Dr. Reddy's Laboratories Ltd
Annual Report 2023

Plain-text annual report

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 2023 For the year ended 30 June 2022 2. Results for announcement to the market Revenues from ordinary activities up 32.0% to 103,321 Profit from ordinary activities after tax attributable to the owners of ReadyTech Holdings Limited down 43.4% to 4,975 Profit for the year attributable to the owners of ReadyTech Holdings Limited down 43.4% to 4,975 $'000 Dividends There were no dividends paid, recommended or declared during the current financial period. Comments The profit for the Group after providing for income tax amounted to $4,975,000 (30 June 2022: $8,794,000). Refer to the 'Review of operations' in the Directors' report for further commentary and analysis of the results. 3. Net tangible assets Net tangible assets per ordinary security 4. Control gained over entities Reporting Previous period Cents period Cents (73.70) (49.04) Name of entities (or group of entities) IT Vision Pty Ltd (and its controlled entities) Date control gained 25 July 2022 5. Loss of control over entities Not applicable. 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. ReadyTech Holdings Limited Appendix 4E Preliminary final report 7. Dividend reinvestment plans Not applicable. 8. Details of associates and joint venture entities Not applicable. 9. Foreign entities Details of origin of accounting standards used in compiling the report: Not applicable. 10. Audit qualification or review Details of audit/review dispute or qualification (if any): The financial statements have been audited and an unmodified opinion has been issued. 11. Attachments Details of attachments (if any): The Annual Report of ReadyTech Holdings Limited for the year ended 30 June 2023 is attached. 12. Signed As authorised by the Board of Directors Signed ___________________________ Date: 23 August 2023 Tony Faure Chair Sydney ReadyTech Holdings Limited ABN 25 632 137 216 Annual Report - 30 June 2023 ReadyTech Holdings Limited Contents 30 June 2023 Corporate directory Directors' report Auditor's independence declaration Consolidated statement of profit or loss and other comprehensive income Consolidated statement of financial position Consolidated statement of changes in equity Consolidated statement of cash flows Notes to the consolidated financial statements Directors' declaration Independent auditor's report to the members of ReadyTech Holdings Limited Shareholder information 2 3 19 20 21 22 23 24 75 76 80 1 ReadyTech Holdings Limited Corporate directory 30 June 2023 Directors Tony Faure - Chair and Independent Non-Executive Director Marc Washbourne - Chief Executive Officer Elizabeth Crouch AM - Independent Non-Executive Director Timothy Ebbeck - Independent Non-Executive Director Tom Matthews - Non-Executive Director Mark Summerhayes - Alternate Non-Executive Director to Tom Matthews Company secretaries Nimesh Shah Melissa Jones Registered office Principal place of business Share register Auditor Level 12, 680 George Street, Sydney NSW 2000 Australia Ph: +61 2 9018 5525 Level 2, 77 King Street Sydney NSW 2000 Australia Ph: +61 2 9018 5525 Link Market Services Limited Level 12, 680 George Street Sydney, NSW 2000 Australia Ph: 1300 554 474 Deloitte Touche Tohmatsu Quay Quarter Tower 50 Bridge Street Sydney, NSW 2000, Australia Ph: +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 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 Council's Corporate Governance Principles and Recommendations (Fourth Edition) (‘Recommendations’) to the extent appropriate to the size and nature of its operations. The Corporate Governance Statement, which sets out the corporate governance Recommendations that were followed during the reporting period and identifies and explains any Recommendations that were not 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 2 ReadyTech Holdings Limited Directors' report 30 June 2023 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 at the end of, or during, the year ended 30 June 2023. 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 Chair Marc Washbourne - Co-Founder & Chief Executive Officer Elizabeth Crouch AM - Non-Executive Director Timothy Ebbeck - Non-Executive Director Tom Matthews - Non-Executive Director Mark Summerhayes - Alternate Non-Executive Director to Tom Matthews Principal activities During the financial year, the principal continuing activities of the Group consisted of: ● Education and Work Pathways - provider of education, apprenticeship and employment services technology powering better outcomes for students, learners and job seekers; ● Workforce Solutions - provider of integrated payroll, rostering, HR and recruitment for the workforce; and ● Government and Justice - provider of technology solutions for local and state government and justice agencies. Dividends There were no dividends paid, recommended or declared during the current financial year or previous financial period. Review of operations The profit for the Group after providing for income tax amounted to $4,975,000 (30 June 2022: $8,794,000). Commenting on the FY23 result, ReadyTech Co-Founder and CEO, Marc Washbourne said: ReadyTech delivered another financial year of strong like-to-like revenue growth while increasing recurring SaaS revenue and earnings across all segments. The solid FY23 performance was achieved through our approach of positioning, the education, employment implementing and supporting our next generation cloud-based software across services, workforce management, government and justice sectors. At the heart of the Company has always been a culture of innovation, and ReadyTech is now well placed to capitalise on the AI revolution with access to high-quality data and many years of R&D investment. I am excited to leverage emerging technologies to augment our products and deliver additional value to our customers. Our focused enterprise strategy is driving momentum and we are delivering growth through the acquisition of high-value enterprise customers across all segments. The strategic plan, investments and growing track record have positioned ReadyTech well to target serviceable markets of over $970 million1 across our segments. Our high-conviction pipeline of new customers continues to mature and now exceeds $28 million reflecting unprecedented demand for our products, and a positive indication for the year ahead. Delivering profitable growth Revenue was $103.3 million, an increase of 13.1% on a like-for-like basis2. The highly valued subscription and license revenue was $84.3 million, representing a healthy 82% of total revenue. During FY23 ReadyTech signed 11 new landmark enterprise contracts with total deal value of $12.4 million. As the Company continues to successfully target high-value and enterprise customers, the average revenue per new customer increased markedly 74% to $95,600. With continued and disciplined investment for growth, expenses added to $68.5 million, up 14.9% on a like-for-like basis. This included continued investment in Research and Development – an important driver of long-term and sustainable growth, representing 30.7% of revenue. 1 Management estimates by internal market/customer analysis. 2 Like-for-like compares organic results excluding the impact of IT Vision. 3 ReadyTech Holdings Limited Directors' report 30 June 2023 Underlying EBITDA was $34.8 million, representing an EBITDA margin of 33.7%. Excluding the Impact of IT Vision, the EBITDA margin was 35.6%. The underlying cash EBITDA margin was 16.3%, including investments for enterprise growth and the impact of recently acquired lower-margin businesses. Continued growth in Education & Work Pathways Education & Work Pathways revenue increased 16.4% to $36.1 million, with recurring revenue of $30.3 million. The additional revenue was driven by focus on strong product-market fit and targeted investment in sales and marketing, reflected in pipeline conversion and the recent customer wins including UNSW College, Training Services NSW (Phase 2) and TAFE SA (Ready Skills product). ReadyTech is well positioned to continue to drive growth across Education & Work Pathways segment, with many education institutions expected to replace legacy technology with cloud solutions in the near future. In this segment, interoperability is essential to connect complex ecosystems of education software and ReadyTech has built a reputation for providing flexibility, choice and innovation. Strong margin in Workforce Solutions In the Workforce Solutions segment ReadyTech won 78 new customers in FY23 with an average deal value of $46,500, up 46% compared to FY22. The recent customer wins drove software revenue to $19.3 million, an increase of 20.4%, whilst the managed services revenue grew 12.2% to $9.2 million. EBITDA (excluding LTIP) grew 21.4% to $11.4 million at a 40% EBITDA margin. The industry vertical strategy continues to deliver new customer growth through ReadyTech’s all-in-one workforce management offering which is able to replace legacy systems with a single cloud solution. The new employee experience gateway, Ready People, is a compelling example of applying an open ecosystem to elevate the user experience. This segment is expected to continue to deliver strong growth in FY24. Recent customer wins deliver growth in Government & Justice The Government & Justice segment delivered revenue growth of $38.7 million which is a 61.9% growth rate. Excluding the impact of IT Vision, the segment delivered a growth rate of 5.7% to $26.1 million. In FY23, government revenue was impacted by downgrades of primarily project-based and non-recurring revenue by a number of State Government customers worth $2 million. In FY24, Government & Justice revenue growth is expected to return to the mid-teens level, supported by multiple recent customer ERP wins, committed cloud upgrades for IT Vision and a strong high conviction pipeline. The segment delivered EBITDA margin, excluding IT Vision, was 31.1%. For IT Vision, FY23 revenue was $12.6 million with a 21.7% EBITDA margin, with margin improving to 27% in H2 and in line with plan. Material business risks The following is a summary of material business risks that could adversely affect our financial performance and growth potential in future years. Disruption to, or failure of, technology systems and software, including security breaches The Group and its customers are dependent on the effective performance, reliability and availability of the Group’s technology platforms, communications systems, servers, the internet, hosting services and the on-premise and cloud-based environments in which it provides such software solutions. There is a risk that the Group’s systems and software may be adversely affected by damaged or faulty equipment misuse by staff or contractors, disruption, failure, service outages or data corruption that could occur as a result of computer viruses, “worms”, malware, ransomware, internal or external misuse by websites, hacking or cyber-attacks, and other disruptions including natural disasters, power surges or outages, terrorist attacks, or other similar events. There is also a risk that security and technical precaution measures taken by the Group and its third-party operators will not be sufficient to prevent unauthorised access to the Group’s networks, systems and databases. Operational or business delays, and damage to reputation, may result from any disruption or failure of the Group’s information systems and product delivery platforms, which may be caused by events outside the Group’s control. This could lead to claims against the Group by its customers, reduce the attractiveness of the Group’s software and services to its clients, subject the Group to legal action and/or regulatory scrutiny and the potential termination of customer contracts. 4 ReadyTech Holdings Limited Directors' report 30 June 2023 Business growth ReadyTech’s business is dependent on its ability to retain a portion of its existing clients and attract new business. ReadyTech sells its products under various subscription and licence models, all of which are exposed to the risk of expiry, non-renewal, and pricing risks. ReadyTech may fail to retain sufficient existing customers or attract sufficient new business for a number of reasons, such as the failure to meet customer expectations, poor customer service, technology disruptions, pricing or competition. ReadyTech may also be unable to, or experience delays in, converting pipeline customers into new customers, especially larger customers who generally have longer sales cycles and procurement and tender processes. Talent retention and acquisition The Group’s success depends to some extent on its ability to attract and retain key personnel; specifically technology talent, implementation and customer success roles, payroll specialists and senior management with extensive experience in, and knowledge of, the education, government, justice and employment industries in which the Group operates. The loss of key personnel may adversely affect the Group’s ability to develop its products, or implement its business strategies and may adversely affect its future financial performance. This continues to be an elevated risk due to a tight labour market, wage inflation driven by an increased demand for this talent by acceleration of digital strategies, lack of migration and skills shortages. Technology and software Long term development of software can lead to dependency on dated technology that restricts maintainability, speed of development, security and The Group's competitiveness in the market. Rapid growth can incur technical debt in service of speed to market. As with all information technology and software products, there is a risk of technology obsolescence. New technology may be perceived by customers to have advantages over the Group’s current products. Regulatory The Group’s products are significantly influenced and affected by government policy and regulations which apply to the education, employment and government related entities industries in which the Group operates. There is a risk that the Group may fail to keep abreast of such policy and regulations and potential changes to the same, which may have an adverse impact on its business, operations and financial performance. Any material new or altered law, regulation or policy which impacts the Group’s products could require the Group to increase spending and employee resources on regulatory compliance and/or change its business practices, which would adversely affect the Group’s operations and profitability. Further, there is a risk that customers may reduce their usage of the Group’s products, or that the Group may fail to attract new customers, if the Group fails to offer solutions with appropriate coverage of compliance or regulatory requirements as sought by its customers. Significant changes in the state of affairs On 25 July 2022, the Group completed the acquisition of 100% of ordinary shares of IT Vision Pty Ltd (and its controlled entities) for a total consideration of $53,102,000. On 30 June 2023, the Group completed the loan refinancing and entered into a variation contract with the lender to extend the credit facility to 30 June 2026 at the same facility limit. 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 In July 2023, the Group settled the contingent consideration in relation to PhoenixATS Australia Pty Ltd of $770,000 by cash. Further, Open Windows Pty Ltd and IT Vision Pty Ltd have met their earn out targets as per the purchase sales agreement. Open Windows Pty Ltd sellers elected to be paid $1,668,000 by cash and $2,502,000 by shares at $3.05 per share on 17 August 2023. IT Vision Pty Ltd sellers elected to be paid by $2,825,000 by cash and $3,003,000 by shares at $3.02 per share on 18 August 2023. No other matter or circumstance has arisen since 30 June 2023 that has significantly affected, or may significantly affect the Group's operations, the results of those operations, or the Group's state of affairs in future financial years. Likely developments and expected results of operations Information on likely developments in the operations of the Group and the expected results of operations have not been included in this report because the Directors believe it would be likely to result in unreasonable prejudice to the Group. 5 ReadyTech Holdings Limited Directors' report 30 June 2023 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: Other current directorships: Tony Faure Independent Non-Executive Chair 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. 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 (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. Chair of oOh!media Ltd (ASX:OML), PredictHQ Limited, Tidal Ventures Opportunity Fund, Chair of LawPath Independent Business Media Former directorships (last 3 years): Stackla, Medical Media, Uno Homeloans Special responsibilities: Member of the Audit and Risk Committee and Nomination and Remuneration Committee 378,819 ordinary shares Interests in shares: Name: Title: Qualifications: Experience and expertise: Other current directorships: Former directorships (last 3 years): None None Special responsibilities: 4,146,229 ordinary shares Interests in shares: Name: Title: Qualifications: Experience and expertise: Marc Washbourne Chief Executive Officer First-class degree (History), University of Leeds, UK. Company Directors Course, AICD Marc Washbourne is a founder of the ReadyTech business and was appointed CEO in 2006. A former software developer and original architect of the JobReady software, Marc brings to ReadyTech over 20 years of experience in technology for the education, employment and government sectors. Marc now heads up a global team committed to innovation and better technology. Marc couples his strong technical background with a strategic vision ('SaaS') products, underpinning best practice approaches shared across the platforms. Year13, Digital Skills Organisation for ReadyTech’s Software-as-a-Service Elizabeth Crouch AM FAICD Independent Non-Executive Director Elizabeth holds a Bachelor of Economics and a Master of Cyber Security. She is a Fellow of the Australian Institute of Company Directors. Elizabeth is a seasoned non-executive Director with a career that includes experience in 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. She chairs the Boards of the Sydney Children’s Hospital Network, the Customer Owned Banking Association Hearing Australia and Catholic Schools Parramatta Diocese Ltd. She is also on the Boards of the NSW Government’s Health Infrastructure and the NSW Institute of Sport. None Other current directorships: Former directorships (last 3 years): Bingo Industries Pty Ltd Special responsibilities: Interests in shares: Chair of the Audit and Risk Committee and a member of the Nomination and Remuneration Committee 41,899 ordinary shares 6 ReadyTech Holdings Limited Directors' report 30 June 2023 Name: Title: Qualifications: Experience and expertise: Other current directorships: 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 35 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), Chief Commercial Officer of SAP (APJ), 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 of Indara Digital Infrastructure Limited, Xpon Technologies Ltd (ASX:XPN), Central Coast Local Health District, Museum of Applied Arts and Sciences, CPA Australia, Nextgen Distribution, and Insite Organisation and as Independent Chair of The Yield Technology Solutions. He is presently principal of Ebbeck TIG Consulting and advisor to emerging technology companies. Indara Digital Infrastructure Limited, Xpon Technologies Ltd (ASX:XPN), The Yield Technology Solutions Pty Ltd, and Central Coast Local Health District. Former directorships (last 3 years): Envirosuite Ltd (ASX:EVS), Tymlez Group Ltd (ASX:TYM), IXUP Limited (ASX:IXU) Special responsibilities: Chair of the Nomination and Remuneration Committee and a member of the Audit and Risk Committee 17,273 ordinary shares Interests in shares: Name: Title: Qualifications: Experience and expertise: Other current directorships: 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 20 years of experience in private equity, principal investment, investment banking and middle market advisory and valuations in both Australia and the UK. As a Managing Director at leading private equity manager Pemba, Tom has led a number of transactions across Pemba’s areas of focus since 2015, including investments into ReadyTech, Marque Group, Open Office, ONCALL, RxPx, Vets Central, Acis, Aurizn, and Lumia Care. 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. Smart Loyalty, ONCALL, RxPx, Vets Central, Acis, Aurizn, Lumia Care, QVS, Outsourced Former directorships (last 3 years): None None Special responsibilities: 36,644,933 ordinary shares* Interests in shares: * Tom Matthews is a representative of Pemba entities. The number of shares includes Pemba interests. 7 ReadyTech Holdings Limited Directors' report 30 June 2023 Name: Title: Qualifications: Experience and expertise: 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. More recently has co-led a $650 million and a $400 million fundraising (backed by some of the largest global and local LPs) which has established the firm as one of the leaders in its segment in Australia and NZ. Director of Arteva, Ausreo, InteriorCo, ONCALL and RxMx Other current directorships: Former directorships (last 3 years): Coverforce and Instant Access Special responsibilities: Interests in shares: None 555,036 ordinary shares Company secretaries Nimesh Shah and Melissa Jones 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. Melissa Jones is the General Manager of Company Matters, Link Group’s governance and company secretarial team. Melissa has over 20 years’ experience as a lawyer, company secretary and governance professional. Melissa is admitted as a Solicitor of the Supreme Court of New South Wales and holds a Bachelor of Laws (Honours). Meetings of Directors The number of meetings of the Company's Board of Directors ('the Board') held during the period ended 30 June 2023, and the number of meetings attended by each Director were: Full Board Nomination and Remuneration Committee Audit and Risk Committee Attended Held Attended Held Attended Held Tony Faure Marc Washbourne* Elizabeth Crouch AM Timothy Ebbeck Tom Matthews* Mark Summerhayes** 12 12 11 12 10 9 12 12 12 12 12 12 1 2 2 2 - - 2 2 2 2 - - 4 4 4 4 - - 4 4 4 4 - - Held: represents the number of meetings held during the time the Director held office. 8 ReadyTech Holdings Limited Directors' report 30 June 2023 * ** Marc Washbourne attended 4 Audit and Risk Committee meetings and 2 Nomination and Remuneration Committee meetings as an observer. Mark Summerhayes is an Alternative Non-Executive Director for Tom Matthews and attended a number of meetings either as alternate or in an observer capacity. 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 people who have 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 information 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; and 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 aligned to the 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; and 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; and 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 Chair's fees are determined independently to the fees of other non-executive Directors and all non-executive Director remuneration is based on comparative roles in the external market. Non-executive Directors are not entitled to participate in any employee incentive scheme established by the Company. 9 ReadyTech Holdings Limited Directors' report 30 June 2023 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 2023, the fees payable to the current non- executive Directors will not exceed $600,000 in aggregate. 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. The annual non-executive Directors’ fees currently agreed to be paid by the Company are inclusive of superannuation and are $170,000 to the Chair and $90,000 (inclusive of superannuation) to each of the other Independent non-executive Directors. For the financial year ending 30 June 2024, it was approved to increase the annual non-executive Directors’ fees inclusive of superannuation to be $187,000 to the Chair and $97,500 to each of the other independent non-executive Directors, inclusive fee for chairing the board sub-committees. 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. fixed remuneration consisting of base pay, non-monetary benefits and other remuneration such as superannuation; The executive remuneration and reward framework has three components: (i) (ii) short-term incentives; and (iii) long-term incentives. The combination of these comprises the executive's total remuneration. (i) Fixed remuneration Fixed remuneration, consisting of fixed salary, superannuation and non-monetary benefits, is 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. (ii) Short-term incentives 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 financial 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 its 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 60% of fixed salary with 70% based on Financial KPI and 30% on Personal KPI's for the year ended 30 June 2023. The Financials KPIs are based on achieving Group revenue and Group net profit after tax, excluding acquired amortisation expenses ('NPATA') targets. 10 ReadyTech Holdings Limited Directors' report 30 June 2023 (iii) Long-term incentives The long-term incentives include long service leave and share-based payments. The Group implemented a long-term incentives ('LTI') plan during the financial year ended 30 June 2023 where performance rights are awarded to executives over a period of three years based on long-term incentive measures. These include earnings per share ('EPS') targets, a total shareholder return ('TSR') targets relative to the S&P/ASX All Tech Index and recurring revenue per share targets. 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 year ended 30 June 2023. Voting and comments made at the Company's 2022 Annual General Meeting ('AGM') At the 2022 AGM, 99.91% of the votes received supported the adoption of the remuneration report for the year ended 30 June 2023. The Company did not receive any specific feedback at the AGM regarding its remuneration practices. 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 Chair Marc Washbourne - Chief Executive Officer Elizabeth Crouch AM - Non-Executive Director Timothy Ebbeck - Non-Executive Director Tom Matthews* - Non-Executive Director Mark Summerhayes*- Alternate Non-Executive Director to Tom Matthews * Tom Matthews and Mark Summerhayes are representatives of Pemba entities and elect not to receive director fees. And the following person: ● Nimesh Shah - Chief Financial Officer 11 ReadyTech Holdings Limited Directors' report 30 June 2023 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 $ 170,000 90,000 90,000 - - - - - - - - - - - - - - - 170,000 90,000 90,000 425,000 109,140 (24,862) 25,292 23,541 444,525 1,002,636 375,000 1,150,000 64,200 173,340 5,062 (19,800) 25,292 50,584 936 24,477 324,501 794,991 769,026 2,147,627 2023 Non-Executive Directors: Tony Faure Elizabeth Crouch AM Timothy Ebbeck Executive Directors: Marc Washbourne* Other Key Management Personnel: Nimesh Shah* * Marc Washbourne and Nimesh Shah received cash bonuses approved by the Nomination and Remuneration Committee based on financial and personal KPIs. 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 $ 150,000 80,000 80,000 - - - - - - - - - - - - - - - 150,000 80,000 80,000 375,000 168,750 9,263 23,568 (3,744) 272,443 845,280 350,000 1,035,000 105,000 273,750 7,958 17,221 23,568 47,136 (888) (4,632) 235,887 721,525 508,330 1,876,805 2022 Non-Executive Directors: Tony Faure Elizabeth Crouch AM Timothy Ebbeck Executive Directors: Marc Washbourne* Other Key Management Personnel: Nimesh Shah* * Marc Washbourne and Nimesh Shah received cash bonuses approved by the Nomination and Remuneration Committee based on financial and personal KPIs. 12 ReadyTech Holdings Limited Directors' report 30 June 2023 The proportion of remuneration linked to performance and the fixed proportion are as follows: Name Non-Executive Directors: Tony Faure Elizabeth Crouch AM Timothy Ebbeck Executive Directors: Marc Washbourne Other Key Management Personnel: Nimesh Shah Fixed remuneration 2022 2023 At risk – STI At risk – LTI 2023 2022 2023 2022 100% 100% 100% 100% 100% 100% - - - - - - - - - - - - 45% 48% 11% 20% 44% 32% 51% 53% 8% 15% 41% 32% The proportion of the cash bonus paid/payable or forfeited is as follows: Name Executive Directors: Marc Washbourne Other Key Management Personnel: Nimesh Shah Cash bonus paid/payable 2023 2022 Cash bonus forfeited 2022 2023 100% 100% 100% 100% - - - - 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 Fixed salary of $449,650 plus superannuation 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 Fixed salary of $396,750 plus superannuation 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. 13 ReadyTech Holdings Limited Directors' report 30 June 2023 Share-based compensation Issue of shares Details of shares issued to Directors and other key management personnel as part of compensation during the year ended 30 June 2023 are set out below: Name Marc Washbourne Nimesh Shah Date 17 August 2022 17 August 2022 Shares Issue price 86,815 84,015 $0.00 $0.00 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 2023. 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 2023. Performance rights The terms and conditions of each grant of performance rights over ordinary shares affecting remuneration of Directors and other key management personnel in this financial year or future reporting years are as follows: Name Marc Washbourne Nimesh Shah Number of rights granted Grant date Vesting date and exercisable date 86,815 11/12/2020 60,264 17/11/2021 60,264 17/11/2021 47,380 15/11/2022 47,380 15/11/2022 84,014 11/12/2020 56,246 13/09/2021 56,246 13/09/2021 41,806 11/10/2022 41,806 11/10/2022 30/06/2023 30/06/2023 30/06/2024 30/06/2024 30/06/2025 30/06/2023 30/06/2023 30/06/2024 30/06/2024 30/06/2025 Expiry date 30/06/2023 30/06/2023 30/06/2024 30/06/2024 30/06/2025 30/06/2023 30/06/2023 30/06/2024 30/06/2024 30/06/2025 Fair value per right at grant date $1.80 $3.99 $3.99 $3.97 $3.97 $1.80 $3.06 $3.06 $2.92 $2.92 Performance rights granted in the financial year ended 30 June 2021 Performance rights are subject to an earnings per share ('EPS') hurdle (50% of grant value) and a relative total shareholder return ('TSR') hurdle which is compared against the S&P/ASX All Tech Index (50% of grant value). Performance rights are evaluated in two tranches. The first tranche, equivalent to 50% of the total grant value vested on 30 June 2022. The second tranche, also equivalent to 50% of the total grant value, is subject to be evaluated three years from the beginning of the performance period, 1 July 2020. Details of the performance hurdles are as follows: ● EPS - if the compound annual growth rate of EPS is less than the target of 9%, no vesting will occur. If the target is met, 50% of rights will vest. In the event that the compound annual growth rate is between 10-14%, vesting will be pro-rated between 50-100%. TSR - if the relative TSR of the company ranks at or above the 75th percentile, 100% of the rights will vest. In the event that the company ranks at the 50th percentile, 50% of the rights will vest. For any achievement between the 50th and 75th percentile, vesting will be pro-rated between 50-100%. ● Performance rights granted in the financial year ended 30 June 2022 Performance rights are subject to an earnings per share ('EPS') hurdle (50% of grant value) and a recurring revenue per share hurdle (50% of grant value). 14 ReadyTech Holdings Limited Directors' report 30 June 2023 Performance rights will be evaluated in two tranches. The first tranche, equivalent to 50% of the total grant value, is subject to be evaluated two years from 1 July 2021 ('the beginning of the performance period'). The second tranche, also equivalent to 50% of the total grant value, will be evaluated three years from the beginning of the performance period. Details of the performance hurdles are as follows: ● EPS - if the compound annual growth rate of EPS is less than the target of 13%, no vesting will occur. If the target is met, 50% of rights will vest. In the event that the compound annual growth rate is between 13-17%, vesting will be pro- rated between 50-100%. Recurring revenue per share - if the compound annual growth rate of recurring revenue per share is less than the target of 13%, no vesting will occur. If the target is met, 50% of rights will vest. In the event that the compound annual growth rate is between 13-17%, vesting will be pro-rated between 50-100%. ● Performance rights granted in the financial year ended 30 June 2023 Performance rights are subject to an earnings per share ('EPS') hurdle (50% of grant value) and a recurring revenue per share hurdle (50% of grant value). Performance rights will be evaluated in two tranches. The first tranche, equivalent to 50% of the total grant value, will be evaluated two years from 1 July 2022 ('the beginning of the performance period'). The second tranche, also equivalent to 50% of the total grant value, will be evaluated three years from the beginning of the performance period. Details of the performance hurdles are as follows: ● EPS - if the compound annual growth rate of EPS is less than the target of 13%, no vesting will occur. If the target is met, 50% of rights will vest. In the event that the compound annual growth rate is between 13-17%, vesting will be pro- rated between 50-100%. Recurring revenue per share - if the compound annual growth rate of recurring revenue per share is less than the target of 13%, no vesting will occur. If the target is met, 50% of rights will vest. In the event that the compound annual growth rate is between 13-17%, vesting will be pro-rated between 50-100%. ● The performance rights are not subject to an exercise price. Performance rights granted carry no dividend or voting rights. Additional information The earnings of the Group for the five years to 30 June 2023 are summarised below: 2023 $'000 2022 $'000 2021 $'000 2020 $'000 2019 $'000 Sales revenue Adjusted EBITDA* Profit/(loss) after income tax 103,306 33,039 4,975 78,284 27,472 8,794 50,027 18,884 2,155 39,254 14,954 3,943 32,711 13,013 (1,490) * Earnings before interest, tax, depreciation, amortisation and other non-operating items. The factors that are considered to affect total shareholders return ('TSR') are summarised below: Share price at financial year end ($) Basic earnings per share (cents per share) 3.30 4.38 3.10 8.28 2.40 2.37 1.40 4.93 1.54 (2.15) 2023 2022 2021 2020 2019 15 ReadyTech Holdings Limited Directors' report 30 June 2023 Additional disclosures relating to key management personnel Shareholding The number of shares in the Company held during the financial year by each Director and other members of key management personnel of the Group, including their personally related parties, is set out below: Balance at Received as part of the start of the year remuneration Additions Disposals/ other Balance at the end of the year Ordinary shares Tony Faure Marc Washbourne Elizabeth Crouch AM Timothy Ebbeck Tom Matthews Mark Summerhayes Nimesh Shah 378,819 4,059,414 41,899 17,273 34,590,926 555,036 1,378,336 41,021,703 - 86,815 - - - - 84,015 170,830 - - - - 2,054,007 - - 2,054,007 378,819 - 4,146,229 - 41,899 - - 17,273 - 36,644,933 555,036 - 1,462,351 - - 43,246,540 Performance rights holding The number of performance rights over ordinary shares in the Company held during the financial year by each Director and other members of key management personnel of the Group, including their personally related parties, is set out below: Performance rights over ordinary shares Marc Washbourne Nimesh Shah Balance at the start of the year Granted Exercised Expired/ forfeited/ other Balance at the end of the year 294,158 280,521 574,679 94,760 83,612 178,372 (86,815) (84,015) (170,830) - - - 302,103 280,118 582,221 Performance rights over ordinary shares Marc Washbourne Nimesh Shah Vested and Vested and exercisable unexercisable Balance at the end of the year 147,079 140,260 287,339 - - - 147,079 140,260 287,339 * 94,760 performance rights issued under ASX Listing Rule 10.14 with approval from shareholders received at the 2022 Annual General Meeting. Other transactions with key management personnel and their related parties There was no transaction with key management personnel and their related parties during the financial year ended 30 June 2023 (2022: none). 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. 16 ReadyTech Holdings Limited Directors' report 30 June 2023 Shares under performance rights Unissued ordinary shares of ReadyTech Holdings Limited under performance rights at the date of this report are as follows: Grant date 11/11/2020 13/09/2021 13/09/2021 17/11/2021 17/11/2021 11/10/2022 11/10/2022 15/11/2022 15/11/2022 Expiry date 30/06/2023 30/06/2023 30/06/2024 30/06/2023 30/06/2024 30/06/2024 30/06/2025 30/06/2024 30/06/2025 Number under rights 351,460 217,394 217,390 60,264 60,264 244,319 244,309 47,380 47,380 1,490,160 The performance rights are not subject to an exercise price. No person entitled to exercise the performance rights had or has any right by virtue of the performance right to participate in any share issue of the Company or of any other body corporate. 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 2023 and up to the date of this report. Shares issued on the exercise of performance rights There were no ordinary shares of ReadyTech Holdings Limited issued on the exercise of performance rights during the year ended 30 June 2023 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. Indemnity and insurance of auditor The Company has not, during or since the end of the financial year, indemnified or agreed to indemnify the auditor of the Company or any related entity against a liability incurred by the auditor. During the financial year, the Company has not paid a premium in respect of a contract to insure the auditor of the Company or any related entity. Proceedings on behalf of the Company No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the Company, or to intervene in any proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the Company for all or part of those proceedings. Non-audit services Details of the amounts paid or payable to the auditor for non-audit services provided during the financial year by the auditor are outlined in note 30 to the financial statements. The Directors are satisfied that the provision of non-audit services during the financial year, by the auditor (or by another person or firm on the auditor's behalf), is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. 17 ReadyTech Holdings Limited Directors' report 30 June 2023 The Directors are of the opinion that the services as disclosed in note 30 to the financial statements do not compromise the external auditor's independence requirements of the Corporations Act 2001 for the following reasons: ● all non-audit services have been reviewed and approved to ensure that they do not impact the integrity and objectivity of the auditor; and none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants (including Independence Standards) 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. 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 Chair 23 August 2023 Sydney 18 Deloitte Touche Tohmatsu ABN 74 490 121 060 Quay Quarter Tower 50 Bridge Street Sydney NSW 2000 Australia Phone: +61 2 9322 7000 www.deloitte.com.au The Directors ReadyTech Holdings Limited Level 2 77 King Street Sydney NSW 2000 23 August 2023 Dear Directors Auditor’s Independence Declaration to ReadyTech Holdings Limited In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration of independence to the directors of ReadyTech Holdings Limited. As lead audit partner for the audit of the financial report of ReadyTech Holdings Limited for the year ended 30 June 2023, I declare that to the best of my knowledge and belief, there have been no contraventions of: (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 Sandeep Chadha Partner Chartered Accountants Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Asia Pacific Limited and the Deloitte organisation. 19 ReadyTech Holdings Limited Consolidated statement of profit or loss and other comprehensive income For the year ended 30 June 2023 Revenue from contracts with customers 5 103,306 78,284 Note Consolidated 2023 $'000 2022 $'000 Interest revenue calculated using the effective interest method Revaluation of contingent consideration Expenses Hosting and other direct costs Employee benefits expense Depreciation and amortisation expense Impairment of assets Advertising and marketing expenses Consultancy and professional expenses Administration expenses Communication and IT expenses Occupancy costs Other expenses Finance costs Profit before income tax expense Income tax expense Profit after income tax expense for the year attributable to the owners of 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 6 7 15 - - 6,027 (8,244) (59,480) (17,272) - (1,094) (2,909) (970) (2,031) (723) (1,238) (2,563) (4,685) (41,970) (14,079) (4,373) (542) (2,089) (767) (1,628) (530) (981) (1,043) 6,797 11,624 (1,822) (2,830) 4,975 8,794 137 137 (73) (73) 5,112 8,721 Cents Cents Basic earnings per share Diluted earnings per share 43 43 4.38 4.38 8.28 8.28 The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes 20 ReadyTech Holdings Limited Consolidated statement of financial position As at 30 June 2023 Assets Current assets Cash and cash equivalents Trade and other receivables Contract assets Derivative financial instruments Income tax refund receivable Prepayments Total current assets Non-current assets Property, plant and equipment Intangibles Right-of-use assets Contract costs Deferred tax Total non-current assets Total assets Liabilities Current liabilities Trade and other payables Contract liabilities Derivative financial liability Lease liabilities Income tax payable Employee benefits Contingent consideration Total current liabilities Non-current liabilities Contract liabilities Borrowings Provisions Lease liabilities Deferred tax Employee benefits Contingent consideration Total non-current liabilities Total liabilities Net assets Equity Issued capital Reserves Retained profits Total equity Note Consolidated 2023 $'000 2022 $'000 8 9 10 11 7 12 13 14 15 7 16 17 18 19 7 20 21 22 24 7 23 25 26 20,616 10,434 1,489 76 2,150 2,969 37,734 9,201 11,377 1,383 - - 1,355 23,316 2,229 212,511 4,783 2,025 - 221,548 1,042 150,639 3,149 2,120 5,704 162,654 259,282 185,970 11,767 19,527 - 1,229 - 7,246 10,181 49,950 888 46,949 307 3,932 2,718 375 25,911 81,080 6,824 18,974 17 1,176 3,227 6,240 12,971 49,429 368 33,949 64 2,214 - 322 1,451 38,368 131,030 87,797 128,252 98,173 194,292 (78,480) 12,440 171,916 (81,208) 7,465 128,252 98,173 The above consolidated statement of financial position should be read in conjunction with the accompanying notes 21 ReadyTech Holdings Limited Consolidated statement of changes in equity For the year ended 30 June 2023 Consolidated Balance at 1 July 2021 Profit after income tax expense for the year Other comprehensive income for the year, net of tax Total comprehensive income for the year Transactions with owners in their capacity as owners: Contributions of equity, net of transaction costs (note 25) Share-based payments (note 40) Issued capital $'000 Reserves $'000 (Accumulat- ed losses)/ Retained profits $'000 Total equity $'000 159,095 (82,668) (1,329) 75,098 - - - - (73) (73) 8,794 - 8,794 (73) 8,794 8,721 12,821 - - 1,533 - - 12,821 1,533 Balance at 30 June 2022 171,916 (81,208) 7,465 98,173 Consolidated Balance at 1 July 2022 Profit after income tax expense for the year Other comprehensive income for the year, net of tax Total comprehensive income for the year Transactions with owners in their capacity as owners: Contributions of equity, net of transaction costs (note 25) Share-based payments (note 40) Exercise of performance rights (note 26) Issued capital $'000 Retained Reserves $'000 profits $'000 Total equity $'000 171,916 (81,208) 7,465 98,173 - - - 21,747 - 629 - 137 137 - 3,220 (629) 4,975 - 4,975 137 4,975 5,112 - - - 21,747 3,220 - Balance at 30 June 2023 194,292 (78,480) 12,440 128,252 The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes 22 ReadyTech Holdings Limited Consolidated statement of cash flows For the year ended 30 June 2023 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 Income taxes paid Note Consolidated 2023 $'000 2022 $'000 113,266 (80,151) 81,983 (57,626) 33,115 15 (2,429) (521) (2,374) 24,357 - (911) (1,190) (5,256) Net cash from operating activities 39 27,806 17,000 Cash flows from investing activities Payment for purchase of subsidiaries, net of cash acquired Payments for contract assets Payments for property, plant and equipment Payments for intangibles Payments of contingent consideration 37 12 13 29 Net cash used in investing activities Cash flows from financing activities Repayment of borrowings Share issue transaction costs Proceeds from borrowings Repayment of lease liabilities Net cash from financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year (6,424) (578) (1,463) (18,239) (1,074) (5,354) (1,027) (572) (12,038) (2,297) (27,778) (21,288) - - 13,000 (1,613) (1,800) (20) 4,817 (1,503) 11,387 1,494 11,415 9,201 (2,794) 11,995 Cash and cash equivalents at the end of the financial year 8 20,616 9,201 The above consolidated statement of cash flows should be read in conjunction with the accompanying notes 23 ReadyTech Holdings Limited Notes to the consolidated financial statements 30 June 2023 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 2, 77 King Street Sydney NSW 2000 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 23 August 2023. 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. Any new or amended Accounting Standards or Interpretations that are not yet mandatory have not been early adopted. Deficiency of net current assets The statement of financial position has a deficiency of net current assets of $12,216,000 (2022: $26,113,000) at the reporting date. The deficiency is mainly attributable to (i) contract liabilities of $19,527,000 disclosed in current liabilities, which represents upfront payments received from customers on signed sales contracts which will not result in an outflow of cash within the next twelve months; (ii) an amount of $7,246,000 in relation to employee benefits is included in current liabilities, the majority of this liability is not expected to be settled in cash within the next twelve months. 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 Statement of compliance 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, except for derivatives at fair value through profit or loss. 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. 24 ReadyTech Holdings Limited Notes to the consolidated financial statements 30 June 2023 Note 2. Significant accounting policies (continued) Parent entity information In accordance with the Corporations Act 2001, these financial statements present the results of the Group only. Supplementary information about the parent entity is disclosed in note 35. Principles of consolidation The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of ReadyTech Holdings Limited as at 30 June 2023 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 has the power over the investee, is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases. Intercompany transactions, balances and unrealised gains on transactions between entities in the Group are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. The acquisition of subsidiaries is accounted for using the acquisition method of accounting. A change in ownership interest, without the loss of control, is accounted for as an equity transaction, where the difference between the consideration transferred and the book value of the share of the non-controlling interest acquired is recognised directly in equity attributable to the parent. Where the Group loses control over a subsidiary, it derecognises the assets including goodwill, liabilities and non-controlling interest in the subsidiary together with any cumulative translation differences recognised in equity. The Group recognises the fair value of the consideration received and the fair value of any investment retained together with any gain or loss in profit or loss. Operating segments Operating segments are presented using the 'management approach', where the information presented is on the same basis as the internal reports provided to the Chief Operating Decision Makers ('CODM'). The CODM is responsible for the allocation of resources to operating segments and assessing their performance. Foreign currency translation The financial statements are presented in Australian dollars, which is ReadyTech Holdings Limited's functional and presentation currency. Foreign currency transactions Foreign currency transactions are translated into 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. 25 ReadyTech Holdings Limited Notes to the consolidated financial statements 30 June 2023 Note 2. Significant accounting policies (continued) Revenue The principal activities of the Group are to provide technology-based solutions to its customers that are organized into three reportable operating segments: Education and Work Pathways, Workforce Solutions and Government and Justice. Main products of the Group: Segment Main Product Description Education and Work Pathways JR Plus and AVAXA Ready LMS JR Plus, AVAXA and Ready LMS are ReadyTech’s student management system empowering enterprise tertiary educators to create digital student experiences and to adhere to strict compliance standards. VeTtrak, incuding VETtrak Cloud Ready Skills VETtrak is a student management system for Registered Training Organisations (RTOs). Ready Skills provides vocational skills tracking, recognition, planning and assessment technology. Job Ready, Ready Recruit and Job Apprentice Job Ready, Ready Recruit and Job Apprentice exists to help employment services providers, Group Training Organisations (GTOs) and Australian Apprenticeship Support Network (AASN) provides to support the completion of apprenticeship lifecycle and deliver work opportunities for jobseekers and customers. Esher House Esher House delivers behavioural assessment technology and intervention programs for Back to Work, apprentices and more. Workforce Solutions Ready Workforce Ready Workforce is an all-in-one cloud payroll, HR, rostering, time & attendance and leave management software platform. Ready Employ Ready Employ by Phoenix is a cloud-based talent management system with everything you need to manage your processes online, easily. Ready Pay Ready Pay provides people management software, combined with an end-to-end payroll outsourcing service, with local payroll experts providing customers with payroll, HR administration and workplace health & safety software and services. Government and Justice Ready Community (powered by Open Office) Ready Community (powered by Open Office) is provider of high function, integrated, statutory and compliance management systems for local government. Ready Case Ready Case (formerly case HQ, part of McGirr Technologies) is the market leader in case management systems for courts, tribunals and related justice sector agencies. Ready Contracts and Ready Buy Ready Contracts and Ready Buy are designed as procurement software suite to support distributed procurement and commercial operations to procure goods and services efficiently, cost effectively, and at reduced risk, while reducing workload on centralised procurement. Government and Justice Altus (powered by IT Vision) Synergysoft (powered by IT Vision) Altus is a comprehensive enterprise resource planning (ERP) platform designed specifically for local governments who need to automate and optimise their systems, enhance cross department collaboration and provide a customer experience to both community members and staff. SynergySoft is a legacy product suite used by local governments, which can be fully integrated with Altus solutions. 26 ReadyTech Holdings Limited Notes to the consolidated financial statements 30 June 2023 Note 2. Significant accounting policies (continued) The accounting policies below apply to the Group’s products as summarised in the above table. 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. Contracts with customers can include various combinations of subscription fees and services, which are in certain circumstances bundled and in other circumstances are capable of being distinct and accounted for as separate performance obligations. Where a contract with multiple performance obligations is not bundled, the revenue associated with each performance obligation is calculated based on its relative stand-alone selling price. Revenue is recognised over time if: ● ● ● the customer simultaneously receives and consumes the benefits as the Group performs; the customer controls the asset as the Group creates or enhances it; or the Group’s performance does not create an asset for which the Group has an alternative use and there is a right to payment for performance to date. Where the above criteria is not met, revenue is recognised at a point in time when control transfers. The Group earns its revenues from two main sources: Subscription, licences, support and hosting fees a. Training, consultancy and other services b. Subscription, support and hosting fees Subscription revenues represent revenues earned from customers accessing the cloud-based products hosted by the Group. Customers gain access to use the Group’s cloud-based products without taking possession of the software. Customers pay a fixed subscription fee over the contract term. Subscription contracts are sold along with configuration and/or customisation, support and hosting services. For some large enterprise contracts, the contract may include customisation of the software for the customer’s specific use. Product customisation covers services to create new functions or features and special customisation of the standard reports to meet the customer’s need. Customisation service is critical to the functioning of the software for the customer’s specific use. A customer is not able to fully benefit from the software without the required software customisation. Knowledge on how to modify the software code or writing additional code is proprietary of the Group and only the Group can perform this service. Therefore, there are no other readily available resources for the customer to obtain the benefit from the software customisation prior to accessing the product. Support revenues represent revenues earned from providing post-sale technical support to respond to customers’ service requests. Hosting revenues represent revenues earned from providing the cloud-based hosting service for the service components, storage infrastructure, operating and database software. The Group has assessed and concluded that the sale of subscription, customisation, hosting and support services together are not distinct as they represent a bundled service to use the Group’s cloud-based product over the contract term. Hence, the Group considers the sale of subscription fees, customisation, hosting and technical support services as a single performance obligation. Revenue is recognised over time on a straight-line basis over the term of the subscription period, as the customers simultaneously receive and consume the benefits of accessing the product and services. The Group’s subscription revenues do not contain refund-type provisions. Costs incurred and payments received from the customer for customisation services prior to the commencement of the subscription period are deferred on the balance sheet and recognised in the profit or loss on a straight-line basis over the term of the subscription period. 27 ReadyTech Holdings Limited Notes to the consolidated financial statements 30 June 2023 Note 2. Significant accounting policies (continued) Licences, support and hosting fees Licence revenues represent revenues from the sales of on-premise products. These products are hosted in the customer’s infrastructure environment. These products are not tailored for customer’s use and no maintenance/ training services are included. When a licence is purchased by a customer, there is an optionality for the customers to also purchase post-sale technical support or hosting services for an agreed term. Where a licence is sold with these support and hosting services, each good or service is considered to be a distinct performance obligation because the customer can benefit from the use of the software without the provision of the support or hosting services. Revenue is recognised at the point in time when the customer has purchased the licence as control of the software has transferred at that point. Revenue is recognised for the provision of support and hosting services over time on a straight line basis over the agreed term. This is because the customer is deemed to simultaneously receive and consume the benefits provided by the Group’s performance of the support and hosting services as it is performed during the contract term. Training, consultancy and other services Training revenues represent revenues earned from providing in-depth training on the product, refresher courses or induction for new users of the product. Consultancy and other services revenue represent revenues earned from providing consultation services such as business process mapping, project management of change projects, and best practice of business process. The Group has assessed and concluded that revenues from training, consultancy and other services are able to be provided by a third party supplier or can be consumed by the customer on its own or with readily available resources. Therefore, training, consultancy and other services are considered to be distinct performance obligations. Training, consultancy and other services revenue is charged to the customer either on a time and materials basis or as a fixed price. Revenue is recognised as the services are rendered over time on a proportional basis using an input method, being time or cost, depending on the terms and conditions of the customer contract. 28 ReadyTech Holdings Limited Notes to the consolidated financial statements 30 June 2023 Note 2. Significant accounting policies (continued) Summary of revenue recognition: Revenue categories Subscription fees Customisation services Performance obligation Timing of revenue recognition Provide access to the Group’s intellectual property over the agreed period Over time on a straight-line basis across the customer’s subscription term. Services to customise the product to meet the customers' requirements or specifications; bundled with subscription fees Over time on a straight-line basis across the customer’s subscription term. Support services – subscription Provision of post-sale support services over the agreed period; bundled with subscription fees Over time on a straight-line basis across the customer’s subscription term. Hosting fees - subscription Provision of services over bundled with subscription fees cloud-based hosting the agreed period; Over time on a straight-line basis across the customer’s subscription term. Licence fees Sale of a software licence At the point of sale Support services – licence Provision of post-sale support services over the agreed period Over time as the services are rendered. Hosting fees - licence Provision of licence hosting services over the agreed period Over time as the services are rendered. Training services Services to provide training to the users Over time as the services are rendered. Consultancy services Service includes services for software and project services Over time as the services are rendered. Principal vs agent For selected products, the Group collaborates with third parties software providers or consultants in completing the performance obligations as per customer contracts. The Group is acting as a principal when it controls the provision of the third party product or implementation service before the product or service is transferred to the customer. In the contract with a customer, the Group has control over the establishment of pricing, including determining pricing for the third party products and services. The Group is also primarily responsible for fulfilling the promise to provide the third party products to the customer and assumes fulfilment risk such as addressing customer support requests and rectifying any service issues. Contract assets/ liabilities Timing of revenue recognition may differ from the timing of invoicing to customers. Contract liabilities represent the Group’s obligation to transfer goods or services to a customer and are recognized when customer pays the consideration in advance, or when the Group recognizes a receivable to reflect its unconditional right to consideration (whichever earlier) before the Group has transferred the goods or services to the customer. Contract liabilities comprise mainly of unearned revenue related to subscription licences fees that are not refundable. Contract liabilities are generally invoiced at the beginning of each contract period. Contract assets represent unbilled revenue for goods and services that have been provided to customers but not yet billed. When corresponding payment milestones are met, contract assets are released to trade receivables. Contract assets are treated as financial assets for impairment purposes. Contract costs Incremental costs incurred in obtaining a contract Costs incurred in obtaining the customer contract are expensed, unless they are incremental to obtaining the contract and the Group expects to recover those costs. Costs that meet the criteria for capitalisation will be amortised over the life of the contract that they relate to. The Group has identified certain sales commission costs as meeting the criteria of directly related contract costs. These costs are capitalised in the month in which they are incurred and amortised over the contract term. 29 ReadyTech Holdings Limited Notes to the consolidated financial statements 30 June 2023 Note 2. Significant accounting policies (continued) Costs to fulfil a contract Employee costs related to a contract of which product customisation is performed for a specific customer and the corresponding revenues are recognized over the contract terms, are capitalised in the month in which they are incurred and amortised over the contract term. 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. Interest income is recognised on a time proportionate basis that takes into account the effective yield on the financial asset. 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. 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. Current and non-current classification Assets and liabilities are presented in the statement of financial position based on current and non-current classification. An asset is classified as current when: it is either expected to be realised or intended to be sold or consumed in the Group's normal operating cycle; it is held primarily for the purpose of trading; it is expected to be realised within 12 months after the reporting period; or the asset is cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least 12 months after the reporting period. All other assets are classified as non-current. 30 ReadyTech Holdings Limited Notes to the consolidated financial statements 30 June 2023 Note 2. Significant accounting policies (continued) 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. Derivative financial instruments Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured to their fair value at each reporting date. The accounting for subsequent changes in fair value depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. Derivatives are classified as current or non-current depending on the expected period of realisation. 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. 31 ReadyTech Holdings Limited Notes to the consolidated financial statements 30 June 2023 Note 2. Significant accounting policies (continued) Right-of-use assets are depreciated on a straight-line basis over the unexpired period of the lease or the estimated useful life of the asset, whichever is the shorter. Where the Group expects to obtain ownership of the leased asset at the end of the lease term, the depreciation is over its estimated useful life. Right-of use assets are subject to impairment or adjusted for any remeasurement of lease liabilities. The Group has elected not to recognise a right-of-use asset and corresponding lease liability for short-term leases with terms of 12 months or less and leases of low-value assets. Lease payments on these assets are expensed to profit or loss as incurred. Intangible assets Intangible assets acquired as part of a business combination, other than goodwill, are initially measured at their fair value at the date of the acquisition. Intangible assets acquired separately are initially recognised at cost. Indefinite life intangible assets are not amortised and are subsequently measured at cost less any impairment. Finite life intangible assets are subsequently measured at cost less amortisation and any impairment. The gains or losses recognised in profit or loss arising from the derecognition of intangible assets are measured as the difference between net disposal proceeds and the carrying amount of the intangible asset. The method and useful lives of finite life intangible assets are reviewed annually. Changes in the expected pattern of consumption or useful life are accounted for prospectively by changing the amortisation method or period. Research costs are expensed in the period in which they are incurred. Goodwill Goodwill arises on the acquisition of a business. Goodwill is not amortised. Instead, goodwill is tested annually for impairment, or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. Impairment losses on goodwill are taken to profit or loss and are not subsequently reversed. Patents and trademarks Significant costs associated with patents and trademarks are capitalised as an asset. These costs are not subsequently amortised. Instead, patents and trademarks are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. They are carried at cost less accumulated impairment losses. Management consider patents and trademarks to have indefinite useful lives because the potential to generate cash flows is unlimited. 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 between 5 and 10 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. 32 ReadyTech Holdings Limited Notes to the consolidated financial statements 30 June 2023 Note 2. Significant accounting policies (continued) 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 Trade and other payables represent liabilities for goods and services provided to the Group prior to the end of the financial year and which are unpaid. Due to their short-term nature they are measured at amortised cost and are not discounted. The amounts are unsecured and are usually paid within 30 days of recognition. Contract liabilities Contract liabilities are recognised when a customer pays consideration, or when the Group recognises a receivable to reflect its unconditional right to consideration (whichever is earlier), before the Group has transferred the goods or provided the services to the customer. The liability is the Group's obligation to transfer goods or provide services to a customer from which it has received consideration. Borrowings Loans and borrowings are initially recognised at the fair value of the consideration received, net of transaction costs. They are subsequently measured at amortised cost using the effective interest method. Lease liabilities A lease liability is recognised at the commencement date of a lease. The lease liability is initially recognised at the present value of the lease payments to be made over the term of the lease, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group's incremental borrowing rate. Lease payments comprise of fixed payments less any lease incentives receivable, variable lease payments that depend on an index or a rate, amounts expected to be paid under residual value guarantees, exercise price of a purchase option when the exercise of the option is reasonably certain to occur, and any anticipated termination penalties. The variable lease payments that do not depend on an index or a rate are expensed in the period in which they are incurred. Lease liabilities are measured at amortised cost using the effective interest method. The carrying amounts are remeasured if there is a change in the following: future lease payments arising from a change in an index or a rate used; residual guarantee; lease term; certainty of a purchase option and termination penalties. When a lease liability is remeasured, an adjustment is made to the corresponding right-of use asset, or to profit or loss if the carrying amount of the right-of-use asset is fully written down. Finance costs Finance costs attributable to qualifying assets are capitalised as part of the asset. All other finance costs are expensed in the period in which they are incurred. Provisions Provisions are recognised when the Group has a present (legal or constructive) obligation as a result of a past event, it is probable the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the reporting date, taking into account the risks and uncertainties surrounding the obligation. If the time value of money is material, provisions are discounted using a current pre-tax rate specific to the liability. The increase in the provision resulting from the passage of time is recognised as a finance cost. Employee benefits Short-term employee benefits Liabilities for wages and salaries, including non-monetary benefits, annual leave and long service leave expected to be settled wholly within 12 months of the reporting date are measured at the amounts expected to be paid when the liabilities are settled. 33 ReadyTech Holdings Limited Notes to the consolidated financial statements 30 June 2023 Note 2. Significant accounting policies (continued) Other long-term employee benefits The liability for annual leave and long service leave not expected to be settled within 12 months of the reporting date are measured at the present value of expected future payments to be made in respect of services provided by employees up to the reporting date. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the reporting date on high quality corporate bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. Defined contribution superannuation expense Contributions to defined contribution superannuation plans are expensed in the period in which they are incurred. Share-based payments Equity-settled share-based compensation benefits are provided to employees. Equity-settled transactions are awards of shares, or options over shares, that are provided to employees in exchange for the rendering of services. The cost of equity-settled transactions are measured at fair value on grant date. Fair value is independently determined using either the Binomial or Black-Scholes option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the option, together with non-vesting conditions that do not determine whether the Group receives the services that entitle the employees to receive payment. No account is taken of any other vesting conditions. The cost of equity-settled transactions are recognised as an expense with a corresponding increase in equity over the vesting period. The cumulative charge to profit or loss is calculated based on the grant date fair value of the award, the best estimate of the number of awards that are likely to vest and the expired portion of the vesting period. The amount recognised in profit or loss for the period is the cumulative amount calculated at each reporting date less amounts already recognised in previous periods. The cost of cash-settled transactions is initially, and at each reporting date until vested, determined by applying either the Binomial or Black-Scholes option pricing model, taking into consideration the terms and conditions on which the award was granted. The cumulative charge to profit or loss until settlement of the liability is calculated as follows: ● during the vesting period, the liability at each reporting date is the fair value of the award at that date multiplied by the expired portion of the vesting period. from the end of the vesting period until settlement of the award, the liability is the full fair value of the liability at the reporting date. ● All changes in the liability are recognised in profit or loss. The ultimate cost of cash-settled transactions is the cash paid to settle the liability. Market conditions are taken into consideration in determining fair value. Therefore any awards subject to market conditions are considered to vest irrespective of whether or not that market condition has been met, provided all other conditions are satisfied. If equity-settled awards are modified, as a minimum an expense is recognised as if the modification has not been made. An additional expense is recognised, over the remaining vesting period, for any modification that increases the total fair value of the share-based compensation benefit as at the date of modification. If the non-vesting condition is within the control of the Group or employee, the failure to satisfy the condition is treated as a cancellation. If the condition is not within the control of the Group or employee and is not satisfied during the vesting period, any remaining expense for the award is recognised over the remaining vesting period, unless the award is forfeited. If equity-settled awards are cancelled, it is treated as if it has vested on the date of cancellation, and any remaining expense is recognised immediately. If a new replacement award is substituted for the cancelled award, the cancelled and new award is treated as if they were a modification. 34 ReadyTech Holdings Limited Notes to the consolidated financial statements 30 June 2023 Note 2. Significant accounting policies (continued) Fair value measurement When an asset or liability, financial or non-financial, is measured at fair value for recognition or disclosure purposes, the fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date; and assumes that the transaction will take place either: in the principal market; or in the absence of a principal market, in the most advantageous market. Fair value is measured using the assumptions that market participants would use when pricing the asset or liability, assuming they act in their economic best interests. For non-financial assets, the fair value measurement is based on its highest and best use. Valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, are used, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. Assets and liabilities measured at fair value are classified into three levels, using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. Classifications are reviewed at each reporting date and transfers between levels are determined based on a reassessment of the lowest level of input that is significant to the fair value measurement. For recurring and non-recurring fair value measurements, external valuers may be used when internal expertise is either not available or when the valuation is deemed to be significant. External valuers are selected based on market knowledge and reputation. Where there is a significant change in fair value of an asset or liability from one period to another, an analysis is undertaken, which includes a verification of the major inputs applied in the latest valuation and a comparison, where applicable, with external sources of data. Issued capital Ordinary shares 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. 35 ReadyTech Holdings Limited Notes to the consolidated financial statements 30 June 2023 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 additional ordinary shares that would have been outstanding assuming conversion of all 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. 36 ReadyTech Holdings Limited Notes to the consolidated financial statements 30 June 2023 Note 2. Significant accounting policies (continued) 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 2023. The Group's assessment of the impact of these new or amended Accounting Standards and Interpretations, most relevant to the Group, are set out below. AASB 2020-1 Amendments to Australian Accounting Standards – Classification of Liabilities as Current or Non-Current and AASB 2022-6 Amendments to Australian Accounting Standards - Non-current Liabilities with Covenants AASB 2020-1 was issued in March 2020 and is applicable to annual periods beginning on or after 1 January 2024, as extended by AASB 2020-6. Early adoption is permitted. AASB 2022-6 was issued in December 2022 and is applicable to annual periods beginning on or after 1 January 2024. Early adoption is permitted where AASB 2020-1 is also early adopted. These standards amend AASB 101 ‘Presentation of Financial Statements’ to clarify requirements for the presentation of liabilities in the statement of financial position as current or non-current. The amendments clarify that a liability is classified as non-current if an entity has the right at the end of the reporting period to defer settlement of the liability for at least 12 months after the reporting period. If the deferral right is subject to the entity complying with covenants in the loan arrangement based on information up to and including reporting date, the deferral right will exist where the entity is able to comply with the covenant on or before the end of the reporting date even if compliance is assessed after the reporting date. The deferral right will be deemed to exist at reporting date if the entity is required to comply with the covenant only after the reporting date based on post-reporting date information. Additional disclosure is required about loan arrangements classified as non-current liabilities in such circumstances which enables users of financial statements to understand the risk that the liabilities could become repayable within twelve months after the reporting period. Classification of a liability as non-current is unaffected by the likelihood that the entity will exercise its right to defer settlement of the liability for at least 12 months after the reporting date or even if the entity settles the liability prior to issue of the financial statements. The meaning of settlement of a liability is also clarified. The Group will adopt this standard from 1 January 2024 but the impact of its adoption is yet to be assessed by the Group. At this time, the application of AASB 2021-1 is not expected to have a material impact on the Group's financial statements. AASB 2021-2 Amendments to Australian Accounting Standards – Disclosure of Accounting Policies and Definition of Accounting Estimates AASB 2021-2 was issued in March 2021 and is applicable to annual periods beginning on or after 1 January 2023. Early adoption is permitted. This standard amends AASB Standards to improve accounting policy disclosures so that they provide more useful information to investors and users of the financial statements and clarify the distinction between accounting policies and accounting estimates. Specifically, AASB 2021-2 amends: ● ● ● ● ● AASB 7 Financial Instruments: Disclosures, to clarify that information about measurement bases for financial instruments is expected to be material to an entity’s financial statements. AASB 101 Presentation of Financial Statements, to require entities to disclose their material accounting policy information rather than their significant accounting policies. AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors, to clarify how entities should distinguish changes in accounting policies and changes in accounting estimates. AASB 134 Interim Financial Reporting, to identify material accounting policy information as a component of a complete set of financial statements. AASB Practice Statement 2 Making Materiality Judgements, to provide non-mandatory guidance on how to apply the concept of materiality to accounting policy disclosures. The Group will adopt this standard for the interim period ended 31 December 2023 but the impact of its adoption is yet to be assessed by the Group. At this time, the application of AASB 2021-2 is not expected to have a material impact on the Group's financial statements. 37 ReadyTech Holdings Limited Notes to the consolidated financial statements 30 June 2023 Note 2. Significant accounting policies (continued) IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 ‘Climate-related Disclosures Sustainability standards IFRS S1 ‘General Requirements for Disclosure of Sustainability-related Financial Information’ and IFRS S2 ‘Climate-related Disclosures’ were issued in June 2023 by the International Sustainability Standards Board (‘ISSB’). IFRS S1 and IFRS S2 are effective for annual reporting periods beginning on or after 1 January 2024. Earlier application is permitted, but only if both IFRS S1 and S2 are to be applied at the same time. The objective of IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information is to require an entity to disclose information about its sustainability-related risks and opportunities that is useful to primary users of general purpose financial reports in making decisions relating to providing resources to the entity. It aims to capture the environmental and social dimensions of business practices with social considerations including issues such as diversity and inclusion, modern slavery, worker safety, occupational health and safety issues and product safety. The objective of IFRS S2 Climate-related Disclosures is to require an entity to disclose information about its climate-related risks and opportunities that is useful to primary users of general purpose financial reports in making decisions relating to providing resources to the entity. IFRS S2 ‘Climate-related Disclosures’ sets out specific climate-related disclosures and is designed to be used with IFRS S1. It sets out disclosure requirements about transition plans and scenario analysis that will facilitate users assessing the impact of these risks and opportunities on the entity’s financial position, performance and cash flows and, strategy and business model. The standards are designed to meet the needs of all companies, not just the most sophisticated. They provide a clear idea of what companies need to report to meet the needs of global capital markets – providing investors with globally comparable information. Both standards adopt a four-pillar core content framework which requires an entity to provide disclosures about its approach to sustainability-related considerations through its governance, strategy, risk management and use of metrics and targets. The standards fully incorporate the recommendations of the Task Force on Climate-related Financial Disclosures. The standards and frameworks also reference the standards issued by the Climate Disclosure Standards Board (CDSB), the Value Reporting Foundation’s Integrated Reporting Framework and industry-based Sustainability Accounting Standards Board (SASB) Standards and the World Economic Forum’s Stakeholder Capitalism Metrics. The applicability of both standards in Australia has not yet been determined, however both the AASB and ASIC are assessing how and when these will become applicable to companies in Australia. The Group will adopt this standard from 1 January 2024. The impact of its adoption is to be assessed by the Group. 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. 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. 38 ReadyTech Holdings Limited Notes to the consolidated financial statements 30 June 2023 Note 3. Critical accounting judgements, estimates and assumptions (continued) 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 29 for further information. 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 13 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. 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 29, 37 and 40 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 29, 37 and 40 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. Revenue recognition For some large enterprise contracts, product customisation service is typically bundled with the implementation, training, consulting and other services into a single performance obligation. Management uses judgment and estimates in allocating the transaction price to different revenue streams which have more than one performance obligation. Allocation of the transaction price is determined based on the estimated costs of satisfying the performance obligation and then adds an appropriate margin. 39 ReadyTech Holdings Limited Notes to the consolidated financial statements 30 June 2023 Note 4. Operating segments Identification of reportable operating segments The Group is organised into three reportable operating segments: Education and Work Pathways, Workforce Solutions and Government and Justice. These operating segments are based on the internal reports that are reviewed and used by the Board of Directors (who are identified as the Chief Operating Decision Makers ('CODM')) in assessing performance and in determining the allocation of resources. The CODM reviews adjusted EBITDA (earnings before interest, tax, depreciation and amortisation adjusted for non-cash and significant items). The accounting policies adopted for internal reporting to the CODM are consistent with those adopted in the financial statements. The information reported to the CODM is on a monthly basis. Types of products and services The principal products and services of each of these operating segments are as follows: Education and Work Pathways mainly provides products and services to tertiary education providers. Core products are its cloud-based student management systems (SMS) and learning management systems (LMS) 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. Workforce Solutions provides products and services to mid-sized company across various industries with payroll software, outsourced payroll services, human resource management (HRM) and recruitment 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. Government and Justice provides government and justice case management software as a service solutions to local governments, state governments and justice departments. Core products in asset management, property, licensing and compliance, finance, HR and payroll, customer management and courts and justice. 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 2023 (30 June 2022: $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 2023 and 30 June 2022, no single customer contributed 10% or more to the Group's external revenue. 40 ReadyTech Holdings Limited Notes to the consolidated financial statements 30 June 2023 Note 4. Operating segments (continued) Operating segment information Consolidated - 2023 Revenue Sales to external customers Total revenue Adjusted EBITDA Transaction, including takeover defense and acquisition related costs Contingent consideration charged as employee expenses Employee share gifts EBITDA Depreciation and amortisation Interest revenue Finance costs Profit before income tax expense Income tax expense Profit after income tax expense Consolidated - 2022 Revenue Sales to external customers Total revenue Adjusted EBITDA Transaction and restructuring costs Contingent consideration charged as employee expenses Revaluation of contingent consideration Impairment of assets Employee share gifts EBITDA Depreciation and amortisation Finance costs Profit before income tax expense Income tax expense Profit after income tax expense Workforce Solutions $'000 Education and Work Pathways $'000 Government and Justice $'000 Corporate $'000 Total $'000 28,573 28,573 36,051 36,051 38,682 38,682 - - 103,306 103,306 11,120 15,269 10,764 (4,114) 33,039 (3,141) (2,912) (369) 26,617 (17,272) 15 (2,563) 6,797 (1,822) 4,975 Workforce Solutions $'000 Education and Work Pathways $'000 Government and Justice $'000 Corporate $'000 Total $'000 23,461 23,461 30,966 30,966 23,857 23,857 - - 8,741 13,825 8,566 (3,660) 78,284 78,284 27,472 (1,190) (797) 6,027 (4,373) (393) 26,746 (14,079) (1,043) 11,624 (2,830) 8,794 All assets and liabilities, including taxes are not allocated to the operating segments as CODM reviews and manages on an overall group basis. The Group operates predominantly in Australia and New Zealand region. 41 ReadyTech Holdings Limited Notes to the consolidated financial statements 30 June 2023 Note 5. Revenue from contracts with customers Revenue from contracts with customers Disaggregation of revenue The disaggregation of revenue from contracts with customers is as follows: Consolidated 2023 $'000 2022 $'000 103,306 78,284 Consolidated - 2023 Major product lines Subscription, licence, support and hosting Training, consultancy and other Consolidated - 2022 Major product lines Subscription, licence, support and hosting Training, consultancy and other Note 6. Expenses Workforce Solutions $'000 Education and Work Pathways $'000 Government and Justice $'000 Total $'000 24,500 4,073 29,714 6,337 30,119 8,563 84,333 18,973 28,573 36,051 38,682 103,306 Workforce Solutions $'000 Education and Work Pathways $'000 Government and Justice $'000 Total $'000 20,895 2,566 26,648 4,318 18,104 5,753 65,647 12,637 23,461 30,966 23,857 78,284 Profit before income tax includes the following specific expenses: Finance costs Interest and finance charges paid/payable on borrowings Interest charges on lease liability Finance costs expensed Superannuation expense Defined contribution superannuation expense Share-based payments expense Share-based payments expense Impairment of receivables Impairment of receivables 42 Consolidated 2023 $'000 2022 $'000 2,337 226 2,563 944 99 1,043 4,993 3,505 3,220 1,533 195 472 ReadyTech Holdings Limited Notes to the consolidated financial statements 30 June 2023 Note 7. Income tax Income tax expense Current tax Deferred tax - origination and reversal of temporary differences Adjustment recognised for prior periods Aggregate income tax expense Deferred tax included in income tax expense comprises: Decrease/(increase) in deferred tax assets Numerical reconciliation of income tax expense and tax at the statutory rate Profit before income tax expense Tax at the statutory tax rate of 30% Tax effect amounts which are not deductible/(taxable) in calculating taxable income: Research and development expenses Research and development tax offset Other non-assessable items Other non-deductible expenditure Adjustment recognised for prior periods Tax rate differential Income tax expense Amounts credited directly to equity Deferred tax assets Consolidated 2023 $'000 2022 $'000 1,611 1,216 (1,005) 5,851 (3,503) 482 1,822 2,830 1,216 (3,503) 6,797 11,624 2,039 3,487 2,508 (3,342) 1,528 94 2,827 (1,005) - 657 (844) (976) 49 2,373 482 (25) 1,822 2,830 Consolidated 2023 $'000 2022 $'000 - (8) The adjustment recognised for prior period is related to application of temporary full expensing (TFE) in the 2022 lodged tax return. 43 ReadyTech Holdings Limited Notes to the consolidated financial statements 30 June 2023 Note 7. Income tax (continued) Deferred tax (liability)/asset Deferred tax (liability)/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 Customer relationships Brand names Property, plant and equipment Prepayments IPO costs Right-of-use assets Lease liabilities Contract costs Other Deferred tax asset/(liability) Movements: Opening balance Credited/(charged) to profit or loss Credited to equity Additions through business combinations (note 37) Adjustment recognised for prior periods Adjustment related to prior period TFE application Tax impact on the finalisation of provisional accounting of business combinations Closing balance Income tax refund due Income tax refund due Income tax payable Income tax payable Consolidated 2023 $'000 2022 $'000 172 (3,821) 6,001 2,087 1,185 2,587 (8,968) (498) (1,138) - 314 (1,435) 1,544 (768) 20 171 2,066 5,919 1,600 1,006 2,446 (7,121) (139) (239) (3) 651 (913) 994 (685) (49) (2,718) 5,704 5,704 (1,216) - (2,946) (618) (2,991) (651) 2,593 3,503 8 (55) (345) - - (2,718) 5,704 Consolidated 2023 $'000 2022 $'000 2,150 - Consolidated 2023 $'000 2022 $'000 - 3,227 As at 30 June 2023, the Group has capital losses totalling $2,996,023 (2022: $2,996,023) which have not been recognised in the statement of financial position as the recovery of this benefit is uncertain. 44 ReadyTech Holdings Limited Notes to the consolidated financial statements 30 June 2023 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 2023 $'000 2022 $'000 20,417 199 9,059 142 20,616 9,201 Consolidated 2023 $'000 2022 $'000 10,557 (574) 9,983 11,529 (570) 10,959 451 418 10,434 11,377 Trade receivables are non-interest bearing and are on 30 day credit term. Allowance for expected credit losses The Group has recognised a loss of $195,000 in profit or loss in respect of impairment of receivables for the year ended 30 June 2023 (2022: $472,000). The ageing of the receivables and allowance for expected credit losses provided for above are as follows: Consolidated Not overdue 0 to 3 months overdue 3 to 6 months overdue Over 6 months overdue Expected credit loss rate 2023 % 2022 % Carrying amount 2022 $'000 2023 $'000 Allowance for expected credit losses 2023 $'000 2022 $'000 2.26% 2.87% 10.16% 43.19% 2.00% 2.55% 6.97% 26.36% 4,647 4,563 738 609 6,846 2,502 1,062 1,119 10,557 11,529 105 131 75 263 574 137 64 74 295 570 Movements in the allowance for expected credit losses are as follows: Opening balance Additional provisions recognised Additions through business combinations Receivables written off during the year as uncollectable Unused amounts reversed Closing balance 45 Consolidated 2023 $'000 2022 $'000 570 195 274 (78) (387) 574 293 403 13 (139) - 570 ReadyTech Holdings Limited Notes to the consolidated financial statements 30 June 2023 Note 9. Current assets - trade and other receivables (continued) In determining the recoverability of a trade receivable, the Group considers any change in the credit quality of the trade receivable from the date credit was initially granted up to the reporting date. The concentration of credit risk is limited due to the customer base being large and unrelated. 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 Transfer to trade receivables Closing balance Consolidated 2023 $'000 2022 $'000 1,489 1,383 1,383 5,465 (5,359) 1,445 487 (549) 1,489 1,383 Allowance for expected credit losses The allowance for expected credit losses on contract assets for the year ended 30 June 2023 is $nil (2022: $nil). Note 11. Current assets - derivative financial instruments Interest rate swap Refer to note 28 for further information on financial instruments. Refer to note 29 for further information on fair value measurement. Consolidated 2023 $'000 2022 $'000 76 - Interest rate swap represents the fair value of interest rate swap as at 30 June 2023. The Group enters into an interest rate swap arrangement to hedge the variable rate of $20,000,000 loan (2022: $20,000,000) with a fixed rate of 3.795% (2022: 2.884%) that is settled on a quarterly basis. The contract expires on 1 February 2024 (2022: 1 May 2023). 46 ReadyTech Holdings Limited Notes to the consolidated financial statements 30 June 2023 Note 12. Non-current assets - property, plant and equipment Leasehold improvements - at cost Less: Accumulated depreciation 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 Consolidated 2023 $'000 2022 $'000 1,598 (277) 1,321 356 (235) 121 - - - 1,740 (973) 767 262 (242) 20 928 (701) 227 289 (109) 180 22 (15) 7 1,143 (580) 563 264 (199) 65 2,229 1,042 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 2021 Additions Additions through business combinations (note 37) Exchange differences Write off of assets Depreciation expense Balance at 30 June 2022 Additions Additions through business combinations (note 37) Write off of assets Depreciation expense Balance at 30 June 2023 Leasehold improve- ments $'000 Fixtures and fittings $'000 Motor vehicles $'000 Computer equipment $'000 Office equipment $'000 Total $'000 9 2 - - - (4) 7 - - - (7) - 319 479 50 (1) (8) (276) 563 504 96 - (396) 767 94 - 32 (7) (17) (37) 65 2 - - (47) 20 928 579 82 (11) (31) (505) 1,042 1,673 221 - (707) 2,229 363 9 - - (3) (142) 227 1,097 125 - (128) 1,321 143 89 - (3) (3) (46) 180 70 - - (129) 121 47 ReadyTech Holdings Limited Notes to the consolidated financial statements 30 June 2023 Note 13. 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 2023 $'000 2022 $'000 125,360 88,785 1,660 474 44,506 (14,612) 29,894 98,798 (43,201) 55,597 35,103 (10,819) 24,284 69,759 (32,663) 37,096 212,511 150,639 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 2021 Additions Additions through business combinations (note 37) Exchange differences Impairment of assets* Write off of assets Amortisation expense Balance at 30 June 2022 Additions** Additions through business combinations (note 37) Adjustments to the provisional values Exchange differences Amortisation expense Goodwill $'000 Patents and trademarks $'000 Customer relationships $'000 Software $'000 Total $'000 81,431 - 7,350 4 - - - 88,785 - 36,447 27 101 - 474 - - - - - - 474 - 1,194 - (8) - 28,736 - 2,986 14 (4,373) - (3,079) 24,284 - 8,773 624 6 (3,793) 30,057 12,038 140,698 12,038 3,862 (16) - (13) (8,832) 14,198 2 (4,373) (13) (11,911) 37,096 18,239 150,639 18,239 10,800 - - (10,538) 57,214 651 99 (14,331) Balance at 30 June 2023 125,360 1,660 29,894 55,597 212,511 * ** Acquired customer relationships at net carrying amount of $4,373,000 was written-off during the financial year ended 30 June 2022 since Open Office did not secure the contract that was expected during the acquisition due diligence period. Additions of software during the period include internally generated assets of $16,344,000 and assets externally acquired amounting to $1,895,000. Impairment testing Goodwill acquired through business combinations has been allocated to the following groups of cash generating units ('CGU'): 48 ReadyTech Holdings Limited Notes to the consolidated financial statements 30 June 2023 Note 13. Non-current assets - intangibles (continued) Education and Work Pathways Workforce Solutions Government and Justice Consolidated 2023 $'000 2022 $'000 19,286 15,527 90,547 19,286 15,563 53,936 125,360 88,785 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. As at 30 June 2023, management performed the annual assessment and considered whether impairment indicators existed for all CGUs and concluded that there were none. 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 2024 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 Pre-tax discount rate used 2023 % 2022 % Terminal growth rate 2022 2023 % % EBITDA CAGR from FY24 to FY28 2023 % EBITDA CAGR from FY23 to FY27 2022 % Education and Work Pathways Workforce Solutions Government and Justice 13.0% 13.0% 13.0% 15.0% 15.0% 15.0% 3.0% 3.0% 3.0% 2.0% 2.0% 3.0% 13.0% 14.0% 19.0% 16.0% 14.6% 16.3% Impairment testing results No impairment existed at 30 June 2023. 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 In respect of impairment testing of goodwill, judgements and estimates were made. With the Government and Justice CGU, the goodwill balance would need to be impaired, should these judgements and estimates change as per below: ● ● ● Increase in the discount rate by more than 1% with all other assumptions remaining constant. Decrease in the EBITDA compound annual growth rate ("CAGR") FY24 to FY28 by more than 2% with all other assumptions remaining constant. Decrease in the terminal growth by more than 1.3% with all other assumptions remaining constant. With Education and Work Pathways and Workforce Solutions CGUs, a reasonable possible change in assumptions would not cause the carrying amount of each group of CGUs to exceed its recoverable amount. 49 ReadyTech Holdings Limited Notes to the consolidated financial statements 30 June 2023 Note 14. Non-current assets - right-of-use assets Land and buildings - right-of-use Less: Accumulated depreciation Consolidated 2023 $'000 2022 $'000 8,611 (3,828) 6,784 (3,635) 4,783 3,149 The Group leases land and buildings for its offices under agreements of 4 to 5 years (2022: 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. 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 2021 Additions Additions through business combinations (note 37) Lease modification Exchange differences Depreciation expense Balance at 30 June 2022 Additions Additions through business combinations (note 37) Depreciation expense Balance at 30 June 2023 Land and buildings - right-of-use $'000 2,404 1,968 72 106 (7) (1,394) 3,149 1,438 1,720 (1,524) 4,783 For other lease related disclosures refer to the following, refer: ● ● ● note 6 for details of interest on lease liabilities and other lease expenses; note 19 and note 24 for details of lease liabilities at the beginning and end of the reporting period; and consolidated statement of cash flows for repayment of lease liabilities. For impairment testing, the right-of-use assets have been allocated to all cash-generating units. Refer to note 13 for further information on the impairment testing key assumptions and sensitivity analysis. 50 ReadyTech Holdings Limited Notes to the consolidated financial statements 30 June 2023 Note 15. Non-current assets - contract costs Costs to obtain contracts Contract fulfilment costs Consolidated 2023 $'000 2022 $'000 518 1,507 326 1,794 2,025 2,120 Certain commission costs that meet the criteria as costs to obtain contracts are capitalised. Contract fulfilment costs represent costs incurred by the Group that are related to future performance or delivery of services. These costs are capitalised and amortised over the contract terms. Note 16. Current liabilities - trade and other payables Trade payables Accrued expenses GST payable Trade payables are non-interest bearing and are on 30 day credit term. Refer to note 28 for further information on financial instruments. Note 17. Current liabilities - contract liabilities Contract liabilities Note 18. Current liabilities - derivative financial liability Interest rate swap Refer to note 11 for further information. Note 19. Current liabilities - lease liabilities Lease liability Refer to note 28 for maturity analysis of lease liabilities. 51 Consolidated 2023 $'000 2022 $'000 3,560 4,811 3,396 1,736 3,257 1,831 11,767 6,824 Consolidated 2023 $'000 2022 $'000 19,527 18,974 Consolidated 2023 $'000 2022 $'000 - 17 Consolidated 2023 $'000 2022 $'000 1,229 1,176 ReadyTech Holdings Limited Notes to the consolidated financial statements 30 June 2023 Note 20. Current liabilities - contingent consideration Contingent consideration Consolidated 2023 $'000 2022 $'000 10,181 12,971 The amount as at 30 June 2023 represents contingent consideration in relation to PhoenixATS Australia Pty Ltd, Open Windows Pty Ltd, and IT Vision Pty Ltd acquisitions. Refer to note 37 for further details. In July 2022, Pentagon HoldCo Pty Ltd and its controlled entities have met the earn out revenue targets as per the purchase sales agreement. The sellers elected to be paid via shares. A deferred consideration of $9,000,000 was settled by shares at $3.0977 per share on or about 17 August 2022. In July 2023, the Group settled the contingent consideration in relation to PhoenixATS Australia Pty Ltd of $770,000 by cash. Further, Open Windows Pty Ltd and It Vision Pty Ltd have met their earn out targets as per the purchase sales agreement. Open Windows Pty Ltd sellers elected to be paid $1,668,000 by cash and $2,502,000 by shares at $3.05 per share on 17 August 2023. IT Vision Pty Ltd sellers elected to be paid by $2,825,000 by cash and $3,003,000 by shares at $3.02 per share on 18 August 2023. Note 21. Non-current liabilities - contract liabilities Consolidated 2023 $'000 2022 $'000 888 368 Consolidated 2023 $'000 2022 $'000 47,000 (51) 34,000 (51) 46,949 33,949 Consolidated 2023 $'000 2022 $'000 47,000 34,000 Contract liabilities Note 22. Non-current liabilities - borrowings Borrowings Less: establishment fees Refer to note 28 for further information on financial instruments. Total secured liabilities The total secured liabilities (current and non-current) are as follows: Borrowings Assets pledged as security Borrowings are secured over the assets of the Group. 52 ReadyTech Holdings Limited Notes to the consolidated financial statements 30 June 2023 Note 22. Non-current liabilities - borrowings (continued) Financing arrangements Unrestricted access was available at the reporting date to the following lines of credit: Total facilities Borrowings (Facility A and A1) Borrowings (Facility B) Used at the reporting date Borrowings (Facility A and A1) Borrowings (Facility B) Unused at the reporting date Borrowings (Facility A and A1) Borrowings (Facility B) Consolidated 2023 $'000 2022 $'000 35,000 15,000 50,000 35,000 12,000 47,000 23,000 14,500 37,500 23,000 11,000 34,000 - 3,000 3,000 - 3,500 3,500 The Group has established two facilities, Facility A and Facility B: ● ● Facility A and A1 - $35,000,000 (2022: $23,000,000) as a non-revolving cash advance loan term for a period of 3 years and an interest rate set at BBSY plus a margin of 2.05-2.75% (2022: 2.1-2.2%) depending on the Net Leverage Ratio of the Group. As at 30 June 2023, $35,000,000 (2022: $23,000,000) of the total facility has been drawn down. Facility B - $15,000,000 (2022: $14,500,000) as a revolving cash advance facility for a period of 3 years and an interest rate set at BBSY plus a margin of 2.05-2.75% (2022: 2.0-2.2%) depending on the Net Leverage Ratio of the Group. As at 30 June 2023, $12,000,000 (2022: $11,000,000) of the total facility has been drawn down. In addition, the Group has a bank guarantee facility of $1,328,000 (refer to note 32). Note 23. Non-current liabilities - Contingent consideration Contingent consideration Consolidated 2023 $'000 2022 $'000 25,911 1,451 The amount as at 30 June 2023 represents contingent consideration in relation to Open Windows Pty Ltd, and IT Vision Pty Ltd acquisitions that are not expected to be settled within 12 months. Refer to note 37 for further details. Refer to note 29 for further details on fair value measurement of the contingent consideration. Note 24. Non-current liabilities - lease liabilities Lease liability Refer to note 28 for further information on financial instruments. 53 Consolidated 2023 $'000 2022 $'000 3,932 2,214 ReadyTech Holdings Limited Notes to the consolidated financial statements 30 June 2023 Note 24. Non-current liabilities - lease liabilities (continued) Current (note 19) Non-current Consolidated 2023 $'000 2022 $'000 1,229 3,932 1,176 2,214 5,161 3,390 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 Lease modification Additions through business combinations (note 37) Interest Repayment of lease liabilities Balance at end of the year Note 25. Equity - issued capital Consolidated 2023 $'000 2022 $'000 3,390 1,438 - 1,720 226 (1,613) 2,650 1,966 106 72 99 (1,503) 5,161 3,390 Consolidated 2023 Shares 2022 Shares 2023 $'000 2022 $'000 Ordinary shares - fully paid 114,321,851 106,977,894 194,292 171,916 Movements in ordinary share capital Details Date Shares Issue price $'000 Balance Shares issued on earn-out tranche 1 of Pentagon HoldCo Pty Ltd Shares issued under employee share plan Shares issued on acquisition of Open Windows Software Pty Ltd Less transaction costs (net of tax) 1 July 2021 102,149,776 24 August 2021 6 October 2021 16 December 2021 4,500,250 117,786 210,082 - Balance Shares issued on acquisition of IT Vision Pty Ltd Shares issued to Pentagon HoldCo Pty Ltd Shares issued under long term incentive plan Shares issued under employee share gift 30 June 2022 25 July 2022 17 August 2022 17 August 2022 14 October 2022 106,977,894 3,960,792 2,905,537 351,462 126,166 Balance 30 June 2023 114,321,851 $2.60 $3.33 $3.56 $0.00 $3.05 $3.20 $1.79 $2.92 159,095 11,701 392 748 (20) 171,916 12,080 9,298 629 369 194,292 54 ReadyTech Holdings Limited Notes to the consolidated financial statements 30 June 2023 Note 25. Equity - issued capital (continued) Ordinary shares Ordinary shares entitle the holder to participate in any dividends declared and any proceeds attributable to shareholders should the Company be wound up in proportions that consider both the number of shares held and the extent to which those shares are paid up. 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. Note 26. Equity - reserves Foreign currency reserve Share-based payments reserve Common control reserve Reorganisation reserve Consolidated 2023 $'000 2022 $'000 (54) 4,680 (10,058) (73,048) (191) 2,089 (10,058) (73,048) (78,480) (81,208) 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. 55 ReadyTech Holdings Limited Notes to the consolidated financial statements 30 June 2023 Note 26. Equity - reserves (continued) Reorganisation reserve Reorganisation reserve is used to recognise the difference between the consideration paid and the historical values of assets and liabilities acquired, between ReadyTech Holdings Limited and the subsidiaries it acquired. 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 2021 Foreign currency translation Share-based payments Balance at 30 June 2022 Foreign currency translation Share-based payments Exercise of performance rights (note 40) Foreign currency $'000 Share-based payments $'000 Common control $'000 Reorgan- isation $'000 Total $'000 (118) (73) - (191) 137 - - 556 - 1,533 2,089 - 3,220 (629) (10,058) - - (10,058) - - - (73,048) - - (73,048) - - - (82,668) (73) 1,533 (81,208) 137 3,220 (629) Balance at 30 June 2023 (54) 4,680 (10,058) (73,048) (78,480) Note 27. Equity - dividends There were no dividends paid, recommended or declared during the current financial year or previous financial period. Note 28. Financial instruments Financial risk management objectives The Group's activities expose it to a variety of financial risks: market risk (including foreign currency risk, price risk and interest rate risk), credit risk and liquidity risk. The Group's overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. The Group 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 2023 and 30 June 2022 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. 56 ReadyTech Holdings Limited Notes to the consolidated financial statements 30 June 2023 Note 28. Financial instruments (continued) 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 outstanding: Consolidated Borrowings 2023 2022 Weighted average interest rate % Weighted average interest rate % Balance $'000 Balance $'000 4.78% 47,000 2.85% 34,000 Net exposure to cash flow interest rate risk 47,000 34,000 An analysis by remaining contractual maturities in shown in 'liquidity and interest rate risk management' below. For the Group the borrowings outstanding totalling $47,000,000 (2021: $34,000,000), are principal and interest payment loans. An increase/decrease in interest rates of 100 (2022: 100) basis points would have an adverse/favourable effect on loss before tax of $500,000 (2022: $340,000) per annum. The percentage change is based on the expected volatility of interest rates using market data and analysts forecasts. Credit risk Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group has a strict code of credit, including obtaining agency credit information, confirming references and setting appropriate credit limits. The Group obtains guarantees where appropriate to mitigate credit risk. The maximum exposure to credit risk at the reporting date to recognised financial assets is the carrying amount, net of any provisions for impairment of those assets, as disclosed in the statement of financial position and notes to the financial statements. The Group does not hold any collateral. The Group has adopted a lifetime expected loss allowance in estimating expected credit losses to trade receivables through the use of a provisions matrix using fixed rates of credit loss provisioning. These provisions are considered representative across all customers of the Group based on recent sales experience, historical collection rates and forward-looking information that is available. Generally, trade receivables are written off when there is no reasonable expectation of recovery. Indicators of this include the failure of a debtor to engage in a repayment plan, no active enforcement activity and a failure to make contractual payments for a period greater than 1 year. Liquidity risk Vigilant liquidity risk management requires the Group to maintain sufficient liquid assets (mainly cash and cash equivalents) and available borrowing facilities to be able to pay debts as and when they become due and payable. The Group manages liquidity risk by maintaining adequate cash reserves and available borrowing facilities by continuously monitoring actual and forecast cash flows and matching the maturity profiles of financial assets and liabilities. 57 ReadyTech Holdings Limited Notes to the consolidated financial statements 30 June 2023 Note 28. Financial instruments (continued) Remaining contractual maturities The following tables detail the Group's remaining contractual maturity for its financial instrument liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the financial liabilities are required to be paid. The tables include both interest and principal cash flows disclosed as remaining contractual maturities and therefore these totals may differ from their carrying amount in the statement of financial position. Weighted average interest rate % 1 year or less $'000 Between 1 and 2 years $'000 Between 2 and 5 years $'000 Over 5 years $'000 Remaining contractual maturities $'000 Consolidated - 2023 Non-derivatives Non-interest bearing Trade payables Other payables Contingent consideration Interest-bearing - variable Bank loans Lease liability Total non-derivatives - - - 4.78% 4.81% 3,560 3,396 10,181 - 1,270 18,407 - - 25,911 - 1,192 27,103 - - - 47,000 2,747 49,747 - - - - - - - - 3,560 3,396 36,092 47,000 5,209 95,257 76 76 Derivatives Interest rate swaps receivable Total derivatives - 76 76 - - - - Consolidated - 2022 Non-derivatives Non-interest bearing Trade payables Other payables Contingent consideration Interest-bearing - variable Bank loans Lease liability Total non-derivatives Derivatives Interest rate swaps payable Total derivatives Weighted average interest rate % 1 year or less $'000 Between 1 and 2 years $'000 Between 2 and 5 years $'000 Over 5 years $'000 Remaining contractual maturities $'000 - - - 2.85% 3.50% 1,736 1,831 12,971 - 1,140 17,678 - - 758 34,000 819 35,577 - 17 17 - - - - 693 - 1,325 2,018 - - - - - - - - - - 1,736 1,831 14,422 34,000 3,284 55,273 17 17 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. 58 ReadyTech Holdings Limited Notes to the consolidated financial statements 30 June 2023 Note 29. Fair value measurement Fair value hierarchy The following tables detail the Group's assets and liabilities, measured or disclosed at fair value, using a three level hierarchy, based on the lowest level of input that is significant to the entire fair value measurement, being: Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly Level 3: Unobservable inputs for the asset or liability Consolidated - 2023 Assets Interest rate swap Total assets Liabilities Contingent consideration Total liabilities Consolidated - 2022 Liabilities Contingent consideration* Interest rate swap Total liabilities Level 1 $'000 Level 2 $'000 Level 3 $'000 Total $'000 - - - - - - - 76 76 36,092 36,092 Level 2 $'000 Level 3 $'000 14,442 17 14,459 - - - - - - - 76 76 36,092 36,092 Total $'000 14,442 17 14,459 Level 1 $'000 * Contingent consideration for financial year ended 30 June 2022 is amended and disclosed as level 2 instead of level 3 as previously reported. This amendment to the fair value level disclosure has no impact to the financial performance or financial position for the comparative period and does not represent a transfer between levels. 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. Interest rate swap has been valued using the present value of the estimated future cash flows based on observable yield curves. Refer to note 37 and note 40 for details of the contingent consideration arrangements arising from business combinations. 59 ReadyTech Holdings Limited Notes to the consolidated financial statements 30 June 2023 Note 30. 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 services Consolidated 2023 $ 2022 $ 425,000 343,000 32,000 80,000 18,540 26,500 72,500 - 130,540 99,000 555,540 442,000 Note 31. Key management personnel disclosures Compensation The aggregate compensation made to Directors and other members of key management personnel of the Group is set out below: Short-term employee benefits Post-employment benefits Long-term employment benefits Share-based payments Note 32. Contingent liabilities Consolidated 2023 $ 2022 $ 1,303,540 50,585 24,477 769,025 1,325,971 47,136 (4,632) 508,330 2,147,627 1,876,805 The Group has given bank guarantees as at 30 June 2023 of $1,328,000 (2022: $1,129,000). The bank guarantees are for various office leases. No cash outflows are expected from the bank guarantees given by the Group. Note 33. Commitments The Group had no commitments as at 30 June 2023 and 30 June 2022. Note 34. Related party transactions Parent entity ReadyTech Holdings Limited is the parent entity. Subsidiaries Interests in subsidiaries are set out in note 36. Key management personnel Disclosures relating to key management personnel are set out in note 31 and the remuneration report included in the Directors' report. 60 ReadyTech Holdings Limited Notes to the consolidated financial statements 30 June 2023 Note 34. Related party transactions (continued) Transactions with related parties Pentagon Holdco Pty Ltd and its controlled entities was majority owned by Pemba Capital, a related party, prior to its acquisition by the Group. The impact of the acquisition is presented in the Business Combinations note (note 37). The following transactions occurred with related parties: Other transactions: Shares issued to related party on earn-out tranche 1 of Pentagon HoldCo Pty Ltd acquisition Shares issued to related party on earn-out tranche 2 of Pentagon HoldCo Pty Ltd acquisition 9,297,718 - 11,700,650 - 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. Consolidated 2023 $ 2022 $ 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. Note 35. Parent entity information Set out below is the supplementary information about the parent entity. Statement of profit or loss and other comprehensive income Loss after income tax Total comprehensive income Parent 2023 $'000 2022 $'000 (337) (337) (201) (201) 61 ReadyTech Holdings Limited Notes to the consolidated financial statements 30 June 2023 Note 35. Parent entity information (continued) Statement of financial position Total current assets Total assets Total current liabilities Total liabilities Equity Issued capital Share-based payments reserve Reorganisation reserve Accumulated losses Total equity Parent 2023 $'000 2022 $'000 2,150 500 106,607 84,890 - - 2,913 2,913 194,919 4,519 (89,471) (3,360) 172,543 1,928 (89,471) (3,023) 106,607 81,977 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 2023 and 30 June 2022. Contingent liabilities The parent entity had no contingent liabilities as at 30 June 2023 and 30 June 2022. Capital commitments - Property, plant and equipment The parent entity had no capital commitments for property, plant and equipment as at 30 June 2023 and 30 June 2022. Significant accounting policies The accounting policies of the parent entity are consistent with those of the Group, as disclosed in note 2, except for the following: ● ● Investments in subsidiaries are accounted for at cost, less any impairment, in the parent entity. Dividends received from subsidiaries are recognised as other income by the parent entity and its receipt may be an indicator of an impairment of the investment. Note 36. Interests in subsidiaries The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the accounting policy described in note 2: Name ReadyTech HoldCo Pty Ltd ReadyTech BidCo Pty Ltd JobReady Tech Pty Ltd Esher House Pty Ltd Thymos Pty Ltd VETtrak Pty Ltd Lirac HoldCo Pty Ltd Lirac BidCo Pty Ltd Ready Pay Services Pty Ltd Readytech Workforce Solutions Pty Ltd eLearning Australia Pty Ltd Principal place of business / Country of incorporation Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia 62 Ownership interest 2022 2023 % % 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% ReadyTech Holdings Limited Notes to the consolidated financial statements 30 June 2023 Note 36. Interests in subsidiaries (continued) Name WageLink Australia Pty Ltd Zambion Limited Zambion Pty Ltd Pentagon HoldCo Pty Ltd Pentagon BidCo Pty Ltd Open Office Holdings Pty Ltd McGirr Holdings Pty Ltd McGirr Information Technology Pty Ltd McGirr Technologies, Inc. Open Windows Software Pty Ltd* Avaxa Pty Ltd* Capital Software Limited* PhoenixATS Australia Pty Ltd* IT Vision Pty Ltd** Principal place of business / Country of incorporation Ownership interest 2022 2023 % % Australia New Zealand Australia Australia Australia Australia Australia Australia Australia Australia Australia New Zealand Australia 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% - * ** Acquired by the Group during the year-ended 30 June 2022. Refer to note 37. Acquired by the Group during the year-ended 30 June 2023. Refer to note 37. 63 ReadyTech Holdings Limited Notes to the consolidated financial statements 30 June 2023 Note 37. Business combinations Acquisitions during the year ended 30 June 2023 Acquisition of IT Vision Pty Ltd (and its controlled entities) On 25 July 2022, the Group acquired 100% of the ordinary shares of IT Vision Pty Ltd and its controlled entities, for the total consideration transferred of $53,102,000. IT Vision Pty Ltd develops and implements ERP technology software in local government segment. With this acquisition, the Group expects to broaden its market presence as the local government software services provider. This acquisition is to bolster ReadyTech’s government and justice segment with a broad geographic footprint across all Australian states and territories, ultimately strengthening ReadyTech’s position as a leading local government software provider. The values identified in relation to the acquisition of IT Vision Pty Ltd and subsidiaries were final as at 30 June 2023. The goodwill of $36,447,000 represents future growth. Details of the acquisition are as follows: Cash and cash equivalents Trade and other receivables, net Other current assets Right-of-use assets Property, plant and equipment Customer relationships Trademarks Software Trade and other payables Contract liabilities Deferred tax liability Employee benefits Lease liability Net assets acquired Goodwill Acquisition-date fair value of the total consideration transferred Representing: Cash paid or payable to vendor ReadyTech Holdings Limited shares issued 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 Less: shares issued by Company as part of consideration Net cash used Fair value $'000 3,950 7,158 863 1,720 221 8,773 1,194 10,800 (2,909) (9,469) (2,946) (980) (1,720) 16,655 36,447 53,102 10,374 12,080 30,648 53,102 521 53,102 (3,950) (30,648) (12,080) 6,424 As part of the acquisition of IT Vision Pty Ltd, an amount of contingent consideration has been agreed. The contingent consideration is payable depending on total revenue, recurring revenue and EBITDA targets. 64 ReadyTech Holdings Limited Notes to the consolidated financial statements 30 June 2023 Note 37. Business combinations (continued) The amount of contingent consideration recognised represents the fair value as at the date of acquisition if the relevant targets are met. If these targets are not met, then no amount is payable. As at 30 June 2023, the fair value of contingent consideration was $30,650,000. In July 2023, IT Vision met its first milestone of the earn out target as per the purchase sales agreement (refer to note 20). Acquisitions during the year ended 30 June 2022 1. Acquisition of PhoenixATS Australia Pty Ltd On 17 March 2022, the Group acquired 100% of the ordinary shares of Capital Software Limited and its subsidiary, PhoenixATS Australia Pty Ltd ('PhoenixHRIS'), for the total consideration transferred of NZD$3,490,325 (or equivalent to AUD$3,266,605). This is a cloud-based talent management and applicant tracking system, specialising in management of online recruitment and onboarding business and operates in the workforce solution segment of the Group. It was acquired to bolster the workforce solution all-in-one capability and product market fit in the stand-up economy, which will create crosssell/upsell opportunities to existing customer base and to increase the attractiveness of the platform with the additional functionality into the suite. The goodwill of AUD$2,110,000 represents technology and revenue synergies. The values identified in relation to the acquisition of PhoenixHRIS were final as at 31 December 2022. Details of the acquisition are as follows: Cash and cash equivalents Trade and other receivables Allowance for expected credit losses Deferred tax asset Contract liabilities GST payables Accrued expenses Software Customer relationship Deferred tax liabilities 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 65 Fair value $'000 2 106 (12) 23 (41) (33) (25) 1,000 624 (487) 1,157 2,110 3,267 2,130 1,137 3,267 180 3,267 (2) (1,137) 2,128 ReadyTech Holdings Limited Notes to the consolidated financial statements 30 June 2023 Note 37. Business combinations (continued) As part of the acquisition of PhoenixHRIS, an amount of contingent consideration has been agreed. The contingent consideration is payable depending on the integration of PhoenixHRIS product to the existing workforce solutions products and revenue targets. The amount of contingent consideration recognised of NZD$1,208,757 (or equivalent to AUD$1,137,000) represents the fair value as at the date of acquisition, if both the product integration and revenue thresholds are met. If these thresholds are not met, then no amount is payable. At acquisition date, the total contingent consideration of AUD$1,137,000 has been recognised given the probability that the threshold would be met was high. In August and December 2022, a total contingent consideration of NZD$371,926 (or equivalent to AUD$342,000) has been settled as product integration milestone has been achieved. The remaining contingent consideration amount of NZD$837,000 (or equivalent to AUD$781,000) payable as at 30 June 2023 was subsequently paid in July 2023. 2. Acquisition of Avaxa Pty Ltd On 24 September 2021, the Group acquired 100% of the ordinary shares of Avaxa Pty Ltd for the total consideration transferred of $2,039,000. This is a specialist enterprise student management software business and operates in the Education and Work Pathways segment of the Group. It was acquired to expand ReadyTech's existing presence in the Australian enterprise education market. The goodwill of $1,010,000 represents technology and revenue synergies. The acquired business contributed revenues of $1,727,000 to the Group for the period from 24 September 2021 to 30 June 2022. The values identified in relation to the acquisition of Avaxa Pty Ltd were final as at 30 June 2022. Cash and cash equivalents Trade and other receivables Right-of-use assets Property, plant and equipment Customer relationships Software Trade and other payables Contract liabilities Deferred tax liability Employee benefits Lease liability Net assets acquired Goodwill Acquisition-date fair value of the total consideration transferred Representing: Cash paid or payable to vendor Deferred 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: deferred consideration Net cash used Fair value $'000 219 180 18 50 846 806 (435) (61) (116) (460) (18) 1,029 1,010 2,039 733 1,306 2,039 159 2,039 (219) (1,306) 514 As part of the acquisition of Avaxa Pty Ltd, an amount of deferred consideration of $1,306,000 has been agreed. As at 30 June 2023, there is no outstanding balance as the full amount has been paid. 66 ReadyTech Holdings Limited Notes to the consolidated financial statements 30 June 2023 Note 37. Business combinations (continued) 3. Acquisition of Open Windows Software Pty Ltd On 16 December 2021, the Group acquired 100% of the ordinary shares of Open Windows Software Pty Ltd for the total consideration transferred of $14,001,000. This is a cloud-based contract management and procurement software business and operates in the Government and Justice segment of the Group. It was acquired as a strategic acquisition that enhances ReadyTech’s Local and State Government product-market fit, whilst also providing the opportunity to cross-sell Open Windows into ReadyTech’s existing government customer base. The goodwill of $4,094,000 represents technology and revenue synergies. The acquired business contributed revenues of $2,292,000 to the Group for the period from 16 December 2021 to 30 June 2022. The values identified in relation to the acquisition of Open Windows Software Pty Ltd were final as at 30 June 2022. Details of the acquisition are as follows: Cash and cash equivalents Trade and other receivables Income tax refund due Prepayments Property, plant and equipment Right-of-use assets Customer relationships Software Deferred tax asset Trade and other payables Contract liabilities Employee benefits Lease liability Net assets acquired Goodwill Acquisition-date fair value of the total consideration transferred Representing: Cash paid or payable to vendor Contingent consideration ReadyTech Holdings Limited shares issued to vendor 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, net working capital adjustment Less: contingent consideration Less: shares issued by Company as part of consideration Net cash used Fair value $'000 1,022 307 42 65 32 54 2,140 2,056 38 (341) (1,707) (368) (54) 3,286 4,094 7,380 3,736 2,896 748 7,380 273 7,380 (1,022) (2,896) (748) 2,714 As part of the acquisition of Open Windows Software Pty Ltd, an amount of contingent consideration has been agreed. The contingent consideration is payable in two tranches, depending on revenue targets. 67 ReadyTech Holdings Limited Notes to the consolidated financial statements 30 June 2023 Note 37. Business combinations (continued) The amount of contingent consideration recognised of $2,896,000 represents the fair value as at the date of acquisition, if 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 $2,896,000 has been recognised. A portion of the contingent consideration amount as per share purchase agreement is treated as a remuneration to the ex-founders who continue to work in the business (refer to note 40). The amount of contingent consideration recognised represents the fair value as at the date of acquisition, if the relevant targets are met. If these targets are not met, then no amount is payable. As at 30 June 2023, the fair value of contingent consideration was $6,604,000 (2022: $3,665,000). In July 2023, Open Windows Software met its milestone 2 of the earn out target as per the purchase sales agreement (refer to Note 20). Note 38. 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 Lirac HoldCo Pty Ltd Lirac BidCo Pty Ltd Ready Pay Services Pty Ltd (previously Australian Payroll Professionals Holdings Pty Ltd) Readytech Workforce Solutions Pty Ltd (previously HR3 Pty Ltd) eLearning Australia Pty Ltd WageLink Australia Pty Ltd Zambion Pty Ltd Pentagon HoldCo Pty Ltd Pentagon BidCo Pty Ltd Open Office Holdings Pty Ltd McGirr Holdings Pty Ltd McGirr Information Technology Pty Ltd Open Windows Software Pty Ltd Avaxa Pty Ltd PhoenixATS Pty Ltd IT Vision Australia Pty Ltd IT Vision Software 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'. 68 ReadyTech Holdings Limited Notes to the consolidated financial statements 30 June 2023 Note 38. Deed of cross guarantee (continued) Set out below is a consolidated statement of profit or loss and other comprehensive income and statement of financial position of the 'Closed Group'. Statement of profit or loss and other comprehensive income Revenue Revaluation of contingent consideration Hosting and other direct costs Employee benefits expense Depreciation and amortisation expense Impairment of assets Advertising and marketing expenses Consultancy and professional expenses Administration expenses Communication and IT expenses Occupancy costs Other expenses Finance costs Profit before income tax expense Income tax expense Profit after income tax expense Other comprehensive income Foreign currency translation Other comprehensive income for the year, net of tax Total comprehensive income for the year Equity - retained profits Retained profits/(accumulated losses) at the beginning of the financial year Profit after income tax expense Cumulative profit prior to joining the “Closed Group” Retained profits at the end of the financial year 2023 $'000 2022 $'000 97,746 - (6,648) (58,341) (16,314) - (1,048) (2,849) (944) (1,950) (695) (1,207) (2,544) 5,206 (1,273) 72,043 6,027 (3,872) (39,310) (13,207) (4,373) (494) (2,072) (716) (1,526) (479) (938) (1,033) 10,050 (2,537) 3,933 7,513 - - 8 8 3,933 7,521 2023 $'000 2022 $'000 5,783 3,933 - (2,506) 7,513 776 9,716 5,783 69 ReadyTech Holdings Limited Notes to the consolidated financial statements 30 June 2023 Note 38. Deed of cross guarantee (continued) Statement of financial position Current assets Cash and cash equivalents Trade and other receivables Contract assets Derivative financial instruments Income tax refund receivable Prepayments Non-current assets Investments Property, plant and equipment Intangibles Right-of-use assets Contract costs Deferred tax Total assets Current liabilities Trade and other payables Contract liabilities Derivative financial liability Lease liabilities Income tax payable Employee benefits Contingent consideration Non-current liabilities Contract liabilities Borrowings Provisions Lease liabilities Deferred tax Employee benefits Contingent consideration Total liabilities Net assets Equity Issued capital Reserves Retained profits Total equity 70 2023 $'000 2022 $'000 19,941 9,589 1,353 76 1,815 2,876 35,650 13,583 2,151 202,609 4,615 2,025 - 224,983 7,786 9,582 1,383 - - 1,264 20,015 20,939 901 130,242 2,922 2,112 6,069 163,185 260,633 183,200 14,049 19,344 - 1,167 - 7,100 10,181 51,841 872 46,949 307 3,808 1,706 375 25,911 79,928 8,968 16,020 17 1,152 3,580 5,702 12,971 48,410 344 33,949 64 2,011 - 322 1,450 38,140 131,769 86,550 128,864 96,650 197,558 (78,410) 9,716 171,916 (81,049) 5,783 128,864 96,650 ReadyTech Holdings Limited Notes to the consolidated financial statements 30 June 2023 Note 39. Reconciliation of profit after income tax to net cash from operating activities Profit after income tax expense for the year Adjustments for: Depreciation and amortisation Impairment of assets Write off of non-current assets Revaluation of contingent consideration Share-based payments Foreign exchange differences Contingent consideration treated as remuneration expense Other expenses - non-cash Change in operating assets and liabilities: Decrease/(increase) in trade and other receivables Decrease/(increase) in deferred tax assets Increase in prepayments Decrease/(increase) in other operating assets Increase/(decrease) in trade and other payables Increase/(decrease) in contract liabilities Increase/(decrease) in provision for income tax Increase in employee benefits Net cash from operating activities Note 40. Share-based payments Consolidated 2023 $'000 2022 $'000 4,975 8,794 17,272 - - - 3,220 (178) 1,442 730 7,996 4,825 (752) (93) 2,062 (8,395) (5,377) 79 14,079 4,373 44 (6,027) 1,463 (71) 800 100 (3,614) (3,166) (266) 61 (1,067) 259 740 498 27,806 17,000 FY2021 Plan The Long Term Incentives ("LTI") performance rights are subject to an earnings per share ('EPS') hurdle (50% of grant value) and a relative total shareholder return ('TSR') hurdle which is compared against the S&P/ASX All Tech Index (50% of grant value). These LTI performance rights will be evaluated in two tranches. The first tranche, equivalent to 50% of the total grant value, will be evaluated two years from 1 July 2020 ('the beginning of the performance period'). The second tranche, also equivalent to 50% of the total grant value, will be evaluated three years from the beginning of the performance period. If the compound annual growth rate of EPS is less than the target of 9%, no vesting will occur. If the target is met, 50% of rights will vest. In the event that the compound annual growth rate is between 10-14%, vesting will be pro-rated between 50- 100%. If the relative TSR of the Company ranks at or above the 75th percentile, 100% of the rights will vest. In the event that the Company ranks at the 50th percentile, 50% of the rights will vest. For any achievement between the 50th and 75th percentile, vesting will be pro-rated between 50-100%. During the financial year, the first tranche was vested. A total of 351,462 performance rights were exercised by issuance of shares. FY2022 Plan The LTI performance rights are subject to an EPS hurdle (50% of grant value) and a recurring revenue hurdle (50% of grant value). These LTI performance rights will be evaluated in two tranches. The first of which, equivalent to 50% of the total grant value, will be evaluated two years from the beginning of the performance period. The second or which, equivalent to 50% of the total grant value, will be evaluated three years from the beginning of the period. 71 ReadyTech Holdings Limited Notes to the consolidated financial statements 30 June 2023 Note 40. Share-based payments (continued) If the compound annual growth rate of EPS is less than the target of 13%, no vesting will occur. If the target is met, 50% of rights will vest. In the event that performance is up to 4% above the target, vesting will be pro-rated between 50-100%. If the compound annual growth rate of recurring revenue is less than the target of 13%, no vesting will occur. If the target is met, 50% of rights will vest. In the event that performance is up to 4% above the target, vesting will be pro-rated between 50-100%. FY2023 Plan The LTI performance rights are subject to an EPS hurdle (50% of grant value) and a recurring revenue hurdle (50% of grant value). These LTI performance rights will be evaluated in two tranches. The first of which, equivalent to 50% of the total grant value, will be evaluated two years from the beginning of the performance period. The second or which, equivalent to 50% of the total grant value, will be evaluated three years from the beginning of the period. If the compound annual growth rate of EPS is less than the target of 13%, no vesting will occur. If the target is met, 50% of rights will vest. In the event that performance is up to 4% above the target, vesting will be pro-rated between 50-100%. If the compound annual growth rate of recurring revenue is less than the target of 13%, no vesting will occur. If the target is met, 50% of rights will vest. In the event that performance is up to 4% above the target, vesting will be pro-rated between 50-100%. Set out below are summaries of performance rights granted under the plan: 2023 Grant date Expiry date Balance at the start of the year Granted Exercised Expired/ forfeited/ other Balance at the end of the year 11/12/2020 11/12/2020 13/09/2021 13/09/2021 17/11/2021 17/11/2021 11/10/2022 11/10/2022 15/11/2022 15/11/2022 2022 30/06/2022 30/06/2023 30/06/2023 30/06/2024 30/06/2023 30/06/2024 30/06/2024 30/06/2025 30/06/2024 30/06/2025 351,462 351,460 217,394 217,390 60,264 60,264 - - - - 1,258,234 - - - - - - 244,319 244,309 47,380 47,380 583,388 (351,462) - - - - - - - - - (351,462) - - - - - - - - - - - - 351,460 217,394 217,390 60,264 60,264 244,319 244,309 47,380 47,380 1,490,160 Grant date Expiry date 11/12/2020 11/12/2020 13/09/2021 13/09/2021 17/11/2021 17/11/2021 30/06/2022 30/06/2023 30/06/2023 30/06/2024 30/06/2023 30/06/2024 Balance at the start of the year Granted Exercised Expired/ forfeited/ other Balance at the end of the year 351,462 351,460 - - - - 702,922 - - 217,394 217,390 60,264 60,264 555,312 - - - - - - - - - - - - - - 351,462 351,460 217,394 217,390 60,264 60,264 1,258,234 The weighted average share price during the financial year was $3.30 (2022: $3.22). The weighted average remaining contractual life of performance rights outstanding at the end of the financial year was 0.78 years (2022: 1.3 years). 72 ReadyTech Holdings Limited Notes to the consolidated financial statements 30 June 2023 Note 40. Share-based payments (continued) For the performance rights granted during the current financial year, the valuation model inputs used to determine the fair value are using the share price as at 11 October 2022 and 15 November 2022, which were $2.92 and $3.97 respectively. Set out below are the performance rights exercisable at the end of the financial year: Grant date Expiry date 11/12/2020 13/09/2021 30/06/2023 30/06/2023 2023 2022 Number Number 351,460 217,394 351,462 - 568,854 351,462 Deferred consideration in shares As part of the acquisition of Open Windows Software Pty Ltd, an amount of contingent consideration has been agreed. A portion of the consideration is treated as a remuneration to the ex-founders who continue to work in the business. As per agreement, a maximum of 40% could be settled in cash whilst the remaining is in shares. During the financial year ended 30 June 2023, an amount of $1,470,000 (2022: $462,000) which represented an equity settlement, was charged as a share based payment. Note 41. Non-cash investing and financing activities Additions to the right-of-use assets, including lease modification Additions to lease make good assets Shares issued in relation to exercise of vested performance rights Shares issued in relation to business combinations Shares issued in relation to settlement of contingent consideration Additional contingent consideration charged as employee expenses Revaluation of contingent consideration Changes in the fair value of interest rate swap Note 42. Changes in liabilities arising from financing activities Consolidated 2023 $'000 2022 $'000 1,438 215 629 12,080 9,298 1,470 - - 2,074 - - 11,701 - 800 6,027 17 25,130 20,619 Consolidated Balance at 1 July 2021 Net cash from/(used in) financing activities Lease modification Acquisition of leases Changes through business combinations (note 37) Other changes Balance at 30 June 2022 Net cash from/(used in) financing activities Acquisition of leases Changes through business combinations (note 37) Interest expense Borrowings Lease liability $'000 $'000 Total $'000 30,917 3,017 - - - 66 34,000 13,000 - - - 2,650 (1,503) 107 1,965 72 99 3,390 (1,613) 1,438 1,720 226 33,567 1,514 107 1,965 72 165 37,390 11,387 1,438 1,720 226 Balance at 30 June 2023 47,000 5,161 52,161 73 ReadyTech Holdings Limited Notes to the consolidated financial statements 30 June 2023 Note 43. Earnings per share Profit after income tax attributable to the owners of ReadyTech Holdings Limited 4,975 8,794 Weighted average number of ordinary shares used in calculating basic earnings per share 113,605,727 106,170,879 Weighted average number of ordinary shares used in calculating diluted earnings per share 113,605,727 106,170,879 Number Number Consolidated 2023 $'000 2022 $'000 Basic earnings per share Diluted earnings per share Note 44. Events after the reporting period Cents Cents 4.38 4.38 8.28 8.28 In July 2023, the Group settled the contingent consideration in relation to PhoenixATS Australia Pty Ltd of $770,000 by cash. Further, Open Windows Pty Ltd and IT Vision Pty Ltd have met their earn out targets as per the purchase sales agreement. Open Windows Pty Ltd sellers elected to be paid $1,668,000 by cash and $2,502,000 by shares at $3.05 per share on 17 August 2023. IT Vision Pty Ltd sellers elected to be paid by $2,825,000 by cash and $3,003,000 by shares at $3.02 per share on 18 August 2023. No other matter or circumstance has arisen since 30 June 2023 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. 74 ReadyTech Holdings Limited Directors' declaration 30 June 2023 In the Directors' opinion: ● ● ● ● ● the attached financial statements and notes comply with the Corporations Act 2001, the Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; the attached financial statements and notes comply with International Financial Reporting Standards as issued by the International Accounting Standards Board as described in note 2 to the financial statements; the attached financial statements and notes give a true and fair view of the Group's financial position as at 30 June 2023 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 38 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 Chair 23 August 2023 Sydney 75 Deloitte Touche Tohmatsu ABN 74 490 121 060 Quay Quarter Tower 50 Bridge 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 2023, 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:  Giving a true and fair view of the Group’s financial position as at 30 June 2023 and of its financial performance for the year then ended; and  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 & 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 Key Audit Matter Capitalisation of software development costs During the year, the Group capitalised internal software development project costs of $16.34 million (total software capitalised during the year $18.24 million including external costs) as disclosed in Note 13. These projects were predominantly in relation to the development of the Group’s key software platforms. The costs mainly comprised of payroll and related costs for software developers and engineers. Significant management judgement is required in respect of the rate of capitalisation of payroll and related costs for software developers and engineers. How the scope of our audit responded to the Key Audit Matter Our procedures included, but were not limited to:     Through inquiries with management obtaining an understanding of the Group’s capitalisation policy, including the rationale for the percentage of payroll and related costs capitalised for software developers and engineers; Understanding the relevant controls over the capitalisation of software development costs; Performing analytical review of capitalised software development as a percentage of payroll costs and year on year movement analysis; On a sample basis, testing capitalised software development costs during the year through the following: a. Assessing management’s movement schedule of software development costs by agreeing the underlying salaries to the respective payroll records; b. Understanding the significant development projects and activities undertaken during the year; c. Assessing whether eligible employees are included, and ineligible employees are excluded in the calculations, where appropriate; d. Challenging management’s key assumptions on employee level software capitalisation rates; e. Performing direct interviews and confirming with respective software developers and engineers to corroborate the roles and responsibilities, key development projects and software capitalisation rates ; f. Tracing to underlying supporting records and other information; g. Assessing whether the costs incurred qualify for capitalisation in accordance with Group’s accounting policy and AASB 138 Intangible Assets. We also assessed the appropriateness of the disclosures in Note 2 and Note 13. 77 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 2023, 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 skepticism 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 78 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 pages 9 to 16 of the Directors’ Report for the year ended 30 June 2023. In our opinion, the Remuneration Report of ReadyTech Holdings Limited, for the year ended 30 June 2023, complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. DELOITTE TOUCHE TOHMATSU Sandeep Chadha Partner Chartered Accountants Sydney, 23 August 2023 79 ReadyTech Holdings Limited Shareholder information 30 June 2023 Voting Rights Ordinary shares: On a show of hands, every member present at a meeting in person or by proxy shall have one vote and upon a poll, each share shall have one vote. Earn Out Share: There are currently 12 Earn Out Shares on issue. As set out in the Notice of Meeting and accompanying documents dated 14 October 2022 (Notice), prior to Redemption (as outlined in the Notice), the holders will not be entitled to vote at any general meeting or class meeting of the Company except where a vote is required by law. Performance Rights: There are currently 1,490,160 Performance Rights on issue. Holders of performance rights have no voting rights. The below information is current as at 1 August 2023. Distribution Of Equity Securities Analysis of number of equity security holders (fully paid ordinary shares) by size of holding: Range 1 to 1,000 1,001 to 5,000 5,001 to 10,000 10,001 to 100,000 100,001 and over Total number of security holders Holders holding less than a marketable parcel of shares* Number of holders 855 808 229 268 54 2,214 % of holders 38.62 36.50 10.34 12.10 2.44 100.00 Number of securities 433,795 2,094,841 1,756,819 7,568,735 104,291,544 116,145,734 % of securities 0.37 1.80 1.51 6.52 89.79 100.00 84 3.79% 3,532 0.00 *The marketable parcel of shares was calculated based on the closing market price on 1 August 2023 of $3.34. Restricted Securities There are currently 1,823,883 restricted securities on issue. The restricted securities will be subject to escrow until the date that is 5 Trading Days after the date on which the half-year reviewed accounts of ReadyTech for the period to 31 December 2023 are released to ASX. On-Market Buy Back There is no current on-market buy back. Unquoted Securities Type of security Earn Out Shares Performance Rights Earn Out Shares Range 1 to 1,000 1,001 to 5,000 5,001 to 10,000 10,001 to 100,000 100,001 and over Total number of security holders Number of holders 6 21 Number of securities 12 1,490,160 Number of holders % of holders Number of securities 12 % of securities 100.00 100.00 100.00 12 100.00 6 6 80 ReadyTech Holdings Limited Shareholder information 30 June 2023 Performance Rights Range 1 to 1,000 1,001 to 5,000 5,001 to 10,000 10,001 to 100,000 100,001 and over Total number of security holders Number of holders 0 0 3 14 4 21 % of holders 0 0 14.28 66.67 19.05 100.00 Twenty Largest Quoted Equity Security Holders Number of securities 0 0 26,756 373,045 1,090,359 1,490,160 % of securities 0 0 01.79 25.04 73.17 100.00 5 6 No. Shareholder 1 2 3 4 PEMBA CAPITAL PARTNERS FUND I GP PTY LTD J P MORGAN NOMINEES AUSTRALIA PTY LIMITED CITICORP NOMINEES PTY LIMITED OPEN OFFICE PTY LTD PEMBA CAPITAL PARTNERS FUND 1 PARTNERSHIP LP HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED - A/C 2 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED MARC RAYMOND WASHBOURNE SYNERGYSOFT PTY LTD 7 8 9 10 NANAYAKKARA HOLDINGS PTY LTD 11 NATIONAL NOMINEES LIMITED 12 MICROEQUITIES ASSET MANAGEMENT PTY LTD 13 WASHBOURNE GROUP PTY LTD 14 SYCAMORE MANAGEMENT PTY LTD 15 UBS NOMINEES PTY LTD 16 MALVERN AVENUE MANAGEMENT PTY LTD 17 MARISH PTY LTD 18 ANKSH PTY LTD 19 PEMBA TRUSCO 1 PTY LTD 20 SYNERGYSOFT PTY LTD Top 20 holders of Shares Balance of Shares Total Shares on issue Number of shares 30,157,762 21,496,514 8,512,169 5,528,186 5,161,468 3,564,187 3,127,490 2,861,363 2,601,770 2,003,600 1,887,012 1,191,305 1,147,051 1,080,190 979,640 970,509 878,646 860,288 841,731 742,027 95,592,908 20,552,826 116,145,734 % of issued equity 25.97 18.51 7.33 4.76 4.44 3.07 2.69 2.46 2.24 1.73 1.62 1.03 0.99 0.93 0.84 0.84 0.76 0.74 0.72 0.64 82.30 17.70 100.00 Substantial Holders Shareholder Microequities Asset Management Pty Ltd The Pemba Entities2 Date of notice 20 December 2022 22 December 2021 Number of shares 17,415,318 34,539,611 % of issued equity1 15.23% 32.35% 1 Percentage of issued equity held as disclosed in the substantial holding notices provided to the Company. 2 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). 81 

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