Jinhui Shipping and Transportation Limited
Annual Report 2019

Plain-text annual report

2 JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 “Jumbo’s own stellar performance is our best selling point with prospective new SaaS customers” JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 3 Table of Contents 4 Introduction 32 Financial Report 6 Highlights 34 Directors’ Report 9 Letter from the Chairman 53 Auditor’s Independence Declaration 11 Letter from the CEO 12 Review of Operations 54 Corporate Governance Statement 60 Consolidated Statement of Profit or Loss 13 Key Performance Indicators and Other Comprehensive Income 14 Like-for-Like Analysis 15 Demographics 61 Consolidated Statement of Financial Position 16 Powered by Jumbo Software as a Service 62 Consolidated Statement of Changes in 18 Data, AI and Lotteries 20 Lotto Party 21 A Jumbo donation 22 Customer Support Equity 64 Consolidated Statement of Cash Flows 65 Notes to the Consolidated Financial Statements 24 Winners are Grinners! 95 Directors’ Declaration 26 Leadership Team 28 People of Jumbo 30 Corporate Responsibility 96 Independent Auditor’s Report 100 Shareholder Information 102 Company Information 4 JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 Introduction $1 Billion in ticket sales on the Jumbo platform by FY22 2019 was a breakout year for Jumbo, with the constraints of the old software platform a thing of the past. Two important benefits stem from the new software platform. First, the Jumbo team were able to make the most of a strong run of jackpots including two $100 million Powerball jackpots. Second, a new SaaS (Software as a Service) business division was launched called “Powered by Jumbo”. This new division has few geographic boundaries, and addresses the need for a proven and robust software system for lottery operators with which to drive future growth. Two agreements have been signed building momentum in this exciting business. Only 7% of the world’s lottery tickets are sold online pointing to a sustained rise over the next decade. This has led to Jumbo’s new “$1 Billion Vision” - $1 Billion in ticket sales on the Jumbo platform by FY22. This includes both the ticket reselling business (OzLotteries.com) and the new SaaS (Powered by Jumbo) business. Certainly an ambitious target, but with Jumbo’s strong track record and world class software, it is also achievable. JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 5 6 6 JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 Highlights The share price has increased 303% over 12 months to $20.15 at 30 June 2019. JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 7 Total Transaction Value 12 MONTHS TO 30 JUNE 2019 $321m 75% increase over the previous year Revenue (continuing operations) 12 MONTHS TO 30 JUNE 2019 $65.2m 64% increase over the previous year Net Profit After Tax (continuing operations) 12 MONTHS TO 30 JUNE 2019 $26.4m 124% increase over 12 months Number of Large Jackpots OZ LOTTO / POWERBALL JACKPOTS OF $15 MILLION OR MORE, 12 MONTHS TO 30 JUNE 2019 4953% increase over 12 months Dividends Declared for the Financial Year FULLY FRANKED ORDINARY DIVIDENDS (EXCLUDING SPECIAL) RELATING TO THE FINANCIAL YEAR ENDED 30 JUNE 2019 36.5c 97% increase over the previous year Share Price AS AT 30 JUNE 2019 $20.15 303% increase over 12 months 8 JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 Without the diversified skills of our team we could not have achieved these results or the significant increase in share price. JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 9 Letter from the Chairman Dear Shareholder result of a 106% increase in new accounts to 444,004 and a 74% increase in active customers to 761,863. With the performance of the 2018/19 financial year being such a success, it gives me great pleasure to write to you In January 2019 we were pleased to announce the as a Shareholder of Jumbo Interactive Limited (Jumbo). appointment of Mr. Giovanni Rizzo to the board. This year, we have seen our FY2019 year-end share price increase to $20.15 from $5.00 in FY2018. There have been a number of reasons for this growth which I will briefly cover in my letter. However, I must first acknowledge the continued loyalty and performance of our staff headed up by our major shareholder and CEO Giovanni is a specialist in the gaming industry with over 20 years’ experience in various management roles of large listed businesses. The Company remains committed in the compliance of board diversification and hopes to be in a position to make further announcements on this issue in the near future. Mr. Mike Veverka. Without the diversified skills of our In conclusion I would like to thank the board of directors team we could not have achieved these results and or and Management for their continued support and the significant increase in share price. reiterate the efforts of our CEO and our loyal staff for The skills of our team have been seen by the new Jumbo software platform which has not only benefited sales on I look forward to seeing you at our Annual General OzLotteries.com but has also laid the foundation for a Meeting at which time our Management team can Software as a Service business with enormous potential. answer any questions you may have regarding the their continued efforts in the growth of the Company. Essentially the new SaaS business, branded “Powered Company. by Jumbo”, provides software to other lottery operators wishing to emulate the success of OzLotteries.com. The Yours faithfully first customer (Mater Lotteries) has gone live after a 6 month setup process. Early signs are positive however a few more months will need to pass before reliable data can be obtained on the success of the project. Efforts have been directed towards a pipeline of other lottery operators evaluating the system and confidence is high that more will sign up in the near future in both Australia and the United Kingdom. In summary, the performance of the Company can be identified by a Total Transaction Value (TTV) increase of 75% to $321 million and Net profit after tax (NPAT) increase of 125% to $26.4 million. This has allowed us to continue in the increase of our dividend distribution throughout the year. The financial performance was a David K Barwick Chairman 10 JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 No longer is Jumbo just a ticket reseller, but also a software platform partner to other lotteries around the world. JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 11 Letter from the CEO 2019 was a breakout year for Jumbo. The constraints of The new Software as a Service business is not the old software platform became a thing of the past constrained by geographic boundaries and work has when after 4 years, the new software platform went begun to establish operations in key overseas markets. live in April 2018. The benefits were felt immediately. The momentum in Australia will be used to open up The improved customer experience attracted new these new markets and establish a base for future customers, and higher capacity delivered faster growth. response times even during higher draws. The system was thoroughly tested in August 2018 when the new Powerball format jackpotted to $100 million and it came through with flying colours. The Jumbo staff deserve enormous credit for their tireless work on the software platform making all this possible. There is a strong sense of purpose within the Jumbo offices to make a difference in our society and This built a base to what would become a record year. it is rewarding to see the money raised by all the causes The number of new signups soared 106% to 444,004 we work with as a result of our efforts. Personally I admit customers in 12 months and the number of Active to a great sense of pride to see Jumbo reach the $1 customers grew 74% to 761,863. The scalable nature billion market cap level and be included in the ASX300. of the business meant the flow-on effect to financial This fills me with motivation to build on what has been results would be strong. TTV grew 75% to $320.7 million achieved and take Jumbo even further in the years and Revenue up 64% to $75.2 million resulting in a 124% ahead. increase in Net Profit after Tax to $26.4 million. This has allowed the board to reward shareholders with a total FY dividend of 36.5 cents plus a special dividend of 8.0 cents. However the real benefit from the new software platform is an entirely new business division - Software as a Service. No longer is Jumbo just a ticket reseller, but also Mike Veverka CEO and Founder a software platform partner to other lotteries around the world. Jumbo’s own performance is our number one selling point to prospective new lotteries. Our first partner, the Mater Lottery, was signed in November 2018 and went live in June 2019. Our second partner, the Endeavour Foundation, was recently signed in August 2019 with a live date scheduled for December 2019. 12 JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 Reviewof Operations Financial Performance The new software platform had an immediate effect on financial performance as customers were able to sign up in greater numbers and became more active throughout the year. TTV (Total Transactional Value) and Revenue grew 75% to $321 million and 64% to $65.2 million respectively. The scalability of the business then delivered a 107% increase in EBITDA (Earnings Before Interest Tax Depreciation and Amortisation) to $40.2 million and a 124% increase in NPAT (Net Profit After Tax) to $26.4 million. For the 12 month period to 30 June 2019, the number of new online accounts increased 106% to 444,004 and the number of active online customers increased 74% to 761,863. During the financial year, there were 49 (2018: 32) large jackpots with an average value of $38.4 million (2018: $28.4 million). This is 53.1% higher in number and 35.2% higher in average value compared to the previous period. Customer engagement is well up with 761,863 active customers compared to 437,540 the previous year. OzLotteries.com Performance The established ticket reseller business (OzLotteries. com) continued its growth as the dominant part of the Jumbo group. The new Powerball format has proven to be a success with two $100 million jackpots in FY19. This has grown the customer database, which underpins future performance. Technical improvements were made to the OzLotteries.com app and the Lotto Party service to engage customers especially during periods of low jackpots. A third Powerball jackpot reached $110 million in July 2019 giving this division a good start to the 2020 financial year. JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 13 Key Performance Indicators New Online Accounts Active Online Customers 444k Up from 215k due to an improved software 762k Up from 438K due to an improved software platform, marketing initiatives and higher large platform, marketing initiatives and higher large jackpot activity. jackpot activity. CPL— Cost Per Lead Average Spend per Online Customer $13.81 Down from $17.28 due to an improved software $385.44 Up from $371.13 due to an improved software platform platform and more efficient acquisition and higher large jackpot activity. marketing. When comparing with prior periods, the timing of large jackpots has a material impact on average spend. Large jackpots at the beginning of the 12 month period will have the effect of increasing the average while jackpots at the end will have the effect of decreasing it (new customers have not had the time to spend). 14 JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 Like-for -Like Analysis Overall ticket sales (TTV) are greatly influenced by the timing and size of large draws. Often making it difficult to gain insights into the performance of the OzLotteries.com business. One method is to compare ticket sales for regular smaller draws and look for growth trends. OzLotto $15 million The following graph indicates OzLotto ticket sales at the $15 million prize level. The decline in 2018 Jul - Dec was due to the simultaneous Powerball draw reaching very high levels temporarily attracting customers away from OzLotto. ) $ ( w a r d r e p s e a s t e k c T l i 2017 Jan - Jun 2017 Jul - Dec 2018 Jan - Jun 2018 Jul - Dec 2019 Jan - Jun 2019 Jul - Present Time period (half yearly) JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 15 ) $ ( w a r d r e p s e a s t e k c T l i Powerball $20 million The following graph indicates Powerball ticket sales at the $20 million prize level. Following the changes to Powerball in April 2018, there is no longer a $15 million sequence to compare. 2018 Jul - Dec 2019 Jan - Jun 2019 Jul - Present Time period (half yearly) Demographics In a market traditionally appealing to a more mature demographic, Jumbo has always been regarded for its ability to reach a younger audience. An audience Recent data highlights considered to be elusive by the worldwide lottery industry. Recent data highlights Jumbo’s continued success with appealing to the younger demographic. Jumbo now has a higher percentage of customers in the under 35 category, which clearly demonstrates a trend towards younger demographics, offering greater customer longevity. Jumbo’s continued success with appealing to the younger demographic. t n u o m A 40% 30% 20% 10% 0% 18 - 25 25 - 35 35 - 50 50 - 65 65+ Age Group 16 JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 Powered by JUMBO Software as a Service The Powered by Jumbo business model The new “Powered by Jumbo” business model is similar to most SaaS (Software as a Service) models where a large enterprise-wide software system is licensed to a lottery operator to assist with managing their business. The software licence is typically multi-year (5 years is common) with a fee based on a percentage of ticket sales. This percentage is dependant on turnover and is typically around 10% for low turnover operations (under $20 million pa), to 3% for high turnover (over $100 million p.a.). A full explanation of the Powered by Jumbo solution is available at poweredbyjumbo.com Powered by Jumbo Services Moving online (website and app) Customer relationship management Ticket sales collection and management Marketing tools Management reporting JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 17 93%Seeking to move online 7%Already online Large Global TAM The total addressable market (TAM) for the SaaS business is significant. Approximately 7% of the world’s lottery tickets are sold online, indicating 93% of a US$303 billion (A$445 billion) (1) global market has yet to make the transition. The largest individual market – the USA – is of particular interest, as less than 5% of that US$80 billion (A$117 billion) market is online. Recent changes have allowed some early movers to begin selling online and Jumbo is watching the developments with interest. Initial target – Charity Lotteries The global lottery market consists of traditional national lotteries with large prizes (Powerball and OzLotto for example) as well as smaller charity-style lotteries with smaller prizes (typically under $5 million). This charity lottery segment is underserved with digital solutions and is therefore the initial target for “Powered by Jumbo”. The charity lottery market is particularly active in Australia, UK and Canada and has a total addressable market size of approximately A$3.5 billion (2). Mater Lotteries and the Endeavour Foundation The first two customers for “Powered by Jumbo” are Mater Lotteries (signed November 2018) and the Endeavour Foundation (signed August 2019). Both are high quality charities with a strong track record and a bright future. The agreements provide a full software platform capable of operating both online and offline ticket sales for a period of 5 years. The Mater Lotteries website is now live and work is progressing to move offline ticket sales onto the “Powered by Jumbo” platform. The Endeavour Foundation project is expected to follow a similar release timeframe to the Mater over the next 12 months. (1) Sources: The WLA Global Lottery Data Compendium 2018; Jumbo Research; (2) Sources: Jumbo Research; lotteriescouncil.org.uk; charityintelligence.ca 18 JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 Data, AI & Lotteries For over a decade Jumbo has been at the technological forefront of the lottery industry. From the very early adoption of the digital sales channel back in 2000, to the early adoption of mobile and the world’s first lottery app for the apple watch, Jumbo has vigorously embraced technology while others took a wait and see approach. This trend is accelerating with important breakthroughs in the fields of Data Analytics and Artificial Intelligence. Lotteries are unique in the sense that a large amount of data must be collected around consumer behaviour to ensure regulatory compliance. However the benefits of data go far beyond regulatory compliance and into being able to deliver ever increasing levels of customer experience. The new Jumbo software platform collects significantly more data than prior years with the database size growing from 500GB in 2009 to 2TB in 2019. Managing this data and delivering insights is now the challenge, and an area that Jumbo has expanded significantly. Data value & Security Jumbo takes a “security first, benefits second” approach to data collection. First and foremost consumer privacy must always be maintained and never compromised. With the number of active customers approaching 1 million and a total customer numbers well over 2 million, it is clear a lot of people trust Jumbo with their personal details. This trust must never be taken for granted and efforts continue to safeguard this trust. With total customer numbers well over 2 million, it is clear a lot of people trust Jumbo with their personal details The benefits of Data Analytics all point to a better customer experience. Giving each and every customer relevant information based on prior habits is a time saving feature that is a high priority for our customers. Every click is counted and minimised from the moment a customer decides to buy a ticket to the moment their ticket has been safely lodged. Convenience continues to rank in the top 3 reasons why players keep coming back to Jumbo. JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 19 Artificial Intelligence Managing big data can only be done efficiently with the proper use of Artificial Intelligence. The time when AI was just science fiction has long passed and many industries now employ partially aware machine learning to gain insights. Lotteries are no different. To be a world leader in lottery software, Jumbo must build systems able to learn by themselves with only minor input from staff. One unique aspect about consumer behaviour in the lottery industry is the dramatic difference in sales between normal and large jackpots. In the past 15 months Jumbo has traded through three jackpots over $100 million. Sales during the last few hours of the draw escalate dramatically and would greatly exceed the capacity of staff to provide that one-on-one customer experience. This is where artificial intelligence and on-the-fly data analytics take over and allow the business to scale without compromising customer experience. Artificial Intelligence comes in a variety of forms beyond data analysis. Speech recognition advancements have now made it possible for customers to simply talk to devices and receive accurate responses. Responses to questions like “What are last night’s Powerball numbers?” and “What is the OzLotto jackpot this week?” are already functioning on the major platforms. The next advancements will bring the security required to be able to deliver responses to commands like “Please put my usual entry into this week’s Powerball draw”. Speech recognition advancements have now made it possible for customers to simply talk to devices and receive accurate responses. What were the results for last week’s Powerball? Powerball draw 1159 was drawn on Thursday 15th August. The main numbers were 24, 35, 27, 30, 21, 7, 14 and the Powerball was 13. 20 JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 LottoParty An idea borne from customer experience optimization, Lotto Party demonstrates Jumbo’s innovation process. Lotto Party is Jumbo’s digital solution for lottery syndicate play. Lotto Party enables a group of friends to easily create their own group syndicate through the app. Lotto Party has grown from 17% to 31% of syndicate sales from 2018 to 2019 (calendar year). Customers are organising Lotto Parties in all sorts of ways; with friends, colleagues, and even through Internet forums. The ability for organisers to create unique names for their groups makes lottery play fun, creative, and engaging. One in five new customers acquired through Lotto Party invitations were not existing customers. Since its launch, 13,000 new Oz Lotteries customers have been acquired through Lotto Party organisers sending out invitations to non-Oz Lotteries customers. The average lifetime value of these new customers is 27% higher than the average lifetime value of a regular Oz Lotteries player. Additionally, 9% of these acquired customers have since created their own Lotto Parties, enabling Jumbo to acquire more customers organically. Exciting developments in progress include enabling web-based joiners to Lotto Parties, and web-based organiser functionality. Additionally, co-organiser functionality is in development, which will facilitate the likelihood that a group will organise another Lotto Party, and the development of Avatars legitimizes the game, encouraging more invitees to join. JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 21 A Jumbo donation As a father of two daughters, I often wonder about the opportunities all women will encounter in the future. Mike Veverka CEO and Founder During the 2018 World Lottery Association’s World Summit in Buenos Aires, Mike Veverka announced a US$50,000 founding donation to kick start the Women in Lottery Leadership program (WILL). The creation of WILL by Ms Rebecca Hargrove, President of the World Lottery Association (WLA), and several other global lottery women CEO’s; the mission is to drive high- performance business growth through supporting the advancement of women into top positions of lottery management, leadership and responsibility. “As a father of two daughters, I often wonder about the opportunities all women will encounter in the future”, said Mr Mike Veverka during the presentation. “I think we can all make a difference in the future by taking action today”, he said. Find out more about ‘WILL’ at womeninlotteryleadership.com 22 JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 Customer Support Written by Brenda Melville Head of Lottery Operations (Australia) Customer Support is the face of Jumbo Interactive to We offer our customers multiple ways to contact us, and all our customers and partners, handling a variety of by allowing our customers the opportunity to seek help customer queries, a source of product feature requests through a medium they prefer, be this via the phone, on and usability suggestions. They work very closely with our website chat, or an email, we see positive reactions all teams across development, marketing, and design to and customer engagement. We also offer our customers ensure a seamless customer experience. a comprehensive knowledge base to allow them, if they Jumbo Interactive Customer Support is a dynamic prefer, to self-service. and agile team of experienced professionals with an The latest changes to the Powerball game meant that empathetic and human touch, who continue to deliver we saw the jackpot reach $100 million twice throughout outstanding outcomes for our loyal customer base. the year. This increase saw at least 1 in 3 Australians Quality and First Point Resolution continue to the be the purchase a lotto ticket, and to handle this increase, driving focus for the team with our customer satisfaction a number of system performance changes were ratings consistently over 90% for both phone and chats, implemented, and internal processes overhauled, to with 53% of our email received answered in under an ensure better scalability during these periods of peak hour. During a big jackpot period, it is paramount that demand. our customers are assisted in a timely manner to ensure they can complete their purchase with as little hassle as possible. The team is also involved with assisting our Powered by Jumbo customers to ensure they are using the system to its full potential, offering training and troubleshooting 86% of all calls received throughout the year have been common questions. answered within 15 seconds. JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 23 Responsible Play As a responsible business, Oz Lotteries always wishes to remain a fun and enjoyable place to manage your online lottery purchases. Our Customer Support team is trained to assist and spot warning signs of problem play. Our team is able to offer practical solutions to assist the customers who require professional help in this area, as well as facilitating various restrictions on their accounts. Jumbo Interactive Customer Support is a dynamic and agile team of experienced professionals with an empathetic and human touch. 24 JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 are Winners Grinners! Charity Lottery Winners This year Oz lotteries has continued its strong relationship with some of Australia’s major charities, including signing a new agreement with RSPCA. Our customers continue to support these charities with strong sales, and this year three of our customers have seen the Aussie dream of owning their own home come true, with two properties being won on the Gold Coast and one on the stunning Sunshine Coast. Last month also saw one lucky Act for Kids supporter take first prize in Draw 79, winning himself a luxurious Mercedes E-Class Saloon. Draw 417 Nov 2018 Sunshine Coast Home Prize valued at $1,194,870 Draw 188 Aug 2018 Sanctuary Cove Home Prize valued at $1,294,572 Draw 823 Dec 2018 Southport Apartment valued at $575,278 Draw 79 Jun 2019 Mercedes E Class Saloon valued at $97,376 + $2,500 JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 25 Commercial Lottery Winners This year 11 customers have had the dream of winning the jackpot come true; 5 of these customers winning over a million dollars. Oz $40 Million Powerball! A foster father from South Australia was the sole winner of February’s Lotteries paid a total of $194,473,643 in prizes this year; an increase $40 Million Powerball jackpot. of over $68 million in prizes compared to last year - that’s a lot of lucky Oz Lotteries customers! He explained that he checked the winning Powerball numbers following the draw, but couldn’t quite believe it when they matched. The Customer Support team contacts all of our large prize winners, So he woke his wife and daughter and asked them to check the to help them with the process of withdrawal. Vikki says, “It’s such numbers. an awesome call to make, I get to change someone’s life, they can finally pay off that mortgage or go on that dream holiday. We all get so excited to make these calls” - Vikki Brown, Customer Support Team Leader Over the last year, the interest in the raffle game Lucky Lotteries Mega has continued to increase as the draw has jackpotted to over $90 million (at 16 August 2019). This year 15 Oz Lotteries customers have walked away with first prize amount of $200,000.` $50 Million Powerball! As the Powerball Jackpot reached $100 million for the first time in August 2018, customers came to play. One lucky Oz Lotteries customer was fortunate to take away a share in the prize pool winning himself $50 million dollars. The young Melbourne man kept his cool as we explained to him that he had won $50 million. The young winner said he knew he had become a multi-millionaire when he checked his ticket last night before bed. “I’m trying to remain as calm as possible! I only bought this entry last night on the Oz Lotteries app before the draw closed.” “I’m going to do the right thing. This win is life-changing! I’m going to look after my whole family – invest money in property and shares. It will make a massive difference to a lot of people.” “They thought I was pulling their chain! We still can’t believe it.” Happily enough, we told him he was definitely the winner, to which he replied”You’ve made our day. Actually, you’ve made our whole life!” Oz Lotto $7.5 million A regular Oz Lotteries customer “had a feeling” he was going to win the lottery while washing up, which prompted him to log in and purchase a ticket just before the draw closed. He purchased a System 11 ticket, choosing his children’s birthdays for numbers, rather than his usual numbers. Because he wasn’t playing his usual numbers when he saw the Oz Lotteries results he didn’t immediately realise he’d won! Saturday Lotto $2 million A man in his 60’s from Cronulla took home a share in the $20 million Saturday Superdraw. He thought the news was a joke after receiving the confirmation call on April Fools Day. When asked if he thought it would be possible to win, he said “No, not at all. I’ve never won anything like this in my life. I’m in a bit of a shock.” It’s such an awesome call to make, I get to change someone’s life, they can finally pay off that mortgage or go on that dream holiday. We all get so excited to make these calls. Vikki Brown, Customer Support Team Leader 26 JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 Leadership Team has amassed unique digital experience in the world lottery industry. Jumbo has a stable leadership team that Mike Veverka David Barwick Bill Lyne Chief Executive Officer & Executive Chairman and Non-Executive Director Non-Executive Director and Company Director (BEng (Hons)) Secretary (BCom, CA, FCIS, FGIA, FAICD, Mike Veverka is CEO and founder of Jumbo in the management and administration David Barwick has over 40 years experience FFIN) Interactive. He has a proven track record of publicly listed companies in Australia Bill Lyne is the Principal of Australian in business and computing, establishing and North America. During this period Company Secretary Service that provides several successful startups to meet new David has held the positions of Chairman, secretarial, corporate compliance and consumer demands for online products. Managing Director or President of over 30 governance services to public company His entrepreneurial flair and ambition for public companies with strengths in strategic clients in a wide range of industries. Prior to innovation were displayed at the age of planning, restructuring and financing this, Bill was Company Secretary and CFO 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. of First Australian Building Society, having previously spent many years in credit and lending positions in merchant banking. Bill holds a Bachelor of Commerce and is a Chartered Accountant. He is a Fellow of the Institute of Chartered Secretaries & Administrators (UK), Governance Institute of Australia, and the Australian Institute of Company Directors. He is also a fellow of and has life membership with the Financial Services Institute of Australasia. JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 27 Giovanni Rizzo Non- Executive Director Giovanni Rizzo is a specialist in the gaming industry with over 20 years’ experience in various management roles of large listed lottery, casino and electronic gaming machine businesses in South Africa, Canada and Australia. Most recently, Giovanni was Head of Investor Relations at Tatts Group Limited, Australia’s exclusive operator of licenced lotteries. Giovanni holds a Bachelor of Commerce (Honours) in Finance and Audit and is a Chartered Accountant in Australia, New Zealand and South Africa. Corporate Governance. He is a Fellow remaining secure for customer transactions. of the Governance Institute of Australia He is responsible for the adaptation of the and a Fellow of the Institute of Chartered successful Australian OzLotteries.com Secretaries and Administrators (UK). David website to other markets and ensuring brings a wealth of commercial expertise to capabilities for customer purchases on any Jumbo Interactive as Chief Financial Officer. device demands that websites continually evolve as new mobile and computer products are released to market with unprecedented frequency. Brad Board Chief Operating Officer Brian J. Roberts Having joined Jumbo in 2001 Brad has been actively involved in Jumbo’s evolution and growth into the leading digital lottery business it is today. Brad has significant lottery and e-commerce experience and ensures that the brand, digital experiences and service offerings provided by Jumbo effectively engage and satisfy it’s 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 spans 25 years in the banking industries of South Africa, New Zealand and Australia, and small cap and SME environments. David holds a Bachelor of Commerce, a Master of Business Administration, an Associate Diploma in Banking, and a Graduate Diploma of Advanced Xavier Bergade Chief Technology Officer As Chief Technology Officer, Xavier ensures that Jumbo’s technology services are continually improving and innovating while 28 JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 People of Jumbo and friendly environment. through our quarterly recognition program, further building on our fun Written by Abby Perry Head of Human Resources Workplace Culture Jumbo is committed to providing a supportive and collaborative environment that fosters a positive and strong culture for our people to thrive. The Jumbo team comprises of individuals with a diverse range of cultural backgrounds and professional experience. Our culture enables us to attract and retain the best people by ensuring they feel important and valued. Our employee pulse surveys offer an avenue for continuous feedback, enabling us to focus our efforts on improving areas that are important to our people. The use of online feedback tools has supported our people and leaders with new and efficient ways of communicating, elevating engagement and performance. We acknowledge and show appreciation to individuals and teams Employee Wellbeing Jumbo has taken a holistic view of wellbeing, supporting employees in their health and careers. We have implemented strategies and activities to improve wellbeing, including exercise, diet and mental health. These initiatives include free breakfast and lunch, subsidised wellness activities, company sponsored participation in sporting and charity events, and a variety of social activities. Our resident Guide Dog in training has worked wonders with our people, making them happier, reducing stress levels and creating a comfortable and flexible environment. We offer support services for employees that may be experiencing difficulties, whether at home or at work, by providing company funded professional counselling services. All employees are encouraged to take ownership for their health and wellbeing, backed up by Jumbo’s safe and healthy work environment. JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 29 8%Sales / Marketing 65%Product / Development Employees by Function 74% Male Employees by Gender Employees by Age Diversity 18%Corporate / Operations 9%Customer Support 26% Female 0% 25% 50% 75% 100% Nurturing Our People Our people are pivotal to our success and we encourage and nurture the development of employees through our professional learning pathways, building our organisational capability and enhancing productivity and engagement. Employees are encouraged to participate in Jumbo’s development program, supported by various training possibilities including professional certification, conference attendance, internal and external workshops, and an abundance of online training course options. Our established graduate and mentor programs provide a platform for people to realise their potential, achieve their goals and deliver greater performance. We invest in the latest technology and tools, encouraging employees to be creative and continuously learning in an effort to drive innovation and to support our people’s career aspirations. Our culture enables us to attract and retain the best people by ensuring they feel important and valued. Employees byYears of Service30%Under 2 years35%2 - 4 years35%5 years & over29%Under 30 years42%30 - 39 years29%40 years & over30 JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 Corporate Responsibility Business sustainability through environmental, social and governance responsibility Jumbo is committed to developing and operating the world’s best digital lottery experience in a sustainable and responsible manner, whilst creating lasting value for all of our stakeholders. their financial means. As part of our commitment to responsible gambling, we comply with each State and Territory’s Responsible Gambling Code of Practice. This is underpinned by our Responsible Gambling Policy which is available on the website ozlotteries.com/about/responsible-gaming. Our responsibilities extend to our customers, staff, shareholders, suppliers, government, communities, and the environment in which Jumbo had no reported instances of problem gambling by its customers in FY19. we operate. Environment Jumbo is a leading developer and operator of a world-class digital lottery experience. Being an almost exclusively digital operation, Jumbo’s environmental impacts are far less significant compared to more tangible products, which require manufacturing and transportation. Accordingly, Jumbo is a non-carbon intensive office and technology based business. Our relatively small environmental footprint arises from the energy used by our few offices, and from consumables. — Our Brisbane head office has a 4.5 star NABERS energy rating We are also committed to the protection of the Personal Information of individuals and are bound by the Australian Privacy Principles (APPs) under the Privacy Act 1988. To ensure that Jumbo protects its customers’ privacy in accordance with the APPs, we are committed to ensuring the collection, accuracy, storage, security, use, disclosure and destruction of Personal Information is compliant with the APPs. We ensure our employees received training in the proper handling of Personal Information, and access to information held by us is limited to authorised people on a strict need-to-know basis relevant to their roles and responsibilities. Our Privacy Policy is available on the website ozlotteries.com/about/privacy. Jumbo did not have any eligible data breaches to report under the Data Breach Notification Scheme, which falls under Part IIIC of the Privacy Act 1988, in FY19. Providing digital tickets to our customers, rather than paper, assists Workplace them in reducing their own environmental footprints. Community and Customers Our people are the key to our success. They reflect our culture and values and their diverse capabilities enable us to achieve exceptional performance. We recognise that having a diverse and inclusive workplace leads to better business outcomes and is The lottery industry is an essential contributor to the community. essential for our long term sustainability. There is a strong social responsibility aspect to lotteries, particularly in the charity lottery space. Workplace Giving A snapshot of our charity partners include the Mater Foundation, which raises funds for to revolutionise the community through investment in care, education, and world-class medical research. The Endeavour Foundation supports people with an intellectual disability to live their best life. Jumbo supports these charities by casting a wider net for their fund raising activities, and giving them access to customers they may not otherwise reach. The sense of charity and community is instilled into Jumbo and our people. There is a plethora of fund-raising activities and charities Jumbo provides contributions to, both financial and time. Our people have established an internal charity fund, ‘Just Giving’, which receives voluntary donations from both our people and Jumbo, and our people decide on which charities to support for the benefit of the local communities in which we live, work and play. In contrast to more aggressive forms of gaming, lotteries are not associated with problem gambling issues. Additionally, the In FY 2019, the following charities were supported: — RSPCA – fundraising through their RSPCA Cupcake Day substantial tax revenue from lotteries contributes to a host of social — Movember Foundation – fundraising services. Jumbo also provides services to our regional neighbours in Fiji, Samoa and the Cook Islands, enabling these countries to raise funds — Cancer Council – donation from Just Giving — Fiver for a Farmer – donation from the Just Giving for their local communities. — Share the Dignity – donation from the Just Giving Jumbo is committed to providing a safe environment for lottery players to buy and manage their lottery entries online, and does — National Breast Cancer Research Centre – donation from Just Giving not encourage excessive gambling or extending customers beyond — Alzheimers Australia – donation Just Giving JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 31 — Big Aussie BBW – donation from Just Giving compliance with the third edition of the ASX Corporate Governance — Aunties and Uncles QLD (Brisbane) - donation from Just Giving — Mia Wilkinson Trust (Brisbane) - donation from Just Giving Council’s Corporate Governance Principles and Recommendations. The CGS is also available on our website jumbointeractive.com/ governance/corporate_governance_statement.pdf. — Children’s Hospital Foundation (Brisbane) - donation from Just We have established a to support our business and help us deliver Giving on our strategy. A selection of FY19 sponsorships include: — Platinum sponsor of the World Lottery Association — Gold sponsor of the Asia Pacific Lottery Association conferences — Sponsor of the UK Lottery Council’s – sponsor and presenter at their annual conference in March 2019 — Sponsor of Kedron Wavell Services Hockey – support of the Masters hockey division — 24 Hours of Lemons — World Youth — Climb for Cancer — Fiji Open Tennis tournament — Fiji Sports Awards - annual Women in Lottery Leadership In addition to the above, Jumbo has provided an inaugural scholarship grant of US$50,000 over five years to the Women’s Initiative in Lottery Leadership (WILL) womeninlotteryleadership.com. Our relationship with our people is under pinned by our Code of Conduct which defines our workplace principles. Workplace Culture Governance Framework Shareholders Jumbo Interactive Limited Board of Directors Oversees management on behalf of shareholders Audit & Risk Management Committee Oversees financial reporting and risk management Nomination and Remuneration Committee Considers Board composition and succession planning, and oversees the remuneration an incentive framework for all our people Chief Executive Officer Responsible for the day-to-day management of Jumbo and the implementation of our strategy Key Management Personnel Responsible for running the business and delivering on our strategic objectives Jumbo is committed to providing a supportive and collaborative environment that fosters a positive and strong culture for our people to thrive. Our people are pivotal to our success and we encourage and nurture the development of employees through our professional Our Board learning pathways, and we have implemented strategies and activities to improve wellbeing. These initiatives include free breakfast and lunch, subsidised wellness activities, company As at the date of this report, our Board comprises four Directors – three independent non-executive Directors and one executive Director being Jumbos’ founder and CEO, Mike Veverka. Details sponsored participation in sporting and charity events, and a variety of the Directors’ qualifications and experience are in the Board of of social activities. Directors section of the Directors’ Report. Our Gender Diversity Policy has an objective of 40% female employees by 2023. We continue our policy to source the best possible candidate for the position as and when it becomes available. Jumbo has experienced rapid growth over the recent financial year. To meet the increasing demands of being a significantly larger company, we expanded the Board with the appointment of Giovanni Rizzo as an independent non-executive Director on 1 January 2019. We have a good mix of youth, experience and ‘grey hair’ to ensure innovation, practicality and temperament. We are actively considering candidates to expand the Board by an additional independent non-executive Director, with an A monthly Company Pulse measures the level of happiness of staff between 1 and 5, with 5 being Very Happy, and the average for FY19 is 4.15 (2018: 4.15). Further information can be found under the section “People of Jumbo”. Governance Our Corporate Governance Statement in this Annual Report describes in full our approach to corporate governance and appointment expected in FY20. The Board has two standing committees – the Audit and Risk Management committee and the Nominations and Remuneration Committee. The committees assist the Board by focusing in more detail on specific areas of our operations and governance framework. 32 32 JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 Financial Report JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 33 FY 2019 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) EBITDA margin (%) EBIT margin (%) FY2019 320,659 65,212 20.3% 38,219 26,420 - 26,420 40,188 36,755 84,583 77,378 61,780 2015.0 34.0 309.8% 43.9 34.1% 62.1 1,251.8 61.6% 56.4% 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 48.8% 40.8% Variance % 75.1% 64.0% (1.4ppt) 123.5% 124.8% n/a 117.9% 107.0% 126.3% 76.5% 63.9% 86.5% 303.0% (4.2%) 208.5ppt 87.6% 8.4ppt 14.1% 360.4% 12.8ppt 15.6ppt Highlights A significant increase in both customer activity and engagement — Dividends paid 34.0 cents (fully franked) – 4% decrease (new and active numbers) as well as large jackpot activity (number — Share Price $20.15 – 303% increase and average value) has seen a substantial increase in Total — Total Shareholder Return 310% - 209ppt increase Transaction Value (TTV) and Revenue, together with a continued focus on costs, has resulted in a considerable increase in Net Profit After Tax. 5 year Total Transaction Value and average large jackpots FY2020 outlook — There has been a strong start to the year from 5 large jackpots in July, including a record $110 million for Powerball, and the sale of the Set-for-Life product commencing on 15 August. s n o i l l i m $ 350 300 250 200 150 100 50 0 320.7 — The burgeoning SaaS business segment has received a boost by Endeavour Foundation signing an agreement on 16 August to 130.0 25.3 FY15 153.3 28.8 FY16 145.3 24.2 FY17 183.0 28.4 FY18 38.4 FY19 licence the PBJ software — Revenue $65.212 million – 64% increase — Net Profit After Tax – Continuing operations $26.420 million – 125% increase — Net Profit After Tax – Overall operations $26.420 million – 118% increase 34 JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 Directors’ Report The Directors of Jumbo Interactive Limited (Company), present their report on the consolidated entity (Group), consisting of Jumbo Interactive Limited and the entities it controlled at the end of, and during, the financial year ended 30 June 2019. Special responsibilities: Chief Executive Officer. Australian Listed Company Directorships held in the past three years: None. Interest in shares and options: 9,656,848 ordinary shares and nil options over ordinary shares in Jumbo Interactive Limited. Board of Directors The following persons were Directors of the Company during the whole of the financial year and up to the date of this report, unless otherwise stated: David K Barwick Chairman, Independent Non-Executive Director Mike Veverka Managing Director and Chief Executive Officer Bill Lyne Independent Non-Executive Director Giovanni Rizzo Independent Non-Executive Director (appointed 1 January 2019) Bill Lyne Experience: Appointed as a board member on 30 October 2009. Bill Lyne is the principal of Australian Company Secretary Service, providing company secretarial, compliance and governance services to public companies. He is currently company secretary of 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. Special responsibilities: Chair of the Audit and Risk Management Committee; member of the Nomination and Remuneration Details of the experience, qualifications and special responsibilities, Committee; and Company Secretary. and other Directorships of listed companies, in respect of each of the Directors as at the date of this Directors’ Report are set out in the pages as follows: Australian Listed Company Directorships held in the past three years: None. 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. Special responsibilities: Chairman (Non-Executive); member of the Nomination and Remuneration Committee; and member of the Audit and Risk Management Committee. Australian Listed Company Directorships held in the past three years: None, Interest in shares and options: None. Interest in shares and options: None. Giovanni Rizzo Experience: Appointed as a board member on 1 January 2019. Giovanni Rizzo is a specialist in the gaming industry with over 20 years’ experience in various management roles of large listed lottery, casino and electronic gaming machine businesses in South Africa, Canada and Australia. Most recently, Giovanni was Head of Investor relations at Tatts Group Limited, Australia’s exclusive operator of licenced lotteries. Qualifications: Bachelor of Commerce (Honours) in Finance and Audit; Chartered Accountant in Australia, New Zealand an South Africa. Special responsibilities: Chair of the Nomination and Remuneration Committee; member of the Audit and Risk Management Committee. Mike Veverka Experience: Mike Veverka has been Chief Executive Officer and Director of Jumbo Interactive Limited since the restructuring of Australian Listed Company Directorships held in the past three years: None. the Company 8 September 1999. Mike was instrumental in the Interest in shares and options: None. 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. Company Secretary Mr Bill Lyne was appointed Company Secretary 19 October 2007. Refer to the information on Directors for details of experience and qualifications. Principal Activities The principal activity of the Group during the financial year was the retail of lottery tickets through the internet and mobile devices sold Qualifications: Bachelor of Engineering (Hons). both in Australia and eligible overseas jurisdictions. JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 35 There were no significant changes in the nature of the Group’s - South Australia - five years to 1 May 2022 and continuing thereafter principal activities that occurred during the financial year. with termination by either party giving 12 months written notice; 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 38 to 41 of this report. Dividends A fully franked final dividend of 11.0 cents per fully paid ordinary share for the year ended 30 June 2018 was paid on 21 September 2018, and a fully franked interim dividend of 15.0 cents per fully paid ordinary share for the year ended 30 June 2018 was paid on 22 March 2019. A fully franked special dividend of 8.0 cents per fully paid ordinary share was paid on 22 May 2019. - Northern Territory - five years to 1 May 2022 and continuing thereafter with termination by either party giving 12 months written notice; and - Victoria (Fiji) - five years to 1 May 2022 and continuing thereafter with termination by either party giving 12 months written notice. The changes to Powerball in April 2018 had the expected effect of increased large jackpot activity with 27 large Powerball jackpots and a peak of $100 million compared to FY2018 of 15 and $55 million respectively. In FY2019, we have already seen three and a record $110 million. The addition of Set-for-Life to the product range occurred on 15 August 2019. The domestic internet market is currently estimated to be ~23% of the total domestic lottery market, and increasing at ~3% to ~4% On 16 August 2019, the Directors have declared to pay a fully franked p.a. (the five year CAGR to FY2019 is 21.5%). This compares to more final dividend for the financial year ended 30 June 2019 of 21.5 cents mature overseas markets such as UK and Finland where the internet per fully paid ordinary share (2018: 11.0 cents per fully paid ordinary market is estimated to have reached ~21% and ~48% respectively. share), to be paid on 20 September 2019. Further details of dividends provided for or paid are set out in note 14 and added one charity during the financial year for a current total to the Consolidated Financial Statements on page 79. of six charities, and increased sales by 27% in FY2019. At least one The Company started selling Charity lottery tickets in July 2015 State of Affairs Changes in the state of affairs are set out on page 41 and form part of the Directors’ Report for the financial year ended 30 June 2019. further charity is expected to be added in FY2020, and good growth expected to continue. The Company is well placed to continue with its medium to long term plans with confidence to grow the internet lottery business segment in Australia. Events after the reporting date Apart from (i) the licencing agreement signed with Endeavour In November 2018, the Company signed its first customer for the new Foundation, and (ii) the final dividend declared, as at the date of established Software-as-a-Service (SaaS) business segment to this Directors’ Report, the directors are not aware of any matter or licence its lottery platform and services (PBJ - PoweredByJumbo), circumstance that has arisen that has significantly affected, or may which went live in June 2019. A further customer was signed on 16 significantly affect, the operations of the Company in the financial August 2019, and the company expects to sign at least one further years subsequent to 30 June 2019. customer during FY2020. The Company sees opportunities in both the national lottery and charity lottery markets and in both Australia The above items are not recognised in the financial statements 30 and overseas, for the SaaS business segment. June 2019. Likely developments, key business strategies and future prospects The Company’s historical long, strong relationship with Tatts continues with Tabcorp following the merger of the companies in The SaaS business segment is also well placed for expected strong growth over the medium to long term. Environmental regulation The Group’s operations are not regulated by any significant December 2017. Tabcorp maintain their strategically important, environmental regulation under a law of the Commonwealth or of a substantial stake in the Company which is currently at 11.6%. State or Territory. The following lottery agreements are held with Tabcorp: - 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; 36 JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 Directors’ meetings The number of meetings of the Board of Directors (including board committees) held during the year ended 30 June 2019 and the number of meetings attended by each Director is set out in the table 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 Giovanni Rizzo 16 16 16 8 16 16 15 8 * Board meetings include Circulating Directors’ Resolutions 5 - 5 - 5 - 5 - 7 - 7 - 7 - 7 - Share options 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 18 November 2015 18 November 2020 15 November 2017 15 November 2022 $1.75 $3.50 250,000 775,000 1,025,000 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 2019, the following ordinary shares of Jumbo Interactive Limited were issued on the exercise of options granted. Number of 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. Date options granted Issue price of share shares issued On the advice of the Audit and Risk Management Committee, the Directors are satisfied that the provision of non-audit services by the auditor, as set out above, did not compromise the auditor independence requirements of the Corporations Act 2001 for the following reasons: — all non-audit services have been reviewed by the Audit 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. 13 September 2013 6 November 2013 18 November 2015 13 July 2017 15 November 2017 $4.00 $4.00 $1.75 $2.37 $3.50 400,000 150,000 50,000 3,474,492 3,675,000 7,749,492 No amounts are unpaid on these shares. During or since the financial year ended 30 June 2019, there were no options 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. Indemnifying officers or auditor During the financial year, the Company paid a premium in respect of a contract insuring directors, secretaries and executive officers of the Company and its controlled entities against a liability incurred as director, secretary or executive officer to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium. JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 37 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 53. This Directors’ Report is made in accordance with a resolution of the Directors of the Company. David K Barwick Chairman Brisbane 22 August 2019 Details of the amounts paid to BDO for non-audit services throughout the year are set out below: Consolidated 2019 $ 2018 $ Taxation services Tax compliance services - tax returns 43,000 42,000 Transfer pricing Other tax advice Total taxation services Other services Accounting advice Accounting services Total other services Total fees for non-audit services - 15,000 6,000 7,000 49,000 64,000 5,250 5,000 10,250 59,250 - 4,500 4,500 68,500 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 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 46 to 52, and forms part of the Directors’ Report for the financial year ended 30 June 2019. 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. 38 JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 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 FY2019 320,659 65,212 (2,079) 63,133 1,936 (26,850) 38,219 (11,799) 26,420 - 26,420 40,188 36,755 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 Variance % 75.1% 64.0% 2.0% 67.3% 60.9% 22.9% 123.5% 120.6% 124.8% (>100.0%) 117.9% 107.0% 126.3% The Company achieved a substantial increase in TTV and Revenue Lotteries as a result of the increased TTV. The revenue margin is due mainly to increased customer activity stemming from the affected by product mix,driven by large jackpot activity, and was release of the new software platform together with increased lower at 20.3% (2018: 21.7%). large jackpot activity (both number and average value). During the financial year, the number of new online accounts increased Cost of sales increased by $41,000 or 2.0% to $2,079,000 mainly due by 106.6% to 444,004 (2018: 214,908) and number of active online to: customers increased by 74.1% to 761,863 (2018: 437,540), while the number of large jackpots increased by 53.1% to 49 (2018: 32) and average value increased by 35.2% to $38.4 million (2018: $28.4million). The increase in expenses is largely related directly to the increase in TTV and Revenue such as customer acquisitions, electronic ID verification, and merchant fees which accounted for ~$3,767,000 of the increase. The overall increase in Net profit after tax resulted from an increase in TTV and Revenue with continued management of costs. The Company continues to invest in the three main pillars that support the ongoing growth of the Company with $4,839,000 (2018: $4,567,000) on its proprietary software platform (intangible assets), $6,956,000 (2018: $4,637,000) in marketing activities primarily to — 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 0.5ppt to 0.6% from 1.1%. Other income, being mainly interest on cash and cash equivalents, increased by $733,000 or 60.9% to $1,936,000 largely as a result of: — $604,000 or 70.1% increase in interest on cash and cash equivalents for Australia Lotteries and Corporate through higher average balances which outweighed the lower average interest rates (see note 17 (ii) for details); and — $136,000 or 52.4% increase in foreign currency gains Expenses increased by $5,011,000 or 22.9% to $26,850,000 mainly in relation to the (i) increase TTV and Revenue and (ii) increase in share acquire new and retain existing customers, and $8,731,000 (2018: activity: $8,119,000) on employees who provide the software development and marketing skills, customer support services, and management. Comparative analysis Compared to FY2018: TTV increased $137,513,000 or 75.1% to $320,659,000, principally due to: — $137,462,000 or 75.4% increase to $319,730,000 in Australia Lotteries mainly as a result of both increased customer activity and large jackpot activity. — $4,421,000 or 23.5% increase in Australia Lotteries largely from an increase in marketing costs of $2,340,000 and merchant fees $1,321,000 in administrative expenses; — $33,000 or 8.3% increase in All Other segments mainly from a decrease in administrative expenses of $36,000; and — $597,000 or 22.9% increase in Corporate principally from an increase in employee benefits of $362,000 and an increase in share registry expenses of $125,000 included in administrative expenses NPBT of continuing operations increased $21,118,000 or 123.5% to $38,219,000, principally due to: Revenue increased $25,436,000 or 64.0% to $65,212,000 due mainly — $21,455,000 or 113.2% increase in Australia Lotteries profits due to: to increased TTV and Revenue and costs which increased by — $25,385,000 or 65.3% increase to $64,282,000 in Australia 23.5%; JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 39 — an increase of $18,000 or 3.7% in All Other Segment profits from level of large jackpot activity combined to significantly increase increased TTV/Revenue and increased expenses; and revenue by 65.3% to $64,283,000 (2018: $38,897,000). Other income — $355,000 or 15.3% increase in Corporate losses mainly as a result increased by $491,000 or 53.5% mainly due to increased interest of increased Other revenue $242,000 and increased expenses revenue with higher average balances that outweighed lower $597,000. Australia Lotteries NPBT increased 113.2% or $21,455,000 due to: — increased TTV by 75.4% or $137,462,000 and Revenue and other income by 65.0% or $25,877,000 largely from improved customer activity and increased large jackpot activity; average interest rates, and foreign exchange gains. Net profit before tax increased by 113.2% to $40,403,000 (2018: $18,948,000) due to the higher customer activity and jackpot activity notwithstanding an increase in expenses of 23.3% or $4,381,000, which mainly relate directly to the increase in TTV and revenue. — increased cost of sales by 2.0% or $41,000; and TTV for the financial year increased by 75.4% to $319,730,000 (2018: — increased costs by 23.3% or $4,381,000 largely due to higher $182,268,000), which includes a 27.5% increase in charity lottery marketing expenses $2,340,000, merchant fees $1,321,000 and sales to $7,770,000 (2018: $6,092,000), 2.4% of TTV (2018: 3.3%). electronic ID verification $128,000 associated with increased TTV, and higher depreciation and amortisation of $253,000 due mainly to increased investment in the software platform. All Other Segments NPBT increased 3.8% or $18,000 due to: — increased revenue of 5.8% or $51,000; and increased costs by 8.2% or $33,000. The level of customer activity, together with large jackpot activity, are an important driver of sales. The level over the last three financial year periods 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 (KPI’s) are used to track the effectiveness of these campaigns: 1. Number of new online accounts defined by new customers creating an account in a given period. 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 Large jackpot activity FY 2019 FY 2018 FY 2017 spent by active online customers divided by the number of active TTV - Internet Lotteries Australia Reported Revenue - Internet Lotteries Australia Customer Activity Number of new online accounts Number of active online customers OzLotto/Powerball Number of jackpots1 online customers in a given period. $319.7 m $183.0 m $145.3 m 4. Cost per Lead (new online accounts) defined as total cost to $64.3 m $39.8 m $32.4 m accounts in a given period. New accounts potentially become acquire these new accounts divided by the number of new active customers after the account has been established. 444,004 214,908 161,698 761,863 437,540 354,113 The following table summarizes the Marketing KPI’s: 49 32 31 Number of new online accounts 444,004 214,908 www.ozlotteries.com and mobile apps FY 2019 FY 2018 Average Div 1 jackpot1 $38.4 m $28.4 m $24.2 m Number of active online customers 761,863 437,540 Peak Div 1 jackpot2 $100 m $55 m $55 m Average spend per active online customer $385.44 $371.13 Aggregate Div 1 jackpots2 $1,880 m $910 m $750 m Cost per lead $13.81 $17.28 1Ozlotto/Powerball Division 1 jackpots of $15 million or more 2during the financial year period The increased level of large jackpot activity (number and average value) in the current financial year has contributed to higher TTV and revenue. Although costs increased by 22.9%, this was largely related to the increased TTV and Revenue - costs continue to be closely managed. The higher TTV and revenue is the main reason for an increase in profits. Segment review (a) Online Lottery Segment The 106.6% increase in new online accounts and 74.1% increase in active online customers are due mainly to the release of the new software platform. This enabled increased marketing activity on the back of a substantial increase in large jackpot activity (53.1% higher in number and 35.2% higher in average value) and re-engagement of existing customers. The 3.9% increase in average spend is largely due to the increase in large jackpot activity charity lottery sales growth. The 20.1% decrease in CPL is mostly due to the marketing mix and increased interest generated by the higher large jackpot activity. With the operation in Germany discontinued March 2017, this (b) All Other Segments segment now consists of Australia and Mexico, and Mexico’s results are included in those of Australia due to the minimal activity and no meaningful opportunities in the foreseeable future. This segment consists of the sale of non-lottery products and services. TTV and Revenue and other income increased to $929,000 (2018: $878,000) and net profit before tax increased to $494,000 (2018: $476,000), due to increased revenue and lower expenses. Australia Improved customer activity (increased new customers and engagement with existing customers) together with the higher (c) Corporate The net loss increased by 15.3% or $355,000 to NLBT $2,678,000 (2018: NLBT $2,323,000) mainly due to increased administration 40 JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 expenses $626,000 or 24.4% largely from increased employee benefits in salaries and share-based payments from the exercise of staff options during the financial year, increased share registry related expenses from increased share register activity and market capitalisation, and increased directors’ remuneration with the appointment of a further director on 1 January 2019, partly offset by increased revenue of 84.7% or $242,000 from higher average balances that outweighed lower average interest rates. Summary of results The annual comparison of results of the Company for the past five years is summarised below: Revenue/profits ($’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 ($’000) Return on capital employed (%) – overall operations Return on capital employed (%) – continuing operations Return on capital employed (%) – discontinued opera- tions FY2019 320,659 65,212 26,420 26,420 - 40,188 36,755 FY2019 84,583 77,378 61,780 34.1 34.1 - FY2018 183,146 39,775 12,127 11,753 374 19,415 16,241 FY2018 47,919 47,211 33,124 25.7 24.9 0.8 FY2017 145,322 32,429 5,640 7,597 (1,957) 14,094 10,463 FY2017 43,320 42,900 30,484 13.1 17.7 (4.6) FY2016 153,302 34,083 4,670 7,323 (2,653) 13,717 10,073 FY2016 25,306 24,696 12,949 18.9 29.6 (10.7) FY2015 128,464 29,076 663 4,274 (3,611) 8,314 5,433 FY2015 23,778 21,681 11,639 3.1 19.7 (16.6) 1includes cash held under term deposit and customer account balances payable (refer note 7: Cash and Cash Equivalents and Note 11: Trade and Other Payables for details) Share price Earnings per share (cps) Dividends paid per share (cps) Share price at financial year end (cps) Total shareholder return (%) Shares on issue (million) Market capitalisation ($’million) FY2019 FY2018 FY2017 FY2016 FY2015 43.9 34.0 2015.0 309.8 62.1 1,251.8 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 Financial position The net assets of the Group have increased by $30,167,000 from 30 Non-current assets increased by $1,687,000 to $16,126,000 due mainly to the investment in the software platform. June 2018 to $77,378,000. The Group’s working capital, being current assets less current expand and grow its current operations. The Directors believe the Group is in a sound financial position to liabilities, has increased from $33,236,000 in 2018 to $61,870,000 in 2019 mainly as a result of increased cash and cash equivalents of $36,664,000. $23,385,000 of this increase came from share issues on exercise of options. JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 41 Significant changes in State of Affairs Significant changes in the state of affairs of the Group for the financial year were as follows: (a) Increase in contributed equity of $23,385,000 resulting from: – Issue of 7,749,492 shares as a result of an exercise of options (see note 15 for details) (b) Increase in cash of $36,664,000 resulting from: – Cash raised from the issue of contributed equity in (a) above – Other activities (see Cash Flow Statement for details) $’000 23,385 23,385 $’000 23,385 13,279 36,664 (c) Increase in non-current assets of $1,687,000 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 1,570 117 1,687 42 JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 Remuneration Report Letter from the Chairman of the Nomination and Remuneration Committee Dear Shareholder, On behalf of the Board of Directors and the Nomination and Remuneration Committee, I am pleased to present our Remuneration Report for the year ended 30 June 2019. A: FY2019 executive remuneration outcomes Fixed remuneration for Executives did not change during the financial year. Short term cash incentives of $773,355 became payable to Executives based on the achievement of financial and non- financial KPIs set at the start of the financial year by the Nomination and Remuneration Committee which represents an average achievement of 86% of target for the year. Jumbo has enjoyed a phenomenal year of growth in FY2019 with The Nomination and Remuneration Committee did not award any our market capitalisation growing to $1.2 billion at year end resulting discretionary options to Executives as the Executives are being in our admittance to the ASX300 index for the first time. We have moved on to the new remuneration framework. successfully entered into a new business segment of offering software as a service (SaaS) to licenced lottery operators which will assist in delivering one of our strategic objectives of diversifying our revenue stream into the future, and we continue to explore opportunities in the USA, UK and Canada, all the while ensuring that our core business in Australia continues to deliver record growth. This growth together with our admittance to the ASX300 index As at 30 June 2019, 800,000 options remain vested and exercisable to Executives as part of discretionary awards issued in prior financial years. B: New Remuneration Framework The new remuneration framework is made up of 4 key elements: has resulted in the Board taking the decision to re-design our — 50% of Executive remuneration is paid as a Base Salary and remuneration approach for FY2020 and beyond. The objectives of Superannuation. The base salary is benchmarked at the 25th our new remuneration approach are: percentile of a group of peer companies based on market capitalisation which is reviewed annually; — to make the remuneration approach and outcomes easier to — 25% of Executive remuneration is payable as a Short-Term understand and more transparent to shareholders; Incentive (STI) made up of 50% cash and 50% restricted equity — to strengthen alignment of remuneration with our strategic vision, with a formal clawback mechanism; with its unique challenges and opportunities, to create long-term — 25% of Executive remuneration is payable as a Long-Term shareholder value; Incentive (LTI) made up of 100% restricted equity with a formal — to attract, motivate and retain the talent that we require to clawback mechanism; succeed in the long-term; and, — to create a maximum remuneration opportunity for senior Executives that rewards them with both cash and locked-in — Implementation of a formal minimum shareholding requirement for Executives based on 100% of the Total Potential Executive Remuneration Opportunity which reinforces the alignment equity that ensures strategic decisions are focused on delivering between the Executive team and shareholders. long-term value rather than short-term outcomes. One of the key outcomes of this new remuneration framework is the abolition of discretionary options and the implementation of short-term and long-term awards directly linked to financial and operational performance of the business and the delivery of increased shareholder wealth over the medium to long-term. A further key outcome is the introduction of a formal clawback mechanism which enables the Board to make a determination to claw back equity issued to Executives in the event of material misstatement of financial information, fraud, misconduct or breach of duties. We believe that our new remuneration approach will improve the alignment between strategic business objectives, shareholder returns and senior Executive remuneration. We are however acutely aware that this new remuneration approach may need to evolve as the business continues to grow and as such we will actively engage with shareholders, proxy advisors and remuneration consultants and consider their valued feedback. Before providing a comprehensive overview of the new remuneration framework to be applied to Executives from 1 July 2019, below is a summary of the FY2019 remuneration outcomes for the Jumbo Executive team. JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 43 Total Remuneration Opportunity (TRO) Fixed remuneration (50% of TRO) Short-term Incentive (25% of TRO and subject to financial/operational hurdles) 50% of STI deferred into restricted rights/shares (1-year time-based restriction + 1 year lock-up period) Grant of Rights Payment of 50% cash STI Vesting of Rights One-year performance period Two-year restriction period Long-term Incentive (25% of TRO and subject to long term share price growth) Performance Hurdle 100% of LTI held as restricted rights (Qualification price performance hurdle - 100% weighting = Cliff Vesting) Exercise period to exercise vested perfomance rights Three-year performance period 1 Jul 2019 30 Jun 2020 30 Jun 2021 30 Jun 2022 30 Jun 2023 a. Benchmark Peer Group The starting point of the remuneration review into Executives knowledge, experience and skills, the magnitude of the responsibilities and complexities associated with the role and peer consisted of identifying a peer group of companies against which benchmarks. Benchmarking will be set at the 25th percentile of the Jumbo could be benchmarked to set an applicable level of Total Jumbo benchmark peer group. Remuneration Opportunity for Executives going forward. The Nomination and Remuneration Committee’s objective in total remuneration package payable to an Executive to ensure that remuneration is to support the delivery of business outcomes that the entire remuneration package is fair and competitive. grow shareholder value through protecting the core Australian national lottery business while continuing to explore value accretive business opportunities both domestically and internationally that c. Short-Term Incentive (STI) Short-term awards made to Executives will comprise 25% of the will successfully diversify our revenue stream. To fulfil this objective, Total Remuneration Opportunity and represents two elements: Fixed remuneration will always be considered in the context of the we need to ensure that we can attract and retain Executives who can execute on this strategy. — 50% of the total STI will be payable as a cash incentive payable as per the normal incentive payment cycle A peer group of 56 companies within the ASX300 index was — The remaining 50% of the total STI will be payable as restricted selected as the benchmark group. This group is based on a rights to shares payable on the achievement of a 2-year time- 12-month average market capitalisation within 50% to 200% of based hurdle and subject to formal claw back provisions Jumbo’s market capitalisation of $960 million at 31 December 2018. At a market capitalisation of $960 million Jumbo falls in the 25th percentile of the peer group while at a market capitalisation at 30 June 2019 of $1.2 billion Jumbo falls at the median of the peer group. Based on the data from this benchmark peer group together with referencing data from our independent remuneration consultants, role complexity, and scope and availability of similar qualified executives in the domestic market, the Total Remuneration Opportunity for each Executive will be targeted at the 25th percentile of executive remuneration of this benchmark group. b. Guaranteed Base Salary and Superannuation The fixed remuneration of Executives will consist of the cash salary, statutory superannuation contributions and other employee-elected salary sacrificed benefits. Fixed remuneration will be set with reference to the Executive’s 44 JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 Short-term Incentive (25% of TRO and subject to financial/operational hurdles) 50% of STI deferred into restricted rights/shares (1-year time-based restriction + 1 year lock-up period) One-year performance period Two-year restriction period Grant of Rights Payment of 50% cash STI Vesting of Rights 1 Jul 2019 30 Jun 2020 30 Jun 2021 30 Jun 2022 Two hurdle groups will be used to determine the achievement of the — For every 1% of NPAT growth between 5.0% to 10.0% NPAT growth total STI opportunity. The first hurdle (which represents 50% of the over the prior financial year, 0.5% of NPAT will be allocated to the total STI opportunity) will be tied to Jumbo’s financial performance STI pool; based on achievement of the STI Incentive Pool (refer below). This — For every 1% of NPAT growth between 10.0% to 20.0% NPAT incentive is referred to as the Financial STI. The second hurdle (representing the remaining 50% of the total STI opportunity) growth over the prior financial year, 0.25% of NPAT will be allocated to the STI pool; will be based on the achievement of annually defined KPIs for — Total organisational pool size will be capped at 5% of annual the Executive. These KPIs will focus on areas such as business NPAT. acquisitions, non-organic revenue growth and other critical business measures. This incentive is referred to as the Operational STI. In terms of the STI awarded as rights, the Executive’s rights vest on a calculation schedule of receiving between 0% to 100% of their and convert into shares after a 12-month time based qualifying maximum potential Financial STI opportunity depending on the period. The sale of these shares is restricted for a further 12 months, level of NPAT profit growth achieved between 6% to 20%. As an resulting in a total two-year lock-up period. Executives will have example, if the total NPAT growth for a financial year comes in at full entitlement to dividends and voting rights during the 12-month 12%, then the Executive will receive 60% of their maximum Financial lock-up period. STI potential. Each Executive’s share of the total STI pool created will be based The number of rights to be issued will be based on the 10-day VWAP of the Jumbo share price for the period up to 30 June of each year. Setting the annual STI Pool: The Nomination and Remuneration Committee will set an d. Long-Term Incentive (LTI) Long-term equity awards made to Executives will comprise 25% of total remuneration opportunity and represents the at-risk, long-term equity component of the Executives remuneration package. organisational total financial STI pool before the start of the Equity awards will take the form of rights granted at face value financial year based on growth from the prior financial year. This rather than options at fair value. This ensures that shareholders financial STI pool will be formed as follows: clearly understand the actual cost of remuneration of Executives on an annual basis rather than the opaque nature that options present. Grant of Rights Vesting of Rights Long-term Incentive (25% of TRO and subject to long term share price growth) Performance Hurdle 100% of LTI held as restricted rights (Qualification price performance hurdle - 100% weighting = Cliff Vesting) Exercise period to exercise vested perfomance rights Three-year performance period 1 Jul 2019 30 Jun 2020 30 Jun 2021 30 Jun 2022 30 Jun 2023 JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 45 Allocation of rights: Each Executive will receive an annual grant of rights to a dollar Our independent remuneration consultants (E&Y) provided the Nomination and Remuneration Committee with a comparative value equal to 25% of their Total Remuneration Opportunity with the benchmarking analysis on non-executive director fees. number of rights based on the 10-day VWAP period up to 30 June of each year. Based on this analysis using a peer group of 56 ASX listed companies with a 12-month average market capitalisation within The rights are exercisable into shares three years after grant and 50% to 200% of Jumbo’s market capitalisation of $960 million at achievement of the price performance hurdle. 31 December 2018, Non-Executive Director fees currently paid to Director’s were found to be significantly below the peer group. At a market capitalisation of $960 million Jumbo falls in the 25th percentile of the peer group while at a market capitalisation at 30 June 2019 of $1.2 billion Jumbo falls at the median of the peer group. The Nomination and Remuneration Committee recommended an increase in fees based on this benchmarking analysis together with the increased complexity and time required to fulfil director roles. The new fees will be benchmarked at the 25th percentile of the peer group and be subject to shareholder approval at the Annual General Meeting. Due to the proposed increase in fees, and to allow for an increase in the size of the Board, the Nomination and Remuneration Committee has also recommended an increase in the aggregate Non-Executive Director pool fee limit to $750,000 per annum. Qualification price performance hurdle: To qualify for the LTI equity award, the Jumbo share price must outperform the historical growth rate of the ASX ‘total return’ All Ordinaries index (XAOA:ASX) in order for the rights award to vest. If the JIN share price does not outperform the ASX All Ordinaries growth hurdle set, no vesting occurs even if Jumbo has outperformed its peers. By avoiding relative hurdles, which often deliver returns to traditional LTI plan participants simply when poor performance exceeds even poorer performance within a peer group, wealth is created for both shareholders and Executives as a result of the increase in Jumbo’s value as a company. Using this methodology, Jumbo’s share price performance hurdle will be determined in three steps: — First, the ‘total return’ will be based on the 15-year average return of the ASX All Ordinaries Total Return Index (XAOA:ASX); — Second, the ‘return’ will be multiplied over a 3-year performance period on a compound basis and applied to Jumbo’s 90-day VWAP at the effective date to create the qualification price performance hurdle; — Dividends declared by Jumbo over the three-year performance period will be added to the closing performance price to Board Fees — Chairman — Member determine if the qualification price performance hurdle is Audit and Risk Committee Fees: achieved. — Chairman — Member Using this LTI methodology, Jumbo’s share price (inclusive of dividends paid or declared) must outperform the historical growth rate of the Australian share market, on a total return basis, in order for rights to vest. As such, Executives are rewarded for the creation of long-term wealth for Shareholders that exceeds the performance of both peer companies and the broader share market. Furthermore, the concept of cliff-vesting, i.e. Executives receiving all or nothing relating to LTI awards, creates an environment where Executives are only rewarded if Shareholders experience capital growth and therefore wealth creation and aligns with the objective of ensuring that our remuneration framework is transparent and easy to understand which is not always evident in existing LTI schemes. e. Minimum shareholding requirement (MSR) Executives will also be required to maintain an MSR. This will further Nomination and Remuneration Committee: — Chairman — Member We look forward to engaging with Shareholders and Proxy Advisors in the next few months prior to our Annual General Meeting and will consider all valued feedback regarding the changes made to our Remuneration Framework. However, we remain confident that Shareholders and Proxy Advisors will recognise the benefits of our Remuneration Framework and understand the objectives we are aiming to achieve. Giovanni Rizzo Chair of the Nomination and Remuneration Committee $ 188,000 100,000 15,000 10,000 15,000 10,000 align Executives to shareholders and focus Executives decision 22 August 2019 making on creating long-term shareholder value. The MSR will be set at 100% of total annual remuneration and Executives will be given a 5-year period to achieve this level if not already reached. C: Non-Executive Director Remuneration The final part of the review into the Jumbo remuneration framework related to the remuneration payable to Non-Executive Directors. 46 JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 Remuneration Report – audited them for performance that results in long term growth in shareholder wealth. Contents Section Contents 1 2 3 4 5 6 7 8 9 10 11 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 Other transactions and balances Employment contracts Page 46 46 47 49 49 50 50 50 51 52 52 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 2019 is set out Refer below for further details of performance based remuneration. KMP are also entitled to participate in the employee share option arrangements. The directors and KMP receive a superannuation guarantee contribution required by the government, which is currently 9.50% and do not receive any other retirement benefits. Some individuals, however, may choose to sacrifice part of their salary to increase payments towards superannuation. All remuneration paid to directors and KMP is valued at the cost to the Company and expensed. Options are valued using the Black- Scholes Binomial and Monte Carlo Simulation methodologies. The mix of total potential remuneration for FY2019 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 per the above Contents. The information in the Report has been audited. contributions to superannuation funds. Compensation levels are reviewed annually by the Board through a process that considers 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: 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 11: 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. — Performance incentives are generally only paid once Non-Executive Directors The Board policy is to remunerate non-executive Directors at 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 be justified by reference to measurable performance criteria. The policy is designed to attract the highest calibre of KMP and reward of fees that can be paid to non-executive directors is subject to approval by shareholders at the Annual General Meeting. The total compensation for all non-executive Directors, last voted upon by shareholders at the 2009 AGM, is not to exceed $250,000 per annum and is set with reference to other non-executive Directors of comparable companies. Fees for non-executive Directors are not linked to the performance of the Group. JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 47 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 Chair of Audit and Risk Management Committee Chair of Nomination and Remuneration Committee Membership of Audit and Risk Management Committee Membership of Nomination and Remuneration Committee $96,360 $68,985 $15,000 $12,500 $10,000 Performance conditions linked to remuneration The Group seeks to emphasise reward incentives for results and continued commitment to the Group through the provision of various “at risk” cash bonus reward schemes. Short term incentive bonus Incentive payments are based on the achievement of financial targets of profit, return on equity and total shareholder return and $7,500 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 based component, consisting of key performance indicators (KPI). The intention of this program is to facilitate goal congruence between executives with that of the business and shareholders. These KPI are set annually, with a certain level of consultation with KMP to ensure buy-in. The KPI target areas the Board believes hold greater potential for group expansion and profit, covering both financial and non-financial as well as short and long-term goals. The level set for each KPI is based on a combination of an 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 desired and actual outcomes, and their efficacy is assessed in relation to the Group’s goals and shareholder wealth before the KPI are set for the following year. agreements both domestically and internationally. Payments of incentives for the 2019 financial year result were based on the Group’s overall financial performance (with some KPIs being achieved). Long term incentive bonus Options are issued to KMP as part of their remuneration at the discretion of the Board. These options are not issued based upon performance criteria, but are issued to increase goal congruence between KMP, directors and shareholders. Company Performance, Shareholder Wealth, and Directors’ and KMP Remuneration The following table shows the total transaction value and profit/ (loss) for the last five years for the listed entity, as well as the share price at the end of the respective financial years. Analysis of the figures show: TTV continuing operations ($’000s) $320,659 $183,146 $145,322 $153,302 $128,404 FY 2019 FY 2018 FY 2017 FY 2016 FY 2015 Net profit after tax – continuing operations ($’000s) Net profit after tax – overall operations ($’000s) Share price at year end (cps) Dividends paid per share (cps) Total shareholder return (%) Earnings per share (cps) Return of capital employed (%) Market capitalisation ($‘000s) $26,420 $26,420 2015 34.0 309.8% 43.9 34.1% $11,753 $12,127 500 35.5 101.3% 23.4 25.7% $7,597 $5,640 266 8.5 111.2% 12.6 13.1% $7,323 $4,670 130 3.5 57.1% 10.6 18.9% $5,433 $663 85 3.0 (32.3%) 1.5 3.1% $1,251,794 $271,871 $134,793 $57,284 $37,572 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 Giovanni Rizzo Executive KMP Mike Veverka David Todd Chairman, Independent Non-Executive Director 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 48 JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 Details of Remuneration Details of compensation of KMP of Jumbo are set out below: 2019 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 Giovanni Rizzo2 Other KMP David Todd $ 110,500 $ - 489,122 299,280 83,625 26,353 26,250 - - - 263,846 158,025 Xavier Bergade 260,075 158,025 Brad Board 262,976 158,025 Total KMP remuneration 1,522,747 773,355 $ $ - - - - - - - - - 10,497 49,095 7,944 - 2,494 38,287 38,287 37,213 183,817 $ - 7,251 - - - 4,084 4,084 3,896 19,315 $ - - - - - - - - - $ - $ 120,977 % - 470,343 1,315,091 22.8 - - - 91,569 26,353 28,744 231,342 695,584 145,572 606,043 87,626 549,736 934,883 3,434,117 - - - 22.7 26.1 28.7 1 includes share based payments over the remaining term on those options exercised, if any, during the financial year 2appointed a non-executuve director on 1 January 2019 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 JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 49 4. Cash bonuses No cash bonuses were paid at the discretion of the Nomination and Performace measures apply to all participants with slightly differenc Remuneration Committee. individual weightings. Details of these short-term incentives Key management personnel are entitled to a short-term cash incentive as ‘at risk’ remuneration based on performance criteria described in section (a) to this Remuneration Report. These were paid out on 22 August 2019. recognised as remuneration, forfeited or available for vesting in later years is outlined below: 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 69,600 348,000 271,440 36,750 36,750 36,750 183,750 183,750 183,750 143,325 143,325 143,325 $ 27,840 14,700 14,700 14,700 $ 299,280 158,025 158,025 158,025 $ 6,960 3,675 3,675 3,675 $ 41,760 22,050 22,050 22,050 Total $ 48,720 25,725 25,725 25,725 5. Options and rights granted as remuneration Options are issued to key management personnel as part of their remuneration at the discretion of the Board. The options are not necessarily issued based upon performance criteria, but are issued to selected executives of the Company and its subsidiaries to increase goal congruence between executives, directors and shareholders. 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 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. There were no options and rights granted to key management personnel as compensation during the reporting period. 50 JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 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 2019 Directors Mike Veverka Other key management personnel David Todd Xavier Bergade Brad Board 1,950,000 1,950,000 875,000 650,000 325,000 1,850,000 1,950,000 1,950,000 875,000 650,000 325,000 1,850,000 $3.538 $3.50 $3.769 $3.50 - - - - 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 $ 652,142 292,668 159,764 108,705 $ 13,964,500 3,710,250 2,673,400 1,180,000 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. JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 51 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: FY2019 Balance at 1 Granted as Exercised Other Balance Vested at 30 Total vested Total vested July 2018 remunera- during the changes at 30 June June 2019 and exercis- and unexer- tion during the year year during the 2019 able at 30 cisable at 30 June 2019 June 2019 Mike Veverka 1,950,000 David Todd 900,000 Xavier Bergade 1,400,000 Brad Board 350,000 4,600,000 - - - - - (1,950,000) (875,000) (650,000) (325,000) (3,800,000) year - - - - - - - - 25,000 25,000 25,000 750,000 750,000 750,000 25,000 25,000 25,000 800,000 800,000 800,000 - - - - - 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: FY2019 Mike Veverka David Todd Xavier Bergade Brad Board Balance at 1 July 2018 9,851,027 20,000 300,000 10,000 10,181,027 Granted as Issued on exercise remuneration during the year of options during the year Other changes during the year1 - - - - - 1,950,000 875,000 650,000 325,000 3,800,000 (2,144,179) (845,000) (800,000) (325,000) (4,114,179) Balance at 30 June 2019 9,656,848 50,000 150,000 10,000 9,866,848 1these were mainly on-market sale of the shares that were issued on exercise of options during the year 52 JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 10. 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 2019 $ 2018 $ 7,865 715 8,580 2,145 Salary and superannuation 84,315 82,462 11. 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 FY20191 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. 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 LIMITED 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: 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. This declaration is in respect of Jumbo Interactive Limited and the entities it controlled during the period. K L Colyer Director BDO Audit Pty Ltd Brisbane, 24 August 2017 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. 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 2019 53 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 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. 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. K L Colyer Director K L Colyer Director BDO Audit Pty Ltd BDO Audit Pty Ltd Brisbane, 24 August 2017 Brisbane, 23 August 2018 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. 54 JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 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 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 Governance Council’s Principles and Recommendations 3rd Edition candidates become available: (2014), 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 Group Diversity readers are welcome to refer to them. The Board will keep its Women on the board corporate governance practices under review. 1. Lay solid foundations for management and oversight The Council’s first Principle states that companies should “establish and disclose the respective roles and responsibilities of its board and management and how their performance is monitored and evaluated.” Jumbo has adopted a formal Board Charter that sets out the functions reserved to the Board and those delegated to the 2019 Actual 2022 Objective No. - 1 41 % - 20 31 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 133 100 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 2017-18 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. JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 55 2. Structure the Board to add value In its second Principle the Council states that companies should The qualifications, experience and relevant expertise of each Board member and their terms in office are set out in the Directors’ Report “have a board of an appropriate size, composition, skills and section of the Company’s Annual Report. All Directors, apart from commitment to enable it to discharge its duties effectively.” Jumbo’s the CEO, are subject to re-election by rotation at least every three Board is so structured, and its Directors effectively discharge their years at the Company’s annual general meeting. responsibilities and duties for the benefit of shareholders. The Board’s view is that an independent Director is a non-executive The Board presently comprises three Non-Executive Directors Director who does not have a relationship affecting independence (David Barwick, Chairman, having served 12 years since being on the basis set out in the Council’s guidelines and meets materiality appointed a Director 30 August 2006, Bill Lyne, also the Company thresholds agreed by the Board as equating to payments to them Secretary, having served eight years since being appointed 30 or related parties of 5% of the Company’s annual revenue. The October 2009), and Giovanni Rizzo, appointed 1 January 2019 Board considers that David Barwick, notwithstanding that he has and the Chief Executive Officer (Mike Veverka). Fundamental now served in the position of director for more than 10 years, Bill requirements for Jumbo Directors are a deep understanding of Lyne, and Giovanni Rizzo all meet this criterion. On the other hand, business management and financial markets and such experience, Mike Veverka is considered to not be independent because he is a complemented where possible with industry knowledge, are substantial shareholder in Jumbo (i.e. holds more than 5% as defined desirable attributes for Board membership. All Board members in Section 9 of the Corporations Act) and is an executive officer meet the fundamental requirements, and bring a diverse range of the Company. Consequently, the current structure meets the of skills and backgrounds. Additionally, Mr Veverka has had a Council’s recommendation that the majority of the Board should be very long involvement in key sections of the Company and brings independent, and the Board also considers the current composition considerable relevant expertise and knowledge to the Board. is appropriate given the Company’s and the Directors’ backgrounds and the current and foreseeable structure and size of the Company. 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. The Jumbo Board has established a Nomination and Remuneration The rating scale used for level of importance and recruitment 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. 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. At the present time it has three members, being the Non-Executive Directors, Giovanni 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 4 0 0 2 2 0 0 4 1 1 2 1 1 1 2 2 1 2 1 1 2 1 2 1 2 2 1 56 JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 Rizzo (as the Chair), David Barwick and Bill Lyne, all of whom The Board will ensure that restrictions on dealings in securities are are independent and have relevant experience and appropriate strictly enforced. 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. 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 and present a true and fair view, in all material respects, of the 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 and Risk Management Committee’s Charter requires it to have three non-executive Directors, with a majority being independent. Currently, it has only three members, being the non-executive Directors, Bill Lyne (as the Chair), David Barwick, and Giovanni Rizzo, all of whom are independent and 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. 3. Act ethically and responsibly In Principle 3 the Council states that companies should “act ethically and responsibly”. To this end, Jumbo has formally adopted a Code of Conduct covering its Directors, officers and employees. The Code is based on respect for the law and acting accordingly, dealing with conflicts of interest appropriately, and ethical matters such as acting with integrity, exercising due care and diligence in fulfilling duties, acting in the best interests of the Company and respecting the confidentiality of all sensitive corporate information. If a Director or officer becomes aware of unlawful or unethical behaviour by anyone in the Company then he is obliged under the Code to report such activities to the Chairman. The Board has also approved a Whistleblower Policy pursuant to which employees who have genuine suspicions about improper conduct feel safe to report it without fear of reprisal. In addition, Directors recognise the legal obligations relevant to their role and the reasonable expectations of shareholders, other stakeholders and the wider financial community. Jumbo also has a documented Share Trading Policy for Directors, key management personnel and other staff and consultants. The policy prohibits Directors and other persons from dealing in the Company’s securities during stated ‘closed’ and ‘prohibited’ periods and whilst in possession of price sensitive information. Otherwise, those persons may generally deal in securities during stated ‘trading windows’ and at other times provided they obtain the prior consent of the Board Chairman (or, in the case of the Chairman himself, from the Chair of the Audit and Risk Management Committee). JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 57 5. Make timely and balanced disclosure In this Principle the Council states that companies should “make management through Board approved guidelines. Some of these measures include formal authority limits for management to operate timely and balanced disclosure of material matters concerning the within, policies on treasury-related risk management, an information company that a reasonable person would expect to have a material technology plan and a business continuity plan. The CEO reports effect on the price or value of its securities.” Jumbo is committed to to the Board on any departures from policy or matters of concern the promotion of investor confidence by ensuring that trading in the that might be seen as or become material business risks. Periodic Company’s securities takes place in an informed market. Also to reviews evaluate and continually improve the effectiveness of risk assist compliance with continuous disclosure requirements under management and internal control processes. 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, 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 In addition, all changes in Directors’ interests in the Company’s financial reporting risks. securities are promptly reported to the ASX in compliance with Section 205G of the Corporations Act and the ASX Listing Rules. The Board considers that the Company does not have any material exposure to economic, environmental and social sustainability The Company’s Annual Report is also used to keep investors risks which require active management. However, as the Company informed, particularly in its review of operations and activities. operates in an environment where some sectors of the community 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. 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. jumbointeractive.com, which provides access to all recent ASX announcements, shareholder updates, boardroom broadcasts, 8. Remunerate fairly and responsibly The Council’s final Principle states that companies should “pay notices of meetings, explanatory memoranda, annual reports and director remuneration sufficient to attract and retain high quality key contact details, as well as comprehensive information about the directors and design executive remuneration to attract, retain and Company and its products and operations. Shareholders and other motivate high quality senior executives and align their interests interested parties may sign up to receive email notification of all ASX releases and other important announcements. with the creation of value for shareholders”. To this end the Board has established during the year a Nomination and Remuneration Company general meetings also present a good opportunity for 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, Committee, as noted above under Principle 2. 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 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. 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. A proposal to change the non-executive Directors’ remuneration will be submitted at the 2019 AGM. The Company does not presently have a separate internal audit function due to its relatively less complex financial and organisational structures, but this is currently being reviewed. The CEO and senior executives have operational responsibility for risk 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 58 JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 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, including proposed changes to non-executive Director and KMP remuneration for the 2020 financial year period. There are no separate retirement benefits for non-executive Directors, other than statutory superannuation. Approved by the Board – 22 August 2019 JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 59 Financial Report For the year ended 30 June 2019 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 60 Page 61 Page 62 Page 64 Page 65 Page 65 Results for the year Operating assets and Capital and financial Group structure Other information Unrecognised items Page 66 liabilities Page 72 risk management Page 78 Page 84 Page 87 Page 93 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 95 Page 96 Page 100 Page 102 60 JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 Jumbo Interactive Limited and its Controlled Subsidiaries Consolidated Statement Of Profit Or Loss And Other Comprehensive Income For the year ended 30 June 2019 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 Note 2 3 2 3 4 6 2019 $’000 65,212 (2,079) 63,133 1,936 (28) (6,956) (742) (19,117) (7) 38,219 (11,799) 26,420 - 2018 $’000 39,775 (2,038) 37,737 1,203 (28) (4,637) (887) (16,280) (7) 17,101 (5,348) 11,753 374 Profit/(loss) after income tax expense for the year attributable to the owners of Jumbo Interactive Limited 26,420 12,127 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 (6) - (6) (3) (374) (377) Total comprehensive income for the year attributable to the owners of Jumbo Interactive Limited 26,414 11,750 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) ¢ 43.9 42.5 43.9 42.5 - - ¢ 23.4 22.6 22.7 21.9 0.7 0.7 5 5 5 5 5 5 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 2019 61 Jumbo Interactive Limited and its Controlled Subsidiaries Consolidated Statement Of Financial Position As at 30 June 2019 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 2019 $’000 2018 $’000 7 8 9 10 4 11 4 12 12 4 15 84,583 47,919 922 31 509 57 85,536 48,485 451 14,683 992 16,126 101,662 280 13,113 1,046 14,439 62,924 22,070 14,346 1,258 338 594 309 23,666 15,249 517 24 77 618 24,284 77,378 79,302 (17,399) 15,103 372 77,378 368 24 72 464 15,713 47,211 55,917 (17,399) 9,364 (671) 47,211 The above Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes. 62 JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 Jumbo Interactive Limited and its Controlled Subsidiaries Consolidated Statement Of Changes In Equity For the year ended 30 June 2019 Contributed equity CONSOLIDATED GROUP Balance at 1 July 2017 Total comprehensive income for the year Profit/(loss) for the year Other comprehensive income, net of tax 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 Total comprehensive income for the year Profit/(loss) for the year Other comprehensive income, net of tax 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 2019 $’000 45,492 - - - 10,425 - - 10,425 55,917 - - - 23,385 - - 23,385 79,302 Accumulated Profits appropriation losses $’000 (17,399) - - - - - - - (17,399) - - - - - - - (17,399) reserve $’000 15,745 12,127 - 12,127 - (18,508) - (18,508) 9,364 26,420 - 26,420 - (20,681) - (20,681) 15,103 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 Financial assets at fair value through other comprehen- sive income reserve $’000 (2,302) (2,302) - - - - - - - - - - - - - - $’000 304 (377) (377) - - - - - - - - - (73) - (6) (6) (79) (2,302) $’000 1,060 - - - - - - - - - - 644 644 1,704 1,049 1,049 2,753 $’000 42,900 12,127 (377) 11,750 10,425 (18,508) 644 (7,439) 47,211 26,420 (6) 26,414 23,385 (20,681) 1,049 3,753 77,378 JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 63 Jumbo Interactive Limited and its Controlled Subsidiaries Consolidated Statement Of Changes In Equity For the year ended 30 June 2019 CONSOLIDATED GROUP Balance at 1 July 2017 Total comprehensive income for the year Profit/(loss) for the year Other comprehensive income, net of tax 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 Total comprehensive income for the year Profit/(loss) for the year Other comprehensive income, net of tax 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 2019 Total transactions with owners in their capacity as owners losses $’000 (17,399) (17,399) - - - - - - - - - - - - - - (17,399) $’000 45,492 10,425 10,425 55,917 23,385 23,385 79,302 - - - - - - - - - - reserve $’000 15,745 12,127 12,127 (18,508) (18,508) 9,364 26,420 26,420 (20,681) (20,681) 15,103 - - - - - - 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 1,060 - - - - - 644 644 1,704 - - - - - 1,049 1,049 2,753 $’000 304 - (377) (377) - - - - (73) - (6) (6) - - - - (79) Financial assets at fair value through other comprehen- sive income reserve $’000 (2,302) - - - - - - - (2,302) - - - - - - - (2,302) Total equity $’000 42,900 12,127 (377) 11,750 10,425 (18,508) 644 (7,439) 47,211 26,420 (6) 26,414 23,385 (20,681) 1,049 3,753 77,378 64 JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 Jumbo Interactive Limited and its Controlled Subsidiaries Consolidated Statement Of Cash Flows For the year ended 30 June 2019 Note 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 7(b) CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from repayment of loan to related party Payments for property, plant and equipment Payments for intangibles 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 15 14 7(a) The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes. 2019 $’000 71,556 (22,800) 1,463 (7) 85 (11,161) 39,136 - (353) (4,824) 3 (5,174) 23,385 (20,681) 2,704 36,666 (2) 47,919 84,583 2018 $’000 43,666 (22,200) 860 (7) 242 (5,312) 17,249 100 (96) (4,571) 1 (4,566) 10,425 (18,508) (8,083) 4,600 (1) 43,320 47,919 JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 65 Jumbo Interactive Limited and its Subsidiaries Notes To The Consolidated Financial Statements For the year ended 30 June 2019 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 22 August 2019. 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 75 75 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 — Have been prepared under the historical cost convention — Are presented in Australian dollars (A$), with all amounts in the financial report being rounded off in accordance with the Key events and transactions for reporting period The financial position and performance of the Group was particularly affected by the following events and transactions during the reporting period: 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 options and resultant increase in cash (see note 15 for dollars, unless otherwise indicated details); and — Where necessary, comparative information has been restated to 3. Payment of dividends (see Directors’ Report and note 14 for conform with changes in presentation, in the current year 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 2018 — 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 66 JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 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 67 Page 68 Page 69 Page 69 Page 70 Page 71 JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 67 Note 1: Segment information Jumbo determines and presents operating segments on a product Other Business activities which are not reportable in terms of AASB 8, which are currently the online sale of an internally developed and a geographic basis as this is how the results are reported proprietary payroll software system. 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 2018 are stated on this basis. 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 (a) Description of segments projects. 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. (b) Segment information The segment information provided to the Board is as follows: 2019 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 Foreign exchange gain Corporate Eliminations operations Total continuing $’000 $’000 Internet Lotteries Australia $’000 64,283 - 64,283 (2,079) 62,204 1,409 (28) (6,867) (711) (15,597) (7) 40,403 Other $’000 929 - 929 - 929 - - (80) (31) (324) - 494 - - - - - 527 - (9) - (3,196) - (2,678) 936 (3,342) 398 - (91) - 527 - - $’000 65,212 - 65,212 (2,079) 63,133 1,936 (28) (6,956) (742) (19,117) (7) 38,219 (11,799) 26,420 - 26,420 1,463 (3,433) 398 - - - - - - - - - - - - - - - 68 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) - - JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 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 (c) Other segment information Geographical information The entity is domiciled in Australia. The amount of its revenue from external customers in Australia is $60,989,000 (2018: $36,399,000), and the total revenue from external customers in other countries is $6,159,000 (2018: $4,579,000). Revenues of $1,628,000 (2018: $1,543,000) 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 $15,123,000 (2018: $13,376,000). Non-current assets in other countries are (i) Fiji $11,000 (2018: $17,000). 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 2019 $’000 2,324 62,888 65,212 2018 $’000 2,293 37,482 39,775 1,463 860 398 67 8 1,936 67,148 261 70 12 1,203 40,978 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. – Employee benefit expense 7,842 7,268 JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 69 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: Sale of Goods and/or Rendering of Services Cost of sales – Sale of goods – Rendering of services Administration expenses Revenue from sale of goods and/or rendering of services is Depreciation of non-current assets Consolidated 2019 $’000 870 1,209 2018 $’000 889 1,149 – Plant and equipment 139 116 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, Amortisation of non-current assets – Leasehold improvements and obtain substantially all of the remaining benefits from, an asset. – Intangibles Indicators that control has passed includes that the customer has Other administration expenses (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 asset(s). Interest Revenue is recognised as interest accrues using the effective interest method. The effective interest method uses the effective – Defined contribution superannuation expense – Bank merchant fees and charges – Other administration expenses Occupancy expenses interest rate which is the rate that exactly discounts the estimated – Operating lease rentals minimum lease future cash receipts over the expected life of the financial asset. payments Impairment of assets – domain names 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. Note 4: Income tax Current tax Government grants The export market development grant from the government is CURRENT recognised at its fair value when there is reasonable assurance that the grant will be received and the Group will comply with any Income tax liability attached conditions. Note 3: Expenses Profit from continuing operations before income tax includes the following specific expenses: (a) Income tax expense The components of tax expense comprise: – Current tax – Deferred tax – Current tax overseas operations Total income tax expense/(benefit) in profit and loss Reconciliation 40 3,254 40 3,018 889 2,987 3,966 742 - 851 1,667 3,310 887 10 Consolidated 2019 2018 Note $’000 $’000 1,258 594 Consolidated 2019 2018 Note $’000 $’000 4(b) 11,732 5,472 59 8 (132) 8 11,799 5,348 Profit before income tax expense 38,219 17,475 – Tax at the Australian tax rate 30% (2018:30%) – Income tax effect of overseas tax rates – Share options expensed during year – Other Total income tax expense in profit or loss attributable to continuing operations 11,466 5,243 30 314 (11) (96) 193 8 11,799 5,348 70 JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 (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 2018 Property, plant and equipment – Depreciation Accruals Other Balance as at 30 June 2019 - 66 - 66 - 72 - 72 - 6 - 6 - 5 - 5 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. - 72 - 72 - 77 - 77 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 Balance at 30 June 2018 Property, plant and equipment – Depreciation – Amortisation Accruals Provisions Other 119 159 202 416 12 908 115 166 311 444 10 Balance as at 30 June 2019 1,046 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 potential ordinary shares (c) Profit after tax attributable to owners of the Company used as (4) 7 109 28 (2) 138 (5) (152) 29 58 16 (54) 115 166 311 444 10 1,046 110 14 340 502 26 992 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 2019 $’000 26,420 - 2018 $’000 11,753 374 26,420 12,127 JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 71 (d) Weighted average number of shares used as denominator 1Foreign currency loss relates to the historical foreign currency translation Consolidated statement on loss of control through voluntary administration. reserve in respect of Jumbo’s investment in Germany, reclassified to the income 2019 2018 Number Number Weighted average number of ordinary shares used as the denominator in calculat- ing basic EPS 60,231,699 51,851,806 Net cash inflow/(outflow) from operating activ- ities Adjustments for calculation of diluted EPS: — options 1,981,119 1,819,000 Weighted average number of ordinary shares used as the denominator in calculat- ing diluted EPS Net cash inflow/(outflow) from investing activities Net cash inflow/(outflow) from financing activ- ities 62,212,818 53,670,806 Net cash increase/(decrease) in cash generated from discontinued operations 2019 2018 $’000 $’000 - - - - - - - - All outstanding options were included in the number of weighted average number of ordinary shares used to calculate diluted earnings per share because they are currently in-the-money. 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. Financial information relating to the discontinued operation for the nine month period to the date of voluntary administration is set out below. Revenue Expenses 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 Income tax (expense)/benefit Loss on loss of control after income tax Profit/(loss) for the year from discontinued operation Profit attributable to owners of the parent entity relates to: 2019 2018 $’000 $’000 - - - - - - - - - - - - - - - - - 374 - - - 374 Profit/(loss) from continuing operations 26,420 11,753 Profit/(loss) from discontinued operations - 26,420 374 12,127 72 JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 Note 6: Discontinued operations (cont) 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 73 Page 73 Page 74 Page 75 Page 77 Page 77 JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 73 Note 7: Cash and cash equivalents Note 8: Trade and other receivables Consolidated 2019 2018 Note $’000 $’000 (a) Cash and cash equivalents Total cash and cash equivalents 84,583 47,919 Included in the above balance: General account balances 73,799 40,085 Online lottery customer account bal- ances 11 10,784 7,834 84,583 47,919 CURRENT Trade receivables Allowance for doubtful debts Other receivables Prepayments Consolidated 2019 Note $’000 2018 $’000 190 - 190 232 500 922 52 - 52 228 229 509 Online lottery customer account balances are deposits and prize winnings earmarked for payment to customers on demand. All receivables that are neither past due nor impaired are with long standing clients who have a good credit history with the Group. 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. 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: Consolidated 2019 2018 $’000 $’000 (b) Reconciliation of Cash Flow from Operations with Profit after Income Tax Profit/(loss) for the year after income tax 26,420 12,127 Non-cash flows Amortisation Depreciation Impairment losses on assets Share option expense Other 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 139 - 1,049 2 (138) (275) 26 54 (6) 6,026 1,698 178 5 664 116 10 644 5 43 (104) 5 (138) (377) 205 1,143 96 6 410 Cash flow from operations 39,136 17,249 Up to one month One month to two months Two months to three months 3,294 3,058 Over three months Consolidated 2019 2018 $’000 $’000 - - 36 - 36 - 1 12 - 13 As at 30 June 2019 the Group had current trade receivables of $0 (2018: $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. 74 JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 Note 9: Property, plant and equipment Plant and equipment are depreciated using the straight-line method to allocate their costs, net of their residual values, over their Consolidated estimated useful lives. Plant and equipment–at cost Accumulated depreciation Leasehold improvements–at cost Accumulated amortisation Total property, plant and equipment 2019 2018 $’000 $’000 1,741 1,511 (1,430) (1,292) 311 661 (521) 140 451 219 542 (481) 61 280 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: 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. Movements in Carrying Amounts Plant and Leasehold Im- equipment provements Consolidated Group $’000 $’000 2018 Balance at the beginning of year Additions Disposals Depreciation/amortisation expense Carrying amount at the end of year 2019 Balance at the beginning of year Additions Disposals Depreciation/amortisation expense Carrying amount at the end of year 240 96 (1) (116) 219 219 234 (3) (139) 311 101 - - (40) 61 61 119 - (40) 140 Total $’000 341 96 (1) (156) 280 280 353 (3) (179) 451 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. JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 75 Note 10: Intangible assets Goodwill Accumulated impairment losses Net carrying value Intellectual property Accumulated impairments loss Net carrying value Consolidated 2019 2018 $’000 $’000 3,687 (855) 2,832 53 (23) 30 3,687 (855) 2,832 53 (23) 30 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 Website development costs 32,364 27,524 indicators of impairment and then tests whether non-current 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 (21,390) (18,128) 10,974 9,396 assets have incurred any impairment in accordance with the accounting policy. 133 (133) - 914 (72) 842 63 (58) 5 133 (133) - 914 (72) 842 63 (50) 13 14,683 13,113 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. 76 JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 (a) Movements in carrying values Consolidated Group Goodwill property costs Software names $’000 $’000 $’000 $’000 $’000 Intellectual development Domain Website 2018 Balance at the beginning of the year 2,832 30 Additions acquired Additions internally developed Impairments Amortisation charge Effects of movements in foreign exchange Closing value at 30 June 2018 2019 Balance at the beginning of the year Additions internally developed Amortisation charge Effects of movements in foreign exchange - - - - - 2,832 2,832 - - - Closing value at 30 June 2019 2,832 - - - - - 30 30 - - - 30 7,843 - 4,567 - (3,010) (4) 9,396 9,396 4,839 (3,246) (15) 10,974 - - - - - - - - - - - - 848 4 - (10) - - 842 842 - - - 842 Other $’000 Total $’000 21 11,574 - - - (8) - 13 13 - (8) - 5 4 4,567 (10) 3(,018) - 13,113 13,110 4,839 (3,254) (15) 14,683 (b) Impairment testing of Cash-Generating Units containing Recognition and measurement 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 the cash-generating unit is based on a value-in-use calculation using a discounted cash flow model based on a one year projection approved by management and extrapolated over a five year period using a steady rate, together with a terminal value. The growth rate used in these projections does not exceed the historical growth rate of the relative cash- generating unit. Key assumptions used for value-in-use calculation of the CGU are as follows: — Annual growth rate of 3% (2018: 3%); — Terminal growth rate of 3% (2018: 3%); Goodwill Goodwill represents the excess of the cost of the business combination over the Group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities acquired. Goodwill is not amortised but is measured at cost less any accumulated impairment losses. Goodwill is tested for impairment annually, or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill acquired is allocated to each of the cash-generating units expected to benefit from the combination’s synergies. Impairment is determined by assessing the recoverable amount of the cash- generating unit to which the goodwill relates. Impairment losses on goodwill cannot be reversed. — Discount rate of 14% being the calculated weighted average cost Intellectual Property of capital based on the capital asset pricing model (2018: 17%); and — Reseller agreements will be renewed as and when they expire. 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 Management determined projections based on past performance annually, or more frequently if events or changes in circumstances and its expectations for the future. The growth rate used is indicate that the carrying value may be impaired. Impairment losses consistent with those used in industry reports. The discount rate are recognised in profit or loss. Any reversal of impairment losses of used is pre-tax and is specific to the relevant segment in which the intellectual property is recognised in profit or loss. unit operates. Internet Lotteries Australia CGU is estimated to be $334,054,000 which exceeds the carrying amount of goodwill, domain names and other intangible assets by $319,704,000. If a discount rate of 15% and growth rate of 0% was used instead of 14% and 3% respectively, 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 Website Developments Costs Expenditure during the research phase of a project is recognised as an expense when incurred. Development costs are capitalised only when technical and financial feasibility studies identify that we have the resources to complete the development and the project will deliver future economic benefits and these benefits can be measured reliably. for further periods when they expire, an impairment loss would be Development costs have a finite life and are amortised on a recognised up to the maximum carrying value of $14,350,000. straight-line basis matched to the future economic benefits over the JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 77 useful life of the project of three years up to 30 June 2015 and five to the end of the reporting period and are measured at amounts years from 1 July 2015. Domain Names 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. 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 (ii) Superannuation Employees have defined contribution superannuation funds. continue to support an indefinite useful life assessment. The Contributions are recognised as expenses as they become payable. carrying value of domain names is tested semi-annually at each Prepaid contributions are recognised as an asset to the extent that a reporting date for impairment. cash refund or a reduction in future payments is available. Impairment of assets Assets are tested for impairment at the end of each reporting period (iii) Termination benefits Termination benefits are payable when employment is terminated or whenever events or changes in circumstances indicate that the before the retirement date, or when an employee accepts voluntary carrying amount may not be recovered. redundancy in exchange for these benefits. The Group recognises termination benefits as an expense and a liability on the earlier of An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. For the when the Group: purposes of assessing impairment, assets are grouped at the lowest — Can no longer withdraw the offer and the benefits; and levels for which there are separately identifiable cash flows which — Recognises costs for restructuring under AASB 137 Provisions, are largely independent of the cash flows from other assets or Contingent Liabilities and Contingent Assets and which involves groups of assets (CGUs). the payment of termination benefits. 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 Note 11: Trade and other payables Consolidated 2019 2018 Note $’000 $’000 Benefits falling due more than 12 months after the end of the reporting period are discounted to present value. Note 12: Employee benefit obligations CURRENT Long service leave NON-CURRENT Long service leave Consolidated 2019 2018 $’000 $’000 338 309 517 855 368 677 Total trade and other payables 22,070 14,346 Included in the above: Trade creditors GST payable Sundry creditors and accrued expenses Employee benefits 7,260 742 2,462 822 11,286 Customer funds payable 7(a) 10,784 Recognition and measurement 1,234 523 3,971 784 6,512 7,834 (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 22,070 14,346 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. Recognition and measurement Trade and other payables represent liabilities for goods and services provided to the Group prior to the year end and which are unpaid. These amounts are unsecured and have seven to 31 day payment terms. (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 78 JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 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 79 Page 79 Page 80 Page 81 Page 81 JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 79 Note 13: Capital risk management (b) Dividends not recognised at the end of the reporting period Total borrowings Consolidated 2019 20168 Note $’000 $000 16 - - Less: cash and cash equivalents 7(a) (84,583) (40,085) Since year end, the Directors have recom- mended the payment of a final 2019 fully franked ordinary dividend of 21.5 (2018: 11.0) Consolidated 2019 2018 $’000 $’000 Net debt Total equity Total capital Gearing ratio - - cents per share franked at the rate of 30% (2018: 15 79,302 55,917 30%). The aggregate amount of the proposed 79,302 55,917 dividend expected to be paid on 22 September 0% 0% 2019 (2018: 21 September 2018), but not recog- nised as a liability at year end, is: 13,357 6,382 The Group’s objective is to maintain a strong capital base so as to maintain investor, creditor and market confidence and sustain future (c) Franked dividends development of the business. The Group monitors its capital structure by reference to its gearing ratio. This ratio is calculated as total net debt divided by total 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. Note 14: Dividends (a) Ordinary shares Consolidated 2019 2018 $’000 $’000 The franked portions of dividends paid and recommended after 30 June 2019 will be franked out of existing franking credits or out of franking credits arising from the payment of income tax in the year ending 30 June 2019. Franking credits available for subsequent finan- cial years based on a tax rate of 30% (2018: 30%): 11,509 9,303 Consolidated 2019 2018 $’000 $’000 The above amounts represent the balance of the franking account as at the reporting date adjusted for: Final fully franked ordinary dividend of 11.0 (2018: 5.0) cents per share franked at the tax (i) Franking credits that will arise from the payment of the amount of the provision for income tax, and rate of 30% (2018: 30%) 6,438 2,564 Interim fully franked ordinary dividend of 15.0 (2018: 7.5) cents per share franked at the tax rate (ii) Franking debits that will arise from the payment of dividends recognised as a liability at the reporting date. of 30% (2018: 30%) 9,273 3,917 The impact on the franking account of the dividends paid and Special fully franked ordinary dividend of 8.0 (2018: 8.0 and 15.0) cents per share franked at recommended by the directors since the end of the reporting period, but not recognised as a liability at the reporting date, will be a the tax rate of 30% (2018: 30%) 4,970 12,027 reduction in the franking account of $5,724,000 (2018: $2,421,000). Total dividends paid or provided for 20,681 18,508 Dividends paid in cash or satisfied by the issue of shares under the dividend reinvestment plan during the years ended 30 June 2019 and 30 June 2018 were as follows: Paid in cash Satisfied by issue of shares 20,681 18,508 - - 20,681 18,508 80 JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 Note 15: Equity and reserves (a) Contributed equity Issued shares Details 24 Sep 2018-Exercise of options 26 Sep 2018-Exercise of options Consolidated Consolidated 10 Oct 2018-Exercise of options 2019 2019 2018 2018 7 Dec 2018-Exercise of options Shares $’000 Shares $’000 11 Dec 2018-Exercise of options Ordinary shares – fully paid 62,123,757 79,302 54,374,265 55,917 Movements in ordinary share capital Details Consolidated Shares $’000 Opening balance 1 July 2017 50,674,265 45,492 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 50,000 500,000 50,000 50,000 900,000 50,000 87 875 87 87 1,575 88 11 Jan 2019-Exercise of options 21 Jan 2019-Exercise of options 15 Feb 2019-Exercise of options 20 Feb 2019-Exercise of options 27 Feb 2019-Exercise of options 1 Mar 2019-Exercise of options 4 Mar 2019-Exercise of options 5 Mar 2019-Exercise of options 6 Mar 2019-Exercise of options Consolidated Shares $’000 100,000 100,000 150,000 150,000 150,000 150,000 150,000 125,000 100,000 100,000 200,000 50,000 100,000 250,000 350 350 525 525 525 525 525 438 350 350 700 175 350 875 8 Mar 2019-Exerciee of options 500,000 1,750 11 Apr 2019-Exercise of options 30 Apr 2019-Exercise of options Balance 20 June 2019 50,000 250,000 175 875 62,123,757 79,302 23 Apr 2018-Exercise of options 1,150,000 4,375 Issued capital represents the amount of consideration received for securities issued or paid for securities bought back by Jumbo. 9 May 2018-Exercise of options 15 May 2018-Exercise of options 21 May 2018-Exercise of options 8 Jun 2018-Exercise of options 25,000 100,000 50,000 50,000 88 350 88 175 11 Jun 2018-Exercise of options 400,000 1,262 13 Jun 2018-Exercise of options 18 Jun 2018-Exercise of options 21 Jun 2018-Exercise of options 150,000 150,000 25,000 600 600 88 Balance 30 June 2018 54,374,265 55,917 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. Ordinary shareholders are entitled to participate in dividends and the proceeds on winding up of the Company in proportion to the number of and amounts paid on the shares held. Every ordinary Opening balance 1 July 2018 54,374,265 55,917 shareholder present at a meeting in person or by proxy is entitled to 2 Jul 2018-Exercise of options 3 Jul 2018-Exercise of options 5 Jul 2018-Exercise of options 9 July 2018-Exercise of options 13 Jul 2018-Exercise of options 16 Jul 2018-Exercise of options 18 Jul 2018-Exercise of options 20 Aug 2018-Exercise of options 22 Aug 2018-Exercise of options 24 Aug 2018-Exercise of options 28 Aug 2018-Exercise of options 29 Aug 2018-Exercise of options 13 Sep 2018-Exercise of options 17 Sep 2018-Exercise of options 18 Sep 2018-Exercise of options 19 Sep 2018-Exercise of options 20 Sep 2018-Exercise of options 24 Sep 2018-Exercise of options 50,000 200 3,474,492 8,234 30,000 15,000 20,000 25,000 25,000 115,000 50,000 170,000 25,000 150,000 125,000 250,000 150,000 25,000 225,000 150,000 120 60 80 100 100 460 200 630 87 600 437 788 525 87 788 525 one vote on a show of hands and upon a poll each share is entitled to one vote. (c) Options (i) Details of the employee option plan, including details of options issued, exercised and lapsed during the financial year and options outstanding at the end of the financial year are set out in note 24: 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. (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, there was a change in the test for payment of dividends from a ‘profit test’ to ‘solvency test’ (s254T Corporations Act 2001), and the profits appropriation reserve was established to ensure the accumulated losses up until then were ‘ring-fenced’ and that future profits were available for distribution, in particular for dividend payments. JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 81 Share-based payments reserve The share-based payments reserve records items recognised as (a) Market risk Market risk is the risk that adverse movements in foreign exchange expenses on the fair value of share-based remuneration provided to and interest rates will affect the Group’s financial performance employees. This reserve can be reclassified as retained earnings if or the value of its holdings of financial instruments. The Group options lapse. Foreign currency translation reserve The foreign currency translation reserve records the foreign 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. exchange differences arising on translation of investments in foreign (i) Foreign exchange risk controlled subsidiaries. Amounts are reclassified to profit or loss when an entity is disposed of. Financial assets at fair value through other comprehensive income (FVOCI) reserve The financial assets at fair value reserve comprises changes in the fair value of FVOCI investments which are recognised in other comprehensive income including when investments are sold or 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). reclassified. Note 16: Borrowings (a) Facilities with Banks Credit facility Bank guarantees Commercial card Facilities utilised Bank guarantees Commercial credit card Amount available Risk management Treasury monitor the Group’s exposure regularly and utilise the spot market to buy and sell specified amounts of foreign currency to manage this risk. Transactional risks are managed predominantly within the Group’s pricing policies through the regular review of Consolidated prices in foreign currency. 2019 2018 Note $’000 $’000 Sensitivity on foreign exchange risk Any movement in foreign exchange rates would not be significant to 550 300 550 300 the Group. (ii) Interest rate risk 27 (478) (295) 77 (478) (295) 77 Exposure to interest rate risk The Group’s has interest bearing assets and therefore its income and operating cash flows are subject to changes in market interest rates. At the reporting date, the Group has exposure to the following interest rates: The facilities are provided by Australia and New Zealand Banking Group Limited subject to general and specific terms and conditions being set and met periodically. There were no outstanding interest bearing liabilities for the financial year ended 30 June 2019 (2018: 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 There have been no defaults or breaches during the financial year ended 30 June 2019. Note 17: Financial risk management Consolidated 2019 Rate1 % $’000 1.64 84,583 84,583 Rate1 % 2.31 2018 $’000 47,919 47,919 Deposits Net exposure to interest rate risk 1weighted average interest rate 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 31 days (2018: 41 days). Term deposits currently in place cover approximately The Group has exposure to a variety of financial risks including 66% (2018: 82%) of the total cash and cash equivalent balances. 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 an ongoing basis through regular reporting to the Board. 82 JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 Sensitivity on market risks The following table summarises the gain/(loss) impact of a 200 basis points (bps) interest rate change on net profit and equity The following table summarises the contractual timing of undiscounted cash flows of financial instruments: before tax, with all other variables remaining constant, as at 30 June Between 6 Total 2019: 200 bps movement in interest rates 200 bps increase in interest rates 200 bps decrease in interest rates Consolidated Effect on profit Effect on equity (before tax) (before tax) 2019 2018 2019 2018 1,692 958 1,692 958 (1,692) (958) (1,692) (958) (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. The maximum exposure to credit risk, excluding the value of any collateral or other security, at the end of the reporting period to recognised financial assets, is the carrying amount, net of any provisions for impairment of those assets, as disclosed in the statement of financial position and notes to the financial statements. 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: — Surplus funds are only invested with banks and financial institutions with a Standard and Poor’s rating of no less than A and to a limited amount at any one financial institution: — All potential customers are rated for credit worthiness taking into account their size, market position and financial standing, and the risk is measured using debtor aging analysis; and — 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. 2019 Financial assets Cash and cash equiva- lents Trade and other receiv- ables Financial liabilities Trade and other paya- bles 2018 Financial assets Cash and cash equiva- lents Trade and other receiv- ables Financial liabilities Trade and other paya- bles Less than months and Between 1 Over 5 carrying 6 months 1 year and 5 years years amount $’000 $’000 $’000 $’000 $’000 84,583 922 85,505 22,070 22,070 - - - - - - - - - - - - - - - 84,583 922 85,505 22,070 22,070 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 JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 83 (d) Fair value hierarchy The fair value of cash, cash equivalents and non-interest bearing financial assets and liabilities approximates their carrying value due to their short term maturity. 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: — Financial assets at fair value 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. 84 JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 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 85 Page 85 JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 85 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- 2019 2018 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 2019 $’000 32,946 34,043 66,989 1,986 198 2,184 64,805 79,302 2018 $’000 13,684 28,031 41,715 1,243 778 2,021 39,694 55,917 Retained earnings/(accumulated losses) (26,037) (26,037) Profits appropriation reserve Other reserves Total shareholders’ equity 11,090 450 10,413 (599) 64,805 39,694 21,359 21,359 13,184 13,184 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 2019 (2018: $Nil). (d) Contingent liabilities The parent entity has no contingent liabilities other than the guarantees referred to above. Recognition and measurement The financial information for the parent entity, Jumbo Interactive Limited, has been prepared on the same basis as the consolidated 86 JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 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. JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 87 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: Financial assets at fair value through other comprehensive income 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 88 Page 88 Page 88 Page 89 Page 89 Page 91 Page 91 88 JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 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 USA Incorporation 2019 2018 2019 2018 Recognition and measurement % % $’000 $’000 Non-current assets are classified as held-for-sale if their carrying Unlisted shares Lotto Points Plus Inc New York, USA 30.9 30.9 Net investment in associate company - - - - amount will be recovered principally through a sale transaction, rather than through continuing use. After initial recognition at cost, they are measured at fair value with gains and losses recognised in other comprehensive income (FVOCI reserve), until the investment is disposed of, at which time the cumulative gain or loss previously recognised in the FVOCI reserve may be transferred within equity. Lotto Plus Inc is an investment company, with its only investment being a 16.9% (2018: 16.9%) 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 is recognised in consolidated profit or loss and the Group’s share of post-acquisition other comprehensive income of associates is recognised in consolidated other comprehensive income. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. Dividends received from associates are recognised in the parent entity’s profit or loss, while they reduce the carrying amount of the investment in the consolidated financial statements. When the Group’s share of post-acquisition losses in an associate exceeds its interest in the associate (including any long-term interests that form part of the Group’s net investment in the associates), the Group does not recognise further losses unless it has obligations to, or has made payments, on behalf of the associate. 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 note 23 and the remuneration report in the directors’ report. Transactions with related parties All transactions between related parties are on normal commercial terms and conditions at market rates and no more favourable than those available to other parties unless otherwise stated. The following transactions occurred with related parties: Consolidated 2019 $ 2018 $ Mr Mike Rosch, the father of Mr Mike Veverka, the CEO and executive director of the Compa- ny, rented an office from the Group The financial statements of the associates are used to apply the - office rent received 7,865 8,580 equity method. The end of the reporting period of the associates and the parent are identical and both use consistent accounting policies. Note 21: Financial assets at fair value through other comprehensive income (FVOCI) Unlisted securities comprise investments in: 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 Consolidated 2019 $ 2018 $ (a) Sorteo Games Inc., USA. The Company owns 7% of the issued within the Group. share capital of Sorteo Games Inc. Shares in Sorteo Games Inc Salary and superannuation 84,315 82,462 are carried at fair value of $nil (2018: $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 (2018: $nil). JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 89 Receivables from related parties The following balances are outstanding at the reporting date in five consecutive trading days equals the exercise price and provided an acceptable transaction has been brought to the Company with relation to transactions with related parties: terms and conditions acceptable to the Company by 31 December Consolidated extended to 30 June 2018, and finally to 30 June 2019 with 150,000 2017 failing which the options will lapse. This was subsequently Trade receivables from Mr Mike Rosch (direc- tor-related party of Mike Veverka) 715 2,145 2019 $ 2018 $ Note 23: Key Management Personnel compensation Consolidated 2019 $ 2018 $ options being lapsed, unexercised, with no effect on the fair value. The remaining 50,000 options subsequently lapsed, unexercised, on 30 June 2019. Fair value of options granted Employees There were no options granted during the 2019 financial year. The weighted average fair value of options granted during the 2018 financial year was 33.4 cents). The fair value at grant date was determined by an independent valuer using the Monte Carlo Simulation option pricing model that takes into account the share price at grant date, exercise price, expected volatility, option life, expected dividends, and the risk free rate. The inputs used for the Monte Carlo Simulation option pricing model for options granted Short term employee benefits 2,296,102 2,163,591 during the year ended 30 June 2018 were as follows: Post employment benefits Other long term benefits Termination benefits Share based payments 183,817 153,992 19,315 37,984 - - 934,883 538,052 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 2018 26 Oct 2017 $2.840 $3.500 50.660% 2.99% 2.30% Further information regarding the identity of key management Share price at grant date Exercise price personnel and their compensation can be found in the Audited Expected volatility 3,434,117 2,893,619 Grant date Remuneration Report contained in the Directors’ Report. Expected dividend yield Risk free rate Note 24: Share-based payments Share-based payment expenses recognised during the financial year Consolidated 2019 $ 2018 $ 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 Options issued under employee option plan 1,048,690 622,093 information. Options issued to third parties for services received - 22,207 1,048,690 644,300 Third parties There were no options granted during the 2019 financial year. 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. Employee option plan The Jumbo Interactive Limited Employee Option Plan was ratified at the annual general meeting held on 28 October 2008. Employees are invited to participate in the scheme from time to time. Options vest when the volume weighted average share price over five consecutive trading days equals the exercise price and provided the staff member is still employed by the Group. When issued on exercise of options, the shares carry full dividend and voting rights. Options granted carry no dividend or voting rights. 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 90 JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 Details of options outstanding during the financial year are as follows: 2019 Grant date Exercise Price Expiry date year ing the year year ing the year year end of year end of year Balance at Lapsed/ Forfeit- Expired beginning of Granted dur- ed during the Exercised dur- during the Balance at Exercisable at KMP and staff options 3 Sep 2013 6 Nov 2013 18 Nov 2015 26 Oct 2017 Third party options 2 Feb 2017 13 Jul 2017 Total $4.00 $4.00 3 Sep 2018 400,000 6 Nov 2018 150,000 $1.75 18 Nov 2020 300,000 $3.50 15 Nov 2022 4,450,000 $2.25 $2.37 2 Feb 2022 200,000 13 Jul 2018 3,474,492 8,974,492 $3.01 Weighted average exercise price 2018 - - - - - - - - - - - - (400,000) (150,000) (50,000) (3,675,000) (200,000) - - (3,474,492) (200,000) (7,749,492) $2.25 $3.02 - - - - - - - - - - - - 250,000 250,000 775,000 775,000 - - - - 1,025,000 1,025,000 $3.01 $3.02 Grant date Exercise Price Expiry date year ing the year year ing the year year end of year end of year Balance at Lapsed/ Forfeit- Expired beginning of Granted dur- ed during the Exercised dur- during the Balance at Exercisable at 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 Options were exercised regularly throughout the year and the weighted average share price at date of exercise for the year ended 30 June 2019 was $7.02 (2018: $4.05). The weighted average exercise price for the year ended 30 June 2019 was $3.33 (2018: $2.94). The weighted average remaining contractual life of share options outstanding at 30 June 2019 was 2 years 11 months (2018: 2 years 4 months). JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 91 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. Where the terms of options are modified, the expense continues to be recognised from grant date to vesting date as if the terms had never been changed. In addition, at the date of the modification, a further expense is recognised for any increase in fair value of the 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 Transfer pricing consulting Other taxation advice 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 immediately to profit or loss. However, if new options are substituted for the cancelled options and designated as a replacement on grant date, the combined impact of the cancellation and replacement options are treated as if they were a modification. Amounts paid/payable to BDO for other servic- es for the entity or any entity in the Group: Accounting advice Export grant services Consolidated 2019 2018 $ $ 105,532 114,438 105,532 114,438 43,000 42,000 - 15,000 6,000 7,000 49,000 64,000 5,250 5,000 10,250 - 4,500 4,500 164,782 182,938 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 2018 materially affect the amounts recognised in the current period or any other prior period and are not likely to affect future periods. (ii) New Accounting Standards and Interpretations not yet adopted AASB 16 Leases This standard and its consequential amendments are currently applicable to annual reporting periods beginning on or after 1 January 2019. This standard requires lessees to capitalise all leases on the balance sheet (subject to limited exception) and there is no longer a requirement to classify leases as either operating or financial leases. This means that on commencement date of the lease, lessees need to measure a right-of-use asset and a lease 92 JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 liability. The initial adoption of this standard will impact on the asset is not subsequently accounted for at fair value through profit financial statements at 30 June 2020. The Group’s management or loss, then the initial measurement includes transaction costs that has assessed the impact of this amendment had it been early are directly attributable to the asset’s acquisition or origination. adopted for the 30 June 2019 financial year; a right-of-use asset On initial recognition, the Group classifies its financial assets as and lease liability of $4,516,000 would be recognised and $826,000 subsequently measured at either amortised cost or fair value, rent expense would be replaced by $208,000 interest expense and depending on its business model for managing the financial assets $618,000 amortisation expense. There would be no impact on NPBT and the contractual cash flow characteristics of the financial assets. but EBIT and EBITDA would increase accordingly.. (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 the instrument. Financial assets are derecognised when the rights 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. Financial assets are initially recognised at fair value. If the financial 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. JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 93 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 94 Page 94 Page 94 94 JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 Note 27: Contingencies 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 liabilities Foundation, and (ii) the final dividend declared of 21.5 cents that may become payable: per share, that have all been communicated to shareholders in Apart from the (i) the licencing agreement signed with Endeavour Consolidated separate ASX announcements on 16 August 2019, as at the date of Guarantees provided by the Group’s bankers 478 478 2019 2018 $’000 $’000 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 2019. The above items are not recognised in the financial statements 30 The Group’s bankers have provided guarantees to third parties in June 2019. 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 2019 2018 $’000 $’000 Non-cancellable operating leases contracted for but not capitalised in the consolidated financial statements Payable Not later than one year 1,096 784 Later than one year but not later than five years Later than five years 4,044 892 6,032 3,663 628 5,075 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 the cost JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 95 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 2019 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 46 to 52 of the Directors’ report (as part of the audited Remuneration Report), for the year ended 30 June 2019, 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 22 August 2019 96 JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 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 INDEPENDENT AUDITOR'S REPORT To the members of Jumbo Interactive Limited Report on the Audit of the Financial Report Opinion 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 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) 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) Complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the Financial Report section of our report. We are independent of the Group in accordance with the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Company, would be in the same terms if given to the directors as at the time of this auditor’s report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. 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 2019 97 Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Impairment assessment of Goodwill and Other Intangible Assets Key audit matter How the matter was addressed in our audit The Group’s disclosures in respect to intangible Our procedures included, amongst others: assets, including the impairment assessments of goodwill and other intangible assets are included in Note 10. • Evaluating management’s determination of the Group’s Cash Generating Units ("CGU's") to ensure they are appropriate, including being at a The Group carries intangible assets of $11.574 level no higher than the operating segments of million as at 30 June 2017. The carrying value of the entity 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 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. • • Evaluating management’s process regarding the valuation of the Group’s goodwill and other intangible assets Assessing the Group’s assumptions and estimates relating to forecast revenue, costs, capital expenditure, discount rates and the life of reseller agreements used to determine the recoverable value of its assets • Assessing the historical accuracy of forecasting of the Group by comparing the current year actual results with FY16 figures included in prior year forecasts to consider whether any forecasts included assumptions, that with hindsight, had been optimistic • Challenging key assumptions by performing sensitivity analysis on the growth rates and discount rate assumptions used. Other information 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. 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. 98 JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Impairment assessment of Goodwill and Other Intangible Assets Key audit matter How the matter was addressed in our audit The Group’s disclosures in respect to intangible Our procedures included, amongst others: assets, including the impairment assessments of goodwill and other intangible assets are included in Note 10. • Evaluating management’s determination of the Group’s Cash Generating Units ("CGU's") to ensure they are appropriate, including being at a The Group carries intangible assets of $11.574 level no higher than the operating segments of million as at 30 June 2017. The carrying value of the entity 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 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. • • Evaluating management’s process regarding the valuation of the Group’s goodwill and other intangible assets Assessing the Group’s assumptions and estimates relating to forecast revenue, costs, capital expenditure, discount rates and the life of reseller agreements used to determine the recoverable value of its assets • Assessing the historical accuracy of forecasting of the Group by comparing the current year actual results with FY16 figures included in prior year forecasts to consider whether any forecasts included assumptions, that with hindsight, had been optimistic • Challenging key assumptions by performing sensitivity analysis on the growth rates and discount rate assumptions used. Other information 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. 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 2019 99 In preparing the financial report, the directors are responsible for assessing the ability of the group to Key audit matters 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 Key audit matters are those matters that, in our professional judgement, were of most significance in operations, or has no realistic alternative but to do so. our audit of the financial report of the current period. These matters were addressed in the context of Auditor’s responsibilities for the audit of the Financial Report 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. 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 Impairment assessment of Goodwill and Other Intangible Assets includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material Key audit matter misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic The Group’s disclosures in respect to intangible decisions of users taken on the basis of this financial report. assets, including the impairment assessments of • A further description of our responsibilities for the audit of the financial report is located at the goodwill and other intangible assets are included in Auditing and Assurance Standards Board website (http://www.auasb.gov.au/Home.aspx) at: Note 10. How the matter was addressed in our audit Evaluating management’s determination of the Group’s Cash Generating Units ("CGU's") to Our procedures included, amongst others: ensure they are appropriate, including being at a level no higher than the operating segments of the entity http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf The Group carries intangible assets of $11.574 This description forms part of our auditor’s report. million as at 30 June 2017. The carrying value of intangible assets represent a significant asset of the Report on the Remuneration Report Group. Opinion on the Remuneration Report The Group is required to annually test the amount of We have audited the Remuneration Report included on pages 31 to 37 of the directors’ report for the goodwill and indefinite useful life intangible assets year ended 30 June 2018. for impairment and assess other intangible assets for In our opinion, the Remuneration Report of Jumbo Interactive Limited, for the year ended 30 June impairment indicators. This annual impairment test 2018, complies with section 300A of the Corporations Act 2001. was significant to our audit because the goodwill and Responsibilities intangible assets balance is material to the financial recoverable value of its assets intangible assets • • expenditure, discount rates and the life of relating to forecast revenue, costs, capital reseller agreements used to determine the valuation of the Group’s goodwill and other Evaluating management’s process regarding the Assessing the Group’s assumptions and estimates statements and because management’s assessment The directors of the Company are responsible for the preparation and presentation of the process is complex, highly judgmental and includes Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility estimates and assumptions relating to expected is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. future market or economic conditions. of the Group by comparing the current year actual results with FY16 figures included in prior year forecasts to consider whether any forecasts • Assessing the historical accuracy of forecasting included assumptions, that with hindsight, had BDO Audit Pty Ltd been optimistic • Challenging key assumptions by performing sensitivity analysis on the growth rates and discount rate assumptions used. Other information K L Colyer The directors are responsible for the other information. The other information comprises the Director information in the Group’s annual report for the year ended 30 June 2017, but does not include the Brisbane, 23 August 2018 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. 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. 100 JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 Shareholder Information The Company has 62,123,757 ordinary shares on issue, each fully paid. There are 5,350 holders of these ordinary shares as at 31 July 2019. 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 1,025,000 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 2019 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 3,063 1,635 352 272 28 5,350 1,228,439 4,020,446 2,655,179 6,499,876 47,719,817 1.98 6.47 4.27 10.46 76.81 0.01 62,123,757 100.00 Minimum $500.00 parcel at $19.42 per unit Minimum parcel size 26 Holders 112 Units 831 The number of shareholders holding less than the marketable parcel of shares is 112 (shares 831) (c) Substantial holders of 5% or more fully paid ordinary shares as at 31 July 20191: Name Vesteon Pty Ltd and associates Tatts Online Pty Ltd Notice date Ordinary Shares Percentage Held 15 October 2018 5 July 2018 9,436,955 7,234,178 15.8 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 2019 101 (e) Top 20 holders of fully paid ordinary shares as at 31 July 2019 Name Units % of Units 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. JP MORGAN NOMINEES AUSTRALIA PTY LTD VESTEON PTY LTD HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED TATTS ONLINE PTY LTD CITICORP NOMINEES LIMITED NATIONAL NOMINEES LIMITED SEYMOUR GROUP PTY LTD MR BARNABY COLMAN CADDICK BNP PARIBAS NOMS PTY LTD BNP PARIBAS NOMINEES PTY LTD MR MIKE VEVERKA UBS NOMINEES PTY LTD HSBC CUSTODY NOMINEES (AUSTRALIA) PTY LTD MR JOHN WILDE + MRS ELIZABETH WILDE MR JOHN ROSAIA ECAPITAL NOMINEES PTY LIMITED HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED - A/C 2 BRIAN ROBERTS BNP PARIBAS NOMINEES PTY LTD 20. ICS FOURTH NOMINEES PTY LIMITED Total Top 20 shareholders of ordinary fully paid shares Total remaining holders balance (f) Unquoted securities as at 31 July 2019 Options over Unissued Shares A total of 1,025,000 options are on issue to employees and a third party for services rendered. 9,508,065 8,890,057 8,028,079 7,234,178 3,303,301 2,043,256 1,288,404 1,125,000 1,031,093 1,002,848 666,791 638,008 381,642 234,996 219,551 218,140 213,748 211,509 200,834 182,641 46,622,141 15,501,616 15.31 14.31 12.92 11.64 5.32 3.29 2.07 1.81 1.66 1.61 1.07 1.03 0.61 0.38 0.35 0.35 0.34 0.34 0.32 0.29 75.05 24.95 Exercise price $1.75 $3.50 Expiry date Number on issue Number of holders 18 November 2020 15 November 2022 250,000 775,000 2 6 (g) On-market buy-back There is no current on-market buy-back in effect. 102 JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 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 104 JUMBO INTERACTIVE LTD ANNUAL REPORT 2019 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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