Hansen Technologies Limited
Annual Report 2020

Plain-text annual report

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 2 0 THE ABILITY TO ENABLE THE FUTURE. Annual Report 2020 CONTENTS 04 Chairperson and Chief Executive Officer Joint Report 39 Consolidated Statement of Changes in Equity 08 Board of Directors and Company Secretary 40 Consolidated Statement of Cash Flows 10 Directors’ Report 16 35 Remuneration Report Auditor’s Independence Declaration 36 Financial Report 41 Notes to the Financial Statements 94 Directors’ Declaration 95 Independent Auditor’s Report 101 Australian Securities Exchange (ASX) Shareholder Information 37 Consolidated Statement of Comprehensive Income 103 Corporate Directory 38 Consolidated Statement of Financial Position Espoo Stockholm Kista Trondheim Førde Dale Sønderborg London Cwmbran Rotterdam Hamburg Zürich Toronto New York New York Bethlehem Hazleton Bethlehem Columbia Atlanta Columbia Houston Houston Jyväskylä Kuopio Lillehammer Hamar Oslo Pune Carlsbad Carlsbad Tokyo Shanghai Hong Kong Hyderabad Ho Chi Minh City Jakarta São Paulo Buenos Aires Buenos Aires Johannesburg Melbourne Auckland Notice of Annual General Meeting of the Company to be held on Thursday 26th November 2020 at 11am, via a video conferencing facility. Hansen Technologies Ltd Annual Report 2020 TURNING TODAY’S ENERGY AND COMMUNICATIONS INTO TOMORROW’S NEXT DIGITALLY DRIVEN EXPERIENCE COMPANIES. USING OUR 1,365+ STAFF SPREAD ACROSS 36 OFFICES TO SUPPORT OUR CUSTOMERS. Espoo Stockholm Kista Trondheim Førde Dale Sønderborg London Cwmbran Rotterdam Hamburg Zürich Jyväskylä Kuopio Lillehammer Hamar Oslo Carlsbad Carlsbad Pune Tokyo Shanghai Hong Kong Hyderabad Ho Chi Minh City Jakarta São Paulo Buenos Aires Buenos Aires Johannesburg Operations Customers Served Offices Regions Melbourne Auckland 01 Toronto New York Bethlehem New York Hazleton Bethlehem Columbia Atlanta Columbia Houston Houston Hansen Technologies Ltd Annual Report 2020GAS, ELECTRICITY AND WATER Regionally entrenched and global challenger to SAP and Oracle. $178.8m Revenue 02 Hansen Technologies Ltd Annual Report 2020COMMUNICATIONS Agile innovation and quick to market. $117.3m Revenue 03 Hansen Technologies Ltd Annual Report 2020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 2020 (FY20). It is with great pleasure that we share the Hansen results with our shareholders for FY20. As we reflect on the 2020 financial year, we would like to thank our employees who have remained committed and dedicated to making Hansen the best company it can be for its customers and its shareholders. The Hansen Team has once again risen to the challenges and delivered a great result. When assessing the Company’s success, we look at several factors. These include: The Hansen Mission To further grow our best in class core business through aggregating mature, entrenched and predicable businesses in the Energy and Communications sectors. Our Strategy • To continue to diversify and grow our business over the long-term through aggregation accelerating new market entry be it geographic, vertical or by further customer diversification; • To continue to leverage our global experience. • To continue to evolve our product offering ensuring our customers’ technical journey is on point and cost-effective. Our acquisition of the Sigma Group has delivered strongly into our strategy and provides the Company with further product innovation. The integration of the Sigma Group has been completed during the period and the Company’s global reach has been further enhanced. We also continue to expect further incremental margin improvement over the next few years from the continued improvement in companies recently aggregated into the Hansen family, including Sigma. While revenues have grown, and margins have improved since initial integration, there remains significant opportunity to generate further increased revenue and profitability from these businesses. Hansen has had great success this year welcoming 20 new customers to the Hansen family. These customers have committed more than $70m of revenue over their initial contract term. These wins have been across both the Energy and Communications verticals. These new customers add to the core that is Hansen. CREATE. DELIVER. ENGAGE. DIFFERENTLY. 04 Hansen Technologies Ltd Annual Report 2020Hansen’s ability to win these new customers in today’s competitive environment underscores the strength of our product offering and the relevance of this offering in the marketplace. Revenue growth across the year was also driven by our existing customer base, with many successful upgrades and projects completed throughout the year. The second half of the year has been delivered against the backdrop of a global pandemic. We are pleased to report that the Hansen business transitioned quickly to a remote working environment where our customers continued to receive the customary high levels of support Hansen is renowned for. Delivering remotely is something we have experience in and the adoption of these methodologies across the Company has resulted in no deterioration in productivity. In fact, we have been able to reduce our cost base and we will take these learnings into our future to further improve our margin. At Hansen we are fortunate that in servicing the Energy and Communications sectors, our business is aligned with essential services across the world. This generates a stable business environment in these uncertain times. Energy and Communications are two industries that are rapidly transforming from delivering ‘just essentials’ to delivering energy and connected experiences. These things are the foundation of our next society. We align ourselves with our clients and provide proven products and the right customer mindset. These industry segments continue to expand their offering to their customers. Energy customers are looking to consume energy responsibly while reducing their environmental footprint, creating complexity as they look to avail themselves of green energy options and other related services. The offerings available through our communications providers continue to expand with the introduction of new technology, most recently 5G, supported by a customer base demanding the ability to consume information in a mobile environment. Hansen is well placed to continue to support its customers and provide a positive customer experience as they service end-user needs. Company Highlights $301.4m Operating revenue $80.7 Reported EBITDA 05 Hansen Technologies Ltd Annual Report 2020CHAIRPERSON AND CHIEF EXECUTIVE OFFICER JOINT REPORT CONTINUED Financials The Group revenues increased by 30.3% up to $301.4m with underlying EBITDA for the year up 39.8% to $78.0m. The integration of the Sigma business together with a rationalisation of the Company’s cost base driven by the global pandemic has generated an improved underlying EBITDA margin for the full year of 25.9%. This strong profit performance is further underpinned by the Company’s ability to generate cash flow from operations, which was $69.6m and free cash flow of $44.2m after adjusting for the repayment of lease liabilities. Hansen’s ability to generate cash in the current environment further underscores the strength it has enabling it to invest in its products and fund acquisitions. This strong financial outcome has enabled us to declare dividends amounting to 10 cents per share this year returning 46% of NPATA to shareholders. The Group’s financial performance this year has been outstanding across all financial metrics. A$ Million Operating revenue Underlying EBITDA excluding AASB 16 impact1, 2, 4, 5 Underlying NPAT4, 5 Underlying NPATA1, 3, 5 Basic EPS based on underlying NPATA (EPSa)(cents)1 FY20 301.4 78.0 29.5 47.4 23.9 FY19 231.3 55.8 24.0 33.7 17.1 Variance % 30.3% 39.8% 22.9% 40.7% 39.8% 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. 2. EBITDA is a non-IFRS term, defined as earnings before interest, tax, depreciation and amortisation and excluding net foreign exchange gains (losses). 3. NPATA is a non-IFRS term, defined as net profit after tax, excluding tax-effected amortisation of acquired intangibles and impact of the adoption of AASB 16 Leases (AASB 16). 4. Underlying EBITDA, underlying NPAT and underlying NPATA exclude separately disclosed items, which represent the restructuring and one-off costs and income during the period. Further details of the separately disclosed items are outlined in Note 4 to the Financial Report. 5. On 1 July 2019, the Group adopted AASB 16 for the first time, resulting in an increase in EBITDA in the current financial year. Further details on the adoption of AASB 16 are described in Note 13 to Financial Report on pages 63 to 67. Operating Revenue ($m) Underlying EBITDA* ($m) 2 3 % C A G R : 5 - y e a r 301.4 230.8 231.3 174.7 149.0 106.3 350 300 250 200 150 100 50 0 100 80 60 40 20 0 2 0 % C A G R : 5 - y e a r 85.7 66.7 63.1 49.7 51.0 34.1 2015 2016 2017 2018 2019 2020 2015 2016 2017 2018 2019 2020 * EBITDA is a non-IFRS term that relates to Earnings before Interest, Tax, Depreciation and Amortisation. The new accounting standard AASB 16 Leases has been applied to FY20 and historical performance has been adjusted to reflect an estimated impact of the adoption of this standard. Non-recurring items have been excluded from each year, where applicable. 06 Hansen Technologies Ltd Annual Report 2020Every day we set out to inspire and challenge today’s energy and communications providers to become tomorrow’s next digitally driven experience companies. Our Future We will continue our successful 20-year history of aggregating mature, entrenched, and predictable businesses. Supported by the highly cash generative nature of our business, we will continue to ‘Hansenise’ these businesses to drive growth and enhance profitability. What becomes imperative for our customers is the ability to transition from basic providers of services to ones that can capitalise on the growing ecosystems and variety of the next experiences that surround the core connectivity and energy services already provided. At the core of our proposition is our ability to evolve together with our customers, providing business solutions through our software products that deliver a competitive advantage. Coupled with the Company’s drive to aggregate strategic business we see a future of sustainable revenue growth and increased shareholder value. Hansen’s ability to continue its investment in its products, provide thought leadership through its global experiences and leverage its extensive industry knowledge puts it at the forefront of the industry. We are confident that our business strategy combined with the strength of our people will ensure the continued success of Hansen, its customers, and its shareholders. Operational Highlights 1. There were significant new logo wins across all regions with the initial contract value totalling $70m. 2. We upgraded several clients in our US Municipality marketplace, cemented our position as the dominant provider of Customer Information Systems (CIS) products in the Nordics and expanded the reach of the Sigma products into new marketplaces in Asia Pacific and EMEA. 3. We have successfully integrated the Sigma Group into the Hansen operations enhancing Sigma’s operating margins in the second half of the financial year. 4. A Hansen ‘Power the Next’ rebranding exercise was completed and rolled out to all jurisdictions. This rebranding represents our value to our customers in helping them reshape how Energy and Communications services are experienced. It represents the ‘next new’ experiences on the horizon that our customers need to deliver and the next experiences that end-customers want to have and consume. 5. Our network of Industry experts is being further supported with over 350 highly skilled resources deployed within our development centres found in Vietnam and India. This investment commenced in 2018 and is now delivering improved margins across the Hansen Group. 6. We have responded immediately to the global pandemic providing a safe and productive workplace for our people, allowing us to continue to serve our customers effectively today and into the future. $47.4m Underlying NPATA 23.9 cents Basic EPS based on underlying NPATA (EPSa)(cents) The Hansen Create-Deliver-Engage Suite is a set of software applications that powers today’s energy, utility, water and communications companies. 07 Hansen Technologies Ltd Annual Report 2020BOARD OF DIRECTORS AND COMPANY SECRETARY The qualifications, experience and special responsibilities of each person who has been a Director of Hansen Technologies Limited at any time during or since the end of the financial year are provided below, together with details of the Company Secretary as at the year end. Mr David Trude Non-Executive Director Chairman since 2011 Director since 2011 Age 72 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 a Non-Executive Director of Chi-X Australia Limited and Non-Executive Director of ASX listed Acorn Capital Investment Fund Limited and MSL Solutions Ltd. Mr Andrew Hansen Managing Director and CEO Managing Director since 2000 Age 60 Andrew has over 40 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. Mr Bruce Adams Non-Executive Director Director since 2000 Member of the Remuneration Committee Age 60 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. Mr Don Rankin Non-Executive Director Appointed on 21 November 2019 Chair of the Audit and Risk Committee Member of the Remuneration Committee Age 68 Don joined the Hansen Technologies Board in 2019. He was one of the founding partners of Pitcher Partners and National Chairman of the Pitcher Partners Association for 11 years. He sits on the board of the Victorian Chamber of Commerce and Industry and was its President for three years. With over 30 years’ experience advising private and family businesses across a broad range of industries, he specialises particularly in assisting clients in the management, growth and evolution of their business. Don sits on a number of Family Board Advisory Committees. 08 Hansen Technologies Ltd Annual Report 2020Mr David Osborne Non-Executive Director Director since 2006 Member of the Audit and Risk Committee Age 71 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. Ms Jennifer Douglas Non-Executive Director Director since 2017 Member of the Remuneration Committee Member of the Audit and Risk Committee Age 54 Jennifer has over 25 years’ experience in the technology and media industries. Jennifer started her career as a lawyer before holding Senior Executive roles at Telstra and Sensis from 1997 to 2016. She has significant experience in driving growth and customer-centred change. 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 GUD Holdings Limited, OptiComm Limited, Essential Energy, 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, technology 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 digital marketing agency). 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. Mr David Howell Non-Executive Director Director since 2018 Member of the Audit and Risk Committee Chair of the Remuneration Committee Age 62 Ms Julia Chand General Counsel and Company Secretary Company Secretary since 2014 Age 50 On 19 December 2019, Ms Sarah Morgan resigned as Director of Hansen Technologies Limited. Sarah joined the Board in 2014 in a non-executive capacity. Sarah was the Chair of the Audit and Risk Committee and a Member of the Remuneration Committee until her resignation. 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. During her time in Hansen Technologies Limited, Sarah was also a Non-Executive Director of Intrepid Group, Whispir Limited, Adslot Limited, Future Generation Global Investment Company Limited, the National Gallery of Victoria Foundation and Nitro Software Limited. 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 2020. 09 Hansen Technologies Ltd Annual Report 2020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 2020, 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 Energy and Communications 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 Underlying EBITDA excluding AASB 16 impact1, 2 Underlying NPAT2 Underlying NPATA1,2 Basic Earnings Per Share (EPS)(cents) Basic EPS based on underlying NPATA (EPSa)(cents)1 2020 A$ Million 301.4 2019 A$ Million 231.3 78.0 29.5 47.4 13.0 23.9 55.8 24.0 33.7 10.9 17.1 Variance % 30.3% 39.8% 22.9% 40.7% 19.3% 39.8% 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 6. 2. On 1 July 2019, the Group adopted AASB 16 for the first time, resulting in an increase in EBITDA in the current financial year. Further details on the adoption of AASB 16 are described in Note 13 to Financial Report on pages 63 to 67. In 2020 the business continued to deliver strong results after the record 2019 year, and EBITDA exceeded the profit guidance provided in August 2019. Further details on the Group’s results are outlined in the Chairperson and Chief Executive Officer Joint Report on page 4. The Group’s revenue for the financial year was higher than the previous corresponding period as a result of the acquisition of Sigma Systems business (Sigma) on 1 June 2019. This acquisition has resulted in the rebalancing of the Group’s market portfolio which, post the acquisition of Enoro in FY18, was initially weighted towards the energy sector. With Sigma’s revenues concentrated in the communications sector, the Group’s revenue portfolio is now rebalanced to ensure greater diversification across multiple industries, regions and clients. Continued investment in Sales and Marketing has increased Hansen’s profile in target markets and further reinforced the Group’s long-term customer relationships. Investment in our global infrastructure and products has continued throughout the period ensuring our business remains scalable and appropriately poised for growth. The Group has generated operating cash flows of $69.6 million, which has been used to retire net external debt of $27.8 million, fund our ongoing product development program, and pay dividends of $10.1 million (net of dividend reinvestments). With the Group’s cash generation capabilities, Hansen is well placed to continue to acquire mature, predictable businesses in the Energy and Communications sectors, expanding its global reach. 10 Hansen Technologies Ltd Annual Report 2020Billing segment The Billing segment represents a major part of the Group’s business operations, delivering $291.6 million of revenue in 2020 (2019: $218.4 million), which translates into a 33.5% increase. Segment profit before tax was $33.2 million in 2020 (2019: $33.1 million), representing a 0.3% increase. Other activities Segment revenues from other activities was $9.7 million in 2020 (2019: $12.9 million), representing a 24.8% decrease for the year. This 24.8% decrease in revenues resulted from an expected reduction in business activity associated with the Customer Care call centre. Segment profit before tax was $0.7 million for 2020 (2019: $1.6 million), representing a 56.3% decrease for the year. 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. Refer to Note 30 in the Financial Report for further information. 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 is 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 create greater demand 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 aggregation opportunities. 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 is essential. To manage the risk of damaging security incidents, we have appropriate data management, security and compliance policies, procedures and practices in place. • Loss of customers: While loss of customers due to market competition is a risk to the business, we manage this risk by ensuring we are focused on meeting our customers’ expectations for system performance and service delivery, and by having a globally diverse customer base across various industry sectors. • Decline in international market conditions: As a business with international operations, we have exposure to currency fluctuations, which we monitor and manage. • Investment opportunities: The Group has an active 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. 11 Hansen Technologies Ltd Annual Report 2020DIRECTORS’ REPORT CONTINUED Outlook and likely developments for FY21 Hansen will continue to pursue its operating strategy of providing billing and related data management solutions to our targeted segments while assessing appropriate aggregation opportunities to enhance shareholder value. Items of specific focus for 2021 include: • investigate and develop cross-selling opportunities into the energy 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 7 cents per share has been declared, partially franked to 0.70 cents per share, comprising a regular dividend of 5 cents per share, together with a special dividend of 2 cents per share. The final dividend was announced to the market on 28 August 2020 with payment to be made on 25 September 2020. The amount declared has not been recognised as a liability in the accounts of the Company as at 30 June 2020. Dividends paid during the year, excluding dividends reinvested as part of the Company’s Dividend Reinvestment Program (DRP): • 3 cents per share partially franked to 1.59 cents interim dividend paid 26 March 2020, totalling $5,211,064; and • 3 cents per share partially franked to 2.60 cents final dividend paid 26 September 2019, totalling $4,903,630. This is consistent with the Board’s capital management policy that balances growth through acquisitions against the payment of dividends. 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 financial year to the KMP as part of their remuneration for the year ended 30 June 2020 are as follows: Grant Date Executives A Hansen C Hunter D Meade G Taylor N Fernando2 Total Number of Rights Granted on 1 Sept 20191 STI - 9,270 9,315 8,927 8,835 LTI 119,969 21,188 21,291 20,405 20,195 Total 119,969 30,458 30,606 29,332 29,030 36,347 203,048 239,395 1. The number of rights granted that will vest is conditional on achievement of targets under the LTI and Deferred STI plan. Refer to the Remuneration Report for further details. 2. Niv Fernando resigned on 31 July 2020. 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. 12 Hansen Technologies Ltd Annual Report 2020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 Number of Options/Rights at Date of Report Instrument Plan Options Options Rights Rights Rights Rights LTI LTI LTI LTI STI LTI Grant Date 2 Jul 2015 2 Jul 2018 2 Apr 20211 22 Dec 2016 31 Aug 20192 22 Dec 2021 2 Jul 2017 2 Jul 2018 31 Aug 20202 31 Aug 20212 1 Sept 2019 30 Jun 2022 1 Sept 2019 30 Jun 2022 - - - - $2.67 $3.59 Nil Nil Nil Nil 885,000 -3 345,4944 480,079 87,218 489,306 1. The original expiry date for this tranche of options was 2 July 2020. However, due to the COVID-19 pandemic’s impact on financial markets, the Board exercised its discretion to extend the expiry date for the remaining options to 2 April 2021. 2. The vesting date for options granted on 22 December 2016, 2 July 2017 and 2 July 2018 is the date on which the Board notified or will notify the executive that the options have vested, after the outcomes for the measurement period have been determined and satisfaction of the performance conditions have been assessed. 3. Options issued on 22 December 2016 did not meet the required performance measurement hurdles for these options to vest and/or be exercisable. 4. Performance rights in relation to the EPSa CAGR measure exceeded the required performance measurement hurdles and will vest on an accelerated basis paying 150% of the entitlement on 31 August 2020. Performance rights associated with the TSR hurdle did not meet the market conditions. 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 1 July 2019 1 June 2020 Total Number of Ordinary Shares Issued Amount Paid Per Share 265,000 40,000 305,000 1.30 2.67 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. 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. 13 Hansen Technologies Ltd Annual Report 2020DIRECTORS’ REPORT CONTINUED 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 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 Morgan1 Mr Don Rankin2 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 16 16 16 6 12 16 16 16 16 16 16 6 12 16 15 16 - - - 3 4 6 6 6 - - - 3 4 6 6 6 - 4 - 3 1 - 4 4 - 4 - 3 1 - 4 4 1. Sarah Morgan resigned on 19 December 2019. 2. Don Rankin was appointed as a Non-Executive Director on 21 November 2019. Four additional Board meetings were held during the financial year to consider impacts of and response to the COVID-19 pandemic. Directors’ interests in shares or options Directors’ relevant interests in shares of the Company or options/rights over shares in the Company as at the date of this report are detailed below: Directors’ Relevant Interests in: Mr David Trude Mr Bruce Adams1,2 Mr Andrew Hansen1 Mr Don Rankin Mr David Osborne1,2 Ms Jennifer Douglas Mr David Howell Ordinary Shares of the Company Options/Rights over Shares in the Company 103,956 34,891,417 34,967,499 25,000 35,125,448 16,000 33,666 - - 385,400 - - - - 1. Each of Mr Bruce Adams, Mr Andrew Hansen and Mr David Osborne 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. 14 Hansen Technologies Ltd Annual Report 2020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 26 to the financial statements. Auditor’s Independence Declaration A copy of the Auditor’s Independence Declaration as required under section 307C of the Corporations Act 2001 in relation to the audit for the financial year is provided with this report. Non-audit services Non-audit services were provided by the auditors of the Group during the year, namely RSM Australia Partners, network firms of RSM and other non-related audit firms as detailed below. The Directors are satisfied that the provision of the non-audit services during the year by the auditors is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The nature and scope of each type of non-audit service provided means that auditor independence was not compromised. Amounts paid and payable to RSM Australia Partners for non-audit services: – taxation services – compliance services Amounts paid and payable to network firms of RSM Australia Partners for non-audit services: – taxation services – compliance services Amounts paid and payable to non-related auditors of Group entities for non-audit services: – taxation services – compliance services 2020 $ 2019 $ - - - 110,275 31,420 141,695 - - - - - - 52,349 14,709 67,058 - - - Total auditor’s remuneration for non-audit services 141,695 67,058 Auditor’s remuneration is disclosed in Note 27 of the Financial Report. 15 Hansen Technologies Ltd Annual Report 2020 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 2020 financial year. The 2020 financial year is a year which can be characterised as unique. With the incidence of COVID-19, unprecedented challenges have faced businesses across the globe. Our Company, as a global service provider, has had to respond to these challenges and the complexities have been substantial. However, it is extremely pleasing that the Company has once again had a very successful year, despite this complexity. With the onset of COVID-19 in the second half of the year, all members of our Global Team have been working remotely to deliver to our customers and shareholders. It is a great credit to the team that this delivery has ensured the Company met its profit performance targets. Based on the Group’s performance, all of our target Short-Term Incentive (STI) cash-component payments were awarded to our KMP against financial and non-financial KPIs set for the year. In line with the recommendations adopted by the Board last year, 25% of the STIs awarded this year will be paid as deferred equity, in the form of rights, with a vesting period of two years. With the end of financial year 2020, the LTI Program implemented on 1st of July 2017 completed its measurement period of three years. I am pleased to report that with the exceptional EPS growth achieved over the measurement period, this measure has qualified for acceleration and will be paid out at a 150% of the entitlement. Unfortunately, the Ranked TSR measurement criteria did not meet the required standard and will not be paid (refer to Performance outcomes against FY18 on page 26). The Board is also conscious that with the world in the grip of a global pandemic, the structure of Executive Remuneration for the coming year at least must focus on finding a balance between cost control and structuring remuneration to ensure we retain the strong Executive Team and create an environment where we can attract the appropriate talent. A greater emphasis on the short term is considered important by the Board to ensure the business manages the immediate impact of the pandemic, whilst being mindful of the longer term to ensure the business is optimally placed for the recovery ahead. To that end, the Board has made the following adjustments to the Remuneration Framework for FY21: • Both Executive Remuneration and Board Fees have been frozen for a period of six months from 1 July 2020, at which time a further assessment will be made. • The Board has suspended the LTI Program for this year and has enhanced the STI Program for the coming year to reward the Executive Team based on the short-term financial performance of the business and key non-financial criteria set by the Chief Executive. Under the current STI framework, 25% of awarded STIs are paid in the form of a deferred equity component. This component will be increased for the coming year to equate to the added value of the LTI, had the LTI been retained. Details of the plan structure is found on pages 31 to 32 of this report. 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 2020Our detailed Remuneration Report (Audited) The Remuneration Report for the year ended 30 June 2020 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 applies 2. Our Remuneration Framework 3. How reward was linked to performance 4. Remuneration details: Executive KMP 5. FY21 Enhanced STI Plan 6. Contractual arrangements with Executive KMP 7. Remuneration details: Non-Executive KMP 8. Share-based remuneration disclosures 9. Other transactions with KMP 1. Persons to whom this report applies The remuneration disclosures in the report cover the following persons who were classified as the Key Management Personnel (KMP) of the Group during the 2020 financial year. KMP’s 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 Don Rankin David Osborne Managing Director and Chief Executive Officer (CEO) Chief Operating Officer Group Head of Delivery Chief Financial Officer Chief Strategy and Commercial Officer2 (resigned on 31 July 2020) Chairperson and Independent Non-Executive Director Non-Executive Director Independent Non-Executive Director Independent Non-Executive Director Independent Non-Executive Director (resigned on 19 December 2019) Independent Non-Executive Director (appointed on 21 November 2019) Non-Executive Director 1. These executives of the Group were classified as KMP during the 2020 financial year and unless stated otherwise were KMP for the entire year. 2. Effective 1 January 2020, Niv Fernando was appointed as CEO of the Utilities Division. 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 2020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 2020, the Remuneration Committee was made up of four Non-Executive Directors: David Howell (Chair of the Remuneration Committee), Jennifer Douglas, Bruce Adams, and Don Rankin, 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 KMP on an annual basis by reference to market conditions and current remuneration practices, with the overall objective of ensuring maximum Company performance and shareholder benefit including from the retention of a quality Board and Executive Team. The Committee also engages professional support as required to ensure remuneration practices remain in step with the market as well as the size and nature of the business. (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. 18 Hansen Technologies Ltd Annual Report 2020(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 21 November 2019, shareholders approved an increase to the Non-Executive Directors’ maximum remuneration payable from $520,000 to $630,000. No increase in fees is sought for this financial year. Non-Executive Directors are excluded from participation in the Company’s equity incentive plans. (iii) Independent advice To support the review of the 2020 Remuneration Framework, the Remuneration Committee has adopted the 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 (FY20 Plan) OBJECTIVE COMPONENT AND FORM ASSESSMENT Attract and retain employees with the skills and experience associated with the role Total Fixed Remuneration (TFR) Cash + non-cash benefits Fixed Market data, individual experience and performance Incentivise and reward achievement of annual performance objectives and business outcomes Align motivations with shareholder interests and creation of long-term value Short-Term Incentives (STI) Long-Term Incentives (LTI) CEO – Cash Other KMP – Cash + deferred performance rights (2 years) Performance rights to shares (3 years) 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 32 for a summary of Executive KMP contracts. 19 Hansen Technologies Ltd Annual Report 2020REMUNERATION REPORT CONTINUED (ii) FY20 Short-Term Incentive (STI) Plan Objective How is it paid? To incentivise and align the rewards attainable by Executive KMP with the achievement of specific annual objectives of the Group and the creation of shareholder value. For the CEO, all incentives will be paid in cash. For all other KMP, 75% of the incentives will be paid through annual cash entitlement on achievement of specific annual financial and non-financial KPIs and 25% will be awarded as equity, subject to a two-year deferral period which recipients must remain employed with the Company. How much can executives earn? Target STI benefit is set at 40% of TFR for the CEO and 35% of TFR for other Executive KMP. These are subject to the following minimum and target performance thresholds: Financial KPIs (70% total STI) 150% 125% 100% 75% 50% 25% 0% % STI awarded (financial component) (97% to 103% achievement) 100% of financial STI awarded (93% to 97% achievement) 0% to 100% of financial STI awarded on linear bases (0% to 93% achievement) No award (103% to a maximum 110% achievement) 100% to 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. How is performance measured? 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. 20 Hansen Technologies Ltd Annual Report 2020What happens if an executive leaves? Changes from the FY19 STI Plan 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 executive will be entitled to a pro-rata cash payment based on assessment of performance according to the eligible period of time served up until the termination date. Where termination occurs by way of dismissal or resignation prior before the end of the financial year, no STI is awarded for that year. Similarly, any deferred STI awards are forfeited, unless otherwise determined by the Board. If termination of employment occurs for serious misconduct all vested and unvested rights will be forfeited and will lapse. For all KMP other than the CEO (who is already a significant shareholder), a new deferred equity component was introduced 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 by the Company. This facilitates quicker equity participation for executives encouraging ‘owner like’ behaviours in the business. STI opportunity levels were increased as a fixed percentage of TFR by 10% to ensure that the recipient will not be ‘worse off’ from a cash flow perspective. Malus and clawback provisions were introduced for all equity components allowing the Board to adjust awards for risks which materialised during and after the vesting periods. (iii) FY20 Long-Term Incentive (LTI) – Executive Performance Rights Plan Objective To align the rewards attainable by Executive KMP 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: 20% 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. 21 Hansen Technologies Ltd Annual Report 2020REMUNERATION REPORT CONTINUED How is performance measured? Vesting of the LTI awards are subject to the following criteria: 1. Three years of continuous employment with the Group from 1 July 2019 to 30 June 2022. 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% The proportion of rights that may vest based on relative TSR performance is determined based on the following vesting schedule: Relative TSR Performance Percentage of Performance Rights That Will Vest < 50th percentile None Between 50th to 75th percentile 100% to 150% on a linear basis > 75th percentile 150% The proportion of rights that may vest based on EPSa CAGR is determined based on the following vesting schedule: EPSa CAGR < 6% Between 6% to 10% > 10% Percentage of performance rights that will vest None 100% to 150% on a pro-rata basis 150% Performance rights will be forfeited if performance conditions are not met. However, 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. 22 Hansen Technologies Ltd Annual Report 2020What happens if an executive leaves? 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 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. Changes from the FY19 LTI Plan Performance rights cannot be transferred to, or vest in, any person or body corporate other than the Executive KMP. For all KMP other than the CEO, there was a decrease in LTI opportunity levels as a fixed percentage of TFR by 5% to rebalance the increase in the STI opportunity. Malus and clawback provisions were introduced for all equity components allowing the Board to adjust awards for risks which materialised during and after the vesting periods. 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. Operating Revenue ($m) Underlying EBITDA* ($m) 350 300 250 200 150 100 50 0 5-year CAGR: 23% 301.4 230.8 231.3 174.7 149.0 106.3 2015 2016 2017 2018 2019 2020 100 80 60 40 20 0 5-year CAGR: 20% (EBITDA) 85.7 66.7 63.1 49.7 51.0 34.1 2015 2016 2017 2018 2019 2020 * EBITDA is a non-IFRS term that relates to Earnings before Interest, Tax, Depreciation and Amortisation. The new accounting standard AASB 16 Leases has been applied to FY20 and historical performance has been adjusted to reflect an estimated impact of the adoption of this standard. Non-recurring items have been excluded from each year, where applicable. 23 Hansen Technologies Ltd Annual Report 2020REMUNERATION REPORT CONTINUED For FY20, 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 all 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 FY20 performance. FY20 FY19 Total Opportunity $ Awarded 70% Financial Awarded 30% KPIs Total Opportunity $ Awarded 70% Financial Awarded 30% KPIs Andrew Hansen Cameron Hunter Darren Meade Graeme Taylor Niv Fernando1 371,423 143,496 144,196 138,191 136,769 1. Niv Fernando resigned on 31 July 2020. 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 364,140 100,488 100,979 96,772 95,776 100% 100% 100% 100% 100% 100% 50% 100% 100% 100% (b) Performance against equity outcomes Our legacy LTI plans will continue to be measured and reported through until the Group’s FY22 Remuneration Report. As a consequence of legacy LTI plans and the current LTI framework, in FY20 we have three different years of awards that will be tested, and in due course, will subsequently vest or lapse 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 FY20, each with their specific grant details and performance measures, including the STI deferral: Grant date Security Performance Measure/s 2 Jul 2015 Option 1st year revenue and EBITDA, 3-yr cont. employment Sect. 3 Ref. (b)(i) Status 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) 1 Sept 2019 Right 2-yr cont. employment after achieving FY20 STI measures1 (b)(ii) 1 Sept 2019 Right EPSa, rTSR, 3-yr cont. employment (b)(ii) Measurement period Fully vested Yet to vest Failed to vest 150% of EPSa-linked rights will vest and the rTSR-linked rights did not satisfy market conditions. 2017 and prior 2018 2019 2020 2021 2022 1. Applies to all KMP, except for the CEO. 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. 24 Hansen Technologies Ltd Annual Report 2020(i) Performance against LTI plan measures (2015 LTI plans) All KMP eligible for the legacy LTI plans remained with the Company during the measurement period and continue to be in office at the end of FY20. The Board exercised its discretion to extend the expiry of the exercise of options granted in the (FY16) 2015 LTI plans from 2 July 2020 to 2 April 2021 to address the impact of the COVID-19 pandemic on the financial markets. (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: Underlying EPS (EPSa) (cents) Dividends Paid* (cents per share) 30 25 20 15 10 5 0 16.6 15.6 19.8 17.1 23.9 2016 2017 2018 2019 2020 12 10 8 6 4 2 0 10.0 7.0 7.0 6.0 6.0 2016 2017 2018 2019 2020 * 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 FY20 LTI plan, but is included as part of the calculation of relative TSR. Share price performance relative to the S&P/ASX Small Ordinaries Index for the previous five years: 400% 350% 300% 250% 200% 150% 100% 0% July 2015 July 2016 July 2017 July 2018 July 2019 July 2020 S&P/ASX Small Ords HSN.AX 25 Hansen Technologies Ltd Annual Report 2020 REMUNERATION REPORT CONTINUED Performance outcomes against FY17 (2016) LTI plan measures Options under the FY17 (2016) LTI plan did not meet the required performance measurement hurdles for the options to vest and/or be exercisable. The below table sets out the value of options under legacy LTI plans that were exercised during FY20 and FY19: Andrew Hansen Cameron Hunter Darren Meade Graeme Taylor Niv Fernando1 FY20 Value exercised* $ FY19 Value exercised* $ - - - - - - - - - 225,000 1. Niv Fernando resigned on 31 July 2020. * Represents the intrinsic value of options that were exercised during the financial years 2020 and 2019, 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. Performance outcomes against FY18 (2017) LTI plan measures Performance rights under the FY18 (2017) LTI plan exceeded the required performance measurement hurdles in relation to the EPSa CAGR measure and will vest on an accelerated basis paying 150% of the entitlement on 31 August 2020. Performance rights associated with the TSR hurdle did not satisfy market conditions. The below table sets out the LTI performance targets and outcomes under the FY18 (2017) LTI plan framework: Measure Minimum target Maximum target Actual outcome Rights granted Market conditions not satisfied Additional rights that will vest Rights that will vest and are exercisable at reporting date Relative TSR 50th percentile 75th percentile N/A1 108,717 108,717 EPSa CAGR 6% CAGR 10% CAGR 15.7% CAGR 108,718 - Total rights 217,435 108,717 - 54,359 54,359 - 163,077 163,077 1. Hansen’s TSR must be positive to pass the gate for TSR exercise conditions. Performance outcomes against FY19 (2018) LTI Plan and FY20 (2019) LTI Plan measures Performance rights granted in FY19 (2018 plan) and FY20 (2019 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 FY21 for the 2018 plan and FY22 for the 2019 plan. See section 4(c) for a summary of performance rights granted during FY20. 26 Hansen Technologies Ltd Annual Report 2020The table below sets out the value of STI and LTI performance rights granted in FY20 and FY19: STI Cameron Hunter Darren Meade Graeme Taylor Niv Fernando1 LTI Andrew Hansen Cameron Hunter Darren Meade Graeme Taylor Niv Fernando1 FY20 Value granted* $ 28,829 28,970 27,763 27,478 339,511 59,962 60,255 57,745 57,151 FY19 $ - - - - 446,862 98,653 99,134 95,005 94,026 * 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 FY20 deferred STI and LTI Plans and FY19 LTI Plans. 1. Niv Fernando resigned on 31 July 2020. (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 FY20: TARGET ACTUAL1 26% 53% 21% 56% CEO 21% 17% KMPs 16% Total Fixed Remuneration Short-Term Incentive Long-Term Incentive 23% 10% Total Fixed Remuneration 22% Short-Term Incentive Long-Term Incentive 67% 68% 1. Target and actual remuneration mix is calculated based on the combination of each CEO and KMP’s Total Fixed Remuneration for FY20, total value of STIs awarded in relation to actual performance outcomes for FY20, and the value of LTIs granted in FY20 under the terms of the FY20 LTI plan. The proportional mix of remuneration for KMP is based on an average amount. The difference between the target and actual remuneration mix relates to the value of equity- based incentives, of which the target was based on the share price, while the actual was based on the fair value of the performance rights at grant date using a conventional Black Scholes option pricing model (BSOPM) for the STI rights and using a Monte Carlo simulation option pricing model and BSOPM for the LTI rights. 27 Hansen Technologies Ltd Annual Report 2020REMUNERATION REPORT CONTINUED 4. Remuneration details: Executive KMP (a) Statutory remuneration details Details of Executive KMP remuneration for the 2019 and 2020 financial years are set out in the table below: Fixed Remuneration Variable Remuneration Total Cash Salary $ Super $ Non- monetary Benefits $ Annual and Long Service Leave $ STI1,2 Awarded $ LTI2 Fair Value $ Total $ Perform- ance Related % Total $ Executive KMP Year Andrew Hansen Cameron Hunter Darren Meade Graeme Taylor Niv Fernando3 Total 2020 860,926 25,000 34,848 72,785 993,559 371,423 410,874 1,775,856 2019 843,240 24,999 31,157 62,497 961,893 399,140 242,346 1,603,379 2020 392,398 25,000 11,504 14,952 443,854 136,451 95,321 675,626 2019 383,359 25,000 13,796 59,525 481,680 85,415 53,143 620,238 2020 395,749 25,000 2019 387,237 25,000 2020 381,264 25,000 2019 370,321 25,000 2020 377,115 25,000 2019 366,253 25,000 - - - - - - 11,414 432,163 137,116 94,777 664,056 17,777 430,014 100,979 53,130 584,123 (15,988) 390,276 131,407 91,796 613,479 21,083 416,404 131,772 52,059 600,235 7,981 410,096 130,054 90,851 631,001 9,672 400,925 130,776 52,039 583,740 2020 2,407,452 125,000 46,352 91,144 2,669,948 906,451 783,619 4,360,018 2019 2,350,410 124,999 44,953 170,554 2,690,916 848,082 452,717 3,991,715 44% 40% 34% 22% 35% 26% 36% 31% 35% 31% 39% 33% 1. Represents STI awarded and accrued in relation to actual performance during the 2020 and 2019 financial years. This includes performance rights granted as remuneration that are valued at grant date in accordance with AASB 2 Share-based Payment and amortised over vesting period. STI performance rights applies to all KMP other than the CEO. 2. Performance rights granted as remuneration are valued at grant date in accordance with AASB 2 Share-based Payment and amortised over vesting period. 3. Niv Fernando resigned on 31 July 2020. (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 Exercise Price 2 Jul 2015 2 Jul 2018 2 April 20211 22 Dec 2016 31 Aug 20192 22 Dec 2021 $2.67 $3.59 Value Per Option at Grant Date $0.56 $1.19 Performance Achieved 100% 0%3 % Vested 100% 0%3 Number of Options on Issue at 30/6/2020 400,000 - 1. The original expiry date for this tranche of options was 2 July 2020. However, due to the COVID-19 pandemic impact on financial markets, the Board exercised its discretion to extend the expiry date for the remaining options to 2 April 2021. 2. The vesting date for options granted on 22 December 2016 is the date on which the Board notified the executive that the options have vested, after the outcomes for the measurement period have been determined and satisfaction of the performance conditions have been assessed. 3. Options granted on 22 December 2016 did not meet the required performance measurement hurdles for the options to vest and/or be exercisable. The number of options over unissued ordinary shares in the Company provided as remuneration to Executive KMP is shown in the table on the following page. The options carry no dividend or voting rights. 28 Hansen Technologies Ltd Annual Report 2020Options granted to Executive KMP which remain unvested at 30 June 2020 and outstanding are detailed below: Balance 30/6/2019 During Year Ended 30/6/2020 Balance 30/6/2020 Name and Grant Date Opening Balance Exercise Price Market Condition Not Satisfied Forfeited Exercised Vested and Exercisable Vested and Un- exercisable Unvested Andrew Hansen 22 Dec 20161 Total Cameron Hunter 22 Dec 20161 2 July 20152 Total Darren Meade 22 Dec 20161 2 July 20152 Total Graeme Taylor 22 Dec 20161 2 July 20152 Total Niv Fernando 22 Dec 20161 2 July 20152 Total 535,714 535,714 121,746 100,000 221,746 115,220 100,000 215,220 108,718 100,000 208,718 102,603 100,000 202,603 $3.59 (267,857) (267,857) (267,857) (267,857) $3.59 $2.67 (60,873) (60,873) - - (60,873) (60,873) $3.59 $2.67 (57,610) (57,610) - - (57,610) (57,610) $3.59 $2.67 (54,359) (54,359) - - (54,359) (54,359) $3.59 $2.67 (51,302) (51,301) - - (51,302) (51,301) Grand total 1,384,001 (492,001) (492,000) - - - - - - - - - - - - - - - - - - 100,000 100,000 - 100,000 100,000 - 100,000 100,000 - 100,000 100,000 400,000 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 1. Based on the measurement period for the three years ended 30 June 2019, these options that are dependent on the EPSa hurdle did not vest on 31 August 2019, and these options that are dependent on the relative TSR hurdle have not satisfied the market condition. 2. The original expiry date for this tranche of options was 2 July 2020. However, due to the COVID-19 pandemic impact on financial markets, the Board exercised its discretion to extend the expiry date for the remaining options to 2 April 2021. 29 Hansen Technologies Ltd Annual Report 2020REMUNERATION REPORT CONTINUED (c) Performance rights awarded, vested and lapsed during the year Performance rights issued under the Group’s 2019 (FY20) STI and LTI Plans during the year are subject to the service and performance criteria as described on pages 19 to 23. The following table sets out details of performance rights granted to executives during the financial year: Executive KMP STI3 Grant Date Rights Granted Balance 30/6/20201 Fair Value Per Right2 Vesting Date $ Value of Rights at Grant Date1 Cameron Hunter 1 Sept 2019 Darren Meade 1 Sept 2019 Graeme Taylor 1 Sept 2019 Niv Fernando 1 Sept 2019 LTI 9,270 9,315 8,927 8,835 9,270 9,315 8,927 8,835 Andrew Hansen* 1 Sept 2019 119,969 119,969 Cameron Hunter 1 Sept 2019 Darren Meade 1 Sept 2019 Graeme Taylor 1 Sept 2019 Niv Fernando4 1 Sept 2019 21,188 21,291 20,405 20,195 21,188 21,291 20,405 20,195 $3.11 $3.11 $3.11 $3.11 $2.83 $2.83 $2.83 $2.83 $2.83 30 Jun 2022 30 Jun 2022 30 Jun 2022 30 Jun 2022 30 Jun 2022 30 Jun 2022 30 Jun 2022 30 Jun 2022 30 Jun 2022 28,829 28,970 27,763 27,478 339,511 59,962 60,255 57,745 57,151 * The Board has resolved to issue 119,969 rights to Andrew Hansen, the Chief Executive Officer, as part of the 2019 LTI plan issued in FY20. The issue of these rights was approved by shareholders at the Company’s Annual General Meeting on 21 November 2019. 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 KMP 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. The fair value of the STI rights was based fully on Black Scholes option pricing model (BSOPM) while the fair value of the LTI rights was based on Monte Carlo simulation option pricing model for the TSR component and BSOPM for the EPSa component. Note 17 to the Group’s financial statements outlines the valuation methodology and key inputs and assumptions to the valuation in greater detail. 3. STI performance rights represent the 25% of the total short-term incentives awarded to the KMP on achievement of specific annual financial and non-financial KPIs. This applies to all KMP except for the CEO. 4. Niv Fernando resigned on 31 July 2020. The terms and conditions of each grant of rights affecting the remuneration in the current or future reporting period are as follows. Vesting Date Type Value Per Right at Grant Date Performance Achieved Grant Date 2 Jul 2017 2 Jul 2018 31 Aug 20201 31 Aug 20211 1 Sept 2019 30 Jun 2022 1 Sept 2019 30 Jun 2022 LTI LTI STI LTI $3.82 $3.01 $3.11 $2.83 75%2 - - - Number of Rights on Issue at 30/06/2020 % Vested - - - - 217,435 276,970 36,347 203,048 1. The vesting date for performance 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 the performance conditions have been assessed. This is likely to be the dates as stated in the table. 2. Performance rights in relation to the EPSa CAGR measure exceeded the required performance measurement hurdles and will vest on an accelerated basis paying 150% of the entitlement on 31 August 2020. Performance rights associated with the TSR hurdle did not satisfy market conditions. 30 Hansen Technologies Ltd Annual Report 20205. FY21 Enhanced STI Plan Objective How is it paid? To incentivise and align the rewards attainable by Executive KMP with the achievement of specific annual objectives of the Group and the creation of shareholder value. On achievement of specific annual financial and non-financial KPIs, 40% of TFR for the CEO and 25% of TFR for other Executive KMP will be paid through annual cash entitlements. In addition, 50% of TFR for the CEO and 25% of TFR for other Executive KMP will be awarded as equity, subject to a two-year deferral period during which recipients must remain employed by the Company. How much can executives earn? Target benefit is set at 90% of TFR for the CEO and 50% of TFR for other Executive KMP. These are subject to the following minimum and target performance thresholds: Financial KPIs (70% total STI) 150% 125% 100% 75% 50% 25% 0% % STI awarded (financial component) (97% to 103% achievement) 100% of financial STI awarded (93% to 97% achievement) 0% to 100% of financial STI awarded on linear bases (0% to 93% achievement) No award (103% to a maximum 110% achievement) 100% to 150% of financial STI awarded on linear bases < 80% 85% 90% 95% 100% 105% 110% 115% >120% Financial KPI achievement How is performance measured? 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 delivering the best possible outcome over the next 12 months given the current economic environment. 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 the best possible outcome over the next 12 months. 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 incentive payments to ensure outcomes appropriately reflect performance and achieve objectives of the executive incentive scheme. 31 Hansen Technologies Ltd Annual Report 2020REMUNERATION REPORT CONTINUED What happens if an executive leaves? Changes from the FY20 STI and LTI Plans 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 cash entitlements and the equity incentives will be awarded 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 end of the measurement period, the cash component may be paid on a pro-rata basis. All equity entitlements are lost, unless otherwise determined by the Board. If termination of employment occurs for serious misconduct all vested and unvested rights will be forfeited and will lapse. The LTI Program has been suspended and an enhanced STI Program to reward the Executive Team based on specific annual financial and non-financial KPIs has been put in place. For all KMP other than the CEO, there has been a reduction of 5% of TFR. The resulting 50% will be paid 50% in cash and 50% in equity, subject to a two-year deferral. For the CEO, 40% of the entitlement will be paid in cash with 50% in equity, subject to a two-year deferral. KPIs are structured in a way that the Company will be in the best position to manage the impact of the current environment, whilst being mindful of the longer term to ensure the business is optimally placed for the recovery ahead. 6. Contractual arrangements with Executive KMP Remuneration and other conditions of employment are set out in each executive’s employment contract. The key elements of these employment contracts are summarised below: Component Approach for CEO Total Fixed Remuneration Contract duration $920,774 Ongoing Notice by individual/Company 6 months Approach for other Executive KMP Range between $390,000 and $415,000 Ongoing 1 month Termination of employment (without cause) The Board has discretion to allow some or all STI entitlements to be paid out on a pro-rata basis aligned to time, where termination occurs by way of resignation or dismissal. In other forms of 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. 32 Hansen Technologies Ltd Annual Report 20207. Remuneration details: Non-Executive KMP 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 $630,000 per annum, as approved by shareholders at the 2019 AGM. 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 Audit and Risk Committee – member Remuneration Committee – chair Remuneration Committee – member Non-Executive Director David Trude Bruce Adams Jennifer Douglas Sarah Morgan1 Don Rankin2 David Osborne David Howell Total 2020 $ 127,541 72,000 9,000 5,000 9,000 5,000 Fixed Remuneration Non-monetary Benefits - - - - - - - Salary and Fees $ 116,476 104,868 69,293 63,950 73,098 68,592 35,333 68,592 44,236 69,293 63,950 76,918 91,347 484,647 461,299 Year 2020 2019 2020 2019 2020 2019 2020 2019 2020 2020 2019 2020 2019 2020 2019 Super 11,065 9,962 6,582 6,075 6,944 6,516 3,356 6,516 4,914 6,582 6,075 7,307 8,678 46,750 43,822 1. Sarah Morgan resigned on 19 December 2019. 2. Don Rankin was appointed as a Non-Executive Director on 21 November 2019. 2019 $ 114,830 70,025 5,083 - 5,083 - Total 127,541 114,830 75,875 70,025 80,042 75,108 38,689 75,108 49,150 75,875 70,025 84,225 100,025 531,397 505,121 33 Hansen Technologies Ltd Annual Report 2020REMUNERATION REPORT CONTINUED 8. 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: Balance 30 June 2019 Received during the year on exercise of options Other changes during the year Balance 30 June 2020 Non-Executive Directors David Trude Bruce Adams1 Jennifer Douglas Don Rankin2 Sarah Morgan3 David Osborne1 David Howell Executive KMP Andrew Hansen1 Cameron Hunter Darren Meade Graeme Taylor Niv Fernando4 Joint interest1 Total 102,113 152,304 16,000 - 21,351 386,335 26,218 34,963,449 1,105,882 79,783 132,841 76,079 - 37,062,355 - - - - - - - - - - - - - - 1,843 103,956 34,739,113 34,891,417 - 25,000 (21,351) 16,000 25,000 - 34,739,113 35,125,448 7,448 33,666 4,050 34,967,499 - - 2,399 - 1,105,882 79,783 135,240 76,079 (69,478,226) (69,478,226) 19,389 37,081,744 1. Each of Bruce Adams, David Osborne and Andrew Hansen has a joint interest in a single parcel of 34,739,113 shares as at the date of this report. 2. Don Rankin was appointed as a Non-Executive Director on 21 November 2019. 3. Sarah Morgan resigned on 19 December 2019 and as such is no longer a KMP as at 30 June 2020. 4. Niv Fernando resigned on 31 July 2020. (b) Shares issued on exercise of options and performance rights There were no shares issued on exercise of options and performance rights and therefore, there were no amounts unpaid on shares issued on exercise of options or performance rights during the year. 9. Other transactions with KMP Rental agreements with the CEO and other KMP 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 2020 financial year related to these arrangements were $1,534,415. Bruce Adams and David Osborne have a joint indirect interest in the entity that is a lessor to the Melbourne and South Melbourne arrangements as described above. The terms and conditions of the lease arrangements have not changed in the current financial year. Signed in accordance with a resolution of the Directors. David Trude Director Melbourne 28 August 2020 Andrew Hansen Director 34 Hansen Technologies Ltd Annual Report 2020 AUDITOR’S INDEPENDENCE DECLARATION RSM Australia Partners Level 21, 55 Collins Street Melbourne VIC 3000 PO Box 248 Collins Street West VIC 8007 T +61 (0) 3 9286 8000 F +61 (0) 3 9286 8199 www.rsm.com.au AUDITOR’S INDEPENDENCE DECLARATION As lead auditor for the audit of the financial report of Hansen Technologies Limited and its controlled entities for the year ended 30 June 2020, I declare that, to the best of my knowledge and belief, there have been no contraventions of: (i) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (ii) any applicable code of professional conduct in relation to the audit. RSM AUSTRALIA PARTNERS M PARAMESWARAN Partner Dated: 28 August 2020 Melbourne, Victoria THE POWER OF BEING UNDERSTOOD AUDIT | TAX | CONSULTING RSM Australia Partners is a member of the RSM network and trades as RSM. RSM is the trading name used by the members of the RSM network. Each member of the RSM network is an independent accounting and consulting firm which practices in its own right. The RSM network is not itself a separate legal entity in any jurisdiction. RSM Australia Partners ABN 36 965 185 036 Liability limited by a scheme approved under Professional Standards Legislation 28 35 Hansen Technologies Ltd Annual Report 2020FINANCIAL REPORT 37 Consolidated Statement of Comprehensive Income 38 Consolidated Statement of Financial Position 39 Consolidated Statement of Changes in Equity 40 Consolidated Statement of Cash Flows 69 Section D: People 69 16. Employee benefits 71 17. Share-based payments 75 Section E: Capital and Financial Risk Management 75 18. Financial risk management 41 Section A: Basis of Preparation 41 1. Basis of preparation 43 Section B: Performance 43 2. Segment information 47 3. Revenue and other income 50 4. Separately disclosed items 51 5. Profit from continuing operations 52 6. Income tax 55 7. Earnings Per Share 56 Section C: Working Capital and Operating Assets 56 8. Cash and cash equivalents 57 9. Receivables 58 10. Other assets 59 11. Plant, equipment and leasehold improvements 60 12. Intangible assets 63 13. Leases 68 14. Payables 68 15. Other operating provisions 78 19. Borrowings 80 20. Contributed capital 81 21. Dividends 82 22. Reserves and retained earnings 82 23. Commitments and contingencies 83 Section F: Group Structure 83 24. Parent entity information 84 25. Business combinations 87 Section G: Other Disclosures 87 26. Related party disclosures 89 27. Auditor’s remuneration 90 28. Deed of cross guarantee 92 29. New and amended accounting standards and interpretations 93 30. Subsequent events 36 Hansen Technologies Ltd Annual Report 2020 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2020 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 on borrowings Finance costs on lease liabilities Foreign exchange gains/(losses) Other expenses Total expenses Profit before income tax expense Income tax expense Net profit after income tax expense Other comprehensive (expense)/income Items that may be reclassified subsequently to profit and loss Net (loss)/gain on hedges of net investments Exchange differences on translation of foreign entities, net of tax Note 3 3 5 5 5 5 5 5 5 2020 $’000 301,369 2,320 303,689 2019 $’000 231,324 1,634 232,958 (168,193) (128,027) (11,307) (31,028) (4,324) (9,405) (2,962) (15,559) (6,823) (3,325) (2,827) (8,087) (1,193) 744 (9,559) (3,806) (18,950) (10,394) (5,339) (2,108) (11,352) (5,773) (3,805) (1,891) (2,058) (9) (527) (11,142) (273,848) (205,181) 6(a) 29,841 (4,084) 25,757 27,777 (6,312) 21,465 22(a) 22(a) (802) (13,141) 43 6,558 Other comprehensive (expense)/income for the year, net of tax (13,943) 6,601 Total comprehensive income for the year 11,814 28,066 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 7 7 13.0 12.9 10.9 10.8 The consolidated statement of comprehensive income is to be read in conjunction with the notes to the financial statements set out on pages 41 to 93. 37 Hansen Technologies Ltd Annual Report 2020CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2020 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 Right-of-use assets Deferred tax assets Other non-current assets Total non-current assets Total assets Current liabilities Payables Borrowings Lease liabilities Current tax payable Provisions Unearned revenue Total current liabilities Non-current liabilities Deferred tax liabilities Borrowings Lease liabilities Provisions Unearned revenue 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 13(a) 6(b) 10 14 19 13(b) 15, 16 3(a)(iii) 6(b) 19 13(b) 16 3(a)(iii) 20 22(a) 22(b) 22(c) 2020 $’000 44,492 47,916 21,945 8,357 20191 $’000 38,288 49,475 25,796 7,267 122,710 120,826 11,414 377,660 20,087 9,971 3,681 422,813 545,523 24,223 591 5,661 5,632 15,555 24,471 76,133 43,443 157,852 15,384 170 47 216,896 293,029 252,494 10,986 408,693 - 4,601 3,123 427,403 548,229 24,606 134 92 1,756 15,313 27,305 69,206 44,290 185,674 - 189 - 230,153 299,359 248,870 140,952 138,746 9,397 5,404 96,741 23,340 3,931 82,853 252,494 248,870 1. Certain balances have been restated in accordance with the accounting for business combination following the finalisation of the acquisition accounting associated with Sigma Systems (refer to Note 25). There has also been a reclassification between other current assets and borrowings associated with prepaid borrowing costs. Refer to Notes 10 and 19, respectively. The consolidated statement of financial position is to be read in conjunction with the notes to the financial statements set out on pages 41 to 93. 38 Hansen Technologies Ltd Annual Report 2020CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2020 Balance as at 1 July 2019 Profit after income tax expense 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: Employee share options exercised Share-based payment expense – performance rights Equity issued under Dividend Reinvestment Plan Dividends declared Total transactions with owners in their capacity as owners Balance as at 30 June 2020 Balance as at 1 July 2018 Effect of adoption of new accounting standards Balance as at 1 July 2018 (restated) Profit after income tax expense 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 Contributed Equity $’000 Reserves $’000 138,746 27,271 Retained Earnings $’000 82,853 25,757 - - Total Equity $’000 248,870 25,757 (802) (13,141) - (802) (13,141) (13,943) 25,757 11,814 - 1,473 - - - - - 452 1,473 1,754 (11,869) (11,869) - - - - 452 - 1,754 - Note 22(c) 22(a) 22(a) 20(b) 17(e) 20(b) 22(c) 20, 22 2,206 140,952 1,473 14,801 (11,869) (8,190) 96,741 252,494 Contributed Equity $’000 Reserves $’000 136,896 19,841 - - 136,896 19,841 - - - - 170 535 - - 1,145 - - 43 6,558 6,601 - - 965 (137) - - Note 3(a)(i) 22(c) 22(a) 22(a) 20(b) 20(b) 17(e) 17(e) 20(b) 22(c) Retained Earnings $’000 73,186 1,984 75,170 21,465 - - 21,465 - - - - - Total Equity $’000 229,923 1,984 231,907 21,465 43 6,558 28,066 170 535 965 (137) 1,145 (13,782) (13,782) 1,850 829 (13,782) (11,103) Balance as at 30 June 2019 20, 22 138,746 27,271 82,853 248,870 The consolidated statement of changes in equity is to be read in conjunction with the notes to the financial statements set out on pages 41 to 93. 39 Hansen Technologies Ltd Annual Report 2020CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2020 Cash flows from operating activities Receipts from customers Payments to suppliers and employees Interest received Finance costs on borrowings Finance costs on lease liabilities 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, equipment and leasehold improvements Payment for acquisition of business net of cash assumed Payments for plant, equipment and leasehold improvements Payments for capitalised software development costs Net cash used in investing activities Cash flows from financing activities Proceeds from options exercised Proceeds from borrowings Repayment of borrowings Repayment of lease liabilities Dividends paid, net of dividend reinvestment Net cash (used in)/provided by financing activities Net increase in cash and cash equivalents Cash and cash equivalents at beginning of year Effects of exchange rate changes on cash and cash equivalents Cash and cash equivalents at end of the year Note 2020 $’000 2019 $’000 327,443 (243,713) 54 (6,760) (1,193) - - (6,202) 69,629 616 - (5,041) (14,021) (18,446) 452 4,900 (32,733) (6,982) (10,115) (44,478) 6,705 38,288 (501) 44,492 248,646 (197,030) 84 (1,049) (9) (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 15,122 23,245 (79) 38,288 3 5 5, 13(b) 25(i) 25(iii) 8(a) 25 11 12 20(b) 19(b) 19(b) 13(d) 21 8 The consolidated statement of cash flows is to be read in conjunction with the notes to the financial statements set out on pages 41 to 93. 40 Hansen Technologies Ltd Annual Report 2020NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2020 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 28 August 2020. The Group’s consolidated 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 Provision for expected credit losses of trade receivables Capitalisation of research and development costs Impairment of goodwill Impairment of non-financial assets other than goodwill Determining the lease term of contracts with renewal and termination options – Group as a lessee Estimating the incremental borrowing rate Share-based payments Business combinations Note Page Reference 9 12 12 12 13 13 17 25 58 61 62 62 67 67 74 86 41 Hansen Technologies Ltd Annual Report 2020NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2020 1. Basis of preparation continued (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. 42 Hansen Technologies Ltd Annual Report 2020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 and the type of customer the services are provided to. 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 are eliminated on consolidation. There are no significant transactions between segments. The Group has identified only one reportable segment as described in the table below. No operating segments have been aggregated to form the below reportable operating segment. 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. During the financial year ended 30 June 2020, Management has determined that certain costs, borrowings and their related finance costs are directly attributable to the Billing segment. In addition, retrospective adjustments affecting certain asset and liability accounts were also recognised in the accounting for the business combination (Note 25). Prior year segment information has been restated to reflect these. (b) Segment information 2020 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 $’000 291,642 291,642 33,191 33,191 10,693 30,779 482,160 19,062 287,009 Other $’000 9,727 9,727 666 666 138 5 14,284 - 4,938 Total $’000 301,369 301,369 33,857 33,857 10,831 30,784 496,444 19,062 291,947 43 Hansen Technologies Ltd Annual Report 2020NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2020 2. Segment information continued (b) Segment information continued 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 Billing $’000 218,383 218,383 33,071 33,071 2,538 18,434 489,187 13,871 294,144 Other $’000 12,941 12,941 1,607 1,607 200 11 18,785 - 4,846 (i) Reconciliation of segment revenue to the consolidated statement of comprehensive income Segment revenue Total operating revenue 2020 $’000 301,369 301,369 Total $’000 231,324 231,324 34,678 34,678 2,738 18,445 507,972 13,871 298,990 2019 $’000 231,324 231,324 Geographical segments In presenting information based on geographical segments, segment revenue is based on the geographical location of customers. Segment assets are based on the geographical location of the assets. The Group’s business segments operate geographically as follows: Geographical segment Regions covered APAC Americas EMEA Australia, New Zealand and Asia North America, Central America and Latin America Europe, Middle East and Africa Product segments In presenting information based on product segments, the Group’s business segments provide the following types of products and services as follows: Product Licence, support and maintenance Services Description of product Recurring billing application licence, support and maintenance services delivered as part of a total billing system solution. Provision of various professional services in relation to customer billing systems and IT outsourced services covering facilities management, systems and operations support, network services and business continuity support. Hardware and software sales Provision of other third-party hardware and software licences to customers of the Group’s billing system solutions. Other 44 Includes reimbursed expenses incurred for servicing the customer contract. Hansen Technologies Ltd Annual Report 2020(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: 2020 Products Licence, support and maintenance Services Hardware and software sales Other revenue Total revenue from contracts with customers Revenue by market vertical Energy 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 2019 Products Licence, support and maintenance Services Hardware and software sales Other revenue Billing $’000 Other $’000 Total $’000 155,257 134,894 835 656 291,642 174,354 117,288 - 291,642 49,269 80,639 161,734 291,642 32,001 259,641 291,642 Billing $’000 138,202 78,042 1,038 1,101 4,871 4,447 295 114 9,727 4,438 - 5,289 9,727 5,307 4,420 - 9,727 295 9,432 9,727 Other $’000 6,884 5,799 - 258 160,128 139,341 1,130 770 301,369 178,792 117,288 5,289 301,369 54,576 85,059 161,734 301,369 32,296 269,073 301,369 Total $’000 145,086 83,841 1,038 1,359 Total revenue from contracts with customers 218,383 12,941 231,324 Revenue by market vertical Energy 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 144,816 73,567 - 218,383 42,723 50,213 125,447 218,383 2,530 215,853 218,383 5,898 - 7,043 12,941 7,043 5,898 - 12,941 258 12,683 12,941 150,714 73,567 7,043 231,324 49,766 56,111 125,447 231,324 2,788 228,536 231,324 45 Hansen Technologies Ltd Annual Report 2020NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2020 2. Segment information continued (b) Segment information continued (iii) Reconciliation of segment profit from core operations to the consolidated statement of comprehensive income Segment profit from core operations Interest income Unallocated depreciation and amortisation Separately disclosed items impacting profit Other expense Profit before income tax Note 3 4 2020 $’000 33,857 54 (720) 440 (3,790) 29,841 2019 $’000 34,678 84 (668) (2,794) (3,523) 27,777 In the current financial year, $440,000 of income relating to the profit from the sale of a premises in Norway have not been allocated to the Billing segment as it is not directly attributable to the segment. In the prior financial year, the entire separately disclosed items were not directly attributable. (iv) Reconciliation of segment assets to the consolidated statement of financial position Segment assets Unallocated assets – Cash – Other Total unallocated assets Total assets 2020 $’000 496,444 44,343 4,736 49,079 2019 $’000 507,972 37,260 2,997 40,257 545,523 548,229 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 2020 $’000 55,640 226,847 139,939 387 2019 $’000 40,752 234,224 152,082 345 422,813 427,403 (v) Reconciliation of segment liabilities to the consolidated statement of financial position Segment liabilities Unallocated liabilities – Other Total unallocated liabilities Total liabilities 46 2020 $’000 291,947 1,082 1,082 2019 $’000 298,990 369 369 293,029 299,359 Hansen Technologies Ltd Annual Report 20203. Revenue and other income Operating revenue Revenue from contracts with customers Total operating revenue Other income From operating activities Interest income Profit from sale of plant, equipment and leasehold improvements Other income Total other income Total revenue and other income Note 2(b) 2(b)(iii) 2(b)(iii), 8(a) 2020 $’000 301,369 301,369 54 440 1,826 2,320 2019 $’000 231,324 231,324 84 - 1,550 1,634 303,689 232,958 (a) AASB 15 Revenue from Contracts with Customers (i) Adoption of AASB 15 In the previous financial year, 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. The total impact to retained earnings at transition date was $1,984,000. (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 2020 is $122,710,000 (2019: $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 five years after balance sheet date). (iii) Contract balances Trade receivables Accrued revenue1 Unearned revenue – (current and non-current)1 Note 9 2020 $’000 48,336 21,945 24,518 2019 $’000 47,510 25,796 27,305 1. The comparative amount of accrued revenue has been reduced by $2,021,000 while unearned revenue has been increased by $236,000 in accordance with the accounting for business combination. Refer to Note 25 for further details. Accrued revenue mainly relates to software licences deployed on contract inception but have yet to be billed to the customer. Revenue recognised in the current reporting period that was included in unearned revenue at the beginning of the reporting period was $25,681,000 (2019: $22,251,000), representing support and maintenance performed during the period. (b) Government grants Included in ‘Other income’ during the financial year is $461,000 (2019: $nil) related to government subsidies received in Canada, and $514,000 (2019: $309,000) government grants to compensate for eligible employee expenditure related to research activities performed in Norway and in the United Kingdom. There were no unfulfilled conditions or contingencies attached to these grants. 47 Hansen Technologies Ltd Annual Report 2020NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2020 3. Revenue and other income continued 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 vary 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 is 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. 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 is treated as a single performance obligation. Revenue from these professional services are 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. 48 Hansen Technologies Ltd Annual Report 2020(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. (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. ‘Energy’ 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 depicts 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 consolidated 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. 49 Hansen Technologies Ltd Annual Report 2020NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2020 4. Separately disclosed items The Group has disclosed underlying EBITDA 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. Increase to profit before tax Non-recurring income Profit from sale of an office premises Other income Decrease to profit before tax Restructuring and one-off costs incurred Note 2(b)(iii) Transaction costs related to the acquisition of Sigma Systems 25(i) Onerous lease provision Total separately disclosed items 2020 $’000 2019 $’000 440 679 (6,153) - - (5,034) - - (72) (2,063) (659) (2,794) Non-recurring income The Group has separately identified income that is considered not in the normal course of business activities. Included In this is the income from the sale of an office premises in Norway for $440,000. These amounts are included within the ‘Other income’ account in the Group’s consolidated statement of comprehensive income. Restructuring and one-off costs incurred The Group recognised restructuring and one-off costs for the current financial year relating to redundancy and retention payments of staff amounting to $6,153,000 (2019: $72,000). These costs are part of the Group’s strategy to better integrate the business and align staffing according to customer demand. These costs are included within ‘Employee benefit expenses’ and ‘Other expenses’ in the Group’s consolidated statement of comprehensive income. Transaction costs related to the acquisition of Sigma Systems In the previous financial year, 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 were 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 25. Onerous lease provision In the previous financial year, a provision for future lease payments for one of the Group’s offices in the Americas was recognised, as the non-cancellable future payments in the lease contract were 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 were included within the ‘Property and operating rental expenses’ in the comparative Group’s consolidated statement of comprehensive income. 50 Hansen Technologies Ltd Annual Report 2020(a) Reconciliation with Group statutory measures Underlying EBITDA excluding AASB 16 impact Less separately disclosed items Add impact of adoption of AASB 16 EBITDA1 Underlying profit after tax Less separately disclosed items Tax effect of separately disclosed items Net profit after tax Note 13(e)(ii) 2020 $’000 77,998 (5,034) 7,694 80,658 29,479 (5,034) 1,312 25,757 2019 $’000 55,837 (2,794) - 53,043 24,011 (2,794) 248 21,465 1. EBITDA is a non-IFRS term, defined as earnings before interest, tax, depreciation and amortisation, and excluding net foreign exchange gains (losses). 5. Profit from continuing operations Profit from continuing operations before income tax has been determined after the following specific significant 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 Right-of-use assets 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 costs Finance costs on borrowings Prepaid borrowing costs Net finance costs on borrowings Finance costs on lease liabilities Total finance costs Net foreign exchange (gains)/losses Realised foreign exchange (gains)/losses Unrealised foreign exchange (gains)/losses Total net foreign exchange (gains)/losses Note 8(a) 8(a), 11 8(a),13(a) 8(a), 12 8(a), 12 8(a),19(b) 13(b) 8(a) 2020 $’000 2019 $’000 157,695 118,052 9,025 1,473 9,006 969 168,193 128,027 4,354 6,953 11,307 22,394 8,634 31,028 - 4,324 4,324 1,327 6,760 1,193 9,280 (599) (145) (744) 3,806 - 3,806 12,054 6,896 18,950 7,214 3,180 10,394 1,009 1,049 9 2,067 - 527 527 51 Hansen Technologies Ltd Annual Report 2020 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2020 6. Income tax (a) Components of income tax expense Current tax expense Deferred tax (income)/expense Over provision in prior years Total income tax expense 2020 $’000 11,087 (6,217) (786) 4,084 2019 $’000 6,238 841 (767) 6,312 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% 8,953 8,333 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 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 Temporary difference relating to lease accounting (adoption of AASB 16) Accruals (2,059) (1,506) (105) 300 (786) (1,054) (315) (850) 4,084 2020 $’000 9,971 (43,443) (33,472) 2020 $’000 (367) 1,983 2,309 5,190 856 9,971 (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 52 Hansen Technologies Ltd Annual Report 2020(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 Temporary difference relating to lease accounting (adoption of AASB 16) Revenue not yet assessable (iii) Reconciliation of net deferred tax balances Opening balance – net deferred tax liability Deferred tax income/(expense) recognised in profit or loss Increase due to acquisition Closing balance – net deferred tax liability Note 25 (iv) Deferred tax assets not brought to account (available tax losses) Gross capital losses Gross operating losses 2020 $’000 (6,529) 2019 $’000 (5,540) (30,012) (35,503) (60) (4,957) (1,885) (43,443) 2020 $’000 (39,689) 6,217 - (33,472) 2020 $’000 847 771 1,618 (947) - (2,300) (44,290) 2019 $’000 (12,098) (841) (26,750) (39,689) 2019 $’000 847 1,430 2,277 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. 53 Hansen Technologies Ltd Annual Report 2020NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2020 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. 54 Hansen Technologies Ltd Annual Report 2020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 2020 $’000 25,757 25,757 2019 $’000 21,465 21,465 2020 No. of Shares 2019 No. of Shares 197,960,854 197,017,215 199,177,904 198,632,621 2020 Cents Per Share 2019 Cents Per Share 13.0 12.9 10.9 10.8 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. 55 Hansen Technologies Ltd Annual Report 2020NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2020 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 2020 $’000 44,492 - 44,492 2019 $’000 36,677 1,611 38,288 (a) Reconciliation of the net profit after tax to net cash flows from operating activities Net profit after tax Add/(less) items classified as investing/financing activities: Net (profit)/loss on sale of non-current assets Add/(less) non-cash items: Depreciation and amortisation Share-based payments Unrealised foreign exchange Recovery of previously charged expected credit loss Expected credit loss charged Amortisation of prepaid borrowing costs 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: (Increase)/decrease in receivables Decrease/(increase) in sundry debtors and other assets Increase in trade payables Decrease in other creditors and accruals Increase in bank overdraft Increase in operating and employee benefits provision (Decrease)/increase in deferred taxes Increase/(decrease) in current tax payable (Decrease)/increase in unearned revenue Net cash provided by operating activities Note 5 5, 17(e) 5 9 9 5 2020 $’000 25,757 2019 $’000 21,465 (440) 17 42,335 1,473 (145) (44) 735 1,327 - 22,756 829 527 (62) 114 1,009 140 70,998 46,795 (2,364) 5,212 14,102 (15,086) 457 1,322 (6,217) 4,100 (2,895) 3,631 (8,445) 4,592 (12,233) 134 1,403 841 (1,223) 4,155 69,629 39,650 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 consolidated statement of financial position. 56 Hansen Technologies Ltd Annual Report 20209. Receivables Current Trade receivables Less: provision for expected credit losses Sundry receivables Total trade and other receivables 2020 $’000 48,336 (604) 47,732 184 47,916 2019 $’000 47,510 (221) 47,289 2,186 49,475 As at 30 June 2020, trade receivables of $14,668,000 (2019: $15,273,000) 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 2020 $’000 33,064 4,852 4,468 5,952 48,336 Provided 2020 $’000 - - - (604) (604) Gross 2019 $’000 32,016 4,425 4,086 6,983 47,510 Provided 2019 $’000 - - (23) (198) (221) 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 provision for expected credit loss: Opening balance at 1 July Acquisition of Sigma Systems Expected credit loss charged Recovery of previously charged expected credit loss Amounts written off Closing balance at 30 June Note 8(a) 8(a) 221 - 735 (44) (308) 604 2020 $’000 2019 $’000 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 a provision for expected credit loss. 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 which are known to be uncollectible are written off by reducing the carrying amount directly. Expected credit losses are recognised in the consolidated statement of comprehensive income within ‘Professional expenses’ account. When a trade receivable for which a provision for expected credit loss had been recognised becomes uncollectible in a subsequent period, it is written off against the allowance account. 82 169 114 (62) (82) 221 57 Hansen Technologies Ltd Annual Report 2020NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2020 9. Receivables continued Critical accounting estimate and judgement Provision for expected credit losses of trade receivables The Group uses a provision matrix to calculate ECLs for trade receivables. The provision rates are based on days past due for groupings of various customer segments that have similar loss patterns (i.e. by geography, product type, customer type and rating, and coverage by letters of credit and other forms of credit insurance). The provision matrix is initially based on the Group’s historical observed default rates. The Group will calibrate the matrix to adjust the historical credit loss experience with forward-looking information. For instance, if forecast economic conditions (i.e. gross domestic product) are expected to deteriorate over the next year, which can lead to an increased number of defaults in the energy sector, the historical default rates are adjusted. At every reporting date, the historical observed default rates are updated and changes in the forward-looking estimates are analysed. The assessment of the correlation between historical observed default rates, forecast economic conditions and ECLs is a significant estimate. The amount of ECLs is sensitive to changes in circumstances and of forecast economic conditions. The Group’s historical credit loss experience and forecast of economic conditions may also not be representative of customer’s actual default in the future. During the year, the Group has considered the impact of the COVID-19 pandemic on the amount of ECLs and has determined from its assessment that there has been no significant change to the recovery of the customers’ debts. 10. Other assets Prepayments – current1 Other assets – current Total other current assets Prepayments – non-current Other assets – non-current Total other non-current assets Note 25(iii) 25(iii) 2020 $’000 6,441 1,916 8,357 2,292 1,389 3,681 2019 $’000 7,160 107 7,267 888 2,235 3,123 1. Comparative amount for ‘Prepayments – current’ account been restated to reflect a reclassification of $653,000 to ‘Term facility – prepaid borrowing costs’ account. Refer to Note 19. 58 Hansen Technologies Ltd Annual Report 202011. Plant, equipment and leasehold improvements Cost At 1 July Additions Increase due to acquisition of a subsidiary Disposals Net foreign currency movements arising from operations At 30 June Accumulated depreciation At 1 July Depreciation charge Disposals Net foreign currency movements arising from operations At 30 June Net carrying amount at 30 June Note 5 2020 $’000 42,571 5,041 - (737) (225) 2019 $’000 38,309 2,980 970 (168) 480 46,650 42,571 (31,585) (4,354) 561 142 (27,755) (3,806) 146 (170) (35,236) (31,585) 11,414 10,986 Significant accounting policies Plant, equipment and leasehold improvements Cost and valuation All classes of plant, equipment and leasehold improvements are stated at cost less depreciation and any accumulated impairment losses. Depreciation The depreciable amounts of all fixed assets are depreciated on a straight-line basis over their estimated useful lives commencing from the time the asset is held ready for use. Leasehold improvements are depreciated over the shorter of either the unexpired period of the lease or the estimated useful lives of the improvements. The useful lives for each class of assets are: Plant, equipment and leasehold improvements 2020 2019 3 to 15 years 3 to 15 years An item of plant, equipment and leasehold improvements 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 plant, equipment and leasehold improvements are reviewed at each financial year end and are adjusted prospectively, if appropriate. 59 Hansen Technologies Ltd Annual Report 2020NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2020 12. Intangible assets Cost At 1 July 2019, as restated Additions Net foreign currency movements arising from foreign operations At 30 June 2020 Note Goodwill $’000 Technology and Other Intangibles at Cost $’000 Software Development at Cost $’000 229,458 196,264 - - (8,170) (7,679) 221,288 188,585 65,583 14,021 816 80,420 Total $’000 491,305 14,021 (15,033) 490,293 Accumulated amortisation and impairment At 1 July 2019 Amortisation charge Net foreign currency movements arising from foreign operations At 30 June 2020 5 (1,595) - 2 (1,593) (41,466) (22,394) 1,617 (62,243) (39,551) (8,634) (82,612) (31,028) (612) 1,007 (48,797) (112,633) Carrying amount at 30 June 2020 219,695 126,342 31,623 377,660 Note Goodwill $’000 Technology and Other Intangibles at Cost $’000 Software Development at Cost $’000 Cost At 1 July 2018 Additions Net foreign currency movements arising from foreign operations At 30 June 2019, as previously stated Adjustment to goodwill 25(d) At 30 June 2019, as restated Accumulated amortisation and impairment At 1 July 2018 Amortisation charge Net foreign currency movements arising from foreign operations At 30 June 2019 5 152,565 66,662 4,320 223,547 5,911 229,458 (1,573) - (22) (1,595) 99,415 93,188 3,661 196,264 - 196,264 (28,196) (12,054) (1,216) (41,466) 53,382 10,892 1,309 65,583 - 65,583 (32,153) (6,896) (502) (39,551) Total $’000 305,362 170,742 9,290 485,394 5,911 491,305 (61,922) (18,950) (1,740) (82,612) Carrying amount at 30 June 2019, as previously stated Carrying amount at 30 June 2019, as restated 221,952 227,863 154,798 154,798 26,032 26,032 402,782 408,693 60 Hansen Technologies Ltd Annual Report 2020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 25 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 five to 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 2020 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. (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. 61 Hansen Technologies Ltd Annual Report 2020NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2020 12. Intangible assets continued (a) Impairment test for goodwill continued Key assumptions used for value-in-use calculations The key assumptions for the Billing CGU supporting the disclosed recoverable value is as follows: • EBITDA for the first year based on financial budgets approved by senior management; • beyond the first year, profit before tax annual growth rate of 1.5% (2019: 1.8%); • a post-tax discount rate of 6.7% (2019: 7.2%); and • terminal growth rate of 1.0% (2019: 1.8%) at the end of the forecast period. Both the EBITDA growth rate beyond FY20 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 income tax expense is then adjusted for amounts related to tax. Owing to the current global environment, management has chosen to be conservative and has reduced the annual and terminal growth rates to compensate for a fall in the overall risk-free rate. The discount rate is based on the Group’s weighted average cost of capital. Results of impairment testing and sensitivity to changes in assumptions The current year’s calculation of the estimated recoverable amount of the CGU has not moved materially when compared to the prior year’s estimated recoverable amount of the CGU, as changes in annual and terminal growth rates have been offset by a decrease in the risk-free rate, and expected future cash generation has not changed materially from the previous corresponding period. The following table sets out key parameters that need to change for there to be no headroom available when comparing the calculation of the estimated recoverable amount of the CGU against the carrying value of the CGU at 30 June 2020: Change required for carrying amount to equal recoverable amount Discount rate Budgeted EBITDA growth rate 2020 3.09% (18.78%) Critical accounting estimate and judgement Impairment of goodwill The Group tests whether goodwill has been impaired on an annual basis. Management’s judgement is applied to identify the cash generating units (CGU). The recoverable amount of a 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. 62 Hansen Technologies Ltd Annual Report 202013. Leases (a) Right-of-use assets Cost Accumulated depreciation Net carrying amount at 30 June 2020 $’000 26,509 (6,422) 20,087 2019 $’000 - - - Movements in cost and accumulated depreciation during the year are inclusive of any net foreign currency movements arising from foreign operations. The Group has identified the following classes of right-of-use (ROU) assets: properties, vehicles, office and IT equipment. The largest class of asset recognised is the Group’s property leases, consisting of office buildings, as well as rental apartments for its employees undertaking short-term assignments overseas. Leases of properties generally have lease terms between six months and five years, while leases of office equipment, vehicles and IT equipment generally have terms between one and three years. The Group usually has rights to renew the lease arrangement that are reasonably certain to be exercised and therefore may have long, effective lease terms. The rental payments associated with each lease varies according to the amount of space rented and the location of the lease. However, in most cases the amount of rental payments is indexed annually in line with the relevant national consumer pricing index. Reconciliation of the carrying amounts of ROU assets at the beginning and end of the current financial year by class of asset is shown below: ROU Properties $’000 ROU Office Equipment $’000 ROU Vehicles $’000 ROU IT Equipment $’000 Note Cost Balance as at 1 July 2019 Adoption of new accounting standards 13(e)(i) Additions Remeasurement Disposals 13(b) 13(b) Exchange differences from foreign operations - 25,933 3,268 (2,148) (585) (271) - 114 - - - - Balance as at 30 June 2020 26,197 114 Accumulated depreciation Balance as at 1 July 2019 - Depreciation charge for the period 5, 13(c) (6,741) Disposals Exchange differences from foreign operations Balance as at 30 June 2020 Net book value as at 30 June 2020 51 352 (6,338) 19,859 - (38) - - (38) 76 - 82 142 - (30) 1 195 - (77) 30 2 (45) 150 - 149 - - (142) (4) 3 - (97) 95 1 (1) 2 Total $’000 - 26,278 3,410 (2,148) (757) (274) 26,509 - (6,953) 176 355 (6,422) 20,087 Remeasurement of the gross value of ROU assets results mainly from the reassessment of the estimation of the lease term of various properties within the Group. In the financial year ended 30 June 2020, the cost of variable lease payments amounted to $3,000. These variable lease payments do not depend on an index or a rate. These are included within ‘Other expenses’ account in the consolidated statement of comprehensive income. 63 Hansen Technologies Ltd Annual Report 2020NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2020 13. Leases continued (b) Lease liabilities Current Non-current 2020 $’000 5,661 15,384 21,045 Reconciliation of the carrying amounts of lease liabilities and the movements during the financial year is shown below: Balance as at 1 July Adoption of new accounting standards Additions Remeasurement Accretion of finance costs Payments Exchange differences from foreign operations Balance as at 30 June (c) Impact to profit or loss The following are the amounts recognised in the profit or loss: Depreciation expense of ROU assets Finance costs on lease liabilities Variable lease payments Income from sub-leasing of ROU assets Total amount recognised in profit or loss Note 2020 $’000 92 13(e)(i) 26,628 13(a) 13(a) 5 Note 5, 13(a) 5 3,410 (2,148) 1,193 (8,175) 45 21,045 2020 $’000 6,953 1,193 3 (1) 8,148 2019 $’000 92 - 92 2019 $’000 202 - - - 9 (119) - 92 2019 $’000 - 9 - - 9 (d) Impact to cash flows Following the adoption of AASB 16, the Group had total cash outflows for leases of $8,175,000 for the year ended 30 June 2020 (30 June 2019: $119,000 under AASB 117 Leases). Out of the $8,175,000 cash outflows, $6,982,000 relates to cash outflows from investing activities (principal payments), while the remaining balance relates to cash outflows from operating activities (finance costs on lease liabilities). As a result of adopting AASB 16, the Group also had non-cash additions to ROU assets of $29,688,000 and lease liabilities of $30,038,000 during the financial year. The future cash outflows relating to leases that have not yet commenced are disclosed in Note 23. 64 Hansen Technologies Ltd Annual Report 2020(e) AASB 16 Leases AASB 16 supersedes all previous lease accounting requirements under Australian Accounting Standards. The main impact on the Group is that AASB 16 introduces a single lessee accounting model and requires a lessee to recognise assets and liabilities for most leases. (i) Impact on adoption The Group adopted AASB 16 using the modified retrospective method of adoption, where the cumulative effect of initially applying the standard is recognised as an adjustment to opening balances on 1 July 2019 (the transition date). Therefore, comparative figures for prior reporting periods are not restated. In adopting AASB 16, the Group has also taken advantage of the following practical expedients: • For each class of ROU lease asset, the Group uses a single discount rate to a portfolio of leases that have the same lease term, same currency and located in the same jurisdiction. • The Group will rely on its assessments under the previous accounting standards to determine whether a ROU asset is impaired. Accordingly, the Group has adjusted the ROU asset at transition date by the amount of any provisions for onerous leases previously recognised. • The Group has excluded initial direct costs from the measurement of the ROU asset on transition date. • The Group has used hindsight and assumed all previous options to extend the lease have been exercised in determining the lease term on transition date. The Group has chosen not to apply the practical expedients for short-term leases and leases for which the assets are of low value. The weighted average incremental borrowing rate applied to lease liabilities recognised at transition date was 4.7%. The effect of adopting AASB 16 is as follows: Assets Non-current assets Right-of-use assets Total assets impact Liabilities Current liabilities Lease liabilities Provisions Non-current liabilities Lease liabilities Total liabilities impact Net assets impact Total equity impact Note 13(a) 13(b) 13(b) 1 July 2019 Transition Adjustment $’000 26,278 26,278 5,731 (350) 20,897 26,278 - - 65 Hansen Technologies Ltd Annual Report 2020 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2020 13. Leases continued (e) AASB 16 Leases continued (ii) Impact in FY20 Had AASB 16 not been applied and the financial statements were still produced under previous guidance and accounting standards, the Financial Report for the year ended 30 June 2020 would have recorded a higher net profit after tax of $437,000 and a higher net assets and equity of $465,000. Consolidated statement of comprehensive income Property and operating rental expenses Depreciation expense Finance costs on lease liabilities1 Impact on statement of comprehensive income for the year ended 30 June 2020 Consolidated statement of financial position Right-of-use assets Deferred tax asset Provisions Lease liabilities – current Lease liabilities – non-current Impact on net assets in the statement of financial position as at 30 June 2020 Consolidated statement of changes in equity Reserves Retained earnings Impact on equity in the statement of financial position as at 30 June 2020 Note $’000 4a 5, 13(a) 5, 13(b) (7,694) 6,953 1,178 437 13(a) (20,087) 13(b) 13(b) (233) (260) 5,661 15,384 465 28 437 465 1. Finance costs on lease liabilities on the above table excludes a balance of $15,000 relating to an IT equipment lease previously classified as a finance lease under the old leasing standards i.e. AASB 117 Leases. Adoption of AASB 16 did not impact the amount of finance costs to be recognised for this ROU asset. (iii) Reconciliation with prior period operating lease commitments disclosure Total future minimum rentals payable at the end of the prior period 30 June 2019 Transition assessment adjustments Effect of discounting to present value Total lease liabilities at the date of initial application $’000 29,888 1,640 (4,900) 26,628 Adjustments were identified during the Group’s transition assessment exercise to account for the revised definition of a lease under AASB 16 including, amongst other considerations, whether there is a reasonable probability that the Group will exercise renewal or early termination options in its lease contracts. 66 Hansen Technologies Ltd Annual Report 2020Significant accounting policies Leases The determination of whether an arrangement is (or contains) a lease depends on whether the arrangement conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Control over the use of an identified asset exists when the arrangement involves the use of an identified asset, when the Group obtains substantially all the economic benefits from the use of the asset, and when the Group has the right to direct the use of the asset. The lease term is first determined with reference to the non-cancellable period of the lease contract, adjusted for any periods covered by options to extend the lease and/or to early terminate the lease if the Group is reasonably certain to exercise the options. Judgement is applied by the Group in determining whether the Group is reasonably certain to exercise the options. Lease liabilities are initially recognised and measured based on the total value of fixed and variable contractual lease payments over the lease term, including payments to extend or terminate the lease if the Group is reasonably certain to exercise the option to extend or terminate the lease respectively. The lease payments are discounted to present value based on the incremental borrowing rate implicit in the lease. Lease payments on properties exclude service fees for maintenance, cleaning and other costs as these costs are separated as non-lease components. However, the Group has elected not to separate lease and non-lease components for leases of vehicles, office and IT equipment. Leased assets are capitalised at the commencement date of the lease and comprise of the initial lease liability amount, initial direct costs incurred when entering the lease, less any lease incentives received. Leased assets are depreciated on a straight-line basis over the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. Estimated useful lives of right-of-use assets are determined on the same basis as those of plant and equipment. The right-of-use asset is also periodically assessed for impairment losses and adjusted for certain remeasurements of the lease liability. (i) Presentation and disclosure Depreciation on right-of-use assets is included as part of ‘Depreciation expense’ account in the consolidated statement of comprehensive income, and interest expense on lease liabilities is included as part of ‘Finance costs on lease liabilities’ account in the consolidated statement of comprehensive income. Right-of-use assets are disclosed separately on the consolidated statement of financial position, with Note 13(a) disaggregating the lease assets by class of asset. Lease liabilities are presented as current and non-current in the consolidated statement of financial position depending on the timing of the settlement of contractual cash outflows. The repayment of the principal portion of lease payments is presented as part of financing activities in the consolidated statement of cash flows, and the interest portion is presented as part of operating activities. Critical accounting estimate and judgement Determining the lease term of contracts with renewal and termination options – Group as a lessee The Group determines the lease term as the non-cancellable term of the lease together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised. The Group has several lease contracts that include extension and termination options. The Group applies judgement in evaluating whether it is reasonably certain whether or not to exercise the option to renew or terminate the lease. That is, it considers all relevant factors that create an economic incentive for it to exercise either the renewal or termination. After the commencement date, the Group reassesses the lease term if there is a significant event or change in circumstances that is within its control and affects its ability to exercise or not to exercise the option to renew or to terminate (e.g. construction of significant leasehold improvements or significant customisation to the leased asset). Estimating the incremental borrowing rate The Group cannot readily determine the interest rate implicit in the lease, therefore, it uses its incremental borrowing rate (IBR) to measure lease liabilities. The IBR is the rate of interest that the Group would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment. The IBR therefore reflects what the Group ‘would have to pay’, which requires estimation when no observable rates are available (such as for subsidiaries that do not enter into financing transactions) or when they need to be adjusted to reflect the terms and conditions of the lease (for example, when leases are not in the subsidiary’s functional currency). The Group estimates the IBR using observable inputs (such as market interest rates) when available and is required to make certain entity-specific estimates (such as the subsidiary’s stand-alone credit rating). 67 Hansen Technologies Ltd Annual Report 2020NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2020 14. Payables Trade payables Other payables1 Total payables 2020 $’000 4,794 19,429 24,223 2019 $’000 10,349 14,257 24,606 1. Comparative amount of ‘Other payables’ account has been restated and has increased by $3,411,000 in accordance with the accounting for business combination. Refer to Note 25(b) and Note 25(e). 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. 15. Other operating provisions Current Lease and rental provisions Onerous contract provisions Restructuring provisions Other Reconciliation of other operating provisions Carrying amount at beginning of year Net (payments)/provisions made during the year Carrying amount at end of year 2020 $’000 - 417 484 280 1,181 1,211 (30) 1,181 2019 $’000 1,051 - - 160 1,211 471 740 1,211 The movement in operating provisions during the year was largely driven by an onerous contract and restructuring provisions offset by the reversal of the onerous lease provisions. The restructuring provisions have been included as part of the transactions classified as separately disclosed items 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. 68 Hansen Technologies Ltd Annual Report 2020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. 16. Employee benefits Current employee benefits1,3 Non-current employee benefits2 Total employee benefits liability 2020 $’000 14,374 170 14,544 2019 $’000 14,102 189 14,291 1. Included within current provisions in the consolidated statement of financial position. 2. Included within non-current provisions in the consolidated statement of financial position. 3. Comparative amount of ‘Current employee benefits’ liability has been restated and has increased by $243,000 in accordance with the accounting for business combination. Refer to Note 25. Employee benefits liability Employee benefits liability represents amounts provided for annual leave and long service leave. The current portion for this provision includes the total amount accrued for annual leave entitlements and the amounts accrued for long service leave entitlements that have vested due to employees having completed the required period of service. Based on past experience, the Group does not expect the full amount of annual leave or long service leave balances classified as current liabilities to be settled within the next 12 months. These amounts are presented as current liabilities since the Group does not have an unconditional right to defer the settlement of these amounts in the event employees wish to use their leave entitlement. The following amounts reflect leave that is not expected to be taken or paid within the next 12 months: Current leave obligations expected to be settled after 12 months 2020 $’000 2,212 2019 $’000 2,074 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 34. 2020 $ 2019 $ 3,823,007 3,875,298 171,750 896,658 168,821 452,717 4,891,415 4,496,836 69 Hansen Technologies Ltd Annual Report 2020NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2020 16. Employee benefits continued Significant accounting policies Short-term employee benefit obligations Liabilities arising in respect of wages and salaries, annual leave, long service leave and any other employee benefits expected to be settled within 12 months of the reporting date are measured at the amounts based on remuneration rates that are expected to be paid when the liability is settled. The expected cost of short-term employee benefits in the form of compensated absences such as annual leave and long service leave is recognised in the provision for employee benefits. All other short-term employee benefit obligations are presented as payables. Other long-term employee benefit obligations The provision for other long-term employee benefits, including obligations for long service leave and annual leave, which are not expected to be settled wholly before 12 months after the end of the reporting period, are measured at the present value of the estimated future cash outflow to be made in respect of the services provided by employees up to the reporting date. Expected further payments incorporate anticipated future wage and salary levels, durations of service and employee turnover, and are discounted at rates determined by reference to market yields at the end of the reporting period on high-quality corporate bonds that have maturity dates that approximate the terms of the obligations. Any remeasurements for changes in assumptions of obligations for other long-term employee benefits are recognised in profit or loss in the periods in which the change occurs. Other long-term employee benefit obligations are presented as current liabilities in the balance sheet if the entity does not have an unconditional right to defer settlement for at least 12 months after the reporting date, regardless of when the actual settlement is expected to occur. All other long-term employee benefit obligations are presented as non-current liabilities in the consolidated statement of financial position. Retirement benefit obligations The consolidated entity makes superannuation 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 employees’ 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 is measured on the basis of the best estimate of the number of employees expected to be affected. Termination benefits that are expected to be settled wholly before 12 months after the annual reporting period in which the benefits are recognised are measured at the (undiscounted) amounts expected to be paid 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. 70 Hansen Technologies Ltd Annual Report 202017. 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 of 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 2020 No. of Shares 2019 No. of Shares 115,792 - (56,932) 58,860 114,758 45,560 (44,526) 115,792 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 2020 $’000 - 2019 $’000 170 The market value of the Company’s ordinary shares closed at $2.91 on 30 June 2020 ($3.93 on 30 June 2019). There were no shares issued under the ESP for the current financial year. (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 Plan, awards are made to eligible executives and other management personnel who have an impact on the Group’s performance. Plan awards for long-term incentives 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. During the year, a new deferred equity component for short-term incentives was introduced where 25% of the award is in the form of performance rights. These rights are subject to a two-year deferral period where recipients must retain 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 17(d). Performance rights issued and outstanding as at 30 June 2020 Grant date 2 Jul 2017 2 Jul 2018 1 Sep 2019 1 Sep 2019 Total Vesting date 31 Aug 20201,2 31 Aug 20211 30 Jun 2022 30 Jun 2022 Type LTI LTI STI LTI Fair value per right $ Rights granted No. of rights at 30/06/2020 3.815 3.01 3.11 2.83 355,316 530,652 95,451 540,007 345,494 480,079 87,218 489,306 1,521,426 1,402,097 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. 2. Performance rights in relation to EPSa CAGR measure exceeded the required performance measurement hurdles and will vest on an accelerated basis paying 150% of the entitlement on 31 August 2020. Performance rights associated with the TSR hurdle did not meet the market conditions. 71 Hansen Technologies Ltd Annual Report 2020NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2020 17. Share-based payments continued (b) Employee Performance Rights Plan continued Performance rights issued and outstanding as at 30 June 2019 Grant Date 2 Jul 2017 2 Jul 2018 Total Vesting Date 31 Aug 20201 31 Aug 20211 Type LTI LTI Fair Value Per Right $ 3.815 3.01 Rights Granted No. of Rights at 30/06/2019 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. There were no performance rights vested or lapsed during the financial year. The weighted average contractual life of outstanding performance rights at the end of the financial year is 1.26 years (2019: 1.77 years). (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 17(d). There were no new options issued under the Option Plan during the 30 June 2020 and 30 June 2019 financial years, as the Option Plan was replaced with the Rights Plan as described in Note 17(b). Movement of options during the year ended 30 June 2020: Grant Date 2 Jul 2014 2 Jul 2015 Vesting Date Expiry Date 2 Jul 2017 2 Jul 2018 2 Jul 2019 2 Apr 20212 22 Dec 2016 31 Aug 2019 22 Dec 2021 Total Weighted average exercise price 1. 265,000 options were exercised on 1 July 2019. Exercise Price $ No. of Options at Beg. of Year Options Exercised, Lapsed or Other No. of Options at End of Year 1.30 2.67 3.59 265,000 925,000 (265,000) 1 (40,000) 3 1,323,730 (1,323,730) 4 2,513,730 (1,628,730) $1.48 - 885,000 - 885,000 $2.05 2. The original expiry date for this tranche of options was 2 July 2020. However, due to the COVID-19 pandemic impact on financial markets, the Board exercised its discretion to extend the expiry date for the remaining options to 2 April 2021. 3. 40,000 options were exercised on 1 June 2020. 4. Options issued on 22 December 2016 did not meet the required performance measurement hurdles for the options to vest and/or be exercisable. 72 Hansen Technologies Ltd Annual Report 2020Movement of options during the year ended 30 June 2019: Grant Date 2 Jul 2013 2 Jul 2014 2 Jul 2015 Vesting Date Expiry Date 2 Jul 2016 2 Jul 2017 2 Jul 2018 30 Sept 2018 2 Jul 2019 2 July 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 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) No. of Options at End of Year - 265,000 925,000 - 1,323,730 (355,000) 2,513,730 $1.51 $3.01 The weighted average fair value of options granted during the year was nil (2019: nil) as there were none issued during the year. The weighted average share price for share options exercised during the financial year was $3.86 (2019: $3.57). The weighted average remaining contractual life for share options outstanding at the end of the financial year was 0.58 years (2019: 1.68 years). (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 2020 and for the prior year 30 June 2019, 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 2020 2 September 2019 2019 2 July 2018 30 June 2022 31 August 2021 1 July 2019 to 30 June 2022 2 July 2018 to 30 June 2021 $3.11 $2.55 $3.28 35% 1.88% 0.69% $2.99 $3.03 $3.15 35% 1.75% 2.06% 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 FY17 Rights issued under Employee Performance Rights Plan FY18 Rights issued under Employee Performance Rights Plan FY19 Rights issued under Employee Performance Rights Plan FY20 Note 2020 $ - 431,479 476,301 564,820 2019 $ (136,785) 451,844 513,524 - 8(a), 22(b) 1,472,600 828,583 73 Hansen Technologies Ltd Annual Report 2020NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2020 17. Share-based payments continued 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 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. Share-based payments are subject to two different forms of measurement: • Market-based • Non-market-based These measurement criteria are subject to different accounting treatments under AASB 2 Share-based Payment. Market-based measurement Any awards subject to market conditions will vest irrespective of the condition being met. Where a condition is not met, the expense associated with the award will continue to be recognised over the vesting period. Non-market-based measurement For any non-market-based awards where the condition is not satisfied, the expense incurred to date is reversed and no further charge is recognised over the remaining period. 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 and Monte Carlo simulation 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. 74 Hansen Technologies Ltd Annual Report 2020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. 18. 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 as at 30 June 2020 was $48,336,000 (2019: $47,510,000). 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. Set out below shows the concentration of our trade receivables balances by the industry they operate in. FY20 2% FY19 3% 42% Communication Energy Other 41% 56% 56% 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. 75 Hansen Technologies Ltd Annual Report 2020NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2020 18. Financial risk management continued (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 19 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: The table below summarises the maturity profile of the Group’s financial liabilities based on contractual undiscounted payments. Financial Liabilities Note Less than 6 Months 6-12 Months 1-2 Years 2-3 Years > 3 Years Total Carrying Amount Contractual Cash Flows $’000 2020 Trade and other payables Bank overdraft Lease liabilities Secured borrowings 2019 Trade and other payables1 Bank overdraft Lease liabilities Secured borrowings1 14 19 19 14 19 19 24,223 591 3,266 - - - - - 2,745 5,200 - 160,394 28,080 2,745 165,594 24,606 - 112 - 24,718 - 134 - - 134 - - - - - - - 4,646 - 4,646 - - - 189,543 189,543 - - 24,223 591 6,959 22,816 - 160,394 6,959 208,024 - - - - - 24,606 134 112 189,543 214,395 1. Comparative amounts have changed due to the reclassifications as described in Notes 10 and 19 and retrospective adjustments for business combination as described in Note 25. 76 Hansen Technologies Ltd Annual Report 2020(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 risk The Group’s main exposure to interest rate risk arises from its lease liabilities, 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 2020 is 3.46% (2019: 4.52%). If the interest rate were to increase or decrease by 1%, with all other variables held constant, the impact to pre- tax profit is $2,064,000 (2019: $354,000) and the impact to post-tax equity1 is $1,482,000 (2019: $251,000). This impact is based on a higher level of borrowings during most of this financial year compared to the prior year and the recognition of lease liabilities upon adoption of AASB 16. 1. Post-tax equity is calculated as the 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). 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. (d) Foreign currency risk Nature of risk 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. Exposure to the risk 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 85% of its revenue is now earned in foreign currency designated transactions. The Group has a number of offices located internationally and more than 88% 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 relates to the movement in US Dollar (USD), British Pound (GBP), Canadian Dollar (CAD) and Euro (EUR) exchange rates. At the reporting date, cash and cash equivalents included $38.4 million (2019: $34.3 million) denominated in foreign currencies. If the foreign currency exchange rate for our primary foreign currencies (being USD, GBP, CAD and EUR) were to move by 10%, with all other variables held constant, the impact to our foreign currency translation reserves (classified as equity in the consolidated statement of financial position) on translation of our foreign currency- denominated cash and cash equivalents is as follows: USD GBP CAD EUR Increase/(Decrease) $’000 +10% -10% 2020 1,679 2019 1,141 (1,679) (1,141) 2020 531 (531) 2019 339 (339) 2020 2019 - - 78 (78) 2020 700 (700) 2019 694 (694) 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). 77 Hansen Technologies Ltd Annual Report 2020NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2020 18. Financial risk management continued (d) Foreign currency risk continued How is the risk managed? 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 of the net assets of our foreign subsidiaries are recognised in the foreign currency translation reserve in equity. Accordingly, the Group has an inbuilt 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 19, 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. 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 restatement are recognised in profit or loss and presented in the consolidated 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 2020 and 30 June 2019, there are no assets or liabilities carried at fair value on a recurring basis. 19. Borrowings Current Secured Bank overdraft Non-current Secured Term facility – gross borrowings Term facility – net prepaid borrowing costs1 2020 $’000 2019 $’000 591 591 134 134 160,394 (2,542) 157,852 189,543 (3,869) 185,674 1. Comparative amount for ‘Term facility – net prepaid borrowing costs’ account have been restated to reflect a reclassification of $653,000 from ‘Prepayments – current’ account. Refer to Note 10. 78 Hansen Technologies Ltd Annual Report 2020(a) Loan facilities Loan facility Repayments of non-withdrawable facility Amount utilised Unused loan facility 2020 $’000 225,000 (8,000) (160,394) 56,606 2019 $’000 225,000 - (189,543) 35,457 On 1 May 2019, the Group entered into a secured $225,000,000 syndicated multi-currency facility with its external financiers to fund the acquisition of Sigma Systems (refer Note 25) 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. The facility is secured by 75% of Group assets. As at 30 June 2020, the remaining unutilised portion of the facility is $56,606,000. On 27 July 2020, the Group voluntarily cancelled $40,000,000 of the facility effective from 30 July 2020. After this, the unutilised portion of the facility is $16,606,000. (b) Changes in liabilities arising from financing activities Note 2020 $’000 185,808 2019 $’000 27,031 (27,833) 160,943 - 457 1,327 (1,316) (4,878) 134 1,009 1,569 158,443 185,808 Opening balance at 1 July Cash flows from financing activities Net (repayment of)/proceeds from borrowings Cash flows from non-financing activities Prepaid borrowing costs Draw-down of overdraft facility Non-cash changes Amortisation of prepaid borrowing costs 5 Effect of foreign exchange Closing balance at 30 June1 1. Represents long-term facility borrowings of $157,852,000 (2019: $185,674,000) and bank overdraft facility of $591,000 (2019: $134,000). (c) Hedge of net investments in foreign operations Included in the ‘Borrowings’ account as at 30 June 2020 are two borrowings of US$12,000,000 and GB£13,000,000 drawn down as part of the syndicated multi-currency facility in the prior year. Repayments have been made during the year and as at 30 June 2020, carrying amount of these borrowings are US$4,500,000 and GB£8,500,000. Both these foreign currency-denominated borrowings have been designated as a hedge of the net investments in the Group’s subsidiaries in the United States and the United Kingdom. The borrowings are being used to hedge the Group’s exposure to the US$ and GB£ 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. The Group’s hedging relationship remains unchanged from the prior year for its foreign currency-denominated borrowings. 79 Hansen Technologies Ltd Annual Report 2020 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2020 19. Borrowings continued (c) Hedge of net investments in foreign operations continued The effects of the foreign currency related hedging instruments on the Group’s financial position and performance are as follows: Syndicated Debt Facility ’000 Note USD Loan GBP Loan Carrying amount of the loan – 30 June 2020 (AUD) Carrying amount of the loan – 30 June 2020 (nominated currency) Hedge ratio1 Change in the carrying amount of loan as a result of foreign currency movements since 1 July 2019, recognised in OCI ($) 22(a) Change in the value of the hedged item used to determine hedge effectiveness ($) Average hedged rate for the year (local currency:1 AUD) 6,543 4,500 1:1 672 (672) 0.671 15,240 8,500 1:1 130 (130) 0.532 Total 21,783 802 (802) 21,783 1. The draw-down loans under the syndicated 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 (2019: 1:1). 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 a decrease of $802,000 (2019: increase of $43,000). The hedging loss recognised in ‘OCI’ (Other Comprehensive Income) before tax is equal to the change in fair value used for measuring effectiveness. There is no ineffectiveness in the years ended 30 June 2020 and 2019. 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. 20. Contributed capital (a) Issued and paid up capital Ordinary shares, fully paid The ordinary shares have no par value in accordance with the Corporations Act 2001. 2020 $’000 2019 $’000 140,952 138,746 80 Hansen Technologies Ltd Annual Report 2020(b) Movements in shares on issue 2020 No. of Shares 2020 $’000 2019 No. of Shares Balance at beginning of the financial year 197,399,653 138,746 196,648,230 Shares issued under the Dividend Reinvestment Program 527,423 Shares issued under the Employee Share Plan Options exercised under the Executive LTI Plan - 305,000 1,754 - 452 350,863 45,560 355,000 2019 $’000 136,896 1,145 170 535 Balance at end of the financial year 198,232,076 140,952 197,399,653 138,746 (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. The capital risk management policy remains unchanged from the 30 June 2019 Financial Report. 21. Dividends A final dividend of 7 cents per share has been declared. This final dividend of 7 cents per share, partially franked to 0.70 cents per share, comprising of a regular dividend of 5 cents per share, together with a special dividend of 2 cents per share, was announced to the market on 28 August 2020. The amount declared has not been recognised as a liability in the accounts of Hansen Technologies Limited as at 30 June 2020. Dividends paid during the year (net of dividend reinvestment) 3 cents per share final dividend paid 26 September 2019 – partially franked1 4 cents per share final dividend paid 27 September 2018 – fully franked2 3 cents per share interim dividend paid 26 March 2020 – partially franked3 3 cents per share interim dividend paid 29 March 2019 – fully franked4 Proposed dividend not recognised at the end of the year Dividends franking account 30% franking credits, on a tax paid basis, are available to shareholders of Hansen Technologies Ltd for subsequent financial years 2020 $’000 2019 $’000 4,904 - 5,211 - 10,115 13,876 - 7,319 - 5,318 12,637 5,922 27 1,586 1. The final dividend paid of 3 cents per share franked to 2.6 cents, comprised of a regular dividend of 3 cents per share. 2. The final dividend paid of 4 cents per share, franked to 4 cents, comprised of a regular dividend of 3 cents per share, together with a special dividend of 1 cent per share. 3. The interim dividend of 3 cents per share franked to 1.59 cents, comprised of a regular dividend of 3 cents per share. 4. The interim dividend of 3 cents per share, franked to 3 cents, comprised of a regular dividend of 3 cents 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. 81 Hansen Technologies Ltd Annual Report 2020NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2020 22. Reserves and retained earnings Foreign currency translation reserve Share-based payments reserve Retained earnings Note 22(a) 22(b) 22(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 1 July Net (loss)/gain on hedges of a net investment Exchange differences on translation of foreign operations Balance at 30 June Note 19(c) 2020 $’000 9,397 5,404 96,741 2020 $’000 23,340 (802) (13,141) 9,397 2019 $’000 23,340 3,931 82,853 2019 $’000 16,739 43 6,558 23,340 (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 1 July Share-based payments expensed during the year Balance at 30 June (c) Retained earnings Movements in retained earnings Balance at 1 July Effect of adoption of new accounting standards Dividends declared during the year (before dividend reinvestment) Net profit after income tax expense Balance at 30 June Note 17(e) Note 3(a)(i) 28(c) 2020 $’000 3,931 1,473 5,404 2020 $’000 82,853 - (11,869) 25,757 96,741 2019 $’000 3,102 829 3,931 2019 $’000 73,186 1,984 (13,782) 21,465 82,853 23. Commitments and contingencies Commitments on leases not yet commenced The Group has one lease contract that has not yet commenced as at 30 June 2020. The future lease payments for this non-cancellable lease contract is $42,000 and is payable within one year. Contingent assets and liabilities There have been various indemnity and warranty claims made to the vendors of the acquired business, Sigma Systems (refer to Note 25). The outcome of these claims cannot be reliably measured as at the date of signing of the annual Financial Report and are contingent on further negotiations. At 30 June 2020 and 2019, the Group does not have any other contingent assets and liabilities. 82 Hansen Technologies Ltd Annual Report 2020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. 24. 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 after income tax expense Total comprehensive income for the year Parent Entity 2020 $’000 188 232,030 232,218 876 52,044 52,920 2019 $’000 1,028 243,841 244,869 2,350 77,796 80,146 179,298 164,723 140,951 34,712 5,404 (1,769) 138,746 22,962 3,931 (916) 179,298 164,723 Parent Entity 2020 $’000 23,616 22,763 2019 $’000 27,464 27,538 Dividends of $26,183,000 (2019: $29,000,000) 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 to Note 19) 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 28. No deficiencies of assets exist in any of these companies. On 7 July 2020, a Deed of Parent Guarantee and Indemnity has been executed between the parent entity and Sigma Systems Canada LP, a wholly-owned subsidiary, in favour of a financing company based in Canada to secure a credit card facility. 83 Hansen Technologies Ltd Annual Report 2020NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2020 24. Parent entity information continued 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 statement of comprehensive income 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. 25. 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 communications sector, builds on the Group’s global presence and provides opportunities for cross-selling products into the Group’s existing market verticals. The fair values of the identifiable assets and liabilities acquired as at the date of acquisition were previously reported at their provisional amounts in light of the timing of the transaction. At 30 June 2020, provisional fair value of assets and liabilities acquired have been finalised, including the corresponding goodwill and purchase price consideration, as detailed below: Assets acquired: Cash Receivables Accrued revenue Prepayments and other current assets Plant and equipment Current tax receivable Customer contracts Technology Brand name Total assets acquired Liabilities acquired: Payables Accruals and provisions Unearned revenue Deferred tax liability Total liabilities acquired Net identifiable assets acquired Goodwill arising on acquisition Total purchase consideration 84 Provisional Fair Value $’000 Adjustments $’000 Finalised Fair Value $’000 4,439 13,163 19,137 5,294 970 741 65,898 17,727 9,563 - - (2,021) (a) - - - - - - 4,439 13,163 17,116 5,294 970 741 65,898 17,727 9,563 136,932 (2,021) 134,911 2,377 3,121 7,516 26,750 39,764 97,168 66,662 163,830 (b) (c) - 2,575 236 - 2,811 (4,832) 5,911 1,079 (d) (e) 2,377 5,696 7,752 26,750 42,575 92,336 72,573 164,909 Note 3(a)(iii) 14, 16 3(a)(iii) 6(b)(iii) 12 14 Hansen Technologies Ltd Annual Report 2020The Group has made retrospective adjustments to the accounting for the business combination in the comparative amounts for the financial year ended 30 June 2019 as follows: (a) Accrued revenue Information obtained during the measurement period provided that the provisional amount of accrued revenue included revenue accruals for a licence and professional services contract that did not meet certain revenue recognition criteria amounting to $2,021,000. An adjustment was recognised to reflect the fair value of accrued revenue acquired at acquisition date. (b) Accruals and provisions There were certain liabilities upon acquisition amounting to $2,575,000 that were previously not recorded. Adjustment to increase the ‘Other payables’ account by $2,332,000 and ‘Provisions’ account by $243,000 were recognised to reflect the fair value of accruals and provisions acquired at acquisition date. (c) Unearned revenue An accounting error for $236,000 was identified as part of the unearned revenue balance provisionally acquired. An adjustment was recognised to reflect the fair value of unearned revenue assumed at acquisition date. (d) Goodwill The adjustments to the fair value of assets and the purchase price consideration has affected the fair value of the goodwill at acquisition date. The overall increase in goodwill at acquisition date is $5,911,000. (e) Total purchase consideration In accordance with the agreement with the vendors of Sigma, the total purchase price consideration is to be adjusted for any pre-tax closing refund received by the Company and the position in net working capital in accordance with the hurdle agreed upon. The net amount payable to the vendors of Sigma after considering the pre-tax closing refund and working capital adjustment amounts to $1,079,000. This amount is included under ‘Other payables’ account. Refer to Note 14. 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 communications 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. (i) Transaction costs There were no transaction costs (2019: $2,063,000) incurred during the period in relation to the acquisition. Transaction costs were identified as a separately disclosed item. Refer to Note 4 for further information. (ii) Contribution since acquisition During the year, Sigma has contributed total revenue of $68,343,000 (2019: $4,968,000) and an underlying EBITDA of $14,136,000 (2019: loss of $317,000), which is included within the Group’s consolidated results. (iii) Deferred remuneration Separate to the business combination in accordance with the accounting standards, in the previous financial year an amount of $2,235,000 has been paid and held in escrow as deferred remuneration for certain executives of Sigma. In the current financial year, $164,000 of this amount has been released. Release of the amounts from escrow are contingent on continuous employment with the combined Group. At 30 June 2020, the balance of this amount is $2,060,000 of which $1,132,000 and $928,000 are included as part of ‘Other assets – current’ and ‘Other assets – non-current’, accounts in Note 10, respectively. 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 2020 $’000 - - - 2019 $’000 163,830 (4,439) 159,391 85 Hansen Technologies Ltd Annual Report 2020NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2020 25. Business combinations continued Significant accounting policies 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’s 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. 86 Hansen Technologies Ltd Annual Report 2020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. 26. 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: Country of Incorporation Note Ordinary Share Entity Interest 2020 % 2019 % 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. Sweden Switzerland United Kingdom United Kingdom United Kingdom United States United States United States United States United States Vietnam 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 87 Hansen Technologies Ltd Annual Report 2020NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2020 26. Related party disclosures continued (a) List of controlled entities continued Name Subsidiaries of Hansen Technologies Limited continued Country of Incorporation Note Sigma Systems Canada Inc. Sigma Systems Canada LP 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. Canada Canada Canada Canada India Japan United Kingdom United Kingdom United States Ordinary Share Entity Interest 2020 % 2019 % 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 1. Hantech Singapore Pte Limited was dissolved on 2 June 2020 and was deemed to be dissolved upon this date in accordance with Section 308(5) of the Companies Act of the Republic of Singapore. 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 the Directors1 – rental payments A related party to Andrew Hansen – rental payments 2020 $ 1,511,495 2019 $ - 22,920 1,633,450 1,534,415 1,633,450 1. Andrew Hansen, Bruce Adams and David Osborne have joint interest to the Melbourne and South Melbourne properties of which the Group pays monthly rental payments. This interest was held solely by Andrew Hansen in the previous financial year. 88 Hansen Technologies Ltd Annual Report 202027. Auditor’s remuneration The auditor of the Group for the year ended 30 June 2020 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 298,200 279,000 2020 $ 2019 $ (ii) Other non-audit services – taxation services – compliance services - - - - - - Total remuneration of RSM Australia Partners 298,200 279,000 (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 entity1 (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 597,478 365,023 110,275 31,420 141,695 739,173 52,349 14,709 67,058 432,081 - - - - - - - - - - 1,037,373 711,081 1. For the financial year ended 30 June 2020, the amount includes fees associated to the audit of the acquisition of the Sigma Group. 89 Hansen Technologies Ltd Annual Report 2020 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2020 28. 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 Limited, 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 2020 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 costs on borrowings Finance costs on lease liabilities Foreign currency gains/(losses) Other expenses Total expenses Profit before income tax expense Income tax expense Profit after income tax expense Other comprehensive (expense)/income Items that may be reclassified subsequently to profit and loss Net (loss)/gain on hedges of net investments Exchange differences on translation of foreign entities, net of tax Other comprehensive (expense)/income for the year Note 2020 $’000 43,934 32,834 76,768 2019 $’000 49,380 17,951 67,331 (26,446) (27,429) (2,095) (3,110) (1,645) (27) (1,740) (4,347) (846) (487) (628) (4,022) (169) (414) (1,263) (47,239) 29,529 (1,750) 27,779 (802) (801) (1,603) (1,219) (2,691) (2,698) (142) (1,216) (3,916) (1,187) (618) (370) (1,677) - (200) (2,408) (45,771) 21,560 (3,631) 17,929 43 20 63 28(c) Total comprehensive income for the year 26,176 17,992 90 Hansen Technologies Ltd Annual Report 2020(b) Consolidated statement of financial position Set out below is a consolidated statement of financial position as at 30 June 2020 of the Closed Group: Current assets Cash and cash equivalents Receivables Accrued revenue Current tax asset Other current assets Total current assets Non-current assets Plant, equipment and leasehold improvements Intangible assets Right-of-use assets Other non-current assets Deferred tax assets Total non-current assets Total assets Current liabilities Payables Lease liabilities Current tax payable Provisions Unearned income Total current liabilities Non-current liabilities Deferred tax liabilities Borrowings Lease liabilities Provisions Total non-current liabilities Total liabilities Net assets Equity Share capital Foreign currency translation reserve Share-based payments reserve Retained earnings Total equity 2020 $’000 2,829 5,522 1,283 530 2,528 12,692 2,993 25,686 3,826 214,393 4,148 251,046 263,738 3,839 784 - 5,776 5,637 16,036 4,803 51,842 3,173 170 59,988 76,024 187,714 2019 $’000 5,371 7,913 1,956 - 1,154 16,394 2,858 23,871 - 221,303 2,968 251,000 267,394 6,401 - 130 6,067 4,469 17,067 3,011 77,399 - 189 80,599 97,666 169,728 140,951 138,746 (2,554) 1,927 47,390 187,714 (953) 455 31,480 169,728 91 Hansen Technologies Ltd Annual Report 2020NOTES TO THE FINANCIAL STATEMENTS CONTINUED 30 JUNE 2020 28. Deed of cross guarantee continued (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 28(a) 22(c) 2020 $’000 31,480 27,779 (11,869) 47,390 2019 $’000 27,333 17,929 (13,782) 31,480 29. New and amended accounting standards and interpretations (a) Adoption of new and amended accounting standards that are first operative at 30 June 2020 The Group has adopted the following new and amended accounting standards, applicable and effective for the financial year beginning 1 July 2019: • AASB 16 Leases • AASB Interpretation 23 Uncertainty over Income Tax Treatments • AASB 9 Prepayment Features with Negative Compensation (Amendments to AASB 9) • AASB 128 Long-term Interests in Associates and Joint Ventures (Amendments to AASB 128) • Annual Improvements to AASB 2015-2017 Cycle • Plan Amendment, Curtailment or Settlement (Amendments to AASB 119) Except for AASB 16, these Standards and amendments do not have a significant impact on the Financial Report and therefore the disclosures have not been made. Note 13(e) discloses and describes the impact from the adoption of AASB 16. The Group has not early adopted any other Standard, interpretation or amendment that has been issued but is not yet effective. Where necessary, comparative information has been reclassified and repositioned for consistency with current year disclosures. (b) Accounting standards and interpretations issued but not operative at 30 June 2020 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 2018-6 Amendments to Australian Accounting Standards: Definition of a Business These amendments revise 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 Since the amendments apply prospectively to transactions or other events that occur on or after the date of first application, the Group will not be affected by these amendments on the first date of transition. (ii) 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. Group’s assessment performed to date The amendments to the Conceptual Framework are not expected to have a significant impact on the Group’s consolidated financial statements. 92 Hansen Technologies Ltd Annual Report 2020(iii) Amendments to AASB 101 and AASB 108: Definition of Material These amendments align the definition of ‘material’ across the standards and clarify certain aspects of the definition. The new definition states, that ‘Information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity’. Group’s assessment performed to date The amendments to the definition of material are not expected to have a significant impact on the Group’s consolidated financial statements. 30. Subsequent events The Group has voluntarily cancelled $40.0 million of the syndicated multi-currency facility effective from 30 July 2020 (Note 19). The Directors resolved to pay a final dividend of 7 cents per share (franked to 0.70 cents), comprising of a regular dividend of 5 cents per share together with a special dividend of 2 cents per share to be paid on 25 September 2020 (Note 21). Hansen Technologies Limited and Sigma Systems Canada LP executed a deed of parent guarantee and indemnity on 7 July 2020 in favour of a financing company based in Canada to secure a credit card facility (Note 24). Apart from the above, there has been no other matter or circumstance, which has arisen since 30 June 2020 that has significantly affected or may significantly affect: (i) the operations, in financial years subsequent to 30 June 2020, of the Group; or (ii) the results of those operations; or (iii) the state of affairs, in financial years subsequent to 30 June 2020, of the Group. 93 Hansen Technologies Ltd Annual Report 2020DIRECTORS’ DECLARATION The Directors declare that the financial statements and notes set out on pages 41 to 93, 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 2020 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 28 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 28. 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 2020. This declaration is made in accordance with a resolution of the Directors. David Trude Director Melbourne 28 August 2020 Andrew Hansen Director 94 Hansen Technologies Ltd Annual Report 2020INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF HANSEN TECHNOLOGIES LTD RSM Australia Partners Level 21, 55 Collins Street Melbourne VIC 3000 PO Box 248 Collins Street West VIC 8007 T +61 (0) 3 9286 8000 F +61 (0) 3 9286 8199 www.rsm.com.au INDEPENDENT AUDITOR’S REPORT To the Members of Hansen Technologies Limited Opinion We have audited the financial report of Hansen Technologies Limited (the Company) and its controlled entities (the Group), which comprises the consolidated statement of financial position as at 30 June 2020, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies, and the directors' declaration. In our opinion the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Group's financial position as at 30 June 2020 and of its financial performance for the year then ended; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board's APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Company, would be in the same terms if given to the directors as at the time of this auditor's report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. THE POWER OF BEING UNDERSTOOD AUDIT | TAX | CONSULTING RSM Australia Partners is a member of the RSM network and trades as RSM. RSM is the trading name used by the members of the RSM network. Each member of the RSM network is an independent accounting and consulting firm which practices in its own right. The RSM network is not itself a separate legal entity in any jurisdiction. RSM Australia Partners ABN 36 965 185 036 Liability limited by a scheme approved under Professional Standards Legislation 90 95 Hansen Technologies Ltd Annual Report 2020INDEPENDENT AUDITOR’S REPORT CONTINUED TO THE MEMBERS OF HANSEN TECHNOLOGIES LTD Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Key Audit Matter How our audit addressed this matter Recognition of Revenue Refer to Note 3 in the financial statements Revenue recognition was considered a key audit matter, as it involves significant management judgements. is complex and The Group’s revenue is primarily derived from the provision of billing solution services to customers, maintenance and support , and licences. Revenue determined for some of the service contracts is based on stage of completion, calculated on the proportion of total costs incurred at the reporting date compared to management’s estimation of the total costs of the contract. Our audit procedures in relation to the recognition of revenue included:       Assessing whether recognition policies were Australian Accounting Standards; the Group’s revenue in compliance with Evaluating and testing the operating effectiveness of management’s controls related to revenue recognition; sample of transactions, For a substantiating to supporting documentation, including contracts with customers; revenue transactions by agreeing For a sample of revenue transactions that were recognised on a percentage of completion basis, our testing included: – Agreeing the contract price and variations to customer contracts; Assessing management’s estimate of costs to complete; and Assessing whether the project was within budgeted margin. – – Reviewing sales transactions before and after year-end to ensure that revenue was recognised in the correct period; and Reviewing large or unusual transactions during the financial year. 96 91 Hansen Technologies Ltd Annual Report 2020Key Audit Matters (continued) Impairment of Intangible Assets Refer to Note 12 in the financial statements the goodwill balance, and because The Group has net book value goodwill of $220 million in respect of acquisitions of subsidiaries as at 30 June 2020. We identified this area as a Key Audit Matter due to the size of the directors’ assessment of the ‘value in use’ of the cash generating unit (“CGU”) involves significant judgements about the future underlying cash flows of the business, discount rates and terminal growth applied. For the year ended 30 June 2020 management have performed an impairment assessment over the goodwill balance by:   expenses (revenues, calculating the value in use for the CGU using a discounted cash flow model. The model used cash flows capital expenditure) for the CGU for 5 years, with a terminal growth rate applied to the 5th year. The cash flows were then discounted to net present value using the Company’s weighted average cost of capital (WACC); and and comparing the resulting value in use of the CGU to its respective book value. Management also performed a sensitivity analysis over the value in use calculations, by varying the WACC and other assumptions. Our audit procedures to management’s impairment assessment involved the assistance of our Corporate Finance team where required, and included: relation in     Assessing management’s determination that the goodwill should be allocated to a single CGU based on the nature of the Group’s business and the in which results are monitored and manner reported; Assessing the valuation methodology used; the reasonableness Challenging key assumptions, including the cash flow projections, exchange rates, discount rates, and sensitivities used; and of Checking the mathematical accuracy of the cash flow model, and reconciling input data to supporting evidence, such as approved budgets and considering the reasonableness of these budgets. 92 97 Hansen Technologies Ltd Annual Report 2020INDEPENDENT AUDITOR’S REPORT CONTINUED TO THE MEMBERS OF HANSEN TECHNOLOGIES LTD Key Audit Matters (continued) Key Audit Matter How our audit addressed this matter Adoption of AASB 16 Leases Refer to Note 13 in the financial statements The Group adopted AASB 16 Leases ("AASB 16") on 1 July 2019, using the modified retrospective method, which has resulted in changes to accounting policies. The Group has elected not to restate comparative information as permitted by the transitional provisions of AASB 16. At 30 June 2020, the Group recognised in the Statement of Financial Position a Right of Use asset of $20.1 million and an associated lease liability of $21.1 million. We determined the adoption of this standard to be a key audit matter because of:     the complexity of the standard and the significance of the differences to the previous standard; the degree of manual involvement required in identifying lease contracts and contract terms; the extent of judgment required in determining the inputs into the calculations of the lease liability and right of use asset, including the applicable discount rate and the likelihood of exercise of options to extend or terminate early a lease; and the length and complexity of disclosures required including those required on initial adoption. Acquisition of Sigma Systems Refer to Note 25 in the financial statements The accounting for the acquisition of Sigma Systems, which was disclosed as provisional in the 30 June 2019 financial statements has been finalised during the year. This was considered a key audit matter as there is a risk that the final acquisition accounting adjustments may be materially misstated and related disclosures may be materially inaccurate in the financial report. 98 Our audit procedures in relation to the application of AASB 16 included:   Obtaining an understanding of the processes undertaken and controls implemented in adopting the standard, including the transitional decisions made; Obtaining the Group’s leasing model used by the Group for lease management, and, on a sample basis: – Reviewing the contracts of the selected leases, lease and non-lease identified that have been and ensuring components appropriately; – Corroborating key the inception date, commencement date, and initial contractual expense lease documentation ; to underlying including inputs, – Evaluating the key assumptions made in the judgmental inputs of the valuation model, including the likelihood of exercise of options to extend and for calculation of the lease liability; the discount rate used – Verifying the mathematical accuracy of the underlying model by recalculating the resulting lease liability and right of use asset initially recognised, and the interest and depreciation charges recognised in the statement of profit and loss for the year; and reviewing the disclosures in the financial statements the adequacy of relevant – Our audit procedures in relation to the acquisition of Sigma included:     Discussing with management the measurement period adjustments which have taken place; calculations supporting Reviewing documentation associated with any measurement period adjustments; and Assessing whether there have been any indicators for impairment of goodwill as a result of Sigma’s results being lower than budget. Assessing the adequacy of the Group’s disclosures in respect of business acquisitions. 93 Hansen Technologies Ltd Annual Report 2020Other Information The directors are responsible for the other information. The other information comprises the information included in the Group's annual report for the year ended 30 June 2020, but does not include the financial report and the auditor's report thereon. Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Directors for the Financial Report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor's Responsibilities for the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance Standards Board website at: http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf. This description forms part of our auditor's report. Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in the directors' report for the year ended 30 June 2020. In our opinion, the Remuneration Report of Hansen Technologies Ltd, for the year ended 30 June 2020, complies with section 300A of the Corporations Act 2001. 94 99 Hansen Technologies Ltd Annual Report 2020INDEPENDENT AUDITOR’S REPORT CONTINUED TO THE MEMBERS OF HANSEN TECHNOLOGIES LTD Report on the Remuneration Report (continued) Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. RSM AUSTRALIA PARTNERS M PARAMESWARAN Partner Dated: 28 August 2020 Melbourne, Victoria 100 95 Hansen Technologies Ltd Annual Report 2020AUSTRALIAN SECURITIES EXCHANGE (ASX) SHAREHOLDER INFORMATION The shareholder information set out below was applicable as at 2 September 2020, disclosed pursuant to ASX official listing requirements. Distribution of shares The following table summarises the distribution of our listed shares as at 2 September 2020: 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 71 148,811,817 1,277 1,278 3,175 2,358 8,159 30,741,263 9,425,260 8,477,873 1,109,985 198,566,198 100.00 74.94 15.48 4.75 4.27 0.56 The number of shareholders holding less than a marketable parcel of ordinary shares is 374 holding 6,629 shares (as at the closing market price on 2 September 2020). 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 BNP PARIBAS NOMS PTY LTD NATIONAL NOMINEES LIMITED NEWECONOMY COM AU NOMINEES PTY LIMITED MORGAN STANLEY AUSTRALIA SECURITIES (NOMINEE) PTY LIMITED MERRILL LYNCH (AUSTRALIA) NOMINEES PTY LIMITED MR CAMERON HUNTER CITICORP NOMINEES PTY LIMITED HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED-GSCO ECA CS FOURTH NOMINEES PTY LIMITED MR JAMES LUCAS & MS LESLEY DORMER BNP PARIBAS NOMINEES PTY LTD HUB24 CUSTODIAL SERV LTD HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED – A/C 2 BNP PARIBAS NOMINEES PTY LTD MRS LILIAN REICHENBERG SCOTT WEIR PACIFIC CUSTODIANS PTY LIMITED Total Total other investors Grand total Number of Shares Held 52,046,066 34,739,113 27,807,974 % of Issued Capital 26.21 17.49 14.00 6,102,444 4,121,551 2,091,450 1,459,404 1,263,839 1,147,254 1,123,059 1,018,000 978,258 889,691 800,940 766,357 733,200 604,267 546,953 481,080 426,074 3.07 2.08 1.05 0.73 0.64 0.58 0.57 0.51 0.49 0.45 0.40 0.39 0.37 0.30 0.28 0.24 0.21 139,146,974 59,419,224 198,566,198 70.08 29.92 100.00 101 Hansen Technologies Ltd Annual Report 2020AUSTRALIAN SECURITIES EXCHANGE (ASX) SHAREHOLDER INFORMATION CONTINUED Substantial shareholdings The following table shows holdings of substantial voting rights in the Company’s shares as notified to the Company under the Corporations Act 2001 as at 2 September 2020: Holder Mr David Osborne* Mr Andrew Hansen* Mr Bruce Adams* Long Path Partners Royce & Associates Number of Shares Held % of Total Voting Rights 35,125,448 35,055,228 34,891,417 17,679,679 9,200,643 17.69% 17.65% 17.57% 8.90% 4.63% * 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 20(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 11 29 Number of Securities 810,000 1,056,603 102 Hansen Technologies Ltd Annual Report 2020CORPORATE DIRECTORY Directors David Trude, Chairman Andrew Hansen, Managing Director and CEO Bruce Adams, Non-Executive Jennifer Douglas, Non-Executive Don Rankin, 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. Hansen Technologies Ltd Annual Report 2020 103 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 2 0 

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