Freelancer Limited Annual Report 2015

Plain-text annual report

F R E E L A N C E R L I M I T E D 2015 A N N U A L R E P O R T ACN 141 959 042 TABLE OF CONTENTS Chairman’s Letter Directors’ Report Review of Operations Auditor’s Independence Declaration Corporate Governance Statement Consolidated Statement of Profit or Loss and Other Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Financial Statements Directors’ Declaration Independent Auditor’s Report Additional ASX Information Corporate Directory 5 31 35 47 48 58 59 60 61 62 97 98 100 102 FREELANCER LIMITED 2015 ANNUAL REPORT 3 3 FREELANCER LIMITED 2015 ANNUAL REPORTFreelancer is the world’s largest freelancing and crowdsourcing marketplace by total number of users and jobs posted We help small businesses, startups and entrepreneurs turn that spark of an idea into reality We are changing lives in the developing world by providing opportunity and income 4 4 FREELANCER LIMITED 2015 ANNUAL REPORTCHAIRMAN’S LETTER Dear Shareholder, In 2015, the Company delivered exceptional financial results with a 48% increase in net revenue on the prior year to $38.6 skills and availability for local work. Local jobs expands Freelancer’s Total Addressable Market to several hundred billions of dollars per year of potential gross volume. million. Gross Payment Volume (GPV) in FY15 was $229.3 We acquired Escrow.com, the leading provider of secure million (+120% on the prior year). As at 31 December 2015, online payments on the Internet. Escrow had 2015 gross the Company had a strong balance sheet with cash and payment volume of US$430 million, with over US$2.7 billion equivalents of $32.2 million. Freelancer is a high growth Internet company and this reflects consistently with high growth in net revenues of gross payment volume to date. As at 31 December 2015, Escrow.com’s off-balance sheet trust accounts had balances of over $27 million. each year (FY10 +129%, FY11 +37%, FY12 +64%, FY13 Freelancer is a very rare and exceptional company. What +77%, FY14 +39% and FY15 +48%, 5-year CAGR 52%). we do actually makes a difference. We change lives. We This revenue growth is achieved by strong growth in help lift people out of poverty. We help people feed their marketplace projects and contests posted, increased families. We help entrepreneurs build businesses. We efficiency and marketplace quality, and increased sales of help people build products and services that change the value added services. world. Freelancer makes a real difference in the world and Over the 2015 financial year, the Company experienced changes lives. significant growth in users, projects and contests posted, Freelancer is not just driving a global revolution in the bringing 4.4 million new users, and 1.7 million new projects way we do work; it is also at the nexus of a series of and contests to the platform. This further affirmed our powerful global macroeconomic trends. 55% of the leading global position as the world’s largest freelancing world’s population, or 4 billion people, are yet to connect and crowdsourcing marketplace with more than 18 million to the Internet. More and more industries will be eaten users. Over 8 million projects & contests have been posted to date- from something as simple as a logo design to something as complex as designing a robotic arm for the International Space Station, which our freelancers are currently doing for NASA. In 2015, our focus was growing project & contest volume, and continuing our international growth across countries and languages. We achieved 27% growth in projects & contests posted, and grew our registered user base by 30%. Our focus was on increasing revenue growth through marketplace efficiency. Key contributors to this included significant development in mobile - where now 26% of engaged users touch Freelancer mobile products. We also launched Freelancer Local Jobs. This has added 100 additional categories of location specific work, and to date more than 700,000 freelancers have registered their by software, and more and more jobs will be performed with a computer and will move into the cloud. The world is becoming more and more flat as everything increasingly becomes hyperconnected. Finally, the structural imbalances and skills crunch between the aging western world workforce and once in a lifetime boom of people entering the workforce in the developing world are a powerful tailwind to our business. Freelancer is the platform that aims to connect all of this together. The sheer scale of the Company’s operations is becoming apparent. Pro-forma from January 1st 2015, including the acquisition of Escrow.com, the Company’s Gross Payment Volume was in excess of $700 million- this is cash physically through the group bank accounts. The Board and myself personally wish to thank and acknowledge the support of all of our staff, shareholders and our 18+ million users around the world. None of this would have been possible without your hard work and encouragement. Matt Barrie Executive Chairman Freelancer Limited 5 FREELANCER LIMITED 2015 ANNUAL REPORT18.5 MILLION U SERS 18 16 14 12 10 8 6 4 2 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 Registered Users1 (millions) 1. User data includes all users from acquired marketplaces. Prior to May 2009, all data is from acquired marketplaces. 6 8.0 MILLION JOBS P OSTED 8 7 6 5 4 3 2 1 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 Number of Jobs Posted1 (Filtered) 1. Total Projects and Contests Posted was redefined in January 2016 to Total Jobs Posted (Filtered). Jobs Posted (Filtered) is defined as the sum of Total Posted Projects and Total Posted Contests, filtered for spam, advertising, test projects, unawardable or otherwise projects that are deemed bad and unable to be fulfilled. 7 7 FREELANCER LIMITED 2015 ANNUAL REPORT88 FREELANCER LIMITED 2015 ANNUAL REPORTNASA IS USING FREELANCER.COM TO DESIGN A ROBOTIC ARM FOR THE INTERNATIONAL SPACE STATION 9 9 FREELANCER LIMITED 2015 ANNUAL REPORTCHALLENGESNASA’S NEW ROBOTIC ARM NASA and Freelancer have teamed up to build a robotic arm for the Astrobee, a free flying robot designed to help perform mission critical tasks aboard the International Space Station. In the first phase, freelancers were asked to break down the tasks associated with building the arm. In the second phase, contests will be run, where freelancers will create designs of all the different pieces required to build the robotic arm. 4900+ Participants 116 Countries Contributing 10 10 FREELANCER LIMITED 2015 ANNUAL REPORTROBONAUT R2 CHALLENGES Meet Robonaut R2, the humanoid robot who takes on the most dangerous tasks in space. For these challenges freelancers created 3D models of tools R2 uses to train its image recognition system. EVA Handrail 3D Cordless Drill 450+ 3D Models Created 81 Countries Contributing 11 11 FREELANCER LIMITED 2015 ANNUAL REPORTStephen Hibberd NASA Scope Challenge Winner 5.0/5.0 rating | 2 reviews Member since January 2016 Brackley, United Kingdom “ The inspiration for me during this project was simply the fact that this was NASA! Offering to the public a chance to get involved in one of the most inspirational institutions in the world, this alone was my driving force to do the best I could.” 12 12 FREELANCER LIMITED 2015 ANNUAL REPORTBalazs & Gergo Szatmari Brothers & NASA RFID Challenge Winners 5.0/5.0 rating | 18 reviews Member since January 2016 Göd, Hungary “ It was a great honor to work with NASA. When we were kids, Gergo and I dreamt to work for NASA and it came true, thanks to Freelancer.com.” 13 13 FREELANCER LIMITED 2015 ANNUAL REPORT141414 FREELANCER LIMITED 2015 ANNUAL REPORT8 Webby Awards 23 Stevie Awards 2 Best Employment Website Awards 2015 Company of the Year, Internet / New Media 1 Best Professional Services Website Award 4 Gold Stevies, International Business Awards 5 People’s Voice Awards 9 Silver Stevies, International Business Awards 7 Bronze Stevies, International Business Awards 2 People’s Choice Awards ASIA-PACIFIC AIMIA Winner of 4 AIMIA Awards ANTHILL Winner of 4 Anthill Awards BRW Winner of 2 BRW Awards PREMIER’S EXPORT AWARDS Winner of 1 Export Award STEVIES Winner of 2 Silver Asia-Pacific Stevie Awards EUROPE CHIEF STRATEGY OFFICER AWARDS Best Disruptive Strategy LATIN AMERICA EIKON Winner of 2 Eikon Awards NORTH AMERICA DELOITTE Winner of 2 Deloitte Awards 15 FREELANCER LIMITED 2015 ANNUAL REPORT16 FREELANCER LIMITED 2015 ANNUAL REPORT17 FREELANCER LIMITED 2015 ANNUAL REPORT1818 FREELANCER LIMITED 2015 ANNUAL REPORTYuleidy Tovar & Ignacio Flores Web Developer & Designer 5.0/5.0 rating | 57 reviews Member since January 2014 Medellin, Colombia “ Travelling and working can be quite challenging, but they keep us going. Freelancing gave us a taste of freedom. We can’t go back.” 1919 FREELANCER LIMITED 2015 ANNUAL REPORT We’re defining the future of work US$3.0 billion+ 8,000,000+ 18,500,000+ IN JOBS POSTED JOBS POSTED MILLION USERS 20 20 FREELANCER LIMITED 2015 ANNUAL REPORTHIRE WORK Freelancer is a game-changer for entrepreneurs, small We’re changing lives in the developing world by giving businesses, and large organisations. We provide hard-working people access to better jobs. Freelancers easy access to talented freelancers from all around who once struggled to earn $10 a day can now earn the world, who offer a wide range of services at $10+ an hour, all while choosing when and how they competitive prices. work. US$156 AVERAGE JOB SIZE IN 2016 65% OF JOBS RECEIVE A BID WITHIN 60 SECONDS 900+ AVAILABLE SKILLS 34 SUPPORTED LANGUAGES 21 21 FREELANCER LIMITED 2015 ANNUAL REPORTFREELANCER MOBILE Stay in Touch, Manage Your Projects and More. It’s Freelancer... Anywhere You Go. 700,000+ 14,500,000+ 500+ DOWNLOADS MESSAGES SENT PROJECTS POSTED DAILY 2222 FREELANCER LIMITED 2015 ANNUAL REPORTCONTESTS You Bring the Idea, the Crowd Brings You a Result You Love. Guaranteed. 51% 266,000+ 8,600,000+ GROWTH IN CONTESTS CONTESTS POSTED CONTEST ENTRIES 2323 FREELANCER LIMITED 2015 ANNUAL REPORTFREELANCER LOCAL JOBS With the World’s Largest Freelancing Site, Good Help is Just Around the Corner. 700,000+ LOCAL FREELANCERS 2,000+ DAILY SIGNUPS 2424 FREELANCER LIMITED 2015 ANNUAL REPORTFeaturing Rand Fishkin SEO Expert & Co-Founder of Moz.com WARRIOR FORUM The World’s #1 Internet Marketing Community & Marketplace Since 1997. 1,000,000+ 9,500,000+ 845,000+ WARRIORS CONTRIBUTIONS DISCUSSIONS 2525 FREELANCER LIMITED 2015 ANNUAL REPORTThe Global Leader in Secure Online Payments. No Chargebacks, Guaranteed. $2,700,000,000+ 928,000+ USD PAYMENTS TRANSFERRED REGISTERED CUSTOMERS 2626 FREELANCER LIMITED 2015 ANNUAL REPORTOli Gardner CEO of Unbounce STARTCON Australia’s Biggest Startup & Growth Conference. Sold Out 6 Years in a Row. 2,000+ 20 100s ATTENDEES INTERNATIONAL SPEAKERS OF EXHIBITORS 2727 FREELANCER LIMITED 2015 ANNUAL REPORTOUR ONLINE ECONOMY The below diagram illustrates the Freelancer online economy. The pink lines indicate where projects are being posted by employers, and the blue lines indicate where the projects are being performed by freelancers. Thicker lines indicate a higher dollar volume of work. White dots indicate the location of Freelancer’s users. Edges are sampled data from awarded projects in 2015. 28 28 FREELANCER LIMITED 2015 ANNUAL REPORT2929 FREELANCER LIMITED 2015 ANNUAL REPORT3030 FREELANCER LIMITED 2015 ANNUAL REPORTDIRECTORS’ REPORT Your Directors submit the financial report of Freelancer Limited (the Company) for the year ended 31 December 2015. In order to comply with the provisions of the Corporations Act 2001, the Directors report as follows. The names and particulars of the directors of the Company during or since the end of the financial year (Directors) are: 31 MATT BARRIE Executive Chairman (appointed 10 April 2010) BE (Hons I) BSc (Hons I) GDipAppFin MAppFin MSEE (Stanford) GAICD SEP FIEAust • Founder and Executive Chairman of the Company. • Serial entrepreneur with extensive experience and knowledge in the technology sector. Previously co-founded and was CEO of Sensory Networks Inc., a vendor of high performance network security Program at the Graduate School of Business, Fellow of the Institute of Engineers Australia and Councillor of the Electrical and Information Engineering Foundation at the University of Sydney. • Relevant interest in 201,125,697 fully paid ordinary shares, including a processors, which was acquired by Intel relevant interest in 9,162,238 fully paid Corporation Inc. in 2013. • Formerly Adjunct Associate Professor at the Department of Electrical and Information Engineering at the University of Sydney. Co-author of over 20 US patent applications. • Qualifications include first class honours degrees in Electrical Engineering and Computer Science from the University of Sydney, Masters in Applied Finance from Macquarie ordinary shares by virtue of having a voting power of over 20% in the Company, which has a relevant interest as a result of trading restrictions over shares issued under the Employee Share Plan. • Beneficial interest in 191,963,459 fully paid ordinary shares (representing 42.0% of issued capital). • Member of the Nomination and Remuneration Committee and Audit University, Masters in Electrical Committee. Engineering from Stanford, California, Graduate of the Stanford Executive 32 DIRECTORS’ REPORTFREELANCER LIMITED 2015 ANNUAL REPORTDARREN WILLIAMS Non-Executive Director from 1 November 2015. Executive Director until 31 October 2015 (appointed 10 April 2010) BSc (Hons I) PhD (Computer Science) • Non-Executive Director of Company. • Qualifications include first class Was the Chief Technology Officer and honours degree in Computer Science Executive Director of the Company until and a Ph.D. in Computer Science 31 October 2015. • Extensive experience in computer specialising in computer networking from the University of Sydney. security, protocols, networking and • Beneficial and relevant interest in software. Previously co-founded and 11,127,165 fully paid ordinary shares was CTO (and subsequently CEO) of (representing 2.4% of issued capital). • Member of the Nomination and Remuneration Committee and Audit Committee. Sensory Networks Inc., a vendor of high performance network security processors, which was acquired by Intel Corporation Inc. in 2013. • Previously lectured Computer Science at the University of Sydney. Author of numerous articles, patents and papers relating to security technology, software and networking 33 DIRECTORS’ REPORTFREELANCER LIMITED 2015 ANNUAL REPORTSIMON CLAUSEN Non-Executive Director (appointed 10 April 2010) • Founding investor and Non-Executive • Relevant interest in 165,633,667 Director of the Company. • Extensive experience in operating and investing in high growth technology businesses in both Australia and the United States. Previously founded and was CEO of WinGuides, which later became PC Tools and was acquired by Symantec Corporation in October 2008. • Currently the sole director of Startive Ventures, a specialised technology venture fund that actively maintains investments in a number of companies globally. Other directorships include LatAm Autos Limited since 2014. fully paid ordinary shares, including a relevant interest in 9,562,238 fully paid ordinary shares by virtue of having a voting power of over 20% in the Company, which has a relevant interest as a result of trading restrictions over shares issued under the Employee Share Plan. • Beneficial interest in 156,071,429 fully paid ordinary shares (representing 34.1% of issued capital). • Member of the Nomination and Remuneration Committee and Audit Committee. 34 DIRECTORS’ REPORTFREELANCER LIMITED 2015 ANNUAL REPORTCompany Secretary Mr Neil Katz held the position of Company Secretary during and at the end of the financial year (appointed 9 March 2012). He has been with the Group since 2009 and is also the Chief Financial Officer. Principal activities The principal activity of the consolidated entity (the Group) during the financial year was the provision of an online outsourcing marketplace. On 1 November 2015, the group completed the acquisition of the business of Escrow.com, a provider of online escrow payment services. There were no other significant changes in the nature of the principal activities during the financial year. Review of operations The Group’s loss attributable to equity holders of the Company, after providing for income tax, amounted to $2,805,000 (2014 loss: $1,847,000). Key Performance Highlights Year ended 31 December Financial metrics: Gross Payment Volume1 Net Revenue2 Gross Profit Gross margin (%) Operating EBITDA3 Operating EBIT3 Operating NPAT3 Operating Cash Flow Operational metrics: New Registered Users4 (millions) Number of Total Jobs Posted (filtered)5 (millions) FY15 $m 229.3 38.6 33.5 86.7% (2.0) (2.5) (1.6) 1.5 4.4 1.7 FY14 $m % Change +120% +48% +47% (0.5%) +5% (3%) (13%) nm 103.8 26.1 22.8 87.1% (2.1) (2.4) (1.5) (0.1) 4.6 1.4 1. Gross Payment Volume (GPV) is calculated as the total payments to Freelancer users for products and services transacted through the Freelancer website plus total Freelancer revenue and Escrow.com revenue. GPV is an unaudited metric. 2. Escrow.com contributed to the Company’s results from 1 November 2015 to 31 December 2015. Net Revenue excluding Escrow.com for FY15 was $36.8m (up 41% on pcp). GPV excluding Escrow.com for FY15 was $138.2m (up 33% on pcp). 3. Excludes non-cash share based payments expense of $1,164k in FY15 and $388k in FY14. 4. User and project/contest data includes all users and projects/contests from acquired marketplaces. Prior to May 2009, all data is from acquired marketplaces. Includes Escrow.com unique users. 5. Total Projects and Contests Posted was redefined in January 2015 to Total Jobs Posted (filtered). Jobs Posted (Filtered) is defined as the sum of Total Posted Projects and Total Posted Contests, filtered for spam, advertising, test projects, unawardable or otherwise projects that are deemed bad and unable to be fulfilled. The Company experienced outstanding growth in its online businesses in the 12 months ended 31 December 2015 (FY15), resulting in a revenue increase of 48% year on year, 41% excluding the contribution from Escrow.com. The Company raised capital in two transactions during 2015 - principally to fund the purchase of Escrow.com, and also to accelerate its investment in product, staffing and infrastructure globally. As a result of the continued focus on reinvesting for top line growth, the Company delivered an operating EBITDA of $(2.0) million (improved from $(2.1) million in FY14) and despite the increase in expenditure on talent, generated positive operating cash flow of $1.46 million in FY15. 35 DIRECTORS’ REPORTFREELANCER LIMITED 2015 ANNUAL REPORTMarketplace Growth The Company’s revenue is primarily generated from new and existing users posting and fulfilling projects and contests in the Freelancer.com marketplace. Freelancer’s registered user base (including both employers and freelancers) grew exceptionally well, increasing by 3.2 million new users in FY15. Users are acquired from a variety of sources including search engine optimisation (SEO), search engine marketing (SEM), media and public relations work, events, user referrals, competitions, traditional advertising, email marketing and business combinations. The Company’s main user acquisition focus is on attracting new employers, being those users who post projects and contests, and, therefore create demand in the online marketplace. However, the Company also seeks to ensure that there is a sufficient supply of freelancers across regional, language and skill specific segments of the marketplace in order to maximise marketplace liquidity and network effects. Employers accomplish work by posting projects or contests into the Freelancer marketplace, or hiring directly via the Company’s freelancer directory. The total number of projects and contests posted on Freelancer.com increased by 1.7 million in FY15 (new projects and contests in the year). Total Projects and Contests Posted was redefined in January 2016 to Total Jobs Posted (filtered). Jobs Posted (Filtered) is defined as the sum of Total Posted Projects and Total Posted Contests, filtered for spam, advertising, test projects, unawardable or otherwise projects that are deemed bad and unable to be fulfilled. This new metric has been restated for historical years. Review of Financial Performance Gross Payment Volume1 (A$m) and Marketplace Take Rate2 (%) GPV Marketplace Take Rate 20.9% 18.1% 16.8% 229.3 +120% 26.6% 25.1% 22.2% 91.1 84.4 103.7 +23% 138.2 +33% 50.8 35.6 +67% 28.0 +36% +26% FY10 FY11 FY12 FY13 FY14 FY15 1. 2. Gross Payment Volume (GPV) is calculated as the total payments to Freelancer or Escrow users for products and services transacted through the Freelancer or Escrow websites plus total Revenue. Based on Freelancer’s unaudited management accounts which have not been subject to an auditors review. Take rate is calculated as Online Marketplace Segment Net Revenue divided by Gross Payment Volume (excluding Escrow.com GPV and Net Revenue) 36 DIRECTORS’ REPORTFREELANCER LIMITED 2015 ANNUAL REPORTReview of Financial Performance Net Revenue (A$m) and Gross Margin (%) Net Revenue Gross Margin 38.6 +48% 26.1% 87.1% 82.6% 86.7% 87.4% 87.6% 18.8 86.7% 10.6 6.5 4.7 FY10 FY11 FY12 FY13 FY14 FY15 The Company achieved Net Revenue of $38.6 million in FY15 (up 48% on the previous corresponding period), and Gross Payment Volume of $229.3 million (up 120% on the previous corresponding period). Revenue excluding Escrow.com amounts to $36.8 million and a 41% growth rate on the previous corresponding period, GPV excluding Escrow.com amounts to $138.2 million and a 33% growth rate on the previous corresponding period. Contributing factors to the growth in Net Revenue for FY15 included both overall growth in marketplace volumes, increased efficiency and quality of the marketplace and increased sales of value added services (non-commission based revenues) which have further boosted the take rate in the core business. The Company’s gross margin of 86.7% in FY15 remained in line with the previous corresponding period (FY14: 87.1%). The Company’s cost of sales predominantly consists of transaction costs that are incurred from the various gateways relied upon to process user payments, as well as various provisions taken for credit card chargebacks and fraud risks. The cost of sales in the Escrow.com business is slightly higher than in the core Freelancer marketplace business. Operating Performance Expansion of International Offices and Staffing In line with its strategy of reinvesting for top line growth, the Company expanded its international footprint and increased its investment in talent in FY15. In FY15 the Company grew its staff across offices in Sydney, Manila and London. As part of the Escrow.com acquisition, the Company acquired 12 staff based in California. Hiring growth was focused on engineering, data science and product management teams. The support function, based in Manila, grew at a significantly slower rate than total headcount, as this team has reached operational scale to support the Company’s operations. 37 DIRECTORS’ REPORTFREELANCER LIMITED 2015 ANNUAL REPORTNPAT and EBITDA As a result of the accelerated investment for future growth, the Company reported an operating net loss after tax of ($1.6) million (FY14 Operating NPAT: ($1.5) million) and Operating EBITDA of ($2.0) million (FY14 Operating EBITDA: ($2.1) million). Reported Net Loss After Tax of ($2.8) million in FY15 included a tax benefit of $0.9 million (FY14 NPAT: ($1.9) million). Cash Flow and Balance Sheet Strength Despite the increased investment in staff and its international expansion to increase future growth, the Company posted a positive operating cash flow of $1.46 million in FY15 (FY14: $0.1 million outflow). This balances the Company’s aim to maximise re-investment in product development and top-line growth with maintaining a secure and stable balance sheet and P&L. As at 31 December 2015, the Company held cash and equivalents of $32.2 million, providing the Company with sufficient flexibility to pursue further growth via both organic and inorganic channels. Key Product & Operational Innovation Highlights In 2015, we embarked on a number of key initiatives: Escrow.com The Company announced the acquisition of Escrow.com in April 2015, this acquisition reached financial close on 1 November 2015. Headquartered in California, Escrow.com provides online escrow services that facilitate and accelerate e-commerce by assuring secure settlement. Escrow.com is the leading provider of secure online payments and online transaction management for consumers and businesses on the Internet, with FY15 gross payment volume of US$430 million. Escrow.com reduces the risk of fraud by acting as a trusted third party that collects, holds and disburses funds according to buyer and seller instructions. Growth in Mobile Usage In 2015 Freelancer’s mobile apps across iOS and Android passed more than half a million total downloads. To offer mobile users a better experience, during 2015 we dedicated significant resources to increasing the sophistication of our mobile apps and presence. 26% percent of engaged users touch Freelancer Mobile products, up 114% from December 2014 to December 2015. Major Improvements in Project Management, Communication and Collaboration The new project management page intelligently ranks and surfaces bids in real time. Improved design on the new page makes it easier to manage multiple freelancers on the same project. We made a major improvement to our messaging service by offering video chat on web. Our desktop client now supports time-tracking in offline mode for our users with unreliable internet connections in developing countries. Time-tracked invoices can now be automatically generated and paid. Local Jobs The Company launched Freelancer Local Jobs®, adding several hundred billion dollars per annum to the Company’s total addressable market. After selecting “hire” on the homepage, users are now prompted to choose if their job is location-specific or can be done anywhere online. If location specific information is selected, then they will be matched only with freelancers in their local area. This allows the Company to expand its services marketplace into over 100 new location specific skills, related to location-based tasks (such as pick up & delivery), trades (including electricians, plumbers and builders), and professions (such as event management and catering). To date, over 700,000 freelancers are available to work on local projects. 38 DIRECTORS’ REPORTFREELANCER LIMITED 2015 ANNUAL REPORTShowcase The Company launched Freelancer Showcase™, a cross-platform design gallery of millions of portfolio items in an easily discoverable format, allowing freelancers to show off their quality work to employers. Showcase helps users by allowing them to browse items by category, search using keywords, or filter based on a number of criteria, such as price. Small businesses and startups who are looking for ideas on how to improve their business can browse, while those with something more specific in mind can see exactly what can be done within their budget. Showcase has resulted in more projects and contests being posted on the site. Freelancer Contests Freelancer contests gives employers the ability to crowdsource work and see the results before they pay across any of our almost 900 categories. In 2015, changes across the platform helped push posted contests to 51% year on year growth. Product improvements included expansion onto mobile devices, giving our users unprecedented control over their contest experience wherever they are in the world. We also continued our partnership with NASA, with our freelancers being tasked to build a robotic arm for astronauts aboard the International Space Station. Additionally, we vastly overhauled the user experience by allowing users to get their deliverables as text, video or image as well as being able to annotate their contest entries for better results. Improvements to Memberships In 2015 all membership funnels were significantly restructured, improving conversion rates and added more features to the offering. This drove a significant increase in paying subscribers and membership revenue. Customer Experience The Customer experience team responds to questions or queries from freelancers or employers for assistance. A major goal for 2015 which was achieved was eliminating the backlog of all support tickets and moving onto dynamic chat for all customer experience interactions going forward. This has been achieved, and represents a step change in the level of excellence offered to the Company’s users in navigating technical support questions. The Customer experience team experienced only moderate growth in headcount, as this function reaches operational maturity and a proven track record in supporting the Company’s operations. Warrior Forum In 2015 Warrior Forum passed through one million users, and has had an overhaul on its user interface. In 2015 Warrior Forum sent some of the most successful daily deal emails to date, breaking the previous records and demonstrating depth of engagement with its user base. StartCon Freelancer managed the SydStart conference for the first time in 2015. The event was attended by over 2,000 people including startup founders, small business owners, marketers, and sponsors. For the first time, Sydstart ran over 2 days, with 22 expert speakers on the main stage and a further 22 speakers taking part in workshops. Speakers came from as far afield as the USA, Indonesia, and Hong Kong. Following on from the success of the conference, Sydstart rebranded to become StartCon with the aim of providing a more regular calendar of events in FY16. Dividends paid or recommended There have been no dividends paid or provided for the financial year ended 31 December 2015 (2014: nil). The Company has established a Dividend Reinvestment Plan (DRP). The full terms and conditions of the DRP are available on the Company’s website, www.freelancer.com. 39 DIRECTORS’ REPORTFREELANCER LIMITED 2015 ANNUAL REPORTSignificant changes in state of affairs On 31 October 2015 the Group completed the acquisition of the business of Escrow.com, the leading provider of secure online payments and online transaction management for consumers and businesses on the Internet. There have been no other significant changes in the state of affairs for the current financial year. Subsequent Events As at the date of this report, the Directors are not aware of any circumstance that has arisen since 31 December 2015 that has significantly affected, or may significantly affect the Group’s operations in future financial years, the results of those operations in future financial years, or the Group’s state of affairs in future financial years. Future developments In future financial years, the Group expects to further its growth through expansions to other territories organically and by acquisition, and forming strategic alliances and partnerships. Environmental regulations The operations of the Group do not involve any activities that have a marked influence on the environment. As such, the Directors are not aware of any material issues affecting the Group or its compliance with the relevant environment agencies or regulatory authorities. Indemnification of officers and auditors During the financial year, the Group paid premiums based on normal commercial terms and conditions to insure all directors, officers and employees of the Group against the costs and expenses in defending claims brought against the individual while performing services for the Group. The premium paid has not been disclosed as it is subject to the confidentiality provisions of the insurance policy. The Company has not otherwise, during or since the financial year, except to the extent permitted by law, indemnified or agreed to indemnify an officer or auditor of the Company or of any related body corporate against a liability incurred as such an officer or auditor. The Company has previously entered into a Deed of Indemnity, Insurance and Access with each of its current Directors: R.M. Barrie, S.A. Clausen and D.N.J. Williams. The purpose of the Deed is to: • confirm and supplement, to the extent permitted by section 199A of the Corporations Act 2001, the indemnity provided by the Company in favour of Directors under the Company’s Constitution; • include an obligation, to the extent permitted by section 199B of the Corporations Act 2001, upon the Company to maintain adequate directors and officers’ liability insurance; and • confirm and supplement the right of access to certain documents under the Corporations Act. Rounding off of amounts The Company is an entity to which ASIC Class Order 98/100 applies. Accordingly amounts in the financial report have been rounded off to the nearest thousand dollars, unless otherwise stated. 40 DIRECTORS’ REPORTFREELANCER LIMITED 2015 ANNUAL REPORTMeetings of Directors During the financial year six meetings of Directors were held. Other matters arising during the year were resolved by circular resolutions. The following persons acted as Directors of the Company during the financial year, with attendances to meetings of Directors as follows: Director’s Meetings Audit Committee meetings Nomination and Remuneration meetings Eligible to attend Attended Eligible to attend Attended Eligible to attend Attended R.M. Barrie S.A. Clausen D.N.J. Williams 6 6 6 6 6 6 3 3 3 3 3 3 1 1 1 1 1 1 Non-audit services Details of amounts paid or payable to the auditor for non-audit services provided during the year by the auditor and its related parties amounted to $24,000 (2014: $38,000). The Directors are satisfied that the provision of non-audit services in the form of tax compliance services during the year by the auditor (or another person or firm on the auditors’ behalf) is compatible with the general standard of independence for auditors imposed by the Corporations Act. The Directors are of the opinion that the services as disclosed in Note 18 to the financial statements do not compromise the external auditor’s independence, based on advice received from the Audit Committee, 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 Code of Conduct APES 110 Code of Ethics for Professional Accountants issued by the Accounting Professional & Ethical Standards Board, including reviewing or auditing the auditors 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 audit partners of the auditor There are no officers of the Company who are former audit partners of Hall Chadwick. Auditor’s independence declaration The auditor’s independence declaration is included on page 42 and forms part of the Directors’ Report for the year ended 31 December 2015. Shares issued under Employee Share Plan (ESP) No ESP shares have been granted to Directors during the financial year. No ESP shares have been granted to Directors since the end of the financial year. Proceedings on behalf of Company No person has applied for leave of Court to bring proceedings on behalf of the Group or intervene in any proceedings to which the Group is a party for the purpose of taking responsibility on behalf of the Group for all or any part of those proceedings. The Group was not a party to any such proceedings during the year. 41 DIRECTORS’ REPORTFREELANCER LIMITED 2015 ANNUAL REPORTRemuneration Report – audited This audited Remuneration Report for the Group which forms part of the Directors’ Report for the financial year ended 31 December 2015, details the nature and amount of remuneration for each Director and the Executives. Key management personnel (KMP) comprise: • R.M. Barrie – Executive Chairman • S.A. Clausen – Non-Executive Director • D.N.J. Williams – Non-Executive Director from 1 November 2015 (Executive director until 31 October 2015) • N.L. Katz – Chief Financial Officer and Company Secretary Remuneration policy The performance of the Group depends upon the quality of its directors and executives. The Group recognises the need to attract, motivate and retain highly skilled directors and executives. The Board of Directors, through its Nomination and Remuneration Committee, accepts responsibility for determining and reviewing remuneration arrangements for the Directors and Executives. The Nomination and Remuneration Committee assesses the appropriateness of the nature and amount of remuneration of Directors and Executives on a periodic basis by reference to relevant employment market conditions, giving due consideration to the overall profitability and financial resources of the Group, with the objective of ensuring maximum stakeholder benefit from the retention of a high quality Board and executive team. Non-Executive Director remuneration Fees and payments to Non-Executive Directors reflect the demands which are made of the Directors in fulfilling their responsibilities. Non-Executive Director fees are reviewed annually by the Board. The Constitution of the Company provides that the Non-Executive Directors of the Company are entitled to such remuneration, as determined by the Board, which must not exceed in aggregate the maximum amount determined by the Company in general meeting. The most recent determination was at a General Meeting held on 9 October 2013 where the shareholders approved an aggregate remuneration of $300,000. Annual Non-Executive Directors’ fees currently agreed to be paid by the Company are $25,000 to S.A. Clausen and D.N.J. Williams inclusive of superannuation. Executive and Executive Director remuneration Fixed remuneration consists of base remuneration (which is calculated on a total cost basis and includes any fringe benefits tax charges related to employee benefits, including motor vehicles), as well as employer contributions to superannuation funds. Executive and Executive Director remuneration levels are reviewed annually by the Nomination and Remuneration Committee through a process that considers the overall performance of the Group. The Executive Directors are not paid any director fees in addition to their fixed remuneration as Executives. Performance based remuneration Performance based remuneration is at the discretion of the Nomination and Remuneration Committee. These can take the form of cash bonuses or invitations to participate in the Company’s Employee Share Plan (ESP). 42 DIRECTORS’ REPORTFREELANCER LIMITED 2015 ANNUAL REPORTRemuneration of Directors and Executives Remuneration shown below relates to the period in which the Director or Executive was a member of key management personnel. Amounts below have either been paid out or accrued in the period. Short Term benefits Post employment benefits Share based payments Director’s fees $ Cash salary and fees $ Other $ Super Annuation $ Shares $ Total $ Non-executive Directors: S.A Clausen 2015 2014 Executive Directors: R.M Barrie 2015 2014 D.N.J Williams1 2015 2014 Other Key Management Personnel: N.L Katz 2015 2014 22,884 22,619 - - 3,814 - - - - - - - 2,172 2,410 - - 25,056 25,029 486,139 368,593 26,466 32,376 231,650 274,600 12,450 11,136 25,904 26,859 22,102 25,744 16,038 554,547 16,038 443,866 20,047 290,063 20,047 331,527 292,610 262,225 15,182 11,136 25,575 18,095 33,260 366,627 19,459 310,915 1Darren Williams was an executive director until 31 October 2015. The remuneration of key management personnel in the years ended 31 December 2015 and 2014 were 100% fixed, and there is no link between remuneration and the market price of the Company’s shares. 43 DIRECTORS’ REPORTFREELANCER LIMITED 2015 ANNUAL REPORTESP shares Details of ESP shares in the Company held directly, indirectly or beneficially, by KMP, including their related parties, is as follows: Balance at the start of the year Granted / issued Released from restrictions Forfeited / cancelled Balance at the end of the year Balance of unvested ESP shares Balance of vested ESP shares 2015 Directors: R.M. Barrie D.N.J. Williams Other KMP: N.L. Katz Total 2014 Directors: R.M. Barrie D.N.J. Williams Other KMP: N.L. Katz Total 400,000 500,000 - - 459,461 200,000 1,359,461 200,000 400,000 500,000 - - 359,461 1,259,461 200,000 200,000 - - - - - - - - - - 400,000 500,000 183,334 229,167 216,666 270,833 (100,000) 559,461 372,242 (100,000) 1,459,461 784,743 187,219 674,718 - - 400,000 500,000 283,334 354,167 116,666 145,833 (100,000) 459,461 (100,000) 1,359,461 362,107 999,608 97,354 359,853 44 DIRECTORS’ REPORTFREELANCER LIMITED 2015 ANNUAL REPORTOrdinary share capital Details of ordinary shares in the Company held directly, indirectly or beneficially, by KMP, including their related parties, is as follows: 2015 Directors: R.M. Barrie1 S.A. Clausen D.N.J. Williams2 Other KMP: N.L. Katz3 Total 2014 Directors: R.M. Barrie1 S.A. Clausen D.N.J. Williams2 Other KMP: N.L. Katz3 Total Balance at the start of the year Received as part of remuneration Purchase of shares Sale of shares Balance at the end of the year 201,414,387 171,422,413 12,258,165 440,000 385,534,965 201,330,078 169,939,739 12,236,660 440,000 383,946,477 - - - - - - - - - - - (8,571,428) 192,842,959 1,077,587 (16,428,571) 156,071,429 - - (1,500,000) 10,758,165 (20,000) 420,000 1,077,587 (26,519,999) 360,092,553 84,309 1,482,674 21,505 - 1,588,488 - - - - - 201,414,387 171,422,413 12,258,165 440,000 385,534,965 Loans to directors and key management personnel The following loan balances are outstanding at the reporting date in relation to remuneration arrangements with Executive Directors and KMP in respect of shares issued under the Employee Share Plan (ESP). As the ESP is considered in substance a share option, the ESP shares issued and corresponding loan receivable are not recognised by the Group in its financial statements. The ESP shares will not be considered issued to participants until the corresponding loan has been repaid, at which time there will be an increase in the issued capital and increase in cash. Further information relating to the ESP is set out in the Note 21 to the financial statements. Directors: R.M. Barrie S.A. Clausen D.N.J. Williams Other KMP: N.L. Katz Total loans to Directors and KMP 1. 2. 3. 1,279,500 shares as at 31 December 2015 (2014: 1,279,500) are held directly or indirectly by related parties. 131,000 shares as at 31 December 2015 (2014: 131,000) are held directly or indirectly by related parties. 270,000 shares as at 31 December 2015 (2014: 290,000) are held directly or indirectly by related parties. 2015 $000 200 - 250 311 761 2014 $000 200 - 250 180 630 45 DIRECTORS’ REPORTFREELANCER LIMITED 2015 ANNUAL REPORTExecutive service agreements The employment terms and conditions of Group Executives and KMP are formalised in service agreements. Position Key terms of service agreements • Term: unspecified. Chief Executive Officer • Base remuneration: Reviewed annually by the Nomination and Remuneration Committee. • Bonus entitlements: Determined annually by the Nomination and Remuneration Committee (capped at 50% of the base remuneration). • Termination notice period: 6 months notice or alternatively in Freelancer’s case, payment in lieu of notice. • Restraint of trade period: 12 months. Other Executives are employed under individual executive services agreements. These establish, amongst other things: Other Executives • total compensation; • eligibility to participate in the ESP; • variable notice and termination provisions of up to 3 months, or by the Group without notice in the event of serious misconduct; and • restraint and confidentiality provisions. Other transactions with KMP or their related parties There were no other transactions conducted between the Group and KMP or their related parties, other than those disclosed above relating to equity, compensation and loans, that were conducted other than in accordance with normal employee, customer or supplier relationships on terms no more favourable than those reasonably expected under arm’s length dealings with unrelated persons, apart from related party transactions disclosed in Note 22 to the financial statements. This concludes the Remuneration Report. Additional information The following table shows the net revenue, profits/(losses) and dividends for the last six years of the Company, as well as the share prices at the end of the respective financial years. Revenue ($000s) Net profit / (loss) ($000s) Share price at year end ($) Dividends paid (cps) 2010 4,702 555 n/a Nil 2011 6,460 (476) n/a Nil 2012 10,627 728 n/a Nil 2013 18,761 753 $1.38 Nil 2014 26,087 (1,847) $0.65 Nil 2015 38,604 (2,805) $1.80 Nil The Directors’ Report, incorporating the Remuneration Report, is signed in accordance with a resolution of the directors made pursuant to s298(2) of the Corporations Act 2001. On behalf of the Directors Matt Barrie Chairman 23 February 2016 46 DIRECTORS’ REPORTFREELANCER LIMITED 2015 ANNUAL REPORTAuditor’s Independence Declaration FREELANCER LIMITED ABN 66 141 959 042 AND CONTROLLED ENTITIES INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF FREELANCER LIMITED AND CONTROLLED ENTITIES I declare that, to the best of my knowledge and belief, during the year ended 31 December 2015 there have been: (a) no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit, and (b) no contraventions of any applicable code of professional conduct in relation to the audit. Hall Chadwick Hall Chadwick Level 40, 2 Park Street Sydney NSW 2000 GRAHAM WEBB Partner Dated: 23 February 2016 47 AUDITOR’S INDEPENDENCE DECLARATIONFREELANCER LIMITED 2015 ANNUAL REPORTCORPORATE GOVERNANCE STATEMENT Freelancer Limited (the Company) is committed to implementing the highest possible standards of corporate governance and ensures, wherever possible, that its practices are consistent with the Third Edition of the Australian Securities Exchange (ASX) Corporate Governance Council’s Principles and Recommendations. Each of the eight principles is listed in turn. In certain circumstances, due to the size and stage of development of the Company and its operations, it may not be practicable or necessary to implement the ASX Principles in their entirety. As such, the Company has identified the areas of divergence. The Policies and Charters referred to in this Corporate Governance Statement are available on the Company’s website, www.freelancer.com. Principle 1 – Lay solid foundations for management and oversight The Board’s responsibilities are encompassed in a Charter which is available on the Company’s website, www.freelancer.com. The Board is responsible for, and has the authority to determine, all matters relating to the strategic direction, policies, practices, establishing goals for management and the operation of the Company. Without intending to limit this general role of the Board, the specific functions and responsibilities of the Board include: 1. oversight of the Company, including its control and accountability systems; 2. appointing and removing the Managing Director; 3. appointing and removing the Company Secretary; 4. board and executive management development and succession planning; 5. input into and final approval of corporate strategy; 6. input into and final approval of the annual operating budget (including the capital management budget); 7. approving and monitoring the progress of major capital expenditure, capital management and acquisitions/divestitures; 8. monitoring compliance with all relevant legal, tax and regulatory obligations; 9. reviewing and monitoring systems of risk management, internal compliance and controls; 10. codes of conduct, continuous disclosure, legal compliance and other significant corporate policies; 11. at least annually, reviewing the effectiveness of the Company’s implementation of its risk management system and internal control framework; 12. monitoring executive management’s performance and implementation of strategy and policies, including assessing whether appropriate resources are available; 13. approving and monitoring financial and other reporting to the market, shareholders, employees and other stakeholders; and 14. appointment, reappointment or replacement of the external auditor. Key responsibilities of the Board include the overseeing of the strategic direction of the Company, determining its policies and objectives and monitoring executive management performance. Other matters are within the responsibility of management. The management function is conducted by, or under the supervision of, the Chief Executive Officer as directed by the Board (and by officers to whom the management function is properly delegated by the Chief Executive Officer). Management must supply the Board with information in a form, timeframe and quality that will enable the Board to discharge its duties effectively. Directors are entitled to request additional information at any time they consider it appropriate. 48 CORPORATE GOVERNANCE STATEMENTFREELANCER LIMITED 2015 ANNUAL REPORTTo assist in carrying out its responsibilities, the Board has established the following committees of its members. They are: 1. Audit Committee; and 2. Nomination and Remuneration Committee. The Chief Executive Officer and Senior Executive management have service contracts and position descriptions, setting out their duties, responsibilities, and conditions of service and termination entitlements. Any new Directors appointed will receive formal letters of appointment setting out the key terms, conditions and expectations of their appointment. In addition, the Nomination and Remuneration Committee will engage external consultants to perform appropriate background checks on candidates for appointment as a director. The Chief Executive Officer and Senior Executive management are subject to a formal performance review process on an annual basis. The Nomination and Remuneration Committee reviews the performance of the Chief Executive Officer and Senior Executive management against clear performance objectives. A performance review was undertaken in 2015. The Company Secretary of the Company plays an important role in supporting the effectiveness of the Board and its Committees. The role of the Company Secretary includes: 1. advising the Board and its Committees on governance matters; 2. monitoring that Board and Committee Policy and Procedures are followed; 3. coordinating the timely completion and despatch of Board and Committee papers 4. ensuring that the business at Board and Committee meetings is accurately captured in the minutes; and 5. helping to organise and facilitate the induction and professional development of directors. Each director is able to communicate directly with the Company Secretary and vice versa. The decision to appoint or remove a Company Secretary is made or approved by the Board. Diversity Policy In accordance with the ASX Recommendations on diversity, the Board established a Diversity Policy in 2013 which includes: 1. the establishment of measurable objectives for achieving diversity; and 2. a requirement for the Board to assess annually both these objectives and the progress in achieving them. The Policy is available on the Company’s website, www.freelancer.com, and the assessments will be reported in future Annual Reports. The Company understands that encouraging diversity in our organisation is not just a socially responsible necessity and that it is essential to our continued growth and vital to a successful future. Given the size and nature of the current Board, the business and the industry in which we operate and therefore compete for talent, we determined not to establish measurable objectives for achieving diversity for the 2015 financial year. We assess the need for measurable objectives at least annually. Once measurable objectives are established, the internal diversity team will oversee the implementation of any new initiatives and regularly review existing initiatives to ensure and promote diversity. As at 31 December 2015, the proportion of women employed by the Company was as follows: • • • Board of Directors: 0% Senior Executive positions: 0% Total Company workforce: 34% 49 CORPORATE GOVERNANCE STATEMENTFREELANCER LIMITED 2015 ANNUAL REPORTWorkplace Gender Equality The Workplace Gender Equality Act 2012 (WGE Act) puts a focus on promoting and improving gender equality and outcomes for both women and men in the workplace. All non-public sector employers with 100 or more employees are required to report annually under the WGE Act. A copy of the Company’s 2015 report to the Workplace Gender Equality Agency is available on the Company’s website, www. freelancer.com/investor. Principle 2 – Structure the Board to add value The Board has established a Nomination and Remuneration Committee which is responsible for: 1. assisting the Board with establishing a board of effective composition, size, diversity and commitment to adequately discharge its responsibilities and duties, and assist the Board with discharging its responsibilities to shareholders and other stakeholders to seek to ensure that the Company has policies to evaluate the performance of the Board, individual Directors and executives on (at least) an annual basis; 2. ensuring that the Company’s remuneration policies, practices and structures are coherent, equitable and aligned with the long-term interests of the Company and its shareholders, having regard to relevant policies in attracting and retaining skilled executives that are challenging and will create value for shareholders; 3. the review and monitoring of the Company’s remuneration and incentive framework applying to Non-Executive Directors, Executive Directors and Senior Executives and the associated strategies, systems, policies and processes implemented, and reported on, by management; 4. ensuring that the Company fairly and responsibly remunerates Directors and executives, having regard to the performance of the Company, the performance of the executives and the general remuneration environment; 5. ensuring that the Company has policies and procedures to attract, motivate and retain appropriately skilled and diverse persons to meet the Company’s needs; 6. approving the remuneration and incentive awards of Senior Executives based on the recommendations of the Managing Director; 7. approval of pools of annual grants of equity and any other individual equity offers to Senior Executives and other Executives; and 8. identifying suitable candidates to complement the existing Board and to make recommendations to the Board on their appointment. Where a candidate is recommended by the Nomination and Remuneration Committee, the Board will assess that candidate against a range of criteria including background, experience, professional qualifications, personal qualities and cultural fit with the Board and the Company, as well as the potential for the candidate’s skills to augment the skills of the existing Board. If these criteria are met and the Board appoints the candidate as a director, that director must have their appointment confirmed at the next Annual General Meeting. Before appointing a director, the Company undertakes comprehensive checks including employment, character reference, criminal record, experience, education and bankruptcy history. The Committee’s functions are to review and make recommendations to the Board on: 1. the review and monitoring and recommendation of changes to the remuneration and incentive framework (including the equity plan framework and any diversity considerations) for Non-Executive Directors, Executive Directors and Senior Executives; 2. the remuneration of Non-Executive Directors; 3. the fixed remuneration levels and incentive awards for the Managing Director and any other Executive Directors; 50 CORPORATE GOVERNANCE STATEMENTFREELANCER LIMITED 2015 ANNUAL REPORT4. performance based measures (financial and non-financial), targets and performance outcomes under incentive plans for the Executive Directors and Senior Executives; and 5. whether the directors as a group have the skills, knowledge and familiarity with the Company and its operating environment required to fulfil their role on the Board and on Board Committees effectively and, where any gaps are identified, consider what training or development could be undertaken to fill those gaps. The Company provides resources to help develop and maintain its directors’ skills and knowledge. This includes, in the case of a director who does not have specialist accounting skills or knowledge, ensuring that he or she has a sufficient understanding of accounting matters to fulfil his or her responsibilities in relation to the entity’s financial statements. It also includes, for all directors, ensuring that they receive ongoing briefings on developments in accounting standards. The Board reviews its performance and composition on an annual basis to ensure that it has the appropriate mix of expertise and experience. The Board also reviews the performance and composition of its committees on an annual basis. The Nomination and Remuneration Committee meets as frequently as required and at least once a year. The quorum for such meetings is two members. Details of the Committee members’ attendance at Committee meetings are set out in the Directors’ Report. The Board determines the Board’s size and composition, subject to limits imposed by the Company’s Constitution. The Constitution provides for a minimum of three Directors and a maximum of ten. At this time the Board comprises of three Directors, one of whom is an executive director and two of whom who are non-executive directors and all are not independent directors, including the Chairman. A Director is deemed to be independent if he or she is a Non-Executive Director and: 1. is not a substantial shareholder of the Company or an officer of, or otherwise associated directly with, a substantial shareholder of the Company; 2. has not been employed in an executive capacity in the Company in the last three years, or has not been a director after ceasing to hold such employment; 3. within the last three years has not been a partner or a senior management executive with audit responsibilities of a firm which has acted in the capacity of statutory auditor of the Company; 4. has not acted as a material consultant, or an employee materially associated with the service provided, to the Company in the last three years; 5. is not a material supplier or customer of the Company, or an officer of or otherwise associated directly or indirectly with a material supplier or customer; 6. has no material contractual relationship with the Company other than as a Director; and 7. is free from any interest or business or other relationship which could materially interfere with his or her ability to act in the best interests of the Company and independently of management. The test of independence for Directors is set out in detail under section 8 of the Board Charter, which is available on the Company’s website, www.freelancer.com. Materiality thresholds referred to above are assessed on a case-by-case basis. The Board does not consist of a majority of independent Directors and the Chairman is not an Independent Director. The Board acknowledges the ASX Recommendation that a majority of the Board should be Independent Directors and that the Chairman should be an Independent Director. The Board believes that the Directors are able, and do make, quality and independent judgement in the best interests of the Company on all relevant issues before the Board. The Board considers that the Company is not currently of a size, nor are its affairs of such complexity, to justify the expense of the appointment of a majority of independent Directors. The Board also believes that each of the Directors brings objective and independent judgement to the Board’s deliberations and that each of the Directors makes invaluable contributions to the Company through their deep understanding of the Company’s business. 51 CORPORATE GOVERNANCE STATEMENTFREELANCER LIMITED 2015 ANNUAL REPORTThe Board aims to attract and maintain a Board which has an appropriate mix of skills, experience, expertise and diversity. For the names and particulars of the Directors of the Company during or since the end of the financial year, refer to the Directors’ Report. In order to facilitate independent judgement in decision making, each Director may seek independent professional advice at the Company’s expense. If advice is sought by the Chairman, he must obtain Board approval if the fees for such advice exceed $50,000 (exclusive of GST), such approval is not to be unreasonably withheld. Where advice is sought by the other Directors, prior written approval by the Chairman is required but approval will not be unreasonably withheld. If the Chairman refuses to give approval, the matter must be referred to the Board. All Directors are made aware of the professional advice sought and obtained. Matt Barrie exercises both the role of Chairman and Chief Executive Officer of the Company. The Board acknowledges the ASX Recommendation that these roles should not be exercised by the same individual. The Board believes that Matt Barrie is the most appropriate person to lead the Board as Executive Chairman and that he is able to and does bring quality and independent judgement to all relevant issues falling within the scope of the role of Chairman and that the Company as a whole benefits from his long standing experience of its operations and business relationships. The Nomination and Remuneration Committee of the Board comprises of an Executive Director and two Non-Executive Directors, Messrs. R.M. Barrie, D.N.J. Williams and S.A. Clausen. None of the committee members are independent. Mr Clausen, who is a Non-Executive Director, is the Committee Chairman. The Committee Charter which is available on the Company’s website, www. freelancer.com, details the process and timing for re-election of directors. The Board’s policy for nomination and appointment of Directors also forms part of the Charter. The Company Constitution states that at each Annual General Meeting (AGM) one-third of the Directors for the time being, or if their number is not three or a multiple of three, then the nearest number greater than one-third, shall retire from office. A retiring Director shall be eligible for re-election. No Director (other than a Managing Director) may hold office without re-election past the third annual general meeting following their appointment or three years, whichever is longer or, in the case of a Director appointed by the Directors as an additional Director or to fill a casual vacancy, past the next annual general meeting of the Company. Any Director appointed by the Board since the last AGM must stand for election at the next AGM. Subject to normal privacy requirements, each Director has the right of access to all of the Company’s records, information and Senior Executives. They receive regular detailed reports on financial and operational aspects of the Company’s business and may request elaboration or explanation of these reports at any time. Directors and Executives are encouraged to broaden their knowledge of the Company’s business and to keep abreast of developments in business more generally by attendance at relevant courses, seminars, conferences, etc. The Company meets expenses involved in such activities. Principle 3 – Act Ethically and Responsibly The Board recognises the need to observe high standards of corporate practice and business conduct. Accordingly, the Board of Directors has adopted a formal Code of Conduct to be followed by all personnel and officers. The Code of Conduct also sets out the Company’s policies on various matters including ethical conduct, business conduct, compliance, privacy, security of information, bribery and corruption, and conflicts of interest. The Code of Conduct is to be followed by all Directors, officers, employees, consultants of the Company and any entity related to or owned by the Company, and any other person when they represent the Company or any entity related to or owned by the Company. A copy of the Code is made available to Directors, officers, employees, consultants and relevant personnel and is available on our website, www.freelancer.com. The Board has also implemented a range of procedures designed to oversee that the Company complies with the law and achieves high ethical standards in identifying and resolving or managing conflicts of interest. As a part of active promotion of high standards of corporate practice and business conduct, behaviour that does not comply with the Code is encouraged to be reported. Protection is afforded to those who report violations in good faith. 52 CORPORATE GOVERNANCE STATEMENTFREELANCER LIMITED 2015 ANNUAL REPORTThe Company’s Securities Trading Policy generally allows all Key Management Personnel and other employees of the Company or a related body corporate of the Company, consultants and advisers, and any other person designated by the Board to deal in the Company’s securities other than: 1. during a Blackout Period (the period from the close of trading on the ASX at the end of each half year and full year until the close of trading on the day following the announcement to the ASX of the half year or full year results, or any other period that the Board specifies from time to time); or 2. while in possession of inside information concerning the Company (whether or not it is a Blackout Period) either: a. buy or sell the Company’s securities at any time; b. procure another person to deal in the Company’s securities in any way; or c. directly or indirectly, communicate the information, or cause the information to be communicated, to another person if the person knows, or ought reasonably to know, that the other person would, or would be likely to: i. deal in the Company’s securities in any way; ii. procure a third person to deal in the Company’s securities in any way; or iii. pass that information onto another person. All Key Management Personnel and other employees are prohibited from dealing in the securities of outside companies about which they acquire inside information through their position with the Company (whether or not it is a Blackout Period). Principle 4 – Safeguard integrity in corporate reporting The Board has established an Audit Committee comprising one Executive Director and two Non-Executive Directors, with appropriate experience. Each Committee Member must be financially literate, have familiarity with financial management and an understanding of the industry in which the Company operates. At least one Committee Member should have financial expertise (that is, be a qualified accountant or other financial professional with financial and accounting experience). Currently, the Committee comprises of Mr R.M. Barrie, Mr D.N.J. Williams (Chairman) and Mr S.A. Clausen. The members of the Committee are not independent Directors. The Chairman of the Committee is not Chairman of the Board. The Board acknowledges the ASX Recommendations that the Audit Committee should consist only of non-executive Directors, have a majority of independent Directors and be chaired by an independent chair. Due to the structure of the Board, the Company is not currently able to comply with this Recommendation. However, the Board believes that the experience and industry knowledge of the members of the Audit Committee will ensure objective and independent judgement in carrying out their responsibilities on this Committee. The Board will review the composition of the Audit Committee at an appropriate time in the future. Appropriate management and representatives of the external auditor are to attend Committee meetings, at the invitation of the Committee Chairman, to provide reports and periodic presentations to the Committee. The external auditors have a direct line of communication at any time to either the Chairman of the Audit Committee or the Chairman of the Board. The Audit Committee is responsible for: 1. overseeing the process of financial reporting, internal control, continuous disclosure, financial and non-financial risk management, compliance and external audit; 2. encouraging effective relationships with, and communication between, the Board, Management and the Company’s external auditor; 53 CORPORATE GOVERNANCE STATEMENTFREELANCER LIMITED 2015 ANNUAL REPORT3. evaluating the adequacy of processes and controls established to identify and manage areas of potential financial risk and to seek to safeguard the assets of the Company; 4. overseeing that all proper remedial action is undertaken to redress areas of weakness; 5. overseeing the Company’s compliance with prescribed policies; 6. reporting to the Board on any of the above responsibilities and functions; 7. recommending to the Board the appointment, reappointment or replacement of the external auditor; 8. approving rotation of partners of the external auditor; 9. reviewing and approving the audit plans and engagement letters of the external auditor, including payment of annual fees and variations to approved fees; 10. reviewing the overall scope of the external audit, including identified risk areas and any additional agreed-upon procedures; 11. considering the overall effectiveness and independence of the external auditor; and 12. resolving any disagreements between management and the external auditor regarding financial reporting. The Committee has a formal Charter which is available on the Company’s website, www.freelancer.com. The Committee meets as frequently as required and will meet at least twice a year. The quorum for such meetings is two members. Details of the Committee members’ attendance at Committee meetings are set out in the Directors’ Report. The minutes of each Committee meeting are reviewed at the subsequent Board meeting and signed as an accurate record of proceedings. At the subsequent Board meeting, the Chairman of the Committee reports on the Committee’s conclusions and recommendations. The Directors’ Declarations are set out in the Directors’ Declaration section approving the Company’s financial statements for the financial period of 2015, received from the CEO and CFO. The Company also requests the external auditor attend the Annual General Meeting and be available to answer shareholder questions about the audit and the preparation and content of the audit reports. Principle 5 – Make timely and balanced disclosure The Company has established a Continuous Disclosure Policy which applies to and is to be followed by all directors, officers, employees, consultants of the Company and any entity related to or owned by the Company, and any other person when they represent the Company or any entity related to or owned by the Company. The Policy outlines the Company’s commitment to complying with the continuous disclosure obligations contained in the ASX Listing Rules (Listing Rules) and the Corporations Act 2001 (Cth) (the Act). The Policy is designed to provide a practical guide to the Company and its directors, officers, employees and consultants with practical guidance on the continuous disclosure obligations and to assess whether any particular information or event is required to be disclosed to the ASX. The Board recognizes the need to ensure that the management and dissemination of accurate market sensitive information is made in accordance with the requirements of the Listing Rules and the Act so that all shareholders and market participants have an equal opportunity to participate in a fair, orderly and transparent market in the securities of the Company. Type of information that needs to be disclosed The Company must immediately notify the ASX of any information that a reasonable person would expect to have a material effect on the price of value of the Company’s securities, unless that information is within the exceptions to the disclosure requirement as set out in the Listing Rules and the Act. Examples of such information include a change in financial forecasts, revenue, significant changes in asset values or significant transactions. All information disclosed to the ASX is provided to Directors as soon as possible after the ASX has confirmed receipt of same. 54 CORPORATE GOVERNANCE STATEMENTFREELANCER LIMITED 2015 ANNUAL REPORTASX Communications Officer The Board has appointed the Company Secretary as the principle officer for communicating with the ASX in relation to all Listing Rule matters, overseeing the disclosure of information to the ASX and coordinating the review process for deciding whether any information or event is required to be disclosed monitoring the disclosure practices of the Company. Principle 6 – Respect the rights of security holders The Board’s aim is to ensure that Shareholders are provided with sufficient information to assess the performance of the Company and that they are informed of all major developments affecting the state of affairs of the Company relevant to Shareholders in accordance with all applicable laws. Information will be communicated to Shareholders through the lodgement of all relevant financial and other information with ASX and publishing information on the Company’s website, www.freelancer.com. In particular, the Company’s website will contain information about it, including media releases, key policies and the terms of reference of its Board committees. A link to all relevant announcements made to the market and any other relevant information will be available on the Company’s website as soon as they have been released to the ASX. The Company also communicates with shareholders through the: 1. Annual Reports and Financial Statements which are available to all shareholders; 2. invitation to the annual general meeting and all accompanying papers; 3. Company’s website, www.freelancer.com; 4. reports to the ASX and the press; 5. half year and full year profit announcements; and 6. information and presentations to analysts (which are released to the ASX). Shareholders may send communications to the Company and its share registry provider electronically. The relevant contact details are under “Shareholder Information” in the Investor section of the Company’s website. Shareholders who do not currently receive electronic communications may update their communication preferences via a secure, online service offered by the Company’s share registry provider. The Annual General Meeting also provides an important opportunity for shareholders to express their views and respond to initiatives being proposed by the Board. In accordance with Principle 6 of the ASX Principles, the Company has established a Communications Policy, incorporating matters disclosed above. The Policy is available on the Company’s website, www.freelancer.com. Principle 7 – Recognise and manage risk Risk oversight and management policies The identification and proper management of the Company’s risks are an important priority of the Board. The Company has adopted a Risk Management Policy appropriate for its business. The Policy highlights the risks relevant to the Company’s operations and the Company’s commitment to designing and implementing systems and methods appropriate to minimise and control its risks. The Board is responsible for overseeing and approving risk management strategy and policies. 55 CORPORATE GOVERNANCE STATEMENTFREELANCER LIMITED 2015 ANNUAL REPORTThe Board acknowledges the ASX recommendation that the Company should have a Risk Committee. Due to the size and scale of operations of the Company, a Risk Committee is not established and the Board oversees the risk management framework. Management is responsible for identifying major risk areas and monitoring risk management to provide assurance that major business risks are identified, consistently assessed and appropriately addressed and must report on these matters to the Board. The Company will regularly undertake reviews of its risk management procedures to ensure that it complies with its legal obligations, including assisting the Managing Director and Chief Financial Officer to provide the required declarations under section 295A of the Corporations Act. The Company has in place a system whereby management is required to report as to its adherence to policies and guidelines approved by the Board for the management of risks. The key aspects of this Risk Management Policy are: 1. Establishing the context; 2. Risk identification; 3. Risk analysis; 4. Risk evaluation; 5. Risk treatment; 6. Communication & consultation; and 7. Monitoring and review. As required by the ASX Principles, Executive management has reported to the Board on the effectiveness of the management of its material business risks. The ultimate responsibility for risk oversight and management rests with the Board. Due to the size and scale of operations of the Company, there is no separate internal audit function. The Company monitors its exposure to risks to the business including economic, social, governance, and environmental sustainability risks. Material business risks are described in the Company FY2015 Annual Report, which also outlines the Company’s key business activities and performance during the year, as well as its key strategies. Principle 8 – Remunerate fairly and responsibly The Board has established a Nomination and Remuneration Committee to consider and report on, among other matters, remuneration policies and packages applicable to Board members and to Senior Executives of the Company. Currently, the Committee comprises of Mr R.M. Barrie, Mr D.N.J. Williams and Mr S.A. Clausen (Chairman). The members of the Committee are not independent Directors. The Chairman of the Committee is not Chairman of the Board. The objectives of the Company’s Nomination and Remuneration Committee (Committee) are to assist the Board in fulfilling its corporate governance responsibilities in relation to: a. remuneration matters, including: i. the remuneration framework for Non-Executive Directors; ii. the remuneration and incentive framework, including any proposed equity incentive awards, for the Managing Director, any other Executive Directors and all executives that report directly to the Managing Director (Senior Executives); iii. recommendations and decisions (as relevant) on remuneration and incentive awards for the Managing Director, any other Executive Directors and Senior Executives; and iv. strategic human resources policies; and 56 CORPORATE GOVERNANCE STATEMENTFREELANCER LIMITED 2015 ANNUAL REPORTb. nomination matters, including: i. Board appointments, re-elections and performance; ii. Directors’ induction programs and continuing development; iii. Committee membership; iv. endorsement of Senior Executive appointments; and v. diversity obligations. The Managing Director, appropriate management and representatives of any external adviser are to attend such portion of each meeting as requested by the Committee Chairman. An Executive is not to be present when the Committee discusses issues relating to that Executive. The Committee will review and make recommendations to the Board on remuneration matters, including: a. the review and monitoring and recommendation of changes to the remuneration and incentive framework (including the equity plan framework and any diversity considerations) for Non-Executive Directors, Executive Directors and Senior Executives; b. the remuneration of Non-Executive Directors; c. the fixed remuneration levels and incentive awards for the Managing Director and any other Executive Directors; and d. performance based measures (financial and non-financial), targets and performance outcomes under incentive plans for the Executive Directors and Senior Executives. 57 CORPORATE GOVERNANCE STATEMENTFREELANCER LIMITED 2015 ANNUAL REPORTConsolidated Statement of Profit or Loss and Other Comprehensive Income For the year ended 31 December 2015 Revenue Cost of sales Gross profit Employee expenses Administrative expenses Marketing related expenses Occupancy expenses Foreign exchange losses Depreciation and amortisation expenses Share based payments expense Finance costs Loss before income tax Income tax benefit Loss after tax Other comprehensive income Items that may be reclassified to profit or loss: Exchange differences on translation of foreign operations Total comprehensive loss for the year Earnings per share Basic earnings per share Diluted earnings per share Note 5 6 6 6 6 21 6 7 28 28 2015 $000 38,604 (5,125) 33,479 2014 $000 26,087 (3,360) 22,727 (17,857) (14,307) (7,908) (6,919) (2,660) (126) (511) (1,164) - (5,398) (2,803) (2,077) (241) (338) (388) (1) (3,666) (2,826) 861 (2,805) 980 (1,847) (54) (2,859) Cents (0.64) (0.62) (83) (1,930) Cents (0.43) (0.42) The above Statement of Profit or Loss and other Comprehensive Income should be read in conjunction with the accompanying notes. 58 CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOMEFREELANCER LIMITED 2015 ANNUAL REPORTConsolidated Statement of Financial Position As at 31 December 2015 Assets Current assets Cash and cash equivalents Trade and other receivables Current tax assets Other assets Total current assets Non-current assets Trade and other receivables Plant and equipment Intangible assets Other assets Deferred tax assets Total non-current assets Total assets Liabilities Current liabilities Trade and other payables Current tax liabilities Provisions Deferred revenue Total current liabilities Non-current liabilities Deferred tax liabilities Provisions Total non-current liabilities Total liabilities Net assets Equity Contributed equity Reserves Accumulated losses Total equity Note 2015 $000 2014 $000 8 9 7 10 9 11 12 10 7 13 7 14 7 14 15 16 32,246 3,359 3 823 20,210 2,750 - 661 36,431 23,621 214 1,652 23,850 601 2,865 29,182 191 1,113 12,953 488 1,822 16,567 65,613 40,188 28,423 51 1,173 808 30,455 3 248 251 21,759 4 1,120 388 23,271 1 104 105 30,706 23,376 34,907 16,812 37,310 1,218 (3,621) 34,907 17,520 108 (816) 16,812 The above Statement of Financial Position should be read in conjunction with the accompanying notes. 59 CONSOLIDATED STATEMENT OF FINANCIAL POSITIONFREELANCER LIMITED 2015 ANNUAL REPORTConsolidated Statement of Changes in Equity For the year ended 31 December 2015 Contributed equity $000 Note Share based payments $000 Foreign currency translation reserve $000 Retained earnings (accumulated losses) $000 Total equity $000 Balance at 1 January 2014 17,556 33 (230) 1,031 18,389 Loss for the year Exchange differences on translation of foreign operations Total comprehensive loss for the year Transactions with owners in their capacity as owners: Contributions of equity arising from repayment of ESP loans Equity raising costs (net of tax) relating to prior year shares issued Share based payments Balance at 31 December 2014 16 15 15 21 - - - 14 (50) - 17,520 - - - - 388 421 - (83) (83) - - - (1,847) (1,847) - (83) (1,847) (1,930) - - - 14 (50) 388 (313) (816) 16,812 Contributed equity $000 Note Share based payments $000 Foreign currency translation reserve $000 Accumulated losses $000 Total equity $000 Balance at 1 January 2015 17,520 421 (313) (816) 16,812 Loss for the year Exchange differences on translation of foreign operations 16 Total comprehensive loss for the year Transactions with owners in their capacity as owners: Contributions of equity arising from repayment of ESP loans Issue of ordinary shares Equity raising costs (net of tax) Share based payments Balance at 31 December 2015 15 15 15 21 - - - 118 20,000 (328) - 37,310 - - - - - 1,164 1,585 - (54) (54) - - - - (2,805) (2,805) - (54) (2,805) (2,859) - - - - 118 20,000 (328) 1,164 (367) (3,621) 34,907 The above Statement of Changes in Equity should be read in conjunction with the accompanying notes. 60 CONSOLIDATED STATEMENT OF CHANGES IN EQUITYFREELANCER LIMITED 2015 ANNUAL REPORTConsolidated Statement of Cash Flows For the year ended 31 December 2015 Note 2015 $000 2014 $000 Cash flows from operating activities Receipts from customers (inclusive of GST and VAT) Payments to suppliers and employees (inclusive of GST and VAT) Interest received Interest paid Income taxes refunded / (paid) 38,511 (37,228) 170 - 5 Net cash inflow / (outflow) from operating activities 27 1,458 Cash flows from investing activities Payments for plant and equipment Payments for intangible assets Payments for other assets Payments for acquisition of subsidiary, net of cash acquired Net cash (outflow) from investing activities Cash flows from financing activities Proceeds from issue of shares Contributions of equity arising from repayment of ESP loans Equity raising costs Net cash inflow (outflow) from financing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of the financial year Effects of exchange rate changes on cash and cash equivalents Cash and cash equivalents at end of year 24 15 16 8 (967) (8) - (10,258) (11,233) 20,000 118 (468) 19,650 9,875 (5,150) 20,210 2,161 32,246 24,387 974 20,210 26,105 (26,210) 206 (1) (195) (94) (890) (43) (374) (3,691) (4,998) - 14 (71) (57) The above Statement of Cash Flows should be read in conjunction with the accompanying notes. 61 CONSOLIDATED STATEMENT OF CASH FLOWSFREELANCER LIMITED 2015 ANNUAL REPORTNotes to the financial statements for the financial year ended 31 December 2015 TABLE OF CONTENTS 1. Reporting entity 2. Basis of preparation 3. Financial risk management 4. Operating segments 5. Revenue 6. Expenses 7. Income tax 8. Cash and cash equivalents 9. Trade and other receivables 10. Other Assets 11. Plant and equipment 12. Intangible assets 13. Trade and other payables 14. Provisions 15. Contributed entity 63 63 64 68 69 70 71 74 74 75 75 77 79 79 80 16. Equity - Reserves 17. Key management personnel disclosures 18. Remuneration of auditors 19. Contingent liabilities 20. Commitments for expenditure 21. Share based payments 22. Related party transactions 23. Parent entity information 24. Business combinations 25. Interests in controlled entities 26. Events occuring after the reporting date 27. Reconciliation of loss after tax to net cash flow from operating activities 28. Earnings per share (EPS) 29. Other significant accounting policies 81 81 82 83 83 84 87 88 89 90 91 91 91 92 6262 NOTES TO THE FINANCIAL STATEMENTSFREELANCER LIMITED 2015 ANNUAL REPORT1. Reporting entity Freelancer Limited (the Company) is a company domiciled in Australia. The address of the Company’s registered office is Level 20, 680 George Street, Sydney, NSW, 2000. The consolidated financial statements of the Company as at and for the year ended 31 December 2015 comprise the Company and its subsidiaries (together referred to as the Group and individually as Group entities). The Group is a for-profit entity and primarily is involved in operating an online marketplace for services and providing escrow payment services. The separate financial statements of the parent entity, Freelancer Limited, have not been presented within this financial report as permitted by the Corporations Act 2001. The consolidated financial statements were authorised for issue by the Board on 23 February 2016. 2. Basis of preparation These general purpose financial statements have been prepared in accordance with Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board and the Corporations Act 2001. (a) Compliance with International Financial Reporting Standards The consolidated financial statements of the Group comply with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). (b) Historical cost convention The consolidated financial statements have been prepared on the historical cost basis unless otherwise stated in the notes. Except for the cash flow information, the financial statements have been prepared on an accrual basis, modified, where applicable, by the measurement at fair value of selected non-current assets, financial assets and financial liabilities. (c) Functional and presentation currency These consolidated financial statements are presented in Australian dollars, which is the Company’s functional currency. (d) Critical accounting estimates The preparation of financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 28(g). (e) Significant accounting policies The principal accounting policies adopted in the presentation of these consolidated financial statements are set out in the relevant notes. The policies have been consistently applied to all the years presented, unless otherwise stated. (f) Rounding of amounts The Company has applied the relief available to it under ASIC Class Order 98/100. Accordingly, amounts in the financial statements and Directors’ Report have been rounded off to the nearest $1,000. 63 NOTES TO THE FINANCIAL STATEMENTSFREELANCER LIMITED 2015 ANNUAL REPORT3. Financial risk management Financial risk management policies The Group’s activities expose it to a variety of financial risks: market risk (including currency risk), credit risk and liquidity risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. The Group uses 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 other price risks and ageing analysis for credit risk. Risk management is carried out by senior finance executives (Finance) under policies approved by the Board of Directors (Board). These policies include identification and analysis of the risk exposure of the Group and appropriate procedures, controls and risk limits. Finance identifies, evaluates and hedges financial risks within the Group’s operating units. The Group holds the following financial instruments: Financial Assets Cash and cash equivalents Trade and other receivables Total financial assets Financial Liabilities Trade and other payables Total financial liabilities Note 2015 $000 2014 $000 8 9 13 32,246 3,573 35,819 20,210 2,941 23,151 28,423 28,423 21,759 21,759 The carrying value of the assets and liabilities disclosed in the table above closely approximates or equals their fair value. The carrying amounts of trade receivables and trade and other payables are assumed to approximate their fair values due to their short-term nature. Initial recognition and measurement Financial assets and financial liabilities are recognised when the entity becomes a party to the contractual provisions of the instrument. For financial assets, this is equivalent to the date that the Group commits itself to either purchase or sell the asset (i.e. trade date accounting is adopted). Financial instruments are initially measured at fair value plus transaction costs, except where the instrument is classified “at fair value through profit or loss”, in which case transaction costs are expensed to profit or loss immediately. Classification and subsequent measurement Financial instruments are subsequently measured at fair value, amortised cost using the effective interest method, or cost. Where available, quoted prices in an active market are used to determine fair value. In other circumstances, valuation techniques are adopted. Amortised cost is calculated as the amount at which the financial asset or financial liability is measured at initial recognition less principal repayments and any reduction for impairment, and adjusted for any cumulative amortisation of the difference between that initial amount and the maturity amount calculated using the effective interest method. 64 NOTES TO THE FINANCIAL STATEMENTSFREELANCER LIMITED 2015 ANNUAL REPORTThe effective interest method is used to allocate interest income or interest expense over the relevant period and is equivalent to the rate that exactly discounts estimated future cash payments or receipts (including fees, transaction costs and other premiums or discounts) through the expected life (or when this cannot be reliably predicted, the contractual term) of the financial instrument to the net carrying amount of the financial asset or financial liability. Revisions to expected future net cash flows will necessitate an adjustment to the carrying amount with a consequential recognition of an income or expense item in profit or loss. Fair value is determined based on current bid prices for all quoted investments. Valuation techniques are applied to determine the fair value for all unlisted securities, including recent arm’s length transactions, reference to similar instruments and option pricing models. The Group does not designate any interests in subsidiaries, associates or joint venture entities as being subject to the requirements of Accounting Standards specifically applicable to financial instruments. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are subsequently measured at amortised cost. Gains or losses are recognised in profit or loss through the amortisation process and when the financial asset is derecognised. Held-to-maturity investments Held-to-maturity investments are non-derivative financial assets that have fixed maturities and fixed or determinable payments, and it is the Company’s intention to hold these investments to maturity. They are subsequently measured at amortised cost. Gains or losses are recognised in profit or loss through the amortisation process and when the financial asset is derecognised. Financial liabilities Non-derivative financial liabilities other than financial guarantees are subsequently measured at amortised cost. Gains or losses are recognised in profit or loss through the amortisation process and when the financial liability is derecognised. Impairment At the end of each reporting period, the Group assesses whether there is objective evidence that a financial asset has been impaired. A financial asset (or a group of financial assets) is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events (a “loss event”) having occurred, which has an impact on the estimated future cash flows of the financial asset(s). When the terms of financial assets that would otherwise have been past due or impaired have been renegotiated, the Company recognises the impairment for such financial assets by taking into account the original terms as if the terms have not been renegotiated so that the loss events that have occurred are duly considered. 65 NOTES TO THE FINANCIAL STATEMENTSFREELANCER LIMITED 2015 ANNUAL REPORT(a) Market risk Foreign currency risk The Group operates internationally and is exposed to foreign exchange risk arising from various currencies. Foreign exchange risk arises when future commercial transactions and recognised assets and liabilities are denominated in a currency that is not the entity’s functional currency. The risk is measured using sensitivity analysis and cash flow forecasting. The Group has not entered into forward foreign exchange contracts to protect against exchange rate movements. The Directors are of the view that the cost of hedging the Group’s short-term foreign exchange exposure outweighs the risk of adverse currency movements. The Group’s exposure to foreign currency exchange risk at the reporting date, expressed in each currency, was as follows: 2015 Currency Exposure: Denominated in: Cash Trade receivables Other financial assets Payables User obligations AUD AUD 000’s USD USD 000’s 9,722 11,785 363 1,572 99 40 (220) (1,852) NZD GBP NZD 000’s 148 18 - - GBP 000’s 926 133 6 (10) HKD HKD 000’s 1235 301 - - SGD SGD 000’s PHP PHP 000’s EUR CAD EUR 000’s 340 18,667 1,115 61 4,897 187 INR INR 000’s 38,678 6,890 Other AUD 000’s 148 88 CAD 000’s 619 92 5 14,441 9 - - (7) (5,951) (3) (227) (6) (1,692) (13,802) (114) (593) (470) (214) (903) (1,234) (529) (25,599) (276) Net exposure 8,272 (2,257) 52 462 1,066 185 31,151 68 188 19,742 (46) 2014 Currency Exposure: Denominated in: Cash Trade receivables Other financial assets Payables User obligations NZD GBP HKD SGD AUD AUD 000’s USD USD 000’s 2,182 12,371 352 1,694 79 - (553) (882) NZD 000’s 181 15 - - GBP 000’s 401 60 6 (5) HKD 000’s 578 50 - - PHP PHP 000’s 7,739 2,992 EUR CAD EUR 000’s 498 114 CAD 000’s 308 42 SGD 000’s 215 29 5 19,145 (6) (4,882) - - 9 - INR INR 000’s Other AUD 000’s 15,688 2,504 - 79 9 - (401) (6) (1,359) (12,750) (87) (444) (238) (142) (597) (727) (349) (16,166) (127) Net exposure 700 433 110 17 390 101 24,397 (115) 10 1,625 (45) The Group had net liabilities of $185,000 denominated in foreign currencies as at 31 December 2015 (comprising assets of $26,310,000 less liabilities of $26,495,000). The Group had net assets of $1,801,000 denominated in foreign currencies as at 31 December 2014 (comprising assets of $21,648,000 less liabilities of $19,847,000). The analysis below reflects management’s view of possible movements in relevant foreign currencies against the Australian dollar in the short term subsequent to 31 December 2015. The table summarises the range of possible outcomes that would affect the Group’s net profit and equity as a result of foreign currency movements on year end foreign denominated assets and liabilities. 66 NOTES TO THE FINANCIAL STATEMENTSFREELANCER LIMITED 2015 ANNUAL REPORTThe impact of potential movements in exchange rates on the profit or loss is as follows: (Range +5% to -5%) (Range +5% to -5%) (Range +5% to -5%) (Range +5% to -5%) (Range +5% to -5%) (Range +5% to -5%) (Range +5% to -5%) (Range +5% to -5%) (Range +5% to -5%) 2015 $000 2014 $000 High 147 (2) (44) (9) (9) (43) (5) (9) (19) 7 Low (163) 3 49 10 9 48 5 10 22 (7) High (25) (5) (2) (3) (5) (54) 8 - (1) (88) Low 28 6 2 3 5 59 (9) - 2 97 AUD to USD AUD to NZD AUD to GBP AUD to HKD AUD to SGD AUD to PHP AUD to EUR AUD to CAD AUD to INR Net movement Price risk The Group is not exposed to significant equities price risk. Interest rate risk The Group is not exposed to any significant interest rate risk. Cash balances As at 31 December 2015 the Group had $32,246,000 (2014: $20,210,000) held in bank accounts and online wallets. The Group’s cash balances are predominantly held in interest bearing bank accounts. Funds that are excess to short term liquidity requirements are generally invested in short term deposits. (b) Credit risk Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The maximum exposure to credit risk at the reporting date to recognised financial assets is the carrying amount, net of any provisions for impairment of those assets, as disclosed in the statement of financial position and notes to the financial statements. The Group does not hold any collateral. Credit risk is managed by a risk assessment process for all customers, which takes into account past experience. (c) Liquidity risk Liquidity risk management requires the Group to maintain sufficient liquid assets (mainly cash and cash equivalents) to be able to pay debts as and when they become due and payable. The Group manages liquidity risk by maintaining adequate cash reserves by continuously monitoring actual and forecast cash flows and matching the maturity profiles of financial assets and liabilities. Financing arrangements The Group does not have any borrowing facilities in place at the reporting date. 67 NOTES TO THE FINANCIAL STATEMENTSFREELANCER LIMITED 2015 ANNUAL REPORTMaturities of financial liabilities The following table details the Group’s remaining contractual maturity for its financial instrument liabilities. The table has 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. 2015 Non-derivatives Non-interest bearing Trade and other payables 2014 Non-derivatives Non-interest bearing Trade and other payables 1 year or less $000 Between 1 and 2 years $000 Between 2 and 5 years $000 Over 5 years $000 Note Remaining contractual maturities $000 13 13 28,423 28,423 21,759 21,759 - - - - - - - - - - - - - - - - Trade and other payables are payable as and when they are due. The cash flows in the maturity analysis above are not expected to occur significantly earlier than disclosed. 4. Operating segments Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. These include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly corporate assets (primarily the Company’s headquarters), head office expenses, and income tax assets and liabilities. The Board of Directors are identified as the chief operating decision makers (CODM). Identification of reportable operating segments Until 31 October 2015, the Group was organised into one operating segment, namely an online marketplace. From 1 November 2015, on the completion of the acquisition of the business of Escrow.com, the Group is organised into two operating segments: namely an online marketplace and online payment services. These segments are based on the internal reports that are reviewed and used by the CODM in assessing performance and in determining the allocation of resources (AASB 8 para. 5(b)). The CODM assess the performance of the operating segments based on a measure of revenue and operating EBITDA (earnings before share based payments, interest, tax, depreciation and amortisation). The accounting policies adopted for internal reporting to the CODM are consistent with those adopted in the financial statements. The Group operates predominantly in Australia, where substantially all online revenues and expenses are incurred. Although the Group has staff and operations in Philippines, United Kingdom, United States and Canada in addition to Australia, these geographic operations are considered, based on internal management reporting and the allocation of resources by the Group’s CODM, as one geographic segment. The information reported to the CODM is at least on a monthly basis. 68 NOTES TO THE FINANCIAL STATEMENTSFREELANCER LIMITED 2015 ANNUAL REPORTYear end 31 December 2015 Segment revenue Segment revenue Total segment revenue Segment result Segment loss Share based payments Depreciation and amortisation expenses Loss before income tax Income tax benefit Loss for year Segment Assets At 31 December 2015 Segment assets Intergroup eliminations Deferred tax assets Intangibles Total assets Segment liabilities At 31 December 2015 Segment liabilities Intergroup eliminations Deferred tax liabilities Total Liabilities Online Marketplace Online payment services Total 36,769 36,769 1,835 1,835 38,604 38,604 (1,886) (106) 38,632 (1,432) 3,098 37,200 3,098 (1,992) (1,164) (510) (3,666) 861 (2,805) 41,730 (1,432) 2,865 22,450 65,613 (29,943) (2,192) (32,135) 1,432 1,432 (3) (29,943) (760) (30,706) No segment reporting is provided for 2014 as the Group was organised into one operating segment, namely an online marketplace. 5. Revenue The Company’s net revenues result from transaction and other fees generated in its online marketplaces and in providing online escrow payment services. Revenues are recognised when evidence of an arrangement exists, the fee is fixed and determinable, no significant obligation remains and collection of the receivable is reasonably assured. Amounts disclosed as revenue are net of refunds and amounts collected on behalf of third parties. Where services have not been provided but the Company is obligated to provide the services in the future, revenue recognition is deferred. Provision for doubtful accounts and transaction losses are made at the time of revenue recognition based on the Company’s historical experience. The provision for doubtful accounts and transaction losses are recorded as charges to cost of sales. 69 NOTES TO THE FINANCIAL STATEMENTSFREELANCER LIMITED 2015 ANNUAL REPORTRevenue is recognised for the major business activities as follows: Marketplace and payment services Marketplace and escrow fees are recognised once the services have been completed and no significant obligation remains. Interest income Interest revenue is recognised using the effective interest rate method, which, for floating rate financial assets, is the rate inherent in the instrument. Government grants Government grants are recognised at fair value where there is reasonable assurance that the grant will be received and all grant conditions will be met. All revenue is stated net of the amount of goods and services tax (GST) and Valued Added Tax (VAT). Sales revenue Marketplace and payment services Other revenue Interest income Government grants Other Total revenue 6. Expenses Loss before income tax benefit includes the following specific net losses and expenses: Employee expense Wages and salaries (including superannuation) Other employment costs Total employee expenses Depreciation and amortisation Plant and equipment Leasehold improvements Total depreciation and amortisation expenses Rental expense relating to operating leases Minimum lease payments Rent recovery from sub-lease agreement Net rental expense relating to operating leases 2015 $000 2014 $000 38,222 25,726 181 159 42 179 150 32 38,604 26,087 2015 $000 2014 $000 15,527 2,330 17,857 12,375 1,932 14,307 361 150 511 2,924 (264) 2,660 234 104 338 2,187 (110) 2,077 Net foreign exchange losses 126 241 Finance costs Interest expense - 1 70 NOTES TO THE FINANCIAL STATEMENTSFREELANCER LIMITED 2015 ANNUAL REPORTTotal employee benefits expenses are inclusive of: Short-term obligations Employee benefits that are expected to be settled within 12 months have been measured at the amounts expected to be paid when the liabilities are settled, plus related on-costs. The liability for annual leave is recognised in the provision for employee benefits. All other short-term employee benefit obligations are presented as payables. Other long–term employee benefit obligations Employee benefits payable later than 12 months have been measured at the present value of the estimated future cash outflows to be made for those benefits. In determining the liability, consideration is given to employee wages increases and the probability that the employee may satisfy any vesting requirements. Those cash flows are discounted using market yields on national government bonds with terms to maturity that match the expected timing of cash flows attributable to employee benefits. Short term incentive plans The Group recognises a liability and an expense for bonuses payable under short term incentive plans. Short term incentive plans are based on the achievement of targeted performance levels that may be set at the beginning of each financial year. The Group recognises a liability to pay out short term incentives when contractually obliged based on the achievement of the stated performance levels, or where there is a past practice that has created a constructive obligation. 7. Income tax The income tax expense or revenue for the period is the tax payable on the current period’s taxable income based on the applicable tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses. The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period in the countries where the Company’s subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for: • temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss • temporary differences related to investments in subsidiaries, associates and jointly controlled entities to the extent that the Group is able to control the timing of the reversal of the temporary differences and it is probable that they will not reverse in the foreseeable future • taxable temporary differences arising on the initial recognition of goodwill. The measurement of deferred tax reflects the tax consequences that would follow the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates enacted or substantively enacted at the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously. A deferred tax asset is recognised for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. 71 NOTES TO THE FINANCIAL STATEMENTSFREELANCER LIMITED 2015 ANNUAL REPORTIn determining the amount of current and deferred tax the Group takes into account the impact of uncertain tax positions and whether additional taxes and interest may be due. This assessment relies on estimates and assumptions and may involve a series of judgements about future events. New information may become available that causes the Group to change its judgement regarding the adequacy of existing tax liabilities; such changes to tax liabilities will impact the tax expense in the period that such a determination is made. The Company and its wholly-owned Australian resident entities are part of a tax consolidated group. As a consequence, all members of the tax-consolidated group are taxed as a single entity. The head entity within the tax-consolidated group is Freelancer Limited. (a) Income tax Current tax Deferred tax Under provision in prior years Income tax (benefit) Deferred income tax expense included in income tax benefit comprises: (Increase) in deferred tax assets Increase / (Decrease) in deferred tax liability Total deferred income tax (b) Numerical reconciliation of income tax benefit to prima facie income tax payable Loss from ordinary activities before income tax expense Tax at the Australian rate of 30% Tax effect amounts which are not deductible / (taxable) in calculating taxable income: R&D tax incentive Difference in tax rate Share based payments Over provision in prior years Future benefit of foreign losses Other non allowable items Income tax (benefit) (c) Amounts recognised directly in equity Deferred tax associated with capital raising 2015 $000 2014 $000 40 (901) - (637) (337) (6) (861) (980) (902) 1 (901) (323) (14) (337) (3,666) (2,826) (1,100) (848) (259) (163) 349 49 16 247 (861) (250) 55 117 (6) (83) 36 (980) 183 104 72 NOTES TO THE FINANCIAL STATEMENTSFREELANCER LIMITED 2015 ANNUAL REPORT(d) Deferred tax assets The balance comprises temporary differences attributable to: Amounts recognised in profit or loss: Employee benefits Provision for user disputes & refunds Legal fees Capital raising costs Foreign exchange losses Intangible assets Provision for impairment of receivables Audit fees Future benefit of tax losses Future benefit of foreign tax losses Total amounts recognised in profit or loss Amounts recognised directly in equity: Capital Raising Costs Total amounts recognised in equity Net deferred tax assets Movements: Opening balance at beginning of year Credited to the profit or loss statement Credited to equity Closing balance at end of year (e) Deferred tax liabilities The balance comprises temporary differences attributable to: Fixed assets Net deferred tax liabilities Movements: Opening balance at beginning of year Credited to the profit or loss statement Closing balance at end of year (f) Current tax liabilities Current tax liabilities (g) Current tax assets Current tax assets (h) Franking credits Franking credits available at the reporting date based on a tax rate of 30% 2015 $000 2014 $000 221 152 24 47 (15) 129 464 67 1,540 53 195 75 85 71 36 101 368 73 632 83 2,682 1,718 183 183 104 104 2,865 1,822 1,822 964 79 806 995 21 2,865 1,822 3 3 1 2 3 3 51 121 1 1 15 (14) 1 - 4 - 73 NOTES TO THE FINANCIAL STATEMENTSFREELANCER LIMITED 2015 ANNUAL REPORTFreelancer Limited and its wholly-owned Australian entities elected to form an income tax consolidated group as of 12 April 2010. 8. Cash and cash equivalents For cash flow statement presentation purposes, cash and cash equivalents includes cash on hand, deposits held at call with banks, 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, and bank overdrafts. Current Cash at bank on hand Term deposits Total cash and cash equivalents 9. Trade and other receivables 2015 $000 2014 $000 24,883 18,966 7,363 1,245 32,246 20,210 Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. This provision includes amounts that are not considered to be recoverable from debtors and amounts that are expected to be credited to debtors. Trade receivables are generally due for settlement no more than 30 days from the date of recognition. They are presented as current assets unless collection is not expected for more than 12 months after the reporting date. Collectability of trade receivables is reviewed on an ongoing basis. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments are considered indicators that the trade receivable is impaired. In addition, the trade receivables balances are considered for credit notes that are expected to be raised against individual and collective balances. Current Trade receivables Less: provisions for impairment of trade receivables Current trade receivables net of provisions for impairment Payment gateway receivables Other receivables Total current trade and other receivables Non-Current Payment gateway receivables Total trade and other receivables 2015 $000 2014 $000 1,900 1,456 (1,545) (1,205) 355 251 2,981 2,489 23 10 3,359 2,750 214 191 3,573 2,941 74 NOTES TO THE FINANCIAL STATEMENTSFREELANCER LIMITED 2015 ANNUAL REPORT(a) Provision for impaired trade receivables Opening balance (Decrease)/Increase in provisions for impairment during the year Exchange differences Closing balance (b) Ageing of current trade receivables 1-30 days 31-60 days 61-90 days 90+ days Provision for impairment Total trade receivables net of provision for impairment 10. Other Assets Current Prepayments Security deposits Other Total current other assets Non-Current Security deposits Total non-current other assets Total other assets 11. Plant and equipment 2015 $000 2014 $000 1,205 (79) 419 701 283 221 1,545 1,205 273 168 175 1,284 220 170 139 927 (1,545) (1,205) 355 251 2015 $000 2014 $000 720 - 103 823 601 601 513 73 75 661 488 488 1,424 1,149 Plant and equipment is stated at historical cost less depreciation, amortisation and impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the items. The carrying amount of plant and equipment is reviewed annually by directors to ensure it is not in excess of the recoverable amount from these assets. The recoverable amount is assessed on the basis of the expected net cash flows that will be received from the asset’s employment and subsequent disposal. The expected net cash flows have not been discounted in determining recoverable amounts. Depreciation of all fixed assets is calculated using the straight-line method to allocate their cost, net of their residual values, over their estimated useful lives, as follows: Fixes and fittings Motor vehicles Office and computer equipment Software Leasehold improvements 4-5 years 4 years 4-5 years 3 years shorter of either the unexpired period of the lease or the estimated useful lives of the improvements 75 NOTES TO THE FINANCIAL STATEMENTSFREELANCER LIMITED 2015 ANNUAL REPORTThe assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These gains or losses are recognised in the profit and loss in the period in which they arise. When revalued assets are sold, amounts included in the revaluation surplus relating to that asset are transferred to retained earnings. Non-current Office and computer equipment – at cost Accumulated depreciation Carrying value of office and computer equipment Fixtures and fittings – at cost Accumulated depreciation Carrying value of fixtures and fittings Motor vehicles – at cost Accumulated depreciation Carrying value of motor vehicles Software – at cost Accumulated depreciation Carrying value of software Leasehold improvements – at cost Accumulated amortisation Carrying value of leasehold improvements Total carrying value of plant and equipment 2015 $000 2014 $000 1,632 (736) 896 439 (233) 206 42 (42) - 19 (7) 12 809 (245) 564 330 (108) 222 42 (42) - 6 (6) - 876 (338) 538 462 (135) 328 1,652 1,113 76 NOTES TO THE FINANCIAL STATEMENTSFREELANCER LIMITED 2015 ANNUAL REPORTReconciliations Reconciliations of the carrying amount of plant and equipment and leasehold improvements at the beginning and end of the current financial year are set out below: Office & computer equipment $000 Fixtures and fittings $000 Motor Vehicles $000 Software $000 Leasehold improvements $000 324 394 (2) (152) 564 600 (15) (253) 896 172 132 (9) (74) 222 91 - (107) 206 8 - - (8) - - - - - 1 - - - - 14 - (2) 12 Balance at 1 January 2014 Additions Disposals Depreciation and amortisation Balance at 31 December 2014 Additions Disposals Depreciation and amortisation Balance at 31 December 2015 12. Intangible assets Goodwill Total $000 561 919 (28) (339) 1,113 57 393 (18) (104) 328 360 1,065 - (150) 538 (15) (511) 1,652 Goodwill is initially recorded at the amount by which the purchase price for a business combination exceeds the fair value attributed to the interest in the net fair value of identifiable assets, liabilities and contingent liabilities acquired at date of acquisition. Goodwill is not amortised. Instead goodwill is tested for impairment annually or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. Domain Names Domain names are valued at cost of acquisition. Domain names are tested for impairment annually or more frequently if events or changes in circumstances indicate that it might be impaired, either individually or at the cash generating unit level. Useful lives are also examined on an annual basis and adjustments, where applicable, are made on a prospective basis. Intellectual Property Intellectual property is valued at cost of acquisition. Intellectual property is tested for impairment annually or more frequently if events or changes in circumstances indicate that it might be impaired, either individually or at the cash generating unit level. Useful lives are also examined on an annual basis and adjustments, where applicable, are made on a prospective basis. Trademarks Trademarks are valued at cost of acquisition and are amortised on a straight line basis over the period in which the benefits are expected to be realised. Trademarks are tested for impairment where an indicator of impairment exists, either individually or at the cash generating unit level. Useful lives are also examined on an annual basis and adjustments, where applicable, are made on a prospective basis. 77 NOTES TO THE FINANCIAL STATEMENTSFREELANCER LIMITED 2015 ANNUAL REPORTNon-current Domain names - at cost Accumulated impairment Carrying value of domain names Intellectual property – at cost Accumulated impairment Carrying value of intellectual property Goodwill Accumulated impairment Carrying value of goodwill Total carrying value of intangible assets Reconciliations 2015 $000 2014 $000 3,083 (28) 3,055 1,400 - 1,400 3,075 (28) 3,047 - - - 19,395 9,906 - - 19,395 9,906 23,850 12,953 Reconciliations of the carrying amount of intangible assets at the beginning and end of the current and previous financial year are set out below: Balance at 1 January 2014 Additions Impairment Amortisation Balance at 31 December 2014 Additions Additions and acquisitions through business combinations Impairment Amortisation Domain names $000 2,824 223 - - 3,047 8 - - - Intellectual Property $000 - - - - - - 1,400 - - Goodwill $000 6,062 3,843 - - Total $000 8,886 4,067 - - 9,906 12,953 9,489 9,497 - - - 1,400 - - Balance at 31 December 2015 3,055 1,400 19,395 23,850 The Directors have determined the useful life of domain names is indefinite and subject to an annual test for impairment of the fair value of the domain names. The Directors have assessed the recoverability of domain names and goodwill based on value in use calculations. The recoverable amount of the Group’s intangible assets has been determined by a value-in-use calculation using a discounted cash flow model, based on a 12 month projection period for the Group approved by management and extrapolated for a further 5 years with a discounted terminal value. Key assumptions used in the discounted cash flow model in relation to the intangibles included a 30% pre-tax discount rate and 2.5% terminal growth rate. The discount rate of 30% pre-tax reflects management’s estimate of the time value of money and the Group’s weighted average cost of capital adjusted for the risk free rate and the volatility of the share price relative to market movements. 78 NOTES TO THE FINANCIAL STATEMENTSFREELANCER LIMITED 2015 ANNUAL REPORTBased on the above, management is satisfied that there are no indicators of impairment to the current carrying value of intangible assets. 13. Trade and other payables These amounts represent liabilities for goods and services provided to the Group and amounts outstanding to users of the Company’s websites at the end of financial year which are unpaid. The amounts are unsecured and are payable as and when they are due. Trade and other payables are presented as current liabilities unless payment is not due within 12 months from the reporting date. Current Trade payables Sundry payables and accrued expenses User obligations Total trade and other payables 14. Provisions 2015 $000 2014 $000 2,375 1,383 617 412 25,431 19,965 28,423 21,759 Provisions are recognised when the Company has a legal or constructive obligation, as a result of past events, for which it is probable that an outflow of economic benefits will result and that outflow can be reliably measured. Provisions recognised represent the best estimate of the amounts required to settle the obligation at reporting date. A provision for onerous contracts is recognised when the expected benefits to be derived by the Group from a contract are lower than the unavoidable cost of meeting the obligations under the contract. The provision is stated at the present value of the future net cash outflows expected to be incurred in respect of the contract. Current Provision for user disputes and refunds Employee benefits Other Total current provisions Non-Current Make good provisions Employee benefits Total non-current provisions Total provisions 2015 $000 2014 $000 508 665 - 250 734 137 1,173 1,120 140 108 248 57 48 104 1,421 1,225 79 NOTES TO THE FINANCIAL STATEMENTSFREELANCER LIMITED 2015 ANNUAL REPORT15. Contributed Equity (a) Share Capital Note 2015 Number 2014 Number 2015 $000 2014 $000 Ordinary shares Fully paid Total share capital 15(b) 457,294,618 436,330,004 37,310 17,520 37,310 17,520 (b) Movements in ordinary share capital Reconciliation to 31 December 2014 Balance at 1 January 2014 Capitalised equity raising costs (net of tax) Issue/(cancellation) of ordinary shares: Issue of ESP shares1 Buy-back and cancellation of ESP shares Contributed equity arising from repayment of ESP loans Balance at 31 December 2014 Reconciliation to 31 December 2015 Balance at 31 December 2014 Capitalised equity raising costs (net of tax) Issue / (cancellation) of ordinary shares: Issue of ordinary shares - placement Issue of ordinary shares - placement Issue of ordinary shares under incentive plan Issue of ESP shares1 Buy-back and cancellation of ESP shares Number of Shares Average Price $000 436,000,000 - 2,675,000 (2,344,996) - 436,330,004 17,556 - (50) $1.25 $1.03 - - - 14 17,520 Number of Shares Average Price $000 436,330,004 - 10,000,000 7,142,857 325,000 5,855,000 (2,358,243) 17,520 - (328) $1.00 $1.40 $0.00 $1.03 $0.82 10,000 10,000 - - - Contributed equity arising from repayment of ESP loans - - 118 Balance at 31 December 2015 457,294,618 37,310 1. As the ESP is considered in substance a share option, the ESP shares issued and corresponding loan receivables are not recognised by the Group in its financial statements. The loan receivable does not satisfy the “probable future benefits following to the entity” criteria on the basis that the loan is non-recourse. The ESP shares will not be considered issued to participants until the corresponding loan has been repaid, at which time there will be an increase in the issued capital and increase in cash. (c) Ordinary shares Ordinary shares have the right to receive dividends as declared, and, in the event of winding up the Company, to participate in the proceeds from the sale of all surplus assets in proportion to the number of and amounts paid up on shares held. Ordinary shares entitle their holder to one vote, either in person or by proxy, at a meeting of the Company. (d) Employee Share Plan (ESP) Information relating to the ESP, including details of shares issued under the plan, is set out in Note 21. 80 NOTES TO THE FINANCIAL STATEMENTSFREELANCER LIMITED 2015 ANNUAL REPORT(e) Capital risk management The Group’s objectives when managing capital are to safeguard its ability to continue as a going concern, so that it can provide returns to shareholders and benefits for other stakeholders and to maintain an optimum capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. The Group would look to raise capital when an opportunity to invest in a business or company was seen as value adding relative to the current parent entity’s share price at the time of the investment. The Group actively pursues additional investments as part of its growth strategy. The capital risk management policy remains unchanged from the 2014 Annual Report. 16. Equity Reserves (a) Movements Share based payment reserve movements Balance at the beginning of the period Share based payment expense Balance at the end of the period Foreign currency translation reserve movements Balance at the beginning of the period Currency translation differences arising during the period Balance at the end of the period Total reserves (b) Nature and purpose of reserves Share-based payments reserve 2015 $000 2014 $000 421 1,164 1,585 (313) (54) (367) 33 388 421 (230) (83) (313) 1,218 108 This amount represents the value of the ESP share grants to employees under the Freelancer Employee Share Plan and other compensation granted in the form of equity. Foreign currency translation reserve The foreign currency translation reserve is used to record exchange differences arising from the translation of the financial statements of its overseas subsidiaries. 17. Key management personnel disclosures (a) Directors The following persons were Directors of Freelancer Limited during the financial year: • Mr Robert Matthew Barrie – Executive Chairman • Mr Darren Nicholas John Williams – Non-Executive Director (Executive Director until 31 October 2015) • Mr Simon Alvin Clausen – Non-Executive Director 81 NOTES TO THE FINANCIAL STATEMENTSFREELANCER LIMITED 2015 ANNUAL REPORT(b) Other key management personnel The following persons also had the authority and responsibility for planning, directing and controlling the major activities of the Group, directly or indirectly, during the financial year: • Mr Neil Leonard Katz – Chief Financial Officer and Company Secretary (c) Key management personnel compensation Short-term employee benefits Share based employee benefits Other long term benefits Total benefits Short-term employee benefits 2015 $000 1,091 69 76 2014 $000 982 56 73 1,236 1,111 These amount include fees and benefits paid to the Non-Executive Directors as well as all salary, paid leave benefits, fringe benefits and cash bonuses awarded to Executive Directors and other KMP. Other long-term benefits These amounts represent long service leave benefits accruing during the year, long-term disability benefits and deferred bonus payments. Share based payments These amounts represent the expense related to the participation of KMP in equity-settled schemes as measured by the fair value of the options rights and shares granted on grant date. Further information in relation to KMP remuneration can be found in the Remuneration Report, which is included in the Director’s Report. 18. Remuneration of auditors During the year the following fees were paid for services provided by the auditor of the parent entity, its related practices and non-related audit firms: (a) Hall Chadwick Audit and other assurance services Audit and review of financial reports Taxation services Tax compliance services, including review of Company income tax returns Total remuneration of Hall Chadwick (b) Audit firms other than Hall Chadwick Audit and other assurance services Audit and review of financial reports Taxation services Tax compliance services, including review of subsidiary income tax returns Total remuneration of audit firms other than Hall Chadwick Total auditors remuneration 2015 $000 2014 $000 104 101 24 128 38 139 44 22 66 29 11 39 194 178 82 NOTES TO THE FINANCIAL STATEMENTSFREELANCER LIMITED 2015 ANNUAL REPORT19. Contingent liabilities Except for the items listed below, there are no other contingent liabilities as at 31 December 2015: • a collateral amount of USD100,000 (2014: USD100,000) is in place in one of the Group’s PayPal accounts in favour of PayPal Australia Pty Ltd; • term deposits of $47,488 (2014: $20,000) are secured for corporate credit card facilities in place; • deposits of $756,000 (2014: $567,000) are held by various credit card processing providers, as security for any contractual compensation arising under these agreements; • included in cash is an amount of $724,000 on term deposit, which is secured against a bank guarantee that has been provided to the lessor in respect of premises occupied by the Company at Level 20, 680 George Street Sydney. • included in cash is an amount of USD455,000, which is secured in connection with surety bonds in place with certain regulators in the US. • Included in cash is an amount of USD180,000, which is held as a reserve to satisfy escrow regulatory requirements in respect of credit card transactions. 20. Commitments for expenditure Leases in which a significant portion of the risks and rewards of ownership are not transferred to the Group as lessee are classified as operating leases. Leases are made up of operating leases of property. Payments made under operating leases (net of any incentives received from the lessor) are charged to the consolidated profit or loss statement on a straight-line basis over the period of the lease. Benefits that are provided to the Group as an incentive to enter into a lease arrangement are recognised as a liability and amortised on a straight-line basis over the life of the lease. Where the Group acts as lessor in an operating lease arrangement, rental income from operating leases is accounted for on a straight-line basis over the period of the lease. Lease incentives provided are recognised over the lease term on a straight-line basis. (a) Non-cancellable operating leases The Group has entered into commercial leases for office property. As at 31 December 2015 these leases had remaining lives ranging from 3 months up to 52 months. Rentals paid under operating leases are charged to the income statement on a straight line basis over the period of the lease. Future minimum rentals payable under non-cancellable operating leases as at 31 December are as follows: Less than one year Between one and five years More than five years Total operating lease commitments (b) Other capital commitments There were no capital commitments as at 31 December 2015 2015 $000 2,216 5,725 - 2014 $000 2,338 6,998 372 7,941 9,709 83 NOTES TO THE FINANCIAL STATEMENTSFREELANCER LIMITED 2015 ANNUAL REPORT21. Share based payments The Group operates an employee share plan. The fair value of the effective option over the shares granted under the Company’s Employee Share Plan (ESP) is recognised as an employee benefit expense with a corresponding increase in equity. The fair value is measured at grant date and recognised over the period during which the employees become unconditionally entitled to the ESP shares. The fair value at grant date is independently determined using a Black-Scholes option pricing model that takes into account the exercise price, the term of the ESP shares, the vesting and performance criteria, the impact of dilution, the non-tradeable nature of the ESP share, 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 ESP share. The fair value of share grants issued outside of the ESP is independently determined based on the value of the shares at grant date less the present value of dividends expected to be distributed between the grant date and the vesting dates. During the year ended 31 December 2013, the Company established a share based payment plan, the Employee Share Plan (ESP) to assist the Company in retaining and attracting current and future employees by providing them with the opportunity to own shares in the Company. The key terms of the ESP are as follows: • the Board may invite a person who is employed or engaged by or holds an office with the Group (whether on a full or part-time basis) and who is declared by the Board to be eligible to participate in the ESP from time to time (Eligible Employee) to apply for fully paid ordinary shares under the plan from time to time (ESP shares); • invitations to apply for ESP shares offered to Eligible Employees subsequent to the Company’s initial public offering are to be made on the basis of the market price per share defined as the volume weighted average price at which the Company’s shares have traded during the 30 days immediately preceding the date of the invitation; • invitations to apply for ESP shares under the ESP will be made on a basis determined by the Board (including as to the conditionality on the achievement of any key performance indicators) and notified to Eligible Employees in the invitation, or if no such determination is made by the Board, on the basis that ESP shares will be subject to a 4 year vesting period, with: • • 25% of ESP shares applied for vesting on the date that is the first anniversary of the issue date of the ESP shares; and 1/36th of the remaining number of ESP shares vesting on the last day of each calendar month commencing in the following calendar month. • Eligible Employees who accept an invitation (ESP Participants) may be offered an interest free loan from the Company to finance the whole of the purchase of the ESP shares they are invited to apply for (ESP Loan). ESP Loans will have a term of 4 years and become repayable in full on the earlier of: • • the fourth anniversary of the issue date of the Employee Offer Shares; and if the ESP Participant ceases to be an Eligible Employee, either: • • the date 30 days after the date of cessation, if the Eligible Employee is a good leaver (as defined in the ESP); or that date of cessation, if the Eligible Employee is a bad leaver (as defined in the ESP). • if the ESP Participant does not repay the outstanding ESP Loan, or it notifies the Company that it cannot, then such number of ESP shares that equal by value (using the price at which the ESP shares were issued) the outstanding amount of the ESP Loan will become the subject of a buy-back notice from the Company which the ESP Participant must accept. The buy-back of such number of ESP shares will be considered full and final satisfaction of the ESP Loan and the Company will not have any further recourse against the ESP Participant; • any dividends received by the ESP Participant whilst the whole or part of the ESP Loan remains outstanding must be applied to the repayment of the ESP Loan. In addition, an ESP Participant may make pre-payments at any time; 84 NOTES TO THE FINANCIAL STATEMENTSFREELANCER LIMITED 2015 ANNUAL REPORT• the maximum number of ESP shares for which invitations may be issued under the ESP together with the number of ESP shares still to be issued in respect of already accepted invitations and that have already been issued in response to invitations in the previous 5 years (but disregarding ESP shares that are or were issued following invitations to non-residents, that did not require a disclosure document under the Corporations Act, or that were issued under a disclosure document under the Corporations Act) must not exceed 5% of the total number of ordinary shares on issue in the Company at the time the invitations are made; • in the event of a corporate reconstruction, the Board will adjust, subject to the Listing Rules (if applicable), any one or more of the maximum number of Shares that may be issued under the ESP (if applicable), the subscription price, the buy-back price and the number of ESP shares to be vested at any future vesting date (if applicable), as it deems appropriate so that the benefits conferred on ESP Participants after a corporate reconstruction are the same as the benefits enjoyed by the ESP Participants before the corporate reconstruction. On conferring the benefit of any corporate reconstruction, any fractional entitlements to shares will be rounded down to the nearest whole share; • ESP Participants will continue to have the right to participate in dividends paid by the Company despite some or all of their ESP shares not having vested yet or being subject to an ESP Loan. If an ESP Loan has been made to the ESP Participant, then any dividend due must first be applied to reducing any outstanding ESP Loan amount applicable to the ESP shares on which the dividend is paid; • ESP shares which have not vested and/or are subject to repayment of the ESP Loan will be restricted (escrowed) from trading; • the Company may buy-back at the issue price any ESP shares which: • have not vested, or are incapable of vesting at any time (including as a result of the ESP Participant failing to meet any key performance indicators on which vesting of ESP shares is conditional); or • remain in escrow and/or are the subject of an ESP Loan, on the occurrence of: • the ESP Participant ceasing to be an Eligible Employee (unless the Board, in its sole and absolute discretion determines otherwise, subject to any conditions that it may apply, including the repayment of any outstanding ESP Loan); or • the expiration of the term of the ESP Loan. • any bonus securities issued in relation to ESP shares which remain unvested or are subject to an ESP Loan which becomes repayable in full will be the subject of a buy-back by the Company at the issue price for no consideration; • on the death or permanent disability of an ESP Participant, all ESP shares held by the ESP Participant or their estate will immediately vest subject to the repayment of any outstanding ESP Loan by the curator, executor or nominated beneficiary(ies) (as the case may be) within 30 days of their appointment (or such longer period as the Company in its discretion may allow). Failing such repayment, the Company will buy-back all ESP shares in respect of which there is an outstanding ESP Loan; • the rules of the ESP and any amendment to the rules of the ESP must be in accordance with the Listing Rules and the Corporations Act; • if, while the Company’s shares are traded on the ASX or any other stock exchange, there is any inconsistency between the terms of the ESP and the Listing Rules, the Listing Rules will prevail; and • the ESP is governed by the laws of the State of New South Wales, Australia. The full terms of the ESP are available on the Company’s website, www.freelancer.com. 85 NOTES TO THE FINANCIAL STATEMENTSFREELANCER LIMITED 2015 ANNUAL REPORT (a) ESP share grants Set out below are summaries of ESP shares granted and issued under the plan: Balance at the start of the year 900,000 3,926,317 1,050,000 425,000 Granted / issued Released from restrictions Forfeited / cancelled Balance at the end of the year Balance of unvested ESP shares Balance of vested ESP shares (235,836) (883,243) 2,807,238 1,427,749 1,379,489 900,000 412,501 487,499 - - - - - - - - - - (1,050,000) (425,000) - - - - - - - - - - - - 1,200,000 1,200,000 1,500,000 1,500,000 950,000 950,000 400,000 400,000 1,065,000 1,065,000 375,000 375,000 125,000 125,000 240,000 240,000 - - - - - - - - - - - - - - - - - - 1,200,000 1,500,000 950,000 400,000 1,065,000 375,000 125,000 240,000 6,301,317 5,855,000 (235,836) (2,358,243) 9,562,238 7,695,250 1,866,988 Issue price $0.66 $0.77 $1.01 $1.08 $1.40 $1.45 $1.76 $1.76 Grant Date 2015 14 October 2013 13 November 2013 22 May 2014 3 November 2014 20 February 2015 10 March 2015 10 April 2015 3 June 2015 12 August 2015 15 October 2015 24 November 2015 21 December 2015 Total 2014 14 October 2013 $0.50 900,000 13 November 2013 $0.50 5,100,000 - - - - 900,000 637,501 262,499 (28,687) (1,144,996) 3,926,317 2,976,211 950,106 28 February 2014 22 May 2014 3 November 2014 Total $1.54 $1.14 $0.70 - - - 1,200,000 1,050,000 425,000 - - - (1,200,000) - - - - 1,050,000 1,050,000 425,000 325,000 100,000 - - 6,000,000 2,675,000 (28,687) (2,344,996) 6,301,317 4,988,712 1,312,605 All Eligible Employees who accepted an offer of ESP shares were given an interest free loan from the Company to finance the whole of the purchase of the ESP shares they were invited to apply for (ESP Loan). The ESP Loans are provided to participants on a non-recourse basis and upon vesting must be repaid in order to remove trading restrictions on vested ESP shares. The term of the ESP Loan is four years, however participants may forfeit their ESP shares if they do not repay the ESP Loan or leave the Company. As the ESP removes the risk to participants from decreases in the share price by limiting the maximum loan amount repayable to the value of the ESP shares disposed and waiving the ESP Loan should the participant forfeit their ESP shares, whilst still allowing participants the rewards of any increase in share price, the Company has effectively granted the participants an option to the ESP shares due to the ESP Loans being non-recourse. As such, this arrangement is accounted for under AASB 2. The assessed weighted average fair value at grant date of the effective share options granted during the financial year is $0.51 per option (2014: $0.24). Options were priced using a 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. The expected price volatility of the Company’s shares is based on the historical volatility of ASX listed companies considered to be comparable to Freelancer Limited. 86 NOTES TO THE FINANCIAL STATEMENTSFREELANCER LIMITED 2015 ANNUAL REPORT(b) Share grants On 29 October 2014, the Company agreed to issue a maximum of 1,733,333 fully paid ordinary shares to certain employees. The agreement to issue shares was made outside of the ESP. The issue of the incentive shares will occur in several tranches, with each tranche conditional only upon the respective personnel being in on-going employment on the respective issue dates. The issue of shares in each tranche will occur as follows: • 325,000 shares to be issued on 1 July 2015; • 433,333 shares to be issued on 1 July 2016; • 433,333 shares to be issued on 1 July 2017; • 433,333 shares to be issued on 1 July 2018; and • 108,334 shares to be issued on 1 October 2018. The new shares will rank equally with existing ordinary shares in the Company and the issue price of each tranche will be the 5 day volume weighted average price of the Company’s shares on the date of issue of the incentive shares. The assessed weighted average fair value at grant date of the share grants issued is $0.705 per share (2014: $0.705). The fair value of the share grants is determined based on the value of the shares at grant date less the present value of dividends expected to be distributed between the grant date and the issue dates. 22. Related party transactions (a) Parent entity Freelancer Limited is the parent entity and ultimate controlling entity. (b) Interests in controlled entities Interests in subsidiaries are set out in Note 25. (c) Transactions with key management personnel Disclosures relating to key management personnel are set out in Note 17 and the Remuneration Report. (d) Transactions with related parties Receivable from and payable to related parties There were no receivables from or payable to related parties at reporting date in relation to transactions with related parties detailed above. Loans to / from related parties There were no loans to or from related parties at the reporting date. Terms and conditions All transactions were made on normal commercial terms and conditions and at market rates. 87 NOTES TO THE FINANCIAL STATEMENTSFREELANCER LIMITED 2015 ANNUAL REPORT23. Parent entity information The financial information for the parent entity, Freelancer Limited has been prepared on the same basis as the consolidated financial statements, except as set out below. Investments in subsidiaries Investments in subsidiaries are accounted for at cost in the financial statements of Freelancer Limited. Investments in subsidiaries are tested for impairment whenever changes in events or circumstances indicate that the carrying amount may not be recoverable. Income tax consolidation legislation Freelancer Limited and its wholly-owned Australian entities have elected to form an income tax consolidated group. Freelancer Limited (as the head entity) and its wholly-owned Australian entities (as members of the Freelancer income tax consolidated group) account for their own current and deferred tax amounts. These tax amounts are measured as if each entity in the income tax consolidated group continues to be a standalone taxpayer in its own right. In addition to its own current and deferred tax amounts, Freelancer Limited also recognises the current tax liabilities (or assets) assumed from its wholly-owned entities in the income tax consolidated group. Set out below is the supplementary information about the parent entity. Statement of comprehensive income Loss after tax Total comprehensive loss Statement of financial position Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities Net assets Contributed equity Reserves Accumulated losses Total equity Contingent liabilities Parent 2015 $000 2014 $000 (572) (572) (339) (339) 9,977 1,045 27,729 16,312 37,706 17,357 16 - 16 3 - 3 37,690 17,354 37,310 17,520 1,585 (1,205) 421 (587) 37,690 17,354 The parent entity had no contingent liabilities at 31 December 2015 and 31 December 2014. Capital commitments – plant and equipment The parent entity had no capital commitments for plant and equipment as at 31 December 2015 and 31 December 2014. Significant accounting policies The accounting policies of the parent entity are consistent with those of the Group, except for investments in subsidiaries which are accounted for at cost, less any impairment. 88 NOTES TO THE FINANCIAL STATEMENTSFREELANCER LIMITED 2015 ANNUAL REPORT24. Business combinations Business combinations occur where an acquirer obtains control over one or more businesses. A business combination is accounted for by applying the acquisition method, unless it is a combination involving entities or businesses under common control. The business combination will be accounted for from the date that control is attained, whereby the fair value of the identifiable assets acquired and liabilities (including contingent liabilities) assumed is recognised (subject to certain limited exceptions). When measuring the consideration transferred in the business combination, any asset or liability resulting from a contingent consideration arrangement is also included. Subsequent to initial recognition, contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity. Contingent consideration classified as an asset or liability is remeasured each reporting period to fair value, recognising any change to fair value in profit or loss, unless the change in value can be identified as existing at acquisition date. All transaction costs incurred in relation to the business combination are expensed to the statement of profit or loss and comprehensive income. The acquisition of a business may result in the recognition of goodwill or a gain from a bargain purchase. (a) Acquisition of Escrow.com group On 24 April 2015, the Group entered into a stock and asset purchase agreement to acquire: 1. 100% of the shares in Westmor Management, Inc. a California corporation, which owns and operates the business of Escrow. com and 2. certain intellectual property assets owned by the Westmor group. The total purchase price was US$7.5 million and the acquisition was subject to US regulatory approvals, which were completed on 15 October 2015, at which date the Group assumed control of the business. Escrow.com is a provider of secure online payments. Escrow.com contributed revenues of $1.8 million for the period 1 November 2015 to 31 December 2015. The Group has determined it impracticable to disclose the revenue and net profit/loss included in the consolidated statement of profit or loss and other comprehensive income had the acquisition of the shares of Westmor Management, Inc. occurred at the beginning of the reporting period. The Group has assessed that an objective determination of the revenue and net profit since the beginning of the reporting period was not able to be made due to the integrated nature of the Group’s website operations and as such disclosure has not been made. Purchase consideration: Cash Fair value of net identifiable assets and liabilities acquired: Cash Deposits Other assets Fixed assets Intellectual property Payables Deferred revenue Provisions Fair value of net assets and liabilities acquired: Goodwill on acquisition Total purchase consideration A$000 10,501 243 56 78 82 1,400 (341) (337) (169) 1,012 9,489 10,501 89 NOTES TO THE FINANCIAL STATEMENTSFREELANCER LIMITED 2015 ANNUAL REPORTIn addition to the net identifiable assets acquired, Escrow.com held cash balance in trust amounting to A$28,270,000 at 31 October 2015, which had a corresponding liability of the same amount owing to its users. The Group has determined that trust cash is not a resource controlled by the Group, nor does the Group derive any economic benefit from these user funds, and therefore the Group does not have the risks and rewards of ownership of the funds. Consequently, trust assets are not recognised as an asset in the Group’s financial statements, and neither is the corresponding trust liability recognised as a liability in the Group’s financial statements. 25. Interests in controlled entities The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the accounting policy described in Note 29: Name of Entity Subsidiaries of Freelancer Limited: Freelancer International Pty Ltd Freelancer Technology Pty Ltd Freelancer India Pty Ltd Warrior Forum Pty Ltd Warrior Technology Pty Ltd Payments Pty Ltd Payments International Pty Ltd Payments Australia Pty Ltd Payments IP Pty Ltd Freelancer Networks (Canada) Inc. Freelancer Outsourcing Inc Freelancer.com Pte Limited Freelancer Belize Limited Freelancer International GmbH Freemarket (Switzerland) GmbH Freelancer Online India Private Limited Freelancer.com Philippines, Inc. Freelancer Outsourcing UK Limited Freelancer (Shanghai) Information Technology Co., Ltd. Westmor Management, Inc. * Escrow.com, Inc. * EC Services Corporation* IES International, Inc. * Internet Escrow Services, Inc. * * Escrow.com group Percentage Owned (%) Country of incorporation 2015 2014 Australia Australia Australia Australia Australia Australia Australia Australia Australia Canada Canada Singapore Belize Switzerland Switzerland India Philippines United Kingdom China United States United States United States United States United States 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 - 100 100 100 100 100 100 100 100 100 100 100 100 - - - - - 90 NOTES TO THE FINANCIAL STATEMENTSFREELANCER LIMITED 2015 ANNUAL REPORT26. Events occurring after the reporting date There are no other matters or circumstances that have arisen since 31 December 2015 that have significantly affected, or may significantly affect: • the aggregated entity’s operations in the future financial years, or • the results of those operations in future financial years, or • the aggregated entity’s state of affairs in the future financial affairs. 27. Reconciliation of loss after tax to net cash flow from operating activities Loss for the year Non-cash items in operating loss: Depreciation and amortisation Share based payments expense Net exchange differences Changes in operating assets and liabilities: (Increase) in trade and other receivables (Increase) in deferred tax assets (Increase) in other assets Increase in trade and other creditors Increase / (decrease) in provision for income tax Increase / (decrease) in deferred tax liabilities (Decrease) / Increase in provisions for employee benefits Increase in other provisions Net cash inflow / (outflow) from operating activities 28. Earnings per share (EPS) Basic earnings per share Basic earnings per share is calculated by dividing: 2015 $000 2014 $000 (2,805) (1,847) 511 1,164 (399) (482) (902) (142) 4,440 43 2 (176) 204 1,458 338 388 38 (352) (995) (373) 2,149 (165) (14) 404 334 (94) • the profit attributable to owners of the Company, 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 year and excluding treasury shares. 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. 91 NOTES TO THE FINANCIAL STATEMENTSFREELANCER LIMITED 2015 ANNUAL REPORT(a) Basic earnings per share From operations attributable to the ordinary equity of the Com-pany Total basic earnings per share attributable to the ordinary equity holders of the Company (b) Diluted earnings per share From operations attributable to the ordinary equity of the Com-pany Total basic earnings per share attributable to the ordinary equity holders of the Company 2015 Cents (0.64) (0.64) (0.62) (0.62) 2014 Cents (0.43) (0.43) (0.42) (0.42) (c) Reconciliation of earnings used in calculating earnings per share $000 $000 Basic earnings per share: Loss from continuing operations Diluted earnings per share: (2,805) (1,847) Loss attributable to the ordinary equity holders of the Company (2,805) (1,847) (d) Weighted average number of shares used as the denominator Weighted average number of ordinary shares used in calculating basic earnings per share Adjustments for calculation of ordinary shares used in calculating diluted earnings per share: ESP shares Share grants Weighted average number of ordinary shares used in calculating diluted earnings per share (e) Information on the classification of securities ESP shares and share grants 2015 Shares 2014 Shares 439,834,541 430,003,380 8,282,006 1,569,497 6,640,872 299,178 449,686,044 436,943,430 ESP shares granted to employees under the ESP and shares granted to employees outside of the ESP are considered to be potential ordinary shares and have been included in the determination of diluted earnings per share to the extent to which they are dilutive. The ESP shares and share grants have not been included in the determination of basic earnings per share. Details relating to the ESP shares are set out in Note 21. 29. Other significant accounting policies (a) Principles of consolidation The consolidated financial statements incorporate all of the assets, liabilities and results of Freelancer Limited and all subsidiaries. Subsidiaries are all entities over which the Group has control. The Group controls an entity when it 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. A list of the subsidiaries is provided in Note 25. The assets, liabilities and results of all subsidiaries are fully consolidated into the financial statements of the Group from the date on which control is obtained by the Group. The consolidation of a subsidiary is discontinued from the date that control ceases. Intercompany transactions, balances and unrealised gains or losses on transactions between group entities are fully eliminated on consolidation. Accounting policies of subsidiaries have been changed and adjustments made where necessary to ensure uniformity of the accounting policies adopted by the Group. 92 NOTES TO THE FINANCIAL STATEMENTSFREELANCER LIMITED 2015 ANNUAL REPORTEquity interests in a subsidiary not attributable, directly or indirectly, to the Group are presented as “non-controlling interests”. The Group initially recognises non-controlling interests that are present ownership interests in subsidiaries and are entitled to a proportionate share of the subsidiary’s net assets on liquidation at either fair value or at the non-controlling interests’ proportionate share of the subsidiary’s net assets. Subsequent to initial recognition, non-controlling interests are attributed their share of profit or loss and each component of other comprehensive income. Non-controlling interests are shown separately within the equity section of the statement of financial position and statement of comprehensive income. (b) Goods and Services Tax (GST) and Valued Added Tax (VAT) Revenues, expenses and assets are recognised net of the amount of associated GST and VAT, except where the amount of GST and VAT incurred is not recoverable from the relevant taxation authority. In these circumstances, the GST and VAT is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables are stated inclusive of the amount of GST and VAT receivable or payable. The net amount of GST and VAT recoverable from, or payable to, the relevant taxation authority is included with other receivables or payables in the statement of financial position. Cash flows are presented in the cash flow statement on a gross basis. The GST and VAT components of cash flows arising from investing or financing activities which are recoverable from, or payable to, the taxation authority are presented as operating cash flows included in receipts from customers or payments to suppliers. Commitments and contingencies are disclosed net of the amount of GST and VAT recoverable from, or payable to, the relevant taxation authority. (c) Research & development Costs relating to research and development of new software products are expensed as incurred until technological feasibility in the form of a working model has been established. At such time costs may be capitalised, subject to recoverability. Software development costs incurred subsequent to the establishment of technological feasibility have not been significant, and the Group has not capitalised any software development costs to date. (d) Foreign currency transactions and balances Functional and presentation currency The functional currency of each of the Group entities is measured using the currency of the primary economic environment in which that entity operates. The consolidated financial statements are presented in Australian dollars, which is the parent entity’s functional and presentation currency. Transactions and balances Foreign currency transactions are translated into functional currency using the exchange rates prevailing at the date of the transaction. Foreign currency monetary items are translated at the period-end exchange rate. Non-monetary items measured at historical cost continue to be carried at the exchange rate at the date of the transaction. Non-monetary items measured at fair value are reported at the exchange rate at the date when fair values were determined. Exchange differences arising on the translation of monetary items are recognised in the profit or loss, except where deferred in equity as a qualifying cash flow or net investment hedge. Exchange differences arising on the translation of non-monetary items are recognised directly in other comprehensive income to the extent that the underlying gain or loss is recognised in other comprehensive income; otherwise the exchange difference is recognised in profit or loss. Group companies The financial results and position of foreign operations whose functional currency is different from the Group’s presentation currency is translated as follows: • Assets and liabilities are translated at period end exchange rates prevailing at that reporting date. • Income and expenses are translated at average exchange rates for the period. • Retained earnings are translated at the exchange rates prevailing at the date of the transaction. 93 NOTES TO THE FINANCIAL STATEMENTSFREELANCER LIMITED 2015 ANNUAL REPORTExchange differences arising on translation of foreign operations with functional currencies other than Australian dollars are recognised in other comprehensive income and included in the foreign currency translation reserve in the statement of financial position. The cumulative amount of these differences is reclassified into profit or loss in the period in which the operation is disposed of. (e) Impairment of assets At the end of each reporting date, the Group reviews the carrying values of its tangible and intangible assets to determine whether there is any indication that those assets have been impaired. If such an indication exists, the recoverable amount of the asset, being the higher of the asset’s fair value less costs to sell and value in use, is compared to the asset’s carrying value. Any excess of the asset’s carrying value over its recoverable amount is recognised immediately in the profit or loss. Impairment testing is performed annually for goodwill and intangible assets with indefinite lives. Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash generating unit to which the asset belongs. (f) Comparative figures When required by Accounting Standards, comparative figures have been adjusted to conform to changes in presentation for the current financial year. Where the Group has retrospectively applied an accounting policy, made a retrospective restatement or reclassified items in its financial statements, an additional statement of financial position as at the beginning of the earliest comparative period will be disclosed. (g) Critical accounting estimates and judgments The directors evaluate estimates and judgements incorporated into the financial report based on historical knowledge and best available current information. Estimates assume a reasonable expectation of future events and are based on current trends and economic data, obtained both externally and within the Group. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and judgements that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. Business Combinations Following the guidance in AASB 3: Business Combinations, the Group has made assumptions and estimates to determine the purchase price of businesses acquired as well as its allocation to acquired assets and liabilities. To do so, the Group is required to determine at the acquisition date fair value of the identifiable net assets acquired, including intangible assets such as brand, customer relationships and liabilities assumed. Goodwill is measured as the excess of the fair value of the consideration transferred including the recognised amount of any non-controlling interest over the net recognised amount of the identifiable assets and liabilities. The assumptions and estimates made by the Group have an impact on the asset and liability amounts recorded in the financial statements. In addition, the estimated useful lives of the acquired amortisable assets, the identification of intangible assets and the determination of the indefinite or finite useful lives of intangible assets acquired will have an impact on the Group’s future profit or loss. Impairment of intangible assets The Group assesses impairment at each reporting date by evaluating conditions specific to the group that may lead to impairment of assets. Where an impairment trigger exists, the recoverable amount of the asset is determined. Value-in-use calculations performed in assessing recoverable amounts incorporate a number of key estimates. During the year ended 31 December 2015, no impairment has been recognised in respect of intangible assets. The Group assessed recoverability of goodwill based on the present value of cash flow projections over a 6 year period. Should any of the intangible assets fail to perform, an impairment loss would be recognised up to the maximum carrying value of intangible assets at 31 December 2015 of $23,850,000 (2014: $12,953,000). 94 NOTES TO THE FINANCIAL STATEMENTSFREELANCER LIMITED 2015 ANNUAL REPORTProvisions for doubtful accounts and transaction losses Provision is made in respect of the Group’s best estimate of doubtful accounts and transaction losses based on historical experience. Share based payments The Group 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 with the assistance of an external valuation with the assumptions detailed in Note 21. 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 expenses and equity. Income taxes The Group is subject to income taxes in Australia and jurisdictions where it has foreign operations. Judgment is required in determining the worldwide provision for income taxes. There are transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain. The Group estimates its tax liabilities based on the Group’s understanding of the tax law. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred tax provisions in the period in which such determination is made. Deferred tax assets Deferred tax assets are recognised for deductible temporary differences and unused tax losses as management considers that it is probable that future taxable profits will be available to utilise those temporary differences and unused tax losses. Significant management judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and the level of future taxable profits. Trust assets and liabilities The Group’s online payment services segment, namely the business of Escrow.com, is a regulated entity that holds funds on behalf of its users in trust bank accounts. At 31 December 2015 the cash balance in trust amounted to A$26,952,000, which has a corresponding liability of the same amount owing to its users. The Group has determined that trust cash is not a resource controlled by the Group, nor does the Group derive any economic benefit from these user funds, and therefore the Group does not have the risks and rewards of ownership of the funds. Consequently, trust assets are not recognised as an asset in the Group’s financial statements, and neither is the corresponding trust liability recognised as a liability in the Group’s financial statements. (h) Changes in accounting policies The accounting policies applied by the Group in this consolidated financial report are the same as those applied by the Group in its consolidated financial report for the year ended 31 December 2014. (i) New Accounting Standards for application in future periods Accounting Standards and Interpretations issued by the AASB that are not yet mandatorily applicable to the Group, together with an assessment of the potential impact of such pronouncements on the Group when adopted in future periods, are discussed below: • AASB 9: Financial Instruments and associated Amending Standards (applicable for annual reporting periods commencing on or after 1 January 2018). The Standard will be applicable retrospectively (subject to the comment on hedge accounting below) and includes revised requirements for the classification and measurement of financial instruments, revised recognition and derecognition requirements for financial instruments and simplified requirements for hedge accounting. 95 NOTES TO THE FINANCIAL STATEMENTSFREELANCER LIMITED 2015 ANNUAL REPORTThe key changes made to the Standard that may affect the Group on initial application include certain simplifications to the classification of financial assets, simplifications to the accounting of embedded derivatives, and the irrevocable election to recognise gains and losses on investments in equity instruments that are not held for trading in other comprehensive income. AASB 9 also introduces a new model for hedge accounting that will allow greater flexibility in the ability to hedge risk, particularly with respect to hedges of non-financial items. Should the entity elect to change its hedge policies in line with the new hedge accounting requirements of AASB 9, the application of such accounting would be largely prospective. The directors do not anticipate that the adoption of AASB 9 will have any significant impact on the Group’s financial instruments. • AASB 15: Revenue from Contracts with Customers (applicable to annual reporting periods beginning on or after 1 January 2018). When effective, this Standard will replace the current accounting requirements applicable to revenue with a single, principles- based model. Except for a limited number of exceptions, including leases, the new revenue model in AASB 15 will apply to all contracts with customers as well as non-monetary exchanges between entities in the same line of business to facilitate sales to customers and potential customers. The core principle of the Standard is that an entity will recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for the goods or services. To achieve this objective, AASB 15 provides the following five-step process: • • • • • identify the contract(s) with a customer; identify the performance obligations in the contract(s); determine the transaction price; allocate the transaction price to the performance obligations in the contract(s); and recognise revenue when (or as) the performance obligations are satisfied. The transitional provisions of this Standard permit an entity to either: restate the contracts that existed in each prior period presented as per AASB 108: Accounting Policies, Changes in Accounting Estimates and Errors (subject to certain practical expedients in AASB 15); or recognise the cumulative effect of retrospective application to incomplete contracts on the date of initial application. There are also enhanced disclosure requirements regarding revenue. The directors do not anticipate that the adoption of AASB 15 will have any significant impact on the Group’s financial statements. 96 NOTES TO THE FINANCIAL STATEMENTSFREELANCER LIMITED 2015 ANNUAL REPORTDIRECTOR’S DECLARATION In the Directors’ opinion: (a) the Financial Statements and notes of the consolidated entity set out on pages 53 to 91 are in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the consolidated entity’s financial position as at 31 December 2015 and of its performance for the financial year ended on that date; and (ii) complying with Australian Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; (b) Note 2(a) confirms that the Financial Statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board; (c) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable; and (d) the Directors have been given the declarations by the Chief Executive Officer and Chief Financial Officer required by section 295A of the Corporations Act 2001 for the financial year ending 31 December 2015. This declaration is made in accordance with as resolution of the Directors. On behalf of the directors Matt Barrie Chairman 23 February 2016 97 NOTES TO THE FINANCIAL STATEMENTSFREELANCER LIMITED 2015 ANNUAL REPORTFREELANCER LIMITED ABN 66 141 959 042 AND CONTROLLED ENTITIES INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF FREELANCER LIMITED AND CONTROLLED ENTITIES Report on the Financial Report We have audited the accompanying financial report of Freelancer Limited, which comprises the consolidated statement of financial position as at 31 December 2015, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, notes comprising a summary of significant accounting policies and other explanatory information and the directors’ declaration of the consolidated entity comprising the company and the entities it controlled at the year’s end or from time to time during the financial year. Directors’ Responsibility 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 is free from material misstatement, whether due to fraud or error. In Note 2, the directors also state, in accordance with Accounting Standard AASB 101: Presentation of Financial Statements, that the financial statements comply with International Financial Reporting Standards (IFRS). Auditor’s Responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. 98 NOTES TO THE FINANCIAL STATEMENTSFREELANCER LIMITED 2015 ANNUAL REPORTFREELANCER LIMITED ABN 66 141 959 042 AND CONTROLLED ENTITIES INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF FREELANCER LIMITED AND CONTROLLED ENTITIES Auditor’s Opinion In our opinion: a) the financial report of Freelancer Limited is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the consolidated entity’s financial position as at 31 December 2015 and of its performance for the year ended on that date; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and b) the financial report also complies with International Financial Reporting Standards as disclosed in Note 2. Report on the Remuneration Report We have audited the remuneration report included in pages 42 to 46 of the directors’ report for the year ended 31 December 2015. The directors of the company are responsible for the preparation and presentation of the remuneration report in accordance with s 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. Auditor’s Opinion In our opinion the remuneration report of Freelancer Limited for the year ended 31 December 2015 complies with s 300A of the Corporations Act 2001. Hall Chadwick Hall Chadwick Level 40, 2 Park Street Sydney NSW 2000 GRAHAM WEBB Partner Dated: 23 February 2016 99 NOTES TO THE FINANCIAL STATEMENTSFREELANCER LIMITED 2015 ANNUAL REPORT Additional ASX Information Shareholder information Additional information required by the Australian Securities Exchange Limited Listing Rules and not disclosed elsewhere in this report. This additional information was applicable as at 29 February 2016. Substantial shareholders The names of substantial shareholders who have notified the Company in accordance with section 671B of the Corporations Act 2001 are: Robert Matthew Barrie1 Simon Clausen and Startive Holdings Limited and its related bodies2 Top 20 Shareholders as at 29 February 2016 Rank Name 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 MATT BARRIE HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED J P MORGAN NOMINEES AUSTRALIA LIMITED NATIONAL NOMINEES LIMITED MR DARREN WILLIAMS CITICORP NOMINEES PTY LIMITED NICHOLAS P DE JONG MERRILL LYNCH (AUSTRALIA) NOMINEES PTY LIMITED BRISPOT NOMINEES PTY LTD UBS NOMINEES PTY LTD MR RODNEY JOHN SELLICK HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED - A/C 2 UBS WEALTH MANAGEMENT AUSTRALIA NOMINEES PTY LTD MAROBAR HOLDINGS PTY LIMITED MR MICHAEL JOHN RUHFUS RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY LIMITED CS FOURTH NOMINEES PTY LIMITED PLASMA EQUITIES RESEARCH PTY LTD MR JONATHON SEALLY VIKRAM SHARMA Total top 20 holders Total remaining holders Number of Shares 199,417,131 163,925,101 Number of ordinary shares held % of ordinary shares held 191,435,150 168,207,248 12,244,940 11,259,288 10,605,660 10,368,584 3,006,164 2,745,905 2,564,808 2,151,360 1,220,833 1,050,000 837,977 789,500 789,500 788,790 701,932 600,000 525,135 500,000 42.8 37.6 2.7 2.5 2.4 2.3 0.7 0.6 0.6 0.5 0.3 0.2 0.2 0.2 0.2 0.2 0.2 0.1 0.1 0.1 422,392,774 25,359,769 94.3 5.7 1. 2. Notified 10 August 2015. Included a relevant interest in 7,853,672 fully paid ordinary shares by virtue of the Director having had a voting power of over 20% in the Company, which had a relevant interest as a result of trading restrictions over shares issued under the ESP. Notified 10 August 2015. Included a relevant interest in 7,853,672 fully paid ordinary shares by virtue of the Director having had a voting power of over 20% in the Company, which had a relevant interest as a result of trading restrictions over shares issued under the ESP. 100 ADDITIONAL ASX INFORMATIONFREELANCER LIMITED 2015 ANNUAL REPORTDistribution of ordinary shareholders as at 29 February 2016 Number of shareholders Number of Shares 1 - 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over Total 618 1,001 324 378 62 2,383 Restricted securities as at 29 February 2016 There are no restricted securities on issue for the purpose of the ASX Listing Rules. Class of restricted securities Quoted ESP shares Unquoted ESP shares Total shares subjected to trading restrictions Voting Rights Nature of restriction Various dates ending no later than 13 November 2017 Various dates ending no later than 21 December 2019 364,807 2,941,615 2,644,431 11,202,931 430,598,759 447,752,543 Number of Shares 3,687,075 5,855,000 The voting rights attaching to ordinary shares, set out in the Company’s Constitution are: a. at meetings of members, each member is entitled to vote in person or by proxy, attorney or representative; and b. on a show of hands, every person present who is a member has one vote, and on a poll every member present has a vote for each fully paid share owned. There are no voting rights attached to unlisted options, voting rights will be attached to unlisted ordinary shares once issued and to options upon exercise. On-market Buy Back There is no current on-market buy back. 101 ADDITIONAL ASX INFORMATIONFREELANCER LIMITED 2015 ANNUAL REPORTCORPORATE DIRECTORY Company Directors Mr Robert Matthew Barrie Chairman and Chief Executive Officer Mr Darren Nicholas John Williams Non Executive Director Mr Simon Alvin Clausen Non Executive Director Company Secretary Neil Leonard Katz Registered Office Share Registry External Auditors Freelancer Limited Level 20 680 George Street Sydney NSW 2000 Australia Boardroom Limited Grosvenor Place, Level 12 225 George Street Sydney NSW 2000 Australia Hall Chadwick Level 40 2 Park Street Sydney NSW 2000 Australia Securities Exchange Listing Freelancer Limited shares are listed on the Australian Securities Exchange Listing code: FLN 102 ADDITIONAL ASX INFORMATIONFREELANCER LIMITED 2015 ANNUAL REPORTMasaharu Hayataki Japanese Translator 5.0/5.0 rating | 58 reviews Member since March 2013 Prague, Czech Republic Freelancer.com lets me work anywhere I want – I have the choice to stay home or go out and travel the world. “ In the coming months, I’m visiting Nuremberg, München, Innsbruck, Venezia, Lyon, and Madrid.” 103 103 FREELANCER LIMITED 2015 ANNUAL REPORT ACN 141 959 042

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