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Annual Report 2020

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ReadyTech Holdings Limited ABN 25 632 137 216 21 October 2020 2020 Annual Report – Typeset version ReadyTech Holdings Limited (ASX: RDY) attaches a typeset version of the 2020 Annual Report. There have been no changes to the version lodged with ASX on 26 August 2020, other than typesetting. Yours sincerely, Nimesh Shah Chief Financial Officer & Company Secretary ReadyTech Holdings Limited FY20 ANNUAL REPORT READYTECH HOLDINGS LIMITED ABN 25 632 137 216 - 30 JUNE 2020 1 CONTENTS Chairman’s letter Chief Executive Officer’s letter 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 8 14 17 29 30 31 32 33 34 75 76 81 NEXT GENERATION SAAS PEOPLE CENTRIC SOFTWARE 2 3 Dear Shareholder, ReadyTech Holdings Limited completed its first full year as an ASX-listed entity at the close of FY20. During what are unarguably unprecedented times for global and local economies, as well as for the businesses, investors and individuals that are their lifeblood, I’m pleased to introduce an Annual Report that reflects ReadyTech’s status as a mission-critical partner for those customers who rely on its technology to conduct the essential tasks of running their businesses and operations. As I noted in last year’s Annual Report, ReadyTech is a provider of people management software, primarily for Australian education providers and employers. Positioned at the core of these sectors, software like ReadyTech’s offerings in student management and payroll make it a key enabler in the conduct of fundamental tasks, from compliance in education, to the payment of employees in the employment segment. This provides ReadyTech with inherent resilience. Combined with an enterprise strategy focused on growing its footprint into higher value markets while retaining and adding value to existing customers, ReadyTech’s management team have been able to deliver on investor expectations during what is more broadly a challenging time. In line with previous FY20 guidance, ReadyTech today reports revenue growth of 19.1% to $39.3 million, a 21.5% increase in underlying EBITDA to $15.6 million, and a 63.9% increase in underlying NPAT to $3.6 million excluding the impact of non-recurring costs. Current economic conditions bring about significant opportunities for the technology sector, and for ReadyTech. With the immediate requirement for educators and employers to reassess and optimise the way they interact with students and employees, and an acceleration of digital transformation initiatives, ReadyTech is in a strong position to be their partner of choice as they undertake digital initiatives designed to support their growth and success into the future. This will require innovative thinking and the ability to adapt, both of which ReadyTech is well-equipped for. I and the Board would like to thank investors for their continued support. ReadyTech’s management team, headed by CEO Marc Washbourne, have been investing for many years in SaaS designed to help industries remain agile through times of change. This is now being repaid in its ability to meet the fast-changing customer needs presented by a new economic environment, and a new decade. I look forward to working with you all on our shared journey into the future of work, as ReadyTech enables its mission of becoming a world-class technology company through customer success. Yours sincerely, Chairman’s letter TONY FAURE 4 5 Whether it is managing compliance reporting in the education sector, or paying employees using our workforce solutions software, we operate from a foundational position at the very core of our customers’ everyday business operations We are a ‘must-have’, not a ‘nice-to-have’. PERFORMANCE HIGHLIGHTS FY20 > REVENUE 19.1% TO $39.3m UNDERLYING EBITDA* 21.5% TO $15.6m OPERATING CASH FLOW 18.4% TO $14.8m CLTV to CAC RATIO 1.5x TO 8.4X; CLTV OF $64K ARPC 18% TO $10.5k 6 7 YoY Comparisons to FY19, > Organic revenue growth of 10%, * Underlying results exclude the impact of non-recurring costs of $0.6M Dear Shareholder, There is no doubt 2020 has been a year like no other we can remember. For many businesses and investors in Australia, and indeed around the world, it has brought about significant disruption and change. Whether that be entire workforces working from home, or businesses being asked to think differently about the ways they’ve operated in the past – or even about some new opportunities that are arising – we’ve all had to undertake adaptation amidst change, and do so at a fast pace. I’m pleased to report ReadyTech has remained robust and resilient throughout this period. For over 20 years, we have delivered non-negotiable software solutions that our customers rely on to perform mission-critical functions within their businesses. Whether that is managing compliance reporting in the education sector, or paying employees using our workforce solutions software, we operate from a foundational position that sits at the very core of our customers’ everyday business operations. Much of what we offer is a ‘must-have’, not a ‘nice-to-have’. This allows us to hold strong during challenging times while continually offering new value through innovation. As a result in FY20, ReadyTech is pleased to report that we have continued to deliver sustainable growth. This includes underlying revenue growth of 19.1% to $39.3 million, an underlying Net Profit After Tax (‘NPAT’) of $3.6 million, up 63.9%, and the maintenance of our characteristically high client retention rate of 95%. As a result of strong investment over many years, ReadyTech has now built a cohesive suite of next generation SaaS solutions in our key verticals that are valued by 4,000+ customers for helping them stay nimble through change, for being a joy to use, and for putting their needs first and foremost. During the year, although we could never have expected the conditions encountered in 2020, we’ve found ourselves in a position of being ready for change - and being able to help our customers navigate that too. FY20 results update ReadyTech experienced strong top line growth in FY20, translating into growing earnings and cash flow. As mentioned previously, in FY20 the combination of new client wins and cross-selling to existing customers underpinned 19.1% growth in revenue to $39.3 million. Within this, subscription and license revenue grew 18.2%, and comprised 89% of total revenue. ReadyTech’s cloud-based SaaS offering has demonstrated its scalability and strong operating leverage, with earnings continuing to grow faster than revenue, up 21.5% to $15.6 million. This highlights the scalable nature of SaaS student and workforce management platforms as more clients seek to replace their legacy vendors with ReadyTech’s leading-edge, cloud-based offerings. While operating expenses were up 17.9% to $23.7 million, this reflects additional investment in employment costs as additional sales and technology related talent is added to the ReadyTech team to underpin future growth. CEO MARC WASHBOURBNE 8 9 Product & strategy ReadyTech continues to pursue a highly customer-centric SaaS strategy in the industries in which we operate. Backed by avshared platform of capability for best practice SaaS that can be applied across all our industry verticals, we’ve been successful in our aim of attracting new and higher value customers in our core segments while retaining and increasingvrevenue from existing customers. Our key product differentiators - our agility, usability and customer-centricity - are seeingvus displace less flexible legacy technology and generate a pipeline of new, higher value business. Enterprise customers FY20 was a record year for new business across ReadyTech. In line with our strategy, we experienced strong demand for our next generation SaaS offerings at an enterprise level, evidenced by our breakthrough TAFE contract with Bendigo Kangan Institute (‘BKI’) in Victoria who selected our Student Management System, JR Plus, as the preferred technology for their student journey digital transformation project. Worth $7m including a 5-year software subscription, we expect this validation to lead to significant growth in both the TAFE and the broader enterprise education market. The strategic acquisition of New Zealand-based workforce management platform Zambion has also allowed us to attract larger customers and attract strong new badges in the employment segment during the second half. With a very advanced, mobile and cloud-based workforce management capability now unified as part of our HR3+ payroll and workforce management proposition across both Australia and New Zealand, we are experiencing and expect further interest from higher value customers in this segment. Customer retention ReadyTech’s formidable customer retention record continued in FY20, with a client retention rate maintained at 95%. The strong customer satisfaction and intimacy we maintain has allowed us to continue to grow our customer usage through product upsell and adoption, leading to ARPC growth of 18%. This was complemented by strong cross-sell across our product suite, with particular success offering our behavioural science-backed assessment and predictive analytics technology into the education and apprenticeships markets to support graduation and completion outcomes. Future retention is underpinned by our understanding of customer businesses, their participation in our development roadmap and investment in our customer success framework. Research & Development Investment in R&D was maintained at over $11m in FY20. With a key focus on improving usability and ensuring our platforms are an even better market fit for enterprise-level customers, ReadyTech released well received new modules including digital credentials for education and automated workflows for employment. Our agile development process remains highly responsive to changing customer needs (never more important than during COVID-19) and we expect continued commitment to R&D will be essential in supporting sustainable growth across our business into the future.  M&A The strategic acquisition of Zambion and WageLink in FY20 demonstrated ReadyTech’s ability to buy and successfully integrate complementary capability and companies. Where such businesses have been diligently de-risked and can be plugged into our shared platform of best practice capability, our expertise means that we are in a strong position to help them to the next stages of accelerated growth. ReadyTech maintains a strong pipeline of future M&A opportunities and remains open to opportunities in the current COVID-19 environment that might not otherwise present themselves. Talent and culture ReadyTech continues to invest in new talent across the organisation. Most notably, we recently welcomed senior hire James Diamond into a brand new role as Chief Executive, Education to lead growth and development in this segment. With a very strong background in high growth SaaS and enterprise sales, we expect James to play a key role alongside our Chief Executive of Workforce Solutions, Daniel Wyner, in realising ReadyTech’s ambitions for enterprise customer growth. Other new additions including new sales and marketing roles that will underpin our brand and this future sales pipeline. The benefit of our commitment to people and culture has never been clearer than during COVID-19. Since we transitioned in just 24 hours to a ‘work-from-home’ operational model, our team has adopted a business-as-usual approach, remaining highly productive and purposeful while ensuring our projects and sales pipelines are successfully managed remotely. Our team of ‘ReadyTechers’ have displayed inspirational dedication to our customers, including managing the seamless remote conduct of key enterprise projects with Bendigo Kangan Institute and University of Queensland. Navigating COVID-19 ReadyTech entered the COVID-19 environment from a position of strength. With SaaS offerings in markets synonymous with sticky, ‘rusted-on’ customers, our business is characterised by long customer tenures, high levels of recurring revenue and low levels of churn, making it resilient and defensive in nature. In education, international students account for only 3% of students serviced. ReadyTech has broadly maintained customer spend during this challenging economic period while benefitting in new areas of opportunity such as the adoption of technology to support remote work and delivery (including online learning and assessment) and accelerated sales processes. We’ve seen growing momentum in the Back-to-Work sector and are playing a key role in supporting increasing Jobseeker caseloads. Rapid response initiatives such as our ‘Remote Control’ customer content hub to support remote delivery and servicing, as well as the deployment of support for JobKeeper in payroll has deepened customer loyalty and trust in ReadyTech’s team and brand. As a result, we’ve remained on the front foot during COVID-19. As previously mentioned, we are hiring additional resources to underpin our next wave of growth and are pleased to have not stood down or reduced hours for any employees due to COVID-19. 10 11 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) There were no dividends paid, recommended or declared during the current financial 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 ●• Employment - provider of payroll and employee management solutions from cloud- based technology to outsourcing of human resource function. Principal activities providers; and Dividends year or previous financial period. Review of operations June 2018: $5,201,000). expenses were $13,140,990. of $21.5 million, and $6.0 million. Outlook ReadyTech expects strong opportunities for continued growth across education and employment verticals in the year ahead, despite the challenges presented to the economy by the direct and indirect impacts of COVID-19. In fact, despite the impact of COVID-19 in Q4 FY20, ReadyTech has responded well with sales volume growth of 55% in Q4. The strong pipeline we have in place, combined with forward visibility of sales and revenues, gives the Board confidence to provide financial guidance for FY21, with our expected revenue percentage growth in the mid-teens and an EBITDA margin in the range of 37%-39% (inclusive of LTIP). There is a strong requirement for agile technology to support the education, training and employment journey, with rising demand for learning, upskilling, reskilling and the realisation of employment outcomes across Australia now a key plank of economic recovery. This is evidenced by the policy response, with Federal and State Governments through the JobTrainer program set to invest an extra $2.5bn in training, including the creation of 340,000 training places which will benefit many ReadyTech Holdings Limited Chief Executive Officer's letter 30 June 2020 content hub to support remote delivery and servicing, as well as the deployment of support for JobKeeper in payroll has deepened customer loyalty and trust in ReadyTech’s team and brand. As a result, we’ve remained on the front foot during COVID-19. As previously mentioned, we are hiring additional resources to underpin our next wave of growth and are pleased to have not stood down or reduced hours for any employees due to COVID-19. ReadyTech customers. Overall, we believe COVID-19 has exposed the inflexibility of many existing systems, and with a momentum for digital transformation and change we expect benefits for ReadyTech’s more refreshing next generation systems in the long-term. Outlook ReadyTech expects strong opportunities for continued growth across education and employment verticals in the year ahead, despite the challenges presented to the economy by the direct and indirect impacts of COVID-19. In fact, despite the impact The future of (our) work of COVID-19 in Q4 FY20, ReadyTech has responded well with sales volume growth of 55% in Q4. The strong pipeline we have in place, combined with forward visibility of sales and revenues, gives the Board confidence to provide financial I would like to thank shareholders for their continued support during FY20. While this may guidance for FY21, with our expected revenue percentage growth in the mid-teens and an EBITDA margin in the range of be an unprecedented and challenging time for many, I would like to finish by assuring 37%-39% (inclusive of LTIP). you that your investment in ReadyTech is an investment in technology that supports There is a strong requirement for agile technology to support the education, training and employment journey, with rising demand for learning, upskilling, reskilling and the realisation of employment outcomes across Australia now a key plank of the aspirational journey of individuals through learning and work, a contribution that economic recovery. This is evidenced by the policy response, with Federal and State Governments through the JobTrainer pays off for our community well beyond dollars and cents. Across our systems each program set to invest an extra $2.5bn in training, including the creation of 340,000 training places which will benefit many ReadyTech customers. day, ReadyTech supports the management and development of students learning with their hands and their minds, in trades, in vocational education, and in higher education. Overall, we believe COVID-19 has exposed the inflexibility of many existing systems, and with a momentum for digital transformation and change we expect benefits for ReadyTech’s more refreshing next generation systems in the long-term. We enable Australian employers to pay their employees on time, every time, as those employees seek to provide for their families. We assist governments, as they seek to roll out new workforce policy programs at scale and at speed. We back employment services providers as they help transition job seekers through the trials of job seeking into the dignity of paid employment. The future of (our) work I would like to thank shareholders for their continued support during FY20. While this may be an unprecedented and challenging time for many, I would like to finish by assuring you that your investment in ReadyTech is an investment in technology that supports the aspirational journey of individuals through learning and work, a contribution that pays off for our community well beyond dollars and cents. Across our systems each day, ReadyTech supports the management and development of students learning with their hands and their minds, in trades, in vocational education, and in higher education. We enable Australian employers to pay their We feel privileged in these times to be such a part of the fabric of the economy and employees on time, every time, as those employees seek to provide for their families. We assist governments, as they seek to roll out new workforce policy programs at scale and at speed. We back employment services providers as they help individual aspiration, and we look forward to working with you through FY21 and beyond transition job seekers through the trials of job seeking into the dignity of paid employment. to ensure our customers are ready for the future of work. We feel privileged in these times to be such a part of the fabric of the economy and individual aspiration, and we look forward to working with you through FY21 and beyond to ensure our customers are ready for the future of work. The loss for the Group after providing for income tax amounted to $1,490,000 (30 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 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 • Facility B: A fully committed three year revolving multi-option working capital facility of 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 Yours sincerely, Yours sincerely, 10 ___________________________ Marc Washbourne Chief Executive Officer 26 August 2020 Sydney 12 5 11 13 #imareadytecher ReadyTech Holdings Limited Appendix 4E Preliminary final report 1. Company details Name of entity: ABN: Reporting period: Previous period: ReadyTech Holdings Limited 25 632 137 216 For the year ended 30 June 2020 For the year ended 30 June 2019 2. Results for announcement to the market ReadyTech Holdings Limited Appendix 4E Preliminary final report 6. Dividends Current period There were no dividends paid, recommended or declared during the current financial period. Previous period There were no dividends paid, recommended or declared during the previous financial period. $'000 Not applicable. 7. Dividend reinvestment plans Revenues from ordinary activities Profit from ordinary activities after tax attributable to the owners of ReadyTech Holdings Limited Profit for the year attributable to the owners of ReadyTech Holdings Limited up up up 20.0% to 39,254 364.6% to 364.6% to 3,943 3,943 8. Details of associates and joint venture entities Not applicable. 9. Foreign entities Dividends There were no dividends paid, recommended or declared during the current financial period. Details of origin of accounting standards used in compiling the report: Comments The profit for the Group after providing for income tax amounted to $3,943,000 (30 June 2019: loss of $1,490,000). Not applicable. Refer to the Chief Executive Officer's letter and the 'Review of operations' in the Directors' report for further commentary and analysis on the results. 10. Audit qualification or review Details of audit/review dispute or qualification (if any): 3. Net tangible assets The financial statements have been audited and an unqualified opinion has been issued. Reporting period Cents Previous period Cents (36.52) (29.45) 11. Attachments Details of attachments (if any): Net tangible assets per ordinary security 4. Control gained over entities Name of entities (or group of entities) WageLink Australia Pty Ltd; Zambion Limited and its controlled entities Date control gained 9 October 2019 Contribution of such entities to the reporting entity's profit/(loss) from ordinary activities before income tax during the period (where material) Profit/(loss) from ordinary activities before income tax of the controlled entity (or group of entities) for the whole of the previous period (where material) $'000 287 - 5. Loss of control over entities Not applicable. 14 The Annual Report of ReadyTech Holdings Limited for the year ended 30 June 2020 is attached. 12. Signed As authorised by the Board of Directors Signed ___________________________ Date: 26 August 2020 Tony Faure Chairman Sydney 15 2020 READYTECH ANNUAL REPORT2020 READYTECH ANNUAL REPORT ReadyTech Holdings Limited Corporate directory 30 June 2020 Directors Company secretaries Registered office Principal place of business Share register Auditor 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 - Non-Executive Director Mark Summerhayes - alternate Non-Executive Director to Tom Matthews Nimesh Shah Melissa Jones William Hundy 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 Stock exchange listing ReadyTech Holdings Limited shares are listed on the Australian Securities Exchange (ASX code: RDY) Website www.readytech.com.au Business objectives ReadyTech Holdings Limited has used cash and cash equivalents held at the time of listing, in a way consistent with its stated business objectives. Corporate Governance Statement 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 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 at https://investors.readytech.com.au 16 6 ReadyTech Holdings Limited Directors' report 30 June 2020 The Directors present their report, together with the financial statements, on the consolidated entity ('Group' or 'ReadyTech') consisting of ReadyTech Holdings Limited ('Company' or 'parent entity') and the entities it controlled for the year ended 30 June 2020. 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 Marc Washbourne - Chief Executive Officer Elizabeth Crouch - Non-Executive Director Timothy Ebbeck - Non-Executive Director Tom Matthews - Non-Executive Director 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 ● Workforce Solutions (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 ReadyTech Holdings Limited (ASX: RDY), a leading provider of SaaS technology in workforce solutions (employment) and education, is pleased to announce its results for the 12 months ended 30 June 2020 ('FY20'), that saw the Group achieve strong growth and performance across all of its key financial metrics. ReadyTech’s operating strategy and business continuity planning has helped the Group navigate the current COVID-19- impacted operating environment, while positioning the business to further grow revenues and earnings through FY21. The statutory net profit after tax ('NPAT') increased by 364.6% to $3.9 million. Commenting on the FY20 results, ReadyTech CEO Marc Washbourne said: “FY20 has clearly shown the mission-critical nature of ReadyTech’s technology, which is supporting our customers through COVID-19 with next generation SaaS solutions. The continued growth achieved reflects the exceptional agility and dedication of the entire ReadyTech team. Importantly, growing operating cashflow, debt headroom, low gearing and a strong balance sheet support our investment in technological innovation and growing our team to deliver on the exciting opportunities we see.” Strong top line growth translated to growing earnings and cashflows Over FY20, the combination of new client wins and cross-selling to existing clients underpinned 20% growth in revenue to $39.3 million. Within this, subscription and license revenue grew 18.2%, and comprised 89% of total revenue. With multiple attractive growth runways available, ReadyTech increased its investment in technology innovation and people to underpin future growth. Operating expenses were up 17.9% to $23.7 million reflecting additional employment costs as additional sales and technology related talent was added to the ReadyTech team. One strong investment, James Diamond was appointed into the newly created role of Chief Executive, Education, to lead sales and marketing as well as the team responsible for ReadyTech’s education technology solutions. ReadyTech’s cloud-based SaaS offering demonstrated its scalability and strong operating leverage, with earnings continuing to grow faster than revenue, up 21.5% to $15.6 million. This highlights the scalable nature of SaaS student and workforce management platforms as more clients seek to replace their legacy vendors with ReadyTech’s flexible, cloud- based offerings. Client growth and uptake of new modules underpins growth in Education Education revenue was up 6.6% to $21.3 million reflecting client growth and uptake of new modules by existing clients for remote student serviceability during COVID-19. 7 17 2020 READYTECH ANNUAL REPORT2020 READYTECH ANNUAL REPORT ReadyTech Holdings Limited Directors' report 30 June 2020 ReadyTech Holdings Limited Directors' report 30 June 2020 A landmark enterprise contract with Bendigo TAFE & Kangan Institute was signed in January 2020. The implementation of this $7 million 5-year subscription contract for over 40,000 students is well underway, with the project being successfully managed remotely given COVID-19 restrictions. “ReadyTech has experienced growing momentum in the Back-to-Work and Skills sectors, where clients are supporting job seekers with self-service support and job search to get back into the workforce. The rapid increase in job seeker caseloads and the increased support ReadyTech is providing to this segment of the market is especially pleasing,” said Mr Washbourne. Rapid growth in Workforce Solutions (Employment) Despite the challenging operating conditions due to COVID-19, Workforce Solutions (Employment) revenue was up 37.9% to $17.9 million reflecting platform capabilities to manage compliance requirements and remote staff management. Existing customer spend has increased driven by additional module uptake. The complementary acquisitions of Zambion and WageLink are performing well. Following the successful integration into an all-in-one workforce management platform, HR3+, ReadyTech is gaining market share from legacy platform and enhancing trust from new blue-chip clients, including Glassons, dnata and Bed Bath & Beyond. Positive outlook for continued growth in FY21 Commenting on ReadyTech’s outlook, Mr Washbourne said: “We expect strong growth across education and employment verticals, as there is strong demand for agile technology to support the upskilling and reskilling of our workforce in Australia, a key plank of economic recovery. This is evidenced by the policy response from Federal and State Governments, including the JobTrainer program which is set to commit over $2 billion in funding to support apprenticeships and create 340,000 new training places that will benefit many ReadyTech customers. “Despite the impact of COVID-19 on the Australian economy in Q4 FY20, our business has responded well with FY20 Q4 new business up 55% compared to FY19 Q4. While COVID-19 has impacted the operating environment and created much uncertainty, we are seeing positive customer trends as the need to more effectively and efficiently remote manage employees and students has become critical. We believe these trends will gain momentum in FY21 and support further growth." “The strong pipeline we have in place, combined with forward visibility of sales and revenues, gives the Board confidence to provide guidance for FY21, with the Group expected to deliver revenue growth in the mid-teens in terms of percentage growth, with an EBITDA margin in the range of 37%-39% (inclusive of LTIP).” Significant changes in the state of affairs On 9 October 2019, the Group acquired 100% of the ordinary shares in WageLink Australia Pty Limited ('WageLink') and Zambion Limited and its controlled entities ('Zambion') for total consideration of $1,550,000 and $10,317,000 respectively. WageLink provides a range of payroll management services for small to medium sized businesses whilst Zambion provides web and app based payroll, HR, time and attendance, leave management system for small to medium sized businesses to manage their workforce. 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 The impact of the Coronavirus (COVID-19) pandemic is ongoing and it is not practicable to estimate the potential impact, positive or negative, after the reporting date. The situation is rapidly developing and is dependent on measures imposed by the Australian Government and other countries, such as maintaining social distancing requirements, quarantine, travel restrictions and any economic stimulus that may be provided. Education ReadyTech’s cloud-based software for managing people has proven to be resilient through the COVID-19 environment, with high recurring revenues of approximately 89% and low churn. In addition, ReadyTech has low exposure to the international student segment, accounting for only 3% of total students serviced by our Student Management System platforms. ReadyTech has also experienced growing momentum in the Back-to-Work sector, where clients are supporting job seekers with self-service support and job search to get back into the workforce. The rapid increase in JobSeeker caseloads and the increased support ReadyTech is providing to this segment of the market is positive. Workforce Solutions (Employment) ReadyTech’s workforce solutions platforms are at the heart of employer systems. The significant changes to compliance requirements in 2020 that affect awards, annualised salaries, single touch payroll and now the complexity of managing JobKeeper payments, are all standard capabilities of the software platform. No other matter or circumstance has arisen since 30 June 2020 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 administration, 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. Environmental regulation The Group is not subject to any significant environmental regulation under Australian Commonwealth or State law. Information on Directors Name: Title: Qualifications: Experience and expertise: Tony Faure Independent Non-Executive Chairman Tony holds a Bachelor of Economics (hons) from the University of Sussex. Tony is a deeply experienced business leader with a career history that includes advising some of Australia’s leading technology and digital media companies. Other current directorships: Former directorships (last 3 years): Stackla, Medical Media. Special responsibilities: Interests in shares: Name: Title: Qualifications: Experience and expertise: A former CEO of both ninemsn and HomeScreen Entertainment, Tony was the launch Managing Director of Yahoo! Australia & NZ between 1997 and 2001. He is a respected board member and has previously been a 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. Chairman of oOh!media Ltd (ASX: OML), Uno Homeloans, PredictHQ Limited Member of the Audit and Risk Committee and Remuneration and Nomination Committee 224,818 ordinary shares Marc Washbourne Chief Executive Officer Marc achieved a first-class in History from the University of Leeds, UK. Marc Washbourne is a founder of the ReadyTech business and was appointed CEO in 2006. A former software developer and original architect of JobReady, Marc brings to ReadyTech over 20 years of experience in technology and software solutions within the education and employment industries. Marc now heads up a global team of 200 people committed to the innovation and better technology for over 4,000 customers. Marc couples his strong technical background with a strategic vision for ReadyTech’s Software-as-a-Service ('SaaS') products and underpinning best practice approaches shared across the platforms. Other current directorships: None Former directorships (last 3 years): None None Special responsibilities: 4,008,414 ordinary shares Interests in shares: 18 8 9 19 2020 READYTECH ANNUAL REPORT2020 READYTECH ANNUAL REPORT ReadyTech Holdings Limited Directors' report 30 June 2020 Name: Title: Qualifications: Experience and expertise: Elizabeth Crouch AM Independent Non-Executive Director Elizabeth holds a Bachelor of Economics and will complete a Master of Cyber Security in 2020. She is a Fellow of the Australian Institute of Company Directors. 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. Elizabeth is the Emeritus Deputy Chancellor of Macquarie University and held previous non-executive Director roles with Chandler Macleod Group, McGrath Estate Agents and Macquarie University Hospital. Other current directorships: Former directorships (last 3 years): None Special responsibilities: She chairs the Board of the Sydney Children’s Hospital Network, CREST-ANZ and SGS Economics and Planning and is also on the Boards of Bingo Industries and the NSW Government’s Institute of Sport and Health Infrastructure. Non-Executive Director of Bingo Industries Ltd (ASX: BIN) Chairman of the Audit and Risk Committee and a member of the Remuneration and Nomination Committee 9,934 ordinary shares ReadyTech Holdings Limited Directors' report 30 June 2020 Name: Title: Qualifications: Experience and expertise: Tom Matthews 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 17 years of experience in private equity, principal investment, investment banking and middle market advisory and valuations in both Australia and the UK. 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, Marque Group, Open Office and ONCALL. 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. Marque Group, Open Office, ONCALL Other current directorships: Former directorships (last 3 years): None None Special responsibilities: 34,565,926 ordinary shares Interests in shares: Interests in shares: Name: Title: Qualifications: Experience and expertise: Timothy Ebbeck Independent Non-Executive Director Timothy holds a Bachelor of Economics, 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. Timothy has over 30 years of board, executive, and advisory experience across a breadth of industries including technology, media, consulting, and finance. Timothy’s 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. Name: Title: Qualifications: Experience and expertise: Other current directorships: Former directorships (last 3 years): Special responsibilities: Interests in shares: He is presently principal of Ebbeck TIG Consulting and consultant to MyWave.AI Group. None IXUP Limited (ASX: IXU), GeoOp Limited (NZE: GEO), Nextgen Distribution Pty Ltd, Nvoi Limited (ASX: NVO). Chairman of the Remuneration and Nomination Committee and a member of the Audit and Risk Committee 6,623 ordinary shares Other current directorships: Mark Summerhayes Alternate Non-Executive Director to Tom Matthews Mark holds a Master’s Degree in Economics from the University of Cambridge. After graduating from Cambridge University in 1987, Mark spent seven years at Bain & Company advising corporates on a mix of strategy, Mergers and Acquisitions ('M&A'), and operational improvement projects. He was based in London, Munich and Sydney. Mark led assignments for leading European players in the Fast-Moving Consumer Goods ('FMCG'), financial services, telecoms healthcare and industrial sectors. In 1996 Mark co-founded SB Capital Partners, a private equity partnership, which was backed by Bain Capital, one of the leading US private equity firms. On the back of the success of this venture, Bain Capital subsequently launched its first dedicated European buy-out fund. In parallel to this activity, Mark assisted a wealthy Norwegian family build its own portfolio of private equity investments in both early and late stage situations and private equity funds. In 2001 Mark joined Smedvig Capital full time and as a Managing Director was one of the senior executives responsible for investing, managing and reporting on a diversified A$350 million private equity portfolio. Mark moved to Sydney in 2005 to join Pemba Capital Partners and co-led the spin out of the captive fund from Pemba in 2009 and then more recent $650 million fundraising (backed by HarbourVest and a group of other global and local LPs) which established the firm as one of the leaders in its segment in Australia and NZ. Chairman of the Board at Coverforce and a Director of Ausreo, Instant Access, InteriorCo and ONCALL. Former directorships (last 3 years): None None Special responsibilities: None Interests in shares: Company secretaries Nimesh Shah, Melissa Jones and William Hundy are joint company secretaries. 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. 20 10 11 21 2020 READYTECH ANNUAL REPORT2020 READYTECH ANNUAL REPORT ReadyTech Holdings Limited Directors' report 30 June 2020 ReadyTech Holdings Limited Directors' report 30 June 2020 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). William Hundy is a Solicitor and Company Secretary with Company Matters Pty Limited. William has over 30 years’ experience as a lawyer, company secretary and governance professional. William is admitted as a Solicitor of the Supreme Court of New South Wales and holds a Bachelor of Laws, Bachelor of Commerce (UNSW), a Bachelor of Science (University of Sydney) and a Diploma of Corporate Management. He is a fellow of the Governance Institute of Australia, the Chartered Governance Institute and Australian Institute of Company Directors. Meetings of Directors The number of meetings of the company's Board of Directors ('the Board') held during the period ended 30 June 2020, and the number of meetings attended by each Director were: Full Board Attended Held Nomination and Remuneration Committee Attended Held Audit and Risk Committee Attended Held Tony Faure Marc Washbourne** Elizabeth Crouch Timothy Ebbeck Tom Matthews** Mark Summerhayes* 13 13 13 13 12 7 13 13 13 13 13 12 2 2 2 2 2 - 2 2 2 2 2 - 4 4 4 4 4 - 4 4 4 4 4 - Held: represents the number of meetings held during the time the Director held office. Mark Summerhayes attended six board meetings as an observer and one meeting as alternative director * ** Marc Washbourne and Tom Matthews attended four Audit and Risk Committee meetings and two Nomination and Remuneration Committee meetings as observers 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 ('KMP') 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 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 incentives 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. 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 2020, 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 Director who devotes special attention to the business of the Group or who performs services which, in the opinion of the Remuneration Committee, 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; and 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 remuneration. 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. 22 12 13 23 2020 READYTECH ANNUAL REPORT2020 READYTECH ANNUAL REPORT ReadyTech Holdings Limited Directors' report 30 June 2020 The Group currently provides certain members of its senior management team with annual short-term incentives ('STI') which become payable upon satisfaction of specified performance criteria. These incentives are set out in each KMP service agreement. Payment of STI's in any given year will be determined by the company and will be conditional upon achievement of: ● ● performance criteria tailored to each respective role (if any); and the Group’s financial performance against criteria set by the Nomination and Remuneration Committee. No STI will be payable if the performance criteria are not met by the relevant KMP with respect to his or her STI award. The STI program is designed to align the targets of the business units with the performance hurdles of executives. STI payments are granted to executives based on specific annual targets and key performance indicators ('KPI's') being achieved. KPI's include profit contribution, customer satisfaction, leadership contribution and product management. From time to time the Nomination and Remuneration Committee may, at their discretion, award bonuses to certain executives in recognition of work performed which are not linked to any specified performance criteria. For KMP, the STI is maximum 40% of base salary with 70% based on Financial KPI and 30% on Personal KPI's. The Financials KPIs are based on achieving Group revenue and Group net profit after tax ('NPAT') targets. The Group will implement a long-term incentives ('LTI') plan in the financial year 2021. Group performance and link to remuneration Remuneration for certain individuals is directly linked to the performance of the Group. 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. Refer to the section 'Additional information' below for details of the earnings and total shareholders return for the last 4 years. Use of remuneration consultants The Group did not engage any remuneration consultants during the years ended 30 June 2020 and 30 June 2019. Details of remuneration Amounts of remuneration Details of the remuneration of key management personnel of the Group are set out in the following tables. The key management personnel of the Group consisted of the following Directors of ReadyTech Holdings Limited: ● Tony Faure - Non-Executive Chairman ● Marc Washbourne - Chief Executive Officer Elizabeth Crouch - Non-Executive Director ● Timothy Ebbeck - Non-Executive Director ● ● Tom Matthews - Non-Executive Director ● Mark Summerhayes - Alternate Non-Executive Director to Tom Matthews (appointed on 22 July 2019) And the following person: ● Nimesh Shah - Chief Financial Officer ReadyTech Holdings Limited Directors' report 30 June 2020 2020 Non-Executive Directors: Tony Faure Elizabeth Crouch Timothy Ebbeck Executive Directors: Marc Washbourne* Other Key Management Personnel: Nimesh Shah* Short-term benefits Post- employment benefits Long-term benefits Share- based payments Cash salary and fees $ Cash bonus $ Annual leave $ Super- annuation $ Long service leave $ Equity- settled $ 150,000 69,996 70,038 - - - - - - - - - - - - 310,000 24,800 (719) 21,003 3,112 287,500 887,534 24,000 48,800 1,670 951 21,003 42,006 1,350 4,462 Total $ 150,000 69,996 70,038 358,196 335,523 983,753 - - - - - - * Marc Washbourne and Nimesh Shah received cash bonuses which were approved by the Nomination and Remuneration Committee and were not linked to any performance criteria. Short-term benefits Post- employment benefits Long-term benefits Share- based payments Cash salary and fees $ Cash bonus $ Annual leave $ Super- annuation $ Long service leave $ Equity- settled** $ Total $ 37,500 17,499 17,499 31,846 285,000 257,500 115,640 115,760 878,244 - - - - - - - - - - - - - - - - - - - - - 262,740 - - - 300,240 17,499 17,499 31,846 9,313 20,531 1,174 - 316,018 8,703 (9,196) (6,873) 1,947 20,531 15,760 15,640 72,462 511 2,266 2,293 6,244 - - - 262,740 287,245 124,470 126,820 1,221,637 2019 Non-Executive Directors: Tony Faure* Elizabeth Crouch* Timothy Ebbeck* Tom Matthews* Executive Directors: Marc Washbourne Other Key Management Personnel: Nimesh Shah Michael Benyon*/*** Rick Verloop*/*** * ** represents remuneration from the date of appointment and/or to the date of resignation. Prior to the IPO, 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. *** Michael Benyon and Rick Verloop resigned on a Directors from various subsidiaries of the Group on 8 March 2019 and were no longer designated as a KMP. 24 14 15 25 2020 READYTECH ANNUAL REPORT2020 READYTECH ANNUAL REPORT ReadyTech Holdings Limited Directors' report 30 June 2020 ReadyTech Holdings Limited Directors' report 30 June 2020 The proportion of remuneration linked to performance and the fixed proportion are as follows: Additional disclosures relating to key management personnel Name Non-Executive Directors: Tony Faure Elizabeth Crouch Timothy Ebbeck Executive Directors: Marc Washbourne Other Key Management Personnel: Nimesh Shah Michael Benyon Rick Verloop Fixed remuneration 2019 2020 At risk - STI At risk - LTI 2020 2019 2020 2019 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: 100% 100% 100% 100% 100% 100% - - - 93% 100% 7% 93% - - 100% 100% 100% 7% - - - - - - - - - - - - - - - - - - - - - - - Ordinary shares Tony Faure Marc Washbourne Elizabeth Crouch Timothy Ebbeck Tom Matthews* Nimesh Shah Balance at the start of the year Received as part of remuneration Additions Disposals/ other 207,113 4,008,414 9,934 6,623 34,539,611 1,290,432 40,062,127 - - - - - - - 55,000 - - - 26,315 - 81,315 - - - - - - - Balance at the end of the year 262,113 4,008,414 9,934 6,623 34,565,926 1,290,432 40,143,442 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 provides for short term incentives. Upon the termination of Mr Washbourne’s employment contract, Mr Washbourne will be subject to post employment restraints for up to 12 months. Nimesh Shah Chief Financial Officer 7 August 2017 No fixed term Base salary of $300,000 and 6 month notice period. Mr Shah’s employment contract provides for short term incentives. Upon the termination of Mr Shah's employment contract, Mr Shah will be subject to post employment restraints for up to 12 months. Key management personnel have no entitlement to termination payments in the event of removal for misconduct. Share-based compensation * 34,539,611 is attributed to Tom Matthews through his capacity as director of Pemba Capital Partners. Other transactions with key management personnel and their related parties During the year ended 30 June 2020, Tom Matthews and Mark Summerhayes received $nil (2019: $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 2020 $nil (2019: $nil) was outstanding in relation to the services provided. This concludes the remuneration report, which has been audited. Shares under option There were no unissued ordinary shares of ReadyTech Holdings Limited under option outstanding at the date of this report. Shares issued on the exercise of options There were no ordinary shares of ReadyTech Holdings Limited issued on the exercise of options during the year ended 30 June 2020 and up to the date of this 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. Issue of shares There were no shares issued to Directors and other key management personnel as part of compensation during the year ended 30 June 2020. 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. Options There were no options over ordinary shares issued to Directors and other key management personnel as part of compensation that were outstanding as at 30 June 2020. There were no options over ordinary shares granted to or vested by Directors and other key management personnel as part of compensation during the year ended 30 June 2020. 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 29 to the financial statements. 26 16 17 27 2020 READYTECH ANNUAL REPORT2020 READYTECH ANNUAL REPORT ReadyTech Holdings Limited Directors' report 30 June 2020 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 29 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 Chairman 26 August 2020 Sydney 28 18 Deloitte Touche Tohmatsu ABN 74 490 121 060 Grosvenor Place 225 George Street Sydney, NSW, 2000 Australia Deloitte Touche Tohmatsu ABN 74 490 121 060 Phone: +61 2 9322 7000 Grosvenor Place www.deloitte.com.au 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 The Directors ReadyTech Holdings Limited Level 1 35 Saunders Street 26 August 2020 Pyrmont NSW 2009 Dear Directors 26 August 2020 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 Dear Directors of independence to the directors of ReadyTech Holdings Limited. Auditor’s Independence Declaration to ReadyTech Holdings Limited As lead audit partner for the audit of the financial report of ReadyTech Holdings Limited for the year ended 30 June 2020, I declare that to the best of my knowledge and belief, there have been no contraventions of: 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. (i) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and As lead audit partner for the audit of the financial report of ReadyTech Holdings Limited for the year ended 30 June 2020, I declare that to the best of my knowledge and belief, there have been no contraventions of: (ii) any applicable code of professional conduct in relation to the audit. (i) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (ii) any applicable code of professional conduct in relation to the audit. Yours faithfully DELOITTE TOUCHE TOHMATSU Yours faithfully Joshua Tanchel DELOITTE TOUCHE TOHMATSU Partner Chartered Accountants Joshua Tanchel Partner Chartered Accountants Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited (“DTTL”), its global network of member firms, and their related entities (collectively, the “Deloitte organisation”). DTTL (also referred to as “Deloitte Global”) and each of its member firms and related entities are legally separate and independent entities, which cannot obligate or bind each other in respect of third parties. DTTL and each DTTL member firm and related entity is liable only for its own acts and omissions, and not those of each other. DTTL does not provide services to clients. Please see www.deloitte.com/about to learn more. Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited (“DTTL”), its global network of member firms, and their related entities (collectively, the “Deloitte organisation”). DTTL (also referred to as “Deloitte Global”) and each of its member firms and related entities are legally separate and independent entities, which cannot obligate or bind each other in respect of third parties. DTTL and each DTTL member Liability limited by a scheme approved under Professional Standards Legislation. firm and related entity is liable only for its own acts and omissions, and not those of each other. DTTL does not provide services to clients. Member of Deloitte Asia Pacific Limited and the Deloitte organisation. Please see www.deloitte.com/about to learn more. Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Asia Pacific Limited and the Deloitte organisation. 19 19 29 2020 READYTECH ANNUAL REPORT2020 READYTECH ANNUAL REPORT ReadyTech Holdings Limited Statement of profit or loss and other comprehensive income For the year ended 30 June 2020 ReadyTech Holdings Limited Statement of financial position As at 30 June 2020 Revenue from contracts with customers 5 39,254 32,711 Assets Consolidated Note 2020 $'000 2019 $'000 Consolidated Note 2020 $'000 2019 $'000 Interest revenue calculated using the effective interest method 14 20 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 Profit/(loss) before income tax (expense)/benefit Income tax (expense)/benefit Profit/(loss) after income tax (expense)/benefit for the year attributable to the owners of ReadyTech Holdings Limited Other comprehensive income Items that may be reclassified subsequently to profit or loss Foreign currency translation Other comprehensive income for the year, net of tax Total comprehensive income for the year attributable to the owners of ReadyTech Holdings Limited Basic earnings per share Diluted earnings per share 6 7 (2,836) (17,349) (9,375) (467) (800) (591) (1,047) (365) - (845) (920) (1,961) (14,033) (8,063) (464) (6,482) (678) (707) (384) (112) (526) (1,938) 4,673 (2,617) (730) 1,127 3,943 (1,490) (86) (86) - - 3,857 (1,490) Cents Cents 40 40 4.93 4.93 (2.15) (2.15) Current assets Cash and cash equivalents Trade and other receivables Contract assets 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 Lease liabilities Income tax payable Employee benefits Provisions Contingent consideration 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 8 9 10 11 12 13 7 14 15 16 7 17 18 19 20 21 22 23 24 25 9,214 4,536 540 720 15,010 1,016 62,607 2,818 4,399 70,840 6,322 3,474 - 471 10,267 532 52,918 2,046 3,909 59,405 85,850 69,672 3,890 11,741 828 1,709 2,603 - 4,096 24,867 214 25,000 61 2,310 331 27,916 3,061 10,354 543 246 995 49 756 16,004 496 21,500 59 1,653 750 24,458 52,783 40,462 33,067 29,210 119,581 (83,030) (3,484) 119,581 (82,944) (7,427) 33,067 29,210 30 The above statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes 20 The above statement of financial position should be read in conjunction with the accompanying notes 21 31 2020 READYTECH ANNUAL REPORT2020 READYTECH ANNUAL REPORT ReadyTech Holdings Limited Statement of changes in equity For the year ended 30 June 2020 Consolidated Balance at 1 July 2018 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 24) Share-based payments Reorganisation reserve Deemed contribution Issued capital $'000 Reserves $'000 Accumulated losses $'000 Total equity $'000 28,432 (10,058) (6,325) 12,049 - - - - - - (1,490) - (1,490) - (1,490) (1,490) 91,149 - - - - 162 (73,048) - - - - 388 91,149 162 (73,048) 388 Balance at 30 June 2019 119,581 (82,944) (7,427) 29,210 Consolidated Balance at 1 July 2019 Issued capital $'000 Reserves $'000 Accumulated losses $'000 Total equity $'000 119,581 (82,944) (7,427) 29,210 Profit after income tax expense for the year Other comprehensive income for the year, net of tax Total comprehensive income for the year - - - - (86) (86) 3,943 - 3,943 3,943 (86) 3,857 Balance at 30 June 2020 119,581 (83,030) (3,484) 33,067 ReadyTech Holdings Limited Statement of cash flows For the year ended 30 June 2020 Consolidated Note 2020 $'000 2019 $'000 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 acquisition costs Payment of IPO costs Income taxes paid Net cash from operating activities Cash flows from investing activities Payment for purchase of subsidiaries, net of cash acquired Payment of contingent consideration Final payments for prior period's subsidiary acquisition Payments for property, plant and equipment Payments for intangibles Net cash used in investing activities Cash flows from financing activities Proceeds from issue of shares Payment of share issue transaction costs and IPO expenses from proceeds Proceeds from borrowings Repayment of borrowings Repayment of lease liabilities Payment of bank guarantee Net cash from financing activities Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year 37 35 28 11 12 24 Cash and cash equivalents at the end of the financial year 8 43,767 (27,587) 34,328 (21,495) 16,180 14 (920) (312) - (1,211) 12,833 20 (1,938) - (4,480) (4,330) 13,751 2,105 (5,426) (2,119) (756) (639) (4,329) (1,454) - (480) (322) (3,592) (13,269) (5,848) - - 6,000 (2,500) (612) (478) 2,410 2,892 6,322 9,214 17,100 (3,859) - (8,250) (512) - 4,479 736 5,586 6,322 32 The above statement of changes in equity should be read in conjunction with the accompanying notes 22 The above statement of cash flows should be read in conjunction with the accompanying notes 23 33 2020 READYTECH ANNUAL REPORT2020 READYTECH ANNUAL REPORT ReadyTech Holdings Limited Notes to the financial statements 30 June 2020 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 26 August 2020. 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 16 'Leases' and its related amendments, which was mandatorily effective for annual periods commencing on or after 1 January 2019 was early adopted effective from 1 July 2018, the impact of which was disclosed in the annual report for the year ended 30 June 2019. Any new or amended Accounting Standards or Interpretations that are not yet mandatory have not been early adopted. Details of new Accounting Standards and Interpretations adopted during the year ended 30 June 2020 which are most relevant to the Group are provided below: Interpretation 23 Uncertainty over Income Tax The Group has adopted Interpretation 23 from 1 July 2019. The interpretation clarifies how to apply the recognition and measurement requirements of AASB 112 ‘Income Taxes’ in circumstances where uncertain tax treatments exists. The interpretation requires: the Group to determine whether each uncertain tax treatment should be treated separately or together, based on which approach better predicts the resolution of the uncertainty; the Group to consider whether it is probable that a taxation authority will accept an uncertain tax treatment; and if the Group concludes that it is not probable that the taxation authority will accept an uncertain tax treatment, it shall reflect the effect of uncertainty in determining the related taxable profit (tax loss), tax bases, unused tax losses, unused tax credits or tax rates, measuring the tax uncertainty based on either the most likely amount or the expected value. In making the assessment it is assumed that a taxation authority will examine amounts it has a right to examine and have full knowledge of all related information when making those examinations. Interpretation 23 was adopted using the modified retrospective approach and as such comparatives have not been restated. There was no impact of adoption on opening accumulated losses as at 1 July 2019. Deficiency of net current assets The statement of financial position has a deficiency of net current assets of $9,857,000 (2019: $5,737,000) at the reporting date. The deficiency is attributable to contract liabilities of $11,741,000 (2019: $10,354,000) 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. ReadyTech Holdings Limited Notes to the financial statements 30 June 2020 Note 2. Significant accounting policies (continued) 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 (prior year) 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 33. Principles of consolidation The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of ReadyTech Holdings Limited as at 30 June 2020 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. 34 24 25 35 2020 READYTECH ANNUAL REPORT2020 READYTECH ANNUAL REPORT ReadyTech Holdings Limited Notes to the financial statements 30 June 2020 ReadyTech Holdings Limited Notes to the financial statements 30 June 2020 Note 2. Significant accounting policies (continued) Note 2. Significant accounting policies (continued) 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 the entity's functional currency 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. Foreign operations The assets and liabilities of foreign operations are translated into Australian dollars using the exchange rates at the reporting date. The revenues and expenses of foreign operations are translated into Australian dollars using the average exchange rates, which approximate the rates at the dates of the transactions, for the period. All resulting foreign exchange differences are recognised in other comprehensive income through the foreign currency reserve in equity. The foreign currency reserve is recognised in profit or loss when the foreign operation or net investment is disposed of. 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, Zambion, HR3 Plus 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. 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 gain access to 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. Revenue is recognised on the basis of stage of completion. ReadyTech determines stage of completion based on input 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. (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. (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. There is optionality for customers to purchase additional support and maintenance. This is accounted for as a separate performance obligation and revenue is recognised over time. 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. (iii) Training, consultancy and other revenue Training, consultancy 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. 36 26 27 37 2020 READYTECH ANNUAL REPORT2020 READYTECH ANNUAL REPORT ReadyTech Holdings Limited Notes to the financial statements 30 June 2020 ReadyTech Holdings Limited Notes to the financial statements 30 June 2020 Note 2. Significant accounting policies (continued) Note 2. Significant accounting policies (continued) 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 Variable consideration within the transaction price, if any, reflects concessions provided to the customer such as additional licenses, discounts, rebates and refunds. 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. 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. 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. 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. Interest income is recognised on a time proportionate basis that takes into account the effective yield on the financial asset. Current and non-current classification Assets and liabilities are presented in the statement of financial position based on current and non-current classification. 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. Government grants Government grants relating to costs are deferred and recognised in profit or loss over the period necessary to match them with the costs that they are intended to compensate. During the financial year ended 30 June 2020, the Group received $210,000 in payments from the Australian Government as part of its ‘Boosting Cash Flow for Employers’ scheme in response to the Coronavirus (‘COVID-19’) pandemic. These non-tax amounts have been net off in the relevant expenses. 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. 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. 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. Contract assets Contract assets are recognised when the Group has transferred goods or services to the customer but where the Group is yet to establish an unconditional right to consideration. Contract assets are treated as financial assets for impairment purposes. 38 28 29 39 2020 READYTECH ANNUAL REPORT2020 READYTECH ANNUAL REPORT ReadyTech Holdings Limited Notes to the financial statements 30 June 2020 ReadyTech Holdings Limited Notes to the financial statements 30 June 2020 Note 2. Significant accounting policies (continued) Note 2. Significant accounting policies (continued) Financial assets at amortised cost A financial asset is measured at amortised cost only if both of the following conditions are met: (i) it is held within a business model whose objective is to hold assets in order to collect contractual cash flows; and (ii) the contractual terms of the financial asset represent contractual cash flows that are solely payments of principal and interest. Impairment of financial assets The Group recognises a loss allowance for expected credit losses on financial assets which are either measured at amortised cost or fair value through other comprehensive income. The measurement of the loss allowance depends upon the Group's assessment at the end of each reporting period as to whether the financial instrument's credit risk has increased significantly since initial recognition, based on reasonable and supportable information that is available, without undue cost or effort to obtain. Where there has not been a significant increase in exposure to credit risk since initial recognition, a 12-month expected credit loss allowance is estimated. This represents a portion of the asset's lifetime expected credit losses that is attributable to a default event that is possible within the next 12 months. Where a financial asset has become credit impaired or where it is determined that credit risk has increased significantly, the loss allowance is based on the asset's lifetime expected credit losses. The amount of expected credit loss recognised is measured on the basis of the probability weighted present value of anticipated cash shortfalls over the life of the instrument discounted at the original effective interest rate. 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. 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 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. 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. Useful life of intangible assets are 5 years. 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. Patents and trademarks Significant costs associated with patents and trademarks are deferred and amortised on a straight-line basis over the period of their expected benefit, being their finite life of 10 years. 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. 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. 40 30 31 41 2020 READYTECH ANNUAL REPORT2020 READYTECH ANNUAL REPORT ReadyTech Holdings Limited Notes to the financial statements 30 June 2020 ReadyTech Holdings Limited Notes to the financial statements 30 June 2020 Note 2. Significant accounting policies (continued) Note 2. Significant accounting policies (continued) 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. 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. 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. 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 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. 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. 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. 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. 42 32 33 43 2020 READYTECH ANNUAL REPORT2020 READYTECH ANNUAL REPORT ReadyTech Holdings Limited Notes to the financial statements 30 June 2020 ReadyTech Holdings Limited Notes to the financial statements 30 June 2020 Note 2. Significant accounting policies (continued) Note 2. Significant accounting policies (continued) 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 AASB 3 '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. 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 2020. 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. Conceptual Framework for Financial Reporting (Conceptual Framework) The revised Conceptual Framework is applicable to annual reporting periods beginning on or after 1 January 2020 and early adoption is permitted. The Conceptual Framework contains new definition and recognition criteria as well as new guidance on measurement that affects several Accounting Standards. Where the Group has relied on the existing framework in determining its accounting policies for transactions, events or conditions that are not otherwise dealt with under the Australian Accounting Standards, the Group may need to review such policies under the revised framework. At this time, the application of the Conceptual Framework is not expected to have a material impact on the Group's financial statements. 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. Coronavirus (COVID-19) pandemic Judgement has been exercised in considering the impacts that the Coronavirus (COVID-19) pandemic has had, or may have, on the Group based on known information. This consideration extends to the nature of the products and services offered, customers, supply chain, staffing and geographic regions in which the Group operates. Other than as addressed in specific notes, there does not currently appear to be either any significant impact upon the financial statements or any significant uncertainties with respect to events or conditions which may impact the Group unfavourably as at the reporting date or subsequently as a result of the Coronavirus (COVID-19) pandemic. 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, historical collection rates, the impact of the Coronavirus (COVID-19) pandemic and forward-looking information that is available. The allowance for expected credit losses, as disclosed in note 9, is calculated based on the information available at the time of preparation. The actual credit losses in future years may be higher or lower. 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. Refer to note 28 for further information. 44 34 35 45 2020 READYTECH ANNUAL REPORT2020 READYTECH ANNUAL REPORT ReadyTech Holdings Limited Notes to the financial statements 30 June 2020 Note 3. Critical accounting judgements, estimates and assumptions (continued) 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. Refer to note 12 for further information. 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. ReadyTech Holdings Limited Notes to the financial statements 30 June 2020 Note 4. Operating segments (continued) 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. EBITDA is a financial measure which is not prescribed by Australian Accounting Standards (‘AAS’) and represents the profit under AAS adjusted for non-specific non-cash and significant items. The Directors consider EBITDA to reflect the core earnings of the Group. The information reported to the CODM is on a monthly basis. Types of products and services The principal products and services of each of these operating segments are as follows: Education 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 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. Workforce Solutions (Employment) 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. Refer to note 5 for disclosure of revenues from external customers for these principal products and services. Intersegment transactions No intersegment transactions were made during the year ended 30 June 2020 (30 June 2019: $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 2020 and 30 June 2019 no single customer contributed 10% or more to the Group's external revenue. Contingent consideration The contingent consideration liability is the difference between the total purchase consideration, usually on an acquisition of a business combination, and the amounts paid or settled up to the reporting date, discounted to net present value. The Group applies provisional accounting for any business combination. Any reassessment of the liability during the earlier of the finalisation of the provisional accounting or 12 months from acquisition-date is adjusted for retrospectively as part of the provisional accounting rules in accordance with AASB 3 'Business Combinations'. Thereafter, at each reporting date, the deferred consideration liability is reassessed against revised estimates and any increase or decrease in the net present value of the liability will result in a corresponding gain or loss to profit or loss. The increase in the liability resulting from the passage of time is recognised as a finance cost. Refer to note 35 for further information. 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. Refer to note 35 for further information. Capitalised software development expenditure Software development expenditure have been capitalised only when the Group can demonstrate the technical feasibility of completing the intangible asset so that it will be available for use or sale. Key judgements are applied in considering costs to be capitalised which includes determining expenditures directly related to these activities and allocating overheads between those that are expensed and capitalised. In addition, costs are only capitalised that are expected to be recovered either through successful development or sale of the relevant software. To the extent that capitalised costs are determined not to be recoverable in the future, they will be written off in the period in which this determination is made. 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. 46 36 37 47 2020 READYTECH ANNUAL REPORT2020 READYTECH ANNUAL REPORT ReadyTech Holdings Limited Notes to the financial statements 30 June 2020 Note 4. Operating segments (continued) Operating segment information Consolidated - 2020 Revenue Sales to external customers Interest revenue Total revenue EBITDA Depreciation and amortisation Interest revenue Finance costs Profit before income tax expense Income tax expense Profit after income tax expense 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 Workforce Solutions (Employment) $'000 Education $'000 Corporate $'000 Total $'000 17,920 13 17,933 21,334 1 21,335 - - - 8,198 8,782 (2,026) 39,254 14 39,268 14,954 (9,375) 14 (920) 4,673 (730) 3,943 Workforce Solutions (Employment) $'000 Education $'000 Corporate $'000 Total $'000 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) 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 Revenue from contracts with customers Consolidated 2020 $'000 2019 $'000 39,254 32,711 ReadyTech Holdings Limited Notes to the financial statements 30 June 2020 Note 5. Revenue from contracts with customers (continued) Disaggregation of revenue The disaggregation of revenue from contracts with customers is as follows: Consolidated - 2020 Major product lines Subscription, licence and hosting Implementation, training, consultancy and other Consolidated - 2019 Major product lines Subscription, licence and hosting Implementation, training, consultancy and other Workforce Solutions (Employment) $'000 Education $'000 Total $'000 16,204 1,716 18,888 2,446 35,092 4,162 17,920 21,334 39,254 Workforce Solutions (Employment) $'000 Education $'000 Total $'000 11,776 1,205 17,625 2,105 29,401 3,310 12,981 19,730 32,711 The aggregate amount of the transaction price allocated to the performance obligations that are unsatisfied (or partially unsatisfied) as of the end of the reporting period is $6.5 million. The Group expects to recognise this revenue over the remaining four year duration of the contracts on a straight line basis. Note 6. Expenses Profit/(loss) before income tax includes the following specific expenses: Finance costs Interest and finance charges paid/payable on borrowings Interest charges on lease liability right-of-use asset Finance costs expensed Superannuation expense Defined contribution superannuation expense Business combination expense included in employee benefits expense 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 2020 $'000 2019 $'000 880 40 920 1,797 141 1,938 1,478 1,316 - - (803) 426 298 4 - 6,357 48 38 39 49 2020 READYTECH ANNUAL REPORT2020 READYTECH ANNUAL REPORT ReadyTech Holdings Limited Notes to the financial statements 30 June 2020 Note 6. Expenses (continued) * ** 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. Note 7. 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 Profit/(loss) before income tax (expense)/benefit Tax at the statutory tax rate of 27.5% (2019: 30%) Tax effect amounts which are not deductible/(taxable) in calculating taxable income: Acquisition costs Research and development expenses Research and development tax offset Provision for bonus Other non-assessable items Adjustment recognised for prior periods Income tax expense/(benefit) Amounts credited directly to equity Deferred tax assets Consolidated 2020 $'000 2019 $'000 2,812 (1,805) (277) 2,117 (2,943) (301) 730 (1,127) (1,805) (2,943) 4,673 (2,617) 1,285 (785) - 675 (945) - (8) 1,007 (277) 29 - - (241) 171 (826) (301) 730 (1,127) Consolidated 2020 $'000 2019 $'000 - (526) ReadyTech Holdings Limited Notes to the financial statements 30 June 2020 Note 7. 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 Brand names IPO costs Right-of-use assets Lease liabilities Other Deferred tax asset Movements: Opening balance Credited to profit or loss Credited to equity Additions through business combinations and common control transaction Closing balance Income tax payable Income tax payable Consolidated 2020 $'000 2019 $'000 61 1,178 3,288 809 344 1,123 50 (3,950) (131) 1,324 (697) 864 136 16 992 3,275 531 226 1,204 91 (4,356) - 1,834 - - 96 4,399 3,909 3,909 1,805 - (1,315) 4,399 532 2,943 526 (92) 3,909 Consolidated 2020 $'000 2019 $'000 1,709 246 As at 30 June 2020, the Group has capital losses totalling $3,005,000 (2019: $3,005,000) which have not been recognised in the statement of financial position as the recovery of this benefit is uncertain. 50 40 41 51 2020 READYTECH ANNUAL REPORT2020 READYTECH ANNUAL REPORT ReadyTech Holdings Limited Notes to the financial statements 30 June 2020 Note 8. Current assets - cash and cash equivalents Cash at bank Cash on deposit Note 9. Current assets - trade and other receivables Trade receivables Less: Allowance for expected credit losses Other receivables Consolidated 2020 $'000 2019 $'000 9,210 4 9,214 6,243 79 6,322 Consolidated 2020 $'000 2019 $'000 3,612 (221) 3,391 1,145 4,536 3,096 (53) 3,043 431 3,474 ReadyTech Holdings Limited Notes to the financial statements 30 June 2020 Note 10. Current assets - contract assets Contract assets Reconciliation Reconciliation of the written down values at the beginning and end of the current and previous financial year are set out below: Opening balance Additions Closing balance Consolidated 2020 $'000 2019 $'000 540 - 540 540 - - - - Allowance for expected credit losses The allowance for expected credit losses on contract assets for the year ended 30 June 2020 is $nil (2019: $nil). Note 11. Non-current assets - property, plant and equipment Allowance for expected credit losses The Group has recognised a loss of $298,000 in profit or loss in respect of impairment of receivables for the period ended 30 June 2020 (2019: $4,000). Leasehold improvements - at cost Less: Accumulated depreciation 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 Expected credit loss rate 2020 % 2019 % Carrying amount 2019 $'000 2020 $'000 Allowance for expected credit losses 2020 $'000 2019 $'000 1.00% 2.50% 30.00% 49.50% - - - 25.00% 1,428 1,770 216 198 3,612 1,778 914 194 210 3,096 14 44 65 98 221 - - - 53 53 The Group has analysed and provided more allowance for expected credit losses due to the Coronavirus ('Covid-19') pandemic. Movements in the allowance for expected credit losses are as follows: Fixtures and fittings - at cost Less: Accumulated depreciation Motor vehicles - at cost Less: Accumulated depreciation Computer equipment - at cost Less: Accumulated depreciation Office equipment - at cost Less: Accumulated depreciation Opening balance Additional provisions recognised Receivables written off during the year as uncollectable Closing balance Consolidated 2020 $'000 2019 $'000 53 298 (130) 221 271 4 (222) 53 Consolidated 2020 $'000 2019 $'000 920 (378) 542 124 (31) 93 20 (6) 14 358 (148) 210 265 (108) 157 1,016 617 (303) 314 143 (104) 39 - - - 222 (137) 85 324 (230) 94 532 52 42 43 53 2020 READYTECH ANNUAL REPORT2020 READYTECH ANNUAL REPORT ReadyTech Holdings Limited Notes to the financial statements 30 June 2020 ReadyTech Holdings Limited Notes to the financial statements 30 June 2020 Note 11. Non-current assets - property, plant and equipment (continued) Note 12. 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: Consolidated Balance at 1 July 2018 Additions Depreciation expense Balance at 30 June 2019 Additions Additions through business combinations (note 35) Disposals Depreciation expense Balance at 30 June 2020 Leasehold improve- ments $'000 Fixtures and fittings $'000 Motor vehicles $'000 Computer equipment $'000 Office equipment $'000 Total $'000 422 117 (225) 314 347 - - (119) 542 112 36 (109) 39 65 11 - (22) 93 - - - - - 28 - (14) 14 51 98 (64) 85 212 9 - (96) 210 107 71 (84) 94 15 141 (1) (92) 157 692 322 (482) 532 639 189 (1) (343) 1,016 Note 12. Non-current assets - intangibles Goodwill - at cost Patents and trademarks - at cost Customer relationships - at cost Less: Accumulated amortisation Software - at cost Less: Accumulated amortisation Consolidated 2020 $'000 2019 $'000 31,605 22,767 475 19,825 (5,463) 14,362 32,559 (16,394) 16,165 - 18,121 (3,605) 14,516 25,767 (10,132) 15,635 62,607 52,918 54 44 Consolidated Balance at 1 July 2018 Additions Additions through business combinations (note 35) Amortisation expense Balance at 30 June 2019 Additions Additions through business combinations (note 35) Exchange differences Amortisation expense Balance at 30 June 2020 Goodwill $'000 Patents and trademarks $'000 Customer relationships $'000 Software $'000 Total $'000 21,250 - 1,517 - 22,767 - 8,872 (34) - 31,605 - - - - - - 477 (2) - 475 15,633 - 605 (1,722) 14,516 - 1,707 (3) (1,858) 16,396 3,592 902 (5,255) 15,635 4,329 2,524 15 (6,338) 53,279 3,592 3,024 (6,977) 52,918 4,329 13,580 (24) (8,196) 14,362 16,165 62,607 Impairment testing Goodwill acquired through business combinations has been allocated to the following groups of cash generating units ('CGU'): Education Workforce Solutions (Employment) Consolidated 2020 $'000 2019 $'000 18,276 13,329 18,276 4,491 31,605 22,767 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 2021 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 Workforce Solutions (Employment) Pre-tax discount rate used 2020 % 2019 % Terminal growth rate 2019 2020 % % EBITDA growth rate per annum from FY21 to FY25 2020 % EBITDA growth rate per annum from FY20 to FY24 2019 % 17% 17% 17% 17% 45 1% 1% 3% 3% 1% 1% 3% 3% 55 2020 READYTECH ANNUAL REPORT2020 READYTECH ANNUAL REPORT ReadyTech Holdings Limited Notes to the financial statements 30 June 2020 Note 12. Non-current assets - intangibles (continued) ReadyTech Holdings Limited Notes to the financial statements 30 June 2020 Note 15. Current liabilities - contract liabilities Impairment testing results No impairment existed at 30 June 2020. 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. Contract liabilities Note 16. Current liabilities - lease liabilities Note 13. Non-current assets - right-of-use assets Right-of-use assets - at cost Less: Accumulated depreciation Consolidated 2020 $'000 2019 $'000 3,875 (1,057) 3,278 (1,232) 2,818 2,046 Lease liability Refer to note 27 for further information on financial instruments. Note 17. Current liabilities - employee benefits 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. Reconciliations Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below: Consolidated Balance at 1 July 2018 Additions Depreciation expense Balance at 30 June 2019 Additions Depreciation expense Balance at 30 June 2020 Note 14. Current liabilities - trade and other payables Trade payables Accrued expenses GST payable Right-of-use asset $'000 1,389 1,261 (604) 2,046 1,608 (836) 2,818 Consolidated 2020 $'000 2019 $'000 185 2,050 1,655 3,890 806 1,621 634 3,061 Refer to note 27 for further information on financial instruments. Contract liabilities Employee benefits Note 18. Current liabilities - provisions Lease make good 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. Note 19. Current liabilities - contingent consideration Contingent consideration Refer to note 28 and note 35 for further details on contingent consideration. Note 20. Non-current liabilities - contract liabilities 56 46 47 57 Consolidated 2020 $'000 2019 $'000 11,741 10,354 Consolidated 2020 $'000 2019 $'000 828 543 Consolidated 2020 $'000 2019 $'000 2,603 995 Consolidated 2020 $'000 2019 $'000 - 49 Consolidated 2020 $'000 2019 $'000 4,096 756 Consolidated 2020 $'000 2019 $'000 214 496 2020 READYTECH ANNUAL REPORT2020 READYTECH ANNUAL REPORT ReadyTech Holdings Limited Notes to the financial statements 30 June 2020 Note 21. Non-current liabilities - borrowings ReadyTech Holdings Limited Notes to the financial statements 30 June 2020 Note 22. Non-current liabilities - provisions Borrowings 25,000 21,500 Lease make good Consolidated 2020 $'000 2019 $'000 Consolidated 2020 $'000 2019 $'000 61 59 Refer to note 27 for further information on financial instruments. Total secured liabilities The total secured liabilities (current and non-current) are as follows: 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. Note 23. Non-current liabilities - lease liabilities 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) The Group has established two facilities, Facility A and Facility B: ● ● Facility A - $21,500,000 (30 June 2019: $21,500,000) with an amortising loan term over 3 years and an interest rate set at BBSY plus a margin of 2.4% (30 June 2019: 2.75% to 3.75%) depending on the Net Leverage Ratio of the Group. As at 30 June 2020, $21,500,000 (2019: $21,500,000) of the total facility has been drawn down. Facility B - $6,000,000 (30 June 2019: $6,000,000) with a bullet term repayment after 3 years and an interest rate set at BBSY plus a margin of 4.4% (30 June 2019: 3% to 4%) depending on the Net Leverage Ratio of the Group. As at 30 June 2020, $3,500,000 (2019: $nil) of the total facility has been drawn down. Consolidated 2020 $'000 2019 $'000 25,000 21,500 Lease liability Refer to note 27 for further information on financial instruments. Consolidated 2020 $'000 2019 $'000 Current (note 16) Non-current Consolidated 2020 $'000 2019 $'000 2,310 1,653 Consolidated 2020 $'000 2019 $'000 828 2,310 3,138 543 1,653 2,196 21,500 6,000 27,500 21,500 3,500 25,000 - 2,500 2,500 21,500 6,000 27,500 21,500 - 21,500 - 6,000 6,000 Reconciliation Reconciliation of lease liabilities (current and non-current) at the beginning and end of financial year are set out below: Balance at start of the year Additions Repayment of lease liabilities Balance at end of the year Note 24. Equity - issued capital Consolidated 2020 $'000 2019 $'000 2,196 1,554 (612) 3,138 1,447 1,261 (512) 2,196 Ordinary shares - fully paid 80,005,371 80,005,371 119,581 119,581 Consolidated 2020 Shares 2019 Shares 2020 $'000 2019 $'000 58 48 49 59 2020 READYTECH ANNUAL REPORT2020 READYTECH ANNUAL REPORT ReadyTech Holdings Limited Notes to the financial statements 30 June 2020 Note 24. Equity - issued capital (continued) Movements in ordinary share capital Details Date Shares Issue price $'000 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) 1 July 2018 31 October 2018 19 March 2019 15 April 2019 16 April 2019 16 April 2019 38,171,440 100,000 100,000 1,138,383 29,237,269 - 11,258,279 - $1.00 $2.63 $2.63 $0.00 $0.00 $1.51 $0.00 Balance Balance 30 June 2019 80,005,371 30 June 2020 80,005,371 26,807 100 263 2,991 - 73,647 17,000 (1,227) 119,581 119,581 Ordinary shares Ordinary shares entitle the holder to participate in dividends and the proceeds on the winding up of the Company in proportion to the number of and amounts paid on the shares held. The fully paid ordinary shares have no par value and the Company does not have a limited amount of authorised capital. On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote. Share buy-back There is no current on-market share buy-back. Capital risk management The Group's objectives when managing capital is to safeguard its ability to continue as a going concern, so that it can provide returns for shareholders and benefits for other stakeholders and to maintain an optimum capital structure 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. ReadyTech Holdings Limited Notes to the financial statements 30 June 2020 Note 25. Equity - reserves Foreign currency reserve Share-based payments reserve Common control reserve Reorganisation reserve Consolidated 2020 $'000 2019 $'000 (86) 162 (10,058) (73,048) - 162 (10,058) (73,048) (83,030) (82,944) Foreign currency reserve The reserve is used to recognise exchange differences arising from the translation of the financial statements of foreign operations to Australian dollars. It is also used to recognise gains and losses on hedges of the net investments in foreign operations. Share-based payments reserve The reserve is used to recognise the value of equity benefits provided to employees and Directors as part of their remuneration, and other parties as part of their compensation for services. 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. 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. Movements in reserves Movements in each class of reserve during the current and previous financial year are set out below: Consolidated Balance at 1 July 2018 Share-based payments Reorganisation Balance at 30 June 2019 Foreign currency translation Balance at 30 June 2020 Note 26. Equity - dividends Foreign currency $'000 Share-based payments $'000 Common control $'000 Reorgan- isation $'000 Total $'000 - - - - (86) (86) - 162 - 162 - 162 (10,058) - - (10,058) - - - (73,048) (73,048) - (10,058) 162 (73,048) (82,944) (86) (10,058) (73,048) (83,030) There were no dividends paid, recommended or declared during the current financial year or previous financial period. 60 50 51 61 2020 READYTECH ANNUAL REPORT2020 READYTECH ANNUAL REPORT ReadyTech Holdings Limited Notes to the financial statements 30 June 2020 Note 27. 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 may use 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 and ageing analysis for credit risk. Risk management is carried out by senior finance executives ('finance') under policies approved by the Board of Directors ('the Board'). These policies include identification and analysis of the risk exposure of the Group and appropriate procedures, controls and risk limits. Finance identifies, evaluates and hedges financial risks within the Group's operating units. 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 2020 and 30 June 2019 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. As at the reporting date, the Group had the following variable rate borrowings and interest rate swap contracts outstanding: Consolidated Borrowings 2020 2019 Weighted average interest rate % Weighted average interest rate % Balance $'000 Balance $'000 2.84% 25,000 4.48% 21,500 Net exposure to cash flow interest rate risk 25,000 21,500 An analysis by remaining contractual maturities in shown in 'liquidity and interest rate risk management' below. For the Group the borrowings outstanding totalling $25,000,000 (2019: $21,500,000), are principal and interest payment loans. An increase/decrease in interest rates of 100 (2019: 100) basis points would have an adverse/favourable effect on loss before tax of $250,000 (2019: $250,000) per annum. The percentage change is based on the expected volatility of interest rates using market data and analysts forecasts. ReadyTech Holdings Limited Notes to the financial statements 30 June 2020 Note 27. Financial instruments (continued) 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. As disclosed in note 9, due to the Coronavirus (COVID-19) pandemic, the calculation of expected credit losses has been revised as at 30 June 2020 and rates have increased in each category up to 6 months overdue. 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. 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 - 2020 Non-derivatives Non-interest bearing Trade payables Other payables Contingent consideration Interest-bearing - variable Bank loans Lease liability Total non-derivatives Weighted average interest rate 1 year or less % $'000 Between 1 and 2 years $'000 Between 2 and 5 years Over 5 years $'000 $'000 Remaining contractual maturities $'000 - - - 2.84% 3.50% 185 1,655 4,096 669 922 7,527 - - - 25,333 934 26,267 - - - - 1,503 1,503 - - - - - - 185 1,655 4,096 26,002 3,359 35,297 62 52 53 63 2020 READYTECH ANNUAL REPORT2020 READYTECH ANNUAL REPORT ReadyTech Holdings Limited Notes to the financial statements 30 June 2020 Note 27. Financial instruments (continued) ReadyTech Holdings Limited Notes to the financial statements 30 June 2020 Note 28. Fair value measurement (continued) Weighted average interest rate 1 year or less % $'000 Between 1 and 2 years $'000 Between 2 and 5 years Over 5 years $'000 $'000 Remaining contractual maturities $'000 Level 3 assets and liabilities Movements in level 3 assets and liabilities during the current and previous financial year are set out below: Consolidated - 2019 Non-derivatives Non-interest bearing Trade payables Other payables Contingent consideration Interest-bearing - variable Bank loans Lease liability Total non-derivatives - - - 4.48% 4.00% 806 634 756 958 543 3,697 - - - - - - 882 1,653 2,535 21,898 - 21,898 - - - - - - 806 634 756 23,738 2,196 28,130 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 28. 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 - 2020 Liabilities Contingent consideration Total liabilities Consolidated - 2019 Liabilities Contingent consideration Total liabilities Level 1 $'000 Level 2 $'000 Level 3 $'000 Total $'000 Level 1 $'000 - - - - Level 2 $'000 - - - - 4,096 4,096 4,096 4,096 Level 3 $'000 Total $'000 756 756 756 756 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. Consolidated Balance at 1 July 2018 Losses recognised in profit or loss Additions Amounts paid Balance at 30 June 2019 Additions Amounts paid Balance at 30 June 2020 Contingent consideration $'000 480 (244) 1,000 (480) 756 6,215 (2,875) 4,096 Refer to note 35 for details of the contingent consideration arrangements arising from business combinations. The level 3 assets and liabilities unobservable inputs are as follows: Description Unobservable inputs Range Outcome Contingent consideration Probability of achieving revenue targets to satisfy/not to satisfy If revenue targets are achieved 100% of the contingent consideration is payable/if revenue targets are not achieved no contingent consideration is payable Note 29. Remuneration of auditors During the financial year the following fees were paid or payable for services provided by Deloitte Touche Tohmatsu, the auditor of the Company: Deloitte and related network firms Audit or review of the financial statements Other services Tax compliance Research and development tax services Other assurance services Acquisition related services IPO related services Consolidated 2020 $ 2019 $ 203,500 140,000 33,000 36,066 46,263 - - - - - 95,524 1,269,051 115,329 1,364,575 318,829 1,504,575 64 54 55 65 2020 READYTECH ANNUAL REPORT2020 READYTECH ANNUAL REPORT ReadyTech Holdings Limited Notes to the financial statements 30 June 2020 Note 30. Key management personnel disclosures ReadyTech Holdings Limited Notes to the financial statements 30 June 2020 Note 33. Parent entity information Compensation The aggregate compensation made to Directors and other members of key management personnel of the Group is set out below: Set out below is the supplementary information about the parent entity. Statement of profit or loss and other comprehensive income Short-term employee benefits Post-employment benefits Share-based payments Note 31. Contingent liabilities Consolidated 2020 $ 2019 $ 937,285 46,468 - 880,191 78,706 262,740 Loss after income tax Total comprehensive income 983,753 1,221,637 Statement of financial position The Group has given bank guarantees as at 30 June 2020 of $949,000 (2019: $472,000). The bank guarantees are for various office leases and bank facility for WageLink. No cash outflows are expected from the bank guarantees given by the Group. Note 32. Related party transactions Parent entity ReadyTech Holdings Limited is the parent entity. Subsidiaries Interests in subsidiaries are set out in note 34. Key management personnel Disclosures relating to key management personnel are set out in note 30 and the remuneration report included in the Directors' report. Total current assets Total assets Total current liabilities Total liabilities Equity Issued capital Reorganisation reserve Accumulated losses Total equity Parent 2020 $'000 2019 $'000 (1,058) (1,085) (1,058) (1,085) Parent 2020 $'000 2019 $'000 15,104 14,956 29,857 29,898 1,263 1,263 246 246 120,208 (89,471) (2,143) 120,208 (89,471) (1,085) 28,594 29,652 Transactions with related parties The following transactions occurred with related parties: Consolidated 2020 $ 2019 $ Contingent liabilities The parent entity had no contingent liabilities as at 30 June 2020 and 30 June 2019. 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 2020 and 30 June 2019. Payment for goods and services: Payment for services from key management personnel - 28,982 Capital commitments - Property, plant and equipment The parent entity had no capital commitments for property, plant and equipment as at 30 June 2020 and 30 June 2019. Receivable from and payable to related parties There were no trade receivables from or trade payables to related parties at the current and previous reporting date. Loans to/from related parties There were no loans to or from related parties at the current and previous reporting date. Terms and conditions All transactions were made on normal commercial terms and conditions and at market rates. 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. 66 56 57 67 2020 READYTECH ANNUAL REPORT2020 READYTECH ANNUAL REPORT ReadyTech Holdings Limited Notes to the financial statements 30 June 2020 Note 34. 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: ReadyTech Holdings Limited Notes to the financial statements 30 June 2020 Note 35. Business combinations Acquisition of WageLink Australia Pty Ltd On 9 October 2019, the Group acquired 100% of the ordinary shares of WageLink Australia Pty Ltd for the total consideration transferred of $1,550,000. WageLink provides a range of payroll management services for small to medium sized business. The goodwill of $909,000 represents future growth of WageLink. The values identified in relation to the acquisition of WageLink Australia Pty Ltd are final as at 30 June 2020. 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 WageLink Australia Pty Ltd* Zambion Limited* Zambion Pty Ltd* Principal place of business / Country of incorporation Ownership interest 2019 2020 % % Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia New Zealand Australia 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% 100.00% 100.00% 100.00% 100.00% - - - Details of the acquisition are as follows: Cash and cash equivalents Trade receivables Property, plant and equipment Customer relationships Trade payables and other payables Deferred tax liability Employee benefits Other provisions Net assets acquired Goodwill * Acquired by the Group during the year-ended 30 June 2020. Refer to note 35. 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 Fair value $'000 151 35 4 933 (5) (280) (134) (63) 641 909 1,550 1,240 310 1,550 126 1,550 (151) (310) 1,089 As part of the acquisition of WageLink Pty Limited an amount of contingent consideration has been agreed, which is subject to WageLink meeting pre-determined revenue thresholds based on the last twelve months' revenue. Refer to note 28 for further information. The amount of contingent consideration recognised of $310,000 is the maximum amount payable if the pre-determined revenue thresholds are met. If these thresholds are not met, then no amount is payable. Given the current performance of the business, it appears probable that the thresholds will be met and as such, contingent consideration of $310,000 has been recognised. 68 58 59 69 2020 READYTECH ANNUAL REPORT2020 READYTECH ANNUAL REPORT ReadyTech Holdings Limited Notes to the financial statements 30 June 2020 Note 35. Business combinations (continued) Acquisition of Zambion Limited and its controlled entities On 9 October 2019, the Group acquired 100% of the ordinary shares of Zambion Limited and its controlled entities ('Zambion') for the total consideration transferred of $10,317,000. Zambion develops and implements Software-as-a- Service ("SaaS") solutions for small to medium sized businesses to manage their workforce. The software product is a web and app based payroll, HR, time and attendance, leave management system that is compliant with Australia and New Zealand's tax, superannuation and fair work legislation. The goodwill of $7,963,000 represents technology and revenue synergies from cross-selling extended capability to ReadyTech’s existing client base as well as future growth. The values identified in relation to the acquisition of Zambion are final as at 30 June 2020. Details of the acquisition are as follows: ReadyTech Holdings Limited Notes to the financial statements 30 June 2020 Note 35. Business combinations (continued) Acquisition of eLearning Australia Pty Ltd ('eLearning') (prior year) 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. Details of the acquisition are as follows: Cash and cash equivalents Trade receivables Other current assets Property, plant and equipment Brand names and trademarks Customer relationships Software Trade and other payables Contract liabilities Provision for income tax Deferred tax liability Employee benefits Other provisions 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 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 Fair value $'000 75 742 29 185 477 774 2,524 (255) (710) (139) (1,035) (106) (207) 2,354 7,963 10,317 4,412 5,905 10,317 186 10,317 (75) (5,905) 4,337 As part of the acquisition of Zambion Limited an amount of contingent consideration has been agreed. The contingent consideration is payable in three amounts, dependent on recurring revenue growth targets. The Directors expect the contingent consideration to be paid out during the next 12 months. Refer to note 28 for further information. The amount of contingent consideration recognised of $5,905,000 is the maximum amount payable if the recurring revenue growth targets are met. If these targets are not met, then no amount is payable. Given the current performance of the business, it appears probable that the thresholds will be met and as such, contingent consideration of $5,905,000 has been recognised. Fair value $'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 70 60 61 71 2020 READYTECH ANNUAL REPORT2020 READYTECH ANNUAL REPORT ReadyTech Holdings Limited Notes to the financial statements 30 June 2020 Note 36. Deed of cross guarantee The following entities are party to a deed of cross guarantee under which each Company guarantees the debts of the others: 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 WageLink Australia Pty Ltd Zambion Limited Zambion Pty Ltd 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. ReadyTech Holdings Limited Notes to the financial statements 30 June 2020 Note 37. Reconciliation of profit/(loss) after income tax to net cash from operating activities Profit/(loss) after income tax (expense)/benefit for the year 3,943 (1,490) Consolidated 2020 $'000 2019 $'000 Adjustments for: Depreciation and amortisation Net loss on disposal of property, plant and equipment Share-based payments Foreign exchange differences 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 Increase in other operating assets Increase 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/(decrease) in other provisions Decrease in other operating liabilities 9,375 1 - (62) - 193 (490) (249) (511) 569 395 1,324 (1,315) 949 (317) (54) 8,063 - 425 - 2,106 (635) (2,851) (262) - 723 (1,019) (2,425) (181) 147 24 (520) Net cash from operating activities 13,751 2,105 Note 38. Non-cash investing and financing activities Share issued to KMP Conversion of DC shares to ordinary shares Increase in share capital on reorganisation of the Group Note 39. Changes in liabilities arising from financing activities Consolidated Balance at 1 July 2018 Net cash used in financing activities Recognition of lease liability on adoption of AASB 16 Additions Balance at 30 June 2019 Net cash from/(used in) financing activities Additions Balance at 30 June 2020 Consolidated 2020 $'000 2019 $'000 - - - - 263 2,991 73,048 76,302 Borrowings $'000 Lease liability $'000 Total $'000 29,750 (8,250) - - 21,500 3,500 - 25,000 - (512) 1,447 1,261 2,196 (612) 1,554 29,750 (8,762) 1,447 1,261 23,696 2,888 1,554 3,138 28,138 72 62 63 73 2020 READYTECH ANNUAL REPORT2020 READYTECH ANNUAL REPORT ReadyTech Holdings Limited Notes to the financial statements 30 June 2020 Note 40. Earnings per share ReadyTech Holdings Limited Directors' declaration 30 June 2020 In the Directors' opinion: Profit/(loss) after income tax attributable to the owners of ReadyTech Holdings Limited 3,943 (1,490) Weighted average number of ordinary shares used in calculating basic earnings per share 80,005,371 69,316,495 Weighted average number of ordinary shares used in calculating diluted earnings per share 80,005,371 69,316,495 Number Number Consolidated 2020 $'000 2019 $'000 Basic earnings per share Diluted earnings per share Note 41. Events after the reporting period Cents Cents 4.93 4.93 (2.15) (2.15) The impact of the Coronavirus (COVID-19) pandemic is ongoing and it is not practicable to estimate the potential impact, positive or negative, after the reporting date. The situation is rapidly developing and is dependent on measures imposed by the Australian Government and other countries, such as maintaining social distancing requirements, quarantine, travel restrictions and any economic stimulus that may be provided. Education ReadyTech’s cloud-based software for managing people has proven to be resilient through the COVID-19 environment, with high recurring revenues of approximately 89% and low churn. In addition, ReadyTech has low exposure to the international student segment, accounting for only 3% of total students serviced by our Student Management System platforms. ReadyTech has also experienced growing momentum in the Back-to-Work sector, where clients are supporting job seekers with self-service support and job search to get back into the workforce. The rapid increase in JobSeeker caseloads and the increased support ReadyTech is providing to this segment of the market is positive. Workforce Solutions (Employment) ReadyTech’s workforce solutions platforms are at the heart of employer systems. The significant changes to compliance requirements in 2020 that affect awards, annualised salaries, single touch payroll and now the complexity of managing JobKeeper payments, are all standard capabilities of the software platform. No other matter or circumstance has arisen since 30 June 2020 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. ● ● ● ● ● 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 2020 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 36 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 Chairman 26 August 2020 Sydney 74 64 65 75 2020 READYTECH ANNUAL REPORT2020 READYTECH ANNUAL REPORT 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 members of ReadyTech Holdings Limited Report on the Audit of the Financial Report 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 2020, 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 2020 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 (including Independence Standards) (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. Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Asia Pacific Limited and the Deloitte organisation. 76 66 Key Audit Matter How the scope of our audit responded to the Key Audit Matter Revenue recognition For the year ended 30 June 2020, the Group has reported revenue from contracts with customers of $39.25 million while the consolidated statement of financial position shows contract liabilities of $11.96 million. The revenue is disclosed in Note 5, and the contract liabilities are disclosed in Notes 15 and 20. Significant judgement is involved by management in applying Accounting Standard AASB 15 “Revenue from Contracts with Customers” in determining how satisfies a performance obligation and how the revenue should be recognised, especially for bundled goods or services and attributing the fair value to each element of the bundled product. the Group In addition, the calculation of revenue and contract liabilities is predominantly manual in nature which increases the risk of a calculation error. Our procedures included, but were not limited to: • Assessing the revenue recognition policy against the requirements of the relevant accounting standard; • Obtaining and understanding the process which management uses to record revenue and contract liabilities; • Understanding the revenue cycle and evaluating the relevant controls; • Assessing the appropriateness of management’s revenue recognition policies for any contract involving bundled goods and services and ensuring they are in accordance with the requirements of the relevant accounting standard; • Assessing the appropriateness of the fair value attributed to each element of the bundle by reviewing a sample of customer contracts to determine the transaction price to the various performance obligations; the appropriate allocation of • Obtaining the revenue and deferred revenue schedules from management and assessing the reconciliation of the amounts recorded to the control accounts in the general ledger; • On a sample basis, agreeing the revenue and contract liabilities to supporting documentation including customer contracts and cash receipts; and • Performing a recalculation of the expected revenue and contract liabilities to be reported for the year and as at 30 June 2020 and comparing them to calculations performed by management. We also assessed the appropriateness of the disclosures in Notes 2, 5, 15 and 20 to the financial statements. 77 67 2020 READYTECH ANNUAL REPORT2020 READYTECH ANNUAL REPORT Other Information The directors are responsible for the other information. The other information comprises the information included in the Group’s annual report for the year ended 30 June 2020, but does not include the financial report and our auditor’s report thereon. Our opinion on the financial report does not cover the other information and 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. • 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, actions taken to eliminate threats or safeguards applied. 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 the Directors’ Report for the year ended 30 June 2020. In our opinion, the Remuneration Report of ReadyTech Holdings Limited, for the year ended 30 June 2020, complies with section 300A of the Corporations Act 2001. 78 79 68 69 2020 READYTECH ANNUAL REPORT2020 READYTECH ANNUAL REPORT 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, 26 August 2020 ReadyTech Holdings Limited Shareholder information 30 June 2020 The shareholder information set out below was applicable as at 23 July 2020. Distribution of equitable securities Analysis of number of equitable 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 Number of holders % of holders 250 530 326 398 32 16.28 34.51 21.22 25.91 2.08 Number of securities 144,818 1,473,280 2,523,623 10,490,386 65,373,260 % of holders 0.19 1.84 3.15 13.11 81.71 1,536 100.00 80,005,367 100.00 Holders holding less than a marketable parcel of shares* 64 4.71 14,264 0.02 * Marketable parcel of shares is calculated based on closing market price on 23 July 2020 of $1.40 Equity security holders Twenty largest quoted equity security holders The names of the twenty largest security holders of quoted equity securities are listed below: Pemba Capital Partners Fund I Gp Pty Ltd National Nominees Limited J P Morgan Nominees Australia Pty Limited HSBC Custody Nominees (Australia) Limited Marc Raymond Washbourne Darren Coppin Sycamore Management Pty Ltd (VERLOOP FAMILY) Malvern Avenue Management Pty Ltd (THE BENYON HILL FAMILY) Washbourne Group Pty Ltd (THE WASHBOURNE FAMILY) Anksh Pty Ltd (Nimesh Shah) Pemba Capital Partners Pty Ltd (THE LIRAC) Sargon Ct Pty Ltd (HENROTH PTY LIMITED) Marish Pty Ltd (THE JONES FAMILY) Nimesh Shah Pemba Capital Partners Pty Ltd (PEMBA CAPITAL CO-INVESTMENT) Mr Brett David Goodrich Cazria Pty Ltd Trevor Fairweather BNP Paribas Nominees Pty Ltd (IB AU NOMS RETAILCLIENT DRP) Tony Jones Unquoted equity securities There are no unquoted equity securities. Ordinary shares Number held % of total shares issued 33,294,212 7,867,202 5,728,780 2,928,215 2,861,363 1,592,419 1,310,190 1,300,190 1,147,051 860,288 841,731 719,536 659,717 430,144 403,668 388,618 331,125 261,000 239,691 208,771 63,373,911 41.61 9.83 7.16 3.66 3.58 1.99 1.64 1.63 1.43 1.08 1.05 0.90 0.82 0.54 0.50 0.49 0.41 0.33 0.30 0.26 79.21 80 71 81 70 2020 READYTECH ANNUAL REPORT2020 READYTECH ANNUAL REPORT ReadyTech Holdings Limited Shareholder information 30 June 2020 Substantial holders Substantial holders in the Company are set out below: Pemba Entities* ReadyTech Holdings Limited Microequities Asset Management Pty Ltd The Washbourne entities** Ordinary shares Number held 34,539,611 19,919,230 7,654,314 4,008,414 % of total shares issued 43.17 24.90 9.57 5.01 * 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) ** Marc Raymond Washbourne and Washbourne Group Pty Limited ACN 627 033 363 as trustee of the Washbourne Familty Trust (together, the Washbourne Entities) Voting rights The voting rights attached to ordinary shares are set out below: Ordinary shares On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote. There are no other classes of equity securities. Restricted securities Class Ordinary Expiry date 31 December 2020 On-market buy back There is no current on-market buy back. Securities subject to voluntary escrow Class Ordinary shares Expiry date 31 December 2020 Number of shares 19,919,230 Number of shares 19,919,230 82 72 83 2020 READYTECH ANNUAL REPORTFY20 ANNUAL REPORT READYTECH HOLDINGS LIMITED ABN 25 632 137 216 - 30 JUNE 2020 84 

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