GLOBAL EXPERIENCE Annual Report 2018 A Hansen Technologies Ltd Annual Report 2018 Espoo Jyväskylä Stockholm Trondheim Kuopio Førde Kista Dale Sønderborg London Rotterdam Hamburg Zürich Lillehammer Hamar Hyderabad Shanghai Ho Chi Minh CONTENTS Carlsbad 2 Chairperson and Chief Executive Officer Joint Report 8 Information on Directors and Company Secretary New York Bethlehem Hazleton Columbia Atlanta Houston São Paulo Buenos Aires Jakarta Johannesburg Melbourne Auckland 10 Directors’ Report 16 Remuneration Report 32 Auditor’s Independence Declaration 33 Financial Report 85 Directors’ Declaration 86 Independent Auditor’s Report 90 ASX Additional Information 92 Corporate Directory 1,000+ STAFF SPREAD ACROSS 31 OFFICES TO SUPPORT OUR CUSTOMERS Notice of Annual General Meeting Annual General Meeting of the Company to be held on Thursday 22 November 2018 at 11am, Manningham Civic Centre, 699 Doncaster Road, Doncaster, Victoria. Carlsbad New York Bethlehem Hazleton Columbia Atlanta Houston OPERATIONS Offices CUSTOMERS SERVED Regions Espoo Jyväskylä Stockholm Trondheim Kuopio Førde Kista Dale Sønderborg London Rotterdam Hamburg Zürich Lillehammer Hamar Hyderabad Shanghai Ho Chi Minh São Paulo Buenos Aires Jakarta Johannesburg Melbourne Auckland COMPANY PROFILE With over 40 years’ experience, Hansen Technologies (ASX: HSN) is a leading global provider of billing and customer care technologies for energy, water, pay-tv operators, and telcos. Employing over 1,000 experts, Hansen’s proven and scalable solutions, as well as its innovative and flexible offerings, enable our global customer base to deliver cost-effective end-to-end business initiatives to improve their customers’ experience. Hansen has offices in Australia, United States, New Zealand, China, Denmark, Germany, Argentina, Brazil, South Africa, Norway, Finland, Netherlands, Sweden, Switzerland and the United Kingdom servicing customers in over 80 countries around the world. 1 Hansen Technologies Ltd Annual Report 2018 CHAIRPERSON AND CHIEF EXECUTIVE OFFICER JOINT REPORT We are pleased to present the Annual Report for Hansen Technologies Limited for fiscal 2018. Hansen has consistently delivered solid growth and strong earnings margins, growing its revenue base from $100 million to in excess of $200 million over three years. This year has been no different, with record revenues and earnings performance. Our results are a reflection of the commitment and dedication of our people, who are core to delivering the Hansen way. These results also reflect the market leading expertise we deliver to clients and the value of the strong partnerships we’ve built. 2017–18 financial performance Operating revenue of $230.8 million for the year was up 32% on the previous year. Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) of $59.3 million was up 31% over the prior period. Net profit after tax (NPAT) was up 21% to $28.9 million and Basic Earnings Per Share (EPS) was up 12% to 14.8 cents compared to $23.9 million and 13.2 cents last year, respectively. Growth year on year was primarily underpinned by the Enoro acquisition, with modest growth achieved in our underlying recurring revenue base. Following the release of the full year’s operating results, the Directors declared a three cent per share fully franked final dividend as well as a one cent per share fully franked special dividend. When combined with the interim dividend of three cents per share fully franked, the total distribution of seven cents per share is consistent with the Board’s capital management policy that balances ongoing investment against the payment of franked dividends. Strategic growth In 2018 we successfully integrated our largest acquisition in Hansen’s history, Enoro Holdings AS (Enoro), strategically taking the Hansen brand into the Nordic region, which is a testament to our robust business processes and strong team performance. Enoro is the market leading provider of Customer Information Systems (CIS) and Meter Data Management (MDM) systems for the Nordic energy market, with an expanding footprint in the broader dynamic European market. Hansen’s acquisition of Enoro (which was completed for an enterprise value of A$94.7 million (NOK 620 million) means that we now have a strong presence in the most advanced energy market in the world, and broader reach into the European energy market, building upon our existing European telecommunications CIS footprint. OUR RESULTS ARE A REFLECTION OF THE COMMITMENT AND DEDICATION OF OUR PEOPLE 2 Hansen Technologies Ltd Annual Report 2018 COMPANY HIGHLIGHTS $230.8M Operating revenue Up 32% $28.9M Net profit after tax Up 21% $59.3M EBITDA Up 31% $14.8¢ Earnings per share Up 12% Hansen Technologies Ltd Annual Report 2018 3 CHAIRPERSON AND CHIEF EXECUTIVE OFFICER JOINT REPORT CONTINUED It also has analytics software that analyses consumption data to understand customer behaviour, which provides cross-selling opportunities to the broader Hansen customer base and beyond. Enoro’s customer base comprises a balanced portfolio of distribution system operators, retailers and integrated utilities, with a bulk of its revenues being recurring in nature. The acquisition satisfied all of our key target requirements: (1) same core business, (2) owns the IP, (3) recurring revenues, and (4) attractive geographic markets. Importantly, it also positions Hansen to support further deregulation of the European energy markets. The acquisition was completed via a mix of an A$50 million equity raising (comprising an A$40 million underwritten institutional placement and a fully subscribed A$10 million share placement plan) and debt (utilising new bank facilities), which is a testament to Hansen’s strong balance sheet and prudent capital management strategy. The Enoro business has performed well over the year and, overall, we were pleased that its performance has exceeded expectations. In light of this, we took the opportunity to commence optimisation of that business to ensure that future returns are maximised. In addition to this significant acquisition, we continue to build out our global platform and make investments in our infrastructure and our people. During the year, Hansen established a low-cost development centre in Vietnam as part of our strategy to lower our delivery costs. We also undertook a refresh of our brand, to better reflect the global reach of Hansen’s products. Who we are Hansen is a global business that develops, implements and supports proprietary customer care and billing software solutions to clients within the energy/utilities, telecommunications and pay-TV industries. From modest beginnings in 1971, our business has grown and today millions of people around the world rely on our software for a secure, accurate and reliable billing experience. Hansen now employs over 1,000 people supporting customers in over 80 countries around the globe from offices in Australia, United States, New Zealand, China, Denmark, Finland, Norway, Germany, Argentina, India, the United Kingdom and South Africa. Our continued diversification of the business through delivering proprietary solutions across a range of geographies and industry sectors continues to serve us well. The recent Enoro acquisition has given us access to the adjacent markets of Meter Data Management (MDM) and analytics. With experts across the globe, we have deep understanding of the sectors and markets we serve. Working closely with our clients we continue to evolve our product offerings through a structured research and development program to ensure they have access to leading-edge billing systems that deliver reliable and accurate billing data. This ensures we continue to maintain our excellent reputation for delivering high-quality solutions to our customers. Our people/Our values Our people are core to the successful delivery of our solutions around the globe. Our success has enabled us to recruit top talent. As with our products, we believe investment in our staff is key in delivering cutting-edge solutions. Along with our enhanced performance development program, our people have access to ongoing professional development via our learning and development platform. Hansen focuses on maintaining a culture that encourages its people to grow and strive for excellence. Underpinning this culture are our values that pave the way for how we do business. Our Key Pillars are: • One united team We strive to maintain an environment that encourages innovation and facilitates openness and transparency because we recognise that sharing knowledge and leveraging global experiences accelerate growth and success. • Treat it like it’s your own We encourage our people to make business decisions with the same level of considerations that they would if they were making these decisions for themselves. • People and family We recognise as a global business that we have genuine diversity in our workforce. We embrace this diversity by being respectful of others and genuinely seeking to understand and embrace our differences. • Focused and committed We challenge our people to be focused on understanding their customers’ needs and to be passionate about delivering an exceptional customer experience. Our strategic approach Diversification is at the core of what we do. By diversifying our products across a variety of customers in different industry segments and geographic regions, Hansen ensures stability in its business revenues. This diversification, combined with the fact that our solutions are mission critical and used by our clients for extended periods of time, ensures that we continue to enjoy a strong recurring revenue stream. We continue to focus on growing our footprint in new and existing markets by delivering directly into these markets ourselves or in partnership with a local industry partner. 4 Hansen Technologies Ltd Annual Report 2018 Through global market intelligence, we stay abreast of market trends and forecasts to ensure that we are positioning ourselves and our products in geographies that can deliver the best return on investment. Our underlying foundations of the business remain strong, and the platform we have built holds us in good stead for the future. Our strategy is reviewed annually to ensure that goals are being met within the set timeframes and changes to the industry or business conditions are being identified and planned for. This enables Hansen to continue to deliver success to its shareholders, its people and its clients. Our focus remains on revenue growth (from new business and existing clients), maintaining earnings margins within our target range and the strengthening of our global platforms. One global brand Hansen has a strategic and structured acquisition plan to deliver acquisitions that allow Hansen to increase its footprint in new geographies whilst consolidating its position within the industries that it serves. Historically, acquisitions have continued to maintain their own branding, which has resulted in a low awareness of the Hansen brand outside of Australia. In FY18, Hansen has strategically decided to go to market with our new unifying brand, HansenCX. In existing and new markets around the world, HansenCX will be a common brand that enables us to speak to our successes worldwide and unite our people under one brand. The ‘CX’ of HansenCX represents the customer experience, which has always been part of our DNA and extends into all of our products. Our approach to the global market continues to be driven by a strong focus on servicing our clients’ needs, targeting strategic opportunities for new business and acquiring businesses that complement and bolster our core business. 5 Hansen Technologies Ltd Annual Report 2018 CHAIRPERSON AND CHIEF EXECUTIVE OFFICER JOINT REPORT CONTINUED Market differentiation The combination of Hansen’s products and our deep industry expertise provides compelling benefits that set us apart from our competitors. These include: • Solutions that are purpose built for the markets they serve – Our extensive experience has enabled us to build robust and respected solutions that deliver industry requirements whilst having the flexibility to meet the specific business needs of the client, providing them with a competitive edge. These solutions can be delivered on premises, hosted or cloud based. • Client Focused – Our reputation speaks for itself. Around the globe we are proud to have hundreds of referenceable clients delivering market-leading offerings in their respective industry segments. Our approach of partnering with clients to deliver strong technical outcomes means that they can focus on delivering exceptional customer experiences. • Our People – Hansen continues to invest in the learning and development of our people. In an industry where talent churn is high, we pride ourselves on our ability to engage and retain talented people (our average tenure is around 10 years). This ensures that our clients benefit from a wealth of experience. Mergers and acquisitions Our strategic and structured approach to expansion has served us well and remains unchanged. Hansen has a strong track record of effective acquisitions, which now includes our largest acquisition Enoro. Our past performances, and the learnings from them, give us strong confidence in our ability to continue to deliver for shareholders on this strategy. Corporate Governance Statement Hansen and the Board are committed to achieving and demonstrating the highest standards of corporate governance. Hansen has reviewed its corporate governance practices against the Corporate Governance Principles and Recommendations (3rd edition) published by the ASX Corporate Governance Council. We focus on acquisition targets that meet the following criteria: • Are within, or adjacent to, our core competencies; • Own the intellectual property in their products; • Have high levels of annuity/ recurring revenue streams; and • Extend Hansen’s footprint into an attractive market segment, geography or industry vertical. We are continually reviewing acquisition opportunities, and our universe of available targets increases as we expand the size and scope of Hansen. A description of the Group’s current corporate governance practices is set out in the Group’s Corporate Governance Statement, which can be viewed at https://hansencx.com/ about/investor-relations. David Trude Chairman Andrew Hansen CEO 16 August 2018 6 Hansen Technologies Ltd Annual Report 2018 OUR STRATEGIC AND STRUCTURED APPROACH TO EXPANSION HAS SERVED US WELL AND REMAINS UNCHANGED 7 Hansen Technologies Ltd Annual Report 2018 INFORMATION ON DIRECTORS AND COMPANY SECRETARY The qualifications, experience and special responsibilities of each person who has been a Director of Hansen Technologies Limited 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 Chairman since 2011 Director since 2011 Age 70 Mr Andrew Hansen Managing Director and CEO Managing Director since 2000 Age 58 Mr Bruce Adams Non-Executive Director Director since 2000 Member of the Remuneration Committee Age 58 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 and Financial Advisers Association of Australia and the Australian Institute of Company Directors. David is also Non-Executive Chairman of Baillieu Holst Limited, a Non-Executive Director of CHI-X Australia Limited and Non-Executive Director of ASX listed Acorn Capital Investment Fund and MSL Solutions Limited. Andrew has over 35 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 led Hansen from its listing on the ASX in 2000 to today being a global business with a strong history of decades of strong profitability and growth. Andrew is responsible for implementing the Group’s strategic direction and overseeing the everyday affairs of the Hansen Group. 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 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. Ms Sarah Morgan Non-Executive Director Director since 2014 Chair of the Audit and Risk Committee Member of the Remuneration Committee Age 48 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. Sarah holds a degree in Engineering and a Masters of Business Administration from the University of Melbourne and is a Graduate of AICD. Sarah is also Non-Executive Director of Adslot Limited, Future Generation Global Investment Company Limited, and the National Gallery of Victoria Foundation. 8 Hansen Technologies Ltd Annual Report 2018 Mr David Osborne Non-Executive Director Director since 2006 Member of the Audit and Risk Committee Age 69 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 and 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. Ms Jennifer Douglas Non-Executive Director Director since 2017 Chair of the Remuneration Committee Member of the Audit and Risk Committee Age 51 Jennifer has over 25 years’ experience in the technology and media industries. Jennifer started as a lawyer before holding senior executive roles including Executive Director of Telstra’s Customer Office, responsibility for Telstra’s $3 billion Fixed Voice business, and the establishment of technology business Platinum. Jennifer holds degrees in Science and Law from Monash University, a Masters of Law and Masters of Business Administration from Melbourne University and is a Graduate of AICD. Jennifer is also a Non-Executive Director of Essential Energy, Opticomm Pty Ltd and Peter MacCallum Cancer Foundation. Mr David Howell Non-Executive Director Director since 2018 Member of the Audit and Risk Committee Age 60 Ms Julia Chand General Counsel and Company Secretary Company Secretary since 2014 Age 48 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. David is a highly accomplished executive having worked across a number of industries including financial services, retail, oil marketing and social media. David has had roles as Managing Director, Board Director and Board Adviser across large corporates, SMEs and early stage businesses, including private equity. David is also Non- Executive Chairman of Littlepay (an Australian fintech company) and a Non-Executive Director of Tiger Pistol Pty Ltd (a social media advertising technology business). Unless stated, no Directors of Hansen Technologies Limited held any other directorships of listed companies at any time during the three years prior to 30 June 2018. 9 Hansen Technologies Ltd Annual Report 2018 DIRECTORS’ REPORT The Directors present their report together with the Financial Report of the consolidated entity (the Group), being Hansen Technologies Limited (the Company) and the entities it controlled for the financial year ended 30 June 2018, and Auditor’s Report thereon. This Financial Report has been prepared in accordance with Australian Accounting Standards. Principal activities The principal activities of the Group during the financial year were the development, integration and support of billing systems software for the utilities, energy, pay-TV and telecommunications sectors. Other activities undertaken by the Group include IT outsourcing services and the development of other specific software applications. Operating and financial review Review of operations The Group’s operating performance for the fiscal year compared to last year is as follows: Operating revenue EBITDA* Profit before tax NPAT Basic earnings per share (cents) 2018 A$ Million 2017 A$ Million Variance % 230.8 59.3 37.0 28.9 14.8 174.7 45.1 32.8 23.9 13.2 32% 31% 13% 21% 12% * EBITDA is a non-IFRS term, defined as Earnings Before Interest, Tax, Depreciation and Amortisation. The Directors believe the information additional to IFRS measures included in the report is relevant and useful in measuring the financial performance of the Group. The 2018 financial year saw the business achieve record results with the highest level of operating revenue achieved and a significant increase in earnings per share. The year has benefited from the Group’s continuing acquisition strategy, with the Enoro acquisition being completed on 1 July 2017, making a first-time contribution to the Group’s results. Enoro has performed in excess of expectations and is now fully integrated into the Group’s operations, which is consistent with our continued success from acquisitions. The effect of the movement in exchange rates has been largely neutral given the strengthening of the Australian dollar in the first half of the year, offset by weakening in the second half. The Group has generated free cash flow of $39.3 million, which has been used to retire external debt of $20.0 million and fund dividends of $10.4 million during the financial year. With low levels of gearing and robust cash conversion, our balance sheet has further strengthened year on year. With the business continuing to expand internationally, we continue to invest in our key people, allowing us to deploy resources that facilitate growth on a global scale. This in turn has allowed us to continue to create shareholder value and be a leading player within the billing software and service market. Billing segment The Billing segment represents a major part of the Group’s business operations, delivering $217.2 million revenue in 2018 (2017: $159.11 million), which translates into a 36.5% increase. Profit before tax was $40.2 million in 2018 (2017: $34.9 million), representing a 15.2% increase. The revenue growth was driven mainly via the Enoro acquisition. The billing segment operates globally within the following sectors: energy, water, pay-TV and telecommunications. Other activities In 2018, the Group separated its Customer Care call centre services in the United States from the Billing segment and aggregated these services with its existing data hosting business to form an ‘other’ segment. This change allows our segment results to more closely align with our core Billing Solutions business. Revenues from other activities was $13.6 million in 2018 (2017: $15.5 million), representing a 12.3% decrease for the year. Profit before tax was $1.4 million for 2018 (2017: $1.8 million). This 22.2% decrease resulted from expected reduction in business activity associated with the Customer Care call centre. 1 Prior year comparative segment results have been restated due to changes in our segment classification during the 2018 financial year. Refer to Note 2 to the consolidated financial statements for further information. 10 Hansen Technologies Ltd Annual Report 2018 Significant changes in the state of affairs There have been no significant changes in the Group’s state of affairs during the financial year. Events after balance sheet date No matters have arisen between the end of the financial year and the date of this report that have significantly affected or may significantly affect the operations of the Group, the results of those operations or the state of affairs of the Group in future years. Opportunities and business risks This year’s performance shows the Group has been committed to its core values, demonstrating the effective integration of the largest acquisition in the Group’s history (Enoro) and maintaining its focus on creating shareholder value. Organic and strategic growth opportunities within the business for above trend performance include, but are not limited to: • A higher than expected demand for services from customers from changing business needs; • Significant unbudgeted new customers due to increased marketing efforts; • Greater take-up of product upgrades from existing customers; • Favourable foreign exchange rates from international operations to the reporting currency of the Group being Australian dollars; • Changes to or greater take-up of technologies in the market, such as smart metering or regulation changes (deregulation) that results in the provision of increased system functionality; and • A higher than expected conversion rate associated with targeted acquisitions. To ensure our goals are achieved, the Group has established a robust risk framework that is continually monitored, managed and responded to. As the Group continues to grow, we continue to identify, control, plan, and co-ordinate effective responses to a wide array of risks which include, but are not limited to the following: • Security or data incidents: As a technology-focused business, managing security and taking care of consumer and customer data is essential. To manage the risk of damaging security incidents, we have appropriate data management, security and compliance policies, procedures and practices in place. • Loss of customers: While loss of customers due to market competition is a risk to the business, we manage this risk by ensuring we are focused on meeting our customers’ expectations for system performance and service delivery, and by having a globally diverse customer base across various industry sectors. • Decline in international market conditions: As a business with international operations, we have exposure to currency fluctuations, which we monitor and manage. • Investment opportunities: The Group has an active Mergers and Acquisitions (M&A) program. Potential investments may carry execution and integration risks and this is managed via maintaining a highly experienced M&A team with a proven track record of business integration and value generation. We manage risks by monitoring our market place and global conditions. Outlook and likely developments for FY19 The Group will continue to pursue its operating strategy of providing billing and related data management solutions to our targeted industries while assessing appropriate acquisitions to enhance shareholder value. Our approach to business remains solid and unchanged and we will maintain a well-disciplined method of growing a profitable business while diversifying our products across a variety of customers in different industry segments and geographic regions. Offering technically driven solutions that deliver a positive business outcome supports our philosophy of putting clients’ needs at the forefront of our business. Our mission-critical solutions will continue to grow our underlying recurring revenue base. Our strategy with respect to acquisitions remains successful as we extend the global reach of the Group. 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. 11 Hansen Technologies Ltd Annual Report 2018 DIRECTORS’ REPORT CONTINUED Environmental regulations The Group’s operations are not subject to any significant environmental Commonwealth or State regulations or laws. Dividends paid, recommended and declared A fully franked final dividend of 4 cents per share has been declared, representing a 3 cents per share regular dividend plus a 1 cent per share special dividend. The final dividend was announced to the market on 17 August 2018, with payment to be made on 27 September 2018. The amount declared has not been recognised as a liability in the accounts of the Company as at 30 June 2018. Dividends paid during the year: • 3 cents per share fully franked interim dividend paid 29 March 2018, totalling $5,888,099; and • 3 cents per share fully franked final dividend paid 28 September 2017, totalling $5,873,908. Share options and performance rights Options and performance rights over shares may be issued to key management personnel (KMP) as an incentive for motivating and rewarding performance as well as encouraging longevity of employment. The issuing of options and performance rights is intended to enhance the alignment of KMP with the primary shareholder objective of increasing shareholder value. Performance rights over unissued ordinary shares granted by the Company during or since the end of the financial year to the KMP as part of their remuneration for the year ended 30 June 2018 are as follows: Grant Date Executives A Hansen C Hunter D Meade G Taylor N Fernando Total Number of Rights Granted1 2 July 2017 116,972 25,824 25,157 24,869 24,613 217,435 1. The number of rights granted that will vest is conditional on achievement of targets under the LTI plan. Refer to the Remuneration Report for further details. There were no rights over unissued ordinary shares granted by the Company since the end of the financial year to the KMP as part of their remuneration. There were no options over unissued ordinary shares granted by the Company during or since the end of the financial year to the KMP as part of their remuneration. All grants of options and rights are subject to the achievement of performance measurements. Further details regarding options and rights granted as remuneration are provided in the Remuneration Report. 12 Hansen Technologies Ltd Annual Report 2018 Shares under options and performance rights Unissued ordinary shares of the Company under options and rights at the date of this report are as follows: Instrument Options Options Options Options Rights Vesting Date Expiry Date Exercise Price Grant Date 2 July 2013 2 July 2014 2 July 2015 2 July 2016 2 July 2017 2 July 2018 30 Sept 20181 2 July 2019 2 July 2020 22 Dec 2016 31 August 20192 22 Dec 2021 2 July 2017 31 August 20202 – Number of Options/ Rights at Date of Report 75,000 470,000 1,000,000 1,323,730 355,318 $0.92 $1.30 $2.67 $3.59 Nil 1. The original expiry date for this tranche of options was 2 July 2018. However, due to extraordinary circumstances, the remaining 75,000 options could not be exercised during the year. Therefore, the Board has exercised its discretion during the year to extend the expiry date for the remaining options to 30 September 2018. 2. The vesting date for options granted 22 Dec 2016 and rights granted on 2 July 2017 is the date on which the Board notifies the executive that the options and rights have vested, after the outcomes for the measurement period have been determined and satisfaction of performance conditions have been assessed. This is likely to be 31 August 2019 and 31 August 2020 respectively. If the Company makes a bonus issue of securities to ordinary shareholders, each unexercised option or performance right will, on exercise, entitle its holder to receive the bonus securities as if the option or performance right had been exercised before the record date for the bonus issue. Option and performance rights holders do not have any right, by virtue of the option or performance right held, to participate in any share issue of the Company. Options and performance rights will not give any right to participate in dividends or any voting rights until shares are issued upon the exercise of vested options or performance rights. Shares issued on exercise of options and performance rights The following ordinary shares of the Company were issued during or since the end of the financial year as a result of the exercise of an option: Number of Ordinary Shares Issued Amount Paid Per Share Date Issued 05 July 2017 27 July 2017 07 August 2017 24 August 2017 30 October 2017 02 February 2018 12 February 2018 22 February 2018 14 March 2018 29 March 2018 Total There are no amounts unpaid on shares issued on exercise of options. No shares were issued during or since the end of the financial year on exercise of performance rights. 75,000 40,000 40,000 75,000 40,000 75,000 40,000 100,000 75,000 105,000 665,000 1.30 0.92 1.30 1.30 1.30 1.30 0.92 1.30 0.92 0.92 13 Hansen Technologies Ltd Annual Report 2018 DIRECTORS’ REPORT CONTINUED 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 Group 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 disclosures are 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 Andrew Hansen Ms Sarah Morgan Mr David Osborne Ms Jennifer Douglas Mr David Howell1 Board Meetings Audit and Risk Committee Meetings Remuneration Committee Meetings Eligible Attended Eligible Attended Eligible Attended 12 12 12 12 12 12 2 12 12 12 12 12 12 2 – – – 6 6 6 1 – – – 6 6 6 1 – 3 – 3 – 3 – – 3 – 3 – 3 – 1. David Howell was appointed as a Non-Executive Director and a member of the Audit and Risk Committee effective 24 May 2018. 14 Hansen Technologies Ltd Annual Report 2018 Directors’ interests in shares or options Directors’ relevant interests in shares of the Company or options/rights over shares in the Company as at the date of this report are detailed below: Directors’ Relevant Interests in: Mr David Trude Mr Bruce Adams Mr Andrew Hansen Ms Sarah Morgan Mr David Osborne Ms Jennifer Douglas Mr David Howell Ordinary Shares of the Company Options/Rights over Shares in the Company 110,617 152,304 – – 34,958,807 652,686 21,351 386,335 8,000 25,000 – – – – Proceedings on behalf of the Company No person applied for leave of Court to bring proceedings on behalf of the Company 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 25 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 were provided by the auditors of the Group during the year, namely RSM Australia Partners, network firms of RSM 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. The nature and scope of each type of non-audit service provided means that auditor independence was not compromised. Amounts paid and payable to RSM Australia Partners for non-audit services: – taxation services – compliance services Amounts paid and payable to network firms of RSM Australia 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 2018 $ 2017 $ – – – 13,493 3,034 16,527 – 8,302 8,302 24,829 – – – 10,679 174,567 185,246 49,776 132,801 182,577 367,823 15 Hansen Technologies Ltd Annual Report 2018 REMUNERATION REPORT Dear Shareholder, On behalf of the Board of Directors, I am pleased to present the Remuneration Report of the Group, consisting of Hansen Technologies Limited (the Company) and its controlled entities for the 2018 financial year. The Group’s remuneration framework is designed to support and reinforce its business strategy. Linking remuneration to the drivers that support the business strategy and its performance ensures that remuneration outcomes for senior executives are aligned with the creation of a strong sustainable business that delivers value for shareholders. Significant changes have been made to strengthen the Hansen remuneration framework since FY16, including changes to better align the links between performance and reward and ensure balance of focus on short-term and long-term outcomes. Building on these improvements, two further structural changes were made to the FY18 remuneration policy to strengthen and more closely align remuneration outcomes with performance. These adjustments included: • Adopting the Executive Performance Rights Plan as the new LTI scheme, replacing the use of options with performance rights; and • Modifying the STI performance gateway such that it is only applicable to the financial component of the STI scheme, to ensure we also recognise and reward achievement of the Group’s strategic objectives. The maximum amount of remuneration available to be awarded under the STI and LTI programs continues to be determined as a percentage of total fixed remuneration (TFR) and continues to be linked to the key financial and non-financial performance conditions. The remuneration outcomes this year reflect continued organic and acquisition growth, the latter being led by the inclusion of the results from the Enoro business for the first time. These results are detailed in the Operating and Financial Review section of the Directors’ Report. Based on the Group’s FY18 performance, 94% of target STI payments were awarded to KMP, reflecting achievement rates of 85% to 100% against financial and non-financial key performance indicators (KPIs) set for the year. The Board has determined that the FY19 remuneration framework will be largely consistent with the FY18 policy with one exception. In FY19, the number of performance rights granted under the LTI Plan will be determined based on ‘market value’ instead of ‘fair value’ to align with current market practice. A review of the remuneration framework is planned in FY19 with any changes ready for introduction in FY20. The Board remains committed to the ongoing review and improvement of the Group’s Remuneration Framework to ensure it achieves its objectives of incentivising and rewarding performance that optimises business and shareholder value and ensuring the Company is well placed to attract, retain and motivate a talented executive team. Yours sincerely, Jennifer Douglas Chair of the Remuneration Committee 16 Hansen Technologies Ltd Annual Report 2018 Our detailed Remuneration Report (Audited) The Remuneration Report for the year ended 30 June 2018 outlines key aspects of our remuneration framework, and has been prepared and audited in accordance with the Corporations Act 2001. Our Remuneration Report contains the following sections: 1. Persons to whom this report covers 2. Overview of our remuneration framework 3. How reward was linked to performance 4. Remuneration details: executive KMP 5. Contractual arrangements with executive KMP 6. Remuneration details: non-executive KMP 7. Share-based remuneration disclosures 8. Other transactions with KMP 1. Persons to whom this report covers The remuneration disclosures in the report cover the following persons who were classified as the Key Management Personnel (KMP) of the Group during the 2018 financial year. KMP are those persons who, directly or indirectly, have authority and responsibility for planning, directing and controlling the major activities of the Group: Executives1 Andrew Hansen Cameron Hunter Darren Meade Graeme Taylor Niv Fernando Non-Executive Directors David Trude Bruce Adams Jennifer Douglas Sarah Morgan David Osborne David Howell Managing Director and Chief Executive Officer (CEO) Chief Operating Officer Group Head of Delivery Chief Financial Officer Chief Strategy & Commercial Officer Chairperson and Independent Non-Executive Director Non-Executive Director Independent Non-Executive Director Independent Non-Executive Director Non-Executive Director Independent Non-Executive Director2 1. These executives of the Group were classified as KMP during the 2018 financial year and unless stated otherwise were KMP for the entire year. 2. David Howell was appointed as a Non-Executive Director effective 24 May 2018. At the 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 considered at the AGM. 17 Hansen Technologies Ltd Annual Report 2018 REMUNERATION REPORT CONTINUED 2. Overview of our remuneration framework Our philosophy People are at the heart of the Group’s success, enabling us to deliver on our vision and long-term goals. Our remuneration framework focuses on providing competitive fixed pay and variable pay that rewards achievement of the Company’s annual objectives and long-term growth in shareholder value. Remuneration outcomes are aligned with both individual and Company performance, ensuring that employees are rewarded for overall Company achievement as well as their individual contribution to the Company’s success. This aligns remuneration to both individual performance and value creation for shareholders. Remuneration governance The Board annually reviews the Group’s remuneration principles, practices, strategy and approach to ensure they support the Company’s long-term business strategy and are appropriate for a listed Company of our size and nature. The Board has delegated to the Remuneration Committee the responsibility for reviewing and making recommendations to the Board regarding compensation arrangements for the Directors, executive KMP and the balance of the CEO’s direct reports. As at 30 June 2018, the Remuneration Committee was made up of three Non-Executive Directors: Jennifer Douglas (Chair of the Remuneration Committee), Bruce Adams, and Sarah Morgan, the majority of whom are independent. The CEO and other Directors attend meetings as required at the invitation of the Committee Chair. The Remuneration Committee assesses the appropriateness of both the nature and amount of the remuneration of the executive KMP on an annual basis by reference to market conditions and current remuneration practices, with the overall objective of ensuring maximum Company performance and shareholder benefit including from the retention of a quality Board and executive team. The Committee also engages professional support as required to ensure remuneration practices remain in step with the market as well as the size and nature of the business. Remuneration annual review – executives Board Reviews the Remuneration Committee’s recommendations. Approves current year STI and LTI payments. Approves the remuneration and remuneration structure for the future measurement period, including STI and LTI targets. CEO Assess each senior executive’s current year performance based on actual outcomes relative to agreed targets, general performance and market conditions. Provides appropriate recommendations to the Remuneration Committee on incentive payments for the current year. Provides appropriate recommendations to the Remuneration Committee of the amount of fixed remuneration, appropriate STI targets and STI payments for the future measurement period. Remuneration Committee Reviews the CEO’s recommendations with respect to the senior executive team and provides appropriate recommendations to the Board. Assesses the CEO’s current year performance and remuneration outcomes against agreed targets, formulating a recommendation to the Board. Provides appropriate recommendations to the Board of the amount of the CEO’s fixed remuneration and appropriate STI and LTI targets for the future measurement period, considering general performance, market conditions and other external factors. 18 Hansen Technologies Ltd Annual Report 2018 Remuneration review – Non-Executive Directors Non-Executive Directors’ remuneration is governed by resolutions passed at a General Meeting of the Shareholders. The maximum remuneration payable for Non-Executive Directors was set at the 2013 AGM at $430,000. Given this amount has not been reviewed since that time and requires increasing to meet requirements in FY19 and beyond, the Board will seek shareholder approval during the forthcoming AGM to vary the limit. Further details will be provided prior to the AGM. 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 During the 2018 financial year, the Board engaged GrilloHiggins Lawyers to draft the Executive Performance Rights Plan arrangement rules. The Board has taken the view that GrilloHiggins Lawyers was not acting in the capacity of a remuneration consultant (as defined in the Corporations Act 2001) and therefore the services did not constitute a remuneration recommendation. In FY19, the Board plans to engage the services of an independent third-party remuneration consultant to review the current executive and non-executive remuneration structure and provide recommendations for the Group’s future remuneration structure. Summary of remuneration structure for FY18 Objective Component Form Assessment Attract and retain employees with the skills and experience associated with the role. Incentivise and reward achievement of annual performance objectives and business outcomes. Align motivations with shareholder interests and creation of long-term value. Total Fixed Remuneration (TFR) Short Term Incentive (STI) Long Term Incentive (LTI) Cash + non-cash benefits Performance rights to shares Market data, individual experience and performance Annual performance based on financial and non-financial targets Total Shareholder Returns (TSR) and earnings per share (EPS) over 3 years Fixed Variable (‘at-risk’) Total Fixed Remuneration (TFR) TFR typically includes base salary and superannuation contributions and may include, at the discretion of the Board, other benefits such as a motor vehicle (aggregated with associated fringe benefits tax to represent the total employment cost to the Group). TFR is determined with reference to available market data, the scope of an individual’s role and the qualifications and experience of the individual, as well as geographic location. TFR is reviewed annually to account for market movements and individual performance outcomes. See page 29 for a summary of executive KMP contracts. 19 Hansen Technologies Ltd Annual Report 2018 REMUNERATION REPORT CONTINUED 2. Overview of our remuneration framework continued FY18 Short Term Incentive (STI) Plan Objective How is it paid? How much can executives earn? To incentivise and align the rewards attainable by executive KMPs with the achievement of specific annual objectives of the Group and the creation of shareholder value. Annual cash entitlement on achievement of specific annual financial and non-financial KPIs. Target STI benefit is set at 40% of TFR for the CEO and 25% of TFR for other executive KMPs. These are subject to the following minimum and target performance thresholds: Financial KPIs (70% total STI) (0% to 92% achievement of financial KPIs) No award (93% to 103% achievement of financial KPIs) 0% to 100% of financial STI awarded on linear basis (100% to max 110% achievement of financial KPIs) 100% to 150% of financial STI awarded on linear basis Non-financial KPIs (30% total STI) Non-financial KPI’s outcome is assessed and awarded up to a maximum of 100% based on outcomes. Performance measures (KPIs) selected reflect financial, strategic and operational objectives relevant to the level and function of the role that are central to achievement of the business plan and strategy and building shareholder value. Financial measures selected are measures against which management and the Board assess the short-term financial performance of the Group. Strategic and operational objectives are assigned to each individual to drive specific outcomes considered to be of strategic importance to the Group within that individual’s level of responsibility. These objectives are determined by the CEO and the Board in accordance with the process set out in page 18. The weightings for each performance measure that comprise the total STI opportunity are set out below: The selection of non-financial KPIs varies depending on each KMP’s role and responsibilities within the Group. These may include achievement of specific strategic projects that drive longer-term shareholder value. Each KMP may have a number of separate non-financial KPIs. Achievement of each individual’s non-financial KPIs is determined by reference to an assigned performance rating determined by the CEO and the Board at the end of the financial year in accordance with the process described on page 19. 30% 70% Financial KPIs (budgeted revenues and EBITDA) Non-financial KPIs Achievement of financial KPIs is determined by reference to the Group’s audited accounts for the year in question. No payment is made in respect of financial KPIs to any KMP if the target amount is not met for the Group (set at 93% of budgeted revenue and EBITDA). The Board retains final discretion over STI payments to ensure outcomes appropriately reflect performance and achieve objectives of the STI scheme. How is performance measured? 20 Hansen Technologies Ltd Annual Report 2018 Changes from FY17 STIs Under the previous STI plan, the award of the STI components related to both the financial KPIs as well as the non-financial KPIs was subject to a performance gateway condition based on the achievement of certain financial performance thresholds (as described above). For the FY18 STI plan, the performance gateway is now only applicable to the financial KPI’s component of the STI plan to ensure achievement of strategic and operational objectives is also recognised. FY18 Long Term Incentive (LTI) – Executive Performance Rights Plan Objective To align the rewards attainable by executive KMPs with the achievement of particular long- term objectives of the Group and achievement of increasing shareholder value. Eligibility to participate in the LTI scheme is determined by the Board and is targeted at senior executives whose role contributes significantly to the performance of the Group. How much can executives earn? Performance rights are subject to the service and performance conditions. The target LTI benefit is set as follows: • CEO LTI: 50% of TFR delivered as performance rights subject to vesting conditions; and • KMP LTI: 25% of TFR delivered as performance rights subject to vesting conditions. The number of performance rights issued is based on each executive’s target LTI benefit divided by the value of the rights. The value of rights granted is determined by an independent third party using the Black-Scholes option pricing model and the Monte Carlo simulation model, taking into account the terms and conditions upon which the performance rights were granted. LTI benefits of up to 150% of target LTI is payable where performance criteria are exceeded. How is it paid? LTIs are awarded as performance rights on achievement of certain thresholds reflective of shareholder value delivered. Each performance right entitles the eligible executive to be issued with a share. 21 Hansen Technologies Ltd Annual Report 2018 REMUNERATION REPORT CONTINUED 2. Overview of our remuneration framework continued How is performance measured? Vesting of the LTI awards are subject to the following criteria: 1. Three years of continuous employment with the Group from 1 July 2017 to 30 June 2020. 2. Achievement of the thresholds over the three-year period as set out below: 50% Total Shareholder Return (TSR) The percentage change in a company’s share price, plus the effect of any dividends paid, over the measurement period, relative on a ranked percentile basis to a comparative group (S&P/ASX Small Ordinaries Industrials Index). Relative TSR is a measure widely understood and accepted by shareholders, as it directly measures shareholder value creation. Earnings per share (EPS) Based on the relative basic EPS compound average growth rate (CAGR) over the measurement period. EPS growth is selected as it is considered a relevant indicator linking financial performance with shareholder value. 50% The proportion of rights that may vest based on TSR performance is determined based on the following vesting schedule: Relative TSR performance Percentage of performance rights that will vest < 50th percentile None Between 50th to 75th percentile 100% to 150% on a linear basis > 75th percentile 150% The proportion of rights that may vest based on EPS CAGR is determined based on the following vesting schedule: Basic EPS CAGR Percentage of performance rights that will vest < 6% None Between 6% to 10% 100% to 150% on a pro-rata basis > 10% 150% The Board has discretion to increase or reduce the amount awarded if the Board considers the outcome to be misaligned given the circumstances that prevailed over the relevant measurement period and the experience of shareholders. Performance rights will lapse if performance conditions are not met. If an eligible executive ceases employment with the Group during the performance period other than by way of dismissal or resignation (e.g. death, total and permanent disablement, redundancy, retrenchment or retirement with prior written consent of the Board) then the unvested performance rights will vest on a pro-rata basis according to the eligible period of time served up until the termination date. Where termination occurs by way of dismissal or resignation prior to the vesting of the performance rights, unvested rights may vest on a pro-rata according to the eligible period of time served up until the termination date at the Board’s discretion. If termination of employment occurs for serious misconduct, all vested and unvested rights will be forfeited and will lapse. What happens if an executive leaves? What are the performance rights entitlements? Performance rights 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 immediately on vesting date and converted to shares by the employee. 22 Hansen Technologies Ltd Annual Report 2018 Are there any restrictions attached to the performance rights? The Group prohibits executive KMP from entering into arrangements to protect the value of unvested equity awards. The prohibition includes entering into contracts to hedge their exposure to any awards as part of their remuneration package. Changes from FY17 LTIs Performance rights cannot be transferred to, or vest in, any person or body corporate other than the executive KMP. Under the FY17 LTI plan, eligible executives were awarded share options. The terms and performance conditions attached to the share options under the FY17 LTI plan are the same as attaching to rights issued under the FY18 plan. When reviewing the LTI plan for FY18, and in line with the recommendations of our remuneration consultant in previous years, best market practice and the structural benefits of rights over options, a decision was made by the Board to grant rights, replacing options under the FY18 LTI Plan. Rights allow an executive KMP to receive shares without financial burden encouraging them to hold an ongoing equity stake in the Company, better aligning their interests with the long-term value of shareholders. Rights are also less dilutive to shareholders as a smaller number are issued. 3. How reward was linked to performance Group’s performance against FY18 STI plan measures A summary of key measurement criteria of the Group’s financial performance for the financial years ended over the last five years is below: Operating Revenue ($m) Earnings ($m) 250 200 150 100 50 0 230.8 5 year CAGR: 22% 174.7 149 106.3 86 2014 2015 2016 2017 2018 70 60 50 40 30 20 10 0 5 year CAGR: 20% (EBITDA) 59.3 45.4 45.1 31.1 24.1 14.8 16.9 26.1 23.9 28.9 2014 2015 2016 2017 2018 EBITDA* ($m) NPAT ($m) * EBITDA is a non-IFRS term that relates to Earnings Before Interest, Tax, Depreciation and Amortisation. For FY18, budget targets were established for Group revenue and EBITDA, and the STI gate was set with respect to these targets. Both the Group’s revenue and EBITDA targets were met this year, with revenue increasing by 32% and EBITDA increasing by 31% on the prior period. Refer to the operational and financial review section of the Directors’ Report for further information about the Group’s FY18 performance. FY18 FY17 Total Opportunity $ 357,000 98.517 95,977 94,875 93,899 Awarded 70% Financial Awarded 30% KPIs 100% 100% 100% 100% 100% 75% 50% 100% 100% 100% Total Opportunity $ 340,000 96,586 91,407 86,250 81,3391 Awarded 70% Financial Awarded 30% KPIs 0% 0% 0% 0% 0% 0% 50% 67% 67% 100% Andrew Hansen Cameron Hunter Darren Meade Graeme Taylor Niv Fernando 1. During FY17, the Board has exercised its discretion to award an additional STI payment of $15,000 to Niv Fernando for his role as the project lead in successfully completing the Enoro transaction, which was additional to his agreed KPIs. 23 Hansen Technologies Ltd Annual Report 2018 REMUNERATION REPORT CONTINUED 3. How reward was linked to performance continued Group’s performance against FY18 LTI plan measures A summary of key measurement criteria of the Group’s performance relevant for assessing shareholder value creation over the last five financial years is shown below: Basic EPS (cents) Dividends Paid* (cents per share) 15 12 9 6 3 0 14.7 14.8 13.2 10.3 9.2 2014 2015 2016 2017 2018 8 7 6 5 4 3 2 1 0 6 6 6 6 7 2014 2015 2016 2017 2018 * Amount of dividends paid represents the return on shareholder value. However, the amount of dividends paid is not in itself a performance measure included in the FY18 LTI plan, but is included as part of the calculation of relative TSR. Share price performance relative to the S&P/ASX Small Ordinaries Index for the previous five years: 600% 500% 400% 300% 200% 100% 0% 1/07/2013 1/07/2014 1/07/2015 1/07/2016 1/07/2017 1/07/2018 S&P/ASX Small Ords HSN.AX Performance rights granted in FY18 have performance conditions attached that will be measured over three years. Assessment and vesting (where conditions are satisfied) will happen after the completion of FY20. See section 4 for a summary of performance rights granted during FY18. 24 Hansen Technologies Ltd Annual Report 2018 Overview of historical and current LTI plans To understand the relationship between the options and performance rights granted, vested, exercised and outstanding at the end of FY18, and the Group’s performance this financial year and for historical periods, it is important to first note that the Group has three different LTI plans on issue. Each LTI plan has different terms and vesting conditions, as illustrated below: 3 years’ continuous employment with the Company Performance over budgeted revenue and EBITDA for the first anniversary year since grant date 50% EPS and 50% TSR performance over measurement period (refer section 2) Legacy LTI options (FY16 and previous years) Current LTI rights (FY18 and FY19) Not yet vested at 30 June 2018 Current LTI options (FY17) Not yet vested at 30 June 2018 Vested and outstanding at year ended 30 June 2018 Pre-1/7/2015 1/7/2015 1/7/2016 1/7/2017 1/7/2018 For the Group’s Legacy LTI and Current LTI options, once an option has vested, if the employee wishes to convert the options to shares, the employee must pay in cash to the Company the exercise price multiplied by the number of options received, e.g. for 100,000 options with an exercise price of $3.00 per share, the employee will be required to pay $300,000 to convert the options to shares. 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. Link between Legacy LTI plan measures and Group performance All KMPs who were granted Legacy LTI options remained with the Company during the measurement period, and continue to be in office at the end of FY18. The financial performance measures for the first anniversary year of Legacy LTI plans were met. The below table sets out the value of Legacy LTI options that was exercised during FY18 and FY17: Andrew Hansen Cameron Hunter Darren Meade Graeme Taylor Niv Fernando FY18 FY17 Value exercised* – 256,000 153,000 189,750 – Value exercised* $ 3,559,080 357,960 244,028 – – * Represents the intrinsic value of options that were exercised during the financial years 2018 and 2017, which is the net dollar value of shares realised from the exercise of profitable options. Intrinsic value is calculated as the difference between the exercise price and the underlying share price at the date of exercise. For example, an option with an exercise price of $2.00 exercised when the underlying share price is $5.00 has an intrinsic value of $3.00. 25 Hansen Technologies Ltd Annual Report 2018 REMUNERATION REPORT CONTINUED 3. How reward was linked to performance continued Link between Current LTI plan measures and Group performance The below table sets out the value of Current LTI performance rights (FY18) and Current LTI options (FY17) granted (there were no forfeitures of LTIs in FY18 and FY17): Andrew Hansen Cameron Hunter Darren Meade Graeme Taylor Niv Fernando Rights FY18 Options Rights FY17 Options Value granted* $ Value granted* $ 446,250 98,517 94,875 95,978 93,899 – – – – – – – – – – 535,714 144,878 137,111 129,374 122,098 * Represents the value of performance rights (FY18) and options (FY17) at grant date, calculated in accordance with AASB 2 Share-based Payment, granted during the year as part of remuneration under the terms of the FY18 LTI plan and FY17 LTI plan respectively. The following diagrams set out the proportional mix of remuneration for the CEO and each KMP at both the target amount and the actual remuneration achieved for FY18: Target Actual1 26% 53% 27% 53% CEO 21% 17% KMPs 16% Total fixed remuneration Short Term Incentive Long Term Incentive 20% 17% Total fixed remuneration Short Term Incentive 16% Long Term Incentive 67% 67% 1. Target and actual remuneration mix is calculated based on the combination of each CEO and KMP’s total fixed remuneration for FY18, total value of STIs awarded in relation to actual performance outcomes for FY18, and the value of LTIs granted in FY18 under the terms of the FY18 LTI plan. The proportional mix of remuneration for KMPs is based on an average amount. 26 Hansen Technologies Ltd Annual Report 2018 4. Remuneration details: executive KMPs Statutory remuneration details Details of executive KMP remuneration for the 2017 and 2018 financial years are set out in the table below: Fixed Remuneration Variable Remuneration Total Cash Salary $ Non- monetary benefits $ Super $ Annual & long service leave $ STI1 awarded $ LTI2 fair value $ Total $ Perform- ance related Total $ Executive KMP Year Andrew Hansen 2018 826,005 24,999 27,588 94,130 972,722 330,225 361,249 1,664,196 2017 768,972 34,999 18,699 107,620 930,290 – 212,500 1,142,790 Cameron Hunter 2018 370,320 25,000 14,730 45,380 455,430 83,739 96,092 635,261 2017 357,415 34,999 13,830 (11,907)3 394,337 14,442 68,581 477,360 Darren Meade 2018 360,496 25,000 2017 336,269 34,999 Graeme Taylor 2018 354,500 25,000 2017 316,507 34,999 Niv Fernando 2018 354,126 25,000 2017 299,933 29,999 – – – – – – 6,538 392,034 95,978 92,655 580,667 693 371,961 18,282 64,660 454,903 25,676 405,176 94,875 89,710 589,761 7,834 359,340 17,250 62,081 438,671 9,230 388,356 93,899 86,958 569,213 11,014 340,946 40,698 60,988 442,632 Total 2018 2,266,943 124,999 42,318 180,955 2,613,718 698,716 726,664 4,039,098 2017 2,079,096 169,995 32,529 115,254 2,396,874 588,472 553,810 3,539,156 42% 41% 28% 25% 32% 25% 31% 27% 32% 24% 35% 32% 1. Represents STI awarded and accrued in relation to actual performance during the 2018 and 2017 financial years. 2. Options and performance rights granted as remuneration are valued at grant date in accordance with AASB 2 Share-based Payment and amortised over vesting period. 3. Cameron Hunter received a cash payment in FY17 to reduce his annual leave due to its high value from a historical build-up from his long tenure at the Company. Options awarded, vested and lapsed during the year The terms and conditions of each grant of options affecting the remuneration in the current or future reporting period are as follows. Grant date 2 Jul 2014 2 Jul 2015 Vesting date Expiry date 2 Jul 2017 2 Jul 2018 2 Jul 2019 2 Jul 2020 22 Dec 2016 31 Aug 20191 22 Dec 2021 Exercise price Value per option at grant date Perform- ance achieved % Vested Number of Options on issue at 30/6/2018 $1.30 $2.67 $3.59 $0.20 $0.56 $1.19 100% 100% – 100% 100,000 0% 0% 400,000 984,001 1. The vesting date for options granted on 22 December 2016 is the date on which the Board notifies the executive that the options have vested, after the outcomes for the measurement period have been determined and satisfaction of performance conditions have been assessed. The number of options over unissued ordinary shares in the Company provided as remuneration to executive KMPs is shown in the table below. The options carry no dividend or voting rights. Options granted in 2014 and 2015 related to the Legacy LTI options plan. Options granted on 22 Dec 2016 related to the Current LTI options plan. Both are described in section 3 of this report. 27 Hansen Technologies Ltd Annual Report 2018 REMUNERATION REPORT CONTINUED 4. Remuneration details: executive KMPs continued Options granted to executive KMP, which remain unvested at 30 June 2018 and outstanding, are detailed below: Name and Grant Date Andrew Hansen 22 Dec 20161 Total Cameron Hunter 22 Dec 2016 2 Jul 2015 2 Jul 2014 Total Darren Meade 22 Dec 2016 2 Jul 2015 2 Jul 2014 Total Graeme Taylor 22 Dec 2016 2 Jul 2015 2 Jul 2014 Total Niv Fernando 22 Dec 2016 2 Jul 2015 2 Jul 2014 Total Grand Total Balance 30/6/2017 Granted as remun- eration Exercise Price Vested Forfeited Exercised Vested and exercisable Unvested Balance 30/6/2018 – – 535,714 535,714 121,746 100,000 100,000 321,746 115,220 100,000 75,000 290,220 108,718 100,000 75,000 283,718 102,603 100,000 100,000 302,603 1,198,287 – – – – – – – – – – – – – – – – – $3.59 $3.59 $2.67 – – – – $1.30 100,000 100,000 $3.59 $2.67 $1.30 $3.59 $2.67 $1.30 $3.59 $2.67 – – 75,000 75,000 – – 75,000 75,000 – – $1.30 100,000 100,000 350,000 – – – – – – – – – – – – – – – – – – – – – – – (100,000) (100,000) – – (75,000) (75,000) – – (75,000) (75,000) – – – – – – – – – – – – – – – – – – – – 535,714 535,714 121,746 100,000 – 221,746 115,220 100,000 – 215,220 108,718 100,000 – 208,718 102,603 100,000 100,000 – 100,000 202,603 (250,000) 100,000 1,384,001 1. These were indeterminate rights issued at grant date that were subject to shareholder approval at the Company’s Annual General Meeting. Shareholder approval was obtained on 23 November 2017. The indeterminate rights were ultimately granted as share options with the same vesting conditions as other options granted on 22 December 2016. Any differences in the fair value of the share option between the original grant date by the Board and the date of shareholder approval is not material to remuneration awarded. 28 Hansen Technologies Ltd Annual Report 2018 Performance rights awarded, vested and lapsed during the year Performance rights issued under the Group’s 2018 LTI Executive Performance Rights Plan during the year are subject to the service and performance criteria as described on pages 18 to 20. The following table sets out details of performance rights granted to executives during the financial year: Executive KMP Andrew Hansen* Cameron Hunter Darren Meade Graeme Taylor Niv Fernando Grant Date 2 Jul 2017 2 Jul 2017 2 Jul 2017 2 Jul 2017 2 Jul 2017 Rights granted Balance 30/6/20181 Fair value per Right2 Vesting date3 $ value of rights at grant date1 116,972 25,824 25,157 24,869 24,613 116,972 25,824 25,157 24,869 24,613 3.815 31 Aug 2020 446,250 3.815 31 Aug 2020 3.815 31 Aug 2020 3.815 31 Aug 2020 3.815 31 Aug 2020 98,517 95,977 94,875 93,899 * The Board has resolved to issue 116,972 rights to Andrew Hansen, the Chief Executive Officer, as part of the FY18 LTI. The issue of these rights was approved by shareholders at the Company’s Annual General Meeting on 23 November 2017. Any differences in the fair value of the performance rights between the original grant date by the Board and the date of shareholder approval is not material to remuneration awarded. 1. No performance rights were vested or forfeited during the year. Rights do not expire as shares are issued to KMPs upon vesting. 2. The fair value of the rights at grant date has been determined by an independent external valuation expert in accordance with Australian Accounting Standards. Note 15 to the Group’s financial statements outlines the valuation methodology and key inputs and assumptions to the valuation in greater detail. 3. The vesting date for rights granted on 2 July 2017 is the date on which the Board notifies the executive that the rights have vested, after the outcomes for the measurement period have been determined and satisfaction of performance conditions have been assessed. This is likely to be 31 August 2020. 5. Contractual arrangements with executive KMP Remuneration and other conditions of employment are set out in each executive’s employment contract. The key elements of these employment contracts are summarised below: Component Approach for CEO Approach for other executive KMP Total Fixed Remuneration Contract duration $892,500 Ongoing Notice by individual/company 6 months Range between $330,000 and $406,000 Ongoing 1 month Termination of employment (without cause) The Board has discretion to allow some or all STI entitlements to be paid out on a pro-rata basis aligned to time, where termination occurs by way of resignation or dismissal. In other without cause terminations, the STI will be reduced proportionately to reflect the portion of the measurement period, but there is no other impact to the executive’s entitlement. The Board has discretion to allow unvested LTIs to vest on a pro-rate basis aligned to time. Where this discretion is not exercised, such unvested options will lapse. Termination of employment (with cause) STI is forfeited. All unvested LTIs and vested but unexercised LTIs are forfeited. 29 Hansen Technologies Ltd Annual Report 2018 REMUNERATION REPORT CONTINUED 6. Remuneration details: non-executive KMPs Non-Executive Directors enter into service agreements through a letter of appointment. Non-Executive Director fees are determined with reference to market levels and the need to attract high quality Directors. In FY18, the Company introduced a policy of paying separate fees to committee chairs for committee participation in line with market practice. Non-Executive Directors do not receive any variable or performance-based remuneration. The Non-Executive Director fee pool currently has a maximum value of $430,000 per annum, as approved by shareholders at the 2013 AGM. The Board will seek shareholder approval during the forthcoming AGM to increase the limit given this amount has not been reviewed since that time and requires an increase to meet requirements in FY19 and beyond. Further details will be provided prior to the AGM. The annual fees provided to Non-Executive Directors, inclusive of superannuation, are shown below: 2018 2017 Board fees Chairman Other Non-Executive Directors Committee fees Audit and Risk Committee – chair Remuneration Committee – chair Non-Executive Director David Trude Bruce Adams Peter Berry1 Jennifer Douglas Sarah Morgan David Osborne David Howell2 Total 111,817 68,330 4,168 4,168 Fixed Remuneration Year 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 Salary and Fees 102,116 96,475 62,402 58,955 – 24,918 66,208 22,273 66,208 58,955 62,402 29,606 6,693 – 366,029 291,182 Super 9,701 9,165 5,928 5,601 – 2,367 6,290 2,335 6,290 5,601 5,928 34,950 636 – 34,773 60,019 Non-monetary benefits – – – – – – – – – – – – – – – – 105,640 64,556 – – Total 111,817 105,640 68,330 64,556 – 27,285 72,498 24,608 72,498 64,556 68,330 64,556 7,329 – 400,802 351,201 1. Peter Berry resigned as a Non-Executive Director on 6 December 2016. 2. David Howell was appointed as a Non-Executive Director effective 24 May 2018. 30 Hansen Technologies Ltd Annual Report 2018 7. Share-based remuneration disclosures Shareholdings of KMP The number of shares in the Company held by each Non-Executive Director and executive KMP during the year, including their related parties, is summarised below: Non-Executive Directors David Trude Bruce Adams Jennifer Douglas Sarah Morgan David Osborne David Howell1 Executive KMP Andrew Hansen Cameron Hunter Darren Meade Graeme Taylor Niv Fernando Total Received during the year on exercise of options Balance 30 June 2017 Other changes during the year Balance 30 June 2018 107,491 152,304 – 20,000 384,984 – 38,248,078 1,005,882 2,928 53,464 7,368 – – – – – – – 100,000 75,000 75,000 – 3,126 – 8,000 1,351 1,351 25,000 110,617 152,304 8,000 21,351 386,335 25,000 (3,289,271) 34,958,807 – 1,105,882 1,587 1,628 1,587 79,515 130,092 8,955 39,982,499 250,000 (3,245,641) 36,986,858 1. David Howell was appointed as a Non-Executive Director effective 24 May 2018. Shares issued on exercise of options and performance rights Person Darren Meade Cameron Hunter Graeme Taylor Total Number of Ordinary Shares Issued Amount Paid Per Share 75,000 100,000 75,000 250,000 1.30 1.30 1.30 There are no amounts unpaid on shares issued on exercise of options or performance rights. 8. Other transactions with KMP Lease agreement with the CEO The Group leases its Melbourne head office and York Street office from an entity in which the CEO is a Director and shareholder. The terms and conditions of the lease and other property 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 2018 financial year were $1,373,421. Signed in accordance with a resolution of the Directors. David Trude Director Melbourne 16 August 2018 Andrew Hansen Director 31 Hansen Technologies Ltd Annual Report 2018 AUDITOR’S INDEPENDENCE DECLARATION RSM Australia Partners Level 21, 55 Collins Street Melbourne VIC 3000 PO Box 248 Collins Street West VIC 8007 T +61 (0) 3 9286 8000 F +61 (0) 3 9286 8199 www.rsm.com.au AUDITOR’S INDEPENDENCE DECLARATION As lead auditor for the audit of the financial report of Hansen Technologies Limited and Controlled Entities for the year ended 30 June 2018, I declare that, to the best of my knowledge and belief, there have been no contraventions of: (i) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (ii) any applicable code of professional conduct in relation to the audit. RSM AUSTRALIA PARTNERS J S CROALL Partner Dated: 16 August 2018 Melbourne, Victoria THE POWER OF BEING UNDERSTOOD AUDIT | TAX | CONSULTING RSM Australia Partners is a member of the RSM network and trades as RSM. RSM is the trading name used by the members of the RSM network. Each member of the RSM network is an independent accounting and consulting firm which practices in its own right. The RSM network is not itself a separate legal entity in any jurisdiction. RSM Australia Partners ABN 36 965 185 036 Liability limited by a scheme approved under Professional Standards Legislation 32 Hansen Technologies Ltd Annual Report 2018 FINANCIAL REPORT Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Financial Statements Section A: Basis of Preparation 1. Basis of preparation Section B: Performance 2. Segment information 3. Revenue and other income 4. Profit from continuing operations 5. Income tax 6. Earnings per share Section C: Working Capital and Operating Assets 7. Cash and cash equivalents 8. Receivables 9. Other current assets 10. Plant, equipment and leasehold improvements 11. Intangible assets 12. Payables 13. Other operating provisions Section D: People 14. Employee benefits 15. Share-based payments 16. Directors’ and executives’ compensation Section E: Capital and Financial Risk Management 17. Financial risk management 18. Borrowings 19. Contributed capital 20. Dividends 21. Reserves and retained earnings 22. Commitments and contingencies Section F: Group Structure 23. Parent entity information 24. Business combinations Section G: Other Disclosures 25. Related party disclosures 26. Auditor’s remuneration 27. Deed of cross guarantee 28. New and amended accounting standards and interpretations 29. Subsequent events 34 35 36 37 38 38 38 40 40 44 45 46 49 50 50 51 52 52 53 56 56 57 57 59 63 64 64 67 69 70 71 72 73 73 74 76 76 78 79 81 84 Hansen Technologies Ltd Annual Report 2018 33 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the Year Ended 30 June 2018 Operating 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 Finance costs Other expenses Total expenses Profit before income tax expense Income tax expense Consolidated Entity 2018 $’000 230,816 1,957 232,773 (124,133) (3,908) (16,483) (9,995) (8,022) (2,440) (9,006) (5,926) (3,524) (2,418) (2,085) (7,851) 2017 $’000 174,672 370 175,042 (87,357) (3,015) (9,368) (7,329) (8,875) (4,450) (7,064) (4,267) (3,010) (2,415) (43) (5,016) Note 3 3 4 4 4 4 4 4 (195,791) (142,209) 5(b) 36,982 (8,132) 32,833 (8,945) Net profit after tax 28,850 23,888 Other comprehensive income/(expense) Items that may be reclassified subsequently to profit and loss Exchange differences on translation of foreign entities, net of tax 21(a) 8,543 (1,971) Other comprehensive income/(expense) for the year 8,543 (1,971) Total comprehensive income for the year 37,393 21,917 Basic earnings (cents) per share attributable to ordinary equity holders of the Company Diluted earnings (cents) per share attributable to ordinary equity holders of the Company 6 6 14.8 14.7 13.2 13.0 The consolidated statement of comprehensive income is to be read in conjunction with the notes to the financial statements set out on pages 38 to 84. 34 Hansen Technologies Ltd Annual Report 2018 CONSOLIDATED STATEMENT OF FINANCIAL POSITION As at 30 June 2018 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 7 8 9 10 11 5(d) 12 18 5(c) 13, 14 5(d) 18 13, 14 Consolidated Entity 2018 $’000 23,245 37,254 11,216 71,715 10,554 243,440 4,061 258,055 2017 $’000 15,013 37,685 7,643 60,341 8,912 125,479 4,821 139,212 329,770 199,553 16,492 112 3,196 13,181 22,914 55,895 16,156 27,121 675 43,952 9,653 101 1,051 10,122 19,435 40,362 6,707 190 678 7,575 99,847 47,937 229,923 151,616 19 21(a) 21(b) 21(c) 136,896 16,739 3,102 73,186 229,923 85,350 8,196 1,972 56,098 151,616 The consolidated statement of financial position is to be read in conjunction with the notes to the financial statements set out on pages 38 to 84. 35 Hansen Technologies Ltd Annual Report 2018 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the Year Ended 30 June 2018 Balance as at 1 July 2017 Profit for the year Movement in carrying amount of foreign entities due to currency translation Total comprehensive income for the year Transactions with owners in their capacity as owners: Employee share plan Options exercised Employee performance rights Employee share options Equity issued under dividend reinvestment plan Shares issued from institutional placement Share purchase plan offer Dividends paid Total transactions with owners in their capacity as owners Balance as at 30 June 2018 Balance as at 1 July 2016 Profit for the year Movement in carrying amount of foreign entities due to currency translation 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 Shares issued on contingent liability settlement Dividends paid Total transactions with owners in their capacity as owners Balance as at 30 June 2017 Consolidated Entity Contributed Equity $’000 Note Reserves $’000 Retained Earnings $’000 85,350 10,168 56,098 Total Equity $’000 151,616 – – – – 28,850 28,850 8,543 8,543 – 28,850 8,543 37,393 180 766 – – 1,370 38,959 10,271 – 51,546 136,896 – – 452 678 – – – – – – – – – – – 180 766 452 678 1,370 38,959 10,271 (11,762) (11,762) 1,130 (11,762) 40,914 19,841 73,186 229,923 21(a) 19(b) 19(b) 15(b) 15(c) 19(b) 19(b) 19(b) 20 15, 19 Consolidated Entity Contributed Equity $’000 Note Reserves $’000 Retained Earnings $’000 Total Equity $’000 78,650 11,418 44,912 134,980 – – – 175 1,791 – 1,325 3,409 – 21(a) 19(b) 19(b) 15(c) 19(b) 19(b) 20 – 23,888 23,888 (1,971) (1,971) – 23,888 (1,971) 21,917 – – 721 – – – – – – – – 175 1,791 721 1,325 3,409 (12,702) (12,702) 15, 19 6,700 85,350 721 10,168 (12,702) 56,098 (5,281) 151,616 The consolidated statement of changes in equity is to be read in conjunction with the notes to the financial statements set out on pages 38 to 84. 36 Hansen Technologies Ltd Annual Report 2018 CONSOLIDATED STATEMENT OF CASH FLOWS For the Year Ended 30 June 2018 Cash flows from operating activities Receipts from customers Payments to suppliers and employees Interest received Finance costs Transaction costs relating to acquisition of subsidiary Income tax paid Net cash provided by operating activities Cash flows from investing activities Proceeds from sale of plant and equipment Payment for acquisition of business net of cash assumed Payment for plant and equipment Payment for acquisition of customer contract 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 Repayment of borrowings Payment of finance lease liabilities Dividends paid net of dividend reinvestment Net cash provided by/(used in) financing activities Consolidated Entity 2018 $’000 2017 $’000 Note 263,217 (201,700) 180,592 (139,925) 3 4 24 5(c) 7(a) 24 10 11 19(b) 19(b) 18 18 18 127 (2,085) (678) (6,776) 52,105 120 (64,992) (2,843) – (10,027) (77,742) 49,274 766 46,361 (50,775) (89) (10,392) 35,145 114 (43) (228) (9,321) 31,189 8 (20,525) (5,211) (2,165) (7,750) (35,643) 175 1,791 4,000 (4,000) (96) (11,377) (9,507) Net increase/(decrease) in cash and cash equivalents 9,508 (13,961) Cash and cash equivalents at beginning of year 15,013 30,203 Effects of exchange rate changes on cash and cash equivalents (1,276) (1,229) Cash and cash equivalents at end of the year 7 23,245 15,013 The consolidated statement of cash flows is to be read in conjunction with the notes to the financial statements set out on pages 38 to 84. 37 Hansen Technologies Ltd Annual Report 2018 NOTES TO THE FINANCIAL STATEMENTS 30 June 2018 Section A: Basis of Preparation This section describes the basis on which the Group’s financial statements are prepared. Specific accounting policies are described in the note to which they relate. The accounting policies have been consistently applied, unless otherwise stated. 1. Basis of preparation (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 the Group, being Hansen Technologies Limited (the Company) and its controlled entities as a consolidated entity. The Company is a company limited by shares, incorporated and domiciled in Australia. The address of the Company’s registered office and principal place of business is 2 Frederick St, Doncaster Victoria 3108 Australia. The Company is a for-profit entity for the purposes of preparing the Group’s financial statements. This Financial Report was authorised for issue by the Directors on 16 August 2018. This year, the Group’s financial statements have been presented in a more streamlined manner by changing the format and the layout to simplify the information disclosed and to make it more relevant for users. Similar notes have been grouped into sections with relevant accounting policies and judgements and estimate disclosures incorporated within the notes to which they relate. Compliance with IFRS The Group’s consolidated financial statements 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 and judgements The preparation of the Financial Report requires the use of certain estimates and judgements in applying the Group’s accounting policies. 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 in each of the affected notes. Those estimates and judgements significant to the Financial Report are disclosed in the following notes: Significant accounting estimate and judgement Capitalisation of research and development costs Impairment of non-financial assets other than goodwill Impairment of goodwill Share-based payments Business combinations Note Page reference 11 11 11 15 24 54 55 55 63 75 38 Hansen Technologies Ltd Annual Report 2018 (b) Principles of consolidation The consolidated financial statements are those of the consolidated Group, comprising the financial statements of the parent Company, 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 which 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) Comparatives Where necessary, comparative information has been reclassified and repositioned for consistency with current year disclosures. (d) Rounding amounts The parent Company and the consolidated Group have applied the relief available under ASIC Corporations (Rounding in Financial/Directors’ 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. (e) Going concern The Financial Report has been prepared on a going concern basis. 39 Hansen Technologies Ltd Annual Report 2018 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 June 2018 Section B: Performance This section explains the operating results of the Group for the year and provides insights into the Group’s results, including results by operating segment, components of income and expenses, income tax and earnings per share. 2. Segment information (a) Description of segments Management has determined the Group’s operating segments based on the reports reviewed by the CEO (the Chief Operating Decision Maker). During the financial reporting period ended 30 June 2018, management reviewed and updated its internal reporting structure and consequently has made minor changes to the reportable segment allocations from those disclosed in previously published financial results. The operating segments are identified based on the types of services provided to the Group’s customers. Discrete financial information about each of these operating businesses is reported to the executive management team on at least a monthly basis. Where operating segments meet the aggregation criteria, these are aggregated into reported segments. Operating segments are aggregated based on similar products and services provided to the same type of customers using the same distribution method. Segment profits, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Inter-segment pricing is determined on an arm’s length basis and is eliminated on consolidation. There are no significant transactions between segments. The Group has identified only one reportable segment as described in the table below. The ‘Other’ category includes business units that no longer qualify as an operating segment, as well as the operating segments which do not meet the disclosure requirements of a reportable segment, including IT Outsourcing and Customer Care services. Reportable segment Description of segment Billing1 Sale of billing applications and the provision of consulting services related to billing systems. 1. Results in this segment that related to the call centre operations were previously reported as part of the Billing segment in prior periods. Amounts have been reclassified for the comparative financial period. 40 Hansen Technologies Ltd Annual Report 2018 (b) Segment information 2018 Segment revenue Total segment revenue Revenue from external customers Segment profit Total segment profit Segment profit from core operations Items included within the segment profit: Depreciation expense Amortisation expense Total segment assets Billing $’000 217,250 217,250 Other $’000 13,566 13,566 Total $’000 230,816 230,816 40,197 40,197 1,441 1,441 41,638 41,638 2,326 16,990 198 16 2,524 17,006 283,781 20,466 304,247 Additions to non-current assets 6,388 – 6,388 Total segment liabilities 66,251 5,121 71,372 2017 Segment revenue Total segment revenue Revenue from external customers Segment profit Total segment profit Segment profit from core operations Items included within the segment profit: Depreciation expense Amortisation expense Total segment assets Billing $’000 159,149 159,149 Other $’000 15,523 15,523 Total $’000 174,672 174,672 34,931 34,931 1,772 1,772 36,703 36,703 1,606 9,514 156 16 1,762 9,530 160,647 21,794 182,441 Additions to non-current assets 4,754 – 4,754 Total segment liabilities 43,056 4,935 47,991 41 Hansen Technologies Ltd Annual Report 2018 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 June 2018 2. Segment information continued (i) Reconciliation of segment revenue to the consolidated statement of comprehensive income Segment revenue Total revenue Geographical segments 2018 $’000 230,816 230,816 2017 $’000 174,672 174,672 In presenting information based on geographical segments, segment revenue is based on the geographical location of customers. Segment assets are based on the geographical location of the assets. The Group’s business segments operate geographically as follows: Geographical segment Regions covered APAC Americas EMEA Australia, New Zealand and Asia North America and Latin America Europe, Middle East and Africa Revenue from external customers attributed to individual geographies is detailed as follows: APAC Americas EMEA Segment revenue Product segments 2018 $’000 49,877 55,381 125,558 230,816 2017 $’000 39,383 62,887 72,402 174,672 In presenting information based on product segments, the Group’s business segments provide the following types of products and services as follows: Product Description of product Licence, support and maintenance Services Recurring billing application licence, support and maintenance services delivered as part of a total billing system solution. Provision of various professional services in relation to customer billing systems and IT outsourced services covering facilities management, systems and operations support, network services and business continuity support. Other Provision of other third-party hardware and software licences to customers of the Group’s billing system solutions. Revenue from external customers attributed to individual products and services is detailed as follows: 2018 $’000 143,837 85,451 1,528 230,816 2017 $’000 112,740 60,153 1,779 174,672 Licence, support and maintenance Services Other Total revenue 42 Hansen Technologies Ltd Annual Report 2018 (ii) Reconciliation of segment profit from core operations to the consolidated statement of comprehensive income Segment profit from core operations Interest revenue Interest expense Unallocated depreciation and amortisation Other expense Profit before income tax 2018 $’000 41,638 127 (2,085) (757) (1,941) 36,982 (iii) Reconciliation of segment assets to the consolidated statement of financial position Segment assets Unallocated assets – Cash – Other Total unallocated assets Total assets 2018 $’000 304,247 23,245 2,278 25,523 329,770 2017 $’000 36,703 114 (43) (1,091) (2,850) 32,833 2017 $’000 182,441 15,013 2,099 17,112 199,553 Total non-current assets attributed to individual geographies is detailed as follows. Unallocated assets represent deferred tax assets, which are not allocated to a specific location as they are managed on a group basis: APAC Americas EMEA Unallocated assets Total non-current assets 2018 $’000 36,971 59,020 158,002 4,062 258,055 (iv) Reconciliation of segment liabilities to the consolidated statement of financial position Segment liabilities Unallocated liabilities – Bank facility – Other Total unallocated liabilities Total liabilities 2018 $’000 71,372 27,233 1,242 28,475 99,847 2017 $’000 36,090 58,328 39,973 4,821 139,212 2017 $’000 47,991 – (54) (54) 47,937 43 Hansen Technologies Ltd Annual Report 2018 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 June 2018 3. Revenue and other income Revenues from continuing operations Revenue from provision of services Revenue from sale of goods Other income From operating activities Interest income Other income Total other income Consolidated Entity 2018 $’000 2017 $’000 203,715 27,101 230,816 152,446 22,226 174,672 127 1,830 1,957 114 256 370 Total revenue and other income from continuing operations 232,773 175,042 (a) Government grants Included in other income during the financial year is $593,000 (2017: nil) related to government grants received to compensate for eligible employee expenditure related to research activities performed in Norway. There are no unfulfilled conditions or contingencies attached to these grants. Significant accounting policies 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 an unearned income liability until the service is performed. Accrued revenue from the provision of professional services is recognised on a percentage of completion basis in order to record revenues against incurred effort and expense. Revenue from the sale of goods, including certain software licences, 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). 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 consolidated statement of financial position are shown inclusive of sales tax. Cash flows are presented in the consolidated 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. Government grants Government grants are recognised at their fair value where there is reasonable assurance that the grant will be received and all attached conditions will be complied with. Government grants relating to costs are deferred and recognised in the statement of comprehensive income over the period necessary to match them with the costs that they are intended to compensate. Government grants received for which there are no future related costs are recognised in the statement of comprehensive income immediately. 44 Hansen Technologies Ltd Annual Report 2018 4. Profit from continuing operations Profit from continuing operations before income tax has been determined after the following specific expenses: Consolidated Entity 2018 $’000 2017 $’000 Note Employee benefit expenses Wages and salaries Superannuation costs Share-based payments and employee share plan 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 Software development costs Total amortisation of non-current assets 10 11 11 Property and operating rental expenses Minimum lease payments recognised as an operating lease expense 22 Other property-related expenses Total property and operating rental expenses Finance charges Finance costs Total finance costs Net foreign exchange (gains)/losses included in other expenses 113,929 8,939 1,265 124,133 3,908 3,908 11,419 5,064 16,483 6,746 3,249 9,995 2,085 2,085 (47) 80,393 6,112 852 87,357 3,015 3,015 5,425 3,943 9,368 4,955 2,374 7,329 43 43 919 45 Hansen Technologies Ltd Annual Report 2018 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 June 2018 5. Income tax (a) Components of income tax expense: Current tax Deferred tax (Over)/under provision in prior years Total income tax expense Consolidated Entity 2018 $’000 8,535 (284) (119) 8,132 2017 $’000 7,733 812 400 8,945 (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% 11,095 9,850 Add/(less) tax effect of: Impact of tax rates on foreign subsidiaries Research and development allowances Non-deductible share-based payments (Over)/under provision in prior years Deferred tax not previously brought to account Effect of tax rate change during the year in the United States Amortisation of acquired intangibles Other non-allowable items Income tax expense attributable to profit (c) Current tax payable Current tax relates to the following: Current tax liabilities Opening balance Liability from acquisition of subsidiary Prior year (over)/under provision Income tax expense Income tax paid Other Total current tax payable (271) (611) 206 (119) – (1,164) (3,055) 2,051 8,132 1,051 505 (119) 8,535 (6,776) – 3,196 (469) (842) 177 400 (154) – – (17) 8,945 2,187 31 400 7,733 (9,321) 21 1,051 46 Hansen Technologies Ltd Annual Report 2018 (d) Deferred tax Deferred tax assets balance comprises: Difference in depreciation and amortisation of plant and equipment for accounting and income tax purposes Other payables Employee benefits Accruals Deferred tax liabilities balance comprises: Research and development expenditure 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: Decrease/(increase) in deferred tax assets Decrease in deferred tax liabilities Increase from acquisition (f) Deferred tax assets not brought to account (available tax losses) Tax effect of capital losses Tax effect of operating losses Consolidated Entity 2018 $’000 2017 $’000 950 156 1,957 998 4,061 942 1,380 2,499 – 4,821 (4,737) (4,976) (11,370) (49) (16,156) (1,731) – (6,707) (12,095) (1,886) 760 9,449 (10,493) (284) 847 1,984 2,831 (791) 1,897 (294) 812 847 878 1,725 Deferred tax assets have not been recognised in respect of these losses. Realisation of the unrecognised tax losses, temporary differences and offsets is dependent on the future production of sufficient taxable profits in the relevant jurisdictions as well as continued compliance with regulatory requirements for availability. 47 Hansen Technologies Ltd Annual Report 2018 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 June 2018 5. Income tax continued Significant accounting policies Income tax Current income tax expense 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. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the reporting date. 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. The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered. Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current income tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority. Tax consolidation The Group is subject to income taxes in Australia and jurisdictions in which it has foreign operations. In some of these jurisdictions, namely Australia and the United States, 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. The head entity of the Australian tax consolidated group is Hansen Technologies Limited. 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. 48 Hansen Technologies Ltd Annual Report 2018 6. 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 Basic earnings (cents) per share Diluted earnings (cents) per share Consolidated Entity 2018 $’000 28,850 28,850 2017 $’000 23,888 23,888 2018 No. of Shares 2017 No. of Shares 195,541,345 181,363,788 196,581,097 184,262,852 2018 Cents Per Share 14.8 14.7 2017 Cents Per Share 13.2 13.0 Classification of securities as potential ordinary shares The securities that have been classified as potential ordinary shares and included in diluted earnings per share are only options and rights outstanding under the Employee Performance Rights Plan and the Employee Share Option Plan. Significant accounting policies Earnings per share (EPS) Basic EPS is calculated by dividing the profit for the year attributable to ordinary equity holders of the Company by the weighted average number of ordinary shares outstanding during the year. Diluted EPS is calculated by dividing the profit attributable to ordinary equity holders of the Company by the weighted average number of ordinary shares outstanding during the year, plus the weighted average number of ordinary shares that would be issued on conversion of all the dilutive potential ordinary shares into ordinary shares. 49 Hansen Technologies Ltd Annual Report 2018 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 June 2018 Section C: Working Capital and Operating Assets This section describes the different components of our working capital supporting the operating liquidity of the Group, as well as the long-term tangible and intangible assets supporting the Group’s performance. 7. Cash and cash equivalents 7(b) 4, 15(d) 4 Cash at bank and on hand Interest bearing deposits Total cash and cash equivalents (a) Reconciliation of the net profit after tax to net cash flows from operations Net profit after 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 Bad debts recovered Reclassification to intangibles from deferred tax Employee share scheme Net cash provided by operating activities before change in assets and liabilities Changes in assets and liabilities adjusted for effects of purchase of controlled entities during the year: Decrease/(increase) in trade receivables (Increase)/decrease in sundry debtors and other assets (Decrease)/increase in trade payables (Decrease)/increase in other creditors and accruals Increase/(decrease) in employee benefits provision (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 Significant accounting policies Cash and cash equivalents Consolidated Entity 2018 $’000 22,772 473 23,245 2017 $’000 15,011 2 15,013 28,850 23,888 (14) 43 20,391 1,130 (47) (38) (241) 135 12,383 721 568 – – 131 50,166 37,734 9,131 (2,021) (2,035) (7,547) 3,055 (285) 1,641 52,105 (12,447) 1,762 1,181 3,817 (482) 791 (1,167) 31,189 23,245 15,013 105,000 (27,031) 77,969 30,000 – 30,000 18 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. 50 Hansen Technologies Ltd Annual Report 2018 8. Receivables Current Trade receivables Less: provision for impairment Sundry receivables Total trade and other receivables Consolidated Entity 2018 $’000 36,741 (82) 36,659 595 37,254 2017 $’000 37,083 – 37,083 602 37,685 As at 30 June 2018, trade receivables of $9,497,000 (2017: $9,409,000) were past due but not impaired. These relate to a number of independent customers for whom there is no recent history of default. The ageing analysis of these trade receivables is as follows: Trade receivables ageing analysis at 30 June: Not past due Past due 1–30 days Past due 31–60 days Past due more than 61 days Gross 2018 $’000 27,178 3,199 2,052 4,312 36,741 Provided 2018 $’000 (15) (7) (7) (53) (82) Gross 2017 $’000 27,674 4,799 1,470 3,140 37,083 Provided 2017 $’000 – – – – – The sundry receivables do not contain impaired assets and are not past due. Based on the credit history of these receivables, it is expected that these amounts will be received when due and thus no provision for impairment has been recorded. The Group does not hold any collateral in relation to these receivables. Movements in the provision for impairment were: Opening balance at 1 July Movement for the year Amounts written off Closing balance at 30 June Significant accounting policies Trade receivables 2018 $’000 2017 $’000 – 82 – 82 31 – (31) – Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method less provision for impairment. Trade receivables are generally due for settlement between 30 and 60 days. Debts which are known to be uncollectible are written off by reducing the carrying amount directly. An allowance account (provision for impairment of trade receivables) is made when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Impairment losses are recognised in the statement of comprehensive income within impairment expenses. When a trade receivable for which an impairment allowance had been recognised becomes uncollectible in a subsequent period, it is written off against the allowance account. 51 Hansen Technologies Ltd Annual Report 2018 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 June 2018 9. Other current assets Prepayments Other assets Accrued revenue Total other current assets 10. Plant, equipment and leasehold improvements Plant, equipment and leasehold improvements at cost Accumulated depreciation Total plant, equipment and leasehold improvements Reconciliation Consolidated Entity 2018 $’000 5,325 67 5,824 11,216 2017 $’000 2,910 66 4,667 7,643 Consolidated Entity 2018 $’000 40,308 (29,754) 10,554 2017 $’000 38,042 (29,130) 8,912 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 at cost Carrying amount at 1 July Additions Acquired Disposals Depreciation expense Net foreign currency movements arising from foreign operations Carrying amount at 30 June Significant accounting policies Plant, equipment and leasehold improvements Cost and valuation Note 4 Consolidated Entity 2018 $’000 8,912 2,843 2,533 (106) (3,908) 280 10,554 2017 $’000 6,743 5,211 74 (51) (3,015) (50) 8,912 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 2018 2017 2.5 to 15 years 2.5 to 15 years 2.5 to 15 years 2.5 to 15 years An item of property, plant and equipment initially recognised is derecognised upon disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in profit or loss when the asset is derecognised. The residual values, useful lives and methods of depreciation of property, plant and equipment are reviewed at each financial year end and adjusted prospectively, if appropriate. 52 Hansen Technologies Ltd Annual Report 2018 11. Intangible assets Goodwill at cost Accumulated impairment Net book amount of goodwill Technology, trademarks and customer contracts at cost Accumulated amortisation and impairment Net book amount of technology, trademarks and customer contracts Software development at cost Accumulated amortisation and impairment Net book amount of software development Note Consolidated Entity 2018 $’000 152,565 (1,573) 150,992 99,415 (28,196) 71,219 53,382 (32,153) 21,229 2017 $’000 89,058 (1,562) 87,496 38,729 (16,391) 22,338 42,568 (26,923) 15,645 Total intangible assets 243,440 125,479 Reconciliation of goodwill at cost Carrying amount at 1 July Increase due to acquisition Reclassification to intangibles from deferred tax 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 Customer contracts acquired during the year 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 Net foreign currency movements arising from foreign operations Carrying amount at 30 June Accumulated amortisation at beginning of year Current year charge Net foreign currency movements arising from foreign operations Accumulated amortisation at end of year 24 24 4 4 89,058 57,270 241 5,996 152,565 (1,562) (11) (1,573) 38,729 55,571 – 5,115 99,415 (16,391) (11,419) (386) (28,196) 42,568 10,027 787 53,382 (26,923) (5,064) (166) (32,153) 84,196 6,064 – (1,202) 89,058 (1,575) 13 (1,562) 22,496 14,421 2,165 (353) 38,729 (11,119) (5,425) 153 (16,391) 35,141 7,750 (323) 42,568 (23,080) (3,943) 100 (26,923) 53 Hansen Technologies Ltd Annual Report 2018 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 June 2018 11. Intangible assets continued Significant accounting policies 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 24 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 is generally 5 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 is generally 5 years. Amortisation commences when the intangible asset is available for use. Other development expenditure is recognised as an expense when incurred. 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 of disposal and value in use. Critical accounting estimate and judgement Capitalisation of research and development costs 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 various billing software platforms in the 2018 year. Returns are expected to be derived from this investment over the coming year. The assets’ residual values, useful lives and amortisation methods are reviewed and adjusted if appropriate at each financial year end. The estimation of useful lives of assets has been based on historical experience and expected product lifecycle, which could change significantly as a result of technological innovation. 54 Hansen Technologies Ltd Annual Report 2018 (a) Impairment test for goodwill For impairment testing, the Group views that its past business combinations giving rise to goodwill on acquisition relate to synergistic opportunities for its billing solutions. Therefore, goodwill is allocated entirely to the Billing CGU, which is also an operating and reportable segment. The recoverable amount of the Billing CGU has been determined based on a value-in-use calculation using cash flow projections over a five-year period. Cash flows beyond the five-year forecast period are extrapolated using the estimated terminal growth rates. Key assumptions used for value-in-use calculations The key assumptions for the Billing CGU supporting the disclosed recoverable value is as follows: • Profit before tax for the first year based on financial budgets approved by senior management; • Beyond the first year, profit before tax annual growth rate of 1.8% (2017: 3.0%); • A post-tax discount rate of 6.8% (2017: 12.0%); and • Terminal growth rate of 1.8% (2017: 2.0%) at the end of the forecast period. Both the profit before tax growth rate beyond FY19 and the terminal growth rate ranges are derived from management’s best estimate of revenue and operating expenditure growth, taking into account changes in the industry, customer market prospects, future product developments and technological innovation. Profit before tax is then adjusted for amounts related to tax. Discount rate is based on the Group’s weighted average cost of capital. Results of impairment testing and sensitivity to changes in assumptions Based on the Group’s impairment testing for 2018, there was no requirement to impair goodwill as the recoverable amount of the Billing CGU exceeds its carrying amount. The Group has considered changes in key assumptions that it believes to be reasonably possible. For the Billing CGU, the recoverable amount exceeds the carrying amount when testing for reasonably possible changes in key assumptions and there is no reasonably possible change in a key assumption that would result in impairment. Critical accounting estimate and judgement Impairment of goodwill The Group tests whether goodwill has been impaired on an annual basis. Management’s judgement is applied to identify the cash generating units (CGU). The recoverable amount of a cash generating unit (CGU) is determined based on value-in-use calculations which require the use of assumptions and discounting of future cash flows. These assumptions are based on best estimates at the time of performing the valuation. Cash flow projections do not include restructuring activities that the Group is not yet committed to or significant future investments that will enhance the performance of the assets of the CGU being tested. Goodwill is monitored by management at the level of operating segments identified in note 2. 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. 55 Hansen Technologies Ltd Annual Report 2018 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 June 2018 12. Payables Trade payables Other payables Total payables Consolidated Entity 2018 $’000 3,409 13,083 16,492 2017 $’000 3,572 6,081 9,653 Significant accounting policies Trade payables Trade payables are initially recognised at their fair value and subsequently carried at amortised cost and are not discounted. These amounts represent liabilities for goods and services provided to the Group prior to the end of financial year which are unpaid. The amounts are unsecured and are paid in accordance with vendor terms, which are usually within 30 to 60 days of recognition. Trade and other payables are presented as current liabilities unless payment is not due within 12 months after the reporting period. 13. Other operating provisions Current Lease and rental provisions Other Other – current Carrying amount at beginning of year Net (payments)/provisions made during the year Carrying amount at end of year Significant accounting policies Provisions Consolidated Entity 2018 $’000 2017 $’000 358 113 471 504 (33) 471 379 125 504 296 208 504 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. 56 Hansen Technologies Ltd Annual Report 2018 Section D: People This section provides information about our employee benefit obligations, including annual leave, long service leave and post-employment benefits. It also includes details about our share plans and the compensation paid to key management personnel. 14. Employee benefits Current employee benefits1 Non-current employee benefits2 Total employee benefits liability Consolidated Entity 2018 $’000 12,710 675 13,385 2017 $’000 9,618 678 10,296 1. Included within current provisions in the statement of financial position. 2. Included within non-current provisions in the statement of financial position. Employee benefits liability Employee benefits liability represents amounts provided 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. These amounts are presented 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 following amounts reflect leave that is not expected to be taken or paid within the next 12 months. Current leave obligations expected to be settled after 12 months 2018 $’000 1,615 2017 $’000 962 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. 57 Hansen Technologies Ltd Annual Report 2018 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 June 2018 14. Employee benefits continued Significant accounting policies 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. Other long-term employee benefit obligations The provision for other long-term employee benefits, including obligations 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 remeasurements 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 consolidated statement of financial position. 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 consolidated statement of financial position. 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. 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 is 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. 58 Hansen Technologies Ltd Annual Report 2018 15. Share-based payments (a) Employee Share Plan 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. 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 2018 No. of Shares 2017 No. of Shares 137,227 42,480 (64,949) 114,758 219,578 50,050 (132,401) 137,227 The consideration for the shares issued on 7 May 2018 was $4.24 (3 May 2017: $3.50). The value of shares issued under the ESP that was recognised during the year, and any amounts of consideration provided by and due from eligible participants at balance sheet date, were: Current receivables Issued ordinary share capital Consolidated Entity 2018 $’000 – 180 2017 $’000 44 175 The market value of the Company’s ordinary shares closed at $3.15 on 30 June 2018 ($4.04 on 30 June 2017). 59 Hansen Technologies Ltd Annual Report 2018 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 June 2018 15. Share-based payments continued (b) Employee Performance Rights Plan The Employee Performance Rights Plan (the Plan) was approved by shareholders at the Company’s AGM on 23 November 2017. The maximum number of performance rights on issue under the Plan must not at any time exceed 5% of the total number of ordinary shares on issue at that time. The Board may issue performance rights under the Plan to any employee of the Company and its subsidiaries, including executive Directors, but excluding Non-Executive Directors, on invitation by the Board. Performance rights will be issued free of charge, unless the Board determines otherwise. Each performance right is to subscribe for one ordinary share and, when issued, the shares will rank equally with other shares. The performance rights are not transferable. Quotation of the performance rights on the ASX will not be sought, but the Company will apply to the ASX for official quotation of shares issued on the vesting of performance rights. Performance rights may be granted subject to conditions specified by the Board, which must be satisfied before the performance rights are able to vest. Unless the terms on which a performance right was offered specified otherwise, a performance right is immediately and automatically exercised at vesting date, subject to conditions attached to the performance right that must be satisfied. If an employee ceases employment with the Company during the performance period other than by way of dismissal or resignation (e.g. death, total and permanent disablement, redundancy, retrenchment or retirement with prior written consent of the Board), then the unvested performance rights will vest on a pro-rata basis according to the eligible period of time served up until the termination date. Where termination occurs by way of dismissal or resignation prior to the vesting of the performance rights, unvested rights may vest on a pro-rata according to the eligible period of time served up until the termination date at the Board’s discretion. The Directors have the discretion to vary the terms of the performance rights as deemed appropriate. Performance right holders will not be entitled to participate in any new issue of securities in the Company unless the performance rights have vested 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, the number of shares which will be issued on the vesting of the performance right will be increased by the number of shares which the employee would have received if the performance right had vested before the record date for the bonus issue. Performance rights issued and outstanding at 30 June 2018 Grant date 2 Jul 2017 Total Vesting date1 31 Aug 2020 Fair value per right $ 3.815 Rights granted 355,316 355,316 No. of rights at 30/6/2018 355,316 355,316 1. The vesting date for rights granted on 2 July 2017 is the date on which the Board notifies the executive that the rights have vested, after the outcomes for the measurement period have been determined and satisfaction of performance conditions have been assessed. This is likely to be 31 August 2020. No performance rights vested or lapsed during the financial year. No performance rights were issued and outstanding at 30 June 2017. The weighted average contractual life of outstanding performance rights at the end of the financial year is 2.17 years (2017: nil). (c) 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. 60 Hansen Technologies Ltd Annual Report 2018 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. 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. Movement of options during the year ended 30 June 2018: Grant Date 2 July 2012 2 July 2013 2 July 2014 2 July 2015 Exercise Date Expiry Date 2 July 2015 2 July 2017 2 July 2016 30 Sept 20181 2 July 2017 2 July 2019 2 July 2018 2 July 2020 22 December 2016 31 Aug 2019 22 December 2021 Total Weighted average exercise price Exercise Price $ No. of Options at Beg. of Year Options Exercised or Lapsed No. of Options at End of Year 0.92 0.92 1.30 2.67 3.59 40,000 (40,000) – 295,000 (220,000) 75,000 875,000 (405,000) 470,000 1,000,000 1,323,730 – – 1,000,000 1,323,730 3,533,730 (665,000) 2,868,730 $1.15 $2.82 1. The original expiry date for this tranche of options was 2 July 2018. However, due to extraordinary circumstances, the remaining 75,000 options could not be exercised during the year. Therefore, the Board has exercised its discretion during the year to extend the expiry date for the remaining options to 30 September 2018. There were no new options issued during the 30 June 2018 financial year. Movement of options during the year ended 30 June 2017: Grant Date 2 July 2012 2 July 2013 Exercise Date Expiry Date 2 July 2015 2 July 2017 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 2 July 2017 2 July 2019 2 July 2017 2 July 2020 Exercise Price $ 0.92 0.92 1.06 1.11 1.16 No. of Options at Beg. of Year 220,000 795,000 350,000 350,000 350,000 1.30 875,000 2.67 1,000,000 Options Granted Options Exercised or Lapsed No. of Options at End of Year – – – – – – – (180,000) 40,000 (500,000) 295,000 (350,000) (350,000) (350,000) – – – – – – 875,000 1,000,000 1,323,730 22 December 2016 31 Aug 2019 22 December 2021 3.59 – 1,323,7301 Total 3,940,000 1,323,730 (1,730,000) 3,533,730 Weighted average exercise price $3.59 $1.05 $2.51 1. Included in the options granted during the year is the issue of 535,714 indeterminate rights to Andrew Hansen related to his FY17 Long Term Incentive (LTI) plan, which was subject to shareholder approval at the Company’s Annual General Meeting in November 2017. Shareholder approval was obtained on 23 November 2017. The indeterminate rights were ultimately granted as share options with the same vesting conditions as other options granted on 22 December 2016. Any differences in the fair value of the share option between the original grant date by the Board and the date of shareholder approval is not material to remuneration awarded. 61 Hansen Technologies Ltd Annual Report 2018 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 June 2018 15. Share-based payments continued (c) Employee Share Option Plan continued The weighted average fair value of options granted during the year was nil (2017: $3.815) as there were none issued during the year. The weighted average share price for share options exercised during the period was $3.90 (2017: $4.45). The weighted average remaining contractual life for share options outstanding at the end of the period was 2.47 years (2017: 3.11 years). (d) Fair value of rights and options granted (i) Fair value of performance rights granted – FY18 The assessed fair value at grant date of performance rights granted during the year ended 30 June 2018 was $3.80 per TSR option and $3.83 per EPS options. The fair value of TSR performance rights at grant date is independently determined using an adjusted form of the Black Scholes Model, which includes a Monte Carlo simulation model that takes into account the term of the performance rights, the impact of dilution (where material), the share price at grant date and expected price volatility of the underlying share, the expected dividend yield, the risk-free interest rate for the term of the performance rights and the correlations and volatilities of the peer group companies. The model inputs for options granted during the year ended 30 June 2018 included: • grant date: 2 July 2017 • expected vesting date: 31 August 2020 • measurement period: 1 July 2017 to 30 June 2020 • share price at grant date: $4.04 • expected price volatility of the company’s shares: 30% • expected dividend yield: 1.75% • risk-free interest rate: 1.91% The expected price volatility is based on the historic volatility (based on the life of the performance rights), adjusted for any expected changes to future volatility due to publicly available information. (ii) Fair value of options granted – FY17 The assessed fair value at grant date of options granted during the year ended 30 June 2017 was $1.38 per TSR option and $1.00 per EPS options. The fair value of TSR options at grant date is independently determined using an adjusted form of the Black Scholes Model, which includes a Monte Carlo simulation model that takes into account the exercise price, the term of the option, the impact of dilution (where material), the share price at grant date and expected price volatility of the underlying share, the expected dividend yield, the risk-free interest rate for the term of the option and the correlations and volatilities of the peer group companies. For those options granted during the year ended 30 June 2017, the model inputs included: • grant date: 22 December 2016 • expiry date: 22 December 2021 • share price at grant date: $3.79 • expected price volatility of the company’s shares: 35% • expected dividend yield: 2.0% • risk-free interest rate: 2.18% The expected price volatility is based on the historic volatility (based on the life of the options), adjusted for any expected changes to future volatility due to publicly available information. 62 Hansen Technologies Ltd Annual Report 2018 Expenses arising from share-based payment transactions Options issued under employee option plan (pre-FY17) Options issued under employee option plan FY17 Rights issued under employee performance rights plan FY18 Note 2018 $ 152,597 525,079 451,844 2017 $ 209,011 512,231 – 7(a) 1,129,520 721,242 Significant accounting policies Share-based payments The Group operates equity-settled share-based payment employee share, options and rights 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, ending on the date on which the relevant employees become fully entitled to the award (the vesting date). 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, options and rights 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. Critical accounting estimate and judgement Share-based payments The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the grant date. The fair value of options and rights is estimated on the grant date using an adjusted form of the Black Scholes Model. Estimating fair value for share-based payments requires significant assumptions such as determining the most appropriate inputs to the valuation model, including the expected life of the share option or performance right, volatility in the share price and dividend yield. 16. Directors’ and executives’ compensation Short-term employment benefits Post-employment benefits Share-based payments Consolidated Entity 2018 $ 2017 $ 3,553,465 3,106,533 159,772 726,664 230,013 553,810 4,439,901 3,890,356 Detailed remuneration disclosures are provided in the Remuneration Report on pages 16 to 31. 63 Hansen Technologies Ltd Annual Report 2018 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 June 2018 Section E: Capital and Financial Risk Management This section explains our policies and procedures applied to manage our financing and capital structure, and the associated risks that we are exposed to. We manage our financial and capital structure to maximise shareholder return, maintain an optimal cost of capital and provide flexibility for strategic investments. 17. Financial risk management The consolidated entity is exposed to a variety of financial risks comprising: a) credit risk; b) liquidity risk; c) market risk: i) interest rate risk; ii) foreign exchange risk; and d) fair value measurements. The Board has overall responsibility for identifying and managing operational and financial risks. (a) Credit risk Credit risk is the risk of financial loss to the consolidated entity if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the consolidated entity’s receivables from customers and investments in debt securities. 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 Group 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. Credit quality of a customer is assessed based on a variety of factors, including their credit ratings and financial position. Concentrations of credit risk on trade debtors (by industry) are with customers in the following industries: utilities 62% (2017: 43%), telecommunications 17% (2017: 32%), pay-TV 18% (2017: 23%), and other 3% (2017: 2%). The gross trade receivables balance at 30 June 2018 was $36,741,000 (2017: $37,083,000). The ageing analysis of trade and other receivables is provided in note 8. As the Group undertakes transactions with a large number of customers and regularly monitors payment in accordance with credit terms, the financial assets that are past due but not impaired, are expected to be received in accordance with the credit terms. (b) Liquidity risk Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when they are due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation. 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 Group’s bankers to provide increased capacity for strategic growth objectives. The Group’s borrowings are predominantly made up of a $105,000,000 multi-currency banking facility of which $27,031,000 has been drawn down (2017: $nil). Additionally, the Group has lease liabilities of $202,000 (2017: $291,000), which are due for repayment by January 2020. Trade creditors are due for repayment within six months. 64 Hansen Technologies Ltd Annual Report 2018 The contractual maturities of financial liabilities are as follows: Contractual cash flows $’000 Note Less than 6 months 6-12 months 1-2 years 2-3 years 12 18 12 18 16,492 55 – 16,547 9,653 49 – 9,702 – 57 – 57 – 51 – 51 – 90 27,031 27,121 – 106 – 106 – – – – – 85 – 85 Total carrying amount 16,492 202 27,031 43,725 9,653 291 – 9,944 Financial liabilities 2018 Trade and other payables Lease liabilities Secured borrowings 2017 Trade and other payables Lease liabilities Secured borrowings (c) Market risk Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices, will affect the Group’s income or carrying value of its holdings of financial instruments as at the year end. (i) 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 Interest bearing $’000 Non-interest bearing $’000 Total Carrying Amount $’000 Weighted Avg. Effective Interest Rate % Fixed/ Variable Rate 2018 Financial assets Cash and cash equivalents Receivables Other current assets Financial liabilities Payables Borrowings 2017 Financial assets Cash and cash equivalents Receivables Other current assets Financial liabilities Payables Borrowings 7 8 9 12 18 7 8 9 12 18 – – – – – 27,233 27,233 15,011 – – 15,011 – 291 291 23,245 37,254 67 23,245 37,254 67 60,566 60,566 16,492 – 16,492 16,492 27,233 43,725 2 37,685 66 37,753 9,653 – 9,653 15,013 37,685 66 52,764 9,653 291 9,944 2.51 variable 0.95 variable 1.39 variable 65 Hansen Technologies Ltd Annual Report 2018 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 June 2018 17. Financial risk management continued If interest rates had moved and been effective for the period, as illustrated in the table below, with all other variables held constant, pre-tax profit and post-tax equity1 would have been affected as follows: Consolidated Entity +1% (100 basis points) -1% (100 basis points) Pre-tax Profit Increase/(decrease) $’000 Post-tax Equity1 Decrease/(increase) $’000 2018 (408) 408 2017 (2) 2 2018 285 (285) 2017 2 (2) 1. Calculated net of the Australian corporate tax rate of 30% on pre-tax profit as most of our interest-bearing assets and liabilities are held in Australia. 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. (ii) Foreign exchange risk Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Group operates internationally and as such has exposure to foreign currency movements as part of its day-to-day operational activities. The Group is exposed to foreign currency risk on sales, purchases and foreign currency bank accounts that are denominated in a currency other than the functional currency of the Group, being the Australian dollar (AUD). Overseas subsidiaries within the Group transact in different functional currencies. The effects of any exchange rate movements in respect to the net investment in foreign subsidiaries are recognised in the foreign currency translation reserve. The Group has expanded its international operations substantially in recent years to the extent that in excess of 77% of its revenue is now earned in foreign currency designated transactions. The Group has a number of offices located internationally and more than 79% 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. In addition, the Group holds net borrowings in foreign currencies as part of the multi-currency facility agreement as disclosed in note 18, which have been designated as hedges of the net investments in the Group’s overseas subsidiaries. The Group’s primary foreign currency exposure is to the USD and GBP exchange rates. Due to the Group’s risk management strategy in mitigating foreign currency exposure risk, as described above, any changes in foreign currency rates would be limited to the risk on revaluation of foreign currency denominated borrowings and bank balances in the Group at market rates at balance sheet date. Any gains or losses on revaluation are deferred to the foreign currency translation reserve in equity. Sensitivity to foreign currency exchange rate movements due to the translation of foreign currency borrowings and bank balances held at the end of the financial year at spot rates is as follows: Consolidated Entity +10% -10% Equity1 Increase/(decrease) $’000 USD GBP 2018 639 (639) 2017 (825) 825 2018 379 (379) 2017 (149) 149 1. Represents the effect of hypothetical foreign exchange movements on the Group’s foreign currency translation reserves, which is classified as equity in the statement of financial position. The Group’s exposure to foreign currency changes for all other currencies is not material. 66 Hansen Technologies Ltd Annual Report 2018 Significant accounting policies 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 of the Group are presented in Australian dollars, which is the Group’s functional and presentation currency. Foreign currency transactions and balances Transactions in foreign currencies of entities within the consolidated Group are translated into its 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 in profit or loss and presented in the statement of comprehensive income for the financial year. (d) Fair value measurements Due to their short-term nature, the fair value of receivables and payables approximates their carrying amounts as disclosed in the consolidated statement of financial position and notes to the consolidated financial statements. At 30 June 2018 and 30 June 2017, there are no assets or liabilities carried at fair value on a recurring basis. 18. Borrowings Current Secured Lease liability Non-current Secured Term facility Lease liability Note 22 22 Consolidated Entity 2018 $’000 2017 $’000 112 112 27,031 90 27,121 101 101 – 190 190 The Company has a lease liability relating to IT equipment due for repayment in full by January 2020. The Company has a secured A$105,000,000 multi-currency facility with its external bankers to provide additional funding as required for acquisitions and general corporate purposes. This facility was extended on 25 June 2018 to expire on 7 July 2020, and will be subject to renewal upon negotiation with its external bankers. The facility is secured by 85% of Group assets. As at 30 June 2018, the remaining unutilised portion of the facility is A$77,969,000. 67 Hansen Technologies Ltd Annual Report 2018 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 June 2018 18. Borrowings continued Changes in liabilities arising from financing activities Opening balance at 1 July Cash flows from financing activities Net repayment of borrowings Cash flows from non-financing activities Acquisition of subsidiary’s borrowings1 Non-cash changes Effect of foreign exchange affecting profit and loss Closing balance at 30 June2 Note 2018 $’000 291 2017 $’000 387 (4,503) (96) 24 29,703 1,742 27,233 – – 291 1. This has been repaid in full during the financial year. The repayment is included in the net repayment of borrowings amount. 2. Represents long-term facility borrowings of $27,031,000 (2017: nil) and finance liabilities of $202,000 (2017: $291,000). Hedge of net investments in foreign operations Included in borrowings at 30 June 2018 are two borrowings of US$7,000,000 and GBP £12,500,000 drawn down as part of the A$105,000,000 multi-currency facility. These foreign currency-denominated borrowings have been designated as a hedge of the net investments in the Group’s subsidiaries in the United States and the United Kingdom. The borrowings are being used to hedge the Group’s exposure to the US$ and GBP foreign exchange risk on these investments. Gains or losses on the retranslation of the borrowings are transferred to other comprehensive income to offset any gains or losses on translation of the net investments in the subsidiaries. There is no ineffectiveness in the years ended 30 June 2018 and 2017. Significant accounting policies Loans and borrowings Interest-bearing loans and borrowings are initially recognised as financial liabilities at fair value net of directly attributable transaction costs. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest rate (EIR) method. Gains and losses are recognised in profit or loss when the liabilities are derecognised as well as through the EIR amortisation process. Borrowings are classified as non-current liabilities except for those that mature in less than 12 months from the reporting date, which are classified as current liabilities. 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. 68 Hansen Technologies Ltd Annual Report 2018 19. Contributed capital (a) Issued and paid up capital Ordinary shares, fully paid The ordinary shares have no par value in accordance with the Corporations Act (2001). (b) Movements in shares on issue Consolidated Entity 2018 $’000 136,896 2017 $’000 85,350 Balance at beginning of the financial year Shares issued under dividend reinvestment plan Shares issued under employee share plan Options exercised under employee share plan Shares issued on contingent liability settlement Shares issued from institutional placement Share purchase plan offer Consolidated Entity Consolidated Entity 2018 No. of Shares 181,960,344 373,802 42,480 665,000 – 10,810,810 2,795,794 2018 $’000 2017 No. of Shares 85,350 1,370 180 766 – 38,959 10,271 178,914,061 344,943 50,050 1,730,000 921,290 – – 2017 $’000 78,650 1,325 175 1,791 3,409 – – Balance at end of the financial year 196,648,230 136,896 181,960,344 85,350 (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) Capital risk management The Group’s objectives when managing capital are to safeguard their ability to continue as a going concern, so that they can continue to provide returns for shareholders and benefits for other stakeholders, and maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares, increase debt, sell assets to reduce debt or a combination of these activities. 69 Hansen Technologies Ltd Annual Report 2018 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 June 2018 20. Dividends A regular dividend of 3 cents per share and a special dividend of 1 cent per share has been declared. This final dividend of 4 cents per share, fully franked, was announced to the market on 17 August 2018. The amount declared has not been recognised as a liability in the accounts of Hansen Technologies Ltd as at 30 June 2018. Dividends provided for or paid during the year 3 cent per share final dividend paid 30 September 2017 – fully franked 4 cent per share final dividend paid 30 September 20161 – fully franked 3 cent per share interim dividend paid 29 March 2018 – fully franked 3 cent per share interim dividend paid 31 March 2017 – fully franked Consolidated Entity 2018 $’000 2017 $’000 5,874 5,888 11,762 7,252 5,450 12,702 Proposed dividend not recognised at the end of the year 7,865 5,874 Dividends franking account 30% franking credits, on a tax paid basis, are available to shareholders of Hansen Technologies Ltd for subsequent financial years 3,125 4,482 1. The final dividend paid of 4 cents per share, franked to 4 cents, comprised of a regular dividend of 3 cents per share, together with a special dividend of 1 cent per share. 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. 70 Hansen Technologies Ltd Annual Report 2018 21. 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 expensed during the year Balance at end of year (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 Consolidated Entity 2018 $’000 16,739 3,102 73,186 2017 $’000 8,196 1,972 56,098 Note 21(a) 21(b) 21(c) 8,196 10,167 8,543 16,739 (1,971) 8,196 1,972 1,130 3,102 56,098 (11,762) 28,850 73,186 1,251 721 1,972 44,912 (12,702) 23,888 56,098 71 Hansen Technologies Ltd Annual Report 2018 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 June 2018 22. Commitments and contingencies Operating leases (non-cancellable): Not later than one year Later than one year and not later than five years Later than five years Future minimum rentals payable 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 payments Lease liabilities provided for in the financial statements: Current Non-current Total lease liabilities Operating leases (non-cancellable) Note 18 18 Consolidated Entity 2018 $’000 5,451 13,228 1,163 19,842 121 92 213 (11) 202 112 90 202 2017 $’000 4,977 11,798 2,625 19,400 114 202 316 (25) 291 101 190 291 The Group leases property, vehicles and other IT equipment 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 property lease agreements require the minimum lease payments to be increased by CPI per annum. Finance lease commitments The Group leases certain IT equipment under a finance lease expiring in two years. At the end of the lease term, the Group has the option to return the assets to the lessor or to renew the lease agreements. Contingent assets and liabilities The Group does not have any contingent assets or liabilities as at 30 June 2018. Significant accounting policies Leases The determination of whether an arrangement is (or contains) a lease is based on the substance of the arrangement at the inception of the lease. The arrangement is, or contains, a lease if fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset (or assets), even if that asset is (or those assets are) not explicitly specified in an arrangement. 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 consolidated 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. 72 Hansen Technologies Ltd Annual Report 2018 Section F: Group Structure This section provides information about our structure and how this impacts the Group’s results as a whole, including parent entity information and any business acquisitions that impacted the Group’s financial position and performance. 23. Parent entity information Summarised presentation of the parent Company, Hansen Technologies Limited’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 Foreign currency translation reserve Total equity (b) Summarised statement of comprehensive income Profit for the year Total comprehensive income for the year Parent Entity 2018 $’000 2017 $’000 740 175,748 176,488 1,532 27,065 28,597 1,274 95,309 96,583 1,077 – 1,077 147,891 95,506 136,894 85,350 9,175 2,812 (990) 8,184 1,972 – 147,891 95,506 12,753 12,753 12,887 12,887 A dividend was paid from Hansen Corporation Pty Limited to Hansen Technologies Limited of $14,000,000 during the financial year. (c) Parent entity guarantees Hansen Technologies Limited, being the parent entity, has entered into a guarantee in regard to the loan facility (refer note 18). In addition, there are cross guarantees given by Hansen Technologies Limited and Hansen Corporation Pty Limited as described in note 27. No deficiencies of assets exist in any of these companies. Significant accounting policies Parent Company financial information The financial information for the parent Company has been prepared on the same basis as the Group consolidated financial statements, except as set out below: Investments in subsidiaries Investments in subsidiaries are accounted at cost. Dividends received from subsidiaries are recognised in the parent entity’s income statement when its right to receive the dividend is established. Where the parent Company has provided financial guarantees in relation to loans and payables of subsidiaries for no compensation, the fair value of these guarantees is accounted for as contributions and recognised as part of the cost of the investment. 73 Hansen Technologies Ltd Annual Report 2018 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 June 2018 24. Business combinations Acquisition of Enoro Holdings AS The Company’s subsidiary, Hansen Holdings Europe Limited, acquired 100% of the share capital of Enoro Holding AS and its controlled entities (Enoro) with effect from 1 July 2017. Enoro is the market-leading provider of Customer Information Systems and Meter Data Management systems for the energy sector in the Nordic region. The acquisition further expands the Company’s energy footprint into a number of European countries including Norway, Sweden, Finland, Germany, Netherlands, Switzerland and Austria, and positions the Company to support further deregulation of the energy markets across Eastern Europe. Details of the purchase consideration: Cash paid Total purchase consideration The fair values of the identifiable assets and liabilities acquired as at the date of acquisition were: Assets acquired: Receivables Plant and equipment Total assets acquired Liabilities acquired: Payables Accruals Borrowings Provisions Deferred income Deferred tax liability Current tax liability Total liabilities acquired Net identifiable liabilities acquired Add: Technology Customer contracts Deferred tax liability Goodwill arising on acquisition Total purchase consideration, net of cash acquired $’000 70,246 70,246 Fair value $’000 10,215 2,535 12,750 1,572 2,740 29,703 7,731 7,855 1,435 505 51,541 (38,791) 17,342 38,229 (9,058) 57,270 64,992 Goodwill arose on the acquisition of Enoro 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. None of the goodwill is expected to be deductible for tax purposes. As at 30 June 2018, the Group has completed the fair value assessment on the net assets acquired. There have been no significant changes to the fair value assessment presented in the financial statements since the half year ended 31 December 2017. (a) Transaction costs Transaction costs of $677,663 were incurred in relation to the acquisition. These costs are included with ‘Other Expenses’ in the Group’s consolidated statement of comprehensive income. 74 Hansen Technologies Ltd Annual Report 2018 (b) Contribution since acquisition Since the acquisition date of 1 July 2017, which is the beginning of the reporting period, Enoro has contributed total revenue of $57,687,000 and a profit after tax of $3,444,986, which is included within the Group’s consolidated results. (c) Analysis of cash flows on acquisition Outflow of cash to acquire subsidiary, net of cash acquired Cash consideration Less: Cash balance acquired Net cash outflow – investing activities Significant accounting policies Business combinations $’000 70,246 (5,254) 64,992 A business combination is a transaction or other event in which an acquirer obtains control of one or more businesses 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 acquirers 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. Critical accounting estimate and judgement Business combinations The Group is required to determine the acquisition date and fair value of the identifiable net assets acquired, including intangible assets such as brands, customer relationships, software and liabilities assumed. The estimated useful lives of the acquired amortisable assets, the identification of intangibles and the determination of the indefinite or finite useful lives of intangible assets acquired are assessed based on management judgement. The Group reassesses the fair value of net assets acquired a year after the acquisition date and judgement is required to ensure that any adjustments made reflect new information obtained about facts and circumstances that existed as of the acquisition date. The adjustments made to fair value of net assets are retrospective in nature and have an impact on goodwill recognised on acquisition. 75 Hansen Technologies Ltd Annual Report 2018 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 June 2018 Section G: Other Disclosures This section includes other disclosures not included in the other sections, for example our auditor’s remuneration, related parties, impact of new accounting standards not yet effective and subsequent events. 25. Related party disclosures (a) The Group’s consolidated financial statements include the financial statements of Hansen Technologies Limited and its controlled entities: Ordinary Share Consolidated Entity Interest Note Country of Incorporation 2018 % 2017 % Australia Australia Australia Australia Australia China Denmark India New Zealand Singapore United Kingdom United Kingdom United Kingdom United States United States United States United States United States Vietnam Norway Norway Sweden Finland Finland Finland Finland Netherlands Switzerland 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 – – – – – – – – – – Name Parent entity Hansen Technologies Limited Subsidiaries of Hansen Technologies Limited Hansen Corporation Pty Limited Hansen Corporation Investments Pty Limited Hansen Holdings (Asia) Pty Limited Utilisoft Pty Limited Hansen Technologies (Shanghai) Company Limited Hansen Technologies Denmark A/S Hansen Customer Support India Private Limited Hansen New Zealand Limited Hantech Singapore Pte Limited Hansen Corporation Europe Limited Hansen Holdings Europe Limited Hansen Billing Solutions Limited Hansen Solutions LLC Hansen Technologies North America, Inc. Hansen ICC, LLC Hansen Banner, LLC Peace Software Inc. Hansen Technologies Vietnam LLC 1 Enoro Holding AS Enoro AS Enoro AB Enoro CIS Finland Oy Enoro Oy PEP Finland Oy Enercube Oy Finland Filial Enoro B.V. Enoro AG 1. Established and registered on 7 November 2017 as a wholly owned subsidiary of the Group. 76 Hansen Technologies Ltd Annual Report 2018 Significant accounting policies Foreign subsidiaries Subsidiaries that have a functional currency different to the presentation currency of the 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. (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 2018 $ 2017 $ 1,373,421 1,314,045 77 Hansen Technologies Ltd Annual Report 2018 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 June 2018 26. Auditor’s remuneration The auditor of the Group for the year ended 30 June 2018 is RSM Australia Partners (30 June 2017: Pitcher Partners). (a) Amounts paid and payable to RSM Australia Partners 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 RSM Australia Partners (b) Amounts paid and payable to related practices of RSM Australia Partners for: (i) Audit and other assurance services – an audit and/or review of the Financial Report of the overseas entities in the consolidated entity (ii) Other non-audit services – taxation services – compliance services Total remuneration of network firms of the auditor (c) Amounts paid and payable to non-related auditors for: (i) Audit and other assurance services – an audit and/or review of the Financial Report of the entity and any other entities in the consolidated entity (ii) Other non-audit services – taxation services – compliance services Total remuneration of non-related auditors Total auditors’ remuneration Consolidated Entity 2018 $ 2017 $ 303,430 – – – 303,430 – – – – – 202,317 37,588 13,493 3,034 16,527 218,844 10,679 174,567 185,246 222,834 284,148 547,564 – 8,302 8,302 292,450 814,724 49,776 132,801 182,577 730,142 952,976 78 Hansen Technologies Ltd Annual Report 2018 27. Deed of cross guarantee Hansen Technologies Limited and Hansen Corporation Pty Limited are parties to a deed of cross guarantee under which each company guarantees the debts of the other. By entering into the deed, the wholly owned entities have been relieved from the requirement to prepare a financial report and directors’ report under ASIC Corporations (Wholly-owned Companies) Instrument 2016/785 issued by the Australian Securities and Investments Commission. (a) Consolidated statement of comprehensive income The above companies represent a ‘closed group’ for the purposes of the Class Order, and as there are no other parties to the deed of cross guarantee that are controlled by Hansen Technologies Ltd, they also represent the ‘extended closed group’. Set out below is a consolidated statement of comprehensive income for the year ended 30 June 2018 of the closed group consisting of Hansen Technologies Limited and Hansen Corporation Pty Limited (the Closed Group). 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 Finance cost Other expenses Total expenses Profit before income tax Income tax expense Profit after income tax from continuing operations Other comprehensive income/(expense) Items that may be reclassified subsequently to profit and loss Exchange differences on translation of foreign entities Other comprehensive income/(expense) for the year 2018 $’000 48,734 19,354 68,088 (27,374) (1,305) (2,808) (2,871) (1,037) (1,902) (1,688) (1,199) (684) (919) (772) (567) (43,126) 24,962 (4,167) 20,795 2017 $’000 41,510 12,332 53,842 (26,641) (1,310) (2,559) (2,306) (261) (1,019) (2,399) (1,249) (690) (605) (33) (2,205) (41,277) 12,565 (3,315) 9,250 – – – – Total comprehensive income for the year 20,795 9,250 79 Hansen Technologies Ltd Annual Report 2018 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 June 2018 27. Deed of cross guarantee continued (b) Consolidated statement of financial position Set out below is a consolidated statement of financial position as at 30 June 2018 of the Closed Group: Current assets Cash and cash equivalents Receivables Current tax asset Other current assets Total current assets Non-current assets Plant, equipment and leasehold improvements Intangible assets Other non-current assets Deferred tax assets Total non-current assets Total assets Current liabilities Payables Current tax payable Provisions Unearned income Total current liabilities Non-current liabilities Deferred tax liabilities Borrowings Other non-current liabilities Provisions Total non-current liabilities Total liabilities Net assets 2018 $’000 4,577 6,659 3,256 – 14,492 3,371 22,503 180,190 2,953 209,017 2017 $’000 4,214 9,227 1,128 1,992 16,561 3,789 21,297 87,523 3,323 115,932 223,509 132,493 3,809 73 5,739 6,158 15,779 2,555 27,031 15,131 173 44,890 3,511 – 5,898 6,984 16,393 2,064 – 8,937 195 11,196 60,669 27,589 162,840 104,904 (c) Summary of movements in consolidated retained earnings of the Closed Group Share capital Other reserves Options granted reserve Retained earnings Total equity 80 2018 $’000 136,895 (4,491) 3,103 27,333 2017 $’000 85,350 (3,475) 1,974 21,055 162,840 104,904 Hansen Technologies Ltd Annual Report 2018 28. New and amended accounting standards and interpretations (a) Adoption of new and amended accounting standards that are first operative at 30 June 2018 The Group has adopted the following amendments to the accounting standards, applicable and effective for the financial year beginning 1 July 2017: • AASB 2016-1 Recognition of Deferred Tax Assets for Unrealised Losses • AASB 2016-2 Disclosure Initiative: Amendments to AASB 107 Statement of Cash Flows • AASB 2017-2 Annual Improvements 2014-2016 Cycle For AASB 2016-2, the Group has made additional disclosure in note 18 for changes in financial liabilities arising from cash flows and non-cash changes. These amendments do not have any material impact on the Group’s financial results or financial position. (b) Accounting standards and interpretations issued but not operative at 30 June 2018 The following new and revised accounting standards and interpretations have been issued by the Australian Accounting Standards Board at the reporting date, which are considered relevant to the Group but are not yet effective. The Directors’ assessment of the impact of these standards and interpretations is set out below: (i) AASB 15 Revenue from Contracts with Customers The new revenue standard will supersede all current revenue recognition requirements under Australian Accounting Standards. Under AASB 15, the core principle is that an entity recognises revenue when control of the promised goods or services transfer to the customer at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, the presentation and disclosure requirements in AASB 15 are more detailed than those under current Australian Accounting Standards. Group’s assessment performed to date During the year, management of the Group has undertaken significant analysis to assess the impact of the new standard, and has shared its findings to date with the Board and external auditors on a regular basis. Work to date has focused on identifying the Group’s major revenue streams and operations to further understand the nature of its contractual arrangements. The Group focused the assessment on the following revenue streams, which comprise over 99% of total revenues for the year: • Billing system licence fees; • Implementation and customisation services; and • Ongoing customer support and maintenance. A representative sample of contracts across the Group’s various geographies, operational segments and different billing solutions was reviewed and assessed against the requirements of the new standard to understand the areas that are expected to have the greatest potential risk of impact and to identify any resulting differences from existing Group accounting policies. The Group is currently in the process of updating accounting policies, internal and regulatory reporting requirements, and associated business processes and controls to support compliance with the new accounting standard across the Group. The Group will first apply AASB 15 on 1 July 2018 and will first report under the new standard in the 30 June 2019 annual financial report. The Group will adopt the modified retrospective approach on transition, where the cumulative effect of initially applying the standard will be recognised as an adjustment to the opening balance of retained earnings on 1 July 2018. In determining the expected financial impact, the Group will also use the practical expedient available in the new standard and apply AASB 15 only to contracts that are not completed at 1 July 2018. 81 Hansen Technologies Ltd Annual Report 2018 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 June 2018 28. New and amended accounting standards and interpretations continued The most significant differences to existing Group accounting policies that the Group has identified that will result in a financial impact on adoption of the new standard are as follows: Timing of licence revenue recognition A significant amount of the Group’s customer contracts includes fees for software licences associated with the billing solution provided to the customer on customer-specific premises. The nature of the licence fee structures varies by customer and billing solution. AASB 15 provides new guidance related to licences of intellectual property, and the timing of revenue recognition associated with licences is dependent on the nature of the licence granted to the customer. Some of the Group’s arrangements are structured such that the customer receives substantially all the benefits from the licence at the point in time at which the licence is delivered to the customer. For some of our pay-TV and utilities contracts, the fees associated with the licence will be recognised as revenue earlier in the contractual period, whereas under existing Group accounting policies these fees were recognised evenly over the remaining contractual period. We expect that this will result in an increase to the opening retained earnings balance by approximately $2 million at 1 July 2018. In some of the Group’s other contracts, the amount of consideration that the Group is entitled to is dependent on the number of the customer’s users processed by the billing solution. The new standard provides an exception for licences that are dependent on the customer’s subsequent usage of the licence. For these contracts, this will not result in a change in the timing and pattern of revenue recognition as the Group currently recognises revenue when the customer’s subsequent usage is known. Therefore, there will not be any financial impact under the new standard. Implementation and customisation services The Group provides various configuration, implementation, customisation and other professional services that the customer is contracted to receive as part of the overall the billing solution. AASB 15 provides guidance in determining whether these services are distinct services provided in the contract, and the timing in which revenue is to be recognised for these services. This will result in changes to the Group’s existing accounting policies in identifying whether the services provided are highly interrelated or integrated with the Group’s provision of the associated software licence. The Group’s assessment exercise has identified a few customer contracts where it was determined that the services and licence represent a single performance obligation, resulting in earlier revenue recognition of the licence component. However, the financial impact is not material to account as an adjustment to opening retained earnings on 1 July 2018 as most of these contracts with a single performance obligation were completed prior to adoption of AASB 15. If the Group adopted the new standard for the current financial year, the financial impact to revenues and contract assets would be captured by the changes to the recognition of licence fees. As such, the overall impact would not be material. (ii) AASB 9 Financial Instruments The new financial instruments standard replaces AASB 139 and addresses the classification, measurement and derecognition of financial assets and financial liabilities. It also addresses the new hedge accounting requirements, including changes to hedge effectiveness testing, treatment of hedging costs and risk components that can be hedged. The standard also introduces a new expected loss impairment model that will require entities to account for expected credit losses at the time of recognising the asset. Group’s assessment performed to date During the year, management of the Group has reviewed all financial assets and liabilities, including any financial risk management arrangements the Group has in place, as well as the Group’s provisioning methodology. As a result of the Group’s assessment, the Group has not identified any significant or material impacts to its accounting policies. There will be no change to the recognition and measurement of the Group’s financial assets and liabilities under the new classification model in AASB 9. The Group already applies a provisioning methodology to its trade and other receivables, similar to the requirements of the simplified expected credit losses model in AASB 9. Whilst the expected credit losses model requires an estimate of forward-looking credit losses, the Group has assessed that its impact is not material. Whilst hedge accounting requirements have been revised under AASB 9, no material changes to the Group’s hedge accounting policies have been identified. 82 Hansen Technologies Ltd Annual Report 2018 The Group will first apply AASB 9 on 1 July 2018 and will first report under the new standard in the 30 June 2019 annual financial report. The Group will not restate comparative information. Increased disclosures may be required in the financial statements. The Group’s assessment of the potential accounting, disclosure and financial impacts on adoption of the standard will continue up to the date of application. (iii) AASB 16 Leases The new leases standard replaces AASB 117 and will result in almost all leases being recognised on the balance sheet, as the distinction between operating and finance leases is removed. The new standard requires the recognition of an asset (the right to use the leased item) and a financial liability reflecting future lease payments. The only exceptions are short-term and low-value leases. A lessee measures right-of-use assets similarly to other non-financial assets and lease liabilities similar to other financial liabilities. Group’s assessment performed to date The Group has not commenced assessment of the impact of AASB 16. It is expected any assessment will require a review of its current lease agreements and other contracts to assess if there are any embedded operating lease terms. As at 30 June 2018, the Group has non-cancellable operating lease commitments of $19,842,000 (refer to note 22). Under AASB 16, the present value of these commitments would potentially be shown as a liability on the balance sheet together with an asset representing its right-of-use. Ongoing lease payments currently presented as an operating expense will be split between depreciation and interest expense. However, the Group has not yet determined to what extent the present value of these commitments will result in the recognition of an asset and a liability for future payments, and its associated quantitative impact to profit and loss. Some of the commitments may be covered by the exception for short-term and low-value leases and some commitments may relate to arrangements that will not qualify as leases under AASB 16. As a result, the Standard is expected to change EBITDA, but will not materially impact the Group’s consolidated net profit after tax. The Group will first apply AASB 16 on 1 July 2019 and will first report under the new standard in the 30 June 2020 annual financial report. The Group has not yet determined its transition approach on adoption of AASB 16. (iv) AASB Interpretation 22 Foreign Currency Transactions and Advance Consideration The Interpretation clarifies that in determining the spot exchange rate to use on initial recognition of the related asset, expense or income (or part of it) on the derecognition of a non-monetary asset or non-monetary liability relating to advance consideration, the date of the transaction is the date on which an entity initially recognises the non-monetary asset or non-monetary liability arising from the advance consideration. If there are multiple payments or receipts in advance, then the entity must determine a date of the transaction for each payment or receipt of advance consideration. Group’s assessment performed to date The Group has assessed this Interpretation and does not believe that the impact will be material. The Group will first apply AASB Interpretation 22 on 1 July 2018. (v) AASB Interpretation 23 Uncertainty over Income Tax Treatments The Interpretation clarifies the application of the recognition and measurement criteria in AASB 112 Income Taxes when there is uncertainty over income tax treatment. The Interpretation requires the Group to assess its provisions for uncertain tax positions based on either a probability-weighted average approach for tax issues in which there are a wide range of possible outcomes, or the most likely amount approach for tax issues in which there is a binary outcome. Group’s assessment performed to date The Group has performed a preliminary assessment of the requirements of this Interpretation. Whilst the Group operates in multiple tax jurisdictions globally, the Group does not believe that its impact will be material. The Group will first apply AASB Interpretation 23 on 1 July 2019. 83 Hansen Technologies Ltd Annual Report 2018 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 June 2018 28. New and amended accounting standards and interpretations continued (vi) Amendments to the Conceptual Framework The IASB has issued amendments to accounting standards to apply the new definition and recognition criteria to assets and liabilities, and introduces new concepts regarding the measurement, presentation and disclosure and derecognition of assets and liabilities. The IASB’s effective date for the amendments to the Conceptual Framework is for entities with annual periods commencing after 1 January 2020. Group’s assessment performed to date The Group has not commenced assessment of the impact of the amendments to the Conceptual Framework. It is not yet known when the Group will first apply the amendments as the AASB has yet to issue the revised Conceptual Framework for adoption by Australian entities. (vii) Other pronouncements and accounting standards Other recently issued standards and interpretations have been issued at the reporting date but are not yet effective. The Group has not yet completed the assessment of the impact of these standards and interpretations. However, the Group does not expect other recently issued accounting standards and interpretations to have a material impact on the Group’s consolidated results, financial position or cash flows upon adoption. 29. Subsequent events Please refer to note 20 for the final dividend recommended by the Directors, to be paid on 27 September 2018. There has been no other matter or circumstance that has arisen since 30 June 2018 that has significantly affected or may significantly affect: (i) the operations, in financial years subsequent to 30 June 2018, of the Group; or (ii) the results of those operations; or (iii) the state of affairs, in financial years subsequent to 30 June 2018, of the Group. 84 Hansen Technologies Ltd Annual Report 2018 DIRECTORS’ DECLARATION The Directors declare that the financial statements and notes set out on pages 34 to 84, 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 of the Group 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 2018 and of its performance for the year ended on that date. In the Directors’ opinion there are reasonable grounds to believe that Hansen Technologies Limited will be able to pay its debts as and when they become due and payable. At the date of this declaration, there are reasonable grounds to believe that the members of the extended Closed Group identified in note 27 will be able to meet any obligations or liabilities to which they are, or may become, subject by virtue of the deed of cross guarantee described in note 27. This declaration has been made after receiving the declarations required to be made by the Chief Executive Officer and Chief Financial Officer to the Directors in accordance with sections 295A of the Corporations Act 2001 for the financial year ended 30 June 2018. This declaration is made in accordance with a resolution of the Directors. David Trude Director Andrew Hansen Director Melbourne 16 August 2018 85 Hansen Technologies Ltd Annual Report 2018 INDEPENDENT AUDITOR’S REPORT To the Members of Hansen Technologies Ltd RSM Australia Partners Level 21, 55 Collins Street Melbourne VIC 3000 PO Box 248 Collins Street West VIC 8007 T +61 (0) 3 9286 8000 F +61 (0) 3 9286 8199 www.rsm.com.au INDEPENDENT AUDITOR’S REPORT To the Members of Hansen Technologies Limited Opinion We have audited the financial report of Hansen Technologies Limited (the Company) and its controlled entities (the Group), which comprises the consolidated statement of financial position as at 30 June 2018, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies, and the directors' declaration. In our opinion the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Group's financial position as at 30 June 2018 and of its financial performance for the year then ended; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board's APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Company, would be in the same terms if given to the directors as at the time of this auditor's report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. THE POWER OF BEING UNDERSTOOD AUDIT | TAX | CONSULTING RSM Australia Partners is a member of the RSM network and trades as RSM. RSM is the trading name used by the members of the RSM network. Each member of the RSM network is an independent accounting and consulting firm which practices in its own right. The RSM network is not itself a separate legal entity in any jurisdiction. RSM Australia Partners ABN 36 965 185 036 Liability limited by a scheme approved under Professional Standards Legislation 86 Hansen Technologies Ltd Annual Report 2018 Key Audit Matter How our audit addressed this matter Recognition of Revenue Refer to Note 3 in the financial statements Revenue recognition was considered a key audit matter, as it is complex and involves significant management judgements. Our audit procedures in relation to the recognition of revenue included: The Group’s revenue is primarily derived from the provision of billing solution services to customers, maintenance and support, and licences. Revenue determined for some of the service contracts is based on stage of completion, calculated on the proportion of total costs incurred at the reporting date compared to management’s estimation of the total costs of the contract. • • • • • • Assessing whether the Group’s revenue recognition policies were in compliance with Australian Accounting Standards; Evaluating and testing the operating effectiveness of management’s controls related to revenue recognition; For a sample of revenue transactions, substantiating transactions by agreeing to supporting documentation, including contracts with customers; For a sample of revenue transactions that were recognised on a percentage of completion basis, our testing included: – Agreeing the contract price and variations to customer contracts; Assessing management’s estimate of costs to complete; and Assessing whether the project was within budgeted margin. – – Reviewing sales transactions before and after year- end to ensure that revenue was recognised in the correct period; and Reviewing large or unusual transactions during the financial year. Impairment of Intangible Assets Refer to Note 11 in the financial statements The Group has net book value goodwill of $151 million in respect of acquisitions of subsidiaries as at 30 June 2018. We identified this area as a Key Audit Matter due to the size of the goodwill balance, and because the directors’ assessment of the ‘value in use’ of the cash generating unit (“CGU”) involves significant judgements about the future underlying cash flows of the business, discount rates and terminal growth applied. For the year ended 30 June 2018 management have performed an impairment assessment over the goodwill balance by: • calculating the value in use for the CGU using a discounted cash flow model. The model used cash flows (revenues, expenses and capital expenditure) for the CGU for 5 years, with a terminal growth rate applied to the 5th year. The cash flows were then discounted to net present value using the Company’s weighted average cost of capital (WACC); and • comparing the resulting value in use of the CGU to its respective book value. Management also performed a sensitivity analysis over the value in use calculations, by varying the WACC and other assumptions. Our audit procedures in relation to management’s impairment assessment involved the assistance of our Corporate Finance team where required, and included: • • • • Assessing management’s determination that the goodwill should be allocated to a single CGU based on the nature of the Group’s business and the manner in which results are monitored and reported Assessing the valuation methodology used; Challenging the reasonableness of key assumptions, including the cash flow projections, exchange rates, discount rates, and sensitivities used; and Checking the mathematical accuracy of the cash flow model, and reconciling input data to supporting evidence, such as approved budgets and considering the reasonableness of these budgets. 87 Hansen Technologies Ltd Annual Report 2018 INDEPENDENT AUDITOR’S REPORT CONTINUED To the Members of Hansen Technologies Ltd Key Audit Matter How our audit addressed this matter Capitalisation of Software Development Costs Refer to Note 11 in the financial statements At 30 June 2018, the Group’s balance sheet includes capitalised software development costs of $21.2 million, of which $10.0 million has been capitalised during the financial year. The calculation of the software development costs involves significant judgement in respect of factors such as, probability of future economic benefits and accuracy of inputs such as wage rate and overhead calculations. We identified this as a key audit matter due to the judgement involved in capitalising software development costs, in particular when capitalising wages and overheads. Acquisition of Enoro Holdings AS Refer to Note 24 in the financial statements During the year the Group acquired Enoro Holdings AS (“Enoro”) for a gross purchase consideration of $70.246 million. Management consider this to be a significant acquisition for the Group. This was considered a key audit matter as the accounting for this transaction is complex and involves significant judgement in applying the accounting standards. This includes determining the fair value of acquired assets and liabilities, in particular determining separately the identifiable intangible assets such as customer contracts and the goodwill on acquisition. Our audit procedures in relation to capitalised research and development included: • • • • • Assessing the appropriateness of the group policy for capitalisation of software development costs is in accordance with the accounting standards. For a sample of projects that had been capitalised during the year; – Challenging management on the basis for capitalisation and expected future benefits; Substantiating wage rates used in capitalisation to payroll details of employees the development team; and Agreeing overhead allocation of fixed costs; – – in Reviewing projects for any indicators of impairment; For a sample of projects previously capitalised, reviewing sales of products during the year to ensure no indicators of impairment; and Testing the mathematical accuracy of the amortisation of previously capitalised amounts in line with the Group Policy. Our audit procedures in relation to the acquisition of Enoro included: • • • • • • Reviewing the sale and purchase agreements to understand the key terms and conditions; Substantiating the purchase consideration to the signed purchase agreements and to bank statements; Evaluating the assumptions and methodology in management’s models, such as forecast revenues, operating costs and contributory assets used to determine the value of customer contracts; Assessing the consolidated entity’s determination of the fair value of the remaining assets and liabilities, having regard to the completeness of assets and liabilities identified In conjunction with our Corporate Finance team, evaluating the work of the independent expert in respect of the purchase price allocation, including the identifiable intangible assets and the goodwill on acquisition; Assessing the adequacy of the Group’s disclosures in respect of business acquisitions. Other Information The directors are responsible for the other information. The other information comprises the information included in the Group's annual report for the year ended 30 June 2018, but does not include the financial report and the auditor's report thereon. Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon. 88 Hansen Technologies Ltd Annual Report 2018 In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Directors for the Financial Report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor's Responsibilities for the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance Standards Board website at: http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf. This description forms part of our auditor's report. Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in the directors' report for the year ended 30 June 2018. In our opinion, the Remuneration Report of Hansen Technologies Ltd., for the year ended 30 June 2018, complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. RSM AUSTRALIA PARTNERS J S CROALL Partner Dated: 16 August 2018 Melbourne, Victoria 89 Hansen Technologies Ltd Annual Report 2018 AUSTRALIAN SECURITIES EXCHANGE (ASX) SHAREHOLDER INFORMATION The shareholder information set out below was applicable as at 21 September 2018, disclosed pursuant to ASX official listing requirements. Distribution of shares The following table summarises the distribution of our listed shares as at 21 September 2018: Size of holding (range) Number of holders Number of shares held % of issued capital 100,001 and over 10,001 to 100,000 5,001 to 10,000 1,001 to 5,000 1 to 1,000 Total 71 1,831 1,964 4,920 2,651 11,437 124,790,838 42,931,816 14,436,337 13,161,274 1,427,965 196,748,230 63.43 21.82 7.34 6.69 0.73 100.00 The number of shareholders holding less than a marketable parcel of ordinary shares is 309 holding 14,233 shares (as at the closing market price on 21 September 2018). Substantial shareholders FMR LLC, by notice dated 18 September 2018, has a relevant interest in 13,753,677 shares. Mawer Investment Management Ltd, by notice dated 8 August 2018, has a relevant interest in 16,945,400 shares. Twenty largest shareholders The following table sets out the Top 20 holders of our shares: Rank 1 HSBC Custody Nominees (Australia) Limited 2 Othonna Pty Ltd 3 J P Morgan Nominees Australia Limited 4 HSBC Custody Nominees (Australia) Limited – A/C 2 5 Citicorp Nominees Pty Limited 6 BNP Paribas Noms Pty Ltd 7 National Nominees Limited 8 Citicorp Nominees Pty Limited 9 BNP Paribas Nominees Pty Ltd Hub24 Custodial Serv Ltd Drp 10 Mr Cameron Hunter 11 Mr James Lucas & Ms Lesley Dormer 12 Six Of Us Pty Ltd 13 BNP Paribas Nominees Pty Ltd 14 Neweconomy Com Au Nominees Pty Limited 15 Mr David John Osborne & Mrs Leone Catherine Osborne 16 Ozcun Pty Ltd 17 Scott Weir 18 BNP Paribas Nominees Pty Ltd 19 Layuti Pty Ltd 20 Navigator Australia Ltd Total Total other investors Grand total 90 Number of shares held 40,983,182 % of issued capital 20.83 34,739,113 14,982,513 9,101,639 3,602,842 2,714,022 1,811,550 1,175,000 1,133,818 1,103,691 800,940 546,953 459,364 392,897 386,335 383,456 380,308 374,821 369,611 363,003 17.66 7.62 4.63 1.83 1.38 0.92 0.60 0.58 0.56 0.41 0.28 0.23 0.20 0.20 0.19 0.19 0.19 0.19 0.18 115,805,058 80,943,172 196,748,230 58.86 41.14 100.00 Hansen Technologies Ltd Annual Report 2018 Voting rights Refer to note 19c of the financial statements. Unquoted equity securities Unquoted equity securities issued pursuant to the Hansen Technologies Limited Employee Performance Rights Plan and Employee Share Option Plan: Unquoted equity securities Options over ordinary shares exercisable at various prices Performance rights Number of employees participating 16 22 Number of securities 2,768,730 355,316 91 Hansen Technologies Ltd Annual Report 2018 CORPORATE DIRECTORY Directors David Trude, Chairman Andrew Hansen, Managing Director and CEO Bruce Adams, Non-Executive Jennifer Douglas, Non-Executive Sarah Morgan, Non-Executive David Osborne, Non-Executive David Howell, Non-Executive Company secretary Julia Chand Principal registered office 2 Frederick Street, Doncaster Victoria 3108 T (03) 9840 3000 F (03) 9840 3099 Share registry Link Market Services Limited Tower 4 727 Collins Street Melbourne Victoria 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 RSM Australia Partners Level 21, 55 Collins Street Melbourne Victoria 3000 Solicitors GrilloHiggins Level 20, 31 Queen Street Melbourne Victoria 3000 Other information Hansen Technologies Ltd ABN 90 090 996 455, incorporated and domiciled in Australia, is a publicly listed company limited by shares. 92 Hansen Technologies Ltd Annual Report 2018