Corporate Travel Management
Annual Report 2017

Plain-text annual report

CTM Annual Report 2017 Conte ents Contents. Chairman and Managing Director’s Report Growing a Global Brand Excellence in Every Market Directors Senior Leadership Team Annual Financial Report 4 8 10 12 14 17 ii 3 ConteentsChairman & Managing Director's Report In the year to 30 June 2017, CTM’s revenue of $324.4m was 24.3% higher than the previous year. Dear Shareholders, Introduction We are pleased to present the 2017 Annual Financial Report of Corporate Travel Management Limited (“CTM” or “the Group”). The Group has had another strong year, its 7th year since the Company listed on the ASX in December 2010. All CTM regions performed strongly, with growth driven both organically and through acquisitions. CTM also remains well placed to benefit from future upturns in the general economic environment, despite what may appear to be challenging economic conditions in some of the regions in which CTM operates. The Group continued its expansion into the North American market with the acquisition of 100% of the shares of Boston based Travizon Travel, effective 1 July 2016. With the acquisition of Travizon Travel, the Group has extended its coverage of the USA East Coast. CTM also acquired 100% of the shares of Redfern Travel and Andrew Jones Travel, both with effect from 1 February 2017. Redfern Travel is a leading UK Travel Management Company (TMC) headquartered in Bradford, UK. Andrew Jones Travel is recognised as the leading TMC in Tasmania, with over 30 years’ experience in this market, based in Hobart. The acquisitions of Redfern Travel and Andrew Jones Travel were fully funded by a renounceable entitlement offer, which was completed on 20 January 2017 and was successful in raising approximately $71.1m. The entitlement offer was fully underwritten and the allotment of 4,744,475 shares took place on 24 January 2017. Total equity of $401.4m at 30 June 2017 compares with $273.4m at 30 June 2016, an increase of $128.0m or 46.8% over the year. The Group focused on the following key strategic initiatives during the year: 1. Strong Organic Growth and Acquisitions: • Enhancing our value proposition to meet client needs across the CTM global network. • Organic growth in local, regional and global segments. 2. Client Facing Innovation: • Expanding SMART technology globally by developing new tools for and with our clients. • Continued to leverage our technology suite in new market segments, including B2B and B2C. Outstanding performance 3. Productivity and Internal Innovation: In the year to 30 June 2017, CTM’s revenue of $324.4m was 24.3% higher than the previous year. CTM’s statutory net profit after tax (“NPAT”) of $54.6m for the year to 30 June 2017 compares with $42.1m in the previous year, representing a 29.7% increase. Underlying NPAT was $67.0m, when adding back one-off acquisition costs of $1.4m and non-cash amortisation of client intangibles of $11.1m, representing a 41.6% increase on prior year. Financial position CTM is in a sound financial position, with total assets of $740.2m at 30 June 2017, an increase of $168.2m or 29.4% from 30 June 2016. The growth in assets is due to the impact of the Travizon Travel and Redfern Travel acquisitions completed during the year and the continued strong operating performance of the business. The continued generation of strong cash flows contributed to the Group’s sound financial position, with net cash flows from operating activities of $69.3m over the year to 30 June 2017. On a normalised basis, taking into account immediate-term timing differences, the operating cash conversion rate is approximately 100%. • Internal innovation feedback loops to improve and automate existing client and non-client facing processes. • Staff empowerment in decisions to drive high staff engagement and client satisfaction outcomes. 4. Leveraging our Scale and Geography: • Capitalising on scale and our global network, to develop and optimise supplier performance for our clients. • Continued to demonstrate that CTM is a valuable partner in the supply chain. 5. Our People: • Continue to attract, retain and develop the industry’s brightest talent. • Empower our team to support our clients’ needs. • Embraced a culture that represents our values and business drivers. 4 5 Employees A competent and motivated workforce is integral to CTM’s success. CTM employs over 2,200 employees (full time equivalent). CTM’s culture is founded upon the principle of empowering its people, through good processes and excellent training, to grow, evolve, and deliver the superior service that CTM’s clients demand. CTM continues to invest in its people, through its in-house training programs, selective recruitment and a commitment to provide the resourcing to support its people in delivering service excellence to clients. The Board and the senior management team appreciate the contribution that CTM’s staff have made to the Group’s strong performance. Their professionalism and commitment have been fundamental to the development of CTM’s reputation as a highly valued business partner for its clients. Positioning for the Future As we look forward to 2018, CTM remains confident that its customer value proposition remains compelling and that there is enormous untapped potential in each of the markets in which we operate. CTM’s continued investment in innovative client facing technology, particularly the introduction of CTM SMART Technology, coupled with the scale in presence in North America and Europe, has the Company well positioned for growth. Geographic diversification is important in driving the sustainable performance and managing risk. CTM is leveraged to the world’s largest markets, with over 70% of profit expected to be derived outside of Australia. CTM has regional technology hubs in each global region to accelerate client facing technology development and solve regionally specific needs. CTM’s focus remains its clients and staff, to ensure its service offering is both innovative and cost effective, and enabling staff to offer the personalised service and expertise demanded by clients. Conclusion We would like to take this opportunity to thank the Board, management team and staff for their efforts, and congratulate them on the continued success of CTM as a leading-edge and profitable corporate travel solutions company. We would also like to thank CTM’s shareholders and, most importantly, CTM’s clients for their continuing support. The Board has declared a dividend of 18 cents per share on 22 August 2017, which will be paid on 5 October 2017 to all shareholders registered on 8 September 2017. CTM continues to invest in its people, through its in-house training programs, selective recruitment and a commitment to provide the resourcing to support its people in delivering service excellence to clients. 6 7 Tony Bellas Chairman Corporate Travel Management Limited 22 August 2017 Jamie Pherous Managing Director Corporate Travel Management Limited 22 August 2017 Growing a global brand CTM’s growth strategy is founded on a robust and proven business model, combining personalised service excellence with innovative technology solutions which deliver a return on investment to our customers. This financial year has seen continued growth for CTM in every global market, reflecting both strong organic growth from new client wins and client retention, and the continued execution of the Company’s acquisition strategy. The recent acquisitions of UK-based Redfern Travel and Tasmanian-based Andrew Jones Travel continue to strengthen CTM’s position as a global travel management company, enabling us to service our customers seamlessly in new regional areas whilst leveraging opportunities in new market niches. CTM operates a highly differentiated business model. Our travel solutions are developed and delivered by local travel consultants and strategic account management teams in every region – a model which we replicate successfully around the world. We understand the complexities and local market nuances of every market we operate in, and ensure that we attract and retain the industry’s most talented professionals who truly understand their customer’s local and global travel needs. We believe the critical combination of localised customer support and tailored technology solutions underpins our customer’s and our business’s ongoing success. CTM’s global footprint continues to expand year on year, and our extensive global partner network provides our customers with consistency and assurance wherever they travel. Through this network, our customers receive the same high level of customer-service and local market expertise they know and expect from CTM, supported by consistent systems and processes in more than 70 countries around the world. Technology remains central to delivering value and productivity to customers in all corners of the world. CTM’s SMART Technology suite of travel tools is being progressively developed in all global markets, giving our customers access to the most innovative and meaningful travel technology at their fingertips wherever their travels take them. As our global footprint continues to grow, providing customised solutions which drive value to our customers at every step of their journey will remain our priority. CTM operates a highly differentiated business model. Our travel solutions are developed and delivered by local travel consultants and strategic account management teams in every region – a model which we replicate successfully around the world. 8 9 Growing a G global brand G ng a and Excellence in Every market EUROPE Best Travel Management Company Business Travel Awards (£50m to £200m annual UK sales) Corporate Travel Management Top 50 Travel Agencies Award TTG Travel Awards Corporate Travel Management NORTH AMERICA ASIA North America’s Leading Travel Agency World Travel Awards Allure Travel by CTM #11 Travel Weekly Power List Travel Weekly’s Power List Corporate Travel Management Top Agency Award Singapore Airlines Corporate Travel Management Best Travel Agency Hong Kong TTG Travel Awards Westminster Travel Top Passenger Agent Award Cathay Pacific Airways Corporate Travel Management Best Progress Award Air China/Shenzhen Airlines Corporate Travel Management Our customer-centric travel solutions are award-winning around the world and underpin our ongoing success. AUSTRALIA AND NEW ZEALAND Best National Travel Management Company AFTA Awards Corporate Travel Management AFR Most Innovative Companies List AFR Most Innovative Companies List Corporate Travel Management Best Travel Agency Manager AFTA Awards Andre Moten, COO Travel Executive of the Year Association of Travel Management Companies (ATMC) Scott Ward, GM Victoria Best Business Events Travel Agency AFTA Awards Event Travel Management CIO Magazine’s CIO 50 list CIO Magazine Tom Clark, Global CTO Best Agency Manager AFTA Awards Cherie Drummond, Operations Manager NSW Outstanding Team Achievement Award BAE Commercial and Procurement Awards 10 11 Excellence inEvery marketExcellence inEvery marketExcellence inEvery marketDirectors Tony Bellas Chairman Tony Bellas has more than 30 years’ experience in both the government and private sectors. Tony Bellas has previously held positions of Chief Executive Officer of Ergon Energy Ltd, CS Energy Ltd, Seymour Group Pty Ltd, and was previously Queensland’s Deputy Under Treasurer. Jamie Pherous Managing Director Jamie Pherous, Managing Director, founded Corporate Travel Management in 1994. He built the company from its headquarters in Brisbane to become the largest privately owned travel management company in Australia and, in late 2010, became successfully listed on the Australian Securities Exchange (ASX). Stephen Lonie Independent Non-Executive Director Stephen Lonie is a Chartered Accountant with more than 40 years’ industry experience, and is a former Managing Partner Queensland of the international accounting and consulting firm, KPMG. He now practices as an independent management consultant and business adviser. Greg Moynihan Independent Non-Executive Director Greg Moynihan is a former Chief Executive Officer of Metway Bank Limited. He has also held senior executive positions with Citibank Australia and Suncorp Metway. He now focuses on commitments as a Non-Executive Company Director, as well as pursuing business interests in the investment management and private equity sectors. Admiral Robert J. Natter, US Navy (Ret.) Independent Non-Executive Director Robert Natter retired from active military service a decade ago and now has more than 10 years’ of experience in both the government and private sectors in the North American market. In his Navy career, Robert Natter served as the Commander of the U.S. Seventh Fleet operating throughout Asia and the Indian Ocean; Commander in Chief of the U.S Atlantic Fleet; and the first Commander of U.S. Fleet Forces, overseeing all Continental U.S. Navy bases, facilities and training operations. Laura Ruffles Executive Director Laura Ruffles is CTM’s Chief Executive Officer Australia & New Zealand, Global COO and in late 2015 was appointed an Executive Director in recognition of her leadership contribution to CTM’s success. Laura has more than 20 years’ experience leading local, regional and global business strategy, and in 2013 completed a Master of Business Administration from the Australian Institute of Business. 12 13 DirectorsDirectorsDirectorsSenior Leadership team Jamie Pherous Managing Director Jamie Pherous, Managing Director, founded Corporate Travel Management in 1994. He built the company from its headquarters in Brisbane to become the largest privately-owned travel management company in Australia and, in late 2010, became successfully listed on the Australian Securities Exchange (ASX). Prior to establishing CTM, Jamie was employed by Arthur Andersen (now Ernst & Young) as a chartered accountant specialising in business services and the financial consulting division in Australia, Papua New Guinea and the United Arab Emirates. Steve Fleming Global Chief Financial Officer Steve Fleming is responsible for Corporate Travel Management’s finance function, treasury management, key stakeholder liaison and strategic planning in conjunction with the Managing Director and Board. Steve has more than 24 years’ experience in commercial finance roles gained with high growth companies across a number of industries and countries including Abbey National, TrizecHahn, Deutsche Morgan Grenfell and Arthur Andersen. Laura Ruffles Executive Director, Global COO & CEO Australia / New Zealand Laura Ruffles is CTM’s Chief Executive Officer Australia & New Zealand, Global COO and, in late 2015, was appointed an Executive Director in recognition of her leadership contribution. She has significant local, regional and global industry experience and, in a career of more than 20 years, has led teams across sales, account management, operations and technology. Laura Ruffles is responsible for all aspects of CTM’s business performance. She joined CTM in 2010 and has been a key contributor to its successful growth. Debbie Carling CEO Europe Debbie has worked in the travel industry for over 30 years’ in a number of key strategic and senior roles, including Commercial Director at Britannic Travel. During this time Debbie led the set up of global brand FCM Travel Solutions and became the Executive General Manager of Europe. In 2011 Debbie joined Chambers Travel and became COO soon after. Debbie successfully instilled new company processes, productivity and developments in supplier relations. In 2015 Chambers was acquired by Corporate Travel Management, during which time Debbie played a key role in the successful transition. Debbie was appointed as CEO Europe for CTM in July 2016. Larry Lo CEO Asia Larry Lo brings 24 years’ travel industry experience to the Corporate Travel Management leadership team. Larry is responsible for the local and regional sales and operations of CTM’s Asian operations at Westminster CTM. He was a Director of the Travel Industry Council of Hong Kong (TIC) from 2010 to 2012 and is currently Vice Chairman of the Society of International Air Transport Association Passenger Agents (SIPA). He holds a Bachelor Degree in Business Management. Chris Thelen CEO North America Chris Thelen joined Chambers Travel (UK, Europe) in 1999 and led a management buy-out of the company five years later. Under his leadership, Chambers Travel quadrupled its turnover and its staff, and became an award- winning business with offices across eight European countries. Chambers Travel was acquired by CTM in December 2014, where Chris remained at the helm of CTM’s European operations until his transfer to CEO North America in July 2016. 14 15 SeniorSeniorLeadership teamLeadership teamLeadership teamAnnual Financial Report. Annual Financial Report Directors’ Report Corporate Governance Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Consolidated Financial Statements Directors’ Declaration Independent Auditor’s Report Shareholder Information Corporate Directory 17 18 38 39 40 41 42 44 94 95 103 105 16 17 Directors’ Report The Directors present their report, together with the financial report of Corporate Travel Management Limited and its controlled subsidiaries (CTM or “the Group”), for the financial period ended 30 June 2017. Directors The following persons were directors of Corporate Travel Management Limited during the whole of the financial year and up to the date of this report: • Tony Bellas. • Jamie Pherous. • Stephen Lonie. • Greg Moynihan. • Admiral Robert J. Natter, U.S. Navy (Ret.). • Laura Ruffles. Principal activities The principal activities of the Group during the year consisted of managing the purchase and delivery of travel services for its clients. There were no significant changes in the nature of the activities of the Group during the year. Directors’ Report (continued) Review of operations (continued) Further acquisitions (continued) • Andrew Jones Travel (AJT) is recognised as the leading TMC in Tasmania, with over 30 years’ experience in this market, based in Hobart. The Tasmanian corporate market is particularly leveraged to expansion in key markets, particularly aquaculture, food and wine, that are now exporting into the expanding Asian markets. AJT also services three of the largest Australian Sporting Bodies and Tasmanian Government departments, which provides CTM with further leverage to grow into these important specialised market segments. In order to ensure best utilisation of acquired skills and strengths, CTM new business wins are often serviced out of newly acquired offices. Following these acquisitions, the CTM network provides localised service solutions to clients in more than 70 countries and employs over 2,200 FTE staff. Group financial performance CTM’s key financial metrics are summarised in the following table: Dividends Dividends paid to members during the financial year were as follows: Revenue and other income EBITDA adjusted for one-off non-recurring / acquisition costs (adjusted EBITDA) Net profit after tax (NPAT): NPAT - Attributable to owners of CTD One-off non-recurring / acquisition costs (tax effect) Underlying NPAT - Attributable to owners Amortisation of client intangibles Underlying NPAT - Attributable to owners (excluding acquisition amortisation) 2017 $’000 2016 $’000 325,874 264,839 98,615 69,030 57,838 54,556 45,743 42,134 1,376 (1,306) 55,932 11,100 40,828 6,483 Change % 23% 43% 26% 29% 37% 67,032 47,311 42% The net profit after tax of the Group for the financial period amounted to $54,556,000 (2016: $42,134,000). The result was underpinned by a 24% increase in revenue, and includes a full year contributed results from the acquisition of Travizon Travel and the five months contributed results from the acquisitions of Redfern Travel and Andrew Jones Travel, both acquired on 1 February 2017. In addition, adjusted EBITDA grew by 42.9% to $98.6m, with the reconciliation to profit before income tax from continuing operations as set out in Note 1 in the Financial Statements. Although recent acquisitions have contributed to this growth, importantly, over $16.0m of the adjusted EBITDA increase has resulted from organic growth. Market adoption of CTM’s SMART technology program and further expansion of the CTM’s global network were considered to be key contributing factors. Final ordinary dividend for the year ended 30 June 2016 of 15.0 cents per fully paid share paid on 6 October 2016 Interim ordinary dividend for the year ended 30 June 2017 of 12.0 cents per fully paid share paid on 12 April 2017 Total dividends paid 2017 $’000 14,928 12,626 27,554 Since the end of the financial year, the Directors have recommended the payment of a final ordinary dividend of $18,939,825 (18.0 cents per fully paid share), to be paid on 5 October 2017 out of retained earnings at 30 June 2017. Review of operations Group overview The Group continued to engage in its principal activity, being the provision of travel services, the results of which are disclosed in the following financial statements. Further acquisitions On 1 July 2016, the Group continued its expansion into the North American market with the acquisition of 100% of the shares of All Performance Associates, Inc., Business Travel, Inc., and Travizon, Inc., which make up Travizon Travel, a travel management group headquartered in Boston MA, USA. With the acquisition of Travizon Travel, the Group has extended its coverage of the USA East Coast. On 1 February 2017, CTM acquired 100% of the shares of Arizonaco Limited and Portall Travel Limited, trading as Redfern Travel and Andrew Jones Travel Pty Ltd, trading as Andrew Jones Travel: • Redfern Travel (Redfern) is a leading UK Travel Management Company (TMC), specialising in delivering on-line travel services, through a fully automated and integrated proprietary travel system, headquartered in Bradford, UK. Redfern’s key competitive advantage is its proprietary, highly automated, end-to-end integrated system. Redfern’s business base is corporate travel, with a high concentration in the UK Government sector and low exposure to Brexit affected industries. 18 19 Directors’ Report (continued) Directors’ Report (continued) Review of operations (continued) Group financial performance (continued) Net profit after tax: Attributable to members Attributable to minority interest Shareholder funds Basic EPS (cents per share) Basic EPS growth Return on equity Dividend per share - year end Dividend per share - interim 2017 $’000 2016 $’000 2015 $’000 2014 $’000 54,556 3,282 42,134 3,609 26,367 15,845 2,727 734 281,847 175,231 161,675 99,823 53.5 24% 19% 43.2 54% 24% 28.1 48% 16% 18.0 15.0 10.0 12.0 9.0 6.0 19.0 28% 16% 7.5 4.5 12.0 Dividend per share - full financial year 30.0 24.0 16.0 CTM continues to maintain a strong financial position, with net current assets of $11.0m and total equity of $401.4m. At 30 June 2017, the Group had $45.4m in borrowings, partially to fund the Montrose Travel initial and deferred acquisition payments, and has continued to generate strong operation cash flows. Current trade and other payables increased during the period by $30.3m, which includes current payables relating to acquisitions of Travizon Travel ($20.5m) and Redfern Travel ($9.7m). CTM’s business growth has been funded through a combination of operating cash flow and short term debt. In addition to the Travizon Travel business acquisition, there has been further capital expenditure of $13.9m during the year, which has been funded from operating cash flow. The acquisitions of Redfern Travel and Andrew Jones Travel were fully funded by a renounceable entitlement offer, which was completed on 20 January 2017, and was successful in raising approximately $71.1m. The entitlement offer was fully underwritten and the allotment of 4,744,475 shares took place on 24 January 2017. The Group renegotiated one of its bank facilities during the year, which resulted in further access to capital to assist with continued growth. This facility was utilised to fund the Montrose earnout payment of USD 26.0m in March 2017. The Company continues to pay dividends at its stated divided policy level, with a final dividend declared at 18 cents per share (full year: 30.0 cents). This dividend represents an increase of 25% on the preceding period. Total Transaction Value (TTV) (unaudited) TTV represents the amount at which travel products and services have been transacted across the Group’s operations whilst acting as agents for airlines and other service providers, along with revenue streams. TTV does not represent revenue in accordance with Australian Accounting Standards and is not subject to audit. TTV is stated net of GST. TTV net of GST (unaudited) 2017 $’000 2016 $’000 4,161,943 3,587,063 The Group maintained strong growth in TTV (unaudited), despite the impact from ticket price decline and non- core business sale in Asia and global FX translation, which had an estimated combined negative impact of ($565m). Review of operations (continued) Constant currency Due to a significant portion of the Group’s operations being outside Australia, the Group is exposed to currency exchange rate translation risk. i.e. the risk that the Group’s offshore earnings fluctuate when reported in Australian dollars. The Group’s regional results for the 2017 financial year have also been provided on a constant currency basis in the following commentary (i.e. based on the 2017 local currency, the revenue and EBITDA for the regions have been converted at the average rate for the 2016 financial year), to remove the impact of foreign exchange movements from the Group’s performance against the prior year. The constant currency comparatives are not compliant with Australian Accounting Standards. Review of underlying operations The key financial results by region are summarised in the following table: CTM Consolidated Australia & New Zealand North America Asia Europe Group Jun-17 Jun-16 Jun-17 Jun-16 Jun-17 Jun-16 Jun-17 Jun-16 Jun-17 Jun-16 Jun-17 Jun-16 REPORTED AUD $m $m $m Revenue 324.4 260.9 24% 91.5 Adj. EBITDA 98.6 69.0 43% 36.3 $m 76.9 28.3 $m 19% 126.7 28% 35.9 $m 77.2 21.2 $m $m 64% 56.7 69.1 (18%) 69% 18.1 21.3 (15%) $m 49.2 18.4 $m 37.2 32% $m 0.3 $m 0.5 6.1 202% (10.1) (7.9) 28% Adj. EBITDA as a % of Revenue 30.4% 26.4% 15% 39.7% 36.8% 8% 28.3% 27.5% 3% 31.9% 30.8% 4% 37.4% 16.4% 128% CONSTANT CURRENCY* Revenue 341.1 260.9 31% 91.5 76.9 19% 131.3 77.2 70% 59.0 69.1 (15%) Adj. EBITDA 104.0 69.0 51% 36.3 28.3 28% 37.2 21.2 75% 18.7 21.3 (12%) 59.0 21.9 37.2 59% 0.3 0.5 6.1 259% (10.1) (7.9) 28% Adj. EBITDA as a % of Revenue 30.5% 26.4% 15% 39.7% 36.8% 8% 28.3% 27.5% 3% 31.7% 30.8% 3% 37.1% 16.4% 126% * Constant currency reflects June 2016 as previously reported. June 2017 represents local currency converted at FY2016 average foreign currency rates. Australia and New Zealand (“ANZ”) Revenue rose by 19.0% to $91.5m. The increased revenue has flowed through to the adjusted EBITDA, which rose by 28.3% to $36.3m with an improved margin of 39.7%, which is up from 36.8% in the prior comparative period. The region continued to benefit from top line growth and productivity initiatives resulting in increased revenue per FTE generation. 80% of all transactions now originate online. North America Revenue rose by 64.1% to $126.7m as a result of new business wins and inclusion of the Travizon Travel acquisition from 1 July 2016. The adjusted EBITDA rose by 69.0% to $35.9m and the adjusted EBITDA margin improved from 27.5% in 2016 to 28.3%, due to a combination of client wins, integration success and leveraging scale. This result was particularly encouraging given the currency depreciation and the effect of the recent US election on general economic activity. On a constant currency basis, revenue for North America increased by 70% and adjusted EBITDA increased by 75% over the previous comparative period. Europe The operation in Europe contributed $49.2m in revenue during the year, an increase of 32% on prior year, with inclusion of the Redfern Travel acquisition from 1 February 2017. Despite the average GBP exchange rate weakening by over 20% year on year, the adjusted EBITDA for the Europe business rose by 202% to $18.4m and the adjusted EBITDA margin increased from 16.4% to 37.4%, benefiting from a large move to CTM’s online platforms, automation resulting from the Redfern acquisition and record client wins and retention. On a constant currency basis, revenue increased by 59% and adjusted EBITDA increased by 259% over the previous period. Redfern’s key competitive advantage is its proprietary, highly automated, end-to-end integration system, particularly applicable to the government and large corporate sectors, which CTM continues to leverage across the rest of CTM Europe. 20 21 Directors’ Report (continued) Review of operations (continued) Review of underlying operations (continued) Asia Revenue declined 17.9% to $56.7m for the financial year. The underlying EBITDA is down 15.0% on the prior comparative period, largely due to a fall in average ticket prices of approximately 14%, which had a negative impact on supplier revenues in the wholesale business. Encouragingly, however, the EBITDA margin increased slightly from 30.8% to 31.9% as the business benefited from productivity gains through enhanced automation. The underlying business has continued to grow with circa 14% increase in transactions. During the period, the region also sold its non-core legacy packaged travel business, as CTM looks to focus on its corporate, B2B and B2C opportunities. Specifically, the Group sold its share of ownership in Wincastle Travel (HK) Limited with a gain from sale of $0.9m recorded in the first half of the financial year. Strategy and future performance The Group continues to focus on its key strategic drivers, being: • Retaining current clients; • Winning new clients; and • Innovating client tools and internal processes to enhance service to clients and improve internal productivity. In the 2017 financial year, the Group executed well on these business drivers, with maintenance of the historically strong client retention numbers, a record year of new client wins and improved productivity in all regions. A vast proportion of CTM’s cost base is employee costs, which highlights the importance of productivity initiatives. During the year, there has been an increase in productivity, but not through a reduction of service. In fact, service levels have risen as automation has replaced manual processes, providing CTM’s consultants with the time to operate more effectively and for the benefit of clients. The Group intends to continue to pursue the opportunity for its growth globally through acquisition, as well as pursuing organic growth in each market, underpinned by a focus on client service, supported by the continued investment in new client facing technology and delivery of measurable return on investment (ROI) to its clients. Material business risks The Group is subject to both specific risks to its business activities and risks of a general nature. These strategic risks include: • Global conflicts, terrorism and pandemics: International travel remains susceptible to the impact of regional conflicts, terrorism and health pandemics. • Economic conditions: Economic downturns, both globally and regionally, may have an adverse impact on the Group’s operating performance. • Foreign exchange: The volatility of foreign exchange markets impacts on the Australian dollar results for the Group, which is mitigated by matching funding sources to operating cash flows. • Financial structure: The Group has acquired a number of businesses, all of which has resulted in the creation of significant intangible assets, the recoverability of which is totally dependent upon future performance, including a dependency on major contracts. • Information technology: The Group relies heavily on outsourced technology platforms. Whilst all systems are licensed, any disruption to supply or performance of systems may have an immediate and a longer term impact on client and supplier satisfaction. • Competition: The Group operates in a competitive market, and current competitors or new competitors may become more effective. • Key personnel: The Group is reliant on talent and experience to run its business. The Group’s ability to retain and attract key people is important to its continued success. Directors’ Report (continued) Significant changes in the state of affairs In the opinion of the Directors, there were no significant changes in the state of affairs of the Group during the financial year not otherwise disclosed in this report or the consolidated financial statements. Events since the end of the financial year There have been no matters, or circumstances, not otherwise dealt with in this report, that will significantly affect the operation of the Group, the results of those operations or the state or affairs of the Group or subsequent financial years. Likely developments and expected results of operations Further information on likely developments in the Group’s operations and the expected results of operations has not been included in this report because the Directors consider that would be likely to result in unreasonable prejudice to the Group. Environmental regulation The Group has determined that no particular or significant environmental regulations apply to its operations. Information on Directors Mr Tony Bellas, BEcon, DipEd, MBA, FAICD, FCPA – Independent Non-Executive Director - Chairman Experience and expertise Listed Company Directorships (including key dates) Special responsibilities Tony Bellas has more than 30 years’ experience in both the government and private sectors. Tony Bellas has previously held positions of Chief Executive Officer of Ergon Energy Ltd, CS Energy Ltd, Seymour Group Pty Ltd, and was previously Queensland’s Deputy Under Treasurer. ERM Power Limited (since 2009), Shine Corporate Limited (since 2013) and NOVONIX Limited (previously Graphitecorp Ltd) (since 2016). Chairman of not-for-profit company: Endeavour Foundation (since 2016). Chair of the Board Chair of Nomination Committee Audit Committee member Risk Management Committee member Remuneration Committee member Interests in shares and options Ordinary shares in Corporate Travel Management Limited 243,836 Mr Jamie Pherous, BCom, CA – Managing Director Experience and expertise Jamie Pherous founded Corporate Travel Management Ltd (CTM) in Brisbane in 1994. He has built the Group from its headquarters in Brisbane to become the one of the world’s largest travel management companies now employing more than 2,000 staff. Prior to establishing CTM, Jamie Pherous was employed by Arthur Andersen, now Ernst & Young, as a Chartered Accountant, specialising in business services and financial consulting in Australia, Papua New Guinea and the United Arab Emirates. Jamie Pherous was also a major shareholder and co-founder of an online hotel booking engine, Quickbeds.com.au, which was sold to The Flight Centre Group in 2003 and is a Director of the Australian Federation of Travel Agents. Listed Company Directorships (including key dates) None. Special responsibilities Managing Director Interests in shares and options Ordinary shares in Corporate Travel Management Limited 21,650,000 22 23 Directors’ Report (continued) Directors’ Report (continued) Information on Directors (continued) Information on Directors (continued) Mr Stephen Lonie, BCom, MBA, FCA, FFin, FAICD, FIMCA, Senior MACS – Independent Non-Executive Director Admiral Robert J. Natter, US Navy (Ret.) – Independent Non-Executive Director Experience and expertise Stephen Lonie is a Chartered Accountant, and is a former Managing Partner Queensland of the international accounting and consulting firm, KPMG. He now practices as an independent management consultant and business adviser. Listed Company Directorships (including key dates) MyState Limited (since 2011), Retail Food Group Limited (since 2013) and Apollo Tourism and Leisure Ltd (since 2016). Special responsibilities Chair of Audit Committee Chair of Risk Management Committee Remuneration Committee member Nomination Committee member Interests in shares and options Ordinary shares in Corporate Travel Management Limited 254,312 Mr Greg Moynihan, BCom, Grad Dip SIA, CPA, SFFIN, MAICD – Independent Non-Executive Director Experience and expertise Listed Company Directorships (including key dates) Special responsibilities Greg Moynihan is a former Chief Executive Officer of Metway Bank Limited. He has also held senior executive positions with Citibank Australia and Suncorp Metway. Since leaving Suncorp Metway in 2003, Greg Moynihan has focussed on his commitments as a Non-Executive Company Director, as well as pursuing business interests in the investment management and private equity sectors. Shine Corporate Limited (since 2013) and Ausenco Limited (2008 – 2013). Chair of Remuneration Committee Nomination Committee member Audit Committee member Risk Management Committee member Interests in shares and options Ordinary shares in Corporate Travel Management Limited 254,312 Laura Ruffles – MBA, MAICD, Executive Director, CEO AU/NZ, Global COO Experience and expertise Laura Ruffles is CTM’s Chief Executive Officer Australia & New Zealand, Global COO and, in late 2015, was appointed an Executive Director in recognition of her leadership contribution. She has significant local, regional and global industry experience and, in a career of more than 20 years, has led teams across sales, account management, operations and technology. Laura Ruffles is responsible for all aspects of CTM’s business performance. She joined CTM in 2010 and has been a key contributor to its successful growth. Prior to joining Corporate Travel Management Laura was a Director at American Express, where she was responsible for managing the small and medium enterprises business function. She is also an Alternate Director of the Australia Federation of Travel Agents. Listed Company Directorships (including key dates) None. Special responsibilities Executive Director, Chief Executive Officer AU/NZ, Global Chief Operating Officer Interests in shares and options Ordinary shares in Corporate Travel Management Limited Share appreciation rights over ordinary shares in Corporate Travel Management Limited 98,691 400,000 Experience and expertise Robert Natter retired from active military service a decade ago and now has more than 10 years of experience in both the government and private sectors in the North American market. In his Navy career, Robert Natter served as the Commander of the U.S. Seventh Fleet operating throughout Asia and the Indian Ocean; Commander in Chief of the U.S Atlantic Fleet; and the first Commander of U.S. Fleet Forces, overseeing all Continental U.S. Navy bases, facilities and training operations. He is currently Chairman of the U.S. Naval Academy Alumni Association, services on the Board of BAE systems, Inc. (the U.S. based subsidiary of ABE Systems plc) and on the Board of Allied Universal (a privately held US based security company with 140,000 employees). He was on the Board of the National U.S. Navy Seal Museum and was Chairman of G4S Government Solutions Inc. Listed Company Directorships (including key dates) Special responsibilities NOVONIX Limited (since 2017) Remuneration Committee member Nomination Committee member Interests in shares and options Ordinary shares in Corporate Travel Management Limited 143,200 Company secretaries • Mr Steve Fleming (Joint Company Secretary). • Ms Brooke Connell (Joint Company Secretary, effective 22 July 2016 to 1 March 2017). • Mrs Suzanne Yeates (Joint Company Secretary, effective 18 April 2017). Steve Fleming, BBus (Accounting), CA Steve Fleming is CTM’s Global Chief Financial Officer and is responsible for the finance function, treasury management, key stakeholder liaison and strategic planning, in conjunction with the Board and the Managing Director. Steve Fleming has more than 20 years’ experience in commercial finance roles gained with high growth companies across a number of industries and countries, including Abbey National, TrizecHahn, Deutsche Bank and Arthur Andersen. Prior to joining CTM in 2009, Steve Fleming was Group Finance Manager of Super Retail Group Ltd. Steve Fleming is a member of the Institute of Chartered Accountants in Australia. Suzanne Yeates, BBus (Accounting), CA Suzanne Yeates was appointed to the position of Joint Company Secretary on 18 April 2017. Suzanne is a Chartered Accountant, Founder and Principal of Outsourced Accounting Solutions Pty Ltd. She holds similar positions with other public and private companies. 24 25 Directors’ Report (continued) Directors’ Report (continued) Meetings of Directors Remuneration report The numbers of meetings of the Group’s Board of Directors and of each Board Committee held during the year ended 30 June 2017, and the numbers of meetings attended by each Director were: Director Full meetings of directors Committee meetings Audit Risk Management Remuneration Nomination Mr Tony Bellas Mr Stephen Lonie Mr Greg Moynihan Mr Jamie Pherous Admiral Robert J. Natter Ms Laura Ruffles A 8 8 8 7 8 8 B 8 8 8 8 8 8 A 6 6 6 * * * B 6 6 6 * * * A 3 3 3 * * * B 3 3 3 * * * A 4 4 4 * 4 * B 4 4 4 * 4 * A 1 1 1 * 1 * B 1 1 1 * 1 * A = Number of meetings attended. B = Number of meetings held during the time the Director held office or was a member of the Committee during the year. * Not a member of the relevant Committee. The Directors are pleased to present Corporate Travel Management Limited’s 2017 remuneration report, outlining key aspects of the Group’s remuneration policy and framework, as well as remuneration awarded in the year. The report is structured as follows: 1. CTM’s remuneration framework. 2. Key elements of remuneration. 3. Who is covered by this report. 4. Details of Executive KMP remuneration. 5. Contractual arrangements for Executive KMP. 6. Non-executive director arrangements. 7. Additional required disclosures. 1. CTM’s remuneration framework The following section outlines CTM’s remuneration framework and the policies that underpin it. Information is presented in a question and answer format. Key questions CTM’s approach Remuneration framework 1. What is the objective of the Group’s executive reward framework? The objective of the Group’s executive reward framework is to ensure reward for performance is competitive and appropriate for the results delivered. The framework aligns executive reward with achievement of strategic objectives and the creation of value for shareholders, and conforms with market practice for the delivery of executive rewards. The Board ensures that the approach to executive reward satisfies the following key criteria for good reward governance practices: • Competitiveness and reasonableness; • Alignment to the interests of shareholders; • Performance linkage and alignment of executive compensation; • Transparency; and • Capital management. 2. What are the key The framework is based on the following key elements: elements of the remuneration framework? • Alignment to shareholders’ interests, which: ο Has economic profit as a core component of plan design; ο Focuses on sustained growth in shareholder wealth, consisting of dividends and growth in share price, and delivering an appropriate return on assets, as well as focusing the executive on key non-financial drivers of value; and ο Attracts and retains high calibre executives. • Alignment to program participants’ interests, which: ο Rewards capability and expertise; ο Reflects competitive reward for contribution to growth in shareholder wealth; ο Provides a clear structure for earning rewards; and ο Provides recognition for individual and team contributions. 26 27 Directors’ Report (continued) Remuneration report (continued) CTM’s remuneration framework (continued) Key questions CTM’s approach 3. What is the role of the Remuneration Committee? The Remuneration Committee is a Committee of the Board and its role of is to advise the Board on remuneration and issues relevant to remuneration policies and practices, including for senior executives and Non-Executive Directors. CTM’s Corporate Governance Statement provides further information on the role of this Committee. 4. What proportion of remuneration is at risk? The framework provides for a mix of fixed and variable remuneration, and a blend of short and long-term incentives. As executives gain seniority with the Group, the balance of this mix shifts to a higher proportion of ‘at risk’ rewards. The proportion of short-term incentives (STI) and long-term incentives (LTI) (relative to fixed pay) is set at the start of the financial year, along with all relevant KPI’s. Remuneration in 2017 5. How is CTM’s performance reflected in this year’s remuneration outcomes? 6. What are the performance measures for LTI? 7. What changes have been made to the remuneration structure in FY17? 8. Are any changes planned for FY18? CTM’s remuneration outcomes are strongly linked to delivery of return on investment to shareholders over the short and long term. Section 4 Short term: CTM has delivered strong performance in 2017 in terms of EBITDA and financial targets, as well as non-financial strategic targets, which has resulted in corresponding payout of STI at 60- 100% for Executive KMP. Long term: The three-year performance period for the FY15 LTI completed on 30 June 2017. Based on strong growth in earnings per share (EPS), the performance conditions pertaining to the FY15 share appreciation rights have been achieved. CTM’s Board is committed to ensuring executives’ remuneration links to return on investment for shareholders and therefore will continue to use EPS growth as the primary performance metric for the FY18 LTI award. Target earnings per share growth of 10% per annum average over a three-year vesting period. Section 4 There have been no significant changes to the approach to remuneration in FY17. No, there are no significant changes planned for FY18. However, in line with previous years, the Board will review and adjust (if necessary) the threshold and performance levels for the performance objectives applicable to the STI and LTI awards. Further info Section 2 Directors’ Report (continued) Remuneration report (continued) 2. Key elements of remuneration The executive remuneration framework has three components: • Fixed pay; • Short-term performance incentives (STI); and • Long-term incentives through participation in the Share Appreciation Rights Plan (LTI). Additional detail on each of these components is included in the following table. Section 4 Key elements of remuneration Fixed Pay Fixed pay includes base remuneration and benefits and is structured as a total employment cost package, which may be delivered as a combination of cash and prescribed non-financial benefits at the executives’ reasonable discretion. Executives are offered a competitive base remuneration package that comprises the fixed component of remuneration and rewards. Base remuneration for executives is reviewed annually, to ensure the executive’s remuneration is competitive with the market. An executive’s remuneration is also reviewed on promotion. There is no guaranteed base remuneration increase included in any executives’ contracts. Superannuation contributions are paid in accordance with relevant Government legislation, to employee nominated defined contribution superannuation funds. STI Based on a pre-determined profit targets set annually by the Remuneration Committee, a short-term incentive (“STI”) pool is available to executives and other eligible participants. Cash incentives/bonuses are payable around 30 September each year. A profit target ensures variable reward is only available when value has been created for shareholders and when profit is consistent with CTM’s approved business plan. The incentive pool is increased for performance above the profit target, in order to provide an incentive for superior performance. Executives have a target STI opportunity depending on the accountabilities of the role and impact on the organisation or business unit performance. STI (continued) Each year, the Remuneration Committee considers the appropriate targets and key performance indicators (“KPI”s), to link the STI plan and the level of payout if targets are met, including setting any maximum payout under the STI plan, and minimum levels of performance to trigger payment of STI. The Remuneration Committee is responsible for assessing whether the KPIs are met. The Remuneration Committee also has absolute discretion to adjust short- term incentives, in light of unexpected or unintended circumstances. Additional detail on the STI scheme is included in Section 4: Details of Executive KMP remuneration. LTI The Group has a long term incentive scheme using a Share Appreciation Rights Plan. The Plan is designed to focus executives on delivering long-term shareholder returns. Under the Plan, participants are granted rights only if performance conditions pertaining to the earnings per share growth are met and the employee is still employed at the end of the three year vesting period. Participation in the Plan is at the Board’s absolute discretion and no individual has a contractual right to participate in the Plan. Additional detail on the LTI scheme is included in Section 4: Details of Executive KMP remuneration. The combination of these components comprises an executive’s total remuneration. The Group intends to continue to review incentive plans during the year ending 30 June 2018, to ensure continued alignment with the Group’s financial and strategic objectives. 28 29 Directors’ Report (continued) Remuneration report (continued) 3. Who is covered by this report This Remuneration Report sets out remuneration information for CTM’s Non-Executive Directors, Executive Directors and other key management personnel (KMP) of the Group, which includes the following persons: Directors’ Report (continued) Remuneration report (continued) 4. Details of Executive KMP remuneration (continued) Short-term incentive (STI) The key components of the Group’s STI structure as follows: Board of Directors Non-Executive Directors Mr Tony Bellas. Mr Stephen Lonie. Mr Greg Moynihan. Admiral Robert J. Natter. Executive Directors Mr Jamie Pherous. Ms Laura Ruffles. Other Group KMP Mr Steve Fleming - Global CFO. Mr Larry Lo - CEO - Asia. Mr Chris Thelen - CEO - North America. Ms Debbie Carling - CEO - Europe. 4. Details of Executive KMP remuneration Remuneration outcomes are disclosed in accordance with Australian accounting standards. Fixed remuneration Variable remuneration Cash salary and fees $ Non- cash benefits* $ Leave# $ Super- annuation $ Short-term Incentive $ Long-term incentive^ $ At risk % Total $ Name Year Executive Directors 63,956 64,629 79,654 69,958 - - 31,464 50,182 3,071 3,185 225,000 225,000 360,000 300,000 - - 167,926 140,000 143,323 212,307 - - 679,319 33% 715,447 31% 185,623 1,167,589 47% 92,426 1,008,345 39% - - - 55,423 - - 107,495 719,405 38% 73,581 628,001 34% 107,477 750,003 33% 31,396 754,526 32% - 211,949 40,592 908,732 28% Jamie Pherous Laura Ruffles Claire Gray¹ 2017 2016 2017 2016 2017 2016 448,221 459,302 538,462 516,404 - 55,423 9,776 (67,634) 6,800 (40,284) 11,032 (7,182) 10,634 18,923 - - - - Other key management personnel of the Group Steve Fleming Larry Lo Chris Thelen² Debbie Carling² Julie Crotts² Total Executive KMP 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 (2,227) 3,703 (5,497) 1,934 30,416 410,024 353,231 501,629 505,704 625,775 508,345 251,889 - - 304,120 4,723 7,304 - - - - - - - - (11,662) 81,335 - - 578,018 - 5,560 2,519 83,963 57,336 401,267 35% - - - - 1,797 2,851 - - - - - - - 20,931 329,699 - - - 2,776,000 25,531 (46,564) 180,664 1,192,161 498,523 4,626,315 2,702,529 24,738 (25,589) 272,140 877,307 218,334 4,069,459 Purpose Participants Performance conditions Structure The STI scheme is designed to reward and recognise outstanding employee performance, provided the Group can also demonstrate it has created value for its shareholders. All Executive KMP participate in the STI scheme. For the year ended 30 June 2017, the key performance indicators (KPIs) linked to STI plans were based on the Group objectives, with the key financial metric being consolidated Earnings before Interest, Tax, Depreciation and Amortisation (EBITDA). If the Group achieves a pre-determined EBITDA target set by the Remuneration Committee, a short-term incentive (“STI”) pool is available to executives and other eligible participants. Executives have a target STI opportunity depending on the accountabilities of the role and impact on the organisation or business unit performance. The average maximum target bonus opportunity for Executive KMP in the 2017 year was approximately 42% (2016: 30%) of base fixed remuneration and benefits. Payments made under the STI plan are highly correlated with the Group’s financial results. The relationship between STI and Corporate Travel Management Ltd’s performance over the last 5 years is set out in the following table. Item 2017 2016 2015 2014 2013 restated Profit for the year attributable to owners of Corporate Travel Management Ltd ($’000) Basic earnings per share (cents) Dividend payments ($’000) Dividend payout ratio (%) Increase / (decrease) in share price % Total KMP STI as a percentage of profit / (loss) for the year (%) 54,556 42,134 26,367 15,845 11,268 53.5 27,554 50.5% 63.9% 43.2 18,539 44.0% 35.8% 28.1 12,609 47.8% 60.6% 19.0 9,129 57.6% 56.6% 14.9 7,497 66.5% 111.3% 2.2% 2.1% 2.7% 0.9% 2.6% For each short term incentive included in the table on page 17, the percentage split of the available bonus awarded and forfeited is disclosed in the following table. Name Jamie Pherous Laura Ruffles Steve Fleming Larry Lo Chris Thelen Debbie Carling* 2017 2016 Awarded % Forfeited % Awarded % Forfeited % 90% 90% 80% 60% 80% 100% 10% 10% 20% 40% 20% - 100% 100% 80% 100% - - - - 20% - - - ¹ Claire Gray resigned as Executive Director on 1 December 2015. The amounts presented in the table represent remuneration to this date. * Executive KMP of the Group are included in this disclosure for the period they held the applicable roles. ² Chris Thelen ceased as CEO of Europe and became CEO of North America on 1 July 2016. Debbie Carling was appointed CEO of Europe on 1 July 2016. Julie Crotts returned to the position of COO of North America on 1 July 2016. * Non-cash benefits represents the cost to the Group of providing parking. 30 # Leave represents the movement in the annual leave and long service leave provision balances. The accounting value may be negative, for example, when an Executive’s leave balance decreases as a result of taking more than the entitlement accrued during the year. ^ Long-term incentive represents amounts expensed during the year relating to share appreciation rights granted to date and not yet vested. 31 Directors’ Report (continued) Directors’ Report (continued) Remuneration report (continued) Remuneration report (continued) 4. Details of Executive KMP remuneration (continued) 4. Details of Executive KMP remuneration (continued) Long-term incentive (LTI) The Group introduced a long-term incentive scheme using a Share Appreciation Rights Plan during the 2013 financial year. The key components of the Plan as follows. Purpose Eligibility Instrument Performance period Performance hurdles Vesting The purpose of the LTI scheme at CTM is to provide long-term incentives to senior executives to deliver long-term shareholder returns. Participation in the plan is at the Board’s absolute discretion and no individual has a contractual right to participate in the plan. Awards under this plan are made in the form of Share Appreciation Rights (SARs). Performance is measured over a three-year period. The FY17 grant has a performance period commencing 1 July 2016 and ending 30 June 2019. The SARs are subject to average Earnings per Share (EPS) growth over the performance period, with target performance being set at 10% average EPS growth. The SARs will only vest if the performance hurdles are met and the employee remains in service. Once vested, a participant will be deemed to have automatically exercised all vested SARs and CTM will settle in line with the SARs Plan. Upon vesting, the conversion of a SAR to an equity or cash based settlement, is determined using a formula referencing the relevant share prices of CTM, the number of SARs exercised, and is at the Board’s sole discretion. Grants made during FY17 will vest on a scaled basis as follows: Minimum EPS growth from 1 July 2016 to 30 June 2019 Portion of SARs that become performance qualified 80% achievement of target growth rate (i.e. 8% EPS growth) 90% achievement of target growth rate (i.e. 9% EPS growth) 50% of SARs 75% of SARs 100% achievement of target growth rate (i.e. 10% EPS growth) 100% of SARs SARs will become performance qualified on a straight-line basis where average EPS growth falls between 8-10% EPS growth. Termination/ forfeiture Upon termination of employment, all unvested SARs will automatically be forfeited by the participant, unless the Board otherwise determines, in its absolute discretion, to permit some or all of the SARs to vest. Dilution Dilution that may results from securities being issued under CTM’s LTI plan is capped at the limit set out in ASIC Class Order 14/1000, which provides that the number of unissued securities under those plans must not exceed five per cent of the total number of the securities of that class at the time of the relevant offer. Hedging Consistent with the Corporations Act 2001, participants are prohibited from hedging their unvested performance rights. The following table sets out details of the SARs granted to key management personnel during the financial year under the 2017 allocation and vested under the 2014 allocation as well as details of SARs granted under prior year awards that have not yet vested as at 30 June 2017. Year in which rights may vest Year of grant Number of rights granted Value per right at grant date Number of rights vested during the year Forfeited % Max value yet to vest $ Vested % Laura Ruffles Steve Fleming Larry Lo Chris Thelen Debbie Carling 2017 2016 2015 2014 2017 2016 2015 2014 2017 2016 2015 2014 2017 2016 2017 2016 2020 2019 2018 2017 2020 2019 2018 2017 2020 2019 2018 2017 2020 2019 2020 2019 200,000 100,000 100,000 75,000 75,000 75,000 100,000 50,000 75,000 75,000 100,000 - $1.62 $1.26 $1.06 $0.41 $1.62 $1.26 $1.06 $0.41 $1.62 $1.26 $1.06 - 75,000 $1.62 - 75,000 40,000 - $1.62 $1.26 - - - - - - 75,000 100% - - - - - - 50,000 100% - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 324,734 125,699 106,274 - 121,775 94,274 106,274 - 121,775 94,274 106,274 - 121,775 - 121,775 50,280 5. Contractual arrangements for Executive KMP Each Executive KMP member, including the Managing Director, has a formal contract, known as a service agreement. These service agreements are of a continuing nature and have no fixed term of service. There were no changes to the service agreements for Executive KMP in FY17. The Group requires Executive KMP to provide six months’ written notice of their intention to leave CTM. Termination payments are assessed on a case-by-case basis and are capped by law. As is the case for all employees, KMP employment may be terminated immediately by serious misconduct. 32 33 Directors’ Report (continued) Directors’ Report (continued) Remuneration report (continued) 6. Non-Executive Director Arrangements In contrast to Executive KMP remuneration, the remuneration of CTM’s Non-Executive Directors is not linked to performance, which is consistent with Non-Executive Directors being responsible for objective and independent oversight of the Group. Non-executive Directors’ fees and payments are reviewed annually by the Board. The Chairman’s fees are determined independently to the fees of Non-Executive Directors. The Chairman is not present at any discussions relating to determination of his own remuneration. Non-Executive Directors have not received any fees other than those described in this section, and do not receive bonuses or any other incentive payments or retirement benefits. Non-Executive Directors are reimbursed for expenses properly incurred in performing their duties as a Director of CTM. Directors’ fees The current base fees were last increased with effect from 29 September 2014. Non-Executive Directors’ fees are determined within an aggregate Directors’ fee pool limit, which is periodically recommended for approval by shareholders. The maximum approved amount currently stands at $700,000 (2016: $600,000). Details of the remuneration of the Non-Executive Directors of the Group are set out in the following table. Name Tony Bellas Stephen Lonie Greg Moynihan Admiral Robert J. Natter Total Non-Executive Director Remuneration Year 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 Director fees Super-annuation* Total 120,000 124,615 100,000 103,846 100,000 103,846 126,688 88,689 446,688 420,996 11,400 11,838 9,500 9,865 9,500 9,865 - - 30,400 31,568 131,400 136,453 109,500 113,711 109,500 113,711 126,688 88,689 477,088 452,564 * Superannuation contributions required under the Australian superannuation guarantee legislation are made and are deducted from the Directors’ overall fee entitlements. Remuneration report (continued) 7. Additional required disclosures Equity instruments held by key management personnel The number of ordinary shares held during the financial year by CTM’s directors and KMP is set out in the following table: Ordinary shares Balance at 30 June 2016 Purchased Disposed Received on vesting of rights Other changes during the year Balance at 30 June 2017 Non-Executive Directors Tony Bellas Stephen Lonie Greg Moynihan Admiral Robert J. Natter Executive Directors 232,752 242,752 242,752 11,084 11,560 11,560 136,000 7,200 Jamie Pherous 21,500,000 150,000 - - - - - - - - - - Laura Ruffles 126,923 726 (80,012) 51,054 Other key management personnel of the Group Steve Fleming Larry Lo Debbie Carling Chris Thelen 28,467 25,000 21,307 905,547 642 (15,000) 34,036 - - - - (10,000) - - - - - - - - - - - - - - 243,836 254,312 254,312 143,200 21,650,000 98,691 48,145 25,000 11,307 905,547 All equity transactions with key management personnel have been entered into under terms and conditions no more favourable than those the Group would have adopted if dealing at arm’s length. Shares under option There are currently no unissued ordinary shares of CTM under option. No share options were granted as equity compensation benefits during the financial year (2016: nil). Other transactions and balances with key management personnel The portion of contingent consideration payable to Chris Thelen, in relation to the Chambers Travel acquisition, has been transferred to deferred consideration, and is no longer contingent on meeting earn out thresholds. The total balance of $21.3 million is payable, with $8.7 million being payable within 12 months and $12.6 million after 12 months. The portion of contingent consideration payable to Debbie Carling, in relation to the Chambers Travel acquisition, has also been transferred to deferred consideration, as earn out thresholds have been met as at 30 June 2017. The balance of $0.5 million is payable within 12 months. Directors of the Group hold other directorships in public corporations, as detailed in the Directors’ Report. Where any of these related entities are clients of the Group, the arrangements are on similar terms to other clients. Insurance of officers and indemnities An Officers’ Deed of Indemnity, Access and Insurance is in place for Directors, the Company Secretaries and some other key executives. The liabilities covered by the insurance include legal costs that may be incurred in defending civil or criminal proceedings that may be brought against the Officers in their capacity as Officers of the Company or its controlled entities. Disclosure of premiums paid is prohibited under the insurance contract. 34 35 Directors’ Report (continued) 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 Group, or to intervene in any proceedings to which the Group is a party, for the purpose of taking responsibility on behalf of the Group for all or part of those proceedings. No proceedings have been brought or intervened in on behalf of the Group with leave of the Court under section 237 of the Corporations Act 2001. Non-audit services The Group may decide to employ the auditor on assignments in addition to its statutory audit duties, where the auditor’s expertise and experience with the Group are important. Details of the amounts paid or payable to PricewaterhouseCoopers, the auditor of the consolidated entity, for audit and non-audit services provided during the year are set out in note 28. The Board has considered the position and, in accordance with the advice received from the Audit Committee, is satisfied that the provision of non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The Directors are satisfied that the provision of non-audit services by the auditor did not compromise the auditor independence requirements of the Corporations Act 2001 as none of the services undermine the general principles relating to auditor independence as set out in APES110 Code of Ethics for Professional Accountants. Auditor’s independence declaration A copy of the auditors’ independence declaration, as required under section 307C of the Corporations Act 2001, is appended to this Directors’ Report. Rounding of amounts The Group is of a kind referred to in Class Order 2016/191, issued by the Australian Securities and Investments Commission, relating to the ‘’rounding off’’ of amounts in the Directors’ Report. Amounts in the Directors’ Report have been rounded off in accordance with that Class Order to the nearest thousand dollars or in certain cases, to the nearest dollar. Signed in accordance with a resolution of the Directors. Mr Tony Bellas Chairman Brisbane, 22 August, 2017 Mr Jamie Pherous Managing Director 36 37 Auditor’s Independence DeclarationAs lead auditor for the audit of Corporate Travel Management Limited for the year ended 30 June 2017, I declare that to the best of my knowledge and belief, there have been: (a)no contraventions of the auditor independence requirements of the Corporations Act 2001in relation to the audit; and(b)no contraventions of any applicable code of professional conduct in relation to the audit.This declaration is in respect of Corporate Travel Management Limited and the entities it controlled during the period. Michael ShewanBrisbanePartner PricewaterhouseCoopers22 August 2017PricewaterhouseCoopers, ABN 52 780 433 757480 Queen Street, BRISBANE QLD 4000, GPO Box 150, BRISBANE QLD 4001T: +61 7 3257 5000, F: +61 7 3257 5999, www.pwc.com.auLiability limited by a scheme approved under Professional Standards Legislation. Corporate Governance Statement The Board and management of Corporate Travel Management Limited are committed to achieving and demonstrating the highest standards of corporate governance. Corporate Travel Management Limited has reviewed its corporate governance practices against the Corporate Governance Principles and Recommendations (3rd edition) published by the ASX Corporate Governance Council. The 2017 corporate governance statement is dated as at 30 June 2017 and reflects the corporate governance practices in place throughout the 2017 financial year. The 2017 corporate governance statement was approved by the Board on 22 August 2017. A description of the Group’s current corporate governance practices is set out in the Group’s corporate governance statement which can be viewed at www.travelctm.com/resources/ investor-relations/corporate-governance/. Consolidated Statement of Comprehensive Income For the year ended 30 June 2017 Revenue Other income Total revenue and other income Operating expenses Employee benefits Occupancy Depreciation and amortisation Information technology and telecommunications Travel and entertainment Administrative and general Total operating expenses Finance costs Profit before income tax Income tax expense Profit for the year Profit attributable to: Owners of Corporate Travel Management Limited Non-controlling interests Other comprehensive income Items that may be reclassified to profit or loss: Note 2017 $’000 2016 $’000 2 324,391 260,945 1,483 3,894 325,874 264,839 (175,175) (147,139) (12,657) (16,157) (20,239) (5,181) (14,914) (10,562) (13,870) (4,235) (15,396) (14,441) (244,805) (205,161) (3,443) 77,626 (1,809) 57,869 (19,788) (12,126) 57,838 45,743 6 6 5 24(b) 54,556 3,282 57,838 42,134 3,609 45,743 Exchange differences on translation of foreign operations (8,639) (2,635) Changes in the fair value of cash flow hedges Other comprehensive income for the period, net of tax Total comprehensive income for the year Total comprehensive income for the year attributable to: Owners of Corporate Travel Management Limited Non-controlling interests 360 (8,279) 49,559 46,130 3,429 49,559 - (2,635) 43,108 38,369 4,739 43,108 Earnings per share for profit from continuing operations attributable to the ordinary equity holders of the company - Basic (cents per share) - Diluted (cents per share) 3 3 53.5 52.5 43.2 42.8 The above Consolidated Statement of Comprehensive Income should be read in conjunction with the accompanying notes. 38 39 FINANCIAL STATEMENTS Consolidated Statement of Financial Position As at 30 June 2017 Consolidated Statement of Changes in Equity For the year ended 30 June 2017 ASSETS Current assets Cash and cash equivalents Trade and other receivables Financial assets at fair value Other current assets Total current assets Non-current assets Plant and equipment Intangible assets Deferred tax assets Total non-current assets TOTAL ASSETS LIABILITIES Current liabilities Trade and other payables Borrowings Income tax payable Provisions Total current liabilities Non-current liabilities Trade and other payables Borrowings Provisions Deferred tax liabilities Total non-current liabilities TOTAL LIABILITIES NET ASSETS EQUITY Contributed equity Reserves Retained earnings Capital and reserves attributed to owners of the company Non-controlling interests – equity TOTAL EQUITY Note 2017 $’000 2016 $’000 9 10 20 21 8 5 11 14 12 11 14 12 5 79,217 81,178 201,210 168,130 236 4,226 12 4,906 284,889 254,226 5,262 5,426 441,022 308,090 8,982 4,263 455,266 317,779 740,155 572,005 233,049 202,720 18,122 8,238 14,512 14,347 7,663 12,563 273,921 237,293 24,868 27,301 2,653 10,008 64,830 28,148 22,833 4,745 5,543 61,269 338,751 298,562 401,404 273,443 13(a) 13(b) 13(c) 24(b) 281,847 175,231 13,519 90,804 386,170 15,234 19,645 63,802 258,678 14,765 401,404 273,443 Note Contributed Equity $’000 Retained Earnings $’000 Other Reserves $’000 Total $’000 Non- Controlling Interests $’000 Total Equity $’000 Balance at 30 June 2015 161,675 40,207 21,609 223,491 12,420 235,911 Profit for the period as reported in 2016 financial statements Other comprehensive income (net of tax) Total comprehensive income for the year - - - 42,134 - 42,134 3,609 45,743 - (3,765) (3,765) 1,130 (2,635) 42,134 (3,765) 38,369 4,739 43,108 Transactions with owners in their capacity as owners: Shares issued Dividends paid Share based payments 13(a) 4 - - 13,556 - (18,539) - - 13,556 - 13,556 (18,539) (2,394) (20,933) - 1,801 1,801 - 1,801 Balance at 30 June 2016 175,231 63,802 19,645 258,678 14,765 273,443 13,556 (18,539) 1,801 (3,182) (2,394) (5,576) Profit for the period as reported in 2017 financial statements Other comprehensive income (net of tax) Total comprehensive income for the year - - - 54,556 - 54,556 3,282 57,838 - (8,426) (8,426) 147 (8,279) 54,556 (8,426) 46,130 3,429 49,559 Transactions with owners in their capacity as owners: Shares issued Dividends paid Share based payments 13(a) 106,616 - 4 - - (27,554) - 106,616 (27,554) - - 2,300 2,300 106,616 - 106,616 (27,554) (2,960) (30,514) 2,300 - 2,300 81,362 (2,960) 78,402 Balance at 30 June 2017 281,847 90,804 13,519 386,170 15,234 401,404 The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes. The above Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes. 40 41 FINANCIAL STATEMENTSFINANCIAL STATEMENTS Consolidated Statement of Cash Flows For the year ended 30 June 2017 Cash flows from operating activities Receipts from customers (inclusive of GST) Payments to suppliers and employees (inclusive of GST) Transaction costs relating to acquisition of subsidiary Interest received Finance costs Income tax paid Net cash flows from operating activities Cash flows from investing activities Payment for plant and equipment Payment for intangibles Proceeds from sale of plant and equipment Proceeds from sale of financial assets Purchase of controlled entities, contingent consideration Purchase of controlled entities, net of cash acquired Proceeds from sale of controlled entities Net cash flows from investing activities Cash flows from financing activities Proceeds from issue of new shares Share issue transaction costs Proceeds from borrowings Repayments of borrowings Dividends paid to company’s shareholders Dividends paid to non-controlling interests in subsidiaries Net cash flows from financing activities Net increase / (decrease) in cash and cash equivalents Effects of exchange rate changes on cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Note 2017 $’000 2016 $’000 334,806 255,159 (242,836) (171,228) (771) 197 (2,160) (19,958) (383) 155 (1,294) (12,199) 69,278 70,210 (1,316) (12,634) 1 12 (34,308) (69,418) 394 (4,295) (3,903) 16 5 (14,890) (27,031) - (117,269) (50,098) 72,181 (2,003) 57,134 (48,039) (27,554) (2,960) - (32) 75,571 (36,262) (18,539) (2,444) 48,759 18,294 768 (2,729) 81,178 79,217 38,406 2,109 40,663 81,178 9 21 8 7 13 4 9 The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes. 42 43 FINANCIAL STATEMENTS Notes to the Consolidated Financial Statements. Basis of preparation Critical estimates, assumptions and judgements Performance 46 47 48 This section explains the results and performance of the Group. It provides a breakdown of those individual line items in the financial statements, that the Directors consider most relevant in the context of the operations of the Group, or where there have been significant changes that required specific explanations. It also provides detail on how the performance of the Group has translated into returns to shareholders. 1. Segment reporting 2. Revenue 3. Earnings per share 4. Dividends paid and proposed 5. Income tax expense 6. Expenses Group structure 48 50 51 52 53 57 58 This section explains significant aspects of the Group structure and how changes have affected the financial position and performance of the Group. 7. Business combinations 8. Intangible assets Capital A core part of the Group’s operations is to maintain a strong financial position and low levels of external debt. This section explains how the Group has performed in areas relating to capital management. 9. Cash and cash equivalents 10. Trade and other receivables 11. Trade and other payables 12. Provisions 13. Contributed equity, reserves and retained earnings 14. Borrowings 58 63 65 65 66 67 68 70 72 Risk 74 This section discusses the Group’s exposure to various financial risks, explains how these affect the Group’s financial position and performance, and what the Group does to manage these risks. 15. Impairment testing of goodwill 16. Financial risk management Unrecognised items 74 76 79 This section provides information about items that are not recognised in the financial statements, but could potentially have a significant impact on the Group’s financial position and performance. 17. Contingent liabilities 18. Commitments 19. Events occurring after the reporting period Other items 79 79 79 80 This section provides information on items which require disclosure to comply with Australian Accounting Standards and other regulatory pronouncements, however are not considered critical in understanding the financial performance of the Group. 20. Other current assets 21. Plant and equipment 22. Fair value measurement 23. Share-based payments 24. Interest in other entities 25. Related party transactions 26. Parent entity financial information 27. Deed of cross guarantee 28. Auditors’ remuneration 29. Summary of significant account policies 80 80 81 83 85 87 88 90 92 93 44 45 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCritical estimates, assumptions and judgements Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that may have a financial impact on the entity and that are considered to be reasonable under the circumstances. In the process of applying the Group’s accounting policies, management is required to exercise judgement. Those judgements involving estimations that may have an effect on the amounts recognised in the financial statements. The Group makes estimates, assumptions and judgements concerning the future. The resulting accounting estimates will, by definition, 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 within the next financial year are discussed in this report, as follows: • Value of intangible assets relating to acquisitions ο Refer note 7 – Business combinations. • Impairment of goodwill ο Refer note 15 – Impairment testing of goodwill. • Contingent consideration ο Refer note 7 – Business Combinations. ο Refer note 11 – Trade and Other Payables. ο Refer note 22 – Fair Value Measurement. • Allowance for doubtful debts ο Refer note 10 – Trade and other receivables. • Override revenue ο Refer note 2 – Revenue. iii) Foreign operations The results and financial position of all the foreign operations that have functional currencies different to the presentation currencies are translated into the presentation currency as follows: • Assets and liabilities for each Consolidated Statement of Financial Position item presented are translated at the closing rate at the date of that statement; • Income and expenses for each profit and loss item in the Consolidated Statement of Comprehensive Income are translated at average exchange rates; and • All resulting exchange differences are recognised as a separate component of equity. Exchange differences arising from the translation of any net investment in foreign operations and of borrowings and other financial instruments designated as hedges of such investments are recognised in other comprehensive income. When a foreign operation is sold or any borrowings forming part of the net investment are repaid, a proportionate share of such exchange differences is recognised in the profit and loss in the Consolidated Statement of Comprehensive Income as part of the gain or loss on sale. Goodwill and fair value adjustments arising on the acquisition of foreign operations are treated as the foreign operations’ assets and liabilities and translated at the closing rate. Basis of preparation Basis of consolidation a) The consolidated financial statements comprise the financial statements of Corporate Travel Management Limited and its controlled entities (“CTM” or “the Group”). Subsidiaries are all entities over which the Group has control. The Group controls an entity when the Group is exposed to, or has right to, variable returns from its involvement with the entity and has ability to affect those returns through its power to direct the activities of the entity. The financial statements of subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. Adjustments are made to bring into line any dissimilar accounting policies that may exist. In preparing the consolidated financial statements, all intercompany balances and transactions, income and expenses and profit and losses resulting from intra- Group transactions have been eliminated in full. Subsidiaries are fully consolidated from the date on which control is transferred to the Group and deconsolidated from the date that control ceases. b) Foreign currency translation i) Functional and presentation currency Items included in each of the Group entities’ financial statements are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The consolidated financial statements are presented in Australian dollars, which is the Group’s functional and presentation currency. ii) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the transaction dates. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year- end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the profit and loss in the Consolidated Statement of Comprehensive Income, except when deferred in equity as qualifying cash flow hedges and qualifying net investment hedges. Translation differences on non-monetary financial assets and liabilities, such as equities held at fair value through profit or loss, are recognised in profit or loss in the Consolidated Statement of Comprehensive Income as part of the fair value gain or loss. Translation differences on non-monetary financial assets, such as equities classified as available-for- sale financial assets, are included in the fair value reserve in other comprehensive income. 46 47 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSPerformance This section explains the results and performance of the Group. It provides a breakdown of those individual line items in the financial statements, that the Directors consider most relevant in the context of the operations of the Group, or where there have been significant changes that required specific explanations. It also provides detail on how the performance of the Group has translated into returns to shareholders. 1. Segment reporting Description of segments a) The operating segments are based on the reports reviewed by the group of key senior managers who assess performance and determine resource allocation. The Chief Operating Decision Makers (“CODM”) are Managing Director Jamie Pherous (MD), Global Chief Financial Officer Steve Fleming (CFO) and Global Chief Operating Officer Laura Ruffles (COO). The CODM considers, organises and manages the business from a geographic perspective. The CODM has identified four operating segments being Travel Services Australia and New Zealand, Travel Services North America, Travel Services Asia, and Travel Services Europe. There are currently no non-reportable segments. Segment information provided to the Chief Operating Decision Makers b) The CODM assess the performance of the operating segments based on a measure of adjusted EBITDA. This measurement basis excludes the effects of the costs of acquisitions and any acquisition related adjustments during the year. The segment information provided to the CODM for the reportable segments for the year ended 30 June 2017 is as follows: Travel services Australia and New Zealand $’000 2017 Travel services Travel services Travel services North America $’000 Asia $’000 Europe $’000 Other* $’000 Total $’000 91,502 126,647 56,700 49,238 304 324,391 36,328 35,883 18,064 18,364 (10,024) 98,615 197 3,443 1,883 14,274 19,788 Total revenue from external parties Adjusted EBITDA Interest revenue Interest expense Depreciation Amortisation Income tax expense Total segment assets 110,265 248,171 144,012 226,294 11,413 740,155 Total assets include: Non-current assets - Plant and equipment - Intangibles 2,705 55,745 760 455 1,342 - 5,262 194,482 37,947 148,834 4,014 441,022 Total segment liabilities 44,289 61,575 77,319 65,534 90,034 338,751 * The other segment includes the Group support service, created to support the operating segments and growth of the global business. 1. b) Segment reporting (continued) Segment information provided to the Chief Operating Decision Makers (continued) Travel services Australia and New Zealand $’000 2016 Travel services Travel services Travel services North America $’000 Asia $’000 Europe $’000 Other* $’000 Total $’000 Total revenue from external parties Adjusted EBITDA Interest revenue Interest expense Depreciation Amortisation Income tax expense 76,876 77,256 69,119 37,230 464 260,945 28,266 21,212 21,256 6,117 (7,821) 69,030 155 1,809 2,732 7,830 12,126 Total segment assets 101,374 209,033 168,529 90,694 517 570,147 Total assets include: Non-current assets - Plant and equipment - Intangibles Total segment liabilities 2,729 47,303 32,665 655 845 152,078 41,047 106,760 100,444 1,197 67,662 18,282 - - 5,426 308,090 40,411 298,562 c) Other segment information i) Adjusted EBITDA The reconciliation of adjusted EBITDA to operating profit before income tax is provided as follows: Adjusted EBITDA Interest revenue Finance costs Depreciation Amortisation One off items Release of earn out payable Gain on sale of subsidiary Acquisition / non-recurring costs Profit before income tax from continuing operations 2017 $’000 2016 $’000 98,615 69,030 197 155 (3,443) (1,883) (14,274) - 912 (2,498) 77,626 (1,809) (2,732) (7,830) 2,505 - (1,450) 57,869 48 49 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: PERFORMANCENOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: PERFORMANCE 1. Segment reporting (continued) Accounting policy AASB 8 Operating Segments requires a ‘management approach’, under which segment information is presented on the same basis as that used for internal reporting purposes. Operating segments are reported in a manner that is consistent with the internal reporting provided to the Chief Operating Decision Makers. The CODM has been identified as a group of executives, which is the steering committee that makes strategic decisions. Goodwill is allocated by management to groups of cash-generating units on a segment level. 2. Revenue Revenue from the sale of travel services Revenue from other sources Rental income Interest Other revenue Total revenue Accounting policy 2017 $’000 2016 $’000 323,190 259,738 133 197 871 156 155 896 1,201 1,207 324,391 260,945 The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity, and specific criteria set out are met. The amount of revenue is not considered to be reliably measured until all contingencies relating to the sale have been resolved. The Group bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement. Revenue is recognised for the major business activities as follows: • Revenue from sale of travel services Revenue from sale of travel services represents net revenue earned via commissions and fees, and also includes any commission payable by suppliers after completion of the transaction. Commission and fees from the sale of travel services is recognised when a travel booking is received and travel documents are issued. Commission payable by suppliers includes PDC’s, which is recognised upon receipt, the point at which it can be reliably measured, and it is probable that future economic benefits will flow to the entity. Revenue relating to volume incentives (override revenue) is recognised at the amount receivable when annual targets are likely to be achieved. • Rental income Rental income is recognised when the right to receive revenue is established. • Interest revenue Interest income is recognised using the effective interest method. • Dividends Revenue is recognised when the Group’s right to receive the payment is established. • Other revenue Other revenue is recognised when the right to receive the revenue is established. 2. Revenue (continued) Critical estimates, assumptions and judgements • Override revenue In addition to commission payments, the Group is eligible for override payments from its suppliers. These overrides are negotiated with individual suppliers and will typically include a combination of guaranteed payments and volume incentives. The volume incentives are recognised at the amount receivable when annual targets are likely to be achieved. The override revenue accrual process is inherently judgemental and is impacted by factors which are not completely under Group’s control. These factors include: ο Year-end differences As supplier contract periods do not always correspond to the Group’s financial year, judgements and estimation techniques are required to determine anticipated future flown revenues over the remaining contract year and the associated override rates applicable to these forecast levels. ο Timing Where contracts have not been finalised before the start of the contract period, override and commission earnings may have to be estimated until agreement has been reached. ο Re-negotiations Periodic re-negotiation of terms and contractual arrangements with suppliers may result in additional volume incentives, rebates or other bonuses being received. These payments may not be specified in existing contracts. 3. Earnings per share The following information reflects the income and share data used in the basic and diluted earnings per share computations: 2017 $’000 2016 $’000 Net profit attributable to ordinary equity holders of Corporate Travel Management Limited 54,556 42,134 2017 Shares 2016 Shares Weighted average number of ordinary shares used as a denominator in calculating basic earnings per share 101,929,958 97,578,403 Adjustments for calculation of diluted earnings per share: Share appreciation rights (i) Deferred shares on acquisitions (ii) Weighted average number of ordinary shares and potential ordinary shares used as the denominator in calculating diluted earnings per share 1,489,362 831,607 567,661 - 103,986,981 98,410,010 i) Share appreciation rights Share Appreciation Rights (SARs) are considered to be potential ordinary shares. They have been included in the determination of diluted earnings per share if the required hurdles would have been met based on the Group’s performance up to the reporting date, and to the extent to which they are dilutive. The options have not been included in the determination of basic earnings per share. Details relating to the options are set out in note 23. 50 51 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: PERFORMANCENOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: PERFORMANCE 3. Earnings per share (continued) ii) Deferred shares Deferred shares on acquisitions relates to shares offered as part of the contingent consideration payable component of a business combination. They have been included in the determination of diluted earnings per share if the required hurdles would have been met based on the Group’s performance up to the reporting date, and to the extent to which they are dilutive. The deferred shares have not been included in the determination of basic earnings per share. Accounting policy Basic earnings per share are calculated as net profit attributable to owners of the Group, adjusted to exclude any costs of servicing equity (other than dividends) divided by the weighted average number or ordinary shares, adjusted for any bonus element. Diluted earnings per share are calculated as net profit attributable to members of the parent, divided by the weighted average number of ordinary shares and dilutive potential ordinary shares, adjusted for any bonus element, and adjusted for: • Costs of servicing equity (other than dividends); • The after tax effect of dividends and interest associated with dilutive potential ordinary shares that have been recognised as expenses; and • Other non-discretionary changes in revenues or expenses during the period that would result from the conversion into potential ordinary shares. 4. Dividends paid and proposed Ordinary shares Final franked dividend paid for the year ended 30 June 2016 of 15.0 cents (2015: 10.0 cents) per fully paid share Interim franked dividend for the year ended 30 June 2017 of 12.0 cents (2016: 9.0 cents) per fully paid share Approved by the Board of Directors on 22 August 2017 (not recognised as a liability as at 30 June 2017) Final franked dividend for the year ended 30 June 2017 of 18 cents (2016: 15 cents) per fully paid share 2017 $’000 2016 $’000 14,928 9,712 12,626 8,827 27,554 18,539 18,940^ 14,712* ^ This dividend does not include shares issued on 22 August 2017, pursuant to the CTM Share Appreciation Rights Plan. Refer note 23. * This dividend does not include shares issued post balance sheet date as part of the initial consideration for the acquisition of Travizon Travel. The final dividend recommended after 30 June 2017 will be fully franked out of existing franking credits, or out of franking credits arising from the payment of income tax in the year ending 30 June 2018. Franking credit balance Franking credits available for subsequent reporting periods based on a tax rate of 30% (2016: 30%) 2017 $’000 2016 $’000 6,881 7,088 The above amounts are calculated from the balance of the franking account as at the end of the reporting period, adjusted for franking credits and debits that will arise from the settlement of liabilities or receivables for income tax and dividends after the end of the year. 4. Dividends paid and proposed (continued) Accounting policy Provision is made for the amount of any dividend declared, being appropriately authorised and no longer at the discretion of the entity, on or before the end of the financial year but not distributed at balance dates. Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at the end of the reporting period. 5. Income tax expense Income tax expense Current income tax Current tax on profits for the year Adjustments for current tax of prior periods Deferred income tax (Increase) decrease in deferred tax assets Increase (decrease) in deferred tax liabilities Income tax expense Numerical reconciliation of income tax expense to prima facie tax payable Accounting profit before income tax Tax at the Australian tax rate of 30% (2016: 30%) Tax effect of amounts which are not deductible/(assessable) in calculating taxable income: Non-deductible amounts Other amounts Recognition of temporary differences previously not brought to account Derecognition of temporary differences previously brought to account Difference in overseas tax rates Adjustments for current tax of prior periods Research and development tax credit Unrecognised tax losses Income tax expense 2017 $’000 2016 $’000 19,633 17,526 (619) (498) 726 48 (1,652) (3,250) 19,788 12,126 77,626 23,288 57,869 17,361 447 (481) (34) 344 - (3,192) (619) (45) 46 206 913 1,119 (844) (2,744) (2,309) (498) (60) 101 (3,466) (6,354) 19,788 12,126 52 53 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: PERFORMANCENOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: PERFORMANCE 5. Income tax expense (continued) 5. Income tax expense (continued) Deferred income tax Deferred tax assets The balance comprises temporary differences attributable to: Provisions Employee benefits Other Set off against deferred tax liabilities Net deferred tax assets Deferred tax liabilities The balance comprises temporary differences attributable to: Depreciation / amortisation Accrued income Other Set off against deferred tax assets Net deferred tax liabilities 2017 $’000 2016 $’000 6,087 6,779 30 12,896 (3,914) 7,348 2,244 163 9,755 (5,492) 8,982 4,263 10,409 2,581 932 13,922 (3,914) 10,008 8,297 1,345 1,393 11,035 (5,492) 5,543 Deferred tax assets 2017 Provisions Employee benefits Other 2016 Provisions Employee benefits Other (Charged)/ credited in year via P&L $’000 (Charged)/ credited in year via equity $’000 Acquisition of subsidiaries $’000 At 1 July $’000 Sale of an entity $’000 Change in FX rates $’000 At 30 June $’000 7,348 2,244 163 9,755 (1,130) 404 - (7) 4,131 - (726) 4,124 20 - - 20 (32) - (132) (164) (112) - (1) 6,087 6,779 30 (113) 12,896 3,561 1,282 154 30 233 137 (156) 1,857 - 2,625 - - 3,745 1,652 1,701 2,625 - - - - 36 - (4) 32 7,348 2,244 163 9,755 During the period, an adjustment has been made to the opening balance of the deferred tax asset to reflect the future income tax deduction relating to vesting of Share Appreciation Rights. This has resulted in an adjustment of $1,857,000 to the deferred tax asset and share based payments reserve. Deferred tax liabilities 2017 Depreciation / amortisation Accrued income Other 2016 Depreciation / amortisation (Charged)/ credited in year via P&L $’000 (Charged)/ credited in year via equity $’000 Acquisition of subsidiaries $’000 At 1 July $’000 Sale of an entity $’000 Change in FX rates $’000 At 30 June $’000 8,297 (1,238) 1,345 1,393 11,035 1,286 - 48 4,269 672 - - (461) (461) - - 431 431 3,566 - - 3,566 3,298 - - 3,298 - - - - - - - - (216) 10,409 (50) - 2,581 932 (266) 13,922 58 26 (17) 67 8,297 1,345 1,393 11,035 Accrued income 5,241 (3,922) Other 979 - 10,489 (3,250) Accounting policy Tax consolidation Corporate Travel Management Limited and its 100% owned Australian resident subsidiaries have formed a tax consolidated group with effect from 1 July 2008. Corporate Travel Management Limited is the head entity of the tax consolidated group. Members of the Group have entered into a tax sharing agreement in order to enable Corporate Travel Management Limited to allocate income tax expense to the wholly owned subsidiaries on a pro-rata basis. In addition, the agreement provides for the allocation of income tax liabilities amongst the entities should the head entity default on its tax payment obligations. Tax effect accounting by members of the tax consolidated group Members of the tax consolidated group have entered into a tax funding agreement. The tax funding agreement provides for the allocation of current taxes to members of the tax consolidated group in accordance with their accounting profit for the period, while deferred taxes are allocated to members of the tax consolidated group in accordance with the principles of AASB 112 Income Taxes. Allocations under the tax funding agreement are made at the end of each quarter. The allocation of taxes under the tax funding agreement is recognised as an increase/decrease in the subsidiaries’ inter-company accounts with the tax consolidated group head company, Corporate Travel Management Limited. The income tax expense (or revenue) for the period is the tax payable on the current period’s taxable income based on the applicable income tax rate for each jurisdiction, adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses. 54 55 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: PERFORMANCENOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: PERFORMANCE Other taxes Revenues, expenses and assets are recognised net of the amount of GST except: • When the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case, the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and • Receivables and payables, which are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the Consolidated Statement of Financial Position. Cash flows are included in the Consolidated Statement of Cash Flows on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority are classified as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority. 5. Income tax expense (continued) Accounting policy (continued) The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period in the countries where the Group’s subsidiaries and associates operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions, where appropriate, on the basis of amounts expected to be paid to the tax authorities. Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that, at the time of the transaction, affects neither accounting nor taxable profit nor loss. Deferred income tax is determined using tax rates and laws that have been enacted, or substantially enacted, by the end of the reporting period and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of investments in controlled entities where the parent entity is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. Current and deferred tax is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively. 6. Expenses Profit before income tax includes the following specific expenses: Depreciation and amortisation Depreciation of non-current assets – plant and equipment note 21 Amortisation of client contracts and relationships – intangibles note 8 Amortisation of software – intangibles note 8 Amortisation of other intangible assets – intangibles note 8 Finance costs Bank loans Other interest Other expense disclosures Defined contribution superannuation expense Rental expense relating to operating leases Accounting policy 2017 $’000 1,883 11,100 2,949 225 2016 $’000 2,732 6,483 1,338 9 16,157 10,562 1,542 1,901 3,443 5,730 9,536 689 1,120 1,809 3,589 11,269 Depreciation expense Depreciation is calculated over plant and equipment using the following estimated useful lives and methods: Item Plant and equipment: Leasehold improvements Computer hardware Furniture, fixture and equipment Years Method 3 - 8 2.5 - 3 4 - 10 Straight line Straight line Diminishing value or straight line The assets’ residual values, useful lives and amortisation methods are reviewed, and adjusted, if appropriate, at each financial year end. Amortisation expense The useful lives of these intangible assets are assessed to be finite. A summary of the amortisation policies applied to the Group’s intangible assets is as follows: Item Method Internally generated / acquired Client contracts and relationships Diminishing value - ranging between three and seventeen years Acquired Software Straight line - ranging between three and five years Acquired/ Internally generated Other intangible assets Straight line - ten years Acquired Where amortisation is charged on assets with finite lives, this expense is taken to the profit and loss in the Consolidated Statement of Comprehensive Income in the expense category ‘depreciation and amortisation’. Finance costs This expense is recognised as interest accrues, using the effective interest method. This method calculates the amortised cost of a financial liability and allocates the interest expense over the relevant period using the effective interest rate, which is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability to the net carrying amount of the financial liability. 56 57 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: GROUP STRUCTURENOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: PERFORMANCE Group Structure 7. Business combinations (continued) This section explains significant aspects of the Group structure and how changes have affected the financial position and performance of the Group. 7. Business combinations Arizonaco Limited and Portall Travel Limited trading as Redfern Travel (“Redfern”) On 1 February 2017, the Group acquired 100% of the shares of Arizonaco Limited and Portall Travel Limited, trading as Redfern Travel (“Redfern”), a travel management company headquartered in Bradford, UK. The initial cost of the acquisition was $68,397,525 (GBP 41,161,631), paid in both cash $53,173,812 (GBP 32,000,000) and shares $15,223,713 (GBP 9,161,631), with further contingent consideration payable as set out in this note. The potential undiscounted amounts of future payments that the Group could be required to make, in cash, based on the financial criteria relating to the earn-out period, is as follows: • Earnout A is payable based on a multiple of earnings before interest, tax, depreciation and amortisation (EBITDA) for the year ending 31 March 2017, with the maximum payment being a capped value of $8,308,408 (GBP 5,000,000); • Earnout B is payable based on a multiple of EBITDA for the year ending 30 June 2018, and the amount is dependent upon meeting certain revenue and EBITDA targets, with the maximum payment being a capped value of $8,308,408 (GBP 5,000,000). At the acquisition date, the projected result for the earn-out periods was assessed to determine the acquisition date fair value of this contingent consideration, as set out in the following table. Purchase consideration Initial cash and shares paid * Acquisition date fair value contingent consideration – earn-out ** Working capital adjustment Total acquisition date fair value consideration * 53,173,812 (GBP 32,000,000) in cash and $15,233,713 (GBP 9,161,631) in shares paid on 1 February 2017. $’000 68,398 16,098 2,900 87,396 ** The contingent consideration has been recognised in the Statement of Financial Position within the Trade and other payables classification. Management has not changed its expectation of contingent consideration payable. Earnout A was paid on 3 July 2017. The provisional fair values of the assets and liabilities of the Redfern Travel business, acquired as at the date of acquisition, are as follows: Arizonaco Limited and Portall Travel Limited trading as Redfern Travel (“Redfern”) (continued) The consideration payable for the combination effectively includes amounts in relation to the benefit of expected synergies, revenue growth and the assembled workforce of the acquiree, which has resulted in goodwill of $69,862,477 (GBP42,043,238). The full value of the goodwill and client intangibles is not expected to be tax deductible for tax purposes. Acquisition costs Acquisition-related costs of $750,847 are included in administrative and general expenses in the Statement of Comprehensive Income. Acquired receivables The fair value of the acquired trade receivables is $35,513,286 (GBP 21,371,896). The gross contractual amount for trade receivables due is $35,513,286 (GBP 21,371,896), of which no balances are expected to be uncollectable. Revenue and profit contribution The acquired business contributed revenues of $12,470,624 (GBP 7,493,048) and net profit after tax of $6,012,544 (GBP 3,616,565) to the Group for the period 1 February 2017 to 30 June 2017. If the acquisition had occurred on 1 July 2016, consolidated revenue and profit for the year ended 30 June 2017 would have been $337,669,537 and $64,751,793 respectively. Purchase consideration - cash outflow: Outflow of cash to acquire subsidiary, net of cash acquired: Purchase consideration Initial cash consideration Working capital adjustment paid Less: cash balances acquired Outflow of cash – investing activities $’000 53,174 1,691 (3,798) 51,067 Andrew Jones Travel Pty Ltd trading as Andrew Jones Travel On 1 February 2017, the Group acquired 100% of the shares of Andrew Jones Travel Pty Ltd, trading as Andrew Jones Travel, a travel management company headquartered in Tasmania, Australia. The initial cost of the acquisition was $5,770,305, paid in both cash $4,625,000 and shares $1,145,305. The provisional fair values of the assets and liabilities of the Andrew Jones Travel business, acquired as at the date of acquisition, are as follows: Cash and cash equivalents Trade and other receivables Other assets Property, plant and equipment Intangible assets: Client contracts and relationships Intangible assets: Software Trade and other payables Provisions Income tax payable Deferred tax liability Net identifiable assets / (liabilities) acquired Goodwill on acquisition Net assets acquired 58 Fair Value $’000 3,798 35,513 2,062 557 16,169 665 (36,890) (31) (868) (3,441) 17,534 69,862 87,396 Cash and cash equivalents Trade and other receivables Other assets Property, plant and equipment Intangible assets: Client contracts and relationships Trade and other payables Notes payable Provisions Income tax receivable Deferred tax liability Net identifiable assets / (liabilities) acquired Goodwill on acquisition Net assets acquired Fair Value $’000 690 1,035 3 287 415 (1,251) (26) (227) 45 (125) 846 4,986 5,832 59 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: GROUP STRUCTURENOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: GROUP STRUCTURE7. Business combinations (continued) 7. Business combinations (continued) Andrew Jones Travel Pty Ltd trading as Andrew Jones Travel (continued) Purchase consideration Initial cash and shares paid * Working capital adjustment Total acquisition date fair value consideration * $4,625,000 in cash and $1,145,305 in shares paid on 1 February 2017. $’000 5,770 62 5,832 The consideration paid for the combination effectively includes amounts in relation to the benefit of expected synergies, revenue growth and the assembled workforce of the acquiree, which has resulted in goodwill of $4,986,249. The full value of the goodwill and client intangibles is not expected to be tax deductible for tax purposes. Acquisition costs Acquisition-related costs of $50,500 are included in administrative and general expenses in the Statement of Comprehensive Income. Acquired receivables The fair value of the acquired trade receivables is $1,034,808. The gross contractual amount for trade receivables due is $1,034,808, of which no balances are expected to be uncollectable. Revenue and profit contribution The acquired business contributed revenues of $2,304,832 and net profit after tax of $597,170 to the Group for the period 1 February 2017 to 30 June 2017. If the acquisition had occurred on 1 July 2016, consolidated revenue and profit for the year ended 30 June 2017 would have been $326,683,756 and $58,216,353 respectively. Purchase consideration - cash outflow: Outflow of cash to acquire subsidiary, net of cash acquired: Purchase consideration Cash consideration Less: cash balances acquired Outflow of cash – investing activities $’000 4,625 (690) 3,935 Travizon, Inc., All Performance Associates, Inc., and Business Travel, Inc., trading as Travizon Travel (Travizon) On 1 July 2016, the Group acquired 100% of the shares of Travizon, Inc., All Performance Associates, Inc., and Business Travel, Inc., trading as Travizon Travel (Travizon), a travel management company headquartered in Boston MA, USA. The initial cost of the acquisition was $31,867,698 (US $23,773,302), paid in both cash $14,075,067 (US $10,500,000) and shares $17,792,631 (US $13,273,302), with further deferred consideration payable on 29 September 2017, as set out in this note. Purchase consideration Initial cash and shares paid* Deferred consideration payable Working capital adjustment Total acquisition date fair value consideration * $14,075,067 (US $10,500,000) in cash and $17,792,631 (US $13,273,302) in shares paid on 1 July 2016. $’000 31,868 20,107 2,488 54,463 Travizon, Inc., All Performance Associates, Inc., and Business Travel, Inc., trading as Travizon Travel (Travizon) (continued) The final fair values of the assets and liabilities of the Travizon Travel business, acquired as at the date of acquisition, are as follows: Cash and cash equivalents Trade and other receivables Other assets Property, plant and equipment Intangible assets: Client contracts and relationships Deferred tax asset Trade and other payables Provisions Notes payable Income tax payable Net identifiable assets / (liabilities) acquired Goodwill on acquisition Net assets acquired Fair Value $’000 5,205 4,482 203 45 4,958 20 (4,313) (227) (2,682) (280) 7,411 47,052 54,463 The consideration payable for the combination effectively includes amounts in relation to the benefit of expected synergies, revenue growth and the assembled workforce of the acquiree, which has resulted in goodwill of $47,051,916 (US$35,100,729). The full value of the goodwill and client intangibles is expected to be tax deductible for USA tax purposes. Acquired receivables The fair value of the acquired trade receivables is $4,481,709 (US $3,343,355). The gross contractual amount for trade receivables due is $4,481,709 (US $3,343,355), of which no balances are expected to be uncollectable. Revenue and profit contribution The acquired business contributed revenues of $28,385,779 (US $21,435,486) and net profit after tax of $4,828,421 (US $3,646,176) to the Group for the period 1 July 2016 to 30 June 2017. Purchase consideration – cash outflow: Outflow of cash to acquire subsidiary, net of cash acquired: Purchase consideration Initial cash consideration Working capital adjustment paid Less: cash balances acquired Outflow of cash – investing activities $’000 14,075 1,434 (5,205) 10,304 60 61 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: GROUP STRUCTURENOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: GROUP STRUCTUREWhere settlement of any part of the cash consideration is deferred, the amounts payable in the future are discounted to their present value, as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions. Contingent consideration is classified either as equity or a financial liability. Amounts classified as a financial liability are subsequently remeasured to fair value, with changes in fair value recognised in other income or other expenses in the Consolidated Statement of Comprehensive Income. Any subsequent adjustment to the final contingent consideration, based on actual results as at 30 June 2017, will be reflected in the Statement of Comprehensive Income. The Group recognises any non-controlling interest, in the acquired entity on an acquisition-by-acquisition basis either at fair value or at the non-controlling interests’ proportionate share of the acquired entity’s net identifiable assets. Non-controlling interests in the results and equity of subsidiaries are shown separately in the Consolidated Statement of Comprehensive Income, Consolidated Statement of Financial Position and Consolidated Statement of Changes in Equity. Critical estimates, assumptions and judgements • Value of intangible assets relating to acquisitions The Group has allocated portions of the cost of acquisitions to client contracts and relationships intangibles, valued using the multi-period excess earnings method. These calculations require the use of assumptions including future customer retention rates and cash flows. 7. Business combinations (continued) Prior period business combinations On 1 January 2016, the Group acquired 100% of the shares of SARA Enterprises, Inc., trading as Montrose Travel (Montrose). The accounting for the business combination for the Montrose acquisition has been finalised as at 31 December 2016. This finalisation included an additional $1.4 million being recognised relating to the acquisition payable, which has contributed to an increase in goodwill for same amount. No other measurement period adjustments have been made. During the period $2.6 million was paid relating to the working capital adjustment, which is included in outflow of cash from investing activities on the Consolidated Statement of Cash Flows. Accounting policy The purchase method of accounting is used to account for all business combinations regardless of whether equity instruments or other assets are acquired. The consideration transferred is measured as the fair value of the assets acquired, shares issued or liabilities incurred or assumed at the date of exchange, and, for acquisitions prior to 1 July 2009, included costs directly attributable to the combination. For acquisitions after 1 July 2009, acquisition-related costs are expensed in the period in which the costs are incurred, rather than being added to the cost of the business combination, as required by revised AASB 3 Business Combinations. Where equity instruments are issued in a business combination, the fair value of the instruments is their published market price as at the date of exchange. Transaction costs arising on the issue of equity instruments are recognised directly in equity. The consideration transferred also includes the fair value of any asset or liability resulting from a contingent consideration arrangement. With limited exceptions, all identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The excess of the consideration transferred, amount of any non-controlling interest in the acquired entity, over the net fair value of the Group’s share of the identifiable net assets acquired is recognised as goodwill. If the consideration transferred of the acquisition is less than the Group’s share of the net fair value of the identifiable net assets of the subsidiary, the difference is recognised as a gain in the profit and loss in the Consolidated Statement of Comprehensive Income, but only after a reassessment of the identification and measurement of the net assets acquired. 8. Intangible assets Year ended 30 June 2017 Cost Accumulated depreciation Opening net book amount Additions Additions through the acquisition of entities/businesses [note 7] Disposals through sale of an entity Amortisation charge Exchange differences Closing net book amount Year ended 30 June 2016 Cost Accumulated depreciation Opening net book amount Additions Additions through the acquisition of entities/businesses Disposals Amortisation charge Exchange differences Closing net book amount Customer contracts Client contracts and relationships $’000 Software $’000 Goodwill $’000 Other Intangible assets $’000 Total $’000 472,698 (31,676) 441,022 308,090 12,634 146,025 (382) (14,274) (11,071) 21,664 (7,447) 14,217 8,391 8,318 665 (15) (2,949) (193) 393,551 (313) 393,238 280,107 - 123,818 (367) - (10,320) 4,513 (357) 4,156 144 4,316 - - (225) (79) 14,217 393,238 4,156 441,022 12,366 (3,975) 8,391 2,753 4,389 2,755 (32) (1,338) (136) 8,391 280,425 (318) 280,107 215,555 - 72,029 - - (7,477) 280,107 283 (139) 144 114 39 - - (9) - 325,664 (17,574) 308,090 237,925 4,428 80,928 (32) (7,830) (7,329) 144 308,090 52,970 (23,559) 29,411 19,448 - 21,542 - (11,100) (479) 29,411 32,590 (13,142) 19,448 19,503 - 6,144 - (6,483) 284 19,448 The customer contracts were acquired as part of a business combination (see note 7 for details). They are recognised at their fair value at the date of acquisition and are subsequently amortised on a straight-line based on the timing of projected cash flows of the contracts over their estimated useful lives. Accounting policy Acquired from a business combination Intangible assets from a business combination are capitalised at fair value as at the date of acquisition. Following initial recognition, the cost model is applied to the class of intangible assets. Software acquired not as part of a business combination Costs incurred in developing products or systems and costs incurred in acquiring software and licenses that will contribute to future period financial benefits through revenue generation and/or cost reduction are capitalised to software and systems. Gains or losses arising from the derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the profit and loss in the Consolidated Statement of Comprehensive Income when the asset is derecognised. 62 63 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: GROUP STRUCTURENOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: GROUP STRUCTURE 8. Intangible assets (continued) Accounting policy (continued) Software developed or acquired not as part of a business combination (continued) For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. If any such indication exists and where the carrying values exceed the estimated recoverable amount, the assets or cash-generating units are then written down to their recoverable amount. Intangible assets are tested for impairment where an indicator of impairment exists, and, in the case of indefinite life intangibles, annually, either individually or at the cash-generating unit level. Useful lives are also examined on an annual basis and adjustments, where applicable, are made on a prospective basis. Goodwill Goodwill acquired on a business combination is initially measured at cost, being the excess of the consideration transferred for the business combination over the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is reviewed for impairment, annually, or more frequently, if events or changes in circumstances indicate that the carrying value may be impaired (refer note 15). As at the acquisition date, any goodwill acquired is allocated to each of the cash-generating units that are expected to benefit from the combination’s synergies. Impairment is determined by assessing the recoverable amount of the cash-generating unit to which the goodwill relates. Where the recoverable amount of the cash- generating unit is less than the carrying amount, an impairment loss is recognised. Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed, the goodwill associated with the disposed operation is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Disposed goodwill in this circumstance is measured on the basis of the relative values of the disposed operation and the portion of the cash-generating unit retained. Capital A core part of the Group’s operations is to maintain a strong financial position and low levels of external debt. This section explains how the Group has performed in areas relating to capital management. 9. Cash and cash equivalents Cash at bank and on hand Client accounts 2017 $’000 49,192 30,025 79,217 2016 $’000 47,346 33,832 81,178 Cash at bank earns interest at floating rates based on daily bank deposit rates: 2017: 0.00%-1.95% (2016: 0.00%-2.20%). The client accounts earn interest at floating rates based on daily bank deposit rates: 2017: 0.00%-1.30% (2016: 0.00%-1.55%). The weighted average interest rate for the year was 0.24% (2016: 0.26%). No bank overdraft facilities were in place at 30 June 2017, refer note 14. Accounting policy Cash and cash equivalents in the Consolidated Statement of Financial Position comprise cash at bank and on hand and short-term deposits, with an original maturity 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. Client cash represents amounts from clients held before release to service and product suppliers, with a maturity of three months or less. For the purpose of the Consolidated Cash Flow Statement, cash and cash equivalents consist of cash and cash equivalents as defined, net of outstanding bank overdrafts. Reconciliation of profit after income tax to net cash inflow from operating activities Profit for the year Adjustments for: Depreciation and amortisation Make-good provision accretion Net exchange differences Non-cash interest Non-cash employee benefits expense Non-cash release of earn out payable Net (gain)/loss on sale of subsidiary Net gain/(loss) on disposal of non-current assets Changes in operating assets and liabilities (Increase) in trade and other receivables (Increase) in prepayments (Decrease) in deferred tax balances Decrease in current tax liability/(receivable) Increase in payables and provisions Net cash flow from operating activities Disclosure of financing facilities – refer note 14 2017 $’000 2016 $’000 57,838 45,743 16,160 10,562 4 73 1,274 1,366 - (912) (2) (2,433) 928 841 (1,198) (4,661) 69,278 4 739 514 778 (2,505) - 5 (2,863) (1,377) (2,670) 2,916 18,364 70,210 64 65 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: CAPITALNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: GROUP STRUCTURE 10. Trade and other receivables Current Trade receivables (i) Client receivables (i) Allowance for doubtful debts Deposits (ii) Other receivables 2017 $’000 2016 $’000 30,775 23,083 158,146 129,848 (2,141) (1,586) 186,780 151,345 13,125 1,305 14,872 1,913 201,210 168,130 (i) Trade and client receivables are non-interest bearing and are generally on terms ranging from 7 to 30 days. (ii) Deposits relate to advance deposits to suppliers and deposits made on behalf of clients for leisure travel which will occur at a future date. Supplier deposits within the Westminster Travel business pertains to securing access during high sales periods, which is the business practise in Hong Kong. As of 30 June 2017, trade and client receivables of $24,605,000 (2016: $28,808,000) were past due but not impaired. Operating units are following up on these receivables with the relevant debtors and are satisfied that payment will be received in full. The ageing analysis of these trade and client receivables is as follows: 0 – 31 days 31 – 60 days 60+ days Balance at 30 June 2017 $’000 2016 $’000 16,463 21,997 4,338 3,804 3,426 3,385 24,605 28,808 Other balances within trade, client and other receivables do not contain impaired assets and are not past due. It is expected that these other balances will be received when due. Detail regarding risk exposure relating to credit, market and interest rate risk have been disclosed in note 16. Fair value Due to the short term nature of these receivables, their carrying value is assumed to approximate their fair value. Accounting policy Trade and client receivables, which generally have 7-30 day terms, are recognised initially at fair value and, subsequently, measured at amortised cost using the effective interest method, less an allowance for impairment. Client receivables result from the provision of travel services to clients. Trade receivables result from other activities relating to the provision of travel services, such as commissions payable by suppliers. Collectability of trade and client receivables is reviewed on an ongoing basis at an operating unit level. Individual debts that are known to be uncollectible are written off when identified. An impairment provision is recognised when there is objective evidence that the Group will not be able to collect the receivable. The amount of the impairment loss is the receivable carrying amount compared to the present value of estimated future cash flows, discounted at the original effective interest rate. 10 Trade and other receivables (continued) Accounting policy (continued) The amount of the impairment loss is recognised in the profit and loss in the Consolidated Statement of Comprehensive Income within administration expenses. When a trade receivable, for which an impairment allowance had been recognised, becomes uncollectible in a subsequent period, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against administration expenses in the profit and loss in the Consolidated Statement of Comprehensive Income. Critical estimates, assumptions and judgements • Allowance for doubtful debts The Group determines whether client and trade receivables are collectable on an ongoing basis. This assessment requires estimations of the individual recoverability of each debt and, if considered uncollectable, is subject to an impairment provision. 11. Trade and other payables Current Trade payables (i) Client payables (i) Other payables and accruals (ii) Acquisition payable (iii) Contingent consideration payable (note 22) Non-current Other payables and accruals Acquisition payable (iii) Contingent consideration payable (note 22) 2017 $’000 2016 $’000 13,156 4,741 148,703 134,689 26,247 44,943 - 24,036 3,999 35,255 233,049 202,720 4,112 12,596 8,160 24,868 1,393 - 26,755 28,148 (i) Trade payables and client payables are non-interest bearing and are normally settled on terms ranging from 7 to 30 days. (ii) Included within other payables and accruals are amounts due to related parties. (iii)This balance represents amounts payable relating to business combinations which are no longer contingent on performance hurdles. Fair value The carrying value of these payables is assumed to approximate their fair value. Interest rate risk and liquidity risk Information regarding interest rate risk and liquidity risk exposure is set out in note 16. Accounting policy Trade and other payables and client payables are carried at original invoice amount and represent liabilities for goods and services provided to the Group to the end of the financial year that are unpaid and arise when the Group becomes obliged to make future payments in respect of the purchase of these goods and services. These amounts are unsecured and are paid within terms ranging from 7 to 30 days from recognition. They are recognised initially at their fair value and subsequently measured at amortised cost using the effective interest method. Client payables result from provision of travel services and products to clients. Trade payables result from other activities required to provide those travel services, such as corporate services. 66 67 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: CAPITALNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: CAPITAL 12. Provisions Movements in provisions At 1 July 2016 Acquisition of subsidiary Arising during the year Utilised Write back of provision Disposal through sale of an entity Changes due to change in foreign currency At 30 June 2017 2017 Current Non-current 2016 Current Non-current Accounting policy Employee entitlements $’000 Make-good provision $’000 5,063 485 6,572 (6,317) (66) (13) (89) 5,635 4,263 1,372 5,635 3,567 1,496 5,063 845 - 16 (65) - (138) (20) 638 157 481 638 128 717 845 Provisions for other liabilities and charges $’000 11,400 - 35,993 Total $’000 17,308 485 42,581 (33,611) (39,993) (2,407) (2,473) (52) (431) (203) (540) 10,892 17,165 10,092 800 10,892 8,868 2,532 11,400 14,512 2,653 17,165 12,563 4,745 17,308 Provisions are recognised when the Group has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at the end of the reporting period. The discount rate used to determine the present value is a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The increase in the provision due to the passage of time is recognised as interest expense. Where the Group expects some or all of a provision to be reimbursed, for example, under an insurance contract, the reimbursement is recognised as a separate asset, but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the profit and loss in the Consolidated Statement of Comprehensive Income, net of any reimbursement. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost. 12. Provisions (continued) Accounting policy (continued) v) Termination benefits Termination benefits are payable when employment is terminated before the normal retirement date, or when an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits when it is demonstrably committed to either terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal, or providing termination benefits as a result of an offer made to encourage voluntary redundancy. Benefits falling due more than 12 months after reporting date are discounted to present value. Make-good provision In accordance with the Group’s contractual obligations under tenancy lease agreements, the Group is required to restore the leased premises on the expiry of the lease term. Provision for other liabilities and charges i) Provision for unclaimed charges The Group recognises a provision for unclaimed charges, arising from the sale of travel services. This provision pertains to the Asian business, and is common practice in this market. Based on historical data and past experience, management considers the possibility of claims and if appropriate it is written back to the consolidated income statement. ii) Provision for fixed price contract The Group recognises a provision where the estimated cost of fulfilling the obligations on a fixed price contract may exceed the future expected economic benefits, over its remaining term. This exposure is limited to one fixed price contract for a remaining term of two and a half years. Employee benefits i) Short term obligations Liabilities for wages and salaries including non- monetary benefits, expected to be settled within 12 months of the reporting period, are recognised in other payables and accruals in respect of employees’ services up to the reporting date. Liabilities for annual leave and accumulated sick leave, expected to be settled within 12 months of the reporting period, are recognised in the provision for employee benefits in respect of employees’ services up to the reporting date. They are measured at the amounts expected to be paid when the liabilities are settled. Liabilities for non-accumulated sick leave are recognised when the leave is taken and are measured at the rates paid or payable. ii) Other long term obligations Liabilities for long service leave are recognised in the provision for employee benefits and measured at the present value of expected future payments to be made in respect of services provided by the employees up to the reporting date, using the projected unit credit method. Consideration is given to the expected future wage and salary levels, experience of employee departures, and periods of service. Expected future payments are discounted using market yields at the reporting date on national government bonds, with terms to maturity and currencies that match, as closely as possible, the estimated future cash outflows. The obligations are presented as current liabilities in the Statement of Financial Position if the entity does not have an unconditional right to defer settlement for at least twelve months after the reporting period, regardless of when the actual settlement is expected to occur. iii) Retirement benefit obligations Contributions to defined contribution funds are recognised as an expense as they become payable. Prepaid contributions are recognised as an asset to the extent that a cash refund or reduction in the future payments is available. iv) Bonus plans The Group recognises a provision for future bonus payments where it is contractually obliged or where there is a past practice that has created a constructive obligation. 68 69 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: CAPITALNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: CAPITAL 13. Contributed equity, reserves and retained earnings 13. Contributed equity, reserves and retained earnings (continued) a) Contributed equity Ordinary shares Issued and fully paid 2017 $’000 2016 $’000 281,847 281,847 175,231 175,231 Ordinary shares entitle the holder to receive dividends as declared and, in the event of winding up the Group, to participate in the proceeds from the sale of all surplus assets in proportion to the number of and amounts paid up on shares held. On a show of hands, every holder of ordinary shares present at a meeting, in person or by proxy, is entitled to one vote, and upon a poll each share is entitled to one vote. Ordinary shares have no par value and the company does not have a limited amount of authorised capital. Movement in ordinary share capital Number of shares $’000 Opening balance as at 1 July 2015 96,993,356 161,675 1 September 2015 Shares issued Contingent consideration payment for the TravelCorp LLC business combination. 3 September 2015 Shares issued Provision of Lightning software purchase. 13 November 2015 Shares issued Share appreciation rights issue. 4 January 2016 Shares issued Initial consideration for the Montrose Travel business combination. Total shares issued Less: transaction costs arising on share issue Deferred tax credit recognised directly in equity At 30 June 2016 Opening balance as at 1 July 2016 1 July 2016 Shares issued Initial consideration for the Travizon Travel business combination. 78,473 48,431 78,185 824 525 835 880,360 11,559 1,085,449 13,743 (32) (155) 98,078,805 175,231 98,078,805 175,231 1,236,458 17,793 2 September 2016 Shares issued Share appreciation rights issue. 204,216 3,198 24 January 2017 Shares issued 1 February 2017 Shares issued Capital raising used primarily for the acquisitions of Redfern Travel and Andrew Jones Travel. Initial consideration for the Redfern Travel and Andrew Jones Travel business combinations. 30 May 2017 Shares issued Employee compensation Total shares issued Less: transaction costs arising on share issue Deferred tax credit recognised directly in equity 4,744,475 71,167 952,795 16,369 4,500 99 7,142,444 108,626 (2,003) (7) At 30 June 2017 105,221,249 281,847 Contributed equity (continued) a) Capital management The Group maintains a conservative funding structure that allows it to meet its operational and regulatory requirements, while providing sufficient flexibility to fund future strategic opportunities. The Group’s capital structure includes a mix of debt (refer note 14), general cash (refer note 9) and equity attributable to the parent’s equity holders. When determining dividend returns to shareholders the Board considers a number of factors, including the Group’s anticipated cash requirements to fund its growth, operational plan, and current and future economic conditions. The Group is not bound by externally imposed capital requirements. While payments may vary from time to time, according to these anticipated needs, the Board’s current policy is to return between 50% to 60% of net profit after tax to shareholders. Total borrowings Total equity Gearing ratio 2017 $’000 2016 $’000 45,423 401,404 37,180 271,585 11% 14% Reserves b) The following table shows a breakdown of the ‘reserves’ line item as per the Consolidated Statement of Financial Position, and the movements in these reserves during the year. A description of the nature and purpose of each reserve is provided in the following table. At 30 June 2015 Currency translation differences – current period Deferred tax Other comprehensive income Share-based payment expenses At 30 June 2016 Currency translation differences – current period Deferred tax Other comprehensive income Share-based payment expenses At 30 June 2017 FX translation $’000 21,096 (3,334) (431) (3,765) - 17,331 (8,887) 461 (8,426) - 8,905 Share based payment $’000 513 - - - 1,801 2,314 - - - 2,300 4,614 Total $’000 21,609 (3,334) (431) (3,765) 1,801 19,645 (8,887) 461 (8,426) 2,300 13,519 70 71 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: CAPITALNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: CAPITAL 13. Contributed equity, reserves and retained earnings (continued) 14. Borrowings (continued) b) Reserves (continued) Nature and purpose of other reserves Foreign currency translation Exchange differences arising on translation of foreign controlled entities are recognised in other comprehensive income and accumulated in a separate reserve within equity. The cumulative amount is recognised in the Consolidated Statement of Comprehensive Income when the net investment is sold. Share-based payments The share-based payments reserve is used to recognise the grant date fair value of deferred shares granted to employees but not yet vested. c) Retained earnings Movements in retained earnings were as follows: Balance at 1 July Net profit for the year Dividends Balance at 30 June Accounting policy 2017 $’000 63,802 54,556 2016 $’000 40,207 42,134 (27,554) (18,539) 90,804 63,802 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. 14. Borrowings A breakdown of the existing borrowings balance is set out in the following table: Current Borrowings Non-current Borrowings Total Borrowings 2017 $’000 18,122 27,301 45,423 2016 $’000 14,347 22,833 37,180 Borrowings drawn at 30 June 2017 relates to: ο Acquisition payments of $37.0 million (2016 $32.3 million); and ο Short term temporary funding for working capital cashflow needs globally of $8.4 million (2016 $4.9 million). Financial facilities On 5 January 2017, the Group renegotiated one of its facilities and entered into a Club Facility with HSBC bank and the Commonwealth Bank of Australia. This multi-currency facility replaces the existing core facility of $75.8 million, and includes lines of credit up to $148.8 million. Security has been provided over CTM Group assets and subsidiary shareholding to a Security Trustee for the benefit of the financiers. Financial facilities (continued) Redfern Travel Group has provided a fixed and floating charge over its assets to a local bank as security for a £7 million working capital facility ($11.8 million). In addition, the Group has further facilities of $9.3 million available in Asia, which are utilised for bank guarantees required for supplier bonding purposes. The available facilities are multi-currency, but have been expressed in their Australian dollar equivalent for purposes of this disclosure. The unused portion of the Group’s total facilities at 30 June 2017 is set out in the following table: Unused Used Total facilities $’000 76,322 93,590 169,912 Included within the used portion of the total facilities listed above are bank guarantees of $48.2 million. See note 17 for the total amount of bank guarantees for the Group. Accounting policy All loans and borrowings are initially recognised at the fair value of consideration received less directly attributable transaction costs. After initial recognition, interest-bearing loans and borrowings are subsequently measured at cost. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting date. Borrowing costs Borrowing costs are recognised as an expense using the effective interest method. The Group does not currently hold qualifying assets but, if it did, the borrowing costs directly associated with this asset would be capitalised, including any other associated costs directly attributable to the borrowing and temporary investment income earned on the borrowing. Borrowings are removed from the Consolidated Statement of Financial Position when the obligation specified in the contract is discharged, cancelled or expired. The difference between the carrying amount of a financial liability that has been extinguished or transferred to another party and the consideration paid, including any non- cash assets transferred or liabilities assumed, is recognised in profit or loss as other income or finance costs. Where the terms of a financial liability are renegotiated and the entity issues equity instruments to a creditor to extinguish all or part of the liability (debt for equity swap), a gain or loss is recognised in the Consolidated Statement of Comprehensive Income, which is measured as the difference between the carrying amount of the financial liability and the fair value of the equity instruments issued. 72 73 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: RISKNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: CAPITAL Risk This section discusses the Group’s exposure to various financial risks, explains how these affect the Group’s financial position and performance, and what the Group does to manage these risks. 15. Impairment testing of goodwill For the purposes of impairment testing, the cash generating unit has been defined as the lowest level of travel services operations to which goodwill relates, where individual cash flows can be ascertained for the purposes of discounting future cash flows. The carrying amount of goodwill allocated to the cash generating unit: Travel services - Australia and New Zealand Travel services - North America Travel services - Asia Travel services - Europe 2017 $’000 2016 $’000 46,884 41,900 186,669 144,715 26,568 133,117 28,046 65,446 393,238 280,107 The recoverable amount of the cash generating unit has been determined based on financial budgets set for the next financial year and management’s cash flow projections for subsequent years. 2017 Pre-tax nominal discount rate applied to the cash flow projection Cash flows beyond the next financial year, up to year 5, are extrapolated using an average growth rate of: Revenue (years 2 – 5) Operating expenses (years 2 – 5) Terminal multiple of EBITDA in year 5 2016 Pre-tax nominal discount rate applied to the cash flow projection Cash flows beyond the next financial year, up to year 5, are extrapolated using a growth rate of: Travel services Australia and New Zealand North America Asia Europe 16.06% 16.48% 12.59% 11.96% 3.50% 3.00% 6.81 3.50% 2.50% 7.84 3.50% 3.00% 9.37 5.00% 3.00% 10.67 16.10% 15.11% 12.58% 13.56% Revenue (years 2 – 5) Operating expenses (years 2 – 5) Terminal multiple of EBITDA in year 5 3.50% 3.00% 6.35 3.50% 2.50% 7.18 3.50% 3.00% 8.82 5.10% 3.00% 8.11 Key assumptions used for value-in-use calculations for the years ended 30 June 2017 and 30 June 2016 The following key assumptions were applied to the cash flow projections when determining the value-in-use: • Pre-tax discount rates - reflect specific risks relating to the relevant segments and the countries in which they operate. • Budgeted revenue – the basis used to determine the amount assigned to the budgeted sales volume is the average value achieved in the year immediately before the budgeted year, expected client retentions, adjusted for growth and other known circumstances. • Budgeted operating expenses – the basis used to determine the amount assigned to the budgeted costs is the average value achieved in the year immediately before the budgeted year, adjusted for growth and other known circumstances. • Terminal multiple – calculated based on a multiple of estimated Year 5 earnings before interest, tax, depreciation and amortisation. 15. Impairment testing of goodwill (continued) Sensitivity to changes in assumptions Management recognises that there are various reasons the estimates used in these assumptions may vary. For cash generating units, there are possible changes in key assumptions that could cause the carrying value of the unit to exceed its recoverable amount. The changes required to each of the key assumptions to cause the carrying value of a unit to exceed its recoverable amount are shown as follows: Possible change considered Change required to indicate an impairment Growth rates – Travel services – Australia and New Zealand Revenue Reduction in yield, rates, client retention Operating expenses Higher labour and / or other support costs Growth rates – Travel services – North America Revenue Reduction in yield, rates, client retention Higher labour and / or other support costs Decrease to (6.30%) Increase to 14.42% Decrease to (1.14%) Increase to 8.12% Operating expenses Growth rates – Travel services – Asia Revenue Operating expenses Growth rates – Travel services – Europe Revenue Operating expenses Accounting policy Reduction in yield, rates, client retention Decrease to (1.71%) Higher labour and/ or other support costs Increase to 9.10% Reduction in yield, rates, client retention Decrease to (10.70%) Higher labour and/ or other support costs Increase to 13.38% Goodwill and 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 assets are tested 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. The recoverable amount is the higher of an asset’s fair value less costs of disposal and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at the end of each reporting period. For the purposes of impairment testing, the cash generating unit has been defined as the lowest level of travel services operations to which goodwill relates, where individual cash flows can be ascertained for the purposes of discounting future cash flows. Recoverable amount is the greater of fair value less costs to sell and value in use. It is determined for an individual asset, unless the asset’s value in use cannot be estimated to be close to its fair value less costs to sell and it does not generate cash inflows that are largely independent of those cash flows from other assets or groups of assets, in which case, the recoverable amount is determined for the cash-generating unit to which the asset belongs. In assessing value in use, the estimated cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. 74 75 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: RISKNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: RISK15. Impairment testing of goodwill (continued) 16. Financial risk management (continued) Critical estimates, assumptions and judgements • Impairment of goodwill The Group determines whether goodwill is impaired on an annual basis. This assessment requires an estimation of the recoverable amount of the cash-generating units to which the goodwill is allocated. 16. Financial risk management The Group’s principal financial instruments comprise deposits with banks, overdraft facilities and borrowings. The main purpose of these financial instruments is to raise finance for the Group’s operations. The Group has various other financial assets and liabilities, such as trade receivables and trade payables, which arise directly from its operations. It is, and has been throughout the period under review, the Group’s policy that no trading in financial instruments shall be undertaken. The main risk arising from the Group’s financial instruments are interest rate risk, liquidity risk, credit risk and foreign exchange risk. The Board reviews and agrees policies for managing each of these risks, which are summarised in the note. The Group is not exposed directly to commodity trading risks. Interest rate risk a) As at 30 June 2017, the Group had interest bearing borrowings of $45.4 million, therefore the Group’s income and operating cash flows would be impacted by changes in market interest rates. Interest rate risk is managed by way of proactive action by management and advisors. At balance date CTM has no interest rate cap, swap or options in place and has managed interest rate risk by fixing interest payable for short terms of 1 - 6 months on material borrowings. Under the terms of CTM’s financing arrangements, interest payable is determined using an appropriate base for the currency borrowed. Changes in US LIBOR for example could therefore affect CTM in the medium or long term and accordingly, various strategies to mitigate interest payable may be adopted should material volatility or rates increases be forecast. The Group has interest bearing assets (cash and cash equivalents) with a short turnover period. The interest earned from these assets is not considered material to the Group. Credit risk b) The Group trades only with creditworthy third parties and the Group’s policy is that all clients which wish to trade on credit terms are subject to credit verification procedures, and subsequent risk limits, which are set for each individual client in accordance with the Group’s policies. For some client receivables, the Group may also obtain security in the form of deposits. In addition, receivable balances are monitored on an ongoing basis, with the result that the Group’s exposure to bad debts is considered reasonable. With respect to credit risk arising from the other financial assets of the Group, comprising of cash and cash equivalents, the Group’s exposure to credit risk arises from default of the counter party, with a maximum exposure equal to the carrying amount of these instruments. Credit risk (continued) b) The Group’s cash (refer note 9), is held at financial institutions with the following credit ratings: Australia and New Zealand North America Asia Europe Total 2017 $’000 Moody’ Investor Service Rating 10,787 22,287 Aa3-A1 Aa1-A2 23,683 Aa1-Baa3 22,460 79,217 Aa3-A- Client and Trade receivables are held with predominantly un-rated entities. Liquidity risk c) The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank overdrafts, bank loans and hire purchase contracts. The Group manages liquidity risk by monitoring cash flows and estimating future operational draws on cash reserves. The following table reflects all contractually fixed repayments and interest resulting from recognised financial liabilities as at 30 June 2017. The Group’s financial liabilities comprise of trade and other payables, borrowings, and no derivative financial instruments are held. The respective undiscounted cash flows for the respective upcoming fiscal years are included in the following table. Cash flows for financial liabilities without fixed amount or timing are based on the conditions existing at 30 June 2017. The remaining non-derivative contractual maturities of the Group’s financial liabilities are: 1 year or less 1 – 5 years Over 5 years Contractual cash flows Carrying amount 2017 $’000 2016 $’000 2017 $’000 2016 $’000 232,783 202,481 233,049 202,720 24,368 27,753 24,868 28,148 - - - - Total Trade and Other Payables 257,151 230,234 257,917 230,868 1 year or less 1 – 5 years Over 5 years Total Borrowings 18,122 27,301 - 14,347 22,833 - 18,122 27,301 - 14,347 22,833 - 45,423 37,180 45,423 37,180 76 77 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: RISKNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: RISK 16. Financial risk management (continued) Foreign exchange risk d) The Group operates internationally and is subject to foreign exchange risk arising from exposure to foreign currencies. The Group adopts various procedures and policies to manage foreign currency risk where practicable. These procedures include the use of natural hedges arising from trading operations and subsidiaries’ results, forecasting of future cash flows by currency, and can include the use of forward exchange contracts where abnormal transactions outside of operating activities could give rise to a material exposure – e.g. initial and contingent consideration payments made in relation to acquisitions (note 11). Additionally, the Group has a multi-currency debt facility which allows for borrowings in the relevant entity’s functional currency. At 30 June 2017, there are two forward exchange contracts in place to hedge the deferred consideration payments for Chris Thelen as part of the Chambers acquisition. The following table includes the financial assets and liabilities denominated in currencies other than the functional currency of the respective entities and presents the Group’s exposure to foreign exchange risk at the end of the reporting period, expressed in Australian dollars. 2017 USD HKD GBP NZD JPY Others Total Cash and cash equivalents $’000 Trade and other receivables $’000 Related party loans $’000 Trade and other payables $’000 Borrowings Total $’000 $’000 1,874 5,014 15,018 (5,864) - 16,042 346 60 2 170 957 3,409 147 (21,339) - - - 368 5,529 1,592 1,457 - 1,610 (1,662) (90) (182) (1) (1,635) (1,793) (9,565) - - - - - - (20,936) 1,470 1,458 (1,465) 1,142 (2,289) Based on the 2017 balances, a 10% stronger/(weaker) Australian dollar against the currencies held, would result in Profit & Loss impact of $196,486/($240,150). 2016 USD HKD GBP NZD JPY Others Total Cash and cash equivalents $’000 Trade and Other receivables $’000 Related party loans $’000 Trade and Other payables $’000 Borrowings Total $’000 $’000 10,577 7,807 3,918 (5,290) 440 64 2 35 1,892 13,010 410 - 27 202 532 - - 1,270 - 772 (42) (266) (20) (3,788) (4,119) 8,978 5,960 (13,525) (3,244) - - (3,244) - - - 17,012 808 (3,446) 1,279 (3,551) (923) 11,179 Unrecognised Items This section provides information about items that are not recognised in the financial statements, but could potentially have a significant impact on the Group’s financial position and performance. 17. Contingent liabilities Guarantees / Letter of credit facilities The Group has provided bank guarantees and letters of credit in relation to various facilities with vendors and in accordance with local travel agency licensing and International Air Transport Association regulations. Guarantees provided by the parent are held on behalf of other Group entities. Refer note 14 for details of security provided for the financing facilities. Guarantees provided for: Various vendors Total 2017 $’000 2016 $’000 50,199 42,050 50,199 42,050 There were no other contingencies as at reporting date (2016: $nil). 18. Commitments Operating lease commitments – Group as lessee a) The Group has entered into commercial leases for the rental of premises. These leases have an average life of between one and eight years. There are no restrictions placed upon the lessee by entering into these leases. Future minimum rentals payable under non-cancellable operating leases as at 30 June are as follows: Within one year After one year but not more than five years More than five years Total 2017 $’000 8,060 14,244 1,675 23,979 2016 $’000 9,943 20,619 3,076 33,638 Capital commitments b) There is no significant capital expenditure contracted as at the end of the reporting period but not recognised as liabilities. Accounting policy 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 rights to use the asset. Operating lease payments, which do not transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are recognised as an expense in the Consolidated Statement of Comprehensive Income on a straight-line basis over the lease term. Incentives for entering into operating leases are recognised on a straight-line basis over the term of the lease. Lease income from operating leases, where the Group is a lessor, is recognised in income on a straight-line basis over the lease term. 19. Events occuring after the reporting period There have been no matters, or circumstances, not otherwise dealt with in this report, that will significantly affect the operation of the Group, the results of those operations or the state or affairs of the Group or subsequent financial years. 78 79 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: UNRECOGNISED ITEMSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: RISK Other Items This section provides information on items which require disclosure to comply with Australian Accounting Standards and other regulatory pronouncements, however are not considered critical in understanding the financial performance of the Group. 20. Other current assets Prepayments 21. Plant and equipment Year ended 30 June 2017 Cost Accumulated depreciation Opening net book amount Additions Additions through the acquisition of entities/businesses [note 7] Transfers/reallocations Disposals through sale of an entity Depreciation charge Exchange differences Closing net book amount Year ended 30 June 2016 Cost Accumulated depreciation Opening net book amount Additions Additions through the acquisition of entities/businesses Transfers/reallocations Disposals Depreciation charge Exchange differences Closing net book amount 2017 $’000 4,226 4,226 2016 $’000 4,906 4,906 Furniture, fixtures and equipment $’000 Computer equipment Leasehold provements Other Total $’000 $’000 $’000 $’000 5,124 (4,254) 870 621 377 223 195 (82) (388) (76) 870 3,894 (3,273) 621 1,071 463 - (536) 211 (565) (23) 621 7,598 (5,843) 1,755 1,310 810 528 (195) (14) (687) 3 1,755 3,988 (2,678) 1,310 804 660 - 542 (174) (610) 88 1,310 5,269 (2,725) 2,544 3,315 129 138 - (249) (724) (65) 2,544 5,274 (1,959) 3,315 1,649 3,091 149 (6) (31) (1,431) (106) 3,315 447 18,438 (354) (13,176) 93 180 12 - - (75) (84) 60 93 476 (296) 180 173 108 - - (3) (126) 28 180 5,262 5,426 1,328 889 - (420) (1,883) (78) 5,262 13,632 (8,206) 5,426 3,697 4,322 149 - 3 (2,732) (13) 5,426 No additions during the year (2016: $nil) were financed under lease agreements. 80 21. Plant and equipment (continued) Accounting policy Plant and equipment is stated at historical cost less accumulated depreciation and any accumulated impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the item. All other repairs and maintenance costs are charged to the profit and loss in the Consolidated Statement of Comprehensive Income during the reporting period in which they are incurred. Impairment of non-financial assets, other than goodwill and intangible assets At each reporting date, the Group assesses whether there is an indication that an asset may be impaired. Where an indicator of impairment exists, the Group makes a formal estimate of recoverable amount. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. The carrying values of plant and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. The recoverable amount of plant and equipment is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Derecognition An item of plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on derecognition of the asset, calculated as the difference between the net disposal proceeds and the carrying amount of the asset, is included in the Statement of Comprehensive Income in the year the asset is derecognised. 22. Fair value measurement Fair value hierarchy AASB 13 requires disclosure of fair value measurements by level according to the following hierarchy: a. Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1); b. Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly (level 2); and c. Inputs for the asset or liability that are not based on observable market data (unobservable inputs) (level 3). The following information represents the Group’s assets and liabilities measured and recognised at fair value at 30 June 2017: Liabilities: Level 3 – Contingent Consideration $8,160,000 (30 June 2016: $62,010,000). The following table presents the changes in level 3 instruments for the year ended 30 June 2017: Opening balance 1 July 2016 Additions Transfer to Acquisition payable (i) Foreign exchange movement Discount unwind Closing balance 30 June 2017 Contingent Consideration $’000 62,010 15,999 (69,930) (510) 591 8,160 81 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: OTHER ITEMSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: OTHER ITEMS 22. Fair value measurement (continued) i) The balance transferred to Acquisition payable during the period consists of, the Montrose Travel contingent consideration ($36.2 million), Chambers Travel contingent consideration ($25.5 million) and Redfern Travel contingent consideration ($8.2 million), which are no longer contingent on performance hurdles. The Montrose earn out was paid in March 2017. Also refer to Note 11 Trade payables and Note 25 Related party transactions in relation to the Chambers deferred consideration balance. There were no changes made to any of the valuation techniques applied as of 30 June 2017. Fair value measurements using significant unobservable inputs (level 3) Valuation inputs and relationships to fair value quantitative information about the significant unobservable inputs used in level 3 fair value measurements is summarised as follows: Description: Contingent consideration Fair Value at 30 June 2017: $8,160,000 Valuation technique used: Discounted cash flows Unobservable inputs: Forecast EBITDA and revenue Discount rate: 2.06% The main level 3 inputs used by the Group in measuring the fair value of financial instruments are derived and evaluated as follows: • Discount rates: these are determined using a model to calculate a rate that reflects current market assessments of the time value of money and the risk specific to the asset. 23. Share-based payments Share appreciation rights The establishment of the CTM Share Appreciation Rights (SARs) Plan was approved by the Board on 19 October 2012. The SARs Plan is designed to provide long-term incentives for senior executives to deliver long-term shareholder returns. Under the plan, participants are granted SARs which only vest if certain performance standards are met, and the employee remains in service. Participation in the plan is at the Board’s absolute discretion and no individual has a contractual right to participate in the plan or to receive any guaranteed benefits. Once vested, a participant will be deemed to have automatically exercised all vested SARs and CTM will settle its obligation in line with the SARs Plan. There is no consideration payable by the participant upon exercising of vested SARs. When exercised, the conversion of a SAR to an equity or cash based settlement, is determined using a formula referencing the relevant share prices of CTM, the number of SARs exercised, and is at the Board’s sole absolute discretion. Grants made during 2017 will vest on a scaled basis as follows: • 50% vest at 80% target achievement; • 75% vest at 90% target achievement; and • 100% at 100% target achievement. For equity based settlements, the calculation is as follows: Equity Settlement Amount = ((SMV – BP) / SMV) x PQSR For cash based settlements, the calculation is as follows: Cash Settlement Amount = (SMV – BP) x PQSAR An increase/(decrease) in the discount rate by 100 bps would (decrease)/increase the fair value by ($138,000)/$141,000. Where: • Forecast EBITDA, the entity’s knowledge of the business and how the current economic environment is likely to impact it. If forecast EBITDA were 5% higher or lower, the fair value would increase/decrease by $Nil/($4,509,000). Fair values of other financial instruments At 30 June 17 there are two forward exchange contracts in place to hedge the deferred consideration payments for Chris Thelen, as a part of the Chambers acquisition. The foreign exchange contracts have been accounted for using hedge accounting and designated at the inception of the transaction as cash flow hedges. The forward contracts are assessed at fair value and the effectiveness of the hedge is tested at each reporting date. The fair value is assessed to be $0.4 million at 30 June 2017 and recognised through Other comprehensive income. The Group also has a number of financial instruments which are not measured at fair value in the Statement of Financial Position. For these instruments, their carrying value was considered to be a reasonable approximation of their fair value. Valuation processes The finance department of the Group performs the valuations of assets required for financial reporting purposes, including level 3 fair values. This team reports directly to the Chief Financial Officer (CFO) and the Audit Committee (AC). Discussions of valuation processes and results are held between the CFO, AC, and the finance team at least once every six months, in line with the Group’s reporting dates. Equity Settlement Amount – is the number of shares to be issued or transferred to the relevant participant in equity settlement of the performance qualified SAR at exercise; Cash Settlement Amount – is the amount paid to a participant in cash settlement of a performance qualified SAR at exercise; SMV – the Subsequent Market Value is the market value of a CTM Ltd share as at the performance qualification date in connection with that SAR; BP – the Base Price of the SAR as determined by the Board; and PQSAR – is the total number of performance qualified SARs with the same Base Price held by the relevant participant. SARs granted under the plan carry no dividend or voting rights. The following table summarises the SARs granted under the plan and number of SARS expired during the period: As at 1 July Granted during the year Exercised during the year Forfeited during the year As at 30 June Vested and exercisable at 30 June 2017 Number of SARS 2016 Number of SARS 2,185,000 1,475,000 1,582,500 965,000 (300,000) (125,000) (350,000) (130,000) 3,117,500 2,185,000 - - 82 83 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: OTHER ITEMSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: OTHER ITEMS 23. Share-based payments (continued) Share appreciation rights (continued) SARs outstanding at the end of the year have the following expiry date and share base prices: Grant date Expiry date Base price SARS 30 June 2017 SARS 30 June 2016 1 July 2013 1 July 2014 1 July 2015 1 July 2015 1 July 2016 1 July 2016 1 July 2017 1 July 2018 1 July 2018 1 July 2019 $5.00 $7.00 $8.80 $11.50 $15.33 - 865,000 50,000 795,000 1,407,500 3,117,500 300,000 940,000 50,000 895,000 - 2,185,000 On 22 August 2017, 600,600 shares will be issued upon vesting of 865,000 SARs. In addition to the share issue, 1,460,000 SARs will be granted, pursuant to the CTM SARs plan. Fair value of SARs granted The assessed fair value at grant date of the SARs granted during the year ended 30 June 2017 was $1.62 per SAR (2016 - $1.26). The fair value at grant date has been determined using a Black-Scholes pricing model that takes into account the share price at the time of the grant, the exercise price, the term of the SAR, the expected dividend yield, the expected price volatility of the underlying share and the risk free interest rate for the term of the SAR. The fair value model inputs for SARs granted during the year ended 30 June 2017 included: 24. Interests in other entities Material subsidiaries a) The Group’s principal subsidiaries at 30 June 2017 are set out in the following table. Unless otherwise stated, each entity has share capital consisting solely of ordinary shares that are held by the Group, and the proportion of ownership interests held equals the voting rights held by the Group. The country of incorporation or registration is also their principal place of business. Subsidiaries that provide travel services and contribute more than 5% of the Group’s net profit before tax or 5% of the Group’s net assets are considered material to the Group. Name of entity Place of business/ country of incorporation Ownership interest held by The Group Principal activities Ownership interest held by non- controlling interest 2017 % 2016 % 2017 % 2016 % Corporate Travel Management Group Pty Ltd* Australia 100 100 Corporate Travel Management North America Inc United States of America 100 100 - - - Travel services - Travel services Westminster Travel Limited Hong Kong 75.1 75.1 24.9 24.9 Travel services Corporate Travel Management (United Kindom) Limited United Kingdom 100 100 - - - Travel services - Travel services • SARs are granted for no consideration and vest based on Corporate Travel Management Limited’s Earnings Redfern Travel Ltd United Kingdom 100 - * This subsidiary has been granted relief from the necessity to prepare financial reports in accordance with Class Order 2016/785 issued by the Australian Securities and Investments Commission. For further information refer to note 27. per Share growth over a 3 year vesting period. • Base price: $15.33 (2016 - $11.50). • Grant Date: 1 July 2016 (2016 - 1 July 2015). • Expiry Date: 1 July 2019 (2016 - 1 July 2018). • Share Price at Grant Date: $14.20 (2016 - $10.64). • Expected price volatility of the Group’s shares: 25% (2016 - 25%). • Expected dividend yield: 3.0% (2016 - 3.0%). • Risk-free interest rate: 1.52% (2016 - 1.95%). The expected price volatility is based on the historic volatility, based on the remaining life of the SARS, adjusted for any expected changes to future volatility due to publicly available information. Expenses arising from SARS Total expenses arising from share-based payment transactions recognised during the period as part of employee benefits expense relating to share appreciation rights is $1,366,000 (2016: $778,000). Accounting policy Share-based compensation benefits are provided to employees by way of a SARs. The fair value of SARs granted is recognised as an employee benefits expense, with a corresponding increase in equity. The total amount to be expensed is determined by reference to the fair value of the rights granted, which includes any market performance conditions and the impact of any non-vesting conditions but excludes the impact of any service and non-market performance vesting conditions. Non-market vesting conditions are included in assumptions about the number of SARs that are expected to vest. The total expense is recognised over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied. At the end of each period, CTM revises its estimates of the number of SARs that are expected to vest based on the non-market vesting conditions. CTM recognises the impact of the revision to original estimates, if any, in profit or loss, with a corresponding adjustment to equity. 84 85 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: OTHER ITEMSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: OTHER ITEMS24. Interests in other entities (continued) 25. Related party transactions Non-controlling interests (NCI) b) The following table summarises the financial information for Wealthy Aim Investments Limited (“Westminster Travel”), which has a non-controlling interest which is material to the Group. The Westminster Travel Group includes non-controlling interests which are not material to the Group. The amounts disclosed are before inter-company eliminations. Parent entities a) The ultimate parent entity within the Group is Corporate Travel Management Limited. Subsidiaries b) Interest in subsidiaries are set out in note 24. c) Key management personnel compensation Summarised Statement of Financial Position Current assets Current liabilities Current net assets Non-current assets Non-current liabilities Non-current net assets Net assets Accumulated NCI Summarised Statement of Comprehensive Income Revenue Profit for the period Other comprehensive income Total comprehensive income Profit / (loss) allocated to NCI Dividends paid to NCI Summarised Statement of Cash Flows Cash flows from operating activities Cash flows from investing activities Cash flows from financing activities Net increase / (decrease) in cash and cash equivalents 2017 $’000 2016 $’000 126,882 146,395 (74,699) (98,569) 52,183 16,277 (1,088) 15,189 67,372 15,304 47,826 18,496 (1,409) 17,087 64,913 14,649 2017 $’000 2016 $’000 57,832 14,836 2,430 17,266 3,189 2,568 68,754 15,552 (2,348) 13,204 3,611 2,394 2017 $’000 2016 $’000 12,038 (175) 33,029 (656) (11,966) (28,405) (103) 3,968 Short-term Post-employment Long-term benefits Share-based payments 2017 $ 2016 $ 4,440,380 4,027,580 211,064 303,708 (46,564) (27,599) 498,523 218,334 5,103,483 4,522,023 Detailed remuneration disclosures are provided in the Remuneration Report on pages 14-22. d) Transactions with other related parties The following transactions occurred with related parties: Expenses Payment for rent and outgoings in relation to an office lease paid to a party related to Mr Jamie Pherous Payment for rent in relation to an accommodation lease paid to Mr Chris Thelen Other Working capital advance 2017 $’000 2016 $’000 - 47 - 114 57 109 Outstanding balances with related parties e) The following balances are outstanding at the end of the reporting period in relation to transactions with related parties: Other payables Key management personnel (i) Other related parties 2017 $’000 2016 $’000 21,798 76 22,271 580 (i) The payable represents the present value of the deferred consideration payable to Chris Thelen ($21.3 million) and Debbie Carling ($0.5 million), as a part of the acquisition of Chambers Travel Group Limited – refer to note 11. 86 87 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: OTHER ITEMSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: OTHER ITEMS 25. Related party transactions (continued) 26. Parent entity financial information (continued) Terms and conditions f) Directors for the Group hold other directorships as detailed in the Directors’ Report. Where any of these related entities are clients of the Group, the arrangements are on similar terms to other clients. All transactions were made on normal commercial terms and conditions and at market rates. Outstanding balances are unsecured and are repayable in cash. 26. Parent entity financial information Summary financial information a) The individual financial statements of the parent entity show the following aggregate amounts: Statement of Financial Position Current assets Total assets Current liabilities Total liabilities Net assets Shareholders’ equity Issued capital Reserves Retained earnings Shareholders’ equity Profit for the year Total comprehensive income 2017 $’000 2016 $’000 1,068 3,506 352,332 29,973 255,286 28,332 15,243 28,819 337,089 226,467 302,250 195,635 13,429 21,410 10,136 20,696 337,089 226,467 28,267 27,370 28,267 27,370 Guarantees entered into by the parent entity b) The parent entity is party to the overall financing arrangements and related security as detailed in note 14 and note 17. Contingent liabilities of the parent entity c) The parent entity did not have any contingent liabilities as at 30 June 2017 or 30 June 2016. Contractual commitments d) The parent did not have any contractual commitments at 30 June 2017 or 30 June 2016. Assets or liabilities arising under tax funding agreements with the tax consolidated entities are recognised as current amounts receivable from or payable to other entities in the Group. Any difference between the amounts assumed and amounts receivable or payable under the tax funding agreement are recognised as a contribution to or distribution from wholly-owned tax consolidated entities. iii) Financial guarantees Where the parent entity has provided financial guarantees in relation to loans and payables of subsidiaries for no compensation, the fair values of these guarantees are accounted for in the parent company and consolidated financial statements. Accounting policy The financial information for the parent entity, Corporate Travel Management Limited, has been prepared on the same basis as the consolidated financial statements, except as follows: Investments in subsidiaries i) Investments in subsidiaries are accounted for at cost in the financial statements of Corporate Travel Management Limited. ii) Tax consolidation legislation Corporate Travel Management Limited and its wholly-owned Australian controlled entities have implemented tax consolidation legislation. The head entity, Corporate Travel Management Limited and the controlled entities in the tax consolidated group account for their own current and deferred tax amounts. These tax amounts are measured as if each entity in the tax consolidated group continues to be a stand-alone taxpayer in its own right. In addition to its own current and deferred tax amounts, Corporate Travel Management Limited also recognises the current tax liabilities or assets and the deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled entities in the tax consolidated group. The entities have also entered into a tax funding agreement under which the wholly-owned entities fully compensate Corporate Travel Management Limited for any current tax payable assumed and are compensated by Corporate Travel Management Limited for any current tax receivable and deferred tax assets relating to unused tax losses or unused tax credits that are transferred to Corporate Travel Management Limited under the tax consolidation legislation. The funding amounts are determined by reference to the amounts recognised in the wholly- owned entities’ financial statements. The amounts receivable/payable under the tax funding agreement are due upon receipt of the funding advice from the head entity, which is issued as soon as practicable after the end of each financial year. The head entity may also require payment of interim funding amounts, to assist with its obligations to pay tax instalments. 88 89 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: OTHER ITEMSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: OTHER ITEMS 27. Deed of cross guarantee Corporate Travel Management Limited, Corporate Travel Management Group Pty Ltd, Floron Nominees Pty Ltd, Sainten Pty Limited, Travelogic Pty Limited, WA Travel Management Pty Ltd, Travelcorp Holdings Pty Ltd, Travelcorp (Aust) Pty Ltd, ETM Travel Pty Ltd and Corporate Travel Management (New Zealand), Corporate Travel Management North America Limited, Corporate Travel Management North America, Inc, Sara Enterprise, Inc., are parties to a Deed of Cross Guarantee, under which each company guarantees the debts of the other companies. By entering into the Deed, the wholly owned Australian entities have been relieved from the requirement to prepare a Financial report and Directors’ Report under Class Order 2016/785 (as amended) issued by the Australian Securities and Investments Commission. These companies represent a ‘closed Group’ for the purposes of the Class Order and, as there are no other parties to the deed of cross guarantee that are controlled by Corporate Travel Management Limited, they also represent the ‘extended closed Group’. The following table presents a consolidated income statement, a Consolidated Statement of Comprehensive Income and a summary of movements in consolidated retained earnings for the year ended 30 June 2017 of the closed Group. a) Consolidated Statement of Comprehensive Income Revenue Other income Total revenue and other income Operating expenses Employee benefits Occupancy Depreciation and amortisation Information technology and telecommunications Travel and entertainment Administrative and general Total operating expenses Finance costs Profit before income tax Income tax expense Profit for the year Other comprehensive income Items that may be reclassified to profit or loss: Exchange differences on translation of foreign operations Changes in the fair value of cash flow hedges Other comprehensive income for the period, net of tax Total comprehensive income for the year 2017 $’000 2016 $’000 225,683 160,957 403 2,983 226,086 163,940 (119,940) (87,753) (6,088) (9,730) (6,467) (6,685) (17,189) (11,376) (3,833) (9,818) (2,363) (5,422) (166,598) (120,066) (2,645) 56,843 (14,850) 41,993 (3,230) 360 (2,870) 39,123 (1,273) 42,601 (8,509) 34,092 9,730 - 9,730 43,822 27. Deed of cross guarantee (continued) b) Consolidated Statement of Financial Position ASSETS Current assets Cash and cash equivalents Trade and other receivables Financial assets at fair value Other current assets Total current assets Non-current assets Plant and equipment Intangible assets Investment in related parties Deferred tax assets Related party receivable Total non-current assets TOTAL ASSETS LIABILITIES Current liabilities Trade and other payables Borrowings Income tax payable Provisions Related party payable Total current liabilities Non-current liabilities Trade and other payables Borrowings Provisions Deferred tax liabilities Total non-current liabilities TOTAL LIABILITIES NET ASSETS EQUITY Contributed equity Reserves Retained earnings TOTAL EQUITY 2017 $’000 2016 $’000 32,091 66,618 236 1,732 46,623 57,635 12 1,735 100,677 106,005 3,177 244,922 175,656 9,012 - 432,767 533,444 3,384 199,382 94,649 2,151 5,205 304,771 410,776 85,450 18,095 2,691 4,742 100,473 14,347 (255) 3,874 59,470 23,931 170,448 142,370 1,186 - 1,927 4,975 8,088 1,393 22,833 3,801 6,669 34,696 178,536 177,066 354,908 233,710 281,847 175,231 11,474 61,587 11,331 47,148 354,908 233,710 90 91 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: OTHER ITEMSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: OTHER ITEMS 28. Auditors’ remuneration The auditor of the Group is PricewaterhouseCoopers. PricewaterhouseCoopers Australia: Audits and review of the financial reports of the entity and any other entity in the consolidated Group Other services in relation to the entity and any other entity in the consolidated Group: Tax compliance Other advisory services Total remuneration of PricewaterhouseCoopers Australia Other PricewaterhouseCoopers network firms: Other services in relation to the entity and any other entity in the consolidated Group: Audit and review of the financial report Tax compliance Tax services – acquisitions Other services 2017 $ 2016 $ 531,419 493,597 220,578 179,047 72,127 33,270 824,124 705,914 471,027 43,639 - 6,071 439,088 207,770 5,490 40,722 Total remuneration of PricewaterhouseCoopers network firms 520,737 693,070 Non-PricewaterhouseCoopers firms: Services in relation to the entity and any other entity in the consolidated Group: Audit and review of the financial report Tax compliance Total remuneration of Non-PricewaterhouseCoopers firms 29. Summary of significant accounting policies 101,703 285,524 133,206 - 387,227 133,206 Basis of preparation a) These general purpose financial statements have been prepared in accordance with Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board and the Corporations Act 2001. Corporate Travel Management Limited is a for-profit entity for the purpose of preparing the financial statements. i) Compliance with IFRS The consolidated financial statements of the Group also comply with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). The financial report is presented in Australian dollars and all values are rounded to the nearest thousand dollars ($’000), unless otherwise stated. These financial statements have been prepared under the historical cost convention, as modified by the revaluation of financial assets and liabilities, fair value through Statement of Comprehensive Income. New and amended standards b) There are no new standards and amendments to standards that are mandatory for the first time for the financial year beginning 1 July 2016 that materially affect the amounts recognised in the current period or any prior period and are not likely to affect future periods. The Group has not early adopted any amendments, standards or interpretations that have been issued but are not yet effective in the current year. 29. Summary of significant account policies (continued) New and amended standards (continued) b) Certain new accounting standards and interpretations have been published that are not mandatory for the reporting period ending 30 June 2017 and have not been adopted early by the Group. The Group’s assessment of the impact of these new standards and interpretations is set out in the following table. Mandatory application date / date of adoption by the Group Mandatory for financial year ending 30 June 2019. At this stage, the Group does not intend to adopt the standard before its effective date. Mandatory for financial year ending 30 June 2019. At this stage, the Group does not intend to adopt the standard before its effective date. Mandatory for financial year ending 30 June 2020. At this stage, the Group does not intend to adopt the standard before its effective date. Title of standard AASB 9 Financial instruments AASB 15 Revenue from contracts with customers AASB 16 Leases Summary and impact on the Group’s financial statements The new standard simplifies the model for classifying and recognising financial instruments and aligns hedge accounting more closely with common risk management practices. The new standard also introduces a new expected-loss impairment model that will require entities to account for expected credit losses at the time of recognising the asset. The Group has undertaken a preliminary assessment of the potential impact of this new standard and at this stage, does not expect there to be a material impact on the Group’s results. The AASB has issued a new standard for the recognition of revenue, which replaces virtually all revenue recognition requirements, including those as set out in AASB 118 Revenue. The new standard is based on the principle that revenue is recognised when control of a good or service transfers to a customer, so the notion of control replaces the existing notion or risk and rewards. The Group has undertaken a preliminary assessment of the potential impact of this new standard and at this stage, does not expect there to be a material impact on the Group’s results. AASB 16 addresses the classification, measurement and recognition of almost all leases. The changes will primarily affect the accounting by lessees and will result in almost all leases being recognised on the balance sheet. The standard removes the current distinction between operating and finance leases and requires recognition of an asset (the right to use the leased item) and a financial liability to pay rentals for almost all leases. The only exceptions are short-term and low-value leases. As at the reporting date, the Group has operating lease commitments of $23.9 million. Refer note 18. The Group has conducted a preliminary assessment of the forecast impact of AASB 16 on the Group’s profit, balance sheet and cash flows. Upon adoption of AASB 16, the Group expects a material increase in both lease liabilities and right-of-use assets. The Group EBITDA is expected to be materially positively impacted as lease costs are reclassified as interest and depreciation, although the impact on the Group’s profit is not expected to be material. Accounting policies of subsidiaries have been changed, where necessary, to ensure consistency with policies adopted by the Group. Rounding of amounts c) The Company is of a kind referred to in Class Order 2016/191, issued by the Australian Securities and Investments Commission, relating to the “rounding off” of amounts in the financial statements. Amounts in the financial statements have been rounded off in accordance with that Class Order to the nearest thousand dollars, or in certain cases, the nearest dollar. 92 93 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: OTHER ITEMSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: OTHER ITEMS Directors’ Declaration In the Directors’ opinion: (a) The financial statements and notes set out on pages 39 to 93 are in accordance with the Corporations Act 2001, including: i) Complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; and ii) Giving a true and fair view of the consolidated entity’s financial position as at 30 June 2017 and of its performance for the financial year ended on that date; and (b) There are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable; and (c) At the date of this declaration, there are reasonable grounds to believe that the members of the extended closed Group identified in note 27 will be able to meet any obligations or liabilities to which they are, or may become, subject by virtue of the deed of cross guarantee described in note 27. Note 29 confirms that the financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board. The Directors have been given the declarations by the Chief Executive Officer and Chief Financial Officer required by section 295A of the Corporations Act 2001. This declaration is made in accordance with a resolution of the Directors. Mr Tony Bellas Chairman Brisbane, 22 August 2017 Mr Jamie Pherous Managing Director 94 95 [][]Independent auditor’s report To the members of Corporate Travel ManagementLimitedReport on the audit of the financial report Our opinion In our opinion: The accompanying financial report of Corporate Travel Management Limited (the Company) and its controlled entities (together, the Group) is in accordance with the Corporations Act 2001, including: a)giving a true and fair view of theGroup’sfinancial position as at 30 June 2017 and of its financial performance for the year then endedb)complying with Australian Accounting Standards and the Corporations Regulations 2001. What we have auditedThe Group financial report comprises: •the consolidated statement of financial position as at30 June 2017•the consolidated statement of comprehensive income for the year then ended•the consolidated statement of changes in equity for the year then ended•the consolidated statement of cash flowsfor the year then ended•the notes to the consolidated financial statements, which include a summary of significant accounting policies•the directors’ declaration.Basis for opinion We conducted our audit in accordance withAustralian Accounting Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of theConsolidated Financial Statementssection of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. IndependenceWe are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (theCode) 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.PricewaterhouseCoopers, ABN 52 780 433 757 480 Queen Street, BRISBANE QLD 4000, GPO Box 150, BRISBANE QLD 4001T: +61 7 32575000, F: +61 7 3257 5999, www.pwc.com.au Liability limited by a scheme approved under Professional Standards Legislation. 96 97 Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Further, any commentary on the outcomes of a particular audit procedure is made in that context.We communicated the key audit matters to the Audit Committee. Key audit matterHow our audit addressed the Key audit matterRevenue recognitionRefer to Note 2 RevenueThe Group’s provision of travel services to clients drives a number of revenue streams.The recognition of revenue from these sources is largely dependent on the terms of the underlying contracts with the customer, the supplier, or both. Contracts can be complex and bespoke in terms of their fee structures, the range and mix of services provided, as well as potential for late adjustments and renegotiations of contractual terms. In addition, judgement is involvedin the recognition of revenue related to volume incentives (“overrides”) as revenue is accrued based on estimated Total Transaction Value (“TTV”) for the period, with reference to terms stipulated in supplier agreements.We focused on revenue recognition due to the materiality of the revenue balance as awhole and on the revenue streams ‘fees and commissions’ and ‘overrides’ in particular. This wasbecause of their relative significance to the overallrevenue balance, the bespoke nature of the agreements and (in the case of overrides) the judgement involved in accurately recognising revenue. Our procedures in relation to the recognition of revenue from all revenue streams included, amongst others:•Understanding the Group’s revenue recognitionprocesses•Testing a sample of transactions recognised in thegeneral ledger to supporting documentation,including cash receipts perthe bank statements•Utilisingdata analytic techniquesfor selectedgeographical locations to identify revenuetransactions recognised through manual journalentries and testing a sample of manual journalrevenue transactions.In addition, we performed the following procedures specific to the below revenue streams, on a sample basis:Overrides•Testing the mathematical accuracy of the Group’sunderlying revenue calculations•Comparing the percentages and TTV inputs used inthe underlying calculations to percentages stipulatedin the signed overrides agreements, and known TTVdata supplied by a third party•Testinga sampleof overrides payments receivedduring the year to bank statementsFees & Commissions•Utilising data analytic techniques to reconcile thetotal recognised revenue for fees and commissionsfor selected geographical locations to recordedtotalcash received for those selectedlocations•Agreeinga sample of recorded fees and commissionstransactions to signed customer agreements, invoicesand bank statements.Our audit approachAn audit is designed to provide reasonable assurance about whether the financial report is free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial report. We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial report as a whole, taking into account the geographic and management structure of the Group, its accounting processes and controls and the industry in which it operates.The Group provides travel management solutions to the corporate market and operates in four broad geographic regions, being Australia & New Zealand (“ANZ”), North America, Asia and Europe. The regional finance functions report to the Group finance function in Brisbane, Australiawhere consolidation is performed.Materiality•For the purpose of our audit we used overall Group materiality of $3.9 million, which represents approximately 5% of the Group’s profit before tax.•We applied this threshold, together with qualitative considerations, to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements on the financial report as a whole. •We chose Group profit before tax as the benchmark becausethe Group is a profit oriented entity and because, in our view, it is one of the metrics against whichthe performance of the Group is most commonly measuredand it is a generally accepted benchmark in the travel industry. •We selected 5% based on our professional judgement noting that it is also within the range of commonly acceptableprofit related thresholds in the industry. Audit scope•Our audit focused on where the Group made subjective judgements; for example, significant accounting estimates involving assumptions and inherently uncertain future events. •In establishing the overall approach to the Group audit, we determined the type of audit work that needed to be performed by us, as the Group engagement team, and by component auditors in Hong Kong and the UK operating under our instruction. We structured our audit as follows:-We engaged component auditors in Hong Kong and the UK to perform audit procedures over the Asia and Europe regions respectively.-We performed audit procedures over the North America region, which includedus visitingthe Houston based finance function. -We also performed audit procedures over the Australia & New Zealand region, in addition to auditing the consolidation of the Group’s regional reporting units into the Group’s financial report. •For the work performed by component auditors in Hong Kong and the UK, we determined the level of involvement we needed to have in the audit work at these locations to be satisfied that sufficient audit evidence had been obtained as a basis for our opinion on the Group financial report as a whole. This included active dialogue throughout the year through discussions, issuing written instructions, receiving formal interoffice reporting, as well as attending final clearance meetings with local management.Members of our Group audit team undertook site visits to each of the four regions during the year ended 30 June 2017.98 99 Post-acquisitionmeasurement of deferred and contingent considerationRefer to Note 7 Business combinations, Note11Trade and other payablesandNote 22 Fair value measurementIt is common that, for acquisitions made by the Group, elements of the consideration are deferred to financial years after the initial acquisition and (in some cases) are contingent on future events, including financial performance based “earn out” calculations.At 30 June 2017, the Group had deferred and contingent consideration liabilities relating to acquisitions made in the current and previous financial periods.We focused on the post-acquisitionmeasurement ofthese liabilitiesas at 30 June 2017due to the judgement involved in assessing the likelihood of the contingent events being met, the discounting to be applied, as well as the disclosure requirements for such liabilities. Our procedures in relation to the post-acquisitionmeasurement of deferred and contingent consideration as at 30 June 2017included, amongst others:•Obtaining the original purchase agreements, and anysubsequent agreements entered into, to determinewhether the deferred consideration is non-contingentor contingent upon future events at balance date•Testing the mathematical accuracy of the Group’sunderlying calculations•Evaluating the Group’s assumptions for discountratesused in the calculations•Assessing the classification of liabilities betweencurrent and non-current at 30 June 2017, withreference to agreed or estimated payment terms.Specific procedures for contingent consideration liabilities included,amongst others:•Comparing the contingent criteria (or ‘earn out’)used in the Group’s underlying calculations to theterms stipulated in the purchase agreements and anysubsequent agreements•Evaluating the financial forecasts used by the Groupto estimate if “earn out” performance hurdles in thefuture are likely to be met, including comparison toBoard approved budgets•Testing that the amounts accrued as a liability wereconsistent with the outcome of theGroup’scalculations, and consistent with the financialperformance of the business from other auditprocedures•Reviewing whether reclassifications from contingentconsideration to deferred consideration wereappropriate based on whether “earn out” criteria hadbeen met or alternative contractual terms hadbeenagreed•Assessing the accuracy and completeness ofcontingent consideration disclosures in the financialstatementsas at 30 June 2017.Accounting for business combinationsRefer to Note 7 Business combinationsThe Group completed three acquisitions during the year ended 30 June 2017:•Travizon Travel (“Travizon”) inBoston, USA on 1 July 2016•Redfern Travel (“Redfern”) inBradford, UK on 1 February 2017•Andrew Jones Travel (“AJT”) inTasmania, Australia on 1 February2017.We determined that the accounting for business combinationswas a key audit matter for the FY17 audit due to the materiality of the value of the transactions, net assets acquired and resultant goodwill arising on the acquisitions, as well as thelevel of judgement involved in the Purchase Price Allocation (“PPA”) calculations.The key areas of judgementincluded:•The value of deferred and contingentconsideration liabilities recognised atacquisition date•The fair value of the acquired assetsand liabilitiesrecognised atacquisition date•The valuation of customer relationshipand customer contract intangibleassetsat acquisition date•Disclosure of acquisition details in thefinancial statements as at 30 June2017. Our procedures in relation to the accounting for acquisitions included, amongst others:•Testing of the initial consideration paid for each ofthe three acquisitions to the bank statements and thepurchase agreements•Obtaining purchase agreementsfor each of the threeacquisitionsto determine the level of deferredconsideration, and whether any consideration iscontingent on future events•Assessing the contingent consideration liabilityrecognised by the Group at acquisition date, and themeasurement and disclosure of related ‘earn out’criteria for the Redfern acquisition by reference tothe terms of the purchase agreement•Assessing the discount rates appliedin the Group’scalculations of deferred and contingent considerationliabilities by comparing to our independentlydeveloped calculation of discount rates•Testing a sample of acquired working capitalbalances to post acquisition date payments andreceipts•Assessing the Group’s valuation methodology for therecognition of customer relationship and customercontract intangible assets and the key assumptionstherein, including forecast future financialperformance and discount rates•Performing sensitivity analysis on these assumptions•Assessing the mathematical accuracy of the Group’scalculation of the resulting goodwill arising on thePPA calculation•Considering the completeness of the recognition ofintangible assets by reference tothe purchasecontract and intangible assets recognised in previousacquisitionsby the Group•Assessing the accuracy and completeness of businesscombination disclosures in the financial statements.100 101 Other information The directors of the Company are responsible for the other information. The other information comprises the Chairman and Managing Director’s Report, Corporate Directory, Directors’ Report, Corporate Governance Statement and Shareholder Information in the annual report for the year ended 30 June 2017, but does not include the financial report and our auditor’s report thereon. Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information identified above 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 thefinancial reportThe directors of the Company are responsible for the preparation of the financial report that gives a true and fair viewin accordance withAustralian Accounting Standards and the Corporations Act 2001, and for such internal control as the directorsdetermine is necessary to enable the preparation of the financial report that gives a true and fair view, and isfree from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directorseither intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial reportOur objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standardswill 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 the 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. Impairment assessment on the Group’s goodwill balancesRefer to Note15 Impairment testing of goodwillAt 30 June 2017, the Group recorded $441.0m of intangible assets, of which $393.2m related to goodwill. These assets are allocated between four cash generating units (“CGUs”), being Australia & New Zealand, North America, Europe and Asia.As required by AustralianAccounting Standards, at 30 June 2017 management performed an impairment assessment over the goodwill balance by calculating the ‘value in use’ for each CGU, using a discounted cash flow model.Given the level of judgement involved in estimating the key assumptions in the valuation models, including forecast performance, growth rates and discount rates, and the materiality of the goodwill recognised on the Group’s balance sheet, we determined that this was a key audit matter.No impairment charge was recorded by the Group in the current financial year. Our procedures in relation to the impairment assessment of goodwill included, amongst others:•Assessing the appropriateness of the Group’sdetermination of its CGUs•Testing the mathematical accuracy of the underlyingcalculationsin the Group’s discounted cash flowvaluation models•Comparing the cash flow forecasts for FY18 used inthe models to the Board approved budget for FY18•Comparing the FY17 actual results with prior yearforecasts to assess the historical accuracy of theGroup’s forecasting processes•Evaluating the key assumptions in the cash flowmodels, includinglong term growth rates anddiscount rates•Performing sensitivity analysis to assess the impactof reasonably possible changes in the assumptionsused in the valuation models, including the discountrates, growth rates, and FY18 forecast.Based on our procedures we found that headroom remained between the carrying value of each CGU’s assets (including goodwill) and management’s calculation of the value in use, and as such no impairment of goodwill was identified.We also compared the Group’s net assets as at 30 June 2017 of $401m to its market capitalisation of $2,414m at 30 June 2017, and noted the $2,013m ofimplied headroom in the comparison. Shareholder Information The shareholder information set out below was applicable at 18 July 2017. Distribution of equity securities a) Analysis of numbers of equity security holders by size of holding: 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over There were 195 holders of less than a marketable parcel of ordinary shares. b) Equity security holders Twenty largest quoted equity security holders The names of the twenty largest holders of quoted equity securities are listed as follows: Number of shareholders 6,680 4,203 573 386 52 11,894 Pherous Holdings Pty Ltd HSBC Custody Nominees (Australia) Ltd J P Morgan Nominees Australia Limited Citicorp Nominees Pty Limited National Nominees Limited Claire Lesley Gray BNP Paribas Noms Pty Ltd Steven Craig Smith Matthew Michael Cantelo Matimo Pty Ltd Ms Helen Logas BNP Paribas Nominees Pty Ltd Doobie Investments Pty Limited Christopher Alexander Thelen Mr Matthew Dalling National Nominees Limited Shamiz Pty Ltd Citicorp Nominees Pty Limited Joseph D McClure and Julie A McClure Andrea McClure – MYSZA 2017 Number held Percentage of issued shares 21,650,000 18,303,335 9,877,088 4,163,534 3,315,489 2,967,759 2,189,854 1,584,338 1,498,520 1,279,350 1,136,764 959,016 924,936 905,547 899,171 558,467 526,893 441,416 440,180 440,180 20.58% 17.40% 9.39% 3.96% 3.15% 2.82% 2.08% 1.51% 1.42% 1.22% 1.08% 0.91% 0.88% 0.86% 0.85% 0.53% 0.50% 0.42% 0.42% 0.42% 74,061,837 70.40% 102 103 Report on the remuneration reportOur opinion on the remuneration reportWe have audited the remuneration report included inpages27to35 of the directors’reportfor the yearended30 June 2017.In our opinion, the remuneration report ofCorporate Travel Management Limited, for the year ended30 June 2017complies with section 300A of the Corporations Act 2001.Responsibilities The directors of theCompany are responsible for the preparation and presentation of the remuneration report inaccordance 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. PricewaterhouseCoopersMichael ShewanPartner 22August 2017Shareholder Information (continued) Corporate Directory c) Equity security holders (continued) Unquoted equity securities Share Appreciation Rights 3,117,500 34 Substantial holders d) Substantial holders (including associate holdings) in the Company are set as follows: Number on issue Number of holders Pherous Holdings Pty Ltd HSBC Custody Nominees (Australia) Ltd J P Morgan Nominees Australia Limited UBS Group AG Hyperion Asset Management Limited Number held Percentage Issued shares 21,650,000 18,303,335 9,877,088 7,529,852 5,019,113 20.58% 17.40% 9.39% 7.16% 5.04% Voting rights e) The voting rights attaching to each class of equity securities are set out below: Ordinary shares voting rights On a show of hands, every member present at a meeting in person or by proxy shall have one vote. Upon a poll, each share shall have one vote. There are currently no options held. Share Appreciation Rights Share appreciation rights have no voting rights. Directors Secretary Tony Bellas Stephen Lonie Greg Moynihan Jamie Pherous Admiral Robert J. Natter, U.S. Navy (Ret.) Laura Ruffles S. Fleming S. Yeates Notice of Annual General Meeting The Annual General Meeting of Corporate Travel Management will be held in Brisbane on Tuesday 24 October 2017 at 9am at the office of McCullough Robertson (Level 11, Central Plaza Two, 66 Eagle Street, Brisbane QLD 4000). Registered office in Australia Level 24, 307 Queen Street Brisbane QLD 4000 Share register Auditor Computershare Investor Services Pty Limited 117 Victoria Street West End QLD 4101 Telephone: 1300 782 544 PricewaterhouseCoopers Australia 480 Queen Street Brisbane QLD 4000 Stock exchange listing Corporate Travel Management shares are listed on the Australian Securities Exchange (ASX). Website address www.travelctm.com ABN 17 131 207 611 104 105 Registered Office Level 24, 307 Queen Street, Brisbane QLD 4000 www.travelctm.com 

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