ANNUAL REPORT 2015 20 15 Total Transaction Value up 21% to $130million to a new record while the number of large jackpots was actually down. This clearly shows Jumbo’s ability to grow using its technology and marketing, not just relying on the size of the prize. JUMBO INTERACTIVE LTD ANNUAL REPORT 2015 TABLE OF CONTENTS 6 8 10 INTRODUCTION HIGHLIGHTS MILESTONES 12 14 16 LETTER FROM THE CHAIRMAN LETTER FROM THE CEO GLOBAL GROWTH STRATEGY - AUSTRALIA 18 20 22 GLOBAL GROWTH STRATEGY - GERMANY GLOBAL GROWTH STRATEGY - INTERNATIONAL NEW BRAND 24 CHARITY LOTTERIES 26 30 PRODUCTS AND INNOVATIONS LEADERSHIP TEAM 38 54 55 FINANCIAL REPORT AUDITOR’S INDEPENDENCE DECLARATION CORPORATE GOVERNANCE STATEMENT 60 61 62 CONSOLIDATED STATEMENT OF PROFIT OR LOSS CONSOLIDATED STATEMENT OF FINANCIAL POSITION CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 64 65 104 CONSOLIDATED STATEMENT OF CASH FLOWS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DIRECTORS’ DECLARATION 105 107 110 INDEPENDENT AUDITOR’S REPORT ADDITIONAL INFORMATION FOR LISTED PUBLIC COMPANIES CORPORATE DIRECTORY JUMBO INTERACTIVE LTD ANNUAL REPORT 2015 INTRODUCTION INTRODUCTION From lotteries on the computer to smartphones and now on the Apple watch, Jumbo has constantly led the lottery industry with innovation. 5 Lotteries are an essential element of most countries around the world providing not only enjoyment to millions of players, but also necessary funding for worthwhile causes. Like many other industries, the advent of the Internet is changing the way lotteries operate and how players interact with their favourite lottery games. released in New York on March 31, 2015. This exciting development takes the experience to a whole new level and sets the bar higher for competitors to reach. Playing the lottery has always been a personal experience and Jumbo has used technology to deliver an even higher level of personal experience than has been possible before. Jumbo has already led the industry as one of the very first companies back in 2000 to begin using the Internet to sell tickets and give players a better experience. This trend continued when Jumbo was one of the very first companies to use smartphones to give players an even better experience than before. Now Jumbo has led the industry once more with the world’s first Lottery App for the Apple watch The 2015 Financial Year saw further records broken with a 21% increase in Total Transaction Valve (TTV) and an 18% increase in Revenue. The first year of the German business weighed on the profitability of the overall Group with Net Profit After Tax reaching $663,261. Recent changes in Germany have reduced costs and together with growing revenues, point to a significantly improved contribution over the next financial year. Jumbo Interactive head office in Brisbane, Australia. (This property is not an asset of the Group). 6 JUMBO INTERACTIVE LTD ANNUAL REPORT 2015 HIGHLIGHTS 5 Year Sales on www.OzLotteries.com as at 30 June (Australia) Continual growth of www.OzLotteries.com over 5 years despite fluctuating prizes & jackpots 7 10/11 11/12 12/13 13/14 14/15 Sales Prizes & Jackpots Younger Demographics as at 30 June 2015 (Australia) Internet Lotteries are attracting a younger demographic 32% 13% 15% 3% 33% 29% 32% 17% 23% 3% 18-25 years 25-35 years 35-50 years 50-65 years 65 years & over Internet Lottery Player Total Lottery Players* * Source: Roy Morgan Research Single Source Lottery Players Profile Australians 18+ Apr13-Mar14 Growth in Social Presence as at 30 June (Australia) Social Presence has significantly increased by a whopping 35% 70kLikes 19kLikes 35% 8 95kLikes 12/13 13/14 14/15 Customer Accounts Growth as at 30 June (Australia) Customer accounts increased by 11% 1.72M 1.2M 11% 1.92M 12/13 13/14 14/15 JUN 2015 $130 MILLION Record Full Year TTV SEP 2014 & MAR 2015 3cTotal Dividend JUN 2015 3 NEW GAMES LAUNCHED Jumbo expanded its lottery portfolio by launching three new charity lottery games to complement its portfolio of national lottery games in Australia. These new charity lottery games deliver greater choice to our customers and provide a good opportunity for increasing revenue and helping select charities. JUMBO INTERACTIVE LTD ANNUAL REPORT 2015Milestones9 MAR 2015 LAUNCHES WORLD’S FIRST LOTTERY APP FOR THE APPLE WATCH DEC 2014 NINEMSN AGREEMENT Jumbo signed a co-branded website agreement with Australia’s leading internet portal NineMSN. Under the terms of the agreement, NineMSN agreed to embed fixed ad placements on the NineMSN web portal as well as promote the co-branded website via their extensive inventory to desktop and mobile traffic. This was one of many contributing factors to Australia’s 11% growth in new customer signups this financial year. JUN 2015 NEW BRAND LAUNCHED The new Jumbo Brand across Australia and Germany sites marked a great leap forward in customer communication and retention efforts. More then just a new look, the new brand affects a diverse range of touchpoints designed to improve customer affinity with Jumbo. 10 LETTER FROM THE CHAIRMAN The focus on Germany has been an important experience for the Company and to minimise costs and maximise sales moving forward, we have recently relocated our head office to Hamburg. Dear Shareholder As indicated in last year’s annual report we persisted with our expansion into lottery games internationally and this has maintained the effect on our financial results. However the growth on sales continues to increase and allow us to move forward with our diversification into overseas countries with 2014/15 focussing on Germany where all Länder (States) have now signed up with sales growing in this country. I would also like to acknowledge the support of the board and our steadfast shareholders who continue to enjoy the rewards of the dividend policy with the 14th dividend announced recently and payable September 2015. I look forward to the continued growth both in Australia and overseas with focus not only being in increasing and diversifying sales but also improving the bottom line of the Company. The focus on Germany has been an important experience for the Company and to minimise costs and maximise sales moving forward, we have recently relocated our head office to Hamburg. Yours Truly Germany has not been our total focus of diversification and Mr. Mike Veverka, the founder and CEO will expand on this in his letter. However, it would be remiss of me not to note that our sales in Australia for the year have surpassed our expectations. The diversification has required us to increase our staff to over 120 employees led by Mike and his extremely dedicated and loyal Senior Management team. This team has ensured that all our employees focus and peruse their dedication to the Company. David K Barwick Chairman JUMBO INTERACTIVE LTD ANNUAL REPORT 2015Letter from the Chairman11 12 JUMBO INTERACTIVE LTD ANNUAL REPORT 2015Letter from the Ceo13 LETTER FROM THE CEO Another year of good growth saw TTV up by 21% to $130 million and revenue up 18% to $29 million on the back of another 200,000 customer accounts bringing our total up to 1.92 million. Dear Shareholder, Another year of good growth saw TTV up by 21% to $130 million and revenue up 18% to $29 million on the back of another 200,000 customer accounts bringing our total up to 1.92 million. It should be noted that there were less significant Jackpots last year compared to the previous year. Jackpots are a key driver of sales and the fact the team managed to grow to this extent is testament to their skill in marketing and technology development. This pleasing result has helped us get past the first and most difficult year in our expansion into Germany. Recent changes including a new managing director and an office move to Hamburg have reduced ongoing expenses as revenue is increasing. This points to a reduced loss in Germany in the year ahead as the focus remains firmly on achieving profitability. I wish to thank the entire Jumbo team - who now count over 120 IT and lottery professionals around the globe - for their dedication in building Jumbo as we all look forward to another exciting year ahead. Overall profitability of the group was impacted by the expansion in Germany however we managed to avoid a loss and delivered a Group Net Profit After Tax of $663,261. With an improvement in Germany expected in the year ahead and further growth expected in Australia, the outlook is promising for Jumbo in 2016. Mike Veverka CEO and Founder 14 JUMBO INTERACTIVE LTD ANNUAL REPORT 2015 GLOBAL GROWTH STRATEGY GLOBAL GROWTH STRATEGY AUSTRALIA 15 Jumbo’s Australian Internet lottery business posted a record result in 2015 despite a lower number of major Jackpots. Ticket sales on www.ozlotteries.com grew 20% to $128 million driven by 200,000 new customer accounts increasing the database size to 1.92 million accounts. The number of major Jackpots that reached $15 million or more declined slightly from 36 to 34 from FY14 to FY15. This clearly shows Jumbo is capable of growing lottery ticket sales with its technology and marketing skills and not just the size of the prize. Jackpot size is an important driver of sales however the frequency is generally random. By using technology and internet marketing, Jumbo is able to grow when the overall market is stagnant. Internet marketing includes a range of activities from social media to search engine marketing. Improvements to the software underpinning the web site and mobile apps also played an important role in the increase. A major upgrade of software and systems occurred during 2015 which increased development expenses but also put the Company into a stronger position for future growth. The upgrade has also had visible benefits with the integration of the new branding elements into the software. This also has direct benefit to other key stakeholders in the Australian lottery industry including the Tatts Group who supply Jumbo via a number of reseller agreements and the various state governments who are the main beneficiaries of lotteries in Australia. 20% TICKET SALES GROWTH JUMBO INTERACTIVE LTD ANNUAL REPORT 2015 GLOBAL GROWTH STRATEGY GLOBAL GROWTH STRATEGY 17 GERMANY Jumbo’s German business successfully completed its first year and has laid the foundations for future growth The first version of www.Jumbolotto.de was launched in December 2013 with basic functionality that was limited to the sale of standard tickets in the Eurojackpot, Lotto 6aus49 and GlücksSpirale. Soon afterwards the JumboLotto app was released followed by Group Play options (Spielgemeinschaften). These upgrades were essential to boost growth and improve competitiveness in the marketplace. In June 2015 the business underwent a significant restructure that involved a number of staff changes and an office move from Munich to Hamburg. Mr Jan Steffen was appointed the new Managing Director for Jumbo Germany and has already made a significant impact to the performance of the business. The overall Germany lottery market remains healthy with the vast majority of lottery players still not using the Internet for their lottery purchases. This provides an opportunity for growth as more players move to the Internet and new players join. Since the deregulation of the German lottery market in 2012, overall ticket sales have been growing from €6.5 billion in 2012 towards an estimated €12 billion by 2020. The Internet is driving this growth with internet sales expected to exceed traditional sales in 2020. (Source: Deutscher Lotto & Totoblock (DLTB) lotteries, Deutscher Lottoverband (DLV), Leibniz University Hanover) Jumbo Interactive European office in Hamburg, Germany. (This property is not an asset of the Group). 18 JUMBO INTERACTIVE LTD ANNUAL REPORT 2015 GLOBAL GROWTH STRATEGY GLOBAL GROWTH STRATEGY GLOBAL GROWTH STRATEGY INTERNATIONAL INTERNATIONAL 19 In November 2014, Jumbo participated in the biennial WLA (World Lottery Association) conference in Rome, Italy, as a platinum sponsor. The conference gave Jumbo an opportunity to showcase it’s technology and success to other lotteries around the world who are looking at ways to boost their sales. A number of new opportunities were created that staff are actively pursuing. The world lottery industry is a US$250 billion industry that is overwhelmingly still operating via traditional ticket sales techniques via thousands of physical retailer outlets. As a whole, the world lottery industry has not yet reached 5% Internet sales while some countries such as Australia (10%), the UK (25%) and Finland (30%) have already demonstrated the potential for growth. GLOBAL GROWTH STRATEGY INTERNATIONAL 20 Jumbo has made significant progress in Mexico and negotiations are continuing with lottery authorities. In the USA, Jumbo is a 41% shareholder in a US-based company, Lotto Points Plus. The Company operates the website www.lotteryrewards.com and an app that lets US lottery players participate in a variety of second chance games with personalised rewards and prizes. The app features a unique PlayStream system that allows players to choose what they want to win and provides those players with targeted and relevant prize suggestions. Lotto Points Plus successfully raised US$500,000 in 2015 and is currently seeking to raise a further US$4 million. JUMBO INTERACTIVE LTD ANNUAL REPORT 2015 NEW BRAND 21 ALWAYS THINKING BIG NEW BRAND It is with great excitement that we introduce the new Jumbo brand. “Always thinking big” is the new tagline at Jumbo. Whether it’s about international expansion plans or this week’s jackpot draw, “Always thinking big” is what defines Jumbo. “Always thinking big” also defines our customer. Who hasn’t thought about the big changes that winning the lottery would bring? It’s what drives consumer behaviour, a successful lottery game and a successful lottery seller like Jumbo. Each day, staff at Jumbo come to work to build the next big thing in lotteries. First it was the ability to buy tickets on the Internet over a decade ago. Then it was the ability to play on your smartphone. Now it’s about wearable devices like the Apple watch. What next? Our staff have no shortage of ideas that will improve lottery play, improve customer satisfaction and in turn, continue growing the Company. ALWAYS THINKING BIG 22 HELLO! Meet Joe Yes he’s an elephant. He’s also Jumbo’s front man on all the devices that our players use from their computer to tablet to smartphone and even to their watch. Amazing that such a big guy can even fit on all those screens, but he does, and he gives a friendly and consistent experience to all players. Playing the lottery has always been an emotional and personal experience, so introducing Joe has made it even more so. $970 ,500 1S T PRIZE V ALU E D AT (This property is not an asset of the Group). JUMBO INTERACTIVE LTD ANNUAL REPORT 2015CHARITY LOTTERIES23 CHARITY LOTTERIES Jumbo expanded into the domestic Charity Lottery market with the addition of three new charity lottery games that complement the existing portfolio of national games. 24 The games are available on www.ozlotteries.com and allow customers to participate in the following charity lotteries: SURF LIFE SAVING LOTTERIES These games were selected to best complement the national games such as OzLotto and the Australian Powerball, ensuring customers play them “as well as” the national games and not “instead of”. The typical prizes are cars and homes which sit in value terms below the national lotteries whose prize values range from $5 million to $100 million. In addition to the prize incentive, Charity Lotteries have a strong charity focus appealing to customers who have an interest in certain charity types. The Surf Life Saving Foundation is a high profile charity that promotes water safety and provides surf rescue services around Australia. The lottery operates six prize home draws per year with additional prizes such as cars and gold bullion. Funds raised from the lottery go into rescue gear and equipment, training, first aid supplies and surf safety education programs. Act for Kids is an Australian charity working to prevent and treat child abuse and neglect. The lottery operates six times per year with luxury cars as the the major prize. The Prince of Wales Hospital Foundation raises money to support the purchase of necessary medical equipment and refurbishment of the Prince of Wales Hospital in Sydney. The lottery gives ticket holders a chance to win cash and holiday prizes. Jumbo is not new to this market having sold tickets in the RSL (Returned and Services League, Australia) and Red Cross lotteries as far back as 2000. The focus shifted towards national lotteries in 2005 and succeeded in growing the customer database to 1.92 million customer accounts. Meanwhile the various charity lotteries around Australia also continued to grow and adopt the Internet as a powerful sales channel. Jumbo’s move back into charity lotteries is good news not only for Jumbo but many charitable organisations looking to increasing their fund raising activities. PRODUCTS PRODUCTS AND INNOVATIONS AND INNOVATIONS The key to becoming the global leader in online lotteries is innovation. Jumbo’s IT team is dedicated to developing cutting edge technology to engage and entertain customers. JUMBO INTERACTIVE LTD ANNUAL REPORT 2015Products and innovations25 PRODUCTS AND INNOVATIONS 26 Android and iPhone App Over the last financial year the number of users on mobile devices has grown from 39% to 50%. We see this trend increasing further which is why we have invested more time into developing our native mobile Apps. Earlier this year we launched our Android app as well as improving the features on our existing iPhone app. Both Apps let smart phone users play their favourite lotto games and check lottery results on the go. 2014/2015 50% of users are on mobile devices 2013/2014 39% JUMBO INTERACTIVE LTD ANNUAL REPORT 2015Products and innovations27 German Website We have constantly been updating and improving our core lottery product. With the arrival of our new brand, JumboLotto.de received a facelift and we injected new personality into the online lottery experience. Along with the new look and feel we have made significant updates to the sites performance and user experience. Buying a ticket online has never been so easy. The updates made to JumboLotto.de will also help improve OzLotteries.com over the next financial year. We are expecting that the new look and features will help increase customer convention and retention. Apple Watch In March this year Jumbo launched the world’s first Lottery App for the Apple watch. The new app sends immediate alerts for ticket results, winning prizes and upcoming draws as well as managing ticket purchases. Jumbo’s experience over the past decade has shown that new technology like the apple watch improves the experience of playing the lottery and opens up new demographics that would not otherwise play the lottery. 28 LEADERSHIP TEAM JUMBO INTERACTIVE LTD ANNUAL REPORT 2015Leadership Team29 LEADERSHIP TEAM 30 JUMBO INTERACTIVE LTD ANNUAL REPORT 2015 LEADERSHIP TEAM 31 LEADERSHIP TEAM The board and management team have the skills and ability to deliver Jumbo’s vision of being the leading global lottery e-retailer. Mike Veverka Chief Executive Officer & Executive Director (BEng (Hons)) Mike Veverka is CEO and founder of Jumbo Interactive. He has a proven track record in business and computing, establishing several successful startups to meet new consumer demands for online products. His entrepreneurial flair and ambition for innovation were displayed at the age of fifteen when he created and sold his first software package to Hewlett Packard. Mike worked as a design engineer and computer programmer before founding ‘Squirrel Software Technologies’ that provided some of Australia’s first internet services and e-commerce software. As founder and leader, Mike plays a pivotal role in the growth strategy, innovation and promotion of Jumbo. 32 JUMBO INTERACTIVE LTD ANNUAL REPORT 2015 LEADERSHIP TEAM David Barwick Chairman and Non-Executive Director Bill Lyne Non-Executive Director and Company Secretary (BCom, CA, FCIS, FGIA, FAICD, FFIN) David Barwick has over 40 years experience in the management and administration of publicly listed companies in Australia and North America. During this period David has held the positions of Chairman, Managing Director or President of over 30 public companies with strengths in strategic planning, restructuring and financing entities. 33 Bill Lyne is the Principal of Australian Company Secretary Service that provides secretarial, corporate compliance and governance services to public company clients in a wide range of industries. Prior to this, Bill was Company Secretary and CFO of First Australian Building Society, having previously spent many years in credit and lending positions in merchant banking. Bill holds a Bachelor of Commerce and is a Chartered Accountant. He is a Fellow of the Institute of Chartered Secretaries & Administrators (UK), Governance Institute of Australia, and the Australian Institute of Company Directors. He also has life membership with the Financial Services Institute of Australasia. David Todd Chief Financial Officer (MBA, GradDipACG, CAIB(SA), BCom, FGIA, FCIS) Kate Waters Head of HR & Lottery Operations - Australia (GradCertBus(Mgt), DipHR) David has extensive capabilities in business administration with strengths in credit risk management and international business. His experience in financial management spans 25 years in the banking industries of South Africa, New Zealand and Australia, and small cap and SME environments. David holds a Bachelor of Commerce, a Master of Business Administration, an Associate Diploma in Banking, and a Graduate Diploma of Advanced Corporate Governance. He is a Fellow of the Governance Institite of Australia and a Fellow of the Institute of Chartered Secretaries and Administrators (UK). David brings a wealth of commercial expertise to Jumbo Interactive as Chief Financial Officer. Kate has an extensive role leading Jumbo’s Australian Human Resources and Lottery Operations divisions. As Head of HR she provides executive direction for human resources, recruitment and staffing operations. Kate develops and implements policies and procedures to ensure the successful and smooth running of Jumbo’s Australian operations on a day to day basis. As Head of Lottery Operations she also provides executive direction across customer service, operational procedures and responsible service of gambling for our flagship website OzLotteries.com. Her studies in leadership and management at Qld University of Technology have contributed towards the development of a healthy and positive culture at Jumbo of trust, respect, expertise, innovation and empowering our talent. 34 JUMBO INTERACTIVE LTD ANNUAL REPORT 2015 LEADERSHIP TEAM Brad Board Chief Marketing Officer Xavier Bergade Chief Technology Officer Brad has significant experience in marketing lotteries online in his role as Chief Marketing Officer at Jumbo Interactive. He has provided strategic direction for the successful growth of the Oz Lotteries brand and product in Australia, and has negotiated mutually beneficial lottery e-retail agreements for Jumbo Interactive internationally. Brad is responsible for marketing strategy across all channels and ensures that the online experience and service offering delivered by Jumbo effectively engages and satisfies customers in Australia and internationally. As Chief Information Officer, Xavier ensures that Jumbo’s technology services are continually improving and innovating while remaining secure for customer transactions. He is responsible for the adaptation of the successful Australian OzLotteries.com website to other markets such as Jumbolotto.de which is available for online lottery purchases for customers in Germany, and ensuring capabilities for customer purchases on any device demands that websites continually evolve as new mobile and computer products are released to market with unprecedented frequency. 35 Brian J. Roberts President, North America (DipEC Cert(OM)) Jan Steffen Managing Director of Germany Brian has extensive experience in lotteries and gaming, software development and production and is a recognised creative innovator. His experience in the lottery and gaming industry spans over 40 years with senior roles including Director of Creative Content Development at GTECH, COO and Senior Vice President of Marketing at On-Point Technology Systems, President of LotoMark and Vice President of Lottery Operations at International Totalizator and Lottery Systems. Brian has developed, implemented and managed gaming systems across many international jurisdictions. He holds over twenty issued and pending gaming industry USA patents. Throughout his career to date, Jan has been active in e-commerce companies focusing on product development and marketing. Starting with the governmental lottery agent Tipp24.de, he then went on to act as a consultant for Lottoland.com and was responsible for the marketing of winrace.de GmbH, a portal for horse race betting on the Internet. He passed on his extensive expertise and experience in the field of e-commerce as a freelance consultant, both in Germany as well as in Great Britain, launching successful start-ups in Europe. Given Jumbolotto.de’s position of start up in a growth phase, Jan’s strong Marketing background is a key competitive advantage in that growth and customer retention are always front of mind and he’s able to lean on years of marketing experience in e-commerce and the internet lottery businesses. 36 FINANCIAL REPORT Ticket sales and revenue reaches record levels in 2015 with a 21% increase in TTV to $130 million and an 18% increase in revenue to $29 million driven by an 11% increase in customer accounts. JUMBO INTERACTIVE LTD ANNUAL REPORT 2015Financial RepoRt37 Directors’ Report The Directors of Jumbo Interactive Limited (the Company), present their report on the consolidated entity (the Group), consisting of Jumbo Interactive Limited and the entities it controlled at the end of, and during, the financial year ended 30 June 2015. Directors The following persons were Directors of the Company during the whole of the financial year and up to the date of this report, unless otherwise stated: • David K Barwick (Non-Executive Chairman) • Mike Veverka (Chief Executive Officer) • Bill Lyne (Non-Executive Director) Company Secretary The following person held the position of Company Secretary at the end of the financial year: Mr Bill Lyne – refer to Information on Directors for details. 38 Principal Activities and Significant Changes in Nature of Activities The principal activity of the Group during the financial year was the retail of lottery tickets through the internet and mobile devices sold both in Australia and eligible overseas jurisdictions. There were no significant changes in the nature of the Group’s principal activities that occurred during the financial year. Dividends Details of dividends paid to members of the Company during the financial year are as follows: Final dividend of 1.5 cent per share on ordinary shares for the year ended 30 June 2014 paid on 26 September 2014 Interim dividend of 1.5 cent per share on ordinary shares for the year ended 30 June 2015 paid on 27 March 2015 $658,540 $663,040 $1,321,580 In addition to the above dividends, on 21 August 2015, the directors declared a final ordinary dividend for the financial year ended 30 June 2015 of 1.5 cents per ordinary share (2014: 1.5 cents per ordinary share) to be paid on 25 September 2015, a total estimated distribution of $663,040 based on the number of ordinary shares on issue at 21 August 2015. As the dividend is fully franked, there are no income tax consequences for the owners of Jumbo Interactive Limited relating to this dividend. Operating Results and Review of Operations for the Year Information on the operations and financial position of the Group and its business strategies and prospects for future financial years is set out below. Operating Results There has been a correction of an error relating to revenue recognised in previous years (restated) which has improved the overall finances of the Company – refer to Note 6 for details. The Company reports revenue on a net revenue inflow basis where it considers that it acts more as an Agent than as a Principal such as the sale of lottery tickets. The gross amount received for the sale of goods and rendering of services is advised as Total Transaction Value (“TTV”) for information purposes. Refer to Note 2(d) for details. The consolidated profit of the Group amounted to $663,261 (2014: $3,250,637 restated), after providing for income tax $1,920,374 (2014: $1,981,253 restated) – refer Note 7 for tax expense details, which is an 80.0% decrease on the restated results for the year ended 30 June 2014. Net reportable operating revenues increased 17.7% to $29,199,753 (2014: $24,799,132 restated) and TTV increased by 21.5% to $129,999,326 (2014: $106,960,995 restated). JUMBO INTERACTIVE LTD ANNUAL REPORT 2015 DIRECTORS’ REPORT Other revenue, being mainly interest on cash, increased by 12.5% to $1,204,810 (2014: $1,070,897). During the financial year, the lower average cash and cash equivalent balances and lower average interest rates resulted in lower interest income and a continued weakening of the AUD foreign exchange rate resulted in a higher FX gain, compared to the 2014 financial year. There was an increase in other income of $118,755 in respect of an export market development grant claim. Group earnings before interest, tax, depreciation and amortisation decreased by $1,911,134 from $6,635,289 (2014 restated) to $4,724,155. Although there was a contribution to TTV and revenue from Germany, the increase in overall TTV and revenue was due primarily to growth in the customer database in Australia. The overall reduction in net profit after tax resulted from overseas expansion efforts in particular in Germany as well as costs relating to software development in Australia which has benefits for the entire group. The number of large jackpots is a significant driver of sales. The sales trend over the last three financial year periods in the context of such jackpots is summarised as follows: 39 TTV Reported Revenue OZ Lotto/ Powerball FY 2015 FY 2014 restated FY 2013 restated $130.0 million $107.0 million $109.8 million $29.2 million $24.8 million $25.9 million Number of jackpots of $15 million or more 34 36 39 Average Division One jackpot of $15 million or more $25.3 million $25.7 million $29 million Peak Division One jackpot during the financial year period $70 million $70 million $112 million Aggregate Division One jackpots of $15 million or more during the financial year period $860million $925million $1,130 million The level of large jackpot activity in the current financial year was similar to 2014 but an increase in new and reactivated customers led to higher TTV and revenue. Core expenses increased in Australia of which approximately $500,000 relates to re-branding and customer relationship management and is non-recurring, and approximately $2,000,000 in staff relating to the new software code. Further discussion on the Group’s operations now follows: Review of Operations a. Internet Lotteries Segment The Company was successful in growing the Internet lottery segment with revenue and other income increasing 17% to $29,517,428 (2014: $25,225,152 restated) from a 21.4% increase in TTV to $129,291,227 (2014: $106,461,026 restated). This was as a result of an increase in customer database size despite slightly lower jackpot activity this financial year compared to 2014. Increased investment in the Company’s Internet intellectual properties, notably www.ozlotteries.com and www.jumbolotto.de, as well as ongoing efforts to expand into overseas markets, have increased the operating costs. This has resulted in a decrease of 37% in net profit before tax contribution to $4,230,069 (2014: 6,681,453 restated). Australia Successful marketing campaigns resulted in an 11% increase in customer accounts to 1.92 million and 16% growth in revenue and other income to $29,345,271 (2014: $25,216,528 restated). Net profit before tax decreased marginally to $8,120,012 (2014: $8,145,169 restated) due to an increase in expenses of approximately $1,500,000 relating to software development. Approximately $500,000 of these expenses is non-recurring. TTV for the financial year increased by 20% to $127,755,614 (2014: $106,372,238 restated), Germany The first full year of operations in Germany resulted in revenue and other income of $172,157 (2014: $8,621) due to the commencement of marketing activities, with TTV of $1,535,613 (2014: $88,788). This also resulted in increased costs with an associated increase in net loss before tax of $3,591,431 (2014: loss of $1,114,642). The business was restructured in June 2015 to reduce ongoing costs and optimize marketing efforts. This involved a number of staff changes and a move of the office from Munich to Hamburg. Mexico Activity in Mexico has reduced as negotiations continue with lottery administration. Minimal activity is expected in the year ahead as contract negotiations continue. The net loss before tax for Mexico was $298,512 (2014: loss $349,074). b. All Other Segments This segment consists of the sale of non-lottery products and services. Revenue and other income increased to $707,284 (2014: $508,882) and net profit before tax increased to $228,663 (2014: $13,016). c. Summary of Results The results for the Company are summarised below: Total Transaction Value $130.0 million $107.0 million $109.8 million $100.8 million $76.3 million1 2015 2014 restated 2013 restated 2012 restated 2011 restated EBITDA PROFIT - NPAT 1 Continuing operations. Five Year Asset Growth Cash at Bank1 Net Assets NTA $4,724,155 $6,635,290 $7,361,077 $11,029,998 $7,440,5251 $663,261 $3,250,637 $3,458,027 $7,103,709 $5,136,340 40 2015 2014 restated 2013 restated 2012 restated 2011 restated $23.8 million $25.4 million $24.5 million $21.7 million $11.8 million $21.7 million $22.1 million $22.3 million $19.5 million $11.1 million $11.6 million $14.1 million $15.6 million $12.7 million $4.7 million 1 includes cash held under term deposit and customer account balances payable (refer to Note 12: Cash and Cash Equivalents and Note 21: Trade and Other Payables for details) Five Year Share Price Analysis PROFIT - NPAT EPS Share Price Shares on Issue Market Cap 2015 2014 restated 2013 restated 2012 restated 2011 restated $663,261 $3,250,637 $3,458,027 $7,103,709 $5,136,3401 1.5¢ 85.0¢ 7.4¢ 130.0¢ 7.9¢ 150.0¢ 16.7¢ 105.0¢ 13.0¢1 37.0¢ 44.2 million 43.9 million 43.6 million 42.4 million 39.5 million $37.6 million $57.1 million $65.3 million $44.5 million $14.6 million 1 After impairment reversal $1,258,354 and voluntary administration expenses $1,224,339. Financial Position The net assets of the Group have decreased by $443,798 from 30 June 2014 to $21,680,753. This decrease is largely due the payment of aggregate dividends of greater amount than the total comprehensive income for the financial year. The Group’s working capital, being current assets less current liabilities, has reduced from $13,860,721 in 2014 (restated) to $10,942,038 in 2015 mainly as a result of investments in website development and losses in Germany. Non-current assets increased by$2,430,216 to $10,977,702 due mainly to the investment in the new software code of www.ozlotteries.com and www.jumbolotto.de. The Directors believe the Group is in a sound financial position to expand and grow its current operations. Significant Changes in State of Affairs Significant changes in the state of affairs of the Group for the financial year were as follows: JUMBO INTERACTIVE LTD ANNUAL REPORT 2015 DIRECTORS’ REPORT a. increase in non-current assets of $2,430,216 as a result of: Investment in website development costs net of amortisation (see Note 20: Intangible Assets for details) Changes in other non-current assets (see Notes 16, 19 and 20) $ 1,771,145 659,071 2,430,216 Likely Developments, Key Business Strategies and Future Prospects The Company continues its efforts to grow its core domestic lottery market in Australia while respecting responsible gaming commitments and the needs of all industry stakeholders, including other lottery channels. The following lottery agreements are held with the Tatts Group: • Victoria (five years which expired 30 June 2013 – extended on a 30 days’ notice basis); • New South Wales (five years which expired 4 December 2013 – extended on a 30 days’ notice basis); • South Australia (five years expiring 1 September 2017); and • Northern Territory (five years expiring 27 September 2017) 41 The Company has a strong relationship with Tatts and continues to pursue renewal of the expired agreements for further five year periods. The domestic internet lottery market represents 7% of the total domestic lottery market compared to overseas lottery markets which have recorded strong growth such as the more mature markets of UK and Finland where internet market share has reached 15% and 30% respectively. Based on this, there is still good growth potential in the domestic market. The Company started selling Art Union lottery tickets at the end of FY2015, and this is expected to show good growth in the FY2016. Investment in the Company’s core intellectual property will continue for FY2016 with benefits expected in future years. In addition to the ongoing focus on its core domestic market, the Company continues to actively pursue opportunities in international markets in: • the USA where the North America lottery market is $60 billion; • Mexico where the lottery market is $1.3 billion; and • Europe The Company continues with its investment in the New York based associate company Lotto Points Plus Inc which was established in November 2012 to provide new generational lottery solutions incorporating internet, physical merchandising and lottery affinity/loyalty programs to US retailers. In February 2015, company raised US$500,000 capital to increase the interactive side of the business which is expected to grow over the next 12 to 24 months. Sales in the $10 billion German lottery market, selling the national lottery games in Germany to its residents commenced in December 2013 through the licence obtained during the year and subsequent agreements signed with the 16 Länder (States). There has been a rationalisation of the business with a focus on customer acquisition at lower cost, customer retention, increased margins and reduced operating costs for the FY2016. New products and technologies are being developed to take advantage of the trend towards social media, interactive gaming and e-tailing, which is expected to have the Company well placed in the domestic market and give it a competitive edge in the international markets. Although the costs being incurred on investment in core intellectual property and to establish these overseas businesses will constrain profits for the next year or two, the Group will be well placed for strong results in the medium to long term. Matters Subsequent to the End of the Financial Year Apart from the dividend declared, as at the date of this director’s report, the directors are not aware of any matter or circumstance that has arisen that has significantly affected, or may significantly affect, the operations of the Group in the financial years subsequent to 30 June 2015. Environmental Regulation The Group’s operations are not regulated by any significant environmental regulation under a law of the Commonwealth or of a State or Territory. Information on Directors David K Barwick Experience Appointed as a Board member on 30 August 2006 and Chairman on 7 November 2007. David Barwick is an accountant by profession with over 40 years experience in the management and administration of publicly listed companies both in Australia and North America. During this period David has held the position of Chairman, Managing Director or President of over 30 public companies covering a broad range of activities. Other current directorships1 None. Interest in shares and options2 None. 42 Special responsibilities Chairman (Non-Executive); Chair of the Nomination and Remuneration Committee; and member of the Audit Committee. Former directorships (in the last three years)3 Previous Director and Chairman of Planet Metals Limited (from 9 June 2009 to 4 September 2013) and previous Director and Chairman of Metallica Minerals Limited (from 11 March 2004 to 30 June 2015). Mike Veverka Qualifications Bachelor of Engineering Experience Mike Veverka has been Chief Executive Officer and Director of Jumbo Interactive Limited since the restructuring of the Company in September 1999. Mike was instrumental in the development of the e-commerce software that is the foundation to the various Jumbo operations. Mike was the original founder of subsidiary Benon Technologies Pty Ltd in 1995 when development of the software began. Mike also established a leading Internet Service Provider in Queensland which operated successfully for three years before being sold. Mike is regarded as a pioneer in the Australian internet industry with many successful internet endeavours to his name. Mike graduated with an Honours degree in engineering in 1987. Other current directorships1 None Interest in shares and options2 9,101,027 ordinary shares and 400,000 options over ordinary shares in Jumbo Interactive Limited. Special responsibilities Chief Executive Officer Former directorships (in the last three years)3 None Bill Lyne Qualifications Bachelor of Commerce; Chartered Accountant JUMBO INTERACTIVE LTD ANNUAL REPORT 2015 DIRECTORS’ REPORT Experience Appointed as a board member on 30 October 2009. Bill Lyne is the principal of Australian Company Secretary Service, providing company secretarial, compliance and governance services to public companies. He is currently company secretary of two other publicly listed companies, is a former secretary and/or director of a number of other listed companies, and has a wealth of experience in corporate governance principles and practices. Bill is a fellow of Governance Institute Australia and has been a presenter at GIA courses in company secretarial practice. Other current directorships1 None Interest in shares and options2 None Special responsibilities Chair of the Audit Committee; member of the Nomination and Remuneration Committee; and Company Secretary. 43 Former directorships (in the last three years)3 None 1 current directorships for listed entities only and excludes directorships of all other types of entities, unless otherwise stated. 2 includes transactions since the end of the reporting date up to and including the date of the Directors’ Report. 3 directorships held in the last three years for listed entities only and excludes directorships of all other types of entities, unless otherwise stated. Meetings of Directors The number of meetings of the Board of Directors (including board committees) held during the year ended 30 June 2015 and the number of meetings attended by each Director is set out below: Board Audit and Risk Management Committee Nomination and Remuneration Committee Name Eligible to attend Attended Eligible to attend Attended Eligible to attend Attended David Barwick Mike Veverka Bill Lyne 14 14 14 14 14 14 7 - 7 7 - 7 2 - 2 2 - 2 Share Options Unissued ordinary shares of the Company under option at the date of this report are as follows: Date options granted Expiry date Exercise price of shares Number under option 3 September 2013 3 September 2018 6 November 2013 6 November 2018 $4.00 $4.00 1,800,000 400,000 2,200,000 The holders of these options do not have any rights under the options to participate in any share issue of the Company or of any other entity. During or since the financial year ended 30 June 2015, the following ordinary shares of Jumbo Interactive Limited were issued on the exercise of options granted. No amounts are unpaid on any of the shares. Grant date Issue price of shares Number of shares issued Employees 14 December 2011 70 cents 300,000 300,000 During or since the end of the financial year, no options were granted by Jumbo Interactive Limited to Directors and key management personnel, including the five most highly remunerated officers, of the Group as part of their remuneration. For details of options issued to directors and executives as remuneration, refer to the Remuneration Report Remuneration Report (Audited) This report details the nature and amount of remuneration for each Key Management Person, including each director of Jumbo Interactive Limited. a. Policy for determining the nature and amount of KMP remuneration The Remuneration Policy of Jumbo Interactive Limited has been designed to align director and Key Management Personnel (KMP) objectives with shareholder and business objectives by providing a remuneration component and offering specific incentives based on key performance areas affecting the Group’s financial results. The Board of Jumbo Interactive Limited believes the Remuneration Policy to be appropriate and effective in its ability to attract and retain the best directors and KMP to run and manage the Group, as well as create goal congruence between directors, executives and shareholders. The Board’s policy for determining the nature and amount of remuneration for Board members and KMP of the Group is as follows: • The Remuneration Policy, setting the terms and conditions for the directors and KMP, was developed by the Nomination and Remuneration Committee and approved by the Board. • All KMP receive a base salary (which is based on factors such as individual performance skills, level of 44 responsibilities, experience and length of service), superannuation, options (by invitation) and performance incentives. • Performance incentives are generally only paid once predetermined key performance measures have been met. • The Board reviews KMP packages annually by reference to the Group’s performance, executive performance and comparable information from industry sectors and other listed companies in similar industries. The performance of KMP is measured against criteria agreed annually with each KMP and is based predominantly on the Group’s profits and shareholder value. All bonuses and incentives must be linked to predetermined performance criteria. Any changes must be justified by reference to measurable performance criteria. The policy is designed to attract the highest calibre of KMP and reward them for performance that results in long term growth in shareholder wealth. Refer below for further details of performance based remuneration. KMP are also entitled to participate in the employee share option arrangements. The directors and KMP receive a superannuation guarantee contribution required by the government, which is currently 9.50% and do not receive any other retirement benefits. Some individuals, however, may choose to sacrifice part of their salary to increase payments towards superannuation. All remuneration paid to directors and KMP is valued at the cost to the Company and expensed. Options are valued using the Black-Scholes, Binomial and Monte Carlo Simulation methodologies. Fixed compensation Fixed compensation consists of a base salary as well as employer contributions to superannuation funds. Compensation levels are reviewed annually by the Board through a process that considers individual and overall performance of the Group, and with reference to other KMP of comparable companies. If considered necessary, external consultants provide analysis and advice to ensure the directors’ and KMP compensation is competitive in the market place. Performance linked compensation Performance linked compensation includes short term incentives only and is designed to reward KMP for superior performance. The short term incentive (STI) is an “at risk” bonus provided in the form of cash. The Group does not have long term incentives (LTI) such as the issue of ordinary shares or the grant of options over ordinary shares as a part of performance linked compensation due to the relatively small market capitalisation of the Company, the concentrated shareholding of the Company which could become further concentrated under such a scheme, and the desire of the Board to limit shareholding dilution to as low a level as possible. The Board did not exercise any discretion on the payment of bonuses. Non-executive Directors The Board policy is to remunerate non-executive Directors at market rates for comparable companies for time, commitment and responsibilities. The Board determines payments to the non-executive Directors and reviews their remuneration annually based on market practice, duties and accountability. Independent external advice is sought 45 JUMBO INTERACTIVE LTD ANNUAL REPORT 2015 DIRECTORS’ REPORT when required. The maximum aggregate amount of fees that can be paid to non-executive directors is subject to approval by shareholders at the Annual General Meeting. The total compensation for all non-executive Directors, last voted upon by shareholders at the 2009 AGM, is not to exceed $250,000 per annum and is set with reference to other non-executive Directors of comparable companies. Fees for non-executive Directors are not linked to the performance of the Group. Fees are paid as follows and comprise cash and statutory superannuation: Chairman of Board Non-Executive Directors Membership of Audit Committee and Nomination and Remuneration Committee Chairman of Audit Committee Chairman of Nomination and Remuneration Committee $76,650 $54,750 No additional fees No additional fees No additional fees Performance Based Remuneration As part of the KMP remuneration package there is a performance based component, consisting of key performance indicators (KPI). The intention of this program is to facilitate goal congruence between executives with that of the business and shareholders. These KPI are set annually, with a certain level of consultation with KMP to ensure buy-in. The KPI target areas the Board believes hold greater potential for group expansion and profit, covering both financial and non-financial as well as short and long-term goals. The level set for each KPI is based on combination of an improvement on the previous year results, budgeted figures and market sector standards (Consumer Discretionary Sector – ASX code: XDJ). Performance in relation to the KPI is assessed annually by the Board, with bonuses being awarded depending on the number and deemed difficulty of the KPI achieved. Following the assessment, the KPIs are reviewed by the Board in light of the desired and actual outcomes, and their efficacy is assessed in relation to the Group’s goals and shareholder wealth before the KPI are set for the following year. In determining whether or not a financial KPI has been achieved, the Company bases the assessment on audited figures. Performance conditions linked to remuneration The Group seeks to emphasise reward incentives for results and continued commitment to the Group through the provision of various “at risk” cash bonus reward schemes. Short term incentive bonus Incentive payments are based on the achievement of financial targets of profit, return of equity and total shareholder return and non-financial targets of strategic benefit such as signing of lottery agreements both domestically and internationally. Payments of incentives for the 2015 financial year result were based on the Group’s overall financial performance (with some KPIs being achieved). Long term incentive bonus Options are issued to KMP as part of their remuneration at the discretion of the Board. These options are not issued based upon performance criteria, but are issued to increase goal congruence between KMP, directors and shareholders. Company Performance, Shareholder Wealth, and Directors’ and KMP Remuneration The following table shows the total transaction value and profit/(loss) for the last five years for the listed entity, as well as the share price at the end of the respective financial years. Analysis of the figures show Total Transaction Value $130.0 million$107.0 million$109.8 million$100.8 million $76.3 million1 Net profit/(loss) – overall operations $663,261 $3,250,637 $3,458,027 $7,103,709 $5,136,340 Net profit/(loss) – continuing operations $663,261 $3,250,637 $3,458,027 $6,836,700 $5,234,736 2015 2014 restated 2013 restated 2012 restated 2011 restated Net profit/(loss) – discontinued operations Share price at year end Dividends paid per share Total shareholder return Earnings per share Return on capital employed – overall operations Return on capital employed – continuing operations Return on capital employed – discontinued operations 1 Continuing operations. - 85.0¢ 3.0¢ 3.0¢ (11.3%) (11.3%) 1.5¢ 3.1% 3.1% - 7.4¢ 14.7% 14.7% - - - $267,0093 ($98,396)2 130.0¢ 150.0¢ 105.0¢ 3.5¢ 46.2% 7.9¢ 15.2% 15.2% - 1.5¢ 187.8% 16.7¢ 36.5% 38.0% 1.5% 37.0¢ 0.5¢ 38.9% 13.0¢ 46.3% 45.3% (1.0%) 46 2 This is after reversal of impairment expense $1,258,354, loss on loss of control of subsidiary placed into voluntary administration $639,644 and expenses relating to the voluntary administration expenses $584,695. 3 This is only the tax effect of the subsidiary placed into voluntary administration. b. Key Management Personnel The following persons were key management personnel of Jumbo Interactive Limited Group during the financial year: David K Barwick Chairman (non-executive) Mike Veverka Director and Chief Executive Officer Bill Lyne Non-executive Director and Company Secretary David Todd Chief Financial Officer Xavier Bergade Chief Technology Officer Kate Waters Head of HR & Lottery Operations - Australia Brad Board Chief Marketing Officer JUMBO INTERACTIVE LTD ANNUAL REPORT 2015 DIRECTORS’ REPORT Details of Remuneration Details of compensation of key management personnel of Jumbo Interactive Limited Group are set out below: 2015 Directors David Barwick Mike Veverka Bill Lyne Bill Lyne – as Company Secretary Other key management personnel David Todd Xavier Bergade Kate Waters Brad Board Total key management personnel remuneration 47 Short term employee benefits Post employment benefits Cash salary, fees and leave $ Cash bonus $ Non-monetary benefits $ Superannuation $ 70,000 390,789 50,000 18,935 197,650 215,342 176,140 208,419 - 24000 - - 12,000 12,000 - 26,400 1,327,275 74,400 - - - - - - - - - 6,650 25,000 4,750 - 23,518 20,140 15,932 21,508 117,498 1 Includes share based payments over the remaining term on those options exercised during the financial year. 2014 Directors David Barwick Mike Veverka Bill Lyne Bill Lyne – as Company Secretary Other key management personnel David Todd Xavier Bergade Kate Waters Brad Board Total key management personnel remuneration Short term employee benefits Post employment benefits Cash salary, fees and leave $ Cash bonus $ Non-monetary benefits $ Superannuation $ Long term benefits Share based payments Long service leave Termination benefits Options1 Proportion of remuneration that is Total performance based 70,000 372,463 50,000 21,238 200,000 200,000 130,000 165,769 - 45,000 - - 22,500 24,900 10,790 16,650 1,209,470 119,840 - - - - - - - - - 6,475 25,000 4,625 - 20,581 20,803 13,023 16,874 107,381 1 Includes share based payments over the remaining term on those options exercised during the financial year. Long term benefits Share based payments Long service leave Termination benefits Options1 Proportion of remuneration that is performance based 5,980 $ - - - 3,321 (2,831) 6,290 3,322 16,082 6,909 $ - - - 3,838 3,838 2,495 3,838 20,918 $ - - - - - - - - - $ - - - - - - - - - 36,117 $ - - - 14,594 14,594 8,340 14,594 88,239 23,416 $ - - - 12,028 13,909 10,310 12,028 Total $ 76,650 481,886 54,750 18,935 251,083 259,245 206,702 274,243 1,623,494 $ 76,475 472,788 54,625 21,238 258,948 263,451 166,618 215,159 71,692 1,529,301 % - - - 5.0 4.8 4.6 - 9.6 % - - - 9.5 8.7 9.5 6.5 7.7 Details of Remuneration Details of compensation of key management personnel of Jumbo Interactive Limited Group are set out below: 2015 Short term employee benefits Long term benefits Share based payments Post employment benefits Cash salary, fees and leave $ Cash bonus benefits Superannuation Non-monetary Long service leave $ Termination benefits $ - 5,980 - - 3,321 (2,831) 6,290 3,322 16,082 - - - - - - - - - Options1 $ - 36,117 - - 14,594 14,594 8,340 14,594 88,239 Long term benefits Share based payments Directors David Barwick Mike Veverka Bill Lyne Bill Lyne – as Company Secretary Other key management personnel David Todd Xavier Bergade Kate Waters Brad Board Total key management personnel remuneration 2014 Directors David Barwick Mike Veverka Bill Lyne Bill Lyne – as Company Secretary Other key management personnel David Todd Xavier Bergade Kate Waters Brad Board Total key management personnel remuneration $ - - - - $ - - - 24000 12,000 12,000 26,400 45,000 22,500 24,900 10,790 16,650 70,000 390,789 50,000 18,935 197,650 215,342 176,140 208,419 70,000 372,463 50,000 21,238 200,000 200,000 130,000 165,769 $ - - - - - - - - - - - - - - - - - - $ 6,650 25,000 4,750 $ - 23,518 20,140 15,932 21,508 117,498 6,475 25,000 4,625 $ - 20,581 20,803 13,023 16,874 107,381 1 Includes share based payments over the remaining term on those options exercised during the financial year. 1,327,275 74,400 Short term employee benefits Post employment benefits Cash salary, fees and leave $ Cash bonus benefits Superannuation Non-monetary 1 Includes share based payments over the remaining term on those options exercised during the financial year. 1,209,470 119,840 Long service leave $ Termination benefits $ - 6,909 - - 3,838 3,838 2,495 3,838 20,918 - - - - - - - - - Options1 $ - 23,416 - - 12,028 13,909 10,310 12,028 Proportion of remuneration that is performance based % Total $ 76,650 481,886 54,750 18,935 251,083 259,245 206,702 274,243 1,623,494 - 5.0 - - 4.8 4.6 - 9.6 48 Proportion of remuneration that is performance based % Total $ 76,475 472,788 54,625 21,238 258,948 263,451 166,618 215,159 - 9.5 - - 8.7 9.5 6.5 7.7 71,692 1,529,301 JUMBO INTERACTIVE LTD ANNUAL REPORT 2015 DIRECTORS’ REPORT c. Cash bonuses No cash bonuses were paid at the discretion of the Nomination and Remuneration Committee. Key management personnel are entitled to a short-term cash incentive based on performance criteria described in section (a) to this Remuneration Report. These were paid out on 27 August 2015. Details of these short-term incentives recognised as remuneration, forfeited or available for vesting in later years is outlined below: KMP David Barwick Bill Lyne Mike Veverka David Todd Xavier Bergade Kate Waters Brad Board Included in remuneration $ Forfeited in year $ Available for vesting in future years1 $ n/a n/a 24,000 12,000 12,000 - 26,400 n/a n/a 216,000 108,000 108,000 - 93,600 n/a n/a 30,000 15,000 9,000 - - 49 1 bonuses totalling $54,000 that have been accrued and were included in the 2013 financial year compensation details have not yet been paid, and are now expected to be paid in the 2016 financial year. d. Options and rights granted as remuneration Options are issued to key management personnel as part of their remuneration at the discretion of the Board. The options are not necessarily issued based upon performance criteria, but are issued to selected executives of the Company and its subsidiaries to increase goal congruence between executives, directors and shareholders. No options and rights were granted to key management personnel as compensation during the reporting period. Options will vest in key management personnel when the share price equals the exercise price, as measured by the 5 day moving average, and on condition that they are currently employed by the Jumbo Interactive Limited Group at the time of vesting. If the key management person leaves before their options vest, then the options will lapse immediately. In the event of retirement or retrenchment, the options will lapse one month after the event and if deceased, the options will lapse three months after the event. e. Equity instruments issued on exercise of remuneration options No equity instruments were issued during the period to key management personnel as a result of options exercised that had previously been granted as compensation. f. Value of options to key management personnel No options were exercised or lapsed during the year to key management personnel as part of their remuneration. g. Equity instruments held by key management personnell Options and rights holdings Details of options and rights held indirectly or beneficially by key management personnel are as follows: Balance at 1 July 2014 400,000 350,000 Mike Veverka David Todd Xavier Bergade 350,000 Kate Waters Brad Board 200,000 350,000 1,650,000 Granted as remuneration during the year Exercised during the year Other changes during the year Balance at 30 June 2015 Vested at 30 June 2015 Total vested and exercisable at 30 June 2015 Total vested and unexercisable at 30 June 2015 - - - - - - - - - - - - - - - - - - 400,000 350,000 350,000 200,000 350,000 1,650,000 - - - - - - - - - - - - - - - - - - On exercise, each option and right will result in the issue of one ordinary share in Jumbo Interactive Limited. 1Key management personnel include close family members and entities over which the key management person or their close family members have direct or indirect control, joint control or significant influence. Shareholdings Details of ordinary shares in Jumbo Corporation Limited held directly, indirectly or beneficially by key management personnel and their related parties are as follows: 30 June 2015 Mike Veverka David Todd Xavier Bergade Kate Waters Brad Board Balance at 1 July 2014 9,060,471 20,000 150,000 - - 9,230,471 Granted as remuneration during the year Issued on exercise of options during the year Other changes during the year2 Balance at 30 June 2015 - - - - - - - - - - - - 40,556 - - - - 9,101,027 20,000 150,000 - - 40,556 9,271,027 1 Key management personnel include close family members and entities over which the key management person or their close family members have direct or indirect control, joint control or significant influence. 2 includes on-market transactions and any acquisitions under the dividend reinvestment plan. h. Other related party transactions 50 Consolidated Group 2015 $ 2014 $ Transactions between related parties are on normal commercial terms and conditions no more favourable than those available to other parties unless otherwise stated. Elegant Properties Pty Ltd and Rosch Realty Pty Ltd are solely owned by Mr Mike Rosch, the father of Mr Mike Veverka, the CEO and executive director of the Company. Elegant Properties Pty Ltd rented an office from the Group and provided services during the financial year and Rosch Realty Pty Ltd provided an agent service during the previous financial year. Office rent received Services paid 3,788 10,236 22,773 2,613 Mrs Julie Rosch, the mother of Mr Mike Veverka, the CEO and Executive Director of the Company, is engaged as a full time employee within the Group. Salary and superannuation 82,125 81,938 i. Employment contracts of directors and KMP The employment conditions of non-executive directors are formalised by letters of appointment and KMP are formalised in contracts of employment. The employment contracts stipulate a range of terms and conditions. The Company may terminate an employment contract without cause by providing generally four weeks written notice or making payment in lieu of notice, based on the individual’s annual salary component. The notice period for the Chief Executive Officer is fifty two (52) weeks. A termination payment may or may not be applicable dependent on the particular circumstances. Termination payments are generally not payable on resignation or dismissal for serious misconduct. In the instance of serious misconduct the Company can terminate employment at any time. Any options not exercised before or on the date of termination will lapse. The policy of the Company is that service contracts are generally unlimited in term. Unless otherwise stated, service agreements do not provide for pre-determined compensation values or the manner of payment. Compensation is determined in accordance with the general remuneration policy outlined above. The manner of payment is determined on a case by case basis. JUMBO INTERACTIVE LTD ANNUAL REPORT 2015 DIRECTORS’ REPORT Mike Veverka Contract term: Ongoing Base salary: Base salary for the year ending 30 June 2015 of $360,000, plus superannuation, plus incentive bonus potential of up to 66.66% of base subject to KPI achievement and Nomination and Remuneration Committee approval, to be reviewed annually by the Nomination and Remuneration Committee. Termination payments: Payment on early termination by the Group, other than for gross misconduct, equal to 12 months base salary plus bonus. David Todd Contract term: Ongoing Base salary: Base salary for the year ending 30 June 2015 of $200,000, plus superannuation, plus incentive bonus potential of up to 60% of base subject to KPI achievement and Nomination and Remuneration Committee approval, to be reviewed annually by the Nomination and Remuneration Committee. Termination payments: Payment on early termination by the Group, other than for gross misconduct, equal to six months base salary. 51 Xavier Bergade Contract term: Ongoing Base salary: Base salary for the year ending 30 June 2015 of $200,000, plus superannuation, plus incentive bonus potential of up to 60% of base subject to KPI achievement and Nomination and Remuneration Committee approval, to be reviewed annually by the Nomination and Remuneration Committee. Termination payments: Payment on early termination by the Group, other than for gross misconduct, equal to six months base salary. Kate Waters Contract term: Ongoing Base salary: Base salary for the year ending 30 June 2015 of $165,000, plus superannuation, with no incentive bonus potential, to be reviewed annually by the Nomination and Remuneration Committee. Termination payments: Payment on early termination by the Group, other than for gross misconduct, equal to six months base salary. Brad Board Contract term: Ongoing Base salary: Base salary for the year ending 30 June 2015 of $200,000, plus superannuation, plus incentive bonus potential of up to 60% of base subject to KPI achievement and Nomination and Remuneration Committee approval, to be reviewed annually by the Nomination and Remuneration Committee. Termination payments: Payment on early termination by the Group, other than for gross misconduct, equal to six months base salar. End of Remuneration Report Indemnifying Officers or Auditor During the financial year, the Company paid a premium in respect of a contract insuring directors, secretaries and executive officers of the Company and its controlled entities against a liability incurred as director, secretary or executive officer to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium. The Company has not otherwise, during or since the end of the financial year, except to the extent permitted by law, indemnified or agreed to indemnify an officer of the Company or any of its controlled entities against a liability incurred as such an officer. No indemnity has been provided to, or insurance paid on behalf of, the auditor of the Group. Non-Audit Services During the financial year, the following fees for non-audit services were paid or payable to the auditor, BDO, or their related practices: Taxation services Amounts paid or payable to a related practice of BDO Tax compliance services - tax returns Transfer pricings Other tax advice Other services Amounts paid or payable to a related practice of BDO Accounting advice Accounting services Total fees for non-audit services Consolidated 2015 $ 2014 $ 36,650 27,212 2,925 58,594 - 12,000 2,700 5,000 - - 47,275 97,806 52 On the advice of the Audit Committee, the Directors are satisfied that the provision of non-audit services, during the year, by the auditor (or by another person or firm on behalf of the auditor), is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. On the advice of the Audit Committee, the Directors are satisfied that the provision of non-audit services by the auditor, as set out above, did not compromise the auditor independence requirements of the Corporations Act 2001 for the following reasons: • all non-audit services have been reviewed by the Audit Committee to ensure that they do not impact the integrity and objectivity of the auditor; and • none of the non-audit services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants. Proceedings on Behalf of the Company No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the Company, or to 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 part of those proceedings. No proceedings have been brought or intervened in on behalf of the Company with leave of the Court under section 237 of the Corporations Act 2001. Auditor’s Independence Declaration A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is attached to this report. This report is made in accordance with a resolution of the Directors. David K Barwick Chairman Brisbane 27 August 2015 JUMBO INTERACTIVE LTD ANNUAL REPORT 2015 AUDITOR’S INDEPENDENCE DECLARATION Auditor’s Independence Declaration Tel: +61 7 3237 5999 Fax: +61 7 3221 9227 www.bdo.com.au Level 10, 12 Creek St Brisbane QLD 4000 GPO Box 457 Brisbane QLD 4001 Australia DECLARATION OF INDEPENDENCE BY TIMOTHY KENDALL TO THE DIRECTORS OF JUMBO INTERACTIVE LIMITED Tel: +61 7 3237 5999 Fax: +61 7 3221 9227 www.bdo.com.au Level 10, 12 Creek St Brisbane QLD 4000 GPO Box 457 Brisbane QLD 4001 Australia DECLARATION OF INDEPENDENCE BY TIM KENDALL TO THE DIRECTORS OF JUMBO INTERACTIVE LIMITED 53 As lead auditor of Jumbo Interactive Limited for the year ended 30 June 2013, I declare that, to the As lead auditor for the audit of Jumbo Interactive Limited for the year ended 30 June 2015, I declare that, to the best of my knowledge and belief, there have been: best of my knowledge and belief, there have been no contraventions of: and 1. No contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; 2. No contraventions of any applicable code of professional conduct in relation to the audit. the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and any applicable code of professional conduct in relation to the audit. • DECLARATION OF INDEPENDENCE BY TIMOTHY KENDALL TO THE DIRECTORS OF JUMBO • INTERACTIVE LIMITED This declaration is in respect Jumbo Interactive Limited and the entities it controlled during the period. As lead auditor of Jumbo Interactive Limited for the year ended 30 June 2013, I declare that, to the best of my knowledge and belief, there have been no contraventions of: This declaration is in respect of Jumbo interactive Limited and the entities it controlled during the period. • • the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and any applicable code of professional conduct in relation to the audit. This declaration is in respect Jumbo Interactive Limited and the entities it controlled during the period. T J Kendall T J Kendall Director Director BDO Audit Pty Ltd Brisbane, 27 August 2015 BDO Audit Pty Ltd Brisbane, 28 August 2013 T J Kendall Director BDO Audit Pty Ltd Brisbane, 28 August 2013 BDO Audit Pty Ltd ABN 33 134 022 870 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation, other than for the acts or omissions of financial services licensees. BDO Audit Pty Ltd ABN 33 134 022 870 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. BDO Audit Pty Ltd ABN 33 134 022 870 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Corporate Governance Statement Introduction This statement summarises the corporate governance practices that have generally applied in Jumbo Interactive Limited (the Company) throughout the reporting period except where otherwise stated. It is structured along the same lines as the ASX Corporate Governance Council’s Principles and Recommendations, with sections dealing in turn with each of the Council’s corporate governance Principles and addressing the Council’s Recommendations. This statement and the charters, codes and policies referred to herein are posted on the Company’s website www. jumbointeractive.com and shareholders and other interested readers are welcome to refer to them. The Board will keep its corporate governance practices under review. 1. Lay solid foundations for management and oversight The Council’s first Principle states that companies should “establish and disclose the respective roles and responsibilities of its board and management and how their performance is monitored and evaluated.” Jumbo has adopted a formal Board Charter that sets out the functions reserved to the Board and those delegated to the Chief Executive Officer. This enables the Board to provide strategic guidance for the Company and effective oversight of management. 54 Jumbo ensures that appropriate checks are undertaken before it appoints a person, or puts forward to shareholders a new candidate for election, as a director. Information about a candidate standing for election or re-election as a director is provided to shareholders to enable them to make an informed decision on whether or not to elect or re-elect the candidate. Jumbo provides new Directors with a letter on appointment which details the terms and conditions of their appointment, provides clear guidance on what input is required by them, and includes materials to assist with induction into the Company. Directors are also encouraged to undertake appropriate training and refresher courses which the Company facilitates as this assists in the performance of their roles. The Company has a similar approach for all senior executives whereby they are provided with a formal letter of appointment setting out their terms of office, duties, rights and responsibilities as well as a detailed job description. The Board has delegated responsibilities and authorities to the CEO and other executives to enable management to conduct the Company’s day to day activities. Matters which exceed defined authority limits require Board approval. The Company Secretary is accountable directly to the Board, through the Chair, on all matters to do with the proper functioning of the Board. The Company realises the benefits that can arise to the organisation from diversity in the workplace covering gender, age, ethnicity and cultural background and in various other areas. So, the Board has established a Diversity Policy which details the Company’s approach to promoting a corporate culture that embraces diversity when selecting and appointing its employees and Directors. This Diversity Policy outlines requirements for the Board to develop measurable objectives for achieving diversity, and annually assess both the objectives and the progress in achieving these objectives. Accordingly, the Board developed the following objectives in 2012 regarding gender diversity and aims to achieve these objectives over the next five years to 2017 as director and senior positions become vacant and appropriately qualified candidates become available: Group Women on the Board Women in senior executive positions Women employees in the Company Total employees in the Company 2015 No. % - 1 42 - 20 34 122 100 2017 To have at least 1 woman on the Board Maintain at least the current number (one) of women Achieve the percentage of women in excess of 40% Senior executive positions are defined as those reporting directly to the CEO (i.e. CEO -1). A Workplace Gender Equality Report 2014-15 has been lodged with the Workplace Gender Equality Agency and is accessible on the Company’s website. JUMBO INTERACTIVE LTD ANNUAL REPORT 2015 CORPORATE GOVERNANCE STATEMENT The Board is also responsible for the performance of the Company’s executives, which is reviewed against appropriate measures and the performance of the Company as a whole, and through an annual appraisal process. Performance of the Board, its committees and individual directors is on an annual self-assessment and peer- assessment basis which is reviewed against appropriate measures and performance of the Company as a whole. The Board, its committees, individual directors and its senior executives’ performance evaluations have been carried out during the relevant reporting period in accordance with the abovementioned processes. 2. Structure the Board to add value In its second Principle the Council states that companies should “have a board of an appropriate size, composition, skills and commitment to enable it to discharge its duties effectively.” Jumbo’s Board is so structured, and its Directors effectively discharge their responsibilities and duties for the benefit of shareholders. The Board presently comprises only two Non-Executive Directors (David Barwick, Chairman, appointed 30 August 2006 and Bill Lyne, also the Company Secretary, appointed 30 October 2009) and the Chief Executive Officer (Mike Veverka, appointed 8 September 1999). Fundamental requirements for Jumbo Directors are a deep understanding of business management and financial markets and such experience, complemented where possible with industry knowledge, are desirable attributes for Board membership. All Board members meet the fundamental requirements, and bring a diverse range of skills and backgrounds. Additionally, Mr Veverka has had a very long involvement in key sections of the Company and brings considerable relevant expertise and knowledge to the Board. 55 A matrix of skills and diversity that the Board currently has or is looking to achieve in its membership is as follows. The rating scale used for level of importance and recruitment priority is High (3), Medium (2) and Low (1). Level of Importance Current Board Representation Recruitment Priority Skills and Experience Corporate governance Strategic planning International Gaming/ lotteries industry Risk management Financial management Technology/IT Digital or social media Leadership Legal Stakeholder relationships Demographic background Gender Male Female Age 25-40 41-55 56-70 Ethnicity Aboriginal or Torres Straits Islander Asian White/Caucasian 3 3 2 3 3 2 2 2 3 2 2 2 2 1 2 3 2 2 2 3 3 2 3 3 3 2 2 3 2 3 3 0 0 1 2 0 0 3 1 1 2 1 1 1 2 2 1 1 1 1 2 1 2 1 2 2 1 The Board formally meets monthly throughout the year, and informally at least every six to eight weeks to address issues that may arise outside of the monthly meetings. The qualifications, experience and relevant expertise of each Board member and their terms in office are set out in the Directors’ Report section of the Company’s Annual Report. All Directors, apart from the CEO, are subject to re-election by rotation at least every three years at the Company’s annual general meeting. The Board’s view is that an independent Director is a non-executive Director who does not have a relationship affecting independence on the basis set out in the Council’s guidelines and meets materiality thresholds agreed by the Board as equating to payments to them or related parties of 5% of the Company’s annual revenue. The Board considers that David Barwick and Bill Lyne both meet this criterion. On the other hand, Mike Veverka is considered to not be independent because he is a substantial shareholder in Jumbo (i.e. holds more than 5% as defined in Section 9 of the Corporations Act) and is an executive officer of the Company. Consequently, the current structure meets the Council’s recommendation that the majority of the Board should be independent, and the Board also considers the current composition is appropriate given the Company’s and the Directors’ backgrounds and the current and foreseeable structure and size of the Company. The Jumbo Board has established a Nomination and Remuneration Committee which operates under a Board approved Nomination and Remuneration Committee Charter. In accordance with the Council’s Recommendations the Nomination and Remuneration Committee Charter requires it to have three Non-Executive Directors, with a majority being independent. However, at the present time it has only two members, being the Non-Executive Directors, David Barwick (as the Chair) and Bill Lyne, both of whom have relevant experience and appropriate technical expertise. The qualifications of the Committee and meeting attendances are set out in the Directors’ Report section of the Company’s annual report. 56 The performance of the Board, its Committees and the Directors is reviewed periodically by the Committee. The Committee’s principal evaluation benchmark is the Company’s financial performance compared to similar organisations and the industry in which it operates; but other than that no formalised annual evaluation process has yet been established for individual Directors given the small size of the Board. Minutes of all meetings are provided to the Board and its Chair reports to the Board after each Committee meeting. The Company also complies with the Recommendations for Directors in relation to independent professional advice, information access and contact with the Company Secretary. The Directors may seek external professional advice at the expense of the Company on matters relating to their role as Directors of Jumbo. However, they must first request approval from the Chairman, which must not be unreasonably withheld. If withheld then it becomes a matter for the whole Board. The Company Secretary attends all Board and committee meetings, is responsible for monitoring adherence to Board policy and procedures, and is accountable on governance matters. 3. Act ethically and responsibly In Principle 3 the Council states that companies should “act ethically and responsibly”. To this end, Jumbo has formally adopted a Code of Conduct covering its Directors, officers and employees. The Code is based on respect for the law and acting accordingly, dealing with conflicts of interest appropriately, and ethical matters such as acting with integrity, exercising due care and diligence in fulfilling duties, acting in the best interests of the Company and respecting the confidentiality of all sensitive corporate information. If a Director or officer becomes aware of unlawful or unethical behaviour by anyone in the Company then he is obliged under the Code to report such activities to the Chairman. The Board has also approved a Whistleblower Policy pursuant to which employees who have genuine suspicions about improper conduct feel safe to report it without fear of reprisal. In addition, Directors recognise the legal obligations relevant to their role and the reasonable expectations of shareholders, other stakeholders and the wider financial community. Jumbo also has a documented Share Trading Policy for Directors, key management personnel and other staff and consultants. The policy prohibits Directors and other persons from dealing in the Company’s securities during stated ‘closed’ and ‘prohibited’ periods and whilst in possession of price sensitive information. Otherwise, those persons may generally deal in securities during stated ‘trading windows’ and at other times provided they obtain the prior consent of the Board Chairman (or, in the case of the Chairman himself, from the Chair of the Audit Committee). The Board will ensure that restrictions on dealings in securities are strictly enforced. 4. Safeguard integrity in corporate reporting The Council states that companies should “have formal and rigorous processes that independently verify and safeguard the integrity of their corporate reporting.” Jumbo has an established Audit and Risk Management JUMBO INTERACTIVE LTD ANNUAL REPORT 2015 CORPORATE GOVERNANCE STATEMENT Committee which operates under an Audit and Risk Management Committee Charter. The role of this Committee is to ensure the truthful and factual presentation of the Company’s financial position and to monitor and review on behalf of the Board the effectiveness of the Company’s control environment, reporting practices and responsibilities in the areas of accounting, risk management and compliance. To assist this process, as required by Section 295A of the Corporations Act, the CEO and the Chief Financial Officer must declare to the Board in writing that, in their opinion, the Company’s financial reports are complete and present a true and fair view, in all material respects, of the financial condition and operational results of the Company, are in accordance with relevant accounting standards, and that their opinion has been formed on the basis of a sound system of risk management and internal control which is operating effectively. The Committee’s Charter includes information on procedures for the selection and appointment of the external auditor and rotation of the engagement audit partner. The external auditor is required to attend the Company’s annual general meeting and be available to answer shareholder questions about the conduct of the audit and the preparation and content of the audit report. 57 In accordance with the Council’s Recommendations the Audit and Risk Management Committee’s Charter requires it to have three non-executive Directors, with a majority being independent. However, currently it has only two members, being the non-executive Directors, Bill Lyne (as Chair) and David Barwick, both of whom have strong finance and accounting backgrounds, experience and appropriate technical expertise. The qualifications of the Committee and meeting attendances are set out in the Directors’ Report section of the Company’s annual report. Minutes of all Committee meetings are provided to the Board and its Chair also reports to the Board after each Committee meeting. 5. Make timely and balanced disclosure In this Principle the Council states that companies should “make timely and balanced disclosure of material matters concerning the company that a reasonable person would expect to have a material effect on the price or value of its securities.” Jumbo is committed to the promotion of investor confidence by ensuring that trading in the Company’s securities takes place in an informed market. Also to assist compliance with continuous disclosure requirements under the ASX Listing Rules, the Company has a Continuous Disclosure Policy in place to ensure that material price sensitive information is identified, reviewed by management and disclosed to the ASX and published on the Company’s website in a timely manner. The CEO is accountable for compliance with this policy. In addition, all changes in Directors’ interests in the Company’s securities are promptly reported to the ASX in compliance with Section 205G of the Corporations Act and the ASX Listing Rules. 6. Respect the rights of shareholders In Principle 6 the Council states that companies should “respect the rights of shareholders by providing them with appropriate information and facilities to allow them to exercise those rights effectively”. Jumbo supports its desire to provide shareholders with adequate information about the Company and its activities through a published Communications Policy. It is also committed to electronic communications through its website, www.jumbointeractive. com, which provides access to all recent ASX announcements, shareholder updates, boardroom broadcasts, notices of meetings, explanatory memoranda, annual reports and key contact details, as well as comprehensive information about the Company and its products and operations. Shareholders and other interested parties may sign up to receive email notification of all ASX releases and other important announcements. Company general meetings also represent a good opportunity for shareholders to meet with, and ask questions of, the Board of Jumbo and all shareholders are notified of such meetings and encouraged to attend. As part of the Company’s management of investor relations the CEO does, at times, also undertake briefings with investors and analysts to assist their understanding of the Company and its operations, and provide explanatory background and technical information. 7. Recognise and manage risk In this Principle the Council states that companies should “establish a sound risk management framework and periodically review the effectiveness of that framework”. Jumbo maintains documented policies for identifying, assessing and monitoring risk, summarised in a Risk Management Policy. Through the Audit and Risk Management Committee, as noted under Principle 4 above, the Company monitors key business and financial risks, taking into consideration their likelihood and impact, and reviews and appraises risk control measures. Periodic reviews, undertaken at least annually by the Committee, evaluate and continually look to improve the effectiveness of the Company’s risk management and internal control processes to ensure that they are soundly based given the ever changing technology environment in which the Company operates. Such review was undertaken during the most recent reporting period. The Company does not have a separate internal audit function due to its relatively small size and less complex financial and organisational structures. The CEO and senior executives have operational responsibility for risk management through Board approved guidelines. Some of these measures include formal authority limits for management to operate within, policies on treasury-related risk management, an information technology plan and a business continuity plan. The CEO reports to the Board on any departures from policy or matters of concern that might be seen as or become material business risks. In addition, the CEO and CFO are required to state in writing annually to the Board that to the best of their knowledge the integrity of the Company’s risk management, internal control and compliance systems are sound and such systems are operating efficiently and effectively in all material respects in relation to financial reporting risks. The Board considers that the Company does not have any material exposure to economic, environmental and social sustainability risks which require active management. However, as the Company operates in an environment where some sectors of the community are not necessarily in favour of lotteries, the Board is aware of the potential risks and responsibilities of ensuring that new players are properly identified, there are adequate safeguards against minors buying tickets and all personal details are maintained as required under privacy legislation. The Company also provides appropriate responsible gaming warnings on its websites to try and prevent compulsive gambling problems which can adversely affect individuals and their families. 58 8. Remunerate fairly and responsibly The Council’s final Principle states that companies should “pay director remuneration sufficient to attract and retain high quality directors and design executive remuneration to attract, retain and motivate high quality senior executives and align their interests with the creation of value for shareholders”. To this end the Board has established a Nomination and Remuneration Committee, as noted above under Principle 2. The Board considers that the Committee members are sufficiently qualified to consider and decide on remuneration matters. However, external professional advice may be sought from experienced consultants where appropriate to assist in their deliberations. Non-executive Directors’ remuneration is reviewed periodically with reference to comparable businesses and the trend in Directors’ fees generally, with the object of ensuring maximum stakeholder benefit from the retention of an effective Board. Shareholders, at the Company’s AGM, determine any increase in the aggregate fees payable to non- executive Directors, but it is those Directors who decide amongst themselves the split of such remuneration. The current maximum annual aggregate remuneration which can be paid to all non-executive Directors is $250,000, last approved by shareholders in October 2009. In the past, shareholders have at times approved share option incentives for the non- executive Directors. The current non-executive Directors do not hold shares or options in the Company as they believe that this maintains their independence. The CEO’s remuneration is based on a fixed amount and may include short term incentives (calculated on audited figures) linked to the Company’s financial performance and share options provided as long term incentives. The base amount is designed to attract and retain an appropriately qualified and experienced CEO, and any incentive element is to reward him for his contribution towards the Company’s success. Other senior executives are offered remuneration packages necessary to attract and retain appropriately qualified key personnel as well as being commensurate with the skill and attention required to manage an organisation of the size and scope of the Jumbo Group as it is today and taking into account its plans and forecasts into the future. In addition, the Company has from time to time granted options to deserving staff as a reward for performance. However, the Board prohibits transactions by executives which might limit the economic risk of participating in unvested entitlements under any equity-based remuneration scheme. Further information about the Jumbo remuneration policy, along with details of all emoluments of Directors and key management personnel can be found in the Remuneration Report section of the Directors’ Report in the Company’s Annual Report. There are no separate retirement benefits for non-executive Directors, other than statutory superannuation. Approved by the Board – 27 August 2015 JUMBO INTERACTIVE LTD ANNUAL REPORT 2015 CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME Jumbo Interactive Limited and its Controlled Subsidiaries Consolidated Statement of Profit or Loss and Other Comprehensive Income For the year ended 30 June 2015 59 Revenue Cost of sales Gross profit Other revenue/income Distribution expenses Marketing costs Occupancy expenses Administrative expenses Finance costs Share of losses of associates/joint ventures accounted for using the equity method Profit before income tax expense Income tax expense Consolidated Group Note 2015 $ 2014 restated $ 4 5 4 5 16 29,199,753 24,799,132 (2,655,599) (2,665,999) 26,544,154 22,133,133 1,204,810 1,070,897 (22,158) (26,201) (7,676,286) (4,721,395) (992,605) (765,311) (16,292,122) (12,287,967) (6,041) (1,130) (176,117) (170,136) 2,583,635 5,231,890 7 (1,920,374) (1,981,253) Profit after income tax expense for the year attributable to the owners of Jumbo Interactive Limited 663,261 3,250,637 Other comprehensive income Items that may be reclassified subsequently to profit or loss Foreign currency translation Change in fair value of available-for-sale financial assets Items that will not be reclassified to profit or loss Change in fair value of financial assets at fair value through other comprehensive income. Other comprehensive income for the year, net of tax Total comprehensive income for the year attributable to the owners of Jumbo Interactive Limited Earnings Per Share (cents per share) Basic earnings per share (cents per share) Diluted earnings per share (cents per share) (125,607) 43,085 (5,549) - - (2,530,668) (131,156) (2,487,583) 532,105 763,054 ¢ 1.5 1.5 ¢ 7.4 7.3 11 11 The above Statement of Profit or Loss and Other Comprehensive Income should be read in conjunction with the accompanying notes. Jumbo Interactive Limited and its Controlled Subsidiaries Consolidated Statement of Financial Position As at 30 June 2015 Current assets Cash and cash equivalents Trade and other receivables Inventories Total current assets Non-current assets Receivables Investments accounted for using the equity method Available-for-sale financial assets Property, plant and equipment Intangible assets Deferred tax assets Total non-current assets Total assets Current liabilities Trade and other payables Current tax liabilities Provisions Total current liabilities Non-current liabilities Provisions Deferred tax liabilities Total non-current liabilities Total liabilities Net assets Equity Contributed equity Accumulated losses Profits appropriation reserve Other reserves Total equity Consolidated Group Note 2015 $ 2014 restated $ 1 July 2013 restated $ 12 13 14 15 16 17 19 20 23 21 23 24 24 23 23,777,863 25,366,357 24,460,703 60 493,921 639,734 418,917 62,941 49,404 55,098 24,334,725 26,055,495 24,934,718 - 121,945 193,688 412,366 - 1 - 1 2,530,054 486,341 318,062 366,059 9,361,983 7,592,694 6,314,304 717,012 514,784 395,562 10,977,702 8,547,486 9,799,668 35,312,427 34,602,981 34,734,386 11,739,062 10,438,714 10,183,425 1,457,519 1,555,902 1,225,085 196,106 200,159 369,816 13,392,687 12,194,775 11,778,326 202,376 163,950 133,857 36,611 119,705 471,643 238,987 283,655 605,500 13,631,674 12,478,430 12,383,826 21,680,753 22,124,551 22,350,560 25 29,969,572 29,759,572 29,544,572 (17,398,827) (17,398,827) (17,398,827) 10,724,322 11,382,641 9,443,834 (1,614,314) (1,618,835) 760,981 21,680,753 22,124,551 22,350,560 The above Statement of Financial Position should be read in conjunction with the accompanying notes. JUMBO INTERACTIVE LTD ANNUAL REPORT 2015 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Jumbo Interactive Limited and its Controlled Subsidiaries Consolidated Statement of Changes in Equity For the year ended 30 June 2015 Contributed equity $ Accumulated losses $ 29,544,572 (17,398,827) - - 29,544,572 (17,398,827) CONSOLIDATED GROUP Balance at 1 July 2013 61 Adjustment for correction of error (Note 6) Balance at 1 July 2013 – restated Total comprehensive income for the year Profit/(loss) for the year Other comprehensive income Foreign currency translation differences Available-for-sale financial asset reserve Total comprehensive income for the year Transactions with owners in their capacity as owners Issue of shares Dividends paid Share-based payments - - - - 215,000 - - Profits appropriation reserve restated $ 7,602,499 1,841,335 9,443,834 3,250,637 - - 3,250,637 - (1,311,830) - (1,311,830) - - - - - - - - Total transactions with owners in their capacity as owners 215,000 Balance at 30 June 2014 29,759,572 (17,398,827) 11,382,641 37,017 (2,296,679) Refer to Note 6 for detailed information on restatement of comparatives. Balance at 1 July 2014 29,759,572 (17,398,827) 11,382,641 Contributed equity $ Accumulated losses $ Profits appropriation reserve $ Total comprehensive income for the year Profit/(loss) for the year Other comprehensive income Foreign currency translation differences Available-for-sale financial asset reserve Total comprehensive income for the year Transactions with owners in their capacity as owners Issue of shares Dividends paid Share-based payments - - - - 210,000 - - Total transactions with owners in their capacity as owners 210,000 - - - - - - - - 663,261 - - 663,261 - (1,321,580) - (1,321,580) Balance at 30 June 2015 29,969,572 (17,398,827) 10,724,322 (88,590) (2,302,228) The above Statement of Changes in Equity should be read in conjunction with the accompanying notes. Foreign currency Available-for-sale translation reserve $ (6,068) (6,068) 43,085 43,085 financial asset reserve $ 233,989 233,989 (2,530,668) (2,530,668) Share-based payments reserve $ 640,827 Foreign currency Available-for-sale translation reserve $ 37,017 financial asset reserve $ (2,296,679) (125,607) (125,607) (5,549) (5,549) Share-based payments reserve $ 533,060 533,060 - - - - - - - - - - - - - 107,767 107,767 640,827 135,677 135,677 776,504 Total equity restated $ 20,509,225 1,841,335 22,350,560 3,250,637 43,085 (2,530,668) 763,054 215,000 (1,311,830) 107,767 (989,063) 22,124,551 Total equity $ 22,124,551 663,261 (125,607) (5,549) 532,105 210,000 (1,321,580) 135,677 (975,903) 21,680,753 - - - - - - - - - - - - - - - - - - - - - - - - - - Jumbo Interactive Limited and its Controlled Subsidiaries Consolidated Statement of Changes in Equity For the year ended 30 June 2015 Contributed Accumulated equity $ losses $ 29,544,572 (17,398,827) Balance at 1 July 2013 – restated 29,544,572 (17,398,827) CONSOLIDATED GROUP Balance at 1 July 2013 Adjustment for correction of error (Note 6) Total comprehensive income for the year Profit/(loss) for the year Other comprehensive income Foreign currency translation differences Available-for-sale financial asset reserve Total comprehensive income for the year Transactions with owners in their capacity as owners 215,000 Issue of shares Dividends paid Share-based payments Total transactions with owners in their capacity as owners 215,000 Balance at 30 June 2014 29,759,572 (17,398,827) 11,382,641 Refer to Note 6 for detailed information on restatement of comparatives. Balance at 1 July 2014 29,759,572 (17,398,827) 11,382,641 Contributed equity $ losses $ Accumulated appropriation Total comprehensive income for the year Profit/(loss) for the year Other comprehensive income Foreign currency translation differences Available-for-sale financial asset reserve Total comprehensive income for the year Transactions with owners in their capacity as owners 210,000 Issue of shares Dividends paid Share-based payments Total transactions with owners in their capacity as owners 210,000 Balance at 30 June 2015 29,969,572 (17,398,827) 10,724,322 The above Statement of Changes in Equity should be read in conjunction with the accompanying notes. Profits appropriation reserve restated $ 7,602,499 1,841,335 9,443,834 3,250,637 - - - - - - - - 3,250,637 (1,311,830) (1,311,830) Profits reserve $ 663,261 663,261 (1,321,580) (1,321,580) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Share-based payments reserve $ 533,060 - 533,060 - - - - - - 107,767 107,767 640,827 Foreign currency translation reserve $ Available-for-sale financial asset reserve $ (6,068) - (6,068) - 43,085 - 43,085 - - - - 233,989 - 233,989 - - (2,530,668) (2,530,668) - - - - 37,017 (2,296,679) Share-based payments reserve $ 640,827 Foreign currency translation reserve $ Available-for-sale financial asset reserve $ 37,017 (2,296,679) - - - - - - 135,677 135,677 776,504 - (125,607) - (125,607) - - - - - - (5,549) (5,549) - - - - (88,590) (2,302,228) 62 Total equity restated $ 20,509,225 1,841,335 22,350,560 3,250,637 43,085 (2,530,668) 763,054 215,000 (1,311,830) 107,767 (989,063) 22,124,551 Total equity $ 22,124,551 663,261 (125,607) (5,549) 532,105 210,000 (1,321,580) 135,677 (975,903) 21,680,753 JUMBO INTERACTIVE LTD ANNUAL REPORT 2015 CONSOLIDATED STATEMENT OF CASH FLOWS Jumbo Interactive Limited and its Controlled Subsidiaries Consolidated Statement of Cash Flows For the year ended 30 June 2015 Cash flows from operating activities 63 Receipts from customers Payments to suppliers and employees Interest received Interest and other costs of finance paid Income tax received Income tax paid Consolidated Group Note 2015 $ 2014 $ 32,132,288 26,107,856 (25,814,384) (19,279,766) 734,953 827,507 (6,041) - (1,130) 29,326 (2,304,078) (2,150,923) Net cash inflows/(outflows) from operating activities 29 (a) 4,742,738 5,532,870 Cash flows from investing activities Payments for investments Loan to joint venture Payments for property, plant and equipment Payments for intangibles Proceeds from sale of property, plant and equipment Proceeds from sale of intangibles Net cash inflows/(outflows) from investing activities Cash flows from financing activities Proceeds from issue of shares Dividends paid Net cash inflows/(outflows) from financing activities Net increase in cash and cash equivalents Net foreign exchange differences Cash and cash equivalents at beginning of year (5,549) (614) (368,239) (55,494) (366,956) (218,376) (4,474,547) (3,265,980) 1,708 6 2,884 - (5,213,577) (3,537,580) 25 210,000 215,000 (1,321,580) (1,311,830) (1,111,580) (1,096,830) (1,582,419) 898,460 (6,075) 7,194 25,366,357 24,460,703 Cash and cash equivalents at end of year 12 23,777,863 25,366,357 The above Statement of Cash Flows should be read in conjunction with the accompanying notes. Jumbo Interactive Limited and its Controlled Subsidiaries Notes to the Consolidated Financial Statements For the year ended 30 June 2015 Note 1: Corporate Information The financial statements of Jumbo Interactive Ltd (the ‘Company’) for the year ended 30 June 2015 were authorised in accordance with a resolution of the Directors on 27 August 2015 and cover the consolidated entity consisting of Jumbo Interactive Ltd its subsidiaries (the ‘Group’) as required by the Corporations Act 2001. Jumbo Interactive Limited is a for- profit entity for the purposes of preparing these financial statements. 64 The financial statements are presented in the Australian currency. Jumbo Interactive Limited is a company limited by shares incorporated and domiciled in Australia whose shares are publicly traded on the Australian Securities Exchange (ASX: JIN). The Company’s registered office and principal place of business is at Level 1, 601 Coronation Drive, Toowong QLD 4160 Australia. Note 2: Summary of Significant Accounting Policies a. Basis of Preparation The financial statements are general purpose financial statements which have been prepared in accordance with Australian Accounting Standards, other authoritative pronouncements of the Australian Accounting Standards Board and the Corporations Act 2001. The financial statements also comply with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. The financial statements have also been prepared on a historical cost basis, except for available-for-sale financial assets and held-for-trading investments that have been measured at fair value. The carrying values of recognised assets and liabilities that are hedged are adjusted to record changes in the fair value attributable to the risks that are being hedged. Non-current assets and disposal groups held-for-sale are measured at the lower of carrying amounts and fair value less costs to sell. The following significant accounting policies have been adopted in the preparation and presentation of the financial statements: b. Basis of Consolidation Subsidiaries The consolidated financial statements comprise the financial statements of Jumbo Interactive Limited and its subsidiaries at 30 June each year (‘the Group’). Subsidiaries are entities over which the Group has control. The Group has control over an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity, and has the ability to use its power to affect those returns. Subsidiaries are consolidated from the date on which control is transferred to the Group and are deconsolidated from the date on which control ceases. All intercompany balances and transactions, including unrealised profits arising from intragroup transactions have been eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Non-controlling interests in the results and equity of subsidiaries are shown separately in the consolidated statement of profit or loss and other comprehensive income and statement of financial position respectively. Total comprehensive income is attributable to owners of Jumbo Interactive Limited and non-controlling interests even if this results in the non-controlling interests having a debit balance. JUMBO INTERACTIVE LTD ANNUAL REPORT 2015 NOTES TO THE FINANCIAL STATEMENTS Associates Associates are entities over which the Group has significant influence but not control or joint control. Associates are accounted for in the parent entity financial statements at cost and the consolidated financial statements using the equity method of accounting. Under the equity method of accounting, the group’s share of post-acquisition profits or losses of associates is recognised in consolidated profit or loss and the group’s share of post-acquisition other comprehensive income of associates is recognised in consolidated other comprehensive income. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. Dividends received from associates are recognised in the parent entity’s profit or loss, while they reduce the carrying amount of the investment in the consolidated financial statements. When the Group’s share of post-acquisition losses in an associate exceeds its interest in the associate (including any unsecured long-term receivables), the Group does not recognise further losses unless it has obligations to, or has made payments, on behalf of the associate. The financial statements of the associates are used to apply the equity method. The end of the reporting period of the associates and the parent are identical and both use consistent accounting policies. Details of associates are set out in Note 16. 65 When the group’s share of post-acquisition losses in an associate exceeds its interest in the associate (including any long term interests that form part of the group’s net investment in the associate), the group does not recognise further losses unless it has obligations to, or has made payments, on behalf of the associate. Joint Arrangements Joint arrangements are arrangements in which one or more parties have joint control (the contractual sharing of control of an arrangement where decisions about relevant activities require unanimous consent of the parties sharing control). Joint Venture entities Interests in joint venture partnerships/entities are accounted for in the consolidated financial statements using the equity method. Under the equity method of accounting, the group’s share of profits or losses of joint venture partnerships/entities are recognised in consolidated profit or loss and the group’s share of the movements in reserves of joint venture partnerships/entities are recognised in consolidated other comprehensive income. The cumulative movements are adjusted against the carrying amount of the investment. Details of joint venture entities are set out in Note 16. When the group’s share of post-acquisition losses in a joint venture exceeds its interest in the joint venture (including any long term interests that form part of the group’s net investment in the joint venture), the group does not recognise further losses unless it has obligations to, or has made payments, on behalf of the joint venture. Changes in ownership interest Transactions with non-controlling interests that increase or decrease the group's ownership interest in a subsidiary, but which do not result in a change of control, are accounted for as transactions with equity owners of the group. An adjustment is made between the carrying amount of the group's controlling interest and the carrying amount of the non-controlling interests to reflect their relative values in the subsidiary. Any difference between the amount of the adjustment to the non-controlling interest and any consideration paid or received is recognised in a separate reserve within equity attributable to owners of Jumbo Interactive Limited. Where the group loses control of a subsidiary but retains significant influence, joint control, or an available-for- sale investment, the retained interest is remeasured to fair value at the date that control is lost and the difference between fair value and the carrying amount is recognised in profit or loss. This fair value is the initial carrying amount for the retained investment in associate, joint venture or available-for-sale financial asset. If no ownership interest is retained, or if any remaining investment is classified as available-for-sale, any amounts previously recognised in other comprehensive income in respect of the entity are accounted for as if the group had directly disposed of the related assets or liabilities and may be recognised in profit or loss. To the extent that the group retains significant influence or joint control, balances of other comprehensive income relating to the associate or joint venture entity will only be reclassified from other comprehensive income to profit or loss to the extent of the reduced ownership interest so that the balance of other comprehensive represents the group's proportionate share of other comprehensive income of the associate/joint venture. If the group's ownership interest in an associate or a joint venture is reduced, but the group retains significant influence or control, only a proportionate share of the amounts previously recognised in other comprehensive income are reclassified to profit or loss, where appropriate. 66 c. Business Combinations The acquisition method of accounting is used to account for all business combinations. Consideration is measured at the fair value of the assets transferred, liabilities incurred and equity interests issued by the group on acquisition date. Consideration also includes the acquisition date fair values of any contingent consideration arrangements, any pre-existing equity interests in the acquiree and share-based payment awards of the acquiree that are required to be replaced in a business combination. The acquisition date is the date on which the group obtains control of the acquiree. Where equity instruments are issued as part of the consideration, the value of the equity instruments is their published market price at the acquisition date unless, in rare circumstances it can be demonstrated that the published price at acquisition date is not fair value and that other evidence and valuation methods provide a more reliable measure of fair value. Identifiable assets acquired and liabilities and contingent liabilities assumed in business combinations are, with limited exceptions, initially measured at their fair values at acquisition date. Goodwill represents the excess of the consideration transferred and the amount of the non-controlling interest in the acquiree over fair value of the identifiable net assets acquired. If the consideration and non-controlling interest of the acquiree is less than the fair value of the net identifiable assets acquired, the difference is recognised in profit or loss as a bargain purchase price, but only after a reassessment of the identification and measurement of the net assets acquired. For each business combination, the group measures non-controlling interests at either fair value or at the non-controlling interest's proportionate share of the acquiree's identifiable net assets. Acquisition-related costs are expensed when incurred. Transaction costs arising on the issue of equity instruments are recognised directly in equity and transaction costs arising on the issue of debt as part of the consideration are accounted for in accordance with note 2(r). Where the group obtains control of a subsidiary that was previously accounted for as an equity accounted investment in associate or joint venture, the group remeasures its previously held equity interest in the acquiree at its acquisition date fair value and the resulting gain or loss is recognised in profit or loss. Where the group obtains control of a subsidiary that was previously accounted for as an available-for-sale investment, any balance on the available- for-sale reserve related to that investment is recognised in profit or loss as if the group had disposed directly of the previously held interest. Where settlement of any part of the cash consideration is deferred, the amounts payable in future are discounted to present value at the date of exchange using the entity's incremental borrowing rate as the discount rate. Contingent consideration is classified as equity or financial liabilities. Amounts classified as financial liabilities are subsequently remeasured to fair value at the end of each reporting period, with changes in fair value recognised in profit or loss. Assets and liabilities from business combinations involving entities or businesses under common control are accounted for at the carrying amounts recognised in the group's controlling shareholder's consolidated financial statements. d. Foreign Currency Translation The functional and presentation currency of Jumbo Interactive Limited and its Australian subsidiaries is Australian dollars (AU$). Foreign currency transactions are translated into the functional currency using the exchange rates ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the end of the reporting period. Foreign exchange gains and losses resulting from settling foreign currency transactions, as well as from restating foreign currency denominated monetary assets and liabilities, are recognised in profit or loss, except when they are deferred in other comprehensive income where they relate to differences on foreign currency borrowings that provide a hedge against a net investment in a foreign entity. Foreign exchange gains and losses are presented in profit and loss on a net basis within other income or other expenses, unless they relate to borrowings, in which case they are presented as a part of finance costs. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when fair value was measured. The functional currency of the overseas subsidiaries is measured using the currency of the primary economic environment in which that entity operates. At the end of the reporting period, the assets and liabilities of these overseas JUMBO INTERACTIVE LTD ANNUAL REPORT 2015 NOTES TO THE FINANCIAL STATEMENTS subsidiaries are translated into the presentation currency of the Company at the closing rate at the end of the reporting period and income and expenses are translated at the average exchange rates for the year. All resulting exchange differences are recognised in other comprehensive income as a separate component of equity (foreign currency translation reserve). On disposal of a foreign entity, the cumulative exchange differences recognised in foreign currency translation reserves relating to that particular foreign operation is recognised in profit or loss. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. e. Revenue Recognition Revenue is recognised at the fair value of consideration received or receivable. Amounts disclosed as revenue are net of returns, trade allowances and duties and taxes paid. Revenue from the sale of lottery tickets and related services are recognised on a net inflow basis. The following specific recognition criteria must also be met before revenue is recognised: 67 Sale of Goods Revenue from sale of goods is recognised when the significant risks and rewards of ownership have passed to the buyer and can be reliably measured. Risks and rewards are considered passed to buyer when goods have been delivered to the customer. Rendering of Services Revenue is recognised when the service is provided. Interest Revenue is recognised as interest accrues using the effective interest method. The effective interest method uses the effective interest rate which is the rate that exactly discounts the estimated future cash receipts over the expected life of the financial asset. Dividends Dividends are recognised as revenue when the Group’s right to receive payment is established. Dividends received in the entity’s separate financial statements that are paid out of pre-acquisition profits of a subsidiary, associate or joint venture are recognised as revenue when the entity’s right to receive payment is established. f. Income Tax The income tax expense for the period is the tax payable on the current period’s taxable income based on the national income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between the tax base of assets and liabilities and their carrying amounts in the financial statements, and to unused tax losses. Deferred tax assets and liabilities are recognised for all temporary differences, between carrying amounts of assets and liabilities for financial reporting purposes and their respective tax bases, at the tax rates expected to apply when the assets are recovered or liabilities settled, based on those tax rates which are enacted or substantively enacted for each jurisdiction. Exceptions are made for certain temporary differences arising on initial recognition of an asset or a liability if they arose in a transaction, other than a business combination, that at the time of the transaction did not affect either accounting profit or taxable profit. Deferred tax assets are only recognised for deductible temporary differences and unused tax losses if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Deferred tax assets and liabilities are not recognised for temporary differences between the carrying amount and tax bases of investments in subsidiaries, associates and joint ventures where the parent entity is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future. Current and deferred tax balances relating to amounts recognised directly in other comprehensive income are also recognised directly in other comprehensive income. Jumbo Interactive Limited and its wholly owned subsidiaries have implemented the tax consolidation legislation for the whole of the financial year. The Group notified the Australian Tax Office that it had formed an income tax consolidated group to apply from 1 July 2006. Jumbo Interactive Limited is the head entity in the tax consolidated group. The separate taxpayer within a group approach has been used to allocate current income tax expense and deferred tax expense to wholly-owned subsidiaries that form part of the tax consolidated group. Jumbo Interactive Limited has assumed all the current tax liabilities and the deferred tax assets arising from unused tax losses for the tax consolidated group via intercompany receivables and payables because a tax funding arrangement has been in place for the whole financial year. The amounts receivable/payable under tax funding arrangements are due upon notification by the head entity, which is issued soon after the end of each financial year. Interim funding notices may also be issued by the head entity to its wholly owned subsidiaries in order for the head entity to be able to pay tax instalments. g. Impairment of Assets At the end of each reporting period the Group assesses whether there is any indication that individual assets are impaired. Where impairment indicators exist, recoverable amount is determined and impairment losses are recognised in profit or loss where the asset’s carrying value exceeds its recoverable amount. Recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purpose of assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Where it is not possible to estimate recoverable amount for an individual asset, recoverable amount is determined for the cash-generating unit to which the asset belongs. 68 h. Cash and Cash Equivalents For the purposes of the Statement of Cash Flows, cash and cash equivalents includes cash on hand and at bank, deposits held at call with financial institutions, other short term, highly liquid investments with maturities of three months or less, that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value and bank overdrafts. i. Trade Receivables Trade receivables are recognised at original invoice amounts less an allowance for uncollectible amounts, and have repayment terms between seven and 30 days. Collectability of trade receivables is assessed on an ongoing basis. Debts which are known to be uncollectible are written off. An allowance is made for doubtful debts where there is objective evidence that the Group will not be able to collect all amounts due according to the original terms. Objective evidence of impairment includes financial difficulties of the debtor, default payments or debts more than 90 days overdue. On confirmation that the trade receivable will not be collectible the gross carrying value of the asset is written off against the associated provision. From time to time, the Group elects to renegotiate the terms of trade receivables due from customers with which it has previously had a good trading history. Such renegotiations will lead to changes in the timing of payments rather than changes to the amounts owed and are not, in the view of the Directors, sufficient to require the derecognition of the original instrument. j. Inventories Raw Materials, Work in Progress and Finished Goods Inventories are stated at the lower of cost and net realisable value. Cost comprises all direct materials, direct labour and an appropriate portion of variable and fixed overheads. Fixed overheads are allocated on the basis of normal operating capacity. Costs are assigned to inventories using the first-in-first-out basis. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated cost of completion and selling expenses. k. Investments and Other Financial Assets All investments and other financial assets (except for those at fair value through the profit and loss) are initially stated at the fair value of consideration given plus transaction costs. Purchases and sales of investments are recognised on trade date which is the date on which the Group commits to purchase or sell the asset. Accounting policies for each category of investments and other financial assets subsequent to initial recognition are set out below. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are subsequently measured at amortised cost. Loans and receivables are included in current assets, where they are expected to mature within 12 months after the end of the reporting period. JUMBO INTERACTIVE LTD ANNUAL REPORT 2015 NOTES TO THE FINANCIAL STATEMENTS Available-for-sale financial assets Available-for-sale financial assets comprise investments in listed and unlisted entities and any non-derivatives that are not classified as any other category of financial assets, and are classified as non-current assets (unless management intends to dispose of the investment within 12 months of the end of the reporting period). After initial recognition, these investments are measured at fair value with gains or losses recognised in other comprehensive income (available- for-sale investments reserve). Purchases and sales of available-for-sale financial assets are recognised on settlement date with any change in fair value between trade date and settlement date being recognised in other comprehensive income. Interest on corporate bonds classified as available-for-sale is calculated using the effective interest rate method and is recognised in finance income in profit or loss. Investments in subsidiaries, associates and joint venture entities are accounted for in the consolidated financial statements as described in note 2(b). Impairments Impairment losses are measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows, excluding future credit losses that have not been incurred. The cash flows are discounted at the asset’s original effective interest rate. Impairment losses are recognised in profit or loss. 69 l. Fair Values Fair values may be used for financial asset and liability measurement as well as for sundry disclosures. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It is based on the presumption that the transaction takes place either in the principal market for the asset or liability or, in the absence of a principal market, in the most advantageous market. The principal or most advantageous market must be accessible to, or by, the group. Fair value is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their best economic interest. The fair value measurement of a non-financial asset takes into account the market participant's ability to generate economic benefits by using the asset at its highest and best use or by selling it to another market participant that would use the asset at its highest and best use. In measuring fair value, the group uses valuation techniques that maximise the use of observable inputs and minimise the use of unobservable inputs. Fair values for financial instruments traded in active markets are based on quoted market prices at the end of the reporting period. The quoted market price for financial assets is the current bid price. The carrying value less impairment provision of trade receivables and payables are assumed to approximate their fair values due to their short-term nature. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments. m. Property, Plant and Equipment Property, plant and equipment is stated at historical cost, including costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management, less depreciation and any impairments. Depreciation is calculated on a straight-line basis over the estimated useful life, or in the case of leasehold improvements and certain leased plant and equipment, the shorter lease term, as follows: • Plant and equipment - two to five years • Leasehold improvements - up to six years The assets’ residual values and useful lives are reviewed and adjusted, if appropriate, at the end of each reporting period. Gains and losses on disposals are calculated as the difference between the net disposal proceeds and the asset’s carrying amount and are included in profit or loss in the year that the item is derecognised. n. Leases Leases of property, plant and equipment where the Group has substantially all the risks and rewards of ownership are classified as finance leases and capitalised at inception of the lease at the fair value of the leased property, or if lower, at the present value of the minimum lease payments. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged to profit or loss over the lease period. Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset or the lease term. Leases where the lessor retains substantially all the risks and rewards of ownership of the asset are classified as operating leases. Payments made under operating leases (net of incentives received from the lessor) are charged to profit or loss on a straight-line basis over the period of the lease. When assets are leased out under finance leases, the present value of the lease payments is recognised as a lease receivable. The difference between the gross receivable and the present value of the receivable is recognised as unearned finance income. Lease income is recognised over the lease term using the net investment method which reflects a constant periodic rate of return. Lease income from operating leases is recognised in profit or loss on a straight-line basis over the lease term. Initial direct costs incurred in negotiating operating leases are added to the carrying value of the leased asset and recognised as an expense over the lease term on the same bases as the lease income. 70 o. Intangible Assets Goodwill Goodwill represents the excess of the cost of the business combination over the Group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities acquired. Goodwill is not amortised but is measured at cost less any accumulated impairment losses. Goodwill is tested for impairment annually, or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill acquired is allocated to each of the cash-generating units expected to benefit from the combination’s synergies. Impairment is determined by assessing the recoverable amount of the cash-generating unit to which the goodwill relates. Impairment losses on goodwill cannot be reversed. Intellectual Property Acquired intellectual property is stated at cost, and is measured at cost less any accumulated impairment losses. Intellectual property is considered to have an indefinite useful life and is not amortised [refer Note 20(b) for reasons for the indefinite useful life]. The carrying value of intellectual property is tested for impairment annually, or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. Impairment losses are recognised in profit or loss. Any reversal of impairment losses of intellectual property is recognised in profit or loss. Website Developments Costs Expenditure during the research phase of a project is recognised as an expense when incurred. Development costs are capitalised only when technical feasibility studies identify that the project will deliver future economic benefits and these benefits can be measured reliably. Development costs have a finite life and are amortised on a straight-line basis matched to the future economic benefits over the useful life of the project of three years. Domain Names Acquired domain names are stated at cost and are considered to have indefinite useful lives and are not amortised [refer Note 20(b) for reasons for the indefinite useful life]. The useful life is assessed annually to determine whether events or circumstances continue to support an indefinite useful life assessment. The carrying value of domain names is tested semi-annually at each reporting date for impairment. Software Items of computer software which are not integral to the computer hardware owned by the Group are classified as intangible assets with a finite life. Computer software is amortised on a straight line basis over the expected useful life of the software. These lives range from one and a half to two and a half years. JUMBO INTERACTIVE LTD ANNUAL REPORT 2015 NOTES TO THE FINANCIAL STATEMENTS p. Trade and Other Payables Trade and other payables represent liabilities for goods and services provided to the Group prior to the year end and which are unpaid. These amounts are unsecured and have seven to 30 day payment terms. q. Interest-bearing Liabilities All loans and borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in profit or loss over the period of the loans and borrowings using the effective interest method. r. Borrowing Costs Borrowing costs incurred for the construction of a qualifying asset are capitalised during the period of time that it is required to complete and prepare the asset for its intended use or sale. Other borrowing costs are expensed when incurred. The capitalisation rate used to determine the amount of borrowing costs to be capitalised is the weighted average interest rate on credit outstanding for large business (source: Reserve Bank of Australia) being 5.44% (2014: 5.44%), as the Group repaid all borrowings outstanding during the 2013 financial year. 71 s. Provisions Provisions are recognised when the Group has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of economic resources will be required to settle the obligation and the amount can be reliably estimated. Provisions are not recognised for future operating losses. Where the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. t. Employee Benefits Wages and Salaries, Annual Leave and Sick Leave Liabilities for wages and salaries, including non-monetary benefits, annual leave and accumulating sick leave expected to be settled within 12 months of the end of the reporting period are recognised in respect of employees’ services rendered up to the end of the reporting period and are measured at amounts expected to be paid when the liabilities are settled. Liabilities for non-accumulating sick leave are recognised when leave is taken and measured at the actual rates paid or payable. Long Service Leave Liabilities for long service leave are recognised as part of the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees to the end of the reporting period. Consideration is given to expected future salaries and wages levels, experience of employee departures and periods of service. Expected future payments are discounted using corporate bond rates at the end of the reporting period with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. Profit-sharing and Bonus Plans The Group recognises an expense and a liability for bonuses and profit-sharing based on when the entity is contractually obliged to make such payments or where there is past practice that has created a constructive obligation. Retirement Benefit Obligations Employees have defined contribution superannuation funds. Contributions are recognised as expenses as they become payable. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in future payments is available. Termination Benefits The Group recognises termination benefits as an expense and a liability on the earlier of when the Group: • Can no longer withdraw the offer and the benefits; and • Recognises costs for restructuring under AASB 137 Provisions, Contingent Liabilities and Contingent Assets and which involves the payment of termination benefits. Benefits falling due more than 12 months after the end of the reporting period are discounted to present value. 72 u. Contributed Equity Ordinary shares are classified as equity. Costs directly attributable to the issue of new shares or options are shown as a deduction from the equity proceeds, net of any income tax benefit. v. Dividends Provision is made for dividends declared, and no longer at the discretion of the Group, on or before the end of the reporting period but not distributed at the end of the reporting period. w. Share-Based Payments The Group may provide benefits to employees (including Directors) or consultants of the Group in the form of share- based payment transactions, whereby services may be undertaken in exchange for shares or options over shares (“equity-settled transactions”). The Jumbo Interactive Limited Employee Share Option Plan (ESOP) provides these benefits to Directors and senior executives. The fair value of options granted to Directors, employees and consultants is recognised as an expense with a corresponding increase in equity (share option reserve). The fair value is measured at grant date and recognised over the period during which the employees or consultants become unconditionally entitled to the options. Fair value is determined by an independent valuer using the Black-Scholes, Bi-nomial, and Monte Carlo Simulation option pricing models as appropriate. In determining fair value, no account is taken of any performance conditions other than those related to the share price of Jumbo Interactive Limited (“market conditions”). The cumulative expense recognised between grant date and vesting date is adjusted to reflect the Directors’ best estimate of the number of options that will ultimately vest because of internal conditions of the options, such as the employees having to remain with the Group until vesting date, or such that employees are required to meet internal sales targets. No expense is recognised for options that do not ultimately vest because internal conditions were not met. An expense is still recognised for options that do not ultimately vest because a market condition was not met. Where the terms of options are modified, the expense continues to be recognised from grant date to vesting date as if the terms had never been changed. In addition, at the date of the modification, a further expense is recognised for any increase in fair value of the transaction as a result of the change. Where options are cancelled, they are treated as if vesting occurred on cancellation and any unrecognised expenses are taken immediately to profit or loss. However, if new options are substituted for the cancelled options and designated as a replacement on grant date, the combined impact of the cancellation and replacement options are treated as if they were a modification. x.Earnings Per Share Basic earnings per share Basic earnings per share is calculated by dividing the profit attributable to members of the Company, adjusted for the after-tax effect of preference dividends on preference shares classified as equity, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the year. Diluted earnings per share Earnings used to calculate diluted earnings per share are calculated by adjusting the basic earnings by the after-tax effect of dividends and interest associated with dilutive potential ordinary shares. The weighted average number of shares used is adjusted for the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares. y. Goods and Services Tax (GST) Revenues, expenses and assets are recognised net of GST except where GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item. Receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position. JUMBO INTERACTIVE LTD ANNUAL REPORT 2015 NOTES TO THE FINANCIAL STATEMENTS Cash flows are included in the statement of cash flows on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority, are classified as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority. z. Financial Guarantees Financial guarantee contracts are recognised as a financial liability at the time the guarantee is issued. The liability is initially measured at fair value and at the end of each subsequent reporting period at the higher of the amount determined under AASB 137 Provisions, Contingent Liabilities and Contingent Assets and the amount initially recognised less cumulative amortisation, where appropriate. 73 aa. Critical Accounting Estimates and Judgments The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts in the financial statements. Management continually evaluates judgments and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgements, estimates and assumptions on historical experience and on other various factors, including expectations of future events, management believes to be reasonable under the circumstances. The resulting accounting judgements and estimates will seldom equal actual results. The judgements, estimates and assumptions that have a significant risk of causing material adjustment to the carrying amounts of assets and liabilities (refer to the respective notes) within the next financial year are discussed below. Associates As discussed in Note 2(b), associates are accounted for using the equity method. With specific reference to Lotto Points Plus LLC, a key judgement by management is that it is no longer a joint venture as the shareholding has dropped below 50%. Other judgements that support the recoverability of the investment are that further capital is raised by the associate in the 2016 financial year and the business model will continue to expand as planned. Available-for-sale financial assets Available-for-sale financial assets are accounted for as detailed in Note 2(k). With specific reference to the group’s interest in Sorteo Games Inc, a key management judgement is the uncertainty of future economic benefits of Sorteo. Goodwill and other intangible assets The Group tests annually, or more frequently if events or changes in circumstances indicate impairment, whether goodwill and other intangible assets have suffered any impairment in accordance with the accounting policy stated in Note 2(o). The recoverable amounts of cash-generating units have been determined based on value-in- use calculations. In determining value in use, projected future cash flows are discounted using a risk adjusted pre- tax discount rate and impairment is assessed for the individual asset or at the ‘cash generating unit’ level. A ‘cash generating unit’ is determined as the smallest group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. With specific reference to the internet lottery segment CGU, a key judgement by management is that the reseller agreements with the Tatts Group will continue. Refer to Note 20(c) for details. No impairment has been recognised in respect of goodwill, domain names and intellectual property at the end of the reporting period. ab. New, revised or amended accounting standards i. AASB 119 Employee Benefits Corporate bond rates are now used instead of government bond rates to discount employee benefit liabilities under this standard. There is no material impact on the Group’s consolidated financial statements from this revised standard ii. AASB 2013-3 Amendments to AASB 136 – Recoverable Amount Disclosures for Non-Financial Assets; and iii. AASB 2914-1 Amendments to Australian Accounting Standards. The Group has applied the above standards and amendments for the first time for their annual reporting period commencing 1 July 2014. The adoption of these standards did not have any material impact on the current or any prior period and is not likely to materially affect future periods. Early adoption of standards The Group has not elected to apply any pronouncements before their operative date. ac. New accounting standards and interpretations not yet adopted Relevant accounting standards and interpretations that have recently been issued or amended but are not yet effective and have not been adopted for the annual reporting period ended 30 June 2015, are as follows: i. AASB 15 Revenue from Contracts with Customers This standard and its consequential amendments are currently applicable to annual reporting periods beginning on or after 1 January 2018. This standard requires recognised revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for these goods or services. This means that revenue will be recognised when control of goods or services is transferred, rather than on transfer of risks and rewards as is currently the case under AASB 18 Revenue. The adoption of this standard is not expected to materially affect future periods. Note 3: Parent Entity Information The Corporations Act 2001 requirement to prepare parent entity financial statements where consolidated financial statements are prepared has been removed and replaced by regulation 2M.3.01 which requires the following limited disclosure in regards to the parent entity (Jumbo Interactive Limited). The consolidated financial statements incorporate the assets, liabilities and results of the parent entity in accordance with the accounting policy described in Note 2 (a). 74 Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities Net assets Issued capital Share based payment reserve Available-for-sale financial assets reserve Retained earnings/(accumulated losses) Profits Appropriation Reserve Total shareholders’ equity Profit/(loss) for the year Total comprehensive income for the year 2015 $ 3,943,484 10,143,167 14,086,651 1,728,254 9,167,236 10,896,490 3,190,161 29,969,572 776,504 (2,302,228) (26,037,236) 783,549 3,190,161 1,247,591 1,242,042 2014 $ 3,893,194 4,772,696 8,665,890 1,662,843 4,079,025 5,741,868 2,924,022 29,759,572 640,827 (2,296,679) (26,037,236) 857,538 2,924,022 (1,070,212) (3,366,892) Guarantees The parent entity has provided guarantees to third parties in relation to the obligations of controlled entities in respect to banking facilities. The guarantees are for the terms of the facilities per Note 22: Borrowings, and are ongoing. The parent entity has also provided a guarantee in favour of the Lotteries Commission of South Australia in respect of payment obligations of a subsidiary company in terms of the Agent agreement between its subsidiary and the favouree. Contractual commitments There were no contractual commitments for the acquisition of property, plant and equipment entered into by the parent entity at 30 June 2015 (2014: $0). Contingent liabilities The parent entity has no contingent liabilities other than the guarantees referred to above. JUMBO INTERACTIVE LTD ANNUAL REPORT 2015 NOTES TO THE FINANCIAL STATEMENTS Note 4: Revenue and other Income Sales revenue Revenue from sale of goods Revenue from rendering services Other revenue/income Interest Cash Other income Foreign exchange gains 75 Other Note 5: Profit/(Loss) for the Year Profit before income tax from operations includes the following specific expenses: Cost of sales Sale of goods Rendering of services Finance costs Consolidated Group 2015 $ 2014 restated $ 2,232,152 2,008,256 26,967,601 22,790,876 29,199,753 24,799,132 761,715 848,917 225,033 218,062 24,869 197,111 1,204,810 1,070,897 30,404,563 25,870,029 Consolidated Group 2015 $ 2014 $ 1,068,252 1,051,733 1,587,347 1,614,266 Interest on financial liabilities not at fair value through profit and loss Fees arising from financial liabilities not at fair value through profit and loss 15 6,026 1,130 - Depreciation of non-current assets1 Plant and equipment Amortisation of non-current assets1 Leasehold improvements Intangibles Other expenses Operating lease rentals – minimum lease payments Employee benefits expense1 Defined contribution superannuation expense1 1included in administration expenses Note 6: Correction of Error 157,991 198,708 38,978 64,781 2,705,252 1,987,589 992,605 765,311 6,756,148 4,911,352 815,239 589,559 Correction of error relating to revenue recognised in previous years. An error was discovered in the consolidated entity’s systemic processes whereby GST on commission received was incorrect. This was caused by an internal error in the systemic process where GST on commission received has been overstated since the 30 June 2008 financial year. This error resulted in revenue being understated by $2,978,731 (cumulative impact from 2008 to 2014), creditors (as at 30 June 2014) overstated by $3,156,543, GST expense (cumulative impact from 2008 to 2014) and current GST liability (as at 30 June 2014) being understated by $177,812, and income tax expense (cumulative impact from 2008 to 2014) and current income tax liability (as at 30 June 2014) being understated by $671,716, with a net impact on profit after tax being an understatement of $2,307,015 (cumulative impact from 2008 to 2014). Extracts (being only those line items affected) are disclosed below. The error has been corrected by entries to each of the affected financial statement line items for the current financial year. The aggregate effect of the correction on the annual financial statements for the year ended 30 June 2015 is as follows: Statement of profit or loss and other comprehensive income - 30 June 2014 Extract Revenue Gross profit Profit before income tax expense Income tax expense Profit after income tax expense for the year Other comprehensive income for the year, net of tax Total comprehensive income for the year Earnings per share (cents per share) Basic earnings per share (cents per share) Diluted earnings per share (cents per share) Statement of financial position - 1 July 2013 Consolidated Group 2014 $ Reported 24,133,876 21,467,877 4,566,634 (1,781,676) 2,784,958 (2,487,583) 297,375 $ Adjustment 665,256 665,256 665,256 (199,577) 465,679 - 465,679 2014 $ Restated 24,799,132 22,133,133 5,231,890 (1,981,253) 3,250,637 (2,487,583) 763,054 76 Cents Reported Adjustment Cents Restated 6.4 6.3 1.0 1.0 7.4 7.3 Extract Assets Current assets Cash and cash equivalents Liabilities Current liabilities Trade and other payables Current tax liabilities Total current liabilities Total liabilities Net assets Equity Retained profits Total equity Consolidated Group 1 Jul 2013 $ $ Reported Adjustment 1 Jul 2013 $ Restated 24,460,703 - 24,460,703 12,496,899 (2,313,474) 10,183,425 752,946 472,139 1,225,085 13,619,661 (1,841,335) 11,778,326 14,225,161 (1,841,335) 12,383,826 20,509,225 1,841,335 22,350,560 7,602,499 1,841,335 9,443,834 20,509,225 1,841,335 22,350,560 JUMBO INTERACTIVE LTD ANNUAL REPORT 2015 NOTES TO THE FINANCIAL STATEMENTS Statement of financial position - 30 June 2014 Extract Assets Current assets Cash and cash equivalents Liabilities Current liabilities Trade and other payables 77 Current tax liabilities Total current liabilities Total liabilities Net assets Equity Retained profits Total equity Notes Revenue and other income – sales revenue Revenue from rendering of services Total sales revenue Current assets – cash and cash equivalents General account balances Customer account balances Current liabilities – trade and other payables Trade and other payables Customer liability Consolidated Group 2014 $ $ 2014 $ Reported Adjustment Restated 25,366,357 - 25,366,357 13,417,444 (2,978,730) 10,438,714 884,185 671,716 1,555,901 14,501,789 (2,307,014) 12,194,775 14,785,444 (2,307,014) 12,478,430 19,817,537 2,307,014 22,124,551 9,075,627 2,307,014 11,382,641 19,817,537 2,307,014 22,124,551 Consolidated Group 2015 $ 2014 $ Reported Restated 26,967,601 29,199,753 22,790,876 24,799,132 Consolidated Group 2015 $ Reported 16,663,778 7,114,085 2014 $ Restated 19,574,204 5,792,153 1 Jul 2013 $ Restated 19,291,646 5,169,057 23,777,863 25,366,357 24,460,703 Consolidated Group 2015 $ Reported 4,624,977 7,114,085 2014 $ Restated 4,646,561 5,792,153 1 Jul 2013 $ Restated 5,014,368 5,169,057 11,739,062 10,438,714 10,183,425 Current liabilities – income tax Provision for income tax Note 7: Income Tax Expense a. The components of tax expense comprise: Current tax Consolidated Group 2015 $ Reported 1,457,519 2014 $ Restated 1,555,902 1 Jul 2013 $ Restated 1,225,085 Consolidated Group Note 2015 $ 2014 Restated $ 2,170,268 2,480,011 Deferred tax arising from origination and reversal of temporary differences 23 (285,321) (471,161) 78 Under/over provision deferred tax prior years Under/over provision tax prior years Under/over provision overseas tax prior years - 23,383 12,044 (3,285) (31,383) 7,071 Total income tax expense/(benefit) in profit and loss 1,920,374 1,981,253 b. Reconciliation: Tax at the Australian tax rate of 30% (2014: 30%) Income tax effect of overseas tax rates R&D expense Share options expensed during year Other Under/over provision for income tax in prior year R&D concession/credit 775,090 1,087,261 - 40,703 (30,034) 47,354 - 1,569,567 414,670 (27,725) 32,330 3,000 (31,383) 20,794 Total income tax expense/(benefit) in profit and loss 1,920,374 1,981,253 Note 8: Key Management Personnel (KMP) Key management personnel compensation Short term employee benefits Post employment benefits Other long term benefits Share based payments Consolidated Group 2015 $ 2014 $ 1,401,675 1,329,310 117,498 107,381 16,082 88,239 20,918 71,691 1,623,494 1,529,300 Further information regarding the identity of key management personnel and their compensation can be found in the Audited Remuneration Report contained in the Directors’ Report JUMBO INTERACTIVE LTD ANNUAL REPORT 2015 NOTES TO THE FINANCIAL STATEMENTS Note 9: Auditor’s Remuneration Audit services Amounts paid/payable to BDO for audit or review of the financial statements for the entity or any entity in the Group Taxation services Amounts paid/payable to a related practice of BDO for taxation services for the entity or any entity in the Group: review of income tax return transfer pricing consulting other taxation advice 79 Other services Amounts paid/payable to a related practice of BDO for other services for the entity or any entity in the Group: accounting advice accounting services Total Note 10: Dividends a. Ordinary dividends Final fully franked ordinary dividend of 1.5 (2013: 1.5) cent per share franked at the tax rate of 30% (2013: 30%) Interim fully franked ordinary dividend of 1.5 (2014: 1.5) cent per share franked at the tax rate of 30% (2014: 30%) Total dividends paid or provided for Dividends paid in cash or satisfied by the issue of shares under the dividend reinvestment plan during the years ended 30 June 2014 and 30 June 2013 were as follows: Paid in cash Satisfied by issue of shares b. Dividends not recognised at the end of the reporting period In addition to the above dividends, since year end the Directors have recommended the payment of a final 2015 fully franked ordinary dividend of 1.5 (2014: 1.5) cent per share franked at the rate of 30% (2014: 30%). The aggregate amount of the proposed dividend expected to be paid on 25 September 2015, but not recognised as a liability at year end, is: Consolidated Group 2015 $ 2014 $ 124,070 124,070 104,061 104,061 36,650 2,925 - 39,575 2,700 5,000 7,700 27,212 58,594 12,000 97,806 - - - 171,345 201,867 Consolidated Group 2015 $ 2014 $ 658,540 658,540 663,040 653,290 1,321,580 1,311,830 1,321,580 1,311,830 - - 1,321,580 1,311,830 Consolidated Group 2015 $ 2014 $ 663,040 658,540 c. Franked dividends Consolidated Group 2015 $ 2014 $ The franked portions of dividends recommended after 30 June 2015 will be franked out of existing franking credits or out of franking credits arising from the payment of income tax in the year ending 30 June 2015. Franking credits available for subsequent financial years based on a tax rate of 30% (2014: 30%): 6,151,923 4,367,814 The above amounts represent the balance of the franking account as at the reporting date adjusted for: a. Franking credits that will arise from the payment of the amount of the provision for income tax, and b. Franking debits that will arise from the payment of dividends recognised as a liability at the reporting date. The impact on the franking account of the dividend recommended by the directors since the end of the reporting period, but not recognised as a liability at the reporting date, will be a reduction in the franking account of $284,160 (2014: $282,232). 80 Note 11: Earnings per Share Reconciliation of earnings used in calculating earnings per share Consolidated Group 2015 $ 2014 Restated $ Basic earnings/(loss) per share Profit after tax from continuing operations attributable to owners of Jumbo Interactive Limited used to calculate basic earnings per share 663,261 3,250,637 Profit/(loss) attributable to owners of Jumbo Interactive Limited used to calculate basic earnings per share 663,261 3,250,637 Weighted average number of ordinary shares used as the denominator in calculating basic earnings per share 44,083,055 43,758,055 Diluted earnings/(loss) per share Profit after tax from continuing operations attributable to owners of Jumbo Interactive Limited used to calculate diluted earnings per share 663,261 3,250,637 Profit/(loss) attributable to owners of Jumbo Interactive Limited used to calculate diluted earnings per share Weighted average number of ordinary shares used as the denominator in calculating basic earnings per share Adjustments for calculation of diluted earnings per share: — options Weighted average number of ordinary shares used as the denominator in calculating diluted earnings per share 663,261 3,250,637 44,083,055 43,758,055 - 326,434 44,083,055 44,084,489 2,500,000 options were not included in the number of weighted average number of ordinary shares used to calculate diluted earnings per share because they are currently out-of-the-money. JUMBO INTERACTIVE LTD ANNUAL REPORT 2015 NOTES TO THE FINANCIAL STATEMENTS Note 12: Cash and Cash Equivalents Note Total cash and cash equivalents General account balances Cash at bank and in hand Short term bank deposits Customer Funds Cash at bank and in hand Short term bank deposits Online lottery customer account balances 21 Consolidated Group 2015 $ 2014 restated $ 23,777,863 25,366,357 5,894,156 4,524,578 10,769,622 15,049,626 16,663,778 19,574,204 1,514,085 5,600,000 7,114,085 1,192,153 4,600,000 5,792,153 Customer account balances being deposits and prize winnings earmarked for payment to customers on demand. 81 Note 13: Trade and Other Receivables Current Trade receivables Allowance for doubtful debts Other receivables Joint venture receivable Prepayments Consolidated Group 2015 $ 2014 $ 103,071 125,792 - 103,071 223,376 - 167,474 493,921 - 125,792 162,585 155,796 195,561 639,734 All receivables that are neither past due nor impaired are with long standing clients who have a good credit history with the Group. a. Analysis of the allowance account Current trade receivables are non-interest bearing and generally on terms ranging from seven days to 30 days. Trade receivables are assessed for recoverability based on the underlying terms of the contract. A provision for impairment is recognised when there is objective evidence that an individual trade receivable is impaired. These amounts have been included in the administrative expense items. There are no balances within trade and other receivables that are past due other than noted in (b) below. It is expected these balances, other than those impaired, will be received when due. Impaired assets are provided for in full. Receivables are pledged as per Note 22(a). b. Age analysis of trade receivables The following provides an aging analysis of trade receivables which are past due and impairments which have been raised. Consolidated Group Not past due Past due 30 days Past due 60 days Past due 90 days Past due 90 days+ Total 2015 Amount Impaired - - - - - - Amount not impaired $ 95,871 - 8 7,192 - 103,071 Total $ 95,871 - 8 7,192 - 103,071 2014 Amount Impaired - - - - - - Amount not impaired $ 103,968 - - 21,824 - 125,792 Total $ 103,968 - - 21,824 - 125,792 Payment terms on receivables past due but not considered impaired have not been renegotiated. The Group has been in direct contact with the relevant customers and are reasonably satisfied that payment will be received in full. 82 As at 30 June 2015 the Group had current trade receivables of $0 (2014: $0) that were impaired. Note 14: Inventories Current Finished goods at cost Note 15: Receivables – Non-Current Lotto Points Plus Inc., USA Gross interest in joint venture Share of joint entity’s profit/(loss) after income tax expense Net interest in joint venture Consolidated Group 2015 $ 2014 $ 62,941 49,404 Consolidated Group Note 2015 $ - - - 2014 $ 379,691 (257,746) 121,945 Note 16: Investments Accounted for Using the Equity Method The Company had a 50% interest in the joint venture entity Lotto Points Plus Inc, incorporated in the USA, which is involved in the provision of retailer-based lottery merchandising and affinity programs combined with internet lottery solutions in the USA. In February 2015, Lotto Points Plus Inc., raised US$500,000 capital through the issue of additional shares, and following a capital restructure, the Company’s interest in Lotto Points Plus Inc reduced from 50% to 41.2% and the voting power held by the Company reduced from 50% to 48.1%. These changes have resulted in the Company not having control of Lotto Points Plus Inc because it is not able to govern the activities of this entity so as to obtain benefits from it, and the classification of the Company’s investment in Lotto Points Plus Inc has therefore changed from a joint venture to an associate company. The interest in associate/ joint venture entities are accounted for in the consolidated financial statements using the equity method of accounting. JUMBO INTERACTIVE LTD ANNUAL REPORT 2015 NOTES TO THE FINANCIAL STATEMENTS Lotto Points Plus Inc. has a reporting date of 31 December, being the default financial period end date in the United States of America. Consolidated Group Interest in Joint Venture/ Associate – Lotto Points Plus Inc., USA Unlisted shares at cost Place of business/ Country of incorporation 2015 % 2014 % 2015 $ 2014 $ Lotto Points Plus Inc New York, USA 41.2 50.0 1 Series A Preferred Stock repayable by 10 February 2020 Promissory Note repayable on 13 August 2016 Total investment in joint venture/associate company Share of joint venture/associate’s revenues and expenses and results Share of losses brought forward 83 Revenues Expenses Profit/(loss) before income tax Income tax expense Profit/(loss) after income tax Accumulated share of associate company profit/(losses) Gain on dilution of shareholding recognised through profit and loss Adjusted accumulated share of associate company profit/(losses) FX translation increment Accumulated share of associate company profit/(losses) 486,493 427,126 913,620 (257,746) 163,451 (373,140) (209,689) - (209,689) (467,435) 33,573 (433,862) (67,392) (501,254) 1 - - 1 - - - - - - - - - - - Net investment in joint venture/associate company 412,366 1 Note 17: Available-For-Sale Financial Assets (Non-Current) Unlisted securities Equity investments Unlisted securities Unlisted securities comprise an investment in Sorteo Games Inc., USA. The Company owns 7% of the issued share capital of Sorteo Games Inc. The Company does not control Sorteo Games Inc because it is not able to govern the activities of this entity so as to obtain benefits from it. Shares in Sorteo Games Inc are carried at fair value of $nil (2014: $nil). Reconciliation: Opening value at cost Additional cost Foreign currency translation increment Gain/(loss) on revaluation, net of tax Consolidated Group 2015 $ 2014 $ - - - 2,296,065 5,549 614 - 233,989 (5,549) (2,530,668) - - Fair value Refer to Note 33 for more information about fair value of available-for-sale financial assets. Note 18: Controlled Entities The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the accounting policy described in Note 2(b). Direct subsidiaries of the ultimate parent entity Jumbo Interactive Limited: Country of Incorporation 2015 % 2014 % Percentage Ownership Benon Technologies Pty Ltd TMS Global Services Pty Ltd Jumbo Ventures Pty Ltd Intellitron Pty Ltd Manaccom Pty Ltd1 Jumbo Lotteries Pty Ltd Jumbo Interactive Asia Pty Ltd Cook Islands Tattslotto Pty Ltd Jumbo Interactivo de Mexico SA de CV Jumbo Interactive GmbH 1 the company was deregistered on 1 February 2015 Australia Australia Australia Australia Australia Australia Australia Cook Islands Mexico Germany 100 100 100 100 - 100 100 1 100 100 Subsidiaries of TMS Global Services Pty Ltd: Country of Incorporation TMS Global Services (NSW) Pty Ltd TMS Global Services (VIC) Pty Ltd TMS Fiji Limited TMS Fiji On-Line Limited TMS Global Services (PNG) Limited Cook Islands Tattslotto Pty Ltd Jumbo Lotteries USA Limited Jumbo Lotteries NC, Inc. Australia Australia Fiji Fiji Papua New Guinea Cook Islands United States of America United States of America Note 19: Property, Plant and Equipment Percentage Ownership 2015 % 100 100 100 100 100 99 100 100 84 100 100 100 100 100 100 100 1 100 100 2014 % 100 100 100 100 100 99 100 100 Plant and equipment At cost Accumulated depreciation Leasehold improvements - at cost Accumulated amortisation Total property, plant and equipment Consolidated Group 2015 $ 1,320,979 (980,552) 340,427 480,708 (334,794) 145,914 486,341 2014 $ 1,128,393 (824,352) 304,041 309,837 (295,816) 14,021 318,062 Movements in the carrying amounts for each class of property, plant and equipment between the beginning and the end of the current financial year. JUMBO INTERACTIVE LTD ANNUAL REPORT 2015 NOTES TO THE FINANCIAL STATEMENTS a. Movements in Carrying Amounts Consolidated Group Year ended 30 June 2014 Balance at the beginning of year Additions Disposals Depreciation/amortisation expense Carrying amount at the end of year Year ended 30 June 2015 Balance at the beginning of year Additions Disposals 85 Depreciation/amortisation expense Carrying amount at the end of year Note 20: Intangible Assets Plant and Equipment $ Leasehold Improvements $ 301,348 204,285 (2,884) (198,708) 304,041 304,041 196,085 (1,708) (157,991) 340,427 64,711 14,091 - (64,781) 14,021 14,021 170,871 - (38,978) 145,914 Consolidated Group Goodwill Accumulated impaired losses Net carrying value Intellectual property Accumulated impairment losses Net carrying value Website development costs Accumulated amortisation Net carrying value Customer acquisition costs Accumulated amortisation (and impairment) Net carrying value Software costs Accumulated amortisation Net carrying value Domain names - cost Net carrying value Other Accumulated amortisation Net carrying value Total intangibles Total $ 366,059 218,376 (2,884) (263,489) 318,062 318,062 366,956 (1,708) (196,969) 486,341 2014 $ 3,686,355 (854,805) 2,831,550 53,499 (23,404) 30,095 9,331,585 (5,498,246) 3,833,339 4,446,799 (4,446,799) - 141,897 (133,951) 7,946 889,764 889,764 39,204 (39,204) - 2015 $ 3,686,355 (854,805) 2,831,550 53,499 (23,442) 30,057 13,840,011 (8,235,527) 5,604,484 4,446,799 (4,446,799) - 142,087 (136,060) 6,027 889,865 889,865 39,204 (39,204) - 9,361,983 7,592,694 a. Movements in Carrying Amounts Consolidated Group: Year ended 30 June 2014 Balance at the beginning of year Additions acquired Additions internally developed Amortisation charge Closing value at 30 June 2014 Year ended 30 June 2015 Balance at the beginning of year Additions acquired Additions internally developed Disposals Amortisation charge Closing value at 30 June 2015 Goodwill $ Intellectual property $ Website development costs $ Customer acquisition costs $ Software $ Domain names $ Other $ Total $ 2,831,550 30,159 2,343,682 182,230 1,431 888,342 36,910 6,314,304 - - - - - - 3,255,104 - - 9,453 1,422 - 10,875 - - - - 3,255,104 (36,910) (1,987,589) (64) (1,765,447) (182,230) (2,938) 2,831,550 30,095 3,833,339 2,831,550 30,095 3,833,339 - - - - - - - - 4,474,446 - (38) (2,703,301) 2,831,550 30,057 5,604,484 - - - - - - - 7,946 889,764 - 7,592,694 7,946 889,764 - 7,592,694 86 - - (6) (1,913) 101 - 101 - - - - 4,474,446 (6) - (2,705,252) 6,027 889,865 - 9,361,983 b. Other Disclosures Domain names have an indefinite useful life because: • There is no time limit on the expected usage of the domain names; • Licence renewal is automatic on payment of the renewal fee without satisfaction of further renewal conditions; • The cost is not significant when compared with future economic benefits expected to flow from renewal. As such, the useful life can include the renewal period; and • Since there is no limit on the number of times the licence can be renewed this leads to the assessment of “indefinite” useful life. This assessment has been based on: • Technical, technological, commercial and other types of obsolescence; • The stability of the industry in which the asset operates and changes in the market demand for the products and/or services output from the asset; • The level of maintenance expenditure required to obtain the expected future economic benefits from the asset and the entity’s ability and intention to reach such a level; and • The period of control over the asset and legal or similar limits on the use of the asset. Intellectual property has an indefinite useful life because: • There is no time limit on the expected usage of the intellectual property; and • The intellectual property is proprietary in nature and only the company has the source code. JUMBO INTERACTIVE LTD ANNUAL REPORT 2015 NOTES TO THE FINANCIAL STATEMENTS The assessment has been based on: • Technical, technological, commercial and other types of obsolescence; • The stability of the industry in which the asset operates and changes in the market demand for the products and/or services output from the asset; and • The period of control over the asset and legal or similar limits on the use of the asset. Intangible assets include capitalised website development costs, capitalised customer acquisition costs and domain names with a carrying value of $6,494,349 (2014: $4,723,103). The amortisation period relating to the website developments costs is three years and to the customer acquisition costs is 18 months. Domain names have an indefinite useful life and therefore have no amortisation period. c. Impairment Testing of Cash-Generating Units Containing Goodwill or Intangible Assets with Indefinite Useful Lives Goodwill and domain names have been allocated to the Australian Internet Lottery cash-generating unit which is an operating segment: 87 Carrying amount of goodwill Internet Lottery unit Total Carrying amount of domain names Internet Lottery unit Total Consolidated Group 2015 $ 2014 $ 2,831,550 2,831,550 2,831,550 2,831,550 889,865 889,865 889,764 889,764 The recoverable amount of the cash-generating unit is based on a value-in-use calculation using a discounted cash flow model based on a one year projection approved by management and extrapolated over a five year period using a steady rate, together with a terminal value. The growth rate used in these projections does not exceed the historical growth rate of the relative cash-generating unit. Key assumptions used for value-in-use calculation of the CGU is as follows: • Annual growth rate of 3% (2014: 3%) • Terminal growth rate of 3% (2014: 3%) • Discount rate of 17% being the calculated weighted average cost of capital based on the capital asset pricing model (2014: 17%) • Reseller agreements will be renewed as and when they expire. Management determined projections based on past performance and its expectations for the future. The growth rate used is consistent with those used in industry reports. The discount rate used is pre-tax and is specific to the relevant segment in which the unit operates. At 30 June 2015, the recoverable amount of the goodwill of the internet lottery CGU is estimated to be $41,199,593 which exceeds the carrying amount of goodwill, domain names and other intangible assets by $32,107,577. If a discount rate of 63% and growth rate of 0% was used instead of 17% and 3% respectively, the recoverable amount of goodwill would equal the carrying amount. Should the lottery reseller agreements be cancelled or not be extended for further periods when they expire, an impairment loss would be recognised up to the maximum carrying value of $9,092,016. Note 21: Trade and Other Payables Total trade and other payables Current Trade creditors GST payable Sundry creditors and accrued expenses Employee benefits Customer funds payable Current Customer funds payable Note Consolidated Group 2015 $ 2014 restated $ 11,739,062 10,438,714 1,184,851 564,678 2,203,497 671,951 4,624,977 2,060,739 593,204 1,440,156 552,462 4,646,561 12 7,114,085 5,792,153 88 Note 22: Borrowings There were no outstanding interest bearing liabilities for the financial year ended 2015 (2014: $nil). Bank overdraft A bank overdraft facility of $500,000 was cancelled by the Company during the financial year ended 2015 (2014: $500,000) as it is not required. a. Assets pledged as security The bank liabilities were secured by a fixed and floating charge over all the assets of the Group. With the cancelled overdraft facility, the covenants were also cancelled. The covenants for the previous financial years within the bank liabilities required interest not to exceed 25% of profit before finance costs and income tax (net profit before interest and tax/total interest expense > 4x), and debt not to exceed 67% of earnings before interest, tax, depreciation and amortisation (consolidated debt/net profit before deduction of interest, tax, depreciation and amortisation, and before significant items < 1.5x). b. Defaults and breaches There have been no defaults or breaches during the financial year ended 30 June 2015. JUMBO INTERACTIVE LTD ANNUAL REPORT 2015 NOTES TO THE FINANCIAL STATEMENTS Note 23: Tax Current Income tax payable NON-CURRENT Consolidated Group 2015 $ 2014 restated $ 1,457,519 1,555,902 Opening Balance $ Charged to Profit or Loss $ Closing Balance $ Deferred tax liabilities comprise temporary differences recognised in the profit or loss as follows: Property plant and equipment depreciation Amortisation Other 89 Balance at 30 June 2014 Property plant and equipment depreciation Amortisation Other Balance at 30 June 2015 NON-CURRENT 105,077 346,721 19,845 471,643 61,535 39,115 19,055 119,705 (43,542) (307,606) (790) (351,938) (57,226) (39,115) 13,247 (83,094) 61,535 39,115 19,055 119,705 4,309 - 32,302 36,611 Opening Balance $ Charged to Profit or Loss $ Closing Balance $ Deferred tax assets comprise temporary differences recognised in the profit or loss as follows: Property plant and equipment depreciation Amortisation Accruals Provisions Other Balance at 30 June 2014 Property plant and equipment Depreciation Amortisation Accruals Provisions Other Balance at 30 June 2015 101,483 10,909 39,640 215,915 27,615 395,562 133,743 10,909 76,990 274,464 18,679 514,784 32,260 - 37,350 58,549 (8,936) 119,223 (40,491) 194,589 (2,900) 45,801 5,229 202,228 133,743 10,909 76,990 274,464 18,679 514,784 93,252 205,497 74,090 320,265 23,908 717,012 Deferred tax assets not brought to account, the benefits of which will only be realised if the conditions for deductibility set out in Note 2(f) occur. • Gross capital losses $3,884,942 (2014: $3,884,942). Note 24: Provisions Current Long service leave Non-current Long service leave Consolidated Group 2015 $ 2014 $ 196,106 196,106 202,376 202,376 200,159 200,159 163,950 163,950 Note 25: Contributed Equity Share capital Fully paid ordinary shares 44,202,560 29,969,572 43,902,560 29,759,572 Consolidated Group Consolidated Group 2015 Shares 2015 $ 2014 Shares 2014 $ 90 Movements in ordinary share capital Date 1 July 2013 Shares issued during the year 17 October 2013 18 October 2013 23 January 2014 30 June 2014 Shares issued during the year 20 November 2014 26 November 2014 30 June 2015 Details Number of shares Issue price $ Opening balance 43,552,560 Exercise of options Exercise of options Exercise of options 100,000 100,000 150,000 Closing balance 43,902,560 Exercise of options Exercise of options 150,000 150,000 Closing balance 44,202,560 0.700 0.700 0.500 0.700 0.700 $ 29,544,572 70,000 70,000 75,000 29,759,572 105,000 105,000 29,969,572 a. Ordinary shares Ordinary shares have no par value and the company does not have a limited amount of authorised share capital. Ordinary shareholders are entitled to participate in dividends and the proceeds on winding up of the Company in proportion to the number of and amounts paid on the shares held. Every ordinary shareholder present at a meeting in person or by proxy is entitled to one vote on a show of hands and upon a poll each share is entitled to one vote. b. Options i. Details of the employee option plan, including details of options issued, exercised and lapsed during the financial year and options outstanding at the end of the financial year are set out in Note 30: Share-Based Payments. ii. For information relating to share options issued to third parties during the financial year, refer to Note 30: Share- Based Payments. c. Capital management Management controls the capital of the Group in order to maintain a good debt to equity ratio, provide the shareholders with adequate returns and ensure that the Group can fund its operations and continue as a going concern. JUMBO INTERACTIVE LTD ANNUAL REPORT 2015 NOTES TO THE FINANCIAL STATEMENTS The Board regularly reviews its capital management strategies in order to optimise shareholder value. There are no externally imposed capital requirements. Management effectively manages the Group’s capital by assessing the Group’s financial risks and adjusting its capital structure in response to changes in these risks and in the market. These responses include the management of debt levels, distributions to shareholders and share issues. There was a change in the strategy adopted by management to control the capital of the Group for the current financial year which strategy is to ensure that the Group’s gearing ratio remains less than 40% (2014: less than 40%). The gearing ratios for the year ended 30 June 2015 and 30 June 2014 are as follows: Total borrowings Total equity Total capital Gearing ratio 91 Note 21 Consolidated Group 2015 $ - 21,680,753 21,680,753 0% 2014 $ - 22,124,551 22,124,551 0% Note 26: Capital and Leasing Commitments a. Operating lease commitments Consolidated Group 2015 $ 2014 $ Non-cancellable operating leases contracted for but not capitalised in the financial statements Payable Not later than one year Later than one year but not later than six years 1,104,008 3,339,016 4,443,024 781,102 3,589,072 4,370,174 The property leases are non-cancellable leases for occupied premises at various locations ranging from month-to- month to six year terms, with rent payable monthly in advance. Options to renew leases at the end of the term range from terms of one to six years. Rent and outgoings are paid on a monthly basis with periodic pricing reviews. Note 27: Contingent Liabilities Estimates of the potential financial effect of contingent liabilities that may become payable: Contingent Liabilities Guarantees provided by the Group’s bankers The Group’s bankers have provided guarantees to third parties in relation to premises leased by Group companies. These guarantees have no expiry term and are payable on demand, and are secured by a fixed and floating charge over the Group’s assets Consolidated Group 2015 $ 2014 $ 404,639 385,710 404,639 385,710 Note 28: Segment Reporting Segment information is presented using a ‘management approach’, i.e. segment information is provided on the same basis as information used for internal reporting purposes by the chief operating decision maker (the Board). Comparatives for 2014 were stated on this basis. Accounting policies Segment revenues and expenses are those that are directly attributable to a segment and the relevant portion that can be allocated to the segment on a reasonable basis. Segment information a. Description of segments Management has determined the operating segments based on the reports reviewed by the Board that are used to make strategic decisions. The Board considered the business from both a product and a geographic perspective and has identified the reportable segments. Internet Lotteries segment consists of retail of lottery tickets sold both in Australia and eligible international jurisdictions, and internet database management/marketing. The Board monitors the performance of the regions on a separate basis. Accordingly, there are three operating segments: internet lotteries Australia, internet lotteries Germany and internet lotteries Mexico. All other segments include operating segments of non-lottery business activities that are not reportable in terms of AASB 8 and revenues from external customers are derived from the sale of software and pet related products. Comparative figures for 2014 are stated on this basis. b. Segment information provided to the Board 92 2015 The segment information provided to the Board for the operative segments for the year ended 30 June 2015 is as follows: Total segment sales revenue Intersegment revenue Internet Lotteries Australia $ Internet Lotteries Germany $ Internet Lotteries Mexico $ Total Internet Lotteries $ 28,388,380 123,276 317,542 28,829,198 (19,967) - (317,542) (337,509) Total sales revenue from external customers 28,368,413 123,276 Other revenue/income from external customers 976,858 48,881 Total revenue and other income from external customers 29,345,271 172,157 - - - 28,491,689 1,025,739 29,517,428 NPBT Interest revenue Finance costs expense Depreciation and amortisation 8,120,012 (3,591,431) (298,512) 4,230,069 599,253 - - 15 - - 599,253 15 2,622,758 21,366 1,053 2,645,177 There was no impairment charge or other significant non-cash item recognised in 2015 relating to the segments. 2014 The segment information provided to the Board for the operative segments for the year ended 30 June 2014 is as follows: Total segment sales revenue Intersegment revenue Internet Lotteries Australia restated $ Internet Lotteries Germany $ Internet Lotteries Mexico $ Total Internet Lotteries restated $ 24,292,273 8,621 308,450 24,609,344 - - (308,450) (308,450) Total sales revenue from external customers Other revenue/income from external customers 24,292,273 924,255 Total revenue and other income from external customers 25,216,528 8,621 - 8,621 - 3 3 24,300,894 924,258 25,225,152 NPBT (restated) Interest revenue Finance costs expense Depreciation and amortisation 8,145,169 (1,114,642) (349,074) 6,681,453 714,491 41 2,017,408 - 1,087 28,779 3 - 714,494 1,128 855 2,047,042 There was no impairment charge or other significant non-cash item recognised in 2014 relating to the segments. JUMBO INTERACTIVE LTD ANNUAL REPORT 2015 NOTES TO THE FINANCIAL STATEMENTS c. Other segment information i. Segment revenue The revenue from external parties reported to the Board is measured in a manner consistent with that in the profit or loss. Revenues from external customers are derived principally from the sale of lottery tickets and provision of related services. Segment revenue and other income reconciles to total revenue and other income from continuing operations as follows: Consolidated Group 2015 $ 2014 restated $ Total Internet Lotteries segment revenue and other income 29,517,428 25,225,152 Other Segments revenue and other income All other interest revenue 93 Other 707,284 162,379 17,472 508,882 134,290 1,705 Total revenue and other income from continuing operations (note 4) 30,404,563 25,870,029 Geographical information The entity is domiciled in Australia. The amount of its revenue from external customers in Australia is $27,268,143 (2014: $23,334,887 restated), and the total revenue from external customers in other countries is $3,136,420 (2014: $2,535,142 restated). Revenues of $1,290,287 (2014: $1,056,162 restated) are from external customers in Fiji. Segment revenues are allocated based on the country in which the customer is located. Non-current assets in Australia are $9,760,510 (2014: $7,800,359). Non-current assets in other countries are (i) Germany $43,240 (2014: $58,458), (ii) Mexico $1,839 (2014: $2,827) and Fiji $42,735 (2014: $49,112). The geographical non-current assets above are exclusive of, where applicable, financial instruments, deferred tax assets, post-employment benefits assets, and rights under insurance contracts. No single external customer derives more than 10% of total revenues. ii. NPBT The Board assesses the performance of the operating segments based on a measure of NPBT. This measure excludes the effects of non-recurring expenditure from the operating segments such as restructuring costs and impairments when the impairment is the result of an isolated, non-recurring event. Furthermore the measure excludes the effects of foreign currency gains/(losses). A reconciliation of the NPBT to profit before income tax is provided as follows: NPBT Inter-segment eliminations All other segments Other Interest revenue Corporate expenses Finance costs expense Share based payments expense Directors’ remuneration Salaries and wages Other Profit before income tax from operations (per P&L) Consolidated Group 2015 $ 4,230,069 17,472 228,663 - 162,379 (6,026) (135,677) (131,400) (705,137) (1,076,708) 2,583,635 2014 restated $ 6,681,453 - 13,016 1,705 134,290 (2) (107,767) (131,100) (687,848) (671,857) 5,231,890 Note 29: Cash Flow Information a. Reconciliation of Cash Flow from Operations with Profit/(Loss) after Income Tax Profit/(loss) for the year after income tax Non-cash flows Amortisation Depreciation Unrealised foreign currency (gain)/loss Share of losses of joint ventures accounted for using the equity method Capitalised expenses of joint venture Share option expense Other Changes in operating assets and liabilities, net of the effects of purchase and disposal of subsidiaries Decrease/(increase) in trade receivables Decrease/(increase) in other receivables Decrease/(increase) in inventories Decrease/(increase) in DTA Increase/(decrease) in trade payables Increase/(decrease) in other payables Increase/(decrease) in other provisions Increase/(decrease) in DTL Increase/(decrease) in provision for income tax Cash flow from operations b. Facilities with Banks Credit facility Facilities utilised Overdraft Multi Option/Chattel mortgages Loans Bank guarantees Amount available 94 Consolidated Group 2015 $ 2014 restated $ 663,261 3,250,637 2,744,230 2,052,370 157,991 6,075 176,117 (28,138) 135,677 (195,769) 22,721 123,092 (13,537) (202,228) (875,888) 2,081,996 128,614 (83,094) (98,382) 198,708 20,311 170,136 (63,209) 107,767 35,890 68,963 (289,780) 5,694 (119,222) (329,440) 584,731 (139,564) (351,938) 330,816 4,742,738 5,532,870 Consolidated Group 2015 $ 2014 $ 1,050,000 1,550,000 - - - - - - (404,639) 645,361 (385,710) 1,164,290 The facilities are provided by ANZ Group Limited subject to general and specific terms and conditions being set and met periodically. Interest rates are both fixed and variable and subject to adjustment. Refer to Note 22 for terms of these facilities. c. Non-Cash Financing and Investing Activities i. Associate company Interest of 7.00% pa payable on the Promissory Note from Lotto Points Plus LLC is being capitalised (refer to Note 16 for details). JUMBO INTERACTIVE LTD ANNUAL REPORT 2015 NOTES TO THE FINANCIAL STATEMENTS Note 30: Share Based Payments Share-based payment expense recognised during the financial year Options issued under employee option plan Options issued to third parties for services received Consolidated Group 2015 $ 2014 $ 135,677 107,767 - - 135,677 107,767 Employee option plan The Jumbo Interactive Limited Employee Option Plan was ratified at the annual general meeting held on 28 October 2008. Employees are invited to participate in the scheme from time to time. Options vest when the volume weighted average share price over five consecutive trading days equals the exercise price and provided the staff member is still employed by the Group. When issued on exercise of options, the shares carry full dividend and voting rights. Options granted carry no dividend or voting rights. 95 Fair value of options granted Employees There were no options granted during the 2015 financial year (2014: 18.9 cents). The fair value at grant date was determined by an independent valuer using the Monte Carlo Simulation option pricing model that takes into account the share price at grant date, exercise price, expected volatility, option life, expected dividends, and the risk free rate. The inputs used for the Monte Carlo Simulation option pricing model for options granted during the year ended 30 June 2015 were as follows: Options are granted for no consideration, have a five year life, and are exercisable when the five day volume weighted average price equals the exercise price Grant date: Share price at grant date: Exercise price: Expected volatility: Expected dividend yield Risk free rate 2015 2014 - - - - - - 3 Sep 2013 6 Nov 2013 $2.17 $4.00 $2.31 $4.00 69.144% 86.156% 1.38% 3.31% 1.30% 3.49% Expected volatility was determined based on the historic volatility (based on the remaining life of the option), adjusted for any expected changes to future volatility based on publicly available information. 2015 Grant date Exercise price $ Balance at beginning of year Granted during the year Expiry date Lapsed/ Forfeited during the year Exercised during the year Expired during the year Balance at end of year Exercisable at end of year KMP and staff options 14 December 2011 3 September 2013 6 November 2013 Total 0.70 4.00 4.00 14 December 2014 3 September 2018 6 November 2018 300,000 2,400,000 400,000 3,100,000 - - - - - (300,000) (300,000) - - - (300,000) (300,000) - - - - - 2,100,000 400,000 2,500,000 - - - - 2014 Grant date Exercise price $ KMP and staff options 15 February 2011 14 December 20111 3 September 2013 6 November 2013 0.50 0.70 4.00 4.00 Expiry date 15 February 2014 14 December 2014 3 September 2018 6 November 2018 Third party options 14 December 20111 14 December 2014 0.70 Balance at beginning of year Granted during the year Lapsed/ Forfeited during the year Exercised during the year Expired during the year Balance at end of year Exercisable at end of year 150,000 500,000 - - - 2,400,000 - 400,000 650,000 2,800,000 - - - - - (150,000) (200,000) - - (350,000) 400,000 400,000 - - (400,000) (400,000) - - - - - - - - - - - - 300,000 300,000 2,400,000 400,000 - - 3,100,000 300,000 - - - - 3,100,000 300,000 96 Total 1,050,000 2,800,000 (400,000) (350,000) 1 during the financial year a third party became an employee within the Group The weighted average exercise price for the year ended 30 June 2015 was $3.86 (2014: $0.69). The weighted average remaining contractual life of share options outstanding at 30 June 2015 was 3 years 3 months (2014: 3 year 10 months). Note 31: Events After the Reporting Date Apart from the dividend declared, as at the date of this director’s report, the directors are not aware of any matter or circumstance that has arisen that has significantly affected, or may significantly affect, the operations of the Group in the financial years subsequent to 30 June 2015. Note 32: Financial Risk Management a. General objectives, policies and processes In common with all other businesses, the Group is exposed to risks that arise from its use of financial instruments. This note describes the Group’s objectives, policies and processes for managing those risks and the methods used to measure them. Further quantitative information in respect of these risks is presented throughout these financial statements. There have been no substantive changes in the Group’s exposure to financial instrument risks, its objectives, policies and processes for managing those risks and measurement from previous periods unless otherwise stated in this note. The Group’s financial instruments consist mainly of deposits with banks, and accounts receivable and payable. The Board has overall responsibility for the determination of the Group’s risk management objectives and policies and, whilst retaining ultimate responsibility for them, it has delegated the authority for designing and operating processes that ensure the effective implementation of the objectives and policies to the Group’s finance function. The Group’s risk management policies and objectives are therefore designed to minimise the potential impacts of these risks on the results of the Group where such impacts may be material. The Board receives periodic reports from the Chief Financial Officer through which it reviews the effectiveness of the processes put in place and the appropriateness of the objectives and policies it sets. The main purpose of non-derivative financial instruments is to raise finance for Group operations. There are no derivative instruments recognised or unrecognised at the reporting date. The overall objective of the Board is to set policies that seek to reduce risk as far as possible without unduly affecting the Group’s competitiveness and flexibility. Further details regarding these policies are set out below: JUMBO INTERACTIVE LTD ANNUAL REPORT 2015 NOTES TO THE FINANCIAL STATEMENTS i. Treasury Risk Management An Audit and Risk Management Committee consisting of a majority of Non-Executive Directors meet on a regular basis to consider currency and interest rate exposure and to evaluate treasury management strategies in the context of the most recent economic conditions and forecasts. The Committee’s overall risk management strategy seeks to assist the Group in meeting its financial targets whilst minimising potential adverse effects on financial performance. The Audit and Risk Management Committee operaes under policies approved by the Board of Directors. Risk management policies are approved and reviewed by the Board on a regular basis. These include the use of hedging derivative instruments, credit risk policies, and future cash flow requirements. ii. Financial Risk Exposures and Management The main risks the Group is exposed to through its financial instruments are interest rate risk, foreign currency risk, liquidity risk and credit risk. Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the entity’s income or the value of its holdings of financial instruments. 97 The Group is exposed to market risks from interest rates and foreign currency. Interest rate risk Interest rate risk arises principally from cash and cash equivalents, and borrowings. The object of market risk management is to manage and control interest rate risk exposure within acceptable parameters while optimising the return. Interest rate risk is managed with a mixture of fixed and floating rate debt. The Group policy is to manage between 50% and 100% of interest bearing debt using capped and fixed interest rates. At 30 June 2015 the Group interest bearing debt was $0 (2014: $0). Foreign currency risk The Group is exposed to fluctuations in foreign currencies arising from the sale and purchase of goods and services in currencies other than the Group’s functional currency. Senior management monitor the Group’s exposure regularly and utilise the spot market to buy and sell specified amounts of foreign currency to manage this risk. Liquidity risk The Group manages liquidity risk by monitoring forecast cash flows and ensuring that adequate cash balances and unutilised borrowing facilities are maintained. Credit risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations to the entity. Credit risk arises principally from cash and cash equivalents and trade and other receivables. The objective of the Group is to minimize risk of loss from credit risk exposure. The maximum exposure to credit risk, excluding the value of any collateral or other security, at the end of the reporting period to recognised financial assets, is the carrying amount, net of any provisions for impairment of those assets, as disclosed in the statement of financial position and notes to the financial statements. No collateral or other security is held over these assets at balance sheet date. Credit risk is managed on a Group basis and reviewed regularly by the Audit and Risk Management Committee. The Audit and Risk Management Committee monitors credit risk by actively assessing the rating quality and liquidity of counter parties: • Surplus funds are only invested with banks and financial institutions with a Standard and Poor’s rating of no less than A: • All potential customers are rated for credit worthiness taking into account their size, market position and financial standing; and • Customers that do not meet the Group’s strict credit policies may only purchase in cash or using recognised credit cards. The trade receivables balance, before allowance for doubtful debts, at balance date by geographic region: Australia Fiji USA Samoa 2015 $ 12,274 16,918 43,604 30,275 103,071 % 11.9 16.4 42.3 29.4 100 2014 $ 41,014 48,256 - 36,522 125,792 % 32.6 38.4 - 29.0 100 The Group’s most significant customer, located in the USA, accounts for 42% of trade receivables (2014: located in Samoa, accounted for 29%). Credit risk is measured using debtor aging. Refer Note 13(b): Trade and Other Receivables for aging analysis. b. Financial Instruments Categories of Financial Instruments Financial Assets Cash and cash equivalents - AA rated Loans and receivables Financial Liabilities Trade and other payables 98 Consolidated Group 2015 $ 2014 $ 23,777,863 25,366,357 493,921 761,679 11,739,062 10,438,714 i. Maturity Analysis Financial liabilities have differing maturity profiles depending on the contractual term and in the case of borrowings, different repayment amounts and frequency. The table below shows the period in which the principal and interest (if applicable) of financial liability balances will be paid based on the remaining period to repayment date assuming contractual repayments are maintained. Trade and other payables are expected to be paid as follows: Less than six months ii. Sensitivity Analysis Consolidated Group 2015 $ 11,739,062 11,739,062 2014 $ 10,438,714 10,438,714 Interest Rate Risk and Foreign Currency Risk The Group has performed a sensitivity analysis relating to its exposure to interest rate risk and foreign currency risk at reporting date. This sensitivity analysis demonstrates the effect on the current year results and equity which could result from a change in these risks. Interest Rate Sensitivity Analysis At 30 June 2015, the effect on profit/(loss) and equity as a result of changes in interest rates, with all other variables remaining constant, would be as follows: JUMBO INTERACTIVE LTD ANNUAL REPORT 2015 NOTES TO THE FINANCIAL STATEMENTS Change in profit/(loss): increase in interest rates by 2% (2014: 2%) decrease in interest rates by 2% (2014: 2%) Change in equity: increase in interest rates by 2% (2014: 2%) decrease in interest rates by 2% (2014: 2%) Consolidated Group 2015 $ 2014 $ 475,557 (475,557) 475,557 (475,557) 507,327 (507,327) 507,327 (507,327) Foreign Currency Risk Sensitivity Analysis At 30 June 2015, the effect on profit/(loss) and equity as a result of changes in the value of the Australian Dollar to the Fijian Dollar, with all other variables remaining constant is as follows: 99 Change in profit/(loss): improvement in AUD to FJD by 3% (2014: 3%) decline in AUD to FJD by 3% (2014: 3%) Change in equity: improvement in AUD to FJD by 3% (2014: 3%) decline in AUD to FJD by 3% (2014: 3%) Consolidated Group 2015 $ 2014 $ (45,303) 48,105 (45,303) 48,105 (47,213) 50,133 (47,213) 50,133 At 30 June 2015, the effect on profit/(loss) and equity as a result of changes in the value of the Australian Dollar to the Euro, with all other variables remaining constant is as follows: Change in profit/(loss): improvement in AUD to EUR by 3% (2014: 3%) decline in AUD to EUR by 3% (2014: 3%) Change in equity: improvement in AUD to EUR by 3% (2014: 3%) decline in AUD to EUR by 3% (2014: 3%) Consolidated Group 2015 $ 2014 $ (140,555) 149,249 (140,555) 149,249 (25,825) 26,879 (25,825) 26,879 The above interest rate and foreign exchange rate sensitivity analysis has been performed on the assumption that all other variables remain unchanged. At 30 June 2015, the effect on profit/(loss) and equity as a result of changes in the value of the Australian Dollar to the USD, with all other variables remaining constant is as follows: Change in profit/(loss) improvement in AUD to USD by 3% (2014: 3%) decline in AUD to USD by 3% (2014: 3%) Change in equity improvement in AUD to USD by 3% (2014: 3%) decline in AUD to USD by 3% (2014: 3%) Consolidated Group 2015 $ (16,505) 17,526 (16,505) 17,526 2014 $ (7,445) 7,749 (7,445) 7,749 The above interest rate and foreign exchange rate sensitivity analysis has been performed on the assumption that all other variables remain unchanged. Note 33: Fair Value Measurement Financial assets at fair value through Other Comprehensive Income are recognised and measured at fair value on a recurring basis. Fair value hierarchy AASB 13 Fair Value Measurement requires disclosure of fair value measurements by level in the fair value measurement hierarchy as follows • Level 1 - the instrument has quoted prices (unadjusted) in active markets for identical assets or liabilities • Level 2 - a valuation technique is used using inputs other than quoted prices within level 1 that are observable for the financial instrument, either directly (i.e. as prices), or indirectly (i.e. derived from prices) • Level 3 - a valuation technique is used using inputs that are not observable based on observable market data (unobservable inputs). As Jumbo Interactive Limited only holds unlisted equity securities, which are initially measured at cost, all available-for- sale financial assets fall within Level 3 of the fair value hierarchy. Recognised fair value measurements The following table sets out the group’s assets and liabilities that are measured and recognised at fair value in the financial statements. 100 30 June 2015 Available-for-sale financial assets 30 June 2014 Available-for-sale financial assets Note 15 15 Level 3 $ - - Total $ - - Disclosed fair values The group also has assets and liabilities which are not measured at fair value, but for which fair values are disclosed in the notes to the financial statements. Due to their short-term nature, the carrying amount of trade receivables and payables are assumed to approximate their fair values. The fair value of non-current receivables disclosed in Note 15 are based on cash flows discounted using the current lending rate of 7.00% (2014: 7.00%) for loans to joint venture parties (Level 3). The carrying amount of current trade and other payables disclosed in Note 21 are assumed to approximate their fair values because the impact of discounting is not significant. Valuation techniques used to derive level 3 fair values Valuation approach Discounted cash flow Description Unlisted equity securities in Sorteo Games Inc Unobservable inputs Range of inputs Relationship between unobservable inputs and fair value Weighted average cost of capital (WACC) 20% Future free cash flow Long term profit growth rate Uncertain Uncertain Increased long-term profit growth rate and a lower WACC would increase the fair value Decreased long-term profit growth rate and a higher WACC would decrease the fair value JUMBO INTERACTIVE LTD ANNUAL REPORT 2015 NOTES TO THE FINANCIAL STATEMENTS Reconciliation of level 3 movements The following table sets out the movement in level 3 fair values for unlisted equity securities. Opening balance 1 July 2014 Other increases Loss on revaluation recognised through Other Comprehensive Income Closing balance 30 June 2015 $ - 5,549 (5,549) - Valuation process for level 3 fair values Valuations of unlisted equity securities are performed by the CFO every six months to ensure that they are current for the half-year and annual financial statements. Valuations are reviewed and approved by the audit committee. Note 34: Related Party Transactions 101 Parent entity Jumbo Interactive Limited is the parent company. Subsidiaries Interests in subsidiaries are set out in Note 18. Joint Ventures/Associates Interests in joint ventures/associates are set out in Note 16. Key management personnel Disclosures relating to key management personnel are set out in Note 8 and the remuneration report in the directors’ report. Transactions with related parties The following transactions occurred with related parties: Transactions between related parties are on normal commercial terms and conditions no more favourable than those available to other parties unless otherwise stated. Elegant Properties Pty Ltd and Rosch Realty Pty Ltd are solely owned by Mr Mike Rosch, the father of Mr Mike Veverka, the CEO and executive director of the Company. Elegant Properties Pty Ltd rented an office from the Group and provided services during the financial year and Rosch Realty Pty Ltd provided an agent service during the previous financial year. • Office rent received • Services paid Mrs Julie Rosch, the mother of Mr Mike Veverka, the CEO and Executive Director of the Company, is engaged as a full time employee within the Group. • Salary and superannuation Consolidated Group 2015 $ 2014 $ 3,788 10,236 22,773 2,613 82,125 81,938 Receivable from related parties The following balances are outstanding at the reporting date in relation to transactions with related parties: Trade receivables from Elegant Properties Pty Ltd (director-related entity of Mike Veverka) Loans to/from related parties There were no loans to or from related parties at the current and previous reporting date. Terms and conditions All transactions were made on normal terms and conditions and at market rates. Consolidated Group 2015 $ 1,815 2014 $ 11,232 Note 35: Reserves a. Foreign Currency Translation Reserve The foreign currency translation reserve records exchange differences arising on translation of foreign controlled subsidiaries. Amounts are reclassified to profit or loss when an entity is disposed of. 102 b. Share Based Payments Reserve The share based payments reserve records items recognised as expenses on valuation of employee and third party share options. This reserve can be reclassified as retained earnings if options lapse. c. Available-for-sale Financial Assets Reserve The available-for-sale investments revaluation reserve comprises changes in the fair value of available-for-sale investments which are recognised in other comprehensive income including when the investments are sold or re- classified. Note 36: Company Details The registered office of the Company is: Jumbo Interactive Limited, Level One, 601 Coronation Drive, Toowong, QLD, 4066. The principal places of business are: • Level One, 601 Coronation Drive, Toowong, QLD, 4066 • Suite 307, 306 St Kilda Road, Melbourne, VIC, 3001 JUMBO INTERACTIVE LTD ANNUAL REPORT 2015 DIRECTORS’ DECLARATION Directors’ Declaration The Directors of the Company declare that: 1. The financial statements, comprising the Consolidated Statement of Profit or Loss and Comprehensive Income, Consolidated Statement of Financial Position, Consolidated Statement of Changes in Equity and Consolidated Statement of Cash Flows, and accompanying notes, are in accordance with the Corporations Act 2001 and: (a) comply with Accounting Standards and the Corporations Regulations 2001; and (b) give a true and fair view of the consolidated entity’s financial position as at 30 June 2015 and of its performance for the year ended on that date. 2. The Company has included in the notes to the financial statements an explicit and unreserved statement of compliance with International Financial Reporting Standards. 3. 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. 103 4. The remuneration disclosures included in pages 45 to 52 of the Directors’ report (as part of the audited Remuneration Report), for the year ended 30 June 2015, comply with section 300A of the Corporations Act 2001. 5. The Directors have been given the declarations by the Chief Executive Officer and Chief Financial Officer required by section 295A. This declaration is made in accordance with a resolution of the Directors. David K Barwick Chairman Brisbane 27 August 2015 Independent Auditor’s Report Tel: +61 7 3237 5999 Fax: +61 7 3221 9227 www.bdo.com.au Level 10, 12 Creek St Brisbane QLD 4000 GPO Box 457 Brisbane QLD 4001 Australia To the members of Jumbo Interactive Limited Report on the Financial Report We have audited the accompanying financial report of Jumbo Interactive Limited, which comprises the consolidated statement of financial position as at 30 June 2015, the consolidated statement of profit or loss and other DECLARATION OF INDEPENDENCE BY TIMOTHY KENDALL TO THE DIRECTORS OF JUMBO comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, notes comprising a summary of significant accounting policies and other explanatory INTERACTIVE LIMITED information, and the directors’ declaration of the consolidated entity comprising the company and the entities it controlled at the year’s end or from time to time during the financial year. 104 As lead auditor of Jumbo Interactive Limited for the year ended 30 June 2013, I declare that, to the best of my knowledge and belief, there have been no contraventions of: Directors’ Responsibility for the Financial Report The directors of the company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view any applicable code of professional conduct in relation to the audit. and is free from material misstatement, whether due to fraud or error. In Note 2, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements comply with International Financial Reporting Standards. This declaration is in respect Jumbo Interactive Limited and the entities it controlled during the period. • • Auditor’s Responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance about whether the financial report is free from material misstatement. Director T J Kendall An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the company’s preparation of the financial report that gives a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. BDO Audit Pty Ltd Brisbane, 28 August 2013 We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. BDO Audit Pty Ltd ABN 33 134 022 870 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation, other than for the acts or omissions of financial services licensees. BDO Audit Pty Ltd ABN 33 134 022 870 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Independence JUMBO INTERACTIVE LTD ANNUAL REPORT 2015 In conducting our audit, we have complied with the independence requirements of the Corporations INDEPENDENT AUDITOR’S REPORT Act 2001. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of Jumbo Interactive Limited, would be in the same terms if given to Independence the directors as at the time of this auditor’s report. In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. We Opinion confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of Jumbo Interactive Limited, would be in the same terms if given to the directors as at the time of this In our opinion: auditor’s report. a) the financial report of Jumbo Interactive Limited is in accordance with the Corporations Act 2001, Opinion including: In our opinion: (i) i. (a) the financial report of Jumbo Interactive Limited is in accordance with the Corporations Act 2001, including: giving a true and fair view of the consolidated entity’s financial position as at 30 June 2013 and of its performance for the year ended on that date; and giving a true and fair view of the consolidated entity’s financial position as at 30 June 2015 and of its performance for the year ended on that date; and complying with Australian Accounting Standards and the Corporations Regulations 2001; and ii. (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and b) the financial report also complies with International Financial Reporting Standards as disclosed in (b) the financial report also complies with International Financial Reporting Standards as disclosed in Note 2. Note 1. 105 Report on the Remuneration Report Report on the Remuneration Report We have audited the Remuneration Report included in pages 38 to 45 of the directors’ report for the We have audited the Remuneration Report included in pages 45 to 52 of the directors’ report for the year ended 30 year ended 30 June 2013. The directors of the company are responsible for the preparation and June 2015. The directors of the company are responsible for the preparation and presentation of the Remuneration presentation of the Remuneration Report in accordance with section 300A of the Corporations Act Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. conducted in accordance with Australian Auditing Standards. Opinion Opinion In our opinion, the Remuneration Report of Jumbo Interactive Limited for the year ended 30 June 2015 complies with section 300A of the Corporations Act 2001. In our opinion, the Remuneration Report of Jumbo Interactive Limited for the year ended 30 June 2013 complies with section 300A of the Corporations Act 2001. BDO Audit Pty Ltd BDO Audit Pty Ltd T J Kendall T J Kendall Director Director BDO Audit Pty Ltd Brisbane, 27 August 2015 Brisbane, 28 August 2013 BDO Audit Pty Ltd ABN 33 134 022 870 is a member of a national association of independent entities which are all members of BDO BDO Audit Pty Ltd ABN 33 134 022 870 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit Pty Ltd and BDO Australia Ltd are members by guarantee, and form part of the international BDO network of independent member firms. of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation, other than for the acts or omissions of financial services licensees. Additional Information for Listed Public Companies The following additional information is required by the Australian Securities Exchange in respect of listed public companies only. 1. Shareholding The Company has 44,202,560 ordinary shares on issue, each fully paid. There are 1,878 holders of these ordinary shares as at 31 July 2015. Shares are quoted on the Australian Securities Exchange under the code JIN and on the German Stock Exchange. In addition, there are an aggregate total 2,200,000 options over ordinary shares on issue but not quoted on the Australian Securities Exchange. a. Distribution of Shareholders Number as at 31 July 2015 106 Number Category (size of Holding) Holders of Ordinary Shares Ordinary Shares Held 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 – and over 396 795 319 328 40 1,878 203,552 2,284,937 2,564,543 8,835,322 30,314,206 44,202,560 b. The number of shareholdings held in less than marketable parcels is: Number Holders of Ordinary Shares Ordinary Shares Held 234 60,661 c. The names of the substantial shareholders listed in the holding Company’s register as at 31 July 2015 are: Name Vesteon Pty Ltd and associates Forager Funds Management Pty Ltd Ordinary Shares Percentage Held 9,101,027 4,783,999 20.6 10.8 d. Voting Rights The voting rights attached to each class of equity security are as follows: Ordinary shares Each ordinary share is entitled to one vote when a poll is called, otherwise each member present at a meeting or by proxy has one vote on a show of hands. Options Optionholders have no voting rights until their options are exercised. JUMBO INTERACTIVE LTD ANNUAL REPORT 2015 ADDITIONAL INFORMATION FOR LISTED PUBLIC COMPANIES e. 20 Largest Shareholders — Ordinary Shares as at 31 July 2015 Name 1. VESTEON PTY LTD 2. NATIONAL NOMINEES LIMITED 3. JP MORGAN NOMINEES AUSTRALIA LIMITED 4. IMPALA SUPERANNUATION NOMINEES PTY LTD5. CITICORP NOMINEES PTY LIMITED 6. MR BARNABY COLMAN CADDICK 7. BNP PARIBAS NOMS PTY LTD 8. BOND STREET CUSTODIANS LIMITED 9. WARAWONG PTY LTD 107 10. BNP PARIBAS NOMINEES PTY LTD 11. MR MIKE VEVERKA 12. MR JAMES GARDINER 13. MR JOHN WILDE + MRS ELIZABETH WILDE 14. UNAVAL NOMINEES PTY LTD 15. MR CRAIG KUHN 16. GB & JK PORTER PTY LTD 17. MR DAVID PLATT + MRS SUE PLATT 18. NDPM PTY LTD 19. WESTOR ASSET MANAGEMENT PTY LTD 20. CS FOURTH NOMINEES PTY LTD Number of Ordinary Fully Paid Shares Held % Held of Issued Ordinary Capital 8,521,915 5,767,117 2,972,286 1,264,027 1,241,369 1,000,000 925,812 880,110 630,000 614,500 579,112 562,900 447,996 430,000 400,000 275,000 270,000 250,000 233,997 215,215 27,481,356 19.28 13.05 6.72 2.86 2.81 2.26 2.09 1.99 1.43 1.39 1.31 1.27 1.01 0.97 0.90 0.62 0.61 0.57 0.53 0.49 62.17 2. The name of the Company Secretary is Mr Bill Lyne. 3. The address of the principal registered office in Australia is Level One, 601 Coronation Drive, Toowong, QLD, 4066 Telephone (07) 3831 3705 4. Registers of securities are held at the following addresses: Computershare Investor Services Pty Ltd 117 Victoria Street, West End, QLD, 4101 5. Stock Exchange Listing Quotation has been granted for all the ordinary shares of the Company on the Australian Securities Exchange. 6. Unquoted Securities as at 31 July 2015 Options over Unissued Shares. A total of 2,200,000 options are on issue to employees for services rendered Exercise Price Expiry Date Number on Issue Number of Holders $4.00 $4.00 3 September 2018 6 November 2018 1,800,000 400,000 7 1 7. Other Disclosures There are no other disclosures. 108 JUMBO INTERACTIVE LTD ANNUAL REPORT 2015 CORPORATE DIRECTORY Corporate Directory Directors David K Barwick (Non-Executive Chairman) Mike Veverka (Chief Executive Officer) Bill Lyne (Non-Executive Director) Chief Financial Officer David Todd Company Secretary Bill Lyne Registered Office Level One 601 Coronation Drive Toowong Qld 4066 Telephone: 07 3831 3705 Facsimile: 07 3369 7844 109 Bankers ANZ Banking Group Commonwealth Bank of Australia Westpac Banking Corporation Share Registrar Computershare Investor Services Pty Ltd 117 Victoria Street West End Qld 4101 Telephone: 07 3237 2100 Facsimile: 07 3229 9860 Auditors BDO Audit Pty Ltd Level 10 12 Creek Street Brisbane Qld 4000 Telephone: 07 3237 5999 Facsimile: 07 3221 9227 Website www.jumbointeractive.com Australian Business Number 66 009 189 128 Jumbo Interactive Limited Level 1, 601 Coronation Drive PO Box 824 Toowong, Queensland, 4066 Australia +61 7 3831 3705 www.jumbointeractive.com