Freelancer Limited
Annual Report 2019

Plain-text annual report

F R E E L A N C E R L I M I T E D A C N 1 4 1 9 5 9 0 4 2 ANNUAL REPORT 2019 This radiation shield design for NASA cost $500 USD and took 15 days Albertus J. @albertusjanuardy A N N U A L R E P O R T 2 0 1 9 F R E E L A N C E R L I M I T E D A C N 1 4 1 9 5 9 0 4 2 Index PAGE CONTENTS 01 41 45 56 Chairman’s Letter Directors’ Report Review of Operations Auditor’s Independence Declaration 57 Consolidated Statement of Profit or Loss and Other Comprehensive Income 58 59 60 61 99 Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Financial Statements Directors’ Declaration 100 Independent Auditor’s Report 105 Additional ASX Information 107 Corporate Directory CHAIRMAN’S LETTER Chairman’s Letter Dear Shareholders, In 2019 the Freelancer Limited Group achieved all-time record net revenue of $58.0 million (up 12% on pcp) and all-time Gross Payment Volume (GPV) of $787.7m (up 6.4% on pcp). Breaking down by segment, both Freelancer and Escrow hit an all-time record GPV of $181.4m (up 6.7% on pcp) and $606.3m (up 6.4% on pcp) respectively. For the year, the company achieved positive operating cash flow of $2.1 million, and was effectively break-even with Operating EBITDA of $(1.1)m and Operating NPAT of $(1.3)m. As of 31 December 2019, the Company had $32.0 million in cash and cash equivalents (down 3.6% on pcp). Many countries are already in crisis over advanced technical skills. Japan is estimated to be already short 500,000 engineers by one ministry of internal affairs estimate. In Australia, enrolments in IT are down 27% from 2002-15. Over the same period, effective full time student load for Computer Science was down 50%, Programming down 30%, and Artificial Intelligence down 35% to 435 students. To bolster numbers, these countries need to turn to foreign students. Of the 13,500 IT graduates in Australia in 2015, 49% were foreign. In the same year the country only produced 146 domestic computer science PhDs and 20 Masters by Research graduates4. The United States faces similar issues, and while STEM grads A detailed analysis of the activities of the group are provided in are increasing as a percentage of all graduates, a dwindling the Review of Operations in the Directors’ Report. number of those students are Americans themselves. In 2017 foreign nationals accounted for 81% of electrical engineering majors and grad students, 79% in computer science, 75% in industrial engineering, 62% in mechanical engineering and 55% in materials and metallurgical engineering. Companies wishing to stay competitive at scale will increasingly need to turn to cloud labor to attract skills and marshall these resources. One company that has demonstrated this at scale is Uber, which has used a network of two million freelance drivers to transform the transportation industry. Enterprises in other industries are now asking how crowdsourced resources can be marshalled to take strategic advantage in their industry. Freelancer In FY19, revenue from Freelancer.com was $50.4m (up 13% on pcp), and we added 9.1 million registered users and 1.9 million jobs posted. The defining characteristic of the 21st century will be the competition for intellectual capital. Globally, birth rates are dropping below replacement rates. The United States, United Kingdom, Canada, Australia and New Zealand all have birth rates that are below the replacement rate of 2.1. Even in Bangladesh, the birth rate of 2.067 is now below the replacement rate. In Poland it is 1.29 and in Portugal it is 1.24. At the same time, supplemental education as a percentage of income is dropping - in Asia it is 15%, but in the United States it is 2%. Advanced economies are not naturally producing enough people to sustain their populations, and the importance of education in the household budget is falling. Increasingly globalised companies are scrambling to attain the resources to compete in the 21st century at scale. 1 FREELANCER LIMITED ANNUAL REPORT 2019 CHAIRMAN’S LETTER Other signed customers in FY19 included, but was not limited to an import/export marketplace, a commodities marketplace, a vehicle inspection marketplace, two freelancing marketplaces, three more motor vehicle and heavy equipment marketplaces including TruckTrailerTractor, four more IPv4 address marketplaces, eleven domain marketplaces & an equipment marketplace. Escrow.com's strategy of pursuing licensing in every state and territory in the US and Canada continued to be recognised as a key distinguishing feature by marketplace partners. Currently Escrow.com is licensed in 48 US states with two further state licenses in the final stages of processing. We aim to complete our US program in 2020. While we are at early days in enterprise adoption of organisation- wide crowdsourcing at scale, we strongly believe that Fortune In FY19 Escrow.com added Canadian dollar support and filed as 500 organisations have the mindset that in the future some a Money Services Business in Quebec. With this filing achieved percentage of their spend on headcount will be through cloud it is our immediate priority to file our United Kingdom Payments labour. We have been told by customers and seen internal Institution Application. benchmarks where future success is variously defined as 5%, 10% or 20% of global spend. The big question is how many years StartCon will it take to get there- five years, ten years or more? Over the In 2019 we ran a great event with an exceptional line up of last three or four years, enterprise has been asking the same speakers including Australia’s 29th Prime Minister Malcolm questions it asked Amazon about Cloud Computing in the early Turnbull and famed security expert and libertarian John McAfee. years: “Where will my data be? Who will have access? Will it be Due to Covid-19 we will not be running Startcon in 2020 which secure?”. Now that companies like Uber have demonstrated will have a beneficial impact on earnings of approximately $0.5 success at scale, others are looking to take strategic advantage million. in their own industry by using Freelancer to efficiently locate, marshall and manage cloud work at scale. Summary Freelancer Enterprise grew strongly, contributing $5.2 million collectively undergoing a great work online experiment. Our in enterprise services revenue in the year, over and above enterprise product is now being touted internally by our enterprise marketplace fees. customers as part of their “Covid-19” response. With Covid-19 the pandemic well underway, the world is Escrow In FY19 Escrow.com achieved an all-time record Gross Payment Volume of $606.3m, up 6.4% on pcp. The team is busy with our heads down focused on execution. The Board and myself wish to thank our staff, shareholders and 41.7 million users across the group for their support. Escrow.com continues to hold market dominant positions in Regards, established asset verticals including Internet domain names, websites and intellectual property. In emerging verticals, Escrow. com is now a leading technology platform for the exchange of IPv4 addresses, servicing over 70% of all registered IPv4 brokers in America. In the last two years GPV for IPv4 rose 530% to US$51 million (unaudited). Matt Barrie Chairman 9 April 2020 We are highly optimistic about partner opportunities in our API ecosystem as marketplace partners seek a licensed escrow platform to integrate. In FY19 we signed and are in the process of deploying into a major North American automotive marketplace that is first in its category. There is no minimum volume commitment for this customer. We will announce more on their go-live date which is yet to be scheduled. FREELANCER LIMITED ANNUAL REPORT 2019 2 MARKETPLACE STATISTICS 41.7m TOTAL REGISTERED USERS FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 3 FREELANCER LIMITED ANNUAL REPORT 2019 42 40 38 36 34 32 30 28 26 24 22 20 18 16 14 12 10 8 6 4 2 0 17m TOTAL JOBS POSTED MARKETPLACE STATISTICS 17 16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1 0 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FREELANCER LIMITED ANNUAL REPORT 2019 4 ABOUT FREELANCER Freelancer.com is the world’s largest freelancing marketplace With over 41.7 million registered users Freelancer is the world’s largest freelancing and crowdsourcing marketplace by total number of users and jobs posted. We’re changing lives in the developing world by providing opportunity and income. Five billion people on the planet live on $10 a day or less. On Freelancer they can earn $10 an hour or more, as they develop their skills, education and reputation. 5 FREELANCER LIMITED ANNUAL REPORT 2019 ABOUT FREELANCER FREELANCER LIMITED ANNUAL REPORT 2019 6 FREELANCER CASE STUDIES We're helping founders, entrepreneurs and startups around the world take their businesses to new heights “After launching our website, we quickly realized the need to establish a reputable brand that could be easily recognized online. Hiring a professional freelancer to do our branding allowed our team to focus on tasks that were more impactful for our customers and our revenue. The freelancer team was very patient with us throughout our many requested revisions. They were always professional and happy to make sure that we were satisfied with their work.” Ryan Donk CEO, Roomsteals United States of America 7 FREELANCER LIMITED ANNUAL REPORT 2019 FREELANCER CASE STUDIES FREELANCER LIMITED ANNUAL REPORT 2019 8 FREELANCER CASE STUDIES 9 FREELANCER LIMITED ANNUAL REPORT 2019 FREELANCER CASE STUDIES We help our customers grow their revenue, their reach and their possibilities “I met one of my best and most valuable freelancers here. We've been working together for almost a year, and it’s a pure pleasure. He’s always on time, and the quality of his writing is impeccable. The number of visitors and, therefore, sales increased on my site after I published the content. That’s why we're still cooperating. He’s writing lots of quality articles for me. I’m thinking about hiring an SEO specialist and SMM manager soon. I’ve checked lots of profiles, and have already selected a few candidates. In awhile, I’ll need their services, and of course, I’ll use freelancer.com to cooperate with them”. Sonia Novakivska Writer Ukraine FREELANCER LIMITED ANNUAL REPORT 2019 10 FREELANCER CASE STUDIES We change lives by opening up global markets to small businesses “I knew that the skills needed to translate my ebook from German to Dutch and Japanese were not in my wheelhouse. My experience with Sanjay was fantastic! At first I had only hired him to translate one document from German into Dutch, but he saw that I had another project and was able to complete the English to Dutch and Dutch to Japanese translations. The end product helped me sell more ebooks and expand my audience to a global one.” Monica Wappel University Lecturer Canada 11 FREELANCER LIMITED ANNUAL REPORT 2019 FREELANCER CASE STUDIES FREELANCER LIMITED ANNUAL REPORT 2019 12 FREELANCER CONTESTS This radiation shield design for NASA cost $500 USD and took 15 days Albertus J. @albertusjanuardy 13 FREELANCER LIMITED ANNUAL REPORT 2019 FREELANCER CONTESTS NASA Contest: Develop an Origami/Folding Concept for Radiation Shield Packing/Deploying “Albertus J. did an outstanding job developing a spacecraft radiation shielding design based on origami design methods. This was a contest and this design concept was selected as 1st place from 159 entries. Albertus J. provided a design that was very well thought through. It took an origami concept and adapted it to a thick material while taking into account a honeycomb material and how one would package that (most realistic from that perspective). It also had an additional benefits of being advantageous for Micro-Meteoroid & Orbital Debris (MMOD) shielding. Albertus J. was very responsive to our feedback and worked hard to provide a high quality product.” - NASA Tournament Lab FREELANCER LIMITED ANNUAL REPORT 2019 14 MARKETPLACE STATISTICS Marketplace Statistics Freelancer is a game-changer for entrepreneurs, small businesses, and large organisations. We provide easy access to talented freelancers from all around the world, who offer a wide range of services at competitive prices. $208 AVERAGE COMPLETED PROJECT SIZE IN USD 74% OF JOBS RECEIVE A BID WITHIN 60 SECONDS 610k+ MESSAGES SENT PER DAY 41.7m+ TOTAL REGISTERED USERS 17m+ TOTAL JOBS POSTED $5.6b+ TOTAL JOBS POSTED IN USD 15 FREELANCER LIMITED ANNUAL REPORT 2019 FREELANCER CONTESTS FREELANCER CONTESTS Get the perfect design by crowdsourcing your ideas. The best ideas come about from casting your net far and wide. Running a contest on Freelancer is the most effective way of crowdsourcing ideas from millions of creative individuals. Ideation is no longer limited by geographic reach or your professional network. Safety-critical companies like NASA and Airbus rely on freelancers to provide them with fresh and innovative ideas. In 2019, these companies have launched dozens of contests, and awarded tens of thousands of dollars for the best ideas put forward. Thousands of individuals have launched successful freelancing careers from winning a contest. In 2019, more than half of all contest winners were first time winners. 115 AVERAGE ENTRIES PER CONTEST 60% OF CONTESTS RECEIVE ENTRIES WITHIN 1 HOUR FREELANCER LIMITED ANNUAL REPORT 2019 16 FREELANCE ENTERPRISE FREELANCER ENTERPRISE Access a global workforce to innovate at scale, faster and for a fraction of the price. At Freelancer, our vision is to transform the concept of work. We built a platform that provides equal opportunities to any freelancer in the world. As a result, we have gathered the largest global talent pool, with unparalleled liquidity. Enterprises today face a serious skills shortage. With technology advancing at an accelerating pace, organisations need to rapidly deploy an elastic workforce. Airbus, Unilever and Deloitte are among the 80% of Fortune 500s that thrive on Freelancer. The world’s most innovative companies use Freelancer as a growth engine to free up budget, innovate faster and accelerate their time to market. Freelancer Enterprise provides a solution that is fully embeddable into the organisation’s workflow. Global organisations use Freelancer to access specialised skills on demand at scale, while having assurance over hiring and procurement processes. 17 FREELANCER LIMITED ANNUAL REPORT 2019 80%+ FORTUNE 500 COMPANIES CURRENTLY USE FREELANCER 50% OF U.S. FULL-TIME WORKFORCE WILL BE FREELANCERS BY 2025 (FORBES) FREELANCE ENTERPRISE FREELANCER ENTERPRISE Freelancer powers the workforce of the future. This was a pivotal year for the Freelancer Enterprise group. In 2019 we embarked on multiple exciting projects with Fortune 500 multinational organisations. These included engagements providing field services in the European and South East Asian regions for the telecommunications and computer hardware industries. These engagements are designed to disrupt the traditional field services business models via crowdsourcing. The Freelancer ecosystem is an extension of an enterprise's workforce - the elastic workforce. Freelancer is delivering tools that allow large organisations to easily integrate their workforce into the cloud, discover talent around the world and manage globally distributed work with a high level of assurance. Companies need the agility to respond to shifting demands within their organisation. Freelancer has designed a platform which rapidly deploys in-house talent to the most urgent and critical areas of the business. The matchmaking and resource management platform enables businesses to increase staff utilisation or client billable hours, fast. 13000+ USERS ON THE DELOITTE PLATFORM BY APRIL 2020 FREELANCER LIMITED ANNUAL REPORT 2019 18 FREELANCER MOBILE FREELANCER MOBILE The world’s largest freelancing site in your pocket. Work is no longer restricted to a physical office, or a computer sitting at a desk. Freelancer understands the importance of mobile platforms in the world of remote work. Our customers have access to the Freelancer experience from the convenience of their mobile devices. The mobile app, available on iOS and Android, empowers our customers to hire, communicate with and pay freelancers from a device that is always nearby. In 2019, Freelancer experienced a 38% growth in iOS and Android app downloads, as the global workforce goes mobile. 1.6m+ DOWNLOADS OF iOS AND ANDROID APPS, A 38% INCREASE IN FY19 55% INCREASE IN WEEKLY ACTIVE MOBILE USERS IN FY19 19 FREELANCER LIMITED ANNUAL REPORT 2019 WORKING IN THE CLOUD WORKING IN THE CLOUD We provide a platform that lets you work the way you’d like to work. On Freelancer you can begin a project with a fixed scope and price in mind - the best option for projects that have a well-defined scope and deliverables. Alternatively, you can work on an ongoing basis. Payments are based on the freelancer’s time spent working, at a clear and transparent hourly rate. You can review the outcomes and billings for the project on a weekly basis, and a summary of all your project’s activity is automatically sent to you. Hourly projects are a great choice for building long-term, open-ended working relationships with freelancers. $332 AVERAGE VALUE OF HOURLY PROJECTS IN USD 32 AVERAGE LENGTH OF ENGAGEMENT IN DAYS FREELANCER LIMITED ANNUAL REPORT 2019 20 FREELANCER API FREELANCER API Add the power and depth of the world’s largest global cloud workforce to your website, app or software with a Freelancer API integration. The Freelancer API is the foundation of the Freelancer ecosystem. Web and mobile applications alike share the same backend code and infrastructure which third parties can now use to power their applications. In 2019 Airbus launched an internal platform to facilitate crowdsourcing throughout their organisation using the freelancer.com API. Using this platform, Airbus has procured talented freelancers for projects requiring hard-to-fill skills such as machine learning and robotics. Organisations looking to adapt to a changing world and capitalise on the future of work can directly source talent and expertise through the Freelancer API. The Freelancer API allows workforce automation at scale with unparalleled speed and savings through elastic cloud labour. 21 FREELANCER LIMITED ANNUAL REPORT 2019 LOCATION-BASED JOBS AND FIELD SERVICES LOCATION-BASED JOBS AND FIELD SERVICES The world largest marketplace for online jobs is now the best marketplace for local jobs. In 2019, freelancer.com underwent a platform-wide, end-to-end upgrade for location-based projects, from simple delivery projects to field services deployments for large enterprises. Enhanced posting and job management experiences help users get bids faster and get location-based jobs done anywhere - on time, on budget. 42m+ GLOBAL USERS 100k CITIES AROUND THE WORLD HAVE FREELANCERS IN OUR NETWORK FREELANCER LIMITED ANNUAL REPORT 2019 22 RECRUITER RECRUITER With 42 million options, why not let one of our experts find you the perfect freelancer? Recruiter is Freelancer's flagship managed service. With a global presence, our recruiters provide 24x7 coverage to ensure that we can assist our clients anytime, anywhere. Utilising custom tooling optimised on top of our matchmaking algorithm, our team works with our clients to clarify budget and 27% GROWTH IN RECRUITER PROJECTS IN FY19 50k RECRUITER requirements before conducting an extensive search and interview process from PROJECTS IN FY19 our curated talent pool of vetted preferred freelancers. Our recruiters work closely with the top 1% of freelancers on the platform, the Preferred Freelancer Program, to ensure that you’ll always have the perfect talent for the job. 33% GROWTH IN OUR PREFERRED TALENT COMMUNITY 23 FREELANCER LIMITED ANNUAL REPORT 2019 FREIGHTLANCER FREIGHTLANCER Freight anything, anywhere with Freightlancer.com Freightlancer is a combination of a marketplace and management system with global reach. It’s simplifying the supply chain for freight owners and transport companies, with major customers in the mining, construction, tunnelling, rail, oil & gas industries. Powered by the Freelancer network, it also facilitates rapid metro delivery with the network of 42 million freelancers. Freightlancer 7500+ LICENSED TRANSPORT OPERATORS 2700+ REGISTERED FREIGHT facilitates the fast, reliable and cost efficient transport of freight while ensuring OWNERS a high standard of compliance. Major freight owners such as Newcrest Mining and Boart Longyear use Freightlancer to reduce the cost while assuring the security of freight deliveries at scale. Transport operators, large and small, trust Freightlancer with their fleet capacities and use our app to manage freight end to end. 1700+ LOADS CREATED IN FY19 FREELANCER LIMITED ANNUAL REPORT 2019 24 ESCROW.COM Never buy or sell online without using Escrow.com Escrow.com is the world’s most secure payment method from a counterparty risk perspective. All funds transacted using Escrow.com are kept in trust, safeguarding both buyer and seller. Escrow Pay is the simplest way to add escrow payments to your website, mobile app, online store, classified site or marketplace. The Escrow Platform API provides payments for your website, marketplace, classified site, shopping cart or mobile app with no chargebacks, ever. Escrow Offer allows buyers and sellers to negotiate a price for domain names, cars, boats, aircraft, fine art or any high-value item on any website or mobile app through a Make Offer button or API call. In 2019 Escrow.com extended its regulatory footprint to money transmission and escrow licences across 48 U.S. states. We also extended our support into Canadian Dollars, adding to US Dollars, Australian Dollars and Euros. $606m SECURELY TRANSACTED IN 2019 $4b+ IN USD SECURELY TRANSACTED SINCE 1999 300 PARTNERS USE THE ESCROW.COM API 25 FREELANCER LIMITED ANNUAL REPORT 2019 ESCROW.COM Escrow.com is used to secure a wide range of valuable or complex transactions Personal Protective Equipment Intellectual Property Domain Names Electronics IPv4 Cars Boats Antiques Airplanes Motorcycles Collectables Import / Export Business Assets Network Equipment Gemstones & Jewellery Industrial Equipment Space Station Deposits FREELANCER LIMITED ANNUAL REPORT 2019 26 STARTCON Malcolm Turnbull 29th Prime Minister of Australia Keynote at Startcon STARTCON Australia’s largest startup & growth conference. Sold out 10 years in a row. In 2019, StartCon hosted its 10th and largest conference to date with more than 4,300 attendees over two days. The conference also featured a wide range of high profile speakers, including a widely reported on appearance by former Prime Minister of Australia the Hon. Malcolm Turnbull, Director of NASA's Goddard Space Center Dr Christyl Johnson and US Libertarian Presidential Candidate John McAfee. 4,300 ATTENDEES 160+ EXHIBITORS 750+ PITCHING STARTUPS 27 FREELANCER LIMITED ANNUAL REPORT 2019 WARRIOR FORUM WARRIORFORUM.COM The world’s #1 Internet marketing community & marketplace since 1997. Warrior Forum is the world's top internet marketing community and marketplace where marketers can find the latest news, trends, discussions and daily deals. Whether you're an agency owner, CMO or entrepreneur just starting out - we have content suitable for every level ready for you to learn from. We've partnered up with industry experts like Larry Kim, Dan Lok, Eric Siu and more to deliver high-quality content and products to the forum. 1.5m+ REGISTERED USERS 10.4m+ POSTS 1.02m+ DISCUSSIONS FREELANCER LIMITED ANNUAL REPORT 2019 28 This website design cost $200 USD Real project completed at freelancer.com Have an idea? Post your project today and get free quotes! 29 FREELANCER LIMITED ANNUAL REPORT 2019  FREELANCER LIMITED ANNUAL REPORT 2019 30 This app design cost $100 USD Real project completed at freelancer.com Have an idea? Post your project today and get free quotes! 31 FREELANCER LIMITED ANNUAL REPORT 2019  FREELANCER LIMITED ANNUAL REPORT 2019 32 This app design cost $150 USD Real project completed at freelancer.com Have an idea? Post your project today and get free quotes! 33 FREELANCER LIMITED ANNUAL REPORT 2019  FREELANCER LIMITED ANNUAL REPORT 2019 34 This label design cost $20 USD Real project completed at freelancer.com Have an idea? Post your project today and get free quotes! 35 FREELANCER LIMITED ANNUAL REPORT 2019  FREELANCER LIMITED ANNUAL REPORT 2019 36 2018 AWARDS 2019 Awards In terms of awards and recognition, Freelancer.com won a total of 11 awards in 2019 including 1 Webby Award, 6 Stevie International Business Awards, 4 APAC Stevie Awards. Escrow.com also won a total of 2 awards - all were in the 2019 Stevie International Business Awards. The Webby Awards Stevie Awards The 23rd annual Webby Awards were held at Cipriani Wall Street The Stevie Awards are the world’s premier business in New York City, the United States (U.S.) on May 13, 2019, and awards, which were created in 2002 to honor and hosted by actress Jenny Slate. The Webby Awards have been generate public recognition of the achievements and dubbed the “internet’s highest honor” and, in 2019, received more positive contributions of organizations and working than 13,000 entries from nearly all 50 states and 70 countries professionals worldwide. There are seven Stevie Awards worldwide. Freelancer.com won People’s Voice Award in the 23rd programs, each with its own focus, list of categories, and Webby Awards for the category of Best Employment Website. schedule; such as the International Business Awards that are open to all organizations worldwide, and include categories to honor accomplishments in all aspects of work life; and the Asia-Pacific Stevie Awards that are open to all organizations in the 29 nations of the Asia- Pacific region. In 2019, freelancer.com won a total of 10 Stevie Awards, including 6 Stevie International Business Awards (IBA) and 4 Asia Pacific Stevies. Escrow took out 2 Stevie International Business Awards in total: 1 silver and 1 bronze. 37 FREELANCER LIMITED ANNUAL REPORT 2019 2018 AWARDS Stevie Awards Stevie International Business Awards (IBA): Stevie International Business Awards (IBA): For Escrow.com, we won Silver Award for Company of the Year: Financial Services - Small; and Bronze Award for FinTech Solution Category. Meanwhile, for freelancer.com, we won 3 Gold Awards for Communications, Investor Relations or PR Executive of the Year : Sebastian Siseles; for Executive of the Year : Matt Barrie - Business or Professional Services; and for Technical Innovation of the Year - at Organizations with up to 1,000 Employees. Freelancer.com also won 3 Silver Awards for Company of the Year : Business or Professional Services - Large; for Communications Team of the Year; and for Most Innovative Tech Company of the Year - up to 2,500 Employees. Asia Pacific Stevies: We won 2 Gold Awards for Innovative Management in Technology Industries (more than 100 Employees); and Award for Innovation in Technology Management, Planning & Implementation (Other Service Industries); as well as 2 Bronze Awards for Excellence in Innovation in Technology Industries (more than 100 Employees); and award for Most Innovative Communications Team of the Year.and Innovation in Technology Development. FREELANCER LIMITED ANNUAL REPORT 2019 38 OUR ONLINE ECONOMY Our Online Economy This map 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 December 2019. 39 FREELANCER LIMITED ANNUAL REPORT 2019 OUR ONLINE ECONOMY FREELANCER LIMITED ANNUAL REPORT 2019 40 DIRECTORS’ REPORT Directors’ Report Your Directors submit the financial report of Freelancer Limited (the Company) for the year ended 31 December 2019. 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: 41 FREELANCER LIMITED ANNUAL REPORT 2019 DIRECTORS’ REPORT 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 California, Graduate of the Stanford Company. Serial entrepreneur with extensive experience and knowledge in the technology sector. Previously co-founded and was CEO of Sensory Networks Inc., Executive 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. a vendor of high performance network security processors, which was acquired by Intel Corporation Inc. in 2013. Relevant interest in 196,209,032 fully paid ordinary shares, including a relevant interest in 2,792,101 fully paid ordinary 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 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 193,416,931 fully paid ordinary shares (representing 42.72% of issued capital). of Sydney, Masters in Applied Finance from Macquarie University, Masters in Member of the Nomination and Remuneration Committee and Audit Electrical Engineering from Stanford, Committee. FREELANCER LIMITED ANNUAL REPORT 2019 42 DIRECTORS’ REPORT Darren 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 honours Was the Chief Technology Officer and degree in Computer Science and a Ph.D. Executive Director of the Company until in Computer Science specialising in 31 October 2015. computer networking from the University Extensive experience in computer of Sydney. security, protocols, networking and Beneficial and relevant interest in software. Previously co-founded and was CTO (and subsequently CEO) of Sensory Networks Inc., a vendor of high performance network security processors, which was acquired by Intel Corporation 10,627,165 fully paid ordinary shares (representing 2.35% of issued capital). Member of the Nomination and Remuneration Committee and Audit Committee. 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. 43 FREELANCER LIMITED ANNUAL REPORT 2019 DIRECTORS’ REPORT Simon Clausen Non-Executive Director (appointed 10 April 2010) Founding investor and Non-Executive Relevant interest in 163,142,101 fully Director of the Company. paid ordinary shares, including a relevant 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 interest in 2,792,101 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 160,350,000 fully paid ordinary shares (representing 35.42% of issued capital). venture fund that actively maintains Member of the Nomination and investments in a number of companies Remuneration Committee and Audit globally. Other directorships include Committee. LatAm Autos Limited since 2014. FREELANCER LIMITED ANNUAL REPORT 2019 44 DIRECTORS’ REPORT Company 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 and 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, was nearing breakeven at $1,591,000 (2018 loss: $1,484,000). Key Performance Highlights Year ended 31 December Financial metrics: Gross Payment Volume1 Net Revenue2 Gross Profit Gross margin (%)6 Operating EBITDA3,4 Operating EBIT3 Operating NPAT3 Operating Cash Flow5 Operational metrics: New Jobs6 (millions) Total Jobs Posted (millions) New Registered Users (excluding Escrow, millions) Total Registered Users5 (millions) FY19 $m 788 58.0 48.9 83.7% (1.1) (1.4) (1.3) 2.1 1.9 17 9.1 41.7 FY18 $m 741 51.9 44.2 85.2% (0.7) (1.2) (0.9) (0.9) 2.1 15.1 4.7 32.5 % Change +6% +12% +11% -1.8% nm nm nm nm -13% +12% +94% +28% Notes: 1. 2. 3. 4. 5. 6. 7. Gross Payment Volume (GPV) is calculated as the total payments to Freelancer and Escrow users for productsand services transacted through the Freelancer and Escrow websites plus total Freelancer and Escrow revenue.GPV is an unaudited metric. Marketplace segment FY19 GPV A$181.4 million (up 6.7% on prior correspondingperiod), Payments segment GPV A$606.3 million (up 6.3% on prior corresponding period). Net Revenue excluding Escrow.com for FY19 was $50.4m (up 13% on prior corresponding period). Excludes non-cash share based payments expense of $329k in FY19 and $559k in FY18. In FY19 lease expenses in respect of office leases have been accounted for in accordance with AASB 16 Leases.The impact is that lease expenses are no longer reflected in the P&L but are brought into account as depreciationon the right of use asset and interest paid on the corresponding lease liability. Depreciation of $2.9m and financecosts of $0.2m relating to office leases (accounted for in accordance with AASB 16 Leases) are included in theEBITDA calculation. In FY19 lease payments in respect of office leases have been accounted for in accordance with AASB 16 Leases.The impact is that lease payments are are now recorded in the cash flow statement as interest payments, disclosed in operating activities and capital payments, disclosed in financing activities. The FY18 comparatives have notbeen restated. 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. User and project/contest data includes all users and projects/contests from acquired marketplaces. Prior to May2009, all data was from acquired marketplaces. Includes Escrow.com unique users. 45 FREELANCER LIMITED ANNUAL REPORT 2019 DIRECTORS’ REPORT Total Registered Users Total Jobs Posted (Filtered) 15,000,000 12,000,000 10,000,000 7,500,000 5,000,000 2,500,000 0 Freelancer.com 42,000,000 33,600,000 25,200,000 16,800,000 8,400,000 0 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 TOTAL REGISTERED USERS AND JOBS ¹ (FILTERED) BY YEAR ON FREELANCER.COM The Company’s revenue is primarily generated from new and existing users posting and fulfilling projects and contests in the freelancer.com marketplace. In FY19, freelancer.com ended the year with 41.7 million users, adding 9.1 million users. The number of jobs posted (filtered) totalled 17 million at 31 December 2019, adding 1.9 million for the year. In the year, Freelancer Gross Payment Volume hit an all-time record of $181.4m, up 6.7% on the previous corresponding period. Net revenue for freelancer.com was $50.4m (up 13% on pcp). Freelancer Enterprise continued to grow, achieving $5.2m of enterprise services revenue in FY19. In the year, we signed Master Services Agreements with major brands in the technology, aerospace, telecommunications, field services, professional services, advertising, defense and healthcare industries. Our default agreements do not include a minimum volume commitment. “ Research can be very time consuming and intricate, but it doesn’t require a Deloitte specific skillset. We’ve found that if we develop comprehensive template or research guides that we get phenomenal products back from Freelancer that frequently exceed the breadth and depth of information of what we would have been able to produce on our own. “ Senior Manager @ Deloitte Consulting ¹ filtered for spam, advertising, test projects, unawardable or otherwise projects that are deemed bad an unable to be fulfilled FREELANCER LIMITED ANNUAL REPORT 2019 46 DIRECTORS’ REPORT Freelancer.com Of note, in FY19 we delivered ArrowPlus powered by Freelancer for Arrow Electronics, a custom marketplace for electrical and electronic engineering and Deloitte MyGigs, a talent marketplace to enable Deloitte consultants globally to more efficiently match skills with opportunities and provide greater visibility into projects and resource needs. In 4Q19 Airbus launched an internal crowdsourcing platform that was built on the Freelancer API. Figure 2: Deloitte research project for US Federal Consulting Of note, towards the end of the year the company commenced pilots in field services for technology & telecommunications in multiple countries. To the downside, as a technology company operating in 247 countries, regions and territories, we increasingly need to make changes to the website to keep up with regulatory change. This has included, but is not limited to the General Data Protection Regulation and Payment Services Directive 2 in Europe, the California Consumer Privacy Act and California Department of Business Oversight regulation in the United States, Tax Collected at Source in India, and so forth. This continues to consume engineering resources. Through FY19 engineering continued to deploy a new front-end technical stack for the website. The goal of this work is to improve the user experience, product velocity and site speed. This effort pays off a large amount of technical debt that has accrued over the years and will bring the front-end architecture to the state of the art, which should improve the user experience and retention. Furthermore, the new front- end stack is fully responsive, allowing for a significant upgrade in user experience when viewing the site through a mobile browser. Another major focus for the company was quality, with the year seeing the release of a new staging environment and production testing framework to ensure that changes are shipped to the website bug-free. The company also hired a new Director of Quality Assurance to lead this initiative. The year also saw a number of other product enhancements, including improvements to the hourly payments process and associated time tracking system, the introduction of a number of measures to reduce spam, and the addition of number of new engagement-focused features to our mobile apps resulting in a 55% increase in weekly active app users year on year. Our Recruiter offering continued to perform strongly, with an increase in volume of projects of 27% year on year. Freelancer Reviews 3,768 • Excellent Jan 2016 Jul 2016 Jan 2017 Jul 2017 Jan 2018 Jul 2018 Jan 2019 July 2019 Jan 2020 SOURCE: TRUSTPILOT FIGURE 3: ACTIVE FEES (USD EQUIV.). NOTE Y-AXIS ORIGIN IS NOT ZERO (DIPS ARE CHRISTMAS/NEW YEAR HOLIDAYS) FIGURE 4: TRUSTPILOT SCORE FOR FREELANCER.COM 47 FREELANCER LIMITED ANNUAL REPORT 2019 DIRECTORS’ REPORT Escrow.com In FY19 Escrow.com achieved an all-time record Gross Payment Volume of $606.3m, up 6.4% on pcp. Escrow.com continues to hold market dominant positions in established asset verticals including Internet domain names, websites and intellectual property. In emerging verticals, Escrow.com is now a leading technology platform for the exchange of IPv4 addresses, servicing over 70% of all registered IPv4 brokers in America. In the last two years GPV for IPv4 rose 530% to US$51 million (unaudited). ROW CHINA $150,000,000 $100,000,000 $50,000,000 $0 2 Q 0 0 0 2 4 Q 0 0 0 2 2 Q 1 0 0 2 4 Q 1 0 0 2 2 Q 2 0 0 2 4 Q 2 0 0 2 2 Q 3 0 0 2 4 Q 3 0 0 2 2 Q 4 0 0 2 4 Q 4 0 0 2 2 Q 5 0 0 2 4 Q 5 0 0 2 2 Q 6 0 0 2 4 Q 6 0 0 2 2 Q 7 0 0 2 4 Q 7 0 0 2 2 Q 8 0 0 2 4 Q 8 0 0 2 2 Q 9 0 0 2 4 Q 9 0 0 2 2 Q 0 1 0 2 4 Q 0 1 0 2 2 Q 1 1 0 2 4 Q 1 1 0 2 2 Q 2 1 0 2 4 Q 2 1 0 2 2 Q 3 1 0 2 4 Q 3 1 0 2 2 Q 4 1 0 2 4 Q 4 1 0 2 2 Q 5 1 0 2 4 Q 5 1 0 2 2 Q 6 1 0 2 4 Q 6 1 0 2 2 Q 7 1 0 2 4 Q 7 1 0 2 2 Q 8 1 0 2 4 Q 8 1 0 2 2 Q 9 1 0 2 4 Q 9 1 0 2 FIGURE 5: TOTAL GROSS PAYMENT VOLUME CONTRIBUTION (US$) FOR ESCROW.COM We are highly optimistic about partner opportunities in our API ecosystem as marketplace partners seek a licensed escrow platform to integrate. In FY19 we signed and are in the process of deploying into a major North American automotive marketplace that is first in its category. There is no minimum volume commitment for this customer. We will announce more on their go-live date which is yet to be scheduled. Other signed customers in FY19 included, but was not limited to an import/export marketplace, a commodities marketplace, a vehicle inspection marketplace, two freelancing marketplaces, three more motor vehicle and heavy equipment marketplaces including TruckTrailerTractor, four more IPv4 address marketplaces, eleven domain marketplaces & an equipment marketplace. The pipeline also has a number of customers of scale that we are progressing well with including a second major automotive marketplace. Escrow.com’s strategy of pursuing licensing in every state and territory in the US and Canada continued to be recognised as a key distinguishing feature by marketplace partners. Currently Escrow is licensed or otherwise approved to operate in 48 states, with two further state licenses in the final stages of processing. We aim to complete our US program in 2020. In FY19 Escrow.com added Canadian dollar support and filed as a Money Services Business in Quebec. With this filing achieved it is our immediate priority to file our United Kingdom Payments Institution Application. FREELANCER LIMITED ANNUAL REPORT 2019 48 DIRECTORS’ REPORT Review of Financial Performance The Company achieved Net Revenue of $58.0 million in FY19 (up 6% on the previous corresponding period), and an all-time record Gross Payment Volume of $787.7 million (up 12% on the previous corresponding period). Revenue excluding Escrow.com amounts to $50.4 million (up 13% on the previous corresponding period), GPV excluding Escrow.com was an all-time record at $181.4 million (up 6.77% on the previous corresponding period). 60 40 20 0 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 Revenue (A$m) 4.7 6.5 10.6 18.8 26.1 38.6 52.7 50.3 51.9 58.5 100% 75% 50% 25% 0% 400 400 400 200 Freelancer.com Escrow.com 606.3 570.6 506.2 438.1 91.3 138 160 159.4 181.4 170.1 28 35.6 50.8 0 103.7 84.4 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 Growth pcp - 37% 64% 77% 39% 48% 37% (5%) 3.2% 12% Gross margin 83% 87% 87% 88% 87% 86% 86% 88% 85% 84% GPV (A$m) Growth pcp 28 - 35.6 50.8 84.4 103.7 229.3 666.2 587.6 740.7 788 27% 43% 66% 23% 120% 290% -12% -26% 6% FIGURE 6: NET REVENUE BY YEAR FOR THE FREELANCER GROUP FIGURE 7: GROSS PAYMENT VOLUME (GPV) FOR THE FREELANCER GROUP BY YEAR Notes: 1. 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 Net Revenue. Based on Freelancer’s unaudited managementaccounts which have not been subject to an auditor’s review. 2. Take rate for the Marketplace segment is 3% employer commission and 10% freelancer commission, which has not changedsince 2010. 3. Core Freelancer FY19 GPV of A$181.4m. Escrow FY19 GPV of US$422m, average AUD/USD FX of 0.6956= A$606.3m The Company’s gross margin of 83.7% in FY19 decreased by 1.8% compared to the previous corresponding period (FY18: 85.2%), but remains within a consistent range since 2011. 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. Cost of sales also includes direct labour costs incurred in generating enterprise services revenue. The fall in gross margins in FY19 is mainly attributable to lower margins generated from enterprise consulting services. The Company reported an Operating NPAT (loss) of $(1.3) million in FY19 (FY18: $(0.9) million). Operating NBPT (loss) was $(1.7) million in FY19 (FY18: $(1.8) million)). Operating expenses were 10.5% higher than the prior corresponding period. Payroll costs, which represent 45% of operating costs were higher by 10%. Higher costs were substantially attributable to additional resourcing of the enterprise division. As of 31 December 2019, the company had 478 FTE staff (up 4.4% on FY18). Overall NPAT (loss) was $(1.6) million in FY19, which included a tax benefit of $0.1 million (FY18: $(1.5) million). Cash Flow and Balance Sheet Strength The Company posted a positive operating cash flow of $2.1 million in FY19 up from (FY18 of $(1.0) million). Operating cash excludes $3.1 million of lease payments associated with office premises, which have been reflected as finance costs in accordance with AASB 16 Leases. Trade and other receivables include receivables from various payment gateways in relation to partially completed transactions as well as amounts due from enterprise customers. As at 31 December 2019, the Company held cash and equivalents of $32 million and no net debt. 49 FREELANCER LIMITED ANNUAL REPORT 2019 DIRECTORS’ REPORT Dividends paid or recommended There have been no dividends paid or provided for the financial year ended 31 December 2019 (2018: 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 Significant changes in state of affairs There have been no 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 2019 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. Insurance and indemnification of Directors and Officers 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 in place Deeds of Indemnity, Insurance and Access with each of its current Directors and such other officers that the Directors determine are entitled to receive the benefit of an indemnity. Rounding off of amounts The Company is an entity to which ASIC Corporations Instrument 2016/191 applies. Accordingly amounts in the financial report have been rounded off to the nearest thousand dollars, unless otherwise stated. Meetings of Directors During the financial year five 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 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 2 2 2 2 2 2 - - - - - - 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 $29,000 (2018: $37,000). 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 21 to the financial statements do not compromise the external auditor’s independence, based on advice received from the Audit Committee, for the following reasons: FREELANCER LIMITED ANNUAL REPORT 2019 50 DIRECTORS’ REPORT • • 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 51 and forms part of the Directors’ Report for the year ended 31 December 2019. 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 proceedings have been brought or intervened in on behalf of the Company, nor have any applications for leave to do so been made in respect of the Company, under section 237 of the Corporations Act 2001. New Accounting Standards The Group adopted AASB 16 Leases on 1 January 2019, resulting in the recognition of right-of-use assets and lease liabilities. Details of the carrying amounts of these items and the related movements during the period are disclosed in Note 13 to the financial statements. 51 FREELANCER LIMITED ANNUAL REPORT 2019 Remuneration Report This audited Remuneration Report for the Group which forms part of the Directors’ Report for the financial year ended 31 December 2019, details the nature and amount of remuneration for each Director and the Executives. DIRECTORS’ REPORT • R.M. Barrie – Executive Chairman • S.A. Clausen – Non-Executive Director • D.N.J. Williams – Non-Executive Director • 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 (2018:$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). Remuneration of Directors and Executives Remuneration shown below relates to the period in which the Director or Executive was a member of key management personnel. FREELANCER LIMITED ANNUAL REPORT 2019 52 DIRECTORS’ REPORT Remuneration 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. Non-Executive Directors S.A. Clausen 2019 2018 D.N.J. Williams 2019 2018 Executive Directors R.M. Barrie 2019 2018 Other KMP N.L. Katz 2019 2018 Total 2019 2018 Short-term benefits Post-employ- ment benefits Share based payments Directors’ fees Cash salary and fees Other Superannuation Shares $ - - - - $ - - - - $ - - 2,174 2,174 569,096 569,096 7,289 9,257 25,904 25,904 $ - - - - - - Total $ 25,000 25,000 25,058 25,058 602,289 604,257 317,400 310,200 7,023 6,324 27,600 34,800 93,422 110,820 445,445 462,144 47,884 47,884 886,496 879,296 14,312 15,581 55,678 62,878 93,422 110,820 1,097,792 1,116,459 $ 25,000 25,000 22,884 22,884 - - - - The remuneration of key management personnel in the years ended 31 December 2019 and 2018 were 100% fixed, and there is no link between remuneration and the market price of the Company’s shares. ESP 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 2019 Directors R.M. Barrie D.N.J. Williams Other KMP N.L. Katz Total 2018 Directors R.M. Barrie D.N.J. Williams Other KMP N.L. Katz Total - - 885,539 885,539 - - 885,539 885,539 - - - - - - - - - - (200,000) (200,000) - - - - - - - - - - - - - - - - - - 685,539 685,539 232,635 232,635 452,904 452,904 - - - - - - 885,539 885,539 412,355 412,355 473,184 473,184 53 FREELANCER LIMITED ANNUAL REPORT 2019 Ordinary share capital Details of ordinary 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 Received as part of remuneration Purchase of shares Sale of shares Balance at the end of the year DIRECTORS’ REPORT 2019 Directors R.M. Barrie1 S.A. Clausen D.N.J. Williams2 Other KMP N.L. Katz3 Total 2018 Directors R.M. Barrie1 S.A. Clausen D.N.J. Williams2 Other KMP N.L. Katz3 Total 194,696,431 160,000,000 10,758,165 150,000 365,604,596 194,075,686 159,717,351 10,758,165 150,000 364,701,202 - - - - - - - - - 350,000 - 200,000 550,000 620,745 282,649 - - 903,394 - - - - - - - - - 194,696,431 160,350,000 10,758,165 350,000 366,154,596 194,696,431 160,000,000 10,758,165 150,000 365,604,596 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 Note 24 of 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 2019 $000 - - - 828 828 2018 $000 - - - 960 960 ¹ 1,279,500 shares as at 31 December 2019 (2018: 1,279,500) are held directly or indirectly by related parties. ² 131,000 shares as at 31 December 2018 (2017: 131,000) are held directly or indirectly by related parties. ³ 40,000 shares as at 31 December 2019 (2018: 40,000) are held directly or indirectly by related parties. FREELANCER LIMITED ANNUAL REPORT 2019 54 DIRECTORS’ REPORT Executive service agreements The employment terms and conditions of Group Executives and KMP are formalised in service agreements. Position Key terms of service agreements Chief Executive Officer • Term: unspecified. • 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 Other Executives are employed under individual executive services agreements. These establish, amongst other things: • • • 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 25 of the financial statements. This concludes the Remuneration Report. 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 Chairman 18th February 2020 55 FREELANCER LIMITED ANNUAL REPORT 2019 AUDITOR’S INDEPENDENCE DECLARATION FREELANCER LIMITED ABN 66 141 959 042 AND CONTROLLED ENTITIES AUDITOR’S INDEPENDENCE DECLARATION UNDER SECTION 307C OF THE CORPORATIONS ACT 2001 TO THE DIRECTORS OF FREELANCER LIMITED In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration of independence to the directors of Freelancer Limited. As the lead audit partner for the audit of the financial report of Freelancer Limited for the year ended 31 December 2019, I declare that, to the best of my knowledge and belief, there have been no contraventions of: (i) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (ii) any applicable code of professional conduct in relation to the audit. Hall Chadwick Level 40, 2 Park Street Sydney NSW 2000 SANDEEP KUMAR Partner Date: 18 February 2020 SYDNEY · PENRITH · MELBOURNE · BRISBANE · PERTH · DARWIN Liability limited by a scheme approved under Professional Standards Legislation www.hallchadwick.com.au FREELANCER LIMITED ANNUAL REPORT 2019 56 CONSOLIDATED FINANCIAL STATEMENTS Consolidated Statement of Profit or Loss and Other Comprehensive Income For the year ended 31 December 2019 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 Loss is attributable to: Owners of Freelancer Limited Non-controlling interests Total comprehensive income for the year is attributable to: Owners of Freelancer Limited Non-controlling interests Earnings per share Basic earnings per share Diluted earnings per share Note 5 6 6 6 6 24 6 7 19 32 32 2019 $000 58,009 (9,455) 48,554 (22,295) (12,764) (10,080) (285) (1,086) (3,214) (329) (219) (1,718) 127 (1,591) 128 (1,463) (1,591) - (1,591) (1,463) - (1,463) Cents (0.35) (0.35) 2018 $000 51,851 (7,651) 44,200 (20,217) (11,678) (8,922) (2,702) (1,353) (530) (558) (33) (1,793) 309 (1,484) 1 (1,483) (1,484) - (1,484) (1483) - (1483) Cents (0.33) (0.33) The above statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes. 57 FREELANCER LIMITED ANNUAL REPORT 2019 CONSOLIDATED FINANCIAL STATEMENTS Consolidated Statement of Financial Position As at 31 December 2019 Note 2019 $000 2018 $000 Assets Current assets Cash and cash equivalents Trade and other receivables Other assets Total current assets Non-current assets Trade and other receivables Plant and equipment Intangible assets Right of use assets Other assets Deferred tax assets Total non-current assets Total assets Liabilities Current liabilities Trade and other payables Lease liabilities Borrowings Current tax liabilities Provisions Contract liabilities Total current liabilities Non-current liabilities Deferred tax liabilities Provisions Lease liabilities Contract liabilities Total non-current liabilities Total liabilities Net assets Equity Contributed equity Reserves Accumulated losses Non-controlling interests Total equity 8 9 10 9 11 12 13 10 7 14 13 15 7 16 17 7 16 13 17 18 19 32,014 4,003 1,309 37,326 1,103 482 26,429 26,964 592 5,129 60,699 98,025 36,607 3,248 121 57 2,322 629 42,984 443 1,030 23,134 495 25,102 68,086 29,939 33,211 3,474 972 37,657 1,103 557 26,429 - 696 4,674 33,459 71,116 35,898 - 121 71 1,918 620 38,628 246 639 - 528 1,413 40,041 31,075 38,446 4,457 (12,984) 20 29,939 38,106 4,000 (11,051) 20 31,075 The above statement of financial position should be read in conjunction with the accompanying notes. FREELANCER LIMITED ANNUAL REPORT 2019 58 CONSOLIDATED FINANCIAL STATEMENTS Consolidated Statement of Changes in Equity For the year ended 31 December 2019 Attributable to owners of Freelancer Limited Contributed Equity $000 Share Based Payments $000 Note Foreign currency translation reserve $000 (Accumulated losses) $000 Non- controlling interests $000 Balance at 1 January 2018 38,049 3,824 (383) (9,567) Loss for the year Exchange differences on translation of foreign operations 19 Total comprehensive loss for the year Transactions with owners in their capacity as owners: Contributions of equity arising from repayment of ESP loans Share capital contributed by non-controlling interests Share based payments 18 - 24 - - - 57 - - Balance at 31 December 2018 38,106 - - - - - 558 4,382 - 1 1 - - - (1,484) - (1,484) - - - (382) (11,051) - - - - - - 20 - 20 Total Equity $000 31,923 (1,484) 1 (1,483) 57 20 558 31,075 Attributable to owners of Freelancer Limited Contributed Equity $000 Share Based Payments $000 Note Foreign currency translation reserve $000 (Accumulated losses) $000 Non- controlling interests $000 Total Equity $000 Balance at 1 January 2019 38,106 4,382 (382) (11,051) 20 31,075 Cumulative adjustment upon change in accounting policies – AASB 16 Leases Balance at 1 January 2019 Restated Loss for the year Exchange differences on transla- tion of foreign operations - 19 Total comprehensive loss for the year Transactions with owners in their capacity as owners: - - - (342) - (342) 38,106 4,382 (382) (11,393) 20 31,733 - - - - - - - - - (1,591) 128 - 128 (1,591) 128 (1,591) - - - - - - (1,591) 128 (1,463) (1,463) 340 329 Contributions of equity arising from repayment of ESP loans Share based payments 18 24 340 - - 329 - - - - Balance at 31 December 2019 38,446 4,711 (254) (12,984) 20 29,939 The above statement of changes in equity should be read in conjunction with the accompanying notes. 59 FREELANCER LIMITED ANNUAL REPORT 2019 CONSOLIDATED FINANCIAL STATEMENTS Consolidated Statement of Cash Flows For the year ended 31 December 2019 Note 2019 $000 2018 $000 Cash flows from operating activities Receipts from customers (inclusive of GST) Payments to suppliers and employees (inclusive of GST) Interest received Interest paid Income taxes paid Net cash / (outflow) from operating activities 31 Cash flows from investing activities Payments for plant and equipment Payments for intangible assets Proceeds from disposal of plant and equiptment Proceeds from goodwill adjustment on acquistion of Nubelo Net cash (outflow) from investing activities Cash flows from financing activities Contributions of equity arising from repayment of ESP loans Proceeds from brorrowings Repayments of lease liabilities Net cash (outflow) / inflow from financing activities Net (decrease) / increase 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 18 15 - 8 56,972 (54,668) 38 (195) (91) 2,056 (226) (1) - - (227) 340 - (3,091) (2,751) (922) 33,211 (275) 32,014 51,296 (52,317) 22 - 20 (979) (83) (52) 23 86 (26) 57 121 - 178 (827) 31,908 2,130 33,211 The above statement of cash flows should be read in conjunction with the accompanying notes. Notes to the financial statements FREELANCER LIMITED ANNUAL REPORT 2019 60 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Contents of the notes to the consolidated financial statements NOTE CONTENTS PAGE 1. 2. 3. 4. 5. 6. 7. 8. 9. Reporting entity................................................................................................................................................. 62 Basis of preparation......................................................................................................................................... 62 Financial risk management............................................................................................................................. 63 Operating segments......................................................................................................................................... 66 Revenue.............................................................................................................................................................. 68 Expenses............................................................................................................................................................ 69 Income tax......................................................................................................................................................... 70 Cash and cash equivalents............................................................................................................................. 73 Trade and other receivables............................................................................................................................ 73 10. Other assets...................................................................................................................................................... 74 11. Plant and equipment........................................................................................................................................ 75 12. Intangible assets.............................................................................................................................................. 76 13. Leases................................................................................................................................................................ 78 14. Trade and other payables............................................................................................................................... 80 15. Borrowings........................................................................................................................................................ 80 16. Provisions......................................................................................................................................................... 80 17. Contract liabilities............................................................................................................................................ 81 18. Contributed equity............................................................................................................................................ 82 19. Equity - reserves............................................................................................................................................... 83 20. Key management personnel disclosures.................................................................................................... 84 21. Remuneration of auditors............................................................................................................................... 85 22. Contingent Liabilities....................................................................................................................................... 85 23. Commitments for expenditure...................................................................................................................... 85 24. Share based payments................................................................................................................................... 86 25. Related party transactions.............................................................................................................................. 89 26. Parent entity information................................................................................................................................ 90 27. Business Combinations................................................................................................................................. 91 28. Interests in controlled entities....................................................................................................................... 91 29. Fair value measurements.............................................................................................................................. 92 30. Events occurring after the reporting date.................................................................................................... 92 31. Reconcilliation of loss after tax to net cash flow from operating activities.......................................... 92 32. 33. Earnings per share (EPS)................................................................................................................................ 93 Other significant accounting policies........................................................................................................... 94 61 FREELANCER LIMITED ANNUAL REPORT 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. 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 2019 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 18 February 2020. 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. The Directors believe that there are reasonable grounds that the company is able to pay its debts as and when they fall due. The Group has a significant cash balance at year end and has projected a profitable financial year for the period ending 31 December 2020 based on increased revenue and a planned reduction in expenses. (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 33(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 Corporations Instrument 2016/191. Accordingly, amounts in the financial statements and Directors’ Report have been rounded off to the nearest $1,000. (g) New Accounting Standards i. AASB 16: Leases The Group has adopted AASB 16 Leases Note 13 describes the nature and effect of the adoption of AASB 16: Leases on the Group’s financial statements and discloses the new accounting policies that have been applied from 1 January 2019, where they are different to those applied in prior periods. (h) Materiality These consolidated financial statements have included information that is deemed to be material and relevant to the understanding of the financial statements. Disclosure may be considered material and relevant if the dollar amount is significant due to size or nature, or the information is important to understand the: • Group’s current year results; • impact of significant changes in the Group’s business; or • aspects of the Group’s operations that are important to future performance. FREELANCER LIMITED ANNUAL REPORT 2019 62 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 3. 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 Lease liabilities Total financial liabilities Note 8 9 14 13 2019 $000 32,014 5,106 37,120 36,607 26,382 62,989 2018 $000 33,211 4,577 37,788 35,898 - 35,898 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. The 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. 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. 63 FREELANCER LIMITED ANNUAL REPORT 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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. (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: 2019 Currency exposure: Denominated in: Cash Trade receivables Other financial assets Payables AUD 000’s 2,403 1,339 1,037 (854) AUD USD NZD GBP HKD SGD PHP EUR CAD INR Other USD 000’s NZD 000’s GBP 000’s HKD 000’s SGD 000’s PHP 000’s EUR 000’s CAD 000’s INR 000’s AUD 000’s 15,565 1,705 109 (1,990) 108 26 - - 858 144 9 (24) 882 279 - - (984) 177 359 18,850 1,393 27 - 1,021 14,284 (19) (3,390) 298 - - 975 201 19 (13) 58,328 21,287 99 (1,552) (292) (2,676) (2,438) (840) (50,767) 75 28,089 (747) 342 27,395 255 278 - (13) (473) (47) AUD USD NZD GBP HKD SGD PHP EUR CAD INR Other User obligations (2,222) (15,093) (173) (1,059) Net exposure 1,703 296 (39) (72) 2018 Currency exposure: Denominated in: Cash Trade receivables Other financial assets USD 000’s NZD 000’s AUD 000’s 2,619 1,075 656 16,501 1,381 164 116 23 - - GBP 000’s 1,073 184 8 (5) Payables (697) (1,681) User obligations (2,097) (15,704) (160) (1,005) Net exposure 1,556 661 (21) 255 HKD 000’s SGD 000’s PHP 000’s EUR 000’s CAD 000’s INR 000’s AUD 000’s 767 224 - - 896 95 275 72 - 5 21,168 1,292 968 262 21,959 (1,994) - - 750 139 4 - 51,287 16,436 93 (633) (314) (3,078) (2,176) (779) (40,310) 28 39,023 (622) 114 26,873 161 356 - (28) (540) (51) FREELANCER LIMITED ANNUAL REPORT 2019 64 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The Group had net assets of $705,000 denominated in foreign currencies as at 31 December 2019 (comprising assets of $34,751,000 less liabilities of $34,046,000). The Group had net assets of $2,084,000 denominated in foreign currencies as at 31 December 2018 (comprising assets of $35,160,000 less liabilities of $33,076,000). 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 2019. 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. The 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%) 2019 $000 2018 $000 High 35 2 22 (2) (4) (52) 56 (7) (26) 24 Low (39) (2) (24) 2 4 58 (62) 7 29 (27) High (45) 1 (22) (1) (1) (50) (48) (6) (26) (102) Low 49 (1) 24 1 2 56 (53) 6 29 113 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 2019 the Group had $32,014,000 (2018: $33,211,000) 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. 65 FREELANCER LIMITED ANNUAL REPORT 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Maturities 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. 2019 Non-derivatives Non-interest bearing Trade and other payables Lease liabilities Total 2018 Non-derivatives Non-interest bearing Trade and other payables Total 1 year or less $000 Between 1 and 2 years Between 2 and 5 years $000 $000 Over 5 years $000 Remaining contractual maturities $000 36,607 3,248 39,855 - 5,652 5,652 - 14,308 14,308 - 3,174 3,174 35,898 35,898 - - - - - - - - - - Note 14 13 14 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 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 the majority of online revenues and expenses are incurred. Although the Group has staff and operations in Philippines, United Kingdom, Argentina, the 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. FREELANCER LIMITED ANNUAL REPORT 2019 66 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Year end 31 December 2019 Segment revenue Segment revenue Total segment revenue Segment result Segment profit Share based payments Depreciation and amortisation expenses Loss before income tax Income tax benefit Loss for year Segment Assets At 31 December 2019 Segment assets Intergroup eliminations Deferred tax assets Intangibles Total assets Segment liabilities At 31 December 2019 Segment liabilities Intergroup eliminations Deferred tax liabilities Total liabilities Year end 31 December 2018 Segment revenue Segment revenue Total segment revenue Segment result Segment profit Share based payments Depreciation and amortisation expenses Loss before income tax Income tax benefit Loss for year Segment Assets At 31 December 2018 Segment assets Intergroup eliminations Deferred tax assets Intangibles Total assets Segment liabilities At 31 December 2018 Segment liabilities Intergroup eliminations Deferred tax liabilities Total liabilities 67 FREELANCER LIMITED ANNUAL REPORT 2019 Online Marketplace Online Payments Total 58,009 58,009 1,825 (329) (3,214) (1,718) 127 (1,591) 70,982 (2,898) 5,128 25,028 98,240 7,563 7,563 96 - (230) (326) - 5,577 - - - 5,577 50,446 50,446 1,921 (329) (2,984) (1,392) - 65,405 (2,898) - - 62,507 (66,183) - - (4,574) 2,898 - (70,757) 2,898 (443) (66,183) (1,676) (68,302) Online Marketplace $000 Online Payments $000 Total $000 44,667 44,667 7,184 7,184 (1,248) (543) - - - 40,351 (5,322) - - - - - 6,385 - - - 35,029 6,385 51,851 51,851 (705) (558) (530) (1,793) 309 (1,484) 46,736 (5,322) 4,674 25,028 71,116 (37,984) - - (7,133) 5,322 - (45,117) 5,322 (246) (37,984) (1,812) (40,041) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 5. Revenue The Company’s net revenues result from transaction and other fees generated in its online marketplaces and in providing online escrow 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. Revenue is recognised for the major business activities as follows: Marketplace Services The Group enters into short-term contracts with customers for marketplace and payment services. Such contracts are entered into before the delivery of the service which is paid in advance of receipt of the service. The performance obligation is the delivery of the service which is recognized by the system controls. The system does not draw fees from the customer until the delivery of the service. Therefore, revenue is recognised at a point in time upon delivery of the service when the system recognizes that the service has completed. No rebates or volume discounts are provided to customers. Payment Services The Group enters into both long-term and short-term contracts with customers for payment services. In respect of long- term contracts, revenue is recognised over the period of the contract. In respect of short-term contracts, revenue is recognised by reference to stage of completion of the services as this is consistent to the pattern of performance obligation i.e. availability of the open transaction to be executed progressively in the future and on the Escrow.com platform. Enterprise Services The enterprise services revenue stream focuses on projects negotiated with customers to meet their needs on short to long-term contracts. Revenue is recognised when milestones as determined in the contact are completed. Under AASB 15: Revenue from Contracts with Customers, this happens over time. The Group has an enforceable right to payment for work completed to date and therefore, revenue is recognised over time. The Group considers the cost-to-cost method an appropriate measure of progress for the completion of the performance obligation. The cost-to-cost method is based on the proportion of costs incurred for work performed to date relative to the estimated total contract costs. A customer is billed for the project services when a certain series of milestones have been achieved. A contract asset is recognised for revenue recognised but not yet billed due to the milestone billing arrangement. Once an invoice is issued, the corresponding contract asset is reclassified to trade receivables. A contract liability is recognised if the milestone payment exceeds the revenue recognised to date under the cost-to-cost method. No significant financing components have been identified in the contracts with customers, as the period between the payment and the recognition of revenue (cost-to-cost method) is always less than 12 months. 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. Grants relating to expense items are recognised as income over the periods necessary to match the grant to the costs it is compensating. 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 Payment services Enterprise services Other revenue Interest income Government grants Other Total revenue 2019 $000 45,171 7,563 5,177 39 - 59 2018 $000 43,901 7,184 590 26 72 78 58,009 51,851 FREELANCER LIMITED ANNUAL REPORT 2019 68 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 6. Expenses Loss before income tax benefit includes the following specific net losses and expenses: Employee expenses Wages and salaries (including superannuation) Other employment costs Total employee expenses1 Depreciation and amortisation Plant and equipment Right of use assets2 Leasehold improvements Total depreciation and amortisation expenses Rental expense relating to operating leases Minimum lease payments Utilities and other related costs Total rental expense relating to operating leases Net foreign exchange losses Finance costs Interest expense Interest expense on lease liability2 2019 $000 21,035 2,331 23,366 282 2,909 23 3,214 - 285 285 1,086 24 195 2018 $000 18,587 1,883 20,470 416 - 114 530 2,413 289 2,702 1,353 - 1 Inclusive of employee expenses included in cost of sales 2 In FY19 lease expenses in respect of office leases have been accounted for in accordance with AASB 16 Leases. The impact is that lease expenses are no longer reflected in the P&L and are brought into account as depreciation on the right of use asset and interest paid on the corresponding lease liability. The FY18 comparatives have not been restated. Total 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. 69 FREELANCER LIMITED ANNUAL REPORT 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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. In 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. FREELANCER LIMITED ANNUAL REPORT 2019 70 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (a) Income tax Current tax Deferred tax Income tax (benefit) Deferred income tax expense included in income tax benefit comprises: Decrease / (Increase) in deferred tax assets (Decrease) / Increase 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 Timing differences not recognized as deferred tax asset Other non-allowable items Income tax (benefit) (c) Amounts recognised directly in equity Deferred tax associated with capital raising (d) Deferred tax assets The balance comprises temporary differences attributable to: Amounts recognised in profit or loss: Employee benefits Provision for user disputes & refunds Prepayments Legal fees Foreign exchange losses Provision for impairment of receivables Audit fees Lease liabilities 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 Opening balance adjustment upon change in accounting policies – AASB 16 (Debited) / Credited to the profit or loss statement Exchange differences Closing balance at end of year 71 FREELANCER LIMITED ANNUAL REPORT 2019 2019 $000 107 (234) (127) (333) 567 (234) (1,718) (515) (26) 115 99 31 117 (22) 30 (127) - 303 175 (9) - 285 1,063 46 398 2,492 376 5,129 - - 5,129 4,674 788 (333) - 5,129 2018 $000 90 (399) (309) (646) 237 (409) (1,793) (538) (53) 46 168 16 (73) (97) 220 (311) 28 311 77 (9) 22 603 829 82 - 2,199 532 4,646 28 28 4,674 4,003 - 646 25 4,674 (e) Deferred tax liabilities The balance comprises temporary differences attributable to: Foreign exchange gains Right of use assets Fixed assets Net deferred tax liabilities Movements: Opening balance at beginning of year Opening balance adjustment upon change in accounting policies – AASB 16 (Debited) / Credited to the profit or loss statement Exchange differences Closing balance at end of year (f) Current tax assets Current tax assets (g) Current tax liabilities Current tax liabilities (h) Franking credits Franking credits available at the reporting date based on a tax rate of 30% NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2019 $000 135 308 - 443 246 764 (567) - 443 - 57 66 2018 $000 241 - 5 246 5 - 237 4 246 - 71 66 Freelancer Limited and its wholly-owned Australian entities elected to form an income tax consolidated group as of 12 April 2010. FREELANCER LIMITED ANNUAL REPORT 2019 72 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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 and on hand Term deposits Total cash and cash equivalents 9. Trade and other receivables 2019 $000 31,210 804 32,014 2018 $000 32,407 804 33,211 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. The Group applies the simplified approach to providing for expected credit losses prescribed by AASB 9, which permits the use of the lifetime expected loss provision for all trade receivables. To measure the expected credit losses, trade receivables have been grouped based on shared credit risk characteristics and the days past due. The loss allowance provision as at 31 December 2019 is determined as follows; the expected credit losses also incorporate forward-looking information. The "amounts written off" are all due to customers declaring bankruptcy, or term receivables that have now become unrecoverable. Current Trade receivables Payment gateway receivables Less: provisions for impairment of trade receivables Current trade receivables net of provisions for impairment Other receivables Total current trade and other receivables Non-Current Payment gateway receivables Total trade and other receivables (a) Provision for impaired trade receivables Opening balance Increase / (Decrease) in provisions for impairment during the year Exchange differences Closing balance 73 FREELANCER LIMITED ANNUAL REPORT 2019 2019 $000 2018 $000 5,725 1,704 (3,543) 3,886 117 4,003 1,103 5,106 2,814 737 (8) 3,543 3,743 2,545 (2,814) 3,474 - 3,474 1,103 4,577 2,331 209 274 2,814 1 – 30 days $000 1.02% 27 27 1 – 30 days $000 - - - 31 – 60 days $000 0.28% 2 2 31 – 60 days $000 - - - 61 – 90 days $000 0.45% 4 4 61 – 90 days $000 - - - (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 (c) Expected losses 2019 Expected loss rate Gross carrying amount Loss allowing provision 2018 Expected loss rate Gross carrying amount Loss allowing provision 10. Other assets Current Prepayments Other Total current other assets Non-current Security deposits Total non-current other assets Total other assets NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2,685 769 862 3,113 (3,543) 3,886 90+ days $000 82.73% 2,757 2,757 90+ days $000 91.8% 2,250 2,250 2019 $000 1,292 17 1,309 592 592 1,901 3,187 394 256 2,451 (2,814) 3,474 Total $000 84.48% 2,608 2,608 Total $000 91.8% 2,250 2,250 2018 $000 969 3 972 696 696 1,668 FREELANCER LIMITED ANNUAL REPORT 2019 74 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 11. Plant and equipment 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: • Fixtures and fittings • Motor vehicles 4 - 5 years 4 years • Office and computer equipment 4 - 5 years • Software 3 years • Leasehold improvements shorter of either the unexpired period of the lease or the estimated useful lives of the improvements The 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. 2019 $000 2,619 (2,166) 453 527 (499) 28 19 (19) - 768 (767) 1 482 2018 $000 2,406 (1,925) 481 507 (456) 51 19 (18) 1 753 (729) 24 557 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 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 75 FREELANCER LIMITED ANNUAL REPORT 2019 Reconciliations 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: NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Office and computer equipment $000 Fixtures and fittings $000 Software $000 Leasehold improvements $000 759 81 - (359) 481 217 - (245) 453 100 3 - (52) 51 12 - (35) 28 3 - - (2) 1 - - (1) - 51 90 - (117) 24 - - (23) 1 Total $000 913 174 - (530) 557 230 - (305) 482 Balance at 1 January 2018 Additions Disposals Depreciation and amortisation Balance at 31 December 2018 Additions Disposals Depreciation and amortisation Balance at 31 December 2019 12. Intangible assets Goodwill 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. FREELANCER LIMITED ANNUAL REPORT 2019 76 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Non 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 2019 $000 4,910 (28) 4,882 2,198 - 2,198 19,349 - 19,349 26,429 2018 $000 4,910 (28) 4,882 2,198 - 2,198 19,349 - 19,349 26,429 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 2018 Additions Adjustment to goodwiil from aquisition Impairment Amortisation Domain names $000 Intellectual property $000 4,849 33 - - - 2,198 - - - - Goodwill $000 19,395 40 (86) - - Total $000 26,442 73 (86) - - Balance at 31 December 2018 4,882 2,198 19,349 26,429 Additions Impairment Amortisation - - - - - - - - - - - - Balance at 31 December 2019 4,882 2,198 19,349 26,429 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, intellectual property 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. 77 FREELANCER LIMITED ANNUAL REPORT 2019 Goodwill and other intangibles are allocated to cash-generating units which are based on the Group’s reporting segments: NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Online marketplace Online payments Total 2019 $000 14,780 11,649 26,429 2018 $000 14,780 11,649 26,429 The recoverable amount of each cash-generating unit above is determined based on value-in-use calculations. Value- in-use is calculated based on the present value of cash flow projections over a 5 year period with the period extending beyond 5 years extrapolated using a 2% terminal growth rate. The cash flows are discounted based on 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. The following key assumptions were used in the value-in-use calculations: Online marketplace Online payments CAGR Rate 11% 16% Discount Rate 15% 15% Management has based the value-in-use calculations on budgets for each reporting segment. These budgets use historical weighted average growth rates to project revenue. Costs are calculated taking into account historical gross margins as well as estimated weighted average inflation rates over the period, which are consistent with inflation rates applicable to the locations in which the segments operate. Discount rates are pre-tax and are adjusted to incorporate risks associated with a particular segment. Based on the above, management is satisfied that there are no indicators of impairment to the current carrying value of intangible assets. 13. Leases (a) Leases The Group as lessee At inception of a contract, the Group assesses if the contract contains or is a lease. If there is a lease present, a right- of-use asset and a corresponding lease liability are recognised by the Group where the Group is a lessee. However, all contracts that are classified as short- term leases (ie leases with a remaining term of 12 months or less) and leases of low value assets are recognised as operating expenses on a straight-line basis over the term of the lease. Initially the lease liability is measured at the present value of the lease payments still to be paid at the commencement date. The lease payments are discounted at the interest rate implicit in the lease. If this rate cannot be readily determined, the Group uses the incremental borrowing rate. Lease payments included in the measurement of the lease liability is as follows: – fixed lease payments less any lease incentives; – variable lease payments that depend on an index or rate, initially measured using the index or rate at the commencement date; – the amount expected to be payable by the lessee under residual value guarantees; – the exercise price of purchase options, if the lessee is reasonably certain to exercise the options; and – payments of penalties for terminating the lease, if the lease term reflects the exercise of an option to terminate the lease. The right-of-use assets comprise the initial measurement of the corresponding lease liability, any lease payments made at or before the commencement day and any initial direct costs. The subsequent measurement of the right-of- use assets is at cost less accumulated depreciation and impairment losses. Right-of-use assets are depreciated over the lease term or useful life of the underlying asset, whichever is the shortest. Where a lease transfers ownership of the underlying asset or the cost of the right-of-use asset reflects that the Group anticipates to exercise a purchase option, the specific asset is depreciated over the useful life of the underlying asset. (b) Initial Application of AASB 16: Leases The Group has adopted AASB 16: Leases retrospectively from 1 January 2019. In accordance with AASB 16.C7 the comparatives for the 2018 reporting period have not been restated. The Group has recognised a lease liability and right-of-use asset for all leases recognised as operating leases under AASB 117: Leases where the Group is the lessee. Lease liabilities are shown at the present value of the remaining lease payments. The Group’s incremental borrowing rate as at 1 January 2019 has been used to discount the lease payments. FREELANCER LIMITED ANNUAL REPORT 2019 78 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The following practical expedients have been used by the Group in applying AASB 16 for the first time: – For a portfolio of leases that have reasonably similar characteristics, a single discount rate has been applied. – Leases that have remaining lease term of less than 12 months as at 1 January 2019 have been accounted for in the same way as short-term leases. – The use of hindsight to determine lease terms on contracts that have options to extend or terminate. –Applying AASB 16 to leases previously identified as leases under AASB 117: Leases and Interpretation 4: Determining whether an arrangement contains a lease without reassessing whether they are, or contain, a lease at the date of initial application. – Not applying AASB 16 to leases previously not identified as containing a lease under AASB 117 and Interpretation 4. The difference is $762,754 between the lease liability ($4,287,259) as at 1 January 2019 and the discounted operating lease commitments as at 31 December 2018 ($3,524,505). The difference between the undiscounted amount of operating lease commitments at 31 December 2018 of $3,810,695 and the discounted operating lease commitments as at 1 January 2019 of $3,524,505 was $286,190 which is due to discounting the operating lease commitments at the Group’s incremental borrowing rate. The Group’s lease portfolio comprises commercial leases for office property. As at 31 December 2019 these leases had remaining lives ranging from 2.5 months up to 90 months. Options to Extend or Terminate The options to extend or terminate are contained in several of the Group’s property leases. These clauses provide the Group opportunities to manage leases in order to align with its strategies. All of the extension or termination options are only exercisable by the Group. The extension options or termination options which were probable to be exercised have been included in the calculation of the right-of-use asset. (i) AASB 16 related amounts recognised in the balance sheet 2019 $000 2018 $000 Right of use assets Leased office property: Opening balance Addition to right-of-use asset Depreciation expense for the year ended Exchange differences Net carrying amount Lease liabilities Current Non – current Total (ii) AASB 16 related amounts recognised in the statement of profit or loss Depreciation charge related to right-of-use assets Interest expense on lease liabilities (under finance costs) (iii) AASB 16 related amounts recognised as cash outflows in the statement of cash Interest expense on lease liabilities (under finance costs) Repayment of lease liabilities 79 FREELANCER LIMITED ANNUAL REPORT 2019 - 29,845 (2,909) 28 26,964 3,248 23,134 26,382 2019 $000 2,909 195 2019 $000 195 3,091 - - - - - - - - 2018 $000 - - 2018 $000 - - NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 14. 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 15. Borrowings Current Working capital loan Total borrowings 2019 $000 3,155 785 32,677 36,607 2019 $000 121 121 2018 $000 2,491 730 32,677 35,898 2018 $000 121 121 This loan has been provided from non-controlling shareholders of Freightlancer Holdings Pty Limited to provide working capital funding. The loan is unsecured, interest free and has no fixed date of repayment. 16. Provisions 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 Provision for indirect taxes Provision for penalties* Total current provisions Non-current Make-good provisions Employee benefits Total non-current provisions Total provisions 2019 $000 584 1,265 103 370 2,322 720 310 1,030 3,352 2018 $000 256 1,012 252 398 1,918 300 339 639 2,557 *At the time of the acquisition of the Escrow.com business in November 2015, it held eight money transmission and/or escrow licences in the US. After the acquisition, the Company has pursued an aggressive program of applying for money transmission and/or escrow licenses in the remaining states in the US. At 31 December 2019, Forty three licences were in place. As part of this process, in FY19 the division incurred one-off regulatory penalties of nil (FY18: $0.8 million) for unlicensed activity (substantially pre- acquisition). In addition, the Company has further made provision of $0.4 million as an estimate of probable penalties. FREELANCER LIMITED ANNUAL REPORT 2019 80 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Movements Provision for User Disputes/ Refunds Provision for Indirect Taxes Employee Benefits Provision for Penalties Provision for Make-good Total Provisions $000 $000 192 81 - (41) 24 256 256 482 (57) (86) (11) 584 - 248 - - 4 252 252 270 (353) - (66) 103 $000 1,174 591 (227) (208) 21 1,351 1,351 864 (409) (244) 13 1,575 $000 897 313 (829) (80) 97 398 398 - - (28) - 370 $000 $000 266 41 - (17) 10 300 300 994 - (579) 5 720 2,529 1274 (1,056) (346) 156 2,557 2,557 2,610 (819) (937) (59) 3,352 Balance at 1 January 2018 Additional provisions Amounts used Unused amounts reversed Foreign exchange differences Balance at 31 December 2018 Balance at 1 January 2019 Additional provisions Amounts used Unused amounts reversed Foreign exchange differences Balance at 31 December 2019 17. Contract liabilities Refer to Note 5 for the accounting policy on marketplace and payment services revenue recognition policy. Revenue is recognised when these conditions are met. Amounts received in advance of delivery for services Total contract liabilities Current Non-current Total contract liabilities There were no significant changes in the contract liability balances during the 2019 year. 2019 $000 1,124 1,124 629 495 1,124 2018 $000 1,148 1,148 620 528 1,148 81 FREELANCER LIMITED ANNUAL REPORT 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 18. Contributed equity (a) Share capital Ordinary shares Fully paid Total share capital Note 2019 Number 2018 Number 18(b) 452,756,722 455,197,935 2019 $000 38,446 38,446 (b) Movements in ordinary share capital Reconciliation to 31 December 2018 Balance at 1 January 2018 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 2018 Reconciliation to 31 December 2019 Balance at 1 January 2019 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 2019 Number of shares Average price 456,835,488 1,115,150 (2,752,703) - 455,197,935 $0.54 $1.06 - Number of shares Average price 455,197,935 520, 560 (2,961,773) - 455,756,722 $0.71 $0.95 - 2018 $000 38,106 38,106 $000 38,049 - - 57 38,106 $000 38,106 - - 340 38,446 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 24. (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 2018 Annual Report. FREELANCER LIMITED ANNUAL REPORT 2019 82 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 19. 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 2019 $000 4,382 329 4,711 (382) 128 (254) 4,457 2018 $000 3,824 558 4,382 (383) 1 (382) 4000 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. 83 FREELANCER LIMITED ANNUAL REPORT 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 20. 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 Mr Simon Alvin Clausen – Non-Executive Director (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 2019 $000 949 93 56 1,098 2018 $000 943 111 62 1,116 These amounts 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. FREELANCER LIMITED ANNUAL REPORT 2019 84 21. 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- NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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 Accounting Services Total remuneration of audit firms other than Hall Chadwick Total auditors’ remuneration 22. Contingent liabilities 2019 $000 2018 $000 119 2 29 150 62 22 104 188 338 113 2 37 152 32 8 - 40 192 Except for the items listed below, there are no other contingent liabilities as at 31 December 2019: • a collateral amount of USD450,000 (2018: USD100,000) is in place in one of the Group’s PayPal accounts in favour of PayPal Australia Pty Ltd; • term deposits of $76,852 (2018: $76,822) are secured for corporate credit card facilities in place; • deposits of $1,177,000 (2018: $1,200,000) 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 (2018: $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 nil (2018: 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 USD94,000 (2018: USD104,000), which is held as a reserve to satisfy escrow regulatory requirements in respect of credit card transactions. 23. 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 are accounted for in accordance with AASB 16 Leases and are brought into account as depreciation on the right of use asset and interest paid on the corresponding lease liability. In 2018 rentals paid under operating leases were charged to the income statement on a straight line basis over the period 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. Non-cancellable operating leases The Group has entered into commercial leases for office property. As at 31 December 2019 these leases had remaining lives ranging from 2.5 months up to 90 months. Lease expenses in respect of office leases have been accounted for in accordance with AASB 16 Leases and are brought into account as depreciation on the right of use asset and interest paid on the corresponding lease liability. In 2018 rentals paid under operating leases were 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: 85 FREELANCER LIMITED ANNUAL REPORT 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Less than one year Between one and five years More than five years Total operating lease commitments (a) Non-cancellable operating services 2019 $000 - - - - 2018 $000 2,626 1,185 - 3,811 The Group has entered into a commercial agreement for web hosting services with an annual fee commitment for 2 years commencing on 1 January 2020 (2018: 1 January 2018). Fees paid under this agreement are charged to the income statement on a usage basis over the period of the agreement. This commitment is fixed in USD. The future minimum fee commitment under this agreement has been calculated using the spot exchange rate at 31 December 2019 and may be subject to variation due to changes in exchange rates. The amounts 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 2019 24. Share based payments 2019 $000 4,264 4,264 - 8,528 20178 $000 5,657 - - 5,657 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. Resolutions to amend and approve the ESP were passed at the AGM held on 17 May 2016. 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: » » » » 10% of ESP shares applied for vesting on the date that is the first anniversary of the issue date of the ESP shares; 20% of ESP shares applied for vesting on the date that is the second anniversary of the issue date of the ESP shares; 30% of ESP shares applied for vesting on the date that is the third anniversary of the issue date of the ESP shares; and 40% of ESP shares applied for vesting on the date that is the fourth anniversary of the issue date of the ESP shares. FREELANCER LIMITED ANNUAL REPORT 2019 86 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS • 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 suchnumber of ESP shares that equal by value (using the price at which the ESP shares were issued) the outstandingamount of the ESP Loan will become the subject of a buy-back notice from the Company which the ESP Participantmust accept. The buy-back of such number of ESP shares will be considered full and final satisfaction of the ESPLoan 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; • 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 87 FREELANCER LIMITED ANNUAL REPORT 2019 (a) ESP share grants Set out below are summaries of ESP shares granted, issued and that have balances or movement during the year under the plan: NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Grant date 2019 20 February 2015 10 April 2015 3 June 2015 12 August 2015 15 October 2015 24 November 2015 21 December 2015 7 March 2016 26 April 2016 22 June 2016 27 July 2016 4 November 2016 30 October 2017 8 December 2017 19 December 2017 2 March 2018 18 October 2018 12 November 2018 20 February 2019 6 May 2019 Total 2018 20 February 2015 10 March 2015 10 April 2015 3 June 2015 12 August 2015 15 October 2015 24 November 2015 21 December 2015 7 March 2016 26 April 2016 22 June 2016 27 July 2016 4 November 2016 30 October 2017 8 December 2017 19 December 2017 2 March 2018 18 October 2018 12 November 2018 Total Issue price 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 $0.66 $1.01 $1.08 $1.40 $1.45 $1.76 $1.76 $1.53 $1.38 $1.55 $1.59 $1.34 $0.48 $0.52 $0.52 $0.40 $0.53 $0.65 $0.53 $0.65 $0.66 $0.77 $1.01 $1.08 $1.40 $1.45 $1.76 $1.76 $1.53 $1.38 $1.55 $1.59 $1.34 $0.48 $0.52 $0.52 $0.40 $0.53 $0.65 940,000 200,000 150,000) 560,000 200,000 75,000 100,000 30,000 50,000 735,000 440,539 330,000 - 756,007 825,000 15,150 1,000,000 100,000 - - - - - - - - - - - - - - - - - - - - 407,226 113,334 (425,000) - - - - - - - - - - - - (78,382) (15,000) - (20,000) - - - (515,000) (200,000) (150,000) (560,000) (200,000) (25,000) (100,000) - - - - (230,000) - (171,773) (810,000) - - - - - - - - - - 50,000 - 30,000 50,000 - 440,539 100,000 - - - - - - - - 7,500 12,500 - - - - - - 50,000 - 22,500 37,500 - 110,135 330,404 40,000 60,000 - - 505,852 270,431 235,421 - 15,150 980,000 100,000 407,226 113.334 - - 902,000 90,000 407,226 113,334 - 15,150 78,000 10,000 135,000 - 5,771,696 520,560 (538,382) (2,961,773) 2,792,101 1,953,126 838,975 1,000,000 1,250,000 250,000 150,000 735,000 375,000 75,000 100,000 30,000 70,000 300,000 765,539 530,000 50,000 835,928 1,000,000 - - - - - - - - - - - - - - - - - - - 15,150 1,000,000 100,000 (10,000) (50,000) 940,000 39,587 900,413 - - - - - - - - - - - - - (22,218) (75,000) - - - (1,250,000) (50,000) - (175,000) (175,000) - - - (20,000) (300,000) (325,000) (200,000) (50,000) (57,703) (100,000) - - - - 200,000 150,000 560,000 200,000 75,000 100,000 30,000 50,000 - 440,539 330,000 - 756,007 825,000 15,150 - 16,668 60,000 224,000 80,000 30,000 40,000 15,000 25,000 - 220,270 195,000 - 588,117 810,000 - 1,000,000 1,000,000 100,000 100,000 - 133,332 90,000 336,000 120,000 45,000 60,000 15,000 25,000 - 220,269 135,000 - 167,890 15,000 15,150 - - 7,516,467 1,115,1500 (107,218) (2,752,703) 5,771,686 3,443,642 2,378,054 FREELANCER LIMITED ANNUAL REPORT 2019 88 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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 $0.27 per option (2018: $0.27). 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. 25. 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 28. (c) Transactions with key management personnel Disclosures relating to key management personnel are set out in Note 20 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. 89 FREELANCER LIMITED ANNUAL REPORT 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 26. 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 Total liabilities Net assets Contributed equity Reserves Accumulated losses Total equity Contingent liabilities 2019 $000 (655) (655) 3,619 33,224 36,843 112 112 36,731 38,446 4,712 (6,427) 36,731 2018 $000 (564) (564) 3,575 33,114 36,719 2 2 36,717 38,106 4,382 (5,771) 36,717 The parent entity had no contingent liabilities at 31 December 2019 and 31 December 2018. Capital commitments The parent entity had no capital commitments as at 31 December 2019 and 31 December 2018. 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. FREELANCER LIMITED ANNUAL REPORT 2019 90 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 27. 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. 28. 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 33: NAME OF ENTITY COUNTRY OF INCORPORTATION 2019 2018 PERCENTAGE OWNED (%) 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 StartCon Pty Ltd Freightlancer Holdings Pty Ltd ** Freightlancer Technology Pty Ltd ** Freightlancer Pty Ltd ** Freelancer Networks (Canada), Inc. Freelancer Outsourcing, Inc. Canadian Payments, Inc Freelancer.com Pte Limited Freelancer International GmbH Freemarket (Switzerland) GmbH Freelancer Online India Private Limited Freelancer.com Philippines, Inc. Freelancer Outsourcing UK Limited Payments Europe Limited Freelancer (Shanghai) Information Technology Co., Ltd. Westmor Management, Inc. * Escrow.com, Inc. * EC Services Corporation* IES International, Inc. * Internet Escrow Services, Inc. * Freightlancer, Inc. ** * Escrow.com group ** Freightlancer group 91 FREELANCER LIMITED ANNUAL REPORT 2019 Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Canada Canada Canada Singapore Switzerland Switzerland India Philippines United Kingdom United Kingdom China United States United States United States United States United States United States 100 100 100 100 100 100 100 100 100 100 50 50 50 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 50 100 100 100 100 100 100 100 100 100 100 50 50 50 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 50 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 29. Fair value measurements All assets and liabilities are recorded at their fair value. 30. Events occurring after the reporting date There are no other matters or circumstances that have arisen since 31 December 2019 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. 31. 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 Profit on disposal of fixed assets Share based payments expense Net exchange differences Changes in operating assets and liabilities: (Increase) / Decrease in trade and other receivables Decrease / (Increase) in deferred tax assets (Increase) in other assets Increase in trade and other creditors (Decrease) / Increase in provision for income tax Increase in deferred tax liabilities Increase in provisions for employee benefits (Decrease) / Increase in other provisions Net cash inflow / (outflow) from operating activities a) Non-cash Financing i. Share issue: 2019 $000 2018 $000 (1,591) (1484) 3,214 - 329 (196) 152 333 (544) 573 (13) (564) 224 149 2,056 530 (23) 558 100 (283) (649) (283) (407) 115 - 177 (149) (979) 100 ordinary shares were issued in Freightlancer Holdings Pty Limited at $200 per share in 2018 as part of the consideration consideration for the purchase of the business and assets of Channel 40 Pty Ltd. The share issue was on an arms' length basis. FREELANCER LIMITED ANNUAL REPORT 2019 92 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 32. Earnings per share (EPS) Basic earnings per share Basic earnings per share is calculated by dividing: • • 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 bonuselements 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. (a) Basic earnings per share From operations attributable to the ordinary equity of the Company 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 Company Total basic earnings per share attributable to the ordinary equity holders of the Company (c) Reconciliation of earnings used in calculating earnings per share Basic earnings per share: Loss from continuing operations Diluted earnings per share: 2019 Cents 2018 Cents (0.35) (0.35) (0.35) (0.35) $000 (0.33) (0.33) (0.33) (0.33) $000 (1,591) (1,484) Loss attributable to the ordinary equity holders of the Company (1,591) (1,484) (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 2019 Shares 2018 Shares 449,827,061 449,326,669 4,961,048 5,591,286 - - 454,788,109 454,917,955 93 FREELANCER LIMITED ANNUAL REPORT 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (e) Information on the classification of securities ESP shares and share grants 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 24. 33. 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 28. 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. Equity 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. FREELANCER LIMITED ANNUAL REPORT 2019 94 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (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. Exchange 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. 95 FREELANCER LIMITED ANNUAL REPORT 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (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 2019, 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 2019 of $26,429,000 (2018: $26,429,000). Provisions 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 24. 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. Lease term of contracts with renewal options The Group determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised. After initial recognition, the Group reassesses the lease term if there is a significant event or change in circumstances that is within its control and affects its ability to exercise (or not to exercise) the option to renew. FREELANCER LIMITED ANNUAL REPORT 2019 96 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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 Payments 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 2019 the cash balance in trust amounted to A$40,222,000 (2018: A$32,157,000), 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 2018, other than for the initial application of AASB 16: Leases (Refer note 13). (i) New Accounting Standards for application in future periods A number of new accounting standards (including amendments and interpretations) have been issued but were not effective in FY20. The Group has not elected to early adopt any of these new accounting standards in these financial statements. Certain amendments were made to the definition of materiality, which were applicable to AASB 101 Presentation of Financial Statements and AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors and consequential amendments to other AASBs, which: i) use a consistent definition of materiality throughout AASBs and the Conceptual Framework for Financial Reporting; ii) clarify when information is material; and iii) incorporate some of the guidance in AASB 101 about immaterial information. These amendments are in issue but are applicable to the Group in future financial periods. 97 FREELANCER LIMITED ANNUAL REPORT 2019  FREELANCER LIMITED ANNUAL REPORT 2019 98 DIRECTORS’ DECLARATION Directors’ Declaration In the Directors’ opinion: (a) the Financial Statements and notes of the consolidated entity set out on pages 57 to 97 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 2019 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 2019. This declaration is made in accordance with a resolution of the Directors. On behalf of the directors Matt Barrie Chairman 18 February 2020 99 FREELANCER LIMITED ANNUAL REPORT 2019 INDEPENDENT AUDITOR’S REPORT FREELANCER LIMITED ABN 66 141 959 042 AND CONTROLLED ENTITIES INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF FREELANCER LIMITED AND CONTROLLED ENTITES Opinion We have audited the accompanying financial report of Freelancer Limited (the Group), which comprises the consolidated statement of financial position as at 31 December 2019, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity, the consolidated statement of cash flows for the year ended and notes comprising a summary of significant accounting policies and other explanatory information, and the directors’ declaration. In our opinion: (a) the accompanying financial report of the Consolidated Entity 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 2019 and of its performance for the year ended on that date; and complying with Australian Accounting Standards and the Corporations Regulations 2001 ii. (b) the financial report also complies with International Financial Reporting Standards as disclosed in Note 2(a). Basis of Opinion 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 about whether the financial report is free from material misstatement. Our responsibilities under those standards are further described in the Auditor’s responsibility section of our report. We are independent of the Consolidated Entity in accordance with the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We confirm that the independence declaration required by the Corporations Act 2001 has been given to the directors of the group. Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. SYDNEY · PENRITH · MELBOURNE · BRISBANE · PERTH · DARWIN Liability limited by a scheme approved under Professional Standards Legislation www.hallchadwick.com.au FREELANCER LIMITED ANNUAL REPORT 2019 100 INDEPENDENT AUDITOR’S REPORT FREELANCER LIMITED ABN 66 141 959 042 AND CONTROLLED ENTITIES INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF FREELANCER LIMITED AND CONTROLLED ENTITITES Key Audit Matter Procedures Our procedures included, amongst others: We understood and tested management’s controls over its systems relevant to financial reporting. We involved our IT specialist to conduct general IT controls tests that related to applications that support the effective functioning of application controls. This included a review of the policies and procedures, change management and access security. Our IT specialist performed application controls testing over the three main applications. The testing included procedures used to initiate, record, process and report transactions and other financial data, with particular focus on recognition and measurement of fee income, transactions including payment gateways and exception report testing. When testing controls was not considered an appropriate or efficient testing approach, alternative audit procedures were performed on the financial information. Our procedures included, amongst others: We evaluated management’s goodwill and intangible assets impairment assessment. Key inputs in the value in use model included forecast revenue, costs, discount rates and terminal growth rates. We corroborated those assumptions by comparing forecasts to historical actuals. our involved valuation recalculate We management’s discount rates based on external data where available. The valuation specialist was also involved in assessing the value in use model used for valuation methodology including treatment of the net present value calculations. specialists to We performed sensitivity analysis on the fee income; terminal growth rate; and discount rate inputs. We assessed the Group’s disclosures of the quantitative and qualitative considerations in relation to the carrying value of goodwill and intangible assets, by comparing these disclosures to our understanding of this matter. the Group’s Reliance on automated process and controls Freelancer’s revenue is primarily generated from new and existing users posting and the fulfilling projects and contests on therefore a Freelancer.com website and significant part of financial reporting processes are heavily reliant on IT systems with automated processes and controls over the capturing, valuing and recording of transactions. Similarly, other IT platforms of includes the business Escrow.Com and Warrior Forum are also heavily reliant on IT systems. This is a key audit matter because of the: • Complex IT environment supporting the that Group’s business processes • Mix of manual and automated controls • Multiple internal and outsource support arrangements • Large volume of low value transactions Impairment of Goodwill and Intangible Assets Refer to Note 12 – Intangible Assets and Note 2 (h) - Critical Accounting Estimates and Judgements The Group has recognised intangible assets of $26.4 million at 31 December 2019 resulting from business combinations and asset acquisitions. impairment of the The assessment of Group’s balances intangible incorporated significant judgement in respect of factors such as general market conditions, discount rates, revenue growth and cost assumptions. asset to amounts We have focussed on this area as a key audit involved being matter due material; the inherent subjectivity associated with critical in relation to forecast future revenue and costs; discount rates; and terminal growth rates. judgements being made 101 FREELANCER LIMITED ANNUAL REPORT 2019 INDEPENDENT AUDITOR’S REPORT FREELANCER LIMITED ABN 66 141 959 042 AND CONTROLLED ENTITIES INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF FREELANCER LIMITED AND CONTROLLED ENTITITES Other Information The directors are responsible for the other information. The other information comprises the information in the Group’s annual report for the year ended 31 December 2019, but does not include the financial report and the auditor’s report thereon. Our opinion on the financial report does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of the other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Directors for the Financial Report The directors of the Group are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australia Accounting Standards and the Corporations Act 2001 and for such internal control as directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the Consolidated Entity’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Consolidated Entity or to cease operations, or have no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: – – Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. FREELANCER LIMITED ANNUAL REPORT 2019 102 INDEPENDENT AUDITOR’S REPORT FREELANCER LIMITED ABN 66 141 959 042 AND CONTROLLED ENTITIES INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF FREELANCER LIMITED AND CONTROLLED ENTITITES – – – – Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial report. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion. We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the financial report of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. 103 FREELANCER LIMITED ANNUAL REPORT 2019 INDEPENDENT AUDITOR’S REPORT FREELANCER LIMITED ABN 66 141 959 042 AND CONTROLLED ENTITIES INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF FREELANCER LIMITED AND CONTROLLED ENTITITES Report on the Remuneration Report We have audited the remuneration report included in pages 52 to 55 of the directors’ report for the year ended 31 December 2019. The directors of the Group 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. Opinion In our opinion the remuneration report of Freelancer Limited for the year ended 31 December 2019 complies with s 300A of the Corporations Act 2001. Hall Chadwick Level 40, 2 Park Street Sydney NSW 2000 SANDEEP KUMAR Partner Dated: 18 February 2020 FREELANCER LIMITED ANNUAL REPORT 2019 104 ADDITIONAL ASX INFORMATION 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 8 April 2020. 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 bodies1 Top 20 Shareholders as at 8 April 2020 Rank Name 1 MATT BARRIE 2 CITICORP NOMINEES PTY LIMITED 3 HSBC CUSTODY NOMINEES 4 MR DARREN WILLIAMS 5 J P MORGAN NOMINEES AUSTRALIA 8 BNP PARIBAS NOMS (NZ) LTD 7 BNP PARIBAS NOMINEES PTY LTD 8 CS THIRD NOMINEES PTY LIMITED 9 MRS RIKA WESTWOOD 10 MR NICHOLAS PETER DE JONG 11 NATIONAL NOMINEES 12 3RD WAVE INVESTORS LTD 13 MR RODNEY JOHN SELLICK 14 MR RAM SHANKER KANGATHARAN 15 CUSTODIAL SERVICES LIMITED 16 MR NEIL LEONARD KATZ 17 INFILSEC PTY LTD 18 DUNRAY NOMINEES PTY LTD 19 FRETENSIS PTY LTD 20 MAROBAR HOLDINGS PTY Total Top 20 Total Remaining Total of Securities Number of Shares 196,237,467 163,170,536 Number of ordinary shares held % of ordinary shares held 191,435,150 101,331,181 80,284,025 10,605,660 10,012,964 6,409,615 3,802,700 1,553,094 1,550,000 1,501,849 1,475,939 1,250,000 1,109,833 1,080,000 1,049,365 995,539 978,727 800,000 800,000 789,500 418,815,141 33,970,016 452,785,157 42.3% 22.4% 17.7% 2.3% 2.2% 1.4% 0.8% 0.3% 0.3% 0.3% 0.3% 0.3% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 92.5% 7.5% 1. Includes a relevant interest in 2,820,536 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. 105 FREELANCER LIMITED ANNUAL REPORT 2019 Distribution of ordinary shareholders as at 8 April 2020 1-1,000 1,001-5,000 5,001-10,000 10,001-100,000 100,001-1,000,000 100,001-99,999,999,999 Totals ADDITIONAL ASX INFORMATION Number of shareholders Number of Shares 540 885 316 408 68 15 2,232 316,475 2,490,569 2,497,287 12,775,818 20,253,633 414,451,375 452,785,157 Restricted securities as at 8 April 2020 There are no restricted securities on issue for the purpose of the ASX Listing Rules. There are ordinary shares on issue that are subject to trading restrictions pursuant to the ESP. The table below sets out the number of shares subject to trading restrictions. Class of restricted securities Nature of restriction Quoted ESP shares Unquoted ESP shares Various dates ending no later than 5 May 2023 Various dates ending no later than 1 March 2024 Total shares subjected to trading restrictions Number of Shares 1,879,997 940,539 2,820,536 Voting Rights 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. FREELANCER LIMITED ANNUAL REPORT 2019 106 CORPORATE DIRECTORY Corporate 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 Mr Neil Leonard Katz Registered Office Level 37 Grosvenor Place 225 George Street Sydney NSW 2000 Telephone: +61 (02) 8599 2700 Share Registry Boardroom Limited Level 12 225 George Street Sydney NSW 2000 External Auditors Hall Chadwick Level 40 2 Park Street Sydney NSW 2000 Securities exchange listing Freelancer Limited shares are listed on the Australian Securities Exchange (Listing code: FLN) 107 FREELANCER LIMITED ANNUAL REPORT 2019 

Continue reading text version or see original annual report in PDF format above