ANNUAL REPORT 2017
PERFORMANCE HIGHLIGHTS
2017
A$23.7m A$2.5m A$1.6m
REVENUE
NPATA
EBITDA
UP 110%
UP 194%
UP 243%
Result before significant one-off income and expense items outlined in note 5 of the financial statements.
DENMARK
UK
MSL has a head office in Brisbane
and offices in Sydney, Melbourne,
UK and Denmark. MSL currently
has approximately 130 staff.
BRISBANE
(HEAD OFFICE)
MELBOURNE
SYDNEY
MPower MSL Annual Report 2017 MSL is a global provider of hosted, software as
a service (SaaS) and on-site deployed solutions
to clients in the following key segments in the
sport, leisure and hospitality sectors:
2,000+
CLIENTS
› Golf clubs and associations;
› Registered clubs;
› Stadia and arenas; and
› Other hospitality and entertainment venues
20+
COUNTRIES
DENMARK
UK
BRISBANE
(HEAD OFFICE)
MELBOURNE
SYDNEY
MPower MSL Annual Report 2017 CONTENTS
CHAIRMAN'S REPORT
MANAGING DIRECTOR’S REPORT
MSL BOARD OF DIRECTORS
CORPORATE GOVERNANCE STATEMENT
DIRECTOR'S REPORT
REMUNERATION REPORT
AUDITOR’S INDEPENDENCE DECLARATION
FINANCIAL STATEMENTS
DIRECTORS' DECLARATION
INDEPENDENT AUDITOR’S REPORT
SHAREHOLDER INFORMATION
CORPORATE DIRECTORY
1
2
5
9
19
24
41
43
107
108
116
118
D
MPower MSL Annual Report 2017 CHAIRMAN’S REPORT
"
On behalf of the Board it is my pleasure
to present the annual report for fiscal
year 2017. the highlight being our
successful listing on the ASX on 4th May.
Formalising our position in the capital
market is always an exacting and time
consuming activity and pleasingly, the
Company has been able to deliver
on its strategic growth objectives.
John Down
Chairman
On behalf of the Board it is my pleasure to present the
annual report for fiscal year 2017. the highlight being our
successful listing on the ASX on 4th May. Formalising our
position in the capital market is always an exacting and
time consuming activity and pleasingly, the Company has
been able to deliver on its strategic growth objectives.
Notwithstanding the fact that significant one-off items
relating to our listing and acquisitions have impacted this
years’ result, as detailed in the Managing Directors report
the Company is well poised to achieve its 2018 forecast.
In March 2017 Kaylene Gaffney joined our board as an
independent Non-Executive Director and Chair of the
Audit and Risk Committee. David Trude also joined our
board in March 2017 as an independent Non-Executive
Director and Chair of the Remuneration Committee.
Both Kaylene and David have significant software and
listed company experience.
During the year, the Company has strengthened its
governance practices, and processes. These are described
in our 2017 Corporate Governance Statement.
MSL has a solid foundation to execute on future growth
opportunities both organically and through acquisition.
The opportunity in the sport, leisure and hospitality
software market is characterised by the large number
of organisations and the high degree of industry
fragmentation in IT solutions. Our MSL solutions address
clear needs in the market related to member engagement,
data analytics, automation of processes and improved
governance. Simply, our solutions help our clients to
make money, save money and improve governance.
We have established a strong track-record in this market
and we proudly serve clients in over 20 countries.
Outside of the IPO activity, other highlights in our
year included:
›
›
›
›
›
growing each of our key market segments,
securing two important acquisitions in Europe
continued elevation of our industry relationships
including becoming a strategic technology partner
of Golf Australia,
executing our first contracts with US customers and
overall setting a solid foundation for our future growth.
On behalf of the MSL Directors, I look forward to
welcoming you to our 2017 Annual General Meeting
in November 2017. Thank you all for your continued
involvement and support.
Sincerely,
John Down
Chairman
1
MPower MSL Annual Report 2017 MANAGING DIRECTOR’S REPORT
"MSL is now a true global player in the
sport, leisure and hospitality sector
providing software, data and media
solutions through our MPower platform.
We serve over 2,000 clients in more
than 20 countries around the world.
Craig G Kinross
Managing Director & Chief Executive Officer
MSL is now a true global player in the sport, leisure and
hospitality sector providing software, data and media
solutions through our MPower platform. We serve over
2,000 clients in more than 20 countries around the world.
MSL also has offices in Australia, the United Kingdom
and Denmark employing over 130 staff.
This past year has been a transformative year for MSL.
We would like to thank the entire MSL team for their
efforts and for delivering strongly to our business strategy,
laying a solid platform for sustainable growth and success.
MSL’s MPower Platform connects member organisations’
business software and data needs to improve guest
engagement, loyalty, gain business efficiencies and
improve governance. We provide scalable full venue
business software applications and data solutions
integrated through the MPower core integration
architecture. This means that MSL can provide solutions
to both small and large organisations and associations
providing cloud based SaaS, hosted and on-site
deployed software, data and loyalty/media solutions.
Member based organisations within the sport, leisure
and hospitality sector face increasing competition to
stay relevant to their guest needs. They require a robust
operating platform to better understand their business,
make more informed choices and ultimately engage
with their members and customers.
MSL continues to invest in the MPower platform of
products to meet the market needs of the key sales
segments of golf clubs & associations, registered
clubs, stadia/arena and other hospitality/entertainment
venues. In this last year, MSL’s spend on R&D amounted
to circa 18% of operating revenue to support future
growth opportunities.
During the year we also continued to execute on our
strategy to accelerate growth through acquisitions. We
completed the acquisitions of Verteda (UK), GolfBox
(Denmark) and Pallister Games (Australia). These
acquisitions have increased our geographic footprint
and client base, expanded our technology offerings and
contributed positively to our bottom line profitability.
Verteda is based in Northern England, and is a leader
in software solutions to sporting, hospitality and stadia
clients in the UK with a very strong presence in the
English Premier League.
GolfBox is based in Denmark, and is a leader in the
provision of golf software solutions to associations
and clubs throughout Europe.
Pallister Games is based in NSW, Australia and
provides solutions to promote member attendance
and participation at a venue by programmatically
awarding prizes or loyalty incentives.
2
MPower MSL Annual Report 2017 2016-17 FINANCIAL PERFORMANCE
Key highlights in the year included:
Operating revenue of $23.7 million for the year was in
line with our IPO prospectus forecast, and up 110% on
the prior reporting period. Of this growth, $8.7 million
was contributed by the European acquisitions acquired
of Verteda and GolfBox in October 2016 and November
2016 respectively.
In the current year $12.2 million or 51% of operating
revenue is sticky, recurring annuity revenue. This compares
to $5.7 million, or 50% of operating revenue, in the prior
reporting period.
Net profit after tax before amortisation (NPATA) and
significant items was $2.5 million. Amortisation in the
year primarily associated with acquired intangibles
was $4.1 million. The statutory result also included
$9.2 million of material one-off net costs associated
with the European acquisitions and ASX IPO process.
Earnings before Interest, Tax, Depreciation and
Amortisation (EBITDA) before significant items was
$1.6 million, compared to $0.5 million in the prior period.
This excludes $8.3 million of one-off significant net costs
associated with the acquisitions and the IPO in the
current year. Normalised for a full year of Verteda and
GolfBox acquisitions, the EBITDA profit would have
been $3.3 million.
During the year, as noted earlier, MSL has continued
to invest in its proprietary software and data solutions
spending over $4.3 million or 18% of revenue (2016: $2.0
million, 18% of revenue) on our solutions. The company
policy is to expense all research & development to the
profit and loss statement in the period incurred, rather
than capitalise these costs as is the practice by many
companies in the software sector.
›
›
›
integration of the Verteda (UK) business;
first sales of Australian products into UK Verteda
customers; and
first US customer in December 2016.
MPOWER GOLF
Services the golf clubs and associations markets on a
global basis. The segment includes the GolfBox (Denmark)
business acquired in November 2016.
The segment revenue in the year was $6.4 million, up 87%
on the prior reporting period. Golf contributed $1.3 million
EBITDA (FY16: $0.5 million).
Key highlights in the year included:
›
›
›
integration of the GolfBox business;
first golf client in the UK; and
appointed strategic technology partner of Golf
Australia in October 2016, following on from our
earlier appointment of strategic technology partner
of the PGA Australia.
MPOWER BI
Services the sports, leisure and hospitality clients
with a business analytics solution providing historical,
current and predictive views of the business operations.
The solution is a cloud software as a service solution
able to be sold stand-alone or in conjunction with Venue
& Golf products.
The segment revenue in the year was $0.7 million, up 378%
on the prior reporting period. MPower BI contributed a
loss of $0.1 million EBITDA (FY16: $0.1 million).
Key highlights in the year included:
OPERATIONS
›
first enterprise sale to a customer group of entities;
We have continued to achieve good growth outcomes
in each of our key market segments. Looking at key
highlights in each of these sectors:
› Golf Australia commitment as part of the strategic
technology partnership to roll-out a base level
solution to 1,600 golf clubs in Australia.
MPOWER VENUE
MPOWER MEDIA
Services the stadia, arena and registered clubs (excluding
golf clubs) on a global basis. This segment includes the
Verteda (UK) business acquired in October 2016.
The segment revenue in the year was $15.8 million, up
112% on the prior reporting period. Venues contributed
$2.4 million EBITDA (FY16: $1.5 million).
Services the sports, leisure and hospitality clients with
loyalty/media member engagement solutions, and
facilitates relationships with media partners. The segment
includes the Pallister Games assets acquired in May 2017.
The segment revenue in the year was $0.9 million, up
182% on the prior reporting period. Media contributed
$0.3 million EBITDA (FY16: $0.0 million).
3
MPower MSL Annual Report 2017 MANAGING DIRECTOR’S REPORT
Key highlights in the year included:
MSL’s key criteria for assessing acquisitions are:
›
Integration of Pallister games to the loyalty/media
platform;
› Execution of a reseller agreement with a major
hospitality company;
› Growth of the marketplace of clients;
›
›
Filling a gap in relation to technology or staff
capabilities;
Positively improve EBITDA; and
› Execution of first clients with loyalty platform linked
› Complement the international profile of MSL.
to a shopping facility.
GROWTH STRATEGY
MSL’s approach to the global market continues to be
driven by a strong focus on servicing its clients’ needs,
targeting strategic opportunities for new business and
acquiring businesses that complement and enhance
our core business.
MSL’s growth strategy is based upon four key components:
On 7th July, MSL announced its intent to acquire Pricap
Services Pty Ltd (Pricap). The binding Letter of Intent is
conditional upon due diligence and MSL Board approval.
Subject to due diligence, Pricap meets the criteria
highlighted above. Pricap currently provides its solutions
to 125+ clubs in the Sports, Leisure and Hospitality market,
predominantly in the Australian golf sector. At the time
of this report the due diligence is still in progress.
1. Organic growth within each sales segment
INVESTMENTS
Zuuse
At 30 June 2017, MSL continues to hold a 30% investment
in the Zuuse business, which is being held for sale. The
asset in the balance sheet is recorded at $2.2 million,
with the investment recorded at 6c per share.
Zuuse is non-core to the MSL business, and is a full
asset lifecycle solution with market leading technology
blending 3D building information modelling (BIM)
capability, mobility and information management In
August 2017, Zuuse have undertaken a further capital
raising at 15.5c per share on a valuation of $21 million.
Zuuse are also in a process to merge with Progressclaim.
The public documents indicate an increase to the notional
value of Zuuse shares if successful. The MSL board is
monitoring this as part of the sale process.
Thank you for your continuing support in our business,
as we remain focused on achieving our growth objectives
for MSL. I look forward to providing you with a business
update at our Annual General Meeting in November.
Craig Kinross
Managing Director & Chief Executive Officer
The scalability of the MPower platform enables clients
to use as much of the MPower platform as their size
and sophistication requires. Once clients are on the
MPower platform they have more flexibility to bring
on more MPower modules or 3rd party products via
the open Application Programming Interface (API) to
continue meeting their requirements into the future
as their operational requirements evolve.
2. Increasing customers using the MPower Business
Intelligence (BI) solution
Central to the value proposition in the future of the
MPower platform is our BI solution. Our clients have a
need to not only know their customers but how they
will behave. The ability for the MPower BI solution
to collect data from multiple systems in a venue and
provide actionable insights quickly allows our clients
to achieve this.
3. Cross-sell of products across geographical and
sales segments
MSL can leverage the core open architecture
of the MPower platform to scale products into
new segments and geographies leveraging the
integration core. This has been demonstrated
during the year, leveraging sales synergies quickly
in relation to the new acquired businesses.
4. Accelerating growth through acquisitions
MSL has demonstrated a strong track-record
of successfully acquiring good businesses and
integrating these into the core operations. MSL
uses acquisitions to enter new markets and new
geographies, acquire new software capabilities
and knowledge, acquire new customer bases and
ultimately develop cross-sell opportunities among
acquisitions and existing sales segments. We
believe the acquisition of complementary software
companies to be an efficient and relatively low-cost
growth strategy to build our presence and expand
our customer base.
4
MPower MSL Annual Report 2017 MSL BOARD OF DIRECTORS
Kenneth John Down
Non-Executive Chairman
Craig Kinross
Managing Director and Chief Executive Officer
John Down was appointed as non-executive Chairman
in October 2008. His extensive private and public sector
experience has contributed to forming the corporate
vision for, and the building of, the company that MSL has
become today.
In 1997 he founded Viking Industries Ltd, a multi- faceted
marine industrial business which was subsequently sold
as a mid-cap publicly listed company to private equity in
2008. He was appointed to the position of Co-ordinator
General and Director-General, in the Office of Major
Projects, by the Premier of Queensland in 1993, and held
this position until 1996. In 1970, John co-founded the
GRM Group of Companies, a multifaceted agribusiness
with operations in over 50 countries, which was also sold
to private equity in 1992.
He has significant Board experience in both public and
private companies. He is currently the Chairman of Asia
Pacific Aircraft Storage Pty Ltd; Chairman of Nutrafruit
Pty Ltd and is on the Council of Brisbane Boys College.
His former Board appointments include AUSTRADE
(Deputy Chairman), Export Finance Insurance Corporation;
QCT Resources Ltd; Annaconda Nickel Ltd; Santos Ltd
– UK & USA; and Herron Pharmaceutical Advisory Board.
John holds a Bachelor of Economics from the University
of Queensland and a Master of Economics from the
University of New England.
Interest in Shares and Options
7,385,347 fully paid Ordinary Shares and 785,714 Options
over ordinary Shares of MSL Solutions Limited were held
by Mr Down and associated entities as at 30 June 2017.
As part of the Company’s IPO, Mr Down voluntarily agreed
to escrow all fully paid shares held at the date of listing
(being 7,385,347 ordinary shares), pending completion
of FY18 results.
Craig was appointed from within MSL to the role
of Managing Director and Chief Executive Officer in
November 2012, and has facilitated important strategic
partnerships, acquisitions and capital raisings to profitably
grow earnings by over 400% during this time. Previously
he served as the Company’s Chief Operating Officer from
2010 to 2012, where he was instrumental in the restructure
of MSL.
He brings almost 20 years software industry experience
holding various senior operations and finance management
roles in successful international companies. His career also
includes over 10 years’ experience with global software
company Mincom, which operated in over 40 countries.
He was a key member of the deal team securing the sale
of the business to a US private equity business for over
$300 million, and post the acquisition was the internal
company lead of a substantial organisation restructure
during the Global Financial Crisis reducing headcount
and costs by over 30%, while still maintaining a platform
for revenue growth.
He has also held corporate finance roles with Invensys Plc
and Credit Suisse Financial Products in London, and prior
to moving to London Craig started his career at KPMG
Brisbane as an accountant in their Business Advisory
Group. He holds a Bachelor of Commerce degree from the
University of Queensland and is a Member of The Institute
of Chartered Accountants, Australia and New Zealand.
Interest in Shares and Options
10,498,271 fully paid Ordinary Shares of MSL Solutions
Limited were held by Mr Kinross and associated entities
as at 30 June 2017. As part of the Company’s IPO, Mr
Kinross voluntarily agreed to escrow all fully paid shares
held at the date of listing, (being 10,498,271 ordinary
shares), pending completion of FY18 results.
5
MPower MSL Annual Report 2017 MSL BOARD OF DIRECTORS
Ian Daly
Non-Executive Director
Kaylene Gaffney
Non-Executive Director
Ian joined the Board in December 2009 bringing over
48 years of first hand corporate experience to MSL.
Kaylene joined the MSL Board in 2017, having enjoyed
a 26-year career in senior financial roles.
She has previously served as non-executive Director and
Chair of the Audit and Risk Committee for Wotif.com.
Her senior financial role experience is in the retail, aviation,
telecommunications and information technology sectors.
Kaylene is a non-executive Director and Chair of the Audit
and Risk Committee for National Veterinary Care Limited.
Kaylene holds a Masters Degree in International Business
from the Queensland University of Technology, and is a
Graduate member of The Australian Institute of Company
Directors and is a Fellow of The Institute of Chartered
Accountants Australia and New Zealand.
Interest in Shares and Options
80,000 fully paid Ordinary Shares of MSL Solutions
Limited were held by Ms Gaffney and associated
entities as at 30 June 2017.
He commenced his career with John Rawlinson &
Partners in 1967 as a Senior Chartered Quantity Surveyor,
and over 31 years grew with the firm to become Qld
Managing Director and Chairman of The Rawlinsons
Group, recognised as one of Australia’s leading quantity
surveying and project management consultancies
operating from 21 local and overseas offices.
He joined the Brisbane Marine Industry Park in 1999,
then its successor Viking Industries Ltd in 2001 serving
as an Executive Director to both organisations. Ian
currently serves as a Director of Zuuse Pty Ltd, a software
company servicing the infrastructure, building and asset
management sectors.
Ian is a Fellow of The Royal Institution of Chartered
Surveyors and a Fellow of the Australian Institute of
Quantity Surveyors.
Interest in Shares and Options
9,214,286 fully paid Ordinary Shares and 785,714 Options
over ordinary Shares of MSL Solutions Limited were held
by Mr Daly and associated entities at 30 June 2017. As
part of the Company’s IPO, Mr Daly voluntarily agreed
to escrow all fully paid shares held at the date of listing
(being 8,821,429 ordinary shares), pending completion
of FY18 results.
6
MPower MSL Annual Report 2017 Dr Richard Holzgrefe
Non-Executive Director
David Trude
Non-Executive Director
Rick was appointed as a non-executive Director in
December 2007. He brings corporate experience
across multiple industry sectors to the Company.
David joined the Board in 2017 bringing over 40 years’
experience as a senior corporate executive within the
banking and securities industries.
He joined MSL from VLRQ Pty Ltd where he served
as a Director from 1998 to 2004. He was a Director
of Kenlynn Property Syndicates Pty Ltd from 1997 to
2000, and co-founded The BOH Dental Group, in 1976.
He left in 1997 to pursue interests in the Property and
Retirement Living sectors.
He currently serves as Chairman of Urana Road
Developments Pty Ltd and is a Director of Holmac
Holdings Pty Ltd.
Richard holds a Bachelor of Dental Science degree
from the University of Queensland.
Interest in Shares and Options
12,611,917 fully paid Ordinary Shares and 785,714 Options
over ordinary Shares of MSL Solutions Limited were held
by Dr Holzgrefe and associated entities as at 30 June 2017.
As part of the Company’s IPO, Dr Holzgrefe voluntarily
agreed to escrow all fully paid shares held at the date
of listing (being 12,561,917 ordinary shares), pending
completion of FY18 results.
He was formerly Managing Director, Australian Chief
Executive Officer/Country Manager of Credit Suisse,
Australia for 10 years from 2001.
He has served as Chairman of Baillieu Holst Limited
since 2010 having been a Board member since 2007,
is Chairman of Waterford Retirement Village, Hansen
Technologies Limited and East West Line Parks Limited,
a member of the Board of Chi-X Australia Pty Ltd and
non-executive Director of Acorn Capital Investment
Fund Limited, an ASX listed entity.
David holds a Bachelor of Commerce Degree from the
University of Queensland, is a Senior Associate of the
Financial Services Institute of Australasia, a member
of the Australian Institute of Company Directors and
Master Member of the Stockbrokers and Financial
Advisers Association.
Interest in Shares and Options
300,000 fully paid Ordinary Shares of MSL Solutions
Limited were held by Mr Trude and associated entities as
at 30 June 2017. As part of the Company’s IPO, Mr Trude
voluntarily agreed to escrow all fully paid shares held
at the date of listing (being 250,000 ordinary shares),
pending completion of FY18 results.
7
MPower MSL Annual Report 2017 MSL BOARD OF DIRECTORS
Andrew Ritter
Chief Financial Officer and Company Secretary
Andrew Ritter was appointed as Company Secretary
on 27 March 2017, and appointed as Chief Financial
Officer on 17 August 2017. Mr Ritter has over 18 years of
international finance experience, with recent roles as
CFO and Company Secretary of ASX listed global IT &
Telco organisations. Andrew is a Chartered Accountant,
holds a Bachelor of Commerce degree, a Graduate
Diploma of Applied Corporate Governance and is a
Fellow of the Governance Institute of Australia and
the International Institute of Chartered Secretaries
and Administrators.
The Company Secretary for MSL prior to Mr Ritter’s
appointment was Peter Williams and John Barton.
8
MPower MSL Annual Report 2017 CORPORATE GOVERNANCE STATEMENT
In accordance with the ASX Listing Rules, the Board has assessed MSL’s current practice against the ASX Corporate
Governance Principles and Recommendations 3rd edition, and outlines its assessment below:
PRINCIPLES AND RECOMMENDATIONS
COMPLIANCE
COMPLY
Principle 1 – Lay solid foundations for management and oversight
1.1
Establish the functions expressly
reserved to the Board and those
delegated to management, and
disclose those functions.
The Board is responsible for overall
corporate governance of the Company.
Complies.
The role of the Board and delegation
to management have been formalised
in the corporate governance charter
which outlines the main corporate
governance practices in place for the
Company. The Board and each Director
are committed to the charter. The conduct
of the Board is also governed by the
Company’s constitution, and where there
is inconsistency with that document, the
constitution prevails to the extent of the
inconsistency.
The charter will be reviewed and amended
from time to time as appropriate taking
into consideration practical experience
gained in operating as a listed Company.
1.2 Undertake appropriate checks before
appointing a person as a director,
and provide shareholders with all
material information relevant to a
decision on whether or not to elect
or re-elect a director.
The Company has completed police
checks, insolvency and banned
director searches in relation to the
existing Directors. The Company will
conduct appropriate checks for future
appointments.
1.3 Have a written agreement with each
director and senior executive setting
out the terms of their appointment.
The Company has entered into
written agreements with each
Director and senior executive.
1.4
1.5
The Company Secretary should be
accountable directly to the Board
on all matters to do with the proper
functioning of the Board.
Establish a diversity policy and
disclose the policy or a summary
of that policy. The policy should
include requirements for the Board
to establish measurable objectives
for achieving gender diversity and
for the Board to assess annually
both the objectives and progress in
achieving them, for reporting against
in each reporting period.
This is consistent with the charter and
corporate structure of the Company.
The Company Secretary has a direct
relationship with the Board in relation
to these matters and operates
independently of the executive.
The diversity policy for the Company
has only recently been established
and accordingly, the Company has not
reported on measurable objectives in
any annual report to date.
Complies.
Complies.
Complies.
Does not comply,
however, in accordance
with the policy the
Company intends to
disclose the measurable
objectives for achieving
gender diversity in each
annual report and the
Company’s progress
in achieving diversity
objectives.
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MPower MSL Annual Report 2017 CORPORATE GOVERNANCE STATEMENT
PRINCIPLES AND RECOMMENDATIONS
COMPLIANCE
COMPLY
1.6 Have a process for periodically
evaluating the performance of
the Board, its committees and
individual directors, and disclose
that process and, at the end of
each reporting period, whether
such performance evaluation
was undertaken in that period.
1.7 Have a process for periodically
evaluating the performance of the
Company’s senior executives, and
disclose that process and, at the end
of each reporting period, whether
such performance evaluation was
undertaken in that period.
Principle 2 – Structure the Board to add value
2.1
The Company should have a
nomination committee, which has
at least three members, a majority
of independent directors and is
chaired by an independent director.
The functions and operations of
the nomination committee should
be disclosed.
2.2 Have and disclose a Board skills
matrix, setting out what the Board is
looking to achieve in its membership.
Does not comply,
however, in accordance
with the charter the
Company intends to
evaluate performance of
the Board and disclose
for each reporting period
whether an evaluation
has been undertaken.
Complies.
The corporate governance charter
provides for regular performance
reviews to be conducted.
The Board’s broad function is to formulate
strategy and set financial targets for the
Company, monitor the implementation and
execution of strategy and performance
against financial targets, appoint and
oversee the performance of executive
management, and generally take an
effective leadership role in relation to
the Company.
The Chairman, with assistance from
the nomination committee, annually
assesses the performance of Directors
and senior executives, and the Chairman’s
performance is assessed by the other
Directors.
A nomination committee has been
established with its own charter and
consists of all of the Directors with John
Down as the committee chairman.
Complies.
The Company has established charter
rules for the nomination committee as a
guide for Board deliberations. Together,
the Directors have a broad range of
experience, expertise, skills, qualifications
and contacts relevant to the Company
and its business.
Does not presently
comply, however
the Board intends to
formalise a skills matrix.
10
MPower MSL Annual Report 2017 PRINCIPLES AND RECOMMENDATIONS
COMPLIANCE
2.3 Disclose the names of the directors
that the Board considers to be
independent directors, and an
explanation of why the Board is of
that opinion if a factor that impacts
on independence applies to a
director, and disclose the length
of service of each director.
Kenneth John Down (appointed 28
October 2008) – John is Chairman of the
Company and is an independent director.
Ian Daly (appointed 18 December 2009) –
Ian is an independent director.
Kaylene Gaffney (appointed 1 March 2017)
- Kaylene is an independent director.
COMPLY
Complies.
David Trude (appointed 9 March 2017) -
David is an independent director.
The Board is of the opinion that Kenneth
John Down and Ian Daly are independent
Directors because they are not substantial
shareholders in the Company.
The Board notes the following Directors
are deemed not independent for the
purposes of the Guidelines:
Craig Kinross (appointed 30 November
2012) – Craig is an executive director
of the Company.
Richard Holzgrefe (appointed 18
December 2007) – Richard is a substantial
shareholder of the Company.
The Company currently has a six member
Board, of whom four (John Down, Ian Daly,
Kaylene Gaffney
and David Trude) are considered
independent non-executive Directors.
Complies.
The Chairman, John Down, is an
independent non-executive Director.
Complies.
The Company’s managing director and
chief executive officer, Craig Kinross, is
not the same individual as the Chairman.
This is consistent with the corporate
governance charter and processes
implemented by the Company.
Complies.
2.4 A majority of the Board should be
independent directors.
2.5 The chairman of the Board should
be an independent director and
should not be the CEO.
2.6 There should be a program for
inducting new directors and
providing appropriate professional
development opportunities for
directors to develop and maintain
the skills and knowledge needed
to perform their role as a director
effectively.
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MPower MSL Annual Report 2017 CORPORATE GOVERNANCE STATEMENT
PRINCIPLES AND RECOMMENDATIONS
COMPLIANCE
COMPLY
Principle 3 – Act ethically and responsibly
3.1
Have a code of conduct for the
Board, senior executives and
employees, and disclose that
code or a summary of that code.
The Company has adopted a code of
conduct, which sets out a framework to
enable Directors to achieve the highest
possible standards in the discharge of their
duties and to give a clear understanding
of best practice in corporate governance.
Complies.
Principle 4 – Safeguard integrity in corporate reporting
The Company has established an audit and
risk management committee to assist and
report to the Board.
Complies.
The audit and risk management
committee consists of Kaylene Gaffney
(committee chair), Ian Daly and
Richard Holzgrefe.
This is consistent with the approach
adopted by the audit committee
and Board.
Complies.
4.1
The Company should have an audit
committee, which consists of only
nonexecutive directors, a majority of
independent directors, is chaired by
an independent chairman who is not
chairman of the Board, and has at
least three members.
The functions and operations of the
audit committee should be disclosed.
4.2 The Board should, before approving
financial statements for a financial
period, receive a declaration from the
CEO and CFO that, in their opinion,
the financial records have been
properly maintained and that the
financial statements comply with the
appropriate accounting standards
and give a true and fair view of the
financial position and performance of
the Company, formed on the basis of
a sound system of risk management
and internal controls, operating
effectively.
4.3 The Company’s auditor should
attend the AGM and be available to
answer questions from security
holders relevant to the audit.
MSL’s auditor will be requested to attend
the AGM and shareholders
will be entitled to answer questions
in accordance with the Corporations
Act and these Guidelines.
Complies.
Principle 5 – Make timely and balanced disclosure
5.1
Have a written policy for complying
with continuous disclosure
obligations under the Listing Rules,
and disclose that policy or a
summary of it.
MSL has a written continuous disclosure
policy which is designed to ensure that
all material matters are appropriately
disclosed in a balanced and timely manner
and in accordance with the requirements
of the ASX Listing Rules.
Complies.
12
MPower MSL Annual Report 2017 PRINCIPLES AND RECOMMENDATIONS
COMPLIANCE
COMPLY
Principle 6 – Respect the rights of security holders
6.1
Provide information about the
Company and its governance
to investors via its website.
The corporate governance charter and
other applicable policies are available on
the Company’s website.
Complies.
6.2 Design and implement an
investor relations program to
facilitate effective two-way
communication with investors.
The Company aims to ensure that all
Shareholders are well informed of all major
developments affecting the Company and
that the full participation by Shareholders
at the Company’s AGM is facilitated.
6.3 Disclose the policies and
processes in place to facilitate
and encourage participation at
meetings of security holders.
6.4 Give security holders the option to
receive communications from, and
send communications to, the
Company and its share registry
electronically.
Principle 7 – Recognise and manage risk
The Company intends to facilitate effective
participation in the AGM, as well as the
ability to submit written questions ahead
of the AGM. The Company intends to
adopt appropriate technologies to
facilitate the effective communication
and conduct of general meetings.
The Company has instructed its share
registry to facilitate this option for
investors, as well as future shareholders
at appropriate times.
7.1
7.2
The Board should have a risk
committee which is structured so
that it consists of a majority of
independent directors, is chaired by
an independent director, and has at
least three members.
The functions and operations of the
risk committee should be disclosed.
The Company has a combined audit and
risk management committee. See above
for independent status of the committee
members.
The functions and operations of the
committee are established under the
charter.
The Board or a committee of the
Board should review the entity’s
risk management framework with
management at least annually to
satisfy itself that it continues to be
sound, and disclose, in relation to
each reporting period, whether
such a review has taken place.
The charter establishes the role
of the committee. The committee
will establish the risk management
framework.
Does not presently
comply, however the
Company is consulting
with its advisers to
implement an effective
program.
The Company has not
disclosed a formal policy
or process, but has
however engaged a
recognised and reputable
share registry service
provider to further these
objectives.
Complies.
Does not comply to the
extent that the Company
does not have a separate
risk committee, however
the Board has formed
the view that the audit
and risk management
committee is
appropriately structured
and independent from
the Chairman and
executive to effectively
fulfil its role.
Does not comply to
the extent that the
committee is newly
formed and has not
conducted an annual
review.
13
MPower MSL Annual Report 2017 CORPORATE GOVERNANCE STATEMENT
PRINCIPLES AND RECOMMENDATIONS
COMPLIANCE
COMPLY
7.3 Disclose if the Company has an
internal audit function, how the
function is structured and what
role it performs, or if it does not
have an internal audit function,
that fact and the processes the
Company employs for evaluating
and continually improving the
effectiveness of its risk management
and internal control processes.
7.4 Disclose whether the Company has
any material exposure to economic,
environmental and social
sustainability risks and, if so, how it
manages those risks.
Due to the Company’s limited number
of employees and relative nature and
scale of its operations, the costs of an
independent internal audit function
would be disproportionate. The Company
has an external auditor and the audit and
risk management committee will monitor
and evaluate material or systemic issues.
Does not comply due
to the nature and scale
of operations, however
the Board believes it
and the audit and risk
management committee
have adequate oversight
of the existing
operations.
The Board does not believe the Company
has any material exposure to those risks.
Complies.
Principle 8 – Remunerate fairly and responsibly
8.1
The Board should have a
remuneration committee which is
structured so that it consists of a
majority of independent directors, is
chaired by an independent director,
and has at least three members.
The functions and operations
of the remuneration committee
should be disclosed.
8.2 The policies and practices regarding
the remuneration of non-executive
directors, and the remuneration of
executive directors and other senior
executives, should be separately
disclosed.
8.3 If the Company has an equity-based
remuneration scheme, it should have
a policy on whether participants are
permitted to enter into transactions
(whether through the use of
derivatives or otherwise) which limit
the economic risk of participating in
the scheme, and disclose that policy
or a summary of it.
The Board has established a remuneration
committee to assist the Board to discharge
its responsibilities in relation to
remuneration and issues relevant to
remuneration policies and practices,
including those for senior management
and non-executive Directors.
The remuneration committee consists
of David Trude (committee chairman),
Richard Holzgrefe and John Down.
The composition and role of the
remuneration committee is set out in
the remuneration committee charter.
The Company has adopted remuneration
policies which comply with the Guidelines,
as outlined in this Annual Report, including
separately disclosing the remuneration
of nonexecutive Directors, and the
remuneration of executive Directors and
other senior executives.
No Director or senior executive is involved
directly in deciding their own remuneration.
The Company operates an equity based
remuneration scheme. In accordance with
the Company’s Securities Trading Policy
participants are not permitted to enter
into transactions which limit economic
risk without written clearance.
Complies.
Complies.
Complies.
14
MPower MSL Annual Report 2017 BOARD CHARTER
BOARD COMMITTEES
The Board has adopted a charter which formally
recognises its responsibilities, functions, power and
authority and composition. This charter sets out other
things which are important for effective corporate
governance including:
›
›
›
›
›
›
›
a detailed definition of ‘independence’;
a framework for the identification of candidates
for appointment to the Board and their selection
(including undertaking appropriate background
checks);
a framework for individual performance review
and evaluation;
proper training to be made available to Directors
both at the time of their appointment and on an
on-going basis;
basic procedures for meetings of the Board and its
committees including frequency, agenda, minutes
and private discussion of management issues among
non-executive Directors;
ethical standards and values (in a detailed code of
ethics and values);
dealings in securities (in a detailed code for securities
transactions designed to ensure fair and transparent
trading by Directors and senior management and
their associates); and communications with
Shareholders and the market.
The purpose of the charter is to ‘institutionalise’ good
corporate governance and to build a culture of best
practice both in MSL’s internal practices and its dealings
with others. The management function is conducted by,
or under the supervision of the Chief Executive Officer
as directed by the Board (and by officers to whom the
management function is properly delegated by the Chief
Executive Officer). Management must supply the Board
with information in a form, timeframe and quality that
will enable the Board to discharge its duties effectively.
Directors are entitled to request additional information
at any time they consider it appropriate.
The Board collectively, and individual Directors, may
seek independent professional advice at MSL’s expense,
subject to the approval of the Chairman or the Board
as a whole.
The Board may from time to time establish appropriate
committees to assist in the discharge of its responsibilities.
The Board has established the Audit and Risk Committee,
and the Remuneration and Nomination Committee.
Other committees may be established by the Board
as and when required.
AUDIT AND RISK COMMITTEE
Under its charter, this committee should consist of at
least three members of the Board, only Non- Executive
Directors, a majority of independent Directors and an
independent chair who is not Chairman of the Board.
Current members of this Committee are Kaylene
Gaffney (chairman), Richard Holzgrefe and Ian Daly.
The Audit and Risk Committee assist the Board in
carrying out its accounting, auditing and financial
reporting responsibilities including:
›
›
›
overseeing MSL’s relationship with the external
auditor and the external audit function generally;
overseeing the preparation of the financial
statements and reports;
overseeing MSL’s financial controls and systems;
› managing the process of identification and
management of financial risk; and
› Non-committee members, including members of
management and the external auditor, may attend
meetings of the committee by invitation of the
committee chair.
NOMINATION COMMITTEE
Under its charter, this committee should consist of all
Directors. The Nomination Committee assist the Board
and make recommendations to it about the appointment
of new Directors (both executive and non-executive) and
of the CEO and CFO and, to the extent delegated to it by
the Board, other Senior Executives. Its current members
are all Directors.
The functions of the Nomination Committee are as follows:
›
›
›
›
development of criteria (including skills, qualifications
and experience) for Board candidates;
identification and consideration of possible candidates,
and recommendation to the Board;
establishment of procedures, and recommendations
to the Chairman, for the proper oversight of the
Board and management; and
ensuring the performance of each Director, and of
senior management, is reviewed and assessed each
year using procedures adopted by the Board.
15
MPower MSL Annual Report 2017 CORPORATE GOVERNANCE STATEMENT
REMUNERATION COMMITTEE
SECURITIES TRADING POLICY
The Board has adopted a policy for trading in securities
(Trading Policy), which explains and provides guidance
to Directors, identified employees including senior
management, and other employees of MSL, where they
are contemplating dealing in MSL’s securities or the
securities of entities with whom MSL may have dealings.
The Trading Policy is designed to ensure that any trading
in MSL’s securities is in accordance with the law and
minimises the possibility of misperceptions arising in
relation to Directors’ and employees’ dealings in MSL’s
securities or securities of other entities.
The Trading Policy is directed at dealing in MSL’s
securities by the Directors and employees, dealings
through entities or trusts controlled by a relevant person,
or in which they have an interest, and encouraging family
or friends to so deal. It also extends to addressing dealings
in the securities of other entities that may be transacting
with, or be counterparties of, MSL.
Any non-compliance with the Trading Policy will
be regarded as an act of serious misconduct. The
Trading Policy is available on MSL’s website at
www.mpowermsl.com.
CODE OF CONDUCT
The Board is committed to a high level of integrity and
ethical standards in all business practices. Accordingly,
the Board has adopted a formal Code of Conduct that
outlines how MSL expects its representatives to behave
and conduct business in the workplace and includes
legal compliance and guidelines on appropriate ethical
standards. All employees of MSL (including temporary
employees, contractors and Company Directors) must
comply with the Code of Conduct.
The Code is designed to:
›
›
provide a benchmark for professional behaviour
throughout MSL;
support MSL’s business reputation and corporate
image within the community; and
› make Directors and other employees aware of the
consequences if they breach the policy.
The purpose of this committee is to assist the Board
and report to it on remuneration and related policies
and practices (including remuneration of senior
management and non-executive Directors). Its current
members are David Trude (chairman), Richard Holzgrefe,
and John Down.
The functions of the Remuneration Committee are
as follows:
›
›
›
›
review and evaluation of market practices and trends
on remuneration matters;
recommendations to the Board about the Group’s
remuneration policies and procedures;
oversight of the performance of senior management
and non-executive Directors; and
recommendations to the Board about remuneration
of senior management and non-executive Directors.
CORPORATE GOVERNANCE POLICIES
CONTINUOUS DISCLOSURE POLICY
MSL is required to comply with the continuous
disclosure requirements of the ASX Listing Rules and
the Corporations Act. MSL is aware of its obligation
to keep the market fully informed of any information
it becomes aware of concerning MSL which may have
a material effect on the price or value of the Shares,
subject to certain exceptions.
The Board has adopted a continuous disclosure policy
(Disclosure Policy), which sets out procedures to be
adopted by the Board to ensure MSL complies with its
continuous disclosure obligations to keep the market
fully informed of information which may have a material
effect on the price or value of the Company’s securities
and to correct any material mistake or information in
the market.
The Board is responsible for determining whether
information is such that it would have a material effect
on the price or value of MSL’s securities. The Disclosure
Policy provides a framework for the Board and officers
of MSL to internally identify and report information
which may need to be disclosed and sets out practical
implementation processes in order to ensure any
identified information is adequately communicated to
ASX and Shareholders. The Disclosure Policy also sets
out the exceptions to the disclosure requirements.
Any non-compliance with the Disclosure Policy will
be regarded as an act of serious misconduct. The
Disclosure Policy is available on MSL’s website at
www.mpowermsl.com
16
MPower MSL Annual Report 2017 COMMUNICATION WITH SHAREHOLDERS
MSL aims to communicate all important information
relating to MSL to its Shareholders. Additionally, the
Company recognises that potential investors and other
interested stakeholders may wish to obtain information
about the Company from time to time.
To achieve this, the Company communicates information
regularly to Shareholders and other stakeholders through
a range of forums and publications, including MSL’s
website, at the annual general meeting, through the
Annual Report and ASX announcements.
DIVERSITY POLICY
MSL is committed to complying with the diversity
recommendations published by ASX and promoting
diversity among employees, consultants and senior
management, and has adopted a policy in relation to
diversity (Diversity Policy).
MSL defines diversity to include, but not be limited to,
gender, age, disability, ethnicity, marital or family status,
religious or cultural background, sexual orientation and
gender identity.
The Diversity Policy adopted by the Board outlines
MSL’s commitment to fostering a corporate culture that
embraces diversity and provides a process for the Board
to determine measurable objectives and procedures to
implement and report against to achieve its diversity goals.
MSL’s Nominations Committee is responsible for
implementing the Diversity Policy, setting the Company’s
measurable objectives and benchmarks for achieving
diversity and reporting to the Board on compliance with
the Diversity Policy.
As part of its role, MSL’s Remuneration Committee is
responsible for formulating and implementing a Company
remuneration policy. Under the Diversity Policy, a facet
of this role will include reporting to the Board annually
on the proportion of men and women in MSL’s workforce
and their relative levels of remuneration.
The Diversity Policy is available on MSL’s website at
www.mpowermsl.com.
17
MPower MSL Annual Report 2017 2017
DIRECTOR'S REPORT
DIRECTOR'S REPORT
The Directors of MSL Solutions Limited (‘MSL’ or ‘the
Company’) submit their report together with the
consolidated financial report of the Company, comprising
the Company and its controlled entities for the year
ended 30 June 2017 and the audit report thereon.
PRINCIPAL ACTIVITIES
MSL is a global provider of hosted, software as a
service (SaaS) and on-site deployed solutions to clients
in the following key segments in the sport, leisure and
hospitality sectors:
DIRECTORS
The names of the Directors of the Company in office
during the year and to the date of this report are:
NAME
Non-Executive
DIRECTOR SINCE
Mr Kenneth J (John) Down
(Chairperson)
October 2008
Mr Ian M Daly
December 2009
Ms Kaylene J Gaffney
March 2017
Dr Richard W Holzgrefe
December 2007
Mr David D Trude
March 2017
Executive
Mr Craig G Kinross
(Managing Director and
Chief Executive Officer)
November 2012
› Golf clubs and associations;
› Registered clubs;
›
Stadia and arenas; and
› Other hospitality and entertainment venues.
MSL provides scalable full venue business software
applications and data solutions integrated through the
MPower core integration architecture which connects
member organisations’ business software and data needs,
to improve guest engagement, loyalty, gain business
efficiencies and governance.
The MPower platform combines software applications,
data and media channels in an open architecture platform
that provides total integration from the back office to
member facing solutions encompassing the full needs
of the business. The MPower platform “connects the
dots” for the customer organisation connecting every
department of the business from food and beverage
point of sale, to membership, marketing, financials and
workforce management.
MSL can provide solutions to both small and large
organisations and associations and has an install base
of over 2,000 clients in over 20 countries.
The principal activities of MSL during the year ended
30 June 2017 were related to sales, implementation
and support of the MPower platform and component
solutions to our customer base, but also included the
following operational milestones:
› Oct 2016:
MSL appointed Golf Australia Strategic
Technology Partner
› Oct 2016:
Acquired Verteda Holdings Limited (UK)
› Nov 2016: Acquired GolfBox A/S (Denmark)
› Dec 2016: Completed first client sales in US
› May 2017:
Acquired Pallister Games assets from
Ray Pallisters Pty Ltd.
In addition, the Company successfully listed on the
Australian Stock Exchange in May 2017.
20
MPower MSL Annual Report 2017 KEY FINANCIAL RESULTS
CONSOLIDATED SUMMARY OF RESULTS FOR THE PERIOD ENDED
30 JUNE 2017 (FROM CONTINUING OPERATIONS)
STATUTORY
RESULTS BEFORE
SIGNIFICANT ITEMS
Revenue
Gross Margin
EBITDA1
NPATA2
NPAT3
1. EBITDA is earnings before interest, tax, depreciation and amortisation
2. NPATA is net profit/(loss) after tax but before amortisation
3. NPAT is net profit/(loss) after tax
Reconciliation from statutory profit/(loss) to adjusted NPATA
Statutory loss after tax
Income tax (benefit)/expense
Significant items (per note 5)
Amortisation and depreciation
Adjusted EBITDA
Income tax benefit/(expense)
Depreciation expense
Adjusted NPATA
Amortisation expense
Adjusted NPAT
30-JUN-17
$000
23,665
18,256
(6,725)
(6,641)
(10,763)
30-JUN-16
$000
11,289
9,391
308
418
(1,362)
30-JUN-17
$000
23,665
18,256
1,620
2,516
(1,606)
30-JUN-16
$000
11,289
9,391
472
857
(1,041)
30-JUN-17
$000
30-JUN-16
$000
(10,763)
(1,063)
9,157
4,289
1,620
1,063
(167)
2,516
(4,122)
(1,606)
(1,362)
(466)
321
1,979
472
466
(81)
857
(1,898)
(1,041)
21
MPower MSL Annual Report 2017 DIRECTOR'S REPORT
COMPANY STRATEGY
MSL’s vision is to empower sport, leisure, hospitality
venues & guests globally with its unique open architecture
MPower platform.
MSL connects the full venue business software and data
needs for a member based organisation to grow their
revenues, gain efficiencies and improve governance.
MSL’s growth strategy is based upon four key
components; strong organic growth in existing sales
segments, cross-selling opportunities between sales
segments, expansion of the business intelligence &
analytics platform and accelerating growth through
acquisitions.
ORGANIC GROWTH WITHIN EACH SALES SEGMENT
The scalability of the MPower platform enables our
clients to increase the use of the MPower platform and
its modules as their business grows. MSL intend to grow
the use of the MPower platform and additional modules
through increased promotion and education by our sales
managers to existing customers and new customers.
CROSS-SELL OF PRODUCTS BETWEEN
SALES SEGMENTS
MSL’s ability to acquire companies with leading software
capabilities provides us with an opportunity to cross sell
software products across our expanded customer base.
MSL uses a direct sales & marketing strategy to offer
our client base an expanded suite of software solutions
through the MPower platform.
INCREASING THE NUMBER OF CUSTOMERS USING
THE MPOWER BI SOLUTION
Central to the value proposition of the MPower platform
is our BI Solution. Our clients have a need to not only
know their customers but how they will behave. The
ability for the MPower BI Solution to collect data from
multiple systems allows our clients to achieve this.
ACCELERATING GROWTH THROUGH ACQUISITIONS
MSL uses acquisitions to enter new markets and new
geographies, acquire new software capabilities and
knowledge, acquire new customer bases and ultimately
develop cross sell opportunities between acquisitions
and existing sales segments. We believe the acquisition
of complementary software companies, using the
following criteria, is an efficient and relatively low cost
growth strategy to build our presence and expand our
customer base:
›
›
›
›
grow the marketplace of clients;
fill a gap in relation to technology or staff capabilities;
positively improve EBITDA; and
complement the international growth profile of MSL.
DIVIDENDS
No dividends were paid to shareholders during the
financial year, and no dividend has been declared or
paid subsequent to the end of the financial year.
MEASURES OF PROFITABILITY AND
BASIS OF PREPARATION
The accounting policies adopted in the preparation of
this report, are summarised in Note 24 of the Financial
Statements.
SIGNIFICANT CHANGES IN STATE OF AFFAIRS
As at the reporting date, MSL has on issue 249,248,965
ordinary shares. During the period, the Company:
› MSL expanded via acquisition into the European
market with acquisitions of Verteda (UK) and GolfBox
(Denmark). The acquisitions of Verteda and GolfBox
have transformed MSL into a global player in the
sport, leisure and hospitality sector.
- Verteda is a leader in software solutions to the
sporting, hospitality and stadia clients in the UK
- GolfBox is a Danish IT company focused on
the development and sale of software for the
golf industry.
› Completed a $15 million capital raising by issuing
securities in an IPO on the Australian Stock Exchange.
No other significant changes in the state of affairs of the
Company occurred during the financial year, other than
those disclosed in this report.
22
MPower MSL Annual Report 2017 SUBSEQUENT EVENTS
The following matters have arisen since the end of the financial year which may materially affect operations of MSL,
the results of those operations, or the state of affairs of MSL in future financial years
› On 7th July 2017, MSL announced its intention to acquire 100% of the shares in Pricap Services Pty Ltd, subject
to satisfactory completion of due diligence and MSL Board approval;
› On 17th August 2017, MSL announced the appointment of Andrew Ritter as Chief Financial Officer of the Company.
In addition to the above the assets held for sale in Zuuse Pty Ltd are currently being held at $0.06 per share. Recent
trades in the month of July 2017 have been conducted at $0.155 on a valuation of Zuuse Pty Ltd of circa $21 million.
Zuuse Pty Ltd have undertaken a further capital raising for $1.5 million at 15.5c which has been successfully completed
as at the date of this report.
Zuuse Pty Ltd are in a process to merge with Progressclaim. The public documents indicate the notional value of
Zuuse should increase. The merger is proposed for completion by 13 September 2017.
FUTURE DEVELOPMENTS, PROSPECTS AND OPPORTUNITIES
Information regarding the Company’s future developments, prospects and business opportunities is included in the
report above. Overall, MSL will continue to:
› Enhance and develop its products and services;
› Expand services to clients geographically; and
›
Focus on increasing revenue and market share in the markets in which it operates, and enter new markets.
ENVIRONMENTAL ISSUES
There are no significant environmental regulations applying to the Company.
DIRECTORS’ MEETINGS
The number of Directors’ meetings (including meetings of committees of Directors) and number of meetings
attended by each of the Directors of the Company during the financial year are:
K J Down
I M Daly
K J Gaffney 1
R W Holzgrefe
C G Kinross
D D Trude 1
BOARD
AUDIT & RISK COMMITTEE
ELIGIBLE
ATTENDED
ELIGIBLE
ATTENDED
13
13
3
13
13
3
13
13
3
13
13
3
-
4
1
4
-
-
-
4
1
4
-
-
1 Kaylene Gaffney was appointed 1 March 2017, and David Trude was appointed on 9 March 2017.
For the year ended 30 June 2017, there were no meetings held for the Remuneration Committee or the Nomination
Committee, due to those committees only being formalised at the time of the Company’s IPO. The first meeting of
the Remuneration Committee was held subsequent to year end on 4 July 2017.
23
MPower MSL Annual Report 2017 REMUNERATION REPORT – AUDITED
The information provided in the remuneration report relates to the Company for the year ended 30 June 2017
and has been audited as required by section 308(3C) of the Corporations Act (2001).
The directors present the MSL Solutions Limited FY 2017 remuneration report, outlining key aspects of our
remuneration policy and framework, and remuneration awarded. This report is structured as follows:
1. Key management personnel covered in this report
2. Remuneration policy and link to performance
3. Elements of remuneration
4. Link between remuneration and performance
5. Remuneration expenses for executive KMP’s
6. Contractual arrangements with executive KMP’s
7. Non-executive director arrangements
8. Additional Statutory information
This report should be considered in the context that prior to 4 May 2017, MSL operated as an unlisted public company.
Prior to the IPO, the MSL Board approved all remuneration for the Managing Director and all direct reports of the
Managing Director, in accordance with the strategy of achieving an equity event for shareholders.
Following the IPO, the Board intends to adopt a remuneration strategy which is consistent with the strategy used
by other listed companies in the Software sector. As part of that process, a remuneration committee was chartered
in March 2017 and held its first meeting in its current structure July 2017.
PERFORMANCE HIGHLIGHTS
Group Revenue
up 110%
Group revenue was up 110% in FY17 due to organic growth within the Group, plus the
material impact of the European acquisitions.
Group NPAT
of $(10.8M)
Group NPAT for FY17 was impacted by a number of one-off significant expense items
related to acquisitions and the Initial Public Offering on the ASX, identified in Note 5
of the financial statements.
REMUNERATION HIGHLIGHTS
Initial Public
Offering
The Board tailored remuneration outcomes for senior executives based
on a strategy of increasing shareholder value and achieving an equity event for shareholders.
The IPO therefore resulted in a number of one-off expenses and equity bonus payments in FY17.
Group
Remuneration
Fixed Remuneration is expected to increase in FY18 by an average of 2.5% across the Group.
This is consistent with the Group’s remuneration strategy of maintaining a position at or above
the 50% percentile based on market survey.
Managing Director
& CEO
Remuneration
Total FY17 remuneration was $3,215K (FY16: $266K), as:
›
›
›
base salary of $150K (FY16: $150K),
cash bonus of $800K (FY16: $47K)
non-cash share bonus of $2.217K (FY16: $33K)
The FY17 cash bonus and share bonus are considered one-off events, associated with the IPO.
LTI Incentive Plan
Total vested and exercisable options as at 30 June 2017 are 2,871,429 (FY16: 14,321,429)
Non-Exec
Director Fees
New Directors David Trude and Kaylene Gaffney were appointed to the Board in March 2017.
Total Non-Executive Remuneration for FY17 was $151K and within the maximum aggregate
amount of $250K approved by shareholders.
24
MPower MSL Annual Report 2017 REMUNERATION HIGHLIGHTS
1.
KEY MANAGEMENT PERSONNEL COVERED IN THIS REPORT
1.1 NON-EXECUTIVE AND EXECUTIVE DIRECTORS
NON-EXECUTIVE DIRECTORS
Kenneth John Down
Ian Daly
Richard Holzgrefe
Kaylene Gaffney
(appointed 1 March 2017)
David Trude
(appointed 9 March 2017)
EXECUTIVE DIRECTORS
Craig Kinross
CEO and Managing Director
1.2 OTHER KEY MANAGEMENT PERSONNEL (KMP)
KEY MANAGEMENT PERSONNEL (KMP)
Paul Shipley
Chief Financial Officer (interim) 1
James Aleman
Chief Revenue Officer 2
Gregory Davies
General Manager - Corporate Development
1. Appointed 1 March 2017 on interim basis. Andrew Ritter was subsequently appointed Chief Financial Officer on 17 August 2017, and Paul Shipley
will return to his previous role within the Company.
2. James Aleman joined the Company on 1 February 2017. Prior to that date, some of the duties of the CRO role were carried out by the CEO.
1.3 CHANGES SINCE THE END OF THE REPORTING PERIOD
Subsequent to the end of the reporting period, Andrew Ritter has been appointed to the role of Chief Financial Officer.
Other than what has been detailed above, there have been no further changes since the end of the reporting period.
25
MPower MSL Annual Report 2017 REMUNERATION REPORT
2. REMUNERATION POLICY AND LINK TO PERFORMANCE
The remuneration committee is made up of independent non-executive directors and was formed post the successful
listing of MSL Solutions Limited on the Australian Stock Exchange. It is the role of the committee to review and
determine the remuneration policy and structure annually to ensure it remains aligned to business needs, and meets
the Company’s remuneration principles.
From time to time, the committee may also engage external remuneration consultants to assist with this review.
In particular, the Board aims to ensure that remuneration practices are:
›
›
›
›
competitive and reasonable, enabling the Company to attract and retain key talent,
aligned to the Company’s strategic and business objectives and the creation of shareholder value,
transparent and easily understood, and
acceptable to shareholders.
Figure 1: Remuneration Framework
ELEMENT
PURPOSE
PERFORMANCE
POTENTIAL VALUE
CHANGES FOR FY2017
Fixed
remuneration
(FR)
Nil
Provide competitive
market salary including
superannuation and
non-monetary
benefits
Positioned at median
market rate
Reviewed in line with
market positioning
Short Term
Incentive
(STI)
Cash based reward
for in-year
performance
EBITDA for business
unit and group
Managing Director:
33% of FR
Execs:
20%-60% of FR
Managing Director
STI’s for FY17 was set
with an equity event
as trigger for payment.
Long Term
Incentive
(LTI)
Alignment to
long-term
shareholder value
Increase in
shareholder value
Managing Director:
7.4 x FR
Refer to note below
Execs:
80% of FR
Note: For FY17, there was no LTI issued in respect of financial performance. Rather, the MSL Board, in preparation for
a planned equity event, had set STI and LTI objectives for the CEO and executives, in accordance with the strategy
of increasing shareholder value and achieving an equity event for shareholders. As part of the IPO process, the
following key management personnel surrendered exercisable options previously granted under the LTI and were
issued shares for nil cash consideration:
EXECUTIVE
EXERCISABLE OPTIONS SURRENDERED
Craig Kinross
9,500,000
Greg Davies
750,000
SHARES ISSUED
9,000,000
523,704
During FY18, the Board intends to adopt a remuneration strategy on mix of STI and LTI, which is consistent with the
strategy used by other listed companies in the Software sector.
26
MPower MSL Annual Report 2017 3. ELEMENTS OF REMUNERATION
3.1 FIXED ANNUAL REMUNERATION (FR)
Executives generally receive their fixed remuneration
as cash. FR is reviewed annually, or on promotion. It is
benchmarked against market data for comparable roles
in companies in a similar industry, using the Australian
Information Industry Association salary survey produced
by Aon Hewitt. The committee aims to position executives
at or near the median, with flexibility to take into account
capability, experience, and value to the organisation and
performance of the individual.
For all executives, superannuation is included in FR.
During FY 2017, fixed remuneration was adjusted for
the following KMP’s:
› CEO – prior to March 2017, the CEO’s total
remuneration mix had a higher proportion of LTI
and lower proportion of fixed remuneration, to reflect
the strategy of increasing shareholder value and
achieving an equity event. In March 2017, the total
remuneration package and remuneration mix was
adjusted to align the remuneration with the median
level for comparative roles;
› GM Corporate Development - prior to March 2017,
total remuneration mix had a higher proportion of
LTI and lower proportion of fixed remuneration, to
reflect the strategy of increasing shareholder value
and achieving an equity event. In March 2017, the
total remuneration package and remuneration mix
was adjusted to align the remuneration with the
median level for comparative roles; and
› Chief Financial Officer – in March 2017, total
remuneration was adjusted in recognition of the
interim promotion from Group Financial Controller
to Chief Financial Officer.
2.1 BALANCING SHORT-TERM AND LONG-TERM
PERFORMANCE
STI’s are set as a percentage of fixed remuneration,
in accordance with industry benchmarks, to drive
achievement of annual targets, without encouraging
undue risk-taking. Current STI’s for CEO and KMP’s have
been based on achievement of revenue and EBITDA
targets, and have been set at 20% to 60% of FR.
Prior to IPO, LTI’s were designed to promote long-term
stability in the management team, and to achieve
shareholder return and an equity event for shareholders.
The current long-term incentives will be allocated by
the Board and assessed on an annual basis to promote
long term shareholder return.
The target remuneration mix for FY17 had been set in
2015 by the Board, based on a strategy of increasing
shareholder value and achieving an equity event such
as an IPO. The Board is currently reviewing a target
remuneration mix for FY18 for CEO, KMP and other
management personnel which is more consistent with
the mix used by other public listed companies in the
Software sector.
2.2 ASSESSING PERFORMANCE
Going forward, the remuneration committee is responsible
for determining the performance requirements and
calculation mechanism used to provide STI and LTI rewards
based on performance. To assist in this assessment, the
committee receives detailed reports on performance
from management which are based on independently
verifiable data such as financial measures and data
from independently run surveys, such as the Australian
Information Industry Association salary survey produced
by Aon Hewitt.
In the event of serious misconduct or a material
misstatement in the Company’s financial statements,
the remuneration committee can cancel or defer
performance-based remuneration.
In FY18, the Board is in the process of consolidating
the various STI plans across the group, with a view to
aligning STI payments to financial targets to promote
consistent achievement of financial targets.
27
MPower MSL Annual Report 2017 REMUNERATION REPORT
3.2 SHORT-TERM INCENTIVES
Figure 2: Structure of the Short Term Incentive Plan
FEATURE
DESCRIPTION
Max opportunity
CEO and other executives: 20 - 60% of fixed remuneration
Performance
metrics
The STI metrics align with our strategic priority of consistent achievement of financial targets.
Metric
Target
Weighting
Reason for selection
EBITDA Achievement BU or Group target
100%
Reflects profitable
growth in line with
forecast
Delivery of STI
100% of the STI award is paid in cash at the end of the financial year
Board discretion
The Board has discretion to adjust remuneration outcomes up or down as they see fit to
prevent any inappropriate reward outcomes, including reducing (down to zero, if appropriate)
any STI award.
The Company has completed a number of acquisitions in recent years, and as a result some executives have STI plans
based on metrics other than as outlined in Figure 2. In FY18, the Board intends to consolidate the various STI plans
across the group, with a view to aligning STI payments based solely on Net Revenue and EBITDA achievement, in
order to promote consistent achievement of financial targets.
3.3 LONG-TERM INCENTIVES
Executive KMP and other management personnel participate, at the Board’s discretion, in the LTIP. During FY17, the
Board received independent advice from McCullough Robertson on the structure and conditions relevant to the
LTIP. LTI grants held during FY2017 had been set by the Board, based on that advice and on a strategy of increasing
shareholder value and achieving an equity event such as an IPO, these grants had no performance hurdles in place
and immediately vested. Grants were exercisable from grant date with an exercise price targeted at a minimum 40%
increase in share value from the grant date. As part of the strategy moving forward the Board will now consider
performance hurdles as part of the vesting considerations as it sees fit.
Prior to the IPO, the Board approved the replacement of shares for the LTIP option grants which the CEO and two
employees had received in 2015. This was consistent with the employment contracts for these three employees and
was disclosed in the IPO prospectus.
The Board intends to implement a target remuneration mix for FY18 for CEO, KMP and other management personnel
which is more consistent with the mix used by other public listed companies in the Software sector, including the use
of option grants for the purpose of LTI.
28
MPower MSL Annual Report 2017 Figure 3: Structure of the LTI Plan
FEATURE
DESCRIPTION
Opportunity/
Allocation
Performance
hurdle
The value of options will be determined based on independent market salary survey.
The number of options to be allocated will be determined using the Black-Scholes
method for valuation of options.
Current grants under this LTIP do not include additional performance hurdles other than
exercise price. The plan does allow for performance hurdles to be applied to specific grants
and the Board may consider performance hurdles as part of further grants.
Exercise price
The exercise price for options granted prior to IPO was based on a target of 40% increase
over the most recent share trade prior to grant date.
Future option grants will be determined by the Board and the exercise price will be determined
based on the weighted average price at which the Company’s shares are traded on the
Australian Stock Exchange during the week up to and including the date of the grant.
Forfeiture and
termination
Options will lapse 5 years after grant.
Options will be forfeited on cessation of employment unless the Board determines otherwise,
eg in the case of retirement due to injury, disability, death or redundancy.
4. LINK BETWEEN REMUNERATION AND PERFORMANCE
The Group’s performance in 2017 did not meet the relevant EBITDA targets required to trigger STI payments to KMP. The
Board approved the payment of one-off discretionary bonuses to the following executives for efforts in relation to the IPO:
EMPLOYEE
AMOUNT
STATUS
Craig Kinross
$800,000
Accrued as at 30 June 2017 and subsequently paid in August 2017.
Greg Davies
$40,000
Accrued as at 30 June 2017 and subsequently paid in August 2017.
Paul Shipley
$10,000
Paid in June 2017.
The Company has completed a number of acquisitions in recent years, and as a result some executives have STI plans
based on metrics other than as outlined in Figure 2, and therefore some one-off bonus or KPI payments have been
made for non KMP executives, in accordance with their employment contracts.
4.1 STATUTORY PERFORMANCE INDICATORS
MSL aims to align our executive remuneration to our strategic and business objectives and the creation of shareholder
wealth. The Company’s annual financial performance and indicators of shareholder wealth for the current financial
period are listed below. As the Company listed in May 2017, these performance measures have not been included for
prior financial periods.
However, these measures are not necessarily consistent with the measures used in determining the variable amounts
of remuneration to be awarded to KMP’s. As a consequence, there may not always be a direct correlation between
the statutory key performance measures and the variable remuneration awarded. It should be noted that FY17
included a number of one-off technical accounting adjustments related to acquisitions and IPO, which will not be
evident in future years.
Figure 4: Statutory Performance Indicators
NPAT ($’000)
Dividends per share (cps)
Earnings per share (cps)
FY17
$(10,763)
Nil
(0.09)
The Company’s share price on listing was $0.25 per share, and the share price as at 30 June 2017 was $0.325 per share.
29
MPower MSL Annual Report 2017 REMUNERATION REPORT
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fi
MPower MSL Annual Report 2017
6. CONTRACTUAL ARRANGEMENTS WITH EXECUTIVE KMP’S
COMPONENT
CEO & MANAGING DIRECTOR
OTHER KMP
Fixed
Remuneration
$300,000
Contract Duration Ongoing contract
3 months
Range between $160,000
and $195,000
Ongoing contract
3 months
Notice by the
individual/
Company
Termination of
employment
(without cause)
Termination of
employment
(with cause) or
by the individual
Entitlement to pro-rata STI for the year
The Board has discretion to award a greater or lower amount
STI is not awarded, and all unvested LTI will lapse
Vested and unexercised LTI can be exercised within a period of 10 days from termination
Different contractual terms apply to the following individuals:
James Aleman
1. STI payment for the period from commencement to 31 July 2017, is based on completion
of specific KPI’s relating to the production of sales and marketing materials designed to
enhance sales team members pitch to customers. As at 30 June 2017, the performance
measures for this STI had yet to be completed, however these KPI’s were subsequently
achieved by 31 July 2017.
2. The STI has a value of $0 if not achieved and $45,000 if achieved.
3. Thereafter the employee will move to standard STI measures
Paul Shipley
1. Notice by either individual or Company is 1 month
31
MPower MSL Annual Report 2017 REMUNERATION REPORT
7. NON-EXECUTIVE DIRECTOR ARRANGEMENTS
Non-executive directors receive a fixed Board fee inclusive of superannuation and no additional fees for chairing or
participating on Board committees, see table below.
However, during financial year ending 30 June 2016 options were granted as compensation for Board fees, as
approved by shareholders at the annual general meeting on 30 November 2015. Accordingly, Richard Holzgrefe,
Ian Daly and John Down were each granted 1,100,000 fully vested options at an exercise price of $0.155. Prior to
IPO, as part of the consolidation process approved by shareholders, these options were consolidated to 785,714
options in accordance with the same rules applied to all other securities, and there was no subsequent change
in accounting value on consolidation.
The chairman does not receive additional fees for participating in or chairing committees, and Non-executive
directors will no longer receive performance-based pay or retirement allowances.
Fees are reviewed annually by the Board taking into account comparable roles and market data provided by the
Board’s independent remuneration adviser. The current base fees were reviewed with effect from 1 March 2017.
The maximum annual aggregate directors’ fee pool limit is $250,000 and was approved by shareholders at the
annual general meeting on 30 November 2015.
BASE FEES
Chair
Other non-executive directors
ADDITIONAL FEES
Audit committee – Chair
Audit committee – member
Remuneration committee – Chair
Remuneration committee – member
$48,000
$48,000
Nil
Nil
Nil
Nil
All non-executive directors enter into a service agreement with the Company in the form of a letter of appointment.
The letter summarises the Board policies and terms, including remuneration, relevant to the office of director.
32
MPower MSL Annual Report 2017 %
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33
MPower MSL Annual Report 2017
REMUNERATION REPORT
8. ADDITIONAL STATUTORY INFORMATION
8.1 PERFORMANCE BASED REMUNERATION GRANTED & FORFEITED DURING THE YEAR
Figure 7 shows for each KMP how much of their STI cash bonus was awarded and how much was forfeited. It also
shows the value of options that were granted and forfeited during FY17.
Figure 7: Performance based remuneration granted and forfeited during the year
NAME
Craig Kinross
Greg Davies
James Aleman
STI
LTI
TOTAL
OPPORTUNITY
FORFEITED
AWARDED
TOTAL
OPPORTUNITY
FORFEITED
AWARDED
CEO
KMP
KMP
100,000
45,000
Refer Note 2
100%
100%
-
0%
0%
-
2,216,906
128,313
18,833
-
-
-
1. Craig Kinross, Paul Shipley and Greg Davies received a discretionary bonus upon the successful listing of MSL Solutions Limited.
2. James Aleman – As at 30 June 2017, the performance measures for this STI had yet to be completed, however these KPI’s were
subsequently achieved by 31 July 2017.
3. Paul Shipley had no STI component during the period.
The above figures exclude cash incentives.
8.2 TERMS AND CONDITIONS OF THE SHARE-BASED PAYMENT ARRANGEMENTS
The terms and conditions of each grant of options affecting remuneration in the current or a future reporting period
are as follows:
VESTING &
EXERCISE DATE
EXPIRY DATE
EXERCISE PRICE
VALUE PER OPTION
AT GRANT DATE
% VESTED
GRANT DATE
18-Dec-15
18-Dec-15
18-Dec-20
21-Oct-15
21-Oct-15
21-Oct-20
30-May-16
30-May-16
30-May-21
15-May-17
15-May-17
15-May-22
$0.155
$0.220
$0.220
$0.350
$0.096
$0.035
$0.035
$0.063
100%
100%
100%
100%
The number of options over ordinary shares in the Company provided as remuneration to key management personnel
is shown in figure 8 below. The options carry no dividend or voting rights until exercised.
When exercisable, each option is convertible into one ordinary share of MSL Solutions Limited.
The exercise price for options granted 18 December 2015, was approved by shareholders at the AGM held November
2015 and related to grants of options to Directors as reward for their significant financial support and contributions
over many years and as an incentive for future performance.
The exercise price of all other option grants to date, was based on a 40% uplift over the previous traded price at
the time of granting the option. The Board deemed that this was a reasonable estimate of achievable growth as an
unlisted entity.
8.3 RIGHTS TO DEFERRED SHARES
There are no rights to deferred shares for either Directors, key management personnel, or staff.
34
MPower MSL Annual Report 2017 D
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35
MPower MSL Annual Report 2017
REMUNERATION REPORT
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I
MPower MSL Annual Report 2017
8.5 LOANS GIVEN TO/FROM KEY MANAGEMENT PERSONNEL
Details of loans made to directors of MSL Solutions Limited and other key management personnel of the group,
including their close family members and entities related to them, are set out below.
1. During FY17, Director Rick Holzgrefe provided two loans to the Company, as approved by the Board, as follows:
a.
b.
Loan amount of $300,000 for 1-month duration paid out in full November 2016, with interest paid in the
amount of $2,057 at a rate of 8.23%, and
Loan amount of $173,500 loan paid out in full April 2017, with interest paid in the amount of $8,997 at a
rate 8.23% interest.
2. In November 2016, the Company entered into a Converting Note Deed under which it issued Converting Notes
to certain institutional and other investors. On completion of the IPO, the Converting Notes were converted to
ordinary shares, at an effective conversion price of $0.20, equivalent to a 20% discount to the IPO offer price.
A number of Directors and Key Management Personnel purchased Converting Notes in accordance with the
same conditions as other investors, as outlined in figure 9.
8.6 RELIANCE ON EXTERNAL REMUNERATION CONSULTANTS
During FY17, McCullough Robertson were engaged to provide advice on share based remuneration requirements.
Previously, McCullough Robertson had designed the company’s long-term incentive program for directors and key
management personnel.
8.7 VOTING OF SHAREHOLDERS AT LAST YEAR’S ANNUAL GENERAL MEETING
Prior to the IPO on 4 May 2017, the Company was not required to release a detailed remuneration report, and therefore
no shareholder vote was required at last year’s annual general meeting.
INDEMNIFYING DIRECTORS AND OFFICERS
During the financial year, the Company paid a premium of $69,695 to insure the Directors and Officers of the Company.
The terms of the insurance contract prevent additional disclosure.
In addition, the Company has entered into Deeds of Access, Insurance Indemnity which ensure the Directors and
Officers of the Company will incur, to the extent permitted by law, no monetary loss as a result of defending the
actions taken against them as Directors and Officers.
OPTIONS & PERFORMANCE RIGHTS
To assist in the attraction, retention and motivation of employees, the Company operates an option plan.
The number of options (which are fully vested and exercisable) over ordinary shares outstanding at 30 June 2017
are as follows:
GRANT DATE
18-Dec-15
21-Oct-15
EXERCISE DATE
18-Dec-15
21-Oct-15
EXPIRY DATE
18-Dec-20
21-Oct-20
30-May-16
30-May-16
30-May-21
15-May-17
15-May-17
15-May-22
EXERCISE PRICE
$0.155
$0.220
$0.220
$0.350
NUMBER
2,357,142
1,250,000
1,071,430
300,000
No further employee performance rights have been issued up to the date of this report.
PROCEEDINGS ON BEHALF OF COMPANY
No person has applied for leave of Court to bring proceedings on behalf of the Company or intervene in any
proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the Company
for all or any part of those proceedings. The Company was not a party to any such proceedings during the year.
37
MPower MSL Annual Report 2017
REMUNERATION REPORT
NON-AUDIT SERVICES
The Board of Directors, in accordance with advice from the Audit and Risk Committee, is satisfied that the provision
of non-audit services during the year is compatible with the general standard of independence for Auditors imposed
by the Corporations Act (2001).
During the year the following fees were paid or payable for services provided by the auditor of the parent entity, its
related practices and non-related audit firms:
PRICEWATERHOUSECOOPERS AUSTRALIA
During the year the following fees were paid or payable for services provided by the auditor of the parent entity, its
related practices and non-related audit firms:
A) PRICEWATERHOUSECOOPERS AUSTRALIA
i. Audit and other assurance services
Audit and review of financial statements
Due diligence services
Total remuneration for audit and other assurance services
Total remuneration PricewaterhouseCoopers
B) NETWORK FIRMS OF PRICEWATERHOUSECOOPERS AUSTRALIA
i. Audit and other assurance services
PricewaterhouseCoopers United Kingdom
Audit and review of financial statements
Total remuneration for audit and other assurance services
PricewaterhouseCoopers Denmark
Audit and review of financial statements
Total remuneration for audit and other assurance services
Total remuneration of network firms of PricewaterhouseCoopers Australia
2017
$'000
206
430
636
636
2017
$'000
28
28
2016
$'000
-
-
-
-
2016
$'000
-
-
2017
$'000
2016
$'000
11
11
39
-
-
-
38
MPower MSL Annual Report 2017 C) NON-PRICEWATERHOUSECOOPERS AUDIT FIRMS
i. Audit and other assurance services
Audit and review of financial statements
Audit and review fees capitalised due to nexus with IPO
Total remuneration for audit and other assurance services
ii. Taxation services
Tax compliance services
Total remuneration for tax services
Total remuneration of non-PricewaterhouseCoopers audit firms
Total auditors remuneration
2017
$'000
26
159
185
2016
$'000
58
-
58
2017
$'000
2016
$'000
-
-
185
860
40
40
98
98
Fees paid to auditors of $589k have been capitalised as it has a direct correlation to raising of new capital.
It is the Group’s policy to employ PricewaterhouseCoopers on assignments additional to their statutory audit duties
where PricewaterhouseCoopers’s expertise and experience with the Group are important. These assignments are
principally tax advice and review of acquisition accounting, or where PricewaterhouseCoopers is awarded assignments
on a competitive basis. It is the Group’s policy to seek competitive tenders for all major consulting projects.
LEAD AUDITOR’S INDEPENDENCE DECLARATION
The lead Auditor’s independence declaration can be found on the page following this Directors’ report and forms
part of the Directors’ report for the year ended 30 June 2017.
ROUNDING
The Company is of a kind referred to in ASIC Class Order 98/100 dated 10 July 1998 and in accordance with that
Class Order, amounts in the financial report and Directors’ report have been rounded off to the nearest thousand
dollars, unless otherwise stated.
Signed in accordance with a resolution of the Directors:
John Down
Chairman
Craig Kinross
Managing Director and Chief Executive Officer
Dated at Brisbane this 31st day of August 2017.
39
MPower MSL Annual Report 2017 AUDITOR’S INDEPENDENCE DECLARATION
Auditor’s Independence Declaration
As lead auditor for the audit of MSL Solutions Limited for the year ended 30 June 2017, I declare that
to the best of my knowledge and belief, there have been:
(a)
no contraventions of the auditor independence requirements of the Corporations Act 2001 in
relation to the audit; and
(b)
no contraventions of any applicable code of professional conduct in relation to the audit.
This declaration is in respect of MSL Solutions Limited and the entities it controlled during the period.
Michael Crowe
Partner
PricewaterhouseCoopers
Brisbane
31 August 2017
PricewaterhouseCoopers, ABN 52 780 433 757
480 Queen Street, BRISBANE QLD 4000, GPO Box 150, BRISBANE QLD 4001
T: +61 7 3257 5000, F: +61 7 3257 5999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
Page | 48
41
MPower MSL Annual Report 2017
2017
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF PROFIT OR LOSS
AND OTHER COMPREHENSIVE INCOME
Revenue
Other income
Cost of sales
Sales and marketing expenses
Customer support and technical services
Research and development expenses
General and administration expenses
Other gains and expenses
Depreciation expense
Amortisation expense
Transaction costs
Finance costs
(Loss) before income tax
Income tax benefit/(expense)
(Loss) for the period
Other comprehensive income for the year
Total comprehensive(loss) for the period
(Loss) attributable to:
Owners of MSL Solutions Limited
Total comprehensive (loss) for the period attributable to:
Owners of MSL Solutions Limited
NOTE
4
4
5
8a
8b
3e
5d
6
JUN 17
$’000
23,665
707
(5,409)
(4,577)
(3,776)
(4,270)
(7,374)
(4,700)
(167)
(4,122)
(991)
(812)
(11,826)
1,063
(10,763)
235
JUN 16
$’000
11,289
426
(1,898)
(3,164)
(2,843)
(1,331)
(1,635)
(118)
(81)
(1,898)
(418)
(157)
(1,828)
466
(1,362)
-
(10,528)
(1,362)
(10,528)
(10,528)
(1,362)
(1,362)
(10,528)
(10,528)
(1,362)
(1,362)
EARNINGS PER SHARE FROM LOSS FROM CONTINUING OPERATIONS
ATTRIBUTABLE TO THE ORDINARY EQUITY HOLDERS OF THE COMPANY
Basic earnings per share
Diluted earnings per share
21
21
CENTS
(0.09)
(0.09)
CENTS
(0.02)
(0.02)
The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes.
44
MPower MSL Annual Report 2017 CONSOLIDATED BALANCE SHEET
ASSETS
Current assets
Cash and cash equivalents
Trade and other receivables
Assets classified as held for sale
Other current assets
Total current assets
Non-current assets
Receivables
Property, plant and equipment
Intangible assets
Other non-current assets
Total non-current assets
Total assets
LIABILITIES
Current liabilities
Trade and other payables
Borrowings
Provisions
Income tax payable
Deferred revenue
Total current liabilities
Non-current liabilities
Trade and other payables
Deferred tax liability
Provisions
Total non-current liabilities
Total liabilities
Net assets
EQUITY
Contributed equity
Reserves
Accumulated losses
Total equity
The consolidated balance sheet should be read in conjunction with the accompanying notes.
NOTE
7b
7a
8f
7a
8a
8b
7c
7d
8e
7c
8c
8e
9a
9b
9c
JUN 17
$’000
JUN 16
$’000
11,897
6,336
2,212
573
21,018
888
306
41,386
185
42,765
63,783
5,665
225
5,296
461
5,360
17,007
988
3,522
1,398
5,908
22,915
2,749
3,053
2,258
244
8,304
888
237
15,849
130
17,104
25,408
4,417
309
2,009
145
2,895
9,774
163
2,539
861
3,563
13,337
40,868
12,071
61,085
338
(20,555)
40,868
21,629
234
(9,792)
12,071
45
MPower MSL Annual Report 2017
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Balance as at 1 July 2015 – restated
Total comprehensive income for the year
Profit/(loss) for the year
Other comprehensive income
Total comprehensive income for the year
CONTRIBUTED
EQUITY
$’000
15,295
RETAINED
EARNINGS
$’000
(8,029)
-
-
-
(1,362)
-
(1,362)
Transactions with owners in their capacity
as owners
Contributions of equity, net of transaction costs
6,334
Dividends paid
Share-based payments expense
Total transactions for the year
-
-
6,334
-
(401)
-
(401)
Balance as at 1 July 2016 – restated
21,629
(9,792)
Total comprehensive income for the year
Profit/(loss) for the year
Foreign currency translation reserve differences
Total comprehensive income for the year
-
-
-
(10,763)
-
(10,763)
Transactions with owners in their capacity
as owners
Contributions of equity, net of transaction costs
39,306
Share-based payments expense
Total transactions for the year
150
39,456
-
-
-
FOREIGN
CURRENCY
TRANSLATION
RESERVE
$’000
-
-
-
-
-
-
-
-
-
-
235
235
-
-
-
SHARE-BASED
PAYMENT
RESERVE
$’000
150
-
-
-
-
-
84
84
TOTAL
EQUITY
$’000
7,416
(1,362)
-
(1,362)
6,334
(401)
84
6,017
234
12,071
-
-
-
(10,763)
235
(10,528)
(150)
19
39,156
169
(131)
39,325
Balance as at 30 June 2017
61,085
(20,555)
235
103
40,868
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
The opening balances at 1 July 2015 have been restated for retained earnings and reserves to reflect accounting standard treatment to align
with current accounting policies. These adjustments were not material and had no impact on current year earnings.
46
MPower MSL Annual Report 2017 CONSOLIDATED STATEMENT OF CASH FLOWS
Cash flows from operating activities
Receipts from customers
Research and development incentives received
Payments to suppliers, employees and others
Finance costs
Interest received
Acquisition related costs
Income tax paid
Net cash flows from operating activities
10(a)
Cash flows from investing activities
Capital expenditure
Purchase of intangibles
Acquisition of subsidiaries net of cash & cash equivalents
Dividend received
Interest received
Proceeds from disposal of fixed assets
Proceeds from disposal of investment
Net cash flows from investing activities
Cash flows from financing activities
Issuance of share capital
Repayment of borrowings
Issuance of converting notes
Repayment of finance leases
Costs paid on issuance of share capital
Costs paid on issuance of converting notes
Dividend paid
Net cash flows from financing activities
Net cash inflows for the year
Cash at beginning of the year
Cash at end of the year
The above consolidated statement of cashflows should be read in conjunction with the accompanying notes.
NOTE
JUN 17
$’000
JUN 16
$’000
22,067
721
11,306
330
(23,171)
(10,914)
-
3
-
(140)
(520)
(251)
(1,525)
(18,724)
-
-
-
35
(157)
-
-
-
565
(986)
-
(707)
-
-
-
25
(20,465)
(1,668)
15,975
(174)
17,000
-
(1,930)
(779)
-
5,841
(1,913)
-
(117)
(216)
-
(401)
30,092
3,194
9,107
2,091
2,634
11,741
543
2,634
47
MPower MSL Annual Report 2017 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The financial statements were approved for issue by the directors on 31 August 2017. The Directors have the power
to amend and re-issue the financial statements.
1.
SIGNIFICANT CHANGES IN THE CURRENT
REPORTING PERIOD
The financial position and performance of the Group
was particularly affected by the following events and
transactions during the reporting period:
›
›
The acquisition of Verteda Holdings Limited on
31 October 2016 (see Note 3), which resulted in
recognition of intangible assets (Note 8) and
goodwill (Note 8).
The acquisition of GolfBox A/S (GolfBox) on 14
November 2016 (see Note 3), which resulted in
recognition of intangible assets (Note 8) and
goodwill (Note 8).
› On 4 May 2017, the Company was listed on the
Australian Securities Exchange (ASX) and became
a public company.
› Contributed equity increased by as a result of the
conversion of the Converting Notes and rights issue
as part of listing on ASX. Details of the changes in
contributed equity are disclosed in Note 9 of the
financial statements
2. SEGMENT INFORMATION
A) DESCRIPTION OF SEGMENTS AND
PRINCIPAL ACTIVITIES
The Group’s executive management, consisting of Chief
Executive Officer, the Chief Financial officer, General
Manager Corporate Development and Chief Revenue
Officer, examines the Group’s performance from a
product perspective with entities in similar markets
grouped on an international level. The following are
the identified reportable segments:
1. MPower Venue: services the stadia and arena and
registered clubs (excluding golf clubs) on a global
basis. Since November 2016, management has
monitored the performance on a global basis since
the acquisition of Verteda Holdings Limited.
2. MPower Golf: service the golf clubs and associations
market on a global basis. Since November 2016
management has monitored the performance on a
global basis since the acquisition of GolfBox A/S
(“GolfBox”).
3. MPower Media: Services the sports, leisure and
hospitality clients with loyalty/media member
engagement solutions, and facilitates relationships
with media partners. The segment includes the
Pallister Games assets acquired in May 2017.
4. MPower BI: services the sports, leisure, and
hospitality clients with a business analytics service
providing historical, current, and predictive views
of business operations.
5. Corporate: Group overheads and on costs that are
monitored on a global basis.
48
MPower MSL Annual Report 2017 Management primarily uses a measure of revenue and adjusted earnings before interest, tax, depreciation and
amortisation (EBITDA) to assess the performance on a monthly basis. Information about segment revenue is
detailed below.
B) SEGMENT REVENUE AND ADJUSTED EBITDA
YEAR ENDED 30 JUNE 2017
MPower Venue
MPower Golf
MPower BI
MPower Media
Corporate
Total
YEAR ENDED 30 JUNE 2016
MPower Venue
MPower Golf
MPower BI
MPower Media
Corporate
Total
SEGMENT
REVENUE
$’000
15,752
6,401
659
853
-
23,665
SEGMENT
REVENUE
$’000
7,433
3,416
138
302
-
11,289
SEGMENT
ADJUSTED
EBITDA
$’000
2,384
1,345
(113)
262
(2,258)
1,620
SEGMENT
ADJUSTED
EBITDA
$’000
1,493
468
110
(10)
(1,589)
472
Adjusted EBITDA excludes the effects of significant items of income and expenditure which may have an impact on
the quality of earnings such as transaction costs, impacts from fair value movements through the income statement,
non-recurring executive bonuses and gains resulting from acquisition accounting.
Geographical earnings
Revenue of Verteda Holdings Limited included in the Group revenue since the acquisition date 31 October 2016
amounted to $6,603k. The original currency of pounds’ sterling has been converted to the presentation currency
of the Group at 30 June 2017 as per the company’s accounting policy detailed in Note 24.
Revenue of GolfBox included in the Group revenue since the acquisition date 14 November 2016 amounted to $2,116k.
The original currency of Danish krone has been converted to the presentation currency of the Group at 30 June 2017
as per the company’s accounting policy detailed in Note 24. Profits of GolfBox included in the Group profit/(loss)
since the acquisition date amounted to $690k prior to amortisation and $103k after amortisation expenses of $586k
that relates to the acquired Contracts and Customer Relationships and Software.
49
MPower MSL Annual Report 2017 C) SEGMENT ADJUSTED EBITDA RECONCILIATION TO PROFIT/(LOSS) BEFORE TAX
RECONCILIATION OF ADJUSTED EBITDA TO PROFIT / (LOSS) BEFORE INCOME TAX:
30-JUN-17
$’000
30-JUN-16
$’000
Total segment Adjusted EBITDA
Transaction costs
Restructuring costs
Foreign exchange losses
Senior management bonus
Fair value movement on financial liability
Finance costs
Depreciation and amortisation
Gain on reversal of earnout provisions
Gain on acquisition
Share of loss of associates/joint ventures accounted for using the Equity Method
1,620
(991)
(36)
(324)
(3,342)
(4,339)
(812)
(4,289)
687
-
-
472
(418)
-
-
-
-
(157)
(1,979)
372
-
(118)
(Loss) before income tax
(11,826)
(1,828)
Sales between segments are carried out at arm’s length and are eliminated on consolidation. The revenue from external
parties is measured in the same ways as in the consolidated statement of profit or loss and other comprehensive income.
3. BUSINESS COMBINATIONS
MSL’s growth strategy is based upon four key components: strong organic growth in existing sales segments,
cross-selling opportunities between sales segments, expansion of the business intelligence and analytics platform
and accelerated growth through acquisitions.
MSL uses acquisitions to grow the marketplace of clients, acquire new software capabilities and knowledge and to
enter new markets and geographies.
In October and November 2016 MSL expanded via acquisition into the European market with acquisitions of Verteda
Holdings Limited in the United Kingdom and GolfBox A/S in Denmark. The acquisitions of Verteda and GolfBox have
transformed MSL into a global player in the sport, leisure and hospitality software sector.
› Verteda is a leader in software solutions to sporting, hospitality and stadia clients in the UK;
› GolfBox is focused on the development and sale of software for the golf industry.
Both companies have been integrated into MSL following a 100-day integration plan.
In May 2017, MSL acquired certain member engagement product assets from Ray Pallister Pty Ltd (“Pallister Games”).
The products are used to promote member attendance and participation by programmatically awarding prizes or
loyalty incentives. The solutions have application across all MSL sales segments globally.
The following table provides a breakdown of the consideration paid and the intangibles created for each acquisition:
Verteda Holdings
GolfBox A/S
Pallister Games
Total
a
b
c
UPFRONT
CONSIDERATION
$’000
DEFERRED AND
CONTINGENT
CONSIDERATION
$’000
TOTAL
CONSIDERATION
$’000
CONSIDERATION
REMAINING
30 JUNE 2017
$’000
10,423
5,931
1,600
17,954
3,893
3,647
1,150
8,690
14,316
9,578
2,750
26,644
2,468
3,765
1,150
7,383
INTANGIBLES
$’000
14,864
11,447
3,115
29,426
In addition to these acquisitions MSL Solutions Limited also finalised the contingent consideration on a number of
prior year acquisitions. This finalization contributed $687k to the other income of the Group.
50
MPower MSL Annual Report 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The cash out flows for acquisitions throughout the
financial year, net of cash acquired are detailed below:
Details of the purchase consideration, the net assets
acquired and goodwill are as follows:
Verteda
GolfBox
Pallisters
Rockit
InfoGenesis
Transaction costs
AMOUNT
$’000
(10,114)
(4,989)
(1,600)
(500)
(530)
(17,733)
(991)
(18,724)
Specifics in relation to each of these acquisitions and
contingent considerations are discussed in further
details below.
A) ACQUISITION OF VERTEDA HOLDINGS LIMITED
i. Summary of acquisition
On 31 October 2016 MSL Solutions Limited acquired
100% of the issued capital in Verteda Holdings Limited
(“Verteda”). Verteda is a leader in software solutions to
the sporting, hospitality and stadia clients in the UK.
The acquisition has provided significant growth
opportunities that benefit MSL in the following ways:
› Enhancing MSL’s growth in the UK, Europe, the US and
Asia in complementary sports, stadia and hospitality
venues; and
› Verteda’s solution set is complementary to the MSL
MPower platform.
The consideration paid to acquire Verteda Holdings Limited
includes £8,928k in cash made up of the following:
›
›
›
›
›
£6,500k upon completion, paid on 3 November 2016;
£750k upon determination of net tangible assets,
paid on 16 December 2016;
£200k deferred acquisition payments, paid
25 April 2017;
£200k further deferred acquisition payments; and
£1,278k holdback EBITDA target payments
The deferred payment of £400k is to be paid in two
instalments of £200k. The first instalment was paid on
25 April 2017 which was within the six-month anniversary
from completion. The remaining £200k to be paid on the
anniversary of completion (31 October 2017).
The holdback EBITDA target payments have been
calculated on the audited consolidated profit and loss
statement of Verteda for the financial year ending 31 March
2017. The finalised EBITDA statements were agreed on
28 June 2017, and subsequent to 30 June 2017 payment
was made for £1,250k with £28k released to the profit
and loss for the financial year ended 30 June 2017.
The fair value of the contingent consideration was
£1,278k and was estimated using the “income approach”.
The acquiree’s net revenue expectations were used to
determine the undiscounted amounts of contingent
consideration to which a likelihood of achievement was
applied. Upon agreement of the EBITDA statements on
28 June 2017 the contingent consideration was crystalised
at the value of £1,250k which has been accounted for
as a current liability as this payment will be due and
payable within twelve months.
51
MPower MSL Annual Report 2017 The functional currency of Verteda is Pound Sterling. Assets and liabilities recognised as a result of the acquisition
are as follows:
SUMMARY OF ACQUIRED NET ASSETS - PROVISIONAL AMOUNTS
Cash and cash equivalents
Trade debtors
Prepayments and accrued revenue
Property, plant and equipment
Software
Intangibles - software
Intangibles - customer contracts
Trade creditors
VAT/tax payable
Accrued expenses
Income in advance
Deferred tax liability
Fair value of net assets acquired
Purchase consideration
Cash paid
Deferred cash payable
Contingent consideration - cash
Contingent consideration - NTA payment
Shares issued
Goodwill
£’000
GBP
1,132
916
153
47
292
1,417
2,335
(809)
(392)
(50)
(696)
(638)
3,707
6,500
400
1,278
750
0
$’000
AUD
1,815
1,468
246
75
469
2,272
3,745
(1,298)
(633)
(82)
(1,116)
(1,023)
5,938
10,423
641
2,049
1,203
0
8,928
14,316
5,221
8,378
The goodwill is attributable to the expected continued growth of the customer base throughout Europe and with
cross selling opportunities to clients of other Group entities.
Significant estimate: adjustments to provisional amounts previously reported
As part of the condensed interim consolidated financial statements for the half year ended 31 December 2016 the Group
provided provisional acquired net assets. These provisional amounts were prepared with the Groups knowledge at that
time. As at 30 June 2017 the following provisional amounts have been adjusted following further review:
Prepayments
A decrease to prepayments acquired has been recorded in the amount of $47k.
Property, plant and equipment
Previously reported as a gross number including software. Upon further review these items have been split to accurately
reflect the acquired assets.
Software
Previously reported as part of the provisional property, plant and equipment. These assets have now been recorded
as a separate asset to more accurately reflect the acquired assets of Verteda.
52
MPower MSL Annual Report 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Intangibles – software and customer contracts
During the six months ending 30 June 2017 the previous assumptions used in the multi-period excess earning method
model were adjusted which altered the provisional value included in the condensed interim consolidated financial
statements for the half year ended 31 December 2016.
These adjustments included adjustments to the post-tax discount rate and the input of a business churn rate. The change
of these assumptions has materially affected the value of the intangible software.
Deferred tax liabilities
Due to a change in the tax treatment of intangible assets created on acquisition from “recovered through sale” to
“recovered through use” goodwill has been recalculated on number of acquisitions with the associated increase being
offset by an increase in the deferred tax liabilities of the Group.
Significant estimate: Contingent consideration
On acquisition date, the fair value of the contingent consideration of $2,048k was calculated using the ‘income approach’
as detailed above. As mentioned above the carrying value of the contingent consideration has been reduced upon
agreement of the EBITDA statements on 28 June 2017. An adjustment of $48k has been accounted for as a gain on
reversal of earnout in the Other income section of the Consolidated statement of profit and loss.
Acquired receivables
The fair value of trade and other receivables on acquisition is deemed to be equal to the gross contractual amounts,
with the expectation that all receivables are recoverable in full.
Revenue and profit contribution
Revenue of Verteda Holdings Limited included in the Group revenue since the acquisition date 31 October 2016
amounted to $6,603k. The original currency of pounds’ sterling has been converted to the presentation currency
of the Group at 30 June 2017 as per the Groups accounting policy detailed in Note 24.
Profit of Verteda Holdings Limited included in the Group profit since the acquisition date amounted to $1,360k prior
to amortisation and $861k including amortization expense of $498k on the acquired Contracts and Customer
Relationships and Software.
ii. Purchase consideration – cash outflow
PAYMENT DESCRIPTION
Cash and cash equivalents acquired
Completion payment
NTA payment
Deferred payment
Total cash outflow
DATE PAID
11/1/2016
11/3/2016
12/16/2016
4/25/2017
AMOUNT
£’000
1,132
AMOUNT
$’000
1,815
(6,500)
(10,405)
(750)
(200)
(1,203)
(321)
(6,318)
(10,114)
Acquisition-related costs
Acquisition-related costs are included in ‘transaction costs’ in profit or loss and discussed in further detail in Note 3(e).
53
MPower MSL Annual Report 2017 B) ACQUISITION OF GOLFBOX A/S (“GOLFBOX”)
i. Summary of acquisition
On 14 November 2016 MSL Solutions acquired 100% of the issued share capital of GolfBox A/S (“GolfBox”) which
operates in the golf management software industry in Europe.
The acquisition has provided growth opportunities that benefit MSL in the following ways:
› Enhanced MSL’s growth in the golf markets in the United Kingdom, Europe, the US and Asia; and
› GolfBox’s solution set is complementary to the solution set currently offered by MSL.
Details of the purchase consideration, the net assets acquired and goodwill are as follows:
The consideration paid to acquire GolfBox includes kr49,465k in cash and shares made up of the following:
›
›
›
›
›
kr28,050k cash paid upon completion 14 November 2016;
kr5,100k deferred cash payment to be paid on the anniversary of completion.
kr9,214k holdback EBIT payment to be paid on the completion of financial year ending 30 April 2018 for audited
accounts for the financial year ending 30 April 2017 and financial year 30 April 2018 figures.
kr5,100k deferred cash payment to be paid 50% on first anniversary of completion and 50% on second anniversary
of completion.
kr549k has been agreed for the negative net tangible asset position as at 1 November 2016. This amount will be
deducted from the deferred payment due on the anniversary of completion.
› A total of 2,272,727 shares have been issued at fair value of $0.22 to C. Faergemann.
The functional currency of GolfBox is Danish Krone. Assets and liabilities recognised as a result of the acquisition are
as follows:
SUMMARY OF ACQUIRED NET ASSETS - PROVISIONAL AMOUNTS
Cash and cash equivalents
Trade debtors
Other
Intangibles - contracts and customer relationships
Intangibles - customer contracts
Other payables
Deferred revenue
Employee and taxation provisions
Deferred tax liabilities
Fair value of net assets acquired
Purchase consideration
Cash paid
Contingent consideration - cash
Deferred cash payable
NTA (discount) - deferred
Shares issued
Goodwill
KR’000
2,281
527
312
3,006
35,824
(280)
(1,816)
(2,134)
(8,543)
29,177
28,050
9,214
10,200
(549)
2,550
$’000
442
102
60
582
6,937
(55)
(352)
(413)
(1,654)
5,649
5,431
1,778
1,975
(106)
500
49,465
9,578
20,288
3,928
The goodwill is attributable to the expected continued growth of the customer base throughout Europe and with
cross selling opportunities to clients of other Group entities.
54
MPower MSL Annual Report 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Significant estimate: adjustments to provisional amounts previously reported
As part of the condensed interim consolidated financial statements for the half year ended 31 December 2016 the
Group provided provisional acquired net assets. These provisional amounts were prepared with the Groups knowledge
at that time. As at 30 June 2017, the following provisional amounts have been adjusted following further review:
Cash and cash equivalents
A decrease of cash and cash equivalents acquired has been recorded in the amount of $13k due to conversion rate
at acquisition date.
Deferred revenue
Previously reported deferred revenue has been reduced by $43k.
Employee provisions
Previously reported provisional liabilities have now been increased by $38k based on audited interim financial statements.
Intangibles – software and customer contracts
During the six months ending 30 June 2017 the previous assumptions used in the multi-period excess earning method
model were adjusted which altered the provisional value included in the condensed interim consolidated financial
statements for the half year ended 31 December 2016.
These adjustments included adjustments to the post-tax discount rate and the input of a business churn rate. The change
of these assumptions has materially affected the value of the intangible software.
Deferred tax liabilities
Due to a change in the tax treatment of intangible assets created on acquisition from “recovered through sale” to
“recovered through use” goodwill has been recalculated on number of acquisitions with the associated increase being
offset by an increase in the deferred tax liabilities of the Group
Significant estimate: Contingent consideration
On acquisition date, the fair value of the contingent consideration of $1,778k was calculated using the ‘income approach’,
based on the acquiree’s earnings expectations.
Since the preparation of the of the consolidated interim financial statements for the period ending 31 December 2017
a number of provisional amounts that were waiting agreement have been confirmed.
Agreement on the net tangible assets at the date of acquisition was settled on 3 April 2017. This resulted in the provision
amount of kr(510)k being amended to kr(549)k. This amount will be deducted from the deferred payment due on the
anniversary of completion.
Acquired receivables
The fair value of trade and other receivables on acquisition is deemed to be equal to the gross contractual amounts,
with the expectation that all receivables are recoverable in full.
Revenue and profit contribution
Revenue of GolfBox included in the Group revenue since the acquisition date 14 November 2016 amounted to $2,116k.
The original currency of Danish krone has been converted to the presentation currency of the Group at 30 June 2017
as per the Groups accounting policy detailed in Note 24. Profits of GolfBox included in the Group profit/(loss) since
the acquisition date amounted to $690k prior to amortization and $103k after including amortisation expenses of
$586k of the acquired Contracts and Customer Relationships and Software.
ii. Purchase consideration – cash outflow
PAYMENT DESCRIPTION
Cash and cash equivalents acquired
Completion payment
Total cash outflow
DATE PAID
AMOUNT
KR’000
AMOUNT
$’000
11/14/2016
2,281
11/14/2016
(28,050)
(25,769)
442
(5,431)
(4,989)
Acquisition-related costs are included in ‘transaction costs’ in profit or loss and discussed in further detail in Note 3(e).
55
MPower MSL Annual Report 2017 C) ACQUISITION OF PALLISTER GAMES
i. Summary of acquisition
On 30 May 2017 MSL Solutions Limited acquired the intellectual property and the customer support contracted revenue
for “Pallister Games” from Ray Pallister Pty Ltd. Pallister Games is a random prize generating product that the Group
is integrating into its suite of products offered to customers.
MSL will benefit from this acquisition by:
› Extending sales of the products outside NSW through MSL’s existing customer base; and
› Cross-selling opportunities for MSL products into Pallister Games clients by packaging the products with other
existing MSL member engagement products.
The purchase of Pallister Games has been classified as a business combination since along with the intellectual
property and contracts MSL Solutions Limited adopted the processes and procedures previously developed for
Pallister Games by Ray Pallister’s Pty Ltd.
Details of the purchase consideration, the net assets acquired and goodwill are as follows:
The consideration paid to acquire Ray Pallister Pty Ltd includes $2,750k excluding GST in cash or shares made up
of the following:
›
›
›
$1,600k cash paid upon completion 30 May 2017;
$900k holdback EBITDA payment to be paid on financial year performance for financial year 2018, 2019 and 2020.
This amount can be settled in either cash payment or the issue of shares based on the 10-day average share price.
$250k holdback EBITDA bonus payment to be paid on any over achievement of EBITDA in financial years 2018,
2019 and 2020. This amount can be settled in either cash payment or the issue of shares based on the 10-day
average share price.
The assets and liabilities recognised as a result of the acquisition are as follows:
SUMMARY OF ACQUIRED NET ASSETS - PROVISIONAL AMOUNTS
Deferred revenue
Intangible - Customer contracts and relationships
Intangible - software
Deferred tax liability
Fair value of net assets acquired
Purchase consideration
Cash paid
Contingent consideration
Goodwill
$’000
(61)
1,014
611
(304)
1,260
1,600
1,150
2,750
1,490
The goodwill is attributable to the expected continued growth of the customer base throughout Australia and with
cross selling opportunities to clients of other Group entities.
Significant estimate: Contingent consideration
On acquisition date, the fair value of the contingent consideration of $1,150k was calculated using the ‘income approach’
as detailed above.
56
MPower MSL Annual Report 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Revenue and profit contribution
Revenue of Pallister Games included in the Group revenue since the acquisition date 30 May 2017 amounted to $27k.
Losses of Pallister Games included in the Group profit since the acquisition date amounted to $27k prior to amortization
and $5k after amortization expense of $22k of the acquired Software and Customer Relationships.
ii. Purchase consideration – cash outflow
PAYMENT DESCRIPTION
Completion payment
C) CONTINGENT CONSIDERATION
DATE PAID
30/5/2017
$’000
(1,600)
The below table illustrates the contingent consideration movement for the financial years ending 30 June 2016 and
30 June 2017:
Balance 1 July 2015
(960)
-
MARKETOWN
$’000
INFOGENESIS
$’000
ROCKIT
$’000
-
VERTEDA
$’000
GOLFBOX
$’000
PALLISTER
GAMES
$’000
(500)
(925)
-
-
-
-
-
-
(500)
(925)
TOTAL
$’000
(960)
(1,425)
-
-
372
(2,013)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
500
-
-
-
(6)
(3,251)
-
(89)
-
-
-
(169)
432
530
52
(6)
1,203
-
48
-
(3,257)
(1,896)
(1,150)
(3,046)
-
-
-
-
-
-
-
-
-
-
(89)
(169)
2,135
530
687
(2,169)
(1,896)
(1,150)
(5,222)
Add:
Current contingent
consideration
Non-current contingent
consideration
Less:
Contingent consideration paid
Gains/(losses) accounting
profit or (loss)
Balance 30 June 2016
Add:
Current contingent
consideration
Non-current contingent
consideration
Fair value adjustment
Foreign exchange through
profit and loss
Less:
Contingent consideration paid
Accelerated earnout
Gains/(losses) accounting
profit or (loss)
Balance 30 June 2017
Marketown Media Pty Ltd
-
-
-
372
(588)
-
-
-
-
-
-
588
-
During the year $588k of the earnout provision for Marketown Media was released as performance targets for the 2017
financial year are not expected to be met. This amount is included in Other income in the Consolidated statement of
profit or loss.
57
MPower MSL Annual Report 2017 InfoGenesis Pty Ltd
During the year $500k of the earnout provision for InfoGenesis was paid as performance targets for the 2016 financial
year were met.
Rockit Pty Ltd
As part of the Group listing on the ASX, MSL Solutions Limited took advantage of a clause in the Share Sale Agreement
for Rockit Pty Ltd that allowed for the acceleration of the earnout payments. The Group has entered into a deed of
variation with the vendors which has amended the earnout liability from being a mixture of shares and cash to a simple
cash payment for earnout targets in calendar years 2017 and 2018. The effect on the income statement resulting from
this agreement was a fair value expense of $89k.
Verteda Holdings Limited
As discussed in Note 3a(i) part of the consideration for the acquisition of Verteda Holdings Limited is based on
performance targets. At 30 June 2017, the 2017 EBITDA stretch target had not be met and the contingent consideration
of $48k relating to this target was released. This amount is included in Other income in the Consolidated statement
of profit or loss.
GolfBox A/S
As discussed in Note 3b(i) part of the consideration for the acquisition of GolfBox A/S is based on performance
targets. As at the date of these accounts no information about the performance against the contingent target had
been agreed upon.
D) TRANSACTION COSTS
During the financial year ended 30 June 2017 the Company incurred $991k (FY16 $418k) of transaction costs that
related to the acquisition of Verteda Holdings Limited and GolfBox AS. This included additional staff travel and
salary costs as well as legal and accounting fees to perform the required due diligence and affect the completion
of the acquisitions.
E) ADJUSTMENTS TO ROCKIT PTY LTD AND INFOGENESIS PTY LTD
The financial statements for the year ending 30 June 2016 included provisional amounts for the acquisition of Rockit
Pty Ltd and InfoGenesis Pty Ltd.
Upon further review of these acquisitions the following provisional amounts have been adjusted:
COMBINATION
Rockit Pty Ltd
Rockit Pty Ltd
Rockit Pty Ltd
Rockit Pty Ltd
Rockit Pty Ltd
InfoGenesis Pty Ltd
InfoGenesis Pty Ltd
InfoGenesis Pty Ltd
AREA OF
ACQUISITION ADJUSTED
Deferred revenue
Intercompany loan
Assets created upon acquisition
Deferred tax liability
Goodwill
Gain on acquisition
Deferred tax liability
Goodwill
PROVISIONAL
AMOUNT
$’000
ADJUSTMENT
$’000
(127)
373
1,621
-
-
693
-
-
(46)
27
19
(172)
494
(693)
(885)
329
AMOUNT
INCLUDED IN
FINANCIAL
STATEMENTS FOR
YEAR ENDING
30 JUNE 2017
$’000
(173)
400
1,640
(172)
494
-
(885)
329
Due to a change in the accounting policy relating to determining the expected manner of recovery of acquired
intangible assets from recovery through sale to recovery through use, goodwill has been recalculated on number
of acquisitions with the associated increase being offset by an increase in the deferred tax liabilities of the Group.
58
MPower MSL Annual Report 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 4. REVENUE
The Company derives the following types of revenue:
Recurring revenue
Customer contracts annuities
Subscription annuities
Total – recurring revenue
Non-recurring revenue
Booking fees
System installations
Software fees and royalties
Hardware fees
Advertising
Other
Revenue from operating activities
Other income
Gain on sale of an asset
Gain on reversal of earnout provisions
Settlement of professional matters
Interest
CONSOLIDATED
30-JUN-17
$’000
30-JUN-16
$’000
11,125
1,039
4,813
881
12,164
5,694
250
2,693
2,325
3,964
1,994
275
353
808
802
1,702
1,688
242
11,501
5,595
23,665
11,289
14
687
3
3
707
5
372
49
-
426
Revenues from external customers come from the sale of IT infrastructure and hardware as well as support of the
same. This revenue is supplemented by commission on bookings on sites such as iSeekGolf and merchant sales on
the Buying Club Website.
MSL Solutions Limited is domiciled in Australia and has overseas subsidiaries in United Kingdom and Denmark.
OTHER INCOME
On 24 June 2017 MSL Solutions sold a parcel of 350,000 shares in Zuuse Pty Ltd at $0.10 per share which resulted
in a gain on the sale an asset of $14k.
During the year $588k of the earnout provision for Marketown Media Pty Ltd was recognised as a gain as performance
targets for the 2017 were not met.
In addition, $47k of the earnout provision for Verteda Holdings Limited was released as these stretch targets were
not met.
As part of the Deed of Variation relating to the acquisition of Rockit Pty Ltd, a further $52k of the contingent
consideration was recognised as a gain due to the crystallisation of the accelerated earnout targets.
59
MPower MSL Annual Report 2017 Software fees and royalties
Timing of recognition: The Group sells a large range of
software applications. Sales are recognised when the
software applications are delivered to the customer.
Delivery has occurred when the end user has received
the software, the risks of obsolescence and loss have
been transferred to the customer and either the customer
has accepted the products in accordance with the sales
contract or the Group has objective evidence that all
criteria for acceptance have been satisfied.
Measurement of revenue: Revenue from sales is based
on the price specified in the sales contracts, net of any
discounts and returns at the time of sale. Accumulated
experience is used to estimate and provide for discounts
and returns. All elements of finance are sourced from
third parties as such no element of financing is deemed
present as the sales are made.
Hardware fees
Timing of recognition: The Group sells a large range of
hardware applications. Sales are recognised when the
hardware applications are delivered to the wholesale
supplier of the products. Delivery has occurred when
wholesaler has notified the Group that the products are
on their premises and the risks of obsolescence and loss
have been transferred to the customer and either the
customer has accepted the products in accordance with
the sales contract or the Group has objective evidence
that all criteria for acceptance have been satisfied.
Measurement of revenue: Revenue from sales is based
on the price specified in the sales contracts, net of any
discounts and returns at the time of sale. Accumulated
experience is used to estimate and provide for discounts
and returns. All elements of finance are sourced from
third parties as such no element of financing is deemed
present as the sales are made.
Advertising
Timing of recognition: The Group recognises revenue
in accordance with contract milestones and/or advert
impressions.
Measurement of revenue: Revenue is measured in line
with the executed insertion orders and is based on
market rates.
RECOGNISING REVENUE FROM MAJOR
BUSINESS ACTIVITIES
Revenue is recognised for the major business activities
using the methods outlined below.
Customer contracts annuities – (deferred revenue)
Timing of recognition: The Group recognises the revenue
from customer care and support contracts in the period
that the support is provided. Customers are invoiced prior
to the commencement of the support period with this
invoiced amount deferred until support has been provided.
Measurement of revenue: Revenue is measured per
supported license module. Various modules have differing
support prices. The Group has a cancellation policy of
90 days.
Subscription annuities – (deferred revenue)
Timing of recognition: The Group recognises the revenue
from SaaS or subscription contracts in the period that
the support is provided. Customers are invoiced prior
to the commencement of the subscription period with
this invoiced amount deferred until the service has
been provided.
Measurement of revenue: Revenue is measured per
subscription license module. Various modules have
differing subscription prices.
Booking fees
Timing of recognition: The Group accounts for booking
revenue when funds have been received by the Group
for rounds of golf booked through iSeek Golf product
offering to clubs and associations.
Measurement of revenue: Booking revenue is based on
commission charged to golf clubs for rounds booked and
paid for on the iSeek Golf platform. Revenue is based on
the booking made, net of the funds to be remitted to
the golf clubs upon the completion of the round played.
System installations/professional services –
(deferred revenue)
Timing of recognition: Revenue from system
installations is recognised in the accounting period
in which the services are rendered. For fixed-price
contracts, revenue is recognised based on the actual
service provided to the end of the reporting period
as proportion of the total services to be provided
(percentage of completion method).
Measurement of revenue: Estimates of revenues, cost
or extent of progress toward completion are revised
if circumstances change. Any resulting increases or
decreases in the estimated revenues or costs are
reflected in profit or loss in the period in which the
circumstances that give rise to the revision become
known by management.
60
MPower MSL Annual Report 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 5. OTHER SIGNIFICANT INCOME AND EXPENSE ITEMS
The Group has identified a number of items which are material due to the significance of their nature and/or amount:
Gain on reversal of earnout provisions
Transaction costs
Senior management IPO bonus
Finance costs
Fair value movement on financial liability at fair value through profit and loss
Unrealised FX losses
Restructuring costs
Share of loss of associates/joint ventures accounted for using
the equity method
Other gains and expenses
Aspects of each of the above items are discussed in further detail below.
OTHER INCOME AND EXPENSE ITEMS
a) Gain on reversal of earnout provisions
a
b
c
d
e
f
CONSOLIDATED
30-JUN-17
$’000
30-JUN-16
$’000
687
(991)
(3,342)
(812)
(4,339)
(324)
(36)
-
(4,699)
(9,157)
372
(418)
-
(157)
-
-
-
(118)
(118)
(321)
During the year $588k of the earnout provision for Marketown Media Pty Ltd was recognised as a gain as performance
targets for the 2017 were not met.
In addition, $47k of the earnout provision for Verteda Holdings Limited was released as these stretch targets were not met.
As part of the Deed of Variation relating to the acquisition of Rockit Pty Ltd, a further $51k of the contingent
consideration was recognised as a gain due to the crystallisation of the accelerated earnout targets.
b) Transaction costs
As per Note 3 a significant amount of transaction costs relating to the acquisitions throughout the year were recorded
in the profit and loss.
c) Senior management IPO bonus
Reflects the costs associated with a one-off senior management bonus on the completion of the IPO process. This
is a one-off bonus and not related to a future incentive scheme and relates to the grant of shares which no service
provisions operate or other restrictions apply. The amount represents the amount of cash and shares granted at the
completion of the IPO ($3,492k) less the share based payment reserve release for previous options granted $150k.
d) Finance costs
FINANCE COSTS
Brokerage fee on the converting note debt raise
Realised FX losses
Interest income / (expense)
CONSOLIDATED
30-JUN-17
$’000
30-JUN-16
$’000
(793)
(33)
14
(812)
-
(4)
(153)
(157)
Incurred during the year was a one-off payment of $793k to Baillieu Holst for commission on the raising of the
Converting Notes.
In addition to this the Group has incurred realised foreign exchange losses of $33k on payments made to overseas
vendors in relation to financing of the company’s working capital.
61
MPower MSL Annual Report 2017
e) Fair value movement on financial liability at fair value through profit and loss
As noted above the Group issued 3,400 Converting Notes (raising $17m at $5k per note) during the 6-month period
ended 31 December 2016. The Notes would convert upon the event of an IPO with the conversion price being a 20%
discount to the issue price of the shares.
On 4 May 2017 MSL Solutions Limited successfully completed listing on the ASX at the initial listing price of $0.25.
This listing resulted in a fair value expense of $4,250k being recorded for the revaluation of the fair value of the shares
issued for the Converting Notes.
As part of the Group listing on the ASX, MSL Solutions Limited took advantage of a clause in the Share Sale Agreement
for Rockit Pty Ltd that allowed for the acceleration of the earnout payments. The Group has entered into a deed of
variation with the vendors which has amended the earnout liability from being a mixture of shares and cash to a simple
cash payment for earnout targets in calendar years 2017 and 2018. The effect on the income statement resulting from
this agreement was a fair value expense of $89k.
f) Unrealised FX losses
As part of the consideration for the acquisitions of Verteda and GolfBox, there were a number of deferred target
payments recorded as part of the provisions – see Note 8e for more details on these provisions. As these provisions
are payable in the acquiree’s domicile currency being either Pound Sterling or Danish Krone, the Group applies its policy
in relation to foreign exchange currencies and revalues these provisions at the end of each reporting period with any
gain or loss recorded against the unrealised foreign exchange account until such times as the amount is crystalised
and this amount is the transferred to the realised foreign exchange line of the profit or loss statement. Due to the size
of the deferred and earnout payments this movement is a material item on the profit or loss statement.
6. INCOME TAX EXPENSE
This note provides an analysis of the Group’s income tax expense, shows what amounts are recognised directly in
equity and how the tax expense is affected by non-assessable and non-deductible items. It also explains significant
estimates made in relation to the Group’s tax position.
A) INCOME TAX EXPENSE
Income tax expense/(benefit)
Current tax (benefit) expense
Deferred tax (benefit) expense
Adjustments for current tax expense of prior period
Adjustments for deferred tax expense of prior period
Total income tax expense/(benefit)
Income tax expense is attributable to:
Profit from continuing operations
Deferred tax (benefit) expense included in income tax expense comprises:
Decrease (increase) in deferred tax assets (Note 8c)
(Decrease) increase in deferred tax liabilities (Note 8c)
Total deferred tax expense/(benefit)
CONSOLIDATED
30-JUN-17
$’000
30-JUN-16
$’000
256
(1,513)
-
194
(1,063)
318
(728)
(56)
-
(466)
(1,063)
(466)
(292)
(1,027)
(1,319)
(143)
(585)
(728)
62
MPower MSL Annual Report 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
B) NUMERICAL RECONCILIATION OF INCOME TAX EXPENSE TO PRIMA FACIE TAX PAYABLE
Profit/(loss) from continuing operations before income tax expense
Tax at the Australian tax rate of 30% (2016 – 30%)
Tax effect of amounts which are not deductible (taxable) in calculating taxable income:
- Fair value movement on financial liability at fair value through profit and loss
- Share based payments
- Transaction costs
- Gain on reversal of earnout provision
- R&D tax incentive
- Accounting expenditure subject to refundable R&D tax concession
- Other
- Adjustments for income tax expense of prior period
- Derecognition of previously recognised tax losses
- Difference in tax rate of foreign jurisdictions
Total income tax expense/(benefit)
CONSOLIDATED
30-JUN-17
$’000
(11,826)
(3,548)
30-JUN-16
$’000
(1,828)
(548)
1,302
756
338
(206)
(67)
-
(90)
(1,515)
194
288
(30)
-
25
33
(112)
(195)
361
26
(410)
(56)
-
-
(1,063)
(466)
Amounts recognised in equity
Aggregate current and deferred tax expense/(benefit) arising in the reporting period
and not recognised in net profit or loss but directly recognised in equity:
- Equity raising costs
(521)
-
The Group has de-recognised $288k of carry forward tax losses for the year ending 30 June 2017. While the Group
may still be able to utilise these losses in the future it is deemed unlikely due the age of the losses and the significant
changes in ownership and business since the losses were incurred.
63
MPower MSL Annual Report 2017 i. Recognition and measurement
ii. Estimates and judgements
The Group is subject to income taxes in Australia and
jurisdictions where it has foreign operations. Significant
judgement is required in determining the provision for
income taxes. There are certain transactions and
calculations undertaken during the ordinary course of
business for which the ultimate tax determination is
uncertain. The Group estimates its tax liabilities based
on the Group’s understanding of the tax law. Where the
final tax outcome of these matters is different from the
amounts that were initially recorded, such difference
will impact the current and deferred income tax assets
and liabilities in the period in which such determination
is made.
In addition, the Group recognises deferred tax assets
relating to carried forward tax losses to the extent there
are sufficient taxable temporary differences (deferred
tax liabilities) relating to the same taxation authority and
the same subsidiary against which the unused tax losses
can be utilised. However, utilisation of the tax losses also
depends on the ability of the entity, which is not part of
the tax consolidated group, to satisfy certain tests at
the time the losses are recouped.
Companies with the Group may be entitled to claim
special tax deductions for investments in qualifying assets
or in relation to qualifying expenditure. At each reporting
period, the Group accounts for such allowances as tax
credits. The benefit in excess of the Australian Corporate
tax rate of 30% has been recognised as a reduction to
research and development expenses. A deferred tax
asset is recognised for unclaimed tax credits that are
carried forward.
MSL Solutions Limited and its wholly owned Australian
controlled entities have implemented the tax
consolidation legislation. As a consequence, these
entities are taxed as a single entity and the deferred tax
assets and liabilities of these entities are set off in the
consolidated financial statements.
The income tax expense or benefit for the year is the tax
payable on the current year’s taxable income based on the
applicable income tax rate for each jurisdiction adjusted
by changes in deferred tax assets and liabilities attributable
to temporary differences and to unused tax losses.
The current income tax benefit is calculated on the basis
of the tax laws enacted at the end of the reporting
period in the countries where the Company’s subsidiaries
operated and generate taxable income. Management
periodically evaluates positions taken in tax returns with
respect to situations in which applicable tax regulation is
subject to interpretation. It establishes provisions where
appropriate on the basis of amounts expected to be paid
to the tax authorities.
Deferred tax assets are recognised only if it is probable
that the future taxable amounts will be available to
utilise those temporary differences and losses. As such
the Group has de-recognised $288k of carry forward
tax losses for the year ending 30 June 2017. While the
Group may still be able to utilise these losses in the
future it is deemed unlikely due the age of the losses
and the significant changes in ownership and business
since the losses were incurred.
Deferred tax liabilities and assets are not recognised for
temporary differences between the carrying amount and
tax bases of investments in foreign operations where the
Company is able to control the timing of the reversal of
the temporary differences and it is probable that the
differences will not reverse in the foreseeable future.
Current and deferred tax is recognised in profit or loss,
except to the extent that it relates to items recognised in
other comprehensive income or directly in equity. In this
case, the tax is also recognised in other comprehensive
income or directly in equity respectively.
Companies within the Group may be entitled to claim
special tax deductions for investments in qualifying assets
or in relation to qualifying expenditure (eg. The Research
and Development Tax Incentive regime in Australia or
other investment allowances). The Group accounts for
such allowances as tax credits, which means that the
allowances reduce income tax payable and current tax
expense. A deferred tax asset is recognised for unclaimed
tax credits that are carried forward as deferred tax assets.
64
MPower MSL Annual Report 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 7. FINANCIAL ASSETS AND LIABILITIES
This note provides information about the Group’s financial instruments, including:
› An overview of all financial instruments held by the Group
›
Specific information about each type of financial instrument
› Accounting policies
›
Information about determining the fair value of the instruments, including judgements and estimation
uncertainty involved
The Group holds the following financial instruments:
FINANCIAL ASSETS
2017
Trade and other receivables
Cash and cash equivalents
2016
Trade and other receivables
Cash and cash equivalents
FINANCIAL LIABILITIES
2017
Trade and other payables
Borrowings
Contingent Consideration - Earnout provision
2016
Trade and other payables
Borrowings
Contingent Consideration - Earnout provision
ASSETS AT
FAIR VALUE
THROUGH
PROFIT AND
LOSS
$’000
FINANCIALS
ASSETS AT
AMORTISED
COST
$’000
-
-
-
-
7,224
11,897
3,941
2,749
ASSETS AT
FAIR VALUE
THROUGH
PROFIT AND
LOSS
$’000
FINANCIALS
ASSETS AT
AMORTISED
COST
$’000
-
-
5,222
-
-
2,013
6,653
225
-
4,580
309
-
NOTES
7a
7b
7a
7b
NOTES
7c
7d
8e
7c
7d
8e
TOTAL
$’000
7,224
11,897
3,941
2,749
TOTAL
$’000
6,653
225
5,222
4,580
309
2,013
The Group’s exposure to various risks associated with the financial instruments is discussed in Note 12. The maximum
exposure to credit risk at the end of the reporting period is the carrying amount of each class of financial assets
mentioned above.
65
MPower MSL Annual Report 2017 A) TRADE AND OTHER RECEIVABLES
Current
Trade receivables
Allowance for doubtful debts
Amounts due from customers for contract work
Non-Current
Trade receivables
Loan receivable – related party
CONSOLIDATED
30-JUN-17
$’000
30-JUN-16
$’000
5,436
(114)
1,014
6,336
40
848
888
2,339
(52)
766
3,053
40
848
888
Further information relating to loans to related parties and key management personnel is set out in Note 18.
i. Classification as trade and other receivables
Trade receivables are amounts due from customers for goods sold or services performed in the ordinary course of
business. Loans and other receivables are non-derivative financial assets with fixed or determinable payments that
are not quoted in an active market. If collection of the amounts is expected in one year or less they are classified as
current assets. If not, they are presented as non-current assets. Trade receivables are generally due for settlement
within 30 days and therefore are all classified as current. The Group’s impairment and other accounting policies for
trade receivables are outlined in Note 24.
ii. Other receivables
These amounts generally arise from transactions outside the usual operating activities of the Group. Collateral is not
normally obtained. The non-current other receivables are due and payable within three years from the end of the
reporting period.
iii. Fair value of trade and other receivables
Due to the short-term nature of the current receivables, their carrying amount is considered to be the same as their
fair value. For the majority of the non-current receivables, the fair values are also not significantly different to their
carrying amounts.
iv.
Impairment and risk exposure
Information about the impairment of trade and other receivables, their credit quality and the Group’s exposure to
credit risk, foreign currency risk and interest rate risk can be found in Note 12b and 12c.
66
MPower MSL Annual Report 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS B) CASH AND CASH EQUIVALENTS
Deposits on call
Cash at bank
CONSOLIDATED
30-JUN-17
$’000
30-JUN-16
$’000
8,037
3,860
11,897
-
2,749
2,749
i. Reconciliation to cash flow statement
The figures in the table shown below reconcile to the amount of cash shown in the statement of cash flows at the end
of the financial year as follows:
Cash and cash equivalents
Overdrafts
CONSOLIDATED
30-JUN-17
$’000
30-JUN-16
$’000
11,897
(156)
11,741
2,749
(115)
2,634
ii. Classification as cash equivalents
Term deposits are presented as cash equivalents if they have a held to maturity of three months or less from the date
of acquisition and are repayable with 24 hours’ notice with no loss of interest. See Note 24 for the Group’s other
accounting policies on cash and cash equivalents.
C) TRADE AND OTHER PAYABLES
Current
Trade payables
Other payables
Deferred consideration on business combinations
Non-Current
Deferred consideration on business combinations
CONSOLIDATED
30-JUN-17
$’000
30-JUN-16
$’000
1,966
2,351
1,348
5,665
988
988
779
3,488
150
4,417
163
163
Trade payables are unsecured and are usually paid within 30 days of recognition.
The carrying amounts of trade and other payables are considered to the same as their fair values, due to the
short-term nature.
67
MPower MSL Annual Report 2017 D) BORROWINGS
Current
Unsecured
Loan related party - unsecured
Secured
Bank overdraft - secured
Lease liabilities - secured
Total secured current borrowings
Total current borrowings
i. Finance leases
CONSOLIDATED
30-JUN-17
$’000
30-JUN-16
$’000
-
-
157
68
225
225
174
174
115
20
135
309
The Group leases various plant and equipment with a carrying value of $70k (2016 – $20k) under finance leases
expiring within three to five years.
FINANCE LEASE – NON-CANCELLABLE
Payable:
Within one year
Later than one year but not later than 5 years
Total future minimum lease payments
Total future finance charges
Lease liabilities
Lease liabilities are represented in the financial statements as follows:
Current
Non-current
ii. Fair value
CONSOLIDATED
30-JUN-17
$’000
30-JUN-16
$’000
29
49
78
(9)
69
20
49
69
20
-
20
-
20
20
-
20
For all borrowings, the fair value is not materially different to their carrying amounts since the interest payable on
those borrowings is either close to current market rates or the borrowings are of a short-term nature.
iii. Risk exposures
Details of the Groups exposure to risks arising for current and non-current borrowings are set out in Note 12.
68
MPower MSL Annual Report 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS E) RECOGNISED FAIR VALUE MEASUREMENTS
i. Fair value hierarchy
This section explains the judgments and estimates made in determining the fair values of the financial instruments
that are recognised and measured at fair value in the financial statements. To provide an indication about the reliability
of the inputs used in determining fair value, the Group has classified its financial instruments into the three levels
prescribed under the accounting standards. An explanation of each level follows underneath the table.
Financial liabilities
Contingent consideration - Earnout provision
Total Financial liabilities
Financial liabilities
Contingent consideration - Earnout provision
Total Financial liabilities
30-JUN-17
LEVEL 1
$’000
LEVEL 2
$’000
LEVEL 3
$’000
TOTAL
$’000
-
-
-
-
(5,222)
(5,222)
(5,222)
(5,222)
30-JUN-16
LEVEL 1
$’000
LEVEL 2
$’000
LEVEL 3
$’000
TOTAL
$’000
-
-
-
-
(2,013)
(2,013)
(2,013)
(2,013)
There were no transfers between levels for recurring fair value measurements during the year. The Group’s policy is
to recognise transfers into and transfers out of fair value hierarchy levels as at the end of the reporting period.
Level 1 – The fair value of financial instruments traded in active markets (such as publicly traded derivatives and trading
and available-for-sale securities) is based on quoted market prices at the end of the reporting period. The quoted market
price used for financial assets held by the Group is the current bid price. These instruments are included in level 1.
Level 2 – The fair value of financial instruments that are not traded in an active market (for example, over the counter
derivatives) is determined using valuation techniques which maximize the use of observable market date and rely as
little as possible on entity-specific estimates. If all significant inputs required to fair value an instrument are observable,
the instrument ins included in level 2.
Level 3 – If one or more of the significant inputs is not based on observable market data, the instrument is included
in level 3. This is the case for unlisted equity securities.
ii. Valuation techniques used to determine fair values
Specific valuation techniques used to value financial instruments include:
›
The fair value of remaining financial liabilities is determined using discounted cash flow analysis.
All fair value estimates are included in level 3 as they are contingent consideration payable where the fair values have
been determined based on present values and the discount rates used were adjusted for counterparty or own credit risk.
iii. Valuation processes
The finance department of the Group includes a team that performs the valuations of non-property items required
for financial reporting purposes, including level 3 fair values. This team reports directly to the Chief Financial Officer
and the Audit and Risk Committee (ARC). Discussions of valuation processes and results are held between the CFO
and the ARC at least once every six months, in line with the Groups half-yearly reporting period.
The main level 3 inputs used by the Group are derived and evaluated as follows:
› Contingent consideration – expected cash inflows are estimated based on the terms of the sale contract and the
entity’s knowledge of the business and how the current economic environment is likely to impact it.
Changes in level 2 and 3 fair values are analysed at the end of each reporting period during the half yearly valuation
discussion between the CFO and ARC. As part of this discussion the team presents a report that explains the reason
for the fair value movements.
69
MPower MSL Annual Report 2017 8. NON-FINANCIAL ASSETS AND LIABILITIES
This note provides information about the Group’s non-financial assets and liabilities, including:
›
Specific information about each type of non-financial asset and non-financial liability
- Property, plant and equipment (see Note 8(a))
-
Intangible assets (see Note 8(b))
- Deferred tax balances (see Note 8(c))
- Employee benefit obligations (Note 8(d))
- Provisions (Note 8(e))
- Asset held for sale (Note 8(f))
› Accounting policies
›
Information determining the fair value of the fair value of the assets and liabilities, including judgements and
estimation uncertainty involved.
A) PROPERTY, PLANT AND EQUIPMENT
LEASEHOLD
IMPROVEMENTS
$’000
PLANT AND
EQUIPMENT
$’000
FURNITURE
FIXTURES &
FITTINGS
$’000
MOTOR
VEHICLE
$’000
5
(5)
-
-
8
7
13
(6)
7
7
-
-
6
14
(7)
7
693
(513)
180
180
62
(73)
169
913
(744)
169
169
33
133
(143)
192
1,079
(887)
192
84
(73)
11
11
52
(7)
56
202
(146)
56
56
7
63
(22)
104
272
(168)
104
-
-
-
-
5
-
5
24
(19)
5
5
-
-
4
24
(20)
4
TOTAL
$’000
782
(591)
191
191
127
(81)
237
1,152
(915)
237
237
40
197
(167)
306
1,387
(1,081)
306
NON-CURRENT
At 1 July 2015 - restated
Cost or fair value
Accumulated depreciation
Net book amount
Year ending 30 June 2016
Opening net book amount
Additions
Depreciation charge
Closing net book amount
As at 1 July 2016
Cost or fair value
Accumulated depreciation
Net book amount
Year ending 30 June 2017
Opening net book amount
Exchange differences
Additions
Depreciation charge
Closing net book amount
At 30 June 2017
Cost or fair value
Accumulated depreciation
Net book amount
70
MPower MSL Annual Report 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
i. Leased assets.
Furniture, fittings and equipment includes the following amounts where the Group is a lessee is under a finance lease
(refer to Note 7e(i) for further details):
LEASED ASSETS
Laptops & peripherals
Laptops & peripherals
PURCHASE
PRICE
$’000
DEPRECIATION
$’000
BOOK VALUE
$’000
28
51
79
(1)
(13)
(14)
27
38
65
ii. Revaluation, depreciation methods and useful lives.
Plant and equipment are measured on the cost basis less depreciation and impairment losses.
The carrying amount of plant and equipment is reviewed annually by directors to ensure it is not in excess of the
recoverable amount from these assets. The recoverable amount is assessed on the basis of the expected net cash
flows that will be received from the assets employment and subsequent disposal. The expected net cash flows have
been discounted to their present values in determining recoverable amounts.
The depreciable amount of all fixed assets including buildings and capitalised leased assets is depreciated on a
diminishing value basis over their useful lives to the group commencing from the time the asset is held ready for use.
Leasehold improvements are depreciated over the shorter of either the unexpired period of the lease or the estimated
useful lives of the improvements.
The depreciation rates used for each class of depreciable assets are:
Class of Fixed Asset
›
›
›
Plant and equipment
27% - 50%
Furniture, fixtures and fittings 20% - 30%
Leasehold improvements
7.5% - 30%
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.
See Note 24 for the other accounting policies relevant to property, plant and equipment.
71
MPower MSL Annual Report 2017 B) INTANGIBLE ASSETS
NON-CURRENT
At 1 July 2015 - restated
Cost or fair value
Accumulated amortisation
Net book amount
Year ending 30 June 2016
Opening net book amount
Additions
Amortisation charge
Closing net book amount
As at 1 July 2016
Cost or fair value
Accumulated amortisation
Net book amount
Year ending 30 June 2017
Opening net book amount
Exchange differences
Additions
Amortisation charge
Closing net book amount
At 30 June 2017
Cost or fair value
Accumulated amortisation
Net book amount
GOODWILL
$’000
COMPUTER
SOFTWARE,
OTHER
$’000
FORMATION
EXPENSES
$’000
CONTRACTS
AND CUSTOMER
RELATIONSHIPS
$’000
3,127
-
3,127
3,127
1,193
-
2,831
(1,294)
1,537
1,537
2,418
(897)
4,320
3,058
4,320
-
4,320
4,320
-
13,796
-
18,116
18,116
-
18,116
5,249
(2,191)
3,058
3,058
(3)
4,151
(1,669)
5,537
9,397
(3,860)
5,537
2
-
2
2
-
-
2
2
-
2
2
-
-
-
2
2
-
2
TOTAL
$’000
11,004
(1,852)
9,152
9,152
8,595
(1,898)
15,849
19,600
(3,751)
15,849
5,044
(559)
4,485
4,485
4,985
(1,001)
8,469
10,029
(1,560)
8,469
8,469
15,849
-
11,715
(2,453)
17,731
(3)
29,662
(4,122)
41,386
21,744
(4,013)
17,731
49,259
(7,874)
41,386
Comparatives have been restated to align with current year presentation.
i. Amortisation methods and useful lives.
The Group amortises intangible assets with a limited useful life using the straight-line method over the following
period/rates:
›
Software – 12.5% to 40%
› Customer contracts – 3 to 11 years
See Note 24 for the other accounting policies relevant to intangible assets, and Note 24 for the Group’s policy
regarding impairments.
ii. Customer contracts
The customer contracts were acquired as part of a business combination (see Note 3 for details). They are recognised
at their fair value at the date of acquisition and are subsequently amortised on a straight-line based on the timing of
projected cash flows of the contracts over their estimated useful lives.
72
MPower MSL Annual Report 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS iii. Significant estimate: useful life of Software acquired
Software was acquired as part of a business combination (see Note 14 for details). They are recognised at their
fair value at the date of acquisition and are subsequently amortised on a straight-line basis over a 96-month period
from date of acquisition. This has been estimated as the weighted average of the expected obsolescence of the
acquired software.
iv. Significant estimate: adjustment to Goodwill due to change in tax base
Due to a change in the accounting policy relating to determining the expected manner of recovery of acquired
intangible assets from recovery through sale to recovery through use, goodwill has been recalculated on number
of acquisitions with the associated increase being offset by an increase in the deferred tax liabilities of the Group.
v.
Impairment tests for goodwill
Goodwill is monitored by management at the segment level of the Group.
A segment-level summary of the goodwill allocation is presented below:
SEGMENT
Mpower Golf
Mpower Venue
Mpower Media
Total
CONSOLIDATED
30-JUN-17
$’000
30-JUN-16
$’000
6,019
10,234
1,863
18,116
2,026
1,921
373
4,320
vi. Significant estimate: key assumptions used for value-in-use calculations
Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Gains and losses
on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.
The recoverable amount of a subsidiary is determined based on value-in-use calculations which require the use
of assumptions. The calculations use cash flow projections based on financial budgets approved by management
covering a five-year period.
Cash flows beyond the five-year period are extrapolated using the estimated growth rates stated below.
Revenue (% annual growth rate)
EBITDA (%)
Annual capital expenditure
Long term growth rate (%)
Post-tax discount rate
2017
RANGE
2016
RANGE
3.80%
3.80%
2.50%
2.50%
In line with subsidiary Depreciation
2.50%
13.20%
2.50%
13.00%
2.50%
2.50%
1.50%
13.00%
3.80%
3.80%
2.50%
13.20%
73
MPower MSL Annual Report 2017 The following table sets out the key assumptions for those segments that have significant goodwill allocated to them:
Management has determined the values assigned to each of the above key assumptions as follows:
ASSUMPTION
Revenue
EBITDA
Annual capital expenditure
APPROACH USED TO DETERMINE VALUES
Average annual growth rate over the five-year forecast period; based on past
performance and management’s expectations of market development.
Based on past performance and management’s expectations for the future.
Expected cash costs in the CGU’s. This is based on the historical experience
of management. No incremental revenue or cost savings are assumed in the
value-in-use model as a result of this expenditure.
Long-term growth rate
This is in line with inflation.
Post-tax discount rates
Reflect specific risks relating to the relevant segments and the countries in which
they operate.
Management does not consider that a reasonably possible change in any of the key assumptions (growth rates and
discount rates), after allowing for any consequential impacts on other key assumptions of any such change, would
cause the carrying value of the segments to exceed their recoverable amounts.
C) DEFERRED TAX BALANCES
i. Deferred tax assets
The balance comprise temporary differences attributable to:
Tax losses & offsets
Employee benefits
Property,plant & equipment
IPO and transaction related expenditure
Other
Total deferred tax asset
Set-off against deferred tax liability (Note 8c(ii))
Set-off from deferred tax liability (Note 8c(ii))
Net deferred tax asset
NOTES
2017
$’000
2016
$’000
844
325
-
604
114
1,887
473
250
22
11
148
904
(1,887)
(904)
-
-
-
-
74
MPower MSL Annual Report 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS TAX LOSSES
& OFFSETS
$’000
850
EMPLOYEE
BENEFITS
$’000
135
-
-
-
(378)
-
473
46
-
69
-
-
250
PROPERTY,
PLANT &
EQUIPMENT
$’000
IPO AND
TRANSACTION
RELATED
EXPENDITURE
$’000
-
22
-
-
-
-
22
16
(6)
-
-
-
-
11
TAX LOSSES
& OFFSETS
$’000
EMPLOYEE
BENEFITS
$’000
PROPERTY,
PLANT &
EQUIPMENT
$’000
IPO AND
TRANSACTION
RELATED
EXPENDITURE
$’000
473
250
22
386
170
-
-
-
(185)
844
75
(22)
-
-
-
-
-
325
-
-
-
-
-
-
11
72
-
521
-
-
-
604
OTHER
$’000
62
TOTAL
$’000
1,064
80
-
6
-
-
148
143
-
75
(378)
-
904
OTHER
$’000
148
TOTAL
$’000
904
(24)
487
-
-
-
-
(10)
114
170
521
-
-
(195)
1,887
MOVEMENTS
At 1 July 2015
(Charged)/Credited
To profit or loss
To equity
Acquisition
Utilisation of tax losses
True Up of prior period deferred tax
As at 30 June 2016
MOVEMENTS
At 1 July 2016
(Charged)/Credited
To profit or loss as deferred
tax benefit/(expense)
To profit or loss as research
and development expenses
To equity
Acquisition
Utilisation of tax losses
True Up of prior period deferred tax
As at 30 June 2017
ii. Deferred tax liabilities
The balance comprise temporary differences attributable to:
Intangible assets
Financial Assets
Property, plant & equipment
Other
Total deferred tax liabilities
Set-off against deferred tax asset (Note 8c(i))
Set-off from deferred tax asset (Note 8c(i))
Net deferred tax liabilities
NOTES
2017
$’000
2016
$’000
(4,657)
(663)
(86)
(3)
(2,772)
(670)
-
(5,409)
(3,443)
-
1,887
-
904
(3,522)
(2,539)
75
MPower MSL Annual Report 2017
MOVEMENTS
At 1 July 2015
(Charged)/Credited
To profit or loss
To equity
True Up of prior period deferred tax
Acquisition
As at 30 June 2016
MOVEMENTS
At 1 July 2016
(Charged)/Credited
To profit or loss
To equity
True Up of prior period deferred tax
Acquisition
As at 30 June 2017
INTANGIBLES
$’000
(1,597)
FINANCIAL
ASSETS
$’000
(906)
342
-
-
(1,517)
(2,772)
236
-
-
-
(670)
PROPERTY,
PLANT &
EQUIPMENT
$’000
OTHER
$’000
8
-
-
(6)
-
-
-
-
-
INTANGIBLES
$’000
FINANCIAL
ASSETS
$’000
PROPERTY,
PLANT &
EQUIPMENT
$’000
OTHER
$’000
(2,772)
(670)
-
1,097
-
-
(2,981)
(4,657)
6
-
-
-
(663)
(75)
-
1
(13)
(86)
(2)
-
-
-
(3)
TOTAL
$’000
(2,505)
586
-
-
(1,523)
(3,443)
TOTAL
$’000
(3,443)
-
1,026
-
1
(2,994)
(5,409)
Offsetting within tax consolidated group
MSL Solutions Limited and its wholly-owned Australian subsidiaries have been applied the tax consolidation legislation
which means that these entities are taxed as a single entity. As a consequence, the deferred tax assets and deferred
tax liabilities have been offset in the consolidated financial statements.
D) EMPLOYEE BENEFIT OBLIGATIONS
Employee benefit obligations
2017
Annual leave obligations
Long-service leave
2016
Annual leave obligations
Long-service leave
CURRENT
$’000
1,053
172
CURRENT
$’000
498
131
NON-
CURRENT
$’000
-
249
NON-
CURRENT
$’000
-
228
TOTAL
$’000
1,053
421
TOTAL
$’000
498
359
Liabilities for wages and salaries, including non-monetary benefits and annual leave expected to be settled wholly
within 12 months after the end of the reporting period are recognised in other liabilities in respect of employees’
services rendered up to the end of the reporting period and are measured at amounts expected to be paid when the
liabilities are settled. Liabilities for non-accumulating sick leave are recognised when leave is taken and measured at
the actual rates paid or payable.
Employee benefit obligations are disclosed on the statement of financial position through inclusion of the annual
leave obligation within the trade and other payables liability (Note 7c) and the long service leave obligation is
included within the provisions liability (Note 8e).
76
MPower MSL Annual Report 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other employee benefit obligations
Liabilities for long service leave and annual 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 using the projected unit credit method. Consideration is given to expected future salaries and
wages levels, experience of employee departures and periods of service. Expected future payments are discounted
using national government 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.
E) PROVISIONS
Current
Long service leave
Annual leave
Contingent consideration – Earnout provision
Non-Current
Long service leave
Contingent consideration – Earnout provision
CONSOLIDATED
30-JUN-17
$’000
30-JUN-16
$’000
172
1,053
4,072
5,296
249
1,150
1,398
131
498
1,380
2,009
228
633
861
i.
Information about individual provisions and significant estimates
Provision for contingent consideration
As part of the acquisition of Rockit Pty Ltd, Marketown Media Pty Ltd, GolfBox A/S and Verteda Holdings
Limited, several provisions for contingent consideration based on earnout targets are accounted for by the
Group. Further information and performance conditions regarding the earnout provision can be found in
Note 3 – Business Combinations.
During the year $588k of the earnout provision for Marketown Media was released as performance targets for the
2017 financial year are not expected to be met. In addition to this the earnout provision for Verteda Holdings
Limited was released as stretch performance targets for the financial year ending 31 March 2017 were not met.
These amounts are included in Other Income in the Consolidated Statement of Profit or Loss.
77
MPower MSL Annual Report 2017 ii. Movements in contingent consideration – earnout provisions
Movement in each class of provision during the financial year, other than employee benefits are out below:
Opening balance
Fair value adjustment
Gain on reversal of contingent consideration
InfoGenesis acquisition
Rockit acquisition
Verteda acquisition
Golfbox acquisition
Pallisters Games
FX Movement
Closing balance
Current
Non-current
Further information on the movements can be found in Note 3.
F) ASSETS HELD FOR SALE
Equity securities in Zuuse Pty Ltd
2017
$’000
2,013
88
(687)
(500)
(956)
2,049
1,896
1,150
169
5,222
4,072
1,150
5,222
2016
$’000
960
-
(372)
500
925
-
-
-
-
2,013
1,380
633
2,013
CONSOLIDATED
30-JUN-17
$’000
2,212
30-JUN-16
$’000
2,258
At 30 June 2017, MSL Solutions Limited owns 29.95% of the issued capital of Zuuse Pty Ltd. At reporting date, the
asset continues to remain as held for sale, based on the following information:
› MSL does not have direct or indirect control over Zuuse Pty Ltd;
›
The Board having determined that Zuuse was a “non-core” investment has commenced a sell down program; and
› MSL have put in place a marketing program to sell down the remaining shares over a staged timeframe to
maximise the return.
The investment is carried at fair value less cost to sell of $2,212k (2016 – $2,258k).
i. Amounts recognised in profit or loss and other comprehensive income
During June 2017, a parcel of 350,000 shares were sold at $0.10 per share. This resulted in a profit of $14k being
recognised in other income in the Consolidated statement of profit or loss and comprehensive income.
ii. Subsequent events
The assets held for sale are currently being held at $0.06 per share. Recent trades in the month of July 2017 have
been conducted at $0.155 on a valuation of Zuuse Pty Ltd of circa $21 million.
Zuuse Pty Ltd have undertaken a further capital raising for $1.5 million at 15.5c which has been successfully completed
as at the date of this report.
Zuuse Pty Ltd are in a process to merge with Progressclaim. The public documents indicate the notional value of
Zuuse should increase. The merger is proposed for completion by 14 September 2017.
78
MPower MSL Annual Report 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 9. EQUITY
A) SHARE CAPITAL
Share capital
Fully paid
CONSOLIDATED
CONSOLIDATED
JUN-17
SHARES
JUN-17
$’000
JUN-16
SHARES
JUN-16
$’000
249,248,965
61,085
122,793,561
249,248,965
61,085
122,793,561
21,629
21,629
i. Movements in ordinary shares
DATE
DETAILS
1 July 2015
Opening Balance
4 January 2016
Shares issued as part of acquisition of InfoGenesis
1 April 2016
Shares issued as part of acquisition of Rockit
1 March to
30 June 2016
Shares issued via capital raising
Less: transaction costs arising on shares issued
30 June 2016
Opening Balance
24 July 2016
Shares issued via capital raising
27 October 2016
Shares issued to owners of Verteda
14 November 2016
Shares issued as part of acquisition of Golfbox
17 March 2017
Shares issued as part of contingent consideration
of Rockit
21 March 2017
Share consolidation (1.4 for 1)
4 May 2017
4 May 2017
4 May 2017
Converting Note allocation
IPO Bonus allocation
Shares issued on IPO
Less: transaction costs arising on shares issued
Deferred tax recognised directly in equity
NUMBER OF
SHARES
80,272,829
3,225,807
1,612,903
37,682,022
122,793,561
967,742
3,747,728
2,272,727
1,367,236
(37,471,142)
85,000,000
10,571,113
60,000,000
ISSUE PRICE
0.155
0.155
0.155
0.155
0.22
0.22
0.22
0.25
0.25
0.25
30 June 2017
Closing Balance
249,248,965
$’000
15,294
500
250
5,841
(257)
21,629
150
825
500
301
21,250
2,643
15,000
(1,734)
521
61,085
The purpose of the rights issue in which the converting notes and the IPO funds were raised was to fund the
acquisitions of GolfBox A/S and Verteda Holdings Limited as well as to provide the Group with funds for future
acquisitions and general working capital purposes.
ii. Ordinary shares
Ordinary shareholders are entitled to participate in dividends and the proceeds on winding up of the Company in
proportion to the number of and amounts paid on the shares held. Every ordinary shareholder present at a meeting
in person or by proxy is entitled to one vote on a show of hands or by poll.
iii. Options
Information relating to the MSL Solutions Limited Option Plan, including details of options issued, exercised and
lapsed during the financial year and options outstanding at the end of the reporting period is set out in Note 19.
79
MPower MSL Annual Report 2017 iv. Consolidation
In preparation of the IPO, a consolidation regime for issued securities was completed 21 March 2017. As part of this
consolidation, all shares and options were consolidated at a ratio of 1.4 to 1.
This consolidation resulted in a reduction to the issued capital at this date in the amount of 37,471,140 shares, but did
not result in a change to the accounting value of issued capital.
v. Rights issue
As part of the listing of the Group on the Australian Stock Exchange on 4 May 2017, MSL Solutions Limited invited
prospective shareholders to subscribe to a rights issue of 65,000,000 ordinary shares at an issue price of $0.25 per
share, with such shares to be issued on 4 May 2017. The issue was fully subscribed.
In addition to the above rights being offered the Converting Notes previously issued in the financial year also
converted to 80,000,000 ordinary shares on 4 May 2017. The conversion price was set at a 20% discount on the
concurrent rights issue at the time, resulting in the issue of the shares at $0.20 per share.
vi. Transaction costs arising on shares issued
Transaction costs arising on shares issued are directly related costs as a result of the rights issue. These include
investigating accountant fees, legal fees, listing fees and underwriting fees as well as other miscellaneous fees.
The tax deductibility of these fees due to their nature has resulted in a temporary tax difference which has been
adjusted directly against equity.
B) OTHER RESERVES
The following table shows a breakdown of the balance sheet line item ‘other reserves’ and the movements in these
reserves during the year. A description of the nature and purpose of each reserve is provided below the table.
Share based payment reserve
Foreign currency translation reserve
CONSOLIDATED
30-JUN-17
$’000
30-JUN-16
$’000
103
235
338
234
-
234
Share-based payments
The share based payments reserve is used to recognise:
›
›
The grant date fair value of options issued to employees but not exercised
The grant date fair value of shares issued to employees
Foreign currency translation
Exchange differences arising on translation of the foreign controlled entities are recognised in other comprehensive
income as described in Note 24 and accumulated in a separate reserve with equity. The cumulative amount is
reclassified to profit or loss when the net investment is disposed of.
C) RETAINED EARNINGS/(ACCUMULATED LOSSES)
Movement in retained earnings were as follows:
Balance as at 1 July 2016 – restated
Total comprehensive income for the period
Profit/(loss) for the year
Total comprehensive income for the period
Transactions with owners in their capacity as owners
Contribution of equity net of transaction costs
As at 30 June 2017
80
$’000
(9,792)
(10,763)
(10,763)
-
-
(20,555)
MPower MSL Annual Report 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 10. CASH FLOW INFORMATION
A) RECONCILIATION OF PROFIT AFTER INCOME TAX TO NET CASH INFLOW FROM OPERATING ACTIVITIES
Profit after tax
Adjustments for:
Depreciation and amortisation
Gain on reversal of earnout provision
Unrealised FX (loss)/gain
Realised FX (loss)/gain
Finance costs
Transaction costs
Share based payment
Restructuring costs
Tax
Fair value expense
Accrued income
Bad debts
Share of JV loss using equity method
Gain on disposals
Change in operating assets and liabilities
Movement in current assets
(Increase)/decrease in trade receivables
(Increase)/decrease in other debtors
(Increase)/decrease in prepayments
(Increase)/decrease in bonds
Movement in current liabilities
Increase/(decrease) in trade payables
Increase/(decrease) in other payables
Increase/(decrease) in deferred revenue
(Increase)/decrease in deferred tax assets
Cashflow generated from operations
Net cash from operating activities
CONSOLIDATED
JUN-17
$’000
JUN-16
$’000
(10,763)
(1,362)
4,289
(687)
324
33
779
991
3,361
36
(1,063)
4,339
(721)
-
-
-
1,979
(751)
-
-
-
-
84
-
-
-
-
17
118
(5)
(3,607)
(1,075)
(6)
(329)
(57)
1,019
(5,606)
2,465
4,683
10,243
(520)
621
41
(21)
(991)
1,077
833
-
1,927
565
81
MPower MSL Annual Report 2017 B) NON-CASH INVESTING AND FINANCING ACTIVITIES
Acquisition of plant and equipment by means of finance lease
Acquisition of subsidiaries through issue of shares
2017
$’000
89
801
2016
$’000
-
750
Shares issued as part of acquisition subsidiaries are shown as part of the consideration shown in Note 3.
Options and shares issued to employees under the MSL Solutions Limited Employee Option Plan and employee share
scheme for no cash consideration are shown in Note 19.
C) NET DEBT RECONCILIATION
This section sets out an analysis of net debt and the movements in the net debt for each of the periods presented.
Total borrowings
Cash and cash equivalents
Net debt
Total equity
Total capital
NOTE
7d
7b
9a
2017
$’000
(225)
11,897
11,672
61,085
61,085
2016
$’000
(309)
2,749
2,440
21,629
21,629
The Group does not have external borrowings other than the bank overdraft.
RISK
This section of the notes discusses the Group’s exposure to various risks and shows how these could affect the
Group’s financial position and performance.
11. CRITICAL ESTIMATES, JUDGEMENTS AND ERRORS
The preparation of financial statement requires the use of accounting estimates which, by definition, will seldom equal
the actual results. Management also needs to exercise judgement in applying the Group’s accounting policies.
This note provides an overview of the areas that involved a higher degree of judgement or complexity, and of items
which are more likely to be materially adjusted due to estimates and assumptions turning out to be wrong. Detailed
information about each of these estimates and judgments is included in notes 1 to 10 together with information about
the basis of calculation for each affected line item in the financial statements. In addition, this note also explains where
there has been actual adjustment this year as a result of an error and of changes to previous estimates.
A) SIGNIFICANT ESTIMATES AND ADJUSTMENTS
The areas involving significant estimates or judgements are:
› Estimation of current tax payable and current tax expense
› Estimation of research and development tax credits
› Estimated goodwill impairment
› Estimated useful life of intangible asset
› Estimation of contingent purchase consideration in a business combination
› Recognition of revenue
› Recognition of deferred tax asset for carried forward tax losses
› Consolidation decisions
Estimates and judgements are continually evaluated. They are based on historical experience and other factors,
including expectations of future events that may have a financial impact on the entity and that are believed to be
reasonable under the circumstances.
82
MPower MSL Annual Report 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
B) REVISION OF BUSINESS COMBINATIONS
Included in the Consolidated Financial Statements for the financial year ended 30 June 2016 and the Interim Consolidated
Financial Statement for the half-year ended 31 December 2016 were provisional amounts for the acquisition of Rockit
Pty Ltd, Verteda Holdings Limited and GolfBox A/S.
During the period 1 January 2017 and 30 June 2017, several adjustments have been made to these provisional amounts
for circumstances that existed at the various acquisition dates. These changes have been made in line with AASB 3
Business Combinations.
COMBINATION
Rockit Pty Ltd
Rockit Pty Ltd
Rockit Pty Ltd
AREA OF ACQUISITION ADJUSTED
Deferred revenue
Intercompany loan
Assets created upon acquisition
PROVISIONAL
AMOUNT
$’000
ADJUSTMENT
$’000
(127)
373
1,621
(46)
27
19
Verteda Holdings Limited Assets created upon acquisition –
11,802
(8,057)
Customer Relationships
Verteda Holdings Limited Assets created upon acquisition – Software
Verteda Holdings Limited Goodwill
GolfBox A/S
GolfBox A/S
GolfBox A/S
GolfBox A/S
GolfBox A/S
Contingent Consideration – Holdback Earnouts
Contingent Consideration – Net tangible assets
Assets created upon acquisition – Customer
Relationships
Assets created upon acquisition – Software
Goodwill
-
1,431
(1,770)
(99)
8,196
-
1,570
2,272
5,785
(119)
(8)
(7,614)
6,937
797
AMOUNT
INCLUDED IN
FINANCIAL
STATEMENTS
FOR YEAR
ENDING 30
JUNE 2017
$’000
(173)
400
1,640
3,745
2,272
7,216
(1,889)
(107)
582
6,937
2,367
C) SOURCES OF ESTIMATION UNCERTAINTY
Revenue recognition
The Group uses the percentage-of-completion method in accounting for its fixed-price contacts to deliver installation
and consultancy services. Use of the percentage-of-completion method requires the Group to estimate the services
performed to date as a proportion of the total services to be performed. Were the proportion of services performed
to total services to be performed to differ by 10% from managements estimates, the amount of revenue recognised in
the year would be increased by $268k if the proportion performed was increased, or would be decreased by $268k
if the proportion performed was decreased.
83
MPower MSL Annual Report 2017 12. FINANCIAL RISK MANAGEMENT
This note explains the Group’s exposure to financial risks and how these risks could affect the Group’s future financial
performance. Current year profit and loss information has been included where relevant to add further context.
RISK
EXPOSURE ARISING FROM
MEASUREMENT
MANAGEMENT
Market risk –
foreign exchange
Recognised financial assets
and liabilities not denominated
in the functional currency
Sensitivity analysis
Credit risk
Cash and cash equivalents,
trade receivables
Aging analysis
Credit ratings
Liquidity risk
Borrowings and other liabilities Rolling cash flow forecasts
Monitoring the foreign
exchange rates for any
material movements
Diversification of bank
deposits, credit limits
Availability of credit and
borrowing facilities
The Board has overall responsibility for the determination of the Group’s risk management objectives and policies
and, whilst retaining ultimate responsibility for them, it has delegated the authority for designing and operating
processes that ensure the effective implementation of the objectives and policies to the Group’s finance function.
The overall objective of the Board is to set polices that seek to reduce risk as far as possible without unduly affecting
the Group’s competitiveness and flexibility.
The Group’s finance function has been delegated responsibility by the Board for among other issues, managing
financial risk exposure within the Group. The Groups’ risk management policies and objectives are therefore designed
to minimise the potential impacts of these risks on the results of the Group where such impacts may be material.
A) MARKET RISK
i. Foreign exchange risk
The Group’s policy is, where possible, to allow Group entities to settle liabilities denominated in their functional currency
with cash generated from their own operations in that currency. Where group entities have liabilities denominated in
a currency other than their functional currency (and have insufficient reserves of that currency to settle them) cash
already denominated in that currency will, where possible, be transferred from elsewhere within the Group.
With the acquisition of both GolfBox and Verteda there are now multiple customers and suppliers in the following
currencies:
›
Pound Sterling (Verteda’s functional currency)
› Danish Krone (GolfBox’s functional currency)
The Group’s remaining subsidiaries outlined in Note 14(a) have a functional currency of Australian dollars. The Group’s
presentation currency is Australian dollars.
As suppliers in any of the above currencies are expected to be repaid in the respective entities functional currencies
from local sales, the foreign currency exposure of these suppliers the Group is not exposed to foreign currency risk.
84
MPower MSL Annual Report 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Exposure
The Groups exposure to foreign currency risk is only relation to transactions in foreign currency that differ from the
respective entities functional currencies. The Group’s exposure to foreign currency risk at the end of the reporting
period is expressed in Australian dollar, was as follows:
2017
Trade payables
Contingent and deferred consideration
Net exposure
2016
Trade receivables
Trade payables
Contingent and deferred consideration
Net exposure
GBP
$’000
-
(2,487)
(2,487)
DKK
$’000
-
(3,745)
(3,745)
GBP
$’000
DKK
$’000
-
-
-
-
-
-
-
-
Amounts recognised in profit or loss and other comprehensive income
During the year, the following foreign-exchange related amounts were recognised in profit or loss and other
comprehensive income:
Realised FX loss
Unrealised FX loss
2017
$’000
(33)
(324)
USD
$’000
(160)
-
(160)
USD
$’000
-
(26)
-
(26)
2016
$’000
-
-
Sensitivity
As shown in the table above, the Group is primarily exposed to changes in GBP/$ and KR/$ exchange rates. The
sensitivity of profit or loss to changes in the exchange rates arises mainly from GBP and KR denominated financial
instruments.
GBP/$ exchange rate – increase 5%
GBP/$ exchange rate – decrease 5%
KRR/$ exchange rate – increase 5%
KRR/$ exchange rate – decrease 5%
IMPACT ON POST TAX PROFIT
IMPACT ON OTHER
COMPONENTS OF EQUITY
2017
$’000
160
(177)
2016
$’000
-
-
2017
$’000
160
(177)
2016
$’000
-
-
IMPACT ON POST TAX PROFIT
IMPACT ON OTHER
COMPONENTS OF EQUITY
2017
$’000
27
(30)
2016
$’000
-
-
2017
$’000
27
(30)
2016
$’000
-
-
Profit is more sensitive to movement in the Australian dollar/GBP exchange rates in 2017 than in 2016 because of the
acquisition of Verteda Holdings. Profit is more sensitive to movements in the Australian dollar/kr exchange rates in
2017 than 2016 due to the increased deferred and contingent payments due for the acquisition of GolfBox.
The Group’s exposure to other foreign exchange movements is not material.
85
MPower MSL Annual Report 2017 ii. Price risk
Exposure
The Group does not have exposure to equity securities price risk arising from investments held by the Group and
classified in the balance sheet as held-for-sale.
B) CREDIT RISK
Credit risk arises from cash and cash equivalents and deposits with banks and financial institutions as well as credit
exposures to customers including outstanding receivables.
i. Risk management
Exposure to credit risk relating to financial assets arises from the potential non-performance by counterparties of
contract obligations that could lead to financial loss to the Group.
Credit risk is managed through the maintenance of procedures (such as processes for the approval of customers
and regular monitoring of counterparty financial stability), ensuring to the extent possible that customers and
counterparties to transactions are of sound credit worthiness. Such monitoring is used in assessing receivables
for impairment. Depending on the cash generating unit within the Group, credit terms are generally immediate
payment to 30 days from invoice date.
The maximum exposure to credit risks by class of recognised financial asset at the end of the reporting period is
equivalent to the carrying amount and classification of those financial assets as presented in the financial statements.
The Group holds no collateral nor has any significant concentrations of credit risk with any single counterparty or
Group of counterparties.
Trade and other receivables that are neither past due nor impaired are considered to be of high credit quality.
Aggregates of such amounts are detailed in Note 7(a).
Credit risk related to balance with banks and other financial institutions is managed by the finance function. Current
policy is that surplus funds are only invested with counterparties with a rating of A. The following table provides
information regarding the credit risk relating to cash holdings:
CASH AT BANK AND SHORT-TERM BANK DEPOSITS
AAA
AA
A
BBB
Cash on hand
Total Cash
ii. Credit quality
2017
$’000
-
9,881
2,012
3
-
2016
$’000
924
10
1,814
-
-
11,897
2,749
The credit quality of financial assets that are neither past due nor impaired can be assessed by reference to external
credit ratings (if available) or to historical information about counterparty default rates.
TRADE RECEIVABLES
COUNTERPARTIES WITHOUT EXTERNAL CREDIT RATING
Group 1
Group 2
Total Trade receivables
2017
$’000
4,986
451
5,437
2016
$’000
2,155
184
2,339
Group 1 – new and existing customers (more than 6 months) with no defaults in the past
Group 2 – new and existing customers (more than 6 months) with some defaults in the past. All defaults were
fully recovered.
86
MPower MSL Annual Report 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS iii. Impaired trade receivables
Individual receivables which are known to be uncollectable are written off by reducing the carrying amount directly.
The other receivables are assessed collectively to determine whether there is objective evidence that an impairment
has been incurred but not yet identified. For these receivables, the estimated impairment losses are recognised in a
separate provision for impairment. The Group considers that there is evidence of impairment if any of the following
indicators are present:
›
›
Significant financial difficulties of the debtor
Probability that the debtor will enter bankruptcy or financial reorganization, and
› Default or delinquency in payments (more than 60 days overdue)
Receivables for which an impairment provision was recognised are written off against the provision when there is
no expectation of recovering additional cash.
Impairment losses are recognised in profit or loss within other expenses. Subsequent recoveries of amounts
previously written off are credited against other expenses. See Note 24 for information about how impairment is
calculated.
Movements in the provision for impairment of trade receivables that are assessed for impairment collectively are
as follows:
At the beginning of period
Provision acquired
Doubtful debts written off
Provision for doubtful receivables
CONSOLIDATED
30-JUN-17
$’000
30-JUN-16
$’000
52
62
1
114
52
-
(17)
17
52
The increase in the provision has been the addition of Verteda and GolfBox provisions as part of the acquisitions of
these entities.
iv. Past due but not impaired
As of 30 June 2017, trade receivables of $450k (2016 – $185k) were past due but not impaired. These relate to a
number of independent customers for whom there is no recent history of default. The ageing analysis of these trade
receivables is as follows:
Up to 3 months
3 to 6 months
2017
$’000
4,986
450
2016
$’000
2,155
185
The other classes with trade receivables do not contain impaired assets and are not past due. Based on the credit
history of these other classes, it is expected that these amounts will be received when due. The Group does not hold
any collateral in relation to these receivables.
C) LIQUIDITY RISK
Prudent liquidity risk management implies maintaining sufficient cash and marketable securities and the availability
of fund through an adequate amount of committed credit facilities to meet obligations when due and to close out
market positions.
Management monitors rolling forecasts of the Group’s liquidity reserve as well as cash and cash equivalents (Note 7(c))
on the basis of expected cash flows. This is generally carried out at the local level in the operating companies of the
Group in accordance with practice set by the Group. In addition, the Group’s liquidity management policy involves
projecting cash flows in major currencies and considering the level of liquid assets necessary to meet these, monitoring
balance sheet liquidity ratios against internal requirements and maintaining debt financing plans.
87
MPower MSL Annual Report 2017 i. Maturities of financial liabilities
The tables below analyses the Group’s financial liabilities into relevant maturity groupings based on their contractual
maturities.
The amounts disclosed in the table are the contractual undiscounted cash flows. Balances due within 12 months equal
their carrying balances as the impact of discounting is not significant.
CONTRACTUAL
MATURITIES OF
FINANCIAL LIABILITIES
As at 30 June 2017
Non-derivatives
Trade payables
Finance lease liabilities
Other payables
Deferred consideration
Total
As at 30 June 2016
Non-derivatives
Trade payables
Finance lease liabilities
Other payables
Loans from related
parties
Deferred consideration
Total
CONTRACTUAL
MATURITIES OF
FINANCIAL ASSETS
As at 30 June 2017
Non-derivatives
Trade debtors
Other receivables
Loan to related parties
Total
As at 30 June 2016
Non-derivatives
Trade debtors
Other receivables
Loan to related parties
Total
LESS THAN
6 MONTHS
$’000
6-12 MONTHS
$’000
BETWEEN 1
AND 3 YEARS
$’000
BETWEEN 2
AND 5 YEARS
$’000
OVER
5 YEARS
$’000
TOTAL
CONTRACTUAL
CASH FLOWS
$’000
CARRYING
AMOUNT
(ASSETS) /
LIABILITIES
$’000
1,966
-
2,351
1,348
5,665
779
21
3,298
171
88
4,357
-
29
-
-
29
-
-
-
-
63
63
-
49
-
988
1,037
-
-
-
-
163
163
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,966
78
2,351
2,336
6,731
1,966
68
2,351
2,336
6,721
779
21
779
21
3,298
3,298
171
314
171
314
4,583
4,583
LESS THAN
6 MONTHS
$’000
6-12 MONTHS
$’000
BETWEEN 1
AND 3 YEARS
$’000
BETWEEN 2
AND 5 YEARS
$’000
OVER
5 YEARS
$’000
TOTAL
CONTRACTUAL
CASH FLOWS
$’000
CARRYING
AMOUNT
(ASSETS) /
LIABILITIES
$’000
5,437
-
-
5,437
2,339
-
-
2,339
-
1,014
-
1,014
-
766
-
766
40
-
847
887
40
-
847
887
-
-
-
-
-
-
-
-
-
5,477
1,014
847
7,338
2,379
766
847
3,992
-
-
-
-
-
-
-
-
5,477
1,014
847
7,338
2,379
766
847
3,992
88
MPower MSL Annual Report 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
13. CAPITAL MANAGEMENT
A) RISK MANAGEMENT
The Group’s objectives when managing capital are to:
›
Safeguard their ability to continue as a going concern, so that they can continue to provide returns for
shareholders and benefits for other stakeholders, and
› Maintain an optimal capital structure to reduce the cost of capital.
In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to
shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.
The Group does not currently have any loan covenants that it is required to meet. However, review of the current ratio
is performed monthly to ensure that it is managed and remains at a reasonable level. This current ratio is assessed as
per normal accounting practices with an adjustment made to take into account the large deferred revenue balance
that the Group carries on an on-going basis.
GROUP STRUCTURE
This section provides information which will help users understand how the group structure affects the financial
position and performance of the group as a whole.
A list of significant subsidiaries is provided in Note 14(a).
14. INTERESTS IN OTHER ENTITIES
A) MATERIAL SUBSIDIARIES
The Group’s principal subsidiaries at 30 June 2017 are set out below. Unless otherwise stated they have share capital
consisting solely of ordinary shares that are held directly by the Group, and the proportion of ownership interests
held equals the voting rights held by the Group. The country of incorporation or registration is also their principal
place of business.
NAME
COUNTRY OF INCORPORATION
CLASS OF SHARES
EQUITY HOLDING
Parent Entity:
MSL Solutions Limited
Subsidiaries of parent entity:
Micropower Pty Ltd
MSL Finance Pty Ltd (a)
Artra South Pty Ltd
iseekgolf Pty Ltd
Simbient GolfLink Pty Limited
GolfLink Partners Pty Limited
GolfTime International Pty Ltd
MarkeTown Media Pty Ltd
Rockit Pty Ltd
Infogenesis Pty Limited
Golf Group International
Verteda Holdings Limited
GolfBox A/S
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
England
Denmark
30-JUN-17
%
30-JUN-16
%
100%
0%
50%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
50%
100%
100%
100%
100%
100%
100%
100%
100%
0%
0%
89
MPower MSL Annual Report 2017 B) INTERESTS IN ASSOCIATES
NAME
COUNTRY OF INCORPORATION
CLASS OF SHARES
EQUITY HOLDING
Unlisted
Zuuse Pty Ltd
Australia
30%
30%
30-JUN-17
%
30-JUN-16
%
UNRECOGNISED ITEMS
This section of the notes provides information about items that are not recognised in the financial statements as they
do not (yet) satisfy the recognition criteria.
In addition to the items and transactions disclosed below, there are also:
a) Unrecognised tax amounts – see Note 6
b) Non-cash investing and financing transactions – see Note 10b
15. CONTINGENT LIABILITIES AND CONTINGENT ASSETS
A) CONTINGENT ASSETS
Micropower Pty Ltd, subsidiary of MSL Solutions Limited, has lodged a claim against Telstra Limited for loss of
business due to the system outage created when the telephone and internet were switched to their services.
The matter is currently being reviewed by Telstra’s internal dispute resolution team, having received external
consultant’s advice, the directors believe that a favorable outcome is probable. However, the contingent asset has
not been recognised as a receivable at 30 June 2017 as the receipt of the amount is dependent on the outcome
of the dispute resolution process.
16. COMMITMENTS
A) NON-CANCELLABLE OPERATING LEASES
The Group various offices under non-cancellable operating leases expiring within 6 months to five years. The leases
have varying terms, escalation clauses and renewal rights. On renewal, the terms of the leases are renegotiated.
Commitments for minimum lease payments in relation to non-cancellable
operation lease are payable as follows:
Within one year
Later than one year but not later than five years
Later than five years
2017
$’000
2016
$’000
213
297
-
510
380
509
-
889
As part of leasing the offices for GolfBox is a rent obligation with a minimum payment in the termination period of
6 months amounting to kr131k.
MSL Solutions Limited has negotiated a 7-year lease for office space at Level 1, 307 Queen Street Brisbane, this lease
was executed 17 July 2017.
As part of the harmonisation of the Groups companies Marketown Media Pty Ltd, InfoGenesis Pty Ltd and Golflink
Partners Pty Ltd are currently exploring options for a single office in Sydney to house these teams.
90
MPower MSL Annual Report 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS B) HOSTING AND BACK UP
As part of its operations GolfBox have an operating agreement for hosting and back-up. The minimum payment in
the termination period of 6 months is kr250,k.
C) BANK GUARANTEE
The Group hold a number of bank guarantees in relation to office bond for Golfink Pty Ltd and the bank overdraft
facility for Marketown Media Pty Ltd.
Bank guarantee - Golflink
Bank guarantee - Marketown
2017
$’000
90
10
100
2016
$’000
90
10
100
17. EVENTS OCCURRING AFTER THE REPORTING PERIOD
The following matters have arisen since the end of the financial year which may materially affect operations of MSL,
the results of those operations, or the state of affairs of MSL in future financial years:
› On 7th July 2017, MSL announced its intention to acquire 100% of the shares in Pricap Services Pty Ltd, subject
to satisfactory completion of due diligence and MSL Board approval; 17th August 2017, MSL announced the
appointment of Andrew Ritter as Chief Financial Officer of the Company; and
›
Zuuse Pty Ltd have undertaken a further capital raising for $1.5million at 15.5c which was successfully completed
as at the date of this report. Zuuse Pty Ltd are in a process to merge with Progressclaim. The public documents
indicate the notional value of Zuuse should increase. The merger is proposed for completion by 13 September 2017.
OTHER INFORMATION
This section of the notes includes other information that must be disclosed to comply with the accounting standards
and other pronouncements, but that is not immediately related to individual line items in the financial statements.
18. RELATED PARTY TRANSACTIONS
A) KEY MANAGEMENT PERSONNEL COMPENSATION
Short-term employee benefits
Other long-term benefits
Superannuation
Share based payments
Total
2017
$’000
1,553
37
75
2,364
4,029
2016
$’000
450
28
57
69
604
Detailed remuneration disclosures are provided in the remuneration report on pages 24 to 39.
91
MPower MSL Annual Report 2017 B) TRANSACTIONS WITH OTHER RELATED PARTIES - LOANS
i. Loans payable to related parties
The following loan payable transactions occurred with related parties:
Beginning of the year
Loans advanced
Loan repayments made
Interest charged
Interest paid
Total
2017
$’000
174
300
(474)
11
(11)
-
2016
$’000
174
-
-
-
-
174
Interest expense has been incurred on loans from Dr Richard Holzgrefe put in place during financial years ending 30
June 2016 and 30 June 2017. The value of these loans was $174k and $300k respectively with an interest rate of 8.23%
per annum.
The purpose of these loans was for working capital bridging loans during periods of peak acquisition payments when
there were timing difference between funds to be received from rights issues and consideration to be paid.
ii. Loans receivable from related parties
The following loan receivable transactions occurred with related parties:
Beginning of the year
2017
$’000
847
847
2016
$’000
847
847
The related party loan with Zuuse Pty Ltd is not due to be repaid until the 31 December 2019. Should the loan not be
repaid at this time interest will then be charged on this loan.
In addition to their roles as directors of MSL Solutions Limited, Ian Daly and Craig Kinross currently hold positions as
directors on the Zuuse Pty Ltd Board of directors. Ian Daly holds his directorship as a result of his personal
shareholding. MSL Solutions Limited has a director position as a result of its non-controlling shareholding, and Craig
Kinross holds this position.
Craig Kinross, Ian Daly and Richard Holzgrefe all hold shares of Zuuse Pty Ltd in their personal capacity.
C) TRANSACTIONS WITH OTHER RELATED PARTIES – COMMISSION PAYMENTS
Commission payable - converting notes
Commission payable - IPO
2017
$’000
793
626
1,419
2016
$’000
-
-
-
In addition to his role as director of MSL Solutions Limited, David Trude also is Chairman of Baillieu Holst Securities.
Prior to David’s appointment to the Board, MSL Solutions Limited engaged Baillieu Holst to assist as part of the issue
of converting notes and also capital raising as part of the listing on the Australian Stock Exchange. Commission was
paid to Baillieu Holst for the services rendered on normal commercial terms.
92
MPower MSL Annual Report 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS D) TRANSACTIONS WITH OTHER RELATED PARTIES – SERVICES PROVIDED
Prior to MSL’s acquisition of GolfBox A/S, Golf Link Partners Pty Ltd had an existing reseller agreement whereby Golf
Link acted as a reseller in Australia and New Zealand for GolfBox products. For the period post acquisition and through
to completion of all earn-out provisions associated with the acquisition, GolfBox has continued to invoice Golf Link,
and Golf Link has continued to pay GolfBox, fees arising from the reseller agreement. The following table summarises
the fees charged by GolfBox to Golflink in both financial year ending 30 June 2016 and 30 June 2017:
Golfbox Reseller fees
19. SHARE-BASED PAYMENTS
EMPLOYEE OPTION PLAN
2017
$’000
52
52
2016
$’000
43
43
During the financial year ending 30 June 2016, the Board deemed as part of an incentive program that a number of
share options were granted to key management personal and other employees to take up ordinary shares at an
exercise price as noted below. The options are exercisable at various dates being 5 years from the date of issuance.
The below table details the options granted:
OPTION CLASS
OPA_CLASS_TOTAL
OPB_CLASS_TOTAL
OPC_CLASS_TOTAL
INITIAL GRANT
3,300,000
13,500,000
1,500,000
GRANT DATE
18-Dec-15
22-Oct-15
30-May-16
TERM
5 years
5 years
5 years
EXERCISE PRICE
$0.155
$0.220
$0.220
Prior to the IPO the Board determined that the above options would be consolidated on a 1.4/1 basis and the exercise
price adjusted to reflect this consolidation. Option A class options exercise price was adjusted to $0.217 while Option
B and Option C class shares exercise price was adjusted to $0.308.
Under the option agreements these options immediately vest.
As part of the Group IPO the following options were surrendered and were issued as shares as part of the bonus’
detailed for the following employees:
Craig Kinross
Peter Jefferis
Greg Davies
EXERCISED/SURRENDERED
Surrendered
Surrendered
Surrendered
OPTIONS
EXTINGUISHED
9,000,000
1,071,429
535,714
10,607,143
Subsequent to the IPO, the Board deemed as part of an incentive program that a number of share options were
granted to key management personal to take up ordinary shares at an exercise price of $0.35 each.
No options expired during the periods covered by the above tables.
The following table summarises the share options outstanding at the end of the year, after the completion on 21 March
2017 of the shares and options consolidation at a ratio of 1.4 to 1:
OPTION CLASS
OPA_CLASS_TOTAL
OPB_CLASS_TOTAL
OPC_CLASS_TOTAL
OPD_CLASS_TOTAL
POST MARCH 2017
CONSOLIDATION
2,357,142
1,250,000
1,071,430
300,000
GRANT DATE
18-Dec-15
22-Oct-15
30-May-16
15-May-17
TERM
5 years
5 years
5 years
5 years
EXERCISE PRICE
$0.217
$0.308
$0.308
$0.350
93
MPower MSL Annual Report 2017 i. Fair value of options granted
The assessed fair value at grant date of options granted during the year ended 30 June 2017 was $18k, being $0.06
per option (2016 – $84k). The fair value at grant date is determined using an adjusted form of the Black Scholes Model
which takes into account the exercise price, the term of the option, the impact of dilution (where material), the share
price at grant date and expected price volatility of the underlying share, the expected dividend yield the risk-free
interest rate for the term of the option and the correlations and volatilities of peer group companies.
The model inputs for options granted during the year ended 30 June 207 included:
a) Options are granted for no consideration and vest immediately upon grant.
b) Exercise price $0.35 (2016 - $0.22 and $0.155)
c) Grant date 15 May 2017 (2016 – 21/10/15 to 20/05/16)
d) Expiry date 15 May 2022 (2016 – 21/10/20 to 20/5/2021)
e) Share price at grant date $0.24 (2016 - $0.155)
f) Expected price volatility of MSL Solutions limited shares 67% (2016 – 12%)
g) Expected dividend yield: 9.7% (2016 – 9.7%)
h) Risk free interest rate: 5.8% (2016 – 1.5%)
Due to the listing of MSL Solutions Limited on the Australian Stock Exchange on 4 May 2017 the volatility has been
calculated on the period 4 May 2017 to 9 August 2017.
20. REMUNERATION OF AUDITORS
During the year the following fees were paid or payable for services provided by the auditor of the parent entity, its
related practices and non-related audit firms:
A) PRICEWATERHOUSECOOPERS AUSTRALIA
i. Audit and other assurance services
Audit and review of financial statements
Due diligence services
Total remuneration for audit and other assurance services
Total Remuneration PricewaterhouseCoopers Australia
B) NETWORK FIRMS OF PRICEWATERHOUSECOOPERS AUSTRALIA
i. Audit and other assurance services
PricewaterhouseCoopers United Kingdom
Audit and review of financial statements
Total remuneration for audit and other assurance services
PricewaterhouseCoopers Denmark
Audit and review of financial statements
Total remuneration for audit and other assurance services
Total Remuneration of network firms of PricewaterhouseCoopers Australia
94
2017
$’000
206
430
636
636
2017
$’000
28
28
2016
$’000
-
-
-
-
2016
$’000
-
-
2017
$’000
2016
$’000
11
11
39
-
-
-
MPower MSL Annual Report 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS C) NON-PRICEWATERHOUSECOOPERS AUDIT FIRMS
i. Audit and other assurance services
Audit and review of financial statements
Audit and review fees capitalised due to nexus with IPO
Total remuneration for audit and other assurance services
ii. Taxation services
Tax compliance services
Total remuneration for tax services
Total Remuneration of non-PricewaterhouseCoopers audit firms
Total auditors remuneration
2017
$’000
26
159
185
2017
$’000
-
-
185
860
2016
$’000
58
-
58
2016
$’000
40
40
98
98
Fees paid to auditors in the amount of $589k has been capitalised as it has a direct correlation to raising of new capital.
It is the Group’s policy to employ PricewaterhouseCoopers on assignments additional to their statutory audit duties
where PricewaterhouseCoopers’s expertise and experience with the Group are important. These assignments are
principally tax advice and review of acquisition accounting, or where PricewaterhouseCoopers is awarded assignments
on a competitive basis. It is the Group’s policy to seek competitive tenders for all major consulting projects.
21. EARNINGS PER SHARE
A) BASIC EARNINGS PER SHARE
Total basic earnings per share attributable to the ordinary equity
B) DILUTED EARNINGS PER SHARE
Total basic earnings per share attributable to the ordinary equity
C) RECONCILIATIONS OF EARNINGS USED IN CALCULATING EARNINGS PER SHARE
30-JUN-17
30-JUN-16
(0.09)
(0.02)
30-JUN-17
30-JUN-16
(0.09)
(0.02)
30-JUN-17
30-JUN-16
Basic earnings per share
Profit attributable to the ordinary equity holders of the company
used in calculating basic earnings per share:
From continuing operations
(10,763,146)
(1,362,313)
Diluted earnings per share
Profit attributable to the ordinary equity holders of the company
used in calculating diluted earnings per share
(10,763,146)
(1,362,313)
95
MPower MSL Annual Report 2017 D) WEIGHTED AVERAGE NUMBER OF SHARES USED AS THE DENOMINATOR
Weighted average number of ordinary shares used as the denominator
in calculating basic earnings per share
Adjustments for calculation of diluted earnings per share:
Options
Weighted average number of ordinary shares and potential ordinary shares
used as the denominator in calculating diluted earnings per share
30-JUN-17
30-JUN-16
117,521,862
89,108,287
4,703,572
11,050,000
122,225,434
100,158,287
E) INFORMATION CONCERNING THE CLASSIFICATION OF SECURITIES
i. Options
Options granted to employees under the MSL Solutions Employee Option Plan are considered to be potential
ordinary shares. They have been included in the determination of diluted earnings per share. The options have not
been included in the determination of basic earnings per share. Details relating to the options are set out in Note 19.
22. DEED OF CROSS GUARANTEE
MSL Solutions Limited and its subsidiaries are not party to a deed of cross guarantee under which each company
guarantees the debts of the others. At this time the Australian subsidiaries of MSL Solutions Limited are not required
to lodge separate financial accounts as they are below the threshold for reporting requirements.
23. PARENT ENTITY FINANCIAL INFORMATION
A) SUMMARY FINANCIAL INFORMATION
The individual financial statements for the parent entity show the following aggregate amounts:
2017
$’000
9,406
42,847
52,253
850
4,120
4,970
61,085
(13,756)
(47)
47,283
2016
$’000
514
18,555
19,069
113
1,800
1,913
21,629
(4,557)
84
17,156
(9,199)
(1,366)
(9,199)
(1,366)
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Contributed equity
Retained losses
Reserves
Total equity
Loss for the year
Total comprehensive income for the year
96
MPower MSL Annual Report 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS B) DETERMINING THE PARENT ENTITY FINANCIAL INFORMATION
The financial information for the parent entity has been prepared on the same basis as the consolidated financial
statements, except as set out below.
i.
Investments in subsidiaries, associates and joint venture entities
Investments in subsidiaries are accounted for at cost in the financial statements of MSL Solutions Limited.
ii. Tax consolidation legislation
MSL Solutions Limited and its wholly-owned Australian controlled entities have implemented the tax consolidation
legislation.
The head entity, MSL Solutions Limited, and the controlled entities in the tax consolidated group account for tax on
a consolidated basis.
MSL Solutions Limited also recognises the current tax liabilities (or assets) and the deferred tax assets arising
from unused tax losses and unused tax losses and unused tax credits assumed from controlled entities in the tax
consolidated group.
24. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This note provides a list of the significant accounting policies adopted in the preparation of these consolidated financial
statements to the extent they have not already been disclosed in the other notes above. These polices have been
consistently applied to all the years presented, unless otherwise stated. The financial statements are for the group
consisting of MSL Solutions Limited and its subsidiaries.
A) CORPORATE INFORMATION
The consolidated financial statements of MSL Solutions Limited and is subsidiaries (collectively, the Group) for the-year
ended 30 June 2017 were authorised for issue in accordance with a resolution of the directors on 28 August 2017.
MSL Solutions Limited (the Company) is a for profit company limited by shares, incorporated and domiciled in Australia,
whose shares are privately owned. The principal activities of the Group during the financial year were the investment
in development, sale and support of software in the provision of integrated solutions for membership organisations.
MSL Solutions Limited is a for-profit entity for the purposes of preparing these financial statements.
The financial statements are presented in the Australian currency.
B) BASIS OF PREPARATION
The financial statements are general purpose financial statements which have been prepared in accordance with the
Australian Accounting Standards, other authoritative pronouncements of the Australian Accounting Standards Boards
and the Corporations Act 2001.
i. Compliance with IFRS
The financial statements also comply with international financial reporting standards (IFRS) as issued by the
International Accounting Standards Board.
ii. Historical cost convention
Except for cash flow information, the financial statements have been prepared on and accruals basis and are based
on historical costs except where stated.
97
MPower MSL Annual Report 2017 iii. New standards and interpretations not yet adopted
Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2017
reporting period and have not been early adopted by the Group. The Group’s assessment of the impact of these new
standards and interpretations is set out below:
TITLE OF STANDARD
AASB 15: REVENUE FROM CONTRACTS WITH CUSTOMERS
Nature of change
The AASB has issued a new standard for the recognition of revenue. This will replace AASB
118 which covers revenue arising from the sale of goods and the rendering of services.
Impact
The new standard is based on the principle that revenue is recognised when control of a
good or service transfers to a customer.
The standard permits either a full retrospective or a modified retrospective approach for
the adoption.
Management is currently assessing the effects of applying the new standard on the Group’s
financial statements and has identified the following areas that are likely to be affected:
›
IT consulting services – the application of AASB 15 may result in the identification of separate
performance obligations which could affect the timing of the recognition of revenue;
› Accounting for certain costs incurred in fulfilling a contract – certain costs which are currently
expensed may need to be recognised as an asset under AASB 15; and
› Rights of return – AASB 15 requires separate presentation on the balance sheet of the right
to recover the goods from customer and the refund obligation.
The Group is currently assessing the impact of implementing AASB15 on the Group’s financial
accounts and while areas such as system installation and professional services will be affected
the Group does not expect those impacts to be material. The Group will have a choice of full
retrospective application, or prospective application with additional disclosures.
Mandatory application
date/date of adoption
by Group
Mandatory for financial years commenting commencing on or after 1 January 2018, but
available for early adoption.
The Group does not intend to adopt AASB 15 before it is mandatory.
TITLE OF STANDARD
AASB 16 LEASES
Nature of change
Impact
Mandatory application
date/date of adoption
by Group
AASB 16 was issued in February 2016. It will result in almost all the leases being recognised on
the balance sheet, as the distinction between operating and finance leases is removed. Under
the new standard, an asset (the right to use the leased item) and a financial liability to pay
rentals are recognised. The only exceptions are short-term and low -value leases.
The standard will affect primarily the accounting for the Group’s operating leases. As at the
reporting date, the Group has non-cancellable operating lease commitments of $510k see
Note 16. However, the Group has not yet determined to what extent these commitments will
result in the recognition of an asset and a liability for future payments and how will this affect
the Group’s profit and classification of cash flows.
Some of the commitments may be covered by exception for short-term and low value leases
and some commitments may relate to arrangements that will not qualify as leases under
AASB 16.
Mandatory for financial years commencing on or after 1 January 2019. At this stage, the Group
does not intend to adopt the standard before its effective date.
TITLE OF STANDARD
AASB 9: FINANCIAL INSTRUMENTS
Nature of change
Impact
Mandatory application
date/date of adoption
by Group
The AASB has issued a new standard for the classification, measurement and derecognition
of financial assets and financial liabilities, introduces an expected “expected loss’ impairment
model and a revised approach to micro-hedge accounting, replacing the guidance in AASB139.
Management is currently assessing the effects of applying the standard to the liabilities
carried at fair value through profit or loss. These liabilities relate to contingent consideration
due on acquisition payments in financial years ending 30 June 2017, 2018 and 2019.
The standard is applicable for reporting periods after 1 January 2018 but is available for
early adoption.
There are no other standards that are not yet effective and that would be expected to have a material impact on the
entity in the current or future reporting periods and on foreseeable future transactions.
98
MPower MSL Annual Report 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS iii. Joint ventures
Interests in joint ventures are accounted for in the
consolidated financial statements using the equity
method. Under the equity method of accounting, the
group’s share of profits or losses of joint ventures are
recognised in consolidated profit or loss and the group’s
share of the movements in other comprehensive income
of joint ventures are recognised in consolidated other
comprehensive income. The cumulative movements are
adjusted against the carrying amount of the investment.
iv. Equity method
Under the equity method of accounting, the investments
are initially recognised at cost and adjusted thereafter to
recognise the Group’s share of the post-acquisition profits
or losses of the investee in profit or loss, and the Group’s
share of movements in other comprehensive income of
the investee in other comprehensive income. Dividends
received or receivable from associates and joint ventures
are recognised as a reduction in the carrying amount of
the investment.
When the Group’s share of losses in an equity-accounted
investment equals or exceeds its interest in the entity,
including any other unsecured long-term receivables,
the Group does not recognise further losses, unless it
has incurred obligations or made payments on behalf
of the other entity.
Unrealised gains on transactions between the Group
and its associates and joint ventures are eliminated to the
extent of the Group’s interest in these entities. Unrealised
losses are also eliminated unless the transaction provides
evidence of an impairment of the asset transferred.
Accounting policies of equity accounted investees have
been changed where necessary to ensure consistency
with the policies adopted by the Group.
The Group did not have any equity accounted investments
for the financial year ended 30 June 2017, however MSL
Solutions Limited accounted for its investment in Zuuse
Pty Ltd under the equity method in the financial year
ended 30 June 2016.
C) PRINCIPLES OF CONSOLIDATION AND
EQUITY ACCOUNTING
i. Subsidiaries
Subsidiaries are all entities (including structured entities)
over which the Group has control. The Group controls an
entity when the Group is exposed to, or has rights to,
variable returns from its involvement with the entity and
has the ability to affect those returns through its power
to direct the activities of the entity. Subsidiaries are fully
consolidated from the date on which control is transferred
to the Group. They are deconsolidated from the date
that control ceases.
The acquisition method of accounting is used to account
for business combinations by the Group (refer to Note 14).
Intercompany transactions, balances and unrealised gains
on transactions between Group companies are eliminated.
Unrealised losses are also eliminated unless the transaction
provides evidence of an impairment of the transferred
asset. Accounting policies of subsidiaries have been
changed where necessary to ensure consistency with
the policies adopted by the Group.
Non-controlling interests in the results and equity of
subsidiaries are shown separately in the consolidated
statement of profit or loss, statement of comprehensive
income, statement of changes in equity and balance
sheet respectively.
ii. Associates
An associate is an entity over which the Group has
significant influence. Significant influence is the power to
participate in the financial and operating policy decisions
of the entity but is not control or joint control of these
policies. Investments in associates are accounted for in
the consolidated financial statements by applying the
equity method of accounting, whereby the investment is
initially recognised at cost (including transaction costs)
and adjusted thereafter for post-acquisition change in the
Group’s share of net assets of the associate. In addition,
the Group’s share of the profit or loss of the associate
is recognised in the profit or loss in the period in which
the investment is acquired.
Profits and losses resulting from the transactions between
the Group and the associate are eliminated to the extent
of the Groups interest in the associate.
When the Groups share of losses in an associate equals or
exceeds its interest in the associate, the Group discontinues
recognising its share of further losses unless it has incurred
legal or constructive obligations or mad payments on
behalf of the associate, When the associate subsequently
makes profits, the Group will resume recognising its share
of those profits once its share of the profits equals the
share for the losses not recognised
99
MPower MSL Annual Report 2017 D) SEGMENT REPORTING
iii. Group companies
On consolidation, the assets and liabilities of foreign
operations are translated into Australian dollars at the
rate of exchange prevailing at the reporting date and
their statements of profit or loss are translated at
exchange rates averaged over the reporting period.
The exchange differences arising on translation for
consolidation are recognised in OCI. On disposal of a
foreign operation, the component of OCI relating to
that foreign operation is reclassified to profit or loss.
Any goodwill arising on the acquisitions of a foreign
operation and any fair value adjustments to the carrying
amounts of assets or liabilities arising on the acquisition
are treated as assets and liabilities of the foreign
operation and translated at the spot rate of exchange
at the reporting date
F) REVENUE RECOGNITION
Revenue is measured at the fair value of the consideration
received or receivable.
Revenue from the sale of goods is recognised when the
significant risks and rewards of ownership have passed
to the buyer and can be measured reliably.
Interest revenue is recognised on a proportional basis
taking into account the interest rates applicable to the
financial assets.
Dividend revenue is recognised when the right to receive
a dividend has been established. Dividends received from
associates and joint venture entities are accounted for
in accordance with the equity method of accounting.
Revenue from the rendering of services is recognised
upon the delivery of the service to the customers.
All revenue is stated net of the amount of goods and
services tax.
Refer to Note 3 for further details on the Group’s specific
revenue products.
Operating segments are reported in a manner consistent
with the internal reporting provided to the chief operating
decision maker.
The Board of Directors monitor the business have
identified 5 reportable segments, based on the type of
customer serviced and products sold to those customer
bases. Refer to Note 2.
E) FOREIGN CURRENCY TRANSLATION
i. Function and presentation currency
The Group’s consolidated financial statements are
presented in Australian dollars, which is also the parent
company’s functional currency. For each entity, the
Group determines the functional currency and items
included in the financial statements of each entity are
measured using functional currency. The consolidated
financial statements are presented in Australia dollar
($), which is MSL Solutions Limited functional and
presentation currency.
ii. Transactions and balances
Transactions in foreign currencies are initially recorded
by the Group’s entities at their respective functional
currency spot rates at the date the transaction first
qualifies for recognition.
Monetary assets and liabilities denominated in foreign
currencies are translated at the functional currency spot
rates of exchange at the reporting date.
Differences arising on settlement or translation of
monetary items are recognised in profit and loss with
the exception of monetary items that are designated
as part of the hedge of the Group’s net investment in
a foreign operation. These are recognised in OCI until
the net investment is disposed of, at which time, the
cumulative amount is reclassified to profit or loss. Tax
charges and credits attributable to exchange differences
on those monetary items are also recorded in Other
Comprehensive Income (OCI).
Non-monetary items that are measured at historical cost
in a foreign currency are translated using the exchange
rates at the dates of the initial transactions. Non-monetary
items measured at fair value in a foreign currency are
translated using the exchange rates at the date when
the fair value is determined. The gain or loss arising on
translation of non-monetary items measured at fair value
is treated in line with the recognition of the gain or loss
on the change in fair value of the item (i.e. translation
differences on items whose fair value gain or loss is
recognised in OCI or profit or loss are also recognised
in OCI or profit or loss, respectively).
100
MPower MSL Annual Report 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS G) INCOME TAX
The income tax expense (revenue) for the year comprises
current income tax expense (income) and deferred tax
expense (income).
Current income tax expense charged to profit or loss
is the tax payable on taxable income calculated using
applicable income tax rates enacted, or substantially
enacted, as at reporting date. Current tax liabilities (assets)
are therefore measured at the amounts expected to be
paid to (recovered from) the relevant taxation authority.
Deferred income tax expense reflects movements in
deferred tax asset and deferred tax liability balances
during the year as well as unused tax losses.
Current and deferred income tax expense (income) is
charged or credited directly to equity instead of profit
or loss when the tax relates to items that are credited
or charged directly to equity.
Deferred tax assets and liabilities are ascertained based
on temporary differences arising between the tax bases
of assets and liabilities and their carrying amounts in
the financial statements. Deferred tax assets also result
where amounts have been fully expensed but future tax
deductions are available. No deferred income tax will be
recognised from the initial recognition of an asset or
liability, excluding a business combination, where there
is no effect on accounting or taxable profit or loss.
Deferred tax assets and liabilities are calculated at the
tax rates that are expected to apply to the period when
the asset is realised or the liability is settled, based on tax
rates enacted or substantively enacted at reporting date.
Their measurement also reflects the manner in which
management expects to recover or settle the carrying
amount of the related asset or liability.
Deferred tax assets relating to temporary differences and
unused tax losses are recognised only to the extent that
it is probable that future taxable profit will be available
against which the benefits of the deferred tax asset can
be utilised.
Current assets and liabilities are offset where a legally
enforceable right of set off exists and it is intended that
net settlement or simultaneous realisation and settlement
of the respective asset and liability will occur. Deferred
tax assets and liabilities are offset where a legally
enforceable right of set off exists, the deferred tax assets
and liabilities relate to income taxes levied by the same
taxation authority on either the same taxable entity or
different taxable entities where it is intended that net
settlement or simultaneous realisation and settlement of
the respective asset and liability will occur in future periods
in which significant amounts of deferred tax assets or
liabilities are expected to be recovered or settled.
MSL Solutions Limited and its wholly owned Australian
subsidiaries have formed an income tax consolidated
group under the tax consolidation legislation. Each entity
in the group recognises its own current and deferred tax
assets and liabilities. Such taxes are measured using the
‘stand alone taxpayer’ approach to allocation. Current
tax liabilities (assets) and deferred tax assets arising
from unused tax losses and tax credits in the subsidiaries
are immediately transferred to the parent entity.
The tax consolidated group has a tax funding
arrangement whereby each company in the group
contributes to the income tax payable by the group in
proportion to their contribution to the group’s taxable
income. Differences between the amounts of net tax
assets and liabilities derecognised and
The net amounts recognised pursuant to the funding
arrangement are recognised as either a contribution
by, or distribution to the parent entity.
i. Research and Development Tax Incentive
Companies with the Group may be entitled to claim
special tax deductions for investments in qualifying assets
or in relation to qualifying expenditure. At each reporting
period, the Group accounts for such allowances as tax
credits. The benefit in excess of the Australian Corporate
tax rate of 30% has been recognised as a reduction to
research and development expenses. A deferred tax
asset is recognised for unclaimed tax credits that are
carried forward as deferred tax assets.
101
MPower MSL Annual Report 2017 H) LEASES
Leases of fixed assets, where substantially all the risks
and benefits incidental to the ownership of the asset –
but not the legal ownership – are transferred to entities
in the Group are classified as finance leases.
Finance leases are capitalised by recognising an asset
and a liability at the lower of the amounts equal to the
fair value of the leased property or the present value of
the minimum lease payments, including any guaranteed
residual values. Lease payments are allocated between
the reduction of the lease liability and the lease interest
expense for the period.
Leased assets are depreciated at the rate applicable to
the class of fixed assets that the asset has been added to.
This is done over the shorter of their estimated useful life
and the lease term.
Leases that are classified as operating leases, where
substantially all the risks and benefits remain with the
lessor, are recognised as expenses in the periods in which
they are incurred.
Lease incentives under operating leases are recognised
as a liability and amortised on a straight line basis over
the lease term.
I) BUSINESS COMBINATIONS
The acquisition method of accounting is used to account
for all business combinations. Consideration is measured
at the fair value of the assets transferred, liabilities
incurred and equity interests issued by the group on
acquisition date.
Consideration also includes the acquisition date fair
values of any contingent consideration arrangements,
any pre-existing equity interests in the acquiree and
share-based payment awards of the acquiree that are
required to be replaced in a business combination. The
acquisition date is the date on which the group obtains
control of the acquiree. Where equity instruments are
issued as part of the consideration, the value of the
equity instruments is their published market price at the
acquisition date unless, in rare circumstances it can be
demonstrated that the published price at acquisition date
is not fair value and that other evidence and valuation
methods provide a more reliable measure of fair value.
Contingent consideration classified as an asset or liability
is remeasured in each reporting period to fair value,
recognising any change to fair value in profit or loss,
unless the change in value van be identified as existing
at acquisition date.
Identifiable assets acquired and liabilities and contingent
liabilities assumed in business combinations are, with
limited exceptions, initially measured at their fair values
at acquisition date. Goodwill represents the excess of
the consideration transferred and the amount of the
non-controlling interest in the acquiree over fair value of
the identifiable net assets acquired. If the consideration
and non-controlling interest of the acquiree is less than
the fair value of the net identifiable assets acquired, the
difference is recognised in profit or loss as a bargain
purchase price, but only after a reassessment of the
identification and measurement of the net assets acquired.
For each business combination, the group measures
non-controlling interests at either fair value or at the
non-controlling interest’s proportionate share of the
acquiree’s identifiable.
Acquisition-related costs are expensed when incurred
Where the group obtains control of a subsidiary that
was previously accounted for as an equity accounted
investment in associate or joint venture, the group
remeasures its previously held equity interest in the
acquiree at its acquisition date fair value and the resulting
gain or loss is recognised in profit or loss. Where the
group obtains control of a subsidiary that was previously
accounted for as an available-for-sale investment, any
balance on the available-for-sale reserve related to that
investment is recognised in profit or loss as if the group
had disposed directly of the previously held interest.
Where settlement of any part of the cash consideration
is deferred, the amounts payable in future are discounted
to present value at the date of exchange using the entity’s
incremental borrowing rate as the discount rate.
Contingent consideration is classified as equity or financial
liabilities. Amounts classified as financial liabilities are
subsequently remeasured to fair value at the end of each
reporting period, with changes in fair value recognised
in profit or loss.
Assets and liabilities from business combinations
involving entities or businesses under common control
are accounted for at the carrying amounts recognised
in the group’s controlling shareholder’s consolidated
financial statements.
102
MPower MSL Annual Report 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS J)
IMPAIRMENT OF ASSETS
L)
INVESTMENTS AND OTHER FINANCIAL ASSETS
At the end of each reporting period, the Group assesses
whether there is any indication that an asset may be
impaired. The assessment will include the consideration
of external and internal sources of information, including
dividends received from subsidiaries, associates or joint
ventures deemed to be out of pre-acquisition profits. If
such an indication exists, an impairment test is carried
out on the asset by comparing the recoverable amount
of the asset, being the higher of the asset’s fair value less
costs of disposal and value in use, to the asset’s carrying
amount. An excess of the asset’s carrying amount is
written off immediately to its recoverable amount if the
assets carrying amount if the assets carrying amount is
greater than its recoverable amount, unless the asset is
carried at a revalued amount in accordance with another
Standard (eg in accordance with the revaluation model in
AASB 116: Property, Plant and Equipment). An impairment
loss or a revalued asset is treated as a revaluation decrease
in accordance with that other Standard.
Where it is not possible to estimate the recoverable
amount of an individual asset the Group estimates the
recoverable amount of the cash generating unit to which
the asset belongs.
Impairment testing is performed annually for goodwill,
intangible assets with indefinite lives and intangible assets
not yet available for use.
K) CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand,
deposits held at call with banks, other short term highly
liquid investments with original maturities of three months
or less, and bank overdrafts. Bank overdrafts are shown
within short term borrowings in current liabilities on the
balance sheet.
i. Recognition and Initial Measurement
Financial instruments, incorporating financial assets
and financial liabilities, are recognised when the entity
becomes a party to contractual provisions of the
instruments. Trade date accounting is adopted for
financial assets that are delivered within timeframes
established by marketplace convention.
Financial instruments are initially measured at cost on
trade date, which includes transaction costs, when the
related contractual rights or obligations exist. Subsequent
to initial recognition these instruments are measured as
set out below.
ii. Financial assets at fair value through profit and loss
A financial asset is classified at fair value through profit
and loss when they are held for trading for the purpose
of short term profit taking, where they are derivatives
not held for hedging purposes, or designated as such to
avoid an accounting mismatch or to enable performance
evaluation where a group of financial assets is managed
by key management personnel on a fair value basis in
accordance with a documented risk management or
investment strategy. Realised and unrealised gains and
losses arising from changes in fair value are included in
profit or loss in the period in which they arise
iii. Loans and receivables
Loans and receivables are non derivative financial assets
with fixed or determinable payments that are not quoted
in an active market and are stated at amortised cost
using the effective interest rate method.
iv. Held to maturity investments
Held to maturity investments are non derivative financial
assets that have fixed maturities and fixed or determinable
payments, and it is the group’s intention to hold these
investments to maturity. They are subsequently measured
at amortised cost using the effective interest rate method.
v. Available for sale financial assets
Available for sale financial assets are non derivative
financial assets that are either designated as such or
that are not classified in any of the other categories.
They comprise investments in the equity of other entities
where there is neither a fixed maturity nor fixed or
determinable payment.
103
MPower MSL Annual Report 2017 M) PROPERTY, PLANT AND EQUIPMENT
N) INTANGIBLE ASSETS
Each class of property, plant and equipment is carried at
cost or fair value less, where applicable, any accumulated
depreciation and impairment losses.
i. Plant and equipment
Plant and equipment are measured on the cost basis less
depreciation and impairment losses.
The carrying amount of plant and equipment is reviewed
annually by directors to ensure it is not in excess of the
recoverable amount from these assets. The recoverable
amount is assessed on the basis of the expected net cash
flows that will be received from the assets employment
and subsequent disposal. The expected net cash flows
have been discounted to their present values in
determining recoverable amounts.
ii. Depreciation
The depreciable amount of all fixed assets including
buildings and capitalised leased assets is depreciated
on a diminishing value basis over their useful lives to the
group commencing from the time the asset is held ready
for use. Leasehold improvements are depreciated over
the shorter of either the unexpired period of the lease
or the estimated useful lives of the improvements.
iii. Depreciation rates
i. Goodwill
Goodwill and goodwill on consolidation are initially
recorded at the amount by which the purchase price for
a business or for an ownership interest in a controlled
entity exceeds the fair value attributed to its net assets at
date of acquisition. Goodwill on acquisition of subsidiaries
is included in intangible assets. Goodwill on acquisition
of associates is included in investment in associates.
Goodwill is tested annually for impairment and carried
at cost less accumulated impairment losses. Gains and
losses on the disposal of an entity include the carrying
amount of goodwill relating to the entity sold.
ii. Software
Software used in the business and that is not integral to
the computer hardware owned by the group, is carried at
cost less, where applicable, any accumulated depreciation
and impairment losses. The depreciable amount of
software is depreciated on a straight-line basis at a rate
between 12.5% and 40%.
Cost includes the direct costs of acquiring the software.
Internal costs incurred in further developing the software
are expensed.
Amortisation of intangibles is included in the line
‘amortisation’ in the profit or loss.
The depreciation rates used for each class of depreciable
assets are:
iii. Customer Contracts
CLASS OF FIXED ASSET
Plant and Equipment
Furniture, Fixtures and
Fittings
Leasehold Improvements
27%
20%
7.5%
50%
30%
30%
The assets’ residual values and useful lives are reviewed,
and adjusted if appropriate, at each balance sheet date.
Customer contracts recognised on acquisition are
amortised on a straight line basis over the life of the
contract, being between 3-11 years. Where a contract
holds multiple extension periods, MSL Solutions
recognises these only to the extent where MSL Solutions
has the control over whether the contract is extended
and it is more than probable that the extension will
be utilised.
Amortisation of customer contracts is included in the
line ‘depreciation and amortisation’ in the profit or loss.
iv. Amortisation
Refer to Note 8(b) for details about amortisation methods
and periods used by the Group for intangible assets.
104
MPower MSL Annual Report 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS O) TRADE AND OTHER PAYABLES
Q) BORROWING COSTS
Trade and other payables represent the liabilities for goods
and services received by the entity remain unpaid at the
end of the reporting period. The balance is recognised as
a current liability with the amounts normally paid within
terms of payment as detailed on invoices received
P) BORROWINGS
Borrowings are initially recognised at fair value, net of
transaction costs incurred. Borrowings are subsequently
measure at amortised cost. Any difference between the
proceeds (net of transaction costs) and the redemption
amount is recognised in profit or loss over the period of
the borrowings using the effect interest method. Fees
paid on the establishment of loan facilities are recognised
as transaction costs of the loan to the extent that it is
possible that some or all the facility will be drawn down.
In this case, the fee is deferred until the draw down occurs.
To the extent there is no evidence that it is probable that
some or all of the facility will be drawn down, the fee is
capitalised as a prepayment for liquidity services and
amortised over the period the facility to which it relates.
Borrowings are removed from the balance sheet when
the obligation specified in the contract is discharged,
cancelled or expired. The difference between the carrying
amount of a financial liability that has been extinguished
or transferred to another party and the consideration paid,
including any non-cash assets transferred or liabilities
assumed, is recognised in profit or loss as other income
or finance costs.
Where terms of a financial liability are renegotiated and
the entity issues equity instruments to a creditor to
extinguish all or part of the liability (debt for equity swap),
a gain or loss is recognised in profit or loss, which is
measured as the difference between the carrying amount
of the financial liability and the fair value of the equity
instruments issued.
Borrowings are classified as current liabilities unless the
Group has an unconditional right to defer settlement of
the liability for at least 12 months after the reporting period.
General and specific borrowing costs that are directly
attributable to the acquisition, construction or production
or a qualifying asset are capitalised during the period of
time that is required to complete and prepare the asset
for its intended use or sale. Qualifying assets are assets
that necessarily take a substantial period of time to get
ready for their intended use or sale.
Investment income earned on the temporary investment
of specific borrowings pending their expenditure on
qualifying assets is deducted from the borrowing costs
eligible for capitalisation.
Other borrowing costs are expensed in the period in
which they are incurred.
R) PROVISIONS
Provisions are recognised when the group has a legal
or constructive obligation, as a result of past events, for
which it is probable that an outflow of economic benefits
will result and that outflow can be reliably measured.
S) EMPLOYEE BENEFITS
i. Short-term employee benefit obligations
Liabilities for wages and salaries, including non-monetary
benefits, annual leave and accumulating sick leave
expected to be settled wholly within 12 months after
the end of the reporting period are recognised in other
liabilities in respect of employees’ services rendered up
to the end of the reporting period and are measured
at amounts expected to be paid when the liabilities are
settled. Liabilities for non-accumulating sick leave are
recognised when leave is taken and measured at the
actual rates paid or payable.
ii. Other long-term employee benefit obligations
Liabilities for long service leave and annual 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 using the projected unit
credit method. Consideration is given to expected future
salaries and wages levels, experience of employee
departures and periods of service. Expected future
payments are discounted using national government
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.
105
MPower MSL Annual Report 2017 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
iii. Equity-settled compensation
W) ROUNDING
Amounts in the financial report and directors’ report
have been rounded off to the nearest thousand dollar,
unless otherwise stated.
X) GOODS AND SERVICES TAX (GST) AND
VALUE ADD TAX (VAT)
Revenues, expenses and assets are recognised net of the
amount of GST and VAT, except where the amount of GST
and VAT incurred is not recoverable from the Australian
Taxation Office. In these circumstances the GST and VAT
is recognised as part of the cost of acquisition of the
asset or as part of an item of the expense. Receivables
and payables are shown inclusive of GST.
Cash flows are presented in the statement of cashflow
on a gross basis, except for the GST and VAT component
of investing and financing activities, which are disclosed
as operating cash flows.
Y) COMPARATIVES
When required by Accounting Standards, comparative
figures have been adjusted to conform to changes in
presentation for the current financial year.
The Group operates and employee share and option plan.
Share-based payments to employees are measured at
the fair value of the instruments issued and amortised
over the vesting period. Share-based payments to
non-employees are measured at the fair value of the
instruments issued, and are recorded at the date the
goods or services are received.
The corresponding amount is recorded to the option
reserve. The fair value of options is determined using the
Black-Scholes pricing model. The number of shares and
options expected to vest is reviewed and adjusted at
the end of each reporting period such that the amount
recognised for services received as consideration for
the equity instruments granted is based on the number
of equity instruments that eventually vest.
T) CONTRIBUTED EQUITY
Ordinary shares are classified as equity.
Incremental costs directly attributable to the issue of
new shares or options are shown in equity as a deduction,
net of tax, from the proceeds.
U) DIVIDENDS
Provision is made for the amount of any dividend
declared, being appropriately authorised and no longer
at the discretion of the entity, on or before the end of
the reporting period but not distributed at the end of
the reporting period.
V) EARNINGS PER SHARE
i. Basic earnings per share
Basic earnings per share is calculated by dividing:
›
The profit attributable to owners of the Company,
excluding any costs of servicing equity other than
ordinary shares
› By the weighted average number of ordinary shares
outstanding during the financial year, adjusted for
bonus elements in ordinary shares issued during the
year and excluding treasury shares (Note 21).
ii. Diluted earning per share
Diluted earnings per share adjusts the figures used in
the determination of basic earnings per share to take
into account:
›
›
The after-income tax effect of interest and other
financing costs associated with dilutive potential
ordinary shares, and
The weighted average number of additional ordinary
shares that would have been outstanding assuming
the conversion of all dilutive potential ordinary shares.
106
MPower MSL Annual Report 2017NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DIRECTORS' DECLARATION
In the directors’ opinion:
a)
the financial statements and notes set out on pages 44 to 106 are in accordance with the
Corporations Act 2001, including:
i.
ii.
complying with Accounting Standards, the Corporations Regulations 2001 and other
mandatory professional reporting requirements, and
giving a true and fair view of the consolidated entity’s financial position as at 30 June 2017
and of its performance for the financial year ended on that date, and
b)
c)
there are reasonable grounds to believe that the Company will be able to pay its debts as and
when they become due and payable, and
at the date of this declaration, there are reasonable ground to believe that the members of the
extended closed group identified in Note 14(a) will be able to meet any obligation or liabilities.
Note 24(b) confirms that the financial statements also comply with International Financial
Reporting Standards as issued by the International Accounting Standards Board.
The directors have been given the declaration by the chief executive officer and chief financial
officer required by section 295A of the Corporations Act 2001.
This declaration is made in accordance with a resolution of the directors.
Kenneth John Down
Chairman
Craig Kinross
Managing Director and Chief Executive Officer
Dated at Brisbane this 31st day of August 2017.
107
MPower MSL Annual Report 2017
INDEPENDENT AUDITOR’S REPORT
Independent auditor’s report
To the shareholders of MSL Solutions Limited
Report on the audit of the financial report
Our opinion
In our opinion:
The accompanying financial report of MSL Solutions Limited (the Company) and its controlled
entities (together, the Group) is in accordance with the Corporations Act 2001, including:
a)
giving a true and fair view of the Group’s financial position as at 30 June 2017 and of its
financial performance for the year then ended
b)
complying with Australian Accounting Standards and the Corporations Regulations 2001.
What we have audited
The Group financial report comprises:
•
•
•
•
•
•
the consolidated balance sheet as at 30 June 2017
the consolidated statement of profit or loss and other comprehensive income for the year
then ended
the consolidated statement of changes in equity for the year then ended
the consolidated statement of cash flows for the year then ended
the notes to the consolidated financial statements, which include a summary of significant
accounting policies
the directors’ declaration.
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 believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Independence
We are independent of the Group in accordance with the auditor independence requirements of the
Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical
Standards Board’s APES 110 Code of Ethics for Professional Accountants (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.
PricewaterhouseCoopers, ABN 52 780 433 757
480 Queen Street, BRISBANE QLD 4000, GPO Box 150, BRISBANE QLD 4001
T: +61 7 3257 5000, F: +61 7 3257 5999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
Page | 129
108
MPower MSL Annual Report 2017 Our audit approach
An audit is designed to provide reasonable assurance about whether the financial report is free from
material misstatement. Misstatements may arise due to fraud or error. They are considered material if
individually or in aggregate, they could reasonably be expected to influence the economic decisions of
users taken on the basis of the financial report.
We tailored the scope of our audit to ensure that we performed enough work to be able to give an
opinion on the financial report as a whole, taking into account the geographic and management
structure of the Group, its accounting processes and controls and the industry in which it operates.
Materiality
• For the purpose of our audit we used overall Group materiality of $360,000 which represents
approximately 5% of the Group’s profit before tax (PBT), after adjusting for transaction costs relating to
business combinations and the profit impact in relation to the convertible notes.
• We applied this threshold, together with qualitative considerations, to determine the scope of our audit
and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements on
the financial report as a whole.
• We chose Group PBT because, in our view, it is the benchmark against which the performance of the
Group is most commonly measured. We adjusted for the effects of transaction costs relating to business
combinations and the profit impact in relation to the convertible notes because they are unusual and
infrequently occurring items impacting the Group’s profitability.
• We utilised a 5% threshold based on our professional judgement, noting it is within the range of
commonly acceptable profit related thresholds.
Audit scope
• Our audit focused on where the Group made subjective judgements; for example, significant accounting
estimates involving assumptions and inherently uncertain future events.
• Our audit procedures were mostly performed at the Group’s corporate head office in Brisbane. In
establishing the overall approach to the Group audit, we determined the type of audit work that needed to
be performed by us, as the Group engagement team, and by auditors in the UK and Denmark operating
under our instruction.
• We performed risk focused audit procedures over the Australian businesses, in addition to auditing the
consolidation of the Group’s overseas entities that form part of the Group’s financial report.
• Component auditors operating under instruction performed risk focused audit procedures over the
Verteda (UK) and Golf Box (Denmark) statements of profit or loss for the period since their acquisition by
the Group through to 30 June 2017, and their balance sheets as at the same date.
• For the work performed by the component auditors in the UK and Denmark, we determined the level of
involvement required from us to be able to conclude whether sufficient appropriate audit evidence has
Page | 130
109
MPower MSL Annual Report 2017
INDEPENDENT AUDITOR’S REPORT
been obtained as a basis for our opinion on the Group’s financial report as a whole. This included active
dialogue throughout the year through discussions, issuing written instructions, receiving formal interoffice
reporting, as well as discussing audit findings meetings with local management.
• We also utilised the expertise of PwC valuations experts to assist with our audit procedures on the Group’s
business combinations and impairment models.
Key audit matters
• Amongst other relevant topics, we communicated the following key audit matters to the Audit and Risk
Committee:
- Accounting for business combinations;
- Recoverability of the Group’s goodwill and intangible assets;
- Revenue recognition; and
- Accounting considerations associated with the initial public offering.
• These are further described in the Key audit matters section of our report.
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 for the current period. The key audit 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. Further, any commentary on the outcomes of a
particular audit procedure is made in that context.
Key audit matter
How our audit addressed the key audit matter
Accounting for business combinations
(Refer to Note 3 Business combinations)
Our procedures in relation to the accounting for these
business combinations included, amongst others:
During the year ended 30 June 2017, the Group
acquired the following entities:
•
Verteda Holdings Limited (“Verteda”), a
UK based entity, on 31 October 2016 for
total consideration of $14.3m; and
• Golf Box A/S (“Golf Box”), a Denmark
based entity, on 14 November 2016 for
total consideration of $9.6m.
In addition, the Group acquired the software
assets of Pallister Games (“Pallister”), an
Australian entity, on 22 March 2017 for total
consideration of $2.8m.
We considered the accounting for the business
combinations to be a key audit matter due to the
financial significance of the purchase
consideration, net identifiable assets acquired
and resultant goodwill arising on the
acquisitions, as well as the level of judgement
required by the Group in performing the
Purchase Price Allocation (“PPA”) calculations.
The key areas of judgement included:
• Assessing the likelihood of earn out
Page | 131
•
•
•
Assessing whether each of the transactions should
be treated as an asset acquisition or business
combination, in accordance with Australian
Accounting Standards.
Agreeing the initial consideration paid for each
acquisition to the relevant bank statements and
sale and purchase agreements,
Agreeing a sample of related transaction costs,
including stamp duty and legal fees, to relevant
invoices and bank statements, to assess whether
these costs were recognised in accordance with
Australian Accounting Standards.
• Reading the relevant purchase agreements to
assess whether the deferred consideration for
each acquisition is contingent upon future events,
•
•
Assessing whether the calculation of the deferred
consideration for each acquisition was in
accordance with the relevant purchase agreements
and Australian Accounting Standards.
Testing the calculation of contingent
consideration liabilities recognised at acquisition
date and the measurement and disclosure of
related ‘earn out’ criteria by assessing the
110
MPower MSL Annual Report 2017 Key audit matter
How our audit addressed the key audit matter
targets being achieved, and the
discounting to be applied in the
calculation of deferred and contingent
consideration liabilities recognised at
acquisition date.
• Assessing the fair value of the net
identifiable assets acquired.
•
•
Calculating the valuation of the
customer contract and relationship
intangible assets by performing a
discounted cash flow analysis, and then
determining the appropriate useful life
for amortisation purposes.
The adequacy of the acquisition details
disclosed in the financial statements.
Recoverability of the Group’s goodwill
and intangible assets
(Refer to Note 8b Intangible assets)
The Group recorded intangible assets of $41.4m
at 30 June 2017 comprising:
• Goodwill of $18.1m
•
•
Contracts and customer relationships of
$17.7m
Computer software, other of $5.5m
The Group is required by Australian Accounting
Standards to perform an annual impairment
assessment over goodwill and non-amortising
intangible assets, and also any amortised
intangible assets for which indicators of
impairment have been identified. This
impairment testing is performed by calculating
Page | 132
•
•
•
•
•
•
•
likelihood of financial performance earn out
targets being achieved.
Comparing the discount rates applied by the
Group to deferred and contingent consideration
liabilities to the discount rates calculated by PwC
valuations experts.
Considering whether all intangible assets were
recognised by the Group by evaluating the assets
purchased on acquisition.
Agreeing a sample of the tangible net identifiable
assets acquired back to supporting information.
Assessing the Group’s discounted cash flow
valuation models used for recognising customer
contracts and customer relationship intangible
assets acquired, with a particular focus on the key
assumptions therein, including forecast future
financial performance, growth rates and discount
rates.
Performing sensitivity analysis on the above
mentioned key assumptions, with reference to
market data, industry research and the
independent expectations of PwC valuations
experts.
Assessing the accuracy of the resulting goodwill
arising on the PPA calculation.
Assessing the allocation of goodwill arising in
each of the acquisitions to the relevant cash
generating unit (“CGU”), which are based upon
the Group’s operating segments.
• Assessing the adequacy of the disclosures made in
note 3 in light of the requirements of Australian
Accounting Standards.
Our procedures included, amongst others:
• Assessing whether the division of the Group into
CGUs was consistent with our knowledge of the
Group’s operations and internal Group reporting.
•
•
•
•
Testing the mathematical accuracy of the
underlying calculations in the models;
Comparing the cash flow forecasts for FY18 used
in the models to the Board approved budget for
FY18.
Comparing the FY17 actual results to historical
forecasts to assess the historical accuracy of the
Group’s forecasting processes;
Together with PwC valuations experts, comparing
the growth rates and discount rates used in the
models to market data and industry research.
111
MPower MSL Annual Report 2017 INDEPENDENT AUDITOR’S REPORT
Key audit matter
the ‘value in use’ for each CGU, using a
discounted cash flow model (the “models”).
The CGU’s against which the contracts and
customer relationships and computer software
are assessed are the underlying businesses to
which they relate.
The CGU’s used to assess the Group’s goodwill
are consistent with the Group’s operating
segments, being M Power Venue, M Power Golf
and M Power Media.
We considered this a key audit matter due to the
size of the goodwill and intangible assets
balances and because significant judgement is
required by the Group in estimating future cash
flows, particularly with respect to determining
appropriate growth and discount rates.
No impairment charge was recorded by the
Group in the current financial year.
Revenue recognition
(Refer to Note 4 Revenue)
The Group’s revenue is based on a very high
volume of transactions across a number of
major revenue streams.
The revenue recognition process differs for each
revenue stream depending on the nature of
service provided. These revenue streams are
underpinned by different Information
Technology (IT) systems and detailed processes
and controls.
Whilst there is little estimation or judgement
involved in the recognition of the Group’s
revenue, we considered the recognition of
revenue to be a key audit matter due to the
volume of revenue transactions and contracts,
and the number of different revenue IT systems
and processes.
How our audit addressed the key audit matter
•
Performing sensitivity analysis to determine the
impact of reasonably possible changes in the
discount rates, growth rates, EBITDA margins
and FY18 forecast used in the models. We found
that headroom remained between the carrying
value of each CGU’s intangible assets and the
calculated value in use after adjusting the models
for these sensitivities.
• We also compared the Group’s net assets at
balance date $40.9m to its market capitalisation
of approximately $81.0m at 30 June 2017, and
noted that there was headroom in the
comparison.
Our procedures included, amongst others:
• Assessing the design and operating effectiveness
of the relevant key controls over the recording of
revenue.
•
•
Through discussions with management,
developing an understanding of the various
revenue streams and the Group’s revenue
recognition policy.
For each of the Group’s revenue streams, we
agreed a sample of revenue transactions recorded
in the general ledger to supporting documentation
such as purchase orders, sales invoices, customer
contracts and the receipts in the bank statements.
• Reading the contract terms for a sample of
customer contracts with multiple revenue
elements (for example, hardware, software,
support and services), to determine whether
revenue was recognised in accordance with the
Group’s accounting policies and Australian
Accounting Standards.
• Utilising data analytic techniques across all
revenue streams to identify revenue transactions
recognised through manual journal entries, to
assess whether the related revenue was recognised
in accordance with the Group’s accounting
policies and Australian Accounting Standards.
Page | 133
112
MPower MSL Annual Report 2017 Key audit matter
How our audit addressed the key audit matter
Accounting considerations associated
with the initial public offering (IPO)
(Refer to Note 9a Share Capital)
On 4 May 2017, the Group listed on the
Australian Securities Exchange (“ASX”).
As part of the IPO:
• The Group raised $15m of equity
through the issuance of 60m new
shares.
• Transaction costs totalling $1.7m were
capitalised in the Group’s balance sheet
as an offset to equity;
• $17m of convertible notes were
converted into $21.3m of equity; and
• A one-off special bonus of $3.3m was
awarded to senior management.
We determined the accounting for the IPO and
the capital raising costs to be a key audit matter
because the IPO was a significant transaction
impacting the Group’s statement of financial
position, consolidated statement of
comprehensive income and the consolidated
statement of changes in equity.
Our procedures included, amongst others:
• Agreeing the recorded proceeds from the
issuance of shares to supporting documentation
such as the prospectus document, ASX
announcement, share registry records and bank
statements.
• Agreeing a sample of transaction costs that were
directly attributable to the equity raising to
supporting documentation and assessing the
nature of the costs incurred to determine whether
they were capitalised in accordance with the
Group’s accounting policies and Australian
Accounting Standards.
• Checking that the calculation to convert the
convertible notes into equity was based upon the
terms stipulated in the Converting Note Deed Poll
document.
• Performing tests over the mathematical accuracy
of the underlying conversion calculations.
• Assessing the fair value adjustments recognised
in the consolidated statement of profit or loss and
other comprehensive income associated with the
conversion of convertible notes.
• For the shares issues as part of the special bonus,
we compared the number of shares issued and
the price per share to the stipulations listed in the
relevant Board minutes, the Deed of Surrender
and Equity Incentive Plan. For the cash bonus
component, we agreed this to Board minutes.
• Assessing the adequacy of the disclosures made
in Note 9a in light of the requirements of
Australian Accounting Standards.
Page | 134
113
MPower MSL Annual Report 2017
INDEPENDENT AUDITOR’S REPORT
Other information
The Directors are responsible for the other information. The other information comprises the
Chairman and Managing Directors’ Messages, MSL Board of Directors, Corporate Governance
Statement, Directors report, Shareholder Information and Corporate Directory included in the
Group’s annual report for the year ended 30 June 2017, but does not include the financial report and
our auditor’s report thereon.
Our opinion on the financial report does not cover the other information and accordingly we do not
and will not express an opinion or any form of assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other information
identified above and, in doing so, consider whether the other information is materially inconsistent
with the financial report or our knowledge obtained in the audit, or otherwise appears to be materially
misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this
other information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of the directors for the financial report
The directors of the Company are responsible for the preparation of the financial report that gives a
true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001
and for such internal control as the directors determine is necessary to enable the preparation of the
financial report that gives a true and fair view and is free from material misstatement, whether due to
fraud or error.
In preparing the financial report, the directors are responsible for assessing the ability of the Group to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either intend to liquidate the Group or to cease
operations, or has no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free
from material misstatement, whether due to fraud or error, and to issue an auditor’s report that
includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an
audit conducted in accordance with the Australian Auditing Standards will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material
if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of the financial report.
A further description of our responsibilities for the audit of the financial report is located at the
Auditing and Assurance Standards Board website at:
http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf. This description forms part of our
auditor’s report.
Page | 135
114
MPower MSL Annual Report 2017
Report on the remuneration report
Our opinion on the remuneration report
We have audited the remuneration report included in pages 24 to 39 of the directors’ report for the
year ended 30 June 2017.
In our opinion, the remuneration report of MSL Solutions Limited for the year ended 30 June 2017
complies with section 300A of the Corporations Act 2001.
Responsibilities
The directors of the Company are responsible for the preparation and presentation of the
remuneration report in accordance with section 300A of the Corporations Act 2001. Our
responsibility is to express an opinion on the remuneration report, based on our audit conducted in
accordance with Australian Auditing Standards.
PricewaterhouseCoopers
Michael Crowe
Partner
Brisbane
31 August 2017
Page | 136
115
MPower MSL Annual Report 2017 SHAREHOLDER INFORMATION
The shareholder information set out below was applicable as at 25 August 2017.
DISTRIBUTION OF EQUITY SECURITIES
Analysis of numbers of equity security holders by size of holding:
RANGE
1 - 1,000
1,001 - 10,000
10,001 - 100,000
100,001 - 500,000
500,001 - 1,000,000
1,000,001 and over
TOTAL HOLDERS
2
53
332
166
28
44
ORDINARY
SHARES
33
375,163
16,355,205
39,867,120
20,722,896
171,928,548
There were three holders of less than a marketable parcel of ordinary shares, totalling 1,823 shares.
EQUITY SECURITY HOLDERS
The names of the twenty largest holders of quoted equity securities are listed below:
NAME
J P MORGAN NOMINEES AUSTRALIA LIMITED
MERRILL LYNCH (AUSTRALIA) NOMINEES PTY LIMITED
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
HOLZGREFE HOLDINGS PTY LTD
CRAIG GLEN KINROSS
LOVAT PTY LTD
BNP PARIBAS NOMS PTY LTD
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED - A/C 2
RUPERT DALY
JAMBET DOWNS PTY LTD
WALLIS-MANCE PTY LIMITED
RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY LTD
INVIA CUSTODIAN PTY LIMITED
ONE MANAGED INVESTMENT FUNDS LIMITED
GLG HOLDINGS PTY LTD
NATIONAL NOMINEES LIMITED
BROOKFIELD SUPERANNUATION PTY LTD
BOND STREET CUSTODIANS LIMITED
GOANNA SUPER PTY LTD
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
VP INVESTMENTS PTY LTD
ORDINARY
SHARES
24,548,484
14,101,891
12,739,941
10,913,566
10,498,271
8,754,131
7,925,000
7,278,982
6,206,044
6,153,554
5,821,696
5,093,750
5,000,000
3,600,000
3,428,571
2,946,776
2,821,429
2,051,282
1,857,143
1,857,143
%
0.00%
0.15%
6.56%
15.99%
8.31%
68.98%
%
9.85%
5.66%
5.11%
4.38%
4.21%
3.51%
3.18%
2.92%
2.49%
2.47%
2.34%
2.04%
2.01%
1.44%
1.38%
1.18%
1.13%
0.82%
0.75%
0.75%
143,597,654
57.62%
116
MPower MSL Annual Report 2017 RESTRICTED EQUITY SECURITIES
39,561,965 ordinary fully paid shares, are subject to voluntary escrow until the release of the Company’s financial
results for the year ended 30 June 2018.
UNQUOTED EQUITY SECURITIES
11 holders with total accumulated holdings of 4,978,572 options over ordinary fully paid shares.
SUBSTANTIAL HOLDERS
Substantial holders in the Company are set out below:
NAME
ELLERSTON CAPITAL LIMITED
REGAL FUNDS MANAGEMENT PTY LTD
FORAGER FUNDS MANAGEMENT PTY LTD
DR RICHARD HOLZGREFE
EIGHT INVESTMENT PARTNERS PTY LTD
ORDINARY
SHARES
15,682,013
14,297,106
13,592,165
12,611,917
12,500,000
%
6.29%
5.74%
5.45%
5.06%
5.02%
VOTING RIGHTS
The voting rights attaching to each class of equity securities are as follows:
Ordinary shares: on a show of hands every member present at a meeting in person or by proxy shall have one vote
and upon a poll each share shall have one vote.
Options: No voting rights
OTHER INFORMATION
There is currently no on-market buy-back of the Company’s securities.
The Company has used its cash (and assets in a form readily convertible to cash) that it had at the time of listing in a
way consistent with its stated business objectives.
117
MPower MSL Annual Report 2017 CORPORATE DIRECTORY
COMPANY’S REGISTERED ADDRESS
LEGAL ADVISOR
MSL SOLUTIONS LTD
ACN 120 815 778
Level 1, 307 Queen Street
Brisbane, QLD 4000
MSL INFORMATION LINE
1800 679 701 (Within Australia)
+61 7 3512 3510 (Outside Australia)
www.mpowermsl.com
DIRECTORS
Kenneth John Down
Craig Kinross
Ian Daly
Kaylene Gaffney
Dr Richard Holzgrefe
David Trude
COMPANY SECRETARY
Andrew Ritter
MCCULLOUGH ROBERTSON
ABN 42 721 345 951
Level 11, Central Plaza Two
66 Eagle Street
Brisbane, QLD 4000
AUDITOR
PRICEWATERHOUSECOOPERS
ABN 52 780 433 575
480 Queen Street
Brisbane, QLD 4000
GPO Box 150 Brisbane, Australia
T: +61 7 3257 5000
F: +61 7 3257 5999
www.pwc.com.au
SHARE REGISTRY
Computershare
GPO Box 2975, Melbourne Vic 3001
T: 1300 552 270
F: +61 3 9473 2500
https://www-au.computershare.com/Investor
118
MPower MSL Annual Report 2017 119
MPower MSL Annual Report 2017 MSL Solutions Limited ACN 120 815 778
MPOWERMSL.COM
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