ASX:NOV ABN 98 606 556 183
Annual Report
30 June 2017
w w w . n o v a t t i . c o m
Contents
Chairman’s letter
Review of operations
Directors’ Report
Review of 2017 Financial Results
Remuneration report (audited)
Disclosures relating to the directors & senior management
Independent auditor’s declaration
Financial Report
Consolidated Statement of Profit & Loss or other Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Notes to the Financial Statements
Directors’ declaration
Independent auditor’s report
Additional disclosures
5
6
11
15
17
29
33
34
35
36
37
38
39
79
80
86
Directors
Peter Pawlowitsch
Peter Cook
Brandon Munro
Paul Burton
Kenneth Lai
Company secretary
Ian Hobson
Registered office
Principal place of business
Share register
Auditor
Solicitors
Bankers
Australia
Suite 5
95 Hay Street
Subiaco WA 6000
United States of America
300 Congress Street Unit
406 Quincy, Massachusetts
02169
Australia
1st Floor
Legacy House
293 Swanston Street
Melbourne VIC 3000
Phone: +61 3 9011 8490
United Kingdom
153 Stafford Road
Wallington, Surrey
SM6 9BN
South Africa*
60 – 3rd Avenue
Highlands North
Johannesburg
Gauteng
2192
United Kingdom
20 Nugent Road
Guilford
GU2 7AF
+44 7733 057233
United States of America
300 Congress Street Unit
406 Quincy, Massachusetts
02169
South Africa
60 – 3rd Avenue
Highlands North
Johannesburg
Automic Registry Services
Suite 1A, Level 1, Ventnor Avenue, West Perth WA 6005,
Phone: +61 8 9324 2099
William Buck
Level 20, 81 William Street, Melbourne Vic 3000
Milcor Legal
Level 1, 6 Thelma Street, West Perth WA 6005
National Australia Bank
Level 1, 330 Collins Street, Melbourne VIC 3000
Stock exchange listing
Novatti Group Limited shares are listed on the
Australian Securities Exchange (ASX code: NOV)
Website
www.novatti.com
www.novatti.com/investors/corporate-governance
Australian Financial Services Licence
AFSL No. 448066
Financial Conduct Authority
FCA No. 900631 as an appointed representative of CFS-
ZIPP Ltd (FCA No. 900027) for issuance of e-money
products
*A new subsidiary, Flexe Payments Pty Ltd (Trading No 972563154) was incorporated in South Africa on the
24 May 2017. Flexe Payments Pty Ltd is 100% owned by Novatti Group Ltd.
4
Chairman’s Letter
Dear fellow shareholder,
For those shareholders who have following the announcements, you will have noticed that it has been an
extremely busy year for Novatti. The Group has progressed well on its aim of expanding its transactional
businesses with revenue from the its recurring and transactional businesses growing from $1.07M to $1.34M.
For the financial year ended 30 June 2017, Novatti reported revenue of $3.54M, a decrease from FY16’s
revenue of $4.87M. Earnings before interest and tax was a loss of $4.80M which includes non-cash expenses
of approximately $0.48M (including option expense).
Highlights for the year included:
•
China Payments division establish within Novatti to focus on cross-border commerce payments
between China and Australia.
• WeChat support deal (through Royal Pay Australia) to enable financial transactions for Chinese
consumers in Australia.
• WeChat transactional growth rate at circa 20% per month driving Novatti’s processing transaction fees.
•
Alipay payments rollout supported by Novatti’s support compliance and processing services
underpinned by Novatti’s Australian Financial Services Licence (AFSL).
LatiPay agreement to enable Novatti to expand its payments service to cover Australian e-commerce
and trade payments through WeChat, Alipay, JD Pay and 19 Chinese banks in Australia.
Flexepin experiences strong growth for its Open Loop Voucher Service from Bitcoin merchants in
Canada and Australia.
PayGround AB partnership with Novatti’s Flexe Payments Ltd to grow and capitalize the e-money and
payments sector.
Zapper Marketing selects Novatti to enable airtime top-up on the Zapper app through Novatti’s
TransferBridge solution.
•
•
•
•
• High Impact Corp, 50% Novatti owned, announced the launch of a new way for the Zimbabwe
diaspora to remit funds to families.
Acquire 100% of the basis2 billing and customer information system business.
•
Driving growth and shareholder value remains paramount for the Board and Management as the Group
continues on its path of pursuing profitability organically and via acquisitions. The following year the Group
will:
•
•
•
Continue to focus on growing the Group’s recurring and transactional revenues.
Continue to grow the China Payments division focusing on the cross-border commerce payments
between China and Australia.
Target profitability for the financial year.
Whilst we face challenges from regulatory factors to competitive pressures, the Board considers that the
Group has a breadth of products and service capabilities, underpinned by management and staff, to ensure
that its strategy of growth remains on path.
On behalf of the Board, I would like to thank all staff and contractors for their contribution to the Group and
look forward to their support in the coming year.
Peter Pawlowitsch
Chairman
Chairman`s Letter
5
Review of Operations
Overview
Novatti grows new financial networks by:
Empowering the global trend towards a cashless society.
Giving financial institutions the ability to expand their offering, and acquire new
market segments at a low cost.
Providing technologies and products to enable new financial transaction
services.
Giving non-financial companies new income streams and capabilities.
Enabling governments, enterprises & consumers to move to mobile financial
services.
Supporting the growth of new payment methods such as WeChat Pay and AliPay.
Corporate:
Date
Number of
Shares – Novatti
Group Ltd
Summary
01 July 2016
87,883,826
16 September 2016
5,000,000
10 May 2017
11,910,051
29 May 2017
3,178,770
30 June 2017
1,539,285
Number of shares on issue at commencement of financial
year
Conversion of 5 million Performance Shares upon
achievement of Milestone 1 (as disclosed in Replacement
Prospectus at clause 13.2.), Novatti Pty Ltd achieving $3.5
million in invoiced customer revenues for FY 16.
Fully paid ordinary shares issued pursuant to the institutional
component of the one for four accelerated pro-rata non-
renounceable entitlement offer.
Fully paid ordinary shares issued pursuant to the retail
component of the one for four accelerated pro-rata non-
renounceable entitlement offer.
Fully paid ordinary shares issued pursuant to the shortfall
facility of the retail entitlement offer.
30 June 2017
464,419
Management Fee paid in shares to Corporate Advisors for the
1 for 4 equity raising facility.
6
Directors' Report | Review of operations Business Operations
FY17 has seen Novatti increase the mix of predictable recurring and transactional revenues within the overall
revenues. The majority of revenues are now increasingly recurring and financial transaction revenues. Such
revenues include maintenance fees, SAAS fees, compliance fee, Flexepin sales and remittance type margins.
These recurring revenues have been strongly enhanced by Novatti’s acquisition of the basis2 billing business
in May 2017. Novatti has successfully implemented a number of major projects for existing clients whilst also
acquiring two additional SAAS clients. A continued focus on expenditure control has seen an annualised $1.5m
reduction in costs achieved by the end of the financial year.
Strong growth
in current
revenue >
NOVATTI
PLATFORMS
Provide innovative
client platforms for
mobile banking,
remittances, digital
wallets, etc.
NOVATTI
TRANSACTION
SERVICES
Transaction services
for remittance,
cash vouchers, bill
payments, etc.
Growing
blue sky
opportunities
>
Novatti Group Revenue
$ 6,000,000
$ 5,000,000
$ 4,000,000
$ 3,000,000
$ 2,000,000
$ 1,000,000
$
FY14
FY15
FY16
FY17
Non Recurring
Recurring
R&D Rebate
Transactional Processing
Growing percentage of Transactional revenue
FY16 REVENUE
BREAKDOWN (%)
FY17 REVENUE
BREAKDOWN (%)
FY18E REVENUE
BREAKDOWN (%)
Non Recurring
Recurring
Transactional Processing
7
Directors' Report | Review of operations The Novatti Platform
“The Novatti Platform empowers new cost-effective payment options.”
The Novatti Platform is the technology foundation of the Group and enables a vast variety of solutions
to be deployed on-site or in the cloud. The platform offers highly scalable transaction processing and
stored value account management systems. The Novatti Platform is deployed with an array of mobile and
alternative payment functionality to telecommunication and financial service companies globally. The
platform can be implemented across an expansive range of internal and external systems such as banks,
ATMs, Point of Sale (POS) terminals, mobile phones, web portals, POS systems, prepaid and post-paid
billing systems, and telecommunications infrastructure. Novatti is focused on increasing financial inclusion
to unbanked or underbanked societies in developing nations with minimal access to traditional bank
accounts. The innovative technologies enable new and cost-effective payment service to solve the needs in
emerging marketplaces, where the internet and mobile penetration is rapidly growing.
The Novatti Platform consists of a variety of software modules. Each module can be delivered as a
standalone solution or integrated with another module (including existing systems) utilising a common
backbone messaging system. The individual modules can be implemented to support the following
payment applications:
• Digital wallets
• Mobile money
• Voucher management
• Distribution and activation of virtual and physical vouchers such as prepaid gift cards or prepaid debit
cards
• Airtime distribution (also known as e-top-up, pin-less top-up, mobile top-up or mobile recharge)
• International and domestic bill payments
• International and domestic remittances
• Agency banking to enable branchless banking in remote or isolated areas
Go-to-market strategy
The Novatti Payments Platform offers our clients the opportunity to provide innovative services to their
consumers. To achieve such, the Novatti Payments Platform has been re-architected and largely rebuilt
over the last two years. Software development is primarily done in Melbourne, with an increasing amount
from our Offshore Development Centre in Vietnam. Development costs are increasingly competitive.
Technology strategy
In July 2015, Novatti was appointed to supply a mobile money and mobile banking platform for Tanzania
Telecommunications Company Limited (TTCL) in Tanzania. The Novatti Platform will enable TTCL to enter
the mobile money marketplace.
The TTCL project provides an example of our state-of-the-art payment and mobile banking platform and
shows our strong understanding of building robust mobile money systems.
Transaction services
During the year, the Group successfully grew the mix of revenue that was recurring or transaction
processing. The continued progress towards these types of predictable revenues should continue in FY18.
Peter Cook, Managing Director and Chief Executive Officer
8
Directors' Report | Review of operations Transaction Services
The Transaction Services division operates under a number of different brands.
Novatti™ offering white-label or direct-to-market
services
Transaction Processing services via Flexewallet™
Open-loop cash vouchers for online payments called
Flexepin™
Remittance services via TransferBridge™
Compliance and settlement processing of Chinese
payment methods such as WeChat Pay, AliPay,
JDPay and Baidu
9
Directors' Report | Review of operations Flexepin expansion
“Flexepin successful launch in Australia provided the Group with a new scalable revenue
source.”
The Flexepin network was expanded into Europe with a successful white label partnership with Scandinavian
group PayGround AB and the launch of services in Greece and Cyprus. Sales have commenced in Nigeria and
Ghana and commercial relationships should bring on additional countries in Europe, Africa and Asia.
The growth in the Bitcoin market has seen strong usage of Flexepin, in particular in Canada, where consumers find
it is a convenient and secure way to procure Bitcoin Flexepin revenues grew strongly on a quarter by quarter basis
as the number of merchants and territories expanded.
Flexepin Transactional Revenue FY2017
$ 30,000
$ 25,000
$ 20,000
$ 15,000
$ 10,000
$ 5,000
$
July
A u g ust
b er
O cto b er
b er
b er
N ove m
D ece m
S e pte m
Ja n u ary
Fe bru ary
M arc h
A pril
M ay
Ju n e
China Payments
The Group has entered into a number of partnerships with companies including RoyalPay, epay and LatiPay
who are involved in bringing new Chinese methods to Australia to allow Chinese consumers to more easily pay
for goods and services. Novatti has used its licencing and compliance capabilities and its technology to facilitate
these services. With over 1.2m Chinese tourists and over 200,000 Chinese students in Australia, plus ecommerce
purchases to Australian websites, the Chinese payment methods herald major new financial transaction streams
in Australia. Novatti is well positioned to be a strong beneficiary.
Remittance services
Novatti has continued to develop hard-to-get strategic relationships to grow into the remittance market. This
has included the launch of the Amagetsi service for the Zimbabwe diaspora to pay electricity bills for family
in Zimbabwe and airtime top-up services for Zapper in South Africa. Novatti achieved its Remittance Network
Provider status in Australia late in the financial year and is ready to commence full remittance services from
Australia.
Financial licences
Flexewallet holds an Australian Financial Services Licence (AFSL No. 448066) for non-cash payments, is registered
with AUSTRAC and is a member of the Financial Ombudsman Scheme in Australia.
Flexe Payments (UK) is approved by the Financial Conduct Authority (FCA No. 900631) as an appointed
representative of CFS-ZIPP Ltd (FCA No. 900027) for the issuance of e-money products. CFS-Zipp has passported
the e-money licence it holds into all the states of the European Union, effectively allowing Flexe Payments
(subject to the appropriate notification) to operate in these countries.
10
Directors' Report | Review of operations Directors’ Report
Directors
The following persons were directors of Novatti Group Limited during the whole of the financial year and up
to the date of this report, unless otherwise stated:
PETER PAWLOWITSCH
PETER COOK
BRANDON MUNRO
PAUL BURTON
KENNETH LAI
The directors present their report, together with the financial statements, on the consolidated entity (referred
to hereafter as the ‘Group’) consisting of Novatti Group Limited (referred to hereafter as the ‘Group’, ‘Novatti’
or ‘parent entity’) and the entities it controlled at the end of, or during, the year ended 30 June 2017.
Information on
Directors
Name:
Title:
Peter Pawlowitsch
Non-Executive Chairman
Qualifications:
BCom, MBA, CPA.
Experience and expertise:
Other current directorships:
Peter is an accountant by profession, with extensive experience
as a director and officer of ASX-listed entities. He brings to
the team experience in operational management, business
administration and project evaluation in the IT, hospitality and
mining sectors gained during the last 15 years.
Chairman of Dubber Corporation Limited (20 September 2011
– present), Non-executive director of Ventnor Resources Ltd (12
February 2010 – present), Rewardle Holdings (30 May 2017 –
present), Knosys Limited (16 March 2015 – present).
Former directorships (last 3 years):
Department 13 Ltd (formerly Kunene Resources Ltd).
Special responsibilities:
None.
Interests in shares:
2,343,750 ordinary shares.
Interests in options:
1,000,000
Contractual rights to shares:
None.
11
Directors' Report | Review of operations Name:
Title:
Paul Burton
Non-Executive
Qualifications:
Chartered Accountant
Experience and expertise:
Paul has over 14 years of leadership experience in the payments
industry and was the CEO of Datacash Group Plc, a payments
gateway company bought by MasterCard. Datacash had a
significant presence in Africa and Paul steered the company’s
expansion in that market.
Other current directorships:
None.
Former directorships (last 3 years):
None.
Special responsibilities:
None.
Interests in shares:
0 ordinary shares.
Interests in options:
5,750,000
Contractual rights to shares:
None.
Name:
Title:
Kenneth Lai
Non-Executive
Qualifications:
Bachelor of Science – Majoring in Computer Science
Experience and expertise:
MD of Hong Kong-based investment firm Prestige Team Limited,
which has interests in payment processing, real estate, digital
marketing and information technology support services.
Other current directorships:
None.
Former directorships (last 3 years):
None.
Special responsibilities:
None.
Interests in shares:
12,918,750 ordinary shares.
Interests in options:
750,000
Contractual rights to shares:
None.
12
Directors' Report | Review of operations Name:
Title:
Qualifications:
Experience and expertise:
Other current directorships:
Brandon Munro
Non-Executive Chairman
BEco & Law, Post-Grad Applied Finance & Investment from the
Securities Institute of Australia, GAICD, F.Fin
Brandon is a corporate lawyer by profession with executive
experience in the private equity, mining, infrastructure and
IT sectors. Brandon brings regulatory, governance, mergers
and acquisitions and capital markets knowledge to the team,
as well as his own experience co-founding start-ups in the IT
and exploration sectors. He commenced his career as a lawyer
working for 7 years at premier Australian commercial law firms,
following which he held executive management and director
positions in the resource and infrastructure sectors, including
private equity and funds management industry.
Managing Director of Bannerman Resources Ltd (9 March 2016
– present), and Non-executive director of Rewardle Holdings (25
March 2014 – 30 May 2017).
Former directorships (last 3 years):
Department 13 Ltd (formerly Kunene Resources Ltd).
Special responsibilities:
None.
Interests in shares:
1,562,500 ordinary shares.
Interests in options:
1,000,000
Contractual rights to shares:
None.
Name:
Title:
Peter Cook
Managing Director and Chief Executive Officer
Qualifications:
BSc, Grad Dip Computing, Grad Dip Securities, GAICD.
Experience and expertise:
Peter has over 25 years of experience as a director and executive.
Peter’s career has been largely based on founding and leading
multiple telecommunications and payments companies. Unidial
Pty Ltd and Ezipin Canada Inc. are such examples and all with
successful exits to private and public companies. Peter was
a non executive Director and Deputy Chairman of ASX-listed
Senetas Corporation Limited from June 1999 to January 2006.
Other current directorships:
None.
Former directorships (last 3 years):
None.
Special responsibilities:
None.
Interests in shares:
11,107,904 ordinary shares.
Interests in options:
5,000,000
Contractual rights to shares:
None.
13
Directors' Report | Review of operations ‘Other current directorships’ quoted above are current directorships for listed entities only and excludes
directorships of all other types of entities, unless otherwise stated.
‘Former directorships (last 3 years)’ quoted above are directorships held in the last 3 years for listed entities
only and excludes directorships of all other types of entities, unless otherwise stated.
Company secretary
Ian Hobson was appointed Company Secretary on 12 October 2015 and holds a Bachelor of Business
degree, is a Chartered Accountant and Chartered Secretary. Ian provides secretarial services and corporate,
management and accounting advice to a number of listed companies. Ian’s fees are based on a fee for
service arrangement.
Meetings of Directors
The number of meetings of the Group’s Board of Directors (the ‘Board’) and of each Board committee held
during the year ended 30 June 2017, and the number of meetings attended by each director were:
Peter Pawlowitsch
Peter Cook
Brandon Munro
Paul Burton
Kenneth Lai
Attended
Held
7
7
7
5
4
7
7
7
7
7
Held: represents the number of meetings held during the time the director held office or
was a member of the relevant committee.
The Group will not have a separate Audit and Risk Committee until such time as the Board is of a sufficient
size and structure, and the Group’s operations are of a sufficient magnitude, for a separate committee to
be of benefit to the Group. In the meantime, the full Board will carry out the duties that would ordinarily
be assigned to that committee under the written terms of reference for that committee, including but
not limited to, monitoring and reviewing any matters of significance affecting financial reporting and
compliance, the integrity of the financial reporting of the Group, the Group’s internal financial control
system and risk management systems and the external audit functions.
The Board has not established a Nomination and Remuneration Committee as the role of the committee
will be undertaken by the full Board.
14
Directors' Report | Review of operations Review of 2017
financial results
The loss for the Group after providing for income tax and non-controlling interest amounted to ($4,717,729) across
all regions to support growth.
The Group’s Net Asset Position as at 30 June 2017 was $2,272,260 with $717,881 + held in Cash or Cash
equivalents.
The Group is debt free.
The earnings of the Group for 30 June 2017 is summarised below:
The factors that are considered to
affect Total Shareholders Return
(‘TSR’) are summarised below:
2017
$
2016
$
0.115
0.14
-
-
(5.03)
(9.06)
Share price at
financial year
end
Total dividends
declared (cents
per share)
Basic earnings
per share (cents
per share)
2017
$
2016
$
Sales revenue and
Other income^
3,541,917
4,871,209
EBITDA
(underlying)*
Profit/(Loss)
before Tax
Tax Expense
(4,082,023)
(3,914,331)
(4,717,729)
(4,871,366)
-
(96,354)
Net Profit/(Loss)
after Tax
(4,717,729)
(4,967,720)
Cash+
Net Cash
Net Cash
Operating
Cashflow
717,881
4,725,649
654,146
4,329,344
(3,941,519)
(2,740,040)
^ Other income as outlined in Note 4 of the financial statements.
* Underlying EBITDA excludes option expenses, depreciation, amortisation,
withholding tax and VAT unclaimed.
+ Includes $63,735 of clients’ funds held on trust under Flexewallet’s
Remittance program, (FY16: $396,305). These funds are distributed under
instructions within 24 hours.
Dividends
There were no dividends paid, provided nor declared as at 30 June 2017.
15
Directors’ Report | Review of 2017 financial results Significant changes in the state of affairs
Non-renounceable entitlement offer.
On 8 May 2017, Novatti Group Limited announced an accelerated 1 for 4 non-renounceable pro rata
entitlement offer of new ordinary shares in the Group at an issue price of $0.14, the purpose of the offer was to
fund the acquisition of basis2, a new business for the Group.
16,628,106 ordinary shares have been issued under this entitlement raising $2.3M.
Acquisition of basis2
Novatti Group Limited entered into an agreement with Prophecy International Pty Ltd (ASX:PRO) (‘Prophecy’)
to acquire 100% of its basis2 billing and customer information systems (CIS) business, the acquisition settled
26 May 2017.
The consideration for the acquisition was $2.75 million in cash. The actual cash payable being $2.3m due to
advanced payments by customers netted off against the acquisition price.
basis2 will operate under Novatti Inc., a new subsidiary that is 100% owned by the Group. Novatti Inc. was
incorporated in the United States on 6 April 2017.
Matters subsequent to the end of the financial year
No other matter or circumstance has arisen since 30 June 2017 that has significantly affected, or may
significantly affect the Group’s operations, the results of those operations, or the Group’s state of affairs in
future financial years.
Likely developments and expected results of
operations
The Group will continue its principal activity of sales and deploying the Novatti Platform and increase
transaction services.
Environmental regulation
The Group is not subject to any significant environmental regulation under Australian Commonwealth or
State law.
16
Directors’ Report | Review of 2017 financial results Remuneration report
(audited)
The remuneration report details the key management personnel remuneration arrangements for
the Group, in accordance with the requirements of the Corporations Act 2001 and the Corporations
Regulations 2001.
Key management personnel are those persons having authority and responsibility for planning, directing
and controlling the activities of the entity, directly or indirectly, including all directors.
The remuneration report is set out under the following main headings:
• Principles used to determine the nature and amount of remuneration
• Details of remuneration
• Service agreements
• Share-based compensation
• Additional information
• Additional disclosures relating to key management personnel
Principles used to determine the nature and
amount of remuneration
The objective of the Group’s executive reward framework is to ensure reward for performance is
competitive and appropriate for the results delivered. The framework aligns executive and non-executive
rewards with the achievement of strategic objectives and the creation of value for shareholders, and
conforms to the market best practice for the delivery of reward. The Board of Directors (the ‘Board’) ensures
that executive reward satisfies the following key criteria for good reward governance practices:
• Competitiveness and reasonableness
• Acceptability to shareholders
• Transparency
• Performance linkage/alignment of executive compensation
As there is currently no Nomination and Remuneration Committee, the full Board is responsible for
determining and reviewing remuneration arrangements for its directors and executives. The performance
of the Group depends on the quality of its directors and executives. The remuneration philosophy is to
attract, motivate and retain high performance and high quality personnel.
The full Board has structured an executive remuneration framework that is market competitive and
complementary to the reward strategy of the Group.
Alignment of shareholders’ interests:
• Rewards capability and experience,
• Reflects competitive reward for contribution to growth in shareholder wealth, and
• Provides a clear structure for earning rewards.
In accordance with best practice corporate governance, the remuneration structure of non-executive
directors and executives are separate.
Non-executive directors’ remuneration
Fees and payments to non-executive directors reflect the demands and responsibilities of their role. Non-
executive directors’ fees and payments are reviewed annually by the Board. The Board may, from time
to time, receive advice from independent remuneration consultants to ensure non-executive directors’
fees and payments are appropriate and in line with the market. The Chairman’s fees are determined
independently to the fees of other non-executive directors based on similar roles in the external market.
The Chairman is not present at any discussions relating to the determination of his remuneration. Non-
executive directors do receive share options.
17
Directors’ Report | Remuneration report (audited) ASX listing rules require the aggregate non-executive directors’ remuneration be determined periodically
by a general meeting. The total maximum remuneration of non-executive directors was set by the
Constitution and subsequent variation is by ordinary resolution of Shareholders in general meeting
with the Constitution, the Corporations Act and the ASX Listing Rules, as applicable. The maximum
remuneration has been set at an amount not to exceed $500,000.
Executive remuneration
The Group’s remuneration policy for executive directors and senior management is designed to promote
superior performance and long-term commitment to the Group.
Remuneration policies and arrangements for the Key Executive Members of the Group including the Chief
Executive Officer, Chief Operating Officer, and the Chief Financial Officer are reviewed by the Board and
ratified each year.
The Group rewards its executives with a level and mix of remuneration based on their position and
responsibility, which has both fixed and variable components.
The executive remuneration and reward framework has three components:
• Fixed remuneration including base pay and non-monetary benefits,
• Short-term performance incentives, and
• Long-term incentives.
The combination of these three components comprises the executive’s total remuneration.
The following table illustrates how the Group’s remuneration strategy aligns with the Group’s strategic
direction and links remuneration outcomes to performance:
Novatti Group’s business objective:
To provide telecom operators and financial institutions innovative financial services such as mobile money,
mobile banking, remittances and digital wallets. Novatti’s divisions extend market reach by providing
FinTech solutions that reduce costs to acquire and manage a previously underserved market.
REMUNERATION STRATEGY LINKAGES TO BUSINESS OBJECTIVE:
Align the interests of executives with
shareholders
Attract, motivate and retain high performing
individuals
The remuneration strategy incorporates “at-risk”
components, including both short and long-term
elements delivered in equity.
Performance is assessed against a suite of
financial and non-financial measures relevant to
the success of the Group and generating returns
for shareholders.
Remuneration is competitive with companies of
a similar size and complexity.
Deferred and long-term remuneration is
designed to encourage long term consistent
performance and employee retention.
Remuneration
component
Vehicle
Purpose
Link to
Performance
Fixed
Remuneration
Consisting of base salary,
superannuation and
non-monetary benefits.
Executives may receive
their fixed remuneration
in the form of cash or
other fringe benefits (for
example motor vehicle
benefits) where it does
not create any additional
costs to the Group and
provides additional value
to the executive.
Short Term
Incentive
Is paid in cash.
Long Term
Performance
Equity including Options,
Shares and/or Rights.
To provide competitive
fixed remuneration set
with reference to role,
market, experience and
performance.
This is designed to
reward executives for
their contribution to the
achievement of annual
Group, business unit and
individual outcomes.
Reward executives for
their contribution to the
creation of shareholder
value over the longer
term.
Reviewed annually by
the Board, based on
individual and business
unit performance, the
overall performance
of the Group and
comparable market
remunerations.
Directly linked to
pre-agreed KPIs.
Reviewed regularly
with the relevant
executive member.
Final performance is
determined by the
Board.
It aims to align the
targets of the business
units with the targets
of those executives
responsible for meeting
those targets.
Details of the incentive plans used
Short Term Incentive program (STI):
The STI Program awards a cash bonus based on key members achieving targets from a Group, Business
Unit and individual perspective.
STI awarded to each executive depends on the extent to which specific targets set at the beginning of the
financial year by the Board are met. Targets are set by a cascading process from the Board through the
executive group.
The targets consist of financial and non-financial Key Performance Indicators (KPIs). These may include but
are not limited to:
• Product management and project platform implementation,
• Financial and Business Unit operational targets linked to the achievement of the Group’s
growth in annual sales revenue and controllable financial drivers including cash, market growth
(including geographical market growth), expense management control and capital management
improvement,
• Corporate development matters including employment, retention, and remuneration of core
personnel, leadership and succession, cultural development and communication activities, and
• Establishment of business operational frameworks and procedures as well as Risk Management in
respect of financial and operational issues.
These measures were chosen as they represent the key drivers for the short-term success of the business
and provide a framework for delivering long-term value.
These measurement methods were selected as they directly reflect whether the STI performance targets
have been met or not, as set by the Board.
Discretionary bonuses were paid to Peter Cook ($109,500 or 50% of his FY16 entitlement), Alan Munday
($65,805 or 90% of his FY16 entitlement) and Paolo Montessori ($35,000 or 30% of his FY16 entitlement) in
the year ended 30 June 2017. These bonuses were accrued for as at 30 June 2016. For the year ended 30
Directors’ Report | Remuneration report (audited)
19
June 2017, no discretionary bonuses were paid nor accrued to senior executives.
The results of the STI financial performance measures are listed in the remuneration table below, on page
21.
Long Term Incentive program (LTI)
LTI awards are issued annually to executives and are provided in order to align the remuneration of Key
Executive Members with the creation of shareholder value. LTI comprise equity instruments including
shares and options, where the incentive involves the time-based vesting of options on the basis that
the executive or employee continues to be employed by the Group and are eligible under the Group’s
Employee Share Plan (ESP) and or Option Plan (ESOP).
The vesting of these awards is dependent on the length of time and service of the executive or employee,
and alternatively, they can also be awarded at the discretion of the Board.
The achievement of the Group’s strategic and financial objectives is the key focus of the efforts of the
Group. As indicated above, over the course of each financial year, the Board reviews the Group’s executive
remuneration policy to ensure that the remuneration framework remains focused on driving and
rewarding executive performance, while being closely aligned to the achievement of Group strategic
objectives and the creation of shareholder value.
LTI are based on participation within Novatti’s ESP and or ESOP. LTI, based on equity remuneration (being
either the issue of securities, issue of performance shares and or rights or the issue of options), are made in
accordance with thresholds as set out in this financial plan. By using the Group’s ESP and or ESOP to offer
shares and options to employees, the interest of employees is aligned with shareholder wealth. A copy of
the ESP and ESOP can be found via the Group’s website.
The table below sets out the summary information for key executives of their Options’ vesting and their
lapsing date of options as LTI awards for FY17.
Name
Start date
No of Options
vested in
2017
No of Options
lapsed/
cancelled
Balance not
vested
Lapsing date
for Options
Peter Cook
12 Nov 2015
Alan Munday
12 Nov 2015
Steven Stamboultgis
12 Nov 2015
-
250,000
200,000
-
-
-
-
30 June 2019
500,000
30 June 2019
500,000
30 June 2019
Paolo Montessori
3 Feb 2016
750,000
4,500,000
-
30 June 2019
Total
1,200,000
4,500,000
1,000,000
No Options have been issued to executives for the year ended 30 June 2017.
FY16
Name
Start date
LTI award no
of Options
No of Options
vested in 2016
Lapsing date
for Options
Peter Cook^
12 Nov 2015
5,000,000
5,000,000
30 June 2019
Alan Munday*
12 Nov 2015
Steven Stamboultgis*
12 Nov 2015
750,000
600,000
Paolo Montessori*
3 Feb 2016
5,250,000
-
-
-
30 June 2019
30 June 2019
30 June 2019
Total
11,600,000
5,000,000
^Total Options issued have vested for the year ended 30 June 2016, however, are in escrow as per the terms of their agreements for a
period of 24 months and may be exercisable after escrow and before 30 June 2019.
*Options are exercisable at $0.20 and vest over three equal tranches on 1 July 2016, 1 July 2017 and 1 July 2018.
20
Directors’ Report | Remuneration report (audited) Details of remuneration
Amounts of remuneration
Details of the remuneration of key management personnel of the Group are set out in the following tables.
The key management personnel of the Group consisted of the following directors of
Novatti Group Limited:
• Peter Pawlowitsch - Non-Executive Chairman
• Brandon Munro - Non-Executive Director
• Peter Cook - Managing Director and Chief Executive Officer
• Kenneth Lai - Non-Executive Director
• Paul Burton - Non-Executive Director
Other key management personnel
• Alan Munday – Group Chief Operating Officer
• Steven Stamboultgis – Chief Financial Officer
• Paolo Montessori – Chief Executive Transaction Processing Services (Resigned on the
27 January 2017 and the position will not be replaced).
Fixed remuneration
Short-term benefits
Post-em-
ployment
benefits
Long
term
benefits
Equity (long term)
Cash
salary &
fees
Cash
bonus
Non-
monetary
Long
service
leave
Options
exp in yr
Equity-
settled
Superan-
nuation
Total
Cash
bonus
paid or
payable
Cash
bonus
forfeited
Fixed
Rem
At risk STI At risk LTI
Options
as a pro-
portion
of total
rem
2017
$
$
$
$
$
$
$
%
%
%
%
%
%
Non-Executive
Directors:
Peter Pawlowitsch
(Chairman)
59,361
Kenneth Lai
Paul Burton
-
-
Brandon Munro
36,530
Executive Directors:
-
-
-
-
-
-
-
-
-
-
-
-
19,546
5,639
84,546
8,683
106,417
-
-
8,683
106,417
19,546
3,470
59,546
Peter Cook*
251,701
109,500
16,073
1,717
97,735
21,070
497,796
Other Key
Management
Personnel:
Alan Munday
200,912
63,805
Steven
Stamboultgis
164,382
-
Paolo Montessori
145,833
35,000
-
-
-
1,342
14,660
27,281
308,000
878
11,728
15,616
192,604
-
16,505
-
197,338
858,719
208,305
16,073
3,937
294,820
73,076 1,454,930
-
-
-
-
-
-
-
-
-
-
-
-
77
-
-
67
100
80
100
-
100
97
96
92
0
-
-
0
0
0
0
0
23
23
100
100
100
100
33
33
20
20
3
4
8
3
4
8
*Overpayment of $15,094 during the year caused by payroll service provider error. FY18 remuneration will be adjusted accordingly.
21
Directors’ Report | Remuneration report (audited) Fixed remuneration
Short-term benefits
Post-em-
ployment
benefits
Long
term
benefits
Equity (long term)
Cash
salary &
fees
Cash
bonus
Non-
monetary
Long
service
leave
Options
exp in yr
Equity-
settled
Superannua-
tion
Total
Cash
bonus
paid or
payable
Cash
bonus
forfeited
Fixed
Rem
At risk STI At risk LTI
Options
as a pro-
portion
of total
rem
2016
$
$
$
$
$
$
$
%
%
%
%
%
%
Non-Executive
Directors:
Peter Pawlowitsch
(Chairman)
27,016
Kenneth Lai1
Paul Burton2
-
-
Brandon Munro
16,625
Executive Directors:
-
-
-
-
-
-
-
-
-
-
-
-
14,570
2,566
44,152
725
73,577
-
-
725
73,577
14,570
1,579
32,774
-
-
-
-
-
-
-
-
67
-
-
56
-
-
-
-
33
33
100
100
100
100
44
44
Peter Cook3,4
254,444
109,500
3,709
412
72,851
19,306
460,222
50
50
37
47
16
16
Other Key
Management
Personnel:
Alan Munday
203,957
72,000
Steven
Stamboultgis
158,989
-
Paolo Montessori
104,167
30,000
-
-
-
335
10,927
19,376
306,595
90
10%
169
8,742
10,411
178,311
-
-
-
49,787
-
183,954
30
70
70
95
19
26
-
54
4
5
4
5
27
26
765,198
211,5005
3,709
916
245.749
3,709 1,280,310
1 Kenneth Lai’s remuneration is by way of 750,000 options vesting over a 12 and 24-month vesting period. The granting of the options
occurred at the FY16 AGM.
2 Paul Burton’s remuneration is by way of 750,000 options vesting over a 12 and 24-month vesting period. The granting of the options
occurred at the FY16 AGM.
3 Peter Cook was rewarded 872,004 Performance Shares, as announced to the ASX on 16 September 2016. See Note 36 for further details.
4 Bonuses relating to Peter Cook for the FY14 and FY15 periods were paid out in FY15. $130,000 related to FY14 and $200,000 for FY15
bonuses. Of the $330,000 paid out as bonuses, $291,500 was converted to equity in the form of shares. An additional $91,079 of Peter’s
cash salary value was converted to equity (2,391,120 ordinary shares at $0.16) and $38,500 was paid out as cash
5 $211,500 was unpaid as at 30 June 2016, however, it had been accrued as at 30 June 2016.
22 Directors’ Report | Remuneration report (audited)
Service
agreements
Remuneration and other terms of employment for key management personnel are formalised in service
agreements. Details of these agreements are as follows:
Name:
Title:
Peter Cook
Managing Director and Chief Executive Officer
Agreement commenced:
20 November 2015.
Term of agreement:
The term is not fixed.
Remuneration:
Annual Review
Bonus:
Termination:
Base salary of $273,750 (including superannuation). 5 million Options
each exercisable at $0.20 on or before 30 June 2019 (as set out in
Section 13.3 of the Replacement Prospectus dated 8 December 2015).
Remuneration is subject to an annual review to be conducted by
the board. Factors to be considered include personal competency
progression, achievement of personal development targets and KPI’s,
company remuneration policy, its financial position and current
market equivalent positions. KPI’s to be agreed each year and may be
varied by mutual agreement.
The executive bonus structure targets are reviewed annually with
both parties acting in good faith and reflecting the current needs of
the business. The performance bonus can be up to up to $219,000
(including statutory superannuation).
The agreement may be terminated, (A) by either party without cause
with six months’ notice, or at the election of the Group, immediately
with payment in lieu of six months’ notice (subject to the limitation
of the Corporations Act and Listing Rules). (B) By the Group on one
months’ notice, if the executive is unable to perform his duties due to
illness, accident or incapacitation, for three consecutive months or a
period aggregating more than three months in any 12-month period.
23
Directors’ Report | Remuneration report (audited) Name:
Title:
Alan Munday
Group Chief Operating Officer
Agreement commenced:
20 November 2015.
Term of agreement:
The term is not fixed.
Remuneration:
Annual Review
Bonus:
Termination:
Base salary of $220,000 (including statutory superannuation),
750,000 Options, each exercisable at $0.20 on or before 30 June 2019,
vesting over three equal tranches on 1 July 2016, 2017 and 2018, if the
employment has not terminated by the relevant date, on the same
terms and conditions (as set out in Section 13.3 of the Replacement
Prospectus dated 8 December 2015).
Remuneration is subject to an annual review to be conducted by
the board. Factors to be considered include personal competency
progression, achievement of personal development targets and KPI’s,
company remuneration policy, its financial position and current market
equivalent positions. KPI’s to be agreed each year and may be varied by
mutual agreement.
The executive bonus structure targets are reviewed annually with both
parties acting in good faith and reflecting the current needs of the
business. The performance bonus can be up to up to $80,000 (including
statutory superannuation).
The agreement may be terminated, (A) without cause, with three
months’ notice from the Group or two months’ from the executive,
or payment in lieu of notice at the Group’s election (subject to the
limitation of the Corporations Act and Listing Rules). (B) by Novatti on
one months’ notice, if the executive is unable to perform his duties due
to illness, accident or incapacitation, for three consecutive months or
a period aggregating more than three months in any 12-month period
or (C), summarily following material breach or in the case of serious
misconduct.
Name:
Title:
Steven Stamboultgis
Chief Financial Officer
Agreement commenced:
20 November 2015.
Term of agreement:
The term is not fixed.
Remuneration:
Annual Review
Base salary of $180,000 (including statutory superannuation) and
600,000 Options, each exercisable at $0.20 on or before 30 June 2019,
vesting over three equal tranches on 1 July 2016, 2017 and 2018, if the
employment has not terminated by the relevant date, on the same
terms and conditions (as set out in Section 13.3 of the Replacement
Prospectus dated 8 December 2015).
Remuneration is subject to an annual review to be conducted by
the board. Factors to be considered include personal competency
progression, achievement of personal development targets and KPI’s,
company remuneration policy, its financial position and current market
equivalent positions. KPI’s to be agreed each year and may be varied by
mutual agreement.
Bonus:
None.
The agreement may be terminated by either party without cause with
three months’ notice, or in the case of the Group, immediately with
payment in lieu of notice (subject to the limitation of the Corporations
Act and Listing Rules), by the Group on one months’ notice, if Steven is
unable to perform his duties due to illness, accident or incapacitation,
for three months or a period aggregating more than three months in
any 12 month period, or summarily following material breach or in case
of serious misconduct.
Termination:
24
Directors’ Report | Remuneration report (audited) Name:
Title:
Paolo Montessori
Chief Executive Transaction Processing Services
Agreement commenced:
27 January 2016.
Agreement ends:
Paolo Montessori resigned as Chief Executive Transaction Processing
Services on 27 January 2017.
Term of agreement:
The term is not fixed.
Remuneration:
Bonus:
Termination:
Annual consultancy of $250,000, exclusive of GST, 750,000 Options
issued under the ESOP and 4,500,000 Options issued as Performance
Options, each exercisable at $0.20 on or before 30 June 2019,
vesting over three equal tranches on 1 July 2016, 2017 and 2018, if the
employment has not terminated by the relevant date, on the same
terms and conditions (as set out in Section 13.3 of the Replacement
Prospectus dated 8 December 2015).
The executive bonus structure targets are reviewed annually with both
parties acting in good faith and reflecting the current needs of the
business. The performance bonus can be up to up to $100,000.
The consultancy agreement may be terminated by the Group at any
time for any reason which reason need not be specified, by giving
three months’ notice, (subject to the limitation of the Corporations
Act and Listing Rules). Where the Group gives notice, the Group may
pay Paolo in lieu or may require the Paolo to continue to provide
services during the notice period or part thereof. If the Group elects
to pay Paolo in lieu, the Group will immediately pay to Paolo an
amount equal to three months’ worth of the annual consultancy fee
component of the consultancy fees and Paolo will accept that amount
in full and final satisfaction of all claims against the Group.
If Paolo is unable to perform his duties due to illness, accident or
incapacitation, for three months or a period aggregating more than
three months in any 12 month period, or summarily following material
breach or in case of serious misconduct, the Group may terminate the
agreement on terms it sees fit by giving Paolo six months’ notice or
an amount equal to six months’ worth of the cash component of his
consultancy fee and Paolo will accept that amount in full and final
satisfaction of all claims against the Group.
At any time, the Group may immediately terminate the agreement
without notice as the result of an occurrence that gives the Group
a right of summary dismissal of an employee at common law,
including, wilful breach, gross or wilful disobedience, gross or wilful
misconduct, dishonesty, subordination or neglect, failing to meet
performance targets, having a receiver, receiver and manager,
investigator, administrator, liquidator, provisional liquidator appointed
of if an application is prescribed for the appointment of a provisional
liquidator, being declared bankrupt, being placed under the control
of any committee or officer under a law relating to mental health
such that he is unable to satisfactorily carry out his duties, convicted
of criminal offence involving fraud or dishonesty or any other offence
which is punishable by imprisonment.
Key management personnel have no entitlement to termination payments in the event of removal for
misconduct.
25
Directors’ Report | Remuneration report (audited) Share-based compensation
Issue of shares
No shares or options were issued as part of compensation for the year ended 30 June 2017.
Options were issued to Kenneth Lai and Paul Burton as their director remuneration. Kenneth and Paul had
been each offered 750,000 options, vesting 12 months and 24 months equally after appointment date.
Each option has an exercise price of $0.25. The last day for exercising is 30 June 2019 The options were
subject to shareholder approval, which was ratified at the Group’s 2016 Annual General Meeting (AGM).
The terms and conditions of each grant of options over ordinary shares affecting remuneration of directors
and other key management personnel in this financial year or future reporting years include:
2017
Grant date
Grant
number
Fair value
per option
at grant
date
Opening
Balance
Options
Opening
Balance
Vested
Balance
Vested
during
the yr
Options
lapsed/
cancelled
during yr
Value ex
during the yr
Expiry date
First ex
date
Last ex
date
Director
Executive Directors
Peter Cook
12 Nov 15
5,000,000
$0.20
5,000,000
5,000,000
-
-
-
-
-
-
-
-
250,000
-
-
200,000
-
-
-
-
-
-
-
-
750,000
1,000,000
1,750,000
1,750,000
-
-
-
-
375,000
-
-
30 Jun 19
12 Nov 15
30 Jun 19
30 Jun 19
1 Jul 16
30 Jun 19
30 Jun 19
1 Jul 17
30 Jun 19
30 Jun 19
1 Jul 18
30 Jun 19
30 Jun 19
1 Jul 16
30 Jun 19
30 Jun 19
1 Jul 17
30 Jun 19
30 Jun 19
1 Jul 18
30 Jun 19
30 Jun 19
27 Jan 17
30 Jun 19
30 Jun 19
27 Jan 18
30 Jun 19
30 Jun 19
27 Jan 19
30 Jun 19
30 Jun 19
12 Nov 15
30 Jun 19
30 Jun 19
12 Nov 15
30 Jun 19
30 Jun 19
31 May 17
30 Jun 19
30 Jun 19
31 May 18
30 Jun 19
30 Jun 19
12 Nov 16
30 Jun 19
30 Jun 19
31 May 17
30 Jun 19
30 Jun 19
31 May 18
30 Jun 19
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Other Key
Management
Personnel:
Alan Munday
12 Nov 15
250,000
$0.20
250,000
Alan Munday
12 Nov 15
250,000
$0.20
250,000
Alan Munday
12 Nov 15
250,000
$0.20
250,000
Steven
Stamboultgis
Steven
Stamboultgis
Steven
Stamboultgis
12 Nov 15
200,000
$0.20
200,000
12 Nov 15
200,000
$0.20
200,000
12 Nov 15
200,000
$0.20
200,000
Paolo Montessori
3 Feb 16
1,750,000
$0.20
1,750,000
Paolo Montessori
3 Feb 16
1,750,000
$0.20
1,750,000
Paolo Montessori
3 Feb 16
1,750,000
$0.20
1,750,000
Non-Executive
Directors
Peter Pawlowitsch
12 Nov 15
1,000,000
$0.20
1,000,000
1,000,000
Brandon Munro
12 Nov 15
1,000,000
$0.20
1,000,000
1,000,000
Kenneth Lai
31 May 16
375,000
$0.25
375,000
Kenneth Lai
31 May 16
375,000
$0.25
375,000
-
-
Paul Burton
12 Nov 15
5,000,000
$0.20
5,000,000
5,000,000
Paul Burton
31 May 16
375,000
$0.25
375,000
375,000
Paul Burton
31 May 16
375,000
$0.25
375,000
-
Total
20,100,000
20,100,000
12,000,000
2,325,000
4,500,000
26
Directors’ Report | Remuneration report (audited) 2016
Grant date
Grant
number
Fair value
per option
at grant
date
Opening
Balance
Options
Opening
Balance
Vested
Balance
Vested
during
the yr
Options
lapsed/
cancelled
during yr
Value ex
during the yr
Expiry date
First ex
date
Last ex
date
Director
Executive Directors
Peter Cook
12 Nov 15
5,000,000
$0.20
5,000,0006
Other Key
Management
Personnel:
Alan Munday
12 Nov 15
250,000
$0.20
Alan Munday
12 Nov 15
250,000
$0.20
Alan Munday
12 Nov 15
250,000
$0.20
Steven
Stamboultgis
Steven
Stamboultgis
Steven
Stamboultgis
12 Nov 15
200,000
$0.20
12 Nov 15
200,000
$0.20
12 Nov 15
200,000
$0.20
Paolo Montessori
3 Feb 16
1,750,000
$0.20
Paolo Montessori
3 Feb 16
1,750,000
$0.20
Paolo Montessori
3 Feb 16
1,750,000
$0.20
Non-Executive
Directors
-
-
-
-
-
-
-
-
-
Peter Pawlowitsch
12 Nov 15
1,000,000
$0.20
1,000,0007
Brandon Munro
12 Nov 15
1,000,000
$0.20
1,000,0008
Kenneth Lai
31 May 16
375,0009
$0.25
Kenneth Lai
31 May 16
375,00010
$0.25
Paul Burton
12 Nov 15
5,000,000
$0.20
5,000,00011
Paul Burton
31 May 16
375,00012
$0.25
Paul Burton
31 May 16
375,00013
$0.25
-
-
Total
20,100,000
12,000,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$0.20
30 Jun 19
12 Nov 15
30 Jun 19
12 Nov 15
30 Jun 19
$0.20
30 Jun 19
1 Jul 16
30 Jun 19
1 Jul 16
30 Jun 19
$0.20
30 Jun 19
1 Jul 17
30 Jun 19
1 Jul 17
30 Jun 19
$0.20
30 Jun 19
1 Jul 18
30 Jun 19
1 Jul 18
30 Jun 19
$0.20
30 Jun 19
1 Jul 16
30 Jun 19
1 Jul 16
30 Jun 19
$0.20
30 Jun 19
1 Jul 17
30 Jun 19
1 Jul 17
30 Jun 19
$0.20
30 Jun 19
1 Jul 18
30 Jun 19
1 Jul 18
30 Jun 19
$0.20
30 Jun 19
27 Jan 17
30 Jun 19
27 Jan 17
30 Jun 19
$0.20
30 Jun 19
27 Jan 18
30 Jun 19
27 Jan 18
30 Jun 19
$0.20
30 Jun 19
27 Jan 19
30 Jun 19
27 Jan 19
30 Jun 19
$0.20
30 Jun 19
12 Nov 15
30 Jun 19
12 Nov 15
30 Jun 19
$0.20
30 Jun 19
12 Nov 15
30 Jun 19
12 Nov 15
30 Jun 19
$0.25
30 Jun 19
31 May 17
30 Jun 19
31 May 17
30 Jun 19
$0.25
30 Jun 19
31 May 18
30 Jun 19
31 May 18
30 Jun 19
$0.20
30 Jun 19
12 Nov 16
30 Jun 19
12 Nov 16
30 Jun 19
$0.25
30 Jun 19
31 May 17
30 Jun 19
31 May 17
30 Jun 19
$0.25
30 Jun 19
31 May 18
30 Jun 19
31 May 18
30 Jun 19
6 Peter Cook’s 5,000,000 options are escrowed for 24 months from grant date.
7 Peter Pawlowitsch’s 1,000,000 options are escrowed for 24 months from grant date.
8 Brandon Munro’s 1,000,000 options are escrowed for 24 months from grant date.
9 Kenneth Lai’s 375,000 options were subject to shareholder approval at the FY16 Annual General Meeting. Security Holder Resolution
passed on 16 November 2016
10 Ibid.
11 Paul Burton’s 5,000,000 options are escrowed for 12 months from grant date.
12 Paul Burton’s 375,000 options were subject to shareholder approval at the FY16 Annual General Meeting. Security Holder Resolution
passed on 16 November 2016.
13 Ibid.
27
Directors’ Report | Remuneration report (audited) Options granted carry no dividend or voting rights.
No Options were granted to directors and key management personnel during the year ended 30 June 2017.
Values of options over ordinary shares exercised and lapsed for directors and other key management
personnel during the year ended 30 June 2017 are set out below:
2017
Name
Peter Pawlowitsch
Peter Cook
Brandon Munro
Kenneth Lai
Paul Burton
Paul Burton
Alan Munday
Steven Stamboultgis
Paolo Montessori
Total
2016
Name
Peter Pawlowitsch
Peter Cook
Brandon Munro
Kenneth Lai14
Paul Burton15
Paul Burton
Alan Munday
Steve Stamboultgis
Paolo Montessori
Number of
Options granted
during the yr
Value of Options
granted during
the yr
Value of Options
ex during the yr
Value of Options
lapsed during
the yr
$
$
-
-
-
-
-
-
-
-
-
-
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
-
-
-
-
-
-
-
-
78,760
78,760
Number of
Options granted
during the yr
Value of Options
granted during
the yr
Value of Options
ex during the yr
Value of Options
lapsed during
the yr
$
$
1,000,000
5,000,000
1,000,000
750,000
750,000
5,000,000
750,000
600,000
5,250,000
58,531
292,655
58,531
19,424
19,424
292,655
43,898
35,119
310,016
$
-
-
-
-
-
-
-
-
-
-
$
-
-
-
-
-
-
-
-
-
-
Total
20,100,000
1,130,253
The factors that are considered to affect Total Shareholders Return (‘TSR’) are summarised below:
Share price at financial year end
Total dividends declared (cents per share)
Basic earnings per share (cents per share)
2017
2016
0.115
-
(5.03)
0.14
-
(9.06)
14 Kenneth Lai’s 750,000 Options were subject to shareholder approval and occurred at the FY16 Annual General Meeting.
15 Paul Burton’s 750,000 Options were subject to shareholder approval and occurred at the FY16 Annual General Meeting
28
Directors’ Report | Remuneration report (audited) Disclosures relating to the
directors & Senior Management
Additional disclosures relating to key
management personnel
The number of shares in the Group held during the financial year by each director and other members of
key management personnel of the Group, including their personally related parties, is set out below:
Bal issued as at listing
date
Received as part
of rem
Additions
Disposals/
other
Bal at the end of
the year
Ordinary shares
Peter Pawlowitsch
Peter Cook
Brandon Munro
Kenneth Lai
Paul Burton
Alan Munday
Steven Stamboultgis
Paolo Montessori
Total
1,875,000
9,835,900
1,250,000
10,335,000
-
50,000
20,000
-
23,365,900
-
-
-
-
-
-
-
-
-
468,750
1,272,004^
312,500
2,583,750*
-
-
-
-
4,637,004
-
-
-
-
-
-
-
-
-
2,343,750
11,107,904
1,562,500
12,918,750
-
50,000
20,000
-
28,002,904
^ Includes the conversion of 872,004 Performance Shares as announced to the ASX on 16 September 2016.
* Ordinary shares issued under the Institutional component of the one for four accelerated pro-rata non-renounceable entitlement offer as
announced on the ASX on the 16 May 2017
Option holding
The number of options over ordinary shares in the Group held during the financial year by each director
and other members of key management personnel of the Group, including their personally related parties,
is set out below:
Balance
Issued as at
Listing date
Granted
Exercised
Expired/
forfeited/
other
Balance at
the end of
the year
Options over ordinary
shares
Peter Pawlowitsch
Peter Cook
Brandon Munro
Kenneth Lai16
Paul Burton17
Paul Burton
Alan Munday
Steven Stamboultgis
Paolo Montessori
Total
1,000,000
5,000,000
1,000,000
750,000
750,000
5,000,000
750,000
600,000
5,250,000
20,100,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
4,500,000
1,000,000
5,000,000
1,000,000
750,000
750,000
5,000,000
750,000
600,000
750,000
4,500,000
15,600,000
Other transactions with key management personnel and their related parties.
16 Kenneth Lai’s 750,000 Options were subject to shareholder approval and occurred at the FY16 Annual General Meeting.
17 Paul Burton’s 750,000 Options were subject to shareholder approval and occurred at the FY16 Annual General Meeting.
29
Directors’ Report | Disclosures relating to the directors & senior management Services
During the financial year, no payments were made to Directors outside of their normal duties as Directors
for Novatti Group Ltd.
Loans from Directors:
There are no loans that were entered into or, outstanding with the Directors of Novatti Group Ltd as at 30
June 2017.
Current and non-current liabilities to a Director:
There are no other current or non-current liabilities outstanding to Directors of the Group as at 30 June
2017.
This concludes the remuneration report, which has been audited.
Shares under option
Unissued ordinary shares of Novatti Group Limited under option at the date of this report are as follows:
Grant date
Expiry date Ex price
Expired/forfeited/other
Number under option
12 Nov 15
12 Nov 15
12 Nov 15
12 Nov 15
8 Jan 16
3 Feb 16
3 Feb 16
3 Feb 16
8 Feb 16
30 Jun 19
30 Jun 19
30 Jun 19
30 Jun 19
30 Jun 19
30 Jun 19
30 Jun 19
30 Jun 19
30 Jun 19
31 May 16
30 Jun 19
24 Jun 16
30 Jun 19
21 Jul 16
31 Dec 19
Total
$0.20
$0.20
$0.20
$0.20
$0.20
$0.20
$0.20
$0.20
$0.20
$0.25
$0.20
$0.20
-
-
-
-
-
1,000,000
1,750,000
1,750,000
-
-
530,000
-
5,030,000
13,750,000
1,150,000
1,150,000
1,150,000
2,859,250
750,000
-
-
4,000,000
1,500,000
3,107,000
1,000,000
30,416,250
No person entitled to exercise the options had or has any right by virtue of the option to participate in any
share issue of the Group or of any other body corporate.
Shares issued upon the exercise of options
No shares were issued by Novatti Group Limited during the year ended 30 June 2017 up to the date of this
report as a result of the exercise of options granted.
Indemnity and insurance of officers
The Group has indemnified the directors and executives of the Group for costs incurred, in their capacity as
a director or executive, for which they may be held personally liable, except where there is a lack of good
faith.
During the financial year, the Group paid a premium in respect of a contract to insure the directors and
executives of the Group against liability to the extent permitted by the Corporations Act 2001. The contract
of insurance prohibits disclosure of the nature of the liability and the amount of the premium.
Indemnity and insurance of auditor
The Group has not, during or since the end of the financial year, indemnified or agreed to indemnify the
auditor of the Group or any related entity against a liability incurred by the auditor.
During the financial year, the Group has not paid a premium in respect of a contract to ensure the auditor
of the Group or any related entity.
30
Directors’ Report | Disclosures relating to the directors & senior management Proceedings on behalf of the Group
No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring
proceedings on behalf of the Group, or to intervene in any proceedings to which the Group is a party for
the purpose of taking responsibility on behalf of the Group for all or part of those proceedings.
Non-audit services
Details of the amounts paid or payable to the auditor for non-audit services provided during the financial
year by the auditor are outlined in Note 22 to the financial statements.
The directors are satisfied that the provision of non-audit services during the financial year, by the
auditor (or by another person or firm on the auditor’s behalf), is compatible with the general standard of
independence for auditors imposed by the Corporations Act 2001 for the following reasons:
• All non-audit services have been reviewed and approved to ensure that they do not impact the
integrity and objectivity of the auditor; and
• none of the services undermine the general principles relating to auditor independence as
set out in APES 110 Code of Ethics for Professional Accountants issued by the Accounting
Professional and Ethical Standards Board, including reviewing or auditing the auditor’s own
work, acting in a management or decision-making capacity for the Group, acting as advocate for
the Group or jointly sharing economic risks and rewards.
31
Directors’ Report | Disclosures relating to the directors & senior management A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act
2001 is set out on the following page.
This report is made in accordance with a resolution of directors, pursuant to section 298(2)(a) of the
Corporations Act 2001.
On behalf of the directors
Peter Pawlowitsch
Chairman
31 August 2017
Melbourne
The Board of Directors of Novatti Group Limited (‘Novatti’, “Group” or the ‘Company’) is responsible for
corporate governance.
The Board has chosen to prepare the Corporate Governance Statement (‘CGS’) in accordance with the
third edition of the ASX Corporate Governance Council’s Principles and Recommendations under which
the CGS may be available on the Group’s website.
Accordingly, a copy of the Group’s CGS is available on the Novatti Group website at www.novatti.com
under the Corporate Governance section.
32
Directors’ Report | Disclosures relating to the directors & senior management Independent auditor’s
declaration
AUDITOR’S INDEPENDENCE DECLARATION UNDER SECTION 307C OF THE
CORPORATIONS ACT 2001 TO THE DIRECTORS OF NOVATTI GROUP LIMITED
I declare that, to the best of my knowledge and belief during the year ended 30 June 2017
there have been:
— no contraventions of the auditor independence requirements as set out in the
Corporations Act 2001 in relation to the audit; and
— no contraventions of any applicable code of professional conduct in relation to the
audit.
William Buck Audit (Vic) Pty Ltd
ABN 59 116 151 136
J. C. Luckins
Director
Dated this 31 day of August, 2017
Independent auditor’s declaration
33
Financial
Report
General information
The financial statements cover Novatti Group Limited as a Group consisting of Novatti Group Limited
and the entities it controlled at the end of, or during, the year. The financial statements are presented in
Australian dollars, which is Novatti Group Limited’s functional and presentation currency.
Novatti Group Limited is a listed public company limited by shares, incorporated and domiciled in
Australia. Its registered office and principal place of business are:
Registered office
Level 1
6 Thelma Street
West Perth WA 6005
Principal place of business
1st floor
Legacy House
293 Swanston Street
Melbourne VIC 3000
A description of the nature of the Group’s operations and its principal activities are included in the
Directors’ report, which is not part of the financial statements.
The financial statements were authorised for issue, in accordance with a resolution of Directors.
34
Financial Report | Consolidated Statement of Profit or Loss and other Comprehensive Income
Consolidated Statement of Profit
or Loss and other Comprehensive
Income
For the year ended 30 June 2017
Note
Consolidated
2017
Consolidated
2016
Revenue
Other income
Total Revenue
Expenses
Client hosting fees and other direct services
Employee benefits
4
4
6
Depreciation and amortisation expense
13,14
Occupancy
Finance charges
Foreign currency translation (losses)/gains
Travel expenses
Marketing expenses
Data management expenses
Share of net profit of joint ventures accounted for using the
equity method
Transaction cost
Withholding Tax not claimable
VAT not claimable
Other expenses
Loss before income tax expense
Income tax expense
Loss after income tax expense for the year
6
5
7
$
2,191,206
1,350,711
3,541,917
(621,183)
(5,883,090)
(54,946)
(143,149)
(15,869)
(14,493)
(289,696)
(124,526)
(75,355)
(8,511)
$
3,870,114
997,374
4,867,488
(2,136,683)
(5,587,115)
(19,449)
(100,190)
(34,297)
22,791
(275,352)
(148,035)
(145,666)
(199,338)
-
(224,875)
(149,439)
(35,607)
(843,782)
-
-
(890,645)
(4,717,729)
(4,871,366)
-
(96,354)
(4,717,729)
(4,967,720)
Total comprehensive income for the year attributable to owners
(4,717,729)
(4,967,720)
Basic earnings and diluted per share
31
2017
Cents
(5.03)
2016
Cents
(9.06)
The above statement of profit or loss and Other Comprehensive Income (OCI) should be read in
conjunction with the accompanying notes.
35
Financial Report | Consolidated Statement of Profit or Loss and other Comprehensive Income Consolidated Statement of
Financial Position
For the year ended 30 June 2017
Note
Consolidated
2017
Consolidated
2016
$
$
Assets
Current assets
Cash and cash equivalents
Trade and other receivables
Financial Assets
Other
Total current assets
Non-current assets
Investments accounted for using the equity method
Property, plant and equipment
Intangible assets
Total non-current assets
Total assets
Liabilities
Current liabilities
Trade and other payables
Employee benefits
Total current liabilities
Non-current liabilities
Employee benefits
Other non-current liabilities
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Accumulated Losses
Retained profits
Total equity
8
10
11
12
5, 28
13
14
15
16
16
17
18
19
717,881
1,538,316
32,554
85,493
4,725,649
1,541,958
31,837
52,580
2,374,244
6,352,024
4,363
26,391
2,668,614
2,699,368
14,901
46,357
-
61,258
5,073,612
6,413,282
2,302,623
479,605
2,782,228
19,124
-
19,124
1,878,719
152,232
2,030,951
118,569
-
118,569
2,801,352
2,149,520
2,272,260
4,263,762
14,296,835
1,084,310
(13,108,885)
11,940,604
714,314
(8,391,156)
2,272,260
4,263,762
The above statement of financial position should be read in conjunction with the accompanying notes.
36
Financial Report | Consolidated Statement of Profit or Loss and other Comprehensive Income Statement of
Changes in Equity
For the year ended 30 June 2017
Issued Capital
Option
Reserves
Foreign
Currency
Translation
Reserve
Retained
Profits
Total Equity
Consolidated
$
$
$
$
$
Balance at 1 July 2016
11,940,604
713,465
849
(8,391,156)
4,263,762
Loss after income tax expense for
the year
Transactions with owners in their
capacity as owners:
-
-
-
(4,717,729)
(4,717,729)
11,940,604
713,465
849
(13,108,885)
(453,967)
Shares issued during the period
2,356,231
Options issued (Note 17)
Foreign exchange translation
differences
-
-
-
415,014
-
-
-
(45,018)
-
-
-
2,356,231
415,014
(45,018)
Balance at 30 June 2017
14,296,835
1,128,479
(44,169)
(13,108,885)
2,272,260
On 8 May 2017, Novatti Group Limited announced an accelerated 1 for 4 non-renounceable pro rata
entitlement offer of new ordinary shares in the Group at an issue price of $0.14, the purpose of the offer
was to fund the acquisition of basis2, a new business for the group.
16,628,106 ordinary shares have been issued under this entitlement raising $2.3M.
For the year ended 30 June 2016
Issued Capital
Option
Reserves
Foreign
Currency
Translation
Reserve
Retained
Profits
Total Equity
Consolidated
Balance at 1 July 2015
Deemed Consideration on reverse
acquisition that is not a Business
Loss after income tax expense for
the year
Transactions with owners in their
capacity as owners:
$
3,458,122
225,000
-
3,683,122
Shares issued during the period
8,257,482
Options issued
Foreign exchange translation
differences
-
-
$
$
$
$
-
-
-
-
713,465
-
-
-
-
-
-
-
849
(3,423,436)
34,686
225,000
(4,967,720)
(4,967,720)
(8,391,156)
(4,708,034)
-
-
-
8,257,482
713,465
849
Balance at 30 June 2016
11,940,604
713,465
849
(8,391,156)
4,263,762
The above statement of changes in equity should be read in conjunction with the accompanying notes.
37
Financial Report | Consolidated Statement of Profit or Loss and other Comprehensive Income Statement of
Cash Flows
For the year ended 30 June 2017
Cash flows from operating activities
Receipts from customers (inclusive of GST)
Payments to suppliers and employees (inclusive of GST)
Interest received
Receipt of Research and Development rebate
Interest and other finance costs paid
Income taxes paid
Net cash from operating activities
Cash flows from investing activities
Payment for acquisition of basis2 assets
Joint Venture High Impact Corp. - Loan
Joint Venture Novatti (Malaysia) Sdn Bhd - Investment
Proceeds from sale of property, plant and equipment
Payments for property, plant and equipment
Net cash used in investing activities
Cash flows from financing activities
Proceeds from issue of shares – Pre Initial Public Offering
Proceeds from issue of shares – Initial Public Offering
Share issue transaction costs
Proceeds from borrowings
Repayment of borrowings
Net cash used in financing activities
Note
Consolidated
2017
Consolidated
2016
$
$
5,926,927
4,085,663
(11,202,568)
(7,692,426)
29,895
1,320,099
(15,872)
-
60,695
936,679
(34,297)
(96,354)
30
(3,941,519)
(2,740,040)
(2,354,879)
(13,233)
-
2,100
(10,289)
(2,376,301)
(27,571)
(16,457)
-
(56,513)
(100,541)
2,327,935
1,219,126
-
7,000,000
(3,390)
(595,264)
-
-
2,324,545
-
(359,707)
7,264,155
Net increase/(decrease) in cash and cash equivalents
(3,993,275)
4,423,574
Cash and cash equivalents at the beginning of the financial year
Effects of exchange rate changes on cash and cash equivalents
4,725,649
(14,493)
279,284
22,791
Cash and cash equivalents at the end of the financial year
8
717,881
4,725,649
The above statement of cash flows should be read in conjunction with the accompanying notes.
38
Financial Report | Consolidated Statement of Profit or Loss and other Comprehensive Income Notes to the Financial
Statements
For the year ended 30 June 2017
Note 1. Significant accounting policies
The principal accounting policies adopted in the preparation of the financial statements are set out below.
These policies have been consistently applied to all the years presented, unless otherwise stated.
New, revised or amending Accounting Standards and Interpretations adopted
The Group has adopted all of the new, revised or amending Accounting Standards and Interpretations issued
by the Australian Accounting Standards Board (‘AASB’) that are mandatory for the current reporting period.
The adoption of these Accounting Standards and Interpretations did not have any significant impact on the
financial performance or position of the Group.
Historical cost convention
The financial statements have been prepared under the historical cost convention.
Critical accounting estimates
The preparation of the financial statements requires the use of certain critical accounting estimates. It also
requires management to exercise its judgment in the process of applying the Group’s accounting policies.
The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates
are significant to the financial statements are disclosed in Note 2.
Parent entity information
In accordance with the Corporations Act 2001, these financial statements present the results of the Group
only. Supplementary information about the legal parent entity is disclosed in Note 25.
Principles of consolidation
These are the financial statements of Novatti Group Limited (the ‘Company’ or as the ‘legal parent’) and its
controlled entities (the ‘Group’) as at 30 June 2017.
On 28 September 2015, Novatti Group Limited entered into a Share Purchase Agreement with the equity
holders of Novatti Pty Ltd to acquire, via a share for share scrip rollover, all the shares in Novatti Pty Ltd.
Judgements have been applied to the accounting treatment of this transaction whereby Novatti Group Ltd
obtained control of Novatti Pty Ltd. The transaction has been treated as a reverse acquisition that is not a
business in accordance with AASB 3 Business Combinations.
In accounting for the transaction as a reverse acquisition that is not a business, the following judgements
were made:
• Identification of Novatti Pty Ltd as the acquirer for accounting purposes using the guidance contained
in AASB 3 Business Combinations and therefore the financial statements treated as a continuation of
Novatti Pty Ltd and
• The deemed consideration to effect the transaction for accounting purposes was determined by assigning
a price to the number of shares that Novatti Pty Ltd would have to issue to effect the transaction.
Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with
the investee and has the ability to affect those returns through its power over the investee. Specifically, the
Group controls an investee if and only if the Group has:
• Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of
the investee),
• Exposure, or rights, to variable returns from its involvement with the investee, and
• The ability to use its power over the investee to affect its returns.
39
Financial Report | Notes to the Financial Statements When the Group has less than a majority of the voting or similar rights of an investee, the Group considers all
relevant facts and circumstances in assessing whether it has power over an investee, including:
• The contractual arrangement with the other vote holders of the investee,
• Rights arising from other contractual arrangements, and
• The Group’s voting rights and potential voting rights
The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are
changes to one or more of the three elements of control.
A change in ownership interest, without the loss of control, is accounted for as an equity transaction, where
the difference between the consideration transferred and the book value of the share of the non-controlling
interest acquired is recognised directly in equity attributable to the parent.
If the Group loses control over a subsidiary, it:
• De-recognises the assets (including goodwill) and liabilities of the subsidiary,
• De-recognises the carrying amount of any non-controlling interests,
• De-recognises the cumulative translation differences recorded in equity,
• Recognises the fair value of the consideration received,
• Recognises the fair value of any investment retained, and
• Recognises any surplus or deficit in profit or loss.
Reclassifies the parent’s share of components previously recognised in OCI to profit or loss or retained
earnings, as appropriate, as would be required if the Group had directly disposed of the related assets or
liabilities.
Intercompany transactions, balances and unrealised gains on transactions between entities in the Group are
eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment
of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure
consistency with the policies adopted by the Group.
Operating segments
Operating segments are presented using the ‘management approach’, where the information presented
is on the same basis as the internal reports provided to the Chief Operating Decision Makers (‘CODM’). The
CODM is responsible for the allocation of resources to operating segments and assessing their performance.
Foreign currency translation
The financial statements are presented in Australian dollars, which is Novatti Group Limited’s functional and
presentation currency.
Foreign currency transactions
Foreign currency transactions are translated into Australian dollars using the exchange rates prevailing
at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such
transactions and from the translation at financial year-end exchange rates of monetary assets and liabilities
denominated in foreign currencies are recognised in profit or loss.
Foreign operations
The assets and liabilities of foreign operations are translated into Australian dollars using the exchange rates
at the reporting date. The revenues and expenses of foreign operations are translated into Australian dollars
using the average exchange rates, which approximate the rates at the dates of the transactions, for the
period. All resulting foreign exchange differences are recognised in other comprehensive income through
the foreign currency reserve in equity.
The foreign currency reserve is recognised in profit or loss when the foreign operation or net investment is
disposed of.
Revenue recognition
Revenue is recognised when it is probable that the economic benefit will flow to the Group and the revenue
can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable.
The Group derived the following revenue for the provisions of its services:
Platform Sales
Deployment and the support of specialist mobile and alternative payment technology. There are two
primary components, the recognition of revenue on the completion and delivery of agreed milestones and
the revenue recognised for ongoing maintenance and support.
40
Financial Report | Notes to the Financial Statements Transaction Sales
Included within transaction sales are:
• Fees for software as a service
• Fees for the facilitation of top up vouchers
Interest
Interest revenue is recognised on a time proportional basis that takes into account the effective yield on the
financial asset.
Unearned revenue
Unearned revenue includes revenue from clients whereby services are billed in advance of their anniversary
dates and have outstanding services owing at the balance date of 30 June 2017.
Accrued revenue
Accrued revenue includes revenue from the sales of services unbilled as at 30 June 2017.
Other revenue
Other revenue is recognised when it is received or when the right to receive payment is established.
Government grants
Government grants, including Research and Development revenues, are recognised where there is
reasonable assurance that the grant will be received and all attached conditions will be fulfilled.
Income tax
The income tax expense or benefit for the period is the tax payable on that period’s taxable income based
on the applicable income tax rates that have been enacted by reporting date, adjusted by the changes in
deferred tax assets and liabilities attributable to temporary differences, unused tax losses and the adjustment
recognised for prior periods, where applicable.
Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to be
applied when the assets are recovered or liabilities are settled, based on those tax rates that are enacted or
substantively enacted, except for:
• When the deferred income tax asset or liability arises from the initial recognition of goodwill or
an asset or liability in a transaction that is not a business combination and that, at the time of the
transaction, affects neither the accounting nor taxable profits; or
• When the taxable temporary difference is associated with interests in subsidiaries, associates or
joint ventures, and the timing of the reversal can be controlled and it is probable that the temporary
difference will not reverse in the foreseeable future.
Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is
probable that future taxable amounts will be available to utilise those temporary differences and losses.
The carrying amount of recognised and unrecognised deferred tax assets are reviewed at each reporting
date. Deferred tax assets recognised are reduced to the extent that it is no longer probable that future
taxable profits will be available for the carrying amount to be recovered. Previously unrecognised deferred tax
assets are recognised to the extent that it is probable that there are future taxable profits available to recover
the asset.
Deferred tax assets and liabilities are offset only where there is a legally enforceable right to offset current tax
assets against current tax liabilities and deferred tax assets against deferred tax liabilities; and they relate to
the same taxable authority on either the same taxable entity or different taxable entities that intend to settle
simultaneously.
Novatti Group Limited (the ‘head legal entity’) and its wholly owned Australian subsidiaries have formed an
income tax consolidated group under the tax consolidation regime. The head entity and each subsidiary
in the tax-consolidated group continue to account for their own current and deferred tax amounts. The
tax-consolidated group has applied the ‘separate taxpayer within group’ approach in determining the
appropriate amount of taxes to allocate to members of the tax-consolidated group.
In addition to its own current and deferred tax amounts, the head entity also recognises the current tax
liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits
assumed from each subsidiary in the tax consolidated group.
41
Financial Report | Notes to the Financial Statements Assets or liabilities arising under tax funding agreements with the tax-consolidated entities are recognised
as amounts receivable from or payable to other entities in the tax-consolidated group. The tax funding
arrangement ensures that the intercompany charge equals the current tax liability or benefit of each tax
consolidated group member, resulting in neither a contribution by the head entity to the subsidiaries nor a
distribution by the subsidiaries to the head entity.
Cash and cash equivalents
Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-
term, highly liquid investments with original maturities of three months or less that are readily convertible to
known amounts of cash and which are subject to an insignificant risk of changes in value.
Cash and cash equivalents include cash held in trust for remittance top up voucher services. Receipts
from top up voucher distributors are recognised as (cash) “Receipts from Customers” whilst remittances to
merchants for top up vouchers are recognised as (cash) “Payments to suppliers (and employees)”.
Trade and other receivables
Trade receivables are initially recognised at fair value and subsequently measured at amortised cost using
the effective interest method, less any provision for impairment. Trade receivables are generally due for
settlement within 30 days.
Collectability of trade receivables is reviewed on an ongoing basis. Debts that are known to be uncollectable
are written off by reducing the carrying amount directly. A provision for impairment of trade receivables is
raised when there is objective evidence that the Group will not be able to collect all amounts due according
to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the
debtor will enter bankruptcy or financial reorganisation and default or delinquency in payments (more
than 60 days overdue) are considered indicators that the trade receivable may be impaired. The amount of
the impairment allowance is the difference between the asset’s carrying amount and the present value of
estimated future cash flows, discounted at the original effective interest rate. Cash flows relating to short-
term receivables are not discounted if the effect of discounting is immaterial.
Other receivables are recognised at amortised cost, less any provision for impairment.
Joint Ventures
A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement
have rights to the net assets of the joint venture. Joint control is the contractually agreed sharing of control
of an arrangement, which exists only when decisions about the relevant activities require the unanimous
consent of the parties sharing control.
Investments in Joint Ventures are accounted for using the equity method. Under the equity method,
the share of the profits or losses of the Joint Venture are recognised in profit or loss and the share of the
movements in equity is recognised in other comprehensive income. Investments in Joint Ventures are carried
in the statement of financial position at cost plus post-acquisition changes in the Group’s share of net assets
of the Joint Venture.
Dividends received or receivable from Joint Ventures reduce the carrying amount of the investment.
When the Group’s share of losses in a Joint Venture equals or exceeds its interest in the Joint Venture,
including any unsecured long-term receivables, the Group does not recognise further losses, unless it has
incurred obligations or made payments on behalf of the Joint Venture.
Business combinations
The acquisition method of accounting is used to account for business combinations regardless of whether
equity instruments or other assets are acquired.
The consideration transferred is the sum of the acquisition date fair values of the assets transferred, equity
instruments issued or liabilities incurred by the acquirer to former owners of the acquiree and the amount
of any non-controlling interest in the acquiree. For each business combination, the non-controlling interest
in the acquiree is measured at either fair value or at the proportionate share of the acquiree’s identifiable net
assets. All acquisition costs are expensed as incurred to profit or loss.
On the acquisition of a business, the Group assesses the financial assets acquired and liabilities assumed for
appropriate classification and designation in accordance with the contractual terms, economic conditions,
42
Financial Report | Notes to the Financial Statements the Group’s operating or accounting policies and other pertinent conditions in existence at the acquisition
date.
Where the business combination is achieved in stages, the Group remeasures its previously held equity
interest in the acquiree at the acquisition-date fair value and the difference between the fair value and the
previous carrying amount is recognised in profit or loss.
Contingent consideration to be transferred by the acquirer is recognised at the acquisition-date fair value.
Subsequent changes in the fair value of the contingent consideration classified as an asset or liability
is recognised in profit or loss. Contingent consideration classified as equity is not remeasured and its
subsequent settlement is accounted for within equity.
The difference between the acquisition date fair value of assets acquired, liabilities assumed and any non-
controlling interest in the acquiree and the fair value of the consideration transferred and the fair value of
any pre-existing investment in the acquiree is recognised as goodwill. If the consideration transferred and
the pre-existing fair value is less than the fair value of the identifiable net assets acquired, being a bargain
purchase to the acquirer, the difference is recognised as a gain directly in profit or loss by the acquirer on
the acquisition- date, but only after a reassessment of the identification and measurement of the net assets
acquired, the non-controlling interest in the acquiree, if any, the consideration transferred and the acquirer’s
previously held equity interest in the acquirer.
Business combinations are initially accounted for on a provisional basis. The acquirer retrospectively
adjusts the provisional amounts recognised and also recognises additional assets or liabilities during the
measurement period, based on new information obtained about the facts and circumstances that existed
at the acquisition- date. The measurement period ends on either the earlier of (i) 12 months from the date of
the acquisition or (ii) when the acquirer receives all the information possible to determine fair value.
Financial Instruments
Recognition and initial measurement
Financial assets and financial liabilities are recognised when the Group becomes a party to the contractual
provisions to the instrument. For financial assets, this is equivalent to the date that the Group commits itself
to either the purchase or sale of the asset (i.e. trade date accounting is adopted). Financial instruments are
initially measured at fair value plus transaction costs.
Classification and subsequent measurement
Financial instruments are subsequently measured at fair value, amortised cost using the effective interest
method, or cost depending on their classification. Classification is determined based on the purpose of the
acquisition and subsequent reclassification to other categories is restricted. Financial assets are derecognised
when the rights to receive cash flows from the financial assets have expired or have been transferred and the
Group has transferred substantially all the risks and rewards of ownership.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not
quoted in an active market and are subsequently measured at amortised cost. Gains or losses are recognised
in the statement of profit or loss and other comprehensive income through the amortisation process and
when the financial asset is derecognised.
Financial liabilities
Non-derivative financial liabilities other than financial guarantees are subsequently measured at amortised
cost. Gains or losses are recognised in profit or loss through the amortisation process and when the financial
liability is derecognised.
Impairment of financial assets
The Group assesses at the end of each reporting period whether there is any objective evidence that a
financial asset or group of financial assets is impaired. Objective evidence includes significant financial
difficulty of the issuer or obligor; a breach of contract such as default or delinquency in payments; the
lender granting to a borrower concessions due to economic or legal reasons that the lender would not
otherwise do; it becomes probable that the borrower will enter bankruptcy or other financial reorganisation;
the disappearance of an active market for the financial asset; or observable data indicating that there is a
measurable decrease in estimated future cash flows.
The amount of the impairment allowance for financial assets carried at cost is the difference between the
asset’s carrying amount and the present value of estimated future cash flows, discounted at the current
market rate of return for similar financial assets.
43
Financial Report | Notes to the Financial Statements Plant and equipment
Plant and equipment are measured on the cost basis and therefore carried at cost less accumulated
depreciation and any accumulated impairment. In the event the carrying amount of plant and equipment
is greater than the estimated recoverable amount, the carrying amount is written down immediately to
the estimated recoverable amount and impairment losses are recognised either in profit or loss. A formal
assessment of recoverable amount is made when impairment indicators are present.
The carrying amount of plant and equipment is reviewed annually by directors to ensure it is not in excess of
the recoverable amount from these assets. The recoverable amount is assessed on the basis of the expected
net cash flows that will be received from the asset’s employment and subsequent disposal. The expected net
cash flows have been discounted to their present values in determining recoverable amounts.
The cost of fixed assets constructed within the Group includes the cost of materials, direct labour, borrowing
costs and an appropriate proportion of fixed and variable overheads.
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as
appropriate, only when it is probable that future economic benefits associated with the item will flow to the
Group and the cost of the item can be measured reliably. All other repairs and maintenance are recognised
as expenses in profit or loss during the financial period in which they are incurred.
The depreciable amount of all fixed assets, is depreciated on a straight-line basis over the asset’s useful
life 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 estimated useful lives for the current period are as follows:
Leasehold improvements - 2 years
Plant and equipment - 2 years
Fixtures and Fittings - 10 years
The residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each
reporting date.
An item of property, plant and equipment is derecognised upon disposal or when there is no future
economic benefit to the Group. Gains and losses between the carrying amount and the disposal proceeds
are taken to the statement of profit or loss and other comprehensive income in the period in which they
arise.
Intangible assets
Intangible assets with finite useful lives that are acquired separately are carried at cost less accumulated
amortisation and accumulated impairment losses. Amortisation is recognised on a straight-line basis over
their estimated useful lives. The estimated useful life and amortisation method are reviewed at the end of
each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis.
Intangible assets with indefinite useful lives that are acquired separately are carried at cost less accumulated
impairment losses.
The estimated useful lives for Intangibles for the current period is:
Customer lists - 10 years
Intangible asset - 10 years
Intangible assets acquired in a business combination
Intangible assets, including customer lists and intellectual property acquired in a business combination and
recognised separately from goodwill are initially recognised at their fair value at the acquisition date (which is
regarded as their cost).
44
Financial Report | Notes to the Financial Statements Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost
less accumulated amortisation and accumulated impairment losses, on the same basis as intangible assets
that are acquired separately.
Derecognition of Intangible assets
An intangible asset is derecognised on disposal, or when no future economic benefits are expected from
use or disposal. Gains or losses arising from derecognition of an intangible asset, measured as the difference
between the net disposal proceeds and the carrying amount of the asset, are recognised in profit or loss
when the asset is derecognised.
Goodwill
Goodwill arising on an acquisition of a business is carried at cost as established at the date of acquisition of
the business less accumulated impairment losses, if any.
For the purposes of impairment testing, goodwill is allocated to each of the Group’s cash-generating units (or
groups of cash-generating units) that is expected to benefit from the synergies of the combination.
A cash-generating unit to which goodwill has been allocated is tested for impairment annually, or more
frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-
generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying
amount of any goodwill allocated to the unit and then to the other assets of the unit pro rata based on the
carrying amount of each asset in the unit. Any impairment loss for goodwill is recognised directly in profit or
loss. An impairment loss recognised for goodwill is not reversed in subsequent periods.
On disposal of the relevant cash-generating unit, the attributable amount of goodwill is included in the
determination of the profit or loss on disposal.
Impairment of tangible and intangible assets other than goodwill
At the end of each reporting period, the Group reviews the carrying amounts of its tangible and intangible
assets to determine whether there is any indication that those assets have suffered an impairment loss. If
any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent
of the impairment loss (if any). When 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.
When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated
to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating
units for which a reasonable and consistent allocation basis can be identified.
Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for
impairment at least annually, and whenever there is an indication that the asset may be impaired.
Recoverable amount is the higher of fair value less costs of disposal and value in use. In assessing value in
use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that
reflects current market assessments of the time value of money and the risks specific to the asset for which
the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying
amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An
impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued
amount, in which case the impairment loss is treated as a revaluation decrease.
When an impairment loss subsequently reverses, the carrying amount of the asset (or a cash- generating
unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying
amount does not exceed the carrying amount that would have been determined had no impairment loss
been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is
recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which
case the reversal of the impairment loss is treated as a revaluation increase.
Leases
The determination of whether an arrangement is or contains a lease is based on the substance of the
arrangement and requires an assessment of whether the fulfilment of the arrangement is dependent on the
use of a specific asset or assets and the arrangement conveys a right to use the asset.
A distinction is made between finance leases, which effectively transfer from the lessor to the lessee
substantially all the risks and benefits incidental to the ownership of leased assets, and operating leases,
under which the lessor effectively retains substantially all such risks and benefits.
45
Financial Report | Notes to the Financial Statements Finance leases are capitalised. A lease asset and liability are established at the fair value of the leased assets,
or if lower, the present value of minimum lease payments. Lease payments are allocated between the
principal component of the lease liability and the finance costs, so as to achieve a constant rate of interest on
the remaining balance of the liability.
Leased assets acquired under a finance lease are depreciated over the asset’s useful life or over the shorter
of the asset’s useful life and the lease term if there is no reasonable certainty that the Group will obtain
ownership at the end of the lease term.
Operating lease payments, net of any incentives received from the lessor, are charged to profit or loss on a
straight-line basis over the term of the lease.
Impairment of non-financial assets
Goodwill and other intangible assets that have an indefinite useful life are not subject to amortisation
and are tested annually for impairment, or more frequently if events or changes in circumstances indicate
that they might be impaired. Other non-financial assets are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is
recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount.
Recoverable amount is the higher of an asset’s fair value less costs of disposal and value-in-use. The value-in-
use is the present value of the estimated future cash flows relating to the asset using a pre-tax discount rate
specific to the asset or cash-generating unit to which the asset belongs. Assets that do not have independent
cash flows are grouped together to form a cash-generating unit.
Trade and other payables
These amounts represent liabilities for goods and services provided to the Group prior to the end of the
financial year and which are unpaid. Due to their short-term nature, they are measured at amortised cost
and are not discounted. The amounts are unsecured and are usually paid within 30 days of recognition.
Provisions
Provisions are recognised when the Group has a present (legal or constructive) obligation as a result of a
past event, it is probable the Group will be required to settle the obligation, and a reliable estimate can
be made of the amount of the obligation. The amount recognised as a provision is the best estimate of
the consideration required to settle the present obligation at the reporting date, taking into account the
risks and uncertainties surrounding the obligation. If the time value of money is material, provisions are
discounted using a current pre-tax rate specific to the liability. The increase in the provision resulting from
the passage of time is recognised as a finance cost.
Employee benefits
Short-term employee benefits
Liabilities for wages and salaries, including non-monetary benefits, annual leave and long service leave
expected to be wholly settled within 12 months of the reporting date are measured at the amounts expected
to be paid when the liabilities are settled.
46
Financial Report | Notes to the Financial Statements Other long-term employee benefits
The liability for annual leave and long service leave not expected to be settled wholly within 12 months of
the reporting date are measured as the present value of expected future payments to be made in respect
of services provided by employees up to the reporting date using the projected unit credit method.
Consideration is given to expected future wage and salary levels, experience of employee departures and
periods of service. Expected future payments are discounted using market yields at the reporting date on
corporate bonds with terms to maturity and currency that match, as closely as possible, the estimated future
cash outflows.
Defined contribution superannuation expense
Contributions to defined contribution superannuation plans are expensed in the period in which they are
incurred.
Share-based payments
Equity-settled and cash-settled share-based compensation benefits are provided to employees.
Equity-settled transactions are awards of shares, or options over shares, which are provided to employees in
exchange for the rendering of services.
The cost of equity-settled transactions are measured at fair value on grant date. Fair value is independently
determined using the Black-Scholes option pricing model that takes into account the exercise price, the
term of the option, the impact of dilution, the share price at grant date and expected price volatility of
the underlying share, the expected dividend yield and the risk-free interest rate for the term of the option,
together with non- vesting conditions that do not determine whether the Group receives the services that
entitle the employees to receive payment. No account is taken of any other vesting conditions.
Market conditions are taken into consideration in determining fair value. Therefore, any awards subject to
market conditions are considered to vest irrespective of whether or not that market condition has been met,
provided all other conditions are satisfied.
If equity-settled awards are modified, as a minimum an expense is recognised as if the modification has not
been made. An additional expense is recognised, over the remaining vesting period, for any modification that
increases the total fair value of the share-based compensation benefit as at the date of modification.
If equity-settled awards are cancelled, it is treated as if it has vested on the date of cancellation, and any
remaining expense is recognised immediately. If a new replacement award is substituted for the cancelled
award, the cancelled and new award is treated as if they were a modification.
Fair value measurement
When an asset or liability, financial or non-financial, is measured at fair value for recognition or disclosure
purposes, the fair value is based on the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date; and assumes that
the transaction will take place either: in the principal market; or in the absence of a principal market, in the
most advantageous market.
Fair value is measured using the assumptions that market participants would use when pricing the asset
or liability, assuming they act in their economic best interests. For non-financial assets, the fair value
measurement is based on its highest and best use. Valuation techniques that are appropriate in the
circumstances and for which sufficient data are available to measure fair value, are used, maximising the use
of relevant observable inputs and minimising the use of unobservable inputs.
Assets and liabilities measured at fair value are classified, into three levels, using a fair value hierarchy that
reflects the significance of the inputs used in making the measurements. Classifications are reviewed at each
reporting date and transfers between levels are determined based on a reassessment of the lowest level of
input that is significant to the fair value measurement.
For recurring and non-recurring fair value measurements, external valuers may be used when internal
expertise is either not available or when the valuation is deemed to be significant. External valuers are
selected based on market knowledge and reputation. Where there is a significant change in fair value of an
asset or liability from one period to another, an analysis is undertaken, which includes a verification of the
major inputs applied in the latest valuation and a comparison, where applicable, with external sources of
data.
47
Financial Report | Notes to the Financial Statements Issued capital
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.
Dividends
Dividends are recognised when declared during the financial year and no longer at the discretion of the
Group.
Earnings per share
Basic earnings per share
Basic earnings per share is calculated by dividing the profit attributable to the owners of Novatti Group
Limited, 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 financial year.
Diluted earnings 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 shares assumed to have been issued for no
consideration in relation to dilutive potential ordinary shares.
Goods and Services Tax (‘GST’) and other similar taxes
Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred
is not recoverable from the tax authority. In this case it is recognised as part of the cost of the acquisition of
the asset or as part of the expense.
Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of
GST recoverable from, or payable to, the tax authority is included in other receivables or other payables in the
statement of financial position.
Cash flows are presented on a gross basis in the statement of cash flows. The GST components of cash flows
arising from investing or financing activities which are recoverable from, or payable to the tax authority, are
presented as operating cash flows.
Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the
tax authority.
New Accounting Standards and Interpretations not yet mandatory or early adopted
Australian Accounting Standards and Interpretations that have recently been issued or amended but are
not yet mandatory, have not been early adopted by the Group for the annual reporting period ended 30
June 2017. The Group’s assessment of the impact of these new or amended Accounting Standards and
Interpretations, most relevant to the Group, are set out below:
AASB 9 Financial Instruments
This standard is applicable to annual reporting periods beginning on or after 1 January 2018. The standard
replaces all previous versions of AASB 9 and completes the project to replace IAS 39 Financial Instruments:
Recognition and Measurement. AASB 9 introduces new classification and measurement models for financial
assets. A financial asset shall be measured at amortised cost, if it is held within a business model whose
objective is to hold assets in order to collect contractual cash flows, which arise on specified dates and solely
principal and interest. All other financial instrument assets are to be classified and measured at fair value
through profit or loss unless the entity makes an irrevocable election on initial recognition to present gains
and losses on equity instruments (that are not held-for-trading) in OCI. For financial liabilities, the standard
requires the portion of the change in fair value that relates to the entity’s own credit risk to be presented
in OCI (unless it would create an accounting mismatch). New simpler hedge accounting requirements are
intended to more closely align the accounting treatment with the risk management activities of the entity.
New impairment requirements will use an Expected Credit Loss (‘ECL’) model to recognise an allowance.
Impairment will be measured under a 12-month ECL method unless the credit risk on a financial instrument
has increased significantly since initial recognition in which case the lifetime ECL method is adopted. The
standard introduces additional new disclosures. The Group will adopt this standard from 1 July 2018 but the
impact of its adoption is yet to be assessed by the Group.
Based on the Group’s preliminary assessment, there will be no material impact on the transactions and
48
Financial Report | Notes to the Financial Statements balances recognised in the financial statements when this standard is first adopted for the year ended 30
June 2018.
AASB 15 Revenue from Contracts with Customers
This standard is applicable to annual reporting periods beginning on or after 1 January 2018. The standard
provides a single standard for revenue recognition. The core principle of the standard is that an entity will
recognise revenue to depict the transfer of promised goods or services to customers in an amount that
reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
The standard will require: contracts (either written, verbal or implied) to be identified, together with the
separate performance obligations within the contract; determine the transaction price, adjusted for the
time value of money excluding credit risk; allocation of the transaction price to the separate performance
obligations on a basis of relative stand-alone selling price of each distinct good or service, or estimation
approach if no distinct observable prices exist; and recognition of revenue when each performance
obligation is satisfied. Credit risk will be presented separately as an expense rather than adjusted to revenue.
For goods, the performance obligation would be satisfied when the customer obtains control of the goods.
For services, the performance obligation is satisfied when the service has been provided, typically for
promises to transfer services to customers. For performance obligations satisfied over time, an entity would
select an appropriate measure of progress to determine how much revenue should be recognised as the
performance obligation is satisfied. Contracts with customers will be presented in an entity’s statement
of financial position as a contract liability, a contract asset, or a receivable, depending on the relationship
between the entity’s performance and the customer’s payment. Sufficient quantitative and qualitative
disclosure is required to enable users to understand the contracts with customers; the significant judgments
made in applying the guidance to those contracts; and any assets recognised from the costs to obtain or fulfil
a contract with a customer.
The Group has undertaken a preliminary assessment of the impact of AASB 15. However, based on the
Group’s preliminary assessment, this standard is not expected to have a material impact on the transactions
and balances in the financial statements when it is first adopted for the year 30 June 2019. The Group has
adopted the ‘Modified Retrospective’ method of transition under AASB 15 Revenue from Contracts with
Customers.
AASB 16 Leases
This standard is applicable to annual reporting periods beginning on or after 1 January 2019. Earlier
application is permitted for entities that apply AASB 16 Leases at or before the date of initial application
of this Standard. AASB 16 introduces a single lessee accounting model and requires a lessee to recognise
assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of
low value. A lessee is required to recognise a right-of-use asset representing its right to use the underlying
leased asset and a lease liability representing its obligations to make lease payments. A lessee measures
right-of-use assets similarly to other non-financial assets (such as property, plant and equipment) and lease
liabilities similarly to other financial liabilities. As a consequence, a lessee recognises depreciation of the
right- of-use asset and interest on the lease liability, and also classifies cash repayments of the lease liability
into a principal portion and an interest portion and presents them in the statement of cash flows applying
AASB 107 Statement of Cash Flows. Assets and liabilities arising from a lease are initially measured on a
present value basis. The measurement includes non-cancellable lease payments (including inflation-linked
payments), and also includes payments to be made in optional periods if the lessee is reasonably certain to
exercise an option to extend the lease, or not to exercise an option to terminate the lease.
The previous accounting model for leases required lessees and lessors to classify their leases as either
finances leases or operating leases and account for those two types of leases differently. That model was
criticised for failing to meet the needs of users of financial statements because it did not always provide a
faithful representation of leasing transactions. In particular, it did not require lessees to recognise assets and
liabilities arising from operating leases. Accordingly, the International Accounting Standards Board (IASB) and
the US national standard-setter, the Financial Accounting Standards Board (FASB), initiated a joint project
to develop a new approach to lease accounting that requires a lessee to recognise assets and liabilities for
the rights and obligations created by leases. This approach will result in a more faithful representation of a
lessee’s assets and liabilities and, together with enhanced disclosures, will provide greater transparency of a
lessee’s financial leverage and capital employed.
The consolidated entity will adopt AASB16 from 1 July 2019. Whilst the Group has yet to prepare a detailed
analysis of its impact, it does note that the financial statements will be reflective of a “right of use” asset
for capitalization in the statement of financial position. A liability corresponding to the capitalized lease
will also be recognized. In the earlier periods of the lease, the expenses associated with the lease under
AASB16 will be higher when compared to the lease expenses under AASB117. However EBITDA (Earnings
before interested, tax and depreciation) results will be improved as the operating expense is replaced by
depreciation in the profit and loss under AASB16.
49
Financial Report | Notes to the Financial Statements Note 2. Critical accounting judgments, estimates
and assumptions
The preparation of the financial statements requires management to make judgments, estimates and
assumptions that affect the reported amounts in the financial statements. Management continually evaluates
its judgments and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses.
Management bases its judgments, estimates and assumptions on historical experience and on other
various factors, including expectations of future events; management believes to be reasonable under the
circumstances. The resulting accounting judgments and estimates will seldom equal the related actual results.
The judgments, estimates and assumptions that have a significant risk of causing a material adjustment to
the carrying amounts of assets and liabilities (refer to the respective notes) within the next financial year are
discussed below.
Share-based payment transactions
The Group measures the cost of equity-settled transactions with employees by reference to the fair value The
Group measures the cost of equity-settled transactions with employees by reference to the fair value of the
equity instruments at the date at which they are granted. The fair value is determined by using the Black-
Scholes model taking into account the terms and conditions upon which the instruments were granted. The
accounting estimates and assumptions relating to equity-settled share-based payments would have no impact
on the carrying amounts of assets and liabilities within the next annual reporting period but may impact profit
or loss and equity.
The value of the Performance Shares are based on their fair value at the time of grant using a share price of
$0.16, with each of the four milestones discounted for the probability of achievement. This value is recognised
within the accounts of the legal parent and upon consolidation, is eliminated.
Provision for impairment of receivables
The provision for impairment of receivables assessment requires a degree of estimation and judgment. The level
of provision is assessed by taking into account the recent sales experience, the ageing of receivables, historical
collection rates and specific knowledge of the individual debtor’s financial position.
Note 3. Operating segments
Identification of reportable operating segments
The Group is organised into four operating business segments: (A) Novatti Platform, incorporating enterprise
sales and Maintenance & Support via the Novatti Platform, (B) Advanced Billing Solutions, incorporating basis2
operating under Novatti Incorporated (C) Transaction Services incorporating Flexewallet Pty Ltd, Flexepayments
(South Africa) Pty Ltd and Flexe Payments Ltd and (D) Novatti Group Limited is the legal parent that holds
the financial assets for the Group. These operating business segments are based on the internal reports that
are reviewed and used by the Board of Directors (who are identified as the Chief Operating Decision Makers
(‘CODM’)) in assessing performance and in determining the allocation of resources.
The CODM reviews EBITDA (earnings before interest, tax, depreciation and amortisation). The accounting
policies adopted for internal reporting to the CODM are consistent with those adopted in the financial
statements. The information reported to the CODM is on at least a monthly basis.
50
Financial Report | Notes to the Financial Statements Types of products and services
The principal products and services of each of these operating segments are as follows:
Novatti Platform
Develops, deploys and supports specialised mobile and alternate payment technology, primarily through the
deployment of the Novatti Platform.
Advanced Billing Solutions
basis2 trading under Novatti Inc.: Provides a technologically advanced billing and CIS solution to service
providers in the utilities industry.
Transaction Services
TransferBridge: Provides a comprehensive global network that interconnects emerging payment platforms,
remittance operators, financial institutions, retailers, utilities and all types of telecommunication operators.
Flexewallet and Flexe Payments: Offers customers an alternative payment method in the form of a prepaid cash
voucher. Vouchers can be used for a multitude of payment methods such as prepaid account top-ups and for
secure online payment of goods and services. Vouchers are available in a variety of currencies and locations
globally.
Intersegment transactions
Intersegment transactions were made at market rates. Intersegment transactions are eliminated on
consolidation.
Intersegment receivables, payables and loans
Intersegment loans are initially recognised at the consideration received. Intersegment loans are eliminated on
consolidation.
Operating segment information
Novatti
Platform
Billing Solutions
Transaction
Services
Novatti Group
Limited
Total
Revenue – 30 June 2017
Sales to external customers
1,779,151
192,197
219,858
Intersegment sales
Total sales revenue
Other revenue
Total revenue
-
-
-
1,779,151
1,320,099
3,099,250
192,197
219,858
-
-
192,197
219,858
-
-
-
-
-
2,191,206
-
2,191,206
1,320,099
3,511,305
EBITDA
(2,339,528)
(12,345)
(1,225,198)
(915,409)
(4,492,480)
Depreciation and amortisation
Interest revenue
Finance costs
Other costs
Profit before income tax expense
Income tax expense
Profit after income tax expense
-
-
-
-
-
-
-
(54,946)
30,612
(15,869)
(185,046)
(4,717,729)
-
(4,717,729)
Segment Assets
Segment Liabilities
1,106,774
1,365,923
1,952,078
424,973
793,548
762,056
1,221,212
248,400
5,073,612
2,801,352
Employee Benefits
4,330,968
16,646
1,089,226
446,250
5,883,090
Additions to non-current assets
(other than financial assets,
deferred tax, post-employment
benefits assets, rights under
insurance contracts)
-
-
-
-
-
Revenue from Australian customers is $735,303 (FY16: $1,085,431).
Revenue from customers in other countries is $1,452,743 (FY16: $1,285,121).
Revenue from a single customer in a country other than Australia is $614,675 (FY16: $255,538).
51
Financial Report | Notes to the Financial Statements Consolidated – 30 June 2016
$
$
$
Novatti Platform
Transaction
Services
Novatti Group
Limited
Total
$
Revenue
Sales to external customers
3,736,608
133,506
Intersegment sales
Total sales revenue
Other revenue
Total revenue
-
3,736,608
938,931
4,675,539
-
133,506
-
133,506
-
-
-
58,443
58,443
3,870,114
-
3,870,114
997,374
4,867,488
EBITDA
(2,968,657)
(716,235)
(1,193,423)
(4,878,315)
Depreciation and amortisation
Interest revenue
Finance costs
Profit before income tax expense
Income tax expense
Profit after income tax expense
(19,449)
60,695
(34,297)
(4,871,366)
(96,354)
(4,967,720)
Segment Assets
Segment Liabilities
1,934,738
1,552,800
473,835
535,240
4,004,709
61,480
6,413,282
2,149,520
Employee Benefits
4,698,976
506,145
381,994
5,587,115
Additions to non-current assets (other
than financial assets, deferred tax, post-
employment benefits assets, rights under
insurance contracts)
Note 4. Revenue
Sales revenue:
Rendering of services
Transactional Services
Maintenance and Support
Licence income
Other revenue:
Interest
Research and Development
Other
Revenue
52
-
-
-
-
Consolidated
2017
Consolidated
2016
$
$
120,681
216,258
1,124,687
729,580
2,191,206
30,612
1,320,099
-
-
133,506
936,839
2,799,769
3,870,114
60,695
936,679
-
1,350,711
997,374
3,541,917
4,867,488
Financial Report | Notes to the Financial Statements Note 5. Share of Joint Venture accounted for using
the equity method
Share of loss – High Impact
Share of loss – ATX Malaysia
Total share of loss in Joint Ventures
Note 5 a. Investments accounted for using the equity method
Investment in Joint Venture - High Impact
Investment in Joint Venture - ATX Malaysia
Consolidated
2017
Consolidated
2016
$
$
-
(8,511)
(8,511)
-
4,363
(197,426)
(1,912)
(199,338)
-
14,901
In respect of High Impact, Novatti has not incurred
legal or constructive obligations, or made payments
on behalf of the joint venture. The directors are unable
to accurately ascertain the likely returns for this
investment and so had resolved to write-off its share of
this investment in FY 16.
In accordance with AASB 128 Novatti Group Limited
will periodically review the status of its Joint Venture
in High Impact. Subsequently where the Joint Venture
entity reports a profit, Novatti will resume recognising
its share of those profits only after its share of the
profits equals the share of losses not recognised.
Note 6. Expenses
Consolidated
2017
Consolidated
2016
$
$
Profit before income tax includes the following specific expenses:
Client hosting fees and other direct services
621,183
2,136,683
Finance costs
Interest and finance charges paid/payable
15,869
34,297
Share-based payments expense
Share-based payments expense (Options)
410,457
541,684
Superannuation expense
Defined contribution superannuation expense
285,033
237,330
53
Financial Report | Notes to the Financial Statements Note 7. Income tax expense
Consolidated
2017
Consolidated
2016
$
$
Reconciliation of Income tax expense to prima facie tax payable
Loss before Income Tax
(4,717,729)
(4,871,366)
Prima facie income tax on loss at the domestic tax rate of Novatti
Group Ltd of 27.5% (2016: 30%)
(1,297,375)
(1,461,410)
Adjustment for tax rate differences in foreign jurisdictions
45,003
3,648
Adjustment for tax exempt research and development tax incentive
received
(363,027)
(281,004)
Adjustments from prior periods
Adjustment for changes in tax rates
Adjustment for non-deductible expenses:
- Share based payments expense
- Adjustment for R&D accounting expense included within R&D
incentive
- Deemed Equity Consideration on Reverse Acquisition that is not a
business
- Other non-deductible expenses
(12,502)
(79,378)
-
-
112,876
90,735
880,066
-
1,755
-
67,463
21,642
(712,582)
(1,558,926)
Current year tax losses not brought to account
Current year temporary differences not brought to account
Adjustments in respect of current income tax of previous year
1,333,060
167,708
(788,186)
1,553,959
4,966
-
Income tax expense
-
96,354
Deferred tax assets not brought to account:
Unused tax losses for which no deferred tax asset has been
recognised
Deductible temporary differences for which no deferred tax asset
has been recognised
7,135,200
5,179,864
1,521,340
911,467
8,656,540
6,091,331
Potential tax benefit @ 27.5% (2016: 30%)
2,380,549
1,827,399
54
Financial Report | Notes to the Financial Statements Note 8. Current assets - cash and cash equivalents
Cash on hand
Bank Balances
Reconciliation to cash and cash equivalents at the end of the financial year
The above figures are reconciled to cash and cash equivalents at the end of
the financial year as shown in the statement of cash flows as follows:
Consolidated
2017
Consolidated
2016
$
$
17,897
699,984
717,881
1,714
4,723,935
4,725,649
Cash and Cash Equivalents
Cash and Cash Equivalents held on trust under Flexewallet’s Remittance
program. These funds are distributed under instructions within 24 hours.
654,146
4,329,344
63,735
396,305
Balance as per statement of cash flows
717,881
4,725,649
Note 9. Net position of transaction services business
– funds in trust
Flexewallet Pty Ltd (Flexepin)
Cash and cash equivalents held in trust
Accounts receivable
Accrued revenue - Flexepin
Accounts payable
Accrued expenses - Flexepin
Unearned revenue - Flexepin
Total Flexewallet Pty Ltd (Flexepin)
Remittance
Cash and cash equivalents held in trust
Accounts receivable
E-Wallet remittance balance
Accrued Expenses - TransferBridge Remittance
Intercompany loan - TransferBridge Novatti, Airtime Top up
Consolidated
2017
Consolidated
2016
$
$
405,410
49,493
213,014
(361,712)
(281,562)
(14,702)
9,941
1,056
1,303
8,590
26,386
(20,030)
17,305
30,661
20,819
15,716
(43,425)
(26,787)
-
3,016
-
-
-
2,132
-
2,132
55
Financial Report | Notes to the Financial Statements Note 10. Current assets - trade and other receivables
Trade receivables
Consolidated
2017
Consolidated
2016
$
$
947,184
341,262
Impairment of receivables
The Group’s trade and other receivables have been
reviewed for indicators of impairment. Trade receivables
were not found to be impaired and a provision has
not been recorded. There are no other impaired trade
receivables in any of the Group’s subsidiaries.
The Group did not consider a credit risk on the
aggregate balances after reviewing the credit terms of
customers based on recent collection practices.
The ageing of the past due but not impaired receivables are as follows:
Current
0 to 3 months overdue
3 to 6 months overdue
Over 6 months overdue
Other receivables
Accrued Revenue
Consolidated
2017
Consolidated
2016
$
$
438,384
49,067
459,733
-
95,928
10,075
235,259
-
947,184
341,262
591,132
1,200,696
Total trade and other receivables
1,538,316
1,541,958
Management are of the opinion that these receivables are reflective of fair value and should not be impaired.
56
Financial Report | Notes to the Financial Statements Note 11. Financial Assets
Security term deposit
Total financial assets
Note 12. Other Current Assets
Prepayments
Other
Loan – High Impact*
Consolidated
2017
Consolidated
2016
$
$
32,554
31,837
32,554
31,837
Consolidated
2017
Consolidated
2016
$
$
63,670
8,590
13,233
46,970
5,610
-
85,493
52,580
*Short term loan agreement of US$10,000 provided to High Impact on commercial terms, entered into on 27 March 2017,
interest calculated daily at 6% per annum.
Note 13. Non-current assets - property, plant and
equipment
Plant and equipment - at cost
Less: accumulated depreciation
Leasehold fixtures and fittings - at cost
Less: accumulated depreciation
Fixtures and fittings
Less: accumulated depreciation
Consolidated
2017
Consolidated
2016
$
436,513
(420,297)
16,216
14,922
(11,478)
3,444
26,083
(19,352)
6,731
$
431,440
(402,349)
29,091
14,922
(5,182)
9,740
26,083
(18,557)
7,526
Total property, plant and equipment
26,391
46,357
57
Financial Report | Notes to the Financial Statements Reconciliations
Reconciliations of the written down values at the beginning and end of the current and previous financial year are
set out below:
2017
Gross carrying amount
Balance 1 July 2016
Additions
Disposals
Balance 30 June 2017
Accumulated depreciation and
impairment
Balance 1 July 2016
Disposals
Depreciation expense
Balance 30 June 2017
Net book value
As at 1 July 2016
Balance 30 June 2017
Plant &
Equipment at
cost
Fixtures &
Fittings at cost
Leasehold
Fixtures &
Fittings at cost
$
$
$
Total
$
431,440
10,289
(5,216)
436,513
26,083
14,922
-
-
-
-
26,083
14,922
472,445
10,289
(5,216)
477,518
(402,349)
(18,557)
(5,182)
(426,088)
2,892
(20,840)
(420,297)
-
(795)
(19,352)
-
(6,296)
(11,478)
2,892
(27,931)
(451,127)
29,091
16,216
7,526
6,731
9,740
3,444
46,357
26,391
2016
Gross carrying amount
Balance 1 July 2015
Additions
Disposals
Plant &
Equipment at
cost
Fixtures &
Fittings at cost
Leasehold
Fixtures &
Fittings at cost
$
$
$
Total
$
395,469
35,971
-
18,133
7,950
-
2,330
12,592
-
415,932
56,513
-
Balance 30 June 2016
431,440
26,083
14,922
472,445
Accumulated depreciation and
impairment
Balance 1 July 2015
Depreciation expense
Balance 30 June 2016
Net book value
As at 1 July 2015
Balance 30 June 2016
(386,176)
(16,173)
(402,349)
(18,133)
(424)
(18,557)
(2,330)
(2,852)
(5,182)
(406,639)
(19,449)
(426,088)
9,293
29,091
-
7,526
-
9,740
9,293
46,357
58
Financial Report | Notes to the Financial Statements Note 14. Intangibles
Intangible assets - at cost
Less: Accumulated amortisation
Consolidated
2017
Consolidated
2016
$
4,482,292
(1,813,678)
2,668,614
$
1,787,110
(1,787,110)
-
2017
Intangible Assets
2016
Intangible Assets
Gross carrying amount
Balance 1 July 2016
Additions
Intellectual property –
Business acquisition
Goodwill
Customer list
Disposals
Balance 30 June 2017
Accumulated amortisation
Balance 1 July 2016
Amortisation expense
Foreign exchange*
Balance 30 June 2017
Net book value
As at 1 July 2016
Balance 30 June 2017
$
1,787,110
-
847,000
2,000
1,846,182
-
4,482,292
(1,787,110)
(27,015)
447
(1,813,678)
2,668,614
2,668,614
Gross carrying amount
Balance 1 July 2015
Additions
Disposals
$
1,787,110
-
-
Balance 30 June 2016
1,787,110
Accumulated amortisation
Balance 1 July 2015
Amortisation expense
Balance 30 June 2016
Net book value
As at 1 July 2015
Balance 30 June 2016
(1,787,110)
-
(1,787,110)
-
-
*In accordance with AASB 121 the foreign exchange variance
between accumulated amortization for the period and the
amortization expense on Intangible assets of AUD 447, is a
result of the conversion of the amortization on Customer
Lists from USD 13,970 to AUD 18,646, using an exchange rate
average over the period of AUD 0.7492 to USD 1.
Note 15. Current liabilities - trade and other
payables
Trade payables
Unearned Income
Accrued Expenses
Consolidated
2017
Consolidated
2016
$
$
700,348
565,272
463,421
182,646
1,037,003
1,232,652
2,302,623
1,878,719
59
Financial Report | Notes to the Financial Statements Note 16. Provision for employee benefits
Current
Employee benefits
Non-current
Employee benefits
Consolidated
2017
Consolidated
2016
$
$
479,605
152,232
19,124
118,569
Note 17. Equity - issued capital (current)
87,883,826 Fully paid ordinary shares as at 30 June 2016
-
11,940,604
107,972,647 Fully paid ordinary shares as at 30 June 2017
14,296,835
-
Total
14,296,835
11,940,604
Consolidated
2017
Consolidated
2016
$
$
60
Financial Report | Notes to the Financial Statements Consoli-
dated
2017
$
3,458,122
-
3,458,122
3,458,122
-
-
-
-
-
Movements in ordinary share capital
Details
Date
No of
shares
Issue
price
Balance – Novatti Pty Ltd
01 Jul 2015
338,760
Balance – Novatti Group Ltd – Issued capital preacquisition
01 Jul 2015
1,250,000
$
-
Novatti Group Ltd acquired all the shares in Novatti Pty Ltd on a
scrip for scrip basis on 28 September 2015
20 million Performance Shares was provided to the original
shareholders of Novatti Pty Ltd as part of the acquisition of
Novatti Pty Ltd by Novatti Group. Each Performance Share
was convertible to one ordinary share when the Terms and
Conditions as disclosed in the Replacement Prospectus at 13.2
were achieved
Novatti Pty Ltd shares eliminated on completion of reverse
acquisition that is not a Business
Deemed Consideration on reverse acquisition that is not a
Business
Loans provided by Novatti Group Ltd directors, Peter Cook,
Brandon Munro and Peter Pawlowitsch to Novatti Pty Ltd
converted into shares within Novatti Group Limited at $0.16 per
share
Loan provided by Novatti Pty Ltd shareholder to Novatti Pty Ltd
converted into shares within Novatti Group Limited at $0.16 per
share
$250,000 in non-current liabilities and $132,579 in trade payables
to director related Coomar Pty Ltd outstanding as at 30 June
2015 was assigned to director related Corangamite Pty Ltd in
accordance with a Deed of Assignment of Debt dated 31 October
2015 between the two parties and was converted to equity at
$0.16 per share
Issue of shares at $0.16 per share as Pre IPO capital received by
Novatti Group Ltd
28 Sep 2015
40,000,000
28 Sep 2015
-
28 Sep 2015
(338,760)
28 Sep 2015
-
-
225,000
31 Oct 2015
3,125,000
0.16
500,000
31 Oct 2015
3,555,206
0.16
568,833
31 Oct 2015
2,391,120
0.16
382,579
23 Nov 2015
2,562,500
0.16
410,000
Issue of 35 million Shares from IPO at $0.20 per share
18 Jan 2016
35,000,000
0.20
7,000,000
Capital Raising Costs
Capital Raising Costs
Capital Raising Costs
Balance 30 June 2016 – Novatti Pty Ltd
Balance – Novatti Group Ltd – Issued capital
5 million Performance Shares were converted to Ordinary
Shares on a one for one basis at a nominal value of $1 upon
the achievement of Milestone 1, as announced to the ASX on
16 September 2016. There is no change in the value of ‘Issued
Capital’
Balance of Performance Shares (15 million) redeemed by Novatti
Group on 16 September 2016 upon the lapsing of Milestones 2 –
4.
11.9 million Shares issued pursuant to one for four accelerated
pro-rata non-renounceable Entitlement Offer – Institutional
Component18
3.1 million pursuant to one for four accelerated pro-rata non-
renounceable Entitlement Offer – Retail Component19
1.5 million fully paid ordinary shares issued pursuant to the
shortfall facility of the Retail Entitlement Offer20
Capital Raising Costs
Corporate Advisor Management Fee21
Closing Balance – Novatti Group Ltd
31 Jan 2016
29 Feb 2016
30 Apr 2016
-
-
-
30 Jun 2016
87,883,826
1 July 2017
87,883,826
16 Sep 2016
5,000,000
-
-
-
-
-
(592,105)
(6,875)
(4,950)
11,940,604
11,940,604
-
-
16 May 2017
11,910,051
0.14
1,667,407
29 May 2017
3,178,770
30 June 2017
30 June 2017
30 June 2017
0.14
0.14
0.14
445,028
215,500
(36,722)
65,018
30 June 2017
107,972,647
14,296,835
18 For further details on the Capital Raising – one for four pro-rata non-renounceable entitlement offer, please refer to ‘Significant Changes in
State of affairs’ – Directors Report page 14.
19 ibid.
20 The Funds from the Shortfall facility of the Retail Offer were received prior to 30 June 2017, the ordinary shares were distributed subsequent
to year end.
21 The balance of the shares to be distributed to the Corporate Advisor, of 464,419 ordinary shares, will be distributed upon successful
completion of the equity raising.
61
Financial Report | Notes to the Financial Statements Ordinary shares
Ordinary shares entitle the holder to participate in dividends and the proceeds on the winding up of the Group
in proportion to the number of and amounts paid on the shares held. The fully paid ordinary shares have no par
value and the Group does not have a limited amount of authorised capital.
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 shareholder shall have one vote.
Share buy-back
There is no current on-market share buy-back.
Options and Performance Shares
Information is set out in Note 35 relating to options and performance shares issued, exercised and lapsed during
the financial year and options outstanding at the end of the financial year.
Capital risk management
The Group’s objectives when managing capital is to safeguard its ability to continue as a going concern, so that
it can provide returns for shareholders and benefits for other stakeholders and to maintain an optimum 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 would look to raise capital when an opportunity to invest in a business or company was seen as value
adding relative to the current company’s share price at the time of the investment.
Note 18. Equity – reserve
Option reserve
Foreign currency reserve
Consolidated
2017
Consolidated
2016
$
$
1,128,479
(44,169)
713,465
849
1,084,310
714,314
Option reserve
The option reserve is used to record the fair value of options issued to employees and directors as part of their
remuneration. It is also used to record the fair value of options issued. The balance is transferred to Issued Capital
when options are granted and balance is transferred to retained earnings when options lapse.
Foreign currency reserve
The reserve is used to recognise exchange differences arising from the translation of the financial statements of
foreign operations to Australian dollars.
62
Financial Report | Notes to the Financial Statements Note 19. Equity - retained profits
Retained losses at the beginning of the financial year
Losses after income tax expense for the year
Consolidated
2017
Consolidated
2016
$
$
(8,391,156)
(3,423,436)
(4,717,729)
(4,967,720)
Retained losses at the end of the financial year
(13,108,885)
(8,391,156)
Note 20. Financial instruments
Financial risk management objectives
The Group is exposed to risks that arise from the use of its financial instruments. This Note describes Novatti
Group’s objectives, policies and processes for managing those risks and the methods used to measure them.
There have been no substantive changes in the Group’s exposure to financial instrument risks, its objectives,
policies and processes for managing those risks or the methods used to measure them from previous periods
unless otherwise stated in this Note.
The Board assumes the role of the Group’s Audit, Risk & Compliance Committee and oversees how management
monitors compliance with the Group’s risk management policies and procedures and reviews the adequacy of
the risk management framework in relation to the risks faced by the Group.
Principal financial instruments
The principal financial instruments used by Novatti Group, from which financial instrument risk arises, are as
follows:
• Cash at bank and on deposit,
• Trade receivables,
• Trade and other payables, and
• Intercompany receivables.
The Board has overall responsibility for the determination of the Group’s risk management objectives and
policies and whilst retaining ultimate responsibility for them, 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 Board receives regular reports from the Chief Financial Officer through which it reviews the
effectiveness of the processes put in place and the appropriateness of the objectives and policies it sets.
The overall objective of the Board is to set policies that seek to reduce risk as far as possible without unduly
affecting the Group’s competitiveness and flexibility. Further details regarding these policies are set out below.
Credit risk
Credit risk arises from the Group’s trade receivables, other receivables, receivables from subsidiaries and cash at
bank and on deposit. The maximum amount of credit risk is the statement of financial position carrying values.
Trade receivables
Clients of the Group range from financial service providers, telecommunication operators to airline companies.
New client contracts may require Customers to pay fees based on ‘Project Milestone arrangements’ in
accordance with agreed upon contract terms. Moving from milestone to milestone requires the payment of
each to move onto the next. In addition, companies may be charged for on-going service and maintenance
contracts on a monthly or quarterly basis based on the initial contract value and last up to 5 - 10 years.
Transactional sales obligations are settled generally on 21-day terms and after receipt from distributors.
The Group undertakes transactions with a large number of customers and regularly monitors payments in
accordance with credit terms, the financial assets that are neither past due nor impaired, are expected to be
received in accordance with the credit terms.
63
Financial Report | Notes to the Financial Statements The Group does not have any material credit risk exposure for other receivables or other financial
instruments.
Liquidity risk
Liquidity risk arises from the Group’s management of working capital. It is the risk that the Group will
encounter difficulty in meeting its financial obligations as they fall due. The Group’s policy is to ensure
that it will always have sufficient cash to allow it to meet its liabilities when they become due. To achieve
this aim, it seeks to maintain cash balances to meet expected requirements for a period of at least three
months.
The Group also seeks to reduce liquidity risk by ensuring that its cash deposits are earning interest at the
best rates. At balance date, these reports indicate that the Group is expected to have sufficient liquid
resources to meet its obligations under all reasonably expected circumstances.
As at 30 June 2017, financial liabilities have contractual maturities, which are summarised below:
2017
Trade payables
Accrued expenses
Other payables
Total
2016
Trade payables
Accrued expenses
Other payables
Total
Consolidated
Current
Non-current
Within 6 months
$
6 to 12 month
$
1 to 5 years
$
Later than 5 years
$
700,348
1,037,003
-
1,737,351
Consolidated
Current
Within 6 months
$
6 to 12 month
$
463,421
1,232,652
-
1,696,073
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Non-current
1 to 5 years
$
Later than 5 years
$
-
-
-
-
-
-
-
-
The contractual amounts of financial liabilities in the tables above are equal to their carrying values.
Interest rate risk
The Group invests surplus cash in major Australian, Canadian, US and European banks and in doing so is
exposed to fluctuations in interest rates that are inherent in such a market. The Company and Group have
no borrowings.
The Group’s interest rate risk arises from:
• Bank balances which give rise to interest at floating rates; and
• Cash on term deposit, which are at floating rates.
The amounts subject to cash flow interest rate risk are in the statement of financial position carrying
amounts of these items.
The Group’s policy is to minimise cash flow interest rate risk exposures on surplus funds by ensuring
64
Financial Report | Notes to the Financial Statements deposits attract the best available rate.
Cash flow interest rate sensitivity
The following table illustrates the sensitivity of the net result for the year and equity to a reasonable possible
change in interest rates of +/-100 basis points, with effect from the beginning of the year. These changes are
considered reasonably possible based on observation of current market conditions.
The calculations are based on the Group’s financial instruments held at each reporting date.
Consolidated 2017
Consolidated 2016
+ 100 basis
points
- 100 basis
points
+ 100 basis
points
- 100 basis
points
Cash and cash equivalents
Net result
6,541
6,541
(6,541)
(6,541)
43,293
43,293
(43,293)
(43,293)
Currency risk
The Group’s policy is, where possible, to allow group entities to settle liabilities denominated in their
functional currency with the cash generated from their own operations in that currency. Where group
entities have liabilities denominated in a 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. In order to monitor the continuing effectiveness of this policy, the Board receives a monthly
forecast, analysed by the geographical region’s cash balances, commitments and receipts, converted to the
Group’s main functional currency, Australian Dollars (AUD).
The Group is exposed to currency risk on cash at bank and on deposit in Canadian Dollars (CAD) to fund its
Canadian operations, Euro (EUR) and Great British Pounds (GBP) to service its European Operations in the UK
and also US Dollars (USD).
Currency risk sensitivity analysis – Other currencies (CAD)
Foreign currency denominated financial assets and liabilities, translated into Australian Dollars at the closing
rate, are as follows:
Consolidated
Nominal amounts
Cash at bank and on term
deposit
2017
CAD
318,013
Consolidated
Nominal amounts
Cash at bank and on term
deposit
2016
CAD
4,138
The following tables below illustrate the sensitivity of the net result for the year and equity in regards to the
Group’s financial assets and financial liabilities compared with the currency on deposit and AUD exchange
rate. It assumes a +/- 5% change in the exchange rate for the year ended at 30 June 2017. This percentage
has been determined based on average market volatility in exchange rates in the previous 12 months. The
sensitivity analysis is based on the Group’s foreign currency financial instruments held at each reporting date.
This assumes that other variables, in particular interest rates, remain constant.
If the Australian dollar had strengthened against
the CAD by 5% then this would have had the
following impact on profit and other equity:
If the Australian dollar had weakened against the
CAD by 5% then this would have had the following
impact on profit and other equity:
Consolidated
2017 $
2016 $
Consolidated
2017 $
2016 $
Profit after tax
(15,194)
(210)
Profit after tax
(16.799)
(233)
Other Equity
-
-
Other Equity
-
-
65
Financial Report | Notes to the Financial Statements Exposures to foreign exchange rates vary during the year depended on the volume of overseas transactions.
Nonetheless, the analysis above is considered to be representative of the Group’s exposure to foreign
currency risk.
Currency risk sensitivity analysis – Other currencies (USD)
Foreign currency denominated financial assets and liabilities, translated into Australian Dollars at the closing
rate, are as follows:
Consolidated
Nominal amounts
2017
USD
Consolidated
Nominal amounts
2016
USD
Cash at bank and on term
deposit
102,544
Cash at bank and on term
deposit
254,199
Foreign exchange risk arises from future commercial transactions and recognised financial assets and
financial liabilities denominated in a currency that is not the entity’s functional currency. The risk is measured
using sensitivity analysis and cash flow forecasting.
If the Australian dollar had strengthened against
the USD by 5% then this would have had the
following impact on profit and other equity:
If the Australian dollar had weakened against the
USD by 5% then this would have had the following
impact on profit and other equity:
Consolidated
2017 $
2016 $
Consolidated
2017 $
2016 $
Profit after tax
(6,271)
(15,999)
Profit after tax
7,145
18,302
Other Equity
-
-
Other Equity
-
-
Currency risk sensitivity analysis – Other currencies (EUR)
Foreign currency denominated financial assets and liabilities, translated into Australian Dollars at the closing
rate, are as follows:
Consolidated
Nominal amounts
Cash at bank and on term
deposit
2017
EUR
15,892
Consolidated
Nominal amounts
Cash at bank and on term
deposit
2016
EUR
-
If the Australian dollar had strengthened against
the EUR by 5% then this would have had the
following impact on profit and other equity:
If the Australian dollar had weakened against the
EUR by 5% then this would have had the following
impact on profit and other equity:
Consolidated
2017 $
2016 $
Consolidated
2017 $
2016 $
Profit after tax
(1,635)
Other Equity
-
-
-
Profit after tax
1,897
Other Equity
-
-
-
66
Financial Report | Notes to the Financial Statements Currency risk sensitivity analysis – Other currencies (GBP)
Foreign currency denominated financial assets and liabilities, translated into Australian Dollars at the closing
rate, are as follows:
Consolidated
Nominal amounts
Cash at bank and on term
deposit
2017
GBP
960
Consolidated
Nominal amounts
Cash at bank and on term
deposit
2016
GBP
-
If the Australian dollar had strengthened against
the GBP by 5% then this would have had the
following impact on profit and other equity:
If the Australian dollar had weakened against the
GBP by 5% then this would have had the following
impact on profit and other equity:
Consolidated
2017 $
2016 $
Consolidated
2017 $
2016 $
Profit after tax
(77)
Other Equity
-
-
-
Profit after tax
Other Equity
86
-
-
-
Price risk
The Group is not exposed to any significant price risk.
Fair value of financial instruments
Unless otherwise stated, the carrying amounts of financial instruments reflect their fair value.
67
Financial Report | Notes to the Financial Statements Note 21. Key management personnel disclosures
Compensation
The aggregate compensation made to directors and other members of key management personnel of the Group
is set out below:
Short-term employee benefits
Post-employment benefits
Long-term benefits
Share-based payments
Consolidated
2017
Consolidated
2016
$
$
1,083,097
980,407
64,882
3,937
53,238
916
294,820
245,749
1,454,930
1,280,310
Note 22. Remuneration of auditors
During the financial year, the following fees were paid or payable for services provided by William Buck, the
auditor of the Group, its network firms and unrelated firms:
Audit services - William Buck
Audit or review of the 30 June financial statements
Review of the 31 December financial statements
Other services - William Buck
Preparation of the tax return and associated tax services
Investigative Accountant’s Report
Note 23. Commitments
Capital commitments - operating
Committed at the reporting date but not recognised as liabilities, payable:
Within one year
One to five years
More than five years
Consolidated
2017
Consolidated
2016
$
$
26,750
13,000
39,750
9,850
-
49,600
24,000
5,000
29,000
3,500
8,000
40,500
Consolidated
2017
Consolidated
2016
$
$
146,791
1,155,783
-
181,889
751,453
-
1,302,574
933,342
Lease commitments within the above figures include contracted amounts for offices in Melbourne, the United
Kingdom and South Australia. On renewal, the terms of the leases are re-negotiated. Commitments includes
services provided by the basis2 vendor for offices and other anciliary services.
This note includes all capital commitments for the group.
68
Financial Report | Notes to the Financial Statements Note 24. Related party transactions
Key management personnel
Disclosures relating to key management personnel are set out in the remuneration report and also within Note 32.
Parent and ultimate controlling party
Novatti Group Ltd was incorporated on June 19 2015. As outlined in Note 1 of the financial statements, for
accounting purposes, Novatti Pty Ltd was identified as the accounting acquirer and Novatti Group Ltd was
identified as the accounting subsidiary. The shares in Novatti Pty Ltd were acquired by the Novatti Group on a scrip
for scrip basis.
Loans from Directors
There are no loans that were entered into or, outstanding with the Directors of Novatti Group Ltd as at 30 June
2017.
In FY 16, Novatti Pty Ltd had the following loans outstanding with the Directors of the Group:
Date entered
into:
Loan
value:
Loan
rate
Loan
expense
$
12 Sep 2015
150,000
14 Sep 2015
200,000
16 Sep 2015
50,000
16 Sep 2015
50,000
%
12
6
6
6
8 Oct 2015
50,000
12
$
989
1,584
379
379
396
500,000
3,727
Details:
Agreed loan rate, not market rate. Interest paid in cash and calculated daily.
Agreed loan rate, not market rate. Interest paid in cash and calculated daily.
Agreed loan rate, not market rate. Interest paid in cash and calculated daily.
Agreed loan rate, not market rate. Interest paid in cash and calculated daily.
Agreed loan rate, not market rate. Interest paid in cash and calculated daily.
• Novatti Pty Ltd entered into $500,000 of convertible loans with Peter Cook, Brandon Munro and Peter
Pawlowitsch. The convertible loans were convertible into ordinary shares in Novatti Group Limited with a
face value conversion at $0.16 per share. On 31 October 2015, the total $500,000 convertible loans on issue
were converted into 3,125,000 ordinary shares.
• $250,000 in non-current liabilities and $132,579 in trade payables within Novatti Pty Ltd to Coomar Pty
Ltd, outstanding as at 30 June 2015, was assigned to Corangamite Pty Ltd in accordance with a Deed of
Assignment of Debt dated 31 October 2015 between the two parties. This debt was subsequently settled
through the issue of 2,391,120 ordinary shares at $0.16 each to Coomar Pty Ltd. Coomar Pty Ltd and
Corangamite Pty Ltd are associated with Peter Cook.
Current and non-current liabilities to a Director
There are no other current or non-current liabilities outstanding to Directors of the Group as at 30 June 2017
Director related services
There are no Director related services that have been provided to the Group outside of the Directors normal
fiduciary duties and responsibilities as Directors of Novatti Group.
Loans to/from related parties
There is a loan provided to High Impact. See Note 12 for additional information.
There were no other loans to or from related parties at the current reporting date.
There were loans from directors in the prior year.
Terms and conditions
All transactions were made on normal commercial terms and conditions and not at market rates.
69
Financial Report | Notes to the Financial Statements Note 25. Parent entity information
Set out below is the supplementary information of the ‘legal’ parent entity, Novatti Group Ltd. Novatti Group Ltd
entered into a Share Purchase Agreement with the equity holders of Novatti Pty Ltd to acquire all the shares in
Novatti Pty Ltd on 28 September 2015.
Parent
2017
$
Parent
201622
$
Loss after income tax
(901,206)
(910,161)
Total comprehensive loss
(901,206)
(910,161)
Statement of financial position
Parent
2016
$
Parent
2015
$
Total current assets
380,581
3,987,990
Total assets
17,494,331
15,322,391
Total current liabilities
248,400
61,480
Total liabilities
Equity
Issued capital
Performance Share Reserve
Reserves
Accumulated losses – Opening 1 July 2017
Option adjustment
Losses incurred for the year ended 30 June 2017
248,400
61,480
17,213,839
600,000
1,128,479
(910,161)
114,980*
(901,206)
14,657,607
800,000
713,465
(910,161)
-
-
(1,696,387)
(910,161)
Total equity
17,245,931
15,260,911
*An adjustment was made in the current financial period for the transfer of Option Expense from the parent to subsidiary
Novatti Pty Ltd
22 Note 25 displays the summary financial statements of the ‘legal’ parent entity, Novatti Group Ltd. Novatti Group Ltd entered into a Share
Purchase Agreement with the equity holders of Novatti Pty Ltd to acquire all the shares in Novatti Pty Ltd on 28 September 2015.
70
Financial Report | Notes to the Financial Statements Contingent liabilities
The parent entity had no contingent liabilities as at 30 June 2017.
Capital commitments - Property, plant and equipment
The legal parent entity had no capital commitments for property, plant and equipment as at 30 June 2017.
Significant accounting policies
The accounting policies of the legal parent entity Novatti Group Ltd are consistent with those of the Group,
as disclosed in Note 1, with exception to the following that are not relevant at the Group level:
• Investments in subsidiaries are accounted for at cost, less any impairment, in the parent entity.
• Dividends received from subsidiaries are recognised as other income by the parent entity.
Note 26. Interests in subsidiaries
The consolidated financial statements incorporate the assets, liabilities and results of the following wholly
owned subsidiaries in accordance with the accounting policy described in Note 1:
Principal place of
business / Country
of incorporation
Ownership interest
2017
Ownership interest
2016
Name
Novatti Group Ltd Subsidiaries
Novatti Pty Limited
Australia
Flexe Payments Limited
United Kingdom
Flexe Payments Pty Ltd
South Africa
Novatti Technologies Limited
United Kingdom
Novatti Inc.
United States of
America
Novatti Pty Ltd Subsidiaries
Flexewallet Pty Limited
TransferBridge Pty Limited
Australia
Australia
100%
100%
100%
100%
100%
100%
100%
100%
100%
-
100%
-
100%
100%
Note 27. Business combination
On the 26 of May 2017, Novatti Group Limited acquired 100% of the business assets in basis2 from
Prophecy International Pty Ltd (ASX:PRO) ('Prophecy') .
The revenues generated from the acquisition are expected to be a significant contributor to Novatti’s
targeted profitability in FY18.
71
Financial Report | Notes to the Financial Statements Details of the purchase consideration, net assets and goodwill are as follows:
Purchase consideration (refer below):
Cash consideration
Consolidated
2017
$
2,321,238
The assets and liabilities recognised as a result of the acquisition are as follows:
Prepaid expenses
Plant and Equipment
Intangible assets: Intellectual Property – basis2 software^
Intangible assets: customer contracts^
Employee Entitlements
Deferred Revenue
Net identifiable assets acquired
Add: Goodwill*
Net assets acquired
Fair Value
2017
$
8,375
7,089
847,000
1,901,000
(169,735)
(517,335)
2,076,394
2,000
2,078,394
* Goodwill is attributable to the acquired business. It will not be deductible for tax purposes.
^ The assets and liabilities provided by the vendor were taken as at 25 May 2017. An independent valuation was conducted to
ascertain the fair value of Intellectual Property and Customer Contracts.
There were no acquisitions in the year ended 30 June 2016.
Summary of acquisition
Conditions subsequent
The seller will use all reasonable endeavours to assign or novate or procure the assignment or novation of the
Contracts to the Group within 60 days of Completion.
If one named material contracts is not able to be assigned or novated to the satisfaction of the Group within 60
days, the Group has the right to rescind the contract created by this document, with the effect that:
• the agreement would be null and void;
• the Seller would immediately reimburse to the Buyer the Purchase Price;
• the Contracts would be re-assigned to the Seller;
• any requirement of the Buyer to have performed the Seller’s obligations under the Contracts shall cease
immediately; and
• the Buyer would have required to indemnify and keep the Seller indemnified from and against, any
liability incurred under, and fully reimburse to the Seller any payment that was received in respect of such
Contracts for the period from Completion to the date such notice has been given.
As the initial 60 days condition subsequent period had passed on 25 July 2017, a 90 day extension has been
agreed to in order to continue to assign or novate the assignment of the contracts from the vendor to the Group.
Adjustment period
The purchase was subject to a 60-day adjustment period, which concluded on the 25 July 2017.
Revenue and profit contribution
The acquired business contributed revenues of approximately $192,197 and net loss of $31,024 to the group for the
period from 26 May 2017 to 30 June 2017.
Contingency – Employee personal leave
Personal leave entitlement days’ accrued whilst in the employ of the vendor, where carried over to Novatti. Where,
in the first two years, an employee draws down personal leave entitlements in excess of their personal leave
72
Financial Report | Notes to the Financial Statements entitlements whilst accrued under Novatti, they will be entitled to draw down against the personal leave
days brought over from the vendor and Novatti will be entitled to charge back that expense to the vendor.
Contingency – New client acquisition
Where Novatti enters into an agreement to License the basis2 product to a specific named potential client
within the first two years of the completion date, May 26 2017, Novatti will pay 10% of the Licence fee to the
Vendor.
If the acquisition had occurred on 1 July 2016 consolidated pro-forma revenue and profit for the year
ended 30 June 2017 would have been $1,695,000 and $1,089,000 respectively. These amounts have been
calculated using the subsidiary’s results and adjusting them for:
• differences in the accounting policies between the group and the subsidiary and
• the additional depreciation and amortization that would have been charged assuming the fair
value adjustments to plant and equipment and intangible assets had applied from 1 July 2016 to 30
June 2017, together with the consequential tax effects.
Purchase consideration
Outflow of cash to acquire the assets of basis2, net of cash acquired
Cash consideration
Less:
2017
$
2,750,000
Deferred Revenue – Annual Maintenance*
428,672
Net outflow of cash
2,321,328
* As part of the contract on settlement, $428,672 of annual maintenance revenue was paid to Novatti Group
in consideration for income received in advance by Prophecy for the period subsequent to the date of
settlement of 25 May 2017.
Acquisition related costs
Acquisition related costs of $33,550 for legal fees were incurred by the Group in connection to the purchase
of basis2 and are included in other expenses in the profit and loss and in operating cash flows in the
statement of cash flows.
Note 28. Interests in Joint Ventures
Interests in Joint Ventures are accounted for using the equity method of accounting. Information relating
to Joint Ventures that are material to the Group are set out below:
Name
High Impact Joint Venture
ATX Malaysia Joint Venture
Principal place of
business
Ownership interest
2017
Ownership interest
2016
Country of
incorporation
South Africa
Malaysia
50%
50%
50%
50%
73
Financial Report | Notes to the Financial Statements Summarised financial information
Summarised statement of financial position
Current assets
Non-current assets
Total assets
Current liabilities
High
Impact
Malaysia
ATX
High
Impact
Malaysia
ATX
2017
2017
$
$
2016
$
2016
$
39,547
73,037
59,400
25,221
-
-
-
-
39,547
73,037
59,400
25,221
11,707
68,674
255,516
10,320
Non-current liabilities
209,242
-
-
-
Total liabilities
Net assets
Expenses
Loss before income tax
Income tax expense
Loss after income tax
220,949
68,674
255,516
10,320
(181,402)
4,363
(196,116)
(12,833)
(9,125)
(23,855)
(35,404)
(9,125)
(23,855)
-
-
-
14,901
(1,912)
(1,912)
-
(35,404)
(9,125)
(23,855)
(1,912)
Other comprehensive income
-
-
-
-
Total comprehensive loss
(35,404)
(9,125)
(23,855)
(1,912)
Reconciliation of the Group’s carrying amount
Opening carrying amount – Equity in Joint Venture
Foreign exchange adjustment on opening balance
Prior year losses incurred on behalf of Joint Venture:
- Expensed as at 30 June 2014
- Expensed as at 30 June 2015
Expenses incurred on behalf of Joint Venture as at 30 June
2016
Losses incurred in excess of Joint Venture Equity interest.
Adjustment entry recognised as at 30 June 2016
Loan balance of Novatti Group recognised by the Joint
Venture as at 30 June 2016
Loan to Joint Venture in excess of Joint Venture Equity
Interest
Share of Losses incurred on behalf of Joint Venture as at 30
June 2017
Write-off of Loan and Investment in High Impact
Foreign Exchange closing balance as at 30 June 2017
Share of Losses after income tax
Closing carrying amount
-
-
-
-
-
-
-
-
-
-
-
74
67,168
16,813
14,901
(1,413)
-
-
-
-
-
-
(8,511)
-
(84,193)
(20,593)
(12,399)
50,017
235,044
-
-
-
(235,044)
(614)
-
(9,125)
(197,426)
(1,912)
4,363
-
14,901
-
-
-
-
-
-
-
-
-
-
Financial Report | Notes to the Financial Statements Per AASB 128, when the share of losses in a joint venture equals or exceeds its investment, the entity stops
recognising its share of further losses and considers whether there are any long-term interests that in
substance forms part of Novatti’s net investment in the joint venture. In this case, there was high uncertainty
by the Board regarding the likelihood of future returns from the Joint Venture and so the High Impact Joint
Venture was written off as at 30 June 2016. Please also refer to Note 5.
In accordance with AASB 128 Novatti Group Limited will periodically review the status of its Joint Venture in
High Impact. Subsequently where the Joint Venture entity reports a profit, Novatti will resume recognising
its share of those profits only after its share of the profits equals the share of losses not recognised.
Contingent liabilities
The Associated entities had no contingent liabilities as at 30 June 2017.
Commitments
The Associated entities had no commitments as at reporting date, not recognised as liabilities payable.
Note 29. Events after the reporting period
In accordance with the terms of agreement signed between Novatti Group Limited and Prophecy
International Pty Ltd, 60 days following the date acquisition of basis2 the net adjustment amount owed to
Novatti Group Limited was paid by Prophecy International Pty Ltd on 26 July 2017.
There are no other matters or circumstances that have arisen since 30 June 2017 that has significantly
affected, or may significantly affect the Group’s operations, the results of those operations, or the Group’s
state of affairs in future financial years.
Note 30. Reconciliation of profit after income
tax to net cash from operating activities
Consolidated
2017
Consolidated
2016
$
Loss after income tax expense for the year
(4,717,729)
(4,967,720)
Adjustments for:
Depreciation and amortisation
Joint Venture – High Impact written off as at 30 June 2016
Non-cash option expense
Deem equity consideration on Reverse Acquisition that is not a Business
Unrealised Foreign Exchange Gain
Loss on disposal of fixed assets
Change in operating assets and liabilities:
Increase in trade and other receivables
Increase/(decrease) in trade and other payables
Increase/(decrease) in deferred income
Increase in employee benefits
54,946
-
410,457
-
14,493
224
(277,849)
(36,614)
382,626
227,927
19,449
197,425
541,684
224,875
(22,791)
-
(298,145)
1,410,547
56,725
97,911
Net cash from operating activities
(3,941,519)
(2,740,040)
75
Financial Report | Notes to the Financial Statements Note 31. Earnings per share
Loss after income tax
Loss after income tax attributable to the owners of
Novatti Group Limited
Consolidated
2017
Consolidated
2016
$
4,717,729
$
4,967,720
4,717,729
4,967,720
No of ordinary
shares
2017
No of ordinary
shares
2016
$
$
Weighted average number of ordinary shares
outstanding during the year:
Number used in calculating Earnings Per Share
93,765,798
54,806,390
Number of potential ordinary shares that are considered
to be antidilutive
34,609,355
73,196,940
Basic and diluted earnings per share
2017
Cents
(5.03)
2016
Cents
(9.06)
Note 32. Share-based payments
Options
A share option plan has been established by the Group and approved by shareholders at a general
meeting, whereby the Group may, at the discretion of the Board, grant options over ordinary shares in the
Group to certain key management personnel and staff of the Group.
The Employee Share Option Plan is designed to provide long-term incentives for Senior Management
(including Directors’) and Staff to deliver long-term shareholder returns. Options are issued for nil
consideration and are granted in accordance with performance guidelines established by the Board.
The following share based payment arrangements were in existence during the current financial year and
are supported by the tables below:
• On the 21 July 2016, 1,000,000 Options were issued to a key senior manager of the Group of which
will vest in three equal portions each year from the first year of vesting over 36 months.
76
Financial Report | Notes to the Financial Statements Grant date
Vesting
date
Expiry
date
Ex
price
Exp’d
volatility
Risk
free
Rate
Exp’d
dividend
yield
Bal at Start
Granted
during year
Ex
during
yr
Forfeited
during yr
Bal at yr
end
12 Nov 15
12 Nov 15
30 Jun 19
$0.20
53.90% 2.32%
0% 13,750,000
12 Nov 15
1 Jul 16
30 Jun 19
$0.20
53.90% 2.32%
12 Nov 15
1 Jul 17
30 Jun 19
$0.20
53.90% 2.32%
12 Nov 15
1 Jul 18
30 Jun 19
$0.20
53.90% 2.32%
0%
0%
0%
1,150,000
1,150,000
1,150,000
8 Jan 16
8 Jan 16
30 Jun 19
$0.20
53.90% 2.32%
0% 2,859,250
3 Feb 16
3 Feb 17
30 Jun 19
$0.20
53.90% 2.32%
0% 1,750,000
3 Feb 16
3 Feb 18
30 Jun 19
$0.20
53.90% 2.32%
0% 1,750,000
3 Feb 16
3 Feb 19
30 Jun 19
$0.20
53.90% 2.32%
0% 1,750,000
8 Feb 16
8 Feb 16
30 Jun 19
$0.20
53.90% 2.32%
0% 4,000,000
31 May 16
31 May 17
30 Jun 19
$0.25
57.74%
2.13%
31 May 16
31 May 18 30 Jun 19
$0.25
57.74%
2.13%
24 Jun 16
24 Jun 17
30 Jun 19
$0.20
57.74%
2.13%
24 Jun 16
24 Jun 18 30 Jun 19
$0.20
57.74%
2.13%
24 Jun 16
24 Jun 19 30 Jun 19
$0.20
57.74%
2.13%
21 Jul 16
21 Jul 17
31 Dec 19
$0.20
57.74%
2.13%
21 Jul 16
21 Jul 18
31 Dec 19
$0.20
57.74%
2.13%
21 Jul 16
21 Jul 19
31 Dec 19
$0.20
2.13%
0%
0%
0%
0%
0%
0%
0%
0%
750,000
750,000
1,212,328
1,212,328
1,212,344
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
13,750,000
1,150,000
1,150,000
1,150,000
2,859,250
- 1,000,00023
750,000
-
-
-
-
-
-
-
-
-
-
-
1,750,00024
1,750,00025
-
-
- 4,000,000
-
-
750,000
750,000
176,66726
1,035,661
176,66727
1,035,661
176,66628
1,035,660
-
-
-
333,333
333,333
333,334
-
-
-
333,333
333,333
333,334
Total
Weighted
Average
Exercise
Price
34,446,250 1,000,000
- 5,030,000-
30,416,250
$0.202
-
- $0.202
23 Paolo Montessori’s options were cancelled upon his resignation as an employee on the 27 January 2017.
24 Ibid.
25 Ibid.
26 Four employees resigned during the period ended 30 June 2017. Of the 635,000 Options that lapsed, 290,000 relates to the former three
employees and the balance of 345,000 are options that lapsed for two former contractors that were employed by the Group. Under the
Terms and Conditions of the Employee Share Option Plan (ESOP), the option entitlement for employees will lapse when the employee
ceases to be employed by the group for a period over three months.
27 Ibid.
28 Ibid.
77
Financial Report | Notes to the Financial Statements Entitlement
The Options will entitle the holder to subscribe for one Share upon the exercise of each Option that has
vested in the holder. If the Options are subject to a vesting period, where the relevant person is no longer
employed or engaged, as the case may be, by the Group on a vesting date, the Options will not vest to that
holder. Options that have previously vested in the holder shall be retained by the holder.
Shares Issued on exercise
Shares issued on exercise of the Options will rank equally with the other issued Shares.
If there is any reconstruction of the issued share capital of the Group, the rights of the Option holder
may be varied to comply with the Listing Rules that apply to the reconstruction at the time of the
reconstruction.
There are no participation rights or entitlements inherent in the Options and the holder will not be
entitled to participate in new issues of capital offered to Shareholders during the currency of the Options.
The fair value of the options is valued at “grant date” using the Black-Scholes model.
Performance shares
The granting of Performance Shares in the 30 June 2016 year was not related to the executive’s short term
or long-term incentives as an executive of the Novatti Group. Participation in being granted Performance
Shares was provided to the original shareholders of Novatti Pty Ltd as part of the acquisition of Novatti Pty
Ltd by Novatti Group Ltd as an incentive for the original shareholders of Novatti Pty Ltd to further grow the
revenue of Novatti Pty Ltd. The granting of the Performance Shares was subject to milestones.
Outcome of milestone events:
For the 2015/2016 financial year, Novatti Pty Ltd achieved invoiced or invoiceable revenue greater than $3.5
million but less than $4.0 million and thereby satisfied the requirements of milestone one.
As announced to the ASX on 16 September 2016, 5,000,000 Performance Shares vested in accordance
with the Terms and Conditions set out within 13.2 of 8 of December 2015 Replacement Prospectus.
Milestones two, three and four were not satisfied and so the Performance Shares have been redeemed by
the Group for a total nominal sum of $1.00.
78
Financial Report | Notes to the Financial Statements Directors’
declaration
In the directors’ opinion:
•
•
•
•
the attached financial statements and notes comply with the Corporations Act 2001,
the Accounting Standards, the Corporations Regulations 2001 and other mandatory
professional reporting requirements;
the attached financial statements and notes comply with International Financial
Reporting Standards as issued by the International Accounting Standards Board as
described in Note 1 to the financial statements;
the attached financial statements and notes give a true and fair view of the Group’s
financial position as at 30 June 2017 and of its performance for the financial year ended
on that date;
there are reasonable grounds to believe that the Group will be able to pay its debts as
and when they become due and payable;
The directors have been given the declarations required by section 295A of the Corporations
Act 2001.
Signed in accordance with a resolution of directors made pursuant to section 295(5)(a) of the
Corporations Act 2001.
On behalf of the directors
Peter Pawlowitsch
Chairman
31 August 2017
Melbourne
Directors’declaration
79
Independent
auditor’s report
Novatti Group Limited
Independent auditor’s report to members
Report on the Audit of the Financial Report
Opinion
We have audited the financial report of Novatti Group Limited (the Company and its
subsidiaries (the Group)), which comprises the consolidated statement of financial position
as at 30 June 2017, the consolidated statement of comprehensive income, the
consolidated statement of changes in equity and the consolidated statement of cash flows
for the year then ended, and notes to the financial statements, including a summary of
significant accounting policies and other explanatory information, and the directors’
declaration.
In our opinion, the accompanying financial report of the Group, is in accordance with the
Corporations Act 2001, including:
(i) giving a true and fair view of the Group’s financial position as at 30 June 2017 and of its
financial performance for the then year ended; and
(ii) complying with Australian Accounting Standards and the Corporations Regulations
2001.
Basis for Opinion
We conducted our audit in accordance with Australian Auditing Standards. Our
responsibilities under those standards are further described in the Auditor’s
Responsibilities for the Audit of the Financial Report section of our report. We are
independent of the Group in accordance with the 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.
We confirm that the independence declaration required by the Corporations Act 2001,
which has been given to the directors of the Company, would be in the same terms if given
to the directors as at the time of this auditor’s report.
80
Independent Auditor`s Report
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our
audit of the financial report of the current period. These matters were addressed in the context of our audit
of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate
opinion on these matters.
SHARE BASED PAYMENTS
Area of focus
Refer also to notes 1 , 2 and 32
The Group has entered into the following
share-based payment arrangements during the
year:
- The issue of performance rights to the
Managing Director at a nominal
consideration; and
- The issue of options that included
performance and service conditions to
key management personnel and
senior employees
Each of these arrangements required
significant judgments and estimations by
management, including the following:
- The evaluation of the grant date of each
arrangement, and the evaluation of the fair
value of the underlying share price of the
company as at that grant date;
- The evaluation of the vesting charge taken
to the profit or loss in-respect of the
accrual of service and performance
conditions attached to those share-based
payment arrangements; and
- The evaluation of key inputs into the Black-
Scholes option pricing model, including the
significant judgment of the forecast
volatility of the share option over its
exercise period.
The results of these share-based payment
arrangements materially affect the disclosures
How our audit addressed it
-
Our audit procedures included:
- Evaluating the fair values of share-based payment
arrangements by agreeing assumptions to third
party evidence. In determining the grant dates, we
evaluated what were the most appropriate dates
based on the terms and conditions of the share-
based payment arrangements.
In evaluating the progress of the vesting of share-
based payments with performance milestones, we
evaluated the directors’ assessment of the likely
success or failure of achieving those milestones. In
assessing the vesting of service conditions, we
considered that the expensing of each share-
based payment tranche granted to the
arrangement’s beneficiaries, evenly over the term
of the tranche to be the most appropriate.
- For the specific application of the Black-Scholes
model, we assessed the experience of the external
expert used to advise the value of the
arrangement. We retested some of the
assumptions used in the model and recalculated
those fair values using the skill and know-how of
our Corporate Advisory team. We considered that
the forecast volatility applied in the model to be
appropriately reasonable and within industry
norms.
- We also reconciled the vesting of these share-
based payment arrangements to disclosures made
in both the key management personnel
compensation note and the disclosures in the
Remuneration Report.
81
BUSINESS COMBINATIONS
Area of focus
Refer also to notes 1 and 27
The Group acquired basis2 for $2,750,000, on
26 May 2017. In addition, the Group entered
into a Transition Services and License
Agreement with the Vendor in which the
Vendor is to provide accommodation and
administration services and technical services.
This transaction is considered a significant
purchase for the Group.
A critical condition of the acquisition
agreement is the transfer of the most
significant client of basis2. This condition has
not yet been satisfied.
Accounting for this transaction is complex and
required significant judgements and estimates
by management:
— to determine the date of acquisition;
— to determine the fair value of assets and
liabilities acquired;
— to determine the fair value of deferred
consideration;
— to allocate the purchase consideration to
goodwill and separately identifiable
intangible assets; and
— to determine the Transition Services
Agreement is accounted for appropriately.
How our audit addressed it
Our audit procedures included:
— Review of the Business Sale Agreement and the
Transition Services and License Agreement to
understand the key terms and conditions of the
acquisition;
— Assessment of the intangible assets identified by
management for their separability and basis to
allow recognition and assessed whether the
measurement basis and assumptions underlying
the estimate of fair values were appropriate;
— Testing the Group’s determination of fair values
with reference to work performed by external
valuation expert and our Corporate Advisory
division;
— Testing the appropriateness of the deferred
consideration;
— Reviewing whether the conditions precedent have
been satisfied: and
— Understanding Novatti’s rights to rescind the
contract in the event that the conditions precedent
have not been satisfied.
We also assessed the adequacy of the Group’s
disclosures in respect of the acquisition and related
Transition Services Agreement.
Other Information
The directors are responsible for the other information. The other information comprises the information
included in the Group’s annual report for the year ended 30 June 2017, but does not include the financial
report and the auditor’s report thereon.
Our opinion on the financial report does not cover the other information and accordingly we do not express
any form of assurance conclusion thereon.
82
In connection with our audit of the financial report, our responsibility is to read the other information and, in
doing so, consider whether the other information is materially inconsistent with the financial 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 Director’s 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 this financial report.
As part of an audit in accordance with the Australian Auditing Standards, we exercise professional
judgement and maintain professional scepticism throughout the audit. We also:
— Identify and assess the risks of material misstatement of the financial report, whether due to fraud or
error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is
sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material
misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve
collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
— Obtain an understanding of internal control relevant to the audit in order to design audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Group’s internal control.
— Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by the directors.
83
— Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we
conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to
the related disclosures in the financial report or, if such disclosures are inadequate, to modify our
opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s
report. However, future events or conditions may cause the Group to cease to continue as a going
concern.
— Evaluate the overall presentation, structure and content of the financial report, including the
disclosures, and whether the financial report represents the underlying transactions and events in a
manner that achieves fair presentation.
— Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the Group to express an opinion on the financial report. We are responsible
for the direction, supervision and performance of the Group audit. We remain solely responsible for our
audit opinion.
We communicate with the directors regarding, among other matters, the planned scope and timing of the
audit and significant audit findings, including any significant deficiencies in internal control that we identify
during our audit.
We also provide the directors with a statement that we have complied with relevant ethical requirements
regarding independence, and to communicate with them all relationships and other matters that may
reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with the directors, we determine those matters that were of most
significance in the audit of the financial report of the current period and are therefore the key audit
matters. We describe these matters in our auditor’s report unless law or regulation precludes public
disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should
not be communicated in our report because the adverse consequences of doing so would reasonably be
expected to outweigh the public interest benefits of such communication.
Report on the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included in of the directors’ report for the year ended 30 June
2017.
In our opinion, the Remuneration Report of Novatti Group Limited, for the year ended 30 June 2017,
complies with section 300A of the Corporations Act 2001.
84
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.
William Buck Audit (Vic) Pty Ltd
ABN: 59 116 151 136
J. C. Luckins
Director
Melbourne, 31 August 2017
85
Additional disclosures
Distribution of equitable securities
Analysis of number of equitable security holders by size of holding:
1 to 1,000
1,001 to 5,000
5,001 to 10,000
10,001 to 100,000
100,001 and over
No of holders of
ordinary shares
No of ordinary
shares
6
73
119
325
64
935
270,763
1,032,117
12,766,242
96,443,652
587
110,513,709
Holding less than a marketable parcel
6
935
Change in operating assets and liabilities:
86
Financial Report | Notes to the Financial Statements
Equity security holders
Twenty largest quoted equity security holders
The names of the twenty largest security holders of quoted equity securities are listed below:
Number held 18
Aug 2017
Percent of total
shares issued
BRAYTER LIMITED
CORANGAMITE PTY LTD
CHI WAI KENNETH LAI
MR KENNETH LAI
HALF FULL PTY LTD
BNP PARIBAS NOMINEES PTY LTD
PACIFIC NOMINEES LIMITED
SQUITCHY LANE HOLDINGS PTY LTD
MOSCH PTY LTD
GOLDFIRE ENTERPRISES PTY LTD
JASPER SUPERANNUATION PTY LTD
SEQUOI NOMINEES PTY LTD
ACQUISITIVE PTY LTD
HAVEN SUPER PTY LTD
NAMIB NOMINEES PTY LTD
SEAFIELD SUPERANNUATION PTY LTD
MR TREVOR PRESSOR & MS HELEN PRESSOR
VIENNA HOLDINGS PTY LTD
HIMSTEDT & CO PTY LTD
MR GEORGE ANTHONY VENUTI & MRS CAROLYN ANNE VENUTI
P & D WILLIAMSON SUPER PTY LTD
BEZIQUE PTY LIMITED
COLDFIRE ENTERPRISES PTY LTD
VAULT (WA) PTY LTD
Unquoted equity securities
46,631,506
11,107,904
10,335,000
2,583,750
1,961,876
1,959,152
1,852,500
1,440,090
1,171,875
937,500
875,000
781,250
781,250
781,250
781,250
750,000
714,285
541,250
500,000
495,000
460,881
400,000
390,625
390,625
42.20
10.05
9.35
2.34
1.78
1.77
1.64
1.30
1.06
0.85
0.79
0.71
0.71
0.71
0.71
0.68
0.65
0.49
0.45
0.45
0.42
0.36
0.35
0.35
88,583,820
80.16
No on issue
No of holders
Options over ordinary shares issued
30,416,250
58
There are no holders of unquoted equity securities holding 20% or greater of the number of unquoted
equity securities on issue.
Additional Disclosures
87
Substantial holders
Substantial holders in the Group are set out below:
BRAYTER LIMITED
CHI WAI KENNETH LAI
CORANGAMITE PTY LTD
Securities subject to escrow
Number held 18
Aug 2017
Percent of total
shares issued
46,631,506
12,918,750
11,107,904
42.20
11.69
10.05
No of ordinary shares
Ordinary Shares escrowed 24 months from quotation
Unlisted options exercisable at 20 cents expiring 30/6/2019 escrowed 24
from quotation
Unlisted options exercisable at 20 cents expiring 30/6/2019 escrowed 24
months from quotation
20,774,705
2,859,250
7,000,000
Voting rights
The voting rights attached to ordinary shares are set out below:
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.
There are no other classes of equity securities.
Use of funds
Since admission, the Group has used its cash in a way consistent with business objectives.
88
Additional Disclosures