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Annual Report 2019

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ReadyTech Holdings Limited ABN 25 632 137 216 18 October 2019 2019 Annual Report – Typeset version ReadyTech Holdings Limited (ASX: RDY) attaches a typeset version of the 2019 Annual Report. There have been no changes to the version lodged with ASX on 22 August 2019, other than typesetting. Yours sincerely Nimesh Shah Chief Financial Officer & Company Secretary ReadyTech Holdings Limited             2 0 1 9 WE’RE READY ANNUAL REPORT 2019 READYTECH HOLDINGS LIMITED ABN 25 632 137 216 CONTENTS Chairman’s letter Chief Executive Officer’s report Corporate directory Directors’ report Auditor’s independence declaration Statement of profit or loss and other comprehensive income Statement of financial position Statement of changes in equity Statement of cash flows Notes to the financial statements Directors’ declaration Independent auditor’s report to the members of ReadyTech Holdings Limited Shareholder information 4 6 9 10 24 25 27 28 29 30-71 72 73-76 77 mission: To be a world-class tech company focused on mission critical software and services based on trust and innovation Dear Shareholder, ReadyTech Holdings Limited completed its successful listing on the Australian Securities Exchange (ASX) on 17 April 2019. On behalf of the Board of Directors I would like to express my appreciation for the strong support shown by investors during and since this initial public offering and introduce the company’s first Annual Report. ReadyTech is a software-as-a-service (SaaS) provider of people management systems for Australian educational institutions and employers. Having grown its footprint across these sectors over 20 years, the company’s IPO prospectus detailed its financial prospects through FY2019 and CY2019, as well as the future opportunities that exist across these two core market segments. I’m pleased to report that ReadyTech has exceeded all of the FY2019 targets outlined in the prospectus. Pro forma revenue for FY2019 was up 13.5% on FY2018, ahead of our prospectus forecast by 1%. Pro forma EBITDA and NPATA also outperformed our forecasts. In addition, the Board and management remain confident the company is on track to meet the prospectus forecasts for CY19. ReadyTech is in a strong position to deliver on future growth opportunities. It’s growth strategy is centred on winning new, higher value customers and driving greater spend for existing customers with additional products and value-added services. In the education segment, ReadyTech has been experiencing increased customer interest in higher value markets for its student management systems. Its strong reputation in payroll and HR admin systems is also attracting larger business customers in the employment segment. In both markets, ReadyTech continues to offer customers additional products and services designed to help them better manage their student and employee lifecycles. While the group is well positioned for organic growth in these two segments, ReadyTech’s management will continue to explore opportunities to buy, build or partner where acquisition, development or partnership will contribute to growth in core markets. The transition from private to listed public company brings significant change, particularly in the areas of governance, market informing and reporting. The Board and management have put in a considerable effort to meet all market requirements. We look forward to feedback on this Annual Report and on our investor presentations. ReadyTech’s ambition is to become a world-class technology company that will help customers manage the future of education and work through SaaS. The Board and I would like to thank Marc, Nimesh and the team for carrying this vision forward successfully into life as a publicly listed company. ReadyTech’s management team have a demonstrated track record of delivering value to customers through systems in education and employment, and the Board and I have every confidence ReadyTech will continue to earn our customers’ trust with some of the most mission-critical aspects of their businesses well into the future. Yours sincerely, Tony Faure Chairman 22 August 2019 Sydney Chairman’s letter TONY FAURE CEO message 30 June 2019 From its roots over 20 years ago providing software that helped job seekers back into work, ReadyTech has successfully developed a suite of complementary people management systems across the education and employment sectors in Australia. We have become a SaaS technology company with a range of market-leading software products in growing markets and a reputation for innovation and great service our customers can trust. Today ReadyTech helps over 3,600 organisations to manage and grow their businesses, while touching the lives of hundreds of thousands of Australians who are undertaking the increasingly complex human journey through education and training, work and career transitions. In our first Annual Report as a publicly listed company I can report that ReadyTech continues to capitalise on its strong existing position in the defensive sectors of education and employment. As well as pursuing new, higher value customers across our product suite, ReadyTech is also realising synergies and a “parenting advantage” across the education and employment segments of our business, allowing us to offer value-added software and services to existing customers, while enhancing our perennial focus on customer success to ensure we maintain our high rates of customer retention. About ReadyTech ReadyTech is a provider of mission-critical people management software for educators, employers and facilitators of career transitions. With a 20 year track record of organic growth and uninterrupted profitability, as well as some more recent highly complementary acquisitions, ReadyTech now offers educators and employers software services that span the breadth of the student and employee lifecycle through tertiary education and work. In the tertiary education sector, our student management and apprenticeship management systems have a market-leading presence in the vocational education and training (VET) sector and are making strong inroads into the higher education market. In employment, our payroll and HR admin systems service a range of employers from SMEs to many larger businesses with over 1,000 employees. ReadyTech also has a leading footprint in employment services, where we assist providers in getting job seekers back into work and is adding value across these markets through the integration of behavioural science intelligence. As a whole, ReadyTech continues to support customers to remain compliant with their respective regulatory environments, while better managing and engaging with students and employees, as they evolve their businesses to be ready for the future of education and work. Growth vision ReadyTech enjoys strong prospects for growth across both the education and employment segments. By leveraging our position as a provider of bedrock software and services for our customers in both markets - including regulatory and compliance reporting in the education sector and payroll processing and HR compliance in employment - ReadyTech is in a position to attract higher value customers and expand the lifetime value of existing customers by adding increased value to their businesses. 2019 ANNUAL REPORT ReadyTech is pursuing growth through: • Attracting new and higher value customers: ReadyTech is pursuing the largest providers of tertiary education, including TAFEs and higher education customers, with its advanced, enterprise SaaS product and there is a strong pipeline of interest following recent wins including a contract with the University of Queensland. In the employment segment, ReadyTech is enjoying increased interest from larger employers through its full-spectrum, service-oriented offering and trusted reputation, whether they are seeking an outsourced or technology payroll and HR administration solution. • Increased spend per customer: Through its continued strong spend in R&D (over $10m in FY19), ReadyTech relentlessly pursues further innovation and value for customers. In education, ReadyTech is providing customers with additional features including student services, online enrolment and student engagement tools, while innovating with market leading, new build features for complex clients, including mass scheduling for international and higher education providers. In employment, value-add adoption is being driven through new modules such as onboarding, workplace health and safety, business intelligence and employee self-service services. • Realisation of cross-sell opportunities: ReadyTech’s stable of complementary technology means it can offer additional systems and value to existing clients. For example, ReadyTech is actively offering leading skills profiling and behavioural science assessment tools, which are ready-made for adoption by over 10% of our education customer base. These tools meet a direct need for not only improved management of compliance, but also better knowledge and engagement of students to support higher graduation rates and student outcomes. The education and employment segments also contain significant opportunities to expand our reach within the student and employee lifecycle, in areas such as student experience for education and talent management for employers. ReadyTech will actively seek quality opportunities to buy, build and partner where adding additional functionality and services will deliver value for customers and contribute to a return on investment for ReadyTech investors. We are excited to announce one particular, highly beneficial partnership into FY20 with Flare HR, who will offer employee benefits to our employment customers, assisting them to better improve employee engagement. Customer success ReadyTech continues to pursue excellence across our business in line with our vision of becoming a world-class technology company. In FY19, we launched the Education Products Standard Committee (REPS), which will promote the highest levels of compliance across our education business while contributing to setting an agenda for this sector into the future. As a technology company, IT security is an essential consideration; ReadyTech is continually investing in the highest IT security standards, reflected by the fact that our software system for the employment services market recently became the first system in Australia to achieve the first step of IT security accreditation from the Department of Employment, Skills, Small and Family Business. In the end, ReadyTech’s ongoing growth as a SaaS provider comes down to the success and satisfaction of our customers and how well we understand them. For this reason, we are “doubling down” on our focus on customer success for our education and employment businesses into the future. We are in the process of enhancing the framework of our sales and customer success functions across both our core segments to ensure our naturally ‘sticky’ customers - who rely on us for mission-critical business functions - remain active promoters of our offerings due to the value we add to their businesses and the ongoing service they receive through our partnership. 6 7 Talent To support our future growth and aspirations, we are focused on the attraction of the best possible talent to ReadyTech, as well as retaining and growing our brightest people. We have been investing in our enterprise sales team, to pursue the high value customers and plan over the longer term to increase our spend on sales and marketing from the current 8% to sustain our growth ambitions. We are also planning for future investments in R&D, and we see investment in such areas of data analytics and AI offering profound opportunities to our customers and being critical to our success in the future. The future ReadyTech is a company that promises to prepare our customers for the future of education and work. We believe the changing nature of education and employment will offer remarkable opportunities. And we are heavily invested in maintaining our forward-thinking culture to ensure we always stay open to innovative ideas and these opportunities so that we can grow the value we provide our customers and our investors into the future. I and the team at ReadyTech look forward to working closely with all our stakeholders in the coming months and years ahead, as technology takes a central role in the evolution of the future of work. MARC WASHBOURNE Executive Director and Chief Executive Officer 2019 ANNUAL REPORT ReadyTech Holdings Limited Corporate directory 30 June 2019 Directors Tony Faure - Chairman and Independent Non-Executive Director Marc Washbourne - Executive Director and Chief Executive Officer Elizabeth Crouch - Independent Non-Executive Director Timothy Ebbeck - Independent Non-Executive Director Tom Matthews - Independent Non-Executive Director Mark Summerhayes - alternate Non-Executive Director to Tom Matthews Company secretaries Nimesh Shah Melissa Jones Notice of annual general meeting Registered office Principal place of business Share register Auditor Stock exchange listing Website Business objectives objectives. Corporate Governance Statement The details of the annual general meeting of ReadyTech Holdings Limited are: 20 November 2019 at 11:00 am at: Level 1, 35 Saunders St Pyrmont NSW 2009 Australia Level 1, 35 Saunders St Pyrmont NSW 2009 Australia Tel: +61 2 9018 5525 Level 1, 35 Saunders St Pyrmont NSW 2009 Australia Tel: +61 2 9018 5525 Link Market Services Limited Level 12, 680 George Street Sydney, NSW 2000 Australia Tel: 1300 554 474 Deloitte Touche Tohmatsu Level 9, Grosvenor Place 225 George Street Sydney, NSW 2000, Australia Tel: +61 2 9322 7000 ReadyTech Holdings Limited shares are listed on the Australian Securities Exchange (ASX code: RDY) www.readytech.com.au ReadyTech Holdings Limited has used cash and cash equivalents held at the time of listing, in a way consistent with its stated business The directors and management are committed to conducting the business of ReadyTech Holdings Limited in an ethical manner and in accordance with the highest standards of corporate governance. ReadyTech Holdings Limited has adopted and has substantially complied with the ASX Corporate Governance Principles and Recommendations (Third Edition) (‘Recommendations’) to the extent appropriate to the size and nature of its operations. The Corporate Governance Statement, which sets out the corporate governance practices that were in operation during the financial year and identifies and explains any Recommendations that have not been followed, was approved by the Board of Directors at the same time as the Annual Report and can be found https://investors.readytech.com.au 8 9 2019 ANNUAL REPORT provides software solutions to Australian recognised training organisations through online platforms and mobile applications. There were no other significant changes in the state of affairs of the Group during the financial year. Matters subsequent to the end of the financial year No matter or circumstance has arisen since 30 June 2019 that has significantly affected, or may significantly affect the Group’s operations, the results of those operations, or the Group’s state of affairs in future financial years. Likely developments and expected results of operations The Group is the leading provider of mission critical people management software for educators, employers and facilitators of career transitions. Bringing together the best in student management, apprenticeship management, payroll and HR admin, work health and safety, employment services and behavioural science technology we represent Australia’s first software continuum supporting the development and success of tomorrow’s workforce. The group expects to deliver CY19 prospectus forecast for revenue and earnings before interest, depreciation, amortisation and tax. Environmental regulation The Group is not subject to any significant environmental regulation under Australian Commonwealth or State law. ReadyTech Holdings Limited Directors Report 30 June 2019 The directors present their report, together with the financial statements, on the consolidated entity (referred to hereafter as the ‘Group’) consisting of ReadyTech Holdings Limited (referred to hereafter as the ‘company’ or ‘parent entity’) and the entities it controlled at the end of, or during, the year ended 30 June 2019. Directors The following persons were directors of ReadyTech Holdings Limited during the whole of the financial year and up to the date of this report, unless otherwise stated: Tony Faure - Non-Executive Chairman (appointed 8 March 2019) Marc Washbourne - Chief Executive Officer (appointed 8 March 2019) Elizabeth Crouch - Non-Executive Director (appointed 8 March 2019) Timothy Ebbeck - Non-Executive Director (appointed 8 March 2019) Tom Matthews - Non-Executive Director (appointed 8 March 2019) Mark Summerhayes - Alternate Non-Executive Director to Tom Matthews (appointed 22 July 2019) Principal activities During the financial year the principal continuing activities of the Group consisted of: ●• Education - market leading provider of student management system to vocational education and training, international and English Language and higher education providers; and ●• Employment - provider of payroll and employee management solutions from cloud- based technology to outsourcing of human resource function. Dividends There were no dividends paid, recommended or declared during the current financial year or previous financial period. Review of operations The loss for the Group after providing for income tax amounted to $1,490,000 (30 June 2018: $5,201,000). Significant changes in the state of affairs The Company was incorporated on 8 March 2019. On 16 April 2019, the Company completed an initial public offering (‘IPO’) of 80,005,367 ordinary shares at $1.51 per share and was admitted to the Official List of ASX Limited with the ASX code RDY. The net proceeds of the IPO after payment of fees and expenses were $13,140,990. On 16 April 2019, the Company has entered into a new bank facility consisting of: • Facility A: A fully committed three year amortising non-revolving cash advance facility of $21.5 million, and • Facility B: A fully committed three year revolving multi-option working capital facility of $6.0 million. On 12 September 2018, the Group acquired 100% of the ordinary shares in eLearning Australia Pty Ltd (‘eLearning’) for total consideration of $2,828,000. eLearning 10 11 Board of Directors Information on directors ReadyTech’s Board of Directors bring together deep industry, technological, financial and governance expertise REPORT Elizabeth Crouch Name: 2019 ANNUAL Name: Title: Qualifications: University of Sussex. Director Experience and expertise: Tony Faure Independent Non-Executive Chairman Tony holds a Bachelor of Economics (hons) from the Experience Tony Faure Independent Non- Executive Chairman Tony is a deeply experienced business leader with a career history that includes advising some of Australia’s leading technology and digital media companies. A former CEO of both ninemsn and HomeScreen Entertainment, Tony was the launch managing director of Yahoo! Australia & NZ between 1997 and 2001. He has been a respected board member at several companies, including Australian Independent Business Media (publisher of Business • Spectator/Eureka Report), Junkee Media and iSelect, as well as a member of the Starlight Children’s Foundation Australia’s NSW Advisory Board. • • • Currently the Chairman of ASX-listed oOh!media, data intelligence platform PredictHQ and start-up accelerator Pollenizer Previously a board member of Australian Independent Business Media, Junkee Media, Torque Data, iSelect, biNu, Lasttix, and Stackla Director Previously CEO of ninemsn, and HomeScreen Entertainment, and Managing Director at the launch of Yahoo! Australia & NZ Tony is also a member of the Audit and Risk Committee, and Remuneration and Nomination Committee Elizabeth is a seasoned non-executive director with a career that includes strong experience at senior levels of both the public and private sectors in Australia. Experience Elizabeth has held previous non-executive director roles with Chandler Macleod Group, McGrath Estate Agents and Macquarie University Hospital. She currently serves on the Board of the NSW Government’s Institute of Sport, Health • Infrastructure and the Western Sydney Local Health District among other appointments. • Tony Faure Independent Non- Executive Chairman Title: Board of Directors ReadyTech’s Board of Directors bring together deep industry, technological, financial and governance expertise Elizabeth holds a Bachelor of Economics and is currently completing a Master of Cyber Security. Independent Non-executive Director Qualifications: Experience and expertise: • Currently the Chairman of ASX-listed oOh!media, data intelligence platform PredictHQ and start-up accelerator Pollenizer Previously a board member of Australian Independent Business Media, Junkee Media, Torque Data, iSelect, biNu, Lasttix, and Stackla Previously CEO of ninemsn, and HomeScreen Entertainment, and Managing Director at the launch of Yahoo! Australia & NZ Other current directorships: Chairman of oOh!media Ltd (ASX: OML), Uno Homeloans, See management slide PredictHQ. • Marc Washbourne CEO Other current directorships: None Former directorships (last 3 years): None • Tony is also a member of the Audit and Risk Committee, and Remuneration and Nomination Committee Former directorships (last 3 years): Special responsibilities: Interests in shares: Name: Title: Qualifications: Stackla, Medical Media. Elizabeth Crouch Independent Non- Executive Director 207,113 ordinary shares Member of the Audit and Risk Committee and Remuneration and Nomination Committee • Currently the Chairman of Customer Owned Banking Association, SGS Economics and Planning, and NSW Government’s Non-Government Schools Special responsibilities: Chairman of the Audit and Risk Committee and a member of the Remuneration and Nomination Committee Advisory Council, and is an Emeritus Deputy Chancellor of Macquarie University having served the governing council for 17 years • See management slide • Currently on the board of the NSW Government’s Institute of Sport, Health Infrastructure and the Western Sydney Local Health District Interests in shares: Marc Washbourne CEO 9,934 ordinary shares • Previously a Non-Executive Director at Chandler, Macleod Group, McGrath Estate Agents, and Macquarie University Hospital Name: • Marc Washbourne Chief Executive Officer Marc achieved a first-class degree in History from the University of Leeds. Experience and expertise: of ReadyTech’s founders since 1999, Marc has overseen ReadyTech’s growth from a small software development house to a leading provider of education and employment technology in Australia. Timothy Ebbeck Independent Non- Executive Director One Elizabeth is also Chairman of the Audit and Risk Committee and a member of the Remuneration and Nomination Committee Independent Non-Executive Director Advisory Council, and is an Emeritus Deputy Chancellor of Macquarie University having served the governing council for 17 years Title: • Currently the Chairman of Customer Owned Banking Association, SGS Economics and Planning, and NSW Government’s Non-Government Schools • Over 30 years of board, executive and advisory experience across a breadth of industries including technology, media, consulting and finance Previously a Non-Executive Director at Chandler, Macleod Group, McGrath Estate Agents, and Macquarie University Hospital • Currently the Managing Director and Senior Vice President of Automation Anywhere (ANZ) Elizabeth is also Chairman of the Audit and Risk Committee and a member of the Remuneration and Nomination Committee Qualifications: • Currently on the board of the NSW Government’s Institute of Sport, Health Infrastructure and the Western Sydney Local Health District Timothy Ebbeck Elizabeth Crouch Independent Non- Executive Director Timothy holds a Bachelor of Economics Degree from Macquarie University, is a Fellow of CPA Australia, a Fellow of the Australian Institute of Management, a Graduate Member • of the Australian Institute of Company Directors, and a • Member of the Australian Computer Society. • • With 20 years’ experience building technology for the education and employment sectors, Marc now heads up a global team of 160 people committed to the relentless pursuit of innovation and better technology for over 3,600 customers. Previously CFO of Unisys South Pacific, Compaq Computers South Pacific, TMP Worldwide (Asia Pacific and Japan), CFO and CEO of SAP (ANZ), Chief Commercial Officer of NBN Co, and Managing Director of Oracle (ANZ), Timothy has over 30 years of board, executive, and advisory experience across a breadth of industries including technology, media, consulting, and finance. Timothy’s Tim is also Chairman of the Remuneration and Nomination Committee and a member of the Audit and Risk Committee executive experience includes roles as chief executive officer at SAP (ANZ), managing director of Oracle (ANZ) and chief commercial officer of NBN Co, as well as chief financial officer • of Compaq (ANZ), Unisys (ANZ) and TMP Worldwide (APJ). His board roles have included being a non-executive director for IXUP Limited, GeoOp Limited, Nvoi Limited, CPA Australia, Nextgen Distribution, and Insite Organisation. He is presently • a Trustee of the Museum of Applied Arts & Sciences NSW and SVP at Automation Anywhere, Inc. Timothy Ebbeck Independent Non- Executive Director Partner at Pemba, a leading private equity manger investing in small and mid-sized private businesses in Australia and New Zealand Prior to Pemba, Tom worked at UK-based specialist private equity fund Sovereign Capital Partners where he focussed on healthcare, education and businesses services sectors • Over 15 years of experience in private equity, principal investment, investment banking and middle market advisory and valuations Tom Matthews Non-Executive Director (Pemba Representative) Marc is a former software developer who couples a technical background with a strong strategic vision for ReadyTech’s products, which unlock the value of SaaS and additional services for customers. Experience and expertise: • • • Over 30 years of board, executive and advisory experience across a breadth of industries including technology, media, consulting and finance • Currently the Managing Director and Senior Vice President of Automation Anywhere (ANZ) Previously CFO of Unisys South Pacific, Compaq Computers South Pacific, TMP Worldwide (Asia Pacific and Japan), CFO and CEO of SAP (ANZ), Chief Commercial Officer of NBN Co, and Managing Director of Oracle (ANZ), Tim is also Chairman of the Remuneration and Nomination Committee and a member of the Audit and Risk Committee Tom previously worked with the investment banking group at Macquarie Bank focussing on principal investment opportunities, and gained experience Former directorships at Deloitte Corporate Finance focussing on business valuations, independent expert’s reports and corporate advice (last 3 years): Partner at Pemba, a leading private equity manger investing in small and mid-sized private businesses in Australia and New Zealand Other current directorships: None • Over 15 years of experience in private equity, principal investment, investment banking and middle market advisory and valuations Tom Matthews Non-Executive Director (Pemba Representative) • IXUP Limited, GeoOp Limited, Nextgen Distribution Pty Ltd, Nvoi Limited. • Chairman of the Remuneration and Nomination Committee and a member of the Audit and Risk Committee Special responsibilities: Prior to Pemba, Tom worked at UK-based specialist private equity fund Sovereign Capital Partners where he focussed on healthcare, education and businesses services sectors Interests in shares: 6,623 ordinary shares • Tom previously worked with the investment banking group at Macquarie Bank focussing on principal investment opportunities, and gained experience at Deloitte Corporate Finance focussing on business valuations, independent expert’s reports and corporate advice Other current directorships: None Former directorships (last 3 years): Special responsibilities: None None • Interests in shares: 4,008,414 ordinary shares 12 13 STRICTLY CONFIDENTIAL ½ PAGE 34 STRICTLY CONFIDENTIAL ½ PAGE 34 Board of Directors Director Experience ReadyTech’s Board of Directors bring together deep industry, technological, financial and governance expertise Tony Faure Independent Non- Executive Chairman • Currently the Chairman of ASX-listed oOh!media, data intelligence platform PredictHQ and start-up accelerator Pollenizer Previously a board member of Australian Independent Business Media, Junkee Media, Torque Data, iSelect, biNu, Lasttix, and Stackla Previously CEO of ninemsn, and HomeScreen Entertainment, and Managing Director at the launch of Yahoo! Australia & NZ Tony is also a member of the Audit and Risk Committee, and Remuneration and Nomination Committee • • • • Marc Washbourne See management slide CEO Elizabeth Crouch Independent Non- Executive Director • Currently the Chairman of Customer Owned Banking Association, SGS Economics and Planning, and NSW Government’s Non-Government Schools Advisory Council, and is an Emeritus Deputy Chancellor of Macquarie University having served the governing council for 17 years • Currently on the board of the NSW Government’s Institute of Sport, Health Infrastructure and the Western Sydney Local Health District • • Previously a Non-Executive Director at Chandler, Macleod Group, McGrath Estate Agents, and Macquarie University Hospital Elizabeth is also Chairman of the Audit and Risk Committee and a member of the Remuneration and Nomination Committee 2019 ANNUAL REPORT • Over 30 years of board, executive and advisory experience across a breadth of industries including technology, media, consulting and finance • Currently the Managing Director and Senior Vice President of Automation Anywhere (ANZ) Previously CFO of Unisys South Pacific, Compaq Computers South Pacific, TMP Worldwide (Asia Pacific and Japan), CFO and CEO of SAP (ANZ), Chief Commercial Officer of NBN Co, and Managing Director of Oracle (ANZ), Tim is also Chairman of the Remuneration and Nomination Committee and a member of the Audit and Risk Committee • Over 15 years of experience in private equity, principal investment, investment banking and middle market advisory and valuations Partner at Pemba, a leading private equity manger investing in small and mid-sized private businesses in Australia and New Zealand Prior to Pemba, Tom worked at UK-based specialist private equity fund Sovereign Capital Partners where he focussed on healthcare, education and businesses services sectors Tom previously worked with the investment banking group at Macquarie Bank focussing on principal investment opportunities, and gained experience at Deloitte Corporate Finance focussing on business valuations, independent expert’s reports and corporate advice ReadyTech builds mission-critical SaaS and technology for managing people in complex regulatory environments and delivers additional customer value through a range of offerings. Name: Title: Qualifications: Experience and expertise: Non-Executive Director Tom Matthews Timothy Ebbeck Independent Non- Executive Director Tom is a CFA charter holder, a member of the Sydney CFA Society and also has a Masters of Applied Finance and Investment from the Financial Services Institute of Australasia. In 2001, Tom was awarded a Bachelor of Sciences honours degree in Management Sciences from • the London School of Economics. • Tom has over 15 years of experience in private equity, principal investment, investment banking and middle market advisory and valuations in both Australia and the UK. Tom Matthews Non-Executive Director (Pemba Representative) A partner at leading private equity manager Pemba, Tom has led a number of transactions across Pemba’s areas of focus since 2015, including investments into HR3, JobReady and Vital Software. Tom has held a variety of senior roles prior to joining Pemba, including at private equity firm Sovereign Capital Partners in the UK, the Investment Banking Group of Macquarie Bank, and Deloitte Corporate Finance in both Sydney and London. • • • Other current directorships: None Former directorships (last 3 years): Special responsibilities: None None Interests in shares: 34,539,611 ‘Other current directorships’ quoted above are current directorships for listed entities only and excludes directorships of all other types of entities, unless otherwise stated. ‘Former directorships (last 3 years)’ quoted above are directorships held in the last 3 years for listed entities only and excludes directorships of all other types of entities, unless otherwise stated. Company secretaries Nimesh Shah and Melissa Jones are joint company secretaries. STRICTLY CONFIDENTIAL ½ PAGE 34 14 33 Nimesh Shah has been the Chief Financial Officer of ReadyTech since August 2017 and was appointed company secretary on 28 March 2019. Nimesh has over 20 years’ experience as an executive in technology and online digital industries, utilising experience gained working across Australia and many parts of Asia. Nimesh was Global CFO for pioneering social networking site, Friendster, Inc. Nimesh was also Finance Director at Fairfax Digital Australia & New Zealand Pty Limited for seven years, playing an instrumental role in navigating the company into the world of online publishing and transaction businesses. Nimesh was also the Chief Financial Officer and Company Secretary of ASX-listed iSentia Group Limited, a position which he held until July 2017, where he played an instrumental role in transitioning iSentia to become a leading media intelligence organisation in Asia Pacific. Nimesh holds an MBA from the Australian Graduate School of Management and a Bachelor of Commerce with Merit from the University of New South Wales. Nimesh is also a member of Chartered Accountants Australia and New Zealand. Melissa Jones is the General Manager of Company Matters, Link Group’s governance and company secretarial team. Melissa has over 15 years’ experience as a lawyer, company secretary and governance professional. Melissa is admitted as a Solicitor of the Supreme Court of New South Wales and holds a Bachelor of Laws (Honours). Meetings of directors The number of meetings of the company’s Board of Directors (‘the Board’) held during the period ended 30 June 2019, and the number of meetings attended by each director were: Full Board Nomination and Remuneration Committee Audit and Risk Committee Attended Held Attended Held Attended Held Tony Faure Marc Washbourne Elizabeth Crouch Timothy Ebbeck Tom Matthews 4 4 4 1 4 4 4 4 4 4 - - - - - - - - - - 1 1 1 1 1 1 1 1 1 1 Held: represents the number of meetings held during the time the director held office. There were no meetings of the Nomination and Remuneration Committee held during the year ended 30 June 2019. 2019 ANNUAL REPORT Remuneration report (audited) The remuneration report details the key management personnel remuneration arrangements for the Group, in accordance with the requirements of the Corporations Act 2001 and its Regulations. Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including all directors. The remuneration report is set out under the following main headings: • Principles used to determine the nature and amount of remuneration • Details of remuneration • Service agreements • Share-based compensation • Additional disclosures relating to key management personnel Principles used to determine the nature and amount of remuneration The objective of the Group’s executive reward framework is to ensure reward for performance is competitive and appropriate for the results delivered. The framework aligns executive reward with the achievement of strategic objectives and the creation of value for shareholders, and it is considered to conform to the market best practice for the delivery of reward. The Board of Directors (‘the Board’) ensures that executive reward satisfies the following key criteria for good reward governance practices: • competitiveness and reasonableness • acceptability to shareholders • performance linkage / alignment of executive compensation • transparency The Nomination and Remuneration Committee is responsible for determining and reviewing remuneration arrangements for its directors and executives. The performance of the Group depends on the quality of its directors and executives. The remuneration philosophy is to attract, motivate and retain high performance and high quality personnel. The Nomination and Remuneration Committee has structured an executive remuneration framework that is market competitive and complementary to the reward strategy of the Group. The reward framework is designed to align executive reward to shareholders’ interests. The Board has considered that it should seek to enhance shareholders’ interests by: • having economic profit as a core component of plan design • focusing on sustained growth in shareholder wealth, consisting of dividends and growth in share price, and delivering constant or increasing return on assets as well as focusing the executive on key non-financial drivers of value • attracting and retaining high calibre executives Additionally, the reward framework seeks to enhance executives’ interests by: • rewarding capability and experience • reflecting competitive reward for contribution to growth in shareholder wealth • providing a clear structure for earning rewards In accordance with best practice corporate governance, the structure of non-executive director and executive director remuneration is separate. 16 17 2019 ANNUAL REPORT The consolidated entity has not put in place any equity incentive plan. The consolidated entity may, however, consider putting such arrangements in place in the future. Consolidated entity performance and link to remuneration Remuneration for certain individuals is directly linked to the performance of the consolidated entity. A portion of cash bonus and incentive payments are dependent on defined earnings per share targets being met. The remaining portion of the cash bonus and incentive payments are at the discretion of the Nomination and Remuneration Committee. The Nomination and Remuneration Committee is of the opinion that the continued improved results can be attributed in part to the adoption of performance based compensation and is satisfied that this improvement will continue to increase shareholder wealth if maintained over the coming years. Use of remuneration consultants The Group did not engage any remuneration consultants during the years ended 30 June 2019 and 30 June 2018. Details of remuneration Amounts of remuneration Details of the remuneration of key management personnel of the Group are set out in the following tables. During the reporting period, the key management personnel of the Group consisted of the following directors of ReadyTech Holdings Limited: • Tony Faure - Non-Executive Chairman (appointed 8 March 2019) • Marc Washbourne - Chief Executive Officer (appointed 8 March 2019 • Elizabeth Crouch - Non-Executive Director (appointed 8 March 2019) • Timothy Ebbeck - Non-Executive Director (appointed 8 March 2019) • Tom Matthews - Non-Executive Director (appointed 8 March 2019) And the following persons: • Nimesh Shah - Chief Financial Officer • Michael Benyon - Director of Lirac HoldCo Pty Ltd, Lirac BidCo Pty Ltd, Hr3 Pty Ltd, Non-executive directors remuneration Fees and payments to non-executive directors reflect the demands and responsibilities of their role. Non-executive directors’ fees and payments are reviewed annually by the Nomination and Remuneration Committee. The Nomination and Remuneration Committee may, from time to time, receive advice from independent remuneration consultants to ensure non-executive directors’ fees and payments are appropriate and in line with the market. The chairman’s fees are determined independently to the fees of other non- executive directors based on comparative roles in the external market. The chairman is not present at any discussions relating to the determination of his own remuneration. Non- executive directors are not be entitled to participate in any employee incentive scheme established by the Company. ASX listing rules require the aggregate non-executive directors’ remuneration be determined periodically by a general meeting. The most recent determination was disclosed in the Prospectus dated 29 March 2019, where the maximum annual aggregate remuneration is $750,000. For the financial year ended 30 June 2019, the fees payable to the current non-executive directors (whether in cash or securities) will not exceed $600,000 in aggregate. The annual non-executive directors’ fees currently agreed to be paid by the Company are inclusive of superannuation and are $150,000 to the chairman and $70,000 (inclusive of superannuation) to each of the other Independent non-executive directors. Any non-executive directors who devotes special attention to the business of the Group or who performs services which, in the opinion of the Board, are outside the scope of ordinary duties of a director, may be remunerated for the services (as determined by the Board) out of the funds of the Company. There are no retirement benefit schemes for directors, other than statutory superannuation contributions Executive remuneration The Group aims to reward executives based on their position and responsibility, with a level and mix of remuneration which has both fixed and variable components. The executive remuneration and reward framework has three components: • base pay and non-monetary benefits • short-term performance incentives • other remuneration such as superannuation and long service leave The combination of these comprises the executive’s total remuneration. Fixed remuneration, consisting of base salary, superannuation and non-monetary benefits, are reviewed annually by the Nomination and Remuneration Committee based on individual and business unit performance, the overall performance of the Group and comparable market remunerations. Executives may receive their fixed remuneration in the form of cash or other fringe benefits (for example motor vehicle benefits) where it does not create any additional costs to the Group and provides additional value to the executive. There was no short-term incentives (‘STI’) scheme in place during the year ended 30 June 2019. The company intends to implement a STI scheme during the year ending 30 June 2020. 18 19 2019 ANNUAL REPORT Service agreements Remuneration and other terms of employment for key management personnel are formalised in service agreements. Details of these agreements are as follows: Name: Title: Agreement commenced: Term of agreement: Details: Name: Title: Agreement commenced: Term of agreement: Details: Marc Washbourne Chief Executive Officer 13 December 2016 No fixed term Base salary of $310,000 and 6 month notice period. Mr Washbourne’s employment contract does not provide for a short term incentives or cash bonus payments. Upon the termination of Mr Washbourne’s employment contract, Mr Washbourne will be subject to post employment restraints for up to 12 months. The Company intends to implement a STI scheme during the year ended 30 June 2020. Nimesh Shah Chief Financial Officer 7 August 2017 No fixed term Base salary of $275,000 and 6 month notice period. Mr Shah’s employment contract does not provide for a short term incentives or cash bonus payments. Upon the termination of Mr Shah’s employment contract, Mr Shah will be subject to post employment restraints for up to 12 months. The Company intends to implement a STI scheme during the year ended 30 June 2020. Key management personnel have no entitlement to termination payments in the event of removal for misconduct. 20 21 Share-based compensation Issue of shares Details of shares issued to directors and other key management personnel as part of compensation during the year ended 30 June 2019 are set out below: Name Tony Faure* Date 17 April 2019 Shares 174,000 Issue price $1.51 $ 262,740 Tony Faure was issued 100,000 ordinary shares in ReadyTech HoldCo Pty Ltd on 19 March 2019. These shares were subsequently converted into 174,000 in ReadyTech Holdings Limited on 17 April 2019. Additional disclosures relating to key management personnel Shareholding The number of shares in the company held during the financial year by each director and other members of key management personnel of the Group, including their personally related parties, is set out below: Michael Benyon and Rick Verloop’s shareholding are not disclosed as they are not directors for ReadyTech Holdings Limited. Tom Matthews (and other persons associated with him and Pemba) is entitled to receive a proportion of the distributions from the sale of the ReadyTech Shares held by Pemba. The entitlements to distributions may be determined by both reference to such persons being direct or indirect investors in the Pemba managed funds which are Existing Shareholders and through profit share arrangements relating to the returns of those Pemba funds as a whole. Other transactions with key management personnel and their related parties Prior to her appointment as a Director, Elizabeth Crouch received fees of $42,713 for consultancy services provided to the Group in connection with the IPO and therefore these fees do not form part of Elizabeth’s remuneration as disclosed in the ‘Details of Remuneration’ section. Prior to his appointment as a Director, Timothy Ebbeck received fees of $5,833 for consultancy services provided to the Group in connection with the IPO and therefore these fees do not form part of Timothy’s remuneration as disclosed in the ‘Details of Remuneration’ section of the Directors Report. During the year ended 30 June 2019, Tom Matthews and Mark Summerhayes received $28,982 for consultancy services provided to the Group in connection with the IPO and various acquisitions and therefore these fees do not form part of their remuneration as disclosed in the ‘Details of Remuneration’ section of the Directors Report. As at 30 June 2019 $nil was outstanding in relation to the services provided. This concludes the remuneration report, which has been audited. 2019 ANNUAL REPORT Indemnity and insurance of officers The company has indemnified the directors and executives of the company for costs incurred, in their capacity as a director or executive, for which they may be held personally liable, except where there is a lack of good faith. During the financial year, the company paid a premium in respect of a contract to insure the directors and executives of the company against a liability to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium. Indemnity and insurance of auditor The company has not, during or since the end of the financial year, indemnified or agreed to indemnify the auditor of the company or any related entity against a liability incurred by the auditor. During the financial year, the company has not paid a premium in respect of a contract to insure the auditor of the company or any related entity. Proceedings on behalf of the company No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the company, or to intervene in any proceedings to which the company is a party for the purpose of taking responsibility on behalf of the company for all or part of those proceedings. Non-audit services Details of the amounts paid or payable to the auditor for non-audit services provided during the financial year by the auditor are outlined in note 30 to the financial statements. The directors are satisfied that the provision of non-audit services during the financial year, by the auditor (or by another person or firm on the auditor’s behalf), is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The directors are of the opinion that the services as disclosed in note 30 to the financial statements do not compromise the external auditor’s independence requirements of the Corporations Act 2001 for the following reasons: • all non-audit services have been reviewed and approved to ensure that they do not impact the integrity and objectivity of the auditor; and • none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants issued by the Accounting Professional and Ethical Standards Board, including reviewing or auditing the auditor’s own work, acting in a management or decision-making capacity for the company, acting as advocate for the company or jointly sharing economic risks and rewards. Officers of the company who are former partners of Deloitte Touche Tohmatsu There are no officers of the company who are former partners of Deloitte Touche Tohmatsu. Rounding of amounts The company is of a kind referred to in Corporations Instrument 2016/191, issued by the Australian Securities and Investments Commission, relating to ‘rounding-off’. Amounts in this report have been rounded off in accordance with that Corporations Instrument to the nearest thousand dollars, or in certain cases, the nearest dollar. Auditor’s independence declaration A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out immediately after this directors’ report. Auditor Deloitte Touche Tohmatsu continues in office in accordance with section 327 of the Corporations Act 2001. This report is made in accordance with a resolution of directors, pursuant to section 298(2)(a) of the Corporations Act 2001. On behalf of the directors ___________________________ Tony Faure Director 22 August 2019 Sydney 22 23 Deloitte Touche Tohmatsu ABN 74 490 121 060 Grosvenor Place 225 George Street Sydney, NSW, 2000 Australia Phone: +61 2 9322 7000 www.deloitte.com.au Deloitte Touche Tohmatsu ABN 74 490 121 060 Grosvenor Place 225 George Street Sydney, NSW, 2000 Australia Phone: +61 2 9322 7000 www.deloitte.com.au The Directors ReadyTech Holdings Limited Level 1 35 Saunders Street Pyrmont NSW 2009 22 August 2019 The Directors ReadyTech Holdings Limited Dear Directors Level 1 35 Saunders Street Pyrmont NSW 2009 Auditor’s Independence Declaration to ReadyTech Holdings Limited In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration of independence to the directors of ReadyTech Holdings Limited. 22 August 2019 As lead audit partner for the audit of the financial report of ReadyTech Holdings Limited for the year ended 30 June 2019, I declare that to the best of my knowledge and belief, there have been no contraventions of: Dear Directors (i) Auditor’s Independence Declaration to ReadyTech Holdings Limited the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration of independence to the directors of ReadyTech Holdings Limited. any applicable code of professional conduct in relation to the audit. (ii) As lead audit partner for the audit of the financial report of ReadyTech Holdings Limited for the year ended 30 June 2019, I declare that to the best of my knowledge and belief, there have been no contraventions of: Yours faithfully (i) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and DELOITTE TOUCHE TOHMATSU any applicable code of professional conduct in relation to the audit. (ii) Joshua Tanchel Yours faithfully Partner Chartered Accountants DELOITTE TOUCHE TOHMATSU Joshua Tanchel Partner Chartered Accountants Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Asia Pacific Limited and the Deloitte Network. 16 16 Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Asia Pacific Limited and the Deloitte Network. 24 2019 ANNUAL REPORT ReadyTech Holdings Limited Statement of profit or loss and other comprehensive income For the year ended 30 June 2019 Revenue from contracts with customers from continuing operations Other income Interest revenue calculated using the effective interest method Expenses Hosting and other direct costs Employee benefits expense Depreciation and amortisation expense Advertising and marketing expenses Consultancy and professional expenses Administration expenses Communication and IT expenses Occupancy costs Management fees Other expenses Finance costs Loss before income tax (expense)/benefit from continuing operations Income tax (expense)/benefit Loss after income tax (expense)/benefit from continuing operations Loss after income tax expense from discontinued operations Loss after income tax (expense)/benefit for the year attributable to the owners of ReadyTech Holdings Limited Other comprehensive income for the year, net of tax Total comprehensive income for the year attributable to the owners of ReadyTech Holdings Limited Total comprehensive income for the year is attributable to: Continuing operations Discontinued operations Note Consolidated 2019 $'000 2018 $'000 5 6 7 8 9 32,711 25,626 - 20 248 36 (1,961) (14,033) (8,063) (464) (6,482) (678) (707) (384) (112) (526) (1,938) (2,696) (13,027) (5,885) (397) (1,593) (367) (666) (783) (60) (952) (1,151) (2,617) (1,667) 1,127 (654) (1,490) (2,321) - (2,880) (1,490) (5,201) - - (1,490) (5,201) (1,490) - (2,321) (2,880) (1,490) (5,201) The above statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes 17 25 ReadyTech Holdings Limited Statement of profit or loss and other comprehensive income For the year ended 30 June 2019 ReadyTech Holdings Limited Statement of financial position As at 30 June 2019 Note Consolidated 2019 $'000 2018 $'000 Cents Cents Earnings per share for loss from continuing operations attributable to the owners of ReadyTech Holdings Limited Basic earnings per share Diluted earnings per share Earnings per share for loss from discontinued operations attributable to the owners of ReadyTech Holdings Limited Basic earnings per share Diluted earnings per share 43 43 43 43 Earnings per share for loss attributable to the owners of ReadyTech Holdings Limited Basic earnings per share Diluted earnings per share 43 43 (2.15) (2.15) (3.85) (3.85) - - (4.78) (4.78) (2.15) (2.15) (8.63) (8.63) Assets Current assets Cash and cash equivalents Trade and other receivables Prepayments Total current assets Non-current assets Property, plant and equipment Intangibles Right-of-use assets Deferred tax Total non-current assets Total assets Liabilities Current liabilities Trade and other payables Contract liabilities Borrowings Lease liabilities Income tax payable Employee benefits Lease make good provision Total current liabilities Non-current liabilities Contract liabilities Borrowings Provisions Lease liabilities Employee benefits Total non-current liabilities Total liabilities Net assets Equity Issued capital Reserves Accumulated losses Total equity 2019 ANNUAL REPORT Note Consolidated 2019 $'000 2018 $'000 10 11 12 13 14 8 15 16 17 18 8 19 20 21 22 23 24 25 26 6,322 3,474 471 10,267 532 52,918 2,046 3,909 59,405 5,586 2,810 209 8,605 692 53,279 - 532 54,503 69,672 63,108 3,817 10,354 - 543 246 995 49 16,004 496 21,500 59 1,653 750 24,458 2,866 11,124 3,250 - 2,579 3,950 84 23,853 461 26,500 - - 187 27,148 40,462 51,001 29,210 12,107 119,581 (82,944) (7,427) 28,432 (10,058) (6,267) 29,210 12,107 The above statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes 18 The above statement of financial position should be read in conjunction with the accompanying notes 19 26 27 ReadyTech Holdings Limited Statement of changes in equity For the year ended 30 June 2019 Consolidated Balance at 1 July 2017 Loss after income tax expense for the year Other comprehensive income for the year, net of tax Total comprehensive income for the year Transactions with owners in their capacity as owners: Contributions of equity, net of transaction costs (note 25) Partial return of capital (note 24) Common control reserve Issued capital $'000 Reserves $'000 Accumulated losses $'000 Total equity $'000 24,094 - - - - - - - (1,066) 23,028 (5,201) - (5,201) - (5,201) (5,201) 19,543 (15,205) - - - (10,058) - - - 19,543 (15,205) (10,058) ReadyTech Holdings Limited Statement of cash flows For the year ended 30 June 2019 Cash flows from operating activities Receipts from customers (inclusive of GST) Payments to suppliers and employees (inclusive of GST) Interest received Interest and other finance costs paid Payment of IPO operating expenses Income taxes paid 2019 ANNUAL REPORT Note Consolidated 2019 $'000 2018 $'000 34,328 (21,495) 30,960 (26,696) 12,833 20 (1,938) (4,480) (4,330) 4,264 36 (1,151) - (1,221) Net cash from operating activities 40 2,105 1,928 Balance at 30 June 2018 28,432 (10,058) (6,267) 12,107 Consolidated Balance at 1 July 2018 Issued capital $'000 Reserves $'000 Accumulated losses $'000 Total equity $'000 28,432 (10,058) (6,267) 12,107 Cash flows from investing activities Payment for purchase of subsidiaries, net of cash acquired Net cash acquired as part of common control transaction Final payments for prior period's subsidiary acquisition Payments for property, plant and equipment Payments for intangibles Proceeds from disposal of business, net of cash disposed Adjustment for change in accounting policy (note 2) - - (58) (58) Net cash used in investing activities Balance at 1 July 2018 - restated 28,432 (10,058) (6,325) 12,049 Loss after income tax benefit for the year Other comprehensive income for the year, net of tax Total comprehensive income for the year Transactions with owners in their capacity as owners: Contributions of equity, net of transaction costs (note 25) Share-based payments Reorganisation reserve Deemed contribution - - - - - - (1,490) - (1,490) - (1,490) (1,490) 91,149 - - - - 162 (73,048) - - - - 388 91,149 162 (73,048) 388 Cash flows from financing activities Proceeds from issue of shares Payments for return of capital Payment of share issue transaction costs and IPO expenses from proceeds Proceeds from borrowings Repayment of borrowings Repayment of lease liabilities Net cash from financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year 37 38 12 13 25 25 (1,454) - (480) (322) (3,592) - (1,569) 1,745 - (577) (2,883) (425) (5,848) (3,709) 17,100 - (3,859) - (8,250) (512) 1,692 (15,205) - 15,150 - - 4,479 1,637 736 5,586 (144) 5,730 Balance at 30 June 2019 119,581 (82,944) (7,427) 29,210 Cash and cash equivalents at the end of the financial year 10 6,322 5,586 The above statement of changes in equity should be read in conjunction with the accompanying notes 20 The above statement of cash flows should be read in conjunction with the accompanying notes 21 28 29 ReadyTech Holdings Limited Notes to the financial statements 30 June 2019 Note 1. General information The financial statements cover ReadyTech Holdings Limited as a Group consisting of ReadyTech Holdings Limited ('company or 'parent entity') and the entities it controlled at the end of, or during, the period (collectively referred to in these financial statements as the 'Group'). The financial statements are presented in Australian dollars, which is ReadyTech Holdings Limited's functional and presentation currency. ReadyTech Holdings Limited is a listed public company limited by shares, incorporated and domiciled in Australia. Its registered office and principal place of business is: Level 1, 35 Saunders St Pyrmont NSW 2009 Australia A description of the nature of the Group's operations and its principal activities are included in the directors' report, which is not part of the financial statements. The financial statements were authorised for issue, in accordance with a resolution of directors, on 22 August 2019. The directors have the power to amend and reissue the financial statements. Note 2. Significant accounting policies The principal accounting policies adopted in the preparation of the financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. New or amended Accounting Standards and Interpretations adopted The Group has adopted all of the new, revised or amending Accounting Standards and Interpretations issued by the Australian Accounting Standards Board ('AASB') that are mandatory for the current reporting period. AASB 15 'Revenue from Contracts with Customers' and its related amendments, which was otherwise mandatorily effective for annual periods commencing on or after 1 January 2018 was early adopted effective from 29 November 2016. Details of adoption of new Accounting Standards are provided below: The Group has: ● adopted AASB 9 'Financial Instruments' from 1 July 2018 using the modified retrospective approach. The impact on the financial performance and position of the Group from the adoption of this Accounting Standard is detailed below; and early adopted AASB 16 'Leases' from 1 July 2018 using the modified retrospective approach and as such comparatives have not been restated. Refer below for further details. ● AASB 15 'Revenue from Contracts with Customers' and its related amendments, which was mandatorily effective for annual periods commencing on or after 1 January 2018 was early adopted effective from 29 November 2016. 2019 ANNUAL REPORT ReadyTech Holdings Limited Notes to the financial statements 30 June 2019 Note 2. Significant accounting policies (continued) AASB 9 'Financial Instruments' The Group has adopted AASB 9 from 1 July 2018, using the modified retrospective approach. The standard introduced new classification and measurement models for financial assets. A financial asset shall be measured at amortised cost if it is held within a business model whose objective is to hold assets in order to collect contractual cash flows which arise on specified dates and that are solely principal and interest. A debt investment shall be measured at fair value through other comprehensive income if it is held within a business model whose objective is to both hold assets in order to collect contractual cash flows which arise on specified dates that are solely principal and interest as well as selling the asset on the basis of its fair value. All other financial assets are classified and measured at fair value through profit or loss unless the entity makes an irrevocable election on initial recognition to present gains and losses on equity instruments (that are not held-for-trading or contingent consideration recognised in a business combination) in other comprehensive income ('OCI'). Despite these requirements, a financial asset may be irrevocably designated as measured at fair value through profit or loss to reduce the effect of, or eliminate, an accounting mismatch. For financial liabilities designated at fair value through profit or loss, the standard requires the portion of the change in fair value that relates to the entity's own credit risk to be presented in OCI (unless it would create an accounting mismatch). New simpler hedge accounting requirements are intended to more closely align the accounting treatment with the risk management activities of the entity. New impairment requirements use an 'expected credit loss' ('ECL') model to recognise an allowance. Impairment is measured using a 12- month ECL method unless the credit risk on a financial instrument has increased significantly since initial recognition in which case the lifetime ECL method is adopted. For receivables, a simplified approach to measuring expected credit losses using a lifetime expected loss allowance is available. AASB 16 'Leases' The Group has early adopted AASB 16 from 1 July 2018, using the modified retrospective approach. The standard replaced AASB 117 'Leases' and for lessees has eliminated the classifications of operating leases and finance leases. Subject to certain exceptions, a 'right-of-use' asset is capitalised in the statement of financial position, measured at the present value of the unavoidable future lease payments to be made over the lease term. The exceptions relate to short- term leases of 12 months or less and leases of low-value assets (such as personal computers and small office furniture that have total value less than $10,000) where an accounting policy choice exists whereby either a 'right-of-use' asset and a lease liability is recognised or lease payments are expensed to profit or loss as incurred. A right-of-use asset corresponding to the capitalised lease is also to be recognised, adjusted for lease prepayments, lease incentives received, initial direct costs incurred and an estimate of any future restoration, removal or dismantling costs. Straight-line operating lease expense recognition has been replaced with a depreciation charge for the leased asset (included in operating costs) and an interest expense on the recognised lease liability (included in finance costs). For classification within the statement of cash flows, the lease payments are separated into both a principal (financing activities) and interest (operating activities) component. For lessor accounting, the standard has not substantially changed how a lessor accounts for leases. Impact of adoption AASB 9 'Financial Instruments' The adoption of AASB 9 resulted in the provision for impairment of receivables being reclassified to allowance for expected credit losses. There were no material changes in the carrying amounts on adoption of AASB 9 standards as at 1 July 2018 as management's assessment does not change. AASB 16 'Leases' On initial application of AASB 16 at 1 July 2018, using the transitional rules available, the Group elected to record right-of- use assets based on its carrying amount as if the standard had been applied since the commencement date, but discounted using the Group’s incremental borrowing rate at the date of initial application; the Group recorded the corresponding lease liability based on the present value of the remaining lease payments, discounted using the lessee’s incremental borrowing rate at the date of initial application. When measuring lease liabilities, the Group discounted lease payments using its incremental borrowing rate at 1 July 2018. The interest rate is approximately 4%. The following assets and liabilities were recognised on 1 July 2018: Right-of-use assets (AASB 16) Lease liabilities - current and non-current (AASB 16) Net impact on retained earnings at 1 July 2018 1 July 2018 $ 1,389 (1,447) (58) 22 23 30 31 ReadyTech Holdings Limited Notes to the financial statements 30 June 2019 ReadyTech Holdings Limited Notes to the financial statements 30 June 2019 Note 2. Significant accounting policies (continued) Note 2. Significant accounting policies (continued) 2019 ANNUAL REPORT Reconciliation from operating lease commitments disclosure at 30 June 2018 to the opening lease liability at 1 July 2018: Operating lease commitments as at 30 June 2018 (AASB 117) Operating lease commitments discounted based on the incremental borrowing rate of approximately 4% (AASB 16) 1,842 (395) Lease liability recognised at 1 July 2018 1,447 At the date of authorisation, the Standards and interpretations that were issued but not yet effective and not early adopted, are not expected to have any significant impact on the financial performance or position of the Group. Deficiency of net current assets The statement of financial position has a deficiency of net current assets of $5,737,000 (2018: $15,248,000) at the reporting date. The deficiency is attributable to contract liabilities of $10,354,000 (2018: $11,124,000) disclosed as current liabilities. Contract liabilities represents upfront payments received from customers on signed sales contracts. In accordance with the Group’s revenue recognition policy as details below, revenue is recognised when the services are performed. The directors are satisfied that the Group will be able to meet its working capital requirements through the normal cyclical nature of receipts and payments and budgeted cash flows generated from operations. Basis of preparation These general purpose financial statements have been prepared in accordance with Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board ('AASB') and the Corporations Act 2001, as appropriate for for-profit oriented entities. These financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board ('IASB'). Historical cost convention The financial statements have been prepared under the historical cost convention. Critical accounting estimates The preparation of the financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in note 3. Corporate/group reorganisation ReadyTech Holdings Limited was incorporated on 8 March 2019. On 16 April 2019 the shareholders of the company undertook a corporate reorganisation, in which ReadyTech Holdings Limited acquired ReadyTech HoldCo Pty Limited and its subsidiaries ('existing Merged Group'). This corporate reorganisation did not represent a business combination in accordance with AASB 3 ‘Business Combination’. Instead the appropriate accounting treatment for recognising the new group structure is on the basis that the transaction is a form of capital reconstruction and group reorganisation. Accordingly the financial statements are a continuation of the existing Merged Group and as such: ● The assets and liabilities recognised and measured are at carrying amounts of the existing Merged Group rather than at fair value Shareholders' equity has come across at book value as at the date of the reorganisation; No 'new' goodwill has been recognised as a result of the combination; and The comparatives presented are those of the existing Merged Group. ● ● ● Parent entity information In accordance with the Corporations Act 2001, these financial statements present the results of the Group only. Supplementary information about the parent entity is disclosed in note 35. Principles of consolidation The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of ReadyTech Holdings Limited as at 30 June 2019 and the results of all subsidiaries for the period then ended. Subsidiaries are all those entities over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases. Intercompany transactions, balances and unrealised gains on transactions between entities in the Group are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. The acquisition of subsidiaries is accounted for using the acquisition method of accounting. A change in ownership interest, without the loss of control, is accounted for as an equity transaction, where the difference between the consideration transferred and the book value of the share of the non-controlling interest acquired is recognised directly in equity attributable to the parent. Where the Group loses control over a subsidiary, it derecognises the assets including goodwill, liabilities and non- controlling interest in the subsidiary together with any cumulative translation differences recognised in equity. The Group recognises the fair value of the consideration received and the fair value of any investment retained together with any gain or loss in profit or loss. Operating segments Operating segments are presented using the 'management approach', where the information presented is on the same basis as the internal reports provided to the Chief Operating Decision Makers ('CODM'). The CODM is responsible for the allocation of resources to operating segments and assessing their performance. Foreign currency translation The financial statements are presented in Australian dollars, which is ReadyTech Holdings Limited's functional and presentation currency. Foreign currency transactions Foreign currency transactions are translated into Australian dollars using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at financial year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss. Revenue The principal activities of the Group during the year consisted of: ● Education: provider of student management system to vocational education and training, international and English Language and higher education providers; and Employment: provider of payroll and employee management solutions from cloud-based technology to outsourcing of human resource function. ● Subscription, implementation and hosting revenue Subscription, implementation and hosting revenue includes sales from cloud based solutions that provide customers with software, services, platforms and content such as Aussiepay, ePayroll, JobReady.Plus, JobReady.Live, HR3 Payroll, HR3 Human Resources, VETtrak Student Portal, VETtrak Trainer Portal and Myprofiling. Subscription based revenue can either be hosted on the Group’s servers, or on premise, available to be purchased by the customer which allows immediate download. Training revenue Training revenue includes assessment and behavioural intervention programs that deliver outcomes for government policy objectives – particularly with adult, youth and disabled unemployed initiatives. Revenue Recognition Under AASB 15, an entity recognises revenue when (or as) a performance obligation is satisfied, i.e. when 'control’ of the goods or services underlying a particular performance obligation is transferred to the customer. 24 25 32 33 2019 ANNUAL REPORT ReadyTech Holdings Limited Notes to the financial statements 30 June 2019 ReadyTech Holdings Limited Notes to the financial statements 30 June 2019 Note 2. Significant accounting policies (continued) Note 2. Significant accounting policies (continued) Revenue is recognised upon transfer of control of promised products and services to customers at an amount that reflects the consideration to which the Group is expected to be entitled in exchange for transferring goods or services to a customer. For each contract with a customer, the Group: identifies the contract with a customer; identifies the performance obligations in the contract; determines the transaction price which takes into account estimates of variable consideration and the time value of money; allocates the transaction price to the separate performance obligations on the basis of the relative stand-alone selling price of each distinct good or service to be delivered; and recognises revenue when or as each performance obligation is satisfied in a manner that depicts the transfer to the customer of the goods or services promised. Revenue is recognised net of allowances for returns and any taxes collected from customers, which are subsequently remitted to governmental authorities. Revenue from contracts with customers The Group provides cloud based hosted student management systems software, and employee and payroll management software to its customers. Customers licence the use of the hosted Intellectual Property Software via licence subscription fees, which provide them access to the software over the licence fee term. The Group can provide subscription licences, hosting and implementation services within these contracts. The sale of software subscription licenses in conjunction with integration services (including hosting) is treated as a single performance obligation (‘software solution services’) as the licence, implementation and hosting are integrated services promised in the contract into an integrated bundle of services that represent the combined output for which the customer has contracted. Payment terms and conditions vary by contract type, although terms generally include a requirement of payment within 30 to 60 days. In instances where the timing of revenue recognition differs from the timing of invoicing, we have determined our contracts generally do not include a significant financing component. The primary purpose of our invoicing terms is to provide customers with simplified and predictable ways of purchasing our products and services, not to receive financing from our customers, such as invoicing at the beginning of a subscription term with revenue recognised using the output method (time) over the contract period, or to provide customers with financing. Loss making contracts A provision under AASB 137 is made for the difference between the expected cost of fulfilling a contract and the expected unearned portion of the transaction price where the forecast costs are greater than the forecast revenue. Variable consideration within the transaction price, if any, reflects concessions provided to the customer such as discounts, rebates and refunds, any potential bonuses receivable from the customer and any other contingent events. Such estimates are determined using either the 'expected value' or 'most likely amount' method. The measurement of variable consideration is subject to a constraining principle whereby revenue will only be recognised to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur. The measurement constraint continues until the uncertainty associated with the variable consideration is subsequently resolved. Amounts received that are subject to the constraining principle are recognised as a refund liability. Revenue is recognised on the basis of stage of completion. ReadyTech determines stage of completion based on output method (time) under AASB 15. Fees billed in advance are recognised in the statement of financial position as contract liabilities and brought to account when the performance obligation has been satisfied. Other income Other income is recognised when it is received or when the right to receive payment is established. The revenue is measured at the transaction price agreed under the contract. (i) Off premise licences, implementation and hosting ReadyTech has assessed and concluded that the performance obligations for the sale of software subscription licences, related installation and hosting services are not distinct. The company assessed that the promise to the customer is provision of the software subscription licence that is integrated to the customers’ network and hosted by ReadyTech. Hence, under AASB 15, ReadyTech considers the sale of subscription licence, related installation and hosting service as a single performance obligation as the subscription licence, implementation and hosting are integrated services promised in the contract into an integrated bundle of services that represent the combined output for which the customer has contracted. The related installation and hosting should be bundled as one performance obligation and recognised over the period of the contract. The subscription license component of the contract is not considered to be predominant. (ii) On-premise licences Certain products are available to be purchased by the customer which allows immediate download. These products are not tailored for customer use throughout the duration of the contact and no maintenance / training services are included. However there is optionality for customer to purchase additional support and maintenance. Accordingly, the sale of a licence represents a right of use license that a customer obtains of an entity’s intellectual property, and revenue is recognised when the license transfers to the customer. For on premise licenses, this is assessed to be at the point of sale. Interest income is recognised on a time proportionate basis that takes into account the effective yield on the financial asset. Dividend income is recognised when the dividend is declared. Research and Development ('R&D') Tax Credits are recognised as grant income in the period which R&D incentive is received. Income tax The income tax expense or benefit for the period is the tax payable on that period's taxable income based on the applicable income tax rate for each jurisdiction, adjusted by the changes in deferred tax assets and liabilities attributable to temporary differences, unused tax losses and the adjustment recognised for prior periods, where applicable. Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to be applied when the assets are recovered or liabilities are settled, based on those tax rates that are enacted or substantively enacted, except for: ● When the deferred income tax asset or liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting nor taxable profits; or When the taxable temporary difference is associated with interests in subsidiaries and the timing of the reversal can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. (iii) Training and other revenue Training and other revenue is earned as the services are delivered at a point in time. ● Contract balances Timing of revenue recognition may differ from the timing of invoicing to customers. Receivables are recorded when revenue is recognised prior to invoicing, or deferred income when revenue is recognised subsequent to invoicing. For multi-year agreements, customers are generally invoiced at the beginning of the contract. Contract liabilities comprise mainly of unearned revenue related to subscription licences, which are cloud based. Contract liabilities are generally invoiced at the beginning of each contract period. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. The carrying amount of recognised and unrecognised deferred tax assets are reviewed at each reporting date. Deferred tax assets recognised are reduced to the extent that it is no longer probable that future taxable profits will be available for the carrying amount to be recovered. Previously unrecognised deferred tax assets are recognised to the extent that it is probable that there are future taxable profits available to recover the asset. Deferred tax assets and liabilities are offset only where there is a legally enforceable right to offset current tax assets against current tax liabilities and deferred tax assets against deferred tax liabilities; and they relate to the same taxable authority on either the same taxable entity or different taxable entities which intend to settle simultaneously. 26 27 34 35 2019 ANNUAL REPORT ReadyTech Holdings Limited Notes to the financial statements 30 June 2019 ReadyTech Holdings Limited Notes to the financial statements 30 June 2019 Note 2. Significant accounting policies (continued) Note 2. Significant accounting policies (continued) ReadyTech Holdings Limited (the 'head entity') and its wholly-owned Australian subsidiaries have formed an income tax consolidated group under the tax consolidation regime. The head entity and each subsidiary in the tax consolidated group continue to account for their own current and deferred tax amounts. The tax consolidated group has applied the 'separate taxpayer within group' approach in determining the appropriate amount of taxes to allocate to members of the tax consolidated group. In addition to its own current and deferred tax amounts, the head entity also recognises the current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from each subsidiary in the tax consolidated group. Assets or liabilities arising under tax funding agreements with the tax consolidated entities are recognised as amounts receivable from or payable to other entities in the tax consolidated group. The tax funding arrangement ensures that the intercompany charge equals the current tax liability or benefit of each tax consolidated group member, resulting in neither a contribution by the head entity to the subsidiaries nor a distribution by the subsidiaries to the head entity. Discontinued operations A discontinued operation is a component of the Group that has been disposed of or is classified as held for sale and that represents a separate major line of business or geographical area of operations, is part of a single co-ordinated plan to dispose of such a line of business or area of operations, or is a subsidiary acquired exclusively with a view to resale. The results of discontinued operations are presented separately on the face of the statement of profit or loss and other comprehensive income. Current and non-current classification Assets and liabilities are presented in the statement of financial position based on current and non-current classification. An asset is classified as current when: it is either expected to be realised or intended to be sold or consumed in the Group's normal operating cycle; it is held primarily for the purpose of trading; it is expected to be realised within 12 months after the reporting period; or the asset is cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least 12 months after the reporting period. All other assets are classified as non-current. A liability is classified as current when: it is either expected to be settled in the Group's normal operating cycle; it is held primarily for the purpose of trading; it is due to be settled within 12 months after the reporting period; or there is no unconditional right to defer the settlement of the liability for at least 12 months after the reporting period. All other liabilities are classified as non-current. Deferred tax assets and liabilities are always classified as non-current. Cash and cash equivalents Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Trade and other receivables Trade receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method, less any allowance for expected credit losses. Trade receivables are generally due for settlement within 30 days. The Group has applied the simplified approach to measuring expected credit losses, which uses a lifetime expected loss allowance. To measure the expected credit losses, trade receivables have been grouped based on days overdue. Receivables from related parties and other receivables are recognised at amortised cost, less any provision for impairment. Depreciation is calculated on a straight-line or diminishing value basis to write off the net cost of each item of property, plant and equipment (excluding land) over their expected useful lives as follows: Leasehold improvements Fixtures and fittings Computer equipment Office equipment 3-5 years 3-10 years 3-5 years 3-5 years The residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each reporting date. Leasehold improvements and plant and equipment under lease are depreciated over the unexpired period of the lease or the estimated useful life of the assets, whichever is shorter. An item of property, plant and equipment is derecognised upon disposal or when there is no future economic benefit to the Group. Gains and losses between the carrying amount and the disposal proceeds are taken to profit or loss. Any revaluation surplus reserve relating to the item disposed of is transferred directly to retained profits. Right-of-use assets A right-of-use asset is recognised at the commencement date of a lease. The right-of-use asset is measured at cost, which comprises the initial amount of the lease liability, adjusted for, as applicable, any lease payments made at or before the commencement date net of any lease incentives received, any initial direct costs incurred, and, except where included in the cost of inventories, an estimate of costs expected to be incurred for dismantling and removing the underlying asset, and restoring the site or asset. Right-of-use assets are depreciated on a straight-line basis over the unexpired period of the lease or the estimated useful life of the asset, whichever is the shorter. Where the Group expects to obtain ownership of the leased asset at the end of the lease term, the depreciation is over its estimated useful life. Right-of use assets are subject to impairment or adjusted for any remeasurement of lease liabilities. The Group has elected not to recognise a right-of-use asset and corresponding lease liability for short-term leases with terms of 12 months or less and leases of low-value assets. Lease payments on these assets are expensed to profit or loss as incurred. Intangible assets Intangible assets acquired as part of a business combination, other than goodwill, are initially measured at their fair value at the date of the acquisition. Intangible assets acquired separately are initially recognised at cost. Indefinite life intangible assets are not amortised and are subsequently measured at cost less any impairment. Finite life intangible assets are subsequently measured at cost less amortisation and any impairment. The gains or losses recognised in profit or loss arising from the derecognition of intangible assets are measured as the difference between net disposal proceeds and the carrying amount of the intangible asset. The method and useful lives of finite life intangible assets are reviewed annually. Changes in the expected pattern of consumption or useful life are accounted for prospectively by changing the amortisation method or period. Research costs are expensed in the period in which they are incurred. Goodwill Goodwill arises on the acquisition of a business. Goodwill is not amortised. Instead, goodwill is tested annually for impairment, or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. Impairment losses on goodwill are taken to profit or loss and are not subsequently reversed. Property, plant and equipment Property, plant and equipment is stated at historical cost less accumulated depreciation and impairment. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Customer relationships Customer relationships acquired in a business combination are amortised on a straight-line basis over the period of their expected benefit, being their finite useful life between 9 and 14 years. 28 29 36 37 ReadyTech Holdings Limited Notes to the financial statements 30 June 2019 ReadyTech Holdings Limited Notes to the financial statements 30 June 2019 Note 2. Significant accounting policies (continued) Note 2. Significant accounting policies (continued) 2019 ANNUAL REPORT Software An intangible asset arising from software development expenditure on an internal project is recognised only when the Group can demonstrate the technical feasibility of completing the intangible asset so that it will be available for use or sale, its intention to complete and its ability to use or sell the asset, how the asset will generate future economic benefits, the availability of resources to complete the development and the ability to measure reliably the expenditure attributable to the intangible asset during its development. Following the initial recognition, the cost model is applied requiring the asset to be carried at cost less any accumulated amortisation and accumulated impairment losses. Significant costs associated with the acquisition of software or software internally developed is amortised on a straight-line basis over the period of its expected benefit, being a finite useful life of 5 years. Amortisation commences when the asset is available for use, i.e. when it is in the location and condition necessary for it to be capable of operating in the manner intended by management. Impairment of non-financial assets Goodwill and other intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Other non-financial assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. Recoverable amount is the higher of an asset's fair value less costs of disposal and value-in-use. The value-in-use is the present value of the estimated future cash flows relating to the asset using a pre-tax discount rate specific to the asset or cash-generating unit to which the asset belongs. Assets that do not have independent cash flows are grouped together to form a cash-generating unit. Trade and other payables These amounts represent liabilities for goods and services provided to the Group prior to the end of the financial year and which are unpaid. Due to their short-term nature they are measured at amortised cost and are not discounted. The amounts are unsecured and are usually paid within 30 days of recognition. Contract liabilities Contract liabilities are recognised when a customer pays consideration, or when the Group recognises a receivable to reflect its unconditional right to consideration (whichever is earlier), before the Group has transferred the goods or provided the services to the customer. The liability is the Group's obligation to transfer goods or provide services to a customer from which it has received consideration. Borrowings Loans and borrowings are initially recognised at the fair value of the consideration received, net of transaction costs. They are subsequently measured at amortised cost using the effective interest method. Lease liabilities A lease liability is recognised at the commencement date of a lease. The lease liability is initially recognised at the present value of the lease payments to be made over the term of the lease, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group's incremental borrowing rate. Lease payments comprise of fixed payments less any lease incentives receivable, variable lease payments that depend on an index or a rate, amounts expected to be paid under residual value guarantees, exercise price of a purchase option when the exercise of the option is reasonably certain to occur, and any anticipated termination penalties. The variable lease payments that do not depend on an index or a rate are expensed in the period in which they are incurred. Lease liabilities are measured at amortised cost using the effective interest method. The carrying amounts are remeasured if there is a change in the following: future lease payments arising from a change in an index or a rate used; residual guarantee; lease term; certainty of a purchase option and termination penalties. When a lease liability is remeasured, an adjustment is made to the corresponding right-of use asset, or to profit or loss if the carrying amount of the right-of-use asset is fully written down. Finance costs Finance costs attributable to qualifying assets are capitalised as part of the asset. All other finance costs are expensed in the period in which they are incurred. Provisions Provisions are recognised when the Group has a present (legal or constructive) obligation as a result of a past event, it is probable the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the reporting date, taking into account the risks and uncertainties surrounding the obligation. If the time value of money is material, provisions are discounted using a current pre-tax rate specific to the liability. The increase in the provision resulting from the passage of time is recognised as a finance cost. Employee benefits Short-term employee benefits Liabilities for wages and salaries, including non-monetary benefits, annual leave and long service leave expected to be settled wholly within 12 months of the reporting date are measured at the amounts expected to be paid when the liabilities are settled. Other long-term employee benefits The liability for annual leave and long service leave not expected to be settled within 12 months of the reporting date are measured at the present value of expected future payments to be made in respect of services provided by employees up to the reporting date. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the reporting date on high quality corporate bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. Defined contribution superannuation expense Contributions to defined contribution superannuation plans are expensed in the period in which they are incurred. Share-based payments Equity-settled and cash-settled share-based compensation benefits are provided to employees. Equity-settled transactions are awards of shares, or options over shares, that are provided to employees in exchange for the rendering of services. Cash-settled transactions are awards of cash for the exchange of services, where the amount of cash is determined by reference to the share price. The cost of equity-settled transactions are measured at fair value on grant date. Fair value is independently determined using either the Binomial or Black-Scholes option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the option, together with non-vesting conditions that do not determine whether the Group receives the services that entitle the employees to receive payment. No account is taken of any other vesting conditions. The cost of equity-settled transactions are recognised as an expense with a corresponding increase in equity over the vesting period. The cumulative charge to profit or loss is calculated based on the grant date fair value of the award, the best estimate of the number of awards that are likely to vest and the expired portion of the vesting period. The amount recognised in profit or loss for the period is the cumulative amount calculated at each reporting date less amounts already recognised in previous periods. The cost of cash-settled transactions is initially, and at each reporting date until vested, determined by applying either the Binomial or Black-Scholes option pricing model, taking into consideration the terms and conditions on which the award was granted. The cumulative charge to profit or loss until settlement of the liability is calculated as follows: ● during the vesting period, the liability at each reporting date is the fair value of the award at that date multiplied by the expired portion of the vesting period. from the end of the vesting period until settlement of the award, the liability is the full fair value of the liability at the reporting date. ● All changes in the liability are recognised in profit or loss. The ultimate cost of cash-settled transactions is the cash paid to settle the liability. 30 31 38 39 2019 ANNUAL REPORT ReadyTech Holdings Limited Notes to the financial statements 30 June 2019 ReadyTech Holdings Limited Notes to the financial statements 30 June 2019 Note 2. Significant accounting policies (continued) Note 2. Significant accounting policies (continued) Market conditions are taken into consideration in determining fair value. Therefore any awards subject to market conditions are considered to vest irrespective of whether or not that market condition has been met, provided all other conditions are satisfied. On the acquisition of a business, the Group assesses the financial assets acquired and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic conditions, the Group's operating or accounting policies and other pertinent conditions in existence at the acquisition-date. If equity-settled awards are modified, as a minimum an expense is recognised as if the modification has not been made. An additional expense is recognised, over the remaining vesting period, for any modification that increases the total fair value of the share-based compensation benefit as at the date of modification. Where the business combination is achieved in stages, the Group remeasures its previously held equity interest in the acquiree at the acquisition-date fair value and the difference between the fair value and the previous carrying amount is recognised in profit or loss. If the non-vesting condition is within the control of the Group or employee, the failure to satisfy the condition is treated as a cancellation. If the condition is not within the control of the Group or employee and is not satisfied during the vesting period, any remaining expense for the award is recognised over the remaining vesting period, unless the award is forfeited. If equity-settled awards are cancelled, it is treated as if it has vested on the date of cancellation, and any remaining expense is recognised immediately. If a new replacement award is substituted for the cancelled award, the cancelled and new award is treated as if they were a modification. Fair value measurement When an asset or liability, financial or non-financial, is measured at fair value for recognition or disclosure purposes, the fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date; and assumes that the transaction will take place either: in the principal market; or in the absence of a principal market, in the most advantageous market. Fair value is measured using the assumptions that market participants would use when pricing the asset or liability, assuming they act in their economic best interests. For non-financial assets, the fair value measurement is based on its highest and best use. Valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, are used, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. Assets and liabilities measured at fair value are classified into three levels, using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. Classifications are reviewed at each reporting date and transfers between levels are determined based on a reassessment of the lowest level of input that is significant to the fair value measurement. For recurring and non-recurring fair value measurements, external valuers may be used when internal expertise is either not available or when the valuation is deemed to be significant. External valuers are selected based on market knowledge and reputation. Where there is a significant change in fair value of an asset or liability from one period to another, an analysis is undertaken, which includes a verification of the major inputs applied in the latest valuation and a comparison, where applicable, with external sources of data. Issued capital Ordinary shares and DC class 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. Dividends Dividends are recognised when declared during the financial year and no longer at the discretion of the company. Business combinations The acquisition method of accounting is used to account for business combinations regardless of whether equity instruments or other assets are acquired. The consideration transferred is the sum of the acquisition-date fair values of the assets transferred, equity instruments issued or liabilities incurred by the acquirer to former owners of the acquiree and the amount of any non-controlling interest in the acquiree. For each business combination, the non-controlling interest in the acquiree is measured at either fair value or at the proportionate share of the acquiree's identifiable net assets. All acquisition costs are expensed as incurred to profit or loss. Contingent consideration to be transferred by the acquirer is recognised at the acquisition-date fair value. Subsequent changes in the fair value of the contingent consideration classified as an asset or liability is recognised in profit or loss. Contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity. The difference between the acquisition-date fair value of assets acquired, liabilities assumed and any non-controlling interest in the acquiree and the fair value of the consideration transferred and the fair value of any pre-existing investment in the acquiree is recognised as goodwill. If the consideration transferred and the pre-existing fair value is less than the fair value of the identifiable net assets acquired, being a bargain purchase to the acquirer, the difference is recognised as a gain directly in profit or loss by the acquirer on the acquisition-date, but only after a reassessment of the identification and measurement of the net assets acquired, the non-controlling interest in the acquiree, if any, the consideration transferred and the acquirer's previously held equity interest in the acquirer. Business combinations are initially accounted for on a provisional basis. The acquirer retrospectively adjusts the provisional amounts recognised and also recognises additional assets or liabilities during the measurement period, based on new information obtained about the facts and circumstances that existed at the acquisition-date. The measurement period ends on either the earlier of (i) 12 months from the date of the acquisition or (ii) when the acquirer receives all the information possible to determine fair value. Business combinations under common control Common control transactions are specifically scoped out of AASB3 'Business Combinations'. Common control transactions are accounted for in the consolidated financial statements prospectively from the date of obtaining the ownership interest. The directors have elected to use existing book values of assets and liabilities of the entities subject to the business combination and record the difference between the purchase price paid by the company and the existing book value of the entity acquired immediately prior to the business combination as a reserve. Where equity instruments are issued as part of the consideration, the value of the instruments is their market price as at the acquisition date. Transaction costs arising on the issue of equity instruments are recognised directly in equity. Earnings per share Basic earnings per share Basic earnings per share is calculated by dividing the profit attributable to the owners of ReadyTech Holdings Limited, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the financial year. Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. Goods and Services Tax ('GST') and other similar taxes Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the tax authority. In this case it is recognised as part of the cost of the acquisition of the asset or as part of the expense. Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the tax authority is included in other receivables or other payables in the statement of financial position. 32 33 40 41 2019 ANNUAL REPORT ReadyTech Holdings Limited Notes to the financial statements 30 June 2019 ReadyTech Holdings Limited Notes to the financial statements 30 June 2019 Note 2. Significant accounting policies (continued) Note 3. Critical accounting judgements, estimates and assumptions (continued) Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to the tax authority, are presented as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the tax authority. Rounding of amounts The company is of a kind referred to in Corporations Instrument 2016/191, issued by the Australian Securities and Investments Commission, relating to 'rounding-off'. Amounts in this report have been rounded off in accordance with that Corporations Instrument to the nearest thousand dollars, or in certain cases, the nearest dollar. New Accounting Standards and Interpretations not yet mandatory or early adopted Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet mandatory, have not been early adopted by the Group for the annual reporting period ended 30 June 2019. The Group's assessment of the impact of these new or amended Accounting Standards and Interpretations, most relevant to the Group, are set out below. New Conceptual Framework for Financial Reporting A revised Conceptual Framework for Financial Reporting has been issued by the AASB and is applicable for annual reporting periods beginning on or after 1 January 2020. This release impacts for-profit private sector entities that have public accountability that are required by legislation to comply with Australian Accounting Standards and other for-profit entities that voluntarily elect to apply the Conceptual Framework. Phase 2 of the framework is yet to be released which will impact for-profit private sector entities. The application of new definition and recognition criteria as well as new guidance on measurement will result in amendments to several accounting standards. The issue of AASB 2019-1 Amendments to Australian Accounting Standards – References to the Conceptual Framework, also applicable from 1 January 2020, includes such amendments. The Group will apply the revised conceptual framework from 1 July 2020 and is yet to assess its impact. Note 3. Critical accounting judgements, estimates and assumptions The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts in the financial statements. Management continually evaluates its judgements and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgements, estimates and assumptions on historical experience and on other various factors, including expectations of future events, management believes to be reasonable under the circumstances. The resulting accounting judgements and estimates will seldom equal the related actual results. The judgements, estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities (refer to the respective notes) within the next financial year are discussed below. Allowance for expected credit losses The allowance for expected credit losses assessment requires a degree of estimation and judgement. It is based on the lifetime expected credit loss, grouped based on days overdue, and makes assumptions to allocate an overall expected credit loss rate for each group. These assumptions include recent sales experience and historical collection rates. Fair value measurement hierarchy The Group is required to classify all assets and liabilities, measured at fair value, using a three level hierarchy, based on the lowest level of input that is significant to the entire fair value measurement, being: Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date; Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and Level 3: Unobservable inputs for the asset or liability. Considerable judgement is required to determine what is significant to fair value and therefore which category the asset or liability is placed in can be subjective. The fair value of assets and liabilities classified as level 3 is determined by the use of valuation models. These include discounted cash flow analysis or the use of observable inputs that require significant adjustments based on unobservable inputs. Estimation of useful lives of assets The Group determines the estimated useful lives and related depreciation and amortisation charges for its property, plant and equipment and finite life intangible assets. The useful lives could change significantly as a result of technical innovations or some other event. The depreciation and amortisation charge will increase where the useful lives are less than previously estimated lives, or technically obsolete or non-strategic assets that have been abandoned or sold will be written off or written down. Goodwill and other indefinite life intangible assets The Group tests annually, or more frequently if events or changes in circumstances indicate impairment, whether goodwill and other indefinite life intangible assets have suffered any impairment, in accordance with the accounting policy stated in note 2. The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations require the use of assumptions, including estimated discount rates based on the current cost of capital and growth rates of the estimated future cash flows. Impairment of non-financial assets other than goodwill and other indefinite life intangible assets The Group assesses impairment of non-financial assets other than goodwill and other indefinite life intangible assets at each reporting date by evaluating conditions specific to the Group and to the particular asset that may lead to impairment. If an impairment trigger exists, the recoverable amount of the asset is determined. This involves fair value less costs of disposal or value-in-use calculations, which incorporate a number of key estimates and assumptions. Income tax The Group is subject to income taxes in the jurisdictions in which it operates. Significant judgement is required in determining the provision for income tax. There are many transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain. The Group recognises liabilities for anticipated tax audit issues based on the Group's current understanding of the tax law. Where the final tax outcome of these matters is different from the carrying amounts, such differences will impact the current and deferred tax provisions in the period in which such determination is made. Recovery of deferred tax assets Deferred tax assets are recognised for deductible temporary differences only if the Group considers it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Business combinations As discussed in note 2, business combinations are initially accounted for on a provisional basis. The fair value of assets acquired, liabilities and contingent liabilities assumed are initially estimated by the Group taking into consideration all available information at the reporting date. Fair value adjustments on the finalisation of the business combination accounting is retrospective, where applicable, to the period the combination occurred and may have an impact on the assets and liabilities, depreciation and amortisation reported. Note 4. Operating segments Identification of reportable operating segments The Group is organised into two reportable operating segments: Education and Employment. These operating segments are based on the internal reports that are reviewed and used by the Board of Directors (who are identified as the Chief Operating Decision Makers ('CODM')) in assessing performance and in determining the allocation of resources. The CODM reviews adjusted EBITDA (earnings before interest, tax, depreciation and amortisation adjusted for non-cash and significant items). The accounting policies adopted for internal reporting to the CODM are consistent with those adopted in the financial statements. The information reported to the CODM is on a monthly basis. 34 35 42 43 ReadyTech Holdings Limited Notes to the financial statements 30 June 2019 Note 4. Operating segments (continued) Types of products and services The principal products and services of each of these operating segments are as follows: Education Employment mainly provides products and services to tertiary education providers. Core products are its cloud-based student management systems (SMS) for education and training providers to manage the student lifecycle from student enrolment to course completion. ReadyTech also provides platforms to help state governments manage vocational education and training (VET) programs, software platforms for the pathways and back-to-work sector to manage apprentices and job seekers, and a competency assessment and skills profiling tools to track on-the-job training through a qualification; and provides products and services to mid-sized company across various industries with payroll software, outsourced payroll services and human resource management (HRM) software solutions to employers to assist them with payroll and the management of their employees. HRM consists of human resource (HR) administration and talent management. HR administration involves employee records, workplace health and safety (WHS) and organisational structure. Intersegment transactions No intersegment transactions were made during the year ended 30 June 2019 (30 June 2018: $nil). Intersegment receivables, payables and loans Intersegment loans are initially recognised at the consideration received. Intersegment loans receivable and loans payable that earn or incur non-market interest are not adjusted to fair value based on market interest rates. Intersegment loans are eliminated on consolidation. Major customers During the years ended 30 June 2019 and 30 June 2018 no single customer contributed 10% or more to the Group's external revenue. 2019 ANNUAL REPORT ReadyTech Holdings Limited Notes to the financial statements 30 June 2019 Note 4. Operating segments (continued) Consolidated - 2018 Revenue Sales to external customers Interest revenue Total revenue Adjusted EBITDA IPO, transaction cost and related cost Depreciation and amortisation Interest revenue Finance costs Loss from discontinued operations Loss before income tax expense Income tax expense Loss after income tax expense Employment Education Corporate $'000 $'000 $'000 Total $'000 8,380 11 8,391 17,246 25 17,271 - - - 3,381 6,491 (1,204) 25,626 36 25,662 8,668 (3,335) (5,885) 36 (1,151) (2,880) (4,547) (654) (5,201) All assets and liabilities, including taxes are not allocated to the operating segments as they are managed on an overall group basis. Note 5. Revenue from contracts with customers Consolidated 2019 $'000 2018 $'000 Operating segment information Consolidated - 2019 Revenue Sales to external customers Interest revenue Total revenue Adjusted EBITDA IPO, transaction and related costs Depreciation and amortisation Interest revenue Finance costs Loss before income tax benefit Income tax benefit Loss after income tax benefit Employment Education Corporate $'000 $'000 $'000 Total $'000 Revenue from contracts with customers 32,711 25,626 From continuing operations 12,981 14 12,995 19,730 6 19,736 - - - 6,219 7,881 (1,087) 32,711 20 32,731 13,013 (5,649) (8,063) 20 (1,938) (2,617) 1,127 (1,490) Disaggregation of revenue The disaggregation of revenue from contracts with customers is as follows: Consolidated - 2019 Major product lines Subscription, licence and hosting Implementation, training and other Consolidated - 2018 Major product lines Subscription, licence and hosting Implementation, training and other Employment Education $'000 $'000 Total $'000 11,776 1,205 17,625 2,105 29,401 3,310 12,981 19,730 32,711 Employment Education $'000 $'000 Total $'000 7,366 1,014 15,287 1,959 22,653 2,973 8,380 17,246 25,626 36 37 44 45 ReadyTech Holdings Limited Notes to the financial statements 30 June 2019 Note 6. Other income Net foreign exchange gain Management fees Other income Note 7. Expenses Loss before income tax from continuing operations includes the following specific expenses: Finance costs Interest and finance charges paid/payable Interest charges on lease liability right-of-use asset Finance costs expensed Net loss on disposal Net loss on disposal of property, plant and equipment Superannuation expense Defined contribution superannuation expense One off employee benefit expense included in employee benefits expense One off employee benefit expense relating to the acquisition of Esher House Pty Ltd* Share option expense for Daniel Wyner and Tony Faure (Chairman) Impairment of receivables Impairment of receivables IPO expenses** Consolidated 2019 $'000 2018 $'000 - - - 1 247 248 Consolidated 2019 $'000 2018 $'000 1,797 141 1,151 - 1,938 1,151 - 6 1,316 1,060 (803) 2,556 426 - 4 156 6,357 - * ** A portion of the Esher House acquisition consideration was settled by way of issue of a special class of shares which are contingent on the ex-proprietor, Darren Coppin’s continuing employment with the business. These shares will be transferred by Darren Coppin to the Company under the Security Sale Deed in exchange for Shares on Completion of IPO. With valuation at IPO, a credit of $803,000 was recognised during the financial year ended 30 June 2019. IPO expenses are included in 'Consultancy and professional expenses' and 'Other expenses' in the Statement of profit or loss and other comprehensive income. 2019 ANNUAL REPORT ReadyTech Holdings Limited Notes to the financial statements 30 June 2019 Note 8. Income tax Income tax expense/(benefit) Current tax Deferred tax - origination and reversal of temporary differences Adjustment recognised for prior periods Aggregate income tax expense/(benefit) Deferred tax included in income tax expense/(benefit) comprises: Increase in deferred tax assets Numerical reconciliation of income tax expense/(benefit) and tax at the statutory rate Loss before income tax (expense)/benefit from continuing operations Loss before income tax expense from discontinued operations Tax at the statutory tax rate of 30% Tax effect amounts which are not deductible/(taxable) in calculating taxable income: Acquisition costs Research and development income Provision for bonus Other non-deductible expenditure Impact of tax consolidation Other non-deductible items Adjustment recognised for prior periods Income tax expense/(benefit) Amounts credited directly to equity Deferred tax assets Consolidated 2019 $'000 2018 $'000 2,117 (2,943) (301) 2,271 (1,617) - (1,127) 654 (2,943) (1,617) (2,617) - (1,667) (2,880) (2,617) (4,547) (785) (1,364) 29 - (241) - - 171 (826) (301) (1,127) 237 (104) 767 115 195 808 654 - 654 Consolidated 2019 $'000 2018 $'000 (526) - 38 39 46 47 ReadyTech Holdings Limited Notes to the financial statements 30 June 2019 Note 8. Income tax (continued) Deferred tax asset Deferred tax asset comprises temporary differences attributable to: Amounts recognised in profit or loss: Allowance for expected credit losses Labour capitalisation Contract liabilities Employee benefits Accrued expenses Software Borrowing costs Customer relationships IPO costs Other Deferred tax asset Movements: Opening balance Credited to profit or loss Credited to equity Additions through business combinations and common control transaction Derecognition as a consequence of discontinued operations Closing balance Income tax payable Income tax payable Consolidated 2019 $'000 2018 $'000 16 992 3,275 531 226 1,204 91 (4,356) 1,834 96 81 586 3,421 436 150 402 121 (4,690) - 25 3,909 532 532 2,943 526 (92) - (459) 1,617 - (846) 220 3,909 532 Consolidated 2019 $'000 2018 $'000 246 2,579 As at 30 June 2019, the Group has capital losses totalling $3,005,000 which have not been recognised in the statement of financial position as the recovery of this benefit is uncertain. 2019 ANNUAL REPORT ReadyTech Holdings Limited Notes to the financial statements 30 June 2019 Note 9. Discontinued operations Description On 16 February 2018, due to lower than expected revenue synergies with the ReadyTech Group of companies, the Group disposed of 100% of the share capital of DBL Group Holdings Pty Ltd for total consideration of $1. Financial performance information Revenue from contracts with customers Other income Total revenue Raw materials and consumables used Employee benefits expense Depreciation and amortisation expense Advertising and marketing expenses Consultancy and professional expenses Administration expenses Communication and IT expenses Occupancy costs Other expenses Finance costs Total expenses Loss before income tax expense Income tax expense Loss after income tax expense Loss on disposal before income tax Income tax expense Loss on disposal after income tax expense Loss after income tax expense from discontinued operations Cash flow information Net cash used in operating activities Consolidated 2019 $'000 2018 $'000 - - - - - - - - - - - - - - - - - - - - - 1,017 1 1,018 (66) (863) (67) (19) (46) (14) (51) (68) (72) (1) (1,267) (249) - (249) (2,631) - (2,631) (2,880) Consolidated 2019 $'000 2018 $'000 - (315) 40 41 48 49 ReadyTech Holdings Limited Notes to the financial statements 30 June 2019 Note 9. Discontinued operations (continued) Carrying amounts of assets and liabilities disposed Cash and cash equivalents Trade and other receivables Other current assets Property, plant and equipment Intangibles Total assets Trade and other payables Employee benefits Total liabilities Net assets Details of the disposal Carrying amount of net assets disposed Loss on disposal before income tax Loss on disposal after income tax Note 10. Current assets - cash and cash equivalents Cash at bank Cash on deposit Note 11. Current assets - trade and other receivables Trade receivables Less: Allowance for expected credit losses (2018: Provision for impairment) Other receivables Consolidated 2019 $'000 2018 $'000 - - - - - - - - - - 425 262 2,009 62 29 2,787 110 46 156 2,631 Consolidated 2019 $'000 2018 $'000 - - - (2,631) (2,631) (2,631) Consolidated 2019 $'000 2018 $'000 6,243 79 4,489 1,097 6,322 5,586 Consolidated 2019 $'000 2018 $'000 3,096 (53) 3,043 2,691 (271) 2,420 431 390 3,474 2,810 2019 ANNUAL REPORT ReadyTech Holdings Limited Notes to the financial statements 30 June 2019 Note 11. Current assets - trade and other receivables (continued) Allowance for expected credit losses The Group has recognised a loss of $4,000 in profit or loss in respect of impairment of receivables for the period ended 30 June 2019 (2018: $156,000). The ageing of the receivables and allowance for expected credit losses provided for above are as follows: Consolidated Not overdue 0 to 3 months overdue 3 to 6 months overdue Over 6 months overdue Movements in the allowance for expected credit losses are as follows: Opening balance Additional provisions recognised Receivables written off during the year as uncollectable Unused amounts reversed Closing balance Note 12. Non-current assets - property, plant and equipment Leasehold improvements - at cost Less: Accumulated depreciation Fixtures and fittings - at cost Less: Accumulated depreciation Computer equipment - at cost Less: Accumulated depreciation Office equipment - at cost Less: Accumulated depreciation Expected credit loss rate 2019 % Carrying amount 2019 $'000 Allowance for expected credit losses 2019 $'000 0% 0% 0% 25% 1,778 914 194 210 3,096 - - - 53 53 Consolidated 2019 $'000 2018 $'000 271 4 (222) - 53 826 200 (711) (44) 271 Consolidated 2019 $'000 2018 $'000 617 (303) 314 143 (104) 39 222 (137) 85 324 (230) 94 532 503 (81) 422 486 (374) 112 289 (238) 51 371 (264) 107 692 42 43 50 51 ReadyTech Holdings Limited Notes to the financial statements 30 June 2019 ReadyTech Holdings Limited Notes to the financial statements 30 June 2019 Note 12. Non-current assets - property, plant and equipment (continued) Note 13. Non-current assets - intangibles (continued) Reconciliations Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below: Reconciliations Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below: 2019 ANNUAL REPORT Consolidated Balance at 1 July 2017 Additions Additions through business combinations and common control transactions Depreciation expense Balance at 30 June 2018 Additions Depreciation expense Balance at 30 June 2019 Note 13. Non-current assets - intangibles Leasehold improvements $'000 Fixtures and fittings $'000 Computer equipment $'000 Office equipment $'000 Total $'000 5 466 21 (70) 422 117 (225) 314 89 3 58 (38) 112 36 (109) 39 29 76 - (54) 51 98 (64) 85 46 32 90 (61) 107 71 (84) 94 169 577 169 (223) 692 322 (482) 532 Goodwill - at cost Customer relationships - at cost Less: Accumulated amortisation Software - at cost Less: Accumulated amortisation Consolidated 2019 $'000 2018 $'000 22,767 21,250 18,121 (3,605) 14,516 25,767 (10,132) 15,635 17,517 (1,884) 15,633 21,303 (4,907) 16,396 52,918 53,279 Consolidated Balance at 1 July 2017 Additions Additions through business combinations Additions through common control transactions Disposals Amortisation expense Balance at 30 June 2018 Additions Additions through business combinations (note 37) Amortisation expense Goodwill $'000 Customer relationships $'000 Software $'000 Total $'000 16,758 - 360 4,492 (360) - 21,250 - 1,517 - 12,453 - 771 4,716 (725) (1,582) 15,633 - 605 (1,722) 13,317 2,883 1,191 4,177 (1,092) (4,080) 16,396 3,592 902 (5,255) 42,528 2,883 2,322 13,385 (2,177) (5,662) 53,279 3,592 3,024 (6,977) Balance at 30 June 2019 22,767 14,516 15,635 52,918 Impairment testing Goodwill acquired through business combinations has been allocated to the following groups of cash generating units ('CGU'): Education Employment Consolidated 2019 $'000 2018 $'000 18,276 4,491 16,759 4,491 22,767 21,250 Goodwill and the group of CGUs to which it belongs is tested annually for impairment or at the end of each reporting date where an indicator impairment exists. The recoverable amount of the group of CGUs, which includes the carrying values of all intangibles, is determined based on value-in-use calculations using a five year discounted cash flow model, with a terminal value applied to the discounted cash flows after year five. This model incorporates the forecast to 30 June 2020 and extrapolated for a further four years using a steady growth rate. The following table sets out the key assumptions used in the value-in-use calculations: Groups of CGUs Education Employment Pre-tax discount rate used 2019 % Terminal growth rate 2019 % EBITDA growth rate per annum from FY20 to FY24 2019 % 17% 17% 3% 3% 3% 3% 44 45 52 53 ReadyTech Holdings Limited Notes to the financial statements 30 June 2019 Note 13. Non-current assets - intangibles (continued) Impairment testing results No impairment existed at 30 June 2019. Based on the value-in-use calculation methodology and assumptions stated above, the carrying amount of each group of CGUs at balance date does not exceed its recoverable amount. Impact of possible changes in assumptions A reasonable possible change in assumptions would not cause the carrying amount of each group of CGUs to exceed its recoverable amount. Note 14. Non-current assets - right-of-use assets Right-of-use assets - at cost Less: Accumulated amortisation Consolidated 2019 $'000 2018 $'000 3,278 (1,232) 2,046 - - - ReadyTech Holdings Limited Notes to the financial statements 30 June 2019 Note 16. Current liabilities - contract liabilities Contract liabilities Refer to note 21 for further details. Note 17. Current liabilities - borrowings Borrowings 2019 ANNUAL REPORT Consolidated 2019 $'000 2018 $'000 10,354 11,124 Consolidated 2019 $'000 2018 $'000 - 3,250 Refer to note 22 for further information on assets pledged as security and financing arrangements. The Group leases land and buildings for its offices under agreements of 5 years. At the inception of a lease management determines the non-cancellable period of a lease, including options to extend the lease if it is reasonably certain to exercise that option. The Group also leases plant and equipment under agreements of 3 years. Refer to note 28 for further information on financial instruments. Note 18. Current liabilities - lease liabilities Reconciliations Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below: Recognition of right-of-use asset on adoption of AASB 16 on 1 July 2018 Additions Amortisation Note 15. Current liabilities - trade and other payables Trade payables Accrued expenses Payables to related parties GST payable Contingent consideration Consolidated 2019 $'000 1,389 1,261 (604) 2,046 Consolidated 2019 $'000 2018 $'000 806 1,621 - 634 756 268 1,205 407 506 480 3,817 2,866 Lease liability Refer to note 28 for further information on financial instruments. Note 19. Current liabilities - employee benefits Employee benefits Remuneration payable with respect to Esher House Pty Ltd acquisition* *relates to one off costs associated with the acquisition Note 20. Current liabilities - lease make good provision Refer to note 28 for further information on financial instruments. Lease make good Consolidated 2019 $'000 2018 $'000 543 - Consolidated 2019 $'000 2018 $'000 995 - 995 1,394 2,556 3,950 Consolidated 2019 $'000 2018 $'000 49 84 46 47 Lease make good The provision represents the present value of the estimated costs to make good the premises leased by the Group at the end of the respective lease terms. 54 55 ReadyTech Holdings Limited Notes to the financial statements 30 June 2019 Note 21. Non-current liabilities - contract liabilities Contract liabilities Note 22. Non-current liabilities - borrowings Borrowings Refer to note 28 for further information on financial instruments. Total secured liabilities The total secured liabilities (current and non-current) are as follows: Borrowings Assets pledged as security Borrowings are secured over the assets of the Group. Financing arrangements Unrestricted access was available at the reporting date to the following lines of credit: Total facilities Borrowings (Facility A) Borrowings (Facility B) Used at the reporting date Borrowings (Facility A) Borrowings (Facility B) Unused at the reporting date Borrowings (Facility A) Borrowings (Facility B) Consolidated 2019 $'000 2018 $'000 496 461 Consolidated 2019 $'000 2018 $'000 21,500 26,500 Consolidated 2019 $'000 2018 $'000 21,500 29,750 Consolidated 2019 $'000 2018 $'000 21,500 6,000 27,500 21,500 - 21,500 - 6,000 6,000 15,500 14,250 29,750 15,500 14,250 29,750 - - - 2019 ANNUAL REPORT ReadyTech Holdings Limited Notes to the financial statements 30 June 2019 Note 22. Non-current liabilities - borrowings (continued) The Group has established two facilities, Facility A and Facility B: ● ● Facility A - $21,500,000 (2018: $15,500,000) with an amortising loan term over 3 years and an interest rate set at BBSY plus a margin ranging from 2.75% to 3.75% (2018: 2.75% to 3.75%) depending on the Net Leverage Ratio of the Group. $nil (2018: $3,250,000) of the loan is shown in current liabilities being the contractual repayments over the 12 months to 30 June 2020. Facility B $6,000,000 (2018: $14,250,000) with a bullet term repayment after 3 years and an interest rate set at BBSY plus a margin of 3% to 4% (2018: 3% to 4%) depending on the Net Leverage Ratio of the Group. Note 23. Non-current liabilities - provisions Lease make good Consolidated 2019 $'000 2018 $'000 59 - Movements in provisions Movements in each class of provision (current and non-current) during the current financial year, other than employee benefits, are set out below: Consolidated - 2019 Carrying amount at the start of the year Additional provisions recognised Carrying amount at the end of the year Note 24. Non-current liabilities - lease liabilities Lease liability Refer to note 28 for further information on financial instruments. Current (note 18) Non-current Lease make good $'000 84 24 108 Consolidated 2019 $'000 2018 $'000 1,653 - Consolidated 2019 $'000 2018 $'000 543 1,653 2,196 - - - 48 49 56 57 ReadyTech Holdings Limited Notes to the financial statements 30 June 2019 Note 24. Non-current liabilities - lease liabilities (continued) Reconciliation Reconciliation of lease liabilities (current and non-current) at the beginning and end of financial year are set out below: Adoption of AASB 16 on 1 July 2018 Additions Repayment of lease liabilities Note 25. Equity - issued capital Ordinary shares - fully paid DC class shares - fully paid DBL class shares - fully paid Movements in ordinary share capital Consolidated 2019 $'000 1,447 1,261 (512) 2,196 Consolidated 2019 Shares 2018 Shares 2019 $'000 2018 $'000 80,005,371 38,171,440 1,025,000 - 600,000 - 119,581 - - 26,807 1,025 600 80,005,371 39,796,440 119,581 28,432 Details Date Shares Issue price $'000 Balance Issue of shares Issue of shares Share split Issue of shares Issue of shares on common control Partial return of capital Issue of shares 1 July 2017 21 July 2017 18 September 2017 19 September 2017 20 September 2017 21 September 2017 20 March 2018 9 April 2018 Balance Issue of shares Issue of shares Conversion of DC class shares to ordinary shares Share split (1 to 1.74) Uplift of reorganisation New shares issued on IPO Less transaction costs (net of tax) 30 June 2018 31 October 2018 19 March 2019 15 April 2019 16 April 2019 16 April 2019 23,069,000 102,636 740,000 3,941,739 500,000 9,468,065 - 350,000 38,171,440 100,000 100,000 1,138,383 29,237,269 - 11,258,279 - $1.00 $1.00 $0.00 $1.00 $1.82 $0.00 $1.00 $1.00 $2.63 $2.63 $0.00 $0.00 $1.51 $0.00 23,069 102 740 - 500 17,251 (15,205) 350 26,807 100 263 2,991 - 73,647 17,000 (1,227) Balance 30 June 2019 80,005,371 119,581 Movements in DC class shares and DBL class shares: ● Under the Security Sale Deed, The holders of ReadyTech DC Shares received an aggregate value of Shares (at the Offer Price) calculated by reference to the proportion that the EBITDA of Esher House Pty Ltd (a wholly-owned subsidiary of ReadyTech) bear to the EBITDA of the Group for the 12 months to 28 February 2019. The balance of the Shares is issued to the remaining existing Shareholders in proportion to their holdings of ReadyTech Shares on a one for 1.74 basis. DBL shares was not converted to ordinary shares under ReadyTech Holdings Limited at IPO. 2019 ANNUAL REPORT ReadyTech Holdings Limited Notes to the financial statements 30 June 2019 Note 25. Equity - issued capital (continued) Ordinary shares Ordinary shares entitle the holder to participate in dividends and the proceeds on the winding up of the company in proportion to the number of and amounts paid on the shares held. The fully paid ordinary shares have no par value and the company does not have a limited amount of authorised capital. On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote. DC class shares DC class shares: ● confer on their holders voting rights which in aggregate are equal to 38.8% of the total votes that may be exercised on a resolution relating to a DC Shareholder Reserved Matter; and confer on their holders the right to receive notice of, and attend (together with Ordinary Shareholders), general meetings of the Company at which a DC Shareholder Reserved Matter is to be considered. ● Accordingly, ordinary shares carry voting rights which in aggregate are equal to 61.2% of the total votes that may be exercised on a resolution relating to a DC Shareholder Reserved Matter. DBL class shares DBL class shares do not have any voting rights. Share buy-back There is no current on-market share buy-back. Capital risk management The Group's objectives when managing capital is to safeguard its ability to continue as a going concern, so that it can provide returns for shareholders and benefits for other stakeholders and to maintain an optimum capital structure to reduce the cost of capital. Capital is regarded as total equity, as recognised in the statement of financial position, plus net debt. Net debt is calculated as total borrowings less cash and cash equivalents. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. The Group would look to raise capital when an opportunity to invest in a business or company was seen as value adding relative to the current company's share price at the time of the investment. The Group is not actively pursuing additional investments in the short term as it continues to integrate and grow its existing businesses in order to maximise synergies. The Group is subject to certain financing arrangements covenants and meeting these is given priority in all capital risk management decisions. There have been no events of default on the financing arrangements during the financial year. Note 26. Equity - reserves Share-based payments reserve Common control reserve (note 38) Reorganisation reserve Consolidated 2019 $'000 2018 $'000 162 (10,058) (73,048) - (10,058) - (82,944) (10,058) Common control reserve Common control reserve is used to recognise the difference between the consideration paid and the historical values of assets and liabilities acquired, between entities under common control. ● 58 50 51 59 ReadyTech Holdings Limited Notes to the financial statements 30 June 2019 Note 26. Equity - reserves (continued) Reorganisation reserve Reorganisation reserve is used to recognise the difference between the consideration paid and the historical values of assets and liabilities acquired, between ReadyTech Holdings Limited and the subsidiaries it acquired. Note 27. Equity - dividends There were no dividends paid, recommended or declared during the current financial year or previous financial period. Note 28. Financial instruments Financial risk management objectives The Group's activities expose it to a variety of financial risks: market risk (including foreign currency risk, price risk and interest rate risk), credit risk and liquidity risk. The Group's overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. The Group uses derivative financial instruments such as forward foreign exchange contracts to hedge certain risk exposures. The Group uses different methods to measure different types of risk to which it is exposed. These methods include sensitivity analysis in the case of interest rate, foreign exchange and other price risks, ageing analysis for credit risk and beta analysis in respect of investment portfolios to determine market risk. Risk management is carried out by senior finance executives ('finance') under policies approved by the Board of Directors ('the Board'). These policies include identification and analysis of the risk exposure of the Group and appropriate procedures, controls and risk limits. Finance identifies, evaluates and hedges financial risks within the Group's operating units. Finance reports to the Board on a monthly basis. Market risk Foreign currency risk The Group undertakes certain transactions denominated in foreign currency and is exposed to foreign currency risk through foreign exchange rate fluctuations. Foreign exchange risk arises from future commercial transactions and recognised financial assets and financial liabilities denominated in a currency that is not the entity's functional currency. The risk is measured using sensitivity analysis and cash flow forecasting. The Group's foreign exchange risk is managed to ensure sufficient funds are available to meet foreign denominated financial commitments in a timely and cost-effective manner. The Group will continually monitor this risk and consider entering into forward foreign exchange, foreign currency swap and foreign currency option contracts if appropriate. Creditors and debtors as at 30 June 2019 and 30 June 2018 were reviewed to assess currency risk at year end. The value of transactions denominated in a currency other than the functional currency of the respective subsidiary was insignificant and therefore the risk was determined as not being significant. Price risk The Group is not exposed to any significant price risk. Interest rate risk The Group's main interest rate risk arises from long-term borrowings. Borrowings obtained at variable rates expose the Group to interest rate risk. 2019 ANNUAL REPORT ReadyTech Holdings Limited Notes to the financial statements 30 June 2019 Note 28. Financial instruments (continued) As at the reporting date, the Group had the following variable rate borrowings and interest rate swap contracts outstanding: Consolidated Borrowings 2019 2018 Weighted average interest rate % Weighted average interest rate % Balance $'000 Balance $'000 4.48% 21,500 5.04% 29,750 Net exposure to cash flow interest rate risk 21,500 29,750 An analysis by remaining contractual maturities in shown in 'liquidity and interest rate risk management' below. For the Group the borrowings outstanding, totalling $21,500,000 (2018: $29,750,000), are principal and interest payment loans. An official increase/decrease in interest rates of 100 (2018: 100) basis points would have an adverse/favourable effect on loss before tax of $22,000 (2018: $30,000) per annum. The percentage change is based on the expected volatility of interest rates using market data and analysts forecasts. Credit risk Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group has a strict code of credit, including obtaining agency credit information, confirming references and setting appropriate credit limits. The Group obtains guarantees where appropriate to mitigate credit risk. The maximum exposure to credit risk at the reporting date to recognised financial assets is the carrying amount, net of any provisions for impairment of those assets, as disclosed in the statement of financial position and notes to the financial statements. The Group does not hold any collateral. The Group has adopted a lifetime expected loss allowance in estimating expected credit losses to trade receivables through the use of a provisions matrix using fixed rates of credit loss provisioning. These provisions are considered representative across all customers of the Group based on recent sales experience, historical collection rates and forward- looking information that is available. Generally, trade receivables are written off when there is no reasonable expectation of recovery. Indicators of this include the failure of a debtor to engage in a repayment plan, no active enforcement activity and a failure to make contractual payments for a period greater than 1 year. Liquidity risk Vigilant liquidity risk management requires the Group to maintain sufficient liquid assets (mainly cash and cash equivalents) and available borrowing facilities to be able to pay debts as and when they become due and payable. The Group manages liquidity risk by maintaining adequate cash reserves and available borrowing facilities by continuously monitoring actual and forecast cash flows and matching the maturity profiles of financial assets and liabilities. 52 53 60 61 ReadyTech Holdings Limited Notes to the financial statements 30 June 2019 Note 28. Financial instruments (continued) Remaining contractual maturities The following tables detail the Group's remaining contractual maturity for its financial instrument liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the financial liabilities are required to be paid. The tables include both interest and principal cash flows disclosed as remaining contractual maturities and therefore these totals may differ from their carrying amount in the statement of financial position. Consolidated - 2019 Non-derivatives Non-interest bearing Trade payables Other payables Interest-bearing - variable Bank loans Lease liability Total non-derivatives Consolidated - 2018 Non-derivatives Non-interest bearing Trade payables Other payables Interest-bearing - variable Borrowings Total non-derivatives Weighted average interest rate % 1 year or less $'000 Between 1 and 2 years $'000 Between 2 and 5 years $'000 Over 5 years $'000 Remaining contractual maturities $'000 - - 4.48% 4.00% 806 1,390 958 543 3,697 - - - - 882 1,653 2,535 21,898 - 21,898 - - - - - 806 1,390 23,738 2,196 28,130 Weighted average interest rate % 1 year or less $'000 Between 1 and 2 years $'000 Between 2 and 5 years $'000 Over 5 years $'000 Remaining contractual maturities $'000 - - 268 1,393 - - 4.82% 4,397 6,058 26,500 26,500 - - - - - - - - 268 1,393 30,897 32,558 The cash flows in the maturity analysis above are not expected to occur significantly earlier than contractually disclosed above. Fair value of financial instruments Unless otherwise stated, the carrying amounts of financial instruments reflect their fair value. Note 29. Fair value measurement Fair value hierarchy The following tables detail the Group's assets and liabilities, measured or disclosed at fair value, using a three level hierarchy, based on the lowest level of input that is significant to the entire fair value measurement, being: Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly Level 3: Unobservable inputs for the asset or liability Consolidated - 2019 Liabilities Contingent consideration Total liabilities Level 1 $'000 Level 2 $'000 Level 3 $'000 Total $'000 - - - - 756 756 756 756 54 2019 ANNUAL REPORT ReadyTech Holdings Limited Notes to the financial statements 30 June 2019 Note 29. Fair value measurement (continued) Consolidated - 2018 Liabilities Contingent consideration Total liabilities Level 1 $'000 Level 2 $'000 Level 3 $'000 Total $'000 - - - - 480 480 480 480 There were no transfers between levels during the financial year. The carrying amounts of trade and other receivables and trade and other payables are assumed to approximate their fair values due to their short-term nature. The fair value of financial liabilities is estimated by discounting the remaining contractual maturities at the current market interest rate that is available for similar financial liabilities. Valuation techniques for fair value measurements categorised within level 2 and level 3 Contingent consideration has been valued using a discounted cash flow model. Level 3 assets and liabilities Movements in level 3 assets and liabilities during the current and previous financial year are set out below: Consolidated Balance at 1 July 2017 Additions Balance at 30 June 2018 Losses recognised in profit or loss Additions Amounts paid Balance at 30 June 2019 Note 30. Remuneration of auditors Contingent consideration $'000 300 180 480 (244) 1,000 (480) 756 During the financial year the following fees were paid or payable for services provided by Deloitte Touche Tohmatsu, the auditor of the company: Audit services - Deloitte Touche Tohmatsu Audit or review of the financial statements Other services - Deloitte Touche Tohmatsu Acquisition related services IPO related services 55 Consolidated 2019 $ 2018 $ 140,000 107,500 95,524 1,269,051 1,364,575 - - - 1,504,575 107,500 62 63 ReadyTech Holdings Limited Notes to the financial statements 30 June 2019 Note 31. Key management personnel disclosures Compensation The aggregate compensation made to directors and other members of key management personnel of the Group is set out below: Short-term employee benefits Post-employment benefits Share-based payments Note 32. Contingent liabilities Consolidated 2019 $ 2018 $ 880,191 78,706 262,740 863,322 75,778 - 1,221,637 939,100 ReadyTech Holdings Limited Notes to the financial statements 30 June 2019 Note 34. Related party transactions (continued) Transactions with related parties The following transactions occurred with related parties: Payment for goods and services: Payment for services from key management personnel Payment for services from other related party 2019 ANNUAL REPORT Consolidated 2019 $ 2018 $ 28,982 - - 401,763 Receivable from and payable to related parties The following balances are outstanding at the reporting date in relation to transactions with related parties: The Group has given bank guarantees as at 30 June 2019 of $472,000 (2018: $338,000). No cash outflows are expected from the bank guarantees given by the Group. Note 33. Commitments Current payables: Trade payables to other related party Consolidated 2019 $ 2018 $ - 406,594 Lease commitments - operating* Committed at the reporting date but not recognised as liabilities, payable: Within one year One to five years Consolidated 2018 $'000 514 1,328 1,842 * Following the adoption of AASB 116 from 1 July 2018, there are no longer any lease commitments at 30 June 2019 reporting date that are not recognised as liabilities. Operating lease commitments includes contracted amounts offices and plant and equipment under non-cancellable operating leases. The leases have various escalation clauses. On renewal, the terms of the leases are renegotiated. Note 34. Related party transactions Parent entity ReadyTech Holdings Limited is the parent entity. Subsidiaries Interests in subsidiaries are set out in note 36. Key management personnel Disclosures relating to key management personnel are set out in note 31 and the remuneration report included in the directors' report. Loans to/from related parties During the financial year ended 30 June 2018, acquisition costs associated with the acquisition of DBL Group Holdings Pty Ltd amounting to $134,541 (excluding GST) were paid by the ultimate controlling entity, Pemba Capital Partners Pty Limited and subsequently recharged to the Group. During the financial year ended 30 June 2018, (refer to note 38), the acquisition of Lirac HoldCo Pty Limited and it controlled entities has been accounted for as a common control transaction, on the basis that the Group and Lirac HoldCo Pty Limited have a common controlling entity, Pemba Capital Partners Pty Limited. Terms and conditions All transactions were made on normal commercial terms and conditions and at market rates. Note 35. Parent entity information Set out below is the supplementary information about the parent entity. Statement of profit or loss and other comprehensive income Loss after income tax Total comprehensive income Parent 2019 $'000 2018 $'000 (1,085) (1,085) - - 56 57 64 65 ReadyTech Holdings Limited Notes to the financial statements 30 June 2019 Note 35. Parent entity information (continued) Statement of financial position Total current assets Total assets Total current liabilities Total liabilities Equity Issued capital Reorganisation reserve Accumulated losses Total equity Parent 2019 $'000 2018 $'000 14,956 29,898 246 246 120,208 (89,471) (1,085) 29,652 - - - - - - - - Guarantees entered into by the parent entity in relation to the debts of its subsidiaries The parent entity had no guarantees in relation to the debts of its subsidiaries as at 30 June 2019. Contingent liabilities The parent entity had no contingent liabilities as at 30 June 2019. Capital commitments - Property, plant and equipment The parent entity had no capital commitments for property, plant and equipment as at 30 June 2019. Significant accounting policies The accounting policies of the parent entity are consistent with those of the Group, as disclosed in note 2, except for the following: ● ● Investments in subsidiaries are accounted for at cost, less any impairment, in the parent entity. Dividends received from subsidiaries are recognised as other income by the parent entity and its receipt may be an indicator of an impairment of the investment. Note 36. Interests in subsidiaries The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the accounting policy described in note 2: Name ReadyTech HoldCo Pty Ltd ReadyTech BidCo Pty Ltd JobReady Tech Pty Ltd Esher House Pty Ltd Thymos Pty Ltd VETtrak Pty Ltd Rtoms Pty Ltd Lirac HoldCo Pty Ltd Lirac BidCo Pty Ltd Australian Payroll Professionals Holdings Pty Ltd HR3 Pty Ltd eLearning Australia Pty Ltd* Principal place of business / Country of incorporation Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia 58 Ownership interest 2018 2019 % % 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% - 2019 ANNUAL REPORT ReadyTech Holdings Limited Notes to the financial statements 30 June 2019 Note 36. Interests in subsidiaries (continued) * Acquired by the Group during the financial year. Refer to note 37. DBL Group Holdings Pty Ltd was acquired by the Group and disposed of by the Group during the financial year ended 30 June 2018. Refer to note 9. Note 37. Business combinations Acquisition of eLearning Australia Pty Ltd ('eLearning') On 12 September 2018, the Group acquired 100% of the ordinary shares eLearning Australia Pty Ltd for total consideration of $2,828,000. eLearning provides software solutions to Australian recognised training organisations through online platforms and mobile applications. Goodwill of $1,517,000 was recognised on acquisition which represents the expected future growth of eLearning. eLearning contributed revenues of $959,000 and profit before tax of $581,000 to the Group for the financial year ended 30 June 2019. Had eLearning been a subsidiary of the Group from 1 July 2018, it would have contributed revenues of $1,212,000 and profit before tax of $753,000 to the Group for the financial year ended 30 June 2019. Details of the acquisition are as follows: Cash and cash equivalents Trade receivables Customer relationships Software Trade and other payables Contract liabilities Provision for income tax Deferred tax liability Employee benefits Net assets acquired Goodwill Acquisition-date fair value of the total consideration transferred Representing: Cash paid or payable to vendor Contingent consideration Acquisition costs expensed to profit or loss Cash used to acquire business, net of cash acquired: Acquisition-date fair value of the total consideration transferred Less: cash and cash equivalents Less: contingent consideration Net cash used 59 $'000 374 29 605 902 (25) (284) (92) (181) (17) 1,311 1,517 2,828 1,828 1,000 2,828 96 2,828 (374) (1,000) 1,454 66 67 2019 ANNUAL REPORT ReadyTech Holdings Limited Notes to the financial statements 30 June 2019 Note 38. Common control transaction ReadyTech Holdings Limited Notes to the financial statements 30 June 2019 Note 39. Deed of cross guarantee (continued) Acquisition of Lirac HoldCo Pty Limited and its controlled entities (common control transaction) On 21 September 2017 the Group acquired 100% of the ordinary shares of Lirac HoldCo Pty Limited and its controlled entities, being Lirac BidCo Pty Limited, Australian Payroll Professionals Holdings Pty Ltd and HR3 Pty Limited (collectively 'Lirac') for total consideration transferred of $17,251,000. Lirac is a technology-led payroll solutions business, with managed services and supporting products. The acquisition of Lirac has been accounted as a common control transaction in accordance with the accounting policy described in note 2. Details of the common control transaction are as follows: By entering into the deed, the wholly-owned entities have been relieved from the requirement to prepare financial statements and directors' report under Corporations Instrument 2016/785 issued by the Australian Securities and Investments Commission. The above companies represent a 'Closed Group' for the purposes of the Corporations Instrument, and as there are no other parties to the deed of cross guarantee that are controlled by ReadyTech Holdings Limited, they also represent the 'Extended Closed Group'. The statement of profit or loss and other comprehensive income and statement of financial position are substantially the same as the Group and therefore have not been separately disclosed. $'000 Note 40. Reconciliation of loss after income tax to net cash from operating activities Cash and cash equivalents Trade receivables Other receivables Prepayments Property, plant and equipment Goodwill Customer relationships Software Trade and other payables Other payables Provision for income tax Deferred tax liability Employee benefits Other provisions Contract liabilities Net assets acquired Representing: ReadyTech HoldCo Pty Ltd shares issued to vendor Common control reserve Note 39. Deed of cross guarantee 1,745 1,131 522 38 140 4,492 4,716 4,177 (890) (4,977) (693) (626) (577) (47) (1,958) 7,193 17,251 (10,058) 7,193 Loss after income tax (expense)/benefit for the year (1,490) (5,201) Consolidated 2019 $'000 2018 $'000 Adjustments for: Depreciation and amortisation Net loss on disposal of non-current assets Share-based payments IPO expenses included in investing activities Change in operating assets and liabilities: Decrease/(increase) in trade and other receivables Increase in deferred tax assets Increase in prepayments Decrease in other operating assets Increase/(decrease) in trade and other payables Increase/(decrease) in contract liabilities Increase/(decrease) in provision for income tax Decrease in deferred tax liabilities Increase in employee benefits Increase in other provisions Decrease in other operating liabilities 8,063 - 425 2,106 (635) (2,851) (262) - 723 (1,019) (2,425) (181) 147 24 (520) 5,885 2,631 - - 651 (532) (142) 39 (4,957) 2,802 1,270 (1,305) 2,673 37 (1,923) Net cash from operating activities 2,105 1,928 The following entities are party to a deed of cross guarantee under which each company guarantees the debts of the others: Note 41. Non-cash investing and financing activities ReadyTech HoldCo Pty Ltd ReadyTech BidCo Pty Ltd JobReady Tech Pty Ltd Esher House Pty Ltd Thymos Pty Ltd VETtrak Pty Ltd Rtoms Pty Ltd Lirac HoldCo Pty Ltd Lirac BidCo Pty Ltd Australian Payroll Professionals Holdings Pty Ltd HR3 Pty Ltd eLearning Australia Pty Ltd Shares issued on acquisition of Lirac HoldCo Pty Limited Shares issued on acquisition DBL Group Holdings Pty Ltd Share issued to KMP Conversion of DC shares to ordinary shares Increase in share capital on reorganisation of the Group Consolidated 2019 $'000 2018 $'000 - - 263 2,991 73,048 17,251 600 - - - 76,302 17,851 60 61 68 69 ReadyTech Holdings Limited Notes to the financial statements 30 June 2019 Note 43. Earnings per share (continued) Earnings per share for loss Loss after income tax attributable to the owners of ReadyTech Holdings Limited 2019 ANNUAL REPORT Consolidated 2019 $'000 2018 $'000 (1,490) (5,201) Number Number Weighted average number of ordinary shares used in calculating basic earnings per share 69,316,495 60,244,971 Weighted average number of ordinary shares used in calculating diluted earnings per share 69,316,495 60,244,971 Basic earnings per share Diluted earnings per share Cents Cents (2.15) (2.15) (8.63) (8.63) The weighted average number of ordinary shares are calculated based on the number of ordinary shares that would have been in existence had the corporate/group reorganisation occurred as at 1 July 2017. Note 44. Events after the reporting period No matter or circumstance has arisen since 30 June 2019 that has significantly affected, or may significantly affect the Group's operations, the results of those operations, or the Group's state of affairs in future financial years. ReadyTech Holdings Limited Notes to the financial statements 30 June 2019 Note 42. Changes in liabilities arising from financing activities Consolidated Balance at 1 July 2017 Net cash from financing activities Balance at 30 June 2018 Net cash used in financing activities Recognition of lease liability on adoption of AASB 16 Additions Balance at 30 June 2019 Note 43. Earnings per share Borrowings Lease liability $'000 $'000 Total $'000 14,600 15,150 29,750 (8,250) - - - - - (512) 1,447 1,261 14,600 15,150 29,750 (8,762) 1,447 1,261 21,500 2,196 23,696 Earnings per share for loss from continuing operations Loss after income tax attributable to the owners of ReadyTech Holdings Limited Consolidated 2019 $'000 2018 $'000 (1,490) (2,321) Number Number Weighted average number of ordinary shares used in calculating basic earnings per share 69,316,495 60,244,971 Weighted average number of ordinary shares used in calculating diluted earnings per share 69,316,495 60,244,971 Basic earnings per share Diluted earnings per share Earnings per share for loss from discontinued operations Loss after income tax attributable to the owners of ReadyTech Holdings Limited Cents Cents (2.15) (2.15) (3.85) (3.85) Consolidated 2019 $'000 2018 $'000 - (2,880) Number Number Weighted average number of ordinary shares used in calculating basic earnings per share 69,316,495 60,244,971 Weighted average number of ordinary shares used in calculating diluted earnings per share 69,316,495 60,244,971 Basic earnings per share Diluted earnings per share Cents Cents - - (4.78) (4.78) 62 63 70 71 ReadyTech Holdings Limited Directors' declaration 30 June 2019 In the directors' opinion: ● ● ● ● ● the attached financial statements and notes comply with the Corporations Act 2001, the Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; the attached financial statements and notes comply with International Financial Reporting Standards as issued by the International Accounting Standards Board as described in note 2 to the financial statements; the attached financial statements and notes give a true and fair view of the Group's financial position as at 30 June 2019 and of its performance for the financial year ended on that date; 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 at the date of this declaration, there are reasonable grounds to believe that the members of the Extended Closed Group 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 39 to the financial statements. The directors have been given the declarations required by section 295A of the Corporations Act 2001. Signed in accordance with a resolution of directors made pursuant to section 295(5)(a) of the Corporations Act 2001. On behalf of the directors ___________________________ Tony Faure Director 22 August 2019 Sydney Independent Auditor’s Report 30 June 2019 Deloitte Touche Tohmatsu ABN 74 490 121 060 Grosvenor Place 225 George Street Sydney, NSW, 2000 Australia Phone: +61 2 9322 7000 www.deloitte.com.au Independent Auditor’s Report to the directors of ReadyTech Holdings Limited Opinion We have audited the financial report of ReadyTech Holdings Limited (the “Company”) and its subsidiaries (the “Group”) which comprises the consolidated statement of financial position as at 30 June 2019, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies and other explanatory information, and the directors’ declaration. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Group’s financial position as at 30 June 2019 and of its financial performance for the year then ended; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Company, would be in the same terms if given to the directors as at the time of this auditor’s report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report for the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. 72 73 64 Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Asia Pacific Limited and the Deloitte Network. 65 Key Audit Matter How the scope of our audit responded to the Key Audit Matter Accounting for capital raising costs Our procedures included, but were not limited to: As disclosed in Note 2, on 16 April 2019 the Company completed an initial public offering (“IPO”) and became listed on the Australian Stock Exchange (“ASX”). As part of the IPO process, the Group incurred $8.1 million of costs. • Assessing and challenging management’s determination of costs that are incremental and directly attributable to the cost of raising new capital; • On a sample basis, agreeing costs of capital raising to supporting documentation; and Significant judgment is applied in determining which costs are incremental and directly attributable to the cost of raising new capital. • Assessing the appropriateness of the allocation basis between costs recognised as an expense in the profit and loss and the costs recorded in equity. As at 30 June 2019 the Group has recorded $1.75 million of the capital raising costs directly against issued capital. This is presented net of a deferred tax asset of $0.53 million. We also assessed the appropriateness of the disclosures in Note 7 and Note 25 to the financial statements. Revenue recognition Our procedures included, but were not limited to: As at 30 June 2019 the Group has reported revenue of $32.71 million from continuing operations. The statement of financial position shows contract liabilities of $11.27 million as disclosed in notes 5, 16, and 21. Significant judgment is involved in applying Accounting Standard AASB 15 “Revenue from Contracts with Customers” in determining how the Group satisfies a performance obligation and how the revenue should be recognised. Furthermore, as the calculation of revenue and contract liabilities is predominantly manual in nature there is increased risk of calculation error. • Assessing the revenue recognition policy against the requirements of AASB 15; • Obtaining and understanding of the process management uses to record revenue and contract liabilities; • Understanding the revenue cycle and evaluating the controls over cycle processes; • Obtaining the revenue and deferred revenue schedules prepared by management and assessing the reconciliation of the amounts recorded to the control accounts in the general ledger; • • Agreeing the revenue and contract liabilities to supporting documentation including customer contracts and cash receipts on a sample basis; and Performing an independent recalculation of the expected revenue and contract liabilities to be recognised during the year and comparing it to calculations performed by management. We also assessed the appropriateness of the disclosures in Note 2, Note 5, Note 16 and Note 21 to the financial statements. Other Information The directors are responsible for the other information. The other information comprises the information included in the Company’s annual report for the year ended 30 June 2019, but does not include the financial report and our auditor’s report thereon. 2019 ANNUAL REPORT Our opinion on the financial report does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Directors for the Financial Report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: • • • • • Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation. 74 75 66 67 • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial report. We are responsible for the direction, supervision and performance of the Group’s audit. We remain solely responsible for our audit opinion. We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the financial report of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 9 to 14 of the Directors’ Report for the year ended 30 June 2019. In our opinion, the Remuneration Report of ReadyTech Holdings Limited, for the year ended 30 June 2019, complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. DELOITTE TOUCHE TOHMATSU Joshua Tanchel Partner Chartered Accountants Sydney, 22 August 2019 2019 ANNUAL REPORT ReadyTech Holdings Limited Shareholder information 30 June 2019 Voting rights Ordinary shares: On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote. There are no other classes of equity securities. Distribution of equity securities Analysis of number of equity security holders by size of holding: Range 1 to 1,000 1,001 to 5,000 5,001 to 10,000 10,001 to 100,000 100,001 and over Total number of security holders Number of holders 83 305 312 500 36 1,236 % of holders 6.72 24.68 25.24 40.45 2.91 100.00 Number of securities 48,743 918,124 2,423,247 12,852,131 63,763,122 80,005,367 % of securities 0.06 1.15 3.03 16.06 79.70 100.000 Holders holding less than a marketable parcel of shares* 25 2.06 6,507 0.02 *marketable parcel of shares calculated based on closing market price on 5 August 2019 of $1.550 Restricted securities 45,087,673 Shares (Escrowed Shares) are subject to voluntary escrow arrangements. Of the 45,087,673 Shares subject to voluntary escrow arrangements, 39,838,457 are subject to the following escrow restrictions: - - 50% of these Escrowed Shares will be released on the date on which ReadyTech announces its results for the half year ending 31 December 2019 to the market; and the remaining 50% of these Escrowed Shares (Second Tranche Escrowed Shares) will be released on the date on which ReadyTech announces its results for the half year ending 31 December 2020 to the market, provided that during the escrow period, the holder may deal in any of its Escrowed Shares if the dealing constitutes a dealing involving the disposal (in one or more transactions) of the Second Tranche Escrowed Shares if: - - ReadyTech's results for the financial year ending 30 June 2020 have been released to the market; and thereafter, the price of ReadyTech's Shares as traded on ASX has traded at 30% or more of the Offer Price for 20 consecutive trading days. The remaining 5,249,216 of the Escrowed Shares are escrowed until the date on which ReadyTech announces its results for the half year ending 31 December 2019 to the market. On-market buy back There is no current on-market buy back. Total of quoted restricted securities Ordinary shares not subject to voluntary escrow (quoted securities) Ordinary shares subject to voluntary escrow (restricted securities) Total number of shares Unquoted securities There are no unquoted securities currently on issue. 69 34,917,694 45,087,673 80,005,367 76 77 68 ReadyTech Holdings Limited Shareholder information 30 June 2019 Twenty largest quoted equity security holders No. Shareholder PEMBA CAPITAL PARTNERS FUND I GP PTY LTD 1 NATIONAL NOMINEES LIMITED 2 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED 3 J P MORGAN NOMINEES AUSTRALIA PTY LIMITED 4 MARC RAYMOND WASHBOURNE 5 DARREN COPPIN 6 BNP PARIBAS NOMINEES PTY LTD 7 MALVERN AVENUE MANAGEMENT PTY LTD 8 SYCAMORE MANAGEMENT PTY LTD 8 WASHBOURNE GROUP PTY LTD 9 ANKSH PTY LTD 10 PEMBA CAPITAL PARTNERS PTY LTD 11 SARGON CT PTY LTD 12 13 AMP LIFE LIMITED 14 MARISH PTY LTD 15 MR BRETT DAVID GOODRICH NIMESH SHAH 16 PEMBA CAPITAL PARTNERS PTY LTD 17 CAZRIA PTY LTD 18 TREVOR FAIRWEATHER 19 20 TONY JONES Top 20 holders of Shares Balance of Shares Total Shares on issue Substantial holders Number of shares 33,294,212 6,455,280 3,400,822 2,869,007 2,861,363 1,592,419 1,430,065 1,300,190 1,300,190 1,147,051 860,288 841,731 719,536 688,475 659,717 504,910 430,144 403,668 331,125 261,000 208,771 61,559,964 18,445,403 80,005,367 % of issued equity 41.61 8.07 4.25 3.59 3.58 1.99 1.79 1.63 1.63 1.43 1.08 1.05 0.90 0.86 0.82 0.63 0.54 0.50 0.41 0.33 0.26 76.94 23.06 100.00 Shareholder Deutsche Bank AG and its related bodies corporate (together the “Deutsche Bank Group”) Wilson Advisory and Stockbroking Limited ReadyTech Holdings Limited The Washbourne Entities2 The Pemba Entities3 1 Percentage of issued equity held as disclosed in the substantial holding notices provided to the Company. 23 April 2019 18 April 2019 18 April 2019 18 April 2019 Date of notice 24 April 2019 Number of shares 5,333,019 5,126,893 45,087,673 4,008,415 34,539,611 % of issued equity1 6.67% 6.41% 56.40% 5.00% 43.2% 2 Marc Raymond Washbourne and Washbourne Group Pty Limited CAN 627 033 363 as trustee of the Washbourne Familty Trust (together, the Washbourne Entities) 3 Pemba Capital Partners Fund I Partnership LP, Pemba Capital Partners Pty Limited ACN 121 906 045 as trustee of The Pemba Capital Co-Investment Trust and Pemba Capital Partners Pty Ltd ACN 121 906 045 as trustee of The Lirac Trust (together, the Pemba Entities) 2019 ANNUAL REPORT WE’RE READY 78 70 33 ANNUAL REPORT 2019 READYTECH HOLDINGS LIMITED ABN 25 632 137 216 

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