit Pty Ltd ACN 130 913 594
a subsidiary or related entity of Grant Thornton Australia Ltd ABN 41 127 556 389
www.grantthornton.com.au
‘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.
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 445
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 2018, I declare that, to the best of my knowledge and belief, there have been:
a
b
no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and
no contraventions of any applicable code of professional conduct in relation to the audit.
Grant Thornton Audit Pty Ltd
Chartered Accountants
M R Leivesley
Partner – Audit & Assurance
Sydney, 21 August 2018
Class Limited
Statement of profit or loss and other comprehensive income
For the year ended 30 June 2018
Revenue
Expenses
Employee benefits expense
Depreciation and amortisation expense
Selling and marketing expenses
Occupancy expenses
Technology and data costs
Other expenses
Finance costs
Profit before income tax expense
Income tax expense
Profit after income tax expense for the year attributable to the owners of
Class Limited
Other comprehensive income for the year, net of tax
Total comprehensive income for the year attributable to the owners of
Class Limited
Basic earnings per share
Diluted earnings per share
Class Annual Report 2018 45
Note
Consolidated
2018
$'000
2017
$'000
5
6
6
7
34,384
29,206
(13,091)
(3,736)
(1,722)
(674)
(1,053)
(1,543)
(6)
(11,130)
(2,584)
(1,206)
(524)
(940)
(1,120)
–
12,559
11,702
(3,861)
(3,714)
8,698
7,988
–
–
8,698
7,988
Cents
Cents
29
29
7.39
7.29
6.82
6.72
Grant Thornton Audit Pty Ltd ACN 130 913 594
a subsidiary or related entity of Grant Thornton Australia Ltd ABN 41 127 556 389
www.grantthornton.com.au
‘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.
The above statement of profit or loss and other comprehensive income should be read in conjunction with the
accompanying notes
46 Class Annual Report 2018
Class Limited
Statement of financial position
As at 30 June 2018
Assets
Current assets
Cash and cash equivalents
Trade and other receivables
Other
Total current assets
Non-current assets
Property, plant and equipment
Intangibles
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
2018
$'000
2017
$'000
8
9
10
11
12
13
7
14
7
15
16
17
22,657
3,229
680
26,566
19,413
3,120
732
23,265
934
6,427
7,361
835
5,025
5,860
33,927
29,125
3,029
1,380
727
5,136
866
376
1,242
2,384
1,765
547
4,696
682
344
1,026
6,378
5,722
27,549
23,403
25,154
1,706
689
24,994
1,126
(2,717)
27,549
23,403
The above statement of financial position should be read in conjunction with the accompanying notes
Class Annual Report 2018 47
Class Limited
Statement of changes in equity
For the year ended 30 June 2018
Consolidated
Issued
capital
$'000
Other
reserves
$'000
Retained
earnings
$'000
Total equity
$'000
Balance at 1 July 2016
24,260
559
(6,025)
18,794
Profit after income tax expense for the year
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
–
–
–
–
–
–
7,988
–
7,988
–
7,988
7,988
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)
734
–
–
–
567
–
–
–
(4,680)
734
567
(4,680)
Balance at 30 June 2017
24,994
1,126
(2,717)
23,403
Consolidated
Balance at 1 July 2017
Issued
capital
$'000
Other
reserves
$'000
Retained
earnings
$'000
Total equity
$'000
24,994
1,126
(2,717)
23,403
Profit after income tax expense for the year
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
–
–
–
–
–
–
8,698
–
8,698
–
8,698
8,698
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)
160
–
–
–
580
–
–
–
(5,292)
160
580
(5,292)
Balance at 30 June 2018
25,154
1,706
689
27,549
The above statement of changes in equity should be read in conjunction with the accompanying notes
48 Class Annual Report 2018
Class Limited
Statement of cash flows
For the year ended 30 June 2018
Cash flows from operating activities
Receipts from customers (inclusive of GST)
Payments to suppliers and employees (inclusive of GST)
Interest received
Interest and other finance costs paid
Income taxes refunded/(paid)
Note
Consolidated
2018
$'000
2017
$'000
37,273
(20,013)
400
(6)
(4,062)
31,013
(17,155)
280
–
(1,626)
Net cash from operating activities
28
13,592
12,512
Cash flows from investing activities
Payments for property, plant and equipment
Payments for intangibles
Payments for term deposits
Proceeds from release of term deposits
Net cash used in investing activities
Cash flows from financing activities
Proceeds from issue of shares
Dividends paid
Net cash used in financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the financial year
(500)
(4,770)
–
54
(578)
(3,691)
(63)
–
(5,216)
(4,332)
18
160
(5,292)
734
(4,680)
(5,132)
(3,946)
3,244
19,413
4,234
15,179
Cash and cash equivalents at the end of the financial year
8
22,657
19,413
The above statement of cash flows should be read in conjunction with the accompanying notes
Class Annual Report 2018 49
Class Limited
Notes to the financial statements
30 June 2018
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 21 August
2018. 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.
50 Class Annual Report 2018
Class Limited
Notes to the financial statements
30 June 2018
Note 2. Significant accounting policies (continued)
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.
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.
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.
Class Annual Report 2018 51
Class Limited
Notes to the financial statements
30 June 2018
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
2018
$'000
2017
$'000
32,361
164
1,453
33,978
27,454
233
1,206
28,893
406
313
34,384
29,206
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.
52 Class Annual Report 2018
Class Limited
Notes to the financial statements
30 June 2018
Note 5. Revenue (continued)
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.
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
Contractual rights
Total amortisation
Total depreciation and amortisation
Rental expense relating to operating leases
Minimum lease payments
Superannuation expense
Defined contribution superannuation expense
Consolidated
2018
$'000
2017
$'000
96
33
216
23
66
21
214
46
368
347
16
3,100
43
209
40
2,179
18
–
3,368
2,237
3,736
2,584
568
483
1,048
911
Class Annual Report 2018 53
Class Limited
Notes to the financial statements
30 June 2018
Note 7. Income tax
Income tax expense
Current tax
Deferred tax – origination and reversal of temporary differences
Adjustment recognised for prior periods
Aggregate income tax expense
Deferred tax included in income tax expense comprises:
Increase in deferred tax liabilities
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
Sundry items
Adjustment recognised for prior periods
Adjustment to deferred tax balances as a result of change in statutory tax rate
Income tax expense
Consolidated
2018
$'000
2017
$'000
3,658
184
19
2,725
989
–
3,861
3,714
184
989
12,559
11,702
3,768
3,511
16
174
–
(37)
3,921
19
(79)
14
170
19
–
3,714
–
–
3,861
3,714
54 Class Annual Report 2018
Class Limited
Notes to the financial statements
30 June 2018
Note 7. Income tax (continued)
Deferred tax liability
Deferred tax liability comprises temporary differences attributable to:
Amounts recognised in profit or loss:
Software development – Research and Development
Employee benefits
Accrued expenses
Property, plant and equipment
Other
Amounts recognised in equity:
Transaction costs on share issue
Deferred tax liability
Movements:
Opening balance
Charged to profit or loss
Closing balance
Provision for income tax
Provision for income tax
Consolidated
2018
$'000
2017
$'000
1,741
(284)
(386)
(68)
2
1,480
(250)
(288)
–
(32)
1,005
910
(139)
(228)
866
682
682
184
866
(307)
989
682
Consolidated
2018
$'000
2017
$'000
1,380
1,765
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.
Class Annual Report 2018 55
Class Limited
Notes to the financial statements
30 June 2018
Note 7. Income tax (continued)
The carrying amount of recognised and unrecognised deferred tax assets are reviewed at each reporting
date. Deferred tax assets recognised are reduced to the extent that it is no longer probable that future taxable
profits will be available for the carrying amount to be recovered. Previously unrecognised deferred tax assets
are recognised to the extent that it is probable that there are future taxable profits available to recover
the asset.
Deferred tax assets and liabilities are offset only where there is a legally enforceable right to offset current tax
assets against current tax liabilities and deferred tax assets against deferred tax liabilities; and they relate to
the same taxable authority on either the same taxable entity or different taxable entities which intend to
settle simultaneously.
Class Limited (the 'head entity') and its wholly-owned Australian subsidiaries have formed an income tax
consolidated group under the tax consolidation regime with effect from 1 July 2014. The head entity and each
subsidiary in the tax consolidated group continue to account for their own current and deferred tax amounts.
The tax consolidated group has applied the 'separate taxpayer within group' approach in determining the
appropriate amount of taxes to allocate to members of the tax consolidated group.
In addition to its own current and deferred tax amounts, the head entity also recognises the current tax
liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits
assumed from each subsidiary in the tax consolidated group.
Assets or liabilities arising under tax funding agreements with the tax consolidated entities are recognised as
amounts receivable from or payable to other entities in the tax consolidated group. The tax funding
arrangement ensures that the intercompany charge equals the current tax liability or benefit of each tax
consolidated group member, resulting in neither a contribution by the head entity to the subsidiaries nor a
distribution by the subsidiaries to the head entity.
Note 8. Current assets – cash and cash equivalents
Cash on hand and at bank
Consolidated
2018
$'000
2017
$'000
22,657
19,413
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
2018
$'000
2017
$'000
3,172
(2)
3,170
3,099
(12)
3,087
59
33
3,229
3,120
56 Class Annual Report 2018
Class Limited
Notes to the financial statements
30 June 2018
Note 9. Current assets – trade and other receivables (continued)
Impairment of receivables
The Group has recognised a gain of $5,000 in profit or loss in respect of reversal of impairment of receivables
for the year ended 30 June 2018 (2017: loss of $4,000).
The ageing of the impaired receivables provided for above are as follows:
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
Receivables written off during the year as uncollectable
Unused amounts reversed
Closing balance
Consolidated
2018
$'000
2017
$'000
2
–
2
Consolidated
2018
$'000
2017
$'000
12
2
(5)
(7)
2
5
7
12
8
4
–
–
12
Past due but not impaired
Customers with balances past due but without provision for impairment of receivables amount to $47,000 as
at 30 June 2018 ($46,000 as at 30 June 2017).
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
2018
$'000
2017
$'000
47
–
47
22
24
46
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.
Class Annual Report 2018 57
Class Limited
Notes to the financial statements
30 June 2018
Note 9. Current assets – trade and other receivables (continued)
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
2018
$'000
2017
$'000
530
150
680
528
204
732
* Includes term deposit which is held as security for lease of office premises $150,000 (2017: $204,000).
Note 11. Non-current assets – property, plant and equipment
Leasehold improvements – at cost
Less: Accumulated depreciation
Furniture and fittings – at cost
Less: Accumulated depreciation
Computer equipment – at cost
Less: Accumulated depreciation
Office equipment – at cost
Less: Accumulated depreciation
Consolidated
2018
$'000
2017
$'000
462
(268)
194
504
(82)
422
1,051
(772)
279
141
(102)
39
934
338
(174)
164
289
(50)
239
940
(555)
385
127
(80)
47
835
58 Class Annual Report 2018
Class Limited
Notes to the financial statements
30 June 2018
Note 11. Non-current assets – property, plant and equipment (continued)
Reconciliations
Reconciliations of the written down values at the beginning and end of the current and previous financial year
are set out below:
Consolidated
Balance at 1 July 2016
Additions
Depreciation expense
Balance at 30 June 2017
Additions
Disposals
Depreciation expense
Balance at 30 June 2018
Leasehold
improvements
$'000
Furniture
and
fittings
$'000
Computer
equipment
Office
equipment
$'000
$'000
Total
$'000
49
181
(66)
164
126
–
(96)
194
104
156
(21)
239
249
(33)
(33)
422
381
218
(214)
385
110
–
(216)
279
70
23
(46)
47
15
–
(23)
39
604
578
(347)
835
500
(33)
(368)
934
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.
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.
Class Limited
Notes to the financial statements
30 June 2018
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
Contractual rights – at cost
Less: Accumulated amortisation
Class Annual Report 2018 59
Consolidated
2018
$'000
2017
$'000
156
(156)
–
48
157
(141)
16
46
20,246
(14,009)
6,237
15,828
(10,909)
4,919
198
(99)
99
252
(209)
43
100
(56)
44
–
–
–
6,427
5,025
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 2016
Additions
Amortisation expense
Balance at 30 June 2017
Additions
Amortisation expense
Balance at 30 June 2018
Website tools
development
$'000
Trademarks
and domain
names
$'000
Software
development
$'000
Computer
software
$'000
Contractual
rights
$'000
Total
$'000
56
–
(40)
16
–
(16)
–
36
10
–
46
2
–
48
3,455
3,643
(2,179)
4,919
4,418
(3,100)
6,237
24
38
(18)
44
98
(43)
99
–
–
–
–
252
(209)
3,571
3,691
(2,237)
5,025
4,770
(3,368)
43
6,427
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.
60 Class Annual Report 2018
Class Limited
Notes to the financial statements
30 June 2018
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 is capitalised and amortised on a straight-line basis over the period of
its expected benefit of between three to five years.
Contractual rights
Costs relating to contractual rights are capitalised as an asset and are amortised on a straight-line basis over
the period of their expected benefit, being their finite life of one year.
Note 13. Current liabilities – trade and other payables
Trade payables
Accrued expenses
BAS payable
Consolidated
2018
$'000
2017
$'000
841
1,438
750
405
1,385
594
3,029
2,384
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
2018
$'000
2017
$'000
532
195
–
727
458
72
17
547
Class Annual Report 2018 61
Class Limited
Notes to the financial statements
30 June 2018
Note 14. Current liabilities – provisions (continued)
Deferred lease incentives
The provision represents operating lease incentives received. The incentives are allocated to profit or loss in
such a manner that the rent expense is recognised on a straight-line basis over the lease term.
Accounting policy for employee benefits
Short-term employee benefits
Liabilities for wages and salaries, including non-monetary benefits, annual leave and long service leave
expected to be settled wholly within 12 months of the reporting date are measured at the amounts expected
to be paid when the liabilities are settled. The liability for annual leave not expected to be settled within 12
months of the reporting date but for which employees have a current entitlement is measured as the present
value of expected future payments to be made in respect of services provided by employees up to the
reporting date using the projected unit credit method (refer to the accounting policy in note 15 for further
details). Such amounts are presented as current liabilities as the Group does not have an unconditional right
to defer settlement. However, based on past experience, the Group does not expect all employees to take the
full amount of accrued leave or require payment within the next 12 months.
Note 15. Non-current liabilities – provisions
Long service leave
Deferred lease incentives
Lease make good
Consolidated
2018
$'000
2017
$'000
307
–
69
376
300
21
23
344
Lease make good
The provision represents the present value of the estimated costs to make good the premises leased by the
Group at the end of the respective lease terms.
Movements in provisions
Movements in each class of provision (current and non-current) during the current financial year, other than
employee benefits, are set out below:
Consolidated – 2018
Carrying amount at the start of the year
Additional provisions recognised
Amounts used
Carrying amount at the end of the year
Deferred lease Lease make
incentives
$'000
good
$'000
38
–
(38)
–
23
46
–
69
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
high quality corporate bonds with terms to maturity and currency that match, as closely as possible, the
estimated future cash outflows.
62 Class Annual Report 2018
Class Limited
Notes to the financial statements
30 June 2018
Note 16. Equity – issued capital
Consolidated
2018
Shares
2017
Shares
2018
$'000
2017
$'000
Ordinary shares – fully paid
117,662,056
117,515,849
25,154
24,994
Movements in ordinary share capital
Details
Date
Shares
$'000
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
1 July 2016
116,820,283
24,260
20 December 2016
20,473
28 February 2017
484,377
7 March 2017
190,716
–
527
207
Balance
Shares issued on exercise of options
Shares issued under tax exempt Employee
Share Plan for nil consideration
30 June 2017
23 August 2017
117,515,849
120,000
24,994
160
19 December 2017
26,207
–
Balance
30 June 2018
117,662,056
25,154
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 2017 Annual Report.
Class Annual Report 2018 63
Class Limited
Notes to the financial statements
30 June 2018
Note 16. Equity – issued capital (continued)
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.
Note 17. Equity – reserves
Share-based payments reserve
Acquisition reserve
Consolidated
2018
$'000
2017
$'000
1,759
(53)
1,179
(53)
1,706
1,126
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 2016
Share based payment
Balance at 30 June 2017
Share based payment
Balance at 30 June 2018
Share-based
payment
reserve
$'000
Acquisition
reserve
$'000
Total
$'000
612
567
1,179
580
1,759
(53)
–
(53)
–
(53)
559
567
1,126
580
1,706
64 Class Annual Report 2018
Class Limited
Notes to the financial statements
30 June 2018
Note 18. Equity – dividends
Dividends
Dividends paid during the financial year were as follows:
Final fully franked dividend for the year ended 30 June 2017 of
2 cents per ordinary share (2017: 1 cent)
Interim fully franked dividend for the year ended 30 June 2018 of
2.5 cents per ordinary share(2017: 3 cents)
Consolidated
2018
$'000
2017
$'000
2,350
1,168
2,942
3,512
5,292
4,680
On 21 August 2018, the directors declared a final fully franked dividend for the year ended 30 June 2018 of
2.5 cents per ordinary share with payment date of 17 September 2018 to eligible shareholders on the register
as at 27 August 2018. This equates to a total distribution of $2,942,000, based on the number of ordinary
shares on issue as at 30 June 2018. The financial effect of dividends declared after the reporting date is not
reflected in the 30 June 2018 financial statements and will be recognised in subsequent financial reports.
Franking credits
Franking credits available for subsequent financial years based on a
tax rate of 30%
2,204
2,753
Consolidated
2018
$'000
2017
$'000
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.
Class Annual Report 2018 65
Class Limited
Notes to the financial statements
30 June 2018
Note 19. Financial instruments (continued)
Market risk
Foreign currency risk
The Group is not exposed to any significant foreign currency risk.
Price risk
The Group is not exposed to any significant price risk.
Interest rate risk
The Group's exposure to interest rate risk is limited to cash at bank and short term deposits.
An official increase/decrease in interest rates of 50 (2017:50) basis points would have an adverse/favourable
effect on profit before tax of $114,000 (2017: $98,000) 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 – 2018
Non-derivatives
Non-interest bearing
Trade payables
Total non–derivatives
Consolidated – 2017
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
841
841
–
–
–
–
–
–
841
841
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
66 Class Annual Report 2018
Class Limited
Notes to the financial statements
30 June 2018
Note 19. Financial instruments (continued)
The cash flows in the maturity analysis above are not expected to occur significantly earlier than contractually
disclosed above.
Note 20. Fair value measurement
Unless otherwise stated, the carrying amounts of financial instruments reflect their fair value. The carrying
amounts of trade and other receivables and trade and other payables 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
Consolidated
2018
$
2017
$
1,104,555
87,199
17,974
147,686
948,447
75,268
18,383
163,644
1,357,414
1,205,742
Class Annual Report 2018 67
Class Limited
Notes to the financial statements
30 June 2018
Note 22. Remuneration of auditors
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
Tax compliance services
Taxation advisory services
Consolidated
2018
$
2017
$
81,542
79,118
23,249
14,800
24,420
15,400
38,049
39,820
119,591
118,938
Note 23. Contingent liabilities
The Group has given bank guarantees as at 30 June 2018 of $150,000 (2017: $204,000) 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
2018
$'000
2017
$'000
724
1,449
638
653
2,173
1,291
Operating lease commitments relate to leases of office premises under non-cancellable operating leases
expiring within three years with no options to extend for three years. 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.
68 Class Annual Report 2018
Class Limited
Notes to the financial statements
30 June 2018
Note 25. Related party transactions (continued)
Transactions with related parties
Rajarshi Ray, a director of the Company was also a director of Heffron Consulting Pty Ltd during the period,
who are 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, was 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. As at 30 June 2018, Mr Ray is no longer a director of Heffron
Consulting Pty Ltd.
During the period the Group purchased $504 worth of consumables from Silos Estate, a director
related entity.
Terms and conditions
All transactions were made on normal commercial terms and conditions and at market rates.
Note 26. Parent entity information
Set out below is the supplementary information about the parent entity.
Statement of profit or loss and other comprehensive income
Profit after income tax
Total comprehensive income
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
Parent
2018
$'000
2017
$'000
6,474
5,479
6,474
5,479
Parent
2018
$'000
2017
$'000
15,741
14,850
29,366
26,798
3,899
3,505
5,131
4,455
25,154
1,759
(2,678)
24,994
1,179
(3,830)
24,235
22,343
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 2018 and
30 June 2017.
Contingent liabilities
The parent entity had contingent liabilities of $150,000 as at 30 June 2018 (2017: $204,000).
Class Annual Report 2018 69
Class Limited
Notes to the financial statements
30 June 2018
Note 26. Parent entity information (continued)
Capital commitments – Property, plant and equipment
The parent entity had no capital commitments for property, plant and equipment as at 30 June 2018 and
30 June 2017.
Significant accounting policies
The accounting policies of the parent entity are consistent with those of the Group, as disclosed in note 2,
except for the following:
•
•
Investments in subsidiaries are accounted for at cost, less any impairment, in the parent entity.
Dividends received from subsidiaries are recognised as other income by the parent entity and its receipt
may be an indicator of an impairment of the investment.
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
2017
2018
%
%
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
8,698
7,988
Consolidated
2018
$'000
2017
$'000
Adjustments for:
Depreciation and amortisation
Net loss on disposal of property, plant and equipment
Share-based payments
Change in operating assets and liabilities:
Increase in trade and other receivables
Decrease in deferred tax assets
Increase in prepayments
Increase in trade and other payables
Increase/(decrease) in provision for income tax
Increase in deferred tax liabilities
Increase in employee benefits
Increase/(decrease) in other provisions
3,736
33
580
2,584
-
567
(109)
–
(2)
645
(385)
184
204
8
(802)
307
(173)
116
1,099
682
158
(14)
Net cash from operating activities
13,592
12,512
70 Class Annual Report 2018
Class Limited
Notes to the financial statements
30 June 2018
Note 29. Earnings per share
Consolidated
2018
$'000
2017
$'000
Profit after income tax attributable to the owners of Class Limited
8,698
7,988
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
117,632,354
117,054,948
1,618,087
1,806,985
Weighted average number of ordinary shares used in calculating diluted earnings
per share
119,250,441
118,861,933
Number
Number
Basic earnings per share
Diluted earnings per share
Accounting policy for earnings per share
Cents
Cents
7.39
7.29
6.82
6.72
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 $580,000 (2017: $567,000). 1,168,000 options were
granted during the year ended 30 June 2018 (2017: Nil)].
Class Annual Report 2018 71
Class Limited
Notes to the financial statements
30 June 2018
Note 30. Share–based payments (continued)
Set out below is a summary of the options granted under the plan:
2018
Grant date
Expiry date
30/09/2015
30/09/2015
29/06/2016
24/07/2017
30/09/2019
30/09/2020
30/06/2021
15/03/2022
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
$3.99
1,948,991
1,058,506
1,058,202
–
4,065,699
–
–
–
1,168,000
1,168,000
–
(120,000)
–
–
(120,000)
1,948,991
–
938,506
–
1,028,202
(30,000)
1,148,000
(20,000)
(50,000) 5,063,699
Weighted average exercise price
$1.87
$3.99
$1.33
$3.88
$2.35
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 2,624,084
1,058,506
$1.33
1,168,202
$3.81
4,850,792
–
–
–
–
(675,093)
–
–
(675,093)
1,948,991
–
1,058,506
–
(110,000)
1,058,202
(110,000) 4,065,699
Weighted average exercise price
$1.78
$0.00
$1.10
$3.81
$1.87
The weighted average share price during the financial year was $2.81 (2017:$3.26).
The weighted average remaining contractual life of options outstanding at the end of the financial year was
2 years (2017: 3 years).
1,948,991 options outstanding as at 30 June 2018 are vested and exercisable (30 June 2017: 2,068,991).
On 24 July 2017, the Group granted 1,168,000 options which vest in three equal instalments on 1 July 2018,
1 July 2019 and 1 July 2020. Vesting of the options is subject to continuity of service and there are no
performance conditions.
For the options granted during the current financial year, the valuation model inputs used to determine the
fair value at the grant date, are as follows:
Grant date
Expiry date
Share price
at grant date
Exercise
price
Expected
volatility
Dividend
Risk-free
Fair value
yield
interest rate at grant date
24/07/2017
15/03/2022
$3.00
$3.99
30.24%
3.45%
2.04%
$0.341
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.
72 Class Annual Report 2018
Class Limited
Notes to the financial statements
30 June 2018
Note 30. Share–based payments (continued)
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 2018 that has significantly affected, or may significantly affect the Group's operations, the results of
those operations, or the Group's state of affairs in future financial years.
Note 32. Other accounting policies
Principles of consolidation
The consolidated financial statements incorporate the assets and liabilities of Class Limited ('Company' or
'parent entity') as at 30 June 2018 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.
Class Annual Report 2018 73
Class Limited
Notes to the financial statements
30 June 2018
Note 32. Other accounting policies (continued)
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.
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.
74 Class Annual Report 2018
Class Limited
Notes to the financial statements
30 June 2018
Note 32. Other accounting policies (continued)
Goods and Services Tax ('GST') and other similar taxes
Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred
is not recoverable from the tax authority. In this case it is recognised as part of the cost of the acquisition of
the asset or as part of the expense.
Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of
GST recoverable from, or payable to, the tax authority is included in other receivables or other payables in the
statement of financial position.
Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or
financing activities which are recoverable from, or payable to the tax authority, are presented as operating
cash flows.
Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the
tax authority.
New Accounting Standards and Interpretations not yet mandatory or early adopted
Australian Accounting Standards and Interpretations that have recently been issued or amended but are not
yet mandatory, have not been early adopted by the Group for the annual reporting period ended 30 June
2018. The Group's assessment of the impact of these new or amended Accounting Standards and
Interpretations, most relevant to the Group, are set out below.
AASB 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. AASB 15 Revenue
from Contracts with Customers provides a single comprehensive model for revenue recognition based on the
satisfaction of performance obligations and additional disclosures about revenue. It replaces AASB 118
Revenue and related interpretations. 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 will adopt this standard from 1 July 2018, using the modified cumulative method on the date of
initial application which will not require the standard to be applied to the comparative period presented.
Class Annual Report 2018 75
Class Limited
Notes to the financial statements
30 June 2018
Note 32. Other accounting policies (continued)
Management have undertaken a comprehensive analysis which is detailed below:
Revenue from Software licence fees: The majority of the Group's revenue is derived from monthly licence fees
which is for services provided during the month. Management does not expect the recognition and
measurement of revenue to materially change under the new standard.
Revenue from service fees: Customers can request to have the Group load data from their existing system
onto one of the Group's products. Under the current standards this revenue is recognised in the year the
services were performed. Under AASB 15 the revenue for these services are bundled with other performance
obligations, deferred and recognised over an estimated contract period which includes expectations on
renewal periods beyond the initial term of the service contract. The majority of the Group’s customers have
30–90 day termination notice periods, for the purpose of AASB 15 management have estimated a contract
period of 5 years. The Group estimates that deferred revenue will be increased by approximately $494,000,
deferred tax asset increased by $136,000 and retained earnings decreased by $358,000 on 1 July 2018.
Capitalisation of commissions and transition costs
Under AASB 15, commission and transaction costs incurred will be capitalised as an asset where such costs
are incremental to obtaining a contract with a customer and where such costs are expected to be recovered.
They will be amortised over the estimated life of the related service contract, being 5 years. The current
accounting policy requires commissions and transition costs to be expensed to the statement of profit or loss
as incurred as they did not qualify for recognition as an asset under any of the other accounting standards.
The Group estimates that contract assets will be increased by approximately $2,024,000, deferred tax liability
increased by $556,000 and retained earnings increased by $1,467,000 on 1 July 2018.
Presentation of contract assets and contract liabilities in the statement of financial position
AASB 15 requires separate presentation of contract assets and contract liabilities in the statement of financial
position. As a result of the changes identified above, on 1 July 2018 the Group will recognise contract assets in
relation to commission and transition costs and contract liabilities in relation to transition services revenue.
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 expects to adopt this
standard from 1 July 2019 and the impact of its adoption will be that operating leases, such as those detailed
in note 24, will be brought onto the statement of financial position with a corresponding liability. The actual
amount will depend on the operating leases held on the date of adoption and any transitional elections made.
IASB revised Conceptual Framework for Financial Reporting
The revised Conceptual Framework has been issued by the IASB, but the Australian equivalent is yet to be
published. The revised framework is applicable for annual reporting periods beginning on or after 1 January
2020 and the application of the new definition and recognition criteria may result in future amendments to
several accountings standards. Furthermore, entities who rely on the conceptual framework in determining
their accounting policies for transactions, events or conditions that are not otherwise dealt with under
Australian Accounting Standards may need to revisit such policies. The Group will apply the revised
conceptual framework from 1 July 2020 and is yet to assess its impact.
76 Class Annual Report 2018
Class Limited
Corporate directory
30 June 2018
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 2018 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
___________________________
Kevin Bungard
Chief Executive Officer and Managing Director
21 August 2018
Sydney
Class Annual Report 2018 77
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. www.grantthornton.com.au 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 445 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 2018, 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 the Company is in accordance with the Corporations Act 2001, including: a Giving a true and fair view of the Company’s financial position as at 30 June 2018 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 auditor 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. 78 Class Annual Report 2018
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. Key audit matter How our audit addressed the key audit matter Measurement and recognition of capitalised development costs – Note 12 Non-current assets - intangibles The Group capitalises costs incurred in the development of its software. These costs are then amortised over the estimated useful life of the software. The Group’s processes for calculating the value of internally developed software involves judgement as it includes estimating the time which staff spend developing software and determining the value attributable to that time. The Group’s capitalised costs are disclosed in Note 12 to the financial statements. 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; assessing the consistency of the capitalisation methodology applied by the Group in comparison to the prior reporting period; considering the reasonableness of useful lives applied to amortise intangible assets; 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 Group’s annual report for the year ended 30 June 2018, 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. Class Annual Report 2018 79
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. Key audit matter How our audit addressed the key audit matter Measurement and recognition of capitalised development costs – Note 12 Non-current assets - intangibles The Group capitalises costs incurred in the development of its software. These costs are then amortised over the estimated useful life of the software. The Group’s processes for calculating the value of internally developed software involves judgement as it includes estimating the time which staff spend developing software and determining the value attributable to that time. The Group’s capitalised costs are disclosed in Note 12 to the financial statements. 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; assessing the consistency of the capitalisation methodology applied by the Group in comparison to the prior reporting period; considering the reasonableness of useful lives applied to amortise intangible assets; 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 Group’s annual report for the year ended 30 June 2018, 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 responsibilitiesfor 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 assuranceis 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_responsibilities/ar1.pdf. This description forms part of our auditor’s report.Report on the remuneration reportOpinionon the remuneration reportWe have audited the Remuneration Report included in pages 20to 41of the directors’ report for the yearended 30 June 2018. In our opinion, the Remuneration Report of Class Limited, for the year ended 30 June 2018, complies with section 300A of the Corporations Act 2001. ResponsibilitiesThe 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 LtdChartered AccountantsM R LeivesleyPartner –Audit & AssuranceSydney,21August 2018 80 Class Annual Report 2018
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Class Annual Report 2018 81
Shareholder
information
82 Class Annual Report 2018
Class Limited
Shareholder information
30 June 2018
The shareholder information set out below was applicable as at 6 August 2018.
Distribution of equitable securities
Analysis of the number of equitable security holders by the size of holding:
Number of holders
of ordinary shares
Number of holders
of options over
ordinary shares
100,001 and Over
10,001 to 100,000
5,001 to 10,000
1,001 to 5,000
1 to 1,000
Total
Holding less than a marketable parcel
Equity security holders
54
604
828
2,372
1,621
5,479
239
The names of the twenty largest security holders of quoted equity securities are listed below:
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
J P MORGAN NOMINEES AUSTRALIA LIMITED
TRONCELL PTY LTD
NATIONAL NOMINEES LIMITED
TRONCELL PTY LTD
CITICORP NOMINEES PTY LIMITED
ARMELEK PTY LTD
BNP PARIBAS NOMINEES PTY LTD
21,926,159
10,155,168
8,870,944
8,092,846
5,458,000
4,175,908
3,300,000
3,220,152
MR JOSEPH CHARLES CAMUGLIA & MRS KIRSTEN INGRET CAMUGLIA
2,650,000
MR KEITH FINKELDE & MRS ANNE FINKELDE & MR WAYNE FINKELDE
BNP PARIBAS NOMS PTY LTD
MR RODERICK KIBBLE & MRS MICHELLE KIBBLE
MR PETER DORIAN KIBBLE & MRS LORRAINE LESTER
FYLPANE PTY LTD
MR KEVIN BUNGARD
MR RAJARSHI MANU RAY
CANEMOON INVESTMENTS PTY LTD
MR KEVIN BUNGARD & MRS STEPHANIE ANNE BUNGARD
MR SCOTT EDWARD LAWSON & MRS PATRICIA LAWSON
MR KEITH REX FINKELDE & MRS ANNE MARGARET FINKELDE
& MR WAYNE TREVOR FINKELDE
BNP PARIBAS NOMINEES PTY LTD
1,923,528
1,620,101
1,501,652
1,501,652
1,400,000
1,160,912
1,000,000
849,000
744,660
655,000
535,277
519,145
81,260,104
5
26
5
–
–
36
–
18.63
8.63
7.54
6.88
4.64
3.55
2.8
2.74
2.25
1.63
1.38
1.28
1.28
1.19
0.99
0.85
0.72
0.63
0.56
0.45
0.44
69.06
Class Limited
Shareholder information
30 June 2018
Unquoted equity securities
Options over ordinary shares
Substantial holders
Class Annual Report 2018 83
Number on
issue
5,063,699
Number of
holders
36
Pinnacle Investment Management Group Limited (and its subsidiaries) advised that as of 2 August 2018,
it and its associates had an interest in 18,834,272 shares, which represented 16.01% of Class’ issued capital
at that time.
Spheria Asset Management Pty Ltd advised that as of 29 June 2018, it and its associates had an interest in
13,539,655 shares, which represented 11.51% of Class’ issued capital at that time.
Troncell Pty Limited, Roderick Kibble, Peter Dorian Kibble, Michelle Kibble & Lorraine Lester advised that as of
21 September 2017, they and their associates had an interest in 18,239,216 shares, which represented 15.51% of
Class’ issued capital at that time.
Voting rights
The voting rights attached to ordinary shares are set out below:
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
Ordinary shares
Total
Expiry Date
Number of shares
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
19 December 2020 or the day after the date which the
shareholder ceases to be an employee
190,716
29,000
15,615
24,771
260,102
84 Class Annual Report 2018
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Corporate directory 30 June 2018
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
Directors
Matthew Quinn
Kevin Bungard
Christopher Cuffe
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 15 October 2018 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
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class.com.au
CLASS LIMITED
ACN 116 802 058