ANNUAL REPORT 2016 WELL POSITIONED FOR GLOBAL GROWTH CONTENTS 3 Chairman and Chief Executive Officer Joint Report 10 Information on Directors and Company Secretary 12 Directors’ Report 17 Letter from the Chair of the Remuneration Committee 18 Audited Remuneration Report 28 Auditor’s Independence Declaration 29 Corporate Governance Statement 34 Financial Report 35 Consolidated Statement of Comprehensive Income 36 Consolidated Statement of Financial Position 37 Consolidated Statement of Changes in Equity 38 Consolidated Statement of Cash Flows 39 Notes to the Financial Statements 75 Directors’ Declaration 76 Independent Auditor’s Report 77 ASX Additional Information 78 Corporate Directory Carlsbad New York Bethlehem Hazleton Columbia Atlanta Houston Shanghai Mumbai Sønderborg Hamburg London Johannesburg COMPANY PROFILE Buenos Aires Melbourne Auckland With over 40 years’ experience, Hansen Technologies (ASX: HSN) is a leading global provider of billing and customer care technologies for utilities, telcos and pay-tv. Employing over 800 experts, Hansen’s proven and scalable solutions as well as its innovative and flexible offerings, enable more than 200 clients to deliver cost-effective end-to-end business initiatives to improve their customers’ experience. Hansen has offices in Australia, USA, New Zealand, China, Denmark, Germany, Argentina, South Africa and the United Kingdom. For more on Hansen, visit www.hsntech.com | @Hansen_tech Notice of Annual General Meeting Annual General Meeting of the Company is to be held on Thursday 24 November 2016 at 11am, 2 Frederick Street, Doncaster, Victoria. Operations Offices Branches Customer locations in regions serviced North America Latin America Africa Europe Asia Australia and New Zealand Shanghai Mumbai Carlsbad New York Bethlehem Hazleton Columbia Atlanta Houston Sønderborg Hamburg London Johannesburg Buenos Aires Melbourne Auckland Hansen Technologies is a leading global provider of billing and customer care technologies for utilities, telcos and pay-tv. 1 Hansen Technologies Ltd – Annual Report 2016 Highlights $149 m OPERATING REVENUE UP 40% $26.1 m AFTER TAX PROFIT UP 54% EBITDA UP 45% $45.4m 14.7¢ EARNINGS PER SHARE UP 43% 800+ EXPERTS 57% INCREASE 2 Hansen Technologies Ltd – Annual Report 2016 CHAIRMAN AND CHIEF EXECUTIVE OFFICER JOINT REPORT It is with great pride that we present Hansen Technologies’ Annual Report for fiscal 2016. Hansen has grown as a global business specialising in customer care and billing for the utilities, energy, pay-tv and telco sectors. Our business now employs over 800 people representing more than 40 nationalities across offices in Australia, USA, New Zealand, China, Denmark, Germany, Argentina, India, the United Kingdom and South Africa. It has been a joy to watch such a diverse team embrace the Hansen culture and methodologies and make a solid contribution to our global business. Once again, we would like to extend our congratulations and gratitude to the entire Hansen team who have delivered an exceptional outcome for the company and its shareholders. Whilst building our existing customer base, the Hansen team has also integrated the TeleBilling business acquired in May 2015, as well as completing our latest acquisition, PPL Solutions, on July 1 2016. “It has been a joy to watch such a diverse team embrace the Hansen culture and methodologies and make a solid contribution to our global business.” Expanding our presence in Europe, TeleBilling provides us with the ability to offer QuadPlay1 billing into the European market. To date, TeleBilling has been very successful across the fiscal period delivering new customers and a strong overall performance. The integration of this business is now finalised and we predict a bright future for the expansion into emerging markets. Our recent acquisition PPL Solutions (PPLS), while not forming part of the financial performance for the year, has been completed in line with our strategy to acquire businesses that add to our capabilities in the customer care and billing arena. Located in Pennsylvania, PPLS provides us with the opportunity to deliver a billing solution for retail energy consumers and offers our clients a total solution from customer care and invoicing to cash collection. This end-to-end business process enables our clients to outsource their back office processes, allowing them to focus on growing their revenue. Other highlights of fiscal 2016: • Operational performance across the year was very strong. Demand for our professional support was high, resulting in above average staff utilisation, delivering an exceptional EBITDA margin. We continued to invest in the business internally to strengthen: – sales and marketing reach; – human resource management; – internal training and staff development programs; and – regional management. With Hansen now operational across six global regions, servicing in excess of 200 customers within four industry verticals, we have a strong base from which the company will continue its growth. The dedicated Hansen team Our results are the culmination of a great many people’s hard work and dedication to their expertise. We are very fortunate to retain a productive team who deliver exceptional outcomes to our clients every day. We recognise that our people are our biggest asset and to that end a significant initiative was launched this year with the creation of the Learning & Development Program. This program is driven by a select internal team dedicated to training our people with set studies and awarding specific accreditation associated with Hansen’s products and their development. These trained experts will then be well placed to deliver consistently high levels of service to our clients across the globe. In parallel, we have also recently employed a number of university graduates who are now actively engaged in the 12 month Hansen Graduate Program. We see this investment as an equally important step to ensure the depth of our technical team is maintained as our customer base grows. Strong 2015-16 financial performance Operating revenue of $149 million for the year was up 40% on the previous year. Earnings before Interest, Tax, Depreciation and Amortisation (EBITDA) of $45.4 million represents an increase over fiscal 2015 of 45% and represents a return on operating revenue of 30.5%. Net profit after tax (NPAT) was $26.1 million and earnings per share 14.7 cents per share compared to 10.3 cents last year. 1. QuadPlay refers to the billing of your home phone, mobile phone, internet and pay-tv on the one bill. 3 Hansen Technologies Ltd – Annual Report 2016 CHAIRMAN AND CHIEF EXECUTIVE OFFICER JOINT REPORT CONTINUED Following the release of the full year’s operating results, the directors declared a three cent per share final dividend franked to 100% together with a special dividend of a further one cent per share, also franked to 100%. When combined with the interim dividend of three cents per share franked to 83.3%, the total distribution of seven cents per share is an increase on the prior year. With the strong trading result combined with the availability of franking credits, a special dividend of one cent per share was declared by the Board. As the profits from overseas operations comprise an ever increasing percentage of the total group profits, the Board expects the company’s ability to provide shareholders with fully franked dividends will diminish. “Hansen has an extensive understanding of the sectors and markets in which it operates, and continues to evolve its product offering in readiness for compelling events and market opportunities including those from high growth emerging markets.” Year-on-year comparison (A$m) The Fiscal year 2016 benefited from a full year of the TeleBilling business (acquired in May 2015) in generating $24 million of the yearly revenue growth. This was further enhanced with the fiscal period experiencing double digit organic growth. We have worked hard to enhance our core systems during the year to enable our clients to meet their business needs head on and compete in their respective markets. Our superior professional support has resulted in a very high level of team utilisation and has generated a fantastic EBITDA for the year. We expect that organic revenue growth will return to more traditional single digit levels over future periods. Who we are Hansen’s core business is focused on the provision of customer care and billing technologies. Our modular products service four major industry verticals (energy, water, pay-tv and telecommunications) each with industry-specific needs. Within each of these four verticals, we have solutions that address individual requirements within each segment. As an example, for the energy sector we have specific software designed for large customers and the power distribution segment, as well as products targeted at specific needs and complex billing. We also have a product that deals with market data management required by the retail segment. Hansen has an extensive understanding of the sectors and markets in which it operates and continues to evolve its product offering in readiness for compelling events and market opportunities, including those from high growth emerging markets. Our strategic approach Hansen’s specialised product offering and strong multi-industry expertise provides benefits including: • Best-fit solutions designed to exceed the industries’ requirements whilst delivering on the specific business needs of the customer. • Stable global platform – Hansen’s business is not overly exposed to a single customer, industry segment, product or geographic region. While influenced by the market, the mission-critical role of our software ensures a stable operating environment. • Employment engagement – Hansen continues to offer great opportunities for learning and development. With the continued expansion of the business, ongoing exposure to new products and global opportunities, the landscape is exciting and engaging. With the introduction of the Hansen Learning and Development Program, our people have the opportunity to increase their knowledge in a formal learning environment. Hansen’s people retention is one of the highest in the industry, and our mix of seasoned professionals and new graduates positions us well for future growth. The global market Hansen’s approach to the global market continues to be driven by a strong focus on servicing its clients’ needs, targeting strategic opportunities for new business and acquiring businesses that complement and bolster our customer care and billing expertise. Together our people and product offerings put us in a unique position to compete for the new opportunities as they present themselves across the globe. The emerging markets of Asia, Middle East, Africa and South America offer exciting opportunities. Market differentiation Competing internationally with the world’s largest software houses, our competition commonly targets full enterprise solutions using system integrators to deliver the outcome. We differentiate ourselves by: • Focussing on specific markets and delivering directly into the markets ourselves or in partnership with a local industry partner. • Delivering best-fit solutions under a collaborative approach working directly with our clients. • Delivering a business outcome adopting an agile approach, on time and on budget. • Offering the security of a global, full-service organisation while maintaining the flexibility to deliver tailored client driven outcomes. • Investing in foundation technologies to ensure our solutions remain current, industry-specific and efficient. 4 Hansen Technologies Ltd – Annual Report 2016 Hansen’s core business focuses on four major industries ENERGY & UTILITIES PAY-TV TELCO 5 Hansen Technologies Ltd – Annual Report 2016 CHAIRMAN AND CHIEF EXECUTIVE OFFICER JOINT REPORT CONTINUED Industry verticals Energy The energy sector globally experiences further deregulation and the introduction of ‘smart meter, smart grid’ technology. This shift has made exponentially greater levels of usage data available to both retailers and wholesalers, yet this segment is still heavily regulated as governments look to drive energy efficiency and address complex issues such as global warming. The opportunity to manage usage through ‘user pay’ models is emerging, adding to the need for more complex billing tools. We are seeing the bundling of both gas and electricity offerings into the home as retailers seek ways of improving customer loyalty. With the ability to leverage our extensive experience in unified solutions in our home market of Australia, we can rapidly address these market opportunities. Water Hansen has a functionally-rich CIS solution to address this market segment. With a recently enhanced user interface, our product designed for water usage has a strong customer ‘reference-ability’ across the global market. Water being a key resource, will require ongoing management as the planet’s demands on this resource increase. Pay-tv The pay-tv sector continues to offer new opportunities for growth, particularly in emerging markets such as Asia, the Middle East, South America and Africa. The implementation of a new billing system with the global Hinduja Group during the year in India is testimony that our pay-tv customer care and billing platform is well regarded within these emerging markets. The pay-tv sector is now seeing the introduction of Over the Top (OTT) providers in the mature markets. These providers deliver specific historical content into the home as they look to exploit a specific sector of the pay-tv market. While initially it was uncertain as to the impact that these providers would have on the market, it now appears that the traditional pay-tv providers are looking to co-exist with the OTT providers enabling them to concentrate on the lucrative here and now market built around one off events associated with sport and newsworthy events. We have not seen the cord cutting that was initially expected when these operators entered the market and we now believe that ultimately as the billing becomes more complex or they bundle with the traditional operators, this development will also offer opportunities for Hansen. Supporting this is the acquisition of TeleBilling which also delivered significant bundling capabilities found in the NaviBilling system. The delivery of a bill, bundling a fixed line, mobile, internet and pay-tv service, enhances our ability to address this market segment well into the future. 6 Hansen Technologies Ltd – Annual Report 2016 200+ CLIENTS WORLDWIDE “With Hansen’s technologies driving business-critical outcomes for our clients, the attractiveness of having the owner of the software provide a full support package is growing in popularity.” Telecommunications Hansen maintains its long association with the telecommunications (telco) industry, retaining many in-house experts, and is well placed to operate and grow within this vertical. Voice communication is now secondary when we talk about this industry. Data management and delivery of information to an ever increasing array of smart devices is the minimum requirement. We are constantly working with our telco clients in order to deliver optimal product offerings that enable them to differentiate themselves in this highly competitive space. The complexity of this segment’s billing increases with each iteration, playing to our strengths. We see great opportunity for convergence within the telecommunication and pay-tv industries, and the ‘Quad Play’ capabilities found in our NaviBilling solution address this need. Outsourcing With Hansen’s technologies driving business-critical outcomes for our clients, the attractiveness of having the owner of the software provide a full support package is growing in popularity. For this reason, we offer a number of hosting and support solutions, providing further opportunities to differentiate from the competition. 7 Hansen Technologies Ltd – Annual Report 2016 CHAIRMAN AND CHIEF EXECUTIVE OFFICER JOINT REPORT CONTINUED Other developments Global management The future We welcome the coming year with excitement and enthusiasm. As we expand our global footprint, we now manage our business across six regions each focussing on the unique requirements of that industry segment within the region. These regions include: Our approach to business remains solid and unchanged and we will maintain a well disciplined method of growing a profitable business into the future. 1. Australia /New Zealand 2. Asia 3. North America 4. Latin America 5. Europe (including United Kingdom) and the Middle East 6. Africa We believe this regional structure provides a direct and local focus on opportunities supported by a solid corporate network of highly regarded experts in their field. Mergers and acquisitions In growing our business with a targeted acquisition strategy, we have established a disciplined approach whereby targets must meet strict criteria to be considered. These are as follows: • Business must be in customer care and billing or adjacent to this core competency • Revenue streams must be recurring or annually based; and • The business must have strong ownership of its intellectual property. The opportunity must extend Hansen’s footprint into: • a new market • a new geography; and/or • a new industry vertical. On 1 July 2016 Hansen executed an agreement to secure ownership of PPL Solutions LLC. This acquisition delivers a billing and customer care solution for the evolving US retail market via a SaaS model (Software-as-a-Service). It also offers a full business outsourcing solution including call centre management and debtor management service. (Please note: PPLS was acquired subsequent to the end of the financial year and has been reported as a subsequent event.) Offering technically-driven solutions that deliver a positive business outcome supports our philosophy of putting clients’ needs at the forefront of our business. Our strategy with respect to acquisitions remains successful as we extend the global reach of Hansen Technologies. Investing in the organisation remains paramount to ensure our business foundations are resilient and our intellectual property continues to be recognised as a high-end solution. We are proud of our business achievements since listing on the ASX in 2000 and this year has been another great result. As we look to fiscal 2017 we expect our revenues to be in the range of $165 to $175 million, maintaining an EBITDA margin of 25%–30%. Finally we would like to sincerely thank the shareholders for their support throughout the year. We have welcomed a number of new investors onto the register again this year and we look forward to delivering real value to every single shareholder as we grow Hansen Technologies globally. David Trude Chairman Andrew Hansen CEO 29th September 2016 8 Hansen Technologies Ltd – Annual Report 2016 “Investing in Hansen’s global infrastructure ensures the business remains both strong and resilient.” 9 Hansen Technologies Ltd – Annual Report 2016 INFORMATION ON DIRECTORS AND COMPANY SECRETARY The qualifications, experience and special responsibilities of each person who has been a Director of Hansen Technologies Ltd at any time during or since the end of the financial year are provided below, together with details of the Company Secretary as at the year end. Mr David Trude Non-Executive Director Mr Andrew Hansen Managing Director and CEO Mr Bruce Adams Non-Executive Director Mr Peter Berry Non-Executive Director Chairman since 2011 Managing Director since 2000 Director since 2000 Director since 2012 Director since 2011 Age 68 Age 56 Andrew has over 30 years’ experience in the IT industry, joining Hansen in 1990. Prior to Hansen he held senior management positions with Amfac-Chemdata, a software provider in the health industry. Andrew is responsible for implementing the Group’s strategic direction and overseeing the everyday affairs of the Hansen Group. David has extensive experience in a variety of financial services roles within the banking and securities industries. He holds a degree in commerce from the University of Queensland and is a member of many professional associations including the Stockbrokers Association of Australia and the Australian Institute of Company Directors. He is also Chairman of Baillieu Holst Limited, Waterford Retirement Village and East West Line Parks Limited, and a Director of CHI-X Australia Limited. On 27 February 2014 David was appointed Non- Executive Director of Acorn Capital Investment Fund Limited, an ASX listed entity. Member of the Remuneration Committee Chair of the Remuneration Committee Age 56 Bruce has over 25 years’ experience as a commercial lawyer. He has practised extensively in the areas of information technology law and mergers and acquisitions and has considerable experience advising listed public companies. In early 2002, after more than 10 years as a partner of two Melbourne law firms, Bruce took up a position as general counsel of Club Assist Corporation Pty Ltd, a worldwide motoring club service provider. Bruce holds degrees in Law and Economics from Monash University. Member of the Audit and Risk Committee Age 56 Peter has been an investment banker in excess of 25 years, specialising in mergers and acquisitions and project financing. Peter’s career has focused on the energy sector, including sector reform and privatisation, as well as renewable energy and infrastructure more broadly. He is currently a Director of Collgar Wind Farm and of Campus Living Villages, and an adviser to investors in infrastructure. Peter was a Director of Metgasco Ltd until 21 January 2015. Previously Peter practised as a corporate lawyer in both Melbourne and New York and holds degrees in Bachelor of Laws and Bachelor of Commerce (majoring in accounting) from Melbourne University. 10 Hansen Technologies Ltd – Annual Report 2016 Ms Sarah Morgan Non-Executive Director Mr David Osborne Non-Executive Director Director since 2014 Director since 2006 Chair of the Audit and Risk Committee Member of the Audit and Risk Committee Member of the Remuneration Committee Age 67 Ms Julia Chand General Counsel and Company Secretary Company Secretary since 2014 Age 46 Age 46 Sarah has extensive experience in the finance industry, primarily as part of independent corporate advisory firm Grant Samuel. Sarah has been involved in public and private company mergers and acquisitions, as well as equity and debt capital raisings across a broad range of industries. Sarah is also Non-Executive Director and Chair of the Audit and Risk Committee of Adslot Limited, an ASX listed media and technology business, and Non-Executive Director of Future Generation Global Investment Company Limited, an ASX listed investment company. David is a Fellow of the Institute of Chartered Accountants, and a Fellow of the Australian Institute of Company Directors, with over 40 years of financial management, taxation and accounting experience in public practice. David’s experience includes having been the Audit Partner of his accounting practice, as a Registered Company Auditor, for over 25 years. He also has experience in the various aspects of risk management. David has a long-standing association with Hansen, having been a Board member for some years prior to the Company’s listing on the ASX in June 2000. Julia joined Hansen Technologies in 2007 and plays a strategic role as General Counsel as well as Company Secretary. Julia has significant legal experience in IT, financial services and retail organisations. As Company Secretary she is responsible for the Company’s corporate and ASX obligations. Unless stated, no Directors of Hansen Technologies Ltd held any other Directorships of listed companies at any time during the three years prior to 30 June 2016. 11 Hansen Technologies Ltd – Annual Report 2016 DIRECTORS’ REPORT The Directors present their report together with the Financial Report of the consolidated entity consisting of Hansen Technologies Ltd and the entities it controlled for the financial year ended 30 June 2016 and Auditor’s Report thereon. This Financial Report has been prepared in accordance with Australian Accounting Standards. Principal activities The principal activities of the consolidated entity during the financial year were the development, integration and support of billing systems software for the energy and utilities, telecommunications and pay-tv industries. Other activities undertaken by the consolidated entity include IT outsourcing services and the development of other specific software applications. Results The consolidated profit after income tax attributable to members of Hansen Technologies Ltd for the 2016 financial year was $26,082,966 (2015: $16,944,094). Review of operations The 2016 financial year continued the trend of 2015 with the Company delivering on all of its key objectives, resulting in considerable growth over the previous year and delivering record revenues, profits and earnings per share. The Group’s operating performance for the fiscal year compared to last year are as follows: 2016 A$ Million 2015 A$ Million Variance % Operating revenue 149.0 106.3 EBITDA Profit before tax NPAT Earnings per share (cents) 45.4 36.4 26.1 14.7 31.3 24.0 16.9 10.3 40 45 52 54 43 During 2016 we completed the integration of the TeleBilling business acquired in May 2015. This business has now adopted Hansen methodologies and has delivered a strong contribution across its first year. TeleBilling, while focusing on customer care and billing, has extended our telecommunications and pay-tv offering into central and northern Europe. It is exciting that this business has delivered new customers to Hansen in its first year of operation. With the business continuing to expand internationally, our investment in key people has continued across the period. We believe it is important to ensure that the business is well supported as it continues to grow in regions outside of Australia. This investment will continue into the future. The cash flow from operations continues to be strong across the business enabling us to retire all debt and accumulate cash into the close of the financial year. Significant changes in the state of affairs There have been no significant changes in the consolidated entity’s state of affairs during the financial year. After balance date event On 1 July 2016 the Company completed a transaction to acquire the business PPL Solutions, LLC as a going concern. PPL Solutions provides billing, business processing outsourcing (BPO) and call centre and information technology services to competitive electricity and gas suppliers and regulated utilities in the US, and adds business process outsourcing, customer care and Software-as-a- Service to Hansen’s strong portfolio of electricity, gas and water products. For additional detail please refer to note 27 of the accompanying Financial Report. No other matters have arisen since the end of the financial year and the date of this report that have significantly affected or may significantly affect the operations of the consolidated entity, the results of those operations or the state of affairs of the consolidated entity in future years. Likely developments The Company will continue to pursue its operating strategy of providing billing solutions to our targeted industries while assessing appropriate acquisitions to enhance shareholder value. As part of normal business activities the Company is, from time to time, in negotiations with prospects and third parties over new business opportunities. Where these activities are significant and the transaction is finalised, then releases are made to the ASX in accordance with the listing rules on Continuous Disclosure. Our strong client relationships and the delivery of a number of new logos across the year have resulted in an unusually high period of organic growth. The careful planning around the delivery of these systems and customer solutions has produced a year of strong staff utilisation, allowing us to deliver an EBITDA margin of 30.5%, which is at the upper end of our target range. Further information about likely developments in the operations of the Group and the expected results of those operations in future financial years has not been included in the report because disclosure of the information would be likely to result in unreasonable prejudice to the Group. 12 Hansen Technologies Ltd – Annual Report 2016 Environment regulations The consolidated entity’s operations are not subject to any significant environmental Commonwealth or State regulations or laws. Dividend paid, recommended and declared A regular dividend of 3 cents per share together with a special dividend of 1 cent per share has been declared. This final dividend totalling 4 cents per share is 100% franked. The final dividend was announced to the market on 24 August 2016 with payment to be made on 30 September 2016. The amount declared has not been recognised as a liability in the accounts of Hansen Technologies Ltd as at 30 June 2016. Dividends paid during the year: • 3 cent per share partially franked interim dividend paid 31 March 2016, totalling $5,352,923; and • 3 cent per share fully franked final dividend paid 30 September 2015, totalling $5,306,560. Share options Options over shares may be issued to key management personnel (KMP) as an incentive for motivating/rewarding performance as well as encouraging longevity of employment. The issuing of options is intended to enhance the alignment of KMP with the primary shareholder objective of increasing shareholder value. Options over unissued ordinary shares granted by Hansen Technologies Ltd during or since the end of the financial year to the KMP as part of their remuneration are as follows: Executives N Fernando C Hunter D Meade G Taylor Total Granted Number Grant Date 100,000 100,000 100,000 100,000 400,000 2 July 2015 2 July 2015 2 July 2015 2 July 2015 All grants of options are subject to the achievement of performance measurements. The measurements vary for each executive but are commonly subject to the achievement as a whole of the Company’s financial objectives for the year of issue and may be balanced with specified key performance indicators (KPI) related to each executive’s area of responsibility. Subject to continuation of employment, options commonly vest three years after issue date. If the continuation of employment vesting criteria is not met, options are prima facie forfeited upon termination. The Board may exercise its discretion to vary the vesting criteria based on the contribution of the executive and/or the circumstances of their termination. Options expire two years after vesting or 28 days after termination of employment. Based on the advice of an independent remuneration consultant, the Board has resolved to attach long term performance vesting conditions to future LTI. Therefore, the offer of options will no longer be subject to short term performance assessment (i.e. prior to granting), but will be offered to executives on an equitable basis, proportional to their fixed remuneration. As at the date of this report no options had as yet been issued in line with this new policy. Further details regarding options granted as remuneration are provided in the Remuneration Report. 13 Hansen Technologies Ltd – Annual Report 2016 DIRECTORS’ REPORT CONTINUED Shares under option Unissued ordinary shares of Hansen Technologies Ltd under option at the date of this report are as follows: Grant Date 2 July 2012 2 July 2013 2 July 2014 2 July 2015 Total Exercise Date Expiry Date Exercise Price 2 July 2015 2 July 2017 2 July 2016 2 July 2018 2 July 2017 2 July 2019 2 July 2018 2 July 2020 $0.92 $0.92 $1.30 $2.67 Number of Options at Date of Report 145,000 390,000 875,000 1,000,000 2,410,000 If the Company makes a bonus issue of securities to ordinary shareholders, each unexercised option will, on exercise, entitle its holder to receive the bonus securities as if the option had been exercised before the record date for the bonus issue. Shares issued on exercise of options The following ordinary shares of Hansen Technologies Ltd were issued during or since the end of the financial year as a result of the exercise of an option: Date Issued 6 July 2015 6 July 2015 15 July 2015 21 July 2015 21 July 2015 31 August 2015 31 August 2015 8 September 2015 23 September 2015 21 December 2015 14 January 2016 3 March 2016 3 March 2016 3 March 2016 3 March 2016 16 May 2016 16 May 2016 16 June 2016 30 June 2016 5 July 2016 12 August 2016 24 August 2016 5 September 2016 5 September 2016 5 September 2016 5 September 2016 5 September 2016 13 September 2016 Total There are no amounts unpaid on shares issued on exercise of options. 14 Hansen Technologies Ltd – Annual Report 2016 Number of Ordinary Shares Issued Amount Paid Per Share 200,000 100,000 185,000 40,000 20,000 40,000 75,000 30,000 75,000 75,000 40,000 350,000 350,000 350,000 100,000 75,000 75,000 40,000 75,000 40,000 40,000 75,000 75,000 350,000 350,000 350,000 175,000 75,000 3,825,000 $0.92 $1.30 $0.92 $0.91 $0.92 $0.92 $0.75 $0.91 $0.91 $0.92 $0.92 $0.97 $1.02 $1.07 $0.92 $0.92 $0.92 $0.91 $0.91 $0.92 $0.92 $0.92 $0.92 $1.06 $1.11 $1.16 $0.92 $0.92 Indemnification and insurance of Directors, officers and auditors Indemnification The Company has agreed to indemnify all of the current and former Directors and officers of the Company and its controlled entities against all liabilities to another person (other than the Company or a related body corporate) that may arise from their position as Directors and officers of the Company and its controlled entities, except where the liability arises out of conduct involving a lack of good faith. The agreement stipulates that the Company will meet the full amount of any such liabilities, including costs and expenses. The Company has not entered into any agreement to indemnify its auditors against any claims that might be made by third parties arising from their report on the annual Financial Report. Insurance Since the end of the previous financial year, the Company has paid insurance premiums in respect of Directors’ and officers’ liability and legal expenses and insurance policies for current and former Directors and officers, including executive officers of the Company and Directors, executive officers and secretaries of its controlled entities. The Directors have not included details of the nature of the liabilities covered or the amount of the premium paid in respect of the Directors’ and officers’ liability and legal expenses insurance contracts as such disclosure is prohibited under the terms of the contract. No insurance premium is paid in relation to the auditors. Rounding of amounts In accordance with ASIC Corporations (Rounding in Financial/ Directors’ Reports) Instrument 2016/191, the amounts in the Directors’ Report and in the Financial Report have been rounded to the nearest one thousand dollars, or in certain cases, to the nearest dollar (where indicated). Directors’ meetings The number of meetings of the Board of Directors and of each Board Committee held during the financial year and the numbers of meetings attended by each Director were: Director Mr David Trude Mr Bruce Adams Mr Peter Berry Mr Andrew Hansen Ms Sarah Morgan Mr David Osborne Board Meetings Audit Committee Meetings Remuneration Committee Meetings Eligible Attended Eligible Attended Eligible Attended 12 12 12 12 12 12 12 12 12 12 12 12 - - 4 - 4 4 - - 4 - 4 4 - 4 4 - 4 - - 4 4 - 4 - Directors’ interests in shares or options Directors’ relevant interests in shares of Hansen Technologies Ltd or options over shares in the Company as at the date of this report are detailed below: Directors’ Relevant Interests in: Ordinary Shares of Hansen Technologies Ltd Options over Shares in Hansen Technologies Ltd D Trude B Adams P Berry A Hansen S Morgan D Osborne 105,579 152,304 15,304 36,844,194 20,000 388,984 - - - - - - 15 Hansen Technologies Ltd – Annual Report 2016 DIRECTORS’ REPORT CONTINUED Proceedings on behalf of the company No person applied for leave of Court to bring proceedings on behalf of Hansen Technologies Ltd or any of its subsidiaries. Directors’ interests in contracts Directors’ interests in contracts with the Company are limited to the provision of leased premises on arm’s length terms and are disclosed in note 23 to the financial statements. Auditor’s Independence Declaration A copy of the Auditor’s Independence Declaration as required under section 307C of the Corporations Act 2001 in relation to the audit for the financial year is provided with this report. Non-audit services Non-audit services are approved by resolution of the Audit Committee and approval is provided in writing to the Board of Directors. Non-audit services were provided by the auditors of entities in the consolidated Group during the year, namely Pitcher Partners Melbourne, network firms of Pitcher Partners and other non-related audit firms as detailed below. The Directors are satisfied that the provision of the non-audit services during the year by the auditors is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. Amounts paid and payable to Pitcher Partners Melbourne for non-audit services: – taxation services – compliance services Amounts paid and payable to network firms of Pitcher Partners for non-audit services: – taxation services – compliance services Amounts paid and payable to non-related auditors of Group entities for non-audit services: – taxation services – compliance services Total auditors’ remuneration for non-audit services Consolidated 2016 $ 27,110 - 27,110 6,321 148,949 155,270 22,390 - 22,390 204,710 2015 $ 23,848 15,935 39,783 7,976 159,314 167,290 53,196 2,095 55,290 262,363 16 Hansen Technologies Ltd – Annual Report 2016 LETTER FROM THE CHAIR OF THE REMUNERATION COMMITTEE Dear Shareholder, During FY2016 the Board has invested considerable time and effort to improve the alignment between Hansen’s KMP remuneration practices, shareholder expectations and market best practices in this area. To that end, the Remuneration Committee appointed an independent, specialist external remuneration consultant (ERC) to provide the Remuneration Committee with objective advice regarding remuneration policy, benchmarking and the quantum, elements and design of remuneration. Following the receipt of that advice and consideration by the Remuneration Committee and the Board, a number of changes have been made to the executive remuneration framework and remuneration design. Some of these changes are immediate and others will require transitioning over the longer term. The following summarises the main changes that emerged from the Board’s review, some of which began to be implemented during FY2016, and some others that could not be implemented until FY2017: • more formalised remuneration policy and market pay positioning (which is discussed further in this report); • increases to fixed remuneration for executive incumbents whose fixed remuneration fell significantly below market benchmarks for their role, some of which may be higher than typical market movements; • changes to the mix of incentives to improve the links between performance and reward, and to focus executives on short and long term outcomes consistent with the level and nature of their roles; • changes to the design of short term incentives (STI) to improve motivational impacts and alignment between STI awards and performance from the perspective of shareholders; and • changes to the design of long term incentives (LTI) to improve alignment with market best practices and improve the alignment with Company performance, including the application of performance based vesting conditions and alignment with the experience of shareholders. Many of these changes are discussed in further detail in this report (such as changes to incentive design), while others will become apparent through future reporting (such as changes to fixed remuneration). It is trusted that the changes made will be seen as an improvement and it is hoped that shareholders will express their support by voting in favour of the resolution to adopt the Remuneration Report at the AGM. Peter Berry Chairman of the Remuneration Committee 17 Hansen Technologies Ltd – Annual Report 2016 AUDITED REMUNERATION REPORT The Directors present the consolidated entity’s 2016 Remuneration Report. This report outlines the remuneration arrangements in place for the Directors, Non-Executive Directors and other KMP being those persons having authority and responsibility for planning, directing and controlling the major activities of the Company and the Group, directly or indirectly, including any Director (whether executive or otherwise) of the Company. This Remuneration Report section of the Directors’ Report is subject to external audit and is required to disclose at a minimum such detail as specified by section 300A of the Corporations Act 2001. The Auditor’s Report and opinion on this Remuneration Report may be found on page 76 of this Annual Report. Key management personnel details (KMP) The following executives of the Group were classified as KMP during the 2016 financial year and unless otherwise indicated were classified as KMP for the entire year. The names of the KMP, together with their title/function within the consolidated Group for the financial year, are: (i) Non-Executive Directors D Trude B Adams P Berry S Morgan D Osborne (ii) Executive Director A Hansen (iii) Other executive KMP N Fernando C Hunter D Meade G Taylor Chairman Director and member of the Remuneration Committee Director and Chair of the Remuneration Committee and member of the Audit and Risk Committee Director and Chair of the Audit and Risk Committee and member of the Remuneration Committee Director and member of the Audit and Risk Committee Managing Director and CEO Chief Commercial Officer Chief Operating Officer Group Client Services and Delivery Manager Chief Financial Officer At the Company’s most recent Annual General Meeting (AGM), a resolution to adopt the prior year Remuneration Report was put to the vote and at least 75% of ‘yes’ votes were cast for adoption of that report. No comments were made on the Remuneration Report that were considered at the AGM. Remuneration governance The Board has delegated to the Remuneration Committee the responsibility to make recommendations to the Board for determining and reviewing compensation arrangements for the Directors, executive KMP and the balance of the CEO’s direct reports. As at 30 June 2016, the Remuneration Committee was made up of three Non-Executive Directors, Bruce Adams, Sarah Morgan and the Chairman Peter Berry. The CEO and other Directors attend meetings as required at the invitation of the Committee Chairman. The Remuneration Committee assesses the appropriateness of both the nature and amount of the remuneration of the KMP on an annual basis by reference to relevant employment market conditions, with the overall objective of ensuring maximum stakeholder benefit from the retention of a quality Board and executive team. In doing so it uses reports on the remuneration practices of similar ASX listed entities as a basis to ensure remuneration remains relevant to the market conditions as well as the size and nature of our business. Recommendations to provide equity/option-based remuneration to the Managing Director or any other Director are required to be approved by resolution at a General Meeting of shareholders. A Director or any associate of a Director is excluded from voting on a resolution to approve the issue of equity-based remuneration to a Director. Independent advice To ensure it is fully informed when making decisions in relation to remuneration, the Remuneration Committee seeks advice from specialist external remuneration consultants as well as the Company’s CEO. As required, advice is received on issues of benchmarking the remuneration of executive KMP and Non- Executive Directors against other listed entities as well as the nature, size and structure of short and long term incentive arrangements. During 2016, independent advice from an external remuneration consulting (ERC) organisation was obtained to review and provide recommendations on the remuneration level and structure for the executive. This advice informed the Board’s decisions regarding KMP remuneration for FY2017. The ERC was Godfrey Remuneration Group Pty Ltd and the fee paid for this service was $31,900. The advice received from the ERC was independent, as stated by the ERC in its report to the Remuneration Committee. The Board has taken the view that the advice was independent because the ERC applies a process to assure its independence from executives and because the Chair of the Remuneration Committee authorised or oversaw all interactions between the ERC and executives. 18 Hansen Technologies Ltd – Annual Report 2016 Details of key management personnel remuneration Directors’ and executives’ remuneration Short Term Post Employment Share Based Cash Bonus Paid 2016(iv) % Maximum Bonus Paid 2016 Non- monetary 2016 Other 2016 Super 2016 Options 2016(iii) $ $ $ Directors’ and Executives’ Remuneration Directors B Adams P Berry A Hansen S Morgan D Osborne D Trude Executives C Hunter D Meade G Taylor(ii) N Fernando(ii) Salary Fees 2016 $ 57,053 57,053 $ - - % - - 745,104 313,420(i) 100 57,053 57,053 93,363 - - - 1,066,679 313,420 392,253 325,199 270,928 290,801 54,794 54,794 36,529 54,794 1,279,181 200,911 2,345,860 514,331 - - - 100 100 100 100 Total 2016 $ 62,473 62,473 $ - - - 1,093,523 - - - 62,473 62,473 102,232 - 1,445,647 Total Performance Related 2016 Options as % of Total 2016 % - - 29 - - - 21 19 22 21 24 21 21 % - - - - - - - 9 10 12 11 10 5 5,420 5,420 34,999 5,420 5,420 8,869 65,548 - - - - - - - - - 2,377 - 2,377 2,377 - - - - - - - - - - - - - 30,968 44,879 522,894 34,999 44,879 459,871 29,208 44,879 383,921 29,999 44,879 420,473 125,174 179,516 1,787,159 190,722 179,516 3,232,806 (i) Additional to the cash bonus reported relating to fiscal year 2015, a bonus of $306,375 was paid in FY2016 that related to fiscal year 2014. This amount was accrued in FY2015 but not paid. (ii) G Taylor and N Fernando became KMPs part way though FY2015. This report is for their first full 12 months as KMP. (iii) Options granted as remuneration are valued at grant date in accordance with AASB 2 Share-based Payments. (iv) The STI payments represent the cash payments made during the FY2016 financial year and unless otherwise stated relate to performance in the FY2015 financial year. 19 Hansen Technologies Ltd – Annual Report 2016 AUDITED REMUNERATION REPORT CONTINUED Details of key management personnel remuneration continued Directors’ and executives’ remuneration continued Short Term Post Employment Share Based Total Performance Related Options as % of Total 2015 2015 % - - - 31 - - - 23 40 5 17 40 12 4 47 18 21 % - - - - - - - - 3 5 4 3 3 4 3 4 2 Maximum Bonus Paid Non- monetary 2015 2015 % - - - -(i) - - - Other 2015 $ - - $ - - - - - 306,375(i) - - - - - - Super 2015 $ 8,660 5,292 5,292 34,999 3,985 5,292 751 Options 2015 $ - - Total 2015 $ 99,819 60,998 - 60,998 - (ii) 980,515 - - - 45,935 60,998 8,656 - 306,375 64,271 - 1,317,919 Salary Fees 2015 $ Cash Bonus 2015 $ 91,159 55,706 55,706 639,141 41,950 55,706 7,905 947,273 - - - -(i) - - - - 58,686 43,835(iii) Directors D Trude B Adams P Berry A Hansen S Morgan D Osborne M Osborne Executives M Benne N Fernando 206,054 - C Hunter G Lister 311,550 54,794 73,575 54,794(iii) D Meade 290,071 31,963 96 - 100 100 70 - - - 3,545 - - - - - - - - - 9,739 19,143 29,998 12,195 29,999 15,758 4,643 2,997 115,257 11,989 237,186 15,986 412,328 3,996 148,105 11,989 364,022 8,991 201,318 2,997 106,226 121,475 58,945 1,584,442 14,244 306,375 185,746 58,945 2,902,361 G Taylor S Weir 165,870 - - 10,699 51,652 46,934(iii) 74 - 1,157,458 232,320 2,104,731 232,320 14,244 (i) A Hansen was awarded a bonus of $306,375 in relation to the FY2014 financial year, being 95% of his maximum bonus entitlement. At reporting date the amount was payable and accrued in the financial statements. (ii) During 2014 the Board elected to implement a cash-based long term incentive for A Hansen. Refer to Long Term Incentive plans below. (iii) The full bonus paid in the 2015 financial year has been disclosed as it relates to the performance in the 2014 financial year where the employees were KMP for the full year. Remuneration policy The Company policy is to ensure that the remuneration package for KMP properly reflects each employee’s duties and responsibilities and that it is market competitive in attracting, retaining and motivating people of the highest quality. The Board links the nature and amount of remuneration for executive KMP and other senior executives’ remuneration to the Company’s financial and operational performance and, when appropriate, specific individual key performance indicators within the direct control of the relevant executive. Remuneration paid to the Company’s Directors and executives is also determined with reference to the market level of remuneration for other similar ASX listed entities in Australia. This assessment is undertaken with reference to published information provided by various remuneration support and advisory organisations operating in the sector and is agreed by the Board as a whole. 20 Hansen Technologies Ltd – Annual Report 2016 Remuneration for the KMP is based around a fixed remuneration component plus an at-risk component of remuneration for the executives and senior management, in the form of both a short term incentive (STI) and a long term incentive (LTI). The targeted levels of performance-linked elements are determined each year by the Board and ratios vary between the individual executives from year to year. The relativities in recent years between fixed and targeted performance-linked remuneration have been broadly as follows: • CEO: – Fixed remuneration comprising between 50% and 60% of total remuneration (fixed + STI + LTI at target); – Plus performance linked; – targeted short term cash incentive, 50% of fixed remuneration: – of which not less than half is related to the achievement of key financial performance criteria, including revenue and EBITDA; – with the balance relating to specific targeted activities and focused objectives as established by the Board from year to year; and – targeted long term incentive approximately 50% of fixed remuneration. • Other executive KMP: – Fixed remuneration comprising between 65% and 80% of total remuneration (fixed + STI + LTI); – Plus performance linked; – targeted short term cash incentive, 10% to 25% of fixed remuneration: – of which between 30% and 50% is related to the achievement of key financial performance criteria, including revenue and EBITDA; and – with the balance relating to specific targeted activities and focused objectives as set by the CEO and the Board from year to year; and – targeted long term incentive 5% to 15% of fixed remuneration. In FY2016 the Board undertook a review of these relativities and determined that, based on the recommendations of the remuneration consultant and consideration of the market data, a new remuneration policy will be adopted for FY2017. A. Fixed remuneration i. Executive KMP policy Fixed remuneration generally comprises a base salary plus employer contributions to superannuation funds at the legislated Superannuation Guarantee Contribution rate and may include allowances, benefits and salary sacrifice items (if applicable). Fixed remuneration levels for executive KMP and other senior executives are reviewed annually by the Board through a process that considers each employee’s expertise, change in responsibilities, industry benchmarks and CPI data. The Company’s fixed remuneration policy is to: • benchmark roles at the P50/median (the middle) of the market of similarly classified roles in comparable companies; • make adjustments to these benchmarks to reflect differences between standard role designs evident in the market and the role designs as they exist in Hansen; and • apply a range to this policy benchmark to allow for the recognition of individual attributes such as the calibre of the incumbent, etc. An appropriately qualified incumbent fulfilling a standard role and delivering to expectations is intended to be remunerated as close as possible to the P50 of the market, taking into account the calibre of the incumbent. ii. Changes to fixed remuneration during FY2016 In response to the analysis received and the recommendations of the independent ERC, a number of executive roles were identified as falling materially short of the remuneration policy outlined above. In order to ensure the incumbents in these roles are retained, remunerated fairly, and that the Company’s remuneration policy is adhered to, increases have been planned for in a staged manner where appropriate. For some incumbents this adjustment to meet the requirements of the policy and current market conditions was effectively made during FY2016. In 2016 the following KMP, performing the same role as the prior year, received base remuneration increases above the general trend of salary increases: • Cameron Hunter – Chief Operating Officer, increase in fixed remuneration of 26%; and • Darren Meade – Group Client Services and Delivery Manager, increase in fixed remuneration of 12%; – The reasons for these increases include: – growth in the overall size and complexity of Hansen’s business operations represented by a 40% increase in revenue during FY2016; – their role in the successful completion of acquisitions over the past two years; – their management of the successful integration of past acquisitions into the Company operations; and – increase of the scale of the business under their direct management and international diversity/complexity of the operations under their management. iii. Changes to fixed remuneration planned for FY2017 For some incumbents the increases to fixed remuneration required to fulfil the policy and meet current market conditions have been staged across both the FY2016 and FY2017 reporting periods. The Board will again consider these roles and incumbents in mid FY2017 before potentially making further adjustments to the extent appropriate in the circumstances. 21 Hansen Technologies Ltd – Annual Report 2016 AUDITED REMUNERATION REPORT CONTINUED A. Fixed remuneration continued iv. Non-Executive Directors Non-Executive Directors receive Director fees reviewed annually (inclusive of Superannuation Guarantee Contribution as required by government regulation). Non-Executive Directors do not receive any performance-related remuneration or retirement benefits and are excluded from participation in the Hansen Executive Option and Share Plans. The maximum remuneration payable for Non-Executive Directors as a collective group is determined by resolution of shareholders. The maximum aggregate fees approved for Non-Executive Directors at the 2013 AGM is $430,000. Consistent with the policy applied to executives, the Company’s policy regarding the setting of Board fees over the longer term is to also be set with reference to the P50 of the data for comparable roles in comparable companies. The Company also has a policy of not paying separate committee fees for committee participation at this time. B. Incentive elements of remuneration The performance-based incentives for the CEO and senior executives are structured to include a mixture of both short and longer term components, which are designed to reward management for meeting or exceeding their challenging individual, business unit and group strategic, financial and operational objectives. The Board is cognisant of the need to achieve a balance between short term and longer term incentives to ensure the continued focus on driving the Company’s performance in a balanced way over time, thus enhancing shareholder confidence through sustainable share price appreciation and dividend return. The incentives are designed to link with the Company’s strategy, short and long term business plans, and to align executive remuneration with sustainable value creation for shareholders. The Remuneration Committee and the Board, after due consideration of the characteristics of our business, its aspirations and growth objectives, and having considered the advice from third parties (independent remuneration consultants), currently considers a combination of annual target-based cash incentives and share option allocations with three-year performance tests to be appropriate. This structure will be regularly reviewed to ensure it remains in the best interests of shareholders. In particular that it continues to be relevant to our business and represents optimum incentive to the executives for both operational performance as well as employee retention. The Company’s policy regarding incentive elements of remuneration is that, assuming a fixed remuneration aligned with P50 of the market, total remuneration at target (including target STI and LTI) should fall approximately halfway between P50 and P75 of the market data. The gap between these two policy positions should be composed of STI and LTI (at target) appropriate to the level of the role: a higher weighting on LTI for the CEO than for other roles and not less than equal weighting on LTI compared to STI for other executive KMP. i. Short term performance-linked remuneration Each year when the KMP remuneration is reviewed, the Remuneration Committee, in consultation where appropriate with the CEO, establishes a performance-dependent incentive that may be payable to each senior executive. Although the ultimate payment of any bonus is at the discretion of the Remuneration Committee and the Board, KPIs comprising a combination of qualitative (if appropriate to the role) and quantitative measures are established and individually tailored for each senior executive to ensure their performance is aligned with the Group’s strategic objectives, targeted improvements in operating performance and the overall corporate objective of creating enhanced shareholder value for that year. Short term performance-linked remuneration for FY2016 The nature and range of KPIs and other targets against which the individual performance of a KMP may be measured is described below for FY2016. These measures were chosen as they represented the key drivers for the short term success of the business and provide a framework for delivering long term value for shareholders: Financial • Company’s operational performance compared to budget which impacts revenue and EBITDA. The actual parameters applied may be dependent upon the roles and responsibilities of each individual executive and their ability to influence the performance outcome; • financial operating performance of individual business units and geographic regions against budget which impacts revenue and EBITDA; and • these parameters commonly comprise between 30% and 50% of the STI compensation available to be earned for FY2016. Business management • improving staff utilisation and delivering software projects in line with budget and time estimates. Client relationship and business growth • retention of existing clients and cross-selling of products and services; and • achievement of new licence sales to new and existing strategic clients. Departmental operating efficiency • enhanced performance of individual departments to achieve specified efficiency improvements; and • training and development of employees. 22 Hansen Technologies Ltd – Annual Report 2016 Other • acquisition and integration of compatible businesses; and • compliance with the Company’s corporate governance principles. • The Board will have discretion to modify STI awards in the circumstances that the outcomes of the STI award calculations are likely to be seen as inappropriate given the circumstances that prevailed over the period. At the end of each financial year, in the knowledge of the financial performance of the Company as a whole, each individual executive’s performance in general and specifically against their targeted objectives throughout the year is evaluated and recommended by the CEO to the Remuneration Committee, which assesses the performance of each senior executive, including the CEO, in achieving their KPIs. Based on this assessment and discretion applied by the Remuneration Committee for non- quantifiable measures and any other relevant factors, a determination is then made of the appropriate percentage of each KPI to be awarded based on the performance achieved. The performance bonus recommended by the Remuneration Committee is provided to the full Board for consideration and approval. The combination of these review processes provides the Remuneration Committee and the Board with a balanced assessment of the performance of the senior executive group as well as executives generally. Short term performance-linked remuneration for FY2017 For FY2017 the Board intends to introduce a new STI scheme for senior executives, which is a target-based STI scheme based on the advice of the independent remuneration consultant and information received regarding market best practices. The features of the plan are summarised as follows and will be disclosed in further detail in the FY2017 Remuneration Report, following offers being finalised and made. • For each participant, challenging but achievable KPIs will be selected across Group/Company level, business unit level (if applicable) and individual indicators linked to the Company’s strategy. • The KPIs will reflect financial, strategic and operational objectives relevant to the level and function of the role that are identified as building shareholder value creation. • The greatest weighting will be on financial objectives at the Group/Company level unless the participant is a business unit executive, in which case financial measures relating to both Group/Company and business unit results will together have the highest weighting. ii. Long term incentives The Company’s long term incentive component of KMP remuneration can be via cash or via options. Historically, the issue of options has occurred in accordance with the Company’s Executive Option Plan as approved at the 2011 AGM of shareholders. Alternatively at the Board’s discretion, long term incentives may be on a cash basis. During 2014, the Board elected to allocate the CEO’s long term incentive on a cash basis, payable in two equal parts in FY2017 and FY2018. The payments are conditional on the operational performance of the Company in the initial financial year and ongoing employment with the Company. This long term incentive has continued for 2015 and the 2016 financial years. The Board recognises that a significant purpose of the LTI plan is to promote the long term holding of Company equity by executives, therefore improving alignment with shareholders. Therefore the Board only exercises its discretion to satisfy the LTI in the form of cash in exceptional circumstances. For example, cash will be considered if the tax consequences of equity remuneration would be detrimental to the participant (because they are not eligible for tax deferral, for example) or in the case of our CEO, where significant equity is already held. While options may be granted as part of compensation, the exercising of vested options does require payment by the applicable executive to the Company of the predetermined exercise price of the options, being based on the market share price on the deemed effective date of the granting of the options. The fundamental principle behind the use of options as a long term incentive is the alignment of any benefit from the incentive to the KMP with the overriding objective of enhanced shareholder value delivered, in this instance, by way of increased share prices over the period of the option term. Options offer the additional incentive of enhancing the prospect for retention of KMP as the benefit to the employee is derived over time subject to the qualifying period of the option. • Non-financial KPIs will be selected on the basis of linkage to the Company’s strategic and operational plans, which most clearly link with building shareholder value. Options are issued to the KMP in accordance with the shareholder- approved Executive Option Plan. The fundamental elements of the practical application of the Plan may be summarised as follows: • A performance hurdle of 90% of budgeted group EBITDA will apply to all KPIs (including non-financial) such that all KPIs will be ‘switched off’ if this gate is not exceeded. Options are issued with: • a long term vesting/qualifying period, of not less than three years (from FY2017 onwards); • are conditional upon continued employment throughout the vesting period; • may not be exercised until the end of the vesting period; and • must be exercised within two years of when they vest. 23 Hansen Technologies Ltd – Annual Report 2016 AUDITED REMUNERATION REPORT CONTINUED B. Incentive elements of remuneration continued ii. Long term incentives continued The price payable to convert the options to shares is specified at the original date of issue as being a price per share not less than the volume weighted average price (VWAP) at the date on which the options were originally issued or in the case of the CEO, the VWAP on the date the intention to issue the options is announced plus a graduated premium. The benefit to the employee arises where the pre-specified exercise price is less than the market price when the options vest at the end of the vesting/qualifying period. Once an option has vested at the end of the qualifying period, the employee may elect to exercise the option in which event: • the employee must pay in cash to the Company the previously specified exercise price multiplied by the number of options received, for example, for 100,000 options with an exercise price of $1.30 per share, the employee will be required to pay the Company $130,000 to convert the options to shares; • in addition and regardless of whether the employee has exercised the options or not, the employee will be required to declare for tax purposes a taxable revenue gain to the extent the VWAP at the vesting date exceeds the exercise price; and • pay tax to the relevant tax authority on this gain as if it was normal personal income, for example, for 100,000 options with an exercise price of $1.30 per share and a VWAP at the date of vesting of $2.00, the employee would be required to declare as income for tax purposes of $70,000 and pay to the tax authority the applicable tax on this income. Options issued to executives are not able to be traded on the ASX. They do not qualify for receipt of dividends or have any voting rights until they have been exercised and converted to shares by the employee paying the required exercise price to the Company. The Company prohibits KMP from entering into arrangements to protect the value of unvested equity awards. The prohibition includes entering into contracts to hedge their exposure to options awarded as part of their remuneration package. The Company does not provide any loans or financial support to executives to assist them in the funding of the amount required to exercise options. Options offered during FY2016 During FY2016 options were offered in accordance with the practices that have prevailed over recent years. As part of the review of remuneration governance conducted by the independent ERC, it was identified that the practice of not applying long-term vesting conditions linked to performance to offers of LTI was not aligned with market best practices and those of peers. Therefore FY2016 is the last year during which LTI without long term performance-based vesting conditions will be offered. This is discussed further below. Offers in FY2016 were conditionally issued in respect of the operating performance for the initial financial year and are subject to achieving specified financial performance targets for that year as determined by the Board, typically the achievement of the budgeted objectives of the Group as a whole for the initial year: • at the end of the year the Directors assess the Group’s performance against the agreed targets; and • determine whether to confirm, vary or cancel the options previously issued. Options Planned for FY2017 Based on the advice of the independent remuneration consultant, the Board has resolved to attach long term performance vesting conditions to future LTI. Therefore, the offer of options will no longer be subject to short term performance assessment (i.e. prior to granting), but will be offered to executives on an equitable basis, proportional to their fixed remuneration. For FY2017 it is intended that the options will be offered with a market exercise price and subject to vesting conditions aligned to delivering shareholder value. 24 Hansen Technologies Ltd – Annual Report 2016 Details of compensation options During the financial year the Company granted options over unissued ordinary shares to the following key management personnel of the Company as part of their remuneration: Options Vested During the Year Options Granted Grant Date Value Per Option at Grant Date $ Terms and Conditions for Each Grant Exercise Price $ Vesting Date Last Exercise Date 1,050,000 - - - - - - - 100,000 2 July 2015 100,000 100,000 2 July 2015 75,000 100,000 2 July 2015 - 100,000 2 July 2015 1,225,000 400,000 0.56 0.56 0.56 0.56 2.67 2.67 2.67 2.67 2 July 2018 2 July 2020 2 July 2018 2 July 2020 2 July 2018 2 July 2020 2 July 2018 2 July 2020 Executive Directors A Hansen Specified executives N Fernando C Hunter D Meade G Taylor Total All grants of options are subject to the achievement of performance measurements for the year of issue. Subject to continuation of employment criteria, options commonly vest three years after issue date. If the vesting criteria are not met, the options may be forfeited at the discretion of the Directors. Options expire two years after vesting. Key management personnel’s equity holdings Number of options held by key management personnel Executive Directors A Hansen Specified executives N Fernando C Hunter D Meade G Taylor Total Balance July 2015 Granted as Remuneration Options Exercised Options Forfeited Balance 30 June 2016 Total Exercisable Unexercisable Vested at 30 June 2016 2,100,000 - 1,050,000 100,000 300,000 100,000 - 100,000 100,000 225,000 100,000 75,000 75,000 100,000 - 2,800,000 400,000 1,225,000 - - - - - - 1,050,000 200,000 300,000 250,000 175,000 1,975,000 - - - - - - - - - - - - - - - - 25 Hansen Technologies Ltd – Annual Report 2016 AUDITED REMUNERATION REPORT CONTINUED Number of shares held by key management personnel Balance 30 June 2015 Received as Remuneration Options Exercised Net Change Other Balance 30 June 2016 Specified Directors D Trude B Adams P Berry A Hansen S Morgan D Osborne Specified executives N Fernando C Hunter D Meade G Taylor Total 103,623 152,304 15,304 38,744,194 - 377,521 6,793 803,691 8,510 3,143 40,215,083 - - - - - - - - - - - - - - 1,050,000 - - - 100,000 75,000 - 1,956 - - - 20,000 11,463 289 - (80,868) 289 105,579 152,304 15,304 39,794,194 20,000 388,984 7,082 903,691 2,642 3,432 1,225,000 (46,871) 41,389,212 Service agreements and contract details The contract of employment of the CEO includes a mutual minimum termination notice period of six months. The conditions of employment for the other KMP are not subject to any particular term or significant condition other than those normally applying by law for persons of their remuneration level and position in the Company. As shown in note 23 to the accompanying financial statements, the CEO is a Director of the Trustee Company of the Trust from whom the Company leases premises in Melbourne. The terms and conditions of the lease arrangements are no more favourable than those available, or which might reasonably be expected to be available, from others on an arm’s length basis. The total lease rental payments during the 2016 financial year to the Trust were $1,110,113. 26 Hansen Technologies Ltd – Annual Report 2016 Measurements of performance on shareholder value In assessing the relative performance of the senior executives and the Group as a whole on the primary corporate objective of enhancing shareholder value, the Remuneration Committee and the Board have regard to key financial indicators measured over time, including: 2016 149.0 45.4 13.7 $3.39 $606.2 2015 106.3 31.3 10.3 $2.62 $461.6 2014 86.0 24.1 9.2 $1.27 $203.9 7 6 6 31.7% 111.9% 45.6% 2013 63.8 15.7 5.7 $0.91 $145.3 6 5.4% 2012 56.6 19.1 8.2 $0.92 $145.4 6 8.9% 2011 57.6 20.5 8.7 $0.90 $140.5 6 69.9% Revenue (A$ millions) EBITDA (A$ millions) Earnings per share (cents) ASX share price at 30 June Market capitalisation (millions) at 30 June Dividend declared (cents per share) in respect of FY2016 Total shareholder return End of the Remuneration Report Rounding of amounts The amounts contained in the report and in the Financial Report have been rounded to the nearest $1,000 (where rounding is applicable) under the option available to the Company under ASIC Class Order 98/0100. The Company is an entity to which the Class Order applies. Signed in accordance with a resolution of the Directors. David Trude Director Andrew Hansen Director Melbourne 29 September 2016 27 Hansen Technologies Ltd – Annual Report 2016 AUDITOR’S INDEPENDENCE DECLARATION To the Directors of Hansen Technologies Ltd. In relation to the independent audit for the year ended 30 June 2016, to the best of my knowledge and belief there have been: (i) No contraventions of the auditor independence requirements of the Corporations Act 2001; and (ii) No contraventions of any applicable code of professional conduct. This declaration is in respect of Hansen Technologies Ltd and the entities it controlled during the year. S D Whitchurch Partner Pitcher Partners Melbourne 29 September 2016 An independent Victorian Partnership ABN 27 975 255 196 Level 19, 15 William Street, Melbourne VIC 3000 Liability limited by a scheme approved under Professional Standards Legislation. Pitcher Partners is an association of independent firms Melbourne | Sydney | Perth | Adelaide | Brisbane | Newcastle An independent member of Baker Tilly International 28 Hansen Technologies Ltd – Annual Report 2016 CORPORATE GOVERNANCE STATEMENT FOR THE YEAR ENDED 30 JUNE 2016 The Corporate Governance Principles and related Charters and Policies for the management and operation of the Hansen Group of Companies are available for review on the corporate website: www.hsntech.com Hansen Technologies Ltd (Hansen or the Company) regularly reviews its Principles, Policies and Charters to ensure they remain consistent with the Board’s objectives, current laws and best practice. The Hansen Corporate Governance Principles provide direction to the business to help meet our responsibilities to shareholders, clients, employees and the community. In relation to corporate governance, the Board aims to: • embrace best practice in corporate governance; • remain mindful of operating practices in the international jurisdictions in which we operate; • recognise and comply with the principles of the ASX Corporate Governance Council; and • ensure Directors, executives, management and employees are cognisant of the Hansen Governance Principles. In accordance with the most recent edition of the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations (3rd edition) (the Principles), the Corporate Governance Statement contains specific information and also reports on the Company’s adoption of the Council’s good practice recommendations on an exception basis, whereby disclosure is required of any recommendations that have not been adopted by the Company and why. The Company’s Corporate Governance Principles and Policies are therefore structured with reference to the Principles. Principle 1: Lay solid foundations for management and oversight The primary role of the Board of Directors is to provide effective governance over the performance and affairs of the Hansen Technologies Group. In carrying out its responsibilities, the Board undertakes to serve the interest of shareholders, employees, clients and the broader community honestly, fairly, diligently and in accordance with applicable laws. The specific functions established and reserved for the Board are: • providing strategic direction and approving corporate strategies; • selecting and appointing the CEO, determining conditions of service and monitoring performance against established objectives. If necessary removing the CEO from office; • monitoring financial performance against budgeted objectives; • ensuring adequate risk management controls and reporting mechanisms are maintained; • approving and monitoring progress of major capital expenditure, capital management, acquisitions and divestments; • ensuring that continuous disclosure requirements are met; and • ensuring responsible corporate governance is understood and observed at management, executive and Board level. The Board has delegated to the CEO the authority and responsibility for implementing the Group’s strategic direction and overseeing the everyday affairs of the Hansen Group. The CEO’s specific responsibilities include ensuring business activities are in accordance with the Group’s overall business strategy, ensuring the Group conducts its affairs within the law and the Principles outlined in Hansen’s Corporate Governance Policies, keeping the Board informed of all major developments and approving expenditure and setting remuneration levels of personnel within the normal course of business. The CEO consults with the Chairman of the Board and respective Committees on matters that are sensitive, extraordinary or of a strategic nature. Through the CEO, the Board has delegated authority and responsibility to other executives and management for their respective business functions. In identifying suitable persons to become Directors, after undertaking appropriate background checks the Board will look to achieve an appropriate balance of relevant legal, commercial and financial management skills as well as expertise specific to the industries in which our Company operates. In pursuing this objective, the Board will be cognisant of its policy to pursue a balance of gender diversity at all levels of the Company’s management. Additionally, the Board will provide shareholders with all material information in its possession relevant to a decision on whether or not to elect or re-elect a Director. All Directors and senior executives are engaged under a contract of service that clearly specifies roles, responsibilities and any terms of employment. The Company Secretary The Company Secretary is accountable through the Chairman to the Board for the proper functioning of the Board. The Company Secretary also advises the Board on corporate governance issues as well as monitoring the activities of Committees for compliance with policy and procedures. Diversity The Board recognises that a diverse and inclusive workforce is not only good for our employees, but also good for the business. The Diversity Policy can be found in the Ethics and Responsibilities document in the corporate governance section of the Company’s website. This focus on diversity at all levels of the business is intended to reinforce the importance of equality in the workplace and is a logical extension of Hansen’s active participation in the Workplace Gender Equality initiatives of the Australian Government’s Workplace Gender Equality Agency. A copy of the public report submitted by Hansen may be found on the Workplace Gender Equality Agency’s website: www.wgea.gov.au 29 Hansen Technologies Ltd – Annual Report 2016 CORPORATE GOVERNANCE STATEMENT CONTINUED FOR THE YEAR ENDED 30 JUNE 2016 The table below shows the gender diversity of the Company (worldwide) as at 30 June 2016: Board Senior management Hansen Group Female % 17 18 25 Male % 83 82 75 For this purpose, senior management is defined as the corporate leadership team reporting directly to the CEO. Performance of the Board Board members may periodically review and evaluate the Board’s performance and that of the Board Committees. Given the limited size of the Board and its Committees, an annual formal review is not deemed warranted. However, there is an ongoing and constant provision for each Director to contribute judgements and observations at any time. The performance evaluation process is as follows: • each Director, as they see fit, will periodically evaluate the effectiveness of the Board and its Committees and submit observations to the Chairman; A performance evaluation of the CEO and senior executives was undertaken during the reporting period in accordance with this Remuneration Policy. Principle 2: Structure the Board to add value Considering the level of operations of the Group and the current number of Board members, the appointment of a formal Nominations Committee is not deemed necessary. Nominations for positions on the Board are considered during a meeting with all Board members present. The Board determines the Board’s size and composition, subject to limits imposed by the Company’s Constitution. The Constitution determines the basis for the election and appointment of Directors and specifies a minimum of three Directors and a maximum of 10. Currently, the Board comprises six Directors, five of whom are Non-Executive Directors: the Chairman, David Trude; four other Non-Executive Directors, being Bruce Adams, Peter Berry, David Osborne and Sarah Morgan; and one Executive Director, the CEO Andrew Hansen. The skills, tenure of office, experience and expertise relevant to the position of Director held by each Director is detailed in the Annual Report. • the Chairman of the Board will make a presentation incorporating his assessment of such observations to enable the Board to assess and, if necessary, take action; • the Board will agree and develop actions that may be required to improve performance; Director independence It is the Board’s objective to strive for a majority of independent Directors and has for a number of years been successful in this endeavour. The Chair of the Board, Mr David Trude, is an independent Director. • outcomes and actions will be minuted; and • the Chairman will assess the progress of the actions to be achieved. The Board has three independent Directors, David Trude, Peter Berry and Sarah Morgan. This represents 50% of the Board’s total membership. This process aims to ensure that individual Directors have an unlimited opportunity to assess and comment on the performance of the Board and its Committees with the objective of enhancing the Board’s effectiveness in achieving its duties and responsibilities. Periodically the Chairman may propose a formal performance evaluation review and he may commission a third party to assist in such a review if deemed desirable. No such formal review was conducted during this reporting period. Director induction training and continuing education All incoming Directors are required to undertake the standard Company induction program so as to become informed of the Company’s business activities and policies. Directors are encouraged to pursue professional development opportunities and the Company will provide information and advice that may be of relevance to allow Directors to maintain the skills and knowledge required to perform their role within the business. Performance of senior executives The Company has a defined process for periodically evaluating the performance of its senior executives as set out in the Remuneration Policy available in the ‘Board’ document on the corporate governance section of the Company’s website. 30 Hansen Technologies Ltd – Annual Report 2016 The skills, tenure of office, experience and expertise relevant to the positions of the members of the Audit and Risk Committee are detailed in the Annual Report. The Committee shall meet as required, but no less than twice each year. In the relevant reporting period, the Committee met four times and the attendances at these meetings are detailed within the Directors’ Report, which forms part of the Annual Report. Declarations from the CEO and CFO The integrity of the Group’s financial reporting depends upon the existence of a sound system of risk oversight and management and internal control. The Board receives regular reports about the financial condition and operational results. The CEO and the CFO annually provide a formal declaration to the Board that the financial records of the Group for the financial year have been properly maintained in that they: • accurately record and explain its financial position and performance; • enable true and fair financial statements to be prepared and audited; • the financial statements and notes required by the accounting standards for the financial year comply with the accounting standards; and • the risk management and internal compliance and control systems are sound, appropriate and operating efficiently and effectively. Such a statement has been provided in respect of the financial year ending 30 June 2016. External auditor The external auditor attends the AGM and is available to answer questions from security holders relevant to the audit. Principle 3: Act ethically and responsibly At Hansen we recognise that our Company is made up of the individual employees representing our operations globally. Each person has an individual responsibility for their own behaviour and should take accountability for their actions and choices. The Hansen Technologies Code of Conduct has been established to assist all Hansen representatives to make considered choices with regard to their behaviour. The Code of Conduct reflects the Hansen Group’s primary values of ethical behaviour, compliance with legal obligations, and respecting the expectations of all stakeholders. The Code of Conduct outlines how the Company expects Directors, senior executives and staff to behave and conduct business in a range of circumstances. Directors, management and staff are expected to act ethically and responsibly. All Board members are qualified professionals within their respective industries and accordingly conduct themselves in a professional and ethical manner in both their normal commercial activities and the discharge of their responsibilities as Directors. The Company’s Code of Conduct can be found in the Ethics & Responsibilities document in the Corporate Governance section of the website. Employees who breach this Code may face disciplinary action, which could result in changes to their employment. Where potential for conflict is identified, the Board appoints a sub-committee specifically structured, authorised and tasked to determine the appropriate actions or responses so as to eliminate any potential for conflicts. Principle 4: Safeguard integrity in corporate reporting Audit and Risk Committee The Audit and Risk Committee monitors and reviews the effectiveness of the Company’s controls in the areas of operational reporting. The Audit and Risk Committee makes an assessment of external auditor performance and makes recommendations in respect of the external auditor’s appointment and remuneration. The Committee has a formal charter, which is contained in the ‘Board’ document and is posted in the Corporate Governance section of the Company’s website. The members of the Committee as at 30 June 2016 were Non-Executive Directors David Osborne and Peter Berry and the Chairman of the Committee, Sarah Morgan, with 67% of the membership being deemed independent. 31 Hansen Technologies Ltd – Annual Report 2016 CORPORATE GOVERNANCE STATEMENT CONTINUED FOR THE YEAR ENDED 30 JUNE 2016 Principle 5: Make timely and balanced disclosure The Hansen Continuous Disclosure and Communication Policy has been developed to provide clear guidelines for the operations of the Hansen business and establishes appropriate processes and criteria for continuous disclosure to ensure compliance with the requirements of the ASX and other securities’ and corporations’ legislation. The policy is included in the Ethics and Responsibilities document on the Company’s website. The Policy’s primary objective is the promotion of effective communication with shareholders and related stakeholders. The key principles of the Policy are that: • material Company information is issued to shareholders and the market in a timely manner and in accordance with our obligations to the market; • such information is communicated in a way that allows for all interested parties to have equal and timely access; • communication is presented in a clear, factual and balanced manner; and • ASX reporting obligations are met. Principle 6: Respect the rights of security holders Hansen encourages the use of electronic communications by providing up-to-date information on the Group website, www.hsntech.com. The Investors section of the website contains a range of information relevant to shareholders. In particular: • the Annual Report is distributed either over the web or by post; • notice of the AGM is distributed by mail or, where a shareholder has requested, by email; and • whenever there are other significant developments to report, these are communicated via the Company’s website or direct communication to shareholders. Hansen is committed to continuing to improve communication with shareholders. The AGM is seen as an important communication forum. In preparing notices of meeting and related explanatory information, Hansen aims to provide all information that is relevant to shareholders in making a decision on the matter to be voted on by shareholders in a clear and concise format. During the meeting, time is dedicated to accommodating shareholders’ questions. Following the meeting, Directors and shareholders are able to further communicate informally. Communication mechanisms will be reviewed regularly to ensure they provide the optimum information flow to shareholders and potential investors, enabling them to make decisions in an informed manner. The Company gives security holders the option to receive and send communications to the entity and its security registry electronically. Principle 7: Recognise and manage risk The Company has established a Risk Management Policy for the oversight and management of material business risks. The Policy is available from the Corporate Governance section of the Company’s website. The Audit and Risk Committee is responsible for overseeing the Company’s risk management framework. The Audit and Risk Committee reviews the Company’s risk management framework regularly to satisfy itself that it continues to be sound and reports its findings to the Board. At this stage of the Company’s development it is deemed that a formal internal audit function is not warranted. However, the Company does acknowledge the risk represented by its decentralised infrastructure and has put in place a number of internal controls that are regularly tested by internal review tasks to ensure they are operating satisfactorily. The key risk categories to which the Company is exposed, and how it manages or intends to manage those risks, are set out in the Risk Management Policy on the Company’s website. In addition, the Audit and Risk Committee Charter is set out in the Board document posted in the Corporate Governance section of the Company’s website. Principle 8: Remunerate fairly and responsibly Remuneration Committee The Remuneration Committee members as at 30 June 2016 were Bruce Adams plus independent Non-Executive Directors Sarah Morgan and the Chairman Peter Berry. The Committee meets at least annually to assess annual remuneration changes, and will hold additional meetings where required. The Remuneration Committee met four times during the financial year and all members of the Remuneration Committee at the time were present. The Remuneration Committee Charter is set out in the Board document posted in the Corporate Governance section of the Company’s website. 32 Hansen Technologies Ltd – Annual Report 2016 The Remuneration Committee recommends the remuneration of Non-Executive Directors to the Board for consideration and approval. Remuneration for Non-Executive Directors consists of a base salary package, inclusive of superannuation contribution, as required by the Superannuation Guarantee Scheme. Non-Executive Directors are excluded from participation in the Company’s share and option plans. The maximum collective amount payable to Non-Executive Directors, in their capacity as Directors, is established by resolution passed by a majority of shareholders at an AGM of the Company. Any increase in the maximum amount is required to be submitted to shareholders for approval. No separate or additional retirement benefits are provided for Non-Executive Directors. Share trading policy The Company has a share trading policy that can be found in the Corporate Governance section of the Company’s website. The Corporations Act prohibits the KMP of an ASX listed company established in Australia, or a closely related party of such personnel, from entering into an arrangement that would have the effect of limiting their exposure to risk relating to an element of their remuneration that either has not vested or has vested but remains subject to a holding lock. Remuneration policies and practices The Remuneration Report contained in this Annual Report sets out the remuneration details and structures for the specified key management personnel including all Non-Executive Directors. The Company has share and option plans for its employees. The Company’s Employee Option Plan was approved by shareholders at the 2011 AGM. The Group’s aim in remunerating the CEO and other executives is to provide base pay plus rewards and other benefits that will attract, motivate and retain key executives while aligning their financial interests with those of our shareholders. Our policy is to provide individual executives with a level of income that: • recognises the market value of each position in a competitive market; • rewards the individual’s capabilities and experience; • recognises the performance of individuals; • assists in executive retention; and • is structured to provide a mix of fixed and variable pay, and a blend of short and long term incentives. The Remuneration Committee sets the remuneration package for the CEO and engages with external third party consultants from time to time to verify the appropriateness and market competitiveness of the CEO’s remuneration package. The CEO establishes employment arrangements and remuneration packages for the executives. Each year performance-based incentives, at the discretion of the Directors, are set for the CEO and the executives incorporating objectives designed around Group, business unit and individual goals, with agreed short and long term performance incentives. The CEO submits the proposed annual executive package to the Remuneration Committee where it is assessed for reasonableness. The Remuneration Committee then makes its recommendations in respect of the CEO and executives to the Board for approval. The structure of Hansen executive pay and reward is made up of three parts: a base salary package (inclusive of superannuation); short term performance incentives; and long term performance incentives. The combination of these comprises the executive’s total compensation. Details of the pay and rewards for Hansen’s KMP and their total remuneration are set out in the Annual Report each year. 33 Hansen Technologies Ltd – Annual Report 2016 FINANCIAL REPORT 35 Consolidated Statement of Comprehensive Income 36 Consolidated Statement of Financial Position 37 Consolidated Statement of Changes in Equity 38 Consolidated Statement of Cash Flows Notes to the Financial Statements 39 Note 1. Statement of significant accounting policies 46 Note 2. Critical accounting estimates and judgments 47 Note 3. Financial risk management 49 Note 4. Revenue and other income 50 Note 5. Profit from continuing operations 51 Note 6. Income tax 53 Note 7. Dividends 53 Note 8. Cash and cash equivalents 54 Note 9. Receivables 54 Note 10. Other current assets 55 Note 11. Plant, equipment and leasehold improvements 55 Note 12. Intangible assets 57 Note 13. Payables 57 Note 14. Borrowings 58 Note 15. Provisions 59 Note 16. Contributed capital 62 Note 17. Reserves and retained earnings 63 Note 18. Cash flow information 64 Note 19. Commitments 64 Note 20. Earnings per share 65 Note 21. Directors’ and executives’ equity holdings 67 Note 22. Directors’ and executives’ compensation 68 Note 23. Related party disclosures 69 Note 24. Auditor’s remuneration 70 Note 25. Parent entity information 71 Note 26. Segment information 73 Note 27. Subsequent events 34 Hansen Technologies Ltd – Annual Report 2016 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2016 Revenue Other income Total revenue and other income Employee benefit expenses Depreciation expense Amortisation expense Property and operating rental expenses Contractor and consultant expenses Software licence expenses Hardware and software expenses Travel expenses Communication expenses Professional expenses Other expenses Total expenses Profit before income tax Income tax expense Note 4 4 5 5 5 5 Consolidated Entity 2016 $’000 148,961 236 149,197 2015 $’000 106,257 475 106,732 (74,249) (55,295) (2,547) (6,489) (5,891) (4,057) (1,035) (6,071) (4,955) (2,042) (1,915) (3,522) (1,863) (5,213) (4,575) (1,582) (1,092) (3,251) (3,719) (1,768) (1,407) (2,964) (112,773) (82,729) 6(b) 36,424 (10,341) 24,003 (7,059) Profit after income tax from continuing operations 26,083 16,944 Other comprehensive income/(expense) Items that may be reclassified subsequently to profit and loss Exchange differences on translation of foreign entities 17(a) 2,221 10,052 Other comprehensive income/(expense) for the year 2,221 10,052 Total comprehensive income for the year attributable to members of the parent 28,304 26,996 Basic earnings (cents) per share for continuing operations Total basic earnings (cents) per share Diluted earnings (cents) per share for continuing operations Total diluted earnings (cents) per share 20 20 14.7 14.7 14.4 14.4 10.3 10.3 10.0 10.0 The consolidated statement of comprehensive income is to be read in conjunction with the notes to the financial statements set out on pages 39 to 74. 35 Hansen Technologies Ltd – Annual Report 2016 CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2016 Current assets Cash and cash equivalents Receivables Other current assets Total current assets Non-current assets Plant, equipment and leasehold improvements Intangible assets Deferred tax assets Total non-current assets Total assets Current liabilities Payables Borrowings Current tax payable Provisions Unearned income Total current liabilities Non-current liabilities Deferred tax liabilities Borrowings Provisions Total non-current liabilities Total liabilities Net assets Equity Share capital Foreign currency translation reserve Options granted reserve Retained earnings Total equity Note 8 9 10 11 12 6 13 14 6 15 6 14 15 Consolidated Entity 2016 $’000 30,203 21,507 6,923 58,633 2015 $’000 21,985 19,950 5,202 47,137 6,743 106,059 4,030 116,832 7,556 104,103 3,599 115,258 175,465 162,395 12,229 95 2,187 9,497 11,171 35,179 4,810 291 205 5,306 8,005 10,087 3,813 8,862 13,570 44,337 4,012 374 143 4,529 40,485 48,866 134,980 113,529 16 17(a) 17(b) 17(c) 78,650 10,167 1,251 44,912 134,980 75,127 7,946 967 29,489 113,529 The consolidated statement of financial position is to be read in conjunction with the notes to the financial statements set out on pages 39 to 74. 36 Hansen Technologies Ltd – Annual Report 2016 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2016 Consolidated Entity Note Contributed Equity $’000 75,127 Reserves $’000 8,913 Retained Earnings $’000 29,489 Total Equity $’000 113,529 Consolidated entity Balance as at 1 July 2015 Profit for the year Movement in carrying amount of foreign entities due to currency translation 17(a) Total comprehensive income for the year Transactions with owners in their capacity as owners: Employee Share Plan Options exercised Employee share options Equity issued under dividend reinvestment plan Share purchase plan offer Dividends paid 16(b) 16(b) 17(b) 16(b) 16(b) 7 Total transactions with owners in their capacity as owners Balance as at 30 June 2016 16,17 Consolidated Equity Balance as at 1 July 2014 Profit for the year Movement in carrying amount of foreign entities due to currency translation 17(a) Total comprehensive income for the year Transactions with owners in their capacity as owners: Employee Share Plan Options exercised Employee share options Equity issued under dividend reinvestment plan Institutional placement Share purchase plan offer Dividends paid Total transactions with owners in their capacity as owners 16(b) 16(b) 17(b) 16(b) 16(b) 16(b) 7 - - - 161 2,238 - 1,154 (30) - - 26,083 26,083 2,221 2,221 - 26,083 2,221 28,304 - - 284 - - - - - - - - 161 2,238 284 1,154 (30) (10,660) (10,660) 3,523 78,650 284 11,418 (10,660) 44,912 (6,853) 134,980 Consolidated Entity Note Contributed Entity $’000 45,126 Reserves $’000 (1,358) Retained Earnings $’000 22,318 Total Equity $’000 66,086 - - - 155 1,257 - 1,510 14,780 12,299 - - 16,944 16,944 10,052 10,052 - 16,944 10,052 26,996 - - 219 - - - - - - - - - - (9,773) 155 1,257 219 1,510 14,780 12,299 (9,773) 30,001 219 (9,773) 20,447 Balance as at 30 June 2015 16, 17 75,127 8,913 29,489 113,529 The consolidated statement of changes in equity is to be read in conjunction with the notes to the financial statements set out on pages 39 to 74. 37 Hansen Technologies Ltd – Annual Report 2016 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2016 Cash flows from operating activities Receipts from customers Payments to suppliers and employees Interest received Finance costs Income tax paid Net cash provided by operating activities Cash flows from investing activities Payment for acquisition of business net of bank overdraft assumed Payment for plant and equipment Payment for capitalised development costs Net cash used in investing activities Cash flows from financing activities Proceeds from share issue Proceeds from options exercised Proceeds from borrowings Payment of borrowings Dividends paid net of dividend reinvestment Net cash provided by (used in) financing activities Net increase in cash and cash equivalents Cash and cash equivalents at beginning of year Note 6(a) 18(a) 19 11 12 16 16 14 14 Consolidated Entity 2016 $’000 2015 $’000 154,984 (110,764) 62 (59) (11,600) 32,623 - (1,810) (5,488) (7,298) 161 2,238 - (10,000) (9,506) (17,107) 108,671 (67,479) 60 (234) (4,129) 36,889 (29,900) (3,037) (4,479) (37,416) 27,436 1,257 24,000 (25,748) (8,262) 18,683 8,218 18,156 21,985 3,829 Cash and cash equivalents at end of the year 18(b) 30,203 21,985 The consolidated statement of cash flow is to be read in conjunction with the notes to the financial statements set out on pages 39 to 74. 38 Hansen Technologies Ltd – Annual Report 2016 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2016 1. Statement of significant accounting policies The following is a summary of significant accounting policies adopted by the consolidated entity in the preparation and presentation of the Financial Report. The accounting policies have been consistently applied, unless otherwise stated. (a) Basis of preparation of the Financial Report This Financial Report is a general purpose Financial Report that has been prepared in accordance with Australian Accounting Standards, Interpretations and other applicable authoritative pronouncements of the Australian Accounting Standards Board and the Corporations Act 2001. The Financial Report covers Hansen Technologies Ltd and controlled entities as a consolidated entity. Hansen Technologies Ltd is a company limited by shares, incorporated and domiciled in Australia. The address of Hansen Technologies Ltd registered office and principle place of business is 2 Frederick St Doncaster, Victoria. Hansen Technologies Ltd is a for-profit entity for the purpose of preparing the financial statements. This Financial Report was authorised for issue by the Directors on 29 September 2016. Compliance with IFRS The consolidated financial statements of Hansen Technologies Ltd also comply with the International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). Historical cost convention The Financial Report has been prepared under the historical cost convention, as modified by revaluations to fair value for certain classes of assets and liabilities as described in the accounting policies. Significant accounting estimates The preparation of the Financial Report requires the use of certain estimates and judgements in applying the entity’s accounting policies. Those estimates and judgements significant to the Financial Report are disclosed in note 2. (b) Principles of consolidation The consolidated financial statements are those of the consolidated entity, comprising the financial statements of the parent entity, Hansen Technologies Ltd, and of all entities, which the parent controls. The Group controls an entity when it is exposed, 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. The financial statements of subsidiaries are prepared for the same reporting period as the parent entity, using consistent accounting policies. Adjustments are made to bring into line any dissimilar accounting policies that may exist. All inter-company balances and transactions, including any unrealised profits or losses, have been eliminated on consolidation. Subsidiaries are consolidated from the date that control is established. (c) Revenue Revenue from the provision of services to customers is recognised upon delivery of the service to the customer. Maintenance and support revenue when invoiced in advance is initially recognised as a liability until the service is performed. Accrued revenue is recognised on a percentage of completion basis in order to record revenues against incurred effort and expense. Revenue from the sale of goods is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer and the costs incurred or to be incurred in respect of the transaction can be measured reliably. Risks and rewards of ownership are considered to have passed to the buyer at the time of delivery of the goods to the customer. Interest revenue is recognised when it becomes receivable on a proportional basis, taking into account the interest rates applicable to the financial assets. All revenue is measured net of the amount of goods and services tax (GST). 39 Hansen Technologies Ltd – Annual Report 2016 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2016 1. Statement of significant accounting policies continued (d) Cash and cash equivalents Cash and cash equivalents include cash on hand and at banks, short term deposits with an original maturity of six months or less held at call with financial institutions and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the statement of financial position. (e) Plant, equipment and leasehold improvements Cost and valuation All classes of plant, equipment and leasehold improvements are stated at cost less depreciation and any accumulated impairment losses. Depreciation The depreciable amounts of all fixed assets are depreciated on a straight-line basis over their estimated useful lives 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 useful lives for each class of assets are: Plant, equipment and leasehold improvements Leased plant and equipment (f) Leases 2016 2015 2.5 to 12 years 2.5 to 12 years 2.5 to 12 years 2.5 to 12 years Leases are classified at their inception as either operating or finance leases based on the economic substance of the agreement so as to reflect the risks and benefits incidental to ownership. Finance leases Leases of fixed assets, where substantially all of the risks and benefits incidental to ownership of the asset but not the legal ownership are transferred to the consolidated entity, are classified as finance leases. Finance leases are capitalised, recording an asset and liability equal to the present value of the minimum lease payments, including any guaranteed residual values. The interest expense is calculated using the interest rate implicit in the lease and is included in finance costs in the statement of comprehensive income. Leased assets are depreciated on a straight-line basis over their estimated useful lives where it is likely the consolidated entity will obtain ownership of the asset, or over the term of the lease. Lease payments are allocated between the reduction of the lease liability and the lease interest expense for the period. Operating leases Lease payments for operating leases are recognised as an expense on a straight-line basis over the term of the lease. (g) Business combinations A business combination is a transaction or other event in which an acquirer obtains control of one or more business and results in the consolidation of the assets and liabilities acquired. Business combinations are accounted for by applying the acquisition method. The consideration transferred is the sum of the acquisition date fair values of the assets transferred, equity instruments issued or liabilities incurred by the acquirer to former owners of the acquiree. Deferred consideration payable is measured at its acquisition date fair value. At each reporting date subsequent to the acquisition, contingent consideration payable is measured at its fair value with any changes in the fair value recognised in profit or loss unless the contingent consideration is classified as equity, in which case the contingent consideration is carried at the acquisition date fair value. Goodwill is recognised initially at the excess of: (a) The aggregate of the consideration transferred, the fair value of the non-controlling interests and the acquisition date fair value of the acquirer’s previously held equity interest; over (b) the net fair value of the identifiable assets acquired and liabilities assumed. Acquisition-related costs are expensed as incurred. 40 Hansen Technologies Ltd – Annual Report 2016 (h) Intangibles Goodwill Goodwill represents the future economic benefits arising from other assets acquired in a business combination that are not individually identifiable or separately recognised. Refer to note 1(g) for a description of how goodwill arising from a business combination is initially measured. Technology, trademarks and customer contracts Technology, trademarks and customer contracts are recognised at cost and are amortised over their estimated useful lives, which range from five to ten years for technology and trademarks, and the term of the contract for customer contracts. Technology, trademarks and customer contracts are carried at cost less accumulated amortisation and any impairment losses. Research and development Expenditure on research activities is recognised as an expense when incurred. Development costs are capitalised when the entity can demonstrate all of the following: the technical feasibility of completing the asset so that it will be available for use or sale; the intention to complete the asset and use or sell it; the ability to use or sell the asset; how the asset will generate probable future economic benefits; the availability of adequate technical, financial and other resources to complete the development and to use or sell the asset; and the ability to measure reliably the expenditure attributable to the asset during its development. Capitalised development expenditure is carried at cost less any accumulated amortisation and any accumulated impairment losses. Amortisation is calculated using a straight-line method to allocate the cost of the intangible asset over its estimated useful life, which range from five to ten years. Amortisation commences when the intangible asset is available for use. Other development expenditure is recognised as an expense when incurred. (i) Impairment of non-financial assets Assets with an indefinite useful life are not amortised but are tested at least annually for impairment in accordance with AASB 136. Assets subject to annual depreciation or amortisation are reviewed for impairment whenever events or circumstances arise that indicate that the carrying amount of the asset may be impaired. An impairment loss is recognised where the carrying amount of the asset exceeds its recoverable amount. The recoverable amount of an asset is defined as the higher of its fair value less costs to sell and value in use. (j) Income tax Current income tax expense or revenue is the tax payable on the current period’s taxable income based on the applicable income tax rate adjusted by changes in deferred tax assets and liabilities. Deferred tax balances Deferred tax assets and liabilities are recognised for temporary differences at the applicable tax rates when the assets are expected to be recovered or liabilities settled. No deferred tax asset or liability is recognised in relation to temporary differences if they arose in a transaction, other than a business combination, that at the time of the transaction did not affect either accounting profit or taxable profit or loss. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Current and deferred tax balances attributable to amounts recognised directly in equity are also recognised directly in equity. 41 Hansen Technologies Ltd – Annual Report 2016 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2016 1. Statement of significant accounting policies continued (j) Income tax continued Tax consolidation The consolidated entity is subject to income taxes in Australia and jurisdictions in which it has foreign operations. In some of these jurisdictions, namely Australia, the US and Denmark, the immediate parent entity and entities it controls have formed local income tax consolidated groups that are taxed as a single entity in their relevant jurisdiction. Each tax consolidated group has entered a tax funding agreement whereby each entity in the tax consolidated group recognises the assets, liabilities, expenses and revenues in relation to its own transactions, events and balances only. This means that: • the parent entity recognises all current and deferred tax amounts relating to its own transactions, events and balances only; • the subsidiaries recognise current or deferred tax amounts arising in respect of their own transactions, events and balances; and • the current tax liabilities and deferred tax assets arising in respect of tax losses are transferred from the subsidiary to the head entity as inter-company payables or receivables. Each tax consolidated group also has a tax sharing agreement in place to limit the liability of subsidiaries in the tax consolidated group arising under the joint and several liability requirements of the tax consolidation system, in the event of default by the parent entity to meet its payment obligations. This means that under the tax sharing agreement, the subsidiaries are legally liable to the income tax payable in proportion to their contribution to the net profit before tax of the tax consolidated group. (k) Provisions Provisions are recognised when the consolidated entity 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. (l) Employee benefits (i) Short term employee benefit obligations Liabilities arising in respect of wages and salaries, annual leave, long service leave and any other employee benefits expected to be settled within 12 months of the reporting date are measured at the amounts based on remuneration rates that are expected to be paid when the liability is settled. The expected cost of short term employee benefits in the form of compensated absences such as annual leave and long service leave is recognised in the provision for employee benefits. All other short term employee benefit obligations are presented as payables. (ii) Other long term employee benefit obligations The provision for other long term employee benefits, including obligation for long service leave and annual leave, which are not expected to be settled wholly before 12 months after the end of the reporting period are measured at the present value of the estimated future cash outflow to be made in respect of the services provided by employees up to the reporting date. Expected further payments incorporate anticipated future wage and salary levels, durations of service and employee turnover and are discounted at rates determined by reference to market yields at the end of the reporting period on high quality corporate bonds that have maturity dates that approximate the terms of the obligations. Any re-measurements for changes in assumptions of obligations for other long term employee benefits are recognised in profit or loss in the periods in which the change occurs. Other long term employee benefit obligations are presented as current liabilities in the balance sheet if the entity does not have an unconditional right to defer settlement for at least 12 months after the reporting date, regardless of when the actual settlement is expected to occur. All other long term employee benefit obligations are presented as non-current liabilities in the statement of financial position. (iii) Retirement benefit obligations The consolidated entity makes superannuation contributions (currently 9.50% of the employee’s average ordinary salary) to the employee’s defined contribution superannuation plan of choice in respect of employee services rendered during the year. These superannuation contributions are recognised as an expense in the same period when the related employee services are received. The Group’s obligation with respect to employee’s defined contributions entitlements is limited to its obligation for any unpaid superannuation guarantee contributions at the end of the reporting period. All obligations for unpaid superannuation guarantee contributions are measured at the (undiscounted) amounts expected to be paid when the obligation is settled and are presented as current liabilities in the statement of financial position. 42 Hansen Technologies Ltd – Annual Report 2016 (iv) Share-based payments The consolidated entity operates share-based payment employee share and option schemes. 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 shares is measured at the market bid price at grant date. In respect of share-based payments that are dependent on the satisfaction of performance conditions, the number of shares and options expected to vest is reviewed and adjusted at each reporting date. The amount recognised for services received as consideration for these equity instruments granted is adjusted to reflect the best estimate of the number of equity instruments that eventually vest. (v) Bonus plan The consolidated entity recognises a provision when a bonus is payable in accordance with the employee’s contract of employment or review letter and the amount can be reliably measured. (vi) Termination benefits The Group recognises an obligation and expense for termination benefits at the earlier of: (a) the date when the Group can no longer withdraw the offer for termination benefits; and (b) when the Group recognises costs for restructuring and the costs include termination benefits. In either case, the obligation and expense for termination benefits are measured on the basis of the best estimate of the number of employees expected to be affected. Termination benefits that are expected to be settled wholly before 12 months after the annual reporting period in which the benefits are recognised are measured at the (undiscounted) amounts expected to be paid. All other termination benefits are accounted for on the same basis as other long term employee benefits. (m) Borrowing costs Borrowing costs can include interest expense calculated using the effective interest method and finance charges in respect of finance leases. Borrowing costs are expensed as incurred except for borrowing costs incurred as part of the construction of a qualifying asset, in which case the costs are capitalised until the asset is ready for its intended use or sale. (n) Financial instruments Classification The consolidated entity classifies its financial assets in the following categories: loans and receivables; and financial liabilities. The classification depends on the nature of the item and the purpose for which the instruments were acquired. Management determines the classification of its financial instruments at initial recognition. Initial recognition and measurement Financial assets and financial liabilities are recognised when the entity becomes a party to the contractual provisions of the instrument. For financial assets, this is equivalent to the date that the entity commits itself to either the purchase or sale of the asset (i.e. trade date accounting is adopted). Financial instruments are initially measured at fair value adjusted for transaction costs, except where the instrument is classified as fair value through profit or loss, in which case transaction costs are immediately recognised as expenses in profit or loss. Fair value through profit or loss Financial assets are classified at fair value through profit or loss when they are held for trading for the purpose of short term profit taking, are derivatives not held for hedging purposes, or when they are designated as such to avoid an accounting mismatch or to enable performance evaluation by key management personnel. Investments in listed securities are carried at fair value through profit or loss. They are measured at their fair value at each reporting date and any increment or decrement in fair value from the prior period is recognised in profit or loss of the current period. Fair value of listed investments is based on closing bid prices at the reporting date. Loans and receivables Loans and receivables are measured at fair value at inception and subsequently at amortised cost using the effective interest rate method. Financial liabilities Financial liabilities include trade payables, other creditors and loans from third parties. Financial liabilities are classified as current liabilities unless the consolidated entity has an unconditional right to defer settlement of the liability for at least 12 months after the reporting date. 43 Hansen Technologies Ltd – Annual Report 2016 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2016 1. Statement of significant accounting policies continued (o) Foreign currencies translations and balances Functional and presentation currency The financial statements of each entity within the consolidated Group are 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 consolidated entity’s functional and presentation currency. Transactions and balances Transactions in foreign currencies of entities within the consolidated Group are translated into functional currency at the rate of exchange ruling at the date of the transaction. Foreign currency monetary items that are outstanding at the reporting date (other than monetary items arising under foreign currency contracts where the exchange rate for that monetary item is fixed in the contract) are translated using the spot rate at the end of the financial year. All resulting exchange differences arising on settlement or re-statement are recognised as revenues or expenses for the financial year. Foreign subsidiaries Subsidiaries that have a functional currency different to the presentation currency of the consolidated Group are translated as follows: • assets and liabilities are translated at year end exchange rates prevailing at that reporting date; • income and expenses are translated at actual exchange rates or average exchange rates for the period, where appropriate; and • all resulting exchange differences arising on translation of foreign operations are transferred directly to the Group’s foreign currency translation reserve as a separate component of equity in the balance sheet. Exchange differences arising on the reduction of a foreign subsidiary’s equity continues to be recognised in the Group’s foreign currency translation reserve until such time that the foreign subsidiary is disposed of. (p) Sales tax (including GST and VAT) Revenues, expenses and assets are recognised net of the amount of sales tax, except where the amount of sales tax incurred is not recoverable from the Tax Office. In these circumstances the sales tax is recognised as part of the 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 sales tax. Cash flows are presented in the statement of cash flows on a gross basis, except for the sales tax component of investing and financing activities, which are disclosed as operating cash flows. (q) Comparatives Where necessary, comparative information has been reclassified and repositioned for consistency with current year disclosures. (r) Rounding amounts The parent entity and the consolidated entity have applied the relief available under Corporations (Rounding in Financial/Director’s Reports) Instrument 2016/191 and, accordingly, the amounts in the consolidated financial statements and in the Directors’ Report have been rounded to the nearest thousand dollars, or in certain cases to the nearest dollar. (s) Going concern The Financial Report has been prepared on a going concern basis. (t) Adoption of new and amended accounting standards that are first operative at 30 June 2016 There are no new or amended accounting standards effective for the financial year beginning 1 July 2015 that have affected any amounts recorded in the current or prior year. (u) Accounting standards and interpretations issued but not operative at 30 June 2016 The following standards and interpretations have been issued at the reporting date but are not yet effective. The Directors’ assessment of the impact of these standards and interpretations is set out on the following page. 44 Hansen Technologies Ltd – Annual Report 2016 (i) AASB 15 Revenue from Contracts with Customers AASB 15 introduces a five-step process for revenue recognition with the core principle being for entities to recognise revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration (that is, payment) to which the entity expects to be entitled in exchange for those goods or services. The five-step approach is as follows: • Step 1: Identify the contracts with the customer. • Step 2: Identify the separate performance obligations. • Step 3: Determine the transaction price. • Step 4: Allocate the transaction price. • Step 5: Recognise revenue when a performance obligation is satisfied. AASB 15 will also result in enhanced disclosures about revenue, provide guidance for transactions that were not previously addressed comprehensively (for example, service revenue and contract modifications) and improve guidance for multiple-element arrangements. The effective date is annual reporting periods beginning on or after 1 January 2018. The changes in revenue recognition requirements in AASB 15 may cause changes to the timing and amount of revenue recorded in the financial statements as well as additional disclosures. The impact if any of AASB 15 has not yet been quantified. (ii) AASB 9 Financial Instruments AASB 9 makes significant revisions to the classification and measurement of financial assets, reducing the number of categories and simplifying the measurement choices, including the removal of impairment testing of assets measured at fair value. The amortised cost model is available for debt assets meeting both business model and cash flow characteristics tests. All investments in equity instruments using AASB 9 are to be measured at fair value. AASB 9 amends measurement rules for financial liabilities that the entity elects to measure at fair value through profit and loss. Changes in fair value attributable to changes in the entity’s own credit risk are presented in other comprehensive income. Impairment of assets is now based on expected losses in AASB 9, which requires entities to measure: • the 12-month expected credit losses (expected credit losses that result from those default events on the financial instrument that are possible within 12 months after the reporting date); or • full lifetime expected credit losses (expected credit losses that result from all possible default events over the life of the financial instrument). The effective date is annual reporting periods beginning on or after 1 January 2018. The impact if any of AASB 9 has yet to be quantified. (iii) AASB 16 Leases AASB 16 will replace AASB 117: Leases and introduces a single lessee accounting model that will require a lessee to recognise right-of-use assets and lease liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. Right-of-use assets are initially measured at their cost and lease liabilities are initially measured on a present value basis. Subsequent to initial recognition, right-of-use assets are accounted for on a similar basis to non-financial assets, whereby the right-of-use asset is accounted for in accordance with a cost model unless the underlying asset is accounted for on a revaluation basis, in which case if the underlying asset is: • investment property, the lessee applies the fair value model in AASB 140: Investment Property to the right-of-use asset; or • property, plant or equipment, the lessee can elect to apply the revaluation model in AASB 116: Property, Plant and Equipment to all of the right-of-use assets that relate to that class of property, plant and equipment; and • lease liabilities are accounted for on a similar basis as other financial liabilities, whereby interest expense is recognised in respect of the liability and the carrying amount of the liability is reduced to reflect lease payments made. AASB 16 substantially carries forward the lessor accounting requirements in AASB 117. Accordingly, under AASB 16 a lessor would continue to classify its leases as operating leases or finance leases subject to whether the lease transfers to the lessee substantially all of the risks and rewards incidental to ownership of the underlying asset, and would account for each type of lease in a manner consistent with the current approach under AASB 117. Although the Directors anticipate that the adoption of AASB 16 may have an impact on the Group’s accounting for its operating leases, it is impracticable at this stage to provide a reasonable estimate of such impact. Other standards and interpretations have been issued at the reporting date but are not yet effective. When adopted, these standards and interpretations are likely to impact on the financial information presented; however, the assessment of impact has not yet been completed. 45 Hansen Technologies Ltd – Annual Report 2016 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2016 2. Critical accounting estimates and judgements The Group makes certain estimates and assumptions concerning the future which, by definition, will seldom represent actual results. Estimates and assumptions based on future events have a significant inherent risk and where future events are not as anticipated, there could be a material impact on the carrying amounts of the assets and liabilities discussed below. (a) Impairment of goodwill The intangible asset of goodwill is subject to periodic review to assess if its carrying value has been impaired. This assessment compares the carrying book value with the recoverable amount of these assets using value in use discounted cash flow projection calculations based on management’s determination of budgeted cash flow projections and gross margins, past performance and its expectations for the future. The valuation utilises the billing business segment of the Board-approved budget for the subsequent fiscal year (being the business segment to which goodwill applies), and: • provides for a constant 5% growth rate (2015: 5%) for the remainder of the forecast period; and • utilises a 12% (2015:12%) weighted cost of capital discount rate; to • determine the discounted value of the resultant cash flow over a five-year period, plus terminal value using a terminal growth rate of 2% (2015: 2%) at period end. (b) Impairment of non-financial assets other than goodwill All assets are assessed for impairment at each reporting date by evaluating whether indicators of impairment exist in relation to the continued use of the asset by the consolidated entity. Impairment triggers include declining product or manufacturing performance, technology changes, adverse changes in the economic or political environment or future product expectations. If an indicator of impairment exists, the recoverable amount of the asset is determined. (c) Income tax Income tax benefits are based on the assumption that no adverse change will occur in the income tax legislation and the anticipation that the Group will derive sufficient future assessable income to enable the benefit to be realised and comply with the conditions of deductibility imposed by the law. Recognition of carried forward losses is based upon the probable future profits of the Group. (d) Research and development Development costs incurred are assessed for each research and development project and a percentage of the expenditure is capitalised when technical feasibility studies demonstrate that the project will deliver future economic benefits and those benefits can be measured reliably. There has been investment in research and development expenditure incurred in relation to the HUB, Peace, ICC, Banner and NaviBilling software in the 2016 year. Returns are expected to be derived from this investment over coming years. (e) Fair value measurement Certain financial assets and liabilities are measured at fair value. Fair values have been determined in accordance with fair value measurement hierarchy. 46 Hansen Technologies Ltd – Annual Report 2016 3. Financial risk management The consolidated entity is exposed to a variety of financial risks comprising: (a) interest rate risk; (b) credit risk; (c) liquidity and foreign exchange risk; and (d) fair values. The Board of Directors has overall responsibility for identifying and managing operational and financial risks. (a) Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate as a result of changes in market interest rates. The consolidated entity’s exposure to interest rate risk in relation to future cash flows and the effective weighted average interest rates on classes of financial assets and financial liabilities is as follows: Financial Instruments Note 2016 Financial assets Cash and cash equivalents Receivables Other current assets Financial liabilities Payables Deferred consideration at fair value through the profit and loss Borrowings 2015 Financial assets Cash and cash equivalents Receivables Other current assets Financial liabilities Payables Deferred consideration at fair value through the profit and loss Borrowings 8 9 10 13 13 14 8 9 10 13 14 Consolidated Entity Interest Bearing $’000 Non-interest Bearing $’000 Total Carrying Amount $’000 Weighted Avg. Effective Interest Rate % Fixed/ Variable Rate 30,203 - - 30,203 - - 386 386 21,985 - - 21,985 - - 10,461 10,461 - 21,507 - 21,507 30,203 21,507 - 51,710 12,229 12,229 3,410 - 15,639 - 19,950 38 19,988 3,410 386 16,025 21,985 19,950 38 47,973 5,724 5,724 2,281 - 8,005 2,281 10,461 18,466 1.53 variable 1.39 variable 2.63 variable 3.34 variable Management is comfortable with the risk associated with using variable interest rates due to the current level of borrowings. No other financial assets or liabilities are expected to be exposed to interest rate risk. 47 Hansen Technologies Ltd – Annual Report 2016 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2016 3. Financial risk management continued (b) Credit risk Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. The maximum exposure to credit risk, excluding the value of any collateral or other security at balance date of recognised financial assets, is the carrying amount of those assets net of any provisions for impairment of those assets, as disclosed in the consolidated statement of financial position and notes to the consolidated financial statements. The consolidated entity does not have any material credit risk exposure to any single debtor or group of debtors under financial instruments entered into by the consolidated entity. The consolidated entity minimises concentrations of credit risk in relation to trade receivables by undertaking transactions with a large number of customers. Concentrations of credit risk on trade debtors by industry are as follows: utilities 30% (2015: 21%), telecommunications 38% (2015: 32%), pay-tv 30% (2015: 44%), and other 2% (2015: 3%). The ageing analysis of trade and other receivables is provided in note 9. As the consolidated entity undertakes transactions with a large number of customers and regularly monitors payment in accordance with credit terms, the financial assets that are neither past due nor impaired are expected to be received in accordance with the credit terms. (c) Liquidity and foreign exchange risk Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities. The Group has historically been able to generate and retain strong positive cash flows and in addition a multi-currency line of credit has been established with the Company’s bankers to provide increased capacity for strategic growth objectives. The Hansen Group operates internationally and as such has exposure to foreign currency movements as part of its day-to-day operational activities. The Group has expanded its international operations substantially in recent years to the extent that in excess of 75% of its revenue is now earned in foreign currency designated transactions. The Group has a number of offices located internationally and more than 65% of its workforce is located overseas and paid in foreign currencies. Accordingly, the Group has an in-built natural hedge against major currency fluctuation and with the exception of significant sudden change, is protected in part by its corporate structure against currency movements so that the impact is largely limited to the margin. The Group’s borrowings are predominantly made up of lease liabilities of $0.386 million which are due for repayment by January 2020. Trade creditors are due for repayment within six months. (d) Fair value measurements The fair value of financial assets and financial liabilities approximates their carrying amounts as disclosed in the consolidated statement of financial position and notes to the consolidated financial statements. Included in ‘other payables’ is a liability for contingent consideration measured at fair value on a recurring basis, which was settled on 1 July 2016 in relation to a business combination dated 1 May 2015. There are no other assets or liabilities carried at fair value on a recurring basis. Fair value hierarchy Asset and liabilities measured and recognised at fair value have been determined by the following fair value measurement hierarchy: Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2: Input other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3: Inputs for the asset or liability that are not based on observable market data. Deferred consideration liabilities totalling $3,410,217 are measured and recognised at fair value and have been determined to be a recurring Level 2 financial liability. 48 Hansen Technologies Ltd – Annual Report 2016 Valuation techniques and significant unobservable inputs The deferred consideration is based on management’s best and most probable estimate of the business performance targets. In determining the fair value of the deferred consideration, management considers the probability of business targets being met by comparison to budget. A fair value is placed on the option that the seller has to receive either cash or shares in Hansen Technologies Ltd at a predetermined price using the Black-Scholes model. The entire deferred consideration payment is dependent on performance criteria being met. Under the arrangement the minimum deferred consideration amount is $nil and the maximum is dependent on the movement in the Hansen share price from the predetermined price per share (which was included in the contract) and the value as at the date the amount becomes payable. Transfers between Level 2 and 3 On 30 June 2016, the Group transferred the entire carrying amount of deferred consideration on acquisition of TeleBilling A/S from Level 3 fair value to Level 2 of the fair value hierarchy as there were no longer any significant unobservable inputs. Consistent with the Group’s policy on transfers, the timing of the transfer coincided with confirmation that all service and performance criteria had been achieved, leaving observable inputs as the only significant inputs for measuring the fair value of the liability for the consideration. As disclosed in note 13, the liability for deferred consideration was extinguished shortly after the reporting date by the Group issuing shares to the value of $3,410,217. 4. Revenue and other income Revenues from continuing operations Revenue from sale of goods and services Other income: From operating activities Interest received Net foreign exchange gains Other income Total other income Consolidated Entity 2016 $’000 2015 $’000 148,961 148,961 106,257 106,257 62 (59) 233 236 60 203 212 475 Total revenue and other income from continuing operations 149,197 106,732 49 Hansen Technologies Ltd – Annual Report 2016 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2016 5. Profit from continuing operations Profit from continuing operations before income tax has been determined after the following specific expenses: Employee benefit expenses Wages and salaries Superannuation costs Share-based payments Total employee benefit expenses Depreciation expense Plant, equipment and leasehold improvements Total depreciation of non-current assets Amortisation of non-current assets Technology, trademarks and customer contracts Research and development Total amortisation of non-current assets Property and operating rental expenses Rental charges Total property and operating rental expenses Finance charges Finance costs Total finance costs Consolidated Entity 2016 $’000 2015 $’000 Note 11 12 12 68,587 5,378 284 74,249 51,142 3,934 219 55,295 2,547 2,547 3,572 2,917 6,489 5,891 5,891 - - 1,863 1,863 3,082 2,131 5,213 4,575 4,575 234 234 50 Hansen Technologies Ltd – Annual Report 2016 6. Income tax (a) Components of income tax expense: Current tax Deferred tax Under/(over) provision in prior years Total income tax expense (b) Prima facie tax payable The prima facie tax payable on profit before income tax reconciled to the income tax expense is as follows: Prima facie income tax payable on profit before income tax at 30% Add/(less) tax effect of: Impact of tax rates on foreign subsidiaries Research and development allowances Non-deductible share-based payments Under/(over) provision in prior years Gain on foreign exchange assessable/(non-assessable) Deferred tax not previously brought to account Other (allowable)/non-allowable items Income tax expense attributable to profit (c) Current tax liability Current tax relates to the following: Current tax liabilities/(assets) Opening balance Liability from acquisition Prior year under/(over) provision Income tax Tax payments Other Consolidated Entity 2016 $’000 9,635 367 339 10,341 2015 $’000 6,537 861 (339) 7,059 10,927 7,201 249 (1,494) 52 339 407 - (139) 10,341 3,813 - 340 9,635 (11,600) (1) 2,187 772 (271) 65 (339) - (420) 51 7,059 1,061 544 (339) 6,537 (4,129) 139 3,813 51 Hansen Technologies Ltd – Annual Report 2016 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2016 6. Income tax continued (d) Deferred tax Deferred tax relates to the following: Deferred tax assets balance comprises: Difference in depreciation and amortisation of plant and equipment for accounting and income tax purposes Other payables Employee benefits Deferred tax liabilities balance comprises: Research and development expenditure capitalised Difference in depreciation and amortisation of plant, equipment and intangibles for accounting and income tax purposes Other income not yet assessable Net deferred tax (e) Deferred income tax (revenue)/expense included in income tax expense comprises: Increase in deferred tax assets Decrease in deferred tax liabilities (f) Deferred tax assets not brought to account Tax effect of capital losses Tax effect of operating losses Consolidated Entity 2016 $’000 2015 $’000 520 1,155 2,355 4,030 369 1,121 2,109 3,599 (3,504) (3,182) (1,108) (198) (4,810) (780) (431) 798 367 847 806 1,653 (781) (49) (4,012) (413) (1,021) 1,882 861 847 819 1,666 52 Hansen Technologies Ltd – Annual Report 2016 7. Dividends 2016 A regular dividend of 3 cents per share, together with a special dividend of 1 cent per share, has been declared. This final dividend of 4 cents per share, franked to 4 cents, was announced to the market on 24 August 2016. The amount declared has not been recognised as a liability in the accounts of Hansen Technologies Ltd as at 30 June 2016. Dividends provided for or paid during the year 3 cent per share final dividend paid 30 September 2015 – fully franked 3 cent per share final dividend paid 30 September 2014 – fully franked 3 cent per share interim dividend paid 31 March 2016 – franked to 2.5 cents 3 cent per share interim dividend paid 27 March 2015 – franked to 2.5 cents Consolidated Entity 2016 $’000 5,307 5,353 10,660 2015 $’000 4,874 4,899 9,773 Proposed dividend not recognised at the end of the year 7,252 5,307 Dividend franking account 30% franking credits, on a tax paid basis, are available to shareholders of Hansen Technologies Ltd for subsequent financial years 5,513 2,473 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 any current tax liability; (b) franking debits that will arise from the payment of any dividends recognised as a liability at year end; (c) franking credits that will arise from the receipt of any dividends recognised as receivables at year end; and (d) franking credits that the entity may be prevented from distributing in subsequent years. The ability to utilise the franking credits is dependent upon there being sufficient available profits to declare dividends. 8. Cash and cash equivalents Current Cash at bank and on hand Interest bearing deposits Consolidated Entity 2016 $’000 29,644 559 30,203 2015 $’000 5,718 16,267 21,985 53 Hansen Technologies Ltd – Annual Report 2016 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2016 9. Receivables Current Trade receivables Less: provision for impairment Sundry receivables Trade and other receivables ageing analysis at 30 June: Not past due Past due 31– 60 days Past due 61– 90 days Past due more than 91 days Gross 2016 $’000 14,685 1,416 803 3,917 20,821 Impairment 2016 $’000 - - - 31 31 The entity expects to collect all debtor amounts where no provision for impairment has been recorded. Movements in the provision for impairment were: Opening balance at 1 July Movement for the year Amounts written off Foreign exchange translation Closing balance at 30 June 10. Other current assets Current Prepayments Other receivables Accrued revenue Consolidated Entity 2016 $’000 20,821 (31) 20,790 717 21,507 Gross 2015 $’000 15,708 1,350 1,072 1,448 19,578 2016 $’000 470 (439) - - 31 2015 $’000 19,578 (470) 19,108 842 19,950 Impairment 2015 $’000 - - - 470 470 2015 $’000 317 393 (319) 79 470 Consolidated Entity 2016 $’000 2,341 - 4,582 6,923 2015 $’000 1,990 38 3,174 5,202 54 Hansen Technologies Ltd – Annual Report 2016 11. Plant, equipment and leasehold improvements Plant, equipment and leasehold improvements at cost Accumulated depreciation Total plant, equipment and leasehold improvements Consolidated Entity 2016 $’000 33,504 (26,761) 6,743 2015 $’000 32,111 (24,555) 7,556 Reconciliation Reconciliation of the carrying amounts of plant, equipment and leasehold improvements at the beginning and end of the current financial year. Plant, equipment and leasehold improvements Carrying amount at 1 July Additions Acquired Disposals Depreciation expense Net foreign currency movements arising from foreign operations Carrying amount at 30 June 12. Intangible assets Goodwill at cost Accumulated impairment Technology, trademarks and customer contracts at cost Accumulated amortisation and impairment Software development at cost Accumulated amortisation and impairment Consolidated Entity 2016 $’000 7,556 1,810 - (117) (2,547) 41 6,743 2015 $’000 4,376 3,037 1,960 (19) (1,863) 65 7,556 Consolidated Entity 2016 $’000 84,196 (1,575) 82,621 22,496 (11,119) 11,377 35,141 (23,080) 12,061 2015 $’000 81,888 (1,454) 80,434 21,740 (7,487) 14,253 29,574 (20,158) 9,416 Total intangible assets 106,059 104,103 55 Hansen Technologies Ltd – Annual Report 2016 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2016 12. Intangible assets continued Reconciliation of goodwill at cost Carrying amount at 1 July Increase due to acquisition Net foreign currency movements arising from foreign operations Carrying amount at 30 June Accumulated impairment at beginning of year Net foreign currency movements arising from foreign operations Accumulated impairment at end of year Reconciliation of technology, trademarks and customer contracts at cost Carrying amount at 1 July Increase due to acquisition Net foreign currency movements arising from foreign operations Carrying amount at 30 June Accumulated amortisation and impairment at beginning of year Amortisation of technology, trademarks and customer contracts Net foreign currency movements arising from foreign operations Accumulated amortisation and impairment at end of year Reconciliation of software development at cost Carrying amount at 1 July Expenditure capitalised in current period Fully amortised write back Net foreign currency movements arising from foreign operations Carrying amount at 30 June Accumulated amortisation at beginning of year Current year charge Fully amortised write back Net foreign currency movements arising from foreign operations Accumulated amortisation at end of year 56 Hansen Technologies Ltd – Annual Report 2016 Consolidated Entity 2016 $’000 2015 $’000 81,888 - 2,308 84,196 (1,454) (121) (1,575) 21,740 - 756 22,496 (7,487) (3,572) (60) (11,119) 29,574 5,488 - 79 35,141 (20,158) (2,917) - (5) 54,944 20,062 6,882 81,888 (1,433) (21) (1,454) 12,377 7,091 2,272 21,740 (3,764) (3,082) (641) (7,487) 28,627 4,479 (3,994) 462 29,574 (21,977) (2,131) 3,994 (44) (23,080) (20,158) 13. Payables Current Trade payables Other payables Consolidated Entity 2016 $’000 2,061 10,168 12,229 2015 $’000 1,885 6,120 8,005 Included in other payables is a liability for contingent consideration related to a business combination dated 1 May 2015. This liability was settled on 1 July 2016 in the amount of $3,410,217. Refer to note 3 for further information. 14. Borrowings Current Secured Term facility Lease liability Non-current Secured Lease liability Consolidated Entity 2016 $’000 2015 $’000 - 95 95 291 291 10,000 87 10,087 374 374 The Company has a secured A$30 million multi-currency facility with its external bankers to provide additional funding as required for acquisitions and general corporate purposes, which will expire May 2018. The facility is secured by 90% of Group assets. As at 30 June 2016, the remaining unutilised portion of the facility was A$30 million. The Company has a lease liability relating to IT equipment due for repayment in full by January 2020. 57 Hansen Technologies Ltd – Annual Report 2016 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2016 15. Provisions Current Employee benefits Other Non-current Employee benefits (a) Aggregate employee benefits liability (b) Number of employees at year end Other – current Carrying amount at beginning of year Net provisions (payments) made during the year Carrying amount at end of year Provision for employee benefits Consolidated Entity 2016 $’000 9,201 296 9,497 205 205 2015 $’000 8,586 276 8,862 143 143 9,406 8,729 579 544 276 20 296 95 181 276 Provision for employee benefits represents amounts accrued for annual leave and long service leave. The current portion for this provision includes the total amount accrued for annual leave entitlements and the amounts accrued for long service leave entitlements that have vested due to employees having completed the required period of service. Based on past experience, the Group does not expect the full amount of annual leave or long service leave balances classified as current liabilities to be settled within the next 12 months. However, these amounts must be classified as current liabilities since the Group does not have an unconditional right to defer the settlement of these amounts in the event employees wish to use their leave entitlement. The non-current portion for this provision includes amounts accrued for long service leave entitlements that have not yet vested in relation to those employees who have not yet completed the required period of service. In calculating the present value of future cash flows in respect of long service leave, the probability of long service leave being taken is based on historical data. The measurement and recognition criteria relating to employee benefits have been discussed in note 1(l). 58 Hansen Technologies Ltd – Annual Report 2016 16. Contributed capital (a) Issued and paid up capital Ordinary shares, fully paid (b) Movements in shares on issue Balance at beginning of the financial year Shares issued under dividend reinvestment plan Shares issued under employee share plan Options exercised Institutional placement Share purchase plan offer Consolidated Entity 2016 $’000 2015 $’000 78,650 75,127 Consolidated Entity Consolidated Entity 2016 No. of Shares 2016 $’000 2015 No. of Shares 2015 $’000 176,195,333 75,127 161,209,642 45,126 377,199 46,529 2,295,000 - - 1,154 161 2,238 - (30) 931,695 65,720 1,345,000 6,966,717 5,676,559 1,510 155 1,257 14,780 12,299 75,127 Balance at end of the financial year 178,914,061 78,650 176,195,333 (c) Rights of each type of share Ordinary shares participate in dividends and the proceeds on winding up of the parent entity in proportion to the number of shares held. At shareholders meetings each ordinary share is entitled to one vote when a poll is called. (d) Share options Employee Share Option Plan The Employee Share Option Plan (the Plan) was approved by shareholders at the Company’s AGM on 9 November 2001 and reaffirmed at the AGM on 24 November 2011. The maximum number of options on issue under the Plan must not at any time exceed 7.5% of the total number of ordinary shares on issue at that time. The Board may issue options under the Plan to any employee of the Company and its subsidiaries, including Executive Directors, but excluding Non-Executive Directors. Options will be issued free of charge, unless the Board determines otherwise. Each option is to subscribe for one ordinary share and, when issued, the shares will rank equally with other shares. The options are not transferable. Quotation of the options on the ASX will not be sought, but the Company will apply to the ASX for official quotation of shares issued on the exercise of options. Options may be granted subject to conditions specified by the Board, which must be satisfied before the option can be exercised. Unless the terms on which an option was offered specified otherwise, an option may be exercised at any time after the vesting date. An option may also be exercised in special circumstances, that is, at any time within six months after the employee’s death, total and permanent disablement, retirement or retrenchment. An option lapses 28 days after termination of the employee’s employment with the Company and, unless the terms of the offer of the option specify otherwise, lapses five years after the date upon which it was granted. The Directors have the discretion to vary the terms of the options as deemed appropriate. 59 Hansen Technologies Ltd – Annual Report 2016 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2016 16. Contributed capital continued The exercise price per share for an option will be the amount determined by the Board at the time of the grant of the option. Option holders will not be entitled to participate in any new issue of securities in the Company unless they exercise their options prior to the record date for the determination of entitlements to the new issue. If the Company makes a bonus issue of securities to ordinary shareholders, each unexercised option will, on exercise, entitle its holder to receive the bonus securities as if the option had been exercised before the record date for the bonus issue. If the Company makes a pro rata rights issue of ordinary shares for cash to its ordinary shareholders, the exercise price of unexercised options may be adjusted to reflect the diluting effect of the issue. If there is any reorganisation of the capital of the Company, the exercise price of the options will be adjusted in accordance with the Listing Rules. Options issued under the Employee Share Option Plan are valued on the same basis as those issued to KMP. Refer to note 21 for disclosure regarding valuation inputs. Since the end of the financial year NIL (2015: 1,000,000) share options have been granted under this scheme. Options issued and not yet exercised at 30 June 2016 Grant Date Exercise Date Expiry Date Consolidated 2016 1 January 2011 1 January 2014 1 January 2016 2 July 2011 2 July 2014 2 July 2016 2 December 2011 2 July 2014 2 July 2016 2 July 2012 2 July 2015 2 July 2017 1 December 2012 2 July 2015 2 July 2017 1 December 2012 2 July 2015 2 July 2017 1 December 2012 2 July 2015 2 July 2017 1 December 2012 2 July 2015 2 July 2017 2 July 2013 2 July 2016 2 July 2018 12 December 2013 2 July 2016 2 July 2018 12 December 2013 2 July 2016 2 July 2018 12 December 2013 2 July 2016 2 July 2018 2 July 2014 2 July 2015 Total 2 July 2017 2 July 2019 2 July 2018 2 July 2020 Exercise Price $ No. of Options at Beg. of Year Options Granted Options Exercised or Lapsed No. of Options at End of Year Issued Vested 0.75 0.91 0.91 0.92 0.92 0.97 1.02 1.07 0.92 1.06 1.11 1.16 1.30 2.67 75,000 295,000 40,000 785,000 70,000 350,000 350,000 350,000 895,000 350,000 350,000 350,000 1,075,000 - - - - - - - - - - - - - 75,000 295,000 40,000 - - - 565,000 220,000 70,000 350,000 350,000 350,000 - - - - 100,000 795,000 - - - 350,000 350,000 350,000 200,000 875,000 - 1,000,000 - 1,000,000 5,335,000 1,000,000 2,395,000 3,940,000 - - - - - - - - - - - - - - - The weighted average share price for share options exercised during the period was $0.98. The weighted average remaining contractual life for share options outstanding at the end of the period was 0.68 years. 60 Hansen Technologies Ltd – Annual Report 2016 Options issued and not yet exercised at 30 June 2015 Grant Date Exercise Date Expiry Date Consolidated 2015 1 July 2010 1 July 2013 1 July 2015 1 January 2011 1 Jan 2014 1 Jan 2016 2 July 2011 2 July 2014 2 July 2016 1 December 2011 1 July 2014 1 July 2016 1 December 2011 1 July 2014 1 July 2016 1 December 2011 1 July 2014 1 July 2016 2 December 2011 2 July 2013 2 July 2015 2 December 2011 2 July 2014 2 July 2016 2 July 2012 2 July 2015 2 July 2017 1 December 2012 2 July 2015 2 July 2017 1 December 2012 2 July 2015 2 July 2017 1 December 2012 2 July 2015 2 July 2017 1 December 2012 2 July 2015 2 July 2017 2 July 2013 2 July 2016 2 July 2018 12 December 2013 2 July 2016 2 July 2018 12 December 2013 2 July 2016 2 July 2018 12 December 2013 2 July 2016 2 July 2018 Exercise Price $ No. of Options at Beg. of Year Options Granted Options Exercised or Lapsed No. of Options at End of Year Issued Vested 0.58 0.75 0.91 0.95 1.00 1.05 0.91 0.91 0.92 0.92 0.97 1.02 1.07 0.92 1.06 1.11 1.16 105,000 75,000 745,000 250,000 250,000 250,000 40,000 40,000 785,000 70,000 350,000 350,000 350,000 895,000 350,000 350,000 350,000 - - - - - - - - - - - - - - - - - 105,000 - - - 75,000 75,000 450,000 295,000 295,000 250,000 250,000 250,000 40,000 - - - - - - - - 40,000 40,000 - - - - - - - - - - 785,000 70,000 350,000 350,000 350,000 895,000 350,000 350,000 350,000 - - - - - - - - - - 2 July 2014 2 July 2017 2 July 2019 1.30 - 1,115,000 40,000 1,075,000 Total Employee Share Plan 5,605,000 1,115,000 1,385,000 5,335,000 410,000 The Employee Share Plan (ESP) was approved by shareholders at the Company’s AGM on 9 November 2001. The ESP is available to all eligible employees to acquire ordinary shares in the Company. Shares to be issued or transferred under the ESP will be valued at the volume weighted average share price of shares traded on the ASX in the ordinary course of trading during the five business days immediately preceding the day the shares are issued or transferred to qualifying employees or participants. The Board has discretion as to how the shares are to be issued or transferred to participants. Such shares may be acquired on or off market or the Company may allot shares or they may be obtained by any combination of the foregoing. On application, employees pay no application monies. The amount of the consideration to be provided by qualifying employees to acquire the shares can be foregone from future remuneration (before tax). To qualify, employees must be full time or permanent part-time employees of the Company or any subsidiary of the Company. Shares issued under the ESP will rank equally in all respects with all existing shares from the date of allotment. A participant must not sell, transfer or otherwise dispose of any shares issued or transferred to the participant under the ESP until the earlier of: • the end of the period of three years (or if a longer period is specified by the Board in the offer, the end of that period) commencing on the date of the issue or transfer of the shares to the participant; and • the date on which the participant is no longer employed by the Company or a related body corporate of the Company. 61 Hansen Technologies Ltd – Annual Report 2016 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2016 16. Contributed capital continued Employee Share Plan continued Details of the movement in employee shares under the ESP are as follows: Number of shares at beginning of year Number of shares distributed to employees Number of shares transferred to main share registry and/or disposed of Number of shares at year end Consolidated Entity 2016 No. of Shares 2015 No. of Shares 329,326 46,529 (156,277) 219,578 397,577 65,720 (133,971) 329,326 The consideration for the shares issued 4 May 2016 was $3.46 (27 April 2015: $2.3534). The amounts recognised in the financial statements of the consolidated entity and the Company in relation to the ESP during the year were: Current receivables Issued ordinary share capital Consolidated Entity 2016 $’000 40 161 2015 $’000 39 155 The market value of ordinary Hansen Technologies Ltd shares closed at $3.39 on 30 June 2016 ($2.62 on 30 June 2015). 17. Reserves and retained earnings Foreign currency translation reserve Options granted reserve Retained earnings (a) Foreign currency translation reserve This reserve is used to record the exchange differences arising on translation of a foreign entity. Movements in reserve Balance at beginning of year Adjustment to carrying value of overseas interests due to currency fluctuation Balance at end of year (b) Options granted reserve This reserve is used to record the fair value of options issued to employees as part of their remuneration. Movements in reserve Balance at beginning of year Value of options granted during the year Balance at end of year Consolidated Entity 2016 $’000 10,167 1,251 44,912 2015 $’000 7,946 967 29,489 Note 17(a) 17(b) 17(c) 7,946 2,221 10,167 (2,106) 10,052 7,946 967 284 1,251 748 219 967 62 Hansen Technologies Ltd – Annual Report 2016 (c) Retained earnings Balance at beginning of year Dividends paid during the year Net profit attributable to members of Hansen Technologies Ltd Balance at end of year 18. Cash flow information (a) Reconciliation of the net profit after tax to net cash flows from operations Net profit from ordinary activities after income tax Add/(less) items classified as investing/financing activities: Net (profit)/loss on sale of non-current assets Add/(less) non-cash items: Amortisation and depreciation Share-based payment expense Unrealised foreign exchange Adjustment to fair value on contingent liabilities Employee share scheme Consolidated Entity 2016 $’000 29,489 (10,660) 26,083 44,912 2015 $’000 22,318 (9,773) 16,944 29,489 Consolidated Entity 2016 $’000 2015 $’000 26,083 16,944 - - 9,036 284 (811) 1,589 121 7,076 219 425 294 112 Net cash provided by operating activities before change in assets and liabilities 36,302 25,070 Changes in assets and liabilities adjusted for effects of purchase of controlled entities during the year: (Increase)/decrease in trade receivables (Increase)/decrease in other receivables and other assets Increase/(decrease) in trade payables Increase/(decrease) in other payables and unearned income Increase/(decrease) in provisions (Increase)/decrease in deferred taxes Increase/(decrease) in income tax payable Net cash provided by operating activities (b) Reconciliation of cash Cash at bank (c) Loan facilities Loan facility Amount utilised Unused loan facility (1,557) (1,721) 176 (15) 697 367 (1,626) 32,623 85 2,874 (134) (154) 6,218 722 2,208 36,889 30,203 21,985 30,000 - 30,000 30,000 (10,000) 20,000 63 Hansen Technologies Ltd – Annual Report 2016 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2016 19. Commitments Lease expenditure commitments Operating leases (non-cancellable): Not later than one year Later than one year and not later than five years Later than five years Aggregate lease expenditure contracted for at reporting date Finance lease commitments Not later than one year Later than one year and not later than five years Total minimum lease payments Less: Future finance charges Present value of minimum lease payment Lease liabilities provided for in the financial statements: Current Non-current Total lease liabilities Operating leases (non-cancellable) Consolidated Entity 2016 $’000 2015 $’000 4,617 13,486 3,251 21,354 3,378 9,499 3,128 16,005 82 291 373 - 373 82 291 373 87 374 461 - 461 87 374 461 The consolidated entity leases property under non-cancellable operating leases expiring from one to five years. Leases generally provide the consolidated entity with a right of renewal at which time all terms are renegotiated. Contingent rental provisions within the lease agreements require the minimum lease payments to be increased by CPI per annum. Finance lease commitments The consolidated entity leases IT equipment under finance leases expiring from three to five years. At the end of the lease term, the consolidated entity has the option to return the assets to the lessor or to renew the lease agreements. 20. Earnings per share Reconciliation of earnings used in calculating earnings per share: Basic earnings – ordinary shares Diluted earnings – ordinary shares Weighted average number of ordinary shares used in calculating basic earnings per share: Number for basic earnings per share – ordinary shares Number for diluted earnings per share – ordinary shares Consolidated Entity 2016 $’000 26,083 26,083 2015 $’000 16,944 16,944 2016 No. Shares 2015 No. Shares 177,557,079 164,045,486 181,491,615 169,374,596 64 Hansen Technologies Ltd – Annual Report 2016 Basic earnings (cents) per share from continuing operations Total basic earnings (cents) per share Diluted earnings (cents) per share from continuing operations Total diluted earnings (cents) per share Classification of securities as potential ordinary shares 2016 Cents Per Share 2015 Cents Per Share 14.7 14.7 14.4 14.4 10.3 10.3 10.0 10.0 The securities that have been classified as potential ordinary shares and included in diluted earnings per share only are options outstanding under the Employee Share Option Plan. 21. Directors’ and executives’ equity holdings (a) Compensation options: granted and vested during the year During the financial year the Company granted options over unissued ordinary shares to the managing Director and the key management personnel of the Company as part of their remuneration: 2016 Executive Directors A Hansen Specified executives N Fernando C Hunter D Meade G Taylor Total 2015 Executive Directors A Hansen Specified executives M Benne N Fernando C Hunter G Lister D Meade G Taylor S Weir Total Vested During the Year Granted During the Year Grant Date Value Per Option at Grant Date Exercise Price Vesting Date Last Exercise Date Terms and Conditions for Each Grant 1,050,000 - - - - - - - 100,000 2 July 2015 100,000 100,000 2 July 2015 75,000 100,000 2 July 2015 - 100,000 2 July 2015 1,225,000 400,000 $0.56 $0.56 $0.56 $0.56 $2.67 2 July 2018 2 July 2020 $2.67 2 July 2018 2 July 2020 $2.67 2 July 2018 2 July 2020 $2.67 2 July 2018 2 July 2020 Vested During the Year Granted During the Year Grant Date Value Per Option at Grant Date Exercise Price Vesting Date Last Exercise Date Terms and Conditions for Each Grant 750,000 - - - - - - 75,000 75,000 2 July 2014 - 100,000 2 July 2014 100,000 100,000 75,000 100,000 2 July 2014 100,000 2 July 2014 75,000 2 July 2014 - 75,000 2 July 2014 40,000 75,000 2 July 2014 1,140,000 600,000 $0.200 $0.200 $0.200 $0.200 $0.200 $0.200 $0.200 $1.30 2 July 2017 2 July 2019 $1.30 2 July 2017 2 July 2019 $1.30 2 July 2017 2 July 2019 $1.30 2 July 2017 2 July 2019 $1.30 2 July 2017 2 July 2019 $1.30 2 July 2017 2 July 2019 $1.30 2 July 2017 2 July 2019 65 Hansen Technologies Ltd – Annual Report 2016 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2016 21. Directors’ and executives’ equity holdings continued (b) Number of options held by key management personnel Balance 30 June 15 Granted as Remuneration Options Exercised Options Forfeited Balance 30 June 16 Total Exercisable Unexercisable Vested at 30 June 2016 2016 Executive Directors A Hansen 2,100,000 - 1,050,000 100,000 300,000 225,000 75,000 100,000 100,000 100,000 100,000 - 100,000 75,000 - 2,800,000 400,000 1,225,000 - - - - - - 1,050,000 200,000 300,000 250,000 175,000 1,975,000 - - - - - - - - - - - - - - - - - - Balance 30 June 14 Granted as Remuneration Options Exercised Options Forfeited Balance 30 June 15 Total Exercisable Unexercisable Vested at 30 June 15 Specified executives N Fernando C Hunter D Meade G Taylor Total 2015 Executive Directors A Hansen 2,850,000 - 750,000 Specified executives M Benne N Fernando C Hunter G Lister D Meade G Taylor S Weir Total 225,000 - 300,000 300,000 225,000 - 225,000 75,000 100,000 100,000 100,000 75,000 75,000 75,000 - - 100,000 100,000 75,000 - 40,000 4,125,000 600,000 1,065,000 - - - - - - - - - 2,100,000 - - 300,000 75,000 75,000 100,000 300,000 300,000 225,000 75,000 260,000 - - - - - - - - - - - - 3,660,000 75,000 75,000 - - - - - - - - - Any options not exercised are forfeited if not exercised within 28 days of termination of employment. Share-based payments represent a value attributed to options over ordinary shares issued to executives. They expire during the period up to 2 July 2020. Each option entitles the holder to purchase one ordinary share in the Company. The share-based payment value disclosed above is calculated at the date of grant using the Black-Scholes model. For those options issued to key management personnel this year the Black-Scholes model applied a: • share price volatility factor in respect of the Company’s historical share price movement compared with the industry average, for a period equal to the three-year option vesting period of 25%; • a continuously compounding risk-free interest rate of 3.05%; • a probability factor for the likelihood of the options being exercised based on historical trends of 80%; and • compared the issue price ($2.67 cents per share) with the market price on day of issue ($2.67 cents per share); to • determine a weighted average fair value for the options issued as at grant date of $0.560 cents per option. 66 Hansen Technologies Ltd – Annual Report 2016 (c) Number of shares held by key management personnel 2016 Specified Directors D Trude B Adams P Berry A Hansen S Morgan D Osborne Specified executives N Fernando C Hunter D Meade G Taylor Total 2015 Directors D Trude B Adams P Berry A Hansen S Morgan D Osborne M Osborne Specified executives M Benne N Fernando C Hunter G Lister D Meade G Taylor S Weir Total Balance 30 June 2015 Received as Remuneration Options Exercised Net Change Other Balance 30 June 2016 103,623 152,304 15,304 38,744,194 - 377,521 6,793 803,691 8,510 3,143 40,215,083 - - - - - - - - - - - - - - 1,050,000 - - - 100,000 75,000 - 1,956 - - - 20,000 11,463 289 - (80,868) 289 105,579 152,304 15,304 39,794,194 20,000 388,984 7,082 903,691 2,642 3,432 1,225,000 (46,871) 41,393,212 Balance 30 June 14 Received as Remuneration Options Exercised Net Change Other Balance 30 June 15 100,000 150,000 - 52,991,890 - 362,653 54,000 41,484 4,065 703,578 1,428,992 4,120 839 133,545 55,975,166 - - - - - - - - - - - - - - - - - - 3,623 2,304 15,304 103,623 152,304 15,304 750,000 (14,997,696) 38,744,194 - - - - - 100,000 100,000 75,000 - 40,000 - 14,868 1,871 - 377,521 55,871 7,514 2,728 113 48,998 6,793 803,691 (495,392) 1,033,600 (70,610) 2,304 5,949 8,510 3,143 179,494 1,065,000 (15,507,120) 41,533,046 22. Directors’ and executives’ compensation Short term employment benefits Post-employment benefits Share-based payments Consolidated Entity 2016 2015 2,862,568 2,657,670 190,722 179,516 185,746 58,945 3,232,806 2,902,361 67 Hansen Technologies Ltd – Annual Report 2016 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2016 23. Related party disclosures (a) The consolidated financial statements include the financial statements of Hansen Technologies Ltd and its controlled entities Name Parent entity Hansen Technologies Ltd Subsidiaries of Hansen Technologies Ltd Hansen Corporation Pty Ltd Hansen Corporation Investments Pty Ltd Hansen Holdings (Asia) Pty Ltd Utilisoft Pty Ltd Hansen Technologies (Shanghai) Company Limited Hansen Technologies Denmark A/S TeleBilling Systems A/S Hansen Customer Support India Private Limited Hansen New Zealand Limited Hantech Singapore Pte Ltd Hansen Corporation Europe Limited Hansen Holdings Europe Limited Hansen Technologies North America, Inc. Hansen ICC, LLC Hansen Banner, LLC Peace Software Inc. Notes Ordinary Share Consolidated Entity Interest Note Country of Incorporation 2016 % 2015 % Australia Australia Australia Australia Australia China Denmark Denmark India New Zealand Singapore United Kingdom United Kingdom United States United States United States United States (i) (ii) (iii) (iv) 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 - 100 - 100 100 100 100 100 100 (i) Officially changed the company name from TeleBilling A/S to Hansen Technologies Denmark A/S 1 June 2016. (ii) In the process of being merged into Hansen Technologies Denmark A/S and de-registered. (iii) Incorporated 2 June 2016. (iv) Incorporated 28 January 2016. (b) Transactions with key management personnel of the entity or its parent and their personally related entities The terms and conditions of the transactions with Directors and their Director-related entities were no more favourable than those available, or which might reasonably be expected to be available, on similar transactions to non-Director-related entities on an arm’s length basis. The following table provides the total amount of transactions that were entered into with related parties in respect of leased premises for the relevant financial year: A related party to Andrew Hansen – lease rental payments Consolidated Entity 2016 $ 2015 $ 1,110,113 1,104,615 68 Hansen Technologies Ltd – Annual Report 2016 24. Auditors’ remuneration (a) Amounts paid and payable to Pitcher Partners (Melbourne) for: (i) Audit and other assurance services – an audit and/or review of the Financial Report of the entity and any other entity in the consolidated entity (ii) Other non-audit services – taxation services – compliance services Total remuneration of Pitcher Partners (Melbourne) (b) Amounts paid and payable to network firms of Pitcher Partners for: (i) Audit and other assurance services Consolidated Entity 2016 $ 2015 $ 340,969 289,160 27,110 - 27,110 368,079 23,848 15,935 39,783 328,943 – an audit and/or review of the Financial Report of other entities in the consolidated entity 25,249 39,960 (ii) Other non-audit services – taxation services – compliance services Total remuneration of network firms of Pitcher Partners (c) Amounts paid and payable to non-related auditors of Group entities for: (i) Audit and other assurance services 6,231 148,949 155,180 180,429 7,976 159,314 167,290 207,250 – an audit and/or review of the Financial Report of other entities in the consolidated entity 84,882 82,272 (ii) Other non-audit services – taxation services – compliance services Total remuneration of non-related auditors of group entities Total auditors’ remuneration 22,390 - 22,390 107,272 655,780 53,196 2,095 55,290 137,562 673,755 69 Hansen Technologies Ltd – Annual Report 2016 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2016 25. Parent entity information Summarised presentation of the parent entity, Hansen Technologies Ltd’s, financial statements: (a) Summarised statement of financial position Assets Current assets Non-current assets Total assets Liabilities Current liabilities Non-current liabilities Total liabilities Net assets Equity Share capital Accumulated profits Share-based payments reserve Total equity (b) Summarised statement of comprehensive income Profit for the year Total comprehensive income for the year Parent Entity 2016 $’000 2015 $’000 96 91,966 92,062 4,163 - 4,163 68 85,502 85,570 3,773 13 3,786 87,899 81,784 78,650 7,998 1,251 75,127 5,690 967 87,899 81,784 12,968 12,968 798 798 A dividend was paid from Hansen Corporation Pty Ltd to Hansen Technologies Ltd of $12.5 million during the financial year. (c) Parent entity guarantees Hansen Technologies Ltd, being the parent entity, has entered into a guarantee in regard to the loan facility (refer note 14), but other than that has not entered into any guarantees in relation to debts of its subsidiaries. 70 Hansen Technologies Ltd – Annual Report 2016 26. Segment information (a) Description of segments Inter-segment pricing is determined on an arm’s length basis. Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Business segments The consolidated entity comprises the following main business segments, based on the consolidated entity’s management reporting system: Billing: Represents the sale of billing applications and the provision of consulting services in regard to billing systems. IT outsourcing: Represents the provision of various IT outsourced services covering facilities management, systems and operations support, network services and business continuity support. Other: Represents software and service provision in superannuation administration. Geographical segments In presenting information on the basis of geographical segments, segment revenue is based on the geographical location of customers. Segment assets are based on the geographical location of the assets. The consolidated entity’s business segments operate geographically as follows: APAC: Sales and services throughout Australia and Asia. Americas: Sales and services throughout the Americas. EMEA: Sales and services throughout Europe, the Middle East and Africa. (b) Segment information 2016 Segment revenue Total segment revenue Segment revenue from external source Segment result Total segment result Segment result from external source Items included within the segment result: Depreciation expense Amortisation expense Total segment assets 2016 Financial Year Billing $’000 Outsourcing $’000 139,939 139,939 33,874 33,874 2,063 6,489 6,310 6,310 2,811 2,811 169 - Other $’000 2,712 2,712 1,085 1,085 4 - Total $’000 148,961 148,961 37,770 37,770 2,236 6,489 140,716 1,669 717 143,102 Additions to non-current assets 1,035 - - 1,035 Total segment liabilities 34,231 1,464 629 36,324 71 Hansen Technologies Ltd – Annual Report 2016 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2016 26. Segment information continued 2015 Segment revenue Total segment revenue Segment revenue from external source Segment result Total segment result Segment result from external source Items included within the segment result: Depreciation expense Amortisation expense Total segment assets 2015 Financial Year Billing $’000 Outsourcing $’000 97,275 97,275 21,779 21,779 1,514 5,213 6,040 6,040 2,858 2,858 84 - Other $’000 2,942 2,942 958 958 6 - Total $’000 106,257 106,257 25,595 25,595 1,604 5,213 135,799 1,558 758 138,115 Additions to non-current assets 1,285 631 - 1,916 Total segment liabilities 32,695 1,606 782 35,083 (i) Reconciliation of segment revenue from external source to the consolidated statement of comprehensive income Segment revenue from external source Other revenue Interest revenue Total revenue Revenue from external source attributed to individual countries is detailed as follows: APAC Americas EMEA Total revenue 2016 $’000 2015 $’000 148,961 106,257 174 62 415 60 149,197 106,732 2016 $’000 41,167 35,184 72,610 2015 $’000 39,068 32,142 35,047 148,961 106,257 (ii) Reconciliation of segment result from the external source to the consolidated statement of comprehensive income Segment result from external source Interest revenue Interest expense Depreciation and amortisation Other expense Total profit before income tax 72 Hansen Technologies Ltd – Annual Report 2016 2016 $’000 37,770 62 (59) (311) (1,038) 36,424 2015 $’000 25,595 60 (234) (259) (1,159) 24,003 (iii) Reconciliation of segment assets to the consolidated statement of financial position Segment assets Unallocated assets – Cash – Other Total unallocated assets Total assets Total assets attributed to individual countries is detailed as follows: APAC Americas EMEA Total assets (iv) Reconciliation of segment liabilities to the consolidated statement of financial position 2016 $’000 2015 $’000 143,102 138,115 30,203 2,160 32,363 21,985 2,295 24,280 175,465 162,395 2016 $’000 52,130 75,372 47,963 2015 $’000 58,691 58,355 45,349 175,465 162,395 Segment liabilities Unallocated liabilities – Bank facility – Other Total unallocated liabilities Total liabilities 27. Subsequent events PPL Solutions, LLC 2016 $’000 36,324 - 4,161 4,161 40,485 (i) The Company acquired 100% of the share capital of PPL Solutions LLC, with the effective date being 1 July 2016 Consideration Cash paid Deferred consideration Total acquisition cost Add bank overdraft assumed Payment for acquisition of business 2015 $’000 35,083 10,000 3,783 13,783 48,866 2016 $’000 14,295 - 14,295 - 14,295 73 Hansen Technologies Ltd – Annual Report 2016 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2016 27. Subsequent events continued (i) The Company acquired 100% of the share capital of PPL Solutions LLC, with the effective date being 1 July 2016 continued Net assets acquired Assets Receivables Other current assets Plant and equipment Total assets acquired Liabilities Payables Accruals Provisions Current tax liability Other liabilities Total liabilities acquired Net assets acquired Total acquisition cost adjusted for net assets acquired Technology Customer contracts Goodwill Net intangibles Fair Value 2016 $’000 2,674 2,149 302 5,125 2,124 519 757 31 639 4,070 1,055 13,240 5,709 4,535 2,996 13,240 Goodwill arose on the acquisition of PPL Solutions due to the combination of the consideration paid for the business and the net assets acquired, less values attributed to other intangibles in the form of customer contracts and technology. The value of goodwill represents the future benefit arising from the expected future earnings, synergies and personnel assumed via the acquisition. The business combination post year end has been provisionally accounted for as the initial accounting is yet to be completed due to working capital adjustments still being finalised and the purchase price allocation of intangible assets being subject to review. There has been no other matter or circumstance, which has arisen since 30 June 2016, that has significantly affected or may significantly affect: (a) the operations, in financial years subsequent to 30 June 2016, of the consolidated entity; or (b) the results of those operations; or (c) the state of affairs, in financial years subsequent to 30 June 2016, of the consolidated entity. 74 Hansen Technologies Ltd – Annual Report 2016 DIRECTORS’ DECLARATION The Directors declare that the financial statements and notes set out on pages 35 to 74 in accordance with the Corporations Act 2001: (a) comply with accounting standards and the Corporations Regulations 2001, and other mandatory professional reporting requirements; (b) as stated in note 1(a), the consolidated financial statements also comply with International Financial Reporting Standards; and (c) give a true and fair view of the financial position of the consolidated entity as at 30 June 2016 and of its performance for the year ended on that date. In the Directors’ opinion there are reasonable grounds to believe that Hansen Technologies Ltd will be able to pay its debts as and when they become due and payable. This declaration has been made after receiving the declarations required to be made by the CEO and Chief Financial Officer to the Directors in accordance with section 295A of the Corporations Act 2001 for the financial year ending 30 June 2016. This declaration is made in accordance with a resolution of the Directors. David Trude Director Melbourne 29 September 2016 Andrew Hansen Director 75 Hansen Technologies Ltd – Annual Report 2016 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF HANSEN TECHNOLOGIES LTD Report on the Financial Report We have audited the accompanying Financial Report of Hansen Technologies Ltd and controlled entities, which comprises the consolidated statement of financial position as at 30 June 2016, the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, notes comprising a summary of significant accounting policies and other explanatory information, and the Directors’ declaration of the consolidated entity comprising the Company and the entities it controlled at the year’s end or from time to time during the financial year. Directors’ Responsibility for the Financial Report The Directors of the Company are responsible for the preparation of the Financial Report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the Directors determine is necessary to enable the preparation of the Financial Report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In note 1, the Directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements comply with International Financial Reporting Standards. Auditor’s Responsibility Our responsibility is to express an opinion on the Financial Report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance about whether the Financial Report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the Financial Report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the Financial Report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company’s preparation of the Financial Report that gives a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Directors, as well as evaluating the overall presentation of the Financial Report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. Auditor’s Opinion In our opinion, (a) the Financial Report of Hansen Technologies Ltd and its controlled entities is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2016 and of its performance for the year ended on that date; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and (b) the consolidated Financial Report also complies with International Financial Reporting Standards as disclosed in Note 1. Report on the Remuneration Report We have audited the Remuneration Report included in pages 18 to 27 of the Directors’ Report for the year ended 30 June 2016. The Directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Opinion In our opinion the Remuneration Report of Hansen Technologies Ltd and controlled entities for the year ended 30 June 2016 complies with section 300A of the Corporations Act 2001. S D Whitchurch Partner Melbourne 29 September 2016 Pitcher Partners An independent Victorian Partnership ABN 27 975 255 196 Level 19, 15 William Street, Melbourne VIC 3000 Liability limited by a scheme approved under Professional Standards Legislation Pitcher Partners is an association of independent firms Melbourne | Sydney | Perth | Adelaide | Brisbane | Newcastle An independent member of Baker Tilly International 76 Hansen Technologies Ltd – Annual Report 2016 ASX ADDITIONAL INFORMATION As at 22 September 2016 Additional information required by the Australian Stock Exchange Limited Listing Rules and not disclosed elsewhere in the report is set out below: Substantial shareholders The number of shares held by substantial shareholders is set out below: Shareholder Othonna Pty Ltd (including associates) HSBC Custody Nominees J.P Morgan Nominees Voting rights Ordinary shares and options – refer note 16. Distribution of equity security holders Category 1 to 1,000 1,001 to 5,000 5,001 to 10,000 10,001 to 100,000 100,000 and over The number of shareholders holding less than a marketable parcel of ordinary shares is 159. Twenty largest shareholders Name Othonna Pty Ltd HSBC Custody Nominees (Australia) Limited J P Morgan Nominees Australia Limited National Nominees Limited BNP Paribas Noms Pty Ltd Citicorp Nominees Pty Limited Andrew Alexander Hansen CS Fourth Nominees Pty Limited Mrs Yvonne Irene Hansen UBS Nominees Pty Ltd Mr Cameron Hunter Brispot Nominees Pty Ltd Mr James Lucas & Ms Lesley Dormer BNP Paribas Nominees Pty Ltd HSBC Custody Nominees (Australia) Limited – A/C 3 Pacific Custodians Pty Limited Six of Us Pty Ltd ABN Amro Clearing Sydney Nominees Pty Ltd Ozcun Pty Ltd JH & CE Pty Ltd Total 77 Hansen Technologies Ltd – Annual Report 2016 Number of Ordinary Shares Percentage Held 34,739,113 23,145,933 13,486,991 19.15% 12.76% 7.44% Number of Equity Security Holders Ordinary Shares Options 2,045 4,450 1,771 1,729 88 - - - 5 11 Total Units Percentage of Issued Capital 34,739,113 23,145,933 13,486,991 7,388,474 5,858,419 5,416,747 2,102,304 1,325,613 1,187,714 1,129,912 1,003,691 901,855 800,940 738,467 544,261 535,326 490,000 488,180 450,000 402,304 19.15% 12.76% 7.44% 4.07% 3.23% 2.99% 1.16% 0.73% 0.65% 0.62% 0.55% 0.50% 0.44% 0.41% 0.30% 0.30% 0.27% 0.27% 0.25% 0.22% 102,136,244 56.31% CORPORATE DIRECTORY Directors David Trude, Chairman Andrew Hansen, Managing Director and CEO Bruce Adams, Non-Executive Peter Berry, Non-Executive Sarah Morgan, Non-Executive David Osborne, Non-Executive Company Secretary Julia Chand Principal registered office 2 Frederick Street, Doncaster VIC 3108 T. (03) 9840 3000 F. (03) 9840 3099 Share registry Link Market Services Limited Tower 4 727 Collins Street Melbourne VIC 3008 T. 1300 554 474 F. (02) 9287 0309 – Proxy forms F. (02) 9287 0303 – General Stock exchange The Company is listed on the Australian Stock Exchange ASX Code: HSN Auditors Pitcher Partners Level 19, 15 William Street Melbourne VIC 3000 Solicitors GrilloHiggins Level 20, 31 Queen Street Melbourne VIC 3000 Other information Hansen Technologies Ltd ABN 90 090 996 455, incorporated and domiciled in Australia, is a publicly listed Company limited by shares. 78 Hansen Technologies Ltd – Annual Report 2016