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Hewlett Packard Enterprise Company2018 Annual Report
Contents
Chairman’s Report
Managing Director’s Report
GBST Key Management Personnel
Directors’ Report
Auditor’s Independence Declaration
Financial Statements
Notes to and forming part of the Consolidated Financial
Statements for the Year Ended 30 June 2018
Directors’ Declaration
Independent Auditor’s Report
Additional Information
Corporate Directory
3
4
6
8
54
55
60
104
105
109
111
2 GBST Holdings Limited ABN 85 010 488 874
Chairman's Report
This past year was one of GBST continuing to execute on its strategy of being a market leader in the provision of wealth administration
and post trade processing technology.
As we have highlighted in the past, a key area of activity was our increased investment and commitment to Research and Development.
This investment provides us with world class innovative solutions and a solid platform to improve our recurring revenue streams over the
longer-term.
We delivered on all key customer projects and in doing so achieved record transitions of new business to our software platforms.
We also delivered on a number of major regulatory changes ensuring our customers were compliant with market reforms and at the same
time we delivered to budget and time frames for our key Research and Development projects.
During the year we made significant progress in our four areas of operations:
y Providing client accounting and securities transaction technology solutions for the finance, banking and capital markets
industry globally;
y Providing funds administration and registry software for the wealth management industry in Australia and the United
Kingdom;
y Developing gateway technology to the superannuation industry and data and quantitative services for more efficient
taxation solutions; and
y Website and mobile platform design and digital agency services focused on e-commerce and the financial services
industry in Australia and Europe.
Our Performance
In the year to 30 June 2018 we reported operating EBITDA of $12.5m, compared to $12.2m in FY17.
While our adjusted net profit was down from $10.5m to $8.2m, the Company continued to generate strong cash flow. We had cash on
hand of $11.4m at 30 June 2018 and we are debt free.
The Board of Directors declared a second half dividend of 2.5 cents per share fully franked, taking the full year payout to shareholders to 5
cents a share, fully franked.
Conclusion
The leadership team faced challenges in 2018 and it was through their dedication and commitment that we were able to further
strengthen our business model and win several new clients.
Our performance is also due largely to the work of all our employees and I would like to thank each and every one of them for their tireless
contribution during the year.
And finally, I would like to thank all our clients and shareholders for supporting GBST and showing faith in our business strategy and vision.
Allan Brackin
Chairman
2018 Annual Report 3
Managing Director’s Report
Over the past year we continued to optimise the business, including a restructuring of our operating models, allowing us to improve
services to our global clients across institutional banking, stock broking and wealth management.
We also improved our business systems and made significant headway with our three market leading products – Composer, Shares and
Syn~ – solidifying their status as leaders in high quality, innovative and scalable delivery.
We continued to focus on improving our capability and efficiency and investing strongly in R&D to achieve further improvements to our
services and to strengthen our technology leadership.
During the year we upgraded the skills and experience of the executive team and improved our business systems and processes.
We continue to see significant opportunities across all areas of the company and with FY18 proving to be a record year for client delivery,
we are well placed to win new contracts in FY19 and meet the ongoing needs of our customers.
Operations
In our domestic market we broadened our offerings to our clients across the wealth management and capital markets industries, largely off
the back of our industry-leading software platforms; GBST Composer, GBST Syn~ and GBST Shares.
Our UK operations delivered us strong revenue with GBST Composer offering clients an integrated system for the administration of wrap
platforms.
In Asia and North America, the GBST Syn~ platform supported institutional capital markets and we established strong partnerships with SBI
BITS in Japan and FIS in North America.
The Australian Wealth Management division reported revenue of $15.5m and Operating EBITDA before Strategic R&D of $5.6m.
Correspondingly, operating EBITDA before strategic R&D increased 23% in the second half with profit growing faster than revenue due to
legislation cost reductions.
The Australia Capital Markets division lost a significant client during the year which contributed to a slight dip in revenue. Operating EBITDA
before strategic R&D increased 28% to $2.2m because of cost reductions in the second half.
The UK operations were a strong contributor during the year with Wealth Management contributing a 23% uplift in revenue. Full year
operating EBITDA before strategic R&D was up 136% from FY17.
A highlight was Aegon/Cofunds becoming the largest platform in the UK and Australian markets with GBST now supporting 1.8 million
accounts.
Client wins
GBST also had several new client wins, including China Merchant Bank, Qantas Super, CMC, D2MX, Investec and a new client projects with
Vitality and Retirement Advantage (a subsidiary of Canada Life), to mention a few. We also extended our contractual relationship with Just
Retirement and other long-term clients.
Aegon/Cofunds created the largest investment platform in the UK and Australian markets while GBST strengthened its relationship with
SBI BITS in Japan. The relationship with SBI will help existing Asia Pacific clients to consolidate their Japanese processing onto their regional
platform, providing costs savings and reduced operating risk.
We look forward to building further on this partnership and winning new business across the region.
We also implemented a new back office platform for China Merchant Bank on Syn~, which should lead to new opportunities with the bank’s
subsidiaries.
GBST also entered a partnership with Investec Click & Invest to provide it with GBST’s Composer back office platform to assist them with
Personal Pension administration technology.
Earlier in FY18 we started the development of our Catalyst platform and by June 2018 Vitality Life and Health went live with the product.
We have many other opportunities in the pipeline alongside the delivery of the Evolve programme which will ensure our Composer Platform
is best technology in the market.
4 GBST Holdings Limited ABN 85 010 488 874
Our People
The success of GBST depends on the efforts and contributions of our valued employees. It is through our staff that we have been able to
forge our position as a market leader in providing technology solutions to the financial services industry.
During the year we added to our executive ranks and leadership teams.
We are committed to making further investments in our people across all our geographical locations.
Delivering Growth/Outlook
In the coming year we will continue our commitment to innovation and on time delivery of services to our clients.
We will spend around $22 million on our ongoing strategic R&D program in FY19 to ensure that we are capturing growth in longer term
license fees and achieving recurring revenue across the business.
All our initiatives will be aimed at enhancing and developing our products and services, expanding services to clients geographically and
focusing on increasing revenue and market share in the markets in which we operate.
Finally, I would like to extend my special thanks to all our employees for their dedication and achievements during FY18, and I know that
they with me are looking forward to delivering continued growth for shareholders into FY19 and beyond.
Rob DeDominicis
Managing Director and CEO
2018 Annual Report 5
GBST Key Management Personnel
Gareth Turner
Chief Financial Officer
Gareth has a strong background in finance leadership and transformation and has held a number of
senior Finance positions in large Australian businesses over the past 16 years, both in the publicly
listed and private equity arenas. Gareth was previously Chief Financial Officer at Hills Limited, one of
Australia’s most trusted, iconic brands. Gareth has also held senior Finance positions with amaysim
Australia Limited, the Jetset Travelworld Group Limited, the Stella Group (private equity assets
owned by CVC Asia Pacific), Corporate Express Australia Limited and Deloitte.
Gareth holds a BComm (Hons)(Acc) degree, is a member of the Institute of Chartered Accountants
in Australia, holds an MBA from the University of Oxford and is a graduate of the Australian
Institute of Company Directors.
Denis Orrock
Head of Asia Pacific
Denis joined GBST in May 2008 and was named Head of Asia Pacific in April 2016 after serving as
Chief Executive Officer for Capital Markets since August 2012. Previously, he managed the company’s
Australian Broker Services and Financial Services divisions. Prior to joining GBST, Denis was General
Manager of Infochoice and has also held advisory and trading positions with UBS, Grange Securities
and Taylor Collison. Having worked within the Australian financial services industry for over 15 years,
Denis has a broad understanding of domestic wholesale and retail markets.
6 GBST Holdings Limited ABN 85 010 488 874
Mark Knowlton
Chief Technology Officer
Mark Knowlton joined GBST as Chief Technology Officer in April 2017 leading the technology team
which designs, builds and optimises GBST solutions. Prior to GBST, Mark worked from 2011 with
Macquarie Bank as Chief Information Officer for their Banking and Financial Services business.
Before that, Mark worked for AXA in various technology leadership roles. His early career was
shaped in various software engineering and management consultancy roles with KPMG, CSC and
CAP (now SEMA). Mark has extensive experience in digital disruption within Financial Services and
is passionate about leading transformational change to deliver the best outcomes for clients,
colleagues and shareholders. He holds an Honour Bachelor’s degree from the University of
Nottingham, U.K.
David Simpson
Head of Europe, the Middle East and Africa
David Simpson joined GBST as head of Europe, the Middle East and Africa in July 2016. He manages
client activity and drives the ongoing regional growth of the group’s retail wealth platforms for
wraps, life and pensions and banks, and for institutional capital markets. Previously, he was employed
by SEI Investments Company as chief relationship officer for SEI Europe’s Wealth Platform. Prior to
joining SEI in 2010 as business development director, he held various roles at Barclays Wealth where
he was employed for 22 years, including Managing Director of UK Asset Management and Retail
Platforms from 2004 to 2010.
2018 Annual Report 7
Directors' Report
The Directors of GBST Holdings Limited (‘GBST’ or the ‘Company’) submit their report together with the consolidated
financial report of the Group, comprising the Company and its controlled entities for the year ended 30 June 2018 and the
audit report thereon.
Directors
The following persons were Directors of the Company in office during the year and up to the date of this report:
Allan Brackin
Independent Director and Chair
Appointed 27 April 2005
Allan Brackin was appointed Chair of GBST in December 2015. Allan initially joined the
Board as a Non-Executive Director prior to listing and has seen the Company evolve into a
global business.
Allan has been involved in the technology industry for over 30 years at both executive and
non-executive level. At an Executive level he was Group CEO of ASX listed Volante Limited
(ASX:VGL), from 2000-2004. Volante was one of Australia’s largest IT services companies.
From 1986-2000 Allan cofounded a number of IT companies and these companies all
became part of the Volante Group.
At non-executive level, Allan is also Chairman of ASX listed mining software company RPM Global Holdings Limited (ASX:RUL)
and is the Chairman of telecommunications carrier Opticomm Pty Ltd. He is also a member of the advisory board for several IT
Companies and mentors a number of technology entrepreneurs.
Allan has held no other listed company directorships in the last three years.
Allan has a Bachelor of Applied Science from the Queensland University of Technology and has attended the Owner President
Management Program at Harvard University.
Allan is a member of the Audit and Risk Committee and the Nominations and Remuneration Committee.
Interest in Shares and Options
260,000 Ordinary Shares in GBST Holdings Limited were held by Mr Brackin’s associated entities at 30 June 2018.
Robert DeDominicis
Managing Director and Chief Executive Officer
Appointed 15 December 2015
Robert DeDominicis is the Managing Director and Chief Executive Officer of the
Company. He joined GBST in 2008 and is a founding partner of InfoComp, now GBST’s
Wealth Management Division, with over 30 years’ experience in the development of
software applications.
Robert has no other listed company directorships and has held no other listed company
directorships in the last three years.
Robert has a business and technical software background having been part of the Retail
Wealth Business development and professional services teams.
Robert holds a Bachelor of Mathematics and is a member of the Australian Institute of Company Directors.
Interest in Shares and Options
609,055 Ordinary Shares in GBST Holdings Limited were held by Mr DeDominicis at 30 June 2018.
90,000 Ordinary Shares in GBST Holdings Limited were held by Mr DeDominicis’ associated entities at 30 June 2018.
8 GBST Holdings Limited ABN 85 010 488 874
Christine Bartlett
Independent Director and Deputy Chair
Appointed 24 June 2015
Christine Bartlett is the Deputy Chair of GBST.
Christine is an experienced CEO and Senior Executive with extensive line management
experience gained through roles with IBM, Jones Lang LaSalle and National Australia
Bank Limited. Her executive career has included Australian, regional and global
responsibilities based in Australia, the USA and Japan. Christine brings a commercial
perspective especially in the areas of financial discipline, identifying risk, complex
project management, execution of strategy, fostering innovation and taking advantage
of new emerging technologies.
Christine is currently an Independent Non-Executive Director of the Mirvac Group (ASX:MGR), Sigma Healthcare Limited
(ASX:SIG), TAL Services Limited, icare NSW and an external Director for Clayton Utz. Christine is the Chairman of The Smith
Family, a national, independent children’s charity. She is a member of Chief Executive Women, the Australian Institute of
Company Directors and the UNSW Australian School of Business Advisory Board.
Christine has held no other listed company directorships in the last three years.
Christine holds a Bachelor of Science from the University of Sydney and has completed senior executive management
programs at INSEAD.
Christine is also the Chair of the Nominations and Remuneration Committee and a member of the Audit and Risk Committee
and the Technology Committee.
Interest in Shares and Options
4,750 Ordinary Shares in GBST Holdings Limited were held by Ms Bartlett at 30 June 2018.
20,250 Ordinary Shares were held by Ms Bartlett’s associated entities at 30 June 2018.
Deborah Page AM
Independent Director
Appointed 1 July 2016
Deborah Page is an experienced company director and Chartered Accountant. She has
worked exclusively as a Non-Executive Director since 2001 across a range of industries
including insurance, financial services, property and energy.
Prior to that she held senior executive positions with Commonwealth Bank, Allen, Allen
and Hemsley and the Lend Lease Group (including MLC Life and a joint venture with
IBM). She currently holds Board positions with Pendal Group Limited (ASX:PDL),
Brickworks Limited (ASX:BKW) and Service Stream Limited (ASX:SSM).
Deborah was Chairman of Investa Listed Funds Management Limited, the responsible
entity of Investa Office Fund (ASX:IOF) until April 2016, and a Non-Executive Director of Australian Renewable Fuels Limited
(ASX: ARW) until October 2015.
Deborah holds a Bachelor of Economics from The University of Sydney, is a Fellow of the Institute of Chartered Accountants,
Fellow of the Australian Institute of Company Directors and was honoured in 2006 as a Member in the General Division of the
Order of Australia for services to Public Health, Business and the Accounting Profession.
Deborah is the Chair of the Audit and Risk Committee.
Interests in Shares and Options
9,250 Ordinary Shares in GBST Holdings Limited were held by Mrs Page at 30 June 2018.
17,250 Ordinary Shares in GBST Holdings Limited were held by Mrs Page’s associated entities at 30 June 2018.
2018 Annual Report 9
Directors' Report continued
Tam Vu - Independent Director
Appointed 1 January 2017
Tam Vu’s career in leading technology change, innovation and entrepreneurship has
spanned over 25 years, working extensively in Australia, Asia Pacific, Europe and USA.
Tam has held numerous senior technology and business leadership roles at IBM
Consulting Group, BP Australia and BP UK, Mars and SEEK. He was formerly the Chief
Information Officer at SEEK where he led a large transformation program and prior to
this, Tam was the Global Chief Information Officer for BP’s retail business.
In the last six years, Tam has founded a highly successful professional services business
providing advisory and delivery services to a number of leading organisations, with a
strong focus on retail and financial services. Tam has also provided advisory services to a
number of technology start-up businesses in Australia. Tam is currently the Managing
Director of Vitae Partners and a member of the Audit, Risk and Compliance Committee at the National Gallery of Victoria.
Tam has no other listed company directorships and has held no other listed company directorships in the last three years.
Tam holds a Bachelor of Science (Hons) from the University of Adelaide and has attended several executive leadership
courses at MIT, IMD and Stanford University.
Tam is the Chair of the Technology Committee and a member of the Nominations and Remuneration Committee.
Interests in Shares and Options
5,464 Ordinary Shares in GBST Holdings Limited were held by Mr Vu at 30 June 2018.
Retired Directors during 2017-2018
David Adams – Non-Executive Director
Appointed 1 April 2008; resigned 29 June 2018
David was appointed to the Board in 2008 and has had an extensive career in the funds management industry including the
establishment of Australia’s first cash management trust at Hill Samuel Australia in 1980 and as Group Head of the Funds
Management Group for Macquarie Bank. David was a Director at Macquarie Bank from 1983 until 2001 and was also Chairman
of the Investment and Financial Services Association in 2000 and 2001.
Company Secretary
Jillian Bannan
B.Comm/LLB, Grad Dip Legal Practice
Jillian Bannan was appointed Company Secretary and General Counsel on 18 July 2016. She is a member of the Queensland
Law Society and was admitted as a Solicitor of the Supreme Court of Queensland in 1998.
10 GBST Holdings Limited ABN 85 010 488 874
Directors’ meetings
The number of Directors’ meetings (including meetings of committees of Directors) and number of meetings attended by
each of the Directors of the Company during the financial year are:
Board Meetings
Audit and Risk Committee
Nominations and
Remuneration Committee
Technology Committee
Eligible
to Attend
Attended
Eligible
to Attend
Attended
Eligible to
Attend
Attended
Eligible to
Attend
Attended
12
12
12
12
12
12
12
12
11
12
12
12
4
4
4
4
-
4
4
3
4
1*
7
7
7
-
5
4**
4**
7**
7
7
6
3*
5
7**
-
3
-
-
3
3
-
3
-
-
3
3
Directors
A Brackin
C Bartlett
D Adams
D Page
T Vu
R DeDominicis
Note: The Board also has a Disclosure Committee which meets as and when required. No meetings where held during the financial year.
*Attended meeting as a guest
**R DeDominicis attends as a Standing Invitee.
Principal activities
The principal activities of GBST during the year ended 30 June 2018 were:
y
y
y
client accounting and securities transaction technology solutions for the finance, banking and capital markets industry
globally;
funds administration and registry software for the wealth management industry in Australia and the United Kingdom;
gateway technology provider to the superannuation industry; provider of data and quantitative services offering after tax
measurement of portfolio performance in Australia; and
y website and mobile platform design and digital agency services focused on e-commerce and the financial services
industry in Australia and Europe.
No significant changes in the nature of these activities occurred during the year.
GBST comprised three regional divisions during the year:
y
y
y
In Australia, GBST provides its full range of retail wealth and institutional solutions for the wealth management and
capital markets industries. The company's industry-leading software platforms include GBST Composer, which provides
end to end funds administration and management software for the wealth management industry; GBST Syn~, which
provides a new generation post-trade processing platform for equities, derivatives, fixed income and managed fund
processing; and GBST Shares, which is the most widely-used back and middle-office processing equities software in
Australia.
In the United Kingdom, GBST Composer offers an integrated system for the administration of wrap platforms,
including individual savings accounts (ISA’s), pensions, self-invested personal pensions (SIPP’s) and superannuation; as
well as master trusts, unit trusts, risk and debt; and other investment assets.
In the Rest of the World, the GBST Syn~ platform supports institutional capital markets primarily in Asia and North
America.
2018 Annual Report 11
Directors' Report continued
Operating and financial review
Total revenue and other income
45,522
42,736
42,623
45,352
88,258
2HFY18
$‘000
1HFY18
$‘000
2HFY17
$‘000
1HFY17
$‘000
FY18
$‘000
FY17
$‘000
87,975
Operating EBITDA before
strategic R&D9
10,563
9,659
8,841
12,946
20,222
21,787
Less Strategic R&D8
(2,845)
(4,828)
(4,664)
(4,942)
(7,673)
(9,606)
Gross Strategic R&D8
(9,881)
(4,828)
(4,664)
(4,942)
(14,709)
(9,606)
Strategic R&D Capitalised8
Operating EBITDA7
Restructure and other non-operating
expenses6
EBITDA5
Net finance income\(costs)
7,036
7,718
(100)
7,618
243
-
4,831
(256)
4,575
(123)
-
-
4,177
8,004
(192)
3,985
(344)
-
8,004
(267)
7,036
12,549
(356)
12,193
120
-
12,181
(192)
11,989
(611)
Depreciation & operating amortisation4
(1,215)
(1,425)
(1,492)
(1,370)
(2,640)
(2,862)
Investment amortisation3
Profit before income tax
Income tax (expense)\credit
Statutory Net Profit after income tax
Adjusted NPAT2
Basic EPS (cents)
Adjusted EPS (cents)2
Dividends declared per share (cents)
Cashflow from operations
Cash at Bank
(819)
5,827
(2,072)
3,755
4,574
5.53
6.73
2.5
5,834
11,373
(1,082)
(1,691)
(1,802)
(1,901)
(3,493)
1,945
549
2,494
3,576
3.67
5.27
2.5
5,366
14,958
458
2,142
2,600
4,291
3.83
6.31
2.5
3,265
11,728
4,565
(180)
4,385
6,187
6.48
9.15
3.7
7,653
12,091
7,772
(1,523)
6,249
8,150
9.20
12.00
5.0
11,200
11,373
5,023
1,962
6,985
10,478
10.31
15.46
6.2
10,918
11,728
Notes:
(1) GBST makes use of both IFRS and non-IFRS financial information. Non-IFRS measures used by the company are relevant because they are internal performance
indicators applied consistently over time that allow for better evaluation of overall Group performance and relative business segment performance in light of GBST’s
significant investments in research & development and other changes in the business. The non-IFRS measures are consistent with the segment disclosures in Note 25 to
the financial report and can be reconciled to IFRS measures by following the calculations in the table above or in the segment note. The non-IFRS measures have not
been subject to audit or review.
(2) Adjusted NPAT is a non-IFRS measure representing profit after income tax plus Investment amortisation. Adjusted NPAT is used in the Adjusted EPS measure.
(3)
(4) Depreciation & operating amortisation is a non-IFRS measure representing depreciation or amortisation of tangible and intangible assets used as part of ongoing
Investment amortisation is a non-IFRS measure representing amortisation of intangible assets acquired through acquisition.
operating activities of the business.
(5) EBITDA is a non-IFRS measure calculated as profit before income tax and before: Investment amortisation; Depreciation & operating amortisation; and net finance costs.
(6) Restructure and other non-operating expenses are costs not considered to be operating in nature, are not associated with any business segment and are therefore not
allocated to a segment. This treatment is in accordance with internal measurement of segment performance and the segment disclosures in Note 25 to the financial
report. Restructure and other non-operating expenses are reported to allow for the reconciliation between the Group and segment reports and between IFRS and
non-IFRS measures. Restructure and other non-operating expenses during the period are primarily costs associated with the departure of the former CFO.
(7) Operating EBITDA is a non-IFRS measure calculated as EBITDA before Restructure and other non-operating expenses.
(8) Strategic R&D is defined as research and development expenditure for strategic product and technology investments which form part of the Company’s long-term
product roadmap. To the extent that all of the accounting criteria are met, expenditure is capitalised as internally generated software systems.
(9) Operating EBITDA before strategic R&D is a non-IFRS measure calculated as Operating EBITDA less Strategic R&D expenses.
12 GBST Holdings Limited ABN 85 010 488 874
Financial overview of the performance of the Group
y Net profit after tax was down 10.5% to $6.2m during FY18.
f Full year Revenue was up marginally in FY18, with second half revenue pleasingly up 6.5% from the first half.
f Full year Operating EBITDA before strategic R&D was down 7.2% to $20.2m, with the second half of $10.5m up 9.4%
from the first half on the back of higher revenue and cost reductions.
f Full year Strategic R&D expense of $7.7m was down 19.8% (FY17 $9.6m) after capitalisation of $7m in costs in
accordance with accounting standards.
f Net finance income was $120k, compared to net finance costs of $611k in the prior year.
f Non-cash investment amortisation costs were 45.6% lower at $1.9m.
f Income tax expense of $1.5m for the year primarily reflects derecognition of $1.5m of Deferred Tax Assets on carry
forward tax losses due to the uncertainty of the time period for recoupment of these losses. The prior year recorded
an income tax benefit of $2m.
y GBST recorded strong operating cash flow generation with 92% conversion of EBITDA to operating cash flow during
FY18 (up from 91% in FY17).
y GBST’s balance sheet remains strong with cash on hand of $11.4m and debt free.
y GBST’s three-year Strategic R&D Program is progressing to plan.
f The Strategic R&D investment strengthens GBST’s solutions, with Catalyst now live in the market.
f Total Strategic R&D investment in FY18 of $14.7m was on budget, on time and is meeting technical feasibility and
progress milestones.
f Total Strategic R&D investment in FY19 is expected to be approximately $22m across the portfolio.
f Costs being expensed or capitalised in accordance with accounting standards ($7m capitalised in FY18).
y
Final FY18 dividend of 2.5 cents per share fully franked, taking the full year amount to 5 cents per share fully
franked. GBST has a franking credit balance on hand of $12.9m.
y Growth prospects are improving, including:
f The UK Wealth Management business being on a positive growth path;
f Australian Capital Markets commences new projects with a strong pipeline developing; and
f Development and distribution agreements were signed with SBI in Japan and FIS, a major financial technology
company in North America.
y Organisational changes in FY18:
f During the year, several aspects of the business were reset.
f The level of skills and experience in the executive team were upgraded.
f The organisation and operating models of the business were restructured.
f Improvements to business systems and processes were initiated during the year.
f All of these things together have put GBST in a much better place to take advantage of future growth opportunities.
2018 Annual Report 13
Directors' Report continued
Shareholder returns
Profit attributable to the owners of the Company
$10.0m
$15.3m
2014
2015
Basic EPS (cents)
Dividends paid
Dividends paid per share (cents)
Closing share price 30 June
Return on capital employed
15.07
$5.0m
7.5
$3.21
19.9%
22.94
$6.3m
9.5
$5.73
23.5%
2016
$9.3m
13.82
$7.4m
11.0
$4.14
13.6%
2017
$7.0m
10.31
$6.2m
9.2
$2.97
8.1%
2018
$6.2m
9.20
$3.4m
5.0
$2.12
10.3%
Review of operating segments of the Group
United Kingdom – Wealth Management
2HFY18
$‘000
1HFY18
$‘000
2HFY17
$‘000
1HFY17
$‘000
FY18
$‘000
20,912
18,977
16,596
15,963
39,889
FY17
$‘000
32,559
5,217
4,517
1,385
2,737
9,734
4,122
Revenue
Operating EBITDA –
before Strategic R&D
Key points
y
Strong revenue and earnings growth for the division in FY18.
y Headwinds from cost of significant legislative changes like MIFIDII in FY18.
y UK Wealth Management directly reaping rewards from the investment in Catalyst.
UK Wealth Management full year FY18 revenue was up 23% from FY17 while full year operating EBITDA before strategic R&D
was up 136% from FY17 reflecting increasing licence revenue in the UK and significant service revenue during the year driven
by large projects undertaken in FY18. The FY18 results also included a significant increase in the cost of legislative change
work associated with legislative changes like the European Markets in Financial Instruments Directive (MIFIDII).
Revenue for the second half was $20.9m, up 10% from the preceding 6 months. Operating EBITDA before strategic R&D of
$5.2m was up 15% from the preceding 6 months.
Client activity
During the year, the Aegon/Cofunds migration made it the largest investment platform in the UK and Australian markets and
GBST now supports 1.8 million accounts, representing approximately £120bn of assets under management.
In May, GBST helped to launch Vitality Invest in under 12 months of development, delivering both an innovative front and
back-office solution integrated into Vitality’s existing systems utilising Catalyst.
During the year GBST commenced work with Investec Wealth & Asset Management, one of the top 3 UK Wealth Managers by
assets under management, to help power their new retirement proposition for their direct-to-consumer brand ‘Click & Invest’.
As part of this project, GBST is delivering its Composer back-office solution along with several calculation and digital support
capabilities to help fast-track the web build for Investec.
14 GBST Holdings Limited ABN 85 010 488 874
New client wins
GBST also won a new client project with Retirement Advantage (a subsidiary of Canada Life) to launch a new retirement
proposition extending their retirement account service accommodating several specific features and access to their fund
range. The launch is scheduled for November 2018.
GBST also extended the contractual relationship with Just Retirement for a further 5 years in the second half of FY18.
This included a wider scope of services such as GBST providing a managed service offering and business support
consultancy services.
Australia – Wealth Management
2HFY18
$‘000
1HFY18
$‘000
2HFY17
$‘000
1HFY17
$‘000
FY18
$‘000
8,446
7,017
7,549
9,018
15,463
FY17
$‘000
16,567
3,086
2,510
3,696
4,800
5,596
8,496
Revenue
Operating EBITDA –
before Strategic R&D
Key points
y Revenue and earnings declined in FY18 after the loss of a large client at the beginning of FY17.
y
y
Significantly higher levels of process and reporting changes driven by the ATO and ASIC increased costs in FY18 - in the
first half in particular.
FY18 was a challenging year for the Australian Wealth Management division, but revenues and earnings have started to
lift in the second half of FY18.
The Australian Wealth Management division recorded a 7% drop in full year revenue and a 34% drop in full year Operating
EBITDA before strategic R&D driven by the loss of a Wealth Management client from the beginning of FY17 and increased
investment in mandatory regulatory legislation capability during FY18.
The division recorded a 20% increase in revenue during the second half to $8.4m. Correspondingly, operating EBITDA before
strategic R&D increased 23% in the second half with profit growing faster than revenue due to reductions in investment in
legislative changes in the second half of FY18.
Tax Analyser provides flexible taxation solution
The new GBST Tax Analyser product was developed for the Australian Superannuation and Funds Management market to
provide a flexible taxation solution for pre and post trade investment taxation calculations and reporting, including the ability
to cater for trust level tax optimisation. The Qantas Superannuation Fund went live recently as the first user of GBST’s digital
platform for custodians, their clients and tax advisers to be able to collate and validate data from multiple sources for
calculating and producing the investment tax results needed by superannuation funds to include in their tax returns.
These returns can now be submitted directly to the ATO, leveraging GBST’s existing framework developed for the
Superstream Gateway. Two new Tax Analyser clients were won during the year that will start to contribute positively towards
recurring licence revenue in FY19.
2018 Annual Report 15
Directors' Report continued
Australia – Capital Markets
Revenue
Operating EBITDA –
before Strategic R&D
Key points
2HFY18
$‘000
1HFY18
$‘000
2HFY17
$‘000
1HFY17
$‘000
10,695
10,552
11,091
13,792
FY18
$‘000
21,247
FY17
$‘000
24,883
2,239
1,756
2,852
4,687
3,995
7,539
y Revenue and earnings declined in FY18 after the loss of a large Capital Markets client group at the beginning of FY17.
y Operating costs were higher in FY18 - in particular due to higher support costs for a large Syn~ client implementation
during the first half.
y
FY18 was a challenging year for the Australian Capital Markets division, but earnings have started to lift in the second half
of FY18 as operating costs have reduced back to more normal levels.
As reported last year, the loss of a large Capital Markets client resulted in a 15% fall in full year revenue and a 47% fall in full
year Operating EBITDA before Strategic R&D for Australian Capital Markets in FY18.
The division recorded a small increase in revenue during the second half to $10.7m and Operating EBITDA before strategic
R&D increased 28% in the second half to $2.2m as a result of client support cost reductions. The FY18 first half costs had
included supporting the rollout of Syn~ to a major new client while the second half of FY18 resulted in this support cost
returning to normal levels.
Client delivery
The major new client referred to above recorded the single largest day’s trading volume of any broker in ASX history during
market volatility events early in calendar year 2018, demonstrating the robustness and scalability of GBST’s Capital Markets
Syn~ platform.
Another large Capital Markets client recently successfully completed the single largest HIN (holder identification number)
transfer in ASX history, demonstrating GBST’s reputation of delivering for its clients.
GBST still maintains the dominant market share of CHESS connectivity at approximately 60% of equity transactions.
The Australian Capital Markets business continues to attract new customers and has a strong pipeline of similar client
prospects ahead.
The company remains confident about growth prospects in capital markets in Australia and will continue to concentrate on
expanding Business Process Outsourcing opportunities and strategic R&D mobilisation.
16 GBST Holdings Limited ABN 85 010 488 874
Rest of the World – Capital Markets
2HFY18
$‘000
1HFY18
$‘000
2HFY17
$‘000
1HFY17
$‘000
5,392
6,081
7,154
6,446
FY18
$‘000
11,473
FY17
$‘000
13,600
21
876
908
722
897
1,630
Revenue
Operating EBITDA –
before Strategic R&D
Key points
y Revenue declined in FY18 due to reduced service revenue from less project work in Asia Pacific and the USA.
y
Licence revenue increased 26% year on year.
y New distribution agreements signed during FY18 open potential new markets for the division.
Rest of the World – Capital Markets recorded a 16% drop in full year revenue and 45% drop in full year Operating EBITDA
before strategic R&D in FY18. While Licence revenue was up 26% year on year in the division, service revenue was down
49% driven by reduced project work in Asia Pacific and the USA.
The division recorded revenue of $5.4m for the second half, down $0.7m from the preceding 6 months, largely due
to H1FY18 including a once-off licence payment. Accordingly, the division’s operating EBITDA before strategic R&D
decreased to breakeven for the half.
New distribution agreements
GBST executed a distribution licence with Japanese financial technology company SBI BITS, which will use GBST’s Syn~
technology as the back-bone for its back-office processing solution both in Japan and across Asia-Pacific. It has established
a significant development capability to work with GBST in extending the platform capabilities across the Japanese
requirements for regulatory reporting, retail and institutional clearing and settlement and local market connectivity.
SBI, which has a market cap of around USD $4.48 billion, will provide Syn~ access to a significant number of participants in
the Japanese market, including its own SBI Securities division, the largest online broker in Japan.
GBST also implemented a new Syn- Custody back-office platform for China Merchants Bank (CMB) which has been
configured especially for CMB operations and is highly automated, receiving SWIFT messages and other instruction files
from CMB clients. This builds on the success of the Syn~ deployment with a European Investment Bank in Australia.
GBST also signed a distribution agreement with a major financial technology company to white-label and distribute Syn~ as a
component of their key product suites.
Financial position
Net assets increased by $3.8m to $68.7m (June 2017: $64.9m).
Factors impacting this were:
y
an increase in strategic R&D spend of $5.1m to $14.7m from $9.6m at 30 June 2017, of which $7.0m was capitalised as
intangible assets;
y
$3.4m of dividend payments during the year (June 2017: $6.2m).
Current assets exceeded current liabilities by $9.3m (June 2017: $8.6m).
GBST’s cash position was $11.4m at 30 June 2018 (June 2017: $11.7m).
2018 Annual Report 17
Directors' Report continued
Overall Group strategy, prospects and risks
Material business risks
The material business risks that have the potential to impact the Group are outlined below, with mitigating actions
undertaken to minimise these risks.
Risk
Nature of Risk
Mitigation
Industry disruption
and product relevance
Technology and financial services are
industries that are both subject to rapid
change and are also at risk of disruption and
disintermediation. Products and services
offered by GBST may not be relevant to
customer needs and therefore could impair
the ability of the Company to satisfy or create
customer demand.
GBST’s program of ongoing research &
development investment into its technology
and products is essential to the management
of these risks. The program is managed by a
team of highly skilled technical, product and
subject matter experts, and is done in close
collaboration with GBST’s global customer
base.
Failure to deliver
strategic R&D program
Failure to successfully execute on the
Company’s Strategic R&D Program would
cause reputational damage and a loss of
confidence from current and potential future
clients causing financial loss to the Company.
GBST Management has governance and
oversight processes in place that regularly
monitor the progress of the Strategic R&D
Program against key technological,
operational and financial milestones within
the Board-approved business cases. In
addition, the Board Technology Committee
provides independent oversight and
governance over the Company’s Strategic
R&D Program to mitigate the risk of the
program not delivering on what is intended.
Project delivery
and execution
Failure to successfully deliver, implement and
support GBST’s products and solutions to
clients could have an adverse impact on the
Company’s reputation and ultimately its
financial performance.
GBST’s staff are critical in managing this area
of risk. GBST is focussed on the hiring,
retention and training of its staff of dedicated
professionals that are essential to the
long-term success of the business.
GBST has a full time Project Management
Office that drives best practice project
management methodologies across the
organisation. GBST has a defined Project
Management Methodology based on
‘PRINCE2 (Projects in Controlled
Environments) for AGILE’ that ensures
projects are managed and delivered
successfully.
The Project Methodology uses gating
principles for approval to progress from one
phase to another. Gating independently
validates that all key deliverables have been
approved and controls established before
moving forward.
Internal systems and processes continue to
be developed and enhanced to manage
execution risk.
18 GBST Holdings Limited ABN 85 010 488 874
Material business risks continued
Risk
Nature of Risk
Mitigation
Cost of regulatory
compliance
The cost of keeping GBST’s products in
compliance with ever changing regulations,
as per its licence contracts, can be a
significant cost to the Company and can have
a negative impact on business performance if
not properly managed.
Resource management
Significant variability in customer demand
presents operational challenges with respect
to demand forecasting and the availability of
Company resources. There is a risk that client
demands cannot be satisfied or that key
internal strategic development work gets
delayed due to resource contention.
Key person reliance
GBST is reliant on key people in the business
who are Subject Matter Experts (SME’s) for
the performance of key client
implementation, delivery or strategic
development work. Failure to ameliorate this
reliance could cause inefficiencies in the
business and result in financial loss.
GBST monitors closely all developments in
the regulatory environment that it and its
customers operate in. GBST also works
closely with the relevant regulatory bodies in
all jurisdictions and is regarded as a key
source of industry knowledge and expertise
in the design and implementation of
regulatory change. The Company actively
engages with its entire customer base to stay
on top of all trends and changes globally
through formal, regular user group processes
as well as direct customer interactions.
GBST seeks to deliver software updates in
response to regulatory changes in the most
cost-effective way and to spread the cost of
compliance across the user base.
GBST continues to develop its systems and
processes to improve longer term resource
planning and utilisation. GBST has a pool of
contract resources that can be drawn from in
the short-term as required.
Enterprise Agile methodologies have also
started to be employed that improve GBST’s
ability to meet variability in customer
demand levels and to redeploy resources
between external customer-facing projects
or internal projects.
GBST has HR and operating processes in
place to seek to mitigate this through:
y
y
y
succession planning for key staff;
identifying key person risk and adjusting
training and development plans for other
staff to reduce the key person reliance;
and
shared key resources and information
repositories that reduce reliance on
knowledge within individual staff.
2018 Annual Report 19
Directors' Report continued
Material business risks continued
Risk
Nature of Risk
Mitigation
Information security
Breach of information security, a cyber
security attack or a cyber security breach
could cause business interruption, loss of
data security or reputational damage.
Customer concentration
GBST is exposed to loss of major clients
through outsourcing decisions, industry
amalgamation, and technological change.
Loss of a high-concentration customer could
cause a significant deterioration in financial
results.
These risks are mitigated through the
following measures:
y
y
y
y
compulsory company-wide education,
training and testing on an on-going basis;
regular independent audits and
compliance to relevant information
security standards;
active management of software currency
and threat prevention measures;
external information security expertise
including CISO (Chief Information
Security Officer) function is deployed to
actively manage this risk.
GBST is actively pursuing diversification of
income by continuing to develop a broader
offering through its range of services and
geographic reach.
More than half of major client revenue is
related to fixed licence fees, secured by
long-term contracts.
GBST is committed to ongoing investment in
R&D to keep products contemporary and to
create new revenue earning opportunities.
Dividends
A final fully franked ordinary dividend of 2.5 cents per share for the 2017 financial year was paid on 13 October 2017, as
declared in the financial report for the year ended 30 June 2017.
An interim fully franked ordinary dividend of 2.5 cents per share was paid on 20 April 2018.
Dividends declared after the end of the year:
The Directors have declared a final dividend of 2.5 cents per share to be paid to the holders of fully paid ordinary shares. The
dividend will be 100% franked and will be paid on 12 October 2018.
20 GBST Holdings Limited ABN 85 010 488 874
Significant changes in state of affairs
During the year, the Company issued 53,590 shares that vested after meeting the performance conditions from the 5 August
2014 grant of performance rights to selected employees under the GBST Performance Rights and Option Plan (LTI Plan). The
remainder of performance rights granted on 5 August 2014 had been forfeited prior to the vesting date. On 25 January 2018,
a new issue of 502,642 performance rights were granted to selected employees under the LTI Plan which were subject to
performance and service conditions.
No other significant changes in the state of affairs of the Group occurred during the financial year, other than those disclosed
in this report.
Events subsequent to balance date
No matters or circumstances have arisen since the end of the financial year which significantly affected or may significantly
affect operations of GBST, the results of those operations, or the state of affairs of GBST in future financial years.
Future developments, prospects and business
opportunities
Information regarding the Company’s future developments, prospects and business opportunities is included in the report
above. Overall, GBST will continue to:
y
y
y
enhance and develop its products and services;
expand services to clients geographically; and
focus on increasing revenue and market share in the markets in which it operates.
While the Strategic R&D Program is in progress over the 3-year period, GBST’s ongoing annual R&D expenditure and related
cash outflows will be much higher than the longer-term average. For FY19, the second year of the program, GBST expects to
spend approximately $22m on the Strategic R&D program.
Environmental issues
There are no significant environmental regulations applying to the Group.
Performance rights
To assist in the attraction, retention and motivation of employees, the Company operates a Performance Rights and Option
Plan (LTI Plan).
The number of performance rights over ordinary shares outstanding at 30 June 2018 are as follows:
Grant Date
25.01.18
Exercise Date
Exercise Price
28.02.21
$0.00
Number
502,642
In addition, 53,590 new shares were issued to meet the exercise of employee performance rights during the financial year (no
amounts are unpaid on any of the shares). The remainder of performance rights issued on 5 August 2014 lapsed prior to the
vesting date and have been cancelled.
No further shares or employee performance rights have been issued up to the date of this report.
2018 Annual Report 21
Directors' Report continued
Indemnifying Directors and Officers
During the financial year, the Group paid a premium to insure the Directors and Officers of the Group. The terms of the
insurance contract prevent additional disclosure.
In addition, the Company has entered into Deeds of Access, Insurance and Indemnity (“Deed”) which ensure the Directors
and Officers of the Group will incur, to the extent permitted by law, no monetary loss as a result of defending actions taken
against them as Directors and Officers.
During the year, GBST advanced $131,674 to a former Director and Executive, Mr Stephen Lake, in accordance with the terms
of his Deed. The advances were paid to cover legal costs incurred in defending proceedings brought against Mr Lake in the
Supreme Court of Queensland by Mr Malcolm Murdoch, a former director and shareholder of GBST. The proceedings relate
to a dispute surrounding the terms on which proceedings by Mr Murdoch in 2003 were settled in 2004. To date, GBST has
advanced a total of $1.28m to Mr Lake to cover legal costs incurred in defending these proceedings since he first claimed
under his indemnity in 2012. These amounts are expensed as incurred.
The obligation to indemnify Mr Lake in accordance with the terms of his Deed for this matter has now concluded.
The Group is not aware of any other liability that has arisen under these indemnities at the date of this report.
Proceedings on behalf of the Company
No person has applied for leave of Court to bring proceedings on behalf of the Company or intervene in any proceedings to
which the Company is a party for the purpose of taking responsibility on behalf of the Company for all or any part of those
proceedings. The Company was not a party to any such proceedings during the year.
Non-audit services
The Board of Directors, in accordance with advice from the Audit and Risk Management Committee, is satisfied that the
provision of non-audit services during the year is compatible with the general standard of independence for Auditors
imposed by the Corporations Act (2001) for the following reasons:
y All non-audit services were subject to the corporate governance procedures adopted by the Group and have been
reviewed by the Audit and Risk Management Committee to ensure they do not impact the integrity and objectivity of
the auditor; and
y
The non-audit services provided do not undermine the general principles relating to auditor independence as set out in
APES 110 Code of Ethics for Professional Accountants, as they did not involve reviewing or auditing the auditor’s own
work, acting in a management or decision-making capacity for the Group, acting as an advocate for the Group or jointly
sharing risks and rewards.
Details of the amounts paid to the auditor of the Group, KPMG, and its network firms for non-audit services provided during
the year are set out below:
Taxation services
$134,761
Lead Auditor’s Independence Declaration
The lead Auditor’s independence declaration can be found on the page following this Directors’ report and forms part of the
Directors’ report for the year ended 30 June 2018.
22 GBST Holdings Limited ABN 85 010 488 874
Rounding
The Company is of a kind referred to in the ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191
and in accordance with that instrument, amounts in the financial report and Directors’ report have been rounded to the
nearest thousand dollars, unless otherwise stated.
Remuneration report – audited
The information provided in the remuneration report relates to the Group for the year ended 30 June 2018 and has been
audited as required by section 308(3C) of the Corporations Act (2001).
The remuneration report is set out under the following main headings:
a) Letter from the Chair of the Remuneration and Nomination Committee
b) Persons Addressed and Scope of the Remuneration Report
c) Context of and Changes to KMP Remuneration for FY18 and into FY19
d) Overview of GBST’s Remuneration Governance Framework & Strategy
e) Performance Outcomes for FY18 Including STI and LTI Assessment
f) Analysis of bonuses included in remuneration
g) Changes in KMP Held Equity
h) Remuneration Records for FY18 – Statutory Disclosures
i) Employment Terms for Key Management Personnel
j) Other Remuneration Related Matters
k) External Remuneration Consultant Advice
2018 Annual Report 23
Directors' Report continued
(a) Letter from the Chair of the Remuneration and Nomination Committee
Dear Shareholders,
On behalf of the Board, I am pleased to present the Remuneration Report for the financial year ended 30 June 2018, outlining
the nature and amount of remuneration for GBST’s Non-Executive Directors and other Key Management Personnel (“KMP”).
I have recently taken over as the Chair of the Nominations and Remuneration Committee, and we have been hard at work
during FY18 to review remuneration policies, practices and disclosure in the interests of all stakeholders. In developing this
year’s Remuneration Report the Board intended to exceed the statutory requirements of a typical Remuneration Report, to
provide shareholders with genuine insights into the remuneration governance, policies, procedures and practices being
applied, so that fully informed judgements can be formed in relation to the resolution on the adoption of the Remuneration
Report at the upcoming annual general meeting (AGM). It is also intended to facilitate shareholders engaging with the Board
regarding refinements and improvements that might be seen as desirable. The Company has adopted a continuous
improvement process to remuneration governance, as the circumstances of the Company evolve.
The Board will, over the course of FY19 and likely into FY20, consider what further improvements to remuneration
governance, policies, procedures and practices could be made, implement them, provide updates and respond to feedback
in future Remuneration Reports. Given the results for FY18, the Board is satisfied that the outcomes for remuneration in
relation to FY18 demonstrates an appropriate link between performance and reward, in respect of the Executive KMP of the
Company. We understand that the long-term incentive plan that was in place for FY18 - which was a one-off interim plan,
does not meet market expectations regarding LTI arrangements, however this was necessary while the Board developed the
right kind of plan (now completed) and it will be replaced for the upcoming financial year. We are confident that Shareholders
will understand the need for such a temporary arrangement, and we hope that you will support the outcomes of the process
including the new plan.
The Nominations and Remuneration Committee has engaged independent remuneration experts during the year to conduct
executive benchmarking and also to assist with the development of the new incentive plans which improve strategy
alignment and support sustainability of returns for shareholders. Furthermore, the remuneration consultants were used to
ensure alignment between the Company’s remuneration practices, best-practices evident in the market, and tailored to the
Company’s circumstances. A number of other areas for consideration have been identified, with some already actioned, and
they are outlined in this report.
The Board will be pleased to receive feedback in relation to this report and commit to engaging with shareholders and their
representatives on these matters. We look forward to your comments, and support for remuneration related resolutions, at
the upcoming AGM.
Ms Christine Bartlett
Independent Non-Executive Director
Chair of the Nominations and Remuneration Committee
24 GBST Holdings Limited ABN 85 010 488 874
(b) Persons Addressed and Scope of the Remuneration Report
The Remuneration Report sets out the prescribed Key Management Personnel (KMP) remuneration information and details in
accordance with section 300A of the Corporations Act and associated regulations, including policies, procedures,
governance, and factual practices as required.
In addition, GBST Holdings Limited (GBST, the Company) has decided to provide further information to assist shareholders to
obtain an understanding of the Company’s approach to the remuneration of KMP. KMP’s are the Non-Executive Directors, the
Executive Directors and employees who have authority and responsibility for planning, directing and controlling the activities
of the consolidated entity. On that basis, the names and positions held of Group and Company KMP’s in office at any time
during the financial year are addressed in this report:
Key Management Personnel
Position
A Brackin
C Bartlett
D Adams
D Page
T Vu
R DeDominicis
M Knowlton
D Orrock
D Simpson
G Turner
P Salis
Director (Non-Executive Chair) (Independent)
Director (Non-Executive Deputy Chair) (Independent)
Director (Independent) (retired 29 June 2018)
Director (Independent)
Director (Independent)
Director (Managing Director and Chief Executive Officer)
Chief Technology Officer
Head of Asia Pacific
Head of EMEA
Chief Financial Officer (appointed 11 December 2017)
Chief Financial Officer (resigned 6 October 2017)
(c) Context of and Changes to KMP Remuneration for FY18 and into FY19
Matters Identified as Relevant Context for Remuneration Governance in FY18 and into FY19
The KMP remuneration structures that appear in this report are largely those that prevailed over FY18, as is required by
regulation. These structures and the outcomes resulting from them were the result of decision making processes, including
benchmarking, that were undertaken in previous years.
The Board has undertaken to make continuous improvements to remuneration governance, policies and practices applied to
KMP of the Company, as well as other employees, to ensure appropriateness to the circumstance of the Company as it
evolves over time. The following outlines important context for the decisions that were made in relation to remuneration for
and during FY18, the outcomes of which are presented in this report. Those changes already made in respect of FY19 or
anticipated to be implemented during the remainder of FY19 will be commented on to the extent relevant to an evaluation of
remuneration for FY18, with additional information to be given as part of the FY19 Annual Report.
y During FY17 and FY18 the Board sought and received feedback from both stakeholder and independent consultant views
of KMP remuneration governance and practices, including taking note of feedback from proxy advisors, and has sought
to be responsive to that feedback. The main themes emerging from those engagements are dealt with in this report.
y Market capitalisation is one of the factors that influences external assessments of the appropriateness of remuneration,
and it is understood that external groups tend to see it as a primary indication of the size and status of the Company, as
well as the field in which the Company is competing for talent. In this regard it should be noted that the market
capitalisation of the Company decreased from $202 million at the end of FY17 to approximately $144 million as at the end
of FY18. This fall in market capitalisation is the result of a fall in the share price of approximately 28.6% during FY18, due to
the impact of several key issues outlined below.
2018 Annual Report 25
Directors' Report continued
(c)
Context of and Changes to KMP Remuneration
for FY18 and Into FY19 continued
y
The Company is in the process of implementing its renewed strategy which has been adjusted in light of emergent events
in recent years, including:
f The loss of two large clients before FY17 had flow on effects into FY17 and FY18 causing a reduction in GBST’s
revenue and trading performance in those financial years.
f At the same time, GBST has needed to refocus on strategic R&D investment in order to strengthen its digital solutions
and to take advantage of longer-term market growth. This will enable GBST to support longer-term growth in licence
fees as well as enable the company to meet growing demand for automated advice and differentiated adviser and
client experiences.
f As was previously mentioned in the FY17 annual report, GBST will invest $50 million over 3 years in its Strategic R&D
Program, with a focus on providing greater long-term value for shareholders.
f The items above are believed to have had a direct impact on the GBST share price, however, as the business’s
operating results stabilise and as GBST starts to show progress on its Strategic R&D Program, it is expected that
negative pressure on GBST’s share price will start to abate.
The FY18 results, particularly the second half, have started to demonstrate some of the stabilisation and improvement
that the Board has tasked the Executive team with delivering.
It is this context that makes it important for the KMP Remuneration structure to provide clear incentives for the Executive
team to continue the important stabilisation and improvement journey and at the same time, deliver on the critical goals
of GBST’s Strategic R&D Program.
In addition, the Strategic R&D Program has started to show good progress with the digital component (Catalyst) having
gone live with its first key client before the end of the financial year and key early milestones around the E-VOLVE
component of the program being delivered. The Strategic R&D Program has also progressed sufficiently such that the
accounting criteria for capitalisation as an asset have been met for significant parts of the program resulting in GBST
being required to capitalise aspects of the program under the accounting standards.
The company expects that more components of the Strategic R&D Program will meet the accounting capitalisation
criteria in FY19 and hence more of the development expenditure is expected to be capitalised as an intangible asset on
GBST’s balance sheet.
y
y
y
y
y New revenue accounting standard (AASB15) must be implemented in FY19 with transitional provisions applying to
incomplete contracts spanning 30 June 2018. The new revenue standard affects the timing of revenue recognition for
GBST’s smaller, non-regulatory products. These transitional provisions may require an adjustment to opening retained
earnings of $1.57m, comprising $1.23m of licence revenues brought forward from FY19 and beyond and $0.34m in
capitalised commission costs which will be amortised over the terms of the respective contracts. It is not possible to
accurately determine the net impact of the standard on FY19 or future earnings as adjustments will be offset by revenue
recognised earlier under the new standard on unknown new contracts that are to be entered into during FY19 and
beyond.
y Given the context of challenges around accounting changes associated with the new revenue standard and variability in
the capitalisation of GBST’s Strategic R&D Program, the Remuneration Committee has been mindful to design incentive
structures and set incentive targets going forward that are not as susceptible to these challenges, that are not subject to
any potential gaming, that can be easily understood by the Executive team, can be tracked objectively and can directly
demonstrate an increase in shareholder value before value is derived under the incentive.
y
The design of the remuneration and incentive structure has been adjusted accordingly to ensure that there are
meaningful incentives around delivering on appropriate FY19 financial targets and each Executive will have a meaningful
component of their incentive plan based on delivering FY19 objectives around the Strategic R&D Program. In addition, it
is important that there are meaningful longer-term retention incentives for the GBST Executive team to remain through
this important period for the company but that those incentives are directly congruent with and tied to an increase in
longer-term shareholder value.
26 GBST Holdings Limited ABN 85 010 488 874
y
y
The design of the FY19 Long-Term Incentive Plan being based on the grant of Options, which are subject to a service
related vesting condition with an exercise price related to the VWAP applicable to the Company’s shares around the time
of the grant calculation and the payment of an exercise price in 3 years’ time, is a direct response to this context.
In addition to the service requirement, an LTI recipient will also need to achieve a certain minimum personal performance
expectation rating throughout the period before any LTI grant will vest.
Key Remuneration Matters Identified and Adjustments Made or Planned in Response, Since
the Previous Report
During FY18 the following KMP remuneration related matters were identified for consideration and/or action during the
reporting period and into FY19:
y During FY17 and FY18 opportunities to improve remuneration governance and disclosure were identified by the Board.
Considerations and action in response should be evident from this document. In particular, the following were salient
issues:
f Some observers sought further improvements to disclosure of short-term incentive (STI) arrangements. In particular,
they were concerned regarding the lack of disclosure of the specific STI targets used as well as the Group EBITDA
target, which was used as a gateway. This has been resolved in this report through additional disclosure.
f Some stakeholders also raised concern regarding the use of a normalised EPS hurdle in the LTI plan as there is a view
that areas directly impacted by management’s decisions will not be included in the performance measure. The use of
Board discretion in this area is addressed in a dedicated section of this report to provide transparency and
reassurance on this matter. It should be noted that EPS growth scales do not function when EPS is negative in the
base year. While the LTI grant made in FY18 replaced the normalised EPS vesting condition with operating EBITDA,
the grant for FY19 will be based on grants of options (see discussion below).
f Comments were made regarding the use of a single metric for the LTI and in particular no market metric being used.
While this issue was not resolved with the FY18 grant being a temporary measure, it has been resolved with the FY19
grant, as discussed below.
f One stakeholder raised concern regarding the lack of detail on the LTI plan in particular, change of control provisions,
individual incentive stretch/maximum opportunities and the treatment of dividends on unvested awards. This has
been resolved in this report through additional disclosures.
y Changes were made to the STI plan for FY18, which meant that all of the Senior Executives were subject to a Group
Operating EBITDA Target gate (three Executives also had metrics covering their specific areas of responsibility) and then
there was a weighting on individual performance and behaviours. The EBITDA target excludes the cost of R&D expenses
as well as other adjustments made at the Board’s absolute discretion. The question of whether it is appropriate to
continue with the policy of adjustment/normalisation applied to financial metric calculations for the purposes of
incentives, was raised, and this will be the subject of consideration for FY19 with a decision to be made prior to FY19
incentive invitations being made. This matter is discussed further elsewhere in this report (see separate section).
y
The Board is currently in the process of implementing a new STI plan for FY19, which will be driven by financial targets as
well as business unit and individual role performance measures where appropriate, linked to the Company’s strategy. This
new plan is described later in this report.
y
Executive benchmarking was undertaken by an independent expert external remuneration consultant during FY18:
f This showed that while the MD/CEO’s Base Package fell close to the high end of the range based on local Australian
benchmarks, the other Executive roles were within the range (+/- 20%) from the median of the Australian market data,
f Incentive components of remuneration appeared to represent a value that aligned with Australian market peers,
however the consultant also gave advice on how the short and long-term incentive plans could be improved to better
align with the strategy and market best-practices,
f The consultant suggested that standard remuneration profiles be introduced for direct reports operating at a similar
level so that individuals had a similar proportional interest in short and long-term outcomes, scaling naturally with the
Base Packages.
2018 Annual Report 27
Directors' Report continued
(c)
Context of and Changes to KMP Remuneration
for FY18 and Into FY19 continued
y
The LTI granted during FY18 differed from previous grants in that it was based on a one-year Operating EBITDA target
and a concurrent three-year service period. This was a one-off transitional arrangement while the LTI plan was being
redesigned, and the Board accept that the FY18 LTI arrangement was not in line with market best practice, which is
usually based on a three-year performance period. The Company’s LTI plan approved at the Company’s 2012 Annual
General Meeting will be replaced with a new LTI Plan however the uncertain impact on EPS of the anticipated R&D
expenditure over the next three years will continue to need careful consideration.
y With regards to the intended new LTI plan, LTI grants for FY19:
f Should be based on options with the exercise price set at the share price at grant (market exercise priced options or
MEPOs). The FY19 options are intended to have a three-year service related vesting condition, and an exercise period
of around 2 years (term of 5 years from grant date). The exercise price of an option serves as an inbuilt performance
condition as there will be no value in the option unless the share price exceeds the exercise price at the time of grant,
and the amount of benefit scales with the degree to which the share price at the time of exercise exceeds the exercise
price. This is designed to create an incentive for executives to grow shareholder value over the three-year service
period and align with the goal of wealth creation for shareholders,
f In addition to the service requirement, an LTI recipient will also need to achieve a certain minimum personal
performance expectation rating throughout the period before any LTI grant will vest.
y
Future incentives will differentiate between defined Target and Stretch levels of performance (see definitions of these
below) to improve clarity for shareholders and participants alike, noting that the incentives are intended to have two
components, being at-risk market pay (downside to expected remuneration outcomes), and a genuine incentive (upside
to expected remuneration outcomes), respectively.
y No changes to remuneration received by Non-Executive Directors have been made and the Board will not be seeking an
increase to the aggregate fee limit (AFL) for NEDs at this time.
y During the year, the number of Directors reduced from six to five. The Board does not anticipate replacing the position in
the near term which will therefore contribute to a cost saving for the Company in FY19.
(d) Overview of GBST’s Remuneration Governance Framework & Strategy
Transparency and Engagement
The Company seeks input regarding the governance of KMP remuneration from a wide range of sources, including:
y
Shareholders,
y Remuneration and Nomination Committee Members,
y
y
Stakeholder groups including proxy advisors,
External remuneration consultants (ERCs),
y Other experts and professionals such as tax advisors and lawyers, and
y Company management to understand roles and issues facing the Company.
The following outlines a summary of GBST’s Remuneration Governance Framework that has resulted from those
engagements and related considerations.
28 GBST Holdings Limited ABN 85 010 488 874
Remuneration and Nomination Committee Charter
The Remuneration Committee Charter (the Charter) governs the operation of the Remuneration Committee (the Committee).
It sets out the Committee’s role and responsibilities, composition, structure and membership requirements. The purpose of
the Committee is to assist the Board by:
y
Ensuring that policies and practices align the interests of staff with the interests of shareholders to enhance the
company’s performance,
y Assisting in attracting, retaining and motivating/engaging staff who are critical to GBST’s success,
y
Ensuring that policies and procedures are applied fairly, and comply with all relevant regulatory requirements,
y Advising on material changes to Remuneration Policy, including structure, for all staff as well as material changes to
superannuation or pension arrangements,
y Recommendations for delegated authorities for implementing remuneration related decisions,
y Remuneration recommendations on all staff whose remuneration is disclosed in the annual report as well as specific
recommendations, including allocation of equity and bonuses to senior members of staff, including the consideration of
performance against goals and ensuring that these payments are aligned to progress towards or the completion of the
Board’s goals for the organisation,
y Consideration of the remuneration framework for Non-Executive Directors and making recommendations to the Board; and
y Reviewing and approving sources of advice and data used in support of recommendations for remuneration.
The Committee has the authority to seek independent professional advice for company related matters.
GBST recognises the importance of ensuring that any recommendations given to the Committee provided by remuneration
consultants are provided independently of those to whom the recommendations relate. Further information about the
parameters under which external remuneration consultants are engaged is provided below.
Senior Executive Remuneration Policy
This policy outlines the Company’s intentions regarding Senior Executive remuneration, as well as how remuneration is
intended to be structured, benchmarked and adjusted in response to changes in the circumstances of the Company, and in
line with good governance.
y Remuneration should be composed of:
f Base Package (inclusive of superannuation, allowances, benefits and any applicable fringe benefits tax (FBT)),
f Short-term variable remuneration which provides both upside and downside based on performance against annual
objectives, and
f Long-term variable remuneration which provides both upside and downside based on an equity-linked reward for
performance against indicators of shareholder benefit or value creation, over a three-year period, but in a way that
create a continuous improvement framework (overlapping Measurement Periods),
f In total the sum of the elements will constitute a total remuneration package (TRP).
y Both internal relativities and external market factors should be considered in benchmarking a role,
y
Total Remuneration Packages (TRPs, which include base package and incentives) should be structured with reference to
market practices and the circumstances of the Company at the time,
y Base Package policy mid-points should be set with reference to P50 (the median or the middle) of the relevant market
practice, however international competitors for talent may be considered from time to time and used to modify the
benchmarks,
y Remuneration will be managed within a range so as to allow for the recognition of individual differences such as the
calibre of the incumbent and the competency with which they fulfil a role (a range of +/- 20% is specified in line with
common market practices),
2018 Annual Report 29
Directors' Report continued
(d)
Overview of GBST’s Remuneration Governance
Framework & Strategy continued
y
y
y
TRPs at Target (being the Base Package plus incentive awards intended to be paid for targeted levels of performance)
should fall between P50 and P75 (the upper quartile, the point at which 75% of the sample lies below) of the relevant
market practice so as to create a strong incentive to achieve targeted objectives in both the short and long-term, while
maximum opportunism should exceed P75, but be designed to be rarely achieved,
The Board believes that Senior Executives (other than the CEO) should receive a similar mix of remuneration (Base
Package relative to STI and LTI) to ensure that there are similar interests in and focus upon group objectives and therefore
TRPs may depart from role specific P75 market benchmarks to a minor extent to ensure this outcome, and
Termination benefits will generally be limited to the default amount allowed for under the Corporations Act (without
shareholder approval).
Remuneration Structure – Non-Executive Directors
Remuneration of Non-Executive Directors is determined by the Board with reference to market rates for comparable
companies and reflective of the responsibilities and commitment required of the Director. The remuneration of Directors is
voted on annually as part of the acceptance of the Remuneration Report at the Company’s Annual General Meeting. The
current shareholder approved limit is $750,000.
Non-Executive Directors are paid a fixed annual remuneration (inclusive of superannuation where relevant). The annual fees
paid to Non-Executive Directors in FY18 are:
y
y
y
$135,000 (inclusive of superannuation) for the Chair;
$90,000 (inclusive of superannuation) for the Deputy Chair and Committee Chairs; and
$80,000 (inclusive of superannuation) for Non-Executive Directors.
Non-Executive Directors may make investments in the Company in accordance with the Company’s share trading guidelines,
but they do not participate in the existing Company LTI Plan. GBST does not operate a scheme for retirement benefits to
Directors.
Approach to Determining Comparators for Remuneration Benchmarking
When the Company seeks external market data in relation to Senior Executive benchmarking, the following principles are
generally intended to apply, however the Board seeks independent expert advice regarding design of comparator groups as
part of engaging an external remuneration consultant.
A benchmarking comparator group will take into account the Company’s estimated sustainable market capitalisation at the
time of the exercise and will include direct competitors of comparable scale to the extent possible. The group should be large
enough to produce valid statistics, and small enough to be reasonably specific, however to the extent that direct competitors
are not sufficient to produce a statistically robust sample, companies of comparable scale from the same industry or sector
will be included. The group should be balanced with an equal number of comparators larger, and smaller, generally limited to
those within a range of half to double the Company’s market capitalisation value used in designing the group.
If the Board forms the view that larger Australian peers or international competitors represent a material risk of loss of talent,
then such market practices may also be considered and used to modify benchmarks for Executive roles.
These principles are specific to remuneration benchmarking exercises and therefore may produce different outcomes than
those applied to the design of other types of comparator groups.
Short-Term Incentive Policy
The Short-Term Incentive policy may be summarised as follows:
y
The Company should operate a formal Short-Term Incentive Plan (STIP) as part of the remuneration offered to Senior
Executives so as to:
f Motivate Senior Executives to achieve the short-term annual objectives linked to shareholder value creation,
f Create a strong link between performance and reward,
30 GBST Holdings Limited ABN 85 010 488 874
f Share company success with the Senior Executives that contribute to it, and
f Create a component of the employment cost that is responsive to short to medium term changes in the circumstances
of the Company,
y Non-Executive Directors are excluded from participation,
y
y
y
The measurement period for performance should be the financial year of the Company which is considered short-term,
The STIP should be outcome focused rather than input focused, and while an individual performance component may be
present, rewards should generally be linked to indicators of shareholder value creation, and
The Board will retain discretion to adjust actual awards so as to manage circumstances in which the calculated award may
be considered inappropriate.
Long-Term Incentive Policy
The Long-Term Incentive policy may be summarised as follows:
y
The Company should operate a formal Long-Term Incentive Plan (LTIP) as part of the remuneration offered to Senior
Executives so as to:
f Motivate Senior Executives to achieve long-term objectives linked to shareholder value creation over the long-term,
f Create a strong link between performance and reward over the long-term,
f Share the experience of shareholders with the Senior Executives that contribute to it including creating an ownership
position, and
f Create a good behaviour bond that will extend beyond cessation of employment and create a disincentive to take
actions that are not deemed to be in the long-term interests of shareholders,
y Non-Executive Directors are excluded from participation,
y
y
The measurement period for performance should be aligned with the financial year of the Company and should include
three financial years, and
The Board will retain discretion to adjust actual vesting so as to manage circumstances in which the calculated vesting
may be considered inappropriate.
Defining Target and Stretch for Variable Short-Term Incentive Remuneration
Purposes
In relation to the design, implementation and operation of variable remuneration including incentives there should, where
possible, be a range of performance and reward outcomes identified and defined. These should be set with regard to the
elasticity of the measure, the impact of the measure on shareholder value creation and the ability of Senior Executives to
influence the measure. In order to create clarity and consistency, the following concepts and principles are generally intended
to apply to the design of incentive scales:
y
y
“Target”, being a challenging but achievable outcome, and which is the expected outcome for a Senior Executive/team
that is of high calibre and high performing (generally 50% - 60% probability of achievement), and
“Stretch” (the maximum) levels of objectives, which is intended to be a “blue sky” or exceptional outperformance, which
are not expected to be achieved, the purpose of which is to create a continuous incentive to outperform when
outperformance of the Target has already been achieved (generally less than 20% probability of achievement). This is
particularly important for shareholders to understand when comparing with other Companies whose maximum levels of
incentives may be associated with a planned or target outcome and are not genuinely “Stretch”.
Claw back/Malus Policy and Good Behaviour Bond
The Board currently holds the view that a claw back policy is not necessary since malus type mechanisms are built into the
formal incentive plan rules. Both sets of plan documents have been designed so that the incentive opportunities will be
forfeited if a participant, or the Executive team as a whole, takes action that the Board determines to be against the interest
of the Company and/or its shareholders.
2018 Annual Report 31
Directors' Report continued
(d)
Overview of GBST’s Remuneration Governance
Framework & Strategy continued
Securities Trading Policy
The Company’s Policy on Trading in Company Securities, which applies to all Directors, Employees and Contractors, sets out
the guidelines for dealing in any type of Company Securities. It also summarises the law relating to insider trading which
applies to everyone. Under the current policy trading is prohibited during certain “closed periods”. The following periods in a
year are “closed periods”, unless otherwise determined by the Board:
y
y
The period from (and including) the 15th of December until the next trading day after the day the Company releases its
results for half financial year ended 31 December to the ASX, and
The period from (and including) the 15th of June until the next trading day after the day the company releases its audited
results for the financial year ended 30 June to the ASX.
Equity Holding Policy
The Company currently has a policy in place for its Non-Executive Directors, which requires them to hold a minimum of
30,000 shares in the company or such other amount as determined by the Board from time to time. Each Director has three
years after the date of their appointment or three years from the commencement of the policy to meet this requirement.
Non-Executive Directors are required to maintain this level of shareholding for as long as they remain Directors. There is
currently no such policy in place for executives as they receive sufficient equity under the LTI plan to align their interests with
shareholders.
Variable Executive Remuneration – The Short-Term Incentive Plan (STIP)
FY18 STIP (Legacy)
Short Term Incentive Plan (STIP)
Aspect
Measurement Period
Award Opportunities
Plan, Offers and Comments
The Company’s financial year (12 months).
The MD/CEO was offered a target-based STIP equivalent to 30% of Base
Package for Target performance, with a maximum/stretch opportunity of up
to 60% of Base Package.
Other Senior Executives who are KMP were offered a target-based STIP
equivalent to between 20% and 40% of their Base Package for Target
performance, with a maximum/stretch opportunity of between 40% and 81%
of Base Packages.
32 GBST Holdings Limited ABN 85 010 488 874
Short Term Incentive Plan (STIP)
Aspect
Plan, Offers and Comments
Key Performance Indicators (KPIs),
Weighting and Performance Goals
FY18 Invitations to participate in the STIP were based on a combination of
company performance and individual KPIs. Company performance was
primarily based on Operating EBITDA, with business unit heads having a
second customised performance measure related to that unit/region. These
are summarised below:
Chief Executive Officer & Managing Director and Chief Financial Officer
y Group Operating EBITDA Margin - 100%
Chief Technology Officer
y Group Operating EBITDA – 75%
y
Strategic R&D projects as agreed with CEO – 25%
Head of Asia Pacific
y Group Operating EBITDA – 50%
y Asia Pacific Operating EBITDA - 50%
Head of EMEA
y Group Operating EBITDA – 50%
y
EMEA Operating EBITDA – 50%
Financial targets are set with reference to the annual budget for the financial
year.
The financial KPIs are subject to an individual performance modifier (based on
the achievement of individual performance objectives and the demonstration
of behaviours aligned with the GBST company values), which has the effect of
scaling the actual award received up or down from 0% to 200% of target.
Calculations are performed following the end of the Measurement Period and
the auditing of Company accounts. STI payments will generally be paid in the
next monthly pay cycle following approval by the Board. Deferral has not been
introduced due to the mix of STI and LTI being appropriately weighted, with
overlapping measurement periods that mitigate the risk of short-termism.
STI Plan Incentive payments for resigning employees will not be pro-rated for
incomplete performance periods. Employees must still be employees of GBST
at the time when the STI plan payments are made in order to receive the
payment. Therefore, employees who terminate their employment after the
conclusion of the performance plan period, but before the incentive payments
are made will not be eligible to receive payment.
In the case of resignation or termination due to serious illness or disability,
incentive payments will be determined on a case-by-case basis.
In the event of a Change of Control including a takeover the Board may in its
ultimate discretion determine the treatment of the STI.
2018 Annual Report 33
Award Determination and Payment
Cessation of Employment During a
Measurement Period
Change of Control
Directors' Report continued
(d)
Overview of GBST’s Remuneration Governance
Framework & Strategy continued
Short Term Incentive Plan (STIP)
Aspect
Plan, Offers and Comments
Plan Gate & Board Discretion
Fraud, Gross Misconduct etc.
For each Measurement Period the Board will have the discretion to either
abandon the plan or adjust award payouts if the Company’s overall
performance during the Measurement Period was substantially lower than
expectations and resulted in significant loss of value for shareholders. A
specified gate condition may apply to offers of STI such that no award will be
payable in relation to any KPI if the gate condition is not met or exceeded.
FY18 Invitations
A gate equal to the target Group Operating EBITDA applied so that no STI was
payable if this condition was not met or exceeded.
If the Board forms the view that a Participant has committed fraud, defalcation
or gross misconduct in relation to the Company then all entitlements in relation
to the Measurement Period will be forfeited by that participant.
Claw back
The plan includes forfeiture provisions.
FY19 STIP (New Plan)
Short-Term Incentive Plan (STIP)
Aspect
Purpose
Plan, Offers and Comments
The STI Plan’s purpose is to:
y
y
give effect to an element of a market competitive remuneration package
for Senior Executives in accordance with the executive remuneration
policy, and align with market practices,
to provide a clear link between Company performance and variable pay
that represents both “upside” (incentive) and “downside” (at-risk pay)
around the Target remuneration package, thus sharing the risk and rewards
of Company performance with Executives, including reducing the cost of
executive remuneration when Company financial performance has not met
expectations, and
y
to encourage team work and cooperation amongst the Executives over the
short-term, in creating value for shareholders.
Measurement Period
The Company’s financial year (12 months).
34 GBST Holdings Limited ABN 85 010 488 874
Short-Term Incentive Plan (STIP)
Aspect
Award Opportunities
Key Performance Indicators (KPIs),
Weighting and Performance Goals
Plan, Offers and Comments
For FY19 the MD/CEO STIP opportunity will be equivalent to 40% of Base
Package for Target performance, with a maximum/stretch opportunity of up
to up to 100% of the Target award, i.e. 80 % of Base Package.
Other Senior Executives who are KMP will have a target-based STIP
opportunity of 40% of their Base Package for Target performance, with a
maximum/stretch opportunity of up to 100% of the Target award, i.e. 80 % of
Base Package.
Shareholders should refer to the definitions of Threshold, Target and Stretch
presented elsewhere in this document when assessing incentive practices and
comparing them to those in other companies.
Under the new STI plan, each Executive will be allocated a weighting in respect
of each of the following key result areas (KRAs) and linked to the Company’s
strategy and business plans through key performance indicators (KPIs), in a
mix appropriate to the level and type of role:
y Group financial and/or strategic and/or operational,
y Business Unit financial and/or strategic and/or operational, and
y Role/Individual, which may include financial/strategic/operational
objectives and/or individual performance assessment.
The following table indicates the weightings of KPIs as applicable to the FY19
STIP opportunities:
KPI
Group Operating
EBITDA
Before Strategic R&D
Business Unit Operating
EBITDA
Before Strategic R&D
Strategic R&D
Excluding Capitalisation
Individual Effectiveness
Total
MD/CEO
Weighting
Business Unit
Heads Weighting
Other Direct
Reports
Weighting
40%
10%
40%
-
50%
-
40%
20%
100%
20%
40%
20%
100%
20%
100%
Two gates apply to all KPIs for FY19 (see below). Financial targets are set with
reference to the annual budget for the financial year and cannot be disclosed
prospectively as a matter of commercial confidentiality. Targets will be
disclosed retrospectively along with incentive award outcomes.
Strategic R&D has been excluded from the financial assessment so as to
ensure that Executives are not discouraged from making those strategic
investments that will ensure sustainable value creation for shareholders over
the long-term.
Continued
2018 Annual Report 35
Directors' Report continued
(d)
Overview of GBST’s Remuneration Governance
Framework & Strategy continued
Short-Term Incentive Plan (STIP)
Aspect
Plan, Offers and Comments
Key Performance Indicators (KPIs),
Weighting and Performance Goals
Individual effectiveness will be assessed by the Board in respect of the MD/
CEO and by the MD/CEO in respect of other Senior Executives, and then
reviewed by the Board. The following assessment outcomes will be assigned,
following consideration of role fulfilment, contributions to group performance
and both strategic and operational plans:
Performance Level
Below expectations
Met expectations
Exceeded expectations
% Score Range
0%
50% & ≤100%
75% & ≤150%
Significantly exceeded expectations
>200%
Comments
The Board selected measures expected to drive economic profitability, and
ultimately shareholder value creation over the long-term, within a financial
year period, including through successful implementation of the Company’s
strategy and fulfilment of budget expectations. These performance ranges for
KPIs were calibrated with reference to the company’s policy of differentiating
between target and stretch levels of performance.
A gate is a condition that must be met or exceeded in order for a group of KPIs
to become payable, and may apply to the whole STI opportunity, as specified
in the Offer. Two gates apply to all KPIs under the FY19 STIP Offers:
y Group Operating EBITDA, and
y
Individual performance rating must be at “Met expectations” or better.
Calculations are performed following the end of the Measurement Period and
the auditing of Company accounts. Awards will generally be paid in cash in the
September following the end of the Measurement Period. They are to be paid
through payroll with PAYG tax and superannuation deducted as appropriate.
STI deferral has not been introduced due to the mix of STI and LTI being
appropriately weighted, with overlapping measurement periods that mitigate
the risk of short-termism: in effect, the Board has included the amount of
Target STI that would otherwise be deferred, into LTI, which is more sensitive
to long-term outcomes of short-term decision making than deferral alone.
Gate
Award Determination and Payment
36 GBST Holdings Limited ABN 85 010 488 874
Short-Term Incentive Plan (STIP)
Aspect
Plan, Offers and Comments
Cessation of Employment During a
Measurement Period
In the event of cessation of employment classified as “Bad Leaver” all
entitlements in relation to the Measurement Period are forfeited. Bad Leaver
includes:
y
y
dismissal for cause, or
resignation, unless the Board exercises its discretion to classify the
resignation as “Good Leaver”.
In the case of cessation of employment classified as “Good Leaver”, defined as
a cessation not classified as Bad Leaver, the award opportunity will be reduced
proportionately to reflect the portion of the Measurement Period not yet
completed as at the date of the termination. The actual award earned will
generally not be calculated until after end of the financial year, along with
other participants (not a termination benefit). The Board retains discretion to
trigger or accelerate payment or vesting of incentives in the case of a
termination, provided that the limitations on termination benefits as outlined in
the Corporations Act are not breached.
In the event of a Change of Control including a takeover, 100% of the Target
STI will be awarded (but not Stretch/Maximum). Any remaining STI will be
terminated or allowed to continue at the Board’s discretion. If the remaining
STI is allowed to continue and the resulting award is greater than the amount
paid at the Change in Control, the net increase only would be paid. If the
amount is less, no further action would be due.
For each Measurement Period the Board will have the discretion to either
abandon the plan or adjust award payouts if the outcome would otherwise by
seen as inappropriate.
If the Board forms the view that a Participant has committed fraud, defalcation
or gross misconduct in relation to the Company then all entitlements in relation
to the Measurement Period will be forfeited by that participant.
The Plan Rules for the STI include a malus type clause such that the Board may
determine that incentive opportunities in a given year are forfeited, if actions
come to light that are deemed to have been against the interests of the
Company or its shareholders. This may be applied to an individual, or all
Executives as a group.
Change of Control
Board Discretion
Fraud, Gross Misconduct etc.
Actions that are not in the Interests of the
Company or its Shareholders
2018 Annual Report 37
Directors' Report continued
(d)
Overview of GBST’s Remuneration Governance
Framework & Strategy continued
Variable Executive Remuneration – Long-Term Incentive Plan (LTIP) – Performance Rights
Plan
FY18 LTIP (Legacy)
Long-Term Incentive Remuneration (LTI)
Performance rights are issued under the Company’s LTI Plan approved at the Company’s 2012 Annual General Meeting. The
LTI Plan involves the use of performance rights to acquire shares in the Company.
The LTI Plan is designed to reward employees in a manner which aligns this element of remuneration with the financial
performance of the Company and the interests of shareholders. As such, grants under the LTI Plan are only made to KMP
Executives and selected employees who are able to influence the generation of shareholder wealth and thus have an impact
on the Group’s performance against the relevant long-term performance hurdle.
Selected employees are made individual offers of specific numbers of performance rights at the discretion of the Board and
in accordance with the LTI Plan rules. The Board may determine the number of performance rights, vesting conditions,
vesting period, exercise price and expiry date. Performance rights may be granted at any time, subject to the Corporations
Act and ASX Listing Rules.
The Company uses Earnings per Share (EPS) as a performance hurdle for the LTI Plan, measured by growth in earnings per
share. EPS was selected to align employee and shareholder interests. Participants in the LTI Plan are also required to meet
continued service conditions in order to exercise the performance rights.
FY15 issue
On 28 August 2017, 23,446 performance rights issued to KMP Executives on 5 August 2014 vested.
Since the grant date, 60,291 FY15 performance rights have lapsed due to cessation of employment of KMP participants. R
DeDominicis elected not to accept the 12,560 shares arising from the performance rights. The remainder of the performance
rights issued of 108,024 on 5 August 2014 were forfeited prior to vesting date and have been cancelled due to failure to meet
the financial performance targets for FY17.
FY17 issue
On 26 September 2016 and 27 October 2016, the Company issued 181,404 FY17 performance rights to KMP Executives. Since
the grant dates, 19,880 FY17 performance rights have lapsed due to cessation of employment by a KMP participant. These
performance rights were forfeited due to failure to meet the financial performance targets for the 2017 financial year.
FY18 issue
On 25 January 2018, the Group issued 335,095 performance rights to current KMP Executives.
The FY18 performance rights are conditional upon the participants meeting continuous service conditions and the Company
meeting certain financial performance measures (as set out below).
There is a nil exercise price and the FY18 performance rights vest on the later of: (a) 3 years from Grant Date; or (b) if the date
in (a) above occurs during a Closed Period under the GBST Securities Trading Policy, then that date that the relevant Closed
Period ends and trading is permitted under that Policy, whichever is the later.
The FY18 performance rights expire thirty days after the vesting date.
38 GBST Holdings Limited ABN 85 010 488 874
The performance criteria associated with the FY18 performance rights is as follows:
1.
Cumulative Earnings Before Interest, Tax, Depreciation, Amortisation and Strategic R&D
(Operating EBITDA) Target
Vesting of the performance rights granted will be subject to the Company achieving an Operating EBITDA for FY18 of at least
$20,000,000. The targets and respective % are detailed in the following table:
Performance Condition Target over
the Measurement Period
≥ $20,000,000 to < $21,000,000
≥ $21,000,000 to <$22,500,000
≥ $22,500,000 to <$23,500,000
≥ $23,500,000
2. Service Condition
Proportion of
Performance Rights to vest
25%
50%
75%
100%
Continuous employment with the Company from the grant date to the date of vesting of the FY18 performance rights.
For issues to non-Executive Personnel refer to Note 29.
Legacy Long-Term Incentive Plan (LTIP) – FY18 Grants
Aspect
Plan Rules, Offers and Comments
Form of Equity
The Performance Rights and Option plan included the ability to grant:
y Performance Rights, which are subject to performance related vesting conditions, for the
purposes of the LTIP,
y Options, which are subject to vesting conditions, for the purpose of the LTIP (not used for
the FY18 grant).
The FY18 grant was based on Performance Rights, which are an entitlement, following
vesting and exercise, to be allocated a Company share, with vesting subject to performance
conditions.
In respect of FY18 only, an arrangement was entered into with the CEO as a one-off, to settle
the FY18 LTI in the form of cash to the extent that it may vest in the future.
LTI Value
In relation to the MD/CEO, Performance Rights with a Target value equivalent to 42% of Base
Package.
Measurement Period
For other Senior Executives Performance Rights with a Target value equivalent to between
27% and 44% of Base Packages.
The Measurement Period for the performance condition was from 1 July 2017 to 30 June 2018
(one financial year). There is also a concurrent three-year service condition. Though the
one-year measurement period may be considered to be unusual, as was discussed previously
in this report, this was done due to FY18 being a transition period when a new LTI plan was
being developed. A more traditional LTI, with a three-year measurement period, has been
developed to replace this temporary arrangement, and is to be introduced from FY19 (see
next section).
2018 Annual Report 39
Directors' Report continued
(d)
Overview of GBST’s Remuneration Governance
Framework & Strategy continued
Legacy Long-Term Incentive Plan (LTIP) – FY18 Grants
Aspect
Plan Rules, Offers and Comments
Vesting Conditions
The Board has discretion to set vesting conditions for each offer. Performance Rights that do
not vest will lapse. The FY18 Invitations were based on an Operating EBITDA vesting
condition, subject to the below vesting scale:
Performance Condition Target over
the Measurement Period
Proportion of
Performance Rights to vest
≥ $20,000,000 to < $21,000,000
≥ $21,000,000 to <$22,500,000
≥ $22,500,000 to <$23,500,000
≥ $23,500,000
25%
50%
75%
100%
The EBITDA will be measured as before reported strategic R&D expense and plus or minus
any adjustments deemed fair and appropriate by the Board. The range was set with reference
to the FY18 budget.
Though it is unusual for the same condition to be used under both of the STI and LTI plans, as
mentioned previously the conditions of this grant was intended to be a one-off due to the
transitional nature of the FY18 period. These arrangements have been replaced for FY19.
The above vesting conditions are also applicable to the MD/CEO LTI plan.
Retesting
No retesting applies.
Amount Payable for
Performance Rights
Exercise of Vested
Performance Rights
No amount is payable by participants for Performance Rights. The target value of Rights is
included in assessments of remuneration benchmarking and policy positioning. This is
standard market practice and consistent with the nature of Performance Rights.
Under the plan rules, vested Performance Rights are exercised automatically following
vesting. Rights that are not exercised, lapse. Exercised Rights will be satisfied in the form of
ordinary Company shares.
Disposal Restrictions etc.
Rights cannot be transferred, disposed of, or have a security interested imposed over them.
Cessation of Employment
If the Executive is classified as an “Other Leaver” then all rights are automatically forfeited,
unless the Board determines otherwise.
If the Executive is classified as a “Good Leaver” then the Board will consider the
circumstances of the Executive ceasing employment and may exercise its discretion to allow
some or all of their rights to vest (and be exercised).
Change of Control of the
Company
If a Change of Control Event occurs, all unvested Performance Rights will automatically vest.
This aspect has been revised under the new plan (see next section).
Claw back
The Plan Rules include a claw back facility.
40 GBST Holdings Limited ABN 85 010 488 874
FY19 LTIP (New Plan)
Long-Term Incentive Plan (LTIP)
Aspect
Purpose
Plan Rules, Invitations and Comments
The LTI Plan’s purpose is expected to:
Form of Equity
y
y
y
y
give effect to an element of a market competitive remuneration package for senior
Executives in accordance with the Executive remuneration policy, and align with market
practices,
create a clear link between Company performance from the perspective of a shareholder,
and executive remuneration outcomes,
to encourage team work and cooperation amongst the Executives over the long- term, in
creating value for shareholders, and
to facilitate key decision makers becoming shareholders through remuneration, so as to
improve alignment with shareholders beyond the Measurement Period of the LTI.
The intended LTIP is based on grants of Options, which are subject to a service related
vesting condition with an exercise price related to the VWAP applicable to the Company’s
shares around the time of the grant calculation and the payment of an exercise price. In
addition to the service requirement, an LTI recipient will also need to achieve a certain
minimum personal performance expectation rating throughout the period before any LTI
grant will vest.
The Options are Indeterminate Options due to the cashless exercise ability built into the Plan.
The cashless exercise approach involves the value in the difference between the exercise
price and the market price of a share at the time of exercise of the option to be aggregated
across the exercised options and settled in a grant of shares of equivalent value. This is
intended to overcome the problems that Participants often face in obtaining funding to
exercise the options, simplified administration, and ensure the Options are considered
indeterminate for tax purposes. The Shares resulting from the exercising of Options may be
issued or acquired on-market, at the Board’s discretion. No dividends accrue to unvested
Options, they are not entitled to new share issues, and no voting rights are attached.
2018 Annual Report 41
Directors' Report continued
(d)
Overview of GBST’s Remuneration Governance
Framework & Strategy continued
Long-Term Incentive Plan (LTIP)
Aspect
LTI Value
Measurement Period
Vesting Conditions
Plan Rules, Invitations and Comments
The Board retains discretion to determine the value of LTI to be offered each year, subject to
shareholder approval in relation to Directors, when the Options are to be settled in the form
of a new issue of Company shares. The Board may also seek shareholder approval for grants
to Directors in other circumstances, at its discretion.
For FY19 it is intended that the MD/CEO be granted Options with a Target value equivalent to
60% of Base Package.
For FY19 it is intended other Senior Executives be granted Options with a Target value
equivalent to 40% to 50% of Base Package.
There is no stretch component to the LTI due to them only having a service related vesting
condition. In addition to the service requirement, an LTI recipient will also need to achieve a
certain minimum personal performance expectation rating throughout the period before any
LTI grant will vest.
The number of LTI Options to grant will be calculated with reference to the Target LTI, divided
by the fair value (valued as ignoring vesting conditions). The fair value per Option will be
calculated using a Black Scholes model. For an Option, the fair value and face value are equal
at grant date.
The Measurement Period will include three financial years unless otherwise determined by
the Board (which would only apply in exceptional circumstances). The Measurement Period is
from 1 July 2019 to 30 June 2021.
Three-year Measurement Periods combined with annual grants will produce overlapping
cycles that will promote a focus on producing long-term sustainable performance/value
improvement and mitigates the risk of manipulation and short-termism (continuous
improvement); each financial year end will be the beginning, middle and end of three
different grants.
The Board has discretion to set vesting conditions for each Invitation. The vesting conditions
must be satisfied for Options to vest, and Options that do not vest will lapse automatically if
there is no further opportunity for them to vest.
The FY19 Invitations will include a three-year service condition on the Options such that the
executive must remain employed at the end of the Measurement Period in order for the
Options to vest (subject to termination of employment clauses, see below). In addition to the
service requirement, an LTI recipient will also need to achieve a certain minimum personal
performance expectation rating throughout the period before any LTI grant will vest.
Comments
The exercise price of an option serves as an inbuilt performance condition, in that Participants
will not receive a benefit from the option unless the share price exceeds the exercise price.
This will also assist with aligning executives’ interests with shareholders. The three-year
service condition will also assist to serve as a retention tool.
Retesting
There is no retesting applicable to grants of Options.
42 GBST Holdings Limited ABN 85 010 488 874
Long-Term Incentive Plan (LTIP)
Aspect
Plan Rules, Invitations and Comments
Plan Gate & Board
Discretion
Amount Payable for
Options
While the Options do not have a specific gate, the Board retains a discretion to adjust vesting
outcomes in the circumstances that the outcomes would otherwise be likely to be seen as
inappropriate.
No amount is payable by participants for Options. The target value of Options is included in
assessments of remuneration benchmarking and policy positioning. This is standard market
practice and consistent with the nature of Options.
Exercise of Vested Options Participants will be required to submit an Exercise Notice to convert the Options to Shares.
Under the FY19 Invitations Options are planned to have an exercise price equal to the share
price, as at grant date as at the time of the grant calculation (assessed via VWAP). Options
that are not exercised after 2 years following vesting, will lapse automatically. Options may
include a cashless exercise ability feature, which means that participants will receive a
number of shares equal in value to the difference between the share price and the exercise
price, as aggregated across the number of Options they exercise. This produces an outcome
that is less dilutive than traditional Options. Exercised Options will be satisfied in the form of
ordinary Company shares, except where the Board exercises its discretion to settle in the
form of cash. The Board may impose disposal restrictions on Shares issued under the Plan, to
ensure that the Company’s share trading policy is complied with.
Disposal Restrictions etc.
Options may not be disposed of or otherwise dealt with while they remain Options i.e. prior to
exercise.
All shares acquired by Participants as a consequence of exercising vested Options, shall be
subject to a dealing restriction (Restricted Shares) being that such Restricted Shares may not
be disposed of or otherwise dealt with until the latter of:
a)
b)
The time specified by the Company’s securities trading policy with regards to when
Executives and directors may deal in securities of the Company, and
The time at which dealing in securities of the Company is permitted under the
Corporations Act having regard to division 3 of Part 7.10 (insider trading restrictions).
Cessation of Employment
If a Participant is classified as a Bad Leaver, which includes being dismissed for cause and any
other reason or otherwise as determined by the Board at the Board’s discretion at the time of
a termination, unvested Options will lapse at termination.
In other cases, (Good Leaver) unless the Board determines otherwise, unvested Options will
be retained by the Participant and the Board may determine that the service vesting
condition has been satisfied in respect of a Good Leaver, at the end of the Measurement
Period. In the case of grants made during the year of the termination, the Board may
determine that the Participant forfeits the grant in the proportion that the remainder of the
year bears to the full year.
2018 Annual Report 43
Directors' Report continued
(d)
Overview of GBST’s Remuneration Governance
Framework & Strategy continued
Long-Term Incentive Plan (LTIP)
Aspect
Plan Rules, Invitations and Comments
Claw back/Malus
If the Board forms the view that a Participant has committed fraud, defalcation or gross
misconduct in relation to the Company then all Options will be forfeited by that participant.
Change of Control of the
Company
The plan includes a clause similar to “Malus” such that if the Board makes a determination
that a Participant has through action or inaction harmed the interests of the Company or its
shareholders, including by joining a competitor, unvested Options will lapse. This clause may
be activated after a termination of employment has occurred in respect of a Good Leaver,
which is intended to support continued alignment with shareholders.
Unless otherwise determined by the Board, in the event of a Change of Control (CoC)
including a takeover, options will vest in full. While this practice is not appropriate in the case
of Rights, in the case of Options the benefit is automatically linked to the value of the Shares
at the time of a CoC event i.e. if the CoC is linked to the circumstances of a falling share price,
the Options are unlikely to deliver any value.
All unvested Service Rights will vest.
The date of automatic exercise of any unexercised Restricted Rights will be brought forward
to a date determined by the Board, and any Specified Disposal Restrictions attaching to
Shares will be lifted.
44 GBST Holdings Limited ABN 85 010 488 874
(e) Performance Outcomes for FY18 Including STI and LTI Assessment
Company Performance
The following outlines the performance of the Company over the FY18 period and the previous 4 financial years in
accordance with the requirements of the Corporations Act:
EBITDA
Year on Year Growth
Net profit/(loss) before tax
Year on Year Growth
Net profit/(loss) after tax
Year on Year Growth
Basic EPS (cents)
Year on Year Growth
Closing share price
Dividends paid (cents per share)
2014
2015
2016
2017
2018
$20.5m
$24.5m
$17.2m
$12.0m
$12.2m
24%
20%
$12.0m
$17.3m
53%
44%
$10.0m
$15.3m
66%
15.07
66%
$3.15
7.5
52%
22.94
52%
$5.73
9.5
(30)%
$9.1m
(48)%
$9.3m
(39)%
13.82
(39)%
$4.14
11.0
(30)%
$5.0m
(45)%
$7.0m
(25)%
10.3
(25)%
$2.97
9.2
2%
$7.7m
55%
$6.2m
(11)%
9.2
(11)%
$2.12
5.0
Links Between Performance and Reward Including STI and LTI Determination
The remuneration of Executive KMP is intended to be composed of three parts as outlined earlier, being:
y Base Package, which is not intended to vary with performance, but which tends to increase as the scale of the business
increases (i.e. following success),
y
y
STI which is intended to vary with indicators of annual Company and individual performance, and
LTI which is also intended to deliver a variable reward based on long-term measures of Company and Executive
performance.
Links Between Company Strategy and Remuneration
The Company intends to attract the superior talent required to successfully implement the Company’s strategies at a
reasonable and appropriately variable cost by:
y
y
positioning Base Packages (the fixed element) around relevant market data benchmarks when they are undertaken,
supplementing the Base Package with variable remuneration, being at-risk remuneration and incentives that motivate
Executives to focus on:
f short to mid-term objectives linked to the strategy via KPIs and annual performance assessments, and
f long-term value creation for shareholders by linking a material component of remuneration to those factors that
shareholders have expressed should be the long-term focus of Executives and the Board and awarding such
remuneration in the form of equity.
To the extent appropriate, the Company links strategic implementation and measures of success of the strategy, directly to
incentives in the way that measures are selected and calibrated.
2018 Annual Report 45
Directors' Report continued
(f) Analysis of bonuses included in remuneration
Details of the vesting profile of the short-term incentive cash bonuses awarded as remuneration during the financial year to
Key Management Personnel are set out below:
2018
R DeDominicis
M Knowlton (ii)
D Orrock
D Simpson
G Turner (iii)
TOTAL
Short-term incentive bonus (i)
Included in remuneration
$
vested in year
%
forfeited in year (iv)
%
-
120,000
-
177,000
50,000
347,000
-
53
-
59
34
100
47
100
41
66
(i) Amounts included in remuneration for the financial year represent the amount related to the financial year based on achievement of personal goals and satisfaction of
specified performance criteria. The remuneration committee approved these amounts on 3 August 2018.
(ii) M Knowlton’s STI arrangements guaranteed a minimum bonus of 25% of his base salary (excluding super). The percentage vested is calculated as the guaranteed
amount divided by the total potential STI.
(iii) G Turner’s STI arrangements guaranteed a minimum bonus of $50,000. The percentage vested is calculated as the guaranteed amount divided by the total potential STI,
with the balance being the percentage forfeited (regardless of pro-rating for part of a financial year).
(iv) The amounts forfeited are due to the performance or service criteria not being met in relation to the current financial year.
46 GBST Holdings Limited ABN 85 010 488 874
(g) Changes in KMP Held Equity
Shareholdings of Key Management Personnel
The numbers of shares in the Company held (directly, indirectly or beneficially) during the financial year by Key Management
Personnel, including their related parties, are set out below.
2018
Directors
A Brackin
C Bartlett
D Adams*
D Page
T Vu
R DeDominicis
TOTAL DIRECTORS
Executives
M Knowlton
D Orrock
G Turner
P Salis**
D Simpson
TOTAL EXECUTIVES
GROUP TOTAL
Balance at
01/07/17
Received as
Compensation
Performance
Rights &
Options
Exercised
Net Change
Other (i)
Balance on
Resignation/
Restructure
Balance at
30/06/18
200,000
4,750
-
9,250
-
699,055
913,055
-
-
-
104,636
-
104,636
1,017,691
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
12,560
-
10,886
-
23,446
23,446
60,000
20,250
-
17,250
5,464
-
102,964
-
-
-
-
-
-
102,964
-
-
-
-
-
-
-
-
-
-
(115,522)
-
(115,522)
(115,522)
260,000
25,000
-
26,500
5,464
699,055
1,016,019
-
12,560
-
-
-
12,560
1,028,579
(i) Shares purchased or sold and consideration for shareholdings purchased by Group.
*
**
D Adams retired on 29 June 2018.
P Salis resigned on 6 October 2017.
2018 Annual Report 47
Directors' Report continued
(g) Changes in KMP Held Equity continued
Performance Right Holdings of Key Management Personnel
Details of vesting profiles of the performance rights granted as compensation:
2018
Directors
Number of
performance
rights issued
Grant date
% vested in
year
% forfeited
in year/
restructure
Financial Years
in which
grant vests
Maximum total
value of grant
yet to vest $
R DeDominicis (i)
50,243
05.08.14
Executives
M Knowlton
D Orrock (i)
D Orrock
D Simpson
G Turner
P Salis (i)
111,698
50,243
83,774
83,774
55,849
43,544
25.01.18
05.08.14
25.01.18
25.01.18
25.01.18
05.08.14
-
-
25
-
-
-
25
100
2018
-
-
75
-
-
-
75
2021
2018
2021
2021
2021
2018
246,853
-
1 8 5 ,141
1 8 5 ,141
123,426
-
(i) 75% of the 5 August 2014 issue have subsequently lapsed as the performance hurdles were not met at 30 June 2017. R DeDominicis elected not to accept 12,560 shares
arising from the performance rights that vested in August 2017.
Performance Right Holdings of Key Management Personnel
The movement in the number of performance rights in the Company held (directly, indirectly or beneficially) during the
financial year by Key Management Personnel, including their related parties, are set out below.
Performance
rights
Exercised
or Sold
Performance
rights
Cancelled/
Forfeited/
Lapsed/
Restructure
Balance
30/06/18
Total Vested
at 30/06/18
Total
Unvested and
Unexercisable
at 30/06/18
Balance
01/07/17
Granted as
Compensation
112,367
112,367
-
75,093
24,850
-
73,364
173,307
285,674
-
-
111,698
83,774
83,774
55,849
-
-
-
(112,367)
(112,367)
-
-
-
111,698
(12,560)
(62,533)
83,774
-
-
(24,850)
83,774
-
55,849
-
(10,886)
(62,478)
-
335,095
(23,446)
(149,861)
335,095
335,095
(23,446)
(262,228)
335,095
-
-
-
-
-
-
-
-
-
-
-
111,698
83,774
83,774
55,849
-
335,095
335,095
2018
Directors
R DeDominicis (i)
TOTAL DIRECTORS
Executives
M Knowlton
D Orrock
D Simpson
G Turner
P Salis
TOTAL EXECUTIVES
GROUP TOTAL
Service period conditions were not met for the performance rights which were subsequently cancelled.
(i) R DeDominicis elected not to accept the 12,560 shares arising from the performance rights that vested in August 2017.
Details of all performance rights are set out in Note 29 in the financial statements.
48 GBST Holdings Limited ABN 85 010 488 874
Performance Right Holdings of Key Management Personnel
Details of performance rights granted as compensation to each key management person during the reporting period and
details of performance rights vested during the period:
2018
Directors
R DeDominicis
TOTAL DIRECTORS
Executives
M Knowlton
D Orrock
D Simpson
G Turner
P Salis
TOTAL EXECUTIVES
GROUP TOTAL
Vested
Number
#
Number of rights
granted
during 2017-18
# Grant Date
Fair Value at
Grant Date
$
Exercise
Price
$
First
Exercise
Date
Last
Exercise
Date
-
-
-
-
-
-
-
111,698
25.01.18
12,560
83,774
25.01.18
-
-
10,886
23,446
23,446
83,774
25.01.18
55,849
25.01.18
-
-
335,095
335,095
2.21
2.21
2.21
2.21
-
-
-
-
-
28.02.21
28.03.21
28.02.21
28.03.21
28.02.21
28.03.21
28.02.21
28.03.21
-
-
2018 Annual Report 49
Directors' Report continued
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Directors' Report continued
(i) Employment Terms for Key Management Personnel
Service Agreements
Remuneration and other terms of employment for Executives and the Managing Director are formalised in employment
agreements. All employment agreements are subject to an annual review. Each of the agreements provide for base pay, leave
entitlements, superannuation, performance-related bonus and any other benefits. They also contain normal provisions
relating to the protection of confidential information and intellectual property rights as well as post-employment restraints.
As the Group is an international organisation, when Executives are seconded to other countries their remuneration is
reviewed in line with normal employment expectations for the relevant country. This may involve adjustments for cost of
living and the provision of benefits customary in the country of employment. The amounts of the benefits are set out in the
table in section (g) above and are identified as “Short-Term Benefits – Other”.
A summary of contract terms in relation to Executive KMP is presented below:
Period of Notice
Name
Position Held at
Close of FY18
Employing Company
Duration of
Contract
From
Company
From KMP
Mr. R. DeDominicis Chief Executive Officer
and Managing Director
GBST Holdings Limited Continuing basis
6 months
6 months
Mr. P. Salis (1)
Chief Financial Officer
GBST Holdings Limited Continuing basis
3 months
3 months
Mr. G. Turner
Chief Financial Officer
GBST Holdings Limited Continuing basis
3 months
3 months
Mr. M. Knowlton
Chief Technology Officer
GBST Holdings Limited Continuing basis
3 months
3 months
Mr. D. Orrock
Head of Asia Pacific
GBST Holdings Limited Continuing basis
3 months
3 months
Mr. D. Simpson
Head of EMEA
GBST Wealth
Management Limited
Continuing basis
3 months
3 months
(1) P Salis resigned on 6 October 2017.
The treatment of incentives in the case of termination is addressed in separate sections of this report that give details of
incentive design.
(j) Other Remuneration Related Matters
The following outlines other remuneration related matters that may be of interest to stakeholders, in the interests of
transparency and disclosure:
There was a loan to KMP Executive Mr. D Orrock during the financial year of $186,510 related to an international tax amount
payable in respect of a previous long-term incentive grant which was interest free and fully repaid at 30 June 2018. The
amount of interest that would have been charged if the loan was on an arms’ length basis would be $2,554.
There have been no other related party transactions with Directors or KMP Executives during the financial year.
52 GBST Holdings Limited ABN 85 010 488 874
(k) External Remuneration Consultant Advice
During the reporting period, the Nomination and Remuneration Committee approved and engaged an external remuneration
consultant (ERC) to provide KMP remuneration recommendations and advice. The consultants and the amount payable for
the information and work that led to their recommendations are listed below:
Godfrey Remuneration Group
Pty Limited
Crichton and Associates
Pegala Consulting Pty Ltd
Market benchmarking, organisation
modelling, and recommendations on
Senior Executive remuneration.
Review of and advice on the design
and calibration of STI and LTI plans
including drafting recommendations.
Preparing a valuation for LTI allocation
purposes
Reviewing the FY18 Long-term
incentive plan
Provide guidance and research for
future short-term and long-term
Executive incentive arrangements
$15,000
$25,000
$999
$1,776
$5,800
Subsequent to the end of the reporting period, an ERC has also been engaged to assist with re-drafting the remuneration
report. Any fees charged in relation to this activity will be disclosed as part of the FY19 Remuneration Report.
The Board is satisfied that the KMP remuneration recommendations received were free from undue influence from KMP to
whom the recommendations related. The reasons the Board is so satisfied include that it is confident that the policy for
engaging external remuneration consultants is being adhered to and is operating as intended, the Board has been closely
involved in all dealings with the external remuneration consultants and each KMP remuneration recommendation received
during the year was accompanied by a legal declaration from the consultant to the effect that their advice was provided free
from undue influence from the KMP to whom the recommendations related.
Signed in accordance with a resolution of the Directors:
Mr A J Brackin
Chairman
Mr R DeDominicis
Managing Director and Chief Executive Officer
Dated at Sydney this 14th day of August 2018
2018 Annual Report 53
Auditor’s Independence Declaration
Lead Auditor’s Independence Declaration under
Section 307C of the Corporations Act 2001
To the Directors of GBST Holdings Limited
i.
I declare that, to the best of my knowledge and belief, in relation to the audit of GBST Holdings Limited for
the financial year ended 30 June 2018 there have been:
no contraventions of the auditor independence requirements as set out in the
Corporations Act 2001 in relation to the audit; and
Lead Auditor’s Independence Declaration under
Section 307C of the Corporations Act 2001
no contraventions of any applicable code of professional conduct in relation to the audit.
ii.
To the Directors of GBST Holdings Limited
I declare that, to the best of my knowledge and belief, in relation to the audit of GBST Holdings Limited for
KPMG
the financial year ended 30 June 2018 there have been:
Simon Crane
Partner
i.
ii.
no contraventions of the auditor independence requirements as set out in the
Brisbane
Corporations Act 2001 in relation to the audit; and
14 August 2018
no contraventions of any applicable code of professional conduct in relation to the audit.
KPMG
Simon Crane
Partner
Brisbane
14 August 2018
KPMG, an Australian partnership and a member firm
of the KPMG network of independent member firms
affiliated with KPMG
International Cooperative
(“KPMG International”), a Swiss entity.
Liability
approved
Standards Legislation.
limited by a scheme
under Professional
54 GBST Holdings Limited ABN 85 010 488 874
KPMG, an Australian partnership and a member firm
of the KPMG network of independent member firms
Liability
limited by a scheme
affiliated with KPMG
International Cooperative
approved
under Professional
(“KPMG International”), a Swiss entity.
Standards Legislation.
Financial Statements
Consolidated Statement of Profit or Loss and Other Comprehensive Income
for the Year ended 30 June 2018
Revenue from licence and support sales
Revenue from sponsored work
Revenue from sale of third party product
Total revenue
Other income
Total revenue and other income
Product delivery and support expenses
Sales and marketing expenses
General and administrative expenses
RESULTS FROM OPERATING ACTIVITIES
Finance costs
Finance income
Net finance income\(costs)
Profit Before Income Tax
Income tax (expense)\credit
PROFIT ATTRIBUTABLE TO MEMBERS OF THE PARENT ENTITY
Other comprehensive income
Items that may be reclassified subsequently to profit or loss
Foreign operations - foreign currency translation differences
Total items that may be reclassified subsequently to profit or loss
Other comprehensive income\(loss) for the year, net of income tax
TOTAL COMPREHENSIVE INCOME FOR THE YEAR
ATTRIBUTABLE TO MEMBERS OF THE PARENT ENTITY
Earnings per share
Basic earnings per share (cents)
Diluted earnings per share (cents)
The accompanying notes are an integral part of these consolidated financial statements.
Note
30 Jun 2018
$‘000
30 Jun 2017
$‘000
58,127
59,119
28,818
27,346
1,127
1,144
88,072
87,609
186
366
88,258
87,975
(71,609)
(72,729)
(3,834)
(4,908)
(5,163)
(4,704)
7,652
5,634
4 (d)
4 (e)
(8)
128
120
7,772
5
(1,523)
6,249
(703)
92
(611)
5,023
1,962
6,985
925
925
925
(1,446)
(1,446)
(1,446)
7,174
5,539
30
30
9.20
9.20
10.31
10.30
2018 Annual Report 55
Financial Statements continued
Consolidated Statement of Financial Position as at 30 June 2018
Note
30 Jun 2018
$‘000
30 Jun 2017
$‘000
Current assets
Cash and cash equivalents
Trade and other receivables
Work in progress
Current tax receivables
Other assets
Total Current Assets
Non-current assets
Work in progress
Plant and equipment
Intangible assets
Deferred tax assets
Other assets
Total Non-Current Assets
TOTAL ASSETS
Current liabilities
Trade and other payables
Loans and borrowings
Current tax liabilities
Provisions
Unearned income
Total Current Liabilities
Non-current liabilities
Trade and other payables
Deferred tax liabilities
Provisions
Total Non-Current Liabilities
TOTAL LIABILITIES
NET ASSETS
Equity
Issued capital
Reserves
Retained earnings
TOTAL EQUITY
The accompanying notes are an integral part of these consolidated financial statements.
56 GBST Holdings Limited ABN 85 010 488 874
7
8
9
12
9
10
11
15
12
13
14
16
17
13
15
16
18
19
11,373
17,153
3,362
2,168
2,450
36,506
1,717
5,498
50,453
7,172
157
64,997
101,503
11,728
12,660
4,092
750
2,217
31,447
788
6,542
45,120
8,778
151
61,379
92,826
9,833
6,739
-
-
7,121
10,263
27,217
1,477
2,168
1,928
5,573
32,790
68,713
39,473
(3,393)
32,633
68,713
252
385
6,058
9,449
22,883
2,006
810
2,244
5,060
27,943
64,883
39,473
(4,153)
29,563
64,883
Consolidated Statement of Changes in Equity for the year ended 30 June 2018
Issued Capital
$'000
Retained
Earnings
$'000
Foreign
Currency
Translation
Reservea
$'000
Equity
Remuneration
Reserveb
$'000
Total
$'000
Balance at 1 July 2016
38,366
28,821
(2,912)
1,613
65,888
Total comprehensive income for the year
Profit for the year
Other comprehensive income
Foreign operations - foreign currency translation
differences
Total other comprehensive loss
TOTAL COMPREHENSIVE INCOME FOR THE YEAR
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners
Dividends paid (Note 6)
Issuing of ordinary shares -
vesting of performance rights
Share based payments - performance rights
Total contributions by and distributions to owners
Total transactions with owners
BALANCE AT 30 JUNE 2017
-
-
-
-
6,985
-
-
-
6,985
(1,446)
(1,446)
(1,446)
-
-
-
-
6,985
(1,446)
(1,446)
5,539
-
(6,243)
1,107
-
1,107
1,107
-
-
(6,243)
(6,243)
-
-
-
-
-
-
(6,243)
(1,107)
(301)
(1,408)
(1,408)
-
(301)
(6,544)
(6,544)
39,473
29,563
(4,358)
205
64,883
(a) The foreign currency translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign operations as well
as from the translation of the Company's net investment in foreign operations.
(b) The equity remuneration reserve is used to record items recognised as expenses on valuation of employee share/options/performance rights granted. When options/
performance rights are exercised, cancelled or forfeited the amount in the reserve relating to those options/performance rights is transferred to retained earnings.
The accompanying notes are an integral part of these consolidated financial statements.
2018 Annual Report 57
Financial Statements continued
Consolidated Statement of Changes in Equity
for the year ended 30 June 2018 continued
Issued Capital
$'000
Retained
Earnings
$'000
Foreign
Currency
Translation
Reservea
$'000
Equity
Remuneration
Reserveb
$'000
Total
$'000
Balance at 1 July 2017
39,473
29,563
(4,358)
205
64,883
Total comprehensive income for the year
Profit for the year
Other comprehensive income
Foreign operations -
foreign currency translation differences
Total other comprehensive income
TOTAL COMPREHENSIVE INCOME FOR THE YEAR
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners
Dividends paid (Note 6)
Vesting of performance rights
Share based payments - performance rights
Total contributions by and distributions to owners
Total transactions with owners
BALANCE AT 30 JUNE 2018
-
-
-
-
-
-
-
-
-
6,249
-
-
-
6,249
925
925
925
-
-
-
-
6,249
925
925
7,174
(3,396)
217
-
(3,179)
(3,179)
-
-
-
-
-
-
(3,396)
(217)
52
(165)
(165)
-
52
(3,344)
(3,344)
39,473
32,633
(3,433)
40
68,713
(a) The foreign currency translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign operations as well
as from the translation of the Company's net investment in foreign operations.
(b) The equity remuneration reserve is used to record items recognised as expenses on valuation of employee share/options/performance rights granted. When options/
performance rights are exercised, cancelled or forfeited the amount in the reserve relating to those options/performance rights is transferred to retained earnings.
The accompanying notes are an integral part of these consolidated financial statements.
58 GBST Holdings Limited ABN 85 010 488 874
Consolidated Statement of Cash Flows for the Year ended 30 June 2018
Cash Flows from Operating Activities
Receipts from customers
Payments to suppliers and employees
Interest income
Sundry income
Finance costs paid
Income tax paid
Note
30 Jun 2018
$‘000
30 Jun 2017
$‘000
91,569
92,148
(80,379)
(82,054)
128
183
(59)
(242)
40
364
(95)
515
NET CASH PROVIDED BY OPERATING ACTIVITIES
24a
11,200
10,918
Cash Flows from Investing Activities
Proceeds from sale of plant and equipment
Purchase of plant and equipment
Purchase of software intangibles
NET CASH USED IN INVESTING ACTIVITIES
Cash Flows from Financing Activities
Repayment of finance leases
Proceeds from borrowings
Repayment of borrowings
Dividends paid
NET CASH USED IN FINANCING ACTIVITIES
Net increase in Cash and Cash Equivalents
Effect of exchange rate fluctuations on cash held
Cash and cash equivalents at 1 July
CASH AND CASH EQUIVALENTS AT 30 JUNE
The accompanying notes are an integral part of these consolidated financial statements.
3
2
(950)
(7,283)
(8,230)
(76)
-
(176)
(3,396)
(3,648)
(678)
323
11,728
11,373
(523)
(1,155)
(1,676)
(79)
263
(109)
(6,243)
(6,168)
3,074
(357)
9,011
11,728
6
24b
2018 Annual Report 59
Notes to and forming part of the
Consolidated Financial Statements
for the Year Ended 30 June 2018
Note 1. Reporting Entity
GBST Holdings Limited (“GBST” or the “Company”) is the Group’s parent Company. The Company is a public for profit
Company limited by shares, incorporated and domiciled in Australia. The consolidated financial report of the Company as at
and for the year ended 30 June 2018 comprises the Company and its controlled entities (together referred to as the “Group”
and individually as the “Group entities”).
The address of the Company’s registered office and the principal place of business is Level 4, West Tower, 410 Ann Street,
Brisbane, Queensland.
Note 2. Basis of Preparation
Statement of compliance
The consolidated financial statements are general purpose financial statements which have been prepared in accordance
with Australian Accounting Standards (AASBs) adopted by the Australian Accounting Standards Board (AASB) and the
Corporations Act 2001. The consolidated financial statements comply with International Financial Reporting Standards
(IFRSs) adopted by the International Accounting Standards Board (IASB).
This consolidated financial report was authorised for issue in accordance with a resolution of Directors on 14 August 2018.
Basis of measurement
The consolidated financial report has been prepared on an accruals basis and is based on historical costs.
Functional and presentation currency
The functional currency of each of the Group’s 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.
The Company is of a kind referred to in the ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument
2016/191 and in accordance with that instrument, amounts in the financial report and Directors’ report have been rounded
off to the nearest thousand dollars, unless otherwise stated.
Comparative figures
Where required by Accounting Standards comparative figures have been adjusted to conform to changes in presentation
for the current financial period. Details of any such changes are included in the financial report.
Use of estimates and judgments
The preparation of the consolidated financial statements in conformity with AASBs requires Management to make
judgments, estimates and assumptions that effect the application of accounting policies and the reported amounts of
assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying
assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the
estimates are revised and in any future periods affected.
Information about critical judgments in applying accounting policies that have the most significant effect on the amounts
recognised in the financial statements is included in Note 3:
y
y
recognition of revenue;
treatment of software development costs and whether these are to be capitalised.
Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment
within the next financial year are included in the following notes:
y
y
y
recognition of revenue (Note 3);
impairment testing of the consolidated entity’s cash-generating units containing goodwill (Note 3 and 11);
utilisation of tax losses (Note 15).
60 GBST Holdings Limited ABN 85 010 488 874
Measurement of fair values
A number of the Group’s accounting policies and disclosures require the measurement of fair values, for both financial and
non-financial assets and liabilities. The Group has an established framework with respect to the measurement of fair values,
whereby significant fair value measurements determined by Management, including Level 3 fair values (refer below), are
reported to the Group’s Audit & Risk Committee. If third party information is used to measure fair values, then evidence
obtained from the third parties to support the conclusion is assessed such that valuations meet the requirements of AASB,
including the level in the fair value hierarchy in which valuations should be classified.
When measuring fair value of an asset or a liability, the Group uses observable market data as far as possible. Fair values are
categorised into different levels in fair value hierarchy based on the inputs used in the valuation techniques as follows:
y
y
Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2 – inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or
indirectly;
y
Level 3 – inputs for the asset or liability that are not based on observable market data (unobservable inputs).
If the inputs used to measure the fair value of an asset or liability fall into different levels of the fair value hierarchy, then the
fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the lowest input that is
significant to the entire measurement.
Changes in accounting policies
For the year ended 30 June 2018, there has been no significant change in accounting policies since the previous year for the
Group.
Note 3. Significant Accounting Policies
The accounting policies set out in Note 3 below have been applied consistently to all periods presented in these consolidated
financial statements and have been applied consistently by the Group entities.
Basis of Consolidation
A controlled entity is any entity where the Group is exposed to, or has rights to, variable returns from its involvement with the
entity and has the ability to affect those returns through its power over the entity.
A list of controlled entities is contained in Note 22 of the financial statements. All controlled entities have a 30 June financial
year end.
As at reporting date, the assets and liabilities of all controlled entities have been incorporated into the consolidated financial
statements as well as their results for the year ended on that date.
All inter-company balances and transactions between entities in the Group, including any unrealised profits or losses, have
been eliminated on consolidation. Accounting policies of subsidiaries are consistent with those adopted by the parent entity.
Income Tax
The income tax expense/(benefit) for the year comprises current income tax expense/(benefit) and deferred tax expense/
(benefit).
Current income tax expense charged to the profit or loss is the tax payable on taxable income calculated using applicable
income tax rates enacted, or substantially enacted, as at reporting date. Current tax liabilities/(assets) are therefore measured
at the amounts expected to be paid to/(recovered from) the relevant taxation authority.
Deferred income tax expense reflects movements in deferred tax asset and deferred tax liability balances during the year as
well as unused tax losses.
Current and deferred income tax expense/(benefit) is charged or credited directly to equity instead of the profit or loss when
the tax relates to items that are credited or charged directly to equity.
2018 Annual Report 61
Notes to and forming part of the
Consolidated Financial Statements
for the Year Ended 30 June 2018
Note 3. Significant Accounting Policies continued
Deferred tax assets and liabilities are ascertained based on temporary differences arising between the tax bases of assets
and liabilities and their carrying amounts in the financial statements. Deferred tax assets also arise from unused tax losses.
No deferred income tax will be recognised from the initial recognition of an asset or liability, excluding a business
combination, where there is no effect on accounting or taxable profit or loss.
Deferred tax assets and liabilities are calculated at the tax rates that are expected to apply to the period when the asset is
realised or the liability is settled, based on tax rates enacted or substantively enacted as at reporting date. Their
measurement also reflects the manner in which Management expects to recover or settle the carrying amount of the related
asset or liability.
Deferred tax assets relating to temporary differences and unused tax losses are recognised only to the extent that it is
probable that future taxable profit will be available against which the benefits of the deferred tax asset can be utilised.
Where temporary differences exist in relation to investments in subsidiaries, deferred tax assets and liabilities are not
recognised where the timing of the reversal of the temporary difference can be controlled and it is not probable that the
reversal will occur in the foreseeable future.
Deferred tax assets and liabilities are offset if they relate to income 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.
Tax consolidation
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
GBST Holdings Limited. The implementation date of the tax-consolidated Group was 1 July 2003.
Work in Progress
Work in progress is stated at the aggregate of project development contract costs incurred to date plus recognised profits
less any recognised losses and progress billings.
Contract costs include all costs directly related to specific contracts, costs that are specifically chargeable to the customer
under the terms of the contract and an allocation of overhead expenses incurred in connection with the Group’s activities in
general.
Plant and Equipment
Plant and equipment are carried at cost, less any accumulated depreciation and where applicable, impairment losses.
Cost includes expenditure that is directly attributable to the acquisition of the asset.
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it
is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be
measured reliably. All other repairs and maintenance are charged to the income statement during the financial period in
which they are incurred.
The depreciable amounts of all fixed assets including capitalised lease assets, are depreciated over their useful lives to the
entity commencing from the time the asset is held ready for use. Leasehold improvements are depreciated over the shorter
of either the unexpired period of the lease or the estimated useful lives of the improvements.
The depreciation rates used for each class of assets are:
Class of Fixed Asset
Owned plant, equipment
Owned plant, equipment
Leased plant, equipment
Depreciation Rate
5%-33%
10%-30%
25%-33%
Basis
Straight-Line
Diminishing Value
Straight-Line
62 GBST Holdings Limited ABN 85 010 488 874
Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These gains and losses are
included in profit or loss.
Asset Retirement Obligations
The cost of plant and equipment includes an initial estimate of the cost of make good allowances, and a corresponding
provision for these future costs is raised. The Group has a number of lease agreements over office premises which include an
obligation to make good the premises at the conclusion of the lease term. The Group recognises a liability and an asset for
the estimated cost of making good at the time of entering a lease agreement. The resulting asset is amortised over the term
of the lease.
Leases
Leases where the Group assumes substantially all the risks and rewards incidental of the ownership are classified as finance
leases. All other leases are operating leases and are not recognised on the Group’s statement of financial position.
Finance leases are capitalised by recording an asset and a liability at the lower of the amounts equal to the fair value of the
leased asset or the present value of the minimum lease payments, including any guaranteed residual values. Lease payments
are allocated between the reduction of the lease liability and the lease interest expense for the period. Leased assets are
depreciated on a straight-line basis over the shorter of their estimated useful lives or the lease term.
Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease.
Lease incentives received are recognised as an integral part of the total lease expense, over the term of the lease.
Intangible Assets
The Group’s major intangible assets are software systems and goodwill.
The amortisation rates used for each class of assets acquired outside a business combination are:
Class of Intangible Asset
Amortisation Rate
Owned software
Leased software
25%
25%
Basis
Straight-Line
Straight-Line
Acquired in a business combination and or separately
Software systems acquired outside a business combination are recognised at cost. Intangible assets acquired in a business
combination are recognised separately from goodwill and capitalised at fair value as at the date of acquisition. Following
initial recognition, the cost model is applied to the class of intangible assets.
The useful lives of these intangible assets are assessed, and the asset is amortised over its useful life on a straight-line basis.
Intangible assets are tested for impairment where an indicator of impairment exists. Useful lives are also examined on an
annual basis and adjustments, where applicable, are made on a prospective basis.
Internally developed (research and development)
Development costs are capitalised only if development costs can be measured reliably, the product or process is technically and
commercially feasible, future economic benefits are probable and the Group intends to and has sufficient resources to complete
development and to use or sell the asset. The cost capitalised includes the cost of materials, direct labour and overhead costs
that are directly attributable to preparing the asset for its intended use. Once development is completed, capitalised
development costs are amortised over their useful life as determined by Management on a straight-line basis. Capitalised
development expenditure is measured at cost less accumulated amortisation and accumulated impairment losses.
Expenditure during the research phase of a project is recognised as an expense when incurred. Development costs are
expensed in the year in which they are incurred when future economic benefits are uncertain, or the future economic
benefits cannot be measured reliably.
2018 Annual Report 63
Notes to and forming part of the
Consolidated Financial Statements for
the Year Ended 30 June 2018 continued
Note 3. Significant Accounting Policies continued
The useful life of internally developed software assets is assessed on a case by case basis but is generally expected to be
between 3 and 10 years depending on the nature of the software or functionality developed. Digital or web interfaces are
generally expected to have a useful life at the shorter end of the 3-10 year range while developments that enhance core
platform technologies or database functionality are expected to be at the longer end of the 3-10 year range.
Subsequent expenditure
Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to
which it relates. All other expenditure, including expenditure on internally generated goodwill and brands, is recognised in
profit or loss as incurred.
Goodwill
Goodwill is initially recorded at the amount by which the purchase consideration for a business combination exceeds the fair
value attributed to its net assets at date of acquisition. Following initial recognition, goodwill is measured at cost less any
accumulated impairment losses. Goodwill is not amortised.
Goodwill is tested annually for impairment, or more frequently if events or changes in circumstances indicate that the
carrying value may be impaired.
Financial Instruments
i. Non-derivative financial liabilities
Financial liabilities are recognised initially on the trade date at which the Group becomes a party to the contractual provisions
of the instrument. The Group derecognises a financial liability when its contractual obligations are discharged or cancelled or
expire. Financial liabilities and assets are offset, and the net amount presented in the statement of financial position when,
and only when, the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realise the
asset and settle the liability simultaneously.
The Group classified non-derivative financial liabilities into the other financial liabilities category. Such financial liabilities are
recognised initially at fair value plus any directly attributable transaction costs.
Subsequent to initial recognition, these financial liabilities are measured at amortised cost using the effective interest rate
method.
Other financial liabilities comprise loans and borrowings, bank overdrafts and trade and other payables.
ii.
Non-derivative financial assets
The Group initially recognises financial assets on the trade date at which the Group becomes a party to the contractual
provisions of the instrument.
Financial assets are initially measured at fair value. If the financial asset is not subsequently measured at fair value through
profit or loss, the initial measurement includes transaction costs that are directly attributable to the asset’s acquisition or
origination. The Group subsequently measures financial assets at either fair value or amortised cost.
Financial assets measured at amortised cost
A financial asset is subsequently measured at amortised cost using the effective interest method and net of any impairment
loss.
Financial assets measured at fair value
Financial assets other than those subsequently measured at amortised cost are subsequently measured at fair value with all
changes in fair value recognised in profit or loss.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call deposits with original maturities of three months or less. Bank
overdrafts that are repayable on demand and form an integral part of the Group’s cash management are included as a
component of cash and cash equivalent for the purposes of statement of cash flows.
64 GBST Holdings Limited ABN 85 010 488 874
Impairment of Assets
Financial assets
Financial assets at amortised cost
A financial asset at amortised cost is assessed at each reporting date to determine whether there is objective evidence that it
is impaired. A financial asset at amortised cost is impaired if objective evidence indicates that a loss event has occurred after
the initial recognition of the asset and that the loss event had a negative effect on the estimated future cash flows of that
asset that can be estimated reliably. Objective evidence that these financial assets are impaired can include default or
delinquency by a debtor, restructuring of an amount due to the Group on terms that the Group would not consider otherwise
or indications that a debtor or issuer will enter bankruptcy.
The Group considers evidence of impairment for receivables at both a specific asset and collective level. All individually
significant receivables are assessed for specific impairment. All individually significant receivables found not to be specifically
impaired are then collectively assessed for any impairment that has been incurred but not yet identified. Receivables that are
not individually significant are collectively assessed for impairment by grouping together receivables with similar risk
characteristics. In assessing collective impairment, the Group uses historical trends of the probability of default, timing of
recoveries and the amount of loss incurred, adjusted for management’s judgment as to whether current economic and credit
conditions are such that the actual losses are likely to be greater or less than suggested by historical trends.
An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its
carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest
rate. Losses are recognised in profit or loss and reflected in an allowance account against receivables. Interest on the
impaired asset continues to be recognised through the unwinding of the discount. When a subsequent event causes the
amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss.
Non-financial assets
The carrying amounts of the Group’s non-financial assets, other than deferred tax assets, are reviewed at each reporting date
to determine whether there is any indication of impairment. If any such indication exists then the asset’s recoverable amount
is estimated. For goodwill and intangible assets that have indefinite lives or that are not yet available for use, the recoverable
amount is estimated each year at the same time.
The recoverable amount of an asset is the greater of its value in use and its fair value less costs of disposal. In assessing value
in use, the estimated future cash flows are discounted to their present value using a post-tax discount rate that reflects
current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment
testing, assets are grouped together into the smallest group of assets that generate cash inflows from continuing use that are
largely independent of the cash inflows of other assets or groups of assets (the “cash-generating unit”). The goodwill
acquired in a business combination, for the purpose of impairment testing, is allocated to cash-generating units that are
expected to benefit from the synergies of the combination.
An impairment loss is recognised if the carrying amount of an asset exceeds its recoverable amount. Impairment losses are
recognised in profit or loss.
An impairment loss in respect of goodwill is not reversed.
In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for any
indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the
estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s
carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or
amortisation, if no impairment loss had been recognised.
Provisions
Provisions are recognised when the Group 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 are
determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the
time value of money and the risks specific to the liability. The unwinding of the discount is recognised as a finance cost.
2018 Annual Report 65
Notes to and forming part of the
Consolidated Financial Statements for
the Year Ended 30 June 2018 continued
Note 3. Significant Accounting Policies continued
Employee Benefits
Provision is made for the Group’s liability for employee benefits arising from services rendered by employees to reporting
period end. Employee benefits expected to be settled within one year have been measured at the amounts expected to be
paid when the liability is settled, plus related oncosts. Other employee benefits payable later than one year have been
measured at the present value of the estimated future cash outflows to be made for those entitlements. Those cash flows are
discounted using market yields on corporate bonds with terms to maturity that match the expected timing of cash flows.
Contributions are made by the Group to defined contribution superannuation funds and are charged as expenses when
incurred.
Equity-settled Compensation
The Group operates an equity-settled employee Performance Rights and Option Plan. The fair value of the equity to which
employees become entitled is measured at grant date and recognised as an expense over the vesting period, with a
corresponding increase to an equity account. The fair value of the share performance rights is determined using the Binomial
Approximation Option Valuation Model for performance rights issued prior to financial year 2018 and the Discounted
Cashflow Model for performance rights issued in financial year 2018. The number of performance rights expected to vest is
reviewed and adjusted at each reporting date such that the amount recognised for services received as consideration for the
equity instruments granted shall be based on the number of equity instruments that eventually vest.
Revenue and Other Income
Revenue is measured at the fair value of the consideration received or receivable after taking into account any trade
discounts and volume rebates allowed. Any consideration deferred is treated as the provision of finance and is discounted at
a rate of interest that is generally accepted in the market for similar arrangements. The difference between the amount
initially recognised and the amount ultimately received is interest revenue. The major business activities recognised revenue
as follows:
Software licence fee revenue
A software licensing arrangement is considered to be a sale if the following conditions are satisfied:
y
y
y
y
The rights to the software licence are assigned to the licensee in return for a fixed fee or a non-refundable guarantee;
The contract is non-cancellable;
The licensee is able to exploit its rights to the licence freely; and
The consolidated entity has no remaining obligations to perform.
For such arrangements, software licence fee revenue is recognised on the transfer of the rights to the licensee. In other
arrangements, revenue is recognised over the licence term on a straight-line basis.
Maintenance/support service revenue for licensed software
Unearned income is recognised upon receipt of payment for maintenance/support contracts. Revenue is brought to account
over time as it is earned.
However, to the extent that GBST has fulfilled all its obligations under the contract, the income is recognised as being earned
at the time when all GBST’s obligations under the contract have been fulfilled.
Sponsored implementation and consulting revenue
Revenue from a contract to provide implementation and consulting services is recognised by reference to the percentage of
completion of the contract. The percentage of completion of the contract is determined by reference to the proportion of
work performed (costs incurred to date) to estimated total work performed (total contract costs). When the percentage of
completion cannot be estimated reliably, contract revenue is recognised only to the extent of the contract costs incurred that
are likely to be recovered. An expected loss on a contract is recognised immediately in the Statement of Profit or Loss and
Other Comprehensive Income at inception.
66 GBST Holdings Limited ABN 85 010 488 874
Sponsored project revenue
Revenue received in advance for long-term project development contracts is deferred. This revenue is recognised over the
period in which expenditure is incurred in relation to the development of the project. When the outcome of a long-term
service contract can be estimated reliably, contract revenue and expenses are recognised in the profit and loss account by
reference to the stage of completion of the contract activity at the reporting date. The stage of completion is assessed by
reference to the completion of a physical proportion of the contract work to date for each contract. When the outcome of a
long-term service contract cannot be estimated reliably, revenue is recognised only to the extent of contract costs incurred
that are probable to be recoverable and contract costs are recognised as an expense in the period in which they are incurred.
An expected loss on a contract is recognised immediately in the Statement of Profit or Loss and Other Comprehensive
Income.
Managed Services
Where application management services are provided to a customer, revenue from these services are recognised as the
services are performed.
Sale of third party product
Revenue from the sale of goods is recognised at the point of delivery as this corresponds to the transfer of significant risks
and rewards of ownership of the goods and the cessation of all involvement in those goods.
All revenue is stated net of the amount of goods and services tax (GST) or Value added Tax (VAT).
Interest revenue
Interest revenue is recognised using the effective interest rate method, which, for floating rate financial assets, is the rate
inherent in the instrument.
Goods and Services Tax (GST)
Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not
recoverable from the Australian Tax Office. In these circumstances the GST is recognised as part of the cost of acquisition of
the asset or as part of an item of the expense. Receivables and payables in the Statement of Financial Position are shown
inclusive of GST.
Cash flows are presented in the Statement of Cash flows on a gross basis, except for the GST component of investing and
financing activities, which are disclosed as operating cash flows.
Earnings Per Share
The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by
dividing the profit or loss attributable to ordinary shareholders of the Group by the weighted average number of ordinary
shares outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary
shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential
ordinary shares, which comprise of performance rights granted to employees.
Segment Reporting
An operating segment is a component of the Group that engages in business activities from which it may earn revenues and
incur expenses, including revenues and expenses that relate to transactions with any of the Group’s other components. All
operating segments’ operating results are regularly reviewed by the Group’s CEO to make decisions about resources to be
allocated to the segment and assess its performance, and for which discrete financial information is available.
Inter-segment pricing is determined on an arm’s length basis.
Segment results that are reported to the CEO include items directly attributable to a segment as well as those that can be
allocated on a reasonable basis.
2018 Annual Report 67
Notes to and forming part of the
Consolidated Financial Statements for
the Year Ended 30 June 2018 continued
Note 3. Significant Accounting Policies continued
Foreign Currency Transactions and Balances
Transactions and balances
Foreign currency transactions are translated into a Group entities’ functional currency using the exchange rates prevailing at
the date of the transaction. Foreign currency monetary items are translated at the year-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 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 equity to the extent that the
gain or loss is directly recognised in equity, 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 are translated as follows:
a. Assets and liabilities are translated at year-end exchange rates prevailing at that reporting date;
b.
Income and expenses are translated at average exchange rates for the period; and
c. Retained earnings are translated at the exchange rates prevailing at the date of the transaction.
Exchange differences arising on translation of foreign operations are recognised in other comprehensive income and
presented in the Group’s foreign currency translation reserve in equity. These differences are recognised in profit or loss in
the period in which the operation is disposed.
When the settlement of a monetary item receivable from or payable to a foreign operation is neither planned nor likely in the
foreseeable future, foreign exchange gains and losses arising from such a monetary item are considered to form part of a net
investment in a foreign operation and are recognised in other comprehensive income and are presented in the translation
reserve in equity.
Share capital
Ordinary shares
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares and share
options are recognised as a deduction from equity, net of any tax effects.
New Standards and Interpretations not yet adopted
A number of new standards, amendments to standards and interpretations are effective for annual periods beginning
after 1 July 2017, and earlier application is permitted, however the Group has not applied the standards in preparing these
consolidated financial statements.
AASB 15 Revenue from Contracts with Customers
AASB 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised.
It replaces existing revenue recognition guidance, including AASB 118 Revenue, AASB 111 Construction Contracts and AASB
Interpretation 13 Customer Loyalty Programmes.
AASB 15 is effective for annual reporting periods beginning on or after 1 January 2018, with early adoption permitted.
GBST has completed preparatory work and assessed the potential impact of AASB 15 on its systems, processes, consolidated
financial statements and results for reporting under the new standard from 1 July 2018.
The Group will use the retrospective cumulative effect method prescribed by the standard, whereby the cumulative effect of
its application to ongoing/incomplete contracts is posted to the retained earnings account (with required additional
disclosures).
68 GBST Holdings Limited ABN 85 010 488 874
To determine the impact on the Group’s future results the following has been completed:
y
y
detailed assessments of GBST’s products and services; and
specific evaluations of multi-faceted contracts and revenue treatments for all major incomplete contracts at 1 July 2018.
The assessment has also addressed the standard’s requirements regarding incremental costs of obtaining a contract and
costs to fulfil a contract.
Performance Obligations
At contract inception, AASB 15 requires GBST to identify as a performance obligation each promise to transfer goods or
services (including a bundle or series of goods or services) to the customer that are distinct.
GBST’s customer contracts include some or all the following performance obligations:
Performance Obligation
Description
Proof of concept services
Development & implementation
services
Licence
Maintenance & upgrade services
Chargeable support services
Hosting services
Measurement
Pre-contract, discovery-phase statements of work providing an up-front,
standalone evaluation. These services are charged on a fixed price quote or time
and materials basis.
Cover a broad range of activities including configuration, planning, system
architecture, testing, training, documentation, project management, pre-
acceptance support and post deployment reviews. These services are usually
detailed in statements of work or contracts for either bespoke or customer-funded
roadmap product development and are charged on a fixed price quote and/or time
and materials basis.
Charged on a periodic and/or usage volume basis and include post go-live support
by way of maintenance and upgrade services over the term of the licence. These
services may be non-chargeable or separately chargeable as described below.
Non-chargeable services, as defined in each contract, may be provided with the
licence on a stand-ready basis. These services include on-call, on-site and
production support; provision of technical expertise; and post go-live defect fixes,
update and upgrade releases and legislative enhancements (including testing).
Include maintenance and upgrade services requested by a customer that are
outside the scope of services provided with the licence. These services are usually
detailed in statements of work and are charged on a fixed quote or time and
materials basis. Support services may be pre-purchased in blocks.
Include GBST, third party and cloud hosted arrangements with fees charged on a
periodic and/or usage volume basis.
Under AASB 15, the Group will recognise revenue for each identifiable performance obligation based on relative stand-alone
selling prices at contract inception. Contract transaction prices may be reallocated between performance obligations to
reflect fair values as necessary. This is the same as the fair value adjustments made under the current accounting standards.
For development and implementation services, revenue will be measured using an input method by comparing actual hours
consumed against forecast total hours to determine a percentage complete. This is consistent with the Group’s current
revenue recognition process for these types of services.
Usage-based licence charges will be recognised at the later of when the usage occurs or when the performance obligation to
which the charge is allocated has been satisfied (or partly satisfied).
Variable consideration may arise due to discounts, rebates, rate increases, and future contingent events. Estimates of variable
consideration will be included in revenue when and to the extent it is highly probable that a significant reversal of the amount
recognised will not occur when the associated uncertainty is resolved. As a result, variable consideration may be recognised
earlier under the new standard, with estimates subject to update at the end of each reporting period.
2018 Annual Report 69
Notes to and forming part of the
Consolidated Financial Statements for
the Year Ended 30 June 2018 continued
Note 3. Significant Accounting Policies continued
Separate contracts entered into at or near the same time with the same customer that support the same performance
obligation will be combined and accounted for as a single contract. Successive statements of work relating to the same
performance obligation will be recognised as contract modifications. Adjustments to revenue arising from combined and
modified contracts will be recognised on a cumulative catch-up basis in accordance with the standard.
Revenue Recognition
AASB 15 requires that revenue is recognised as each performance obligation is satisfied by the transfer of a promised good
or service (i.e. an asset) to a customer. An asset is transferred when (or as) the customer obtains control of that asset.
Licence Revenue
By granting a licence, GBST promises to provide a right to access the Group’s intellectual property when:
y
y
y
the contract requires, or the customer reasonably expects, that the Group will undertake activities that significantly affect
the intellectual property to which the customer has rights
the rights granted by the licence directly expose the customer to any positive or negative effects of those activities
those activities do not result in the transfer of a good or service to the customer as those activities occur.
When all these criteria are met, the customer simultaneously receives and consumes the benefit from the Group’s
performance of providing access to its intellectual property as the performance occurs. Accordingly, the Group will account
for the promise to grant a licence as a performance obligation satisfied over time, until that performance obligation is
completely satisfied.
If all the criteria are not met, the customer can direct the use of, and obtain substantially all the remaining benefits from, the
licence at the point in time at which the licence transfers. In this case, the Group will account for the promise to provide a
right to use the Group’s intellectual property as a performance obligation satisfied at the point in time when the licence is
granted to the customer.
Chargeable Services Revenue
Performance obligations for chargeable services (including proof of concept, development & implementation, support and
hosting) are satisfied over time if:
y
y
y
the customer simultaneously receives and consumes the benefits provided by the Group’s performance
the Group’s performance creates or enhances an asset that the customer controls
the Group’s performance does not create an asset with an alternative use to the Group and the Group has an enforceable
right to payment for the performance completed to date.
When one or more of these criteria are met, the Group will recognise revenue for these services over time as control is
transferred until the performance obligation is completely satisfied.
Chargeable services not satisfied over time will be recognised at the point in time when the customer obtains control of the
promised asset. This is likely to follow completion of the work when the customer has accepted the asset and GBST has a
present right to payment.
70 GBST Holdings Limited ABN 85 010 488 874
Methodology
Revenue from contracts with similar characteristics will be recognised consistently on the following basis:
Performance
Obligation
Proof of concept services
Development &
implementation services
Licence
Maintenance & upgrade services
Larger, regulatory dependent
products – including Composer, Syn~,
Shares, TaxIntell and SuperStream
Smaller non-regulatory dependent
products - including Unison, Margin
Lending, Emu Calculators & Tools
Over time, on a percent
completion basis.
Over time, on a percent
completion basis.
Not generally applicable to small
products or as billed.
At a point in time, on completion
of the work or as billed.
Licence, maintenance and upgrade
services are bundled as a single
performance obligation and recognised
on a straight-line basis over the term of
the licence.
At a point in time, on commencement
of the term of the licence.
Over time, on a straight-line basis
over the term of the licence.
Chargeable support services
At a point in time, generally as billed (as
a practical expediency).
At a point in time, generally as billed
(as a practical expediency).
Hosting Services
Over time, on a straight-line basis over
the term of the contract.
Over time, on a straight-line basis over
the term of the contract.
Development and implementation services are recognised as a separate performance obligation to the licence due to the
minimal impact of these services on the licensed software. Customisation and modification of software mainly occurs as part
of roadmap product development. GBST is then able to deliver generic products to customers with minimal bespoke
changes required.
For larger regulatory-dependent products, the bundling of the licence with maintenance & upgrade services into a single
performance obligation is due to the updates:
y
y
significantly modifying the functionality of the software (e.g. to incorporate legislative and regulatory changes);
being integral in maintaining the utility of the licence (as evidenced by the frequency of release by GBST and the
timeliness of implementation by customers throughout the term of the licence).
For smaller products, maintenance & upgrade services (which are generally charged for as used) are not as critical in
maintaining the ongoing value of the licence. Accordingly, they are distinct from the licence and will be treated as a separate
performance obligation.
Impact of AASB 15
On initial adoption, AASB 15 is expected to increase the Group’s opening retained earnings on 1 July 2018 by $1.57m pre-tax,
comprising:
a. the change in methodology for the recognition of smaller, non-regulatory products’ licence revenue to point in time (on
commencement of the term of the licence) instead of over the term of the licence.
This change, which represents smaller products’ licence revenue not previously recognised at 1 July 2018, will increase
opening retained earnings by $1.23m. The increase will include $338 thousand previously recognised as Unearned Income
and creates a Contract Asset balance of $895 thousand in the Consolidated Statement of Financial Position.
The Contract Asset balance will represent cumulative revenue recognised from satisfied (or partly satisfied) performance
obligations which at year end is not yet received or receivable. The Contract Asset will convert to Accounts Receivable as
the licences are billed to customers over the life of the licence contracts.
2018 Annual Report 71
Notes to and forming part of the
Consolidated Financial Statements for
the Year Ended 30 June 2018 continued
Note 3. Significant Accounting Policies continued
Of the total adjustment to opening retained earnings, approximately $871 thousand will be for revenues that would have
otherwise been recognised during FY19. However, this will be offset by an indeterminant amount as future licence
revenues are recognised immediately upon contract renewals or new implementations. Due to the number of variables
involved, it is not possible to estimate whether the net impact will be material to GBST’s results.
Other revenue timing differences may arise (in comparison to current accounting treatments) due to the treatment of
variable consideration amounts and the combination or separation of statements of work into performance obligations.
These differences are not expected to be significant.
b. the change in recognition of software sales commission costs which meet the definition of incremental costs of obtaining
a contract under the standard and so must be capitalised. These costs were previously expensed as incurred.
As a result, opening retained earnings will be increased by $341 thousand on 1 July 2018 and a corresponding Capitalised
Contract Costs asset will be created in the Consolidated Statement of Financial Position. This asset will be amortised over
the remaining periods of the related contracts but will be “offset” by commission costs that would have otherwise been
expensed during the period. The net impact is not possible to accurately estimate but is unlikely to be materially different
from the commission expense calculated under current accounting methods.
AASB 9 Financial Instruments
AASB 9, published in July 2014, replaces the existing guidance in AASB 139 Financial Instruments: Recognition and
Measurement. AASB 9 includes revised guidance on the classification and measurement of financial instruments, a new
expected credit loss model for calculating impairment on financial assets, and new general hedge accounting requirements.
It also carries forward the guidance on recognition and derecognition of financial instruments from AASB 139. AASB 9 is
effective for annual reporting periods beginning on or after 1 January 2018, with early adoption permitted.
The Group has assessed the potential impact on its consolidated financial statements resulting from the application of AASB 9.
At 30 June 2018 GBST has no debt instruments and no foreign currency hedging. Accordingly, unless these positions change
significantly during FY19, the standard is expected to have little to no impact on the financial results. The Group has also
considered the impairment of financial assets at 30 June 2018 under the forward looking ‘expected credit loss’ model required
under AASB9. There is not expected to be a material change to the 30 June 2018 results as a result of this assessment.
AASB 16 Leases
AASB 16 removes the lease classification test for lessees as either operating leases or finance leases as is required by
AASB 117 and instead, introduces a single lessee accounting model. Applying that model, a lessee is required to recognise
and disclose:
1. assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value; and
2. amortisation of lease assets separately from interest on lease liabilities in the income statement.
AASB 16 is effective for annual reporting periods beginning on or after 1 January 2019, with early adoption permitted, where
AASB 15 is adopted at the same time.
The Group is assessing the potential impact on its consolidated financial statements resulting from the application of AASB 16.
On a high-level basis, on adoption of AASB 16, the present value of the future minimum lease payments for non-cancellable
operating leases as noted in Note 20 would be recognised as a financial liability in the statement of financial position, and
under one of the transition provisions available to the Group, it would recognise a corresponding amount as a Right-of-Use
asset. In addition, the nature of expenses related to those leases will now change as AASB 16 replaces the straight-line
operating lease expense with a depreciation charge for right-of-use assets and interest expense on lease liabilities.
At GBST, operating leases with terms of more than 12 months relate to leases of office facilities. As at reporting date, the
Group had non-cancellable operating lease commitments of $15.7m (see Note 20).
GBST will adopt AASB 16 for the financial year commencing 1 July 2019 and accordingly no opening transitional adjustments
or disclosures will be made until that time.
72 GBST Holdings Limited ABN 85 010 488 874
Note 4. Profit for the Year
Profit before income tax expense includes the following items of revenue and expense:
a. Other expenses:
Cost of third party product and services sold
Operating lease rentals
Research & development costs1
b. Depreciation & amortisation:
Depreciation of plant & equipment
Amortisation of tangible & intangible leased assets
Amortisation of acquired intangibles (excluding leased assets)
c. Employee benefits expense:
Monetary based expense (includes contributions for superannuation & other retirement
benefits of $3.64m (2017: $3.64m))
Share based payments
d. Finance costs:
Foreign currency (gains)/losses
Interest paid to external entities
Finance lease charges
Facility fees
e. Finance income:
Bank interest
GBST Group
30 Jun 2018
$‘000
30 Jun 2017
$‘000
1,357
2,996
13,412
2,077
169
2,295
4,541
50,318
48
50,366
(51)
-
4
55
8
128
128
1,655
2,821
13,544
2,216
55
4,084
6,355
48,026
(301)
47,725
608
12
2
81
703
92
92
(1) The comparative balance of Research and Development costs has been restated from $18,837k in the prior year to $13,544k. These costs remain classified as Product
Delivery and Support expenses in the Consolidated Statement of Profit and Loss and Other Comprehensive Income, but have been removed from the Research and
Development disclosure as they represent product maintenance and general overhead expenditure.
2018 Annual Report 73
Notes to and forming part of the
Consolidated Financial Statements for
the Year Ended 30 June 2018 continued
Note 5.
Income Tax Expense
a. The components of tax expense comprise:
Current tax
Deferred tax (Note 15 (c) (i))
Over provision in respect of prior years
b. The prima facie tax on profit from ordinary activities before income tax is
reconciled to income tax as follows:
Profit before tax
Prima facie tax payable at 30%
Adjust for tax effect of:
Research & development expenditure claim
Contributions to Employees Share and Option Plan
UK R&D tax credit - current & prior years1
Under\(Over) provision in respect of prior years
Current year losses for which no deferred tax asset was recognised2
Derecognition of previously recognised tax losses3
Other (deductible)\non-allowable items (net)
Reduction in tax rate on deferred tax balances
Effect of different tax rates of subsidiaries operating in other jurisdictions
Income tax expense\(credit) attributable to entity
Weighted average effective tax rates:
GBST Group
30 Jun 2018
$‘000
30 Jun 2017
$‘000
(1,137)
2,980
(320)
1,523
7,772
2,332
(1,718)
(31)
(347)
(320)
269
1,496
(32)
-
(126)
1,523
20%
1,421
(3,103)
(280)
(1,962)
5,023
1,507
(2,387)
(559)
(78)
(280)
318
-
(14)
21
(490)
(1,962)
(39%)
(1) The UK permits the surrender of research and development enhanced tax losses in exchange for a refundable tax credit. The above figure includes the credit arising in
relation to the year ended 30 June 2018.
(2) For GBST Ltd and GBST Wealth Management Ltd (UK) deferred tax assets have not been recognised in relation to operating losses due to uncertainty that future
(3)
taxable profit will be available against which the Group can utilise the benefits there from.
In the prior financial year the Group brought to account a deferred tax asset relating to the tax benefit on losses in GBST Wealth Management Ltd (UK). Due to
uncertainty around future profits to support such recognition, this was derecognised in the current year.
(4) Legislation to reduce the UK corporation tax rate from 20% to 19% from 1 April 2017 and to 18% from 1 April 2020 was substantively enacted on 26 October 2015. As these
changes were substantively enacted at 31 March 2016, deferred tax at that date was calculated accordingly. Legislation was substantively enacted on 15 September 2016
to further reduce the corporation tax rate to 17% from 1 April 2020. This will reduce the Company’s future current tax charge accordingly.
(5) The US federal corporate income tax rate reduced from 40% to 21%, for taxable years beginning after 31 December, 2017.
74 GBST Holdings Limited ABN 85 010 488 874
Note 6. Dividends
Dividends paid in the period:
2017 final fully franked (at 30%) dividend paid of 2.5 cents per share (2016: 5.5)
2018 Interim fully franked (at 30%) dividend paid of 2.5 cents per share (2017: 3.7)
Net Dividend paid
After the reporting date the Directors recommended a final dividend of 2.5 cents per
share to be paid to the holders of fully paid ordinary shares. The dividend will be 100%
franked and will be paid on 12 October 2018. The dividend has not been provided and
there are no income tax consequences.
Dividend franking account:
Balance of franking account at year-end
GBST Group
30 Jun 2018
$‘000
30 Jun 2017
$‘000
1,698
1,698
3,396
3,732
2 , 5 1 1
6,243
12,867
13,443
30% franking credits available to shareholders of GBST Holdings Limited for subsequent
financial years post final dividend payment.
10,448
13,063
The above available amounts are based on the balance of the dividend franking account at year-end adjusted for:
a. franking credits that will arise from the payment of the current tax liabilities;
b. franking debits that will arise from the payment of dividends recognised as a liability at the year-end;
c.
franking credits that will arise from the receipt of dividends recognised as receivables by the tax consolidated Group at
the year-end; and
d. franking credits that the entity may be prevented from distributing in subsequent years.
Note 7. Cash and Cash Equivalents
Cash at bank and on hand
Cash on deposit
Cash and cash equivalents in the Statement of Cash flows
GBST Group
30 Jun 2018
$‘000
30 Jun 2017
$‘000
9,947
1,426
11,373
10,376
1,352
11,728
2018 Annual Report 75
Notes to and forming part of the
Consolidated Financial Statements for
the Year Ended 30 June 2018 continued
Note 8. Trade and Other Receivables
Current
Trade receivables
Accrued revenue
Other amounts receivable
GBST Group
30 Jun 2018
$‘000
30 Jun 2017
$‘000
16,586
-
567
17,153
11,917
377
366
12,660
An allowance for impairment is recognised when there is objective evidence that an individual trade or term receivable is
impaired, including factors such as the amount of time a receivable has been outstanding and the solvency of the
counterparty. The movement in allowance for impairment during the year was a reversal of the accrued impairment of $293k
due to recovery of the doubtful debt (2017 movement: $281k). There were no amounts written off.
Note 9. Work in Progress
GBST Group
30 Jun 2018
$‘000
30 Jun 2017
$‘000
3,362
3,362
1,717
1,717
4,092
4,092
788
788
GBST Group
30 Jun 2018
$‘000
30 Jun 2017
$‘000
17,978
(12,480)
5,498
1,089
(1,089)
-
5,498
21,653
(15,121)
6,532
1,140
(1,130)
10
6,542
Current - at cost
Work in progress
Non-Current - at cost
Work in progress
Note 10. Plant and Equipment
Owned plant and equipment at cost
Accumulated depreciation
Net carrying value
Leased plant and equipment at cost
Accumulated amortisation
Net carrying value
TOTAL PLANT AND EQUIPMENT
76 GBST Holdings Limited ABN 85 010 488 874
a. Movement in Plant and Equipment
GBST Group
Year ended 30 June 2017
Balance at 1 July 2016
Additions
Depreciation expense
Effect of movements in exchange rates
BALANCE AT 30 JUNE 2017
Year ended 30 June 2018
Balance at 1 July 2017
Additions
Disposals
Depreciation expense
Effect of movements in exchange rates
BALANCE AT 30 JUNE 2018
Owned
$‘000
8,086
786
(2,216)
(124)
6,532
6,532
1,040
(61)
(2,077)
64
5,498
Leased
$‘000
30
-
(20)
-
10
10
-
-
(10)
-
-
Total
$‘000
8,116
786
(2,236)
(124)
6,542
6,542
1,040
(61)
(2,087)
64
5,498
Plant and equipment was impairment tested in conjunction with intangible assets, refer Note 11.
Note 11.
Intangible Assets
At Cost
Software systems
Accumulated amortisation
Net carrying value
Goodwill
Accumulated impairment losses
Net carrying value
Leased software at cost
Accumulated amortisation
Net carrying value
TOTAL INTANGIBLES
GBST Group
30 Jun 2018
$‘000
30 Jun 2017
$‘000
51,536
(41,376)
10,160
45,830
(5,572)
40,258
626
(591)
35
50,453
43,632
(38,561)
5,071
45,138
(5,283)
39,855
626
(432)
194
45,120
2018 Annual Report 77
Notes to and forming part of the
Consolidated Financial Statements for
the Year Ended 30 June 2018 continued
Note 11.
Intangible Assets continued
a. Movement in Intangibles
Software
Systems
externally
acquired
$‘000
Software
Systems
internally
Developed
$‘000
Software
Systems
internal under
development
$‘000
Goodwill
$‘000
Leased
Software
$‘000
Total
$‘000
GBST Group
Year ended 30 June 2017
Balance at 1 July 2016
7,915
394
Additions - externally acquired
Additions - internally developed
316
-
-
-
Amortisation charge
(3,690)
(394)
Effect of movements in exchange rates
BALANCE AT 30 JUNE 2017
Year ended 30 June 2018
Balance at 1 July 2017
Additions - externally acquired
Additions - internally developed
Amortisation charge
Effect of movements in exchange rates
BALANCE AT 30 JUNE 2018
(309)
4,232
4,232
104
-
(2,295)
101
2,142
-
-
-
-
-
-
-
-
40,350
230
48,889
-
-
839
-
-
-
-
-
(495)
839
39,855
-
-
(35)
(1)
194
316
839
(4,119)
(805)
45,120
839
39,855
194
45,120
-
7,179
-
-
-
-
-
403
8,018
40,258
-
-
104
7,179
(159)
(2,454)
-
35
504
50,453
Intangible assets, other than goodwill, have finite useful lives. The current amortisation charges for intangible assets are
included within the Product Delivery and Support expense line in the Statement of Profit or Loss and Other Comprehensive
Income. Goodwill has an indefinite life.
The effect of movements in exchange rates represent the period to period foreign currency translation of assets
denominated in Great British Pounds, Hong Kong Dollars, Singapore Dollars and US Dollars.
Impairment Disclosures
Intangible assets with finite lives are reviewed for impairment where there are indicators that the carrying amount may not
be recoverable. Goodwill is tested for impairment at least annually and is allocated to each Cash Generating Unit (CGU) as
below:
Capital Markets Australia (Palion)
Wealth Management Australia (InfoComp)
Capital Markets International (Coexis)
Financial Services (Emu)
TOTAL GOODWILL
78 GBST Holdings Limited ABN 85 010 488 874
30 Jun 2018
$‘000
30 Jun 2017
$‘000
3,350
28,238
7,784
886
40,258
3,350
28,238
7,381
886
39,855
InfoComp, Palion and Emu CGUs
The recoverable amount of goodwill for each CGU was based on value in use, estimated using discounted cash flow
projections. The cash flow projections included specific estimates for five years and a terminal growth rate thereafter. The
first year cash flow projections are based on 2019 Board approved budgets, while cash flow projections for years two to five
are based on Management assumptions set out below.
The key assumptions used for value-in-use calculations consider growth and discount rates and are generally consistent with
past performance or are based upon the Group's view of future market activity. Discount rates are based on a weighted
average cost of capital calculation for the relevant markets and in the same currency as the cash flows, and adjusted for a risk
premium to reflect both the increase in risk of investing in equities and the risk specific to the CGU. Terminal growth rates
have been determined by Management based on their assessment of long term annual growth expected to be achieved in
the countries in which each CGU operates.
Coexis CGU
The recoverable amount of the Coexis CGU was determined using a fair value less costs of disposal method, estimated using
discounted cash flows. The fair value measurement was categorised as a Level 3 fair value, based on the inputs in the
valuation technique used (refer to Note 2).
The cash flow projections included specific estimates for four years and a terminal growth rate thereafter. The first and
subsequent year's cash flow projections are based on the latest 2018 normalised actual results and use growth rates in line with
historical and future expected performance along with an assessment of costs if Coexis was operating on a standalone basis.
The key assumptions used for fair value less costs of disposal are outlined below together with sensitivity analysis for those
assumptions. Discount rates are based on a weighted average cost of capital calculation for the relevant markets and in the
same currency as the cash flows, and adjusted for a risk premium to reflect both the increase in risk of investing in equities
and the risk specific to the CGU. Terminal growth rates are based on forecast real GDP growth and CPI in the UK and forecast
growth in the industry.
A summary of key assumptions for Coexis and other CGU's is presented below:
2017
Calculation Method
Revenue growth rates
Cost growth rates
Long-term growth rates
Post-tax discount rate
2018
Calculation Method
Revenue growth rates
Cost growth rates
Long-term growth rates
Post-tax discount rate
Coexis
Fair value less
cost of disposal
3-6%
3-5%
2.5%
15.0%
Coexis
Fair value less
cost of disposal
InfoComp
Palion
EMU
Value-in-use
Value-in-use
Value-in-use
7.5%
4.0%
3.0%
10.0%
0.0%
4.0%
3.0%
13.0%
InfoComp
Palion
7.5%
4.0%
3.0%
13.0%
EMU
Value-in-use
Value-in-use
Value-in-use
3-6%
2-5%
2.5%
15.0%
7.5%
4-7.5%
3.0%
10.0%
1.5-2.0%
4.0%
1.5%
13.0%
4-7.5%
4-7.5%
3.0%
13.0%
Future anticipated cash flows for all CGU's indicate that the carrying value of the intangible assets were not required to be
impaired in 2018.
2018 Annual Report 79
Notes to and forming part of the
Consolidated Financial Statements for
the Year Ended 30 June 2018 continued
Note 11.
Intangible Assets continued
For the Coexis fair value, Management has identified the amount by which the following assumptions would need to change
individually to cause the carrying amount to exceed the recoverable amount:
Decrease of annual revenue against forecast by
13.7% (June 2017: 10.8%)
Increase of annual costs above forecast by
18.0% (June 2017: 13.7%)
Increase of post-tax discount rate to
36.6% (June 2017: 27.1%)
Note 12. Other Assets
GBST Group
30 Jun 2018
$‘000
30 Jun 2017
$‘000
2,450
2,450
157
157
2,217
2,217
151
151
GBST Group
30 Jun 2018
$‘000
30 Jun 2017
$‘000
9,545
288
9,833
559
918
1,477
6,451
288
6,739
800
1,206
2,006
Current
Prepaid expenditure
Non-Current
Prepaid expenditure
Note 13. Trade and other Payables
Current (unsecured)
Trade payables & accruals
Leasehold liability
Non-Current (unsecured)
Trade payables & accruals
Leasehold liability
80 GBST Holdings Limited ABN 85 010 488 874
Note 14. Loans and Borrowings
Current
Commercial loan facility (secured)
Finance lease liability (Note 20)
Note 15. Tax
a. Deferred tax liabilities
Deferred tax liability comprises:
Tax allowances relating to plant and equipment
Tax allowances relating to intangibles
b. Deferred tax assets
Deferred tax assets comprise:
Provisions
Tax allowances relating to plant and equipment
Tax allowances relating to intangibles
Other items*
Recognised tax losses
GBST Group
30 Jun 2018
$‘000
30 Jun 2017
$‘000
-
-
-
176
76
252
GBST Group
30 Jun 2018
$‘000
30 Jun 2017
$‘000
-
2,168
2,168
2,373
337
2,839
1,623
-
7,172
1 1 7
693
810
2,352
389
2,958
1,525
1,554
8,778
*Other items include deferred tax assets arising from income classified as unearned for accounting purposes but assessable for tax purposes.
2018 Annual Report 81
Notes to and forming part of the
Consolidated Financial Statements for
the Year Ended 30 June 2018 continued
Note 15. Tax continued
c. Reconciliations
Net Movement
The overall movement in the net deferred tax account is as follows:
Opening balance
Recognised in the income statement
Foreign currency translation
Charge to equity
Closing balance
d. Total deferred tax assets not brought to account as at reporting period end:
- tax losses: operating losses
- tax losses: capital losses
GBST Group
30 Jun 2018
$‘000
30 Jun 2017
$‘000
7,968
(2,980)
41
(25)
5,004
6,204
1,147
4,848
3,103
(64)
81
7,968
6,878
1,147
In respect of the deferred tax assets which have not been recognised in relation to operating losses for tax purposes, it is not
considered probable that they will be utilised within the foreseeable future given the level of research and development costs
incurred by the Subsidiary of the Group for which it has allowable tax concessions.
In the prior financial year the Group brought to account a deferred tax asset relating to the tax benefit on losses in GBST
Wealth Management Ltd (UK). Due to uncertainty around future profits to support such recognition, this was derecognised in
the current year.
Note 16. Provisions
Current
Employee benefits
Make Gooda
Non-Current
Employee benefits
Make Gooda
GBST Group
30 Jun 2018
$‘000
30 Jun 2017
$‘000
7,111
10
7,121
750
1,178
1,928
6,007
51
6,058
1,158
1,086
2,244
(a)
In accordance with rental premises lease agreements across the Group, GBST must restore the leased premises to its original condition at the end of the lease
terms. Expiration dates range from 2019 to 2026.
82 GBST Holdings Limited ABN 85 010 488 874
GBST Group
Balance at the beginning of the year
Additional provisions
Amounts used
Unused amounts reversed
BALANCE AT 30 JUNE 2018
Note 17. Unearned Income
Employee benefits
$‘000
Make Good
$‘000
7,165
4,446
(3,640)
(110)
7,861
1,137
104
(43)
(10)
1,188
Total
$‘000
8,302
4,550
(3,683)
(120)
9,049
Current
Revenue received in advance for software usage and support services
GBST Group
30 Jun 2018
$‘000
30 Jun 2017
$‘000
10,263
10,263
9,449
9,449
2018 Annual Report 83
Notes to and forming part of the
Consolidated Financial Statements for
the Year Ended 30 June 2018 continued
Note 18. Issued Capital
Fully paid ordinary shares - opening balance
Issuing of ordinary shares - vesting of performance rights
Ordinary shares
Opening Balance
Issuing of ordinary shares - vesting of performance rights
GBST Group
30 Jun 2018
$‘000
30 Jun 2017
$‘000
39,473
-
39,473
38,366
1,107
39,473
No.
No.
67,858,918
67,423,542
53,590
435,376
67,912,508
67,858,918
During the year, the Company issued 53,590 shares for nil consideration in respect of performance rights related to the
5 August 2014 issue of performance rights to selected employees under the GBST Performance Rights and Option Plan.
Ordinary shares participate in dividends and the proceeds of winding up of the parent entity in proportion to the number
of shares held, should that event occur. At shareholders' meetings each ordinary share is entitled to one vote.
The Company does not have an amount of authorised capital or par value in respect of its issued shares.
Options and Performance Rights
For details on employee and placement options and performance rights over ordinary shares, see Note 29.
Note 19. Reserves
Equity remuneration reserve
Foreign currency translation reserve
GBST Group
30 Jun 2018
$‘000
30 Jun 2017
$‘000
40
(3,433)
(3,393)
205
(4,358)
(4,153)
84 GBST Holdings Limited ABN 85 010 488 874
Note 20. Capital, Leasing and Other Commitments
GBST Group
30 Jun 2018
$‘000
30 Jun 2017
$‘000
a. Finance Leasing Commitments
Payable on leases:
Not later than one year
Later than one year but not later than five years
Less future finance charges
TOTAL LIABILITY
Lease liabilities are included in the Statement of Financial Position as:
Current (Note 14)
-
-
-
-
-
-
-
Finance leases relate to items of plant and equipment and have options to acquire the items on termination.
b. Non-cancellable Operating Leases
Lease amounts are payable:
Not later than one year
Later than one year but not later than five years
Later than five years
3,708
11,068
992
15,768
80
-
80
(4)
76
76
76
3,293
12,537
2,593
18,423
Non-cancellable leases include rental premises with original lease terms up to ten years. The lease agreements require that
the minimum lease payments shall be increased by incremental contingent rentals based on market or CPI.
Certain leases contain options to renew at the end of their term for a further five years.
c. Capital and Other Expenditure Commitments
Contracted for:
Capital purchases
Other operating purchases
Payable
Not later than one year
70
1,361
1,431
1,431
1,431
1 6 7
490
657
657
657
2018 Annual Report 85
Notes to and forming part of the
Consolidated Financial Statements for
the Year Ended 30 June 2018 continued
Note 21. Auditors' Remuneration
Audit Services
KPMG Australia
- Audit & review of financial reports
Overseas KPMG firms
- Audit & review of financial reports
Other Services
KPMG Australia
- Taxation services
- Other services
Overseas KPMG firms
- Taxation services
- Other services
GBST Group
30 Jun 2018
$
30 Jun 2017
$
249,738
300,746
131,764
381,502
174,941
475,687
105,351
-
29,410
-
134,761
97,707
25,258
169,584
10,309
302,858
86 GBST Holdings Limited ABN 85 010 488 874
Note 22. Other Group Entities
a. Controlled Entities Consolidated
Group Entity
GBST Pty Ltd*
Emu Design (Qld) Pty Ltd*
GBST ESOP Pty Ltd*
GBST Employee Share Scheme Trust
Australia
Australia
Australia
Australia
GBST Ltd
United Kingdom
GBST (Australia) Pty Ltd*
Australia
Subsidiaries of GBST Ltd:
Principal place of Business
Percentage Owned
100% (June 2017: 100%)
100% (June 2017: 100%)
100% (June 2017: 100%)
100% (June 2017: 100%)
100% (June 2017: 100%)
100% (June 2017: 100%)
GBST Inc
United States of America
100% (June 2017: 100%)
GBST Singapore Pte Limited
Singapore
100% (June 2017: 100%)
Subsidiaries of GBST (Australia) Pty Ltd:
GBST Hong Kong Limited
GBST Registry Solutions Pty Ltd*
GBST Wealth Management Pty Ltd*
Hong Kong
Australia
Australia
Subsidiaries of GBST Wealth Management Pty Ltd:
100% (June 2017: 100%)
100% (June 2017: 100%)
100% (June 2017: 100%)
GBST UK Holdings Limited
United Kingdom
100% (June 2017: 100%)
Subsidiaries of GBST UK Holdings Ltd:
GBST Hosting Ltd
United Kingdom
GBST Wealth Management Limited
United Kingdom
100% (June 2017: 100%)
100% (June 2017: 100%)
b. Deed of Cross Guarantee
* Pursuant to Wholly owned companies instrument 2016/785 these wholly-owned controlled entities are relieved from the
Corporations Act (2001) requirements for preparation, audit and lodgement of financial reports and Directors' Report.
It is a condition of the class order that the Company and each of the Australian controlled entities enter into a Deed of Cross
Guarantee (""Deed""). The effect of the Deed is that the Company guarantees to each creditor payment in full of any debt in
the event of winding up any of the controlled entities under certain provisions of the Corporations Act (2001). If a winding up
occurs under other provisions of the Corporations Act (2001), the Company will only be liable in the event that after six months
any creditor has not been paid in full. The controlled entities have also given similar guarantees in the event that the Company
is wound up.
2018 Annual Report 87
Notes to and forming part of the
Consolidated Financial Statements for
the Year Ended 30 June 2018 continued
Note 22. Other Group Entities continued
A consolidated statement of profit or loss and other comprehensive income and consolidated statement of financial position,
comprising the Company and controlled entities which are party to the Deed, after eliminating all transactions between
parties to the Deed of Cross Guarantee at 30 June 2018 is set out as follows:
Closed Group and Parties to
Deed of Cross Guarantee
30 Jun 2018
$‘000
30 Jun 2017
$‘000
Financial information in relation to:
i. Summarised Statement of Profit or Loss and Other Comprehensive Income
Revenue from licence and service sales
Revenue from sponsored work
Revenue from sale of third party product
Other income
RESULTS FROM OPERATING ACTIVITIES
Finance costs
Finance income
NET FINANCE COSTS
Profit before income tax
Income tax expense\(benefit)
Profit after income tax
PROFIT ATTRIBUTABLE TO MEMBERS OF THE PARENT ENTITY
Other Comprehensive Income
TOTAL COMPREHENSIVE INCOME FOR THE YEAR
ii. Retained Earnings
Retained profits at the beginning of the year
Profit after income tax
Dividends provided for or paid
Vesting of performance rights
RETAINED EARNINGS AT END OF THE YEAR
iii. Statement of Financial Position
Current Assets
Cash and cash equivalents
Trade and other receivables
Work in progress
Current tax receivable
Other assets
88 GBST Holdings Limited ABN 85 010 488 874
47,710
15,062
920
5
6,484
(11)
126
115
6,599
(324)
6,275
6,275
-
6,275
19,359
6,275
(3,396)
217
22,455
7,871
7,050
2,949
1,691
1,934
49,911
12,036
1,023
60
2,686
(844)
92
(752)
1,934
1,177
3,111
3,111
-
3,111
22,491
3,111
(6,243)
-
19,359
5,620
9,306
2,940
-
1,648
Total Current Assets
Non-Current Assets
Work in progress
Property, plant and equipment
Intangible assets
Investments
Deferred tax assets
Other assets
Total Non-Current Assets
TOTAL ASSETS
Current Liabilities
Trade and other payables
Loans and borrowings
Current tax liabilities
Provisions
Unearned income
Total Current Liabilities
Non-Current Liabilities
Trade and other payables
Deferred tax liabilities
Provisions
Total Non-Current Liabilities
Total Liabilities
NET ASSETS
Equity
Issued capital
Reserves
Retained earnings
TOTAL EQUITY
Closed Group and Parties to
Deed of Cross Guarantee
30 Jun 2018
$‘000
21,495
30 Jun 2017
$‘000
19,514
1,228
12,290
32,962
8,526
7,107
28
62,141
83,636
5,754
-
-
6,737
7,360
19,851
1,355
2,168
1,483
5,006
24,857
58,779
39,473
(3,149)
22,455
58,779
788
6,726
33,258
9,690
7,140
28
57,630
77,144
3,455
252
348
5,825
7,219
17,099
1,792
693
1,888
4,373
21,472
55,672
39,473
(3,160)
19,359
55,672
2018 Annual Report 89
Notes to and forming part of the
Consolidated Financial Statements for
the Year Ended 30 June 2018 continued
Note 23. Financing Arrangements
Financing facilitiesa
Amount utilised
UNUSED CREDIT FACILITY
GBST Group
30 Jun 2018
$‘000
30 Jun 2017
$‘000
13,594
(1,689)
11,905
13,582
(1,989)
11,593
(a)
The balance as at 30 June 2018 primarily comprises of facilities for working capital, bank guarantees, equipment finance and corporate cards with Commonwealth
Bank of Australia (CBA) and HSBC.
Note 24. Cash Flow Information
a. Reconciliation of Net Cash provided by Operating
Activities to Profit after Income Tax
Profit after income tax
Non-cash flows in operating profit:
Depreciation and amortisation
Profit on sale of plant & equipment
Share based payments
Changes in assets and liabilities:
Change in receivables
Change in other assets
Change in unearned income
Change in work in progress
Change in deferred tax balances
Change in tax provision
Change in trade and other payables
Change in provisions
CASH FLOW FROM OPERATIONS
90 GBST Holdings Limited ABN 85 010 488 874
GBST Group
30 Jun 2018
$‘000
30 Jun 2017
$‘000
6,249
6,985
4,541
(3)
48
(4,493)
(239)
814
(199)
2,964
(1,803)
2,574
747
11,200
6,355
(2)
(301)
1,157
118
(139)
(1,400)
(3,120)
1,769
(1,022)
518
10,918
b. Reconciliation of Cash
Cash at the end of the financial year as shown in the Statement of Cash Flows is
reconciled to items in the Statement of Financial Position as follows:
Cash at bank (Note 7)
c. Non-cash Financing Activities
GBST Group
30 Jun 2018
$‘000
30 Jun 2017
$‘000
11,373
11,373
11,728
11,728
During the 2018 financial year the Group acquired plant and equipment of $nil (2017: $263k) by means of an equipment loan.
Note 25. Operating Segments
The Group's management structure and reporting is organised into three regional business units - Australia (inclusive of two
operating segments: Capital Markets and Wealth Management); United Kingdom - Wealth Management and Rest of the
World - Capital Markets. The strategic business units offer different products and services, and are managed separately
because they require different technology and marketing strategies. For each business unit, the CEO reviews internal
management reports on a monthly basis. The following summary describes the operations in each of the Group's reportable
segments:
Australia
The Capital Markets segment offers the GBST Syn~, Shares and derivatives platforms which are the country’s most widely
used middle-office and back-office equities and derivatives systems. The segment also incorporates Emu Design which
provides independent financial data and digital agency services for interactive website design, development, hosting,
e-commerce platforms, and mobile and social networking solutions.
The Wealth Management segment through the GBST Composer platform, provides end to end funds administration and
management software to the wealth management industry in Australia. It offers an integrated system for the administration
of wrap platforms for superannuation funds, as well as master trusts, unit trusts, risk and debt; and other investment assets.
Other GBST products provide technology hub solutions; and data analytics and quantitative services for the measurement of
portfolio performance.
United Kingdom
Through the GBST Composer platform, provides end to end funds administration and management software to the Wealth
Management industry in the United Kingdom (UK). It offers an integrated system for the administration of wrap platforms,
including individual savings accounts (ISA's), pensions, self-invested personal pension (SIPP), as well as master trusts, unit
trusts, risk and debt; and other investment assets.
Rest of the World
Covers our Capital Markets operations in North America, Asia and United Kingdom. Through the GBST Syn~ platform, this
business provides new-generation technology to process equities, derivatives, fixed income and managed funds transactions
for global capital markets. Revenues for FY18 by country were UK $1.9m (FY17: $1.7m), North America $1.4m (FY17: $2.2m),
Remainder $8.2m (FY17: $9.7m).
2018 Annual Report 91
Notes to and forming part of the
Consolidated Financial Statements for
the Year Ended 30 June 2018 continued
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92 GBST Holdings Limited ABN 85 010 488 874
Major Customers
Revenues from one customer of the Group represents $19.7m (2017: $17.6m) of the Group's total revenues.
Revenues from the top five customers of the Group represents $39.7m (2017: $37.1m) of the Group's total revenues.
Accounting Policies
Segment revenues and expenses are those directly attributable to the segments and include any joint revenue and expenses
where a reasonable basis of allocation exists.
Note 26. Financial Risk Management
a. Financial Risk Management Policies
The Group’s principal financial instruments comprise of accounts receivable and payable, bank accounts, loans and
overdrafts and finance leases.
The main purpose of these financial instruments is to provide operating finance to the Group.
It is, and has been throughout the period, the Group’s policy that financial instruments held are not intended for trading
purposes.
The Group has exposure to the following risks from their use of financial instruments – credit risk, liquidity risk and market
risk. This note presents information about the exposure to each of the above risks. Further quantitative disclosures are
included throughout these consolidated financial statements.
The Board of Directors has overall responsibility for the establishment and oversight of the Group’s risk management
framework. Management is responsible for developing and monitoring the risk management policies, and reports to the
Board.
The risk management policies are established to identify and analyse the risks faced, to set appropriate risk limits and
controls, and to monitor risks and adherence to limits.
The Board of Directors meet on a regular basis to analyse financial risk exposure and to evaluate treasury management
strategies in the context of current economic conditions and forecasts.
The Executive Management Team’s overall risk management strategy seeks to assist the consolidated Group in meeting its
financial targets, whilst minimising potential adverse effects on financial performance.
Risk management policies are approved and reviewed by the Board on a regular basis.
b. Market Risk
Market risk is the risk that changes in market prices, such as foreign exchange rates, share prices and interest rates will affect
income or the value of holdings of financial instruments. The objective of market risk management is to manage and control
market risk exposures within acceptable parameters, while optimising the return.
Australian variable interest rate risk
At reporting period, the Group had the following mix of financial assets exposed to Australian variable interest rate risk.
Financial assets
Cash
Lease liabilities have fixed rates, all other items are variable rate.
GBST Group
30 Jun 2018
$‘000
30 Jun 2017
$‘000
5,339
5,339
2,492
2,492
2018 Annual Report 93
Notes to and forming part of the
Consolidated Financial Statements for
the Year Ended 30 June 2018 continued
Note 26. Financial Risk Management continued
Foreign currency variable interest rate risk
At reporting period, the Group did not have any foreign currency accounts that were exposed to variable interest rate risk.
Foreign Currency Risk
The Group is exposed to fluctuations in foreign currencies arising from the sale and purchase of goods and services in
currencies other than the Group’s measurement currency.
The Group constantly monitors its foreign currency exposure and seeks to utilise existing currency reserves and naturally
hedge foreign currency purchases where possible.
At balance sheet date the Group had exposure to movements in the exchange rate as follows:
2018
2017
Cash and Receivables
$‘000
Payables
$‘000
Cash and Receivables
$’000
Great British Pounds
14,877
3,860
United States of America Dollars
Euros
Singapore Dollars
Hong Kong Dollars
c. Liquidity Risk
3,171
2
628
694
144
-
73
122
19,372
4,199
12,680
3,887
2
508
230
17,307
Payables
$’000
3,035
154
-
77
240
3,506
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The approach to
managing liquidity is to ensure, as far as possible, that there will always be sufficient liquidity to meet liabilities when due,
under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s
reputation.
The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of overdrafts,
loans and finance leases. Liquidity risk is managed by monitoring forecasted business performance including cash flows,
the collection of trade receivables, payment of trade payables and maintaining adequate borrowing facilities.
d. Credit Risk
The maximum exposure to credit risk at balance date, excluding the value of any collateral or other security, to recognised
financial assets is the carrying amount (net of any allowance for impairment of those assets) as disclosed in the balance sheet
and notes to the financial statements. The Group’s exposure to credit risk arises from potential default of the counter party,
with a maximum exposure equal to the carrying amount of these instruments. Credit risk arises primarily from exposures to
customers. The Group trades only with recognised, creditworthy third parties, and as such collateral is not requested nor is it
the Group’s policy to securitise its trade and other receivables. In addition, receivable balances are monitored on an ongoing
basis with the result that apart from the risks noted below, there are no other material credit risks to the Group.
In respect of the parent entity, credit risk also incorporates the exposure of GBST Holdings Limited to the liabilities of all
Australian entities under the Deed of Cross Guarantee. Refer to Note 22 for further information.
Except for the following concentrations of credit risks, the Group does not have any material credit risk exposure to any single
debtor or group of debtors under financial instruments entered into. Approximately 45% (2017: 42%) of the Group’s revenue
is derived from five customers providing financial services, who represent 56% of the gross trade debtor balance as at 30
June 2018.
94 GBST Holdings Limited ABN 85 010 488 874
Trade debtor terms range between fourteen to thirty days. Included in the Group's trade receivable balance are debtors with
a carrying amount of $3.66m (2017: $4.38m) which are past due at the reporting date for which the Group has not provided
as there has not been a significant change in the credit quality and the Group believes that the amounts are still considered
recoverable. The weighted average age of these receivables is 21 days (2017: 27 days).
The aging of the Group’s trade receivables at the reporting date was:
Not past due
Past due 0-30 days
Past due 30-90 days
Past due more than 90 days
2018
2017
Gross
$‘000
12,926
2,071
963
626
16,586
Impairment
$‘000
-
-
-
-
-
Gross
$‘000
7,529
2,436
1,028
1,217
12,210
Impairment
$‘000
-
-
-
293
293
The movement in the allowance for impairment in respect of trade receivables during the year was as follows:
Opening balance
Impairment loss (derecognised)\recognised
Amounts written off
CLOSING BALANCE
GBST Group Carrying Amount
2018
$‘000
293
(293)
-
-
2017
$‘000
1,208
281
(1,196)
293
The maximum exposure to credit risk to the Group is the carrying value, which at the reporting date was:
Cash and cash equivalents
Trade and other receivables
GBST Group Carrying Amount
2018
$‘000
11,373
17,153
28,526
2017
$‘000
11,728
12,660
24,388
The maximum exposure to credit risk for trade and other receivables at reporting date by geographic region was:
Australia & New Zealand
Europe
Asia
North America
GBST Group Carrying Amount
2018
$‘000
3,815
10,773
1,796
769
17,153
2017
$‘000
4,572
5,794
1,298
996
12,660
2018 Annual Report 95
Notes to and forming part of the
Consolidated Financial Statements for
the Year Ended 30 June 2018 continued
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96 GBST Holdings Limited ABN 85 010 488 874
i. Profit:
Increase/(Decrease) in Profit
Improvement in AUD to GBP by 10%
Decline in AUD to GBP by 10%
Improvement in AUD to USD by 10%
Decline in AUD to USD by 10%
Improvement in AUD to SGD by 10%
Decline in AUD to SGD by 10%
Improvement in AUD to HKD by 10%
Decline in AUD to HKD by 10%
GBST Group
2018
$‘000
2017
$‘000
73
(73)
(99)
99
5
(5)
19
(19)
454
(454)
(81)
81
9
(9)
6
(6)
Note 27. Contingent Liabilities
The Company has entered into Deeds of Access, Insurance and Indemnity (“Deed”) which ensure the Directors and Officers
of the Group will incur, to the extent permitted by law, no monetary loss as a result of defending actions taken against them
as Directors and Officers.
During the year, GBST advanced $131,674 to a former director and Executive, Mr Stephen Lake, in accordance with the terms
of his Deed. The advances were paid to cover legal costs incurred in defending proceedings brought against Mr Lake in the
Supreme Court of Queensland by Mr Malcolm Murdoch, a former director and shareholder of GBST. The proceedings relate to
a dispute surrounding the terms on which proceedings by Mr Murdoch in 2003 were settled in 2004. To date, GBST has
advanced a total of $1.28m to Mr Lake to cover legal costs incurred in defending these proceedings since he first claimed
under his indemnity in 2012. These amounts are expensed as incurred.
The obligation to indemnify Mr Lake in accordance with the terms of his Deed for this matter has now concluded.
As previously disclosed to the ASX on 26 March 2016, the Company is involved in a dispute with its former Managing Director
and CEO, Stephen Lake, regarding the termination of his employment. An amended claim and statement of claim was
received by the Company on 14 November 2016. The Company intends to vigorously defend the claim. On the basis of
present information, the Company has made no provision for any loss or damage in relation to this claim.
As at 30 June 2018, GBST has with its clients a variety of software supply agreements, each of which contain service and
performance warranties and indemnities. These warranties and indemnities are of the standard type used in the industry and
the likelihood of liabilities arising under these warranties and indemnities is considered remote.
2018 Annual Report 97
Notes to and forming part of the
Consolidated Financial Statements for
the Year Ended 30 June 2018 continued
Note 28. Related Parties
Transactions between related parties are on normal commercial terms and conditions no more favourable than those
available to other parties unless otherwise stated.
Key Management Personnel Compensation
Short-term employee benefits
Post-employment benefits
Other long-term benefits
Termination benefits
Share-based payments
GBST Group
2018
$
2017
$
2,874,598
2,733,333
142,828
57,566
176,126
30,765
3,281,883
163,851
39,524
-
(247,883)
2,688,825
Detailed disclosures on compensation for Key Management Personnel are set out in the Remuneration Report included in the
Directors’ Report.
Note 29. Share Based Payments
Performance rights are issued under the Company’s LTI Plan approved at the Company’s 2012 Annual General Meeting. The
LTI Plan involves the use of performance rights to acquire shares in the Company.
The LTI Plan is designed to reward employees in a manner which aligns this element of remuneration with the financial
performance of the Company and the interests of shareholders. As such, grants under the LTI Plan are only made to
Executives and selected employees who are able to influence the generation of shareholder wealth and thus have an impact
on the Group’s performance against the relevant long-term performance hurdle.
Selected employees are made individual offers of specific numbers of performance rights at the discretion of the Board and
in accordance with the LTI Plan rules. The Board may determine the number of performance rights, vesting conditions,
vesting period, exercise price and expiry date. Performance rights may be granted at any time, subject to the Corporations
Act and ASX Listing Rules.
To align employee and shareholder interests, the Company uses financial performance hurdles as detailed in the Performance
Criteria Table as a performance hurdles for each grant of the LTI Plan.
Participants in the LTI Plan are also required to meet continued service conditions in order to exercise the performance rights.
Options
There were no options issued during the period.
Share Performance Rights
On 28 August 2017, 53,590 performance rights issued on 5 August 2014 vested. The remainder of performance rights issued
on 5 August 2014 lapsed prior to the vesting date and have expired.
Performance rights failing to meet the financial performance targets for the 2017 financial year were forfeited during the
year:
i. 75% of the 5 August 2014 issue lapsed as the performance hurdles were not met at 30 June 2017.
ii.
100% of the 26 September 2016 and 27 October 2016 issue lapsed as the performance hurdles were not met at 30 June 2017.
98 GBST Holdings Limited ABN 85 010 488 874
On 25 January 2018, the Group issued 502,642 performance rights to selected employees. The FY18 performance rights are
conditional upon the participants meeting continuous service conditions and the Company meeting certain financial
performance measures. There is a nil exercise price and the FY18 performance rights vest on the later of: (a) 3 years from
Grant Date; or (b) if the date in (a) above occurs during a Closed Period under the GBST Securities Trading Policy, then the
date that the relevant Closed Period ends and trading is permitted under that Policy. These performance rights expire thirty
days after the vesting date.
During the year, the following movement in balances occurred.
05 August 2014
26 September 2016
27 October 2016
25 January 2018
TOTAL
Granted
Forfeited
Exercised
Expired
Opening
Balance
264,615
255,951
62,124
(211,025)
(53,590)
-
-
-
(255,951)
(62,124)
-
-
-
-
502,642
-
582,690
502,642
(529,100)
(53,590)
Closing
Balance
-
-
-
502,642
502,642
-
-
-
-
-
As at reporting date a net $48k expense (2017: $301k benefit) was included in share-based payments expense. This benefit in
the prior year was as a result of employees not meeting the employment service conditions and performance rights failing to
meet the financial performance targets for the 2018 financial year.
Movement in Share Performance Rights
The following table illustrates the number, weighted average exercise price (WAEP) and movement in share performance
rights under the Share Performance Rights Scheme issued during the period.
Outstanding at the beginning of the period
Granted during the period
Forfeited during the period
Exercised during the period
Expired during the period
Outstanding at the end of the period
Exercisable at the end of the period
Jun 2018
Number
582,690
502,642
(529,100)
(53,590)
-
502,642
-
Jun 2018
WAEP
-
-
-
-
-
-
-
Jun 2017
Number
723,438
373,987
(79,359)
(435,376)
-
582,690
-
Jun 2017
WAEP
-
-
-
-
-
-
-
No person entitled to exercise any performance right had or has any right by virtue of the performance right to participate in
any share issue of any other body corporate.
Unless otherwise stated, all issues of performance rights under the plan have a nil exercise price and vest in thirty-six months
after the date of grant or the date of release of GBST's audited financial results, whichever is later. The share performance
rights expire thirty days after the vesting date, are conditional on the employees meeting continuous service conditions and
the group meeting certain financial performance measures.
2018 Annual Report 99
Notes to and forming part of the
Consolidated Financial Statements for
the Year Ended 30 June 2018 continued
Note 29. Share Based Payments continued
The performance criteria associated with the grant of share performance rights outstanding from current and prior years
under the GBST Performance Rights and Option Plan is detailed in the following table:
Grant Date
5 August 20141
Financial Performance hurdle
Cumulative Earnings Per Share (EPS) Target
345,005 performance rights (198,465 -
failed the cumulative EPS target for 50
cents and 60 cents; remainder 80,390
service target failed; 12,560 employees
elected not to accept the shares arising
from the performance rights.)
y
Subject to GBST achieving three year (2015 – 2017 financial years)
cumulative EPS targets of 45 cents, 50 cents, and 60 cents for 25%, 50%
and 100% vesting respectively (interpolated).
Minimum EPS
y A minimum EPS of 10 cents is achieved in each year
Service Condition
y Continuous employment with the Group from grant date for three years.
26 September 2016 & 27 October 20162
Cumulative Earnings Per Share (EPS) Target
373,987 performance rights (318,075 -
failed minimum EPS target; remainder
service target failed)
y
Subject to GBST achieving three year (2017 – 2019 financial years)
cumulative EPS targets of 50 cents, 53 cents, and 57 cents for 25%, 50%
and 100% vesting respectively (interpolated).
62,124 performance rights
(62,124 - failed minimum EPS target)
Minimum EPS
y A minimum EPS of 13 cents is achieved in each year
Service Condition
25 January 20183
502,642 performance rights
y Continuous employment with the Group from grant date for three years.
Cumulative Before Interest, Tax, Depreciation, Amortisation and Strategic
R&D (Operating EBITDA before strategic R&D) Target
y
Subject to GBST achieving an Operating EBITDA before strategic R&D for
FY18 of at least $20,000,000.
y
The targets and respective % are:
Performance Condition Target
over the Measurement Period
Proportion of Performance
Rights to vest
≥ $20,000,000 to < $21,000,000
≥ $21,000,000 to <$22,500,000
≥ $22,500,000 to <$23,500,000
≥ $23,500,000
Service Condition
25%
50%
75%
100%
y Continuous employment with the Group from grant date for three years.
(1) The fair value of the share performance rights of $3.28 each was determined using the Binomial Approximation Option Valuation Model. The model inputs were: the
share price at date of grant $3.52, expected volatility of 45 percent, expected dividend yield of 2.298 percent, a term of three years and a risk-free interest rate of 2.62
percent. The exercise price for the share performance rights is nil.
(2) The fair value of the share performance rights of $4.0242 each was determined using the Binomial Approximation Option Valuation Model. The model inputs were: the
share price at date of grant $4.32, expected volatility of 46.76 percent, expected dividend yield of 2.39 percent, a term of three years and a risk-free interest rate of 1.54
percent. The exercise price for the share performance rights is nil.
(3) The fair value of the share performance rights of $2.21 each was determined using the Discounted Cashflow methodology. The model inputs were: the share price at date
of grant $2.35, dividend yield per annum but not received by holder during the vesting period, a term of three years. The exercise price for the share performance rights
is nil.
100 GBST Holdings Limited ABN 85 010 488 874
Note 30. Earnings Per Share
Basic earnings per share (cents)
Diluted earnings per share (cents)
a. Reconciliation of earnings to net profit
Net Profit
Earnings used in the calculation of basic EPS and dilutive EPS
b. Weighted average number of ordinary shares
Weighted average number of ordinary shares outstanding
during the year used in calculation of basic EPS
Weighted average number of ordinary shares outstanding
during the year used in calculation of dilutive EPS
GBST Group
2017
10.31
10.30
$’000
6,985
6,985
2018
9.20
9.20
$’000
6,249
6,249
67,903,992
67,755,143
67,903,992
67,821,297
The weighted average number of performance rights that are due to vest (based on achievement of performance conditions)
in the period immediately following the reporting date are included for the purposes of calculating the Group’s dilutive EPS.
For FY18 there were no performance rights meeting this criterion.
Note 31. Subsequent Events
No matters or circumstances have arisen since the end of the financial year which significantly affected or may significantly
affect operations of GBST, the results of those operations, or the state of affairs of GBST in future financial years.
The financial report was authorised for issue on 14 August 2018 by the Board of Directors.
2018 Annual Report 101
Notes to and forming part of the
Consolidated Financial Statements for
the Year Ended 30 June 2018 continued
Note 32. Parent Entity Disclosures
As at, and throughout the financial year ending 30 June 2018 the parent company of the Group was GBST Holdings Limited.
Results of the Parent Entity
Profit Attributable to Members of the Parent Entity
1,839
5,392
GBST Holdings
30 Jun 2018
$'000
30 Jun 2017
$'000
Other Comprehensive Income
Total items that will not be reclassified to profit or loss
TOTAL COMPREHENSIVE INCOME FOR THE YEAR
Financial Position of the Parent Entity at Year End
Current Assets
TOTAL ASSETS
Current Liabilities
TOTAL LIABILITIES
Total Equity of the Parent Entity Comprising of:
Issued capital
Equity remuneration reserve
Retained earnings
TOTAL EQUITY
Parent Entity Contingencies
-
1,839
9,924
75,337
8,537
10,757
39,473
40
25,067
64,580
-
5,392
7,079
76,937
7,827
10,635
39,473
205
26,624
66,302
The Directors are of the opinion that no provisions are required in respect of parent entity contingencies. On the basis of
present information, the Company has made no provision for any loss or damage in relation to the contingent liability
disclosed in Note 27.
Contingent Liabilities not Considered Remote
The parent entity has guaranteed, to an unrelated party, the performance of a subsidiary in relation to a contract for the
supply of software and services.
Parent Entity Capital and Other Expenditure Commitments
Contracted for:
Capital and other operating purchases
Payable
Not later than one year
102 GBST Holdings Limited ABN 85 010 488 874
GBST Holdings
30 Jun 2018
$'000
30 Jun 2017
$'000
146
146
146
562
562
562
Guarantees
Property Leases
In accordance with property lease requirements, the company has provided bank guarantees to the lessors.
Lending Facilities
The Groups' lending facilities are supported by guarantees from its subsidiaries.
Performance Guarantees
The parent entity provides certain guarantees in relation to subsidiary performance of contract.
Parent Entity Guarantees in Respect of Debts of its Subsidiaries
The parent entity has entered into a Deed of Cross Guarantee with the effect that the Company guarantees debts in respect
of its subsidiaries.
Further details of the Deed of Cross Guarantee and the subsidiaries subject to the deed, are disclosed in Note 22.
2018 Annual Report 103
Directors’ Declaration
1.
In the opinion of the Directors of GBST Holdings Limited (‘the Company’):
a. the consolidated financial statements and Notes 1 to 32 and the Remuneration Report in the Directors' report, are in
accordance with the Corporations Act 2001, including:
i. giving a true and fair view of the Group’s financial position as at 30 June 2018 and of its performance for the financial
year ended on that date; and
ii. complying with Australian Accounting Standards and the Corporations Regulations 2001; and
b. there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due
and payable.
2. There are reasonable grounds to believe that the Company and the Group entities identified in Note 22 will be able to
meet any obligations or liabilities to which they are or may become subject to by virtue of the Deed of Cross Guarantee
between the Company and those Group entities pursuant to Corporations (Wholly owned Companies) Instrument
2016/785.
3. The Directors have been given the declarations required by Section 295A of the Corporations Act 2001 from the Chief
Executive Officer and Chief Financial Officer for the financial year ended 30 June 2018.
4. The Directors draw attention to Note 2 to the consolidated financial statements, which includes a statement of
compliance with International Financial Reporting Standards.
Signed in accordance with a resolution of the Directors:
Mr A J Brackin
Chairman
Mr R DeDominicis
Managing Director and Chief Executive Officer
Dated at Sydney this 14th day of August 2018
104 GBST Holdings Limited ABN 85 010 488 874
Independent Auditor’s Report
Independent Auditor’s Report
To the shareholders of GBST Holdings Limited
Report on the audit of the Financial Report
Opinion
Independent Auditor’s Report
We have audited the Financial Report of GBST
Holdings Limited (the Company).
The Financial Report comprises:
• Consolidated statement of financial position as at
In our opinion, the accompanying Financial
To the shareholders of GBST Holdings Limited
Report of the Company is in accordance with the
Corporations Act 2001, including:
Report on the audit of the Financial Report
• giving a true and fair view of the Group's
30 June 2018;
financial position as at 30 June 2018 and of
its financial performance for the year ended
on that date; and
Opinion
We have audited the Financial Report of GBST
• complying with Australian Accounting
Holdings Limited (the Company).
Standards and the Corporations Regulations
2001.
In our opinion, the accompanying Financial
Report of the Company is in accordance with the
Corporations Act 2001, including:
Basis for opinion
• giving a true and fair view of the Group's
• Consolidated statement of profit or loss and other
comprehensive income, Consolidated statement
of changes in equity, and Consolidated statement
of cash flows for the year then ended;
• Notes including a summary of significant
accounting policies; and
The Financial Report comprises:
30 June 2018;
• Directors' Declaration.
• Consolidated statement of financial position as at
The Group consists of the Company and the entities
it controlled at the year-end or from time to time
during the financial year.
• Consolidated statement of profit or loss and other
comprehensive income, Consolidated statement
of changes in equity, and Consolidated statement
of cash flows for the year then ended;
We conducted our audit in accordance with Australian Auditing Standards. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
• Notes including a summary of significant
financial position as at 30 June 2018 and of
its financial performance for the year ended
on that date; and
accounting policies; and
• Directors' Declaration.
Our responsibilities under those standards are further described in the Auditor’s responsibilities for the
• complying with Australian Accounting
audit of the Financial Report section of our report.
Standards and the Corporations Regulations
2001.
The Group consists of the Company and the entities
We are independent of the Group in accordance with the Corporations Act 2001 and the ethical
it controlled at the year-end or from time to time
requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for
during the financial year.
Professional Accountants (the Code) that are relevant to our audit of the Financial Report in Australia. We
have fulfilled our other ethical responsibilities in accordance with the Code.
Basis for opinion
Key Audit Matters
We conducted our audit in accordance with Australian Auditing Standards. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Key Audit Matters are those matters that, in our
The Key Audit Matters we identified are:
professional judgement, were of most significance in
Our responsibilities under those standards are further described in the Auditor’s responsibilities for the
our audit of the Financial Report of the current period.
audit of the Financial Report section of our report.
• Revenue Recognition; and
• Valuation of the Capital Markets
International CGU.
These matters were addressed in the context of our
We are independent of the Group in accordance with the Corporations Act 2001 and the ethical
audit of the Financial Report as a whole, and in
requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for
forming our opinion thereon, and we do not provide a
Professional Accountants (the Code) that are relevant to our audit of the Financial Report in Australia. We
separate opinion on these matters.
have fulfilled our other ethical responsibilities in accordance with the Code.
Key Audit Matters
The Key Audit Matters we identified are:
• Revenue Recognition; and
• Valuation of the Capital Markets
International CGU.
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.
KPMG, an Australian partnership and a member firm
of the KPMG network of independent member firms
affiliated with KPMG
International Cooperative
(“KPMG International”), a Swiss entity.
Liability
approved
Standards Legislation.
limited by a scheme
under Professional
2018 Annual Report 105
KPMG, an Australian partnership and a member firm
of the KPMG network of independent member firms
Liability
limited by a scheme
affiliated with KPMG
International Cooperative
approved
under Professional
(“KPMG International”), a Swiss entity.
Standards Legislation.
Independent Auditor’s Report continued
Revenue Recognition
Significant judgments include:
Refer to Note 3 in the Financial Report
Revenue Recognition
The key audit matter
Refer to Note 3 in the Financial Report
The Group provides its products and services to
customers in bundled packages. These packages
The key audit matter
may contain two or more of the following
The Group provides its products and services to
elements: software licenses, maintenance and
customers in bundled packages. These packages
support services for licensed software,
may contain two or more of the following
implementation and consulting revenue, and
elements: software licenses, maintenance and
sponsored project revenue.
support services for licensed software,
This is a key audit matter due to the level of
implementation and consulting revenue, and
judgment we applied when considering the
sponsored project revenue.
Group’s determination of revenue allocated to
This is a key audit matter due to the level of
the different elements.
judgment we applied when considering the
Significant judgments include:
Group’s determination of revenue allocated to
• Implementation and consulting revenue may
the different elements.
be provided on a percentage of completion
basis (“POC”). Determining the POC of the
• Implementation and consulting revenue may
contract may include estimates of cost
be provided on a percentage of completion
contingencies; and
basis (“POC”). Determining the POC of the
• The allocation of revenue to the individual
contract may include estimates of cost
elements of the contract and the need to
contingencies; and
assess the timing of recognition for each
• The allocation of revenue to the individual
element presents a risk of accelerated or
elements of the contract and the need to
delayed recognition of revenue.
assess the timing of recognition for each
element presents a risk of accelerated or
delayed recognition of revenue.
Refer to Note 11 in the Financial Report
Valuation of Capital Markets International CGU
The key audit matter
Refer to Note 11 in the Financial Report
The Group’s annual impairment testing of
goodwill and intangible assets allocated to the
The key audit matter
Capital Markets International CGU is a key audit
The Group’s annual impairment testing of
matter due to the level of judgment required by
goodwill and intangible assets allocated to the
us in evaluating the Group’s assessment.
Capital Markets International CGU is a key audit
The significant judgments incorporated into the
matter due to the level of judgment required by
Group’s fair value less cost of disposal model
us in evaluating the Group’s assessment.
used to determine the valuation of the CGU
The significant judgments incorporated into the
include:
Group’s fair value less cost of disposal model
• Forecast operating cashflows – The CGU has
used to determine the valuation of the CGU
experienced volatility in revenue from
include:
sponsored work. This increases the risk of
• Forecast operating cashflows – The CGU has
inaccurate forecasts or a wider range of
experienced volatility in revenue from
possible outcomes for us to consider.
sponsored work. This increases the risk of
• Growth rate assumptions – In addition to the
inaccurate forecasts or a wider range of
uncertainties described above the Group’s
possible outcomes for us to consider.
model is sensitive to changes in growth rate
• Growth rate assumptions – In addition to the
assumptions. This drives additional audit
uncertainties described above the Group’s
effort specific to their feasibility.
model is sensitive to changes in growth rate
assumptions. This drives additional audit
effort specific to their feasibility.
Valuation of Capital Markets International CGU
106 GBST Holdings Limited ABN 85 010 488 874
How the matter was addressed in our audit
Our procedures included, amongst others:
Our procedures included, amongst others:
How the matter was addressed in our audit
• We critically assessed the allocation of revenue to
the individual elements of the contract by
selecting a sample of significant contracts and
• We critically assessed the allocation of revenue to
assessing the relative fair values of each element.
the individual elements of the contract by
The Company determine the relative fair value on
selecting a sample of significant contracts and
a cost plus margin basis. We also assessed the
assessing the relative fair values of each element.
forecast cost of each element against the
The Company determine the relative fair value on
Company’s budget’s and evaluated the margin
a cost plus margin basis. We also assessed the
applied against historical results.
forecast cost of each element against the
• For contracts that were not completed at the
Company’s budget’s and evaluated the margin
balance date we assessed the calculation of stage
applied against historical results.
of completion. Cost incurred to date primarily
• For contracts that were not completed at the
includes labour costs and our procedures included
balance date we assessed the calculation of stage
assessing the cost allocation to the contracts.
of completion. Cost incurred to date primarily
Where cost contingencies are included in the
includes labour costs and our procedures included
costs to complete, we inspected and critically
assessing the cost allocation to the contracts.
assessed the rationale for the basis for their
Where cost contingencies are included in the
inclusion with the project managers responsible
costs to complete, we inspected and critically
for delivering the projects.
assessed the rationale for the basis for their
inclusion with the project managers responsible
for delivering the projects.
How the matter was addressed in our audit
Our procedures included, amongst others:
How the matter was addressed in our audit
• We evaluated the Group’s process regarding the
Our procedures included, amongst others:
valuation of the Capital Markets International CGU.
We challenged the methodology and assumptions
• We evaluated the Group’s process regarding the
used in the Group’s impairment model. This
valuation of the Capital Markets International CGU.
included analysing the implied earnings multiples
We challenged the methodology and assumptions
against comparable companies. We compared
used in the Group’s impairment model. This
short term growth assumptions against historical
included analysing the implied earnings multiples
results actually achieved. We assessed the
against comparable companies. We compared
accuracy of previous Group forecasts to inform
short term growth assumptions against historical
our evaluation of the forecasts incorporated in the
results actually achieved. We assessed the
model.
accuracy of previous Group forecasts to inform
• Using our valuation specialists, we challenged the
our evaluation of the forecasts incorporated in the
Group’s key judgements included in their discount
model.
rate. We used our knowledge of the client, and
• Using our valuation specialists, we challenged the
their industry to form our own assessment in
Group’s key judgements included in their discount
relation to key inputs to the discount rate and
rate. We used our knowledge of the client, and
growth rate assumptions.
their industry to form our own assessment in
relation to key inputs to the discount rate and
growth rate assumptions.
• We performed our own break even analysis on the
assumptions and considered the likelihood of the
assumptions reaching these break-even points.
Our assessment included consideration of the
potential of bias and consideration of the historical
accuracy of management’s forecasts.
• Discount rates applied in the model – These
are complicated in nature and vary according
to the market conditions and environment
the specific CGU is subject to.
In addressing this key audit matter, we involved
more senior team members, including valuation
specialists, who understand the Group’s
business and the economic environment in
which it operates.
Other Information
Other Information is financial and non-financial information in GBST Holdings Limited’s annual reporting
which is provided in addition to the Financial Report and the Auditor’s Report. The Directors are
responsible for the Other Information.
The Other Information we obtained prior to the date of this Auditor’s Report was the Directors’ Report and
Remuneration Report. The Chairman’s and Managing Director’s Report, GBST Product Suite, GBST
Executive Team, Additional Shareholder Information and the Corporate Directory are expected to be made
available to us after the date of the Auditor's Report.
Our opinion on the Financial Report does not cover the Other Information and, accordingly, we do not
express an audit opinion or any form of assurance conclusion thereon, with the exception of the
Remuneration Report and our related assurance opinion.
In connection with our audit of the Financial Report, our responsibility is to read the Other Information. In
doing so, we 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.
We are required to report if we conclude that there is a material misstatement of this Other Information,
and based on the work we have performed on the Other Information that we obtained prior to the date of
this Auditor’s Report we have nothing to report.
Responsibilities of the Directors for the Financial Report
The Directors are responsible for:
•
•
•
preparing the Financial Report that gives a true and fair view in accordance with Australian Accounting
Standards and the Corporations Act 2001;
implementing necessary internal control to enable the preparation of a Financial Report that gives a
true and fair view and is free from material misstatement, whether due to fraud or error; and
assessing the Group and Company's ability to continue as a going concern and whether the use of
the going concern basis of accounting is appropriate. This includes disclosing, as applicable, matters
related to going concern and using the going concern basis of accounting unless they either intend to
liquidate the Group and Company or to cease operations, or have no realistic alternative but to do so.
2018 Annual Report 107
Independent Auditor’s Report continued
Auditor’s responsibilities for the audit of the Financial Report
Our procedures included, amongst others:
How the matter was addressed in our audit
to issue an Auditor’s Report that includes our opinion.
to obtain reasonable assurance about whether the Financial Report as a whole is free from material
misstatement, whether due to fraud or error; and
Our objective is:
Revenue Recognition
•
Refer to Note 3 in the Financial Report
•
The key audit matter
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in
The Group provides its products and services to
accordance with Australian Auditing Standards will always detect a material misstatement when it exists.
customers in bundled packages. These packages
• We critically assessed the allocation of revenue to
Misstatements can arise from fraud or error. They are considered material if, individually or in the
may contain two or more of the following
the individual elements of the contract by
aggregate, they could reasonably be expected to influence the economic decisions of users taken on the
elements: software licenses, maintenance and
selecting a sample of significant contracts and
basis of the Financial Report.
support services for licensed software,
assessing the relative fair values of each element.
A further description of our responsibilities for the audit of the Financial Report is located at the Auditing
implementation and consulting revenue, and
The Company determine the relative fair value on
and Assurance Standards Board website at: http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf.
sponsored project revenue.
a cost plus margin basis. We also assessed the
This description forms part of our Auditor’s Report.
This is a key audit matter due to the level of
forecast cost of each element against the
judgment we applied when considering the
Company’s budget’s and evaluated the margin
Report on the Remuneration Report
Group’s determination of revenue allocated to
applied against historical results.
Opinion
the different elements.
In our opinion, the Remuneration Report of
Significant judgments include:
GBST Holdings Limited for the year ended 30
• Implementation and consulting revenue may
June 2018, complies with Section 300A of the
be provided on a percentage of completion
Corporations Act 2001.
basis (“POC”). Determining the POC of the
contract may include estimates of cost
contingencies; and
Directors’ responsibilities
• For contracts that were not completed at the
The Directors of the Company are responsible for the
balance date we assessed the calculation of stage
preparation and presentation of the Remuneration
of completion. Cost incurred to date primarily
Report in accordance with Section 300A of the
includes labour costs and our procedures included
Corporations Act 2001.
assessing the cost allocation to the contracts.
Where cost contingencies are included in the
costs to complete, we inspected and critically
We have audited the Remuneration Report included
assessed the rationale for the basis for their
in pages 23 to 53 of the Directors’ Report for the year
inclusion with the project managers responsible
ended 30 June 2018.
for delivering the projects.
Our responsibilities
Our responsibility is to express an opinion on the
Remuneration Report, based on our audit conducted
in accordance with Australian Auditing Standards.
• The allocation of revenue to the individual
elements of the contract and the need to
assess the timing of recognition for each
element presents a risk of accelerated or
delayed recognition of revenue.
Valuation of Capital Markets International CGU
Refer to Note 11 in the Financial Report
The key audit matter
How the matter was addressed in our audit
KPMG
The Group’s annual impairment testing of
goodwill and intangible assets allocated to the
Capital Markets International CGU is a key audit
matter due to the level of judgment required by
us in evaluating the Group’s assessment.
The significant judgments incorporated into the
Group’s fair value less cost of disposal model
used to determine the valuation of the CGU
include:
• Forecast operating cashflows – The CGU has
experienced volatility in revenue from
sponsored work. This increases the risk of
inaccurate forecasts or a wider range of
possible outcomes for us to consider.
• Growth rate assumptions – In addition to the
uncertainties described above the Group’s
model is sensitive to changes in growth rate
assumptions. This drives additional audit
effort specific to their feasibility.
108 GBST Holdings Limited ABN 85 010 488 874
Simon Crane
Our procedures included, amongst others:
Partner
• We evaluated the Group’s process regarding the
Brisbane
14 August 2018
valuation of the Capital Markets International CGU.
We challenged the methodology and assumptions
used in the Group’s impairment model. This
included analysing the implied earnings multiples
against comparable companies. We compared
short term growth assumptions against historical
results actually achieved. We assessed the
accuracy of previous Group forecasts to inform
our evaluation of the forecasts incorporated in the
model.
• Using our valuation specialists, we challenged the
Group’s key judgements included in their discount
rate. We used our knowledge of the client, and
their industry to form our own assessment in
relation to key inputs to the discount rate and
growth rate assumptions.
Additional Information
as at 17 August 2018
Distribution of shareholdings at 17 August 2018
Category (size of holding)
1 to 1,000
1,001 to 5,000
5,001 to 10,000
10,001 to 100,000
100,001 and over
TOTAL NO. OF HOLDERS
No. Holders
870
1,008
267
242
25
2,412
The number of shareholders holding less than a marketable parcel is 285
Substantial shareholders at 17 August 2018
The following shareholders have disclosed a substantial shareholder notice to the ASX:
Name
Perpetual Limited
National Nominees Ltd ACF Australian Ethical Investment Limited
Pinnacle Investment Management Group Limited
Spheria Asset Management Pty Limited
Schroder Investment Management Australia Limited
Burgundy Asset Management Limited
Voting rights
No. Ordinary Shares
% of Voting Power
7,011,908
6,756,530
5,147,856
5,147,856
4,979,915
3,414,697
10.32%
9.96%
7.58%
7.58%
7.33%
5.03%
The Company has ordinary shares on issue. There are 67,912,508 ordinary shares on issue.
At a general meeting, each shareholder present at a meeting or by proxy, representative or attorney has one vote on a show
of hands. Each fully paid ordinary share is entitled to one vote when a poll is called.
No shares are the subject of voluntary escrow.
2018 Annual Report 109
Additional Information
as at 17 August 2018 continued
20 Largest Shareholders at 17 August 2018 – Ordinary Shares
Rank
Name
No. Ordinary Shares
% of Issued Capital
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
HSBC Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Limited
National Nominees Limited
HSBC Custody Nominees (Australia) Limited-GSCO ECA
Mr John Francis Puttick
BNP Paribas Noms Pty Ltd
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