Jinhui Shipping and Transportation Limited
Annual Report 2018

Plain-text annual report

ANNUAL REPORT ANNUAL REPORT Jumbo Interactive Limited Jumbo Interactive Limited 2 JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 Jumbo has clear 20/20 vision for continued growth. JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 3 Table of Contents 5 6 8 10 12 20 22 24 38 39 44 Introduction Highlights Letter from the Chairman Letter from the CEO Review of Operations Leadership Team Financial Report Directors’ Report Auditor’s Independence Declaration Corporate Governance Statement Consolidated Statement of Profit or Loss and Other Comprehensive Income 45 46 48 49 Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Consolidated Financial Statements 80 Directors’ Declaration 81 84 86 Independent Auditor’s Report Shareholder Information Company Information 4 JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 20/20 Vision 20/20 Vision JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 5 Introduction 22% online by 2020 The continuing rise in popularity of online lottery tickets underpins the vision to grow internet penetration up from 18% in 2018 to 22% by 2020. Jumbo has helped drive this growth over the past decade and has put in place the people and software to make the vision a reality. Technological innovation and disciplined online marketing particular to lottery sales will be the key drivers in the years ahead. Following landmark agreements with Tatts signed in May 2017 and the completion of the merger between Tatts and Tabcorp in December 2017, Jumbo is now strongly aligned with the most significant player in the Australian lottery and gaming industry. Tabcorp’s significant shareholding in Jumbo provides the stability for Jumbo to further develop the online lottery market and deliver benefits not only to Tabcorp but all shareholders alike. Just as significant is the complete rewrite of the Jumbo Lottery Software Platform that went live during 2017. The extra tools and performance from the new software platform drive the scalability that has delivered a 55% increase in net profit after tax from a 23% increase in revenue. Those tools have also underpinned the revenue growth during a modest year in terms of major jackpots that saw 32 large jackpots compared to 31 the year before. 6 JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 Highlights A 55% increase in net profit after tax from continuing operations is the result of a strong performance by the Australian business. JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 7 Revenue (continuing operations) 12 MONTHS TO 30 JUNE 2018 $39.8m 23% increase over the previous year Number of Large Jackpots OZ LOTTO/ POWERBALL JACKPOTS OF $15 MILLION OR MORE, 12 MONTHS TO 30 JUNE 2018 32 3% increase over 12 months Net Profit After Tax (total operations) 12 MONTHS TO 30 JUNE 2018 $12.1m 115% increase over the previous year Net Profit After Tax (continuing operations) 12 MONTHS TO 30 JUNE 2018 $11.8m 55% increase over 12 months Dividends Declared FULLY FRANKED ORDINARY DIVIDENDS (EXCLUDING SPECIAL) FOR THE 12 MONTHS TO 30 JUNE 2018 12.5c 47% increase over the previous year Share Price AS AT 30 JUNE 2018 $5.00 88% increase over 12 months 8 JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 Letter from the Chairman Dear Shareholder The success of our strategy of continued focus on growing the lottery business and expanding the emerging charity business in Australia is evident in board and Management for their continued dedication to the growth of the Company and to our shareholders who have followed our journey to the successful Company Jumbo has become today. the strong financial performance for the financial year I trust that any questions you may have can and will ended 30 June 2018. This has allowed us not only to be addressed at our Annual General Meeting which is increase the normal dividend payment, but to also once scheduled for 25 October 2018. again pay another special dividend of 8 cents per share on 29 June 2018. Yours Truly We intend remaining focused on our current strategy with the expectation that this will lead to a continuing increase in the years ahead of Total Transaction Value (TTV), Revenue and Profits available for distribution to Shareholders. With net assets of $47,211,000 and available cash of $40,085,000 as at 30 June 2018, the Company may consider other opportunities in the future. However, this will not divert our focus from continuing to grow the David K Barwick Chairman business under the current strategy which gives Jumbo a clear vision leading up to the 2020’s. Jumbo has benefited considerably from the decision made two years ago to invest in its proprietary software platform and also to exit the German market. Jumbo’s success has been made possible by the focus of the collective expertise of Management and all staff ably led by Mr. Mike Veverka, who is both founder and CEO. I would like to take this opportunity to thank both the JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 9 Jumbo’s success has been made possible by the focus of the collective expertise of Management and all staff ably led by Mr. Mike Veverka, who is both founder and CEO. 10 JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 Letter from the CEO Following the landmark agreements with Tatts signed in May 2017, Jumbo went straight to work and has delivered an exceptional year of growth. From a modest run of Jackpots (32 large jackpots compared to 31 the previous year) the Jumbo team were able to significantly increase ticket sales and Revenue by 26% and 23% respectively. This translated into a 55% increase in net profit after tax (continuing operations) due to the scalable nature of the business and a tight rein on costs. This scalable nature is made possible by the software platform that has been completely rewritten from scratch over the past few years. Jumbo is now able to reap the rewards from this investment in software development via the extra tools and performance the new platform brings. A new “Powered by Jumbo” initiative has begun to further extract value from this software platform. For the first time Jumbo is able to offer other lottery operators around the world a software system to power their ticket sales and deliver the scale of growth that Jumbo is accustomed to. With exciting times ahead I sense genuine excitement around the Jumbo offices and wish to thank all staff for their enthusiasm for making Jumbo not only a great place to work but also capable of delivering exceptional growth for shareholders. Mike Veverka CEO and Founder JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 11 Following the landmark agreements with Tatts signed in May 2017, Jumbo went straight to work and has delivered an exceptional year of growth. 12 JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 Reviewof Operations Customer engagement is well up with 438,000 active customers compared to Financial Performance From a modest run of Jackpots in FY18 that saw one more large jackpot than in FY17 (32 large jackpots compared to 31 the previous year) the Jumbo team were able to significantly increase Revenue and Profit. The result was a 26% increase in Total Transaction Value (a measure of total ticket sales) and a 23% increase in 354,000 the previous year. Revenue to $39.8 million. Net profit after tax (for continuing operations) increased 55% to $11.8 million and Net profit after tax (for the group) increased 115% to $12.1 million. Earnings before interest, tax, depreciation and amortisation (EBITDA) increased 38% to $19 million. Charity Lotteries Sales of charity lotteries increased 60% to $6.1 million after another successful year of growth. Charity games were added three years ago to complement the traditional national lotteries and provide customers with more choice. Buying behaviour has been complementary with customers choosing to play charity games as well as their favourite national games. The portfolio of charity games has increased to include Surf Lifesaving Lotteries and winners choice games, Mater Prize Home and Mater Cars for Cancer, Endeavour Foundation Prize Home Lottery and Ultimate Life Changer Lottery, Act for Kids and the Deaf Lottery Australia. Image: Mater Prize Home’s luxury Hope Island waterfront home from draw 278 JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 13 New Software Platform During FY17, a 3 year project to rewrite the Jumbo Lottery Software Platform went live opening the door for improved performance. The impact was felt immediately on ticket sales as old road blocks were quickly removed. New features such as the Lotto Party and Lotto Voice were quickly released with more currently in development. Customer satisfaction increased with faster response times and a sleek user interface made the process of buying tickets more streamlined. Customer engagement is well up with 438,000 active customers compared to 354,000 the previous year. This is a result of a strong focus on the user experience and improved customer service. The average spend per customer per year reached $371 and the number of new accounts for the year reached 215,000 compared to 161,000 the previous year. For the first time Jumbo is able to offer other lottery operators around the world a software system to power their ticket sales and deliver the scale of growth that Jumbo is accustomed to. A “Powered by Jumbo” initiative has commenced aimed at forming relationships with lottery operators in need of an industry- leading software platform. 14 JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 Jumbo growth at 20% CAGR over 7 years Jumbo’s flagship website www.ozlotteries.com has delivered a consistent 20% compound annual growth rate over 7 years to 30 June 2018, absorbing the natural fluctuations in jackpots. This has been underpinned by a growing customer database and a trend in consumer behaviour towards mobile purchases. To ensure sales are not on a declining trend, sales are analysed on a like-for-like basis at specific jackpot levels over a number of years. This analysis shows a steady increase in sales further confirming the general growth trend. Jumbo’s continued growth has been underpinned by a growing customer database and a trend in consumer behaviour towards mobile purchases. Sales growth over the last 4 HY periods has been positive despite jackpot fluctuations. FY 2017 FY 2018 Internet Lotteries Australia TTV ($ million) Large Jackpots HY1 69.3 15 7 year Total Transaction Value - Group Number of Jackpots $15 million or more 200 150 m 100$ 50 0 101 22 HY2 75.2 16 128 HY1 88.7 18 HY2 93.6 14 183 153 145 110 107 38 36 34 45 31 32 FY 12 FY 13 FY 14 FY 15 FY 16 FY 17 FY 18 JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 15 7 New Millionaires! It’s been an exciting year for Oz Lotteries customers, with 265,433 customers winning $126,415,572 in prizes – almost double the $10 Million Oz Lotto! Two Oz Lotteries customers won shares in the $40 million Oz Lotto aggregate prize pool from FY17. With 7 new millionaires, including a jackpot in January, receiving $10,000,000 each! $50 million division 1 winner, Oz Lotteries customers have really hit the jackpot this year. $6.8 Million Lucky Lotteries! A young man from Sydney’s inner-western suburbs was left “shocked $50 Million Powerball! Oz Lotteries sold its biggest winning ticket this year, an amazing $50 and speechless” after receiving a phone call at work informing him that his Lucky Lotteries Super Jackpot ticket had scored the entire million prize! The entire Division 1 prize for the Powerball draw went $6.8m jackpot in the Lucky Lotteries draw on the 15th of January. to a lucky man from the ACT, who took home $50,000,000 from a Quickpick 7 ticket. When CEO Mike Veverka called the Powerball “Are you serious? Wow, wow, wow!” he exclaimed. “You’ve made my winner, he said he was “dumbfounded” and “hadn’t slept a wink” day, you’ve made my life!” knowing his entire life was about to change. Jumbo facilitates the payment of prizes to the customer from Tatts. 7/6/2018 $50,000,000.00 0 0 .0 0 0 ,0 0 $ 1 0 ,0 $10,0 0 0,0 0 0 .0 0 16 JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 Getting the Lotto Party started! Jumbo has successfully combined social media and lottery syndicate play on a digital platform. Eliminating the need for cumbersome syndicate administration, Lotto Party enables a group of friends to easily create their own group syndicate right in the app. An organiser sets up a group and creates a ticket in an upcoming draw, then they set the price each friend will need to contribute to join the Lotto Party. The invitation is sent through social media to friends via a unique link, then after the draw takes place, Oz Lotteries automatically calculates any winnings and pays each friend directly back into their Oz Lotteries account based on the number of shares they purchased. Lotto Party supports the social nature of playing the lottery, and in doing so, invites new customers to join Oz Lotteries. JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 17 18 JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 What were the results for last weeks Powerball? Powerball draw 1159 was drawn on Thursday 2nd August. The main numbers were 32, 34, 1, 9, 17, 22, 3 and the Powerball was 19. Oz Lotteries Voice App Continually pushing the boundaries, Jumbo launched a voice- activated feature for the Google System Platform and Amazon’s Alexa product this year. Voice enables customers to discover the lottery results, prize pools and upcoming draws simply by asking Alexa or Google Home, offering different ways for customers to interact with Jumbo. Improved Customer Engagement A strong focus on the user experience and customer service is credited for Jumbo’s record year. THE APP TO HAVE by Dab1955 19 Jul The implementation of an integrated customer support platform has enabled our customer support team to provide stellar, consistent service, showing over 90% satisfaction rating. Feedback such as “Quick to respond to my request and all fixed in no time at all. Great customer service.”, “So easy dealing with your company, if only it was like with all the other service providers!” and “The quality of service provided by this company is awesome.” are testament to our customers’ satisfaction. The Oz Lotteries app proudly maintains a 5-Star rating on the app store, with rave reviews. Great app that provides everything I need in a lotto purchasing app. The email notifications and paypal payment make it far superior to other apps on offer. LOVE THIS by Majaanli 2 Aug This is such a user friendly app. It makes purchasing so easy and I don’t think I’ll go back to going in store. JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 19 Key Performance Indicators CPL— Cost Per Lead $17.28 Up from $17.09 due to customer acquisition marketing mix. Average Spend per Online Customer $371.13 Up from $348.40 due to improved customer activity and higher jackpot activity as well as a positive contribution from charity games. New Online Accounts Active Online Customers 215k Up from 161k due to marketing initiatives and higher jackpot activity. 438k Up from 354K due to improved customer activity and higher jackpot activity. 20 JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 Leadership Team Jumbo has a stable leadership team that has amassed unique digital experience in the world lottery industry. Mike Veverka David Barwick Chief Executive Officer & Executive Chairman and Non-Executive Director Director (BEng (Hons)) David Barwick has over 40 years experience Mike Veverka is CEO and founder of Jumbo in the management and administration Interactive. He has a proven track record of publicly listed companies in Australia in business and computing, establishing and North America. During this period several successful startups to meet new David has held the positions of Chairman, consumer demands for online products. Managing Director or President of over 30 His entrepreneurial flair and ambition for public companies with strengths in strategic innovation were displayed at the age of planning, restructuring and financing fifteen when he created and sold his first entities. 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. JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 21 an Associate Diploma in Banking, and remaining secure for customer transactions. a Graduate Diploma of Advanced He is responsible for the adaptation of the Corporate Governance. He is a Fellow successful Australian OzLotteries.com of the Governance Institute of Australia website to other markets and ensuring and a Fellow of the Institute of Chartered capabilities for customer purchases on any Secretaries and Administrators (UK). David device demands that websites continually brings a wealth of commercial expertise to evolve as new mobile and computer Jumbo Interactive as Chief Financial Officer. products are released to market with unprecedented frequency. Bill Lyne Non-Executive Director and Company Secretary (BCom, CA, FCIS, FGIA, FAICD, FFIN) 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 Brad Board Brian J. Roberts of First Australian Building Society, having Chief Operating Officer previously spent many years in credit and lending positions in merchant banking. Having joined Jumbo in 2001 Brad has Bill holds a Bachelor of Commerce and been actively involved in Jumbo’s evolution is a Chartered Accountant. He is a Fellow and growth into the leading digital lottery of the Institute of Chartered Secretaries & business it is today. Brad has significant Administrators (UK), Governance Institute lottery and e-commerce experience and of Australia, and the Australian Institute of ensures that the brand, digital experiences Company Directors. He is also a fellow of and service offerings provided by Jumbo and has life membership with the Financial effectively engage and satisfy it’s Services Institute of Australasia. 2,000,000+ customers in Australia and Internationally. In addition to responsibility for Jumbo’s marketing and product strategy he ensures various departments and subsidiaries are interacting efficiently with each other and in accordance with Jumbo’s overall strategic goals. President, North America (DipEC Cert(OM)) 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. David Todd Chief Financial Officer (MBA, Grad DipACG, CAIB(SA), BCom, FGIA, FCIS) David has extensive capabilities in business administration with strengths in credit risk management and international business. His experience in financial management Xavier Bergade spans 25 years in the banking industries of Chief Technology Officer South Africa, New Zealand and Australia, and small cap and SME environments. David holds a Bachelor of Commerce, a Master of Business Administration, As Chief Technology Officer, Xavier ensures that Jumbo’s technology services are continually improving and innovating while 22 22 JUMBO INTERACTIVE LTD ANNUAL REPORT 2017 JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 Financial Report JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 23 FY 2018 in Review Financial Headlines $’000 Continuing operations TTV Revenue Revenue margin NPBT NPAT Discontinued operations NPAT – overall operations EBITDA EBIT Cash at bank Net assets Net tangible assets Share price at year end (cps) Dividends paid per share (cps) Total shareholder return (%) Earnings Per Share (cps) Return on capital employed (%)–overall operations Shares on issue (million) Market capitalisation (million) EBIT margin (%) FY2018 183,146 39,775 21.7% 17,101 11,753 374 12,127 19,415 16,241 47,919 47,211 33,124 500.0 35.5 101.3% 23.4 25.7% 54.4 271.9 40.8% FY2017 145,322 32,429 22.3% 11,068 7,597 (1,957) 5,640 14,094 10,463 43,320 42,900 30,484 266.0 8.5 111.2% 12.6 13.1% 50.7 134.8 32.3% Variance % 26.0% 22.7% (0.6ppt) 54.5% 54.7% 119.1% 115.0% 37.8% 55.2% 10.6% 10.0% 8.7% 88.0% 317.6% (9.9ppt) 85.7% 12.6ppt 7.3% 101.7% 8.5ppt Highlights Large jackpot activity was only one more in number, but an increase — Dividends paid 35.50 cents (fully franked) – 318% increase — Share Price $5.00 – 88% increase in the aggregate large jackpot value and improved customer — Total Shareholder Return 101% - 9.9ppt decrease engagement has seen an increase in Total Transaction Value (TTV) and Revenue, together with a continued focus on costs, has resulted in an increase in Net Profit After Tax from Continuing operations. FY2019 outlook — With a strong start to the year from 11 large jackpots in July and August, including a record $100 million for Powerball, TTV growth 5 year Total Transaction Value and average large jackpots of about 20 to 25% vs FY2018 is expected with higher TTV in 200 150 100 s n o i l l i m $ 50 0 183 traditional draw lotteries and growth from the emerging charity 130 107 153.3 145.3 25.7 25.3 28.8 24.2 28.4 FY14 FY15 FY16 FY17 FY18 lotteries — Revenue margin is expected to be slightly lower vs FY2018 of approximately 20.0 to 21.0% due to the effects of product mix — EBIT margin target 44.0 to 46.0% driven by operating leverage with continued improvement in efficiencies and focus on cost management The discontinued operation in Germany contributed to the increase in Net Profit After Tax of Overall operations. — Revenue $39.775 million – 23% increase — Net Profit After Tax – Continuing operations $11.753 million – 55% increase — Net Profit After Tax – Overall operations $12.127 million – 115% increase 24 JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 Directors’ Report The Directors of Jumbo Interactive Limited (Company), present Australian Listed Company Directorships held in the past three years: None. their report on the consolidated entity (Group), consisting of Jumbo Interactive Limited and the entities it controlled at the end of, and Interest in shares and options: 9,851,027 ordinary shares and 1,950,000 options over ordinary shares in Jumbo Interactive Limited. during, the financial year ended 30 June 2018. Board of Directors The following persons were Directors of the Company during the Bill Lyne Experience: Appointed as a board member on 30 October 2009. Bill Lyne is the principal of Australian Company Secretary Service, whole of the financial year and up to the date of this report, unless providing company secretarial, compliance and governance otherwise stated: David K Barwick Chairman, Independent Non-Executive Director Mike Veverka Managing Director and Chief Executive Officer Bill Lyne Independent Non-Executive Director services to public companies. He is currently company secretary of three 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. Qualifications: Bachelor of Commerce; Chartered Accountant. Details of the experience, qualifications and special responsibilities, Special responsibilities: Chair of the Audit and Risk Management Committee; member of the Nomination and Remuneration and other Directorships of listed companies, in respect of each of Committee; and Company Secretary. the Directors as at the date of this Directors’ Report are set out in the pages as follows: 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. Australian Listed Company Directorships held in the past three years: None. Interest in shares and options: None. Company Secretary Mr Bill Lyne was appointed Company Secretary 19 October 2007. Refer to the information on Directors for details of experience and qualifications. Special responsibilities: Chairman (Non-Executive); Chair of the Nomination and Remuneration Committee; and member of the Principal Activities The principal activity of the Group during the financial year was the Audit and Risk Management Committee. retail of lottery tickets through the internet and mobile devices sold Australian Listed Company Directorships held in the past three years: Metallica Minerals Limited – Non-Executive Director and Chairman (from 11 March 2004 to 30 June 2015), 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. Interest in shares and options: None. Mike Veverka Experience: Mike Veverka has been Chief Executive Officer and Director of Jumbo Interactive Limited since the restructuring of the Company 8 September 1999. Mike was instrumental in the development of the e-commerce software that is the foundation of 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. Qualifications: Bachelor of Engineering (Hons). Special responsibilities: Chief Executive Officer. Review of operations A review of the Group’s operations for the financial year and the results of those operations, is contained in the Operating and Financial Review as set out on pages 28 to 30 of this report. Dividends A fully franked final dividend of 5.0 cents per fully paid ordinary share for the year ended 30 June 2017 was paid on 22 September 2017, and a fully franked interim dividend of 7.5 cents per fully paid ordinary share for the year ended 30 June 2018 was paid on 23 March 2018. A fully franked special dividend of 15.0 cents per fully paid ordinary share was paid on 8 August 2017 and a fully franked special dividend of 8.0 cents per fully paid ordinary share was paid on 29 June 2018. On 23 August 2018, the Directors have declared to pay a fully franked final dividend for the financial year ended 30 June 2018 of 11.0 cents per fully paid ordinary share (2017: 5.0 cents per fully paid ordinary JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 25 share), to be paid on 21 September 2018. thereafter with termination by either party giving 12 months Further details of dividends provided for or paid are set out in note 14 written notice; and to the Consolidated Financial Statements on page 65. — Victoria (Fiji) - five years to 1 May 2022 and continuing thereafter State of Affairs Changes in the state of affairs are set out on page 30 and form part of the Directors’ Report for the financial year ended 30 June 2018. Events after the reporting date Apart from (i) the exercise of 3,474.492 Tatts options ($8,235,000) and of 330,000 staff options ($1,320,000), and (ii) the final dividend declared, as at the date of this Directors’ 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 Company in the financial years subsequent to 30 June 2018. The above items are not recognised in the financial statements 30 June 2018. Likely developments, key business strategies and future prospects Following the renewal of the lottery agreements with Tatts and the investment by Tatts in the Company in May 2017, and discontinuation of the Germany operation in March 2017, the Company is well placed to concentrate on and 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 to 1 May 2022 and continuing thereafter with termination by either party giving 12 months written notice; — New South Wales - five years to 1 May 2022 and continuing thereafter with termination by either party giving 12 months written notice; with termination by either party giving 12 months written notice The Company’s long, strong relationship with Tatts has been strengthened with the investment by Tatts in the Company, currently holding a 12.5% strategically important stake. The Company can confidently continue with its medium to long term plans to grow the business in Australia. The domestic internet lottery market is estimated to be approximately 18% 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 shares are estimated to have reached approximately 21% and 48% respectively. Based on this, there is still good growth potential in the domestic market. Changes to the Powerball game in April 2018 is expected to increase the number of large jackpots in FY2019, although this is no certainty. The long awaited Set for Life product is expected to be available for sale from the beginning of H2FY2019. The Company started selling Charity lottery tickets in July 2015 and has maintained the number of charities at five during the financial year, increasing sales by 60%. At least one further charity is expected to be added in FY2019 with expected good growth. Investment in the Company’s core intellectual property will continue for FY2019 with continuing benefits expected in future years. These new products and technologies are designed to take advantage of the trend towards social media and interactive gaming which is expected to have the Company well placed in the lottery market. 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. — South Australia - five years to 1 May 2022 and continuing thereafter with termination by either party giving 12 months Directors’ meetings The number of meetings of the Board of Directors (including board written notice; committees) held during the year ended 30 June 2018 and the number of meetings attended by each Director is set out in the table — Northern Territory - five years to 1 May 2022 and continuing below: Meetings table Board * Audit and Risk Management Committee Nomination and Remuneration Committee Director Eligible to attend Attended Eligible to attend Attended Eligible to attend Attended David Barwick Mike Veverka Bill Lyne 16 16 16 16 16 16 8 - 8 8 - 8 2 - 2 2 - 2 * Board meetings include Circulating Directors’ Resolutions 26 JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 Share options premium. Unissued ordinary shares of the Company under options at the date The Company has not otherwise, during or since the end of the of this report are as follows: Date options granted Exercise price Number Expiry date of shares under option 3 September 2013 3 September 2018 6 November 2013 6 November 2018 18 November 2015 18 November 2020 2 February 2017 2 February 2022 $4.00 $4.00 $1.75 $2.25 70,000 150,000 300,000 50,000 15 November 2017 15 November 2022 $3.50 4,450,000 5,020,000 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 2018, the following ordinary shares of Jumbo Interactive Limited were issued on the exercise of options granted. 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 Company’s auditor BDO Audit Pty Ltd, or their related practices (herein also referred to BDO), performed other services in addition to its audit responsibilities. On the advice of the Audit and Risk Management 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 and Risk Management Committee, the Directors are satisfied that the provision of non-audit services Date options granted Issue price of share shares issued independence requirements of the Corporations Act 2001 for the Number of by the auditor, as set out above, did not compromise the auditor 13 September 2013 6 November 2013 18 November 2015 14 January 2016 13 July 2017 15 November 2017 $4.00 $4.00 $1.75 $1.75 $2.37 $3.50 1,480,000 following reasons: 250,000 1,300,000 500,000 3,474,492 650,000 7,654,492 — all non-audit services have been reviewed by the Audit and Risk Management 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. Details of the amounts paid to BDO for non-audit services throughout the year are set out below: No amounts are unpaid on these shares. During or since the financial year ended 30 June 2018, the following 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. Taxation services Consolidated 2018 $ 2017 $ Name Directors Mike Veverka Other key manage- ment personnel Xavier Bergade Brad Board David Todd Number of options Number of ordinary granted shares under option Transfer pricing Other tax advice 15,000 7,000 - - Tax compliance services - tax returns 42,000 40,000 1,800,000 1,800,000 Total taxation services 64,000 40,000 900,000 900,000 900,000 900,000 900,000 900,000 4,500,000 4,500,000 Other services Accounting advice Accounting services Total other services - 4,500 4,500 2,800 6,000 8,800 Total fees for non-audit services 68,500 48,800 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 CEO and CFO declaration The Chief Executive Officer (CEO) and Chief Financial Officer (CFO) have provided a written declaration to the Board in accordance with section 295A of the Corporations Act 2001. With regards to the financial records and systems of risk management and internal compliance in this written declaration, the Board received assurance from the CEO and CFO that the JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 27 declaration was founded on a sound system of risk management and internal control, and that the system was operating effectively in all material respects in relation to the reporting of financial risks. Proceedings against 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. Remuneration Report The Remuneration Report is set out on pages 31 to 37, and forms part of the Directors’ Report for the financial year ended 30 June 2018. Rounding of amounts The company satisfies the requirements of ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191 issued by the Australian Securities and Investments Commission in relation to rounding of amounts in the directors’ report and the financial statements to the nearest thousand dollars. Amounts have been rounded off in the directors’ report and financial statements in accordance with that Legislative Instrument. Auditor’s Independence Declaration A copy of the Auditor’s Independence Declaration, as required under section 307C of the Corporations Act 2001, is set out on page 38. This Directors’ Report is made in accordance with a resolution of the Directors of the Company. David K Barwick Chairman Brisbane 23 August 2018 28 JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 Operating and Financial Review Consolidated results of continuing operations 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 with 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 for details. Continuing operations TTV Revenue Cost of sales Gross profit Other income Expenses NPBT Income tax Expense NPAT continuing operations Discontinued operations NPAT overall operations EBITDA EBIT FY2018 183,146 39,775 (2,038) 37,737 1,203 (21,839) 17,101 (5,348) 11,753 374 12,127 19,415 16,241 FY2017 145,322 32,429 (2,465) 29,964 1,064 (19,960) 11,068 (3,471) 7,597 (1,957) 5,640 14,094 10,463 Variance % 26.0% 22.7% (17.3%) 25.9% 13.1% 9.4% 54.5% 54.1% 54.7% 119.1% 115.0% 37.8% 55.2% The Company achieved a strong increase in TTV and Revenue — $7,311,000 or 23.1% increase to $38,897,000 in Australia Lotteries due mainly to improved customer activity (both new customers as a result of the increased TTV. The revenue margin is affected and re-engagement of existing customer) together with improved by product mix and was an edge lower at 21.7% (2017: 22.3%). large jackpot activity. Large jackpot activity is an important driver of sales and can randomly fluctuate over time. During the financial Cost of sales decreased by $427,000 or 17.3% to $2,038,000 mainly year, the number of large jackpots was 32 (2017: 31) and aggregate due to: value $910 million (2017: $750 million). This is 3% higher in number and 21% higher in aggregate value compared to the previous period. The voluntary administration of the business in Germany which was discontinued in March 2017, is expected to be finalised in FY2019, and had a reclassification of $374,000 foreign exchange translation gains from Other Comprehensive Income to Profit or Loss (see note 6 for details). No further Profit or Loss from Discontinued operations is expected in FY2019. The overall increase in Net profit after tax resulted from (i) an increase in TTV and Revenue with continued management of costs and (ii) the effect of the discontinued operation in Germany. The Company continues to invest in the three main pillars that support the ongoing growth of the Company with $4,567,000 (2017: $4,330,000) on its proprietary software platform (intangible assets), $4,637,000 (2017: $3,566,000) in marketing activities primarily to acquire new and retain existing customers, and $8,119,000 (2017: $7,292,000) on employees who provide the software development and marketing skills, customer support services, and management. Comparative analysis Compared to FY2017: — a higher proportion of the TTV for Australia Lotteries being due to its own marketing activities and a lower proportion through affiliates - the margin decreased by 0.6ppt to 1.1% from 1.7%. Other income, being mainly interest on cash and cash equivalents, increased by $139,000 or 13.1% to $1,203,000 largely as a result of: — $255,000 or 42.1% increase in interest on cash and cash equivalents for Australia Lotteries and Corporate through higher average interest rates and balances (see note 17 (ii) for details); — $73,000 or 85.9% decrease in other income/revenue; and — $41,000 or 28.9% decrease in the Export Market Development Grant Expenses increased by $1,879,000 or 9.4% to $21,839,000 mainly in relation to the increase TTV and Revenue and strong improvement in Company finance performance and increase in shareholder wealth: — $1,191,000 or 6.8% increase in Australia Lotteries largely from an increase in marketing costs of $1,069,000; — $34,000 or 7.8% decrease in All Other segments mainly from a decrease in administrative expenses of $41,000; and — $722,000 or 38.3% increase in Corporate principally from an increase of employee benefits in administrative expenses of TTV increased $37,824,000 or 26.0% to $183,146,000, principally due $713,000 to: — $37,789,000 or 26.2% increase to $182,268,000 in Australia Lotteries mainly as a result of improved customer activity and average large jackpot value. NPBT of continuing operations increased $6,033,000 or 54.5% to $17,101,000, principally due to: — $6,608,000 or 53.5% increase in Australia Lotteries profits due to increased TTV and Revenue and managing costs which Revenue increased $7,346,000 or 22.7% to $39,776,000 due mainly increased by 6.8%; to: — an increase of $69,000 or 17.0% in All Other Segment profits from JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 29 increased TTV/Revenue and decreased expenses; and interest rates and balances. Net profit before tax increased by 53.5% — $644,000 or 38.4% increase in Corporate losses mainly as to $18,948,000 (2017: $12,340,000) due to the higher jackpot activity a result of increased Other revenue $78,000 and increased notwithstanding an increase in expenses of 6.8% or $1,191,000. expenses $722,000. Australia Lotteries NPBT increased 53.5% or $6,608,000 due to: $144,479,000), which includes charity lottery sales of $6,092,000 — increased TTV by 26.2% or $37,789,000 and Revenue and other (2017: $3,804,000), 3.3% ofTTV (2017: 2.6%). TTV for the financial year increased by 26.2% to $182,268,000 (2017: income by 22.7% or $7,372,000 largely from improved customer activity and increased large jackpot average value; — reduced cost of sales by 17.3% or $427,000; and — increased costs by 6.8% or $1,191,000 largely due to higher marketing expenses $1,069,000 and merchant fees $458,000 associated with increased TTV, and lower depreciation and amortisation of $424,000 due mainly to a change in the useful life of website development costs from 3 years to 5 years from 1 July 2015. With no meaningful opportunities foreseeable in Mexico, activity was minimal during the financial year and the NLBT of $37,000 for FY2018 (2017: NLBT $32,000) is included in the Australia Lotteries segment. All Other Segments NPBT increased 17.0% or $69,000 due to: — increased revenue of 4.2% or $35,000; and reduced costs by 7.8% or $34,000 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 in Australia is summarised in the following table: Jumbo invests extensively in online marketing to grow and activate the customer database whom transact via its website (www. ozlotteries.com) and associated mobile apps (iOS & Android). The following key performance indicators (KPIs) are used to track the effectiveness of these campaigns: 1. CPL: Cost per Lead (new online accounts) defined as total cost to acquire these new accounts divided by the number of new accounts in a given period. New accounts potentially become active customers after the account has been established. 2. Number of Active Online Customers defined as customers who have spent money on tickets in a given period. 3. Average spend per active online customer defined as the total spent by active online customers divided by the number of active online customers in a given period. The following table summarizes the Marketing KPI’s: www.ozlotteries.com and mobile apps FY 2018 FY 2017 Number of new online accounts 214,908 160,698 CPL $17.28 $17.09 Large jackpot activity FY 2018 FY 2017 FY 2016 Number of active online customers 437,540 354,113 TTV - Internet Lotteries Australia Reported Revenue - Internet Lotteries Australia OzLotto/Powerball Number of jackpots1 $183.0 m $145.3 m $153.3 m $39.8 m $32.4 m $34.1 m Average spend per active online customer $371.13 $348.40 The 33.7% increase in new online accounts and 23.6% increase in active online customers are due mainly to the increase in large jackpot activity (3% higher in number and 21% higher in aggregate 32 31 45 value) and re-engagement of existing customers. The 6.5% increase Average Div 1 jackpot1 $28.4 m $24.2 m $28.8 m in average spend is largely due to marketing initiatives and an Peak Div 1 jackpot2 $55 m $55 m $70 m Aggregate Div 1 jackpots2 $910 m $750 m $1,295 m 1Ozlotto/Powerball Division 1 jackpots of $15 million or more 2during the financial year period The higher level of average large jackpot value in the current financial year has contributed to higher TTV and revenue. Costs continue to be closely managed with an increase in expenses of 9.4%. The higher TTV and revenue is the main reason for an increase in profits. Segment review (a) Online Lottery Segment With the operation in Germany discontinued March 2017, this segment now consists of Australia and Mexico, and Mexico’s results increase in charity lottery sales. The 1.1% increase in CPL is mostly due to the marketing mix and trying other marketing channels to acquire customers. With no meaningful opportunities in the foreseeable future in Mexico, activity is minimal and this segment ceased being reportable during the 2016 financial year. The net loss before tax for Mexico was $37,000 (2017: loss $32,000) and is included in the Australia segment. (b) All Other Segments This segment consists of the sale of non-lottery products and services. TTV and Revenue and other income increased to $878,000 (2017: $843,000) and net profit before tax increased to $476,000 (2017: $407,000), due to increased revenue and lower expenses. are included in those of Australia due to the minimal activity and no (c) Corporate meaningful opportunities in the foreseeable future. Australia Improvements continue to be made to online marketing and player experience, and together with the higher level of large jackpot activity, contributed significantly to a 23.1% increase in revenue to $38,897,000 (2017: $31,586,000). Other income increased by $61,000 or 7.1% mainly due to increased interest revenue with higher average The net loss increased by 38.4% or $644,000 to NLBT $2,323,000 mainly due to (i) increased interest revenue of 37.7% or $78,000 from higher average interest rates and balances and (ii) increased administration expenses $716,000 or 38.6% largely from increased employee benefits in salaries and share-based payments from the exercise of staff options during the financial year mainly due to the strong Company financial performance and increased shareholders wealth. 30 JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 Summary of results The annual comparison of results of the Company for the past five years is summarised below: Revenue/profits ($’000) TTV – continuing operations Revenue – continuing operations NPAT – overall operations NPAT – continuing operations NPAT – discontinued operations EBITDA – continuing operations EBIT – continuing operations Assets Cash at bank1 ($’000) Net assets ($’000) Net tangible assets ($’000) Return on capital employed (%) – overall operations Return on capital employed (%) – continuing operations Return on capital employed (%) – discontinued opera- tions FY2018 183,146 39,775 12,127 11,753 374 19,415 16,241 FY2018 47,919 47,211 33,124 25.7 24.9 0.8 FY2017 145,322 32,429 5,640 7,597 (1,957) 14,094 10,463 FY2017 43,320 42,900 30,484 13.1 17.7 (4.6) FY2016 153,302 34,083 4,670 7,323 (2,653) 13,717 10,073 FY2016 25,306 24,696 12,949 18.9 29.6 (10.7) FY2015 128,464 29,076 663 4,274 (3,611) 8,314 5,433 FY2015 23,778 21,681 11,639 3.1 19.7 (16.6) FY2014 106,872 24,792 3,251 4,366 (1,115) 7,720 5,498 FY2014 25,366 22,107 14,107 14.7 19.7 (5.0) 1includes cash held under term deposit and customer account balances payable (refer note 7: Cash and Cash Equivalents and Note 11: Trade and Other Payables for details) Share price Earnings per share (cps) Dividends paid per share (cps) Share price at financial year end (cps) Total shareholder return (%) Shares on issue (million) Market capitalisation ($’million) FY2018 FY2017 FY2016 FY2015 FY2014 23.4 35.5 500.0 101.3 54.4 271.9 12.6 8.5 266.0 111.2 50.7 134.8 10.6 3.5 130.0 57.1 44.1 57.3 1.5 3.0 85.0 (32.3) 44.2 37.6 7.4 3.0 130.0 (11.3) 43.9 57.1 Financial position The net assets of the Group have increased by $4,311,000 from 30 June 2017 to $47,211,000. The Group’s working capital, being current assets less current liabilities, has increased from $30,444,000 in 2017 to $33,236,000 in 2018 mainly as a result of increased cash and cash equivalents of (a) Increase in contributed equity of $10,425,000 resulting from: – Issue of 3,700,000 shares as a result of an exercise of options (see note 15 for details) $4,599,000. $10,425,000 of this increase came from share issues. (b) Increase in cash of $4,599,000 resulting from: Non-current assets increased by $1,616,000 to $14,439,000 due mainly to the investment in the software code of www.ozlotteries. – Cash raised from the issue of contributed equity in (a) above – Other activities (see Cash Flow Statement for details) $’000 10,425 10,425 $’000 10,425 (5,826) 4,599 com. 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: (c) Increase in non-current assets of $1,616,000 resulting from: – investment in website development costs net of amor- tisation (see note 10 for details) – Changes in other non-current assets (see notes 4, 9 and 10 for details) $’000 1,539 77 1,616 JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 31 Remuneration Report – audited policy is designed to attract the highest calibre of KMP and reward them for performance that results in long term growth in shareholder wealth. Page Refer below for further details of performance based remuneration. Contents Section Contents 1 2 3 4 5 6 7 8 9 10 11 12 Remuneration Report Introduction Remuneration Framework Directors and Executives Cash bonuses Options and rights Equity instruments issued to KMP Options granted Value of options Equity instruments held by KMP Loans to KMP Other transactions and balances Employment contracts 31 31 32 34 34 35 35 35 36 36 37 37 1. Remuneration Report Introduction This report details the nature and amount of remuneration for each Key Management Person (KMP), including each director of Jumbo Interactive Limited. The Remuneration Report for the year ended 30 June 2018 is set out per the above Contents. The information in the Report has been audited. 2. Policy Framework The Remuneration Policy of Jumbo has been designed to align director and 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 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, and drives and reflects the creation of shareholder value. The Board’s policy for determining the nature and amount of remuneration for Board members and KMP of the Group is as follows: 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. The mix of total potential remuneration for FY2018 for KMP is as follows: Fixed remuneration - 100% Short term incentive cash bonuses - 75% to 80% of fixed remuneration. 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. Refer to Note 12: Executive Service Agreements of this Report for details of KMP fixed remuneration. 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 — The Remuneration Policy, setting the terms and conditions for shareholding of the Company which could become further the directors and KMP, was developed by the Nomination and concentrated under such a scheme, and the desire of the Board to Remuneration Committee and approved by the Board. limit shareholding dilution to as low a level as possible. The Board — All KMP receive a base salary (which is based on factors such as did not exercise any discretion on the payment of bonuses. individual performance skills, level of responsibilities, experience and length of service), superannuation, options (by invitation) and performance incentives. Non-Executive Directors The Board policy is to remunerate non-executive Directors at — Performance incentives are generally only paid once market rates for comparable companies for time, commitment predetermined key performance measures have been met. and responsibilities. The Board determines payments to the non- — The Board reviews KMP packages annually by reference to the executive Directors and reviews their remuneration annually based Group’s performance, executive performance and comparable on market practice, duties and accountability. Independent external information from industry sectors and other listed companies in advice is sought when required. The maximum aggregate amount 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 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 be justified by reference to measurable performance criteria. The linked to the performance of the Group. 32 JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 Fees are paid as follows and comprise cash and statutory In determining whether or not a financial KPI has been achieved, the superannuation: Company bases the assessment on audited figures. Chairman of the Board Non-Executive Directors Membership of Audit and Risk Manage- ment Committee and Nomination and Remuneration Committee Chairman of Audit and Risk Management Committee and Nomination and Remuner- ation Committee $96,360 $68,985 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 No additional fees “at risk” cash bonus reward schemes. No additional fees Short term incentive bonus Incentive payments are based on the achievement of financial targets of profit, return on equity and total shareholder return and non-financial targets of strategic benefit such as signing of lottery Performance Based Remuneration As part of the KMP remuneration package there is a performance agreements both domestically and internationally. Payments of incentives for the 2018 financial year result were based on the based component, consisting of key performance indicators (KPI). Group’s overall financial performance (with some KPIs being The intention of this program is to facilitate goal congruence achieved). 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 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 goals. The level set for each KPI is based on a combination of an between KMP, directors and shareholders. improvement on the previous year results, increased shareholder value 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 level of achievement compared to the KPI target. Following the assessment, the KPIs are reviewed by the Board in light of the 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 desired and actual outcomes, and their efficacy is assessed in figures show: relation to the Group’s goals and shareholder wealth before the KPI are set for the following year. $’000 TTV continuing operations Net profit after tax – continuing operations Net profit after tax – overall operations Share price at year end (cps) Dividends paid per share (cps) Total shareholder return (%) Earnings per share (cps) Return of capital employed (%) Market capitalisation ($‘000s) FY 2018 FY 2017 FY 2016 FY 2015 FY 2014 $183,146 $145,322 $153,302 $128,404 $106,872 $11,753 $12,127 500.0 35.5 101.3% 23.4 25.7% $7,597 $5,640 266.0 8.5 111.2% 12.6 13.1% $7,323 $4,670 130.0 3.5 57.1% 10.6 18.9% $5,433 $663 85.0 3.0 (32.3%) 1.5 3.1% $5,498 $3,250 130.0 3.0 (11.3%) 7.4 14.7% $271,871 $134,793 $57,284 $37,572 $57,073 3. Directors and Executives Directors and executives The KMP of the Group (being those whose remuneration must be Name Position held disclosed in the Report) includes the Non-Executive Directors and those Executives who have the authority and responsibility for planning, directly and controlling the activities of Jumbo. Non-Executive Directors David K Barwick The Non-Executive Directors and Executives that were the KMP of the Group during the financial year are identified as follows: Bill Lyne Executive KMP Mike Veverka David Todd Chairman, Independent Non-Executive Director Independent Non-Executive Director Director and Chief Executive Officer Chief Financial Officer Xavier Bergade Chief Technical Officer Brad Board Chief Operating Officer JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 33 Details of Remuneration Details of compensation of KMP of Jumbo are set out below: 2018 Post employment Equity-set- tled share based Short term employee benefits benefits Long term benefits payments Cash salary, fees and an- Non-mone- Superannu- Long service Termination Proportion of remuner- ation that is performance nual leave Cash bonus tary benefits ation leave benefits Options1 Total based Directors David Barwick Mike Veverka Bill Lyne Bill Lyne – as Company Secretary Other KMP David Todd $ 88,000 $ - 521,354 257,520 63,000 29,432 - - 265,462 135,975 Xavier Bergade 265,349 135,975 Brad Board 265,549 135,975 Total KMP remuneration 1,498,146 665,445 $ $ $ - 8,360 25,000 18,829 5,985 - 36,193 42,978 35,476 - - 8,132 4,887 6,136 153,992 37,984 $ - - - - - - - - $ - $ 96,360 % - 150,145 972,848 26.5 - - 68,895 29,432 82,164 79,863 527,926 529,052 225,880 669,016 538,052 2,893,619 - - 25.8 25.7 20.3 1 includes share based payments over the remaining term on those options exercised, if any, during the financial year 2017 Post employment Equity-set- tled share based Short term employee benefits benefits Long term benefits payments Cash salary, fees and an- Non-mone- Superannu- Long service Termination Proportion of remuner- ation that is performance nual leave Cash bonus tary benefits ation leave benefits Options1 Total based Directors David Barwick Mike Veverka Bill Lyne Bill Lyne – as Company Secretary Other KMP David Todd Xavier Bergade Brad Board Kate Waters2 $ 77,000 $ - 488,069 173,580 55,000 24,100 237,507 237,507 237,507 21,382 - - 86,790 86,790 73,920 - Total KMP remuneration 1,378,072 421,080 $ $ 7,315 25,000 5,225 - 29,949 29,949 28,726 9,706 $ - 6,835 - - 3,795 3,795 3,795 $ - - - - - - - $ - 44,277 - - $ 84,315 737,761 60,225 24,100 20,421 20,421 20,421 378,462 378,462 364,369 233 174,538 756 206,615 % - 23.5 - - 22.9 22.9 20.3 - 135,870 18,453 174,538 106,296 2,234,309 - - - - - - - - - - - - - - - - - 1 includes share based payments over the remaining term on those options exercised, if any, during the financial year 2 Kate Waters ceased being a member of KMP 1 August 2016 34 JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 4. Cash bonuses No cash bonuses were paid at the discretion of the Nomination and Remuneration Committee. Performance measures apply to all participants with slightly difference individual weightings. Details of these short-term incentives recognised as remuneration, forfeited or available for Key management personnel are entitled to a short-term cash vesting in later years is outlined below: incentive as ‘at risk’ remuneration based on performance criteria described in section (a) to this Remuneration Report. These were paid out on 23 August 2018. Name Maximum Potential Awarded and included in remuneration Forfeited in year Financial Non-financial Total Financial Non-financial Total Financial Non-financial $ $ $ $ Mike Veverka David Todd 278,400 147,000 Xavier Bergade 147,000 Brad Board 147,000 69,600 348,000 257,520 36,750 36,750 36,750 183,750 183,750 183,750 135,975 135,975 135,975 $ - - - - $ 257,520 135,975 135,975 135,975 $ 20,880 11,025 11,025 11,025 $ 69,600 36,750 36,750 36,750 Total $ 90,480 47,775 47,775 47,775 5. Options and rights granted as remuneration Options are issued to key management personnel as part of their the event of retirement or retrenchment, the options will lapse one remuneration at the discretion of the Board. The options are not month after the event and if deceased, the options will lapse three necessarily issued based upon performance criteria, but are months after the event. issued to selected executives of the Company and its subsidiaries to increase goal congruence between executives, directors and shareholders. Options will vest in key management personnel when the share price equals the exercise price, as measured by the five trading day moving volume weighted average price, 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 Details of the terms and conditions of options and rights granted to key management personnel as compensation during the reporting period are as follows: No. options/ No. options/ option/right at Amount paid Date rights granted rights vested grant date Exercise price or payable Expiry date exercisable Fair value per 2018 Directors Mike Veverka 1,800,000 1,800,000 $0.334 $3.50 Other key management personnel 1,800,000 1,800,000 David Todd Xavier Bergade Brad Board 900,000 900,000 900,000 900,000 900,000 900,000 2,700,000 2,700,000 $0.334 $0.334 $0.334 $3.50 $3.50 $3.50 - - - - 15 Nov 2022 15 Nov 2017 15 Nov 2022 15 Nov 2017 15 Nov 2022 15 Nov 2017 15 Nov 2022 15 Nov 2017 Options will vest to key management personnel when the share price equals $4.00 as measured by the five business day volume weighted average price and on condition they are employedby the Group at the time of vesting. If the key management person leaves before the options vest, then the optiosn 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. JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 35 6. Equity instruments issued on exercise of remuneration options Details of equity instruments issued during the period to key management personnel as a result of options exercised that had previously been granted as compensation are as follows: Number of shares issued Number of options Amount unpaid per on exercise of options exercised Amount paid per share share 2018 Directors Mike Veverka Other key management personnel David Todd Xavier Bergade Brad Board 750,000 750,000 750,000 250,000 1,300,000 2,300,000 750,000 750,000 750,000 250,000 1,300,000 2,300,000 $2.500 $2.800 $1.750 $3.096 - - - - 7. Options granted as part of remuneration that lapsed during the period No options previously granted to key management personnel as 8. Value of options to key management personnel Details of the value of options granted and exercised during the year to key management personnel as part of their remuneration are part of remuneration lapsed during the period. summarised below: Name Directors Mike Veverka Other key management and personnel David Todd Xavier Bergade Brad Board Value of options at grant date 1 Value of options exercised at exercise date 2 $ 602,060 301,030 301,030 301,030 $ 755,000 959,000 649,500 1,451,000 1 The value of options granted during the period differs to the expense recognised as part of each key management persons’ remuneration in 3. above because the value is the grant date fair value calculated in accordance with AASB 2 Share-based Payment. The total value of the rights granted in the table above is allocated to remuneration in 3. above over the vesting period. 2 The value of options exercised has been determined as the intrinsic value of the options at exercise date i.e. the market price of shares of the Company as at close of trading on the date the options were exercised after deducting the price paid to exercise the options. 36 JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 9. Equity instruments held by key management personnel Options and rights holdings On exercise, each option and right will result in the issue of one ordinary share in Jumbo Interactive Limited. 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. Details of options and rights over ordinary shares of Jumbo Interactive Limited, held indirectly or beneficially by key management personnel are as follows: Balance at 1 Granted as Exercised Other Balance Vested at 30 Total vested Total vested July 2017 remunera- during the changes at 30 June June 2018 and exercis- and unexer- tion during the year year during the 2018 able at 30 cisable at 30 June 2018 June 2018 Mike Veverka 900,000 1,800,000 (750,000) David Todd 750,000 900,000 (750,000) Xavier Bergade 750,000 900,000 (250,000) Brad Board 750,000 900,000 (1,300,000) 3,150,000 4,500,000 (3,050,000) year - - - - - 1,950,000 1,950,000 1,950,000 900,000 900,000 900,000 1,400,000 1,400,000 1,400,000 350,000 350,000 350,000 4,600,000 4,600,000 4,600,000 - - - - - Shareholdings Details of ordinary shares in Jumbo Interactive Limited held directly, indirectly or beneficially by key management personnel and their related parties are as follows: FY2018 Mike Veverka David Todd Xavier Bergade Brad Board Granted as Issued on exercise Balance at 1 July 2017 remuneration during the year of options during the year Other changes during the year1 Balance at 30 June 2018 9,101,027 20,000 150,000 - 9,271,027 - - - - - 750,000 750,000 250,000 1,300,000 3,050,000 - (750,000) (100,000) (1,290,000) (2,140,000) 9,851,027 20,000 300,000 10,000 10,181,027 1these were on-market sale of the shares that were issued on exercise of options during the year 10. Loans to key management personnel Aggregate loans to key management persons and their related parties are as follows: Balance at 1 July Loans repaid Interest charged Interest received Balance at 30 Number in group 2017 $ $ Total 100,000 (100,000) June 2018 at end of year $ 613 $ (613) $ - 1 On 7 March 2016, Jumbo Interactive Ltd made a loan to KMP Brad The loan was repaid on 2 September 2017. Board for an amount of $100,000. The loan bears interest at the Commonwealth Bank of Australia’s Home Loan Standard Variable Rate, 5.22% p.a. as at the end of the reporting period, plus a margin of 2.00% p.a., payable monthly in arrears. The capital balance is 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 repayable by 7 March 2018. influence. JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 37 11. Other transactions and balances Other related party transactions Transactions between related parties are on normal commercial terms and conditions no more favourable than those available to other parties unless otherwise stated. i. Mr Mike Rosch, the father of Mr Mike Veverka, the CEO and executive director of the Company. rented an office from the Group. - office rent received - amounts owing to Group at year end ii. 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. Consolidated Group 2018 $ 2017 $ 8,580 2,145 7,211 1,573 Salary and superannuation 82,462 82,441 12. 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. These contracts do not fix the amount of remuneration KMP Mike Veverka increases from year to year. Remuneration levels are reviewed David Todd generally each year by the Nomination and Remuneration Committee to align with job responsibilities and market salary expectations. The Company may terminate an employment Xavier Bergade Brad Board Duration of service agreement Ongoing Ongoing Ongoing Ongoing Fixed remuneration at end of FY20181 Notice period2 $435,000 12 months $245,000 6 months $245,000 6 months $245,000 6 months 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. 1fixed remuneration excludes a superannuation component, currently 9.5% 2any termination payment (notice and severance) will be subject to compliance with all relevant legislation and will not exceed 12 months END OF AUDITED REMUNERATION REPORT 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. Level 10, 12 Creek St Brisbane QLD 4000 GPO Box 457 Brisbane QLD 4001 Australia Tel: +61 7 3237 5999 Fax: +61 7 3221 9227 www.bdo.com.au 38 Level 10, 12 Creek St Brisbane QLD 4000 GPO Box 457 Brisbane QLD 4001 Australia Tel: +61 7 3237 5999 Fax: +61 7 3221 9227 www.bdo.com.au JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 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 K L COLYER TO THE DIRECTORS OF JUMBO INTERACTIVE DECLARATION OF INDEPENDENCE BY K L COLYER TO THE DIRECTORS OF JUMBO INTERACTIVE LIMITED LIMITED As lead auditor of Jumbo Interactive Limited for the year ended 30 June 2018, I declare that, to the As lead auditor of Jumbo Interactive Limited for the year ended 30 June 2017, I declare that, to the best of my knowledge and belief, there have been: best of my knowledge and belief, there have been: 1. No contraventions of the auditor independence requirements of the Corporations Act 2001 in 1. No contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and relation to the audit; and DECLARATION OF INDEPENDENCE BY K L COLYER TO THE DIRECTORS OF JUMBO INTERACTIVE 2. No contraventions of any applicable code of professional conduct in relation to the audit. 2. No contraventions of any applicable code of professional conduct in relation to the audit. LIMITED This declaration is in respect of Jumbo Interactive Limited and the entities it controlled during the This declaration is in respect of Jumbo Interactive Limited and the entities it controlled during the period. period. As lead auditor of Jumbo Interactive Limited for the year ended 30 June 2018, I declare that, to the best of my knowledge and belief, there have been: 1. No contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and 2. No contraventions of any applicable code of professional conduct in relation to the audit. K L Colyer This declaration is in respect of Jumbo Interactive Limited and the entities it controlled during the K L Colyer Director period. Director BDO Audit Pty Ltd BDO Audit Pty Ltd Brisbane, 23 August 2018 Brisbane, 24 August 2017 K L Colyer Director BDO Audit Pty Ltd 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 Brisbane, 23 August 2018 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. 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. Liability limited by a scheme approved under Professional Standards Legislation, other than for the acts or omissions of financial services licensees. JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 39 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 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 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 2017 regarding gender diversity and aims to achieve these objectives over the next five years to 2022 as director and senior positions become vacant and appropriately qualified and experienced candidates become available: Group Diversity 2018 Actual 2022 Objective No. - 1 40 112 % - 20.0 35.7 100.0 To have at least one woman on the Board Maintain at least the current number (one) of women Achieve the percentage of woman in excess of 45% Women in senior executive positions Women employees in the Group Total employees in the Group readers are welcome to refer to them. The Board will keep its Women on the board corporate governance practices under review. Senior executive positions are defined as those reporting directly to Chief Executive Officer (CEO). This enables the Board to provide the CEO (i.e. CEO – 1). strategic guidance for the Company and effective oversight of management. A Workplace Gender Equality Report 2016-17 has been lodged with the Workplace Gender Equality Agency and is accessible on the Jumbo ensures that appropriate checks are undertaken before it Company’s website. appoints a person, or puts forward to shareholders a new candidate for election, as a director. Information about a candidate standing The Board is also responsible for the performance of the Company’s for election or re-election as a director is provided to shareholders executives, which is reviewed against appropriate measures and the to enable them to make an informed decision on whether or not to performance of the Company as a whole, and through an annual elect or re-elect the candidate. appraisal process. Jumbo provides new Directors with a letter on appointment which Performance of the Board, its committees and individual directors details the terms and conditions of their appointment, provides clear is on an annual self-assessment and peer-assessment basis which guidance on what input is required by them, and includes materials is reviewed against appropriate measures and performance of the to assist with induction into the Company. Directors are also Company as a whole. encouraged to undertake appropriate training and refresher courses which the Company facilitates as this assists in the performance of their roles. 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 The Company has a similar approach for all senior executives abovementioned processes. 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. 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, having served 12 years since being appointed a Director 30 August 2006 and Bill Lyne, also the Company Secretary, having served eight years since being appointed 30 October 2009) and the Chief Executive Officer (Mike Veverka). 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 40 JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 diverse range of skills and backgrounds. Additionally, Mr Veverka of the Company. Consequently, the current structure meets the has had a very long involvement in key sections of the Company and Council’s recommendation that the majority of the Board should be brings considerable relevant expertise and knowledge to the Board. independent, and the Board also considers the current composition A matrix of skills and diversity that the Board currently has or is looking to achieve in its membership is detailed in Table 1 below. is appropriate given the Company’s and the Directors’ backgrounds and the current and foreseeable structure and size of the Company. The rating scale used for level of importance and recruitment The Jumbo Board has established a Nomination and Remuneration priority is High (3), Medium (2) and Low (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, notwithstanding that he has now served in the position of director for more than 10 years, and Bill Lyne all 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 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. The performance of the Board, its Committees and the Directors is reviewed periodically by this 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. Details of Committee meeting attendances are set out in the Directors’ Report section of the Company’s annual report. Minutes of all meetings are provided to the Board and its Chair reports to the Board after each Committee meeting. Table 1 – Skills Matrix 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 56-75 Ethnicity Aboriginal or Torres Strait Islander Asian White/Caucasian Level of Importance Current Board Representation Recruitment Priority 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 JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 41 The Company also complies with the Recommendations for financial condition and operational results of the Company, are Directors in relation to independent professional advice, information in accordance with relevant accounting standards, and that their access and contact with the Company Secretary. opinion has been formed on the basis of a sound system of risk management and internal control which is operating effectively. The Directors may seek external professional advice at the expense of the Company on matters relating to their role as Directors The Committee’s Charter includes information on procedures for of Jumbo. However, they must first request approval from the the selection and appointment of the external auditor and rotation Chairman, which must not be unreasonably withheld. If withheld of the engagement audit partner. The external auditor is required to then it becomes a matter for the whole Board. attend the Company’s annual general meeting and be available to The Company Secretary attends all Board and committee meetings, is responsible for monitoring adherence to Board policy answer shareholder questions about the conduct of the audit and the preparation and content of the audit report. and procedures, and is accountable on governance matters. In accordance with the Council’s Recommendations the Audit 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. 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 The Board has also approved a Whistleblower Policy pursuant to which employees who have genuine suspicions about improper timely and balanced disclosure of material matters concerning the company that a reasonable person would expect to have a material conduct feel safe to report it without fear of reprisal. effect on the price or value of its securities.” Jumbo is committed to 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 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 (CFO) must declare to the Board in writing that, in their opinion, the Company’s financial reports are complete 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. The Company’s Annual Report is also used to keep investors informed, particularly in its review of operations and activities. 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. and present a true and fair view, in all material respects, of the Company general meetings also present a good opportunity for 42 JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 shareholders to meet with, and ask questions of, the Board of Jumbo The Board considers that the Committee members are sufficiently and all shareholders are notified of such meetings and encouraged qualified to consider and decide on remuneration matters. However, to attend. external professional advice may be sought from experienced consultants where appropriate to assist in their deliberations. As part of the Company’s management of investor relations the CEO does, at times, also undertake briefings with investors and Non-executive Directors’ remuneration is reviewed periodically with analysts to assist their understanding of the Company and its reference to comparable businesses and the trend in Directors’ operations, and provide explanatory background and technical 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 – 23 August 2018 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. 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. Periodic reviews evaluate and continually improve the effectiveness of risk management and internal control processes. 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 website to try and prevent compulsive gambling problems which can adversely affect individuals and their families. 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 during the year a Nomination and Remuneration Committee, as noted above under Principle 2. JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 43 Financial Report For the year ended 30 June 2018 Financial Statements Consolidated statement of profit or loss and other comprehensive income Consolidated statement of financial position Consolidated statement of changes in equity Consolidated statement of cash flows Notes to the financial statements About this report Key events and transactions for the reporting period Page 44 Page 45 Page 46 Page 48 Page 49 Page 49 Results for the year Operating assets and Capital and financial Group structure Other information Unrecognised items Page 50 liabilities Page 57 risk management Page 64 Page 69 Page 72 Page 78 Note 1: Segment infor- mation Note 7: Cash and cash equivalents Note 13: Capital risk management Note 18: Controlled subsidiaries Note 2: Revenue and other income Note 8: Trade and other receivables Note 14: Dividends Note 19: Parent disclo- sures Note 3: Expenses Note 9: Property, plant and equipment Note 15: Equity and reserves Note 4: Income tax Note 10: Intangible assets Note 16: Borrowings Note 5: Earnings per share Note 11: Trade and other payables Note 17: Financial risk management Note 6: Discontinued operations Note 12: Employee ben- efits obligations Note 20: Investments accounted for using the Equity Method Note 21: Availa- ble-for-sale financial assets (non-current) Note 27: Contingencies Note 28: Commitments Note 22: Related party transactions Note 29: Events after the reporting date Note 23: Key Man- agement Personnel compensation Note 24: Share-based payments Note 25: Remuneration of auditors Note 26: Summary of other significant ac- counting policies Signed reports Directors’ declaration Independent auditor’s report ASX information Shareholder information Company Information Page 80 Page 81 Page 84 Page 86 44 JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 Jumbo Interactive Limited and its Controlled Subsidiaries Consolidated Statement Of Profit Or Loss And Other Comprehensive Income For the year ended 30 June 2018 Revenue from continuing operations Cost of sales Gross profit Other revenue/income Distribution expenses Marketing costs Occupancy expenses Administrative expenses Finance costs Profit/(loss) before income tax expense Income tax expense Profit/(loss) after income tax from continuing operations Profit/(loss) from discontinued operations Profit/(loss) after income tax expense for the year attributable to the owners of Jumbo Interactive Limited Other comprehensive income Items that may be reclassified subsequently to profit or loss Foreign currency translation Reclassification of foreign exchange differences on loss of control of subsidiary 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) From continuing and discontinued operations Basic earnings per share (cents per share) Diluted earnings per share (cents per share) From continuing operations Basic earnings per share (cents per share) Diluted earnings per share (cents per share) From discontinued operations Basic earnings per share (cents per share) Diluted earnings per share (cents per share) Note 2 3 2 3 4 6 5 5 5 5 5 5 2018 $’000 39,775 (2,038) 37,737 1,203 (28) (4,637) (887) 2017 $’000 32,429 (2,465) 29,964 1,064 (24) (3,566) (959) (16,280) (15,405) (7) 17,101 (5,348) 11,753 374 (6) 11,068 (3,471) 7,597 (1,957) 12,127 5,640 (3) (374) (377) 11,750 ¢ 23.4 22.6 22.7 21.9 0.7 0.7 (68) 563 495 6,135 ¢ 12.6 12.3 16.9 16.5 (4.3) (4.2) The above Consolidated Statement of Profit or Loss and Other Comprehensive Income should be read in conjunction with the accompanying notes. JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 45 Jumbo Interactive Limited and its Controlled Subsidiaries Consolidated Statement Of Financial Position As at 30 June 2018 CURRENT ASSETS Cash and cash equivalents Trade and other receivables Inventories TOTAL CURRENT ASSETS NON-CURRENT 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 Employee benefit obligations TOTAL CURRENT LIABILITIES NON-CURRENT LIABILITIES Employee benefit obligations Make good provision Deferred tax liabilities TOTAL NON-CURRENT LIABILITIES TOTAL LIABILITIES NET ASSETS EQUITY Contributed equity Accumulated losses Profits Appropriation Reserve Reserves TOTAL EQUITY Note 2018 $’000 2017 $’000 7 8 9 10 4 11 4 12 12 4 15 47,919 43,320 509 57 548 62 48,485 43,930 280 13,113 1,046 14,439 62,924 341 11,574 908 12,823 56,753 14,346 13,009 594 309 184 293 15,249 13,486 368 24 72 464 15,713 47,211 55,917 (17,399) 9,364 (671) 47,211 277 24 66 367 13,853 42,900 45,492 (17,399) 15,745 (938) 42,900 The above Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes. 46 JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 Jumbo Interactive Limited and its Controlled Subsidiaries Consolidated Statement Of Changes In Equity For the year ended 30 June 2018 Contributed equity CONSOLIDATED GROUP Balance at 1 July 2016 Total comprehensive income for the year Profit/(loss) for the year Other comprehensive income Total comprehensive income for the year Transactions with owners in their capacity as owners Issue of shares Dividends paid Share-based payments Total transactions with owners in their capacity as owners Balance at 30 June 2017 Total comprehensive income for the year Profit/(loss) for the year Other comprehensive income Total comprehensive income for the year Transactions with owners in their capacity as owners Issue of shares Dividends paid Share-based payments Total transactions with owners in their capacity as owners Balance at 30 June 2018 $’000 29,827 - - - 15,665 - - 15,665 45,492 - - - 10,425 - - 10,425 55,917 Accumulated Profits appropriation losses $’000 (17,399) - - - - - - - (17,399) - - - - - - - (17,399) reserve $’000 13,850 5,640 - 5,640 - (3,745) - (3,745) 15,745 12,127 - 12,127 - (18,508) - (18,508) 9,364 The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes Share-based payments reserve Foreign currency translation reserve Total equity $’000 911 - - - - - - - - - - 149 149 1,060 644 644 1,704 Available-for-sale financial asset reserve $’000 (2,302) (2,302) - - - - - - - - - - - - - - $’000 (191) 495 495 304 (377) (377) - - - - - - - - - - (73) (2,302) $’000 24,696 5,640 495 6,135 15,665 (3,745) 149 12,069 42,900 12,127 (377) 11,750 10,425 (18,508) 644 (7,439) 47,211 JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 47 Jumbo Interactive Limited and its Controlled Subsidiaries Consolidated Statement Of Changes In Equity For the year ended 30 June 2018 CONSOLIDATED GROUP Balance at 1 July 2016 Total comprehensive income for the year Profit/(loss) for the year Other comprehensive income Total comprehensive income for the year Transactions with owners in their capacity as owners Issue of shares Dividends paid Share-based payments Balance at 30 June 2017 Total transactions with owners in their capacity as owners Total comprehensive income for the year Profit/(loss) for the year Other comprehensive income Total comprehensive income for the year Transactions with owners in their capacity as owners Issue of shares Dividends paid Share-based payments Balance at 30 June 2018 Total transactions with owners in their capacity as owners $’000 29,827 15,665 15,665 45,492 10,425 10,425 55,917 - - - - - - - - - - losses $’000 (17,399) (17,399) - - - - - - - - - - - - - - (17,399) reserve $’000 13,850 5,640 5,640 (3,745) (3,745) 15,745 12,127 12,127 - - - - - - (18,508) (18,508) 9,364 The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes Contributed equity Accumulated Profits appropriation Share-based payments reserve Foreign currency translation reserve $’000 911 - - - - - 149 149 1,060 - - - - - 644 644 1,704 $’000 (191) - 495 495 - - - - 304 - (377) (377) - - - - (73) Available-for-sale financial asset reserve $’000 (2,302) - - - - - - - (2,302) - - - - - - - (2,302) Total equity $’000 24,696 5,640 495 6,135 15,665 (3,745) 149 12,069 42,900 12,127 (377) 11,750 10,425 (18,508) 644 (7,439) 47,211 48 JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 Jumbo Interactive Limited and its Controlled Subsidiaries Consolidated Statement Of Cash Flows For the year ended 30 June 2018 CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers Payments to suppliers and employees Interest received Interest and other costs of finance paid Income tax received Income tax paid Net cash inflows/(outflows) from operating activities CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from repayment of loan to related party Payments for property, plant and equipment Payments for intangibles Payment on loss of control of foreign subsidiary Proceeds from sale of property, plant and equipment 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/(decrease) in cash and cash equivalents Net foreign exchange differences Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Note 7(b) 6 15 14 7(a) 2018 $’000 43,666 (22,200) 860 (7) 242 (5,312) 17,249 100 (96) 2017 $’000 35,888 (21,781) 564 (6) - (3,799) 10,866 - (162) (4,571) (4,448) - 1 (159) - (4,566) (4,769) 10,425 (18,508) (8,083) 4,600 (1) 43,320 47,919 15,665 (3,745) 11,920 18,017 (3) 25,306 43,320 The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes. JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 49 Jumbo Interactive Limited and its Subsidiaries Notes To The Consolidated Financial Statements For the year ended 30 June 2018 About this report 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), and is a for- profit entity for the purposes of preparing the financial statements. The consolidated financial statements are for the consolidated entity consisting of Jumbo Interactive Limited (the Company) and its subsidiaries and together are referred to as the Group or Jumbo. The consolidated financial statements were approved for issue in accordance with a resolution by the Directors on 23 August 2018. The Directors have the power to amend and reissue the consolidated financial statements. The consolidated financial statements are general purpose financial statements which: Significant and other accounting policies that summarise the measurement basis used and are relevant to an understanding of the financial statements are provided throughout the notes of the financial statements. SIGNIFICANT JUDGEMENTS AND ESTIMATES In the process of applying the Group’s accounting policies, management has made a number of judgements and applied estimates of future events. Judgements and estimates which are material to the consolidated financial statements include: Estimated useful life of website development costs Goodwill and other intangible assets Note Page 10 10 60 60 In addition, in preparing the financial statements, the notes to the financial statements were ordered such that the most relevant information was presented earlier in the notes and that the disclosures that management deemed to be immaterial were excluded from the notes to the financial statements. The determination of the relevance and materiality of disclosures — Have been prepared in accordance with the Corporations Act involved significant judgement. 2001, Australian Accountings Standards and Interpretations issued by the Australian Accounting Standards Board (AASB) and International Financial reporting Standards (IFRS) issued by the International Financial Standards Board Key events and transactions for reporting period The financial position and performance of the Group was — Have been prepared under the historical cost convention particularly affected by the following events and transactions during — Are presented in Australian dollars (A$), with all amounts in the reporting period: the financial report being rounded off in accordance with the requirements of ASIC Corporations (Rounding in Financial/ 1. Higher levels of customer and large jackpot activity (see Directors’ Reports) Instrument 2016/191 issued by the Australian Directors’ Report for details); Securities and Investments Commission to the nearest thousand 2. Exercise of staff options and resultant increase in cash (see note dollars, unless otherwise indicated 15 for details); and — Where necessary, comparative information has been restated to 3. Payment of two special dividends (see Directors’ Report and conform with changes in presentation, in the current year note 14 for details). — Adopts all new and amended Accounting Standards and Interpretations issued by the AASB that are relevant to the operations of the Group effective for reporting periods beginning on or after 1 July 2017 — Adopts AASB15 Revenue from Contracts with Customers in the year beginning 1 July 2017 The notes to the financial statements The notes include financial information which is required to understand the consolidated financial statements and is material and relevant to the operations, financial position and performance of the Group. Information is considered material and relevant if, for example: — The amount in question is significant because of its size or nature — It is important for understanding the results of the Group — It helps explain the impact of significant changes in the Group’s business – for example, acquisitions and impairment write downs — It relates to an aspect of the Group’s operations that is important to its future performance 50 JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 Results for the year IN THIS SECTION Results for the year provides segment information and a breakdown of individual line items in the consolidated statement of profit or loss and other comprehensive income that the Directors consider most relevant, including a summary of the accounting policies, relevant to understanding these line items. Note 1: Segment information Note 2: Revenue and other income Note 3: Expenses Note 4: Income tax Note 5: Earnings per share Note 6: Discontinued operations Page 51 Page 52 Page 53 Page 53 Page 54 Page 55 JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 51 Note 1: Segment information Jumbo determines and presents operating segments on a product and a geographic basis as this is how the results are reported internally to the Board (chief operating decision maker) and how the business is managed. The Board assesses the performance of the Group based on the net profit before tax (NPBT). Comparatives for 2017 are stated on this basis. During the 2017 financial year, the Internet Lotteries Germany segment was reclassified as a discontinued operation – refer note 6 for details. (a) Description of segments The following summary describes the operations in each of the Group’s reportable segments: Internet Lotteries Australia Retail of Australian lottery tickets sold in Australia and eligible international jurisdictions, and internet database management/ marketing. The dormant Mexico Internet Lotteries business is also included due to its similar characteristics. Other Business activities which are not reportable in terms of AASB 8, which are currently the online sale of an internally developed proprietary payroll software system. Corporate Corporate costs include costs in respect of the Directors, CEO, CFO, corporate advertising, promotion and marketing, corporate investment and finance, tax, audit, risk, governance, and strategic projects. (b) Segment information The segment information provided to the Board is as follows: 2018 External revenue Internal revenue Total revenue Cost of Sales Gross Profit Other revenue/income from external customers Distribution expenses Marketing costs Occupancy expenses Administrative expenses Finance costs NPBT continuing operations Income tax expense NPAT continuing operations Discontinued operations NPAT overall operations (per P&L) Interest revenue Depreciation and amortisation Impairment of assets Foreign exchange gain Internet Lotteries Australia $’000 38,897 - 38,897 (2,038) 36,859 918 (28) (4,527) (856) (13,417) (1) 18,948 575 (3,089) (10) 261 Other $’000 878 - 878 - 878 - - (81) (31) (290) - 476 - (85) - - Corporate Eliminations operations Total continuing $’000 $’000 - - - - - 285 - (29) - (2,573) (6) (2,323) 285 - - - - - - - - - - - - - - - - - - - $’000 39,775 - 39,775 (2,038) 37,737 1,203 (28) (4,637) (887) (16,280) (7) 17,101 (5,348) 11,753 374 12,127 860 (3,174) (10) 261 52 2017 External revenue Internal revenue Total revenue Cost of Sales Gross Profit Other revenue/income from external customers Distribution expenses Marketing costs Occupancy expenses Administrative expenses Finance costs NPBT continuing operations Income tax expense NPAT continuing operations Discontinued operations NPAT overall operations (per P&L) Interest revenue Depreciation and amortisation Impairment of assets Foreign exchange gain Internet Lotteries Australia $’000 31,586 - 31,586 (2,465) 29,121 857 (24) (3,458) (939) (13,217) - 12,340 470 (3,513) (62) 263 Other $’000 843 - 843 - 843 - - (85) (20) (331) - 407 - (118) - - JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 Corporate Eliminations operations Total continuing $’000 $’000 - - - - - 207 - (23) - (1,857) (6) (1,679) 135 - - - - - - - - - - - - - - - - - - - $’000 32,429 - 32,429 (2,465) 29,964 1,064 (24) (3,566) (959) (15,405) (6) 11,068 (3,471) 7,597 (1,957) 5,640 605 (3,631) (62) 263 (c) Other segment information Geographical information The entity is domiciled in Australia. The amount of its revenue from external customers in Australia is $36,399,000 (2017: $28,965,000), and the total revenue from external customers in other countries is $4,579,000 (2017: $4,528,000). Revenues of $1,543,000 (2017: $1,834,000) are from external customers in Fiji. Segment revenues From continuing operations Sales revenue – Revenue from sale of goods are allocated based on the country in which the customer is located. – Revenue from rendering of services Non-current assets in Australia are $13,376,000 (2017: $11,890,000). Non-current assets in other countries are (i) Fiji $17,000 (2017: $24,000). 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. Other revenue/income – Interest – Other income – Foreign exchange gains – Export market development grants – Other Consolidated Group 2018 $’000 2,293 37,482 39,775 2017 $’000 2,510 29,919 32,429 860 605 261 70 12 263 111 85 1,203 1,064 40,978 33,493 Note 2: Revenue and other income The Company reports revenue from the sale of lottery tickets and related services on a net revenue inflow basis where it considers that it acts more as an Agent than as a Principal such as with 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. JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 53 From discontinued operations (note 6) Sales revenue – Revenue from rendering of services Other revenue/income – Other income – Other Consolidated Group 2018 $’000 2017 $’000 - - - - - 138 138 177 177 315 Cost of sales – Sale of goods – Rendering of services Administration expenses Consolidated 2018 $’000 2017 $’000 889 1,149 1,152 1,313 Depreciation of non-current assets – Plant and equipment 116 149 Amortisation of non-current assets – Leasehold improvements – Intangibles Other expenses 40 3,018 41 3,441 Recognition and measurement 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. The following specific recognition criteria must also be met before revenue is recognised: – Employee benefit expense 7,268 6,468 – Defined contribution superannuation expense Occupancy expenses – Operating lease rentals minimum lease payments Impairment of assets – domain names 851 824 887 10 959 62 Sale of Goods and/or Rendering of Services Revenue from sale of goods and/or rendering of services is recognised when control of the goods or services is transferred to the buyer in an amount that reflects the consideration to which the entity expects to be entitled in exchange for these goods and/or services. Control is the ability of the customer to direct the use of, and obtain substantially all of the remaining benefits from, an asset. Note 4: Income tax Current tax Indicators that control has passed includes that the customer has CURRENT (i) a present obligation to pay, (ii) physical possession of the asset(s), (iii) legal title, (iv) risk and rewards of ownership, and (v) accepted the Income tax expense liability asset(s). 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. (a) Income tax expense The components of tax expense comprise: – Current tax – Deferred tax – Current tax overseas operations Consolidated 2018 2017 Note $’000 $’000 594 184 Consolidated 2018 2017 Note $’000 $’000 5,472 3,284 4(b) (132) 8 186 1 Total income tax expense/(benefit) in profit and loss 5,348 3,471 Reconciliation Profit before income tax expense 17,475 9,111 Government grants The export market development grant from the government is recognised at its fair value when there is reasonable assurance – Tax at the Australian tax rate 30% (2017:30%) – Income tax effect of overseas tax rates that the grant will be received and the Group will comply with any – Share options expensed during year attached conditions. Note 3: Expenses – Other Total income tax expense in profit or loss attributable to continuing operations 5,243 2,733 (96) 193 8 338 44 356 5,348 3,471 Profit from continuing operations before income tax includes the following specific expenses: 54 JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 (b) Deferred tax Deferred tax liabilities Opening Charged to Closing balance Profit or Loss Balance 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 $000 $000 $000 an asset or a liability if they arose in a transaction, other than a Deferred tax liabilities comprise temporary difference recog- nised in the profit and loss as follows: Property, plant and equipment – Depreciation Accruals Other Balance at 30 June 2017 Property, plant and equipment – Depreciation Accruals Other Balance as at 30 June 2018 1 24 23 48 - 66 - 66 (1) 42 (23) 18 - 6 - 6 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 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 and associates 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. - 66 - 66 - 72 - 72 Deferred tax assets Opening Charged to Closing Tax consolidation Jumbo Interactive Limited and its wholly owned Australian balance Profit or Loss Balance controlled subsidiaries are part of a tax consolidated group under $000 $000 $000 Australian taxation law since 1 July 2006. Jumbo Interactive Limited Deferred tax assets comprise temporary difference recog- nised in the profit and loss as follows: Property, plant and equipment – Depreciation – Amortisation Accruals Provisions Other 124 370 179 387 16 (5) (211) 23 29 (4) Balance at 30 June 2017 1,076 (168) Property, plant and equipment – Depreciation – Amortisation Accruals Provisions Other Balance as at 30 June 2018 119 159 202 416 12 908 (4) 7 109 28 (2) 138 is the head entity in the tax consolidated group. Entities within the tax consolidation group have entered into a tax funding agreement ‘(TFA’) and tax sharing deed (‘TSD’) with the head entity. Under the terms of the TFA, Jumbo Interactive Limited and each of the entities in the tax consolidation group have agreed to pay (or receive) a tax equivalent payment to (or from) the head entity, based on the current tax liability or current tax asset of the entity. Note 5: Earnings per share (EPS) (a) Basic earnings per share Basic EPS is calculated by dividing the profit attributable to owners of the Company by the weighted average number of ordinary shares outstanding. (b) Diluted earnings per share Diluted EPS is calculated by dividing the profit attributable to owners of the Company by the weighted average number of ordinary shares outstanding after adjusted for the effects of dilutive 119 159 202 416 12 908 115 166 311 444 10 1,046 potential ordinary shares (c) Profit after tax attributable to owners of the Company used as Recognition and measurement numerator Current taxes 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 consolidated financial statements. Deferred taxes 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 Profit from continuing operations Profit from discontinued operation Profit attributable to the owners of the Company Consolidated 2018 $’000 11,753 374 2017 $’000 7,597 (1,957) 12,127 5,640 JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 55 (d) Weighted average number of shares used as denominator Consolidated 2018 2017 Number Number Revenue Expenses Weighted average number of ordinary shares used as the denominator in calculat- ing basic EPS 51,851,806 44,954,344 Adjustments for calculation of diluted EPS: — options 1,819,000 980,179 Weighted average number of ordinary shares used as the denominator in calculat- ing diluted EPS 53,670,806 45,934,523 1,800,000 options were not included in the number of weighted Loss before income tax Income tax (expense)/benefit Loss after income tax Loss on loss of control of subsidiary in volun- tary administration Reclassification of foreign currency translation reserves to the income statement1 Loss on loss of control before income tax average number of ordinary shares used to calculate diluted Income tax (expense)/benefit earnings per share because they are currently out-of-the-money. Loss on loss of control after income tax 2018 2017 $’000 $’000 - - - - - - 374 - - - 315 (1,467) (1,152) - (1,152) (242) (563) (805) - (805) Note 6: Discontinued operations On 3 November 2016, Jumbo Interactive Limited announced its intention to scale down Jumbo Interactive GmbH, its Internet lotteries German business segment, due to adverse market conditions and, as disclosed in the 2016 Half Year Report, on 5th December 2016 the sale of lottery tickets ceased. The business was subsequently placed into voluntary administration (VA) on 31 March 2017 and is reported as a discontinued operation as Jumbo no longer has control. The purpose of the VA is to facilitate the orderly closure and wind-up of the business in compliance with German Legal requirements. Profit/(loss) for the year from discontinued operation 374 (1,957) Profit attributable to owners of the parent entity relates to: Profit/(loss) from continuing operations Profit/(loss) from discontinued operations 11,753 374 12,127 7,597 (1,957) 5,640 1Foreign currency loss relates to the historical foreign currency translation reserve in respect of Jumbo’s investment in Germany, reclassified to the income statement on loss of control through Financial information relating to the discontinued operation for the voluntary administration. nine month period to the date of voluntary administration is set out below. Net cash inflow/(outflow) from operating activ- ities Net cash inflow/(outflow) from investing activities Net cash inflow/(outflow) from financing activ- ities Net cash increase/(decrease) in cash generated from discontinued operations 2018 2017 $’000 $’000 - - - - (1,353) (88) - (1,441) Details of the voluntary administration of Jumbo Interactive GmbH Cash paid to administrator on loss of control Total cash lost on loss of control Carrying amount of net assets over which control was lost Loss on loss of control of subsidiary before income tax Income tax benefit Loss on loss of control of subsidiary after income tax 2018 2017 $’000 $’000 - - - - - - 159 159 83 242 - 242 56 JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 Note 6: Discontinued operations (cont) The carrying amounts of the assets and liabilities as at the date of voluntary administration (31 March 2017) were: Property, plant and equipment Intangible assets Trade and other receivables Total assets Trade and other payables Total liabilities Net assets 31 March 2017 $’000 19 64 87 170 (87) (87) 83 JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 57 Operating assets and liabilities IN THIS SECTION Operating assets and liabilities provides information about the working capital of the Group and major balance sheet items, including the accounting policies, judgements and estimates relevant to understanding these items. Note 7: Cash and cash equivalents Note 8: Trade and other receivables Note 9: Property, plant and equipment Note 10: Intangible assets Note 11: Trade and other payables Note 12: Employee benefit obligations Page 58 Page 58 Page 59 Page 60 Page 62 Page 62 58 JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 Note 7: Cash and cash equivalents Consolidated 2018 2017 Note $’000 $’000 Consolidated 2018 2017 $’000 $’000 (b) Reconciliation of Cash Flow from Operations with Profit after Income Tax Profit/(loss) for the year after income tax 12,127 5,640 (a) Cash and cash equivalents Total cash and cash equivalents 47,919 43,320 Included in the above balance: General account balances 40,085 35,825 Online lottery customer account bal- ances 11 7,834 7,495 47,919 43,320 Non-cash flows Amortisation Depreciation Derecognition of subsidiary Capitalised other revenue from associate com- pany Impairment losses on assets Share option expense Online lottery customer account balances are deposits and prize Other winnings earmarked for payment to customers on demand. Recognition and measurement Cash and cash equivalents includes cash on hand, and deposits held ‘at call’ and with original maturities of three months or less, with financial institutions. Changes in operating assets and liabilities, net of the effects of purchase and disposal of subsidi- aries Decrease/(increase) in trade receivables Decrease/(increase) in other receivables Decrease/(increase) in inventories Decrease/(increase) in DTA Decrease/(increase) in foreign exchange reserve 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 3,058 3,504 116 - - 10 644 5 43 (104) 5 (138) (377) 205 1,143 96 6 410 160 242 (114) - 149 186 26 94 - 168 495 9 708 95 18 (514) Cash flow from operations 17,249 10,866 (c) Non-Cash Financing and Investing Activities Capitalised interest at 7.00% p.a. on Promissory Note issued by associate company (note 20) Capitalised dividend on Series A Preferred Stock issued by associate company (note 21) - - 41 73 Note 8: Trade and other receivables Consolidated 2018 $’000 2017 $’000 Note CURRENT Trade receivables Allowance for doubtful debts Loans to key management personnel 22 Other receivables Prepayments 52 - 52 - 228 229 509 95 - 95 100 170 183 548 All receivables that are neither past due nor impaired are with long standing clients who have a good credit history with the Group. JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 Past due but not impaired These trade receivables relate to a few customers for whom there is no recent history of default. The aging of past due but not impaired trade receivables are as follows: Movements in Carrying Amounts Plant and Leasehold Im- equipment provements Consolidated Group $’000 $’000 Consolidated 2017 Up to one month One month to two months Two months to three months Over three months 2018 2017 $’000 $’000 - 1 12 - 13 - - 17 - 17 As at 30 June 2018 the Group had current trade receivables of $0 (2017: $0) that were impaired Recognition and measurement Trade receivables are recognised at original invoice amounts less an allowance for uncollectible amounts, and generally have repayment terms ranging from seven to 31 days. The Group applies the simplified approach to providing for expected credit losses prescribed by AASB 9, which requires the use of the lifetime expected loss provision for all trade receivables. Trade receivables had not had a significant increase in credit risk since they were originated. Note 9: Property, plant and equipment Plant and equipment–at cost Accumulated depreciation Leasehold improvements–at cost Accumulated amortisation Total property, plant and equipment Consolidated 2018 2017 $’000 $’000 1,511 1,416 (1,292) (1,176) 219 542 (481) 61 280 240 542 (441) 101 341 59 Total $’000 401 162 (20) (201) (1) 341 341 96 (1) 80 62 - (41) - 101 101 - - (40) (156) - 61 - 280 Balance at the beginning of year Additions Disposals Depreciation/amortisation expense Effects of movements in foreign exchange Carrying amount at the end of year 2018 Balance at the beginning of year Additions Disposals Depreciation/amortisation expense Effects of movements in foreign exchange Carrying amount at the end of year 321 100 (20) (160) (1) 240 240 96 (1) (116) - 219 Recognition and measurement (i) Initial recognition and measurement 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. (ii) Subsequent costs Improvements to leasehold property are recognised as a separate asset. All repairs and maintenance are charged to the profit or loss during the reporting period in which they occur. (iii) Depreciation and amortisation Property, plant and equipment are depreciated or amortised from the date of acquisition, or, in respect of internally generated assets, from the time an asset is held ready for use. Plant and equipment are depreciated using the straight-line method to allocate their costs, net of their residual values, over their estimated useful lives. Leasehold improvements are amortised over the shorter of either the unexpired term of the lease or the estimated useful life of the improvements. The depreciation and amortisation rates used during the year were based on the following range of useful lives: 60 JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 Plant and equipment Leasehold improvements Two to five years Up to six years The depreciation and amortisation rates are reviewed annually and adjusted if appropriate. An asset’s carrying amount is written down to its recoverable amount if the asset’s carrying value is greater than its estimated recoverable amount. (iv) Derecognition An item of property, plant or equipment is derecognised when it is disposed of or no future economic benefits are expected from its use or disposal. Gains and losses on disposal are calculated as the difference between the net disposal proceeds and the asset’s carrying value, and are included in profit or loss in the year that the item is derecognised. Note 10: Intangible assets Goodwill Accumulated impairment losses Net carrying value Intellectual property Accumulated impairments loss Net carrying value Website development costs Accumulated amortisation Net carrying value Software costs Accumulated amortisation Net carrying value Domain names – cost Accumulated impairment losses Net carrying value Other Accumulated amortisation Net carrying value Total intangibles Consolidated 2018 2017 $’000 $’000 3,687 (855) 2,832 53 (23) 30 3,687 (855) 2,832 53 (23) 30 27,524 22,957 (18,128) (15,114) 9,396 7,843 133 (133) - 914 (72) 842 63 (50) 13 133 (133) - 910 (62) 848 63 (42) 21 13,113 11,574 SIGNIFICANT JUDGEMENTS AND ESTIMATES Impairment assessment of goodwill and domain names A key judgement by management with regards to the Internet Lotteries Australia segment CGU is that the reseller agreements with the Tatts Group will continue. The key assumptions used for value-in-use calculations are discussed further in note 10(b). Goodwill is tested for impairment half yearly. Impairments assessment of other intangible assets The Group considers half yearly whether there have been any indicators of impairment and then tests whether non-current assets have incurred any impairment in accordance with the accounting policy. Estimated useful life of website development costs Management estimates the useful of intangible assets- website development costs based on the expected period of time over which economic benefits from the use of the asset will be derived. Management reviews useful life assumptions on an annual basis having given consideration to variables including historical and forecast usage rates, technological advancements and changes in legal and economic conditions. The amortisation period relating to the website developments costs is five years from 1 July 2015 and three years prior to that. Domain names 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. JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 61 (a) Movements in carrying values Consolidated Group Goodwill property costs Software names $’000 $’000 $’000 $’000 $’000 Intellectual development Domain Website 2017 Balance at the beginning of the year 2,832 30 Additions acquired Additions internally developed Disposals on derecognition of subsidiary Impairments Amortisation charge Effects of movements in foreign exchange Amortisation of derecognition of subsidiary Closing value at 30 June 2017 2018 Balance at the beginning of the year Additions acquired Additions internally developed Impairments Amortisation charge Effects of movements in foreign exchange - - - - - - - 2,832 2,832 - - - - - - - - - - - - 30 30 - - - - - Closing value at 30 June 2018 2,832 30 6,951 - 4,330 - - (3,430) (8) - 7,843 7,843 - 4,567 - (3,010) (4) 9,396 4 - - (9) - (1) - 6 - - - - - - - - 902 8 - - (62) - - - 848 848 4 - (10) - - 842 Other $’000 Total $’000 - 110 - (85) - (24) - 20 21 10,719 118 4,330 (94) (62) (3,455) (8) 26 11,574 21 11,574 - - - (8) - 13 4 4,567 (10) (3,018) (4) 13,113 (b) 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. the recoverable amount of goodwill, domain names and other intangible assets would still exceed 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 $13,113,000. The recoverable amount of the cash-generating unit is based on Recognition and measurement a value-in-use calculation using a discounted cash flow model Goodwill based on a one year projection approved by management and Goodwill represents the excess of the cost of the business extrapolated over a five year period using a steady rate, together combination over the Group’s share of the net fair value of with a terminal value. The growth rate used in these projections the identifiable assets, liabilities and contingent liabilities acquired. does not exceed the historical growth rate of the relative cash- Goodwill is not amortised but is measured at cost less any generating unit. Key assumptions used for value-in-use calculation of the CGU are as follows: — Annual growth rate of 3% (2017: 3%); — Terminal growth rate of 3% (2017: 3%); — Discount rate of 17% being the calculated weighted average cost of capital based on the capital asset pricing model (2017: 17%); and 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 — Reseller agreements will be renewed as and when they expire. goodwill cannot be reversed. 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. Internet Lotteries Australia CGU is estimated to be $110,752,000 which exceeds the carrying amount of goodwill, domain names and other intangible assets by $97,639,000. If a discount rate of 20% 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. 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 and growth rate of 0% was used instead of 17% and 3% respectively, intellectual property is recognised in profit or loss. 62 JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 Website Developments Costs Expenditure during the research phase of a project is recognised as Recognition and measurement Trade and other payables represent liabilities for goods and an expense when incurred. Development costs are capitalised only services provided to the Group prior to the year end and which are when technical feasibility studies identify that the project will deliver unpaid. These amounts are unsecured and have seven to 31 day future economic benefits and these benefits can be measured payment terms. 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 up to 30 June 2015 and five years from 1 July 2015. Domain Names Acquired domain names are stated at cost and are considered to have indefinite useful lives and are not amortised. 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. Impairment of assets Assets are tested for impairment at the end of each reporting period or whenever events or changes in circumstances indicate that the carrying amount may not be recovered. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows which are largely independent of the cash flows from other assets or groups of assets (CGUs). The recoverable amount is the greater of the asset’s fair value less costs to sell and value-in-use. In assessing value-in-use, the estimated cash flows are discounted to their present value using a pre-tax discount rate that reflects market assessments of the time value of money and the specific risks of the asset. Impairment losses are recognised in the profit or loss. Non-financial assets other than goodwill that incur impairment are reviewed for possible reversal of impairment at each reporting period (i) Employee benefits 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 other liabilities 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. (ii) Superannuation 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. (iii) Termination benefits Termination benefits are payable when employment is terminated before the retirement date, or when an employee accepts voluntary redundancy in exchange for these 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. Note 12: Employee benefit obligations Note 11: Trade and other payables Consolidated 2018 2017 Note $’000 $’000 CURRENT Long service leave NON-CURRENT Long service leave Total trade and other payables 14,346 13,009 Included in the above: Trade creditors GST payable Sundry creditors and accrued expenses Employee benefits Customer funds payable 7(a) 1,234 523 3,971 784 6,512 7,834 1,029 378 3,312 795 5,514 7,495 14,346 13,009 Consolidated 2018 2017 $’000 $’000 309 293 368 677 277 570 JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 63 Recognition and measurement (i) Long service leave Liabilities for long service leave are not expected to be settled wholly within 12 months after the end of the reporting period. They 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. 64 JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 Capital and financial risk management IN THIS SECTION Capital and financial risk management provides information about the capital management practices of the Group and shareholder returns for the year, discusses the Group’s exposure to various financial risks, explains how these affect the Group’s financial position and performance and what the Group does to manage these risks. Note 13: Capital risk management Note 14: Dividends Note 15: Equity and reserves Note 16: Borrowings Note 17: Financial risk management Page 65 Page 65 Page 66 Page 66 Page 67 JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 65 Note 13: Capital risk management (b) Dividends not recognised at the end of the reporting period Total borrowings Consolidated 2018 Note $’000 16 - 20167 $000 - Less: cash and cash equivalents 7(a) (40,085) (35,825) Consolidated 2018 2017 $’000 $’000 No special fully franked dividend (2017:15.0) cent per share franked at the tax rate of 27.5% (2017: 30%) was declared by the directors - 7,691 Net debt Total equity Total capital Gearing ratio - - 15 55,917 45,492 In addition to the above dividends, since year end the Directors have recommended the 55,917 45,492 payment of a final 2018 fully franked ordi- 0% 0% nary dividend of 11.0 (2017: 5.0) cent per share The Group’s objective is to maintain a strong capital base so as to maintain investor, creditor and market confidence and sustain future franked at the rate of 27.5% (2017: 30%). The aggregate amount of the proposed dividend expected to be paid on 21 September 2018 (2017: 22 September 2017), but not recognised development of the business. as a liability at year end, is: 6,382 2,564 The Group monitors its capital structure by reference to its gearing ratio. This ratio is calculated as total net debt divided by total (c) Franked dividends capital. Net debt is calculated by as total borrowings less cash and cash equivalents (up to a minimum of zero). Total capital is net debt plus total equity. There were no changes in the Group’s approach to capital management during the year. Consolidated 2018 2017 $’000 $’000 Note 14: Dividends (a) Ordinary shares The franked portions of dividends paid and recommended after 30 June 2018 will be franked out of existing franking credits or out of franking credits arising from the payment of income tax in Consolidated the year ending 30 June 2018. 2018 2017 Franking credits available for subsequent finan- $’000 $’000 cial years based on a tax rate of 30% (2017: 30%): 9,303 12,173 Special fully franked ordinary dividend of 15.0 (2017: nil) cent per share franked at the tax rate of 30% (2017: nil) Final fully franked ordinary dividend of 5.0 (2017: 5.0) cent per share franked at the tax rate 7,691 - as at the reporting date adjusted for: The above amounts represent the balance of the franking account (i) Franking credits that will arise from the payment of the amount of of 30% (2017: 30%) 2,564 2,203 the provision for income tax, and Interim fully franked ordinary dividend of 7.5 (2017: 3.5) cent per share franked at the tax rate of 30% (2017: 30%) 3,917 1,542 (ii) Franking debits that will arise from the payment of dividends recognised as a liability at the reporting date. Special fully franked ordinary dividend of 8.0 (2017: nil) cent per share franked at the tax rate The impact on the franking account of the dividends paid and recommended by the directors since the end of the reporting period, of 30% (2017: nil) Total dividends paid or provided for 4,336 18,508 - but not recognised as a liability at the reporting date, will be a 3,745 reduction in the franking account of $2,421,000 (2017: $4,395,000). Dividends paid in cash or satisfied by the issue of shares under the dividend reinvestment plan during the years ended 30 June 2018 and 30 June 2017 were as follows: Paid in cash Satisfied by issue of shares 18,508 3,745 - - 18,508 3,745 66 JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 Note 15: Equity and reserves (a) Contributed equity Issued shares 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. Consolidated Consolidated (c) Options 2018 2018 2017 2017 Shares $’000 Shares $’000 (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 24: Ordinary shares – fully paid 54,374,265 55,917 50,674,265 45,492 Movements in ordinary share capital Share-Based Payments. (ii) For information relating to share options issued to third parties during the financial year, refer to note 24: Share-Based Payments. Details Opening balance 1 July 2016 Shares issued during the year 12 May 2017-Off-market share issue to Tatts Balance 30 June 2017 Opening balance 1 July 2017 Shares issued during the year 14 Jul 2017-Exercise of options 18 Jul 2017-Exercise of options 20 Jul 2017-Exercise of options 30 Oct 2017-Exercise of options 7 Mar 2018-Exercise of options 16 Mar 2018-Exercise of options 23 Apr 2018-Exercise of options 9 May 2018-Exercise of options 15 May 2018-Exercise of options 21 May 2018-Exercise of options 8 Jun 2018-Exercise of options 11 Jun 2018-Exercise of options 13 Jun 2018-Exercise of options 18 Jun 2018-Exercise of options 21 Jun 2018-Exercise of options Consolidated Shares 44,064,579 $’000 29,827 (d) Reserves Nature and purpose of reserves Profits appropriation reserve The profits appropriation reserve records accumulated profits available for distribution at the Directors’ discretion. In June 2010, 6,609,686 15,665 there was a change in the test for payment of dividends from a ‘profit 50,674,265 50,674,265 45,492 45,492 appropriation reserve was established to ensure the accumulated losses up until then were ‘ring-fenced’ and that future profits were test’ to ‘solvency test’ (s254T Corporations Act 2001), and the profits available for distribution, in particular for dividend payments. 50,000 500,000 50,000 50,000 900,000 50,000 1,150,000 25,000 100,000 50,000 50,000 400,000 150,000 150,000 25,000 87 875 87 87 1,575 88 4,375 88 350 88 175 1,262 600 600 88 Share-based payments reserve The share-based payments reserve records items recognised as expenses on the fair value of share-based remuneration provided to employees. This reserve can be reclassified as retained earnings if options lapse. Foreign currency translation reserve The foreign currency translation reserve records the foreign exchange differences arising on translation of investments in foreign controlled subsidiaries. Amounts are reclassified to profit or loss when an entity is disposed of. Available-for-sale financial asset reserve The available-for-sale financial asset reserve comprises changes in the fair value of available-for-sale investments which are recognised in other comprehensive income including when investments are sold or reclassified. Note 16: Borrowings Balance 30 June 2018 54,374,265 55,917 Issued capital represents the amount of consideration received for (a) Facilities with Banks securities issued or paid for securities bought back by Jumbo. Costs directly attributable to the issue of new shares or options are deducted from the consideration received, net of income taxes. (b) Ordinary shares Ordinary shares have no par value and the company does not have a limited amount of authorised share capital. Credit facility Bank guarantees Commercial card Ordinary shareholders are entitled to participate in dividends and the proceeds on winding up of the Company in proportion to the Facilities utilised Bank guarantees Commercial credit card Amount available Consolidated 2018 2017 Note $’000 $’000 550 300 550 300 27 (478) (295) 77 (426) (295) 129 JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 67 The facilities are provided by Australia and New Zealand Banking At the reporting date, the Group has exposure to the following Group Limited subject to general and specific terms and conditions interest rates: being set and met periodically. There were no outstanding interest bearing liabilities for the financial year ended 30 June 2018 (2017: nil). (b) Assets pledged as security The bank facilities are secured by a fixed and floating charge over all the assets of the Group. (c) Defaults and breaches Deposits Net exposure to interest rate risk There have been no defaults or breaches during the financial year ended 30 June 2018. 1weighted average interest rate Consolidated Rate1 % 2.31 2018 $’000 47,919 47,919 2017 Rate1 % $’000 1.93 43,320 43,320 Note 17: Financial risk management The Group has exposure to a variety of financial risks including market risk (foreign exchange risk and interest rate risk), credit risk and liquidity risk. Risk management is performed by a central Treasury function on behalf of the Group under Treasury Policies approved by the Board annually. Speculative activities are strictly prohibited. Compliance with the Treasury Policies is monitored on Risk management The Group manages cash flow interest rate risk by using term deposits with banks for various periods. The weighted average maturity of outstanding term deposits is approximately 41 days (2017: 20 days). Term deposits currently in place cover approximately 82% (2017: 84%) of the total cash and cash equivalent balances. Sensitivity on market risks an ongoing basis through regular reporting to the Board. The following table summarises the gain/(loss) impact of a 200 (a) Market risk Market risk is the risk that adverse movements in foreign exchange and interest rates will affect the Group’s financial performance or the value of its holdings of financial instruments. The Group measures market risk using cash flow at risk. The objective of risk management is to manage the market risks inherent in the business to protect profitability and return on assets. (i) Foreign exchange risk Exposure to foreign exchange risk Foreign exchange risk arises from commercial transactions (transactional risks) and recognised assets and liabilities (translational risks) that are denominated in or related to a currency that is not in the Group’s functional currency. The Group’s foreign exchange risk relates largely to the Fiji Dollar (FJ$). The foreign exchange risk to the Euro (€) has ceased with the discontinued operation in Germany (see note 6 for details). Risk management Treasury monitor the Group’s exposure regularly and utilise the spot basis points (bps) interest rate change on net profit and equity before tax, with all other variables remaining constant, as at 30 June 2018: Consolidated Effect on profit Effect on equity (before tax) (before tax) 2018 2017 2018 2017 958 866 958 866 (958) (866) (958) (866) 200 bps movement in interest rates 200 bps increase in interest rates 200 bps decrease in interest rates (b) 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. Credit risk arises principally from cash and cash equivalents and trade and other receivables. market to buy and sell specified amounts of foreign currency to The maximum exposure to credit risk, excluding the value of any manage this risk. Transactional risks are managed predominantly collateral or other security, at the end of the reporting period within the Group’s pricing policies through the regular review of to recognised financial assets, is the carrying amount, net of prices in foreign currency. Sensitivity on foreign exchange risk Any movement in foreign exchange rates would not be significant to the Group. (ii) Interest rate risk Exposure to interest rate risk The Group’s has interest bearing assets and therefore its income any provisions for impairment of those assets, as disclosed in the statement of financial position and notes to the financial statements. Assets are pledged as security as detailed in note 16(b). Credit risk is managed on a Group basis through the Board approved Treasury Policies and is reviewed regularly by the Board. The Board monitors credit risk by actively assessing the rating quality and liquidity of counter parties: and operating cash flows are subject to changes in market interest — Surplus funds are only invested with banks and financial rates. institutions with a Standard and Poor’s rating of no less than A 68 JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 and to a limited amount at any one financial institution: (d) Fair value hierarchy — All potential customers are rated for credit worthiness taking into The fair value of cash, cash equivalents and non-interest bearing account their size, market position and financial standing, and financial assets and liabilities approximates their carrying value due the risk is measured using debtor aging analysis; and to their short term maturity. — Customers that do not meet the Group’s strict credit policies may only purchase in cash or using recognised credit cards. (c) Liquidity risk Liquidity risk is the risk that the Group will encounter difficulties in meeting the obligations associated with its financial liabilities. The Group manages liquidity risk by monitoring forecast cash flows and ensuring that adequate cash balances are maintained to meet its liabilities when due. The fair value of financial instruments that are not traded in an active market (for example, unlisted investments) are determined using valuation techniques. The valuation techniques maximise the use of observable market data where possible and rely as little as possible on entity specific estimates. The Group measures and recognises the following assets and liabilities at Fair Value through Other Comprehensive Income on a recurring basis: The following table summarises the contractual timing of undiscounted cash flows of financial instruments: — Available-for-sale financial assets The fair value of unlisted equity securities is estimated by discounting the estimated future cash flows at the estimated weighted average cost of capital. 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). The carry values of loans to key management personnel at variable interest rate approximates its fair value. Between 6 Total Less than months and Between 1 Over 5 carrying 6 months 1 year and 5 years years amount $’000 $’000 $’000 $’000 $’000 47,919 509 48,428 14,346 14,346 - - - - - - - - - - - - - - - 47,919 509 48,428 14,346 14,346 Between 6 Total Less than months and Between 1 Over 5 carrying 6 months 1 year and 5 years years amount $’000 $’000 $’000 $’000 $’000 43,320 - 448 43,768 100 100 13,009 13,009 - - - - - - - - - - - - 43,320 548 43,868 13,009 13,009 2018 Financial assets Cash and cash equiva- lents Trade and other receiv- ables Financial liabilities Trade and other paya- bles 2017 Financial assets Cash and cash equiva- lents Trade and other receiv- ables Financial liabilities Trade and other paya- bles JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 69 Group structure IN THIS SECTION Group structure provides information about particular subsidiaries and associates and how changes have affected the financial position and performance of the Group. Note 18: Controlled subsidiaries Note 19: Parent disclosures Page 70 Page 70 70 JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 Note 18: Controlled subsidiaries The Group’s subsidiaries that were controlled during the year and had directly disposed of the relative assets or liabilities. This may mean that amounts previously recognised in other comprehensive prior years are set out below: income are reclassified to profit or loss. Percentage Ownership Country of Incor- 2018 2017 poration % % If the ownership interest in an associate or a joint venture is reduced, but significant influence or control is retained, only a proportionate share of the amounts previously recognised in other comprehensive income are reclassified to profit or loss, where appropriate. Direct subsidiaries of the ultimate parent entity Jumbo Interactive Limited: Benon Technologies Pty Ltd TMS Global Services Pty Ltd Intellitron Pty Ltd Jumbo Lotteries Pty Ltd Jumbo Interactive Asia Pty Ltd Australia Australia Australia Australia Australia Cook Islands Tattslotto Pty Ltd Cook Islands Jumbo Interactivo de Mexico SA de CV Jumbo Interactive GmbH1 Mexico Germany 100 100 100 100 100 1 100 - 1the company was placed in voluntary administration 31 March 2017 Subsidiaries of TMS Global Ser- vices Pty Ltd: TMS Global Services (NSW) Pty Ltd Australia TMS Global Services (VIC) Pty Ltd Australia TMS Fiji Limited TMS Fiji On-Line Limited Fiji Fiji TMS Global Services (PNG) Limited Papua New Guinea Cook Islands Tattslotto Pty Ltd Cook Islands 100 100 100 100 100 99 100 100 100 100 100 1 100 - 100 100 100 100 100 99 Note 19: Parent disclosures The parent and ultimate parent entity within the Group is Jumbo Interactive Limited. (a) Summary financial information The individual financial statements for the parent entity show the following aggregated amounts as follows: Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities Net assets Issued capital 2018 $’000 13,684 28,031 41,715 1,243 778 2,021 39,694 55,917 2017 $’000 17,471 24,164 41,635 641 7,046 7,687 33,948 45,492 Retained earnings/(accumulated losses) (26,037) (26,037) Profits appropriation reserve Other reserves Total shareholders’ equity 10,413 (599) 15,736 (1,243) 39,694 33,948 13,184 13,184 19,317 19,317 Jumbo Lotteries North America, Inc. United States of America 100 100 Profit for the year Total comprehensive income for the year Principles of consolidation The consolidated financial statements comprise the financial statements of Jumbo Interactive Limited and its subsidiaries at 30 (b) Guarantees 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 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 16: Borrowings, and are ongoing. which control is transferred to the Group and are deconsolidated The parent entity has also provided a guarantee in favour of from the date on which control ceases. Tattersalls in respect of payment obligations of a subsidiary 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. Changes in ownership interests When the Group ceases to have control, joint control or significant influence, any retained interest in the entity is remeasured to its fair value with the change in carrying amount recognised in the profit or loss. This fair value becomes the initial carrying value for the purposes of subsequently accounting for the retained interest as an associate, joint venture or available-for-sale financial asset. In addition, any amount previously recognised in other comprehensive income in respect of that entity, are accounted for as if the Group company in terms of the Agent reseller agreements, between its subsidiary and the favouree. (c) Contractual commitments There were no contractual commitments for the acquisition of property, plant and equipment entered into by the parent entity at 30 June 2018 (2017: $Nil). (d) Contingent liabilities The parent entity has no contingent liabilities other than the guarantees referred to above. JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 71 Recognition and measurement The financial information for the parent entity, Jumbo Interactive Limited, has been prepared on the same basis as the consolidated financial statements, except as set out below: (i) Investments in subsidiaries and associates Investments in subsidiaries and associates are accounted for at cost in the financial statements of Jumbo Interactive Limited. Dividends received from associates are recognised in the parent entity’s income statement, rather than being deducted from the carrying amount of these investments. (ii) Tax consolidation Jumbo Interactive Limited and its wholly owned subsidiaries have implemented the tax consolidation legislation for the whole of the financial year. Refer to note 4 for details. 72 JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 Other information IN THIS SECTION Other information provides information on other items which require disclosure to comply with Australian Accounting Standards and other regulatory pronouncements however are not consider critical in understanding the financial performance or position of the Group. Note 20: Investments accounted for using the Equity Method Note 21: Available-for-sale financial assets (non-current) Note 22: Related party transactions Note 23: Key Management Personnel compensation Note 24: Share-based payments Note 25: Remuneration of auditors Note 26: Summary of other significant accounting policies Page 73 Page 73 Page 73 Page 74 Page 74 Page 76 Page 76 JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 73 Note 20: Investments accounted for using the Equity Method Interest in Associate – Lotto Points Place of busi- Plus Inc., ness/ Country of SIGNIFICANT JUDGEMENTS A key judgement by management is the uncertainty of future economic benefits of both Sorteo Games Inc and Lottery Rewards Inc Recognition and measurement USA Incorporation 2018 2017 2018 2017 % % $’000 $’000 Unlisted shares Non-current assets are classified as held-for-sale if their carrying amount will be recovered principally through a sale transaction, rather than through continuing use. After initial recognition at cost, Lotto Points Plus Inc New York, USA 30.9 30.9 Net investment in associate company - - - - they are measured at fair value with gains and losses recognised in other comprehensive income (available-for-sale investments reserve), until the investment is disposed of, at which time the cumulative gain or loss previously recognised in the available-for- sale reserve may be transferred within equity. Lotto Plus Inc is an investment company, with its only investment being a 16.9% (2017: 21.9%) shareholding (non-voting) in Lottery Rewards Inc., USA (see note 21(b) for details). Recognition and measurement 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 Note 22: Related party transactions Parent entity Jumbo Interactive Limited is the parent entity. Subsidiaries Interests in subsidiaries are set out in note 18. Key management personnel Disclosures relating to key management personnel are set out in is recognised in consolidated profit or loss and the Group’s share note 23 and the remuneration report in the directors’ report. of post-acquisition other comprehensive income of associates is recognised in consolidated other comprehensive income. The cumulative post-acquisition movements are adjusted against Transactions with related parties All transactions between related parties are on normal commercial the carrying amount of the investment. Dividends received from terms and conditions at market rates and no more favourable than associates are recognised in the parent entity’s profit or loss, those available to other parties unless otherwise stated. while they reduce the carrying amount of the investment in the consolidated financial statements. The following transactions occurred with related parties: 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 associates), the Group does not recognise further losses unless Consolidated 2018 $ 2017 $ it has obligations to, or has made payments, on behalf of the Mr Mike Rosch, the father of Mr Mike Veverka, 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. Note 21: Available-for-sale financial assets (non-current) Unlisted securities comprise investments in: (a) Sorteo Games Inc., USA. The Company owns 7% of the issued share capital of Sorteo Games Inc. Shares in Sorteo Games Inc are carried at fair value of $nil (2017: $nil). (b) Lottery Rewards Inc., USA. The Company owns 5.4% of the issued share capital of Lottery Rewards Inc – 0.2% directly and 5.2% indirectly (through Lotto Points Plus Inc – see note 20 for details). Shares in Lottery Rewards Inc are carried at fair value of $nil (2017: $nil). the CEO and executive director of the Compa- ny, rented an office from the Group - office rent received 8,580 7,211 Consolidated 2018 $ 2017 $ Mrs Julie Rosch, the mother of Mr Mike Vever- ka, the CEO and Executive Director of the Company, is engaged as a full time employee within the Group. Salary and superannuation 82,462 82,441 74 JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 Receivables from related parties The following balances are outstanding at the reporting date in Employee option plan The Jumbo Interactive Limited Employee Option Plan was ratified relation to transactions with related parties: at the annual general meeting held on 28 October 2008. Employees are invited to participate in the scheme from time to time. Options Consolidated vest when the volume weighted average share price over five 2018 $ 2017 $ 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. Trade receivables from Mr Mike Rosch (direc- tor-related party of Mike Veverka) 2,145 1,573 Options granted carry no dividend or voting rights. Loans to/from related parties Advances to – key management personnel Consolidated 2018 2017 $ $ Third party options Options have been issued to an Australian based contractor as part of the remuneration for their services to incentivise them to procure a commercially acceptable transaction in Australia. Options vest when the volume weighted average share price over five consecutive trading days equals the exercise price and provided an acceptable transaction has been brought to the Company with - 100,000 terms and conditions acceptable to the Company by 31 December 2017 failing which the options will lapse. This was subsequently extended to 30 June 2018, and finally to 30 June 2019 with 150,000 On 7 March 2016, Jumbo Interactive Ltd made a loan to KMP Brad options being lapsed, unexercised, with no effect on the fair value. Board for an amount of $100,000. The loan bears interest at the Commonwealth Bank of Australia’s Home Loan Standard Variable Fair value of options granted Rate, 5.22% p.a. as at the end of the reporting period, plus a margin of 2.00% p.a., payable monthly in arrears. The capital balance is repayable by 7 March 2018. The loan was repaid on 2 September 2017. Interest charged and received during the year was $613 (2017: $7,236). Employees The weighted average fair value of options granted during the financial year was 33.4 cents (2017: nil). 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 Note 23: Key Management Personnel compensation during the year ended 30 June 2018 were as follows: Consolidated 2018 $ 2017 $ Short term employee benefits 2,163,591 1,799,152 Post employment benefits Other long term benefits Termination benefits Share based payments 153,992 135,870 37,984 18,453 - 174,538 538,052 106,296 2,893,619 2,234,309 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. Note 24: Share-based payments Share-based payment expenses recognised during the financial year Consolidated 2018 $ 2017 $ Options issued under employee option plan 622,093 130,989 Options issued to third parties for services received 22,207 17,863 644,300 148,852 Options are granted for no consideration, have a five year life, and are exercisable when the five day volume weighted average price equals a share market price of $4.00 Grant date Share price at grant date Exercise price Expected volatility Expected dividend yield Risk free rate 26 Oct 2017 $2.840 $3.500 50.660% 2.99% 2.30% 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. Third parties 3,474,492 options were granted to Tattersalls Online Pty Ltd (Tatts) on 13 July 2017 at an exercise price of $2.37 per share for 12 months to 13 July 2018 pursuant to approval by shareholders at an Extraordinary General Meeting held 12 July 2018, and formed part of the securities subscription agreement dated 12 May 2017 which provided for the issue of 6,609,686 fully paid ordinary shares in the Company at $2.37 per share. The issue price and exercise price of $2.37 per share was set at the closing price of the Company’s shares on 28 April 2017. The options were issued to Tatts for $10.00. JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 75 (The weighted average fair value of options granted during the 2017 financial year was 2.0 cents). Details of options outstanding during the financial year are as follows: 2018 Grant date price Expiry date year ing the year year ing the year year end of year end of year Exercise beginning of Granted dur- ed during the Exercised dur- during the Balance at Exercisable at Balance at Lapsed/ Forfeit- Expired KMP and staff options 3 Sep 2013 6 Nov 2013 18 Nov 2015 14 Jan 2016 26 Oct 2017 Third party options 2 Feb 2017 13 Jul 2017 Total $4.00 $4.00 $1.75 $1.75 3 Sep 2018 1,400,000 6 Nov 2018 400,000 18 Nov 2020 1,600,000 14 Jan 2021 500,000 - - - - $3.50 15 Nov 2022 - 5,100,000 $2.25 $2.37 2 Feb 2022 200,000 - 13 Jul 2018 - 3,474,492 4,100,000 8,574,492 Weighted average exercise price $2.76 $3.04 - - - - - - - - - (1,000,000) (250,000) (1,300,000) (500,000) (650,000) - - (3,700,000) $2.82 - - - - - - - - - 400,000 400,000 150,000 150,000 300,000 300,000 - - 4,450,000 4,450,000 200,000 - 3,474,492 3,474,492 8,974,492 8,774,492 $3.01 $3.02 2017 Grant date price Expiry date year ing the year year ing the year year end of year end of year Exercise beginning of Granted dur- ed during the Exercised dur- during the Balance at Exercisable at Balance at Lapsed/ Forfeit- Expired KMP and staff options 3 Sep 2013 6 Nov 2013 18 Nov 2015 14 Jan 2016 $4.00 $4.00 $1.75 $1.75 3 Sep 2018 1,800,000 6 Nov 2018 400,000 18 Nov 2020 1,700,000 14 Jan 2021 500,000 Third party options - - - - 2 Feb 2017 $2.25 2 Feb 2022 - 200,000 (400,000) - (100,000) - - Total 4,400,000 200,000 (500,000) Weighted average exercise price $2.88 $2.25 $3.55 - - - - - - - - - - - - - - 1,400,000 400,000 1,600,000 500,000 200,000 4,100,000 $2.76 - - - - - - Options were exercised regularly throughout the year and the weighted average share price at date of exercise for the year ended 30 June 2018 was $4.05 (2017: nil). The weighted average exercise price for the year ended 30 June 2018 was $2.94 (2017: $2.78). The weighted average remaining contractual life of share options outstanding at 30 June 2018 was 2 years 4 months (2017: 2 year 6 months). 76 JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 Recognition and measurement The fair value of options granted to Directors, employees and Note 25: Remuneration of auditor consultants is recognised as an expense with a corresponding During the year the following fees were paid or payable for services increase in equity (share based payments reserve). The fair value provided by the auditor of the parent entity and its related practices: 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 Audit services 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. Consolidated 2018 $ 2017 $ 114,438 132,408 114,438 132,408 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 BDO for taxation services for the entity or any entity in the Group: Review of income tax return 42,000 40,000 Where the terms of options are modified, the expense continues to Transfer pricing consulting be recognised from grant date to vesting date as if the terms had Other taxation advice 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. Other services Where options are cancelled, they are treated as if vesting occurred on cancellation and any unrecognised expenses are taken Amounts paid/payable to BDO for other ser- vices for the entity or any entity in the Group: immediately to profit or loss. However, if new options are substituted Accounting advice for the cancelled options and designated as a replacement on grant Export grant services date, the combined impact of the cancellation and replacement options are treated as if they were a modification. 15,000 7,000 - - 64,000 40,000 - 4,500 4,500 2,800 6,000 8,800 182,938 181,208 Note 26: Summary of other significant accounting policies Other significant accounting policies adopted in the preparation of these consolidated financial statements are set out in relevant sections of the notes below. These policies have been consistently applied to all the years presented, unless otherwise stated. Where necessary, comparative information has been restated to conform with changes in presentation in the current year. (a) Basis of preparation (i) New, revised or amended Accounting Standards and Interpretations adopted None of the new standards and amendments to standards that are mandatory for the first time for the financial year beginning 1 July 2017 materially affect the amounts recognised in the current period or any other prior period and are not likely to affect future periods. The Group early adopted AASB 15 Revenue from Contracts with Customers in the year beginning 1 July 2017. As a result of adopting AASB15, the Group’s accounting policy has changed, however this change has not resulted in any material change to recognising revenue. JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 77 (ii) New Accounting Standards and Interpretations not yet the instrument. Financial assets are derecognised when the rights adopted AASB 16 Leases to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership. This standard and its consequential amendments are currently applicable to annual reporting periods beginning on or after 1 Financial assets are initially recognised at fair value. If the financial January 2019. This standard requires lessees to capitalise all leases asset is not subsequently accounted for at fair value through profit on the balance sheet (subject to limited exception) and there is or loss, then the initial measurement includes transaction costs that no longer a requirement to classify leases as either operating or are directly attributable to the asset’s acquisition or origination. financial leases. This means that on commencement date of the On initial recognition, the Group classifies its financial assets as lease, lessees need to measure a right-of-use asset and a lease subsequently measured at either amortised cost or fair value, liability. The initial adoption of this standard will impact on the depending on its business model for managing the financial assets financial statements at 30 June 2020. The Group’s management has and the contractual cash flow characteristics of the financial assets. yet to assess the impact of this amendment. (b) Foreign currency transactions (i) Functional and presentation currency Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the functional currency). The consolidated financial statements are presented in Australian dollars, which is the Company’s functional and presentation currency. (ii) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates ruling at the dates of the Refer to notes 20 and 21 for further details. (ii) Financial assets measured at amortisation cost A financial asset is subsequently measured at amortised cost, using effective interest method and net of any impairment, if: — The asset is held within the business model whose objective is to hold assets in order to collect contractual cash flows — The contractual terms of the financial asset give rise, on specified dates, to cash flows that are solely payments of principal and interest The Group assesses at each reporting date whether there is objective evidence that a financial asset (or group of financial transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year assets) is impaired. end exchange rates of monetary assets and liabilities denominated Refer to notes 7 and 8 for further details. in foreign currencies are recognised in profit or loss, except when attributable to part of the net investment in a foreign operation. (iii) Non-derivative liabilities Foreign exchange gains and losses are presented in profit or loss on originated. Other financial liabilities are initially recognised on the a net basis within other income or other expenses, unless they relate trade date. The Group derecognises a financial liability when its to borrowings, in which case they are presented as a part of finance contractual obligations are discharged or cancelled or expire. The Group initially recognises loans on the date when they costs. Non-monetary items measured at fair value in a foreign currency are value less any directly attributable transaction costs. Subsequent to translated using the exchange rates at the date when fair value was initial recognition, these liabilities are measured at amortised cost measured. using the effective interest rate method. Non-derivative financial liabilities are initially recognised at fair The functional currency of the overseas subsidiaries is measured Refer to note 11 for further detail using the currency of the primary economic environment in which that entity operates. At the end of the reporting period, the assets (d) Goods and Services Tax (GST) and liabilities of these overseas subsidiaries are translated into the Revenues, expenses and assets are recognised net of GST, unless presentation currency of the Company at the closing rate at the end the amount of GST incurred is not recoverable from the Australian of the reporting period and income and expenses are translated Taxation Office (ATO), in which case the GST is recognised as part at the average exchange rates for the year. All resulting exchange of the cost of acquisition of the asset or as part of the expense item. differences are recognised in other comprehensive income as a separate component of equity (foreign currency translation reserve). Receivables and payables are stated with the amount of GST On disposal of a foreign entity, the cumulative exchange differences receivable or payable included. The net amount of GST recoverable recognised in foreign currency translation reserves relating to that from, or payable to, the ATO is included as part of receivables or particular foreign operation is recognised in profit or loss. payables in the consolidated statement of financial position. Goodwill and fair value adjustments arising on the acquisition of a Cash flows are included in the consolidated statement of cash foreign entity are treated as assets and liabilities of the foreign entity flows on a gross basis and the GST component of cash flows arising and translated at the closing rate. (c) Financial instruments (i) Non-derivative financial assets The Group initially recognises financial assets on the trade date at which the Group becomes a party to the contractual provisions of from investing and financing activities, which is recoverable from, or payable to, the ATO, are classified as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the ATO. 78 JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 Unrecognised items IN THIS SECTION Unrecognised items provide information about items that are not recognised in the consolidated financial statements but could potentially have a significant impact on the Group’s financial position and performance. Note 27: Contingencies Note 28: Commitments Note 29: Events after the reporting date Page 79 Page 79 Page 79 JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 79 Note 27: Contingencies the cost of leasehold improvements and are amortised over the shorter of the term of the lease or the useful life of the assets. Contingencies relate to the outcome of future events and may result in an asset or liability, however due to current uncertainty do not qualify for recognition. Note 29: Events after the reporting date Estimates of the potential financial effect of contingent and exercise of 330,000 staff options ($1,320,000), and (ii) the liabilities that may become payable: final dividend declared, as at the date of this Directors’ Report, the Apart from the (i) exercise of 3,474.492 Tatts options ($8,235,000) Consolidated directors are not aware of any matter or circumstance that has arisen that has significantly affected, or may significantly affect, the operations of the Company in the financial years subsequent to 30 June 2018. The above items are not recognised in the financial statements 30 June 2018. Guarantees provided by the Group’s bankers 478 426 2018 2017 $’000 $’000 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. Note 28: Commitments Operating lease commitments Consolidated 2018 2017 $’000 $’000 Non-cancellable operating leases contracted for but not capitalised in the consolidated financial statements Payable Not later than one year 784 914 Later than one year but not later than five years Later than five years 3,663 628 5,075 1,803 - 2,717 The property leases are non-cancellable leases for occupied premises at various locations ranging from month-to-month to seven year terms, with rent payable monthly in advance. Options to renew leases at the end of the term range from terms of none to five years. Rent and outgoings are paid on a monthly basis with periodic pricing reviews. The main lease runs for seven years with the ability to cancel for no penalty from June 2022 with 12 months written notice, in line with the Tabcorp lottery reseller agreements. Recognition and measurement Leased property Leases in which a significant portion of the risks and rewards of ownership are not transferred to the Group as lessee are classified as operating leases and payments (net of incentives received from the lessor) are charged to profit or loss on a straight-line basis over the period of the lease. Make good The Group is required under terms of certain leases to restore the leased premises at the end of the lease to its original condition. A provision has been recognised for the present value of the estimated expenditure required to demolish any leasehold improvements at the end of the lease. These costs have been capitalised as part of 80 JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 Directors’ Declaration The Directors of the Company declare that: 1. The consolidated financial statements, comprising the Consolidated Statement of Profit or Loss and Other 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 Australian 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 2018 and of its performance for the year ended on that date. 2. The Company has included in the notes to the consolidated 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. 4. The remuneration disclosures included in pages 31 to 37 of the Directors’ report (as part of the audited Remuneration Report), for the year ended 30 June 2018, 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 23 August 2018 JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 Tel: +61 7 3237 5999 Fax: +61 7 3221 9227 www.bdo.com.au 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 81 Level 10, 12 Creek St Brisbane QLD 4000 GPO Box 457 Brisbane QLD 4001 Australia INDEPENDENT AUDITOR'S REPORT INDEPENDENT AUDITOR'S REPORT To the members of Jumbo Interactive Limited To the members of Jumbo Interactive Limited Report on the Audit of the Financial Report Opinion Opinion Report on the Audit of the Financial Report We have audited the financial report of Jumbo Interactive Limited (the Company) and its subsidiaries (the Group), which comprises the consolidated statement of financial position as at 30 June 2018, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement We have audited the financial report of Jumbo Interactive Limited (the Company) and its subsidiaries of changes in equity and the consolidated statement of cash flows for the year then ended, and notes (the Group), which comprises the consolidated statement of financial position as at 30 June 2018, the to the financial report, including a summary of significant accounting policies and the directors’ consolidated statement of profit or loss and other comprehensive income, the consolidated statement declaration. of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial report, including a summary of significant accounting policies and the directors’ declaration. In our opinion the accompanying financial report of the Group, is in accordance with the Corporations Act 2001, including: (i) In our opinion the accompanying financial report of the Group, is in accordance with the Corporations Act 2001, including: Giving a true and fair view of the Group’s financial position as at 30 June 2018 and of its financial performance for the year ended on that date; and (ii) (i) Complying with Australian Accounting Standards and the Corporations Regulations 2001. Giving a true and fair view of the Group’s financial position as at 30 June 2018 and of its financial performance for the year ended on that date; and Basis for opinion (ii) Basis for opinion Complying with Australian Accounting Standards and the Corporations Regulations 2001. We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the Financial Report section of our report. We are independent of the Group in accordance with the Corporations We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s those standards are further described in the Auditor’s responsibilities for the audit of the Financial APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the Report section of our report. We are independent of the Group in accordance with the Corporations financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s with the Code. APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Company, would be in the same terms if given to the directors as at the time of this auditor’s report. We confirm that the independence declaration required by the Corporations Act 2001, which has been We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis given to the directors of the Company, would be in the same terms if given to the directors as at the for our opinion. time of this auditor’s report. Key audit matters Key audit matters We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. 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. Liability limited by a scheme approved under Professional Standards Legislation, other than for the acts or omissions of financial services licensees. 82 JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 Impairment assessment of Goodwill and Other Intangible Assets Key audit matter Key audit matters How the matter was addressed in our audit The Group’s disclosures in respect to intangible assets, including the impairment assessments of goodwill and other intangible assets are included in Note 10. Key audit matters are those matters that, in our professional judgement, were of most significance in Evaluating management’s determination of the our audit of the financial report of the current period. These matters were addressed in the context of Group’s Cash Generating Units ("CGU's") to our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide ensure they are appropriate, including being at a level no higher than the operating segments of a separate opinion on these matters. the entity The carrying value of intangible assets represent a significant asset of the Group. Our procedures included, amongst others: • Impairment assessment of Goodwill and Other Intangible Assets Key audit matter The Group is required to annually test the amount of goodwill and indefinite useful life intangible assets for impairment and assess other intangible assets for impairment indicators. This annual impairment test was significant to our audit because the goodwill and intangible assets balance is material to the financial statements and because management’s assessment process is complex, highly judgmental and includes estimates and assumptions relating to expected future market or economic conditions. goodwill and other intangible assets are included in assets, including the impairment assessments of The Group’s disclosures in respect to intangible Note 10. The Group carries intangible assets of $11.574 million as at 30 June 2017. The carrying value of intangible assets represent a significant asset of the Group. The Group is required to annually test the amount of goodwill and indefinite useful life intangible assets for impairment and assess other intangible assets for impairment indicators. This annual impairment test Other information was significant to our audit because the goodwill and • • • • • • • Evaluating management’s process regarding the valuation of the Group’s goodwill and other intangible assets How the matter was addressed in our audit Our procedures included, amongst others: Assessing the Group’s assumptions and estimates relating to forecast revenue, costs, capital expenditure, discount rates and the life of Evaluating management’s determination of the reseller agreements used to determine the recoverable value of its assets Group’s Cash Generating Units ("CGU's") to ensure they are appropriate, including being at a Assessing the historical accuracy of forecasting of the Group by comparing the current year level no higher than the operating segments of actual results with FY18 figures included in prior the entity year forecasts to consider whether any forecasts Evaluating management’s process regarding the included assumptions, that with hindsight, had been optimistic valuation of the Group’s goodwill and other intangible assets Challenging key assumptions by performing sensitivity analysis on the growth rates and Assessing the Group’s assumptions and estimates discount rate assumptions used. relating to forecast revenue, costs, capital expenditure, discount rates and the life of reseller agreements used to determine the intangible assets balance is material to the financial The directors are responsible for the other information. The other information comprises the Assessing the historical accuracy of forecasting statements and because management’s assessment information in the Group’s annual report for the year ended 30 June 2018, but does not include the process is complex, highly judgmental and includes financial report and the auditor’s report thereon. estimates and assumptions relating to expected Our opinion on the financial report does not cover the other information and we do not express any future market or economic conditions. included assumptions, that with hindsight, had form of assurance conclusion thereon. of the Group by comparing the current year actual results with FY16 figures included in prior year forecasts to consider whether any forecasts • recoverable value of its assets In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial sensitivity analysis on the growth rates and report or our knowledge obtained in the audit or otherwise appears to be materially misstated. Challenging key assumptions by performing • discount rate assumptions used. been optimistic If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Other information Responsibilities of the directors for the Financial Report The directors are responsible for the other information. The other information comprises the information in the Group’s annual report for the year ended 30 June 2017, but does not include the financial report and the auditor’s report thereon. The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. Our opinion on the financial report does not cover the other information and we do not express any form of assurance conclusion thereon. 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. Liability limited by a scheme approved under Professional Standards Legislation, other than for the acts or omissions of financial services licensees. JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 83 Key audit matters In preparing the financial report, the directors are responsible for assessing the ability of the group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Auditor’s responsibilities for the audit of the Financial Report Impairment assessment of Goodwill and Other Intangible Assets How the matter was addressed in our audit Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an Key audit matter audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material The Group’s disclosures in respect to intangible if, individually or in the aggregate, they could reasonably be expected to influence the economic assets, including the impairment assessments of decisions of users taken on the basis of this financial report. goodwill and other intangible assets are included in Group’s Cash Generating Units ("CGU's") to A further description of our responsibilities for the audit of the financial report is located at the Note 10. Auditing and Assurance Standards Board website (http://www.auasb.gov.au/Home.aspx) at: The Group carries intangible assets of $11.574 http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf million as at 30 June 2017. The carrying value of This description forms part of our auditor’s report. intangible assets represent a significant asset of the ensure they are appropriate, including being at a Evaluating management’s process regarding the Evaluating management’s determination of the level no higher than the operating segments of Our procedures included, amongst others: the entity • • Group. Report on the Remuneration Report The Group is required to annually test the amount of Opinion on the Remuneration Report goodwill and indefinite useful life intangible assets We have audited the Remuneration Report included on pages 31 to 37 of the directors’ report for the for impairment and assess other intangible assets for year ended 30 June 2018. impairment indicators. This annual impairment test Assessing the Group’s assumptions and estimates relating to forecast revenue, costs, capital expenditure, discount rates and the life of valuation of the Group’s goodwill and other intangible assets • reseller agreements used to determine the was significant to our audit because the goodwill and In our opinion, the Remuneration Report of Jumbo Interactive Limited, for the year ended 30 June intangible assets balance is material to the financial 2018, complies with section 300A of the Corporations Act 2001. statements and because management’s assessment Responsibilities process is complex, highly judgmental and includes of the Group by comparing the current year Assessing the historical accuracy of forecasting recoverable value of its assets • estimates and assumptions relating to expected The directors of the Company are responsible for the preparation and presentation of the future market or economic conditions. Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. year forecasts to consider whether any forecasts included assumptions, that with hindsight, had been optimistic actual results with FY16 figures included in prior • Challenging key assumptions by performing BDO Audit Pty Ltd Other information sensitivity analysis on the growth rates and discount rate assumptions used. The directors are responsible for the other information. The other information comprises the information in the Group’s annual report for the year ended 30 June 2017, but does not include the financial report and the auditor’s report thereon. Our opinion on the financial report does not cover the other information and we do not express any form of assurance conclusion thereon. Brisbane, 23 August 2018 K L Colyer Director 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. Liability limited by a scheme approved under Professional Standards Legislation, other than for the acts or omissions of financial services licensees. 84 JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 Shareholder Information The Company has 58,013,757 ordinary shares on issue, each fully paid. There are 2,786 holders of these ordinary shares as at 31 July 2018. 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 5,185,000 options over ordinary shares on issue but not quoted on the Australian Securities Exchange. (a) The range of fully paid ordinary shares as at 31 July 2018 Range 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 – and over Rounding Total (b) Unmarketable parcels Total Holders Units % of issued capital 806 1,247 374 321 38 414,417 3,383,552 2,896,496 7,872,948 43,446,344 0.71 5.83 4.99 13.57 74.89 0.01 2,786 58,013,757 100.00 Minimum $500.00 parcel at $4.05 per unit Minimum parcel size 124 Holders 92 Units 2,079 The number of shareholders holding less than the marketable parcel of shares is 92 (shares 2,079) (c) Substantial holders of 5% or more fully paid ordinary shares as at 31 July 20181: Name Vesteon Pty Ltd and associates Tatts Online Pty Ltd Notice date Ordinary Shares Percentage Held 12 May 2017 5 July 2018 9,101,027 7,234,178 17.8 12.5 1 as disclosed in substantial shareholder notices received by the Company (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 2018 85 (e) Top 20 holders of fully paid ordinary shares as at 31 July 2018 Name Units % of Units 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. VESTEON PTY LTD TATTS ONLINE PTY LTD JP MORGAN NOMINEES AUSTRALIA LIMITED HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED NATIONAL NOMINEES LIMITED BNP PARIBAS NOMS PTY LTD CITICORP NOMINEES PTY LIMITED MR BARNABY COLMAN CADDICK BNP PARIBAS NOMINEES PTY LTD ECAPITAL NOMINEES PTY LIMITED MR MIKE VEVERKA WARAWONG PTY LTD MR CRAIG KUHN UBS NOMINEES PTY LTD MR JOHN WILDE + MRS ELIZABETH WILDE BNP PARIBAS NOMINEES PTY LTD MR JOHN ROSAIA DOG FUNDS PTY LTD ROUND ETERNAL INVESTMENTS PTY LTD 20. INVIA CUSTODIAN PTY LIMITED Total Top 20 shareholders of ordinary fully paid shares Total remaining holders balance 9,162,915 7,234,178 7,030,443 3,861,612 2,826,321 2,748,045 1,488,562 1,125,000 1,089,121 900,436 688,112 550,000 390,000 285,213 247,996 246,429 221,000 220,000 210,000 202,408 40,727,791 17,285,966 15.79 12.47 12.12 6.66 4.87 4.74 2.57 1.94 1.88 1.55 1.19 0.95 0.67 0.49 0.43 0.42 0.38 0.38 0.36 0.35 70.20 29.80 (f) Unquoted securities as at 31 July 2018 Options over Unissued Shares A total of 5,185,000 options are on issue to employees and a third party for services rendered. Exercise price Expiry date Number on issue Number of holders $4.00 $4.00 $1.75 $2.25 $3.50 3 September 2018 6 November 2018 18 November 2020 2 February 2022 15 November 2022 235,000 150,000 300,000 50,000 4,450,000 2 1 3 1 15 (g) On-market buy-back There is no current on-market buy-back in effect. 86 JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 Company Information Jumbo Interactive Limited ABN 66 009 189 128 www.jumbointeractive.com Directors David K Barwick (Non-Executive Chairman) Bill Lyne (Non-Executive Director) Mike Veverka (Executive Director and Chief Executive Officer) Chief Financial Officer David Todd Company Secretary Bill Lyne Registered Office Level 1 601 Coronation Drive Toowong, QLD 4066 Telephone: 07 3831 3705 Facsimile: 07 3369 7844 Auditor BDO Audit Pty Ltd Level 10 12 Creek Street Brisbane, QLD 4000 Share Registrar Computershare Investor Services Pty Ltd Level 1, 200 Mary Street Brisbane, QLD 4000 Telephone: 07 3237 5999 Facsimile: 07 3221 9227 JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 87 88 JUMBO INTERACTIVE LTD ANNUAL REPORT 2018 Jumbo Interactive Limited Level 1, 601 Coronation Drive PO Box 824 Toowong, Queensland, 4066 Australia +61 7 3831 3705 www.jumbointeractive.com 

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