FI RSTWA VE
CLOUD SECURITY TECHNOLOGY
FI RSTWA VE
CLOUD SECURITY TECHNOLOGY
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annual report 2019
annual report 2019
FirstWave Cloud Technology Limited ABN 35 144 733 595
For personal use only
Contents
1 Chairman’s Message
2 From our CEO’s Desk
3 Highlights 2019
4 Directors’ + Remuneration Reports
5 Financial Report
Auditor’s Independence Declaration
Financial Statements
Directors’ Declaration
Independent Auditor’s Report
6 Shareholder Information
7 Glossary
8 Corporate Directory
2
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6
10
40
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77
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82
84
85
FirstWave’s Cloud Content Security Platform is a unique SaaS email,
web and firewall security services orchestration platform for
telcos and service providers that prevents cybersecurity
threats from impacting their customers.
This Annual Report is a summary of FirstWave Cloud Technology Limited’s operations, activities
and financial performance and position as at 30 June 2019. In this Annual Report, references to
‘FirstWave’, the ‘company’, ‘we’, ‘us’ and ‘our’ refer to FirstWave Cloud Technology Limited (ABN
35 144 733 595), unless otherwise stated. References in this Annual Report to a ‘year’ are to the
financial year ended 30 June 2019, unless otherwise stated. All dollar figures are expressed in
Australian dollars (AUD) unless otherwise stated. A glossary is included on page 84 to assist with
terms used in this Annual Report.
“
Firstwave is AN Australian global cloud security
orchestration company evolving from a single partner,
single-cloud solution, operating in one geographic market,
into a multi-cloud solution operating through multiple
partners and geographies.
David Kirton | CEO FirstWave
”
For personal use only 1CHAIRMAN’S
message
We have delivered a powerful
shift in momentum for FirstWave
during 2019, the likes of which we
have not experienced since the
implementation of our three-phase
Enable, Expand and Scale strategy.
This year opened a positive line
of sight to FirstWave’s strategic
ambitions following our rapid growth
from a single geographic market to
a true multi-partner channel global
opportunity within 12 months.
The company is on track to realising
this substantial opportunity in 2020
and progressing FirstWave from an
“Australian cybersecurity company”
into “Australia’s global cloud security
services orchestration company”,
competing with a true global
leveraged business model.
ALIGNED WITH OUR PURPOSE
The explosion in popularity of cloud-
based computing and Software as a
Service (‘SaaS’) continued throughout
the 2019 fiscal year, as did the
exponential increase in the risk of
malicious cybercrime across all size
businesses and constant launches
of new cybersecurity offerings to the
market across all segments.
REFLECTING ON OUR
ACHIEVEMENTS
This has intensified the pressure on
end customers with increased cyber
threats and attacks, stricter regulatory
and compliance issues, their own
lack of internal security and risk
capabilities, buyer confusion around
suitable vendor product and the
complexity and cost of managing
the move to the cloud.
It’s a complex ecosystem in which our
channel partners (telecommunications
companies, global security vendors
and managed security service
providers) are competing hard to
grow revenue.
FirstWave’s unique security services
orchestration platform enables these
partners to deliver cloud-based
security services to connected
customers anywhere in the world.
Collectively this presents a continued
addressable market opportunity of
$14 billion by 2021, aligned with the
company’s three-year strategy, with a
serviceable obtainable market of
$1.8 billion.
I would like to commend our Chief
Executive Officer, Mr David Kirton,
and his management team on helping
the company achieve significant
milestones in 2019, including:
•
•
Significantly increasing our
go-to-market channels by signing
NTT DATA UK Limited and SHELT
Global Ltd, with first orders
already secured from one of
these agreements.
Completing Cisco Systems, Inc.
(Cisco) accreditation and being
placed on Cisco’s Global Price
List and ordering system.
• Our first win in Asia Pacific
through the Cisco software
original equipment manufacturing
development and licence
agreement with a tier one cloud
security provider.
•
The extension of the Telstra
Corporation Ltd reseller
agreement, including a new
payment schedule agreement.
We have continued to invest in
FirstWave’s proprietary orchestration
platform throughout 2019, enhancing
our product and enabling channel
partners to bundle our enterprise-
grade cybersecurity offering across
multiple threat vectors to their end
customers. As a result, we have built
greater company value through this
unique technology.
FUTURE FOCUSED
The progression of FirstWave’s
Enable, Expand and Scale strategy
is delivering exciting results. Having
completed our first full year of the
Expand phase, we have actively
established a growing international
footprint which, with successful
execution through the path to
revenue and using our domestic
customer base as a baseline,
provides a “line of sight”
to $45 million in annualised
recurring revenue.
The $11.8 million of capital raised
during the year has simultaneously
expanded the scope of global
opportunities, supported existing
customers and built new global
partner channels in international
markets. Meanwhile, we anticipate
that agreements with local software
distributors and cloud service
providers will drive domestic
revenue growth.
In June 2019, we announced the
appointment of Mr John Grant to
the Board as Executive Director
and Chairman as my replacement
from 1 July 2019. I’m delighted to
remain on the Board as a
Non-executive Director.
In this role, John will lead the Board
and work closely with the executive
team to help the company secure the
outcomes needed in the six months
to 31 December 2019. It is intended
that John will transition to the role of
Non-executive Chairman during the
second half of the year ending
30 June 2020.
John brings impressive experience
in terms of the technology sector,
business operations and board
leadership, with his previous positions
including Inaugural Chair of the
Australian Rugby League Commission
from 2012 to 2018 and Managing
Director and Chief Executive of
ASX-listed technology company
Data#3 Limited from 1996 to 2015.
Mr Simon Moore will retire from the
Board at the end of August 2019.
Appointed to the Board in March 2017,
Chairman’s Message
Simon has overseen the audit and
risk function during his tenure.
He made a valuable contribution
to the company during his time as
a Director and has been a welcome
and respected sounding board for
both the Board and the executive
team. We thank Simon and welcome
his continued participation as
a shareholder.
2019 has delivered solid progress
and valuable learnings which have
us poised to embark on the next
exciting growth chapter in 2020. The
Board and I extend our deep thanks
to you, our loyal and supportive
shareholders, and the exceptionally
skilled and dedicated FirstWave team.
Sam Saba
Outgoing Non-executive Chairman
John Grant
Sam Saba
“
The progression of FirstWave’s Enable, Expand and Scale strategy is
delivering exciting results. Having completed our first full year of
the Expand phase, we have actively established a growing international
footprint which, with successful execution through the path to revenue
and using our domestic customer base as a baseline, provides a ‘line of
sight’ to $45 million in annualised recurring revenue.
Sam Saba | Outgoing Non-executive Chairman FirstWave
”
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Annual Report 2019FirstWave Cloud Technology LimitedFor personal use only
2 FROM oUR
CEO’S DESK
2019 has seen FirstWave achieve
a host of critical milestones on our
mission to make enterprise-grade
cybersecurity accessible
to businesses globally.
Once a single partner, single-cloud
solution, operating in one geographic
market, this year we continued our
evolution to a multi-cloud solution
operating through multiple partners
and geographies. It’s a shift that
is unfolding against a backdrop of
enormously positive feedback about
FirstWave’s cloud-based offering
from partners, customers and
trusted experts.
PERFORMANCE HIGHLIGHTS
This year, we invested in a number of
key areas:
• New partners: Three new level
•
•
Partner consolidation: Our
relationship with long-term
partner Telstra Corporation Ltd
was extended.
Platform expansion: Our Cloud
Content Security Platform
(‘CCSP’) was deployed in
North America, United Kingdom,
India and Australia.
• New resources: Business
development and technical
sales resources were deployed
in United Kingdom, India,
Singapore and Malaysia.
•
Path to revenue progression:
New partners were moved
through the path to revenue,
achieving the partner
accreditation necessary to
launch security-as-a-service
offerings into market.
one partners (Cisco Systems, Inc,
NTT DATA UK Limited and SHELT
Global Ltd) and one new level
two partner (Celcom Malaysia)
substantially increased
the reach of our leveraged
go-to-market model.
The continued support of existing
shareholders as well as new investors
has been crucial on the journey to
international revenue. To both our
loyal and new shareholders, I extend
the sincere thanks of our company for
investing in FirstWave.
With your investment, our CCSP is
making strong inroads in addressing
the risk of malicious cyber-attack to
businesses and meeting the specific
challenges that security vendors
and service providers are facing in
cybercrime prevention.
These are global problems that
require time and money to solve,
however they present a significant
runway of opportunity for
FirstWave’s robust cloud-based
cybersecurity solutions.
KEY FINANCIALS
The company’s revenue for the year
was $8.8 million, which represents
growth of 13% over the prior
comparative period (PCP). Licensing
and support revenue increased by
14% for the year and represents 96.6%
of total revenue. Professional services
revenue was $0.3 million, declining
9.7% on the PCP, representing 3.4%
of total revenue.
The company’s loss after income
tax amounted to $11 million. Cash
and cash equivalents increased by
$2.3 million to $8 million at
30 June 2019, supported by two
capital raises, and a share purchase
plan, totalling $11.1 million net of
expenses. Of the increase to cash
and cash equivalents, $6.3 million
represented cash outflows from
operating activities. Cash used in
operating activities increased by
$2.8 million, up 80% from 30 June
2018, mainly attributed to the
company’s investment in growth
and expansion.
Trade receivables of $0.6 million at
30 June 2019 have been substantially
realised after the year end.
Investment into our CCSP has
driven the $2.2 million investment in
research and development that has
been capitalised as an intangible
asset in the company’s statement
of financial position.
LOOKING TO THE FUTURE
As we continue to execute the
Expand phase of our three-phase
strategy, we are perfectly placed to
penetrate the global cybersecurity
market’s immense opportunities with
FirstWave’s Australian-developed
cloud cybersecurity technology.
By investing in international
expansion, strengthening
relationships with our global
security vendor partners and
nurturing new partners in our
leveraged go-to-market model,
we’re unlocking even greater access
to a $1.8 billion opportunity.
The driven, innovative and passionate
people behind the FirstWave brand
are one of our greatest assets, and
their achievements are vital to the
traction our business is achieving
in global markets.
I would like to thank all our employees
for their commitment and loyalty, and
in particular acknowledge Drew Kelton
and Sam Saba for their commitment
during their respective tenures as
Chairman, and Simon Moore for his
tenure as a Director and Chair of the
Audit and Risk Committee.
From our CEO’s Desk
Their support and counsel
contributed to FirstWave’s path
to international revenue.
Finally, I would like to welcome
John Grant into the Executive Chair
at FirstWave. John’s impact on the
company is already being felt and has
everyone at FirstWave excited about
the year ahead.
I look forward to keeping our
investors across our progress
throughout the year as we continue
to deliver on our long-term
growth plans.
David Kirton
Chief Executive Officer
David Kirton
“
By investing in international
expansion, strengthening
relationships with our Global
Security Vendor partners
and nurturing new partners
in our leveraged go-to-market
model, we’re unlocking
even greater access to a
$1.8 billion opportunity.
David Kirton | CEO FirstWave
”
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Annual Report 2019FirstWave Cloud Technology LimitedFor personal use only
3highlights
2019
“
As we rollout our vision for our product roadmap, further
innovation to our platform means our partners will have the
ability to deliver EWF ‘perimeter’ security services to their
SMB customers. This will be a gamechanger as an ‘intrinsic’
cybersecurity-as-a-service market niche opportunity.
Simon Ryan | CTO FirstWave
”
3 new partners substantially
increased the reach of our
leveraged go-to-market model
Re-signed long-standing
agreement with Telstra
Launched onto the Cisco Global
Price List providing access to all
Cisco customers
New partners moved through the
path to revenue, achieving the
partner accreditation necessary to
launch SaaS security offerings
into the market
Introduced new BDMs in UK, India,
Singapore and Malaysia
8 cloud platforms globally located
in USA, UK, India and Australia
13%
growth in
revenue
+14%
licensing
and support
revenue
$2.1 million
INVESTED IN
PROPRIETARY
CCSP TO MEET
GLOBAL CHANNEL
FIRSTWAVE’S CLOUD CONTENT SECURITY PLATFORM
Email
GSI
Web
Telco
GSV
CCSP
Firewall
SP
Enterprise/SMB
customer
For personal use only
global Footprint
“
With our constant drive and focus to deliver our Expand
phase, we have successfully streamlined our operations
and product development to set us up for success in the
lucrative global cyber-security market outside australia
with what we know is a differentiated offering.
Neil Pollock | COO and Head of International FirstWave
”
“
Our investment in strengthening relationships with
existing and potential global partners is building
on our strategic positioning and unlocking greater
market opportunities. Ultimately, we are delighted
that our CCSP has been validated by customers
such as Telstra, Cisco, NTT DATA and SHELT Global.
”
Sundar Bharadwaj | Business Head EMEA and North America Region FirstWave
represents the locations of FirstWave’s major international partners current to 4 October 2019.
“
The velocity of cyber threats and malicious attacks
coupled with the complexity of security solutions are
creating a tornado effect in the market. FirstWave’s
SaaS security offering provides a world-class solution
to meet this opportunity.
Roger Carvosso | Strategy Director FirstWave
”
For personal use only 4directors’ +
remuneration
reports
“
It’s rare that an Australian technology company can find a place in
the world. firstwave has significant opportunity ahead of it but must
rapidly accelerate delivery of its product roadmap, each element of
which is directly related to new channel revenue opportunity, and
expand its channel partner network if it is to be in an optimal position
to convert opportunity to revenue.
John Grant | Executive Chairman FirstWave
”
Directors’ + Remuneration Reports
directors’ report
The directors present their report, together with the financial statements, on the consolidated entity (referred to hereafter as
the ‘consolidated entity’) consisting of FirstWave Cloud Technology Limited (referred to hereafter as the ‘company’, ‘FCT’ or
‘parent entity’) and the entities it controlled at the end of, or during, the year ended 30 June 2019 (‘FY2019’).
Directors
The following persons were directors of FirstWave Cloud Technology Limited during the whole of the financial year and up to
the date of this report, unless otherwise stated:
John Grant – Executive Director and Chairman (appointed on 1 July 2019)
Sam Saba
Scott Lidgett
Paul MacRae
Simon Moore
Edward Keating (resigned on 13 July 2018)
Alexander Kelton (resigned on 6 November 2018)
Principal activities
The principal continuing activities of the consolidated entity comprise of development and sale of internet security software.
Dividends
There were no dividends paid, recommended or declared during the current or previous financial year.
Review of operations
The loss for the consolidated entity after providing for income tax amounted to $11,007,337 (30 June 2018: $8,717,386).
Profit or loss performance
The consolidated entity’s revenue for the year was $8,831,731, which represents growth of 13% over the prior comparative
period (‘PCP’). Licensing and support revenue increased by 14% for the year and represents 96.6% of total revenue.
Professional services revenue was $300,643 declining 9.7% on PCP, representing 3.4% of total revenue.
The consolidated entity’s loss after income tax amounted to $11,007,337 (30 June 2018: loss of $8,717,386). This result
includes the full impact of the recognition of non-cash share-based payment expenses of $1,009,962 (30 June 2018: $109,243)
due to stock options granted to employees and officers. These are reported in general and administration expenses in
the statement of profit and loss and other comprehensive income. In valuing stock options, the Black-Scholes valuation
model has been applied with a volatility input measure of 64% based on historical share price movements – refer to the
remuneration report for further details.
Statement of financial position
Cash and cash equivalents increased by $2,278,295 to $8,061,168 at 30 June 2019 (30 June 2018: $5,782,873). This is
supported by two capital raises throughout the year and a share purchase plan, totalling $11,142,192 (net of expenses).
Of this increase to cash and cash equivalents, $6,345,820 represented cash outflows from operating activities (30 June
2018: $3,531,173). Cash used in operating activities increased by $2,814,647, up 80% from 30 June 2018, mainly attributed
to the consolidated entity’s investment to drive international expansion. Trade receivables of $572,697 at 30 June 2019
(30 June 2018: $1,706,880) have been substantially realised after the year end.
Product and development costs of $2,167,980 have been capitalised as an intangible asset in the consolidated entity’s
statement of financial position, the investment has increased from the PCP of $1,531,906.
Based on its current commitments, the consolidated entity has sufficient funds to meet its debts as and when they fall due,
and accordingly, the financial report has been prepared on a going concern basis.
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Annual Report 2019For personal use only
Directors’ + Remuneration Reports
Directors’ + Remuneration Reports
The directors determined that the use of the going concern basis of accounting is appropriate in preparing the financial
report. The assessment of going concern is based on cash flow projections. The preparation of these projections
incorporates several assumptions and judgements, and the directors have concluded that the range of possible outcomes
considered in arriving at this judgement does not give rise to a material uncertainty casting a significant doubt on the
consolidated entity’s ability to continue as a going concern.
Significant changes in the state of affairs
On 6 December 2018, the company completed a capital raise of $3,404,000 (before costs) by issuing 24,314,285 ordinary
shares.
On 2 April 2019, the company completed a capital raise of $6,500,000 (before costs) by issuing 23,214,286 ordinary shares.
On 30 April 2019, the company completed a share purchase plan of $1,248,000 by issuing 4,457,072 ordinary shares. See
note 19 for further details.
FY2019 has been another productive year for the consolidated entity, achieving several key milestones:
•
•
•
•
Signing a software original equipment manufacturer (‘OEM’) development and license agreement with Cisco Systems,
Inc. (‘Cisco’), and subsequently confirming an agreement with a Level 2 service provider in Asia Pacific through the OEM
agreement. The partnership was further strengthened by a commitment from Cisco of over $1 million in infrastructure
and software support to establish a joint cybersecurity technology laboratory.
Expanding into Middle East and Africa signing a reseller agreement with SHELT Global Ltd and securing its first
customer, Telecel, through the partnership. Telecel is an African headquartered Tier 1 service provider commencing
billing in quarter 4 FY2019.
Signing a partnership with global systems integrator NTT DATA UK Limited, the partnership provides a channel to
accelerate expansion in the UK, Europe, USA, Canada, India and Asia Pacific.
Re-signing product and services agreement with Telstra Corporation Ltd. The agreement allows added flexibility to
optimise working capital and continue the long-standing partnership.
There were no other significant changes in the state of affairs of the consolidated entity during the financial year.
Matters subsequent to the end of the financial year
No matter or circumstance has arisen since 30 June 2019 that has significantly affected, or may significantly affect the
consolidated entity’s operations, the results of those operations, or the consolidated entity’s state of affairs in future
financial years.
Likely developments and expected results of operations
The consolidated entity’s priorities for FY2020 are:
• moving existing customers through the path to revenue and increasing the customer base;
•
•
•
•
increasing penetration of email, web and firewall service offerings to existing and new customers;
investing in the product roadmap to add additional security appliances onto the cloud content security platform (‘CCSP’);
scaling platform infrastructure and service delivery to meet customer demand; and
providing investors with increased transparency of progress.
Environmental regulation
The consolidated entity is not subject to any significant environmental regulation under Australian Commonwealth
or State law.
Information on directors
Information on the directors of the company as at 30 June 2019 is set out below:
Sam Saba
Sam Saba
Non-executive Director
Qualifications: Sam holds BS and MS Degrees in Civil Engineering from the
University of Louisiana at Lafayette. He completed post-graduate studies
in Business Management from Columbia University and Executive Sales
Management from Wharton Business School, Pennsylvania and Cambridge
University, UK.
Experience and expertise: Sam has served as the Head of South East Asia and
Oceania Region at Telefonaktiebolaget LM Ericsson (publ) since 1 July 2014. He is
a highly-regarded, internationally experienced business executive with expertise
leading large multinational Telecommunication/IT companies across Australia and
New Zealand, Southeast Asia and the Middle East. He has spent 23 years with
the Ericsson Group and served as the President of Ericsson’s Southeast Asia and
Oceania Region based in Singapore, President Director of Ericsson Indonesia,
Chief Executive Officer of Ericsson Australia and New Zealand and Telstra
Account Director at Ericsson Australia. He is a Former Senior Advisor for Ericsson
South East Asia, Oceania and India.
Other current directorships: None
Former directorships (last three years): None
Special responsibilities: Member of the Audit and Risk Committee
Interests in shares: 876,623
Interests in options: 1,000,000
Scott Lidgett
Non-executive Director
Qualifications: Scott holds formal qualifications in Engineering.
Experience and expertise: Scott was a co-founder of FirstWave Cloud
Technology Limited. He is also a co-founder of Lidcam Technology Pty Ltd and
Channelworx Pty Ltd. Scott has been in the IT industry since the mid-1980s.
Prior to Lidcam and Channelworx, Scott worked in corporate sales at Logical
Solutions Pty Ltd, the leading reseller of Apple Computer products at the time.
Channelworx, a leading IT distribution business, was acquired by US listed IT
giant Avnet Inc. in November 2007. In November 2009, Scott was involved in
the formation of a new IT security business IPSec Pty Ltd, where he also serves
as Chairman.
Scott Lidgett
Other current directorships: None
Former directorships (last three years): None
Special responsibilities: Member of Remuneration and Nomination Committee
Interests in shares: 19,011,990
Interests in options: 1,200,000
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Directors’ + Remuneration Reports
Directors’ + Remuneration Reports
Company secretary
Gai Stephens (BEC, LLB, LLM, GAICD, FCA, FTIA, FGIA) was appointed as company secretary on 30 November 2017. Gai
is responsible for all of the legal and compliance issues associated with the consolidated entity. Previously she held the
position of company secretary at Hills Limited for four years from 2012 until 2017 and company secretary and general counsel
at Luxottica (formerly OPSM Group) for 20 years from 1992 until 2012. Gai has extensive knowledge in intellectual property
maintenance, tax structuring, acquisitions and disposals, risk management, company secretarial and legal matters.
Meetings of directors
The number of meetings of the company’s Board of Directors (the ‘Board’) and of each Board committee held during the year
ended 30 June 2019, and the number of meetings attended by each director were:
Full Board
Remuneration and
Nomination Committee
Audit and Risk
Committee
Attended
Held
Attended
Held
Attended
Held
Sam Saba
Scott Lidgett
Paul MacRae*
Simon Moore
Alexander Kelton
12
13
13
13
4
13
13
13
13
4
-
7
7
-
-
-
7
7
-
-
1
-
1
3
-
2
-
1
3
-
Held: Represents the number of meetings held during the time the director held office or was a member of the
relevant committee.
* Paul MacRae attended an Audit and Risk Committee when Sam Saba was not able to attend.
Paul MacRae
Simon Moore
Paul MacRae
Non-executive Director
Qualifications: Paul holds a Master of Business Administration (MBA) from
University of Strathclyde and a Bachelor of Science in Chemistry from The
University of Glasgow.
Experience and expertise: Paul has a successful history of setting up new
businesses in the IT industry in Australia and overseas. Since moving to Australia
in 1989 he has been involved with the IT industry at a senior level. Paul also runs
part of the largest listed Australian Enterprise Software company - TechnologyOne
Limited. Paul has a strong background in IT security, application software, software
development, outsourcing, cloud computing and transactional systems. His roles
have included establishing MessageLabs in Australia, Galileo in New Zealand,
setting up and selling a successful SAP Consultancy and growing business at
a leading HRMS software company.
Other current directorships: None
Former directorships (last three years): None
Special responsibilities: Chairman of the Remuneration and Nomination Committee
Interests in shares: 2,045,602
Interests in options: 1,200,000
Simon Moore
Non-executive Director
Qualifications: Simon holds a Bachelor of Commerce (Hons) and a Bachelor of
Law (Hons) from the University of Queensland.
Experience and expertise: Simon has extensive board-level experience
including in the enterprise cloud computing and information technology
sectors, along with a solid background spanning private equity, strategic
planning, corporate finance, financial modelling, corporate governance and
contract negotiations. Simon is the Senior Partner of Colinton Capital Partners,
an Australian middle market private equity investment firm. From September
2005 through to December 2016, Simon was a Managing Director and a Global
Partner of The Carlyle Group. Prior to joining The Carlyle Group in 2005, Simon
was a Managing Director and Investment Committee Member of Investcorp
International, Inc., based in New York. Prior to that, Simon worked in private
equity investments and investment banking at J.P. Morgan & Co. in New York,
Hong Kong and Melbourne.
Other current directorships: Megaport Limited (ASX: MP1); TPI Enterprises
Limited (ASX: TPE)
Former directorships (last three years): Qube Holdings Limited (ASX: QUB)
(resigned on 1 September 2016)
Special responsibilities: Chairman of the Audit and Risk Committee
Interests in shares: 4,358,386
Interests in options: 1,000,000
‘Other current directorships’ quoted above are current directorships for listed entities only and excludes directorships of all
other types of entities, unless otherwise stated.
‘Former directorships (last three years)’ quoted above are directorships held in the last three years for listed entities only and
excludes directorships of all other types of entities, unless otherwise stated.
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Annual Report 2019FirstWave Cloud Technology LimitedFor personal use only
Directors’ + Remuneration Reports
Directors’ + Remuneration Reports
Shares under option
Unissued ordinary shares of FirstWave Cloud Technology Limited under option at the date of this report are as follows:
Grant date
18/05/2016
18/05/2016
18/05/2016
18/05/2016
18/05/2016
18/05/2016
18/05/2016
18/05/2016
30/11/2017
30/11/2017
30/11/2017
30/11/2017
30/11/2017
30/11/2017
30/11/2017
13/04/2018
13/04/2018
13/04/2018
09/11/2018
09/11/2018
09/11/2018
11/04/2019
11/04/2019
11/04/2019
11/04/2019
Expiry date
19/05/2020
19/05/2020
19/05/2021
19/05/2021
19/05/2022
11/05/2022
11/05/2023
11/05/2023
31/05/2023
31/05/2024
28/02/2022
28/02/2023
28/02/2024
31/05/2024
31/05/2025
12/04/2021
12/04/2021
12/04/2021
30/06/2026
30/06/2026
30/06/2026
30/09/2026
31/08/2026
30/06/2026
28/02/2027
Weighted average
exercise price
$
Number
under option
0.30
0.35
0.30
0.35
0.40
0.25
0.25
0.35
0.65
0.65
0.75
0.75
0.75
0.76
0.87
0.40
0.50
0.60
0.40
0.40
0.40
0.42
0.43
0.44
0.45
800,000
210,000
500,000
1,500,000
2,500,000
6,260,000
500,000
200,000
100,000
100,000
333,400
333,300
333,300
300,000
500,000
1,216,667
283,334
283,332
4,000,000
4,998,000
1,000,000
2,000,000
2,350,000
7,700,000
650,000
38,951,333
No person entitled to exercise the options had or has any right by virtue of the option 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 FirstWave Cloud Technology Limited issued on the exercise of options during the year
ended 30 June 2019 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 24 to the financial statements.
The directors are satisfied that the provision of non-audit services during the financial year, by the auditor (or by another
person or firm on the auditor’s behalf), is compatible with the general standard of independence for auditors imposed by the
Corporations Act 2001.
The directors are of the opinion that the services as disclosed in note 24 to the financial statements do not compromise the
external auditor’s independence requirements of the Corporations Act 2001 for the following reasons:
•
•
all non-audit services have been reviewed and approved to ensure that they do not impact the integrity and objectivity
of the auditor; and
none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code
of Ethics for Professional Accountants issued by the Accounting Professional and Ethical Standards Board, including
reviewing or auditing the auditor’s own work, acting in a management or decision-making capacity for the company,
acting as advocate for the company or jointly sharing economic risks and rewards.
Officers of the company who are former partners of Grant Thornton
There are no officers of the company who are former partners of Grant Thornton.
Auditor’s independence declaration
A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out
immediately after this directors’ report.
Auditor
Grant Thornton continues in office in accordance with section 327 of the Corporations Act 2001.
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Letter from the Chair of the Remuneration and Nomination Committee
Dear Shareholders
On behalf of the company’s Remuneration and Nomination Committee (the ‘Committee’), I am pleased to present to you
FCT’s remuneration report for the year ended 30 June 2019 (‘FY2019’).
At the company’s last Annual General Meeting (‘AGM’) in November 2018, it received a First Strike against its remuneration
report. Following the strike, senior executives and directors of the company consulted with several of the company’s large
shareholders to establish the reasons for the strike and consequently, several changes have been made to its remuneration
policy and practices.
FCT invests in a best in class product offering that answers a global challenge. To ensure its suite of products remains best
in class and can be taken to the global marketplace, the company needs to attract and retain the best people from what is
a highly competitive, global market for talent. The primary objective of the company’s remuneration policy is to ensure that
collectively FCT’s directors, executives and employees have the skills and expertise to deliver long-term profitable growth
and returns to shareholders. To meet this objective, the policy adopts the following key principles for key management
personnel (‘KMP’) remuneration. It will:
•
•
•
align with shareholder value;
reward results, both short and long-term; and
acknowledge the company’s need, at its current stage of development, to conserve cash.
The company’s long-term incentive (‘LTI’) plan is a key component of the KMP’s remuneration satisfying each of the
principles above. However, the company’s LTI has been one of the areas where shareholders have had concerns, in
particular, the quantum of options that has been granted to management during the year. I would like to step you through an
example showing you the Board of Director’s (the ‘Board’) thinking on how the company’s LTI plan aligns with shareholder
value creation. For the purpose of this example, I have used the options granted to the chief executive officer (‘CEO’) after
last year’s AGM.
An example
At the last AGM, shareholders approved the issue of 4,998,000 options to the CEO. The exercise price was struck using the
five-day volume weighted average price (‘VWAP’) of the share price following the full year results announcement, calculated
to be $0.23, multiplied by an uplift factor. The following table shows the vesting dates, uplift factor and exercise prices:
Vesting date
(A)
01/07/2019
01/07/2020
01/07/2021
Number
of options
(B)
1,666,000
1,666,000
1,666,000
4,998,000
VWAP
(C)
$
0.23
0.23
0.23
Uplift factor
(D)
%
Exercise price
(CxD)
$
125
175
225
0.29
0.40
0.52
In establishing the CEO’s remuneration, a targeted annual LTI of $251,192 was set by the Board. To achieve the target LTI, the
share price was required to grow above the exercise price. The following table shows the share price required for the CEO to
realise his full LTI:
LTI target
(B)
$
251,192
251,192
251,192
Number of
shares
(C)
1,666,000
1,666,000
1,666,000
Incremental
share price to
achieve LTI
target
(D)
(B/C)
$
0.15
0.15
0.15
Exercise price
(E)
$
0.29
0.40
0.52
Required
to achieve
LTI target
(D+E)
$
0.44
0.55
0.67
Vesting date
(A)
01/07/2019
01/07/2020
01/07/2021
18
In issuing the options to the CEO the critical factor considered by the Board was to align the CEO’s performance to
shareholder value creation. This is best achieved by linking his remuneration to share price. This is highlighted in the
following table which shows how shareholders wealth grows if the CEO achieves the share price needed for him to realise
his full LTI target.
Share
price
required
to
achieve
LTI target
(A)
$
0.44
0.55
0.67
Market
capitalisation
(C)
(AxB)
$
Market
capitalisation
when VWAP
struck
(D)
$
Shares on
issue
(B)
Increase
in market
capitalisation
from time
VWAP struck
(E)
(C-D)
$
Cumulative
benefit to
CEO
(F)
$
280,805,705
123,554,510
45,102,543
78,451,967
251,192
280,805,705
154,443,138
45,102,543
109,340,595
502,384
280,805,705
188,139,822
45,102,543
143,037,279
753,576
Cumulative
benefit to
CEO of
incremental
increase
in market
capitalisation
(F/E)
%
0.32
0.46
0.53
Benefit to
shareholders
(E/D)
%
174
242
317
If the CEO successfully drives the share price to his LTI three year target:
•
•
shareholders will enjoy a 317% increase in their share price; and
the CEO will receive 0.53% of the incremental increase in market capitalisation.
Your directors believe that alignment of the CEO to shareholder wealth generation is best aligned through the issue of
options tied to the share price. This gives significant benefits to shareholders as can be seen from the example outlined
above. Your directors do not consider the LTI reward to the CEO to be excessive.
I hope the above gives you an insight into the Board’s deliberations on the company’s LTI.
Action being taken
It is the Committee’s and the Board’s view, formed from past recruitment experience, that the combination of remuneration
elements outlined under the framework in the remuneration report, that follows my letter, are required in full to achieve
the policy’s objective. In setting both the quantum and structure of the remuneration components, the Board will take the
company’s size and maturity into account.
Following some key changes to our corporate structure, shareholders will see some reclassification in our remuneration
report. Further, following consultation with shareholders after the 2018 AGM, the Board has made changes to KMP
remuneration as outlined in the remuneration report.
In summary, the remuneration report shows:
•
changes in past KMP LTI after consultation with shareholders, including cancellation of granted options;
• when benchmarked against peers, the remuneration of the CEO and other KMP is below market, according to
•
•
independent experts using a group of companies of comparable market value;
remuneration received by the CEO and KMP was 76% of target remuneration; and
the LTI plan will start to create value for management when the share price is above the exercise price. This requires a
share price increase and consequent increase in shareholder value before the executives receive any value for their LTI
awards. The example above explains this in more detail.
Conclusion
FCT remains focused on delivering share price appreciation, securing the capital structure necessary to support its strategic
objectives, longer-term profitable growth and returns to shareholders. The Board believes that the company’s current
remuneration structure, which will be further refined by a comprehensive review in FY2020, positions the company well to
achieve these goals.
We are committed to ongoing dialogue with our shareholders in relation to what is critical to your company’s success. We
thank you for your loyalty and look forward to your continued support.
Paul MacRae
Chairman, Remuneration and Nomination Committee
30 August 2019
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remuneration report (audited)
This remuneration report explains the company’s approach to remuneration, performance and remuneration outcomes for
its key management personnel (‘KMP’) for the year ended 30 June 2019 (‘FY2019’). It also addresses the Board’s response
to the ‘First Strike’ against the remuneration report for the year ended 30 June 2018 (‘FY2018’). In this report, ‘senior
executives’ refers to the executive KMP, excluding non-executive directors.
The information provided in this remuneration report has been audited as required by section 308(3C) of the Corporations
Act 2001, as well as section 300A and associated regulations, particularly Corporations Regulation 2m.3.03.
The remuneration report is set out under the following main headings:
1.
Performance and reward summary, key context and changes
2. Persons addressed in this report
3. KMP remuneration framework and governance
4. Planned and actual executive remuneration for FY2019
5. Variable remuneration assessment/outcomes for FY2019
6. KMP contracts and termination arrangements
7. Non-executive Director (‘NED’) fees and approved fee pool
8. Links between company strategy and KMP remuneration
9. Statutory remuneration tables
10. Changes in KMP held equity and future costs
11. Other remuneration related matters including use of remuneration consultants
The Board hopes shareholders find the report useful and encourages shareholders to provide feedback on the development
of FCT’s remuneration practices and reporting.
1. Performance and reward summary, key context and changes
1.1 Company performance summary
An underlying principle of the FCT’s remuneration policy is that remuneration must be linked to FCT’s performance.
The following is a summary of statutory financial and share price performance information since the company relisted
in 2016:
Revenue ($)
Loss after tax ($)
Share price ($)
Change in share price ($)
Dividends
Short-term change in shareholder
value (share price and dividends)
- Total value ($)
- Percentage (%)
Long-term (cumulative) three year
change in shareholder value
- Amount ($)
- Percentage (%)
2016
6,401,718
(4,654,811)
0.24
-
-
-
-
-
-
2017
6,435,660
(5,066,543)
0.35
0.11
-
0.11
46.00
-
-
2018
7,817,128
(8,717,386)
0.27
(0.08)
-
(0.08)
(23.00)
-
-
2019
8,831,731
(11,007,337)
0.30
0.03
-
0.03
9.00
0.06
23.00
In addition, the following indicators may be of interest to shareholders in assessing performance and reward outcomes:
2016
$
2017
$
2018
$
2019
$
SaaS revenue
4,652,183
5,629,291
7,484,057
7,928,743
Earnings before interest and tax
('EBIT')
Shareholders’ share capital
(5,067,571)
15,733,846
(5,507,399)
15,773,846
(7,626,581)
25,231,669
(11,019,760)
36,506,677
The following milestones should also be noted:
Milestone
Moved to full operational readiness for its North American, European and Asian Platforms
Increased the number of 1st level partners from 0 to 3, and 2nd level partners from 1 to 2
Deployment of premium email service offering
Successfully completed Proof of Value ('POV') deployments in Europe, Africa and Asia
Secured first international revenue
Raised $11 million of capital to pursue the Expand and Scale phases
Achieved
Yes
Yes
Yes
Yes
Yes
Yes
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1.2 KMP remuneration at-a-glance
The following chart summarises executive remuneration quantum and mix at target and actual performance for full year KMP:
Executive KMP remuneration elements and mix - target versus realised remuneration at-a-glance
CEO - target/budget
CEO - actual/realised
Average other executives -
target/budget
Average other executives -
actual/realised
50%
58%
50%
71%
15%
35%
7%
35%
15%
35%
8%
21%
$0 $100,000 $200,000 $300,000 $400,000 $500,000 $600,000 $700,000
$800,000
Fixed pay
STI (cash)
LTI (options)
The following chart summarises NED remuneration quantum and mix:
NED KMP remuneration elements and mix at-a-glance
Board Chair
69%
31%
Average other NEDs
92%
8%
$0 $20,000 $40,000 $60,000 $80,000 $100,000 $120,000 $140,000
$160,000
Cash fees (incl. super)
Equity (options)
1.3 Key context for KMP remuneration governance in FY2019 and into the financial year
ending 30 June 2020 (‘FY2020’)
The following outlines the key context relevant to KMP remuneration governance in FY2019 and into FY2020:
In November 2017, FCT announced a new strategic direction that saw the company move from a single vendor Australia
focused business to a global multi-vendor focused business. The new strategy had three phases – “Enable, Expand and
Scale”. The Enable phase was completed in FY2018 and involved establishing a new management team and repositioning
its product and delivery offering. The new team required the right skill set to Expand and Scale the business from a single
customer in Australia to a multiple customer base located in all major locations globally. The Expand phase was the focus
of FY2019 and continues to be the ongoing focus into FY2020. Key agreements were completed – starting with the global
security vendor – Cisco Systems, Inc. signed in July 2019. Other agreements have been signed including NTT DATA UK
Limited and SHELT Global Ltd. FCT’s product service agreement with Telstra Corporation Ltd was also renewed during
the year.
The milestones that have been achieved this year are listed above.
The opportunities that new customers are presenting have required additional executive and technical resources to execute
their potential. As FCT moves through the Expand phase of its strategy, the company’s remuneration framework provides the
Board with the flexibility to adjust the performance elements of executive remuneration to ensure the company maintains its
momentum through this important phase.
At the 2018 AGM, the company received a First Strike against its remuneration report. This matter is discussed further
below, where the concerns raised by some shareholders are outlined and the actions that the Board has taken in respect
of those concerns:
•
•
•
76% of voting shareholders voted against the remuneration report. As this percentage exceeds the percentage outlined
in the Corporations Act 2001 of 25% of the votes cast by persons entitled to vote, the remuneration report received a
‘First Strike’.
In these circumstances, the Corporations Act 2001 requires FCT to include in this year’s remuneration report an
explanation of the Board’s proposed action in response to that ‘First Strike’ or, alternatively if the Board does not
propose any action, the Board’s reason for such inaction.
In summary, the common themes arising from the consultation process regarding the strike are set out below:
-
-
the level of options issued is seen as dilutive;
the option expiry period at five years from date of vesting is seen as too long and does not align with the timeframe
of shareholders for value accretion; and
the former Chairman received consulting fees as part of his remuneration, which is generally seen as compromising
the independence of a NED.
-
During the year, the Board made several decisions in support of this objective including:
•
•
•
Following the First Strike, the Board actively consulted shareholders and shareholder representatives, who had raised
issues with last year’s remuneration report, to seek their feedback on FCT’s remuneration practices and reporting, and
to understand how this can be best represented in this report. The Board has taken their comments into consideration
when framing the remuneration policy. This is further outlined in this section of the report. The Board also made
changes to the format and content of the remuneration report with the aim of being clear and transparent, with a greater
focus on demonstrating to shareholders the link between remuneration strategy and performance of FCT.
Continuing to set challenging performance measures for the FY2019 Short-Term Incentive (‘STI’) plans focusing
on financial performance (75%), as well as strategic non-financial measures (25%). This emphasis towards financial
performance will continue for FY2020.
The review of the overall remuneration framework of FCT continues to evolve, including benchmarking to ensure that
the salaries for the chief executive officer (‘CEO’) and senior executives are competitive.
In terms of your company’s directors:
• Given your company is in the growth phase of an international expansion and yet to achieve positive operating cash
flows, the directors invest considerable time to provide their expertise and counsel out of the cycle of Board meetings.
•
•
Each director has invested to acquire shares in the company.
There have been no fees paid to committee members and only the Chair of the Audit and Risk Committee received
a fee.
1.4 Response to the “First Strike” and key changes to KMP remuneration governance in FY2019
and into FY2020
In response to the ‘First Strike’, the Board undertook a market review and arranged for the Chairman and the Chairman of
the Remuneration and Nomination Committee to consult with a number of advisors and stakeholders including institutional
investors to understand the reasons why FCT received the vote against the FY2018 remuneration report. In developing the
remuneration strategy for FY2019 and beyond as outlined in this report, the Board has taken into account feedback from
stakeholders, external advice from its independent remuneration consultant, market practice and, most importantly, what the
Board has identified as the key drivers to achieve the strategic objectives of the company. Key changes include:
•
•
•
•
•
cancellation of the one million options granted to the CEO on his previous appointment as Chief Financial Officer (‘CFO’)
(5,000,000 remaining);
cancellation of 250,000 of the options issued to the CFO (1,500,000 remaining);
cancellation of 750,000 of the options issued to the General Counsel, Company Secretary and Head of Human
Resources (1,250,000 remaining);
each of the cancellations will be actioned in FY2020; and
during the year, the CEO and Chief Technology Officer re-invested from their after-tax remuneration into the business.
Independent expert review
The Board engaged Godfrey Remuneration Group (‘GRG’) to undertake a review of KMP remuneration to assist the Board to
respond to the strike. GRG has so far provided some observations to the Board as detailed below.
A high-level review of KMP remuneration quantum and structure, which indicated:
• NED fees were approximately aligned with, but below, market practices for comparable companies, although some
standardisation could be considered, such as in respect of equity and committee fee arrangements. The Board intends
to consider this in FY2020 as part of a broader review of the current framework and policy. The current shareholder
approved Fee Limit reflected typical levels for comparable companies.
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•
•
In respect of the CEO’s role, cash remuneration is below market benchmark midpoint for comparable companies. The
value of the equity component of the CEO’s remuneration package is also below market and is insufficient for a role that
carries primary responsibility for long-term value creation for shareholders.
In respect of other executive KMP, fixed remuneration is below market benchmark for comparable companies. Variable
remuneration is overly weighted towards STIs and consideration could be given to rebalancing to longer term outcomes
by providing more in the form of equity.
The practice of granting long-term incentives (‘LTI’) only every three years is dated and likely to be exacerbating dilution.
The more common practice of annual granting for comparable ASX listed companies can average out valuations over the
long term and therefore reduce dilution when the company is growing.
Advice on ways to manage dilution while ensuring KMP remuneration creates appropriate alignment with shareholder
interests:
•
•
•
several factors including timing, valuation factors, up-front granting for multiple years and the use of premium exercise
prices appear to have conflated to produce a dilutive arrangement under the approach to date;
consideration be given to replacing the options plan with a rights plan that would be less dilutive, which the Board will
consider in FY2020; and
consideration be given to refining the method of valuation of executive equity arrangements for granting purposes to
improve alignment with market expectations.
Dilution
In employing a new senior executive team, the Board consciously decided to acquire a highly talented senior management
team with the skills and experience necessary to successfully drive the strategy from a single vendor in Australia to a multi-
vendor model focusing on customers throughout the world. The company has favoured a greater “at risk” component for
these new executives as a percentage of total remuneration. The use of equity over a higher cash remuneration has also
assisted the company in conserving its cash while it continues to operate in a tight operating cash position.
The Board believes that grants of options align management with shareholder value creation, particularly when premium
exercise prices are used (which tend to increase the number of options that must be granted to deliver a target value).
This report provides metrics that demonstrate the share price growth necessary for the CEO to receive the anticipated value
from his existing options, that is, the CEO will only benefit, and dilution will only occur, when shareholders have experienced
significant growth in value. However, the Board understands that there may be ways to provide similar alignment with a lower
dilutive impact and the Board proposes to review other approaches.
The Board will also consider grant valuation methods and inputs to ensure appropriate alignment between market
expectations and good governance practices adopted by the company going forward. Undertaking annual valuation and
granting processes, if adopted, can be expected to produce a lower dilutive impact compared to making grants of LTI for
future years in advance, particularly when the share price is expected to grow over future periods.
Option expiry period
In response to the option expiry period concern, the company will set the expiry period for the next round of options at
three years from the vesting date, down from five years. This changed expiry period will apply to options issued to directors,
management and employees. It should be noted that doing so reduces the value of the options, which, all other things
being equal, increases the number required to be granted to deliver a target remuneration value. The Board did seek
advice regarding altering previously issued options, however the legal, compliance and other impediments to doing so have
made this alternative impractical. Therefore, the Board asks for the understanding of shareholders as it goes through the
necessary processes to make the required changes in response to shareholder feedback.
Consulting fees for NEDs
There were no consulting fees paid to any NED in the current financial year.
Remuneration reporting
Finally, the Board has changed the format of this year’s remuneration report in order to make it more readable and
informative. The Board believes stakeholders will appreciate the open disclosure and clear presentation and welcomes
any shareholder feedback and suggestions for improvement.
2. Persons addressed in this report
KMP encompasses all directors, as well as those senior executives who have specific responsibility for planning, directing
and controlling material activities of FCT, as follows:
Director
Sam Saba
Scott Lidgett
Paul MacRae
Simon Moore
Alexander Kelton
Position
Non-executive Director since 16 October 2017
Board Chairman from 6 November 2018 until 1 July 2019
Member of the Audit and Risk Committee since 6 November 2018
Non-executive Director since 8 March 2016
Member of the Remuneration and Nomination Committee since 21 February 2017
Non-executive Director since 8 March 2016
Chairman of the Remuneration and Nomination Committee since 27 February 2017
Non-executive Director since 1 March 2017
Chairman of the Audit and Risk Committee since 30 November 2017
Board Chairman from 8 March 2016 until 6 November 2018
Member of the Audit and Risk Committee from 8 March 2016 until 6 November 2018
Member of the Remuneration and Nomination Committee from 21 February 2017 until
6 November 2018
Edward Keating
Non-executive Director since 8 March 2018 until 13 July 2018
Member of the Audit and Risk Committee from 8 March 2016 until 13 July 2018
Executives
David Kirton
Neil Pollock
Simon Ryan
Jason Singh
Position
Chief Executive Officer since 22 August 2018
Chief Operating Officer and Head of International since 1 December 2017
Chief Technology Officer since 21 July 2007
Chief Financial Officer since 11 April 2019
3. KMP remuneration framework and governance
The KMP remuneration framework is a series of policies, principles, practices and other documents that together form the
governance of KMP remuneration. These include the:
•
•
Remuneration and Nomination Committee Charter;
executive remuneration policy;
• NED remuneration policy;
•
•
•
STI policy and plan;
LTI policy and plan; and
securities trading policy.
3.1 Role of the Remuneration and Nomination Committee Charter
The Board, with assistance from the Remuneration and Nomination Committee, is ultimately responsible for ensuring that
FCT’s remuneration framework is consistent with the business strategy and performance supporting increased shareholder
returns over the long term.
The Remuneration and Nomination Committee, consisting of two NEDs: Paul MacRae (Chairman) and Scott Lidgett, has been
delegated responsibility for reviewing the remuneration strategy annually and advising the Board on remuneration policies
and practices generally.
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The Remuneration and Nomination Committee is responsible for:
•
•
•
the ongoing appropriateness and relevance of the remuneration framework for the Chairman, the Board Committees
and the NEDs;
FCT’s remuneration policy for the CEO, direct reports and other senior executives, any changes to the policy and the
implementation of the policy including any shareholder approvals required; and
incentive plans for the CEO, direct reports and other senior executives.
Further detail on the Remuneration and Nomination Committee’s responsibilities is set out in its Charter, which is reviewed
annually and available on FCT’s website at: https://www.firstwavecloud.com/corporate-governance.html
3.2 Executive remuneration policy
This policy’s objective is to provide levels of remuneration that attract, incentivise and reward the company’s senior
executives. It sets out how remuneration is to be structured, benchmarked and adjusted in response to changes in the
circumstances of the company, and in line with good governance.
Remuneration for senior executives is composed of:
•
•
fixed remuneration (inclusive of salary, superannuation, allowances, benefits and any applicable fringe benefits tax
(‘FBT’)); and
variable remuneration, which is partly at-risk reflecting performance against agreed targets, including:
-
-
STI for performance against annual objectives; and
LTI for performance against indicators of shareholder benefit or value creation, over a multi-year period.
In total the sum of the elements will constitute a total remuneration package (‘TRP’).
In setting the quantum of remuneration, both internal relativities and external market factors are considered.
TRPs are structured with reference to market practices, the practices of competitors for talent, and the circumstances of the
company at the time.
Fixed package policy mid-points are set with reference to P50 (the median or the middle) of the relevant market practice.
TRPs at target are set between P50 and P75 (the upper quartile, the point at which 75% of the sample lies below) of the
relevant market practice.
Consistent with market practice, remuneration is managed within a range of +/- 20% to allow for the recognition of individual
differences such as the calibre of the incumbent and the competency in which they fulfil a role.
Termination benefits will generally be limited to the default amount allowed for under the Corporations Act 2001 (without
shareholder approval).
Changes to remuneration resulting from annual reviews are generally determined in relation to:
•
external benchmarking and/or market movements;
• whether current remuneration for the incumbent is above or below the policy midpoint/benchmark – those below the
midpoint will tend to receive higher increases;
•
•
the competence of the incumbent in fulfilling their role which determines their positioning within the policy range –
higher calibre incumbents are intended to be positioned higher in the range; and
any changes to internal relativities related to role/organisation design that have occurred since the previous review.
3.3 NED remuneration policy
This policy applies to NEDs of the company in their capacity as directors and as members of committees and is
summarised below.
Remuneration will be composed of:
•
•
•
•
•
Board fees;
Committee fees;
superannuation;
other benefits; and
equity (if appropriate at the time).
Remuneration will be managed within the aggregate fee limit (‘AFL’) approved by shareholders of the company.
The Board may seek adjustment to the AFL in the case of the appointment of additional NEDs, or should the AFL become
insufficient to attract or retain the appropriate calibre of NEDs.
Remuneration is reviewed annually. Termination benefits are not paid.
A policy level of Board fees (being the fees paid for membership of the Board, inclusive of superannuation and exclusive of
committee fees) is set with reference to the P50 (median or middle) of the market of comparable ASX listed companies.
Committee fees may be used to recognise additional contributions to the work of the Board by members of committees in
circumstances where the workload of the Board is not equally shared.
The Board Chair fee will be set as a multiple of the fees payable to other NEDs, in recognition of the additional workload
associated with this role.
3.4 STI policy
The STI policy of the company is targeted at annual performance against agreed targets and defines the component of
remuneration that is at-risk:
•
the STI is generally paid in cash following finalisation of the company’s full year accounts;
• NEDs are excluded from participation;
•
•
a termination of employment triggers forfeiture of some or all unearned STI entitlements depending upon the
circumstances of the termination. The Board retains discretion to trigger or accelerate payment or vesting of incentives
within the limitation on termination benefits as outlined in the Corporations Act 2001; and
STIs are linked to the main drivers of performance at the group, business unit or individual level, as may be appropriate
to the role and subject to Board discretion.
3.5 LTI policy
The LTI policy of the company is targeted at mid to long-term shareholder value creation and defines the component of
remuneration that is linked to equity in the company and is therefore at the risk of share price movement:
•
•
•
the LTI can be based on performance rights, options or share appreciation rights that produce a benefit for participants
when performance objectives are met (which may include increasing share price);
the measurement period for LTIs is generally at least three years; and
a termination of employment will generally trigger a forfeiture of partial or all the LTIs held by an executive in respect
of rights or options which have not vested. The Board retains discretion to trigger or accelerate payment or vesting of
incentives within the limitation on termination benefits as outlined in the Corporations Act 2001.
3.6 Securities trading policy
The securities trading policy imposes trading restrictions on all FCT employees who are in possession of ‘inside information’
and additional restrictions in the form of trading windows for senior executives. Senior executives and members of the
broader management team are prohibited from trading in FCT shares during specific periods prior to the announcement of
the half and full year results and Appendices 4C. This policy applies equally to shares received as part of remuneration. The
securities trading policy is available on FCT’s website at: https://www.firstwavecloud.com/corporate-governance.html
3.7 STI for FY2019 and FY2020
The STI is an at-risk component of remuneration and is designed to reward performance against the achievement of key
performance indicators (‘KPIs’), which are set annually. The FY2019 STI plan was designed to reward senior executives for
the achievement of objectives closely aligned to the business strategy focusing the transformation from a single vendor
based in Australia to a multi-vendor customer base with global reach. KPIs use both financial and non-financial measures of
performance. KPIs are selected based on:
• what needs to be achieved over the 12-month period; and
•
key outcomes required to realise the business strategy over the longer term, and hence contribute to increased value
for shareholders.
Senior executives’ KPIs are aligned to the KPIs for the CEO and are based on a mix of day-to-day financial and operational
KPIs and more strategic KPIs which support the long-term business strategy, adjusted to reflect individual roles.
The STI performance period for FY2019 was from 1 July 2018 to 30 June 2019.
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Chief Executive Officer
Chief Operating Officer
Capital structure 8%
International revenue 8%
Scale R&D 9%
Revenue
25%
Cash
management
25%
EBITDA
25%
International
revenue
33%
Revenue
34%
EBITDA
33%
•
•
Financial performance: 80%
Individual performance: 20%
3.8 LTI plan for FY2019 and into FY2020
In the case of a change of control, entitlement to the STI will be assessed and paid based on consideration of the elapsed
period and performance to the date of change of control.
No clawback or malus policy has been built into the plan at this time and no separate policy has been developed.
The FY2020 STI plan will continue the strong focus on aligning senior executive reward with the financial performance of
FCT. The weighting for FY2020 for the CEO is:
Chief Financial Officer
Chief Technology Officer
Statutory
obligation and
business
transformation
25%
Cash
management
25%
EBITDA
50%
Scale R&D
25%
Revenue
25%
EBITDA
25%
The maximum STI available to each senior executive was set at a level based on role, responsibilities and market data for the
achievement of targets against specific KPIs. The maximum STI opportunity for the CEO was 60% of fixed pay and for other
executive KMP was 45% of fixed pay on average.
The Remuneration and Nomination Committee assesses the CEO’s performance and individual senior executive’s
performance based on the CEO’s recommendations, against the KPIs set at the beginning of the financial year. The
assessment of individual performance is combined with the achievement of financial results to determine the amount of
payment for the CEO and each senior executive. The Remuneration and Nomination Committee recommends the STI
payment outcome to the Board for approval. STI payments for FY2019 were delivered as cash payments following approval
by the Board.
Unless the Board determines otherwise, the treatment of STI opportunities in the case of a termination may be summarised
as follows:
Departure from FCT
Treatment of STI opportunity
Resignation and retirement
Any entitlement to a payment is subject to the participant being employed by the
company at the time of payment.
Company initiated termination
Any entitlement to a payment is based on completed months of service with no pro-
rata for partly completed months. To be entitled to a pro-rata payment the individual
will need to have completed nine months of service during the financial year.
Summary dismissal
If summarily dismissed a participant forfeits all rights to any payments under the STI
which had not already been made.
The LTI is targeted at mid to long-term (approximately three years) shareholder value creation and defines the component
of remuneration that is linked to equity in the company and is therefore at the risk of share price movement. The FY2019 LTI
plan was designed to reward senior executives for increasing share price by using options, that is, if the share price did not
increase for shareholders, executives received no benefit.
In determining the performance hurdles for the CEO’s options, the Board considered that an absolute share price target was
more appropriate than a relative (i.e. peer comparison) share price appreciation or total shareholder return target. The reason
for this is that the Board anticipates that growth in FCT’s share price should significantly exceed that of its peers and as such
a peer comparison would not give the appropriate stretch target for the CEO.
In FY2019, grants of options were subject to continued service vesting conditions over one, two and three financial years in
three equal tranches. While the proposed grants were intended to fulfil the remuneration component of executives for three
years (up-front granting for multiple years), the full amounts could not be granted and therefore arrangements appropriate for
future years are currently under review.
The options issued to the CEO and Chief Operating Officer during the year were approved by shareholders at the AGM held
on 9 November 2018.
Any options or rights issued in FY2020 or beyond under the current plan will have a three-year exercise period following
vesting rather than a five-year period as has been the company’s previous policy.
Each tranche was subject to a premium exercise price that serves as the performance condition required to be met for value
to accrue to a participant. The following table shows the share price growth that is required for the CEO to achieve the LTI
target value from his options (the same terms apply to grants to other executives in FY2019, in lesser volume as disclosed
elsewhere in this report):
Exercise date
01/07/2019
01/07/2020
01/07/2021
Exercise price
$
Number of
option issued
Target
LTI amount
$
Target
share price*
$
Growth in
share price**
%
0.29
0.40
0.52
1,666,000
1,666,000
1,666,000
251,192
251,192
251,192
0.44
0.55
0.67
191
239
291
* Share price required to deliver the target LTI value to the employee.
** This represents a share price growth from $0.23 – being the five-day volume weighted average price (‘VWAP’) after the
full year results announcement in August 2018. This was the agreed period to determine the exercise price of the options
which are 125%, 175% and 225% of the five-day VWAP.
The Black Scholes valuation methodology valued the option grant to the CEO at $217,263. The valuation methodology
involves a number or variables including a volatility measure of 64%.
The annual LTI value that forms part of the CEO’s remuneration package of $217,263 is less than the intended policy/target
level of annual LTI opportunity intended to be provided of $251,192.
The foregoing is intended to make it clear that no benefit will arise for the CEO, and other executives, and that no dilution will
arise, unless shareholders experience exceptional wealth creation.
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In the case of a termination of employment, unless the Board determines otherwise:
4.2 Maximum remuneration
Departure from FCT
Treatment of STI opportunity
Resignation and retirement
All unvested options will lapse on the date that the participant ceases to be
an employee, however vested but unexercised options will be retained by the
employee until the expiry date.
Death or disablement
Summary dismissal
All unvested options will lapse on the date that the participant ceases to be an
employee, however vested but unexercised options will be retained.
All unvested options will lapse on the date that the participant ceases to be an
employee, however vested but unexercised options will be retained.
In the case of a change of control, 100% of unvested options will vest which is appropriate to the nature of an option that has
a marginal value relative to the exercise price (it is recognised that this treatment would not be appropriate for performance
rights that have a non-marginal value).
No clawback or malus policy has been built into the plan at this time, and no separate policy has been developed.
There will be no additional LTI grant in FY2020 as grants of options already made are intended to cover a three-year period
of remuneration. However, future arrangements in relation to grants of equity will be reviewed in FY2020.
4. Planned and actual executive remuneration for FY2019
4.1 Target remuneration
The following table outlines the planned remuneration at target for executives for the FY2019 period. This presents the
actual fixed remuneration, target level of STI and policy level of LTI grant value that the Board intended to pay for the year if
expectations were met:
Base
package
including
super
$
358,846
334,379
294,320
57,784
Target
fixed %
of TRP
%
50
50
50
50
Target
STI
amount
$
107,654
103,657
88,296
17,335
Target
STI %
of TRP
%
15
15
15
15
Target
LTI
amount
$
251,192
234,065
206,024
40,449
Total
remuneration
package
at target
performance
$
Target
LTI %
of TRP
%
35
35
35
35
717,692
672,101
588,640
115,568
KMP
David Kirton
Neil Pollock
Simon Ryan
Jason Singh*
* Jason Singh was appointed CFO on 11 April 2019.
The following table outlines the planned remuneration at maximum/stretch for executives for the FY2019 period. The
maximum stretch target is 100% achievement of KPIs. This presents the actual fixed remuneration, maximum level of STI and
the policy level of LTI grant value that the Board intended to pay for the year if expectations were met (note: the LTI is subject
to binary conditions so no scaling applies):
Base
package
including
super
$
358,846
334,379
294,320
57,784
Maximum
fixed %
of TRP
%
Maximum
STI
amount
$
Maximum
STI %
of TRP
%
Maximum
LTI
amount
$
Maximum
LTI %
of TRP
%
43
43
50
50
215,308
207,315
88,296
17,335
27
27
15
15
251,192
234,065
206,024
40,449
30
30
35
35
Total
remuneration
package
at stretch
performance
$
825,346
775,759
588,640
115,568
KMP
David Kirton
Neil Pollock
Simon Ryan
Jason Singh*
* Jason Singh was appointed CFO on 11 April 2019.
4.3 Actual/realised remuneration in respect of FY2019 completion
The following table outlines the realised remuneration for executives in respect of the company that was realised in the
FY2019 period, taking account of performance outcomes. This presents the actual fixed remuneration paid, STI awarded
immediately following the completion of FY2019 audit and the grant date value of LTI that vested:
Base
package
including
super
$
358,846
334,379
294,320
57,784
Actual
fixed %
of TRP
%
58
62
85
66
Total STI
awarded
following
completion
of FY2019
(cash and
equity)
$
44,138
40,000
30,000
4,400
Value of LTI
that vested
following
completion
of FY2019
$
217,263
169,173
20,600
25,189
Actual
STI %
of TRP
%
7
7
9
5
Actual
LTI %
of TRP
%
Total
remuneration
package
$
35
31
6
29
620,247
543,552
344,920
87,373
KMP
David Kirton
Neil Pollock
Simon Ryan
Jason Singh*
* Jason Singh was appointed CFO on 11 April 2019.
It should be noted that because the share price is below the exercise price of the options that vested, the realised value of
the options that vested is currently nil.
Details of STI and LTI outcomes for the reporting period are presented below.
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5. Variable remuneration assessment/outcomes for FY2019
5.1 FY2019 STI performance metrics and outcome
The specific KPIs and the outcomes achieved for FY2019 are set out in the following table:
6. KMP contracts and termination arrangements
The remuneration and other terms of employment for the CEO and senior executives are covered in their individual
employment contracts and are summarised in the following table:
KMP
KPI summary (and weighting)
David Kirton
Neil Pollock
Simon Ryan
Jason Singh
Revenue (25%)
EBITDA (25%)
Cash position (25%)
Individual KPIs:
•
•
•
First international revenue (8%)
Scaling development team (9%)
Capital structure (8%)
Revenue (33.3%)
EBITDA (33.3%)
Individual KPIs:
•
First international revenue (33.3%)
Revenue (25%)
EBITDA (25%)
Individual KPIs:
•
Scaling development team (50%)
EBITDA (50%)
Cash position (25%)
Individual KPIs:
•
Statutory obligations (25%)
Target award
achievement
per KPI
%
Award
outcomes
FY2019 paid
FY2020
$
Target award
$
CEO
Senior Executives
107,654
41
44,138
•
•
•
•
•
•
•
The contract for the CEO had an initial three-year term with renewal by agreement
between the parties. The company may terminate without cause on providing six
months’ written notice. The CEO may terminate on providing three months’ written
notice. The CEO can be terminated immediately for serious misconduct.
All remuneration and benefits are outlined in the contract and outlined in detail in
this report.
There are no guaranteed base pay increases included in any senior executive contract
and no contract is for a fixed term.
The contracts may be terminated by either party on three months’ written notice.
If a senior executive is retrenched there is no entitlement to contractual termination
payments except where the company choses to make a payment in lieu of notice.
In the instance of serious misconduct, FCT may terminate employment at any time.
The senior executive will only receive payment to the date of termination and any
statutory entitlements.
Retirement benefits comprise employer contributions to defined contribution
superannuation funds.
103,657
39
40,000
NEDs
• NEDs are engaged by letter of appointment.
• No termination payments or notice periods apply to NED engagements.
88,296
34
30,000
78,116
26
20,000
7. NED fees and approved fee pool
The Board sets NED remuneration at a level which balances the attraction and retention of directors of the highest calibre at
a cost which is acceptable to shareholders. The remuneration of the NEDs is determined by the Board on recommendation
from the Remuneration and Nomination Committee within a maximum fee pool.
NEDs receive a base fee. If appropriate, the Board may also pay committee fees to NEDs. The following table outlines the
main Board and committee fees as at 30 June 2019 (no committee fees apply to other committees not listed):
5.2 FY2019 LTI performance metrics and outcomes
LTI eligible to vest following the completion of FY2019 was subject to service testing only, with the performance aspect
being the relationship between share price following vesting, and the exercise price. Since all participants remained
employed as at the end of FY2019, the following options vested (none of which have been exercised, therefore no dilution
has occurred in relation to LTI vesting):
KMP
Target performance
and actual outcome
David Kirton
Remains employed
Neil Pollock
Remains employed
Simon Ryan
Remains employed
Jason Singh
Remains employed
Number
eligible
to vest
following
FY2019
completion
2,066,000
1,333,333
750,000
833,334
4,982,667
% of
tranche
vested
100
100
100
100
Number
vested
2,066,000
1,333,333
750,000
833,334
Value of LTI
that vested
(as per
grant date
valuation)
$
217,263
169,173
20,600
113,504
4,982,667
520,540
Realisable
value (number
x vesting date
share price
net of exercise
price)
$
-
-
-
-
-
It should be noted that because the share price is below the exercise price of the options that vested, the realised value of
the options that vested is currently nil.
Function
Main Board
Audit and Risk Committee
Role
Chair
Member
Chair
Member
NEDs also receive options. The terms of the FY2019 grants are as follows:
Issued to
Sam Saba
Sam Saba
Sam Saba
Grant date
08/11/2018
08/11/2018
08/11/2018
Expiry date
01/07/2024
01/07/2025
01/07/2026
Fee including super
$
120,000
48,000
10,000
-
Number
333,333
333,333
333,334
Exercise price
$
0.098
0.094
0.092
The maximum amount of fees that can be paid to NEDs is capped by a pool approved by shareholders. At a General Meeting
held on 15 April 2016, shareholders approved the current fee pool of $400,000 per annum which is recorded on an accrual
basis. The fee pool and the base directors’ fees did not change in FY2019. Grants of options approved by shareholders do
not count towards this limit.
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8. Links between company strategy and KMP remuneration
The Board has established a Remuneration Framework that supports and drives the achievement of the company strategy.
The Board is confident that remuneration of the CEO and senior executives is aligned with shareholder interests. FCT is a
business that is heavily focused on KPIs and rewards its people at all levels on achievement of those KPIs.
8.1 Remuneration principles
The key principles on which the FCT Remuneration Framework are based are:
The diagram below shows how the remuneration framework aligns remuneration with the company strategy and ultimately
underpins sustainable long-term wealth creation for shareholders:
FCT develops software for a unique security services orchestration platform that enables Telcos, GSVs and
MSSPs to deliver cloud-based perimeter security services to any connected customer anywhere in the world.
Company strategy
Competitive
• Remuneration position at the appropriate level relative to the market to
be competitive and attract, retain and reward employees.
Equitable and motivational
• Employees in similar roles, making similar contributions, with similar
performance, receive similar rewards.
• Motivates employees to deliver business results.
• Differentiates, but is fair and equitable in its application.
Linked to performance
• Directly links individual and company performance to remuneration
outcomes.
• Employees understand what results need to be achieved.
• Provides an integrated remuneration and performance system framework.
Aligned
• Align remuneration and incentive outcomes with business goals and results.
• Support the completion of the transformation and delivery of the
growth strategy.
• Withstand external scrutiny.
Straightforward
• Understood by all stakeholders and employees.
Add additional partners
onto the leveraged
go-to-market model.
Strategic setting
Move customers through
the path to revenue
providing email, web
and firewall security as a
service offering to partners
and their end customers.
Deliver on product
roadmap creating
differentiated email, web
and firewall security as a
service offering to partners
and their end customers.
Creating value for
shareholders through
share price appreciation,
securing the capital
structure necessary to
support the company
strategy, longer term
profitable growth and
returns to shareholders.
Aligning executive reward
with achievement of
business strategy objectives
Challenging KPIs focused on financial
and non-financial measures.
Remuneration strategy
Motivate and reward
outstanding performance
Attract and retain
key executive talent
Short-term and long-term
components of remuneration ‘at
risk’ are based on performance and
outcomes.
Provide competitive remuneration
in order to attract and retain
senior executives with the skills
and experience to complete
the scale phase of the global
multi-vendor strategy.
Fixed remuneration
STI
LTI
Remuneration framework and policy
Set at levels to attract a senior
executive team with the skills and
experience required to successfully
complete transformation and delivery
of the growth strategy.
Aligned to the achievement of FCT’s
business objectives measured over
the short-term (12 months).
Aligned to the achievement of
increased shareholder wealth over
the long term.
LTIs only become valuable to
executives with share price growth.
The KPIs are based on:
•
•
financial performance (75%); and
individual non-financial
performance measures (25%).
Both financial and non-financial
measures directly support
achievement of the company’s
strategic settings.
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9. Statutory remuneration tables
The following table of NEDs and senior executive remuneration has been prepared in accordance with accounting standards
and the Corporations Act 2001 requirements. The amounts shown are equal to the amounts expensed in the company’s
financial statements. It should be noted that the STI value is the amount paid during the reporting period (i.e. in respect of
FY2018 performance) as required by statute, and FY2019 awards are disclosed above.
The option value presented relates to the application of AASB 2 ‘Share-based payments’ and may differ from the values
presented elsewhere in this report to which AASB2 is not relevant. Note that the option value in this table is a theoretical
valuation and the options only have value if the share price is above the exercise price which ranges from $0.44 to $0.67.
Details of the remuneration of KMP of the consolidated entity are set out in the following tables:
Short-term benefits
Post-
employment
benefits
Cash and
salary fees
$
Other
$
Super-
annuation
$
Long-term
benefits
Short-term
benefits
Long-term
benefits
Long
service
leave
$
Bonus or
equity-
settled
STI
$
Equity-
settled
LTI
$
Total
$
96,000
48,000
48,000
58,000
30,250
2,190
333,846
312,601
270,846
53,260
1,252,993
-
-
-
-
-
-
-
-
-
-
-
42,293
138,293
-
4,560
-
5,510
-
-
25,000
21,778
23,474
4,524
-
-
-
-
-
-
-
-
16,767
-
-
-
-
-
-
-
-
-
3,037
-
-
44,138
40,000
30,000
4,400
217,263
169,173
20,600
25,189
52,560
48,000
66,547
30,250
2,190
620,247
543,552
361,687
87,373
84,846
16,767
118,538
477,555
1,950,699
2019
NEDs
Sam Saba
Scott Lidgett
Paul MacRae
Simon Moore
Alexander Kelton
Edward Keating
Senior executives
David Kirton
Neil Pollock
Simon Ryan
Jason Singh*
* Jason Singh was appointed CFO on 11 April 2019.
36
Short-term benefits
Post-
employment
benefits
Long-term
benefits
Short-term
benefits
Long-term
benefits
Cash and
salary fees
$
Other
$
Super-
annuation
$
Long
service
leave
$
Bonus or
equity-
settled
STI
$
Equity-
settled
LTI
$
-
-
-
11,024
135,347
-
-
14,119
-
51,358
-
Total
$
34,000
52,560
48,000
74,534
285,347
52,560
21,900
323,819
207,192
312,816
213,250
-
-
-
-
-
-
-
-
-
-
-
4,560
-
5,510
-
4,560
1,900
24,700
12,192
20,589
19,238
93,249
-
-
-
-
-
-
-
-
-
4,145
-
-
-
-
-
-
-
-
25,000
20,000
20,000
-
2018
NEDs
Sam Saba
Scott Lidgett
Paul MacRae
Simon Moore
34,000
48,000
48,000
58,000
Alexander Kelton*
150,000
Edward Keating
David Garnier
Senior executives
David Kirton
Neil Pollock**
Simon Ryan
48,000
20,000
260,000
175,000
216,724
Steven O'Brien***
24,012
170,000
1,081,736
170,000
4,145
65,000
211,848
1,625,978
* Alexander Kelton’s remuneration included consulting fees of $30,000.
** Neil Pollock joined the company on 1 December 2017.
*** Steven O’Brien resigned as Managing Director on 26 September 2017. Other represents termination payments
of $170,000.
The proportion of remuneration linked to performance and the fixed proportion are as follows:
Fixed remuneration
% of TRP
STI
% of TRP
LTI
% of TRP
2019
%
2018
%
2019
%
2018
%
2019
%
2018
%
Senior executives
David Kirton
Neil Pollock
Simon Ryan
Jason Singh
Steven O'Brien
58
62
86
66
-
88
90
78
-
100
7
7
8
5
-
8
10
6
-
-
35
31
6
29
-
4
-
16
-
-
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Annual Report 2019FirstWave Cloud Technology LimitedFor personal use only
Directors’ + Remuneration Reports
Directors’ + Remuneration Reports
10. Changes in KMP held equity and future costs
The following tables summarises changes in NED and executive KMP held equity due to purchase, sale, granting, vesting,
exercise, forfeiture, etc, during the reporting period:
The following table outlines the minimum and maximum future values that may be expensed in relation to outstanding
variable remuneration granted during the reporting period and outstanding as at the end of the reporting period (in
satisfaction of Corporations Regulation 2m.3.03 12h) in respect of both NEDs and executives:
Shareholding
Ordinary shares
Sam Saba
Scott Lidgett
Paul MacRae
Simon Moore
Edward Keating*
Alexander Kelton**
David Kirton
Simon Ryan
Balance
at the start of
the year
Received
as part of
remuneration
Purchased/
other
Disposals/
other
Balance
at the end of
the year
340,909
19,654,847
1,634,888
2,100,000
6,591,427
1,115,625
-
4,615,000
36,052,696
-
-
-
-
-
-
-
-
-
535,714
-
876,623
-
(642,857)
19,011,990
410,714
2,258,386
-
-
2,045,602
4,358,386
-
-
(6,591,427)
(1,115,625)
-
-
142,857
178,571
-
-
142,857
4,793,571
3,526,242
(8,349,909)
31,229,029
* Disposal/others represents 6,591,427 shares held at resignation date.
** Disposal/others represents 1,115,625 shares held at resignation date.
KMP
Sam Saba
David Kirton
Neil Pollock
Jason Singh
Tranche
1,000,000
4,998,000
4,000,000
1,500,000
11,498,000
Total value at
grant
$
75,733
378,515
302,933
192,300
949,481
Value
expensed
in FY2019
$
Maximum value
to be expensed
in future years
$
Minimum value
to be expensed
in future years
$
42,293
211,382
169,173
109,927
532,775
33,440
167,133
133,760
82,373
416,706
-
-
-
-
-
11. Other remuneration related matters including use of remuneration
consultants
11.1 Loans to KMP
There is an outstanding loan to Simon Ryan as at 30 June 2019 amounted to $221,520. Interest is charged on the
outstanding balance at 4.5% per annum. During the year ended 30 June 2019, interest of $13,296 was received from
Simon Ryan (2018: $16,620) in respect of this loan.
Option holding
Options over ordinary shares
Sam Saba
Scott Lidgett
Paul MacRae
Simon Moore
Edward Keating*
Alexander Kelton**
David Kirton
Simon Ryan
Neil Pollock
Jason Singh***
Balance
at the start of
the year
Granted
Exercised
Expired/
forfeited/
other
Balance
at the end of
the year
11.2 Impact of Board discretion on KMP remuneration
The Board did not exercise any discretion during or following the reporting period that had any impact on KMP remuneration,
other than those already noted such as in the case of the assessment of individual performance factors.
-
1,000,000
1,200,000
1,200,000
1,000,000
1,200,000
4,200,000
1,000,000
1,500,000
-
250,000
-
-
-
-
-
4,998,000
-
4,000,000
1,500,000
11,550,000
11,498,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(1,200,000)
(4,200,000)
-
-
-
-
1,000,000
1,200,000
1,200,000
1,000,000
-
-
5,998,000
1,500,000
4,000,000
1,750,000
11.3 External remuneration consultant advice
During the reporting period, the Board engaged an external remuneration consultant to provide KMP
remuneration recommendations.
The Board sought the support of GRG to provide advice on the appropriateness of KMP remuneration in the company’s
circumstances, including quantum and mix of remuneration elements. GRG was also engaged for the preparation of this
remuneration report, however, this activity is not classifiable as KMP remuneration advice or recommendations. No amount
was paid during the reporting period and the due amounts were subject to finalisation at the time of preparing this report,
however, the amounts paid in respect of both activities will be disclosed in the FY2020 remuneration report as required.
It is the Board’s view that the advice received from GRG was independent, because the advice was provided directly to a
NED and the consultant involved provided assurance, they were not influenced by management in preparing the advice.
This concludes the remuneration report, which has been audited.
(5,400,000)
17,648,000
This report is made in accordance with a resolution of directors, pursuant to section 298(2)(a) of the Corporations Act 2001.
* Disposal/others for Edward Keating represents 1,200,000 options held at resignation date.
** Disposal/others for Alexander Kelton represents 1,200,000 options held at resignation date and 3,000,000 options
forfeited during the year.
*** Balance at the start of the year represents options held by Jason Singh on the date of appointment as KMP.
The share option plan is subject to participants meeting service conditions (continuous employment with the consolidated
entity) at the vesting date. There are no performance conditions.
Options granted carry no dividend or voting rights.
On behalf of the directors.
Sam Saba
Non-executive Director
30 August 2019
Simon Moore
Non-executive Director
38
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Annual Report 2019FirstWave Cloud Technology LimitedFor personal use only
5financial
report
“
The company’s investments are focused on development and
transforming into a multinational SaaS platform business.
It’s a challenging but exciting time for FirstWave’s team.
Jason Singh | CFO FirstWave
”
Auditor’s Independence Declaration
Financial Report
Level 17, 383 Kent Street
Sydney NSW 2000
Correspondence to:
Locked Bag Q800
QVB Post Office
Sydney NSW 1230
T +61 2 8297 2400
F +61 2 9299 4445
E info.nsw@au.gt.com
W www.grantthornton.com.au
Auditor’s Independence Declaration
To the Directors of Firstwave Cloud Technology Limited
In accordance with the requirements of section 307C of the Corporations Act 2001, as lead auditor for the audit of Firstwave
Cloud Technology Limited for the year ended 30 June 2019, I declare that, to the best of my knowledge and belief, there have
been:
a
b
no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and
no contraventions of any applicable code of professional conduct in relation to the audit.
Grant Thornton Audit Pty Ltd
Chartered Accountants
C F Farley
Partner – Audit & Assurance
Sydney, 30 August 2019
Grant Thornton Audit Pty Ltd ACN 130 913 594
a subsidiary or related entity of Grant Thornton Australia Ltd ABN 41 127 556 389
www.grantthornton.com.au
‘Grant Thornton’ refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to their clients
and/or refers to one or more member firms, as the context requires. Grant Thornton Australia Ltd is a member firm of Grant Thornton International
Ltd (GTIL). GTIL and the member firms are not a worldwide partnership. GTIL and each member firm is a separate legal entity. Services are
delivered by the member firms. GTIL does not provide services to clients. GTIL and its member firms are not agents of, and do not obligate one
another and are not liable for one another’s acts or omissions. In the Australian context only, the use of the term ‘Grant Thornton’ may refer to
Grant Thornton Australia Limited ABN 41 127 556 389 and its Australian subsidiaries and related entities. GTIL is not an Australian related entity to
Grant Thornton Australia Limited.
Liability limited by a scheme approved under Professional Standards Legislation.
25
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Annual Report 2019For personal use only
Financial Report
Financial Report
financial statements
Statement of financial position
As at 30 June 2019
Statement of profit or loss and other comprehensive income
For the year ended 30 June 2019
Revenue
Sales revenue
Cost of sales
Gross profit
Other income
Interest revenue calculated using the effective interest method
Expenses
Sales and marketing
Engineering and development
General and administration
Finance costs
Total expenses
Loss before income tax expense
Income tax expense
Loss after income tax expense for the year attributable
to the owners of FirstWave Cloud Technology Limited
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 FirstWave Cloud Technology Limited
Basic earnings per share
Diluted earnings per share
Consolidated
Note
2019
$
2018
$
4
6
5
6
7
32
32
8,831,731
(3,847,376)
4,984,355
799,899
56,165
(6,867,873)
(4,079,335)
(5,856,945)
(43,603)
(16,847,756)
(11,007,337)
-
7,817,128
(3,486,040)
4,331,088
613,247
60,178
(3,816,082)
(4,016,111)
(4,746,533)
(19,043)
(12,597,769)
(7,593,256)
(1,124,130)
(11,007,337)
(8,717,386)
(4,526)
(4,526)
-
-
(11,011,863)
(8,717,386)
Cents
(4.46)
(4.46)
Cents
(4.45)
(4.45)
The above statement of profit or loss and other comprehensive income should be read in conjunction with the
accompanying notes.
General information
The financial statements cover FirstWave Cloud Technology Limited (referred to as the ‘company’ or ‘parent’) as a
consolidated entity consisting of FirstWave Cloud Technology Limited and the entities it controlled at the end of, or during,
the year (referred to as the ‘consolidated entity’). The financial statements are presented in Australian dollars, which is
FirstWave Cloud Technology Limited’s functional and presentation currency.
FirstWave Cloud Technology Limited is a listed public company limited by shares, incorporated and domiciled in Australia.
Its registered office and principal place of business is: Level 10, 132 Arthur Street, North Sydney, NSW 2060, Australia.
A description of the nature of the consolidated entity’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 30 August 2019. The
directors have the power to amend and reissue the financial statements.
Assets
Current assets
Cash and cash equivalents
Trade and other receivables
Other
Total current assets
Non-current assets
Property, plant and equipment
Intangibles
Other
Total non-current assets
Total assets
Liabilities
Current liabilities
Trade and other payables
Contract liabilities
Employee benefits
Borrowings
Other
Total current liabilities
Non-current liabilities
Contract liabilities
Employee benefits
Provisions
Other
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Accumulated losses
Total equity
Consolidated
Note
2019
$
2018
$
8
9
12
10
11
12
13
14
15
16
18
14
15
17
18
19
20
8,061,168
1,029,353
1,293,821
5,782,873
2,270,819
1,285,574
10,384,342
9,339,266
427,494
4,568,979
563,987
599,761
3,121,073
614,111
5,560,460
4,334,945
15,944,802
13,674,211
2,596,317
3,553,775
832,858
4,478
240,759
7,228,187
691,817
95,728
152,649
767,061
1,707,255
8,935,442
7,009,360
2,862,311
-
661,550
87,139
2,132,531
5,743,531
-
71,866
152,649
1,969,912
2,194,427
7,937,958
5,736,253
36,506,677
25,231,669
2,736,492
1,731,056
(32,233,809)
(21,226,472)
7,009,360
5,736,253
The above statement of financial position should be read in conjunction with the accompanying notes.
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Annual Report 2019FirstWave Cloud Technology LimitedFor personal use only
Financial Report
Financial Report
Statement of changes in equity
For the year ended 30 June 2019
Statement of cash flows
For the year ended 30 June 2019
Issued
capital
$
Reserves
$
Accumulated
losses
$
Total
equity
$
Note
15,773,846
1,621,813
(12,509,086)
4,886,573
Cash flows from operating activities
(8,717,386)
(8,717,386)
Receipts from customers (inclusive of GST)
Payments to suppliers and employees (inclusive of GST)
Consolidated
Balance at 1 July 2017
Loss after income tax expense for the year
Other comprehensive income for the year,
net of tax
Total comprehensive income for the year
Transactions with owners in their capacity
as owners:
Contributions of equity, net of transaction costs
Share-based payments
Balance at 30 June 2018
Balance at 1 July 2018
Loss after income tax expense for the year
Other comprehensive income for the year,
net of tax
Total comprehensive income for the year
Transactions with owners in their capacity
as owners:
Contributions of equity, net of transaction costs
Share-based payments
Balance at 30 June 2019
-
-
-
9,457,823
-
-
-
-
-
109,243
19
33
-
-
(8,717,386)
(8,717,386)
-
-
9,457,823
109,243
25,231,669
1,731,056
(21,226,472)
5,736,253
25,231,669
1,731,056
(21,226,472)
5,736,253
-
-
-
-
(11,007,337)
(11,007,337)
(4,526)
-
(4,526)
(4,526)
(11,007,337)
(11,011,863)
19
33
11,275,008
-
-
1,009,962
-
-
11,275,008
1,009,962
36,506,677
2,736,492
(32,233,809)
7,009,360
Interest received
Other income
Interest and other finance costs paid
Net cash used in operating activities
Cash flows from investing activities
Payments for property, plant and equipment
Payments for intangibles
Net cash used in investing activities
Cash flows from financing activities
Proceeds from issue of shares
Share issue transaction costs
Repayment of borrowings
Net cash from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the financial year
Cash and cash equivalents at the end of the financial year
8
Consolidated
Note
2019
$
2018
$
12,040,951
10,481,554
(19,335,535)
(14,664,835)
56,165
961,646
(69,047)
57,904
613,247
(19,043)
31
(6,345,820)
(3,531,173)
19
19
(66,821)
(2,501,411)
(2,568,232)
(149,060)
(1,556,369)
(1,705,429)
11,822,000
10,139,995
(546,992)
(82,661)
11,192,347
2,278,295
5,782,873
8,061,168
(682,172)
(200,237)
9,257,586
4,020,984
1,761,889
5,782,873
The above statement of changes in equity should be read in conjunction with the accompanying notes.
The above statement of cash flows should be read in conjunction with the accompanying notes.
44
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Annual Report 2019FirstWave Cloud Technology LimitedFor personal use only Financial Report
Financial Report
NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2019
Basis of preparation
Note 1. 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 consolidated entity has adopted all of the new or amended Accounting Standards and Interpretations issued by the
Australian Accounting Standards Board (‘AASB’) that are mandatory for the current reporting period.
Any new or amended Accounting Standards or Interpretations that are not yet mandatory have not been early adopted.
The following Accounting Standards and Interpretations adopted during the year are most relevant to the consolidated entity:
AASB 9 Financial Instruments
The consolidated entity has adopted AASB 9 from 1 July 2018. The standard introduced new classification and measurement
models for financial assets. A financial asset shall be measured at amortised cost if it is held within a business model whose
objective is to hold assets in order to collect contractual cash flows which arise on specified dates and that are solely
principal and interest. New impairment requirements use an ‘expected credit loss’ (‘ECL’) model to recognise an allowance.
Impairment is measured using a 12-month ECL method unless the credit risk on a financial instrument has increased
significantly since initial recognition in which case the lifetime ECL method is adopted. For receivables, a simplified approach
to measuring expected credit losses using a lifetime expected loss allowance is available.
AASB 15 Revenue from Contracts with Customer
The consolidated entity has adopted AASB 15 from 1 July 2018. The standard provides a single comprehensive model for
revenue recognition. The core principle of the standard is that an entity shall recognise revenue to depict the transfer of
promised goods or services to customers at an amount that reflects the consideration to which the entity expects to be
entitled in exchange for those goods or services. The standard introduced a new contract-based revenue recognition
model with a measurement approach that is based on an allocation of the transaction price. This is described further in
the accounting policies below. Credit risk is presented separately as an expense rather than adjusted against revenue.
Contracts with customers are presented in an entity’s statement of financial position as a contract liability, a contract asset,
or a receivable, depending on the relationship between the entity’s performance and the customer’s payment. Customer
acquisition costs and costs to fulfil a contract can, subject to certain criteria, be capitalised as an asset and amortised over
the contract period.
Impact of adoption
The consolidated entity has adopted Accounting Standards AASB 9 and AASB 15 for the year ended 30 June 2019. The
Accounting Standards were adopted from 1 July 2018 using transitional rules that allow for comparatives not be restated. The
adoption of AASB 9 and AASB 15 did not result in any change to the opening net assets or the opening retained earnings as
at 1 July 2018.
The adoption of these Accounting Standards and Interpretations resulted in the following adjustments:
•
•
interest revenue is now shown separately on the face of the statement of profit or loss and other comprehensive
income; and
income received in advance has been reclassified from other liabilities to contract liabilities on the face of the statement
of financial position.
Going concern
Based on its current commitments, the consolidated entity has sufficient funds to meet its debts as and when they fall due.
Accordingly, the financial report has been prepared on a going concern basis.
The directors determined that the use of the going concern basis of accounting is appropriate in preparing the financial
report. The assessment of going concern is based on cash flow projections. The preparation of these projections
incorporate a number of assumptions and judgements, and the directors have concluded that the range of possible
outcomes considered in arriving at this judgement does not give rise to a material uncertainty casting significant doubt
on the consolidated entity’s ability to continue as a going concern.
These general purpose financial statements have been prepared in accordance with Australian Accounting Standards and
Interpretations issued by the 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.
Historical cost convention
The financial statements have been prepared under the historical cost convention.
Critical accounting estimates
The preparation of the financial statements requires the use of certain critical accounting estimates. It also requires
management to exercise its judgement in the process of applying the consolidated entity’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 2.
Parent entity information
In accordance with the Corporations Act 2001, these financial statements present the results of the consolidated entity only.
Supplementary information about the parent entity is disclosed in note 29.
Principles of consolidation
The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of FirstWave Cloud
Technology Limited (‘company’ or ‘parent entity’) as at 30 June 2019 and the results of all subsidiaries for the year then
ended. FirstWave Cloud Technology Limited and its subsidiaries together are referred to in these financial statements
as the ‘consolidated entity’.
Subsidiaries are all those entities over which the consolidated entity has control. The consolidated entity controls an
entity when the consolidated entity 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 consolidated entity. They are de-consolidated from the
date that control ceases.
Intercompany transactions, balances and unrealised gains on transactions between entities in the consolidated entity 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 consolidated entity.
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 consolidated entity 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
consolidated entity 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 FirstWave Cloud Technology Limited’s functional and
presentation currency.
Foreign currency transactions
Foreign currency transactions are translated into Australian dollars using the exchange rates prevailing at the dates of the
transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation
at financial year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in
profit or loss.
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Financial Report
Financial Report
Revenue recognition
The consolidated entity recognises revenue as follows:
Revenue from contracts with customers
Revenue is recognised at an amount that reflects the consideration to which the consolidated entity is expected to be
entitled in exchange for transferring goods or services to a customer. For each contract with a customer, the consolidated
entity: 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.
Variable consideration within the transaction price, if any, reflects concessions provided to the customer such as discounts,
rebates and refunds, any potential bonuses receivable from the customer and any other contingent events. Such estimates
are determined using either the ‘expected value’ or ‘most likely amount’ method. The measurement of variable consideration
is subject to a constraining principle whereby revenue will only be recognised to the extent that it is highly probable that a
significant reversal in the amount of cumulative revenue recognised will not occur. The measurement constraint continues
until the uncertainty associated with the variable consideration is subsequently resolved. Amounts received that are subject
to the constraining principle are recognised as a refund liability.
Licensing and support revenue
Recognition of licensing and support revenue commences upon provisioning of the contracted service. Provisioning entails
the setting up of the customer on the entity’s infrastructure and the rendering of prescribed professional services to the
customer to enable the provision of the contracted service. As licensing is subscription based, license revenue and the
related support service revenue is recognised over the term of the contract, commencing on the date of service activation.
Professional services revenue
Fully managed services are recognised at a point in time on a monthly basis as soon as a service is provisioned, in
accordance with customer contracts. Professional services are recognised on a milestone basis as per agreed terms and
conditions in customer contracts and at least to the extent of recoverable costs incurred to date.
Interest
Interest revenue is recognised as interest accrues using the effective interest method. This is a method of calculating the
amortised cost of a financial asset and allocating the interest income over the relevant period using the effective interest
rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to
the net carrying amount of the financial asset.
Government grants
Government grants are recognised at fair value where there is a reasonable certainty that the grant will be received upon
meeting all grant terms and conditions. Grants that are meant to fund expenditure on research and development are
recognised over the periods when these costs are written off to profit or loss. Grants related to assets are carried forward
as deferred income at fair value and are credited to other income over the expected useful life of the asset on a straight
line basis.
Prepayments
Prepayments are largely made up of back to back cost of licenses procured from upstream security vendors/channel
partners. These prepayments are charged to profit and loss over a term that is between 12 and 48 months, co-terming with
related license revenue recognised per the revenue recognition policy stated above.
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.
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
consolidated entity’s normal operating cycle; it is held primarily for the purpose of trading; it is expected to be realised within
12 months after the reporting period; or the asset is cash or cash equivalent unless restricted from being exchanged or used
to settle a liability for at least 12 months after the reporting period. All other assets are classified as non-current.
A liability is classified as current when: it is either expected to be settled in the consolidated entity’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 consolidated entity 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.
Other receivables are recognised at amortised cost, less any allowance for expected credit losses.
Other financial assets
Other financial assets are initially measured at fair value. Transaction costs are included as part of the initial measurement,
except for financial assets at fair value through profit or loss. Such assets are subsequently measured at either amortised
cost or fair value depending on their classification. Classification is determined based on both the business model within
which such assets are held and the contractual cash flow characteristics of the financial asset unless, an accounting
mismatch is being avoided.
Financial assets are derecognised when the rights to receive cash flows have expired or have been transferred and the
consolidated entity has transferred substantially all the risks and rewards of ownership. When there is no reasonable
expectation of recovering part or all of a financial asset, its carrying value is written off.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an
active market. They are carried at amortised cost using the effective interest rate method. Gains and losses are recognised
in profit or loss when the asset is derecognised or impaired.
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Property, plant and equipment
Plant and equipment is stated at historical cost less accumulated depreciation and impairment. Historical cost includes
expenditure that is directly attributable to the acquisition of the items.
Depreciation is calculated on a straight-line basis to write off the net cost of each item of property, plant and equipment over
their expected useful lives as follows:
•
•
•
•
Leasehold improvements
Furniture and fittings
Computer equipment
Computer platform
3 years
5 years
3-5 years
2-3 years
The residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each reporting date.
Information systems
Significant costs associated with information systems are deferred and amortised on a straight-line basis over the period of
their expected benefit, being their finite life of five years.
Impairment of non-financial assets
Non-financial assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying
amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount
exceeds its recoverable amount.
Recoverable amount is the higher of an asset’s fair value less costs of disposal and value-in-use. The value-in-use is the
present value of the estimated future cash flows relating to the asset using a pre-tax discount rate specific to the asset or
cash-generating unit to which the asset belongs. Assets that do not have independent cash flows are grouped together to
form a cash-generating unit.
Leasehold improvements are depreciated over the unexpired period of the lease or the estimated useful life of the assets,
whichever is shorter.
Trade and other payables
An item of property, plant and equipment is derecognised upon disposal or when there is no future economic benefit to the
consolidated entity. Gains and losses between the carrying amount and the disposal proceeds are taken to profit or loss.
Leases
The determination of whether an arrangement is or contains a lease is based on the substance of the arrangement and
requires an assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets
and the arrangement conveys a right to use the asset.
A distinction is made between finance leases, which effectively transfer from the lessor to the lessee substantially all the
risks and benefits incidental to the ownership of leased assets, and operating leases, under which the lessor effectively
retains substantially all such risks and benefits.
Finance leases are capitalised. A lease asset and liability are established at the fair value of the leased assets, or if lower,
the present value of minimum lease payments. Lease payments are allocated between the principal component of the lease
liability and the finance costs, so as to achieve a constant rate of interest on the remaining balance of the liability.
Leased assets acquired under a finance lease are depreciated over the asset’s useful life or over the shorter of the asset’s
useful life and the lease term if there is no reasonable certainty that the consolidated entity will obtain ownership at the end
of the lease term.
Operating lease payments, net of any incentives received from the lessor, are charged to profit or loss on a straight-line
basis over the term of the lease.
Intangible assets
Intangible assets acquired are initially recognised at cost. 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.
Capitalised development costs
Expenditure on research activities is recognised as an expense in the period in which it is incurred. An internally-generated
intangible asset arising from development (including those arising from the development phase of an internal project) are
capitalised when it is probable that the project will be a success considering its commercial and technical feasibility; the
consolidated entity is able to use or sell the asset; the consolidated entity has sufficient resources and intent to complete the
internal development; and their costs can be measured reliably.
The amount initially recognised for internally-generated intangible assets is the sum of the expenditure incurred from the
date when the intangible asset first meets the recognition criteria listed above. Where no internally-generated intangible
asset can be recognised, development expenditure is recognised in profit or loss in the period in which it is incurred.
Subsequent to initial recognition, internally-generated intangible assets are reported at cost less accumulated amortisation
and accumulated impairment losses, on the same basis as intangible assets that are acquired separately.
Capitalised development costs are amortised on a straight-line basis over the period of their expected benefit, being their
finite useful lives of five years.
Patents
Significant costs associated with patents are deferred and amortised on a straight-line basis over the period of their
expected benefit, being their finite useful lives of five years.
These amounts represent liabilities for goods and services provided to the consolidated entity 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 represent the consolidated entity’s obligation to transfer goods or services to a customer and are
recognised when a customer pays consideration, or when the consolidated entity recognises a receivable to reflect its
unconditional right to consideration (whichever is earlier) before the consolidated entity has transferred the goods or
services to the customer.
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.
Finance costs
Finance costs are expensed in the period in which they are incurred.
Provisions
Provisions are recognised when the consolidated entity has a present (legal or constructive) obligation as a result of a past
event, it is probable the consolidated entity will be required to settle the obligation and a reliable estimate can be made of
the amount of the obligation. The amount recognised as a provision is the best estimate of the consideration required to
settle the present obligation at the reporting date, taking into account the risks and uncertainties surrounding the obligation.
If the time value of money is material, provisions are discounted using a current pre-tax rate specific to the liability. The
increase in the provision resulting from the passage of time is recognised as a finance cost.
Employee benefits
Short-term employee benefits
Liabilities for wages and salaries, including non-monetary benefits, annual leave and long service leave expected to be
settled wholly within 12 months of the reporting date are measured at the amounts expected to be paid when the liabilities
are settled.
Other long-term employee benefits
The liability for annual leave and long service leave not expected to be settled within 12 months of the reporting date is
measured as the present value of expected future payments to be made in respect of services provided by employees up
to the reporting date. 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.
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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 is measured at fair value on grant date. Fair value is determined using either the
Binomial or Black-Scholes option pricing model that takes into account the exercise price, the term of the option, the impact
of dilution, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield
and the risk free interest rate for the term of the option, together with non-vesting conditions that do not determine whether
the consolidated entity receives the services that entitle the employees to receive payment.
The cost of equity-settled transactions is recognised as an expense with a corresponding increase in equity over the vesting
period. The cumulative charge to profit or loss is calculated based on the grant date fair value of the award, the best estimate
of the number of awards that are likely to vest and the expired portion of the vesting period. The amount recognised in
profit or loss for the period is the cumulative amount calculated at each reporting date less amounts already recognised in
previous periods.
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 consolidated entity or employee, the failure to satisfy the condition is
treated as a cancellation. If the condition is not within the control of the consolidated entity or employee and is not satisfied
during the vesting period, any remaining expense for the award is recognised over the remaining vesting period, unless the
award is forfeited.
If equity-settled awards are cancelled, it is treated as if it has vested on the date of cancellation, and any remaining expense
is recognised immediately. If a new replacement award is substituted for the cancelled award, the cancelled and new award
is treated as if they were a modification.
Fair value measurement
When an asset or liability, financial or non-financial, is measured at fair value for recognition or disclosure purposes, the
fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date and assumes that the transaction will take place either: in the
principal market; or in the absence of a principal market, in the most advantageous market.
Fair value is measured using the assumptions that market participants would use when pricing the asset or liability,
assuming they act in their economic best interests. For non-financial assets, the fair value measurement is based on its
highest and best use. Valuation techniques that are appropriate in the circumstances and for which sufficient data are
available to measure fair value, are used, maximising the use of relevant observable inputs and minimising the use of
unobservable inputs.
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.
Earnings per share
Basic earnings per share
Basic earnings per share is calculated by dividing the profit attributable to the owners of FirstWave Cloud Technology
Limited, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary
shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the financial year.
Diluted earnings per share
Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account
the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the
weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential
ordinary shares.
Goods and Services Tax (‘GST’) and other similar taxes
Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not
recoverable from the tax authority. In this case, it is recognised as part of the cost of the acquisition of the asset or as part
of the expense.
Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST
recoverable from, or payable to, the tax authority is included in other receivables or other payables in the statement of
financial position.
Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities
which are recoverable from, or payable to the tax authority, are presented as operating cash flows.
Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the tax authority.
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 consolidated entity for the annual reporting period ended 30 June 2019. The
consolidated entity’s assessment of the impact of these new or amended Accounting Standards and Interpretations, most
relevant to the consolidated entity, are set out below.
AASB 16 Leases
This standard is applicable to annual reporting periods beginning on or after 1 January 2019. The standard replaces AASB
117 ‘Leases’ and for lessees will eliminate the classifications of operating leases and finance leases. Subject to exceptions, a
‘right-of-use’ asset will be capitalised in the statement of financial position, measured at the present value of the unavoidable
future lease payments to be made over the lease term. The exceptions relate to short-term leases of 12 months or less and
leases of low-value assets (such as personal computers and small office furniture) where an accounting policy choice exists
whereby either a ‘right-of-use’ asset is recognised or lease payments are expensed to profit or loss as incurred. A liability
corresponding to the capitalised lease will also be recognised, adjusted for lease prepayments, lease incentives received,
initial direct costs incurred and an estimate of any future restoration, removal or dismantling costs. Straight-line operating
lease expense recognition will be replaced with a depreciation charge for the leased asset (included in operating costs)
and an interest expense on the recognised lease liability (included in finance costs). In the earlier periods of the lease,
the expenses associated with the lease under AASB 16 will be higher when compared to lease expenses under AASB 117.
However, EBITDA (earnings before interest, tax, depreciation and amortisation) results will be improved as the operating
expense is replaced by interest expense and depreciation in profit or loss under AASB 16. For classification within the
statement of cash flows, the lease payments will be separated into both a principal (financing activities) and interest (either
operating or financing activities) component. For lessor accounting, the standard does not substantially change how a
lessor accounts for leases. The impact of adoption of this standard as at 1 July 2019, using the modified retrospective
approach, will result in the recognition of a right-of-use asset of approximately $757,484 and recognition of lease liability
amounting to $950,419. The consolidated entity will also derecognise the opening balance of accrued lease provision
amounting to $192,935 which was provided under the previous accounting standards. As a result there is no net impact
on retained earnings.
New Conceptual Framework for Financial Reporting
A revised Conceptual Framework for Financial Reporting has been issued by the AASB and is applicable for annual
reporting periods beginning on or after 1 January 2020. This release impacts for-profit private sector entities that have
public accountability that are required by legislation to comply with Australian Accounting Standards and other for-profit
entities that voluntarily elect to apply the Conceptual Framework. Phase 2 of the framework is yet to be released which will
impact for-profit private sector entities. The application of new definition and recognition criteria as well as new guidance
on measurement will result in amendments to several accounting standards. The issue of AASB 2019-1 Amendments to
Australian Accounting Standards – References to the Conceptual Framework, also applicable from 1 January 2020, includes
such amendments. Where the consolidated entity has relied on the conceptual framework in determining its accounting
policies for transactions, events or conditions that are not otherwise dealt with under Australian Accounting Standards, the
consolidated entity may need to revisit such policies. The consolidated entity will apply the revised conceptual framework
from 1 July 2020 and is yet to assess its impact.
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Note 2. 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.
Share-based payment transactions
The consolidated entity measures the cost of equity-settled transactions with employees by reference to the fair value of the
equity instruments at the date at which they are granted. The fair value is determined by using either the Binomial or Black-
Scholes model taking into account the terms and conditions upon which the instruments were granted. The accounting
estimates and assumptions relating to equity-settled share-based payments would have no impact on the carrying amounts
of assets and liabilities within the next annual reporting period but may impact profit or loss and equity.
Capitalised development costs
Distinguishing the research and development phases of a new customised product and determining whether the recognition
requirements for the capitalisation of development costs are met requires judgement. After capitalisation, management
monitors whether the recognition requirements continue to be met and whether there are any indicators that capitalised
costs may be impaired.
Estimation of useful lives of assets
The consolidated entity 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 the previously estimated lives, or technically obsolete or non-strategic assets that have been abandoned or sold
will be written off or written down.
Impairment of non-financial assets
The consolidated entity assesses impairment of non-financial assets at each reporting date by evaluating conditions
specific to the consolidated entity and to the particular asset that may lead to impairment. If an impairment trigger exists, the
recoverable amount of the asset is determined. This involves fair value less costs of disposal or value-in-use calculations,
which incorporate a number of key estimates and assumptions.
Income tax
The consolidated entity is subject to income taxes in the jurisdictions in which it operates. Significant judgement is required
in determining the provision for income tax. There are many transactions and calculations undertaken during the ordinary
course of business for which the ultimate tax determination is uncertain. The consolidated entity recognises liabilities for
anticipated tax audit issues based on the consolidated entity’s current understanding of the tax law. Where the final tax
outcome of these matters is different from the carrying amounts, such differences will impact the current and deferred tax
provisions in the period in which such determination is made.
Note 3. Operating segments
Identification of reportable operating segments
The consolidated entity’s operating segments are based on the internal reports that are reviewed and used by the
Chief Executive Officer and the Board of Directors (being the Chief Operating Decision Makers (‘CODM’)) in assessing
performance and in determining the allocation of resources. Prior period information has also been appropriately rearranged
to reflect segmental performance to facilitate comparison.
The CODM reviews segment revenue and consolidated adjusted EBITDA (earnings before interest, tax, depreciation and
amortisation, excluding non-cash share-based payments expenses). 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.
The CODM does not review segment assets and liabilities.
54
Types of products and services
The consolidated entity is organised into two operating segments as follows:
•
•
Australia:
A geographical segment to identify development and sale of internet security software in the
domestic market.
International: A geographical segment to identify development and sale of internet security software in the
international market.
Major customers
During the year ended 30 June 2019, there was one major external customer (2018: one customer) where revenue exceeded
10% of the consolidated revenue. Total revenue from the customer for the year ended 30 June 2019 amounted to $8,612,612
(2018: $7,598,771).
Operating segment information
2019
Revenue
Sales to external customers
Interest revenue
Total revenue
Adjusted EBITDA
Depreciation and amortisation
Interest revenue
Finance costs
Other non-cash expenses
Loss before income tax expense
Income tax expense
Loss after income tax expense
2018
Revenue
Sales to external customers
Interest revenue
Total revenue
Adjusted EBITDA
Depreciation and amortisation
Interest revenue
Finance costs
Other non-cash expenses
Loss before income tax expense
Income tax expense
Loss after income tax expense
Consolidated
Australia
$
International
$
Total
$
8,817,796
56,165
8,873,961
13,935
-
13,935
8,831,731
56,165
8,887,896
(8,717,344)
(1,292,593)
56,165
(43,603)
(1,009,962)
(11,007,337)
-
(11,007,337)
Consolidated
Australia
$
International
$
Total
$
7,817,128
60,178
7,877,306
-
-
-
7,817,128
60,178
7,877,306
(6,303,341)
(1,221,807)
60,178
(19,043)
(109,243)
(7,593,256)
(1,124,130)
(8,717,386)
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Note 4. Revenue from contracts with customers
Note 6. Expenses
Licensing and support revenue
Professional services revenue
Total revenue
Disaggregation of revenue
The disaggregation of revenue from contracts with customers is as follows:
Timing of revenue recognition
Licensing: over time
Support: over time
Professional services: point in time
Revenue from external customers by geographic regions is set out in note 3.
Note 5. Other income
Research and development grant income*
Other income
Total other income
Consolidated
2019
$
8,531,088
300,643
8,831,731
2018
$
7,484,057
333,071
7,817,128
Consolidated
2019
$
2018
$
5,029,544
3,501,544
300,643
8,831,731
4,491,846
2,992,211
333,071
7,817,128
Consolidated
2019
$
730,761
69,138
799,899
2018
$
611,166
2,081
613,247
* There are no unfulfilled conditions or other contingencies attached to the grant. The consolidated entity did not benefit
directly from any other government assistance.
Loss before income tax includes the following specific expenses:
Cost of sales
Cost of licenses
Depreciation
Leasehold improvements
Furniture and fittings
Computer equipment
Computer platform
Total depreciation
Amortisation
Capitalised development costs
Patents
Total amortisation
Total depreciation and amortisation
Finance costs
Interest and finance charges paid/payable
Net foreign exchange variance
Net foreign exchange variance
Rental expense relating to operating leases
Minimum lease payments
Employee benefit expenses
Employee salaries and other benefits
Defined contribution superannuation expense
Share-based payments expenses
Total employee benefit expenses
Consolidated
2019
$
2018
$
3,847,376
3,486,040
167,224
-
70,065
1,799
239,088
1,027,332
26,173
1,053,505
1,292,593
170,418
4,375
80,447
7,950
263,190
936,309
22,308
958,617
1,221,807
43,603
19,043
275,198
(3,840)
448,684
343,168
10,878,728
8,182,737
654,047
1,009,962
531,156
109,244
12,542,737
8,823,137
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Note 7. Income tax expense
Note 8. Cash and cash equivalents
Income tax expense
Deferred tax – origination and reversal of temporary differences
Aggregate income tax expense
Deferred tax included in income tax expense comprises:
Decrease in deferred tax assets
Numerical reconciliation of income tax expense and tax at the statutory rate
Loss before income tax expense
Tax at the statutory tax rate of 27.5%
Tax effect amounts which are not deductible/(taxable) in
calculating taxable income:
Amortisation of intangibles
Entertainment expenses
Non-deductible research and development incentive expenditure
Development costs
Deferred income
Sundry items
Tax losses not recognised (including reversal of previously
recognised tax losses)
Current year temporary differences not recognised
Income tax expense
Consolidated
2019
$
2018
$
-
-
-
1,124,130
1,124,130
1,124,130
(11,007,337)
(3,027,018)
(7,593,256)
(2,088,145)
282,516
13,567
832,768
(640,464)
(200,959)
-
257,485
13,566
587,497
(421,751)
(167,394)
51,779
(2,739,590)
2,328,158
(1,766,963)
2,861,051
411,432
-
30,042
1,124,130
Consolidated
2019
$
2018
$
Tax losses not recognised
Unused tax losses for which no deferred tax asset has been recognised
Potential tax benefit at statutory tax rates
8,599,145
2,364,765
9,936,900
2,732,648
The above potential tax benefit for tax losses has not been recognised in the statement of financial position. These tax
losses can only be utilised in the future if the continuity of ownership test is passed, or failing that, the same business test
is passed.
Not overdue
0 to 3 months overdue
3 to 6 months overdue
6 to 12 months overdue
Over 12 months overdue
Cash at bank
Cash on deposit
Note 9. Trade and other receivables
Trade receivables
Less: Allowance for expected credit losses
Accrued revenue
Other receivables
Receivable from key management personnel
BAS receivable
Consolidated
2019
$
8,061,168
-
8,061,168
2018
$
5,282,873
500,000
5,782,873
Consolidated
2019
$
572,697
(49,808)
522,889
-
11,179
221,520
273,765
2018
$
1,706,880
(22,206)
1,684,674
45,248
319,377
221,520
-
1,029,353
2,270,819
Allowance for expected credit losses
The consolidated entity has recognised a loss of $49,808 (2018: $nil) in profit or loss in respect of impairment of receivables
for the year ended 30 June 2019.
The ageing of the receivables and allowance for expected credit losses provided for above are as follows:
Expected
credit loss rate
%
-
3.960
15.000
30.000
100.000
Consolidated – 2019
Carrying
amount
$
471,360
18,283
18,735
25,779
38,540
572,697
Allowance for
expected credit
losses
$
-
724
2,810
7,734
38,540
49,808
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Movements in the allowance for expected credit losses are as follows:
Note 11. Intangibles
Consolidated
2019
$
22,206
49,808
(22,206)
49,808
2018
$
22,206
-
-
22,206
Capitalised development costs – at cost
Less: Accumulated amortisation
Patents – at cost
Less: Accumulated amortisation
Consolidated
Information systems (under development) – at cost
Consolidated
2019
$
12,336,080
(8,132,815)
4,203,265
141,250
(89,605)
51,645
314,069
2018
$
10,168,100
(7,105,483)
3,062,617
121,888
(63,432)
58,456
-
4,568,979
3,121,073
Opening balance
Additional provisions recognised
Receivables written off during the year as uncollectable
Closing balance
Note 10. Property, plant and equipment
Leasehold improvements – at cost
Less: Accumulated depreciation
Furniture and fittings – at cost
Less: Accumulated depreciation
Computer equipment – at cost
Less: Accumulated depreciation
Computer platform – at cost
Less: Accumulated depreciation
2019
$
800,159
(453,893)
346,266
16,592
(16,592)
-
429,850
(354,417)
75,433
242,618
(236,823)
5,795
427,494
2018
$
800,159
(286,669)
513,490
16,592
(16,592)
-
791,259
(707,802)
83,457
237,838
(235,024)
2,814
599,761
Reconciliations
Reconciliations of the written down values at the beginning and end of the current and previous financial year are set
out below:
Consolidated
Lease
improvements
$
Furniture
and fittings
$
Computer
equipment
$
Computer
platform
$
580,606
103,302
(170,418)
513,490
-
(167,224)
346,266
4,375
-
(4,375)
-
-
-
-
119,678
44,226
(80,447)
83,457
62,041
(70,065)
75,433
9,232
1,532
(7,950)
2,814
4,780
(1,799)
5,795
Total
$
713,891
149,060
(263,190)
599,761
66,821
(239,088)
427,494
Balance at 1 July 2017
Additions
Depreciation expense
Balance at 30 June 2018
Additions
Depreciation expense
Balance at 30 June 2019
Property, plant and equipment secured under finance leases
Refer to note 26 for further information on property, plant and equipment secured under finance leases.
Reconciliations
Reconciliations of the written down values at the beginning and end of the current and previous financial year are set
out below:
Balance at 1 July 2017
Additions
Amortisation expense
Balance at 30 June 2018
Additions
Amortisation expense
Balance at 30 June 2019
Note 12. Other
Current assets
Prepayments
Security deposits
Other deposits
Total current assets
Non-current assets
Prepayments
Capitalised
development
$
2,467,020
1,531,906
(936,309)
3,062,617
2,167,980
(1,027,332)
4,203,265
Consolidated
Patents
$
56,301
24,463
(22,308)
58,456
19,362
(26,173)
51,645
Information
systems
$
-
-
-
-
314,069
-
314,069
Total
$
2,523,321
1,556,369
(958,617)
3,121,073
2,501,411
(1,053,505)
4,568,979
Consolidated
2019
$
1,160,045
133,776
-
2018
$
1,151,348
133,776
450
1,293,821
1,285,574
563,987
1,857,808
614,111
1,899,685
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Note 13. Trade and other payables
Note 15. Employee benefits
Current liabilities
Trade payables
Accrued expenses
Refer to note 22 for further information on financial instruments.
Note 14. Contract liabilities
Current liabilities
Contract liabilities
Non-current liabilities
Contract liabilities
Consolidated
2019
$
2018
$
765,109
1,831,208
2,596,317
1,215,867
1,646,444
2,862,311
Consolidated
2019
$
2018
$
3,553,775
691,817
4,245,592
-
-
-
Reconciliation
Reconciliation of the contract liabilities (current and non-current) during the current year are set out below:
Recognised on adoption of AASB 15 on 1 July 2018
Payments received in advance
Transfer to revenue – included in the opening balance
Transfer to revenue – other balances
Consolidated
2019
$
3,258,451
5,311,684
(1,875,898)
(2,448,645)
4,245,592
Current liabilities
Annual leave
Long service leave
Non-current liabilities
Long service leave
Note 16. Borrowings
Current liabilities
Lease liability
Refer to note 22 for further information on financial instruments.
Total secured liabilities
The total secured liabilities are as follows:
Lease liability
Consolidated
2019
$
652,812
180,046
832,858
95,728
928,586
2018
$
490,423
171,127
661,550
71,866
733,416
Consolidated
2019
$
2018
$
4,478
87,139
Consolidated
2019
$
4,478
2018
$
87,139
Assets pledged as security
The lease liabilities are effectively secured as the rights to the leased assets, recognised in the statement of financial
position. These revert to the lessor in the event of default.
National Australia Bank (‘NAB’) lease facility
The consolidated entity has an asset leasing facility for $300,000 with NAB. The facility is available on a revolving basis with
repayment terms ranging from one to three years from the draw-down date.
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Financing arrangements
Unrestricted access was available at the reporting date to the following lines of credit:
Note 19. Issued capital
Total facilities
NAB lease facility
Corporate credit card facility
Used at reporting date
NAB lease facility
Corporate credit card facility
Unused at reporting date
NAB lease facility
Corporate credit card facility
Note 17. Provisions
Non-current liabilities
Lease make-good
Consolidated
2019
$
300,000
70,000
370,000
4,478
-
4,478
295,522
70,000
365,522
2018
$
300,000
80,000
380,000
87,139
1,804
88,943
212,861
78,196
291,057
Consolidated
2019
$
2018
$
152,649
152,649
Lease make-good
The provision represents the present value of the estimated costs to make good the premises leased by the consolidated
entity at the end of the respective lease terms.
Note 18. Other
Current liabilities
Deferred research and development income
Income received in advance
Non-current liabilities
Deferred research and development income
Income received in advance
Consolidated
2019
$
240,759
-
240,759
767,061
-
767,061
1,007,820
2018
$
256,633
1,875,898
2,132,531
587,359
1,382,553
1,969,912
4,102,443
Ordinary shares – fully paid
280,805,705
224,733,105
36,506,677
25,231,669
2019
shares
Consolidated
2018
shares
2019
$
2018
$
Movements in ordinary share capital:
Balance
Issue of shares
Issue of shares
Share issue transaction costs, net of tax
Balance
Issue of shares
Issue of shares
Issue of shares
Issue of shares
Issue of shares
Date
Shares
$
01/07/2017
20/10/2017
25/05/2018
30/06/2018
21/11/2018
06/12/2018
07/03/2019
02/04/2019
30/04/2019
179,786,485
15,773,846
19,772,732
25,173,888
-
4,350,001
5,789,994
(682,172)
224,733,105
25,231,669
1,086,957
24,314,285
3,000,000
23,214,286
4,457,072
250,000
3,404,000
420,000
6,500,000
1,248,000
Share issue transaction costs, net of tax
-
(546,992)
Balance
30/06/2019
280,805,705
36,506,677
Ordinary shares
Ordinary shares entitle the holder to participate in dividends and the proceeds on the winding up of the company in
proportion to the number of and amounts paid on the shares held. The fully paid ordinary shares have no par value and the
company does not have a limited amount of authorised capital.
On a show of hands, every member present at a meeting in person or by proxy shall have one vote and upon a poll each
share shall have one vote.
Share buy-back
There is no current on-market share buy-back.
Capital risk management
The consolidated entity’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 consolidated entity may adjust the amount of dividends paid to
shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.
The consolidated entity will raise capital to support its growth strategy and to fund value adding projects that it deems
necessary to maintain and enhance shareholder value. Any funds raised will be utilised in adherence with the governance
principles underlying the consolidated entity’s capital management policy under the authority of the Board of Directors
(the ‘Board’).
The capital risk management policy remains unchanged from the 30 June 2018 Annual Report.
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Note 20. Reserves
Foreign currency reserve
Share-based payments reserve
Consolidated
2019
$
(4,526)
2,741,018
2,736,492
2018
$
-
1,731,056
1,731,056
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.
Movements in reserves
Movements in each class of reserve during the current and previous financial year are set out below:
Balance at 1 July 2017
Share-based payment expense
Balance at 30 June 2018
Foreign currency translation
Share-based payment expense
Balance at 30 June 2019
Foreign currency
reserve
$
Consolidated
Share-based
payments
$
-
-
-
(4,526)
-
(4,526)
1,621,813
109,243
1,731,056
-
1,009,962
2,741,018
Total
$
1,621,813
109,243
1,731,056
(4,526)
1,009,962
2,736,492
Note 21. Dividends
There were no dividends paid, recommended or declared during the current or previous financial year.
Note 22. Financial instruments
Financial risk management objectives
The consolidated entity’s activities expose it to a variety of financial risks including market risk, credit risk and liquidity risk.
The consolidated entity’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 consolidated entity. The consolidated entity 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 and foreign exchange risk and ageing analysis for credit risk.
Risk management is carried out by senior finance executives (‘finance’) under policies approved by the Board. These policies
include identification and analysis of the risk exposure of the consolidated entity and appropriate procedures, controls and
risk limits. Finance identifies, evaluates and hedges financial risks within the consolidated entity’s operating units. Finance
reports to the Board on a monthly basis.
Financial Report
Market risk
Foreign currency risk
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 consolidated entity is not exposed to any
significant foreign currency risk.
Price risk
The consolidated entity is not exposed to any significant price risk.
Interest rate risk
The consolidated entity’s main interest rate risk arises from cash at bank and borrowings. Bank balance and borrowings
issued at variable rates expose the consolidated entity to interest rate risk. Borrowings obtained at fixed rates expose the
consolidated entity to fair value interest rate risk. Borrowings comprise of lease liabilities with fixed interest rate.
An official increase/decrease in interest rates of 50 (2018: 50) basis points would have a favourable/adverse effect on loss
before tax of $40,305 (2018: $28,914) 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
consolidated entity. The consolidated entity has a strict code of credit, including obtaining agency credit information,
confirming references and setting appropriate credit limits. The consolidated entity 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 consolidated entity does not hold any collateral.
The consolidated entity 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 consolidated entity based on recent sales experience, historical
collection rates and forward-looking information that is available.
The consolidated entity has a credit risk exposure with one major customer, which as at 30 June 2019 owed the
consolidated entity $432,573 (76% of trade receivables) (2018: $1,621,795 (94% of trade receivables)). This balance was
within its terms of trade and no impairment was made as at 30 June 2019. There are no guarantees against this receivable
but management closely monitors the receivable balance on a monthly basis and is in regular contact with this customer to
mitigate risk.
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 one year.
Liquidity risk
Vigilant liquidity risk management requires the consolidated entity 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 consolidated entity 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.
Financing arrangements
Unused borrowing facilities at the reporting date:
NAB lease facility
Corporate credit card facility
Consolidated
2019
$
295,522
70,000
365,522
2018
$
212,861
78,196
291,057
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Remaining contractual maturities
The following tables detail the consolidated entity’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
Note 25. Contingent liabilities
The consolidated entity has given bank guarantees as at 30 June 2019 of $133,776 (2018: $133,776) to various landlords.
Note 26. Commitments
Consolidated – 2019
1 year or less
$
Between 1
and 2 years
$
Between 2
and 5 years
$
Over
5 years
$
Remaining
contractual
maturities
$
765,109
4,498
769,607
-
-
-
-
-
-
-
-
-
765,109
4,498
769,607
Consolidated – 2018
1 year or less
$
Between 1
and 2 years
$
Between 2
and 5 years
$
Over
5 years
$
Remaining
contractual
maturities
$
1,215,867
89,064
1,304,931
-
-
-
-
-
-
-
-
-
1,215,867
89,064
1,304,931
Non-derivatives
Non-interest bearing:
Trade payables
Interest-bearing – fixed rate:
Lease liability
Total non-derivatives
Non-derivatives
Non-interest bearing:
Trade payables
Interest-bearing – fixed rate:
Lease liability
Total non-derivatives
The cash flows in the maturity analysis above are not expected to occur significantly earlier than contractually
disclosed above.
Note 23. Fair value measurement
The carrying amounts of trade and other receivables and trade and other payables approximate their fair values due to their
short-term nature. The fair value of financial liabilities is estimated by discounting the remaining contractual maturities at the
current market interest rate that is available for similar financial liabilities.
Note 24. Remuneration of auditors
During the financial year, the following fees were paid or payable for services provided by Grant Thornton, the auditor of
the company:
Audit services – Grant Thornton
Audit or review of the financial statements
Other services – Grant Thornton
Tax advice services
Consolidated
2019
$
2018
$
118,000
106,526
19,260
137,260
-
106,526
Lease commitments – operating
Committed at the reporting date but not recognised as liabilities, payable:
Within one year
One to five years
Lease commitments – finance
Committed at the reporting date and recognised as liabilities, payable:
Within one year
Total commitment
Less: Future finance charges
Net commitment recognised as liabilities
Representing:
Lease liability – current (note 16)
Consolidated
2019
$
2018
$
436,584
366,566
803,150
4,498
4,498
(20)
4,478
310,860
584,259
895,119
89,064
89,064
87,139
4,478
87,139
Operating lease commitments relate to lease of office premises under non-cancellable operating leases expiring within one
to four years with, in some cases, options to extend. The leases have various escalation clauses. On renewal, the terms of
the leases are renegotiated.
Finance lease commitments includes contracted amounts for various plant and equipment with a written down value
of $1,451 (2018: $97,043) under finance leases expiring within one to three years. Under the terms of the leases, the
consolidated entity has the option to acquire the leased assets for predetermined residual values on the expiry of the leases.
Note 27. Key management personnel disclosures
Compensation
The aggregate compensation made to directors and other members of key management personnel of the consolidated
entity is set out below:
Short-term employee benefits
Post-employment benefits
Long-term benefits
Termination benefits
Share-based payments
Consolidated
2019
$
2018
$
1,371,531
1,146,736
84,846
16,767
-
477,555
93,248
4,145
170,000
211,849
1,950,699
1,625,978
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Note 28. Related party transactions
Parent entity
FirstWave Cloud Technology Limited is the parent entity.
Subsidiaries
Interests in subsidiaries are set out in note 30.
Key management personnel
Disclosures relating to key management personnel are set out in note 27 and the remuneration report included in the
directors’ report.
Transactions with related parties
The following transactions occurred with related parties:
Sale of goods and services
Sale of services to a director related entity of Simon Moore
Other income
Consolidated
2019
$
4,079
2018
$
-
Interest received from key management personnel
13,296
16,620
Payment for goods and services
Payment for services from a director related entity of Scott Lidgett
11,550
-
Receivable from and payable to related parties
There were no trade receivables from or trade payables to related parties at the current and previous reporting date
Loans to/from related parties
The following balances are outstanding at the reporting date in relation to loans with related parties:
Current receivables
Loan to key management personnel*
Consolidated
2019
$
2018
$
221,520
221,520
* Unsecured loan provided to key management personnel. Interest is charged on outstanding balance at 4.5% (2018: 7.5%)
per annum.
Terms and conditions
All transactions were made on normal commercial terms and conditions and at market rates.
Note 29. 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
Statement of financial position
Total current assets
Total assets
Total current liabilities
Total liabilities
Equity
Issued capital
Accumulated losses
Total equity
Parent
2019
$
(505,103)
(505,103)
2018
$
(632,910)
(632,910)
Parent
2019
$
-
2018
$
-
32,415,726
21,645,821
-
-
-
-
36,506,677
(4,090,951)
25,231,669
(3,585,848)
32,415,726
21,645,821
Guarantees entered into by the parent entity in relation to the debts of its subsidiaries
The parent entity had no guarantees in relation to the debts of its subsidiaries as at 30 June 2019 and 30 June 2018.
Contingent liabilities
The parent entity had no contingent liabilities as at 30 June 2019 and 30 June 2018.
Capital commitments – Property, plant and equipment
The parent entity had no capital commitments for property, plant and equipment as at 30 June 2019 and 30 June 2018.
Significant accounting policies
The accounting policies of the parent entity are consistent with those of the consolidated entity, as disclosed in note 1,
except for the following:
•
•
investments in subsidiaries are accounted for at cost, less any impairment, in the parent entity; and
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.
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Note 30. 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 1:
Note 32. Earnings per share
Loss after income tax attributable to the owners of
FirstWave Cloud Technology Limited
Weighted average number of ordinary shares used in calculating
basic earnings per share
Weighted average number of ordinary shares used in calculating
diluted earnings per share
Decrease in trade and other receivables
Decrease in deferred tax assets
Consolidated
2019
$
2018
$
(11,007,337)
(8,717,386)
Number
Number
246,617,998
196,098,013
246,617,998
196,098,013
Cents
(4.46)
(4.46)
Cents
(4.45)
(4.45)
Options have been excluded in the weighted average number of shares used to calculate diluted earnings per share as they
were anti-dilutive.
Name
Principal place of business/
country of incorporation
FirstWave Technology Pty Ltd
Australia
FirstWave Cloud Technology Inc.
United States of America
FirstWave Cloud Technology (Singapore) Ltd
Singapore
Ownership interest
2019
%
100
100
100
2018
%
100
100
100
Note 31. Cash flow information
Reconciliation of loss after income tax to net cash used in operating activities
Loss after income tax expense for the year
Adjustments for:
Depreciation and amortisation
Share-based payments – employees
Change in operating assets and liabilities:
Decrease in trade and other receivables
Decrease in deferred tax assets
Decrease in prepayments
Decrease in other operating assets
Increase/(decrease) in trade and other payables
Increase in contract liabilities
Increase in employee benefits
Increase/(decrease) in other operating liabilities
Net cash used in operating activities
Changes in liabilities arising from financing activities
Balance at 1 July 2017
Net cash used in financing activities
Balance at 30 June 2018
Net cash used in financing activities
Balance at 30 June 2019
Consolidated
2019
$
2018
$
(11,007,337)
(8,717,386)
1,292,593
1,009,962
1,221,807
109,243
1,068,559
-
41,427
450
(259,360)
4,245,592
195,170
(2,932,876)
(6,345,820)
937,084
1,124,130
678,845
-
18,310
-
153,439
943,355
(3,531,173)
Consolidated
Lease liability
$
287,376
(200,237)
87,139
(82,661)
4,478
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2018
Grant date
Expiry date
18/05/2016
19/05/2020
18/05/2016
19/05/2020
18/05/2016
19/05/2021
18/05/2016
19/05/2021
18/05/2016
19/05/2022
18/05/2016
11/05/2022
18/05/2016
11/05/2023
18/05/2016
11/05/2023
18/05/2016
11/05/2024
18/05/2016
11/05/2024
18/05/2016
11/05/2025
18/05/2016
11/05/2024
30/11/2017
31/05/2023
30/11/2017
31/05/2024
30/11/2017
28/02/2022
30/11/2017
28/02/2023
30/11/2017
28/02/2024
30/11/2017
31/05/2024
30/11/2017
31/05/2025
13/04/2018
12/04/2021
13/04/2018
12/04/2021
13/04/2018
12/04/2021
Weighted average
exercise price ($)
Weighted
average
exercise
price
$
0.30
0.35
0.30
0.35
0.40
0.25
0.25
0.35
0.25
0.35
0.35
0.45
0.65
0.65
0.75
0.75
0.75
0.76
0.87
0.40
0.50
0.60
Note 33. Share-based payments
The consolidated entity has a share option plan to incentivise certain employees and key management personnel. The share
option plan is subject to participants meeting a service condition (continuous employment with the consolidated entity) at
the vesting date. The options are issued for nil consideration. There are no performance conditions.
During the financial year, 22,698,000 options were granted (2018: 4,050,000). The share-based payment expense for the
year was $1,009,962 (2018: $109,243).
Set out below are summaries of options granted under the plan:
2019
Grant date
Expiry date
18/05/2016
19/05/2020
18/05/2016
19/05/2020
18/05/2016
19/05/2021
18/05/2016
19/05/2021
18/05/2016
19/05/2022
18/05/2016
11/05/2022
18/05/2016
11/05/2023
18/05/2016
11/05/2023
18/05/2016
11/05/2024
18/05/2016
11/05/2024
18/05/2016
11/05/2025
30/11/2017
31/05/2023
30/11/2017
31/05/2024
30/11/2017
28/02/2022
30/11/2017
28/02/2023
30/11/2017
28/02/2024
30/11/2017
31/05/2024
30/11/2017
31/05/2025
13/04/2018
12/04/2021
13/04/2018
12/04/2021
13/04/2018
12/04/2021
09/11/2018
30/06/2026
09/11/2018
30/06/2026
09/11/2018
30/06/2026
11/04/2019
30/09/2026
11/04/2019
31/08/2026
11/04/2019
30/06/2026
11/04/2019
28/02/2027
Weighted average
exercise price ($)
Weighted
average
exercise
price
$
Balance at
the start of
the year
Granted
Exercised
Expired/
forfeited/
other
Balance at
the end of
the year
0.30
0.35
0.30
0.35
0.40
0.25
0.25
0.35
0.25
0.35
0.35
0.65
0.65
0.75
0.75
0.75
0.76
0.87
0.40
0.50
0.60
0.40
0.40
0.40
0.42
0.43
0.44
0.45
800,000
210,000
500,000
1,500,000
2,500,000
6,260,000
500,000
200,000
2,000,000
200,000
800,000
100,000
100,000
333,400
333,300
333,300
300,000
500,000
1,416,667
316,667
316,666
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
4,000,000
4,998,000
1,000,000
2,000,000
2,350,000
7,700,000
650,000
19,520,000
22,698,000
0.36
0.42
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(2,000,000)
(200,000)
(800,000)
-
-
-
-
-
-
-
800,000
210,000
500,000
1,500,000
2,500,000
6,260,000
500,000
200,000
-
-
-
100,000
100,000
333,400
333,300
333,300
300,000
500,000
(200,000)
1,216,667
(33,333)
(33,334)
-
-
-
-
-
-
-
283,334
283,332
4,000,000
4,998,000
1,000,000
2,000,000
2,350,000
7,700,000
650,000
(3,266,667)
38,951,333
0.30
0.40
Outstanding options vested and exercisable as at 30 June 2019: 15,186,700 (2018: 4,203,400).
Granted
Exercised
Balance at
the start of
the year
800,000
230,000
750,000
2,250,000
3,750,000
6,260,000
1,460,000
1,640,000
2,000,000
200,000
800,000
1,440,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
100,000
100,000
333,400
333,300
333,300
300,000
500,000
1,416,667
316,667
316,666
21,580,000
4,050,000
Expired/
forfeited/
other
Balance at
the end of
the year
-
(20,000)
(250,000)
800,000
210,000
500,000
(750,000)
1,500,000
(1,250,000)
2,500,000
-
6,260,000
(960,000)
(1,440,000)
-
-
-
(1,440,000)
-
-
-
-
-
-
-
-
-
-
500,000
200,000
2,000,000
200,000
800,000
-
100,000
100,000
333,400
333,300
333,300
300,000
500,000
1,416,667
316,667
316,666
(6,110,000)
19,520,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
0.32
0.61
0.00
0.37
0.36
74
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Annual Report 2019FirstWave Cloud Technology LimitedFor personal use only
Financial Report
Financial Report
The weighted average share price during the financial year was $0.25 (2018: $0.29).
The weighted average remaining contractual life of options outstanding at the end of the financial year was 4.77 years
(2018: 4.76 years).
For the options granted during the current financial year, the valuation model inputs used to determine the fair value at the
grant date are as follows:
Grant date
Expiry date
09/11/2018
30/06/2026
11/04/2019
30/09/2026
11/04/2019
31/08/2026
11/04/2019
30/06/2026
11/04/2019
28/02/2027
Share price
at grant
date
$
Weighted
average
exercise
price
$
Expected
volatility
%
Dividend
yield
%
Risk-free
interest rate
%
0.20
0.31
0.31
0.31
0.31
0.40
0.42
0.43
0.44
0.45
64.00
64.00
64.00
64.00
64.00
-
-
-
-
-
1.75
1.75
1.75
1.75
1.75
Fair value
at grant
date
$
0.095
0.168
0.161
0.166
0.170
Note 34. Events after the reporting period
No matter or circumstance has arisen since 30 June 2019 that has significantly affected, or may significantly affect the
consolidated entity’s operations, the results of those operations, or the consolidated entity’s state of affairs in future
financial years.
Directors’ declaration
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 1 to the financial statements;
the attached financial statements and notes give a true and fair view of the consolidated entity’s financial position as at
30 June 2019 and of its performance for the financial year ended on that date; and
there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due
and payable.
The directors have been given the declarations required by section 295A of the Corporations Act 2001.
Signed in accordance with a resolution of directors made pursuant to section 295(5)(a) of the Corporations Act 2001.
On behalf of the directors.
Sam Saba
Non-executive Director
30 August 2019
Simon Moore
Non-executive Director
76
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Financial Report
Financial Report
independent auditor’s report
Level 17, 383 Kent Street
Sydney NSW 2000
Correspondence to:
Locked Bag Q800
QVB Post Office
Sydney NSW 1230
T +61 2 8297 2400
F +61 2 9299 4445
E info.nsw@au.gt.com
W www.grantthornton.com.au
Independent Auditor’s Report
To the Members of Firstwave Cloud Technology Limited
Report on the audit of the financial report
Opinion
We have audited the financial report of Firstwave Cloud Technology Limited (the Company) and its subsidiaries (the
Group), which comprises the consolidated statement of financial position as at 30 June 2019, the consolidated statement
of profit or loss and other comprehensive income, consolidated statement of changes in equity and consolidated
statement of cash flows for the year then ended, and notes to the consolidated financial statements, including a summary
of significant accounting policies, and the Directors’ declaration.
In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including:
a giving a true and fair view of the Group’s financial position as at 30 June 2019 and of its performance for the year
ended on that date; and
b complying with Australian Accounting Standards and the Corporations Regulations 2001.
Basis for opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are
further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are
independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and
the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for
Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled
our other ethical responsibilities in accordance with the Code.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Grant Thornton Audit Pty Ltd ACN 130 913 594
a subsidiary or related entity of Grant Thornton Australia Ltd ABN 41 127 556 389
www.grantthornton.com.au
‘Grant Thornton’ refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to their clients
and/or refers to one or more member firms, as the context requires. Grant Thornton Australia Ltd is a member firm of Grant Thornton International
Ltd (GTIL). GTIL and the member firms are not a worldwide partnership. GTIL and each member firm is a separate legal entity. Services are
delivered by the member firms. GTIL does not provide services to clients. GTIL and its member firms are not agents of, and do not obligate one
another and are not liable for one another’s acts or omissions. In the Australian context only, the use of the term ‘Grant Thornton’ may refer to
Grant Thornton Australia Limited ABN 41 127 556 389 and its Australian subsidiaries and related entities. GTIL is not an Australian related entity to
Grant Thornton Australia Limited.
Liability limited by a scheme approved under Professional Standards Legislation.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial
report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in
forming our opinion thereon, and we do not provide a separate opinion on these matters.
Key audit matter
Going concern (Note 1)
The Group made a loss of $11,007,337 for the year ended 30
June 2019 and has accumulated losses of $32,233,809 as at
30 June 2019. The Group’s use of the going concern basis of
accounting and the associated extent of uncertainty is a key
audit matter due to the high level of judgement required in
evaluating the Group’s assessment of going concern.
The Directors have determined that the use of the going
concern basis of accounting is appropriate in preparing the
financial report. Their assessment of going concern was
based on cash flow projections. The preparation of these
projections incorporated a number of assumptions and
judgements, and the Directors have concluded that the range
of possible outcomes considered in arriving at this judgement
does not give rise to a material uncertainty casting significant
doubt on the Group’s ability to continue as a going concern.
Revenue recognition (Note 4)
Revenue of $8,831,731 has been recognised during the year
ended 30 June 2019, and contract liabilities of $4,245,592
have been included in the statement of financial position.
This is a key audit matter given the management judgement
involved in applying the revenue recognition policy and the
complexities around accounting for income received in
advance. In addition, new accounting standard AASB 15:
Revenue from Contracts with Customers has been applied for
the first time in the current financial year.
How our audit addressed the key audit matter
Our procedures included, amongst others:
Obtaining and reviewing management’s cash flow forecast
to assess whether current cash levels can sustain
operations for a period of at least 12 from the proposed
date of signing the financial statements;
Agreeing year end cash balances to third party
independent confirmations received to gain comfort around
the opening balances used in the cash flow forecast;
Assessing the Group’s current level of income and
expenditure against management’s forecast for consistency
of relationships and trends to the historical results, and
results since year end;
Performing sensitivity analysis on the significant inputs and
assumptions made by management in preparing its cash
flow forecast; and
Assessing the adequacy of the related disclosures within
the financial report.
Our procedures included, amongst others:
Assessing the revenue recognition policies for
appropriateness and compliance with AASB 15;
Comparing revenue by month and across each revenue
stream to prior periods in order to identify and follow up on
unusual trends;
Testing a sample of revenue transactions for each revenue
stream by tracing through to service agreement to identify
contract terms, and evaluating revenue recognition for
compliance with AASB 15;
Testing a sample of transactions near period end to assess
whether the related revenue has been recognised in the
appropriate period; and
Assessing the adequacy of related disclosures in the
financial statements.
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Financial Report
Financial Report
Key audit matter
How our audit addressed the key audit matter
Auditor’s responsibilities for the audit of the financial report
Capitalised product development costs (Note 11)
Capitalised product development costs had a net carrying
value of $4,203,265 at 30 June 2019.
During the year the Group capitalised $2,167,980 of project
development costs. These intangible assets are being
amortised over a 5 year period, and an amortisation expense
of $1,027,332 has been included in the statement of profit or
loss and other comprehensive income.
AASB 138: Intangible Assets sets out the specific
requirements to be met in order to capitalise development
costs. Intangible assets should be amortised over their useful
economic lives in accordance with AASB 138.
This area is a key audit matter due to subjectivity and
management judgement applied in the assessment of whether
costs meet the development phase criteria described in AASB
138 and in relation to the estimate of the assets’ useful lives.
Our procedures included, amongst others:
Assessing the Group’s accounting policy in respect of
product development costs for adherence to AASB 138;
Evaluating management’s assessment of each project for
compliance with the recognition criteria set out in AASB
138; including discussing project plans with management
and project leaders to develop an understanding of nature
and feasibility of key projects at 30 June 2019;
Testing a sample of costs capitalised by tracing to
underlying support such as vendor invoices and payroll
records in order to understand the nature of the item and
whether the expenditure was attributable to the
development of the related asset, and therefore whether
capitalisation was in accordance with the recognition
criteria of AASB 138;
Evaluating the reasonableness of useful lives to be applied
in future reporting periods; and
Assessing the adequacy of related disclosures in the
financial statements.
Information other than the financial report and auditor’s report thereon
The Directors are responsible for the other information. The other information comprises the information included in the
Group’s annual report for the year ended 30 June 2019 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 Group’s ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the
Directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.
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.
A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance
Standards Board website at: http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf. This description forms part of our
auditor’s report.
Report on the remuneration report
Opinion on the remuneration report
We have audited the Remuneration Report included in pages 20 to 39 of the Directors’ report for the year ended 30 June
2019.
In our opinion, the Remuneration Report of Firstwave Cloud Technology Limited, for the year ended 30 June 2019
complies with section 300A of the Corporations Act 2001.
Responsibilities
The Directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance
with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report,
based on our audit conducted in accordance with Australian Auditing Standards.
Grant Thornton Audit Pty Ltd
Chartered Accountants
C F Farley
Partner – Audit & Assurance
Sydney, 30 August 2019
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Shareholder Information
Shareholder Information
6
shareholder information
Top 20 Ordinary Shareholders
The names of the 20 largest shareholders of quoted equity securities are listed below:
Ordinary shares
The shareholder information set out below is applicable as at 18 September 2019.
Rank Name
Distribution of shareholders
Analysis of number of equitable security holders by size of holding:
Range
1 to 1,000
1,001 to 5,000
5,001 to 10,000
10,001 to 100,000
100,001 and over
Rounding
Total
Unmarketable parcels
Minimum $500.00 parcel at $0.2350 per unit
Substantial Shareholders
Substantial shareholders in the company are set out below:
Total
shareholders
1,709
290
223
824
386
Shares
75,606
830,835
1,814,385
33,561,554
244,523,325
Shares
%
0.03
0.30
0.65
11.95
87.08
-0.01
3,432
280,805,705
100.00
Minimum
parcel size
2,128
Shareholders
1,822
Shares
268,805
Rank Name
1
2
Mr Greg Maren + Mrs Geraldine Maren (Maren Super Fund A/C)
Mr Scott Lidgett + Mrs Katherine Lidgett (Lidgett Super Fund A/C)
Number held
16,722,741
16,441,179
% of total
shares issued
5.96
5.86
Ordinary shares
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
Mr Greg Maren + Mrs Geraldine Maren (Maren Super Fund A/C)
Mr Scott Lidgett + Mrs Katherine Lidgett (Lidgett Super Fund A/C)
CS Third Nominees Pty Limited (HSBC Cust Nom Au Ltd 13 A/C)
HSBC Custody Nominees (Australia) Limited
Mr Edward Keating + Mrs Linda Keating
Mr Simon Ryan
Mr Richard Beswick
Mr David Rothwell
Willroth Pty Ltd (The Willroth A/C)
Eremite Pty Ltd (Jamieson Family A/C)
HSBC Custody Nominees (Australia) Limited – A/C 2
RTEC (NSW) Pty Ltd (RTEC Trading A/C)
Mr Scott Lidgett
Scott McNeilage Pty Limited (McNeilage Super Fund A/C)
Mr James Broomhead
Mr William Robert Carter + Ms Sarah Victoria Williams
Mr Simon Moore
Mazoongoo Pty Ltd (Mazoongoo Super Fund A/C)
Mr Greg Maren + Mrs Geraldine Maren (Maren Family A/C)
20
BM Jag Pty Ltd (BM Jag A/C)
Top 20 shareholders of fully paid ordinary shares
Total remaining shareholders’ balance
Unquoted equity securities
Options over ordinary shares
Voting rights
The voting rights attached to ordinary shares are set out below:
Number held
16,722,741
16,441,179
9,800,000
5,643,419
5,006,274
4,615,000
4,561,382
4,420,391
4,107,675
3,805,708
3,555,000
3,000,000
2,570,811
2,293,684
2,266,104
2,170,000
2,100,000
2,045,602
2,036,034
2,000,000
% of total
shares issued
5.96
5.86
3.49
2.01
1.78
1.64
1.62
1.57
1.46
1.36
1.27
1.07
0.92
0.82
0.81
0.77
0.75
0.73
0.73
0.71
99,161,004
181,644,701
35.31
64.69
Number on issue
38,951,333
Ordinary shares
On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each
share shall have one vote.
There are no other classes of equity securities.
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Glossary
7
glossary
BDM
CCSP
Business development manager (sales executive).
FirstWave’s Cloud Content Security Platform, which is a unique SaaS security life-cycle
orchestration platform for telco/service providers that redefines their delivery economics and
prevents cybersecurity threats from impacting their customers.
CODM
Chief operating decision makers.
Content security
A product market category that comprises email security and web security.
Cybersecurity
The practice of protecting computers, networks, systems, programs and data
from digital attacks or unauthorised access, which are intended for exploitation.
EBITDA
Earnings before interest, tax, depreciation and amortisation.
FirstWave, FCT or
the company
FirstWave Cloud Technology Limited.
GRG
GSI
GSV
KMP
Godfrey Remuneration Group.
Global systems integrator.
Global security vendor, e.g. Cisco, Palo Alto Networks and Fortinet.
Key management personnel.
Level 1 service provider A GSV or GSI partner of FCT (leveraged partner model).
LTI
MSS
MSSP
NED
OEM
Long-term incentive.
Managed security services.
Managed security service provider, e.g. a Telco/SP that offers MSS to its enterprise/SMB.
Non-executive Director of FCT.
Original equipment manufacturer, i.e. a company that produces equipment, marketed and sold
by another manufacturer, e.g. what FirstWave provides to Cisco.
OEM Agreement
An OEM agreement between FCT and a Level 1 service provider being a GSV.
Orchestration platform A platform that automates configuration, coordination and management of computer systems
and software.
Prior comparative period.
Proof of value for end customer, i.e. a successful end customer full trial on the platform provides
the catalyst to sign an order.
Software as a Service.
Small and medium-size businesses.
Short-term incentive.
Corporate Directory
8
corporate directory
Directors
John Grant
Sam Saba
Scott Lidgett
Paul MacRae
Simon Moore
Executive Director and Chairman
Non-executive Director
Non-executive Director
Non-executive Director
Non-executive Director
Chief Executive Officer
David Kirton
Company Secretary
Gai Stephens
Registered office
Level 10, 132 Arthur Street
North Sydney NSW 2060
Australia
Tel: +61 2 9409 7000
Share registry
Computershare Investor Services Pty Limited
Level 5, 115 Grenfell Street
Adelaide SA 5000
Australia
Tel: 1300 787 272
Auditor
Grant Thornton Audit Pty Ltd
Level 17, 383 Kent Street
Sydney NSW 2000
Australia
Stock exchange listing
FirstWave Cloud Technology Limited shares are listed on the Australian Securities Exchange (ASX code: FCT).
Website
firstwavecloud.com
A telecommunications company, whether a fixed network or mobile network operator or both.
Total remuneration package.
Volume weighted average price.
Corporate governance statement
The Corporate Governance Statement which was approved at the same time as the Annual Report, can be found at
https://www.firstwavecloud.com/corporate-governance.html
85
PCP
PoV
SaaS
SMB
STI
Telco
TRP
VWAP
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Annual Report 2019FirstWave Cloud Technology LimitedFor personal use only
FI RSTWA VE
CLOUD SECURITY TECHNOLOGY
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annual report 2019
annual report 2019
FirstWave Cloud Technology Limited ABN 35 144 733 595
For personal use only