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2023 ReportA N N U A L R E P O R T Helloworld Travel Limited and Controlled Entities Annual Report for the year ended 30 June 2021 2021 CONTENTS S E C T I O N O N E Corporate Information Annual Report 2021 Glossary Helloworld Travel Limited - Our Brands Report from our Chairman Report from our CEO and Managing Director Year in Review Directors' Report Auditor’s Independence Declaration S E C T I O N T W O Corporate Governance Statement Consolidated Statement of Profit or Loss and Other Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Financial Statements Directors’ Declaration Independent Auditor’s Report ASX Additional Information 2 3 4 6 8 10 22 55 56 64 65 66 67 68 143 144 150 2 C O R P O R AT E I N F O R M AT I O N D I R E C T O R S Garry Hounsell (Chairman) Andrew Burnes AO (Chief Executive Officer) Cinzia Burnes Mike Ferraro Andrew Finch G R O U P C O M PA N Y S E C R E TA R Y David Hall R E G I S T E R E D A N D P R I N C I PA L O F F I C E 179 Normanby Road South Melbourne VIC 3205 Telephone: +61 3 9867 9600 A U D I T O R Ernst & Young 8 Exhibition Street Melbourne VIC 3000 S T O C K E XC H A N G E Australian Securities Exchange Limited Level 4 20 Bridge Street Sydney NSW 2000 A S X C O D E ASX code: HLO S H A R E R E G I S T R Y Automic Pty Ltd Level 5, 126 Phillip Street Sydney NSW 2000 hello@automic.com.au 1300 288 664 (within Australia) or +61 2 9698 5414 (outside Australia) W E B S I T E www.helloworldlimited.com.au Helloworld Travel Limited Annual Report 2021 A N N U A L R E P O RT 2 0 2 1 G L O S S A RY The following terms have been used through this Annual Report: AGM AOT ASIC ASX CEO CFO Annual General Meeting AOT Group Pty Limited and its controlled entities Australian Securities & Investments Commission Australian Securities Exchange Chief Executive Officer Chief Financial Officer Company The parent entity, Helloworld Travel Limited EBITDA EPS FAR FY20 FY21 FY22 Group Earnings before interest expense, tax, depreciation and amortisation Earnings per share Fixed Annual Remuneration Financial Year ended 30 June 2020 Financial Year ended 30 June 2021 Financial Year ended 30 June 2022 The Helloworld Travel Group, comprising Helloworld Travel Limited and its controlled entities 3 Helloworld Travel Helloworld Travel Limited HLO KMP LTIP MTA PCP Helloworld Travel Limited Key Management Personnel Long Term Incentive Plan Mobile Travel Holdings Pty Limited and its controlled entities Prior Comparative Period Qantas Qantas Airways Limited QBT STIP TTV VFR VH QBT Pty Limited Short Term Incentive Plan Total Transaction Value Visiting Friends and Relatives Viva Holidays helloworldlimited.com.au H E L L O W O R L D T R AV E L L I M I T E D - O U R B R A N D S R E TA I L W H O L E SA L E Travel agencies who adopt full Helloworld branding and reinforce the brand message in the marketplace. One of the largest wholesale brands in Australia with over 40 years’ experience, offering an extensive range of products covering most destinations throughout the world. Travel agencies who carry the “Member of Helloworld Travel” brand and value proposition while maintaining their own brand presence in market. Established in 1982, Sunlover Holidays are the Australian holiday specialists offering a wide range of travel products and experiences for all budgets. Australia’s largest network of premium independently owned corporate travel agents and travel management companies. New Zealand’s longest serving travel wholesaler offering its travel agency distribution a diverse and extensive range of travel products around the globe. 4 Independent buying network affiliated to Helloworld Group, able to leverage the strength of our supplier relationships and maintain their independence. One of the largest specialist travel wholesalers in Australia, renowned for offering exclusive travel deals across 16 international destinations. HOHOLLIIDDAAYSYS Agencies with loyal high-end clients managing their own brand and marketing while leveraging the buying benefits of the Helloworld Travel Group. Cruiseco is a specialist cruise package wholesaler that provides access to over 40,000 products from 50 cruise lines, and creates exclusive fly/cruise products and specialised charters to help members grow their cruise business. Australia’s leading team of mobile travel agents for leisure and corporate travel, offering agents independence and access to group buying power. One of the largest cruise wholesalers in Australia, offering travel agents access to a wide range of cruise deals and packages. With a team of over 100 mobile travel specialists, the Travel Brokers are one of New Zealand ‘s leading Travel Broker networks. ReadyRooms offers travel agents the ability to search, compare and book an extensive range of worldwide accommodation and activities online. Founded in 1967 by former All Blacks fullback, Mick Williment, Williment Travel is New Zealand’s travel sports and events tour specialists. A new brand for discerning clients focusing on high-end, small group touring in Australia and international destinations. by Helloworld Travel Limited Annual Report 2021 C O R P O R AT E D M C With offices around Australia, QBT provides extensive experience and expertise in delivering large and complex global travel programs to both Federal and State Governments and a diverse range of mid to large sized Corporates. A leading inbound tour operator in Australia, offering an excellent booking platform and staff to service both the FIT and Group markets from UK, Europe, USA and other long-haul Western markets. APX provides end-to-end travel management services for New Zealand and global organisations, from small businesses to corporate and government departments. A leading inbound tour operator with offices in Australia, New Zealand and Fiji. ATS Pacific provides specialty inbound services in all three destinations for FIT and Groups. Markets include UK, Europe, USA, Western long haul and Japan. Australia’s largest network of premium independently owned corporate travel agents and travel management companies. The leading Australian inbound tour operator specializing in Asia, with offices in Shanghai, Singapore, Hong Kong and Jakarta. The leading travel management specialist servicing the entertainment, film, arts, fashion, corporate and sporting industries. Show Group offers bespoke travel tailored to meet specific customer requirements, because every client is different. A leading inbound tour operator in New Zealand, offering an excellent booking platform and staff to service both the FIT and Group markets from UK, Europe, USA and other long-haul Western markets. O N L I N E 5 Appointed by the Australian Government, and many corporate and other Government customers, AOTHotels provides an outstanding accommodation booking management service with the best inventory available Australia-wide. Last minute accommodation website providing consumers with access to over 120,000 accommodation options around the world. TravelEdge offers a full suite of services including corporate travel, in-house travel management solutions, academic services, events and experiences. This diverse range of brands allows the business to tailor a solution that is perfect for every client. An online travel agency providing consumers with access to discounted domestic and international airline tickets. C O N S O L I DAT I O N TO U R O P E R AT I N G Air Tickets is the travel industry’s market leading airfare distribution and ticketing services consolidator, with a 24/7 web-based portal to real-time airfares allowing agents to shop, book and ticket in one system. Tourist Transport Fiji operates a fleet of 65 vehicles providing transfer services throughout Fiji with sightseeing tours and adventure packages under the Great Sights and Feejee Experience brands. World-leading technology provides travel agents with a ticket processing system subject to rigorous real-time validation and a queuing system the envy of global consolidators. Show Freight are industry leaders in tour trucking and equipment movements for local and international touring artists, as well as handling freight and courier movements for the film, sporting, arts and corporate markets. helloworldlimited.com.au R E P O RT F R O M O U R C H A I R M A N WHOEVER IMAGINED THIS WOULD HAPPEN 6 The Global Travel Industry has gone through the greatest upheaval in its history with the onset of COVID-19 in March 2020. Since that time, the Company has focused on managing the cancellation and refund of hundreds of millions of dollars’ worth of travel and on re-sizing the business to keep losses to a minimum while maintaining core customer service levels across our operating divisions. This will end and borders will re-open and that can’t come soon enough. Helloworld Travel Limited Annual Report 2021 As Chairman of Helloworld Travel since 2016 it has significantly reduced our level of activity and the been a pleasure to be part of a history of growth and amount of work available. profitability in our business. Led by CEO Andrew Burnes and his Management team, Helloworld has gone from strength to strength and in the 2020 financial year was on track to achieve total transaction values in excess of seven billion dollars and EBITDA of between $80 – 85 million. This was derailed as COVID-19 unfolded however the company was still profitable in FY20 despite the onset of COVID-19 in March of last year. FY21 turned into an incredibly challenging period for the business and the industry at large, with TTV falling as low as $50 million for the month of August 2020. This improved in the lead up to Christmas but dropped away again in January and February before picking up significantly in the June quarter. At the end of the day to have a normalised EBITDA loss of $14.1 million across the twelve months has been an outstanding achievement. Redundancy, restructuring and other one off costs of $11.7 million have added to that loss on a one-off basis as the company reduced personnel by nearly 1,300 people across our business operations in Australia, New Zealand, Fiji and our other remaining overseas offices. As of 30 June 2021 Helloworld, retained 885 personnel representing 726 FTE with 595 personnel in Australia, 88 in New Zealand and 24 in Fiji and 19 in other locations around the world. I want to thank each and every one of the people who are still at Helloworld and doing a fantastic job. Can I also thank all of the many great people who are no longer with us through no fault of their own but simply due to the closure of international borders and domestic lockdowns which Looking ahead, the continued rollout of vaccinations both in Australia, New Zealand and globally is critical to the reopening of international borders between Australia, New Zealand and our major leisure and corporate destinations. It seems clear that our international borders will remain closed until sometime in the first half of CY22 and we can’t wait to see the first plane load of VFR, corporate and leisure travellers heading out over the Pacific and Indian oceans again. Finally can I thank the Board for their continued support and guidance throughout the year. 7 Garry Hounsell Chairman Helloworld Travel Limited Melbourne, 6 September 2021 helloworldlimited.com.au R E P O RT F R O M O U R C E O A N D M A N AG I N G D I R E C TO R A YEAR OF EXTRAORDINARY CHALLENGES 8 After thirty-four years in the Travel Industry, I thought I had experienced most of the ups and downs that could be thrown at a travel business but nothing comes even remotely close to the impact of COVID-19. The Global travel industry has traditionally been an industry of growth, delivering significant economic benefits globally to those directly and indirectly engaged in it. The total size of the industry globally in 2019 was estimated at US$2.9 trillion. This shrunk to US$1.5 trillion in 2020 and is forecast to reach US$1.7 trillion in 2021, still a long way short of 2019 levels. Billions of dollars in bookings are made every day and billions of dollars of products utilised in various subsets including the airline industry (4.5 billion passengers in 2019), the accommodation industry (6 billion room nights and US$673 billion in sales in 2019) car hire (US$60 billion in 2019), cruise (30 million passengers, US$150 billion in sales) not to mention hospitality, entertainment, events, touring and many other products and services. All of those services are booked by travellers using a range of distribution options and in HLO’s case we were on track in FY20 to sell over $7 billion worth of global travel products and services including $1 billion for travel in Australia & New Zealand and $6.0 billion around the world. Helloworld Travel Limited Annual Report 2021 As it turned out, HLO sold A$5.0 billion worth of travel in FY20 after the global travel industry ground to a halt through February and March 2020. With our international borders to the world closing on 20 March 2020, the entire global travel industry, including the distribution industry and our own retail, wholesale, inbound, ticketing and corporate segments were inundated by the mass cancellation world- wide of over a trillion dollars’ worth of forward bookings. And most of the people who had their bookings cancelled wanted a full refund the following week. In a business set up over many decades to successfully manage and process the mass sale of travel products and services, having to ditch long-established and finely honed procedures and suddenly cancel every international booking we had across Australia and New Zealand and then cancel every inbound booking we had from our international wholesale customers in 73 countries was extremely challenging. Our agency network members, with over 1,800 retail outlets and 700 travel brokers, were suddenly left with very little income and a massive task to get back the money paid to suppliers world-wide for various products and services across the next eighteen months. Despite what were some very considerable obstacles in the first few months of the pandemic, I am incredibly proud of the work that everyone at Helloworld Travel Limited did and of the extraordinary work that our travel agency members did across Australia and New Zealand to manage and triage the literally billions of dollars’ worth of bookings, refunds and cancellations that had to be taken care of. In FY21, thanks to the support of our retail and corporate customers, we turned over $1.08 billion in total transaction values with revenue and other income of $94.2 million (including government wage subsidies) and with very tight cost management across all of our business divisions we were able to keep our losses to a minimum throughout the period and achieve a normalised EBITDA loss of $14.1 million for the 12 months ending 30 June 2021. With one-off redundancies, restructure costs and other one offs of just under $12 million and depreciation and amortisation of $21.2 million, HLO’s nett loss before tax was $49.5 million. The fourth quarter was the best trading period we had throughout the year and showed that with State borders all open and the New Zealand bubble in place, TTV could reach circa $150 -170 million a month, which on an annualised basis would work out to be around $1.8 - $2.0 billion for a full year. But of course, the critical element to that is “open”. Australia is on the pathway to achieve a vaccination rate of between 70 - 80 per cent by end November 2021 and it has been agreed by National Cabinet based on modelling by the Doherty Institute that once we reach these levels, the need for state-wide lockdowns will be substantially reduced. This needs to be supported by continued TTIQ (test, trace, isolate, quarantine) measures and those who have been vaccinated need to be allowed to travel overseas again in 2022 to countries where vaccination rates are similar and infections under control. We hope that State borders will be largely re-opened by Christmas and as stated above, international borders might begin to open up in the first half of calendar 2022. In the meantime, we continue to run our business as tightly as possible while maintaining core service levels to our corporate, wholesale and retail agency customers throughout Australia and New Zealand. Can I extend my thanks to the following: • The HLO Board, Management team and all our staff, past and present, who have worked so tirelessly over the last eighteen months in really trying circumstances; • HLO’s amazing retail agency network members who have endured a gruelling period managing the refunds, credits and re-bookings for their customers; • Our leisure and corporate customers for their patience and understanding as we worked through revised refund procedures, travel credits, cancellations and re-bookings; • All of HLO’s supplier partners who have worked tirelessly to turn their businesses upside down and return the billions already paid to them for future travel; • The many domestic supplier partners of HLO who have supported our domestic campaigns along with the State Tourism Offices, Tourism Australia and Tourism New Zealand; • HLO's banker, Westpac for their continued outstanding support during this challenging period; and • Australian and New Zealand Governments and Australia’s State Governments for providing assistance to both industry in general and via JobKeeper and Wage Subsidy and to travel agents via the Consumer Travel Support Package for small to medium sized agencies in Australia and in New Zealand via the Ministry of Business, Innovation & Employment (MBIE) scheme. This pandemic is not over yet and more support is going to be needed to get this industry to the other side, but it would not have got this far without the support and assistance received to date. Andrew Burnes, AO Chief Executive Officer and Managing Director Helloworld Travel Limited Melbourne, 6 September 2021 helloworldlimited.com.au 9 Y E A R I N R E V I E W A PASSIONATE TEAM Helloworld has a wide footprint across Australia, New Zealand and Fiji with operations in every Australian capital city, in Auckland and Wellington in New Zealand and Nadi in Fiji. The foundation of most of our business units goes back decades and they now operate with sophisticated technology systems operated by highly trained consultants and supported by great teams in IT, Systems, Admin & Finance, Payroll, HR, Product / Contracting, Product Loading, Sales and Marketing, Customer Service and a range of other services. With the onset of COVID-19 Helloworld was able to secure a number of contracts to provide COVID-19 related call centre services to both State and Federal government agencies. Without exception, all of our personnel who found themselves without a role due to the complete closure of international travel put their hands up and accepted positions in the call centres we operated in Melbourne, Sydney, Perth and Brisbane and we are extremely grateful to the Victorian government, the NSW government and the Federal government for contracting the services that we provided and for doing what we all regard was an outstanding job in training our great team of people and ensuring their safety and well-being through what were some pretty challenging experiences for them all. 10 That work is still ongoing today and we now have one of the most experienced teams available in this space, and as the pandemic has ebbed and flowed people have swapped back to their travel roles when demand for these frontline services has diminished having then stepped back up to the COVID-19 related roles when infection rates have climbed, travel bookings have diminished and the demand for call centre services has increased. At the same time there are many people working at Helloworld today who are in completely different roles to the ones that they have worked in previously. We have done our best to ensure that any vacancies which occur in any part of the business are offered, where possible, to existing employees whether they have experience in that role or not and without exception again everyone who has been asked to take on a new role has done so willingly and put their best foot forward and we are extremely grateful for the efforts that they have made. Helloworld Travel Limited Annual Report 2021 RALLY TOGETHER Over the last twelve months Helloworld Travel Limited has had to reengineer many of its processes to handle the massive volume of cancellations and refunds and this has not been helped by airlines switching off automated Global Distribution System (GDS) refund processing and going to manual processing system for every booking through what is called BSP link. The continued strain caused by the cutting off of well-established automated processes caused enormous volumes of tickets to require manual intervention and cancellation and over the last twelve months Helloworld has refunded over 600,000 tickets to agents in Australia and New Zealand, refunded over $300 million worth of cruise bookings, $400 million worth of forward inbound and wholesale bookings and on a large number of both corporate, individual and group bookings for international trips. Everyone has had to rally together to work out better ways to get through these massive volumes of cancellations and refunds in order to get monies back into the hands of our customers and of our agencies for their customers but I think by and large we are now on top of that due to an enormous effort from so many people. 11 helloworldlimited.com.au Y E A R I N R E V I E W WOMEN IN POWER Approximately 65 per cent of Helloworld’s personnel are women and women occupy senior roles across every division of the business. In our retail operations three out of four senior positions are held respectively by, Julie Primmer, Lisa Harrison and Michelle Ryan and they are supported by Lynda Wallace, Nicola Nanninga and a great team of Account Managers and Business Development Managers. In our corporate division, these complex operations are in the hands of Deborah Morgan at QBT and Sasha Sherman at Show Group while in New Zealand at APX operations are managed by Rocky Kilmartin. The entire wholesale and inbound divisions are run by Executive Director, Cinzia Burnes who is supported by a strong team. The Australian wholesale operations are run by Lauren Bell, the New Zealand wholesale division is run by Sarah Hunter, the global contracting team by Dominique Atzenhoffer, marketing and partnerships by Melissa Warren and Sarah Gerrand, cruise by Catherine Allison and our global product team by Leanne Chard. Our Fiji operations are managed by Arun Devi. Two out of every three personnel are women and throughout this pandemic period they have done an extraordinary job in continuing to look after all our customers throughout Australia, New Zealand and the rest of the world and they have made an outstanding contribution to our business and to our industry in what has been our most challenging time ever. 1212 Across our retail networks, the majority of owners and managers are women and at a consultant level across the suburban, regional and rural landscape, over 75% of our broad professionals are women. Helloworld Travel Limited Annual Report 2021 12 Helloworld Travel Ltd Annual Report 2021 A YEAR OF HIGHS AND LOWS In what was a year that can only be described as having In Fiji most of our team has been stood down since a lot of lows there were also some extraordinary highs March 2020 and while initially the ravages of both internally and externally. None have been so COVID-19 did not impact Fiji, eventually it got out outstanding as the many times colleagues have rallied and the main Island, Viti Levu has been severely to support each other across Australia, New Zealand, impacted over the last six months. Our managers Fiji, and Mumbai. Internally it’s not been easy for anyone. Senior Executives all agreed to salary reductions and work reduced hours during the darkest days of this crisis in order to try and keep costs at a long-term sustainable in Nadi have done a fantastic job keeping in touch with our personnel and Helloworld has supported those personnel by making a number of ex gratia “sustenance” payments to help our people pay for their basic needs. level given HLO’s reduced revenues. Externally, every Particularly during Victoria’s darkest hours in July and agent in our networks and buying groups has seen August 2020, when infection rates were running at their income cut dramatically but they have continued 600 plus per day and we suffered over 800 fatalities to keep their doors open and to fight tooth and this was emotionally demanding given the distressed nail to process and get back refunds owing to their nature of many of the calls to our re-purposed call customers for travel that has become impossible to centres. It is a credit to each, and every person involved take at present, to book domestic travel arrangements that they were able to rally together and support each for those same customers and to amend, rebook and other throughout this period and continue to provide cancel those arrangements over and over as lockdowns a very high level of service to all callers. This work still come and go across Australia and New Zealand. goes on today and we thank all of those involved. 13 helloworldlimited.com.au Y E A R I N R E V I E W PERFORMANCE HIGHLIGHTS In a business used to growth in terms of total Australia and New Zealand. Normally these transaction values, customers and profitability refund processes are automated however most with a fantastic marketing team, highly skilled airlines turned the automation off and forced us consultants and best of breed technology to go to a manual refund process which caused solutions, it has not been easy watching our sales significant delays but throughout the year just volumes, revenues and profitability fall by 85 per gone we refunded some 600,000 tickets. On top cent over the year. The September quarter was particularly tough, with TTV in July and August of circa $50 million of that several hundred million dollars of airline credits that were managed together with our agency partners on behalf of their customers. a month compared to an excess of half a billion dollars in the same months in the previous year. In While one would not normally regard the cancellation and refund of over a billion dollars the second quarter things improved although TTV worth of travel as being a highlight. The effort was still below a $100 million a month and we in which Helloworld across all of its business reached $255 million in TTV for the quarter. With divisions and Helloworld network agents in lockdown slowly receding after the Christmas/ Australia and New Zealand have put into ensuring January closures, TTV increased across the March customers got back as much money and travel quarter and March was our best month for the credits as possible. year to date, reaching $112 million. Another performance highlight was that the April and May showed considerable improvement, company has maintained all of the core services with corporate and leisure travellers taking to the that it provides to its corporate, leisure skies and the roads as borders opened up and our and ticketing customers. Furthermore, the June quarter itself was the best for the year with foundations are there to rapidly build upon as we TTV of $387 million. This brought our total TTV start to emerge from this pandemic and the State for the year to $1.08 billion. and trans-Tasman borders open and remain open Throughout this time an enormous amount of work went into getting monies back from airlines, cruise companies, tour operators and others to refund via our agency networks consumers across and most particularly as international borders begin to re-open again in 2022. 14 Helloworld Travel Limited Annual Report 2021 RETAIL AGENCY RESILIENCE 15 In March, 2020 HLO’s retail networks and buying groups totalled some 2,400 agencies and brokers across Australia and New Zealand. cash refunds (excluding GST), and 5% of the value of travel credits successfully secured or rebooked on behalf of consumers (excluding GST). Despite the extraordinary challenges faced by travel agents on both sides of the Tasman, agents have done an extraordinary job surviving for nearly 18 months with very limited revenues. Commercial Tenancy regulations were helpful for many agents as have been various State Government small business grants. The Australian Governments “Consumer Travel Support Program” has provided $238 million in grants across two rounds to cover the March and June quarters in 2021. This support has been vital in assisting agents to remain open and there are requests from industry to the Government for a third round of assistance to get agents through the September and December quarters of 2021. In New Zealand an estimated $690 million of New Zealanders’ money is locked up from travel cancelled due to COVID-19, with approximately 85% related to international travel. The COVID-19 Consumer Travel Reimbursement Scheme was established to support travel agents and wholesalers to recover refunds and credits owed to New Zealand consumers. The Scheme is funded to a maximum of $47.2 million, to 31 December 2021. Participating travel agencies and wholesalers are reimbursed 7.5% of the value of Reimbursement can be sought for refunds, credits and rebookings processed from 14 August 2020, which are made in respect of bookings confirmed on or before 14 August 2020. On 11 June 2021 the Scheme was extended six months from the original end date of 30 June 2021, to 31 December 2021 and industry is working with the Government to extend the 14 August 2020 date to cover bookings confirmed on or before end September 2020 or end October 2020. Agents have shown an extraordinary resilience and in Australia have pivoted to domestic and when available trans-Tasman bookings while New Zealand agents have also maximised their opportunities selling Australia and more recently the Cook Islands, which was open to New Zealanders from 17 May 2020. Few businesses have done it tougher than travel agencies in the last 18 months however when interstate and then international travel returns as vaccination rates reach the 70-80% levels, the pent up demand from Australians and New Zealanders to head overseas will, as has been the case in the UK, Europe and the US as they have opened up, enormous and demand for travel agency services will be very strong. helloworldlimited.com.au Y E A R I N R E V I E W 16 16 Helloworld Travel Limited Annual Report 2021 16 SO, WHAT'S NEXT? Vaccines and new COVID-19 variants have shifted the goal posts over the last few months. Vaccination has been widely accepted as the pathway out and, over the remainder of 2021, the focus is on getting national coverage to 80 per cent or higher on both sides of the Tasman. Uncertainty around the rules and when they might suddenly change has led to booking hesitation and this will likely remain until at least November 2021 until we get past the 80 per cent vaccination target set by the National Cabinet and borders are formally open again. The positive news is that countries including Australia and New Zealand are now planning how they can shift out of pandemic mode and into treating COVID-19 as a manageable endemic disease. The Australian Governments four-part strategy comes with commitments from the Morrison government that when Australia hits the 80 per cent vaccination level, we will move to Phase C and things will start to “open up”. It is widely expected we can reach that point by November 2021 although HLO is planning for a phased opening of international boarders during the first half of 2022. Prior to Christmas we are planning for both interstate and trans-Tasman borders to be largely open (although Governments have said this will still be subject to snap lockdowns as required) and that limited outbound and inbound international travel can recommence in the New Year. Exactly how that will unfold is not yet clear, but it is reasonable to assume those who are fully vaccinated and test negative prior to departure will be permitted to travel to countries and regions where the virus is largely under control, to travel in those countries quarantine free and to return to Australia without having to go through quarantine when getting back. It is also reasonable to assume that citizens from those countries will also be allowed into Australia and the same conditions. According to the Doherty report, during Phase C Australia can “lift all restrictions on outbound travel for vaccinated people”, with only “proportionate quarantine” measures required (i.e.: home quarantine in certain circumstances). Travel passports are already well developed offshore and in Australia and New Zealand vaccination status and test results via digital certificates will be linked to passports, airline booking systems and border declarations. IATA (International Air Transport Association) has also developed its own Travel Pass, and this operates with other systems including the ICAO (International Civil Aviation Organisation) Visible Digital Seal. Helloworld Travel Ltd Annual Report 2021 17 The travel pass consists of four modules: • a global registry of health requirements; • a global registry of testing centres; • a lab app to securely share test and vaccination certificates with passengers; and • a contactless travel app which enables passengers to create a digital passport and manage their travel documentation digitally. As these rollout, new travel bubbles during Australia’s Phase C will be established with low-risk countries and Singapore has recently led the way. With vaccination rates in Singapore now over 80 per cent, since August, vaccinated travellers from eight countries including Australia can now enter Singapore and home quarantine and from September, the plan is to allow vaccinated travellers to skip quarantine altogether. There are still issues around vaccine recognition by various countries, but these issues should be largely resolved by year end. And finally, sometime in the first half of 2022, Phase D will arrive, with the re-opening of international borders, at which point quarantine will only be required for travellers from “high- risk countries”. As the build-up in demand grows, so too will demand for Helloworld’s corporate, retail, wholesale, ticketing and inbound businesses and we are well positioned to handle significant increases in business throughout 2022 and 2023. We anticipate that borders will be open across much of the developed world by mid-2022 and people will be able to travel at will and without quarantine to many destinations. Vaccine roll outs will pick up pace across poorer nations with the global goal to have the entire world vaccinated by the end of 2022 and a “return to normal” in 2023 although that return will probably involve an annual or bi-annual COVID-19 booster shot as well. The core infrastructure of the global travel industry remains in place. The current staffing challenges in Australia for our domestic industry will resolve themselves when international students and working visa holders are allowed back into the country sometime early next year. The cruise ships are still there, and in fact new cruise ships are being built right now. The aircraft are still there, the pilots and air crew are still there, the front office staff, the chefs, the housekeepers are all still there and as travel resumes many people who left the sector to find temporary work in other fields of endeavour will come back to once again create the extraordinary array of experiences that make up our global travel and tourism industry. A recent IATA survey across 11 countries and 4,700 respondents showed 57% expected to be travelling within two months when restrictions ease and 72% will do so when they can visit friends and family. The challenge for the travel industry will be managing the multiple rules around who can go where and under what conditions and in ramping up capacity to meet the pent up demand. Europe is now open to vaccinated US residents, cruise ships have commenced operating again in US and European waters and airlines, car hire companies and other major suppliers are starting to increase capacity and gear up for an end to the worst ravages of COVID-19 while managing the safety and security of their customers. We are already seeing a lot more flexibility in booking and payment conditions to cater for consumers who were caught out in 2020 with long waits for refunds or travel credits. At HLO we have seen an increase in average lead times for domestic bookings from 88 days in 2019 to 178 days now. People are getting in early to avoid missing out but at the same time they are making sure the payment terms are reasonable in the event their trip gets blocked due to Government restrictions. At the same time we are seeing an increase in the average value of both domestic and international bookings, with people more likely to book premium experiences and products given the two year hiatus in international travel. There is no doubt the next twelve months will come with contradictions and uncertainties as the world emerges from this pandemic but there is also no doubt the demand for travel is greater than it ever has been and the industry will rapidly recover. helloworldlimited.com.au Y E A R I N R E V I E W TECHNOLOGY DEVELOPMENTS – BANKING ON THE FUTURE Helloworld has reduced its operational capacities as a result of COVID-19 however with sophisticated systems operating in our corporate, retail, wholesale, inbound and air ticketing divisions, we have continued throughout FY21 to invest in the further development of these technologies. The cruise division has now rolled out a uniformed version of Odysseus while in Air Tickets we continue to build on the functionalities in the system and, slowly but surely, turn back on with the support of our aviation partners the automated functionalities around cancellations and refunds. With our corporate technologies we continue to work with our GDS and portal partners and have rolled out our new analytics portal in March 2021 which has received very favourable feedback from our customers. In the retail space, ResWorld continues to become the go to mid-office system for our retail agency networks in Australia and New Zealand. Despite the lockdown it is now rolled out in nearly 50 per cent of our Branded Network in Australia, it is being rolled across 100 per cent of our Branded Network in New Zealand and the corporate version is in beta testing with rollout due to commence in October 2021. In wholesale, we are moving to a new platform, “Mango”, our own front-end portal operating off Tourplan NX and this will be rolled out across our wholesale operations in October 2021. This is a very significant shift for the wholesale business and will provide much greater functionality, ease of loading and a wider array of product for all our retail agents throughout Australia and New Zealand. At the same time, we have continued to enhance our Air Tickets systems to accommodate New Distribution Capabilities ‘NDC’ SmartNDC will join our suite of products within Air Tickets and our systems have been developed to incorporate NDC which will provide a single shopping solution to search and compare all the best air offers into one single shopping page as part of the New Distribution Capability being launched by airlines Our ReadyRooms platform will be launched in late September based upon the Athena system developed by our dedicated team in Athens and we intend to launch Skiddoo again with an updated platform in October 2021. Skiddoo has been temporarily closed given the complete lack of international travel at present but we envisage this situation will change in 2022 and will be putting this very successful platform back into the marketplace. 18 18 Helloworld Travel Limited Annual Report 2021 18 Helloworld Travel Ltd Annual Report 2021 ADDING VALUE Many people ask about the future of travel agents and travel distribution businesses generally and the survival of any business is dependent upon whether it is adding value to its customers. In our view travel agents, wholesalers, ticket consolidators, retail franchise businesses, inbound tour operators and travel management companies have always added value and will continue to do so as long as customers have choices and as long as people value the advice which all of these businesses can provide them in making those choices. Through the complexity of the booking themselves, of the sequencing of multiple arrangements and of the rules and restrictions that apply to the particular type, class or mode of travel being undertaken. Pre COVID-19, travel was complex, with the longer one went for and the further one went adding to that complexity. Post COVID-19, that complexity will increase exponentially, and the duty of care element provided by travel agents, TMC’s, travel wholesalers and other distributors of product is going to become an even more important element of the travel equation. Helloworld’s customers, whether through our QBT, TravelEdge, APX and Show Travel corporate businesses, or through our VIVA Holidays, Sunlover Holidays and Go Holidays wholesale businesses or through our AOT, ATS Pacific and ETA inbound businesses or through our Air Ticket business and through all of our agency network members have found that there are very tangible benefits of working with a travel partner and we are determined to ensure that we continue to enhance those benefits and retain our edge with all our customers. 19 helloworldlimited.com.au Y E A R I N R E V I E W 20 Helloworld Travel Limited Annual Report 2021 A QUICK LOOK AT THE YEAR EMPLOYEE NUMBERS 2020 1,578 2021 885 TRAVEL AGENTS IN THE HELLOWORLD NETWORKS 2020 2,496 2021 2,224 AIR TICKETS SOLD 2020 2.2M 2021 678K THE NUMBER OF AIR TICKETS REFUNDED 600,000+ 21 AGENCIES SERVICED BY WHOLESALE DIVISION 3,000+ SUPPLIERS IN OUR DATABASE 10,000+ DESTINATION MANAGEMENT SERVICES TO 73 COUNTRIES REVENUE & OTHER INCOME 2020 $295M 2021 $94M helloworldlimited.com.au D I R E C TO R S ' R E P O RT DIRECTORS' REPORT The Directors of Helloworld Travel Limited (Helloworld Travel), present their Report together with the Financial Statements of the Consolidated Entity (Group) being Helloworld Travel Limited and the entities that it controlled at the end of, or during, the year ended 30 June 2021 and the Independent Auditor’s Report. D I R E C TO R S The Directors of the Company in office at any time during or since the end of the financial year are as follows: Garry Hounsell B Bus, FAICD, FCA Non-Executive Director and Chairman 22 Appointment Garry Hounsell was appointed to the Board and as Chairman from 4 October 2016. Former directorships of listed entities in the last 3 years: • Myer Holdings Limited (2017 to 2020), Chairman Experience and Expertise Garry has extensive director experience on a wide range of highly successful Boards, Garry was formerly Senior Partner of Ernst & Young, Chief Executive Officer and Country Managing Partner of Arthur Andersen, a Board member of Freehills (now Herbert Smith Freehills) as well as Deputy Chairman of the Board of Mitchell Communication Group Limited. Garry is a Fellow of the Australian Institute of Company Directors and Chartered Accountants in Australia and New Zealand. Other current directorships of listed entities: • Treasury Wine Estates Limited (since 2012). (2017 to 2020). Other current directorships: • Commonwealth Superannuation Corporation Limited, Director since 2016 and Chairman from July 2021 • Findex Group Limited (since January 2020) Special Responsibilities: • Chairman of the Board. • Chairman of the Remuneration Committee and Nominations & Governance Committee. • Member of the Audit & Risk Committee. Interests in Shares: • A legal and beneficial interest in 153,890 fully paid ordinary shares. Helloworld Travel Limited Annual Report 2021 Andrew Burnes AO LLB, B Comm. (Melb) Chief Executive Officer and Managing Director 23 Appointment Andrew Burnes was appointed Chief Executive Officer and Managing Director of Helloworld Travel Limited and to the Board on 1 February 2016. Experience and Expertise Upon completing his studies in Law and Commerce at Melbourne University, Andrew was employed by Blake Dawson Waldron where he completed his articles and worked as a solicitor. On 1 November 1987, Andrew founded The Australian Outback Travel Company, which became The AOT Group. After the merger of The AOT Group and Helloworld in January 2016, he was appointed Chief Executive Officer of Helloworld Travel Limited on 1 February 2016. Andrew was Honorary Federal Treasurer of the Liberal Party of Australia from July 2015 to June 2019. Prior to that appointment he was the State Treasurer of the Victorian Liberal Party from May 2009 to early 2011. He was appointed as a Director of Tourism Australia in July 2004 serving as Deputy Chairman from 2005 to 2009. Andrew chaired the Audit and Finance Committee of Tourism Australia during this period, was a Trustee of the Travel Compensation Fund from 2005 to 2009 and a Board member of the Australian Tourism Export Council (‘ATEC’) from 1998 and served as the organisation’s National Chairman from 1999 to 2003. Andrew was made an Officer of the Order of Australia (AO) in the June 2020 Queen's Birthday honours for his distinguished services to business, particularly through a range of travel industries, to professional tourism organisations, and to the community. Special Responsibilities: • Chief Executive Officer and Managing Director Interests in Shares: • A legal and beneficial interest in 10,495,531 fully paid ordinary shares. • In conjunction with Cinzia Burnes a further beneficial interest in 21,570,408 fully paid ordinary shares. helloworldlimited.com.au D I R E C TO R S ' R E P O RT Cinzia Burnes Group General Manager – Wholesale & Inbound, Executive Director Appointment Cinzia Burnes was appointed Group General Manager – Wholesale & Inbound, Helloworld Travel Limited and to the Board on 1 February 2016. Experience and Expertise Cinzia brings extensive sector and management experience to the Board. In 1982, Cinzia commenced her career in travel and after working as a travel wholesaler in Italy for 9 years she has played a pivotal role over 26 years in growing AOT from a regional safari operator into one of Australasia’s leading travel distribution businesses. The AOT Group was privately owned by Andrew and Cinzia Burnes until its merger with Helloworld Travel Limited in February 2016. Cinzia was a Director of Tourism Victoria from 2013 to 2015. She has also served as a Board member of Health Services Australia from 2005 to 2007 and the Australian Tourist Commission from 2001 to 2004. Special Responsibilities: • Group General Manager – Wholesale & Inbound Interests in Shares: • A legal and beneficial interest in 10,138,014 fully paid ordinary shares. • In conjunction with Andrew Burnes a further beneficial interest in 21,570,408 fully paid ordinary shares. 24 Mike Ferraro LLB (Hons) Non-Executive Director Appointment Current directorships of listed entities: Mike Ferraro was appointed to the Board on 1 January 2017. • Alumina Limited (5 February 2014 to 31 May 2017), CEO and Managing Director (from 1 June 2017). Experience and Expertise Special Responsibilities: • Chairman of the Audit & Risk Committee. • Member of the Remuneration Committee and Nominations & Governance Committee. Interests in Shares: • A beneficial interest in 19,522 fully paid ordinary shares. Mike is Chief Executive Officer and Managing Director of Alumina Limited, having been appointed 1 June 2017. He was previously a non- executive director of Alumina Limited. On 25 May 2017 Mike was appointed as a non- executive of director of Alcoa of Australia Limited. Mike was previously a partner and member of the executive management team at global law firm Herbert Smith Freehills (HSF) and global head of the Corporate group at HSF. Prior to that he was Chief Legal Counsel at BHP Billiton Limited from 2008 to mid 2010. Helloworld Travel Limited Annual Report 2021 Andrew Finch B Comm, LLB (UNSW), LLM (Hons 1 USYD), MBA (Exec) AGSM) Non-Executive Director Appointment Andrew Finch was appointed to the Board on 1 January 2017. Experience and Expertise Andrew is General Counsel and Group Executive, Office of the CEO and Group Company Secretary at Qantas Airways Limited and is a member of the Qantas Group Management Committee. He was previously a partner with Allens Linklaters where he specialized in mergers and acquisitions, equity capital markets and general corporate advice. Special Responsibilities: • Member of the Audit & Risk Committee, Remuneration Committee and Nominations & Governance Committee. GROU P COM PAN Y SECR ETARY David Hall B Bus, FCA Chief Financial Officer and Group Company Secretary 25 David joined Helloworld Travel Limited in December 2019 and has more than 30 years finance, commercial, operational and management experience across a number of industries, predominately in the Aviation sector. Prior to joining Helloworld, David was most recently CFO at Australia Pacific Airports Corporation (the owner of Melbourne and Launceston Airports). During his decade with Qantas Group, David’s roles included Qantas’ Group Executive Corporate Services, Jetstar Airways’ CFO and ultimately CEO of Jetstar Australia and New Zealand, responsible for leading one of Australia’s best known brands and fastest growing airlines in the Asia Pacific. David is a Fellow of the Institute of Chartered Accountants in Australia and New Zealand. helloworldlimited.com.au D I R E C TO R S ' R E P O RT D I R E C TO R S ’ M E E T I N G S During the year, twelve meetings of the Board, five meetings of the Audit & Risk Committee, three meetings of the Remuneration Committee and two meetings of the Nominations & Governance Committee were held. Attendance at Board and Board Committee Meetings during FY21 is set out in the table below: Board Audit & Risk Committee Remuneration Committee Nominations & Governance Committee DIRECTOR Garry Hounsell Andrew Burnes AO Cinzia Burnes Mike Ferraro Andrew Finch A 12 12 12 12 12 B 12 12 12 12 12 A 5 5 5 5 5 B 5 5 5 5 5 A 3 3 3 3 3 B 3 3 3 3 3 A 2 2 2 2 2 B 2 2 2 2 2 26 Column A: Indicates the number of scheduled and ad-hoc meetings held during the period the Director was a member of the Board and/or Committee or was invited to attend. Column B: Indicates the number of scheduled and ad-hoc meetings attended by the Director during the period the Director was a member of the Board and/or Committee or attended by invitation. C O M M I T T E E M E M B E R S H I P N O M I N AT I O N S & G OV E R N A N C E At the date of this report, the Company has an Audit & Risk Committee, a Remuneration Committee and a Nominations & Governance Committee of the Board. During the year, the members of the Committees were: AU D I T & R I S K C O M M I T T E E C O M M I T T E E Garry Hounsell (Chairman) Andrew Burnes Cinzia Burnes Mike Ferraro Andrew Finch Mike Ferraro (Chairman) Andrew Finch Garry Hounsell R E M U N E R AT I O N C O M M I T T E E Garry Hounsell (Chairman) Andrew Finch Mike Ferraro Helloworld Travel Limited Annual Report 2021 R E T I R E M E N T I N O F F I C E O F D I R E C TO R S In accordance with the Company’s Constitution and the ASX Listing Rules, Mike Ferraro and Andrew Finch, being the longest serving directors are retiring by rotation and, being eligible, offer themselves for re-election at the 2021 Annual General Meeting. Helloworld's retail distribution operations include Helloworld Travel, Australia and New Zealand's largest network of branded and co-branded franchised travel agents, Magellan Travel, Helloworld Business Travel, the My Travel Group, NZ Travel Brokers and our 50% investment in MTA (Mobile Travel Agents). Helloworld Travel's corporate divisions in Australia include QBT, AOT Hotels, TravelEdge, Show Travel and in New Zealand APX and Atlas Travel. Helloworld's wholesale travel businesses in Australia include Viva Holidays, Sunlover Holidays, Ready Rooms, Seven Oceans Cruises and in New Zealand Go Holidays and Williments Travel. Helloworld's inbound operations in Australia, New Zealand and Fiji include AOT, ATS Pacific and ETA while our transport businesses include TTF Fiji and Show Group. Helloworld Travel’s main business operations are located in Australia, New Zealand and Fiji. 27 D I V I D E N D S The Board determined that no dividends be declared and paid during the current financial year. E A R N I N G S P E R S H A R E Basic earnings per share were negative 23.3c and in prior year were negative 56.5c. Diluted earnings per share were negative 23.3c and in prior year were negative 56.5c. The prior year earnings per share was impacted by impairment charges. Underlying earnings per share for FY21 was negative 17.4c compared to positive 9.7c in FY20. P R I N C I PA L A C T I V I T I E S The principal activities during the year of the entities in the Group were the selling of international and domestic travel products and services and the operation of retail distribution networks of travel agents. Helloworld Travel is a leading Australian and New Zealand travel distribution company comprising retail distribution travel businesses, destination management services (for inbound Australian, New Zealand and South Pacific travel, air ticket consolidation, wholesale leisure businesses (domestic and international) corporate TMC (Travel Management Company) and accommodation management operations and online operations. helloworldlimited.com.au D I R E C TO R S ' R E P O RT OPER AT ING AN D FI NANC IAL R E VI EW S U M M A RY O F R E S U LT S For the year ended 30 June 2021 $000’s For the year ended 30 June 2020 $000’s Total Transaction Value (TTV) Revenue and other Income Underlying operating expenses Equity accounted profits/(loss) Add back trading losses relating to U.S Wholesale Division Underlying EBITDA Significant non-recurring items Impairment non-current assets Depreciation and amortisation expense Finance expense on borrowings Underlying Profit/(Loss) before income tax expense Loss before income tax Loss after income tax Loss after tax attributable to members Revenue margin % Underlying EBITDA margin % 1,081,054 94,173 (107,445) (790) 0 (14,062) (11,247) (426) (21,180) (2,575) (37,817) (49,490) (35,885) (35,496) 6.6% (19.8%) 5,005,961 294,879 (254,367) 1,246 2,284 44,042 (18,026) (67,947) (23,919) (3,029) 17,094 (68,879) (69,985) (69,874) 5.6% 15.6% 28 Underlying basic earnings per share Underlying diluted earnings per share Basic earnings per share Diluted earnings per share Interim dividend per share Final dividend per share Total dividends per share For the year ended 30 June 2021 Cents For the year ended 30 June 2020 Cents (17.4) (17.4) (23.3) (23.3) - - - 9.7 9.7 (56.5) (56.5) 9.0 - 9.0 Change $000’s (3,924,907) (200,706) 146,992 (2,036) (2,284) (58,104) 6,779 67,521 2,739 454 (54,911) 19,389 31,823 32,101 0.9% (35.57%) Change Cents (27.1) (27.1) 32.6 32.6 (9.0) - (9.0) Change % (78.4) (68.1) 57.8 (163.4) - (131.9) 86.9 99.4 11.5 15.0 (323.7) 28.1 45.5 45.9 16.0 (228.0) Change % (279.4) (279.4) 57.7 57.7 (100) - (100) The Board assesses the performance of the group and its segments based on several measures including TTV, revenue and underlying EBITDA, profit before tax and associated key ratios. TTV does not represent revenue in accordance with Australian Accounting Standards and is not subject to auditor review. TTV represents the price at which travel products and services have been sold across the Group, as agents for various airlines and other service providers, plus revenue from other sources. The Group’s revenue is, therefore, derived from TTV. TTV does not represent the Group cash inflows as some transactions are settled directly between the customer and the supplier. Underlying EBITDA represents earnings before interest expense, tax, depreciation and amortisation, adjusted to include depreciation on right of use assets and interest expense on lease liabilities and make good provisions arising from the application of AASB 16 and exclude large non-recurring items (refer note 5 in the Annual Report for further information). Underlying EBITDA is a financial measure which is not prescribed by Australian Accounting Standards but is the measure used by the Board to assess the financial performance of the Group and operating segments and it is not subject to auditor review. Revenue margin has been calculated as revenue as a percentage of TTV. Underlying EBITDA margin has been calculated as a percentage of revenue. Helloworld Travel Limited Annual Report 2021 • Equity account losses of $0.8 million for our investments. • Underlying EBITDA loss of $14.1 million. FY20 underlying EBITDA profit of $44.0 million. Depreciation and amortisation (excluding lease costs) decreased by $2.7 million to $21.2 million due to the full year amortisation impact of commercial agreements and intangible assets acquired in the prior year and the continued investment in technology developments. Finance expense (excluding lease costs) decreased by $0.5 million to $2.6 million due to the lower level of borrowings as a result of a prepayment of $20.0 million. S H A R E H O L D E R R E T U R N S The Board determined that the Company will not pay a dividend for the year ended 30 June 2021. In FY20 a 9.0 cents fully franked interim dividend was paid out of first half profits. Helloworld Travel’s underlying earnings per share of negative 17.4 cents compared to the prior year of positive 9.7 cents per share reflecting the business’s lower performance due to COVID-19. I M PA I R M E N T S 29 • In FY21 the Group recognised a total non-cash impairment loss of $0.4 million in relation to right of use assets. In FY20 the Group recognised an impairment charge of $67.8 million. YEAR IN REVIE W OV E RV I E W O F R E S U LT S Helloworld Travel’s FY21 full year results fell compared to FY20 relating to the ongoing impact of COVID-19. The various state border closures impacted the short- term ability to travel while bookings into future years continued, further emphasising a strong demand on the other side of travel restrictions. The second half saw growth in TTV compared with FY21H1. Helloworld Travel’s key financial results for the year ended 30 June 2021 compared with the prior year ended 30 June 2020 are: • Full year TTV of $1.08 billion fell 78.4% (2020: fell 23.1%) and revenue and other income of $94.2 million fell 68.1% (2020: fell 21.3%) compared to FY20 fully impacted by COVID-19, border closures and continuing travel restrictions. There was some positive growth in our travel management business, with one division breaking its pre-COVID TTV record in several months. • Helloworld has continued to take necessary steps to ensure appropriate cost control practices are in place to minimise outgoing cash, while maintaining a strong and dedicated workforce to service our customers and network members. The steps included: • Net cash operating costs reduced and maintained, including the consolidation of physical buildings. • Reduction in net salary costs net of Government allowances and recoveries from clients. • We continue to promote domestic travel with marketing spend co-funded by partners. • Our executives and senior staff have taken salary reductions and we continue to manage fluctuation of workloads resulting from border restrictions through the use of annual leave. • Investment in key technologies to further reduce our cost base while improving service availability to customers. helloworldlimited.com.au D I R E C TO R S ' R E P O RT 30 Helloworld Travel Limited Annual Report 2021 AC Q U I S I T I O N S A N D D I S P O SA L S Helloworld Travel made three business acquisitions during the current year. These transactions met the strategic and financial objectives established by the Board of Directors. AC Q U I S I T I O N S On 31 October 2020, Helloworld Travel acquired an additional 60% of Inspire Travel Management (“ITM”) a joint venture between Helloworld Travel and In Travel Group. As a result of this acquisition, Helloworld Travel now controls 100% of ITM. On 30 November 2020, Helloworld Travel announced the acquisition of 100% of the CruiseCo business (“CruiseCo a specialist cruise package wholesaler, enabling Helloworld Travel to expand its cruise offering in Australia and New Zealand, complementing the existing cruise wholesale business. On 12 February 2021, Helloworld acquired the assets of touring logistics company Australian Touring Services, merging this with the existing Show Group Freight which has built our service offering, particularly in the growing television and film industries. L I Q U I D I T Y A N D F U N D I N G As at 30 June 2021, the Group held a total cash balance of $131.0 million compared with $131.9 million at 30 June 2020. As at 30 June 2021, the Group had external borrowings of $81.0 million compared with $101.0 million at 30 June 20 with available headroom on its debt facilities of $31.6 million compared with $6.5 million at 30 June 2020. In August 2020, Helloworld Travel completed a $50.0 million ($48.7 million net of costs) fully underwritten equity raising of new fully paid ordinary shares in the Company. Proceeds of the Offer were used to increase Helloworld Travel’s balance sheet flexibility and provide liquidity to manage the business through a prolonged period of disruption to the global travel industry. Helloworld Travel has revised its banking arrangements. Key outcomes include: • Our shorter dated facilities totalling $29.0 million are due to expire in September 2022 and our longer dated facilities totalling $90.0 million expire in March 2023 • Earnings based covenant waivers have been provided until June 2022. With the liquidity covenant of $55.0 million, reducing by $5.0 million in October 2021 and a further $5 million in January 2022. 31 H E L L O W O R L D R E TA I L N E T W O R K S Helloworld expects some further franchisee and buying group members may opt to close their businesses in the Helloworld Travel Group has maintained a strong footprint coming six months however the general attitude is we've of 2,224 agencies throughout Australia and New Zealand got this far, lets stick it out! at 30 June 2021. A number of agencies have ‘hibernated’ their businesses, others have moved operations to We expect demand for agency services in the future home or to shared premises with other agencies, while will be high, given the expertise agents have in being some multi agency owners have consolidated their trusted advisers to their clients, the future complexities businesses. of international travel and the ability of agents to apply an appropriate duty of care for their customers, relating It has been an incredibly tough 15 months for our agency to traveller health, safety and risk management. Travel networks. At the beginning of the pandemic, they worked agents with access to a range of risk assessment and tirelessly assisting clients with cancellations, refunds, risk management tools will be able to provide up to date rebooking and repatriating passengers back to Australia, information on destinations and suppliers and awareness effectively undoing months of hard work for no return. of issues around contactless check-ins, deep cleaning, When state borders remained closed for a number of digital key access, embarkation and disembarkation months last year, the agents relied on intrastate business procedures, contactless rental car pick up and a range of to keep going. Consumer confidence was mired as borders other travel protocols that will be implemented as the opened, only to close again with little notice when COVID-19 world opens up again. outbreaks occurred. helloworldlimited.com.au D I R E C TO R S ' R E P O RT - AU ST R A L I A S E G M E N T Total Transaction Value (TTV) Revenue and other income Underlying operating expenses Equity accounted profits/(loss) Underlying EBITDA Revenue margin Underlying EBITDA margin FY21 $000’s FY20 $000’s Change $000’s 962,542 4,275,488 (3,312,946) 86,256 239,812 (153,556) (92,612) (201,578) 108,966 (790) (7,146) 6.6% 11.1% 1,246 39,480 5.4% 17.2% (2,036) (46,626) -1.2% 6.1% Change % (77.5) (64.0) (54.0) (163.4) (118.1) (22.2) (35.5) The Australia segment has retail distribution operations, air ticketing, wholesale & inbound operations and travel management operations (corporate travel). These operations supply travel products and services to customers and are supported by shared service functions encompassing Administration, Finance, IT, Systems and HR. 32 R E TA I L In Australia, the Group has a range of retail operations acting as a franchisor for retail travel agency networks, including Helloworld Travel Branded, Helloworld Travel Associate and Helloworld Business Travel and Magellan Travel. In addition HLO operates the My Travel Group, an independent network of agencies and has a 50% holding in MTA, which operates a travel broker network with over 450 members. Retail operations are underpinned by HLO's ticketing division Air Tickets, being the distributor and ticketing services consolidator to the internal retail network and to over 400 external independent agents. Air Tickets operates in all Australian states with world class technology allowing agents to issue tickets 24 hours a day, seven days a week. Air Tickets continues to invest in innovative ticketing technology and is considered one leading airfare distribution and ticketing services consolidator. Many Agents have benefited from Job Keeper and the multiple rounds of government assistance from both State and Federal Governments. The Australian retail networks have remained strong despite these challenging times with a total of over 1,800 members as at 30 June. Member engagement remains strong and we have undertaken a wide range of engagement activities and continue to advocate on behalf of the network for support to ensure they can continue to service their customers and be there for them on the other side of COVID-19. Helloworld Travel is focused on ensuring that our retail networks in Australia and New Zealand are there when domestic, trans Tasman and eventually international borders re-open and are confident that demand for travel agency advice and service will be in high demand. The Agent network remains primed to welcome customers back into their stores and deliver the benefits of the travel professional, all of whom have supported our customers in gaining refunds and making changes to bookings. Helloworld Travel Limited Annual Report 2021 W H O L E S A L E & I N B O U N D Helloworld's wholesale businesses in Australia and New Zealand operate a range of brands including Viva Holidays, Sunlover Holidays, Go Holidays, Ready Rooms and Seven Oceans Cruises. These businesses package air, cruise and land products for sale through retail travel agency networks as well as other third-party retailers in Australia and New Zealand. Helloworld's inbound business is the largest provider of inbound travel services in Australia and New Zealand, offering travel services to clients in over 73 countries worldwide. These businesses include AOT Inbound, ATS Pacific and Experience Tours Australia (ETA). The Australian wholesale & inbound operations TTV fell year on year with the continuation of international travel restrictions to and from Australia, New Zealand and Fiji. Wholesale sales are slowly recovering, in line with loosening border restrictions, though uncertainty around state borders have continued to impact travel plans at short notice and impacted sales. Encouragingly, we have seen some significant sales of cruise departures for 2022 and beyond, demonstrating there is still very significant demand for cruise product in the Australian and New Zealand markets. Our wholesale operations are benefiting from the volume of domestic product offered by our Viva Holidays and Sunlover Holidays brands as interstate borders re-open and the trans-Tasman market comes back on line. With the commitment of State Governments and the Federal Government to promotion of domestic travel, we have seen domestic travel bookings out many months ahead and expect demand for all domestic destinations will increase significantly as borders re-open and with the vaccination roll out our retail networks and wholesale businesses are well placed to capture much of this demand. 33 helloworldlimited.com.au D I R E C TO R S ' R E P O RT - AU ST R A L I A S E G M E N T C O R P O R AT E S U M M A RY The Group’s corporate travel management division offers travel management services to corporate and government customers including booking flights, accommodation and other services through our QBT, AOT Hotels, Show Group, TravelEdge and APX businesses. Show Group continues to be an excellent addition to the Helloworld Travel corporate division recording improved performance over the last twelve months as television and movie production came back and Australia has become a key destination for international productions. It is expected that post-pandemic the business had been a strong performer with a range of high profile events and concerts generating demand for our travel and freight services. Our QBT, TravelEdge and APX businesses were a standout performer in the group in FY21 with steady business throughout the year. We continued to invest in technology to improve the offering to our clients through enhanced analytics and improved digital experiences. The Australian segment generated TTV of $963 million down 77.5%, total revenue and other income of $86.3 million down 64.0% were impacted by adverse conditions throughout the year. Revenue margin increased from 5.4% in FY20 to 6.6% in FY21. The increase reflects better margin outcomes from our sales mix with some impact from revenues derived from COVID-19 related call centre work. No TTV is associated with this revenue. Total underlying operating expenditure was reduced by $109 million through cost saving initiatives and from wage subsidies. Underlying EBITDA for the Australian segment was negative $7.1 million, a decrease of $46.6 million or (118.1)% compared with the prior year. I N V E ST M E N T S During FY21, Helloworld Travel purchased CruiseCo, which will further enhance our wholesale cruise business. Helloworld also acquired the assets of touring logistics company Australian Touring Services, merging with the existing Show Group Freight which has built our service offering, particularly in the growing television and film industries. 34 Helloworld Travel Limited Annual Report 2021 D I R E C TO R S ' R E P O RT - N E W Z E A L A N D S E G M E N T Total Transaction Value (TTV) Revenue and other income Underlying operating expenses Underlying EBITDA Revenue margin Underlying EBITDA margin FY21 $000’s FY20 $000’s Change $000’s 118,512 688,911 (570,399) 7,791 47,293 (39,502) (14,056) (42,752) (6,265) 5.7% (94.0%) 4,541 6.5% 10.1% 28,696 (10,806) 0.9% Change % (82.8) (83.5) (67.1) (238.0) (13.1) 104.1% (1030.7) The New Zealand segment has retail distribution operations, our air ticketing & consolidation business, wholesale & inbound, and travel management businesses. These operations work together to supply travel products and services to customers and are supported by shared service functions. 35 R E TA I L In New Zealand, the Group has a range of retail operations acting as a franchisor of retail travel agency networks including the Helloworld Travel Branded and Helloworld Travel Associate networks. The retail distribution operations also include the membership groups of My Travel Group (an independent network of agencies) and The Travel Brokers and NZ Travel Brokers groups representing the specialist travel brokers network. In addition, the business is supported by its ticketing division, Air Tickets, and the online channel, helloworld.co.nz. In New Zealand the retail network numbers reduced during the year in response to impacts of the pandemic, but overall the network remains at over 380 agents and ready to serve their customers as we chart a path out of the pandemic. Agents in New Zealand have taken advantage of the Consumer Travel Reimbursement Scheme under which the New Zealand Government is paying 7.5% to agents for refunds and 5% of future travel credits for refunds and credits for bookings made prior to 14 August 2020 and refunded or credited after 14 August 2020. W H O L E SA L E & I N B O U N D The Group’s wholesale business, Go Holidays, procures air, cruise and land product for packaging and sale through retail travel agency networks and other third-party retailers. The Group’s inbound businesses of ATS Pacific and AOT New Zealand offer travel services to clients in over 60 countries worldwide. The New Zealand wholesale and inbound operations saw improvement in the later part of the year as a result of the trans-Tasman bubble and the opening up of the Cook Islands to New Zealand. C O R P O R AT E The Group’s corporate travel management services division offers travel management services to corporate and government customers including booking flights and accommodation, through APX and Atlas Travel. Our corporate operations have relied heavily on domestic and some trans-Tasman travel and are poised for growth as New Zealand emerges from this pandemic. S U M M A RY As with other segments, the New Zealand full year segment results reflect the ongoing impact of COVID-19. Total underlying operating expenditure was reduced by $29 million through cost saving initiatives to mitigate the impacts of COVID-19. Underlying EBITDA was negative $6.3 million, a decrease of 67.1% compared with the prior year. At the beginning of the financial year, the Group completed a restructure of our New Zealand operations, reducing headcount by a further 160 personnel at a cost of $2.4 million including all entitlements. helloworldlimited.com.au D I R E C TO R S ' R E P O RT - N E W Z E A L A N D S E G M E N T 36 Helloworld Travel Limited Annual Report 2021 D I R E C TO R S ' R E P O RT - R E ST O F T H E W O R L D ( R O W ) S E G M E N T Total Transaction Value (TTV) Revenue and other income Underlying operating expenses Add back trading losses relating to U.S.A. Wholesale Division Underlying EBITDA Revenue margin Underlying EBITDA margin FY21 $000’s FY20 $000’s Change $000’s - 126 (777) - (651) - - 41,563 7,774 (10,037) 2,284 21 18.7% 0.3% (41,563) (7,648) 9,260 (2,284) 672 - - Change % - (98.4) (92.3) - - - - 37 The segment generated TTV and revenue below the prior year primarily reflecting the changing travel conditions in the current year. The segment generated a small underlying EBITDA loss of $0.6 million. Operating costs were lower than the prior year in response to the continuation of the impacts of travel restrictions. F I J I The Group’s Fiji based businesses, ATS Pacific (Inbound) and TTF Fiji (Transport) remain in place and ready to restart operations when travel restrictions are removed or reduced. helloworldlimited.com.au D I R E C TO R S ' R E P O RT 38 Helloworld Travel Limited Annual Report 2021 O U T L O O K & E C O N O M I C S U STA I N A B I L I T Y The Group’s focus in the 2022 financial year is on managing our costs and revenues to ensure losses are kept at a minimum. With the Australian Government's four-part strategy that when Australia reaches 70-80 per cent vaccination level, we will start to open up. This means that both interstate and trans-Tasman borders will remain largely open (however, still subject to snap lockdowns as deemed necessary) and that limited inbound and outbound international travel can recommence. The Company has a stable network of high performing agents who are determined to see through this crisis, a wide range of preferred partners and a suite of enhanced digital solutions for our agency and corporate customers. B U S I N E S S R I S K S Helloworld is subjected to some material business risks that could impact on the Group’s ability to achieve its business strategies and financial forecasts in future years, some are specific to the Company and many are beyond the control of Helloworld. Travel industry disruption and the impact of COVID-19 Helloworld Travel’s operating and financial performance is dependent on the travel industry generally. To lessen the business risk caused by the COVID-19 pandemic, the Company has implemented cost reduction measures, resulting in substantial decrease in the monthly cash burn compared to the pre-COVID levels. Refer Note 1 (c) in the Annual Report. The continued restrictions on domestic and international travel imposed by Australian state and Federal Governments and International Governments including regulatory authorities have resulted in an unprecedented increase in travel cancellations and the need to process refunds and future travel credits for travellers. This has significant impact on Helloworld Travel’s business and operations primarily the demand for its services. There are various procedures in place to manage the Company’s key risks. The Executive Management Team (“EMT”) meets regularly to review pertinent risks faced by Helloworld. Every effort is made to identify and manage material risks; however, it is the unknown risks that may adversely affect future performance of the Group. Currently there is no certainty that demand for Helloworld Travel’s services will normalise to pre COVID-19 pandemic levels or how long the recovery could take, even when domestic and international travel recommences. G E N E R A L E C O N O M I C C O N D I T I O N S Helloworld recognises that travel is subject to key economic risks, such as currency movements, recession and consumer confidence. These remain a challenge in the current uncertain economic environment. Furthermore, the ongoing restrictions on local and international travel in response to COVID-19 outbreaks are expected to have a prolonged disruption to global economies. There are also other changes in the macroeconomic environment which are also beyond the control of Helloworld Travel and may be exacerbated in an economic recession or downturn. These include, but are not limited to: • changes in inflation, interest rates and foreign currency exchange rates; • changes in employment levels and labour costs, affecting the cost structure of the Group; • changes in aggregate investment and economic output will have an impact on the Group. If market conditions continue to deteriorate, Helloworld Travel may need to take additional measure in response, resulting in a potential for impairment on the carrying value of the company’s assets. S U P P L I E R R I S K Helloworld’s supply chain consists of many travel providers and intermediaries. Credit risks exist in this supply chain which are increased in the current uncertain environment. A disruption in the relationship with suppliers or failure of a supplier to meet contractual obligations could result in adverse reputational impacts on Helloworld Travel or worse, potentially affect the supplier’s ability to continue trading with Helloworld. To the extent suppliers, partners or counter-parties (such as international airlines, whose operations are substantially impacted or facing financial stress, could be the drive for Helloworld to seek a change in terms of engagement Such circumstances will have an adverse impact on the operations and financial performance of Helloworld Travel. 39 helloworldlimited.com.au D I R E C TO R S ' R E P O RT 40 C U STO M E R R I S K C O ST R E D U C T I O N I N I T I AT I V E S Continued restrictions in international and domestic travel due to the COVID-19 pandemic has resulted in damaging disruption to customer bookings and travel plans. The high volume of cancellation and refund requests during the COVID-19 crisis has placed significant burden on the Group’s personnel in attending to customer requests for travel credits and refunds. Delays in refunds by suppliers may have an adverse flow on effect on Helloworld Travel’s operational and financial performance. Customers may also seek a charge-back (or reversal) for card purchases. This is likely to have a continued demand on already reduced resources, with negative impact on Helloworld Travel’s operational and financial performance. W O R K I N G C A P I TA L R E Q U I R E M E N T S Helloworld Travel’s business model includes payment terms relating to the pre-payment by customers for travel and tourism related services including the maintenance of corporate credit balances, and credit terms between the Company and its suppliers. If payment terms and supply change, there is a high probability that customers will seek refunds (especially in the current economic environment), receivables become more difficult to collect, potential for contract assets on balance sheet to become unrecoverable or suppliers do not meet their contractual obligations. This could require Helloworld Travel to seek additional working capital financing. In addition, transactional banking facilities, including credit card processing facilities, operated by Helloworld Travel could be withdrawn by the banks or other or terms and conditions for these facilities renegotiated unfavourably for the Company. The company’s working capital position could be affected if the current economic environment increases the chance of suppliers not complying with their contractual obligations. If the Company continues to bear sales declines as a result of COVID-19 and business operating expenses remain constant this would place pressure on Helloworld Travel’s liquidity. In the event that the Company has insufficient liquidity to manage its working capital cycle, would severely impact its capability to continue operating the business in the ordinary course. Helloworld Travel Limited Annual Report 2021 The company will continue to vigorously monitor its costs and reduce these where deemed appropriate. These initiatives are based on several assumptions made with respect to the company’s ability to achieve and sustain cost- saving targets. Further initiatives may be necessary should the effects of COVID-19 and the continued national and international border closures remain in place. Given the dynamic nature of the current environment there is no assurance that the initiatives put in place will be achieved as envisaged. F I N A N C I N G R I S K The Group’s loans incorporate certain market standard covenants such as interest cover ratio, net leverage ratio and a minimum level of liquidity. If covenants are breached, financiers may require that their loans be repaid immediately, which may have a material adverse effect on the Group’s future financial performance and position. H U M A N R E S O U R C E S R I S K The Group is dependent upon the experience of its Directors, key senior management and staff generally. The potential for the loss of key personnel and a high staff turnover could have an impact on the performance of the Group’s business in the short term. The current and ongoing cost reduction initiatives could also cause disruption to operations and impact on the Group’s ability to retain high quality staff, operate its business in the ordinary course, effectively manage operational risks and take advantage of a recovery in the sector when the travel restrictions do cease. In addition, while the actions taken by the Group to preserve cash and Helloworld Travel’s survival are asserted by the Directors to be appropriate and consistent with those taken across the industry, labour relations can be subject to dispute. While the Group has processes in place to ensure compliance with applicable labour laws, the overlap of workplace agreements, awards and industrial relations rules can give rise to risks of breaches having occurred in the countries in which the Group operates. G R O W T H ST R AT E GY E X E C U T I O N A N D B U S I N E S S M O D E L D I S R U P T I O N The disruption to the Australian and global economy, in particular the travel and tourism sectors is likely to impact upon Helloworld Travel’s ability to drive its growth agenda in the short to medium term. The financial performance of investments and the economic conditions they operate within may result in investment impairment should the recoverable amount of the investment fall below the carrying value. REGULATORY RISK Regulatory action against the Group under legislation and government policy may impact on the Group. For instance; as a retailer of travel and travel-related products, the Group engages in large promotional and advertising campaigns and processes employees’ and customers’ personal information. Further, the Group’s cancellation and refund policies and procedures could expose it to regulatory scrutiny. Any media attention, regulatory scrutiny or other action taken against the Group globally where it operates, could have adverse effects on the reputation of the Group including its operating and financial performance. Similarly, a variation in law or regulation requiring Helloworld Travel or any of its businesses to vary the management of customer deposits may have financial implications for the Group. Legislative changes could directly and indirectly alter consumer demand for and consumer attitudes towards international or domestic travel. CLIMATE CHANGE AND SOCIAL SUSTAINABILITY Transitioning to a lower-carbon economy may require extensive policy, legal, technology and market changes to address mitigation and adaptation requirements related to climate change. Physical risks resulting from There is uncertainty as to how Helloworld Travel’s customers will respond to the effects of climate change and potentially on changes in customer demand. Helloworld Travel is cognoscente of the potential environmental and social impact that tourists have on destinations in Australia and internationally. The Group recognises that the travel industry can have a positive and negative impact on tourism destinations and community and traveller expectations in relation to their travel experience. BUSINESS SYSTEMS RISK Helloworld Travel relies on the performance, reliability and availability of its information technology, communication and other business systems. Any damage to or failure of, Helloworld Travel’s key systems may result in disruptions to its business (particularly to its online services). Any failures of, or malicious attacks on, Helloworld Travel’s business systems or compromise to the security of data (including personal information) maintained by the company may similarly impact both Helloworld Travel’s business and its reputation. Financial penalties for data breaches can be sizeable and if levied on Helloworld Travel could result adversely on the reputation and the financial performance of the Group. The initiatives taken to reduce cost, including the continued disruption of COVID-19, could impact on the information technology, communications and other business systems. FINANCIAL RISK Access to capital is a fundamental requirement to achieve the Group’s business objectives and to meet its financial obligations. The inability to maintain a strong balance sheet or to secure new capital or credit facilities (from time to time) at competitive market rates could impact upon the Group’s operational and financial performance and the ability to meet its ongoing liquidity needs. climate change could be event driven with longer-term There is no guarantee that equity or debt funding will be shifts in global climate patterns resulting in financial available to the Group as and when an existing facility implications for Helloworld Travel. Potentially as expires or is terminated (e.g. due to an event of default), indirect impacts from supply chain disruption in travel or the Group’s ability to refinance that debt facility on patterns and habits of customers. reasonable terms. helloworldlimited.com.au 41 D I R E C TO R S ' R E P O RT As a borrower of capital, the Group is exposed to CA P I TA L ST R U C T U R E fluctuations in interest rates, potentially increasing the cost of servicing its debt. Developments in global financial markets due to the continued impact of COVID-19, may adversely affect the liquidity of global credit markets and the Group’s access to those market, in turn could have an adverse effect on Helloworld Travel’s future financial performance and position. A G E N T N E T W O R K C L O S U R E At 30 June 2021, Helloworld Travel had 155,027,845 shares on issue of which the Executive Directors, Andrew Burnes and Cinzia Burnes, along with their direct related entities, own 27.22%. Sintack Pty Ltd and its associates hold 13.31%, QH Tours Limited (a subsidiary of Qantas Airways Limited) holds 12.4% and FIL Limited holds 9.34% with the remaining 37.73% being held by other shareholders including Helloworld Travel’s agent network has been an important part management. of its growth as a business throughout its corporate history. A reduction in the size of the agent network may negatively influence Helloworld Travel’s brand and ability to generate sales and sales growth in its retail division. In July/August 2020 the company undertook a capital raising. The shares issued as a result of the capital raising increased the total number of shares on issue by 30,307,003 to 155,027,845. This risk is mitigated by the size of the networks, their geographic spread and our close management, mentoring and engagement of our members. S I G N I F I CA N T E V E N T S A F T E R T H E B A L A N C E DAT E P E O P L E At 30 June 2021, Helloworld Travel has 885 employees (2020:1,578), the equivalent of 726 full-time employees. The decrease in the number of employees correlates with the decrease in revenue, a result of the ongoing impacts of 42 COVID-19. With the exception of the items described at note 38 of the accompany financial statements, the Directors are not aware of any matter or circumstance that has arisen in the interval between 30 June 2021 and the date of signing of this report that has significantly, or may significantly, affect the operations of the Group, the results of the operations of the Group or the state of the Group’s affairs in future financial years. Of the total number of employees across the Group at year end 64.6% (2020: 69.6%) are female. L I K E LY D E V E L O P M E N T S Employee expenditure excluding government subsidies for the year ended 30 June 2021 decreased by $52.3 million or 39% to $80.7 million, as a result of the reduction in the number of employees, the reduction in working hours and salary reductions for senior executives. Helloworld Travel was eligible to receive wage subsidies in Australia and New Zealand from the respective national governments. By comparison employee benefit expense was $139.4 million in FY19. In the opinion of the Directors, it would prejudice the interests of the Group to provide additional information, except as described in this report, relating to likely developments in the operations of the Group in subsequent financial years. R E G U L AT I O N The Group’s operations are not subject to any significant The majority of the Group’s employees are based in environmental regulations under Commonwealth or State Australia, however, the Group has employees in other legislation. countries. The FTE breakdown by country as at 30 June 2021 is below: Australia New Zealand Fiji India Other TOTAL 595 (76%) 88 24 10 9 726 (11%) (10%) (2%) (1%) - Helloworld Travel Limited Annual Report 2021 Helloworld Travel is an accredited member of the International Air Transport Association (IATA). Ongoing accreditation allows the company to sell international and/or domestic airline tickets on behalf of IATA member airlines. It also allows access to IATA’s Billing and Settlement Plan (BSP), which is an efficient interface for invoicing and payment between the travel agent and airlines. I N D E M N I F I CAT I O N A N D I N S U R A N C E O F D I R E C TO R S A N D O F F I C E R S I N D E M N I F I CAT I O N The Company has agreed to indemnify the Directors and executive officers (or former Directors or executive officers) of the Company against: (a) any liability (other than for legal costs) incurred by the Director or executive officer; (b) any legal costs reasonably incurred by the Director or executive officer in connection with; (i) any claim brought against or by the Director or executive officer of the Company; or (ii) (c) any investigative proceeding, including (without limitation) in obtaining legal advice for the purposes of responding to, preparing for or defending any of the above; and any legal costs reasonably incurred by the Director or executive officer in or in connection with the discharge of the Director or executive officer’s duties as an officer of the Company, provided that the advice is obtained in accordance with the Board Charter which requires approval from the Chairman who will facilitate the obtaining of the advice and, where appropriate, disseminate the advice to all Directors. I N S U R A N C E O F D I R E C TO R S A N D O F F I C E R S In accordance with its Constitution the Company, to the maximum extent permitted by law, indemnifies each Director and Company Secretary of Helloworld against any liability incurred by that person as an officer of the Company. Liabilities covered include legal costs that may be incurred in defending civil or criminal proceeding that may be brought against the officers in their capacity as officers of the Company or its controlled entities. During the year, Helloworld paid a premium for Directors’ and Officers’ liability insurance policies, which cover all Directors and Officers of Helloworld. Details of the amount of premium paid in respect of the Directors’ and Officers’ liability insurance has not been disclosed as, in accordance with normal commercial practice, such disclosure is prohibited under the terms of the contract. helloworldlimited.com.au 43 D I R E C TO R S ' R E P O RT LETTER FROM THE REMUNERATION COMMITTEE CHAIRMAN Dear Shareholder, I am pleased to present the Remuneration Report for the financial year ended 30 June 2021 for Helloworld Travel Limited (the Group). G R O U P P E R F O R M A N C E A N D R E M U N E R AT I O N O U TC O M E S I N 2 0 2 1 FY21 turned into a very challenging period for the business and the industry at large. Eighteen months has passed since the World Health Organisation declared COVID-19 a global pandemic. The world reacted with international border closures to slow the outbreak and alleviate the pressure on health systems and save lives. With the arrival of vaccinations has come the hope that life would return to some semblance of normality, however international and state borders closures remain in place while the infection rates of COVID-19 remain high. These unprecedented times have challenged businesses to review how they remunerate their employees. During this difficult time, our senior Executives agreed to salary reductions in order to keep costs at a long-term sustainable level given Helloworld's reduced revenues. These personal sacrifices will enable the Company to take advantage of growth opportunities as restrictions on travel ease and global vaccine programs continue to roll out. These salary reductions have continued into FY22 in various forms. 44 During this period, we introduced measures to support our employees with initiatives to promote health and mental wellbeing, access to wellness information and mental health tips and techniques. For the second consecutive year there were no short-term or long-term incentive payments awarded to KMP and no LTIP shares allocated, with several previous participants seeing allocations either lapsed or forfeited. C OV I D - 1 9 R E L AT E D R E T E N T I O N B E N E F I T P L A N In recognition of the continued effort and sacrifices, the Company issued shares to a number of staff, none of whom are Directors. The Company implemented the COVID-19 Related Retention Benefit Plan which is intended to act as a retention mechanism while conserving cash. On 18 December 2020, Helloworld Travel granted shares under this plan to these employees in recognition of their hard work. Shares were issued for nil consideration. The shares had already been issued under previous schemes but not vested, and now have new participants and a new non-market vesting condition of remaining an employee of Helloworld Travel through to the vesting date of 1 July 2021. All employees remained with the business at 1 July 2021 and as such, the vesting condition was satisfied. The Board recommends the Remuneration Report to you and asks that you support our remuneration policies and practices by voting in favour of this Report at our 2021 Annual General Meeting. Yours faithfully Garry Hounsell Chairman of the Remuneration Committee Chairman of Helloworld Travel Limited 6 September 2021 Helloworld Travel Limited Annual Report 2021 REMUNERATION REPORT (AUDITED) This 2021 Remuneration Report outlines the remuneration arrangements for the KMP of the Group in accordance with the requirements of the Corporations Act 2001 and its Regulations. The report contains the following sections: 1 R E M U N E R AT I O N G OV E R N A N C E & F R A M E W O R K 1.1 Persons to whom this report relates 1.2 Remuneration governance 1.3 KMP executive remuneration framework 1.4 Executive remuneration mix 2 E X E C U T I V E R E M U N E R AT I O N 2.1 Group performance and remuneration outcomes for 2021 2.2 Executive remuneration 2.3 Long Term Incentive Plan (LTIP) 2.4 Executive shareholdings 2.5 Executive service agreements 3 N O N - E X E C U T I V E D I R E C TO R R E M U N E R AT I O N 3.1 Non-Executive Director remuneration governance 3.2 Non-Executive Director remuneration structure 3.3 Non-Executive Director remuneration 3.4 Non-Executive Director shareholdings 45 helloworldlimited.com.au D I R E C TO R S ' R E P O RT 1 REMUNERATION GOVERNANCE & FRAMEWORK 1 . 1 P E R S O N S TO W H O M T H I S R E P O RT R E L AT E S This report covers the remuneration arrangements for the KMP of the Group. KMP are defined as those persons having authority and responsibility for planning, directing and controlling the major activities of the Group, directly or indirectly, including any Director (whether executive or otherwise). For the purposes of this report, the term ‘executive’ encompasses the Executive Directors and the Executive KMP. Directors and other KMP disclosed in this report are: 46 Name Non-Executive Directors Garry Hounsell Mike Ferraro Andrew Finch Executive Directors Andrew Burnes AO Cinzia Burnes Executive KMP David Hall Nick Sutherland Rohan Moss Chris Hunter Position Chairman and Non-Executive Director Non-Executive Director Non-Executive Director Chief Executive Officer and Managing Director Group General Manager, Wholesale & Inbound and Executive Director Chief Financial Officer Group General Manager – Corporate General Manager – Government Services General Manager – New Zealand 1 . 2 R E M U N E R AT I O N G OV E R N A N C E The Remuneration Committee of the Board is responsible for reviewing and assessing the remuneration policies and making recommendations to the Board in respect of Director and KMP remuneration in line with current market conditions. The overall objective is to ensure maximum stakeholder benefit whilst retaining high quality, high performing Directors and KMP executive team. Garry Hounsell (Chairman), Mike Ferraro and Andrew Finch were the members of the Remuneration Committee during the year. Under the terms of the Remuneration Committee Charter, the majority of the Committee members must be independent Directors and the Chair of the Committee must be an independent Director. All members of the Committee are non-executive Directors. To ensure the Committee is fully informed when making decisions on remuneration, it may seek external remuneration advice. During the reporting period, the Committee did not engage any consultants to provide recommendations in relation to remuneration. Helloworld Travel Limited Annual Report 2021 1 . 3 K M P E X E C U T I V E R E M U N E R AT I O N F R A M E W O R K The purpose of the Group’s remuneration framework for KMP executives embodies the following principles: • provide competitive rewards to attract and retain high calibre executives; • structure a portion of executive remuneration to be ‘at risk,’ dependent upon meeting pre-determined performance benchmarks; • link executive rewards to shareholder value; and • establish appropriate and demanding performance hurdles in relation to variable executive remuneration.. To achieve these principles, the remuneration arrangements of the CEO and KMP executives are made up of one or more of the following elements: F I X E D A N N U A L R E M U N E R AT I O N ( FA R ) FAR is set to attract, retain and motivate talented individuals to deliver on the Group’s strategy, the Board reviews individual performance, expertise and experience whilst considering external benchmarking to determine executive’s FAR. Executives have the option of receiving their FAR in a variety of forms including cash and fringe benefits. It is intended that the way FAR is paid will be optimal without creating unnecessary costs for the Group. As a result of the continued impact of COVID-19 on the travel sector the salary reductions implemented for key executives in March 2020 continued into FY21 in various forms. 47 C OV I D - 1 9 R E L AT E D R E T E N T I O N B E N E F I T P L A N During this unprecedented period the Helloworld leadership team worked hard, including making personal sacrifices in order to stabilize the business. In recognition of this, the Company implemented the COVID-19 Related Retention Benefit Plan which is intended to act as a retention mechanism while conserving cash. On 18 December 2020, Helloworld Travel granted shares under this plan to these employees in recognition of their hard work. Shares were issued for nil consideration and have a non-market vesting condition of remaining an employee at Helloworld Travel through to the vesting date of 1 July 2021. S H O RT T E R M I N C E N T I V E ( ‘ AT R I S K ’ R E M U N E R AT I O N ) Short term ‘at risk’ awards are correlated to the individual’s performance against their KPIs and the Group’s financial performance. In FY20 and FY21, the Group was significantly impacted by the effects of COVID-19 resulting in no STI incentives awarded due to financial targets for short term incentives were not met. L O N G T E R M I N C E N T I V E ( ‘ AT R I S K ’ R E M U N E R AT I O N ) The long term ‘at risk’ components for certain KMP are based on the Group’s performance against Total Shareholder Return metrics (threshold) and key financial and non-financial measures. There were no new LTIP programs implemented in FY21. 1 . 4 E X E C U T I V E R E M U N E R AT I O N M I X The Board aims for an equilibrium between the various elements of remuneration to attract, retain and motivate the proper talent to deliver on the Group’s strategy while linking pay to performance via incentive plans enticing executives to achieve results beyond the standard expected in the normal course of ongoing employment. helloworldlimited.com.au D I R E C TO R S ' R E P O RT 2 EXECUTIVE REMUNERATION 2 . 1 G R O U P P E R F O R M A N C E A N D R E M U N E R AT I O N O U TC O M E S F O R 2 0 2 1 48 The table below provides relevant Group performance information for the key financial measures over the last five years; Net (loss)/profit after tax Underlying EBITDA 2021 $’000 2020 $’000 2019 $’000 2018 $’000 2017 $’000 (35,885) (69,985) 38,043 30,830 21,591 (14,062) 44,042 73,526 N/A N/A Underlying EBITDA has been calculated including depreciation on right of use assets and finance expense on lease liabilities to ensure consistency with previous periods. The factors that are considered to affect total shareholders return (‘TSR’) are summarised below: 2021 2020 2019 2018 2017 Basic earnings / (loss) per share (EPS cents) (23.3) (56.5) Total dividends declared (cents per share) Opening share price at 1 July ($) Closing share price at 30 June ($) Total shareholder return (%) - 2.29 1.67 9.0 5.07 2.29 31.4 20.5 4.80 5.07 26.1 18.0 4.04 4.80 18.8 14.0 3.08 4.04 (37.1)% (53.1)% 9.9% 23.3% 35.7% TSR for FY2021 and FY2020 reflects the impacts of COVID-19. Returns in 2020 contrast dramatically with increases in key metrics including EBITDA, NPAT and EPS between 2016 and 2019. Helloworld Travel Limited Annual Report 2021 2 . 2 E X E C U T I V E R E M U N E R AT I O N Short term benefits Post-employment benefits Share based payments Termination benefits Salary ($) Other ($) Leave ($) Superannuation ($) LTIP/ COVID-19 Related Retention Plan ($) Termination payments ($) Performance related percentage Total ($) A Burnes (CEO and Managing Director) 2021 2020 373,423 543,154 - - 26,154 29,849 21,694 15,752 C Burnes (Group General Manager – Wholesale & Inbound and Executive Director) 2021 2020 330,289 514,212 - - 36,058 22,638 D Hall (CFO and Group Company Secretary) Commenced effective 2 December 2019 2021 2020 360,000 6,275 7,692 268,039 - 3,408 N Sutherland (Group General Manager – Corporate) 2021 2020 336,462 6,275 1,231 449,905 - 5,193 R Moss (General Manager - Government Services) 21,694 15,752 21,694 15,763 21,694 21,003 - - - - 184,500 - 123,000 52,000 - - - - - - - - 421,271 588,755 388,040 552,602 580,161 287,210 0% 0% 0% 0% 0% 0% 488,662 528,101 0% 9.8% 2021 259,485 6,275 1,797 21,694 98,400 - 387,651 0% C Hunter (General Manager - New Zealand)1 A$ equivalent (Partial year, Part time) 2021 135,442 - 12,940 4,270 FORMER KMP (Were not considered KMP for FY21) M Burnett (CFO and Group Company Secretary) (Resigned effective 20 December 2019) (Were not considered KMP for FY21) 2020 260,192 - (5,563) 10,501 J Constable (Group General Manager – Retail & Commercial) (Resigned effective 10 July 2020) (Were not considered KMP for FY21) - - - 152,653 0% 49 - 265,130 0% 2020 520,141 340,782 1,124 - 180,000 - 1,042,047 17.3% S McKearney (Group General Manager – New Zealand) (Resigned effective 9 September 2020) (Were not considered KMP for FY21) 2020 362,892 - - 10,887 - - 373,779 0% 2021 TOTAL 1,795,101 18,825 85,872 2020 TOTAL 2,918,535 340,782 56,649 112,740 89,658 405,900 232,000 - 2,418,438 - - 3,637,624 6.4% 1. Payments made to Chris Hunter are in local currency and converted at average exchange rates. On 18 December 2020, Helloworld Travel granted 905,000 shares under the omnibus incentive plan mechanism. The shares were issued to a number of staff, none of whom are Directors. All those personnel have been working hard for a sustained period since March 2020. Shares were issued for nil consideration and have a non-market vesting condition of remaining an employee at Helloworld Travel through to the vesting date of 1 July 2021. The fair value of the shares issued under the plan is based on the number of shares issued at the closing price on 18 December 2020 which was $2.46 per share and brought to account over the vesting period. Short term benefits Other - Is car parking grossed up for FBT purposes and for John Constable Other is comprised of housing, motor vehicle and travel allowances grossed up for FBT purposes. helloworldlimited.com.au D I R E C TO R S ' R E P O RT 2 . 3 L O N G T E R M I N C E N T I V E P L A N ( LT I P ) A loan based LTIP was established during 2017. The overall objectives of the LTIP was to lock in key leaders for an extended period, whilst at the same time, incentivising them to generate superior long term returns to our shareholders. No shares have been issued or allocated to KMP under this loan funded LTIP during the current 2021 financial year (2020: nil). In relation to the shares previously granted to Nick Sutherland, the Board determined that the share price-based performance criteria KPI was not achieved and accordingly these lapsed. The loan provided to participants equals the market value of the shares at the time of issue. As at 30 June 2021, the loans balance was nil due to the unvested LTIP shares being forfeited and recycled under the Helloworld Travel Limited Omnibus Incentive Plan (30 June 2020: $2.9 million). Set out below is the summary of the shares and loan value with the KMP: 50 Year ended 30 June 2021 Number of LTIP shares Loan Value $ Name John Constable Nick Sutherland TOTAL Opening Balance 500,000 200,000 700,000 Forfeited / Lapsed Closing Balance Opening Balance Movement Closing Balance (500,000) (200,000) (700,000) - - - 2,184,028 (2,184,028) 678,697 (678,697) 2,862,725 (2,862,725) - - - Year ended 30 June 2020 Number of LTIP shares Loan Value $ Name Michael Burnett Simon McKearney John Constable Nick Sutherland TOTAL Opening Balance 500,000 150,000 500,000 200,000 Addition Closing Balance 500,000 150,000 - - - - 500,000 200,000 700,000 1,350,000 650,000 Opening Balance Movement 1,349,427 (1,349,427) 404,828 2,265,421 711,254 (404,828) (81,393) (32,557) Closing Balance - - 2,184,028 678,697 4,730,930 (1,868,205) 2,862,725 At the Helloworld Travel Annual General Meeting held on 14 November 2019, the Group’s shareholders approved the adoption of the Helloworld Travel Limited Omnibus Incentive Plan (the Plan). Under the Plan, the Group can reward and incentivise employees, directors (including both executive and non-executive directors), contractors and consultants by offering shares, performance rights or options. Helloworld Travel Limited Annual Report 2021 50 Helloworld Travel Ltd Annual Report 2021 2 . 4 E X E C U T I V E S H A R E H O L D I N G S The number of shares in the company held during the financial year by each director and other members of KMP of the Group, including their personally related parties, is set out below: EXECUTIVE Andrew Burnes Cinzia Burnes Number of shares at 1 July 2020 10,495,531 10,138,014 - - The Burnes Group Pty Limited as trustee for The Burnes Group Service Trust 18,530,105 3,030,303 Longbush Nominees Pty Limited as trustee for the Burnes Superannuation Fund John Constable David Hall Nick Sutherland Rohan Moss TOTAL 10,000 500,000 180,000 200,000 - - - 23,333 - - 40,053,650 3,053,636 Additions Shares held Transferred Fortified/ Lapsed Number of shares at 30 June 2021 - - - - - - - 9,160 9,160 - - (1,212,121) 1,212,121 - - - - 10,495,531 10,138,014 20,348,287 1,222,121 - - - - - (500,000) - - 203,333 (200,000) - - 9,160 (700,000) 42,416,446 Andrew Burnes and Cinzia Burnes each have a beneficial interest in The Burnes Group Pty Limited which acts as the Trustee of The Burnes Group Service Trust. They also have an interest in Longbush Nominees Pty Limited which acts as the Trustee of the Burnes Superannuation Fund of which they are both members. During the year 1,212,121 shares held in The Burnes Group Pty Limited as trustee for The Burnes Group Service Trust were transferred to Longbush Nominees Pty Limited as trustee for the Burnes Superannuation Fund. The 500,000 shares held by John Constable were forfeited on his resignation and Nick Sutherland’s shares lapsed under the LTIP during the year. 51 Each of Andrew Burnes, Cinzia Burnes (via The Burnes Group Service Trust) and David Hall participated in the Group’s Institutional Placement and Accelerated Non-Renounceable Entitlement Offer (together, the Offer). 2 . 5 E X E C U T I V E S E RV I C E A G R E E M E N T S Remuneration and other terms of employment for KMP are formalised in continuing contracts of employment. These contracts specify the components of remuneration, benefits and notice periods. All contracts may be terminated by either party subject to notice periods and subject to termination payments or benefits as detailed in the table below: EXECUTIVE Notice period to be given by KMP Notice period to be given by the Company Termination payments or benefits payable if termination is by the Company Andrew Burnes CEO and Managing Director 6 months 6 months In accordance with normal statutory entitlements Group General Manager - Wholesale Cinzia Burnes & Inbound and Executive Director 6 months 6 months In accordance with normal statutory entitlements David Hall CFO and Group Company Secretary 6 months 6 months In accordance with normal statutory entitlements Nick Sutherland Group General Manager – Corporate 6 months 6 months In accordance with normal statutory entitlements General Manager – Rohan Moss Government Services 3 months 3 months In accordance with normal statutory entitlements General Manager – Chris Hunter New Zealand 3 months 3 months In accordance with normal statutory entitlements helloworldlimited.com.au 51 helloworldlimited.com.au D I R E C TO R S ' R E P O RT 3 NON-EXECUTIVE DIRECTOR REMUNERATION 3 . 1 N O N - E X E C U T I V E D I R E C TO R R E M U N E R AT I O N G OV E R N A N C E The Remuneration Committee is responsible for reviewing and recommending remuneration arrangements to the Board pertaining to Directors. The Board seeks to set aggregated remuneration levels for Directors, providing the Group the threshold to attract and retain Directors of the highest calibre, in line with shareholders’ expectations. In compliance with best practice corporate governance, Non-Executive Director remuneration is structure d separately and is distinct from executive remuneration; as detailed below. 3 . 2 N O N - E X E C U T I V E D I R E C TO R R E M U N E R AT I O N ST R U C T U R E The aggregate remuneration of Non-Executive Directors is determined and voted on at a general meeting. At the 2010 Annual General Meeting shareholders approved an aggregate remuneration of $1,500,000 per year. The amount of aggregate remuneration to be approved by shareholders, together with the fee structure, is reviewed annually. From 52 time-to-time the Board considers external advice from consultants as well as for fees paid to Non-Executive Directors for comparable companies. The Board is not proposing any change to the aggregate level of remuneration. A breakdown of Director fees is below. Role Fee Summary Chairperson $200,000 The Chairman’s fees were reduced to zero from 11 March 2020 to 30 June 2020. From July 2020 to December 2020 the Chairman’s fee was increased by 50%. From January 2021 to June 2021 the Chairman fee was increased to the pre COVID-19 level. In recognition of the additional time and commitment required (inclusive of Committee fees). Non-Executive Director $100,000 Non-Executive Directors’ fees were reduced to zero from 11 March 2020 to 30 June 2020. From July 2020 to December 2020 the fee was increased by 50%. From January 2021 to June 2021 the fee was increased to the pre COVID-19 level. In recognition of the time commitment and service to the Group’s Board. Committee Fee – $25,000 From 11 March 2020 to 30 June 2020 the Committee fee was reduced Chairperson Audit & Risk Committee to zero. July 2020 the fee was increased by 50%. January 2021 the fee was increased to the pre COVID-19 level. The additional fee paid to the Chairperson of the Audit & Risk Committee. The Committee fee is not paid to the Board Chairman. The remuneration of Non-Executive Directors for the years ended 30 June 2021 and 30 June 2020 is detailed in the following statutory table. The process for review of Non-Executive Directors’ performance is explained in the Corporate Governance Statement. Helloworld Travel Limited Annual Report 2021 3 . 3 N O N - E X E C U T I V E D I R E C TO R R E M U N E R AT I O N NON-EXECUTIVE DIRECTOR Garry Hounsell (Chairman) 2021 2020 Mike Ferraro 2021 2020 Andrew Finch 2021 2020 2021 TOTAL 2020 TOTAL Short-term benefits Post-employment benefits Cash salary ($) Superannuation ($) 143,808 154,385 88,943 91,346 - - 232,751 245,731 14,289 13,812 8,930 8,678 - - 23,219 22,490 Total ($) 158,096 168,197 97,874 100,024 - - 255,970 268,221 Since his appointment to the Board on 1 January 2017, Andrew Finch has not received Director fees. This is by agreement; no fees are paid to Qantas Airways Limited for his Directorship. During the reported periods material changes were made in respect of Director fees. Commencing 1 July 2021, the Chairman of the Board and the Chairman of the Audit & Risk Committee agreed to a reduction in Director's fees of 25%: 53 3 . 4 N O N - E X E C U T I V E D I R E C TO R S H A R E H O L D I N G S NON-EXECUTIVE DIRECTOR Garry Hounsell (Chairman) Mike Ferraro Andrew Finch TOTAL Number of shares at 1 July 2020 138,500 17,569 - 156,069 Movement 15,390 1,953 - 17,343 Number of shares at 30 June 2021 153,890 19,522 - 173,412 Both Garry Hounsell and Mike Ferraro participated in the Offer, acquiring 15,390 and 1,953 shares, respectively. This concludes the remuneration report, which has been audited. helloworldlimited.com.au D I R E C TO R S ' R E P O RT - AU D I TO R ' S I N D E P E N D E N C E D E C L A R AT I O N 54 AU D I TO R I N D E P E N D E N C E On 16 February 2021 Helloworld Travel announced the appointment of Ernst & Young as auditor of the Company. The appointment follows the conclusion of a tender process. In accordance with the process the Company has received the resignation of PricewaterhouseCoopers as auditor and the Australian Securities and Investment Commission’s consent for the resignation. Ernst & Young will hold office until the Company’s Annual General Meeting at which shareholder approval will be sought for the reappointment of Ernst & Young. The Directors received the declaration of independence on page 55 from Ernst & Young, the auditor of Helloworld Travel. This declaration confirms the auditor’s independence and forms part of the Directors’ Report. N O N - A U D I T S E RV I C E S During the year the Company’s auditors performed minimal other services in addition to their statutory duties. Consistent with written advice provided by the Audit & Risk Committee, the Directors have resolved and are satisfied that the provision of these non-audit services is compatible with, and did not compromise, the general standard of independence of auditors imposed by the auditor independence requirements in the Corporations Act 2001. All non-audit services were subject to the corporate governance procedures adopted by the Company and reviewed by the Audit & Risk Committee to ensure no impact on the integrity and objectivity of the auditor. The non-audit services provided do not undermine the general principles relating to auditor independence, as set out in APES 110 Codes of Ethics for Professional Accountants, as no own audit work was reviewed by the auditor. The lead auditor’s independence declaration, as required under section 307C of the Corporations Act 2001, is set out on page 55 and forms part of the Directors’ Report for the financial year ended 30 June 2021. Details of the amounts paid to Ernst & Young for audit and non-audit services are set out in note 27 of the Financial Statements on page 102 of the Financial Report. R O U N D I N G The amounts contained in this Directors’ Report and in the Financial Report have been rounded to the nearest $1,000 (where rounding is applicable) under the option available to the Company under Australian Securities & Investments Commission ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191. Made in accordance with a resolution of the Directors. Garry Hounsell Chairman Helloworld Travel Limited Melbourne, 6 September 2021 Helloworld Travel Limited Annual Report 2021 Ernst & Young 8 Exhibition Street Melbourne VIC 3000 Australia GPO Box 67 Melbourne VIC 3001 Tel: +61 3 9288 8000 Fax: +61 3 8650 7777 ey.com/au Auditor’s independence declaration to the directors of Helloworld Travel Limited As lead auditor for the audit of the financial report of Helloworld Travel Limited for the financial year ended 30 June 2021, I declare to the best of my knowledge and belief, there have been: a. No contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and b. No contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of Helloworld Travel Limited and the entities it controlled during the financial year. Ernst & Young Brett Croft Partner Melbourne 6 September 2021 55 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation helloworldlimited.com.au 56 S E C T I O N 2 CORPORATE GOVERNANCE STATEMENT OV E RV I E W The Board of Helloworld Travel Limited (the Company) governs the business on behalf of shareholders with the prime objective of protecting and enhancing shareholder value. The Board is committed to the highest standards of ethics and integrity and ensures that senior management run the Group in accordance with these standards. The Board monitors the Company’s governance framework and practices to ensure it fulfils its corporate governance obligations. This statement has been approved by the Board and outlines the main corporate governance practices employed by the Company. The Company endorses the ASX Corporate Governance Principles and Recommendations (4th Edition) released in February 2019 by the ASX Corporate Governance Council (ASX CGP) and where it has not adopted a recommendation, a detailed explanation is provided. • Board and Executive Management development and succession planning; • Approving the annual operating budget; • Approving and monitoring the progress of major capital expenditure, capital management and acquisitions/ divestitures; • Monitoring compliance with legal, tax and regulatory obligations; • Reviewing and ratifying systems of risk management, governance, internal compliance and controls, code of ethics and conduct, continuous disclosure, legal compliance and other significant corporate policies; • Reviewing the effectiveness of the Company’s risk management systems; • Approving and monitoring financial and other reporting to the market; and • Appointment, reappointment or replacement of the external auditor. This statement is current at 6 September 2021. Day-to-day management of the Company’s affairs and 1 L AY S O L I D F O U N DAT I O N S F O R the implementation of the corporate strategy and policy initiatives are formally delegated by the Board to the M A N AG E M E N T A N D O V E R S I G H T CEO, the CFO and other senior executives. Authority for these matters is delegated to the CEO, CFO and senior management under the Delegations of Authority Policy and the delegations are subject to certain specified value thresholds. These matters include: • Incurring budgeted and unbudgeted operating expenditure; • Incurring budgeted and unbudgeted capital expenditure; • Write-downs, bad debts, asset or equity disposals and acquisitions; and • Approval of entry into contracts. Prior to a Director’s appointment, the Board ensures that appropriate checks including background and reference checks are conducted, which may be conducted by external consultants and by other Directors of the Company. Candidates also meet with each existing Director prior to the Board’s decision to appoint them. To ensure that Directors clearly understand the requirements of the role, service contracts and formal job descriptions are provided to them. The relationship between the Board and senior management is critical to the Company’s long-term success. The Board is responsible for the performance of the Company in both the short and longer term and seeks to balance competing objectives in the best interests of the Group as a whole. The key aims of the Board are to ensure that the Company is properly managed and has an appropriate corporate governance structure to ensure the protection of shareholder value. The role and responsibilities of the Board, the Chairman and individual Directors are set out in the Company’s Board Charter. A copy of the Board Charter is available from the Corporate Governance section of the Company’s website at www.helloworldlimited.com.au. The Board’s key responsibilities and matters expressly reserved to the Board are set out in the Board Charter and include: • Setting the strategic direction of the Company and monitoring the implementation of that strategy by management; • Oversight of the Company, including its control and accountability systems; • Appointing and removing the CEO, CFO and Company Secretary; 56 Helloworld Travel Ltd Annual Report 2021Helloworld Travel Limited Annual Report 2021helloworldlimited.com.au S E N I O R E X E C U T I V E P E R F O R M A N C E With the assistance of the Remuneration Committee, the Chairman undertakes an annual review of the performance of the CEO against key performance indicators. The CEO reviews the performance of his direct reports against key performance indicators and reports this to the Remuneration Committee. 2 ST R U C T U R E O F T H E B OA R D B O A R D C O M P O S I T I O N The Directors determine the composition and size of the Board in accordance with the Company’s Constitution. The Constitution empowers the Board to set upper and lower limits with the number of Directors not permitted to be less than three. There are currently five Directors appointed to the Board. Under the Board Charter, the appointment and removal of the Company Secretary is the responsibility of the Board. The Company Secretary reports directly to the Chairman in relation to all matters relating to the proper functioning of the Board. The Company uses a Board Skills Matrix to ensure that its membership includes an appropriate mix of skills, experience and expertise and to assist in identifying the skills most desired in potential candidates for appointment to the Board. The matrix is also a tool for identifying professional development opportunities for existing Directors to develop and maintain the skills and knowledge required to effectively perform their role as Directors. Board Skills Matrix Travel Industry Experience - Australia Travel Industry Experience - International Franchise Operations Technology & Digital Economy Brand Development, Marketing Governance & Compliance Listed Company Experience Relationships/Stakeholder Management Remuneration, Human Resources Legal Wide Industry Experience Financial Experience Strategic Planning & Risk Health & Safety Number out of 5 directors 4 4 2 3 4 4 4 5 5 3 4 3 5 5 Further detail regarding the Directors’ qualifications, special responsibilities, skills, experience and expertise (including the period of office held by each Director) is set out in the Directors’ Report on pages 22 to 25. D I R E C TO R I N D E P E N D E N C E As at 30 June 2021, based on the factors relevant to assessing the independence of Directors included in the ASX CGP, two Directors, Garry Hounsell and Mike Ferraro, are deemed to be independent. The remainder of the Board is not independent for the following reasons: • Andrew Finch is an executive of Qantas, the ultimate holding company of QH Tours Limited, a substantial shareholder of Helloworld Travel Limited and a company having a material business relationship with the Company as a supplier of product and a customer for distribution services; • Andrew Burnes is the Company’s Chief Executive Officer and Managing Director, and a substantial shareholder of the Company; and • Cinzia Burnes is the Company’s Group General Manager - Wholesale & Inbound, Executive Director and a substantial shareholder of the Company. The length of each Directors’ tenure as a director is set out in the Directors’ Report on pages 22 to 25. 57 I N D E P E N D E N T D E C I S I O N M A K I N G During the reporting period, the role of Chairman was held by Garry Hounsell. Mr Hounsell is an independent director of the Company. For the whole of the year Andrew Finch was the nominated member to the Board by QH Tours Limited. Mr Finch brought to the Board the requisite skills which are complementary to those of the other Directors and enabled him to adequately discharge his responsibilities as a Non- Executive Director. As Executive Directors, Andrew Burnes in his role as CEO and Managing Director and Cinzia Burnes in her role as Group General Manager - Wholesale & Inbound, are not considered by the Board to be Independent Directors. All Directors bring independent judgement to bear on their decisions. 57 helloworldlimited.com.auHelloworld Travel Limited Annual Report 2021helloworldlimited.com.au C O R P O R AT E G O V E R N A N C E STAT E M E N T The materiality thresholds used to assess Director independence are set out in the Board Charter. The Board believes that the interests of the shareholders are best served by: • the current composition of the Board which is regarded as balanced with a complementary range of skills, diversity and experience as detailed in the Directors’ The terms of reference, role and responsibility of the Nominations and Governance Committee are consistent with ASX CGP 2.1 except that the majority are not Independent Directors. The Chairman of the Committee is an independent Director and the Committee members are considered to have the appropriate experience to serve on the committee. Report; and • the Independent Directors providing an element of balance as well as making a considerable contribution in their fields of expertise. The following measures are in place to ensure the decision making process of the Board is subject to independent judgement: • a standing item on each Board Meeting agenda requires Directors to focus on and declare any conflicts of interest in addition to those already declared; • Directors are permitted to seek the advice of independent experts at the Company’s expense, subject to the approval of the Chairman; • all Directors must act at all times in the interests of the Company; and • Directors meet regularly without management present. Adoption of these measures ensures that the interests of shareholders, as a whole, are not jeopardised by a lack of independence. 58 A majority of the Board are not independent and the Company recognises that this is a departure from Recommendation 2.4 of the ASX CGP. N O M I N AT I O N S A N D G OV E R N A N C E C O M M I T T E E The company has a Nominations & Governance Committee. It’s key responsibilities are the nomination, appointment and re-election of directors and are set out in the Nominations and Governance Committee’s charter, which is available in the Corporate Governance section of the Company’s website. The following Directors were members of the Nominations and Governance Committee: • Garry Hounsell (Chairman) • Andrew Burnes • Cinzia Burnes • Mike Ferraro • Andrew Finch Details of these Directors’ qualifications, their attendance at Nominations and Governance Committee meetings, and the number of meetings held during FY21 are set out in the Directors’ Report on pages 22 to 26. 58 R E M U N E R AT I O N C O M M I T T E E During the year, the following Non-Executive Directors were members of the Remuneration Committee: • Garry Hounsell (Chairman) • Mike Ferraro • Andrew Finch Details of these Directors’ qualifications, their attendance at Remuneration Committee meetings, and the number of meetings held during FY21 are set out in the Directors’ Report on pages 22 to 26. The Board seeks to ensure that collectively its membership represents an appropriate balance between Directors with experience and knowledge of the Company and Directors with an external or fresh perspective. It reviews the range of expertise of its members on a regular basis and seeks to ensure that it has operational and technical expertise relevant to the operations of the Company. Directors are nominated, appointed and re-elected to the Board in accordance with the Board’s policy on these matters set out in the Charter, the Company’s Constitution and the ASX Listing Rules. In considering appointments to the Board, the extent to which the skills and experience of potential candidates complement those of the Directors in office is considered along with an assessment of the nature of the skills, experience, expertise, diversity and other attributes which would benefit the Board in fulfilling its responsibilities. B OA R D P E R F O R M A N C E The Board undertakes an annual self-assessment of its collective performance and the performance of its committees, by way of a series of questionnaires. The results are collated and discussed at a Board meeting and any action plans are documented together with specific performance goals which are agreed for the coming year. Helloworld Travel Ltd Annual Report 2021Helloworld Travel Limited Annual Report 2021helloworldlimited.com.au The outcomes from this Board and Committee Governance section of the Company’s website and the performance review were: terms are consistent with ASX CGP4. • That the Board was functioning well with very open In accordance with this policy and ASX CGP4, the Board communication between management and the Board; has established the following measurable objectives in • The mix of skills and experience of the Board is relation to gender diversity: appropriate for the size and complexity of the company with all Directors making a strong contribution; and • The focus of the Board will be to ensure the company is well positioned to manage through the COVID-19 pandemic and be in a strong position to take advantage of the opportunities as they arise. • The Board will encourage suitable women applicants for Board vacancies; • The proportion of females on the Board should not fall below current levels unless a transparent process fails to succeed in attracting a suitable woman candidate; and An assessment of individual Director’s performance was • The proportion of females reporting to the CEO should undertaken during the year. This assessment consisted not fall below the current levels unless a transparent of a self-assessment questionnaire completed by each process fails to succeed in attracting suitable women Director and an individual discussion with the Board candidates. Chairman. The assessment and discussion in relation to the Chairman’s performance was undertaken by the During the current year, no new Directors were appointed Chairman of the Audit & Risk Committee. and no Director retired. The percentage of female AC C E S S TO I N F O R M AT I O N Directors may access all relevant information required to personnel reporting directly to the CEO was 20% at 30 June 2021 and 17% at 30 June 2020. During the year the Company offered the following: discharge their duties in addition to information provided • Further revised our methods in talent attraction and in Board papers and regular presentations delivered by selection in the recruitment of people from diverse executive management on business performance and backgrounds by removing unconscious biases; issues. With the approval of the Chairman, Directors may seek independent professional advice, as required, at the Company’s expense. 3 E T H I CA L A N D R E S P O N S I B L E D E C I S I O N M A K I N G The Company has a Code of Ethics and Conduct in • Enhanced our employee health and hygiene activities particularly in the context of a COVID-19 safe workplace • Promoted awareness of mental health services available to our employees and immediate family members. In the support of people who are experiencing mental, financial or legal duress. 59 place to promote ethical and responsible practices and P R O P O RT I O N O F W O M E N I N T H E O R G A N I SAT I O N expectations for Directors, Employees and Consultants of the Company in the discharge of their responsibilities. This Code reflects the Directors’ and senior executive’s intention to ensure that their duties and responsibilities to the Company are performed with the utmost integrity. A copy of the Code of Ethics and Conduct is available to all employees and is also available in the Corporate Governance section of the Company’s website. D I V E R S I T Y The Board has established a Diversity Policy which supports the commitment of the Company to an inclusive workplace that embraces and promotes diversity and provides a framework for new and existing diversity related initiatives, strategies and programs within the business. A copy of the policy is available in the Corporate There are 572 female employees in the Group representing 64.6% of the workforce. There is one female employee in executive role representing 20% of employees who report directly to the CEO. There is one female on the Board which represents 20% of the Board. 59 helloworldlimited.com.auHelloworld Travel Limited Annual Report 2021helloworldlimited.com.au 60 C O R P O R AT E G O V E R N A N C E STAT E M E N T S H A R E T R A D I N G The Company’s Share Trading Policy sets out the guidelines designed to protect the Directors and employees from intentionally or unintentionally breaching the law. The Share Trading Policy prohibits employees from dealing in the securities of the Company while in possession of material non-public information. In addition, employees and Non-Executive Directors are: • Prohibited from dealing in Helloworld securities during defined closed periods; and • Required to comply with ‘request to deal’ procedures prior to dealing in Helloworld securities outside of defined closed periods. A copy of the policy is available in the Corporate Governance section of the Company’s website. P R OT E C T E D D I S C L O S U R E S The Group’s Whistle-blower Policy encourages employees to report concerns in relation to illegal, unethical or improper conduct in circumstances where they may be apprehensive about raising their concern because of fear of possible adverse repercussions. The Whistle-blower Policy is available to all Helloworld Travel employees and is also available in the Corporate Governance section of the Company’s website. 4 I N T E G R I T Y O F F I N A N C I A L R E P O RT I N G The Board has an Audit & Risk Committee to assist the Board in the discharge of its responsibilities. During the reporting period, the following Non-Executive Directors were members of the Audit & Risk Committee: • Mike Ferraro (Chairman) • Andrew Finch • Garry Hounsell The Audit & Risk Committee Charter is available in the Corporate Governance section of the Company’s website and the composition, operation and responsibilities of the Committee are consistent with the requirements of ASX CGP 4.1. Mike Ferraro, an independent Director, has been the Committee Chairman for the full year. Details of the member Directors’ qualifications and attendance at Audit & Risk Committee meetings are set out in the Directors’ Report on pages 22 to 26. 60 Both the Board and Audit & Risk Committee closely monitor the independence of the external auditors, including, but not limited to the rotation of the external audit engagement partner every five years. The lead audit partner responsible for the Group’s external audit is required to attend each Annual General Meeting and be available to answer shareholder questions about the conduct of the audit and the preparation and content of the Auditor’s Report. 5 T I M E LY A N D B A L A N C E D D I S C L O S U R E The Company has a written Continuous Disclosure Policy in relation to the market disclosure of any information concerning the Group that a reasonable person would expect to have a material effect on the price of the Company’s securities in order to ensure compliance with its obligations under the ASX Listing Rules. A copy of the Continuous Disclosure Policy is located in the Corporate Governance section of the Company’s website. 6 R I G H T S O F S H A R E H O L D E R S The Helloworld Travel Limited Shareholder Communications Policy promotes effective communication with the Company’s shareholders and encourages shareholder participation at Annual General Meetings. The policy which deals with communication through the ASX, the Share Registry, shareholder meetings and the Annual Report is available in the Corporate Governance section of the Company’s website. All the Company’s announcements to the market can also be accessed through the Company’s website and copies of the Helloworld Travel Limited Annual Reports since 2014 are available. Copies of Charters and policies associated with the governance of the Company are available on the Company’s website. The Company ensures that the explanatory notes accompanying its ‘Notice of Annual General Meeting’ provide shareholders with all required information in the Company’s possession relevant to a decision on whether or not to elect or re-elect a Director at an Annual General Meeting, including a recommendation from the Board. These notices are available under Investor and ASX Releases on the Company’s website. The Chairman ensures that shareholders are provided with the opportunity to ask questions of the Board specific to the operations of the Company at the Annual General Meeting and other shareholder meetings. Shareholders are also afforded the opportunity Helloworld Travel Ltd Annual Report 2021Helloworld Travel Limited Annual Report 2021helloworldlimited.com.au to question the Company auditors at that meeting concerning matters related to the audit of the Company’s financial statements. Shareholders who are unable to attend the meeting are provided with the opportunity to submit questions and comments prior to the meeting to the Company or to the auditor. The CEO and CFO will endeavour to answer questions from shareholders and analysts, providing the information requested is not price sensitive. Shareholders have the option to receive and send communications to the Company and its share registry electronically if they wish to do so. Online voting on resolutions to be put at the Company’s Annual General Meetings is available to shareholders. 7 R E C O G N I S I N G A N D M A N AG I N G R I S K The Company has a policy in place for the oversight and management of its material business risks. The Group takes a proactive approach to risk management. The Board and Audit & Risk Committee are primarily responsible for ensuring that risks are identified and reviewed in a timely manner. A copy of the Risk Management Policy is available in the Corporate Governance section of the Company’s website. Under the Risk Management Policy, the Board is responsible for: • Overseeing and approving the Company’s risk management, internal controls and compliance systems; The Company’s Executive Management Team (EMT) also plays a role in identifying, assessing, monitoring and managing risks. The EMT, supported by the Helloworld Group Risk team, are responsible for assisting the Audit & Risk Committee to ensure that robust risk management exists within the business. The EMT ensures that sufficient levels of risk analysis is applied to critical decisions and provides assurance to the Audit & Risk Committee that risk processes at all levels are effective and compliant with the Company’s Risk Management Policy. The Board has received a report from Management as to the effectiveness of the Company’s management of its material business risks during the year. The Board has also received from the CEO and CFO a declaration that, in their opinion, the financial records of the Company have been properly maintained and that the financial statements comply with the appropriate accounting standards and give a true and fair view of the financial position and performance of the Company and that the opinion has been formed on the basis of a sound system of risk management and internal control which is operating effectively. Information in relation to the economic, environmental and social sustainability risks facing the Company and the way these are managed are included in the Operating and Financial Review on pages 39 to 43 of the Annual Report. I N T E R N A L AU D I T The Company does not have an in-house internal audit function and has not engaged external consultants this • Reviewing the effectiveness of the Company’s risk financial year due to the continued impacts of COVID-19. management, internal control and compliance systems at least annually, and satisfying itself that management is adhering to the requirements of the policy; and • Approving the delegations of authority for day-to-day management of the Company’s operations. Under the Risk Management Policy, the Audit & Risk Committee is responsible for assisting the Board in fulfilling its corporate governance responsibilities regarding: • The reliability and integrity of information for inclusion in the Company’s financial statements; • Enterprise-wide risk management; • Compliance with legal and regulatory obligations, including audit, accounting, tax and financial reporting obligations; • The integrity of the Company’s internal control framework; and • Safeguarding the independence of the external and internal auditors. 8 R E M U N E R AT I N G FA I R LY A N D R E S P O N S I B LY Helloworld Travel’s remuneration philosophy, objectives and arrangements are detailed in the Remuneration Report, which forms part of the Directors’ Report. D I R E C TO R S The total annual fees paid to Non-Executive Directors is set by the Company’s shareholders and allocated as Directors’ Fees and Committee Fees by the Board on the basis of the roles undertaken by the Directors. Full details of Directors’ remuneration appear in the Remuneration Report. No retirement benefits are paid and Non-Executive Directors do not participate in equity-based remuneration schemes. Details of the remuneration arrangements for the Company’s Executive Directors are set out in the Remuneration Report. 61 61 helloworldlimited.com.auHelloworld Travel Limited Annual Report 2021helloworldlimited.com.au C O R P O R AT E G O V E R N A N C E STAT E M E N T R E M U N E R AT I O N The Board has established a Remuneration Committee to assist it in the discharge of its duties relating to remuneration. The Non-Executive Directors who were members of the Remuneration Committee during the financial year are set out in the Remuneration Committee section of this Corporate Governance Statement. The Remuneration Committee Charter is available in the Corporate Governance section of the Company’s website. The composition and operation of this committee is consistent with ASX CGP 8.1. Details of the Directors’ qualifications and attendance at Remuneration Committee meetings are set out in the Directors’ Report on pages 22 to 26. E X E C U T I V E M A N AG E M E N T Remuneration for executive management is set to be competitive, to both retain executives and attract appropriately skilled and qualified executives to the Company. Remuneration comprises of a fixed cash element and variable incentive component. Payment of the variable components is reliant on the Company’s 62 financial performance and the executive’s personal performance against pre-determined key performance indicators (“KPIs”). The Company’s Share Trading Policy prohibits executives participating in the equity based remuneration scheme from entering into any arrangement that operates, or is intended to operate, to limit their exposure to risk in relation to these shares. A copy of the Share Trading Policy is available in the Corporate Governance section of the Company’s website. Helloworld Travel Limited Annual Report 2021 63 helloworldlimited.com.au F I N A N C I A L STAT E M E N T S CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 2 1 Revenue Other Income TOTAL REVENUE AND OTHER INCOME Employee benefit expenses Advertising and marketing expenses Selling expenses Communication and technology expenses Occupancy expenses Operating expenses Depreciation and amortisation expense Impairment expense Finance expense Profit/(loss) on disposal of investments Share of profit/(loss) of associates accounted for using the equity method 64 LOSS BEFORE INCOME TAX Income tax benefit/(expense) LOSS AFTER INCOME TAX FOR THE YEAR LOSS FOR THE YEAR IS ATTRIBUTABLE TO: Non-controlling interest Owners of Helloworld Travel Limited OTHER COMPREHENSIVE LOSS Items that may be reclassified subsequently to profit or loss: Change in fair value of cash flow hedges Income tax benefit on cash flow hedges Exchange differences on translation of foreign operations OTHER COMPREHENSIVE LOSS FOR THE YEAR, NET OF TAX TOTAL COMPREHENSIVE LOSS FOR THE YEAR TOTAL COMPREHENSIVE LOSS FOR THE YEAR IS ATTRIBUTABLE TO: Non-controlling interest Owners of Helloworld Travel Limited Basic earnings per share Diluted earnings per share Note 2 3 3 3 4 12 6 25 25 25 8 8 CONSOLIDATED 2021 $’000 68,107 26,066 94,173 2020 $’000 278,002 16,877 294,879 (80,697) (133,009) (3,264) (1,839) (12,050) (2,756) (8,873) (29,219) (426) (3,637) (112) (790) (24,433) (39,264) (18,354) (4,343) (41,888) (32,742) (67,947) (4,099) 1,075 1,246 (49,490) (68,879) 13,605 (1,106) (35,885) (69,985) (389) (111) (35,496) (69,874) (35,885) (69,985) - - (359) 109 (551) (2,318) (551) (2,568) (36,436) (72,553) (389) (36,047) (36,436) (111) (72,442) (72,553) Cents (23.3) (23.3) Cents (56.5) (56.5) The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes 64 Helloworld Travel Ltd Annual Report 2021Helloworld Travel Limited Annual Report 2021helloworldlimited.com.au CONSOLIDATED Note 2021 $’000 2020 $’000 CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT 3 0 J U N E 2 0 2 1 CURRENT ASSETS Cash and cash equivalents Trade and other receivables Accrued revenue Inventories TOTAL CURRENT ASSETS NON-CURRENT ASSETS Trade and other receivables Investments accounted for using the equity method Property, plant and equipment Right of use assets Intangible assets TOTAL NON-CURRENT ASSETS TOTAL ASSETS CURRENT LIABILITIES Trade and other payables Lease liabilities Provisions Deferred revenue Income tax payable TOTAL CURRENT LIABILITIES NON-CURRENT LIABILITIES Borrowings Lease liabilities Deferred tax liabilities Provisions Other non-current liabilities TOTAL NON-CURRENT LIABILITIES TOTAL LIABILITIES NET ASSETS EQUITY Issued capital Reserves Accumulated losses 9 10 11 10 12 13 14 15 17 18 20 21 19 18 22 20 23 24 25 26 EQUITY ATTRIBUTABLE TO THE OWNERS OF HELLOWORLD TRAVEL LIMITED Non-controlling interest TOTAL EQUITY The above consolidated statement of financial position should be read in conjunction with the accompanying notes 65 131,024 131,861 27,108 18,333 522 39,991 34,482 540 176,987 206,874 5,774 16,699 12,735 25,042 291,404 351,654 528,641 4,692 17,436 14,697 24,538 300,747 362,110 568,984 108,551 123,401 8,028 22,156 19,852 - 9,145 20,914 24,368 5,748 158,587 183,576 80,711 22,962 33,079 1,572 1,240 139,564 298,151 100,519 20,614 40,512 5,639 1,445 168,729 352,305 230,490 216,679 468,199 (1,554) 419,466 (2,517) (237,136) (201,640) 229,509 981 215,309 1,370 230,490 216,679 65 helloworldlimited.com.auHelloworld Travel Limited Annual Report 2021helloworldlimited.com.au F I N A N C I A L STAT E M E N T S CONSOLIDATED STATEMENT OF CHANGES IN EQUITY F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 2 1 CONSOLIDATED BALANCE AT 1 JULY 2019 Profit after income tax expense (restated) Other comprehensive loss (restated) TOTAL COMPREHENSIVE LOSS FOR THE YEAR Transfer of predecessor accounting reserve to accumulated losses Transactions with owners in their capacity as owners net of tax: LTIP expensed Franchise loyalty plan expensed Issue of new shares, net of transaction costs Sale of forfeited shares, net of transaction costs Proceeds on repayment of LTIP related loans Acquisition of shares Issue of shares to employees Dividends Dividends associated with LTIP BALANCE AT 30 JUNE 2020 66 CONSOLIDATED BALANCE AT 1 JULY 2020 Loss after income tax Other comprehensive loss TOTAL COMPREHENSIVE LOSS FOR THE YEAR Transactions with owners in their capacity as owners net of tax: LTIP expenses reversed for shares that did not meet vesting conditions Issued capital $’000 Reserves $’000 Accumulated losses $’000 416,219 693 (106,255) - (69,874) - (2,568) (2,568) Non- controlling interest $’000 Total equity $’000 1,481 (111) - 312,138 (69,985) (2,568) (69,874) (111) (72,553) (844) 844 195 7 - - - - - - - - - - - - - - (26,815) 460 - - - - - - - - - 195 7 277 669 2,301 (671) 671 (26,815) 460 - - - - - 277 669 2,301 (671) 671 - - 419,466 (2,517) (201,640) 1,370 216,679 Issued capital $’000 Reserves $’000 Accumulated losses $’000 419,466 (2,517) (201,640) - (35,496) - Non- controlling interests $’000 1,370 (389) - Total equity $’000 216,679 (35,885) (551) - - - - (551) (551) (710) - (35,496) (389) (36,436) - - - - - - (710) 48,733 2,224 Issue of new shares, net of transaction costs 48,733 COVID related retention benefit plan expensed - 2,224 BALANCE AT 30 JUNE 2021 468,199 (1,554) (237,136) 981 230,490 The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes 66 Helloworld Travel Ltd Annual Report 2021Helloworld Travel Limited Annual Report 2021helloworldlimited.com.au CONSOLIDATED STATEMENT OF CASH FLOWS F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 2 1 CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers (inclusive of GST)(i) Payments to suppliers and employees (inclusive of GST)(i)(ii) Interest received Finance costs paid Income taxes paid NET CASH USED IN OPERATING ACTIVITIES CASH FLOWS FROM INVESTING ACTIVITIES Payments for intangibles Payments for property, plant and equipment Payments for acquisition of controlled entities, net of cash acquired Payments for disposal of controlled entities, net of cash disposed Proceeds from disposal of property, plant and equipment Dividends from associates NET CASH USED IN INVESTING ACTIVITIES CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from share issue, net of costs Repayment of borrowings Proceeds from loan funded LTIP repayments Dividends paid to company shareholders Loans provided to related parties for equity accounted investments Loans repaid from related parties for equity accounted investments Payments for shares acquired by employee share trust Principal elements of lease payments NET CASH FROM USED IN FINANCING ACTIVITIES NET DECREASE IN CASH AND CASH EQUIVALENTS Cash and cash equivalents at the beginning of the financial half year Effects of exchange rate changes on cash and cash equivalents CONSOLIDATED 2021 $’000 2020 $’000 Note 28 15 13 35 36 12 24 19 24 7 37 680,799 2,711,242 (691,550) (2,749,226) 656 (3,444) - 2,313 (4,007) (1,761) (13,539) (41,439) (6,361) (2,836) 175 (2,122) 38 - (16,596) (2,878) (21,751) (1,215) 101 68 (11,106) (42,271) 48,733 (20,000) - - - - - (6,996) 21,737 (2,908) 131,861 2,071 - 44,000 2,301 (26,355) (245) 104 (671) (7,769) 11,365 (72,345) 204,755 (549) 67 CASH AND CASH EQUIVALENTS AT THE END OF THE FINANCIAL YEAR 9 131,024 131,861 (i) Receipts from customers and payment to suppliers and employees include certain amounts received and paid on behalf customers. (ii) Includes receipts relating to government wage subsidies. The above consolidated statement of cash flows should be read in conjunction with the accompanying notes 67 helloworldlimited.com.auHelloworld Travel Limited Annual Report 2021helloworldlimited.com.au F I N A N C I A L STAT E M E N T S NOTES TO THE FINANCIAL STATEMENTS 1 . B AS I S O F P R E PA R AT I O N ( A ) R E P O RT I N G E N T I T Y Helloworld Travel Limited (the Company) is incorporated and domiciled in Australia. The Company’s shares are publicly traded on the Australian Securities Exchange (ASX). The financial statements of Helloworld Travel Limited and its controlled entities (the Group), for the year ended 30 June 2021 were authorised for issue in accordance with a resolution of the directors on 6 September 2021. Helloworld Travel Limited is a for profit entity and its principal activities were the selling of international and domestic travel products and services and the operation of retail distribution networks of travel agents. ( B ) P R E S E N TAT I O N A N D M E A S U R E M E N T (i) Statement of compliance This general purpose financial report has been prepared in accordance with Australian Accounting Standards (including Australian Accounting Interpretations) adopted by the Australian Accounting Standards Board and the Corporations Act 2001. The consolidated financial statements of the Group comply with International Financial Reporting Standards (IFRS) and interpretations adopted by the International Accounting Standards Board. 68 The report has been prepared on a going concern basis, which assumes the Group will be able to meet its obligations as and when they fall due, refer section (c). (ii) Basis of accounting The financial statements have been prepared on a historical cost basis except for financial assets and financial liabilities (including derivative instruments) measured at fair value. (iii) Functional and presentation currency The financial report is presented in Australian dollars, which is the Group’s functional currency. (iv) Rounding of amounts The Group is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191 and in accordance with that instrument, amounts in the consolidated financial statements and directors’ report have been rounded off to the nearest thousand dollars, unless otherwise indicated. (v) Consistent application of accounting policies Details of the Group’s principle accounting policies which have been applied in the preparation of the financial statements are included in note 39: significant accounting policies. The accounting policies adopted are consistent with the previous financial year. (vi) Comparative periods Where necessary, comparative figures have been adjusted to conform to changes in presentation in the current period. 68 Helloworld Travel Ltd Annual Report 2021Helloworld Travel Limited Annual Report 2021helloworldlimited.com.au ( C ) G O I N G C O N C E R N The continued COVID-19 pandemic has caused unprecedented impacts to travel and tourism as a result of border closures, mandatory quarantine periods and restrictions on domestic and international travel. Since the global pandemic was officially announced by the World Health Organisation (WHO) on 11 March 2020 there continues to be a high level of uncertainty regarding the near-term outlook for the global travel industry. As a result, the Chief Executive Officer and the Board (the Chief Operating Decision Makers or CODM’s) have carefully considered the Group’s ability to continue as a going concern for the next 12 months from the date the financial statements are issued. Based on their assessment, it has been concluded that the Group will continue to operate as a going concern. As a result, the financial statements have been prepared on this basis. The key considerations used by the CODM’s to assess Helloworld Travel’s ability to continue to operate are outlined below: Liquidity considerations: • At 30 June 2021, the Group had a cash balance of $131.1 million. • At 30 June 2021, short dated facilities (A,B & C) totalling $90.0 million were extended until March 2023. • Net leverage and interest coverage covenants are suspended for the calculation dates between September 2020 and the quarter ending June 2022. • The Group prepaid $20.0 million of borrowings in October 2020 which can be redrawn if required with Westpac’s consent. This has reduced our interest costs by approximately $420,000 per annum at current rates. • At the end of July 2021, the Group had circa $31.6 million of headroom on existing facilities. This is believed to be sufficient to manage through a prolonged period of disruption to the global travel industry. • A monthly liquidity requirement has been agreed at $55.0 million from June 2021 through to the end of September 2021, $50.0 million until the end of December 2021 and $45.0 million until the quarter ending June 2022. The amount of $45.0 million is subject to negotiation in good faith after 1 June 2022. 69 • The Group has complied with the financial covenants of its borrowing facilities during the relevant periods. Future cash flow considerations: • As a result of COVID-19, action was taken to progressively reduce Helloworld Travel’s cost base. Management has remained agile in responding to impacts of lockdowns to manage the cost base in line with requirements. Cost reductions have been carefully considered to ensure that the Group is able to respond effectively once travel volumes recover. The Group has a diversified business with a mix of domestic and international leisure travel, corporate travel and wholesale travel. This means that Helloworld is well placed to benefit from a recovery in both domestic and international travel. The Group has a diversified business with a mix of domestic and international leisure travel, entertainment, film and event travel, corporate travel and wholesale travel. This means that Helloworld is well placed to benefit from a recovery in both domestic and international travel. The key cost saving initiatives below have been included in Helloworld’s financial modelling and sensitivity testing: • Implementation of hiring and salary freezes and restructuring of non-essential contractors and staff. • Eliminating all non-essential expenditure including short term capital expenditure (travel, marketing, IT development). • Negotiating reduced rental across Helloworld Travel’s property portfolio. • Implementing staff stand downs and reduced working hours across the business. • Directors and direct reports to the CEO agreed to reduced salaries during the reporting period. Refer to note 1 (d) (i) for more information regarding the impact of COVID-19 on Helloworld Travel. 69 helloworldlimited.com.auHelloworld Travel Limited Annual Report 2021helloworldlimited.com.au F I N A N C I A L STAT E M E N T S ( D ) U S E O F C R I T I CA L A C C O U N T I N G E ST I M AT E S A N D J U D G E M E N T S The preparation of financial statements requires management to make estimates, judgements and assumptions that affect the application of the Group’s accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised prospectively. (i) COVID-19 Pandemic On 11 March 2020 the World Health Organisation (WHO) declared a global pandemic as a result of the outbreak and spread of COVID-19. As a result, governments across the world took action to close country borders and limited people to only essential travel. Both Australia and New Zealand governments imposed these restrictions which resulted in a significant adverse impact on Helloworld Travel’s ability to derive revenue from the sale of travel products and services. As at 30 June 2021, many of these border restrictions across the world remained in place. Uncertainty remains with regard to when they may open. The actions taken by Helloworld to address the decline in revenue have been outlined in note 1 (c). As a result of COVID-19, there has been an increase in estimation uncertainty when preparing the financial statements. The key estimates and judgements used have been outlined in the notes to the financial statements. These include the recoverability of assets, valuation of assets measured at fair value and the timeline regarding the eventual recovery of the travel industry, the return of agents on a full-time basis throughout the network and the recovery of loans. (ii) Impairment of non-financial assets 70 The Group determines impairment exists when the carrying value of an asset or cash generating unit (CGU) exceeds its recoverable amount, which is the higher of its fair value less costs of disposal and its value in use. Management’s estimation of the recoverable amount requires the use of judgement and assumptions. The estimation of the recoverable amount is most relevant to goodwill and intangible assets with indefinite useful lives, which are tested on an annual basis. Refer note 15: intangible assets for the key assumptions, including a sensitivity analysis, used in this estimation of recoverable amount of CGU’s to which goodwill and intangible assets with indefinite useful lives are allocated. All other non-financial assets are tested for impairment when indicators of impairment exist. Refer note 12: Investments accounted for using the equity method for further information. (iii) Business acquisitions Business acquisitions require key judgements in the identification, recognition and measurement of intangible assets recognised on acquisition. For certain acquisitions, the Group is required to assess and value any contingent consideration payable including the valuation of potential future purchases of non-controlling interests for existing put options. Refer to note 29: financial risk management for details regarding the techniques and inputs used in the valuation of contingent consideration. In accordance with applicable accounting standards, Helloworld Travel has twelve months from the date of acquisition to finalise the acquisition accounting for additional information obtained after the acquisition about circumstances that existed at the acquisition date, including any purchase price allocation and income tax finalisation. The key judgements used for business acquisitions undertaken are outlined in note 35: business acquisitions. In addition, the accounting policies for acquisitions undertaken are outlined in note 39: significant accounting policies. 70 Helloworld Travel Ltd Annual Report 2021Helloworld Travel Limited Annual Report 2021helloworldlimited.com.au (iv) Override commission revenue The Group enters into override commission revenue contracts with airlines and other suppliers. The override commission revenue accrual process is inherently judgemental and requires the use of accounting estimates. Override commission is calculated for the contract period with a supplier, based on the value of eligible travel during the period at the expected contracted applicable override rates. Eligible travel for the financial year is calculated based on detailed booking information and is reviewed by management considering current and historical booking trends. To estimate the appropriate override rate to use in the calculation of the estimated override commission, the expected eligible travel sales for the contract period are estimated (based on actual sales, forecast bookings and historical trends) and compared to the contractual performance tiers. The Company has also considered the prevailing level of uncertainty in the travel industry and the impact of COVID-19 on the estimates. A significant portion of override commission contract periods do not correspond to the Group’s financial year end. Judgements and estimation techniques are required to determine anticipated future flown revenues over the remaining contract year and the associated override commission rates applicable to these forecast levels. The accounting policy for override commission revenue is outlined in note 39: significant accounting policies. (v) Lease terms of contracts with extension options Extension and termination options are included in a number of the Group’s property leases. In determining the lease term, which forms part of the initial measurement of the right of use asset and lease liability, management considers all facts and circumstances that create an economic incentive to exercise an extension option, or not exercise a termination option. Extension options (or periods after termination options) are only included in the lease term if the lease is reasonably certain to be extended (or not terminated). ( E ) N E W A N D A M E N D E D A C C O U N T I N G STA N DA R D S I M PAC T I N G T H E G R O U P (i) New and amended accounting standards for the year ended 30 June 2021 The adoption of the accounting standard amendments and interpretation did not have any impact on the amounts recognised in the current period or any prior period and is not expected to materially affect future periods. 71 2 . R E V E N U E A N D OT H E R I N C O M E The disaggregation of revenue and other income by key types is provided as follows: Commissions Transaction and services fees Marketing related activities Other revenue from contracts with customers (including freight and call-centre revenue) REVENUE FROM CONTRACTS WITH CUSTOMERS Rents and sublease rentals Finance income Government wage subsidies (i) Sundry income OTHER INCOME TOTAL REVENUE AND OTHER INCOME CONSOLIDATED 2021 $’000 23,080 25,259 3,995 15,773 68,107 - 656 22,977 2,433 26,066 94,173 2020 $’000 191,470 40,170 24,463 21,899 278,002 324 2,313 12,692 1,548 16,877 294,879 (i) During the current year, Helloworld Travel Limited received government wage subsidies for eligible employees in both Australia and New Zealand, in the form of JobKeeper of $21.9 million (2020: $10.5 million) and New Zealand wage subsidy of $1.1 million (2020: $2.2 million) payments. The NZ wage subsidy scheme finished on 6 September 2020. These subsidies were made available to companies to assist with the financial impacts of the COVID-19 pandemic. Government wage subsidies for FY20 have been reclassified from employee expenses to other income to align with current year financial statements. 71 helloworldlimited.com.auHelloworld Travel Limited Annual Report 2021helloworldlimited.com.au F I N A N C I A L STAT E M E N T S 3 . E X P E N S E I T E M S LOSS BEFORE INCOME TAX EXPENSE INCLUDES THE FOLLOWING SPECIFIC EXPENSE ITEMS: Defined contribution superannuation expense LTIP expense Employee share plan expense (inc COVID-19 Related Retention Benefit Plan (iv)) Other employee benefits expense including salaries TOTAL EMPLOYEE BENEFITS EXPENSE Depreciation of property, plant and equipment (note 13) 72 Depreciation of right of use assets (note 14) Amortisation of intangible assets (note 15) TOTAL DEPRECIATION AND AMORTISATION Impairment of investments accounted for using the equity method (note 12) Impairment of right of use assets (note 14) Impairment of commercial agreements (note 15) Impairment of goodwill (note 15) IMPAIRMENT OF NON-CURRENT ASSETS Fair value adjustment on contingent consideration receivable (i) Fair value adjustment on redemption liability (ii) FAIR VALUE ADJUSTMENTS RELATING TO FINANCIAL ASSETS AND LIABILITIES Gain/(loss) on disposal of the US Wholesale Division (iii) (note 36) PROFIT ON DISPOSAL OF INVESTMENTS Loss allowance on trade receivables and accrued revenue Business acquisition related expenses Franchise loyalty plan expense Other provision Payments relating to Tempo Holidays and Bentours collapse Rent concessions (v) Restructuring costs (vi) Bargain purchase on ITM acquisition (note 35) Disposal and modification of leases 72 CONSOLIDATED 2021 $’000 2020 $’000 (4,865) 710 (2,224) (74,318) (80,697) (3,920) (8,039) (17,260) (29,219) - (426) - - (426) (170) 1,200 1,030 (112) (112) (1,771) (58) - (8,928) (195) (671) (123,215) (133,009) (6,029) (8,823) (17,890) (32,742) (850) (90) (1,507) (65,500) (67,947) (883) 3,600 2,717 1,075 1,075 (7,666) (1,198) (7) (2,473) (2,639) - - (702) 977 (5,597) (6,877) 228 (270) - - Helloworld Travel Ltd Annual Report 2021Helloworld Travel Limited Annual Report 2021helloworldlimited.com.au (i) The contingent consideration receivable relating to the sale of Insider Journeys is a financial asset recorded at fair value through profit or loss in accordance with applicable accounting standards. As at 30 June 2021, the contingent consideration receivable has been remeasured to its fair value of $nil (30 June 2020: $170,000) and the resulting fair value change of $170,000 has been recognised within operating expenses in the consolidated statement of profit and loss. (ii) The redemption liability relates to the put option liability to acquire the non-controlling 40.0% ownership interest in Keygate Holdings Pty Ltd on 1 July 2022. The put option is a financial liability recorded at fair value through profit or loss in accordance with applicable accounting standards. Due to border restrictions across Asia, the fair value of the redemption liability has been remeasured to $nil (2020: $1.2 million) as at 30 June 2021 and the resulting fair value change of $1.2 million (2020: $3.6 million) has been recognised within operating expenses in the consolidated statement of profit and loss. Refer note 29: financial risk management for further details. (iii) During the current year, Helloworld Travel updated the U.S Wholesale division disposal accounting to reflect the payment of the preliminary adjustment which was paid on 1 December 2020. The payment amounted to $2.1 million, resulting in an adjustment of $0.1 million in the current year. Refer note 36 for more information. (iv) On 18 December 2020, Helloworld Travel granted 905,000 shares under the omnibus incentive plan mechanism. The shares were issued to a number of staff, none of whom are Directors. All those personnel have been working reduced days for a sustained period since March 2020. Shares were issued for nil consideration and have a non- market vesting condition of remaining an employee at Helloworld Travel through to the vesting date of 1 July 2021. At the vesting date, employees that have satisfied the required conditions of the plan will be issued with their allocated shares at nil consideration. All omnibus incentive plan shares rank equally in all respects with existing shares from the date of their issue. The fair value of the shares issued under the plan is based on the number of shares issued at the closing price on 18 December 2020 which was $2.46 per share and is being brought to account over the vesting period. As a result, the total share-based payment expense recognised in the current year in the statement of profit or loss and other comprehensive income amounts to $2.22 million. (v) Helloworld Travel received rent concessions from certain landlords as a direct result of the COVID-19 pandemic and has elected to use the practical expedient available under Amendments to Australian Accounting Standards – COVID-19 Related Rent Concessions. Rent concessions that have not resulted in a lease modification, are considered variable lease payments. Any difference between the remeasurement of the lease liability and the right of use asset is recognised within occupancy expenses in the consolidated statement of profit or loss and other comprehensive income. (vi) In response to the change in the travel market due to the COVID-19 pandemic, Helloworld Travel has undertaken initiatives to deliver cost savings and efficiencies while preserving the key operations to support the eventual recovery of both domestic and international travel. Refer note 1(c) for further information. 73 73 helloworldlimited.com.auHelloworld Travel Limited Annual Report 2021helloworldlimited.com.au F I N A N C I A L STAT E M E N T S 4 . F I N A N C E I N C O M E A N D E X P E N S E RECOGNISED IN PROFIT OR LOSS FINANCE INCOME RECOGNISED IN REVENUE Finance expense (i) Finance expense on lease liabilities Finance expense on make good provisions FINANCE EXPENSE NET FINANCE EXPENSE RECOGNISED IN LOSS BEFORE INCOME TAX CONSOLIDATED 2021 $’000 2020 $’000 656 (2,575) (1,062) - (3,637) (2,981) 2,313 (3,029) (1,030) (40) (4,099) (1,786) (i) Finance expense includes $0.2 million (2020: $0.3 million) of non-cash amortised borrowing costs. 5 . O P E R AT I N G S E G M E N T S 74 ( A ) D E S C R I P T I O N O F S E G M E N T S The reporting structure is based on a geographical basis of where the Group’s businesses are managed. Internal reports reviewed and used by the Chief Executive Officer and the Board (the Chief Operating Decision Makers or CODMs) in assessing performance and making strategic decisions are prepared on this basis. The Group has the following three segments: • Australia; • New Zealand; and • Rest of World. Australia and New Zealand segments each have retail distribution operations, air ticketing, wholesale and inbound, and travel management businesses. Australia and New Zealand also contain corporate support units performing shared service functions, which are fully allocated to all segments and are reported within segment expenses. The Rest of World segment consists of an inbound travel business in Fiji, and Tourist Transport Fiji (TTF), being a vehicle transport service provider in Fiji. The Group disposed of its U.S Wholesale Division on 30 June 2020. This business previously formed part of the Group’s Rest of World segment. 74 Helloworld Travel Ltd Annual Report 2021Helloworld Travel Limited Annual Report 2021helloworldlimited.com.au ( B ) S E G M E N T I N F O R M AT I O N P R O V I D E D TO T H E C O D Ms The CODMs assess the performance of the operating segments based on a financial measure of Underlying EBITDA, which is not a measure prescribed by Australian Accounting Standards. Underlying EBITDA represents earnings before interest expense, tax, depreciation and amortisation, adjusted to: • include depreciation on right of use assets and interest expense on lease liabilities and make good provisions arising from the application of AASB 16; and • exclude large non-recurring items described in part (c) of this note A reconciliation of Underlying EBITDA to loss before income tax expense is provided in part (c) of this note. Segment results for the Group are shown below: CONSOLIDATED YEAR ENDED 30 JUNE 2021 Commissions Transaction and services fees Marketing related activities Other revenue from contracts with customers (including freight and call-centre revenue) REVENUE FROM CONTRACTS WITH CUSTOMERS Government wage subsidies Other revenue SEGMENT REVENUE Segment expenses Depreciation of right of use assets Interest expense on lease liabilities Equity accounted losses UNDERLYING EBITDA CONSOLIDATED YEAR ENDED 30 JUNE 2020 Commissions Transaction and services fees Marketing related activities Other revenue from contracts with customers (including freight and call-centre revenue) REVENUE FROM CONTRACTS WITH CUSTOMERS Government wages subsidies Other revenue SEGMENT REVENUE Segment expenses Depreciation of right of use assets Interest expense on lease liabilities Equity accounted profits Trading losses relating to U.S Wholesale Division (i) 75 Australia $’000 New Zealand $’000 Rest of World $’000 Total $’000 19,270 23,119 3,785 15,773 61,947 21,898 2,411 86,256 (84,957) (6,787) (868) (790) 3,708 2,140 210 - 6,058 1,079 654 7,791 (12,729) (1,139) (188) - 102 - - - 102 - 24 126 (657) (114) (6) - 23,080 25,259 3,995 15,773 68,107 22,977 3,089 94,173 (98,343) (8,040) (1,062) (790) (7,146) (6,265) (651) (14,062) Australia $’000 New Zealand $’000 Rest of World $’000 Total $’000 152,801 34,224 4,445 191,470 35,475 18,756 18,776 225,808 10,474 3,530 239,812 (193,729) (6,964) (885) 1,246 - 4,328 5,530 496 44,578 2,218 497 47,293 (41,395) (1,204) (153) - - 367 177 2,627 7,616 - 158 40,170 24,463 21,899 278,002 12,692 4,185 7,774 294,879 (9,350) (244,474) (655) (32) - 2,284 (8,823) (1,070) 1,246 2,284 UNDERLYING EBITDA 39,480 4,541 21 44,042 (i) Trading losses relating to U.S Wholesale Division represents the EBITDA losses, excluding share service allocations, associated with U.S Wholesale Division which was disposed of on the 30 June 2020. 75 helloworldlimited.com.auHelloworld Travel Limited Annual Report 2021helloworldlimited.com.au F I N A N C I A L STAT E M E N T S ( C ) OT H E R S E G M E N T I N F O R M AT I O N (i) EBITDA Underlying EBITDA represents earnings before interest expense, tax, depreciation and amortisation, adjusted to include depreciation on right of use assets and interest expense on lease liabilities and make good provisions arising from the application of AASB 16 and exclude large non-recurring items. Underlying EBITDA is a financial measure which is not prescribed by Australian Accounting Standards but is the measure used by the Board to assess the financial performance of the Group and operating segments and it is not subject to auditor review. A reconciliation of Underlying EBITDA to loss before income tax is provided as follows: UNDERLYING EBITDA Impairment of non-current assets (note 14) Restructuring expense COVID-19 Related Retention Benefit Plan Increase in loss allowance Disposal and modification of leases Bargain purchase on ITM acquisition Other provisions Trading losses relating to U.S Wholesale Division Business acquisition related and other expenses Fair value adjustment on contingent consideration receivable (Insider Journeys) Payments relating to Tempo Holidays and Bentours collapse Fair value adjustment on redemption liability (Keygate Holdings) 76 Gain/(loss) on disposal of the US Wholesale Division TOTAL SIGNIFICANT ITEMS Depreciation of property, plant and equipment Amortisation of intangible assets Finance expense on borrowings LOSS BEFORE INCOME TAX CONSOLIDATED 2021 $’000 2020 $’000 (14,062) 44,042 (426) (5,597) (2,224) (1,771) (270) 228 (2,473) - (58) (170) - 1,200 (112) (67,947) (6,877) - (7,118) - - (2,639) (2,284) (2,198) (883) (702) 3,600 1,075 (11,673) (85,973) (3,920) (17,260) (2,575) (6,029) (17,890) (3,029) (49,490) (68,879) Interest income on client funds is included within segment revenue and underlying EBITDA. (ii) Segment assets The internal management reports provided to the CODMs report total assets on a basis consistent with that of the consolidated financial statements. These reports do not allocate assets based on the operations of each segment or by geographical location. Total non-current assets, other than deferred tax assets, located in Australia total $320.8 million (2020: $331.5 million). Total non-current assets located in other countries total $28.5 million (2020: $30.7 million). Under the current management reporting framework, total assets are not reviewed to a specific reporting segment or geographic location. (iii) Segment liabilities The internal management reports provided to the CODMs report total liabilities on a basis consistent with that of the consolidated financial statements. Under the current management reporting framework, total liabilities are not reviewed to a specific reporting segment or geographic location. 76 Helloworld Travel Ltd Annual Report 2021Helloworld Travel Limited Annual Report 2021helloworldlimited.com.au 6 . I N C O M E TA X The major components of income tax recognised in the consolidated statement of profit or loss and other comprehensive income are: ( A ) I N C O M E TA X Current income tax (expense)/benefit Deferred income tax (expense)/benefit Adjustment in respect of current tax expense of previous year INCOME TAX BENEFIT/(EXPENSE) Deferred income tax expense relates to the origination and reversal of temporary differences and comprises: (Increase)/decrease in deferred tax assets Increase/(decrease) in deferred tax liabilities DEFERRED INCOME TAX CONSOLIDATED 2021 $’000 6,947 6,680 (22) 13,605 2020 $’000 (5,361) 4,944 (689) (1,106) 1,310 5,880 7,190 (4,573) 9,517 4,944 ( B ) R E C O N C I L I AT I O N O F I N C O M E TA X A N D TA X AT T H E STAT U TO RY R AT E LOSS BEFORE INCOME TAX Tax at the statutory tax rate of 30% Add/(deduct) tax effect of: Gain on disposal of non-current assets Non-deductible amortisation Non-deductible non-cash impairment Share based payment expense Non-assessable income Tax losses Differences in overseas tax rates Tax offset for franked dividends from equity accounted investments Under provision in prior year INCOME TAX BENEFIT/(EXPENSE) CONSOLIDATED 2021 $’000 2020 $’000 (49,490) 14,847 (68,879) 20,664 77 (394) (415) (61) (497) 431 - (284) - (22) 13,605 (231) (526) (19,650) (59) (751) 18 100 18 (689) (1,106) ( C ) TA X E X P E N S E R E L AT I N G TO I T E M S O F OT H E R C O M P R E H E N S I V E I N C O M E Cash flow hedges TOTAL TAX (BENEFIT)/EXPENSE RELATING TO ITEMS OF OTHER COMPREHENSIVE INCOME CONSOLIDATED 2021 $’000 - - 2020 $’000 (109) (109) 77 helloworldlimited.com.auHelloworld Travel Limited Annual Report 2021helloworldlimited.com.au F I N A N C I A L STAT E M E N T S ( D ) TA X L O S S E S N OT R E C O G N I S E D Unused tax losses for which no deferred tax asset has been recognised Potential tax benefit at statutory tax rates CONSOLIDATED 2021 $’000 - - 2020 $’000 - - All unused tax losses were incurred by non-Australian entities that are not part of the Australian tax consolidated group. ( E ) U N R E C O G N I S E D T E M P O R A RY D I F F E R E N C E S The Group had undistributed earnings for controlled entities which if paid out as dividends would be non-assessable exempt income and not subject to tax in the hands of the recipient. Therefore, no deferred tax liability has been recorded in relation to the undistributed earnings. 7 . D I V I D E N D S PA I D A N D P R O P O S E D ( A ) D I V I D E N D S No dividends were declared or paid during the year. In FY20, an interim dividend of 9.0 cents per share was declared and paid. 78 Final dividend for the year ended 30 June 2019 (12.5 cents per share, distributed on 17 September 2019) Final dividends associated with LTIP Interim dividend for the year ended 30 June 2020 (9.0 cents per share, distributed on 19 March 2020) Interim dividends associated with LTIP DIVIDENDS PAID PER STATEMENT OF CASH FLOWS CONSOLIDATED 2021 $’000 2020 $’000 - - - - - 15,590 (298) 11,225 (162) 26,355 The interim dividend for the year ended 30 June 2020 was paid out of the 2020 financial half year profits. No interim or final dividend has been proposed for the year ended 30 June 2021. Pursuant to the Group’s financing arrangements, dividends made prior to 01 June 2022 may be made with Westpac’s consent. ( B ) F R A N K I N G C R E D I T S The Group’s available franking credits are summarised below: Franking credits available at the reporting date Franking credits that will arise from income tax (receivable)/payable as at year end TOTAL AMOUNT OF FRANKING CREDITS AVAILABLE FOR THE SUBSEQUENT FINANCIAL YEARS CONSOLIDATED 2021 $’000 25,486 - 25,486 2020 $’000 20,231 5,255 25,486 The ability to utilise the franking credits is dependent upon the Company meeting solvency based tests for payment of dividends set out in the Corporations Amendments (Corporate Reporting Reform) Act 2010. Pursuant to the Group’s financing arrangements, dividends made prior to 01 June 2022 may be made with Westpac’s consent. In accordance with tax consolidation legislation, the Company, as the head entity in the Australia tax consolidated group, has assumed the benefit of franking credits of all entities. 78 Helloworld Travel Ltd Annual Report 2021Helloworld Travel Limited Annual Report 2021helloworldlimited.com.au 8 . E A R N I N G S P E R S H A R E ( A ) B A S I C A N D D I L U T E D E A R N I N G S P E R S H A R E ( E P S ) Basic EPS attributable to the ordinary equity holders of the Company Diluted EPS attributable to the ordinary equity holders of the Company ( B ) R E C O N C I L I AT I O N O F E A R N I N G S U S E D I N CA L C U L AT I N G E P S Loss after income tax expense Adjusted for loss attributable to the non-controlling interest NET LOSS FOR THE YEAR USED IN CALCULATING EPS ( C ) W E I G H T E D AV E R AG E N U M B E R O F S H A R E S ( WA N O S ) CONSOLIDATED 2021 cents (23.3) (23.3) 2020 cents (56.5) (56.5) CONSOLIDATED 2021 $’000 2020 $’000 (35,885) (69,985) 389 111 (35,496) (69,874) CONSOLIDATED 2021 Number of shares 2020 Number of shares WANOS USED IN CALCULATING BASIC EPS Adjustment for shares issued under franchise loyalty plan WANOS USED IN CALCULATING DILUTED EPS 152,088,337 123,737,691 - 2,466 152,088,337 123,740,157 79 The franchise loyalty shares prior to vesting date are included in diluted EPS, reflecting the forward non-market vesting conditions and the nil consideration paid on the issue of the shares. No further shares remain under the franchise loyalty plan at 30 June 2021. The LTIP shares prior to vesting date are excluded from diluted EPS, until the forward market vesting conditions attached to these shares have been met. For the year ended 30 June 2021, Helloworld Travel has a weighted average number of potential ordinary shares relating to the LTIP of Nil (2020: 980,685) which have been excluded from diluted EPS. At 30 June 2021, there are nil (2020: 850,000) shares issued under the LTIP that have that have not yet vested and are subject to future performance criteria. Refer note 37: share based payments for further details on the nature of shares issued under the franchise loyalty plan and the LTIP. ( D ) I N F O R M AT I O N C O N C E R N I N G T H E C L A S S I F I C AT I O N O F S E C U R I T I E S As at 30 June 2021, the Company had 155,027,845 (2020: 124,720,842) ordinary shares on issue. Refer note 24: issued capital for further details on the movement of ordinary shares during the current year. 79 helloworldlimited.com.auHelloworld Travel Limited Annual Report 2021helloworldlimited.com.au F I N A N C I A L STAT E M E N T S 9 . CA S H A N D CAS H E Q U I VA L E N T S Cash at bank and on hand (i) Restricted cash at bank (ii) CASH AND CASH EQUIVALENTS (i) Cash at bank and on hand CONSOLIDATED 2021 $’000 110,830 20,194 131,024 2020 $’000 103,510 28,351 131,861 Includes client cash which is not International Air Transport Association (IATA) restricted. (ii) Restricted cash at bank Includes cash held of $20.2 million (2020: $28.4 million) within legal entities of the Group that have IATA requirements as part of providing ticketing travel arrangements. 1 0 . T R A D E A N D OT H E R R E C E I VA B L E S 80 Trade receivables Loss allowance TRADE RECEIVABLES NET OF LOSS ALLOWANCE Prepayments Other receivables OTHER RECEIVABLES CURRENT TRADE AND OTHER RECEIVABLES Loans to related parties Contingent consideration receivable (i) Other receivables NON-CURRENT TRADE AND OTHER RECEIVABLES CONSOLIDATED 2021 $’000 16,342 (2,487) 13,855 5,502 7,751 13,253 27,108 4,395 - 1,379 5,774 2020 $’000 27,986 (4,517) 23,469 9,062 7,460 16,522 39,991 4,397 170 125 4,692 Trade receivables are non-interest bearing and are generally on 7 to 30 day payment terms from the date of invoice. Fair value and credit risk Due to the short-term nature of current trade and other receivables, their carrying value generally approximates their fair value. The maximum exposure to credit risk is the carrying value of the receivables. Collateral is not held as security, nor is it the Group’s policy to transfer receivables to special purpose entities. (i) The contingent consideration receivable relating to the sale of Insider Journeys is a financial asset recorded at fair value through profit or loss in accordance with applicable accounting standards. As at 30 June 2021, the contingent consideration receivable has been remeasured to its fair value of $nil (30 June 2020: $170,000) and the resulting fair value change of $170,000 has been recognised within operating expenses in the consolidated statement of profit and loss. Helloworld Travel has also considered the prevailing level of uncertainty in the travel industry and the impact of COVID-19 on Helloworld’s ability to recover outstanding receivables from customers. These factors have been included in the expected credit loss provision, refer note 29: financial risk management for more information. Credit, foreign exchange and interest rate risk Details regarding credit, foreign exchange and interest rate risk exposure are disclosed in note 29: financial risk management. 80 Helloworld Travel Ltd Annual Report 2021Helloworld Travel Limited Annual Report 2021helloworldlimited.com.au 1 1 . A C C R U E D R E V E N U E Accrued override commission Other accrued revenue Loss allowance ACCRUED REVENUE CONSOLIDATED 2021 $’000 7,334 14,199 (3,200) 18,333 2020 $’000 34,773 3,409 (3,700) 34,482 Accrued revenue relates to amounts owed to the Group at balance sheet date that have not yet been invoiced to the customer or received as cash from the customer. The Group’s accrued revenue consists of: • Accrued override commission, which relates to the estimate of override commission earned during the respective customer contract period, but not yet invoiced at balance date; and • Other accrued revenue, which relates to other revenue earned, but not yet invoiced. Accrued override commission is considered a contract asset in accordance with applicable accounting standards. The Group generates override commission from its contracts with airlines and leisure partners and the revenue accrual process is inherently judgemental, refer note 1(d): use of critical accounting estimates and judgements for further details. Accrued override commission is transferred to trade receivables, when the contract period with the airline or leisure partner is completed and the final amount of the override commission has been calculated and invoiced in accordance with the contract. Once invoiced, override commissions are settled in line with the credit terms from the invoice date under normal commercial terms and conditions The contract periods with airline and leisure partners for override commission varies from one month to twelve months. As a result, the accrued revenue recorded on the consolidated statement of financial position as at 30 June is invoiced and settled in the following financial year. The estimated accrued override commission is subsequently adjusted for any differences between Helloworld Travel’s initial estimate and finalisation with the respective contractual partner. These prior year true ups mainly result from a change in the achievement of performance tiers which were estimated while the contracts were in progress. Commission revenue adjustments in the current year of $0.6 million (2020: $1.3 million) relate to prior year revenue true ups from the finalisation of commission revenue that was estimated at the end of the financial year. As at 30 June 2021, the balance of accrued override commission has decreased by $27.4 million to $7.3 million reflecting the impact of COVID-19. Helloworld Travel has also considered the prevailing level of uncertainty in the travel industry and the impact of COVID-19 on Helloworld’s ability to recover outstanding override commissions from all airlines. These factors have been included in the expected credit loss provision, refer note 29: financial risk management for more information. 81 81 helloworldlimited.com.auHelloworld Travel Limited Annual Report 2021helloworldlimited.com.au F I N A N C I A L STAT E M E N T S 1 2 . I N V E ST M E N T S A C C O U N T E D F O R U S I N G T H E E Q U I T Y M E T H O D Investment in associates INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD ( A ) I N T E R E ST S I N A S S O C I AT E S Information relating to associates is set out below: NAME COUNTRY OF INCORPORATION Mobile Travel Holdings Pty Limited and its subsidiaries (i) 82 Hunter Travel Group Pty Limited HTG Australia Pty Limited Cooney Investments Pty Limited Inspire Travel Management Pty Limited Australia Australia Australia Australia Australia CONSOLIDATED 2021 $’000 16,699 16,699 2020 $’000 17,436 17,436 OWNERSHIP INTEREST 2020 % 2021 % 50.0 12.0 25.0 20.0 - 50.0 12.0 25.0 20.0 40.0 (i) The majority of the balance as at 30 June 2021 relates to Helloworld Travel's investment in Mobile Travel Holdings Pty Limited and its subsidiaries, refer section (c). (ii) Inspire Travel Management ceased to be an equity accounted investment in FY21, refer note 35 for more information. ( B ) M OV E M E N T I N CA R RY I N G A M O U N T S OPENING BALANCE Share of (loss)/ profit after income tax expense (i) Dividends received Impairment (i) Other movements CLOSING BALANCE (i) Share of profit after income tax expense CONSOLIDATED 2021 $’000 17,436 (790) - - 53 2020 $’000 17,109 1,246 (68) (850) (1) 16,699 17,436 During the current year, investments accounted for using the equity method were impacted by COVID-19. This resulted in a loss being recognised against the investment in the current year. Helloworld Travel recognised an impairment charge in FY20 due to a decrease in future forecasted cash flows. 82 Helloworld Travel Ltd Annual Report 2021Helloworld Travel Limited Annual Report 2021helloworldlimited.com.au ( C ) I N V E ST M E N T I N M O B I L E T R AV E L H O L D I N G S P T Y L I M I T E D A N D I T S S U B S I D I A R I E S ( M TA ) MTA’s mobile travel consultants provide home based travel consulting services throughout Australia. Helloworld Travel has a call option to acquire the remaining 50.0% ownership interest in MTA on 1 December 2021. The associate party has a put option to sell its remaining 50.0% ownership interest to Helloworld Travel 30 days after the expiry of the call option period. Refer note 30 (c) (i) for more information. (i) Reconciliation of the Group's investment in MTA Reconciliation of movement of investment in MTA: OPENING CARRYING AMOUNT Share of (loss)/ profit after income tax expense Dividends received CLOSING CARRYING AMOUNT The closing carrying amount of investment in MTA is reconciled as follows: 50% share in net assets of MTA Intangible assets acquired on acquisition (Goodwill) CLOSING CARRYING AMOUNT (ii) Summarised MTA financial information CONSOLIDATED 2021 $’000 16,148 (783) - 2020 $’000 14,878 1,270 - 15,365 16,148 CONSOLIDATED 2021 $’000 1,469 13,896 15,365 2020 $’000 2,252 13,896 16,148 83 The tables below provide summarised financial information for the equity accounted investment in MTA, which is considered a significant equity accounted investment for the Group. The information disclosed reflects the amounts presented in the financial statements of MTA and not Helloworld Travel’s share of the amounts. Summarised statement of financial position Total current assets Total non-current assets TOTAL ASSETS Total current liabilities Total non-current liabilities TOTAL LIABILITIES NET ASSETS MTA 2021 $’000 12,609 665 13,274 10,153 182 10,335 2,939 2020 $’000 18,132 726 18,858 14,172 182 14,354 4,504 83 helloworldlimited.com.auHelloworld Travel Limited Annual Report 2021helloworldlimited.com.au F I N A N C I A L STAT E M E N T S Summarised statement of profit or loss and other comprehensive income Revenue Operating expenses Depreciation and amortisation PROFIT/(LOSS) BEFORE INCOME TAX Income tax expense PROFIT/(LOSS) AFTER INCOME TAX Other comprehensive income TOTAL COMPREHENSIVE INCOME/(LOSS) ( D ) C O N T I N G E N T L I A B I L I T I E S MTA 2021 $’000 1,584 (3,529) (301) (2,246) 680 (1,566) - (1,566) 2020 $’000 9,607 (5,418) (554) 3,635 (1,095) 2,540 - 2,540 There are no contingent liabilities recognised by an associate or joint venture for which the Group has a legal obligation to settle. 1 3 . P R O P E RT Y, P L A N T A N D E Q U I P M E N T Land and buildings $’000 Equipment including motor vehicles $’000 Leasehold improvements $’000 675 - - - 16 (11) 680 749 (69) 680 680 - - (31) (11) 638 11,578 2,793 233 (3) (45) (4,344) 10,212 26,878 (16,666) 10,212 10,212 2,260 (296) - (3,300) 8,876 5,355 85 60 - (21) (1,674) 3,805 9,176 (5,371) 3,805 3,805 576 (546) (5) (609) 3,221 718 (80) 638 28,842 (19,966) 8,876 9,201 (5,980) 3,221 Total $’000 17,608 2,878 293 (3) (50) (6,029) 14,697 36,803 (22,106) 14,697 14,697 2,836 (842) (36) (3,920) 12,735 38,761 (26,026) 12,735 84 CONSOLIDATED BALANCE AT 1 JULY 2019 Additions Additions through business combinations (note 35) Disposals Foreign currency differences Depreciation charge (note 3) BALANCE AT 30 JUNE 2020 AT 30 JUNE 2020 Cost Accumulated depreciation NET BOOK AMOUNT BALANCE AT 1 JULY 2020 Additions Disposals Foreign currency differences Depreciation charge (note 3) BALANCE AT 30 JUNE 2021 AT 30 JUNE 2021 Cost Accumulated depreciation NET BOOK AMOUNT 84 Helloworld Travel Ltd Annual Report 2021Helloworld Travel Limited Annual Report 2021helloworldlimited.com.au 1 4 . R I G H T O F U S E AS S E T S CONSOLIDATED BALANCE AT 1 JULY 2019 Additions (ii) Additions through business combinations (note 36) Disposals (ii) Modifications to lease terms (ii) Foreign currency differences Impairment (i) (note 3) Depreciation charge (note 3) BALANCE AT 30 JUNE 2020 AT 30 JUNE 2020 Cost Accumulated deprecation NET BOOK AMOUNT BALANCE AT 1 JULY 2020 Additions (ii) Disposals (ii) Modifications to lease terms (ii) Foreign currency differences Impairment (i) (note 3) Depreciation charge (note 3) BALANCE AT 30 JUNE 2021 AT 30 JUNE 2021 Cost Accumulated depreciation and impairment NET BOOK AMOUNT (i) Impairment of right of use assets Property $’000 Motor Vehicles $’000 24,487 3,670 2,968 (1,888) 4,204 (87) (90) (8,776) 24,488 47,169 (22,681) 24,488 24,488 9,698 (3,629) 2,958 (37) (426) (8,027) 25,025 56,160 (31,135) 25,025 42 58 - - (1) (2) - (47) 50 69 (19) 50 50 18 (39) - - - (12) 17 48 (31) 17 Total $’000 24,529 3,728 2,968 (1,888) 4,203 (89) (90) (8,823) 24,538 47,238 (22,700) 24,538 24,538 9,716 (3,668) 2,958 (37) (426) (8,039) 25,042 56,208 (31,166) 25,042 85 Right of use assets are assessed for impairment periodically. During the current year, right of use assets relating to certain Australian operations have been impaired and as a result, $0.4 million has been recognised as an impairment loss in the profit or loss in the current year. (ii) Property - right of use assets Property right of use assets relate to the benefits derived from various leased offices under non-cancellable agreements. During the current year, Helloworld Travel entered into an additional lease and renewed existing leases resulting in additions of $9.7 million. In addition, the Group exited leases resulting in disposals of $3.7 million. Due to COVID-19, a number of leases were renegotiated which resulted in modifications of $2.9 million. 85 helloworldlimited.com.auHelloworld Travel Limited Annual Report 2021helloworldlimited.com.au F I N A N C I A L STAT E M E N T S 1 5 . I N TA N G I B L E A S S E T S CONSOLIDATED Retail distribution systems $’000 Goodwill $’000 Agent network $’000 Commercial agreements $’000 Customer bases $’000 Brand names and trademarks $’000 Technology assets $’000 Total $’000 BALANCE AT 1 JULY 2019 167,706 104,400 8,756 21,207 Additions (i) Additions through internally generated projects (i) Adjustments to business combinations – FY19 (ii) Additions through business combinations – FY20 Foreign currency differences Impairment (note 3) Amortisation charge (note 3) - - (1,373) 21,145 (524) (65,500) - - - - - - - - - - - - - - (50) BALANCE AT 30 JUNE 2020 121,454 104,400 8,706 2,904 - - - (145) (1,507) (3,383) 19,076 - - - 1,506 7,200 - - (282) 8,424 1,165 35,212 338,446 - - 857 500 - - 7,861 10,765 6,778 6,778 - 990 234 255 29,079 (414) - (67,007) (165) (14,010) (17,890) 2,357 36,330 300,747 AT 30 JUNE 2020 Cost Accumulated amortisation and impairment NET BOOK AMOUNT 510,673 104,400 8,810 26,951 8,706 10,500 98,106 768,146 (389,219) - 121,454 104,400 (104) 8,706 (7,875) 19,076 (282) 8,424 (8,143) (61,776) (467,399) 2,357 36,330 300,747 86 BALANCE AT 1 JULY 2020 121,454 104,400 8,706 19,076 8,424 2,357 36,330 300,747 Additions (i) Additions through internally generated projects (i) Additions through business combinations – FY21 (note 35) Foreign currency differences Amortisation charge (note 3) - - 1,531 - - - - - - - - - - - (396) BALANCE AT 30 JUNE 2021 122,985 104,400 8,310 - - - (18) (3,306) 15,752 - - - - - - - 3,234 3,234 3,127 3,127 - 43 1,531 25 (1,089) 7,335 (230) (12,239) (17,260) 2,127 30,495 291,404 AT 30 JUNE 2021 Cost Accumulated amortisation and impairment NET BOOK AMOUNT 512,204 104,400 8,810 26,933 8,706 10,500 104,510 776,063 (389,219) - (500) (11,181) (1,371) (8,373) (74,015) (484,659) 122,985 104,400 8,310 15,752 7,335 2,127 30,495 291,404 (i) During the current year, $3.2m of Technology assets were added and $3.1m of internal labour costs on IT related projects was capitalised. An amount of $5.7 million in the capital works balance in progress is included in Technology Assets. (ii) On 30 November 2020, Helloworld Travel announced the acquisition for 100% of the CruiseCo business (CruiseCo), a specialist cruise package wholesaler. The acquisition will allow Helloworld Travel to expand its cruise offerings in Australia and New Zealand, complementing the existing cruise wholesale business. The assets and liabilities of CruiseCo acquired by Helloworld Travel are recorded at fair value for accounting purposes, resulting in goodwill of $1.5 million which was capitalised. In accordance with applicable accounting standards, Helloworld Travel has 12 months from the date of acquisition to finalise the acquisition accounting. Refer note 35: business acquisitions for details on the acquisitions undertaken. 86 Helloworld Travel Ltd Annual Report 2021Helloworld Travel Limited Annual Report 2021helloworldlimited.com.au ( A ) N AT U R E O F I N TA N G I B L E A S S E T S (i) Goodwill and retail distribution systems Goodwill and retail distribution systems were acquired as part of business combinations and are not amortised for accounting purposes. Further details on the nature of these intangible assets and the results of the annual impairment testing is outlined in section (b) of this note. (ii) Agent networks The agent networks represent agreements with travel agents for the provision of Wholesale and Inbound travel products such as packaged tours. The agent network intangible assets have been acquired as part of business combinations. The agent networks of $8.8 million includes $8.3 million relating to the agent network acquired from the AOT merger in FY16. This asset is considered an indefinite life asset and not amortised for accounting purposes. Further details on the nature of this intangible asset and the results of the annual impairment testing is outlined in section (b) of this note. (iii) Commercial agreements Commercial agreements represent the value attributable to agreements entered into with travel agents, servicing leisure and corporate travel, that are part of the Helloworld Travel member network. In addition, this intangible asset category includes long term supplier agreements relating to revenue contracts that were acquired as part of a business combination. As a result of COVID-19, commercial agreements have been assessed for impairment. Commercial agreements are amortised over their useful life (between 3 to 12 years). 87 (iv) Customer bases Customer bases represents the value attributable to key customer relationships with within the corporate business. The customer bases intangible assets have been acquired as part of business combinations and are amortised over their useful life between 8 and 14 years. (v) Brand names and trademarks Brand names and trademarks are intangible assets acquired as part of a past business acquisition and include the wholesale business brands which are being amortised over their respective useful life of 20 years. (vi) Technology assets Technology assets consist of external software, website and other technology assets that were acquired through external suppliers or via business combinations, which provide future economic benefits to the Group. In addition, technology assets also include capitalised internal labour costs incurred by the Group in the development and enhancement of the Group’s technology platforms. Technology assets are amortised over a useful life of 2.5 years to 5 years, except for the booking system and related website technology acquired from the Flight Systems Group that is being amortised over 10 years. 87 helloworldlimited.com.auHelloworld Travel Limited Annual Report 2021helloworldlimited.com.au F I N A N C I A L STAT E M E N T S ( B ) I N D E F I N I T E L I F E I N TA N G I B L E AS S E T S (i) Goodwill by cash generating unit (CGU) group 88 Australia retail distribution operations Australia wholesale and inbound Australia travel management New Zealand GOODWILL, NET OF IMPAIRMENT CONSOLIDATED 2021 $’000 34,610 45,049 29,101 14,225 2020 $’000 34,610 43,518 29,101 14,225 122,985 121,454 Goodwill represents the difference between the cost of the acquisition and the fair value of the net identifiable assets acquired. Goodwill is allocated to the Group’s CGUs, which are expected to benefit from the business combination. Australia retail distribution operations CGU, Australia wholesale and inbound CGU and Australia travel management CGU make up the Australia reportable segment for management reporting purposes. CruiseCo, acquired on 30 November 2020, is reported as part of the Australia wholesale and inbound CGU. The New Zealand CGU equates to the New Zealand reportable segment for management reporting purposes. There is no goodwill allocated to the Rest of World CGU, which equates to the Rest of World reportable segment for management reporting purposes. The recoverable amount of the Group’s CGU’s is determined based on the value in use calculations given the Group derives its value through use. The key assumptions used in the calculation are outlined in section (c). (ii) Retail distribution systems Retail distribution systems Magellan distribution systems CONSOLIDATED 2021 $’000 97,400 7,000 2020 $’000 97,400 7,000 TOTAL RETAIL DISTRIBUTION SYSTEMS – INDEFINITE LIFE 104,400 104,400 88 Helloworld Travel Ltd Annual Report 2021Helloworld Travel Limited Annual Report 2021helloworldlimited.com.au Retail distribution system assets are acquired as part of business acquisitions undertaken and result in separate identification and valuation of indefinite life intangible assets. The retail distribution systems are the integrated system of methods, procedures, techniques and other systems which facilitate the day-to-day running of the retail business. This includes access to products/inventory, brands, marketing, advertising, promotional techniques, training and operational manuals of the network. Due to the inter-dependencies between these components, the Group considers these assets to be complementary and are recognised as single identifiable assets. The Group has determined that these retail distribution systems have an indefinite useful life due to the ongoing effectiveness of the systems which support the Australia retail network and are allocated to the Australian retail distribution operations CGU. 89 The recoverable amount of the retail distribution systems has been assessed at 30 June 2021. The key assumptions used in the calculation are outlined in section (c). The impairment testing undertaken for the year ended 30 June 2021 supports the carrying value of the retail distribution systems and no impairment was recognised. (iii) Agent network AGENT NETWORK – INDEFINITE LIFE CONSOLIDATED 2021 $’000 8,310 2020 $’000 8,706 The indefinite life agent network asset was separately identified and valued as part of the merger with AOT Group Limited. The agent network represents the agreements with travel agents for the provision of wholesale and inbound domestic travel product such as packaged tours. The Group considers that the agent network has an indefinite useful life as there are no indications that these relationships will not continue to provide future benefits and is entirely allocated to the Australia wholesale and inbound CGU. The recoverable amount of the agent network has been assessed at 30 June 2021. The key assumptions used in the calculation are outlined in section (c). The impairment testing undertaken for the year ended 30 June 2021 supports the carrying value of the agent network and no impairment was recognised. 89 helloworldlimited.com.auHelloworld Travel Limited Annual Report 2021helloworldlimited.com.au F I N A N C I A L STAT E M E N T S Key assumptions The Group’s rationale and explanation of the assumptions used in the value in use calculations are described below. AREA COMMENTARY DOMESTIC TRAVEL RESTRICTIONS INTERNATIONAL TRAVEL RESTRICTIONS TOTAL TRANSACTION VALUE (TTV) Australia retail distribution operations CGU Australia wholesale and inbound CGU Australia travel management CGU New Zealand 90 REVENUE MARGINS OPERATING EXPENSES Employee benefits expenses The impact of COVID-19 has continued to evolve. Various states are using spot lockdowns to manage the spread of the virus. These actions adversely impact domestic travel and tourism. Despite border restrictions, domestic bookings are strong when borders are relatively stable. The Group’s forecasts assume that current restrictions on Australian residents travelling overseas have been extended to the end of 2021. Additional travel bubbles to be added as vaccination rates increase and will grow as a proportion of TTV when compared to historical levels. International travel is forecast to gradually increase from early-mid 2022 which is predicated upon further easing of international border restrictions. In the absence of a high vaccination rate, international border openings likely dependent on containment of COVID-19 in such countries and the establishment of additional screening in airports and ports which are currently being explored by international agencies such as IATA and the World Health Organisation. The majority of TTV has historically been derived from outbound international travel. FY22 TTV is forecast to be 70.0% lower than FY19 levels, before gradually recovering to FY19 levels by FY26, consistent with IATA’s estimates. The majority of TTV has historically been derived from international travel. FY22 TTV forecast to be 88.4% lower than FY19 levels. FY26 TTV is expected to approximate FY19 levels. FY22 TTV forecast to be 69.6% lower than FY19 levels. Relative to FY19 levels, TTV is forecast to recover to FY19 levels by FY25. This CGU has a higher relative proportion of domestic travel by corporate customers when compared to the Australia retail distribution operations CGU and Australia wholesale and inbound CGU. The New Zealand CGU comprises inbound and outbound leisure and corporate travel. FY22 TTV forecast to be 85.1% lower than FY19 levels. FY26 TTV is expected to approximate FY19 levels. Revenue margins are forecast to remain at historical levels for each revenue stream, allowing for changes in TTV mix within the respective CGU. Employee benefits expenses Employee benefits are forecast based on the significantly reduced cost structure implemented as a result of COVID-19. Expenditure is forecast to increase in dollar terms from FY22 to FY26 in line with the forecast TTV trends outlined above and assumes the extension of reduced a workforce until travel returns and attrition. As a percentage of revenue, employee benefits expenses are forecast to revert to pre- COVID-19 levels between FY23 and FY26. Other expenses Variable costs have been forecast as a percentage of TTV or revenue. Fixed costs are forecast to remain at historical levels, adjusted only for discretionary expenditure and committed cost reductions. Tax is forecast based on the prevailing corporate tax rates that apply to the CGU. Forecast capital expenditure is based on historical levels, adjusted to exclude relocation costs and expansion or growth related items which have been incurred in prior years. Working capital movements are forecast net of movements in client cash. Working capital is forecast based on forecast revenues. Employee leave entitlements are forecast to reduce (resulting in cash outflows) through attrition between FY22 – FY26 as the Group’s workforce reduces to levels commensurate with TTV. The terminal value calculations have an equivalent revenue and operating expense growth assump-tion of 2.0% (2020: 2.0%), with the exception of Australia Wholesale and Inbound CGU 0.5%; (2020: 0.5%). Revenue and operating expense growth projections have been benchmarked against long- term infla-tion estimates. Discount rates applied in the testing of recoverable amounts reflect the post-tax weighted average cost of capital. An 11.5% discount rate has been applied to the respective CGU’s with goodwill allo-cated (2020: 11.5%). TAX CAPITAL EXPENDITURE WORKING CAPITAL LONG-TERM GROWTH DISCOUNT RATES 90 Helloworld Travel Ltd Annual Report 2021Helloworld Travel Limited Annual Report 2021helloworldlimited.com.au Sensitivity analysis It is not certain how long the current domestic and international travel restrictions will continue, and the recovery profile as travel restrictions are eased, while we acknowledge there are plans and targets in place that will enable the return to restrictions free travel. The following outlines the impacts of changes in material assumptions. The recoverable amount is based on operating and cashflow performance stabilising, however the timing of cashflow benefits arising from initiatives could be influenced by market conditions. The recoverable amount is sensitive to changes in all of the key assumptions. The impact of these changes in key assumptions is shown in the table below and has been calculated in isolation from other changes. In the event that multiple changes took place simultaneously, this may result in an impairment. RESULTANT IMPAIRMENT CHANGE TTV reduction to key assumption (notes i and ii) 5.0% EBITDA reduction to key assumption 2% Long-term growth decrease 0.5% Discount rate increase 0.5% GOODWILL Australia retail distribution operations No impairment No impairment No impairment No impairment Australia wholesale and inbound Australia travel management No impairment No impairment No impairment No impairment No impairment No impairment No impairment No impairment New Zealand MTA No impairment No impairment No impairment No impairment No impairment No impairment No impairment No impairment (i): TTV does not represent revenue in accordance with Australian Accounting Standards and is not subject to auditor review. TTV represents the price at which travel products and services have been sold across the Group, as agents for various airlines and other service providers, plus revenue from other sources. The Group’s revenue is, therefore, derived from TTV. TTV does not represent the Group cash inflows as some transactions are settled directly between the customer and the supplier. 91 (ii): a reduction in forecast TTV has a corresponding impact on forecast revenues and variable operating expenditures, working capital and tax. In the year ended 30 June 2020, the Wholesale and Inbound CGU was impaired in line with the analysis completed at that time, in the event that similar changes were to impact this CGU, it may result in additional impairment. Significant judgements or estimates The allocation of goodwill to the cash-generating units as well as the computation of the recoverable amount is subject to the judgement of management. This encompasses the estimation of future cash flows, the determination of the discount rate, and the growth rates on the basis of historical data and current forecasts. 91 helloworldlimited.com.auHelloworld Travel Limited Annual Report 2021helloworldlimited.com.au F I N A N C I A L STAT E M E N T S 1 6 . D E F E R R E D TA X A S S E T S ( A ) D E F E R R E D TA X AS S E T S Employee benefits Payables and accruals Property, plant and equipment Lease liabilities Tax losses Other GROSS DEFERRED TAX ASSETS Set-off of deferred tax assets and liabilities pursuant to set-off provisions NET DEFERRED TAX ASSETS Amount expected to be recovered within 12 months Amount expected to be recovered after more than 12 months GROSS DEFERRED TAX ASSETS CONSOLIDATED 2021 $’000 3,960 8,835 188 9,162 3,167 3,454 28,766 (28,766) - 17,840 10,926 28,766 2020 $’000 6,644 7,636 695 8,854 667 2,606 27,102 (27,102) - 16,793 10,309 27,102 ( B ) M O V E M E N T I N T E M P O R A RY D I F F E R E N C E S D U R I N G T H E Y E A R CONSOLIDATED Employee benefits $’000 Payables and accruals $’000 Property plant and equipment $’000 Lease liabilities $’000 Tax losses $’000 Other $’000 Total $’000 BALANCE AT 1 JULY 2019 5,138 11,452 1,715 8,549 2,054 1,486 30,394 92 (Charged)/credited - to profit or loss - to other comprehensive income Additions through business combinations BALANCE AT 30 JUNE 2020 1,506 (5,189) (1,020) 305 (1,387) 1,212 (4,573) - - 6,644 - 1,373 7,636 - - - - - - (92) - (92) 1,373 695 8,854 667 2,606 27,102 BALANCE AT 1 JULY 2020 6,644 7,636 695 8,854 667 2,606 27,102 (Charged)/credited - to profit or loss BALANCE AT 30 JUNE 2021 (2,684) 3,960 1,199 8,835 (507) 188 308 9,162 2,500 3,167 848 1,664 3,454 28,766 1 7 . T R A D E A N D OT H E R PAYA B L E S Trade payables Accruals Other payables TRADE AND OTHER PAYABLES CONSOLIDATED 2021 $’000 89,652 10,652 8,247 2020 $’000 86,990 27,390 9,021 108,551 123,401 Trade payables are non-interest bearing and are normally settled within 7 to 30 day payment terms from the date of invoice. Non trade payables and accruals are non interest bearing. The Group’s contractual arrangements generally allow the Group to defer payment of travel related payables until funds have been received from the customer or agent. Details regarding foreign exchange risk exposure are disclosed in note 29: financial risk management. 92 Helloworld Travel Ltd Annual Report 2021Helloworld Travel Limited Annual Report 2021helloworldlimited.com.au 1 8 . L E A S E L I A B I L I T I E S Lease liabilities CURRENT LEASE LIABILITIES Lease liabilities NON-CURRENT LEASE LIABILITIES CONSOLIDATED 2021 $’000 8,028 8,028 2020 $’000 9,145 9,145 22,962 22,962 20,614 20,614 ( A ) M OV E M E N T S I N L E AS E L I A B I L I T I E S Movements in each class of lease liability (current and non-current) during the financial year, are set out below: CONSOLIDATED BALANCE AT 1 JULY 2019 Additions (i) Additions through business combinations Disposals (i) Disposals through business sales Interest expense Lease payments (ii) Modifications to lease terms (i) Other adjustments to lease liabilities Foreign currency differences BALANCE AT 30 JUNE 2020 Current Non-current BALANCE AT 30 JUNE 2020 BALANCE AT 1 JULY 2020 Additions (i) Disposals (i) Disposals through business sales Interest expense Lease payments (ii) Modifications to lease terms (i) Foreign currency differences BALANCE AT 30 JUNE 2021 Current Non-current BALANCE AT 30 JUNE 2021 Property $’000 Motor Vehicles $’000 Total $’000 28,453 3,450 2,888 (1,167) (197) 1,028 (8,748) 3,771 360 (129) 29,709 9,122 20,587 29,709 29,709 9,865 (4,210) - 1,061 (8,035) 2,590 (7) 30,973 8,016 22,957 30,973 42 25 - (3) - 2 (51) 36 - (1) 50 23 27 50 50 17 (29) - 1 (23) 1 - 17 12 5 17 93 28,495 3,475 2,888 (1,170) (197) 1,030 (8,799) 3,807 360 (130) 29,759 9,145 20,614 29,759 29,759 9,882 (4,239) - 1,062 (8,058) 2,591 (7) 30,990 8,028 22,962 30,990 93 helloworldlimited.com.auHelloworld Travel Limited Annual Report 2021helloworldlimited.com.au F I N A N C I A L STAT E M E N T S (i) Property – current and non-current lease liabilities Lease liabilities payment obligations relate to various leased offices under non-cancellable agreements. During the current year, Helloworld Travel entered into an additional Normanby Road lease and renewed existing leases resulting in additions of $9.9 million. In addition, the Group exited leases at Mascot and Robina resulting in disposals of $4.2 million. Due to COVID-19, leases were renegotiated which resulted in modifications of $3.2 million. (ii) Amounts recognised in the consolidated statement of cash flows The total cash outflow for lease liabilities during the year ended 30 June 2021 was $8.0 million (2020: $8.8 million), comprising of interest expense on lease liabilities of $1.0 million (2020: $1.0 million), recognised as ‘operating activities’, and principal elements of lease liabilities of $7.0 million (2020: $7.8 million), recognised as ‘financing activities’. ( B ) F U T U R E R E N TA L PAY M E N T S E X C L U D E D F R O M L E AS E L I A B I L I T I E S : In light of COVID-19 and the Group’s continual focus on cost reduction and efficiency initiatives, the Group has determined, that uncertainty exists regarding the likelihood of the Group agreeing to extend all lease terms beyond the minimum period. As a result, the potential future rental payments relating to periods following the exercise date of extension options are not included in the lease liabilities. The extension options held are exercisable only by the Group and not by the lessors. 1 9 . B O R R O W I N G S Secured bank loans Deferred borrowings costs NON-CURRENT BORROWINGS 94 ( A ) F I N A N C I N G A R R A N G E M E N T S : CONSOLIDATED 2021 $’000 81,000 (289) 80,711 2020 $’000 101,000 (481) 100,519 The Group has secured financing arrangements with the Westpac Banking Corporation (Westpac) of $119 million (2020: $119.0 million) as outlined below: CONSOLIDATED Secured bank loan – multi currency Secured multi-option revolving credit facility Secured bank loan facility – AUD Expiry Date Facility A - March 2023 Facility B - March 2023 Facility C – March 2023 Secured bank loan facility – TravelEdge acquisition (i) Facility D – September 2022 TOTAL FACILITIES Secured bank loan – multi currency Secured multi-option revolving credit facility Secured bank loan facility – AUD Secured bank loan facility – TravelEdge acquisition (i) FACILITIES DRAWN DOWN AT THE REPORTING DATE Secured multi-option revolving credit facility Secured bank loan facility – AUD BANK GUARANTEES AND LETTERS OF CREDIT AT THE REPORTING DATE Secured bank loan – multi currency Secured multi-option revolving credit facility Secured bank loan facility – AUD UNUSED AT THE REPORTING DATE 94 2021 $’000 40,000 30,000 20,000 29,000 2020 $’000 40,000 30,000 20,000 29,000 119,000 119,000 19,500 17,500 15,000 29,000 81,000 4,037 2,412 6,449 20,500 4,281 6,770 31,551 39,500 17,500 15,000 29,000 101,000 8,623 2,888 11,511 500 3,877 2,112 6,489 Helloworld Travel Ltd Annual Report 2021Helloworld Travel Limited Annual Report 2021helloworldlimited.com.au ( B ) S E C U R E D M U LT I - O P T I O N R E V O LV I N G C R E D I T FAC I L I T Y: During the current year, Helloworld Travel renegotiated the terms and conditions of its Westpac Banking Corporation (Westpac) facility agreements for facilities A, B and C totalling $90.0 million. The key changes are outlined below: • The terms of facilities (A,B & C) were extended from their original expiration date to March 2023. As a result, all facilities are classified as non-current at 30 June 2021. • During the current financial year, there have been no breaches of the Westpac debt covenants. Helloworld negotiated for a further waiver of EBITDA related covenants to the quarter ending 30 June 2022. This continuation of covenant waivers emphasises the strong relationship Helloworld has with its bankers to provide Helloworld Travel with additional flexibility to manage its liquidity during the COVID-19 pandemic. • Helloworld prepaid $20 million of Facility A in October 2020, which can be drawn down with bank consent. The Group’s loans incorporate certain market standard covenants such as interest cover ratio and net leverage ratio. Westpac has agreed to covenant waivers and suspensions of certain financial covenants. The Group has complied with the financial covenants of its borrowing facilities during the relevant 2021 and 2020 periods. ( C ) B A N K G UA R A N T E E S A N D L E T T E R S O F C R E D I T: Facilities used at 30 June 2021 of $87.4 million (June 2020: $112.5 million) includes bank guarantees and letters of credit on issue totalling $6.4 million (June 2020: $11.5 million). ( D ) S E C U R E D L I A B I L I T I E S A N D A S S E T S P L E D G E D AS S E C U R I T Y The total secured liabilities (current and non-current) are as follows: SECURED BANK LOAN CONSOLIDATED 2021 $’000 2020 $’000 81,000 101,000 95 The financing arrangements are secured over the assets of the entities in the Deed of Cross Guarantee (note 29) and certain New Zealand entities within the Group, which form the "obligor group" as defined under the Westpac facility agreement. The obligor group includes the group parent entity of Helloworld Travel Limited and its investment holdings in subsidiaries. ( E ) S E T - O F F O F AS S E T S A N D L I A B I L I T I E S : There are currently no contractual arrangements establishing a legal right to set-off assets and liabilities with any financial institutions. ( F ) FA I R VA L U E S A N D R I S K E X P O S U R E S : Information about the carrying amounts and fair values of interest bearing liabilities, including exposure to interest rate and foreign currency changes, is provided in note 29: financial risk management. 95 helloworldlimited.com.auHelloworld Travel Limited Annual Report 2021helloworldlimited.com.au F I N A N C I A L STAT E M E N T S 2 0 . P R O V I S I O N S Employee benefits - annual leave Employee benefits - long service leave Lease make good Other (b) CURRENT PROVISIONS Employee benefits - long service leave Lease make good Other NON-CURRENT PROVISIONS CONSOLIDATED 2021 $’000 4,938 6,793 - 10,425 22,156 215 1,357 - 1,572 2020 $’000 5,640 9,054 63 6,157 20,914 1,510 1,490 2,639 5,639 ( A ) M OV E M E N T I N P R OV I S I O N S 96 Movements in each class of provision (current and non-current) during the financial year, other than employee benefits, are set out below: CONSOLIDATED BALANCE AT 1 JULY 2019 Additions through business combinations Provisions charged to fixed assets Provision charged/(released) to income statement Payments made from provision BALANCE AT 30 JUNE 2020 Current Non-current BALANCE AT 30 JUNE 2020 BALANCE AT 1 JULY 2020 Provisions charged to fixed assets Provision charged/(released) to income statement Payments made from provision BALANCE AT 30 JUNE 2021 Current Non-current BALANCE AT 30 JUNE 2021 96 Lease make good $’000 2,186 80 242 (548) (407) 1,553 63 1,490 1,553 1,553 63 (196) (63) 1,357 Other $’000 Total $’000 166 2,352 - - 9,506 (876) 8,796 6,157 2,639 8,796 80 242 8,961 (1,286) 10,349 6,220 4,129 10,349 8,796 10,349 - 4,720 (3,091) 10,425 - 10,425 1,357 1,357 - 10,425 63 4,524 (3,154) 11,782 10,425 1,357 11,782 Helloworld Travel Ltd Annual Report 2021Helloworld Travel Limited Annual Report 2021helloworldlimited.com.au ( B ) N AT U R E A N D T I M I N G O F P R O V I S I O N S (i) Lease make good A provision is recognised in respect of existing lease contracts for the estimated present value of expenditure required to complete dismantling and site restoration obligations to the extent required in the associated contracts. Future dismantling and restoration costs are reviewed annually. Any changes are reflected in the present value of the lease make good provision at the end of the reporting period. The effect of unwinding the discounting of the provision is recognised as a finance expense. During the current year, Helloworld Travel consolidated their operations resulting in the relocation of staff from the Mascot and Robina offices. The recognised make good provisions were adjusted in the current financial year. A restructure of our New Zealand operations took place which resulted in closure of the Christchurch office and payments made for make good of the premises during the financial year. (ii) Other Provisions of $5.9m as at 30 June 2020 has been reclassified from Restructuring provisions to Other due to the nature of expense. Balance provided for at 30 June 2021 are expected to be settled in the following financial year. ( C ) A M O U N T S N OT E X P E C T E D TO B E S E T T L E D W I T H I N T H E N E X T 1 2 M O N T H S The Group does not expect all employees to take the full amount of accrued leave or require payment within the next 12 months. 2 1 . D E F E R R E D R E V E N U E Supplier incentives (i) Unearned income (ii) DEFERRED REVENUE (i) Supplier incentives 97 CONSOLIDATED 2021 $’000 8,733 11,119 19,852 2020 $’000 8,374 15,994 24,368 Helloworld Travel receives incentives from suppliers upfront when entering into long term contracts. Incentives deferred at 30 June 2021 relate to contracts with terms of between 7 to 10 years. Incentives are recognised in the consolidated statement of profit or loss and other comprehensive income over the life of the contract based on specific performance criteria. During the current year, Helloworld Travel received additional incentives in the form of cash payments from suppliers. (ii) Unearned Income The Group also receives monies from customers prior to travel booking finalisation, which is recorded in the statement of financial position as unearned income as at 30 June. Unearned income is considered a contract liability in accordance with applicable accounting standards. Unearned income commissions are recognised as revenue in the consolidated statement of profit or loss and other comprehensive income when the travel has occurred. The unearned income in both year is expected to become revenue within the following 12 month period. During the current year, unearned income decreased by $4.9 million to $11.1 million as a result of COVID-19 which resulted in a decline in new bookings and cancellation of travel bookings made prior to COVID-19. Only the commission element earned on these bookings will impact revenue in the consolidated statement of profit or loss and other comprehensive income. 97 helloworldlimited.com.auHelloworld Travel Limited Annual Report 2021helloworldlimited.com.au F I N A N C I A L STAT E M E N T S 2 2 . D E F E R R E D TA X L I A B I L I T I E S ( A ) D E F E R R E D TA X L I A B I L I T I E S Accrued revenue Property, plant and equipment Right of use assets Intangibles Other GROSS DEFERRED TAX LIABILITIES Set-off of deferred tax assets and liabilities pursuant to set-off provisions NET DEFERRED TAX LIABILITIES 98 Deferred tax liabilities expected to be settled within 12 months Deferred tax liabilities expected to be settled after more than 12 months GROSS DEFERRED TAX LIABILITIES CONSOLIDATED 2021 $’000 2020 $’000 16,982 99 7,424 35,650 1,690 61,845 (28,766) 33,079 6,242 55,603 61,845 19,931 160 7,311 37,156 3,056 67,614 (27,102) 40,512 9,199 58,415 67,614 ( B ) M OV E M E N T I N T E M P O R A RY D I F F E R E N C E S D U R I N G T H E Y E A R CONSOLIDATED BALANCE AT 1 JULY 2019 (Charged)/credited - to profit or loss - to other comprehensive income Additions through business combinations Accrued revenue $’000 Property plant and equipment $’000 Right of use assets $’000 Intangibles $’000 Other $’000 Total $’000 26,149 2,116 7,359 34,937 3,681 74,242 (6,218) (1,956) (48) - - - - - - (91) - 2,310 37,156 (1,204) (9,517) (109) 688 3,056 (109) 2,998 67,614 BALANCE AT 30 JUNE 2020 19,931 160 7,311 BALANCE AT 1 JULY 2020 (Charged)/credited - to profit or loss Additions through business combinations BALANCE AT 30 JUNE 2021 19,931 160 7,311 37,156 3,056 67,614 (2,949) - 16,982 (61) - 99 113 - (1,506) (1,366) (5,769) - - - 7,424 35,650 1,690 61,845 98 Helloworld Travel Ltd Annual Report 2021Helloworld Travel Limited Annual Report 2021helloworldlimited.com.au 2 3 . OT H E R L I A B I L I T I E S Redemption liability (i) Deferred payments (ii) Other non-current liabilities OTHER NON-CURRENT LIABILITIES CONSOLIDATED 2021 $’000 - 1,030 210 1,240 2020 $’000 1,200 - 245 1,445 (i) The redemption liability relates to the estimated consideration payable by Helloworld Travel for the remaining 40.0% non-controlling interest in Keygate Holdings Pty Ltd in FY22. The redemption liability is a financial liability measured at fair value through profit or loss at the end of each reporting period. During the current year, the redemption liability was written back to nil (2020: $1.2 million) and the gain of $1.2 million was recognised in the current year. The remeasurement gain has been excluded from Underlying EBITDA in note 5 operating segments. For further details on the assumptions used in the remeasurement, refer note 29: financial risk management. (ii) The deferred payment relates to deferred contingent consideration payable by Helloworld Travel for the CruiseCo business acquired on 30 November 2020. A retrospective adjustment has been made since initial recognition of total consideration and a corresponding adjustment has been made to goodwill. Deferred Contingent Consideration was determined in accordance with the terms of sale purchase contract as a percentage of the applicable revenue over the reporting period. Refer note 35: Business acquisitions. 99 2 4 . I S S U E D C A P I TA L ( A ) S H A R E S O N I S S U E CONSOLIDATED 2021 shares 2020 shares 2021 $’000 2020 $’000 Issued capital – fully paid 154,122,845 123,870,842 468,199 419,492 Issued capital – issued, but not vested (i) 905,000 850,000 - (26) ISSUED CAPITAL 155,027,845 124,720,842 468,199 419,466 Holders of ordinary shares in Helloworld Travel are entitled to receive dividends as declared from time to time and are entitled to one vote per share at Helloworld Travel shareholders’ meetings. In the event of the winding up of Helloworld Travel, ordinary shareholders rank after creditors and are fully entitled to any proceeds on liquidation. Ordinary shares have no par value and Helloworld Travel does not have a limited amount of authorised capital. (i) Issued capital – issued, but not vested Issued, but not vested capital relates to shares that have been issued under the Omnibus Incentive Plan which have not yet met their future vesting conditions. 99 helloworldlimited.com.auHelloworld Travel Limited Annual Report 2021helloworldlimited.com.au F I N A N C I A L STAT E M E N T S ( B ) M OV E M E N T S I N S H A R E S O N I S S U E CONSOLIDATED BALANCE Issue of new shares (i) Costs associated with capital raising (net of tax) Date Number of Shares $’000 1 July 2020 124,720,842 419,466 27 July 2020 to 10 August 2020 30,307,003 - 50,006 (1,273) BALANCE 30 June 2021 155,027,845 468,199 (i) Issue of new shares Helloworld Travel completed a $50.0 million fully underwritten equity raise to strengthen the balance sheet and provide additional liquidity to manage the prolonged period of disruption to the global travel industry. The $50.0 million equity raise comprised of an institutional placement and an entitlement offer ($48.7 million net of costs). It resulted in the issue of 30.3 million new fully paid ordinary shares in Helloworld Travel, representing approximately 24.3% of existing shares on issue. The shares ranked equally with existing shares on issue. The issue price of $1.65 per share represented a 16% discount to the last traded price prior to announcement of the equity raise of $1.97 on 15 July 2020. 2 5 . R E S E RV E S 100 Foreign currency translation reserve Share based payments reserve Redemption reserve RESERVES CONSOLIDATED 2021 $’000 1,608 4,038 (7,200) (1,554) 2020 $’000 2,159 2,524 (7,200) (2,517) 100 Helloworld Travel Ltd Annual Report 2021Helloworld Travel Limited Annual Report 2021helloworldlimited.com.au ( A ) M O V E M E N T S I N R E S E RV E S Movements in each class of reserve during the current and previous financial year are set out below: Foreign currency translation reserve $’000 Hedging reserve $’000 Share based payments reserve $’000 Redemption reserve $’000 4,477 - - (896) - (1,422) 2,159 2,159 (551) - - 1,608 1,094 (359) 109 - - - (844) - - - - - - 2,322 (7,200) - - - 202 - - - - - - 2,524 (7,200) Total $’000 693 (359) 109 (896) 202 (1,422) (844) (2,517) 2,524 (7,200) (2,517) - 2,224 (710) 4,038 - - - (551) 2,224 (710) (7,200) (1,554) CONSOLIDATED BALANCE AT 1 JULY 2019 Revaluation – gross Revaluation - deferred tax Foreign currency translation Share based payment expense Released to profit or loss on disposal Transfer of predecessor accounting reserve to accumulated losses BALANCE AT 30 JUNE 2020 BALANCE AT 1 JULY 2020 Foreign currency translation Share based payment expense Reversal of LTIP BALANCE AT 30 JUNE 2021 ( B ) N AT U R E O F R E S E RV E S (i) Foreign currency translation reserve Exchange differences arising on translation of the foreign operations are taken to the foreign currency translation reserve, as described in note 39: significant accounting policies. 101 (ii) Hedging reserve The hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments related to hedging transactions that have not yet occurred, as described in note 39: significant accounting policies. Amounts are reclassified to the consolidated statement of profit or loss and other comprehensive income when the associated underlying hedge transaction also affects profit and loss. As a consequence of COVID-19, the Group has temporarily ceased hedging given the difficulties in reliably estimating the quantum and timing of foreign currency denominated receipts and payments. (iii) Share based payments reserve The share-based payments reserve is used to recognise the fair value of shares issued to eligible employees with performance related conditions. In addition, the reserve records the fair value of franchise loyalty shares issued to eligible franchise network members with related conditions. Once the vesting conditions of the respective share schemes are met and the shares are exercised, the accumulated amount of the share-based payment reserve relating to the vested shares is transferred to share capital. (iv) Redemption reserve The redemption reserve relates to Helloworld Travel’s option to purchase the remaining 40.0% non-controlling interest in Keygate Holdings Pty Limited and was determined in the sale and purchase agreement for the 60.0% controlling interest in the business. Upon exercise or forfeiture, the balance of the redemption reserve will be recycled through accumulated losses. The Group has recognised a financial liability for the estimated amount payable which is subject to remeasurement. Non-cash gains or losses on remeasurement are reflected in the profit or loss at the end of each reporting period and are excluded from underlying EBITDA, refer note 5: operating segments. 101 helloworldlimited.com.auHelloworld Travel Limited Annual Report 2021helloworldlimited.com.au F I N A N C I A L STAT E M E N T S 2 6 . A C C U M U L AT E D L O S S E S ACCUMULATED LOSSES AT THE BEGINNING OF THE FINANCIAL YEAR CONSOLIDATED 2021 $’000 2020 $’000 (201,640) (106,255) Loss after income tax attributable to the owners of Helloworld Travel Limited (35,496) Dividends Dividends associated with LTIP Transfer of predecessor accounting reserve to accumulated losses - - - (69,874) (26,815) 460 844 ACCUMULATED LOSSES AT THE END OF THE FINANCIAL YEAR (237,136) (201,640) 2 7 . A U D I TO R ' S R E M U N E R AT I O N Ernst & Young (EY) was appointed as the company’s auditors from 16 February 2021 following the resignation of Price Waterhouse Coopers (PwC). During the financial year, the following fees were paid or were payable for services provided by EY and PwC, its related practices and unrelated audit firms: AUDIT SERVICES – EY AUSTRALIA Audit or review of the financial statements Other assurance services OTHER SERVICES - EY AUSTRALIA Consultancy services TOTAL OTHER SERVICES – EY AUSTRALIA TOTAL SERVICES – EY AUSTRALIA NETWORK FIRMS OF EY AUSTRALIA Audit services Taxation consultancy services TOTAL SERVICES - NETWORK FIRMS OF EY AUSTRALIA 102 AUDIT SERVICES – PWC AUSTRALIA Audit or review of the financial statements Other assurance services OTHER SERVICES - PWC AUSTRALIA Taxation compliance services Due diligence services Consultancy services TOTAL OTHER SERVICES – PWC AUSTRALIA TOTAL SERVICES – PWC AUSTRALIA AUDIT SERVICES – PWC AUSTRALIA Audit services Taxation compliance services Taxation consultancy services Compliance services CONSOLIDATED 2021 $ 2020 $ 815,000 - - - 815,000 122,400 6,647 129,047 - - - - 37,777 37,777 37,777 87,605 37,702 - - - - 35,000 35,000 35,000 - - - 918,277 20,400 78,780 906,000 152,796 1,137,576 2,076,253 177,725 36,736 5,212 4,814 TOTAL SERVICES - NETWORK FIRMS OF PWC AUSTRALIA 125,307 224,487 NON-EY/PWC AUDIT FIRMS Audit services - unrelated firms Taxation compliance Taxation consultancy Other services TOTAL SERVICES - NON-EY/PWC AUDIT FIRMS 102 4,917 2,664 - 56,925 64,506 49,789 21,795 38,801 11,533 121,918 Helloworld Travel Ltd Annual Report 2021Helloworld Travel Limited Annual Report 2021helloworldlimited.com.au 2 8 . CA S H F L O W R E C O N C I L I AT I O N ( A ) R E C O N C I L I AT I O N O F L O S S A F T E R I N C O M E TA X TO N E T CAS H U S E D I N O P E R AT I N G AC T I V I T I E S LOSS AFTER INCOME TAX FOR THE YEAR Adjustments for: Depreciation and amortisation expense Impairment expense Share based payment expense Profit on disposal of property, plant and equipment Profit on disposal of investments Loss allowance on trade receivables Share of profit of associates accounted for using the equity method Fair value adjustment on redemption liability Fair value adjustment on contingent receivable Amortisation of borrowing costs Non-cash revaluation of lease liability Gain on bargain purchase Change in operating assets and liabilities: Decrease in trade and other receivables Decrease in accrued revenue Decrease in derivative financial instruments (Increase)/decrease in inventories (Decrease)/increase in trade and other payables Decrease in deferred revenue Increase in provisions (Decrease)/increase in other liabilities Movements in tax balances NET CASH USED IN OPERATING ACTIVITIES CONSOLIDATED 2021 $’000 2020 $’000 (35,885) (69,985) 29,219 426 1,515 (39) (963) (3,529) 790 (1,200) 170 192 (389) 228 13,660 16,649 - 20 32,742 67,947 873 (101) (1,075) 8,368 (1,246) (3,600) 883 275 191 - 57,109 31,619 360 (69) 14,584 (142,869) (33,951) (2,826) 995 (13,205) (13,539) (28,975) 7,306 (361) (831) (41,439) 103 103 helloworldlimited.com.auHelloworld Travel Limited Annual Report 2021helloworldlimited.com.au F I N A N C I A L STAT E M E N T S (B) RECONCILIATION OF ASSETS AND LIABILITIES ARISING FROM FINANCING ACTIVITIES The movements in assets and liabilities impacting financing activities are outlined below: CONSOLIDATED - 2021 Cash flows Non-cash Balance at 1 July 2020 $'000 Proceeds of borrowings $’000 Payments relating to leases (i) $'000 Movement in related party loans $'000 Other movements (ii) $'000 Foreign exchange movement $'000 Balance at 30 June 2021 $'000 Current and non-current lease liabilities 29,759 - (6,996) Non-current borrowings - secured bank loan 101,000 (20,000) Non-current receivables - loans to related parties (4,397) - - - NET DEBT FROM FINANCING ACTIVITIES 126,362 (20,000) (6,996) - - - - 8,234 - 3 (7) - - 30,990 81,000 (4,394) 8,237 (7) 107,596 CONSOLIDATED - 2020 Cash flows Non-cash Balance at 1 July 2019 $'000 Proceeds of borrowings $’000 Payments relating to leases (i) $'000 Movement in related party loans $'000 Other movements (ii) $'000 Foreign exchange movement $'000 Balance at 30 June 2020 $'000 Current and non-current lease liabilities Non-current borrowings - secured bank loan Non-current receivables - loans to related parties NET DEBT FROM FINANCING ACTIVITIES 28,495 57,000 (4,501) 80,994 - (7,769) 44,000 - - - 44,000 (7,769) - - 104 104 9,163 (130) 29,759 - - - - 101,000 (4,397) 9,163 (130) 126,362 (i) Payments relating to leases Payments relating to leases include principal cash payments relating to lease liabilities. (ii) Other movements 104 Lease liabilities other movements include interest paid on lease liabilities as the Group classifies this as cash flows from operating activities. Refer note 18: lease liabilities for further information on lease liabilities non-cash movements. 104 Helloworld Travel Ltd Annual Report 2021Helloworld Travel Limited Annual Report 2021helloworldlimited.com.au 2 9 . F I N A N C I A L R I S K M A N A G E M E N T The Group’s principal financial instruments are outlined below. Details of the significant accounting policies and methods adopted, including criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised in respect of each class of financial asset, financial liability and equity instrument are disclosed in note 39: significant accounting policies. Financial risk management is carried out under policies approved by the Board of Directors. The Group identifies, evaluates and actively manages financial risks in close co-operation with the Group’s operating businesses. The Board of Directors set policies covering specific areas, such as liquidity risk, foreign exchange risk, interest rate risk, credit risk and the use of derivative financial instruments and non-derivative financial instruments. The Group holds the following financial instruments: FINANCIAL ASSETS Cash and cash equivalents Trade and other receivables (excluding contingent consideration receivable) FINANCIAL ASSETS AT AMORTISED COST Contingent consideration receivable FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS DERIVATIVE FINANCIAL INSTRUMENTS FINANCIAL LIABILITIES Trade and other payables (excluding contingent consideration payable) Borrowings (excluding deferred borrowings costs) FINANCIAL LIABILITIES AT AMORTISED COST Deferred Consideration Redemption liability FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS 105 CONSOLIDATED 2021 $’000 2020 $’000 131,024 27,380 158,404 - - - 108,551 81,000 189,551 1,032 - 1,032 131,861 35,451 167,312 170 170 - 123,401 101,000 224,401 - 1,200 1,200 Trade and other receivables (excluding contingent consideration receivable) consists of current trade and other receivables of $27.1 million (2020: $40.0 million) less prepayments of $5.5 million (2020: $9.1 million), plus non-current trade and other receivables of $5.8 million (2020: $4.7 million) less contingent consideration receivable of $0.0 million (2020: $0.2 million). (A) LIQUIDITY RISK Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation. Helloworld Travel manages short term liquidity risk by matching surplus and deficit cash flows throughout the Group. In addition, the Group ensures that there is further excess liquidity based on an ongoing assessment of the current operating environment, in the event that unexpected circumstances should arise. 105 helloworldlimited.com.auHelloworld Travel Limited Annual Report 2021helloworldlimited.com.au F I N A N C I A L STAT E M E N T S Management monitors rolling forecasts of the Group’s liquidity reserves (comprising the undrawn facilities outlined in note 19: borrowings) and cash and cash equivalents (outlined in note 9: cash and cash equivalents) on the basis of expected cash flows. Financing arrangements, including details on the interest-bearing liabilities and facilities and maturity dates, are contained in note 19: borrowings. Due to the current disruption to the travel industry, Helloworld has taken additional measures to ensure liquidity is managed prudently, refer note 1 (c) going concern. (i) Maturities of financial liabilities The tables below analyse and arrange the Group’s financial liabilities into relevant maturity groupings based on their contractual maturities for all non-derivative financial liabilities. The amounts disclosed in the table are the contractual undiscounted cash flows. Balances due within 12 months equal their carrying balances as the impact of discounting is not significant. CONSOLIDATED - 2021 NON-DERIVATIVE FINANCIAL INSTRUMENTS Carrying value $’000 Less than 6 months $’000 Contractual maturities of financial liabilities 4–5 years $’000 6–12 months $’000 2–3 years $’000 1–2 years $’000 3–4 years $’000 More than 5 years $’000 Total $’000 Trade and other payables 108,551 108,551 - - - - - - 108,551 Lease liabilities Interest bearing liabilities – secured (i) Bank guarantees and letter of credit Deferred Consideration 30,990 81,000 - - 4,335 3,934 6,129 5,016 5,054 4,918 3,239 32,625 845 831 81,866 - - - 1,681 877 455 - 1,032 - - - - - 461 - - 83,542 2,975 - 6,449 1,032 TOTAL 220,541 113,731 6,446 89,904 5,471 5,054 5,379 6,214 232,199 106 CONSOLIDATED - 2020 NON-DERIVATIVE FINANCIAL INSTRUMENTS Carrying value $’000 Less than 6 months $’000 Contractual maturities of financial liabilities 4–5 years $’000 6–12 months $’000 3–4 years $’000 1–2 years $’000 2–3 years $’000 More than 5 years $’000 Total $’000 Trade and other payables Lease liabilities (restated) Restructuring provision Redemption liability 93,967 29,759 5,998 1,200 Interest bearing liabilities – secured (i) 101,000 Bank guarantees and letter of credit - 1,100 2,730 93,967 - - - - - - 93,967 4,911 4,772 7,438 5,539 3,403 3,356 2,200 31,619 - - 5,998 - - - - 1,200 1,083 74,025 29,146 - - - 3,039 1,380 841 455 - - - - - - 5,998 1,200 - 105,354 3,066 11,511 TOTAL 231,812 102,708 14,892 82,843 36,726 3,858 3,356 5,266 249,649 (i) Excludes deferred borrowing costs. (B) MARKET RISK (i) Foreign exchange risk The Group operates internationally and is exposed in its wholesale operations to foreign exchange risk arising from future cash flows relating to financial instruments denominated in a currency that is different to its local currency. Due to the nature of Helloworld Travel’s wholesale operations, revenue is earned in the wholesale businesses’ local currency, however the associated cost of sales is settled by Helloworld Travel based on quoted prices in the local currency of the supplier. Prior to COVID-19, foreign exchange risk was measured through a forecast of highly probably future purchases, with hedge contracts to purchase foreign currencies timed to mature when payments to suppliers are scheduled, in order to minimise the volatility of the Australian dollar cash flows. The Group’s hedging policy requires management to document at the inception of the hedging transaction, the economic relationship between the hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, whether the derivatives that are used in hedging transactions have been and will continue to be highly effective in offsetting changes in the cash flows of hedged items. 106 Helloworld Travel Ltd Annual Report 2021Helloworld Travel Limited Annual Report 2021helloworldlimited.com.au The Board’s risk management policy was to hedge forecasted foreign currency cash flows in the wholesale businesses using forward foreign exchange contracts and to not enter into, issue or hold derivative financial instruments for speculative trading purposes. As a consequence of COVID-19, the Group has temporary ceased hedging foreign currency payables due to the uncertainty as to whether bookings will result in foreign currency payments. Exposure As at 30 June 2021, the Group’s net exposure to foreign currency risk is set out in the table below. The table includes the following: • Foreign cash holdings as at year end; • Receivables including accrued revenue denominated in foreign currencies as at year end; • Current trade payables and forward payment obligations in foreign currencies as at year end; and • Foreign currency exchange contracts outstanding as at year end. CURRENCY USD EUR GBP FJD NZD Other currencies NET TOTAL FOREIGN CURRENCY EXPOSURE ASSET Sensitivity CONSOLIDATED 2021 $’000 AUD equivalent 2020 $’000 AUD equivalent 107 - - 74 2,380 7,094 1,070 10,618 (3,910) (448) (198) (2,352) 8,512 (508) 1,096 The following table summarises the impact of a 10% increase (strengthening of AUD) and decrease (weakening of AUD) in foreign exchange rates on the net profit in the statement of profit or loss and other comprehensive income. The sensitivity rate represents management’s assessment of the reasonable possible change in foreign exchange rates (focusing on New Zealand and Fiji) and is used when reporting foreign currency risk to key management personnel. The sensitivity analysis assumes hedge effectiveness and that all other variables including interest rates, remain constant. 10% increase (2020: 10%) 10% decrease (2020: 10%) CONSOLIDATED Impact on net profit before tax 2021 $’000 (965) 1,180 2020 $’000 (736) 973 107 helloworldlimited.com.auHelloworld Travel Limited Annual Report 2021helloworldlimited.com.au F I N A N C I A L STAT E M E N T S (ii) Interest rate risk The Group’s interest rate risk arises from future cash flows relating to cash assets and cash borrowings with variable interest rates. Helloworld Travel does not hedge its exposure to fluctuations in future cash flows due to changes in market interest rates. Helloworld Travel manages interest rate risk by ensuring that debt servicing costs are minimised and interest earned is maximised. This includes reviews undertaken, where required, to consider the restructuring of interest bearing debt, the possibility of repaying interest bearing debt and the level of investment of surplus cash in interest bearing accounts. Exposure As at 30 June 2021, the Group had term deposits amounting to $9.6 million (2020: $17.1 million) with an average interest rate of 3.0% per annum (2020: 3.0%). In addition, the Group had drawn down borrowings of $81.0 million (2020: $101.0 million) and other cash funds held in operational and foreign currency bank accounts with interest at market rates under normal commercial terms. Sensitivity 108 The information below summarises the impact of a 100 basis points per annum increase and decrease in interest rates on the net profit in the statement of profit or loss and other comprehensive income. SHORT TERM DEPOSITS Increase by 100 basis points (2020: 100 basis points) Decrease by 100 basis points (2020: 100 basis points) BORROWINGS Increase by 100 basis points (2020: 100 basis points) Decrease by 100 basis points (2020: 100 basis points) (C) CREDIT RISK CONSOLIDATED Impact on net profit before tax 2021 $’000 96 (96) (810) 810 2020 $’000 171 (171) (1,010) 1,010 The Group undertakes transactions with a large number of customers and other counterparties in various countries in accordance with Board approved policy. Credit risk arises from the possibility that a counterparty will default on its contractual obligation relating to cash and cash equivalents, trade and other receivables, accrued revenue and favourable derivatives, resulting in financial loss to the Group. Credit risk is measured at fair value. 108 Helloworld Travel Ltd Annual Report 2021Helloworld Travel Limited Annual Report 2021helloworldlimited.com.au Risk management The Group has credit risk associated with travel agents, airlines, industry settlement organisations and direct suppliers. The Group minimises credit risk through the application of stringent credit policies, regular monitoring and accreditation of travel agents through industry programs. A portion of Helloworld Travel’s credit risk is also mitigated through offsetting receivable and payable balances between Helloworld Travel and key suppliers. In addition, the Group’s key customers include various Australian Government agencies which have a low risk of default. Where specific credit risk is identified with a counterparty, the Group requires pre-payment for services provided. A reservation for such a counterparty is not confirmed or ticketed prior to receiving payment in full. Collateral is not held as security, nor is it the Group’s policy to transfer receivables to special purpose entities. Exposure The Group’s maximum exposure to credit risk is the carrying amount of the financial asset, net of any loss allowance. The table below sets out the maximum exposure to credit risk as at 30 June: Cash and cash equivalents Trade and other receivables (including contingent consideration receivable) (i) Accrued revenue TOTAL CREDIT RISK EXPOSURE Impairment of financial assets CONSOLIDATED 2021 $’000 2020 $’000 109 131,024 131,861 32,882 18,333 44,683 34,482 182,239 211,026 The Group has three types of financial assets that are subject to the expected credit loss model: • Trade receivables • Accrued revenue • Investments and other financial assets at amortised cost (such as other receivables and loans to related parties) The Group applies the simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables and accrued revenue, refer note 39: significant accounting policies for more information regarding the calculation of impairment losses. The Group undertakes a debtor by debtor review with a provision for each debtor calculated based on each debtor’s recent and longer-term history of debt repayments. All receivables are issued with a maximum of 30 days terms. 109 helloworldlimited.com.auHelloworld Travel Limited Annual Report 2021helloworldlimited.com.au F I N A N C I A L STAT E M E N T S On this basis, the loss allowance as at 30 June 2021 and 30 June 2020 was determined as follows for both trade receivables and accrued revenue: CONSOLIDATED - 2021 Trade receivables Accrued revenue GROSS CARRYING AMOUNTS Expected loss rate Trade receivables Accrued revenue LOSS ALLOWANCES NET CARRYING AMOUNTS Not past due $’000 Past Due 1-30 days $’000 Past due 31-60 days $’000 Past due 61-90 days $’000 More than 90 days $’000 7,102 18,333 25,435 2.8% (199) - (199) 25,236 3,840 2,442 - - 3,840 2,442 2.5% (96) - (96) 3,744 4.0% (98) - (98) 2,344 Total $’000 16,342 21,533 37,875 207 - 207 2,751 3,200 5,951 15.0% 75.0% (31) - (31) 176 (2,063) (2,487) (3,200) (3,200) (5,263) 688 (5,687) 32,188 The Group recognised a larger allowance for expected credit losses due to the COVID-19 pandemic. The gross carrying amount of trade receivables and accrued revenue as at 30 June 2021 was assessed based on management’s judgement using information available at the time. The allowance incorporates management’s review of specific debtors which have been individually assessed due to indications that the debt owed may not be repaid. As at 30 June 2021, trade receivables of $7.0 million (2020: $11.6 million) were aged between 1 and more than 90 days past due but not impaired. These relate to a number of independent counterparties for whom there is no recent history of default. CONSOLIDATED - 2020 110 Trade receivables Accrued revenue GROSS CARRYING AMOUNTS Expected loss rate Trade receivables Accrued revenue LOSS ALLOWANCES NET CARRYING AMOUNTS Not past due $’000 Past Due 1-30 days $’000 Past due 31-60 days $’000 Past due 61-90 days $’000 More than 90 days $’000 12,145 38,182 50,327 7.9% (253) (3,700) (3,953) 46,374 1,214 1,371 7,898 5,358 - - - - 1,214 1,371 7,898 5,358 1.6% (20) - (20) 1,194 1.5% (20) - (20) 1,351 13.0% (1,029) - (1,029) 6,869 59.6% (3,195) (4,517) - (3,700) (3,195) 2,163 (8,217) 57,951 Total $’000 27,986 38,182 66,168 Movements in the loss allowance for both trade receivables and accrued revenue are as follows: BALANCE AT 1 JULY Acquisitions through business combinations Additional loss allowance recognised Writeback of loss allowance Receivables written off during the year as uncollectable Other BALANCE AT 30 JUNE CONSOLIDATED 2021 $’000 2020 $’000 8,217 - 2,614 (5,144) - - 5,687 724 20 7,788 (61) (272) 18 8,217 During the current year, a loss allowance of $2.6 million (2020: $7.7 million) relating to receivables and accrued revenue arising from contracts with customers was recognised in the statement of profit or loss and other comprehensive income. 110 Helloworld Travel Ltd Annual Report 2021Helloworld Travel Limited Annual Report 2021helloworldlimited.com.au Impairment of other financial assets at amortised cost There are no significant other receivables, or classes of receivables, that have been recognised that would otherwise, without negotiation, be past due or impaired. It is expected that all other amounts will be received when due. The Group does not hold any collateral in relation to receivables. (D) NET FAIR VALUES The fair values of current cash and cash equivalents and non-interest bearing current financial assets and current financial liabilities approximate their carrying values due to their short maturity. The fair values of interest bearing financial assets and liabilities, together with their carrying amounts in the statement of financial position, are as follows: CONSOLIDATED Interest bearing assets – non-current TOTAL ASSETS Interest bearing liabilities – non-current TOTAL LIABILITIES (E) FAIR VALUE HIERARCHY 2021 2020 Carrying amount $’000 4,394 4,394 81,000 81,000 Fair value $’000 4,394 4,394 Carrying amount $’000 4,397 4,397 Fair value $’000 4,397 4,397 81,000 81,000 100,519 100,519 101,000 101,000 Certain judgements and estimates are made in determining the fair values of the financial instruments that are recognised and measured at fair value in the financial statements. To provide an indication of the reliability of the inputs used in determining fair value, the Group has classified its financial instruments into the three levels prescribed under 111 the accounting standards. The different levels have been defined as follows: • Level 1: fair value of financial instruments traded in active markets is based on quoted market prices at the end of the reporting period. The quoted market price used for financial assets is the current bid price. • Level 2: fair value of financial instruments that are not traded in an active market is determined using valuation techniques which maximise the use of observable market data and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2. • Level 3: if one or more of the significant inputs is not based on observable market data, the instrument is included in level 3. There were no transfers between level 1, 2 and 3 for recurring fair value measurements during the year. The Group’s policy is to recognise transfers into and transfers out of fair value hierarchy levels at the end of the reporting period. The table below analyses financial instruments carried at fair value, by valuation method. CONSOLIDATED - 2021 Interest bearing assets (i) TOTAL ASSETS Deferred Consideration (ii) Interest bearing liabilities(iii) TOTAL LIABILITIES Level 1 $’000 Level 2 $’000 - - - - - - - - - - Level 3 $’000 4,394 4,394 1,032 81,000 82,032 Total $’000 4,394 4,394 1,032 81,000 82,032 111 helloworldlimited.com.auHelloworld Travel Limited Annual Report 2021helloworldlimited.com.au F I N A N C I A L STAT E M E N T S CONSOLIDATED - 2020 Contingent consideration receivable (i) Interest bearing assets TOTAL ASSETS Redemption liability (ii) Interest bearing liabilities TOTAL LIABILITIES Level 1 $’000 Level 2 $’000 - - - - - - - - - - - - Level 3 $’000 170 4,397 4,567 1,200 101,000 102,200 Total $’000 170 4,397 4,567 1,200 101,000 102,200 Interest bearing assets are made up of loans to related parties. Refer to note 31: Related Party Transactions (i) (ii) Deferred consideration relates to the acquisition of CruiseCo. Refer to note 35: Business Acquisitions (iii) Interest bearing liabilities are loans from Westpac to Helloworld. Refer to note 19: Borrowings (F) CAPITAL MANAGEMENT (i) Capital Structure 112 The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The Board continually monitors the return on capital, the level of dividends to ordinary shareholders, cash flow generation and the debt to equity mix in determining its appropriate capital structure. In order to maintain or adjust the capital structure, the Board considers the following: • Potential repayment of debt obligations; • Future fixed asset investment; • Funding of any future proposed acquisitions via either debt or equity instruments; and • The appropriate level of future dividends to ordinary shareholders to support investor returns. Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements. (ii) Loan covenants Under the terms of the borrowing facility, the Group is required to comply with certain loan covenants. The Group has complied with these covenants throughout the current and prior year, with no breaches of loan covenants noted. Earnings based covenant waivers have been provided until June 2022. With the liquidity covenant of $55.0 million, reducing by $5.0 million in October 2021 and a further $5.0 million in January 2022. 112 Helloworld Travel Ltd Annual Report 2021Helloworld Travel Limited Annual Report 2021helloworldlimited.com.au 3 0 . C O M M I T M E N T S A N D C O N T I N G E N C I E S (A) COMMITMENTS The Group has no commitments as at 30 June 2021. The Group has not entered into any material new lease agreements post 30 June 2021. (B) GUARANTEES The Group has on issue bank guarantees and letters of credit as at 30 June 2021 totalling $7.95 million (2020: $11.5 million). In addition, Helloworld Travel Limited has entered into a Deed of Cross Guarantee with certain Australian wholly owned controlled entities as outlined in note 33: parent entity information. (C) BUSINESS ACQUISITION COMMITMENTS (i) Purchase of remaining ownership interest in MTA In FY17, Helloworld Travel acquired 50.0% ownership in MTA for a total consideration of $14.2 million. The sale and purchase agreement for the original 50.0% interest purchased outlines the conditions and mechanism for determining the basis of the consideration for the remaining 50.0% ownership interest. Helloworld Travel has a call option to acquire the remaining 50.0% ownership interest in MTA on 1 December 2021. The associate party has a put option to sell its remaining 50.0% ownership interest to Helloworld Travel 30 days after the expiry of the call option period. (ii) Commercial agreements entered into with BCD Travel and Gilpin Travel include options to purchase 100% of the ownership interests in these businesses During the year ended 30 June 2019, Helloworld Travel entered into commercial agreements for the distribution of travel products. Two agreements included conditions on the future potential purchase these businesses in the financial year ending 2024. In addition, the owners of the businesses have a put option to sell 100% of their ownership interest to Helloworld Travel at the same point in time. The value of the commitment for these arrangements is based on a future valuation of the financial performance of the respective business in the preceding financial year prior to the exercise of the option, at a set market based valuation multiple. As there is no current ownership control by Helloworld Travel in these businesses, no put option financial instrument valuation is included in the 2021 financial statements. 113 (D) CONTINGENCIES As at 30 June 2021, there are no significant contingent assets or contingent liabilities. 113 helloworldlimited.com.auHelloworld Travel Limited Annual Report 2021helloworldlimited.com.au F I N A N C I A L STAT E M E N T S 3 1 . R E L AT E D PA RT Y T R A N SA C T I O N S (A) SUBSIDIARIES Details relating to subsidiaries are included in note 32: particulars in relation to controlled entities. (B) ULTIMATE AND DIRECT PARENT Helloworld Travel Limited is the legal owner of the Group. Refer to note 33: parent entity information for further information. (C) ASSOCIATES Helloworld Travel undertake transactions with its associates. The list of associates and joint ventures held by Helloworld Travel are outlined in note 12: investments accounted for using the equity method. (D) ENTITIES WITH SIGNIFICANT INFLUENCE The following entities were considered to have significant influence over the Group during the year: • Entities related to Andrew Burnes and Cinzia Burnes hold 27.2% as at 30 June 2021 (2020: 31.4%) of the ordinary shares of Helloworld Travel Limited following the FY16 merger with the AOT Group and its controlled entities. Andrew Burnes is the CEO and Managing Director of Helloworld Travel Limited. Cinzia Burnes is an Executive Director of the Company. • QH Tours Limited, a wholly owned subsidiary of Qantas Airways Limited, holds 12.4% as at 30 June 2021 (2020: 15.4%) of the ordinary shares of Helloworld Travel Limited and has an executive member, Andrew Finch on the Board. (E) KEY MANAGEMENT PERSONNEL (KMP) COMPENSATION 114 Short term employee benefits Long term employee benefits Share based payment benefits Post-employment benefits TOTAL KMP COMPENSATION CONSOLIDATED 2021 $ 2020 $ 2,046,677 3,505,048 85,872 405,900 135,959 56,649 232,000 112,148 2,674,408 3,905,845 Detailed remuneration disclosures are provided in the remuneration report, contained within the Directors Report. (F) TRANSACTIONS WITH RELATED PARTIES The following trading transactions occurred with related parties: (i) Revenue derived from: Associates and joint ventures Entities with significant influence over the Group (ii) Expenses incurred as a result of transactions with: Associates and joint ventures Entities with significant influence over the Group (iii) Receivables as at 30 June: Associates and joint ventures Entities with significant influence over the Group (iv) Payables as at 30 June: Associates and joint ventures Entities with significant influence over the Group 114 CONSOLIDATED 2021 $’000 2020 $’000 161 - 2,038 6,364 191 2,677 521 3,513 887 28,542 5,104 6,955 769 5,555 824 1,156 Helloworld Travel Ltd Annual Report 2021Helloworld Travel Limited Annual Report 2021helloworldlimited.com.au Terms and conditions and nature of related party trading transactions Sales to and purchases from related parties are made at arm's length at normal market prices and on normal commercial terms. Andrew and Cinzia Burnes are both Directors of Normanby Road Holdings Pty Limited (ATF 179 Normanby Road Trust), which owns and leases to Helloworld Travel, the head office premises for the Group’s operations. Helloworld Travel derived revenue from Qantas Airways Limited and its controlled entities (Qantas), through commercial agreements and incur expenses under an agreement with Qantas for services including shared services, IT services, labour recharges, frequent flyer arrangement, intellectual property rights and website agreements. Transactions and balances with these entities are included in part (f) above. Related party trade receivables are non-interest bearing and are generally on 30 day terms from invoice. The Group settles related party trade payables according to the payment conditions confirmed by the supplier of services and are non-interest bearing and generally on 30 day terms from invoice. The following loan transactions occurred with related parties: (i) Interest revenue from: Associates of the Group (ii) Non-current loans as at 30 June: Associates of the Group Terms and conditions of related party loan transactions (i) Hunter Travel Group Pty Limited (HTG): CONSOLIDATED 2021 $’000 2020 $’000 91 130 4,344 4,344 On 31 August 2017, Helloworld Travel provided a five year loan to the owners of HTG, amounting to $1.3 million. In the prior year, Helloworld Travel provided an additional five year loan to the owners of HTG, amounting to $2.5 million. During the current year, no repayments were made by the owners. As at 30 June 2021, the outstanding loan balance amounts to 115 $3.4 million (2020: $3.4 million). The loan was provided to the HTG business to support its strategic business expansion. The loan was made on an arm’s length basis under normal commercial terms and conditions and is secured by the assets of the business. Interest accrues daily and is invoiced on a quarterly basis on 30 day terms. The interest rate is based on the Australian Bank Bill swap reference plus a commercial mark-up margin. Under the terms of the loan agreement, Helloworld Travel has the right to convert some of the outstanding loan balance to HTG shares at specified conversion periods in three to five years from the loan date, to increase its possible shareholding in HTG from 12% up to a maximum of 25%. (ii) Cooney Investments Pty Limited: On 29 August 2018, Helloworld Travel provided a five year loan to the owners of Cooney Investments Pty Limited, amounting to $1.6 million. During the current year, no repayments were received (2020: $0.2 million). As at 30 June 2021, the outstanding loan balance amounts to $1.0 million (2020: $1.0 million). 115 helloworldlimited.com.auHelloworld Travel Limited Annual Report 2021helloworldlimited.com.au F I N A N C I A L STAT E M E N T S (G) TRANSACTIONS WITH KEY MANAGEMENT PERSONNEL (KMP) During the current year, the LTIP shares previously allocated to John Constable were forfeited as a result of his resignation. In relation to the shares previously granted to Nick Sutherland, the Board determined that the TSR share-based performance criteria KPI was not achieved and accordingly these lapsed. 116 As at 30 June 2021, there are nil (2020: 700,000) shares allocated under the LTIP program to KMP. The loans were provided to each participant equal to the number of shares issued at market value. As at 30 June 2021, the loan to the KMP amounts to nil (2020: $2.9 million) due to forfeiture of shares failing to vest and loans extinguished during the year. The loans provided were interest free and non-recourse and are accordingly not recorded as receivables on the Group’s balance sheet. Set out below is the summary of the shares and loan value with the KMP: Year ended 30 June 2021 Number of Shares Loan Value ($) Name Role Opening Balance Addition as KMP Fortified/ lapsed Vested Closing Balance Opening Balance Movement Closing Balance J Constable Group GM - Retail & Commercial 500,000 N Sutherland Group GM - Corporate 200,000 700,000 - (500,000) - (200,000) - (700,000) - - - - - - 2,184,028 (2,184,028) 678,697 (678,697) 2,862,725 (2,862,725) - - - Year ended 30 June 2020 Number of Shares Loan Value ($) Name Role Opening Balance Addition as KMP Granted Vested Closing Balance Opening Balance Movement Closing Balance M Burnett Chief Financial Officer 500,000 S McKearney Group GM - New Zealand 150,000 J Constable Group GM - Retail & Commercial 500,000 N Sutherland Group GM - Corporate 200,000 1,350,000 - - - - - - - - - - (500,000) (150,000) - - 1,349,427 (1,349,427) 404,828 (404,828) - - - 500,000 2,265,421 (81,393) 2,184,028 - 200,000 711,254 (32,557) 678,697 (650,000) 700,000 4,730,930 (1,868,205) 2,862,725 The detailed KMP remuneration disclosures are provided in the Remuneration Report, contained within the Directors Report. 116 Helloworld Travel Ltd Annual Report 2021Helloworld Travel Limited Annual Report 2021helloworldlimited.com.au 32. PARTICULARS IN RELATION TO CONTROLLED ENTITIES AS AT 30 JUNE 2021 The consolidated financial statements incorporate the assets, liabilities and results of the following principal subsidiaries in accordance with the accounting policy described in note 40. The proportion of ownership interest shown in this table is equal to the proportion of voting power held. NAME COUNTRY OF INCORPORATION OWNERSHIP INTEREST 2020 % 2021 % Helloworld Travel Limited 1, 2 12518 Pty Limited 3 20118181 Pty Limited 3 2012518 Pty Limited 3 ACN 003 683 967 Pty Limited 2 AOT Group Limited 2 AOT Inbound Pty Limited 2 AOT Retail Pty Limited 2 ATS Logistics Pty Limited 3 ATS Pacific Pty Limited 2 Aus STS Holdco II Pty Limited 2 Australian Online Travel Pty Limited 2 Best Flights Pty Limited 2 Communico Services Pty Limited 2 FB Freight Pty Limited 3 Flight Systems Pty Limited 2 Granted Worldwide Pty Limited 2 GSS Travel NZ Pty Limited 2 Harvey Holidays Pty Limited 2 Harvey World Travel Franchises Pty Limited 2 Harvey World Travel Group Pty Limited 2 Helloworld Franchising Pty Limited 2 Helloworld Group Pty Limited 2 Helloworld IP Pty Limited 2 Helloworld Services Pty Limited 2 Helloworld Travel Services (Australia) Pty Limited Helloworld Travel Services Group Pty Limited 2 Helloworld Travel Services Holdings Pty Limited 2 Helloworld Travel Southland Pty Limited 2 Inspire Travel Management Pty Limited 3 Jetset Pty Limited 2 Jetset Travelworld Network Pty Limited 2 JTG Corporate Pty Limited 2 Keygate Holdings Pty Limited Luxury Getaways Pty Limited 2 Magellan Travel Pty Limited 2 Nexus Point Travel Pty Limited 2 Pillowpoints Pty Limited 2 Viva Holidays II Limited 2, 3 QBT Pty Limited 2 Quay Services Pty Limited 2 Retail Travel Investments Pty Limited 2 Show Group Freight Pty Limited 3 Show Group Pty Limited 2 Skiddoo IT Pty Limited 2 Skiddoo Pty Limited 2 Sunlover Holidays Pty Limited 2 Transonic Travel Pty Limited 2 Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia 117 N/A 100.0 100.0 100.0 100.0 100.0 100.0 100.0 70.0 100.0 100.0 100.0 100.0 100.0 70.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 60.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 70.0 100.0 100.0 100.0 100.0 100.0 N/A - - - 100.0 100.0 100.0 100.0 - 100.0 100.0 100.0 100.0 100.0 - 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 40.0 100.0 100.0 100.0 60.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 - 100.0 100.0 100.0 100.0 100.0 117 helloworldlimited.com.auHelloworld Travel Limited Annual Report 2021helloworldlimited.com.au F I N A N C I A L STAT E M E N T S NAME COUNTRY OF INCORPORATION OWNERSHIP INTEREST 2020 % 2021 % Traveledge Pty Limited Travelpoint Pty Limited 2 Travelscene Pty Limited 2 Travelworld Pty Limited 2 Viva Holidays Pty Limited 2 AOT Business Consulting (Shanghai) Limited Allied Tour Service (Pacific) Pte Limited Coral Sun (Fiji) Pte Limited Great Sights (Fiji) Pte Limited Tourist Transport (Fiji) Pte Limited Helloworld Travel Services Greece M.I.K.E AOT India PVT Limited AOT New Zealand Limited Atlantic and Pacific Business Travel Limited Australian Travel Service (Pacific) Limited 118 Atlas Limited Biztrav Limited GP Holiday Shoppe Limited Gullivers Pacific Limited Harvey World Travel (2008) Limited Helloworld NZ Franchising Limited Helloworld NZ Limited Helloworld Travel Services (NZ) Limited Just Tickets Limited Pacific Leisure Group Limited Show Group (NZ) Limited Sunlover Holidays Limited Travel Brokers Limited United Travel Limited Williment Travel Group Limited Skiddoo Management Inc. Skiddoo Philippines Inc. Helloworld Travel Singapore Pte. Limited 3 Skiddoo Pte. Limited QBT USA Inc.3 1. Helloworld Travel Limited Australia Australia Australia Australia Australia China Fiji Fiji Fiji Fiji Greece India New Zealand New Zealand New Zealand New Zealand New Zealand New Zealand New Zealand New Zealand New Zealand New Zealand New Zealand New Zealand New Zealand New Zealand New Zealand New Zealand New Zealand New Zealand Philippines Philippines Singapore Singapore United States of America 100.0 100.0 100.0 100.0 100.0 100.0 100.0 60.0 60.0 60.0 100.0 100.0 100.0 100.0 100.0 100.0 76.6 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 - 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 60.0 60.0 60.0 100.0 100.0 100.0 100.0 100.0 100.0 76.6 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 - Helloworld Travel Limited is the legal owner of the Group. Refer note 33: parent entity information for further details. 2. Deed of cross guarantee These entities are included in the Deed of Cross Guarantee, refer note 34: deed of cross guarantee for further details. Pursuant to ASIC Corporations (Wholly-owned Companies) Instrument 2016/785, these controlled entities are relieved from the Corporations Act 2001 requirements for preparation, audit and lodgement of standalone financial statements. 118 Helloworld Travel Ltd Annual Report 2021Helloworld Travel Limited Annual Report 2021helloworldlimited.com.au 3. Changes to controlled entities during the current year During the current year, the following entities were established or acquired following a business acquisition: • On 31 October 2020, Helloworld Travel acquired an additional 60% of Inspire Travel Management (ITM) a joint venture between Helloworld Travel and In Travel Group, an indigenous travel management company. As a result, Helloworld Travel now owns 100% of ITM, a travel management business providing services throughout Australia. Helloworld Travel’s previous investment in ITM was accounted for using the equity method. • On 12 February 2021, Helloworld Travel began FB Freight Pty Ltd, a controlled entity with a minority interest held by DEF Venture Capital Pty Ltd as trustee for DEF Venture Capital Trust (DEF). Helloworld Travel has a 70.0% interest, with the remaining 30.0% owned by DEF. The results of FB Freight are consolidated into the Groups results. FB Freight Pty Limited provides freight and logistic services for the entertainment, sports, theatre, and concert industries throughout Australia. This company registered two new legal entities as wholly owned subsidiaries during the year: • ATS Logistics Pty Ltd (registered 22nd March 2021) • ShowGroup Freight Pty Ltd (registered 29th March 2021) • On 1 January 2021, Helloworld Travel registered a new wholly owned entity in the United States, QBT USA Inc. • On 23 April 2021, Helloworld Travel registered a new wholly owned entity, Discovery Travel Centre Cammeray Pty Limited. • On 19 May 2021, Helloworld Travel registered two new wholly owned entities: • 12518 Pty Limited • 20118181 Pty Limited • On 2 June 2021, Helloworld Travel registered a new wholly owned entity, 2012518 Pty Limited • On 8 April 2021 Helloworld Travel deregistered one Singapore entity: • Helloworld Travel Singapore Pte Limited • During the current year, Qantas Holidays Limited changed its name to Viva Holidays II Limited. 3 3 . PA R E N T E N T I T Y I N F O R M AT I O N The legal parent company of the Group is Helloworld Travel Limited. Set out below is the supplementary information about the parent entity. 119 (A) RESULTS OF PARENT ENTITY Summarised statement of profit or loss and other comprehensive income Profit/(loss) after income tax TOTAL COMPREHENSIVE INCOME/(LOSS) Summarised statement of financial position Total current assets Total non-current assets TOTAL ASSETS Total current liabilities TOTAL LIABILITIES NET ASSETS EQUITY Issued capital Share based payments reserve Accumulated losses TOTAL EQUITY PARENT 2021 $’000 2,650 2,650 2020 $’000 (82,122) (82,122) PARENT 2021 $’000 118,327 160,575 278,902 156 156 2020 $’000 71,656 159,662 231,318 5,469 5,469 278,746 225,849 625,033 4,040 576,300 2,525 (350,327) (352,976) 278,746 225,849 119 helloworldlimited.com.auHelloworld Travel Limited Annual Report 2021helloworldlimited.com.au F I N A N C I A L STAT E M E N T S (B) PARENT ENTITY GUARANTEES IN RESPECT OF DEBTS OF ITS SUBSIDIARIES The legal parent Helloworld Travel Limited has entered into a Deed of Cross Guarantee with the effect that the Company guarantees debts in respect of its subsidiaries. Details of the Deed of Cross Guarantee and the subsidiaries subject to the deed are disclosed in note 34: deed of cross guarantee. (C) PARENT ENTITY TAX LIABILITIES IN RESPECT OF ITS SUBSIDIARIES The parent entity has entered into a tax funding agreement with the effect that the Company guarantees tax liabilities of other entities in the tax consolidated group. As at 30 June 2021 the tax consolidated group had a tax receivable of $0.5 million (2020: $5.4 million payable). (D) PARENT ENTITY CONTINGENCIES As at 30 June 2021, there are no significant contingent assets or contingent liabilities. (E) PARENT ENTITY ISSUED CAPITAL 120 The issued capital of the parent entity does not equal the issued capital of the consolidated Group due to reverse acquisition business combinations previously undertaken by the Group. 3 4 . D E E D O F C R O S S G UA R A N T E E Pursuant to ASIC Corporations (Wholly-owned Companies) Instrument 2016/785, the entities identified in note 33: particulars in relation to controlled entities are relieved from the Corporations Act 2001 requirements for preparation, audit and lodgement of financial statements and Directors’ reports. Helloworld Travel has had a Deed of Cross Guarantee in place since 25 May 2007, which has been amended from time to time to add or remove entities. On 20 June 2018, a replacement Deed of Cross Guarantee was entered into which included the addition of certain wholly owned Australia controlled entities in the prior year. The effect of the Deed is that Helloworld Travel Limited has guaranteed to pay any deficiency in the event of the winding up of the controlled entities or if they do not meet their obligations under the terms of overdrafts, loans, leases or other liabilities subject to guarantee. The controlled entities which are party to the Deed have also given a similar guarantee in the event Helloworld Travel Limited is wound up or if it does not meet its obligations under the terms of overdrafts, loans, leases or other liabilities subject to guarantee. During the current year, no entities were added into the Deed of Cross Guarantee and no entities were deregistered or removed from the Deed of Cross Guarantee. The consolidated income statement and statement of financial position have been prepared in accordance with the accounting policy note 40: significant accounting policies comprising the Company and the controlled entities which are party to the Deed, after eliminating all transactions between parties to the Deed of Cross Guarantee and is set out below. 120 Helloworld Travel Ltd Annual Report 2021Helloworld Travel Limited Annual Report 2021helloworldlimited.com.au (A) CLOSED GROUP STATEMENT OF LOSS AND OTHER COMPREHENSIVE LOSS TOTAL REVENUE AND OTHER INCOME Employee benefits expenses Advertising, selling and marketing expenses Communication and technology expenses Occupancy expenses Operating expenses Depreciation and amortisation expense Impairment charges Finance expense Profit on disposal of investments Share of profit in associates accounted for using the equity method LOSS BEFORE INCOME TAX BENEFIT Income tax benefit LOSS AFTER INCOME TAX BENEFIT OTHER COMPREHENSIVE LOSS Exchange differences on translation of foreign operations TOTAL COMPREHENSIVE LOSS FOR THE YEAR CLOSED GROUP 2021 $’000 2020 $’000 65,397 157,732 (55,700) (3,460) (7,060) (843) (6,054) (11,360) (2,678) (3,166) (112) (8) (84,406) (27,212) (10,860) (2,000) (29,605) (12,982) (66,350) (3,372) 1,075 (25) (25,044) (78,005) 7,788 6,918 (17,256) (71,087) 121 4 570 (17,252) (70,517) Prior year revenue includes $10.0 million in dividends received from Australian entities outside the Closed Group. These dividends are not assessable income for tax purposes. No dividends were received from entities outside the Closed Group in the current year. (B) CLOSED GROUP MOVEMENT IN ACCUMULATED LOSSES CLOSED GROUP 2021 $’000 2020 $’000 ACCUMULATED LOSSES AT THE BEGINNING OF THE FINANCIAL YEAR (247,320) (185,866) Loss after income tax benefit Dividends Dividends associated with LTIP Retained earnings transferred in due to change in closed group Transfer of predecessor accounting reserve to accumulated losses (17,256) - - - (3,698) (71,087) (26,815) 460 35,818 170 ACCUMULATED LOSSES AT THE END OF THE FINANCIAL YEAR (268,274) (247,320) 121 helloworldlimited.com.auHelloworld Travel Limited Annual Report 2021helloworldlimited.com.au CLOSED GROUP 2021 $’000 2020 $’000 106,970 23,271 14,262 180 87,933 26,168 6,607 185 144,683 120,893 4,471 818 17,129 179,206 19,727 85,611 306,962 451,645 4,474 1,091 16,399 180,461 23,605 88,243 314,273 435,166 173,973 132,355 5,837 19,768 17,512 - 6,220 21,461 42,086 5,239 217,090 207,361 80,711 16,311 20,798 1,082 1,234 120,136 337,226 100,519 13,922 25,820 997 1,419 142,677 350,038 114,419 85,128 386,060 (3,367) 337,327 (4,879) (268,274) (247,320) 114,419 85,128 F I N A N C I A L STAT E M E N T S (C) CLOSED GROUP STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE CURRENT ASSETS Cash and cash equivalents Trade and other receivables Accrued revenue Inventories TOTAL CURRENT ASSETS NON-CURRENT ASSETS Trade and other receivables Property, plant and equipment Right of use assets Intangible assets Deferred tax assets Investments TOTAL NON-CURRENT ASSETS TOTAL ASSETS CURRENT LIABILITIES Trade and other payables Lease liabilities Provisions Income tax payable Deferred revenue TOTAL CURRENT LIABILITIES 122 NON-CURRENT LIABILITIES Borrowings Lease liabilities Deferred tax liabilities Provisions Other non-current liabilities TOTAL NON-CURRENT LIABILITIES TOTAL LIABILITIES NET ASSETS EQUITY Contributed equity Reserves Accumulated losses TOTAL EQUITY 122 Helloworld Travel Ltd Annual Report 2021Helloworld Travel Limited Annual Report 2021helloworldlimited.com.au 3 5 . B U S I N E S S AC Q U I S I T I O N S (A) ACQUISITION OF THE CRUISECO BUSINESS (CRUISECO) (i) Summary of acquisition On 30 November 2020, Helloworld Travel completed the acquisition for 100% of the CruiseCo business (CruiseCo), a specialist cruise package wholesaler. The acquisition will allow Helloworld Travel to expand its cruise offerings in Australia and New Zealand, complementing the existing cruise wholesale business. Details of the purchase consideration, net assets acquired and goodwill of CruiseCo are as follows: Purchase price Deferred consideration PURCHASE CONSIDERATION The provisional assets and liabilities recognised from the CruiseCo acquisition are as follows: Cash and cash equivalents Trade and other payables Provisions NET ASSETS ACQUIRED (EXCLUDING GOODWILL) Goodwill resulting from the acquisition PROVISIONAL FAIR VALUE OF NET ASSETS ACQUIRED $’000 174 1,032 1,206 $’000 283 (466) (142) (325) 1,531 1,206 The assets and liabilities of CruiseCo acquired by Helloworld Travel are recorded at fair value for accounting purposes, resulting in goodwill of $1.5 million. The acquisition accounting was provisionally determined at 30 June 2021 and subsequent adjustments may arise within 12 months of the acquisition date, including finalisation of the fair value of the net assets acquired, the allocation of the purchase price to the separate identifiable intangible assets and the impact of tax finalisation. 123 The provisional goodwill acquired primarily represents the enlarged product and service offering that Helloworld Travel can now provide to its customers, future synergy opportunities and the future profitability of the business. The provisional goodwill has been allocated to the Australia wholesale and inbound cash generating unit and is not deductible for tax purposes. (ii) Purchase consideration – cash outflow Cash paid Cash and cash equivalents acquired NET INFLOW OF CASH – INVESTING ACTIVITIES $’000 (174) 283 109 (iii) Revenue and profit before income tax expense contribution From the date of the acquisition to 30 June 2021, the revenue and net profit/(loss) before income tax expense contributed by CruiseCo was immaterial to the Group’s result. If the date of acquisition had been 1 July 2020, the Group revenue and net profit before income tax expense for the period ended 30 June 2021 would not have been significantly impacted due to COVID-19. 123 helloworldlimited.com.auHelloworld Travel Limited Annual Report 2021helloworldlimited.com.au F I N A N C I A L STAT E M E N T S (iv) Acquisition related costs Acquisition related costs of less than $0.1 million were incurred in the acquisition and are included in other expenses in the consolidated statement of profit or loss and other comprehensive income and in operating cash flows in the consolidated statement of cash flows. (B) ACQUISITION OF INSPIRE TRAVEL MANAGEMENT (ITM) (i) Summary of acquisition On 31 October 2020, Helloworld Travel acquired an additional 60% of Inspire Travel Management (ITM). As a result, Helloworld Travel now owns 100% of ITM, a travel management business providing services throughout Australia. Helloworld Travel’s previous investment in ITM was accounted for using the equity method and was remeasured to fair value immediately prior to the acquisition of the remaining 60.0% ownership interest. Details of the purchase consideration, net assets acquired and gain on bargain purchase of ITM are as follows: Purchase price PURCHASE CONSIDERATION Helloworld Travel paid the nominal amount of $1 to acquire the remaining 60% of ITM. The provisional assets and liabilities recognised from the ITM acquisition are as follows: 124 Cash and cash equivalents Trade and other receivables Accrued revenue Deferred tax asset Trade and other payables Provisions NET ASSETS ACQUIRED Purchase price PROVISIONAL GAIN ON BARGAIN PURCHASE $’000 - - $’000 66 7 35 162 (29) (13) 228 - 228 Helloworld Travel had a pre-existing arrangement with ITM that arose due to an existing 40.0% ownership interest. Under applicable accounting standards, the settlement of pre-existing arrangements is excluded from the business acquisition. As a result, the purchase consideration paid by Helloworld Travel and net assets acquired from ITM exclude any amounts relating to the settlement of pre-existing arrangements. The assets and liabilities of ITM acquired by Helloworld Travel are recorded at fair value for accounting purposes, resulting in a gain of $0.2 million recognised in the consolidated statement of profit or loss and other comprehensive income. The acquisition was provisionally determined at 30 June 2021 and subsequent adjustments may arise within 12 months of the acquisition date, including the identification and measurement of separate intangible assets and impact of tax finalisation. Helloworld Travel recognised a gain in the consolidated statement of profit or loss and other comprehensive income relating to the acquisition of ITM. Helloworld Travel's pre-existing arrangements and specific circumstances affecting the seller that arose due to COVID-19 resulted in a bargain purchase on acquisition of the remaining 60.0% of share capital. Helloworld Travel reassessed all assets acquired, and liabilities assumed, including the existing 40.0% investment in ITM, to ensure that they were measured at fair value. 124 Helloworld Travel Ltd Annual Report 2021Helloworld Travel Limited Annual Report 2021helloworldlimited.com.au (ii) Purchase consideration – cash outflow Cash paid Cash and cash equivalents acquired from controlled entities NET INFLOW OF CASH – INVESTING ACTIVITIES $’000 - 66 66 (iii) Revenue and profit before income tax expense contribution From the date of the acquisition, 30 November 2020 to 30 June 2021, the revenue and net profit/(loss) before income tax expense contributed by ITM was immaterial to the Group’s result. If the date of acquisition had been 1 July 2020, the revenue and net profit/(loss) before income tax expense contributed by ITM would have been immaterial to the Group’s result. (iv) Acquisition related costs Acquisition related costs of less than $0.1 million were incurred in the acquisition and are included in other expenses in the consolidated statement of profit or loss and other comprehensive income and in operating cash flows in the consolidated statement of cash flows. UPDATE ON BUSINESS ACQUISITIONS UNDERTAKEN IN THE PRIOR YEAR 30 JUNE 2020 During the current period, there were no significant updates made to acquisition accounting relating to TravelEdge Group, Atlas Limited or the Show Group business. 3 6 . B U S I N E S S D I S P O SA L S (A) PRIOR YEAR DISPOSAL OF U.S WHOLESALE DIVISION 125 In the prior financial year, Helloworld Travel divested its U.S Wholesale division. During the current year, Helloworld Travel updated the disposal accounting to reflect the payment of the preliminary settlement adjustment payable, which was paid on 1 December 2020. The final consideration and resulting profit on disposal is outlined below: Settlement adjustment payable Carrying amount of net liabilities sold LOSS ON DISPOSAL OF NET LIABILITIES SOLD Foreign currency translation reserve released to profit or loss on disposal Transaction costs PROFIT/LOSS ON DISPOSAL OF U.S WHOLESALE DIVISION Provisional at 30 June 2020 $'000 Adjustments $'000 Final at 30 June 2021 $'000 (1,860) 1,663 (197) 1,422 (150) 1,075 (112) - (112) - - (112) (1,972) 1,663 (309) 1,422 (150) 963 125 helloworldlimited.com.auHelloworld Travel Limited Annual Report 2021helloworldlimited.com.au F I N A N C I A L STAT E M E N T S 3 7 . S H A R E B AS E D PAY M E N T S (A) OMNIBUS INCENTIVE PLAN Background At the Helloworld Travel Annual General Meeting held on 14 November 2019, the Group’s shareholders voted for the adoption of the Helloworld Travel Limited Omnibus Incentive Plan (the Plan). Under the Plan, the Group can reward and incentivise employees, directors (including both executive and non-executive directors), contractors and consultants by offering shares, performance rights or options. Any financial instruments granted under the Plan are held via an employee share trust (the Trust) established with Perpetual Corporate Trust Limited. Key attributes and valuation of the FY21 grants On 18 December 2020, Helloworld Travel granted 905,000 shares under the omnibus incentive plan mechanism. The shares were issued to a number of staff, none of whom are Directors. All those personnel have been working reduced days for a sustained period since March 2020. Shares were issued for nil consideration and have a non-market vesting condition of remaining an employee at Helloworld Travel through to the vesting date of 01 July 2021. At the vesting date, all employees satisfied the required conditions of the plan will be issued with their allocated shares at nil consideration. All omnibus incentive plan shares rank equally in all respects with existing shares from the date of their issue. The fair value of the shares issued under the plan is based on the number of shares issued at the closing price on 18 December 2020 which was $2.46 per share and is being brought to account over the vesting period. As a result, the total share based payment expense recognised in the current year in the statement of profit or loss and other comprehensive income amounts to $2.2 million. (B) LOAN FUNDED LONG TERM INCENTIVE PLAN (LTIP) 126 Key attributes and valuation The key attributes of the plan and grants provided since inception are: FY19 grants FY18 grants FY17 grant Grant date Vesting date Number of shares issued Issue and exercise price 50% vesting 100% vesting Performance criteria 26 March 2019 1 April 2018 31 December 2020 31 December 2020 150,000 $4.67 per share $5.50 share price $6.50 share price TSR and KPIs 700,000 $4.67 per share $3.81 per share $5.50 share price $5.50 share price $6.50 share price $6.50 share price TSR and KPIs TSR and KPIs 1 July 2017 1 July 2020 850,000 1 July 2016 1 July 2019 2,600,000 $3.00 per share $4.50 share price $5.50 share price TSR and KPIs A total of 4,300,000 loan funded LTIP shares have been issued over the three year period since the inception of the program. During the current year, nil (2020: nil) shares were granted under the LTIP. A loan is provided to the participant at grant date equal to the share value at the scheme commencement multiplied by the number of shares issued. The loan is repaid to the company after vesting conditions are met. The loan is non- recourse and interest free. A holding restriction is placed on the shares until the vesting date has been reached and the performance criteria have been assessed. Should the shares vest, they will be removed from the holding restriction. If the shares fail to vest, then the shares will be forfeited and the loan extinguished. The shares attract dividends as per ordinary paid up shares. The dividends earned are offset against any future loan payable by the eligible employees under the scheme. The fair value of the shares granted includes the loan instruments attached to the shares. The fair value was calculated in accordance with AASB 2: Share based payments. The fair value was determined using a version of the Black Scholes model incorporating a Monte Carlo simulation analysis to value the market-based performance conditions 126 Helloworld Travel Ltd Annual Report 2021Helloworld Travel Limited Annual Report 2021helloworldlimited.com.au The fair value of the respective grants with key assumptions used in determining its value is outlined as follows: FY19 grants FY18 grants FY17 grant Grant date Vesting date 26 March 2019 1 April 2018 31 December 2020 31 December 2020 Fair value of instrument $0.99 $0.99 1 July 2017 1 July 2020 $0.78 1 July 2016 1 July 2019 $0.77 The fair value incorporates: Expected price volatility (i) 30% to 40% 30% to 40% 35% to 45% 35% to 45% Expected dividend yield Risk free interest rate 3.40% 2.50% 3.40% 2.50% 3.75% 2.41% 2.00% 1.78% (i) The expected price volatility was based on the historic volatility, adjusted for any expected changes to future volatility due to publicly available information. Financial summary The movement in the number of shares held under the loan funded LTIP is summarised as follows: Year ended 30 June 2021 Number of shares under holding restriction Grant Date Start of performance period End of performance period Exercise price ($) Opening balance Granted (i) Lapsed (ii) Vested (iii) 01-Jul-17 01-Jul-17 1-Jul-20 01-Apr-18 01-Apr-18 1-Jan-21 26-Mar-19 01-Apr-18 1-Jan-21 3.81 4.67 4.67 TOTAL 200,000 500,000 150,000 850,000 - - - - (200,000) (500,000) (150,000) (850,000) - - - - Closing balance (iv) Vested and exercisable at the end of the year (v) - - - - - - - - Year ended 30 June 2020 Grant Date Start of performance period End of performance period Exercise price ($) Opening balance Granted (i) Lapsed (ii) Vested (iii) Closing balance (iv) Vested and exercisable at the end of the year (v) Number of shares under holding restriction 01-Jul-16 1-Jul-16 01-Jul-17 01-Jul-17 1-Jul-19 1-Jul-20 01-Apr-18 01-Apr-18 1-Jan-21 26-Mar-19 01-Apr-18 1-Jan-21 3.00 3.81 4.67 4.67 TOTAL 2,200,000 200,000 700,000 150,000 3,250,000 - - - - - - - (200,000) (2,200,000) - 200,000 500,000 150,000 (200,000) (2,200,000) 850,000 - - - - (i) During the current year, nil (2020: nil) shares were granted under the loan funded LTIP; (ii) During the current year, 650,000 (2020: 200,000) shares lapsed due to the resignation of certain employees and 200,000 shares (2020: nil) lapsed due to not meeting vesting conditions. (iii) On 1 July 2019, 2,200,000 loan funded LTIP shares met their vesting conditions as determined by the Board, based on meeting TSR and individual KPI targets over the three year vesting period. As at 30 June 2021, nil (2020: 850,000) LTIP shares remain with future vesting conditions to be met. (iv) During the current year, 350,000 loan funded LTIP shares under the grant dates of 1 July 2017 and 1 April 2018 did not met their vesting conditions as determined by the Board, based on meeting TSR and individual KPI targets over the three year vesting period. In September 2020, 500,000 loan funded LTIP shares lapsed due to staff departure. (v) As at 30 June 2021, nil shares (2020: nil) had met vesting conditions, which had not yet been exercised. 127 127 helloworldlimited.com.auHelloworld Travel Limited Annual Report 2021helloworldlimited.com.au F I N A N C I A L STAT E M E N T S (C) EXPENSES ARISING FROM SHARE BASED PAYMENT TRANSACTIONS Total expenses arising from share based payment transactions recognised during the period are as follows: Share based payment expense/(reversal) under loan funded LTIP Share based payment expense under franchise loyalty plan Share based payment expense under omnibus incentive plan TOTAL SHARE BASED PAYMENTS EXPENSE CONSOLIDATED 2021 $’000 2020 $’000 (710) - 2,224 (1,514) 195 7 671 873 The share based payment expenses relating to the loan funded LTIP and franchise loyalty plan were recognised in the share based payments reserve, which forms part of the reserves in the consolidated statement of financial position. The share based payment expense relating to the omnibus incentive plan was recognised as an increase in share capital. 3 8 . E V E N T S A F T E R T H E R E P O RT I N G P E R I O D Lockdowns across Australia and New Zealand may have an impact on the Group’s operations should they continue indefinitely, the increasing vaccination rates across both countries also has the potential to bring forward unrestricted international travel ahead of the Group’s current forecast. With this exception, no matter or circumstance has arisen since 30 June 2021 that has significantly affected, or may significantly affect the Group’s operations, the results of those operations, or the Group’s state of affairs in future financial years. 3 9 . S I G N I F I C A N T AC C O U N T I N G P O L I C I E S 128 The principal accounting policies adopted in the preparation of the financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. (A) PRINCIPLES OF CONSOLIDATION The consolidated financial statements comprise the financial statements of Helloworld Travel Limited and its subsidiaries (referred to in this financial report as the Group) as at 30 June 2021 and for the year then ended. (i) Subsidiaries Subsidiaries are all entities over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases. Intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the transferred asset. Accounting policies of subsidiaries are consistent with the policies adopted by the Group. Non-controlling interests in the results and equity of subsidiaries are shown separately in the consolidated statement of profit or loss and other comprehensive income, consolidated statement of changes in equity and consolidated statement of financial position respectively. 128 Helloworld Travel Ltd Annual Report 2021Helloworld Travel Limited Annual Report 2021helloworldlimited.com.au (ii) Associates Associates are all entities over which the Group has significant influence but not control or joint control. This is generally the case where the Group holds between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting after initially being recognised at cost. Under the equity method of accounting, the investments are initially recognised at cost including acquisition related costs, that are adjusted thereafter to recognise the Group’s share of the post-acquisition profits or losses of the investee (in Group profit or loss) and the Group’s share of movements in other comprehensive income (OCI) of the investee (in Group OCI). Dividends received or receivable from associates are recognised as a reduction in the carrying amount of the investment. When the Group’s share of losses in an associate equal or exceed its interest in the entity, including any other unsecured long-term receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate. Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in these entities. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates are consistent with the policies adopted by the Group. The carrying amount of associates is tested for impairment in accordance with the policy described at note 39(l). (iii) Changes in ownership interests The Group treats transactions with non-controlling interests that do not result in a loss of control as transactions with equity owners of the Group. A change in ownership interest results in an adjustment between the carrying amounts of the controlling and non-controlling interests to reflect their relative interests in the subsidiary. Any difference between the amount of the adjustment to non-controlling interests and any consideration paid or received is recognised in a separate reserve within equity attributable to owners of Helloworld Travel Limited. When the Group ceases to consolidate or equity account for an investment because of a loss of control or significant influence, any retained interest in the entity is remeasured to its fair value with the change in carrying amount recognised in profit or loss. This fair value becomes the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in OCI in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in OCI are reclassified to profit or loss. If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate share of the amounts previously recognised in OCI are reclassified to profit or loss where appropriate. 129 (B) BUSINESS COMBINATIONS The acquisition method of accounting is used to account for all business combinations, regardless of whether equity instruments or other assets are acquired. The consideration transferred for the acquisition of a subsidiary comprises the: • fair values of the assets transferred; • liabilities incurred to the former owners of the acquired business; • equity interest issued by the Group; • fair value of any asset or liability resulting from a contingent consideration arrangement; and • fair value of any pre-existing equity interest in the subsidiary. 129 helloworldlimited.com.auHelloworld Travel Limited Annual Report 2021helloworldlimited.com.au 130 F I N A N C I A L STAT E M E N T S Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition date. The Group recognises any non-controlling interest in the acquired entity on an acquisition by acquisition basis either at fair value or at the non-controlling interest’s proportionate share of the acquired entity’s net identifiable assets. Acquisition related costs are expensed as incurred, except if related to the issue of debt or equity securities, in which case are recognised directly in equity. Goodwill is recognised when there is an excess of, consideration transferred, any amount of any non-controlling interest in the acquired entity; and the acquisition date fair value of any previous equity interest in the acquired entity over the fair value of the net identifiable assets acquired. If those amounts are less than the fair value of the net identifiable assets of the business acquired, the difference is recognised directly in profit or loss as a bargain purchase. Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions. Contingent consideration is classified as a financial liability and subsequently remeasured to fair value with changes in fair value recognised in profit or loss. Unless the adjustment relates to additional information obtained within twelve months from the date of acquisition, about circumstances that existed at the acquisition date, If the business combination is achieved in stages, the acquisition date carrying value of the acquirer’s previously held equity interest in the acquired entity is remeasured to fair value on the acquisition date. Any gains or losses arising from such re-measurement are recognised in profit or loss. (C) FOREIGN CURRENCY TRANSLATION (i) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates at the date of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at year end exchange rates are generally recognised in profit or loss. They are deferred in equity if they relate to qualifying cash flow hedges or are attributable to part of the net investment in a foreign operation. Foreign exchange gains or losses that relate to borrowings are presented in the statement of profit or loss, within finance costs. All other foreign exchange gains and losses are presented in the statement of profit or loss on a net basis within other income or other expenses. Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Translation differences on assets and liabilities carried at fair value are reported as part of the fair value gain or loss in profit or loss and OCI. (ii) Investments in foreign operations The results and financial position of foreign operations that have a functional currency different from the presentation currency are translated into the presentation currency as follows: • assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet; • income and expenses for each statement of profit or loss and statement of comprehensive income are translated at the average exchange rates or the exchange rate at the date of the transaction if considered more appropriate; and • all resulting exchange differences are recognised in OCI. On consolidation, exchange differences arising from the translation of any net investment in foreign entities and of borrowings are recognised in OCI. When a foreign operation is sold or any borrowings forming part of the net investment are repaid, the associated exchange differences are reclassified to profit or loss, as part of the gain or loss on sale. Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the closing rate. 130 Helloworld Travel Ltd Annual Report 2021Helloworld Travel Limited Annual Report 2021helloworldlimited.com.au (D) REVENUE RECOGNITION The principal activities of the Group are those of acting as an agent for tour, travel and accommodation suppliers for which the Group earns revenue, predominantly in the form of commissions. Revenue is recognised when the performance obligations under the relevant revenue contracts have been met. The specific accounting policies for the Group’s key revenue streams are outlined below: (i) Commissions Commissions consist of at source commissions and override commissions which are based on achievement of volume based sales targets with specific airline and leisure partners. The Group acts in the capacity of an agent rather than principal with the facilitation of tour, travel and accommodation services as the Group’s customer is a travel agent or supplier. As a result, commission revenue is recognised as the net amount of commission received or receivable by the Group. The revenue policy for the various types of commissions across the Group is outlined below: At source commissions - retail and travel management businesses The Group’s retail and travel management businesses receive at source commission from suppliers for the arrangement of travel, tours and travel related products. Revenue is recognised at the point of time when tickets, itineraries or travel documents are issued (ticketed date) as this is when the performance obligation is met to the travel agent or supplier. At source commissions - Wholesale and Inbound The Group’s wholesale business work with hotels, transportation providers (air, rail and cruise) and attractions to purchase individual travel components from them at agreed rates. Those components are packaged into marketable holiday travel packages and tours for the travel leisure market to local and overseas destinations. The commission revenue recognised is the margin received between the arranged purchase price of travel products and the retail price of the holiday package, net of commissions paid to travel agents. Revenue is recognised at the point of time when all aspects of holiday packaged travel, including booking, ticketing and management amendments have been arranged (departure date), as this is when the performance obligation has been met to the travel agent or supplier. The Group’s Inbound business in Australia, New Zealand and Fiji receive at source commission for the arrangement of airline tickets, tours and travel. Revenue is recognised at the point of time when the traveller’s tour or travel has commenced (departure date) as this is when the performance obligation has been met to the travel agent or supplier. Other types of at source commissions The Group also receives commissions from sales of travel related products such as insurance, foreign currency purchasing services and incentives from suppliers. These commissions are recognised as revenue at a point of time on an accrual basis when the performance obligation is met and the amount can be reliably measured. Override commission revenue The Group also receives variable consideration in relation to the above performance obligations in the form of volume based override commissions from airline and leisure partners across the air, land and cruise travel products sold. Generally, override commissions are only received on departed travel sales (for air and cruise) or on commencement of hotel stays (for land). On this basis, revenue is recognised on departure date or commencement date as this reflects the point in time when this variable consideration is highly probable of not being subject to significant reversal. Each supplier has separate contractual agreements with the Group and the contractual rates, performance tiers and contract periods vary accordingly. Override commission revenue is calculated and recognised using the applicable tiered earning rates per the agreements. (ii) Transaction and service fees The Group’s travel management businesses charge customers a transaction fee when travel arrangements are booked through either the Group’s online system or using a travel management consultant. Transaction fees are levied in accordance with their contractually agreed rates for the type of product booked. Transaction and service fees are recognised as revenue at the point of time when tickets are issued (ticketed date) as this is when the performance obligation is met to the consumer for the booking of travel arrangements and the transaction price is fixed. Where amendments occur after the initial transaction, these are treated separately and additional transaction fees will apply. 131 131 helloworldlimited.com.auHelloworld Travel Limited Annual Report 2021helloworldlimited.com.au F I N A N C I A L STAT E M E N T S (iii) Marketing related activities The Group receives contributions from suppliers to compensate for the costs incurred in relation to the production of brochures, in relation to marketing campaigns and activities, and for travel conferences organised by the Group. Revenue is recognised at a point of time when the marketing related activity is undertaken as the performance obligation to the supplier has been met. (iv) Other revenue from contracts with customers Other revenue from contracts with customers consists of franchise fees generated across the rental distribution network, transport and logistics revenue generated in the corporate business in Australia, the tourist transport business in Fiji and revenue generated from the operation of call centres to support various COVID-19 contact tracing programmes. Franchise fees mainly consist of network fees and information technology service fees relating to services provided to the Group’s retail network members. Network membership fees are recognised over a period of time on a straight line basis over the life of the contract and information technology service fees are recognised over time when the services are undertaken. Revenue for transport and logistics services is recognised at a point of time on a gross basis as the Group is acting as the principal in the delivery of the service and performance obligation to the customer. 132 (v) Other revenue Other revenue consists primarily of finance income earned from cash and term deposits and sundry income relating to all other ancillary income. Rental income is recognised over a period of time based on the term of the lease. Finance income and sundry income are recognised on an accrual basis at a point of time. (E) CASH AND CASH EQUIVALENTS Cash and cash equivalents include cash at bank and in hand and short term deposits that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Interest income is earned on cash and term deposits and is recognised on an accrual basis in the statement of profit or loss. Restricted cash includes cash held within legal entities of the Group that have International Air Transport Association (IATA) requirements as part of providing ticketing travel arrangements. (F) TRADE RECEIVABLES Trade receivables relate to contracts with customers and are recognised initially at the transaction price of the amount of consideration that is unconditional. The Group holds trade receivables with the objective to collect the contractual cash flows and therefore measures them subsequently at amortised cost using the effective interest rate method, less any loss allowance. Trade receivables are generally collected within 7 to 30 days from the date of invoice. They are presented as current assets unless collection is not expected within 12 months from the reporting date. Bad debts are written off as incurred. Non-current receivables are carried at the present value of future net cash inflows expected to be received. Collectability of receivables (including accrued revenue) is reviewed on an ongoing basis at an operating business unit level. Individual debts that are known to be uncollectable are written off when identified. The Group applies the simplified approach to measuring expected credit losses which, uses a lifetime expected loss allowance for receivables. To measure the expected credit losses, receivables are grouped based on shared credit risk characteristics and days past due. 132 Helloworld Travel Ltd Annual Report 2021Helloworld Travel Limited Annual Report 2021helloworldlimited.com.au The expected loss rates applied to receivables at 30 June are based on historical loss rates adjusted to reflect current and forward looking market factors. The loss allowance is recognised in profit or loss within operating expenses. Subsequent recoveries of amounts previously written off are recognised within operating expenses in profit or loss. (G) ACCRUED REVENUE Accrued revenue relates to amounts owed to the Group at balance sheet date that have not yet been invoiced to the customer or received as cash from the customer. The Group’s accrued revenue mainly relates to the estimate of conditional override commission revenue earned during the respective customer contract period but not yet invoiced at balance date. In addition, accrued revenue includes other unconditional commission revenue earned, but not yet invoiced from the passage of time. (H) PREPAYMENTS Prepayments consist of travel products purchased prior to revenue recognition of the associated travel booking and prepaid operating expenditure. (I) PROPERTY, PLANT AND EQUIPMENT 133 Property, plant and equipment is measured at cost less accumulated depreciation and any accumulated impairment losses. Cost includes any expenditure that is directly attributable to the acquisition of property, plant and equipment. Any gain or loss on disposal of an item of property, plant and equipment is recognised in profit or loss. Depreciation is calculated to allocate the cost of items of property, plant and equipment (less their estimated residual values) using the straight-line method over their estimated useful lives and is recognised in profit or loss. Leasehold improvements are depreciated over the shorter of the lease term or their useful lives unless it is reasonably certain that the Group will obtain ownership by the end of the lease term or extend the initial lease term. Land is not depreciated. The estimated useful lives of property, plant and equipment for current and comparative periods are as follows: • Land and buildings • Equipment including motor vehicles • Leasehold improvements 40 years 2.5 to 10 years 5 to 10 years Depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate. (J) INTANGIBLE ASSETS (i) Goodwill Goodwill on acquisition of subsidiaries is included in intangible assets and the goodwill measurement policy is outlined in note 40(b). Goodwill is not amortised but tested for impairment annually, or more frequently if events or changes in circumstances indicate that it might be impaired and is carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is allocated to cash generating units (CGUs) for impairment testing purposes. The allocation is made to those CGUs or groups of CGUs that are expected to benefit from the business combination in which the goodwill arose. 133 helloworldlimited.com.auHelloworld Travel Limited Annual Report 2021helloworldlimited.com.au F I N A N C I A L STAT E M E N T S (ii) Other intangible assets Intangible assets acquired separately or in a business combination are initially measured at cost. The cost of an intangible asset acquired in a business combination is its fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses (where applicable). The useful lives of intangible assets are assessed to be either finite or indefinite. The following intangible assets are considered finite life intangible assets. They are amortised using the straight-line method over the following periods: • Commercial agreements • Brand names and trademarks • Technology assets Customer bases 5 to 12 years 7 to 20 years 2.5 to 10 years 8 years Amounts paid for the development of software and website intangible assets are capitalised only when the following criteria are met: • the technical feasibility of completing the intangible asset is confirmed, so that it will become available for use or sale; • management intends on completing the intangible asset for use or sale; • the business has the ability to use or sell the intangible asset; • it is established how the intangible asset will generate probable future economic benefits. Among other things, including being able to demonstrate the existence of a market for the intangible asset or, if it is to be used internally, the usefulness of the intangible asset to the business; and • management can reliably measure the expenditure attributable to the intangible asset during its development. 134 Costs capitalised include external direct costs of materials and service, and direct payroll and payroll related costs of employees’ time spent on the project. Intangible assets with finite lives are tested for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for intangible assets with a finite useful life are reviewed at least at each financial year end. Retail distribution systems and the AOT agent network asset are considered indefinite life intangible assets. Intangible assets with indefinite useful lives are not amortised but are tested for impairment annually on an individual basis. The indefinite life assumption of an intangible asset is reviewed each reporting period to determine whether the indefinite life assessment continues to be supportable. If not, the change in the useful life assessment from indefinite to finite is accounted for as a change in an accounting estimate and is applied prospectively. (K) INVESTMENTS AND OTHER FINANCIAL ASSETS Financial assets measured at amortised cost and fair value through OCI are initially measured at fair value plus directly attributable transaction costs. Financial assets measured at fair value through profit or loss are initially measured at fair value. Investments and other financial assets are classified, at initial recognition, and subsequently into the following measurement categories, financial assets at amortised cost, fair value through profit or loss or fair value through OCI. The initial and subsequent classification depends on the Group’s business model for managing the financial assets and the contractual terms of the cash flows. • Amortised cost – relates to assets that are held for collection of contractual cash flows where those cash flows represent solely payments of principal and interest. Assets are subsequently measured using the effective interest rate method and are subject to impairment. Gains and losses are recognised in profit or loss when the asset is derecognised, modified or impaired. • Fair value through profit or loss – relates to assets that are not held for collection of contractual cash flows nor held to sell at a future date. As a result, the assets that do not meet the criteria for amortised cost or fair value through OCI are subsequently measured at fair value. Gains and losses are recognised net in the profit or loss in the period in which they arise. • Fair value through OCI – relates to assets that are held for collection of contractual cash flows where those cash flows represent solely payments of principal and interest, and held to sell at a future date. Assets are subsequently measured at fair value with movements in the carrying amount recognised in other comprehensive income, except for impairment, interest income and foreign exchange gains or losses which are recognised in the profit or loss. When a financial asset is derecognised, the gain or loss is reclassified from equity to the profit or loss. Purchases and sales of financial assets are recognised on the trade date, that is, the date that the Group commits to purchase or sell the asset. Financial assets are derecognised when the right to receive cash flows from the financial assets has expired or been transferred and the Group has transferred substantially all the risks and rewards of ownership. 134 Helloworld Travel Ltd Annual Report 2021Helloworld Travel Limited Annual Report 2021helloworldlimited.com.au (L) IMPAIRMENT OF NON FINANCIAL ASSETS Goodwill and intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Other non financial assets including property, plant and equipment, are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss relating to non financial assets is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs of disposal and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or CGUs. Non financial assets, other than goodwill, that were impaired are reviewed for possible reversal of the impairment at the end of each reporting period. (M) TRADE AND OTHER PAYABLES Trade and other payables represent liabilities for goods and services provided to the Group prior to the end of the financial year which are unpaid. They include amounts owing to participating retail travel agents under the Group’s incentive program, reported within selling expenses in the statement of profit or loss and OCI, which is assessed based on the volume of completed sales made with designated preferred suppliers of the Group. Trade and other payables are unsecured and are normally settled within 7 to 30 day payment terms from the date of invoice. Trade and other payables are presented as current liabilities unless payment is not due within 12 months after the reporting period. They are recognised initially at their fair value and subsequently measured at their amortised cost. (N) LEASES (i) Nature of leasing activities The Group has leases relating to commercial office premises, retail properties and motor vehicles. The Group’s leases are typically for fixed periods between 3 to 10 years and may include extension options. Lease terms are negotiated on an individual lease basis and contain a wide range of different terms and conditions. None of the Group’s lease agreements impose any covenants, however leased assets may not be used as security for borrowing purposes. 135 (ii) Measurement and recognition The Group determines whether a contract contains a lease on the basis of whether the customer has the right to control the use of an identified asset for a period of time in exchange for consideration. Upon determining the contract is a lease, the Group applies a single recognition and measurement approach for all leases, except for short term leases and leases of low value assets. A right of use asset representing the right to use the underlying asset and a corresponding lease liability representing the obligation to make lease payments are recognised at the date at which the leased asset is available for use by the Group. Right of use asset The right of use asset is measured at cost, comprising the following: • initial measurement of the lease liability; • lease payments made in advance of the lease commencement date less any incentives received; • initial direct costs; and • estimate of any costs to dismantle and remove the asset at the end of the lease. The Group depreciates the right of use assets on a straight line basis from the lease commencement date to the earlier of the end of the useful life of the right of use asset or the end of the lease term. The Group also assesses the right of use assets for impairment when such indicators exist, refer note 40(l) impairment of non financial assets for more information. Subsequent to initial measurement, when the lease liability is remeasured, a corresponding adjustment is made to the value of the right of use asset, or the profit and loss statement if the right of use asset is already reduced to zero. 135 helloworldlimited.com.auHelloworld Travel Limited Annual Report 2021helloworldlimited.com.au F I N A N C I A L STAT E M E N T S Subsequent to initial measurement, when the lease liability is remeasured, a corresponding adjustment is made to the value of the right of use asset, or the profit and loss statement if the right of use asset is already reduced to zero. Lease liability At the lease commencement date, the Group measures the lease liability at the present value of the lease payments unpaid at that date, discounted using the interest rate implicit in the lease where that rate is readily available or using the Group’s incremental borrowing rate for the respective period the lease was entered. Lease payments included in the measurement of the lease liability consist: • fixed payments less any incentives receivable; • variable payments based on an index or rate; • amounts expected to be payable under a residual value guarantee; and • payments arising from options reasonably certain to be exercised. 136 On initial recognition of the right of use asset and the lease liability, a corresponding deferred tax asset and deferred tax liability are recognised to reflect the temporary differences that arise. Subsequent to initial measurement, the liability is reduced for payments made and increased for interest incurred. The liability is remeasured to reflect any reassessment or modification, or if there are changes relating to in-substance fixed payments. In addition, the liability is adjusted when an index or rate change takes effect resulting in an increase in variable lease payments. Lease payments are allocated between principal and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. Helloworld Travel has elected to use the practical expedient available under Amendments to Australian Accounting Standards – COVID-19-Related Rent Concessions when recognising rent concessions received from certain landlords as a direct result of the COVID-19 pandemic. Helloworld Travel has elected to not assess whether rental concessions have resulted in a lease modification. Rent concessions that have not resulted in a lease modification, are considered variable lease payments. The difference between the remeasurement of the lease liability and the right of use asset is recognised within occupancy expenses in the consolidated statement of profit or loss and other comprehensive income. (iii) Incremental borrowing rate The Group cannot determine the interest rate implicit in the lease, therefore, the Group’s estimated incremental borrowing rate has been used to measure lease liabilities. The incremental borrowing rate 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 Group has estimated the incremental borrowing rate using market based interest rates adjusted for entity specific conditions. (iv) Variable lease payments Variable lease payments that do not depend on an index or a rate are recognised as expenses (unless they are incurred to produce inventories) in the period in which the event of condition that triggers the payment occurs. 136 Helloworld Travel Ltd Annual Report 2021Helloworld Travel Limited Annual Report 2021helloworldlimited.com.au (v) Short term leases and leases of low value assets The Group has elected to apply the recognition exemptions to short term leases and leases of low value assets available under AASB 16. Instead of recognising a right of use asset and lease liability, the payments in relation to these are recognised as an expense in profit or loss on a straight line basis over the lease term. Short term leases are leases with a lease term of 12 months or less. Low value assets comprise small items of office and information technology related equipment. (vi) Extension and termination options Extension and termination options are included in a number of the Group’s property leases. These extension options are at the discretion of Helloworld and provide management with the flexibility to manage the leased-asset portfolio in line with the Group’s needs. Extension options (or periods after termination options) are only included in the lease term if the lease is reasonably certain to be extended (or not terminated). (O) EMPLOYEE BENEFITS (i) Short term employee benefits 137 Liabilities for wages and salaries, short term bonuses and annual leave (that are expected to be settled wholly within 12 months after the end of the period in which the employees render the related service) are recognised in respect of employees’ services up to the end of the reporting period and are measured at the amounts expected to be paid when the liabilities are settled. The annual leave liability is presented as current employee benefit obligations in the balance sheet. All other short term employee benefit obligations are presented as payables. (ii) Long term employee benefits The liability for long service leave is not expected to be settled wholly within 12 months after the end of the period in which the employees render the related service. It is therefore measured as the present value of expected future payments to be made in respect of services provided by employees up to the end of the reporting period. The fair value of long term employee benefits is determined using the expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the end of the reporting period of high quality corporate bonds that match, as closely as possible, the estimated future cash outflows. Remeasurement from experience adjustments and changes in assumptions are recognised in profit or loss. The 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. (iii) Share based payments Share based compensation benefits are provided in the form of the omnibus Incentive plan, loan funded share instruments (long term incentive plan) to employees and a deferred share scheme (franchise loyalty plan) to franchisees. Information relating to these schemes is set out in note 37: share based payments. 137 helloworldlimited.com.auHelloworld Travel Limited Annual Report 2021helloworldlimited.com.au F I N A N C I A L STAT E M E N T S Long term incentive plan and franchise loyalty plan The fair value of the share based payments for the loan funded LTIP and the franchise loyalty plan are recognised as an employee benefits expense or operating cost respectively with a corresponding increase in equity in the share based payment reserve. The total amount to be expensed is determined by reference to the fair value of the instrument granted as follows: • including any market performance conditions such as share price; • excluding the impact of any service and non-market performance vesting conditions such as employees achieving certain KPIs; and • including the impact of any non-vesting conditions. The total expense is recognised over the vesting period, which is the period over which all the specified vesting conditions are to be satisfied. At the end of each period, the Group revises its estimates of the number of instruments that are expected to vest based on the non-market vesting conditions and service conditions. It recognises the impact of the revision to the original estimates, if any, in profit or loss, with a corresponding adjustment to equity. 138 When the instrument vests, the Company releases the holding restrictions on the appropriate amount of shares for the employee or franchisee. The proceeds received (if any) net of any directly attributable transactions costs are recognised directly to equity. Omnibus incentive plan The fair value of the share based payments for omnibus incentive plan is recognised as an employee benefits expense with a corresponding increase in equity in issued capital. The total amount expensed is determined by reference to the fair value of the instrument granted on the grant date. The instruments issued under the omnibus incentive plan have no conditions that impact the fair value of the shares. (iv) Defined contribution plans The Group pays contributions to publicly or privately administered pension insurance plans on a mandatory, contractual or voluntary basis. The Group has no further payment obligations once the contributions have been paid. The contributions are recognised as employee benefit expense when they are due. Prepaid contributions are recognised as an asset to the extent that a cash refund or reduction in future payments is available. (v) Termination benefits Termination benefits are expensed at the earlier of when the Group is demonstrably committed to either terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal or to providing termination benefits from an offer made to encourage voluntary redundancy. Benefits falling due more than 12 months after the end of the reporting period are discounted to present value. 138 Helloworld Travel Ltd Annual Report 2021Helloworld Travel Limited Annual Report 2021helloworldlimited.com.au (P) PROVISIONS Provisions are recognised when the Group has a present legal or constructive obligation arising from past events, it is probable that an outflow of resources will be required to settle the obligation and the amount can be reliably estimated. Provisions are not recognised for future operating losses. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small. Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at the end of the reporting period. The discount rate used to determine the present value is a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The increase in the provision due to the passage of time is recognised as finance expense. Dividends are only recognised in the financial year in which the dividend is paid as the decision to pay a dividend may be revoked by the Board at any time before payment. (Q) DEFERRED REVENUE The Group receives monies from customers prior to the travel booking finalisation, which are recorded in the statement of financial position as deferred revenue. At the end of each financial year, the amount recorded on the balance sheet consists of monies that Helloworld Travel will pay its suppliers for the purchase of travel products in the next financial year and the revenue commission that will be earned in the future. The revenue commission from these transactions will be released to the profit or loss in the next financial year in accordance with the revenue recognition policy outlined in note 39 (d). 139 (R) BORROWINGS Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in profit or loss over the period of the borrowings using the effective interest method. Establishment fees of the loan facilities are recognised as borrowing costs of the loan as the facility has been drawn down. The establishment fees are netted against the borrowings and amortised on a straight line basis over the term of the facility. As a result, finance expense in the consolidated statement of profit or loss includes interest expense recorded on an accrual basis and the unwinding of the deferred borrowing costs. Borrowings are removed from the balance sheet when the obligation specified in the contract is discharged, cancelled or expired. The difference between the carrying amount of a financial liability that has been extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognised in the consolidated statement of profit or loss. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting period. 139 helloworldlimited.com.auHelloworld Travel Limited Annual Report 2021helloworldlimited.com.au F I N A N C I A L STAT E M E N T S (S) DERIVATIVES AND HEDGING ACTIVITIES The Group holds derivative financial instruments to hedge its foreign currency exposures. Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured to their fair value at the end of each reporting period. The accounting for subsequent changes in fair value depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Group designates certain derivatives as a hedge of its foreign currency exposures. The Group documents at the inception of the hedging transaction the economic relationship between the hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions have been and will continue to be highly effective in offsetting changes in cash flows of hedged items. Cash flow hedges The effective portion of changes in the fair value of derivatives, that are designated and qualify as cash flow hedges are recognised in OCI and accumulated in reserves in equity. The gain or loss relating to the ineffective portion is recognised immediately in the consolidated statement of profit or loss. Amounts accumulated in equity are reclassified to profit or loss in the periods when the hedged item affects profit or loss. When the hedged item is a non-financial asset, the amount recognised in OCI is transferred to the carrying amount of the asset when the asset is recognised. When a hedging instrument expires or is sold or terminated, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in profit or loss. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately reclassified to profit or loss. 140 (T) INCOME TAX Income tax expense or credit for the period is the tax payable on the current period’s taxable income based on the applicable income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses. The current income tax charge is calculated on the tax laws enacted or substantively enacted at the end of the reporting period in the countries where the company’s subsidiaries and associates operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the amounts expected to be paid to the tax authorities. Deferred income tax is provided in full, using the liability method, on temporary differences arising between tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill. Deferred income tax is also not accounted for if it arises from initial recognition of an asset or liability in a transaction, other than a business combination, that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the end of the reporting period and are expected to apply when the related deferred tax asset is realised or the deferred income tax liability is settled. Deferred tax assets are recognised only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of investments in foreign operations where the company is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset when the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. Current and deferred tax is recognised in profit or loss, except to the extent that it relates to items recognised in OCI or directly in equity. In this case, the tax is also recognised in OCI or directly in equity, respectively. 140 Helloworld Travel Ltd Annual Report 2021Helloworld Travel Limited Annual Report 2021helloworldlimited.com.au (i) Tax consolidation legislation Helloworld Travel Limited and its wholly owned Australian controlled entities have implemented the tax consolidation legislation. The head entity, Helloworld Travel Limited, and its 100% wholly-owned subsidiaries in the Australian income tax consolidated group account for their own current and deferred tax amounts. These tax amounts are measured as if each entity in the Australian income tax consolidated group continues to be a standalone taxpayer. In addition to its own current and deferred tax amounts, Helloworld Travel Limited also recognises the current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled entities in the Australian income tax consolidated group where applicable. (ii) Nature of tax funding arrangements and tax sharing agreements Helloworld Travel Limited, in conjunction with the other 100% wholly owned subsidiary members of the Australian income tax consolidated group, has entered into a tax funding arrangement which sets out the funding obligations of members of the Australian income tax consolidated group in respect of the Group’s tax liability. The tax funding arrangements require payments to/from the head entity equal to the current tax liability/(asset) assumed by the head entity and any deferred tax asset relating to tax loss be assumed by the head entity, resulting in the head entity recognising an intercompany receivable/(payable) equal in amount to the tax liability/(asset) assumed. The intercompany receivable/(payable) is at call. The amounts receivable/payable under the tax funding arrangement are due upon receipt of the funding advice from the head tax entity, which is issued as soon as practicable after the end of each financial year. The head tax entity may also require payment of interim funding amounts to assist with its obligations to pay tax instalments. Assets or liabilities arising from the tax funding agreement with Helloworld Travel are recognised as a current amount receivable or payable to Helloworld Travel. Any difference in the amounts assumed and the amount receivable or payable to Helloworld Travel, are shown as a contribution to, (or distribution from) the head tax entity Helloworld Travel in the results of the individual legal entities. Contributions to fund the current tax liabilities are payable as per the tax funding arrangements and reflect the timing of the head entity’s obligation to make payments for tax liabilities to the relevant tax authorities. 141 The head entity, in conjunction with the other members of the Australian income tax consolidated group, has also entered into a tax sharing arrangement which provides for the determination of the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations. No amounts have been recognised in the financial statements in respect of this agreement, as payment of any amounts by subsidiary members under the tax sharing agreement is considered remote. (iii) Goods and Services Tax (GST) Revenues, expenses and assets are recognised net of the amount of GST except where the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position. Cash flows are included in the statement of cash flows on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority is classified as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable, or payable to, the taxation authority. (U) ISSUED CAPITAL Ordinary shares are classified as issued capital within equity. Incremental costs directly attributable to the issue of new shares or options are shown in issued capital as a deduction, net of tax (unrecoverable GST), from the proceeds. 141 helloworldlimited.com.auHelloworld Travel Limited Annual Report 2021helloworldlimited.com.au F I N A N C I A L STAT E M E N T S (V) EARNINGS PER SHARE (EPS) Basic EPS amounts are calculated by dividing net profit/loss for the year attributable to ordinary equity holders of the parent entity by the weighted average number of ordinary shares outstanding during the year. Diluted EPS adjusts the weighted average number of additional ordinary shares that would have been outstanding assuming the conversion of all dilutive potential ordinary shares. (W) PARENT ENTITY FINANCIAL INFORMATION The financial information for the legal parent entity, Helloworld Travel Limited is disclosed in note 34: parent entity information and has been prepared on the same basis as described in the Group policies, except as set out below. • investment in subsidiaries and associates are accounted for at cost; and • where Helloworld Travel Limited has provided financial guarantees in relation to loans and payables of subsidiaries for no compensation, the fair values of these guarantees are accounted for as contributions and recognised as part of the cost of investment. 142 142 Helloworld Travel Ltd Annual Report 2021Helloworld Travel Limited Annual Report 2021helloworldlimited.com.au DIRECTORS’ DECLARATION I N T H E D I R E C TO R S ’ O P I N I O N : (a) The consolidated financial statements and notes that are set out on pages 64 to 142 are in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Group’s financial position as at 30 June 2021 and of its performance for the year ended on that date; and (ii) complying with Australian Accounting Standards (including the Australian Accounting Interpretations), other mandatory professional reporting requirements and the Corporations Regulations 2001; and (b) There are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable; and (c) At the date of this declaration there are reasonable grounds to believe that the Company and the Group entities identified in note 32 will be able to meet any obligations or liabilities to which they are or may become subject to by virtue of the deed of cross guarantee described in note 34 between the Company and those Group entities pursuant to ASIC Corporations (Wholly-owned Companies) Instrument 2016/785. 143 Note 1 confirms that the consolidated financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board. The Directors have been given the declarations by the Chief Executive Officer and Chief Financial Officer required by section 295A of the Corporations Act 2001. This declaration is made in accordance with a resolution of the directors. Garry Hounsell Chairman, Helloworld Travel Limited Melbourne, 6 September 2021 143 helloworldlimited.com.auHelloworld Travel Limited Annual Report 2021helloworldlimited.com.au I N D E P E N D E N T A U D I TO R ' S R E P O RT Ernst & Young 8 Exhibition Street Melbourne VIC 3000 Australia GPO Box 67 Melbourne VIC 3001 Tel: +61 3 9288 8000 Fax: +61 3 8650 7777 ey.com/au 144 Independent auditor’s report to the members of Helloworld Travel Limited Report on the Audit of the Financial Report Opinion We have audited the financial report of Helloworld Travel Limited (the Company) and its subsidiaries (collectively the Group), which comprises the consolidated statement of financial position as at 30 June 2021, the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, 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: a. Giving a true and fair view of the consolidated financial position of the Group as at 30 June 2021 and of its consolidated financial performance for the year ended on that date; and b. 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 (including Independence Standards) (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 believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial report of the current year. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, but we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context. We have fulfilled the responsibilities described in the Auditor’s responsibilities for the audit of the financial report section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial report. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying financial report. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 144 Helloworld Travel Ltd Annual Report 2021Helloworld Travel Limited Annual Report 2021helloworldlimited.com.au Liquidity risk and going concern basis of accounting Why significant How our audit addressed the key audit matter The COVID-19 pandemic continues to impact the operations and financial performance of the Group and there is ongoing uncertainty as to when activity within the travel and tourism sectors will return to levels achieved before the onset of the outbreak. As described in Note 1 of the Financial Report, the Financial Statements of the Group have been prepared on a going concern basis, which assumes that the Group will continue to meet its commitments, realise its assets and settle its liabilities in the ordinary course of business. Note 1 (c) outlines the key considerations used when assessing the Group’s ability to continue as a going concern. This assessment includes available cash and borrowing facilities, borrowing terms including covenants and forecast cashflows for the next 12 months. Note 19 outlines the drawn and available debt facilities as at 30 June 2021 and the key terms associated with these facilities. Assessing the appropriateness of the going concern basis of preparation for the Financial Statements was a key audit matter due to the level of judgement required in assessing the Group’s forecast cashflows (for a period of at least 12 months from the date of signing the financial report) and the importance of this assessment to the presentation of the Financial Statements as a whole. ► We checked that the period covered by the Group’s going concern assessment was for at least 12 months from the date of signing the financial report and that all relevant information based on our knowledge of the Group was included in the assessment undertaken. ► We read the terms of the Group’s debt financing arrangements, including covenant waivers as described in Note 1 (c) and checked that forecasts used to support compliance within the next twelve months had been prepared in accordance with the requirements of these arrangements. ► We assessed the forecast cashflow assumptions used by management to test compliance with future covenants. This assessment included consideration of available external industry information, historical results and cost control and productivity initiatives undertaken by the Group. ► We assessed the sensitivity of management’s forecast cashflows to a range of possible scenarios resulting from the ongoing uncertainty caused by the COVID-19 pandemic. ► We compared significant inputs and assumptions used in cashflow forecasts with those utilised in the Group’s impairment analysis. ► We tested compliance with debt financing covenants which were in place throughout the year ended 30 June 2021. ► We enquired of management and the Board of Directors as to their knowledge of events or conditions which may cast significant doubt on the Group’s ability to continue as a going concern. ► We evaluated the adequacy of the Group’s going concern disclosures included in Note 1 of the financial report. 145 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 145 helloworldlimited.com.auHelloworld Travel Limited Annual Report 2021helloworldlimited.com.au I N D E P E N D E N T A U D I TO R ' S R E P O RT Impairment Assessment of non-current assets (including equity accounted investments) Why significant How our audit addressed the key audit matter As described above, the COVID-19 pandemic continues to impact the operations and financial performance of the Group and there is ongoing uncertainty as to when activity within the travel and tourism sectors will return to levels achieved before the onset of the outbreak. Note 15 discloses information on goodwill and other intangible assets recognised by the Group as at 30 June 2021. Note 12 discloses information on the Group’s investments accounted for using the equity method of accounting. ► We assessed the Group’s determination of the cash generating units (CGUs) used for their impairment assessment based on the requirements of Australian Accounting Standards. ► We developed an understanding of the process undertaken by the Group in preparing discounted cash flow models used to estimate the recoverable value of CGUs, including how key assumptions (described in Note 15) were derived. ► We assessed the Group’s future cash flow forecasts used to estimate recoverable value, which included: The impairment assessment of the Group’s cash generating units (CGUs) and material equity accounted investments was a key audit matter due to the value of these assets as a proportion of total assets and the extent of estimation uncertainty involved in the assessment, particularly in relation to the impacts of the COVID-19 pandemic on the forecast future cashflows. 146 ▪ Assessment of the mechanical accuracy of the cash flow models. ▪ Assessment as to whether the allocation of assets (including goodwill) to CGUs was appropriate based on our knowledge of the Group’s operations. ▪ Assessment of the basis of allocating corporate costs and overheads to CGUs. ▪ ▪ Evaluation of the Group’s forecast recovery path (considering the potential impacts of government and other measures to address the COVID-19 pandemic) and expected financial performance to FY26 using external industry forecasts and internal historical data. Involvement of our valuation specialists to evaluate the key assumptions applied within the impairment models including terminal growth rates, discount rates, Total Transaction Value (TTV), margin, capital expenditure forecasts and working capital requirements. ▪ Assessment of the sensitivity of forecasts to movements in key assumptions to ascertain the extent of change in those assumptions that would either individually or collectively result in an impairment charge at an individual CGU level (or collection of CGUs where appropriate). ► We performed market capitalisation and earnings multiples cross checks in comparison with other comparable businesses to corroborate the impairment testing model outcomes. ► We evaluated the adequacy of the disclosures included within Note 15. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 146 Helloworld Travel Ltd Annual Report 2021Helloworld Travel Limited Annual Report 2021helloworldlimited.com.au Revenue recognition, including deferred revenue and accrued revenue Why significant How our audit addressed the key audit matter The Group earns revenue from the provision of travel and travel related services as outlined in Note 2. Significant judgement is required in the recognition of commissions and transaction and service fees which required: ► Assessment of the timing and satisfaction of performance obligations to customers. ► Recognition and measurement of accrued revenue for services provided but not yet invoiced. ► Recognition, measurement and classification of deferred revenue where monies have been received but services not yet rendered. ► Assessing the likelihood of future significant revenue reversals and therefore the need for any revenue deferral (particularly in response to the ongoing impacts of the COVID-19 pandemic). The accuracy of amounts recorded as revenue was a key audit matter due to the number of systems used by the Group in recording and processing transactions, the differing nature of performance obligations for products and services offered to customers and the ongoing impact of the COVID-19 pandemic on the Group’s revenue. ► We assessed the Group’s accounting policies for each material revenue stream, as set out in Note 39 (d), against the requirements of Australian Accounting Standards. ► We obtained an understanding of the processes implemented by the Group to record and process revenue transactions, including where appropriate, evaluation of the design and operating effectiveness of key controls. ► For a sample of revenue transactions recorded during the year, we obtained supporting evidence such as customer and supplier contracts, travel documents, supplier statements and evidence of customer payment and supplier payment. Based on this information we evaluated whether revenue or accrued revenue had been recognised in accordance with the Group’s stated accounting policies. ► For a sample of deferred revenue balances, we evaluated the accuracy and appropriateness of the classification of amounts recognised where obligations to customers had not been met (such as where travel had not yet availed) or there was a significant chance of a future reversal. We evaluated the adequacy of disclosures set out in Note 2. Information other than the financial report and auditor’s report thereon The directors are responsible for the other information. The other information comprises the information included in the Company’s 2021 Annual Report, but does not include the financial report and our 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, with the exception of the Remuneration Report and our related assurance opinion. In connection with our audit of the financial report, our responsibility is to read the other information 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 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 147 147 helloworldlimited.com.auHelloworld Travel Limited Annual Report 2021helloworldlimited.com.au I N D E P E N D E N T A U D I TO R ' S R E P O RT 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 Group’s ability to continue as a going concern, disclosing, as applicable, matters relating 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. As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgment and maintain professional scepticism throughout the audit. We also: ► Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. 148 ► Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. ► Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. ► Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. ► Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation. ► Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial report. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion. We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 148 Helloworld Travel Ltd Annual Report 2021Helloworld Travel Limited Annual Report 2021helloworldlimited.com.au From the matters communicated to the directors, we determine those matters that were of most significance in the audit of the financial report of the current year and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on the audit of 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 2021. In our opinion, the Remuneration Report of Helloworld Travel Limited for the year ended 30 June 2021, complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. 149 Ernst & Young Brett Croft Partner Melbourne 6 September 2021 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 149 helloworldlimited.com.auHelloworld Travel Limited Annual Report 2021helloworldlimited.com.au ASX ADDITIONAL INFORMATION Additional information required by ASX and not shown elsewhere in this report is as follows. The information is current as at 30 July 2021. (A) DISTRIBUTION OF EQUITY SECURITIES SHARE RANGE 1 - 1,000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001 and over TOTAL Number of holders 3,717 3,105 741 680 62 8,305 Number of shares 1,898,926 7,834,742 5,643,848 17,365,822 122,284,507 155,027,845 % 1.22 5.05 3.64 11.20 78.89 100.00 All issued ordinary shares carry one vote per share and carry the right to dividends. The number of holders holding a less than marketable parcel of ordinary shares based on the market price as at 30 July 2021 was 1,194 holders holding 223,591 shares. (B) TWENTY LARGEST HOLDERS OF QUOTED EQUITY SECURITIES The names of the 20 largest registered holders of quoted shares are: 150 ORDINARY SHAREHOLDERS SINTACK PTY LTD THE BURNES GROUP PTY LTD Q H TOURS Limited J P MORGAN NOMINEES AUSTRALIA PTY LIMITED ANDREW JAMES BURNES CINZIA BURNES HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED NATIONAL NOMINEES LIMITED CITICORP NOMINEES PTY LIMITED JOHN ARMOUR LONGBUSH NOMINEES PTY Limited BELDISHA PTY Limited SHAUN REID BNP PARISBAS NOMINEES PTY Limited ANDREW JONES & KAREN JONES HIGHLIFE COMPANY (AUST) PTY Limited CROWNACE PTY Limited TREVOR E JONES & SONIA L JONES GHASSAN BEYDOUN SUIQING BAO Number of shares 20,630,306 20,348,287 19,223,454 16,664,613 10,495,531 10,138,014 4,218,580 3,705,000 3,235,475 2,000,000 1,222,121 562,500 560,630 500,000 500,000 396,731 390,000 384,528 353,500 305,500 % 13.31 13.13 12.40 10.75 6.77 6.54 2.72 2.39 2.09 1.29 0.79 0.36 0.36 0.32 0.32 0.26 0.25 0.25 0.23 0.20 (C) SUBSTANTIAL SHAREHOLDERS The number of shares held by substantial shareholders and their associates are set out below: 115,834,770 74.73 SUBSTANTIAL SHAREHOLDER THE BURNES GROUP PTY LTD AND ASSOCIATES SINTACK PTY Ltd Q H TOURS Limited FIL LIMITED Helloworld Travel Limited Annual Report 2021 150 Number of shares 42,203,953 20,630,306 19,223,454 14,475,534 % 27.22 13.31 12.40 9.34 Helloworld Travel Ltd Annual Report 2021 151 151 helloworldlimited.com.au ABN: 60 091 214 998 ASX CODE: HLO
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