Hansen Technologies Limited
Annual Report 2019

Plain-text annual report

A WORLD OF OPPORTUNITIES Annual Report 2019 H a n s e n T e c h n o l o g i e s L t d A n n u a l R e p o r t 2 0 1 9 CONTENTS 2 6 Chairperson and Chief Executive Officer Joint Report Information on Directors and Company Secretary 8 Directors’ Report 16 Remuneration Report 32 Auditor’s Independence Declaration 33 Financial Report 34 Statement of Comprehensive Income 35 Statement of Financial Position 36 Statement of Changes in Equity 37 Consolidated Statement of Cash Flows 38 Notes to the Financial Statements 85 Directors’ Declaration 86 Independent Auditor’s Report 90 Australian Securities Exchange (ASX) Shareholder Information 92 Corporate Directory 1,500+ STAFF SPREAD ACROSS 36 OFFICES TO SUPPORT OUR CUSTOMERS. Carlsbad Carlsbad Espoo Stockholm Jyväskylä Trondheim Kista Kuopio Førde Dale Sønderborg London Cwmbran Rotterdam Hamburg Zürich Toronto New York New York Bethlehem Hazleton Bethlehem Columbia Columbia Atlanta Houston Houston Lillehammer Hamar Oslo Pune Tokyo Shanghai Hong Kong Hyderabad Ho Chi Minh City Jakarta São Paulo Buenos Aires Buenos Aires Johannesburg Melbourne Auckland Notice of Annual General Meeting Annual General Meeting of the Company to be held on Thursday 21 November 2019 at 11am, Manningham Civic Centre, 699 Doncaster Road, Doncaster, Victoria. Hansen Technologies Ltd Annual Report 2019 OPERATIONS CUSTOMERS SERVED Offices Regions 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 1,500 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. Headquartered in Australia, Hansen Technologies has offices in North and South America, South Africa, Europe and the Asia Pacific region servicing customers in over 90 countries around the world. Espoo Stockholm Jyväskylä Trondheim Kista Kuopio Førde Dale Sønderborg London Cwmbran Rotterdam Hamburg Zürich Lillehammer Hamar Oslo Carlsbad Carlsbad Pune Tokyo Shanghai Hong Kong Hyderabad Ho Chi Minh City Jakarta São Paulo Buenos Aires Buenos Aires Johannesburg Melbourne Auckland 01 Toronto New York Bethlehem New York Hazleton Bethlehem Columbia Columbia Atlanta Houston Houston Hansen Technologies Ltd Annual Report 2019CHAIRPERSON AND CHIEF EXECUTIVE OFFICER JOINT REPORT We are pleased to present the Annual Report for Hansen Technologies Limited for financial year ended 30 June 2019 (FY19). SIGMA SYSTEMS ACQUISITION $163.8M Based Toronto, Canada ENORO ACQUISITION Acquired in July 2017, continued to perform strongly in FY19 and has now been fully integrated into the broader Hansen Group 2019 has been a very exciting year with continued change being experienced across the globe in the market segments Hansen focuses on, being Utilities and Communications. Hansen’s recent acquisition of Sigma Systems specifically provides a solution to address a provider’s ability to expand its offering and deliver competitive solutions quickly into the evolving market. In the Utilities sector, the production of green energy continues to rapidly evolve, with increased awareness and demand for the product, with advances in technology lowering the cost of production, improving grid integration and increasing retail demand for the product. Hansen has continued to ensure that product development is addressing our customers’ ability to add new products to their customer offering and addressing the emerging billing complexity. In the Communications market, technology churn continues to accelerate with the world’s reliance on smart devices and our desire to interact with the world increasing the demand for a broader range of innovative offerings. In recent years, this has manifested itself in various entertainment options being delivered to us on our mobile devices together with an explosion in the number of apps allowing us to interact with each other on a level never seen before. This is set to continue as faster platforms like 5G provide us with connection speeds enabling higher levels of connectivity and complexity. These developments continue to increase the level of bundling offered by our customers and have increased the level of complexity required to be addressed by the customer care and billing system provided by Hansen. OPERATIONAL HIGHLIGHTS In FY19, the business achieved a significant number of operational highlights: • A major contract win to deliver our second billing system in Finland, following the go-live of the first system earlier in the year. • A major contract win to deliver the next generation Meter Data Management (MDM) solution in Sweden. • As the existing MDM solution provider for a large Australian energy distributor, we were chosen to deliver a new network billing solution that unified metering and billing functionalities in a single system. • We expanded our Vietnam Development Centre and now have 100 employees (2018: nine employees) supporting Hansen products in the Nordic, Americas and the Asia-Pacific regions. • The commencement of eight client upgrades to the new version of our US municipalities billing system. • Developed our new analytics software-as- a-service (SaaS) product for the Utilities sector in the Nordic region, which is continuing to gain momentum with some 20 customers now using the product. Financials A$ Million Operating revenue Underlying EBITDA1, 3 Underlying NPAT3 Underlying NPATA2, 3 Basic EPS based on underlying NPATA (cents)2 FY19 231.3 55.8 24.0 33.7 17.1 FY18 230.8 60.0 29.5 38.7 19.8 Variance % 0.2% (7.0%) (18.7%) (12.9%) (13.6%) 1. EBITDA is a non-IFRS term, defined as earnings before interest, tax, depreciation and amortisation, and excluding net foreign exchange gains (losses). 2. NPATA is a non-IFRS term, defined as net profit after tax, excluding tax-effected amortisation of acquired intangibles. This is used to determine EPSa as disclosed here and in the audited Remuneration Report. 3. Underlying EBITDA, underlying NPAT and underlying NPATA exclude separately disclosed items, which represent the transaction and other restructuring costs associated with the Sigma acquisition (2018: Enoro acquisition) and the exiting of a premises lease in the Americas. Further details of the separately disclosed items are outlined in Note 4 to the Financial Report. 02 Hansen Technologies Ltd Annual Report 2019COMPANY HIGHLIGHTS $231.3M OPERATING REVENUE $55.8M UNDERLYING EBITDA Operating revenue for FY19 was $231.3 million, $0.5 million up on FY18. With Sigma contributing $5.0 million of revenue in June (the first month since acquisition), revenues for the remainder of Hansen excluding Sigma were $4.5 million lower. This decline was a result of lower non-recurring revenues, due primarily to both lower one-off licence fees and reduced project work following the large body of work completed in the first half of FY18 associated with implementing Power of Choice in Australia. Conversely, recurring revenues grew to represent 63% of total operating revenue. Underlying EBITDA for the year was $55.8 million, 7.0% down on the $60.0 million in FY18. This resulted in an underlying EBITDA margin decline to 24.1% from 26.0% in FY18. Sigma only contributed a modest $0.1 million of EBITDA in June, which we do not see as representative of the business going forward. Excluding Sigma, the underlying EBITDA margin was 24.6%. This reduced margin was the direct result of the lower non-recurring revenue, as we were able to maintain operating expenses at the same level as FY18, even after the investment in the Vietnam Development Centre. ACQUISITIONS Enoro, which was acquired in July 2017, continued to perform strongly in FY19 and has now been fully integrated into the broader Hansen Group. With a number of major contract wins during the year, combined with the opportunities provided by the dynamic Nordic energy market, the business is well placed to continue that growth in FY20. Effective 1 June 2019, we acquired Sigma Systems based out of Toronto, Canada, for $163.8 million, comfortably making it our largest acquisition to date. Founded in 1996, Sigma is a leading global provider of catalogue-driven software products for telecommunications, media, and technology companies. 03 Hansen Technologies Ltd Annual Report 201904 Hansen Technologies Ltd Annual Report 2019$24.0M UNDERLYING NET PROFIT AFTER TAX 17.1¢ EARNINGS PER SHARE OUR FUTURE The recent additions of Enoro and Sigma have added significant breadth and depth to our global platform, with both businesses expanding the Hansen footprint into exciting and dynamic market segments. We believe Enoro and Sigma will drive future revenue growth. Now, with more than 1,500 employees we truly have the platform to leverage our Global Experience. We would like to take this opportunity to thank all the dedicated Hansen team members worldwide who have once again put in a fantastic effort during the year. The quality and commitment of our people are the foundation of our business and we are fortunate to have such a large number of industry experts dedicated to the success of our business. With the Utilities and Communications markets increasing in complexity, creating higher demand for more sophisticated customer management and billing systems, we believe Hansen is well placed for future growth. The software products streamline complex product and service offerings and provide a faster path to creating, selling and delivering new digital and traditional products and services – particularly relevant given the proliferation of new communications products and services in today’s world, which will further be the case as 5G gains momentum. The company has more than 70 customers and 500 employees, 280 of whom are located in Pune, India. The combined offering of Hansen and Sigma enables us to address a larger part of our customers’ needs: from product innovation and creation, customer quoting and ordering, right through to revenue management and customer care. Cross- sell opportunities also exist with Hansen’s large utilities customer base, driven by the transformation occurring within the Utilities sector – which includes changes in energy pricing structures and an expansion of product offerings to encompass new energy solutions and services such as solar power, electric car charging and battery storage. Sigma was funded from a new $225 million loan facility, which was strongly supported by a syndicate of local and international banks. At balance date, $35 million of the facility was unused and net debt stood at $148.3 million. While this represents the highest level of debt the Group has ever had, given the strength of the Group’s cash generation, we are well placed to service this debt over coming years. With the inclusion of Sigma into the broader Hansen portfolio, we are now very well balanced between our two primary verticals: Utilities and Communications. 05 Hansen Technologies Ltd Annual Report 2019 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 Mr Andrew Hansen Mr Bruce Adams Ms Sarah Morgan Non-Executive Director Managing Director and CEO Non-Executive Director Non-Executive Director Chairman since 2011 Managing Director since 2000 Director since 2000 Director since 2014 Director since 2011 Age 59 Age 71 Member of the Remuneration Committee Chair of the Audit and Risk Committee Age 59 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 E.L & C. Baillieu Limited, a Non-Executive Director of Chi-X Australia Limited and Non-Executive Director of ASX listed Acorn Capital Investment Fund 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 30 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. From 2002 until 2019, after more than 10 years as a partner of two Melbourne law firms, Bruce held the position as general counsel of Club Assist Corporation Pty Ltd, a worldwide motoring club service provider. Bruce holds degrees in Law and Economics from Monash University. Member of the Remuneration Committee Age 49 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 Intrepid Group, Whispir Limited, Adslot Limited, Future Generation Global Investment Company Limited, and the National Gallery of Victoria Foundation. 06 Hansen Technologies Ltd Annual Report 2019Mr David Osborne Ms Jennifer Douglas Mr David Howell Ms Julia Chand Non-Executive Director Non-Executive Director Non-Executive Director Director since 2006 Director since 2017 Director since 2018 Member of the Audit and Risk Committee Chair of the Remuneration Committee Member of the Audit and Risk Committee General Counsel and Company Secretary Company Secretary since 2014 Age 49 Age 70 Member of the Audit and Risk Committee Chair of the Remuneration Committee Age 52 Age 61 David is a Fellow of the Institute of Chartered Accountants, and a Fellow of the Australian Institute of Company Directors, with over 50 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. 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, with responsibility for Telstra’s $3 billion Fixed Voice business, and the establishment of technology support 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 Limited, the St Kilda Football Club and the Peter MacCallum Cancer Foundation. 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). Julia joined Hansen Technologies in 2007 and plays a strategic role as General Counsel as well as Company Secretary. Julia has significant legal experience in IT, financial services and retail organisations. As Company Secretary she is responsible for the Company’s corporate and ASX obligations. Unless stated, no Directors of Hansen Technologies Limited held any other Directorships of listed companies at any time during the three years prior to 30 June 2019. 07 Hansen Technologies Ltd Annual Report 2019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 2019, 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 EBITDA1 NPAT NPATA1 Basic earnings per share (EPS) (cents) Basic EPSa1 (cents) 2019 A$ Million 231.3 2018 A$ Million 230.8 53.0 21.5 31.2 10.9 15.8 59.3 28.9 38.0 14.8 19.4 Variance % 0.2% (10.6%) (25.6%) (17.9%) (26.4%) (18.6%) 1. 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. These include: EBITDA, NPATA and EPSa. These measures have been defined in the Chairperson and Chief Executive Officer’s Joint Report on page 2. In 2019 the business continued to deliver strong results after the record 2018 year. Revenues and EBITDA were in line with guidance. Further details on the Group’s results are outlined in the Chairperson and Chief Executive Officer’s Joint Report on page 2. On 1 June 2019, Hansen acquired the Sigma Systems business (Sigma) and one month of these results are included in the FY19 result. Also included in the results are the transaction and other restructuring costs related to the acquisition, which we have identified as separately disclosed items in our results. This acquisition has also resulted in the re-balancing of the Group’s market portfolio which, post the acquisition of Enoro in FY18, was initially weighted towards the Utilities sector. With Sigma’s revenues concentrated in the Communications sector, the Group’s revenue portfolio is now re-balanced to ensure greater diversification across multiple industries, regions and clients. The Group has generated operating cash flows of $39.7 million, which has been used to retire external debt and fund dividends of $12.6 million during the financial year. With the introduction of a higher level of debt in June 2019 to fund the Sigma acquisition, the Group has, for the first time, used the strength of the Group’s balance sheet to fund 100% of an acquisition. With the Group’s strong cash generation, Hansen is well placed to service and retire the debt over the coming years. 08 Hansen Technologies Ltd Annual Report 2019Billing segment The Billing segment represents a major part of the Group’s business operations, delivering $218.4 million of revenue in 2019 (2018: $217.3 million), which translates into a 0.5% increase. Segment profit before tax was $36.7 million in 2019 (2018: $40.2 million), representing an 8.7% decrease. Sigma’s revenues relating to the month of June 2019 are also included in this segment. Other activities Last year, 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 allowed our segment results to more closely align with our core Billing Solutions business. Segment revenues from other activities was $12.9 million in 2019 (2018: $13.6 million), representing a 5.1% decrease for the year. This 5.1% decrease in revenues resulted from expected reduction in business activity associated with the Customer Care call centre. Segment profit before tax was $1.6 million for 2019 (2018: $1.4 million). 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 The business remains committed to increasing shareholder value and the recent acquisition of Sigma is aligned with this objective. We believe the opportunities to grow the Group’s organic revenues and win new clients are enhanced with this acquisition. The Energy and Communications markets are undergoing further change and are increasing in complexity. Regulation and other changes such as solar provisioning, smart metering, energy market settlements and the introduction of next-generation 5G network technology put greater demands for highly complex and sophisticated billing systems and enhanced functionality that can keep abreast of market changes. 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 new customers due to increased marketing efforts and product innovation; • Greater take-up of product upgrades from existing customers; and • A higher than expected conversion rate associated with targeted acquisitions. To ensure our goals are achieved, the Group continues to refer to the 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 customer data are 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 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. 09 Hansen Technologies Ltd Annual Report 2019DIRECTORS’ REPORT CONTINUED Outlook and likely developments for FY20 Hansen will continue to pursue its operating strategy of providing billing and related data management solutions to our targeted segments while assessing appropriate acquisitions to enhance shareholder value. Items of specific focus for 2020 include: • Successfully completing the integration of the Sigma business into the broader Hansen platform; • Investigate and develop cross-selling opportunities into the Utilities market and leverage our investment in Sigma’s intellectual property; and • Leverage the Group’s network of low-cost development centres to improve both customer delivery and Hansen margins. Environmental regulations and climate change The Group’s operations are not subject to any significant environmental Commonwealth or State regulations or laws. The Group is aware of the general risks associated with climate change and continues to be committed to operating sustainably. However, the Group’s operations are not significantly impacted by any environmental factors. 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. 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. Dividends paid, recommended and declared A final dividend of 3 cents per share has been declared, partially franked to 2.6 cents, representing a 3 cents per share regular dividend. The final dividend was announced to the market on 23 August 2019 with payment to be made on 26 September 2019. The amount declared has not been recognised as a liability in the accounts of the Company as at 30 June 2019. Dividends paid during the year, excluding dividends reinvested as part of the Company’s Dividend Reinvestment Program (DRP): • 3 cents per share fully franked interim dividend paid 29 March 2019, totalling $5,317,531; and • 4 cents per share fully franked final dividend paid 27 September 2018, totalling $7,318,821 (representing 3 cents ordinary dividend and a 1 cent special dividend). This is consistent with the Board’s capital management policy that balances growth through acquisitions against the payment of dividends. 10 Hansen Technologies Ltd Annual Report 2019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 the end of the financial year to the KMP as part of their remuneration for the year ended 30 June 2019 are as follows: Grant Date Executives A Hansen C Hunter D Meade G Taylor N Fernando Total Number of Rights Granted1 2 July 2018 148,459 32,775 32,935 31,563 31,238 276,970 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 or options over unissued ordinary shares granted by the Company 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. 11 Hansen Technologies Ltd Annual Report 2019DIRECTORS’ REPORT CONTINUED 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: Vesting Date Expiry Date Exercise Price Instrument Options Options Options Rights Rights Grant Date 2 July 2014 2 July 2015 2 July 2017 2 July 2018 2 July 2019 2 July 2020 22 Dec 2016 31 August 20191 22 Dec 2021 2 July 2017 2 July 2018 31 August 20201 31 August 20211 - - Number of Options/Rights - 925,000 -2 355,318 530,652 $1.30 $2.67 $3.59 Nil Nil 1. The vesting date for options granted 22 December 2016, rights granted on 2 July 2017 and 2 July 2018 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 the dates as stated in the table. 2. Options issued on 22 December 2016 did not meet the required performance measurement hurdles for these options to vest and/or be exercisable. 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: Date Issued 3 September 2018 26 September 2018 19 October 2018 30 April 2019 28 June 2019 1 July 2019 Total Number of Ordinary Shares Issued Amount Paid Per Share 100,000 75,000 75,000 30,000 75,000 265,000 620,000 1.30 0.92 2.67 1.30 1.30 1.30 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. 12 Hansen Technologies Ltd Annual Report 2019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 Howell Board Meetings Audit and Risk Committee Meetings Remuneration Committee Meetings Eligible Attended Eligible Attended Eligible Attended 12 12 12 12 12 12 12 12 12 12 12 11 12 12 - - - 8 8 8 8 - - - 8 8 8 8 - 7 - 7 - 7 1 - 7 - 7 - 7 1 13 Hansen Technologies Ltd Annual Report 2019DIRECTORS’ REPORT CONTINUED 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: Ordinary Shares of the Company Options/Rights Over Shares in the Company Mr David Trude Mr Bruce Adams1, 2 Mr Andrew Hansen1 Ms Sarah Morgan Mr David Osborne1, 2 Ms Jennifer Douglas Mr David Howell 102,613 34,891,417 34,963,449 21,351 35,125,448 16,000 26,218 - - 265,431 - - - - 1. Each of these named persons has a joint interest in a single parcel of 34,739,113 shares as at the date of this report. 2. For further details, please refer to the substantial shareholding notice lodged with the ASX dated 16 August 2019. 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. 14 Hansen Technologies Ltd Annual Report 2019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 2019 $ 2018 $ - - - 52,349 14,709 67,058 - - - 67,058 - - - 13,493 3,034 16,527 - 8,302 8,302 24,829 15 Hansen Technologies Ltd Annual Report 2019 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 2019 financial year. This year’s overall performance reflects a message of continued success, with the Group achieving its revenue and profit performance targets. This was achieved despite a challenging year in the market coupled with deliberate investment to ensure we are positioned well for future growth. Based on the Group’s performance, most of our target Short-Term Incentive (STI) payments were awarded to our KMPs against financial and non-financial KPIs set for the year. However, the options granted under the 2016 Long-Term Incentive (LTI) plan did not vest as the required performance hurdles were not met. These outcomes are detailed in this Remuneration Report. In accordance with its responsibilities, this year the Remuneration Committee initiated an independent review of its Remuneration Framework. The Committee appointed an external consultant to assess whether the current framework remains fit for purpose in retaining executive talent, allowing us to execute our business strategy and deliver shareholder value. The review determined that the current framework largely continues to be appropriate and aligns the executives with delivering shareholder value. However, based on consideration of the advice from the external consultant and detailed consideration of all relevant issues, some improvements have been identified and are being adopted by the Board. A summary of these improvements are as follows: • For existing and future executive Long-Term Incentive (LTI) plans, retain the existing LTI measurements of Earnings per Share (EPS) growth and the Company’s performance against industry peers through assessing relative Total Shareholder Return (rTSR) but redefine the earnings calculation used to calculate EPS to be based on net profit after tax, adjusted for non-cash tax-effected amortisation of intangibles (NPATA). This provides the incentive for executives to pursue acquisitions going forward, which is central to the Company’s continuing growth strategy and aligns to shareholders’ best interests. • For future executive remuneration plans: › › › › A new deferred equity component will be introduced to the Short-Term Incentive (STI) plan, where 25% of all future awards under the STI plan will be awarded as equity, subject to a two-year deferral period, within which recipients must remain employed with the Company. This facilitates quicker equity participation for executives encouraging ‘owner like’ behaviours in the business. Some changes to both the STI and the LTI opportunity as a fixed percentage of Total Fixed Remuneration (TFR) will be made to balance the new equity element introduced to the STI plan. This rebalancing will ensure that the recipient will not be ‘worse off’ from a cash flow perspective. Formalising an existing STI requirement, by introducing a ‘gateway’, whereby the Board will seek confirmation that the STI recipient has not behaved in a way contrary to the Company’s expected values/behaviours. Malus and clawback provisions will be introduced for all equity awards, allowing the Board to adjust awards for risks which crystallise during and after the vesting periods. • Introduction of Committee membership fees for Non-Executive Directors and other minor adjustments. The Board believes that the adoption of this revised plan sets the Group up well for the next stage of its growth journey. 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, David Howell Chair of the Remuneration Committee 16 Hansen Technologies Ltd Annual Report 2019 Our detailed remuneration report (Audited) The Remuneration Report for the year ended 30 June 2019 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. 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 2019 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 David Howell Sarah Morgan David Osborne 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 Independent Non-Executive Director Non-Executive Director 1. These executives of the Group were classified as KMP during the 2019 financial year and unless stated otherwise were KMP for the entire year. 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 2019REMUNERATION REPORT CONTINUED 2. OUR REMUNERATION FRAMEWORK 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 Group’s annual objectives and long-term growth in shareholder value. Remuneration outcomes are aligned with both individual and Group performance, ensuring that employees are rewarded for overall Group achievement as well as their individual contribution to the Group’s success. This aligns remuneration to both individual performance and value creation for shareholders. a. Remuneration governance The Board annually reviews the Group’s remuneration principles, practices, strategy and approach to ensure they support the Group’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 2019, the Remuneration Committee was made up of four Non-Executive Directors: David Howell (Chair of the Remuneration Committee1), Jennifer Douglas, 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 and non-executive KMPs 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. (i) Executive KMP remuneration review process CEO REMUNERATION COMMITTEE BOARD Assesses 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. Reviews the CEO’s recommendations with respect to the senior executive team and provides appropriate recommendations to the Board. Assesses 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. 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. (ii) Non-Executive Directors remuneration review process Non-Executive Directors’ remuneration is governed by resolutions passed at a General Meeting of the Shareholders. During the most recent AGM held on 22 November 2018, shareholders approved an increase to the Non-Executive Directors’ maximum remuneration payable from $430,000 to $520,000. Shareholder approval will be sought again in this year’s AGM to increase the remuneration payable, principally to allow for the appointment of one additional Director. Non-executive Directors are excluded from participation in the Company’s equity incentive plans. 1. David Howell was formally appointed as a member and Chair of the Remuneration Committee on 27 June 2019. Prior to this date, Jennifer Douglas was the Chair of the Remuneration Committee. 18 Hansen Technologies Ltd Annual Report 2019(iii) Independent advice To support the review of the remuneration framework during the 2019 financial year, the Committee sought independent information, observations and advice from PricewaterhouseCoopers (PwC) in relation to remuneration strategy, structure and market practice. Potential conflicts of interest were considered by the Committee, and both the Committee and the Board are satisfied that the advice provided by PwC was free from undue influence. Any advice provided by PwC was used as a guide only and was not a substitute for detailed consideration of all the relevant issues by the Committee. No remuneration recommendations, as defined by the Corporations Act 2001, were provided during the year. b. Remuneration structure (FY19 Plan) OBJECTIVE COMPONENT AND FORM ASSESSMENT Attract and retain employees with the skills and experience associated with the role Total Fixed Remuneration (TFR) Incentivise and reward achievement of annual performance objectives and business outcomes Align motivations with shareholder interests and creation of long-term value Cash + non-cash benefits Short-Term Incentives (STI) Long-Term Incentive (LTI) Performance rights to shares Fixed Market data, individual experience and performance Variable (‘at-risk’) Annual performance based on financial and non-financial targets Continuous employment, relative Total Shareholder Returns (TSR) and adjusted earnings per share (i) 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 2019REMUNERATION REPORT CONTINUED (ii) FY19 Short-Term Incentive (STI) Plan Objective 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. How is it paid? Annual cash entitlement on achievement of specific annual financial and non-financial KPIs. How much can executives earn? 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: How is performance measured? Financial KPIs (70% total STI) % STI awarded (financial component) 150% 125% 100% 75% 50% 25% 0% (93-97% achievement) 0-100% of financial STI awarded on linear bases (0-93% achievement) No award (97-103% achievement) 100% of financial STI awarded (103% to a maximum 110% achievement) 100-150% of financial STI awarded on linear bases < 80% 85% 90% 95% 100% 105% 110% 115% 120% Financial KPI achievement Non-financial KPIs (30% total STI) Non-financial KPIs 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 on 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 roles 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 18. 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. Changes from the FY18 STI Plan There were no changes to the STI Plan framework from the prior year. 20 Hansen Technologies Ltd Annual Report 2019(iii) FY19 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 market value of the rights. The market value of rights granted is based on the volume-weighted average price of the Company’s shares during the five-day period before grant date. 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. 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 2018 to 30 June 2021. 2. Achievement of the thresholds over the same three-year period as set out below: 50% Relative Total Shareholder Return (rTSR) 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. Adjusted Earnings per Share (EPSa) Based on the basic EPS compound average growth rate (CAGR) over the measurement period, adjusted to exclude non- cash tax-effected amortisation of acquired intangibles. EPSa growth is selected as it is considered a relevant indicator linking financial performance with shareholder value. The Board may also determine to 'normalise' EPSa to exclude one-off amounts and therefore derive an underlying EPSa for the basis of the calculation. 50% 21 Hansen Technologies Ltd Annual Report 2019REMUNERATION REPORT CONTINUED The proportion of rights that may vest based on relative TSR performance is determined based on the following vesting schedule: Relative TSR performance < 50th percentile Percentage of performance rights that will vest 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 EPSa CAGR is determined based on the following vesting schedule: EPSa CAGR < 6% Percentage of performance rights that will vest 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 be forfeited 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 basis 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. 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. Performance rights cannot be transferred to, or vest in, any person or body corporate other than the executive KMP. Changes from the FY18 LTI Plan The Board has redefined the definition of EPS to EPSa (as defined above). In previous LTI plans, this was assumed to be based on statutory EPS. Furthermore, the number of performance rights to be granted under previous LTI plans was based on the accounting fair value of rights at grant date, rather than the underlying market value of the Company’s shares. 22 Hansen Technologies Ltd Annual Report 20193. HOW REWARD WAS LINKED TO PERFORMANCE a. Performance against STI outcomes A summary of key measurement criteria of the Group’s financial performance for the financial years ended over the last six years is below. This year’s earnings performance was impacted by one-off transaction costs related to the Sigma Systems acquisition: Operating Revenue ($m) Earnings (EBITDA*) ($m) 250 200 150 100 50 0 5 year CAGR: 22% 230.8 231.3 174.7 149 106.3 86 2014 2015 2016 2017 2018 2019 70 60 50 40 30 20 10 0 5 year CAGR: 17% (EBITDA) 59.3 52.5 45.4 45.1 31.1 24.1 2014 2015 2016 2017 2018 2019 * EBITDA is a non-IFRS term that relates to Earnings Before Interest, Tax, Depreciation and Amortisation. For FY19, budget targets were established for Group revenue and EBITDA, and the STI financial payment gate was set with respect to these targets. Both the Group’s revenue and EBITDA were within the budget thresholds this year and most non-financial goals were met for the STIs to be awarded. Refer to the operational and financial review section of the Directors’ Report for further information about the Group’s FY19 performance. FY19 FY18 Total Opportunity $ Awarded 70% Financial Awarded 30% KPIs Total Opportunity $ Awarded 70% Financial Awarded 30% KPIs Andrew Hansen1 Cameron Hunter Darren Meade Graeme Taylor1 Niv Fernando1 364,140 100,488 100,979 96,772 95,776 100% 100% 100% 100% 100% 100% 50% 100% 100% 100% 357,000 98,517 95,977 94,875 93,899 100% 100% 100% 100% 100% 75% 50% 100% 100% 100% 1. During FY19, the Board exercised its discretion to award these KMPs an additional STI amount of $35,000 each for their role in successfully completing the Sigma Systems transaction, which was in addition to their agreed KPI outcomes. 23 Hansen Technologies Ltd Annual Report 2019REMUNERATION REPORT CONTINUED b. Performance against LTI outcomes Our legacy LTI plans will continue to be measured and reported through until the Group’s FY21 Remuneration Report. As a consequence of legacy LTI plans and the current LTI framework, in FY19 we have three different years of awards that will be tested and subsequently vested or lapsed based on their differing terms and vesting conditions. The following table sets out the different legacy awards that are currently in place as at the end of FY19, each with their specific grant details and performance measures: Grant Date Security Performance Measure/s Sect. 3 ref. Status 2 Jul 2014 Option 2 Jul 2015 Option 1st year revenue and EBITDA, 3-yr cont. employment 1st year revenue and EBITDA, 3-yr cont. employment (b)(i) (b)(i) 22 Dec 2016 Option EPSa, rTSR, 3-yr cont. employment (b)(ii) 2 Jul 2017 Right EPSa, rTSR, 3-yr cont. employment (b)(ii) 2 Jul 2018 Right EPSa, rTSR, 3-yr cont. employment (b)(ii) Measurement period Fully vested Yet to vest Fail to vest 2016 2017 2018 2019 2020 2021 For the Group’s legacy LTI Plans where options will be awarded, 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. (i) Performance against LTI Plan measures (2014 and 2015 LTI Plans) All KMPs eligible for the legacy LTI Plans remained with the Company during the measurement period and continue to be in office at the end of FY19. (ii) Performance against LTI Plan measures (2016 LTI Plans and onwards) 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: Adjusted EPS (EPSa) (cents) Dividends Paid* (cents per share) 25 20 15 10 5 0 14.7 19.4 16.6 15.6 15.8 11.9 2015 2016 2017 2018 2019 8 6 4 2 0 7 7 6 6 6 2015 2016 2017 2018 2019 * 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. 24 Hansen Technologies Ltd Annual Report 2019 Share price performance relative to the S&P/ASX Small Ordinaries Index for the previous five years: 400% 350% 300% 250% 200% 150% 100% 0% July 2014 July 2015 July 2016 July 2017 July 2018 July 2019 S&P/ASX Small Ords HSN.AX Performance outcomes against 2016 LTI Plan measures Options under the 2016 LTI Plan did not meet the required performance measurement hurdles for the options to vest and/or be exercisable. The below table set outs the LTI performance targets and outcomes under the 2016 LTI Plan framework: Measure Minimum Target Maximum Target Actual Outcome Relative TSR1 50th percentile 75th percentile 46th percentile EPSa CAGR 6% CAGR 10% CAGR (1.3%) CAGR Total options Options Granted 492,000 492,001 984,001 Options Vested - - - Options Forfeited - 492,001 492,001 1. These 492,000 options will vest on 31 August 2019 in accordance with accounting standards. However, because the minimum target was not met, these options will be restricted and unexercisable. The below table sets out the value of options under legacy LTI Plans that were exercised during FY19 and FY18: Andrew Hansen Cameron Hunter Darren Meade Graeme Taylor Niv Fernando FY19 Value Exercised* $ FY18 Value Exercised* $ - - - - 225,000 - 256,000 153,000 189,750 - * Represents the intrinsic value of options that were exercised during the financial years 2019 and 2018, 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. 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. 25 Hansen Technologies Ltd Annual Report 2019 REMUNERATION REPORT CONTINUED Performance outcomes against 2017 and 2018 LTI Plan measures Performance rights granted in FY18 (2017 plan) and FY19 (2018 plan) 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 for the 2017 plan and FY21 for the 2018 plan. See section 4 for a summary of performance rights granted during FY18. The below table sets out the value of LTI performance rights granted in FY19 and FY18 (there were no forfeitures of LTIs in FY19 and FY18): Andrew Hansen Cameron Hunter Darren Meade Graeme Taylor Niv Fernando FY19 Value Exercised* $ FY18 Value Exercised* $ 446,862 98,653 99,134 95,005 94,026 446,250 98,517 95,974 94,875 93,899 * Represents the value of performance rights 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 FY19 and FY18 LTI Plans. c. Total remuneration mix 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 FY19: TARGET ACTUAL1 26% 53% 25% 52% CEO 21% 17% KMPs 16% Total Fixed Remuneration Short-Term Incentive Long-Term Incentive 23% 16% Total Fixed Remuneration Short-Term Incentive 19% Long-Term Incentive 67% 65% 1. Target and actual remuneration mix is calculated based on the combination of each CEO and KMP’s total fixed remuneration for FY19, total value of STIs awarded in relation to actual performance outcomes for FY19, and the value of LTIs granted in FY19 under the terms of the FY19 LTI Plan. The proportional mix of remuneration for KMP is based on an average amount. 26 Hansen Technologies Ltd Annual Report 20194. REMUNERATION DETAILS: EXECUTIVE KMPs a. Statutory remuneration details Details of executive KMP remuneration for the 2018 and 2019 financial years are set out in the table below: Fixed Remuneration Variable Remuneration Total Executive KMP Andrew Hansen Cameron Hunter Darren Meade Graeme Taylor Niv Fernando Cash Salary $ 843,240 826,005 383,359 370,320 387,237 360,496 370,321 354,500 366,253 354,126 Super $ 24,999 24,999 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 Year 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 Non- monetary Benefits $ 31,157 27,588 Annual & Long Service Leave $ STI1 Awarded $ Total $ LTI2 Fair Value $ Perfor- Mance related % Total $ 62,497 961,893 399,140 242,346 1,603,379 94,130 972,722 330,225 361,249 1,664,196 13,796 59,525 481,680 85,415 53,143 620,238 14,730 45,381 455,431 83,739 96,092 635,262 - - - - - - 17,777 430,014 100,979 53,130 584,123 6,538 392,034 95,978 92,655 580,667 21,083 416,404 131,772 52,059 600,235 25,676 405,176 94,875 89,710 589,761 9,672 400,925 130,776 52,039 583,740 9,230 388,356 93,899 86,958 569,213 Total 2019 2,350,410 124,999 44,953 170,554 2,690,916 848,082 452,717 3,991,715 2018 2,265,447 124,999 42,318 180,955 2,613,719 698,716 726,664 4,039,099 1. Represents STI awarded and accrued in relation to actual performance during the 2019 and 2018 financial years. This includes the additional STIs awarded to Andrew Hansen, Graeme Taylor and Niv Fernando during the 2019 financial year due to the circumstances described in section 3(a). 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. 40% 42% 22% 28% 26% 32% 31% 31% 31% 32% 33% 35% b. 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 Vesting Date Expiry Date 30 Jul 2019 2 Jul 2015 2 Jul 2017 2 Jul 2018 2 Jul 2019 2 Jul 2020 22 Dec 2016 31 Aug 20191 22 Dec 2021 Exercise Price $1.30 $2.67 $3.59 Value per Option at Grant Date $0.20 $0.56 $1.19 Performance Achieved % Vested Number of Options on Issue at 30/6/2019 100% 100% 0%1 100% 100% 0%1 - 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. However, based on the measurement period for the three years ended 30 June 2019, options dependent on the EPSa hurdle will not vest on 31 August 2019, and options dependent on the relative TSR hurdle will vest on 31 August 2019, but will be restricted and will not be exercisable. The number of options over unissued ordinary shares in the Company provided as remuneration to executive KMPs is shown in the table on the following page. The options carry no dividend or voting rights. 27 Hansen Technologies Ltd Annual Report 2019REMUNERATION REPORT CONTINUED Options granted to executive KMP which remain unvested at 30 June 2019 and outstanding are detailed below: Balance 30/6/2018 During Year Ended 30/6/2019 Balance 30/6/2019 Name and Grant Date Opening Balance Exercise Price Vested Forfeited Exercised Vested and Exercisable Vested and Un- exercisable Andrew Hansen 22 Dec 20161 Total Cameron Hunter 22 Dec 20161 2 Jul 2015 Total Darren Meade 22 Dec 20161 2 Jul 2015 Total Graeme Taylor 22 Dec 20161 2 Jul 2015 Total Niv Fernando 22 Dec 20161 2 Jul 2015 2 Jul 2014 Total 535,714 535,714 121,746 100,000 221,746 115,220 100,000 215,220 108,718 100,000 208,718 102,603 100,000 100,000 302,603 Grand total 1,484,001 $3.59 $3.59 $2.67 $3.59 $2.67 $3.59 $2.67 $3.59 $2.67 $1.30 - - - 100,000 100,000 - 100,000 100,000 - 100,000 100,000 - 100,000 - 100,000 400,000 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - (100,000) (100,000) - - - 100,000 100,000 - 100,000 100,000 - 100,000 100,000 - 100,000 - 100,000 (100,000) 400,000 - - - - - - - - - - - - - - - - Unvested 535,714 535,714 121,746 - 121,746 115,220 - 115,220 108,718 - 108,718 102,603 - - 102,603 984,001 1. Based on the measurement period for the three years ended 30 June 2019, these options that are dependent on the EPSa hurdle will not vest on 31 August 2019, and these options that are dependent on the relative TSR hurdle will vest on 31 August 2019, but will be restricted and will not be exercisable. 28 Hansen Technologies Ltd Annual Report 2019c. Performance rights awarded, vested and lapsed during the year Performance rights issued under the Group’s 2018 LTI Plan during the year are subject to the service and performance criteria as described on pages 20 to 21. 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 2018 2 Jul 2018 2 Jul 2018 2 Jul 2018 2 Jul 2018 Rights Granted 148,459 32,775 32,935 31,563 31,238 Balance 30/6/20191 148,459 32,775 32,935 31,563 31,238 Fair Value per Right2 $3.01 $3.01 $3.01 $3.01 $3.01 Vesting Date3 31 Aug 2021 31 Aug 2021 31 Aug 2021 31 Aug 2021 31 Aug 2021 $ Value of Rights at Grant Date1 446,862 98,653 99,134 95,005 94,026 * The Board has resolved to issue 148,459 rights to Andrew Hansen, the Chief Executive Officer, as part of the 2018 LTI Plan issued in FY19. The issue of these rights was approved by shareholders at the Company’s Annual General Meeting on 22 November 2018. 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 2018 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 2021. 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 Total Fixed Remuneration Contract duration Notice by individual/Company Termination of employment (without cause) Approach for CEO Approach for Other Executive KMP $910,350 Ongoing 6 months Range between $380,000 and $410,000 Ongoing 1 month 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 or rights will lapse. Termination of employment (with cause) STI is forfeited. All unvested LTIs and vested but unexercised LTIs are forfeited. 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. Non-Executive Directors do not receive any variable or performance-based remuneration. The Non-Executive Director fee pool currently has a maximum value of $520,000 per annum, as approved by shareholders at the 2018 AGM. 29 Hansen Technologies Ltd Annual Report 2019REMUNERATION REPORT CONTINUED The annual fees provided to Non-Executive Directors, inclusive of superannuation, are shown below: Board fees Chairman Other Non-Executive Directors Committee fees Audit and Risk Committee – Chair Remuneration Committee – Chair Non-Executive Director David Trude Bruce Adams Jennifer Douglas Sarah Morgan David Osborne David Howell1 Total Year 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 Salary and Fees 104,868 102,116 63,950 62,402 68,592 66,208 68,592 66,208 63,950 62,402 91,347 6,693 461,299 366,029 Fixed Remuneration Super 9,962 9,701 6,075 5,928 6,516 6,290 6,516 6,290 6,075 5,928 8,678 636 43,822 34,773 FY19 114,830 70,025 5,083 5,083 Non-monetary Benefits - - - - - - - - - - - - - - FY18 111,817 68,330 4,168 4,168 Total 114,830 111,817 70,025 68,330 75,108 72,498 75,108 72,498 70,025 68,330 100,025 7,329 505,121 400,802 1. During the year, David Howell was paid an extra $30,000 for consulting services performed for the Company. 7. SHARE-BASED REMUNERATION DISCLOSURES a. 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: Received During the Year on Exercise of Options Other Changes During the Year Balance 30 June 2019 - - - - - - (8,504) - 8,000 - - 1,218 102,113 152,304 16,000 21,351 386,335 26,218 Balance 30 June 2018 110,617 152,304 8,000 21,351 386,335 25,000 Non-Executive Directors David Trude Bruce Adams Jennifer Douglas Sarah Morgan David Osborne David Howell 30 Hansen Technologies Ltd Annual Report 2019Executive KMP Andrew Hansen Cameron Hunter Darren Meade Graeme Taylor Niv Fernando Total Received During the Year on Exercise of Options - - - - 100,000 100,000 Other Changes During the Year Balance 30 June 2019 4,642 34,963,449 - 268 2,749 (32,876) (24,503) 1,105,882 79,783 132,841 76,079 37,062,355 Balance 30 June 2018 34,958,807 1,105,882 79,515 130,092 8,955 36,986,858 b. Shares issued on exercise of options and performance rights Person Niv Fernando Total Number of Ordinary Shares Issued Amount Paid Per Share 100,000 100,000 1.30 There are no amounts unpaid on shares issued on exercise of options or performance rights. 8. OTHER TRANSACTIONS WITH KMP Rental agreements with the CEO The Group leases its Melbourne head office and its York Street (South Melbourne) office from an entity in which the CEO is a Director. 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. In addition, the Group rents an apartment in New York City, USA, on an as-required basis at a rate favourable to the Group. The apartment is owned by the CEO. The total lease and rental payments during the 2019 financial year related to these arrangements were $1,633,450. Subsequent to 30 June 2019, both Bruce Adams and David Osborne now have a joint indirect interest in the entity that is lessor to the Melbourne and South Melbourne arrangements as described above. The terms and conditions of the lease arrangements continue to be the same as at 30 June 2019. Signed in accordance with a resolution of the Directors. David Trude Director Melbourne 23 August 2019 Andrew Hansen Director 31 Hansen Technologies Ltd Annual Report 2019 AUDITOR’S INDEPENDENCE DECLARATION 32 Hansen Technologies Ltd Annual Report 201936 Section A: Basis of Preparation FINANCIAL REPORT 34 Consolidated Statement of Comprehensive Income 35 Consolidated Statement of Financial Position 36 Consolidated Statement of Changes in Equity 37 Consolidated Statement of Cash Flows 38 Notes to the Financial Statements 38 Section A: Basis of preparation 38 1. Basis of preparation 40 Section B: Performance 40 2. Segment information 44 3. Revenue and other income 48 4. Separately disclosed items 49 5. Profit from continuing operations 50 6. Income tax 53 7. Earnings per share 54 Section C: Working capital and operating assets 54 8. Cash and cash equivalents 55 9. Receivables 56 10. Other current assets 56 11. Plant, equipment and leasehold improvements 57 12. Intangible assets 60 13. Payables 60 14. Other operating provisions 61 Section D: People 61 15. Employee benefits 63 16. Share-based payments 66 Section E: Capital and financial risk management 66 17. Financial risk management 69 18. Borrowings 71 19. Contributed capital 72 20. Dividends 72 21. Reserves and retained earnings 73 22. Commitments and contingencies 75 Section F: Group structure 75 23. Parent entity information 76 24. Business combinations 78 Section G: Other disclosures 78 25. Related party disclosures 80 26. Auditor’s remuneration 81 27. Deed of cross guarantee 83 28. New and amended accounting standards and interpretations 84 29. Subsequent events Hansen Technologies Ltd Annual Report 2019 33 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the Year Ended 30 June 2019 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 Net profit after tax Other comprehensive income Items that may be reclassified subsequently to profit and loss Net gain/(loss) on hedges of net investments Exchange differences on translation of foreign entities, net of tax Other comprehensive income for the year Total comprehensive income for the year 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 Note 3 3 5 5 5 5 5 6(a) 21(a) 21(a) 7 7 2019 $’000 231,324 1,634 232,958 (128,027) (3,806) (18,950) (10,394) (5,339) (2,108) (11,352) (5,773) (3,805) (1,891) (2,067) (11,669) (205,181) 27,777 (6,312) 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) (195,791) 36,982 (8,132) 21,465 28,850 43 6,558 6,601 (934) 9,477 8,543 28,066 37,393 10.9 10.8 14.8 14.7 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 2019CONSOLIDATED STATEMENT OF FINANCIAL POSITION As at 30 June 2019 Current assets Cash and cash equivalents Receivables Accrued revenue Other current assets Total current assets Non-current assets Plant, equipment and leasehold improvements Intangible assets Deferred tax assets Other non-current assets Total non-current assets Total assets Current liabilities Payables Borrowings Current tax payable Provisions Unearned revenue 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 Share-based payments reserve Retained earnings Total equity Note 8 9 3(a)(iii) 10 11 12 6(b) 13 18 14, 15 3(a)(iii) 6(b) 18 15 19 21(a) 21(b) 21(c) 2019 $’000 38,288 49,475 27,817 7,920 123,500 10,986 402,782 4,601 3,123 2018 $’000 23,245 37,254 5,824 4,959 71,282 10,554 243,440 4,061 433 421,492 258,488 544,992 329,770 21,195 226 1,756 15,070 27,069 65,316 44,290 186,327 189 230,806 16,492 112 3,196 13,181 22,914 55,895 16,156 27,121 675 43,952 296,122 99,847 248,870 229,923 138,746 23,340 3,931 82,853 248,870 136,896 16,739 3,102 73,186 229,923 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 2019CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the Year Ended 30 June 2019 Balance as at 1 July 2018 Effect of adoption of new accounting standards Balance as at 1 July 2018 (restated) Profit for the year Net gain on hedges of net investments Exchange differences on translation of foreign entities, net of tax Total comprehensive income for the year Transactions with owners in their capacity as owners: Shares issued under employee share plan Employee share options exercised Share-based payment expense – performance rights Share-based payment expense – share options Equity issued under dividend reinvestment plan Dividends declared Total transactions with owners in their capacity as owners Note 3(a) 21(a) 21(a) 19(b) 19(b) 16(e) 16(e) 19(b) 21(c) Balance as at 30 June 2019 19, 21 Balance as at 1 July 2017 Profit for the year Net loss on hedges of net investments Exchange differences on translation of foreign entities, net of tax Total comprehensive income for the year Transactions with owners in their capacity as owners: Shares issued under employee share plan Employee share options exercised Share-based payment expense – performance rights Share-based payment expense – share options Equity issued under dividend reinvestment plan Shares issued from institutional placement Share purchase plan offer Dividends declared Note 21(a) 21(a) 19(b) 19(b) 16(e) 16(e) 19(b) 19(b) 19(b) 21(c) Total transactions with owners in their capacity as owners Balance as at 30 June 2018 19, 21 Contributed Equity $’000 136,896 - Reserves $’000 19,841 - 136,896 19,841 - - - - 170 535 - - 1,145 - - 43 6,558 6,601 - - 965 (137) - - 1,850 138,746 829 27,271 Contributed Equity $’000 85,350 - - - - 180 766 - - 1,370 38,959 10,271 - 51,546 136,896 Reserves $’000 10,168 - (934) 9,477 8,543 - - 452 678 - - - - 1,130 19,841 Retained Earnings $’000 73,186 1,984 75,170 21,465 - - 21,465 - - - - - (13,782) (13,782) 82,853 Retained Earnings $’000 56,098 28,850 - - 28,850 - - - - - - - (11,762) (11,762) 73,186 Total Equity $’000 229,923 1,984 231,907 21,465 43 6,558 28,066 170 535 965 (137) 1,145 (13,782) (11,103) 248,870 Total Equity $’000 151,616 28,850 (934) 9,477 37,393 180 766 452 678 1,370 38,959 10,271 (11,762) 40,914 229,923 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 2019CONSOLIDATED STATEMENT OF CASH FLOWS For the Year Ended 30 June 2019 Cash flows from operating activities Receipts from customers Payments to suppliers and employees Interest received Finance costs Transaction costs relating to the acquisition of a subsidiary Payments for deferred remuneration 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 Payments for plant and equipment Payments 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 re-investment Net cash provided by financing activities Net increase in cash and cash equivalents Cash and cash equivalents at beginning of year Note 2019 $’000 2018 $’000 3 5 24 24 8(a) 24 11 12 19(b) 19(b) 18 18 18 20 248,646 (196,021) 84 (2,067) (2,063) (2,235) (6,694) 39,650 4 (159,391) (2,980) (10,892) (173,259) - 535 188,398 (27,455) (110) (12,637) 148,731 263,217 (201,700) 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 15,122 9,508 23,245 15,013 Effects of exchange rate changes on cash and cash equivalents (79) (1,276) Cash and cash equivalents at end of the year 8 38,288 23,245 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 2019NOTES TO THE FINANCIAL STATEMENTS 30 June 2019 Section A: Basis of preparation This section describes the basis in 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 23 August 2019. The Group’s financial statements have been presented in a streamlined manner 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 goodwill Impairment of non-financial assets other than goodwill Share-based payments Business combinations Note Page Reference 12 12 12 16 24 58 59 59 65 77 38 Hansen Technologies Ltd Annual Report 2019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 2019NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 June 2019 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, separately disclosed items during the year that affected the Group’s results, 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). 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 do not 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 Billing Sale of billing applications and the provision of consulting services related to billing systems. Billing $’000 218,383 218,383 36,697 36,697 1,227 19,091 484,922 13,871 104,580 Other $’000 12,941 12,941 1,607 1,607 200 11 18,785 - 4,846 Total $’000 231,324 231,324 38,304 38,304 1,427 19,102 503,707 13,871 109,426 b. Segment information 2019 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 Additions to non-current assets Total segment liabilities 40 Hansen Technologies Ltd Annual Report 2019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 Additions to non-current assets Total segment liabilities Billing $’000 217,250 217,250 40,197 40,197 2,326 16,990 283,781 6,388 66,251 Other $’000 13,566 13,566 1,441 1,441 198 16 20,466 - 5,121 Total $’000 230,816 230,816 41,638 41,638 2,524 17,006 304,247 6,388 71,372 (i) Reconciliation of segment revenue to the consolidated statement of comprehensive income Segment revenue Total operating revenue Geographical segments 2019 $’000 231,324 231,324 2018 $’000 230,816 230,816 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 Product segments Australia, New Zealand and Asia North America, Central America and Latin America Europe, Middle East and Africa 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 Recurring billing application licence, support and maintenance services delivered as part Services 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. Hardware and software sales Provision of other third-party hardware and software licences to customers of the Group’s billing system solutions. Other Includes reimbursed expenses incurred for servicing the customer contract. 41 Hansen Technologies Ltd Annual Report 2019NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 June 2019 2. SEGMENT INFORMATION continued (ii) Disaggregation of revenue from contracts with customers by segment Set out below is the disaggregation of the Group’s revenue from contracts with customers: 2019 Products Licence, support and maintenance Services Hardware and software sales Other revenue Total revenue from contracts with customers Revenue by market vertical Utilities Communications Other Total revenue from contracts with customers Revenue by geographic segment APAC Americas EMEA Total revenue from contracts with customers Timing of revenue recognition Goods and services transferred at a point in time Services transferred over time Total revenue from contracts with customers 2018* Products Licence, support and maintenance Services Hardware and software sales Other revenue Total revenue from contracts with customers Revenue by market vertical Utilities Communications Other Total revenue from contracts with customers Revenue by geographic segment APAC Americas EMEA Total revenue from contracts with customers Timing of revenue recognition Goods and services transferred at a point in time Services transferred over time Total revenue from contracts with customers Billing $’000 138,202 78,042 1,038 1,101 218,383 144,816 73,567 - 218,383 42,723 50,213 125,447 218,383 2,530 215,853 218,383 Billing $’000 123,678 90,439 1,874 1,259 217,250 144,286 72,964 - 217,250 44,025 47,667 125,558 217,250 19,422 197,828 217,250 Other $’000 6,884 5,799 - 258 Total $’000 145,086 83,841 1,038 1,359 12,941 231,324 5,898 - 7,043 12,941 7,043 5,898 - 12,941 258 12,683 12,941 Other $’000 5,653 7,913 - - 150,714 73,567 7,043 231,324 49,766 56,111 125,447 231,324 2,788 228,536 231,324 Total $’000 129,331 98,352 1,874 1,259 13,566 230,816 7,714 - 5,852 13,566 5,852 7,714 - 13,566 - 13,566 13,566 152,000 72,964 5,852 230,816 49,877 55,381 125,558 230,816 19,422 211,394 230,816 * As described in Note 3(a)(i), comparative amounts for the prior period have not been adjusted under the modified retrospective method. 42 Hansen Technologies Ltd Annual Report 2019(iii) Reconciliation of segment profit from core operations to the consolidated statement of comprehensive income Segment profit from core operations Interest revenue Finance costs Unallocated depreciation and amortisation Separately disclosed items impacting profit Other expense Profit before income tax Note 3 5 4 (iv) Reconciliation of segment assets to the consolidated statement of financial position Segment assets Unallocated assets – Cash – Other Total unallocated assets Total assets 2019 $’000 38,304 84 (2,067) (2,227) (2,794) (3,523) 27,777 2018 $’000 41,638 127 (2,085) (757) (677) (1,264) 36,982 2019 $’000 2018 $’000 503,707 304,247 38,288 2,997 41,285 544,992 23,245 2,278 25,523 329,770 Total non-current assets attributed to individual geographies is detailed as follows. Unallocated assets include 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 (v) Reconciliation of segment liabilities to the consolidated statement of financial position Segment liabilities Unallocated liabilities – Bank loan – Other Total unallocated liabilities Total liabilities 2019 $’000 38,839 224,997 153,055 4,601 421,492 2019 $’000 109,426 186,327 369 186,696 296,122 2018 $’000 37,404 59,020 158,002 4,062 258,488 2018 $’000 71,372 27,233 1,242 28,475 99,847 43 Hansen Technologies Ltd Annual Report 2019NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 June 2019 3. REVENUE AND OTHER INCOME Operating revenue Revenue from contracts with customers Total operating revenue Other income From operating activities Interest income Other income Total other income Note 2 2019 $’000 231,324 231,324 84 1,550 1,634 2018 $’000 230,816 230,816 127 1,830 1,957 Total revenue and other income 232,958 232,773 a. AASB 15 Revenue from Contracts with Customers AASB 15 supersedes all previous revenue recognition requirements under Australian Accounting Standards. The core principle of AASB 15 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. (i) Impact on adoption The Group adopted AASB 15 using the modified retrospective method of adoption, where the cumulative effect of initially applying the standard is recognised as an adjustment to the opening balance of retained earnings on 1 July 2018. Therefore, comparative figures for prior reporting periods are not restated. The Group also elected to apply AASB 15 only to contracts that are not completed at 1 July 2018. The effect of adopting AASB 15 is as follows: 1 July 2018 Transition Adjustment $’000 Assets Other current assets Total assets impact Liabilities Unearned revenue Total liabilities impact Net assets impact Equity Retained earnings Total equity impact Had AASB 15 not applied and the financial statements were still produced under previous guidance and accounting standards, the Financial Report for the year ended 30 June 2019 would have been impacted as follows: Statement of comprehensive income Revenue Impact on statement of comprehensive income for the year ended 30 June 2019 Statement of financial position Other current assets Unearned revenue Impact on net assets in the statement of financial position as at 30 June 2019 Impact on equity in the statement of financial position as at 30 June 2019 44 1,733 1,733 (251) (251) 1,984 1,984 1,984 $’000 (186) (186) (278) 92 (186) (186) Hansen Technologies Ltd Annual Report 2019(ii) Performance obligations The transaction price allocated to remaining performance obligations represents contracted revenue that has not yet been recognised. They include amounts recognised as unearned revenue and amounts that are contracted but not yet billed or performed. The transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied as at 30 June 2019, is $121,449,000. This amount mostly comprises obligations in our long-term contracts to provide software or 'software-as-a-service' (SaaS) support and maintenance, open long-term professional services contracts as well as licences contracted but not yet earned as the licence has not yet been deployed. Most of this amount is expected to be recognised as revenue beyond the next 12 months following the respective balance sheet date. This estimation is judgemental, as it needs to consider estimates of possible future contract modifications. The amount of transaction price allocated to the remaining performance obligations, and changes in this amount over time, are impacted by, among others, currency fluctuations and the remaining contract period of our billing solution agreements (which, in some cases, are contracted until 5 years after balance sheet date). Revenue recognised in the current reporting period aligned to performance obligations satisfied in earlier periods was $14,059,000, mainly resulting from the increased usage of software licences already delivered during the reporting period. (iii) Contract balances Accrued revenue Unearned revenue 2019 $’000 27,817 27,069 2018 $’000 5,824 22,914 Increases in the balance of accrued and unearned revenue during the year relate to the acquisition of Sigma Systems (refer to Note 24). Additionally, the increase in accrued revenue was a result of software licences deployed on contract inception but have yet to be billed to the customer. Revenues recognised in the current reporting period that was included in deferred revenue at the beginning of the reporting period was $22,251,000, representing support and maintenance performed during the period. b. Government grants Included in other income during the financial year is $309,000 (2018: $593,000) related to government grants receivable 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 The Group derives revenues from customer contracts associated with the provision of billing solutions. A typical contract may include various deliverables in consideration for fees. Such deliverables in our contracts include, but are not limited to, the provision of a software licence, support and maintenance services, as well as professional implementation and customisation services. The nature of fee structures within the contracts varies by customer. The timing and frequency of invoicing depends on the terms and conditions of each contract. Invoices are billed to the customer either in advance or in arrears on normal commercial terms. Where the contract requires invoicing in advance, revenue is initially deferred as unearned revenue until the Group fulfils its performance obligations. Where the contract requires invoicing in arrears, revenue recognised on fulfilment of a performance obligation is brought to account as accrued revenue, until the Group’s right to consideration becomes unconditional and the accrued revenue is then presented as a receivable. The Group’s accounting policies with respect to each of the individual deliverables in the Group’s customer contracts are outlined in sub-sections (i) onwards. (i) Licence, support and maintenance revenue The Group’s contracts for billing solutions regularly include software licences associated with the relevant billing solution provided to the customer. The nature of the licence varies by customer and billing solution. As part of the licence agreement, various support and maintenance services are available to support the customer’s use of the billing solution. This includes the provision of various bug fixes, updates and helpdesk support. 45 Hansen Technologies Ltd Annual Report 2019NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 June 2019 3. REVENUE AND OTHER INCOME continued SIGNIFICANT ACCOUNTING POLICIES continued (i) Licence, support and maintenance revenue continued Generally, the provision of the software licence is a distinct performance obligation. However, where there are associated implementation, customisation or other professional services in the contract that significantly modify, customise or are highly interrelated with the licence, the software licence and implementation services are combined into a single performance obligation. The determination of whether the licence should be combined with the services is a matter of judgement, depending on the nature of the implementation of the services provided and the licence specifications in the customer contract. How the licence performance obligation is fulfilled depends on the nature of the licence and how the Group provides the licence to the customer, irrespective of whether the licence is provided in perpetuity or for a specified contractual term: • Where the licence is installed and delivered on customer premises, the customer can derive substantial benefits from the licence on its own. Therefore, the performance obligation is fulfilled (and revenue recognised) at the point in time the licence goes live, typically when customer acceptance has been obtained and the licence meets the agreed-upon specifications. • Where the licence is hosted by the Group (for example, in some of our SaaS applications), the customer is dependent on our continual hosting of the licence platform in order to derive and receive substantial benefits from the licence. Therefore, the performance obligation is fulfilled (and revenue recognised) over time, which is typically evenly over the contracted period in which access to the licence is made available to the customer. Licence fees in some pay-TV and telecommunications contracts are dependent on the subsequent usage of the licence by the customer, which is determined by customer-defined metrics such as subscriber counts or end-user numbers. For these contracts, the Group uses the sales/usage-based royalty exception and recognises revenue when the subsequent usage is known, which is typically at the end of each billing period. Support and maintenance services are generally considered a distinct single performance obligation, separately identifiable to the software licence, as all the individual activities that comprise of support and maintenance are highly interrelated with each other. Revenue related to the provision of support and maintenance is recognised evenly over the contracted term in which the customer is entitled to receive support and maintenance. (ii) Services revenue The Group provides various configuration, implementation, customisation and other professional services that the customer is contracted to receive. This may be a part of the overall billing solution, or discrete projects separately agreed with the customer. The various individual activities that form the professional services provided to the customer are highly interrelated with each other and therefore are treated as a single performance obligation. Revenue from these professional services is recognised over time by reference to the stage of completion of the contracts. Stage of completion is measured by reference to labour hours incurred to date as a percentage of total estimated labour hours for each contract, and by reference to any contracted milestones achieved such as customer acceptance of the final specification. As described above in 'Licence, support and maintenance revenue' certain professional services might be combined with the provision of the software licence depending on the nature of the licence and the professional services provided. (iii) Hardware/software sales revenue Some of the Group’s subsidiaries on-sells certain third-party hardware and software products. Revenue is recognised when control over the software has transferred to the customer. Determination of when control has passed depends on whether the customer has legal title over the products, whether the customer has obtained possession of the products or whether the Group has present right to payment. The Group is considered principal in the sales transaction as the Group has procured the products from its various vendors and the Group bears the risk and responsibility for selling those products to the customer. 46 Hansen Technologies Ltd Annual Report 2019(iv) Other revenue Other revenue consists of reimbursed expenses incurred for servicing the customer contract. Revenue is recognised when the Group has legal enforceability under the contract to have the relevant expenses reimbursed from the customer. (v) Financing components The Group does not expect to have any contracts where the period between the transfer of the promised goods or services to the customer represents a financing component. Therefore, the Group does not adjust any of the transaction prices for the time value of money. (vi) Presentation and disclosure In Note 2(b) of the financial statements, the Group has disaggregated revenue recognised from contracts with customers into the following categories: • the types of goods and services we provide our customers in our contracts; • the primary market vertical that our customers operate in. ‘Utilities’ includes our electricity, gas and water customers, while ‘Communications’ includes our telecommunications and pay-TV customers; and • the key geographic regions where our customers are located, which is consistent with the geographic segments identified for our segment reporting. We believe these categories best depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. AASB 15 uses the terms 'contract asset' and 'contract liability'. To maintain consistency in presentation with prior periods, the Group has retained the use of 'accrued revenue' and 'unearned revenue' respectively. In disclosing the amount of the transaction price allocated to unsatisfied or partially satisfied performance obligations, the Group has elected to use the practical expedient available in AASB 15 and disclose only the amounts allocated to performance obligations expected to be satisfied after the next 12 months. Other income Interest income is recognised when it becomes receivable on a proportional basis, taking into account the interest rates applicable to the financial assets. 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. 47 Hansen Technologies Ltd Annual Report 2019NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 June 2019 4. SEPARATELY DISCLOSED ITEMS The Group has disclosed underlying EBITDA1 and underlying profit after tax, referring to the Group’s trading results adjusted for certain transactions during the year that are not representative of the Group’s regular business activities. The Group considers that these transactions are of such significance to understanding the ongoing results of the Group that the Group has elected to separately identify these transactions to determine an ongoing result to enable a 'like-for-like' comparison. These items are described as 'separately disclosed items' throughout this Financial Report. Decrease to profit before tax Transaction costs related to the acquisition of Sigma Systems (2018: acquisition of Enoro) Onerous lease provision Restructuring costs incurred in Sigma Systems Total separately disclosed items Note 24 14 2019 $’000 (2,063) (659) (72) (2,794) 2018 $’000 (677) - - (677) Transaction costs related to the acquisition of Sigma Systems (2018: acquisition of Enoro) Transaction costs of $2,063,000 were incurred in relation to the acquisition of the Sigma Systems group of entities (Sigma). These include costs associated with vendor due diligence, legal and other administrative matters, as well as related travel costs incurred to meet representatives of Sigma’s management. These costs are included with 'Travel Expenses' and 'Other Expenses' in the Group’s consolidated statement of comprehensive income. Further details of the acquisition of Sigma are described in Note 24. In the prior year, transaction costs of $677,000 were incurred in relation to the acquisition of Enoro Holdings AS (subsequently renamed to Hansen Technologies Holdings AS during FY19) and its controlled subsidiaries. These costs were included with 'Other Expenses' in the Group’s consolidated statement of comprehensive income in the prior year. Onerous lease provision The Group recognised a provision on future lease payments for one of our offices in the Americas, as the non-cancellable future payments in the lease contract are expected to exceed the benefits from keeping the office over the remainder of the lease term. The Group has separately identified these costs because it is not in the normal course of business activities. These costs are included with 'Property and Operating Rental Expenses' in the Group’s consolidated statement of comprehensive income. Restructuring costs incurred in Sigma Systems Included in Sigma’s results for June are $72,000 of restructuring costs related to certain redundancy payments post-acquisition. These costs are included with 'Employee Benefit Expenses' in the Group’s consolidated statement of comprehensive income. a. Reconciliation with Group statutory measures Underlying EBITDA Less separately disclosed items EBITDA1 Underlying profit after tax Less separately disclosed items Tax effect of separately disclosed items Net profit after tax 2019 $’000 55,837 (2,794) 53,043 24,011 (2,794) 248 21,465 2018 $’000 59,961 (677) 59,284 29,527 (677) - 28,850 1. EBITDA is a non-IFRS term, defined as earnings before interest, tax, depreciation and amortisation, and excluding net foreign exchange gains (losses). 48 Hansen Technologies Ltd Annual Report 20195. PROFIT FROM CONTINUING OPERATIONS Profit from continuing operations before income tax has been determined after the following specific expenses: Employee benefit expenses Wages and salaries Superannuation costs Share-based payments and employee share plan expensed Total employee benefit expenses Depreciation expense Plant, equipment and leasehold improvements Total depreciation of non-current assets Amortisation of non-current assets Technology and other intangibles Software development costs Total amortisation of non-current assets Property and operating rental expenses Minimum lease payments recognised as an operating lease expense Other property-related expenses Total property and operating rental expenses Finance charges Finance costs Total finance costs Note 8(a) 8(a), 11 8(a), 12 8(a), 12 2019 $’000 2018 $’000 118,052 113,929 9,006 969 8,939 1,265 128,027 124,133 3,806 3,806 12,054 6,896 18,950 7,214 3,180 10,394 2,067 2,067 3,908 3,908 11,419 5,064 16,483 6,746 3,249 9,995 2,085 2,085 Net foreign exchange losses/(gains) included in other expenses 8(a) 527 (47) 49 Hansen Technologies Ltd Annual Report 2019NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 June 2019 6. INCOME TAX a. Components of income tax expense Current tax expense Deferred tax expense/(income) Over provision in prior years Total income tax expense The prima facie tax payable on profit before income tax reconciled to the income tax expense is as follows: Prima facie income tax payable on profit before income tax at 30% Add/(less) tax effect of: Impact of tax rates on foreign subsidiaries Research and development allowances Non-deductible share-based payments Over provision in prior years Utilisation of prior year tax losses not 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 b. Deferred tax Deferred tax asset Deferred tax liability Net deferred tax (i) Deferred tax asset The deferred tax asset balance comprises of the following items: Difference in depreciation and amortisation of plant and equipment for accounting and income tax purposes Other payables Employee benefits Accruals 50 2019 $’000 6,238 841 (767) 6,312 2018 $’000 8,535 (284) (119) 8,132 8,333 11,095 (1,506) (86) 151 (767) (474) - (2,076) 2,737 6,312 2019 $’000 4,601 (44,290) (39,689) 2019 $’000 1,208 - 2,378 1,015 4,601 (271) (611) 206 (119) - (1,164) (3,055) 2,051 8,132 2018 $’000 4,061 (16,156) (12,095) 2018 $’000 950 156 1,957 998 4,061 Hansen Technologies Ltd Annual Report 2019(ii) Deferred tax liability The deferred tax liability balance comprises of the following items: Research and development expenditure Difference in depreciation and amortisation of plant, equipment and intangibles for accounting and income tax purposes Other payables Other income not yet assessable Temporary differences relating to revenue recognition (adoption of AASB 15) (iii) Reconciliation of net deferred tax balances Opening balance – net deferred tax liability Deferred tax (expense)/income recognised in profit or loss Increase due to acquisition Closing balance – net deferred tax liability (iv) Deferred tax assets not brought to account (available tax losses) Note 24 Gross capital losses Gross operating losses 2019 $’000 (5,540) 2018 $’000 (4,737) (35,503) (11,370) (947) - (2,300) (44,290) 2019 $’000 (12,095) (841) (26,753) (39,689) 2019 $’000 847 1,430 2,277 - (49) - (16,156) 2018 $’000 (1,886) 284 (10,493) (12,095) 2018 $’000 847 1,984 2,831 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. 51 Hansen Technologies Ltd Annual Report 2019NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 June 2019 6. 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. 52 Hansen Technologies Ltd Annual Report 20197. 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 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 2019 $’000 21,465 21,465 2018 $’000 28,850 28,850 2019 No. of Shares 2018 No. of Shares 197,017,215 195,541,345 198,632,621 196,581,097 2019 Cents Per Share 2018 Cents Per Share 10.9 10.8 14.8 14.7 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. 53 Hansen Technologies Ltd Annual Report 2019NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 June 2019 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. 8. CASH AND CASH EQUIVALENTS 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 Note 5 5, 16(e) 5 5 Net profit after tax Add/(less) items classified as investing/financing activities: Net loss/(profit) on sale of non-current assets Add/(less) non-cash items: Depreciation and amortisation Share-based payments expense Unrealised foreign exchange Expected credit loss recovered from bad debts Reclassification to intangibles from deferred tax Employee share plan expense 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 in trade receivables Increase in sundry debtors and other assets Increase/(decrease) in trade payables Decrease in other creditors and accruals Increase in employee benefits provision Decrease/(increase) in deferred taxes (Decrease)/increase in income tax payable Net cash provided by operating activities 2019 $’000 36,677 1,611 38,288 2019 $’000 21,465 2018 $’000 22,772 473 23,245 2018 $’000 28,850 17 (14) 22,756 829 527 (62) - 140 20,391 1,130 (47) (38) (241) 135 45,672 50,166 3,745 (7,436) 4,592 (7,944) 1,403 841 (1,223) 39,650 9,131 (2,021) (2,035) (7,547) 3,055 (285) 1,641 52,105 SIGNIFICANT ACCOUNTING POLICIES Cash and cash equivalents Cash and cash equivalents include cash on hand and at banks, short-term deposits with an original maturity of six months or less held at call with financial institutions and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the statement of financial position. 54 Hansen Technologies Ltd Annual Report 2019 9. RECEIVABLES Current Trade receivables Less: provision for impairment Sundry receivables Total trade and other receivables 2019 $’000 47,510 (221) 47,289 2,186 49,475 2018 $’000 36,741 (82) 36,659 595 37,254 As at 30 June 2019, trade receivables of $15,273,000 (2018: $9,497,000) 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 the 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 2019 $’000 32,016 4,425 4,086 6,983 47,510 Provided 2019 $’000 - - (23) (198) (221) Gross 2018 $’000 27,178 3,199 2,052 4,312 36,741 Provided 2018 $’000 (15) (7) (7) (53) (82) 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 Acquisition of Sigma Systems Other movements for the year Amounts written off Closing balance at 30 June 2019 $’000 2018 $’000 82 169 52 (82) 221 - - 82 - 82 SIGNIFICANT ACCOUNTING POLICIES Trade receivables Trade receivables represent amounts owed by our customers and are recognised initially at the amount of consideration where the right to payment is conditional only on the passage of time. The Group holds the trade receivables with the objective of collecting contractual cash flows and therefore measures them subsequently at amortised cost using the effective interest method, less an allowance for impairment. Trade receivables are generally due for settlement between 30 and 60 days. The Group recognises a provision for impairment by calculating lifetime expected credit losses (ECLs). In determining the appropriate amount of lifetime ECLs, the Group has established a provision matrix that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment. Individual debts that are known to be uncollectible are written-off by reducing the carrying amount directly. Expected credit 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. 55 Hansen Technologies Ltd Annual Report 2019NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 June 2019 10. OTHER CURRENT ASSETS Prepayments – current Other assets Total other current assets 11. PLANT, EQUIPMENT AND LEASEHOLD IMPROVEMENTS Plant, equipment and leasehold improvements at cost Accumulated depreciation Total plant, equipment and leasehold improvements 2019 $’000 7,813 107 7,920 2019 $’000 45,511 (34,525) 10,986 2018 $’000 4,892 67 4,959 2018 $’000 40,308 (29,754) 10,554 Movements in cost and accumulated depreciation during the year are inclusive of any net foreign currency movements arising from foreign operations. Reconciliation of the carrying amounts of plant, equipment and leasehold improvements at the beginning and end of the current financial year is shown below: Plant, equipment and leasehold improvements at cost Carrying amount at 1 July Additions Increase due to acquisition of subsidiary 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 5 2019 $’000 10,554 2,980 970 (22) (3,806) 310 10,986 2018 $’000 8,912 2,843 2,533 (106) (3,908) 280 10,554 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: 2019 2018 Plant, equipment and leasehold improvements 3 to 15 years 3 to 15 years Leased plant and equipment 3 to 15 years 3 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. 56 Hansen Technologies Ltd Annual Report 201912. INTANGIBLE ASSETS Goodwill at cost Accumulated impairment Net book amount of goodwill Technology and other intangibles at cost Accumulated amortisation and impairment Net book amount of technology and other intangibles Software development at cost Accumulated amortisation and impairment Net book amount of software development Total intangible assets Reconciliation of goodwill at cost Carrying amount at 1 July Increase due to acquisition of subsidiary 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 and other intangibles at cost Carrying amount at 1 July Increase due to acquisition of subsidiary Net foreign currency movements arising from foreign operations Carrying amount at 30 June Accumulated amortisation and impairment at beginning of year Amortisation of technology and other intangibles 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 amortisation charge Net foreign currency movements arising from foreign operations Accumulated amortisation at end of year 2019 $’000 223,547 (1,595) 221,952 196,264 (41,466) 154,798 65,583 (39,551) 26,032 402,782 2019 $’000 152,565 66,662 - 4,320 223,547 (1,573) (22) (1,595) 99,415 93,188 3,661 196,264 (28,196) (12,054) (1,216) (41,466) 53,382 10,892 1,309 65,583 (32,153) (6,896) (502) (39,551) 2018 $’000 152,565 (1,573) 150,992 99,415 (28,196) 71,219 53,382 (32,153) 21,229 243,440 2018 $’000 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) 57 Note 24 24 5 5 Hansen Technologies Ltd Annual Report 2019NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 June 2019 12. 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 and other intangibles Other intangibles consist of trademarks, brand names, customer relationships and non-compete clauses. Technology and other intangibles are recognised at cost and are amortised over their estimated useful lives, which is generally the term of the contract for customer contracts and 5-10 years for technology and other intangibles. Technology and other intangibles 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 five 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 Impairment of Assets. 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 2019 financial year. Returns are expected to be derived from this investment over the coming year(s). 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. 58 Hansen Technologies Ltd Annual Report 2019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 are 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% (2018: 1.8%); • a post-tax discount rate of 7.2% (2018: 6.8%); and • terminal growth rate of 1.8% (2018: 1.8%) 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. The 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 2019, 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 the sensitivity of 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 judgement is applied to identify the cash generating units (CGU). The recoverable amount of a 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. 59 Hansen Technologies Ltd Annual Report 2019NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 June 2019 13. PAYABLES Trade payables Other payables Total payables 2019 $’000 10,349 10,846 21,195 2018 $’000 3,409 13,083 16,492 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. 14. OTHER OPERATING PROVISIONS Current Lease and rental provisions Other Reconciliation of other operating provisions Carrying amount at beginning of year Net provisions/(payments) made during the year Carrying amount at end of year 2019 $’000 1,051 160 1,211 471 740 1,211 2018 $’000 358 113 471 504 (33) 471 The movement in operating provisions during the year was largely driven by an onerous lease provision of $659,000. This provision has been classified as a separately disclosed item in understanding the Group’s results. Refer to Note 4 for further information. SIGNIFICANT ACCOUNTING POLICIES Provisions Provisions are recognised when the consolidated entity has a legal or constructive obligation as a result of past events, for which it is probable that an outflow of economic benefits will result, and that outflow can be reliably measured. 60 Hansen Technologies Ltd Annual Report 2019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. 15. EMPLOYEE BENEFITS Current employee benefits1 Non-current employee benefits2 Total employee benefits liability 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 2019 $’000 13,859 189 14,048 2018 $’000 12,710 675 13,385 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 2019 $’000 2,074 2018 $’000 1,615 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. a. Directors’ and executives’ compensation Short-term employment benefits Post-employment benefits Share-based payments Detailed remuneration disclosures are provided in the Remuneration Report on pages 16 to 31. 2019 $ 2018 $ 3,875,298 3,553,465 168,821 452,717 159,772 726,664 4,496,836 4,439,901 61 Hansen Technologies Ltd Annual Report 2019NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 June 2019 15. 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 re-measurements for changes in assumptions of obligations for other long-term employee benefits are recognised in profit or loss in the periods in which the change occurs. Other long-term employee benefit obligations are presented as current liabilities in the balance sheet if the entity does not have an unconditional right to defer settlement for at least 12 months after the reporting date, regardless of when the actual settlement is expected to occur. All other long-term employee benefit obligations are presented as non-current liabilities in the consolidated statement of financial position. Retirement benefit obligations The consolidated entity makes superannuation and pension contributions to the employee’s defined contribution plan of choice in respect of employee services rendered during the year. These 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 and pension guarantee contributions at the end of the reporting period. All obligations for unpaid superannuation and pension 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 are measured on the basis of the best estimate of the number of employees expected to be affected. Termination benefits that are expected to be settled wholly before 12 months after the annual reporting period in which the benefits are recognised are measured at the (undiscounted) amounts expected to be paid and are presented as current liabilities in the consolidated statement of financial position. All other termination benefits are accounted for on the same basis as other long-term employee benefits and are presented as non-current liabilities in the consolidated statement of financial position. 62 Hansen Technologies Ltd Annual Report 201916. SHARE-BASED PAYMENTS a. Employee Share Plan The Employee Share Plan (ESP) is available to all eligible employees each year to acquire ordinary shares in the Company from future remuneration (before tax). Shares to be issued or transferred under the ESP will be valued at the volume-weighted average price of the Company’s shares traded on the Australian Securities Exchange during the five business days immediately preceding the day the shares are issued or transferred. Shares issued under the ESP are not allowed to be sold, transferred or otherwise disposed until the earlier of the end of an initial three-year period, or the participant ceasing continuing employment with 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 2019 No. of Shares 2018 No. of Shares 114,758 45,560 (44,526) 115,792 137,227 42,480 (64,949) 114,758 The consideration for the shares issued on 22 May 2019 was $3.72 (7 May 2018: $4.24). The value of shares issued under the ESP that was recognised during the year, and any amounts of consideration provided by eligible participants at balance sheet date were: Issued ordinary share capital 2019 $’000 170 2018 $’000 180 The market value of the Company’s ordinary shares closed at $3.93 on 30 June 2019 ($3.15 on 30 June 2018). b. Employee Performance Rights Plan The Employee Performance Rights Plan (the Rights Plan) was approved by shareholders at the Company’s AGM on 23 November 2017. Under the Rights Plan, awards are made to eligible executives and other management personnel who have an impact on the Group’s performance. Rights Plan awards are granted in the form of performance rights over shares, which vest over a period of three years subject to meeting performance measures and continuous employment with the Company. Each performance right is to subscribe for one ordinary share upon vesting and, when issued, the shares will rank equally with other shares. Performance rights issued under the Employee Performance Rights Plan are valued on the same basis as those issued to KMP, which is described in Note 16(d). Performance rights issued and outstanding at 30 June 2019 Grant Date 2 Jul 2017 2 Jul 2018 Total Vesting Date1 31 Aug 2020 31 Aug 2021 Fair Value per Right $ Rights Granted No. of Rights at 30/6/2019 3.815 3.01 355,316 530,652 885,968 355,316 530,652 885,968 1. The vesting date for rights granted on 2 July 2017 and 2 July 2018 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 and 31 August 2021 respectively. No performance rights vested or lapsed during the financial year. The number of performance rights issued and outstanding at 30 June 2018 was 355,316, consisting solely of the performance rights granted on 2 July 2017. The weighted average contractual life of outstanding performance rights at the end of the financial year is 1.77 years (2018: 2.17 years). 63 Hansen Technologies Ltd Annual Report 2019NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 June 2019 16. SHARE-BASED PAYMENTS continued c. Employee Share Option Plan The Employee Share Option Plan (the Option Plan) was approved by shareholders at the Company’s AGM on 9 November 2001 and reaffirmed at the AGM on 24 November 2011. Under the Option Plan, awards are made to eligible executives and other management personnel who have an impact on the Group’s performance. Option Plan awards are delivered in the form of options over shares, which vest over a period of three years subject to meeting performance measures and continuous employment with the Company. Each option is to subscribe for one ordinary share when the option is exercised and, when issued, the shares will rank equally with other shares. Unless the terms on which an option was offered specified otherwise, an option may be exercised at any time after the vesting date on satisfaction of the relevant performance criteria. Options issued under the Employee Share Option Plan are valued on the same basis as those issued to KMP, which is described in Note 16(d). There were no new options issued under the Option Plan during the 30 June 2019 and 30 June 2018 financial years, as the Option Plan was replaced with the Rights Plan as described in Note 16(b). Movement of options during the year ended 30 June 2019: Grant Date Vesting Date Expiry Date 2 Jul 2013 2 Jul 2014 2 Jul 2015 2 Jul 2016 2 Jul 2017 2 Jul 2018 30 Sept 20181 2 Jul 2019 2 Jul 2020 22 Dec 2016 31 Aug 20192 22 Dec2021 Total Weighted average exercise price Exercise Price $ No. of Options at Beg. of Year 0.92 1.30 2.67 3.59 75,000 470,000 1,000,000 1,323,730 2,868,730 Options Exercised or Lapsed (75,000) (205,000) (75,000) - (355,000) $1.51 No. of Options at End of Year - 265,000 925,000 1,323,730 2,513,730 $3.01 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 prior financial year. Therefore, the Board had exercised its discretion during the year to extend the expiry date for the remaining options to 30 September 2018. 2. Options associated with an EPS hurdle are not expected to vest on 31 August 2019 as the minimum performance target will not be met. Options associated with a TSR hurdle will vest on 31 August 2019 in accordance with accounting standards. However, because the minimum target was not met, these options will be restricted and unexercisable. Refer to Section 3b) of the audited Remuneration Report for further details. Movement of options during the year ended 30 June 2018: Grant Date Exercise Date Expiry Date 2 Jul 2012 2 Jul 2013 2 Jul 2014 2 Jul 2015 2 Jul 2015 2 Jul 2016 2 Jul 2017 2 Jul 2018 2 Jul 2017 30 Sept 20181 2 Jul 2019 2 Jul 2020 22 Dec 2016 31 Aug 2019 22 Dec 2021 Total Weighted average exercise price Exercise Price $ No. of Options at Beg. of Year 0.92 0.92 1.30 2.67 3.59 40,000 295,000 875,000 1,000,000 1,323,730 3,533,730 Options Exercised or Lapsed (40,000) (220,000) (405,000) - - (665,000) $1.15 No. of Options at End of Year - 75,000 470,000 1,000,000 1,323,730 2,868,730 $2.82 The weighted average fair value of options granted during the year was nil (2018: nil) as there were none issued during the year. The weighted average share price for share options exercised during the period was $3.57 (2018: $3.90). The weighted average remaining contractual life for share options outstanding at the end of the period was 1.68 years (2018: 2.47 years). 64 Hansen Technologies Ltd Annual Report 2019d. Fair value of performance rights granted The fair value of Total Shareholder Return (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 fair value of earnings per share (EPS) performance rights at grant date is independently determined using a conventional Black Scholes Model. Details of the assessed fair value of the performance rights as well as the model inputs for rights granted, during the year ended 30 June 2019 and for the prior year 30 June 2018, are presented below: Grant date Expected vesting date Measurement period Fair value of performance rights granted – EPS rights Fair value of performance rights granted – TSR rights Share price at grant date Expected price volatility of the Company’s shares Expected dividend yield Risk-free interest rate 2019 2 July 2018 2018 2 July 2017 31 August 2021 31 August 2020 1 July 2018 to 30 June 2021 1 July 2017 to 30 June 2020 $2.99 $3.03 $3.15 35% 1.75% 2.06% $3.83 $3.80 $4.04 30% 1.75% 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. e. Expenses arising from share-based payment transactions Options issued under Employee option Plan FY16 Options issued under Employee option Plan FY171 Rights issued under Employee Performance Rights Plan FY18 Rights issued under Employee Performance Rights Plan FY19 Note 8(a) 2019 $’000 - (136,785) 451,844 513,524 828,583 2018 $’000 152,597 525,079 451,844 - 1,129,520 1. Options associated with an EPS hurdle are not expected to vest on 31 August 2019 as the minimum performance target will not be met. Under accounting standards, profit must be adjusted to account for the cumulative value of options expensed that will not vest. 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 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. 65 Hansen Technologies Ltd Annual Report 2019NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 June 2019 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. The Group manages its 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 Group is exposed to a variety of financial risks, principally related to credit, liquidity, interest rate and foreign currency risk. The Group’s risk management framework is aligned with best practices and designed to reduce volatility on our financial performance and to support the delivery of our business objectives. The Board has overall responsibility for identifying and monitoring operational and financial risks. a. Credit risk Nature of risk The risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations. Credit risk arises principally from the Group’s receivables from customers and our investments in debt securities. Exposure to the risk The Group’s maximum exposure to credit risk at balance date is the carrying amount of financial assets, net of any provisions for impairment and excluding the value of any collateral or other security. The gross trade receivables balance at 30 June 2019 was $47,510,000 (2018: $36,741,000). The ageing analysis of trade and other receivables is provided in Note 9. 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. The Group’s exposure to credit risk is affected by the regions and industries our customers operate in. Charts set out below show the concentration of our trade receivables balances by the industry they operate in. At 30 June 2019, the acquisition of Sigma Systems substantially increased our share of customers in the Telecommunications industry compared to the prior financial year: FY19 3% FY18 3% 16% 40% 17% Utilities Telecommunications Pay-TV Other 18% 41% 62% How is the risk managed? Receivables are managed on an ongoing basis. The Group does not have any material credit risk exposure to any single debtor or group of debtors. Ageing analysis and ongoing collectability reviews are performed and, where appropriate, an expected credit loss provision is raised. Historically, the Group has not had any significant write-offs in our trade receivables. The Group 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. 66 Hansen Technologies Ltd Annual Report 2019b. Liquidity risk Nature of risk The risk that the Group will encounter difficulty in meeting its financial obligations as they fall due. Exposure to the risk The table below categorises the Group’s financial liabilities into their relevant contractual maturities. Amounts included represent undiscounted cash flows. Note 18 provides additional details on the Group’s borrowing arrangements. How is the risk managed? The Group’s approach 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 reviews its minimum levels of cash and cash equivalents on an ongoing basis, and closely monitors rolling cash flow forecasts based on its view on the nature and timing of expected receipts and payments. The Group has historically been able to generate and retain strong positive cash flows. Additionally, multi- currency borrowing facilities have been arranged with the Group’s financiers to provide increased capacity for strategic growth objectives. Contractual maturities of financial liabilities: Contractual Cash Flows $’000 Less Than 6 Months 6-12 Months 1-2 Years 2-3 Years 21,195 - 92 - 21,287 16,492 55 - 16,547 - 134 - - 134 - 57 - 57 - - - - - - 90 27,031 27,121 - - - 186,327 186,327 - - - - Note 13 18 18, 22 18 13 18, 22 18 Total Carrying Amount 21,195 134 92 186,327 207,748 16,492 202 27,031 43,725 Financial Liabilities 2019 Trade and other payables Bank overdraft Lease liabilities Secured borrowings 2018 Trade and other payables Lease liabilities Secured borrowings c. Interest rate risk Nature of risk The risk that the fair value or the future cash flows of a financial instrument will fluctuate as a result of changes in market interest rates. Exposure to the riskw The Group’s main exposure to interest rate risk arises from its borrowings and cash and cash equivalents. No other financial assets or liabilities are expected to be exposed to interest rate risk. The weighted average variable interest rate across all our borrowings at 30 June 2019 is 4.52% (2018: 2.51%). If the interest rate were to increase or decrease by 1%, with all other variables held constant, the impact to pre-tax profit is $354,000 (2018: $408,000) and the impact to post-tax equity1 is $251,000 (2018: $285,000). This impact is based on a lower level of borrowings and lower average interest rates during most of this financial year compared to the prior year, notwithstanding the significantly higher debt since 1 May 2019 that will increase our interest rate risk exposure for FY20. 1. For FY19, this is calculated net of the blended effective tax rate on pre-tax profit based on where the interest bearing debt is located (i.e. Australia and Canada) and the prevailing corporate tax rate in each of those jurisdictions (i.e. 30% and 26.5% respectively). For FY18, this is 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. How is the risk managed? The Group ensures it has access to diverse sources of funding, including access to foreign currency debt. The Group closely monitors its debt ratios to reduce its risk exposure to uncertainty in the global markets if interest rates will fall or rise. Management is comfortable with the risk associated with using variable interest rates due to the current level of borrowings. 67 Hansen Technologies Ltd Annual Report 2019NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 June 2019 17. FINANCIAL RISK MANAGEMENT continued d. Foreign currency risk Nature of risk Exposure to the risk How is the risk managed? The risk that the fair value or future cash flows of a financial instrument or forecasted transaction will fluctuate because of changes in foreign exchange rates. The Group operates internationally and as such has exposure to foreign currency movements. The Group has expanded its international operations substantially in recent years to the extent that in excess of 78% of its revenue is now earned in foreign currency designated transactions. The Group has a number of offices located internationally and more than 82% of its work force is located overseas and paid in foreign currencies. Changes in foreign currency exchange rates would be limited to the revaluation of foreign currency denominated borrowings, intercompany financing arrangements denominated in foreign currencies, and foreign currency bank balances in the Group at market rates at balance sheet date. The Group’s primary foreign currency exposure is to the movement in US Dollar (USD), British Pound (GBP) and Canadian Dollar (CAD) exchange rates. At the reporting date, cash and cash equivalents included $34.3 million (2018: $18.7 million) denominated in foreign currencies. If the foreign currency exchange rate for our primary foreign currencies (being USD, GBP and CAD) were to move by 10%, with all other variables held constant, the impact to our foreign currency translation reserves (classified as equity in the statement of financial position) on translation of our foreign currency-denominated cash and cash equivalents is as follows: USD 2019 1,141 (1,141) 2018 639 (639) Increase/(decrease) $’000 GBP 2019 339 (339) 2018 379 (379) CAD 2019 78 (78) 2018 - - +10% -10% The Group’s exposure to foreign currency changes for all other currencies and other financial statement items is not material, as the Group has natural hedging and designated hedging relationships in place (refer to 'How is the risk managed?' for further discussion). The Group manages its foreign currency risk by evaluating its exposure to fluctuations on an ongoing basis. The Group’s overseas subsidiaries transact in different functional currencies. The effects of any exchange rate movements in respect to the net assets of our foreign subsidiaries are recognised in the foreign currency translation reserve in equity. Accordingly, the Group has an in-built natural hedge against major currency fluctuations and, except for 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 foreign currency borrowings as part of the syndicated facility agreement as disclosed in Note 18, which have been designated as hedging instruments of the net assets of some of the Group’s principal overseas subsidiaries in order to offset our risk exposure arising from the translation of these subsidiaries into Australian dollars. There is no impact to the profit or loss on the translation of the Group’s overseas subsidiaries or foreign currency borrowings to the Australian dollar. The Group’s subsidiaries also enter into various financing and transactional arrangements with each other in accordance with local regulatory requirements. The Group regularly reviews these arrangements to minimise its exposure on the translation of outstanding foreign currency-denominated intercompany balances to the Australian dollar, which impact profit. 68 Hansen Technologies Ltd Annual Report 2019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. e. 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 2019 and 30 June 2018, there are no assets or liabilities carried at fair value on a recurring basis. 18. BORROWINGS Current Secured Lease liability Bank overdraft Non-current Secured Term facility – gross borrowings Term facility – prepaid borrowing costs Lease liability The lease liability relates to IT equipment due for repayment in full by January 2020. a. Loan facilities Loan facility Amount utilised Unused loan facility Note 22 22 2019 $’000 2018 $’000 92 134 226 112 - 112 189,543 (3,216) - 27,031 - 90 186,327 27,121 2019 $’000 225,000 (189,543) 35,457 2018 $’000 105,000 (27,031) 77,969 On 1 May 2019, the Company entered into a secured A$225,000,000 syndicated multi-currency facility with its external financiers to fund the acquisition of Sigma Systems (refer Note 24) and to provide additional funding for general corporate and working capital purposes. This facility expires on 30 April 2022 and will be subject to renewal upon negotiation with its external financiers. This facility replaces the Company’s previous multi-currency facility of A$105,000,000. The facility is secured by 75% of Group assets. As at 30 June 2019, the remaining unutilised portion of the facility is A$35,457,000. 69 Hansen Technologies Ltd Annual Report 2019NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 June 2019 18. BORROWINGS continued b. Changes in liabilities arising from financing activities Opening balance at 1 July Cash flows from financing activities Net proceeds from/(repayment of) borrowings Cash flows from non-financing activities Acquisition of subsidiary’s borrowings1 Prepaid borrowing costs Draw-down of overdraft facility Non-cash changes Effect of foreign exchange Closing balance at 30 June2 2019 $’000 27,233 2018 $’000 291 160,833 (4,503) - (3,216) 134 1,569 186,553 29,703 - - 1,742 27,233 1. This was repaid in full during the previous financial year. The repayment is included in the net repayment of borrowings amount. 2. Represents long-term facility borrowings of $186,327,000 (2018: $27,031,000), bank overdraft facility of $134,000 (2018: nil) and finance lease liabilities of $92,000 (2018: $202,000). c. Hedge of net investments in foreign operations Included in borrowings at 30 June 2019 are two borrowings of US$12,000,000 and GBP £13,000,000 drawn down as part of the A$225,000,000 syndicated multi-currency facility. 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$105,000,000 multi-currency facility. Both these foreign-currency denominated borrowings have been designated as a hedge of the net investments in the Group’s subsidiaries in the United States and the United Kingdom. The borrowings are being used to hedge the Group’s exposure to the US$ 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. As a result of the Group replacing its previous facility with the new syndicated facility, the Group reset the hedging relationship for its foreign-currency denominated borrowings. The effects of the foreign-currency related hedging instruments on the Group’s financial position and performance are as follows: Previous $105m Debt Facility ‘000 $225m Syndicated Debt Facility ‘000 USD Loan GBP Loan USD Loan GBP Loan Total Carrying amount of the loan – 30 June 2019 (AUD) Carrying amount of the loan – 30 June 2019 (nominated currency) Hedge ratio1 Change in the carrying amount of loan as a result of foreign currency movements since 1 July 2018, recognised in OCI ($) Change in the value of the hedged item used to determine hedge effectiveness ($) Average hedged rate for the year (local currency:1 AUD) 17,073 23,542 40,615 - - 1:1 (11) 11 - - 1:1 435 (435) 12,000 1:1 13,000 1:1 (161) 161 (305) 305 0.742 0.552 0.695 0.548 (43) 43 40,615 1. The draw-down loans under the previous $105 million and current syndicated $225 million debt facilities are denominated in the same currency and critical terms as the value of the net investment in the foreign subsidiaries that are being hedged. Therefore, the hedge ratio this year is 1:1 (2018: 1:1). 70 Hansen Technologies Ltd Annual Report 2019For the current syndicated debt facility, there were no repayments made to 30 June 2019. Therefore, the nominal amount of the hedging instrument equals its carrying amount at 30 June 2019. The impact to the foreign currency translation reserve on translation of the Group’s net investment in foreign subsidiaries that are being hedged by the Group’s borrowings was $43,000 (2018: $934,000). Borrowing repayments made during the year have significantly reduced the translation impact compared to the prior year. The hedging gain recognised in OCI before tax is equal to the change in fair value used for measuring effectiveness. There is no ineffectiveness in the years ended 30 June 2019 and 2018. 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. 19. CONTRIBUTED CAPITAL a. Issued and paid up capital Ordinary shares, fully paid 2019 $’000 2018 $’000 138,746 136,896 The ordinary shares have no par value in accordance with the Corporations Act 2001. b. Movements in shares on issue 2019 No. of Shares 2019 $’000 2018 No. of Shares Balance at beginning of the financial year 196,648,230 136,896 181,960,344 Shares issued under the dividend reinvestment program Shares issued under the Employee Share Plan Options exercised under the Executive LTI Plan Shares issued from institutional placement Share purchase plan offer 350,863 45,560 355,000 - - 1,145 170 535 - - 373,802 42,480 665,000 10,810,810 2,795,794 Balance at end of the financial year 197,399,653 138,746 196,648,230 2018 $’000 85,350 1,370 180 766 38,959 10,271 136,896 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. 71 Hansen Technologies Ltd Annual Report 2019NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 June 2019 20. DIVIDENDS A regular dividend of 3 cents per share has been declared. This final dividend of 3 cents per share, partially franked to 2.6 cents per share, was announced to the market on 23 August 2019. The amount declared has not been recognised as a liability in the accounts of Hansen Technologies Ltd as at 30 June 2019. Dividends paid during the year (net of dividend re-investment) 4 cent per share final dividend paid 27 September 2018 – fully franked1 3 cent per share final dividend paid 30 September 2017 – fully franked 3 cent per share interim dividend paid 29 March 2019 – fully franked 3 cent per share interim dividend paid 29 March 2018 – fully franked 2019 $’000 7,319 5,318 12,637 2018 $’000 5,175 5,217 10,392 Proposed dividend not recognised at the end of the year 5,922 7,865 Dividends franking account 30% franking credits, on a tax paid basis, are available to shareholders of Hansen Technologies Ltd for subsequent financial years 1,586 3,125 1. The final dividend paid of 4 cents per share, franked to 4 cents, comprised of an ordinary 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: • franking credits that will arise from the payment of any current tax liability; • franking debits that will arise from the payment of any dividends recognised as a liability at year end; • franking credits that will arise from the receipt of any dividends recognised as receivables at year end; and • franking credits that the entity may be prevented from distributing in subsequent years. 21. RESERVES AND RETAINED EARNINGS Foreign currency translation reserve Share-based payments reserve Retained earnings Note 21(a) 21(b) 21(c) 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 Net gain/(loss) on hedges of a net investment Exchange differences on translation of foreign operations Balance at end of year Note 18(c) 2019 $’000 23,340 3,931 82,853 2019 $’000 16,739 43 6,558 23,340 2018 $’000 16,739 3,102 73,186 2018 $’000 8,196 (934) 9,477 16,739 72 Hansen Technologies Ltd Annual Report 2019b. Share-based payments reserve This reserve is used to record the fair value of options and performance rights issued to employees as part of their remuneration. Movements in reserve Balance at beginning of year Share-based payments expensed during the year Balance at end of year c. Retained earnings Movements in retained earnings Balance at beginning of year Effect of adoption of new accounting standards Dividends declared during the year (before dividend re-investment) Net profit attributable to members of Hansen Technologies Ltd Balance at end of year 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) 2019 $’000 3,102 829 3,931 2019 $’000 73,186 1,984 (13,782) 21,465 82,853 2019 $’000 6,977 18,061 1,420 26,458 95 - 95 (3) 92 92 - 92 2018 $’000 1,972 1130 3,102 2018 $’000 56,098 - (11,762) 28,850 73,186 2018 $’000 5,451 13,228 1,163 19,842 121 92 213 (11) 202 112 90 202 Note 3(a)(i) Note 18 18 The Group leases property, vehicles and 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 less than a year. 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 2019 nor at 30 June 2018. 73 Hansen Technologies Ltd Annual Report 2019NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 June 2019 22. COMMITMENTS AND CONTINGENCIES continued 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 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. 74 Hansen Technologies Ltd Annual Report 2019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 Presented below are the summary financial statements of the parent Company, Hansen Technologies Limited: 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 2019 $’000 2018 $’000 1,028 243,841 244,869 2,350 77,796 80,146 740 175,748 176,488 1,532 27,065 28,597 164,723 147,891 138,746 22,962 3,931 (916) 136,894 9,175 2,812 (990) 164,723 147,891 Parent Entity 2019 $’000 27,464 27,538 2018 $’000 12,753 11,763 Dividends of $29,000,000 (2018: $14,000,000) were paid from Hansen Corporation Pty Limited to Hansen Technologies Limited during the financial year. c. Parent entity guarantees Hansen Technologies Limited, being the parent entity, has entered into a syndicated debt facility (refer Note 18) of which Hansen Corporation Pty Limited and other subsidiaries of the Company are joint guarantors to that facility agreement. 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 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. 75 Hansen Technologies Ltd Annual Report 2019NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 June 2019 24. BUSINESS COMBINATIONS Acquisition of Sigma Systems On 1 June 2019, the Company’s subsidiary, Hansen Technologies Canada Inc., acquired 100% of the partnership units of Sigma Systems GP and the shares of Sigma Systems Canada Inc., both of which wholly own and control the partnership units of Sigma Systems LP and its controlled entities (collectively known as ‘Sigma’). Sigma is a leading global provider of catalogue-driven software products for telecommunications, media and technology companies. Sigma is based in Toronto, Canada, but has customers operating across all regions of the world. The acquisition significantly expands the Group’s scale and scope in the telecommunications sector, builds on the Group’s global presence and provides opportunities for cross-selling products into the Group’s existing market verticals. Details of the purchase consideration Cash paid Total purchase consideration $’000 163,830 163,830 As at 30 June 2019, the fair values of the identifiable assets and liabilities acquired as at the date of acquisition are still provisional in light of the timing of the transaction. The acquisition accounting will be finalised within 12 months of the acquisition date, in line with accounting standards. Provisional identifiable net assets and liabilities acquired are detailed below: Assets acquired: Receivables Accrued revenue Prepayments and other current assets Plant and equipment Current tax receivable Total assets acquired Liabilities acquired: Payables Accruals and provisions Unearned revenue Deferred tax liability Total liabilities acquired Net identifiable assets acquired Add: Customer contracts Technology Brand name Deferred tax liability Goodwill arising on acquisition Total purchase consideration, net of cash acquired Provisional Fair Value $’000 13,163 19,137 5,294 970 741 39,305 2,377 3,121 7,516 2,057 15,071 24,234 65,898 17,727 9,563 (24,693) 66,662 159,391 Goodwill arose on the acquisition of Sigma 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, trade names and technology. The value of goodwill represents the strong positioning of Sigma in the telecommunications market, and includes the future benefit arising from the expected future earnings, synergies with the Group’s products and operations and personnel assumed via the acquisition. None of the goodwill is expected to be deductible for tax purposes. The fair value of trade receivables approximates the gross contractual amount of trade receivables, due to the short-term nature and maturity of the trade receivables. 76 Hansen Technologies Ltd Annual Report 2019Transaction costs Transaction costs of $2,063,000 were incurred in relation to the acquisition. These costs are identified as a separately disclosed item for this year’s results. Refer to Note 4 for further information. Contribution since acquisition Since the acquisition date of 1 June 2019, Sigma has contributed total revenue of $4,968,000 and a loss before tax of $1,073,000, which is included within the Group’s consolidated results. However, it is important to note that viewing this single month’s performance in isolation is not reflective of the ongoing performance of the acquired business. Deferred remuneration Separate to the business combination in accordance with accounting standards, an additional $2,235,000 has been paid and held in escrow as deferred remuneration for certain executives of Sigma. Release of the amounts from escrow are contingent on continuous employment with the combined Group. This is included as part of 'Other non-current assets' in the Group’s consolidated statement of financial position as the deferred remuneration is not expected to be realised within 12 months of the balance sheet date. 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 $’000 163,830 (4,439) 159,391 Business combinations 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. 77 Hansen Technologies Ltd Annual Report 2019NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 June 2019 Section G: Other disclosures This section includes other disclosures not included in the other sections, for example the Group’s auditor’s remuneration, related parties, impact of new accounting standards not yet effective and subsequent events. 25. RELATED PARTY DISCLOSURES a. List of controlled entities The Group’s consolidated financial statements include the financial statements of Hansen Technologies Limited and the controlled entities below: Note Country of Incorporation Ordinary Share Entity Interest 2019 % 2018 % 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 Technologies CIS Finland Oy (fka. Enoro CIS Finland Oy) Hansen Technologies Finland Oy (fka. Enoro Oy) PEP Finland Oy Enercube Oy Finland Filial Hansen Customer Support India Private Limited Enoro B.V. Hansen New Zealand Limited Hansen Technologies Holdings AS (fka. Enoro Holding AS) Hansen Technologies Norway AS (fka. Enoro AS) Australia Australia Australia Australia Australia China Denmark Finland Finland Finland Finland India Netherlands New Zealand Norway Norway Hantech Singapore Pte Limited 1 Singapore Hansen Technologies Sweden AB (fka. Enoro AB) Enoro AG 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 Hansen Technologies Canada, Inc. Sigma Systems Canada Inc. Sigma Systems Canada LP 78 Sweden Switzerland United Kingdom United Kingdom United Kingdom United States United States United States United States United States 2 Vietnam Canada Canada Canada 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 - - - Hansen Technologies Ltd Annual Report 2019Name Subsidiaries of Hansen Technologies Limited Sigma Canada Holdings Inc. Sigma Systems GP Inc. Sigma OSS Systems India Private Limited Sigma Systems Japan K.K. Sigma Systems (U.K.) Limited Sigma Systems (Wales) Limited Sigma Systems Group (USA) Inc. Note Country of Incorporation Canada Canada India Japan United Kingdom United Kingdom United States Ordinary Share Entity Interest 2019 % 100 100 100 100 100 100 100 2018 % - - - - - - - 1. Notice has been provided on 30 April 2019 to voluntarily deregister and liquidate Hantech Singapore Pte Limited. At 30 June 2019, this company has not yet been formally liquidated; however, it is expected that the liquidation process will be completed after 30 June 2019. 2. Established and registered on 17 April 2019 as a wholly-owned subsidiary of the Group. 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 2019 $’000 2018 $’000 1,633,450 1,373,421 79 Hansen Technologies Ltd Annual Report 2019NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 June 2019 26. AUDITOR’S REMUNERATION The auditor of the Group for the year ended 30 June 2019 is RSM Australia 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 2019 $ 2018 $ 279,000 303,430 - - - - - - Total remuneration of RSM Australia Partners 279,000 303,430 (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 365,023 202,317 52,349 14,709 67,058 13,493 3,034 16,527 432,081 218,844 - - - - - 711,081 284,148 - 8,302 8,302 292,450 814,724 80 Hansen Technologies Ltd Annual Report 2019 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. 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’. a. Consolidated statement of comprehensive income Set out below is a consolidated statement of comprehensive income for the year ended 30 June 2019 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 Other comprehensive income/(expense) Items that may be reclassified subsequently to profit and loss Net gain/(loss) on hedges of net investments Other comprehensive income/(expense) for the year 2019 $’000 49,380 17,951 67,331 2018 $’000 48,734 19,354 68,088 (27,429) (27,374) (1,219) (2,691) (2,698) (142) (1,216) (3,916) (1,187) (618) (370) (1,677) (2,608) (45,771) 21,560 (3,631) 17,929 (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 63 63 (1,015) (1,015) Total comprehensive income for the year 17,992 19,780 81 Hansen Technologies Ltd Annual Report 2019NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 June 2019 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 2019 of the Closed Group: Current assets Cash and cash equivalents Receivables Accrued revenue 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 Equity Share capital Reserves Retained earnings Total equity c. Summary of movements in consolidated retained earnings of the Closed Group Retained earnings at the beginning of the year Profit for the year Dividends declared Retained earnings at the end of the year Note 27(a) 21(c) 82 2019 $’000 5,371 7,913 1,956 1,154 2018 $’000 4,577 6,659 966 1,857 16,394 14,059 2,858 23,871 221,904 2,968 253,377 269,771 6,401 130 6,067 4,469 3,371 22,503 180,623 2,953 209,450 223,509 3,809 73 5,739 6,158 17,067 15,779 3,011 77,399 2,377 189 82,976 100,043 169,728 138,746 (498) 31,480 169,728 2019 $’000 27,333 17,929 (13,782) 31,480 2,555 27,031 15,131 173 44,890 60,669 162,840 136,895 (1,388) 27,333 162,840 2018 $’000 21,055 20,795 (14,517) 27,333 Hansen Technologies Ltd Annual Report 201928. NEW AND AMENDED ACCOUNTING STANDARDS AND INTERPRETATIONS a. Adoption of new and amended accounting standards that are first operative at 30 June 2019 The Group has adopted the following new and amended accounting standards, applicable and effective for the financial year beginning 1 July 2018: • AASB 9 Financial Instruments • AASB 15 Revenue from Contracts with Customers • AASB 2016-5 Classification and Measurement of Share-based Payment Transactions • AASB 2017-1 Annual Improvements 2014-2016 Cycle and Other Amendments • AASB Interpretation 22 Foreign Currency Transactions and Advance Consideration Note 3(a) discloses and describes the impact from the adoption of AASB 15. As previously disclosed in the Group’s 30 June 2018 Financial Report, there were no material impacts arising from the Group’s adoption of AASB 9. The Group’s significant accounting policies and disclosures have been updated to reflect changes arising from the application of AASB 9. Other amendments did 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 2019 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 16 Leases The new leases standard replaces AASB 117 and Interpretation 4 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 As at 30 June 2019, the Group has non-cancellable operating lease commitments of $26.6 million (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. The Group has identified a number of leases that are expected to be impacted by AASB 16. These are predominantly our long-term non-cancellable property leases for our office buildings, but also include several equipment rental and IT service arrangements, some of which did not previously qualify as a lease under AASB 117 and Interpretation 4. Work to date has focused on reviewing these contracts 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 lease standard across the Group. The Group anticipates that some of our lease arrangements will be covered by the short-term lease exemption, as well as the low-value lease exemption. The Group will first apply AASB 16 on 1 July 2019 and will first report under the new standard for the 30 June 2020 financial year. 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 2019, with no restatement of comparative information. The Group will adopt the various practical expedients available on transition, one of which is to grandfather existing lease classifications to the new lease standard and recognise a right-of-use asset equal to the lease liability at 1 July 2019. As a result of the Group’s assessment to date, considering the various practical expedients available on transition, the Group’s current estimate is that: • Total assets and total liabilities will increase by approximately $27 million to $28 million, representing the present value of lease payments over the non-cancellable lease term, as well as any estimates the Group has applied over the likelihood of exercise of renewal options and early termination options. • Reported net profit before tax will decrease by approximately $0.5 million for the first year, representing a reduction in operating rental expense, partially offset by increases to interest expense on the lease liability and depreciation of the right-of-use asset. However, over the life of the lease term, there will not be a material impact to net profit before tax. There will also be a change to the presentation of cash flows, where it is expected there will be a corresponding increase to our operating cash flows, offset partially by a decrease to our financing cash flows. 83 Hansen Technologies Ltd Annual Report 2019NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 June 2019 28. NEW AND AMENDED ACCOUNTING STANDARDS AND INTERPRETATIONS continued (ii) 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, its impact will not be material. The Group will first apply AASB Interpretation 23 on 1 July 2019. (iii) AASB 2018-6 Amendments to Australian Accounting Standards: Definition of a Business This amendment amends the definition of a business in AASB 3 Business Combinations. The amendments clarify the minimum requirements for a business, remove the assessment of whether market participants are capable of replacing missing elements, add guidance to help entities assess whether an acquired process is substantive, narrow the definitions of a business and of outputs, and introduce an optional fair value concentration test. Group’s assessment performed to date The Group notes that it is not required to revisit business combinations that occurred in prior periods to determine whether these satisfy the new definition of a business. Accordingly, the Group does not believe that its impact will be material. The Group will first apply the revised definition of a business in AASB 3 on 1 July 2020. (iv) Amendments to the Conceptual Framework The IASB has issued amendments to the Conceptual Framework 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 AASB is currently working through the application issues for Australian entities, specifically the implications of the revised Conceptual Framework on the Australian-specific reporting entity concept. However, initial application is planned for publicly accountable for-profit entities with annual periods commencing after 1 January 2020, in line with the IASB’s effective date. Group’s assessment performed to date The Group has not commenced assessment of the impact of the amendments to the Conceptual Framework. A preliminary assessment will be performed before the proposed effective date of 1 July 2020 for the Group. (v) 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 26 September 2019. There has been no other matter or circumstance, that has arisen since 30 June 2019 that has significantly affected or may significantly affect: (i) the operations, in financial years subsequent to 30 June 2019, of the Group; or (ii) the results of those operations; or (iii) the state of affairs, in financial years subsequent to 30 June 2019, of the Group. 84 Hansen Technologies Ltd Annual Report 2019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 2019 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 2019. This declaration is made in accordance with a resolution of the Directors. David Trude Director Melbourne 23 August 2019 Andrew Hansen Director 85 Hansen Technologies Ltd Annual Report 2019 INDEPENDENT AUDITOR’S REPORT To the Members of Hansen Technologies Ltd 86 Hansen Technologies Ltd Annual Report 201987 Hansen Technologies Ltd Annual Report 2019INDEPENDENT AUDITOR’S REPORT CONTINUED To the Members of Hansen Technologies Ltd 88 Hansen Technologies Ltd Annual Report 201989 Hansen Technologies Ltd Annual Report 2019AUSTRALIAN SECURITIES EXCHANGE (ASX) SHAREHOLDER INFORMATION The shareholder information set out below was applicable as at 24 September 2019, disclosed pursuant to ASX official listing requirements. Distribution of shares The following table summarises the distribution of our listed shares as at 24 September 2019: Size of Holding (Range) 100,001 and over 10,001 to 100,000 5,001 to 10,000 1,001 to 5,000 1 to 1,000 Total Number of Holders Number of Shares Held % of Issued Capital 63 143,686,816 1,390 1,381 3,499 2,529 8,862 33,317,985 10,149,756 9,265,889 1,244,207 197,664,653 100.00 72.69 16.86 5.13 4.69 0.63 The number of shareholders holding less than a marketable parcel of ordinary shares is 435 holding 21,025 shares (as at the closing market price on 24 September 2019). Twenty largest shareholders The following table sets out the top 20 holders of our shares: Rank Name of Shareholder 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED OTHONNA PTY LTD J P MORGAN NOMINEES AUSTRALIA PTY LIMITED CITICORP NOMINEES PTY LIMITED NATIONAL NOMINEES LIMITED CITICORP NOMINEES PTY LIMITED MR CAMERON HUNTER MR JAMES LUCAS & MS LESLEY DORMER BNP PARIBAS NOMINEES PTY LTD HUB24 CUSTODIAL SERV LTD DRP BNP PARIBAS NOMS PTY LTD SIX OF US PTY LTD BNP PARIBAS NOMINEES PTY LTD SCOTT WEIR MR DAVID JOHN OSBORNE & MRS LEONE CATHERINE OSBORNE LAYUTI PTY LTD NAVIGATOR AUSTRALIA LTD WILGAMERE INVESTMENTS PTY LTD DECARATS PTY LTD NULIS NOMINEES (AUSTRALIA) LIMITED ECAPITAL NOMINEES PTY LIMITED Total Total other investors Grand total 90 Number of Shares Held % of Issued Capital 61,956,097 34,739,113 23,154,614 5,839,644 2,260,227 1,306,000 1,103,691 800,940 746,361 688,782 546,953 533,878 463,341 386,335 377,418 355,073 307,743 300,000 296,612 287,661 136,450,483 61,214,170 197,664,653 31.34 17.57 11.71 2.95 1.14 0.66 0.56 0.41 0.38 0.35 0.28 0.27 0.23 0.20 0.19 0.18 0.16 0.15 0.15 0.15 69.03 30.97 100.00 Hansen Technologies Ltd Annual Report 2019Substantial shareholdings The following table shows holdings of 5% of more of voting rights in the Company’s shares as notified to the Company under the Corporations Act 2001 as at 24 September 2019: Holder Mr David Osborne* Mr Andrew Hansen* Mr Bruce Adams* Fidelity Management & Research Mawer Investment Management Number of Shares Held % of Total Voting Rights 35,125,448 34,963,449 34,891,417 17,786,704 14,874,122 17.77 17.69 17.65 9.00 7.52 * Each of these named persons has a joint interest in a single parcel of 34,739,113 shares as at the date of this report. For further details, please refer to the substantial shareholding notices lodged with the ASX dated 16 August 2019. Voting rights Refer to Note 19(c) 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 15 30 Number of Securities 2,248,730 885,968 91 Hansen Technologies Ltd Annual Report 2019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 2019H a n s e n T e c h n o l o g i e s L t d A n n u a l R e p o r t 2 0 1 9 

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