IncentiaPay
Annual Report 2019

Plain-text annual report

2 0 1 9 A N N U A L R E P O R T For the year ended 30 June 2019 IncentiaPay Ltd ABN 43 167 603 992 INCENTIAPAY IS AN INTEGRATED LOYALTY SOLUTIONS PROVIDER USING DIGITAL AND MARKETING PROGRAMS THAT ENABLE BUSINESSES TO ATTRACT AND ENGAGE CONSUMERS ACROSS MULTIPLE OUTLETS. IncentiaPay has several associated lifestyle brands offering savings across dining, travel, leisure, retail and services. Memberships are sold through its primary channel – fundraisers, and secondary Entertainment Publications has a 25-year history and is a fundraising tool for more than 16,000 community organisations. It is a unique word of mouth marketing tool for the hospitality industry, and a way for consumers to experience new lifestyle opportunities through valuable offers. Entertainment creates value via a unique three-way relationship between consumers, fundraiser groups and lifestyle merchants. Entertainment offers promotions and incentives for dining, travel, leisure activities, retail and services. Memberships are currently available in two formats; the Entertainment Digital Membership as a smartphone app; and the iconic Entertainment channels – direct or affiliate, that all contribute a Book in print. portion of membership sales to fundraisers. It is also sold to corporate organisations as a loyalty offering, via its Frequent Values program. My Bookings brings hotels, resorts, airlines, rental car companies and cruises, a closed end user group of influential and travel oriented consumers. Over 30 countries are featured; with more than 2,000 hotels and resorts profiled online; 10 per cent off the best available online promotional rates for flights; and 100 per cent of payments made directly with the hotel. Entertainment Traveller provides all inclusive Fly, Stay, Eat, Play, travel packages with both local Australian and international offers, across Hawaii, Fiji, Bali, Samoa, Maldives, Vanuatu and more. These are available to Entertainment Members and Frequent Values Members. The Corporate Marketing Solutions group delivers bespoke marketing and value add solutions to help corporate clients drive customer acquisition, retention and engagement. Corporate Marketing Solutions provides tailored incentive offerings to closed loop consumer groups for dining and travel programs. Included in the Corporate Marketing Solutions group is the Frequent Values program, offering white labelled solutions to large corporates in the form of a mobile app or books. Also included is the Entertainment Corporate Platform that sells gift cards from major business chains. C O N T E N T S Chair’s Introduction ...........................................................................2 Operating and Financial Review ..................................................3 The Board of Directors .................................................................... 9 Business Risks ......................................................................................11 Directors’ Report ..............................................................................15 Remuneration Report ...................................................................23 Auditor’s Independence Declaration ....................................33 Financial Statements .....................................................................35 Directors’ Declaration ...................................................................97 Independent Auditor’s Report ................................................ 99 ASX Additional Information .................................................... 106 Corporate Directory ................................................................... 109 N OTI C E O F A N N UA L G E N E R A L M E E TI N G The Annual General Meeting of IncentiaPay Ltd will be held on Wednesday, 27 November 2019 at 2.30pm at KPMG - Tower Three, Level 38, 300 Barangaroo Ave Sydney NSW 2000. IncentiaPay Ltd ABN 43 167 603 992 Chair’s Introduction 1 Dear Shareholders, On behalf of the Board of Directors of IncentiaPay, and as your newly appointed Chair, I am pleased to present to you the 2019 Annual Report. During FY2019, the Company announced a strategic review of operations and organisational structure. Over the past eight months, we have made significant progress in our strategy to refocus the business, having sold the Bartercard operations, including the UK and US businesses, and the Government, Enterprise and Performance Management business streams of Gruden. The pursuit of international 2019; Dr Charles Romito was appointed as a Non-Executive Director in June 2019; and Dean Palmer was appointed as a Non-Executive Director in August 2019. The current Board structure now represents each of the Company’s major shareholders. Over the course of the year, the Company received several operations was also scaled back to focus on new growth expressions of interest, including non-binding indicative and market opportunities across Australia, New Zealand proposals to recapitalise or consider change of control and Bali. Furthermore, we restructured the Senior Management Team and invested in capabilities across the Company, specifically in marketing, product and development. The Company redeployed capital resources to refocus on core and profitable growth areas across Entertainment and corporate sales and operations. While there has been momentum, there is still significant progress to be made - specifically on the Company’s digital transformation strategy, which requires overarching investment in software development, coupled with new employees for emerging and income generating areas of the business. There has also been significant change across both the Executive Team and the Board, with the resignation of Darius Coveney from his role as Chief Financial Officer in November 2018, followed by Iain Dunstan (previous Chief Executive Officer) leaving in December 2018. During his notice period, Darius took on the position of Acting Chief Executive Officer in December 2018, as well as becoming an Executive Director of the Company, a position he held until May 2019. Darius has been instrumental in managing transactions. A number of these led to due diligence being undertaken on the business. In February 2019, both Hayaat Group (represented by Mr Mohammad Ikhlaq), and Skybound Capital Ltd (represented firstly by New Gold Coast Holdings Ltd, and more recently Suzerain Investments Holdings Limited (Suzerain)), joined the share register as new substantial shareholders. In May this year, IncentiaPay entered into a short-term funding arrangement with Suzerain Investments Holdings Limited, borrowing $4.0 million in unsecured debt. This has been used to repay the Company’s term debt and overdraft facilities from its bank lender. While the Company announced a proposed pro-rata rights issue in May 2019, IncentiaPay resolved not to move forward following conversations with major shareholders and advisers. After considering the future capital requirements of the Company, the Board have agreed with Suzerain that they will fund the short-term strategies and value creation initiatives of the Company by way of a Convertible Note. The specifics of this funding were announced to the market on 9 August 2019 and will be presented for approval at the Company’s AGM in November 2019. the Company over the past eight months and we thank him Entertainment is a well-respected brand with a 25-year for his commitment. The Board is currently conducting a history. It has a corporate channel that presents significant search for a new Chief Executive Officer. growth opportunity, book to digital transformation that is Executive General Manager - Retail, Heidi Halson, leaves after 25 years with the Company and we wish her all the best. In September 2018, Murray d’Almeida resigned as Chair of well underway, a growing and quality merchant database that improves year on year, an engaged current member database, an active drive to acquire new members and a core business that is returning to profit. the Board. Naseema Sparks was appointed as Chair but On behalf of the Board, I would like to thank our resigned from the position in June 2019. Chris Berkefeld shareholders, our clients and our employees for their also resigned from his position as Non-Executive Director in support and contribution. June 2019. We thank them for their service during a difficult period of transition and wish them well. There were four new appointments to the Board this calendar year; I, Stephen Harrison, was appointed to the Board as a Non-Executive Director in February 2019, and appointed as Interim Executive Chair in June 2019; Jeremy Thorpe was appointed as a Non-Executive Director in May S TE P H E N H A R R I S O N I N T E R I M E X E C U TI V E C H A I R SECTION 0 | CHAIR’S INTRODUCTION 2 Operating & Financial Review SECTION 1 33 O P E R ATI N G R E S U LT S OV E RV I E W IncentiaPay has continued to undergo significant change during FY2019, with the Company restructuring to focus on the Entertainment business. In November 2018, we completed the sale of Bartercard including all its wholly owned subsidiaries. In September 2018, we divested our minority stake in Now Book It Pty Ltd, and in December 2018 completed the sale of non-core assets from the Gruden acquisition. With that, the Company moved to a single operating division – Entertainment. These divestments simplified the Group’s corporate structure, removing 15 entities. Within the Entertainment business, the Company operates in two main product groupings; Memberships (sold via the fundraising channel) and Corporate. These product groupings are supported by central functions, including merchant acquisition, production, marketing, product development, finance, human resources and legal. M E M B E R S H I P S We have continued to see a shift of customer field account managers. This resulted in fewer field account managers and provided us with learnings to better manage fundraisers under this revised approach. In addition, with smaller fundraisers no longer taking book inventory on consignment, it de-risked the business in terms of book returns and provided those fundraisers with an improved level of service. This model will be further refined and rolled out for the 2020|21 membership season. During the year, we also improved operational efficiencies across the business through the automation of several manual processes. Stock management and publishing were the two areas that saw the greatest improvements, with many more projects in the pipeline. As we move forward into the 2020|21 membership season and beyond, our strategy is to focus on our members, offering them an improved user experience and hyper personalisation enabled via technology. While this has taken us longer than originally anticipated, we are confident that we are now focussed on the right initiatives to support product evolution in the digital world, as well as revenue preference to the Entertainment Digital Membership, growth. reporting at 57 per cent of purchases versus 52 These initiatives for growth include: per cent at the same time last year (16/08/2019). • Continuing to evolve our digital marketing Noting this trend, and our continued drive to reduce capabilities, both for our fundraising channel, and operating costs, the Company decided to trial a for our direct channel and prospect funnel. digital-only approach within a test market, forgoing the printing of Entertainment books. Given the City of Darwin’s #SmartDarwin initiative, it was the obvious choice as the test market for the 2019|20 membership season. Being a business that runs to an annual cycle, the learnings from Darwin are currently assisting with our planning for future markets and their digitisation in the next fundraising season. For the 2019|20 membership sales season, the Company transitioned to a new Entertainment website. Over the coming twelve months, we will be undertaking additional development to better utilise this channel. The intention is to create a personalised member • A focus on generating incremental revenue within our existing product set, by finding new and innovative ways to combine and sell our existing product capabilities, for example, by launching our Explorer Membership in 2019, which allows members to access all our offers across Australia, New Zealand and Bali. Further product research and development is currently under way. CO R P O R AT E FY2019 saw the Corporate area focus on several initiatives to help build longer-term relationships with our corporate partners. The Corporate team have: experience, delivering offers that are more closely • Created an internal “customer success” team, aligned, and better resonate with individual members. focussed on assisting corporate loyalty partners The Company has also taken a new approach to the management of smaller fundraising groups this season. The creation of a phone based inside sales model saw 4,900 of our smaller fundraisers being to effectively embed our Frequent Values product within their loyalty solution, and drive their customers to use the product. This drives further loyalty from both the customer and the corporate partner. supported by inside sales executives, rather than • Developed an API solution to deliver our Frequent SECTION 1 | OPERATING AND FINANCIAL REVIEW 44 Values product to corporate partners in a manner announced its intention to divest non-core portions that allows them to control the end user experience. of this asset. On 12 December 2018, IncentiaPay Our corporate partners can now obtain a feed completed the sale of the Gruden Government Services of offers from Entertainment’s Frequent Values business stream for a total consideration of $1.7 million database and display them within their own UI/UX/ in cash to a wholly owned subsidiary of The Citadel App experience. During FY2020, the business intends to continue to iterate its API model, to create opportunities with blue Group Limited (ASX:CGL) by way of the sale of all the shares in Gruden Pty Ltd. On completion, 75 per cent was paid, with the balance paid subject to a working chip clients who want to control what their end user capital adjustment. sees, and their brand experience. We will continue to Subsequently, on 12 April 2019, IncentiaPay announced work closely with our core corporate partners to ensure the sale of the Performance Marketing business stream to that our loyalty solution provides measurable value to OpenDNA Limited (ASX:OPN). The sale was structured their customers, helping to further drive business loyalty. as a share sale of all the shares in Blackglass Pty Ltd and M & A AC TI V IT Y FY2019 saw a significant level of M&A activity across IncentiaPay, as the Company worked to create a more focussed business with the best possible chance of creating long-term value for shareholders. Whilst this has been a challenging exercise at times, and the work that has gone into this is yet to be reflected in the Company’s share price, the leadership team strongly believe that creating this focus will result in a stronger business over the medium to long term. D I V E S T M E N T O F B A R T E R C A R D In December 2017, IncentiaPay announced its intention to sell non-core operations. On 14 September 2018, IncentiaPay entered into a binding Share Sale Agreement with TCM Investments Australia Pty Ltd relating to the sale of the Company’s Bartercard business. The transaction was by way of a sale of all the shares held in Bartercard Group Pty Ltd, Trade Exchange Software Services Pty Ltd, BPS Financial Limited and Bucqi Australia Pty Ltd, and all their wholly owned subsidiaries (the “Sale Entities”). In total 13 entities were divested as part of the transaction. The Sale Entities were sold for a total consideration of $5.0 million, made up of $2.0 million cash payable on completion and a further $3.0 million of cash payable over a 30-month period – with no performance hurdles related to receipt of this $3.0 million. G R U D E N On 11 May 2018, IncentiaPay acquired Gruden, a marketing and transactional payment company that operated across four business streams: Performance Marketing, Government Services, Digital Services and MobileDEN. On 19 November 2018, at the AGM, the Company was sold for a total consideration of $0.3 million with $0.1 million payable on completion, and the balance subject to a working capital adjustment. The transaction completed on 23 April 2019. During the period, the Digital Services business was wound down, and the MobileDEN team utilised as an internal development arm for the Entertainment division. Prior MobileDEN contracts continue to be serviced, and the MobileDEN technology is being assessed for integration into the Entertainment digital experience. F I N A N C I A L R E S U LT S OV E RV I E W Gross revenue for FY2019 was $64.6 million, Underlying EBITDA for FY2019 was a loss of $7.4 million, with $7.1 million of this amount realised in the second half of the financial year, and negative operating cash flow was $13.3 million. Net loss after tax (NLAT) from ordinary activities in FY2019 was $37.9 million, compared to a NLAT from ordinary activities of $62.2 million in FY2018. One of the main reasons for the decrease in NLAT was the reduction of impairment charges in FY2019 compared to FY2018 of $31.6 million. Due to the decision to divest certain parts of the business during FY2019, impairment charges booked in FY2018 for those entities disposed of in FY2019 have been reclassified in the FY2018 comparative figures and are now included in the line item described as “Loss for the period from discontinued operations”. In addition, there was a $5.6 million or 14.9 per cent decline in Entertainment membership revenue and corporate sales revenue, from $37.5 million in FY2018 to $31.9 million in FY2019. This consisted of $28.6 million of membership sales revenue and $3.3 million in corporate sales revenue (2018:$32.8 million membership and $4.7 million corporate). 5 G R O S S R E V E N U E With the removal of discontinued operations, FY2018 N E T LO S S A F T E R TA X A N D I M PA I R M E N T S gross revenue has been restated from $106.8 million Reported net loss after tax (NLAT) from ordinary to $75.8 million. Overall gross revenue for FY2019 was activities in FY2019 was $37.9 million compared to a $64.6 million, a 14.8 per cent decrease from FY2018. net loss after tax from ordinary activities in FY2018 This included $5.4 million, or 8.3 per cent from fee income (restated 2018:$3.7 million), $28.6 million, or 44.3 per cent from membership sales (restated of $62.2 million. The net loss was predominantly attributed to a reduction in underlying revenue of $11.2 million (as discussed above), impairments of 2018:$32.8 million), $3.3 million or 5.1 per cent from $14.6 million related to non-cash assets on the balance corporate sales (restated 2018:$4.7 million) and $27.3 million, or 42.3 per cent from gift card sales sheet and losses from discontinued operations of $9.8 million. In addition, significant one-off costs (2018:34.6 million). The overall decrease of $11.2 million was due to a decline in both membership renewals and corporate sales revenue, as well as a $7.3 million or 21.1 per cent decrease in gift card sales. Gift card sales declined mainly due to the move away from offering David Jones gift cards, which were not providing a positive return on capital. Corporate sales revenue decreased principally due to a change in the revenue recognition assumptions in 2019. G E O G R A P H I C R E V E N U E were incurred: restructure, acquisition and divestment activities ($1.3 million), provision for onerous leases relating to branches and head office locations ($0.6 million), recapitalisation of the Group ($0.6 million), and other one-off expenses ($0.5 million). During FY2019, and in the months since 30 June 2019, the Group completed a key organisational restructure of the business and secured the necessary funding to ensure appropriate support of operations in the short term. This funding was secured with a view to transform the business through a structured and dedicated transformation program, focused on achieving Australian revenue accounted for $59.2 million, or revenue growth and increased profitability through 91.8 per cent and New Zealand revenue accounted for cost reduction. The outcome of this transformation $5.3 million, or 8.2 per cent. With the gift card sales and is expected to result in increased revenue from the impact of the corporate revenue amendments being product innovation, changes in product distribution predominantly related to Australia, revenue for Australia channels and a reduced cost base structured around decreased from FY2018 by 16.0 per cent, whereas New productivity and efficiency. The removal of the printed Zealand remained materially unchanged. product offering is a key part of this transformation program. In finalising FY2019 results, the Directors have assessed the future profitability of the business using conservative revenue growth predictions and the necessary costs of implementing a transformation program. An impairment charge against goodwill has therefore been taken. T R A N SAC TI O N , I N T E G R ATI O N A N D R E S T R U C T U R I N G CO S T S During the year several entities within the Group were disposed of as part of the restructure program that commenced in 2018. The entities disposed of were predominantly part of the Bartercard businesses, but also included the Government and Performance Marketing businesses of the Gruden group of companies. Costs incurred during FY2019 amounted to $0.7 million for restructure and divestment activities, and $0.6 million for acquisition related initiatives. In the second half of the year, the Group commenced a SECTION 1 | OPERATING AND FINANCIAL REVIEW 6 series of activities related to recapitalising the business. In May this year, IncentiaPay executed a loan agreement Ultimately this recapitalisation did not proceed and was for short-term funding with Suzerain, it’s largest replaced with shareholder loan funding from a significant shareholder. This agreement provided the Group with a shareholder. Costs associated with recapitalisation and $4.0 million unsecured debt facility. This loan has been new funding amounted to $0.6 million. The Group currently has leases for office space in various towns and cities across Australia and New Zealand. As a result of the recent decisions made by the Board to streamline the operations of the business, certain leases have become surplus to requirements. The Group has assessed those leases to be onerous and has recognised an additional cost of $0.6 million in FY2019. D I S CO N TI N U E D O P E R ATI O N S used to assist with the repayment of the Company’s term debt and overdraft facilities from the CBA. The CBA term and overdraft debts were fully repaid before 30 June 2019. Although the Company announced a proposed pro-rata rights issue in May 2019, following ongoing conversations with major shareholders and advisers, IncentiaPay resolved not to pursue the rights issue, but to continue to assess the future capital requirements of the Company. Subject to the achievement of certain milestones, As previously noted, the Bartercard business and Suzerain has agreed to fund the short-term strategies and divisions of the Gruden business were exited during value creation initiatives of the Company. the year. As required by the Australian Accounting Standards, the results of these discontinued operations have been reported separately within the FY2019 result. D E B T M A N AG E M E N T A N D B A N K I N G COV E N A N T S During FY2019, IncentiaPay continued to review, assess and manage its funding and capital requirements. This has been a particular focus for both the Board and management, given the divestment of various parts of the business, as well as the focus on rebuilding the operating results of the core business over the medium term. In December 2018, IncentiaPay signed a Deed with its senior financier, the Commonwealth Bank of Australia (CBA), whereby the CBA agreed to amend the repayment terms of the Group’s debt facilities, with agreed principal repayments to be made between 31 March and 28 June 2019. This Deed also amended the Group’s debt covenants and demonstrated the lender’s support of IncentiaPay, allowing the Company to focus on production of its 2019|20 Entertainment membership. In April 2019, an updated repayment schedule was agreed whereby, with lender consent, IncentiaPay made its first repayment under the revised schedule on 29 March 2019 with an agreement to repay all outstanding amounts by 30 June 2019. IncentiaPay entered into a binding agreement with New Gold Coast Holdings Pty Ltd on 28 February 2019, to issue 14,425,000 fully paid ordinary shares at 8 cents per share and, in doing so, raised $1.154 million. The placement completed 1 March 2019. This holding was subsequently transferred to Suzerain Investments D I V I D E N D S No dividend has been declared in relation to the FY2019 results. The Board of Directors of IncentiaPay do not expect to declare any dividends. CO R P O R ATE G OV E R N A N C E A N D R I S K M A N AG E M E NT IncentiaPay’s Board remains strongly committed to sound corporate governance practices and to managing risk to protect its shareholders, employees, partners, customers, the environment, Company assets and its reputation. The Board sets the risk appetite of the business to ensure that operational direction is consistent with the goals of the Company. The Company intends to make incremental and ongoing corporate governance improvements. In February last year, the Board appointed KPMG to assist in a review of the Company’s governance and controls, and in December announced the appointment of PwC to assist in the second phase of the strategic review. For more information on corporate governance, please refer to the corporate governance statement on the IncentiaPay website. For an outline of business risks, please refer to the Business Risks section of this Annual Report. P E O P LE A N D C U LT U R E IncentiaPay currently employs more than 195 staff (2018:284 including staff from discontinued operations) across 20 offices in Australia and New Zealand who have spent the past year striving to reach Company goals. Holdings Limited (Suzerain). This decrease in staffing is the result of the divestment 7 activities previously outlined, as well as the ongoing of valuable data and insights to assist with our data automation and operational efficiency initiatives driven strategy and decision making, and provide a more progressed by the management team. We continue flexible merchant offering. to maintain a focus on, and recruit for the values that underpin a sustainable and positive culture, supporting our employees with an external Employee Assistance Program (EAP). We value open communication and an inclusive and collaborative working environment. O U TLO O K IncentiaPay has undergone significant business change over the past financial year, from a structural, an Executive and a Board perspective. We believe that all of this has been necessary in order to achieve cost savings and business rationalisation, drive productivity gains and implement business improvement initiatives that will increase our investment in technology to innovate. We must continue to move forward and accelerate our digital mindset to return to profitability, and for our planned growth within the Entertainment business and corporate channel to succeed. The Company is now able to focus on three key areas. Firstly, to grow our digital memberships and products. Entertainment has traditionally been a highly successful publishing business. Digitalisation commenced in 2015 with the launch of the Entertainment Digital App - approximately 57 per cent of our current end users consume the membership in a digital format. The push to digitalisation will eliminate book production and associated distribution costs, allow the Company to create a better user experience, gain increased levels Secondly, to leverage and monetise our database. IncentiaPay has an extensive database of 33,000 merchant locations, 370,000 current members, a large lapsed member database and 15,400 fundraiser groups (as at 16/08/2019). The business has been predominantly focused on the distribution of dining and entertainment offers, such as travel, leisure and theme parks through its fundraising channel. There is now an opportunity to expand on distribution through other channels, including corporates or affiliates, whilst still protecting and supporting our existing fundraiser channel. We will also be investing in our capability to better leverage data analytics and automation. Thirdly, to improve operational efficiency. The Company currently operates with 195 staff across 20 offices in Australia and New Zealand. Business initiatives underway include the expansion of the phone based inside sales team to manage lower value and regional fundraisers, centralisation of regional offices and resourcing as lease arrangements permit, an increased focus on centralised product and marketing functions to drive revenue, and improved prospect targeting, with investment in IT systems, user interfaces, reporting and data insights. We will continue to support and develop our employees as we transition and guide the Company through the next phase of change and growth. “ W E M U S T C O N T I N U E T O M O V E F O R WA R D A N D A C C E L E R AT E O U R D I G I TA L M I N D S E T. ” SECTION 1 | OPERATING AND FINANCIAL REVIEW 8 The Board of Directors SECTION 2 99 M E E T I N C E N TI A PAY ’ S B OA R D O F D I R E C TO R S – A G R O U P O F K N OW LE D G E A B LE B U S I N E S S E X E C U TI V E S W ITH A TR AC K R E CO R D O F G R OW I N G A N D B U I LD I N G B U S I N E S S E S . S T E P H E N H A R R I S O N I N T E R I M E X E C U TI V E C H A I R Stephen Harrison has over 30 years of experience in the financial services, funds management, private equity and accounting fields. He has held director positions with Investec Funds Management and the Australian subsidiary of US based fund manager Sanford C. Bernstein. He has been a founder and held Directorships in a number of listed companies both in Australia and overseas. He is currently Chairman of NobleOak Life Limited and Sinetech Limited. J E R E M Y T H O R P E N O N - E X E C U TI V E D I R E C TO R Jeremy Thorpe holds BA and LLB degrees, is a qualified attorney in South Africa, and the Managing Director and Chief Executive Officer of Skybound Capital Australia. He serves on the boards of all subsidiary and associate companies within Skybound Australia’s diverse range of investments and is directly responsible for their performance and investment returns. He has over 30 years of experience in corporate finance, private equity, consumer and business credit, and structured finance. In the recent past he has served on the Board of the National Credit Providers Association in Australia. C H A R L E S R O M ITO N O N - E X E C U TI V E D I R E C TO R Charles Romito is an experienced management consultant with an extensive background across Venture Capital/Private Equity, Lead Syndicate Investing and Management Academia. His expertise lies at the intersection of innovation management, growth strategy and business transformation; and he has applied this to the benefit of blue-chips, family offices and start-ups alike. He was previously in the London office of the global strategy consultancy McKinsey & Company and built on this with an Operating Partner/COO role in a VC fund. He has since spent most of this decade as a sought-after advisor to both private investors and corporates. As an academic he has both published and presented at world-leading conferences on Innovation Management; as well as designed, developed and delivered Postgraduate and Executive Education to several thousand high-performers across the world. D E A N PA L M E R N O N - E X E C U TI V E D I R E C TO R Dean Palmer is a chartered accountant with more than 20 years of experience. He is the founder and CEO of Skybound Fidelis Investment Limited - a specialist structured finance, commercial credit and property fund manager. He has held numerous senior executive roles both in Australia and the UK. He has a Bachelor of Commerce, Bachelor of Laws and is a member of Chartered Accountants Australia. SECTION 2 | THE BOARD OF DIRECTORS 1010 Business Risks SECTION 3 11 I N C E NTI A PAY FAC E S A N U M B E R O F B U S I N E S S R I S K S TH AT M AY I M PAC T TH E CO M PA N Y ’ S A B I LIT Y TO AC H I E V E IT S S TR ATE G I C O B J E C TI V E S A N D C R E ATE S H A R E H O L D E R VA LU E . TH E B OA R D CO N S I D E R S TH E FO LLOW I N G TO B E TH E K E Y R I S K S C U R R E NTLY FAC I N G TH E B U S I N E S S . RISK NATURE OF RISK There is no certainty that IncentiaPay will remain sufficiently funded. IncentiaPay is currently conducting a strategic review / recapitalisation process to determine the long-term capital requirements of the business. The outcome of this review is FUNDING uncertain as is the appetite of its financiers. IncentiaPay continually manages its cash position and regularly monitors its investments to balance the risk, outlay and timings. IncentiaPay’s success depends, in part, upon the continued performance, efforts, abilities and expertise of its key management personnel, as well as other management and technical personnel, including those employed on a contractual basis. The loss of the services of these personnel without replacement could have an adverse impact on the successful operation, management and marketing of IncentiaPay’s product/service offerings and platforms. Further, a substantial increase in labour costs for employees or contractors may have an adverse impact PEOPLE on the financial performance and/or financial position of IncentiaPay. The Company has commenced the search for a Chief Executive Officer. The Board reviews the incentive structures of key personnel and senior management to ensure their remuneration is in line with the market, with a proportion deferred as a long-term/retention incentive. In addition, management regularly undertakes succession planning analysis of key lead roles with the view to understand suitable internal talent and their readiness to assume these roles. IncentiaPay is increasingly reliant on its technology to deliver services to its customers. In the event of a technology outage or planned upgrade not fit for purpose, this could create an adverse reputational or financial impact to TECHNOLOGY IncentiaPay. To minimise this risk, IncentiaPay has insourced its technology team to actively manage the product delivery process. IncentiaPay is subject to substantial regulatory and legal oversight. The agencies with regulatory oversight of IncentiaPay and its subsidiaries include, among others, ASX and ASIC. Failure to comply with legal and regulatory requirements may have a material adverse effect on IncentiaPay and its reputation among REGULATORY customers and regulators, and in the market. IncentiaPay has compliance frameworks, policies and procedures in place to manage the risk of non-compliance and is prepared to play an active role in consulting with regulators on changes that could impact the business. SECTION 3 | BUSINESS RISKS 12 RISK NATURE OF RISK REPUTATION Reputation risk may arise through the actions of IncentiaPay or its employees and adversely affect perceptions of IncentiaPay held by the public, customers, shareholders or regulators. These issues include appropriately dealing with product outages or issues, potential conflicts of interests, legal and regulatory requirements, ethical issues, privacy laws, information security policies and sales and trading practices. Damage to IncentiaPay’s reputation may have an adverse impact on IncentiaPay’s financial performance, capacity to source funding, cost of sourcing funding and liquidity. IncentiaPay actively manages the above risks by regularly monitoring its market reputation amongst customers and shareholders, as well as keeping an open dialogue with regulators and financiers. New competitors are emerging in the loyalty and incentives markets, within which IncentiaPay operates. The loyalty space is particularly competitive, with many well-funded international competitors. An inability to adapt to technological advancement, including further digitisation and flexibility of products, could negatively impact the ability to attract customers and have a material adverse COMPETITION effect on the business of IncentiaPay. To mitigate this, IncentiaPay continues to invest in its merchant content, including the signing of exclusive content where applicable. The Company’s ongoing investment in its digital technology assets will also assist to lessen this risk. IncentiaPay is reliant on several third party contractors. These third parties provide essential services, on an outsourced basis, including software and/or product development activities. Accordingly, IncentiaPay is reliant on contractors properly performing their contractual obligations and performance failures may have an adverse effect on IncentiaPay. IncentiaPay is also an extensive user of third party provided IT hardware and software platforms, systems and infrastructure. IncentiaPay is reliant on these suppliers properly performing their contractual obligations, and performance failures or unreasonable price increases may have a material adverse impact on the Company. A failure by any of these suppliers to provide those services or a failure of their systems may adversely affect IncentiaPay’s ability to provide services to its customers. To minimise these risks, IncentiaPay actively engages with its key third party providers on a regular basis and remains abreast of potential risks within these providers through regular interaction at the senior management level. Whilst every effort has been made to secure the technology supporting IncentiaPay’s various platforms, IncentiaPay does not intend to apply to register patents for all the intellectual property associated with the Entertainment and Frequent Values platforms. Other parties may claim infringement of patents or alternatively other parties may develop and patent other very similar, potentially substitutable products, processes or technologies. IncentiaPay see the unique value of its intellectual property, in the content of its Entertainment and Frequent Values platforms, as a mitigant to this risk. THIRD PARTY FAILURE INTELLECTUAL PROPERTY RISK 13 SECTION 3 | BUSINESS RISKS 14 Directors’ Report SECTION 4 15 Report D I R E C TO R S ’ R E P O R T The Directors present their report on the consolidated entity IncentiaPay Ltd and its controlled entities (IncentiaPay) for the financial year ended 30 June 2019. The information in the Operating and Financial Review of the Corporations Act 2001 for leave to bring proceedings on behalf of the Company, or intervene in any proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the Company for all or any part of those proceedings. forms part of this Directors’ report and should be read N O N - AU D IT S E RV I C E S in conjunction with this section of the Annual Report. The Board of Directors, pursuant to advice from the G E N E R A L I N FO R M ATI O N D I R E C TO R S Audit and Risk Committee, is satisfied that the provision of non-audit services during the year is compatible with the general standard of independence for auditors The following persons were Directors of IncentiaPay Ltd imposed by the Corporations Act 2001. The Directors during or since the end of the financial year up to the are satisfied that the services disclosed below did not date of this report: compromise the external auditor’s independence for the • Stephen Harrison (appointed 15 February 2019) following reasons: • Dean Palmer (appointed 15 August 2019) • Charles Romito (appointed 28 June 2018) • Jeremy Thorpe (appointed 16 May 2019) • all non-audit services are reviewed and approved by the Audit and Risk Committee prior to commencement to ensure they do not adversely affect the integrity and objectivity of the auditor; and • Darius Coveney (appointed 6 December 2018 • the nature of the services provided does not and resigned 16 May 2019) compromise the general principles relating to auditor • Naseema Sparks (appointed 27 September 2018 independence in accordance with APES 110: Code and resigned 28 June 2019) • Chris Berkefeld (resigned 28 June 2019) • Iain Dunstan (resigned 6 December 2018) • Murray d’Almeida (resigned 27 September 2018) • Garth Barrett (resigned 17 July 2018) Particulars of each Director’s experience and qualifications are set out later in this report. D I V I D E N D S PA I D O R D E C L A R E D No dividends were paid or declared for payment during the financial year. Investors should note that the Board of Directors of IncentiaPay Ltd do not expect to declare dividends from the Company during the next financial year. I N D E M N I F Y I N G D I R E C TO R S A N D O F F I C E R S During or since the end of the financial year, the Company has paid premiums to insure the Directors and officers against liabilities for costs and expenses incurred by them in defending legal proceedings arising from their conduct while acting in the capacity of Directors or officers of the Company, other than conduct involving a willful breach of duty in relation to the Company. PROCE E DINGS ON B E HALF OF COMPANY No person has applied to the court under Section 237 of Ethics for Professional Accountants set by the Accounting Professional and Ethical Standards Board. The following fees were paid or payable to KPMG for non-audit services provided during the year ended 30 June 2019: $ Taxation services 56,620 Other services 16,595 Total 73,215 AU D ITO R ’ S I N D E P E N D E N C E D E C L A R ATI O N The lead auditor’s independence declaration for the year ended 30 June 2019 has been received and can be found on page 34 of the Annual Report. O P TI O N S Refer to the Remuneration report for details of performance and other equity instruments on issue. A S I C I N S T R U M E N T 2 01 6/ 1 9 1 R O U N D I N G I N F I N A N C I A L S TAT E M E N T S / D I R E C TO R S ’ R E P O R T The Company is an entity to which ASIC Instrument 2016/191 applies. Accordingly, amounts in the financial statements and Directors’ report have been rounded to the nearest thousand dollars. SECTION 4 | DIRECTORS’ REPORT 16 I N FO R M ATI O N R E L ATI N G TO D I R E C TO R S A N D CO M PA N Y S E C R E TA RY S TE P H E N H A R R I S O N (appointed to the Board 15 February 2019) I N T E R I M E X E C U TI V E C H A I R (appointed Chair 28 June 2019) Interest in shares and options Nil Special responsibilities Chairman of the Audit and Risk Committee, from 15 February 2019 until 28 June 2019 Directorships held in other listed entities during the three years prior to the current year Sinetech Ltd Qualifications Bachelor of Economics Experience Experienced Chairman and Director with a demonstrated history of working in the investment management industry. Skilled in negotiation, asset management, management, mergers & acquisitions and start-ups. J E R E M Y TH O R P E (appointed to the Board 16 May 2019) N O N - E X E C U TI V E D I R E C TO R Interest in shares and options Nil Special responsibilities Member of the Audit and Risk Committee Directorships held in other listed entities during the three years prior to the current year Nil Qualifications Experience Bachelor of Laws (LLB) Bachelor of Arts Experienced in private equity, corporate finance, private equity as well as consumer and business credit. 17 C H A R LE S R O M ITO (appointed to the Board 28 June 2019) N O N - E X E C U TI V E D I R E C TO R Interest in shares and options Nil Special responsibilities Chairman of the Audit and Risk Committee Directorships held in other listed entities during the three years prior to the current year Nil Qualifications Doctor of Philosophy (Ph.D) MSci, Physics Experience Charles is an experienced management consultant with an extensive background in VC/PE and management academia. His expertise lies at the intersection of innovation management, growth strategy and business transformation. He has a passion for business model innovation, growth transformation, venturing & new businesses. He has worked in VC/PE and been a Lead Syndicate Investor for several private deals. As an academic he has published and presented at world- leading conferences on innovation management and designed, developed and delivered postgraduate and executive education to several thousand high-performers from all 5 continents. D E A N PA LM E R (appointed to the Board 15 August 2019) N O N - E X E C U TI V E D I R E C TO R Interest in shares and options Special responsibilities Directorships held in other listed entities during the three years prior to the current year Nil Nil Nil Qualifications Experience Bachelor of Laws (LLB) Bachelor of Commerce Member of Chartered Accountants Australia & New Zealand Dean is a chartered accountant with more than 20 years of experience. He is the founder and CEO of Skybound Fidelis Investment Limited - a specialist structured finance, commercial credit and property fund manager. He has held numerous senior executive roles both in Australia and the UK. SECTION 4 | DIRECTORS’ REPORT 18 18 DA R I U S COV E N E Y (appointed to the Board 6 December 2019) E X E C U TI V E D I R E C TO R (resigned 16 May 2019) Interest in shares and options 2,678,571 Loan Funded Shares held in escrow (as at resignation date) Special responsibilities COO/CFO/Acting CEO Directorships held in other listed entities during the three years prior Nil to the current year Qualifications Experience Graduate Member of Australian Institute of Company Directors (GAICD) Member of Chartered Accountants Australia & New Zealand Bachelor of Commerce Masters of Applied Finance More than 20 years operational experience across financial services and technology companies. N A S E E M A S PA R K S AM (resigned 28 June 2019) I N D E P E N D E N T C H A I R Interest in shares and options Nil Special responsibilities Chair of the Remuneration and Nominations Committee Member of the Audit and Risk Committee Directorships held in other listed entities during the three years prior to the current year Australian Vintage Ltd PMP Ltd Melbourne IT Ltd Grays e-Commerce Group Ltd Qualifications MBA Dip. Marketing FAICD Naseema is an experienced ‘top-line growth’ Director with expertise in business strategy, marketing, branding, consumer segmentation, digital marketing and data. She has current experience in transformational and disruptor businesses, especially those operating in the rapid growth, customer acquisition and brand awareness stage. She also has experience with businesses facing market and competitive pressures where significant operational transformation is required to restore profitability and growth. She has been a professional non-executive director since 2005, serving on boards of a diverse range of companies including ASX listed and private companies, Government statutory authorities, not-for-profit arts, health and education boards. Experience 19 C H R I S B E R K E F E L D (resigned 28 June 2019) N O N - E X E C U TI V E D I R E C TO R Interest in shares and options Nil Special responsibilities Chair of the Audit and Risk Committee Member of the Remuneration and Nominations Committee Directorships held in other listed entities during the three years prior to the current year Triple Energy Limited Qualifications Experience Management Diploma AICD Chris has over 20 years of experience on public and private company boards in New Zealand and Australia. He has a background in industrial, waste and mining services in Australia along with engineering and heavy transportation services in Europe and Asia, and has extensive experience as managing director, executive director and chief executive officer in the waste industry spanning almost two decades. I A I N D U N S TA N (resigned 6 December 2018) M A N AG I N G D I R E C TO R A N D C H I E F E X E C U TI V E O F F I C E R Interest in shares and options 3,035,714 Loan Funded Shares held in escrow (as at 3,135,714 fully paid ordinary shares (as at resignation date) resignation date) Special responsibilities Chief Executive Officer Directorships held in other listed entities during the three years prior to the current year Nil Qualifications Experience Master of Commercial Law MBA GAICD Iain has over 35 years of experience in the global fintech industry, including an extensive listed company and M&A background. SECTION 4 | DIRECTORS’ REPORT 20 M U R R AY D ’A LM E I DA (resigned 27 September 2018) C H A I R O F T H E B OA R D Interest in shares and options 178,571 fully paid ordinary shares (as at resignation date) Directorships held in other listed entities Pacific Environment Ltd during the three years prior to the current year Management Resource Solutions Plc (UK) Qualifications Experience Accountant FAICD Murray has over 35 years of diverse national and international business experience, having begun his career as an accountant in Perth. He founded Retail Food Group Limited (ASX: RFG) and led its global expansion. GA R TH BA R R E T T (resigned 17 July 2018) N O N - E X E C U TI V E D I R E C TO R Interest in shares and options 150,000 fully paid ordinary shares (as at resignation date) Directorships held in other listed entities during the three years prior to the current year Nil Qualifications Experience B.Com, F.C.A. Chartered Accountant Garth has more than 40 years of experience in strategic planning, mergers and acquisitions, financial systems, risk analysis and operations management. B E N N E W LI N G (appointed 11 February 2019) CO M PA N Y S E C R E TA RY Ben was appointed as the Company Secretary on 11 February 2019, replacing Ms Laura Newell. Ben is employed at IncentiaPay as the Executive General Manager - Commercial. He holds an MBA. 21 M E E TI N G S O F D I R E C TO R S During the financial year, the following meetings of Directors (including committees of Directors) were held. Attendances by each Director during the year was as follows: DIRECTORS’ MEETINGS AUDIT AND RISK COMMITTEE REMUNERATION AND NOMINATIONS COMMITTEE NUMBER ELIGIBLE TO ATTEND NUMBER ATTENDED NUMBER ELIGIBLE TO ATTEND NUMBER ATTENDED NUMBER ELIGIBLE TO ATTEND NUMBER ATTENDED Murray d’Almeida Garth Barrett Charles Romito Stephen Harrison Jeremy Thorpe Darius Coveney Iain Dunstan Chris Berkefeld Naseema Sparks 4 1 - 10 4 8 9 21 21 4 - - 10 4 8 9 20 21 - - - 2 - - - 4 4 - - - 2 - - - 4 3 - - - - - - - 1 1 - - - - - - - 1 1 This Directors’ report, incorporating the Operating and Financial Review and the Remuneration report is signed in accordance with a resolution of the Board of Directors. S TE P H E N H A R R I S O N I N T E R I M E X E C U TI V E C H A I R 11 September 2019 SECTION 4 | DIRECTORS’ REPORT 22 Remuneration Report SECTION 5 23 R E M U N E R ATI O N R E P O R T F R A M E WO R K 1 . K E Y M A N AG E M E NT P E R S O N N E L KMP are those people who have authority and responsibility for planning, directing and controlling the strategic activities of the Group, directly or indirectly, including any Group (the Board) or any individual acting under delegated authority (in the case of the Acting CEO and his direct reports). K E Y M A N AG E M E N T P E R S O N N E L FO R T H E Y E A R CO M P R I S E D : N O N - E X E C U TI V E D I R E C TO R S A S AT 3 0 J U N E 2 01 9 NAME POSITION DATES Stephen Harrison4 Interim Executive Chair Appointed 15 February 2019 Jeremy Thorpe Charles Romito Non-Executive Director Appointed 16 May 2019 Non-Executive Director Appointed 28 June 2019 P R E V I O U S D I R E C TO R S NAME POSITION DATES Murray d’Almeida1 Non-Executive Chair Until 27 September 2018 Chris Berkefeld Non-Executive Director Until 28 June 2019 Naseema Sparks 1,4 Non-Executive Chair Until 28 June 2019 Garth Barrett Non-Executive Director Until 17 July 2018 E X E C U TI V E S NAME POSITION DATES Iain Dunstan2 Darius Coveney2,3 Heidi Halson5 Toby Ellis Managing Director and CEO Until 6 December 2018 COO/CFO/Acting CEO Full financial year EGM – Retail Full financial year EGM – Corporate Sales Appointed 13 August 2018 1. Murray d’Almeida resigned from the Board on 27 September 2018, with Naseema Sparks taking over as Chair of the Board. 2. Iain Dunstan fulfilled the role of CEO and Managing Director until 6 December 2019, at which time Darius Coveney was appointed Acting CEO. 3. Darius Coveney departed his role as Acting CEO on 30 August 2019. He was a member of the Board from 6 December 2018 until 16 May 2019. 4. Stephen Harrison was appointed Chair of the Board on 28 June 2019, when Naseema Sparks resigned. 5. Heidi Halson departed from her role as Executive General Manager - Retail on 22 August 2019. 2 . R E M U N E R ATI O N P O LI CY The remuneration policy of IncentiaPay has been designed to attract the most qualified and experienced KMP and align objectives with those of the business and shareholders. All executives receive a base salary which is based upon factors such as the length of service, experience and skills, as well as superannuation as required by law. Executives may sacrifice part of their salary to increase payments towards superannuation. The Company has an Employee Share Ownership Plan. The terms and conditions of the employee incentive plan were approved by shareholders on 5 April 2018. At a meeting of the Board on 22 July 2019, the share plan was wound up, with the winding up share allocation agreed by the Board on that date. The Board will reconsider the employee incentive plan as part of the current executive team refresh. SECTION 5 | REMUNERATION REPORT 24 The Board’s policy is to review remuneration for KMP annually, based on market practice, duties and accountability. Independent advice can be sought when required. All remuneration paid to directors and executives is valued at the cost to the Company and expensed in accordance with Australian Accounting Standards. The maximum aggregate amount of fees that can be paid to Non-Executive Directors is subject to approval at the AGM. The maximum amount currently approved by shareholders is $500,000 per annum. 3 . R E M U N E R ATI O N CO M M IT TE E A N D E X E C U TI V E CO M P E N SATI O N The Remuneration Committee has the responsibility for providing advice in relation to the remuneration packages of senior executives, non-executive and executive directors. The Committee is also responsible for the design and oversight of any share option schemes, performance incentive packages, superannuation entitlements and retirement and termination entitlements. The Remuneration Committee reviews the compensation package for senior executives on an annual basis and makes recommendations to the Board for approval. Compensation packages are reviewed and determined based on current market rates and benchmarked against comparable roles and companies of a similar size. Ms Sparks chaired the Committee until her resignation on 28 June 2019, at which point the Committee was dissolved and its responsibilities and charter were assumed by the Board. 4 . R E M U N E R ATI O N O B J E C TI V E S A N D P R I N C I P L E S Remuneration packages are set at levels that are intended to attract and retain executives capable of managing the Company’s operations. The Company’s remuneration strategy is structured to: • ensure employee remuneration is fair and reasonable; • attract and retain high calibre executives; • align performance with shareholder value; and • be easily understood by all stakeholders. 5 . R E M U N E R ATI O N F R A M E WO R K The Executive Remuneration Framework is characterised by Fixed Remuneration (base salary, superannuation plus other fixed benefits) and Variable/Performance Related Remuneration (including short-term incentive (STI) and long-term incentive (LTI) linked to performance). F IX E D CO M P E N SATI O N This component is not performance linked and generally consists of salary, superannuation entitlements and a motor vehicle allowance. The base amount is reviewed annually by the Remuneration Committee for the Chief Executive Officer and other senior executives. Any adjustments made during the year will either be as a result of market rate changes in order for the Company to remain competitive or to reflect any changes in the level of responsibility in the event the role has expanded. P E R FO R M A N C E R E L AT E D CO M P E N SATI O N Performance related compensation includes both short-term and long-term incentives and is designed to reward key management personnel for meeting or exceeding their financial and personal objectives. The STI is an ‘At Risk’ bonus provided in the form of cash and its calculation is based on Underlying EBITDA and the achievement of agreed KPIs, while the LTI is provided predominantly as exposure to the price performance of ordinary shares of the consolidated entity. 25 SHORT-TERM INCENTIVES (STI) The STI performance target is a Board approved scheme in which executives are incentivised to increase revenue and decrease cost to maximise IncentiaPay earnings. Hurdles are set in order to incentivise improved business performance. Individuals have STI targets, as set out in their contracts, with final payment amounts subject to individual, divisional and group KPIs as well as Board review and approval. In some cases, guaranteed STI amounts are approved on the initial hiring of key executives. LONG-TERM INCENTIVES (LTI) LTI’s are linked to share price performance and provided to certain key management personnel as part of their remuneration package, at the discretion of the Board. During the year these LTI arrangements included time- based vesting arrangements, the achievement of annual EBITDA hurdles and exercise prices set at or above the share price on the date of issuance and thereby assist in the alignment of management and shareholders. 6 . G R O U P P E R FO R M A N C E A N D C H A N G E S I N S H A R E H O LD E R W E A LTH The table below sets out summary information about the Group’s performance and its impact on shareholder wealth for the five years to 30 June 2019: 2019 2018 2017 2016 2015 Revenue ($’000) 64,5722 75,8092 110,464 50,172 48,157 Profit/(loss) for the period before tax ($’000) (27,367)2 (23,197)2 11,349 Dividends paid ($’000) - 2,666 3,877 8,134 3,071 9,356 1,316 Share price as at 30 June $0.045 $0.245 $0.740 $0.952 $0.807 Change in share price ($0.200) ($0.495) ($0.212) $0.145 ($0.145)1 1. Movement is for the period from 9 September 2014 to 30 June 2015 as the Group listed on the stock exchange from 9 September 2014. 2. Amounts exclude discontinued operations. 7. F U LLY PA I D O R D I N A RY S H A R E S H E LD BY K E Y M A N AG E M E NT P E R S O N N E L 2019 DIRECTORS OPENING BALANCE RECEIVED AS PART OF REMUNERATION OTHER CHANGES CLOSING1 BALANCE Murray d'Almeida2 178,571 Garth Barrett3 150,000 EXECUTIVES Iain Dunstan4 2,192,569 - - - - - 178,571 150,000 943,145 3,135,714 SECTION 5 | REMUNERATION REPORT 26       2018 DIRECTORS OPENING BALANCE RECEIVED AS PART OF REMUNERATION OTHER CHANGES CLOSING1 BALANCE Murray d'Almeida 5,000 Garth Barrett - Brian Hall5 9,504,000 Antonie Wiese5 8,174,663 Trevor Dietz6 10,514,000 EXECUTIVES Iain Dunstan - - - - - - - 173,571 150,000 10,423 6,423 11,923 178,571 150,000 9,514,423 8,181,086 10,525,923 2,192,569 2,192,569 1. Represents the balance as at 30 June, unless KMP member resigned, then this represents the balance as at date of resignation. 2. Resigned 27 September 2018. 3. Resigned 17 July 2018. 4. Resigned 6 December 2018. 5. Resigned 2 February 2018. 6. Resigned 25 January 2018. 8 . LOA N F U N D E D S H A R E S H E L D BY K E Y M A N AG E M E NT P E R S O N N E L 2019 EXECUTIVES OPENING BALANCE RECEIVED AS PART OF REMUNERATION CLOSING BALANCE NUMBER OF SHARES VESTED Iain Dunstan1 3,035,714 Darius Coveney1 2,678,571 - - 3,035,714 2,678,571 - - 2018 OPENING BALANCE RECEIVED AS PART OF REMUNERATION CLOSING BALANCE NUMBER OF SHARES VESTED EXECUTIVES Iain Dunstan1 Darius Coveney1 - - 3,035,714 2,678,571 3,035,714 2,678,571 - - 1. Both Iain Dunstan and Darius Coveney left the Company during the year ended 30 June 2019. The shares are in the process of being returned to the consolidated entity and will be held in an Employee Trust. 27               9 . P E R FO R M A N C E R I G HT S H E L D BY K E Y M A N AG E M E NT P E R S O N N E L 2019 EXECUTIVES OPENING BALANCE RECEIVED AS PART OF REMUNERATION CLOSING BALANCE VESTED AND EXERCISABLE Heidi Halson 80,000 - 80,000 80,000 2018 EXECUTIVES OPENING BALANCE RECEIVED AS PART OF REMUNERATION CLOSING BALANCE VESTED AND EXERCISABLE Heidi Halson 80,000 80,000 80,000 1 0 . D E TA I L S O F R E M U N E R ATI O N (K M P) Details of the remuneration of KMP of the consolidated entity are set out in the following tables. SHORT-TERM BENEFITS POST EMPLOYMENT BENEFITS LONG-TERM BENEFITS SHARE- BASED PAYMENTS SALARY AND FEES BONUS SUPER- ANNUATION 2019 $ DIRECTORS Stephen Harrison1,5 26,820 Jeremy Thorpe3,5 10,007 Charles Romito5 - PREVIOUS DIRECTORS Murray d’Almeida1,5 42,975 Garth Barrett1,5 12,624 Chris Berkefeld1,5 138,186 Naseema Sparks1,5 128,073 EXECUTIVES $ - - - - - - - $ 965 - - - 1,199 7,947 8,828 Iain Dunstan2,5 245,718 70,832 21,740 Darius Coveney4 432,784 148,332 77,440 Heidi Halson 325,200 17,500 27,645 Toby Ellis5 236,346 - 18,413 1. Remuneration was paid partly in salary and partly to an associated entity. LONG SERVICE LEAVE $ - - - - - - - - - - - TERMINATION BENEFITS EQUITY SETTLED TOTAL $ - - - - - - - $ $ - - - - - - - 27,785 10,007 - 42,975 13,823 146,133 136,901 28,237 (27,933) 338,594 271,875 (24,647) 905,784 - - 72,706 445,051 - 254,759 2. Termination benefits include unused annual leave paid on termination. Negative share-based payment is due to a reversal of share-based payment previously recognised. 3. Directors fees were paid to an associated entity of Jeremy Thorpe and a related party of IncentiaPay Ltd. 4. Termination benefits include unused annual leave paid on termination, and contract termination costs agreed on 28 July 2019 but not paid SECTION 5 | REMUNERATION REPORT 28             until FY2020. Negative share-based payment is due to a reversal of share-based payment previously recognised. 5. Remuneration disclosed is for period as KMP. SHORT-TERM BENEFITS POST EMPLOYMENT BENEFITS LONG-TERM BENEFITS SHARE- BASED PAYMENTS SALARY AND FEES BONUS SUPER- ANNUATION TERMINATION BENEFITS EQUITY SETTLED TOTAL LONG SERVICE LEAVE $ - - - - $ - - - - 38,068 184,471 45,287 252,900 252,900 2018 $ DIRECTORS Murray d’Almeida1 108,546 Chris Berkefeld2 25,000 Naseema Sparks2 7,083 Garth Barrett3 75,000 PREVIOUS DIRECTORS Trevor Dietz4 433,222 Brian Hall4 302,269 Antonie Wiese4 306,444 EXECUTIVES $ - - - - - - - $ - 2,375 672 7,125 11,038 11,038 Iain Dunstan2 261,155 106,250 23,293 Darius Coveney2 151,809 72,500 14,172 Heidi Halson 225,307 95,500 20,048 1. Directors fees were paid to an associated entity of Murray d’Almeida. 2. Remuneration disclosed is from the date of appointment as a KMP. 3. Remuneration was paid partly in salary and partly to an associated entity. - - - - - $ - - - - - - - $ 108,546 27,375 7,755 82,125 701,048 566,207 570,382 - - - 27,933 418,631 24,647 263,128 97,113 437,968 4. Remuneration disclosed is up to date of resignation as KMP and includes payments as an employee as well as payments to an associated entity and all deferred settlement arrangements. 29 The proportion of remuneration linked to performance and the fixed proportion are as follows: FIXED REMUNERATION AT RISK - STI AT RISK - LTI FY2019 FY2018 FY2019 FY2018 FY2019 FY2018 DIRECTORS Stephen Harrison Jeremy Thorpe Charles Romito PREVIOUS DIRECTORS Murray d’Almeida Garth Barrett Chris Berkefeld Naseema Sparks EXECUTIVES Iain Dunstan Darius Coveney Heidi Halson Toby Ellis 100% 100% 100% 100% 100% 100% 100% 87% 86% 80% 100% N/A N/A N/A 100% 100% 100% 100% 68% 63% 56% N/A - - - - - - - 21% 17% 4% - N/A N/A N/A - - - - 25% 28% 22% N/A - - - - - - - (8%) (3%) 16% - N/A N/A N/A - - - - 7% 9% 22% N/A The proportion of the cash bonus paid/payable or forfeited is as follows: CASH BONUS PAID/PAYABLE CASH BONUS FORFEITED FY2019 FY2018 FY2019 FY2018 DIRECTORS Stephen Harrison Jeremy Thorpe Charles Romito PREVIOUS DIRECTORS Murray d’Almeida Chris Berkefeld Naseema Sparks EXECUTIVES Iain Dunstan Darius Coveney Heidi Halson Toby Ellis - - - - - - 50% 75% 100% - - - - - - - 50% 50% - - - - - - - - 50% 25% - - - - - - - - 50% 50% - - SECTION 5 | REMUNERATION REPORT 30         1 1 . S E RV I C E AG R E E M E NT S Remuneration and other terms of employment for key management personnel are formalised in service agreements. Details of these agreements are as follows: NAME Darius Coveney Title Acting CEO (previously CFO/COO) Agreement commenced 1 February 2018 Term of engagement 3 years Details Termination of employment: The Company agreed to terminate Mr Coveney’s contract on and from 30 August 2019. On termination Mr Coveney was paid a termination payment equal to nine (9) months salary (excluding higher duties arrangements as Acting CEO). Equity compensation: 2,678,571 Loan Funded Shares, which were returned to the Company on exit. NAME Heidi Halson Title Executive General Manager – Retail Agreement commenced New agreement signed 7 January 2019 (service commenced 1 June 1994) Term of engagement Ongoing Details Termination of employment: The Company agreed to terminate Ms Halson’s contract on and from 22 August 2019. On termination Ms Halson was paid a termination payment equal to 13 weeks salary plus statutory entitlements. Equity compensation: Up to 200,000 Performance Rights per annum. NAME Toby Ellis Title Executive General Manager – Corporate Sales Agreement commenced 13 August 2018 Term of engagement Ongoing Details Termination of employment: By either party on giving four (4) weeks notice; or immediately on payment in lieu of notice or if any of the conditions for summary terminations are met including serious misconduct, gross negligence, breach of contract, bankruptcy, crime or repeated absence without explanation. Excluding payment in lieu of notice, the contract does not specify any termination payment. Equity compensation: Nil 31 1 2 . S H A R E - BA S E D CO M P E N SATI O N LOA N F U N D E D S H A R E S As at 30 June 2018, there were 5,714,285 shares issued to key management personnel as part of Loan Funded Share (LFS) arrangements approved by shareholders on 5 April 2018. Given both Mr Coveney and Mr Dunstan have left IncentiaPay, the shares are in the process of being returned to the consolidated entity. These shares will be held in an Employee Trust and be available to the Board to meet future share-based compensation requirements. P E R FO R M A N C E R I G H T S E Q U IT Y P L A N As at 30 June 2018, there were 80,000 Performance Rights issued to key management personnel, following shareholder approval on 5 April 2018. The Performance Rights were issued under the ‘Performance Rights Equity Plan’ (PREP) which was communicated to shareholders on 24 May 2017 and approved at the Company’s EGM held on 5 April 2018. The key terms of the PREP can be summarised as follows: • Annual grant of Performance Rights for four years. • Number of Performance Rights granted is calculated based on: – Annual maximum grant amount; – Annual (calendar year) revenue hurdles; – Annual (calendar year) EBITDA hurdles; and – Continuing employment. • Performance Rights issued then vest annually in July at 25 per cent per annum for four years. • Vested Performance Rights convert to ordinary shares 1:1. SECTION 5 | REMUNERATION REPORT 32 Auditor’s Independence Declaration SECTION 6 33 Lead Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001 To the Directors of IncentiaPay Limited I declare that, to the best of my knowledge and belief, in relation to the audit of IncentiaPay Limited for the year ended 30 June 2019 there have been: i. ii. no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and no contraventions of any applicable code of professional conduct in relation to the audit. KPMG John Wigglesworth Partner Sydney 11 September 2019 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Liability limited by a scheme approved under Professional Standards Legislation. SECTION 6 | AUDITOR’S INDEPENDENCE DECLARATION 34 Financial Statements SECTION 7 35 Financial I N C E NTI A PAY LTD A N D CO N TR O L LE D E NTITI E S CO N S O LI DATE D S TATE M E NT O F P R O F IT O R LO S S A N D OTH E R CO M P R E H E N S I V E I N CO M E FO R TH E Y E A R E N D E D 3 0 J U N E 2 01 9 CONSOLIDATED GROUP FY2019 NOTE $’000 FY2018 RESTATED* $’000 Direct expenses of providing services Revenue Impairments Employee expenses Depreciation and amortisation expense Building occupancy expense Finance costs Legal and professional costs Website and communication Other expenses 2 3 3 3 3 3 Operating loss before income tax Gain on disposal of equity accounted investment Loss before income tax Tax (expenses)/benefit 4(a) Loss for the period Loss for the period from discontinued operations 23 Net profit attributable to 64,572 (41,919) (14,553) (19,141) (2,015) (2,943) (346) (2,622) (2,419) (6,581) (27,967) 600 (27,367) (786) (28,153) (9,751) 75,809 (44,972) (11,929) (23,910) (3,981) (1,995) (1,101) (1,320) (1,763) (8,035) (23,197) - (23,197) 2,000 (21,197) (40,986) Members of the parent entity (37,904) (62,183) Other comprehensive income Gain arising from translating foreign controlled entities from continuing operations Transfer of foreign currency translation reserve to loss from discontinued operations 399 23 (208) 883 - Total comprehensive income/(loss) for the period (37,713) (61,300) Earnings/(loss) per share 5 Basic earnings/(loss) per share (cents) Loss from continuing operations Loss from discontinued operations Total Diluted earnings/(loss) per share (cents) 5 Loss from continuing operations Loss from discontinued operations Total (12.1) (4.2) (16.3) (12.1) (4.2) (16.3) (18.2) (35.3) (53.5) (18.2) (35.3) (53.5) *See note 23 for details about restatements as a result of the divestments. The accompanying notes form part of these financial statements. SECTION 7 | FINANCIAL STATEMENTS 36 I N C E NTI A PAY LT D A N D CO N TR O L L E D E NTITI E S CO N S O LI DATE D S TATE M E N T O F F I N A N C I A L P O S ITI O N A S AT 3 0 J U N E 2 01 9 Current assets NOTE Cash and cash equivalents Deferred consideration Trade and other receivables Inventories 6 23 8 9 Other assets 10 Assets disposal group classified as held for sale Total current assets Non-current assets Deferred consideration 23 Trade and other receivables Property, plant and equipment 8 11 Deferred tax assets 4(c) Intangible assets 12 Total non-current assets Total assets Liabilities Current liabilities Trade and other payables Borrowings Vendor loans 13 14 15 Current tax liabilities 4(d) Liabilities included in disposal group held for sale Deferred revenue Provisions Total current liabilities Non-current liabilities Trade and other payables Borrowings Provisions Total non-current liabilities Total liabilities Net assets 16 17 13 14 17 Issued capital Reserves 18 19 Accumulated losses Total equity CONSOLIDATED GROUP FY2019 $’000 FY2018 $’000 3,460 695 2,728 96 7,853 - 14,832 2,414 - 2,383 3,717 22,507 31,021 45,853 5,941 4,169 - 186 21,394 1,833 - 33,523 - 466 217 683 34,206 11,647 96,006 1,136 (85,495) 11,647 11,130 - 9,675 350 12,186 1,596 34,937 - 141 2,366 4,773 49,280 56,560 91,497 11,949 - 800 169 22,001 5,643 777 41,339 851 - 1,131 1,982 43,321 48,176 94,892 875 (47,591) 48,176 The accompanying notes form part of these financial statements. 37 I N C E NTI A PAY LT D A N D CO N TR O L L E D E NTITI E S CO N S O LI DATE D S TATE M E N T O F C H A N G E S I N E Q U IT Y FO R TH E Y E A R E N D E D 3 0 J U N E 2 01 9 ORDINARY SHARE CAPITAL ACCUMULATED LOSSES FOREIGN CURRENCY TRANSLATION RESERVE SHARE-BASED PAYMENTS RESERVE TOTAL $’000 $’000 $’000 $’000 $’000 Balance at 1 July 2017 54,554 17,258 (668) Comprehensive income Loss for the period Other comprehensive income Exchange differences on translation of foreign operations Total comprehensive loss for the period Transactions with owners, in their capacity as owners and other transfers Shares issued during the period Transaction costs Other equity movement Dividends for the period Movement during the period Total transactions with owners and other transfers - - - (62,183) -- - (62,183) 883 883 41,689 (2,041) 690 - - - - - (2,666) - 40,338 (2,666) - - - - - - - - - - - - - - 71,144 (62,183) 883 (61,300) 41,689 (2,041) 690 (2,666) 660 660 660 38,332 Balance at 30 June 2018 94,892 (47,591) 215 660 48,176 The accompanying notes form part of these financial statements. SECTION 7 | FINANCIAL STATEMENTS 38 INCE NTIAPAY LTD AN D CONTROLLE D E NTITIE S CO N S O LI DATE D S TATE M E N T O F C H A N G E S I N E Q U IT Y FO R TH E Y E A R E N D E D 3 0 J U N E 2 01 9 ORDINARY SHARE CAPITAL ACCUMULATED LOSSES FOREIGN CURRENCY TRANSLATION RESERVE SHARE-BASED PAYMENTS RESERVE TOTAL NOTE $’000 $’000 $’000 $’000 $’000 Balance at 1 July 2018 94,892 (47,591) 215 660 48,176 Comprehensive income Loss for the period Other comprehensive income Exchange differences on translation of foreign operations Transfer of foreign currency translation reserve to loss from discontinued operations 23 Total comprehensive loss for the period Transactions with owners, in their capacity as owners and other transfers Shares issued during the period 18 Transaction costs 18 Movement during the period 19 Total transactions with owners and other transfers - - - - 1,155 (41) - 1,114 (37,904) - - - 399 (208) - - (37,904) 399 (208) (37,904) 191 - (37,713) - - - - - - - - - - 70 70 1,155 (41) 70 1,184 Balance at 30 June 2019 96,006 (85,495) 406 730 11,647 The accompanying notes form part of these financial statements. 39 I N C E NTI A PAY LT D A N D CO N TR O L L E D E NTITI E S CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2019 CONSOLIDATED GROUP FY2019 NOTE $’000 FY2018 $’000 Cash flows from operating activities Receipts from customers 86,175 120,003 Payments to suppliers and employees (99,591) (123,020) Interest received Tax paid 78 - Net cash from/(used in) continuing operations 7 (13,338) Cash flows from investing activities Purchase of property, plant and equipment Purchase of intangibles Proceeds from sales of businesses (net of cash disposed) 12 23 Acquisition of subsidiaries net of cash acquired 22(c) Proceeds from sale of equity investment 22(b) Net cash from/(used in) investing activities Cash flows from financing activities Net proceeds from issue of shares 18 Proceeds of loan repaid from external parties 15 (1,597) (1,878) 2,058 - 600 (817) 1,114 800 Repayment of borrowings (4,000) Repayment of convertible note Proceeds from borrowings Interest paid Loan to external parties Dividends paid Net cash from financing activities Net increase/(decrease) in cash held Cash and cash equivalents at beginning of financial period Cash and cash equivalents at the end of the financial period in continuing operations Cash held in discontinued operations Effects of exchange rate changes on cash and cash equivalents Cash and cash equivalents at the end of the financial period in continuing operations 6 The accompanying notes form part of these financial statements. - 8,635 (221) - - 6,328 (7,827) 11,508 3,681 - (221) 3,460 - (580) (3,597) (339) (6,103) - 297 - (6,145) 30,241 - (14,439) (5,000) - (1,216) (1,000) (2,666) 5,920 (3,822) 15,330 11,508 (378) - 11,130 SECTION 7 | FINANCIAL STATEMENTS 40 I N C E NTI A PAY LT D A N D CO N TR O L L E D E NTITI E S NOTE S TO TH E FINANCIAL STATE M E NTS FOR TH E YEAR E N DE D 30 J U N E 2 01 9 N OTE S TO TH E F I N A N C I A L S TATE M E NT S Note 1 Summary of significant accounting policies ........................................................................................................................42 Note 2 Revenue ..................................................................................................................................................................................................45 Note 3 Expenses ................................................................................................................................................................................................46 Note 4 Income tax .............................................................................................................................................................................................48 Note 5 Dividends and earnings per share.............................................................................................................................................. 51 Note 6 Cash and cash equivalents ........................................................................................................................................................... 52 Note 7 Cash flow information ..................................................................................................................................................................... 53 Note 8 Trade and other receivables .........................................................................................................................................................54 Note 9 Inventories ............................................................................................................................................................................................. 57 Note 10 Other assets .......................................................................................................................................................................................... 57 Note 11 Property, plant and equipment .................................................................................................................................................. 58 Note 12 Intangible assets .................................................................................................................................................................................60 Note 13 Trade and other payables .............................................................................................................................................................. 65 Note 14 Borrowings ............................................................................................................................................................................................ 65 Note 15 Vendor loan........................................................................................................................................................................................... 67 Note 16 Deferred revenue ............................................................................................................................................................................... 67 Note 17 Provisions ...............................................................................................................................................................................................68 Note 18 Issued capital ........................................................................................................................................................................................ 71 Note 19 Reserves ................................................................................................................................................................................................. 73 Note 20 Key management personnel compensation ........................................................................................................................ 74 Note 21 Auditor’s remuneration ................................................................................................................................................................... 74 Note 22 Interests in subsidiaries and business combinations ....................................................................................................... 75 Note 23 Disposal groups classified as held for sale and discontinued operations ............................................................ 79 Note 24 Parent company information ....................................................................................................................................................... 87 Note 25 Segment information .......................................................................................................................................................................89 Note 26 Capital and leasing commitments.............................................................................................................................................90 Note 27 Contingent liabilities and contingent assets .........................................................................................................................91 Note 28 Financial risk management ............................................................................................................................................................91 Note 29 Related party transactions ........................................................................................................................................................... 95 Note 30 Events after the reporting period .............................................................................................................................................96 41 I N C E NTI A PAY LT D A N D CO N TR O L L E D E NTITI E S NOTE S TO TH E FINANCIAL STATE M E NTS FOR TH E YEAR E N DE D 30 J U N E 2 01 9 N OTE 1 | S U M M A RY O F S I G N I F I C A NT ACCO U NTI N G P O LI C I E S per annum and was originally repayable on 30 September 2019 however the maturity date of the loan was amended subsequent to year-end and has now B A S I S O F P R E PA R ATI O N been extended to 30 September 2020. These general-purpose financial statements for the year ended 30 June 2019 have been prepared in accordance with the Corporations Act 2001, Australian Accounting Standards and Interpretations of the Australian Accounting Standards Board and International Financial Reporting Standards as issued by the International Accounting Standards Board. IncentiaPay Ltd is a listed public company incorporated and domiciled in Australia. The Company is a for- profit entity for financial reporting purposes under At 30 June 2019 the Group had cash on hand of $3.5 million, net assets of $11.6 million and a net current asset deficiency of $18.7 million ($13.5 million of which will not crystallise as a cash outflow in the next 12 months as it relates to revenue received in advance (liability) and prepaid production and commission expenses (asset)). During the year ended 30 June 2019, the Group incurred a net loss before tax from continuing operations of $27.4 million, including impairment of $14.6 million, and incurred net cash outflows from Australian Accounting Standards. Material accounting operating activities of $13.3 million. policies adopted in the preparation of these financial Subsequent to year end, on 9 August 2019 the Group statements are presented below and have been entered into a Loan Deed with Suzerain Investments consistently applied unless stated otherwise. Holdings Limited, a major shareholder of the Company, Except for cash flow information, the financial statements have been prepared on an accruals basis and are based on historical costs, modified where applicable by the measurement at fair value of selected non- current assets, financial assets and financial liabilities. These financial statements were authorised for issue on 11 September 2019. G O I N G CO N C E R N for $19.0 million. This includes the $4.0 million already provided to the Group in May 2019. The additional $15.0 million is to be provided to support the working capital requirements of the Group and to restructure the business. The receipt of funds will occur in four separate tranches which are dependent upon certain conditions being met, see note 30. The Directors have prepared cash flow projections that support the ability of the Group to continue as a going The consolidated financial report has been prepared concern. These cash flow projections assume the Group on a going concern basis, which contemplates the will satisfy all conditions to enable the drawdown of all continuation of normal business operations and the four tranches under the Loan Deed. realisation of assets and settlement of liabilities in the The ongoing operation of the Group is dependent upon normal course of business. During the year the Group divested its Bartercard business, government business and performance marketing business and received $3.6 million in the Group satisfying the conditions required to enable the funding under the Loan Deed to be granted and/ or the Group reducing expenditure in-line with available funding and/or the Group raising additional debt or cash consideration (with deferred consideration of equity funding, the achievement of which are inherently $3.1 million yet to be collected). uncertain until realised. On 28 February 2019, the Group successfully completed These conditions give rise to material uncertainties that a placement of 14,425,000 ordinary shares to its largest may cast significant doubt upon the Group’s ability to shareholder group, raising approximately $1.15 million. continue as a going concern. On 16 May 2019, the Group entered into a short-term In the event the Group does not continue as a going loan agreement with Suzerain Investments Holdings concern it may not be able to realise its assets and Limited, a major shareholder of the Company, extinguish its liabilities in the ordinary course of for $4.0 million. The loan attracts interest at 10 per cent operations. SECTION 7 | FINANCIAL STATEMENTS 42 I N C E NTI A PAY LT D A N D CO N TR O L L E D E NTITI E S NOTE S TO TH E FINANCIAL STATE M E NTS FOR TH E YEAR E N DE D 30 J U N E 2 01 9 A ) PRINCIPLES OF CONSOLIDATION net investment hedge. The consolidated financial statements incorporate all of the assets, liabilities and results of the parent IncentiaPay Ltd and all of its subsidiaries (also referred to as “the Group”). Subsidiaries are entities the parent controls. The parent controls an entity when it is exposed to, or has rights to, variable returns from its Exchange differences arising on the translation of non-monetary items are recognised directly in other comprehensive income to the extent that the underlying gain or loss is recognised in other comprehensive income. Otherwise the exchange difference is recognised in profit or loss. involvement with the entity and has the ability to affect GROUP COMPANIES those returns through its power over the entity. The assets, liabilities and results of all subsidiaries are fully consolidated into the financial statements of the Group from the date on which control is obtained by the Group. The consolidation of a subsidiary is discontinued from the date that control ceases. Inter- company transactions, balances and unrealised gains or losses on transactions between group entities are fully eliminated on consolidation. Accounting policies of subsidiaries have been adjusted where necessary to ensure uniformity of the accounting policies adopted by the Group. B ) FOREIGN CURRENCY TRANSACTIONS AND BALANCES FUNCTIONAL AND PRESENTATION CURRENCY The financial results and position of foreign operations, whose functional currency is different from the Group’s presentation currency, are translated as follows: • Assets and liabilities are translated at exchange rates prevailing at the end of the reporting period; • Income and expenses are translated at average exchange rates for the period; and • Retained earnings are translated at the exchange rates prevailing at the date of the transaction. Exchange differences arising on translation of foreign operations with functional currencies other than Australian dollars are recognised in other comprehensive income and included in the foreign currency translation reserve in the Statement of Financial Position. The cumulative amount of these differences is reclassified into profit or loss in the period in which the Group The functional currency of each of the Group’s disposes of the operation. entities is measured using the currency of the primary economic environment in which that entity operates. C ) GOODS AND SERVICES TAX (GST) The consolidated financial statements are presented in Australian dollars, which is the parent entity’s functional currency. Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the relevant taxation TRANSACTIONS AND BALANCES authority. Foreign currency transactions are translated into functional currency using the exchange rates prevailing at the date of the transaction. Foreign currency monetary items are translated at the year- end exchange rate. Non-monetary items measured at Receivables and payables are stated exclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the relevant taxation authority is included with other receivables or payables in the Statement of Financial Position. historical cost continue to be carried at the exchange Cash flows are presented on a gross basis. The GST rate at the date of the transaction. Non-monetary items components of cash flows arising from investing measured at fair value are reported at the exchange or financing activities which are recoverable from, rate at the date when fair values were determined. or payable to, the relevant taxation authority are Exchange differences arising on the translation of monetary items are recognised in profit or loss, except where deferred in equity as a qualifying cash flow or presented as operating cash flows included in receipts from customers or payments to suppliers. 43 I N C E NTI A PAY LT D A N D CO N TR O L L E D E NTITI E S NOTE S TO TH E FINANCIAL STATE M E NTS FOR TH E YEAR E N DE D 30 J U N E 2 01 9 D ) COMPARATIVE FIGURES • additional disclosure requirements. Where the Group retrospectively applies an accounting policy, makes a retrospective restatement or reclassifies items in its financial statements. See note 22(c) and 23. The transitional provisions of AASB 16 allow a lessee to either retrospectively apply the Standard to comparatives in line with AASB 108 or recognise the cumulative effect of retrospective application as an adjustment to opening E ) ROUNDING OF AMOUNTS equity on the date of initial application. The parent entity has applied the relief available to The Group has reviewed all the Group’s leasing it under ASIC Instrument 2016 / 191. Accordingly, arrangements over the last year in light of the new lease amounts in the financial statements and Directors’ accounting rules in AASB 16. The Standard will affect report have been rounded off to the nearest $1,000. primarily the accounting for the Group’s operating leases. F ) NEW AND AMENDED ACCOUNTING POLICIES ADOPTED BY THE GROUP Accounting Standards and Interpretations issued by the AASB that are not yet mandatorily applicable to the Group, together with an assessment of the potential impact of such pronouncements on the Group when adopted in future periods, are discussed below: AASB 16: Leases (applicable to annual reporting periods beginning on or after 1 January 2019). When effective, this Standard will replace the current accounting requirements applicable to leases in AASB 117: Leases and Related Interpretations. AASB 16 introduces a single lessee accounting model that eliminates the requirement for leases to be classified as operating or finance leases. The main changes introduced by the new Standard include: As at the reporting date, the Group has non-cancellable operating lease commitments of $6.0 million. Right-of-use assets for property leases will be measured at the amount of the lease liability on adoption (adjusted for any prepaid or accrued lease expenses). All other leases are identified as short-term leases or low value leases which will be recognised on a straight-line basis as expense in profit or loss. The Group expects to recognise right-of-use assets of approximately $4.4 million on 1 July 2019 and lease liabilities of $4.4 million. There is no expected impact to the overall net assets, however net current assets will be $1.6 million lower due to the presentation of a portion of the liability as a current liability. The Group expects that net profit after tax will increase by approximately $0.054 million for 2020 as a result of adopting AASB 16. EBITDA is expected to increase by approximately $1.6 million, as operating lease • recognition of a right-to-use asset and liability for payments were previously accounted for as part of all leases (excluding short-term leases with less than EBITDA, however, the amortisation of the right-of-use 12 months of tenure and leases relating to low-value assets and interest on the lease liability are excluded assets); from this measure. • depreciation of right-to-use assets in line with AASB Operating cash flows will increase, and financing 16: Property, Plant and Equipment in profit or loss cash flows decrease by approximately $1.6 million as and unwinding of the liability in principal and interest repayment of the principal portion of the lease liabilities components; will be classified as cash flows from financing activities. • variable lease payments that depend on an index The Group will apply the Standard from its mandatory or a rate are included in the initial measurement of the lease liability using the index or rate at the commencement date; adoption date of 1 July 2019. The Group intends to apply the simplified transition approach and will not restate comparative amounts for the year prior to first • by applying a practical expedient, a lessee is adoption. Right-of-use assets for property leases will permitted to elect not to separate non-lease be measured at the amount of the lease liability on components and instead account for all components adoption (adjusted for any prepaid or accrued lease as a lease; and expenses). SECTION 7 | FINANCIAL STATEMENTS 44 I N C E NTI A PAY LT D A N D CO N TR O L L E D E NTITI E S NOTE S TO TH E FINANCIAL STATE M E NTS FOR TH E YEAR E N DE D 30 J U N E 2 01 9 G ) CRITICAL ACCOUNTING ESTIMATES AND The Group initially adopted AASB 9 Financial JUDGEMENTS The Directors’ estimates and judgments are incorporated into the financial statements and are based on historical knowledge and the best available current information. Estimates assume a reasonable Instruments from 1 July 2018. The adoption of this Standard did not have a material effect on the Group’s opening retained earnings, see note 8. N OTE 2 | R E V E N U E expectation of future events and are based on current ACCO U N TI N G P O L I C Y trends and economic data, obtained both externally and from within the Group. KEY ESTIMATES AND JUDGEMENTS Impairment – goodwill and other intangibles The Group assesses impairment at the end of each reporting period by evaluating conditions and events specific to the Group that may be indicative of impairment triggers. Recoverable amounts of relevant assets are reassessed using the higher of fair value less costs of disposal or value-in-use calculations which incorporate various key assumptions. Further details on the key estimates used in the impairment evaluation and the impairment recognised in respect of goodwill or other intangibles for the year ended 30 June 2019 can be found in note 12. Impairment – cash debtor receivables The Group assesses impairment of cash debtor receivables at the end of each reporting period by reference to the history of cash debtor collections. H ) CHANGES IN SIGNIFICANT ACCOUNTING POLICIES AASB 9 Financial Instruments, addresses the classification, measurement and derecognition of financial assets and financial liabilities, introduces new rules for hedge accounting and a new impairment model for financial assets. Other than for a limited number of exceptions, including leases, the revenue model in AASB 15 applies to all contracts with customers as well as non-monetary exchanges between entities in the same line of business to facilitate sales to customers and potential customers. The core principle of the Standard is that an entity recognises revenue to depict the transfer of promised goods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for the goods or services. To achieve this objective AASB 15 provides the following five-step process: • Identify the contract(s) with a customer; • Identify the performance obligations in the contract(s); • Determine the transaction price; • Allocate the transaction price to the performance obligations in the contract(s); and • Recognise revenue when (or as) the performance obligations are satisfied. The membership year runs from 1 June to the following 31 May. Entertainment Publications satisfies its obligations as services are rendered to members during the period of membership. Benefits must be provided constantly throughout the period and Entertainment Publications has concluded that a straight-line basis is the most appropriate method. • Revenue from Entertainment Publications marketing The only financial assets expected to be impacted and merchant support fees through the placement are trade receivables. The new impairment model of advertisements and the distribution of offers and requires the recognition of impairment provisions promotions on behalf of businesses to members based on expected credit losses (ECL) rather than is recognised when the advertisement or offer is only incurred credit losses as is the case under AASB placed, distributed and invoiced. Revenue from 139. The application of this new approach has not the successful promotion of merchant offers is had a significant impact on the classification and recognised when the transaction occurs which measurement of this provision, although it will result in evidences the take up of the promotion. an earlier recognition of credit losses. • Revenue from commission’s receivable for bookings are 45 I N C E NTI A PAY LT D A N D CO N TR O L L E D E NTITI E S NOTE S TO TH E FINANCIAL STATE M E NTS FOR TH E YEAR E N DE D 30 J U N E 2 01 9 recognised when the bookings are made, and it is paid for. • On commencement of memberships, Entertainment Publications enters into a performance obligation to deliver benefits in the form of special offers, discounts, promotions and booking facilities to members during the period of membership. A liability is recognised for unearned revenue for performance obligations to members that have not yet been satisfied. Payment for membership is made prior to the commencement of membership. • Entertainment Publications enters into contracts with corporate customers to develop a program of special offers, discounts, promotions and booking facilities for their customers or employees during the period applicable in the contract. Entertainment Publications has taken the view that the performance obligations defined in the contract should be bundled into one performance obligation centred around access to the program of benefits. Revenue is therefore recognised evenly over the period of the agreement. • Revenue from the sale of gift cards on behalf of businesses to members is recognised when the gift card is provided to the customer and it is paid for. Payment terms are highly varied for the different sources of revenue, different customers and contract terms are individually negotiated. All revenue is stated net of the amount of goods and services tax (GST). CONSOLIDATED GROUP FY2019 $’000 FY2018 RESTATED* $’000 Sales revenue Fee income - Paid advertising and travel booking Fee income - Consulting and media Membership subscriptions Corporate sales 3,274 2,097 28,611 3,283 Gift card sales 27,307 Total 64,572 2,963 764 32,751 4,724 34,607 75,809 *Amounts have been restated due to discontinued operations. N OTE 3 | E X P E N S E S ACCO U N TI N G P O L I C Y DIRECT EXPENSES OF PROVIDING SERVICES Sales commissions paid for the sale of memberships, being an incremental cost of obtaining contracts with customers, are recognised initially as prepayments, see note 10. Subsequently, they are amortised as expenses through the income statement in line with the recognition of revenue from membership sales. These relate predominantly to commission paid to not for profit partners. Costs incurred for the development of the following year’s membership package are capitalised as costs incurred to fulfil a contract with a customer. They are recognised initially as an asset and subsequently amortised over the period of membership during which those benefits are delivered to members, see note 10. SECTION 7 | FINANCIAL STATEMENTS 46 I N C E NTI A PAY LT D A N D CO N TR O L L E D E NTITI E S NOTE S TO TH E FINANCIAL STATE M E NTS FOR TH E YEAR E N DE D 30 J U N E 2 01 9 Loss before income tax from continuing operations includes the following significant expenses: CONSOLIDATED GROUP FY2019 $’000 FY2018 RESTATED* $’000 Direct expenses of providing services Membership book printing and production Corporate book printing 12,558 1,943 Gift cards 26,706 Other Total 712 41,919 9,174 1,243 34,406 149 44,972 Bad and doubtful debts Trade receivables 447 275 Rental expense on operating leases Minimum lease payments 2,943 1,995 Finance cost Finance cost paid or payable 346 1,101 Depreciation and amortisation expense Plant and equipment Amortisation of intangibles Total Impairments 325 1,690 2,015 Goodwill 14,553 Development costs Investment in unlisted entity Other balance sheet items - - - Total 14,553 1,282 2,699 3,981 - 6,519 1,500 3,910 11,929 See note 12 for the impairment of goodwill related to the Entertainment business. *Amounts have been restated due to discontinued operations. 47 I N C E NTI A PAY LTD A N D CO N TR O L LE D E NTITI E S NOTE S TO TH E FINANCIAL STATE M E NTS FOR TH E YEAR E N DE D 30 J U N E 2 01 9 N OTE 4 | I N CO M E TA X ACCO U N TI N G P O L I C Y The income tax expense for the year comprises current income tax expense and deferred tax expense. Current income tax expense charged to profit or loss is the tax payable on taxable income. Current tax liabilities are measured at the amounts expected to be paid to the relevant taxation authority. Deferred income tax expense reflects movements in deferred tax asset and deferred tax liability balances during the year as well as unused tax losses. Current and deferred income tax expense is charged outside profit or loss when the tax relates to items that are recognised outside profit or loss. Except for business combinations, no deferred income tax is recognised from the initial recognition of an asset or liability, where there is no effect on accounting or taxable profit or loss. Deferred tax assets and liabilities are calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled and their measurement also reflects the manner in which management expects to recover or settle the carrying amount of the related asset or liability. With respect to non-depreciable items of property, plant and equipment measured at fair value and items of investment property measured at fair value, the related deferred tax liability or deferred tax asset is measured on the basis that the carrying amount of the asset will be recovered entirely through sale. Deferred tax assets relating to temporary differences and unused tax losses are recognised only to the extent that it is probable that future taxable profit will be available against which the benefits of the deferred tax asset can be utilised. Current tax assets and liabilities are offset where a legally enforceable right of set-off exists and it is intended that net settlement or simultaneous realisation and settlement of the respective asset and liability will occur. Deferred tax assets and liabilities are offset where: • a legally enforceable right of set-off exists; and • the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where it is intended that net settlement or simultaneous realisation and settlement of the respective asset and liability will occur in future periods in which significant amounts of deferred tax assets or liabilities are expected to be recovered or settled. SECTION 7 | FINANCIAL STATEMENTS 48 I N C E NTI A PAY LT D A N D CO N TR O L L E D E NTITI E S NOTE S TO TH E FINANCIAL STATE M E NTS FOR TH E YEAR E N DE D 30 J U N E 2 01 9 a) The components of income tax expense/(benefit) comprise Current tax Deferred tax Income tax expense/(benefit) b) Numerical reconciliation of income tax expense to prima facie tax payable CONSOLIDATED GROUP FY2019 $’000 FY2018 $’000 - 786 786 (700) (1,300) (2,000) Loss from continuing operations before income tax expense (27,367) (22,723) Loss from discontinuing operation before income tax expense (9,881) (41,461) The prima facie tax payable on profit from ordinary activities before income tax is reconciled to income tax as follows Prima facie tax benefit on profit from ordinary activities before income tax at domestic statutory rate of 30% (2018: 30%) (11,174) (19,255) Add /(less) tax effect of Permanent differences 9,288 Recoupment of prior year tax (profits)/losses not previously brought to account Unrecognised tax losses Income tax expense/(benefit) - 2,672 786 17,925 (1,143) 473 (2,000) No income tax benefit was recognised from permanent differences associated with tax losses. Income tax benefits arising from tax losses will only be realised if: • the Group derives future assessable income of a nature and of an amount sufficient to enable the Group to benefit from the deductions for the losses to be realised; • the Group continues to comply with the conditions for deductibility imposed by tax legislation; and • no changes in tax legislation adversely affect the Group in realising the benefit from the deductions for the losses. 49 I N C E NTI A PAY LT D A N D CO N TR O L L E D E NTITI E S NOTE S TO TH E FINANCIAL STATE M E NTS FOR TH E YEAR E N DE D 30 J U N E 2 01 9 CONSOLIDATED GROUP c) Deferred tax OPENING BALANCE CHARGED TO INCOME CHARGED DIRECTLY TO EQUITY DIVESTMENT TOTAL Deferred tax assets Provisions 5,585 579 Transaction costs on equity issues 659 (462) Employee benefits Property, plant and equipment 937 (30) 451 12 Intangibles (1,892) 184 Other (2,198) Balance as at 30 June 2018 3,061 257 1,021 Provisions 6,164 (5,103) Transaction costs on equity issues 888 (888) Employee benefits 1,388 (174) Property, plant and equipment (18) 19 Intangibles (1,708) (388) Other (1,941) 5,748 Balance as at 30 June 2019 4,773 (786) d) Current tax - 691 - - - - 691 - - - - - - - - - - - - - - (319) - (548) (1) 6,164 888 1,388 (18) (1,708) (1,941) 4,773 742 - 666 - 250 (1,846) 348 (270) 4,155 3,717 CONSOLIDATED GROUP FY2019 $’000 FY2018 $’000 INCOME TAX PAYABLE Income tax payable 186 169 The income tax payable relates to provisional income tax payable in New Zealand. SECTION 7 | FINANCIAL STATEMENTS 50 I N C E NTI A PAY LT D A N D CO N TR O L L E D E NTITI E S NOTE S TO TH E FINANCIAL STATE M E NTS FOR TH E YEAR E N DE D 30 J U N E 2 01 9 N OTE 5 | D I V I D E N D S A N D E A R N I N G S P E R S H A R E DISTRIBUTIONS PAID 2018 interim fully franked ordinary dividend of 2.25 cents (2017: 2.25 cents) per share paid 9 January 2018 Dividends paid during the year Distributions paid Total dividends for the period Franking account CONSOLIDATED GROUP FY2019 $’000 FY2018 $’000 - - - 2,666 2,666 2.25 cents Balance of franking account at year end adjusted for franking credits arising from 6,493 6,506 Payments of income tax - (13) Franking credits available for subsequent financial year 6,493 6,493 The Directors have advised that they do not intend to declare dividends for FY2019. CONSOLIDATED GROUP FY2019 $’000 FY2018 RESTATED* $’000 a) Reconciliation of earnings to profit or loss Loss from continuing operations (28,153) (21,197) Loss from discontinued operations (9,751) (40,986) Loss used to calculate basic EPS (37,904) (62,183) Weighted average number of ordinary shares outstanding during the year used in calculating basic EPS 233,011,438 116,182,656 Weighted average of dilutive convertible notes and equity instruments outstanding - 5,520,548 Weighted average number of ordinary shares outstanding during the year used in calculating diluted EPS 233,011,438 121,703,204 *Amounts have been restated due to discontinued operations. See note 23. 51 I N C E NTI A PAY LT D A N D CO N TR O L L E D E NTITI E S NOTE S TO TH E FINANCIAL STATE M E NTS FOR TH E YEAR E N DE D 30 J U N E 2 01 9 N OTE 6 | C A S H A N D C A S H E Q U I VA LE NT S ACCO U N TI N G P O L I C Y Cash and cash equivalents include cash on hand, deposits available on demand with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts, if any, are reported within short-term borrowings in current liabilities in the Statement of Financial Position. CONSOLIDATED GROUP FY2019 $’000 FY2018 $’000 Cash at bank and on hand 3,457 10,120 Short-term bank deposits 3 Total cash and cash equivalents 3,460 Reconciliation of cash Cash at the end of the financial year as shown in the Statement of Cash Flows is reconciled to items in the Statement of Financial Position as follows Cash and cash equivalents 3,460 Total cash and cash equivalents 3,460 1,010 11,130 11,130 11,130 SECTION 7 | FINANCIAL STATEMENTS 52 I N C E NTI A PAY LT D A N D CO N TR O L L E D E NTITI E S NOTE S TO TH E FINANCIAL STATE M E NTS FOR TH E YEAR E N DE D 30 J U N E 2 01 9 N OTE 7 | C A S H F LOW I N FO R M ATI O N CONSOLIDATED GROUP FY2019 $’000 FY2018 $’000 Reconciliation of loss after income tax to net cash flow from operations Cash flows excluded from profit attributable to operating activities - - Loss after income tax (37,904) (62,183) Non-cash flows in profit Amortisation Loss/(gain) on disposal of discontinued operations Write down of inventory to fair value Depreciation 1,690 7,326 - 325 Impairment of intangibles in continuing operations 14,553 Impairment of intangibles in discontinued operations Sale of unlisted equity investment Share-based payment - (600) (70) 4,774 (1,770) 3,432 1,281 11,929 33,693 - - Net interest paid including investing (346) (1,216) Changes in assets and liabilities, net of effects of purchase and disposal of subsidiaries (Increase)/decrease in trade receivables (Increase)/decrease in prepayments (Increase)/decrease in inventories 8,081 4,329 254 (Increase)/decrease in deferred taxes receivable 1,059 Increase/(decrease) in trade payables and accruals (6,860) 2,564 (2,386) 4,919 (1,712) 969 Increase/(decrease) in deferred income (606) (915) Increase/(decrease) in income taxes payable 18 (868) Increase/(decrease) in deferred taxes payable - - Increase/(decrease) in provisions (4,725) 3,892 Cash flow from operating activities (13,338) (3,597) 53 I N C E NTI A PAY LT D A N D CO N TR O L L E D E NTITI E S NOTE S TO TH E FINANCIAL STATE M E NTS FOR TH E YEAR E N DE D 30 J U N E 2 01 9 RECONCILIATION OF LIABILITIES ARISING FROM CASH FLOWS FROM FINANCING ACTIVITIES FY2018 BORROW REPAYMENT $’000 $’000 $’000 INTEREST PAID $’000 INTEREST EXPENSES $’000 FY2019 $’000 Credit line facility Lease incentive loan* Bank term loan Total - - - - 4,029 606 - - 4,000 (4,000) 8,635 (4,000) - - (46) (46) - - 46 46 4,029 606 - 4,635 * The lease incentive loan carries no interest component. If there is no default, the loan reduces by 20 per cent each year until the balance is zero at the end of the lease. N OTE 8 | TR A D E A N D OT H E R R E C E I VA B L E S ACCO U N TI N G P O L I C Y Trade and other receivables include amounts due from customers for goods sold and services performed in the ordinary course of business. Receivables expected to be collected within 12 months of the end of the reporting period are classified as current assets. All other receivables are classified as non-current assets. Trade and other receivables are initially recognised at fair value, less any provision for loss allowance. CONSOLIDATED GROUP FY2019 $’000 FY2018 $’000 Current Trade receivables Provision for loss allowance Net trade receivables Other receivables 2,495 (580) 1,915 813 Total current trade and other receivables 2,728 Non-current Other receivables Total non-current trade and other receivables - - 9,150 (2,287) 6,863 2,812 9,675 141 141 SECTION 7 | FINANCIAL STATEMENTS 54 I N C E NTI A PAY LT D A N D CO N TR O L L E D E NTITI E S NOTE S TO TH E FINANCIAL STATE M E NTS FOR TH E YEAR E N DE D 30 J U N E 2 01 9 Movement in the provision for loss allowance of receivables is as follows: OPENING BALANCE 1 JULY 18 $’000 RECLASSIFIED AS HELD FOR SALE FOR YEAR $’000 CHARGE FOR THE YEAR $’000 AMOUNTS WRITTEN OFF $’000 CLOSING BALANCE 30 JUNE 19 $’000 Current trade receivables (2,287) Total (2,287) 1,954 1,954 (522) (522) 275 275 (580) (580) OPENING BALANCE 1 JULY 17 $’000 RECLASSIFIED AS HELD FOR SALE FOR YEAR $’000 CHARGE FOR THE YEAR $’000 AMOUNTS WRITTEN OFF $’000 CLOSING BALANCE 30 JUNE 18 $’000 Current trade receivables (4,285) Total (4,285) - - (301) (301) 2,299 (2,287) 2,299 (2,287) The Group impairs the value of individual trade debtors based on an assessment of the credit quality of the customer, the previous trading pattern of the customer and management’s assessment of the likely recovery. All trade debtors which are not likely to be recovered are either written off or an impairment for expected credit losses is recognised. No credit risk is expected in respect of recoverables which are not written off or provided against. The remainder of receivables, after credit losses, are considered to be of high credit quality. The Group uses a “roll rate” method to calculate expected credit losses for trade receivables from individual customers that is made up of a variable mix of number and size of balances. Loss rates are calculated based on the probability of receivables progressing through successive stages of delinquency to write off. Roll rates are calculated using an analysis of how balances change from one month to next until they reach 90 days. Data over the last 12 months was reviewed to determine the level of recovery of those receivables older than 90 days. Combining these two measurements provided the Group with the ability to determine the loss allowance as at 30 June. REPORT CATEGORY DAYS ADJUSTED LOSS RATE Current Past due 1-30 Past due 31-60 Past due 61-90 Past due 90-120 0-30 31-60 61-90 91-120 121-150 Greater than 120 days overdue Greater than 150 % 8 24 16 12 49 53 RECEIVABLES BALANCE AS AT 30 JUNE 2019 $’000 LOSS ALLOWANCE AT 30 JUNE 2019 $’000 1,342 333 264 23 103 430 111 79 43 3 51 293 580 Total 2,495 55 I N C E NTI A PAY LT D A N D CO N TR O L L E D E NTITI E S NOTE S TO TH E FINANCIAL STATE M E NTS FOR TH E YEAR E N DE D 30 J U N E 2 01 9 C R E D IT R I S K The Group has no significant concentration of credit risk with respect to any single counterparty or group of counterparties other than those receivables specifically impaired and mentioned within note 8. The class of assets described as “trade and other receivables” is considered to be the main source of credit risk related to the Group. No collateral is held in respect of these exposures and there are no other credit enhancement arrangements. All trade receivables have been investigated and, other than those which have been written off or for which credit losses have been recognised, there are no indicators of poor credit quality for trade receivables. CONSOLIDATED GROUP FY2019 $’000 FY2018 $’000 Gross amount Impaired (past due) Net trade receivables Within initial trade terms Past due not impaired - 30 days 60 days 90 days 90 days + 2,495 (580) 1,915 1,231 254 221 20 189 Total 1,915 9,150 (2,287) 6,863 2,653 396 555 63 3,196 6,863 G E O G R A P H I C A L C R E D IT R I S K The Group has significant operations in Australia and New Zealand. The Group’s exposure to credit risk for trade and other receivables at the end of the reporting period in these regions was as follows: CONSOLIDATED GROUP FY2019 $’000 FY2018 $’000 Australia 1,856 New Zealand 59 Total 1,915 6,645 218 6,863 SECTION 7 | FINANCIAL STATEMENTS 56 I N C E NTI A PAY LT D A N D CO N TR O L L E D E NTITI E S NOTE S TO TH E FINANCIAL STATE M E NTS FOR TH E YEAR E N DE D 30 J U N E 2 01 9 N OTE 9 | I N V E NTO R I E S ACCO U N TI N G P O L I C Y Inventories represent gift cards. These assets are valued at the lower of cost and net realisable value. CONSOLIDATED GROUP FY2019 $’000 FY2018 $’000 Gift cards held for sale Total inventories 96 96 350 350 N OTE 1 0 | OT H E R A S S E T S ACCO U N TI N G P O L I C Y Other assets relate to prepaid sales commissions paid for the sale of memberships and costs incurred for the development of the following year’s membership package, see note 3, and short-term investments that relate to security deposits for leased premises. CONSOLIDATED GROUP FY2019 $’000 FY2018 $’000 Current Short-term investments Current loans receivable Prepayments 391 - 198 Production prepayments 7,264 Total other assets 7,853 1,267 1,598 763 8,558 12,186 PRODUCTION PREPAYMENT $’000 Year ended 30 June 2018 Balance as at 1 July 2017 8,520 Prepayments 9,371 Amortisation (9,333) Balance as at 30 June 2018 8,558 57 I N C E NTI A PAY LT D A N D CO N TR O L L E D E NTITI E S NOTE S TO TH E FINANCIAL STATE M E NTS FOR TH E YEAR E N DE D 30 J U N E 2 01 9 Year ended 30 June 2019 Balance as at 1 July 2018 Prepayments 8,558 7,742 Amortisation (9,036) Balance as at 30 June 2019 7,264 Production prepayments relate to contract assets under AASB 15, being incremental cost of obtaining contracts with customers. N OTE 1 1 | P R O P E R T Y, P L A NT A N D E Q U I P M E NT ACCO U N TI N G P O L I C Y Each class of property, plant and equipment is carried at cost or fair value (as indicated) less, where applicable, any accumulated depreciation and impairment losses. P L A N T A N D E Q U I P M E N T Plant and equipment are measured on the cost basis and therefore carried at cost less accumulated depreciation and any accumulated impairment. In the event the carrying amount of plant and equipment is greater than the estimated recoverable amount, the carrying amount is written down immediately to the estimated recoverable amount and impairment losses are recognised either in profit or loss or as a revaluation decrease if the impairment losses relate to a revalued asset. A formal assessment of recoverable amount is made when impairment indicators are present. The carrying amount of plant and equipment is reviewed annually by Directors to ensure it is not in excess of the recoverable amount from these assets. The recoverable amount is assessed on the basis of the expected net cash flows that will be received from the asset’s employment and subsequent disposal. Where material, the expected net cash flows are discounted to their present values in determining recoverable amounts. The cost of fixed assets constructed within the consolidated Group includes the cost of materials, direct labour, borrowing costs and an appropriate proportion of fixed and variable overheads. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are recognised as expenses in profit or loss during the financial period in which they are incurred. D E P R E C I ATI O N The depreciable amount of all fixed assets including buildings and capitalised lease assets, but excluding freehold land, is depreciated on a straight-line basis over the asset’s useful life to the consolidated Group. Useful life is taken to commence from the time the asset is held ready for use. Leasehold improvements are depreciated over the shorter of either the unexpired period of the lease or the estimated useful lives of the improvements. CLASS OF FIXED ASSET ESTIMATED USEFUL LIFE Leasehold improvements 10 - 40 years Plant and equipment Leased plant and equipment 3 - 5 years 3 - 5 years SECTION 7 | FINANCIAL STATEMENTS 58 I N C E NTI A PAY LT D A N D CO N TR O L L E D E NTITI E S NOTE S TO TH E FINANCIAL STATE M E NTS FOR TH E YEAR E N DE D 30 J U N E 2 01 9 The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. An asset’s carrying amount is written down immediately to its recoverable amount if its carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These gains and losses are recognised in profit or loss in the period in which they arise. When revalued assets are sold, amounts included in the revaluation surplus relating to that asset are transferred to retained earnings. L E A S E S Leases of fixed assets, where substantially all the risks and benefits incidental to the ownership of the asset – but not the legal ownership are transferred to entities in the consolidated Group, are classified as finance leases. Finance leases are capitalised by recognising an asset and a liability at the lower of the fair value of the leased property or the present value of the minimum lease payments, including any guaranteed residual values. Lease payments are allocated between the reduction of the lease liability and the lease interest expense for the period. Leased assets are depreciated on a straight-line basis over the shorter of their estimated useful lives or the lease term. Lease payments for operating leases, where substantially all the risks and benefits remain with the lessor, are recognised as expenses in the periods in which they are incurred. Lease incentives under operating leases are recognised as a liability and amortised on a straight-line basis over the lease term. CONSOLIDATED GROUP FY2019 $’000 FY2018 $’000 Plant and equipment At cost Accumulated depreciation Net book value Leasehold improvements At cost Accumulated depreciation Net book value Leased plant and equipment At cost Accumulated depreciation Net book value 806 (490) 316 2,970 (903) 2,067 - - - 2,395 (1,262) 1,133 2,042 (977) 1,065 246 (78) 168 Total plant and equipment 2,383 2,366 59 I N C E NTI A PAY LT D A N D CO N TR O L L E D E NTITI E S NOTE S TO TH E FINANCIAL STATE M E NTS FOR TH E YEAR E N DE D 30 J U N E 2 01 9 M OV E M E N T S I N C A R RY I N G A M O U N T S Movements in the carrying amounts for each class of property, plant and equipment between the beginning and the end of the current financial year are set out below. CONSOLIDATED GROUP PLANT AND EQUIPMENT LEASEHOLD IMPROVEMENTS LEASED PLANT AND EQUIPMENT TOTAL $’000 $’000 $’000 $’000 Balance as at 1 July 2017 Additions Disposals Transfers Addition through business combinations 1,676 197 (109) - 67 Depreciation expense (698) Balance as at 30 June 2018 1,133 Balance as at 1 July 2018 Additions Disposals Transfers 1,133 23 (125) - Reclassified as held for sale (592) Addition through business combinations Depreciation expense Balance as at 30 June 2019 - (123) 316 1,464 67 - - 56 (522) 1,065 1,065 1,050 (25) 584 (405) - (202) 2,067 155 75 - - - (62) 168 168 - (40) - (128) - - - 3,295 339 (109) - 123 (1,282) 2,366 2,366 1,073 (190) 584 (1,125) - (325) 2,383 N OTE 1 2 | I NTA N G I B LE A S S E T S ACCO U N TI N G P O L I C Y GOODWILL Goodwill is carried at cost less any accumulated impairment losses. Goodwill is calculated as the excess of the sum of the following items, over the acquisition date fair value of net identifiable assets acquired: • the consideration transferred; • any non-controlling interest (determined under either the full goodwill or proportionate interest method); and • the acquisition date fair value of any previously held equity interest. The acquisition date fair value of the consideration transferred for a business combination plus the acquisition date fair value of any previously held equity interest shall form the cost of the investment in the financial statements. SECTION 7 | FINANCIAL STATEMENTS 60 I N C E NTI A PAY LT D A N D CO N TR O L L E D E NTITI E S NOTE S TO TH E FINANCIAL STATE M E NTS FOR TH E YEAR E N DE D 30 J U N E 2 01 9 Fair value re-measurements in any pre-existing equity holdings are recognised in the profit or loss in the period in which they arise. Where changes in the value of such equity holdings had previously been recognised in other comprehensive income, such amounts are recycled to profit or loss. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill is tested for impairment at least annually and/or when other indicators of impairment exist and is allocated to the Group’s CGUs or groups of CGUs (“CGUs”). These CGUs represent the lowest level at which goodwill is monitored but are not larger than an operating segment. Gains and losses on the disposal of an entity include the carrying amount of goodwill of the entity that has been sold. Changes in the ownership interests in a subsidiary that do not result in a loss of control are accounted for as equity transactions and do not affect the carrying amounts of goodwill. TECHNOLOGY, SOFTWARE AND DATABASE ASSETS Technology and software assets acquired separately are capitalised at cost. Where the technology and software asset has been acquired as part of a business acquisition, these assets are recognised at fair value as at the date of acquisition. The useful lives of these assets are then assessed to be either finite or indefinite. Assets with a finite life are amortised over that life with the expense being recognised in the profit and loss. Expenditure on the development of technology and software assets are capitalised until the software is ready for use and then amortised over their expected useful life of 4 - 5 years (FY2018: 4 - 5 years). These assets are tested for impairment at least annually as part of the value in use analysis associated with the cash generating unit. BRAND NAMES AND INTERNATIONAL RIGHTS The brand names and international rights were acquired in a separate transaction. These assets are recognised using the cost model, which requires an intangible asset to be recorded at cost less any accumulated amortisation and any accumulated impairment losses. These intangible assets have been assessed as having an indefinite useful life as neither brand names nor international rights are subject to contractual or statutory time limits. There is no foreseeable limit to the period over which the asset is expected to generate net cash inflows. As a result, no amortisation will be charged. These assets are tested for impairment at least annually, either individually or within a CGU. DEVELOPMENT COSTS Development costs consist of costs incurred in designing, developing and contracting new territories. Recognition of the development costs only occurs when feasibility studies confirm that franchise proliferation is expected to deliver future economic benefits, these benefits can be measured reliably and there are adequate resources available to complete the development. The development costs are amortised over their useful life starting from the time the development of a territory is complete. The franchise agreements are for a term of 10 years and this will be used as the useful life for the purposes of amortisation. IMPAIRMENT OF ASSETS At the end of each reporting period, the Group assesses whether there is any indication that an asset may be impaired. The assessment will include the consideration of external and internal sources of information including dividends received from subsidiaries, associates or jointly controlled entities deemed to be out of pre-acquisition profits. If such an indication exists, an impairment test is carried out on the asset by comparing the recoverable amount of the asset, being the higher of the asset’s fair value less costs to sell and value in use, to the asset’s carrying amount. Any excess of the asset’s carrying amount over its recoverable amount is recognised immediately in profit or loss, unless the asset is carried at a revalued amount in accordance with another 61 I N C E NTI A PAY LT D A N D CO N TR O L L E D E NTITI E S NOTE S TO TH E FINANCIAL STATE M E NTS FOR TH E YEAR E N DE D 30 J U N E 2 01 9 Standard (e.g. in accordance with the revaluation model in AASB 116: Property, Plant and Equipment). Any impairment loss of a revalued asset is treated as a revaluation decrease in accordance with that other Standard. Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the CGU to which the asset belongs. Impairment testing is performed at least annually for goodwill, intangible assets with indefinite lives and intangible assets not yet available for use. CONSOLIDATED GROUP FY2019 $’000 FY2018 $’000 Goodwill Cost 31,199 56,310 Accumulated impairment losses (17,503) (26,969) Net book value 13,696 29,341 Technology and Software Cost 9,127 Accumulated amortisation and impairment losses (4,068) Net book value 5,059 Purchased brand names and international rights Cost 3,000 Accumulated impairment losses - Net book value 3,000 Development costs Cost Accumulated impairment losses Net book value Other intangibles Cost Accumulated amortisation Net book value - - - 752 - 752 22,625 (8,037) 14,588 6,610 (2,951) 3,659 6,792 (6,792) - 1,729 (37) 1,692 Total intangibles 22,507 49,280 SECTION 7 | FINANCIAL STATEMENTS 62 I N C E NTI A PAY LT D A N D CO N TR O L L E D E NTITI E S NOTE S TO TH E FINANCIAL STATE M E NTS FOR TH E YEAR E N DE D 30 J U N E 2 01 9 GOODWILL $’000 TECHNOLOGY AND SOFTWARE RESTATED^ $’000 BRAND NAME & INTERNATIONAL RIGHTS DEVELOPMENT COSTS OTHER INTANGIBLES RESTATED^ TOTAL $’000 $’000 $’000 $’000 Balance as at 1 July 2017 52,425 Additions Acquisition of franchises Disposals - 93 - Additions through business combinations 3,792 13,585 4,809 - (335) 2,971 Amortisation charge - (4,737) 6,610 - - - - - 5,355 1,164 - - - - - 77,975 37 6,010 - - 93 (335) 1,692 8,455 (37) (4,774) Impairment (26,969) (1,705) (2,951) (6,519) - (38,144) Balance as at 30 June 2018 29,341 14,588 3,659 Balance as at 1 July 2018 29,341 14,588 3,659 Measurement period adjustment^ 1,858 (2,317) Balance as at 1 July 2018 31,199 Additions - 12,271 1,877 Disposals* (2,950) (7,399) Amortisation charge - (1,690) Impairment (14,553) - - 3,659 - (659) - - Balance as at 30 June 2019 13,696 5,059 3,000 ^See note 22(c). *See note 23. - - - - - - - - - 1,692 49,280 1,692 49,280 459 - 2,151 49,280 - 1,877 (1,399) (12,407) - (1,690) - (14,553) 752 22,507 At 30 June 2019, the market capitalisation of the Group was below the carrying value of the Group’s net assets. Under the requirements of Australian Accounting Standards, this is a trigger event for assessing whether the carrying value of the Group’s goodwill and other non-current assets may be impaired. In line with this requirement, the recoverable amount of the CGU was determined based on a value-in-use calculation, covering a detailed five-year forecast, followed by an expected cash flow for the unit’s remaining useful life using the growth rates determined by management. Where appropriate the value of any proposed sale of CGUs has been considered and the model includes a sensitivity analysis allowing for a range of growth rates. 63 I N C E NTI A PAY LT D A N D CO N TR O L L E D E NTITI E S NOTE S TO TH E FINANCIAL STATE M E NTS FOR TH E YEAR E N DE D 30 J U N E 2 01 9 The following assumptions were used in the value-in-use calculations: Year ended 30 June 2019 2020 - 2024 Entertainment Publications Year ended 30 June 2018 GROWTH RATES 2020 - 2024 GROWTH RATES 2024 ONWARD DISCOUNT RATE/WEIGHTED AVERAGE COST OF CAPITAL 2% 2% 11% 2019- 2021 GROWTH RATES 2019-2020 GROWTH RATES 2021 ONWARD DISCOUNT RATE/WEIGHTED AVERAGE COST OF CAPITAL Bartercard (7.0%) to (5.0%) 2.5% Entertainment Publications 5.0% FY2021 at 5.0% FY2022 onward at 2.5% 14.5% 12.0% Cash flows used in the value-in-use calculations are based on forecasts produced by management. The Directors consider these forecasts to be conservative, as the growth rates are based on a proposed strategic repositioning of the core operations of the business, focusing on long-term sustainability. Forecasts for 2020 take into account expected strategic structural changes, which form the basis for forecast profitability from 2021 onwards. Costs have been adjusted to take into account growth assumptions and inflation expectations appropriate to the locations in which the Group operates. The key assumptions to which the model is most sensitive include: • Forecast revenue and expenditure (based on the proposed transformation program); and • The discount rate of 11 per cent (post tax). As at 30 June 2019 the estimated recoverable amounts determined using the method outlined above were found to be less than the carrying value of the net assets of the CGU and accordingly, an impairment adjustment was required. Following the impairment loss recognised in the Group’s CGU, the recoverable amount was equal to the carrying amount, therefore, any adverse movement in a key assumption would lead to further impairment. SECTION 7 | FINANCIAL STATEMENTS 64 I N C E NTI A PAY LT D A N D CO N TR O L L E D E NTITI E S NOTE S TO TH E FINANCIAL STATE M E NTS FOR TH E YEAR E N DE D 30 J U N E 2 01 9 N OTE 1 3 | TR A D E A N D OTH E R PAYA B L E S ACCO U N TI N G P O L I C Y Trade and other payables represent the liabilities for goods and services received by the entity that remain unpaid at the end of the reporting period. The balance is recognised as a current liability with the amounts normally paid within 60 days of recognition of the liability. The non-current part of payables are amounts not expected to be settled within the next 12 months. Current Unsecured liabilities Trade payables Sundry payables and accruals Total current unsecured liabilities Non-current Unsecured liabilities Sundry payables and accruals Total non-current unsecured liabilities CONSOLIDATED GROUP FY2019 $’000 FY2018 $’000 2,172 3,769 5,941 - - 6,169 5,780 11,949 851 851 N OTE 1 4 | B O R R OW I N G S ACCO U N TI N G P O L I C Y NON-DERIVATIVE Non-derivative loans and borrowings are financial liabilities with fixed or determinable payments that are not quoted in an active market and are subsequently measured at amortised cost using the effective interest rate method. Gains or losses are recognised in profit or loss through the amortisation process and when the financial liability is derecognised. Amortised cost is calculated as the amount at which the financial liability is measured at initial recognition less principal repayments, and adjusted for any cumulative amortisation of the difference between that initial amount and the maturity amount calculated using the effective interest method. The effective interest method is used to allocate interest income or interest expense over the relevant period and is equivalent to the rate that exactly discounts estimated future cash payments or receipts (including fees, transaction costs and other premiums or discounts) through the expected life (or when this cannot be reliably predicted, the contractual term) of the financial instrument to the net carrying amount of the financial asset or financial liability. Revisions to expected future net cash flows will necessitate an adjustment to the carrying amount with a consequential recognition of an income or expense item in profit or loss. 65 I N C E NTI A PAY LT D A N D CO N TR O L L E D E NTITI E S NOTE S TO TH E FINANCIAL STATE M E NTS FOR TH E YEAR E N DE D 30 J U N E 2 01 9 CONSOLIDATED GROUP FY2019 $’000 FY2018 $’000 Current Unsecured liabilities Lease incentive loan 140 Line of credit facility 4,029 Total current borrowings 4,169 Non-current Unsecured liabilities Lease incentive loan Total non-current borrowings 466 466 Total borrowings 4,635 - - - - - - During the first half of the year, the Group drew down $2.7 million of its $3.0 million overdraft facility and borrowed an additional $4.0 million to facilitate existing operations from its bank. The two facilities were fully repaid during the second half of the year from the share placement in February 2019 and supported by the new line of credit facility extended by a major shareholder. SECTION 7 | FINANCIAL STATEMENTS 66 I N C E NTI A PAY LT D A N D CO N TR O L L E D E NTITI E S NOTE S TO TH E FINANCIAL STATE M E NTS FOR TH E YEAR E N DE D 30 J U N E 2 01 9 Line of credit facility A major shareholder has provided a $4.0 million line of credit facility to the Group. During the period the Group drew down $4.0 million of the line of credit facility on 9 August 2019. The term of this loan was extended to 30 September 2020. See note 30 for further details of the facility. Lease incentive loan As part of the new lease agreement for the new office in Sydney, the landlord has financed the new fitout with a lease incentive loan. The loan carries no interest component. If there is no default, the loan reduces by 20 per cent each year until the balance is zero at the end of the lease. N OTE 1 5 | V E N D O R LOA N CONSOLIDATED GROUP FY2019 $’000 FY2018 $’000 Current Vendor loan Total vendor loan - - 800 800 N OTE 1 6 | D E F E R R E D R E V E N U E ACCO U N TI N G P O L I C Y Deferred revenue constitutes contract liabilities under AASB 15, as it relates to performance obligations to the members of Entertainment Publications not yet satisfied, see note 2. CONSOLIDATED GROUP FY2019 $’000 FY2018 $’000 Current Deferred revenue 21,394 Total deferred revenue 21,394 22,001 22,001 67 I N C E NTI A PAY LT D A N D CO N TR O L L E D E NTITI E S NOTE S TO TH E FINANCIAL STATE M E NTS FOR TH E YEAR E N DE D 30 J U N E 2 01 9 DEFERRED REVENUE $’000 Year ended 30 June 2018 Balance as at 1 July 2017 21,671 Revenue deferred 31,776 Revenue recognised (31,446) Balance as at 30 June 2018 22,001 Year ended 30 June 2019 Balance as at 1 July 2018 22,001 Revenue deferred 36,758 Revenue recognised (37,365) Balance as at 30 June 2019 21,394 N OTE 1 7 | P R OV I S I O N S ACCO U N TI N G P O L I C Y Provisions are recognised when the Group has a legal or constructive obligation, as a result of past events, for which it is probable that an outflow of economic benefits will result and that outflow can be reliably measured. Provisions are measured using the best estimate of the amounts required to settle the obligation at the end of the reporting period. SECTION 7 | FINANCIAL STATEMENTS 68 I N C E NTI A PAY LT D A N D CO N TR O L L E D E NTITI E S NOTE S TO TH E FINANCIAL STATE M E NTS FOR TH E YEAR E N DE D 30 J U N E 2 01 9 EMPLOYEE BENEFITS Short-term employee benefits Provision is made for the Group’s obligation for short-term employee benefits. Short-term employee benefits are benefits (other than termination benefits) that are expected to be settled within 12 months after the end of the annual reporting period in which the employees render the related service. These benefits include wages, salaries and sick leave. Short-term employee benefits are measured at the (undiscounted) amounts expected to be paid when the obligation is settled. The Group’s obligations for short-term employee benefits are recognised as a part of current trade and other payables in the Statement of Financial Position. The Group’s obligations for employees’ annual leave and long service leave entitlements are recognised as provisions in the Statement of Financial Position. Other long-term employee benefits Provision is made for employees’ long service leave and annual leave entitlements not expected to be settled within 12 months after the end of the annual reporting period in which the employees render the related service. Other long-term employee benefits are measured at the present value of the expected future payments to be made to employees. Expected future payments incorporate anticipated future wage and salary levels, durations of service and employee departures and are discounted at rates determined by reference to market yields at the end of the reporting period on corporate bonds that have maturity dates that approximate the terms of the obligations. Any re-measurements for changes in assumptions of obligations for other long-term employee benefits are recognised in profit or loss in the periods in which the changes occur. The Group’s obligations for long-term employee benefits are presented as non-current provisions in its Statement of Financial Position, except where the Group does not have an unconditional right to defer settlement for at least 12 months after the end of the reporting period. In this case the obligations are presented as current provisions. Retirement benefit contributions All employees of the Australian entities and the majority of employees of foreign subsidiaries in the Group receive defined contribution superannuation entitlements, for which the Group pays a fixed superannuation contribution based on a percentage of the employee’s ordinary salary. All contributions in respect of employees’ defined contribution entitlements are recognised as an expense when they become payable. The Group’s obligation with respect to employees’ defined contribution entitlements is limited to its obligation for any unpaid superannuation contributions at the end of the reporting period. All obligations for unpaid superannuation contributions are measured at the (undiscounted) amounts expected to be paid when the obligation is settled and are presented as current liabilities in the Group’s Statement of Financial Position. ONEROUS LEASE PROVISION The Group currently has leases for office space in various towns and cities across Australia and New Zealand. As a result of recent decisions made by the Board to streamline the operations of the business, certain leases have become surplus to requirements. For those locations the Group will vacate the premises and attempt to sublease the space. These leases have been determined to be onerous at the time the Group vacates the premises, and the provision has been calculated based on the present value of contracted obligations net of expected rental income. RESTRUCTURING PROVISION In December 2017 IncentiaPay Ltd announced a restructure program in respect of geographical presence and the employee cost base. As at 31 December, a provision was raised for $4.5 million, being for employee entitlements and occupancy costs. The Company spent $1.9 million of the provision during the six-month period ended 30 June 2018 and the remaining balance of $2.6 million was utilised during the year. 69 I N C E NTI A PAY LT D A N D CO N TR O L L E D E NTITI E S NOTE S TO TH E FINANCIAL STATE M E NTS FOR TH E YEAR E N DE D 30 J U N E 2 01 9 CONSOLIDATED GROUP EMPLOYEE BENEFITS RESTRUCTURING PROVISION $’000 $’000 ONEROUS LEASE PROVISION $’000 TOTAL $’000 Year ended 30 June 2018 Balance as at 1 July 2017 Additional provisions 2,882 1,292 Balance as at 30 June 2018 4,174 - 2,600 2,600 Year ended 30 June 2019 Balance as at 1 July 2018 4,174 2,600 Utilised - (2,600) (Released)/additional provisions (1,506) Disposals (1,253) Balance as at 30 June 2019 1,415 - - - - - - - - 635 - 635 2,882 3,892 6,774 6,774 ( 2,600) (871) ( 1,253) 2,050 CONSOLIDATED GROUP FY2019 $’000 FY2018 $’000 Analysis of total provisions Current Employee benefits Restructuring provision Onerous lease provision Total current provisions Non-current Employee benefits Total non-current provisions 1,198 - 635 1,833 217 217 Total provisions 2,050 3,043 2,600 - 5,643 1,131 1,131 6,774 SECTION 7 | FINANCIAL STATEMENTS 70 I N C E NTI A PAY LT D A N D CO N TR O L L E D E NTITI E S NOTE S TO TH E FINANCIAL STATE M E NTS FOR TH E YEAR E N DE D 30 J U N E 2 01 9 N OTE 1 8 | I S S U E D C A P ITA L CONSOLIDATED GROUP FY2019 SHARES FY2018 SHARES FY2019 $’000 FY2018 $’000 Ordinary shares - fully paid on issue 242,608,274 228,193,274 96,006 94,892 IncentiaPay Ltd has no limit to its authorised share capital. Movements in ordinary share capital DATE NUMBER OF SHARES ISSUE PRICE $ $’000 Ordinary shares at beginning of the year Issues during the year: 19 September 2017 19 September 2017 91,327,771 275,000 620,000 27 November 2017 21,818,000 15 December 2017 4,446,323 2 March 2018 78,991,895 5 April 2018 5,714,285 - 1.00 0.77 0.45 0.45 0.28 0.28 11 May 2018 25,000,000 0.28 Less, costs of issues Tax related costs of issues - - - - Balance as at 30 June 2018 228,193,274 54,554 275 477 9,818 2,001 22,118 - 7,000 (2,041) 690 94,892 Ordinary shares at beginning of the year 228,193,274 - 94,892 Issues during the year: 28 February 2019 14,415,000 Less, costs of issues - Balance as at 30 June 2019 242,608,274 0.08 - 1,155 (41) 96,006 Ordinary shares participate in dividends and the proceeds on winding-up of the Parent Entity in proportion to the number of shares held. Shares have no par value. At shareholders’ meetings each ordinary share is entitled to one vote when a poll is called, otherwise each shareholder has one vote on a show of hands. The entity manages its capital to ensure that it maximises the returns to shareholders as dividends and in capital value, whilst maintaining sufficient equity to ensure the Company can meet its business development objectives and continue as a going concern. The Group only has ordinary shares on issue and is not subject to any externally imposed capital requirements. Capital is also managed having regard to the Group’s long-term growth requirements. 71 I N C E NTI A PAY LT D A N D CO N TR O L L E D E NTITI E S NOTE S TO TH E FINANCIAL STATE M E NTS FOR TH E YEAR E N DE D 30 J U N E 2 01 9 PERFORMANCE RIGHTS Movements in performance rights Performance rights at beginning of the year DATE NUMBER OF PERFORMANCE RIGHTS ISSUED PRICE $ $’000 Issued to staff 23 May 2017 2,072,000 0.875 1,813,000 Balance as at 30 June 2018 Performance rights at beginning of the year Balance as at 30 June 2019 2,072,000 1,813,000 2,072,000 0.875 1,813,000 2,072,000 1,813,000 Performance rights were issued to management and employees of Entertainment Publications entities in May 2017. SECTION 7 | FINANCIAL STATEMENTS 72 I N C E NTI A PAY LT D A N D CO N TR O L L E D E NTITI E S NOTE S TO TH E FINANCIAL STATE M E NTS FOR TH E YEAR E N DE D 30 J U N E 2 01 9 N OTE 1 9 | R E S E RV E S ACCO U N TI N G P O L I C Y SHARE-BASED PAYMENTS The fair value of unissued ordinary shares granted is recognised as a benefit expense with a corresponding increase in equity. The fair value is measured at grant date and recognised over the period during which the recipients become unconditionally entitled to the equity based incentive. Upon the issue of shares, the balance of the share-based payments reserve relating to those right is transferred to share capital. FOREIGN CURRENCY TRANSLATION Exchange differences arising on translation of the foreign controlled entity are recognised in other comprehensive income as a foreign currency translation reserve. The cumulative amount is reclassified to profit or loss when the net investment is disposed. CONSOLIDATED GROUP SHARE-BASED PAYMENTS RESERVE $’000 FOREIGN CURRENCY TRANSLATION RESERVE $’000 TOTAL $’000 Year ended 30 June 2018 Balance as at 1 July 2017 - (668) (668) Amortised during the period Movement during the period Balance as at 30 June 2018 Year ended 30 June 2019 Balance as at 1 July 2018 Amortised during the period 660 - 660 660 452 Unvested during the period (382) Movement during the period Balance as at 30 June 2019 - 730 - 883 215 215 - - 191 406 660 883 875 875 452 (382) 191 1,136 The shares issued on 5 April 2018 related to Loan Funded Share arrangements with the CEO and COO/CFO. These shares are subject to various restrictions, as set out further in the Company’s Remuneration report. The departure of key personnel to which the Loan Funded Shares relate has and will result in these shares not vesting. The portion of the share-based-payments reserve relating to these shares has been reversed to reflect this. 73 I N C E NTI A PAY LT D A N D CO N TR O L L E D E NTITI E S NOTE S TO TH E FINANCIAL STATE M E NTS FOR TH E YEAR E N DE D 30 J U N E 2 01 9 N OTE 2 0 | K E Y M A N AG E M E NT P E R S O N N E L CO M P E N SATI O N Refer to the Remuneration report in Section 5 of this Annual Report for details of the remuneration paid or payable to each member of the Group’s Key Management Personnel (KMP) for the year ended 30 June 2019. The total remuneration paid to KMP of the Group during the year was as follows: CONSOLIDATED GROUP FY2019 $’000 FY2018 $’000 Short-term employee benefits 1,835 2,170 Post-employment benefits Long-term benefits Share-based payments 164 300 20 128 735 150 Total KMP compensation 2,319 3,183 N OT E 2 1 | AU D ITO R ’ S R E M U N E R ATI O N CONSOLIDATED GROUP FY2019 $’000 FY2018 $’000 Auditing or reviewing the financial statements 306 Taxation services - compliance Other services 57 17 Total 380 306 103 267 676 SECTION 7 | FINANCIAL STATEMENTS 74 I N C E NTI A PAY LT D A N D CO N TR O L L E D E NTITI E S NOTE S TO TH E FINANCIAL STATE M E NTS FOR TH E YEAR E N DE D 30 J U N E 2 01 9 N OTE 2 2 | I NTE R E S T S I N S U B S I D I A R I E S A N D B U S I N E S S CO M B I N ATI O N S The Subsidiaries listed below have share capital consisting solely of ordinary shares which are held directly by the Group. The proportion of ownership interests held equals the voting rights held by the Group. Each Subsidiary’s principal place of business also reflects its country of incorporation. Name of Entity Principal Place of Business FY2019 FY2018 % % OWNERSHIP INTEREST a) Information about Principal Subsidiaries Bucqi Australia Pty Ltd Australia Bartercard Group Pty Ltd Australia Bartercard Services Pty Ltd Australia Bartercard Operations UK Ltd United Kingdom Bartercard Operations NZ Ltd New Zealand Bartercard Operations AUS Pty Ltd Australia Bartercard New Zealand GP Ltd New Zealand Bartercard New Zealand LP New Zealand Trade Exchange Software Services Pty Ltd Australia BPS Financial Ltd Australia Tindalls Dream Ltd New Zealand Valeo Corporation Ltd New Zealand Entertainment Publications of Australia Pty Ltd Australia Entertainment Publications Ltd New Zealand Gruden Pty Ltd Australia MobileDEN Pty Ltd Australia Blackglass Pty Ltd Australia b) Information about associated entity Now Book It Pty Ltd* Australia - - - - - - - - - - - - 100 100 - 100 - - 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 33 Subsidiary financial statements used in the preparation of these consolidated financial statements have also been prepared as at the same reporting date as the Group’s financial statements, using the same accounting policies. There are no significant restrictions over the Group’s ability to access or use the assets and settle liabilities of the Group. *The Group divested 33 per cent interest in Now Book It Pty Ltd for a consideration of $0.6 million during the year, this is part of the plan to move to a single operating division – Entertainment. 75 I N C E NTI A PAY LT D A N D CO N TR O L L E D E NTITI E S NOTE S TO TH E FINANCIAL STATE M E NTS FOR TH E YEAR E N DE D 30 J U N E 2 01 9 C ) B U S I N E S S CO M B I N ATI O N S ACCO U N TI N G P O L I C Y BUSINESS COMBINATIONS Business combinations occur where an acquirer obtains control over one or more businesses. A business combination is accounted for by applying the acquisition method, unless it is a combination involving entities or businesses under common control. The business combination will be accounted for from the date that control is attained, the fair value of the identifiable assets acquired and liabilities (including contingent liabilities) assumed is recognised. When measuring the consideration transferred in the business combination, any asset or liability resulting from a contingent consideration arrangement is also included. Subsequent to initial recognition, contingent consideration classified as equity is not re-measured and its subsequent settlement is accounted for within equity. Contingent consideration classified as an asset or liability is re-measured in each reporting period to fair value, recognising any change to fair value in profit or loss, unless the change in value can be identified as existing at acquisition date. All transaction costs incurred in relation to business combinations, other than those associated with the issue of a financial instrument, are recognised as expenses in profit or loss when incurred. The acquisition of a business may result in the recognition of goodwill or a gain from a bargain purchase. ACQUISITION OF GRUDEN On 14 May 2018, the Group acquired 100 per cent of the equity instruments of three wholly owned subsidiaries of Gruden Group Limited, the subsidiaries are Gruden Pty Ltd, MobileDEN Pty Ltd and Blackglass Pty Ltd, thereby obtaining control. The acquisition was made to enhance the Group’s commitment to becoming Asia Pacific’s leading integrated loyalty and payment solutions provider, enabling merchants to attract and engage consumers across multiple platforms. The fair value of the acquired intangible assets (patented technology and customer relationships) were presented as provisional in the 30 June 2018 financial statements. During the year ended 30 June 2019, the Group engaged an independent valuer to complete an assessment over the identifiable intangible assets acquired as part of these acquisitions, using industry adopted valuation techniques. Determining the fair value of acquired intangible assets involved developing estimates and assumptions consistent with how market participants would price the identified assets. Where possible, assumptions were based on observable or benchmark data. The intangible assets are presented in note 12. As a result of the above independent valuation, the fair value of the acquired intangible assets have been restated and are presented in the tables following. Included in these restated amounts is also an adjustment to remove inter-company loan balances that should not have been disclosed in the original purchase price allocation. We note that these inter-company assets and liabilities fully eliminated on consolidation and therefore were correctly excluded from the consolidated Statement of Financial Position in the prior year. See note 23 as Gruden Pty Ltd and Blackglass Pty Ltd were divested during the year. The details of the business combinations were finalised and are presented in the following tables. SECTION 7 | FINANCIAL STATEMENTS 76 I N C E NTI A PAY LT D A N D CO N TR O L L E D E NTITI E S NOTE S TO TH E FINANCIAL STATE M E NTS FOR TH E YEAR E N DE D 30 J U N E 2 01 9 GRUDEN PTY LTD MOBILEDEN PTY LTD BLACKGLASS PTY LTD PROVISIONAL FAIR VALUE PROVISIONAL FAIR VALUE PROVISIONAL FAIR VALUE $’000 $’000 $’000 ADJUSTMENTS TO PURCHASE PRICE ALLOCATION $’000 RESTATED FAIR VALUE $’000 Recognised amounts of identifiable net assets Property, plant and equipment Intangible assets Total non-current assets Trade and other receivables Cash and cash equivalents Assets-intercompany loans Total current assets Provisions Total non-current liabilities Provisions Trade and other payables Liabilities- intercompany loans 80 42 1,827 1,907 1,728 440 2,908 5,076 35 35 468 2,154 1,047 2,266 2,308 289 495 - 784 4 4 68 520 3,781 1 570 571 457 25 (1,859) (1,859) - - - 123 2,804 2,927 2,474 960 - 1,920 (4,828) 2,402 (4,828) 3,434 26 26 58 678 - - - - 65 65 594 3,352 - (4,828) - Total current liabilities 3,669 4,369 736 (4,828) 3,946 Identifiable net assets/(liabilities) 3,279 (1,281) 2,211 (1,859) 2,350 PROVISIONAL AMOUNT ADJUSTMENTS TO PROVISIONAL AMOUNT RESTATED* AMOUNT Purchase consideration Amount settled in cash 250 - 250 77 I N C E NTI A PAY LT D A N D CO N TR O L L E D E NTITI E S NOTE S TO TH E FINANCIAL STATE M E NTS FOR TH E YEAR E N DE D 30 J U N E 2 01 9 Amount settled in shares at fair value 7,750 - 7,750 Total consideration 8,000 8,000 Goodwill on acquisition 3,791 1,859 5,650 Consideration settled in cash (250) Cash and cash equivalents acquired Net cash inflow on acquisition Acquisition costs charged to expenses Net cash received relating to the acquisition 960 710 (413) 297 - - - - (250) 960 710 (413) 297 GRUDEN PTY LTD $’000 MOBILEDEN PTY LTD $’000 BLACKGLASS PTY LTD $’000 Goodwill acquired 2,954 700 1,996 Written off in FY2018 (2,000) Disposed as part of the divestments* (954) - - - (1,996) Total - 700 - *See note 23. SECTION 7 | FINANCIAL STATEMENTS 78 I N C E NTI A PAY LT D A N D CO N TR O L L E D E NTITI E S NOTE S TO TH E FINANCIAL STATE M E NTS FOR TH E YEAR E N DE D 30 J U N E 2 01 9 N OTE 2 3 | D I S P O SA L G R O U P S C L A S S I F I E D A S H E L D FO R SA LE A N D D I S CO NTI N U E D O P E R ATI O N S BA R TE R C A R D B U S I N E S S On 14 September 2018 the Group announced its intention to exit the Bartercard business. A binding Share Sale Agreement to divest the Bartercard business was signed on 14 September 2018 and the sale transaction closed on 19 November 2018. As such, this business is reported in the current period as a discontinued operation. Financial information relating to the discontinued operation for the period to the date of disposal is set out below. The financial performance and cash flow information presented are for the period 1 July 2018 to 18 November 2018. Statement of Profit or Loss and other Comprehensive Income FY2019 $’000 FY2018 $’000 Revenue 8,887 32,719 Expenses (8,271) (71,275) Profit before income tax Income tax Profit/(loss) after income tax of discontinued operation 616 - 616 (38,556) 75 (38,481) Loss on sale of the subsidiary after income tax (6,196) - Loss from discontinued operation (5,580) (38,481) Exchange differences on translation of discontinued operations Other comprehensive income from discontinued operations Net cash inflow from operating activities (208) (208) 953 - - 448 Net cash (outflow) from investing activities (1,100) (2,096) Net cash inflow/(outflow) from financing activities Net increase in cash generated by the division 273 126 (104) (1,752) 79 I N C E NTI A PAY LT D A N D CO N TR O L L E D E NTITI E S NOTE S TO TH E FINANCIAL STATE M E NTS FOR TH E YEAR E N DE D 30 J U N E 2 01 9 YEAR ENDED 30 JUNE 2018 FY2019 $’000 Cash 2,000 Deferred consideration Total disposal consideration 2,878 4,878 Carrying amount of net assets sold (11,282) Loss on sale before income tax and reclassification of foreign currency translation reserve (6,404) Reclassification of foreign currency translation reserve Income tax expense on loss 208 - Loss on sale after income tax (6,196) There is no ’earn out’ clause in the sale agreement. Additional cash consideration of $3.0 million is receivable over three years to November 2021. At the time of the sale the present value of the consideration receivable was determined to be $2.9 million, bringing total disposal consideration to $4.9 million in return for the sale of the share capital of the following subsidiary entities: • Bartercard Group Pty Ltd • Trade Exchange Software Services Pty Ltd • BPS Financial Ltd • Bucqi Australia Pty Ltd • Bartercard Operations AUS Pty Ltd • Bartercard Operations NZ Ltd • Bartercard Services Pty Ltd • Bartercard Operations UK Ltd • Bartercard New Zealand GP Ltd • Bartercard New Zealand LP • Tindalls Dream Ltd • Valeo Corporation Ltd SECTION 7 | FINANCIAL STATEMENTS 80 I N C E NTI A PAY LT D A N D CO N TR O L L E D E NTITI E S NOTE S TO TH E FINANCIAL STATE M E NTS FOR TH E YEAR E N DE D 30 J U N E 2 01 9 The carrying amounts of assets and liabilities as at the date of sale (19 November 2018) were: YEAR ENDED 30 JUNE 2018 19 NOV 2018 $’000 Cash and cash equivalents 1,413 Trade and other receivables 6,294 Inventories Other assets Property, plant and equipment Intangible assets 32 313 1,124 7,031 Total assets 16,207 Trade and other payables 3,437 Vendor loans Deferred revenue 107 335 Provisions 1,046 Total liabilities 4,925 Net assets 11,282 81 I N C E NTI A PAY LT D A N D CO N TR O L L E D E NTITI E S NOTE S TO TH E FINANCIAL STATE M E NTS FOR TH E YEAR E N DE D 30 J U N E 2 01 9 G OV E R N M E NT B U S I N E S S (G R U D E N P T Y LTD) On 19 November 2018 the Group announced its intention to exit the Government business. The business was sold on 13 December 2018 and is reported in the current period as a discontinued operation. Financial information relating to the discontinued operation for the period to the date of disposal is set out below. The financial performance and cash flow information presented is for the period 1 July 2018 to 13 December 2018. FY2019 $’000 Revenue 2,773 Expenses (3,550) Loss before income tax (777) Income tax - FY2018* $’000 1,074 (3,566) (2,492) 399 Loss after income tax of discontinued operation (777) (2,093) Loss on sale of the subsidiary after income tax (1,270) - Loss from discontinued operation (2,047) (2,093) Net cash outflow from operating activities (489) Net cash outflow from investing activities (5) Net decrease in cash generated by the division (494) 186 - 186 *As the business was purchased on 14 May 2018, the comparative financial performance and cash flow information presented is for the period 14 May 2018 to 30 June 2018. SECTION 7 | FINANCIAL STATEMENTS 82 I N C E NTI A PAY LT D A N D CO N TR O L L E D E NTITI E S NOTE S TO TH E FINANCIAL STATE M E NTS FOR TH E YEAR E N DE D 30 J U N E 2 01 9 Details of the sale of the subsidiary Cash Deferred consideration Total disposal consideration FY2019 $’000 1,238 411 1,649 Carrying amount of net assets sold (2,919) Loss on sale before income tax (1,270) Income tax expense on gain - Loss on sale after income tax (1,270) There is no ’earn out’ clause in the sale agreement, additional cash consideration of $0.4 million will be receivable. At the time of the sale the present value of the consideration receivable was determined to be $0.4 million. The carrying amounts of assets and liabilities as at the date of sale (13 December 2018) were: YEAR ENDED 30 JUNE 2018 13 DEC 2018 $’000 Cash and cash equivalents 132 Trade and other receivables 3,366 Other assets Intangible assets Total assets 9 2,058 5,565 Trade and other payables 2,321 Deferred revenue Provisions 148 177 Total liabilities 2,646 Net assets 2,919 83 I N C E NTI A PAY LT D A N D CO N TR O L L E D E NTITI E S NOTE S TO TH E FINANCIAL STATE M E NTS FOR TH E YEAR E N DE D 30 J U N E 2 01 9 P E R FO R M A N C E M A R K E TI N G B U S I N E S S (B L AC KG L A S S P T Y LTD) On 12 April 2019, the Group announced it had entered into a binding agreement to divest the Performance Marketing business. The business was sold on 22 April 2019 and is reported in the current period as a discontinued operation. Financial information relating to the discontinued operation for the period to the date of disposal is set out below. The financial performance and cash flow information presented are for the period 1 July 2018 to 22 April 2019. FY2019 $’000 Revenue 2,732 Expenses (3,942) FY2018* $’000 522 (460) Loss before income tax (1,210) Income tax 130 Loss after income tax of discontinued operation (1,080) Loss on sale of the subsidiary after income tax (1,044) Loss from discontinued operation (2,124) Net cash outflow from operating activities (336) Net cash inflow from investing activities Net decrease in cash generated by the division 371 35 62 - 62 - 62 - - - *As the business was purchased on 14 May 2018, the comparative financial performance and cash flow information presented is for the period 14 May 2018 to 30 June 2018. DETAILS OF THE SALE OF THE SUBSIDIARY YEAR ENDED 30 JUNE 2018 22 APRIL 2019 $’000 Cash Deferred consideration Total disposal consideration 100 200 300 Carrying amount of net assets sold (1,344) Gain on sale before income tax (1,044) Income tax expense on gain - Gain on sale after income tax (1,044) There is no ’earn out’ clause in the sale agreement, additional cash consideration of $0.2 million will be receivable. No net present value calculation is required as the deferred consideration is payable within a year. SECTION 7 | FINANCIAL STATEMENTS 84 The carrying amounts of assets and liabilities as at the date of sale (22 April 2019) were: YEAR ENDED 30 JUNE 2018 22 APRIL 2019 $’000 Cash and cash equivalents 60 Trade and other receivables 1,556 Other assets Intangible assets Total assets 1 2,235 3,852 Trade and other payables 2,479 Provisions 29 Total liabilities 2,508 Net assets 1,344 85 CONSOLIDATED DISCONTINUED OPERATION INFORMATION The total presented for the tables above reconcile to the key financial figures as presented in these financial statements as follows: Deferred consideration receivable Current Interest unlocked Received during the year Total current deferred consideration receivable Non-current Interest unlocked Total non-current deferred consideration receivable Total deferred consideration receivable FY2019 $’000 1,101 5 (411) 695 26 2,414 3,109 FY2019 $’000 FY2018 $’000 Loss for the period from discontinued operations Bartercard business (5,580) (38,556) Government business (2,047) (2,492) Performance Marketing business (2,124) 62 Total loss for the period from discontinued operations (9,751) (40,986) FY2019 $’000 Year to date cash receipts from the sales of business Bartercard business 2,000 Government business Performance Marketing business 1,563 100 Total cash receipts from the sales of business 3,663 SECTION 7 | FINANCIAL STATEMENTS 86 19 NOV 2018 BARTERCARD BUSINESS 13 DEC 2018 GOVERNMENT BUSINESS $’000 $’000 22 APR 2019 PERFORMANCE MARKETING BUSINESS $’000 Cash held at date of sale 1,413 132 60 TOTAL $’000 1,605 N OT E 2 4 | PA R E NT CO M PA N Y I N FO R M ATI O N a) Information relating to IncentiaPay Ltd (the Parent Entity): Statement of profit or loss and other comprehensive income FY2019 $’000 FY2018 $’000 Total (loss)/profit (39,638) (36,262) Total comprehensive income (39,638) (36,262) Statement of financial position Assets Current assets 1,029 Non-current assets 28,824 Total assets 29,853 Liabilities Current liabilities 7,970 Non-current liabilities 12,069 Total liabilities 20,039 Equity 305 56,711 57,016 5,712 3,902 9,614 Issued capital 96,006 94,892 Reserves 1,339 403 Retained earnings (87,531) (47,893) Total equity 9,814 47,402 Details of the contingent assets and liabilities of the Group are contained in note 27. Details of the contractual commitments are contained in note 26. b) IncentiaPay Ltd, Entertainment Publications of Australia Pty Ltd and MobileDEN Pty Ltd are parties to a deed of cross guarantee under which each company guarantees the debts of the others. By entering into the deed, the wholly-owned entities have been relieved from the requirement to prepare a financial report and Directors’ report under ASIC Corporations (Wholly-owned Companies) Instrument 2016/785. 87 Set out below is a consolidated balance sheet as at 30 June 2019 of the parties to the Deed of Cross Guarantee. FY2019 Current assets $’000 Cash and cash equivalents Deferred consideration Trade and other receivables Inventories 2,532 695 2,549 23 Other assets 6,605 Total current assets 12,404 Non-current assets Deferred consideration Property, plant and equipment Deferred tax assets Intangible assets Total non-current assets Total assets Liabilities Current liabilities Trade and other payables Borrowings Deferred revenue Provisions 2,414 2,261 2,790 22,505 29,970 42,374 5,521 4,635 18,189 1,779 Total current liabilities 30,124 Non-current liabilities Trade and other payables Provisions Total non-current liabilities 1,863 216 2,079 Total liabilities 32,203 Net assets 10,171 Equity Issued capital 96,006 Reserves 1,051 Retained Earnings (86,886) Total equity 10,171 See note 25 for the Consolidated Statement of Profit or Loss for the year ended 30 June 2019 of the parties to the Deed of Cross Guarantee. SECTION 7 | FINANCIAL STATEMENTS 88 N OT E 2 5 | S E G M E NT I N FO R M ATI O N ACCO U N TI N G P O L I C Y Reportable segments are identified on the basis of internal reports on the business units of the Group that are regularly reviewed by the Board of Directors in order to allocate resources to the segment and assess its performance. Since the divestment of the Bartercard entities, IncentiaPay Ltd manages the Group as one segment, being the Entertainment Publications business. The Group’s segment results include a corporate category reflecting head office operating costs. This does not qualify as an operating segment in its own right. The Group has not disclosed the results of the discontinued operation within the segment disclosures, because the Group has not separately reviewed the results of this division since the decision to dispose of it. The results of discontinued operations are disclosed in note 23. REVENUE BY GEOGRAPHIC REGION Revenue, excluding revenue from discontinued operations, attributable to external customers is disclosed below based on the country in which the revenue is derived and billed. Year ended 30 June 2019 $’000 $’000 $’000 AUSTRALIA NEW ZEALAND TOTAL Revenue from external customers 59,247 Revenue Total revenue 59,247 Expenses Direct expenses of providing services (39,023) Employee expenses (17,669) Depreciation and amortisation (1,989) Impairments (14,553) Interest (346) 5,325 5,325 (2,896) (1,472) (26) - - 64,572 64,572 (41,919) (19,141) (2,015) (14,553) (346) Other expenses (13,404) (1,161) (14,565) Total expenses (86,984) (5,555) (92,539) Segment profit before tax (27,737) (230) (27,967) Non-current assets Segment non-current assets 29,970 1,051 31,021 89 Year ended 30 June 2018 $’000 $’000 $’000 AUSTRALIA NEW ZEALAND TOTAL Revenue Revenue from external customers Total revenue Expenses 70,491 70,491 5,318 5,318 75,809 75,809 Direct expenses of providing services (43,068) (1,904) (44,972) Employee expenses (21,507) (2,403) (23,910) Depreciation and amortisation (3,960) (21) Impairments (11,929) Interest (1,101) - - Other expenses (12,089) (1,024) (3,981) (11,929) (1,101) (13,113) Total expenses (93,654) (5,352) (99,006) Segment profit before tax (23,163) (34) (23,197) Non-current assets Segment non-current assets* 51,547 3,430 54,977 *This item only includes Australia and New Zealand non-current assets. United Kingdom and USA non-current assets have been divested. MAJOR CUSTOMERS The Group has no major customers with all customers contributing small balances to revenues. N OTE 2 6 | C A P ITA L A N D L E A S I N G CO M M ITM E NT S CONSOLIDATED GROUP FY2019 $’000 FY2018 $’000 Operating lease commitments Non-cancellable operating leases contracted for but not recognised in the financial statements Not later than 1 year Between 2 and 5 years Later than 5 years 2,080 3,961 311 6,352 3,512 6,954 1,454 11,920 SECTION 7 | FINANCIAL STATEMENTS 90 N OT E 27 | CO N TI N G E NT LI A B I LITI E S A N D CO NTI N G E NT A S S E T S B A N K G UA R A N T E E S The Parent Entity has given bank guarantees as at 30 June 2019 of $1.2 million relating to the lease of the Sydney office space. N OT E 2 8 | F I N A N C I A L R I S K M A N AG E M E NT ACCO U N TI N G P O L I C Y The Group’s financial instruments consist mainly of deposits with banks, accounts receivable and payable, loans to and from subsidiaries and leases. The totals for each category of financial instruments, measured in accordance with AASB 9: Financial Instruments: Recognition and Measurement as detailed in the accounting policies to these financial statements, are as follows: CONSOLIDATED GROUP FY2019 $’000 FY2018 $’000 Financial assets Cash and cash equivalents 3,460 Deferred consideration Trade and other receivables Total financial assets Financial liabilities Trade and other payables Borrowings 3,109 2,728 9,297 5,941 4,635 11,130 - 9,816 20,946 12,800 - Total financial liabilities 10,576 12,800 FINANCIAL RISK MANAGEMENT POLICIES Senior management meet on a regular basis to review currency and interest rate exposure and to evaluate treasury management strategies where relevant, in the context of the most recent economic conditions and forecasts. The overall risk management strategy seeks to assist the consolidated Group in meeting its financial targets, while minimising potential adverse effects on financial performance. Its functions include the review of the use credit risk policies and future cash flow requirements. 91 WITHIN 1 YEAR 1 - 5 YEARS > 5 YEARS TOTAL Maturity analysis FY2019 $’000 FY2018 $’000 FY2019 $’000 FY2018 $’000 FY2019 $’000 FY2018 $’000 FY2019 $’000 FY2018 $’000 Financial assets Cash 3,460 11,130 - Deferred consideration 695 - 2,414 Trade debtors 1,915 6,863 Other receivables 813 2,812 - - - - - 141 Financial liabilities Trade and other payables 5,940 11,949 - 851 Borrowings 4,169 - 466 Vendor loan - 800 - - - - - - - - - - - - - - - - - 3,460 11,130 3,109 - 1,915 6,863 813 2,953 5,940 12,800 4,635 - - 800 ACCO U N TI N G C L A S S I F I C ATI O N S A N D FA I R VA LU E S The following table shows the carrying amounts and fair values of financial assets and financial liabilities, including their levels in the fair value hierarchy. It does not include fair value information for financial assets and financial liabilities not measured at fair value if the carrying amount is a reasonable approximation of fair value. 30 June 2019 CARRYING VALUE RECEIVABLES CARRYING VALUE OTHER FINANCIAL LIABILITIES $’000 LEVEL 1 LEVEL 2 LEVEL 3 TOTAL $’000 $’000 $’000 $’000 FAIR VALUE Financial assets not measured at fair value Cash 3,460 Deferred consideration 3,109 Trade debtors Other receivables 1,915 813 - - - - Financial liabilities not measured at fair value Trade and other payables Borrowings - - 5,941 4,635 - 3,109 - - - - - - - - - - - - - - - - 3,460 3,109 1,915 813 5,941 4,635 SECTION 7 | FINANCIAL STATEMENTS 92 30 June 2018 CARRYING VALUE RECEIVABLES CARRYING VALUE OTHER FINANCIAL LIABILITIES $’000 LEVEL 1 LEVEL 2 LEVEL 3 TOTAL $’000 $’000 $’000 $’000 FAIR VALUE Financial assets not measured at fair value Cash Trade debtors Other receivables Financial assets not measured at fair value Trade and other payables Vendor loan 11,130 6,863 2,953 - - - - - 12,800 800 - - - - - - - - - - - - - - - 11,130 6,863 2,953 12,800 800 R E CO G N I S E D FA I R VA LU E M E A S U R E M E N T S The 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. VA LUATI O N T E C H N I Q U E S U S E D TO D E T E R M I N E FA I R VA LU E S The fair value of the deferred consideration has been determined based on the present value of the future cash flows, discounted using a 3 year government bond rate. When measuring the fair value of an asset or a liability, the Group uses observable market data as far as possible. Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows. • Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities. • Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). • Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs). S E N S ITI V IT Y A N A LYS I S Directors believe that the fair value of financial assets and liabilities are not sensitive to movements in either interest rates or exchange rates having taken into account the relatively stable interest rate market, our interest exposure and the low number of cross border transactions. Refer to the Market Risk information below for further information. S P E C I F I C F I N A N C I A L R I S K E X P O S U R E S A N D M A N AG E M E N T The main risks the Group is exposed to through its financial instruments are credit risk, liquidity risk and market risk consisting of interest rate risk and foreign currency risk. M A R K E T R I S K A. CREDIT RISK Exposure to credit risk relating to financial assets arises from the potential non-performance by customers of contract obligations that could lead to a financial loss to the Group. 93 I. RISK MANAGEMENT Credit risk is managed through the maintenance of systems for the approval, granting and renewal of credit limits, regular monitoring of exposures against such limits and monitoring of the financial stability of significant customers, ensuring to the extent possible that customers to transactions are of sound credit worthiness. Such monitoring is used in assessing receivables for impairment. Depending on the division within the Group, credit terms are generally 14 to 30 days from the invoice date. The maximum exposure to credit risk by class of recognised financial assets at the end of the reporting period excluding the value of any collateral or other security held, is equivalent to the carrying amount and classification of those financial assets (net of any provisions) as presented in the statement of financial position. The Group has no significant concentrations of credit risk with any single customer or group of customers. $56.0 million of the revenue in note 2 relates to memberships and gift cards sales, which are cash on delivery, therefore, the Group has no significant credit risk. II. IMPAIRMENT OF FINANCIAL ASSETS The Group has trade and other receivables that are subject to the expected credit loss model. Trade and other receivables that are neither past due nor impaired are considered to be of high credit quality. Aggregates of such amounts are detailed in note 8. While cash and cash equivalents are also subject to the impairment requirements of AASB 9, the identified impairment loss was immaterial. TRADE AND OTHER RECEIVABLES The Group applies the AASB 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables. See note 8 for details. B. LIQUIDITY RISK Included in the $4.169 million disclosed in the 2019 borrowings time band ‘within 1 year’, is the line of credit facility from Suzerain. Subsequent to year end, the terms of the borrowings were revised and this amount is now payable on 30 September 2020. See note 30. Management monitors rolling forecasts of the Group’s liquidity reserve and cash and cash equivalents on the basis of expected cash flows. Liquidity risk arises from the possibility that the Group might encounter difficulty in settling its debts or otherwise meeting its obligations related to financial liabilities. The Group manages this risk through the following mechanisms: • preparing forward-looking cash flow analyses in relation to its operating, investing and financing activities; • monitoring undrawn credit facilities; • obtaining funding from major financial institutions; • maintaining a reputable credit profile; • managing credit risk related to financial assets; • only investing surplus cash with major financial institutions; and • comparing the maturity profile of financial liabilities with the realisation profile of financial assets. I. FINANCING ARRANGEMENTS On 9 August 2019 the Group entered into a Loan Deed with Suzerain Investments Holdings Limited (Suzerain) for funding of an additional $15.0 million to support working capital requirements and to restructure the business. The restructure is designed to remove an estimated $10.0 million in operational cost from the business. See note 30. II. MATURITIES OF FINANCIAL LIABILITIES Line of credit facility As at 30 June 2019, the line of credit facility with Suzerain was due to mature on 30 September 2019, however, subsequent to year end, the terms of the facility were adjusted. See note 30. SECTION 7 | FINANCIAL STATEMENTS 94 Lease incentive loan As part of the lease agreement for the new office in Sydney, the landlord has financed the fitout with a lease incentive loan. The loan carries no interest component. If there is no default, the loan reduces by 20 per cent each year until there is a zero balance owing at the end of the lease. The loan will be payable immediately if the Group fails the contractual obligation. C. FOREIGN EXCHANGE RISK The Group is exposed to foreign currency risk on the sale of memberships and other fee income from foreign entities and on the translation of its foreign subsidiaries. Senior management had not hedged foreign currency transactions as at 30 June 2019 as $8.0 million of total revenue is in NZD and the foreign currency fluctuation between AUD and NZD is historically insignificant at 5 per cent during the year. Therefore, foreign exchange risk was considered insignificant. Senior management continue to evaluate this risk on an ongoing basis. Trade debtors Trade payables Year ended 30 June 2019 +/- 0.5% in foreign exchange rates Year ended 30 June 2018 +/- 0.5% in foreign exchange rates FY2019 NZD $’000 218 (69) FY2018 NZD $’000 6,954 1,454 PROFIT $’000 EQUITY $’000 7 17 74 64 D. INTEREST RATE RISK The interest rate relating to the borrowing with Suzerain is capitalised with a fixed rate of 10 per cent and is now repayable on 30 September 2020. See note 30. N OT E 2 9 | R E L AT E D PA R T Y TR A N SAC TI O N S KEY MANAGEMENT PERSONNEL Any persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including any Director (whether Executive or otherwise) of that entity, are considered key management personnel. Pursuant to its LFS Plan the Company loaned funds to Iain Dunstan and Darius Coveney with respect to the shares issued to them during the prior year. These shares will no longer vest and the associated balance in the share-based payment reserve has been removed during the current financial year ended 30 June 2019. In addition to the above, as at 30 June 2018, there were 80,000 Performance Rights issued to Heidi Halson, following shareholder approval on 5 April 2018. During the year certain remuneration entitlements of executive and non-executive directors were paid, upon request of the Directors, to related entities or associates of those Directors. See note 20 for the value of remuneration related transactions to key management personnel. 95 OTHER RELATED PARTIES Other related parties include entities controlled by the Company and entities over which key management personnel have joint control. Amounts disclosed in note 20 includes transactions with associated entities of key management personnel. Transactions between related parties are on normal commercial terms and conditions that are no more favourable than those available to other parties unless otherwise stated. Transactions between the Company and controlled entities include loans, management fees and interest. These are eliminated on consolidation. Suzerain Investments Holdings Limited (Suzerain), a related party to Mr Thorpe has provided a $4.0 million line of credit facility to the Group, during the period the Group drew down $4.0 million of the line of credit facility. Subsequent to year end, the terms of the credit facility were amended. See note 30. N OTE 3 0 | E V E N T S A F T E R T H E R E P O R TI N G P E R I O D On 9 August 2019 the Group entered into a Loan Deed with Suzerain for funding of an additional $15.0 million to support working capital requirements and to restructure the business. The restructure is designed to remove an estimated $10.0 million in operational cost from the business. The receipt of the funding will occur in four stages: • $4.0 million immediately after signing of the deed; • $5.0 million on agreement of restructure specifics and associated cost; • $3.0 million subject to shareholder approval of convertible loan security and operational cash flow being within 10 per cent of planned operational cash flow as at 1 December 2019; and • $3.0 million subject to shareholder approval of convertible loan security and operational cash flow being within 10 per cent of planned operational cash flow as at 1 January 2020. The loan is to be repaid on 30 September 2020 with interest capitalised at 10 per cent per annum. The Board will seek shareholder approval at the next AGM to enter into a general security deed over the assets of the Group in the form attached to the Loan Deed. The Board will also seek shareholder approval for the loan to be convertible to ordinary shares at the higher of $0.047 per share or 30 days volume weighted average price prior to conversion. On 22 July 2019, the Board voted to wind up the original Performance Rights Equity Plan and replace it with a new broad-based employee share equity plan. The new plan is yet to be defined or implemented, however the Board has approved the winding up of the program and the associated settlement on the assumption of 40 per cent of all entitlements vesting, equating to 1,550,000 shares. SECTION 7 | FINANCIAL STATEMENTS 96 Directors’ Declaration SECTION 8 9797 In accordance with a resolution of the Directors of IncentiaPay Ltd, the Directors of the Company declare that: The financial statements and notes, as set out on pages 35 to 96, are in accordance with the Corporations Act 2001 and: a) Comply with Australian Accounting Standards, which, as stated in the notes to the financial statements, constitutes compliance with International Financial Reporting Standards (IFRS); and b) Give a true and fair view of the financial position as at 30 June 2019 and of the performance for the year ended on that date of the consolidated Group; In the Directors’ opinion 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 the Directors have been given the declarations required by s295A of the Corporations Act 2001 from the Financial Controller. S T E P H E N H A R R I S O N I N T E R I M E X E C U T I V E CH A I R IncentiaPay Limited ABN 43 167 603 992 Level 10, 220 George Street, Sydney 2000 NSW p | +61 2 8256 5300 | e | info@incentiapay.com www.incentiapay.com SECTION 8 | DIRECTORS’ DECLARATION 98 Independent Auditor’s Report SECTION 9 99 Independent Auditor’s Report To the shareholders of IncentiaPay Limited Report on the audit of the Financial Report Opinion We have audited the Financial Report of IncentiaPay Limited (the Company). In our opinion, the accompanying Financial Report of the Company is in accordance with the Corporations Act 2001, including: • • giving a true and fair view of the Group’s financial position as at 30 June 2019 and of its financial performance for the year ended on that date; and complying with Australian Accounting Standards and the Corporations Regulations 2001. The Financial Report comprises: • Consolidated statement of financial position as at 30 June 2019 • Consolidated statement of profit or loss and other comprehensive income, Consolidated statement of changes in equity, and Consolidated statement of cash flows for the year then ended • Notes including a summary of significant accounting policies • Directors’ Declaration. The Group consists of the Company and the entities it controlled at the year end or from time to time during the financial year. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. 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 Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the Financial Report in Australia. We have fulfilled our other ethical responsibilities in accordance with the Code. KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Liability limited by a scheme approved under Professional Standards Legislation. SECTION 9 | INDEPENDENT AUDITOR’S REPORT 100 Material uncertainty related to going concern We draw attention to Note 1, “Going Concern” in the Financial Report. The conditions disclosed in Note 1, indicate a material uncertainty exists that may cast significant doubt on the Group’s ability to continue as a going concern and, therefore, whether it will realise its assets and discharge its liabilities in the normal course of business, and at the amounts stated in the financial report. Our opinion is not modified in respect of this matter. In concluding there is a material uncertainty related to going concern we evaluated the extent of uncertainty regarding events or conditions casting significant doubt in the Group’s assessment of going concern. This included: • Analysing the cash flow projections by: • • Evaluating the underlying data used to generate the projections for consistency with other information tested by us, and our understanding of the Group’s intentions, and past results and practices; Assessing the planned levels of operating and capital expenditures for consistency of relationships and trends to the Group’s historical results, particularly in light of recent loss making operations, results since year end, and our understanding of the business, industry and economic conditions of the Group; • Assessing significant non-routine forecast cash inflows and outflows for feasibility, quantum and timing. We used our knowledge of the client, its industry and financial position to assess the level of associated uncertainty; • Reading correspondence with existing financiers to understand the financing options available to the Group, and assess the level of associated uncertainty resulting from financial loan draw-down conditions and negotiation of additional/revised funding arrangements; • Evaluating the Group’s going concern disclosures in the financial report by comparing them to our understanding of the matter, the events or conditions incorporated into the cash flow projection assessment, the Group’s plans to address those events or conditions, and accounting standard requirements. We specifically focused on the principal matters giving rise to the material uncertainty. Key Audit Matters Key Audit Matters are those matters that, in our professional judgement, were of most significance in our audit of the Financial Report of the current period. These matters were addressed in the context of our audit of the Financial Report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. In addition to the matter described in the Material uncertainty related to going concern section, we have determined the matter described below to be the Key Audit Matter. 101 Valuation of Goodwill and other intangible assets ($22.51m) Refer to Note 12 to the Financial Report The key audit matter How the matter was addressed in our audit A key audit matter for us was the Group’s annual testing of goodwill and other intangible assets for impairment, given the size of the balance (being 49% of total assets). We focussed on the significant forward-looking assumptions the Group applied in their value in use model, including: • • • forecast operating cash flows – the Group has incurred a loss during the year, as a result of impacts of reductions in membership subscriptions and gift card sales, as well as integration costs associated with acquired businesses and restructuring costs incurred this financial year. These conditions increase the possibility of goodwill and other intangible assets being impaired. Forecast operating cash flows take into account the Groups proposed transformation program, including the strategic reposition of the core operations of the business focussing on long-term sustainability which increases the risk of inaccurate forecasts or a wider range of possible outcomes, for us to consider. forecast growth rate and terminal growth rate – In addition to the uncertainties described above, the Group’s model is highly sensitive to small changes in these assumptions, indicating likely impairment. This drives additional audit effort specific to their feasibility and consistency of application to the Group’s strategy. discount rate – this is complicated in nature and varies according to the conditions and environment the specific Cash Generating Unit (CGU) is subject to from time to time, and the model’s approach to incorporating risks into the cash flows or discount rate. The Group’s modelling is highly sensitive to small changes in the discount rate. Working with our valuation specialists, our procedures included: • We considered the appropriateness of the value in use method applied by the Group to perform the annual test of goodwill for impairment against the requirements of the accounting standards. • We, along with our valuation specialists, assessed the integrity of the value in use model used, including the accuracy of the underlying calculation formulas. • We considered the sensitivity of the model by varying key assumptions, such as forecast growth rate, terminal growth rate and discount rate, within a reasonably possible range. We did this to identify those assumptions at higher risk of bias or inconsistency in application and to focus our further procedures. • We assessed the accuracy of previous Group forecasts to inform our evaluation of forecasts incorporated in the model. • Working with our valuation specialists, we challenged the Group’s significant forecast cash flow and growth assumptions in light of the expected continued downturn in membership subscriptions in the short-term and as a result of the Group’s proposed transformation program. We compared key events to the Board approved plan and strategy. We applied increased scepticism to forecasts in the areas where previous forecasts were not achieved. We compared forecast growth rate and terminal growth rate to published studies of industry trends and expectations, and considered differences for the Group’s operations. We used our knowledge of the Group, their past SECTION 9 | INDEPENDENT AUDITOR’S REPORT 102 The Group’s model used to perform their annual testing of goodwill and other intangible assets for impairment is largely manually developed, uses adjusted historical performance, and a range of internal and external sources as inputs to the assumptions. The Group have not met prior forecasts, raising our concern for reliability of current forecasts. Complex modelling, using forward-looking assumptions tend to be prone to greater risk for potential bias, error and inconsistent application. These conditions necessitate additional scrutiny by us, in particular to address the objectivity of sources used for assumptions, and their consistent application. The carrying amount of the net assets of the Group exceeded the Group’s market capitalisation at year end, increasing the possibility of goodwill and other intangible assets being impaired. This further increased our audit effort in this key audit area. In addition to the above, the Group recorded an impairment charge of $14.55m against goodwill, resulting from the reduction in business, increasing the sensitivity of the model to small changes. This further increased our audit effort in this key audit area. We involved valuation specialists to supplement our senior audit team members in assessing this key audit matter. performance, business and customers, and our industry experience. • We checked the consistency of the growth rate to the Group’s stated plan and strategy, past performance of the Group, and our experience regarding the feasibility of these in the industry/economic environment in which they operate. • Working with our valuation specialists, we analysed the Group’s discount rate against publicly available data of a group of comparable entities. • We assessed the difference between the Group’s year-end market capitalisation and the carrying amount of the net assets, by comparing the year-end market capitalisation to the Group’s enterprise value. • We recalculated the impairment charge against the recorded amount disclosed. • We assessed the disclosures in the financial report using our understanding obtained from our testing and against the requirements of the accounting standards. Other Information Other Information is financial and non-financial information in IncentiaPay Limited’s annual reporting which is provided in addition to the Financial Report and the Auditor's Report. The Directors are responsible for the Other Information. Our opinion on the Financial Report does not cover the Other Information and, accordingly, we do not express an audit opinion or 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. In doing so, we 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. We are required to report if we conclude that there is a material misstatement of this Other Information, and based on the work we have performed on the Other Information that we obtained prior to the date of this Auditor’s Report we have nothing to report. 103 Responsibilities of the Directors for the Financial Report The Directors are responsible for: • preparing the Financial Report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 • • implementing necessary internal control to enable the preparation of a Financial Report that gives a true and fair view and is free from material misstatement, whether due to fraud or error assessing the Group and Company’s ability to continue as a going concern and whether the use of the going concern basis of accounting is appropriate. This includes disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless they either intend to liquidate the Group and Company or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the Financial Report Our objective is: • • 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 Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error. They 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 the Financial Report. A further description of our responsibilities for the audit of the Financial Report is located at the Auditing and Assurance Standards Board website at: http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf. This description forms part of our Auditor’s Report. Report on the Remuneration Report Opinion Directors’ responsibilities In our opinion, the Remuneration Report of IncentiaPay Limited for the year ended 30 June 2019, complies with Section 300A of the Corporations Act 2001. 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 responsibilities We have audited the Remuneration Report included in pages 24 to 32 of the Directors’ report for the year ended 30 June 2019. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. SECTION 9 | INDEPENDENT AUDITOR’S REPORT 104 105 ASX Additional Information SECTION 10 SECTION 10 | ASX ADDITIONAL INFORMATION 106 A SX A D D ITI O N A L I N FO R M ATI O N As at 31 August 2019 D I S T R I B U TI O N O F E Q U ITA B L E S E C U R ITI E S ANALYSIS OF THE NUMBER OF EQUITABLE SECURITY HOLDERS BY SIZE OF HOLDING RANGE TOTAL HOLDERS SECURITIES % ISSUED CAPITAL 1 to 1000 1001 to 5000 5001 to 10000 10001 to 50000 50001 to 100000 100001 and over TOTAL 133 257 142 384 131 197 1,242 30,456 767,386 1,145,662 10,185,198 9,667,183 215,098,104 236,903,989* 0.01 0.32 0.48 4.30 4.09 90.80 100.00 *Excluding Loan Funded Shares in escrow. UNMARKETABLE PARCELS The number of security investors holding less than a marketable parcel of 17,858 securities ($0.28 on 30/08/2019) is 642 and they hold 3,477,900 securities. SUBSTANTIAL HOLDERS RANK NAME CURRENT BALANCE % ISSUED CAPITAL 1 2 3 4 Suzerain Investments Holdings Ltd 48,475,000 Citicorp Nominees Pty Limited 39,885,242 Sinetech Limited 18,500,002 JP Morgan Nominees Australia Pty Limited 17,062,358 19.98% 16.44% 7.63% 7.03% TOP 20 HOLDERS OF FULLY PAID ORDINARY SHARES The names of the twenty largest security holders of quoted equity securities are listed below: RANK INVESTOR CURRENT BALANCE % ISSUED CAPITAL 1  Suzerain Investments Holdings Ltd 48,475,000 19.98% O R D I N A RY/ F U L LY PA I D O R D I N A RY S H A R E S 2  Citicorp Nominees Pty Limited 39,885,242 16.44% 3  Sinetech Limited 18,500,002 4  JP Morgan Nominees Australia Pty Limited 17,062,358 7.63% 7.03% 107 5  Everest MB Pty Ltd 7,518,000 6  Kootenay Investments Pty Ltd 6,500,000 7  BNP Paribas Nominees Pty Ltd 3,387,013 8  Iain Dunstan 9  Darius Coveney 10  Future Land Limited 11  Quotidian No2 Pty Ltd 12  Yarran Park Pty Ltd 13  Ben Johnson 3,035,714 2,678,571 2,500,000 2,250,000 2,170,034 2,139,574 14  Mr Lucas Rudolph Jansen Van Vuuren 2,131,667 15  Virpaysol Pty Ltd 16  Ms Li Zhao 1,723,685 1,572,818 17  Sulamerica Investments Pty Ltd 1,465,000 18  Mr Jibanath Nepal 19  Mr Mark Andrew Wing Young + Ms Noreen Hallion + Mr Paul Simon Hallion 20  Ms Meirong Wang VOTING RIGHTS 1,440,000 1,297,878 1,285,599 3.10% 2.68% 1.40% 1.25% 1.10% 1.03% 0.93% 0.89% 0.88% 0.88% 0.71% 0.65% 0.60% 0.59% 0.53% 0.53% The Company has 236,903,989 fully paid ordinary shares on issue and 5,714,285 in voluntary escrow. Each ordinary share is entitled to 1 vote when a poll is called, otherwise each member present at a meeting, or by proxy, has 1 vote by a show of hands. There are no other classes of equity securities. SECTION 10 | ASX ADDITIONAL INFORMATION 108  IncentiaPay Corporate Directory Directors Mr Stephen Harrison – Interim Executive Chair Mr Jeremy Thorpe – Non-Executive Director Dr Charles Romito – Non-Executive Director Mr Dean Palmer – Non-Executive Director Company Secretary Mr Ben Newling Registered office Level 5, 68 Harrington Street The Rocks NSW 2000 Principal place of business Level 5, 68 Harrington Street The Rocks NSW 2000 Share registry Link Market Services ACN 083 214 537 Level 12, 680 George Street Sydney NSW 2000 +61 2 8280 7100 Auditor KPMG Level 38, Tower Three, International Towers Sydney 300 Barangaroo Avenue, Sydney, NSW 2000 Legal advisers Gilbert + Tobin Level 35, Tower Two, International Towers Sydney 200 Barangaroo Avenue Barangaroo NSW 2000 Bankers Commonwealth Bank of Australia Level 3, 240 Queen Street Brisbane Qld 4000 Stock exchange listing IncentiaPay Ltd shares are listed on the Australian Securities Exchange (ASX code: INP) Website www.incentiapay.com.au 109 LEVEL 5, 68 HARRINGTON STREET THE ROCKS, NSW 2000 AUSTRALIA E M A I L I N F O @ I N C E N T I A P AY. C O M P H O N E ( 0 2 ) 8 2 5 6 5 3 0 0 WWW.INCENTIAPAY.COM 

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